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 March 31, 2010

 

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

 

(I.R.S. Employer

of incorporation or organization)

 

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

 

Smaller reporting company o

(Do not check if a smaller reporting company)

 

 

 

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 March 31, 2010, the most recent practicable date, was 131,294,222.

 

 

 



 

PART I.  FINANCIAL INFORMATION

 

Item 1.  Financial Statements

 

THE MANITOWOC COMPANY, INC.

Consolidated Statements of Operations

For the Three Months Ended March 31, 2010 and 2009

(Unaudited)

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

 

 

 

Three Months Ended
March 31,

 

 

 

2010

 

2009

 

Net sales

 

$

 721.9

 

$

 1,027.6

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

Cost of sales

 

549.8

 

822.5

 

Engineering, selling and administrative expenses

 

129.4

 

134.0

 

Asset impairments

 

 

700.0

 

Restructuring expense

 

0.3

 

4.4

 

Integration expense

 

 

1.5

 

Amortization expense

 

9.8

 

8.3

 

Total operating costs and expenses

 

689.3

 

1,670.7

 

Earnings (loss) from operations

 

32.6

 

(643.1

)

 

 

 

 

 

 

Other income (expenses):

 

 

 

 

 

Loss on debt extinguishment

 

(15.7

)

 

Interest expense

 

(40.6

)

(40.5

)

Amortization of deferred financing fees

 

(6.9

)

(8.0

)

Other income (expense) net

 

(6.3

)

2.1

 

Total other expenses

 

(69.5

)

(46.4

)

 

 

 

 

 

 

Loss from continuing operations before taxes on income

 

(36.9

)

(689.5

)

Benefit for taxes on income

 

(13.6

)

(61.0

)

Loss from continuing operations

 

$

 (23.3

)

$

 (628.5

)

 

 

 

 

 

 

Discontinued operations:

 

 

 

 

 

Loss from discontinued operations, net of income taxes of $(0.2) and $0.4, respectively

 

(0.3

)

(28.3

)

Net loss

 

 (23.6

)

 (656.8

)

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

 

(0.4

)

(1.0

)

Net loss attributable to Manitowoc

 

$

(23.2

)

$

(655.8

)

 

 

 

 

 

 

Amounts attributable to the Manitowoc common shareholders:

 

 

 

 

 

Loss from continuing operations

 

$

(22.9

)

$

(627.5

)

Loss from discontinued operations, net of income taxes

 

(0.3

)

(28.3

)

Net loss attributable to Manitowoc

 

$

(23.2

)

$

(655.8

)

 

 

 

 

 

 

Basic loss per common share:

 

 

 

 

 

Loss from continuing operations attributable to Manitowoc common shareholders

 

$

 (0.18

)

$

 (4.82

)

Loss from discontinued operations attributable to Manitowoc common shareholders

 

(0.00

)

(0.22

)

Loss per share attributable to Manitowoc common shareholders

 

$

(0.18

)

$

(5.04

)

 

 

 

 

 

 

Diluted earnings (loss) per common share:

 

 

 

 

 

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

 

$

 (0.18

)

$

 (4.82

)

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

 

(0.00

)

(0.22

)

Earnings (loss) per share attributable to Manitowoc common shareholders

 

$

(0.18

)

$

(5.04

)

 

 

 

 

 

 

Weighted average shares outstanding — basic

 

130,507,072

 

130,159,387

 

Weighted average shares outstanding — diluted

 

130,507,072

 

130,159,387

 

 

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

 

2



 

THE MANITOWOC COMPANY, INC.

Consolidated Balance Sheets

As of March 31, 2010 and December 31, 2009

(Unaudited)

(In millions, except share data)

 

 

 

March 31,
2010

 

December 31,
2009

 

Assets

 

 

 

 

 

Current Assets:

 

 

 

 

 

Cash and cash equivalents

 

$

99.2

 

$

105.8

 

Marketable securities

 

2.6

 

2.6

 

Restricted cash

 

6.3

 

6.5

 

Accounts receivable, less allowances of $45.6 and $47.3, respectively

 

408.3

 

323.2

 

Inventories — net

 

630.6

 

595.5

 

Deferred income taxes

 

144.6

 

142.0

 

Other current assets

 

76.6

 

84.3

 

Total current assets

 

1,368.2

 

1,259.9

 

 

 

 

 

 

 

Property, plant and equipment — net

 

638.9

 

673.7

 

Goodwill

 

1,242.9

 

1,246.8

 

Other intangible assets — net

 

954.2

 

957.4

 

Other non-current assets

 

123.8

 

140.9

 

Total assets

 

$

4,328.0

 

$

4,278.7

 

 

 

 

 

 

 

Liabilities and Equity

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

Accounts payable and accrued expenses

 

$

811.7

 

$

801.6

 

Short-term borrowings

 

93.5

 

144.9

 

Securitization liabilities

 

63.0

 

 

Product warranties

 

90.8

 

96.5

 

Customer advances

 

77.5

 

71.2

 

Product liabilities

 

27.2

 

28.0

 

Total current liabilities

 

1,163.7

 

1,142.2

 

Non-Current Liabilities:

 

 

 

 

 

Long-term debt

 

2,109.4

 

2,027.5

 

Deferred income taxes

 

220.5

 

214.8

 

Pension obligations

 

46.7

 

47.4

 

Postretirement health and other benefit obligations

 

60.6

 

58.8

 

Long-term deferred revenue

 

31.9

 

31.8

 

Other non-current liabilities

 

149.6

 

149.0

 

Total non-current liabilities

 

2,618.7

 

2,529.3

 

 

 

 

 

 

 

Commitments and contingencies (Note 15)

 

 

 

 

 

 

 

 

 

 

 

Total Equity:

 

 

 

 

 

Common stock (300,000,000 shares authorized, 163,175,928 shares issued 131,294,222 and 130,708,124 shares outstanding, respectively)

 

1.4

 

1.4

 

Additional paid-in capital

 

446.8

 

444.4

 

Accumulated other comprehensive income

 

21.2

 

61.8

 

Retained earnings

 

165.5

 

188.7

 

Treasury stock, at cost (31,881,706 and 32,467,804 shares, respectively)

 

(88.2

)

(88.4

)

Total Manitowoc stockholders’ equity

 

546.7

 

607.9

 

Noncontrolling interest

 

(1.1

)

(0.7

)

Total equity

 

545.6

 

607.2

 

Total liabilities and equity

 

$

4,328.0

 

$

4,278.7

 

 

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

 

3



 

THE MANITOWOC COMPANY, INC.

Consolidated Statements of Cash Flows

For the Three Months Ended March 31, 2010 and 2009

(Unaudited, In millions)

 

 

 

Three Months Ended
March 31,

 

 

 

2010

 

2009

 

Cash Flows from Operations:

 

 

 

 

 

Net loss

 

$

(23.6

)

$

(656.8

)

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

 

 

 

 

 

Asset impairments

 

 

700.0

 

Discontinued operations, net of income taxes

 

0.3

 

28.3

 

Depreciation

 

25.0

 

28.2

 

Amortization of intangible assets

 

9.8

 

8.3

 

Deferred income taxes

 

(2.0

)

(58.2

)

Gain on sale of property, plant and equipment

 

1.1

 

0.2

 

Restructuring expense

 

0.3

 

4.4

 

Loss on debt extinguishment

 

15.7

 

 

Other

 

4.8

 

8.7

 

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

 

 

 

 

 

Accounts receivable

 

(92.1

)

75.8

 

Inventories

 

(53.3

)

(4.4

)

Other assets

 

7.6

 

(0.2

)

Accounts payable

 

50.4

 

(95.6

)

Accrued expenses and other liabilities

 

(13.7

)

(62.4

)

Net cash used for operating activities of continuing operations

 

(69.7

)

(23.7

)

Net cash used for operating activities of discontinued operations

 

(0.5

)

(10.6

)

Net cash used for operating activities

 

(70.2

)

(34.3

)

 

 

 

 

 

 

Cash Flows from Investing:

 

 

 

 

 

Business acquisition, net of cash acquired

 

(4.8

)

 

Capital expenditures

 

(8.5

)

(22.1

)

Change in restricted cash

 

0.2

 

 

Proceeds from sale of property, plant and equipment

 

5.9

 

0.9

 

Net cash used for investing activities

 

(7.2

)

(21.2

)

 

 

 

 

 

 

Cash Flows from Financing:

 

 

 

 

 

Proceeds from revolving credit facility

 

7.0

 

9.9

 

Payments on long-term debt

 

(13.6

)

(52.1

)

Proceeds from long-term debt

 

29.0

 

81.5

 

Proceeds from securitization facility

 

63.0

 

 

Proceeds (payments) on notes financing

 

(1.6

)

1.3

 

Dividends paid

 

 

(2.6

)

Debt issue costs

 

(10.7

)

 

Exercises of stock options, including windfall tax benefits

 

0.4

 

 

Net cash provided by financing activities

 

73.5

 

38.0

 

 

 

 

 

 

 

Effect of exchange rate changes on cash

 

(2.7

)

(1.5

)

 

 

 

 

 

 

Net decrease in cash and cash equivalents

 

(6.6

)

(19.0

)

Balance at beginning of period

 

108.4

 

173.0

 

Balance at end of period

 

$

101.8

 

$

154.0

 

 

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

 

4



 

THE MANITOWOC COMPANY, INC.

Consolidated Statements of Comprehensive Income

For the Three Months Ended March 31, 2010 and 2009

(Unaudited)

(In millions)

 

 

 

Three Months Ended
March 31,

 

 

 

2010

 

2009

 

Net loss

 

$

(23.6

)

$

(656.8

)

Other comprehensive income (loss):

 

 

 

 

 

Derivative instrument fair market value adjustment - net of income taxes

 

0.6

 

(11.2

)

Foreign currency translation adjustments

 

(41.2

)

(39.5

)

 

 

 

 

 

 

Total other comprehensive loss

 

(40.6

)

(50.7

)

 

 

 

 

 

 

Comprehensive loss

 

(64.2

)

(707.5

)

 

 

 

 

 

 

Comprehensive loss attributable to noncontrolling interest

 

(0.4

)

(1.0

)

 

 

 

 

 

 

Comprehensive loss attributable to Manitowoc

 

$

(63.8

)

$

(706.5

)

 

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

 

5



 

THE MANITOWOC COMPANY, INC.

Notes to Unaudited Consolidated Financial Statements

For the Three Months Ended March 31, 2010 and 2009

 

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 months ended March 31, 2010 and 2009, the cash flows for the same three-month periods, and the financial position at March 31, 2010, 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, 2009.  The consolidated balance sheet as of December 31, 2009 was derived from audited financial statements 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 thereto 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. During the fourth quarter of 2009 the company identified adjustments to correct an error to the amortization of deferred financing fees that reduce the expenses recognized in the previously filed Quarterly Reports for each of the first three quarters of 2009 by $0.4 million, $5.8 million, and $5.0 million, respectively. The net-of-tax effect of these adjustments increases the company’s previously reported 2009 earnings per share by $0.00, $0.03, and $0.02 for the quarters ended March 31, June 30 and September 30, respectively. These adjustments also increase the unamortized portion of deferred financing fees included in long term assets by $11.2 million, increase income taxes payable and deferred tax liabilities by $4.3 million, and increase retained earnings by $6.9 million as of September 30, 2009.

 

There was no impact to quarterly cash flows in 2009 as the increase in net earnings was offset by the decrease in the non-cash reconciling items for deferred financing fee amortization and deferred taxes. The company does not believe that these adjustments are material to the results of operations, financial position or cash flows for any of its previously filed quarterly financial statements. Accordingly, the March 31, 2009 financial statements included herein have been revised to reflect the adjustments discussed above.  The company will also revise its 2009 second and third quarter financial statements prospectively within its 2010 second and third quarter Quarterly Reports on Form 10-Q.

 

2. Acquisition

 

On March 1, 2010, the company acquired 100% of the issued and to be issued shares of Appliance Scientific, Inc. (ASI).  ASI is a leader in accelerated cooking technologies and will be integrated into current foodservice hot-side offerings.   Allocation of the purchase price resulted in $5.0 million of goodwill, $18.2 million of intangible assets and an estimated liability for future earnouts of $1.8 million.  In accordance with guidance primarily codified in ASC Topic 805, “Business Combinations,” any future adjustment to the estimated earnout liability would be recognized in the earnings of that period.  The results of ASI have been included in the Foodservice segment since the date of acquisition.

 

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.    The results of the Marine segment have been classified as a discontinued operation.

 

Administrative costs related the former Marine segment resulted in a pre-tax loss from discontinued operations of $0.3 million and $0.4 million for the periods ended March 31, 2010 and 2009, respectively.  Tax benefits of $0.1 million and $0.2 million were recognized in the periods ended March 31, 2010 and 2009, respectively.

 

6



 

In addition to the former Marine segment, the company has classified the Enodis ice and related businesses as discontinued in compliance with ASC Topic 360-10, “Property, Plant, and Equipment.”

 

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, the company 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 the company.  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 matured in April of 2010.  The final sale price resulted in the company recording an 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 net earnings of the businesses to be divested of $0.9 million, the total loss from discontinued operations related to the Enodis ice businesses was $27.9 million for the three months ended March 31, 2009.

 

Administrative costs related the Enodis ice machine businesses resulted in a pre-tax loss from discontinued operations of $0.2 million (exclusive of a $0.1 million tax benefit) for the period ended March 31, 2010.

 

4. Fair Value of Financial Instruments

 

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 March 31, 2010 and December 31, 2009 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, 2010

 

 

 

Level 1

 

Level 2

 

Level 3

 

Total

 

 

 

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

 

Foreign currency exchange contracts

 

$

 4.4

 

$

 —

 

$

 —

 

$

 4.4

 

Forward commodity contracts

 

 

2.0

 

 

2.0

 

Marketable securities

 

2.6

 

 

 

2.6

 

Total Current assets at fair value

 

$

 7.0

 

$

 2.0

 

$

 —

 

$

 9.0

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

 

Foreign currency exchange contracts

 

$

 3.9

 

$

 —

 

$

 —

 

$

 3.9

 

Forward commodity contracts

 

 

0.3

 

 

0.3

 

Total Current liabilities at fair value

 

$

 3.9

 

$

 0.3

 

$

 —

 

$

 4.2

 

 

 

 

 

 

 

 

 

 

 

Non-current Liabilities:

 

 

 

 

 

 

 

 

 

Interest rate swap contracts

 

$

 —

 

$

 12.4

 

$

 —

 

$

 12.4

 

Total Non-current liabilities at fair value

 

$

 —

 

$

 12.4

 

$

 —

 

$

 12.4

 

 

 

 

Fair Value as of December 31, 2009

 

 

 

Level 1

 

Level 2

 

Level 3

 

Total

 

 

 

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

 

Foreign currency exchange contracts

 

$

 1.4

 

$

 —

 

$

 —

 

$

 1.4

 

Forward commodity contracts

 

 

1.7

 

 

1.7

 

Marketable securities

 

2.6

 

 

 

2.6

 

Total Current assets at fair value

 

$

 4.0

 

$

 1.7

 

$

 —

 

$

 5.7

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

 

Foreign currency exchange contracts

 

$

 5.4

 

$

 —

 

$

 —

 

$

 5.4

 

Forward commodity contracts

 

 

0.1

 

 

0.1

 

Total Current liabilities at fair value

 

$

 5.4

 

$

 0.1

 

$

 —

 

$

 5.5

 

 

 

 

 

 

 

 

 

 

 

Non-current Liabilities:

 

 

 

 

 

 

 

 

 

Interest rate swap contracts

 

$

 —

 

$

 6.4

 

$

 —

 

$

 6.4

 

Total Non-current liabilities at fair value

 

$

 —

 

$

 6.4

 

$

 —

 

$

 6.4

 

 

7



 

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 any 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 $150.0 million and $143.1 million at March 31, 2010 and December 31, 2009, respectively.  The fair value of the company’s 9 1/2 % Notes due 2018 was approximately $423.3 million at March 31, 2010.  The fair values of the company’s term loans under the New Credit Agreement are as follows at March 31, 2010 and December 31, 2009, respectively:  Term Loan A — $729.1 million and $883.3 million and Term Loan B — $833.9 million and $1,011.3 million.  See Note 9, “Debt,” for the related carrying values of these debt instruments.

 

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. 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 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

 

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 control business risk within limits specified by the company’s risk management policy to 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 Company’s risk management 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

 

8



 

exceed defined tolerance levels and are considered to be unavoidable.

 

The primary risks managed by the company using derivative instruments are interest rate risk, commodity price risk and foreign currency exchange rate risk.  Interest rate swap instruments are entered to manage interest rate risk.  Swap contracts on various commodities are used to manage the price risk associated with forecasted raw material related expenses in the company’s manufacturing process.  The company also enters into various foreign currency derivative instruments to manage foreign currency risk associated with the company’s projected foreign currency revenue and expenses along with the related balance sheet exposures.

 

ASC Topic 815-10 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 qualifying commodity swaps, foreign exchange derivative contracts and interest rate swaps as cash flow hedges of forecasted exposures to commodity, currency, and variable rate interest rate volatility.

 

For derivative instruments designated and qualifying as cash flow hedges, the effective portion of the mark-to-market gain or loss is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the forecasted item 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 $0.4 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 generally completed on a rolling and layering basis for twelve and eighteen months, respectively.

 

As of March 31, 2010 and December 31, 2009, the company had the following outstanding interest rate swaps, commodity swaps and foreign currency derivative contracts that were entered to hedge forecasted transactions:

 

 

 

 

 

Units Hedged

 

 

 

 

 

Commodity

 

Q1 2010

 

Q4 2009

 

 

 

Type

 

Aluminum

 

1,120

 

1,400

 

MT

 

Cash Flow

 

Copper

 

671

 

424

 

MT

 

Cash Flow

 

Natural Gas

 

335,945

 

266,934

 

MMBtu

 

Cash Flow

 

 

 

 

Units Hedged

 

 

 

Short Currency

 

March 31, 2010

 

December 31, 2009

 

Type

 

Canadian Dollar

 

23,519,231

 

24,426,423

 

Cash Flow

 

European Euro

 

59,005,867

 

51,155,115

 

Cash Flow

 

South Korean Won

 

2,761,699,709

 

2,079,494,400

 

Cash Flow

 

Singapore Dollar

 

7,000,000

 

3,240,000

 

Cash Flow

 

United States Dollar

 

11,851,768

 

12,285,292

 

Cash Flow

 

 

As of March 31, 2010, the total notional amount of the company’s receive-floating/pay-fixed interest rate swaps was $925.0 million compared to $984 million on December 31, 2009.

 

For derivative instruments not designated as hedging instruments under ASC Topic 815-10, the gains or losses are recognized in current earnings.

 

 

 

Units Hedged

 

 

 

 

 

Short Currency

 

March 31, 2010

 

December 31, 2009

 

Recognized Location

 

Purpose

 

Great British Pound

 

26,913,065

 

30,385,738

 

Other income

 

Balance Sheet Hedges

 

European Euro

 

51,942,782

 

37,310,399

 

Other income

 

Balance Sheet Hedges

 

United States Dollar

 

60,980,102

 

42,383,351

 

Other income

 

Balance Sheet Hedges

 

Japanese Yen

 

49,000,000

 

0

 

Other income

 

Balance Sheet Hedges

 

 

The fair value of outstanding derivative contracts recorded as assets in the accompanying Consolidated Balance Sheet as of March 31, 2010 and December 31, 2009 was as follows:

 

9



 

 

 

 

 

ASSET DERIVATIVES

 

 

 

 

 

March 31, 2010

 

December 31, 2009

 

Balance Sheet Location

 

 

 

Fair Value

Derivatives designated as hedging instrument under ASC 815

 

 

 

 

 

Foreign Exchange Contracts

 

Other current assets

 

$

1.9

 

$

1.4

 

Commodity Contracts

 

Other current assets

 

$

1.8

 

$

1.5

 

Total derivatives designated as hedging instruments under ASC 815

 

$

3.7

 

$

2.9

 

 

 

 

 

 

ASSET DERIVATIVES

 

 

 

 

 

March 31, 2010

 

December 31, 2009

 

Balance Sheet Location

 

 

 

Fair Value

 

Derivatives NOT designated as hedging instrument under ASC 815

 

 

 

 

 

Foreign Exchange Contracts

 

Other current assets

 

$

2.5

 

$

0.0

 

Commodity Contracts

 

Other current assets

 

$

0.2

 

$

0.2

 

Total derivatives NOT designated as hedging instruments under ASC 815

 

$

2.7

 

$

0.2

 

 

 

 

 

 

 

 

 

Total asset derivatives

 

 

 

$

6.4

 

$

3.1

 

 

The fair value of outstanding derivative contracts recorded as liabilities in the accompanying Consolidated Balance Sheet as of March 31, 2010 and December 31, 2009 was as follows:

 

 

 

 

 

LIABILITY DERIVATIVES

 

 

 

 

 

March 31, 2010

 

December 31, 2009

 

Balance Sheet Location

 

 

 

Fair Value

Derivatives designated as hedging instrument under ASC 815

 

 

 

 

 

Foreign Exchange Contracts

 

Accounts payable and accrued expenses

 

$

3.0

 

$

0.5

 

Interest Rate Swap Contracts

 

Other non-current liabilities

 

$

12.4

 

$

6.4

 

Commodity Contracts

 

Accounts payable and accrued expenses

 

$

0.3

 

$

0.1

 

Total derivatives designated as hedging instruments under ASC 815

 

$

15.7

 

$

7.0

 

 

 

 

 

 

LIABILITY DERIVATIVES

 

 

 

 

 

March 31, 2010

 

December 31, 2009

 

Balance Sheet Location

 

 

 

Fair Value

Derivatives NOT designated as hedging instrument under ASC 815

 

 

 

 

 

Foreign Exchange Contracts

 

Accounts payable and accrued expenses

 

$

0.9

 

$

4.9

 

Commodity Contracts

 

Accounts payable and accrued expenses

 

$

0.0

 

$

0.0

 

Total derivatives NOT designated as hedging instruments under ASC 815

 

$

0.9

 

$

4.9

 

 

 

 

 

 

 

 

 

Total liability derivatives

 

 

 

$

16.6

 

$

11.9

 

 

The effect of derivative instruments on the consolidated statement of operations for the quarter ended March 31, 2010 and March 31, 2009 for gains or losses initially recognized in other comprehensive income in the consolidated balance sheet were as follows:

 

10



 

Derivatives in ASC 815 Cash Flow

 

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

 

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

 

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

 

Hedging Relationships

 

March 31, 2010

 

March 31, 2009

 

Portion)

 

March 31, 2010

 

March 31, 2009

 

Foreign Exchange Contracts

 

$

(1.2

)

$

(5.3

)

Cost of Sales

 

$

(0.5

)

$

(3.7

)

Interest Rate Swap Contracts

 

 

(3.9

)

 

(8.8

)

Interest Expense

 

 

(2.7

)

 

(2.1

)

Commodity Contracts

 

 

0.0

 

 

(2.4

)

Cost of Sales

 

 

0.2

 

 

(1.9

)

Total

 

$

(5.1

)

$

(16.5

)

 

 

$

(3.0

)

$

(7.7

)

 

Derivatives in ASC 815 Cash Flow

 

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

 

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

 

Hedging Relationships

 

Effectiveness Testing)

 

March 31, 2010

 

March 31, 2009

 

Commodity Contracts

 

Cost of Sales

 

$

0.2

 

$

(0.2

)

Total

 

 

 

$

0.2

 

$

(0.2

)

 

Derivatives Not Designated as
Hedging Instruments under

 

Location of Gain or (Loss)
recognized in Income on

 

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

 

ASC 815

 

Derivative

 

March 31, 2010

 

March 31, 2009

 

Foreign Exchange Contracts

 

Other Income

 

$

1.7

 

$

(0.8

)

Commodity Contracts

 

Cost of Sales

 

 

0.0

 

 

(1.2

)

Total

 

 

 

$

1.7

 

$

(2.0

)

 

6. Inventories

 

The components of inventories at March 31, 2010 and December 31, 2009 are summarized as follows:

 

 

 

March 31, 2010

 

December 31, 2009

 

Inventories — gross:

 

 

 

 

 

Raw materials

 

$

 250.4

 

$

 244.4

 

Work-in-process

 

186.2

 

163.5

 

Finished goods

 

315.9

 

310.9

 

Total inventories — gross

 

752.5

 

718.8

 

Excess and obsolete inventory reserve

 

(91.1

)

(90.9

)

Net inventories at FIFO cost

 

661.4

 

627.9

 

Excess of FIFO costs over LIFO value

 

(30.8

)

(32.4

)

Inventories — net

 

$

 630.6

 

$

 595.5

 

 

Inventories are carried at lower of cost or market value using the first-in, first-out (FIFO) method for 90% of total inventories at March 31, 2010 and December 31, 2009.  The remainder of the inventories are costed using the last-in, first-out (LIFO) method.  During the first quarter of 2010, a reduction in inventories related to working capital initiatives resulted in a liquidation of applicable LIFO inventory quantities carried at lower costs in prior years. This LIFO liquidation resulted in a $1.6 million cost of sales decrease.

 

7. Goodwill and Other Intangible Assets

 

The changes in the carrying amount of goodwill by reportable segment for the year ended December 31, 2009 and three months ended March 31, 2010 are as follows:

 

11



 

 

 

Crane

 

Foodservice

 

Total

 

 

 

 

 

 

 

 

 

Gross and net balance as of January 1, 2009

 

$

285.5

 

$

1,605.0

 

$

1,890.5

 

Enodis purchase accounting adjustments

 

 

(84.9

)

(84.9

)

Sale of product lines

 

 

(9.3

)

(9.3

)

Foreign currency impact

 

4.2

 

(4.9

)

(0.7

)

Gross balance as of December 31, 2009

 

289.7

 

1,505.9

 

1,795.6

 

Asset impairments

 

 

(548.8

)

(548.8

)

Net balance as of December 31, 2009

 

289.7

 

957.1

 

1,246.8

 

 

 

 

 

 

 

 

 

Acquisition of ASI

 

 

5.0

 

5.0

 

Foreign currency impact

 

(11.1

)

2.2

 

(8.9

)

Gross balance as of March 31, 2010

 

$

 278.6

 

$

 1,513.1

 

$

 1,791.7

 

Asset impairments

 

 

(548.8

)

(548.8

)

Net balance as of March 31, 2010

 

$

 278.6

 

$

 964.3

 

$

 1,242.9

 

 

The increase in goodwill of $5.0 million for the period ended March 31, 2010, was due to the acquisition of ASI.  See further discussion in Note 2, “Acquisition.”

 

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 review 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 gross carrying amount and accumulated amortization of the company’s intangible assets other than goodwill were as follows as of

 

12



 

March 31, 2010 and December 31, 2009.

 

 

 

March 31, 2010

 

December 31, 2009

 

 

 

Gross
Carrying
Amount

 

Accumulated
Amortization

 

Net
Book

Value

 

Gross
Carrying
Amount

 

Accumulated
Amortization

 

Net
Book
Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trademarks and tradenames

 

$

 333.5

 

$

 —

 

$

 333.5

 

$

 341.0

 

$

 —

 

$

 341.0

 

Customer relationships

 

439.2

 

(34.7

)

404.5

 

438.9

 

(28.9

)

410.0

 

Patents

 

33.6

 

(19.2

)

14.4

 

35.1

 

(19.4

)

15.7

 

Engineering drawings

 

11.3

 

(6.1

)

5.2

 

11.8

 

(6.2

)

5.6

 

Distribution network

 

20.8

 

 

20.8

 

21.7

 

 

21.7

 

Other intangibles

 

200.9

 

(25.1

)

175.8

 

185.9

 

(22.5

)

163.4

 

 

 

$

 1,039.3

 

$

 (85.1

)

$

 954.2

 

$

 1,034.4

 

$

 (77.0

)

$

 957.4

 

 

The gross carrying amount of other intangibles increased $18.2 million due to the acquisition of ASI, as discussed in Note 2, “Acquisition.”  Amortization expense for the three months ended March 31, 2010 and 2009 was $9.8 million and $8.3 million, respectively. Amortization expense related to intangible assets for each of the five succeeding years is estimated to be approximately $40 million per year.

 

8.  Accounts Payable and Accrued Expenses

 

Accounts payable and accrued expenses at March 31, 2010 and December 31, 2009 are summarized as follows:

 

 

 

March 31,
2010

 

December 31,
2009

 

Trade accounts payable and interest payable

 

$

 403.0

 

$

 357.3

 

Employee related expenses

 

103.8

 

96.6

 

Restructuring expenses

 

52.3

 

61.5

 

Profit sharing and incentives

 

8.6

 

14.0

 

Accrued rebates

 

30.2

 

35.2

 

Deferred revenue - current

 

32.4

 

40.4

 

Derivative liabilities

 

4.2

 

5.5

 

Income taxes payable

 

22.0

 

25.3

 

Miscellaneous accrued expenses

 

155.2

 

165.8

 

 

 

$

 811.7

 

$

 801.6

 

 

9. Debt

 

Outstanding debt at March 31, 2010 and December 31, 2009 is summarized as follows:

 

(in millions)

 

March 31, 2010

 

December 31, 2009

 

Revolving credit facility

 

$

7.0

 

$

 

Term loan A

 

 

738.3

 

 

922.5

 

Term loan B

 

 

833.2

 

 

1,041.0

 

Senior notes due 2013

 

 

150.0

 

 

150.0

 

Senior notes due 2018

 

 

400.0

 

 

Securitization

 

 

63.0

 

 

Other

 

 

74.4

 

 

58.9

 

Total debt

 

$

2,265.9

 

$

2,172.4

 

Less current portion and short-term borrowings

 

 

(156.5

)

 

(144.9

)

Long-term debt

 

$

2,109.4

 

$

2,027.5

 

 

In April 2008, the company entered into a $2.4 billion credit agreement which was amended and restated as of August 25, 2008, to

 

13



 

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. Term Loan X was repaid in full as of December 31, 2009. At March 31, 2010 the interest rates for Term Loan A and Term Loan B were 4.8125% and 7.500%, respectively.  Including interest rate swaps, Term Loan A and Term Loan B rates were 5.71% and 7.97% respectively, at March 31, 2010.

 

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.

 

On January 21, 2010, the company entered into an amendment (January 2010 Amendment) to the New Credit Agreement.  The January 2010 Amendment, among other things, amends the definition of Consolidated Earnings Before Interest and Taxes (EBIT) to provide add-backs for certain additional cash restructuring charges, amends certain financial ratios that the company is required to maintain, including (i) reducing the minimum permitted level of the Consolidated Interest Coverage Ratio, (ii) increasing the maximum permitted level of the Maximum Consolidated Total Leverage Ratio, and (iii) adjusting the start date for measurement of the Consolidated Senior Secured Leverage Ratio to December 31, 2010 and reducing the maximum permitted level for this ratio.

 

The January 2010 Amendment 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)

 

March 31, 2010

 

7.80:1

 

1.75:1

 

June 30, 2010

 

7.80:1

 

1.75:1

 

September 30, 2010

 

7.25:1

 

1.80:1

 

December 31, 2010

 

6.625:1

 

1.85:1

 

March 31, 2011

 

6.50:1

 

2.00:1

 

June 30, 2011

 

6.375:1

 

2.00:1

 

September 30, 2011

 

6.250:1

 

2.125:1

 

December 31, 2011

 

5.75:1

 

2.25:1

 

March 31, 2012

 

5.75:1

 

2.375:1

 

June 30, 2012

 

5.25:1

 

2.50:1

 

September 30, 2012

 

4.75:1

 

2.50:1

 

December 31, 2012

 

4.50:1

 

2.75:1

 

March 31, 2013

 

4.50:1

 

2.75:1

 

June 30, 2013

 

4.25:1

 

3.00:1

 

September 30, 2013

 

3.75:1

 

3.00:1

 

December 31, 2013 and thereafter

 

3.50:1

 

3.00:1

 

 

In addition, the January 2010 Amendment contains 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 December 31, 2010, must meet certain defined limits listed below:

 

14



 

Fiscal quarter ending:

 

Consolidated
Senior Secured
Leverage
Ratio

 

 

 

(less than)

 

December 31, 2010

 

5.00:1

 

March 31, 2011

 

5.00:1

 

June 30, 2011

 

5.00:1

 

September 30, 2011

 

5.00:1

 

December 31, 2011

 

4.25:1

 

March 31, 2012

 

4.25:1

 

June 30, 2012

 

4.00:1

 

September 30, 2012

 

3.75:1

 

December 31, 2012

 

3.50:1

 

March 31, 2013

 

3.25:1

 

June 30, 2013

 

3.25:1

 

September 30, 2013

 

3.25:1

 

December 31, 2013 and thereafter

 

3.00:1

 

 

On February 3, 2010, the company entered into an Underwriting Agreement with J.P. Morgan Securities Inc. as representative of several underwriters, pursuant to which the company agreed to sell, and the underwriters agreed to purchase $400 million of the company’s 9.50% Senior Notes due 2018 to be guaranteed by guarantors in a public offering which closed on February 8, 2010. Net proceeds of $392.0 million from this offering were used to partially pay down ratably the then outstanding balances on Term Loan A and Term Loan B.

 

The Senior Notes due 2018 are unsecured senior obligations ranking subordinate to all existing senior secured indebtedness and equal to all existing senior unsecured obligations.  The Senior Notes due 2018 are jointly and severally and fully guaranteed on a senior unsecured basis by all of our existing and future domestic restricted subsidiaries that guarantee our senior secured credit facilities.  Interest on the Senior Notes due 2018 is payable semiannually in February and August of each year.  The Senior Notes due 2018 may be redeemed in whole or in part by the company for a premium at any time prior to February 15, 2014.  The premium is calculated as the greater of (1) 1.0% of the principal amount of such note; and (2) the excess of (a) the present value at such redemption dated of (i) the redemption price of such note on February 15, 2014 plus (ii) all required remaining scheduled interest payments due on such note through February 15, 2014, computed using a discount rate equal to the treasury rate plus 50 basis points; over (b) the principal amount of such note on such redemption date.   In addition, the company may redeem at its option, in whole or in part, at the following redemption prices if it redeems the Senior Notes due 2018 during the 12-month period commencing on February 15 of the year set forth below:

 

Year

 

Percentage

 

2014

 

104.750

%

2015

 

102.375

%

2016 and thereafter

 

100.000

%

 

In addition, at any time, or from time to time, on or prior to February 15, 2013, the company may, at its option, use the net cash proceeds of one or more public equity offerings to redeem up to 35% of the principal amount of the Senior Notes due 2018 outstanding at a redemption price of 109.500% of the principal amount thereof plus accrued and unpaid interest thereon, if any, to the date of redemption; provided that:

 

(1)          At least 65% of the principal amount of the Senior Notes due 2018 outstanding remains outstanding immediately after any such redemption; and

(2)          The company makes such redemption not more than 90 days after the consummation of any such public offering.

 

The issuance of the Senior Notes due 2018 and the use of proceeds to repay Term Loan A and Term Loan B resulted in the recognition of $15.7 million for the loss on extinguishment of debt, in accordance with the provisions of ASC Topic 470-50, “Modifications and Extinguishments.”  In addition, $1.7 million of fees paid by the company to the parties to the New Credit Agreement  were capitalized in connection with the January 2010 Amendment and along with the existing unamortized debt fees, are being amortized over the remaining term of the New Credit Agreement using the effective interest method.  $8.5 million of fees paid to the parties of the Senior Notes due 2018 have been capitalized and are being amortized over the term of the Senior Notes due 2018.

 

Our Senior Notes due 2013 and Senior Notes due 2018 contain customary affirmative and negative covenants.  Among other restrictions, these covenants limit 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 March 31, 2010 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 through March 31, 2010, the Senior Notes due 2013, and the Senior Notes due 2018 and based upon our current plans and outlook, we believe we will be able to comply with these covenants during the subsequent 12 months.  As of March 31, 2010 our Consolidated Total Leverage Ratio was 6.65:1, below the maximum

 

15



 

ratio of 7.800:1 and our Consolidated Interest Coverage Ratio was 2.050:1, above the minimum ratio of 1.750:1.

 

On January 1, 2010, the company adopted guidance primarily codified in ASC Topic 860-10, “Transfers and Servicing” relating to transfers of financial assets.  As a result, the structure of the company’s current securitization facility no longer met the requirements for off balance sheet treatment and the sold receivables were required to be recognized in the consolidated balance sheet at March 31, 2010.  Additionally, proceeds from the securitization facility are treated as borrowings and are reflected within the financing section of the statement of cash flows.  At March 31, 2010, the company recognized $63.0 million of securitized receivables and a corresponding securitization liability of $63.0 million.  See additional discussion at Note 10, “Accounts Receivable Securitization.”

 

As of March 31, 2010, the company had outstanding $74.4 million of other indebtedness that has a weighted-average interest rate of approximately 6.0%.  This debt includes outstanding short-term debt and 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 a consolidated interest coverage ratio and a consolidated total leverage ratio.  On February 26, 2010  the company entered into Amendment No. 8 to the Amended and Restated Receivables Purchase Agreement (Receivables Purchase Agreement) to align the included financial covenants ratios with those of the New Credit Agreement, as amended, and the Senior Notes due 2013 and Senior Notes due 2018.  As of March 31, 2010, the company was in compliance with all affirmative and negative covenants inclusive of the financial covenants pertaining to the Receivables Purchase Agreement and based upon our current plans and outlook, we believe we will be able to comply with these covenants during the subsequent 12 months.

 

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.

 

On March 29, 2010 the company entered into Amendment No. 9 to the Amended and Restated Receivables Purchase Agreement originally dated as of December 21, 2006 and subsequently amended (Receivables Purchase Agreement).  Among other things, Amendment No. 9 amends the program to add an additional business to the program.

 

On December 17, 2009 and December 31, 2009, respectively, the company entered into Amendments No. 6 and 7 to the Receivables Purchase Agreement whereby the company modified the program to, among other things, add two additional businesses and amended certain defined terms in order to update the program for changes in the company’s legal structure.

 

Prior to January 1, 2010, the accounts receivables securitization program was accounted for as a sale in accordance with ASC Topic 860-10.  Sales of trade receivables to the Purchaser were reflected as a reduction of accounts receivable in the accompanying Consolidated Balance Sheets and the proceeds received were included in cash flows from operating activities in the accompanying Consolidated Statements of Cash Flows.  On January 1, 2010, the company adopted new guidance codified in ASC 860 relating to transfers of financial assets.  As a result, the structure of the company’s current securitization facility no longer met the requirements for off balance sheet treatment and the sold receivables were required to be recognized in the consolidated balance sheet.  Additionally, proceeds from the securitization facility are treated as borrowings and are reflected within the financing section of the statement of cash flows.  At March 31, 2010, the company recognized $63.0 million of securitized receivables and a corresponding securitization liability of $63.0 million.

 

11.  Income Taxes

 

For the three months ended March 31, 2010, the Company recorded an income tax benefit of $13.6 million, as compared to an income tax benefit of $61.0 million for the three months ended March 31, 2009.  The income tax benefit for the three months ended March 31, 2010 was calculated under the discrete method.  The mix of income (loss) between foreign and domestic operations causes an unusual relationship between income (loss) and income tax expense (benefit) with small changes in the annual pre-tax book income resulting in a significant impact on the rate and unreliable estimates. As a result, the Company computed the provision for income taxes for the three months ended March 31, 2010 by applying the actual effective tax rate to the year-to-date loss. The Company believes that the discrete calculation of the effective tax rate provides a more reasonable approximation of the Company’s tax benefit.

 

16



 

The company’s income tax benefit was unfavorably impacted by $1.6 million for the quarter ended March 31, 2010, resulting from the elimination under the Patient Protection and Affordable Care Act of the tax deductibility of retiree health care costs to the extent of federal subsidies that provide retiree prescription drug benefits equivalent to Medicare Part D coverage.

 

The company’s unrecognized tax benefits, excluding interest and penalties, remained unchanged, at $42.3 million, for the quarter ended March 31, 2010.  All of the company’s unrecognized tax benefits as of March 31, 2010, if recognized, would impact the income tax provision. During the next twelve months, the Company does not expect any material changes in its unrecognized tax benefits.

 

There have been no significant developments in the quarter with respect to the Company’s ongoing tax audits in various jurisdictions.

 

12.  Earnings Per Share

 

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

 

 

 

Three Months Ended
 March 31,

 

 

 

2010

 

2009

 

Basic weighted average common shares outstanding

 

130,507,072

 

130,159,387

 

Effect of dilutive securities - stock options and restricted stock

 

 

 

Diluted weighted average common shares outstanding

 

130,507,072

 

130,159,387

 

 

For the three months ended March 31, 2010 and 2009 the total number of potential dilutive options was 2.0 million and 0.4 million, respectively.  However, these options were not included in the computation of diluted net loss per common share for the quarter since to do so would decrease the loss per share.

 

No dividends were paid during the three months ended March 31, 2010 as the company moved to an annual dividend program.  During the three months ended March 31, 2009 the company paid a quarterly dividend of $0.02 per outstanding common share.

 

13.  Stockholders’ Equity

 

The following is a rollforward of retained earnings and noncontrollable interest for the period ending March 31, 2010 and 2009:

 

 

 

Retained Earnings

 

Noncontrolling
Interest

 

Balance at December 31, 2009

 

$

188.7

 

$

(0.7

)

Net earnings (loss)

 

(23.2

)

(0.4

)

Balance at March 31, 2010

 

$

165.5

 

$

(1.1

)

 

 

 

Retained Earnings

 

Noncontrolling
Interest

 

Balance at December 31, 2008

 

$

882.7

 

$

1.8

 

Net earnings (loss)

 

(656.3

)

(1.0

)

Cash dividends

 

(2.6

)

 

Balance at March 31, 2009

 

$

223.8

 

$

0.8

 

 

Authorized capitalization consists of 300 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.

 

On March 21, 2007, the Board of Directors of the company approved the Rights Agreement between the company and Computershare Trust Company, N.A., as Rights Agent and declared a dividend distribution of one right (a Right) for each outstanding share of common stock, par value $0.01 per share, of the company (the Common Stock), to shareholders of record at the close of business on March 30, 2007 (the Record Date).  In addition to the Rights issued as a dividend on the Record Date, the Board of Directors has also determined that one Right will be issued together with each share of Common Stock issued by the company after the Record Date.  Generally, each Right, when it becomes exercisable, entitles the registered holder to purchase from the company one share of Common Stock at a purchase price, in cash, of $110.00 per share ($220.00 per share prior to the September 10, 2007 stock split), subject to adjustment as set forth in the Rights Agreement.

 

As explained in the Rights Agreement, the Rights become exercisable on the “Distribution Date”, which is that date that any of the following occurs: (1) 10 days following a public announcement that a person or group of affiliated persons has acquired, or obtained the right to acquire, beneficial ownership of 20% or more of the outstanding shares of Common Stock of the company; or (2) 10 business days following the commencement of a tender offer or exchange offer that would result in a person or group beneficially owning 20% or more of such outstanding shares of Common Stock.  The Rights will expire at the close of business on March 29, 2017, unless earlier redeemed or exchanged by the company as described in the Rights Agreement.

 

17



 

Currently, the company has authorization to purchase up to 10 million shares (adjusted for the 2006 and 2007 2-for-1 stock splits) of common stock at management’s discretion.  As of March 31, 2010, the company had purchased approximately 7.6 million shares (adjusted for the 2006 and 2007 2-for-1 stock splits) at a cost of $49.8 million pursuant to this authorization.  The company did not purchase any shares of its common stock during 2010, 2009, 2008, 2007 or 2006.

 

14.  Stock-Based Compensation

 

Stock-based compensation expense is calculated by estimating the fair value of incentive and non-qualified stock options at the time of grant and amortized over the stock options’ vesting period.  Stock-based compensation was $1.7 million and $0.8 million for the three months ended March 31, 2010 and 2009, respectively.  The company granted options to acquire 1.4 million and 2.3 million shares of stock to officers, directors, including non-employee directors and employees during the first quarters of 2010 and 2009, respectively.  The grants to directors are exercisable immediately upon granting and expire ten years subsequent to the grant date.  All other grants become exercisable in 25% increments beginning on the second anniversary of the grant date over a four-year period and expire ten years subsequent to the grant date.  In addition, the company issued 0.5 and 0.2 million shares of restricted stock during the first quarters of 2010 and 2009, respectively.  The restrictions on all shares of restricted stock expire on the third anniversary of the grant date.

 

15.  Contingencies and Significant Estimates

 

The company has been identified as a potentially responsible party under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) in connection with the Lemberger Landfill Superfund Site near Manitowoc, Wisconsin.  Approximately 150 potentially responsible parties have been identified as having shipped hazardous materials to this site.  Eleven of those, including the company, have formed the Lemberger Site Remediation Group and have successfully negotiated with the United States Environmental Protection Agency and the Wisconsin Department of Natural Resources to fund the cleanup and settle their potential liability at this site.  The estimated remaining cost to complete the clean up of this site is approximately $8.1 million.  Although liability is joint and several, the company’s share of the liability is estimated to be 11% of the remaining cost.   Remediation work at the site has been substantially completed, with only long-term pumping and treating of groundwater and site maintenance remaining.  The company’s remaining estimated liability for this matter, included in accounts payable and accrued expenses in the Consolidated Balance Sheets at March 31, 2010, is $0.7 million.  Based on the size of the company’s current allocation of liabilities at this site, the existence of other viable potential responsible parties and current reserve, the company does not believe that any liability imposed in connection with this site will have a material adverse effect on its financial condition, results of operations, or cash flows.

 

As of March 31, 2010, the company also held reserves for environmental matters related to Enodis locations of approximately $1.6 million.  At certain of the company’s other facilities, the company has identified potential contaminants in soil and groundwater.  The ultimate cost of any remediation required will depend upon the results of future investigation.  Based upon available information, the company does not expect the ultimate costs at any of these locations will have a material adverse effect on its financial condition, results of operations, or cash flows.

 

The company believes that it has obtained and is in substantial compliance with those material environmental permits and approvals necessary to conduct its various businesses.  Based on the facts presently known, the company does not expect environmental compliance costs to have a material adverse effect on its financial condition, results of operations, or cash flows.

 

As of March 31, 2010, various product-related lawsuits were pending.  To the extent permitted under applicable law, all of these are insured with self-insurance retention levels.  The company’s self-insurance retention levels vary by business, and have fluctuated over the last five years.  The range of the company’s self-insured retention levels is $0.1 million to $3.0 million per occurrence.  The high-end of the company’s self-insurance retention level is a legacy product liability insurance program inherited in the Grove acquisition for cranes manufactured in the United States for occurrences from January 2000 through October 2002.  As of March 31, 2010, the largest self-insured retention level for new occurrences currently maintained by the company is $2.0 million per occurrence and applies to product liability claims for cranes manufactured in the United States.

 

Product liability reserves in the Consolidated Balance Sheet at March 31, 2010 were $27.2 million; $7.8 million was reserved specifically for actual cases and $19.4 million for claims incurred but not reported which were estimated using actuarial methods.  Based on the company’s experience in defending product liability claims, management believes the current reserves are adequate for estimated case resolutions on aggregate self-insured claims and insured claims.  Any recoveries from insurance carriers are dependent upon the legal sufficiency of claims and solvency of insurance carriers.

 

At March 31, 2010 and December 31, 2009, the company had reserved $106.6 million and $113.6 million, respectively, for warranty claims included in product warranties and other non-current liabilities in the Consolidated Balance Sheets.  Certain of these warranty and other related claims involve matters in dispute that ultimately are resolved by negotiations, arbitration, or litigation.

 

18



 

It is reasonably possible that the estimates for environmental remediation, product liability and warranty costs may change in the near future based upon new information that may arise or matters that are beyond the scope of the company’s historical experience.  Presently, there are no reliable methods to estimate the amount of any such potential changes.

 

The company is involved in numerous lawsuits involving asbestos-related claims in which the company is one of numerous defendants.  After taking into consideration legal counsel’s evaluation of such actions, the current political environment with respect to asbestos related claims, and the liabilities accrued with respect to such matters, in the opinion of management, ultimate resolution is not expected to have a material adverse effect on the financial condition, results of operations, or cash flows of the company.

 

In conjunction with the Enodis acquisition, the company assumed the responsibility to address outstanding and future legal actions.  At the time of acquisition, the only significant unresolved claimed legal matter involved a former subsidiary of Enodis, Consolidated Industries Corporation (Consolidated).  Enodis sold Consolidated to an unrelated party in 1998. Shortly after the sale, Consolidated commenced bankruptcy proceedings.  In February of 2009, a settlement agreement was reached in the Consolidated matter and the company agreed to a settlement amount of $69.5 million plus interest from February 1, 2009 when the settlement agreement was approved by the Bankruptcy Court.  A reserve for this matter was accrued for in purchase accounting upon the acquisition of Enodis.  In March of 2009, the company made an initial payment $56.0 million.  In addition, both parties mutually agreed to the remaining balance, along with interest, of approximately $14.0 million which was paid in April 2009.

 

The company is also involved in various legal actions arising out of the normal course of business, which, taking into account the liabilities accrued and legal counsel’s evaluation of such actions, in the opinion of management, the ultimate resolution is not expected to have a material adverse effect on the company’s financial condition, results of operations, or cash flows.

 

16. Guarantees

 

The company periodically enters into transactions with customers that provide for residual value guarantees and buyback commitments.  These initial transactions are recorded as deferred revenue and are amortized to income on a straight-line basis over a period equal to that of the customer’s third party financing agreement.  The deferred revenue included in other current and non-current liabilities at March 31, 2010 and December 31, 2009, was $64.3 million and $72.2 million, respectively.  The total amount of residual value guarantees and buyback commitments given by the company and outstanding at March 31, 2010 and December 31, 2009, was $79.6 million and $80.6 million, respectively.  These amounts are not reduced for amounts the company would recover from repossessing and subsequent resale of the units.  The residual value guarantees and buyback commitments expire at various times through 2013.

 

During the three months ended March 31, 2010 and 2009, the company sold $0.0 million and $2.5 million, respectively, of its long term notes receivable to third party financing companies. The company guarantees some percentage, up to 100%, of collection of the notes to the financing companies.  The company has accounted for the sales of the notes as a financing of receivables.  The receivables remain on the company’s Consolidated Balance Sheets, net of payments made, in other current and non-current assets, and the company has recognized an obligation equal to the net outstanding balance of the notes in other current and non-current liabilities in the Consolidated Balance Sheets.  The cash flow benefit of these transactions is reflected as financing activities in the Consolidated Statements of Cash Flows.  During the three months ended March 31, 2010, the customers paid $1.6 million of the notes to the third party financing companies.  As of March 31, 2010, the outstanding balance of the notes receivables guaranteed by the company was $7.2 million.

 

In the normal course of business, the company provides its customers a warranty covering workmanship, and in some cases materials, on products manufactured by the company.  Such warranty generally provides that products will be free from defects for periods ranging from 12 months to 60 months with certain equipment having longer-term warranties.  If a product fails to comply with the company’s warranty, the company may be obligated, at its expense, to correct any defect by repairing or replacing such defective products.  The company provides for an estimate of costs that may be incurred under its warranty at the time product revenue is recognized.  These costs primarily include labor and materials, as necessary, associated with repair or replacement.  The primary factors that affect the company’s warranty liability include the number of units shipped and historical and anticipated warranty claims.  As these factors are impacted by actual experience and future expectations, the company assesses the adequacy of its recorded warranty liability and adjusts the amounts as necessary.  Below is a table summarizing the warranty activity for the three months ended March 31, 2010 and 2009.

 

 

 

2010

 

2009

 

Balance at beginning of period

 

$

113.6

 

$

123.5

 

Accruals for warranties issued during the period

 

11.8

 

16.0

 

Settlements made (in cash or in kind) during the period

 

(16.3

)

(19.6

)

Currency translation

 

(2.5

)

(1.3

)

Balance at end of period

 

$

106.6

 

$

118.6

 

 

19



 

17. Employee Benefit Plans

 

The company provides certain pension, health care and death benefits for eligible retirees and their dependents.  The pension benefits are funded, while the health care and death benefits are not funded but are paid as incurred.  Eligibility for coverage is based on meeting certain years of service and retirement qualifications.  These benefits may be subject to deductibles, co-payment provisions, and other limitations.  The company has reserved the right to modify these benefits.

 

The components of periodic benefit costs for the three months ended March 31, 2010 and 2009 are as follows:

 

 

 

Three Months Ended March 31, 2010

 

Three Months Ended March 31, 2009

 

 

 

U.S.

 

Non-U.S.

 

Postretirement

 

U.S.

 

Non-U.S.

 

Postretirement

 

 

 

Pension

 

Pension

 

Health and

 

Pension

 

Pension

 

Health and

 

 

 

Plans

 

Plans

 

Other Plans

 

Plans

 

Plans

 

Other Plans

 

Service cost - benefits earned during the period

 

$

0.1

 

$

0.5

 

$

0.2

 

$

0.2

 

$

0.5

 

$

0.2

 

Interest cost of projected benefit obligations

 

2.6

 

2.7

 

0.9

 

2.6

 

2.6

 

0.9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expected return on plan assets

 

(2.3

)

(2.4

)

 

(2.4

)

(2.4

)

 

Amortization of actuarial net (gain) loss

 

 

 

0.1

 

0.1

 

 

 

Net periodic benefit costs

 

$

0.4

 

$

0.8

 

$

1.2

 

$

0.5

 

$

0.7

 

$

1.1

 

Weighted average assumptions:

 

 

 

 

 

 

 

 

 

 

 

 

 

Discount rate

 

6.0

%

5.0 – 7.3

%

5.75 – 6.00

%

6.2

%

5.5 - 6.5

%

6.2 - 7.25

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expected return on plan assets

 

6.0

%

4.0 – 7.5

%

N/A

 

5.75 - 6.5

%

4.0 - 6.25

%

N/A

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rate of compensation increase

 

N/A

 

2.0 – 8.0

%

3.0

%

N/A

 

2.0 - 8.0

%

N/A

 

 

All but one of the U.S. pension plans have benefit accruals frozen.

 

18. Restructuring

 

In the fourth quarter of 2008, the company committed to a restructuring plan to reduce the cost structure of its French and Portuguese crane facilities and recorded a restructuring expense of $21.7 million to establish a reserve for future involuntary employee terminations and related costs.  The restructuring plan was primarily to better align the company’s resources due to the accelerated decline in demand in Western and Southern Europe where market conditions have negatively impacted the company’s tower crane product sales.  As a result of the continued worldwide decline in crane sales during the year ended December 31, 2009, the company recorded an additional $29.0 million in restructuring charges to further reduce the Crane segment cost structure in all regions.  The restructuring plans will reduce the Crane segment workforce by approximately 40% of 2008 year-end levels.  As of March 31, 2010, $26.8 million of benefit payments had been made with respect to the workforce reductions.

 

The following is a rollforward of all restructuring activities relating to the Crane segment for the period ended March 31, 2010:

 

(in millions)

 

Restructuring Reserve
Balance as of 12/31/09

 

Restructuring
 Charges

 

Use of Reserve

 

Restructuring Reserve
Balance as of 3/31/10

 

 

 

 

 

 

 

 

 

 

 

Involuntary employee terminations and related costs

 

$

29.9

 

$

0.2

 

$

(6.6

)

$

23.5

 

 

In addition, $8.2 million of the Enodis acquisition related reserves were utilized during the three months ended March 31, 2010.  As of March 31, 2010 the balance of these reserves was $39.4 million, down from the December 31, 2009 balance of $47.6 million.

 

20



 

19. Recent Accounting Changes and Pronouncements

 

In January 2010, the FASB issued Accounting Standards Update 2010-6, “Improving Disclosures about Fair Value Measurements “, codified in ASC Topic 820.  This update requires new disclosures and clarifies existing disclosures as it related to fair value measurements.  The update requires the reporting entity to disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the transfers and, in the reconciliation for fair value measurements using significant unobservable inputs (Level 3), present separately information about purchases, sales, issuances, and settlements (that is, on a gross basis rather than as one net number).  This update also clarifies that a reporting entity should provide fair value measurement disclosures for each class of assets and liabilities and disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements. Those disclosures are required for fair value measurements that fall in either Level 2 or Level 3.  This update also includes conforming amendments to the guidance on employers’ disclosures about postretirement benefit plan assets.  The guidance is applicable for the company beginning in the first interim period in 2010.  Refer to Note 5, “Fair Value of Financial Instruments” for the disclosures required in accordance with this guidance.

 

In October 2009, the FASB issued Accounting Standards Update 2009-13, “Multiple-Deliverable Revenue Arrangements,” codified in ASC Topic 605.  This update provides application guidance on whether multiple deliverables exist, how the deliverables should be separated and how the consideration should be allocated to one or more units of accounting. This guidance establishes a selling price hierarchy for determining the selling price of a deliverable. The selling price used for each deliverable will be based on vendor-specific objective evidence, if available, third-party evidence if vendor-specific objective evidence is not available, or estimated selling price if neither vendor-specific or third-party evidence is available. The company will be required to apply this guidance prospectively for revenue arrangements entered into or materially modified in the fiscal year beginning on or after June 15, 2010, with early application permitted. The company is currently evaluating the impact that adoption of this guidance will have on the determination or reporting of the company’s financial results.

 

In June 2009, the FASB issued new guidance codified primarily in ASC Topic 810, “Consolidation.”  This guidance is related to the consolidation rules applicable to variable interest entities.  It replaces the quantitative-based risks and rewards calculation for determining whether an enterprise is the primary beneficiary in a variable interest entity with an approach that is primarily qualitative and requires ongoing assessments of whether an enterprise is the primary beneficiary of a variable interest entity.  This guidance also requires additional disclosures about an enterprise’s involvement in variable interest entities and is effective for the company in its interim and annual reporting periods beginning on and after January 1, 2010.   The adoption of this guidance did not have a significant impact on the determination or reporting of the company’s financial results.

 

21



 

In June 2009, the FASB issued guidance related to the accounting for transfers of financial assets codified primarily in ASC Topic 860, “Transfers and Servicing.” This guidance requires entities to provide more information about transfers of financial assets and a transferor’s continuing involvement, if any, with transferred financial assets. It also requires additional disclosures about the risks that a transferor continues to be exposed to because of its continuing involvement in transferred financial assets. ASC Topic 860 eliminates the concept of a qualifying special-purpose entity and changes the requirements for de-recognition of financial assets. This Topic is effective for the company in its interim and annual reporting periods beginning on and after January 1, 2010.  Refer to Note 10, “Accounts Receivable Securitization” for discussion of the impact of the adoption of this guidance.

 

In April 2009, the FASB issued new guidance codified primarily in ASC Topic 825, “Financial Instruments.”  This guidance requires an entity to provide disclosures about fair value of financial instruments in interim financial information and is to be applied prospectively and is effective for interim and annual periods ending after June 15, 2009 with early adoption permitted for periods ending after March 15, 2009.  The adoption of this guidance did not have a material impact on the consolidated financial statements.  Refer to Note 5, “Fair Value of Financial Instruments” for the disclosures required in accordance with this guidance.

 

In December 2008, the FASB issued new guidance which is codified primarily in ASC Topic 715, “Compensation — Retirement Benefits.”  This guidance is related to an employer’s disclosures about the type of plan assets held in a defined benefit pension or other postretirement plan.  This guidance is effective for financial statements issued for fiscal years ending after December 15, 2009.  The adoption of this guidance did not have a material impact on the consolidated financial statements.

 

20. Subsidiary Guarantors of Senior Notes due 2013 and Senior Notes due 2018

 

The following tables present condensed consolidating financial information for (a) The Manitowoc Company, Inc. (Parent); (b) the guarantors of the Senior Notes due 2013 and Senior Notes due 2018, which include substantially all of the domestic, wholly-owned subsidiaries of the company (Subsidiary Guarantors); and (c) the wholly and partially owned foreign subsidiaries of the Parent, which do not guarantee the Senior Notes due 2013 and Senior Notes due 2018 (Non-Guarantor Subsidiaries).  Separate financial statements of the Subsidiary Guarantors are not presented because the guarantors are fully and unconditionally, jointly and severally liable under the guarantees, and 100% owned by the Parent.  The Condensed Consolidating Balance Sheet as of December 31, 2009 has been revised to classify intercompany receivables as assets instead of contra-liabilities.

 

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The Manitowoc Company, Inc.

Condensed Consolidating Statement of Operations

For the Three Months Ended March 31, 2010

(In millions)

 

 

 

 

 

 

 

Non-

 

 

 

 

 

 

 

 

 

Guarantor

 

Guarantor

 

 

 

 

 

 

 

Parent

 

Subsidiaries

 

Subsidiaries

 

Eliminations

 

Consolidated

 

Net sales

 

$

 

$

373.5

 

$

434.8

 

$

(86.4

)

$

721.9

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

Cost of sales

 

 

278.3

 

357.9

 

(86.4

)

549.8

 

Engineering, selling and administrative expenses

 

9.3

 

49.0

 

71.1

 

 

129.4

 

Asset impairments

 

 

 

 

 

 

Restructuring expense

 

 

0.1

 

0.2

 

 

0.3

 

Amortization expense

 

 

7.8

 

2.0

 

 

9.8

 

Equity in (earnings) loss of subsidiaries

 

(20.8

)

(13.1

)

 

33.9

 

 

Total costs and expenses

 

(11.5

)

322.1

 

431.2

 

(52.5

)

689.3