MANITOWOC CO INC, 10-Q filed on 11/7/2017
Quarterly Report
Document and Entity Information
9 Months Ended
Sep. 30, 2017
Document And Entity Information [Abstract]
 
Entity Registrant Name
MANITOWOC CO INC 
Entity Central Index Key
0000061986 
Trading Symbol
MTW 
Document Type
10-Q 
Document Period End Date
Sep. 30, 2017 
Amendment Flag
false 
Current Fiscal Year End Date
--12-31 
Entity Filer Category
Large Accelerated Filer 
Entity Shares Outstanding
140,734,391 
Document Fiscal Year Focus
2017 
Document Fiscal Period Focus
Q3 
Condensed Consolidated Statements of Operations (USD $)
In Millions, except Share data, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2017
Sep. 30, 2016
Sep. 30, 2017
Sep. 30, 2016
Operations
 
 
 
 
Net sales
$ 399.4 
$ 349.8 
$ 1,099.8 
$ 1,234.9 
Cost of sales
326.9 
309.0 
899.1 
1,027.1 
Gross profit
72.5 
40.8 
200.7 
207.8 
Operating costs and expenses:
 
 
 
 
Engineering, selling and administrative expenses
60.9 
73.0 
184.6 
218.8 
Asset impairment expense
 
96.9 
 
96.9 
Amortization of intangible assets
0.7 
0.7 
2.2 
Restructuring expense
3.7 
3.9 
21.3 
17.1 
Other operating (income) expense - net
 
0.5 
 
2.3 
Total operating costs and expenses
64.6 
175.0 
206.6 
337.3 
Operating income (loss)
7.9 
(134.2)
(5.9)
(129.5)
Other income (expense):
 
 
 
 
Interest expense
(9.6)
(10.0)
(29.4)
(29.6)
Amortization of deferred financing fees
(0.5)
(0.5)
(1.4)
(1.8)
Loss on debt extinguishment
 
 
 
(76.3)
Other income (expense) - net
(1.2)
0.5 
1.8 
3.7 
Total other expense
(11.3)
(10.0)
(29.0)
(104.0)
Income (loss) from continuing operations before taxes
(3.4)
(144.2)
(34.9)
(233.5)
Provision (benefit) for taxes on income
(13.1)
(5.3)
(9.3)
103.1 
Income (loss) from continuing operations
9.7 
(138.9)
(25.6)
(336.6)
Discontinued operations:
 
 
 
 
Loss from discontinued operations, net of income taxes of $0.0, $1.8, $0.0 and $0.5, respectively
(0.1)
(1.8)
(0.3)
(5.8)
Net income (loss)
$ 9.6 
$ (140.7)
$ (25.9)
$ (342.4)
Basic income (loss) per common share:
 
 
 
 
Loss from continuing operations (in dollars per share)
$ 0.07 
$ (1.01)
$ (0.18)
$ (2.45)
Loss from discontinued operations, net of income taxes (in dollars per share)
$ 0.00 
$ (0.01)
$ 0.00 
$ (0.04)
Loss per common share (in dollars per share)
$ 0.07 
$ (1.02)
$ (0.18)
$ (2.49)
Diluted income (loss) per common share:
 
 
 
 
Loss from continuing operations (in dollars per share)
$ 0.07 
$ (1.01)
$ (0.18)
$ (2.45)
Loss from discontinued operations (in dollars per share)
$ 0.00 
$ (0.01)
$ 0.00 
$ (0.04)
Diluted loss per common share (in dollars per share)
$ 0.07 
$ (1.02)
$ (0.18)
$ (2.49)
Weighted average shares outstanding — basic (in shares)
140,531,426 
138,422,953 
140,351,927 
137,390,809 
Weighted average shares outstanding — diluted (in shares)
143,337,177 
138,422,953 
140,351,927 
137,390,809 
Condensed Consolidated Statements of Operations (Parenthetical) (USD $)
In Millions, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2017
Sep. 30, 2016
Sep. 30, 2017
Sep. 30, 2016
Income Statement [Abstract]
 
 
 
 
Benefit for taxes on earnings
$ 0 
$ 1.8 
$ 0 
$ 0.5 
Condensed Consolidated Statements of Comprehensive Income (Loss) (USD $)
In Millions, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2017
Sep. 30, 2016
Sep. 30, 2017
Sep. 30, 2016
Statement Of Income And Comprehensive Income [Abstract]
 
 
 
 
Net income (loss)
$ 9.6 
$ (140.7)
$ (25.9)
$ (342.4)
Other comprehensive income (loss), net of tax
 
 
 
 
Unrealized income on derivatives, net of income tax provision of $0.0, $0.0, $0.0 and $0.0, respectively
 
0.2 
0.6 
1.7 
Employee pension and postretirement benefits, net of income tax provision of $3.3, $0.0, $4.1 and $0.0, respectively
5.7 
1.1 
6.8 
3.5 
Foreign currency translation adjustments
14.2 
5.7 
47.4 
37.5 
Net current period other comprehensive income
19.9 
7.0 
54.8 
42.7 
Comprehensive income (loss)
$ 29.5 
$ (133.7)
$ 28.9 
$ (299.7)
Condensed Consolidated Statements of Comprehensive Income (Loss) (Parenthetical) (USD $)
In Millions, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2017
Sep. 30, 2016
Sep. 30, 2017
Sep. 30, 2016
Statement Of Income And Comprehensive Income [Abstract]
 
 
 
 
Unrealized income on derivatives, net of income taxes
$ 0 
$ 0 
$ 0 
$ 0 
Employee pension and post retirement benefits, net of income taxes of
$ 3.3 
$ 0 
$ 4.1 
$ 0 
Condensed Consolidated Balance Sheets (USD $)
In Millions, unless otherwise specified
Sep. 30, 2017
Dec. 31, 2016
Current Assets:
 
 
Cash and cash equivalents
$ 29.3 
$ 69.9 
Accounts receivable, less allowances of $11.4 and $11.1, respectively
165.0 
134.4 
Inventories — net
482.2 
429.0 
Notes receivable — net
35.6 
62.4 
Other current assets
65.3 
54.0 
Total current assets
777.4 
749.7 
Property, plant and equipment — net
314.1 
308.8 
Goodwill
317.7 
299.6 
Other intangible assets — net
120.9 
114.1 
Other long-term assets
53.1 
45.6 
Total assets
1,583.2 
1,517.8 
Current Liabilities:
 
 
Accounts payable and accrued expenses
360.3 
321.2 
Short-term borrowings and current portion of long-term debt
10.2 
12.4 
Product warranties
33.2 
36.5 
Customer advances
15.6 
21.0 
Product liabilities
22.8 
21.7 
Total current liabilities
442.1 
412.8 
Non-Current Liabilities:
 
 
Long-term debt
277.4 
269.1 
Deferred income taxes
43.5 
36.6 
Pension obligations
85.1 
86.4 
Postretirement health and other benefit obligations
28.8 
38.0 
Long-term deferred revenue
19.2 
20.3 
Other non-current liabilities
59.2 
64.1 
Total non-current liabilities
513.2 
514.5 
Commitments and contingencies (Note 14)
   
   
Stockholders' Equity:
 
 
Preferred stock (authorized 3,500,000 shares of $.01 par value; none outstanding)
   
   
Common stock (300,000,000 shares authorized, 163,175,928 shares issued, 140,734,391 and 139,841,214 shares outstanding, respectively)
1.4 
1.4 
Additional paid-in capital
573.6 
567.6 
Accumulated other comprehensive loss
(108.1)
(162.9)
Retained earnings
221.4 
247.3 
Treasury stock, at cost (22,441,537 and 23,334,714 shares, respectively)
(60.4)
(62.9)
Total stockholders' equity
627.9 
590.5 
Total liabilities and stockholders' equity
$ 1,583.2 
$ 1,517.8 
Condensed Consolidated Balance Sheets (Parenthetical) (USD $)
In Millions, except Share data, unless otherwise specified
Jun. 30, 2017
Dec. 31, 2016
Statement Of Financial Position [Abstract]
 
 
Accounts Receivable, allowances (in dollars)
$ 11.4 
$ 11.1 
Preferred stock authorized (in shares)
3,500,000 
3,500,000 
Par value of preferred stock per share (in dollars per share)
$ 0.01 
$ 0.01 
Preferred stock outstanding (in shares)
Common stock, shares authorized (in shares)
300,000,000 
300,000,000 
Common stock, shares issued (in shares)
163,175,928 
163,175,928 
Common stock, shares outstanding (in shares)
140,734,391 
139,841,214 
Treasury stock (in shares)
22,441,537 
23,334,714 
Condensed Consolidated Statements of Cash Flows (USD $)
In Millions, unless otherwise specified
9 Months Ended
Sep. 30, 2017
Sep. 30, 2016
Cash Flows from Operations:
 
 
Net income (loss)
$ (25.9)
$ (342.4)
Adjustments to reconcile net loss to cash used for operating activities of continuing operations:
 
 
Asset impairment expense
 
96.9 
Discontinued operations, net of income taxes
0.3 
5.8 
Depreciation
29.1 
34.9 
Amortization of intangible assets
0.7 
2.2 
Amortization of deferred financing fees
1.4 
1.8 
Deferred income taxes
(1.3)
114.0 
Loss on early debt extinguishment
 
15.4 
(Gain) loss on sale of property, plant and equipment
(1.0)
1.1 
Other
6.4 
(2.7)
Changes in operating assets and liabilities, excluding effects of business divestitures:
 
 
Accounts receivable
(19.8)
25.3 
Inventories
(33.8)
(32.5)
Notes receivable
15.0 
24.6 
Other assets
(12.1)
(11.5)
Accounts payable
36.4 
(87.0)
Accrued expenses and other liabilities
(29.3)
(26.1)
Net cash used for operating activities of continuing operations
(33.9)
(180.2)
Net cash used for operating activities of discontinued operations
(0.3)
(49.3)
Net cash used for operating activities
(34.2)
(229.5)
Cash Flows from Investing:
 
 
Capital expenditures
(17.0)
(34.8)
Proceeds from sale of fixed assets
6.7 
2.3 
Other
0.3 
(0.3)
Net cash used for investing activities of continuing operations
(10.0)
(32.8)
Net cash used for investing activities of discontinued operations
 
(2.4)
Net cash used for investing activities
(10.0)
(35.2)
Cash Flows from Financing:
 
 
Proceeds from revolving credit facility
10.0 
20.0 
Payments on long-term debt
(7.5)
(1,372.0)
Proceeds from long-term debt
 
262.0 
Payments on notes financing - net
(3.6)
(8.7)
Debt issuance costs
 
(8.9)
Exercises of stock options
3.7 
6.4 
Dividend from spun-off subsidiary
 
1,361.7 
Cash transferred to spun-off subsidiary
 
(17.7)
Net cash provided by financing activities of continuing operations
2.6 
242.8 
Net cash provided by financing activities of discontinued operations
 
0.2 
Net cash provided by financing activities
2.6 
243.0 
Effect of exchange rate changes on cash
1.0 
1.2 
Net decrease in cash and cash equivalents
(40.6)
(20.5)
Balance at beginning of period, including cash of discontinued operations of $0.0 and $31.9
69.9 
63.4 
Balance at end of period
$ 29.3 
$ 42.9 
Condensed Consolidated Statements of Cash Flows (Parenthetical) (USD $)
In Millions, unless otherwise specified
Dec. 31, 2016
Dec. 31, 2015
Statement Of Cash Flows [Abstract]
 
 
Cash of discontinued operations
$ 0 
$ 31.9 
Accounting Policies and Basis of Presentation
Accounting Policies and Basis of Presentation

1.  Accounting Policies and Basis of Presentation

The Manitowoc Company, Inc. (“Manitowoc,” “MTW” and the “Company”) is a leading provider of engineered lifting equipment for the global construction industry, including lattice-boom cranes, tower cranes, mobile telescopic cranes and boom trucks. The Company has one reportable segment, the Crane business. The segment was identified using the “management approach,” which designates the internal organization that is used by management for making operating decisions and assessing performance.

In the opinion of management, the accompanying unaudited Condensed Consolidated Financial Statements contain all adjustments necessary for a fair statement of the results of operations and comprehensive income for the three and nine months ended September 30, 2017 and 2016, the cash flows for the same nine-month periods and the financial position at September 30, 2017 and December 31, 2016, and except as otherwise discussed, such adjustments consist of only those of a normal recurring nature. The interim results are not necessarily indicative of results for a full year and do not contain information included in the Company’s annual consolidated financial statements and notes for the year ended December 31, 2016. Certain information and footnote disclosures, normally included in financial statements prepared in accordance with generally accepted accounting principles, have been condensed or omitted pursuant to SEC rules and regulations dealing with interim financial statements. However, the Company believes that the disclosures made in the Condensed Consolidated Financial Statements included herein are adequate to make the information presented not misleading. It is suggested that these financial statements be read in conjunction with the financial statements and the notes thereto included in the Company’s latest annual report on Form 10-K.

During the first quarter of fiscal 2016, MTW's Board of Directors approved the tax-free spin-off of the Company’s foodservice business (“MFS”) into an independent, public company (the “Spin-Off”). To consummate the Spin-Off, the Board declared a pro rata dividend of MFS common stock to MTW’s stockholders of record as of the close of business on February 22, 2016 (the “Record Date”), payable on March 4, 2016. Each MTW stockholder received one share of MFS common stock for every share of MTW common stock held as of the close of business on the Record Date.

In these Condensed Consolidated Financial Statements, unless otherwise indicated, references to Manitowoc, MTW and the Company refer to The Manitowoc Company, Inc. and its consolidated subsidiaries after giving effect to the Spin-Off, or in the case of information as of dates or for periods prior to the Spin-Off, the consolidated entities of the Crane business and certain other assets and liabilities that were historically held at the MTW corporate level but were specifically identifiable and attributable to the Crane business.

As a result of the Spin-Off, the Condensed Consolidated Financial Statements and related financial information reflect MFS operations, assets and liabilities and cash flows as discontinued operations for all periods presented. Refer to Note 2, “Discontinued Operations,” for additional information regarding the Spin-Off.

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

During the second quarter of 2016, the Company identified an adjustment to the previously issued financial statements for the three months ended March 31, 2016.  The adjustment related to accumulated other comprehensive loss (“AOCL”), whereby the Company had understated loss on debt extinguishment by $4.3 million, overstated income tax expense by $0.8 million and understated loss from continuing operations by $3.5 million in the first quarter of 2016. The adjustment also resulted in an overstatement of AOCL and understatement of retained earnings by $2.6 million as of March 31, 2016.

In evaluating whether the Company’s previously issued consolidated financial statements were materially misstated, the Company considered the guidance in Accounting Standards Codification (“ASC”) Topic 250, “Accounting Changes and Error Corrections” and ASC Topic 250-10-S99-1, “Assessing Materiality.” The Company determined that these errors were not material to the Company's prior interim period consolidated financial statements and therefore, amending the previously filed report was not required. However, the Company determined that the impact of the corrections would be too significant to record within the second quarter of 2016. As such, the revision for the correction was reflected in the financial information for the first quarter of 2016.

During the fourth quarter of 2016, the Company identified an adjustment to the previously issued financial statements for the three months ended March 31, 2016, related to a non-cash reclassification between continuing and discontinued operations within the operating section of the Statement of Cash Flows for the three months ended March 31, 2016, whereby the change in accrued expenses and other liabilities and net cash used for operating activities of continuing operations was understated by $16.2 million, and the net cash used for operating activities of discontinued operating activities was overstated by $16.2 million. In evaluating whether the Company’s previously issued consolidated financial statements were materially misstated, the Company considered the guidance in ASC Topic 250 and ASC Topic 250-10-S99-1. The Company determined that these errors were not material to the Company's prior interim period consolidated financial statements, and therefore, amending the previously filed reports was not required. The revision for the correction was reflected in the financial information for the first quarter of 2016.

In the fourth quarter of 2016, the Company changed its method of inventory costing for certain inventory to the FIFO method from the LIFO method. The Company applied this change in method of inventory costing by retrospectively adjusting the prior period financial statements. As a result of the retrospective adjustment of the change in accounting principle, certain amounts in the Company's Condensed Consolidated Financial Statements for the three and nine months ended September 30, 2016 were adjusted.

A summary of the adjustments on the impacted financial statement line items in the Condensed Consolidated Statements of Operations as revised and as previously presented in the September 30, 2016 Form 10-Q is as follows ($ in millions):

 

 

 

Three Months Ended September 30, 2016

 

 

Nine Months Ended September 30, 2016

 

 

 

As

previously

presented

 

 

Impact of

change to

FIFO

 

 

As revised

 

 

As

previously

presented

 

 

Impact of

change to

FIFO

 

 

As revised

 

Cost of sales

 

$

308.3

 

 

$

0.7

 

 

$

309.0

 

 

$

1,023.3

 

 

$

3.8

 

 

$

1,027.1

 

Operating loss

 

 

(133.5

)

 

 

(0.7

)

 

 

(134.2

)

 

 

(125.7

)

 

 

(3.8

)

 

 

(129.5

)

Loss from continuing operations before taxes

   on income

 

 

(143.5

)

 

 

(0.7

)

 

 

(144.2

)

 

 

(229.7

)

 

 

(3.8

)

 

 

(233.5

)

Provision (benefit) for taxes on income

 

 

(5.3

)

 

 

 

 

 

(5.3

)

 

 

116.9

 

 

 

(13.8

)

 

 

103.1

 

Income (loss) from continuing operations

 

 

(138.2

)

 

 

(0.7

)

 

 

(138.9

)

 

 

(346.6

)

 

 

10.0

 

 

 

(336.6

)

Discontinued operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from discontinued operations, net of income

   taxes

 

 

(1.8

)

 

 

 

 

 

(1.8

)

 

 

(5.8

)

 

 

 

 

 

(5.8

)

Net income (loss)

 

$

(140.0

)

 

$

(0.7

)

 

$

(140.7

)

 

$

(352.4

)

 

$

10.0

 

 

$

(342.4

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) per common share - basic and diluted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations

 

$

(1.00

)

 

$

(0.01

)

 

$

(1.01

)

 

$

(2.52

)

 

$

0.07

 

 

$

(2.45

)

Loss from discontinued operations

 

 

(0.01

)

 

 

 

 

 

(0.01

)

 

 

(0.04

)

 

 

 

 

 

(0.04

)

Income (loss) per common share

 

$

(1.01

)

 

$

(0.01

)

 

$

(1.02

)

 

$

(2.56

)

 

$

0.07

 

 

$

(2.49

)

 

Discontinued Operations
Discontinued Operations

2.  Discontinued Operations

On March 4, 2016, Manitowoc completed the Spin-Off of MFS. The financial results of MFS are presented as loss from discontinued operations, net of income taxes in the Condensed Consolidated Statements of Operations. The following table presents the financial results of MFS through the date of the Spin-Off for the indicated period and does not include corporate overhead allocations:

Major classes of line items constituting earnings from discontinued operations before income taxes related to MFS

 

($ in millions)

 

Three Months Ended

September 30, 2016

 

 

Nine Months Ended

September 30, 2016

 

Net sales

 

$

 

 

$

219.6

 

 

 

 

 

 

 

 

 

 

Cost of sales

 

 

 

 

 

141.5

 

Engineering, selling and administrative expenses

 

 

 

 

 

48.4

 

Amortization expense

 

 

 

 

 

5.2

 

Restructuring expense

 

 

 

 

 

0.3

 

Separation expense

 

 

 

 

 

27.7

 

Total operating costs and expenses

 

 

 

 

 

223.1

 

Loss from operations

 

 

 

 

 

(3.5

)

Other expense

 

 

 

 

 

(1.8

)

Loss from discontinued operations before income

   taxes

 

 

 

 

 

(5.3

)

Provision for taxes on earnings

 

 

1.8

 

 

 

0.5

 

Loss from discontinued operations, net of income

   taxes

 

$

(1.8

)

 

$

(5.8

)

 

Net losses recorded by the Company related to discontinued operations from various businesses disposed in prior periods were $0.1 million and $0.3 million for the three and nine months ended September 30, 2017, respectively.

Manitowoc and MFS entered into agreements in connection with the Spin-Off, including a transition services agreement (“TSA”), separation and distribution agreement, tax matters agreement, intellectual property matters agreement and an employee matters agreement.

Pursuant to the TSA, Manitowoc, MFS and their respective subsidiaries provided various services to each other on an interim, transitional basis. Services provided by Manitowoc included, among others, finance, information technology and certain other administrative services. The services generally commenced on March 4, 2016, and all have terminated, generally within 12 months of that date. Billings by Manitowoc under the TSA were recorded as a reduction of the costs to provide the respective service in the applicable expense category.

Separation costs recorded by the Company during the three and nine months ended September 30, 2017, and three months ended September 30, 2016, related to the Spin-Off were negligible. During the nine months ended September 30, 2016, the Company recorded $27.7 million of separation costs related to the Spin-Off. Separation costs consisted primarily of professional and consulting fees and were included in the results of discontinued operations.

Inventories
Inventories

3.  Inventories

The components of inventories as of September 30, 2017 and December 31, 2016 are summarized as follows:

 

($ in millions)

 

September 30,

2017

 

 

December 31,

2016

 

Inventories:

 

 

 

 

 

 

 

 

Raw materials

 

$

133.2

 

 

$

109.3

 

Work-in-process

 

 

125.9

 

 

 

88.4

 

Finished goods

 

 

272.4

 

 

 

270.9

 

Total inventories

 

 

531.5

 

 

 

468.6

 

Excess and obsolete inventory reserve

 

 

(49.3

)

 

 

(39.6

)

Inventories — net

 

$

482.2

 

 

$

429.0

 

 

In the fourth quarter of 2016, the Company changed its method of inventory costing from LIFO to FIFO for certain of its inventory. See footnote 1 for further information.

Notes Receivable
Notes Receivable

4. Notes Receivable

Notes receivable balances as of September 30, 2017 and December 31, 2016, consisted primarily of amounts due to the Company's captive finance company in China and the remaining balance on the note from the 2014 sale of Manitowoc Dong Yue. In the third quarter of 2017, the Company renegotiated the terms of the note with Manitowoc Dong Yue to provide extended payment terms, which resulted in a reclassification of $9.8 million from current notes receivable to long-term notes receivable. As of September 30, 2017, the Company had current and long-term notes receivable in the amount of $35.6 million and $25.7 million, respectively. As of December 31, 2016, the Company had current and long-term notes receivable in the amount of $62.4 million and $21.1 million, respectively.  Long-term notes receivable are included within other long-term assets on the Condensed Consolidated Balance Sheet.

Goodwill and Other Intangible Assets
Goodwill and Other Intangible Assets

5.  Goodwill and Other Intangible Assets

The changes in the carrying amount of goodwill for the year ended December 31, 2016 and the nine months ended September 30, 2017 are as follows:

 

($ in millions)

 

Total

 

Balance as of January 1, 2016

 

$

306.5

 

Foreign currency impact

 

 

(6.9

)

Balance as of December 31, 2016

 

 

299.6

 

Foreign currency impact

 

 

18.1

 

Balance as of September 30, 2017

 

$

317.7

 

 

The Company accounts for goodwill and other intangible assets under the guidance of ASC Topic 350, “Intangibles — Goodwill and Other” for its single reporting unit, Cranes.

The Company performs an annual impairment review during the fourth quarter of every year, or more frequently if events or changes in circumstances indicate that the asset might be impaired. There have been no impairment indicators since the fourth quarter of 2016; therefore, no impairment review has occurred. The Company performs the impairment review for goodwill and indefinite-lived intangible assets using a fair-value method based on the present value of future cash flows, which involves management’s judgments and assumptions about the amounts of those cash flows and the discount rates used. The estimated fair value is then compared with the carrying amount of the reporting unit, including recorded goodwill, or indefinite-lived intangible asset. The intangible asset is then subject to risk of write-down to the extent that the carrying amount exceeds the estimated fair value.

A considerable amount of management judgment and assumptions are required in performing the impairment test, principally in determining the fair value of the reporting unit. While the Company believes the judgments and assumptions are reasonable, different assumptions could change the estimated fair value and, therefore, impairment charges could be required. Weakening industry or economic trends, disruptions to the Company's business, unexpected significant changes or planned changes in the use of the assets or in entity structure may adversely impact the assumptions used in the valuations. The Company continually monitors market conditions and determines if any additional interim reviews of goodwill, other intangibles or long-lived assets are warranted. In the event the Company determines that assets are impaired in the future, the Company would recognize a non-cash impairment charge, which could have a material adverse effect on the Company’s Condensed Consolidated Balance Sheets and Results of Operations.

Other intangible assets with definite lives continue to be amortized over their estimated useful lives. Definite lived intangible assets are also subject to impairment testing whenever events or circumstances indicate that the carrying value of the assets may not be recoverable.

The gross carrying amount, accumulated amortization and net book value of the Company’s intangible assets other than goodwill at September 30, 2017 and December 31, 2016 are as follows:

 

 

 

September 30, 2017

 

 

December 31, 2016

 

($ in millions)

 

Gross

Carrying

Amount

 

 

Accumulated

Amortization

 

 

Net

Book

Value

 

 

Gross

Carrying

Amount

 

 

Accumulated

Amortization

 

 

Net

Book

Value

 

Trademarks and tradenames

 

$

98.6

 

 

$

 

 

$

98.6

 

 

$

92.4

 

 

$

 

 

$

92.4

 

Customer relationships

 

 

10.5

 

 

 

(8.5

)

 

 

2.0

 

 

 

10.3

 

 

 

(7.8

)

 

 

2.5

 

Patents

 

 

30.4

 

 

 

(29.4

)

 

 

1.0

 

 

 

28.5

 

 

 

(27.4

)

 

 

1.1

 

Engineering drawings

 

 

10.7

 

 

 

(10.6

)

 

 

0.1

 

 

 

10.0

 

 

 

(9.9

)

 

 

0.1

 

Distribution network

 

 

19.3

 

 

 

(0.1

)

 

 

19.2

 

 

 

18.0

 

 

 

 

 

 

18.0

 

Other intangibles

 

 

0.3

 

 

 

(0.3

)

 

 

 

 

 

0.2

 

 

 

(0.2

)

 

 

 

Total

 

$

169.8

 

 

$

(48.9

)

 

$

120.9

 

 

$

159.4

 

 

$

(45.3

)

 

$

114.1

 

 

Amortization expense for the three months ended September 30, 2017 and 2016 was $0.0 million and $0.7 million, respectively. Amortization expense for the nine months ended September 30, 2017 and 2016 was $0.7 million and $2.2 million, respectively.

The Company also reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the asset's carrying amount may not be recoverable.  The Company conducts its long-lived asset impairment analyses in accordance with ASC Topic 360-10-5, “Property, Plant and Equipment.”  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. 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.

Accounts Payable and Accrued Expenses
Accounts Payable and Accrued Expenses

6.  Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses at September 30, 2017 and December 31, 2016 are summarized as follows:

 

($ in millions)

 

September 30, 2017

 

 

December 31, 2016

 

Trade accounts payable

 

$

210.4

 

 

$

157.7

 

Employee-related expenses

 

 

33.6

 

 

 

28.1

 

Accrued vacation

 

 

21.9

 

 

 

21.8

 

Miscellaneous accrued expenses

 

 

94.4

 

 

 

113.6

 

Total

 

$

360.3

 

 

$

321.2

 

 

Debt
Debt

7.  Debt

Outstanding debt at September 30, 2017 and December 31, 2016 is summarized as follows:

 

($ in millions)

 

September 30, 2017

 

 

December 31, 2016

 

Revolving credit facility

 

$

10.0

 

 

$

 

Senior secured second lien notes due 2021

 

 

251.4

 

 

 

249.8

 

Other

 

 

29.5

 

 

 

35.7

 

Deferred financing costs

 

 

(3.3

)

 

 

(4.0

)

Total debt

 

 

287.6

 

 

 

281.5

 

Short-term borrowings and current portion of long-term

   debt

 

 

(10.2

)

 

 

(12.4

)

Long-term debt

 

$

277.4

 

 

$

269.1

 

 

The balance sheet values of the 12.750% senior secured lien notes due 2021 (the "2021 Notes") as of September 30, 2017 and December 31, 2016 are not equal to the face value of the 2021 Notes, $260.0 million, because of original issue discounts included in the applicable balance sheet values.

As of September 30, 2017, the Company had outstanding $29.5 million of other indebtedness that has a weighted-average interest rate of approximately 5.44%. This debt includes balances on local credit lines and capital lease obligations.

On March 3, 2016, the Company entered into a $225.0 million Asset Based Revolving Credit Facility (as amended, the “ABL Revolving Credit Facility”) with Wells Fargo Bank, N.A. as administrative agent, and JP Morgan Chase Bank, N.A. and Goldman Sachs Bank USA as joint lead arrangers. The ABL Revolving Credit Facility capacity calculation is defined in the related credit agreement and is dependent on the fair value of inventory and fixed assets of the loan parties, which secure the borrowings. The ABL Revolving Credit Facility has a term of 5 years and includes a $75.0 million letter of credit sublimit, $10.0 million of which can be applied to the German borrower.

In October 2016, the ABL Revolving Credit Facility was amended to accommodate certain previously restricted activities related to the relocation of the Company’s manufacturing operations from Manitowoc, Wisconsin to Shady Grove, Pennsylvania. Among other things, the amendment allows the Company to transfer, sell and/or impair fixed assets located at the Wisconsin facility with limited impact on the availability under the facility.

In April 2017, the ABL Revolving Credit Facility was amended to modify several definitions regarding eligible equipment and inventory as it relates to a key financing partner of the Company. The amendment has had, and is expected to continue to have, a minimal impact on the Company’s daily operations and borrowing limits.

As of September 30, 2017, the Company's outstanding balance on the ABL Revolving Credit Facility was $10.0 million. The Company had no borrowings on the ABL Revolving Credit Facility at December 31, 2016. During the quarter ended September 30, 2017, the highest daily borrowing was $59.5 million and the average borrowing was $30.9 million, while the average annual interest rate was 3.11%. The interest rate of the ABL Revolving Credit Facility fluctuates based on excess availability. As of September 30, 2017, the spreads for LIBOR and Prime borrowings were 1.50% and 0.50%, respectively, with excess availability of approximately $136.7 million, which represents revolver borrowing capacity of $161.1 million less borrowings of $10.0 million and U.S. letters of credit outstanding of $14.4 million.

The ABL Revolving Credit Facility replaced the Company’s prior $1,050.0 million Third Amended and Restated Credit Agreement (the “Prior Senior Credit Facility”). The Prior Senior Credit Facility included three different loan facilities: a $500.0 million revolving facility and two term loans in the aggregate amount of $550.0 million.

In the first quarter of 2016, the Company terminated the Prior Senior Credit Facility along with $175.0 million notional amount of float-to-fixed interest rate swaps related to one of its prior term loans, resulting in a loss of $5.9 million for the write-off of deferred financing expenses and $4.3 million for the termination of interest rate swaps.

On February 18, 2016, the Company entered into an indenture with Wells Fargo Bank, N.A., as trust and collateral agent, and sold $260.0 million aggregate principal amount of its 2021 Notes. Interest on the 2021 Notes is payable semi-annually in February and August of each year. The 2021 Notes were sold pursuant to exemptions from registration under the Securities Act of 1933.

Both the ABL Revolving Credit Facility and 2021 Notes include customary covenants and events of default which include, without limitation, restrictions on indebtedness, capital expenditures, restricted payments, disposals, investments and acquisitions.

Additionally, the ABL Revolving Credit Facility contains a Fixed Charge Coverage springing financial covenant, which measures the ratio of (i) consolidated earnings before interest, taxes, depreciation, amortization and other adjustments as defined in the related credit agreement, to (ii) fixed charges, as defined in the credit agreement. The financial covenant is triggered only if the Company fails to maintain minimum levels of availability under the facility. If triggered, the Company must maintain a Minimum Fixed Charge Coverage Ratio of 1.00 to 1.

On March 3, 2016, the Company redeemed its former 8.50% Senior Notes due 2020 (the “Prior 2020 Notes”) and 5.875% Senior Notes due 2022 (the “Prior 2022 Notes”) for $625.5 million and $330.5 million, or 104.250% and 110.167% expressed as a percentage of the principal amount, respectively.  

The redemption of the Prior 2020 Notes resulted in a loss on debt extinguishment of $31.5 million during the first quarter of 2016 and consisted of $24.6 million related to redemption premium and $6.9 million related to write-off of deferred financing fees. Previously monetized derivative assets related to fixed-to-float interest rate swaps were treated as an increase to the debt balance of the Prior 2020 Notes and were being amortized to interest expense over the life of the original swap. As a result of the redemption, the remaining monetization balance of $11.8 million as of March 3, 2016 was amortized as a reduction to interest expense during the first quarter of 2016.

The redemption of the Prior 2022 Notes resulted in a loss on debt extinguishment of $34.6 million during the first quarter of 2016 and consisted of $31.2 million related to redemption premium and $3.4 million related to write-off of deferred financing fees. Previously, derivative liabilities related to termination of fixed-to-float swaps were treated as a decrease to the debt balance of the Prior 2022 Notes and were being amortized to interest expense over the life of the original swap. As a result of the redemption, the remaining balance of $0.7 million as of March 3, 2016 was amortized as an increase to interest expense during the first quarter of 2016.

Outstanding balances under the Company's Prior 2020 and Prior 2022 Notes, as well as the Prior Senior Credit Facility, were repaid with proceeds from the 2021 Notes and a cash dividend from MFS in conjunction with the Spin-Off.

As of September 30, 2017, the Company was in compliance with all affirmative and negative covenants in its debt instruments, inclusive of the financial covenants pertaining to the ABL Revolving Credit Facility and 2021 Notes. 

Accounts Receivable Securitization
Accounts Receivable Securitization

8.  Accounts Receivable Securitization

The Company maintains an accounts receivable securitization program with a commitment size of $75.0 million, whereby transactions under the program are accounted for as sales in accordance with ASC Topic 860, “Transfers and Servicing.”   

On March 3, 2016, the Company entered into a Receivables Purchase Agreement (“RPA”) among Manitowoc Funding, LLC (“MTW Funding”), as Seller, The Manitowoc Company, Inc., as Servicer, and Wells Fargo Bank, N.A., as Purchaser and as Agent, to replace its prior facility.

Under the RPA (and related Purchase and Sale Agreements), the Company’s domestic trade accounts receivable are sold to MTW Funding which, in turn, sells, conveys, transfers and assigns to a third-party financial institution (“Purchaser”), all of MTW Funding's rights, title and interest in a pool of receivables to the Purchaser.

The Purchaser receives ownership of the pool of receivables in each instance. New receivables are purchased by MTW Funding and sold to the Purchaser as cash collections reduce previously sold investments. The Company acts as the servicer (in such capacity, the “Servicer”) of the receivables and, as such, administers, collects and otherwise enforces the receivables. The Servicer is compensated for doing so on terms that are generally consistent with what would be charged by an unrelated servicer. The Servicer initially receives payments made by obligors on the receivables but is required to remit those payments to the Purchaser in accordance with the RPA. The Purchaser has no recourse for uncollectible receivables.

Trade accounts receivable sold to the Purchaser totaled $211.3 million and $145.3 million for the three months ended September 30, 2017 and 2016, respectively. Cash proceeds received from customers related to the receivables previously sold for the three months ended September 30, 2017 and 2016 were $179.7 million and $172.5 million, respectively.

Sales of trade receivables under the program reflected as a reduction of accounts receivable in the accompanying Condensed Consolidated Balance Sheets were $38.8 million and $19.5 million as of September 30, 2017 and December 31, 2016, respectively. The proceeds received, including collections on the deferred purchase price notes, are included in cash flows from operating activities in the accompanying Condensed Consolidated Statements of Cash Flows.  The Company deems the interest rate risk related to the deferred purchase price notes to be de minimis, primarily because the average collection cycle of the related receivables is less than 60 days; and as such, the fair value of the Company’s deferred purchase price notes approximates book value. The fair value of the deferred purchase price notes recorded as of September 30, 2017 and December 31, 2016 was $66.5 million and $30.6 million, respectively, and is included in accounts receivable in the accompanying Condensed Consolidated Balance Sheets.

The securitization program contains customary affirmative and negative covenants. Among other restrictions, these covenants require the Company to meet specified financial tests, which include a minimum fixed charge coverage ratio which is the same as the covenant ratio required per the ABL Revolving Credit Facility. As of September 30, 2017, the Company was in compliance with all affirmative and negative covenants pertaining to the RPA, as amended.

Income Taxes
Income Taxes

9.  Income Taxes

For the three months ended September 30, 2017 and 2016, the Company recorded income tax benefits of $13.1 million and $5.3 million, respectively. For the nine months ended September 30, 2017 and 2016, the Company recorded an income tax benefit of $9.3 million and income tax expense of $103.1 million, respectively. During the three months ended September 30, 2017, a discrete tax benefit of $13.7 million was recorded, with the primary driver being a resolution on a matter involving the Internal Revenue Service related to tax years 2012 through 2014. The decrease in the Company’s tax expense for the nine months ended September 30, 2017 relative to the prior year relates primarily to a non-cash charge in 2016 of $106.4 million for a one-time increase in the valuation allowance associated with the Company’s domestic federal and state deferred tax assets and attributes in connection with the Spin-Off. In addition to the above, the Company’s effective tax rate varies from the U.S. federal statutory rate of 35% due to results of foreign operations that are subject to income taxes at different statutory rates.

The Company will continue to evaluate its valuation allowance requirements on an ongoing basis in light of changing facts and circumstances and may adjust its deferred tax asset valuation allowances accordingly, and it is a reasonable possibility that the Company will either add to or reverse a portion of its existing deferred tax asset valuation allowances in the future. Such changes in the deferred tax asset valuation allowances will be reflected in the current operations through the Company’s income tax provision and could have a material effect on operating results.

The Company’s unrecognized tax benefits, excluding interest and penalties, were $14.9 million as of September 30, 2017 and $15.8 million as of December 31, 2016. 

The Company regularly assesses the likelihood of an adverse outcome resulting from examinations to determine the adequacy of its tax reserves. As of September 30, 2017, the Company believes that it is more likely than not that the tax positions it has taken will be sustained upon the resolution of its audits, resulting in no material impact on its consolidated financial position and the results of operations and cash flows. However, the final determination with respect to any tax audits and any related litigation could be materially different from the Company’s estimates and/or from its historical income tax provisions and accruals and could have a material effect on operating results and/or cash flows in the periods for which that determination is made. In addition, future period earnings may be adversely impacted by litigation costs, settlements, penalties and/or interest assessments.

Earnings Per Share
Earnings Per Share

10.  Earnings Per Share

Basic earnings (loss) per share is computed as net earnings (loss) divided by the basic weighted average common shares outstanding of 140.5 million and 140.4 million shares for the three and nine months ended September 30, 2017, respectively, and 138.4 million and 137.4 million shares for the three and nine months ended September 30, 2016, respectively. The calculation of diluted earnings (loss) per share includes the effect of any dilutive equity incentive instruments. The Company uses the treasury stock method to calculate the effect of outstanding dilutive equity incentive instruments, which requires the Company to compute total proceeds as the sum of the amount the employee must pay upon exercise of the award and the amount of unearned stock-based compensation costs attributable to future services.

Equity incentive instruments for which the total employee proceeds from exercise exceed the average fair value of the same equity incentive instrument over the period have an anti-dilutive effect on earnings per share during periods with net earnings, and accordingly, the Company excludes them from the calculation. Anti-dilutive equity instruments of 0.3 million common shares were excluded from the computation of diluted net earnings per share for the three months ended September 30, 2017. Due to the net loss incurred during the nine months ended September 30, 2017 and the three and nine months ended September 30, 2016, the assumed exercise of all equity incentive instruments was anti-dilutive and, therefore, not included in the diluted loss per share calculation for those periods.

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

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Basic weighted average common shares outstanding

 

 

140,531,426

 

 

 

138,422,953

 

 

 

140,351,927

 

 

 

137,390,809

 

Effect of dilutive securities

 

 

2,805,751

 

 

 

 

 

 

 

 

 

 

Diluted weighted average common shares outstanding

 

 

143,337,177

 

 

 

138,422,953

 

 

 

140,351,927

 

 

 

137,390,809

 

 

No cash dividends were paid during any of the three and nine months ended September 30, 2017 and September 30, 2016.

Stockholders' Equity
Stockholders' Equity

11.  Stockholders’ Equity

The following is a roll forward of retained earnings for the nine months ended September 30, 2017 and 2016:

 

($ in millions)

 

Retained Earnings

 

Balance at December 31, 2016

 

$

247.3

 

Net loss

 

 

(25.9

)

Balance at September 30, 2017

 

$

221.4

 

 

($ in millions)

 

Retained Earnings

 

Balance at December 31, 2015

 

$

562.3

 

Net loss

 

 

(342.4

)

Distribution of MFS

 

 

51.2

 

Balance at September 30, 2016

 

$

271.1

 

 

Authorized capital consists of 300 million shares of $0.01 par value common stock and 3.5 million shares of $0.01 par value preferred stock.  None of the preferred shares have been issued.

Currently, the Company has authorization to purchase up to 2.4 million shares of common stock at management’s discretion; however, the Company has certain restrictions from repurchasing shares of its capital stock or other equity interests under various covenants of its debt agreements. Further, the Company has not purchased any shares of its common stock under this authorization since 2006.

A reconciliation for the changes in accumulated other comprehensive loss, net of tax, by component for the nine months ended September 30, 2017 and September 30, 2016 is as follows:

 

($ in millions)

 

Gains and Losses on

Cash Flow Hedges

 

 

Pension &

Postretirement

 

 

Foreign Currency

Translation

 

 

Total

 

Balance at December 31, 2016

 

$

(0.3

)

 

$

(51.8

)

 

$

(110.8

)

 

$

(162.9

)

Other comprehensive income before

   reclassifications

 

 

0.3

 

 

 

 

 

 

10.1

 

 

 

10.4

 

Amounts reclassified from accumulated other

   comprehensive loss

 

 

0.2

 

 

 

0.6

 

 

 

 

 

 

0.8

 

Net other comprehensive income

 

 

0.5

 

 

 

0.6

 

 

 

10.1

 

 

 

11.2

 

Balance at March 31, 2017

 

 

0.2

 

 

 

(51.2

)

 

 

(100.7

)

 

 

(151.7

)

Other comprehensive income before

   reclassifications

 

 

 

 

 

 

 

 

23.1

 

 

 

23.1

 

Amounts reclassified from accumulated other

   comprehensive loss

 

 

0.1

 

 

 

0.5

 

 

 

 

 

 

0.6

 

Net other comprehensive income

 

 

0.1

 

 

 

0.5

 

 

 

23.1

 

 

 

23.7

 

Balance at June 30, 2017

 

 

0.3

 

 

 

(50.7

)

 

 

(77.6

)

 

 

(128.0

)

Other comprehensive income before

   reclassifications

 

 

 

 

 

8.0

 

 

 

14.2

 

 

 

22.2

 

Amounts reclassified from accumulated other

   comprehensive loss

 

 

 

 

 

(2.3

)

 

 

 

 

 

(2.3

)

Net other comprehensive income

 

 

 

 

 

5.7

 

 

 

14.2

 

 

 

19.9

 

Balance at September 30, 2017

 

$

0.3

 

 

$

(45.0

)

 

$

(63.4

)

 

$

(108.1

)

 

($ in millions)

 

Gains and Losses on

Cash Flow Hedges

 

 

Pension &

Postretirement

 

 

Foreign Currency

Translation

 

 

Total

 

Balance at December 31, 2015

 

$

(3.8

)

 

$

(82.6

)

 

$

(121.4

)

 

$

(207.8

)

Other comprehensive income (loss) before

   reclassifications

 

 

(2.7

)

 

 

 

 

 

20.3

 

 

 

17.6

 

Amounts reclassified from accumulated

   other comprehensive loss

 

 

4.3

 

 

 

1.2

 

 

 

 

 

 

5.5

 

Net other comprehensive income

 

 

1.6

 

 

 

1.2

 

 

 

20.3

 

 

 

23.1

 

Distribution of MFS

 

 

2.1

 

 

 

44.5

 

 

 

31.0

 

 

 

77.6

 

Balance at March 31, 2016

 

 

(0.1

)

 

 

(36.9

)

 

 

(70.1

)

 

 

(107.1

)

Other comprehensive loss before

   reclassifications

 

 

 

 

 

 

 

 

(17.4

)

 

 

(17.4

)

Amounts reclassified from accumulated other

   comprehensive loss

 

 

(0.1

)

 

 

1.2

 

 

 

 

 

 

1.1

 

Net other comprehensive income (loss)

 

 

(0.1

)

 

 

1.2

 

 

 

(17.4

)

 

 

(16.3

)

Balance at June 30, 2016

 

 

(0.2

)

 

 

(35.7

)

 

 

(87.5

)

 

 

(123.4

)

Other comprehensive income before

   reclassifications

 

 

 

 

 

 

 

 

5.7

 

 

 

5.7

 

Amounts reclassified from accumulated other

   comprehensive loss

 

 

0.2

 

 

 

1.1

 

 

 

 

 

 

1.3

 

Net other comprehensive income

 

 

0.2

 

 

 

1.1

 

 

 

5.7

 

 

 

7.0

 

Balance at September 30, 2016

 

$

 

 

$

(34.6

)

 

$

(81.8

)

 

$

(116.4

)

 

The following is a reconciliation of the reclassifications out of accumulated other comprehensive income (loss), net of tax, for the three and nine months ended September 30, 2017:

 

 

 

Three Months Ended

September 30, 2017

 

 

Nine Months Ended

September 30, 2017

 

 

 

 

($ in millions)

 

Amount Reclassified

from Accumulated

Other Comprehensive

Income (Loss)

 

 

Amount Reclassified

from Accumulated

Other Comprehensive

Income (Loss)

 

 

 

Recognized

Location

Gains and losses on cash flow hedges

 

 

 

 

 

 

 

 

 

 

 

Commodity contracts

 

$

 

 

$

(0.3

)

 

 

Cost of sales

 

 

 

 

 

 

(0.3

)

 

 

Total before tax

 

 

 

 

 

 

 

 

 

Tax expense

 

 

$

 

 

$

(0.3

)

 

 

Net of tax

Amortization of pension and

   postretirement items

 

 

 

 

 

 

 

 

 

 

 

Actuarial losses

 

$

(1.3

)

 

$

(3.9

)

(a)

 

 

Prior service cost

 

 

0.3

 

 

 

1.0

 

 

 

 

 

 

 

(1.0

)

 

 

(2.9

)

 

 

Total before tax

 

 

 

3.3

 

 

 

4.1

 

 

 

Tax expense

 

 

$

2.3

 

 

$

1.2

 

 

 

Net of tax

 

 

 

 

 

 

 

 

 

 

 

 

Total reclassifications for the period

 

$

2.3

 

 

$

0.9

 

 

 

Net of tax

 

(a)

These accumulated other comprehensive income (loss) components are included in the computation of net periodic pension cost (see Note 16, “Employee Benefit Plans,” for further details).

The following is a reconciliation of the reclassifications out of accumulated other comprehensive income (loss), net of tax, for the three and nine months ended September 30, 2016:

 

 

 

Three Months Ended

September 30, 2016

 

 

Nine Months Ended

September 30, 2016

 

 

 

($ in millions)

 

Amount Reclassified

from Accumulated

Other Comprehensive

Income (Loss)

 

 

Amount Reclassified

from Accumulated

Other Comprehensive

Income (Loss)

 

 

Recognized

Location

Gains and losses on cash flow hedges

 

 

 

 

 

 

 

 

 

 

Commodity contracts

 

$

(0.2

)

 

$

(1.2

)

 

Cost of sales

Interest rate swap contracts:

   Float-to-fixed

 

 

 

 

 

(4.3

)

 

Interest Expense

 

 

 

(0.2

)

 

 

(5.5

)

 

Total before tax

 

 

 

 

 

 

1.1

 

 

Tax expense

 

 

$

(0.2

)

 

$

(4.4

)

 

Net of tax

Amortization of pension and postretirement

   items

 

 

 

 

 

 

 

 

 

 

Actuarial losses

 

$

(1.1

)

 

$

(3.5

)

(a)

 

 

 

 

(1.1

)

 

 

(3.5

)

 

Total before tax

 

 

 

 

 

 

 

 

Tax expense

 

 

$

(1.1

)

 

$

(3.5

)

 

Net of Tax

 

 

 

 

 

 

 

 

 

 

 

Total reclassifications for the period

 

$

(1.3

)

 

$

(7.9

)

 

Net of Tax

 

(a)

These accumulated other comprehensive income (loss) components are included in the computation of net periodic pension cost (see Note 16, “Employee Benefit Plans,” for further details).

Stock-Based Compensation
Stock-Based Compensation

12. Stock-Based Compensation

The Company’s 2013 Omnibus Incentive Plan (the “2013 Plan”) was approved by shareholders on May 7, 2013 and replaced several of the Company's incentive plans (collectively referred to as the “Prior Plans”). No new awards may be granted under the Prior Plans; however, outstanding awards under the Prior Plans will continue in force and effect pursuant to their terms. The 2013 Plan provides for both short-term and long-term incentive awards for employees and non-employee directors. Stock-based awards may take the form of stock options, stock appreciation rights, restricted stock (“RSAs”), restricted stock units (“RSUs”) and performance shares or performance unit awards. The total number of shares of the Company’s common stock originally available for awards under the 2013 Plan was 8.0 million shares, subject to adjustment for stock splits, stock dividends and certain other transactions or events. On March 20, 2016, in accordance with the 2013 Plan's adjustment provisions, the Board of Directors approved an amendment to the 2013 Plan to reflect the effect of the Spin-Off, as a result, the number of shares of common stock reserved for future awards under the 2013 Plan was increased by 22.1 million shares.

Stock-based compensation expense was $1.5 million and $1.0 million for the three months ended September 30, 2017 and 2016, respectively. Stock-based compensation expense was $4.7 million and $3.8 million for the nine months ended September 30, 2017 and 2016, respectively. The Company recognizes stock-based compensation expense over the awards' vesting period.

The Company did not grant any options to acquire shares of common stock to employees during the three months ended September 30, 2017 and 2016. Options to acquire 1.1 million and 1.8 million shares of common stock were granted to employees during the nine months ended September 30, 2017 and 2016, respectively. The options granted in 2017 become exercisable in three annual increments over a three-year period beginning on the first anniversary of the grant date and expire 10 years subsequent to the grant date, and the options granted in 2016 and prior years become exercisable in four annual increments over a four-year period beginning on the first anniversary of the grant date and also expire 10 years subsequent to the grant date. 

The Company did not issue any RSUs to employees during the three months ended September 30, 2017 and 2016. A total of 0.5 million and 0.6 million RSUs were issued by the Company to employees and directors during the nine months ended September 30, 2017 and 2016, respectively. The RSUs granted to employees generally vest on the first or third anniversary of the grant date, depending on the grant. The RSUs granted to directors vest on the second anniversary of the grant date.

The Company did not issue any performance shares to employees during the three months ended September 30, 2017 and 2016. A total of 0.5 million and 0.8 million performance shares were issued during the nine months ended September 30, 2017 and 2016, respectively. Performance shares are earned based on the extent to which performance goals are met over the applicable performance period.  The performance goals and the applicable performance period vary for each grant year. The performance goals for the performance shares granted in 2017 are based on 50% on total shareholder return ("TSR") relative to peers during the three-year performance period and 50% on Adjusted EBITDA percentage from continuing operations in 2019. The performance goals for the performance shares granted in 2016 are based 50% on TSR relative to peers and 50% on the weighted average return on invested capital (ROIC) over the three-year performance period. Depending on the foregoing factors, the number of shares earned could range from zero to 0.9 million and zero to 1.2 million for the 2017 and 2016 performance share grants, respectively.

Fair Value of Financial Instruments
Fair Value of Financial Instruments

13.  Fair Value of Financial Instruments

The following tables set forth the Company’s financial assets and liabilities that were accounted for at fair value as of September 30, 2017 and December 31, 2016 by level within the fair value hierarchy.  Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

 

 

 

Fair Value as of September 30, 2017

 

($ in millions)

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Current Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency exchange contracts

 

$

 

 

$

0.2

 

 

$

 

 

$

0.2

 

Total current liabilities at fair value

 

$

 

 

$

0.2

 

 

$

 

 

$

0.2

 

 

 

 

Fair Value as of December 31, 2016

 

($ in millions)

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Current Assets: