The Manitowoc Company, Inc. — 2012 Form 10-K
Reporting period: Fiscal year ended December 31, 2012. This is an annual filing; fourth-quarter figures are included where available. Manitowoc manufactures cranes and related products (62% of 2012 sales) and commercial foodservice equipment (38%).
Financial performance
| Metric | 2012 | 2011 |
|---|---|---|
| Net sales | $3,927.0 million | $3,619.2 million |
| Gross profit / margin | $934.4 million / 23.8% | $826.7 million / 22.8% |
| Operating earnings | $281.8 million | $218.4 million |
| Earnings from continuing operations | $92.3 million | $20.3 million |
| Net earnings (loss) attributable to Manitowoc | $101.7 million | $(11.2) million |
| Diluted earnings per share | $0.76 | $(0.08) |
| Cash from operating activities | $162.3 million | $15.6 million |
| Capital expenditures | $72.9 million | $64.8 million |
| Total debt | $1,824.8 million | $1,890.0 million |
- Sales rose 8.5%; Crane sales increased 12.8% to $2,440.8 million, and Foodservice sales increased 2.2% to $1,486.2 million.
- Crane operating earnings were $156.0 million, with a 6.4% margin, versus $108.2 million and 5.0% in 2011. Foodservice operating earnings were $238.6 million, with a 16.1% margin, versus $214.4 million and 14.7%.
- Higher volume, pricing and cost-reduction efforts improved gross margin. Foreign exchange reduced 2012 sales by approximately $73.5 million.
- Operating cash flow improved substantially year over year, reflecting earnings and better working-capital management. Cash and cash equivalents were $73.4 million at year-end, with $2.7 million of marketable securities. The company reported total liquidity of $503.5 million, including undrawn revolver capacity net of borrowings and letters of credit.
- Current assets were $1,328.0 million and current liabilities were $1,145.9 million. Long-term debt was $1,732.0 million; the balance-sheet current portion and short-term borrowings were $92.8 million.
Material changes and notable items
- In the fourth quarter, the company classified its Jackson warewashing business as discontinued operations. It sold Jackson on January 28, 2013 for approximately $38.5 million; proceeds were used to reduce Term Loan A and B balances.
- In October 2012, Manitowoc issued $300 million of 5.875% senior notes due 2022. Proceeds helped redeem $150 million of notes due 2013 and repay Term Loan B and revolver borrowings.
- Crane year-end backlog was $755.8 million, slightly below $760.5 million a year earlier. Foodservice backlog was not significant because orders are generally filled promptly.
- The filing revises prior-period financial statements for identified deferred-tax, goodwill, pension-related classification and inventory errors. Management said the errors were not material individually or in aggregate; investors should use the revised comparative figures.
- Fourth-quarter 2012 sales were $1,130.4 million, gross profit was $246.0 million, and earnings from continuing operations were $29.7 million. Manitowoc-attributable earnings for the quarter were $34.5 million.
Outlook, risks and contingencies
- For 2013, management expected Foodservice revenue growth in the mid-single digits with operating margins broadly consistent with 2012; Crane revenue growth in the high single digits and operating margins in the high single digits.
- Other 2013 expectations included approximately $100 million of capital expenditures, approximately $115 million of depreciation and amortization, debt reduction exceeding $200 million, a $10–$15 million reduction in interest expense, and a full-year effective tax rate in the mid-30% range. Management cautioned that slow growth and unsettled end markets made forecasting challenging.
- Debt covenants were met at year-end. The senior secured leverage ratio was 1.61:1 against a 3.50:1 maximum, and interest coverage was 3.03:1 against a 2.00:1 minimum. Total debt and interest costs remain significant constraints; covenant levels tighten in future periods.
- The IRS proposed disallowing a $380.9 million foreign-currency loss deduction for 2008. If the IRS prevails, the company estimated potential federal tax expense and cash outflow of approximately $134 million, plus possible interest and penalties. Manitowoc disputed the proposed adjustment and intended to pursue available remedies.
- Other exposures include $80.5 million of outstanding crane buyback and residual-value commitments, product warranty and liability claims, environmental matters, underfunded pension obligations, foreign-exchange and commodity volatility, and the ongoing Crane ERP implementation. Management did not expect environmental or legal matters described in the filing to have a material adverse effect, based on information then available.
- Principal business risks include cyclical construction and foodservice demand, competition, raw-material costs and supply interruptions, international and currency risks, customer financing availability, product liability and warranty claims, and the company’s substantial leverage.
Important facts for investors to verify
- Progress toward the 2013 revenue, margin, debt-reduction and interest-expense targets, and whether tighter debt covenants remain comfortably satisfied.
- Developments and potential cash consequences of the IRS dispute, including interest and penalties.
- Whether Crane backlog converts to sales and whether pricing and cost controls sustain the reported margin improvement.
- Actual cash generation after working-capital needs, capital spending, pension contributions and debt service; reconcile reported liquidity with cash and marketable securities.
- Results of the Jackson divestiture and use of proceeds, and any further effects of the prior-period financial-statement revisions.
- The independent auditor gave an unqualified opinion and reported effective internal control over financial reporting as of December 31, 2012.