MANITOWOC CO INC, 10-K filed on 2/29/2012
Annual Report
Document and Entity Information (USD $)
12 Months Ended
Dec. 31, 2011
Jan. 31, 2012
Jun. 30, 2011
Document and Entity Information
 
 
 
Entity Registrant Name
MANITOWOC CO INC 
 
 
Entity Central Index Key
0000061986 
 
 
Document Type
10-K 
 
 
Document Period End Date
Dec. 31, 2011 
 
 
Amendment Flag
false 
 
 
Current Fiscal Year End Date
--12-31 
 
 
Entity Well-known Seasoned Issuer
Yes 
 
 
Entity Voluntary Filers
No 
 
 
Entity Current Reporting Status
Yes 
 
 
Entity Filer Category
Large Accelerated Filer 
 
 
Entity Public Float
 
 
$ 2,221,233,048 
Entity Common Stock, Shares Outstanding
 
131,885,765 
 
Document Fiscal Year Focus
2011 
 
 
Document Fiscal Period Focus
FY 
 
 
Consolidated Statements of Operations (USD $)
In Millions, except Per Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2011
Dec. 31, 2010
Dec. 31, 2009
Operations
 
 
 
Net sales
$ 3,651.9 
$ 3,141.7 
$ 3,619.8 
Costs and expenses:
 
 
 
Cost of sales
2,813.9 
2,375.6 
2,822.4 
Engineering, selling and administrative expenses
572.1 
514.5 
529.8 
Amortization expense
38.8 
38.3 
38.4 
Goodwill impairment
 
 
520.3 
Intangible asset impairment
 
 
146.4 
Integration expense
 
 
3.6 
Restructuring expense
5.7 
3.8 
39.6 
Other expenses (income)
(0.5)
2.3 
3.4 
Total costs and expenses
3,430.0 
2,934.5 
4,103.9 
Operating earnings (loss) from continuing operations
221.9 
207.2 
(484.1)
Other income (expenses):
 
 
 
Interest expense
(146.7)
(175.0)
(174.0)
Amortization of deferred financing fees
(10.4)
(22.0)
(28.8)
Loss on debt extinguishment
(29.7)
(44.0)
(9.2)
Other income (expense)-net
2.3 
(9.9)
17.3 
Total other income (expenses)
(184.5)
(250.9)
(194.7)
Earnings (loss) from continuing operations before taxes on earnings
37.4 
(43.7)
(678.8)
Provision (benefit) for taxes on earnings
15.9 
30.9 
(65.5)
Earnings (loss) from continuing operations
21.5 
(74.6)
(613.3)
Discontinued operations:
 
 
 
Earnings (loss) from discontinued operations, net of income taxes of ($2.7), $2.0 and ($3.0), respectively
(3.9)
(7.6)
(34.1)
Gain (loss) on sale of discontinued operations, net of income taxes of $29.9, $0.0 and ($15.0), respectively
(34.6)
 
(24.2)
Net earnings (loss)
(17.0)
(82.2)
(671.6)
Less: Net loss attributable to noncontrolling interest, net of tax
(6.5)
(2.7)
(2.5)
Net (loss) earnings attributable to Manitowoc
(10.5)
(79.5)
(669.1)
Amounts attributable to the Manitowoc common shareholders:
 
 
 
Earnings (loss) from continuing operations
28.0 
(71.9)
(610.8)
Earnings (loss) from discontinued operations, net of income taxes
(3.9)
(7.6)
(34.1)
Gain (loss) on sale of discontinued operations, net of income taxes
(34.6)
 
(24.2)
Net (loss) earnings attributable to Manitowoc
$ (10.5)
$ (79.5)
$ (669.1)
Basic earnings (loss) per common share:
 
 
 
Earnings (loss) from continuing operations attributable to Manitowoc common shareholders (in dollars per share)
$ 0.21 
$ (0.55)
$ (4.69)
Earnings (loss) from discontinued operations attributable to Manitowoc common shareholders (in dollars per share)
$ (0.03)
$ (0.06)
$ (0.26)
Gain (loss) on sale of discontinued operations, net of income taxes (in dollars per share)
$ (0.27)
 
$ (0.19)
Earnings (loss) per share attributable to Manitowoc common shareholders (in dollars per share)
$ (0.08)
$ (0.61)
$ (5.14)
Diluted earnings (loss) per common share:
 
 
 
Earnings (loss) from continuing operations attributable to Manitowoc common shareholders (in dollars per share)
$ 0.21 
$ (0.55)
$ (4.69)
Earnings (loss) from discontinued operations attributable to Manitowoc common shareholders (in dollars per share)
$ (0.03)
$ (0.06)
$ (0.26)
Gain (loss) on sale of discontinued operations, net of income taxes (in dollars per share)
$ (0.26)
 
$ (0.19)
Earnings (loss) per share attributable to Manitowoc common shareholders (in dollars per share)
$ (0.08)
$ (0.61)
$ (5.14)
Consolidated Statements of Operations (Parenthetical) (USD $)
In Millions, unless otherwise specified
12 Months Ended
Dec. 31, 2011
Dec. 31, 2010
Dec. 31, 2009
Consolidated Statements of Operations
 
 
 
Earnings (loss) from discontinued operations, income taxes
$ (2.7)
$ 2.0 
$ (3.0)
Gain (loss) on sale of discontinued operations, income taxes
$ 29.9 
$ 0 
$ (15.0)
Consolidated Balance Sheets (USD $)
In Millions, unless otherwise specified
Dec. 31, 2011
Dec. 31, 2010
Current Assets:
 
 
Cash and cash equivalents
$ 68.6 
$ 83.7 
Marketable securities
2.7 
2.7 
Restricted cash
7.2 
9.4 
Accounts receivable, less allowances of $12.8 and $27.6, respectively
297.0 
255.1 
Inventories - net
668.7 
558.8 
Deferred income taxes
117.8 
131.3 
Other current assets
77.8 
57.7 
Current assets of discontinued operation
 
63.7 
Total current assets
1,239.8 
1,162.4 
Property, plant and equipment - net
568.2 
565.8 
Goodwill
1,164.8 
1,173.2 
Other intangible assets - net
851.8 
893.5 
Other non-current assets
140.6 
92.6 
Long-term assets of discontinued operation
 
123.6 
Total assets
3,965.2 
4,011.1 
Current Liabilities:
 
 
Accounts payable and accrued expenses
869.8 
748.0 
Short-term borrowings
79.1 
61.8 
Product warranties
93.8 
86.7 
Customer advances
35.1 
48.9 
Product liabilities
26.8 
27.8 
Current liabilities of discontinued operation
 
24.2 
Total current liabilities
1,104.6 
997.4 
Non-Current Liabilities:
 
 
Long-term debt
1,810.9 
1,935.6 
Deferred income taxes
215.8 
213.3 
Pension obligations
90.6 
64.4 
Postretirement health and other benefit obligations
59.8 
59.9 
Long-term deferred revenue
34.2 
27.8 
Other non-current liabilities
175.8 
185.6 
Long-term liabilities of discontinued operation
 
18.6 
Total non-current liabilities
2,387.1 
2,505.2 
Commitments and contingencies (Note 17)
   
   
Total Equity:
 
 
Common stock (300,000,000 shares authorized, 163,175,928 shares issued, 131,884,765 and 131,388,472 shares outstanding, respectively)
1.4 
1.4 
Additional paid-in capital
470.8 
454.0 
Accumulated other comprehensive income (loss)
(15.0)
9.9 
Retained earnings
113.6 
134.7 
Treasury stock, at cost (31,291,163 and 31,787,456 shares, respectively)
(87.4)
(88.1)
Total Manitowoc stockholders' equity
483.4 
511.9 
Noncontrolling interest
(9.9)
(3.4)
Total equity
473.5 
508.5 
Total liabilities and equity
$ 3,965.2 
$ 4,011.1 
Consolidated Balance Sheets (Parenthetical) (USD $)
In Millions, except Share data, unless otherwise specified
Dec. 31, 2011
Dec. 31, 2010
Consolidated Balance Sheets
 
 
Accounts receivable, allowances (in dollars)
$ 12.8 
$ 27.6 
Common stock, shares authorized
300,000,000 
300,000,000 
Common stock, shares issued
163,175,928 
163,175,928 
Common stock, shares outstanding
131,884,765 
131,388,472 
Treasury stock, shares
31,291,163 
31,787,456 
Consolidated Statements of Cash Flows (USD $)
In Millions, unless otherwise specified
12 Months Ended
Dec. 31, 2011
Dec. 31, 2010
Dec. 31, 2009
Cash Flows From Operations
 
 
 
Net earnings (loss)
$ (17.0)
$ (82.2)
$ (671.6)
Adjustments to reconcile net earnings to cash provided by operating activities of continuing operations:
 
 
 
Discontinued operations, net of income taxes
3.9 
7.6 
34.1 
Asset impairments
 
 
666.7 
Depreciation
82.1 
87.2 
87.9 
Amortization of intangible assets
38.8 
38.3 
38.4 
Amortization of deferred financing fees
10.4 
22.0 
28.8 
Deferred income taxes
25.5 
27.2 
(91.5)
Restructuring expense
5.7 
3.8 
39.6 
Loss on early extinguishment of debt
29.7 
44.0 
9.2 
Loss (gain) on sale of property, plant and equipment
(2.2)
(3.3)
4.6 
Loss on sale of discontinued operations
34.6 
 
24.2 
Other
13.7 
8.4 
8.5 
Changes in operating assets and liabilities, excluding the effects of business acquisitions or dispositions:
 
 
 
Accounts receivable
(98.4)
17.0 
296.6 
Inventories
(114.4)
0.4 
349.6 
Other assets
(0.5)
32.9 
(5.0)
Accounts payable
97.9 
46.4 
(310.8)
Accrued expenses and other liabilities
(75.0)
(46.8)
(171.9)
Net cash provided by operating activities of continuing operations
34.8 
202.9 
337.4 
Net cash provided by (used for) operating activities of discontinued operations
(19.2)
6.4 
2.1 
Net cash provided by operating activities
15.6 
209.3 
339.5 
Cash Flows From Investing
 
 
 
Capital expenditures
(64.9)
(36.1)
(69.2)
Proceeds from sale of property, plant and equipment
17.5 
23.2 
19.6 
Restricted cash
2.2 
(3.0)
(1.4)
Business acquisitions, net of cash acquired
 
(4.8)
 
Proceeds from sale of business
143.6 
 
149.2 
Net cash provided by (used for) investing activities of continuing operations
98.4 
(20.7)
98.2 
Net cash used for investing activities of discontinued operations
 
(4.2)
(3.3)
Net cash provided by (used for) investing activities
98.4 
(24.9)
94.9 
Cash Flows From Financing
 
 
 
Proceeds from (payments on) revolving credit facility-net
(24.2)
24.2 
(17.0)
Proceeds from swap monetization
21.5 
 
 
Payments on long-term debt
(960.3)
(1,250.8)
(593.8)
Proceeds from long-term debt
845.0 
1,063.0 
136.3 
Proceeds from securitization facility
 
101.0 
 
(Payments on) securitization facility
 
(101.0)
 
Proceeds from (payments on) notes financing - net
14.8 
(4.1)
(5.4)
Debt issuance costs
(14.7)
(27.0)
(18.1)
Dividends paid
(10.6)
(10.6)
(10.5)
Exercises of stock options including windfall tax benefits
2.6 
0.9 
2.0 
Net cash provided by (used for) financing activities
(125.9)
(204.4)
(506.5)
Effect of exchange rate changes on cash
(3.2)
 
5.7 
Net increase (decrease) in cash and cash equivalents
(15.1)
(20.0)
(66.4)
Balance at beginning of year
83.7 
103.7 
170.1 
Balance at end of year
68.6 
83.7 
103.7 
Supplemental Cash Flow Information
 
 
 
Interest paid
154.1 
159.3 
168.1 
Income taxes paid (refunded)
$ 24.2 
$ (40.4)
$ (45.6)
Consolidated Statements of Equity and Comprehensive Income (Loss) (USD $)
In Millions, except Share data, unless otherwise specified
Total
Equity attributable to Manitowoc shareholders
Common Stock
Additional Paid-in Capital
Accumulated Other Comprehensive Income (Loss)
Retained Earnings
Treasury Stock
Noncontrolling Interest
Comprehensive Income (Loss)
Balance at beginning of year at Dec. 31, 2008
 
 
$ 1.4 
$ 436.1 
$ 68.5 
$ 904.4 
$ (88.9)
$ 1.8 
 
Balance (in shares) at Dec. 31, 2008
 
 
130,359,554 
 
 
 
 
 
 
Increase (Decrease) in Stockholders' Equity
 
 
 
 
 
 
 
 
 
Stock options exercised
 
 
 
0.7 
 
 
0.5 
 
 
Stock options exercised (in shares)
 
 
169,270 
 
 
 
 
 
 
Restricted stock expense
 
 
 
1.5 
 
 
 
 
 
Restricted stock expense (in shares)
 
 
179,300 
 
 
 
 
 
 
Windfall tax benefit on stock options exercised
 
 
 
0.8 
 
 
 
 
 
Stock option expense
 
 
 
5.3 
 
 
 
 
 
Net earnings (loss)
(671.6)
 
 
 
 
(669.1)
 
 
(671.6)
Cash dividends
 
 
 
 
 
(10.5)
 
 
 
Other comprehensive income (loss)
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
 
 
 
 
9.0 
 
 
 
9.0 
Derivative instrument fair market adjustment, net of income taxes of $2.2, $(3.3) and $1.8
 
 
 
 
3.4 
 
 
 
3.4 
Employee pension and postretirement benefits, net of income taxes of $(9.7), $(6.7) and $(10.3)
 
 
 
 
(19.1)
 
 
 
(19.1)
Total comprehensive income (loss)
 
 
 
 
 
 
 
 
(678.3)
Comprehensive loss attributable to noncontrolling interest
 
 
 
 
 
 
 
(2.5)
(2.5)
Comprehensive income (loss) attributable to Manitowoc
 
 
 
 
 
 
 
 
(675.8)
Balance at end of year at Dec. 31, 2009
643.3 
644.0 
1.4 
444.4 
61.8 
224.8 
(88.4)
(0.7)
 
Balance (in shares) at Dec. 31, 2009
 
 
130,708,124 
 
 
 
 
 
 
Increase (Decrease) in Stockholders' Equity
 
 
 
 
 
 
 
 
 
Stock options exercised
 
 
 
0.6 
 
 
0.3 
 
 
Stock options exercised (in shares)
 
 
166,718 
 
 
 
 
 
 
Restricted stock expense
 
 
 
2.6 
 
 
 
 
 
Restricted stock expense (in shares)
 
 
513,630 
 
 
 
 
 
 
Windfall tax benefit on stock options exercised
 
 
 
(0.2)
 
 
 
 
 
Stock option expense
 
 
 
6.6 
 
 
 
 
 
Net earnings (loss)
(82.2)
 
 
 
 
(79.5)
 
 
(82.2)
Cash dividends
 
 
 
 
 
(10.6)
 
 
 
Other comprehensive income (loss)
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
 
 
 
 
(33.4)
 
 
 
(33.4)
Derivative instrument fair market adjustment, net of income taxes of $2.2, $(3.3) and $1.8
 
 
 
 
(6.1)
 
 
 
(6.1)
Employee pension and postretirement benefits, net of income taxes of $(9.7), $(6.7) and $(10.3)
 
 
 
 
(12.4)
 
 
 
(12.4)
Total comprehensive income (loss)
 
 
 
 
 
 
 
 
(134.1)
Comprehensive loss attributable to noncontrolling interest
 
 
 
 
 
 
 
(2.7)
(2.7)
Comprehensive income (loss) attributable to Manitowoc
 
 
 
 
 
 
 
 
(131.4)
Balance at end of year at Dec. 31, 2010
508.5 
511.9 
1.4 
454.0 
9.9 
134.7 
(88.1)
(3.4)
 
Balance (in shares) at Dec. 31, 2010
 
 
131,388,472 
 
 
 
 
 
 
Increase (Decrease) in Stockholders' Equity
 
 
 
 
 
 
 
 
 
Stock options exercised
 
 
 
1.0 
 
 
0.7 
 
 
Stock options exercised (in shares)
 
 
244,923 
 
 
 
 
 
 
Restricted stock expense
 
 
 
4.0 
 
 
 
 
 
Restricted stock expense (in shares)
 
 
251,370 
 
 
 
 
 
 
Windfall tax benefit on stock options exercised
 
 
 
0.8 
 
 
 
 
 
Performance shares
 
 
 
4.1 
 
 
 
 
 
Stock option expense
 
 
 
6.9 
 
 
 
 
 
Net earnings (loss)
(17.0)
 
 
 
 
(10.5)
 
 
(17.0)
Cash dividends
 
 
 
 
 
(10.6)
 
 
 
Other comprehensive income (loss)
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
 
 
 
 
(10.9)
 
 
 
(10.9)
Derivative instrument fair market adjustment, net of income taxes of $2.2, $(3.3) and $1.8
 
 
 
 
4.0 
 
 
 
4.0 
Employee pension and postretirement benefits, net of income taxes of $(9.7), $(6.7) and $(10.3)
 
 
 
 
(18.0)
 
 
 
(18.0)
Total comprehensive income (loss)
 
 
 
 
 
 
 
 
(41.9)
Comprehensive loss attributable to noncontrolling interest
 
 
 
 
 
 
 
(6.5)
(6.5)
Comprehensive income (loss) attributable to Manitowoc
 
 
 
 
 
 
 
 
(35.4)
Balance at end of year at Dec. 31, 2011
$ 473.5 
$ 483.4 
$ 1.4 
$ 470.8 
$ (15.0)
$ 113.6 
$ (87.4)
$ (9.9)
 
Balance (in shares) at Dec. 31, 2011
 
 
131,884,765 
 
 
 
 
 
 
Consolidated Statements of Equity and Comprehensive Income (Loss) (Parenthetical) (USD $)
In Millions, unless otherwise specified
12 Months Ended
Dec. 31, 2011
Dec. 31, 2010
Dec. 31, 2009
Consolidated Statements of Equity and Comprehensive Income (Loss)
 
 
 
Derivative instrument fair market adjustment, income taxes
$ 2.2 
$ (3.3)
$ 1.8 
Employee pension and postretirement benefits, income taxes
$ (9.7)
$ (6.7)
$ (10.3)
Company and Basis of Presentation
Company and Basis of Presentation

 

 

1. Company and Basis of Presentation

 

Company 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.

 

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.

 

Our Foodservice business is among the world’s leading designers and manufacturers of commercial foodservice equipment.  Our Foodservice capabilities 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.  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.

 

On December 15, 2010, the company reached a definitive agreement to divest of its non-core Kysor/Warren and Kysor/Warren de Mexico businesses to Lennox International for approximately $145 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.

 

In order to secure clearance for the acquisition of Enodis plc (“Enodis”) in October 2008 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.  In May 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.

 

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.

 

Revision of prior period financial statements

During the quarter ended December 31, 2011, the company identified a $28.5 million error related to its income taxes payable and goodwill accounts that originated during 2008, resulting in the overstatement of these accounts in its previously filed financial statements. This $28.5 million error also overstated the goodwill impairment charge included in the company’s Consolidated Statement of Operations for the year ended December 31, 2009.  The impact of the error on the 2009 goodwill impairment charge is non-deductible for tax purposes.  In addition, the company had previously identified an error related to the understatement of the 2009 tax benefit by $6.6 million that had been corrected as an out-of-period adjustment in the third quarter of 2010.  The company does not believe these errors to be material to the company’s results of operations, financial position, or cash flows for any of the company’s previously filed annual or quarterly financial statements.  Accordingly, the Consolidated Statement of Operations for the years ended December 31, 2010 and 2009, and the Consolidated Balance Sheet as of December 31, 2010, included herein have been revised to correct these errors.  The company has also revised the prior period financial statements to correct immaterial errors related to overstated intercompany profit elimination and understated foreign exchange transaction gains.  The correction of the overstated intercompany profit elimination decreased cost of sales $0.7 million for the year ended December 31, 2010, increased costs of sales $0.2 million for the year ended December 31, 2009 and increased inventory $1.1 million at December 31, 2010.  The correction of the understated foreign exchange transaction gains increased other income $0.2 million and $0.2 million for the years ended December 31, 2010 and 2009, respectively, and decreased accounts payable $0.4 million at December 31, 2010. In addition, the quarterly information for 2010 has been revised.  See Note 24, “Quarterly Financial Data (Unaudited)” for further discussion of the quarterly revisions. The impacts of these revisions are as follows:

 

 

 

As of December 31, 2010

 

Consolidated Balance Sheets:

 

As Reported

 

As Revised

 

Accounts payable and accrued expenses

 

$

776.1

 

$

748.0

 

Total current liabilities

 

1,025.5

 

997.4

 

Total equity

 

$

478.5

 

$

508.5

 

 

 

 

For the years ended December 31,

 

 

 

2010

 

2009

 

Consolidated Statements of Operations:

 

As Reported

 

As Revised

 

As Reported

 

As Revised

 

Goodwill impairment

 

$

 

$

 

$

548.8

 

$

520.3

 

Total costs and expenses

 

 

 

4,132.2

 

4,103.9

 

Operating earnings (loss) from continuing operations

 

 

 

(512.4

)

(484.1

)

Earnings (loss) from continuing operations before taxes on earnings

 

 

 

(707.3

)

(678.8

)

Provision (benefit) for taxes on earnings

 

23.9

 

30.9

 

(58.9

)

(65.5

)

Loss from continuing operations

 

(68.5

)

(74.6

)

(648.4

)

(613.3

)

Net loss

 

(76.1

)

(82.2

)

(706.7

)

(671.6

)

Net loss attributable to Manitowoc

 

$

(73.4

)

$

(79.5

)

$

(704.2

)

$

(669.1

)

 

 

 

 

 

 

 

 

 

 

Basic and diluted earnings (loss) per share from continuing operations

 

$

(0.50

)

$

(0.55

)

$

(4.96

)

$

(4.69

)

Basic and diluted earnings (loss) per share

 

$

(0.56

)

$

(0.61

)

$

(5.41

)

$

(5.14

)

 

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, 2011 and 2010 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 an indemnity agreement for our casualty insurance provider 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 89% and 87% of the company’s inventories at December 31, 2011 and 2010, 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 $31.4 million and $31.0 million at December 31, 2011 and 2010, 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

 

3 - 15

 

Computer hardware and software

 

2 - 7

 

 

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 $76.2 million and $58.9 million, net of accumulated depreciation, at December 31, 2011 and 2010, 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 on 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 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.

 

During 2011, 2010 and 2009, 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 the Consolidated Statements of Stockholders’ Equity represents the net gain (loss) on foreign exchange currency exchange contracts and commodity contracts designated as cash flow hedges, net of income taxes.

 

Cash Flow Hedges 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 hedged transactions, typically sales and costs related to sales and interest expense, occur and affect earnings.  These contracts are highly effective in hedging the variability in future cash 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.  See Note 12, “Debt” for further discussion of fair value hedges.

 

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, 2011, the company has six 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.  The company recognized $4.0 million, $2.6 million and $1.5 million of compensation expense related to restricted stock during the years ended December 31, 2011, 2010 and 2009, respectively. In addition to the compensation expense related to restricted stock, the company recognized $6.9 million, $6.6 million and $5.3 million of compensation expense related to stock options during the years ended December 31, 2011, 2010 and 2009, respectively.  The company also recognized $4.1 million of compensation expense associated with performance shares in 2011.

 

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 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 $80.6 million, $72.2 million and $57.4 million for the years ended December 31, 2011, 2010 and 2009, 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, performance shares 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 (Loss) Comprehensive income (loss) 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 the current global economic conditions.

 

Recent accounting changes and pronouncements In September 2011, the FASB issued ASU 2011-09 which requires enhanced disclosures around an employer’s participation in multiemployer pension plans.  The standard is intended to provide more information about an employer’s financial obligations to a multiemployer pension plan to help financial statement users better understand the financial health of the significant plans in which the employer participates.  This guidance is effective for the Company for its fiscal 2011 year-end reporting.  Its adoption did not significantly impact the Company’s consolidated financial statements.  The updated disclosures are included in Note 20, “Employee Benefit Plans.”

 

In September 2011, the FASB issued ASU 2011-08 which provides an entity the option to first assess qualitative factors to determine whether it is necessary to perform the current two-step test for goodwill impairment.  If an entity believes, as a result of its qualitative assessment, that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test is required.  Otherwise, no further testing is required. The revised standard is effective for the company’s annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011.  The adoption of this ASU is not expected to significantly impact the company’s consolidated financial statements.

 

In June 2011 and December 2011, the FASB issued an update to ASC Topic No. 220, “Presentation of Comprehensive Income,” which eliminates the option to present other comprehensive income and its components in the statement of shareholders’ equity. The Company can elect to present the items of net income and other comprehensive income in a single continuous statement of comprehensive income or in two separate, but consecutive, statements. Under either method the statement would need to be presented with equal prominence as the other primary financial statements. The amended guidance, which must be applied retroactively, is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011.

 

Acquisitions
Acquisitions

 

 

3. Acquisitions

 

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.

 

Discontinued Operations
Discontinued Operations

 

 

4. Discontinued Operations

 

On December 15, 2010, the company announced that a definitive agreement had been reached to divest its Kysor/Warren and Kysor/Warren de Mexico (collectively “Kysor/Warren”) businesses, which manufacture 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, resulting in a $34.6 million loss on sale, primarily consisting of $29.9 million of income tax expense, and the net proceeds were used to pay down outstanding debt.  On July 1, 2011, the company made a payment to Lennox International of $2.4 million as the final working capital adjustment under the sale agreement.  The results of these operations have been classified as discontinued operations.

 

The following selected financial data of the Kysor/Warren businesses for the years ended December 31, 2011, 2010 and 2009 is presented for informational purposes only and does not necessarily reflect what the results of operations would have been had the businesses 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)

 

2011

 

2010

 

2009

 

Net sales

 

$

6.5

 

$

216.4

 

$

162.8

 

 

 

 

 

 

 

 

 

Pretax earnings (loss) from discontinued operation

 

$

(5.4

)

$

(4.6

)

$

1.1

 

Provision (benefit) for taxes on earnings

 

(2.2

)

2.2

 

0.1

 

Net earnings (loss) from discontinued operation

 

$

(3.2

)

$

(6.8

)

$

1.0

 

 

In order to secure clearance for the acquisition of Enodis in October 2008 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.  In May 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 a discontinued operation.

 

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 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.

 

The following selected financial data of the Enodis ice and related businesses, primarily consisting of administrative costs, for the years ended December 31, 2011, 2010 and 2009 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)

 

2011

 

2010

 

2009

 

Net sales

 

$

 

$

 

$

 

 

 

 

 

 

 

 

 

Pretax earnings (loss) from discontinued operation

 

$

 

$

(0.1

)

$

(36.5

)

Provision (benefit) for taxes on earnings

 

 

0.1

 

(2.8

)

Net earnings (loss) from discontinued operation

 

$

 

$

(0.2

)

$

(33.7

)

 

In addition to the Enodis ice and related businesses, the company has classified various businesses disposed of prior to 2009 as discontinued in compliance with ASC Topic 360-10, “Property, Plant, and Equipment.”

 

The following selected financial data of various business disposed of prior to 2009, primarily consisting of administrative costs, for the years ended December 31, 2011, 2010, and 2009 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)

 

2011

 

2010

 

2009

 

Net sales

 

$

 

$

 

$

 

 

 

 

 

 

 

 

 

Pretax earnings (loss) from discontinued operation

 

$

(1.2

)

$

(0.9

)

$

(1.7

)

Gain on sale, net of income taxes of $0, $0 and $0

 

 

 

1.0

 

Provision (benefit) for taxes on earnings

 

(0.5

)

(0.3

)

(0.3

)

Net earnings (loss) from discontinued operation

 

$

(0.7

)

$

(0.6

)

$

(0.4

)

 

Fair Value of Financial Instruments
Fair Value of Financial Instruments

 

 

5. Fair Value of Financial Instruments

 

The following tables set forth the company’s financial assets and liabilities that were accounted for at fair value on a recurring basis as of December 31, 2011 and 2010 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, 2011

 

(in millions)

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Current Assets:

 

 

 

 

 

 

 

 

 

Foreign currency exchange contracts

 

$

 

$

0.8

 

$

 

$

0.8

 

Forward commodity contracts

 

 

 

 

 

Marketable securities

 

2.7

 

 

 

2.7

 

Total Current assets at fair value

 

$

2.7

 

$

0.8

 

$

 

$

3.5

 

 

 

 

 

 

 

 

 

 

 

Non-current Assets:

 

 

 

 

 

 

 

 

 

Interest rate swap contracts

 

$

 

$

0.5

 

$

 

$

0.5

 

Interest rate cap contracts

 

 

0.3

 

 

0.3

 

Total Non-current assets at fair value

 

$

 

$

0.8

 

$

 

$

0.8

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

 

Foreign currency exchange contracts

 

$

 

$

6.7

 

$

 

$

6.7

 

Forward commodity contracts

 

 

2.4

 

 

2.4

 

Total Current liabilities at fair value

 

$

 

$

9.1

 

$

 

$

9.1

 

 

 

 

 

 

 

 

 

 

 

Non-current Liabilities:

 

 

 

 

 

 

 

 

 

Interest rate swap contracts

 

$

 

$

9.5

 

$

 

$

9.5

 

Total Non-current liabilities at fair value

 

$

 

$

9.5

 

$

 

$

9.5

 

 

 

 

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

 

$

2.7

 

$

3.4

 

$

 

$

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

 

$

 

$

0.9

 

$

 

$

0.9

 

 

 

 

 

 

 

 

 

 

 

Non-current Liabilities:

 

 

 

 

 

 

 

 

 

Interest rate swap contracts

 

$

 

$

38.4

 

$

 

$

38.4

 

Total Non-current liabilities at fair value

 

$

 

$

38.4

 

$

 

$

38.4

 

 

The carrying value of the amounts reported in the Consolidated Balance Sheets for cash, accounts receivable, accounts payable, deferred purchase price notes on receivables sold (see Note 12, "Accounts Receivable Securitization" for further discussion of deferred purchase price notes on receivables sold) and short-term variable debt, including any amounts outstanding under our revolving credit facility, approximate fair value, without being discounted, due to the short periods during which these amounts are outstanding.

 

The fair value of the company’s 2013 Notes was approximately $146.6 million and $152.4 million for the years ending December 31, 2011 and 2010, respectively.  The fair value of the company’s 2018 Notes was approximately $434.0 million and $438.8 million as of December 31, 2011 and 2010, respectively.  The fair value of the company’s 2020 Notes was approximately $634.9 million and $645.0 million as of December 31, 2011 and 2010, respectively.  The fair values of the company’s term loans under the New Senior Credit Facility are as follows as of December 31, 2011 and 2010, respectively:  Term Loan A — $318.6 million and $461.2 million and Term Loan B — $324.1 million and $342.0 million.  See Note 11, “Debt” for a description of the debt instruments and their related carrying values.

 

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

 

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 or cap 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 swaps, currency forward contracts, caps, and float-to-fixed interest rate swaps as cash flow hedges of forecasted purchases of commodities and currencies, and variable rate interest payments.  Also in accordance with ASC Topic 815-10, the company designates fixed-to-float interest rate swaps as fair market value hedges of fixed rate debt, which synthetically swaps the company’s fixed rate debt to floating rate debt.

 

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 $4.5 million of unrealized and realized losses, net of tax, 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 twelve and eighteen months, respectively.

 

The risk management objective for the company’s fair market value interest rate hedges is to effectively change the amount of the underlying debt equal to the notional value of the hedges from a fixed to a floating interest rate based on the six-month U.S. LIBOR rate.  These swaps include an embedded call feature to match the terms of the call schedule embedded in the Senior Notes. Changes in the fair value of the interest rate swap are expected to offset changes in the fair value of the debt due to changes in the U.S. Six Month LIBOR rate.

 

As of December 31, 2011, 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

 

1,254 MT

 

Cash Flow

 

Copper

 

684 MT

 

Cash Flow

 

Natural Gas

 

346,902 MMBtu

 

Cash Flow

 

Steel

 

8,231 Short Tons

 

Cash Flow

 

 

Short Currency

 

Units Hedged

 

Type

 

Canadian Dollar

 

25,083,644

 

Cash Flow

 

European Euro

 

67,565,453

 

Cash Flow

 

South Korean Won

 

3,224,015,436

 

Cash Flow

 

Singapore Dollar

 

4,800,000

 

Cash Flow

 

United States Dollar

 

5,538,777

 

Cash Flow

 

Chinese Renminbi

 

111,177,800

 

Cash Flow

 

 

As of June 30, 2011, the company offset and de-designated all of its previous float-to-fixed interest rate swaps against Term Loans A and B due to the refinance of its original senior credit facility in May of 2011.  At December 31, 2011, the company did not have any float-to-fixed interest rate hedges booked against the New Senior Credit Facility.  In the third quarter of 2011, the Company entered into $450.0 million of 3.00% interest rate caps which effectively cap the company’s future interest rate exposure for the notional value of its variable term debt at a 1 Month LIBOR rate of 3.00% plus the applicable spread per the New Senior Credit Agreement.  The company paid various bank partners $0.7 million in option premium to purchase the 3.00% 1 Month LIBOR protection on Term Loans A and B.  The related derivative asset will be amortized to interest expense over the life of the cap protection.  The caps were designated as a hedge of the 1 Month LIBOR rate above 3.00% so any change in value of the derivative is booked to other comprehensive income.  The remaining unhedged portions of Term Loans A and B continue to bear interest according to the terms of the New Senior Credit Facility.

 

The company is also party to various fixed-to-float interest rate swaps designated as fair market value hedges of its 2018 and 2020 Notes.  The company monetized the derivative asset related to its fixed-to-float interest rate swaps due in 2018 and 2020 and received $21.5 million in the third quarter of 2011. As such, the company de-designated the original fixed-to-float interest rate swaps.  The gain is treated as an increase to the debt balances for each of the senior notes and will be amortized to reduce interest expense over the life of the original swap.  Subsequently, the company purchased and designated new fixed-to-float swaps as fair market value hedges of the company’s 9.50% Senior Notes due 2018 (2018 Swaps) and 8.50% Senior Notes due 2020 (2020 Swaps).  At December 31, 2011, $200.0 million and $300.0 million of the 2018 and 2020 Notes were swapped to floating rate interest, respectively.  Including the floating rate swaps, the 2018 and 2020 Senior Notes have an all-in interest rate of 8.88 percent and 7.66 percent, 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.

 

Short Currency

 

Units Hedged

 

Recognized Location

 

Purpose

 

Euro

 

33,150,213

 

Other income, net

 

Accounts payable and receivable settlement

 

United States Dollar

 

6,000,000

 

Other income, net

 

Accounts payable and receivable settlement

 

Australian Dollar

 

7,569,912

 

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, 2011 was as follows:

 

 

 

ASSET DERIVATIVES

 

(in millions)

 

Balance Sheet Location

 

Fair Value

 

Derivatives designated as hedging instruments

 

 

 

 

 

Foreign exchange contracts

 

Other current assets

 

$

0.6

 

Commodity contracts

 

Other current assets

 

0.0

 

Interest rate swap contracts: Fixed-to-float

 

Other non-current assets

 

0.5

 

Interest rate cap contracts

 

Other non-current assets

 

0.3

 

Total derivatives designated as hedging instruments

 

 

 

$

1.4

 

 

 

 

ASSET DERIVATIVES

 

(in millions)

 

Balance Sheet Location

 

Fair Value

 

Derivatives NOT designated as hedging instruments

 

 

 

 

 

Foreign exchange contracts

 

Other current assets

 

$

0.1

 

Total derivatives NOT designated as hedging instruments

 

 

 

$

0.1

 

 

 

 

 

 

 

Total asset derivatives

 

 

 

$

1.5

 

 

The fair value of outstanding derivative contracts recorded as liabilities in the accompanying Consolidated Balance Sheet as of December 31, 2011 was as follows:

 

 

 

LIABILITY DERIVATIVES

 

(in millions)

 

Balance Sheet Location

 

Fair Value

 

Derivatives designated as hedging instruments

 

 

 

 

 

Foreign exchange contracts

 

Accounts payable and accrued expenses

 

$

5.2

 

Interest rate swap contracts: Fixed-to-float

 

Other non-current liabilities

 

0.0

 

Commodity contracts

 

Accounts payable and accrued expenses

 

2.5

 

Total derivatives designated as hedging instruments

 

 

 

$

7.7

 

 

 

 

LIABILITY DERIVATIVES

 

(in millions)

 

Balance Sheet Location

 

Fair Value

 

Derivatives NOT designated as hedging instruments

 

 

 

 

 

Foreign exchange contracts

 

Accounts payable and accrued expenses

 

$

  1.6

 

Interest rate swap contracts: Float-to-fixed

 

Accounts payable and accrued expenses

 

9.5

 

Total derivatives NOT designated as hedging instruments

 

 

 

$

   11.1

 

 

 

 

 

 

 

Total liability derivatives

 

 

 

$

   18.8

 

 

The effect of derivative instruments on the Consolidated Statement of Operations for the twelve months ended December 31, 2011 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

 

$

(3.7

)

Cost of sales

 

$

2.5

 

Interest rate swap & cap contracts

 

1.3

 

Interest expense

 

(5.3

)

Commodity contracts

 

(2.1

)

Cost of sales

 

(0.3

)

Total

 

$

(4.5

)

 

 

$

(3.1

)

 

Derivatives Relationships

 

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

 

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

 

Commodity contracts

 

Cost of sales

 

$

(0.1

)

Total

 

 

 

$

(0.1

)

 

Derivatives Not Designated as
Hedging Instruments

 

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

 

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

 

Foreign exchange contracts

 

Other income

 

$

(2.0

)

Interest rate swap contracts

 

Other income

 

 

4.8

 

Total

 

 

 

$

2.8

 

 

Derivatives Designated as Fair
Market Value Instruments under
ASC 815

 

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

 

$

22.3

 

Total

 

 

 

$

22.3

 

 

As of December 31, 2010, 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

 

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

 

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.

 

Short Currency

 

Units Hedged

 

Recognized Location

 

Purpose

 

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

 

(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

 

 

 

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

 

 

 

$

  3.4

 

 

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

 

 

 

LIABILITIES DERIVATIVES

 

 

 

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 (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)

 

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

 

 

Inventories
Inventories

 

 

7. Inventories

 

The components of inventories at December 31, 2011 and December 31, 2010 are summarized as follows:

 

(in millions)

 

2011

 

2010

 

Inventories — gross:

 

 

 

 

 

Raw materials

 

$

249.7

 

$

223.9

 

Work-in-process

 

168.1

 

119.8

 

Finished goods

 

357.6

 

326.4

 

Total inventories — gross

 

775.4

 

670.1

 

Excess and obsolete inventory reserve

 

(75.3

)

(80.3

)

Net inventories at FIFO cost

 

700.1

 

589.8

 

Excess of FIFO costs over LIFO value

 

(31.4

)

(31.0

)

Inventories — net

 

$

668.7

 

$

558.8

 

 

Property, Plant and Equipment
Property, Plant and Equipment

 

 

8. Property, Plant and Equipment

 

The components of property, plant and equipment at December 31, 2011 and 2010 are summarized as follows:

 

(in millions)

 

2011

 

2010

 

Land

 

$

50.4

 

$

53.8

 

Building and improvements

 

337.6

 

348.1

 

Machinery, equipment and tooling

 

494.4

 

507.2

 

Furniture and fixtures

 

48.7

 

42.1

 

Computer hardware and software

 

82.6

 

84.1

 

Rental cranes

 

109.3

 

99.5

 

Construction in progress

 

79.4

 

66.2

 

Total cost

 

1,202.4

 

1,201.0

 

Less accumulated depreciation

 

(634.2

)

(635.2

)

Property, plant and equipment-net

 

$

568.2

 

$

565.8

 

 

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

 

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, 2011 and 2010 were as follows:

 

(in millions)

 

Crane

 

Foodservice

 

Total

 

Gross balance as of January 1, 2010

 

$

289.7

 

$

1,406.5

 

$

1,696.2

 

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

 

$

1,414.5

 

$

1,693.5

 

Asset impairments

 

 

(520.3

)

(520.3

)

Net balance as of December 31, 2010

 

$

279.0

 

$

894.2

 

$