The Manitowoc Company, Inc. — FY 2013 Form 10-K
Reporting period: Year ended December 31, 2013, with fourth-quarter results included. Manitowoc manufactures cranes and related products (62% of sales) and commercial foodservice equipment (38%). Financial amounts below are in U.S. dollars; millions unless stated otherwise. Disposed businesses, including Manitowoc Dong Yue, are presented as discontinued operations.
Financial performance
| Metric | FY 2013 | FY 2012 | Change |
|---|---|---|---|
| Net sales | $4,048.1 | $3,913.3 | +3.4% |
| Gross profit / margin | $1,021.8 / 25.2% | $943.0 / 24.1% | Margin +1.1 pts |
| Operating earnings from continuing operations | $364.4 | $296.9 | +22.7% |
| Continuing earnings attributable to Manitowoc shareholders | $154.8 | $109.7 | +41.1% |
| Net earnings attributable to Manitowoc shareholders | $141.8 | $101.7 | +39.5% |
| Diluted EPS attributable to common shareholders | $1.05 | $0.76 | — |
| Cash provided by operating activities | $323.1 | $162.4 | +$160.7 |
| Capital expenditures | $110.7 | $72.9 | +$37.8 |
| Total debt | $1,526.8 | $1,801.0 | -$274.2 |
Cash and cash equivalents were $54.9 million at year-end, down from $73.2 million. Reported total liquidity was $524.3 million, comprising cash and available revolver capacity net of letters of credit. The company paid $0.08 per share in dividends.
Segments
- Crane: Sales of $2,506.3 million, up 3.3%; operating earnings of $218.8 million, up from $170.5 million; operating margin improved to 8.7% from 7.0%. Year-end backlog fell to $574.2 million from $755.8 million.
- Foodservice: Sales of $1,541.8 million, up 3.7%; operating earnings of $250.3 million, up from $238.6 million; operating margin was 16.2% versus 16.1%.
Fourth-quarter results
Fourth-quarter sales were $1,104.3 million versus $1,128.1 million a year earlier, down about 2.1%. Gross profit increased to $261.6 million from $249.0 million, and continuing pretax earnings rose to $60.7 million from $34.1 million. Net earnings attributable to Manitowoc were $20.9 million versus $34.5 million; fourth-quarter diluted EPS was $0.15 versus $0.26.
Material developments and outlook
- Management attributed annual sales growth to higher Crane demand in the Americas and some emerging markets, aftermarket growth, and Foodservice volume from product launches. Pricing and cost-reduction initiatives supported improved gross margin and segment earnings.
- Operating cash flow improved substantially, mainly due to earnings and working-capital improvements, including collections of accounts receivable. The company used $300.9 million for debt and revolver repayments during 2013.
- In 2014, management expected modest revenue growth in both segments, Foodservice revenue growth in the mid-single digits with margin improvement, and Crane operating margins in the high-single digits. Other expectations: capital expenditures about $90 million, depreciation and amortization about $120 million, interest expense about $100 million, and an effective tax rate in the mid-to-high 20% range. These are forward-looking estimates, not guarantees.
- In January 2014, the company refinanced its credit facility with a new $1.05 billion facility. It subsequently redeemed the 2018 Senior Notes on February 18, 2014 for $419.0 million, including a redemption premium.
- The company agreed to sell its 50% interest in the Manitowoc Dong Yue China joint venture for a nominal amount; the sale closed January 21, 2014. Manitowoc forgave $71.3 million of loans and accrued interest, producing $35.6 million of income attributable to the noncontrolling interest and reducing earnings attributable to Manitowoc shareholders. It also agreed to pay $7.2 million toward third-party debt; approximately $17.3 million remained under a loan guaranteed by Manitowoc.
- Jackson warewashing was sold in January 2013 for approximately $38.5 million; net proceeds were applied to term debt. The reported $2.7 million loss on discontinued-operation sales primarily reflected tax expense.
Risks, contingencies, and controls
- Key risks include cyclical construction and crane demand, customer access to financing, competition, commodity and supply costs, foreign currency and international exposure, product liability and warranty claims, labor relations, and successful delivery of the Crane ERP implementation.
- Debt remains significant and restrictive covenants apply. At year-end, Manitowoc reported a senior secured leverage ratio of 0.79:1 and interest coverage of 3.79:1, and stated it was in compliance with covenants. Debt agreements can restrict borrowing, acquisitions, dividends, and other actions.
- An IRS dispute concerning a $380.9 million foreign-currency loss could result in approximately $134 million of additional federal tax, plus interest and penalties, if the IRS prevailed. The issue was tentatively resolved in Manitowoc’s favor, subject to Joint Committee on Taxation review; it was not treated as resolved in the reported results.
- Outstanding customer residual-value guarantees and buyback commitments totaled $66.8 million; guaranteed notes receivable had an outstanding balance of $34.3 million. Product-liability reserves were $25.0 million and warranty reserves were $99.0 million. Management did not expect environmental matters or pending litigation to have a material adverse effect, while noting estimates may change.
- The auditor issued an unqualified opinion and stated internal control over financial reporting was effective as of year-end. Management also concluded disclosure controls were effective.
Important facts for investors to verify
- Whether 2014 guidance was achieved, particularly the recovery in Crane orders and margins given the sharp decline in year-end backlog.
- Actual post-refinancing debt, interest expense, covenant headroom, and the cash impact of the 2018 Notes redemption.
- Final resolution of the IRS foreign-currency-loss dispute and any resulting tax, interest, or penalty exposure.
- Manitowoc’s continuing guarantee and collection risk on the Dong Yue third-party loan, and the final financial effects of the divestiture.
- Whether the stronger operating cash flow is sustained and whether higher capital spending, inventory, warranty costs, and customer financing commitments affect future liquidity.