MTW

Business Context and Reporting Period

Company: The Manitowoc Company, Inc. (MTW)
Reporting Period: Fiscal Year Ended December 31, 2009
Business Overview: A multi-industry capital goods manufacturer operating in two principal segments: Cranes and Related Products (lattice-boom, tower, and mobile cranes) and Foodservice Equipment (cooking, refrigeration, and beverage equipment). The company completed the acquisition of Enodis plc in late 2008, significantly expanding its Foodservice capabilities. During 2009, the company divested its Marine segment (sold in late 2008) and the Enodis global ice machine operations (sold May 2009), classifying these as discontinued operations.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Decline: Consolidated net sales decreased 16.0% to $3.8 billion. The Crane segment sales dropped 41.2% due to the global economic downturn and credit crisis. The Foodservice segment sales increased 141.5% primarily due to the full-year inclusion of Enodis, though organic sales declined.
• Significant Impairments: The company recorded a non-cash goodwill impairment of $548.8 million and an intangible asset impairment of $151.2 million, both within the Foodservice segment, driven by depressed market conditions and stock price declines.
• Restructuring: Restructuring expenses totaled $39.6 million (up from $21.7 million in 2008) to align cost structures with lower demand, particularly in the Crane segment.
• Debt Reduction: Total debt decreased by approximately $483 million to $2.17 billion, aided by proceeds from the sale of the Enodis ice business and the Marine segment.
• Discontinued Operations: The company reported a loss of $35.9 million from discontinued operations (Enodis ice and Marine segments) and a loss of $24.2 million on the sale of these operations.

Guidance, Outlook, and Risks

• 2010 Outlook: Management expects Foodservice revenues to improve modestly with solid margin improvement. Crane revenues are expected to decline year-over-year, but at a significantly lower percentage than in 2009. Crane revenue is expected to be lower in the first half of 2010 compared to 2009, with gains expected in the second half.
• Financial Targets: Capital expenditures are expected to be approximately $50 million. The company targets debt reduction of at least $200 million in 2010.
• Key Risks:
  • Cyclicality: Crane demand is highly sensitive to global economic conditions and construction activity.
  • Leverage: High debt levels (Consolidated Total Leverage Ratio of 5.85:1) increase vulnerability to economic downturns and limit financial flexibility.
  • Integration: Risks associated with the successful integration of the Enodis acquisition and realization of synergies.
  • Commodity Prices: Exposure to fluctuating prices of steel, aluminum, and copper.
• Subsequent Events: In February 2010, the company issued $400 million of 9.50% Senior Notes due 2018 to partially pay down term loans. In January 2010, the company amended its credit agreement to adjust financial covenants.

Investor Verification Checklist

• Debt Covenants: Verify compliance with the amended Consolidated Total Leverage Ratio and Interest Coverage Ratio covenants under the New Credit Agreement.
• Impairment Assumptions: Review the fair value assumptions used for the $700 million impairment charge to assess the risk of future write-downs if market conditions do not improve.
• Working Capital Trends: Monitor the sustainability of the significant reductions in inventory and accounts receivable that drove 2009 operating cash flow.
• Discontinued Operations: Confirm the final settlement of working capital and tax adjustments related to the Enodis ice and Marine segment sales.
• ERP Implementation: Track the progress and cost of the global ERP system implementation in the Crane segment, which was delayed due to economic conditions.