WELBILT, INC., 10-Q filed on 5/9/2017
Quarterly Report
Document and Entity Information
3 Months Ended
Mar. 31, 2017
Apr. 28, 2017
Document and entity information
 
 
Document Type
10-Q 
 
Amendment Flag
false 
 
Document Period End Date
Mar. 31, 2017 
 
Document Fiscal Year Focus
2017 
 
Document Fiscal Period Focus
Q1 
 
Trading Symbol
WBT 
 
Entity Registrant Name
WELBILT, INC. 
 
Entity Central Index Key
0001650962 
 
Current Fiscal Year End Date
--12-31 
 
Entity Filer Category
Large Accelerated Filer 
 
Entity Common Stock, Shares Outstanding
 
138,909,132 
Consolidated (Condensed) Statements of Operations (USD $)
In Millions, except Share data, unless otherwise specified
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Operations
 
 
Net sales
$ 328.0 
$ 325.5 
Cost of sales
205.0 
207.9 
Gross profit
123.0 
117.6 
Costs and expenses:
 
 
Selling, general and administrative expenses
74.3 
71.8 
Amortization expense
7.8 
7.8 
Separation expense
0.9 
3.0 
Restructuring expense
4.6 
1.3 
Asset impairment expense
0.4 
Earnings from operations
35.0 
33.7 
Interest expense
23.2 
8.5 
Interest expense on notes with MTW — net
0.1 
Loss on early extinguishment of debt
3.2 
Other expense — net
1.5 
2.4 
Earnings before income taxes
7.1 
22.7 
Income taxes
2.1 
4.6 
Net earnings
$ 5.0 
$ 18.1 
Per Share Data
 
 
Earnings per common share - Basic (in dollars per share)
$ 0.04 
$ 0.13 
Earnings per common share - Diluted (in dollars per share)
$ 0.04 
$ 0.13 
Weighted average shares outstanding - Basic (in shares)
138,759,075 
137,016,712 
Weighted average shares outstanding - Diluted (in shares)
140,431,198 
138,564,299 
Consolidated (Condensed) Statements of Comprehensive Income (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Statement of Comprehensive Income [Abstract]
 
 
Net earnings
$ 5.0 
$ 18.1 
Other comprehensive income, net of tax:
 
 
Foreign currency translation adjustments
7.0 
17.2 
Unrealized (loss) gain on derivatives, net of income tax benefit (expense) of $0.3 and ($0.5), respectively
(0.6)
0.9 
Employee pension and post-retirement benefits, net of income tax (expense) benefit of ($0.1) and $5.9, respectively
0.4 
(8.9)
Total other comprehensive income, net of tax
6.8 
9.2 
Comprehensive income
$ 11.8 
$ 27.3 
Consolidated (Condensed) Statements of Comprehensive Income (Parenthetical) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Statement of Comprehensive Income [Abstract]
 
 
Unrealized gain (loss) on derivatives, taxes
$ (0.3)
$ 0.5 
Employee pension and post retirement benefits, taxes
$ (0.1)
$ 5.9 
Consolidated (Condensed) Balance Sheets (USD $)
In Millions, unless otherwise specified
Mar. 31, 2017
Dec. 31, 2016
Current assets:
 
 
Cash and cash equivalents
$ 82.6 
$ 53.8 
Restricted cash
0.2 
6.4 
Accounts receivable, less allowances of $4.2 and $5.3, respectively
92.8 
81.7 
Inventories — net
171.0 
145.6 
Prepaids and other current assets
25.8 
13.9 
Current assets held for sale
7.2 
6.8 
Total current assets
379.6 
308.2 
Property, plant and equipment — net
107.7 
109.1 
Goodwill
845.6 
845.3 
Other intangible assets — net
477.9 
484.4 
Other non-current assets
26.3 
22.1 
Total assets
1,837.1 
1,769.1 
Current liabilities:
 
 
Accounts payable
117.9 
108.4 
Accrued expenses and other liabilities
137.7 
174.5 
Short-term borrowings
4.0 
Current portion of long-term debt and capital leases
0.6 
1.6 
Product warranties
24.6 
27.9 
Current liabilities held for sale
0.7 
Total current liabilities
284.8 
313.1 
Long-term debt and capital leases
1,353.4 
1,278.7 
Deferred income taxes
136.3 
137.8 
Pension and postretirement health obligations
45.9 
47.4 
Other long-term liabilities
43.0 
35.6 
Total non-current liabilities
1,578.6 
1,499.5 
Total (deficit) equity:
 
 
Common stock (300,000,000 shares authorized, 138,918,189 shares and 138,601,327 shares issued and 138,878,878 shares and 138,562,016 shares outstanding, respectively)
1.4 
1.4 
Additional paid-in capital (deficit)
(66.6)
(72.0)
Retained earnings
75.5 
70.5 
Accumulated other comprehensive loss
(36.6)
(43.4)
Total (deficit) equity
(26.3)
(43.5)
Total liabilities and equity
$ 1,837.1 
$ 1,769.1 
Consolidated (Condensed) Balance Sheets (Parenthetical) (USD $)
In Millions, except Share data, unless otherwise specified
Mar. 31, 2017
Dec. 31, 2016
Statement of Financial Position [Abstract]
 
 
Accounts receivable allowances
$ 4.2 
$ 5.3 
Common stock shares authorized (in shares)
300,000,000 
300,000,000 
Common stock shares issued (in shares)
138,918,189 
138,601,327 
Common stock shares outstanding (in shares)
138,878,878 
138,562,016 
Consolidated (Condensed) Statements of Cash Flows (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Cash flows from operating activities:
 
 
Net earnings
$ 5.0 
$ 18.1 
Adjustments to reconcile net earnings to cash used in operating activities:
 
 
Depreciation
4.0 
4.3 
Amortization of intangible assets
7.8 
7.8 
Amortization of debt issuance costs
1.3 
0.4 
Loss on early extinguishment of debt
3.2 
Deferred income taxes
(2.9)
(2.9)
Stock-based compensation expense
4.4 
1.3 
Asset impairment expense
0.4 
Changes in operating assets and liabilities:
 
 
Accounts receivable
(6.0)
(8.4)
Inventories
(23.9)
(15.8)
Other assets
(3.5)
(8.3)
Accounts payable
8.6 
(16.3)
Other current and long-term liabilities
(49.0)
(3.2)
Net cash used in operating activities
(50.6)
(23.0)
Cash flows from investing activities:
 
 
Capital expenditures
(4.9)
(4.5)
Changes in restricted cash
6.2 
0.3 
Net cash provided by (used in) investing activities
1.3 
(4.2)
Cash flows from financing activities:
 
 
Proceeds from long-term debt and capital leases
78.9 
1,431.4 
Repayments on long-term debt and capital leases
(2.5)
(0.2)
Debt issuance costs
(1.4)
(40.6)
Changes in short-term borrowings
4.0 
14.5 
Dividend paid to MTW
(1,362.0)
Net transactions with MTW
6.1 
Exercises of stock options
0.9 
0.1 
Net cash provided by financing activities
79.9 
49.3 
Effect of exchange rate changes on cash
(1.8)
0.5 
Net increase in cash and cash equivalents
28.8 
22.6 
Balance at beginning of period
53.8 
32.0 
Balance at end of period
$ 82.6 
$ 54.6 
Business and Organization
Business and Organization
Business and Organization
The Spin-Off and Rebranding

On January 29, 2015, The Manitowoc Company, Inc. ("MTW") announced plans to create two independent public companies to separately operate its two businesses: its Cranes business and its Foodservice business. To effect the separation, MTW first undertook an internal reorganization, following which MTW held the Cranes business, and Manitowoc Foodservice, Inc. ("MFS" or the "Company") held the Foodservice business. Then on March 4, 2016, MTW distributed all the MFS common stock to MTW's shareholders on a pro rata basis, and MFS became an independent publicly traded company (the "Distribution"). In this Quarterly Report on Form 10-Q, “Spin-Off” refers to both the above described internal reorganization and the Distribution, collectively.

On February 6, 2017, MFS announced that it would rebrand the Company, its logo and its brand identity to Welbilt, Inc. The change was the final part of the Company's strategic repositioning after the Spin-Off. To meet its future growth objectives, the Company will focus on further developing its portfolio of 12 award-winning brands under the new corporate name.

On March 3, 2017, MFS filed a Certificate of Amendment to its Amended and Restated Certificate of Incorporation to effect a change of the Company’s name from "Manitowoc Foodservice, Inc." to "Welbilt, Inc." effective March 3, 2017 (the "Name Change"). In connection with the Name Change, the Company also amended and restated its bylaws, by substituting “Welbilt, Inc.” for “Manitowoc Foodservice, Inc.”

On March 6, 2017, shares of the Company commenced trading under the Company's new name, Welbilt, Inc., and a new New York Stock Exchange ticker symbol, “WBT.”

In these unaudited consolidated (condensed) financial statements, unless the context otherwise requires:

"Welbilt" and the "Company" refer to Welbilt, 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 its separation from MTW, the combined entities of the Foodservice business, and certain other assets and liabilities that were historically held at the MTW corporate level, but were specifically identifiable and attributable to the Foodservice business; and

"MTW" refers to The Manitowoc Company, Inc. and its consolidated subsidiaries, other than, for all periods following the Spin-Off, Welbilt.

Description of the Business
The Company is one of the world’s leading commercial foodservice equipment companies. It designs and manufactures a complementary portfolio of hot and cold foodservice equipment products integrated under one operating company and is supported by a growing aftermarket parts and repair service business. Its capabilities span refrigeration, ice-making, cooking, holding, food-preparation and beverage-dispensing technologies, which allow it to equip entire commercial kitchens and serve the world’s growing demand for food prepared away from home. The Company's suite of products is used by commercial and institutional foodservice operators including full-service restaurants, quick-service restaurant chains, hotels, caterers, supermarkets, convenience stores, business and industry, hospitals, schools and other institutions. The Company's products and aftermarket parts and service support are recognized by its customers and channel partners for their quality, reliability and durability that enable profitable growth for Welbilt end customers by improving their menus, enhancing operations and reducing costs.
Summary of Significant Accounting Policies and Basis of Presentation
Summary of Significant Accounting Policies and Basis of Presentation
Summary of Significant Accounting Policies and Basis of Presentation

Principles of Consolidation and Basis of Presentation
The accompanying unaudited consolidated (condensed) financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP"). All intercompany balances and transactions between the Company and its affiliates have been eliminated.
During the periods presented prior to the Spin-Off on March 4, 2016, the Company's financial statements were prepared on a combined standalone basis derived from the consolidated financial statements and accounting records of MTW. The Company functioned as part of the larger group of companies controlled by MTW. Accordingly, MTW performed certain corporate overhead functions for the Company. Therefore, certain costs related to the Company have been allocated from MTW for the period of January 1, 2016 up to the Spin-Off on March 4, 2016. These allocated costs are primarily related to: 1) corporate officers, 2) employee benefits and compensation, 3) share-based compensation and 4) certain administrative functions, which are not provided at the business level including, but not limited to, finance, treasury, tax, audit, legal, information technology, human resources and investor relations. Where possible, these costs were allocated based on direct usage, with the remainder allocated on a basis of revenue, headcount or other measures the Company determined to be reasonable.
Income tax expense in the accompanying consolidated (condensed) statement of operations for the periods prior to the Spin-Off is computed on a separate return basis, as if Welbilt was operating as a separate consolidated group and filed separate tax returns in the jurisdictions in which it operates. As a result of potential changes to the Company's business model and potential past and future tax planning, income tax expense included in the accompanying consolidated (condensed) financial statements for the period prior to the Spin-Off may not be indicative of Welbilt's future expected tax rate. In addition, cash tax payments and items of current and deferred taxes may not be reflective of Welbilt's actual tax balances prior to or subsequent to the Spin-Off.
Welbilt, as a stand-alone entity commencing with the Spin-Off, files U.S. federal and state tax returns on its own behalf. The responsibility for current income tax liabilities of US federal and state combined tax filings were deemed to settle immediately with MTW paying entities effective with the Spin-Off in the respective jurisdictions, whereas state tax returns for certain separate filing Welbilt entities were filed by Welbilt for periods prior to and after the Spin-Off. Cash tax payments commencing with the Spin-Off for the estimated liability are the actual cash taxes paid to the respective tax authorities in the jurisdictions wherever applicable.
Prior to the Spin-Off, the operations of Welbilt were generally included in the consolidated tax returns filed by the respective MTW entities, with the related income tax expense and deferred income taxes calculated on a separate return basis in the accompanying consolidated (condensed) financial statements. As a result, the effective tax rate and deferred income taxes of Welbilt may differ from those in periods prior to or subsequent to the Spin-Off.
Use of Estimates
The preparation of consolidated (condensed) financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes, including costs allocated prior to the Spin-Off. The accompanying unaudited consolidated (condensed) financial statements may not be indicative of the Company's future performance, and they do not necessarily include all of the actual expenses that would have been incurred by the Company and may not reflect the results of operations, financial position and cash flows had the Company been a standalone Company during the entirety of the period presented prior to the Spin-Off.
Accounting Policies
In the opinion of management, the accompanying unaudited consolidated (condensed) financial statements contain all adjustments necessary for a fair statement of the results of operations and comprehensive income for the three months ended March 31, 2017 and 2016, the results of cash flows for the three months ended March 31, 2017 and 2016, and the financial position at March 31, 2017 and December 31, 2016, and except as otherwise discussed, such adjustments consist only of those of a normal recurring nature. The interim results are not necessarily indicative of results that may be achieved for a full year performance. Certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the Security and Exchange Commission's ("SEC") rules and regulations governing interim financial statements. However, the Company believes that the disclosures made in the accompanying unaudited consolidated (condensed) financial statements and related notes are adequate to make the information presented not misleading. These unaudited financial statements should be read in conjunction with the Company's audited consolidated financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2016.
Reclassifications
Certain prior period amounts have been reclassified to conform to the current period presentation. All dollar amounts, except share and per share amounts, are in millions of dollars throughout the tables included in these notes unless otherwise indicated.
Recently Adopted Accounting Pronouncements
In January 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") 2017-04, "Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment," which removes the second step of the annual goodwill impairment test. ASU 2017-04 is effective for fiscal years, and interim periods within those fiscal years, for annual impairment tests beginning after December 15, 2019. Early adoption is permitted in any interim or annual reporting period for impairment tests performed after January 1, 2017 and the amendments in this ASU should be applied prospectively. The Company early adopted this standard as of January 1, 2017 and will apply the guidance from ASU 2017-04 beginning with its annual goodwill assessment performed as of June 30, 2017.
In March 2016, the FASB issued ASU 2016-09, "Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting," which simplifies several aspects of the accounting for share-based payment award transactions. This ASU requires that all excess tax benefits and tax deficiencies be recognized as income tax expense or benefit on the income statement and that excess tax benefits be classified as an operating activity in the cash flow statement. While this new standard allows an entity to account for forfeitures as they occur, the Company elected to continue the current U.S. GAAP practice of estimating forfeitures when calculating stock-based compensation expense. This ASU became effective for the Company on January 1, 2017 and the adoption did not have a significant impact on the Company’s consolidated (condensed) financial statements and related disclosures.
In July 2015, the FASB issued ASU 2015-11, "Inventory (Topic 330): Simplifying the Measurement of Inventory." This ASU changes the guidance on accounting for inventory accounted for on a first-in first-out ("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 price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured on a last-in, first-out ("LIFO") basis. ASU 2015-11 became effective for the Company on January 1, 2017 and the adoption of this standard did not have a significant impact on the Company’s consolidated (condensed) financial statements and related disclosures.
Recent Accounting Pronouncements Not Yet Adopted
In March 2017, the FASB issued ASU 2017-08, "Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20)," which shortens the amortization period for certain callable debt securities held at a premium to the earliest call date. ASU 2017-08 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. The Company is currently evaluating the impact that the adoption of this ASU will have on its consolidated (condensed) financial statements and related disclosures.
In March 2017, the FASB issued ASU 2017-07, "Compensation—Retirement Benefits (Topic 715)," which requires the employer to disaggregate the service cost component from the other components of net benefit cost. The ASU also provides explicit guidance on how to present the service cost component and the other components of net benefit cost in the income statement and allow only the service cost component of net benefit cost to be eligible for capitalization. It is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted. The Company is currently evaluating the impact that the adoption of this ASU will have on its consolidated (condensed) financial statements and related disclosures.
In January 2017, the FASB issued ASU 2017-01, "Business Combinations (Topic 805): Clarifying the Definition of a Business," which clarifies the accounting guidance to assist entities in evaluating whether a transaction should be accounted for as acquisitions of assets or businesses. ASU 2017-01 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted in certain instances and the amendments in this ASU should be applied prospectively. The Company will evaluate the impact of this standard upon future acquisitions subsequent to the adoption of ASU 2017-01.
In November 2016, the FASB issued ASU 2016-18, "Statement of Cash Flows (Topic 230): Restricted Cash," which will require an entity to reconcile the changes in restricted cash as part of total cash and cash equivalents in its statements of cash flows. ASU 2016-18 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted in any interim or annual reporting period and the amendments in this ASU should be applied retrospectively. The Company is currently evaluating the impact that the adoption of this ASU will have on its consolidated (condensed) financial statements and related disclosures.
In October 2016, the FASB issued ASU 2016-16, "Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory," which will require an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. ASU 2016-16 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted as of the beginning of an annual reporting period for which financial statements (interim or annual) have not been issued or made available for issuance. The Company is currently evaluating the impact that the adoption of this ASU will have on its consolidated (condensed) financial statements and related disclosures.
In August 2016, the FASB issued ASU 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments," which clarifies the accounting guidance on how certain cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted in any interim or annual reporting period. The Company is currently evaluating the impact that the adoption of this ASU will have on its consolidated (condensed) financial statements and related disclosures. The adoption of this standard may impact the presentation of certain cash proceeds received in connection with the Company's securitization program described in Note 9, "Accounts Receivable Securitization."
In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)," which requires lessees to recognize right-of-use assets and lease liability, initially measured at present value of the lease payments, on its balance sheet for leases with terms longer than 12 months and classified as either financing or operating leases. ASU 2016-02 requires a modified retrospective transition approach for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, and provides certain practical expedients that companies may elect. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years with early adoption permitted. The Company is currently evaluating the impact that the adoption of this ASU will have on its consolidated (condensed) financial statements and related disclosures.
In January 2016, the FASB issued ASU 2016-01, "Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities." This ASU provides guidance for the recognition, measurement, presentation and disclosure of financial instruments. This ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years and early adoption is not permitted. The Company is currently evaluating the impact that the adoption of this ASU will have on its consolidated (condensed) financial statements and related disclosures.
In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)." This ASU provides a principles-based approach to revenue recognition to record 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. This 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 contract, 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, 2017 (as updated by the FASB in August 2015 in ASU 2015-14 and as updated by ASU-2016-20, ASU 2016-08, ASU 2016-10, ASU 2016-11 and ASU 2016-12), 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. Early adoption is permitted as of the original effective date—the first interim period within fiscal years beginning after December 15, 2016. The Company plans to adopt this standard on January 1, 2018 and is evaluating its customizable contracts, information technology contracts and other customer contracts that may impact its consolidated (condensed) financial statements and related disclosures.
Fair Value of Financial Instruments
Fair Value of Financial Instruments
Fair Value of Financial Instruments
The following tables set forth financial assets and liabilities that were accounted for at fair value on a recurring basis as of March 31, 2017 and December 31, 2016 by level within the fair value hierarchy. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
 
 
Fair Value as of March 31, 2017
(in millions)
 
Level 1
 
Level 2
 
Level 3
 
Total
Current assets:
 
 

 
 

 
 

 
 

Foreign currency exchange contracts
 
$

 
$
1.0

 
$

 
$
1.0

Commodity contracts
 

 
1.0

 

 
1.0

Cross-currency swap contract
 

 
1.1

 

 
1.1

Total current assets at fair value
 

 
3.1

 

 
3.1

Non-current assets:
 
 

 
 

 
 

 
 

Commodity contracts
 

 
0.4

 

 
0.4

Interest rate swap contracts
 

 
1.2

 

 
1.2

Cross-currency swap contract
 

 
2.2

 

 
2.2

Total non-current assets at fair value
 

 
3.8

 

 
3.8

Total assets at fair value
 
$

 
$
6.9

 
$

 
$
6.9

Current liabilities:
 
 

 
 

 
 

 
 

Foreign currency exchange contracts
 
$

 
$
0.6

 
$

 
$
0.6

Interest rate swap contracts
 

 
2.8

 

 
2.8

Total current liabilities at fair value
 

 
3.4

 

 
3.4

Non-current liabilities:
 
 

 
 

 
 

 
 

Interest rate swap contracts
 

 
5.7

 

 
5.7

Total non-current liabilities at fair value
 

 
5.7

 

 
5.7

Total liabilities at fair value
 
$

 
$
9.1

 
$

 
$
9.1


 
 
Fair Value as of December 31, 2016
(in millions)
 
Level 1
 
Level 2
 
Level 3
 
Total
Current assets:
 
 

 
 

 
 

 
 

Foreign currency exchange contracts
 
$

 
$
0.6

 
$

 
$
0.6

Commodity contracts
 

 
0.9

 

 
0.9

Total current assets at fair value
 

 
1.5

 

 
1.5

Non-current assets:
 
 

 
 

 
 

 
 

Commodity contracts
 

 
0.2

 

 
0.2

Total non-current assets at fair value
 

 
0.2

 

 
0.2

Total assets at fair value
 
$

 
$
1.7

 
$

 
$
1.7

Current liabilities:
 
 

 
 

 
 

 
 

Foreign currency exchange contracts
 
$

 
$
1.0

 
$

 
$
1.0

Commodity contracts
 

 
0.1

 

 
0.1

Total current liabilities at fair value
 

 
1.1

 

 
1.1

Total liabilities at fair value
 
$

 
$
1.1

 
$

 
$
1.1


The fair value of the Company's 9.50% Senior Notes due 2024 and Term Loan B under its Senior Secured Credit Facilities was approximately $491.0 million and $827.1 million as of March 31, 2017, respectively. The fair value of the Company's 9.50% Senior Notes due 2024 and Term Loan B under its Senior Secured Credit Facilities was approximately $496.2 million and $838.4 million as of December 31, 2016, respectively. See Note 10, "Debt," for a description of the debt instruments and their related carrying values.
Accounting Standards Codification ("ASC") Subtopic 820-10, "Fair Value Measurement," 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 Subtopic 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. The Company estimates the fair value of its Senior Notes due 2024 and Term Loan B based on quoted market prices of the instruments. Because these markets are typically thinly traded, the assets and liabilities are classified as Level 2 of the fair value hierarchy. The carrying values of cash and cash equivalents, accounts receivable, accounts payable and deferred purchase price notes on receivables sold (see Note 9, "Accounts Receivable Securitization"), approximate fair value, without being discounted as of March 31, 2017 and December 31, 2016 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 foreign currency exchange rates, commodity prices, and interest rates 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, commodity contracts and interest rate swaps 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 as Level 2 of the fair value hierarchy.
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 or managed using what it believes to be the most effective and efficient methods to eliminate, reduce or transfer such exposures. Operating decisions consider these associated risks and structure transactions to minimize or manage these risks whenever possible.
The use of derivative instruments is consistent with the overall business and risk management objectives of the Company. The Company uses derivative instruments to manage business risk exposures that have been identified through the risk identification and measurement process, provided that they clearly qualify as "hedging" activities as defined in its risk policy. It is the Company's policy to enter into derivative transactions only to the extent true exposures exist; the Company does not enter into derivative transactions for trading or other speculative purposes.
The primary risks the Company manages using derivative instruments are commodity price risk, interest rate risk and foreign currency exchange risk. Swap contracts on various commodities are used to 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 its projected purchases and sales and foreign currency denominated receivable and payable balances. Interest rate swaps are entered into to manage interest rate risk associated with the Company’s fixed and floating-rate borrowings. Cross-currency interest rate swaps are entered into to protect the value of the Company’s investments in its foreign subsidiaries.
ASC Subtopic 815-10, "Derivatives and Hedges," requires companies to recognize all derivative instruments as either assets or liabilities at fair value in the balance sheet. In accordance with ASC Subtopic 815-10, the Company designates commodity swaps and foreign currency exchange contracts as cash flow hedges of forecasted purchases of commodities and currencies, certain interest rate swaps as cash flow hedges of floating-rate borrowings, and the remainder as fair value hedges of fixed-rate borrowings, and certain cross-currency interest rate swaps as hedges of net investments in its foreign subsidiaries.
Cash flow hedging strategy
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 (loss) 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 $0.9 million of unrealized gains, net of tax, related to commodity price and currency rate hedging, which will be reclassified from other comprehensive (loss) income into earnings. Foreign currency and commodity hedging is generally completed prospectively on a rolling basis for fifteen and thirty-six months, respectively, depending on the type of risk being hedged.
During the three months ended March 31, 2017, the Company entered into two interest rate swap agreements with a total notional amount of $600.0 million to manage interest rate risk exposure by converting the Company’s floating-rate debt to a fixed-rate basis for the next two to three years, thus reducing the impact from fluctuations in interest rates on future interest expense. These agreements involve the receipt of floating rate amounts in exchange for fixed rate interest payments over the life of the agreements without an exchange of the underlying principal. Approximately 43.0% of the Company’s outstanding long-term debt had its interest payments designated as cash flow hedges under these interest rate swap agreements as of March 31, 2017. The Company did not enter into any interest rate swap agreements during the three months ended March 31, 2016.
As of March 31, 2017 and December 31, 2016, the Company had the following outstanding commodity and currency forward contracts that were entered into as hedge forecasted transactions:
 
 
Units Hedged
 
 
 
 
Commodity
 
March 31, 2017
 
December 31, 2016
 
Unit
 
Type
Aluminum
 
2,115

 
1,663

 
MT
 
Cash flow
Copper
 
709

 
746

 
MT
 
Cash flow
Natural gas
 
26,523

 
56,416

 
MMBtu
 
Cash flow
Steel
 
7,225

 
8,663

 
Short tons
 
Cash flow
 
 
Units Hedged
 
 
Currency
 
March 31, 2017
 
December 31, 2016
 
Type
Canadian Dollar
 
17,230,000

 
26,130,000

 
Cash flow
European Euro
 
15,782,119

 
11,261,848

 
Cash flow
British Pound
 
5,028,775

 
4,191,763

 
Cash flow
Mexican Peso
 
107,400,000

 
148,200,000

 
Cash flow
Thailand Baht
 
13,941,893

 
23,231,639

 
Cash flow
Singapore Dollar
 
3,775,000

 
4,375,000

 
Cash flow

For derivative instruments that are not designated as hedging instruments, the gains or losses on the derivatives are recognized in current earnings within "Other expense (income) — net" in the accompanying consolidated (condensed) statement of operations. As of March 31, 2017 and December 31, 2016, the Company had the following outstanding commodity and currency forward contracts that were not designated as hedging instruments:
 
 
Units Hedged
 
 
 
 
Commodity
 
March 31, 2017
 
December 31, 2016
 
Unit
 
Type
Aluminum
 
13

 
28

 
MT
 
Cash flow
Steel
 
189

 
240

 
Short tons
 
Cash flow
 
 
Units Hedged
 
 
 
 
Currency
 
March 31, 2017
 
December 31, 2016
 
Recognized Location
 
Purpose
Singapore Dollar
 
28,127,000

 

 
Other expense (income) — net
 
Notes payable and receivable settlement
European Euro
 
75,300,000

 
16,000,000

 
Other expense (income) — net
 
Notes and accounts payable and receivable settlement
British Pound
 
4,790,037

 
8,192,692

 
Other expense (income) — net
 
Accounts payable and receivable settlement
Chinese Yuan
 
107,383,629

 

 
Other expense (income) — net
 
Notes payable and receivable settlement
Swiss Franc
 
4,000,000

 
3,150,000

 
Other expense (income) — net
 
Accounts payable and receivable settlement

Fair value hedging strategy
For derivative instruments that are designated and qualify as a fair value hedge (i.e., hedging the exposure to changes in the fair value of an asset or a liability or an identified portion thereof that is attributable to a particular risk), the gain or loss on the derivative instrument as well as the offsetting gain or loss on the hedged item attributable to the hedged risk are recognized in the same line item associated with the hedged item in current earnings.

During the three months ended March 31, 2017, the Company entered into an interest rate swap agreement with a total notional amount of $425.0 million to manage interest rate risk exposure by converting the Company’s fixed-rate debt to a floating-rate basis for the next seven years. This agreement involves the receipt of fixed rate amounts in exchange for floating rate interest payments over the life of the agreement without an exchange of the underlying principal. Approximately 31.0% of the Company’s outstanding long-term debt had its interest payments designated as a fair value hedge under this interest rate swap agreement as of March 31, 2017. The Company did not enter into any interest rate swap agreements during the three months ended March 31, 2016.
Hedge of net investment in foreign operations strategy

For derivative instruments that are designated and qualify as a hedge of a net investment in a foreign currency, the gain or loss is reported in other comprehensive income as part of the cumulative translation adjustment to the extent it is effective. Any ineffective portions of net investment hedges are recognized in earnings during the period of change.

The Company entered into a cross-currency interest rate swap contract to protect the value of its net investments in Euro. The carrying value of the net investment in Euro that is designated as a hedging instrument is remeasured at each reporting date to reflect the changes in the foreign currency exchange spot rate, with changes since the last remeasurement date recorded in other comprehensive income. The Company uses the forward-rate method of assessing hedge effectiveness when cross-currency swap contracts are designated as hedging instruments.
The fair value of outstanding derivative contracts recorded as assets in the accompanying consolidated (condensed) balance sheets as of March 31, 2017 and December 31, 2016 was as follows:
 
 
ASSET DERIVATIVES
(in millions)
 
Balance Sheet Location
 
Fair Value
 
 
 
 
March 31, 2017
 
December 31, 2016
Derivatives designated as hedging instruments:
 
 
 
 
 
 
Foreign currency exchange contracts
 
Prepaids and other current assets
 
$
0.9

 
$
0.6

Commodity contracts
 
Prepaids and other current assets
 
1.0

 
0.9

Cross-currency swap contract
 
Prepaids and other current assets
 
1.1

 

Commodity contracts
 
Other non-current assets
 
0.4

 
0.2

Interest rate swap contracts
 
Other non-current assets
 
1.2

 

Cross-currency swap contract
 
Other non-current assets
 
2.2

 

Total derivatives designated as hedging instruments
 
 
 
6.8

 
1.7

 
 
 
 
 
 
 
Derivatives NOT designated as hedging instruments:
 
 
 
 
 
 
Foreign currency exchange contracts
 
Prepaids and other current assets
 
0.1

 

Total derivatives NOT designated as hedging instruments
 
 
 
0.1

 

 
 
 
 
 
 
 
Total asset derivatives
 
 
 
$
6.9

 
$
1.7


The fair values of outstanding derivative contracts recorded as liabilities in the accompanying consolidated (condensed) balance sheets as of March 31, 2017 and December 31, 2016 were as follows:
 
 
LIABILITY DERIVATIVES
(in millions)
 
Balance Sheet Location
 
Fair Value
 
 
 
 
March 31, 2017
 
December 31, 2016
Derivatives designated as hedging instruments:
 
 
 
 
 
 
Foreign currency exchange contracts
 
Accrued expenses and other liabilities
 
$
0.4

 
$
0.8

Commodity contracts
 
Accrued expenses and other liabilities
 

 
0.1

Interest rate swap contracts
 
Accrued expenses and other liabilities
 
2.8

 

Interest rate swap contracts
 
Other long-term liabilities
 
5.7

 

Total derivatives designated as hedging instruments
 
 
 
8.9

 
0.9

 
 
 
 
 
 
 
Derivatives NOT designated as hedging instruments:
 
 
 
 
 
 
Foreign currency exchange contracts
 
Accrued expenses and other liabilities
 
0.2

 
0.2

Total derivatives NOT designated as hedging instruments
 
 
 
0.2

 
0.2

 
 
 
 
 
 
 
Total liability derivatives
 
 
 
$
9.1

 
$
1.1


The effects of derivative instruments in the accompanying consolidated (condensed) statements of operations for the three months ended March 31, 2017 and 2016 for gains or losses initially recognized in "Accumulated other comprehensive loss" ("AOCI") in the accompanying consolidated (condensed) balance sheets were as follows:
Derivatives in cash flow hedging relationships (in millions)
 
Amount of gain (loss) recognized in AOCI on derivative (effective portion, net of tax)
 
Location of gain (loss) reclassified from AOCI into income (effective portion)
 
Amount of gain (loss) reclassified from AOCI into income (effective portion)
 
 
Three Months Ended March 31,
 
 
 
Three Months Ended March 31,
 
 
2017
 
2016
 
 
 
2017
 
2016
Foreign exchange contracts
 
$
0.4

 
$
0.1

 
Cost of sales
 
$
0.2

 
$
(0.1
)
Commodity contracts
 

 
0.8

 
Cost of sales
 
0.2

 
(0.9
)
Interest rate swap contracts
 
(1.0
)
 

 
Selling, general and administrative expenses
 

 

Cross-currency swap contract (1)
 
3.3

 

 
Selling, general and administrative expenses
 

 

Total
 
$
2.7

 
$
0.9

 
 
 
$
0.4

 
$
(1.0
)

(1) The amount of gain recognized in AOCI for the cross-currency swap contract is included in other comprehensive income as part of the cumulative translation adjustment in the accompanying unaudited consolidated (condensed) statements of comprehensive income.
Derivatives relationships (in millions)
 
Amount of gain (loss) recognized in income on derivative (ineffective portion and amount excluded from effectiveness testing)
 
Location of gain (loss) recognized in income on derivative (ineffective portion and amount excluded from effectiveness testing)
 
 
Three Months Ended March 31,
 
 
 
 
2017
 
2016
 
 
Commodity contracts
 
$
0.3

 
$

 
Cost of sales
Total
 
$
0.3

 
$

 
 
Derivatives NOT designated as hedging instruments (in millions)
 
Amount of gain (loss) recognized in income on derivative
 
Location of gain (loss) recognized in income on derivative
 
 
Three Months Ended March 31,
 
 
 
 
2017
 
2016
 
 
Foreign exchange contracts
 
$
(0.3
)
 
$
(0.1
)
 
Other expense (income) — net
Commodity contracts
 

 
0.5

 
Other expense (income) — net
Total
 
$
(0.3
)
 
$
0.4

 
 
Inventories - Net
Inventories - Net
Inventories — Net
The components of inventories — net at March 31, 2017 and December 31, 2016 are summarized as follows:
 
 
March 31,
 
December 31,
(in millions)
 
2017
 
2016
Inventories — gross:
 
 

 
 

Raw materials
 
$
73.8

 
$
68.2

Work-in-process
 
20.3

 
18.3

Finished goods
 
104.4

 
85.1

Total inventories — gross
 
198.5

 
171.6

Excess and obsolete inventory reserve
 
(24.0
)
 
(22.5
)
Net inventories at FIFO cost
 
174.5

 
149.1

Excess of FIFO costs over LIFO value
 
(3.5
)
 
(3.5
)
Inventories — net
 
$
171.0

 
$
145.6

Property, Plant and Equipment - Net
Property, Plant and Equipment - Net
Property, Plant and Equipment — Net
The components of property, plant and equipment — net at March 31, 2017 and December 31, 2016 are summarized as follows:
 
 
March 31,
 
December 31,
(in millions)
 
2017
 
2016
Land
 
$
7.1

 
$
7.3

Building and improvements
 
87.3

 
91.3

Machinery, equipment and tooling
 
217.5

 
215.1

Furniture and fixtures
 
5.6

 
5.8

Computer hardware and software
 
53.4

 
52.9

Construction in progress
 
12.9

 
11.2

Total cost
 
383.8

 
383.6

Less accumulated depreciation
 
(276.1
)
 
(274.5
)
Property, plant and equipment net
 
$
107.7

 
$
109.1

Goodwill and Other Intangible Assets
Goodwill and Other Intangible Assets
Goodwill and Other Intangible Assets
The Company has three reportable segments: Americas; Europe, Middle East and Africa ("EMEA"); and Asia Pacific ("APAC"). The Americas segment includes the U.S., Canada and Latin America. The EMEA segment is made up of markets in Europe, Middle East and Africa, including Russia and the Commonwealth of Independent States. The APAC segment is principally comprised of markets in China, Singapore, Australia, New Zealand, India, Malaysia, Indonesia, Thailand, Japan, South Korea and the Philippines. The changes in the carrying amount of goodwill by reportable segment for the three months ended March 31, 2017 are as follows:
(in millions)
 
Americas
 
EMEA
 
APAC
 
Total
Balance as of December 31, 2016
 
$
832.6

 
$
4.7

 
$
8.0

 
$
845.3

Foreign currency impact
 

 
0.1

 
0.2

 
0.3

Balance as of March 31, 2017
 
$
832.6

 
$
4.8

 
$
8.2

 
$
845.6


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 test or more frequently if events or changes in circumstances indicate that the asset might be impaired. The Company tests 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, 2016, the Company performed the annual impairment test for its reporting units, which were Americas, EMEA, and APAC, as well as its indefinite-lived intangible assets, and based on those results, the fair value of each of the Company's reporting units exceeded their respective carrying values and no impairment was indicated.
The Company early adopted ASU 2017-04, "Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment," as of January 1, 2017 and will apply the guidance from this standard beginning with its annual goodwill assessment performed as of June 30, 2017.
The gross carrying amount and accumulated amortization of the Company's intangible assets other than goodwill are as follows as of March 31, 2017 and December 31, 2016:
 
 
March 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
 
$
173.4

 
$

 
$
173.4

 
$
172.4

 
$

 
$
172.4

Customer relationships
 
415.2

 
(176.6
)
 
238.6

 
415.2

 
(171.4
)
 
243.8

Patents
 
1.6

 
(1.6
)
 

 
1.6

 
(1.6
)
 

Other intangibles
 
141.4

 
(75.5
)
 
65.9

 
140.7

 
(72.5
)
 
68.2

Total
 
$
731.6

 
$
(253.7
)
 
$
477.9

 
$
729.9

 
$
(245.5
)
 
$
484.4


Amortization expense for the three months ended March 31, 2017 and 2016 was $7.8 million.
Accounts Payable and Accrued Expenses and Other Liabilities
Accounts Payable and Accrued Expenses and Other Liabilities
Accounts Payable and Accrued Expenses and Other Liabilities
Accounts payable and accrued expenses and other liabilities at March 31, 2017 and December 31, 2016 are summarized as follows:
 
 
March 31,
 
December 31,
(in millions)
 
2017
 
2016
Accounts payable:
 
 
 
 
Trade accounts payable
 
$
117.9

 
$
108.4

Total accounts payable
 
$
117.9

 
$
108.4

Accrued expenses and other liabilities:
 
 
 
 
Interest payable
 
$
5.0

 
$
15.7

Income taxes payable
 
4.6

 
2.5

Employee related expenses
 
32.0

 
29.8

Restructuring expenses
 
4.3

 
3.3

Profit sharing and incentives
 
6.2

 
14.2

Accrued rebates
 
31.3

 
56.0

Deferred revenue - current
 
4.5

 
4.4

Customer advances
 
4.7

 
7.4

Product liability
 
2.1

 
2.3

Miscellaneous accrued expenses
 
43.0

 
38.9

Total accrued expenses and other liabilities
 
$
137.7

 
$
174.5

Accounts Receivable Securitization
Accounts Receivable Securitization
Accounts Receivable Securitization
Prior to the Spin-Off, the Company sold accounts receivable through an accounts receivable securitization facility, ("the Prior Securitization Program"), comprised of two funding entities: Manitowoc Funding, LLC ("U.S. Seller") and Manitowoc Cayman Islands Funding Ltd. ("Cayman Seller"). The U.S. Seller historically serviced domestic entities of both the Foodservice and Cranes segments of MTW and remitted all funds received directly to MTW. The Cayman Seller historically serviced solely Welbilt foreign entities and remitted all funds to Welbilt entities. The U.S. Seller remained with MTW subsequent to the Spin-Off, while the Cayman Seller was transferred to Welbilt subsequent to the Spin-Off. As the U.S. Seller is not directly attributable to Welbilt, only the receivables which were transferred to the U.S. Seller but not sold are reflected in the Company's accompanying consolidated (condensed) balance sheets. A portion of the U.S. Seller's historical expenses related to bond administration fees and settlement fees was allocated to the Company. As the Cayman Seller is directly attributable to Welbilt, the assets, liabilities, income and expenses of the Cayman Seller are included in the Company's accompanying consolidated (condensed) statements of operations and balance sheets. The Company's cost of funds under the facility used a London Interbank Offered Rate ("LIBOR") index rate plus a 1.25% fixed spread.
On March 3, 2016, the Company entered into a new $110.0 million accounts receivable securitization program (the "2016 Securitization Facility") among the Cayman Seller, as seller, Welbilt, Garland Commercial Ranges Limited, Convotherm Elektrogeräte GmbH, Welbilt Deutschland GmbH, Welbilt UK Limited, Welbilt Asia Pacific Private Limited and the other persons who may be from time to time, a party thereto, as servicers, with Wells Fargo Bank, National Association, as purchaser and agent, whereby the Company will sell certain of its domestic trade accounts receivable and certain of its non-U.S. trade accounts receivable to a wholly-owned, bankruptcy-remote, foreign special purpose entity, which in turn, will sell, convey, transfer and assign to a third-party financial institution (the “Purchaser”), all of the rights, title and interest in and to its pool of receivables. The Purchaser will receive ownership of the pool of receivables. The Company, along with certain of its subsidiaries, acts as servicers of the receivables and as such administer, collect and otherwise enforce the receivables. The servicers will be compensated for doing so on terms that are generally consistent with what would be charged by an unrelated servicer. As servicers, they will initially receive payments made by obligors on the receivables but will be required to remit those payments in accordance with a receivables purchase agreement. The Purchaser will have no recourse for uncollectible receivables. The 2016 Securitization Facility also contains customary affirmative and negative covenants. Among other restrictions, these covenants require the Company to meet specified financial tests, which include a Consolidated Interest Coverage Ratio and a Consolidated Total Leverage Ratio that are the same as the covenant ratios required under the 2016 Credit Agreement as described in Note 10, "Debt."
Due to a short average collection cycle of less than 60 days for such accounts receivable as well as the Company's collection history, the fair value of its deferred purchase price notes approximated book value. The fair value of the deferred purchase price notes as of March 31, 2017 and December 31, 2016 was $73.1 million and $60.0 million, respectively, and is included in "Accounts receivable, less allowances" in the accompanying consolidated (condensed) balance sheets.
Trade accounts receivables sold to the Purchaser and being serviced by the Company totaled $88.0 million and $96.7 million at March 31, 2017 and December 31, 2016, respectively.
Transactions under the 2016 Securitization Facility and the Prior Securitization Program were accounted for as sales in accordance with ASC Topic 860, "Transfers and Servicing." Sales of trade receivables to the Purchaser are reflected as a reduction of accounts receivable in the accompanying consolidated (condensed) balance sheets and the proceeds received, including collections on the deferred purchase price notes, are included in cash flows from operating activities in the accompanying consolidated (condensed) statements of cash flows. The Company deems the interest rate risk related to the deferred purchase price notes to be de minimis, primarily due to the short average collection cycle of the related receivables (i.e., 60 days) as noted above.
Debt
Debt
Debt
Senior Secured Credit Facilities
On March 3, 2016, the Company entered into a credit agreement (the "2016 Credit Agreement") for a new senior secured revolving credit facility in an aggregate principal amount of $225.0 million (the "Revolving Facility") and a senior secured Term Loan B facility in an aggregate principal amount of $975.0 million (the "Term Loan B Facility" and, together with the Revolving Facility, the "Senior Secured Credit Facilities") with JPMorgan Chase Bank, N.A, as administrative agent and collateral agent, J.P. Morgan Securities LLC, Goldman Sachs Bank USA, HSBC Securities (USA) Inc., and Citigroup Global Markets Inc., on behalf of certain of its affiliates, as joint lead arrangers and joint bookrunners, and certain lenders, as lenders. The Revolving Facility includes (i) a $20.0 million sublimit for the issuance of letters of credit on customary terms, and (ii) a $40.0 million sublimit for swingline loans on customary terms. The Company entered into security and other agreements relating to the 2016 Credit Agreement. During the three months ended March 31, 2017, the Company recorded an out-of-period adjustment of $2.7 million to correct for the loss incurred on the prepayments made in 2016 on the Term Loan B Facility related to unamortized debt issuance costs, which is included in "Loss on early extinguishment of debt" in the accompanying consolidated (condensed) statements of operations. The related income tax benefit of $1.0 million was recognized as a discrete item in "Income taxes" in the accompanying consolidated (condensed) statements of operations during the first quarter of 2017. Management has determined the error correction is not material to the periods of origination nor the period of correction.
On March 6, 2017, the 2016 Credit Agreement was amended providing for a decrease to the maximum applicable margin for LIBOR and Alternate Base Rate (“ABR”) loans by 1.75% on the Term Loan B Facility (the "Amendment"). The repricing was completed at par, and establishes for six months a 1.0% premium in the case of another repricing event. JPMorgan Chase Bank, N.A., as administrative agent, and JPMorgan Chase Bank, N.A. and Goldman Sachs Bank, USA were joint bookrunners on the repricing. In connection with the Amendment, the Company incurred costs of $1.4 million during the three months ended March 31, 2017, which were recorded in "Long-term debt and capital leases" in the accompanying consolidated (condensed) balance sheets and are being amortized over the remaining term of the Term Loan B Facility. Additionally, the Company recorded a loss on early extinguishment of debt of $0.5 million during the three months ended March 31, 2017 related to unamortized debt issuance costs.
Subsequent to the Amendment, the borrowings under the Senior Secured Credit Facilities bear interest at a rate per annum equal to, at the option of the Company, (i) LIBOR plus the applicable margin of 3.00% for term loans subject to a 1.00% LIBOR floor and 1.50% - 2.75% for revolving loans, based on consolidated total leverage, or (ii) an alternate base rate plus the applicable margin, which will be 1.00% lower than for LIBOR loans.
The 2016 Credit Agreement contains financial covenants including (a) a Consolidated Interest Coverage Ratio, which measures the ratio of (i) Consolidated EBITDA, as defined in the 2016 Credit Agreement, to (ii) Consolidated Cash Interest Expense, and (b) a Consolidated Total Leverage Ratio, which measures the ratio of (i) Consolidated Indebtedness to (ii) Consolidated EBITDA for the most recent four fiscal quarters. The current covenant levels of the financial covenants under the Senior Secured Credit Facilities are set forth below:
Fiscal Quarter Ending
 
Consolidated Total Leverage Ratio (less than)
 
Actual Consolidated Total Leverage Ratio
 
Consolidated Interest Coverage Ratio (greater than)
 
Actual Consolidated Interest Coverage Ratio
March 31, 2017
 
5.50:1.00
 
5.20:1.00
 
2.50:1.00
 
2.71:1.00

Obligations of the Company under the Senior Secured Credit Facilities are jointly and severally guaranteed by certain of its existing and future direct and indirectly wholly-owned U.S. subsidiaries (but excluding (i) unrestricted subsidiaries, (ii) immaterial subsidiaries, and (iii) special purpose securitization vehicles).
There is a first priority perfected lien on substantially all of the assets and property of the Company and guarantors and proceeds therefrom excluding certain excluded assets. The liens securing the obligations of the Company under the Senior Secured Credit Facilities are pari passu.
Senior Notes
On February 18, 2016, the Company issued 9.50% Senior Notes due 2024 in an aggregate principal amount of $425.0 million (the "Senior Notes") under an indenture with Wells Fargo Bank, National Association, as trustee (the "Trustee"). The Senior Notes are fully and unconditionally guaranteed, jointly and severally, on an unsecured basis by each of the Company's domestic restricted subsidiaries that is a borrower or guarantor under the Senior Secured Credit Facilities. The Senior Notes and the subsidiary guarantees are unsecured, senior obligations.
The Senior Notes were initially sold to qualified institutional buyers pursuant to Rule 144A (and outside the United States in reliance on Regulation S) under the Securities Act of 1933, as amended (the "Securities Act"). In September 2016, the Company completed an exchange offer pursuant to which all of the initial Senior Notes were exchanged for new Senior Notes, the issuance of which was registered pursuant under the Securities Act.
The notes are redeemable, at the Company's option, in whole or in part from time to time, at any time prior to February 15, 2019, at a price equal to 100.0% of the principal amount thereof plus a “make-whole” premium and accrued but unpaid interest to the date of redemption. In addition, the Company may redeem the notes at its option, in whole or in part, at the following redemption prices (expressed as percentages of the principal amount thereof) if redeemed during the 12-month period commencing on February 15 of the years set forth below:
Year
 
Percentage
2019
 
107.1
%
2020
 
104.8
%
2021
 
102.4
%
2022 and thereafter
 
100.0
%

The Company must generally offer to repurchase all of the outstanding Senior Notes upon the occurrence of certain specific change of control events at a purchase price equal to 101.0% of the principal amount of Senior Notes purchased plus accrued and unpaid interest to the date of purchase. The indenture provides for customary events of default. Generally, if an event of default occurs (subject to certain exceptions), the Trustee or the holders of at least 25.0% in aggregate principal amount of the then-outstanding Senior Notes may declare all the Senior Notes to be due and payable immediately.
Outstanding debt at March 31, 2017 and December 31, 2016 is summarized as follows:
 
 
March 31,
 
December 31,
(in millions)
 
2017
 
2016
Revolving credit facility
 
$
140.0

 
$
63.5

Term Loan B
 
825.0

 
825.0

Senior Notes due 2024
 
425.0

 
425.0

Other
 
7.1

 
3.3

Total debt and capital leases, including current portion
 
1,397.1

 
1,316.8

Less current portion and short-term borrowings
 
(4.6
)
 
(1.6
)
Less unamortized debt issuance costs and debt discount
 
(33.4
)
 
(36.5
)
Less fair value of the interest rate swap
 
(5.7
)
 

Total long-term debt and capital leases
 
$
1,353.4

 
$
1,278.7

 
As of March 31, 2017, the Company had outstanding $7.1 million of other indebtedness that has a weighted-average interest rate for the three months ended March 31, 2017 of approximately 3.11% per annum.
As of March 31, 2017, the Company had $140.0 million of borrowings outstanding under the Revolving Facility. During the quarter ended March 31, 2017, the highest daily borrowing was $172.0 million and the average borrowing was $130.7 million, while the average interest rate was 3.34% per annum. The interest rate fluctuates based upon LIBOR or a Prime rate plus a spread, which is based upon the Consolidated Total Leverage Ratio of the Company. As of March 31, 2017, the spreads for LIBOR and Prime borrowings were 2.50% and 1.50%, respectively, given the Company's effective Consolidated Total Leverage Ratio for this period.
As of March 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 Senior Secured Credit Facilities and the Senior Notes. Based upon management's current plans and outlook, management believes the Company will be able to comply with these covenants during the subsequent 12 months.
Income Taxes
Income Taxes
Income Taxes
For the three months ended March 31, 2017, the Company recorded a $2.1 million income tax provision, reflecting a 29.6% effective tax rate, compared to an $4.6 million income tax provision, reflecting a 20.3% effective tax rate for the three months ended March 31, 2016. The increase in the Company's effective tax rate for the three months ended March 31, 2017, relative to the three months ended March 31, 2016, was primarily due to the geographic shift of global earnings from lower-rate foreign jurisdictions to higher-rate U.S. source income. Additionally, $2.9 million in tax related out-of-period balance sheet adjustments related to the Spin-Off were recognized as a discrete benefit in the income tax provision for the first quarter of 2016, whereas a $1.0 million income tax benefit was recognized as a discrete item during the first quarter of 2017 related to the $2.7 million out-of-period adjustment for unamortized debt issuance costs of the Term Loan B facility as discussed in Note 10, "Debt."
In connection with the Spin-Off, tax account balances will be adjusted as necessary upon filing of the 2016 Welbilt and MTW’s U.S. corporate tax returns.
The Company's effective tax rate varies from the 35.0% U.S. federal statutory rate due to the relative weighting of foreign earnings before income taxes and foreign effective tax rates that are generally lower than the U.S. federal statutory rate. Foreign earnings are generated from operations in the Company's three reportable segments of Americas, EMEA, and APAC.
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.
The Company's unrecognized tax benefits, including interest and penalties, were $12.3 million and $12.6 million as of March 31, 2017 and December 31, 2016, respectively. The decrease is due to the release of unrecognized tax benefit that is no longer uncertain and which is partially offset by the interest accrual. During the next twelve months, it is reasonably possible that federal, state and foreign tax resolutions could change unrecognized tax benefits and income tax expense in the range of $0.1 million to $0.5 million.

The Company regularly assesses the likelihood of an adverse outcome resulting from examinations to determine the adequacy of its tax reserves. As of March 31, 2017, the Company believes that it is more likely than not that the tax positions it has taken will be sustained upon the resolution of its audits resulting in no material impact on its consolidated financial position and the results of operations and cash flows. However, the final determination with respect to any tax audits, and any related litigation, could be materially different from the Company's estimates and/or from its historical income tax provisions and accruals and could have a material effect on operating results and/or cash flows in the periods for which that determination is made. In addition, future period earnings may be adversely impacted by litigation costs, settlements, penalties, and/or interest assessments.
Equity
Equity
Equity
On March 4, 2016, MTW distributed 137.0 million shares of Welbilt common stock to MTW's shareholders on a pro rata basis, and Welbilt became an independent publicly traded company with each shareholder receiving one share of its common stock for each share of MTW common stock held by the shareholder on February 22, 2016, the record date for the distribution. Any fractional shares of its common stock otherwise issuable to MTW shareholders were aggregated into whole shares and sold on the open market, and the fractional shareholders will receive a pro rata share of the proceeds of the sale, after deducting any taxes required to be withheld and after deducting an amount equal to all brokerage fees and other costs attributed to the sale.
On March 3, 2016, prior to the completion of the Spin-Off, the Company paid a one-time cash dividend to MTW of $1,362.0 million. The Company did not declare or pay any other dividends to its stockholders during the three months ended March 31, 2017 and 2016.
The following is a roll-forward of equity for the three months ended March 31, 2017 :
(in millions, except share data)
 
Shares
 
Common Stock
 
Additional Paid-In Capital (Deficit)
 
Retained Earnings
 
Accumulated Other Comprehensive (Loss) Income
 
Total Equity (Deficit)
Balance at December 31, 2016
 
138,601,327

 
$
1.4

 
$
(72.0
)
 
$
70.5

 
$
(43.4
)
 
$
(43.5
)
Net earnings
 

 

 

 
5.0

 

 
5.0

Issuance of common stock, equity-based compensation plans
 
316,862

 

 
1.0

 

 

 
1.0

Stock-based compensation expense
 

 

 
4.4

 

 

 
4.4

Other comprehensive income
 

 

 

 

 
6.8

 
6.8

Balance at March 31, 2017
 
138,918,189

 
$
1.4

 
$
(66.6
)
 
$
75.5

 
$
(36.6
)
 
$
(26.3
)
Reconciliations for the changes in accumulated other comprehensive income (loss), net of tax, by component for the three months ended March 31, 2017 and 2016 are as follows:
(in millions)
 
Foreign Currency Translation
 
Gains and Losses on Cash Flow Hedges
 
Pension & Postretirement
 
Total
Balance at December 31, 2016
 
$
(9.8
)
 
$
0.8

 
$
(34.4
)
 
$
(43.4
)
Other comprehensive income (loss) before reclassifications
 
7.0

 
(0.4
)
 

 
6.6

Amounts reclassified from accumulated other comprehensive income (loss)
 

 
(0.2
)
 
0.4

 
0.2

Net current period other comprehensive income (loss)
 
7.0

 
(0.6
)
 
0.4

 
6.8

Balance at March 31, 2017
 
$
(2.8
)
 
$
0.2

 
$
(34.0
)
 
$
(36.6
)
(in millions)
 
Foreign Currency Translation
 
Gains and Losses on Cash Flow Hedges
 
Pension & Postretirement
 
Total
Balance at December 31, 2015
 
$
(7.9
)
 
$
(1.8
)
 
$
(34.8
)
 
$
(44.5
)
Other comprehensive income (loss) before reclassifications
 
17.2

 
0.3

 
(9.4
)
 
8.1

Amounts reclassified from accumulated other comprehensive income (loss)
 

 
0.6

 
0.5

 
1.1

Net current period other comprehensive income (loss)
 
17.2

 
0.9

 
(8.9
)
 
9.2

Balance at March 31, 2016
 
$
9.3

 
$
(0.9
)
 
$
(43.7
)
 
$
(35.3
)


The following is a reconciliation of the reclassifications out of accumulated other comprehensive income (loss), net of tax, for the three months ended March 31, 2017:
 
 
Three Months Ended March 31, 2017
 
 
(in millions)
 
Amount Reclassified from Accumulated Other Comprehensive (Income) Loss
 
Recognized Location
Gains and losses on cash flow hedges
 
 
 
 
  Foreign currency exchange contracts
 
$
0.2

 
Cost of sales
  Commodity contracts
 
0.2

 
Cost of sales
 
 
0.4

 
Total before tax
 
 
(0.2
)
 
Tax benefit
 
 
$
0.2

 
Net of tax
Amortization of pension and postretirement items
 
 
 
 
  Actuarial losses
 
$
(0.5
)
(a)
 
 
 
(0.5
)
 
Total before tax
 
 
0.1

 
Tax expense
 
 
$
(0.4
)
 
Net of tax
 
 
 
 
 
Total reclassifications for the period, net of tax
 
$
(0.2
)
 
Net of tax
 
 
 
 
 

The following is a reconciliation of the reclassifications out of accumulated other comprehensive income (loss), net of tax, for the three months ended March 31, 2016:
 
 
Three Months Ended March 31, 2016
 
 
(in millions)
 
Amount Reclassified from Accumulated Other Comprehensive (Income) Loss
 
Recognized Location
Gains and losses on cash flow hedges
 
 
 
 
  Foreign currency exchange contracts
 
$
(0.1
)
 
Cost of sales
  Commodity contracts
 
(0.9
)
 
Cost of sales
 
 
(1.0
)
 
Total before tax
 
 
0.4

 
Tax expense
 
 
$
(0.6
)
 
Net of tax
Amortization of pension and postretirement items
 
 
 
 
  Actuarial losses
 
$
(0.6
)
(a)
 
 
 
(0.6
)
 
Total before tax
 
 
0.1

 
Tax expense
 
 
$
(0.5
)
 
Net of tax
 
 
 
 
 
Total reclassifications for the period, net of tax
 
$
(1.1
)
 
Net of tax
 
 
 
 
 
(a) These other comprehensive income (loss) components are included in the net periodic pension cost (see Note 17, "Employee Benefit Plans," for further details).
Stock-Based Compensation
Stock-Based Compensation
Stock-Based Compensation
The Company's employees historically participated in MTW's stock-based compensation plans. Stock-based compensation expense relating to awards under MTW's stock-based compensation plans has been allocated to the Company based on the awards and terms previously granted to its employees. Until consummation of the Spin-Off, the Company continued to participate in MTW's stock-based compensation plans and record stock-based compensation expense based on the stock-based awards granted to the Company's employees.
The Company adopted the 2016 Omnibus Incentive Compensation Plan (the "2016 Plan") in March 2016, under which it makes equity-based and cash-based incentive awards to attract, retain, focus and motivate executives and other selected employees, directors, consultants and advisors. The 2016 Plan is intended to accomplish these objectives by offering participants the opportunity to acquire shares of Welbilt common stock, receive monetary payments based on the value of such common stock or receive other incentive compensation under the 2016 Plan. In addition, the 2016 Plan permits the issuance of awards ("Replacement Awards") in partial substitution for awards relating to shares of common stock of MTW that were outstanding immediately prior to the Spin-Off.
The Company's Compensation Committee administers the 2016 Plan (the "Administrator"). The 2016 Plan authorizes the Administrator to interpret the provisions of the 2016 Plan; prescribe, amend and rescind rules and regulations relating to the 2016 Plan; correct any defect, supply any omission, or reconcile any inconsistency in the 2016 Plan, any award or any agreement covering an award; and make all other determinations necessary or advisable for the administration of the 2016 Plan, in each case in its sole discretion.
The 2016 Plan permits the granting of stock options (including incentive stock options), stock appreciation rights, restricted stock awards, restricted stock units, performance shares, performance units, annual cash incentives, long-term cash incentives, dividend equivalent units and other types of stock-based awards. Under the 2016 Plan, 16.2 million shares of Welbilt common stock have been reserved for issuance, all of which may be issued upon the exercise of incentive stock options. These numbers may be adjusted in the event of certain corporate transactions or other events specified in the 2016 Plan.
Following the Spin-Off on March 4, 2016, the Company granted long-term stock-based incentive awards under the 2016 Plan to its executive officers. The long-term stock-based incentive awards consisted of stock options with 4-year ratable vesting (25% of the aggregate grant value of the long-term incentive award) and performance shares (75% of the aggregate grant value of the long-term incentive award) that will be earned or forfeited based on performance as measured by cumulative fully diluted earnings per share and return on invested capital over a 3-year performance period. The details of these awards to the Company's named executive officers is disclosed as required by applicable SEC regulations in the Company's proxy statement.
The Company recognized total stock-based compensation of $4.4 million during the three months ended March 31, 2017. Of this amount, $2.0 million was recognized in "Restructuring expense" in the accompanying consolidated (condensed) statements of operations for the accelerated vesting of certain equity awards in connection with the retirement of two executives as described in Note 16, "Restructuring," and the remaining $2.4 million is included in "Selling, general and administrative expenses." Total stock-based compensation expense was $1.3 million for the three months ended March 31, 2016, which includes $0.5 million of separation expense recorded in "Separation expense" in the accompanying consolidated (condensed) statements of operations as a result of the modification of certain MTW restricted stock unit awards to pay out at target upon consummation of the Spin-Off and the remaining $0.8 million is included in "Selling, general and administrative expenses." The Company recognizes stock-based compensation expense based on fair value of the award on the grant date over the requisite service period and estimates forfeitures when calculating compensation expense.
The Company granted options to acquire 0.3 million shares of common stock to employees during the three months ended March 31, 2017 and 2016. In addition, the Company issued a total of 0.4 million restricted stock units to employees and directors during the three months ended March 31, 2017, and 0.3 million restricted stock units to employees and directors during the three months ended March 31, 2016. The restricted stock units granted to employees vest on the third anniversary of the grant date. The restricted stock units granted to directors vest on the second anniversary of the grant date.
Contingencies and Significant Estimates
Contingencies and Significant Estimates
Contingencies and Significant Estimates
As of March 31, 2017, the Company held reserves for environmental matters related to certain locations of approximately $0.5 million. At certain of the Company's other facilities, it has identified potential contaminants in soil and groundwater. The ultimate cost of any remediation required will depend upon the results of future investigation and is not reasonably estimable. Based upon available information, the Company does not expect the ultimate costs at any of these locations will have a material adverse effect on its financial condition, results of operation, or cash flows individually or in the aggregate.
The Company believes that it has obtained and is in substantial compliance with those material environmental permits and approvals necessary to conduct its various businesses. Based on the facts presently known, it does not expect environmental compliance costs to have a material adverse effect on its financial condition, results of operations or cash flows.
As of March 31, 2017, various product-related lawsuits were pending. To the extent permitted under applicable law, all of these are insured with self-insurance retention levels. The Company's self-insurance retention levels vary by business, and have fluctuated over the last 10 years. The range of the Company's current self-insured retention levels is $0.1 million to $0.3 million per occurrence and $1.3 million in the aggregate. As of March 31, 2017, the largest self-insured retention level for new occurrences currently maintained by the Company was $0.3 million per occurrence and applied to product liability claims for the hot category products manufactured in the United States.
Product liability reserves are included in "Accrued expenses and other liabilities" in the accompanying consolidated (condensed) balance sheets at March 31, 2017 and December 31, 2016 and were $2.1 million and $2.3 million, respectively; $0.5 million and $0.7 million, respectively, was reserved specifically for actual cases, and $1.6 million, for claims incurred but not reported, which were estimated using actuarial methods. Based on the Company's experience in defending product liability claims, management believes the current reserves are adequate for estimated case resolutions on aggregate self-insured claims and insured claims. Any recoveries from insurance carriers are dependent upon the legal sufficiency of claims and solvency of insurance carriers.
At March 31, 2017 and December 31, 2016, the Company had reserved $24.6 million and $27.9 million, respectively, for warranty claims expected to be paid out within a year or less, which are included in "Product warranties" in the accompanying consolidated (condensed) balance sheets. At March 31, 2017 and December 31, 2016, the Company had reserved $11.3 million and $8.4 million, respectively, for warranty claims expected to be paid out after a year, which are included in "Other long-term liabilities" in the accompanying consolidated (condensed) balance sheets. Certain of these warranty and other related claims involve matters in dispute that ultimately are resolved by negotiations, arbitration or litigation. See Note 15, “Product Warranties,” for further information.
It is reasonably possible that the estimates for environmental remediation, product liability and warranty costs may change in the near future based upon new information that may arise or matters that are beyond the scope of its historical experience. Presently, there are no reliable methods to estimate the amount of any such potential changes.
The Company is also subject to litigation claims arising in the ordinary course of business. The Company believes that it has adequately accrued for legal matters as appropriate. The Company records litigation accruals for legal matters which are both probable and estimable and for related legal costs as incurred. The Company does not reduce these liabilities for potential insurance or third-party recoveries and any insurance recoveries are recorded in "Accounts receivable, less allowances" in the accompanying consolidated (condensed) balance sheets with a corresponding reduction to "Selling, general and administrative expenses" in the accompanying consolidated (condensed) statements of operations. In the opinion of management, the ultimate resolution of all litigation matters is not expected to have, individually or in the aggregate, a material adverse effect on the Company's financial condition, results of operations or cash flows.
Product Warranties
Product Warranties
Product Warranties
In the normal course of business, the Company provides its customers product warranties covering workmanship, and in some cases materials, on products manufactured by the Company. Such product warranties generally provide that products will be free from defects for periods ranging from 12 months to 60 months with certain equipment having longer-term warranties. If a product fails to comply with the Company's warranty, the Company may be obligated, at its expense, to correct any defect by repairing or replacing such defective products. The Company provides for an estimate of costs that may be incurred under its warranty at the time product revenue is recognized. These costs primarily include labor and materials, as necessary, associated with repair or replacement. The primary factors that affect its warranty liability include the number of units shipped and historical and anticipated warranty claims. As these factors are impacted by actual experience and future expectations, the Company assesses the adequacy of its recorded warranty liability and adjusts the amounts as necessary. 

Below is a table summarizing the product warranties activity for the three months ended March 31, 2017:
 
 
March 31,
(in millions)
 
2017
Balance at the beginning of the period
 
$
36.3

Accruals for warranties issued
 
8.6

Settlements made (in cash or in kind)
 
(9.1
)
Currency translation impact
 
0.1

Balance at the end of the period
 
$
35.9


The Company also offers extended warranties, which are recorded as deferred revenue and are amortized to income on a straight-line basis over a period equal to that of the warranty period. The short-term portion of deferred revenue on warranties included in "Accrued expenses and other liabilities" in the accompanying consolidated (condensed) balance sheets at March 31, 2017 and December 31, 2016 was $2.9 million and $2.8 million, respectively. The long-term portion of deferred revenue on warranties included in "Other long-term liabilities" in the accompanying consolidated (condensed) balance sheets at March 31, 2017 and December 31, 2016 was $3.2 million and $3.3 million, respectively.
Restructuring
Restructuring
Restructuring
Certain restructuring activities have been undertaken to recognize cost synergies and rationalize the cost structure of the Company. In 2016, the Company recorded restructuring costs primarily related to a company-wide reduction in force and the closing of its Cleveland, Singapore and Sellersburg facilities. In 2017, the Company recorded additional amounts related primarily to one-time expenses for severance and other related benefits upon the retirement of two executive officers of the Company.

The following is a rollforward of all restructuring activities for the three months ended March 31, 2017:
 
 
March 31,
(in millions)
 
2017
Balance at the beginning of the period
 
$
14.4

Restructuring charges
 
4.6

Use of reserve
 
(1.5
)
Non-cash adjustment (1)
 
(2.0
)
Balance at the end of the period
 
$
15.5


(1) This non-cash adjustment represents the non-cash stock-based compensation expense recognized during the three months ended March 31, 2017 resulting from the accelerated vesting of certain restricted stock units and stock options upon the retirement of two executive officers.

As of March 31, 2017, the short-term term portion of the liability of $4.3 million was reflected in "Accrued expenses and other liabilities" in the accompanying consolidated (condensed) balance sheets. The long-term portion of the liability of $11.2 million was reflected in "Other long-term liabilities" in the accompanying consolidated (condensed) balance sheets and relates primarily to the long-term portion of the pension withdrawal obligation incurred in connection with the reorganization and plant restructuring of the Company's former Lincoln Foodservice operations.

During the fourth quarter of 2015 and through the first half of 2016, the Company relocated its manufacturing, warehousing and distribution operations conducted at its Cleveland, Ohio plant and subsequently closed this facility. The Company sold the related building for a net purchase price of $2.2 million in April 2017 and recognized an asset impairment charge of $0.4 million during the three months ended March 31, 2017, which is included in "Asset impairment charge" in the accompanying consolidated (condensed) statements of operations. These actions relate entirely to the Company's Americas reportable segment.

On August 11, 2016, the Company announced that it will transfer the products manufactured at its Singapore plant to its plants in Prachinburi, Thailand and Foshan, China and subsequently close the Singapore plant, which occurred by the end of September 2016. This action relates entirely to the Company's APAC reportable segment. In March 2017, the Company received government approval to proceed with the sale of the Singapore facility and plans to sell the related asset within the next 6 months.

On August 11, 2016, the Company announced that it will transfer the products manufactured at its Sellersburg, Indiana plant to its plants in Tijuana and Monterrey, Mexico and subsequently close the Sellersburg plant. During the first quarter of 2017, manufacturing ceased and the Sellersburg plant was ready for immediate sale as of March 31, 2017.

As of March 31, 2017, the property, plant and equipment - net of $1.9 million, $2.6 million and $2.7 million related to the Cleveland, Singapore and Sellersburg plant closures, respectively, met the criteria to be classified as held for sale and are presented as "Current assets held for sale" in the accompanying consolidated (condensed) balance sheets. The Company expects to incur total restructuring costs associated with the aforementioned plant closures of approximately $3.5 million. Of this amount, $0.8 million was recorded during the three months ended ended March 31, 2017. These charges are presented separately in "Restructuring expense" in the accompanying consolidated (condensed) statements of operations.

Effective January 2, 2017, Maurice Jones, the Company's former Senior Vice President, General Counsel and Secretary, retired from the Company and pursuant to the terms of his employment agreement, the Company is required to provide severance and other related benefits over the subsequent 18-month period. The Company incurred a total one-time cost of $2.2 million, including $1.1 million of additional equity-based compensation expense resulting from the accelerated vesting of certain restricted stock units and stock options, that was recorded during the three months ended March 31, 2017 in "Restructuring expense" in the accompanying consolidated (condensed) statements of operations. Mr. Jones will also receive the amount of vested benefits of $2.5 million plus interest at the rate of 9.0% from the Company’s Supplemental Executive Retirement Plan (“SERP”) that will be paid over 5 annual installments.

On February 20, 2017, the Company announced that John Stewart, the Company's Senior Vice President and Chief Financial Officer, will retire from the Company on April 28, 2017. The retirement date was subsequently extended to May 5, 2017. Pursuant to the terms of his employment agreement, the Company is required to provide severance and other related benefits over the next 12-month period. The Company incurred a total one-time cost of $2.5 million, including $1.5 million of additional equity-based compensation resulting from the accelerated vesting of certain restricted stock units and stock options. Of this amount, $1.5 million was recognized during the three months ended March 31, 2017 in "Restructuring expense" and the remaining $1.0 million will be recognized in the second quarter of 2017.
Employee Benefit Plans
Employee Benefit Plans
Employee Benefit Plans
The Company maintains several different retirement plans for its operations in the United States, Europe and Asia. This footnote describes those retirement plans that are maintained for the Company's U.S.-based employees. The current plans are based largely upon benefit plans that MTW maintained prior to the Spin-Off. The Company has established a Retirement Plan Committee to manage the operations and administration of all retirement plans and related trusts.
Defined Benefit Plans
Prior to December 31, 2015, MTW maintained two defined benefit pension plans for its eligible employees and retirees: (1) The Manitowoc Company, Inc. Pension Plan (the “MTW Pension Plan”); and (2) The Manitowoc Company, Inc. Supplemental Executive Retirement Plan (the “MTW SERP”). The MTW Pension Plan and the MTW SERP (together, the “MTW DB Plans”) covered eligible employees of MTW, including MTW's Cranes business and Foodservice business. The MTW Pension Plan is frozen to new participants and future benefit accruals.
Effective January 1, 2016, a portion of each MTW DB Plan was spun off to create separate plans for MTW's Foodservice business, for which "MFS" was substituted with "Welbilt" in the following plans due to the Name Change: (1) the Welbilt Pension Plan (the “Welbilt Pension Plan”); and (2) the Welbilt Supplemental Executive Retirement Plan (the “Welbilt SERP”). The Welbilt Pension Plan and the Welbilt SERP (together, the “Welbilt DB Plans”) were initially sponsored by Manitowoc FSG U.S. Holding, LLC (name of the entity changed to Welbilt FSG U.S. Holdings, LLC effective April 19, 2017). The Company assumed sponsorship of the Welbilt DB Plans on March 4, 2016. The Company no longer participates in the MTW DB Plans. The Welbilt DB Plans are substantially similar to the former MTW DB Plans.
When comparing the current financial information to financial statements for prior years, it is important to distinguish between: (1) the defined benefit plan that also covered employees of MTW and other MTW subsidiaries (the “Shared Plans”); and (2) the defined benefit plans which are sponsored directly by the Company or its subsidiaries and offered only to the Company employees or retirees (the “Direct Plans”).
The Company accounted for the Shared Plans for the purpose of the consolidated (condensed) financial statements as a multiemployer plan. Accordingly, the Company did not record an asset or liability to recognize the funded status of the Shared Plans. However, the costs associated with these Shared Plans of $0.1 million for the three months ended March 31, 2016 are reflected in the accompanying consolidated (condensed) statements of operations. This expense reflects an approximation of the Company's portion of the costs of the Shared Plans as well as costs attributable to MTW corporate employees, which have been allocated to the consolidated (condensed) statements of operations based on methodology deemed reasonable by management.
During the three months ended March 31, 2016, the Company assumed certain pension obligations of $55.6 million and related plan assets of $34.1 million, and certain postretirement health obligations of $6.8 million, to newly-created single employer plans for the Company's employees and certain other MTW-sponsored pension plans, as described above. This net transfer of approximately $28.3 million was treated as a non-cash transaction between the Company and MTW. The Company also assumed after-tax deferred gains of $6.1 million related to these plans, which were recorded in AOCI.

Direct Plans The Direct Plans are accounted for as defined benefit plans. Accordingly, the funded and unfunded position of each Direct Plan is recorded in the accompanying consolidated (condensed) balance sheets and the income and expenses are recorded in the accompanying consolidated (condensed) statements of operations. Actuarial gains and losses that have not yet been recognized through income are recorded in "Accumulated other comprehensive (loss) income, net of taxes" until they are amortized as a component of net periodic benefit cost. The determination of benefit obligations and the recognition of expenses related to the Direct Plans are dependent on various assumptions. The major assumptions primarily relate to discount rates, long-term expected rates of return on plan assets, and future compensation increases. Management develops each assumption using relevant company experience in conjunction with market-related data for each individual country in which such plans exist.
The components of periodic benefit costs for the Direct Plans for the three months ended March 31, 2017 and 2016 are as follows:
 
 
Three Months Ended
 
Three Months Ended
 
 
March 31, 2017
 
March 31, 2016
(in millions)
 
Pension Plans
 
Postretirement
Health and
Other Plans
 
Pension Plans
 
Postretirement
Health and
Other Plans
Interest cost of projected benefit obligations
 
$
1.3

 
$
0.1

 
$
2.2

 
$
0.1

Expected return on plan assets
 
(1.5
)
 

 
(1.6
)
 

Amortization of actuarial net loss
 
0.5

 

 
0.6

 

Net periodic benefit costs
 
$
0.3

 
$
0.1

 
$
1.2

 
$
0.1

Defined Contribution Plans
Prior to December 31, 2015, MTW maintained three defined contribution retirement plans for its eligible employees and retirees: (1) The Manitowoc Company, Inc. 401(k) Retirement Plan (the “MTW 401(k) Retirement Plan”); (2) The Manitowoc Company, Inc. Retirement Savings Plan (the “MTW Retirement Savings Plan”); and (3) The Manitowoc Company, Inc. Deferred Compensation Plan (the “MTW Deferred Compensation Plan”).  The MTW 401(k) Retirement Plan, the MTW Retirement Savings Plan and the MTW Deferred Compensation Plan (together, the “MTW DC Plans”) covered eligible employees of MTW, including MTW's Cranes business and Foodservice business.

Effective January 1, 2016, a portion of each MTW DC Plan was spun off to create separate plans for MTW's Foodservice business, for which "MFS" was substituted with "Welbilt" in the following plans due to the Name Change: (1) the Welbilt 401(k) Retirement Plan (the “Welbilt 401(k) Retirement Plan”); (2) the Welbilt Retirement Savings Plan (the “Welbilt Retirement Savings Plan”); and (3) the Welbilt Deferred Compensation Plan (the “Welbilt Deferred Compensation Plan”). The Welbilt 401(k) Retirement Plan, the Welbilt Retirement Savings Plan and the Welbilt Deferred Compensation Plan (together, the “Welbilt DC Plans”) were initially sponsored by Manitowoc FSG U.S. Holding, LLC. The Company assumed sponsorship of the Welbilt DC Pension Plans on March 4, 2016. The Company no longer participates in the MTW DC Plans. The Welbilt DC Plans are substantially similar to the former MTW DC Plans.

The MTW DC Plans and the Welbilt DC Plans result in individual participant balances that reflect a combination of amounts contributed by MTW and Welbilt or deferred by the participant, amounts invested at the direction of either the Company or the participant, and the continuing reinvestment of returns until the accounts are distributed.
Business Segments
Business Segments
Business Segments 
The Company identifies its segments using the “management approach,” which designates the internal organization that is used by management for making operating decisions and assessing performance as the source of the Company's reportable segments. Management organizes the business based on geography, and has designated the regions Americas, EMEA, and APAC as reportable segments.

The accounting policies of the Company's reportable segments are the same as those described in the summary of accounting policies in Note 2, "Summary of Significant Accounting Policies and Basis of Presentation," except that certain corporate-level expenses are not allocated to the segments. These unallocated expenses include stock-based compensation expense, amortization expense of intangible assets with definite lives, restructuring expense and other non-operating expenses. For the period prior to the Spin-Off, certain additional MTW corporate overhead expenses that were allocated to the Company were also not allocated to the segments.

The Company evaluates segment performance based upon earnings before interest, taxes, other (income) expense - net, depreciation and amortization expense and is adjusted for certain other non-cash or non-recurring items, including asset impairment, restructuring, separation charges and loss on early extinguishment of debt ("Adjusted Operating EBITDA"). The Company's presentation of Adjusted Operating EBITDA may not be comparable to similar measures used by other companies. Beginning in January 2017, the Company updated its performance measure and definition of Adjusted Operating EBITDA (previously titled "Operating EBITA") to additionally exclude at the segment level depreciation expense, asset impairment, restructuring, separation charges and loss on early extinguishment of debt. All prior segment information has been recast to reflect these changes for consistency of presentation.

Financial information relating to the Company's reportable segments for the three months ended March 31, 2017 and 2016 is as follows: 
 
 
Three Months Ended March 31,
(in millions)
 
2017
 
2016
Net sales:
 
 
 
 
Americas
 
$
267.5

 
$
263.6

EMEA
 
67.8

 
68.6

APAC
 
41.7

 
38.9

Elimination of intersegment sales
 
(49.0
)
 
(45.6
)
Total net sales
 
$
328.0

 
$
325.5

 
 
 
 
 
Segment Adjusted Operating EBITDA:
 
 
 
 
Americas
 
$
46.8

 
$
49.8

EMEA
 
12.8

 
7.6

APAC
 
5.5

 
3.7

Total Segment Adjusted Operating EBITDA
 
65.1

 
61.1

Corporate and unallocated
 
(12.4
)
 
(11.0
)
Amortization expense
 
(7.8
)
 
(7.8
)
Depreciation expense
 
(4.0
)
 
(4.3
)
Separation expense
 
(0.9
)
 
(3.0
)
Restructuring expense
 
(4.6
)
 
(1.3
)
Asset impairment expense
 
(0.4
)
 

Earnings from operations
 
35.0

 
33.7

Interest expense
 
(23.2
)
 
(8.5
)
Interest expense on notes with MTW — net
 

 
(0.1
)
Loss on early extinguishment of debt
 
(3.2
)
 

Other expense — net
 
(1.5
)
 
(2.4
)
Earnings before income taxes
 
$
7.1

 
$
22.7

 
 
 
 
 
Adjusted Operating EBITDA % by segment (1) :
 
 
 
 
Americas
 
17.5
%
 
18.9
%
EMEA
 
18.9
%
 
11.1
%
APAC
 
13.2
%
 
9.5
%
(1) Adjusted Operating EBITDA % in the section above is calculated by dividing the dollar amount of Adjusted Operating EBITDA by net sales for each respective segment.
 
 
 
 
 
 
 
 
 
Net sales by geographic area (2) :
 
 
 
 
United States
 
$
215.0

 
$
212.1

Other Americas
 
23.0

 
23.0

EMEA
 
54.0

 
57.2

APAC
 
36.0

 
33.2

Total net sales by geographic area
 
$
328.0

 
$
325.5

(2) Net sales in the section above are attributed to geographic regions based on location of customer.
 
 
 
 
As of March 31, 2017 and December 31, 2016, total assets by reportable segment are as follows:
(in millions)
 
March 31, 2017
 
December 31, 2016
Total assets by segment:
 
 
 
 
Americas
 
$
1,479.1

 
$
1,463.7

EMEA
 
112.7

 
102.6

APAC
 
116.7

 
110.8

Corporate
 
128.6

 
92.0

Total assets
 
$
1,837.1

 
$
1,769.1

Earnings Per Share
Earnings Per Share
Earnings Per Share
Basic earnings per share ("EPS") measures the performance of an entity over the reporting period. Diluted EPS measures the performance of an entity over the reporting period while giving effect to all potentially dilutive common shares related to the Company's stock options, restricted stock units and performance shares that were outstanding during the period.
On March 4, 2016, MTW distributed 137.0 million shares of Welbilt common stock to MTW shareholders, thereby completing the Spin-Off. Basic and diluted earnings per common share and the average number of common shares outstanding were retrospectively restated for the number of Welbilt shares outstanding immediately following this transaction. The same number of shares were used to calculate basic and diluted earnings per share, for the prior periods presented, since no equity awards were outstanding prior to the Spin-Off.
The following is a reconciliation of the average shares outstanding used to compute basic and diluted earnings per share.
 
Three Months Ended March 31,
 
2017
 
2016
Basic weighted average common shares outstanding
138,759,075

 
137,016,712

Effect of dilutive securities
1,672,123

 
1,547,587

Diluted weighted average common shares outstanding
140,431,198

 
138,564,299


For the three months ended March 31, 2017, 0.8 million of common shares issuable upon the exercise of stock options were anti-dilutive and were excluded from the calculation of diluted shares.
On March 3, 2016, prior to the completion of the Spin-Off, the Company paid a one-time cash dividend to MTW of approximately $1,362.0 million. The Company did not declare or pay any other dividends to its stockholders during the three months ended March 31, 2017 and 2016.
Subsidiary Guarantors of Senior Notes due 2024
Subsidiary Guarantors of Senior Notes due 2024
Subsidiary Guarantors of Senior Notes due 2024
The following tables present consolidating (condensed) financial information for (a) Welbilt; (b) the guarantors of the Senior Notes, which include substantially all of the domestic, 100% owned subsidiaries of Welbilt ("Subsidiary Guarantors"); and (c) the wholly and partially owned foreign subsidiaries of Welbilt, which do not guarantee the Senior Notes ("Non-Guarantor Subsidiaries"). The information includes elimination entries necessary to consolidate the Subsidiary Guarantors and the Non-Guarantor Subsidiaries. Investments in subsidiaries are accounted for using the equity method of accounting. The principal elimination entries eliminate investments in subsidiaries, equity and intercompany balances and transactions. Separate financial statements of the Subsidiary Guarantors are not presented because the guarantors are fully and unconditionally, jointly and severally liable under the guarantees, except for normal and customary release provisions.
, INC.
Consolidating (Condensed) Statement of Operations
For the Three Months Ended March 31, 2017 (Unaudited)
 
(in millions)
 
Parent
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Net sales
 
$

 
$
241.4

 
$