Manitowoc(US:MTW)2019-02-13 21:04markdown [PART I](index=5&type=section&id=PART%20I) [Business](index=5&type=section&id=Item%201.%20Business) Manitowoc is a leading global provider of engineered lifting solutions, with 2018 net sales of approximately **$1.8 billion**, offering a comprehensive line of cranes and aftermarket services - The company operates as a leading provider of engineered lifting solutions, with 2018 net sales of approximately **$1.8 billion**[14](index=14&type=chunk) - Key product brands include Manitowoc, Grove, Potain, and National Crane, serving a wide variety of customers and end markets globally[14](index=14&type=chunk)[18](index=18&type=chunk) Order and Backlog Information (2016-2018) | Metric | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | | **Orders (in millions)** | $1,910.7M | $1,864.2M | N/A | | **Year-End Backlog (in millions)** | $670.6M | $606.6M | $323.8M | - Orders increased by **3%** in 2018 compared to 2017, driven by demand in the Americas and aftermarket services, despite slowing demand in the EURAF and MEAP regions[33](index=33&type=chunk) - The company operates **ten manufacturing facilities** and utilizes a business system called "The Manitowoc Way" to enhance manufacturing efficiency, quality, and customer satisfaction[35](index=35&type=chunk)[36](index=36&type=chunk) - As of December 31, 2018, the company employed approximately **5,000 people**, with a majority of European employees belonging to trade unions[43](index=43&type=chunk) [Risk Factors](index=9&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks from cyclical markets, raw material costs, impairment, foreign currency, and substantial international operations (**57% of 2018 sales**) - Sales are historically cyclical and sensitive to changes in general economic conditions, construction activity, and government spending[47](index=47&type=chunk)[48](index=48&type=chunk) - The company is exposed to significant increases in the cost of raw materials, particularly steel, which could adversely affect profit margins if not passed on to customers[51](index=51&type=chunk) - Goodwill and other intangible assets represented about **23%** of total assets at year-end 2018. A non-cash goodwill impairment charge of **$82.2 million** was recorded in the EURAF reporting unit in 2018[53](index=53&type=chunk) - Approximately **57%** of net sales in 2018 were from outside the United States, exposing the company to risks including currency fluctuations, political instability, and changes in trade policies and tariffs[64](index=64&type=chunk) - As of December 31, 2018, total consolidated debt was **$273.1 million**. This leverage may impair operations and financial condition, and debt agreements contain restrictive covenants[90](index=90&type=chunk)[92](index=92&type=chunk) - The company faces risks from activist shareholders, whose actions could be costly, disrupt operations, and divert management's attention[104](index=104&type=chunk) [Unresolved Staff Comments](index=18&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments from the Securities and Exchange Commission - None[107](index=107&type=chunk) [Properties](index=18&type=section&id=Item%202.%20Properties) Manitowoc maintains a global footprint of owned and leased facilities for manufacturing, warehousing, testing, and office purposes, with its corporate office in Milwaukee, Wisconsin Principal Facilities (exceeding 50,000 sq. ft.) as of Dec 31, 2018 | Region | Location | Type | Ownership | | :--- | :--- | :--- | :--- | | **Americas** | Shady Grove, PA | Manufacturing/Office | Owned | | | Manitowoc, WI** | Manufacturing | Owned | | **EURAF** | Wilhelmshaven, Germany | Manufacturing/Office | Owned/Leased | | | Moulins, France | Manufacturing/Office | Owned | | | Charlieu, France | Manufacturing/Office | Owned | | **MEAP** | Zhangjiagang, China | Manufacturing | Owned | **This facility is inactive as of December 31, 2018[110](index=110&type=chunk)[111](index=111&type=chunk) [Legal Proceedings](index=18&type=section&id=Item%203.%20Legal%20Proceedings) The company is subject to various legal proceedings incidental to its business in the ordinary course, with further details in Note 18 of the Consolidated Financial Statements - The company is subject to litigation incidental to its business, which is not expected to be material. For more details, see Note 18, "Commitments and Contingencies"[112](index=112&type=chunk) [Mine Safety Disclosure](index=18&type=section&id=Item%204.%20Mine%20Safety%20Disclosure) This section is not applicable to the company - Not Applicable[113](index=113&type=chunk) [Executive Officers of the Registrant](index=19&type=section&id=Executive%20Officers%20of%20the%20Registrant) This section lists the executive officers of The Manitowoc Company, Inc. as of February 13, 2019, including their age, position, and professional experience Executive Officers as of February 13, 2019 | Name | Age | Position | | :--- | :--- | :--- | | Barry L. Pennypacker | 58 | President and Chief Executive Officer | | David J. Antoniuk | 61 | Senior Vice President and Chief Financial Officer | | Aaron H. Ravenscroft | 40 | Executive Vice President of Cranes | | Thomas L. Doerr, Jr. | 43 | Senior Vice President, General Counsel and Secretary |[115](index=115&type=chunk) [PART II](index=21&type=section&id=PART%20II) [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=21&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity,%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades on the NYSE under MTW, with no cash dividends paid in 2018 or 2017, and experienced a **62.46% decline in 2018** - The company's common stock is traded on the NYSE under the symbol MTW[123](index=123&type=chunk) - No cash dividends were declared or paid in 2018 and 2017. The company's ability to make such payments is limited by its ABL Revolving Credit Facility and the indenture for its 2021 Notes[124](index=124&type=chunk)[125](index=125&type=chunk) Annual Total Shareholder Return Percentages | Year | The Manitowoc Company, Inc. | S&P 500 Index | S&P 600 Industrial Machinery | | :--- | :--- | :--- | :--- | | **2018** | (62.46)% | (4.38)% | (16.96)% | | **2017** | 64.46% | 21.83% | 22.17% |[129](index=129&type=chunk) [Selected Financial Data](index=23&type=section&id=Item%206.%20Selected%20Financial%20Data) This section provides a five-year summary of selected historical financial data from 2014 to 2018, reflecting fluctuating net sales and a significant operating loss in 2018 Selected Financial Data (2016-2018, in millions) | Metric | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | | **Net sales** | $1,846.8 | $1,581.3 | $1,613.1 | | **Operating income (loss)** | $(19.3) | $8.4 | $(143.0) | | **Income (loss) from continuing operations** | $(66.9) | $10.0 | $(368.6) | | **Net income (loss) attributable to Manitowoc** | $(67.1) | $9.4 | $(375.8) | | **Diluted income (loss) per share** | $(1.89) | $0.26 | $(10.91) | | **Total assets** | $1,541.9 | $1,607.8 | $1,517.8 | | **Total debt** | $273.1 | $274.9 | $281.5 |[131](index=131&type=chunk) - The 2018 results include an **$82.2 million** goodwill impairment charge in the EURAF segment[132](index=132&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=25&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management's discussion analyzes financial performance for 2016-2018, highlighting a **16.8% net sales increase in 2018** but an operating loss due to an **$82.2 million goodwill impairment** [Results of Consolidated Operations](index=26&type=section&id=Results%20of%20Consolidated%20Operations) In 2018, consolidated net sales rose **16.8% to $1.85 billion**, but the company recorded an operating loss of **$19.3 million**, primarily due to an **$82.6 million asset impairment charge** Consolidated Operations Summary (2016-2018, in millions) | Metric | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | | **Net Sales** | $1,846.8 | $1,581.3 | $1,613.1 | | **Gross Profit** | $328.1 | $281.9 | $253.3 | | **Operating Income (Loss)** | $(19.3) | $8.4 | $(143.0) | | **Asset Impairment Expense** | $82.6 | $0.1 | $96.9 | | **Net Income (Loss) Attributable to Manitowoc** | $(67.1) | $9.4 | $(375.8) |[141](index=141&type=chunk) [Segment Operating Performance](index=27&type=section&id=Segment%20Operating%20Performance) In 2018, Americas net sales increased **27.3%** with higher operating income, while EURAF sales grew **8.2%** but recorded an operating loss due to an **$82.2 million goodwill impairment** Segment Net Sales (2017 vs 2018, in millions) | Segment | 2018 Net Sales | 2017 Net Sales | % Change | | :--- | :--- | :--- | :--- | | **Americas** | $882.7 | $693.6 | 27.3% | | **EURAF** | $680.6 | $628.9 | 8.2% | | **MEAP** | $283.5 | $258.8 | 9.5% |[143](index=143&type=chunk)[147](index=147&type=chunk)[151](index=151&type=chunk) Segment Operating Income (Loss) (2017 vs 2018, in millions) | Segment | 2018 Operating Income (Loss) | 2017 Operating Income (Loss) | % Change | | :--- | :--- | :--- | :--- | | **Americas** | $58.8 | $6.8 | 764.7% | | **EURAF** | $(68.2) | $5.1 | N/A | | **MEAP** | $31.5 | $33.1 | (4.8)% |[143](index=143&type=chunk)[147](index=147&type=chunk)[151](index=151&type=chunk) [Liquidity and Capital Resources](index=34&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity improved in 2018, with total liquidity reaching **$236.8 million**, consisting of **$140.3 million in cash** and **$96.5 million in net revolver availability** Liquidity Position (in millions) | Component | Dec 31, 2018 | Dec 31, 2017 | | :--- | :--- | :--- | | Cash and cash equivalents | $140.3 | $119.2 | | Revolver borrowing capacity | $107.8 | $118.1 | | Less: outstanding letters of credit | $(11.3) | $(14.4) | | **Total liquidity** | **$236.8** | **$222.9** |[209](index=209&type=chunk) - As of December 31, 2018, the company had no borrowings outstanding on its **$225.0 million** ABL Revolving Credit Facility[195](index=195&type=chunk) - The company was in compliance with all debt covenants as of December 31, 2018, and believes it will remain so for the subsequent **12 months**[200](index=200&type=chunk) [Critical Accounting Policies](index=40&type=section&id=Critical%20Accounting%20Policies) Management identifies critical accounting policies including revenue recognition, goodwill and intangible asset impairment (with an **$82.2 million charge in 2018**), inventory valuation, employee benefits, and income tax accounting - Revenue from crane sales is recognized when control of the product is transferred to the customer, which is generally upon delivery to the carrier[228](index=228&type=chunk) - Goodwill is tested for impairment annually on October 31. The 2018 test resulted in a non-cash goodwill impairment charge of **$82.2 million** in the EURAF reporting unit, writing its goodwill down to zero[234](index=234&type=chunk)[236](index=236&type=chunk) - The company accounts for income taxes under ASC Topic 740, requiring management judgment in determining deferred tax assets, liabilities, and any necessary valuation allowances[243](index=243&type=chunk) - The company provides for estimated warranty costs at the time of sale based on historical experience and specific issues with new products[247](index=247&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=43&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is exposed to market risks from interest rates, commodity prices, and foreign currency exchange rates, with international sales representing approximately **57% of total sales in 2018** - The company is exposed to market risks from changes in interest rates, commodity prices, and foreign currency exchange rates[218](index=218&type=chunk) - Derivative financial instruments are used selectively for hedging purposes, and their use for trading or speculation is strictly prohibited[218](index=218&type=chunk) - International sales represented approximately **57%** of total sales in 2018, with Europe being the largest component at **36%**[223](index=223&type=chunk) - As of December 31, 2018, the company held **eleven foreign currency forward contracts** with a notional value of **$76.8 million** to hedge transactional currency risk[224](index=224&type=chunk) [Financial Statements and Supplementary Data](index=44&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section includes the company's audited consolidated financial statements for 2016-2018, along with the report from PricewaterhouseCoopers LLP [Consolidated Statements of Operations](index=47&type=section&id=Consolidated%20Statements%20of%20Operations) For 2018, the company reported net sales of **$1.85 billion**, a gross profit of **$328.1 million**, and a net loss of **$67.1 million**, or **($1.89) per diluted share** Key Operating Results (in millions, except per share data) | Metric | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | | **Net sales** | $1,846.8 | $1,581.3 | $1,613.1 | | **Gross profit** | $328.1 | $281.9 | $253.3 | | **Operating income (loss)** | $(19.3) | $8.4 | $(143.0) | | **Net income (loss) attributable to Manitowoc** | $(67.1) | $9.4 | $(375.8) | | **Diluted income (loss) per share** | $(1.89) | $0.26 | $(10.91) |[263](index=263&type=chunk) [Consolidated Balance Sheets](index=49&type=section&id=Consolidated%20Balance%20Sheets) As of December 31, 2018, total assets were **$1.54 billion**, total liabilities were **$940.6 million**, and total stockholders' equity was **$601.3 million** Key Balance Sheet Items (in millions) | Metric | Dec 31, 2018 | Dec 31, 2017 | | :--- | :--- | :--- | | **Total current assets** | $842.9 | $790.4 | | **Total assets** | $1,541.9 | $1,607.8 | | **Total current liabilities** | $496.6 | $453.0 | | **Long-term debt** | $266.7 | $266.7 | | **Total stockholders' equity** | $601.3 | $677.5 |[266](index=266&type=chunk) [Consolidated Statements of Cash Flows](index=50&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) For 2018, net cash used for operating activities was **$513.0 million**, net cash provided by investing activities was **$534.4 million**, resulting in a cash balance of **$140.3 million** Summary of Cash Flows (in millions) | Activity | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | | **Net cash used for operating activities** | $(513.0) | $(324.9) | $(626.2) | | **Net cash provided by investing activities** | $534.4 | $381.3 | $414.2 | | **Net cash provided by (used for) financing activities** | $(1.3) | $(9.7) | $219.4 | | **Net increase (decrease) in cash** | $17.3 | $49.1 | $8.3 | | **Cash at end of period** | $140.3 | $123.0 | $73.9 |[268](index=268&type=chunk) [Changes in and Disagreements With Accountants on Accounting and Financial Disclosure](index=89&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20With%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[478](index=478&type=chunk) [Controls and Procedures](index=89&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2018 - Management concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[479](index=479&type=chunk) - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2018, based on the COSO framework[480](index=480&type=chunk) [Other Information](index=89&type=section&id=Item%209B.%20Other%20Information) The company reports no other information for this item - None[484](index=484&type=chunk) [PART III](index=90&type=section&id=PART%20III) [Directors, Executive Officers and Corporate Governance](index=90&type=section&id=Item%2010.%20Directors,%20Executive%20Officers%20and%20Corporate%20Governance) Information on directors, executive officers, and corporate governance is incorporated by reference from the company's 2019 Proxy Statement - Required information is incorporated by reference from the company's definitive Proxy Statement for its 2019 Annual Meeting of Shareholders[486](index=486&type=chunk) [Executive Compensation](index=90&type=section&id=Item%2011.%20Executive%20Compensation) Information on director and executive compensation is incorporated by reference from the company's 2019 Proxy Statement - Required information is incorporated by reference from the company's 2019 Proxy Statement[488](index=488&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=90&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information regarding security ownership is incorporated by reference from the 2019 Proxy Statement, including equity compensation plan details Equity Compensation Plan Information as of December 31, 2018 | Plan Category | Securities to be Issued Upon Exercise | Weighted-Average Exercise Price | Securities Remaining Available for Future Issuance | | :--- | :--- | :--- | :--- | | **Equity compensation plans approved by security holders** | 1,522,002 | $11.83 (options only) | 5,616,815 | | **Equity compensation plans not approved by security holders** | 0 | $0 | 0 |[489](index=489&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=91&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions,%20and%20Director%20Independence) Information concerning related party transactions and director independence is incorporated by reference from the company's 2019 Proxy Statement - Required information is incorporated by reference from the company's 2019 Proxy Statement[491](index=491&type=chunk) [Principal Accounting Fees and Services](index=91&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) Information detailing fees paid to the principal accountant and related services is incorporated by reference from the Audit Committee Report in the company's 2019 Proxy Statement - Required information is incorporated by reference from the company's 2019 Proxy Statement[491](index=491&type=chunk) [PART IV](index=92&type=section&id=PART%20IV) [Exhibits and Financial Statement Schedules](index=92&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists the Consolidated Financial Statements, Financial Statement Schedule II, and a comprehensive index of all exhibits filed with the Form 10-K report - Lists the Consolidated Financial Statements and Financial Statement Schedule II as documents filed with the report[493](index=493&type=chunk) - Provides an index of exhibits filed or furnished with the report, including debt indentures, credit agreements, and executive compensation plans[494](index=494&type=chunk)[497](index=497&type=chunk) [Form 10-K Summary](index=99&type=section&id=Item%2016.%20Form%2010-K%20Summary) The company has not provided a summary for this item - None[507](index=507&type=chunk)