Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

 

FORM 10-Q

 

x

 

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended September 30, 2009

 

or

 

o

 

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
of incorporation or organization)

 

(I.R.S. Employer
Identification Number)

 

 

 

2400 South 44th Street,
Manitowoc, Wisconsin

 


54221-0066

(Address of principal executive offices)

 

(Zip Code)

 

(920) 684-4410

(Registrant’s telephone number, including area code)

 

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 x No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted 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 and post such files).  Yes o No o

 

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

 

Large accelerated filer x

 

Accelerated filer o

 

 

 

Non-accelerated filer o

(Do not check if a smaller reporting company)

 

Smaller Reporting Company o

 

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

 

The number of shares outstanding of the Registrant’s common stock, $.01 par value, as of September 30, 2009, the most recent practicable date, was 130,631,654.

 

 

 



Table of Contents

 

THE MANITOWOC COMPANY, INC.

FORM 10-Q INDEX

FOR THE QUARTER ENDED SEPTEMBER 30, 2009

 

 

 

Page

 

 

 

PART I - FINANCIAL INFORMATION

 

 

 

 

ITEM 1.

FINANCIAL STATEMENTS (UNAUDITED)

 

 

 

 

 

Consolidated Statements of Operations For the Three Months and Nine Months Ended September 30, 2009 and 2008

3

 

 

 

 

Consolidated Balance Sheets As of September 30, 2009 and December 31, 2008

4

 

 

 

 

Consolidated Statements of Cash Flows For the Nine Months Ended September 30, 2009 and 2008

5

 

 

 

 

Consolidated Statements of Comprehensive Income For the Three and Nine Months Ended September 30, 2009 and 2008

6

 

 

 

 

Notes to Unaudited Consolidated Financial Statements

7

 

 

 

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

35

 

 

 

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

43

 

 

 

ITEM 4.

CONTROLS AND PROCEDURES

44

 

 

 

PART II - OTHER INFORMATION

 

 

 

 

ITEM 1A.

RISK FACTORS

44

 

 

 

ITEM 6.

EXHIBITS

44

 

 

 

SIGNATURES

44

 

 

EXHIBIT INDEX

45

 

2



Table of Contents

 

PART I.  FINANCIAL INFORMATION

 

Item 1.  Financial Statements

 

THE MANITOWOC COMPANY, INC.

Consolidated Statements of Operations

For the Three and Nine Months Ended September 30, 2009 and 2008

(Unaudited)

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

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2009

 

2008

 

2009

 

2008

 

Net sales

 

$

881.5

 

$

1,106.8

 

$

2,943.8

 

$

3,286.4

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

Cost of sales

 

680.0

 

863.1

 

2,300.4

 

2,512.8

 

Engineering, selling and administrative expenses

 

132.7

 

98.7

 

420.0

 

317.3

 

Asset impairments

 

 

 

700.0

 

 

Restructuring expense

 

12.8

 

0.8

 

38.7

 

0.8

 

Integration expense

 

 

1.6

 

3.5

 

1.6

 

Amortization expense

 

8.4

 

2.0

 

25.2

 

5.5

 

Total operating costs and expenses

 

833.9

 

966.2

 

3,487.8

 

2,838.0

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) from operations

 

47.6

 

140.6

 

(544.0

)

448.4

 

 

 

 

 

 

 

 

 

 

 

Other income (expenses):

 

 

 

 

 

 

 

 

 

Amortization of deferred financing fees

 

(12.0

)

(0.2

)

(31.9

)

(0.6

)

Interest expense

 

(49.0

)

(7.3

)

(130.4

)

(21.0

)

Loss on currency hedges

 

 

(198.4

)

 

(198.4

)

Loss on debt extinguishment

 

 

 

(2.1

)

 

Other income (expense), net

 

2.3

 

(2.8

)

8.5

 

5.3

 

Total other income (expenses)

 

(58.7

)

(208.7

)

(155.9

)

(214.7

)

 

 

 

 

 

 

 

 

 

 

Earnings (loss) from continuing operations before taxes on income

 

(11.1

)

(68.1

)

(699.9

)

233.7

 

Provision (benefit) for taxes on income

 

3.6

 

(29.6

)

(63.6

)

55.9

 

Earnings (loss) from continuing operations

 

(14.7

)

(38.5

)

(636.3

)

177.8

 

 

 

 

 

 

 

 

 

 

 

Discontinued operations:

 

 

 

 

 

 

 

 

 

Earnings (loss) from discontinued operations, net of income taxes of $0.1, $4.2, $1.9 and $12.1, respectively

 

(1.8

)

11.6

 

(33.1

)

31.7

 

Loss on sale of discontinued operations, net of income taxes of $2.7 and $19.6, respectively

 

(2.7

)

 

(25.8

)

 

Net earnings (loss)

 

(19.2

)

(26.9

)

(695.2

)

209.5

 

Less: Net loss attributable to noncontrolling interest, net of tax

 

(1.5

)

(0.8

)

(3.2

)

(0.9

)

Net earnings (loss) attributable to Manitowoc

 

(17.7

)

(26.1

)

(692.0

)

210.4

 

 

 

 

 

 

 

 

 

 

 

Amounts attributable to the Manitowoc common shareholders:

 

 

 

 

 

 

 

 

 

Earnings (loss) from continuing operations

 

(13.2

)

(37.7

)

(633.1

)

178.7

 

Earnings (loss) from discontinued operations, net of income taxes

 

(1.8

)

11.6

 

(33.1

)

31.7

 

Loss on sale of discontinued operations, net of income taxes

 

(2.7

)

 

(25.8

)

 

Net earnings (loss) attributable to Manitowoc

 

(17.7

)

(26.1

)

(692.0

)

210.4

 

 

 

 

 

 

 

 

 

 

 

Basic earnings (loss) per common share:

 

 

 

 

 

 

 

 

 

Earnings (loss) from continuing operations attributable to Manitowoc common shareholders

 

(0.10

)

(0.29

)

(4.86

)

1.38

 

Earnings (loss) from discontinued operations attributable to Manitowoc common shareholders

 

(0.01

)

0.09

 

(0.25

)

0.24

 

Loss on sale of discontinued operations, net of income taxes

 

(0.02

)

 

(0.20

)

 

Earnings (loss) from discontinued operations attributable to Manitowoc common shareholders

 

(0.14

)

(0.20

)

(5.31

)

1.62

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings (loss) per common share:

 

 

 

 

 

 

 

 

 

Earnings (loss) from continuing operations attributable to Manitowoc common shareholders

 

(0.10

)

(0.29

)

(4.86

)

1.36

 

Earnings (loss) from discontinued operations attributable to Manitowoc common shareholders

 

(0.01

)

0.09

 

(0.25

)

0.24

 

Loss on sale of discontinued operations, net of income taxes

 

(0.02

)

 

(0.20

)

 

Earnings (loss) per share attributable to Manitowoc common shareholders

 

(0.14

)

(0.20

)

(5.31

)

1.60

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding — basic

 

130,284,925

 

130,090,741

 

130,227,298

 

129,855,810

 

Weighted average shares outstanding — diluted

 

130,284,925

 

130,090,741

 

130,227,298

 

131,781,634

 

 

See accompanying notes which are an integral part of these statements.

 

3



Table of Contents

 

THE MANITOWOC COMPANY, INC.

Consolidated Balance Sheets

As of September 30, 2009 and December 31, 2008

(Unaudited)

(In millions, except share data)

 

 

 

September 30,
2009

 

December 31,
2008

 

Assets

 

 

 

 

 

Current Assets:

 

 

 

 

 

Cash and cash equivalents

 

$

158.5

 

$

173.0

 

Marketable securities

 

2.6

 

2.6

 

Restricted cash

 

6.5

 

5.1

 

Accounts receivable, less allowances of $38.2 and $36.3, respectively

 

420.0

 

608.2

 

Inventories — net

 

718.9

 

925.3

 

Deferred income taxes

 

210.7

 

138.1

 

Other current assets

 

71.1

 

177.9

 

Current assets of discontinued operations

 

 

124.8

 

Total current assets

 

1,588.3

 

2,155.0

 

 

 

 

 

 

 

Property, plant and equipment — net

 

715.0

 

728.8

 

Goodwill

 

1,244.2

 

1,890.5

 

Other intangible assets — net

 

948.6

 

1,009.0

 

Other non-current assets

 

149.0

 

179.7

 

Long-term assets of discontinued operations

 

 

123.1

 

Total assets

 

$

4,645.1

 

$

6,086.1

 

 

 

 

 

 

 

Liabilities and Equity

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

Accounts payable and accrued expenses

 

$

822.1

 

$

1,206.3

 

Short-term borrowings

 

176.2

 

182.3

 

Income taxes payable

 

29.8

 

 

Product warranties

 

98.6

 

102.0

 

Customer advances

 

54.2

 

48.5

 

Product liabilities

 

31.3

 

34.4

 

Current liabilities of discontinued operations

 

 

44.6

 

Total current liabilities

 

1,212.2

 

1,618.1

 

Non-Current Liabilities:

 

 

 

 

 

Long-term debt

 

2,217.0

 

2,473.0

 

Deferred income taxes

 

286.9

 

283.7

 

Pension obligations

 

43.6

 

48.0

 

Postretirement health and other benefit obligations

 

54.7

 

55.9

 

Long-term deferred revenue

 

40.1

 

56.3

 

Other non-current liabilities

 

148.8

 

228.8

 

Total non-current liabilities

 

2,791.1

 

3,145.7

 

 

 

 

 

 

 

Commitments and contingencies (Note 15)

 

 

 

 

 

 

 

 

 

 

 

Total Equity:

 

 

 

 

 

Common stock (300,000,000 shares authorized, 163,175,928 shares issued, 130,631,654 and 130,359,554 shares outstanding, respectively)

 

1.4

 

1.4

 

Additional paid-in capital

 

440.7

 

436.1

 

Accumulated other comprehensive income

 

86.3

 

68.5

 

Retained earnings

 

203.5

 

903.4

 

Treasury stock, at cost (32,544,274 and 32,816,374 shares, respectively)

 

(88.7

)

(88.9

)

Total Manitowoc stockholders’ equity

 

643.2

 

1,320.5

 

Noncontrolling interest

 

(1.4

)

1.8

 

Total equity

 

641.8

 

1,322.3

 

Total liabilities and equity

 

$

4,645.1

 

$

6,086.1

 

 

See accompanying notes which are an integral part of these statements.

 

4



Table of Contents

 

THE MANITOWOC COMPANY, INC.

Consolidated Statements of Cash Flows

For the Nine Months Ended September 30, 2009 and 2008

(Unaudited, In millions)

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2009

 

2008

 

Cash Flows from Operations:

 

 

 

 

 

Net earnings (loss)

 

$

(695.2

)

$

209.5

 

Adjustments to reconcile net earnings to cash provided by operating activities of continuing operations:

 

 

 

 

 

Asset impairments

 

700.0

 

 

Discontinued operations, net of income taxes

 

33.1

 

(31.7

)

Depreciation

 

72.0

 

62.2

 

Amortization of intangible assets

 

25.2

 

5.5

 

Deferred income taxes

 

(122.1

)

3.9

 

Loss (gain) on sale of property, plant and equipment

 

1.7

 

(1.9

)

Restructuring expense

 

38.7

 

 

Amortization of deferred financing fees

 

31.9

 

0.6

 

Loss on sale of discontinued operations

 

25.8

 

 

Other

 

5.9

 

5.7

 

Changes in operating assets and liabilities, excluding effects of business acquisitions and divestitures:

 

 

 

 

 

Accounts receivable

 

210.6

 

(68.0

)

Inventories

 

237.6

 

(257.5

)

Other assets

 

22.5

 

(78.0

)

Accounts payable

 

(271.2

)

249.5

 

Accrued expenses and other liabilities

 

(115.4

)

13.1

 

Net cash provided by operating activities of continuing operations

 

201.1

 

112.9

 

Net cash provided by (used for) operating activities of discontinued operations

 

(21.2

)

36.8

 

Net cash provided by operating activities

 

179.9

 

149.7

 

 

 

 

 

 

 

Cash Flows from Investing:

 

 

 

 

 

Business acquisitions, net of cash acquired

 

 

(26.7

)

Capital expenditures

 

(63.5

)

(96.2

)

Change in restricted cash

 

(1.4

)

11.5

 

Proceeds from sale of business

 

148.8

 

 

Proceeds from sale of property, plant and equipment

 

3.5

 

5.6

 

Purchase of marketable securities

 

 

(0.1

)

Net cash provided by (used for) investing activities of continuing operations

 

87.4

 

(105.9

)

Net cash used for investing activities of discontinued operations

 

 

(2.2

)

Net cash provided by (used for) investing activities

 

87.4

 

(108.1

)

 

 

 

 

 

 

Cash Flows from Financing:

 

 

 

 

 

Proceeds from revolving credit facility

 

(17.0

)

 

Payments on long-term debt

 

(355.3

)

(43.1

)

Proceeds from long-term debt

 

118.6

 

33.1

 

Payments on notes financing

 

(7.9

)

(4.4

)

Debt issuance costs

 

(17.8

)

(17.6

)

Dividends paid

 

(7.9

)

(7.8

)

Exercises of stock options, including windfall tax benefits

 

(0.1

)

8.6

 

Net cash used for financing activities

 

(287.4

)

(31.2

)

 

 

 

 

 

 

Effect of exchange rate changes on cash

 

5.6

 

2.1

 

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

(14.5

)

12.5

 

Balance at beginning of period

 

173.0

 

366.9

 

Balance at end of period

 

$

158.5

 

$

379.4

 

 

See accompanying notes which are an integral part of these statements.

 

5



Table of Contents

 

THE MANITOWOC COMPANY, INC.

Consolidated Statements of Comprehensive Income

For the Three and Nine Months Ended September 30, 2009 and 2008

(Unaudited)

(In millions)

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2009

 

2008

 

2009

 

2008

 

 

 

 

 

 

 

 

 

 

 

Net earnings (loss)

 

$

(19.2

)

$

(26.9

)

$

(695.2

)

$

209.5

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

Derivative instrument fair market value adjustment - net of income taxes

 

(3.2

)

(6.6

)

2.5

 

(4.7

)

Foreign currency translation adjustments

 

39.3

 

(47.3

)

15.3

 

(1.2

)

 

 

 

 

 

 

 

 

 

 

Total other comprehensive income (loss)

 

36.1

 

(53.9

)

17.8

 

(5.9

)

 

 

 

 

 

 

 

 

 

 

Comprehensive income (loss)

 

16.9

 

(80.8

)

(677.4

)

203.6

 

 

 

 

 

 

 

 

 

 

 

Comprehensive loss attributable to noncontrolling interest

 

(1.5

)

(0.8

)

(3.2

)

(0.9

)

 

 

 

 

 

 

 

 

 

 

Comprehensive income (loss) attributable to Manitowoc

 

$

18.4

 

$

(80.0

)

$

(674.2

)

$

204.5

 

 

See accompanying notes which are an integral part of these statements.

 

6



Table of Contents

 

THE MANITOWOC COMPANY, INC.

Notes to Unaudited Consolidated Financial Statements

For the Three and Nine Months Ended September 30, 2009 and 2008

 

1.  Accounting Policies

 

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly the results of operations and comprehensive income for the three and nine months ended September 30, 2009 and 2008, the cash flows for the same nine-month periods, and the financial position at September 30, 2009, 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, 2008.  The consolidated balance sheet as of December 31, 2008 was derived from audited financial statements, except for the adjustments as detailed below, and does not include all disclosures required by accounting principles generally accepted in the United States of America.  It is suggested that these financial statements be read in conjunction with the financial statements and the notes to the financial statements included in the company’s latest annual report.

 

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

 

Certain prior period amounts have been reclassified to conform to the current period presentation.  The company’s presentation of the Consolidated Balance Sheets, Consolidated Statements of Operations, and Consolidated Statements of Comprehensive Income have been adjusted to conform with the requirements of Accounting Standards Codification (ASC) Topic 810, “Noncontrolling Interest in Consolidated Financial Statements” and to reflect the Marine segment as a discontinued operation.  See Note 2 to the Consolidated Financial Statements for more information regarding the Company’s first quarter 2009 adoption of Topic 810 and Note 3 for more information regarding the disposal of the Marine segment.

 

During the quarter ended September 30, 2009, the company identified an adjustment to the income tax provision that should have been included in its previously filed financial statements on Form 10-K for the year ended December 31, 2008.  The issue was discovered during the process of reconciling the income tax provision in the financial statements to the 2008 income tax return and the required adjustment resulted in a decrease in income tax expense, an increase in refundable income taxes and an increase in retained earnings of $20.7 million for the year ended December 31, 2008.  The adjustment also resulted in an increase to the company’s previously reported 2008 earnings per diluted share of $0.16.  There was no impact to the 2008 cash flows from operating activities as the increase in net earnings was offset by the increase in refundable income taxes.

 

We do not believe that the adjustments to the provision for income taxes, refundable income taxes, and retained earnings described above are material to the company’s results of operations, financial position or cash flows for any of the company’s previously filed annual or quarterly financial statements.  Accordingly, the December 31, 2008 balance sheet included herein has been revised to reflect the adjustment to refundable income taxes and retained earnings discussed above.  The company will revise its 2008 financial statements, prospectively, within the Form 10-K for the fiscal year ending December 31, 2009 to reflect the impact the revisions to the statement of operations.

 

2. Acquisitions

 

On October 27, 2008, Manitowoc acquired 100% of the issued and to be issued shares of Enodis plc (Enodis).  Enodis was a global leader in the design and manufacture of innovative equipment for the commercial foodservice industry.  This acquisition, the largest and most recent acquisition for Manitowoc, has established Manitowoc among the world’s top manufacturers of commercial foodservice equipment. With this acquisition, the Foodservice segment capabilities now span refrigeration, ice-making, cooking, food-prep, and beverage-dispensing technologies, and allow Manitowoc to be able to equip entire commercial kitchens and serve the world’s growing demand for food prepared away from home.

 

The aggregate purchase price was $2.1 billion in cash, exclusive of the settlement of related hedges and there are no future contingent payments or options.  The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition.  The company is in the process of finalizing third-party valuations of certain intangible assets; thus, the allocation of the purchase price is subject to future adjustment.

 

7



Table of Contents

 

At October 27, 2008 (Date of Acquisition):

 

 

 

Cash

 

$

56.9

 

Accounts receivable, net

 

157.9

 

Inventory, net

 

150.7

 

Other current assets

 

54.8

 

Current assets of discontinued operation

 

118.7

 

Total current assets

 

539.0

 

Property, plant and equipment

 

182.5

 

Intangible assets

 

930.0

 

Goodwill

 

1,296.0

 

Other non-current assets

 

40.9

 

Non-current assets of discontinued operation

 

337.0

 

Total assets acquired

 

3,325.4

 

 

 

 

 

Accounts payable

 

287.6

 

Other current liabilities

 

33.4

 

Current liabilities of discontinued operation

 

58.1

 

Total current liabilities

 

379.1

 

Long-term debt, less current portion

 

382.4

 

Other non-current liabilities

 

476.8

 

Non-current liabilities of discontinued operation

 

26.5

 

Total liabilities assumed

 

1,264.8

 

Net assets acquired

 

$

2,060.6

 

 

Of the $930.0 million of acquired intangible assets, $371.0 million was assigned to registered trademarks and tradenames that are not subject to amortization, $165.0 million was assigned to developed technology with a weighted average useful life of 15 years, and the remaining $394.0 million was assigned to customer relationships with a weighted average useful life of 20 years.  All of the $1,296.0 million of goodwill was assigned to the Foodservice segment, none of which is expected to be deductible for tax purposes.  See further detail related to the goodwill and other intangible assets of the Enodis acquisition at Note 7, “Goodwill and Other Intangible Assets.”

 

The following unaudited pro forma information reflects the results of the company’s operations for the three and nine months ended September 30, 2008 as if the acquisition of Enodis had been completed on January 1, 2008. Pro forma adjustments have been made to illustrate the incremental impact on earnings of interest costs on the borrowings to acquire Enodis, amortization expense related to acquired intangible assets of Enodis, depreciation expense related to the fair value of the acquired depreciable tangible assets and the tax benefit associated with the incremental interest costs and amortization and depreciation expense. The following unaudited pro forma information includes $14.6 million in the nine months ended September 30, 2008 of additional expense related to the fair value adjustment of inventories and excludes certain cost savings or operating synergies (including costs associated with realizing such savings or synergies) that may result from the acquisition.

 

 

 

Three Months
Ended

 

Nine Months
Ended

 

(in $millions, except per share data)

 

September 30,
2008

 

September 30,
2008

 

Revenue

 

 

 

 

 

Pro forma

 

$

1,510.7

 

$

4,359.5

 

As reported

 

1,106.8

 

3,286.4

 

Net earnings (loss) attributable to Manitowoc

 

 

 

 

 

Pro forma

 

$

(47.8

)

$

127.3

 

As reported

 

(26.1

)

210.4

 

Net earnings (loss) per diluted share attributable to Manitowoc

 

 

 

 

 

Pro forma

 

$

(0.37

)

$

0.97

 

As reported

 

(0.20

)

1.60

 

 

The unaudited pro forma information is provided for illustrative purposes only and does not purport to represent what our consolidated results of operations would have been had the transaction actually occurred as of January 1, 2008 and does not purport to project our future consolidated results of operations.

 

In connection with the acquisition of Enodis, certain restructuring activities have been undertaken to recognize cost synergies and rationalize the new cost structure of the Foodservice segment.  Amounts included in the acquisition cost allocation for these activities are summarized in the following table and recorded in accounts payable and accrued expenses in the Consolidated Balance Sheets:

 

At October 27, 2008:

 

 

 

Employee involuntary termination benefits

 

$

9.3

 

Facility closure costs

 

29.2

 

Other

 

5.0

 

Total

 

$

43.5

 

 

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The finalization of the purchase price allocation during 2009 could have an impact on the above restructuring amounts.

 

The company has not presented pro-forma financial information for the following acquisition due to the immaterial dollar amount of the transaction and the immaterial impact on our results of operations:

 

On March 6, 2008, the company formed a 50% joint venture with the shareholders of Tai’An Dongyue Heavy Machinery Co., Ltd. (Tai’An Dongyue) for the production of mobile and truck-mounted hydraulic cranes.  The joint venture is located in Tai’An City, Shandong Province, China.  The company controls 60% of the voting rights and has other rights that give it significant control over the operations of Tai’An Dongyue, and accordingly, the results of this joint venture are consolidated by the company.  On January 1, 2009, the company adopted ASC Topic 810 and has reflected the new requirements in the presentation of its financial statements.  Tai’An Dongyue is the company’s only subsidiary impacted by the new guidance.  The aggregate consideration for the joint venture interest in Tai’An Dongyue was $32.5 million and resulted in $23.5 million of goodwill and $8.5 million of other intangible assets being recognized by the company’s Crane segment.  See further detail related to the goodwill and other intangible assets of the Tai’An Dongyue acquisition at Note 7, “Goodwill and Other Intangible Assets.”

 

3. Discontinued Operations

 

On December 31, 2008, the company completed the sale of its Marine segment to Fincantieri Marine Group Holdings Inc., a subsidiary of Fincantieri — Cantieri Navali Italiani SpA.  The sale price in the all-cash deal was approximately $120 million.  This transaction allows the company to focus its financial assets and managerial resources on the growth of its increasingly global Crane and Foodservice businesses.  The company reported the Marine segment as a discontinued operation.  Results of the Marine segment in current and prior periods have been classified as discontinued in the Consolidated Financial Statements to exclude the results from continuing operations.

 

The following selected financial data of the Marine segment for the three and nine months ended September 30, 2009 and 2008 is presented for informational purposes only and does not necessarily reflect what the results of operations would have been had the business operated as a stand-alone entity.  There was no general corporate expense or interest expense allocated to discontinued operations for this business during the periods presented.

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2009

 

2009

 

 

 

 

 

 

 

Net sales

 

$

 

$

 

 

 

 

 

 

 

Pretax loss from discontinued operation

 

$

(2.4

)

$

(4.2

)

Gain on sale, net of income taxes

 

 

0.7

 

Benefit for taxes

 

0.1

 

0.3

 

Net loss from discontinued operation

 

$

(2.3

)

$

(3.2

)

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2008

 

2008

 

 

 

 

 

 

 

Net sales

 

$

103.8

 

$

306.1

 

 

 

 

 

 

 

Pretax earnings from discontinued operation

 

$

15.8

 

$

43.8

 

Provision for taxes on earnings

 

4.2

 

12.1

 

Net earnings from discontinued operation

 

$

11.6

 

$

31.7

 

 

In order to secure clearance for the acquisition of Enodis from various regulatory authorities including the European Commission and the United States Department of Justice, Manitowoc agreed to sell substantially all of Enodis’ global ice machine operations following completion of the transaction.  On May 15, 2009, the company completed the sale of the Enodis global ice machine operations to Braveheart Acquisition, Inc., an affiliate of Warburg Pincus Private Equity X, L.P., for $160 million.   The businesses sold were operated under the Scotsman, Ice-O-Matic, Simag, Barline, Icematic, and Oref brand names.  The company also agreed to sell certain non-ice businesses of Enodis located in Italy that are operated under the Tecnomac and Icematic brand names.  Prior to disposal, the antitrust clearances required that the ice businesses were treated as standalone operations, in competition with Manitowoc.  The results of these operations have been classified as discontinued operations.

 

The company used the net proceeds from the sale of the Enodis global ice machine operations of approximately $150 million to reduce the balance on Term Loan X that matures in April of 2010. The final sale price resulted in the company recording an

 

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additional $28.8 million non-cash impairment charge to reduce the value of the Enodis global ice machine operations in the first quarter of 2009.  As a result of the impairment charge and the earnings of the divested businesses of $0.9 million, the total loss from discontinued operations related to the Enodis global ice machine operations was $27.9 million for the first quarter of 2009.  For the second quarter through May 15, 2009, the loss from discontinued operations related to the Enodis global ice machine operations was $1.8 million.  In the third quarter, the company recorded a $1.1 million favorable adjustment to reduce the tax expense related to the Enodis ice machine operation results and $0.6 million of administration expenses for the disposition of the Enodis ice machine operations.  In addition, the company realized an after tax loss of $23.9 million on the sale of the Enodis global ice machine operations in the second quarter of 2009 that was primarily driven by a taxable gain related to the assets held in the United States for U.S. tax purposes.  In the third quarter, the company recorded a loss of $2.7 million related to a final tax adjustment on the sale of the Enodis ice machine operations.

 

4. Financial Instruments

 

The company adopted ASC Topic 820-10, “Fair Value Measurements and Disclosures” effective January 1, 2008.  The following tables set forth the company’s financial assets and liabilities that were accounted for at fair value on a recurring basis as of September 30, 2009 and December 31, 2008 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 September 30, 2009

 

 

 

Level 1

 

Level 2

 

Level 3

 

Total

 

 

 

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

 

Foreign currency exchange contracts

 

$

3.2

 

$

 

$

 

$

3.2

 

Forward commodity contracts

 

 

0.7

 

 

0.7

 

Marketable securities

 

2.6

 

 

 

2.6

 

Total Current assets at fair value

 

$

5.8

 

$

0.7

 

$

 

$

6.5

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

 

Foreign currency exchange contracts

 

$

7.0

 

$

 

$

 

$

7.0

 

Forward commodity contracts

 

 

0.5

 

 

0.5

 

Total Current liabilities at fair value

 

$

7.0

 

$

0.5

 

$

 

$

7.5

 

 

 

 

 

 

 

 

 

 

 

Non-current Liabilities:

 

 

 

 

 

 

 

 

 

Interest rate swap contracts

 

$

 

$

8.1

 

$

 

$

8.1

 

Total Non-current liabilities at fair value

 

$

 

$

8.1

 

$

 

$

8.1

 

 

 

 

Fair Value as of December 31, 2008

 

 

 

Level 1

 

Level 2

 

Level 3

 

Total

 

 

 

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

 

Foreign currency exchange contracts

 

$

5.5

 

$

 

$

 

$

5.5

 

Total Current assets at fair value

 

$

5.5

 

$

 

$

 

$

5.5

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

 

Foreign currency exchange contracts

 

$

10.7

 

$

 

$

 

$

10.7

 

Forward commodity contracts

 

 

6.4

 

 

6.4

 

Total Current liabilities at fair value

 

$

10.7

 

$

6.4

 

$

 

$

17.1

 

 

The carrying value of the amounts reported in the Consolidated Balance Sheets for cash, accounts receivable, accounts payable, retained interest in receivables sold and short-term variable debt, including amounts outstanding under our revolving credit facility, approximate fair value, without being discounted, due to the short periods during which these amounts are outstanding.  The fair value of the company’s 7 1/8% Senior Notes due 2013 was approximately $130.5 million and $108.4 million at September 30, 2009 and December 31, 2008, respectively.  The fair values of the company’s term loans under the New Credit Agreement are as follows at September 30, 2009 and December 31, 2008, respectively:  Term Loan A — $924.4 million and $768.8 million; Term Loan B — $1,176.1 million and $890.4 million; and Term Loan X — $28.6 million and $158.6 million, respectively.

 

ASC Topic 820-10 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 (exit price). 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

 

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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 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 has determined that its financial assets and liabilities are level 1 and level 2 in the fair value hierarchy.

 

As a result of its global operating and financing activities, the company is exposed to market risks from changes in interest and foreign currency exchange rates and commodity prices, which may adversely affect our operating results and financial position. When deemed appropriate, the company minimizes its risks from interest and foreign currency exchange rate and commodity price fluctuations through the use of derivative financial instruments. Derivative financial instruments are used to manage risk and are not used for trading or other speculative purposes, and the company does not use leveraged derivative financial instruments. The forward foreign currency exchange and interest rate swap contracts and forward commodity purchase agreements are valued using broker quotations, or market transactions in either the listed or over-the-counter markets. As such, these derivative instruments are classified within level 1 and level 2.

 

5. Derivative Financial Instruments

 

On January 1, 2009, the company adopted ASC Topic 815-10-50, “Derivatives and Hedging” which requires enhanced disclosures regarding an entity’s derivative and hedging activities as provided below.

 

The company’s risk management objective is to ensure that business exposures to risk that have been identified and measured and are capable of being controlled are minimized using the most effective and efficient methods to eliminate, reduce, or transfer such exposures.  Operating decisions consider associated risks and structure transactions to avoid risk whenever possible.

 

Use of derivative instruments is consistent with the overall business and risk management objectives of the company.  Derivative instruments may be used to manage business risk within limits specified by the company’s Risk Policy and manage exposures that have been identified through the risk identification and measurement process, provided that they clearly qualify as “hedging” activities as defined in the Risk Policy.  Use of derivative instruments is not automatic, nor is it necessarily the only response to managing pertinent business risk.  Use is permitted only after the risks that have been identified are determined to exceed defined tolerance levels and are considered to be unavoidable.

 

The primary risks managed by the company by using derivative instruments are interest rate risk, commodity price risk and currency exchange risk.  Interest rate swap instruments are entered into to help manage the interest rate fluctuation risk.  Forward contracts on various commodities are entered into to help manage the price risk associated with forecasted purchases of materials used in the company’s manufacturing process.  The company also enters into various foreign currency instruments to help manage foreign currency risk associated with the company’s projected purchases and sales.

 

ASC Topic 815-10, “Derivatives and Hedging” requires companies to recognize all derivative instruments as either assets or liabilities at fair value in the statement of financial position.  In accordance with ASC Topic 815-10, the company designates commodity and currency forward contracts as cash flow hedges of forecasted purchases of commodities and currencies.

 

For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings.  Gains and losses on the derivative instruments representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness, are recognized in current earnings.  In the next twelve months the company estimates $2.1 million of unrealized and realized gains related to interest rate, commodity price and currency rate hedging will be reclassified from other comprehensive income into earnings.  Foreign currency and commodity hedging is completed on a rolling basis for twelve and eighteen months, respectively.

 

As of September 30, 2009, the company had the following outstanding interest rate, commodity and currency forward contracts that were entered into as hedge forecasted transactions:

 

Commodity

 

Units Hedged

 

Type

 

Aluminum

 

1,566 MT

 

Cash Flow

 

Copper

 

533 MT

 

Cash Flow

 

Natural Gas

 

285,174 MMBtu

 

Cash Flow

 

 

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Table of Contents

 

Short Currency

 

Units Hedged

 

Type

 

Canadian Dollar

 

7,062,310

 

Cash Flow

 

Euro

 

31,430,255

 

Cash Flow

 

South Korean Won

 

1,228,204,270

 

Cash Flow

 

Singapore Dollar

 

2,115,000

 

Cash Flow

 

United States Dollar

 

3,532,150

 

Cash Flow

 

 

As of September 30, 2009, the total notional amount of the company’s receive-floating/pay-fixed interest rate swaps was $1.1 billion.

 

For derivative instruments that are not designated as hedging instruments under ASC Topic 815-10, the gains or losses on the derivatives are recognized in current earnings within Cost of Sales or Other income, net.

 

Short Currency

 

Units Hedged

 

Recognized Location

 

Purpose

 

Great British Pound

 

26,863,395

 

Other income, net

 

Accounts Payable and Receivable Settlement

 

 

 

 

 

 

 

 

 

Euro

 

65,137,539

 

Other income, net

 

Accounts Payable and Receivable Settlement

 

 

 

 

 

 

 

 

 

Japanese Yen

 

207,554,297

 

Other income, net

 

Accounts Payable and Receivable Settlement

 

 

 

 

 

 

 

 

 

United States Dollar

 

54,965,546

 

Other income, net

 

Accounts Payable and Receivable Settlement

 

 

The fair value of outstanding derivative contracts recorded as assets in the accompanying Consolidated Balance Sheet as of September 30, 2009 was as follows:

 

 

 

ASSET DERIVATIVES

 

 

 

2009

 

 

 

3rd Quarter

 

 

 

Balance Sheet Location

 

Fair Value

 

Derivatives designated as hedging instruments

 

 

 

 

 

Foreign Exchange Contracts

 

Other current assets

 

$

2.4

 

Commodity Contracts

 

Other current assets

 

0.7

 

 

 

 

 

 

 

Total derivatives designated as hedging instruments

 

 

 

$

3.1

 

 

 

 

ASSET DERIVATIVES

 

 

 

2009

 

 

 

3rd Quarter

 

 

 

Balance Sheet Location

 

Fair Value

 

Derivatives NOT designated as hedging instruments

 

 

 

 

 

Foreign Exchange Contracts

 

Other current assets

 

$

0.8

 

 

 

 

 

 

 

Total derivatives NOT designated as hedging instruments

 

 

 

$

0.8

 

 

 

 

 

 

 

Total asset derivatives

 

 

 

$

3.9

 

 

The fair value of outstanding derivative contracts recorded as liabilities in the accompanying Consolidated Balance Sheet as of September 30, 2009 was as follows:

 

 

 

LIABILITY DERIVATIVES

 

 

 

2009

 

 

 

3rd Quarter

 

 

 

Balance Sheet Location

 

Fair Value

 

Derivatives designated as hedging instruments

 

 

 

 

 

Foreign Exchange Contracts

 

Accounts payable and accrued expenses

 

$

0.5

 

Interest Rate Swap Contracts

 

Other non-current liabilities

 

8.1

 

Commodity Contracts

 

Accounts payable and accrued expenses

 

0.5

 

 

 

 

 

 

 

Total derivatives designated as hedging instruments

 

 

 

$

9.1

 

 

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Table of Contents

 

 

 

LIABILITY DERIVATIVES

 

 

 

2009

 

 

 

3rd Quarter

 

 

 

Balance Sheet Location

 

Fair Value

 

 

 

 

 

 

 

Derivatives NOT designated as hedging instruments

 

 

 

 

 

Foreign Exchange Contracts

 

Accounts payable and accrued expenses

 

$

6.5

 

Total derivatives NOT designated as hedging instruments

 

 

 

$

6.5

 

 

 

 

 

 

 

Total liability derivatives

 

 

 

$

15.6

 

 

The effect of derivative instruments on the consolidated statement of operations for the three months ended September 30, 2009 and gains or losses initially recognized in other comprehensive income (OCI) in the consolidated balance sheet was as follows:

 

Derivatives in Cash Flow
Hedging Relationships

 

Amount of Gain or (Loss)
Recognized in OCI on
Derivative (Effective
Portion)

 

Location of Gain or (Loss)
Reclassified from
Accumulated OCI into
Income (Effective
Portion)

 

Amount of Gain or (Loss)
Reclassified from
Accumulated OCI into
Income (Effective
Portion)

 

 

 

 

 

 

 

 

 

Foreign Exchange Contracts

 

$

1.3

 

Cost of Sales

 

$

1.0

 

 

 

 

 

 

 

 

 

Interest Rate Swap Contracts

 

(3.0

)

Interest Expense

 

$

(3.3

)

 

 

 

 

 

 

 

 

Commodity Contracts

 

1.2

 

Cost of Sales

 

$

(0.8

)

 

 

 

 

 

 

 

 

Total

 

$

(0.5

)

 

 

$

(3.1

)

 

Derivatives in Cash Flow
Hedging Relationships

 

Location of Gain or (Loss)
Recognized in Income on
Derivative (Ineffective Portion and
Amount Excluded from
Effectiveness Testing)

 

Amount of Gain or (Loss) Recognized in
Income on Derivative (Ineffective Portion
and Amount Excluded from
Effectiveness Testing)

 

 

 

 

 

 

 

Commodity Contracts

 

Cost of Sales

 

0.1

 

 

 

 

 

 

 

Total

 

 

 

$

0.1

 

 

Derivatives Not Designated as
Hedging Instruments

 

Location of Gain or (Loss)
 recognized in Income on
 Derivative

 

Amount of Gain or (Loss)
 Recognized in Income on
 Derivative

 

 

 

 

 

 

 

Foreign Exchange Contracts

 

Other Income

 

$

(2.1

)

 

 

 

 

 

 

Commodity Contracts

 

Cost of Sales

 

(0.1

)

 

 

 

 

 

 

Total

 

 

 

$

(2.2

)

 

The effect of derivative instruments on the consolidated statement of operations for the nine months ended September 30, 2009 and gains or losses initially recognized in other comprehensive income (OCI) in the consolidated balance sheet was as follows:

 

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Table of Contents

 

Derivatives in Cash Flow
Hedging Relationships

 

Amount of Gain or (Loss)
Recognized in OCI on
Derivative (Effective
Portion)

 

Location of Gain or (Loss)
Reclassified from
Accumulated OCI into
Income (Effective
Portion)

 

Amount of Gain or (Loss)
Reclassified from
Accumulated OCI into
Income (Effective
Portion)

 

 

 

 

 

 

 

 

 

Foreign Exchange Contracts

 

$

1.3

 

Cost of Sales

 

$

(6.9

)

 

 

 

 

 

 

 

 

Interest Rate Swap Contracts

 

(5.3

)

Interest Expense

 

$

(8.3

)

 

 

 

 

 

 

 

 

Commodity Contracts

 

0.1

 

Cost of Sales

 

$

(3.9

)

 

 

 

 

 

 

 

 

Total

 

$

(3.9

)

 

 

$

(19.1

)

 

Derivatives in Cash Flow
Hedging Relationships

 

Location of Gain or (Loss)
Recognized in Income on
Derivative (Ineffective Portion and
Amount Excluded from
Effectiveness Testing)

 

Amount of Gain or (Loss) Recognized in
Income on Derivative (Ineffective Portion
and Amount Excluded from
Effectiveness Testing)

 

 

 

 

 

 

 

Commodity Contracts

 

Cost of Sales

 

 

 

 

 

 

 

 

Total

 

 

 

$

 

 

Derivatives Not Designated as
Hedging Instruments

 

Location of Gain or (Loss)
recognized in Income on
Derivative

 

Amount of Gain or (Loss)
Recognized in Income on
Derivative

 

 

 

 

 

 

 

Foreign Exchange Contracts

 

Other Income

 

$

(5.8

)

 

 

 

 

 

 

Commodity Contracts

 

Cost of Sales

 

(1.2

)

 

 

 

 

 

 

Total

 

 

 

$

(7.0

)

 

6. Inventories

 

The components of inventories at September 30, 2009 and December 31, 2008 are summarized as follows:

 

 

 

September 30, 2009

 

December 31, 2008

 

Inventories — gross:

 

 

 

 

 

Raw materials

 

$

297.9

 

$

416.0

 

Work-in-process

 

215.7

 

262.9

 

Finished goods

 

330.9

 

352.3

 

Total inventories — gross

 

844.5

 

1,031.2

 

Excess and obsolete inventory reserve

 

(91.0

)

(70.1

)

Net inventories at FIFO cost

 

753.5

 

961.1

 

Excess of FIFO costs over LIFO value

 

(34.6

)

(35.8

)

Inventories — net

 

$

718.9

 

$

925.3

 

 

Inventory is carried at lower of cost or market value using the first-in, first-out (FIFO) method for 88% of total inventory at September 30, 2009 and December 31, 2008, respectively.  The remainder of the inventory is costed using the last-in, first-out (LIFO) method.

 

7.  Goodwill and Other Intangible Assets

 

The changes in the carrying amount of goodwill by reportable segment for the year ended December 31, 2008 and nine months ended September 30, 2009 are as follows:

 

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Table of Contents

 

 

 

Crane

 

Foodservice

 

Total

 

 

 

 

 

 

 

 

 

Balance as of January 1, 2008

 

$

271.5

 

$

200.1

 

$

471.6

 

Tai’An Dongyue acquisition

 

23.5

 

 

23.5

 

Enodis acquisition

 

 

1,393.8

 

1,393.8

 

Foreign currency impact

 

(9.5

)

11.1

 

1.6

 

Balance as of December 31, 2008

 

285.5

 

1,605.0

 

1,890.5

 

Enodis purchase accounting adjustments

 

 

(97.8

)

(97.8

)

Foreign currency impact

 

6.8

 

(6.5

)

0.3

 

Subtotal

 

292.3

 

1,500.7

 

1,793.0

 

Asset impairments

 

 

(548.8

)

(548.8

)

Balance as of September 30, 2009

 

$

292.3

 

$

951.9

 

$

1,244.2

 

 

The decrease in goodwill of $97.8 million for the nine months ended September 30, 2009, was due to further refinement of the purchase accounting allocations associated with the acquisition of Enodis.  See further discussion in Note 2, “Acquisitions.”

 

The company accounts for goodwill and other intangible assets under the guidance of ASC Topic 350-10, “Intangibles — Goodwill and Other.”  Under ASC Topic 350-10, goodwill is no longer amortized; however, the company performs an annual impairment at June 30 of every year or more frequently if events or changes in circumstances indicate that the asset might be impaired. The company performs impairment reviews for its reporting units, which have been determined to be: Cranes Americas; Cranes Europe, Middle East, and Africa; Cranes Asia; Crane Care; Foodservice Americas; Foodservice Europe, Middle East, and Africa; Foodservice Asia; and Foodservice Retail, using a fair-value method based on the present value of future cash flows, which involves management’s judgments and assumptions about the amounts of those cash flows and the discount rates used. The estimated fair value is then compared with the carrying amount of the reporting unit, including recorded goodwill.  Goodwill and other intangible assets are then subject to risk of write-down to the extent that the carrying amount exceeds the estimated fair value.

 

During the first quarter of 2009, the company’s stock price continued to decline as global market conditions remained depressed, the credit markets did not improve and the performance of the company’s Crane and Foodservice segments was below the company’s expectations.  In connection with a reforecast of expected 2009 financial results completed in early April 2009, the company determined the foregoing circumstances to be indicators of potential impairment under the guidance of ASC Topic 350-10. Therefore, the company performed the required initial (“Step One”) impairment test for each of the company’s operating units as of March 31, 2009.  The company re-performed its established method of present-valuing future cash flows, taking into account the company’s updated projections, to determine the fair value of the reporting units.   The determination of fair value of the reporting units requires the company to make significant estimates and assumptions. The fair value measurements (for both goodwill and indefinite-lived intangible assets) are considered Level 3 within the fair value hierarchy. These estimates and assumptions primarily include, but are not limited to, projections of revenue growth, operating earnings, discount rates, terminal growth rates, and required capital for each reporting unit. Due to the inherent uncertainty involved in making these estimates, actual results could differ materially from the estimates. The company evaluated the significant assumptions used to determine the fair value of each reporting unit, both individually and in the aggregate, and concluded they are reasonable.

 

The results of the analysis indicated that the fair values of three of the company’s eight reporting units (Foodservice Americas; Foodservice Europe, Middle East, and Africa; and Foodservice Retail) were potentially impaired: therefore, the company proceeded to measure the amount of the potential impairment (“Step Two”) with the assistance of a third-party valuation firm.  Upon completion of that assessment, the company recognized impairment charges as of March 31, 2009, of $548.8 million related to goodwill.  The company also recognized impairment charges of $151.2 million related to other indefinite-lived intangible assets as of March 31, 2009.  Both charges were within the Foodservice segment.  The goodwill and other indefinite-lived intangible assets had a carrying value of $1,598.0 million and $368.0 million, respectively, prior to the impairment charges. These non-cash impairment charges have no direct impact on the company’s cash flows, liquidity, debt covenants, debt position or tangible asset values.  There is no tax benefit in relation to the goodwill impairment; however, the company did recognize a $52.0 million benefit associated with the other indefinite-lived intangible asset impairment.

 

As of June 30, 2009, the company performed its annual impairment analysis relative to goodwill and indefinite-lived intangible assets and based on those results no additional impairment had occurred subsequent to the impairment charges recorded in the first quarter of 2009.  The company will continue to monitor market conditions and determine if any additional interim reviews of goodwill, other intangibles or long-lived assets are warranted.  Further deterioration in the market or actual results as compared with the company’s projections may ultimately result in a future impairment.  In the event the company determines that assets are impaired in the future, the company would need to recognize a non-cash impairment charge, which could have a material adverse effect on the company’s consolidated balance sheet and results of operations.

 

The company also reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the assets carrying amount may not be recoverable.  The company conducts its long-lived asset impairment analyses in accordance with ASC Topic 360-10-5.  ASC Topic 360-10-5 requires the company to group assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities and to evaluate the asset group against the sum of the undiscounted future cash flows. At March 31, 2009, in conjunction with the preparation of its financial statements, the company concluded triggering events occurred requiring an evaluation of the impairment of its long-lived assets due to continued weakness in

 

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global market conditions, tight credit markets and the performance of the Crane and Foodservice segments. This analysis did not indicate the long-lived assets were impaired.

 

As discussed in Note 2, “Acquisitions,” on October 27, 2008, the company acquired 100% of the issued and to be issued shares of Enodis plc.   Enodis was a global leader in the design and manufacture of innovative equipment for the commercial foodservice industry.  The aggregate purchase price of $2,060.6 million resulted in a preliminary allocation of $819.0 million to identifiable intangible assets and $1,393.8 million to goodwill.  Of the $819.0 million of acquired intangible assets, $339.0 million was assigned to registered trademarks and tradenames that are not subject to amortization, $165.0 million was assigned to developed technology with a weighted average useful life of 15 years, and the remaining $315.0 million was assigned to customer relationships with a weighted average useful life of 20 years.  All of the $1,393.8 million of goodwill was assigned to the Foodservice segment.

 

Also discussed in Note 2, “Acquisitions,” during 2008, the company formed a 50% joint venture with the shareholders of Tai’An Dongyue for the production of mobile and truck-mounted hydraulic cranes.  The joint venture is located in Tai’An City, Shandong Province, China.  The aggregate consideration for the joint venture interest in Tai’An Dongyue was $32.5 million and resulted in $23.5 million of goodwill and $8.5 million of other intangible assets being recognized by the company’s Crane segment.  The other intangible assets consist of trademarks of $1.0 million, which have an indefinite life, customer relationships of $0.9 million, which have been assigned a 10-year life, and other intangibles of $6.6 million, which consist primarily of crane manufacturing licenses and have been assigned a 10-year life.

 

The gross carrying amount and accumulated amortization of the company’s intangible assets other than goodwill were as follows as of September 30, 2009 and December 31, 2008.

 

 

 

September 30, 2009

 

December 31, 2008

 

 

 

Gross
Carrying
Amount

 

Accumulated
Amortization

 

Net
Book
Value

 

Gross
Carrying
Amount

 

Accumulated
Amortization

 

Net
Book
Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trademarks and tradenames

 

$

342.3

 

$

 

$

342.3

 

$

458.3

 

$

 

$

458.3

 

Customer relationships

 

413.7

 

(18.7

)

395.0

 

334.6

 

(5.5

)

329.1

 

Patents

 

35.5

 

(19.0

)

16.5

 

34.5

 

(16.5

)

18.0

 

Engineering drawings

 

12.0

 

(6.1

)

5.9

 

11.6

 

(5.4

)

6.2

 

Distribution network

 

22.0

 

 

22.0

 

21.4

 

 

21.4

 

Other intangibles

 

185.7

 

(18.8

)

166.9

 

184.9

 

(8.9

)

176.0

 

 

 

$

1,011.2

 

$

(62.6

)

$

948.6

 

$

1,045.3

 

$

(36.3

)

$

1,009.0

 

 

The gross carrying amount of trademarks and tradenames was reduced by $151.2 million based on the asset impairment charges as discussed above for the nine months ended September 30, 2009.  In addition, in connection with the ongoing process of finalizing the completion of valuations associated with the assets acquired in the Enodis acquisition, the company increased the value assigned to customer relationships by $79.0 million and the value assigned to trademarks and tradenames by $32.0 million.  Amortization expense for the three and nine months ended September 30, 2009 was $8.4 million and $25.2 million, respectively.  Amortization expense for the three and nine months ended September 30, 2008 was $2.0 million and $5.5 million, respectively.  Amortization expense related to intangible assets for each of the five succeeding years is estimated to be $33.2 million per year.

 

8.  Accounts Payable and Accrued Expenses

 

Accounts payable and accrued expenses at September 30, 2009 and December 31, 2008 are summarized as follows:

 

 

 

September 30,
2009

 

December 31,
2008

 

Trade accounts payable and interest payable

 

$

436.2

 

$

649.2

 

Employee related expenses

 

112.0

 

120.2

 

Consolidated Industries litigation reserves

 

 

72.0

 

Restructuring expenses

 

49.4

 

41.1

 

Profit sharing and incentives

 

13.7

 

67.2

 

Accrued rebates

 

31.4

 

45.7

 

Deferred revenue - current

 

39.5

 

49.5

 

Derivative liabilities

 

7.5

 

17.1

 

Miscellaneous accrued expenses

 

132.4

 

144.3

 

 

 

$

 822.1

 

$

1,206.3

 

 

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9. Debt

 

Outstanding debt at September 30, 2009 and December 31, 2008 is summarized as follows:

 

 

 

September 30,
2009

 

December 31,
2008

 

Revolving credit facility

 

$

 

$

17.0

 

Term loan A

 

948.1

 

1,025.0

 

Term loan B

 

1,191.0

 

1,200.0

 

Term loan X

 

33.6

 

181.5

 

Senior notes due 2013

 

150.0

 

150.0

 

Other

 

70.5

 

81.8

 

Total debt

 

2,393.2

 

2,655.3

 

 

In April 2008, the company entered into a $2.4 billion credit agreement which was amended and restated as of August 25, 2008, to ultimately increase the size of the total facility to $2.925 billion (New Credit Agreement).  The New Credit Agreement became effective November 6, 2008.  The New Credit Agreement includes four loan facilities — a revolving facility of $400.0 million with a five-year term, a Term Loan A of $1,025.0 million with a five-year term, a Term Loan B of $1,200.0 million with a six-year term, and a Term Loan X of $300.0 million with an eighteen-month term.  The company is obligated to prepay the three term loan facilities from the net proceeds of asset sales, casualty losses, equity offerings, and new indebtedness for borrowed money, and from a portion of its excess cash flow, subject to certain exceptions.

 

In June 2009, the company entered into Amendment No. 2 (the Amendment) to the New Credit Agreement to provide relief under its consolidated total leverage ratio and consolidated interest coverage ratio financial covenants.  This Amendment was obtained to avoid a potential financial covenant violation at the end of the second quarter of 2009 as a result of lower demand for certain of the company’s products due to continued weakness in the global economy and tight credit markets.  Terms of the Amendment include an increase in the margin on London Interbank Offered Rate (LIBOR) and Alternative Borrowing Rate (ABR) loans of between 150 and 175 basis points, depending on the consolidated total leverage ratio. Also, one additional interest rate pricing level was added for each loan facility above a certain leverage amount.

 

The New Credit Agreement, as amended, contains financial covenants whereby the ratio of (a) consolidated earnings before interest, taxes, depreciation and amortization, and other adjustments (EBITDA), as defined in the New Credit Agreement to (b) consolidated interest expense, each for the most recent four fiscal quarters (Consolidated Interest Coverage Ratio) and the ratio of (c) consolidated indebtedness to (d) consolidated EBITDA for the most recent four fiscal quarters (Consolidated Total Leverage Ratio), at all times must each meet certain defined limits listed below:

 

Fiscal Quarter Ending:

 

Consolidated
Total Leverage
Ratio

 

Consolidated
Interest
Coverage
Ratio

 

 

 

(less than)

 

(greater than)

 

September 30, 2009

 

6.625:1

 

2.25:1

 

December 31, 2009

 

7.125:1

 

1.875:1

 

March 31, 2010

 

7.375:1

 

1.875:1

 

June 30, 2010

 

7.375:1

 

2.00:1

 

September 30, 2010

 

6.75:1

 

2.125:1

 

December 31, 2010

 

6.25:1

 

2.125:1

 

March 31, 2011

 

6.25:1

 

2.125:1

 

June 30, 2011

 

6.00:1

 

2.25:1

 

September 30, 2011

 

5.75:1

 

2.30:1

 

December 31, 2011

 

5.125:1

 

2.40:1

 

March 31, 2012

 

5.00:1

 

2.625:1

 

June 30, 2012

 

4.50:1

 

2.75:1

 

September 30, 2012

 

4.00:1

 

3.00:1

 

Thereafter

 

3.50:1

 

3.00:1

 

 

In addition, the Amendment added a financial covenant whereby the ratio of (e) consolidated senior secured indebtedness to (f) consolidated EBITDA for the most recent four fiscal quarters (Consolidated Senior Secured Indebtedness Ratio), beginning with the fiscal quarter ending June 30, 2011, must meet certain defined limits listed below:

 

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Fiscal quarter ending:

 

Consolidated
Senior Secured
Indebtedness
Ratio

 

 

 

(less than)

 

June 30, 2011

 

5.25:1

 

September 30, 2011

 

5.25:1

 

December 31, 2011

 

4.50:1

 

March 31, 2012

 

4.50:1

 

June 30, 2012

 

4.00:1

 

September 30, 2012

 

4.00:1

 

Thereafter

 

3.50:1

 

 

The Amendment also reduced or eliminated certain options to increase the borrowing capacity of the revolving facility or Term Loan A.  Additionally, the Amendment placed certain limitations on capital expenditures, restricted payments and acquisitions per calendar year depending on the Consolidated Total Leverage Ratio.  The New Credit Agreement, as amended, also contains customary representations and warranties and events of default.

 

The company accounted for the Amendment under the provisions of ASC Topic 470-50, “Modifications and Extinguishments” (ASC Topic 470-50).  As the present value of the cash flows both prior to and after the Amendment was not substantially different, fees of $17.0 million paid by the company to the parties to the New Credit Agreement were capitalized in connection with the Amendment and along with the existing unamortized debt fees, will be amortized over the remaining term of the New Credit Agreement using the effective interest method.  Furthermore, in accordance with ASC Topic 470-50, costs incurred with third parties of $0.3 million were expensed as incurred.

 

The company’s Senior Notes due 2013 (Senior Notes due 2013) also contain customary affirmative and negative covenants.  These covenants also limit, among other things, our ability to redeem or repurchase our debt, incur additional debt, make acquisitions, merge with other entities, pay dividends or distributions, repurchase capital stock, and create or become subject to liens.

 

As of September 30, 2009, the company was in compliance with all affirmative and negative covenants in its debt instruments inclusive of the financial covenants pertaining to the New Credit Agreement, as amended, and the Senior Notes due 2013.

 

As a result of the Amendment of the New Credit Agreement, the company terminated the Term Loan A interest rate swap entered into in January of 2009 resulting in a realized gain of $2.0 million and entered into a new interest rate swap related to Term Loan A.   In accordance with ASC Topic 815-10, the realized gain will be amortized as an adjustment to interest expense over the life of the Term Loan A swap. The new Term Loan A swap transaction is fixed to the 3 month LIBOR interest rate for 50 percent of the notional amount.  The Term Loan B swap transaction is fixed to the 1 month LIBOR with a 3 percent floor for 50 percent of the notional amount. Accordingly, $449.4 million of Term Loan A was fixed at 2.501 percent plus the applicable spread, which equals 7.001% at September 30, 2009.  $600.0 million of Term Loan B was fixed at 3.635 percent rate plus the applicable spread, which equals 8.135% at September 30, 2009.  Both interest rate hedges for the Term Loan A and Term Loan B are amortizing swaps that have an original aggregate weighted average life of three years.  The remaining unhedged 50 percent portions of the Term Loans A and B as well as the revolving credit facility and Term Loan X, continue to bear interest at a variable interest rate plus the applicable spread according to the New Credit Agreement, as amended.

 

As of September 30, 2009, the company had outstanding $70.5 million of other indebtedness that has a weighted-average interest rate of approximately 6.2%.  This debt includes outstanding overdraft balances in the Americas, Asia and Europe and various capital leases.

 

10. Accounts Receivable Securitization

 

The company has entered into an accounts receivable securitization program whereby it sells certain of its domestic trade accounts receivable to a wholly owned, bankruptcy-remote special purpose subsidiary which, in turn, sells participating interests in its pool of receivables to a third-party financial institution (Purchaser). The Purchaser receives an ownership and security interest in the pool of receivables.  New receivables are purchased by the special purpose subsidiary and participation interests are resold to the Purchaser as cash collections reduce previously sold participation interests. The company has retained collection and administrative responsibilities on the participation interests sold. The Purchaser has no recourse against the company for uncollectible receivables; however, the company’s retained interest in the receivable pool is subordinate to the Purchaser and is recorded at fair value. The securitization program also contains customary affirmative and negative covenants.  Among other restrictions, these covenants require the company to meet specified financial tests, which include the following: consolidated interest coverage ratio and consolidated total leverage ratio.  On June 29, 2009, the company entered into Amendment No. 4 to the Amended and Restated Receivables Purchase Agreement to align the included financial covenants ratios with those of the New Credit Agreement, as amended.  As of September 30, the company was in compliance with all affirmative and negative covenants inclusive of the financial covenants pertaining to the Amended and Restated Receivables Purchase Agreement.  See additional discussion regarding descriptions of and future compliance with such covenants in Note 9, “Debt”.

 

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Due to a short average collection cycle of less than 60 days for such accounts receivable and due to the company’s collection history, the fair value of the company’s retained interest approximates book value. The retained interest recorded at September 30, 2009, was $51.7 million and is included in accounts receivable in the accompanying Consolidated Balance Sheets.

 

The securitization program includes certain of the company’s domestic U.S. Foodservice and Crane segment businesses.  On September 28, 2009, the company entered into Amendment No. 5 to the Amended and Restated Receivables Purchase Agreement whereby the company modified its securitization program to, among other things, increase the capacity of the program from $105.0 million to $125.0 million and to add two additional businesses under the program.  Trade accounts receivables sold to the Purchaser and being serviced by the company totaled $74.0 million at September 30, 2009.

 

Incremental sales of trade receivables from the special purpose subsidiary to the Purchaser totaled $9.0 million for the quarter ended September 30, 2009.  Cash collections of trade accounts receivable balances in the total receivable pool totaled $737.9 million for the nine months ended September 30, 2009.

 

The accounts receivables securitization program is accounted for as a sale in accordance with ASC Topic 860-10, “Transfers and Servicing.”  Sales of trade receivables to the Purchaser are reflected as a reduction of accounts receivable in the accompanying Consolidated Balance Sheets and the proceeds received are included in cash flows from operating activities in the accompanying Consolidated Statements of Cash Flows.

 

The table below provides additional information about delinquencies and net credit losses for trade accounts receivable subject to the accounts receivable securitization program.

 

 

 

 

 

Balance Outstanding

 

 

 

 

 

 

 

60 Days or More

 

Net Credit Losses

 

 

 

Balance outstanding

 

Past Due

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

September 30,

 

 

 

2009

 

2009

 

2009

 

Trade accounts receivable subject to securitization program

 

$

125.7

 

$

13.5