Manitowoc(MTW) - 2020 Q2 - Quarterly Report

FORM 10-Q Filing Information This section details the company's Quarterly Report filing, stock exchange listing, and outstanding common stock shares - The document is a Quarterly Report (Form 10-Q) for The Manitowoc Company, Inc. for the period ended June 30, 2020[3] - The company's common stock is listed on the New York Stock Exchange under the trading symbol MTW[4] - As of June 30, 2020, the registrant had 34,521,063 shares of common stock outstanding[5] PART I. FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial statements and management's discussion and analysis Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements and comprehensive notes for the periods ended June 30, 2020 and 2019 Condensed Consolidated Statements of Operations This section presents the company's unaudited condensed consolidated statements of operations Condensed Consolidated Statements of Operations (in millions, except per share) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net sales | $328.3 | $504.7 | $657.5 | $922.7 | | Gross profit | $48.4 | $95.2 | $111.6 | $175.4 | | Operating income (loss) | $(1.6) | $41.9 | $4.1 | $58.1 | | Net income (loss) | $(12.7) | $46.0 | $(20.5) | $19.3 | | Basic income (loss) per common share | $(0.37) | $1.29 | $(0.59) | $0.54 | | Diluted income (loss) per common share | $(0.37) | $1.29 | $(0.59) | $0.54 | Condensed Consolidated Statements of Comprehensive Income (Loss) This section presents the company's unaudited condensed consolidated statements of comprehensive income (loss) Condensed Consolidated Statements of Comprehensive Income (Loss) (in millions) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income (loss) | $(12.7) | $46.0 | $(20.5) | $19.3 | | Total other comprehensive income (loss) | $9.3 | $2.3 | $(3.1) | $0.4 | | Comprehensive income (loss) | $(3.4) | $48.3 | $(23.6) | $19.7 | Condensed Consolidated Balance Sheets This section presents the company's unaudited condensed consolidated balance sheets Condensed Consolidated Balance Sheets (in millions) | Metric | June 30, 2020 | December 31, 2019 | | :-------------------------------- | :------------ | :---------------- | | Cash and cash equivalents | $128.3 | $199.3 | | Total current assets | $881.7 | $872.4 | | Total assets | $1,604.9 | $1,617.7 | | Total current liabilities | $420.7 | $440.9 | | Long-term debt | $356.9 | $308.4 | | Total non-current liabilities | $568.5 | $530.9 | | Total stockholders' equity | $615.7 | $645.9 | | Total liabilities and stockholders' equity | $1,604.9 | $1,617.7 | Condensed Consolidated Statements of Cash Flows This section presents the company's unaudited condensed consolidated statements of cash flows Condensed Consolidated Statements of Cash Flows (in millions) | Metric | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :------------------------------------ | :----------------------------- | :----------------------------- | | Net cash used for operating activities | $(98.7) | $(235.4) | | Net cash provided by (used for) investing activities | $(7.9) | $121.4 | | Net cash provided by financing activities | $36.6 | $9.8 | | Net decrease in cash and cash equivalents | $(71.0) | $(105.3) | | Cash and cash equivalents at end of period | $128.3 | $35.0 | Condensed Consolidated Statements of Equity This section presents the company's unaudited condensed consolidated statements of equity Condensed Consolidated Statements of Equity (in millions) | Metric | June 30, 2020 | June 30, 2019 | | :-------------------------------- | :------------ | :------------ | | Common Stock - Par Value | $0.4 | $0.4 | | Additional Paid-in Capital | $596.0 | $588.8 | | Accumulated Other Comprehensive Loss | $(124.1) | $(116.2) | | Retained Earnings | $215.5 | $208.9 | | Treasury Stock | $(72.1) | $(62.2) | | Total equity | $615.7 | $619.7 | Notes to Unaudited Condensed Consolidated Financial Statements This section provides detailed notes supporting the unaudited condensed consolidated financial statements Note 1. Accounting Policies and Basis of Presentation This note outlines the company's business, its reportable segments, and the basis for preparing the unaudited condensed consolidated financial statements, including the impact of the COVID-19 pandemic on future estimates - Manitowoc is a leading provider of engineered lifting solutions, designing, manufacturing, marketing, and supporting mobile telescopic cranes, tower cranes, lattice-boom crawler cranes, and boom trucks under various brand names[21] - The company operates through three reportable segments: Americas, Europe and Africa (EURAF), and Middle East and Asia Pacific (MEAP)[22] - The COVID-19 pandemic introduces considerable uncertainty regarding future impacts on estimates for goodwill impairment, long-lived assets, income tax provision, inventory recoverability, and hedge accounting[25] Note 2. Recent Accounting Changes and Pronouncements This note details recent accounting standard updates, including ASU 2019-12 (Income Taxes), ASU 2018-15 (Cloud Computing), and ASU 2016-13 (Credit Losses), and their impact on the company's financial statements - The company is evaluating the impact of ASU No. 2019-12 'Income Taxes (Topic 740)', effective for annual periods beginning after December 15, 2020[26] - The adoption of ASU No. 2018-15 'Intangibles – Goodwill and Other – Internal-use Software' did not have a material impact on the condensed consolidated financial statements[27] - The adoption of ASU 2016-13 'Financial Instruments - Credit Losses' resulted in a $0.2 million reduction in beginning retained earnings and accounts receivable as of June 30, 2020, with no material impact on operations or cash flows[28] Note 3. Revenues This note provides a summary of changes in the customer advances balance, which represents deferred revenue, for the three and six months ended June 30, 2020 and 2019 Customer Advances Balance (in millions) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Balance at beginning of period | $21.0 | $13.3 | $25.8 | $9.6 | | Cash received or due in advance | $15.9 | $18.3 | $44.8 | $50.2 | | Revenue recognized | $(21.6) | $(21.1) | $(54.1) | $(49.4) | | Currency translation | $0.5 | $0.1 | $(0.7) | $0.2 | | Balance at end of period | $15.8 | $10.6 | $15.8 | $10.6 | Note 4. Fair Value of Financial Instruments This note details the fair value classification of the company's financial assets and liabilities, primarily focusing on forward currency exchange contracts and senior secured second lien notes - The fair value of the senior secured second lien notes due 2026 was approximately $299.0 million as of June 30, 2020, classified as Level 1 within the valuation hierarchy due to quoted market prices[32][33] - Forward currency exchange contracts are valued through an independent valuation source and classified within Level 2 of the fair value hierarchy[35] Note 5. Derivative Financial Instruments This note describes the company's use of forward currency exchange contracts to manage exposure to non-functional currencies and transaction risks - The company uses FX Forward Contracts to manage exposure on forecasted transactions and transaction gains/losses, with some designated as cash flow hedges[37] FX Forward Contracts Notional Amount and Fair Value (in millions) | Metric | June 30, 2020 | December 31, 2019 | | :-------------------------------- | :------------ | :---------------- | | Aggregate notional amount outstanding | $9.6 | $32.6 | | Net fair value (current asset) | $0.1 | $0.0 | | Unrealized gains in AOCI | $0.1 | $0.0 | Gain or Loss from FX Forward Contracts (in millions) | Category | Recognized Location | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--------------- | :------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Designated | Cost of sales | $0.2 | $0.7 | $0.3 | $1.5 | | Non-Designated | Other income (expense) - net | $(0.4) | $(1.6) | $(0.4) | $(2.3) | Note 6. Inventories This note provides a breakdown of the company's inventory components, including raw materials, work-in-process, finished goods, and the excess and obsolete inventory reserve Inventories Components (in millions) | Component | June 30, 2020 | December 31, 2019 | | :-------------------------- | :------------ | :---------------- | | Raw materials | $140.7 | $156.3 | | Work-in-process | $116.5 | $116.3 | | Finished goods | $329.7 | $239.4 | | Total inventories | $586.9 | $512.0 | | Excess and obsolete inventory reserve | $(52.4) | $(50.6) | | Inventories — net | $534.5 | $461.4 | Note 7. Notes Receivable This note details the current and long-term notes receivable balances, primarily related to the company's captive finance entity in China Notes Receivable Balances (in millions) | Category | June 30, 2020 | December 31, 2019 | | :--------------------- | :------------ | :---------------- | | Current notes receivable | $14.0 | $17.4 | | Long-term notes receivable | $14.8 | $16.3 | Note 8. Property, Plant and Equipment This note summarizes the components of property, plant and equipment, net of accumulated depreciation, as of June 30, 2020 and December 31, 2019 Property, Plant and Equipment Components (in millions) | Component | June 30, 2020 | December 31, 2019 | | :-------------------------- | :------------ | :---------------- | | Total cost | $716.5 | $722.2 | | Less accumulated depreciation | $(438.7) | $(432.3) | | Property, plant and equipment — net | $277.8 | $289.9 | Note 9. Goodwill and Other Intangible Assets This note discusses the company's goodwill and other intangible assets, including impairment review and carrying amounts by segment - An interim goodwill impairment test as of March 31, 2020, triggered by the COVID-19 pandemic, indicated no impairment, as fair values of all reporting units exceeded their carrying values[44] Goodwill Carrying Amount by Segment (in millions) | Segment | December 31, 2019 | June 30, 2020 | | :-------- | :---------------- | :------------ | | Americas | $166.5 | $166.5 | | MEAP | $66.0 | $65.5 | | Consolidated | $232.5 | $232.0 | Other Intangible Assets (in millions) | Category | June 30, 2020 Net Book Value | December 31, 2019 Net Book Value | | :-------------------------- | :----------------------------- | :------------------------------- | | Definite lived intangible assets | $2.2 | $2.3 | | Indefinite lived intangible assets | $113.7 | $114.0 | | Total other intangible assets | $115.9 | $116.3 | Note 10. Accounts Payable and Accrued Expenses This note summarizes the components of accounts payable and accrued expenses as of June 30, 2020 and December 31, 2019 Accounts Payable and Accrued Expenses (in millions) | Component | June 30, 2020 | December 31, 2019 | | :-------------------------- | :------------ | :---------------- | | Trade accounts payable | $177.9 | $187.1 | | Employee-related expenses | $40.3 | $56.6 | | Accrued vacation | $23.9 | $20.2 | | Miscellaneous accrued expenses | $90.5 | $76.9 | | Total | $332.6 | $340.8 | Note 11. Debt This note details the company's outstanding debt, including senior secured second lien notes and the ABL Revolving Credit Facility, along with their terms and covenants Outstanding Debt (in millions) | Debt Type | June 30, 2020 | December 31, 2019 | | :------------------------------------------ | :------------ | :---------------- | | Borrowings under ABL Revolving Credit Facility | $50.0 | $0.0 | | Senior secured second lien notes due 2026 | $300.0 | $300.0 | | Other debt | $15.4 | $16.7 | | Deferred financing costs | $(4.2) | $(4.5) | | Total debt | $361.2 | $312.2 | | Long-term debt | $356.9 | $308.4 | - The company issued $300.0 million in senior secured second lien notes due April 1, 2026, with a 9.000% annual coupon rate, and entered into a $275.0 million senior secured asset-based revolving credit facility (ABL Revolving Credit Facility) in March 2019[49][51] - During the six months ended June 30, 2019, the company recorded a $25.0 million charge related to the refinancing of its prior ABL Revolving Credit Facility and 2021 Notes[53] - As of June 30, 2020, the company was in compliance with all affirmative and negative covenants in its debt instruments[58] Note 12. Accounts Receivable Securitization and Other Factoring Arrangements This note describes the termination of the prior U.S. receivables purchase agreement and current non-U.S. and U.S. accounts receivable financing programs - The company's prior $75.0 million Receivables Purchase Agreement was terminated on March 25, 2019[59] - The company has two non-U.S. accounts receivable financing programs with maximum availability of €55.0 million and one U.S. program with maximum availability of $35.0 million[62] - During the six months ended June 30, 2020, the company sold receivables and received cash of €59.3 million under its non-U.S. programs[62] Note 13. Income Taxes This note details the provision for income taxes, the impact of the CARES Act, and the company's unrecognized tax benefits Provision for Income Taxes (in millions) | Period | 2020 | 2019 | | :-------------------------- | :--- | :--- | | Three months ended June 30, | $0.7 | $3.9 | | Six months ended June 30, | $2.6 | $7.2 | - A net discrete tax benefit of $2.5 million was recorded for the three months ended June 30, 2020, primarily due to U.S. tax planning strategies implemented as a result of the CARES Act[63][64] - Unrecognized tax benefits, excluding interest and penalties, increased to $22.6 million as of June 30, 2020, from $11.5 million at December 31, 2019, mainly due to uncertainty regarding CARES Act tax planning strategies[66] Note 14. Net Income (Loss) Per Share This note reconciles weighted average shares outstanding for basic and diluted income (loss) per common share, noting anti-dilutive securities Weighted Average Common Shares Outstanding | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Basic weighted average common shares outstanding | 34,519,889 | 35,595,718 | 34,827,582 | 35,619,145 | | Diluted weighted average common shares outstanding | 34,519,889 | 35,725,908 | 34,827,582 | 35,799,089 | - Due to net losses incurred during the three and six months ended June 30, 2020, all equity instruments were anti-dilutive and excluded from diluted EPS calculations[67] - No cash dividends were paid during the three and six months ended June 30, 2020 and 2019[68] Note 15. Equity This note outlines authorized capital, common stock repurchase program details, and reconciliation of accumulated other comprehensive loss components - The company has authorization to purchase up to $30.0 million of its common stock; $12.0 million was repurchased during the six months ended June 30, 2020, and $10.6 million remained under authorization[70] - The share repurchase program was suspended due to the COVID-19 pandemic to preserve liquidity[70] Accumulated Other Comprehensive Loss (in millions) | Component | June 30, 2020 | June 30, 2019 | | :------------------------------------ | :------------ | :------------ | | Gains and Losses on Cash Flow Hedges | $0.1 | $0.4 | | Pension & Postretirement | $(38.1) | $(35.2) | | Foreign Currency Translation | $(86.1) | $(81.4) | | Total | $(124.1) | $(116.2) | Note 16. Stock-Based Compensation This note details stock-based compensation expense and the types and quantities of equity awards granted to employees and directors Stock-Based Compensation Expense (in millions) | Period | 2020 | 2019 | | :-------------------------- | :--- | :--- | | Three months ended June 30, | $2.5 | $3.0 | | Six months ended June 30, | $5.9 | $6.1 | - As of June 30, 2020, 3,983,976 shares of common stock were available for awards under the 2013 Omnibus Incentive Plan[73] - Performance shares granted in 2020 are based 100% on the 3-year average of Adjusted EBITDA percentage from 2020 to 2022, with a potential +/-20% modification based on total shareholder return relative to a peer group[77] Note 17. Segments This note provides detailed financial information by the company's three reportable segments: Americas, EURAF, and MEAP, including net sales and operating income - The company's reportable segments are Americas, Europe and Africa (EURAF), and Middle East and Asia Pacific (MEAP), with performance evaluated based on net sales and operating income[80][81] Segment Net Sales (in millions) | Segment | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :-------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Americas | $149.6 | $264.6 | $305.8 | $470.7 | | EURAF | $135.5 | $182.6 | $258.4 | $336.8 | | MEAP | $43.2 | $57.5 | $93.3 | $115.2 | | Total | $328.3 | $504.7 | $657.5 | $922.7 | Segment Operating Income (Loss) (in millions) | Segment | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :-------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Americas | $4.8 | $35.7 | $13.9 | $50.9 | | EURAF | $(4.4) | $1.7 | $(4.8) | $5.1 | | MEAP | $6.6 | $5.1 | $12.9 | $12.4 | | Total | $7.0 | $42.5 | $22.0 | $68.4 | Net Sales by Product (in millions) | Product | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Cranes | $259.5 | $418.0 | $508.1 | $751.5 | | Aftermarket parts and other | $68.8 | $86.7 | $149.4 | $171.2 | | Total net sales | $328.3 | $504.7 | $657.5 | $922.7 | Note 18. Commitments and Contingencies This note outlines the company's involvement in various legal actions, including product-related lawsuits and asbestos-related claims, and details its product liability and warranty reserves - The company is involved in various legal actions, including product-related lawsuits and asbestos-related claims, which management believes will not have a material adverse effect on financial condition[84][87] Product Liability and Warranty Reserves (in millions) | Reserve Type | June 30, 2020 | December 31, 2019 | | :-------------------------- | :------------ | :---------------- | | Product liability reserves | $11.6 | $12.8 | | Warranty claims | $60.1 | $60.6 | - During the three months ended June 30, 2019, the company settled a legal matter, resulting in a net $24.7 million gain ($15.5 million in other income and $9.2 million benefit in engineering, selling and administrative expenses)[89] Note 19. Guarantees This note describes the company's buyback commitments and loss guarantees with customers, as well as its product warranty obligations and related activity Buyback Commitments and Loss Guarantees (in millions) | Guarantee Type | June 30, 2020 | December 31, 2019 | | :-------------------------- | :------------ | :---------------- | | Total buyback commitments outstanding | $18.1 | $17.3 | | Maximum liabilities for loss guarantees | $17.1 | $11.3 | Warranty Activity (in millions) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Balance at beginning of period | $59.7 | $45.7 | $60.6 | $47.8 | | Accruals for warranties issued | $7.5 | $13.1 | $16.1 | $20.1 | | Settlements made | $(7.8) | $(7.7) | $(16.6) | $(16.5) | | Balance at end of period | $60.1 | $51.3 | $60.1 | $51.3 | Note 20. Restructuring This note provides details on restructuring expenses incurred and the rollforward of the restructuring accrual, primarily related to headcount reductions Restructuring Expense (in millions) | Period | 2020 | 2019 | | :-------------------------- | :--- | :--- | | Three months ended June 30, | $0.2 | $2.7 | | Six months ended June 30, | $1.7 | $7.2 | - Restructuring expenses for both periods in 2020 primarily related to headcount reductions in Europe[94] Restructuring Accrual Rollforward (in millions) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :-------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Balance at beginning of period | $2.4 | $4.6 | $2.0 | $3.1 | | Restructuring expenses | $0.2 | $2.7 | $1.7 | $7.2 | | Use of reserve | $(0.7) | $(4.2) | $(1.8) | $(7.2) | | Balance at end of period | $1.9 | $3.1 | $1.9 | $3.1 | Note 21. Employee Benefit Plans This note summarizes the components of net periodic benefit cost for the company's pension, health care, and death benefit plans for eligible retirees Net Periodic Benefit Cost (in millions) | Component | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | U.S. Pension Plans | $0.4 | $1.0 | $0.8 | $2.0 | | Non-U.S. Pension Plans | $1.1 | $1.0 | $2.2 | $2.0 | | Postretirement Health and Other Plans | $(0.6) | $(0.4) | $(1.1) | $(0.8) | | Total Net Periodic Benefit Cost | $0.9 | $1.6 | $1.9 | $3.2 | Note 22. Subsequent Events This note discloses a significant leadership transition that occurred after the reporting period, specifically the appointment of a new President and CEO - Effective August 5, 2020, Aaron H. Ravenscroft was appointed President and Chief Executive Officer, succeeding Barry L. Pennypacker, who stepped down[98] - Mr. Pennypacker will serve in an advisory role through December 31, 2020, to ensure a smooth transition[98] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's discussion and analysis of the company's financial condition and results of operations Cautionary Statements Regarding Forward-Looking Information This section provides a standard disclaimer regarding forward-looking statements, highlighting various known and unknown risks and uncertainties that could cause actual results to differ materially from projections, including the impacts of COVID-19, economic conditions, and operational factors - All statements in the report, other than historical facts, are forward-looking and subject to known and unknown risks and uncertainties[101][102] - Key risks include the negative impacts of COVID-19 on business, financial condition, cash flows, results of operations, supply chain, and customer demand[103] - Other significant risks encompass actions of competitors, changes in economic or industry conditions, unanticipated changes in customer demand, geographic and political risks, and the ability to implement strategic initiatives[103] COVID-19 Update This section provides an update on the company's response to the COVID-19 pandemic, noting the restart of operations, decline in demand, and anticipated adverse effects on financial results for the second half of 2020 - The company restarted operations in all facilities during Q2 2020 but experienced a decline in product demand across all segments due to COVID-19[107] - Management expects reduced demand, primarily from the Americas segment, and general production slowdowns to adversely affect financial results for the second half of 2020[107] - Uncertainty regarding future COVID-19 impacts on the global supplier network could also adversely affect financial results[107] Segment Operating Performance This section analyzes the net sales and operating income performance of the company's three reportable segments for the three and six months ended June 30, 2020 and 2019 Americas Segment Performance This section analyzes the Americas segment's net sales and operating income performance Americas Segment Performance (in millions) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | % Change | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | % Change | | :-------------------- | :------------------------------- | :------------------------------- | :------- | :----------------------------- | :----------------------------- | :------- | | Net Sales | $149.6 | $264.6 | (43.5)% | $305.8 | $470.7 | (35.0)% | | Operating Income | $4.8 | $35.7 | (86.6)% | $13.9 | $50.9 | (72.7)% | - The decrease in net sales and operating income was primarily due to lower shipments of cranes, mainly from entering the quarter/year with a lower shippable backlog[111][113][112][114] - The decrease in operating income was partially offset by lower engineering, selling, and administrative expenses ($2.2 million for Q2, $1.7 million for H1) and lower restructuring expense for H1[112][114] EURAF Segment Performance This section analyzes the EURAF segment's net sales and operating income performance EURAF Segment Performance (in millions) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | % Change | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | % Change | | :-------------------- | :------------------------------- | :------------------------------- | :------- | :----------------------------- | :----------------------------- | :------- | | Net Sales | $135.5 | $182.6 | (25.8)% | $258.4 | $336.8 | (23.3)% | | Operating Income (Loss) | $(4.4) | $1.7 | * | $(4.8) | $5.1 | * | - Net sales decreased primarily due to lower crane shipments resulting from the COVID-19 pandemic and unfavorable foreign currency exchange rates ($3.0 million for Q2, $6.7 million for H1)[115][117] - Operating income shifted to a loss, mainly due to lower volume on crane shipments and period costs from underutilized manufacturing facilities due to COVID-19 ($7.9 million for Q2, $9.9 million for H1)[116][118] MEAP Segment Performance This section analyzes the MEAP segment's net sales and operating income performance MEAP Segment Performance (in millions) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | % Change | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | % Change | | :-------------------- | :------------------------------- | :------------------------------- | :------- | :----------------------------- | :----------------------------- | :------- | | Net Sales | $43.2 | $57.5 | (24.9)% | $93.3 | $115.2 | (19.0)% | | Operating Income | $6.6 | $5.1 | 29.4% | $12.9 | $12.4 | 4.0% | - Net sales decreased due to lower crane shipments, particularly for commercial construction, and unfavorable foreign currency exchange rates ($1.3 million for Q2, $2.8 million for H1)[119][121] - Operating income increased due to favorable mix on crane shipments, lower engineering, selling, and administrative expenses ($2.2 million for Q2, $3.5 million for H1), and lower restructuring expenses ($1.6 million for Q2, $1.9 million for H1), partially offset by lower volume[120][122] Results of Operations This section provides a detailed analysis of the company's consolidated results of operations, including net sales, gross profit, various expenses, interest, and income taxes, for the three and six months ended June 30, 2020 and 2019, highlighting significant changes and their drivers Net Sales, Orders and Backlog This section analyzes the company's consolidated net sales, orders, and backlog Consolidated Net Sales, Orders, and Backlog (in millions) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | % Change | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | % Change | | :-------------------- | :------------------------------- | :------------------------------- | :------- | :----------------------------- | :----------------------------- | :------- | | Net sales | $328.3 | $504.7 | (35.0)% | $657.5 | $922.7 | (28.7)% | | Orders | $237.8 | $372.0 | (36.1)% | N/A | N/A | N/A | | Total backlog (as of period end) | $430.5 | $561.4 | (23.3)% | N/A | N/A | N/A | - Consolidated net sales decreased primarily due to lower crane shipments across all segments, unfavorably impacted by foreign currency exchange rates ($4.4 million for Q2, $9.6 million for H1)[125][126] - Orders decreased by 36.1% for the three months ended June 30, 2020, mainly attributable to the Americas and EURAF segments[127] Gross Profit This section analyzes the company's consolidated gross profit and gross profit percentage Gross Profit (in millions) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | % Change | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | % Change | | :-------------------- | :------------------------------- | :------------------------------- | :------- | :----------------------------- | :----------------------------- | :------- | | Gross profit | $48.4 | $95.2 | (49.2)% | $111.6 | $175.4 | (36.4)% | | Gross profit % | 14.7% | 18.9% | N/A | 17.0% | 19.0% | N/A | - The decrease in gross profit and gross profit percentage was primarily due to lower volume of crane shipments across all segments and period costs from underutilized manufacturing facilities due to the COVID-19 pandemic[129][130][131][132] Engineering, Selling and Administrative Expenses This section analyzes the company's engineering, selling, and administrative expenses Engineering, Selling and Administrative Expenses (in millions) | Period | 2020 | 2019 | % Change | | :-------------------------- | :--- | :--- | :------- | | Three months ended June 30, | $49.7 | $50.5 | (1.6)% | | Six months ended June 30, | $105.6 | $109.9 | (3.9)% | - The decrease was primarily due to lower short-term incentive compensation costs and reduced discretionary spending[133][134] - This decrease was partially offset by a $9.2 million benefit recorded in 2019 related to the settlement of a legal matter[133][134] Restructuring Expense This section analyzes the company's restructuring expense Restructuring Expense (in millions) | Period | 2020 | 2019 | % Change | | :-------------------------- | :--- | :--- | :------- | | Three months ended June 30, | $0.2 | $2.7 | (92.6)% | | Six months ended June 30, | $1.7 | $7.2 | (76.4)% | - Restructuring expense significantly decreased, primarily related to headcount reductions in Europe for 2020, compared to reductions in India, Europe, and North America in 2019[135][136] Interest Expense This section analyzes the company's interest expense Interest Expense (in millions) | Period | 2020 | 2019 | % Change | | :-------------------------- | :--- | :--- | :------- | | Three months ended June 30, | $7.2 | $7.5 | (4.0)% | | Six months ended June 30, | $14.4 | $18.4 | (21.7)% | - The decrease in interest expense was primarily due to a reduction in the average effective interest rate, from 8.9% to 8.7% for Q2, and from 11.2% to 9.0% for H1[137][138] - The reduction in the average effective interest rate for the six-month period was mainly due to the refinancing of the company's senior secured high yield notes in Q1 2019[138] Loss on Debt Extinguishment This section details the loss incurred from the extinguishment of debt during the period - During the six months ended June 30, 2019, the company recorded a $25.0 million charge associated with the refinancing of its Prior ABL Facility and Prior 2021 Notes[139] - The charge was composed of a $16.6 million call premium, $5.3 million of unamortized discount, and $3.1 million of unamortized debt issuance costs[139] Other Income (Expense) - Net This section analyzes the company's other income and expense, net Other Income (Expense) - Net (in millions) | Period | 2020 | 2019 | % Change | | :-------------------------- | :----- | :---- | :------- | | Three months ended June 30, | $(2.9) | $15.9 | (118.2)% | | Six months ended June 30, | $(6.9) | $12.6 | (154.8)% | - The shift from net income to net expense in 2020 was primarily due to net foreign currency losses ($2.1 million for Q2, $6.0 million for H1) and the absence of a $15.5 million benefit from a legal settlement recorded in 2019[141][142] Income Taxes This section analyzes the company's provision for income taxes Provision for Income Taxes (in millions) | Period | 2020 | 2019 | | :-------------------------- | :--- | :--- | | Three months ended June 30, | $0.7 | $3.9 | | Six months ended June 30, | $2.6 | $7.2 | - The decrease in the provision for income taxes was primarily driven by a net discrete tax benefit of $2.5 million recorded in Q2 2020, resulting from U.S. tax planning strategies due to the CARES Act[143][144] Financial Condition This section analyzes the company's financial condition, focusing on cash flows, liquidity, capital resources, and debt, along with management's outlook Cash Flows This section provides a detailed analysis of the company's cash flows from operating, investing, and financing activities Cash Flows From Operating Activities This section analyzes the company's net cash used for operating activities Net Cash Used for Operating Activities (in millions) | Period | 2020 | 2019 | | :-------------------------- | :----- | :----- | | Six months ended June 30, | $(98.7) | $(235.4) | - Cash used for operating activities in H1 2020 was primarily driven by a $103.1 million increase in working capital, including a $73.4 million increase in inventory and incentive compensation payments[146] - Cash used in H1 2019 was mainly due to trade receivables sold to a prior securitization program ($126.3 million reported in investing activities) and purchases of accounts receivable, partially offset by a $36.5 million legal settlement[147] Cash Flows From Investing Activities This section analyzes the company's net cash provided by (used for) investing activities Net Cash Provided by (Used for) Investing Activities (in millions) | Period | 2020 | 2019 | | :-------------------------- | :----- | :----- | | Six months ended June 30, | $(7.9) | $121.4 | - Cash used for investing in H1 2020 consisted of $8.0 million in capital expenditures, partially offset by $0.1 million from asset sales[148] - Cash provided by investing in H1 2019 included $126.3 million from cash collections on accounts receivable sold to the prior securitization program and $4.8 million from asset sales, offset by $9.7 million in capital expenditures[149] Cash Flows From Financing Activities This section analyzes the company's net cash provided by financing activities Net Cash Provided by Financing Activities (in millions) | Period | 2020 | 2019 | | :-------------------------- | :--- | :--- | | Six months ended June 30, | $36.6 | $9.8 | - Cash provided by financing in H1 2020 included $50.0 million from ABL Revolving Credit Facility borrowings and $0.1 million from stock option exercises, partially offset by $12.0 million in common stock repurchases[150] - Cash provided in H1 2019 included $300.0 million from long-term debt and $82.8 million from ABL borrowings, offset by $276.6 million in debt payments, $82.8 million in ABL payments, and $8.2 million in debt issuance costs[151] Liquidity and Capital Resources This section analyzes the company's liquidity position and capital resources Liquidity Position (in millions) | Metric | June 30, 2020 | December 31, 2019 | June 30, 2019 | | :-------------------------- | :------------ | :---------------- | :------------ | | Cash and cash equivalents | $128.3 | $199.3 | $35.0 | | Revolver borrowing capacity | $260.8 | $210.4 | $275.0 | | Other debt availability | $38.7 | $38.8 | $38.7 | | Less: Borrowings on revolver | $(50.0) | $0.0 | $0.0 | | Less: Borrowings on other debt | $0.0 | $0.0 | $(4.5) | | Less: Outstanding letters of credit | $(3.0) | $(4.0) | $(4.0) | | Total liquidity | $374.8 | $444.5 | $340.2 | Outlook This section provides management's outlook on the company's future liquidity and operational needs - The company believes its liquidity and expected cash flows from operations will be sufficient to meet operational needs for the next twelve months[153] - Actions taken to preserve liquidity include a preemptive $50.0 million borrowing on the ABL Revolving Credit Facility, reduced discretionary spending, suspended share repurchase program, reduced capital expenditures, and eliminated base salary increases[153] - The company is utilizing available government subsidies and programs to aid with liquidity and employee retention[153] Cash Sources This section describes the company's historical and current sources of cash, including credit facilities - Historically, cash sources include cash flows from operations, borrowings under revolving credit facilities, and debt financing[154] - The current ABL Revolving Credit Facility has a maximum availability of $275.0 million, with borrowing capacity based on inventory, accounts receivable, and fixed assets[155] - The company also has access to non-committed overdraft facilities in Europe, totaling $38.7 million in availability as of June 30, 2020[156] Debt This section details the company's outstanding debt, including credit facilities and notes, and related covenants Outstanding Debt (in millions) | Debt Type | June 30, 2020 | December 31, 2019 | | :------------------------------------------ | :------------ | :---------------- | | Senior secured asset based revolving credit facility | $50.0 | $0.0 | | Senior secured second lien notes due 2026 | $300.0 | $300.0 | | Other debt | $15.4 | $16.7 | | Deferred financing costs | $(4.2) | $(4.5) | | Total debt | $361.2 | $312.2 | | Long-term debt | $356.9 | $308.4 | - Both the ABL Revolving Credit Facility and the 2026 Notes include customary covenants and events of default[157] - Management believes the company will comply with these covenants during the subsequent twelve months[157] Non-GAAP Measures This section presents non-GAAP financial measures, including EBITDA, Adjusted EBITDA, Adjusted Operating Income (Loss), Adjusted Operating Cash Flows, and Free Cash Flows, along with their reconciliations to GAAP - The company uses non-GAAP measures like EBITDA, Adjusted EBITDA, and Adjusted Operating Income (Loss) to evaluate performance and provide supplemental information to investors[158] Reconciliation of GAAP Net Income (Loss) to Adjusted Operating Income (Loss) (in millions) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income (loss) | $(12.7) | $46.0 | $(20.5) | $19.3 | | EBITDA | $4.7 | $66.5 | $15.5 | $63.3 | | Adjusted EBITDA | $7.8 | $53.3 | $24.1 | $82.9 | | Adjusted operating income (loss) | $(1.4) | $44.6 | $5.8 | $65.3 | | Operating income (loss) | $(1.6) | $41.9 | $4.1 | $58.1 | | Adjusted EBITDA margin percentage | 2.4% | 10.6% | 3.7% | 9.0% | | Adjusted operating income (loss) margin percentage | (0.4)% | 8.8% | 0.9% | 7.1% | Adjusted Operating Cash Flows and Free Cash Flows (in millions) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by (used for) operating activities | $(20.2) | $31.9 | $(98.7) | $(235.4) | | Adjusted operating cash flows | $(20.2) | $31.9 | $(98.7) | $(34.1) | | Capital expenditures | $(4.4) | $(5.3) | $(8.0) | $(9.7) | | Free cash flows | $(24.6) | $26.6 | $(106.7) | $(43.8) | Critical Accounting Policies This section states that there have been no material changes to the company's critical accounting policies since its 2019 Form 10-K filing - The company's critical accounting policies have not materially changed since the 2019 Form 10-K was filed[162] Item 3. Quantitative and Qualitative Disclosure about Market Risk This section indicates that there have been no material changes to the company's market risk disclosures since its 2019 Form 10-K filing - The company's market risk disclosures have not materially changed since the 2019 Form 10-K was filed[163] Item 4. Controls and Procedures This section confirms the effectiveness of the company's disclosure controls and procedures and states that there have been no material changes in internal control over financial reporting - Management, with the CEO and CFO, evaluated the effectiveness of disclosure controls and procedures as of June 30, 2020, and concluded they are effective[164] - No changes have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting during the period[165] PART II. OTHER INFORMATION This section provides additional information, including risk factors, other disclosures, and a list of exhibits Item 1A. Risk Factors This section states that there have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for 2019, except for prior supplements and amendments - No material changes to risk factors have occurred since the 2019 Annual Report on Form 10-K, other than those previously supplemented and amended in the Q1 2020 Form 10-Q[168] Item 5. Other Information This section details the leadership transition, including the appointment of a new President and CEO, his compensation adjustments, and the severance package for the outgoing CEO - Aaron H. Ravenscroft was appointed President and Chief Executive Officer, effective August 5, 2020, succeeding Barry L. Pennypacker[169] - Mr. Ravenscroft's annual base salary was increased to $800,000, and his 2020 Short-Term Incentive Plan target award was increased to 100% of base salary[172] - Mr. Pennypacker will receive $4,000,000 in severance pay over 24 months, a pro rata 2020 bonus, accelerated vesting of some restricted stock units, and a $175,000 contribution to his Deferred Compensation Plan[173] Item 6. Exhibits This section lists all exhibits filed or furnished with the Form 10-Q, including the severance agreement, certifications, and XBRL documents - Exhibits include the Severance and General Release Agreement for Barry L. Pennypacker, Rule 13a-14(a)/15d-14(a) Certifications, CEO and CFO certifications pursuant to 18 U.S.C. Section 1350, and Inline XBRL documents[177] Signatures This section lists the individuals who signed the report and the date of signing - The report was signed on August 6, 2020, by Aaron H. Ravenscroft (President and Chief Executive Officer), David J. Antoniuk (Senior Vice President and Chief Financial Officer), and Brian P. Regan (Vice President and Corporate Controller)[180]