WELBILT, INC., 10-K filed on 3/1/2019
Annual Report
v3.10.0.1
Document and Entity Information - USD ($)
$ in Billions
12 Months Ended
Dec. 31, 2018
Feb. 22, 2019
Jun. 29, 2018
Document and entity information      
Entity Registrant Name Welbilt, Inc.    
Entity Central Index Key 0001650962    
Document Type 10-K    
Document Period End Date Dec. 31, 2018    
Amendment Flag false    
Current Fiscal Year End Date --12-31    
Entity Well Known Seasoned Issuer No    
Entity Voluntary Filers No    
Entity Current Reporting Status Yes    
Entity Filer Category Large Accelerated Filer    
Entity Small Business false    
Entity Emerging Growth Company false    
Entity Shell Company false    
Entity Public Float     $ 3.1
Entity Common Stock, Shares Outstanding   140,664,555  
Document Fiscal Year Focus 2018    
Document Fiscal Period Focus FY    
v3.10.0.1
Consolidated Statements of Operations - USD ($)
$ in Millions
3 Months Ended 6 Months Ended 12 Months Ended
Dec. 31, 2018
Sep. 30, 2018
Jun. 30, 2018
Mar. 31, 2018
Dec. 31, 2017
Sep. 30, 2017
Jun. 30, 2017
Mar. 31, 2017
Jun. 30, 2018
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Income Statement [Abstract]                        
Net sales $ 406.1 $ 412.9 $ 420.7 $ 350.4 $ 365.9 $ 380.4 $ 371.1 $ 328.0   $ 1,590.1 $ 1,445.4 $ 1,456.1
Cost of sales                   1,020.9 908.5 922.3
Gross profit 140.6 153.1 149.3 126.2 132.8 143.9 137.2 123.0   569.2 536.9 533.8
Selling, general and administrative expenses                   309.7 276.7 286.1
Amortization expense                   37.0 31.2 31.2
Separation expense                   0.1 1.6 6.5
Restructuring expense                   6.0 10.8 2.5
(Gain) loss from impairment or disposal of assets — net                   (0.4) (4.0) 3.3
Earnings from operations                   216.8 220.6 204.2
Interest expense                   89.0 86.9 85.2
Interest expense on notes with MTW — net                   0.0 0.0 0.1
Loss on modification or extinguishment of debt                   9.0 1.7 2.7
Other expense — net                   29.8 10.6 14.0
Earnings before income taxes                   89.0 121.4 102.2
Income taxes     5.2 0.4         $ 5.6 10.8 (11.5) 30.7
Net earnings $ 27.0 $ 26.8 $ 12.0 $ 12.4 $ 66.9 $ 30.7 $ 28.4 $ 6.9 $ 24.4 $ 78.2 $ 132.9 $ 71.5
Per share data                        
Earnings per share — Basic (in dollars per share) $ 0.19 $ 0.19 $ 0.09 $ 0.09 $ 0.48 $ 0.22 $ 0.20 $ 0.05 $ 0.17 $ 0.56 $ 0.96 $ 0.52
Earnings per share — Diluted (in dollars per share) $ 0.19 $ 0.19 $ 0.09 $ 0.09 $ 0.47 $ 0.22 $ 0.20 $ 0.05 $ 0.17 $ 0.55 $ 0.94 $ 0.51
Weighted average shares outstanding — Basic (in shares)                   140,023,635 138,995,541 137,906,284
Weighted average shares outstanding — Diluted (in shares)                   141,388,785 140,707,092 139,714,120
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Consolidated Statements of Comprehensive Income - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Statement of Comprehensive Income [Abstract]      
Net earnings $ 78.2 $ 132.9 $ 71.5
Other comprehensive income, net of tax:      
Foreign currency translation adjustments (10.9) 14.2 (1.9)
Unrealized (loss) gain on derivatives (2.8) 2.8 2.6
Employee pension and post-retirement benefits 4.1 (5.6) 0.4
Total other comprehensive (loss) income, net of tax (9.6) 11.4 1.1
Comprehensive income $ 68.6 $ 144.3 $ 72.6
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Consolidated Balance Sheets - USD ($)
$ in Millions
Dec. 31, 2018
Dec. 31, 2017
Current Assets:    
Cash and cash equivalents $ 70.4 $ 108.5
Restricted cash 2.8 0.3
Short-term investment 32.0 19.9
Accounts receivable, less allowance of $3.9 and $4.0 at December 31, 2018 and 2017, respectively 112.5 83.7
Inventories — net 190.6 152.3
Prepaids and other current assets 32.2 19.0
Total current assets 440.5 383.7
Property, plant and equipment — net 119.0 112.2
Goodwill 935.6 846.1
Other intangible assets — net 546.7 461.4
Other non-current assets 33.2 37.0
Total assets 2,075.0 1,840.4
Current liabilities:    
Accounts payable 151.0 103.6
Accrued expenses and other liabilities 183.7 169.5
Short-term borrowings 15.0 0.0
Current portion of capital leases 1.1 0.7
Product warranties 27.9 24.1
Total current liabilities 378.7 297.9
Long-term debt and capital leases 1,321.8 1,232.2
Deferred income taxes 104.3 91.3
Pension and postretirement health obligations 39.2 48.3
Other long-term liabilities 44.6 67.1
Total non-current liabilities 1,509.9 1,438.9
Commitments and contingencies (Note 13)
Total equity:    
Common stock ($0.01 par value, 300,000,000 shares authorized, 140,252,693 shares and 139,491,860 shares issued and 140,252,693 shares and 139,440,470 shares outstanding at December 31, 2018 and 2017, respectively) 1.4 1.4
Additional paid-in capital (deficit) (41.5) (54.7)
Retained earnings 268.4 189.1
Accumulated other comprehensive loss (41.6) (32.0)
Treasury stock, at cost, 53,308 shares and 51,390 shares, at December 31, 2018 and 2017, respectively (0.3) (0.2)
Total equity 186.4 103.6
Total liabilities and equity $ 2,075.0 $ 1,840.4
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Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Millions
Dec. 31, 2018
Dec. 31, 2017
Statement of Financial Position [Abstract]    
Accounts receivable allowance $ 3.9 $ 4.0
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) 140,252,693 139,491,860
Common stock, outstanding (in shares) 140,252,693 139,440,470
Treasury stock (in shares) 53,308 51,390
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Consolidated Statements of Cash Flows - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Cash flows from operating activities      
Net earnings $ 78.2 $ 132.9 $ 71.5
Adjustments to reconcile net earnings to cash used in operating activities:      
Depreciation 18.0 16.7 17.3
Amortization of intangible assets 37.0 31.2 31.2
Amortization of debt issuance costs 5.5 5.5 4.7
Loss on extinguishment of debt 2.7 1.7 2.7
Deferred income taxes (12.4) (64.3) (7.6)
Stock-based compensation expense 7.0 11.1 6.3
(Gain) loss from impairment or disposal of assets — net (0.4) (4.0) 3.3
Pension settlement 2.4 0.0 0.0
Loss on remeasurement of debt and other realized foreign currency derivative 23.4 0.0 0.0
Changes in operating assets and liabilities, excluding the effects of the business acquisition:      
Accounts receivable (590.4) (541.2) (502.8)
Inventories (25.5) (1.8) (3.6)
Other assets (9.3) (0.6) (11.5)
Accounts payable 39.3 (7.9) (11.1)
Other current and long-term liabilities (24.0) (10.6) 27.6
Net cash used in operating activities (448.5) (431.3) (372.0)
Cash flows from investing activities      
Cash receipts on beneficial interest in sold receivables 576.4 552.1 494.3
Capital expenditures (21.4) (20.7) (16.0)
Proceeds from sale of property, plant and equipment 0.0 12.3 0.5
Acquisition of intangible assets (2.8) (1.2) 0.0
Business acquisition, net of cash acquired (215.6) 0.0 0.0
Purchase of short-term investment (35.0) 0.0 (18.7)
Proceeds from maturity of short-term investment 20.7 0.0 0.0
Settlement of foreign exchange contract (10.0) 0.0 0.0
Other 1.2 0.9 0.0
Proceeds from dispositions 0.0 0.0 1.1
Net cash provided by investing activities 313.5 543.4 461.2
Cash flows from financing activities      
Proceeds from long-term debt 475.5 155.0 1,501.1
Repayments on long-term debt and capital leases (383.2) (204.1) (186.8)
Proceeds from short-term borrowings 30.0 4.0 0.0
Repayment of short-term borrowings (15.0) (4.0) 0.0
Debt issuance costs (6.8) (2.0) (41.3)
Payment of deferred consideration (1.4) 0.0 0.0
Dividend paid to MTW 0.0 0.0 (1,362.0)
Net transactions with MTW 0.0 0.0 (4.6)
Exercises of stock options 6.2 4.8 16.2
Payments on tax withholdings for equity awards (3.0) (5.4) (3.8)
Net cash provided by (used in) financing activities 102.3 (51.7) (81.2)
Effect of exchange rate changes on cash (2.9) 6.9 0.9
Net (decrease) increase in cash and cash equivalents and restricted cash (35.6) 67.3 8.9
Balance at beginning of period 108.8 41.5 32.6
Balance at end of period 73.2 108.8 41.5
Supplemental disclosures of cash flow information:      
Cash paid for income taxes, net of refunds 47.0 34.3 42.1
Cash paid for interest, net of related hedge settlements 94.6 94.7 69.6
Supplemental disclosures of non-cash activities:      
Non-cash investing activity: Beneficial interest obtained in exchange for securitized receivables 744.7 723.5 636.9
Non-cash financing activity: Equipment acquired through capital leases $ 0.9 $ 0.0 $ 0.0
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Consolidated Statements of Equity - USD ($)
$ in Millions
Total
Common Stock
Additional Paid-In Capital (Deficit)
Retained Earnings
Net Parent Company Investment
Accumulated Other Comprehensive (Loss) Income
Treasury Stock
Common stock, outstanding beginning of period (in shares) at Dec. 31, 2015   0          
Beginning balance at Dec. 31, 2015 $ 1,211.6 $ 0.0 $ 0.0 $ 0.0 $ 1,256.1 $ (44.5) $ 0.0
Increase (Decrease) in Stockholders' Equity [Roll Forward]              
Net earnings 71.5     56.2 15.3    
Net transfers to MTW (1,362.0)       (1,362.0)    
Separation related adjustments (1.0)       (1.0)    
Reclassification of net investment to additional paid-in capital 0.0   (91.6)   91.6    
Issuance of common stock at Spin-Off (in shares)   137,016,712          
Issuance of common stock at Spin-Off 0.0 $ 1.4 (1.4)        
Issuance of common stock, equity-based compensation plans (in shares)   1,584,615          
Issuance of common stock, stock-based compensation plans 16.2   16.2        
Stock-based compensation expense 6.3   6.3        
Adjustments in connection with the Spin-Off (0.1)   (0.1) 0.0      
Other comprehensive income (loss) 1.1         1.1  
Common stock, outstanding end of period (in shares) at Dec. 31, 2016   138,601,327          
Ending balance at Dec. 31, 2016 (56.4) $ 1.4 (70.6) 56.2 0.0 (43.4) 0.0
Increase (Decrease) in Stockholders' Equity [Roll Forward]              
Net earnings 132.9     132.9      
Issuance of common stock, equity-based compensation plans (in shares)   890,533          
Issuance of common stock, stock-based compensation plans 4.8   4.8        
Stock-based compensation expense 11.1   11.1        
Other comprehensive income (loss) 11.4         11.4  
Value of shares in deferred compensation plan $ (0.2)           (0.2)
Common stock, outstanding end of period (in shares) at Dec. 31, 2017 139,440,470 139,491,860          
Ending balance at Dec. 31, 2017 $ 103.6 $ 1.4 (54.7) 189.1 0.0 (32.0) (0.2)
Increase (Decrease) in Stockholders' Equity [Roll Forward]              
Net earnings 12.4            
Other comprehensive income (loss) 2.5            
Ending balance at Mar. 31, 2018 $ 125.3   (49.0) 202.6   (29.5)  
Common stock, outstanding beginning of period (in shares) at Dec. 31, 2017 139,440,470 139,491,860          
Beginning balance at Dec. 31, 2017 $ 103.6 $ 1.4 (54.7) 189.1 0.0 (32.0) (0.2)
Increase (Decrease) in Stockholders' Equity [Roll Forward]              
Net earnings 24.4            
Other comprehensive income (loss) (5.8)            
Ending balance at Jun. 30, 2018 $ 133.7   (44.3) 214.6   (37.8)  
Common stock, outstanding beginning of period (in shares) at Dec. 31, 2017 139,440,470 139,491,860          
Beginning balance at Dec. 31, 2017 $ 103.6 $ 1.4 (54.7) 189.1 0.0 (32.0) (0.2)
Increase (Decrease) in Stockholders' Equity [Roll Forward]              
Net earnings 78.2     78.2      
Issuance of common stock, equity-based compensation plans (in shares)   760,833          
Issuance of common stock, stock-based compensation plans 6.2   6.2        
Stock-based compensation expense 7.0   7.0        
Other comprehensive income (loss) (9.6)         (9.6)  
Value of shares in deferred compensation plan $ (0.1)           (0.1)
Common stock, outstanding end of period (in shares) at Dec. 31, 2018 140,252,693 140,252,693          
Ending balance at Dec. 31, 2018 $ 186.4 $ 1.4 (41.5) 268.4 $ 0.0 (41.6) $ (0.3)
Beginning balance at Mar. 31, 2018 125.3   (49.0) 202.6   (29.5)  
Increase (Decrease) in Stockholders' Equity [Roll Forward]              
Net earnings 12.0            
Other comprehensive income (loss) (8.3)            
Ending balance at Jun. 30, 2018 $ 133.7   $ (44.3) $ 214.6   $ (37.8)  
v3.10.0.1
Business and Organization
12 Months Ended
Dec. 31, 2018
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Business and Organization
1. Business and Organization

The Spin-Off and Rebranding

On January 29, 2015, the Company's former parent, The Manitowoc Company, Inc. ("MTW"), announced plans to create two independent, public companies to separately operate its two businesses: its crane business and its foodservice business. To effect the separation, MTW first undertook an internal reorganization, following which MTW held the crane business and Manitowoc Foodservice, Inc. ("MFS") 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 Annual Report on Form 10-K, "Spin-Off" refers to both the above described internal reorganization and the Distribution, collectively.

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." to launch the Company's rebranding of its logo and its brand identity to Welbilt. This change was part of the Company's strategic repositioning after the Spin-Off.

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 consolidated 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

Welbilt 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 operating 21 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 through three reportable 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).
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Summary of Significant Accounting Policies and Basis of Presentation
12 Months Ended
Dec. 31, 2018
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies and Basis of Presentation
2. Summary of Significant Accounting Policies and Basis of Presentation

Principles of Consolidation and Basis of Presentation

The accompanying 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.

During the periods presented prior to the Spin-Off on March 4, 2016, the Company's financial statements were prepared on a combined stand-alone 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 were primarily related to: (1) corporate support functions that were provided on a centralized basis at a MTW enterprise level including, but not limited to, finance, audit, legal, information technology, human resources, tax, treasury, investor relations, and external reporting; (2) stock-based compensation; (3) employee compensation, pension and benefit costs; and (4) securitization financing costs. These expenses were allocated to Welbilt based on direct usage or direct identification where applicable, and where not applicable, such costs were allocated primarily based on net sales, headcount or based on existing allocation methods, specifically for those costs which were previously partially allocated to Welbilt or other methodologies deemed appropriate by management.

Prior to the Spin-Off, cash was managed centrally and flowed through centralized bank accounts controlled and maintained by MTW. Accordingly, cash and cash equivalents held by MTW at the corporate level were not attributable to Welbilt for any of the periods presented prior to the Spin-Off. Only cash amounts specifically attributable to Welbilt are reflected in the accompanying consolidated financial statements. Transfers of cash, both to and from MTW's centralized cash management system, are reflected as a component of "Net transactions with MTW" as a financing activity in the consolidated statements of cash flows. Additionally, none of MTW’s debt has been allocated to the consolidated financial statements as Welbilt has no legal obligation for any of the debt agreements. Welbilt received or provided funding as part of MTW's centralized treasury program.

Income tax expense in the consolidated statement of operations for the partial 2016 period prior to the Spin-Off was 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 operated. 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 consolidated financial statements for the partial 2016 periods prior to and after the Spin-Off may not be indicative of Welbilt's future expected income tax expense for subsequent periods. In addition, cash tax payments and items of current and deferred taxes may not be reflective of Welbilt's actual tax balances 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 U.S. 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 Welbilt filing 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 consolidated financial statements. As a result, the effective tax rate and deferred income taxes of Welbilt may differ from those in periods subsequent to the Spin-Off.

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 including costs allocated prior to the Spin-Off. 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 addition, the consolidated 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 stand-alone Company during the entirety of the period presented prior to the Spin-Off.

Significant Accounting Policies

Cash and Cash Equivalents All short-term investments purchased with an original maturity of three months or less are considered cash equivalents. Our policy is to place our operating demand deposit accounts with high credit quality financial institutions, the balances of which at times may exceed federally insured limits.

Restricted Cash Cash and cash equivalents that are restricted as to withdrawal or use under the terms of certain contractual agreements are recorded separately on the consolidated balance sheets and generally, include cash balances held as security under the Company's accounts receivable securitization program.

Short-Term Investments The Company considers all investments purchased with an original maturity of more than three months but not greater than one year to be short-term investments. The short-term investment balance as of December 31, 2018 and 2017 represented a certificate of deposit with an original scheduled maturity of 12 months, which the Company has the intent and ability to hold to maturity. It was, therefore, classified as held-to-maturity and carried at amortized cost. The fair value of this instrument was equal to its amortized cost and, as such, there were no unrealized gains or losses associated with the instrument.

Management evaluates this held-to-maturity security for other-than-temporary impairment on a quarterly basis by performing a credit review of the issuer. No indicators of other-than-temporary impairment for this security were identified as of December 31, 2018. In addition, the Company has not experienced credit losses during any period.

Accounts Receivable Transactions under the Company's securitization programs are accounted for as sales. Sales of trade receivables to the purchaser are reflected as a reduction of accounts receivable in the consolidated balance sheets. In addition, the Company maintains a "beneficial interest," or right to collect cash, in the sold receivables. Cash receipts from the third-party purchasing financial institution at the time of the sale are classified as operating cash while cash receipts from the beneficial interest on sold receivables are classified as investing activities on the consolidated 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., less than 60 days).

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

Inventories The majority of inventories are valued at the lower of cost or net realizable value. Approximately 92.4% and 92.3% of the Company's inventories were valued using the first-in, first-out ("FIFO") method at December 31, 2018 and 2017, respectively. The remaining inventories were valued using the last-in, first-out ("LIFO") method. If the FIFO inventory valuation method had been used exclusively, inventories would have increased by $4.2 million and $3.9 million at December 31, 2018 and 2017, respectively. Finished goods and work-in-process inventories include material, labor and manufacturing overhead costs.

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

Property, plant and equipment are depreciated over the following estimated useful lives:

 
Years
Building and improvements
2 — 40
Machinery, equipment and tooling
2 — 20
Furniture and fixtures
3 — 15
Computer hardware and software
2 — 7


Business Combinations The Company allocates the fair value of purchase consideration to the assets acquired and liabilities assumed based on their fair values at the acquisition date. The excess of the fair value of purchase consideration over the fair value of these assets acquired and liabilities assumed is recorded as goodwill. When determining the fair values of assets acquired and liabilities assumed, management makes significant estimates and assumptions, especially with respect to intangible assets. Critical estimates in valuing intangible assets include, but are not limited to, expected future cash flows, which includes consideration of future growth rates and margins, customer attrition rates, future changes in technology and brand awareness, loyalty and position, and discount rates. Fair value estimates are based on the assumptions management believes a market participant would use in pricing the asset or liability. Amounts recorded in a business combination may change during the measurement period, which is a period not to exceed one year from the date of acquisition, as additional information about conditions existing at the acquisition date becomes available.

Goodwill and Other Intangible Assets Goodwill is not amortized, but it is tested for impairment annually, or more frequently, as events dictate. See additional discussion of impairment testing under "Impairment of Long-Lived Assets," below. The Company's other intangible assets with indefinite lives, including trademarks and trade names, are not amortized, but are also tested for impairment annually, or more frequently, as events dictate. The Company's other intangible assets with finite lives are subject to amortization and are tested for impairment whenever events or changes in circumstances indicate that their carrying values may not be recoverable. Other intangible assets with finite lives are amortized on a straight-line basis over the following estimated useful lives:

 
Useful lives
Patents
10 — 20 years
Engineering drawings
15 years
Customer relationships
10 — 20 years
Design libraries
7 — 20 years


The Company performs annual impairment tests of goodwill and intangible assets with indefinite lives at June 30 of each fiscal year and whenever a triggering event occurs between annual impairment tests. The goodwill impairment test is performed for the Company's reporting units which have been determined to be: Americas, EMEA and APAC. When testing for impairment, the Company has the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of any reporting unit or indefinite lived intangible asset is less than its carrying amount. In conducting a qualitative assessment, the Company evaluates the totality of relevant events and circumstances that affect the fair value or carrying value of the reporting unit or asset. These events and circumstances include, but are not limited to, macroeconomic conditions, industry and competitive environment conditions, overall financial performance, reporting unit specific events and market considerations. In those instances where the Company concludes that it is not more likely than not that the fair value is less than the carrying amount, no impairment is indicated and no further impairment test is performed.

When the Company chooses not to perform a qualitative assessment, or if, based on the qualitative assessment, the Company concludes it is more likely than not that the fair value is less than the carrying amount, a quantitative impairment test is performed at the reporting unit level utilizing the one-step approach. This one-step approach identifies both the existence of impairment and the amount of the impairment loss. In conducting the quantitative analysis, the Company compares the fair value of the reporting unit with goodwill or the indefinite lived intangible asset to its carrying value. The fair value is determined using the income approach based on the present value of expected future cash flows, including terminal value, and a weighted average cost of capital all of which involve management judgment and assumptions. When the carrying amount of the reporting or the intangible asset exceeds its fair value, the Company recognizes an impairment loss in an amount equal to the excess; however, the impairment loss for goodwill is limited to the total amount of the goodwill allocated to the reporting unit. See Note 7, "Goodwill and Other Intangible Assets — Net," for further details on the Company's impairment assessments.

Impairment of Long-Lived Assets The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the assets’ carrying amount may not be recoverable. When reviewing its long-lived assets, other than goodwill and other intangible assets with indefinite lives, the Company groups its assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities and evaluates the asset group against the sum of the undiscounted future cash flows to determine impairment. If an impairment is determined to exist, the impairment loss is calculated based upon comparison of the fair value to the net book value of the assets. Impairment losses on assets held for sale are based on the estimated proceeds to be received, less costs to sell. The Company did not hold assets held for sale at December 31, 2018 or 2017.

Warranties Estimated warranty costs are recorded in cost of sales at the time of sale of the products based on historical warranty experience for the related product or estimates of projected costs due to specific warranty issues on new products. These estimates are reviewed periodically and are adjusted based on changes in facts, circumstances or actual experience. See Note 14, "Product Warranties," for further details.

Product Liabilities The Company records product liability reserves for its self-insured portion of any pending or threatened product liability actions. The reserve is based upon two estimates. First, the Company tracks the population of all outstanding pending and threatened product liability cases to determine an appropriate case reserve for each based upon the Company's best judgment and the advice of legal counsel. These estimates are continually evaluated and adjusted based upon changes to facts and circumstances surrounding the individual cases. Second, the Company determines the amount of additional reserve required to cover product liability claims anticipated to have occurred but have not yet been reported and to account for possible adverse development of the established case reserves. This analysis is performed twice annually. 

Foreign Currency Translation and Transactions The financial statements of the Company's non-U.S. subsidiaries, where the functional currency is not the U.S. dollar, are translated using the current exchange rate for assets and liabilities and the average exchange rate for the year for income and expense items. Resulting translation adjustments are recorded to "Accumulated other comprehensive loss" ("AOCI") as a component of equity. The Company records foreign currency transaction gains or losses as a component of "Other expense — net".

Derivative Financial Instruments and Hedging Activities The Company enters into derivative instruments to hedge interest rate risk, commodity exposure associated with aluminum, copper and steel prices and foreign currency exchange risk.

The Company has adopted written policies and procedures that place all financial instruments under the direction of corporate treasury and restrict all derivative transactions to those intended for hedging purposes. The use of financial instruments for trading purposes is strictly prohibited. The fair values of all derivatives are recorded in the consolidated balance sheets. The change in a derivative’s fair value is recorded each period in current earnings or comprehensive income depending on whether the derivative is designated and qualifies as part of a hedge transaction and if so, the type of hedge transaction. The amount reported for derivative instrument fair market value adjustments for cash flow hedges and net investment hedges are reported in the statements of comprehensive income, net of taxes. Fair market value adjustments for fair value hedges, as well as the offsetting gain or loss on the hedged item attributable to the hedged risk, are recognized in current earnings within the same line item associated with the hedged item.

Stock-Based Compensation Welbilt employees historically participated in MTW's stock-based compensation plans for the periods prior to the Spin-Off. Stock-based compensation expense for the period prior to the Spin-Off has been allocated to Welbilt based on the awards and terms previously granted to its employees. Until consummation of the Spin-Off, Welbilt 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 Welbilt employees. In conjunction with the Spin-Off, the Company adopted the 2016 Omnibus Incentive Plan (the "2016 Plan") that permits the granting of stock options, restricted stock awards, restricted stock units, performance share awards and units, and other types of stock-based and cash awards. 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.

Stock-based compensation awards are measured at fair value at the date of grant and expensed over their vesting periods. Stock based compensation is recognized only for those awards expected to vest. The expense, net of forfeitures, is recognized using the straight-line method. Stock-based compensation expense related to Welbilt employees of $7.0 million, $11.1 million and $6.3 million has been recorded in the consolidated statements of operations for the years ended December 31, 2018, 2017 and 2016, respectively. Refer to Note 19, "Stock-Based Compensation," for additional discussion regarding details of the Company's stock-based compensation plan.

Employee Benefit Plans The Company provides a range of benefits to its employees and retired employees, including pensions and postretirement health care coverage. Plan assets and obligations are recorded annually based on our measurement date utilizing various actuarial assumptions such as discount rates, expected return on plan assets, compensation increases, retirement and mortality rates, and health care cost trend rates as of that date. The approaches used to determine the annual assumptions are as follows:

Discount Rate - The discount rate assumptions are based on the interest rate of non-callable high-quality corporate bonds, with appropriate consideration of our pension plans’ participants’ demographics and benefit payment terms.

Expected Return on Plan Assets - The expected return on plan assets assumptions are based on the Company's expectation of the long-term average rate of return on assets in the pension funds, which is reflective of the current and projected asset mix of the funds and considers the historical returns earned on the funds.

Retirement and Mortality Rates - The retirement and mortality rate assumptions are based primarily on actual plan experience and mortality tables.

Health Care Cost Trend Rates - The health care cost trend rate assumptions are developed based on historical cost data, near-term outlook and an assessment of likely long-term trends.

Measurements of net periodic benefit cost are based on the assumptions used for the previous year-end measurements of assets and obligations. The Company reviews its actuarial assumptions on an annual basis and makes modifications to the assumptions when appropriate. As required by U.S. GAAP, the effects of the modifications are recorded currently or amortized over future periods. The Company has developed the assumptions with the assistance of its independent actuaries and other relevant sources, and believes that the assumptions used are reasonable; however, changes in these assumptions could impact the Company's financial position, results of operations or cash flows. See Note 15, "Employee Benefit Plans," for further details.

Deferred Compensation Plan The Welbilt Deferred Compensation Plan is an unfunded, non-tax-qualified deferred compensation plan for highly compensated and key management employees and for directors that allows participants to defer a portion of their compensation. The Plan permits the Company, at its option, to make matching contributions to the participants' accounts. The Company utilizes a rabbi trust to hold assets intended to satisfy the Company's obligations under the deferred compensation plan. The trust restricts the Company's use and access to the assets held but is subject to the claims of the Company's general creditors. Plan participants are able to direct deferrals and Company matching contributions into two separate investment programs, Program A and Program B. Program A invests solely in the Company’s stock; dividends paid on the Company’s stock, if any, are automatically reinvested, and all distributions must be made in Company stock. Program A is accounted for as a plan that does not permit diversification. The Company stock held by Program A is carried at cost, is included in "Treasury stock" in the consolidated balance sheets. The deferred compensation obligation for Program A is included in "Other long-term liabilities" in the consolidated balance sheets. Program B offers a variety of investment options but does not include Company stock as an investment option. All distributions from Program B must be made in cash. Participants cannot transfer assets between programs. Program B is accounted for as a plan that permits diversification. Changes in the fair value of the assets are recognized in earnings. The deferred compensation obligation is adjusted, with a charge or credit to compensation cost, to reflect changes in the fair value of the obligation. The assets are included in "Other non-current assets", and the related obligations are included in "Other long-term liabilities" in the consolidated balance sheets.

Revenue Recognition Prior to the adoption of the provisions of Accounting Standards Update ("ASU") 2014-09, "Revenue from Contracts with Customers (Topic 606)" and with additional updates subsequently issued (collectively, "ASU 2014-09"), the Company generally recognized and earned revenue when all the following criteria were satisfied with regard to a specific transaction: persuasive evidence of a sales arrangement exists; the price is fixed or determinable; collectability of cash is reasonably assured; and delivery has occurred or services have been rendered. Shipping and handling fees were reflected in net sales and shipping and handling costs were reflected in "Cost of sales" in the consolidated statements of operations.

On January 1, 2018, the Company adopted the provisions of ASU 2014-09, which creates a single, comprehensive revenue recognition model for all contracts with customers. The model is based on changes in contract assets (rights to receive consideration) and liabilities (obligations to provide a good or service.) The Company makes judgments including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price, and allocating the transaction price to each performance obligation. Subsequent to the adoption of ASU 2014-09, revenue is recognized based on the satisfaction of performance obligations, which occurs when control of a good or service transfers to a customer. A majority of the Company's net sales continue to be recognized at the point in time when products are shipped from its manufacturing facilities.

For the majority of foodservice equipment and aftermarket parts and support, the transfer of control and revenue recognition materializes when the products are shipped from the manufacturing facility or the service is provided to the customer. The Company typically invoices its customers with payment terms of 30 days and the Company's average collection cycle is generally less than 60 days. The amount of consideration received and revenue recognized varies with marketing incentives such as annual customer rebate programs and returns that are offered to customers. Variable consideration as a result of customer rebate programs is typically based on calendar-year purchases, and is determined using the expected value method in interim periods as prescribed in the guidance. Customers have the right to return eligible equipment and parts. The expected returns are based on an analysis of historical experience. The estimate of revenue is adjusted at the earlier of when the most likely amount of the expected consideration changes or when the consideration becomes fixed. The impact of such adjustments was not material in the year ended December 31, 2018.


Substantially all of the Company's revenues comprise revenues from contracts with customers. These revenues are disaggregated by major source and geographic location, as the Company believes it best depicts how the nature, amount, timing and uncertainty of its revenue and cash flows are affected by economic factors. Net sales by product class and segment are as follows:

 
 
Year Ended December 31, 2018
(in millions)
 
Commercial Foodservice Whole Goods
 
Aftermarket Parts and Support
 
Total
Americas
 
$
907.0

 
$
183.9

 
$
1,090.9

EMEA
 
258.8

 
48.6

 
307.4

APAC
 
163.2

 
28.6

 
191.8

Total net sales
 
$
1,329.0

 
$
261.1

 
$
1,590.1



The Company also recognizes revenue for foodservice-based projects. These revenues are generally recognized at the point-in-time in which control transfers to the customer. However, depending on the nature of the performance obligations in the contract, revenues may be recognized over time.

The Company sells separately-priced extended warranties that extend coverage beyond the standard product warranty by 12 to 60 months. Payments are at the inception of the contract and revenue is recognized over the term of the agreement on a straight-line basis, which the Company believes approximates the timing of costs expected to be incurred in satisfying the obligations of the contract.

As of December 31, 2018 and 2017, there was $6.0 million and $6.7 million, respectively, of deferred revenues related to extended warranties. The Company expects to recognize $2.2 million of the deferred revenues for the year ended December 31, 2019 and $3.8 million will be recognized thereafter. See additional discussion of product warranties in Note 14, "Product Warranties." The Company also defers revenues related to performance obligations that have not yet been met. At December 31, 2018, these deferred revenues totaled $0.5 million, all of which is expected to be recognized in 2019.

See section below labeled, "Recently Adopted Accounting Pronouncements," for a discussion of the impact of the adoption of ASU 2014-09 on the Company's consolidated financial statements and related notes to financial statements.

Research and Development Research and development costs are charged to expense as incurred within "Selling, general and administrative expenses" in the consolidated statements of operations and amounted to $37.3 million, $39.4 million and $35.2 million for the years ended December 31, 2018, 2017 and 2016, respectively. Research and development costs include salaries, materials, contractor fees and other administrative costs. 

Restructuring Charges Restructuring charges for exit and disposal activities are recognized when the liability is incurred. The liability for the restructuring charge associated with an exit or disposal activity is measured initially at its fair value.

Income Taxes Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Company records a valuation allowance that represents a reserve on deferred tax assets for which utilization is not more likely than not. Management judgment is required in determining the Company's provision for income taxes, deferred tax assets and liabilities, and the valuation allowance recorded against net deferred tax assets. The Company does not currently provide for additional U.S. and foreign income taxes which would become payable upon repatriation of undistributed earnings of foreign subsidiaries.

The Company recognizes liabilities for uncertain income tax positions based on a two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step requires management to estimate and measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. It is inherently difficult and subjective to estimate such amounts, as management must determine the probability of various possible outcomes. The Company reevaluates these uncertain tax positions on a quarterly basis or when new information becomes available to management. These reevaluations are based on factors including, but not limited to, changes in facts or circumstances, changes in tax law, successfully settled issues under audit, expirations due to statutes, and new audit activity. Such a change in recognition or measurement could result in the recognition of a tax benefit or an increase to the tax accrual.

The Company records discrete income tax expense or benefit in the period in which it is identified. Examples of such types of discrete items include, but are not limited to: changes in estimates of the outcome of tax matters related to prior years, assessments of valuation allowances, return-to-provision adjustments, the settlement of tax audits and certain changes in tax legislation or regulations.

Advertising Costs Advertising costs are expensed as incurred and included in "Selling, general and administrative expenses." These costs were $15.2 million$14.9 million and $12.9 million for the years ended December 31, 20182017 and 2016, respectively.

Comprehensive Income Comprehensive income includes, in addition to net earnings, other items that are reported as direct adjustments to equity. Currently, these items are foreign currency translation adjustments, the change in fair value of certain derivative instruments and employee pension and postretirement benefit adjustments.

Concentration of Credit Risk Credit extended to customers through trade accounts receivable potentially subjects the Company to risk. This risk is limited due to the large number of customers and their dispersion across various industries and many geographical areas. However, a significant amount of the Company's receivables are with distributors, dealers and large companies in the foodservice and beverage industry. Management currently does not foresee a significant credit risk associated with these individual groups of receivables, but continues to monitor the exposure, if any.

Reclassifications

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

Reclassification of periodic pension and postretirement benefit costs totaling $1.5 million and $5.0 million from "Selling, general and administrative expenses" to "Other expense — net" in the consolidated statement of operations for the years ended December 31, 2017 and 2016, respectively, as a result of the retrospective adoption of ASU 2017-07, "Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost."

Beginning and ending cash and cash equivalents shown on the consolidated statements of cash flows for the years ended December 31, 2017 and 2016 was increased for restricted cash of $6.4 million and $0.6 million, respectively, and cash flows provided by investing activities were reduced by $6.2 million and $6.0 million, respectively, as a result of adopting ASU 2016-18, "Statement of Cash Flows (Topic 230): Restricted Cash."

Reclassification of consideration received for the beneficial interest obtained for transferring trade receivables in securitization transactions of $552.1 million and $494.3 million, respectively, from operating activities to investing activities on the consolidated statements of cash flows for the years ended December 31, 2017 and 2016, respectively, as result of the adoption of ASU 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments."

Revisions of Previously Issued Consolidated Financial Statements

In preparing its 2018 financial statements, the Company identified certain errors in its previously issued consolidated financial statements as of and for the years ended December 31, 2017 and 2016. Details of the errors are as follows:

A classification error related to a foreign short-term time deposit with an original maturity greater than three months was incorrectly classified as a cash and cash equivalent instead of a short-term investment. This error resulted in an overstatement in cash and cash equivalents and an understatement in short-term investments of $19.9 million and $18.7 million as of December 31, 2017 and December 31, 2016, respectively. This error impacted the consolidated balance sheet as of December 31, 2017 and the statements of cash flows for the years ended December 31, 2017 and 2016, respectively.
 
A calculation error related to the effect of exchange rate changes which resulted in an overstatement of cash flows from operating activities of $16.2 million and $1.8 million for the years ended December 31, 2017 and 2016 on the statement of cash flows, respectively.

The Company has assessed the materiality of the above errors on the 2017 and 2016 consolidated financial statements and concluded that the errors were not material to any prior annual periods. The Company has corrected these errors, and other immaterial errors, by revising its previously issued 2017 and 2016 consolidated financial statements in connection with this filing of the 2018 Annual Report on Form 10-K. This revision had no effect on the Company's consolidated statements of operations, comprehensive income or equity for any annual period previously presented. Refer to Note 25, "Revision of Previously Issued Consolidated Financial Statements," for additional discussion of the errors and related error corrections included on the consolidated balance sheets and statements of cash flows. All relevant footnotes to the consolidated financial statements in this Form 10-K have also been revised to reflect the correction of these errors. In addition, the impact of such errors on the 2018 unaudited quarterly financial statements are included in Note 24, "Quarterly Financial Data (Unaudited)."

Recently Adopted Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board ("FASB") issued ASU 2018-14 "Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20): Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans," which modifies the disclosure requirements on the company-sponsored defined benefit pension or other postretirement plans. The Company early adopted this standard as of December 31, 2018 and has applied the disclosure requirements on a retrospective basis. Other than changes in disclosure requirements, this standard did not have an impact on the Company's consolidated financial statements.

In May 2017, the FASB issued ASU 2017-09, "Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting," which provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting pursuant to Topic 718. ASU 2017-09 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted. The amendments in this update are required to be applied prospectively to an award modified on or after the adoption date. This standard became effective for the Company on January 1, 2018. This standard did not have a material impact on the Company's consolidated financial statements.

In March 2017, the FASB issued ASU 2017-07, "Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost," 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 allows only the service cost component of net benefit cost to be eligible for capitalization. As of January 1, 2018, the Company adopted this standard on a retrospective basis. Prior to adoption, periodic benefit costs for both pensions and postretirement benefits were recorded in "Selling, general and administrative expenses" in the consolidated statements of operations. The impact of this standard has been disclosed with "Reclassifications" above.

In November 2016, the FASB issued ASU 2016-18, "Statement of Cash Flows (Topic 230): Restricted Cash," which requires an entity to reconcile the changes in restricted cash as part of total cash and cash equivalents in its statements of cash flows. This standard became effective for the Company on January 1, 2018. The adoption of this standard was applied retrospectively and the impact of this standard has been disclosed with "Reclassifications" above.

In October 2016, the FASB issued ASU 2016-16, "Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory," which requires 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 became effective for the Company on January 1, 2018. Currently the Company does not have material intercompany transactions of non-inventory items and the standard has not had a material impact on the Company's consolidated financial statements as of December 31, 2018.

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. This standard became effective for the Company on January 1, 2018. The adoption of this standard impacts the presentation of collections of the deferred purchase price from its sales of trade accounts receivables in the Company’s consolidated statements of cash flows. Subsequent to adoption, collection of these balances is reported in cash flows from investing activities rather than cash flows from operating activities with all retrospective periods reclassified to conform for comparability. The impact of this standard has been disclosed with "Reclassifications" above. Refer to Note 4, "Accounts Receivable Securitization," for further discussion.

In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)" with additional updates subsequently issued (collectively, "ASU 2014-09"). This ASU creates a single, comprehensive revenue recognition model for all contracts with customers. The model is based on changes in contract assets (rights to receive consideration) and liabilities (obligations to provide a good or service). On January 1, 2018, the Company adopted ASU 2014-09. Either a retrospective or cumulative effect transition method, referred to as the modified retrospective method, is permitted. The Company used the modified retrospective method and recognized the cumulative effect of the initial application of the new revenue standard as an adjustment to the opening balance of retained earnings. Prior period results have not been recasted and continue to be reported under the accounting standards in effect for those periods. In connection with the adoption of this guidance, the Company elected the following practical expedients: (i) significant financing component, (ii) sales taxes, (iii) costs of obtaining a contract, (iv) shipping and handling activities and (v) immaterial promised goods or services. The adoption of ASU 2014-09 did not have a material impact on the Company's consolidated balance sheet as of December 31, 2018 or the consolidated statement of operations or cash flows for the year ended December 31, 2018. Subsequent to the adoption of ASU 2014-09, revenue is recognized based on the satisfaction of performance obligations, which occurs when control of a good or service transfers to a customer. A majority of the Company's net sales continue to be recognized when products are shipped from its manufacturing facilities.

The cumulative effect of the changes made to the Company's consolidated balance sheet as of January 1, 2018 for the adoption of ASU 2014-09 is related to the establishment of right to return assets in conjunction with its product return policy as shown below:

(in millions)
 
As of December 31, 2017
 
Adjustments Due to Adoption of ASU 2014-09
 
As of January 1, 2018
Balance Sheet
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
Inventories — net
 
$
152.3

 
$
1.1

 
$
153.4

Equity:
 
 
 
 
 
 
Retained earnings
 
$
189.1

 
$
1.1

 
$
190.2



Recent Accounting Pronouncements Not Yet Adopted

In October 2018, the FASB issued 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." 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 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, which for the Company is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company will adopt this guidance effective January 1, 2019 and does not expect a material impact on the Company's consolidated financial statements.

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," 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 is currently evaluating the impact that the adoption of this ASU will have on the consolidated financial statements and related disclosures.

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," to provide guidance on the presentation of certain income statement effects from the Tax Cuts and Jobs Act’s reduction in the corporate statutory tax rate. The ASU provides the option of reclassifying what are called the "stranded" tax effects within accumulated other comprehensive loss to retained earnings and requires increased disclosures describing the accounting policy used to release the income tax effects from accumulated other comprehensive income (loss), whether the amounts reclassified are the stranded income tax effects from the Tax Cuts and Jobs 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 Cuts and Jobs Act related to items remaining in accumulated other comprehensive income (loss) are recognized, or (2) at the beginning of the period of adoption. The ASU is effective for fiscal years beginning after December 15, 2018, and the quarterly and other interim periods in those years. Early adoption is permitted. The Company has elected not to release the tax effects within accumulated other comprehensive loss and as a result, the adoption of this ASU will not have an impact on the consolidated financial statements and related disclosures.

In August 2017, the FASB issued ASU 2017-12, "Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities," 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 U.S. GAAP. The standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company will adopt this guidance effective January 1, 2019. The Company has completed its evaluation of its derivatives portfolio with respect to the impact of the adoption of this ASU and concluded that it does not have a material effect on its consolidated financial statements and related disclosures.

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. 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 does not expect the adoption of this standard to have an impact on the Company's consolidated financial statements.

In June 2016 the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments," 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. Under ASU 2016-13, 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 in 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 including the interim periods in the year. The Company is currently evaluating the impact that the adoption of this ASU will have on the consolidated financial statements and related disclosures.

In February 2016, the FASB issued ASU 2016-02, "Leases (ASC Topic 842)." ASC Topic 842, including the related amendments subsequent to its issuance, will supersede the current guidance for lease accounting. Lessees will be required to recognize right-of-use assets and lease liabilities on the balance sheet for most lease arrangements and provide enhanced disclosures. The liability will be equal to the present value of the lease payments and the asset will be based on the liability, subject to certain adjustments, such as for initial direct costs. A dual model was retained for the statement of operations requiring leases to be classified as either operating or financing. Operating leases will result in straight-line expense (similar to current operating leases) while finance leases will result in a front-loaded expense pattern (similar to capital leases). Lessor accounting is similar to the current model but updated to align with certain changes to the lessee model and the new revenue recognition standard. The Company does not have any contracts where it is the lessor. 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 will adopt this new standard on January 1, 2019 and has elected to apply the transition provisions at the beginning of the period of adoption and will not restate comparative periods. As permitted under the transition guidance, the Company has elected the package of practical expedients provided in the standard in that it will not reassess the lease classification of existing contracts or leases and it will not reassess the initial direct costs associated with existing leases. The Company will not elect the hindsight practical expedient.

Based on the portfolio of leases outstanding as of December 31, 2018, the Company anticipates recording a right-of-use asset and an offsetting lease liability in the range of $33 million to $43 million on the Company's balance sheet upon adoption. The cumulative effect adjustment recorded to the opening balance of retained earnings is not material to the consolidated balance sheet. The Company does not expect ASC Topic 842 will have a material impact on the Company's consolidated results of operations or cash flows. The Company is substantially complete with its implementation efforts and is currently finalizing its calculations of the adoption impacts as well as policies, processes and internal controls to align with the new standard.

Recent accounting guidance not discussed above is not applicable, did not have, or is not expected to have a material impact on the Company.
v3.10.0.1
Acquisitions and Divestitures
12 Months Ended
Dec. 31, 2018
Business Combinations [Abstract]  
Acquisitions and Divestitures
3. Acquisitions and Divestitures

Acquisitions

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 comprised $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 under three brands: Coffee Queen, Expobar and Spengler 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. The fair value of the net assets acquired was based on a preliminary valuation and the estimates and assumptions are subject to change within the measurement period. The Company is continuing to evaluate the (i) intangible assets; (ii) deferred tax assets and liabilities; (iii) income tax and non-income tax accruals. The Company will finalize the purchase price allocation as soon as practicable within the measurement period, but in no event later than one year following the Crem Acquisition date.

During the year ended December 31, 2018, the Company incurred approximately $5.2 million of professional services and other direct acquisition and integration costs related to the Crem Acquisition that are included in "Selling, general and administrative expenses" in the consolidated statement of operations. In addition, the Company entered into a foreign currency exchange contract for the purchase price exposure of SEK 1,800 million, which incurred a loss for the year ended December 31, 2018 of $10.0 million in the first half of 2018 and is included in the consolidated statement of operations in "Other expense — net."

The operations of Crem contributed approximately $62.0 million to net sales while incurring a loss from operations of approximately $2.8 million for the year ended December 31, 2018. The loss from operations is inclusive of costs associated with an incident at a subsidiary of Crem which resulted in the diversion of €4.0 million to parties outside of the Company, of which €1.0 million was subsequently recovered. As a result of this incident, the Company recorded a loss of $3.7 million for the diverted funds, net of recovery, and the associated costs for external legal counsel, accounting and administration efforts in "Selling, general and administrative expenses" during the fourth quarter of 2018, of which $3.4 million was incurred directly by Crem. The Company is pursuing recovery opportunities, however, there can be no assurance that any additional recoveries will be made. In addition, the Company will incur additional costs related to the recovery efforts. Supplemental pro forma information has not been presented because the effect of this acquisition was not material to the Company's consolidated statements of operations.

The following table summarizes the consideration paid for Crem and the amounts of the identified assets acquired and liabilities assumed at the acquisition date:

(in millions)
 
 
Total purchase price
 
$
220.3

Less: cash acquired
 
4.7

Total purchase price, net of cash acquired
 
$
215.6

 
 
 
Recognized preliminary amounts of identifiable assets acquired and (liabilities assumed), at fair value:
 
 
Cash
 
$
4.7

Accounts receivable
 
17.2

Inventories
 
16.9

Prepaids and other current assets
 
1.9

Property, plant and equipment
 
4.9

Other intangible assets
 
131.2

Other non-current assets
 
2.1

Accounts payable
 
(11.4
)
Accrued expenses and other liabilities
 
(6.0
)
Deferred income taxes
 
(32.8
)
Pension and postretirement health obligations
 
(0.4
)
Other long-term liabilities
 
(5.0
)
Preliminary estimate of the fair value of assets acquired and liabilities assumed
 
123.3

Allocation to goodwill
 
$
97.0



The preliminary fair value estimates for the Company's identifiable intangible assets other than goodwill acquired as part of the acquisition are as follows:

(in millions)
 
Estimated Fair Values
 
Estimated Useful Life (in years)
 
Weighted Average Amortization Period (in years)
Customer relationships
 
$
64.2

 
10
 
10.0
Design libraries
 
20.6

 
7 — 20
 
10.4
Total definite-lived intangible assets
 
84.8

 
 
 
10.1
Trade name
 
46.4

 
Indefinite
 
 
Total intangible assets
 
$
131.2

 
 
 
 


The preliminary estimated goodwill was allocated to the Company's reportable segments as follows: EMEA $84.2 million and APAC $12.8 million. The goodwill was primarily attributed to increased synergies that are expected to be achieved from the integration of Crem. The goodwill is not expected to be deductible for tax purposes.

Divestitures

In January 2017, the Company completed the sale, which relates entirely to the APAC reportable segment, of a certain parts and field service business in Shanghai, China for a net purchase price of $1.1 million, with cash proceeds received of $1.1 million in December 2016.
v3.10.0.1
Accounts Receivable Securitization
12 Months Ended
Dec. 31, 2018
Transfers and Servicing [Abstract]  
Accounts Receivable Securitization
4. 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 Crane 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. A portion of the U.S. Seller's historical expenses related to bond administration fees and settlement fees were 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 consolidated balance sheets and statements of operations. The Company's cost of funds under the facility used a London interbank offered rate ("LIBOR") index rate plus a 1.25% fixed spread.

The Company participates in a $110.0 million accounts receivable securitization program whereby the Company sells 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, sells, conveys, transfers and assigns to a third-party financial institution (the "Purchaser"), all the rights, title and interest in and to its pool of receivables. This program is currently expected to terminate in March 2019. Upon termination, we expect the securitization will be repaid by receipts of previously sold trade receivables, to the extent borrowings are outstanding at termination. Under this program, the Company generally receives cash consideration up to a certain limit and records a non-cash exchange for sold receivables for the remainder of the purchase price ("deferred purchase price"). The sale of these receivables qualifies for sale accounting treatment. The Company maintains a "beneficial interest," or right to collect cash, in the sold receivables. Cash receipts from the Purchaser at the time of the sale are classified as operating cash while cash receipts from the beneficial interest on sold receivables are classified as investing activities on the consolidated statements of cash flows.

The Company along with certain of its subsidiaries act as servicers of the sold receivables. The servicers administer, collect and otherwise enforce these receivables and are compensated for doing so on terms that are generally consistent with what would be charged by an unrelated servicer. The servicers initially receive payments made by obligors on the receivables but are required to remit those payments in accordance with the receivables purchase agreement. Upon termination of the program, the Purchaser will have no recourse for uncollectible receivables. The securitization program 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. The accounts receivable securitization program was amended on February 2, 2018 and again on October 23, 2018 in conjunction with amendments to the 2016 Credit Agreement to provide for certain conforming changes including amending the Consolidated Total Leverage Ratio required thereunder. See Note 10, "Debt," for additional details of the 2016 Credit Agreement and related amendments.

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 beneficial interest in the sold receivables approximates book value and as of December 31, 2018 and 2017, totaled $56.9 million and $62.9 million respectively, and is recorded in "Accounts receivable, less allowance" in the consolidated balance sheets. The Company deems 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 accounts receivables removed from the Company's consolidated balance sheets in connection with the accounts receivable securitization program was $96.9 million and $99.5 million at December 31, 2018, and 2017, respectively.
v3.10.0.1
Inventories - Net
12 Months Ended
Dec. 31, 2018
Inventory Disclosure [Abstract]  
Inventories - Net
5. Inventories — Net

The components of "Inventories—net" at December 31, 2018 and 2017 are summarized as follows:

 
 
December 31,
(in millions)
 
2018
 
2017
Inventories — gross:
 
 
 
 

Raw materials
 
$
90.4

 
$
73.9

Work-in-process
 
16.0

 
18.9

Finished goods
 
108.8

 
86.9

Total inventories — gross
 
215.2

 
179.7

Excess and obsolete inventory reserve
 
(20.4
)
 
(23.5
)
Net inventories at FIFO cost
 
194.8

 
156.2

Excess of FIFO costs over LIFO value
 
(4.2
)
 
(3.9
)
Inventories — net
 
$
190.6

 
$
152.3

v3.10.0.1
Property, Plant and Equipment - Net
12 Months Ended
Dec. 31, 2018
Property, Plant and Equipment [Abstract]  
Property, Plant and Equipment - Net
6. Property, Plant and Equipment — Net

The components of "Property, plant and equipment — net" at December 31, 2018 and 2017 are summarized as follows:

 
 
December 31,
(in millions)
 
2018
 
2017
Land
 
$
9.8

 
$
9.5

Building and improvements
 
88.5

 
88.9

Machinery, equipment and tooling
 
226.6

 
227.3

Furniture and fixtures
 
6.5

 
6.0

Computer hardware and software
 
58.3

 
55.1

Construction in progress
 
21.1

 
15.7

Total cost
 
410.8

 
402.5

Less accumulated depreciation
 
(291.8
)
 
(290.3
)
Property, plant and equipment — net
 
$
119.0

 
$
112.2

v3.10.0.1
Goodwill and Other Intangible Assets - Net
12 Months Ended
Dec. 31, 2018
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill and Other Intangible Assets - Net
7. Goodwill and Other Intangible Assets — Net

The Company has three reportable segments: Americas, EMEA and APAC. The changes in the carrying amount of goodwill by reportable segment for the years ended December 31, 2018, 2017 and 2016 are as follows:

(in millions)
 
Americas
 
EMEA
 
APAC
 
Total
Gross balance as of December 31, 2016
 
$
1,144.8

 
$
208.2

 
$
8.0

 
$
1,361.0

Accumulated asset impairments
 
(312.2
)
 
(203.5
)
 

 
(515.7
)
Net balance as of December 31, 2016
 
$
832.6

 
$
4.7

 
$
8.0

 
$
845.3

 
 
 
 
 
 
 
 
 
Foreign currency impact
 
$

 
$
0.2

 
$
0.6

 
$
0.8

Gross balance as of December 31, 2017
 
1,144.8

 
208.4

 
8.6

 
1,361.8

Accumulated asset impairments
 
(312.2
)
 
(203.5
)
 

 
(515.7
)
Net balance as of December 31, 2017
 
$
832.6

 
$
4.9

 
$
8.6

 
$
846.1

 
 
 
 
 
 
 
 
 
Impact of acquisition
 
$

 
$
84.2

 
$
12.8

 
$
97.0

Foreign currency impact
 

 
(6.0
)
 
(1.5
)
 
(7.5
)
Gross balance as of December 31, 2018
 
1,144.8

 
286.6

 
19.9

 
1,451.3

Accumulated asset impairments
 
(312.2
)
 
(203.5
)
 

 
(515.7
)
Net balance as of December 31, 2018
 
$
832.6

 
$
83.1

 
$
19.9

 
$
935.6


As of June 30, 2018 and 2017, the Company performed the annual impairment test for its reporting units, as well as its indefinite-lived intangible assets, and based on those results, no impairment was indicated.

The gross carrying amount and accumulated amortization of the Company's intangible assets other than goodwill are as follows as of December 31, 2018 and 2017:

 
 
2018
 
2017
(in millions)
 
Gross
Carrying
Amount
 
Accumulated
Amortization
Amount
 
Net
Book
Value
 
Gross
Carrying
Amount
 
Accumulated
Amortization
Amount
 
Net
Book
Value
Trademarks and trade names
 
$
218.7

 
$

 
$
218.7

 
$
177.5

 
$

 
$
177.5

Customer relationships
 
474.8

 
(217.4
)
 
257.4

 
415.3

 
(192.3
)
 
223.0

Patents
 
5.8

 
(1.7
)
 
4.1

 
2.8

 
(1.7
)
 
1.1

Other intangibles
 
162.4

 
(95.9
)
 
66.5

 
144.9

 
(85.1
)
 
59.8

Total
 
$
861.7

 
$
(315.0
)
 
$
546.7

 
$
740.5

 
$
(279.1
)
 
$
461.4



Amortization expense for the years ended December 31, 2018, 2017 and 2016 was $37.0 million, $31.2 million and $31.2 million, respectively. At December 31, 2018, the weighted average remaining useful lives of the customer relationships, patents, and other intangibles were approximately 11 years, 17 years and 8 years, respectively. The total weighted average remaining useful life of the definite-lived intangible assets was approximately 10 years.

As of December 31, 2018, the estimated future amortization of intangible assets, other than goodwill, excluding the impact of any future acquisitions or divestitures is as follows:

(in millions)
 
 
Year ending December 31:
 
 
2019
 
$
35.8

2020
 
35.6

2021
 
35.6

2022
 
33.7

2023
 
29.0

Thereafter
 
158.3

 
 
$
328.0

v3.10.0.1
Accounts Payable and Accrued Expenses and Other Liabilities
12 Months Ended
Dec. 31, 2018
Payables and Accruals [Abstract]  
Accounts Payable and Accrued Expenses and Other Liabilities
8. Accounts Payable and Accrued Expenses and Other Liabilities

Accounts payable and accrued expenses and other liabilities at December 31, 2018 and 2017 are summarized as follows:

 
 
December 31,
(in millions)
 
2018
 
2017
Accounts payable:
 
 
 
 
Trade accounts payable
 
$
151.0

 
$
103.6

Total accounts payable
 
$
151.0

 
$
103.6

Accrued expenses and other liabilities:
 
 
 
 
Interest payable
 
$
2.2

 
$
7.8

Income taxes payable
 
10.2

 
13.9

Employee related expenses
 
30.0

 
30.8

Restructuring expenses
 
3.0

 
5.0

Profit sharing and incentives
 
19.9

 
11.5

Accrued rebates
 
50.8

 
50.0

Deferred revenue — current
 
2.7

 
4.2

Customer advances
 
3.1

 
2.6

Product liability
 
1.3

 
1.4

Derivative liability
 
18.4

 
1.2

Miscellaneous accrued expenses
 
42.1

 
41.1

Total accrued expenses and other liabilities
 
$
183.7

 
$
169.5

v3.10.0.1
Income Taxes
12 Months Ended
Dec. 31, 2018
Income Tax Disclosure [Abstract]  
Income Taxes
9. Income Taxes

The Company, 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 U.S. 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 entities of the Company's were filed by the Company for periods prior to and after the Spin-Off. Net 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 the Company 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 separate return bases in the consolidated financial statements. As a result, the effective tax rate and deferred income taxes in 2018 and 2017 may differ from those in historical periods.

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the "Tax Act"). The Tax Act made broad and complex changes to the U.S. tax code the effects of which began in 2017. Effective in 2018, the Tax Act reduced the U.S. federal corporate statutory tax rate to 21%, introduced new provisions designed to tax global intangible low-taxed income ("GILTI") and transactions subject to base erosion anti-abuse tax ("BEAT"), disallowed interest and provided a tax rate incentive for foreign derived intangible income ("FDII"). The significant change in 2017 included, but was not limited to, requiring a one-time Deemed Repatriation Transition Tax ("Transition Tax") on certain unrepatriated earnings of foreign subsidiaries that is payable over eight years.

Final regulations related to the Tax Act that are issued by June 22, 2019 may have retroactive effects to the enactment date, resulting in potential adjustments in future reporting periods for provisions of the Tax Act that became effective beginning in 2017. Proposed amendments to the Income Tax Regulations under Section 163(j) of the U.S. Internal Revenue Code were issued on November 26, 2018 and are effective for the taxable year 2019 after publication in the Federal Register, at which time they will be adopted by the Company. Additional discussion of the impact of the Tax Act on the consolidated financial statements is included below.

"Earnings before income taxes" in the consolidated statements of operations is comprised of the following for the years ended December 31, 2018, 2017 and 2016:

(in millions)
 
2018
 
2017
 
2016
Domestic
 
$
(8.0
)
 
$
32.5

 
$
31.5

Foreign
 
97.0

 
88.9

 
70.7

          Total
 
$
89.0

 
$
121.4

 
$
102.2



"Income taxes" in the consolidated statements of operations is comprised of the following for the years ended December 31, 2018, 2017 and 2016:

(in millions)
 
2018
 
2017
 
2016
Current:
 
 
 
 
 
 
Federal and state
 
$
(4.3
)
 
$
28.2

 
$
19.7

Foreign
 
29.1

 
24.6

 
18.6

Total current tax expense
 
24.8

 
52.8

 
38.3

Deferred:
 
 
 
 
 
 
Federal and state
 
(14.0
)
 
(56.6
)
 
(9.2
)
Foreign
 

 
(7.7
)
 
1.6

Total deferred tax benefit
 
(14.0
)
 
(64.3
)
 
(7.6
)
Total:
 
 
 
 
 
 
Federal and State
 
(18.3
)
 
(28.4
)
 
10.5

International
 
29.1

 
16.9

 
20.2

Income taxes
 
$
10.8

 
$
(11.5
)
 
$
30.7



A reconciliation of the U.S. federal statutory income tax rate to the Company's effective tax rate is as follows for the years ended December 31, 2018, 2017 and 2016:

 
 
2018
 
2017
 
2016
Federal income tax at statutory rate
 
21.0
 %
 
35.0
 %
 
35.0
 %
State income provision (benefit)
 
0.5

 
(2.6
)
 
0.9

Manufacturing and research incentives
 
(3.1
)
 
(1.7
)
 
(1.9
)
Taxes on foreign income
 
7.6

 
(3.5
)
 
(4.8
)
Repatriation of foreign income - Tax Act
 
(11.2
)
 
11.1

 

Change in federal income tax statutory rate - Tax Act
 

 
(37.5
)
 

Global intangible low taxed income
 
1.5

 

 

Foreign derived intangible income
 
(1.3
)
 

 

Adjustments for valuation allowances
 
(0.2
)
 
(11.2
)
 
2.5

Discrete adjustments
 
(2.6
)
 

 

Other items
 
(0.1
)
 
0.9

 
(1.7
)
Effective tax rate
 
12.1
 %
 
(9.5
)%
 
30.0
 %


During 2018, the Company's effective tax rate was 12.1%, compared to the 2017 effective tax rate of (9.5)%. The increase in the effective tax rate in 2018 compared to 2017 was primarily driven by a lower net benefit of 15.4% from incorporating the elements of the Tax Act. In addition, the statutory rate was 21.0% and 35.0% for 2018 and 2017 respectively, which reduction resulted in an additional tax impact of 7.6% for taxes on foreign income in 2018, including non-deductible Crem acquisition costs, versus a 3.5% benefit in 2017. An increase in the effective tax rate in 2018 also resulted from a reduced benefit of 11.0% for valuation allowance adjustments, which was partially offset by the 2.6% discrete tax benefit in 2018.

During 2017, the Company's effective tax rate was (9.5)%, compared to the 2016 effective tax rate of 30.0%. The net decrease in the effective tax rate is primarily due to the benefit from the revaluation of the U.S. deferred tax assets and liabilities in conjunction with the Tax Act. In addition, a valuation allowance was released that was recorded against the deferred tax assets for certain entities in the United Kingdom ("U.K"). A $3.5 million net state tax benefit was recorded in 2017 primarily due to revised estimates of the Company's state tax liabilities. These benefits are partially offset by the Transition Tax on previously untaxed accumulated and current earnings and profits ("E&P") of certain foreign subsidiaries.

Domestic loss before income taxes in 2018 represents 9.0% of total earnings and an unfavorable 7.6% effective tax rate impact for higher taxes on foreign income, including non-deductible Crem acquisition costs, whereas 2017 domestic earnings represent 26.8% of total earnings and a favorable 3.5% effective tax rate impact for net lower taxes on foreign income. The 2017 effective tax rate was favorably impacted by income earned in jurisdictions, primarily in Canada and China, where the statutory rates are approximately 25.0%. The 2016 domestic earnings represent 30.8% of total earnings and a favorable 4.8% effective tax rate impact for net lower taxes on foreign income.

As a result of the Tax Act, U.S. federal and state income taxes have been recorded on undistributed foreign earnings accumulated through December 31, 2018. To the extent that the foreign earnings are repatriated, the related U.S. tax liability may be reduced by any foreign income taxes paid on these earnings, including withholding taxes incurred directly upon actual repatriation. The Company has not recorded a deferred tax liability for foreign withholding or other foreign local tax that would be due when cash is actually repatriated to the U.S. because those foreign earnings are considered permanently reinvested or may be remitted substantially free of any additional local taxes. Further, the determination of the amount of the unrecognized deferred tax liability related to the undistributed earnings is not practicable.

Deferred income taxes are provided for the effects of temporary differences between the assets and liabilities recognized for financial reporting and tax reporting. These temporary differences result in taxable or deductible amounts in future years.

Significant components of the Company’s non-current deferred tax assets and liabilities as of December 31, 2018 and 2017 were as follows:

(in millions)
 
2018
 
2017
Non-current deferred tax assets (liabilities):
 
 
 
 
Inventories
 
$
2.8

 
$
3.5

Accounts receivable
 
1.0

 
0.9

Property, plant and equipment
 
(3.7
)
 
(2.4
)
Intangible assets
 
(139.3
)
 
(118.0
)
Deferred employee benefits
 
20.1

 
19.9

Product warranty reserves
 
7.6

 
7.5

Product liability reserves
 
2.6

 
2.2

Loss carryforwards
 
40.6

 
41.3

Other
 
19.3

 
12.9

Non-current deferred tax liabilities
 
(49.0
)
 
(32.2
)
Less valuation allowance
 
(40.7
)
 
(41.0
)
Net non-current deferred tax liabilities
 
$
(89.7
)
 
$
(73.2
)


Current and long-term tax assets and liabilities included in the consolidated balance sheets are comprised of the following as of December 31, 2018 and 2017:

(in millions)
 
2018
 
2017
 
Financial Statement Line Item
Income tax receivable
 
$
15.6

 
$
4.3

 
Prepaids and other current assets
Deferred tax asset
 
14.6

 
18.1

 
Other non-current assets
Income taxes payable
 
(10.2
)
 
(13.9
)
 
Accrued expenses and other liabilities
Income taxes payable
 
(0.9
)
 
(12.5
)
 
Other long-term liabilities
Deferred tax liabilities
 
(104.3
)
 
(91.3
)
 
Deferred income taxes


The Securities and Exchange Commission ("SEC") staff issued Staff Accounting Bulletin ("SAB") No. 118, which provides guidance on accounting for the tax effects of the Tax Act enacted on December 22, 2017. SAB No. 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date. To the extent that the accounting for certain income tax effects of the Tax Act was incomplete but a reasonable estimate could be determined, a provisional estimate was recorded in the 2017 consolidated financial statements.

The Company’s accounting for the following elements of the Tax Act is complete. A summary of the significant implementation items are as follows:

Reduction of U.S. federal corporate tax rate: The Tax Act reduced the U.S. corporate statutory tax rate to 21.0%, effective January 1, 2018. For the U.S. related deferred tax assets and deferred tax liabilities, the Company recorded a net deferred tax benefit of $45.5 million for the year ended December 31, 2017. No adjustments of this deferred tax benefit were recorded during 2018.

Transition Tax: The Transition Tax is a tax on certain previously untaxed accumulated and current E&P of the Company’s foreign subsidiaries. Management was able to reasonably estimate the Transition Tax and recorded a provisional Transition Tax obligation of $13.5 million, with a corresponding adjustment to income tax expense for the year ended December 31, 2017. Based on revised E&P computations performed in 2018, there was a $10.0 million benefit recorded for 2018 relating to the Transition Tax obligation. The measurement period adjustment was an 11.2% benefit to the 2018 effective tax rate. The Transition Tax, which has now been determined to be complete, resulted in recording a total Transition Tax obligation of $3.5 million.

The Company’s accounting for significant items of the Tax Act that became effective in 2018 include the following:

GILTI: The Tax Act created a new requirement that certain income earned by controlled foreign corporations ("CFCs") must be included currently in the gross income of the CFCs U.S. shareholder. Under U.S. GAAP, the Company is allowed to make an accounting policy choice of either (1) treating taxes due on future U.S. inclusions in taxable income related to GILTI as a current-period expense, commencing in 2018 upon its effective date, when incurred (the "period cost method") or (2) factoring such amounts into the measurement of deferred taxes (the "deferred method"). The Company adopted the period cost method to record GILTI for the three months ended March 31, 2018 and accordingly, deferred taxes are not recorded for GILTI. As a result, no changes to valuation allowances as a result of GILTI have been recorded. The unfavorable effect of GILTI on the 2018 effective tax rate was approximately 1.5%.

FDII: The Tax Act provided a U.S. federal tax rate of 13.1% on FDII, compared to the statutory federal tax rate of 21.0%. The favorable effect of FDII on the 2018 effective tax rate was approximately 1.3%.

Capital requirements: As of December 31, 2018, approximately $72.4 million of the $73.2 million of cash and cash equivalents, including restricted cash, on the consolidated balance sheet was held by foreign entities. Management’s intent is to reinvest the earnings of foreign subsidiaries indefinitely outside the U.S.

As of December 31, 2018, the Company has approximately $180.2 million of pre-tax foreign loss carryforwards, which are available to reduce future foreign tax liabilities. Foreign loss carryforwards are not subject to any time restrictions on their future use for substantially all of the balance and $134.2 million are offset by a valuation allowance. The Company also has approximately $63.3 million of pre-tax U.S. capital loss carryforwards which expire in 2019 and are offset by a valuation allowance and an unrecognized tax benefit.

As of each reporting date, the Company's management considers new evidence, both positive and negative, that could impact management's view regarding future realization of deferred tax assets. For the year ended December 31, 2018, the Company determined that the deferred income tax assets of certain entities in the United Kingdom, Singapore, Thailand and India will not be realized and did not release the valuation allowance recorded against those assets. For the year ended December 31, 2017, the Company determined that sufficient positive evidence existed to conclude that it is more likely than not that additional deferred taxes of $8.6 million of the total $36.8 million recorded in the U.K. are realizable, and therefore, reduced the valuation allowance accordingly. The Company has additional valuation allowances recorded on certain of the other deferred income tax assets in the United Kingdom, and certain entities in Singapore, Thailand and India, as it remains more likely than not that they will not be utilized.

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.

A reconciliation of the Company's unrecognized tax benefits is as follows for the years ended December 31, 2018, 2017 and 2016:

(in millions)
 
2018
 
2017
 
2016
Balance at beginning of year
 
$
12.3

 
$
12.5

 
$
16.6

Additions based on tax positions related to the current year
 

 

 
0.8

Additions for tax positions of prior years
 
3.3

 
0.2

 
1.0

Reductions for tax positions of prior years
 
(4.1
)
 
(0.4
)
 

Reductions for equity adjustments
 

 

 
(4.3
)
Reductions for lapse of statute
 

 

 
(1.6
)
Balance at end of year
 
$
11.5

 
$
12.3

 
$
12.5



The Company’s unrecognized tax benefits as of December 31, 2018, 2017 and 2016, if recognized, would impact the effective tax rate. The decrease in unrecognized tax benefits is primarily due to the lower U.S. federal statutory tax rate, partially offset by recognition of additional amounts from the Crem acquisition. The Company recognizes interest and penalties related to tax liabilities as a part of income tax expense. As of December 31, 2018 and 2017, the Company has accrued interest and penalties of $1.5 million and $0.2 million, respectively.

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 $0.2 million to $1.7 million.

MTW has filed tax returns on behalf of the Company in the U.S. and various state and foreign jurisdictions prior to the Spin-Off. The Company's separate federal and state tax returns for the 2014 through 2018 tax years generally remain subject to examination by U.S. and various state authorities. Tax years 2014 through 2018 remain subject to examination in Canada and Germany. Tax years 2009 through 2018 remain subject to audit in China.

The Company regularly assesses the likelihood of an adverse outcome resulting from examinations to determine the adequacy of its tax reserves. As of December 31, 2018, 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.
v3.10.0.1
Debt
12 Months Ended
Dec. 31, 2018
Debt Disclosure [Abstract]  
Debt
10. Debt

Outstanding debt at December 31, 2018 and 2017 is summarized as follows:

(in millions, except percentage data)
 
2018
 
Weighted Average Interest Rate
 
2017
 
Weighted Average Interest Rate
Revolving loan facility
 
$
15.0

 
4.06
%
 
$

 
%
Revolving credit facility
 
78.0

 
4.70
%
 
25.0

 
4.41
%
Term Loan B facility
 
855.0

 
5.22
%
 
815.0

 
4.90
%
9.50% Senior Notes due 2024
 
425.0

 
9.72
%
 
425.0

 
9.72
%
Capital leases
 
2.8

 
4.50
%
 
2.7

 
4.17
%
Total debt and capital leases, including current portion
 
1,375.8

 
 
 
1,267.7

 
 
Less:
 
 
 
 
 
 
 
 
Revolving loan facility
 
(15.0
)
 
 
 

 
 
Current portion of capital leases
 
(1.1
)
 
 
 
(0.7
)
 
 
Unamortized debt issuance costs (1)
 
(24.2
)
 
 
 
(26.4
)
 
 
Hedge accounting fair value adjustment (2)
 
(13.7
)
 
 
 
(8.4
)
 
 
Total long-term debt and capital leases
 
$
1,321.8

 
 
 
$
1,232.2

 
 
 
(1) Total outstanding debt issuance costs, net of amortization as of December 31, 2018 and 2017 was $27.3 million and $28.6 million, respectively, of which $3.1 million and $2.2 million, respectively, was related to the revolving credit facility and recorded in "Other non-current assets" in the consolidated balance sheets.
(2) Represents the change in fair value due to changes in benchmark interest rates related to the Company's Senior Notes due 2024. Refer to Note 11, "Derivative Financial Instruments," for additional information on the Company's interest rate swap designated as a fair value hedge.

Maturities of debt, excluding capital leases, are as follows as of December 31, 2018:

(in millions)
 
 
Year ending December 31:
 
 
2019
 
$
15.0

2020
 

2021
 
3.3

2022
 
3.3

2023
 
81.3

Thereafter