MANITOWOC CO INC, 10-K filed on 2/20/2015
Annual Report
Document and Entity Information (USD $)
12 Months Ended
Dec. 31, 2014
Jan. 30, 2015
Jun. 30, 2014
Document and entity information
 
 
 
Entity Registrant Name
MANITOWOC CO INC 
 
 
Entity Central Index Key
0000061986 
 
 
Document Type
10-K 
 
 
Document Period End Date
Dec. 31, 2014 
 
 
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
 
 
$ 4,395,900,000 
Entity Common Stock, Shares Outstanding
 
135,624,916 
 
Document Fiscal Year Focus
2014 
 
 
Document Fiscal Period Focus
Q4 
 
 
Consolidated Statements of Operations (USD $)
In Millions, except Per Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2014
Dec. 31, 2013
Dec. 31, 2012
Operations
 
 
 
Net sales
$ 3,886.5 
$ 4,048.1 
$ 3,913.3 
Costs and expenses:
 
 
 
Cost of sales
2,900.4 
3,026.3 
2,970.3 
Engineering, selling and administrative expenses
641.6 
617.6 
597.6 
Asset impairment expense
1.1 
Amortization expense
35.1 
35.3 
36.5 
Restructuring expense
9.0 
4.8 
9.5 
Other expense (income)
0.5 
(0.3)
2.5 
Total costs and expenses
3,587.7 
3,683.7 
3,616.4 
Operating earnings from continuing operations
298.8 
364.4 
296.9 
Other income (expenses):
 
 
 
Interest expense
(94.0)
(128.4)
(135.6)
Amortization of deferred financing fees
(4.4)
(7.0)
(8.2)
Loss on debt extinguishment
(25.5)
(3.0)
(6.3)
Other (expense) income -net
(5.5)
(0.8)
0.1 
Total other expenses
(129.4)
(139.2)
(150.0)
Earnings from continuing operations before taxes on earnings
169.4 
225.2 
146.9 
Provision for taxes on earnings
8.6 
36.1 
38.0 
Earnings from continuing operations
160.8 
189.1 
108.9 
Discontinued operations:
 
 
 
Loss from discontinued operations, net of income taxes of $(0.3), $(1.8) and $0.2, respectively
(1.4)
(18.8)
(16.3)
Loss on sale of discontinued operations, net of income taxes of $(0.6), $4.4 and $0.0, respectively
(11.0)
(2.7)
Net earnings
148.4 
167.6 
92.6 
Less: Net earnings (loss) attributable to noncontrolling interest, net of tax
3.9 
25.8 
(9.1)
Net earnings attributable to Manitowoc
144.5 
141.8 
101.7 
Amounts attributable to the Manitowoc common shareholders:
 
 
 
Earnings from continuing operations
156.5 
154.8 
109.7 
Loss from discontinued operations, net of income taxes
(1.0)
(10.3)
(8.0)
Loss on sale of discontinued operations, net of income taxes
(11.0)
(2.7)
Net earnings attributable to Manitowoc
$ 144.5 
$ 141.8 
$ 101.7 
Basic earnings (loss) per common share:
 
 
 
Earnings from continuing operations attributable to Manitowoc common shareholders
$ 1.16 
$ 1.16 
$ 0.83 
Loss from discontinued operations attributable to Manitowoc common shareholders
$ (0.01)
$ (0.08)
$ (0.06)
Loss on sale of discontinued operations, net of income taxes
$ (0.08)
$ (0.02)
$ 0.00 
Earnings per share attributable to Manitowoc common shareholders
$ 1.07 
$ 1.07 
$ 0.77 
Diluted earnings (loss) per common share:
 
 
 
Earnings from continuing operations attributable to Manitowoc common shareholders
$ 1.14 
$ 1.14 
$ 0.82 
Loss from discontinued operations attributable to Manitowoc common shareholders
$ (0.01)
$ (0.08)
$ (0.06)
Loss on sale of discontinued operations, net of income taxes
$ (0.08)
$ (0.02)
$ 0.00 
Earnings per share attributable to Manitowoc common shareholders
$ 1.05 
$ 1.05 
$ 0.76 
Consolidated Statements of Operations (Parenthetical) (USD $)
In Millions, unless otherwise specified
12 Months Ended
Dec. 31, 2014
Dec. 31, 2013
Dec. 31, 2012
Income Statement [Abstract]
 
 
 
Loss from discontinued operations, income taxes
$ (0.3)
$ (1.8)
$ 0.2 
Loss on sale of discontinued operations, income taxes
$ (0.6)
$ 4.4 
$ 0 
Consolidated Statements of Comprehensive Income (USD $)
In Millions, unless otherwise specified
12 Months Ended
Dec. 31, 2014
Dec. 31, 2013
Dec. 31, 2012
Net earnings
$ 148.4 
$ 167.6 
$ 92.6 
Other comprehensive (loss) income, net of tax
 
 
 
Foreign currency translation adjustments
(84.0)
4.5 
8.3 
Unrealized (loss) income on derivatives, net of income taxes of $(3.8), $0.3, and $2.6, respectively
(7.3)
0.4 
5.2 
Employee pension and postretirement benefits, net of income taxes of $(13.3), $7.6, and $(0.5), respectively
(32.3)
17.6 
(18.1)
Total other comprehensive (loss) income, net of tax
(123.6)
22.5 
(4.6)
Comprehensive income
24.8 
190.1 
88.0 
Comprehensive income (loss) attributable to noncontrolling interest
3.9 
25.8 
(9.1)
Comprehensive income attributable to Manitowoc
$ 20.9 
$ 164.3 
$ 97.1 
Consolidated Statements of Comprehensive Income (Parenthetical) (USD $)
In Millions, unless otherwise specified
3 Months Ended 12 Months Ended
Dec. 31, 2014
Dec. 31, 2013
Dec. 31, 2014
Statement of Comprehensive Income [Abstract]
 
 
 
Unrealized (loss) income on derivatives, net of income taxes of
$ (3.8)
$ 0.3 
$ 2.6 
Employee pension and post retirement benefits, income taxes
$ (13.3)
$ 7.6 
$ (0.5)
Consolidated Balance Sheets (USD $)
In Millions, unless otherwise specified
Dec. 31, 2014
Dec. 31, 2013
Current Assets:
 
 
Cash and cash equivalents
$ 68.0 
$ 54.9 
Restricted cash
23.7 
12.8 
Accounts receivable, less allowances of $19.4 and $18.2, respectively
227.4 
255.5 
Inventories — net
644.5 
720.8 
Deferred income taxes
71.3 
89.9 
Other current assets
151.2 
113.9 
Current assets of discontinued operations
15.1 
Total current assets
1,186.1 
1,262.9 
Property, plant and equipment — net
591.0 
578.8 
Goodwill
1,198.1 
1,218.6 
Other intangible assets — net
714.7 
766.2 
Other non-current assets
126.7 
126.8 
Long-term assets of discontinued operations
23.3 
Total assets
3,816.6 
3,976.6 
Current Liabilities:
 
 
Accounts payable and accrued expenses
807.4 
935.6 
Short-term borrowings
80.3 
22.7 
Product warranties
77.7 
81.1 
Customer advances
21.3 
34.9 
Product liabilities
24.6 
25.0 
Current liabilities of discontinued operations
26.1 
Total current liabilities
1,011.3 
1,125.4 
Non-Current Liabilities:
 
 
Long-term debt
1,443.2 
1,504.1 
Long-term deferred income tax liability
186.2 
214.3 
Pension obligations
141.0 
101.5 
Postretirement health and other benefit obligations
53.1 
44.7 
Long-term deferred revenue
37.9 
37.6 
Other non-current liabilities
119.8 
164.5 
Long-term liabilities of discontinued operations
2.2 
Total non-current liabilities
1,981.2 
2,068.9 
Commitments and contingencies (Note 17)
   
   
Total Equity:
 
 
Common stock (300,000,000 shares authorized, 163,175,928 shares issued, 135,543,869 and 133,717,057 shares outstanding, respectively)
1.4 
1.4 
Additional paid-in capital
539.7 
506.0 
Accumulated other comprehensive loss
(130.5)
(6.9)
Retained earnings
486.9 
353.2 
Treasury stock, at cost (27,632,059 and 29,458,871 shares, respectively)
(73.4)
(78.2)
Total Manitowoc stockholders’ equity
824.1 
775.5 
Noncontrolling interest
6.8 
Total equity
824.1 
782.3 
Total liabilities and equity
$ 3,816.6 
$ 3,976.6 
Consolidated Balance Sheets (Parenthetical) (USD $)
In Millions, except Share data, unless otherwise specified
Dec. 31, 2014
Dec. 31, 2013
Statement of Financial Position [Abstract]
 
 
Accounts Receivable, allowances (in dollars)
$ 19.4 
$ 18.2 
Common stock, shares authorized
300,000,000 
300,000,000 
Common stock, shares issued
163,175,928 
163,175,928 
Common stock, shares outstanding
135,543,869 
133,717,057 
Treasury stock, shares
27,632,059 
29,458,871 
Consolidated Statements of Cash Flows (USD $)
In Millions, unless otherwise specified
12 Months Ended
Dec. 31, 2014
Dec. 31, 2013
Dec. 31, 2012
Cash Flows From Operations
 
 
 
Net earnings
$ 148.4 
$ 167.6 
$ 92.6 
Adjustments to reconcile net earnings to cash provided by operating activities of continuing operations:
 
 
 
Asset impairments
1.1 
Discontinued operations, net of income taxes
1.4 
18.8 
16.3 
Depreciation
68.4 
68.5 
68.1 
Amortization of intangible assets
35.1 
35.3 
36.5 
Amortization of deferred financing fees
4.4 
7.0 
8.2 
Deferred income taxes
(6.2)
(13.4)
(8.5)
Loss on early extinguishment of debt
6.3 
3.0 
6.3 
(Gain) loss on sale of property, plant and equipment
(6.5)
3.7 
3.0 
Loss on sale of discontinued operations
11.0 
2.7 
Stock-based compensation expense and other
1.9 
14.9 
16.4 
Changes in operating assets and liabilities, excluding the effects of business acquisitions or dispositions:
 
 
 
Accounts receivable
10.3 
74.3 
(35.9)
Inventories
9.0 
(22.2)
(42.8)
Other assets
(17.3)
(22.6)
(2.6)
Accounts payable
(8.9)
(1.6)
29.3 
Accrued expenses and other liabilities
(153.0)
(1.9)
(11.6)
Net cash provided by operating activities of continuing operations
105.4 
334.1 
175.3 
Net cash used for operating activities of discontinued operations
(7.1)
(11.0)
(12.9)
Net cash provided by operating activities
98.3 
323.1 
162.4 
Cash Flows From Investing
 
 
 
Capital expenditures
(84.8)
(110.7)
(72.9)
Proceeds from sale of property, plant and equipment
12.8 
4.1 
0.8 
Restricted cash
(11.6)
(2.0)
(3.3)
Business acquisitions, net of cash acquired
(12.2)
Proceeds from sale of business
39.2 
Net cash used for investing activities of continuing operations
(83.6)
(81.6)
(75.4)
Net cash used for investing activities of discontinued operations
(0.6)
(0.1)
Net cash used for investing activities
(83.6)
(82.2)
(75.5)
Cash Flows From Financing
 
 
 
(Payments on) proceeds from revolving credit facility-net
(34.4)
34.4 
Proceeds from swap monetization
14.8 
Payments on long-term debt
(638.7)
(266.5)
(495.4)
Proceeds from long-term debt
640.3 
43.0 
383.3 
(Payments on) proceeds from notes financing - net
(0.3)
6.6 
(10.4)
Debt issuance costs
(5.2)
(1.1)
(5.7)
Dividends paid
(10.8)
(10.7)
(10.6)
Exercises of stock options including windfall tax benefits
25.9 
6.7 
6.4 
Net cash provided by (used for) financing activities of continuing operations
11.2 
(256.4)
(83.2)
Net cash used for financing activities of discontinued operations
(7.2)
Net cash provided by (used for) financing activities
4.0 
(256.4)
(83.2)
Effect of exchange rate changes on cash
(5.6)
(2.8)
1.2 
Net increase (decrease) in cash and cash equivalents
13.1 
(18.3)
4.9 
Balance at beginning of year
54.9 
73.2 
68.3 
Balance at end of year
68.0 
54.9 
73.2 
Supplemental Cash Flow Information
 
 
 
Interest paid
120.4 
134.6 
137.7 
Income taxes paid
$ 87.0 
$ 55.6 
$ 18.8 
Consolidated Statements of Equity (USD $)
In Millions, except Share data, unless otherwise specified
Total
USD ($)
Equity attributable to Manitowoc shareholders
USD ($)
Common Stock
USD ($)
Additional Paid-in Capital
USD ($)
Accumulated Other Comprehensive Income (Loss)
USD ($)
Retained Earnings
USD ($)
Treasury Stock
USD ($)
Noncontrolling Interest
USD ($)
Performance shares
Common Stock
Restricted Stock [Member]
Additional Paid-in Capital
USD ($)
Restricted Stock Units (RSUs) [Member]
Additional Paid-in Capital
USD ($)
Balance at beginning of year at Dec. 31, 2011
 
 
$ 1.4 
$ 466.6 
$ (24.8)
$ 131.0 
$ (83.2)
$ (9.9)
 
 
 
Balance (in shares) at Dec. 31, 2011
 
 
131,884,765 
 
 
 
 
 
 
 
 
Increase (Decrease) in Stockholders' Equity
 
 
 
 
 
 
 
 
 
 
 
Stock options exercised (in shares)
 
 
699,913 
 
 
 
 
 
 
 
 
Restricted stock issued, net (in shares)
 
 
184,800 
 
 
 
 
 
 
 
 
Performance shares issued (in shares)
 
 
 
 
 
 
 
 
 
 
Stock options exercised and issuance of other stock awards
 
 
 
2.0 
 
 
2.5 
 
 
 
 
Restricted stock expense
 
 
 
 
 
 
 
 
 
4.5 
 
Windfall tax benefit on stock options exercised
 
 
 
1.9 
 
 
 
 
 
 
 
Performance shares expense
 
 
 
 
 
 
 
 
 
 
5.2 
Stock option expense
 
 
 
6.7 
 
 
 
 
 
 
 
Other comprehensive income (loss)
(4.6)
 
 
 
(4.6)
 
 
 
 
 
 
Net earnings
92.6 
 
 
 
 
101.7 
 
 
 
 
 
Cash dividends
 
 
 
 
 
(10.6)
 
 
 
 
 
Comprehensive income (loss) attributable to noncontrolling interest
9.1 
 
 
 
 
 
 
(9.1)
 
 
 
Balance at end of year at Dec. 31, 2012
581.3 
600.3 
1.4 
486.9 
(29.4)
222.1 
(80.7)
(19.0)
 
 
 
Balance (in shares) at Dec. 31, 2012
 
 
132,769,478 
 
 
 
 
 
 
 
 
Increase (Decrease) in Stockholders' Equity
 
 
 
 
 
 
 
 
 
 
 
Stock options exercised (in shares)
 
 
571,094 
 
 
 
 
 
 
 
 
Restricted stock issued, net (in shares)
 
 
31,310 
 
 
 
 
 
 
 
 
Performance shares issued (in shares)
 
 
 
 
 
 
 
 
345,175 
 
 
Stock options exercised and issuance of other stock awards
 
 
 
2.3 
 
 
2.5 
 
 
 
 
Restricted stock expense
 
 
 
 
 
 
 
 
 
2.8 
 
Windfall tax benefit on stock options exercised
 
 
 
1.9 
 
 
 
 
 
 
 
Performance shares expense
 
 
 
 
 
 
 
 
 
 
5.8 
Stock option expense
 
 
 
6.3 
 
 
 
 
 
 
 
Other comprehensive income (loss)
22.5 
 
 
 
22.5 
 
 
 
 
 
 
Net earnings
167.6 
 
 
 
 
141.8 
 
 
 
 
 
Cash dividends
 
 
 
 
 
(10.7)
 
 
 
 
 
Comprehensive income (loss) attributable to noncontrolling interest
(25.8)
 
 
 
 
 
 
25.8 
 
 
 
Balance at end of year at Dec. 31, 2013
782.3 
775.5 
1.4 
506.0 
(6.9)
353.2 
(78.2)
6.8 
 
 
 
Balance (in shares) at Dec. 31, 2013
 
 
133,717,057 
 
 
 
 
 
 
 
 
Increase (Decrease) in Stockholders' Equity
 
 
 
 
 
 
 
 
 
 
 
Stock options exercised (in shares)
 
 
1,726,024 
 
 
 
 
 
 
 
 
Restricted stock issued, net (in shares)
 
 
(14,390)
 
 
 
 
 
 
 
 
Performance shares issued (in shares)
 
 
 
 
 
 
 
 
115,178 
 
 
Stock options exercised and issuance of other stock awards
 
 
 
13.6 
 
 
4.8 
 
 
 
 
Restricted stock expense
 
 
 
 
 
 
 
 
 
1.0 
 
Windfall tax benefit on stock options exercised
 
 
 
7.5 
 
 
 
 
 
 
 
Performance shares expense
 
 
 
 
 
 
 
 
 
 
5.9 
Stock option expense
 
 
 
5.7 
 
 
 
 
 
 
 
Other comprehensive income (loss)
(123.6)
 
 
 
(123.6)
 
 
 
 
 
 
Net earnings
148.4 
 
 
 
 
144.5 
 
 
 
 
 
Cash dividends
 
 
 
 
 
(10.8)
 
 
 
 
 
Comprehensive income (loss) attributable to noncontrolling interest
(3.9)
 
 
 
 
 
 
3.9 
 
 
 
Balance at end of year at Dec. 31, 2014
$ 824.1 
$ 824.1 
$ 1.4 
$ 539.7 
$ (130.5)
$ 486.9 
$ (73.4)
$ 0 
 
 
 
Balance (in shares) at Dec. 31, 2014
 
 
135,543,869 
 
 
 
 
 
 
 
 
Company and Basis of Presentation
Company and Basis of Presentation
Company and Basis of Presentation
Company The Manitowoc Company, Inc. (referred to as the company, MTW, and Manitowoc) was founded in 1902. Manitowoc is a multi-industry, capital goods manufacturer operating in two principal markets: Cranes and Related Products (Crane) and Foodservice Equipment (Foodservice). Crane is recognized as one of the world’s leading providers of engineered lifting equipment for the global construction industry, including lattice-boom cranes, tower cranes, mobile telescopic cranes, and boom trucks. Foodservice is one of the world’s leading innovators and manufacturers of commercial foodservice equipment serving the ice, beverage, refrigeration, food-preparation, and cooking needs of restaurants, convenience stores, hotels, healthcare, and institutional applications. The company has over a 110-year tradition of providing high-quality, customer-focused products and support services to its markets.
The company’s Crane business is a global provider of engineered lift solutions, offering one of the broadest product lines of lifting equipment in our industry.  Manitowoc designs, manufactures, markets, and supports a comprehensive line of lattice boom crawler cranes, mobile telescopic cranes, tower cranes, and boom trucks.  The company’s Crane products are principally marketed under the Manitowoc, Grove, Potain, National, Shuttlelift, and Manitowoc Crane Care brand names and are used in a wide variety of applications, including energy and utilities, petrochemical and industrial projects, infrastructure development such as road, bridge and airport construction, and commercial and high-rise residential construction.
The company’s Foodservice business is among the world’s leading designers and manufacturers of commercial foodservice equipment.  Manitowoc’s Foodservice capabilities span refrigeration, ice-making, cooking, holding, food-preparation, and beverage-dispensing technologies, and allow it to be able to equip entire commercial kitchens and serve the world’s growing demand for food prepared away from home.  The company’s Foodservice products are marketed under the following brands: Cleveland, Convotherm, Dean, Delfield, Fabristeel, Frymaster, Garland, Inducs, Koolaire, Kolpak, Kysor Panel Systems, Lincoln, Manitowoc Ice, Merco, Merrychef, Multiplex, Servend, and U.S. Range, and all are supported by Manitowoc KitchenCare.
During the fourth quarter of 2013, the company agreed to sell its 50% interest in Manitowoc Dong Yue Heavy Machinery Co., Ltd. (“Manitowoc Dong Yue” or the “joint venture”), a consolidated entity, which produces mobile and truck-mounted hydraulic cranes in China, to its joint venture partner, Tai’an Taishan Heavy Industry Investment Co., Ltd., for a nominal amount. Consequently, the joint venture has been classified as discontinued operations in the company’s financial statements. The transaction subsequently closed on January 21, 2014. See Note 4, “Discontinued Operations,” for further details of this transaction.
During the fourth quarter of 2012, the company decided to divest its warewashing equipment business, which operated under the brand name Jackson, and classified this business as discontinued operations in the company’s financial statements. On January 28, 2013, the company sold the Jackson warewashing equipment business to Hoshizaki USA Holdings, Inc. for approximately $39.2 million, including post-closing adjustments. Net proceeds were used to reduce ratably the then-outstanding balances of Term Loans A and B. The results of these operations have been classified as discontinued operations. See Note 4, “Discontinued Operations,” for further details of this transaction.
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
Summary of Significant Accounting Policies
Cash Equivalents and Restricted Cash All short-term investments purchased with an original maturity of three months or less are considered cash equivalents.  Restricted cash represents cash in escrow funds related to the security for an indemnity agreement for our casualty insurance provider as well as funds held in escrow to support certain international cash pooling programs.
Inventories Inventories are valued at the lower of cost or market value.  Approximately 84% and 87% of the company’s inventories at December 31, 2014 and 2013, respectively, were valued using the first-in, first-out (FIFO) method.  The remaining inventories were valued using the last-in, first-out (LIFO) method.  If the FIFO inventory valuation method had been used exclusively, inventories would have increased by $36.2 million at both December 31, 2014 and 2013, respectively.  Finished goods and work-in-process inventories include material, labor and manufacturing overhead costs.
Goodwill and Other Intangible Assets The company accounts for its goodwill and other intangible assets under the guidance of ASC Topic 350-10, “Intangibles — Goodwill and Other.” Under ASC Topic 350-10, goodwill is not amortized, but it is tested for impairment annually, or more frequently, as events dictate. See additional discussion of impairment testing under “Impairment of Long-Lived Assets,” below. The company’s other intangible assets with indefinite lives, including trademarks and tradenames and in-place distributor networks, are not amortized, but are also tested for impairment annually, or more frequently, as events dictate. The company’s other intangible assets subject to amortization are tested for impairment whenever events or changes in circumstances indicate that their carrying values may not be recoverable. Other intangible assets are amortized straight-line over the following estimated useful lives:
 
Useful lives
Patents
10-20 years
Engineering drawings
15 years
Customer relationships
10-20 years

Property, Plant and Equipment Property, plant and equipment are stated at cost.  Expenditures for maintenance, repairs and minor renewals are charged against earnings as incurred.  Expenditures for major renewals and improvements that substantially extend the capacity or useful life of an asset are capitalized and are then depreciated.  The cost and accumulated depreciation for property, plant and equipment sold, retired, or otherwise disposed of are relieved from the accounts, and resulting gains or losses are reflected in earnings.  Property, plant and equipment are depreciated over the estimated useful lives of the assets using the straight-line depreciation method for financial reporting and on accelerated methods for income tax purposes. 
Property, plant and equipment are depreciated over the following estimated useful lives:
 
Years
Building and improvements
2 - 40
Machinery, equipment and tooling
2 - 20
Furniture and fixtures
3 - 15
Computer hardware and software
2 - 7

Property, plant and equipment also include cranes accounted for as operating leases.  Equipment accounted for as operating leases includes equipment leased directly to the customer and equipment for which the company has assisted in the financing arrangement whereby it has guaranteed more than insignificant residual value or made a buyback commitment.  Equipment that is leased directly to the customer is accounted for as an operating lease with the related assets capitalized and depreciated over their estimated economic life.  Equipment involved in a financing arrangement is depreciated over the life of the underlying arrangement so that the net book value at the end of the period equals the buyback amount or the residual value amount.  The amount of rental equipment included in property, plant and equipment amounted to $83.4 million and $63.1 million, net of accumulated depreciation, at December 31, 2014 and 2013, respectively.
Impairment of Long-Lived Assets The company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the assets’ carrying amount may not be recoverable.  The company conducts its long-lived asset impairment analyses in accordance with ASC Topic 360-10-5.  ASC Topic 360-10-5 requires the company to group assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities and to evaluate the asset group against the sum of the undiscounted future cash flows.
For property, plant and equipment and other long-lived assets, other than goodwill and other indefinite lived intangible assets, the company performs undiscounted operating cash flow analyses to determine impairments.  If an impairment is determined to exist, any related impairment loss is calculated based upon comparison of the fair value to the net book value of the assets.  Impairment losses on assets held for sale are based on the estimated proceeds to be received, less costs to sell.
Each year, in its second quarter, the company tests for impairment of goodwill according to a two-step approach.  In the first step, the company estimates the fair values of its reporting units using the present value of future cash flows approach, subject to a comparison for reasonableness to its market capitalization at the date of valuation.  If the carrying amount exceeds the fair value, the second step of the goodwill impairment test is performed to measure the amount of the impairment loss, if any.  In the second step, the implied fair value of the goodwill is estimated as the fair value of the reporting unit used in the first step less the fair values of all other net tangible and intangible assets of the reporting unit.  If the carrying amount of the goodwill exceeds its implied fair market value, an impairment loss is recognized in an amount equal to that excess, not to exceed the carrying amount of the goodwill.  In addition, goodwill of a reporting unit is tested for impairment between annual tests if an event occurs or circumstances change that would more-likely-than-not reduce the fair value of a reporting unit below its carrying value.  For other indefinite lived intangible assets, the impairment test consists of a comparison of the fair value of the intangible assets to their carrying amount.  See Note 9, “Goodwill and Other Intangible Assets,” for further details on our impairment assessments.
Warranties Estimated warranty costs are recorded in cost of sales at the time of sale of the warranted products based on historical warranty experience for the related product or estimates of projected costs due to specific warranty issues on new products.  These estimates are reviewed periodically and are adjusted based on changes in facts, circumstances or actual experience.
Environmental Liabilities The company accrues for losses associated with environmental remediation obligations when such losses are probable and reasonably estimable.  Such accruals are adjusted as information develops or circumstances change.  Costs of long-term expenditures for environmental remediation obligations are discounted to their present value when the timing of cash flows are estimable.
Product Liabilities The company records product liability reserves for its self-insured portion of any pending or threatened product liability actions.  The reserve is based upon two estimates.  First, the company tracks the population of all outstanding pending and threatened product liability cases to determine an appropriate case reserve for each based upon the company’s best judgment and the advice of legal counsel.  These estimates are continually evaluated and adjusted based upon changes to facts and circumstances surrounding the case.  Second, the company determines the amount of additional reserve required to cover incurred but not reported product liability obligations and to account for possible adverse development of the established case reserves (collectively referred to as IBNR).  This analysis is performed at least twice annually. 
Foreign Currency Translation The financial statements of the company’s non-U.S. subsidiaries are translated using the current exchange rate for assets and liabilities and the average exchange rate for the year for income and expense items.  Resulting translation adjustments are recorded to Accumulated Other Comprehensive Income (AOCI) as a component of Manitowoc stockholders’ equity.
Derivative Financial Instruments and Hedging Activities The company has written policies and procedures that place all financial instruments under the direction of corporate treasury and restrict all derivative transactions to those intended for hedging purposes.  The use of financial instruments for trading purposes is strictly prohibited.  The company uses financial instruments to manage the market risk from changes in foreign exchange rates, commodities and interest rates.  The company follows the guidance in accordance with ASC Topic 815-10, “Derivatives and Hedging.”  The fair values of all derivatives are recorded in the Consolidated Balance Sheets.  The change in a derivative’s fair value is recorded each period in current earnings or AOCI depending on whether the derivative is designated and qualifies as part of a hedge transaction and if so, the type of hedge transaction.
During 2014, 2013 and 2012, 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 11, “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 Stock-based compensation plans are described more fully in Note 16, “Stock-Based Compensation.”  The company recognizes expense for all stock-based compensation with graded vesting on a straight-line basis over the vesting period of the entire award.  The company recognized $1.0 million, $2.8 million and $4.5 million of compensation expense related to restricted stock awards during the years ended December 31, 2014, 2013 and 2012, respectively. In addition, the company recognized $5.7 million, $6.3 million and $6.7 million of compensation expense related to stock options during the years ended December 31, 2014, 2013 and 2012, respectively.  The company also recognized $5.9 million, $5.8 million, and $5.2 million of compensation expense associated with restricted stock units in 2014, 2013 and 2012, respectively.
Revenue Recognition Revenue is generally recognized and earned when all the following criteria are satisfied with regard to a specific transaction: persuasive evidence of a sales arrangement exists; the price is fixed or determinable; collectability of cash is reasonably assured; and delivery has occurred or services have been rendered.  Shipping and handling fees are reflected in net sales and shipping and handling costs are reflected in cost of sales in the Consolidated Statements of Operations.
The company enters into transactions with customers that provide for residual value guarantees and buyback commitments on certain crane transactions.  The company records transactions 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 $87.4 million, $86.4 million and $87.7 million for the years ended December 31, 2014, 2013 and 2012, respectively.  Research and development costs include salaries, materials, contractor fees and other administrative costs. 
Income Taxes The company utilizes the liability method to recognize deferred tax assets and liabilities for the expected future income tax consequences of events that have been recognized in the company’s financial statements. Under this method, deferred tax assets and liabilities are determined based on the temporary difference between financial statement carrying amounts and the tax basis of assets and liabilities using enacted tax rates in effect in the years in which the temporary differences are expected to reverse. Valuation allowances are provided for deferred tax assets where it is considered more likely than not that the company will not realize the benefit of such assets. The company evaluates its uncertain tax positions as new information becomes available. Tax benefits are recognized to the extent a position is more likely than not to be sustained upon examination by the taxing authority.
Earnings Per Share Basic earnings per share is computed by dividing net earnings attributable to Manitowoc by the weighted average number of common shares outstanding during each year or period. Diluted earnings per share is computed similar to basic earnings per share except that the weighted average shares outstanding is increased to include shares of restricted stock, performance shares and the number of additional shares that would have been outstanding if stock options were exercised and the proceeds from such exercise were used to acquire shares of common stock at the average market price during the year or period.
Comprehensive Income (Loss) Comprehensive income (loss) includes, in addition to net earnings, other items that are reported as direct adjustments to Manitowoc stockholders’ equity.  Currently, these items are foreign currency translation adjustments, employee postretirement benefit adjustments and the change in fair value of certain derivative instruments.
Concentration of Credit Risk Credit extended to customers through trade accounts receivable potentially subjects the company to risk.  This risk is limited due to the large number of customers and their dispersion across various industries and many geographical areas.  However, a significant amount of the company’s receivables are with distributors and contractors in the construction industry, large companies in the foodservice and beverage industry, customers servicing the U.S. steel industry, and government agencies.  The company currently does not foresee a significant credit risk associated with these individual groups of receivables, but continues to monitor the exposure, if any.

Recent accounting changes and pronouncements In January 2015, the FASB issued Accounting Standards Update (“ASU”) No. 2015-01, “Income Statement—Extraordinary and Unusual Items.” This update eliminates from GAAP the concept of extraordinary items. ASU 2015-01 is effective for the first interim period within fiscal years beginning after December 15, 2015, with early adoption permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. A reporting entity may apply the amendments prospectively or retrospectively to all prior periods presented in the financial statements. The company believes the adoption of this ASU will not have a material impact on its consolidated financial statements.
In August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements - Going Concern.” This update provided guidance on management’s responsibility in evaluating whether there is substantial doubt about a company’s ability to continue as a going concern and to provide related footnote disclosures. ASU 2014-15 is effective in the first annual period ending after December 15, 2016, with early adoption permitted. The company believes the adoption of this ASU will not have a material impact on its consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers.” This update provided a principles-based approach to revenue recognition, requiring revenue recognition to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU provides a five-step model to be applied to all contracts with customers. The five steps are to identify the contract(s) with the customer, identify the performance obligations in the contact, determine the transaction price, allocate the transaction price to the performance obligations in the contract and recognize revenue when each performance obligation is satisfied. The revenue standard is effective for the first interim period within fiscal years beginning after December 15, 2016, and can be applied either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the update recognized at the date of initial application along with additional disclosures. The company is evaluating the impact, if any, the adoption of this ASU will have on the company’s consolidated financial statements.
In April 2014, the FASB issued ASU No. 2014-08, “Presentation of Financial Statements and Property, Plant, and Equipment: Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.” This ASU changes the requirements for reporting discontinued operations in Accounting Standard Codification Subtopic 205-20, and requires a disposal of a component of an entity or a group of components of an entity to be reported in discontinued operations only if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. There will also be additional disclosures required. The amendments in this ASU are effective prospectively for fiscal years (and interim reporting periods within those years) beginning after December 15, 2014, with early adoption permitted. The significance of this guidance for the company is dependent on any future disposals.
In July 2013, the FASB issued ASU No. 2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists.”  This new standard generally requires the netting of unrecognized tax benefits (UTBs) against a deferred tax asset for a loss or other carryforward that would apply in settlement of the uncertain tax positions. Under the new standard, UTBs will be netted against all available same-jurisdiction loss or other tax carryforwards that would be utilized, rather than only against carryforwards that are created by the UTBs. The amendments in this ASU are effective prospectively for fiscal years (and interim reporting periods within those years) beginning after December 15, 2013.  The adoption of this ASU did not have a material impact on the company’s consolidated financial statements.
In March 2013, the FASB issued ASU No. 2013-05, “Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity.” This ASU changes a parent entity’s accounting for the cumulative translation adjustment upon derecognition of certain subsidiaries or groups of assets within a foreign entity or of an investment in a foreign entity. A parent entity is required to release any related cumulative foreign currency translation adjustment from accumulated other comprehensive income into net income in the following circumstances: (i) a parent entity ceases to have a controlling financial interest in a subsidiary or group of assets that is a business within a foreign entity if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided; (ii) a partial sale of an equity method investment that is a foreign entity; (iii) a partial sale of an equity method investment that is not a foreign entity whereby the partial sale represents a complete or substantially complete liquidation of the foreign entity that held the equity method investment; and (iv) the sale of an investment in a foreign entity. The amendments in this ASU are effective prospectively for fiscal years (and interim reporting periods within those years) beginning after December 15, 2013. The adoption of this ASU did not have a material impact on the company’s consolidated financial statements.
Acquisitions
Acquisitions
Acquisitions
On October 1, 2013, the company acquired all remaining shares of Inducs, AG (“Inducs”) for a purchase price, net of cash acquired, of approximately $12.2 million.  The company previously held a minority interest in Inducs. Inducs is a leader in induction cooking technology.  Allocation of the purchase price resulted in $5.0 million of goodwill and $7.0 million of intangible assets.  The results of Inducs have been included in the Foodservice segment since the date of acquisition.
Discontinued Operations
Discontinued Operations
Discontinued Operations
During the fourth quarter of 2013, the company agreed to sell its 50% interest in Manitowoc Dong Yue, a consolidated entity, which produces mobile and truck-mounted hydraulic cranes in China, to its joint venture partner, Tai’an Taishan Heavy Industry Investment Co., Ltd., for a nominal amount. Consequently, the joint venture has been classified as discontinued operations in the company’s financial statements. The transaction subsequently closed on January 21, 2014. In connection with the sale, the company agreed to forgive all loans and accrued interest owed by Manitowoc Dong Yue to the company and its affiliates. As of December 31, 2013, loans and accrued interest owed by Manitowoc Dong Yue to the company and its affiliates amounted to $71.3 million and the forgiveness resulted in income of $35.6 million to the joint venture partner shown as part of net income attributable to noncontrolling interest, net of income taxes, which effectively reduced net earnings attributable to Manitowoc shareholders for the year ended December 31, 2013.
In addition, assets and liabilities classified as held for sale for Manitowoc Dong Yue were required to be recorded at the lower of carrying value or fair value less any costs to sell, which resulted in an impairment charge of approximately $1.2 million relating to the Manitowoc Dong Yue trademark intangible asset of which $0.6 million impacted net earnings attributable to Manitowoc shareholders. The impairment charge is included within loss from discontinued operations, net of income taxes, in the consolidated statement of operations for the year ended December 31, 2013.
Upon closing of the transaction in the first quarter of 2014, the company also paid an additional $7.2 million to Manitowoc Dong Yue for a portion of debt the joint venture had outstanding with third parties. After this payment, Manitowoc Dong Yue had approximately $17.3 million of third party debt outstanding under a loan agreement entered into during the first quarter of 2014 that the company has fully guaranteed. The loan is fully secured by Manitowoc Dong Yue’s fixed assets as well as finished goods inventory. Manitowoc Dong Yue will repay the loan over a four-year period, with the last payment due on December 31, 2017.
The following selected financial data of the Manitowoc Dong Yue business for the years ended December 31, 2014, 2013 and 2012 is presented for informational purposes only and does not necessarily reflect what the results of operations would have been had the business operated as a stand-alone entity.  There was no general corporate expense allocated to discontinued operations for this business during the periods presented. 
(in millions)
 
2014
 
2013
 
2012
Net sales
 
$
0.3

 
$
16.8

 
$
13.7

 
 
 
 
 
 
 
Pretax loss from discontinued operation
 
$
(0.8
)
 
$
(17.3
)
 
$
(16.6
)
Benefit for taxes on earnings
 

 
(0.3
)
 

Net loss from discontinued operation
 
$
(0.8
)
 
$
(17.0
)
 
$
(16.6
)

During the fourth quarter of 2012, the company decided to divest its warewashing equipment business, which operated under the brand name Jackson, and classified this business as discontinued operations in the company’s financial statements. On January 28, 2013, the company sold the Jackson warewashing equipment business to Hoshizaki USA Holdings, Inc. for approximately $39.2 million, including post-closing adjustments. Net proceeds were used to reduce ratably the then-outstanding balances of Term Loan A and B. The transaction resulted in a $2.7 million loss on sale, which included $4.4 million of income tax expense. The results of these operations have been classified as discontinued operations.




The following selected financial data of the Jackson business for the years ended December 31, 2014, 2013 and 2012 is presented for informational purposes only and does not necessarily reflect what the results of operations would have been had the business operated as a stand-alone entity.  There was no general corporate expense or interest expense allocated to discontinued operations for this business during the periods presented. 
(in millions)
 
2014
 
2013
 
2012
Net sales
 
$

 
$
2.5

 
$
32.6

 
 
 
 
 
 
 
Pretax earnings from discontinued operation
 
$

 
$
0.1

 
$
1.7

(Benefit) provision for taxes on earnings
 

 
(0.4
)
 
0.7

Net earnings from discontinued operation
 
$

 
$
0.5

 
$
1.0


During the third quarter of 2014, the company settled a pension obligation related to a previously disposed entity, which resulted in a $1.1 million loss on sale of discontinued operations, net of income tax benefit of $0.6 million, during the period.
The following selected financial data of various businesses disposed of prior to 2012, primarily consisting of administrative costs, for the years ended December 31, 2014, 2013 and 2012 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.  There was no general corporate expense or interest expense allocated to discontinued operations for these businesses during the periods presented. 
(in millions)
 
2014
 
2013
 
2012
Net sales
 
$

 
$

 
$

 
 
 
 
 
 
 
Pretax loss from discontinued operations
 
$
(0.9
)
 
$
(3.4
)
 
$
(1.2
)
Benefit for taxes on earnings
 
(0.3
)
 
(1.1
)
 
(0.5
)
Net loss from discontinued operations
 
$
(0.6
)
 
$
(2.3
)
 
$
(0.7
)
Fair Value of Financial Instruments
Fair Value of Financial Instruments
Fair Value of Financial Instruments
The following tables set forth the company’s financial assets and liabilities that were accounted for at fair value on a recurring basis as of December 31, 2014 and 2013 by level within the fair value hierarchy.  Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
 
 
Fair Value as of December 31, 2014
(in millions)
 
Level 1
 
Level 2
 
Level 3
 
Total
Current Assets:
 
 

 
 

 
 

 
 

Foreign currency exchange contracts
 
$

 
$
2.1

 
$

 
$
2.1

Total current assets at fair value
 
$

 
$
2.1

 
$

 
$
2.1

 
 
 
 
 
 
 
 
 
Non-Current Assets:
 
 

 
 

 
 

 
 

Interest rate swap contracts: Float-to-fixed
 
$

 
$
0.8

 
$

 
$
0.8

Total non-current assets at fair value
 
$

 
$
0.8

 
$

 
$
0.8

 
 
 
 
 
 
 
 
 
Current Liabilities:
 
 

 
 

 
 

 
 

Foreign currency exchange contracts
 
$

 
$
7.9

 
$

 
$
7.9

Commodity contracts
 

 
1.0

 

 
1.0

Interest rate swap contracts: Float-to-fixed
 

 
2.3

 

 
2.3

Total current liabilities at fair value
 
$

 
$
11.2

 
$

 
$
11.2

 
 
 
 
 
 
 
 
 
Non-current Liabilities:
 
 

 
 

 
 

 
 

Commodity contracts
 

 
0.4

 

 
0.4

Interest rate swap contracts: Fixed-to-float
 

 
4.3

 

 
4.3

Total non-current liabilities at fair value
 
$

 
$
4.7

 
$

 
$
4.7

 
 
Fair Value as of December 31, 2013
(in millions)
 
Level 1
 
Level 2
 
Level 3
 
Total
Current Assets:
 
 

 
 

 
 

 
 

Foreign currency exchange contracts
 
$

 
$
2.9

 
$

 
$
2.9

Commodity contracts
 
$

 
$
0.2

 
$

 
$
0.2

Total current assets at fair value
 
$

 
$
3.1

 
$

 
$
3.1

 
 
 
 
 
 
 
 
 
Current Liabilities:
 
 

 
 

 
 

 
 

Foreign currency exchange contracts
 
$

 
$
1.1

 
$

 
$
1.1

Commodity contracts
 

 
0.4

 

 
0.4

Total current liabilities at fair value
 
$

 
$
1.5

 
$

 
$
1.5

 
 
 
 
 
 
 
 
 
Non-current Liabilities:
 
 

 
 

 
 

 
 

Interest rate swap contracts: Fixed-to-float
 
$

 
$
14.9

 
$

 
$
14.9

Total non-current liabilities at fair value
 
$

 
$
14.9

 
$

 
$
14.9

The fair value of the company’s 2018 Notes was approximately $423.1 million as of December 31, 2013; these notes were redeemed by the company on February 18, 2014. The fair value of the company’s 2020 Notes was approximately $651.6 million and $677.6 million as of December 31, 2014 and 2013, respectively.  The fair value of the company’s 2022 Notes was approximately $309.1 million and $303.9 million as of December 31, 2014 and 2013, respectively. The fair values of the company’s term loans under its Senior Credit Facility, respectively, are as follows as of December 31, 2014 and 2013:  Term Loan A — $327.8 million and $161.9 million, respectively; and Term Loan B — $165.0 million and $0.0 million, respectively.  See Note 11, “Debt,” for a description of the debt instruments and their related carrying values.
ASC Topic 820-10 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820-10 classifies the inputs used to measure fair value into the following hierarchy:
Level 1
 
Unadjusted quoted prices in active markets for identical assets or liabilities
 
 
 
Level 2
 
Unadjusted quoted prices in active markets for similar assets or liabilities, or
 
 
 
 
 
Unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or
 
 
 
 
 
Inputs other than quoted prices that are observable for the asset or liability
 
 
 
Level 3
 
Unobservable inputs for the asset or liability
The company endeavors to utilize the best available information in measuring fair value. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The company estimates fair value of its Term Loans and Senior 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 12, “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, 2014 and December 31, 2013 due to the short-term nature of these instruments.
As a result of its 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.
Derivative Financial Instruments
Derivative Financial Instruments
Derivative Financial Instruments
The company’s risk management objective is to ensure that business exposures to risks that have been identified and measured and are capable of being controlled, are minimized using the most effective and efficient methods to eliminate, reduce, or transfer such exposures.  Operating decisions consider these associated risks and structure transactions to avoid these risks whenever possible.
Use of derivative instruments is consistent with the overall business and risk management objectives of the company.  Derivative instruments may be used to manage business risk within limits specified by the company’s risk policy and manage exposures that have been identified through the risk identification and measurement process, provided that they clearly qualify as “hedging” activities as defined in the risk policy.  Use of derivative instruments is not automatic, nor is it necessarily the only response to managing pertinent business risk.  Use is permitted only after the risks that have been identified are determined to exceed defined tolerance levels and are considered to be unavoidable.
The primary risks managed by the company by using derivative instruments are interest rate risk, commodity price risk and foreign currency exchange risk.  Interest rate swap or cap instruments are entered into to help manage interest rate or fair value risk.  Swap contracts on various commodities are entered into to help manage the price risk associated with forecasted purchases of materials used in the company’s manufacturing process.  The company also enters into various foreign currency derivative instruments to help manage foreign currency risk associated with the company’s projected purchases and sales and foreign currency denominated receivable and payable balances.
ASC Topic 815-10 requires companies to recognize all derivative instruments as either assets or liabilities at fair value in the statement of financial position.  In accordance with ASC Topic 815-10, the company designates commodity swaps, foreign currency exchange contracts, and float-to-fixed interest rate derivative contracts as cash flow hedges of forecasted purchases of commodities and currencies, and variable rate interest payments.  Also in accordance with ASC Topic 815-10, the company designates fixed-to-float interest rate swaps as fair market value hedges of fixed rate debt, which synthetically swaps the company’s fixed rate debt to floating rate debt.
For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative is reported as a component of Other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings.  Gains and losses on the derivative instruments representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness, are recognized in current earnings.  In the next twelve months the company estimates $6.2 million of unrealized losses, net of tax, related to interest rate, commodity price and currency rate hedging will be reclassified from Other comprehensive income into earnings.  Foreign currency and commodity hedging is generally completed prospectively on a rolling basis for twelve and twenty-four months, respectively, depending on the type of risk being hedged.
The risk management objective for the company’s fair market value interest rate hedges is to effectively change the amount of the underlying debt equal to the notional value of the hedges from a fixed to a floating interest rate based on the one-month LIBOR rate.  These swaps include an embedded call feature to match the terms of the call schedule embedded in the Senior Notes. Changes in the fair value of the interest rate swap are expected to offset changes in the fair value of the debt due to changes in the one-month LIBOR rate.
As of December 31, 2014, the company had the following outstanding commodity and currency forward contracts that were entered into as hedge forecasted transactions:
Commodity
 
Units Hedged
 
 
 
Type
Aluminum
 
1,657
 
MT
 
Cash Flow
Copper
 
820
 
MT
 
Cash Flow
Natural Gas
 
347,608
 
MMBtu
 
Cash Flow
Steel
 
14,665
 
Short Tons
 
Cash Flow
Currency
 
Units Hedged
 
Type
Canadian Dollar
 
7,984,824
 
Cash Flow
European Euro
 
89,006,695
 
Cash Flow
South Korean Won
 
1,964,906,996
 
Cash Flow
Singapore Dollar
 
3,900,000
 
Cash Flow
United States Dollar
 
29,228,731
 
Cash Flow
Mexican Peso
 
52,674,387
 
Cash Flow

As of December 31, 2014 and December 31, 2013, the company had outstanding $0.0 million and $100.0 million, respectively, notional amount of 3.00% LIBOR caps related to the term loan portion of the Senior Credit Facility which effectively capped the company’s interest rate exposure for the notional value of its variable term debt at a one-month LIBOR rate of 3.00%. The company paid various bank partners $0.7 million in option premium to purchase the protection on Term Loans A and B and amortized the premium to interest expense over the life of the cap protection.  The caps expired in 2014.
As of December 31, 2014 and December 31, 2013, the company had outstanding $175.0 million and $0.0 million, respectively, notional amount of float-to-fixed interest rate swaps outstanding related to Term Loan A under the Senior Credit Facility that were designated as cash flow hedges. As a result, $175.0 million of Term Loan A was hedged at an interest rate of 1.635%, plus the applicable spread based on the Consolidated Total Leverage Ratio of the company as defined under the Senior Credit Facility.
The company has been party to various fixed-to-float interest rate swaps designated as fair market value hedges of its 2018, 2020, and 2022 Notes.  In the third quarter of 2012, the company monetized the derivative asset related to its fixed-to-float interest rate swaps related to its 2018 and 2020 Notes and received $14.8 million in the quarter. The gain was treated as an increase to the debt balances for the 2018 and 2020 notes and is being amortized against interest expense over the life of the original swap. Subsequently, the company entered into new interest rate swaps due in 2020 and 2022, designating them as fair market value hedges of the 2020 and 2022 Notes, respectively.
As of both December 31, 2014, and December 31, 2013, the company had $75.0 million and $125.0 million total notional amount of fixed-to-float interest rate swaps outstanding related to the 2020 and 2022 Notes, respectively, that were designated as fair market value hedges and swapped to floating rate interest. Including the floating rate swaps, the 2020 and 2022 Notes have an all-in interest rate of 8.31% and 5.19%, respectively.
For derivative instruments that are not designated as hedging instruments under ASC Topic 815-10, the gains or losses on the derivatives are recognized in current earnings within Other (expense) income, net in the Condensed Consolidated Statement of Operations. As of December 31, 2014, the company had the following outstanding currency forward contracts that were not designated as hedging instruments:
Currency
 
Units Hedged
 
Recognized Location
 
Purpose
European Euro
 
73,302,332
 
Other (expense) income, net
 
Accounts payable and receivable settlement
United States Dollar
 
18,244,912
 
Other (expense) income, net
 
Accounts payable and receivable settlement
Australian Dollar
 
2,482,430
 
Other (expense) income, net
 
Accounts payable and receivable settlement
Mexican Peso
 
3,151,000
 
Other (expense) income, net
 
Accounts payable and receivable settlement
Canadian Dollar
 
2,516
 
Other (expense) income, net
 
Accounts payable and receivable settlement

The fair value of outstanding derivative contracts recorded as assets in the accompanying Consolidated Balance Sheet as of December 31, 2014 was as follows:
 
ASSET DERIVATIVES
(in millions)
Balance Sheet Location
Fair Value
Derivatives designated as hedging instruments
 
 

Interest rate swap contracts: Float-to-fixed
Other non-current assets
$
0.8

Total derivatives designated as hedging instruments
 
$
0.8

 
 
ASSET DERIVATIVES
(in millions)
Balance Sheet Location
Fair Value
Derivatives NOT designated as hedging instruments
 
 

Foreign exchange contracts
Other current assets
$
2.1

Total derivatives NOT designated as hedging instruments
 
$
2.1

 
 
 

Total asset derivatives
 
$
2.9


The fair value of outstanding derivative contracts recorded as liabilities in the accompanying Consolidated Balance Sheet as of December 31, 2014 was as follows:
 
LIABILITY DERIVATIVES
(in millions)
Balance Sheet Location
Fair Value
Derivatives designated as hedging instruments
 
 

Foreign exchange contracts
Accounts payable and accrued expenses
$
6.6

Commodity contracts
Accounts payable and accrued expenses
1.0

Interest rate swap contracts: Float-to-fixed
Accounts payable and accrued expenses
2.3

Commodity contracts
Other non-current liabilities
0.4

Interest rate swap contracts: Fixed-to-float
Other non-current liabilities
4.3

Total derivatives designated as hedging instruments
 
$
14.6

 
LIABILITY DERIVATIVES
(in millions)
Balance Sheet Location
Fair Value
Derivatives NOT designated as hedging instruments
 
 

Foreign exchange contracts
Accounts payable and accrued expenses
$
1.3

Total derivatives NOT designated as hedging instruments
 
$
1.3

 
 
 

Total liability derivatives
 
$
15.9




The effect of derivative instruments on the Consolidated Statement of Operations for the twelve months ended December 31, 2014 and gains or losses initially recognized in Other Comprehensive Income (OCI) in the Consolidated Balance Sheet was as follows: 
Derivatives in Cash Flow Hedging
Relationships (in millions)
 
Amount of Gain or
(Loss) Recognized in
OCI on Derivative
(Effective Portion, net of
tax)
 
Location of Gain or
(Loss) Reclassified
from Accumulated
OCI into Income
(Effective Portion)
 
Amount of Gain or
(Loss) Reclassified from
Accumulated OCI into
Income (Effective
Portion)
Foreign exchange contracts
 
$
(5.3
)
 
Cost of sales
 
$
(2.2
)
Commodity contracts
 
(0.8
)
 
Cost of sales
 
(0.1
)
Interest rate swap contracts: Float-to-fixed
 
(0.9
)
 
Interest expense
 
(1.8
)
Total
 
$
(7.0
)
 
 
 
$
(4.1
)

Derivatives Relationships (in millions)
Location of Gain or (Loss)
Recognized in Income on
Derivative (Ineffective Portion
and Amount Excluded from
Effectiveness Testing)
Amount of Gain or (Loss)
Recognized in Income on
Derivative (Ineffective Portion
and Amount Excluded from
Effectiveness Testing)
Commodity contracts
Cost of sales
$
(0.1
)
Total
 
$
(0.1
)
Derivatives Not Designated as
Hedging Instruments (in millions)
Location of Gain or (Loss)
Recognized in Income on
Derivative
Amount of Gain or (Loss)
Recognized in Income on
Derivative
Foreign exchange contracts
Other (expense) income, net
$
0.8

Total
 
$
0.8

 
Derivatives Designated as Fair
Market Value Instruments under
ASC 815 (in millions)
Location of Gain or (Loss)
Recognized in Income on
Derivative
Amount of Gain or (Loss)
Recognized in Income on
Derivative
Interest rate swap contracts: Fixed-to-float
Interest expense
$
10.6

Total
 
$
10.6

 
As of December 31, 2013, the company had the following outstanding commodity and currency forward contracts that were entered into as hedge forecasted transactions:
Commodity
 
Units Hedged
 
 
 
Type
Aluminum
 
1,622
 
MT
 
Cash Flow
Copper
 
382
 
MT
 
Cash Flow
Natural Gas
 
214,277
 
MMBtu
 
Cash Flow
Steel
 
11,503
 
Short Tons
 
Cash Flow
Currency
 
Units Hedged
 
Type
Canadian Dollar
 
11,011,092
 
Cash Flow
European Euro
 
74,934,975
 
Cash Flow
South Korean Won
 
1,258,808,642
 
Cash Flow
Singapore Dollar
 
5,280,000
 
Cash Flow
United States Dollar
 
42,200,000
 
Cash Flow



For derivative instruments that are not designated as hedging instruments under ASC Topic 815-10, the gains or losses on the derivatives are recognized in current earnings within Other (expense) income, net. As of December 31, 2013, the company had the following outstanding currency forward contracts that were not designated as hedging instruments:
Currency
 
Units Hedged
 
Recognized Location
 
Purpose
European Euro
 
31,738,273
 
Other (expense) income, net
 
Accounts Payable and Receivable Settlement
United States Dollar
 
29,091,053
 
Other (expense) income, net
 
Accounts Payable and Receivable Settlement
Australian Dollar
 
1,000,000
 
Other (expense) income, net
 
Accounts Payable and Receivable Settlement
Chinese Renminbi
 
125,000,000
 
Other (expense) income, net
 
Accounts Payable and Receivable Settlement

The fair value of outstanding derivative contracts recorded as assets in the accompanying Consolidated Balance Sheet as of December 31, 2013 was as follows:
 
ASSET DERIVATIVES
(in millions)
Balance Sheet Location
Fair Value
Derivatives designated as hedging instruments
 
 

Foreign exchange contracts
Other current assets
$
2.3

Commodity contracts
Other current assets
0.2

Total derivatives designated as hedging instruments
 
$
2.5

 
ASSET DERIVATIVES
 (in millions)
Balance Sheet Location
Fair Value
Derivatives NOT designated as hedging instruments
 
 

Foreign exchange contracts
Other current assets
$
0.6

Total derivatives NOT designated as hedging instruments
 
$
0.6

 
 
 

Total asset derivatives
 
$
3.1


The fair value of outstanding derivative contracts recorded as liabilities in the accompanying Consolidated Balance Sheet as of December 31, 2013 was as follows:
 
LIABILITIES DERIVATIVES
 (in millions)
Balance Sheet Location
 
Fair Value
Derivatives designated as hedging instruments
 
 
 

Foreign exchange contracts
Accounts payable and accrued expenses
 
$
0.5

Commodity contracts
Accounts payable and accrued expenses
 
0.4

Interest rate swap contracts: Fixed-to-float
Other non-current liabilities
 
14.9

Total derivatives designated as hedging instruments
 
 
$
15.8

 
 
LIABILITY DERIVATIVES
(in millions)
Balance Sheet Location
Fair Value
Derivatives NOT designated as hedging instruments
 
 

Foreign exchange contracts
Accounts payable and accrued expenses
$
0.6

Total derivatives NOT designated as hedging instruments
 
$
0.6

 
 
 

Total liability derivatives
 
$
16.4





The effect of derivative instruments on the Consolidated Statement of Operations for the twelve months ended December 31, 2013 and gains or losses initially recognized in OCI in the Consolidated Balance Sheet was as follows: 
Derivatives in Cash Flow Hedging
Relationships (in millions)
 
Amount of Gain or
(Loss) Recognized in
OCI on Derivative
(Effective Portion, net of
tax)
 
Location of Gain or
(Loss) Reclassified
from Accumulated
OCI into Income
(Effective Portion)
 
Amount of Gain or
(Loss) Reclassified from
Accumulated OCI into
Income (Effective
Portion)
Foreign exchange contracts
 
$
(0.3
)
 
Cost of sales
 
$
3.0

Commodity contracts
 
0.4

 
Cost of sales
 
(1.6
)
Total
 
$
0.1

 
 
 
$
1.4

Derivatives Relationships (in millions)
 
Location of Gain or (Loss)
Recognized in Income on
Derivative (Ineffective Portion
and Amount Excluded from
Effectiveness Testing)
 
Amount of Gain or (Loss)
Recognized in Income on
Derivative (Ineffective
Portion and Amount
Excluded from Effectiveness
Testing)
Commodity contracts
 
Cost of sales
 
$

Total
 
 
 
$

Derivatives Not Designated as Hedging
Instruments (in millions)
 
Location of Gain or (Loss)
recognized in Income on
Derivative
 
Amount of Gain or (Loss)
Recognized in Income on
Derivative
Foreign exchange contracts
 
Other (expense) income, net
 
$
0.2

Total
 
 
 
$
0.2


Derivatives Designated as Fair
Market Value Instruments under
ASC 815 (in millions)
Location of Gain or (Loss)
Recognized in Income on
Derivative
Amount of Gain or (Loss)
Recognized in Income on
Derivative
Interest rate swap contracts: Fixed-to-float
Interest expense
$
(13.7
)
Total
 
$
(13.7
)
 
The effect of derivative instruments on the Consolidated Statement of Operations for the twelve months ended December 31, 2012 and gains or losses initially recognized in OCI in the Consolidated Balance Sheet was as follows: 
Derivatives in Cash Flow Hedging
Relationships (in millions)
 
Amount of Gain or
(Loss) Recognized in
OCI on Derivative
(Effective Portion, net of
tax)
 
Location of Gain or
(Loss) Reclassified
from Accumulated
OCI into Income
(Effective Portion)
 
Amount of Gain or
(Loss) Reclassified from
Accumulated OCI into
Income (Effective
Portion)
Foreign exchange contracts
 
$
4.2

 
Cost of sales
 
$
(7.3
)
Interest rate swap & cap contracts
 
(0.2
)
 
Interest expense
 
0.1

Commodity contracts
 
1.0

 
Cost of sales
 
(2.7
)
Total
 
$
5.0

 
 
 
$
(9.9
)
Derivatives Relationships (in millions)
 
Location of Gain or (Loss)
Recognized in Income on
Derivative (Ineffective Portion
and Amount Excluded from
Effectiveness Testing)
 
Amount of Gain or (Loss)
Recognized in Income on
Derivative (Ineffective
Portion and Amount
Excluded from Effectiveness
Testing)
Commodity contracts
 
Cost of sales
 
$

Total
 
 
 
$

Derivatives Not Designated as Hedging
Instruments (in millions)
 
Location of Gain or (Loss)
recognized in Income on
Derivative
 
Amount of Gain or (Loss)
Recognized in Income on
Derivative
Foreign exchange contracts
 
Other (expense) income, net
 
$
1.2

Interest rate swap contracts
 
Other (expense) income, net
 
$
9.3

Total
 
 
 
$
10.5

Derivatives Designated as Fair
Market Value Instruments under
ASC 815 (in millions)
 
Location of Gain or (Loss)
Recognized in Income on
Derivative (Ineffective Portion
and Amount Excluded from
Effectiveness Testing)
 
Amount of Gain or (Loss)
Recognized in Income on
Derivative (Ineffective
Portion and Amount
Excluded from Effectiveness
Testing)
Interest rate swap contracts
 
Interest expense
 
$
(1.7
)
Total
 
 
 
$
(1.7
)
Inventories
Inventories
Inventories
The components of inventories at December 31, 2014 and December 31, 2013 are summarized as follows:
(in millions)
 
2014
 
2013
Inventories — gross:
 
 

 
 

Raw materials
 
$
226.2

 
$
259.0

Work-in-process
 
103.7

 
130.2

Finished goods
 
414.8

 
436.8

Total inventories — gross
 
744.7

 
826.0

Excess and obsolete inventory reserve
 
(64.0
)
 
(69.0
)
Net inventories at FIFO cost
 
680.7

 
757.0

Excess of FIFO costs over LIFO value
 
(36.2
)
 
(36.2
)
Inventories — net
 
$
644.5

 
$
720.8

Property, Plant and Equipment
Property, Plant and Equipment
Property, Plant and Equipment
The components of property, plant and equipment at December 31, 2014 and December 31, 2013 are summarized as follows:
(in millions)
 
2014
 
2013
Land
 
$
31.2

 
$
40.8

Building and improvements
 
344.2

 
361.2

Machinery, equipment and tooling
 
509.1

 
509.0

Furniture and fixtures
 
24.5

 
47.8

Computer hardware and software
 
169.7

 
125.8

Rental cranes
 
111.2

 
89.3

Construction in progress
 
104.2

 
102.2

Total cost
 
1,294.1

 
1,276.1

Less accumulated depreciation
 
(703.1
)
 
(697.3
)
Property, plant and equipment-net
 
$
591.0

 
$
578.8

Goodwill and Other Intangible Assets
Goodwill and Other Intangible Assets
Goodwill and Other Intangible Assets
The changes in carrying amount of goodwill by reportable segment for the years ended December 31, 2014 and December 31, 2013 are as follows:
(in millions)
 
Crane
 
Foodservice
 
Total
Gross balance as of January 1, 2013
 
$
341.7

 
$
1,384.7

 
$
1,726.4

Acquisition of Inducs
 

 
5.0

 
5.0

Restructuring reserve adjustment
 

 
(0.7
)
 
(0.7
)
Foreign currency impact
 
3.4

 
0.2

 
3.6

Gross balance as of December 31, 2013
 
$
345.1

 
$
1,389.2

 
$
1,734.3

Accumulated asset impairments
 

 
(515.7
)
 
(515.7
)
Net balance as of December 31, 2013
 
$
345.1

 
$
873.5

 
$
1,218.6

Foreign currency impact
 
(19.8
)
 
(0.7
)
 
(20.5
)
Gross balance as of December 31, 2014
 
$
325.3

 
$
1,388.5

 
$
1,713.8

Accumulated asset impairments
 

 
(515.7
)
 
(515.7
)
Net balance as of December 31, 2014
 
$
325.3

 
$
872.8

 
$
1,198.1


The company accounts for goodwill and other intangible assets under the guidance of ASC Topic 350, “Intangibles — Goodwill and Other.” The company performs an annual impairment review at June 30 of every year or more frequently if events or changes in circumstances indicate that the asset might be impaired. The company performs impairment reviews for its reporting units 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.
As of June 30, 2014, the company performed its annual impairment analysis for its reporting units, which were Cranes Americas; Cranes Europe, Middle East, and Africa; Cranes China; Cranes Greater Asia Pacific; Crane Care; Foodservice Americas; Foodservice Europe, Middle East, and Africa; and Foodservice Asia, as well as its indefinite-lived intangible assets, and based on those results, no impairment was indicated.
As of September 30, 2014, the company completed its reorganization of the Cranes operating and financial consolidation structure from geographic to product line reporting. As a result of the reorganization, the company determined that for the purpose of goodwill impairment assessment it has a single reporting unit under the new structure, comprised of the Crane operating segment.
The company will continue to monitor market conditions and determine if any additional interim reviews of goodwill, other intangibles or long-lived assets are warranted. 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 sheet and results of operations.
As discussed in Note 3, “Acquisitions,” on October 1, 2013, the company acquired all remaining shares of Inducs which the company previously held a minority interest. The aggregate purchase price of $12.2 million, net of cash, resulted in $7.0 million of identifiable intangible assets and $5.0 million of goodwill. Of the $7.0 million of acquired intangible assets, $0.7 million was assigned to trademarks that are not subject to amortization, $1.2 million was assigned to customer relationships with a useful life of 19 years, and $5.1 million was assigned to developed technology with a useful life of 12 years.





The gross carrying amount and accumulated amortization of the company’s intangible assets other than goodwill are as follows as of December 31, 2014 and December 31, 2013.
 
 
December 31, 2014
 
December 31, 2013
(in millions)
 
Gross
Carrying
Amount
 
Accumulated
Amortization
Amount
 
Net
Book
Value
 
Gross
Carrying
Amount
 
Accumulated
Amortization
Amount
 
Net
Book
Value
Trademarks and tradenames
 
$
300.0

 
$

 
$
300.0

 
$
311.8

 
$

 
$
311.8

Customer relationships
 
425.7

 
(136.0
)
 
289.7

 
426.1

 
(114.4
)
 
311.7

Patents
 
32.7

 
(28.3
)
 
4.4

 
34.9

 
(28.4
)
 
6.5

Engineering drawings
 
11.0

 
(9.3
)
 
1.7

 
11.5

 
(9.1
)
 
2.4

Distribution network
 
19.7

 

 
19.7

 
21.0

 

 
21.0

Other intangibles
 
170.9

 
(71.7
)
 
99.2

 
176.6

 
(63.8
)
 
112.8

 
 
$
960.0

 
$
(245.3
)
 
$
714.7

 
$
981.9

 
$
(215.7
)
 
$
766.2


Amortization expense for the years ended December 31, 2014, 2013 and 2012 was $35.1 million, $35.3 million and $36.5 million, respectively.  Excluding the impact of any future acquisitions or divestitures, the company anticipates amortization will be approximately $35 million per year for next five years.
Accounts Payable and Accrued Expenses
Accounts Payable and Accrued Expenses
Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses at December 31, 2014 and December 31, 2013 are summarized as follows:
(in millions)
 
2014
 
2013
Trade accounts payable and interest payable
 
$
470.0

 
$
510.6

Employee related expenses
 
90.3

 
99.9

Restructuring expenses
 
20.3

 
20.6

Profit sharing and incentives
 
6.8

 
44.7

Accrued rebates
 
52.8

 
45.2

Deferred revenue - current
 
21.6

 
25.0

Income taxes payable
 
16.2

 
62.5

Miscellaneous accrued expenses
 
129.4

 
127.1

 
 
$
807.4

 
$
935.6

Debt
Debt
Debt
Outstanding debt at December 31, 2014 and December 31, 2013 is summarized as follows:
(in millions)
 
2014
 
2013
Revolving credit facility
 
$

 
$

Term loan A
 
336.9

 
162.5

Term loan B
 
168.5