MANITOWOC CO INC, 10-K filed on 3/1/2011
Annual Report
Consolidated Statements of Operations (USD $)
In Millions, except Per Share data
Year Ended
Dec. 31,
2010
2009
2008
Operations
 
 
 
Net sales
$ 3,142 
$ 3,620 
$ 4,479 
Costs and expenses:
 
 
 
Cost of sales
2,376 
2,822 
3,466 
Engineering, selling and administrative expenses
515 
530 
452 
Amortization expense
38 
38 
11 
Goodwill impairment
 
549 
 
Intangible asset impairment
 
146 
 
Integration expense
 
Loss on disposition of property
 
Restructuring expense
40 
22 
Other expenses
 
 
Total costs and expenses
2,935 
4,132 
3,958 
Operating earnings (loss) from continuing operations
207 
(512)
521 
Other income (expenses):
 
 
 
Interest expense
(175)
(174)
(52)
Amortization of deferred financing fees
(22)
(29)
(3)
Loss on debt extinguishment
(44)
(9)
(4)
Loss on purchase price hedges
 
 
(379)
Other income (expense)-net
(10)
17 
(3)
Total other income (expenses)
(251)
(195)
(441)
Earnings (loss) from continuing operations before taxes on earnings
(45)
(707)
80 
Provision (benefit) for taxes on earnings
24 
(59)
(19)
Earnings (loss) from continuing operations
(69)
(648)
100 
Discontinued operations:
 
 
 
Earnings (loss) from discontinued operations, net of income taxes of $2.0, $(3.1) and $(15.8), respectively
(8)
(34)
(145)
Gain (loss) on sale of discontinued operations, net of income taxes of $0.0, $(15.0) and $(17.4), respectively
 
(24)
53 
Net earnings (loss)
(76)
(707)
Less: Net loss attributable to noncontrolling interest, net of tax
(3)
(3)
(2)
Net (loss) earnings attributable to Manitowoc
(73)
(704)
10 
Amounts attributable to the Manitowoc common shareholders:
 
 
 
Earnings (loss) from continuing operations
(66)
(646)
102 
Earnings (loss) from discontinued operations, net of income taxes
(8)
(34)
(145)
Gain (loss) on sale of discontinued operations, net of income taxes
 
(24)
53 
Net (loss) earnings attributable to Manitowoc
(73)
(704)
10 
Basic earnings (loss) per common share:
 
 
 
Earnings (loss) from continuing operations attributable to Manitowoc common shareholders (in dollars per share)
(0.50)
(4.96)
0.78 
Earnings (loss) from discontinued operations attributable to Manitowoc common shareholders (in dollars per share)
(0.06)
(0.26)
(1.11)
Gain (loss) on sale of discontinued operations, net of income taxes (in dollars per share)
 
(0.19)
0.41 
Earnings (loss) per share attributable to Manitowoc common shareholders (in dollars per share)
(0.56)
(5.41)
0.08 
Diluted earnings (loss) per common share:
 
 
 
Earnings (loss) from continuing operations attributable to Manitowoc common shareholders (in dollars per share)
(0.50)
(4.96)
0.77 
Earnings (loss) from discontinued operations attributable to Manitowoc common shareholders (in dollars per share)
(0.06)
(0.26)
(1.10)
Gain (loss) on sale of discontinued operations, net of income taxes (in dollars per share)
 
(0.19)
0.40 
Earnings (loss) per share attributable to Manitowoc common shareholders (in dollars per share)
$ (0.56)
$ (5.41)
$ 0.08 
Consolidated Statements of Operations (Parenthetical) (USD $)
In Millions
Year Ended
Dec. 31,
2010
2009
2008
Consolidated Statements of Operations
 
 
 
Earnings (loss) from discontinued operations, income taxes
$ 2 
$ (3)
$ (16)
Gain (loss) on sale of discontinued operations, income taxes
$ 0 
$ (15)
$ (17)
Consolidated Balance Sheets (USD $)
In Millions
Year Ended
Dec. 31,
2010
2009
Current Assets:
 
 
Cash and cash equivalents
$ 84 
$ 104 
Marketable securities
Restricted cash
Accounts receivable, less allowances of $27.6 and $46.4, respectively
255 
295 
Inventories - net
557 
581 
Deferred income taxes
131 
142 
Other current assets
58 
84 
Current assets of discontinued operation
64 
45 
Total current assets
1,161 
1,260 
Property, plant and equipment - net
566 
641 
Goodwill
1,173 
1,176 
Other intangible assets - net
894 
927 
Other non-current assets
93 
141 
Long-term assets of discontinued operation
124 
134 
Total assets
4,009 
4,279 
Current Liabilities:
 
 
Accounts payable and accrued expenses
776 
782 
Short-term borrowings
62 
145 
Product warranties
87 
96 
Customer advances
49 
71 
Product liabilities
28 
28 
Current liabilities of discontinued operation
24 
20 
Total current liabilities
1,026 
1,142 
Non-Current Liabilities:
 
 
Long-term debt
1,936 
2,028 
Deferred income taxes
213 
196 
Pension obligations
64 
47 
Postretirement health and other benefit obligations
60 
59 
Long-term deferred revenue
28 
32 
Other non-current liabilities
186 
149 
Long-term liabilities of discontinued operation
19 
19 
Total non-current liabilities
2,505 
2,529 
Commitments and contingencies (Note 17)
 
 
Total Equity:
 
 
Common stock (300,000,000 shares authorized, 163,175,928 shares issued, 131,388,472 and 130,708,124 shares outstanding, respectively)
Additional paid-in capital
454 
444 
Accumulated other comprehensive income
10 
62 
Retained earnings
105 
189 
Treasury stock, at cost (31,787,456 and 32,467,804 shares, respectively)
(88)
(88)
Total Manitowoc stockholders' equity
482 
608 
Noncontrolling interest
(3)
(1)
Total equity
479 
607 
Total liabilities and equity
$ 4,009 
$ 4,279 
Consolidated Balance Sheets (Parenthetical) (USD $)
In Millions, except Share data
Dec. 31, 2010
Dec. 31, 2009
Consolidated Balance Sheets
 
 
Allowance for accounts receivable (in dollars)
$ 28 
$ 46 
Common stock, shares authorized
300,000,000 
300,000,000 
Common stock, shares issued
163,175,928 
163,175,928 
Common stock, shares outstanding
131,388,472 
130,708,124 
Treasury stock, shares
31,787,456 
32,467,804 
Consolidated Statements of Cash Flows (USD $)
In Millions
Year Ended
Dec. 31,
2010
2009
2008
Cash Flows From Operations
 
 
 
Net earnings (loss)
$ (76)
$ (707)
$ 8 
Adjustments to reconcile net earnings to cash provided by operating activities of continuing operations:
 
 
 
Discontinued operations, net of income taxes
34 
145 
Asset impairments
 
695 
 
Loss from disposition of property
 
Depreciation
87 
88 
80 
Amortization of intangible assets
38 
38 
11 
Amortization of deferred financing fees
22 
29 
Deferred income taxes
27 
(92)
(2)
Loss on purchase price hedges
 
 
379 
Restructuring expense
40 
22 
Gain on sale of segment
 
 
(53)
Loss on early extinguishment of debt
44 
Loss (gain) on sale of property, plant and equipment
(3)
(4)
Loss on sale of discontinued operations
 
24 
 
Other
Changes in operating assets and liabilities, excluding the effects of business acquisitions or dispositions:
 
 
 
Accounts receivable
17 
297 
(27)
Inventories
349 
(183)
Other assets
26 
(46)
Accounts payable
47 
(311)
36 
Accrued expenses and other liabilities
(47)
(172)
(96)
Net cash provided by operating activities of continuing operations
203 
337 
284 
Net cash provided by (used for) operating activities of discontinued operations
22 
Net cash provided by operating activities
209 
340 
306 
Cash Flows From Investing
 
 
 
Capital expenditures
(36)
(69)
(150)
Proceeds from sale of property, plant and equipment
19 
10 
Restricted cash
(3)
(1)
12 
Business acquisitions, net of cash acquired
(5)
 
(2,031)
Settlement of hedges related to acquisition
 
 
(379)
Proceeds from sale of business
 
149 
119 
Proceeds from sale of parts or product lines
15 
 
Purchase of marketable securities
 
 
(0)
Net cash provided by (used for) investing activities of continuing operations
(21)
98 
(2,420)
Net cash used for investing activities of discontinued operations
(4)
(3)
(5)
Net cash provided by (used for) investing activities
(25)
95 
(2,425)
Cash Flows From Financing
 
 
 
Payments on long-term debt
(1,251)
(594)
(694)
Proceeds from long-term debt
1,063 
136 
2,769 
Proceeds from (payments on) revolving credit facility-net
24 
(17)
(55)
Proceeds from securitization facility
101 
 
 
(Payments on) securitization facility
(101)
 
 
Payments on notes financing - net
(4)
(5)
(4)
Debt issuance costs
(27)
(18)
(91)
Dividends paid
(11)
(11)
(10)
Exercises of stock options including windfall tax benefits
Net cash provided by (used for) financing activities of continuing operations
(204)
(507)
1,924 
Net cash provided by financing activities of discontinued operations
 
 
Net cash provided by (used for) financing activities
(204)
(507)
1,927 
Effect of exchange rate changes on cash
 
(5)
Net increase (decrease) in cash and cash equivalents
(20)
(66)
(197)
Balance at beginning of year
104 
170 
367 
Balance at end of year
84 
104 
170 
Supplemental Cash Flow Information
 
 
 
Interest paid
151 
154 
24 
Income taxes paid (refunded)
$ (40)
$ (46)
$ 143 
Consolidated Statements of Equity and Comprehensive Income
In Millions, except Share data
Equity attributable to Manitowoc shareholders
Common Stock
Additional Paid-in Capital
Accumulated Other Comprehensive Income
Retained Earnings
Treasury Stock
Noncontrolling Interest
Comprehensive Income
Total
Balance at Dec. 31, 2007
1,321 
420 
115 
904 
(90)
 
 
 
Balance (in shares) at Dec. 31, 2007
 
129,880,734 
 
 
 
 
 
 
 
Increase (Decrease) in Stockholders' Equity
 
 
 
 
 
 
 
 
 
Stock options exercised
 
 
 
 
 
 
 
Stock options exercised (in shares)
 
485,168 
 
 
 
 
 
 
 
Stock swap for stock options exercised (in shares)
 
(15,048)
 
 
 
 
 
 
 
Restricted stock expense
 
 
 
 
 
 
 
 
Restricted stock expense (in shares)
 
8,700 
 
 
 
 
 
 
 
Windfall tax benefit on stock options exercised
 
 
 
 
 
 
 
 
Stock option expense
 
 
 
 
 
 
 
 
Cash dividends
 
 
 
 
(10)
 
 
 
 
Acquisitions
 
 
 
 
 
 
 
 
Net earnings (loss)
 
 
 
 
10 
 
 
Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
 
 
 
(30)
 
 
(0)
(30)
 
Derivative instrument fair market adjustment, net of income taxes of $(3.3), $1.8 and $(4.0)
 
 
 
(7)
 
 
 
(7)
 
Employee pension and postretirement benefits, net of income taxes of $(6.7), $(10.3) and $(4.9)
 
 
 
(9)
 
 
 
(9)
 
Total comprehensive income (loss)
 
 
 
 
 
 
 
(38)
 
Comprehensive loss attributable to noncontrolling interest
 
 
 
 
 
 
(2)
(2)
 
Comprehensive income (loss) attributable to Manitowoc
 
 
 
 
 
 
 
(36)
 
Balance at Dec. 31, 2008
1,321 
436 
69 
903 
(89)
 
1,322 
Balance (in shares) at Dec. 31, 2008
 
130,359,554 
 
 
 
 
 
 
 
Increase (Decrease) in Stockholders' Equity
 
 
 
 
 
 
 
 
 
Stock options exercised
 
 
 
 
 
 
 
Stock options exercised (in shares)
 
169,270 
 
 
 
 
 
 
 
Restricted stock expense
 
 
 
 
 
 
 
 
Restricted stock expense (in shares)
 
179,300 
 
 
 
 
 
 
 
Windfall tax benefit on stock options exercised
 
 
 
 
 
 
 
 
Stock option expense
 
 
 
 
 
 
 
 
Cash dividends
 
 
 
 
(11)
 
 
 
 
Net earnings (loss)
 
 
 
 
(704)
 
 
(707)
(707)
Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
 
 
 
 
 
 
(0)
 
Derivative instrument fair market adjustment, net of income taxes of $(3.3), $1.8 and $(4.0)
 
 
 
 
 
 
 
Employee pension and postretirement benefits, net of income taxes of $(6.7), $(10.3) and $(4.9)
 
 
 
(19)
 
 
 
(10)
 
Total comprehensive income (loss)
 
 
 
 
 
 
 
(713)
 
Comprehensive loss attributable to noncontrolling interest
 
 
 
 
 
 
(3)
(3)
 
Comprehensive income (loss) attributable to Manitowoc
 
 
 
 
 
 
 
(711)
 
Balance at Dec. 31, 2009
 
444 
62 
189 
(88)
(1)
 
607 
Balance (in shares) at Dec. 31, 2009
 
130,708,124 
 
 
 
 
 
 
 
Increase (Decrease) in Stockholders' Equity
 
 
 
 
 
 
 
 
 
Stock options exercised
 
 
 
 
 
 
 
Stock options exercised (in shares)
 
166,718 
 
 
 
 
 
 
 
Restricted stock expense
 
 
 
 
 
 
 
 
Restricted stock expense (in shares)
 
513,630 
 
 
 
 
 
 
 
Windfall tax benefit on stock options exercised
 
 
(0)
 
 
 
 
 
 
Stock option expense
 
 
 
 
 
 
 
 
Cash dividends
 
 
 
 
(11)
 
 
 
 
Net earnings (loss)
 
 
 
 
(73)
 
 
(76)
(76)
Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
 
 
 
(33)
 
 
 
(33)
 
Derivative instrument fair market adjustment, net of income taxes of $(3.3), $1.8 and $(4.0)
 
 
 
(6)
 
 
 
(6)
 
Employee pension and postretirement benefits, net of income taxes of $(6.7), $(10.3) and $(4.9)
 
 
 
(12)
 
 
 
(12)
 
Total comprehensive income (loss)
 
 
 
 
 
 
 
(128)
 
Comprehensive loss attributable to noncontrolling interest
 
 
 
 
 
 
(3)
(3)
 
Comprehensive income (loss) attributable to Manitowoc
 
 
 
 
 
 
 
(125)
 
Balance at Dec. 31, 2010
482 
454 
10 
105 
(88)
(3)
 
479 
Balance (in shares) at Dec. 31, 2010
 
131,388,472 
 
 
 
 
 
 
 
Consolidated Statements of Equity and Comprehensive Income (Parenthetical) (USD $)
In Millions
Year Ended
Dec. 31,
2010
2009
2008
Consolidated Statements of Equity and Comprehensive Income
 
 
 
Derivative instrument fair market adjustment, income taxes
$ (3)
$ 2 
$ (4)
Employee pension and postretirement benefits, income taxes
$ (7)
$ (10)
$ (5)
Company and Basis of Presentation
Company and Basis of Presentation

1. Company and Basis of Presentation

 

Company Founded in 1902, The Manitowoc Company, Inc. and its subsidiaries (collectively referred to as “we” or the “company” or Manitowoc) is a multi-industry, capital goods manufacturer in two principal markets: Cranes and Related Products (Crane) and Foodservice Equipment (Foodservice).

 

The Crane business is a global provider of engineered lift solutions which designs, manufactures and markets a comprehensive line of lattice-boom crawler cranes, mobile telescopic cranes, tower cranes, and boom trucks.  The Crane products are principally marketed under the Manitowoc, Grove, Potain, and National brand names and are used in a wide variety of applications, including energy, petrochemical and industrial projects, infrastructure development such as road, bridge and airport construction and commercial and high-rise residential construction.  Our crane-related product support services are principally marketed under the Crane Care brand name and include maintenance and repair services and parts supply.

 

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 manufacturers of frozen, medium temperature and heated display merchandisers, mechanical refrigeration systems and remote mechanical and electrical 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, 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.

 

On December 31, 2008, the company completed the sale of its Marine segment to Fincantieri Marine Group Holdings Inc., a subsidiary of Fincantieri — Cantieri Navali Italiani SpA.  The sale price in the all-cash deal was approximately $120 million.  The results of the Marine segment have been classified as a discontinued operation.

 

On October 27, 2008, the company completed its acquisition of Enodis plc (Enodis), a global leader in the design and manufacture of innovative equipment for the commercial foodservice industry.  This acquisition, the largest acquisition for the company, has established the company among the world’s top 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 equip entire commercial kitchens and serve the world’s growing demand for food prepared away from the home.

 

Basis of Presentation The consolidated financial statements include the accounts of The Manitowoc Company, Inc. and its wholly and majority-owned subsidiaries.  All significant intercompany balances and transactions have been eliminated.  The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from these estimates.

 

Certain prior period amounts have been reclassified to conform to the current period presentation. The results of the Kysor/Warren and Kysor/Warren de Mexico businesses have been classified as discontinued operations in all periods presented.

 

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 and 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.

 

Summary of Significant Accounting Policies
Summary of Significant Accounting Policies

2. Summary of Significant Accounting Policies

 

Cash Equivalents, Restricted Cash and Marketable Securities All short-term investments purchased with an original maturity of three months or less are considered cash equivalents.  Marketable securities at December 31, 2010 and 2009 are recorded at fair value and include securities which are considered “available for sale.”  The difference between fair market value and cost of these investments was not significant for either year.  Restricted cash represents cash in escrow funds related to the security for foreign credit commitments, indemnity agreements for insurance providers as well as funds held in escrow to support certain international cash pooling programs.

 

Inventories Inventories are valued at the lower of cost or market value.  Approximately 87% and 90% of the company’s inventories at December 31, 2010 and 2009, respectively, were valued using the first-in, first-out (FIFO) method.  The remaining inventories were valued using the last-in, first-out (LIFO) method.  If the FIFO inventory valuation method had been used exclusively, inventories would have increased by $31.0 million and $32.4 million at December 31, 2010 and 2009, respectively.  Finished goods and work-in-process inventories include material, labor and manufacturing overhead costs.

 

Goodwill and Other Intangible Assets The company accounts for its goodwill and other intangible assets under the guidance of ASC Topic 350-10, “Intangibles — Goodwill and Other.”  Under ASC Topic 350-10, goodwill is not amortized, but it is tested for impairment annually, or more frequently, as events dictate.  See additional discussion of impairment testing under “Impairment of Long-Lived Assets,” below.  The company’s other intangible assets with indefinite lives, including trademarks and tradenames and in-place distributor networks, are not amortized, but are also tested for impairment annually, or more frequently, as events dictate.  The company’s other intangible assets subject to amortization are tested for impairment whenever events or changes in circumstances indicate that their carrying values may not be recoverable.  Other intangible assets are amortized over the following estimated useful lives:

 

 

 

Useful lives

 

Patents

 

10-20 years

 

Engineering drawings

 

15 years

 

Customer relationships

 

10-20 years

 

 

Property, Plant and Equipment Property, plant and equipment are stated at cost.  Expenditures for maintenance, repairs and minor renewals are charged against earnings as incurred.  Expenditures for major renewals and improvements that substantially extend the capacity or useful life of an asset are capitalized and are then depreciated.  The cost and accumulated depreciation for property, plant and equipment sold, retired, or otherwise disposed of are relieved from the accounts, and resulting gains or losses are reflected in earnings.  Property, plant and equipment are depreciated over the estimated useful lives of the assets using the straight-line depreciation method for financial reporting and on accelerated methods for income tax purposes.

 

Property, plant and equipment are depreciated over the following estimated useful lives:

 

 

 

Years

 

Building and improvements

 

2 - 40

 

Machinery, equipment and tooling

 

2 - 20

 

Furniture and fixtures

 

5 - 20

 

Computer hardware and software

 

2 - 5

 

 

Property, plant and equipment also include cranes accounted for as operating leases.  Equipment accounted for as operating leases includes equipment leased directly to the customer and equipment for which the company has assisted in the financing arrangement whereby it has guaranteed more than insignificant residual value or made a buyback commitment.  Equipment that is leased directly to the customer is accounted for as an operating lease with the related assets capitalized and depreciated over their estimated economic life.  Equipment involved in a financing arrangement is depreciated over the life of the underlying arrangement so that the net book value at the end of the period equals the buyback amount or the residual value amount.  The amount of rental equipment included in property, plant and equipment amounted to $58.9 million and $89.9 million, net of accumulated depreciation, at December 31, 2010 and 2009, respectively.

 

Impairment of Long-Lived Assets The company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the assets carrying amount may not be recoverable.  The company conducts its long-lived asset impairment analyses in accordance with ASC Topic 360-10-5.  ASC Topic 360-10-5 requires the company to group assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities and to evaluate the asset group against the sum of the undiscounted future cash flows.

 

For property, plant and equipment and other long-lived assets, other than goodwill and other indefinite lived intangible assets, the company performs undiscounted operating cash flow analyses to determine impairments.  If an impairment is determined to exist, any related impairment loss is calculated based upon comparison of the fair value to the net book value of the assets.  Impairment losses on assets held for sale are based on the estimated proceeds to be received, less costs to sell.

 

Each year, in its second quarter, the company tests for impairment of goodwill according to a two-step approach.  In the first step, the company estimates the fair values of its reporting units using the present value of future cash flows approach, subject to a comparison for reasonableness to its market capitalization at the date of valuation.  If the carrying amount exceeds the fair value, the second step of the goodwill impairment test is performed to measure the amount of the impairment loss, if any.  In the second step the implied fair value of the goodwill is estimated as the fair value of the reporting unit used in the first step less the fair values of all other net tangible and intangible assets of the reporting unit.  If the carrying amount of the goodwill exceeds its implied fair market value, an impairment loss is recognized in an amount equal to that excess, not to exceed the carrying amount of the goodwill.  In addition, goodwill of a reporting unit is tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value.  For other indefinite lived intangible assets, the impairment test consists of a comparison of the fair value of the intangible assets to their carrying amount.  See Note 9, “Goodwill and Other Intangible Assets” for further details of our impairment assessments.

 

Warranties Estimated warranty costs are recorded in cost of sales at the time of sale of the warranted products based on historical warranty experience for the related product or estimates of projected costs due to specific warranty issues on new products.  These estimates are reviewed periodically and are adjusted based on changes in facts, circumstances or actual experience.

 

Environmental Liabilities The company accrues for losses associated with environmental remediation obligations when such losses are probable and reasonably estimable.  Such accruals are adjusted as information develops or circumstances change.  Costs of long-term expenditures for environmental remediation obligations are discounted to their present value when the timing of cash flows are estimable.

 

Product Liabilities The company records product liability reserves for its self-insured portion of any pending or threatened product liability actions.  The reserve is based upon two estimates.  First, the company tracks the population of all outstanding pending and threatened product liability cases to determine an appropriate case reserve for each based upon the company’s best judgment and the advice of legal counsel.  These estimates are continually evaluated and adjusted based upon changes to facts and circumstances surrounding the case.  Second, the company determines the amount of additional reserve required to cover incurred but not reported product liability issues and to account for possible adverse development of the established case reserves (collectively referred to as IBNR).  This IBNR analysis is performed at least twice annually.

 

Foreign Currency Translation The financial statements of the company’s non-U.S. subsidiaries are translated using the current exchange rate for assets and liabilities and the average exchange rate for the year for income and expense items.  Resulting translation adjustments are recorded to Accumulated Other Comprehensive Income (AOCI) as a component of Manitowoc stockholders’ equity.

 

Derivative Financial Instruments and Hedging Activities The company has written policies and procedures that place all financial instruments under the direction of corporate treasury and restrict all derivative transactions to those intended for hedging purposes.  The use of financial instruments for trading purposes is strictly prohibited.  The company uses financial instruments to manage the market risk from changes in foreign exchange rates, commodities and interest rates.  The company follows the guidance in accordance with ASC Topic 815-10, “Derivatives and Hedging.”  The fair values of all derivatives are recorded in the Consolidated Balance Sheets.  The change in a derivative’s fair value is recorded each period in current earnings or AOCI depending on whether the derivative is designated and qualifies as part of a hedge transaction and if so, the type of hedge transaction.

 

For the year ended December 31, 2008, a $379.4 million hedge loss was recognized in operating earnings related to hedging transactions entered into to hedge the Great British Pound (GBP) purchase price of Enodis.  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 are required to go through the income statement.  During 2010, 2009 and 2008, minimal amounts were recognized in earnings due to ineffectiveness of certain commodity hedges.  The amount reported as derivative instrument fair market value adjustment in the AOCI account within Manitowoc stockholders’ equity represents the net gain (loss) on foreign exchange currency exchange contracts, interest rate swaps and commodity contracts designated as cash flow hedges, net of income taxes at the balance sheet date.

 

Cash Flow Hedge The company selectively hedges anticipated transactions that are subject to foreign exchange exposure, commodity price exposure, or variable interest rate exposure, primarily using foreign currency exchange contracts, commodity contracts, and interest rate swaps, respectively.  These instruments are designated as cash flow hedges in accordance with ASC Topic 815-10 and are recorded in the Consolidated Balance Sheets at fair value.  The effective portion of the contracts’ gains or losses due to changes in fair value are initially recorded as a component of AOCI and are subsequently reclassified into earnings when the hedge transactions, typically sales, costs related to sales, and interest expense occur and affect earnings.  These contracts are highly effective in hedging the variability in future cash flows attributable to changes in currency exchange rates, commodity prices, or interest rates.

 

Fair Value Hedges The company periodically enters into interest rate swaps designated as a hedge of the fair value of a portion of its fixed rate debt.  These hedges effectively result in changing a portion of its fixed rate debt to variable interest rate debt.  Both the swaps and the debt are recorded in the Consolidated Balance Sheets at fair value.  The change in fair value of the swaps should exactly offset the change in fair value of the hedged debt, with no net impact to earnings.  Interest expense of the hedged debt is recorded at the variable rate in earnings.  As of December 31, 2010, the company designated fixed-to-floating rate hedges against $200.0 million of the Senior Notes due 2018 and $300.0 million of the Senior Notes due 2020 as Fair Market Value hedges in accordance with ASC Topic 815-10.  As of December 31, 2009, the company had no interest rate swaps in place that converted fixed rate debt to variable rate debt.

 

The company selectively hedges cash inflows and outflows that are subject to foreign currency exposure from the date of transaction to the related payment date.  The hedges for these foreign currency accounts receivable and accounts payable are recorded in the Consolidated Balance Sheets at fair value.  Gains or losses due to changes in fair value are recorded as an adjustment to earnings in the Consolidated Statements of Operations.

 

Stock-Based Compensation At December 31, 2010, the company has five stock-based compensation plans, which are described more fully in Note 16, “Stock Based Compensation.”  The company recognizes expense for all stock-based compensation with graded vesting on a straight-line basis over the vesting period of the entire award.  In addition to the compensation expense related to stock options, the company recognized $2.6 million, $1.5 million and $1.9 million of compensation expense related to restricted stock awards during the years ended December 31, 2010, 2009 and 2008, respectively. In addition to the compensation expense related to restricted stock, the company recognized $6.6 million, $5.3 million and $6.5 million of compensation expense related to stock options during the years ended December 31, 2010, 2009 and 2008, respectively.

 

Revenue Recognition Revenue is generally recognized and earned when all the following criteria are satisfied with regard to a specific transaction: persuasive evidence of a sales arrangement exists; the price is fixed or determinable; collectability of cash is reasonably assured; and delivery has occurred or services have been rendered.  Shipping and handling fees are reflected in net sales and shipping and handling costs are reflected in cost of sales in the Consolidated Statements of Operations.

 

The company enters into transactions with customers that provide for residual value guarantees and buyback commitments on certain crane transactions.  The company records transactions for which it provides significant residual value guarantees and any buyback commitments as operating leases.  Net revenues in connection with the initial transactions are recorded as deferred revenue and are amortized to income on a straight-line basis over a period equal to that of the customer’s third-party financing agreement.  See Note 18, “Guarantees.”

 

The company also leases cranes to customers under operating lease terms.  Revenue from operating leases is recognized ratably over the term of the lease, and leased cranes are depreciated over their estimated useful lives.

 

Research and Development Research and development costs are charged to expense as incurred and amounted to $72.2 million, $57.4 million and $40.0 million for the years ended December 31, 2010, 2009 and 2008, respectively.  Research and development costs include salaries, materials, contractor fees and other administrative costs.

 

Income Taxes The company utilizes the liability method to recognize deferred tax assets and liabilities for the expected future income tax consequences of events that have been recognized in the company’s financial statements.  Under this method, deferred tax assets and liabilities are determined based on the temporary difference between financial statement carrying amounts and the tax basis of assets and liabilities using enacted tax rates in effect in the years in which the temporary differences are expected to reverse.  Valuation allowances are provided for deferred tax assets where it is considered more likely than not that the company will not realize the benefit of such assets. The company evaluates its uncertain tax positions as new information becomes available. Tax benefits are recognized to the extent a position is more-likely-than-not to be sustained upon examination by the taxing authority.

 

Earnings Per Share Basic earnings per share is computed by dividing net earnings attributable to Manitowoc by the weighted average number of common shares outstanding during each year or period.  Diluted earnings per share is computed similar to basic earnings per share except that the weighted average shares outstanding is increased to include shares of restricted stock and the number of additional shares that would have been outstanding if stock options were exercised and the proceeds from such exercise were used to acquire shares of common stock at the average market price during the year or period.

 

Comprehensive Income Comprehensive income includes, in addition to net earnings, other items that are reported as direct adjustments to Manitowoc stockholders’ equity.  Currently, these items are foreign currency translation adjustments, employee postretirement benefit adjustments and the change in fair value of certain derivative instruments.

 

Concentration of Credit Risk Credit extended to customers through trade accounts receivable potentially subjects the company to risk.  This risk is limited due to the large number of customers and their dispersion across various industries and many geographical areas.  However, a significant amount of the company’s receivables are with distributors and contractors in the construction industry, large companies in the foodservice and beverage industry, customers servicing the U.S. steel industry, and government agencies.  The company currently does not foresee a significant credit risk associated with these individual groups of receivables, but continues to monitor the exposure due to global economic conditions.

 

Recent accounting changes and pronouncements In December 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2010-28, “When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts.” This ASU updates ASC Topic 350, Intangibles—Goodwill and Other, to amend the criteria for performing Step 2 of the goodwill impairment test for reporting units with zero or negative carrying amounts and requires performing Step 2 if qualitative factors indicate that it is more likely than not that a goodwill impairment exists. The ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2010. We do not currently have any reporting units with zero or negative carrying values.

 

In January 2010, the FASB issued ASU No. 2010-06, “Improving Disclosures about Fair Value Measurements.” This update amends ASC Topic 820, Fair Value Measurements and Disclosures, to require new disclosures for significant transfers in and out of Level 1 and Level 2 fair value measurements, disaggregation regarding classes of assets and liabilities, valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements for Level 2 or Level 3. These disclosures are effective for the interim and annual reporting periods beginning after December 15, 2009. Additional new disclosures regarding the purchases, sales, issuances and settlements in the roll forward of activity in Level 3 fair value measurements are effective for fiscal years beginning after December 15, 2010 beginning with the first interim period. We adopted certain of the relevant disclosure provisions of ASU 2010-06 on January 1, 2010 and adopted certain other provisions on January 1, 2011.

 

In October 2009, the FASB issued Accounting Standards Update 2009-13, “Multiple-Deliverable Revenue Arrangements,” codified in ASC Topic 605.  This update provides application guidance on whether multiple deliverables exist, how the deliverables should be separated and how the consideration should be allocated to one or more units of accounting. This guidance establishes a selling price hierarchy for determining the selling price of a deliverable. The selling price used for each deliverable will be based on vendor-specific objective evidence, if available, third-party evidence if vendor-specific objective evidence is not available, or estimated selling price if neither vendor-specific nor third-party evidence is available. The company will be required to apply this guidance prospectively for revenue arrangements entered into or materially modified in the fiscal year beginning on or after June 15, 2010, with early application permitted. The company is currently evaluating the impact that adoption of this guidance will have on the determination or reporting of the company’s financial results.

 

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

impact on our consolidated financial statements.

 

In June 2009, the FASB issued guidance related to the accounting for transfers of financial assets codified primarily in ASC Topic 860, “Transfers and Servicing.” This guidance requires entities to provide more information about transfers of financial assets and a transferor’s continuing involvement, if any, with transferred financial assets. It also requires additional disclosures about the risks that a transferor continues to be exposed to because of its continuing involvement in transferred financial assets. ASC Topic 860 eliminates the concept of a qualifying special-purpose entity and changes the requirements for de-recognition of financial assets. This Topic is effective for the company in its interim and annual reporting periods beginning on and after January 1, 2010. Refer to Note 12, “Accounts Receivable Securitization” for the discussion of the impact of adoption on our consolidated financial results.

 

In May 2009, the FASB issued new guidance codified primarily in ASC Topic 855, “Subsequent Events.”  This guidance was issued in order to establish principles and requirements for reviewing and reporting subsequent events and requires disclosure of the date through which subsequent events are evaluated and whether the date corresponds with the time at which the financial statements were available for issue (as defined) or were issued.  This guidance is effective for interim reporting periods ending after June 15, 2009.  The adoption of this guidance did not have a material impact on the consolidated financial statements.  Refer to Note 26, “Subsequent Events,” for the required disclosures in accordance with ASC Topic 855.

 

Acquisitions
Acquisitions

3. Acquisitions

 

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

 

The aggregate purchase price was $2.1 billion in cash, exclusive of the settlement of related hedges, and there are no future contingent payments or options. The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of acquisition.

 

At October 27, 2008 (Date of Acquisition) (in millions):

 

 

 

Cash

 

$

56.9

 

Accounts receivable, net

 

157.9

 

Inventory, net

 

150.7

 

Other current assets

 

54.4

 

Current assets of discontinued operation

 

118.7

 

Total current assets

 

538.6

 

Property, plant and equipment

 

168.5

 

Intangible assets

 

955.0

 

Goodwill

 

1,308.9

 

Other non-current assets

 

40.9

 

Non-current assets of discontinued operation

 

337.0

 

Total assets acquired

 

3,348.9

 

 

 

 

 

Accounts payable

 

317.6

 

Other current liabilities

 

33.4

 

Current liabilities of discontinued operation

 

58.1

 

Total current liabilities

 

409.1

 

Long-term debt, less current portion

 

382.4

 

Other non-current liabilities

 

470.3

 

Non-current liabilities of discontinued operation

 

26.5

 

Total liabilities assumed

 

1,288.3

 

Net assets acquired

 

$

2,060.6

 

 

Of the $955.0 million of acquired intangible assets, $371.0 million was assigned to registered trademarks and tradenames that are not subject to amortization, $165.0 million was assigned to developed technology with a weighted average useful life of 15 years, and the remaining $419.0 million was assigned to customer relationships with a weighted average useful life of 20 years.  All of the $1,308.9 million of goodwill was assigned to the Foodservice segment, none of which is expected to be deductible for tax purposes.  See further detail related to the goodwill and other intangible assets of the Enodis acquisition at Note 9, “Goodwill and Other Intangible Assets,” including discussion regarding the amount of intangible asset impairment recognized in 2009 in the Foodservice segment.

 

The following information reflects the results of Manitowoc’s operations for the year ended December 31, 2008 on a pro forma basis as if the acquisition of Enodis had been completed on January 1, 2008. Pro forma adjustments have been made to illustrate the incremental impact on earnings of interest costs on the borrowings to acquire Enodis, amortization expense related to acquired intangible assets of Enodis, depreciation expense related to the fair value of the acquired depreciable tangible assets and the tax benefit associated with the incremental interest costs and amortization and depreciation expense. The following unaudited pro forma information includes $9.5 million of additional expense related to the fair value adjustment of inventories and excludes certain cost savings or operating synergies (or costs associated with realizing such savings or synergies) that may result from the acquisition.

 

(in $ millions, except per share data)

 

2008

 

Revenue

 

 

 

Pro forma

 

$

5,526.7

 

As reported

 

4,479.2

 

Earnings (loss) from continuing operations

 

 

 

Pro forma

 

$

(95.2

)

As reported

 

99.8

 

Diluted earnings (loss) per share from continuing operations

 

 

 

Pro forma

 

$

(0.73

)

As reported

 

0.77

 

 

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

 

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

 

The company recorded additional amounts in 2009 of $7.8 million, $5.5 million, and $14.2 million related to employee termination benefits, facility closure costs, and other, respectively, in conjuction with the finalization of the restructuring plans. These plans are expected to conclude in 2012.

 

At October 27, 2008 (in millions):

 

 

 

Employee involuntary termination benefits

 

$

17.1

 

Facility closure costs

 

34.7

 

Other

 

19.2

 

Total

 

$

71.0

 

 

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

 

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

 

On March 6, 2008, the company formed an entity with the shareholders of Tai’An Dongyue Heavy Machinery Co., Ltd. (Tai’An Dongyue) for the production of mobile and truck-mounted hydraulic cranes.  The entity is located in Tai’An City, Shandong Province, China.  The company has significant voting and other rights that give it substantial control over the operations of Tai’An Dongyue, and accordingly, the results of this entity are consolidated by the company.  On January 1, 2009, the company adopted ASC Topic 810, “Consolidations,” and has reflected the new requirements for non-controlling interests in the presentation of its financial statements.  Tai’An Dongyue is the company’s only subsidiary impacted by the new guidance.  The aggregate consideration for the equity interest in Tai’An Dongyue was $32.5 million and resulted in $23.5 million of goodwill and $8.5 million of other intangible assets being recognized by the company’s Crane segment.  See further detail related to the goodwill and other intangible assets of the Tai’An Dongyue acquisition at Note 9, “Goodwill and Other Intangible Assets.”

 

Discontinued Operations
Discontinued Operations

4. Discontinued Operations

 

On December 31, 2008, the company completed the sale of its Marine segment to Fincantieri Marine Group Holdings Inc., a subsidiary of Fincantieri — Cantieri Navali Italiani SpA.  The sale price in the all-cash deal was approximately $120 million.  The results of the Marine segment have been classified as a discontinued operation.

 

The following selected financial data of the Marine segment for the years ended December 31, 2010, 2009 and 2008 is presented for informational purposes only and does not necessarily reflect what the results of operations would have been had the business operated as a stand-alone entity.  There was no general corporate expense or interest expense allocated to discontinued operations for this business during the periods presented.

 

(in millions)

 

2010

 

2009

 

2008

 

Net sales

 

$

 

$

 

$

381.3

 

 

 

 

 

 

 

 

 

Pretax earnings (loss) from discontinued operation

 

(0.9

)

(2.5

)

53.2

 

Gain on sale, net of income taxes of $0.0, $0.0 and $(17.4)

 

 

1.0

 

53.1

 

Provision (benefit) for taxes on earnings

 

(0.3

)

(0.3

)

18.1

 

Net earnings (loss) from discontinued operation

 

$

(0.6

)

$

(1.2

)

$

88.2

 

 

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

 

In order to secure clearance for the acquisition of Enodis from various regulatory authorities including the European Commission and the United States Department of Justice, the company agreed to sell substantially all of Enodis’ global ice machine operations following completion of the Enodis acquisition.  In 2008, we recognized a non-cash charge of $175.0 million to adjust the carrying amount of the Enodis ice machine businesses to estimated fair value, less costs to sell.  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.  Results of these operations were classified as discontinued operations in 2008.

 

The company used the net proceeds from the sale of the Enodis global ice machine operations of approximately $150 million to reduce the balance on Term Loan X that matured in April of 2010.  The final sale price resulted in the company recording an additional $28.8 million non-cash impairment charge to reduce the value of the Enodis global ice machine operations in the first quarter of 2009.  As a result of the impairment charge and the loss from discontinued operations related to divested businesses of $4.9 million in 2009, the loss from discontinued operations related to the Enodis global ice machine operations was $33.7 million.  In addition, the company realized an after tax loss of $25.2 million on the sale of the Enodis global ice machine operations in 2009.  The loss on sale was primarily driven by a taxable gain related to the assets held in the United States for U.S. tax purposes.  In 2008, the loss from discontinued operations was $3.5 million.

 

Administrative costs related to the Enodis ice machine businesses resulted in a pre-tax loss from discontinued operations of $0.1 million for the year ended December 31, 2010.  There was a $0.1 million tax provision associated with the Enodis ice machine business costs in the year ended December 31, 2010.

 

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 electrical houses, to Lennox International for approximately $145 million, including a preliminary working capital adjustment.  The transaction subsequently closed on January 14, 2011 and the net proceeds were used to pay down ratably a portion of the then outstanding Term Loans A and B.  The results of these operations have been classified as a discontinued operation.

 

The following selected financial data of the Kysor/Warren and Kysor/Warren de Mexico business for the years ended December 31, 2010, 2009 and 2008 is presented for informational purposes only and does not necessarily reflect what the results of operations would have been had the business operated as a stand-alone entity. There was no general corporate expense or interest expense allocated to discontinued operations for this business during the periods presented.

 

(in millions)

 

2010

 

2009

 

2008

 

Net sales

 

$

216.4

 

$

162.8

 

$

23.8

 

 

 

 

 

 

 

 

 

Pretax earnings (loss) from discontinued operation

 

(4.6

)

1.1

 

(1.1

)

Provision (benefit) for taxes on earnings

 

2.2

 

0.1

 

0.3

 

Net earnings (loss) from discontinued operation

 

$

(6.8

)

$

1.0

 

$

(1.4

)

Fair Value of Financial Instruments
Fair Value of Financial Instruments

5. Fair Value of Financial Instruments

 

The company adopted ASC Topic 820-10, “Fair Value Measurements and Disclosures” effective January 1, 2008.  The following tables set forth the company’s financial assets and liabilities that were accounted for at fair value on a recurring basis as of December 31, 2010 and December 31, 2009 by level within the fair value hierarchy.  Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

 

 

 

Fair Value as of December 31, 2010

 

(in millions)

 

Level 1

 

Level 2

 

Level 3

 

Total

 

 

 

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

 

Foreign currency exchange contracts

 

$

2.3

 

$

 

$

 

$

2.3

 

Forward commodity contracts

 

 

1.1

 

 

1.1

 

Marketable securities

 

2.7

 

 

 

2.7

 

Total current assets at fair value

 

$

5.0

 

$

1.1

 

$

 

$

6.1

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

 

Foreign currency exchange contracts

 

$

0.6

 

$

 

$

 

$

0.6

 

Forward commodity contracts

 

 

0.3

 

 

0.3

 

Total current liabilities at fair value

 

$

0.6

 

$

0.3

 

$

 

$

0.9

 

 

 

 

 

 

 

 

 

 

 

Non-current Liabilities:

 

 

 

 

 

 

 

 

 

Interest rate swap contracts

 

$

 

$

38.4

 

$

 

$

38.4

 

Total non-current liabilities at fair value

 

$

 

$

38.4

 

$

 

$

38.4

 

 

 

 

Fair Value as of December 31, 2009

 

 

 

Level 1

 

Level 2

 

Level 3

 

Total

 

 

 

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

 

Foreign currency exchange contracts

 

$

1.4

 

$

 

$

 

$

1.4

 

Forward commodity contracts

 

 

1.7

 

 

1.7

 

Marketable securities

 

2.6

 

 

 

2.6

 

Total current assets at fair value

 

$

4.0

 

$

1.7

 

$

 

 

$

5.7

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

 

Foreign currency exchange contracts

 

$

5.4

 

$

 

$

 

$

5.4

 

Forward commodity contracts

 

 

0.1

 

 

0.1

 

Total current liabilities at fair value

 

$

5.4

 

$

0.1

 

$

 

$

5.5

 

 

 

 

 

 

 

 

 

 

 

Non-current Liabilities:

 

 

 

 

 

 

 

 

 

Interest rate swap contracts

 

$

 

$

6.4

 

$

 

$

6.4

 

Total non-current liabilities at fair value

 

$

 

$

6.4

 

$

 

$

6.4

 

 

The carrying value of the amounts reported in the Consolidated Balance Sheets for cash, accounts receivable, accounts payable, deferred purchase price notes and short-term variable debt, including any amounts outstanding under our revolving credit facility, approximate fair value, without being discounted, due to the short periods during which these amounts are outstanding.  The fair value of the company’s 7 1/8% Senior Notes due 2013 was approximately $152.4 million and $143.1 million at December 31, 2010 and December 31, 2009, respectively. As of December 31, 2010, the fair value of the company’s 9 ½% Senior Notes due 2018 was approximately $438.8 million and the fair value of the company’s 8 ½% Senior Notes due 2020 was $645.0 million.  The fair values of the company’s term loans under the Senior Credit Agreement are as follows at December 31, 2010 and December 31, 2009, respectively:  Term Loan A — $461.2 million and $883.3 million; Term Loan B — $342.0 million and $1,011.3 million.  See Note 11, “Debt,” for the related carrying values of these debt instruments.

 

ASC Topic 820-10 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820-10 classifies the inputs used to measure fair value into the following hierarchy:

 

Level 1

Unadjusted quoted prices in active markets for identical assets or liabilities

 

 

Level 2

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

 

 

 

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

 

 

 

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

 

 

Level 3

Unobservable inputs for the asset or liability

 

The company endeavors to utilize the best available information in measuring fair value. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The company has determined that its financial assets and liabilities are level 1 and level 2 in the fair value hierarchy.

 

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

 

Derivative Financial Instruments
Derivative Financial Instruments

6. Derivative Financial Instruments

 

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

 

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

 

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

 

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

 

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

 

For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings.  Gains and losses on the derivative instruments representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness, are recognized in current earnings.  In the next twelve months the company estimates $1.9 million of unrealized and realized gains related to commodity price and currency rate hedging will be reclassified from Other Comprehensive Income into earnings.  Foreign currency and commodity hedging is generally completed prospectively on a rolling basis for between twelve and twenty-four months depending on the type of risk being hedged.

 

As of December 31, 2010, the company had the following outstanding commodity and currency forward contracts that were entered into to hedge forecasted transactions:

 

Commodity

 

Units Hedged

 

Type

 

Aluminum

 

688 MT

 

Cash Flow

 

Copper

 

312 MT

 

Cash Flow

 

Natural Gas

 

304,177 MMBtu

 

Cash Flow

 

 

 

 

 

 

 

 

Short Currency

 

Units Hedged

 

Type

 

Canadian Dollar

 

21,186,951

 

Cash Flow

 

European Euro

 

43,440,929

 

Cash Flow

 

South Korean Won

 

2,245,331,882

 

Cash Flow

 

Singapore Dollar

 

4,140,000

 

Cash Flow

 

United States Dollar

 

8,828,840

 

Cash Flow

 

Great British Pound

 

399,999

 

Cash Flow

 

 

As of December 31, 2010, the total notional amount of the company’s receive-floating/pay-fixed interest rate swaps was $650.8 million.

 

As of December 31, 2010, the designated fair market value hedges of receive-fixed/pay-float swaps of the company’s 2018 Senior Notes and 2020 Senior Notes was $200.0 million and $300.0 million, respectively.

 

For derivative instruments that are not designated as hedging instruments under ASC Topic 815-10, the gains or losses on the derivatives are recognized in current earnings within cost of sales or other income, net in the Consolidated Statements of Operations.

 

Short Currency

 

Units Hedged

 

Recognized Location

 

Purpose

 

Great British Pound

 

8,172,569

 

Other income, net

 

Accounts Payable and Receivable Settlement

 

 

 

 

 

 

 

 

 

Euro

 

7,732,026

 

Other income, net

 

Accounts Payable and Receivable Settlement

 

 

 

 

 

 

 

 

 

United States Dollar

 

33,158,979

 

Other income, net

 

Accounts Payable and Receivable Settlement

 

 

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

 

ASSET DERIVATIVES

2010

 

(in millions)

 

Balance Sheet Location

 

Fair Value

 

Derivatives designated as hedging instruments

 

 

 

 

 

Foreign exchange contracts

 

Other current assets

 

$

1.8

 

Commodity contracts

 

Other current assets

 

1.1

 

 

 

 

 

 

 

Total derivatives designated as hedging instruments

 

 

 

$

2.9

 

 

ASSET DERIVATIVES

2010

 

(in millions)

 

Balance Sheet Location

 

Fair Value

 

Derivatives NOT designated as hedging instruments

 

 

 

 

 

Foreign exchange contracts

 

Other current assets

 

$

0.5

 

 

 

 

 

 

 

Total derivatives NOT designated as hedging instruments

 

 

 

$

0.5

 

 

 

 

 

 

 

Total asset derivatives

 

 

 

$

3.5

 

 

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

 

LIABILITY DERIVATIVES

2010

 

(in millions)

 

Balance Sheet Location

 

Fair Value

 

Derivatives designated as hedging instruments

 

 

 

 

 

Foreign exchange contracts

 

Accounts payable and accrued expenses

 

$

0.6

 

Interest rate swap contracts

 

Other non-current liabilities

 

38.4

 

Commodity contracts

 

Accounts payable and accrued expenses

 

0.3

 

 

 

 

 

 

 

Total derivatives designated as hedging instruments

 

 

 

$

39.3

 

 

The effect of derivative instruments on the consolidated statement of operations for the twelve months ended December 31, 2010 and gains or losses initially recognized in Other Comprehensive Income (OCI) in the consolidated balance sheet was as follows:

 

Derivatives in Cash Flow Hedging
Relationships

 

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

 

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

 

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

 

 

 

 

 

 

 

 

 

Foreign exchange contracts

 

$

0.2

 

Cost of sales

 

$

(4.0

)

 

 

 

 

 

 

 

 

Interest rate swap contracts

 

(6.7

)

Interest expense

 

(10.4

)

 

 

 

 

 

 

 

 

Commodity contracts

 

(0.4

)

Cost of sales

 

1.1

 

 

 

 

 

 

 

 

 

Total

 

$

(6.9

)

 

 

$

(13.3

)

 

Derivatives in Fair
Value Hedging Relationships

 

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

 

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

 

 

 

 

 

 

 

Interest rate swap contracts

 

Interest expense

 

$

(21.8

)

 

 

 

 

 

 

Total

 

 

 

$

(21.8

)

 

Derivatives Not Designated as
Hedging Instruments

 

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

 

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

 

 

 

 

 

 

 

Foreign exchange contracts

 

Other income

 

$

0.5

 

 

 

 

 

 

 

Total

 

 

 

$

0.5

 

 

As of December 31, 2009, the company had the following outstanding interest rate, commodity and currency forward contracts that were entered into as hedge forecasted transactions:

 

Commodity

 

Units Hedged

 

Type

 

Aluminum

 

1,400 MT

 

Cash Flow

 

Copper

 

424 MT

 

Cash Flow

 

Natural Gas

 

266,934 MMBtu

 

Cash Flow

 

 

 

 

 

 

 

Short Currency

 

Units Hedged

 

Type

 

Canadian Dollar

 

24,426,423

 

Cash Flow

 

European Euro

 

51,155,115

 

Cash Flow

 

South Korean Won

 

2,079,494,400

 

Cash Flow

 

Singapore Dollar

 

3,240,000

 

Cash Flow

 

United States Dollar

 

12,285,292

 

Cash Flow

 

 

As of December 31, 2009, the total notional amount of the company’s receive-floating/pay-fixed interest rate swaps was $984.0 million.

 

For derivative instruments that are not designated as hedging instruments under ASC Topic 815-10, the gains or losses on the derivatives are recognized in current earnings within cost of sales or other income, net in the Consolidated Statements of Operations.

 

Short Currency

 

Units Hedged

 

Recognized Location

 

Purpose

 

Great British Pound

 

30,385,738

 

Other income, net

 

Accounts Payable and Receivable Settlement

 

 

 

 

 

 

 

 

 

Euro

 

37,310,399

 

Other income, net

 

Accounts Payable and Receivable Settlement

 

 

 

 

 

 

 

 

 

United States Dollar

 

42,383,351

 

Other income, net

 

Accounts Payable and Receivable Settlement

 

 

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

 

ASSET DERIVATIVES

2009

 

(in millions)

 

Balance Sheet Location

 

Fair Value

 

Derivatives designated as hedging instruments

 

 

 

 

 

Foreign exchange contracts

 

Other current assets

 

$

1.4

 

Commodity contracts

 

Other current assets

 

1.5

 

 

 

 

 

 

 

Total derivatives designated as hedging instruments

 

 

 

$

2.9

 

 

ASSET DERIVATIVES

2009

 

(in millions)

 

Balance Sheet Location

 

Fair Value

 

Derivatives NOT designated as hedging instruments

 

 

 

 

 

Foreign exchange contracts

 

Other current assets

 

$

0.2

 

 

 

 

 

 

 

Total derivatives NOT designated as hedging instruments

 

 

 

$

0.2

 

 

 

 

 

 

 

Total asset derivatives

 

 

 

$

3.1

 

 

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

 

LIABILITY DERIVATIVES

2009

 

(in millions)

 

Balance Sheet Location

 

Fair Value

 

Derivatives designated as hedging instruments

 

 

 

 

 

Foreign exchange contracts

 

Accounts payable and accrued expenses

 

$

0.5

 

Interest rate swap contracts

 

Other non-current liabilities

 

6.4

 

Commodity contracts

 

Accounts payable and accrued expenses

 

0.1

 

 

 

 

 

 

 

Total derivatives designated as hedging instruments

 

 

 

$

7.0

 

 

LIABILITY DERIVATIVES

2009

 

(in millions)

 

Balance Sheet Location

 

Fair Value

 

Derivatives NOT designated as hedging instruments

 

 

 

 

 

Foreign exchange contracts

 

Accounts payable and accrued expenses

 

$

4.9

 

 

 

 

 

 

 

Total derivatives NOT designated as hedging instruments

 

 

 

4.9

 

 

 

 

 

 

 

Total liability derivatives

 

 

 

$

11.9

 

 

The effect of derivative instruments on the consolidated statement of operations for the twelve months ended December 31, 2009 and gains or losses initially recognized in Other Comprehensive Income (OCI) in the consolidated balance sheet was as follows:

 

Derivatives in Cash Flow Hedging
Relationships (in millions)

 

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

 

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

 

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

 

 

 

 

 

 

 

 

 

Foreign exchange contracts

 

$

0.6

 

Cost of sales

 

$

(5.5

)

 

 

 

 

 

 

 

 

Interest rate swap contracts

 

(4.2

)

Interest expense

 

(11.3

)

 

 

 

 

 

 

 

 

Commodity contracts

 

0.9

 

Cost of sales

 

(4.4

)

 

 

 

 

 

 

 

 

Total

 

$

(2.7

)

 

 

$

(21.2

)

 

Derivatives in Cash Flow Hedging
Relationships (in millions)

 

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

 

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

 

 

 

 

 

 

 

Commodity contracts

 

Cost of sales

 

$

0.2

 

 

 

 

 

 

 

Total

 

 

 

$

0.2

 

 

Derivatives Not Designated as Hedging
Instruments
(in millions)

 

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

 

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

 

 

 

 

 

 

 

Foreign exchange contracts

 

Other income

 

$

(5.0

)

 

 

 

 

 

 

Commodity contracts

 

Cost of sales

 

$

(1.2

)

 

 

 

 

 

 

Total

 

 

 

$

(6.2

)

 

During July 2008, the company entered into foreign currency hedging transactions (the “hedges”) to comply with the requirements of its credit commitment needed to fund the purchase of Enodis.  The hedges were required by the company’s lenders 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 in excess of available commitment amounts.  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 go through the 2008 Consolidated Statement of Operations.  The final disposition of these hedge positions was determined based upon the market exchange rate on November 6, 2008, the date the funding transaction was completed.  For the year ended December 31, 2008, the loss on these currency hedges related to the purchase of Enodis was $379.4 million.

 

Inventories
Inventories

7. Inventories

 

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

 

(in millions)

 

2010

 

2009

 

Inventories — gross:

 

 

 

 

 

Raw materials

 

$

224.0

 

$

237.4

 

Work-in-process

 

119.8

 

159.1

 

Finished goods

 

324.5

 

306.1

 

Total inventories — gross

 

668.3

 

702.6

 

Excess and obsolete inventory reserve

 

(80.3

)

(88.9

)

Net inventories at FIFO cost

 

588.0

 

613.7

 

Excess of FIFO costs over LIFO value

 

(31.0

)

(32.4

)

Inventories — net

 

$

557.0

 

$

581.3

 

Property, Plant and Equipment
Property, Plant and Equipment

8. Property, Plant and Equipment

 

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

 

(in millions)

 

2010

 

2009

 

Land

 

$

53.8

 

$

56.8

 

Building and improvements

 

348.1

 

353.7

 

Machinery, equipment and tooling

 

507.2

 

515.5

 

Furniture and fixtures

 

42.1

 

40.7

 

Computer hardware and software

 

84.1

 

85.9

 

Rental cranes *

 

99.5

 

140.8

 

Construction in progress

 

66.2

 

65.9

 

Total cost

 

1,201.0

 

1,259.3

 

Less accumulated depreciation

 

(635.2

)

(618.2

)

Property, plant and equipment-net

 

$

565.8

 

$

641.1

 

 

 

* Accumulated depreciation for Rental cranes for the years ended December 31, 2010 and 2009 was $40.7 million and $51.0 million, respectively.

 

Goodwill and Other Intangible Assets
Goodwill and Other Intangible Assets

9. Goodwill and Other Intangible Assets

 

The changes in carrying amount of goodwill by reportable segment for the years ended December 31, 2010 and 2009, were as follows:

 

(in millions)

 

Crane

 

Foodservice

 

Total

 

 

 

 

 

 

 

 

 

Gross and net balance as of January 1, 2009

 

$

285.5

 

$

1,534.1

 

$

1,819.6

 

Enodis purchase accounting adjustments

 

 

(84.9

)

(84.9

)

Sale of product lines

 

 

(9.3

)

(9.3

)

Foreign currency impact

 

4.2

 

(4.9

)

(0.7

)

Gross balance as of December 31, 2009

 

$

289.7

 

$

1,435.0

 

$

1,724.7

 

Asset impairments

 

 

 

 

(548.8

)

 

(548.8

)

Net balance at December 31, 2009

 

$

289.7

 

$

886.2

 

$

1,175.9

 

 

 

 

 

 

 

 

 

 

 

 

Acquisition of ASI

 

$

 

$

5.0

 

$

5.0

 

Deferred tax adjustment

 

 

5.8

 

5.8

 

Restructuring reserve adjustment

 

 

(2.7

)

(2.7

)

Foreign currency impact

 

(10.7

)

(0.1

)

(10.8

)

Gross balance as of December 31, 2010

 

$

279.0

 

$

1,443.0

 

$

1,722.0

 

Asset impairments

 

 

(548.8

)

(548.8

)

Net balance as of December 31, 2010

 

$

279.0

 

$

894.2

 

$

1,173.2

 

 

During the third quarter of 2010, the company 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.  See Note 1, “Company and Basis of Presentation”

 

The company believed the classification of its Kysor/Warren and Kysor/Warren de Mexico businesses as discontinued operations during the fourth quarter of 2010 represented a triggering event and therefore the company performed an impairment analysis on its Foodservice Americas reporting unit.  The analysis did not indicate an impairment.

 

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.

 

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

 

The results of the analysis indicated that the fair values of three of the company’s eight reporting units (Foodservice Americas; Foodservice Europe, Middle East, and Africa; and Foodservice Retail) were potentially impaired: therefore, the company proceeded to measure the amount of the potential impairment (“Step Two”) with the assistance of a third-party valuation firm.  Upon completion of that assessment, the company recognized impairment charges as of March 31, 2009, of $548.8 million related to goodwill.  The company also recognized impairment charges of $146.4 million related to other indefinite-lived intangible assets as of March 31, 2009.  Both charges were within the Foodservice segment.  The goodwill and other indefinite-lived intangible assets had a carrying value of $1,527.1 million and $331.3 million, respectively, prior to the impairment charges. These non-cash impairment charges have no direct impact on the company’s cash flows, liquidity, debt covenants, debt position or tangible asset values.  There is no tax benefit in relation to the goodwill impairment; however, the company did recognize a $52.0 million tax benefit associated with the other indefinite-lived intangible asset impairment.

 

As of June 30, 2009, the company performed its annual impairment analysis relative to goodwill and indefinite-lived intangible assets and based on those results no additional impairment had occurred subsequent to the impairment charges recorded in the first quarter of 2009. As of June 30, 2010, the company performed its annual impairment analysis and noted no indicators of impairment.

 

At March 31, 2009, in conjunction with the preparation of its financial statements, the company concluded triggering events occurred requiring an evaluation of the impairment of its other long-lived assets due to continued weakness in global market conditions, tight credit markets and the performance of the Crane and Foodservice segments. This analysis did not indicate that the other long-lived assets were impaired.

 

A considerable amount of management judgment and assumptions are required in performing the impairment tests, principally in determining the fair value of the assets. While the company believes its judgments and assumptions were reasonable, different assumptions could change the estimated fair values and, therefore, impairment charges could be required.

 

The company will continue to monitor market conditions and determine if any additional interim reviews of goodwill, other intangibles or long-lived assets are warranted.  Further deterioration in the market or actual results as compared with the company’s projections may ultimately result in a future impairment.  In the event the company determines that assets are impaired in the future, the company would need to recognize a non-cash impairment charge, which could have a material adverse effect on the company’s consolidated balance sheet and results of operations.

 

The gross carrying amount and accumulated amortization of the company’s intangible assets other than goodwill were as follows as of December 31, 2010 and 2009:

 

 

 

2010

 

2009

 

(in millions)

 

Gross
Carrying
Amount

 

Accumulated
Amortization
Amount

 

Net
Book
Value

 

Gross
Carrying
Amount

 

Accumulated
Amortization
Amount

 

Net
Book
Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trademarks and tradenames

 

$

317.0

 

$

 

$

317.0

 

$

325.8

 

$

 

$

325.8

 

Customer relationships

 

439.2

 

(51.8