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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from          to

Commission File Number: 1-11978

 

The Manitowoc Company, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Wisconsin

 

39-0448110

(State or other jurisdiction

 

(I.R.S. Employer

of incorporation or organization)

 

Identification Number)

 

11270 West Park Place

Suite 1000

 

 

Milwaukee, Wisconsin

 

53224

(Address of principal executive offices)

 

(Zip Code)

Registrant’s telephone number, including area code: (414) 760-4600

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, $.01 Par Value

 

MTW

 

New York Stock Exchange

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

Non-accelerated filer

 

  

  

Smaller reporting company

 

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

 

As of March 31, 2020, the registrant had 34,508,504 shares of common stock, $.01 par value per share, outstanding.

 


 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

THE MANITOWOC COMPANY, INC.

Condensed Consolidated Statements of Operations

For the three months ended March 31, 2020 and 2019

(Unaudited)

($ in millions, except per-share and average shares data)

 

 

 

Three Months Ended

March 31,

 

 

 

2020

 

 

2019

 

Net sales

 

$

329.2

 

 

$

418.0

 

Cost of sales

 

 

266.0

 

 

 

337.8

 

Gross profit

 

 

63.2

 

 

 

80.2

 

Operating costs and expenses:

 

 

 

 

 

 

 

 

Engineering, selling and administrative expenses

 

 

55.9

 

 

 

59.4

 

Amortization of intangible assets

 

 

0.1

 

 

 

0.1

 

Restructuring expense

 

 

1.5

 

 

 

4.5

 

Total operating costs and expenses

 

 

57.5

 

 

 

64.0

 

Operating income

 

 

5.7

 

 

 

16.2

 

Other expense:

 

 

 

 

 

 

 

 

Interest expense

 

 

(7.2

)

 

 

(10.9

)

Amortization of deferred financing fees

 

 

(0.4

)

 

 

(0.4

)

Loss on debt extinguishment

 

 

 

 

 

(25.0

)

Other expense - net

 

 

(4.0

)

 

 

(3.3

)

Total other expense

 

 

(11.6

)

 

 

(39.6

)

Loss before income taxes

 

 

(5.9

)

 

 

(23.4

)

Provision for income taxes

 

 

1.9

 

 

 

3.3

 

Net loss

 

$

(7.8

)

 

$

(26.7

)

 

 

 

 

 

 

 

 

 

Per Share Data

 

 

 

 

 

 

 

 

Basic net loss per common share

 

$

(0.22

)

 

$

(0.75

)

 

 

 

 

 

 

 

 

 

Diluted net loss per common share

 

$

(0.22

)

 

$

(0.75

)

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding - basic

 

 

35,135,525

 

 

 

35,642,832

 

Weighted average shares outstanding - diluted

 

 

35,135,525

 

 

 

35,642,832

 

 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

 

2


 

THE MANITOWOC COMPANY, INC.

Condensed Consolidated Statements of Comprehensive Income (Loss)

For the three months ended March 31, 2020 and 2019

(Unaudited)

($ in millions)

 

 

 

Three Months Ended

March 31,

 

 

 

2020

 

 

2019

 

Net loss

 

$

(7.8

)

 

$

(26.7

)

Other comprehensive income (loss), net of income tax

 

 

 

 

 

 

 

 

Unrealized income on derivatives, net of income tax

   provision of $0.0 and $0.0, respectively

 

 

 

 

 

0.1

 

Employee pension and postretirement benefits, net of

   income tax provision of $0.3 and $0.0, respectively

 

 

1.2

 

 

 

0.5

 

Foreign currency translation adjustments

 

 

(13.6

)

 

 

(2.5

)

Total other comprehensive loss, net of income tax

 

 

(12.4

)

 

 

(1.9

)

Comprehensive loss

 

$

(20.2

)

 

$

(28.6

)

 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

3


 

THE MANITOWOC COMPANY, INC.

Condensed Consolidated Balance Sheets

As of March 31, 2020 and December 31, 2019

(Unaudited)

($ in millions, except share data)

 

 

 

March 31,

2020

 

 

December 31,

2019

 

Assets

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

103.6

 

 

$

199.3

 

Accounts receivable, less allowances of $8.7 and $7.9, respectively

 

 

169.3

 

 

 

168.3

 

Inventories — net

 

 

545.6

 

 

 

461.4

 

Notes receivable — net

 

 

15.1

 

 

 

17.4

 

Other current assets

 

 

29.2

 

 

 

26.0

 

Total current assets

 

 

862.8

 

 

 

872.4

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment — net

 

 

277.6

 

 

 

289.9

 

Operating lease right-of-use assets

 

 

44.9

 

 

 

47.6

 

Goodwill

 

 

230.3

 

 

 

232.5

 

Other intangible assets — net

 

 

114.9

 

 

 

116.3

 

Other long-term assets

 

 

53.5

 

 

 

59.0

 

Total assets

 

$

1,584.0

 

 

$

1,617.7

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

358.4

 

 

$

340.8

 

Short-term borrowings and current portion of long-term debt

 

 

3.9

 

 

 

3.8

 

Product warranties

 

 

47.1

 

 

 

47.2

 

Customer advances

 

 

21.0

 

 

 

25.8

 

Other liabilities

 

 

21.5

 

 

 

23.3

 

Total current liabilities

 

 

451.9

 

 

 

440.9

 

Non-Current Liabilities:

 

 

 

 

 

 

 

 

Long-term debt

 

 

307.9

 

 

 

308.4

 

Operating lease liabilities

 

 

35.0

 

 

 

37.6

 

Deferred income taxes

 

 

3.2

 

 

 

5.5

 

Pension obligations

 

 

83.7

 

 

 

86.4

 

Postretirement health and other benefit obligations

 

 

15.8

 

 

 

16.4

 

Long-term deferred revenue

 

 

25.7

 

 

 

30.3

 

Other non-current liabilities

 

 

44.1

 

 

 

46.3

 

Total non-current liabilities

 

 

515.4

 

 

 

530.9

 

Commitments and contingencies (Note 18)

 

 

 

 

 

 

 

 

Stockholders' Equity:

 

 

 

 

 

 

 

 

Preferred stock (authorized 3,500,000 shares of $.01 par value;

   none outstanding)

 

 

 

 

 

 

Common stock (75,000,000 shares authorized, 40,793,983 shares issued, 34,508,504

   and 35,374,537 shares outstanding, respectively)

 

 

0.4

 

 

 

0.4

 

Additional paid-in capital

 

 

593.7

 

 

 

592.2

 

Accumulated other comprehensive loss

 

 

(133.4

)

 

 

(121.0

)

Retained earnings

 

 

228.2

 

 

 

236.2

 

Treasury stock, at cost (6,285,479 and 5,419,446 shares, respectively)

 

 

(72.2

)

 

 

(61.9

)

Total stockholders' equity

 

 

616.7

 

 

 

645.9

 

Total liabilities and stockholders' equity

 

$

1,584.0

 

 

$

1,617.7

 

 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

 

4


 

THE MANITOWOC COMPANY, INC.

Condensed Consolidated Statements of Cash Flows

For the three months ended March 31, 2020 and 2019

(Unaudited)

($ in millions)

 

 

 

Three Months Ended

March 31,

 

 

 

2020

 

 

2019

 

Cash Flows from Operating Activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(7.8

)

 

$

(26.7

)

Adjustments to reconcile net loss to cash used for operating activities:

 

 

 

 

 

 

 

 

Depreciation

 

 

9.0

 

 

 

8.8

 

Amortization of intangible assets

 

 

0.1

 

 

 

0.1

 

Amortization of deferred financing fees

 

 

0.4

 

 

 

0.4

 

Loss on debt extinguishment

 

 

 

 

 

25.0

 

(Gain) loss on sale of property, plant and equipment

 

 

(0.1

)

 

 

0.4

 

Other

 

 

3.4

 

 

 

3.7

 

Changes in operating assets and liabilities

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(5.6

)

 

 

(195.7

)

Inventories

 

 

(88.5

)

 

 

(94.5

)

Notes receivable

 

 

2.6

 

 

 

 

Other assets

 

 

(1.7

)

 

 

14.1

 

Accounts payable

 

 

28.1

 

 

 

26.6

 

Accrued expenses and other liabilities

 

 

(18.5

)

 

 

(29.5

)

Net cash used for operating activities

 

 

(78.6

)

 

 

(267.3

)

 

 

 

 

 

 

 

 

 

Cash Flows from Investing Activities:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(3.6

)

 

 

(4.4

)

Proceeds from sale of fixed assets

 

 

0.1

 

 

 

4.8

 

Cash receipts on sold accounts receivable

 

 

 

 

 

126.3

 

Net cash provided by (used for) investing activities

 

 

(3.5

)

 

 

126.7

 

 

 

 

 

 

 

 

 

 

Cash Flows from Financing Activities:

 

 

 

 

 

 

 

 

Proceeds from revolving credit facility

 

 

 

 

 

58.0

 

Payments on revolving credit facility

 

 

 

 

 

(25.0

)

Payments on long-term debt

 

 

 

 

 

(277.8

)

Proceeds from long-term debt

 

 

 

 

 

300.0

 

Other debt - net

 

 

(0.5

)

 

 

 

Debt issuance costs

 

 

 

 

 

(5.6

)

Exercises of stock options

 

 

0.1

 

 

 

0.1

 

Common stock repurchases

 

 

(12.0

)

 

 

 

Net cash provided by (used for) financing activities

 

 

(12.4

)

 

 

49.7

 

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash

 

 

(1.3

)

 

 

(0.4

)

 

 

 

 

 

 

 

 

 

Net decrease in cash and cash equivalents

 

 

(95.8

)

 

 

(91.3

)

Cash and cash equivalents at beginning of period

 

 

199.3

 

 

 

140.3

 

Cash and cash equivalents at end of period

 

$

103.6

 

 

$

49.0

 

 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

 

5


 

THE MANITOWOC COMPANY, INC.

Condensed Consolidated Statements of Equity

As of March 31, 2020 and December 31, 2019

(Unaudited)

($ in millions, except share data)

 

 

March 31,

2020

 

 

December 31,

2019

 

Common Stock - Shares Outstanding

 

 

 

 

 

 

 

 

Balance at beginning of period

 

 

35,374,537

 

 

 

35,588,833

 

Stock options exercised

 

 

11,250

 

 

 

58,404

 

Restricted stock, net

 

 

118,009

 

 

 

145,482

 

Performance shares issued

 

 

66,419

 

 

 

54,860

 

Common stock repurchases

 

 

(1,061,711

)

 

 

(473,042

)

Balance at end of period

 

 

34,508,504

 

 

 

35,374,537

 

Common Stock - Par Value

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

0.4

 

 

$

0.4

 

Balance at end of period

 

$

0.4

 

 

$

0.4

 

Additional Paid-in Capital

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

592.2

 

 

$

584.8

 

Stock options exercised and issuance of other stock awards

 

 

(1.9

)

 

 

(2.1

)

Stock-based compensation

 

 

3.4

 

 

 

9.5

 

Balance at end of period

 

$

593.7

 

 

$

592.2

 

Accumulated Other Comprehensive Loss

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

(121.0

)

 

$

(116.6

)

Other comprehensive loss

 

 

(12.4

)

 

 

(4.4

)

Balance at end of period

 

$

(133.4

)

 

$

(121.0

)

Retained Earnings

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

236.2

 

 

$

189.6

 

Adoption of accounting standard updates

 

 

(0.2

)

 

 

 

Net income (loss)

 

 

(7.8

)

 

 

46.6

 

Balance at end of period

 

$

228.2

 

 

$

236.2

 

Treasury Stock

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

(61.9

)

 

$

(56.9

)

Stock options exercised and issuance of other stock awards

 

 

1.7

 

 

 

2.4

 

Common stock repurchases

 

 

(12.0

)

 

 

(7.4

)

Balance at end of period

 

$

(72.2

)

 

$

(61.9

)

Total equity

 

$

616.7

 

 

$

645.9

 

 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

 


6


 

THE MANITOWOC COMPANY, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

For the three months ended March 31, 2020 and 2019

1.  Accounting Policies and Basis of Presentation

The Manitowoc Company, Inc. (“Manitowoc” and the “Company”) was founded in 1902 and has over a 117-year tradition of providing high-quality, customer-focused products and support services to its markets. Manitowoc is one of the world’s leading providers of engineered lifting solutions.  Manitowoc, through its wholly-owned subsidiaries, designs, manufactures, markets, and supports comprehensive product lines of mobile telescopic cranes, tower cranes, lattice-boom crawler cranes, and boom trucks under the Grove, Manitowoc, National Crane, Potain, Shuttlelift and Manitowoc Crane Care brand names. The Company serves a wide variety of customers, including dealers, rental companies, contractors, and government entities, across the petrochemical, industrial, commercial construction, power and utilities, infrastructure and residential construction end markets. Additionally, its Manitowoc Crane Care offering leverages Manitowoc's installed base of approximately 149,000 cranes to provide aftermarket parts and services to enable its customers to manage their fleets more effectively and improve their return on investment. Due to the ongoing and predictable maintenance needed by cranes, as well as the high cost of crane downtime, Manitowoc Crane Care provides the Company with a consistent stream of recurring revenue.

The Company has three reportable segments, the Americas segment, Europe and Africa (“EURAF”) segment and Middle East and Asia Pacific (“MEAP”) segment. The segments were identified using the “management approach,” which designates the internal organization that is used by management for making operating decisions and assessing performance. Refer to Note 17, “Segments” for additional information.

In the opinion of management, the accompanying unaudited Condensed Consolidated Financial Statements contain all adjustments necessary for a fair statement of the results of operations and comprehensive income for the three months ended March 31, 2020 and 2019, the cash flows for the same three-month periods and the financial position and equity at March 31, 2020 and December 31, 2019, and except as otherwise discussed, such adjustments consist of only those of a normal recurring nature. The interim results are not necessarily indicative of results for a full year and do not contain information included in the Company’s annual consolidated financial statements and notes for the year ended December 31, 2019. Certain information and footnote disclosures, normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”), have been condensed or omitted pursuant to Securities and Exchange Commission rules and regulations dealing with interim financial statements. However, the Company believes that the disclosures made in the Condensed Consolidated Financial Statements included herein are adequate to make the information presented not misleading. It is suggested that these financial statements be read in conjunction with the financial statements and the notes thereto included in the Company’s latest annual report on Form 10-K.

All dollar amounts, except share amounts, are in millions of dollars throughout the tables in these notes unless otherwise indicated.

Impact of COVID-19 Pandemic

 

During the first quarter of 2020, the outbreak of COVID-19 spread throughout the world and became a global pandemic. In response to the COVID-19 pandemic, various national, state, and local governments where the Company, its suppliers and customers operate have implemented numerous measures to try to contain the virus, such as travel bans and restrictions, border closings, restrictions on public gatherings, quarantining of people who may have been exposed to the virus, shelter-in-place restrictions, and limitations or shutdowns of business operations. The Company has significant operations worldwide, including in the United States, France, Germany, Portugal, Italy and China and each of these countries has been affected by the outbreak and taken measures to try to contain it, resulting in disruptions at some of the Company’s manufacturing facilities and support operations. Although the Company continues to operate in the United States as an essential business, certain facilities around the world were closed at some point throughout the quarter.

There is considerable uncertainty regarding the impact, and expected duration, of the pandemic, and restrictions on the Company’s access to its facilities or on its support operations or workforce, or similar limitations for its customers, dealers and suppliers. There is no certainty that measures taken by governmental authorities will be sufficient to mitigate the risks posed by the virus, and the Company’s ability to perform critical functions could be harmed. This uncertainty could have an impact in future periods on certain estimates used in the preparation of the Company’s first quarter financial results, including, but not limited to, impairment of goodwill and other long-lived assets, income tax provision, recoverability of inventory and hedge accounting with respect to forecasted future transactions.  

 

7


 

2.  Recent Accounting Changes and Pronouncements

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2019-12 “Income Taxes (Topic 740).” The amendments in this ASU simplify accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The standard is effective for annual periods beginning after December 15, 2020. The Company is currently evaluating the impact the adoption of the ASU will have on the Company’s consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-15 “Intangibles – Goodwill and Other – Internal-use Software (Subtopic 250-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract.” The amendments in this ASU align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The standard is effective for annual periods beginning after December 15, 2019. The adoption of the ASU did not have a material impact on the Company’s condensed consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses,” which requires the Company to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable supportable forecasts. The new guidance is applicable to financial assets measured at amortized cost, net investments in leases and certain off-balance sheet credit exposures. The standard was effective for annual periods beginning after December 15, 2019. The adoption of the ASU resulted in a $0.2 million reduction in beginning retained earnings and a corresponding reduction in accounts receivable on the Company’s Condensed Consolidated Balance Sheets as of March 31, 2020. There was no material impact to the Company’s Condensed Consolidated Statements of Operations or Condensed Consolidated Statements of Cash Flows.

3. Revenues

 

The Company records deferred revenue when cash payments are received or due in advance of performance, including amounts which are refundable. The table below shows the change in the customer advances balance for the three months ended March 31, 2020 and 2019 which are included in current liabilities in the Condensed Consolidated Balance Sheets.

 

 

 

Three Months Ended

March 31,

 

 

 

2020

 

 

2019

 

Balance at beginning of period

 

$

25.8

 

 

$

9.6

 

Cash received in advance of satisfying

   performance obligation

 

 

28.9

 

 

 

31.9

 

Revenue recognized

 

 

(32.5

)

 

 

(28.3

)

Currency translation

 

 

(1.2

)

 

 

0.1

 

Balance at end of period

 

$

21.0

 

 

$

13.3

 

 

Disaggregation of the Company’s revenue sources are disclosed in Note 17, “Segments.”

 


8


 

4.  Fair Value of Financial Instruments

Accounting Standards Codification (“ASC”) Topic 820-10, “Fair Value Measurement,” defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820-10 classifies the inputs used to measure fair value into the following hierarchy:

 

Level 1

 

Unadjusted quoted prices in active markets for identical assets or liabilities

 

 

 

Level 2

 

Unadjusted quoted prices in active markets for similar assets or liabilities, or

 

 

 

 

 

Unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or

 

 

 

 

 

Inputs other than quoted prices that are observable for the asset or liability

 

 

 

Level 3

 

Unobservable inputs for the asset or liability

The following tables set forth the Company’s financial assets and liabilities that were recorded within the Condensed Consolidated Balance Sheets and accounted for at fair value as of March 31, 2020 and December 31, 2019, by level within the fair value hierarchy. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

 

 

 

Fair Value as of March 31, 2020

 

 

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

 

Recognized Location

Current Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forward currency exchange contracts

 

$

 

 

$

0.1

 

 

$

 

 

$

0.1

 

 

Other current assets

Current Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forward currency exchange contracts

 

$

 

 

$

0.2

 

 

$

 

 

$

0.2

 

 

Accounts payable and

   accrued expenses

 

 

 

Fair Value as of December 31, 2019

 

 

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

 

Recognized Location

Current Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forward currency exchange contracts

 

$

 

 

$

0.1

 

 

$

 

 

$

0.1

 

 

Other current assets

Current Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forward currency exchange contracts

 

$

 

 

$

0.1

 

 

$

 

 

$

0.1

 

 

Accounts payable and

   accrued expenses

 

The fair value of the senior secured second lien notes due on April 1, 2026, with an annual coupon rate of 9.000% (the “2026 Notes”), was approximately $266.0 million as of March 31, 2020. See Note 11, “Debt,” for a description of the debt instrument and its related carrying value.

The Company endeavors to utilize the best available information in measuring fair value. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.  The Company estimates the fair value of its 2026 Notes based on quoted market prices; because these markets are typically actively traded, the liabilities are classified as Level 1 within the valuation hierarchy. The carrying values of cash and cash equivalents, accounts receivable, accounts payable and short-term variable debt, including any amounts outstanding under the revolving credit facility, approximate fair value, without being discounted as of March 31, 2020 and December 31, 2019, due to the short-term nature of these instruments.

Forward currency exchange contracts (“FX Forward Contracts”) are valued through an independent valuation source which uses an industry standard data provider, with resulting valuations periodically validated through third-party or counterparty quotes. As such, these derivative instruments are classified within Level 2. See Note 5, “Derivative Financial Instruments” for additional information.

 

 


9


 

5.  Derivative Financial Instruments

 

The Company’s risk management objective is to ensure that business exposures to risks are minimized using the most effective and efficient methods to eliminate, reduce, or transfer such exposures.  Operating decisions consider these associated risks and, whenever possible, transactions are structured to avoid or mitigate these risks.

 

From time to time, the Company enters into FX Forward Contracts to manage the exposure on forecasted transactions denominated in non-functional currencies and to manage the risk of transaction gains and losses associated with assets/liabilities in currencies other than the functional currency of certain subsidiaries. Certain of these FX Forward Contracts are designated as cash flow hedges. To the extent these derivatives are effective in offsetting the variability of the hedged cash flows, changes in the derivatives’ fair value are not included in current earnings but are included in accumulated other comprehensive income (loss). These changes in fair value are reclassified into earnings as a component of cost of sales, as applicable, when the forecasted transaction impacts earnings. In addition, if the forecasted transaction is no longer probable, the cumulative change in the derivatives’ fair value is recorded as a component of other income expense – net in the period in which the transaction is no longer considered probable of occurring. No amounts were recorded related to these types of transactions during the three months ended March 31, 2020 and 2019, respectively.

 

The Company had FX Forward Contracts with an aggregate notional amount of $24.4 million and $32.6 million outstanding as of March 31, 2020 and December 31, 2019, respectively. The aggregate notional amount outstanding as of March 31, 2020 is scheduled to mature within one year. The FX Forward Contracts purchased are denominated in Euros. As of March 31, 2020 and December 31, 2019, the net fair value of these contracts was a net current liability of $0.1 million and a net zero balance, respectively. There was zero unrealized gains (losses), net of income tax, recorded in accumulated other comprehensive loss as of March 31, 2020 and December 31, 2019.  

 

The following table provides the amount of gain or losses recorded in the Condensed Consolidated Statement of Operations for FX Forward Contracts for the three months ended March 31, 2020 and 2019.

 

 

 

 

 

Three Months Ended

March 31,

 

 

 

Recognized Location

 

2020

 

 

2019

 

Designated

 

Cost of sales

 

$

0.1

 

 

$

0.8

 

Non-Designated

 

Other income (expense) - net

 

$

 

 

$

0.7

 

 

6.  Inventories

The components of inventories as of March 31, 2020 and December 31, 2019 are summarized as follows:

 

 

 

March 31,

2020

 

 

December 31,

2019

 

Raw materials

 

$

157.3

 

 

$

156.3

 

Work-in-process

 

 

142.2

 

 

 

116.3

 

Finished goods

 

 

297.5

 

 

 

239.4

 

Total inventories

 

 

597.0

 

 

 

512.0

 

Excess and obsolete inventory reserve

 

 

(51.4

)

 

 

(50.6

)

Inventories — net

 

$

545.6

 

 

$

461.4

 

 

7.  Notes Receivable

The Company has notes receivable balances that are classified as current or long-term based on the timing of amounts due. Long-term notes receivable are included within other non-current assets on the Condensed Consolidated Balance Sheets. Current and long-term notes receivable balances primarily relate to the Company’s captive finance entity in China. The Company also has a long-term note receivable balance related to the 2014 sale of Manitowoc Dong Yue. During 2019, the Company recorded $2.8 million related to the write down of the note with Manitowoc Dong Yue to the anticipated collection amount. As of March 31, 2020, the Company had current and long-term notes receivable in the amount of $15.1 million and $16.0 million, respectively. As of December 31, 2019, the Company had current and long-term notes receivable in the amount of $17.4 million and $16.3 million, respectively.

 


10


 

8.  Property, Plant and Equipment

The components of property, plant and equipment at March 31, 2020 and December 31, 2019 are summarized as follows:

 

 

 

March 31,

2020

 

 

December 31,

2019

 

Land

 

$

23.3

 

 

$

24.0

 

Building and improvements

 

 

193.8

 

 

 

197.3

 

Machinery, equipment and tooling

 

 

271.9

 

 

 

274.2

 

Furniture and fixtures

 

 

18.3

 

 

 

18.5

 

Computer hardware and software

 

 

119.3

 

 

 

119.3

 

Rental cranes

 

 

73.1

 

 

 

77.7

 

Construction in progress

 

 

8.5

 

 

 

11.2

 

Total cost

 

 

708.2

 

 

 

722.2

 

Less accumulated depreciation

 

 

(430.6

)

 

 

(432.3

)

Property, plant and equipment-net

 

$

277.6

 

 

$

289.9

 

 

Property, plant and equipment are depreciated over the asset’s estimated useful lives using the straight-line depreciation method for financial reporting and accelerated methods for income tax purposes.

9.  Goodwill and Other Intangible Assets

 

The Company performs an annual impairment review of goodwill and indefinite-lived intangible assets during the fourth quarter, or more frequently if events or changes in circumstances indicate that the asset might be impaired. The Company considered the deterioration in general economic and market conditions due to the COVID-19 pandemic and its impact on each of the Company’s reporting units’ performance. Despite the significant excess fair value identified in the 2019 annual impairment assessment, the Company determined that due to the decline in the Company’s market capitalization as a result of the COVID-19 pandemic, a triggering event was identified during the first quarter of 2020. Therefore, the Company qualitatively assessed whether it was more likely than not that the goodwill and indefinite-lived intangible assets were impaired as of March 31, 2020. Based on the Company’s review of its previous forecast and assumptions of its long-term revenue growth and operating income projections, including the duration and extent of the COVID-19 impact to the business, current discount rates, volatility in the Company’s market capitalization and macro-economic conditions, as well as the amount of excess of fair value over the carrying value of the reporting units in the 2019 annual impairment assessment, the Company concluded that the fair value of each reporting unit was in excess of its carrying amount as of March 31, 2020. However, the Company is unable to predict future changes in such circumstances, including a more prolonged and/or severe COVID-19 pandemic than anticipated, or future changes in the variables associated with management’s judgements and assumptions used to assess the fair value of the reporting units, which could require the Company to record a non-cash impairment charge in the future.

The changes in the carrying amount of goodwill for the year ended December 31, 2019 and the three months ended March 31, 2020 are summarized as follows:

 

 

 

Americas

 

 

MEAP

 

 

Consolidated

 

Balance as of January 1, 2019

 

$

166.5

 

 

$

66.3

 

 

$

232.8

 

Foreign currency impact

 

 

 

 

 

(0.3

)

 

 

(0.3

)

Balance as of December 31, 2019

 

 

166.5

 

 

 

66.0

 

 

 

232.5

 

Foreign currency impact

 

 

 

 

 

(2.2

)

 

 

(2.2

)

Balance as of March 31, 2020

 

$

166.5

 

 

$

63.8

 

 

$

230.3

 

 

Other intangible assets with definite lives are amortized over their estimated useful lives.

11


 

The gross carrying amount, accumulated amortization and net book value of the Company’s intangible assets other than goodwill at March 31, 2020 and December 31, 2019 are summarized as follows:

 

 

 

March 31, 2020

 

 

December 31, 2019

 

 

 

Gross

Carrying

Amount

 

 

Accumulated

Amortization

 

 

Net

Book

Value

 

 

Gross

Carrying

Amount

 

 

Accumulated

Amortization

 

 

Net

Book

Value

 

Trademarks and tradenames

 

$

94.2

 

 

$

 

 

$

94.2

 

 

$

95.3

 

 

$

 

 

$

95.3

 

Customer relationships

 

 

9.7

 

 

 

(8.2

)

 

 

1.5

 

 

 

10.0

 

 

 

(8.5

)

 

 

1.5

 

Patents

 

 

29.2

 

 

 

(28.4

)

 

 

0.8

 

 

 

29.5

 

 

 

(28.7

)

 

 

0.8

 

Distribution network

 

 

18.4

 

 

 

 

 

 

18.4

 

 

 

18.7

 

 

 

 

 

 

18.7

 

Net balance

 

$

151.5

 

 

$

(36.6

)

 

$

114.9

 

 

$

153.5

 

 

$

(37.2

)

 

$

116.3

 

 

Amortization expense for each of the three months ended March 31, 2020 and 2019 was $0.1 million.

Definite lived intangible assets and long-lived assets are subject to impairment testing whenever events or circumstances indicate that the carrying value of the assets may not be recoverable.

10.  Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses at March 31, 2020 and December 31, 2019 are summarized as follows:

 

 

 

March 31, 2020

 

 

December 31, 2019

 

Trade accounts payable

 

$

211.5

 

 

$

187.1

 

Employee-related expenses

 

 

39.4

 

 

 

56.6

 

Accrued vacation

 

 

21.4

 

 

 

20.2

 

Miscellaneous accrued expenses

 

 

86.1

 

 

 

76.9

 

Total accounts payable and accrued expenses

 

$

358.4

 

 

$

340.8

 

 

11.  Debt

Outstanding debt at March 31, 2020 and December 31, 2019 are summarized as follows:

 

 

 

March 31, 2020

 

 

December 31, 2019

 

Senior secured asset based revolving credit facility

 

$

 

 

$

 

Senior secured second lien notes due 2026

 

 

300.0

 

 

 

300.0

 

Other

 

 

16.2

 

 

 

16.7

 

Deferred financing costs

 

 

(4.4

)

 

 

(4.5

)

Total debt

 

 

311.8

 

 

 

312.2

 

Short-term borrowings and current portion of long-term

   debt

 

 

(3.9

)

 

 

(3.8

)

Long-term debt

 

$

307.9

 

 

$

308.4

 

 

On March 25, 2019, the Company and certain of its subsidiaries entered into an indenture with U.S. Bank National Association as trustee and notes collateral agent, pursuant to which the Company issued $300.0 million aggregate principal amount senior secured second lien notes due on April 1, 2026 with an annual coupon rate of 9.000%. Interest on the 2026 Notes is payable in cash semi-annually in arrears on April 1 and October 1 of each year. The 2026 Notes are fully and unconditionally guaranteed on a senior secured second lien basis, jointly and severally, by each of the Company’s existing and future domestic subsidiaries that is either a guarantor or a borrower under the ABL Revolving Credit Facility (as defined below) or that guarantees certain other debt of the Company or a guarantor. The 2026 Notes and the related guarantees are secured on a second-priority basis, subject to certain exceptions and permitted liens, by pledges of capital stock and other equity interests and other security interests in substantially all of the personal property and fee-owned real property of the Company and of the guarantors that secure obligations under the ABL Revolving Credit Facility. The 2026 Notes were sold pursuant to exemptions from registration under the Securities Act of 1933.    

 

 


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Additionally, on March 25, 2019, the Company and certain subsidiaries of the Company (the “Loan Parties”) entered into a credit agreement (the “ABL Credit Agreement”) with JP Morgan Chase Bank, N.A as administrative and collateral agent and certain financial institutions party thereto as lenders, providing for a senior secured asset-based revolving credit facility (the “ABL Revolving Credit Facility”) of up to $275.0 million. The borrowing capacity under the ABL Revolving Credit Facility is based on the value of inventory, accounts receivable and fixed assets of the Loan Parties. The Loan Parties’ obligations under the ABL Revolving Credit Facility are secured on a first-priority bases, subject to certain exceptions and permitted liens, by substantially all of the personal property and fee-owned real property of the Loan Parties. The liens securing the ABL Revolving Credit Facility are senior in priority to the second-priority liens securing the obligations under the 2026 Notes and the related guarantees. The ABL Revolving Credit Facility has a term of 5 years and includes a $75.0 million letter of credit sub-facility, $10.0 million of which is available to the Company’s German subsidiary that is a borrower under the ABL Revolving Credit Facility.

 

Borrowings under the ABL Revolving Credit Facility bear interest at a variable rate using either the Alternative Base Rate or the Eurodollar and Overnight London Interbank Offer Rate (“LIBOR”). The variable interest rate is based upon the average quarterly availability as of the most recent determination date as follows:

 

Average quarterly availability

Alternative base rate spread

 

Eurodollar and overnight LIBOR spread

 

≥ 50% of Aggregate Commitment

0.25%

 

1.25%

 

< 50% of Aggregate Commitment

0.50%

 

1.50%

 

 

The Company used the initial extension of credit under the ABL Revolving Credit Facility, together with the net proceeds from the offering of the 2026 Notes, to (i) redeem all of the Company’s $260.0 million in outstanding 12.750% Senior Secured Second Lien Notes due 2021 (the “Prior 2021 Notes”); (ii) repay all obligations outstanding, and terminate all commitments, under the Company’s previous (x) $225.0 million ABL Revolving Credit Facility and (y) $75.0 million accounts receivable securitization facility; and (iii) pay related fees and expenses, including $16.6 million of call premium on the Prior 2021 Notes, $5.0 million of closing costs and $4.6 million of accrued interest.

 

During the three months ended March 31, 2019 the Company recorded a $25.0 million charge in the Condensed Consolidated Statement of Operations associated with the Company’s refinancing of the ABL Revolving Credit Facility and 2026 Notes. The charge is composed of $16.6 million of call premium on the Prior 2021 Notes, $5.3 million of unamortized discount on the Prior 2021 Notes and $3.1 million of unamortized debt issuance costs.

As of March 31, 2020, the Company had outstanding $16.2 million of other indebtedness that has a weighted-average interest rate of approximately 5.14%. This debt includes balances on local credit lines and other financing arrangements.

At March 31, 2020 and December 31, 2019, the Company had no borrowings on the ABL Revolving Credit Facility. As of March 31, 2020, the spreads for LIBOR and prime rate borrowings were 1.25% and 0.25%, respectively, with excess availability of approximately $240.2 million, which represents revolver borrowing capacity of $244.2 million less U.S. letters of credit outstanding of $4.0 million.

Both the ABL Revolving Credit Facility and the 2026 Notes include customary covenants which include, without limitation, restrictions on, the Company’s ability and the ability of the Company’s restricted subsidiaries to incur, assume or guarantee additional debt or issue certain preferred shares, pay dividends on or make other distributions in respect of the Company’s capital stock or make other restricted payments, make certain investments, sell or transfer certain assets, create liens on certain assets to secure debt, consolidate, merge, sell, or otherwise dispose of all or substantially all of the Company’s assets, enter into certain transactions with affiliates and designate the Company’s subsidiaries as unrestricted. Both the ABL Revolving Credit Facility and the 2026 Notes also include customary events of default. The ABL Revolving Credit Facility has customary representations and warranties including, as a condition to borrowing, that all such representations and warranties are true and correct, in all material respects, on the date of the borrowing, including representations as to no material adverse change in the Company’s business or financial condition since December 31, 2018.

Additionally, the ABL Revolving Credit Facility contains a covenant requiring the Company to maintain a minimum fixed charge coverage ratio under certain circumstances set forth in the ABL Credit Agreement.

As of March 31, 2020, the Company was in compliance with all affirmative and negative covenants in its debt instruments, inclusive of the financial covenants pertaining to the ABL Revolving Credit Facility and the 2026 Notes. Based upon management’s current plans and outlook, the Company believes it will be able to comply with these covenants during the subsequent twelve months.

13


 

12.  Accounts Receivable Securitization and Other Factoring Arrangements

The Company had maintained a Receivables Purchase Agreement (“RPA”) among Manitowoc Funding, LLC (“MTW Funding”), as Seller, The Manitowoc Company, Inc., as Servicer, and Wells Fargo Bank, N.A., as Purchaser and as Agent, with a commitment size of $75.0 million. Under the RPA (and the related Purchase and Sale Agreements referenced in the RPA), the Company’s domestic trade accounts receivable were sold to MTW Funding which, in turn, sold, conveyed, transferred and assigned to a third-party financial institution (“Purchaser”), all of MTW Funding's rights, title and interest in a pool of receivables to the Purchaser. Transactions under the program are accounted for as sales in accordance with ASC Topic 860, “Transfers and Servicing” (“Topic 860”). This program was terminated on March 25, 2019.

Trade accounts receivable sold to the Purchaser and being serviced by the Company totaled zero and $149.0 million for the three months ended March 31, 2020 and 2019, respectively. Cash proceeds received from customers related to the receivables previously sold for the three months ended March 31, 2020 and 2019 were zero and $182.8 million, respectively.

Proceeds received from the sale of trade receivables under the program are included in cash flows from operating activities; whereas cash collections related to the deferred purchase price are classified as cash flows from investing activities in the accompanying Condensed Consolidated Statements of Cash Flows. For the three months ended March 31, 2020 and 2019 non-cash investing activities related to the increase in the deferred purchase price was zero million and $168.3 million, respectively.

The Company has two non-U.S. accounts receivable financing programs. During 2019, the Company increased the maximum availability under these programs from €45 million to €55 million. Under these financing programs, the Company has the ability to sell eligible receivables up to the maximum limit and can sell additional receivables as previously sold are collected. During the three months ended March 31, 2020, the Company sold €36.5 million of receivables and received €36.5 million of cash on the sold receivables. The Company also has one U.S. accounts receivable financing program. Transactions under the U.S. and non-U.S. programs were accounted for as sales in accordance with Topic 860.

13.  Income Taxes

For the three months ended March 31, 2020 and 2019, the Company recorded a provision for income taxes of $1.9 million and $3.3 million, respectively. The decrease in the Company’s provision for income taxes for the three months ended March 31, 2020 relative to the prior year primarily relates to reduced tax expense in foreign jurisdictions.

The Company will continue to evaluate its valuation allowance requirements on an ongoing basis in light of changing facts and circumstances and may adjust its deferred tax asset valuation allowances accordingly. It is reasonably possible that the Company will either add to or reverse a portion of its existing deferred tax asset valuation allowances in the future. Such changes in the deferred tax asset valuation allowances will be reflected in the Company’s income tax provision (benefit) and could have a material effect on financial results.

The Company’s unrecognized tax benefits, excluding interest and penalties, were $11.6 million as of March 31, 2020 and $11.5 million as of December 31, 2019.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Act (the “CARES Act”) was enacted in response to the COVID-19 pandemic, and among other things, provides tax relief to businesses. The Company is evaluating the CARES Act but does not expect it to impact current and deferred income tax balances; therefore, no resulting adjustments have been recorded to such balances as of March 31, 2020. As the Company completes its evaluation and further guidance is released regarding the CARES Act, the Company will record adjustments, as necessary, to its current and deferred income tax balances.

14


 

14.  Net Loss Per Share

Basic net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding of 35.1 million and 35.6 million for the three months ended March 31, 2020 and 2019.

Equity incentive instruments for which total employee proceeds from exercise exceed the average fair value of the same equity incentive instrument over the period have an anti-dilutive effect on earnings per share during periods with net earnings, and accordingly, the Company excludes them from the calculation. Due to the net loss incurred during the three months ended March 31, 2020 and 2019, the assumed exercise of all equity incentive instruments was anti-dilutive and, therefore, not included in the net diluted loss per share calculation for those periods.

The following is a reconciliation of the average shares outstanding used to compute basic and diluted earnings per share:

 

 

 

Three Months Ended

March 31,

 

 

 

2020

 

 

2019

 

Basic weighted average common shares outstanding

 

 

35,135,525

 

 

 

35,642,832

 

Effect of dilutive securities - stock awards

 

 

 

 

 

 

Diluted weighted average common shares outstanding

 

 

35,135,525

 

 

 

35,642,832

 

No cash dividends were paid during the three months ended March 31, 2020 and 2019.

15.  Equity

 

Authorized capital consists of 75 million shares of $0.01 par value common stock and 3.5 million shares of $0.01 par value preferred stock.  None of the preferred shares have been issued.