MANITOWOC CO INC, 10-K filed on 2/23/2018
Annual Report
Document and Entity Information (USD $)
In Millions, except Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2017
Jan. 31, 2018
Jun. 30, 2017
Document And Entity Information [Abstract]
 
 
 
Entity Registrant Name
MANITOWOC CO INC 
 
 
Entity Central Index Key
0000061986 
 
 
Document Type
10-K 
 
 
Document Period End Date
Dec. 31, 2017 
 
 
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
 
 
$ 838 
Entity Shares Outstanding
 
35,347,025 
 
Document Fiscal Year Focus
2017 
 
 
Document Fiscal Period Focus
FY 
 
 
Trading Symbol
MTW 
 
 
Consolidated Statements of Operations (USD $)
In Millions, except Per Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
Operations
 
 
 
Net sales
$ 1,581.3 
$ 1,613.1 
$ 1,865.7 
Cost of sales
1,299.4 
1,359.8 
1,533.5 
Gross profit
281.9 
253.3 
332.2 
Operating costs and expenses:
 
 
 
Engineering, selling and administrative expenses
252.6 
280.7 
316.9 
Asset impairment expense
0.1 
96.9 
15.3 
Amortization of intangible assets
0.8 
3.0 
3.0 
Restructuring expense
27.2 
23.4 
9.4 
Other expense
0.1 
2.6 
Total operating costs and expenses
280.8 
406.6 
344.6 
Operating income (loss)
1.1 
(153.3)
(12.4)
Other income (expense):
 
 
 
Interest expense
(39.2)
(39.6)
(95.6)
Amortization of deferred financing fees
(1.9)
(2.2)
(4.2)
Loss on debt extinguishment
(76.3)
(0.2)
Other income — net
0.5 
3.3 
1.4 
Total other expense
(40.6)
(114.8)
(98.6)
Loss from continuing operations before taxes
(39.5)
(268.1)
(111.0)
Provision (benefit) for taxes on income
(49.5)
100.5 
(41.1)
Income (loss) from continuing operations
10.0 
(368.6)
(69.9)
Discontinued operations:
 
 
 
Income (loss) from discontinued operations, net of income taxes of $0.0, $0.6 and $35.9, respectively
(0.6)
(7.2)
135.4 
Net income (loss)
9.4 
(375.8)
65.5 
Amounts attributable to the Manitowoc common shareholders:
 
 
 
Income (loss) from continuing operations
10.0 
(368.6)
(69.9)
Income (loss) from discontinued operations, net of income taxes
(0.6)
(7.2)
135.4 
Net income (loss) attributable to Manitowoc common shareholders
$ 9.4 
$ (375.8)
$ 65.5 
Basic income (loss) per common share:
 
 
 
Income (loss) from continuing operations attributable to Manitowoc common shareholders (in dollars per share)
$ 0.28 
$ (10.70)
$ (2.06)
Income (loss) from discontinued operations attributable to Manitowoc common shareholders (in dollars per share)
$ (0.02)
$ (0.21)
$ 3.98 
Basic income (loss) per share attributable to Manitowoc common shareholders (in dollars per share)
$ 0.26 
$ (10.91)
$ 1.92 
Diluted income (loss) per common share:
 
 
 
Income (loss) from continuing operations attributable to Manitowoc common shareholders (in dollars per share)
$ 0.28 
$ (10.70)
$ (2.06)
Income (loss) from discontinued operations attributable to Manitowoc common shareholders (in dollars per share)
$ (0.02)
$ (0.21)
$ 3.98 
Diluted income (loss) per share attributable to Manitowoc common shareholders (in dollars per share)
$ 0.26 
$ (10.91)
$ 1.92 
Consolidated Statements of Operations (Parenthetical) (USD $)
In Millions, unless otherwise specified
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
Income Statement [Abstract]
 
 
 
Earnings (loss) from discontinued operations, income taxes
$ 0 
$ 0.6 
$ 35.9 
Consolidated Statements of Comprehensive Income (Loss) (USD $)
In Millions, unless otherwise specified
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
Statement Of Income And Comprehensive Income [Abstract]
 
 
 
Net income (loss)
$ 9.4 
$ (375.8)
$ 65.5 
Other comprehensive income (loss), net of tax:
 
 
 
Foreign currency translation adjustments
58.4 
(20.4)
(92.2)
Unrealized income (loss) on derivatives, net of income taxes of $0.0, $0.9 and $1.0, respectively
0.4 
1.4 
2.5 
Employee pension and postretirement benefits, net of income taxes of $4.1, $(0.2) and $4.9, respectively
6.7 
(4.1)
12.4 
Total other comprehensive income (loss), net of tax
65.5 
(23.1)
(77.3)
Comprehensive income (loss)
$ 74.9 
$ (398.9)
$ (11.8)
Consolidated Statements of Comprehensive Income (Loss) (Parenthetical) (USD $)
In Millions, unless otherwise specified
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
Statement Of Income And Comprehensive Income [Abstract]
 
 
 
Unrealized income (loss) on derivatives, net of income taxes
$ 0 
$ 0.9 
$ 1.0 
Employee pension and post retirement benefits, net of income taxes of
$ 4.1 
$ (0.2)
$ 4.9 
Consolidated Balance Sheets (USD $)
In Millions, unless otherwise specified
Dec. 31, 2017
Dec. 31, 2016
Current Assets:
 
 
Cash and cash equivalents
$ 119.2 
$ 69.9 
Accounts receivable, less allowances of $10.9 and $11.1, respectively
179.2 
134.4 
Inventories — net
396.1 
429.0 
Notes receivable — net
31.1 
62.4 
Other current assets
73.6 
54.0 
Total current assets
799.2 
749.7 
Property, plant and equipment — net
294.9 
308.8 
Goodwill
321.3 
299.6 
Other intangible assets — net
122.1 
114.1 
Other non-current assets
70.3 
45.6 
Total assets
1,607.8 
1,517.8 
Current Liabilities:
 
 
Accounts payable and accrued expenses
375.8 
321.2 
Short-term borrowings
8.2 
12.4 
Product warranties
35.5 
36.5 
Customer advances
12.7 
21.0 
Product liabilities
20.8 
21.7 
Total current liabilities
453.0 
412.8 
Non-Current Liabilities:
 
 
Long-term debt
266.7 
269.1 
Deferred income taxes
13.0 
36.6 
Pension obligations
88.9 
86.4 
Postretirement health and other benefit obligations
25.5 
38.0 
Long-term deferred revenue
20.8 
20.3 
Other non-current liabilities
62.4 
64.1 
Total non-current liabilities
477.3 
514.5 
Commitments and contingencies (Note 17)
   
   
Total Equity:
 
 
Preferred stock (authorized 3,500,000 shares of $.01 par value; none outstanding)
   
   
Common stock (75,000,000 shares authorized, 40,793,983 shares issued, 35,273,864 and 34,960,304 shares outstanding, respectively)
1.4 
1.4 
Additional paid-in capital
576.6 
567.6 
Accumulated other comprehensive loss
(97.4)
(162.9)
Retained earnings
256.7 
247.3 
Treasury stock, at cost (5,520,119 and 5,833,679 shares, respectively)
(59.8)
(62.9)
Total Manitowoc stockholders’ equity
677.5 
590.5 
Total liabilities and equity
$ 1,607.8 
$ 1,517.8 
Consolidated Balance Sheets (Parenthetical) (USD $)
In Millions, except Share data, unless otherwise specified
Dec. 31, 2017
Dec. 31, 2016
Statement Of Financial Position [Abstract]
 
 
Accounts Receivable, allowances (in dollars)
$ 10.9 
$ 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)
75,000,000 
75,000,000 
Common stock, shares issued (in shares)
40,793,983 
40,793,983 
Common stock, shares outstanding (in shares)
35,273,864 
34,960,304 
Treasury stock, shares (in shares)
5,520,119 
5,833,679 
Consolidated Statements of Cash Flows (USD $)
In Millions, unless otherwise specified
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
Cash Flows From Operations
 
 
 
Net income (loss)
$ 9.4 
$ (375.8)
$ 65.5 
Adjustments to reconcile net (loss) income to cash (used for) provided by operating activities of continuing operations:
 
 
 
Asset impairment expense
0.1 
96.9 
15.3 
Loss (income) from discontinued operations, net of income taxes
0.6 
7.2 
(135.4)
Depreciation expense
38.1 
45.6 
50.6 
Amortization of intangible assets
0.8 
3.0 
3.0 
Amortization of deferred financing fees
1.9 
2.2 
4.2 
Deferred income tax (benefit) - net
(44.1)
101.4 
(4.4)
Noncash loss on early extinguishment of debt
15.4 
0.2 
Loss (gain) on sale of property, plant and equipment
0.1 
1.1 
(0.3)
Stock-based compensation expense and other
8.5 
(0.7)
7.5 
Changes in operating assets and liabilities, excluding the effects of business divestitures:
 
 
 
Accounts receivable
(32.7)
18.4 
(10.7)
Inventories
55.6 
52.7 
(7.2)
Notes receivable
18.8 
32.2 
9.9 
Other assets
(0.5)
(6.9)
(18.9)
Accounts payable
27.1 
(105.8)
(12.4)
Accrued expenses and other liabilities
(5.2)
(9.3)
7.6 
Net cash provided by (used for) operating activities of continuing operations
78.5 
(122.4)
(25.5)
Net cash provided by (used for) operating activities of discontinued operations
(0.6)
(49.9)
126.3 
Net cash provided by (used for) operating activities
77.9 
(172.3)
100.8 
Cash Flows From Investing
 
 
 
Capital expenditures
(28.9)
(45.9)
(54.9)
Proceeds from sale of property, plant and equipment
7.0 
8.4 
7.3 
Other
0.6 
(1.6)
2.6 
Net cash used for investing activities of continuing operations
(21.3)
(39.1)
(45.0)
Net cash provided by (used for) investing activities of discontinued operations
(2.4)
59.1 
Net cash provided by (used for) investing activities
(21.3)
(41.5)
14.1 
Cash Flows From Financing
 
 
 
Payments on long-term debt
(10.9)
(1,389.0)
(105.4)
Proceeds from long-term debt
0.2 
272.1 
5.1 
Payments on notes financing - net
(4.7)
(8.4)
(9.4)
Debt issuance costs
(8.9)
Dividends paid
(10.9)
Exercises of stock options including windfall tax benefits
5.7 
9.4 
7.9 
Dividend from spun-off subsidiary
1,361.7 
Cash transferred to spun-off subsidiary
(17.7)
Net cash provided by (used for) financing activities of continuing operations
(9.7)
219.2 
(112.7)
Net cash provided by (used for) financing activities of discontinued operations
0.2 
(0.2)
Net cash provided by (used for) financing activities
(9.7)
219.4 
(112.9)
Effect of exchange rate changes on cash
2.4 
0.9 
(6.6)
Net increase (decrease) in cash and cash equivalents
49.3 
6.5 
(4.6)
Balance at beginning of year, including cash of discontinued operations of $0.0, $31.9 and $16.5, respectively
69.9 
63.4 
68.0 
Balance at end of year, including cash of discontinued operations of $0.0, $0.0, and $31.9, respectively
119.2 
69.9 
63.4 
Supplemental Cash Flow Information
 
 
 
Interest paid
37.0 
49.6 
98.8 
Income tax (refund) paid
$ (7.6)
$ 8.9 
$ 7.7 
Consolidated Statements of Cash Flows (Parenthetical) (USD $)
In Millions, unless otherwise specified
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
Dec. 31, 2014
Statement Of Cash Flows [Abstract]
 
 
 
 
Cash of discontinued operations
$ 0 
$ 0 
$ 31.9 
$ 16.5 
Consolidated Statements of Equity (USD $)
In Millions, except Share data, unless otherwise specified
Total
USD ($)
Common Stock
USD ($)
Additional Paid-in Capital
USD ($)
Accumulated Other Comprehensive Loss
USD ($)
Retained Earnings
USD ($)
Treasury Stock
USD ($)
Performance Shares
Common Stock
Balance at beginning of year at Dec. 31, 2014 (As Reported)
 
 
 
 
$ 486.9 
 
 
Balance at beginning of year (Restatement Adjustment)
 
 
 
 
20.8 
 
 
Balance at beginning of year at Dec. 31, 2014
 
1.4 
539.7 
(130.5)
507.7 
(73.4)
 
Balance (in shares) at Dec. 31, 2014
 
33,885,967 
 
 
 
 
 
Increase (Decrease) in Stockholders' Equity
 
 
 
 
 
 
 
Stock options exercised and issuance of other stock awards
 
 
2.3 
 
 
1.8 
 
Stock options exercised (in shares)
 
116,154 
 
 
 
 
 
Restricted stock, net (in shares)
 
90,496 
 
 
 
 
 
Performance shares issued (in shares)
 
 
 
 
 
 
61,673 
Windfall tax benefit on stock options exercised
 
 
1.5 
 
 
 
 
Stock-based compensation
 
 
14.5 
 
 
 
 
Other comprehensive loss
(77.3)
 
 
(77.3)
 
 
 
Net income (loss)
65.5 
 
 
 
65.5 
 
 
Cash dividends
 
 
 
 
(10.9)
 
 
Balance at end of year at Dec. 31, 2015 (As Reported)
 
 
 
 
539.5 
 
 
Balance at end of year (Restatement Adjustment)
 
 
 
 
22.8 
 
 
Balance at end of year at Dec. 31, 2015
842.3 
1.4 
558.0 
(207.8)
562.3 
(71.6)
 
Balance (in shares) at Dec. 31, 2015
 
34,154,290 
 
 
 
 
 
Increase (Decrease) in Stockholders' Equity
 
 
 
 
 
 
 
Stock options exercised and issuance of other stock awards
 
 
0.3 
 
 
8.7 
 
Distribution of Spun-off subsidiary
 
 
 
68.0 
60.8 
 
 
Stock options exercised (in shares)
 
687,619 
 
 
 
 
 
Restricted stock, net (in shares)
 
(9,112)
 
 
 
 
 
Performance shares issued (in shares)
 
 
 
 
 
 
127,506 
Stock-based compensation
 
 
9.3 
 
 
 
 
Other comprehensive loss
(23.1)
 
 
(23.1)
 
 
 
Net income (loss)
(375.8)
 
 
68.0 
(375.8)
 
 
Balance at end of year at Dec. 31, 2016 (As Reported)
 
 
 
 
247.3 
 
 
Balance at end of year at Dec. 31, 2016
590.5 
1.4 
567.6 
(162.9)
247.3 
(62.9)
 
Balance (in shares) at Dec. 31, 2016
 
34,960,303 
 
 
 
 
 
Increase (Decrease) in Stockholders' Equity
 
 
 
 
 
 
 
Stock options exercised and issuance of other stock awards
 
 
2.0 
 
 
3.1 
 
Stock options exercised (in shares)
 
262,118 
 
 
 
 
 
Restricted stock, net (in shares)
 
23,566 
 
 
 
 
 
Performance shares issued (in shares)
 
 
 
 
 
 
27,877 
Stock-based compensation
 
 
7.0 
 
 
 
 
Other comprehensive loss
65.5 
 
 
65.5 
 
 
 
Net income (loss)
9.4 
 
 
 
9.4 
 
 
Balance at end of year at Dec. 31, 2017
$ 677.5 
$ 1.4 
$ 576.6 
$ (97.4)
$ 256.7 
$ (59.8)
 
Balance (in shares) at Dec. 31, 2017
 
35,273,864 
 
 
 
 
 
Company and Basis of Presentation
Company and Basis of Presentation

1. Company and Basis of Presentation

The Manitowoc Company, Inc.  (“Manitowoc”, “MTW” and the “Company”) was founded in 1902 and has over a 115-year tradition of providing high-quality, customer-focused products and support services to its markets and for the year ended December 31, 2017, the Company had net sales of approximately $1.6 billion.  Manitowoc is one of the world’s leading providers of engineered lifting equipment for the global construction industry.  Manitowoc designs, manufactures, markets, and supports one of the most comprehensive product lines of mobile telescopic cranes, tower cranes, lattice-boom crawler cranes, and boom trucks.  Its Crane products are principally marketed under the Manitowoc, Grove, Potain and National Crane brand names.  The Company serves a wide variety of customers, including dealers, rental companies, contractors, and government entities, across the petrochemical and industrial, commercial, power and utilities, infrastructure, and residential end markets.  Additionally, its Manitowoc Crane Care offering leverages Manitowoc's installed base of approximately 143,000 cranes to provide aftermarket parts and services to enable its customers to manage their fleets more effectively and improve their return on investment.  Due to the ongoing and predictable maintenance needed by cranes, as well as the high cost of crane downtime, Crane Care provides the Company with a consistent stream of recurring revenue. Manitowoc is a Wisconsin corporation, and its principal executive offices are located at 2400 South 44th Street, Manitowoc, Wisconsin 54220.

During the first quarter of fiscal 2016, the Board of Directors of Manitowoc approved the tax-free spin-off of the Company’s former foodservice business (“MFS” or “Foodservice”) into an independent, public company (the “Spin-Off”). To effect 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”) and the Company paid the dividend 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 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 Manitowoc corporate level but were specifically identifiable and attributable to the Crane business.

As a result of the Spin-Off, the Consolidated Financial Statements and related financial information reflect MFS operations, assets and liabilities, and cash flows as discontinued operations for all periods presented.

See Note 3, “Discontinued Operations,” for further details concerning the above transactions being reported as discontinued operations.

Effective after the market closed on November 17, 2017, the Company completed a 1-for-4 reverse stock split. The share amounts in this Annual Report on Form 10-K have been adjusted to reflect that reverse stock split.

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

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.

Summary of Significant Accounting Policies
Summary of Significant Accounting Policies

2. Summary of Significant Accounting Policies

Cash Equivalents All short-term investments purchased with an original maturity of three months or less are considered cash equivalents.

Allowance for Doubtful Accounts Accounts receivable are reduced by an allowance for amounts that may become uncollectible in the future.  Our estimate for the allowance for doubtful accounts related to trade receivables includes evaluation of specific accounts where we have information that the customer may have an inability to meet its financial obligations together with a general provision for unknown but existing doubtful accounts based on historical experience, which are subject to change if experience improves or deteriorates.

Inventories Inventories are valued at the lower of cost or market value. Finished goods and work-in-process inventories include material, labor and manufacturing overhead costs. In the fourth quarter of 2016, the Company changed its method of inventory costing for certain inventory in the U.S. to the first-in, first-out (“FIFO”) method from the last-in, first-out (“LIFO”) method. The Company believes that the FIFO method is preferable as it results in uniformity across its global operations, aligns with how the Company internally manages inventory, provides better matching of revenues and expenses and improves comparability with its peers. The Company's other locations determine costs using the FIFO method. The impact of this change in accounting principle has been reflected through retrospective application to the financial statements for each period presented, and is further explained in Note 5, “Inventories”.

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 during the fourth quarter, 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 straight-line over the following estimated useful lives:

 

 

 

Useful lives

Patents

 

20 years

Engineering drawings

 

15 years

Customer relationships

 

10 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 - 20

Computer hardware and software

 

2 - 10

Rental cranes

 

5 - 15

 

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 buyback and rental equipment included in property, plant and equipment amounted to $54.3 million and $57.9 million, net of accumulated depreciation, at December 31, 2017 and 2016, 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 analysis 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.

The Company tests for impairment of goodwill annually in the fourth quarter. To test goodwill 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, 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 8, “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 when losses are probable and reasonably estimable. 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 obligations and to account for possible adverse development of the established case reserves (collectively referred to as “IBNR”) utilizing actuarially developed estimates.

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 monthly exchange rate throughout 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 a cash flow hedge transaction.

During 2017, 2016 and 2015, 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 Comprehensive Income (Loss) represents the net gain (loss) on foreign currency exchange contracts, commodity contracts and interest rate 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 contracts, 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 10, “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 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. Stock-based compensation plans are described more fully in Note 15, “Stock-Based Compensation.”

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 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 $37.9 million, $44.5 million and $57.6 million for the years ended December 31, 2017, 2016 and 2015, 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.

On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act (the “Tax Reform Act”). Further information on the tax impacts of the Tax Reform Act is included in Note 12, “Income Taxes,” of the Company’s consolidated financial statements.

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. 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, 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, if any.

Recent Accounting Changes and Pronouncements

In August 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2017-12 “Targeted Improvements to Accounting for Hedging Activities,” which amends ASC 815, “Derivatives and Hedging.” The purpose of this ASU is to better align a company’s risk management activities and financial reporting for hedging relationships, simplify the hedge accounting requirements, and improve the disclosures of hedging arrangements. The effective date is fiscal 2019, with early adoption permitted. The Company is evaluating the impact the adoption of this ASU will have on its consolidated financial statements.  

In May 2017, the FASB issued ASU No. 2017-09 “Compensation - Stock Compensation (Topic 718):  Scope of Modification Accounting,” to provide clarity and reduce both diversity in practice and cost complexity when applying the guidance in Topic 718 to a change to the terms and conditions of a stock-based payment award. ASU 2017-09 also provides guidance about the types of changes to the terms or conditions of a share-based payment award that require an entity to apply modification accounting in accordance with Topic 718. The standard is effective for annual periods beginning after December 15, 2017, and for interim periods therein. Early adoption is permitted. The Company is evaluating the impact the adoption of this ASU will have on its consolidated financial statements.

In March 2017, the FASB issued ASU No. 2017-08 “Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20):  Premium Amortization on Purchased Callable Debt Securities,” to shorten the amortization period for the premium to the earliest call date instead of the contractual life of the instrument. This new guidance will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018 with early adoption permitted. Entities will be required to apply the new guidance using the modified retrospective method with a cumulative-effect adjustment to retained earnings upon the adoption date. The Company is evaluating the impact the adoption of this ASU will have on its consolidated financial statements.

In March 2017, the FASB issued ASU No. 2017-07 “Compensation - Retirement Benefits (Topic 715):  Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.”  This ASU amends ASC 715, “Compensation – Retirement Benefits,” to require employers that present a measure of operating income in their statement of income to include only the service cost component of net periodic pension cost and net periodic postretirement benefit cost in operating expenses (together with other employee compensation costs). The other components of net benefit cost, including amortization of prior service cost/credit and settlement and curtailment effects, are to be included in nonoperating expenses. This ASU also allows only the service cost component of net benefit cost to be capitalized (for example, as a cost of inventory). The amendments in this ASU should be applied retrospectively for the presentation of the service cost component and the other components of net periodic pension cost and net periodic postretirement benefit cost in the income statement and prospectively, on and after the effective date, for the capitalization of the service cost component of net periodic pension cost and net periodic postretirement benefit in assets, and is effective for public companies for fiscal years beginning after December 15, 2017; early adoption is permitted. The Company is evaluating the impact the adoption of this ASU will have on its consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-04 - “Intangibles – Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment.” This ASU simplifies the accounting for goodwill impairment. The guidance removes Step 2 of the goodwill impairment test, which required a hypothetical purchase price allocation. A goodwill impairment is now the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill.  ASU No. 2017-04 will be effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption was permitted for any impairment tests performed after January 1, 2017, and the Company early adopted this ASU effective in the first quarter of 2017. The adoption of this ASU did not have a material impact on the Company's consolidated financial statements.

In November 2016, the FASB issued ASU No. 2016-18 “Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force).” The amendments of this ASU address the diversity of presentation of restricted cash by requiring a statement of cash flows to explain the change during the period in the total cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. ASU 2016-18 will be effective for fiscal years beginning after December 15, 2017. The Company is evaluating the impact the adoption of this ASU will have on its consolidated financial statements.

In October 2016, the FASB issued ASU No. 2016-16 - “Income Taxes (Topic 740): Intra-Entity Transfer of Assets Other than Inventory,” which requires the recognition of the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. ASU 2016-16 will be effective for fiscal years beginning after December 15, 2017. The Company is currently evaluating the impact of adopting this ASU on its consolidated financial statements.

In August 2016, the FASB issued ASU No. 2016-15 - “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.” This Update addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice and affects all entities required to present a statement of cash flows under Topic 230.  This standard will be effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is evaluating the impact the adoption of this ASU will have on its consolidated financial statements.

In May 2014, the FASB issued ASU No. 2014-09 - “Revenue from Contracts with Customers” (Topic 606), which supersedes the revenue recognition requirements in ASC 605, Revenue Recognition. This was further clarified with technical corrections issued within ASU 2015-14, ASU 2016-08, ASU 2016-10, ASU 2016-11, ASU 2016-12, ASU 2016-20, and ASU 2017-05.  The new revenue recognition guidance was issued to provide a single, comprehensive revenue recognition model for all contracts with customer.  Under the new guidance, an entity will recognize revenue to depict the transfer of promised goods or services to customer at an amount that the entity expects to be entitled to in exchange for those goods or services. A five-step model has been introduced for an entity to apply when recognizing revenue.  The new guidance also includes enhanced disclosure requirements and is effective January 1, 2018.  Entities have the option to apply the new guidance under a retrospective approach to each prior reporting period presented, or a modified retrospective approach with the cumulative effect of initially applying the new guidance recognized at the date of initial application within the Consolidated Statement of Changes in Stockholder's Equity. The Company will adopt the new guidance effective January 1, 2018, utilizing the modified retrospective approach. Based upon review of the Company's current revenue recognition practices, the Company did not identify any terms or conditions in the contracts reviewed which changed the Company’s pattern of revenue recognition than that recorded under the superseded guidance. The adoption of this ASU will not have a material impact on the Company's consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09 - “Compensation-Stock Compensation (Topic 718):  Improvements to Employee Share-Based Payment Accounting.”  This update is part of the Simplification Initiative, and its objective is to identify, evaluate and improve areas of accounting principles generally accepted in the United States of America for which cost and complexity can be reduced while maintaining or improving usefulness of the information provided to users of financial statements.  The update involves several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The effective date for this ASU is for annual periods beginning after December 15, 2016 and interim periods within those annual periods. The adoption of this ASU did not have a material impact on the Company's consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-06 - “Derivatives and Hedging: Contingent Put and Call Options in Debt Instruments.” The amendments clarify the steps required to assess whether a call or put option meets the criteria for bifurcation as an embedded derivative. The ASU is effective for fiscal years and interim periods within those years beginning after December 15, 2016. The adoption of this ASU did not have a material impact on the Company's consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02 - “Leases”, which is intended to improve financial reporting on leasing transactions. This standard requires a lessee to record on the balance sheet the assets and liabilities for the rights and obligations created by lease terms of more than 12 months. This standard will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is evaluating the impact the adoption of this ASU will have on its consolidated financial statements.

In January 2016, the FASB issued ASU 2016-01 - “Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities.” ASU 2016-01 amends various aspects of the recognition, measurement, presentation, and disclosure for financial instruments. Most significantly, ASU 2016-01 requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of an investee) to be measured at fair value with changes in fair value recognized in net income (loss). ASU 2016-01 is effective for annual reporting periods, and interim periods within those years beginning after December 15, 2017. The Company is evaluating the impact the adoption of this ASU will have on its consolidated financial statements.

In July 2015, the FASB issued ASU No. 2015-11 - “Inventory (Topic 330): Simplifying the Measurement of Inventory.” This update changes the guidance on accounting for inventory accounted for on a FIFO basis. Under the revised standard, an entity should measure FIFO inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured on a LIFO basis. The amendments in this ASU are effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2016. The adoption of this ASU did not have a material impact on the Company's consolidated financial statements.

Discontinued Operations
Discontinued Operations

3. Discontinued Operations

On March 4, 2016, Manitowoc completed the Spin-Off of MFS. The financial results of MFS are presented as income (loss) from discontinued operations, net of income taxes in the Consolidated Statements of Operations.  Concurrent with the Spin-Off, the Company received a $1,361.7 million dividend from MFS. The following table presents the financial results of MFS through the date of the Spin-Off for the indicated periods and do not include corporate overhead allocations:

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

 

(in millions)

 

2016

 

 

2015

 

Net sales

 

$

219.6

 

 

$

1,570.1

 

Cost of sales

 

 

141.5

 

 

 

1,065.6

 

Engineering, selling and administrative expenses

 

 

48.3

 

 

 

271.3

 

Amortization of intangible assets

 

 

5.2

 

 

 

31.4

 

Asset impairment expense

 

 

 

 

 

9.0

 

Restructuring expense

 

 

0.3

 

 

 

4.6

 

Separation expense

 

 

27.7

 

 

 

39.4

 

Other

 

 

 

 

 

0.9

 

Total operating costs and expenses

 

 

223.0

 

 

 

1,422.2

 

Operating (loss) income

 

 

(3.4

)

 

 

147.9

 

Other (expense) income

 

 

(2.2

)

 

 

23.4

 

(Loss) income from discontinued operations before

   income taxes

 

 

(5.6

)

 

 

171.3

 

Provision for taxes on income

 

 

0.6

 

 

 

35.9

 

(Loss) income from discontinued operations, net of

   income taxes (1)

 

$

(6.2

)

 

$

135.4

 

 

(1)

For the year ended December 31, 2016 and 2015, the Company recorded net (losses) income of $(1.0) million and $0.0 million, respectively, from various other businesses disposed of prior to 2014. This is presented for informational purposes only and does not necessarily reflect what the results of operations would have been had the businesses operated as stand-alone entities.

No assets or liabilities of MFS are reflected on the Company's Consolidated Balance Sheet as of December 31, 2017 and 2016.  

 

Manitowoc and MFS entered into several 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 are providing various services to each other on an interim, transitional basis. Services being provided by Manitowoc include, among others, finance, information technology and certain other administrative services. The services generally commenced on March 4, 2016, and all have terminated. 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 twelve months ended December 31, 2017 related to the Spin-Off were not material. During the twelve months ended December 31, 2016 and 2015, the Company recorded $27.7 million and $39.4 million, respectively, 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.

Fair Value of Financial Instruments
Fair Value of Financial Instruments

4. Fair Value of Financial Instruments

The following tables set forth the Company’s financial assets and liabilities that were accounted for at fair value as of December 31, 2016 by level within the fair value hierarchy. At December 31, 2017, there was an immaterial amount of financial assets and liabilities that were accounted for at 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.

 

 

 

 

Fair Value as of December 31, 2016

 

(in millions)

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Current Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency exchange contracts

 

$

 

 

$

0.2

 

 

$

 

 

$

0.2

 

Commodity contracts

 

 

 

 

 

0.2

 

 

 

 

 

 

0.2

 

Total current assets at fair value

 

$

 

 

$

0.4

 

 

$

 

 

$

0.4

 

Current Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency exchange contracts

 

$

 

 

$

1.0

 

 

$

 

 

$

1.0

 

Total current liabilities at fair value

 

$

 

 

$

1.0

 

 

$

 

 

$

1.0

 

 

The fair value of the Company’s 12.750% senior secured second lien notes due 2021 (the “2021 Notes”) was approximately $297.3 million and $282.2 million as of December 31, 2017 and 2016, respectively.

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 estimates fair value of its 2021 Notes based on quoted market prices of the instruments; because these markets are typically thinly traded, the liabilities are classified as Level 2 within the valuation hierarchy.  The carrying values of cash and cash equivalents, accounts receivable, accounts payable, deferred purchase price notes on receivables sold (see Note 11, “Accounts Receivable Securitization”) and short-term variable debt, including any amounts outstanding under our revolving credit facility, approximate fair value, without being discounted as of December 31, 2017 and December 31, 2016 due to the short-term nature of these instruments.

As a result of the Company’s global operating and financing activities, the Company is exposed to market risks from changes in interest rates, foreign currency exchange rates, and commodity prices, which may adversely affect its operating results and financial position. When deemed appropriate, the Company minimizes these risks 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 foreign currency exchange, interest rate, and commodity contracts are valued through an independent valuation source which uses an industry standard data provider, with resulting valuations periodically validated through third-party or counterparty quotes.  As such, these derivative instruments are classified within Level 2.

Inventories
Inventories

5. Inventories

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

 

(in millions)

 

2017

 

 

2016

 

Raw materials

 

$

122.0

 

 

$

109.3

 

Work-in-process

 

 

94.3

 

 

 

88.4

 

Finished goods

 

 

227.7

 

 

 

270.9

 

Total inventories — gross

 

 

444.0

 

 

 

468.6

 

Excess and obsolete inventory reserve

 

 

(47.9

)

 

 

(39.6

)

Net inventories

 

$

396.1

 

 

$

429.0

 

 

As described in Note 2, in the fourth quarter of 2016, the Company elected to change its method of accounting for certain inventory in the U.S. from LIFO to FIFO. 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 consolidated financial statements for the year ended December 31, 2015 was adjusted as follows:

 

For the year ended December 31, 2015

 

 

 

 

 

Impact of Change

 

In millions (except per share data)

 

Historical

 

 

to FIFO

 

 

As adjusted

 

Cost of sales

 

$

1,537.0

 

 

$

(3.5

)

 

$

1,533.5

 

Operating (loss) income

 

 

(15.9

)

 

 

3.5

 

 

 

(12.4

)

Loss from continuing operations before taxes

 

 

(114.5

)

 

 

3.5

 

 

 

(111.0

)

Benefit for income taxes

 

 

(42.6

)

 

 

1.5

 

 

 

(41.1

)

Loss from continuing operations

 

 

(71.9

)

 

 

2.0

 

 

 

(69.9

)

Net (loss) income

 

 

63.5

 

 

 

2.0

 

 

 

65.5

 

Net (loss) income attributable to Manitowoc

   common shareholders

 

 

63.5

 

 

 

2.0

 

 

 

65.5

 

Basic (loss) income per share from continuing

   operations

 

 

(2.11

)

 

 

0.02

 

 

 

(2.06

)

Diluted (loss) income per share from

   continuing operations

 

 

(2.11

)

 

 

0.02

 

 

 

(2.06

)

 

The Consolidated Statements of Cash Flows for the year ended December 31, 2015 was adjusted as follows:

 

For the year ended December 31, 2015

 

 

 

 

 

Impact of Change

 

In millions

 

Historical

 

 

to FIFO

 

 

As adjusted

 

Net (loss) income

 

$

63.5

 

 

$

2.0

 

 

$

65.5

 

Deferred income taxes

 

 

(5.9

)

 

 

1.5

 

 

 

(4.4

)

Change in inventories, net

 

 

(3.7

)

 

 

(3.5

)

 

 

(7.2

)

 

The tables above present selected financial information “as adjusted for impact of change to FIFO” and “historical,” which represents the results of operations prior to the change to FIFO but after the classification of MFS to discontinued operations.

Notes Receivable
Notes Receivable

6. Notes Receivable

Notes receivable balances as of December 31, 2017 and 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. During 2017, the Company renegotiated the terms of the note with Manitowoc Dong Yue to provide extended payment terms. As a result of the renegotiation, the entire balance of the Manitowoc Dong Yue note is included in long-term notes receivable in the Consolidated Balance Sheet as of December 31, 2017. As of December 31, 2017, the Company had current and long-term notes receivable in the amount of $31.1 million and $27.4 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 Consolidated Balance Sheet.

Property, Plant and Equipment
Property, Plant and Equipment

7. Property, Plant and Equipment

The components of property, plant and equipment at December 31, 2017 and December 31, 2016 are summarized as follows:

 

(in millions)

 

2017

 

 

2016

 

Land

 

$

25.4

 

 

$

23.6

 

Building and improvements

 

 

196.4

 

 

$

225.0

 

Machinery, equipment and tooling

 

 

263.6

 

 

$

292.6

 

Furniture and fixtures

 

 

15.6

 

 

$

16.7

 

Computer hardware and software

 

 

114.4

 

 

$

126.0

 

Rental cranes

 

 

90.2

 

 

$

89.0

 

Construction in progress

 

 

17.3

 

 

$

16.7

 

Total cost

 

 

722.9

 

 

 

789.6

 

Less accumulated depreciation

 

 

(428.0

)

 

 

(480.8

)

Property, plant and equipment-net

 

$

294.9

 

 

$

308.8

 

 

In the twelve months ended December 31, 2017 and 2016, the Company recorded $0.1 million and $96.9 million in asset impairment charges, respectively.  See additional discussion of impairments in Note 19, “Restructuring and Asset Impairments.”

 

Assets Held for Sale

 

The Company has classified the Manitowoc, Wisconsin manufacturing building and Corporate headquarters as held for sale on the consolidated balance sheet. The net book value of assets held for sale were $25.0 million as of December 31, 2017 and are included in other current assets on the balance sheet. No assets were classified as held for sale on the balance sheet as of December 31, 2016.

 

These assets were carried at the lesser of the original cost or fair value, less the estimated costs to sell. The fair values were determined by the Company to be Level 3 (see Note 4, “Fair Value of Financial Instruments,” for the definition of Level 3 inputs) under the fair value hierarchy and were estimated based on broker quotes and internal expertise related to current marketplace conditions.

Goodwill and Other Intangible Assets
Goodwill and Other Intangible Assets

8. Goodwill and Other Intangible Assets

The changes in carrying amount of goodwill for the years ended December 31, 2017 and December 31, 2016 are as follows:

 

(in millions)

 

Cranes

 

 

Americas

 

 

Europe and Africa ("EURAF")

 

 

Middle East and Asia Pacific ("MEAP")

 

Net balance as of January 1, 2016

 

$

306.5

 

 

$

 

 

$

 

 

$

 

Foreign currency impact

 

 

(6.9

)

 

 

 

 

 

 

 

 

 

Net balance as of December 31, 2016

 

 

299.6

 

 

 

 

 

 

 

 

 

 

Foreign currency impact

 

 

16.5

 

 

 

 

 

 

 

 

 

 

Reallocation of goodwill at October 31, 2017

 

 

(316.1

)

 

 

166.5

 

 

 

81.5

 

 

 

68.1

 

Foreign currency impact

 

 

 

 

 

 

 

 

4.4

 

 

 

0.8

 

Net balance as of December 31, 2017

 

$

 

 

$

166.5

 

 

$

85.9

 

 

$

68.9

 

 

The Company accounts for goodwill and other intangible assets under the guidance of ASC Topic 350, “Intangibles — Goodwill and Other.” The Company performs impairment reviews 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.

The annual goodwill and indefinite-lived assets impairment testing was performed during the fourth quarter. Based on the results of that test, no impairment was indicated. The Company will continue to monitor changes in circumstances and test more frequently if those changes indicate that assets might be impaired.

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 our 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 Consolidated Balance Sheets and Results of Operations.

The gross carrying amount and accumulated amortization of the Company’s intangible assets other than goodwill are as follows as of December 31, 2017 and December 31, 2016.

 

 

 

December 31, 2017

 

 

December 31, 2016

 

(in millions)

 

Gross

Carrying

Amount

 

 

Accumulated

Amortization

Amount

 

 

Net

Book

Value

 

 

Gross

Carrying

Amount

 

 

Accumulated

Amortization

Amount

 

 

Net

Book

Value

 

Trademarks and tradenames

 

$

99.7

 

 

$

 

 

$

99.7

 

 

$

92.4

 

 

$

 

 

$

92.4

 

Customer relationships

 

 

10.7

 

 

 

(8.7

)

 

 

2.0

 

 

 

10.3

 

 

 

(7.8

)

 

 

2.5

 

Patents

 

 

30.6

 

 

 

(29.7

)

 

 

0.9

 

 

 

28.5

 

 

 

(27.4

)

 

 

1.1

 

Engineering drawings

 

 

10.8

 

 

 

(10.7

)

 

 

0.1

 

 

 

10.0

 

 

 

(9.9

)

 

 

0.1

 

Distribution network

 

 

19.5

 

 

 

(0.1

)

 

 

19.4

 

 

 

18.0

 

 

 

 

 

 

18.0

 

Other intangibles

 

 

0.1

 

 

 

(0.1

)

 

 

 

 

 

0.2

 

 

 

(0.2

)

 

 

 

 

 

$

171.4

 

 

$

(49.3

)

 

$

122.1

 

 

$

159.4

 

 

$

(45.3

)

 

$

114.1

 

 

Amortization of intangible assets for the years ended December 31, 2017, 2016 and 2015 was $0.8 million, $3.0 million and $3.0 million, respectively.  Excluding the impact of any future acquisitions, divestitures or impairments, the Company anticipates amortization will be approximately $0.3 million per year through 2022.

Accounts Payable and Accrued Expenses
Accounts Payable and Accrued Expenses

9. Accounts Payable and Accrued Expenses

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

 

(in millions)

 

2017

 

 

2016

 

Trade accounts payable

 

$

204.9

 

 

$

157.7

 

Employee-related expenses

 

 

59.7

 

 

 

28.1

 

Accrued vacation

 

 

23.8

 

 

 

21.8

 

Miscellaneous accrued expenses

 

 

87.4

 

 

 

113.6

 

 

 

$

375.8

 

 

$

321.2

 

 

Debt
Debt

10. Debt

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

 

(in millions)

 

2017

 

 

2016

 

Revolving credit facility

 

$

 

 

$

 

Senior notes due 2021

 

 

251.9

 

 

 

249.8

 

Other

 

 

26.1

 

 

 

35.7

 

Deferred financing costs

 

 

(3.1

)

 

 

(4.0

)

Total debt

 

 

274.9

 

 

 

281.5

 

Less current portion and short-term borrowings

 

 

(8.2

)

 

 

(12.4

)

Long-term debt

 

$

266.7

 

 

$

269.1

 

 

The balance sheet values of the 2021 Notes as of December 31, 2017 and 2016 are not equal to the face value of the 2021 Notes, $260.0 million, because of original issue discounts (“OID”) included in the applicable balance sheet values.

As of December 31, 2017, the Company had outstanding $26.1 million of other indebtedness that has a weighted-average interest rate of approximately 5.4%.  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 Agreement and 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 activates 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 financial 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.

In December 2017, the Company notified the Administrative Agent of its intent to sell its Corporate headquarters in Manitowoc, Wisconsin, and the ABL Revolving Credit Facility was amended to permit that transaction and related restructuring activities.

As of December 31, 2017, the Company did not have an outstanding balance on the ABL Revolving Credit Facility. During the year ended December 31, 2017, the highest daily borrowing was $59.5 million and the average borrowing was $18.4 million, while the average annual interest rate was 3.20%. The interest rate of the ABL Revolving Credit Facility fluctuates based on excess availability.  As of December 31, 2017, the spreads for London interbank offer rate and prime rate borrowings were 1.50% and 0.50%, respectively, with excess availability of approximately $103.6 million, which represents revolver borrowing capacity of $118.1 million less U.S. letters of credit outstanding of $14.4 million.

The ABL Revolving Credit Facility replaced the $1,050.0 million Third Amended and Restated Credit Agreement (the “Prior Senior Credit Facility”), which was entered into on January 3, 2014. The Prior Senior Credit Facility included three different loan facilities.  The first was a revolving facility in the amount of $500.0 million, with a term of five years.  The second facility was a Term Loan A in the aggregate amount of $350.0 million, with a term of five years.  The third facility was a Term Loan B in the amount of $200.0 million, with a term of seven years.

In the first quarter of 2016, the Company terminated the Prior Senior Credit Faciality 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. Prior to termination of the Prior Senior Credit Facility in March 2016, the highest daily borrowing was $234.0 million, the average borrowing was $117.4 million, and the average annual interest rate was 3.5%.  

On February 18, 2016, the Company entered into an indenture with Wells Fargo Bank, N.A., as trust and collateral agent, and completed the sale of $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 indenture governing the 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 credit agreement, to (ii) fixed charges, as defined in the related credit agreement. The financial covenant is triggered only if the Company fails to maintain minimum levels of availability under the credit 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% as 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 Senior Credit Facility, Prior 2020 Notes and Prior 2022 Notes were repaid with proceeds from the 2021 Notes and a cash dividend from MFS in conjunction with the Spin-Off.

The aggregate scheduled maturities of outstanding debt obligations in subsequent years are as follows (in millions):

 

Year

 

 

 

 

2018

 

$

8.2

 

2019

 

 

6.7

 

2020

 

 

3.8

 

2021

 

 

266.2

 

2022

 

 

0.4

 

Thereafter

 

 

0.7

 

Total

 

$

286.0

 

 

 

The table of scheduled maturities above does not agree to the Company’s total debt as of December 31, 2017 as shown on the Consolidated Balance Sheet due to $8.0 million of OID and $3.1 million of deferred financing costs.

As of December 31, 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.  Based upon management’s current plans and outlook, the Company believes it will be able to comply with these covenants during the subsequent twelve months.

Accounts Receivable Securitization
Accounts Receivable Securitization

11. 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 replaced the Fifth Amended and Restated Receivables Purchase Agreement dated December 15, 2014 (“Prior RPA”) and 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.

Under the RPA (and the related Purchase and Sale Agreements referenced in the RPA), 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.

The Purchaser receives ownership of the pool of receivables in each instance. New receivables are purchased by MTW Funding and resold to the Purchaser to replace previously sold investments discharged through normal cash collection processes. 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 receivables sold to the Purchaser and being serviced by the Company totaled $695.2 million and $600.3 million as of December 31, 2017 and 2016, respectively. Cash proceeds received from customers related to the receivables previously sold for the twelve months ended December 31, 2017 and 2016 were $645.5 million and $627.2 million, respectively.

Sales of trade receivables under the program reflected as a reduction of accounts receivable in the accompanying Consolidated Balance Sheets were $31.8 million and $19.5 million as of December 31, 2017 and 2016, respectively. The proceeds received, including collections on the deferred purchase price notes, are included in cash flows from operating activities in the accompanying 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 December 31, 2017 and December 31, 2016 was $60.6 million and $30.6 million, respectively, and is included in accounts receivable in the accompanying 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 December 31, 2017, the Company was in compliance with all affirmative and negative covenants inclusive of the financial covenants pertaining to the RPA, as amended.  Based on management’s current plans and outlook, the Company believes it will be able to comply with these covenants during the subsequent twelve months.

The Company's Prior RPA was entered into on December 15, 2014. Under the Prior RPA (and the related Purchase and Sale Agreements referenced in the Prior RPA), the Company’s domestic trade accounts receivable were sold to certain affiliates of the Company which, in turn, then sold, conveyed, transferred and assigned to a third-party financial institution, all of the right, title and interest in and to the pool of receivables. The Prior RPA was subsequently amended to make various changes; such as in the originators and servicers thereunder and in the obligations of various MFS-related entities, generally in anticipation of the Spin-Off.

Income Taxes
Income Taxes

12. Income Taxes

Income (loss) from continuing operations are summarized below:

 

(in millions)

 

2017

 

 

2016

 

 

2015

 

(Loss) income from continuing operations before

   income taxes:

 

 

 

 

 

 

 

 

 

 

 

 

Domestic

 

$

(98.5

)

 

$

(293.0

)

 

$

(184.0

)

Foreign

 

 

59.0

 

 

 

24.9

 

 

 

73.0

 

Total

 

$

(39.5

)

 

$

(268.1

)

 

$

(111.0

)

 

Income tax provision (benefit) from continuing operations is summarized as follows:

 

(in millions)

 

2017

 

 

2016

 

 

2015

 

Current:

 

 

 

 

 

 

 

 

 

 

 

 

Federal and state

 

$

(12.8

)

 

$

(13.0

)

 

$

(48.6

)

Foreign

 

 

7.4

 

 

 

12.1

 

 

 

11.9

 

Total current

 

$

(5.4

)

 

$

(0.9

)

 

$

(36.7

)

Deferred:

 

 

 

 

 

 

 

 

 

 

 

 

Federal and state

 

$

(7.0

)

 

$

98.7

 

 

$

(8.3

)

Foreign

 

 

(37.1

)

 

 

2.7

 

 

 

3.9

 

Total deferred

 

$

(44.1

)

 

$

101.4

 

 

$

(4.4

)

Provision (benefit) for taxes on income

 

$

(49.5

)

 

$

100.5

 

 

$

(41.1

)

 

The federal statutory income tax rate is reconciled to the Company’s effective income tax rate for continuing operations for the years ended December 31, 2017, 2016 and 2015 as follows:

 

 

 

2017

 

 

2016

 

 

2015

 

Federal income tax at statutory rate

 

 

35.0

%

 

 

35.0

%

 

 

35.0

%

State income provision (benefit)

 

 

16.3

 

 

 

2.3

 

 

 

5.7

 

Manufacturing & research incentives

 

 

7.9

 

 

 

2.0

 

 

 

(0.4

)

Taxes on foreign income which differ from the U.S.

   statutory rate

 

 

41.5

 

 

 

2.4

 

 

 

8.3

 

Adjustments for unrecognized tax benefits

 

 

0.5

 

 

 

(4.0

)

 

 

1.5

 

Adjustments for valuation allowances

 

 

287.7

 

 

 

(69.8

)

 

 

(8.5

)

Spin-off tax costs

 

 

 

 

 

(1.3

)

 

 

(1.8

)

U.S. Tax Reform

 

 

(228.3

)

 

 

 

 

 

 

Other items

 

 

(35.4

)

 

 

(4.1

)

 

 

(2.8

)

Effective tax rate

 

 

125.2

%

 

 

(37.5

)%

 

 

37.0

%

 

On December 22, 2017, the President of the United States signed into law the Tax Reform Act. The legislation significantly changes U.S. tax law by, among other things, lowering corporate income tax rates, and imposing a repatriation tax on deemed repatriated earnings of foreign subsidiaries. The Tax Reform Act permanently reduces the U.S. corporate income tax rate from a maximum of 35% to a flat 21% rate, effective January 1, 2018.  As a result of the reduction in the U.S. corporate income tax rate from 35% to 21% under the Tax Reform Act, the Company revalued its ending net deferred tax assets and offsetting valuation allowance at December 31, 2017, resulting in a net tax benefit of $6.5 million.

 

The Tax Reform Act provided for a one-time deemed mandatory repatriation of post-1986 undistributed foreign subsidiary earnings and profits (“E&P”) through the year ended December 31, 2017. The Company calculated a provisional $54.0 million of federal and state income tax expense for this item. After the utilization of net operating losses, the Company expects no U.S. cash tax impact.

  

On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Reform Act. The Company has recognized the provisional federal and state tax impacts related to deemed repatriated earnings and the revaluation of deferred tax assets and liabilities and included these amounts in its consolidated financial statements for the year ended December 31, 2017. The ultimate impact may differ from these provisional amounts, possibly materially, due to, among other things, additional analysis, changes in interpretations and assumptions the Company has made, additional regulatory guidance that may be issued, and actions the Company may take as a result of the Tax Reform Act. In addition, the Company is still analyzing its permanent reinvestment assertion in light of the Tax Reform Act. The accounting is expected to be complete in the fourth quarter of 2018.

 

Beginning in 2018, the Tax Reform Act includes two new U.S. corporate tax provisions, the global intangible low-taxed income (“GILTI”) and the base-erosion and anti-abuse tax (“BEAT”) provisions. The GILTI provision require the Company to include in its U.S. income tax return foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets. The BEAT provision in the Tax Reform Act eliminate the deduction of certain base-erosion payments made to related foreign corporates, and impose a minimum tax if greater than regular tax. The Company is still evaluating the potential impact of the GILTI and BEAT provisions and accordingly has not recorded a provisional estimate for the year ended December 31, 2017.

 

The 2017, 2016 and 2015 effective tax rates were favorably impacted by income earned in jurisdictions where the statutory rate was less than 35%. The rate reconciling items included above, when adjusted for actual dollar values, are consistent with prior year. The percentage impacts are higher in 2017 due to the lower consolidated pretax loss.

As of each reporting date, the Company's management considers new evidence, both positive and negative, that could impact management's view with regard to future realization of deferred tax assets. Due to the Spin-Off that occurred in the first quarter of 2016, management reevaluated the deferred tax assets related to the domestic crane operations and determined that it was more likely than not that deferred tax assets related to its domestic crane operations were not realizable and the Company recorded a valuation allowance.

The Company has recorded valuation allowances on the deferred tax assets in Brazil, China Leasing, Germany, India, Slovakia, U.K., and the U.S. as it is more likely than not that they will not be utilized. Also during 2017, the Company released a $40.2 million valuation allowance in France. The 2017 tax provision was impacted by a net decrease of $113.8 million related to valuation allowances in these jurisdictions, with the primary drivers being the French valuation allowance release noted above, Internal Revenue Service audit resolution of $13.7 million, and U.S. tax reform impact of $68.9 million.

The Company will continue to periodically evaluate its valuation allowance requirements in light of changing facts and circumstances and may adjust its deferred tax asset valuation allowances accordingly. It is reasonably possible 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.

For 2017, the only significant item included in Other items was the IRS audit resolution. For 2016, the only significant item included in Other items was the net operating loss. For 2015, no items included in Other items are individually, or when appropriately aggregated, significant. Note certain prior period numbers were reclassified to conform to current year presentation.

Temporary differences and carryforwards that give rise to deferred tax assets and liabilities include the following items:

 

(in millions)

 

2017

 

 

2016

 

Non-current deferred tax assets (liabilities):

 

 

 

 

 

 

 

 

Inventories

 

$

16.5

 

 

$

14.2

 

Accounts receivable

 

 

(5.4

)

 

 

(4.6

)

Property, plant and equipment

 

 

(9.7

)

 

 

19.0

 

Intangible assets

 

 

(33.8

)

 

 

(35.9

)

Deferred employee benefits

 

 

47.3

 

 

 

71.8

 

Product warranty reserves