The Manitowoc Company, Inc. — FY2015 Form 10-K
Business context and reporting period. This annual filing covers the year ended December 31, 2015; figures are full-year, not Q4-only. Manitowoc reported two segments: Cranes and Related Products and Foodservice Equipment. The company expected to spin off Foodservice on March 4, 2016, after which Manitowoc would focus on Cranes. The 2015 results include both segments; the filing presents the planned separation as a subsequent event.
Financial performance
| Metric | FY2015 | FY2014 |
|---|---|---|
| Net sales | $3,435.8 million | $3,886.5 million |
| Gross profit / margin | $833.2 million / 24.3% | $980.5 million / 25.2% |
| Operating earnings | $132.5 million | $298.8 million |
| Net earnings attributable to Manitowoc | $63.5 million | $144.5 million |
| Diluted EPS | $0.46 | $1.05 |
| Cash from operations | $98.0 million | $98.3 million |
| Capital expenditures | $68.1 million | $84.8 million |
| Total debt | $1,413.6 million | $1,523.5 million |
At year-end, cash and cash equivalents were $63.4 million; reported total liquidity was $556.3 million, including $500 million of undrawn revolver capacity less $7.1 million of letters of credit. Current assets were $1,013.6 million and current liabilities were $883.6 million. Manitowoc reported covenant compliance, with a senior secured leverage ratio of 1.90:1 against a 3.25:1 maximum and interest coverage of 3.71:1 against a 2.75:1 minimum. Adjusted EBITDA for covenant purposes was $347.3 million.
Material changes versus FY2014
- Sales fell 11.6%, principally reflecting a 19.1% decline in Crane sales; Foodservice sales declined 0.7%. Currency movements reduced consolidated sales by approximately $203 million.
- Crane operating earnings fell to $64.3 million from $163.9 million, and its operating margin contracted to 3.4% from 7.1%, amid lower volumes and unfavorable manufacturing absorption.
- Foodservice operating earnings improved to $239.7 million from $234.0 million; margin rose to 15.3% from 14.8%, mainly from cost reductions and lower selling, general and administrative expense.
- Consolidated operating earnings declined despite lower selling, general and administrative expense. Cash from operations was nearly unchanged, while debt decreased by $109.9 million.
- Crane backlog declined to $513 million from $738 million, attributed partly to weaker demand for mobile hydraulic products, lower oil prices and shipments of crawler cranes previously in backlog.
Unusual items, outlook and risks
- FY2015 operating results included $39.4 million of separation costs, $14.0 million of restructuring costs and $24.4 million of asset impairment charges. Impairments included Crane facilities in Brazil and Slovakia and a Foodservice facility in Cleveland.
- Other income included gains on the Kysor Panel Systems (KPS) sale, investment property sale and Thailand joint-venture acquisition. KPS sold for approximately $85 million, with about $78 million cash proceeds used to reduce revolving debt; its 2015 results remained in continuing operations.
- The income tax benefit was $6.7 million, including a $17.8 million favorable tax effect associated with the KPS divestiture. The effective tax rate was negative 11.8%.
- For 2016, Crane guidance was approximately flat revenue and approximately 4% operating margin, assuming no improvement in the global economy but modest demand stabilization. Foodservice guidance was organic revenue growth of 2%–4% and an organic operating margin of 16%–17%; both measures exclude KPS. Each business was expected to bear approximately $30 million in annualized corporate costs and separation-related dis-synergies.
- Management cited continued Crane-market weakness, low oil prices, a strong U.S. dollar and uncertain regional demand. It expected mid-single-digit growth in Crane Care services. Principal risks include cyclical end markets, leverage and debt covenants, separation execution and tax treatment, foreign exchange, commodity costs, customer financing, and implementation of the Crane ERP system.
- Following the planned separation, the filing described contingent financing arrangements, including $260 million of 12.75% Crane notes and proposed asset-based borrowing, and Foodservice financing that included $425 million of 9.5% notes and a proposed $975 million term loan and $225 million revolving facility. The financing and spin-off were subject to escrow release conditions; these terms should not be read as confirmation that the transactions had closed.
Key facts for investors to verify
- Whether the spin-off closed as planned, qualified for tax-free treatment and delivered the expected allocation of assets, liabilities and cash.
- Final post-separation debt balances, interest costs, covenant headroom and available liquidity for each company.
- Whether Crane demand, backlog and operating margins stabilized, particularly in mobile hydraulics and oil-related markets.
- Whether Foodservice achieved its organic growth and margin targets after excluding KPS and absorbing standalone costs.
- Cash conversion and working-capital trends, including the role of the receivables securitization program and debt reduction.
- Developments in restructuring, impairment, product-liability and warranty exposures, and the $52 million of outstanding buyback and residual-value commitments.
The independent auditor issued an unqualified opinion on the consolidated financial statements and reported effective internal control over financial reporting as of December 31, 2015.