WELBILT, INC., 10-Q filed on 11/6/2019
Quarterly Report
v3.19.3
Cover - shares
9 Months Ended
Sep. 30, 2019
Nov. 01, 2019
Cover page.    
Document Type 10-Q  
Amendment Flag false  
Document Quarterly Report true  
Document Period End Date Sep. 30, 2019  
Document Transition Report false  
Entity File Number 1-37548  
Entity Registrant Name Welbilt, Inc.  
Entity Central Index Key 0001650962  
Current Fiscal Year End Date --12-31  
Document Fiscal Year Focus 2019  
Document Fiscal Period Focus Q3  
Entity Incorporation, State or Country Code DE  
Entity Tax Identification Number 47-4625716  
Entity Address, Address Line One 2227 Welbilt Boulevard  
Entity Address, City or Town New Port Richey  
Entity Address, State or Province FL  
Entity Address, Postal Zip Code 34655  
City Area Code 727  
Local Phone Number 375-7010  
Title of 12(b) Security Common stock, $0.01 par value  
Trading Symbol WBT  
Security Exchange Name NYSE  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Large Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   141,118,758
v3.19.3
Consolidated Statements of Operations - USD ($)
$ in Millions
3 Months Ended 9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Sep. 30, 2019
Sep. 30, 2018
Income Statement [Abstract]        
Net sales $ 410.5 $ 412.9 $ 1,212.1 $ 1,184.0
Cost of sales 259.6 259.8 778.4 755.4
Gross profit 150.9 153.1 433.7 428.6
Selling, general and administrative expenses 86.7 71.7 262.8 231.1
Amortization expense 9.4 9.9 28.8 27.2
Restructuring (recovery) expense (0.2) 3.9 5.4 5.7
Loss (gain) from disposal of assets — net 0.2 (0.1) 0.2 (0.3)
Earnings from operations 54.8 67.7 136.5 164.9
Interest expense 22.4 23.3 70.9 66.7
Other expense — net 2.9 4.9 11.5 28.7
Earnings before income taxes 29.5 39.5 54.1 69.5
Income taxes 9.4 12.7 16.6 18.3
Net earnings $ 20.1 $ 26.8 $ 37.5 $ 51.2
Per share data:        
Earnings per share — Basic (in dollars per share) $ 0.14 $ 0.19 $ 0.27 $ 0.37
Earnings per share — Diluted (in dollars per share) $ 0.14 $ 0.19 $ 0.27 $ 0.36
Weighted average shares outstanding — Basic 141,072,179 140,154,735 140,893,966 139,955,166
Weighted average shares outstanding — Diluted (in shares) 141,532,790 141,349,185 141,455,493 141,282,068
v3.19.3
Consolidated Statements of Comprehensive Income - USD ($)
$ in Millions
3 Months Ended 9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Sep. 30, 2019
Sep. 30, 2018
Statement of Comprehensive Income [Abstract]        
Net earnings $ 20.1 $ 26.8 $ 37.5 $ 51.2
Other comprehensive (loss) income, net of tax:        
Foreign currency translation adjustments (8.8) 3.6 (1.3) (4.0)
Unrealized (loss) gain on derivatives (0.7) 0.3 (3.0) 1.1
Employee pension and postretirement benefits 1.6 0.5 1.8 1.5
Total other comprehensive (loss) income, net of tax (7.9) 4.4 (2.5) (1.4)
Comprehensive income $ 12.2 $ 31.2 $ 35.0 $ 49.8
v3.19.3
Consolidated Balance Sheets - USD ($)
$ in Millions
Sep. 30, 2019
Dec. 31, 2018
Current assets:    
Cash and cash equivalents $ 117.8 $ 70.4
Restricted cash 0.0 2.8
Short-term investment 0.0 32.0
Accounts receivable, less allowance of $4.1 and $3.9, respectively 200.4 112.5
Inventories — net 197.6 190.6
Prepaids and other current assets 39.3 32.2
Total current assets 555.1 440.5
Property, plant and equipment — net 119.8 119.0
Operating lease right-of-use assets 39.3 0.0
Goodwill 929.5 935.6
Other intangible assets — net 508.5 546.7
Other non-current assets 28.1 33.2
Total assets 2,180.3 2,075.0
Current liabilities:    
Trade accounts payable 111.8 151.0
Accrued expenses and other liabilities 179.7 183.7
Short-term borrowings and current portion of finance leases 1.3 16.1
Product warranties 31.4 27.9
Total current liabilities 324.2 378.7
Long-term debt and finance leases 1,425.9 1,321.8
Deferred income taxes 102.5 104.3
Pension and postretirement health liabilities 34.5 39.2
Operating lease liabilities 28.1 0.0
Other long-term liabilities 34.4 44.6
Total non-current liabilities 1,625.4 1,509.9
Commitments and contingencies (Note 12)
Total equity:    
Common stock ($0.01 par value, 300,000,000 shares authorized, 141,112,586 shares and 140,252,693 shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively) 1.4 1.4
Additional paid-in capital (deficit) (32.3) (41.5)
Retained earnings 306.1 268.4
Accumulated other comprehensive loss (44.1) (41.6)
Treasury stock, at cost, 57,583 shares and 53,308 shares, respectively (0.4) (0.3)
Total equity 230.7 186.4
Total liabilities and equity $ 2,180.3 $ 2,075.0
v3.19.3
Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Millions
Sep. 30, 2019
Dec. 31, 2018
Statement of Financial Position [Abstract]    
Accounts receivable allowance $ 4.1 $ 3.9
Common stock, par value (in dollars per share) $ 0.01 $ 0.01
Common stock, authorized (in shares) 300,000,000 300,000,000
Common stock, issued (in shares) 141,112,586 140,252,693
Common stock, outstanding (in shares) 141,112,586 140,252,693
Treasury stock (in shares) 57,583 53,308
v3.19.3
Consolidated Statements of Cash Flows - USD ($)
$ in Millions
9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Cash flows from operating activities    
Net earnings $ 37.5 $ 51.2
Adjustments to reconcile net earnings to cash used in operating activities:    
Depreciation expense 16.4 13.2
Amortization of intangible assets 28.8 27.2
Amortization of debt issuance costs 3.6 4.1
Deferred income taxes 0.5 (4.7)
Stock-based compensation expense 6.2 4.7
Loss (gain) from disposal of assets — net 0.2 (0.3)
Pension settlement 1.2 0.0
Loss on remeasurement of debt and other realized foreign currency derivative 0.3 21.9
Changes in operating assets and liabilities, excluding the effects of the business acquisition:    
Accounts receivable (371.1) (439.6)
Inventories (9.3) (34.6)
Other assets (2.1) (2.0)
Trade accounts payable (37.9) 0.3
Other current and long-term liabilities 5.2 (21.4)
Net cash used in operating activities (320.5) (380.0)
Cash flows from investing activities    
Cash receipts on beneficial interest in sold receivables 280.7 420.2
Capital expenditures (17.4) (14.0)
Acquisition of intangible assets 0.0 (2.8)
Purchase of short-term investment 0.0 (35.0)
Proceeds from maturity of short-term investment 32.0 20.7
Business acquisition, net of cash acquired 0.0 (215.6)
Settlement of foreign exchange contract 0.0 (10.0)
Other 0.9 0.9
Net cash provided by investing activities 296.2 164.4
Cash flows from financing activities    
Proceeds from long-term debt 355.0 276.0
Repayments on long-term debt and finance leases (267.2) (139.5)
Debt issuance costs 0.0 (0.4)
Proceeds from short-term borrowings 0.0 30.0
Repayment of short-term borrowings (15.0) 0.0
Payment of contingent consideration (0.8) 0.0
Exercises of stock options 3.0 6.0
Payments on tax withholdings for equity awards (2.2) (2.9)
Net cash provided by financing activities 72.8 169.2
Effect of exchange rate changes on cash (3.9) (0.7)
Net increase (decrease) in cash and cash equivalents and restricted cash 44.6 (47.1)
Balance at beginning of period 73.2 108.8
Balance at end of period 117.8 61.7
Supplemental disclosures of cash flow information:    
Cash paid for income taxes, net of refunds 27.3 33.5
Cash paid for interest, net of related hedge settlements 67.4 72.3
Supplemental disclosures of non-cash activities:    
Non-cash investing activity: Beneficial interest obtained in exchange for securitized receivables 238.6 555.8
Non-cash financing activity: Reassessments and modifications of right-of-use assets and lease liabilities and assets obtained through leasing arrangements $ 12.2 $ 0.0
v3.19.3
Consolidated Statements of Equity - USD ($)
$ in Millions
Total
Common Stock
Additional Paid-In Capital (Deficit)
Retained Earnings
Accumulated Other Comprehensive Loss
Treasury Stock
Beginning balance (in shares) at Dec. 31, 2017   139,491,860        
Beginning balance at Dec. 31, 2017 $ 103.6 $ 1.4 $ (54.7) $ 189.1 $ (32.0) $ (0.2)
Increase (Decrease) in Stockholders' Equity [Roll Forward]            
Net earnings (loss) 12.4     12.4    
Issuance of common stock, stock-based compensation plans (in shares)   419,109        
Issuance of common stock, stock-based compensation plans 2.5   2.5      
Stock-based compensation expense 3.2   3.2      
Other comprehensive (loss) income 2.5       2.5  
Ending balance (in shares) at Mar. 31, 2018   139,910,969        
Ending balance at Mar. 31, 2018 125.3 $ 1.4 (49.0) 202.6 (29.5) (0.2)
Beginning balance (in shares) at Dec. 31, 2017   139,491,860        
Beginning balance at Dec. 31, 2017 103.6 $ 1.4 (54.7) 189.1 (32.0) (0.2)
Increase (Decrease) in Stockholders' Equity [Roll Forward]            
Net earnings (loss) 51.2          
Other comprehensive (loss) income (1.4)          
Ending balance (in shares) at Sep. 30, 2018   140,211,313        
Ending balance at Sep. 30, 2018 165.1 $ 1.4 (44.0) 241.4 (33.4) (0.3)
Beginning balance (in shares) at Mar. 31, 2018   139,910,969        
Beginning balance at Mar. 31, 2018 125.3 $ 1.4 (49.0) 202.6 (29.5) (0.2)
Increase (Decrease) in Stockholders' Equity [Roll Forward]            
Net earnings (loss) 12.0     12.0    
Issuance of common stock, stock-based compensation plans (in shares)   186,157        
Issuance of common stock, stock-based compensation plans 2.3   2.3      
Stock-based compensation expense 2.4   2.4      
Other comprehensive (loss) income (8.3)       (8.3)  
Ending balance (in shares) at Jun. 30, 2018   140,097,126        
Ending balance at Jun. 30, 2018 133.7 $ 1.4 (44.3) 214.6 (37.8) (0.2)
Increase (Decrease) in Stockholders' Equity [Roll Forward]            
Net earnings (loss) 26.8     26.8    
Issuance of common stock, stock-based compensation plans (in shares)   114,187        
Issuance of common stock, stock-based compensation plans 1.2   1.2      
Stock-based compensation expense (0.9)   (0.9)      
Other comprehensive (loss) income 4.4       4.4  
Value of shares in deferred compensation plan (0.1)         (0.1)
Ending balance (in shares) at Sep. 30, 2018   140,211,313        
Ending balance at Sep. 30, 2018 $ 165.1 $ 1.4 (44.0) 241.4 (33.4) (0.3)
Beginning balance (in shares) at Dec. 31, 2018 140,252,693 140,252,693        
Beginning balance at Dec. 31, 2018 $ 186.4 $ 1.4 (41.5) 268.4 (41.6) (0.3)
Increase (Decrease) in Stockholders' Equity [Roll Forward]            
Net earnings (loss) (2.6)     (2.6)    
Issuance of common stock, stock-based compensation plans (in shares)   604,511        
Issuance of common stock, stock-based compensation plans 0.6   0.6      
Stock-based compensation expense 2.9   2.9      
Other comprehensive (loss) income (2.2)       (2.2)  
Ending balance (in shares) at Mar. 31, 2019   140,857,204        
Ending balance at Mar. 31, 2019 $ 185.3 $ 1.4 (38.0) 266.0 (43.8) (0.3)
Beginning balance (in shares) at Dec. 31, 2018 140,252,693 140,252,693        
Beginning balance at Dec. 31, 2018 $ 186.4 $ 1.4 (41.5) 268.4 (41.6) (0.3)
Increase (Decrease) in Stockholders' Equity [Roll Forward]            
Net earnings (loss) 37.5          
Other comprehensive (loss) income $ (2.5)          
Ending balance (in shares) at Sep. 30, 2019 141,112,586 141,112,586        
Ending balance at Sep. 30, 2019 $ 230.7 $ 1.4 (32.3) 306.1 (44.1) (0.4)
Beginning balance (in shares) at Mar. 31, 2019   140,857,204        
Beginning balance at Mar. 31, 2019 185.3 $ 1.4 (38.0) 266.0 (43.8) (0.3)
Increase (Decrease) in Stockholders' Equity [Roll Forward]            
Net earnings (loss) 20.0     20.0    
Issuance of common stock, stock-based compensation plans (in shares)   190,583        
Issuance of common stock, stock-based compensation plans 2.0   2.0      
Stock-based compensation expense 1.8   1.8      
Other comprehensive (loss) income 7.6       7.6  
Ending balance (in shares) at Jun. 30, 2019   141,047,787        
Ending balance at Jun. 30, 2019 216.7 $ 1.4 (34.2) 286.0 (36.2) (0.3)
Increase (Decrease) in Stockholders' Equity [Roll Forward]            
Net earnings (loss) 20.1     20.1    
Issuance of common stock, stock-based compensation plans (in shares)   64,799        
Issuance of common stock, stock-based compensation plans 0.4   0.4      
Stock-based compensation expense 1.5   1.5      
Other comprehensive (loss) income (7.9)       (7.9)  
Value of shares in deferred compensation plan $ (0.1)         (0.1)
Ending balance (in shares) at Sep. 30, 2019 141,112,586 141,112,586        
Ending balance at Sep. 30, 2019 $ 230.7 $ 1.4 $ (32.3) $ 306.1 $ (44.1) $ (0.4)
v3.19.3
Description of the Business
9 Months Ended
Sep. 30, 2019
Accounting Policies [Abstract]  
Description of the Business Description of the Business

Welbilt, Inc. and its consolidated subsidiaries (collectively, "Welbilt" or the "Company") is one of the world’s leading commercial foodservice equipment companies. The Company manufactures a full suite of commercial foodservice equipment supporting hot-side, cold-side and beverage dispensing capabilities and operates 20 manufacturing facilities globally. Its suite of products is used by commercial and institutional foodservice operators including full-service restaurants, quick-service restaurant chains, hotels, resorts, cruise ships, caterers, supermarkets, convenience stores, hospitals, schools and other institutions.

The Company reports its operating results in three geographic segments, the Americas (includes markets in United States ("U.S."), Canada and Latin America), EMEA (includes markets in Europe, including Russia and the Commonwealth of Independent States, Middle East and Africa) and APAC (principally comprised of markets in China, Australia, Japan, Philippines, Singapore, South Korea, Thailand, Indonesia, Taiwan, Hong Kong, Malaysia and New Zealand).
v3.19.3
Summary of Significant Accounting Policies and Basis of Presentation
9 Months Ended
Sep. 30, 2019
Accounting Policies [Abstract]  
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 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 in consolidation.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Significant items subject to such estimates and assumptions include inventory obsolescence costs, warranty costs, product liability costs, employee benefit programs, sales rebates and the measurement of income tax assets and liabilities. The Company bases its estimates on historical experience and on various other assumptions that the Company believes to be reasonable under the circumstances. On an ongoing basis, the Company evaluates these assumptions, judgments and estimates. Actual results may differ from these estimates.

In the opinion of management, the consolidated financial statements contain all adjustments necessary for a fair statement of the results of operations and comprehensive income for the three and nine months ended September 30, 2019 and 2018, the financial position as of September 30, 2019 and December 31, 2018 and the cash flows for the nine months ended September 30, 2019 and 2018, 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 in a full reporting year. 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 Securities and Exchange Commission's ("SEC") rules and regulations governing interim financial statements. However, the Company believes that the disclosures made in the unaudited consolidated financial statements and related notes are adequate to make the information presented not misleading. These consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2018.

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

Reclassifications

Certain prior period amounts have been reclassified to conform to the current period presentation and include:

Reclassification of the current portion of capital leases totaling $1.1 million from "Current portion of capital leases" to "Short-term borrowings and current portion of finance leases" in the Consolidated Balance Sheets as of December 31, 2018 as a result of the adoption of ASU 2016-02, "Leases (Topic 842)."

Reclassification of separation expense for the nine months ended September 30, 2018 totaling $0.1 million from "Separation expense" to "Selling, general and administrative expenses" in the Consolidated Statements of Operations.


Revision of Previously Issued Consolidated Financial Statements

As previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, the Company identified certain errors in its previously issued unaudited consolidated financial statements. The Company assessed the materiality of the errors on all prior period financial statements and concluded they were not material to any prior annual or interim periods. The Company corrected these errors by revising its unaudited interim financial information for the nine months ended September 30, 2018 to correct for the impact of such errors. Refer to Note 20, "Revision of Previously Issued Consolidated Financial Statements," for additional discussion of the errors and related error corrections on the unaudited quarterly financial statements for the nine months ended September 30, 2018.

Recently Adopted Accounting Pronouncements

In October 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2018-16, "Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate ("SOFR") Overnight Index Swap ("OIS") Rate as a Benchmark Interest Rate for Hedge Accounting Purposes" ("ASU 2017-12"). The amendments in this update permit use of the OIS rate based on the SOFR as a U.S. benchmark interest rate for hedge accounting purposes under Topic 815 in addition to the U.S. Treasury Rate, the London Interbank Offered Rate ("LIBOR") swap rate, the OIS rate based on the Fed Funds Effective Rate and the Securities Industry and Financial Markets Association Municipal Swap Rate. The amendments in this update are required to be adopted concurrently with the amendments in ASU 2017-12. This standard was effective for the Company on January 1, 2019 and had no impact on the Company's consolidated financial statements.

In February 2018, the FASB issued ASU 2018-02, "Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income," ("ASU 2018-02") to provide guidance on the presentation of certain income statement effects from the U.S. Tax Cuts and Jobs Act’s ("the Tax Act") reduction in the corporate statutory tax rate. ASU 2018-02 provides the option of reclassifying what are called the “stranded” tax effects within "Accumulated other comprehensive loss" ("AOCI") to retained earnings and requires increased disclosures describing the accounting policy used to release the income tax effects from AOCI, whether the amounts reclassified are the stranded income tax effects from the Tax Act, and information about the other effects on taxes from the reclassification. ASU 2018-02 may be adopted using one of two transition methods: (1) retrospective to each period (or periods) in which the income tax effects of the Tax Act related to items remaining in AOCI are recognized, or (2) at the beginning of the period of adoption. The Company adopted this standard effective January 1, 2019 and elected not to reclassify the "stranded" income tax effects from AOCI to "Retained earnings." Future income tax effects that are stranded in AOCI will be released using an investment-by-investment approach.

In August 2017, the FASB issued ASU 2017-12, "Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities," ("ASU 2017-12") which improves the financial reporting of hedging relationships to better align risk management activities in financial statements and make certain targeted improvements to simplify the application of current hedge accounting guidance in current GAAP. This standard was effective for the Company on January 1, 2019. The Company elected the modified retrospective basis for its adoption of this guidance. The adoption of ASU 2017-12 did not have a material impact on the Company's consolidated financial statements, however, the guidance does require expanded disclosures which are included in Note 10, "Derivative Financial Instruments."

In March 2017, the FASB issued ASU 2017-08, "Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities," which shortens the amortization period for certain callable debt securities held at a premium to the earliest call date. This standard was effective for the Company on January 1, 2019 and had no impact on the Company's consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)" including subsequent amendments issued thereafter which include ASU 2018-10 "Codification Improvements to Topic 842, Leases," ASU 2018-11 "Leases (Topic 842) Targeted Improvements" and ASU 2019-01 "Leases (Topic 842) Codification Improvements" (collectively, "ASC Topic 842"). ASC Topic 842 requires lessees to recognize the right-of-use assets and lease liabilities on its balance sheet. Accounting for finance leases is substantially unchanged. This standard became effective for the Company on January 1, 2019. ASC Topic 842 permits the Company to elect either a) a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements or b) a modified retrospective approach recognizing the cumulative effect of the initial application of the new leasing standard as an adjustment to the opening balance of retained earnings as of the date of adoption. The Company used the modified retrospective method and recognized the cumulative effect of the initial application of ASC Topic 842 as an adjustment to the opening balance of retained earnings as of January 1, 2019. The adjustment is principally driven by the recognition of remaining deferred gain associated with a previous sale-leaseback transaction. Prior to the adoption of ASC Topic 842, gains on sale leaseback transactions were generally deferred and recognized in the income statement over the lease term. Prior period results have not been adjusted and continue to be reported under the accounting standards in effect for such period. Upon adoption, the Company recognized right-of-use assets and lease liabilities for operating leases in the amount of $38.0 million and $36.6 million, respectively, with the difference reflective of a reclassification of existing prepaid expense balances to the right-of-use asset.

In connection with the adoption of this guidance, the Company elected the package of practical expedients available within the standard and as a result, did not reassess the lease classification of existing contracts or leases or the initial direct costs associated with existing leases. The Company has also made an accounting policy election not to recognize right-of-use assets and lease liabilities for leases with a lease term of 12 months or less, including leases with renewal options that are reasonably certain to be exercised, and do not include an option to purchase the underlying asset that is reasonably certain of exercise. Instead, lease payments for these leases are recognized as lease expense on a straight-line basis over the lease term. In addition, the Company did not elect the hindsight practical expedient and has elected not to separate the accounting for lease components and non-lease components, for all classes of leased assets. Certain of the Company’s leases include variable lease costs comprised primarily of reimbursement to the lessor for taxes and insurance expenses, and certain non-lease components that transfer a distinct service to the Company, such as maintenance services and usage charges. These variable lease costs are determined based upon the terms of each respective lease contract.

Under ASC Topic 842, a lease is a contract, or part of a contract, that conveys the right to control the use of identified property, plant or equipment (i.e., an identified asset) for a period of time in exchange for consideration. The Company determines if an arrangement is a lease at inception. For a contract to be determined to be a lease or contain a lease, it must include explicitly or implicitly identified assets where the Company has the right to substantially all of the economic benefits of the assets and has the ability to direct how and for what purpose the assets are used during the lease term. Leases are classified as either operating or financing. For operating leases, the Company recognized a lease liability equal to the present value of the remaining lease payments, and a right-of-use asset equal to the lease liability, subject to certain adjustments, such as prepaid rents. The Company uses its incremental borrowing rate to determine the present value of the lease payments. The Company’s incremental borrowing rate is the rate of interest that it would have to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. The Company determined the incremental borrowing rates for its leases by applying its applicable borrowing rate, with adjustment, as appropriate, for instruments with similar characteristics. The lease term at the lease commencement date is determined based on the non-cancellable period for which the Company has the right to use the underlying asset, together with any periods covered by an option to extend the lease if the Company is reasonably certain to exercise that option, periods covered by an option to terminate the lease if the Company is reasonably certain not to exercise that option, and periods covered by an option to extend (or not to terminate) the lease in which the exercise of the option is controlled by the lessor. The Company considered a number of factors when evaluating whether the options in its lease contracts were reasonably certain of exercise, such as length of time before option exercise, expected value of the leased asset at the end of the initial lease term, importance of the lease to overall operations, costs to negotiate a new lease and any contractual or economic penalties. See additional disclosure of leases in Note 17, "Leases."

Recently Issued Accounting Pronouncements Not Yet Adopted

In August 2018, the FASB issued ASU 2018-15, "Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract," ("ASU 2018-15") which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software, with amortization expense being recorded in the same income statement expense line as the hosted service costs and over the expected term of the hosting arrangement. ASU 2018-15 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019 and should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. Early adoption is permitted. The Company will adopt ASU 2018-15 prospectively as of January 1, 2020. The impact of the adoption of this standard on the Company's consolidated financial statements will be dependent on the related implementation costs incurred subsequent to January 1, 2020.

In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments," along with subsequently issued amendments to the initial guidance: ASU 2018-19, ASU 2019-04, and ASU 2019-05 (collectively, "Topic 326"), which significantly changes the impairment model for most financial instruments. Current guidance requires the recognition of credit losses based on an incurred loss impairment methodology that reflects losses once the losses are probable. In accordance with Topic 326, the Company will be required to use a current expected credit loss model (“CECL”) that will immediately recognize an estimate of credit losses that are expected to occur over the life of the financial instruments that are within the scope of this update, including trade receivables. The CECL model uses a broader range of reasonable and supportable information in the development of credit loss estimates. This guidance becomes effective for the Company on January 1, 2020. The Company has completed its preliminary assessment associated with the adoption and is finalizing its evaluation of the impact this standard will have on the Company's consolidated financial statements and related disclosures. Upon adoption on January 1, 2020, the Company will record an expected credit loss allowance with an offsetting adjustment to the opening balance of retained earnings which is not expected to be material to the Company's consolidated financial statements.

Recent accounting guidance not discussed above is not applicable, did not have, or is not expected to have a material impact on the Company.
v3.19.3
Acquisition
9 Months Ended
Sep. 30, 2019
Business Combinations [Abstract]  
Acquisition Acquisition

On April 19, 2018, the Company, through a wholly-owned subsidiary, acquired 100% of the share capital of Avaj International Holding AB ("Avaj") (the "Crem Acquisition") for aggregate consideration of approximately 1,800 million Swedish Krona ("SEK") or $220.3 million based on the exchange rate in effect on the closing date. The consideration was comprised of $159.8 million in cash, including $2.4 million of interest paid to the seller, and an aggregate $60.5 million for the repayment of certain indebtedness owed under third-party borrowings and shareholder loans. The Crem Acquisition was funded through cash on hand and additional borrowings under existing credit lines.

Crem International Holding AB ("Crem"), a wholly-owned subsidiary of Avaj, is a global manufacturer of professional coffee machines headquartered in Solna, Sweden. Crem develops, manufactures and markets a full suite of coffee machines for use in offices, restaurants, cafes and coffee shops, catering and convenience stores. The Crem Acquisition provides the Company with an established presence in hot beverage equipment, a complementary product category, potential operational synergies and cross-selling benefits and an increased presence in Europe and Asia.

The Crem Acquisition was accounted for under the acquisition method of accounting which requires, among other things, that the assets acquired and the liabilities assumed be measured at their fair values as of the closing date of the transaction. During the first quarter of 2019, the Company finalized its purchase price allocation for the Crem Acquisition with no measurement period adjustments subsequent to December 31, 2018.

During the three and nine months ended September 30, 2019, the Company incurred $0.2 million and $0.4 million of integration costs related to the Crem Acquisition. During three and nine months ended September 30, 2018, the Company incurred $0.4 million and $4.8 million of professional services and other direct acquisition and integration costs related to the Crem Acquisition. These costs are included in "Selling, general and administrative expenses" in the Company's Consolidated Statements of Operations. In addition, the Company entered into a foreign currency exchange contract for the purchase price exposure of SEK 1,800 million, resulting in a loss of $10.0 million in the first half of 2018 which is included in "Other expense — net" in the Consolidated Statements of Operations for the nine months ended September 30, 2018.
v3.19.3
Accounts Receivable Securitization
9 Months Ended
Sep. 30, 2019
Transfers and Servicing [Abstract]  
Accounts Receivable Securitization Accounts Receivable Securitization

Prior to its termination on March 13, 2019, the Company participated in a $110.0 million accounts receivable securitization program whereby the Company sold 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 would in turn, sell, convey, transfer and assign to a third-party financial institution (the “Purchaser”), all the rights, title and interest in and to its pool of receivables. Under this program, the Company generally received cash consideration up to a certain limit and recorded a non-cash exchange for sold receivables for the remainder of the purchase price ("deferred purchase price"). The sale of these receivables qualified for sale accounting treatment. The Company maintained a "beneficial interest," or right to collect cash, in the sold receivables. During the period of this program, cash receipts from the Purchaser at the time of the sale were classified as operating activities while cash receipts from the beneficial interest on sold receivables were classified as investing activities on the Consolidated Statements of Cash Flows.

The Company, along with certain of its subsidiaries, acted as servicers of the sold receivables. The servicers would administer, collect and otherwise enforce these receivables and were compensated for doing so on terms that were generally consistent with what would be charged by an unrelated servicer. The servicers initially received payments made by obligors on the receivables but were required to remit those payments in accordance with the receivables purchase agreement. Upon termination of the program, the Purchaser had no recourse for uncollectible receivables.

Due to the Company's 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 beneficial interest in the sold receivables approximated book value and, as of December 31, 2018, totaled $56.9 million and was included in "Accounts receivable, less allowance" in the Consolidated Balance Sheets. The Company deemed the interest rate risk related to this beneficial interest to be de minimis, primarily due to the short average collection cycle of the related receivables. The carrying value of trade receivables removed from the Company's Consolidated Balance Sheets in connection with the accounts receivable securitization program was $96.9 million as of December 31, 2018.

In connection with the termination of the accounts receivable securitization program during the first quarter of 2019, $156.9 million of accounts receivable sold under the program were reacquired in exchange for the outstanding deferred purchase price receivable and cash, which was provided by receipts of previously sold trade receivables. Cash receipts on the reacquired receivables were $149.7 million for the nine months ended September 30, 2019 and have been classified as investing activity in the Company's Consolidated Statements of Cash Flows. As of June 30, 2019, the reacquired trade receivables had either been collected or reserved.
v3.19.3
Inventories - Net
9 Months Ended
Sep. 30, 2019
Inventory Disclosure [Abstract]  
Inventories - Net Inventories — Net

The components of "Inventories — net" as of September 30, 2019 and December 31, 2018 are as follows:

(in millions)
 
September 30,
 
December 31,
 
2019
 
2018
Inventories — gross:
 
 

 
 

Raw materials
 
$
91.8

 
$
90.4

Work-in-process
 
17.1

 
16.0

Finished goods
 
115.2

 
108.8

Total inventories — gross
 
224.1

 
215.2

Excess and obsolete inventory reserve
 
(22.3
)
 
(20.4
)
Net inventories at FIFO cost
 
201.8

 
194.8

Excess of FIFO costs over LIFO value
 
(4.2
)
 
(4.2
)
Total inventories — net
 
$
197.6

 
$
190.6


v3.19.3
Property, Plant and Equipment - Net
9 Months Ended
Sep. 30, 2019
Property, Plant and Equipment [Abstract]  
Property, Plant and Equipment - Net Property, Plant and Equipment — Net

The components of "Property, plant and equipment — net," as of September 30, 2019 and December 31, 2018 are as follows:

(in millions)
 
September 30,
 
December 31,
 
2019
 
2018
Property, plant and equipment — net:
 
 
 
 
Land
 
$
9.7

 
$
9.8

Building and improvements
 
91.2

 
88.5

Machinery, equipment and tooling
 
224.4

 
226.6

Furniture and fixtures
 
7.2

 
6.5

Computer hardware and software
 
64.8

 
58.3

Construction in progress
 
18.7

 
21.1

Total cost
 
416.0

 
410.8

Less accumulated depreciation
 
(296.2
)
 
(291.8
)
Total property, plant and equipment — net
 
$
119.8

 
$
119.0


v3.19.3
Accrued Expenses and Other Liabilities
9 Months Ended
Sep. 30, 2019
Payables and Accruals [Abstract]  
Accrued Expenses and Other Liabilities Accrued Expenses and Other Liabilities

"Accrued expenses and other liabilities" as of September 30, 2019 and December 31, 2018 are as follows:

(in millions)
 
September 30,
 
December 31,
 
2019
 
2018
Accrued expenses and other liabilities:
 
 
 
 
Interest payable
 
$
5.7

 
$
2.2

Income and other taxes payable
 
10.0

 
10.2

Employee related expenses
 
27.1

 
28.0

Pension and postretirement health liabilities
 
2.0

 
2.0

Restructuring liability
 
3.2

 
3.0

Profit sharing and incentives
 
12.7

 
19.9

Accrued rebates
 
48.1

 
50.8

Deferred revenue
 
2.8

 
2.7

Customer deposits
 
6.4

 
3.1

Product liabilities
 
1.2

 
1.3

Derivative liabilities
 
3.7

 
18.4

Operating lease liabilities
 
10.3

 

Miscellaneous accrued expenses
 
46.5

 
42.1

Total accrued expenses and other liabilities
 
$
179.7

 
$
183.7


v3.19.3
Income Taxes
9 Months Ended
Sep. 30, 2019
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes

For the three months ended September 30, 2019, the Company recorded a $9.4 million income tax provision, reflecting a 31.9% effective tax rate, compared to a $12.7 million income tax provision for the three months ended September 30, 2018, reflecting a 32.2% effective tax rate. The $3.3 million decrease in the income tax provision for the three months ended September 30, 2019, compared to the same period of the prior year, is primarily the result of the Company's decrease in earnings before income taxes and changes in both discrete tax items and the relative weighting of jurisdictional income.

For the nine months ended September 30, 2019 the Company recorded a $16.6 million income tax provision, reflecting a 30.7% effective tax rate, which included $0.7 million of discrete tax expense primarily related to equity compensation. For the nine months ended September 30, 2018, the Company recorded a $18.3 million income tax provision, reflecting a 26.3% effective tax rate, which included a net discrete tax benefit of $4.1 million comprised primarily of tax balances which were adjusted upon timely filing of the Company's U.S. federal and corporate tax returns in the first quarter of 2018 partially offset by tax expense related to the transition tax provisional obligation in conjunction with the Tax Cuts and Jobs Act.

The Company’s effective tax rates for the three and nine months ended September 30, 2019 and 2018 vary from the 21.0% U.S. federal statutory rate primarily due to the relative weighting of foreign earnings before income taxes, discrete tax items and taxes on foreign income. Foreign earnings are generated from operations in the Company’s three geographic segments, Americas, EMEA and APAC.

As of each reporting date, the Company’s management considers new evidence, both positive and negative, that could impact management’s view regarding the future realization of deferred tax assets. The Company will continue to evaluate its valuation allowance requirements based on possible sources of taxable income that may be available to realize a tax benefit for deferred tax assets. This evaluation includes U.S. interest expense limitations of the U.S. Tax Cuts and Jobs Act. As facts and circumstances change, the Company 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 current operations through the Company’s income tax provision and could have a material effect on the Company's operating results.

The Company's unrecognized tax benefits, including interest and penalties, were $13.0 million as of September 30, 2019, and December 31, 2018, respectively. During the next twelve months, it is reasonably possible that unrecognized tax benefits could change in the range of $7.1 million to $8.7 million due to the expiration of relevant statutes of limitations and federal, state and foreign tax audit resolutions.

The Company regularly assesses the likelihood of an adverse outcome resulting from examinations to determine the adequacy of its tax reserves. As of September 30, 2019, 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, 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.
v3.19.3
Debt
9 Months Ended
Sep. 30, 2019
Debt Disclosure [Abstract]  
Debt Debt

The Company's outstanding debt as of September 30, 2019 and December 31, 2018 is as follows:

(in millions, except percentage data)
 
September 30,
 
Weighted Average Interest Rate
 
December 31,
 
Weighted Average Interest Rate
 
2019
 
 
2018
 
Long-term debt and finance leases:
 
 
 
 
 
 
 
 
Revolving loan facility
 
$

 
4.35
%
 
$
15.0

 
4.06
%
Revolving credit facility
 
165.5

 
5.08
%
 
78.0

 
4.70
%
Term Loan B facility
 
855.0

 
5.24
%
 
855.0

 
5.22
%
9.50% Senior Notes due 2024
 
425.0

 
9.73
%
 
425.0

 
9.72
%
Finance leases
 
2.6

 
4.83
%
 
2.8

 
4.50
%
Total debt and finance leases, including current portion
 
1,448.1

 
 
 
1,375.8

 
 
Less:
 
 
 
 
 
 
 
 
Revolving loan facility
 

 
 
 
(15.0
)
 
 
Current portion of finance leases
 
(1.3
)
 
 
 
(1.1
)
 
 
Unamortized debt issuance costs (1)
 
(21.4
)
 
 
 
(24.2
)
 
 
Hedge accounting fair value adjustment (2)
 
0.5

 
 
 
(13.7
)
 
 
Total long-term debt and finance leases
 
$
1,425.9

 
 
 
$
1,321.8

 
 
(1) Total outstanding debt issuance costs, net of amortization as of September 30, 2019 and December 31, 2018 were $24.2 million and $27.3 million, respectively, of which $2.8 million and $3.1 million was related to the Revolving Credit Facility and recorded in "Other non-current assets" in the Consolidated Balance Sheets.
(2) As of September 30, 2019, the balance represents the deferred gain from the termination of interest rate swaps designated as a fair value hedge. As of December 31, 2018, the balance represents the fair value of the hedge related to the Company's 9.50% Senior Notes due 2024. Refer to Note 10, "Derivative Financial Instruments," for discussion of the Company's interest rate swap designated as a fair value hedge and the termination of this hedge during the second quarter of 2019.

On March 3, 2016, the Company entered into a credit agreement (as amended, restated, supplemented or otherwise modified from time to time the "2016 Credit Agreement") for a $1,300.0 million Senior Secured Credit Facility (the "Senior Secured Credit Facility") consisting of (i) a senior secured Term Loan B facility in an aggregate principal amount of $900.0 million (the "Term Loan B Facility") and (ii) a senior secured revolving credit facility in an aggregate principal amount of $400.0 million (the "Revolving Credit Facility"). The 2016 Credit Agreement also provides for a (i) sublimit for the issuance of letters of credit under the revolving commitments to $30.0 million and (ii) aggregate principal amount of allowed incremental revolving or term loan facilities thereunder in an amount not to exceed the sum of (a) $275.0 million plus (b) an additional amount, as long as after giving effect to the incurrence of such additional amount, the pro forma secured leverage ratio does not exceed 3.75:1.00. The maturity of the Term Loan B Facility and Revolving Credit Facility is October 2025 and October 2023, respectively.

Borrowings under the 2016 Credit Agreement bore interest at a rate per annum equal to, at the Company's option, either (i) LIBOR plus an applicable margin of 2.50% for the Term Loan B Facility and 1.50% to 2.50% for the Revolving Credit Facility (depending on the Company's Consolidated Total Leverage Ratio) or (ii) an alternate base rate plus an applicable margin that is 1.00% less than the LIBOR-based applicable margin. Beginning in the third quarter of 2019, the spreads for LIBOR and alternate base rate borrowings were 2.25% and 1.25%, respectively.

As of September 30, 2019, the Company had $3.6 million in outstanding stand-by letters of credit and $230.9 million available for additional borrowings under the Revolving Credit Facility. 

The 2016 Credit Agreement contains financial covenants including, but not limited to (a) a Consolidated Interest Coverage Ratio, which measures the ratio of (i) Consolidated EBITDA to (ii) Consolidated 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, in each case, as defined in the 2016 Credit Agreement.

In April 2018, the Company, through a wholly-owned subsidiary, entered into a short-term secured $30.0 million revolving loan facility for working capital requirements. This revolving loan facility bore interest at LIBOR plus an applicable margin of 1.90% and matured on April 18, 2019. The Company repaid the outstanding balance of the facility during the first quarter of 2019.

As of September 30, 2019, the Company was in compliance with all affirmative and negative covenants pertaining to financing arrangements.
v3.19.3
Derivative Financial Instruments
9 Months Ended
Sep. 30, 2019
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
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 the Company believes to be the most effective and efficient methods to eliminate, reduce or transfer such exposures. Operating decisions consider these associated risks and the Company structures transactions to minimize or manage these risks whenever possible.

The primary risks the Company manages using derivative instruments are interest rate risk, commodity price risk and foreign currency exchange risk. 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. 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 manage foreign currency risk associated with its projected purchases and sales and foreign currency denominated receivable and payable balances.

The Company recognizes all derivative instruments as either assets or liabilities at fair value in the Consolidated Balance Sheets. Commodity swaps and foreign currency exchange contracts are designated 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 a cross-currency interest rate swap as a hedge of net investments in its foreign subsidiaries.

Discontinuance of Cash Flow Hedge Accounting for Commodity Contracts

Through September 30, 2019, the Company designated all of its commodity derivative contracts as cash flow hedges, for which unrealized changes in fair value were recorded to AOCI, to the extent the commodity hedges were effective. As of October 1, 2019, the Company elected to de-designate all of its commodity derivative contracts and as a result, the Company will recognize all future gains and losses from changes in commodity derivative fair values immediately in earnings. As a result of discontinuing hedge accounting effective October 1, 2019, the associated amounts currently recorded in AOCI as of September 30, 2019 will remain in AOCI and will be reclassified into earnings when the original hedged transaction affects earnings or it becomes probable that the forecasted transactions will not occur. The Company's commodity derivatives designated as cash flow hedges for the three and nine months ended September 30, 2019 and 2018 are discussed further below.

Cash flow hedging strategy

For derivative instruments that are designated and qualify as cash flow hedges, the gain or loss on the derivative is recorded in AOCI in the Consolidated Balance Sheets and is subsequently reclassified into earnings in the periods in which the hedged transaction affects earnings. In the next twelve months, the Company estimates $1.2 million of unrealized losses, net of tax, related to currency rate, commodity price and interest rate risk hedging will be reclassified from AOCI into earnings. Foreign currency and commodity hedging, prior to de-designation, is generally completed prospectively on a rolling basis for 15 and 36 months, respectively, depending on the type of risk being hedged.

In March 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, thus reducing the impact from fluctuations in interest rates on future interest expense. These agreements involved 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. In the first quarter of 2019, the interest rate swap with a notional amount of $175.0 million matured. The remaining interest rate swap agreement with a notional amount of $425.0 million matures in March 2020. Approximately 29.4% of the Company’s total outstanding long-term debt had its interest payments designated as a cash flow hedge under the remaining interest rate swap agreement as of September 30, 2019.

As of September 30, 2019, and December 31, 2018, the Company had the following outstanding commodity and currency forward contracts that were entered into as hedges of forecasted transactions:

Commodity
 
Units Hedged
 
Unit
 
September 30,
 
December 31,
 
 
2019
 
2018
 
Aluminum
 
718

 
1,446

 
MT
Copper
 
359

 
546

 
MT
Steel
 
3,448

 
7,080

 
Short tons

Currency
 
Units Hedged
 
September 30,
 
December 31,
 
2019
 
2018
Canadian Dollar
 
14,959,000

 
10,990,000

European Euro
 
12,911,000

 
9,878,000

British Pound
 
12,229,705

 
12,041,770

Mexican Peso
 
183,730,000

 
175,960,000

Singapore Dollar
 
3,284,000

 
1,480,000



The impact of derivative instruments on the Consolidated Statements of Comprehensive Income and Consolidated Statements of Operations for the three and nine months ended September 30, 2019 and 2018 for gains or losses initially recognized in AOCI in the Consolidated Balance Sheets was as follows:

Derivatives in cash flow hedging relationships
 
Pretax gain/(loss) recognized in AOCI
 
Pretax gain/(loss) reclassified from AOCI into income
(in millions)
 
Three Months Ended September 30,
 
Location
 
Three Months Ended September 30,
 
2019

2018
 
 
2019
 
2018
Foreign currency exchange contracts
 
$
(0.5
)
 
$
1.0

 
Cost of sales
 
$
(0.1
)
 
$
(0.4
)
Commodity contracts
 
(0.5
)
 
(0.5
)
 
Cost of sales
 
(0.4
)
 
0.7

Interest rate swap contracts
 
0.1

 
0.7

 
Interest expense
 
0.6

 
0.6

Total
 
$
(0.9
)
 
$
1.2

 
 
 
$
0.1

 
$
0.9


Derivatives in cash flow hedging relationships
 
Pretax gain/(loss) recognized in AOCI
 
Pretax gain/(loss) reclassified from AOCI into income
(in millions)
 
Nine Months Ended September 30,
 
Location
 
Nine Months Ended September 30,
 
2019
 
2018
 
 
2019
 
2018
Foreign currency exchange contracts
 
$

 
$
(0.7
)
 
Cost of sales
 
$
(0.7
)
 
$

Commodity contracts
 
(1.3
)
 
(0.1
)
 
Cost of sales
 
(0.7
)
 
2.0

Interest rate swap contracts
 
(1.6
)
 
4.8

 
Interest expense
 
2.5

 
0.9

Total
 
$
(2.9
)
 
$
4.0

 
 
 
$
1.1

 
$
2.9



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 loss or gain on the hedged item attributable to the hedged risk are recognized in the same line item associated with the hedged item in current earnings.

In October 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. This agreement involved 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 and had a scheduled maturity of February 2024. In June 2019, this interest rate swap agreement was terminated, and the Company received cash in the amount of $14.0 million, representing the fair value of the swap and interest accrued through the date of the termination. Accordingly, hedge accounting was discontinued and a hedge accounting adjustment to the Company's Senior Notes of $0.3 million was recorded and will be amortized to "Interest expense" in the Consolidated Statements of Operations through the termination of the Senior Notes.

As of September 30, 2019 and December 31, 2018, the following amounts were recorded in the Consolidated Balance Sheets related to cumulative basis adjustments for the fair value hedge:

Line item in the Consolidated Balance Sheets in which the hedged item is included
 
Carrying amount of the hedged liability
 
Cumulative amount of fair value hedge adjustment included in the carrying amount of the hedged liability (1)
(in millions)
 
September 30,
 
December 31,
 
September 30,
 
December 31,
 
2019
 
2018
 
2019
 
2018
Long-term debt and finance leases
 
$
425.5

 
$
411.3

 
$
0.5

 
$
(13.7
)
(1) The balance as of September 30, 2019 and December 31, 2018 includes $0.5 million and $0.3 million, respectively, of hedging adjustments on discontinued hedge relationships.

Consolidated Statements of Operations Location and Impact of Fair Value and Cash Flow Derivative Instruments

The table below presents the effect of the Company’s derivative financial instruments on the Consolidated Statements of Operations for the three and nine months ended September 30, 2019 and 2018:

(in millions)
 
Location and amount of gain/(loss) recognized on impact of fair value and cash flow derivative instruments
 
Three Months Ended
 
Three Months Ended
 
September 30, 2019
 
September 30, 2018
 
Cost of Sales
 
Interest Expense
 
Cost of Sales
 
Interest Expense
Total amounts of expense line items presented in the Consolidated Statements of Operations in which effects of fair value and cash flow hedges are recorded
 
$
259.6

 
$
22.4

 
$
259.8

 
$
23.3

The effects of fair value and cash flow hedging:
 
 
 
 
 
 
 
 
Gain/(loss) on fair value hedging relationship:
 
 
 
 
 
 
 
 
Interest rate contract:
 
 
 
 
 
 
 
 
Hedged item
 
$

 
$
0.1

 
$

 
$
2.4

Derivative designated as hedging instrument
 
$

 
$

 
$

 
$
(2.2
)

 
 
 
 
 
 
 
 
Gain/(loss) on cash flow hedging relationships:
 
 
 
 
 
 
 
 
Foreign currency exchange contracts:
 
 
 
 
 
 
 
 
Amount of gain/(loss) reclassified from AOCI into income
 
$
(0.1
)
 
$

 
$
(0.4
)
 
$

Commodity contracts:
 
 
 
 
 
 
 
 
Amount of gain/(loss) reclassified from AOCI into income
 
$
(0.4
)
 
$

 
$
0.7

 
$

Interest rate contracts:
 
 
 
 
 
 
 
 
Amount of gain/(loss) reclassified from AOCI into income
 
$

 
$
0.6

 
$

 
$
0.6

(in millions)
 
Location and amount of gain/(loss) recognized on impact of fair value and cash flow derivative instruments
 
Nine Months Ended
 
Nine Months Ended
 
September 30, 2019
 
September 30, 2018
 
Cost of Sales
 
Interest Expense
 
Cost of Sales
 
Interest Expense
Total amounts of expense line items presented in the Consolidated Statements of Operations in which effects of fair value and cash flow hedges are recorded
 
$
778.4

 
$
70.9

 
$
755.4

 
$
66.7

The effects of fair value and cash flow hedging:
 
 
 
 
 
 
 
 
Gain/(loss) on fair value hedging relationship:
 
 
 
 
 
 
 
 
Interest rate contract:
 
 
 
 
 
 
 
 
Hedged Item
 
$

 
$
(14.2
)
 
$

 
$
13.9

Derivative designated as hedging instrument
 
$

 
$
13.3

 
$

 
$
(13.6
)
 
 
 
 
 
 
 
 
 
Gain/(loss) on cash flow hedging relationships:
 
 
 
 
 
 
 
 
Foreign currency exchange contracts:
 
 
 
 
 
 
 
 
Amount of gain/(loss) reclassified from AOCI into income
 
$
(0.7
)
 
$

 
$

 
$

Commodity contracts:
 
 
 
 
 
 
 
 
Amount of gain/(loss) reclassified from AOCI into income
 
$
(0.7
)
 
$

 
$
2.0

 
$

Interest rate contracts:
 
 
 
 
 
 
 
 
Amount of gain/(loss) reclassified from AOCI into income
 
$

 
$
2.5

 
$

 
$
0.9



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 AOCI as part of the cumulative translation adjustment. Amounts are reclassified out of AOCI into earnings when the hedged net investment is either sold or substantially liquidated.

In March 2017, the Company entered into a three-year cross-currency interest rate swap contract ("CCS") for a notional value of €50.0 million to protect the value of its net investment in Euros. The carrying value of the net investment in Euros 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 AOCI.

Effective January 1, 2019, as a result of the adoption of ASU 2017-12, the Company elected to re-designate the CCS as a net investment hedge under the spot method. Changes in the fair value of the CCS that are included in the assessment of effectiveness due to spot foreign exchange rates are recorded as cumulative translation adjustment within AOCI and will remain in AOCI until either the sale or substantially complete liquidation of the hedged subsidiaries. The initial value of any component excluded from the assessment of effectiveness is recognized in income using a systematic and rational method over the remaining life of the hedging instrument. The excluded component is the cross-currency basis spread, which will be recognized as an increase in interest income within "Other expense — net" in the Consolidated Statements of Operations using the straight-line method over the remaining term of the CCS. Any difference between the change in the fair value of the excluded component and amounts recognized in income under that systematic and rational method is recognized in AOCI. Additionally, the accrual of periodic U.S. dollar and Euro-denominated interest receipts under the terms of the CCS are recognized as interest income within “Other expense — net” in the Consolidated Statements of Operations.
The location and effects of the net investment hedge on the Consolidated Statements of Comprehensive Income and Consolidated Statements of Operations for the three and nine months ended September 30, 2019 and 2018 were as follows: 

Derivative in net investment hedging relationship
 
Pretax gain/(loss) recognized in AOCI
 
Gain/(loss) reclassified from AOCI into income
 
Gain/(loss) recognized in income (amount excluded from effectiveness testing)
(in millions)
 
Three Months Ended
 
Location
 
Three Months Ended
 
Location
 
Three Months Ended
 
September 30,
 
 
September 30,
 
 
September 30,
 
2019

2018
 
 
2019
 
2018
 
 
2019
 
2018
Interest rate swap contract
 
$
2.7

 
$
0.5

 
N/A
 
$

 
$

 
Other expense — net
 
$
0.4

 
$

N/A = Not applicable
Derivatives in net investments hedging relationships
 
Pretax gain/(loss) recognized in AOCI
 
Gain/(loss) reclassified from AOCI into income
 
Gain/(loss) recognized in income (amount excluded from effectiveness testing)
(in millions)
 
Nine Months Ended
 
Location
 
Nine Months Ended
 
Location
 
Nine Months Ended
 
September 30,
 
 
September 30,
 
 
September 30,
 
2019
 
2018
 
 
2019
 
2018
 
 
2019
 
2018
Interest rate swap contract
 
$
4.0

 
$
2.4

 
N/A
 
$

 
$

 
Other expense — net
 
$
1.2

 
$


N/A = Not applicable

Derivatives Not Designated as Hedging Instruments

The Company enters into foreign currency exchange contracts that are not designated as hedge relationships to offset, in part, the impact of certain intercompany transactions and to further mitigate certain other short-term currency impacts as identified. 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 — net" in the Consolidated Statements of Operations.

During the first quarter of 2018, the Company entered into a short-term foreign currency exchange contract to purchase SEK 1,800.0 million and sell $223.8 million with maturity dates ranging from March 1, 2018 to April 5, 2018 ("SEK Contract"). The purpose of this contract was to mitigate the impact of currency price fluctuations on the contracted price of the Crem Acquisition (see Note 3, "Acquisition," for additional discussion of the Crem Acquisition). In April 2018, the Company settled the SEK Contract and realized a loss of $10.0 million, all of which was recognized during the nine months ended September 30, 2018 in "Other expense — net" in the Consolidated Statements of Operations. The cash flows related to the settlement of the SEK Contract were not related to the Company's ongoing revenue-producing or cost-generating activities and, therefore, were included within the investing activities in the Consolidated Statements of Cash Flows.

As of September 30, 2019 and December 31, 2018, the Company had the following outstanding currency forward contracts that were not designated as hedging instruments:

Currency
 
Units Hedged
 
September 30,
 
December 31,
 
2019
 
2018
Singapore Dollar
 
28,542,000

 
28,447,000

European Euro
 
77,650,000

 
69,700,000

British Pound
 
7,016,939

 
23,704,468

Mexican Peso
 
32,160,000

 

Swiss Franc
 
7,000,000

 
5,300,000

Canadian Dollar
 
3,010,000

 

 
 
 
 
 
 
 

The location and effects on the Consolidated Statements of Operations for the three and nine months ended September 30, 2019 and 2018 for gains or losses related to derivative instruments not designated as hedging instruments were as follows:

Derivatives NOT designated as hedging instruments
 
Amount of gain/(loss) recognized in income on derivative
 
Location of gain/(loss) recognized in income on derivative
(in millions)
 
Three Months Ended September 30,
 
 
 
2019
 
2018
 
Foreign currency exchange contracts
 
$
3.6

 
$
2.6

 
Other expense — net

Derivatives NOT designated as hedging instruments
 
Amount of gain/(loss) recognized in income on derivative
 
Location of gain/(loss) recognized in income on derivative
(in millions)
 
Nine Months Ended September 30,
 
 
 
2019
 
2018
 
Foreign currency exchange contracts
 
$
9.3

 
$
(8.2
)
 
Other expense — net


The fair value of outstanding derivative contracts recorded as assets in the Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018 are as follows:

(in millions)
 
Balance Sheet Location
 
Asset Derivatives
Fair Value
 
 
 
 
September 30,
 
December 31,
 
 
2019
 
2018
Derivatives designated as hedging instruments:
 
 
 
 
 
 
Foreign currency exchange contracts
 
Prepaids and other current assets
 
$
0.3

 
$
0.5

Commodity contracts
 
Prepaids and other current assets
 

 
0.2

Interest rate swap contracts
 
Prepaids and other current assets
 
0.2

 
4.8

Interest rate swap contracts
 
Other non-current assets
 

 
3.4

Total derivatives designated as hedging instruments
 
 
 
$
0.5

 
$
8.9

 
 
 
 
 
 
 
Derivatives NOT designated as hedging instruments:
 
 
 
 
 
 
Foreign currency exchange contracts
 
Prepaids and other current assets
 
$
0.6

 
$
0.1

Total derivatives NOT designated as hedging instruments
 
 
 
$
0.6

 
$
0.1

 
 
 
 
 
 
 
Total asset derivatives
 
 
 
$
1.1

 
$
9.0



The fair value of outstanding derivative contracts recorded as liabilities in the Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018 are as follows:

(in millions)
 
Balance Sheet Location
 
Liability Derivatives
Fair Value
 
 
 
 
September 30,
 
December 31,
 
 
2019
 
2018
Derivatives designated as hedging instruments:
 
 
 
 
 
 
Foreign currency exchange contracts
 
Accrued expenses and other liabilities
 
$
0.6

 
$
1.5

Commodity contracts
 
Accrued expenses and other liabilities
 
1.3

 
0.9

Interest rate swap contracts
 
Accrued expenses and other liabilities
 
1.6

 
15.7

Foreign currency exchange contracts
 
Other long-term liabilities
 

 

Commodity contracts
 
Other long-term liabilities
 
0.1

 
0.4

Interest rate swap contracts
 
Other long-term liabilities
 

 
5.9

Total derivatives designated as hedging instruments
 
 
 
$
3.6

 
$
24.4

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

 
$
0.3

Total derivatives NOT designated as hedging instruments
 
 
 
$
0.2

 
$
0.3

 
 
 
 
 
 
 
Total liability derivatives
 
 
 
$
3.8

 
$
24.7


v3.19.3
Fair Value of Financial Instruments
9 Months Ended
Sep. 30, 2019
Fair Value Disclosures [Abstract]  
Fair Value of Financial Instruments Fair Value of Financial Instruments

In accordance with the Company's policy, fair value is defined as the amount 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. The policy 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 utilizes the best available information in measuring fair value. The carrying values of cash and cash equivalents, accounts receivable, trade accounts payable and beneficial interest in sold receivables (see Note 4, "Accounts Receivable Securitization"), approximate fair value, without being discounted, as of September 30, 2019 and December 31, 2018, as applicable, due to the short-term nature of these instruments. The short-term investment balance as of December 31, 2018 represented a certificate of deposit with an original scheduled maturity of 12 months, for which the Company had the intent and ability to hold until maturity and was classified as held-to-maturity and carried at amortized cost in the Consolidated Balance Sheets. There were no indicators of other-than-temporary impairment for this security and the Company did not experience any credit losses during any period prior to the June 2019 maturity date of the certificate of deposit.

The Company's Revolving Credit Facility, Term Loan B Facility and Senior Notes are recorded at their carrying values on the Company's Consolidated Balance Sheets, as disclosed in Note 9, "Debt." The carrying amount of the Revolving Credit Facility approximates its fair value as the interest rates are variable and reflective of market rates. The Company estimates the fair value of the Term Loan B Facility and the Senior Notes based on quoted market prices of the instruments. Because these instruments are typically thinly traded, the assets and liabilities are classified as Level 2 of the fair value hierarchy. The fair value of the Company's Term Loan B Facility was approximately $856.1 million and $815.5 million as of September 30, 2019 and December 31, 2018, respectively. The fair value of the Company's Senior Notes was approximately $458.1 million and $457.0 million as of September 30, 2019 and December 31, 2018, respectively.

The following tables set forth financial assets and liabilities that were accounted for at fair value on a recurring basis as of September 30, 2019 and December 31, 2018 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.

(in millions)
 
Fair Value as of
 
September 30, 2019
 
Level 1
 
Level 2
 
Level 3
 
Total
Current assets:
 
 
 
 
 
 
 
 
Foreign currency exchange contracts
 
$

 
$
0.9

 
$

 
$
0.9

Interest rate swap contracts
 

 
0.2

 

 
0.2

Total current assets at fair value
 

 
1.1

 

 
1.1

Total assets at fair value
 
$

 
$
1.1

 
$

 
$
1.1

 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
Foreign currency exchange contracts
 
$

 
$
0.8

 
$

 
$
0.8

Commodity contracts
 

 
1.3

 

 
1.3

Interest rate swap contracts
 

 
1.6

 

 
1.6

Total current liabilities at fair value
 

 
3.7

 

 
3.7

Non-current liabilities:
 
 
 
 
 
 
 
 
Commodity contracts
 

 
0.1

 

 
0.1

Total non-current liabilities at fair value
 

 
0.1

 

 
0.1

Total liabilities at fair value
 
$

 
$
3.8

 
$

 
$
3.8


(in millions)
 
Fair Value as of
 
December 31, 2018
 
Level 1
 
Level 2
 
Level 3
 
Total
Current assets:
 
 
 
 
 
 
 
 
Short-term investment
 
$

 
$
32.0

 
$

 
$
32.0

Foreign currency exchange contracts
 

 
0.6

 

 
0.6

Commodity contracts
 

 
0.2

 

 
0.2

Interest rate swap contracts
 

 
4.8

 

 
4.8

Total current assets at fair value
 

 
37.6

 

 
37.6

Non-current assets:
 
 
 
 
 
 
 
 
Interest rate swap contracts
 

 
3.4

 

 
3.4

Total non-current assets at fair value
 

 
3.4

 

 
3.4

Total assets at fair value
 
$

 
$
41.0

 
$

 
$
41.0

 
 
 
 
 
 
 
 
 
Current liabilities: