Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 10-K

 

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

 

For the fiscal year ended December 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)

 

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)

 

Securities Registered Pursuant to Section 12(b) of the Act:

 

Title of each class

 

Name of each exchange on which registered

Common Stock, $.01 Par Value

 

New York Stock Exchange

Common Stock Purchase Rights

 

 

 

Securities Registered Pursuant to Section 12(g) of the Act: None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No o

 

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes o No x

 

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 x No o

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

 

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 Act). Yes o No x

 

The Aggregate Market Value on June 30, 2010, of the registrant’s Common Stock held by non-affiliates of the registrant was $1,200,123,331 based on the closing per share price of $9.14 on that date.

 

The number of shares outstanding of the registrant’s Common Stock as of January 31, 2011, the most recent practicable date, was 131,398,472.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

Portions of the registrant’s Proxy Statement, to be prepared and filed for the Annual Meeting of Shareholders, dated March 24, 2011 (the “2011 Proxy Statement”), are incorporated by reference in Part III of this report.

 

See Index to Exhibits immediately following the signature page of this report, which is incorporated herein by reference.

 

 

 



Table of Contents

 

THE MANITOWOC COMPANY, INC.

Index to Annual Report on Form 10-K

For the Year Ended December 31, 2010

 

 

 

 

 

PAGE

 

 

 

 

 

PART I

 

 

 

 

 

Item 1

 

Business

 

3

Item 1A

 

Risk Factors

 

11

Item 1B

 

Unresolved Staff Comments

 

16

Item 2

 

Properties

 

17

Item 3

 

Legal Proceedings

 

18

 

 

Executive Officers of Registrant

 

19

 

 

 

 

 

PART II

 

 

 

 

 

Item 5

 

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

20

Item 6

 

Selected Financial Data

 

22

Item 7

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

24

Item 7A

 

Quantitative and Qualitative Disclosure about Market Risk

 

47

Item 8

 

Financial Statements and Supplementary Data

 

48

Item 9

 

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

101

Item 9A

 

Controls and Procedures

 

101

Item 9B

 

Other Information

 

101

 

 

 

 

 

PART III

 

 

 

 

 

Item 10

 

Directors, Executive Officers and Corporate Governance

 

101

Item 11

 

Executive Compensation

 

101

Item 12

 

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

102

Item 13

 

Certain Relationships and Related Transactions, and Director Independence

 

102

Item 14

 

Principal Accounting Fees and Services

 

102

 

 

 

 

 

PART IV

 

 

 

 

 

Item 15

 

Exhibits, Financial Statement Schedules

 

102

 

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Table of Contents

 

Item 1.  BUSINESS

 

GENERAL

 

The Manitowoc Company, Inc. (referred to as the company, MTW, Manitowoc, we, our, and us) was founded in 1902. We are a multi-industry, capital goods manufacturer operating in two principal markets: Cranes and Related Products (Crane) and Foodservice Equipment (Foodservice). Crane is recognized as one of the world’s leading providers of engineered lifting equipment for the global construction industry, including lattice-boom cranes, tower cranes, mobile telescopic cranes, and boom trucks. Foodservice is one of the world’s leading innovators and manufacturers of commercial foodservice equipment serving the ice, beverage, refrigeration, food-preparation, and cooking needs of restaurants, convenience stores, hotels, healthcare, and institutional applications. We have over a 100-year tradition of providing high-quality, customer-focused products and support services to our markets.  For the year ended December 31, 2010 we had net sales of approximately $3.1 billion.

 

Our Crane business is a global provider of engineered lift solutions, offering one of the broadest product lines of lifting equipment in our industry.  We design, manufacture, market, and support a comprehensive line of lattice boom crawler cranes, mobile telescopic cranes, tower cranes, and boom trucks.  Our Crane products are principally marketed under the Manitowoc, Grove, Potain, National, Shuttlelift, Dongyue, and Crane Care brand names and are used in a wide variety of applications, including energy and utilities, petrochemical and industrial projects, infrastructure development such as road, bridge and airport construction, and commercial and high-rise residential construction.

 

On December 15, 2010, the company announced that a definitive agreement had been reached to divest its Kysor/Warren and Kysor/Warren de Mexico businesses, manufacturers of frozen, medium temperature and heated display merchandisers, mechanical refrigeration systems and remote mechanical and electric houses to Lennox International for approximately $145 million, inclusive of a preliminary working capital adjustment.  The transaction subsequently closed on January 14, 2011 and the net proceeds were used to pay down outstanding debt.  The results of these operations have been classified as discontinued operations.

 

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.

 

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 company is reporting the Marine segment as a discontinued operation for financial reporting purposes.

 

On October 27, 2008, we completed our acquisition of Enodis plc (Enodis), a global leader in the design and manufacture of innovative equipment for the commercial foodservice industry.  The $2.7 billion acquisition, inclusive of the purchase of outstanding shares and rights to shares, acquired debt, the settlement of hedges related to the acquisition and transaction fees, is the largest acquisition for the company and has positioned Manitowoc among the world’s leading designers and manufacturers of commercial foodservice equipment. Our Foodservice products are marketed under the Manitowoc, Garland, U.S. Range, Convotherm, Cleveland, Lincoln, Merrychef, Frymaster, Delfield, Kolpak, Kysor Panel, Jackson, Servend, Multiplex, and Manitowoc Beverage System brand names.  Our Foodservice capabilities now span refrigeration, ice-making, cooking, food-preparation, and beverage-dispensing technologies, and allow us to be able to equip entire commercial kitchens and serve the world’s growing demand for food prepared away from home.  See further details related to the acquisition at Note 3, “Acquisitions.”

 

Our principal executive offices are located at 2400 South 44th Street, Manitowoc, Wisconsin 54220.

 

FINANCIAL INFORMATION ABOUT BUSINESS SEGMENTS

 

The following is financial information about the Crane and Foodservice segments for the years ended December 31, 2010, 2009 and 2008.  The accounting policies of the segments are the same as those described in the summary of significant accounting policies of the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K, except that certain expenses are not allocated to the segments.  These unallocated expenses are corporate overhead, amortization expense of intangible assets with definite lives, interest expense, and income tax expense.  The company evaluates segment performance based upon profit and loss before the aforementioned expenses.  Restructuring costs separately identified in the Consolidated Statements of Operations are included as reductions to the respective segment’s operating earnings for each year below.  Amounts are shown in millions of dollars.

 

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2010

 

2009

 

2008

 

Net sales from continuing operations:

 

 

 

 

 

 

 

Crane

 

$

1,748.6

 

$

2,285.0

 

$

3,882.9

 

Foodservice

 

1,393.1

 

1,334.8

 

596.3

 

Total

 

$

3,141.7

 

$

3,619.8

 

$

4,479.2

 

 

 

 

 

 

 

 

 

Operating earnings (loss) from continuing operations:

 

 

 

 

 

 

 

Crane

 

$

89.8

 

$

145.0

 

$

555.6

 

Foodservice

 

202.3

 

167.2

 

57.8

 

Corporate

 

(41.2

)

(44.4

)

(51.7

)

Amortization expense

 

(38.3

)

(38.4

)

(11.4

)

Goodwill impairment

 

 

(548.8

)

 

Intangible asset impairment

 

 

(146.4

)

 

Restructuring expense

 

(3.8

)

(39.6

)

(21.7

)

Integration expense

 

 

(3.6

)

(7.6

)

Loss on sale of product lines

 

(2.0

)

(3.4

)

 

Other expense

 

(0.3

)

 

 

Total

 

$

206.5

 

$

(512.4

)

$

521.0

 

 

 

 

 

 

 

 

 

Capital expenditures:

 

 

 

 

 

 

 

Crane

 

$

21.9

 

$

51.5

 

$

129.4

 

Foodservice

 

12.2

 

15.1

 

10.5

 

Corporate

 

2.0

 

2.6

 

10.0

 

Total

 

$

36.1

 

$

69.2

 

$

149.9

 

 

 

 

 

 

 

 

 

Total depreciation:

 

 

 

 

 

 

 

Crane

 

$

56.5

 

$

55.3

 

$

66.3

 

Foodservice

 

27.8

 

29.8

 

11.8

 

Corporate

 

2.9

 

2.8

 

1.5

 

Total

 

$

87.2

 

$

87.9

 

$

79.6

 

 

 

 

 

 

 

 

 

Total assets:

 

 

 

 

 

 

 

Crane

 

$

1,594.4

 

$

1,738.4

 

$

2,223.7

 

Foodservice

 

2,200.2

 

2,279.5

 

3,389.4

 

Corporate

 

214.7

 

260.8

 

473.0

 

Total

 

$

4,009.3

 

$

4,278.7

 

$

6,086.1

 

 

PRODUCTS AND SERVICES

 

We sell our products categorized in the following business segments:

 

Business Segment

 

Percentage of
2010 Net Sales

 

Key Products

 

Key Brands

Cranes and Related Products

 

56%

 

Lattice-boom Cranes: which include crawler and truck mounted lattice-boom cranes, and crawler crane attachments; Tower Cranes: which include top slewing, luffing jib, topless, and self-erecting tower cranes; Mobile Telescopic Cranes: including rough terrain, all-terrain, truck mounted and industrial cranes; Boom Trucks: which include telescopic and articulated boom trucks; Parts and Service: which include replacement parts, product services and crane rebuilding and remanufacturing services.

 

Manitowoc

Potain

Grove

National

Shuttlelift

Dongyue

Crane Care

 

 

 

 

 

 

 

Foodservice Equipment

 

44%

 

Primary cooking and warming equipment; Ice-cube machines, ice flaker machines and storage bins; Refrigerator and Freezer Equipment; Warewashing Equipment; Beverage Dispensers and related products; serving and storage equipment; and food preparation equipment.

 

Cleveland

Convotherm

Delfield

Frymaster

Garland

Jackson

 

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Kolpak

Kysor Panel Systems

Lincoln

Manitowoc

Merrychef

Multiplex

SerVend

 

Cranes and Related Products

 

Our Crane segment designs, manufactures and distributes a diversified line of crawler mounted lattice-boom cranes, which we sell under the Manitowoc brand name. Our Crane segment also designs and manufactures a diversified line of top slewing and self erecting tower cranes, which we sell under the Potain brand name. We design and manufacture mobile telescopic cranes, which we sell under the Grove, Shuttlelift, and Dongyue brand names, and a comprehensive line of hydraulically powered telescopic boom trucks, which we sell under the National Crane brand name. We also provide crane product parts and services, and crane rebuilding, remanufacturing, and training services which are delivered under the Manitowoc Crane Care brand name. In some cases our products are manufactured for us or distributed for us under strategic alliances. Our crane products are used in a wide variety of applications throughout the world, including energy and utilities, petrochemical and industrial projects, infrastructure development such as road, bridge and airport construction, and commercial and high-rise residential construction. Many of our customers purchase one or more cranes together with several attachments to permit use of the crane in a broader range of lifting applications and other operations. Our largest crane model combined with available options has a lifting capacity up to 2,500 U.S. tons. Our primary growth drivers are our strength in energy, infrastructure, construction and petro-chemical related end markets.

 

Lattice-boom cranes.    Under the Manitowoc brand name we design, manufacture and distribute lattice-boom crawler cranes. Lattice-boom cranes consist of a lattice-boom, which is a fabricated, high-strength steel structure that has four chords and tubular lacings, mounted on a base which is either crawler or truck mounted. Lattice-boom cranes weigh less and provide higher lifting capacities than a telescopic boom of similar length. The lattice-boom cranes are the only category of crane that can pick and move simultaneously with a full rated load. The lattice-boom sections, together with the crane base, are transported to and erected at a project site.

 

We currently offer models of lattice-boom cranes with lifting capacities up to 2,500 U.S. tons, which are used to lift material and equipment in a wide variety of applications and end markets, including heavy construction, bridge and highway, duty cycle and infrastructure and energy related projects. These cranes are also used by the value-added crane rental industry, which serves all of the above end markets.

 

Lattice-boom crawler cranes may be classified according to their lift capacity—low capacity and high capacity. Low capacity crawler cranes with 150-U.S. ton capacity or less are often utilized for general construction and duty cycle applications. High capacity crawler cranes with greater than 150-U.S. ton capacity are used to lift materials in a wide variety of applications and are often used in heavy construction, energy-related, stadium construction, petrochemical work, and dockside applications. We offer five low-capacity models and eight high-capacity models.

 

We also offer our lattice-boom crawler crane customers various attachments that provide our cranes with greater capacity in terms of height, movement and lifting. Our principal attachments are: MAX-ER™ attachments, luffing jibs, and RINGER™ attachments. The MAX-ER is a trailing, counterweight, heavy-lift attachment that dramatically improves the reach, capacity and lift dynamics of the basic crane to which it is mounted. It can be transferred between cranes of the same model for maximum economy and occupies less space than competitive heavy-lift systems. A luffing jib is a fabricated structure similar to, but smaller than, a lattice-boom. Mounted at the tip of a lattice-boom, a luffing jib easily adjusts its angle of operation permitting one crane with a luffing jib to make lifts at additional locations on the project site. It can be transferred between cranes of the same model to maximize utilization. A RINGER attachment is a high-capacity lift attachment that distributes load reactions over a large area to minimize ground-bearing pressure. It can also be more economical than transporting and setting up a larger crane.

 

Tower cranes.    Under the Potain brand name we design and manufacture tower cranes utilized primarily in the building and construction industry. Tower cranes offer the ability to lift and distribute material at the point of use more quickly and accurately than other types of lifting machinery without utilizing substantial square footage on the ground. Tower cranes include a stationary vertical tower and a horizontal jib with a counterweight, which is placed near the vertical tower. A cable runs through a trolley which is on the jib, enabling the load to move along the jib. The jib rotates 360 degrees, thus increasing the crane’s work area. Unless using a remote control device, operators occupy a cabin, located where the jib and tower meet, which provides superior visibility above the worksite. We offer a complete line of tower crane products, including top slewing, luffing jib, topless, self-erecting, and special cranes for dams, harbors and other large building projects. Top slewing cranes are the most traditional form of tower cranes. Self-erecting cranes are bottom slewing cranes which have a counterweight located at the bottom of the tower and are able to be erected, used and dismantled on job sites without assist cranes.

 

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Top slewing tower cranes have a tower and multi-sectioned horizontal jib. These cranes rotate from the top of their mast and can increase in height with the project. Top slewing cranes are transported in separate pieces and assembled at the construction site in one to three days depending on the height. We offer 22 models of top slewing tower cranes with maximum jib lengths of 85 meters and lifting capabilities ranging between 40 and 3,600 meter-tons. These cranes are generally sold to medium to large building and construction groups, as well as rental companies.

 

Topless tower cranes are a type of top slewing crane and, unlike all others, have no cathead or jib tie-bars on the top of the mast. The cranes are utilized primarily when overhead height is constrained or in situations where several cranes are installed close together. We currently offer 11 models of topless tower cranes with maximum jib lengths of 75 meters and lifting capabilities ranging between 90 and 300 meter-tons.

 

Luffing jib tower cranes, which are a type of top slewing crane, have an angled rather than horizontal jib. Unlike other tower cranes which have a trolley that controls the lateral movement of the load, luffing jib cranes move their load by changing the angle of the jib. The cranes are utilized primarily in urban areas where space is constrained or in situations where several cranes are installed close together. We currently offer 8 models of luffing jib tower cranes with maximum jib lengths of 60 meters and lifting capabilities ranging between 90 and 600 meter-tons.

 

Self-erecting tower cranes are mounted on axles or transported on a trailer. The lower segment of the range (Igo cranes up to Igo50) unfolds in four sections, two for the tower and two for the jib. The smallest of our models unfolds in less than 8 minutes; larger models erect in a few hours. Self erecting cranes rotate from the bottom of their mast. We offer 23 models of self-erecting cranes with maximum jib lengths of 50 meters and lifting capacities ranging between 10 and 120 meter-tons which are utilized primarily in low to medium rise construction and residential applications.

 

Mobile telescopic cranes.    Under the Grove brand name we design and manufacture 38 models of mobile telescopic cranes utilized primarily in industrial, commercial and construction applications, as well as in maintenance applications to lift and move material at job sites. Mobile telescopic cranes consist of a telescopic boom mounted on a wheeled carrier. Mobile telescopic cranes are similar to lattice-boom cranes in that they are designed to lift heavy loads using a mobile carrier as a platform, enabling the crane to move on and around a job site without typically having to re-erect the crane for each particular job. Additionally, many mobile telescopic cranes have the ability to drive between sites, and some are permitted on public roadways. We currently offer the following four types of mobile telescopic cranes capable of reaching tip heights of 427 feet with lifting capacities up to 550 U.S. tons: rough terrain, all-terrain, truck mounted, and industrial.

 

Rough terrain cranes are designed to lift materials and equipment on rough or uneven terrain. These cranes cannot be driven on public roadways, and, accordingly, must be transported by truck to a work site. We produce, under the Grove brand name, 8 models of rough terrain cranes capable of tip heights of up to 279 feet and maximum load capacities of up to 150 U.S. tons.

 

All-terrain cranes are versatile cranes designed to lift materials and equipment on rough or uneven terrain and yet are highly maneuverable and capable of highway speeds. We produce, under the Grove brand name, 16 models of all-terrain cranes capable of tip heights of up to 427 feet and maximum load capacities of up to 550 U.S. tons.

 

Truck mounted cranes are designed to provide simple set-up and long reach high capacity booms and are capable of traveling from site to site at highway speeds. These cranes are suitable for urban and suburban uses. We produce, under the Grove brand name, 5 models of truck mounted cranes capable of tip heights of up to 237 feet and maximum load capacities of up to 90 U.S. tons.

 

Industrial cranes are designed primarily for plant maintenance, storage yard and material handling jobs. We manufacture, under the Grove and Shuttlelift brand names, 8 models of industrial cranes with heights up to 94 feet and maximum lifting capacities of up to 25 U.S. tons.

 

High reach telescopic hydraulic cranes.    We launched a new crane concept in 2007 under the Grove brand name for heavy lifts that require a high reach, but with minimal ground space and greatly reduced erection time. The GTK 1100 is a high reach telescopic hydraulic crane that can lift a 77 U.S. ton load up to 394 feet, only requires about six hours to erect and is based on a combination of mobile crane and tower crane technology.

 

Boom trucks.    We offer our hydraulic boom truck products under the National Crane brand name. A boom truck is a hydraulically powered telescopic crane mounted on a conventional truck chassis. Telescopic boom trucks are used primarily for lifting material on a job site. We currently offer 17 models of telescoping boom trucks. The largest capacity cranes of this type are capable of reaching maximum heights of 179 feet and have lifting capacity up to 50 U.S. tons.

 

Backlog. The year-end backlog of crane products includes accepted orders that have been placed on a production schedule that we expect to be shipped and billed during the next year. Manitowoc’s backlog of unfilled orders for the Crane segment at December 31, 2010, 2009 and 2008 was $571.7 million, $572.7 million and $1,948.0 million, respectively.

 

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Foodservice Equipment

 

Our Foodservice Equipment business designs, manufactures and sells primary cooking and warming equipment; ice-cube machines, ice flaker machines and storage bins; refrigerator and freezer equipment; warewashing equipment; beverage dispensers and related products; serving and storage equipment; and food preparation equipment. Our suite of products is used by commercial and institutional foodservice operators such as full service restaurants, quick-service restaurant (QSR) chains, hotels, caterers, supermarkets, convenience stores, business and industry, hospitals, schools and other institutions. We have a presence throughout the world’s most significant markets in the following product groups:

 

Primary Cooking and Warming Equipment. We design, manufacture and sell a broad array of ranges, griddles, grills, combination ovens, convection ovens, conveyor ovens, rotisseries, induction cookers, broilers, tilt fry pans/kettles/skillets, braising pans, cheese melters/salamanders, cook stations, table top and counter top cooking/frying systems, filtering systems, fryers, hotdog grills and steamers, steam jacketed kettles, steamers and toasters. We sell traditional oven, combi oven, convection oven, conveyor oven, accelerated cooking oven, range and grill products under the Garland, Lincoln, Merrychef, U.S. Range, and other brand names. Fryers and frying systems are marketed under the Frymaster and other brand names while steam equipment is manufactured and sold under the Cleveland and Convotherm brands. In addition to cooking, we provide a range of warming, holding, merchandising and serving equipment under the Delfield, Fabristeel, Frymaster, Savory, and other brand names.

 

Ice-Cube Machines, Ice Flaker Machines, Nugget Ice Machines, Ice Dispensers and Storage Bins.  We design, manufacture and sell ice machines under the Manitowoc brand name, serving the foodservice, convenience store, healthcare, restaurant, lodging and other markets. Our ice machines make ice in cube, nugget and flake form, and range in daily production capacities.  The ice-cube machines are either self-contained units, which make and store ice, or modular units, which make, but do not store ice.  Our ice dispensers generally are paired with our ice making equipment, and dispense ice or ice and water.

 

Refrigerator and Freezer Equipment. We design, manufacture and sell commercial upright and undercounter refrigerators and freezers, blast freezers, blast chillers and cook-chill systems under the Delfield, McCall, Koolaire and Sadia Refrigeration brand names. We manufacture under the brand names Kolpak, Kysor Panel Systems and Harford-Duracool modular and fully assembled walk-in refrigerators, coolers and freezers and prefabricated cooler and freezer panels for use in the construction of refrigerated storage rooms and environmental systems. We also design and manufacture customized refrigeration systems under the RDI brand names.

 

Warewashing Equipment. Under the brand name Jackson, we design, manufacture and sell warewashing equipment and other equipment including racks and tables. We offer a full range of undercounter dishwashers, door-type dishwashers, conveyor, pot washing and flight-type dishwashers.

 

Beverage Dispensers and Related Products.  We produce beverage dispensers, ice/beverage dispensers, beer coolers, post-mix dispensing valves, backroom equipment and support system components and related equipment for use by QSR chains, convenience stores, bottling operations, movie theaters, and the soft-drink industry.  Our beverage and related products are sold under the Servend, Multiplex, TruPour, Manitowoc Beverage Systems and McCann’s brand names.

 

Serving and Storage Equipment. We design, manufacture and sell a range of buffet equipment and stations, cafeteria/buffet equipment stations, bins, boxes, warming cabinets, dish carts, utility carts, counters and counter tops, mixer stands, tray dispensers, display and deli cases, heatlamps, insulated and refrigerated salad/food bars, sneeze guards and warmers.  Our equipment stations, cases, food bars and food serving lines are marketed under the Delfield, Viscount and other brand names.

 

Food Preparation Equipment. We manufacture and distribute food mixing equipment under the Varimixer brand name.

 

The end customer base for the Foodservice Equipment segment is comprised of a wide variety of foodservice providers, including, but not limited to, large multinational chain restaurants, convenience stores and retail stores;  chain and independent casual and family dining restaurants; independent restaurants and caterers; lodging, resort, leisure and convention facilities; health care facilities; schools and universities; large business and industrial customers; and many other foodservice outlets.  We cater to some of the largest and most widely recognized multinational businesses in the foodservice and hospitality industries.  We do not typically have long term contracts with our customers; however, large chains frequently authorize specific foodservice equipment manufacturers as approved vendors for particular products and thereafter, sales are made locally or regionally to end customers via kitchen equipment suppliers, dealers or distributors.  Many large QSR chains refurbish or open a large number of outlets, or implement menu changes requiring investment in new equipment, over a short period of time.  When this occurs, these customers often choose a small number of manufacturers whose approved products may or must be purchased by restaurant operators.  We work closely with our customers to develop the products they need and to become the approved vendors for these products.

 

Our end customers often need equipment upgrades that enable them to improve productivity and food safety, reduce labor costs, respond to enhanced hygiene, environmental and menu requirements or reduce energy consumption.  These changes often require customized cooking and cooling and freezing equipment.  In addition, many restaurants, especially QSRs, seek to differentiate their products by changing their

 

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menu and format.  We believe that product development is important to our success because a supplier’s ability to provide customized or innovative foodservice equipment is a primary factor when customers are making their purchasing decisions.  Recognizing the importance of providing innovative products to our customers, we invest significant time and resources into new product research and development.

 

The Manitowoc Education and Technology Center (ETC) in New Port Richey, Florida contains computer-assisted design platforms, a model shop for on-site development of prototypes, a laboratory for product testing and various display areas for new products.  Our test kitchen, flexible demonstration areas and culinary team enable us to demonstrate a wide range of equipment in realistic operating environments, and also support a wide range of menu ideation, food development and sensory testing with our customers and food partners.   We also use the ETC to provide training for our customers, marketing representatives, service providers, industry consultants, dealers and distributors.

 

At our ETC and through outreach programs, we also work directly with our customers to provide customized solutions to meet their precise needs.  When a customer requests a new or refined product, our engineering team designs, prototypes, tests, demonstrates, evaluates and refines products in our ETC with our customer.  The ETC works together with the new product development teams at our operating companies so that new products incorporate our overall product expertise and technological resources.   We also provide a fee-based consulting service through our High Performance Kitchen (HPK) team that interacts with targeted customers to effectively integrate new technology, improve facility operation and labor processes, and to assist in developing optimized kitchens of the future.

 

Backlog. The backlog for unfilled orders for our Foodservice segment at December 31, 2010, 2009 and 2008 was not significant because orders are generally filled shortly after receiving the customer order.

 

Raw Materials and Supplies

 

The primary raw materials that we use are structural and rolled steel, aluminum, and copper, which are purchased from various domestic and international sources. We also purchase engines and electrical equipment and other semi- and fully-processed materials. Our policy is to maintain, wherever possible, alternate sources of supply for our important materials and parts. We maintain inventories of steel and other purchased material. We have been successful in our goal to maintain alternative sources of raw materials and supplies, and therefore are not dependent on a single source for any particular raw material or supply.

 

Patents, Trademarks, and Licenses

 

We hold numerous patents pertaining to our Crane and Foodservice products, and have presently pending applications for additional patents in the United States and foreign countries. In addition, we have various registered and unregistered trademarks and licenses that are of material importance to our business and we believe our ownership of this intellectual property is adequately protected in customary fashions under applicable law.  No single patent, trademark or license is critical to our overall business.

 

Seasonality

 

Typically the second and third quarters represent the best quarters for our consolidated financial results. In our Crane segment, the northern hemisphere summer represents the main construction season.  Customers require new machines, parts, and service during that season.   Since the summer brings warmer weather, there is also an increase in the use and replacement of ice machines, as well as new construction and remodeling within the foodservice industry.  As a result, distributors build inventories during the second quarter for the increased demand.  More recently, the traditional seasonality for our Crane and Foodservice segments has been slightly muted due to more diversified product and geographic end markets as well as the impact that the global economic recession and downturn in our end markets has had on our revenue.

 

Competition

 

We sell all of our products in highly competitive industries. We compete in each of our industries based on product design, quality of products and aftermarket support services, product performance, maintenance costs, energy and resource savings, other contributions to sustainability and price. Some of our competitors may have greater financial, marketing, manufacturing or distribution resources than we do. We believe that we benefit from the following competitive advantages: strong brand names, a reputation for quality products and aftermarket support services, an established network of global distributors and customer relationships, broad product line offerings in the markets we serve, and a commitment to engineering design and product innovation. However, we cannot be certain that our products and services will continue to compete successfully or that we will be able to retain our customer base or improve or maintain our profit margins on sales to our customers. The following table sets forth our primary competitors in each of our business segments:

 

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Business Segment

 

Products

 

Primary Competitors

Cranes and Related Products

 

Lattice-boom Crawler Cranes

 

Hitachi Sumitomo; Kobelco; Liebherr; Sumitomo/Link-Belt; Terex; XCMG; Fushun; Zoomlion; and Sany

 

 

 

 

 

 

 

Tower Cranes

 

Comansa; Terex Comedil/Peiner; Liebherr; FM Gru; Jaso; Raimondi; Viccario; Saez; Benezzato; Cattaneo; Sichuan Construction Machinery; Shenyang; Zoomlion; Jianglu; and Yongmao

 

 

 

 

 

 

 

Mobile Telescopic Cranes

 

Liebherr; Link-Belt; Terex; Tadano; XCMG; Kato; Locatelli; Marchetti; Luna; Broderson; Valla; Ormig; Bencini; and Zoomlion

 

 

 

 

 

 

 

Boom Trucks

 

Terex; Manitex; Altec; Elliott; Tadano; Fassi; Palfinger; Furukawa; and Hiab

 

 

 

 

 

Foodservice Equipment

 

Ice-Cube Machines, Ice Flaker Machines, Storage Bins

 

Hoshizaki; Scotsman; Follet; Ice-O-Matic; Brema; Aucma; and Vogt

 

 

 

 

 

 

 

Beverage Dispensers and Related Products

 

Automatic Bar Controls; Celli; Cornelius; Hoshizaki/Lancer Corporation; and Vin Service

 

 

 

 

 

 

 

Refrigerator and Freezer Equipment

 

American Panel; ICS; Nor-Lake; Master-Bilt; Thermo-Kool; Bally; Arctic; Beverage Air; Traulsen; True Foodservice; TurboAir; and Masterbilt

 

 

 

 

 

 

 

Primary Cooking Equipment

 

Ali Group; Electrolux; Dover Industries; Duke; Henny Penny; ITW; Middleby; and Rational

 

 

 

 

 

 

 

Serving, Warming and Storage Equipment

 

Alto Shaam; Cambro; Duke; Hatco; ITW; Middleby; Standex; and Vollrath

 

 

 

 

 

 

 

Food Preparation Equipment

 

Ali Group; Bizerba; Electrolux; German Knife; Globe; ITW; and Univex

 

 

 

 

 

 

 

Warewashing Equipment

 

ADS; Auto-Chlor; Ali Group; Electrolux; Insinger; ITW; Meiko; and Winterhalter

 

Engineering, Research and Development

 

Our extensive engineering, research and development capabilities have been key drivers of our success. We engage in research and development activities at each of our significant manufacturing facilities. We have a staff of engineers and technicians on three continents who are responsible for improving existing products and developing new products. We incurred research and development costs of $72.2 million in 2010, $57.4 million in 2009 and $40.0 million in 2008.

 

Our team of engineers focuses on developing innovative, high performance, low maintenance products that are intended to create significant brand loyalty among customers. Design engineers work closely with our manufacturing and marketing staff, enabling us to identify changing end-user requirements, implement new technologies and effectively introduce product innovations. Close, carefully managed relationships with dealers, distributors and end users help us identify their needs, not only for products, but for the service and support that are critical to their profitable operations. As part of our ongoing commitment to provide superior products, we intend to continue our efforts to design products that meet evolving customer demands and reduce the period from product conception to product introduction.

 

Employee Relations

 

As of December 31, 2010, we employed approximately 13,300 people and had labor agreements with 14 union locals in North America. During the fourth quarter of 2008 we added six facilities in North America from the Enodis acquisition that are represented by unions. In addition, we reduced the number of unions by four, with the sale of the Marine segment in December of 2008 and the sale of the Enodis ice machine operations in May of 2009. A large majority of our European employees belong to European trade unions and, during 2008, a contract was signed by all unions for our French Crane locations. We have three trade unions in China and one trade union in India. The Indian trade contract expired in June of 2009; a new contract is being negotiated. There were only minor work stoppages during 2008, 2009 and 2010. During 2010, we had one union contract that expired that we are currently re-negotiating. During 2011, five of our union contracts will expire at various times and will therefore require renegotiation.

 

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Available Information

 

We make available, free of charge at our internet site (www.manitowoc.com), our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, our proxy statement and any amendments to those reports, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (SEC). Our SEC reports can be accessed through the investor relations section of our website. Although some documents available on our website are filed with the SEC, the information generally found on our website is not part of this or any other report we file with or furnish to the SEC.

 

The public may read and copy any materials that we file with the SEC at the SEC’s Public Reference Room located at 100 F Street NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains electronic versions of our reports on its website at www.sec.gov.

 

Geographic Areas

 

Net sales from continuing operations and long-lived asset information by geographic area as of and for the years ended December 31 are as follows:

 

 

 

Net Sales

 

Long-Lived Assets

 

 

 

2010

 

2009

 

2008

 

2010

 

2009

 

United States

 

$

1,360.6

 

$

1,739.6

 

$

1,879.4

 

$

363.9

 

$

425.2

 

Other North America

 

142.0

 

143.6

 

120.1

 

7.2

 

7.2

 

Europe

 

749.2

 

826.3

 

1,444.2

 

204.1

 

264.6

 

Asia

 

307.8

 

279.1

 

374.6

 

73.9

 

76.4

 

Middle East

 

168.7

 

274.6

 

314.0

 

1.7

 

1.8

 

Central and South America

 

203.0

 

155.0

 

118.4

 

0.3

 

0.3

 

Africa

 

69.5

 

88.9

 

82.8

 

 

 

South Pacific and Caribbean

 

11.7

 

24.6

 

13.9

 

5.0

 

5.2

 

Australia

 

129.2

 

88.1

 

131.8

 

2.3

 

1.2

 

Total

 

$

3,141.7

 

$

3,619.8

 

$

4,479.2

 

$

658.4

 

$

781.9

 

 

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Item 1A. RISK FACTORS

 

The following are risk factors identified by management that if any events contemplated by the following risks actually occur, then our business, financial condition or results of operations could be materially adversely affected.

 

Some of our business segments are cyclical or are otherwise sensitive to volatile or variable factors. A downturn or weakness in overall economic activity or fluctuations in those other factors can have a material adverse effect on us.

 

Historically, sales of products that we manufacture and sell have been subject to cyclical variations caused by changes in general economic conditions and other factors. In particular, the demand for our crane products is cyclical and is impacted by the strength of the economy generally, the availability of financing and other factors that may have an effect on the level of construction activity on an international, national or regional basis. During periods of expansion in construction activity, we generally have benefited from increased demand for our products. Conversely, during recessionary periods, we have been adversely affected by reduced demand for our products. In addition, the strength of the economy generally may affect the rates of expansion, consolidation, renovation and equipment replacement within the restaurant, lodging, convenience store and healthcare industries, which may affect the performance of our Foodservice segment. Furthermore, an economic recession may impact leveraged companies, such as Manitowoc, more than competing companies with less leverage and may have a material adverse effect on our financial condition, results of operations and cash flows.

 

Products in our Crane segment depend in part on federal, state, local and foreign governmental spending and appropriations, including infrastructure, security and defense outlays. Reductions in governmental spending can reduce demand for our products, which in turn can affect our performance.  Weather conditions can substantially affect our Foodservice segment, as relatively cool summer weather and cooler-than-normal weather in hot climates tend to decrease sales of ice and beverage dispensers.  Our sales depend in part upon our customers’ replacement or repair cycles. Adverse economic conditions, such as those experienced in fiscal 2009 and fiscal 2010, may cause customers to forego or postpone new purchases in favor of repairing existing machinery.

 

A substantial portion of our growth has come through acquisitions. We may not be able to identify or complete future acquisitions, which could adversely affect our future growth.

 

Our growth strategy historically has been based in part upon acquisitions. Our successful growth through acquisitions depends upon our ability to identify and successfully negotiate suitable acquisitions, obtain financing for future acquisitions on satisfactory terms or otherwise complete acquisitions in the future. In addition, our level of indebtedness may increase in the future if we finance other acquisitions with debt. This would cause us to incur additional interest expense and could increase our vulnerability to general adverse economic and industry conditions and limit our ability to service our debt or obtain additional financing. Furthermore, our current leverage position may prevent us from pursuing potential acquisition candidates until we are able to reduce our debt and leverage to a point where additional debt could be incurred to support the financing of such an acquisition.  We cannot assure that future acquisitions will not have a material adverse effect on our financial condition, results of operations and cash flows.

 

Our future success depends on our ability to effectively integrate acquired companies and manage growth.

 

Our growth has placed, and will continue to place, significant demands on our management, operational and financial resources. We have made significant acquisitions since 1995. Future acquisitions will require integration of the acquired companies’ sales and marketing, distribution, manufacturing, engineering, purchasing, finance and administrative organizations. Experience has demonstrated that the successful integration of acquired businesses requires substantial attention from our senior management and the management of the acquired companies, which tends to reduce the time that they have to manage the ongoing business. While we believe we have successfully integrated our previous acquisitions, we cannot assure you that we will be able to integrate any future acquisitions successfully, that the acquired companies will operate profitably or that the intended beneficial effect from these acquisitions will be realized. Our financial condition, results of operations and cash flows could be materially and adversely affected if we do not successfully integrate Enodis or any other future companies that we may acquire or if we do not manage our growth effectively.

 

Because we participate in industries that are intensely competitive, our net sales and profits could decline as we respond to competition.

 

We sell most of our products in highly competitive industries. We compete in each of those industries based on product design, quality of products, quality and responsiveness of product support services, product performance, maintenance costs and price. Some of our competitors may have greater financial, marketing, manufacturing and distribution resources than we do. We cannot be certain that our products and services will continue to compete successfully with those of our competitors or that we will be able to retain our customer base or improve or maintain our profit margins on sales to our customers, any of which could materially and adversely affect our financial condition, results of operations and cash flows.

 

If we fail to develop new and innovative products or if customers in our markets do not accept them, our results would be negatively affected.

 

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Our products must be kept current to meet our customers’ needs. To remain competitive, we therefore must develop new and innovative products on an on-going basis. If we fail to make innovations, or the market does not accept our new products, our sales and results would suffer.

 

We invest significantly in the research and development of new products. These expenditures do not always result in products that will be accepted by the market. To the extent they do not, whether as a function of the product or the business cycle, we will have increased expenses without significant sales to benefit us. Failure to develop successful new products may also cause potential customers to choose to purchase used equipment, or competitors’ products, rather than invest in new products manufactured by us.

 

Price increases in some materials and sources of supply could affect our profitability.

 

We use large amounts of steel, stainless steel, aluminum, copper and electronic controls, among other items, in the manufacture of our products. Occasionally, market prices of some of our key raw materials increase significantly. In particular, we have experienced significant increases in steel, aluminum, foam, and copper prices at times in recent periods, which have increased our expenses.  If in the future we are not able to reduce product cost in other areas or pass raw material price increases on to our customers, our margins could be adversely affected. In addition, because we maintain limited raw material and component inventories, even brief unanticipated delays in delivery by suppliers—including those due to capacity constraints, labor disputes, impaired financial condition of suppliers, weather emergencies or other natural disasters—may impair our ability to satisfy our customers and could adversely affect our financial performance.

 

To better manage our exposures to certain commodity price fluctuations, we regularly hedge our commodity exposures through financial markets.  Through this hedging we fix the future price for a portion of these commodities utilized in the production of our products.  To the extent that our hedging is not successful in fixing commodity prices that are favorable in comparison to market prices at the time of purchase, we would experience a negative impact on our profit margins compared to the margins we would have realized if these price commitments were not in place, which may adversely affect our results of operations, financial condition and cash flows in future periods.

 

We increasingly manufacture and sell our products outside of the United States, which may present additional risks to our business.

 

For the years ended December 31, 2010, 2009 and 2008, approximately 57%, 52% and 58%, respectively, of our net sales were attributable to products sold outside of the United States. Expanding international sales is part of our growth strategy.  We acquired 22 major manufacturing facilities with the Enodis acquisition, 16 of which were in North America, 4 were in Europe, and 2 were in Asia.  See further detail related to the facilities at Item 2 “Properties.”  International operations generally are subject to various risks, including political, military, religious and economic instability, local labor market conditions, the imposition of foreign tariffs, the impact of foreign government regulations, the effects of income and withholding tax, governmental expropriation, and differences in business practices. We may incur increased costs and experience delays or disruptions in product deliveries and payments in connection with our international manufacturing, the integration of our new facilities and sales that could cause loss of revenue. Unfavorable changes in the political, regulatory and business climate and currency devaluations of various foreign jurisdictions could have a material adverse effect on our financial condition, results of operations and cash flows.

 

We depend on our key personnel and the loss of these personnel could have an adverse effect on our business.

 

Our success depends to a large extent upon the continued services of our key executives, managers and skilled personnel. Generally, these employees are not bound by employment or non-competition agreements, and we cannot be sure that we will be able to retain our key officers and employees. We could be seriously harmed by the loss of key personnel if it were to occur in the future.

 

Our operations and profitability could suffer if we experience problems with labor relations.

 

As of December 31, 2010, we employed approximately 13,300 people and had labor agreements with 14 union locals in North America. During the fourth quarter of 2008 we added six facilities in North America from the Enodis acquisition that are represented by unions. In addition, we reduced the number of unions by four, with the sale of the Marine segment in December of 2008 and the sale of the Enodis ice machine operations in May of 2009. A large majority of our European employees belong to European trade unions and, during 2008, a contract was signed by all unions for our French Crane locations. We have three trade unions in China and one trade union in India. The Indian trade contract expired in June of 2009; a new contract is being negotiated. There were only minor work stoppages during 2008, 2009 and 2010 and no work stoppages during 2007. During 2010, we had one union contract that expired that we are currently re-negotiating. During 2011, five of our union contracts will expire at various times and will therefore require renegotiation.

 

If we fail to protect our intellectual property rights or maintain our rights to use licensed intellectual property, our business could be adversely affected.

 

Our patents, trademarks and licenses are important in the operation of our businesses. Although we intend to protect our intellectual property

 

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rights vigorously, we cannot be certain that we will be successful in doing so. Third parties may assert or prosecute infringement claims against us in connection with the services and products that we offer, and we may or may not be able to successfully defend these claims. Litigation, either to enforce our intellectual property rights or to defend against claimed infringement of the rights of others, could result in substantial costs and in a diversion of our resources. In addition, if a third party would prevail in an infringement claim against us, then we would likely need to obtain a license from the third party on commercial terms, which would likely increase our costs. Our failure to maintain or obtain necessary licenses or an adverse outcome in any litigation relating to patent infringement or other intellectual property matters could have a material adverse effect on our financial condition, results of operations and cash flows.

 

Our results of operations may be negatively impacted by product liability lawsuits.

 

Our business exposes us to potential product liability risks that are inherent in the design, manufacture, sale and use of our products, especially our crane products. Certain of our businesses also have experienced claims relating to past asbestos exposure. Neither we nor our affiliates have to date incurred material costs related to these asbestos claims. We vigorously defend ourselves against current claims and intend to do so against future claims.  However, a substantial increase in the number of claims that are made against us or the amounts of any judgments or settlements could materially and adversely affect our reputation and our financial condition, results of operations and cash flows.

 

Some of our products are built under fixed-price agreements; cost overruns therefore can hurt our results.

 

Some of our work is done under agreements on a fixed-price basis.  If we do not accurately estimate our costs, we may incur a loss under these contracts.  Even if the agreements have provisions that allow reimbursement for cost overruns, we may not be able to recoup excess expenses.

 

Strategic divestitures could negatively affect our results.

 

We regularly review our business units and evaluate them against our core business strategies.  In addition, at times we are forced by regulatory authorities to make business divestitures as a result of acquisition transactions.  As a result, we regularly consider the divestiture of non-core and non-strategic, or acquisition-related operations or facilities.  Depending upon the circumstances and terms, the divestiture of an operation or facility could negatively affect our earnings from continuing operations.

 

Environmental liabilities that may arise in the future could be material to us.

 

Our operations, facilities and properties are subject to extensive and evolving laws and regulations pertaining to air emissions, wastewater discharges, the handling and disposal of solid and hazardous materials and wastes, the remediation of contamination, and otherwise relating to health, safety and the protection of the environment. As a result, we are involved from time to time in administrative or legal proceedings relating to environmental and health and safety matters, and have in the past and will continue to incur costs and other expenditures relating to such matters.

 

Based on current information, we believe that any costs we may incur relating to environmental matters will not be material, although we can give no assurances. We also cannot be certain that identification of presently unidentified environmental conditions, more vigorous enforcement by regulatory authorities, or other unanticipated events will not arise in the future and give rise to additional environmental liabilities, compliance costs and/or penalties that could be material. Further, environmental laws and regulations are constantly evolving and it is impossible to predict accurately the effect they may have upon our financial condition, results of operations or cash flows.

 

We are exposed to the risk of foreign currency fluctuations.

 

Some of our operations are or will be conducted by subsidiaries in foreign countries. The results of the operations and the financial position of these subsidiaries will be reported in the relevant foreign currencies and then translated into U.S. dollars at the applicable exchange rates for inclusion in our consolidated financial statements, which are stated in U.S. dollars. The exchange rates between many of these currencies and the U.S. dollar have fluctuated significantly in recent years and may fluctuate significantly in the future. Such fluctuations may have a material effect on our results of operations and financial position and may significantly affect the comparability of our results between financial periods.

 

In addition, we incur currency transaction risk whenever one of our operating subsidiaries enters into a transaction using a different currency than its functional currency. We attempt to reduce currency transaction risk whenever one of our operating subsidiaries enters into a transaction using a different currency than its functional currency by:

 

·              matching cash flows and payments in the same currency;

 

·              direct foreign currency borrowing; and

 

·              entering into foreign exchange contracts for hedging purposes.

 

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However, we may not be able to hedge this risk completely or at an acceptable cost, which may adversely affect our results of operations, financial condition and cash flows in future periods.

 

Increased or unexpected product warranty claims could adversely affect us.

 

We provide our customers a warranty covering workmanship, and in some cases materials, on products we manufacture. Our 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 warranty, we may be obligated, at our expense, to correct any defect by repairing or replacing the defective product. Although we maintain warranty reserves in an amount based primarily on the number of units shipped and on historical and anticipated warranty claims, there can be no assurance that future warranty claims will follow historical patterns or that we can accurately anticipate the level of future warranty claims. An increase in the rate of warranty claims or the occurrence of unexpected warranty claims could materially and adversely affect our financial condition, results of operations and cash flows.

 

Some of our customers rely on financing with third parties to purchase our products, and we may incur expenses associated with our assistance to customers in securing third party financing.

 

We rely principally on sales of our products to generate cash from operations. A portion of our sales is financed by third-party finance companies on behalf of our customers. The availability of financing by third parties is affected by general economic conditions, the credit worthiness of our customers and the estimated residual value of our equipment.  In certain transactions we provide residual value guarantees and buyback commitments to our customers or the third party financial institutions.  Deterioration in the credit quality of our customers or the overall health of the banking industry could negatively impact our customer’s ability to obtain the resources needed to make purchases of our equipment or their ability to obtain third-party financing. In addition, if the actual value of the equipment for which we have provided a residual value guaranty declines below the amount of our guaranty, we may incur additional costs, which may negatively impact our financial condition, results of operations and cash flows.

 

Our leverage may impair our operations and financial condition.

 

As of December 31, 2010, our total consolidated debt was $1,997.4 million as compared to consolidated debt of $2,172.4 million as of December 31, 2009.  See further detail related to the debt in Note 11, “Debt.”  Our debt could have important consequences, including increasing our vulnerability to general adverse economic and industry conditions; requiring a substantial portion of our cash flows from operations be used for the payment of interest rather than to fund working capital, capital expenditures, acquisitions and general corporate requirements; limiting our ability to obtain additional financing; and limiting our flexibility in planning for, or reacting to, changes in our business and the industries in which we operate.

 

The agreements governing our debt include covenants that restrict, among other things, our ability to incur additional debt; pay dividends on or repurchase our equity; make investments; and consolidate, merge or transfer all or substantially all of our assets. In addition, our senior credit facility requires us to maintain specified financial ratios and satisfy certain financial condition tests. Our ability to comply with these covenants may be affected by events beyond our control, including prevailing economic, financial and industry conditions. These covenants may also require that we take action to reduce our debt or to act in a manner contrary to our business objectives. We cannot be certain that we will meet any future financial tests or that the lenders will waive any failure to meet those tests. See additional discussion in Note 11, “Debt.”

 

If we default under our debt agreements, our lenders could elect to declare all amounts outstanding under our debt agreements to be immediately due and payable and could proceed against any collateral securing the debt. Under those circumstances, in the absence of readily-available refinancing on favorable terms, we might elect or be compelled to enter bankruptcy proceedings, in which case our shareholders could lose the entire value of their investment in our common stock.

 

We are in the process of implementing a global ERP system in our Crane segment.

 

We are in the process of implementing a new global ERP system in the Crane segment. This system will replace many of our existing operating and financial systems. Such an implementation is a major undertaking both financially and from a management and personnel perspective.  Due to current economic conditions we have delayed the previously scheduled implementation timeline for the Crane segment ERP system.  One business location implemented this system in 2009, but the next business unit is not scheduled to implement this new ERP system until 2012.  Should the system not be implemented successfully and within budget, or if the system does not perform in a satisfactory manner, it could be disruptive and adversely affect our operations and results of operations, including the ability of the company to report accurate and timely financial results.

 

Our inability to recover from a natural or man-made disaster could adversely affect our business.

 

Our business and financial results may be affected by certain events that we cannot anticipate or that are beyond our control, such as natural

 

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or man-made disasters, national emergencies, significant labor strikes, work stoppages, political unrest, war or terrorist activities that could curtail production at our facilities and cause delayed deliveries and canceled orders. In addition, we purchase components, raw materials, information technology and other services from numerous suppliers, and, even if our facilities were not directly affected by such events, we could be affected by interruptions at such suppliers. Such suppliers may be less likely than our own facilities to be able to quickly recover from such events and may be subject to additional risks such as financial problems that limit their ability to conduct their operations.  We cannot assure you that we will have insurance to adequately compensate us for any of these events.

 

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Item 1B.  UNRESOLVED STAFF COMMENTS

 

The company has received no written comments regarding its periodic or current reports from the staff of the Securities and Exchange Commission (SEC) that were issued 180 days or more preceding the end of our fiscal year 2010 that remain unresolved.

 

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Item 2.  PROPERTIES

 

The following table outlines the principal facilities we own or lease as of December 31, 2010.

 

Facility Location

 

Type of Facility

 

Approximate
Square Footage

 

Owned/Leased

Cranes and Related Products

 

 

 

 

 

 

Europe/Asia/Africa

 

 

 

 

 

 

Wilhelmshaven, Germany

 

Manufacturing/Office and Storage

 

410,000

 

Owned/Leased

Moulins, France

 

Manufacturing/Office

 

355,000

 

Owned/Leased

Charlieu, France

 

Manufacturing/Office

 

323,000

 

Owned/Leased

Presov, Slovak Republic

 

Manufacturing/Office

 

295,300

 

Owned

Zhangjiagang, China

 

Manufacturing

 

610,000

 

Owned

Fanzeres, Portugal

 

Manufacturing

 

183,000

 

Leased

Baltar, Portugal

 

Manufacturing

 

68,900

 

Owned

Pune, India

 

Manufacturing

 

190,000

 

Leased

La Clayette, France

 

Manufacturing/Office

 

161,000

 

Owned/Leased

Niella Tanaro, Italy

 

Manufacturing

 

370,016

 

Owned

Ecully, France

 

Office

 

85,000

 

Owned

Langenfeld, Germany

 

Office/Storage and Field Testing

 

80,300

 

Leased

Osny, France

 

Office/Storage/Repair

 

43,000

 

Owned

Decines, France

 

Office/Storage

 

47,500

 

Leased

Vaux-en-Velin, France

 

Office/Workshop

 

17,000

 

Owned

Vitrolles, France

 

Office

 

16,000

 

Owned

Buckingham, United Kingdom

 

Office/Storage

 

78,000

 

Leased

Lusigny, France

 

Crane Testing Site

 

10,000

 

Owned

Baudemont, France

 

Office & Training Center

 

8,000

 

Owned

Singapore

 

Office/Storage

 

49,000

 

Leased

Tai’an, China (Joint Venture)

 

Manufacturing

 

685,000

 

Owned

Sydney, Australia

 

Office/Storage

 

21,500

 

Leased

Dubai, United Arab Emirates

 

Office/Workshop

 

10,000

 

Leased

United States

 

 

 

 

 

 

Shady Grove, Pennsylvania

 

Manufacturing/Office

 

1,278,000

 

Owned

Manitowoc, Wisconsin

 

Manufacturing/Office

 

570,000

 

Owned

Manitowoc, Wisconsin (1)

 

Office

 

12,000

 

Leased

Manitowoc, Wisconsin

 

Land

 

61,000

 

Leased

Quincy, Pennsylvania

 

Manufacturing

 

36,000

 

Owned

Bauxite, Arkansas

 

Manufacturing/Office

 

22,000

 

Owned

Port Washington, Wisconsin

 

Manufacturing

 

82,000

 

Owned

 

 

 

 

 

 

 

Foodservice Equipment

 

 

 

 

 

 

 

 

 

 

 

 

 

Europe/Asia

 

 

 

 

 

 

Hangzhou, China

 

Manufacturing/Office

 

260,000

 

Owned/Leased

London, United Kingdom

 

Office

 

4,600

 

Leased

Eglfing, Germany

 

Manufacturing/Office/Warehouse

 

130,000

 

Leased

Aldershot, United Kingdom

 

Manufacturing/Office

 

20,000

 

Leased

Halesowen, United Kingdom

 

Manufacturing/Office

 

84,000

 

Leased

Sheffield, United Kingdom

 

Manufacturing/Office

 

100,000

 

Leased

Shanghai, China

 

Manufacturing/Office/Warehouse

 

62,500

 

Leased

Foshan, China

 

Manufacturing/Office/Warehouse

 

40,000

 

Leased

Singapore

 

Manufacturing/Office/Warehouse

 

40,000

 

Leased

Prachinburi, Thailand (Joint Venture)

 

Manufacturing/Office/Warehouse

 

80,520

 

Owned

Samutprakarn, Thailand (Joint Venture)

 

Office

 

4,305

 

Leased

 

 

 

 

 

 

 

North America

 

 

 

 

 

 

Manitowoc, Wisconsin

 

Manufacturing/Office

 

376,000

 

Owned

Parsons, Tennessee (1)

 

Manufacturing

 

214,000

 

Owned

 

17



Table of Contents

 

Sellersburg, Indiana

 

Manufacturing/Office

 

140,000

 

Owned

La Mirada, California

 

Manufacturing/Office

 

77,000

 

Leased

Los Angeles, California

 

Manufacturing/Office

 

90,000

 

Leased

Los Angeles, California

 

Manufacturing

 

29,000

 

Leased

Tijuana, Mexico

 

Manufacturing

 

30,000

 

Leased

New Port Richey, Florida

 

Office/Technology Center

 

42,000

 

Owned

Goodyear, Arizona

 

Manufacturing/Office

 

50,000

 

Leased

Columbus, Georgia (3)

 

Manufacturing/Office/Warehouse

 

540,000

 

Owned/Leased

Fort Wayne, Indiana

 

Manufacturing/Office

 

358,000

 

Leased

Barbourville, Kentucky

 

Manufacturing/Office

 

115,000

 

Owned

Shreveport, Louisiana (2)

 

Manufacturing/Office

 

384,000

 

Owned

Mt. Pleasant, Michigan

 

Manufacturing/Office

 

330,000

 

Owned

Baltimore, Maryland

 

Manufacturing/Office

 

16,000

 

Leased

Cleveland, Ohio

 

Manufacturing/Office

 

180,000

 

Owned

Freeland, Pennsylvania

 

Manufacturing/Office

 

150,000

 

Owned

Covington, Tennessee

 

Manufacturing/Office

 

188,000

 

Owned

Piney Flats, Tennessee

 

Manufacturing/Office

 

110,000

 

Leased

Fort Worth, Texas

 

Manufacturing/Office

 

183,000

 

Leased

Concord, Ontario, Canada

 

Manufacturing/Office

 

116,000

 

Leased

Mississauga, Ontario, Canada

 

Manufacturing/Office

 

155,000

 

Leased

 

 

 

 

 

 

 

Corporate

 

 

 

 

 

 

Manitowoc, Wisconsin

 

Office

 

34,000

 

Owned

Manitowoc, Wisconsin

 

Office

 

5,000

 

Leased

Manitowoc, Wisconsin

 

Hangar Ground Lease

 

31,320

 

Leased

 


(1)           There are three separate locations within Parsons, Tennessee and two separate locations within Manitowoc, Wisconsin.

 

(2)           There are two separate locations within Shreveport, Louisiana.

 

(3)           There are four separate locations within Columbus, Georgia. These locations were divested in January 2011 with the Kysor/Warren business.

 

In addition, we lease sales office and warehouse space for our Crane segment in Breda, The Netherlands; Begles, France; Nantes, France; Toulouse, France; Nice, France; Orleans, France; Persans, France; Lainate, Italy; Lagenfeld, Germany; Munich, Germany; Budapest, Hungary; Warsaw, Poland; Melbourne, Australia; Brisbane, Australia; Beijing, China; Chengdu, China; Guangzhou, China; Xi’an, China; Dubai, UAE; Makati City, Philippines; Cavite, Philippines; Harayana, India; New Delhi, India; Hyderabad, India; Seoul, Korea; Moscow, Russia; Netvorice, the Czech Republic; Manitowoc, Wisconsin; Shanghai, China; Monterrey, Mexico; Sao Paulo, Brazil; Barueri, Brazil; Santiago, Chile; Johannesburg, South Africa; Ellis Ras, South Africa; and North Las Vegas, Nevada.  We lease office and warehouse space for our Foodservice segment in Salem, Virginia; Irwindale, California; Goodyear, Arizona; Miami, Florida; Herborn, Germany; Moscow, Russia; Belgium, Netherlands; Kuala Lumpur, Malaysia; Barcelona, Spain; Naucalpan de Juarez, Mexico; Langley, United Kingdom; and Ecully, France.  We also own sales offices and warehouse facilities for our Crane segment in Dole, France and Rouen, France.

 

See Note 21, “Leases,” to the Consolidated Financial Statements included in Item 8 of this Form 10-K for additional information regarding leases.

 

Item 3.  LEGAL PROCEEDINGS

 

Our global operations are governed by laws addressing the protection of the environment and employee safety and health.  Under various circumstances, these laws impose civil and criminal penalties and fines, as well as injunctive and remedial relief, for noncompliance.  They also may require remediation at sites where company related substances have been released into the environment.

 

We have expended substantial resources globally, both financial and managerial, to comply with the applicable laws and regulations, and to protect the environment and our workers.  We believe we are in substantial compliance with such laws and regulations and we maintain procedures designed to foster and ensure compliance.  However, we have been and may in the future be subject to formal or informal enforcement actions or proceedings regarding noncompliance with such laws or regulations, whether or not determined to be ultimately responsible in the normal course of business.  Historically, these actions have been resolved in various ways with the regulatory authorities without material commitments or penalties to the company.

 

For information concerning other contingencies and uncertainties, see Note 17, “Contingencies and Significant Estimates,” to the Consolidated Financial Statements included in Item 8 of this Form 10-K.

 

18



Table of Contents

 

Executive Officers of the Registrant

 

Each of the following officers of the company has been elected by the Board of Directors.  The information presented is as of March 1, 2011.

 

Name

 

Age

 

Position With The Registrant

 

Principal
Position Held
Since

Glen E. Tellock

 

50

 

Chairman and Chief Executive Officer

 

2007

 

 

 

 

 

 

 

Carl J. Laurino

 

49

 

Senior Vice President and Chief Financial Officer

 

2004

 

 

 

 

 

 

 

Thomas G. Musial

 

59

 

Senior Vice President of Human Resources and Administration

 

1995

 

 

 

 

 

 

 

Maurice D. Jones

 

51

 

Senior Vice President, General Counsel and Secretary

 

1999

 

 

 

 

 

 

 

Dean J. Nolden

 

42

 

Vice President of Finance and Treasurer

 

2005

 

 

 

 

 

 

 

Eric P. Etchart

 

54

 

Senior Vice President of the Company and President Crane Segment

 

2007

 

 

 

 

 

 

 

Michael J. Kachmer

 

52

 

Senior Vice President of the Company and President Foodservice Segment

 

2007

 

Glen E. Tellock has been the company’s chief executive officer since May 2007 and was elected as chairman of the board effective February 13, 2009.  He previously served as the senior vice president of The Manitowoc Company, Inc. and president of the Crane segment since 2002.  Earlier, he served as the company’s senior vice president and chief financial officer (1999), vice president of finance and treasurer (1998), corporate controller (1992) and director of accounting (1991).  Prior to joining the company, Mr. Tellock served as financial planning manager with the Denver Post Corporation, and as an audit manager for Ernst & Whinney.

 

Carl J. Laurino was named senior vice president and chief financial officer in May 2004.  He had served as Treasurer since May 2001.  Mr. Laurino joined the company in January 2000 as assistant treasurer and served in that capacity until his promotion to treasurer.  Previously, Mr. Laurino spent 15 years in the commercial banking industry with Firstar Bank (n/k/a US Bank), Norwest Bank (n/k/a Wells Fargo), and Associated Bank.  During that period, Mr. Laurino held numerous positions of increasing responsibility including commercial loan officer with Norwest Bank, Vice President — Business Banking with Associated Bank and Vice President and Commercial Banking Manager with Firstar.

 

Thomas G. Musial has been senior vice president of human resources and administration since 2000.  Previously, he was vice president of human resources and administration (1995), manager of human resources (1987), and personnel/industrial relations specialist (1976).

 

Maurice D. Jones has been general counsel and secretary since 1999 and was elected vice president in 2002 and a senior vice president in 2004.  Prior to joining the company, Mr. Jones was a shareholder in the law firm of Davis and Kuelthau, S.C., and served as legal counsel for Banta Corporation.

 

Dean J. Nolden was named vice president of finance and treasurer in May 2009.  He previously served as the vice president and assistant treasurer since 2005.  Mr. Nolden joined the company in November 1998 as corporate controller and served in that capacity until his promotion to Vice President Finance and Controller in May 2004.  Prior to joining the company, Mr. Nolden spent eight years in public accounting in the audit practice of PricewaterhouseCoopers LLP.  He left that firm in 1998 as an audit manager.

 

Eric P. Etchart was named senior vice president of The Manitowoc Company, Inc. and president of the Crane segment in May 2007.  Mr. Etchart previously served as executive vice president of the Crane segment for the Asia/Pacific region since 2002.  Prior to joining the company, Mr. Etchart served as managing director in the Asia/Pacific region for Potain S.A., as managing director in Italy for Potain S.P.A. and as vice president of international sales and marketing for PPM.

 

Michael J. Kachmer joined the company in February of 2007 as senior vice president of The Manitowoc Company, Inc. and president of the Foodservice segment.  Prior to joining the company, Mr. Kachmer held executive positions for Culligan International Company since 2000, most recently serving as its chief operating officer.  In addition, Mr. Kachmer has held executive and operational roles in a number of global manufacturing companies, including Ball Corporation and Firestone Tire & Rubber.

 

19



Table of Contents

 

Item 5.  MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

 

The company’s common stock is traded on the New York Stock Exchange under the symbol MTW.  At December 31, 2010, the approximate number of record shareholders of common stock was 2,482.

 

The amount and timing of the quarterly dividend is determined by the Board of Directors at its regular meetings each year.  On October 26, 2009, the Board of Directors unanimously adopted a resolution switching the company’s quarterly common stock cash dividend to an annual common stock cash dividend.  Beginning in October 2010, and in its regular fall meetings each year thereafter, the Board of Directors will determine the amount, if any, and timing of the annual dividend for that year.  In the year ended December 31, 2010, the company paid an annual dividend of $0.08 per share in the fourth quarter.  In the years ended December 31, 2009 and 2008, the company paid a quarterly dividend of $0.02 in cash for each quarter for a cumulative dividend of $0.08 per share in 2009 and 2008.

 

The high and low sales prices of the common stock were as follows for 2010, 2009 and 2008 (amounts have been adjusted for the two-for-one stock split discussed above):

 

Year Ended

 

2010

 

2009

 

2008

 

December 31

 

High

 

Low

 

Close

 

High

 

Low

 

Close

 

High

 

Low

 

Close

 

1st Quarter

 

$

14.60

 

$

10.03

 

$

13.00

 

$

10.19

 

$

2.42

 

$

3.27

 

$

48.90

 

$

30.07

 

$

40.80

 

2nd Quarter

 

16.43

 

9.09

 

9.14

 

7.79

 

3.45

 

5.26

 

45.47

 

30.82

 

32.53

 

3rd Quarter

 

12.26

 

8.48

 

12.11

 

10.45

 

4.39

 

9.47

 

32.00

 

15.01

 

15.55

 

4th Quarter

 

13.53

 

10.55

 

13.11

 

11.63

 

8.14

 

9.97

 

15.90

 

4.56

 

8.66

 

 

Under our current bank credit agreement, we are limited on the amount of dividends we may pay out in any one year.  The amount of dividend payments is restricted based on our consolidated total leverage ratio as defined in the credit agreement and is limited along with other restricted payments in aggregate.  If the consolidated leverage ratio is less than 2.00 to 1.00, total restricted payments cannot exceed $75.0 million in any given year.  If the consolidated total leverage ratio is greater than or equal to 2.00 to 1.00 but less than 3.00 to 1.00, payments cannot exceed $35.0 million per year.  If the consolidated total leverage ratio is greater than or equal to 3.00 to 1.00 but less than 4.00 to 1.00, total restricted payments cannot exceed $20.0 million in a year.  Lastly, if the consolidated total leverage ratio is greater than or equal to 4.00 to 1.00, total restricted payments are limited to $10.5 million per year.

 

 

Total Return to Shareholders

(Includes reinvestment of dividends)

 

 

 

Annual Return Percentages

 

 

 

Years Ending December 31,

 

 

 

2006

 

2007

 

2008

 

2009

 

2010

 

The Manitowoc Company, Inc.

 

137.37

%

64.65

%

(82.19

)%

16.77

%

32.46

%

S&P 500 Index

 

15.79

%

5.49

%

(37.00

)%

26.46

%

15.06

%

S&P 600 Industrial Machinery

 

20.77

%

12.18

%

(32.86

)%

18.68

%

31.01

%

 

20



Table of Contents

 

 

 

Indexed Returns

 

 

 

Years Ending December 31,

 

 

 

2005

 

2006

 

2007

 

2008

 

2009

 

2010

 

The Manitowoc Company, Inc.

 

100.00

 

237.43

 

390.99

 

69.70

 

81.51

 

107.97

 

S&P 500 Index

 

100.00

 

115.79

 

122.16

 

76.96

 

97.33

 

111.99

 

S&P 600 Industrial Machinery

 

100.00

 

120.77

 

135.48

 

90.96

 

107.95

 

141.42

 

 

21



Table of Contents

 

Item 6.  SELECTED FINANCIAL DATA

 

The following selected historical financial data have been derived from the Consolidated Financial Statements of The Manitowoc Company, Inc.  The data should be read in conjunction with these financial statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”  Results of the Marine segment and the Kysor/Warren business in the current and prior periods and the results of substantially all Enodis ice businesses and certain Enodis non-ice businesses in the years ended December 31, 2008, 2009 and 2010, have been classified as discontinued in the Consolidated Financial Statements to exclude the results from continuing operations.  In addition, the earnings (loss) from discontinued operations include the impact of adjustments to certain retained liabilities for operations sold or closed in periods prior to those presented.  For businesses acquired during the time periods presented, results are included in the table from their acquisition date.  Amounts are in millions except share and per share data.

 

 

 

2010

 

2009

 

2008

 

2007

 

2006

 

2005

 

Net Sales

 

 

 

 

 

 

 

 

 

 

 

 

 

Cranes and Related Products

 

$

1,748.6

 

$

2,285.0

 

$

3,882.9

 

$

3,245.7

 

$

2,235.4

 

$

1,628.7

 

Foodservice Equipment

 

1,393.1

 

1,334.8

 

596.3

 

438.3

 

415.4

 

399.6

 

Total

 

3,141.7

 

3,619.8

 

4,479.2

 

3,684.0

 

2,650.8

 

2,028.3

 

Gross Profit

 

765.4

 

797.6

 

1,013.6

 

861.5

 

611.3

 

413.2

 

Operating Earnings (Loss) from Continuing Operations

 

 

 

 

 

 

 

 

 

 

 

 

 

Cranes and Related Products

 

89.8

 

145.0

 

555.6

 

470.5

 

280.6

 

115.5

 

Foodservice Equipment

 

202.3

 

167.2

 

57.8

 

61.3

 

56.2

 

54.9

 

Corporate

 

(41.2

)

(44.4

)

(51.7

)

(48.2

)

(42.4

)

(24.8

)

Amortization expense

 

(38.3

)

(38.4

)

(11.4

)

(5.8

)

(3.3

)

(3.1

)

Gain on sales of parts line

 

 

 

 

3.3

 

––

 

––

 

Goodwill impairment

 

 

(548.8

)

 

 

––

 

––

 

Intangible asset impairment

 

 

(146.4

)

 

 

––

 

––

 

Restructuring expense

 

(3.8

)

(39.6

)

(21.7

)

 

––

 

––

 

Integration expense

 

 

(3.6

)

(7.6

)

 

––

 

––

 

Loss on disposition of property

 

(2.0

)

(3.4

)

 

 

––

 

––

 

Pension settlements

 

 

 

 

(5.3

)

––

 

––

 

Other expense

 

(0.3

)

 

 

 

––

 

––

 

Total operating earnings (loss) from continuing operations

 

206.5

 

(512.4

)

521.0

 

475.8

 

291.1

 

142.5

 

Interest expense

 

(175.0)

 

(174.0

)

(51.6

)

(35.1

)

(44.9

)

(51.7

)

Amortization of deferred financing fees

 

(22.0

)

(28.8

)

(2.5

)

(1.1

)

(1.4

)

(2.1

)

Loss on debt extinguishment

 

(44.0

)

(9.2

)

(4.1

)

(12.5

)

(14.4

)

(9.1

)

Loss on purchase price hedges

 

 

 

(379.4

)

 

––

 

––

 

Other income (expense) - net

 

(10.1

)

17.1

 

(3.0

)

9.8

 

3.4

 

3.4

 

Earnings (loss) from continuing operations before income taxes

 

(44.6

)

(707.3

)

80.4

 

436.9

 

233.8

 

83.0

 

Provision (benefit) for taxes on income

 

23.9

 

(58.9

)

(19.4

)

122.1

 

74.8

 

16.6

 

Earnings (loss) from continuing operations

 

(68.5

)

(648.4

)

99.8

 

314.8

 

159.0

 

66.4

 

Discontinued operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

(7.6

)

(34.1

)

(144.8

)

21.9

 

7.2

 

(6.4

)

Gain (loss) on sale or closure of discontinued operations, net of income taxes

 

 

(24.2

)

53.1

 

 

––

 

5.8

 

Net earnings (loss)

 

$

(76.1

)

$

(706.7

)

$

8.1

 

$

336.7

 

$

166.2

 

$

65.8

 

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

 

(2.7

)

(2.5

)

(1.9

)

 

––

 

––

 

Net earnings (loss) attributable to Manitowoc

 

(73.4

)

(704.2

)

10.0

 

336.7

 

166.2

 

65.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amounts attributable to the Manitowoc common shareholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) from continuing operations

 

$

(65.8

)

$

(645.9

)

$

101.7

 

$

314.8

 

$

159.0

 

$

66.4

 

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

 

(7.6

)

(34.1

)

(144.8

)

21.9

 

7.2

 

(6.4

)

Gain (loss) on sale or closure of discontinued operations, net of income taxes

 

 

(24.2

)

53.1

 

 

––

 

5.8

 

Net earnings (loss) attributable to Manitowoc

 

$

(73.4

)

$

(704.2

)

$

10.0

 

$

336.7

 

$

166.2

 

$

65.8

 

 

22



Table of Contents

 

Cash Flows

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flow from operations

 

$

209.3

 

$

339.6

 

$

306.1

 

$

244.0

 

$

293.0

 

$

106.7

 

Identifiable Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Cranes and Related Products

 

$

1,594.4

 

$

1,738.4

 

$

2,223.7

 

$

1,958.0

 

$

1,572.4

 

$

1,224.7

 

Foodservice Equipment

 

2,200.2

 

2,279.5

 

3,389.4

 

341.5

 

340.1

 

313.2

 

Corporate

 

214.7

 

260.8

 

473.0

 

571.9

 

307.0

 

423.9

 

Total

 

$

4,009.3

 

$

4,278.7

 

$

6,086.1

 

$

2,871.4

 

$

2,219.5

 

$

1,961.8

 

Long-term Obligations

 

$

1,997.4

 

$

2,172.4

 

$

2,655.3

 

$

272.0

 

$

264.3

 

$

474.0

 

Depreciation

 

 

 

 

 

 

 

 

 

 

 

 

 

Cranes and Related Products

 

$

56.5

 

$

55.3

 

$

66.3

 

$

70.4

 

$

58.4

 

$

51.8

 

Foodservice Equipment

 

27.8

 

29.8

 

11.8

 

8.0

 

7.2

 

6.1

 

Corporate

 

2.9

 

2.8

 

1.5

 

1.8

 

1.8

 

1.5

 

Total

 

$

87.2

 

$

87.9

 

$

79.6

 

$

80.2

 

$

67.4

 

$

59.4

 

Capital Expenditures

 

 

 

 

 

 

 

 

 

 

 

 

 

Cranes and Related Products

 

21.9

 

51.5

 

129.4

 

103.7

 

51.3

 

32.9

 

Foodservice Equipment

 

12.2

 

15.1

 

10.5

 

3.7

 

10.9

 

16.9

 

Corporate

 

2.0

 

2.6

 

10.0

 

5.4

 

2.2

 

1.0

 

Total

 

$

36.1

 

$

69.2

 

$

149.9

 

$

112.8

 

$

64.4

 

$

50.8

 

Per Share

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings (loss) per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$

(0.50

)

$

(4.96

)

$

0.78

 

$

2.53

 

$

1.30

 

$

0.55

 

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

 

(0.06

)

(0.26

)

(1.11

)

0.18

 

0.06

 

(0.05

)

Gain (loss) on sale or closure of discontinued operations, net of income taxes

 

 

(0.19

)

0.41

 

 

 

0.05

 

Earnings (loss) per share attributable to Manitowoc common shareholders

 

$

(0.56

)

$

(5.41

)

$

0.08

 

$

2.70

 

$

1.36

 

$

0.55

 

Diluted earnings (loss) per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$

(0.50

)

$

(4.96

)

$

0.77

 

$

2.47

 

$

1.27

 

$

0.54

 

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

 

(0.06

)

(0.26

)

(1.10

)

0.17

 

0.06

 

(0.06

)

Gain (loss) on sale or closure of discontinued operations, net of income taxes

 

 

(0.19

)

0.40

 

 

 

0.05

 

Earnings (loss) per share attributable to Manitowoc common shareholders

 

$

(0.56

)

$

(5.41

)

$

0.08

 

$

2.64

 

$

1.32

 

$

0.53

 

Avg Shares Outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

130,581,040

 

130,268,670

 

129,930,749

 

124,667,931

 

122,449,148

 

120,586,420

 

Diluted

 

130,581,040

 

130,268,670

 

131,630,215

 

127,489,416

 

125,571,532

 

123,052,068

 

 

1)             Discontinued operations represent the results of operations and gain or loss on sale or closure of Kysor/Warren, the Marine segment, substantially all Enodis ice businesses and certain Enodis non-ice businesses, Delta Manlift SAS, DRI and Toledo Ship Repair, which either qualified for discontinued operations treatment, or were sold or closed during 2010, 2009, 2008, or 2005.

 

2)             On July 26, 2007, the Board of Directors authorized a two-for-one split of the company’s common stock.  Record holders of Manitowoc’s common stock at the close of business on August 31, 2007 received on September 10, 2007 one additional share of common stock for every share of Manitowoc common stock they owned as of August 31, 2007.  Manitowoc shares outstanding at the close of business on August 31, 2007 totaled 62,787,642.  The company’s common stock began trading at its post-split price at the beginning of trading on September 11, 2007.  Per share, share and stock option amounts within this Annual Report on Form 10-K for all periods presented have been adjusted to reflect the stock split.

 

3)             We acquired one business in 2010, two businesses during 2008, two businesses during 2007, and two businesses during 2006.

 

4)             Cash dividends per share for 2005 through 2010 were as follows: $0.07 (2005 through 2006), $0.075 (2007), and $0.08 (2008, 2009 and 2010).

 

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Item 7.

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

 

The following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes appearing in Item 8 of the Annual Report on Form 10-K.

 

Overview The Manitowoc Company, Inc. is a multi-industry, capital goods manufacturer in two principal markets: Cranes and Related Products (Crane) and Foodservice Equipment (Foodservice).  Crane is recognized as one of the world’s leading providers of lifting equipment for the global construction industry, including lattice-boom cranes, tower cranes, mobile telescopic cranes, and boom trucks.  Foodservice is one of the world’s leading innovators and manufacturers of commercial foodservice equipment serving the ice, beverage, refrigeration, food preparation, and cooking needs of restaurants, convenience stores, hotels, healthcare, and institutional applications.

 

On December 15, 2010, the company announced that a definitive agreement had been reached to divest of its non-core Kysor/Warren and Kysor/Warren de Mexico businesses to Lennox International for approximately $145.0 million.  The transaction subsequently closed on January 14, 2011 and the net proceeds were used to pay down outstanding debt.  The results of these operations have been classified as discontinued operations.  See further detail related to these businesses at Note 4, “Discontinued Operations.”

 

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.  See further detail related to these businesses at Note 4, “Discontinued Operations.”

 

Out of Period Adjustments

 

During the third quarter of 2010, the company recorded an adjustment to correct an error related to the provision for income taxes, whereby during 2009 the company had incorrectly understated the income tax benefit by $6.6 million. The company does not believe that this error is material to its consolidated financial statements for the years ended December 31, 2010 or 2009. The impact of this adjustment to the year ended December 31, 2010 was an increase to the income tax benefit, net earnings and earnings per share of $6.6 million, $6.6 million, and $0.05, respectively.

 

During the third quarter of 2010, the company also recorded an adjustment to correct an error related to the deferred taxes for the Enodis acquisition, whereby at December 31, 2009 the company had incorrectly overstated deferred tax assets and understated goodwill by $5.8 million. The company does not believe that this error is material to its consolidated financial statements. The correction of this error results in a reduction of deferred tax assets of $5.8 million, and an increase to goodwill for the same amount as of December 31, 2010.

 

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The following discussion and analysis covers key drivers behind our results for 2008 through 2010 and is broken down into three major sections.  First, we provide an overview of our results of operations for the years 2008 through 2010 on a consolidated basis and by business segment.  Next we discuss our market conditions, liquidity and capital resources, off balance sheet arrangements, and contractual obligations and commitments.  Finally, we provide a discussion of risk management techniques, contingent liability issues, critical accounting policies, impacts of recent accounting changes, and cautionary statements.

 

All dollar amounts, except per share amounts, are in millions of dollars throughout the tables included in this Management’s Discussion and Analysis of Financial Conditions and Results of Operations unless otherwise indicated.

 

Results of Consolidated Operations

 

Millions of dollars, except per share data

 

2010

 

2009

 

2008

 

Operations

 

 

 

 

 

 

 

Net sales

 

$3,141.7

 

$3,619.8

 

$4,479.2

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

Cost of sales

 

2,376.3

 

2,822.2

 

3,465.6

 

Engineering, selling and administrative expenses

 

514.5

 

529.8

 

451.9

 

Amortization expense

 

38.3

 

38.4

 

11.4

 

Goodwill impairment

 

 

548.8

 

 

Intangible asset impairment

 

 

146.4

 

 

Integration expense

 

 

3.6

 

7.6

 

Loss on sale of product lines

 

2.0

 

3.4

 

 

Restructuring expense

 

3.8

 

39.6

 

21.7

 

Other expenses

 

0.3

 

 

 

Total costs and expenses

 

2,935.2

 

4,132.2

 

3,958.2

 

 

 

 

 

 

 

 

 

Operating earnings (loss) from continuing operations

 

206.5

 

(512.4

)

521.0

 

 

 

 

 

 

 

 

 

Other income (expenses):

 

 

 

 

 

 

 

Interest expense

 

(175.0

)

(174.0

)

(51.6

)

Amortization of deferred financing fees

 

(22.0

)

(28.8

)

(2.5

)

Loss on debt extinguishment

 

(44.0

)

(9.2

)

(4.1

)

Loss on purchase price hedges

 

 

 

(379.4

)

Other income (expense)-net

 

(10.1

)

17.1

 

(3.0

)

Total other expenses

 

(251.1

)

(194.9

)

(440.6

)

 

 

 

 

 

 

 

 

Earnings (loss) from continuing operations before taxes on earnings

 

(44.6

)

(707.3

)

80.4

 

Provision (benefit) for taxes on earnings

 

23.9

 

(58.9

)

(19.4

)

Earnings (loss) from continuing operations

 

(68.5

)

(648.4

)

99.8

 

 

 

 

 

 

 

 

 

Discontinued operations:

 

 

 

 

 

 

 

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

 

(7.6

)

(34.1

)

(144.8

)

Gain (loss) on sale of discontinued operations, net of income taxes

 

 

(24.2

)

53.1

 

Net earnings (loss)

 

(76.1

)

(706.7

)

8.1

 

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

 

(2.7

)

(2.5

)

(1.9

)

Net earnings (loss) attributable to Manitowoc

 

(73.4

)

(704.2

)

10.0

 

 

 

 

 

 

 

 

 

Amounts attributable to the Manitowoc common shareholders:

 

 

 

 

 

 

 

Earnings (loss) from continuing operations

 

(65.8

)

(645.9

)

101.7

 

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

 

(7.6

)

(34.1

)

(144.8

)

Gain (loss) on sale of discontinued operations, net of income taxes

 

 

(24.2

)

53.1

 

Net earnings (loss) attributable to Manitowoc

 

(73.4

)

(704.2

)

10.0

 

 

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Year Ended December 31, 2010 Compared to 2009

 

Consolidated net sales decreased 13.2% in 2010 to $3.1 billion from $3.6 billion in 2009.  This decrease was the result of lower year-over-year sales in the Crane segment primarily due to the global macro-economic downturn as well as continued weakness in the global credit markets.  Sales in our Crane segment decreased 23.5% for the year ended December 31, 2010 compared to 2009.  Partially offsetting the lower crane net sales were higher sales in the Foodservice segment as a result of additional revenue related to new product introductions, market share increase, and geographic penetration outpacing the market. The weaker foreign currencies as compared to the U.S. Dollar had an unfavorable impact on consolidated net sales of approximately $37.5 million or 1.1% for the year ended December 31, 2010 compared to the year ended December 31, 2009.  Further analysis of the changes in sales by segment is presented in the Sales and Operating Earnings by Segment section below.

 

Gross profit decreased for the year ended December 31, 2010 to $765.4 million compared to $797.6 billion for the year ended December 31, 2009, a decrease of 4.0%.  Gross margin increased in 2010 to 24.4% from 22.0% in 2009.   The decrease in consolidated gross profit was driven by the Crane segment as a result of decreased sales volumes across most regions, increased unabsorbed manufacturing overhead costs and an unfavorable translation effect of foreign currency exchange rate changes.  This decrease was partially offset by higher Foodservice gross profit due to the increased sales and various cost reduction initiatives in both segments during 2010. The increase in gross margin occurred as a result of gross margin increases in the Foodservice segment due to cost reductions, product sales mix and pricing actions.

 

Engineering, selling and administrative (ES&A) expenses for the year ended December 31, 2010 decreased approximately $15.3 million to $514.5 million compared to $529.8 million for the year ended December 31, 2009.  This decrease was driven by lower expenses in the Crane segment as a result of controlled spending and collections of previously reserved receivable balances partially offset by higher Foodservice segment ES&A expenses due to higher employee related costs, higher variable sales expenses and other discretionary spending.

 

Amortization expense for the year ended December 31, 2010 was $38.3 million compared to $38.4 million for 2009 (see further detail related to the intangible assets at Note 3, “Acquisitions”).

 

Restructuring expenses for the year ended December 31, 2010 totaled $3.8 million, which compares to $39.6 million in 2009.  As a result of the continued worldwide decline in Crane segment sales in 2010, the company recorded $6.2 million in restructuring charges as it further reduced the Crane segment cost structure, primarily in France.  These charges were partially offset by the reversal of excess reserves of $3.5 million due to improved outlook in other areas of the Europe, Middle East and Africa (EMEA) region.  See further detail related to the restructuring expenses at Note 19, “Restructuring.”

 

Interest expenses for the year ended December 31, 2010 totaled $175.0 million versus $174.0 million for the year ended December 31, 2009.  The slight increase is the result of the issuance of higher interest rate senior notes issued during 2010 and an increase in the company’s current senior credit facility (“Senior Credit Facility”) interest pricing grid spread during the year substantially offset by lower total debt levels.   Amortization expenses for deferred financing fees was $22.0 million for the year ended December 31, 2010 as compared to $28.8 million in 2009.  The lower expense in 2010 is related to the early paydown of debt in 2010 and write-off of a portion of the deferred financing fees in the loss on debt extinguishment, reducing the remaining fees to be amortized, which were only partially offset by the incurrence of new fees associated with the senior notes issued in 2010.  The new fees are amortized over a significantly longer period than those associated with the New Credit Agreement.

 

The loss on debt extinguishment of $44.0 million for the year ended December 31, 2010 is a result of the accelerated paydown of Term Loans A and B associated with the Senior Credit Agreement.  Cash from operations of $163.6 million was used to pay down debt associated with the Senior Credit Agreement.

 

Other income, net for the year ended December 31, 2010 was a loss of $10.1 million versus income of $17.1 million for the prior year.  The loss in 2010 is primarily due to foreign currency losses related to inter company transactions between our U.S. and foreign crane facilities during the year whereby the U.S. Dollar weakend against other foreign currencies and is also partially due to lower interest income.   The income in 2009 was primarily the result of foreign currency gains related to inter company transactions between our U.S. and foreign crane facilities during the year whereby we benefitted from the U.S. Dollar strengthening against other foreign currencies and is also partially due to higher interest income.

 

The effective tax rate for the year ended December 31, 2010 was negative 53.4% as compared to 8.3% for the year ended December 31, 2009.  As the company posted pre-tax losses in 2009 and 2010, a negative effective tax rate is an expense to the consolidated statement of operations, and a positive effective tax rate represents a benefit to the consolidated statement of operations.

 

The effective tax rate in 2009 was unfavorably impacted by the goodwill impairment of $548.8 million which is non-deductible for tax purposes. Both the 2009 and 2010 effective tax rates were favorably impacted by income earned in jurisdictions where the statutory rate was less than 35%.

 

The Education Jobs and Medicare Assistance Act was signed into law during the third quarter of 2010 and it contained provisions that impact the calculation of the foreign tax credit.  As a result, the company is no longer in a position to utilize its carry forward for this credit and recorded a valuation allowance in the third quarter of approximately $6.0 million against the related deferred tax asset.  However, the

 

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company is able to amend its previously filed tax return and deduct these taxes paid, resulting in a tax benefit of $2.1 million.  In addition, beginning with the third quarter of 2010, foreign taxes paid in 2010 are being deducted as permitted, instead of credited.

 

In jurisdictions where the company operates its Crane business, management analyzes the ability to utilize the deferred tax assets arising from net operating losses on a seven year cycle, consistent with the Crane business cycles, as this provides the best information to evaluate the future profitability of the business units.

 

During 2009, the company determined that it was more likely than not that the deferred tax assets would potentially not be utilized in several jurisdictions including China, Slovakia, Spain, the UK and a portion of the Wisconsin net operating loss.  The company continues to record valuation allowances on these deferred tax assets as it remains more likely than not that they will not be utilized.  The company recorded a full valuation allowance of $48.8 million on the net deferred tax asset for net operating loss carryforwards in France during the fourth quarter of 2010 as the French operations moved into a seven year cumulative loss position in the fourth quarter and the company determined that the positive evidence supporting partial future realization of the asset was outweighed by the more objectively verifiable negative evidence.  The total valuation allowance adjustments of $55.2 million in 2010 have an unfavorable impact to income tax expense.

 

During the third quarter of 2010, the company recorded an adjustment to correct an error related to the provision for income taxes, whereby during 2009 the company had incorrectly understated the income tax benefit by $6.6 million. See additional discussions at Note 1, “Company and Basis of Presentation.”

 

The Patient Protection and Affordable Care Act was signed into law during the first quarter of 2010 and eliminated 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 income tax expense was unfavorably impacted by $1.6 million for this law change.

 

The results from discontinued operations were a loss of $7.6 million and a loss of $34.1 million, net of income taxes, for the years ended December 31, 2010 and 2009, respectively.  The 2010 loss primarily relates to the classification of the Kysor/Warren business as a discontinued operation.  The loss includes an impairment charge of $9.8 million, net of income taxes, which was incurred to bring the carrying value of the associated net assets in line with the selling price, less costs to sell.  We also realized an after tax loss of $24.2 million on the sale of the Enodis ice businesses and the Marine segment as a result of final settlement of working capital and tax adjustments in 2009.

 

For the year ended December 31, 2010, a net loss attributable to a noncontrolling interest of $2.7 million was recorded in relation to our partially-owned affiliate with the shareholders of Tai’An Dongyue Heavy Machinery Co., Ltd. (Tai’An Dongyue).  There was a net loss of $2.5 million in connection with the partially-owned affiliate for the same period of 2009.  See further detail related to the partially-owned affiliate at Note 3, “Acquisitions.”

 

Year Ended December 31, 2009 Compared to 2008

 

Consolidated net sales decreased 19.2% in 2009 to $3.6 billion from $4.5 billion in 2008.  This decrease was the result of lower year-over-year sales in the Crane segment primarily due to the global macro-economic downturn as well as a broad global credit crisis in the banking industry.  Partially offsetting the lower consolidated net sales was higher sales in the Foodservice segment as a result of additional revenue related to businesses acquired in the Enodis acquisition during the fourth quarter of 2008.  Sales in our Crane segment decreased 41.2% for the year ended December 31, 2009 compared to 2008. The weaker foreign currencies as compared to the U.S. Dollar had an unfavorable impact on consolidated net sales of approximately $162.0 million or 4.4% for the year ended December 31, 2009 compared to the year ended December 31, 2008.  Further analysis of the changes in sales by segment is presented in the Sales and Operating Earnings by Segment section below.

 

Gross profit decreased for the year ended December 31, 2009 to $797.6 million compared to $1.0 billion for the year ended December 31, 2008, a decrease of 21.3%.  Gross margin decreased in 2009 to 22.0% from 22.6% in 2008.   The decrease in consolidated gross profit was driven by the Crane segment as a result of decreased sales volumes across all regions, increased unabsorbed manufacturing overhead costs and an unfavorable translation effect of foreign currency exchange rate changes.  This decrease was partially offset by higher Foodservice gross profit due to the inclusion of Enodis and various cost reduction initiatives in both segments during 2009. The decrease in gross margin occurred primarily as a result of lower sales volumes in the Crane segment partially offset by higher gross margin in the Foodservice segment due to cost reductions and pricing actions.  In addition, the strength in the U.S. Dollar resulted in a decrease in gross profit of approximately $25.0 million or 3.0% for the year ended December 31, 2009.

 

Engineering, selling and administrative (ES&A) expenses for the year ended December 31, 2009 increased approximately $77.9 million to $529.8 million compared to $451.9 million for the year ended December 31, 2008.  This increase was driven by higher expenses in the Foodservice segment as a result of including the Enodis ES&A expenses but was partially offset by lower Crane segment and Foodservice segment ES&A expenses due to lower employee related costs and other discretionary spending reductions and realization of synergies associated with the Enodis integration.  The strength of the U.S. Dollar resulted in a decrease in ES&A expenses of approximately $17.7 million for the year ended December 31, 2009 compared to the year ended December 31, 2008.

 

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Amortization expense for the year ended December 31, 2009 was $38.4 million compared to $11.4 million for 2008 primarily as a result of the additional intangible assets acquired from Enodis (see further detail related to the intangible assets at Note 3, “Acquisitions”).

 

The company accounts for goodwill and other intangible assets under the guidance of Accounting Standards Codification (“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 are Cranes Americas; Cranes Europe, Middle East, and Africa; Cranes Asia; Crane Care; Foodservice Americas; Foodservice Europe, Middle East, and Africa; and Foodservice Asia.  In January of 2010, the Foodservice Retail reporting unit was merged into the Foodservice Americas reporting unit, which reflected operational and managerial changes.  In its impairment reviews, the company uses 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. For goodwill, 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.

 

The analysis in the second quarter of 2010 did not indicate impairment of goodwill or other intangibles of any reporting unit.

 

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 impairment test for each of the company’s reporting units as of March 31, 2009.  The company re-performed its established method of present-valuing future cash flows, taking into account its 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. These estimates and assumptions primarily include, but are not limited to, projections of revenue growth, operating earnings, discount rates, terminal growth rates, and required working 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 were 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, and therefore, the company proceeded to measure the amount of the potential impairment 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 $146.4 million related to other indefinite-lived intangible assets as of March 31, 2009. Both charges were within the Foodservice segment.  An additional $4.8 million of impairment charges related to Kysor/Warren and thus has been classified in discontinued operations.  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.

 

In June 2009, the company performed its annual impairment analysis relative to goodwill and indefinite-lived intangible assets at June 30, 2009 and based on those results the company determined no additional impairment had occurred subsequent to the impairment charges recorded in the first quarter of 2009.  The company continues 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 is engaged in a number of integration activities associated with the Enodis acquisition.  For the years ended December 31, 2009 and December 31, 2008 integration expenses were $3.6 million and $7.6 million, respectively.  Integration expenses include only costs directly associated with the integration, such as costs related to outside vendors or services, costs of employees who have been assigned full-time to integration activities, and travel-related expenses.

 

During December 2009, the company sold two product lines within its Foodservice segment for aggregate net proceeds of approximately $15.0 million and recognized an aggregate loss on the sale of $3.4 million.  The two product lines that were divested were the company’s Lincoln Smallwares products and most of its Merco product category.  The Smallwares products were sold to The Vollrath Company, L.L.C. and included products such as pots, pans, baking sheets and other cooking implements as well as manual food preparation equipment (e.g., slicers, peelers).  The Merco product category was sold to Hatco Corporation and included food warming equipment, merchandisers, toasters, and racking/dispensing systems.  The company recorded a loss of $3.3 million for the sale of its Smallwares products and a loss of $0.1 million for the sale of its Merco products.

 

Restructuring expenses for the year ended December 31, 2009 totaled $39.6 million which compares to $21.7 million in 2008.  As a result of the continued worldwide decline in Crane segment sales in 2009, the company recorded $29.0 million in restructuring charges as it further reduced the Crane segment cost structure in all regions.  In addition, the Foodservice segment recorded restructuring expenses of $10.6 million during the year ended December 31, 2009 in connection with closing of its Harford-Duracool facility in Aberdeen, Maryland in the

 

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second quarter and its McCall facility in Parsons, Tennessee in the third quarter.  See further detail related to the restructuring expenses at Note 19, “Restructuring.”

 

Interest expenses for the year ended December 31, 2009 totaled $174.0 million versus $51.6 million for the year ended December 31, 2008.  The increase is the result of an additional interest expense related to the $2.4 billion credit agreement which was entered into in order to fund the Enodis acquisition and which was amended and restated as of August 25, 2008 to ultimately increase the size to $2.925 billion (New Credit Agreement) and was drawn upon on November 6, 2008.  See further detail on the New Credit Agreement at Note 11, “Debt.”  Amortization expense for deferred financing fees was $28.8 million for the year ended December 31, 2009 as compared to $2.5 million in 2008.  The higher expense in 2009 is related to the amortization of the fees associated with entering into the New Credit Agreement.

 

The loss on debt extinguishment of $9.2 million for the year ended December 31, 2009 is a result of the accelerated paydown of Term Loan X of $147.9 million by using the proceeds from the sale of the Enodis ice businesses in the second quarter and the accelerated paydown of Term Loan B of $150.0 million and Term Loan X of $33.6 million using cash from operations in the fourth quarter.  For the year ended December 31, 2008, the company made a cash payment of $118.5 million to partially pay down the balance of the Term Loan X from the proceeds of the Marine divestiture and as a result of this payment, the company incurred a charge of $4.1 million.  Both charges were recorded in loss on debt extinguishment in the Consolidated Statements of Operations.

 

During July 2008, the company entered into various hedging transactions (the “hedges”) to comply with the terms of its New Credit Agreement (see further detail related to the New Credit Agreement at Note 11, “Debt”) issued to fund the purchase of Enodis.  The hedges were required to limit the company’s exposure to fluctuations in the underlying Great British Pound (GBP) purchase price of the Enodis shares which could have ultimately required additional funding capacity under the New Credit Agreement.  Subsequent to entering into the hedging transactions, the U.S. Dollar strengthened against the GBP which resulted in a significant change to the fair value of the underlying hedges.   Under the guidance of ASC Topic 815-10, “Derivatives and Hedging,” hedges of a firm commitment to acquire a business do not qualify for hedge accounting (or balance sheet) treatment.  Therefore, the periodic market value changes in these hedges were required to be recognized in the income statement.   For the year ended December 31, 2008, the loss on currency hedges related to the purchase of Enodis was $379.4 million.

 

Other income, net for the year ended December 31, 2009 was $17.1 million versus a loss of $3.0 million for the prior year.  The income in 2009 was primarily the result of foreign currency gains related to transactions between our U.S. and foreign crane facilities and is also partially due to higher interest income.  The loss in 2008 was the result of other foreign currency losses partially offset by interest income.

 

The effective tax rate for the year ended December 31, 2009 was 8.3% as compared to negative 24.1% for the year ended December 31, 2008.  As the company posted a pre-tax loss in 2009, a positive effective tax rate represents a benefit to the consolidated statement of operations.  In 2008 the company posted pre-tax income, for which a negative effective tax rate represents a benefit to the consolidated statement of operations.  The goodwill impairment of $548.8 million in 2009 is not tax deductible and thus had an unfavorable impact to the effective tax rate.  The write-down of the trademarks of $146.4 million had an associated deferred tax liability of $52.0 million which resulted in no impact to the effective tax rate for 2009.  The income tax benefit for the year ended December 31, 2009 was favorably impacted by the reversal of various reserves for uncertain tax positions as discussed in Note 13, “Income Taxes.”

 

During 2009, the company determined that it was more likely than not that the deferred tax assets would not be utilized in several jurisdictions including China, Slovakia, Spain, and the United Kingdom.  Therefore, the company recognized $22.5 million of valuation allowances as income tax expense.  The company generated $97.2 million of net operating loss carryforwards in France during 2009, creating a deferred tax asset of $33.2 million.  Based upon the cyclicality of the company’s Crane business, management analyzes the ability to utilize these deferred tax assets on a seven year cycle, consistent with the Crane business cycles, as this provides the best information to evaluate the future profitability of the business unit.  At December 31, 2009, the company concluded that a valuation allowance against the deferred income tax asset for the carryforward was not required to be recognized.

 

Both the 2009 and 2008 effective tax rates were also favorably affected, as compared to the statutory rate, to varying degrees by certain global tax planning initiatives. The effective tax rate in 2008 was favorably affected by the significant decrease in U.S. pre-tax income resulting from the loss on currency hedges related to the Enodis acquisition, and certain global tax planning initiatives that are not impacted by pre-tax income volatility.

 

The results from discontinued operations were a loss of $34.1 million and a loss of $144.8 million, net of income taxes, for the years ended December 31, 2009 and 2008, respectively.  The 2009 loss relates to the Enodis ice businesses sold on May 15, 2009, the Kysor/Warren business classified as held-for-sale at the end of 2009 and the final completion of closing and tax adjustments on the results of the discontinued operations associated with the disposition of the Marine segment sold on December 31, 2008.  The 2008 loss relates to the

 

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results of operations of the former Marine segment sold on December 31, 2008, the Kysor/Warren business classified as held-for-sale at the end of 2008 and the Enodis ice businesses classified as held-for-sale at the end of 2008, which included a non-cash impairment charge of $175.0 million.  We also realized an after tax loss of $24.2 million on the sale of the Enodis ice businesses and the Marine segment as a result of final settlement of working capital and tax adjustments in 2009.  The gain on the sale of discontinued operations of $53.1 million in 2008 relates to the sale of our former Marine segment.

 

For the year ended December 31, 2009, a net loss attributable to a noncontrolling interest of $2.5 million was recorded in relation to our partially-owned affiliate with the shareholders of Tai’An Dongyue.  There was a net loss of $1.9 million in connection with the partially-owned affiliate for the same period of 2008.  See further detail related to the partially-owned affiliate at Note 3, “Acquisitions.”

 

Sales and Operating Earnings by Segment

 

Operating earnings reported below by segment include the impact of reductions due to restructurings and plant consolidation costs, whereas these expenses were separately identified in the Results of Consolidated Operations table above.

 

Cranes and Related Products Segment

 

 

 

2010

 

2009

 

2008

 

Net sales

 

$

1,748.6

 

$

2,285.0

 

$

3,882.9

 

Operating earnings

 

$

89.8

 

$

145.0

 

$

555.6

 

Operating margin

 

5.1

%

6.4

%

14.3

%

 

Year Ended December 31, 2010 Compared to 2009

 

Crane segment net sales for the year ended December 31, 2010 decreased 23.5% to $1.7 billion versus $2.3 billion for the year ended December 31, 2009.   Net sales for the year ended December 31, 2010 decreased over the prior year in all major geographic regions except Asia and in many product lines.  As of December 31, 2010, total Crane segment backlog was $571.8 million, consistent with the December 31, 2009 backlog of $572.7 million and a 27.8% increase versus the September 30, 2010 backlog of $448.1 million.  The Crane segment backlog increased during the fourth quarter as the trend in new orders, net of cancellations, continued to show improvement beginning late in 2008.

 

For the year ended December 31, 2010, the Crane segment reported operating earnings of $89.8 million compared to $145.0 million for the year ended December 31, 2009.  Operating earnings of the Crane segment were unfavorably affected by lower sales volumes, lower factory absorption and an unfavorable translation effect of foreign currency exchange rate changes partially offset by favorable reductions in ES&A expenses and factory cost reductions.  In addition, the Crane segment benefited from the receipt of a previously reserved receivable of $4.2 million and a net reduction of the year-end inventory excess and obsolete reserve of $5.0 million.  Operating margin for the year ended December 31, 2010 was 5.1% versus 6.4% for the year ended December 31, 2009.  The drop in sales volumes compared to the prior year was the primary contributor to the decline in operating margin in 2010 versus 2009.  This decline was partially offset by lower ES&A expenses of $213.5 million for the year ended December 31, 2010 which was $15.9 million lower than the $229.4 million of ES&A expenses for the year ended December 31, 2009.

 

Throughout 2010, the company continued its restructuring plans to better align the company’s resources with global crane demand and recorded an additional $6.2 million restructuring expense associated with involuntary employee terminations and related costs, primarily in France, which were offset by reversals of excess reserves associated with other previously planned restructurings in Europe of $3.7 million due to improving order rates.  During 2009, as a result of the continued worldwide decline in Crane segment sales, the company recorded $29.0 million in restructuring charges to further reduce the Crane segment cost structure in all regions.

 

Year Ended December 31, 2009 Compared to 2008

 

Crane segment net sales for the year ended December 31, 2009 decreased 41.2% to $2.3 billion versus $3.9 billion for the year ended December 31, 2008.   Net sales for the year ended December 31, 2009 decreased over the prior year in all major geographic regions and in all product lines.  As of December 31, 2009, total Crane segment backlog was $572.7 million, a 70.6% decrease compared to the December 31, 2008 backlog of $1.9 billion and a 14.0% decrease versus the September 30, 2009 backlog of $666.3 million.  The Crane segment backlog stabilized and declined at a much slower pace during the fourth quarter as the trend in new orders, net of cancellations, continued to show improvement since late in 2008.

 

For the year ended December 31, 2009, the Crane segment reported operating earnings of $145.0 million compared to $555.6 million for the year ended December 31, 2008.  Operating earnings of the Crane segment were unfavorably affected by lower sales volumes, lower factory efficiencies and an unfavorable translation effect of foreign currency exchange rate changes partially offset by reductions in ES&A expenses, factory cost reductions and favorable pricing actions.  Operating margin for the year ended December 31, 2009 was 6.4% versus 14.3% for the year ended December 31, 2008.  The steep drop in sales volumes compared to the prior year was the primary contributor to the decline in operating margin in 2009 versus 2008.  This decline was partially offset by lower ES&A expenses of $229.4 million for the

 

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year ended December 31, 2009 which was $69.9 million lower than the $299.3 million of ES&A expenses for the year ended December 31, 2008.

 

In the fourth quarter of 2008, the company committed to a restructuring plan to better align the company’s resources with the global crane demand and recorded a $21.7 million restructuring expense associated with involuntary employee terminations and related costs in France and Portugal.  During 2009, as a result of the continued worldwide decline in Crane segment sales, the company recorded an additional $29.0 million in restructuring charges to further reduce the Crane segment cost structure in all regions.

 

Foodservice Equipment Segment

 

 

 

2010

 

2009

 

2008

 

Net sales

 

$

1,393.1

 

$

1,334.8

 

$

596.3

 

Operating earnings

 

$

202.3

 

$

167.2

 

$

57.8

 

Operating margin

 

14.5

%

12.5

%

9.7

%

 

Year Ended December 31, 2010 Compared to 2009

 

Foodservice segment net sales increased 4.4% or $58.3 million to $1.4 billion for the year ended December 31, 2010 compared to $1.3 billion for the year ended December 31, 2009.  The sales increase during 2010 was driven by new product introductions and increases in market share in the Americas and APAC regions. This revenue increase was also partially due to the positive impact of a weaker U.S. Dollar relative to the Euro and British Pound currencies of approximately $6.6 million.

 

For the year ended December 31, 2010, the Foodservice segment reported operating earnings of $202.3 million compared to $167.2 million for the year ended December 31, 2009.  The 2010 operating margin increased to 14.5% from 12.5% in 2009 primarily due to volume increases and the realization of synergies from the integration of the businesses acquired in connection with the Enodis acquisition which were only partially offset by employee and material cost increases.

 

Year Ended December 31, 2009 Compared to 2008

 

Foodservice segment net sales increased 123.8% or $738.5 million to $1.3 billion for the year ended December 31, 2009 compared to $596.3 million for the year ended December 31, 2008.  The sales increase during 2009 was driven by $1.0 billion in net sales during 2009 from the businesses acquired in connection with the Enodis acquisition versus $155.3 million from the same businesses for the last two months of 2008 as a result of the Enodis acquisition at the end of October 2008.  Excluding the sales from the businesses acquired in connection with the Enodis acquisition, sales would have decreased by 24.1% for the year ended December 31, 2009 compared to the same period in 2008.  This revenue decline was also partially due to the negative impact of a stronger U.S. Dollar relative to the Euro and British Pound currencies of approximately $43.8 million.

 

For the year ended December 31, 2009, the Foodservice segment reported operating earnings of $167.2 million compared to $57.8 million for the year ended December 31, 2008.   The operating earnings increase was driven by the inclusion of $115.7 million during 2009 from the businesses acquired in connection with the Enodis acquisition versus the operating earnings loss of $2.7 million from the same businesses during the last two months of 2008.  Operating earnings in 2009 for the legacy Manitowoc Foodservice businesses, as compared to 2008, were lower by $9.7 million.

 

General Corporate Expenses

 

 

 

2010

 

2009

 

2008

 

Net sales

 

$

3,141.7

 

$

3,619.8

 

$

4,479.2

 

Corporate expenses

 

$

41.2

 

$

44.4

 

$

51.7

 

% of Net sales

 

1.3

%

1.2

%

1.2

%

 

Year Ended December 31, 2010 Compared to 2009

 

Corporate expenses decreased $3.3 million to $41.2 million in 2010 compared to $44.4 million in 2009.  The decrease was primarily due to lower employee related costs and the continued reduction of professional expenses.

 

Year Ended December 31, 2009 Compared to 2008

 

Corporate expenses decreased $7.3 million to $44.4 million in 2009 compared to $51.7 million in 2008.  The decrease was primarily due to lower employee related costs, health care costs, and the reduction of professional expenses.

 

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Market Conditions and Outlook

 

In 2011, we plan to continue to strengthen our two business segments: Cranes and Related Products and Foodservice Equipment.   We move into 2011 with a highly skilled and talented workforce, complemented by formidable competitive positions in our industries.  We will also continue to optimize our diverse global manufacturing base and invest in rapidly growing emerging markets.  Although the early signs of improving global economies are bolstering our outlook, we remain cautious in our outlook for 2011 and we believe we are prepared to adjust to the trends in our end markets.  We believe that we have demonstrated that we can quickly adapt to a changing economy, and have shown flexibility as well as iniative in managing through the cyclicality of our Crane markets, which should position our company for future growth opportunities as our end markets recover.

 

Looking ahead to 2011, we expect Foodservice segment revenues and operating margins to improve modestly in the high single digit range.  We also expect Crane segment revenues to exhibit year-over-year low double digit growth.  Additionally, we anticipate that operating margins in our Crane segment will improve over what we believe to be the trough levels of 2010.  Other financial expectations include capital expenditures of approximately $70 million, depreciation and amortization of approximately $125 million and a debt reduction target of $200 million.

 

Cranes and Related Products - Our Crane segment is beginning to see signs of recovery in crane demand especially in emerging markets in Asia, Latin America, and the Middle East.  In addition, in December 2010, we saw signs of demand improvement in some mature markets such as Germany, France and Australia.  As a result, our year-end backlog increased to $571.8 million in December 2010 from $448.1 million in September 2010.

 

We have taken advantage of the recession to increase our efforts in innovation and to implement our product and manufacturing improvements globally.  We are expanding Lean Six Sigma concepts in all manufacturing locations worldwide, and have implemented several initiatives to further improve our efforts in product reliability and customer satisfaction.  We have also initiated a worldwide supplier development program to help reduce costs and improve quality.  Our partnership efforts with a variety of suppliers to produce and source operator cabs and boom channel fabrications are good examples of this collaboration.

 

Looking ahead, we see opportunities driven by major global trends, such as the need for improving infrastructure as well as energy and power generation. This includes significant growth in wind-energy projects in many parts of the world.  We enjoy a strong position in these industries in both the mature and emerging markets.  We also continue to see demand for our industry leading product support services.  Our Crane Care business is not only a key differentiator for us, but it is also especially important to our customers as the market rebounds to ensure uptime availablity.

 

Forecasting is extremely challenging due to mixed views from nearly every trade association and industry economist that we follow.  For example, the Association of Equipment Manufacturers believes that the U.S. construction machinery business will increase 12.7% in 2011.  However, the Consensus Construction Forecast is estimating that the U.S. construction industry for 2011 will only increase by 2%.  From an international perspective, Global Insight, a provider of global economic and financial analysis, forecasting and market intelligence, believes the world’s total construction will grow by 3.3% in 2011.

 

In light of these differing forecasts, we are maintaining as much operational flexibility as possible.  This includes tight controls on inventory, ES&A expenses and manufacturing costs, and a clear focus on earnings and cash.  We believe that we will continue to generate positive free cash flows.  For 2011, our top five priorities in our Crane segment are the following: continuing to build on our strong market share position in emerging markets through developing our distribution network in Latin America, India and China; maintaining our global efforts on innovation and product development; continued emphasis on all aspects of quality in order to exceed our customers’ expectations; maintaining a balance between lean inventory and being able to respond to the short lead-time expectations of our customers; and finally, leveraging our large installed base to maximize aftermarket revenue opportunities.

 

From a longer-term perspective, we believe we are among the world’s leading sources of lifting solutions, with what we believe to be the most recognized brands and the broadest manufacturing and support footprint in the industry.  Globally, we expect a sustained demand for modern infrastructure and energy, and we are well-positioned to support these end markets anywhere in the world.  We have a resilient business, with loyal customers and a large installed base complemented by the best and most experienced workforce in the industry.  As a result, we expect to not only weather the current downturn, but at the same time to be ready for the next up-cycle as growth returns to the world’s economies.

 

Foodservice Equipment - Our Foodservice segment entered 2011 in a strong position.  With the intergration of Enodis substantially complete, we are a leading player in the global foodservice equipment industry.  Our customers include many of the fastest-growing and most-innovative foodservice companies in the world.  They come to us for innovations that allow them to improve their menus, enhance their operations and reduce their costs.  We serve customers in more than 100 countries and we will continue to expand and support our customers wherever they grow.  Our integrated manufacturing operations, service sites and sales offices work together to assist customers worldwide,

 

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whether these customers are local businesses or global companies.

 

While we are focused on maximizing costs savings, we are also continuing to invest in people, products and processes.  Following our successful launch of a new beverage product in 2010, we anticipate rolling out an extension of that product with a number of our customers in 2011.  We have also launched numerous energy saving and sustainability initiatives in Foodservice to help our customers.  Because we can help our customers operate more profitably and deliver innovative food product solutions we believe they are willing to invest in our products, even during recessionary economic conditions.

 

The National Restaurant Association, forecasts that 2011 could be a record year as U.S. restaurant industry sales are projected to increase 3.6%  to $604 billion.  Despite three consecutive years of unprecedented contraction from 2008 to 2010, restaurant operators are increasing their investments in new menu items, new locations, remodeling programs, and sustainability initiatives.  Such investments, while still cautious, create opportunities for additional and innovative kitchen equipment that enhance operator profitability.

 

The 2011 U.S. National Restaurant Association recently reported that approximately 40% of all restaurant operators plan to make capital expenditures related to energy efficiency in 2011.  In addition, over 80% of restaurant operators intend to add a new food item and nearly 70% plan to add a new beverage item in 2011.

 

Our strong position in these categories gives us significant opportunities to grow along with our customers.  Not only do we aim to be their supplier of choice, but also their innovator of choice.  Our customers are constantly looking for ways to innovate their menus, and we are at the forefront of that innovation.  In 2010, we were named ENERGY STAR Partner of the Year by the United States Environmental Protection Agency, showcasing our commitment to energy conservation and operating efficiency.  Additionally, Manitowoc Beverage Systems, Multiplex, and Merrychef received Kitchen Innovation Awards from the National Restaurant Association in 2010, while Cleveland, Delfield, Frymaster, and Manitowoc Ice were recognized as Best In Class by Foodservice Equipment and Supplies magazine in their respective categories.   This marks the tenth straight year of Best in Class awards for Manitowoc Ice, Frymaster and Delfield.

 

Finally, our Foodservice equipment brands are well-positioned leaders that span virtually all major commercial foodservice equipment categories. Our team is remarkably passionate about the combined businesses and the opportunities that our market position and global capabilities provide us.  For 2011, our priority is to continue the work of integrating our Foodservice equipment organization, realizing synergies from the combination, and to continue to build an industry-leading business for the long-term.

 

Liquidity and Capital Resources

 

Cash flow from operations during 2010 was $209.3 million compared to $339.6 million in 2009.  We applied a portion of this cash flow in 2010 to capital spending and dividends with the majority of this cash flow used to repay debt.  We had $86.4 million in cash and cash equivalents on-hand at December 31, 2010 versus $106.3 million on-hand at December 31, 2009.

 

Cash flow from operating activities during 2010 was primarily driven by working capital improvements.  The primary contributors to the reductions in working capital were a decrease in accounts receivable levels of $17.0 million and an increase in accounts payable of $46.6 million.  Partially offsetting these favorable reductions were reductions in restructuring reserves of $27.3 million.  The decreases in receivable levels is related to the lower sales of our Crane products while the decrease in restructuring reserves is attributable to cash spending for the restructuring projects. The increase in accounts payable is due to timing of payments.

 

Cash flows used for investing activities of $24.9 million in 2010 consisted primarily of cash used for capital expenditures of $36.1 million for maintenance capital expenditures and new product development in the Crane and Foodservice segments, offset by proceeds from the sale of property and equipment.

 

Cash flows used for financing activities consisted primarily of the net paydown of debt in 2010 of $163.6 million, debt issuance costs of $27.0 million and the payment of dividends of $10.6 million.

 

The company’s current senior credit facility (as amended to date, the “Senior Credit Facility”) became effective November 6, 2008 and initially included four loan facilities — a revolving facility of $400.0 million with a five-year term, which may be used for working capital requirements, capital expenditures, funding future acquisitions, and other investing and financing needs, 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 balance of Term Loan X was repaid in 2009.     Including interest rate swaps at December 31, 2010, the weighted average interest rates for the Term Loan A and the Term Loan B loans were 6.75% and 8.66%, respectively.  Excluding interest rate swaps, Term Loan A and Term Loan B interest rates were 5.31% and 8.00% respectively, at December 31, 2010.

 

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The Senior Credit Facility, as amended to date, contains financial covenants including (a) a Consolidated Interest Coverage Ratio, which measures the ratio of (i) consolidated earnings before interest, taxes, depreciation and amortization, and other adjustments (EBITDA), as defined in the credit agreement to (ii) consolidated cash interest expense, each for the most recent four fiscal quarters, and (b) Consolidated Senior Secured Indebtedness Ratio, which measure the ratio of (i) consolidated senior secured indebtedness to (ii) consolidated EBITDA for the most recent four fiscal quarters.  The current covenant levels of the financial covenants under the Senior Credit Facility are as set forth below:

 

Fiscal Quarter Ending

 

Consolidated
Senior Secured
Indebtedness
Ratio

 

Consolidated Interest
Coverage Ratio

 

 

 

(less than)

 

(greater than)