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EX-32.2 - EXHIBIT 32.2 - Welbilt, Inc.wbt-20170930x10qxex322.htm
EX-32.1 - EXHIBIT 32.1 - Welbilt, Inc.wbt-20170930x10qxex321.htm
EX-31.2 - EXHIBIT 31.2 - Welbilt, Inc.wbt-20170930x10qxex312.htm
EX-31.1 - EXHIBIT 31.1 - Welbilt, Inc.wbt-20170930x10qxex311.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 2017
or
o
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from              to
Commission File Number
1-37548
welbiltlogotagline2carka07.jpg 
Welbilt, Inc.
(Exact name of registrant as specified in its charter)
Delaware
 
47-4625716
(State or other jurisdiction
 
(I.R.S. Employer
of incorporation)
 
Identification Number)
 
 
 
2227 Welbilt Boulevard
 
 
New Port Richey, FL
 
34655
(Address of principal executive offices)
 
(Zip Code)
(727) 375-7010
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x  No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer              x
 
Accelerated filer                       o
Non-accelerated filer                o                                                     
 
Smaller reporting company        o
(Do not check if a smaller reporting company)

 
Emerging growth company        o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13 (a) of the Exchange Act. o
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o  No x
The number of shares outstanding of the registrant's Common Stock as of November 3, 2017, the most recent practicable date, was 139,445,499.



WELBILT, INC.
Index to Quarterly Report on Form 10-Q
For the Quarterly Period Ended September 30, 2017
 
 
Page
 
 
 
 
 
 
 
 
 
 

 
 
 
 
 
 
 
 
 



-2-


PART I. FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS (UNAUDITED)


WELBILT, INC.
Consolidated (Condensed) Statements of Operations
(Unaudited)


Three Months Ended September 30,
 
Nine Months Ended September 30,
Millions of dollars, except share and per share data

2017

2016
 
2017
 
2016
Net sales

$
380.4

 
$
384.0

 
$
1,079.5

 
$
1,077.9

Cost of sales

236.5

 
242.0

 
675.4

 
683.6

Gross profit

143.9

 
142.0

 
404.1

 
394.3

Selling, general and administrative expenses

66.5

 
69.9

 
215.5

 
217.1

Amortization expense

7.9

 
7.8

 
23.4

 
23.5

Separation expense

0.3

 
1.4

 
1.5

 
5.7

Restructuring expense

2.8

 
0.6

 
8.5

 
2.2

(Gain) loss from impairment or disposal of assets — net

(3.9
)
 
1.7

 
(4.1
)
 
1.7

Earnings from operations

70.3

 
60.6

 
159.3

 
144.1

Interest expense

21.7

 
25.0

 
65.9

 
60.5

Interest expense on notes with MTW — net


 

 

 
0.1

Loss on early extinguishment of debt
 
1.0

 

 
4.4

 

Other expense — net

2.6

 
3.6

 
7.0

 
9.6

Earnings before income taxes

45.0

 
32.0

 
82.0

 
73.9

Income taxes

11.9

 
7.1

 
13.8

 
15.8

Net earnings

$
33.1

 
$
24.9

 
$
68.2

 
$
58.1

Per share data




 
 
 
 
Earnings per common share — Basic

$
0.24


$
0.18

 
$
0.49

 
$
0.42

Earnings per common share — Diluted

$
0.24


$
0.18

 
$
0.49

 
$
0.42

Weighted average shares outstanding — Basic

139,162,556


138,277,039

 
138,978,203

 
137,618,628

Weighted average shares outstanding — Diluted

140,885,026


139,488,577

 
140,619,387

 
138,835,834


The accompanying notes are an integral part of these unaudited consolidated (condensed) financial statements.

-3-


WELBILT, INC.
Consolidated (Condensed) Statements of Comprehensive Income
(Unaudited)
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
Millions of dollars
 
2017
 
2016
 
2017
 
2016
Net earnings
 
$
33.1

 
$
24.9

 
$
68.2

 
$
58.1

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
 
1.4

 
(0.5
)
 
12.1

 
10.6

Unrealized gain (loss) on derivatives, net of income tax expense (benefit) of $0.7, ($0.0), $1.0 and $0.7, respectively
 
0.8

 
(0.3
)
 
0.9

 
2.1

Employee pension and post-retirement benefits, net of income tax expense (benefit) of $0.2, $0.2, $0.4 and ($5.6), respectively
 
0.3

 
(0.7
)
 
1.1

 
(9.3
)
Total other comprehensive income (loss), net of tax
 
2.5

 
(1.5
)
 
14.1

 
3.4

Comprehensive income
 
$
35.6

 
$
23.4

 
$
82.3

 
$
61.5


The accompanying notes are an integral part of these unaudited consolidated (condensed) financial statements.


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WELBILT, INC.
Consolidated (Condensed) Balance Sheets
 
 
September 30,
 
December 31,
Millions of dollars, except share and per share data
 
2017
 
2016
 
 
(Unaudited)
 
 
Assets
 
 

 
 

Current assets:
 
 

 
 

Cash and cash equivalents
 
$
128.4

 
$
53.8

Restricted cash
 
0.2

 
6.4

Accounts receivable, less allowances of $3.9 and $5.3, respectively
 
86.4

 
81.7

Inventories — net
 
169.1

 
145.6

Prepaids and other current assets
 
21.5

 
13.9

Current assets held for sale
 

 
6.8

Total current assets
 
405.6

 
308.2

Property, plant and equipment — net
 
110.5

 
109.1

Goodwill
 
846.0

 
845.3

Other intangible assets — net
 
467.4

 
484.4

Other non-current assets
 
32.6

 
22.1

Total assets
 
$
1,862.1

 
$
1,769.1

Liabilities and equity
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable
 
$
108.1

 
$
108.4

Accrued expenses and other liabilities
 
162.9

 
174.5

Short-term borrowings
 
4.0

 

Current portion of long-term debt and capital leases
 
0.5

 
1.6

Product warranties
 
24.0

 
27.9

Current liabilities held for sale
 

 
0.7

Total current liabilities
 
299.5

 
313.1

Long-term debt and capital leases
 
1,292.6

 
1,278.7

Deferred income taxes
 
139.2

 
137.8

Pension and post-retirement health obligations
 
42.2

 
47.4

Other long-term liabilities
 
44.6

 
35.6

Total non-current liabilities
 
1,518.6

 
1,499.5

Commitments and contingencies (note 14)
 


 


Total equity (deficit):
 
 

 
 

Common stock ($0.01 par value, 300,000,000 shares authorized, 139,312,299 shares and 138,601,327 shares issued and 139,272,988 shares and 138,562,016 shares outstanding, respectively)
 
1.4

 
1.4

Additional paid-in capital (deficit)
 
(66.8
)
 
(72.0
)
Retained earnings
 
138.7

 
70.5

Accumulated other comprehensive loss
 
(29.3
)
 
(43.4
)
Total equity (deficit)
 
44.0

 
(43.5
)
Total liabilities and equity
 
$
1,862.1

 
$
1,769.1


The accompanying notes are an integral part of these unaudited consolidated (condensed) financial statements.

-5-


WELBILT, INC.
Consolidated (Condensed) Statements of Cash Flows
(Unaudited)
 
 
Nine Months Ended September 30,
Millions of dollars
 
2017
 
2016
Cash flows from operating activities:
 
 

 
 

Net earnings
 
$
68.2

 
$
58.1

Adjustments to reconcile net earnings to cash provided by operating activities:
 
 
 
 
Depreciation
 
12.1

 
13.0

Amortization of intangible assets
 
23.4

 
23.5

Amortization of debt issuance costs
 
4.0

 
3.3

Loss on early extinguishment of debt
 
4.4

 

Deferred income taxes
 
(16.0
)
 
(8.6
)
Stock-based compensation expense
 
9.2

 
4.9

(Gain) loss from impairment or disposal of assets — net
 
(4.1
)
 
1.7

Changes in operating assets and liabilities:
 
 
 
 
Accounts receivable — net
 
9.1

 
(17.6
)
Inventories
 
(18.2
)
 
(11.5
)
Other assets
 
(1.8
)
 
(7.3
)
Accounts payable
 
(3.3
)
 
(10.5
)
Other current and long-term liabilities
 
(21.2
)
 
2.8

Net cash provided by operating activities
 
65.8

 
51.8

Cash flows from investing activities:
 
 

 
 

Capital expenditures
 
(14.1
)
 
(10.8
)
Proceeds from sale of property, plant and equipment
 
12.3

 

Changes in restricted cash
 
6.3

 
(2.9
)
Net cash provided by (used in) investing activities
 
4.5

 
(13.7
)
Cash flows from financing activities:
 
 

 
 

Proceeds from long-term debt and capital leases
 
140.9

 
1,475.6

Repayments on long-term debt and capital leases
 
(134.8
)
 
(94.6
)
Debt issuance costs
 
(2.0
)
 
(41.2
)
Change in short term borrowings
 
4.0

 

Dividend paid to MTW
 

 
(1,362.0
)
Net transactions with MTW
 

 
7.0

Exercises of stock options
 
3.2

 
15.1

Net cash provided by (used in) financing activities
 
11.3

 
(0.1
)
Effect of exchange rate changes on cash
 
(7.0
)
 
(0.4
)
Net increase in cash and cash equivalents
 
74.6

 
37.6

Balance at beginning of period
 
53.8

 
32.0

Balance at end of period
 
$
128.4

 
$
69.6


The accompanying notes are an integral part of these unaudited consolidated (condensed) financial statements.


-6-


WELBILT, INC.
Notes to Unaudited Consolidated (Condensed) Financial Statements

1. Business and Organization
The Spin-Off and Rebranding

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

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

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

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

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

"Welbilt" and the "Company" refer to Welbilt, Inc. and its consolidated subsidiaries, after giving effect to the Spin-Off, or, in the case of information as of dates or for periods prior to its separation from MTW, the combined entities of the Foodservice business, and certain other assets and liabilities that were historically held at the MTW corporate level, but were specifically identifiable and attributable to the Foodservice business; and

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

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

2. Summary of Significant Accounting Policies and Basis of Presentation

Principles of Consolidation and Basis of Presentation

The accompanying unaudited consolidated (condensed) financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP"). All intercompany balances and transactions between the Company and its affiliates have been eliminated.
 
During the periods presented prior to the Spin-Off on March 4, 2016, the Company's financial statements were prepared on a combined standalone basis derived from the consolidated financial statements and accounting records of MTW. The Company functioned as part of the larger group of companies controlled by MTW. Accordingly, MTW performed certain corporate overhead functions for the Company. Therefore, certain costs related to the Company have been allocated from MTW for the period of January 1, 2016 up to the Spin-Off on March 4, 2016. These allocated costs are primarily related to: 1) corporate officers, 2) employee benefits and compensation, 3) share-based compensation and 4) certain administrative functions, which are not provided at the business level including, but not limited to, finance, treasury, tax, audit, legal, information technology, human resources and investor relations. Where possible, these costs were allocated based on direct usage, with the remainder allocated on a basis of revenue, headcount or other measures the Company determined to be reasonable.

Income tax expense in the consolidated (condensed) statement of operations for the period prior to the Spin-Off is computed on a separate return basis, as if Welbilt was operating as a separate consolidated group and filed separate tax returns in the jurisdictions in which it operates.

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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 (condensed) financial statements for the period prior to the Spin-Off may not be indicative of Welbilt's future expected tax rate. In addition, cash tax payments and items of current and deferred taxes may not be reflective of Welbilt's actual tax balances prior to or subsequent to the Spin-Off.
 
Welbilt, as a stand-alone entity commencing with the Spin-Off, files U.S. federal and state tax returns on its own behalf. The responsibility for current income tax liabilities of 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 (condensed) financial statements. As a result, the effective tax rate and deferred income taxes of Welbilt may differ from those in periods prior to or subsequent to the Spin-Off.

Use of Estimates

The preparation of consolidated (condensed) financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes, including costs allocated prior to the Spin-Off. The consolidated (condensed) financial statements may not be indicative of the Company's future performance, and they do not necessarily include all of the actual expenses that would have been incurred by the Company and may not reflect the results of operations, financial position and cash flows had the Company been a standalone Company during the entirety of the period presented prior to the Spin-Off.

Accounting Policies

In the opinion of management, the consolidated (condensed) financial statements contain all adjustments necessary for a fair statement of the results of operations and comprehensive income for the three and nine months ended September 30, 2017 and 2016, the financial position at September 30, 2017 and December 31, 2016, and the results of cash flows for the nine months ended September 30, 2017 and 2016, and except as otherwise discussed, such adjustments consist only of those of a normal recurring nature. The interim results are not necessarily indicative of results that may be achieved for a full year performance. Certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the Securities and Exchange Commission's ("SEC") rules and regulations governing interim financial statements. However, the Company believes that the disclosures made in the accompanying unaudited consolidated (condensed) financial statements and related notes are adequate to make the information presented not misleading. These consolidated (condensed) financial statements should be read in conjunction with the Company's audited consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2016.

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

Reclassifications

Certain prior period amounts have been reclassified to conform to the current period presentation.

Recently Adopted Accounting Pronouncements

In January 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") 2017-04, "Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment," which removes the second step of the annual goodwill impairment test. ASU 2017-04 is effective for fiscal years, and interim periods within those fiscal years, for annual impairment tests beginning after December 15, 2019. Early adoption is permitted in any interim or annual reporting period for impairment tests performed after January 1, 2017 and the amendments in this ASU should be applied prospectively. The Company early adopted this standard and applied the guidance from ASU 2017-04 in its annual goodwill assessment performed as of June 30, 2017. The adoption of this standard did not have an impact on the Company’s consolidated (condensed) financial statements and related disclosures.

In March 2016, the FASB issued ASU 2016-09, "Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting," which simplifies several aspects of the accounting for share-based payment award transactions. This ASU requires that all excess tax benefits and tax deficiencies be recognized as income tax expense or benefit on the income statement and that excess tax benefits be classified as an operating activity in the cash flow statement. While this new standard allows an entity to account for forfeitures as they occur, the Company elected to continue the current U.S. GAAP practice of estimating forfeitures when calculating stock-based compensation expense. This ASU became effective for the Company on January 1, 2017 and the adoption of this standard did not have a significant impact on the Company’s consolidated (condensed) financial statements and related disclosures.


-8-


In July 2015, the FASB issued ASU 2015-11, "Inventory (Topic 330): Simplifying the Measurement of Inventory." This ASU changes the guidance on accounting for inventory accounted for on a first-in first-out ("FIFO") basis. Under the revised standard, an entity should measure FIFO inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured on a last-in, first-out ("LIFO") basis. ASU 2015-11 became effective for the Company on January 1, 2017 and the adoption of this standard did not have a significant impact on the Company’s consolidated (condensed) financial statements and related disclosures.
 
Recent Accounting Pronouncements Not Yet Adopted

In 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 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 is currently evaluating the impact that the adoption of this ASU will have on its consolidated (condensed) financial statements and related disclosures.

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. The impact that ASU 2017-09 may have on the Company's consolidated (condensed) financial statements and related disclosures will be dependent on the terms and conditions of any modifications made to share-based awards after January 1, 2018.
 
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 is currently evaluating the impact that the adoption of this ASU will have on its consolidated (condensed) financial statements and related disclosures.
  
In March 2017, the FASB issued ASU 2017-07, "Compensation—Retirement Benefits (Topic 715): 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 allow only the service cost component of net benefit cost to be eligible for capitalization. It is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted. The Company currently expects the adoption of this ASU will only have an impact on classification within its consolidated (condensed) statements of operations.
 
In January 2017, the FASB issued ASU 2017-01, "Business Combinations (Topic 805): Clarifying the Definition of a Business," which clarifies the accounting guidance to assist entities in evaluating whether a transaction should be accounted for as acquisitions of assets or businesses. ASU 2017-01 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted in certain instances and the amendments in this ASU should be applied prospectively. This guidance will be applied prospectively to any acquisitions after adoption. The impact of adopting this ASU on the Company's consolidated (condensed) financial statements will be dependent on the nature of any future acquisitions subsequent to the adoption of ASU 2017-01.
 
In November 2016, the FASB issued ASU 2016-18, "Statement of Cash Flows (Topic 230): Restricted Cash," which will require an entity to reconcile the changes in restricted cash as part of total cash and cash equivalents in its statements of cash flows. ASU 2016-18 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted in any interim or annual reporting period and the amendments in this ASU should be applied retrospectively. Other than the change in presentation of restricted cash within the statement of cash flows, the adoption of ASU 2016-18 is not expected to have an impact on the Company’s consolidated (condensed) financial statements.

In October 2016, the FASB issued ASU 2016-16, "Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory," which will require an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. ASU 2016-16 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted as of the beginning of an annual reporting period for which financial statements (interim or annual) have not been issued or made available for issuance. The Company is currently evaluating the impact that the adoption of this ASU will have on its consolidated (condensed) financial statements and related disclosures.
 
In August 2016, the FASB issued ASU 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments," which clarifies the accounting guidance on how certain cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted in any interim or annual reporting period. The Company expects this ASU to impact the presentation of collections of the deferred purchase price from its sales of trade accounts receivables in the Company’s consolidated (condensed) statements

-9-


of cash flows. Subsequent to adoption, collection of these balances will be reported in cash flows from investing activities rather than cash flows from operating activities with all retrospective periods reclassified to conform for comparability.
In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)," which requires lessees to recognize right-of-use assets and lease liability, initially measured at present value of the lease payments, on its balance sheet for leases with terms longer than 12 months and classified as either financing or operating leases. ASU 2016-02 requires a modified retrospective transition approach for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, and provides certain practical expedients that companies may elect. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years with early adoption permitted. The Company is currently evaluating the impact that the adoption of this ASU will have on its consolidated (condensed) financial statements and related disclosures.
 
In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)." 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). Revenue will be recognized based on the satisfaction of performance obligations, which occurs when control of a good or service transfers to a customer and enhanced disclosures will be required regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity's contracts with customers. Either a retrospective or cumulative effect transition method, referred to as the modified retrospective method, is permitted.  The guidance will be effective for the Company beginning January 1, 2018.  The Company expects to adopt this new guidance using the modified retrospective method, but will continue to evaluate its transition method and intends to make a final determination following completion of its analysis.
 
The Company has completed its initial impact assessment of adopting this ASU through evaluation of the Company’s contract portfolio, interviewing business personnel responsible for revenue streams and comparing the historical accounting processes and policies to the standard.  While the Company continues to assess all potential impacts of the standard including the enhanced disclosure requirements, it currently believes the impact will not be material to the consolidated (condensed) financial statements nor the internal control environment. 

Recent accounting guidance not discussed above is not applicable, did not have, or is not expected to have a material impact to the Company.

3. Fair Value of Financial Instruments

The following tables set forth financial assets and liabilities that were accounted for at fair value on a recurring basis as of September 30, 2017 and December 31, 2016 by level within the fair value hierarchy. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

 
 
Fair Value as of
 
 
September 30, 2017
(in millions)
 
Level 1
 
Level 2
 
Level 3
 
Total
Current assets:
 
 

 
 

 
 

 
 

Foreign currency exchange contracts
 
$

 
$
2.7

 
$

 
$
2.7

Commodity contracts
 

 
1.2

 

 
1.2

Cross-currency swap contract
 

 
1.1

 

 
1.1

Total current assets at fair value
 

 
5.0

 

 
5.0

Non-current assets:
 
 

 
 

 
 

 
 

Commodity contracts
 

 
0.5

 

 
0.5

Interest rate swap contracts
 

 
0.4

 

 
0.4

Total non-current assets at fair value
 

 
0.9

 

 
0.9

Total assets at fair value
 
$

 
$
5.9

 
$

 
$
5.9

Current liabilities:
 
 

 
 

 
 

 
 

Foreign currency exchange contracts
 
$

 
$
1.5

 
$

 
$
1.5

Commodity contracts
 

 
0.1

 

 
0.1

Interest rate swap contracts
 

 
1.3

 

 
1.3

Total current liabilities at fair value
 

 
2.9

 

 
2.9

Non-current liabilities:
 
 

 
 

 
 

 
 

Cross-currency swap contract
 

 
7.5

 

 
7.5

Total non-current liabilities at fair value
 

 
7.5

 

 
7.5

Total liabilities at fair value
 
$

 
$
10.4

 
$

 
$
10.4



-10-


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

 
 

 
 

 
 

Foreign currency exchange contracts
 
$

 
$
0.6

 
$

 
$
0.6

Commodity contracts
 

 
0.9

 

 
0.9

Total current assets at fair value
 

 
1.5

 

 
1.5

Non-current assets:
 
 

 
 

 
 

 
 

Commodity contracts
 

 
0.2

 

 
0.2

Total non-current assets at fair value
 

 
0.2

 

 
0.2

Total assets at fair value
 
$

 
$
1.7

 
$

 
$
1.7

Current liabilities:
 
 

 
 

 
 

 
 

Foreign currency exchange contracts
 
$

 
$
1.0

 
$

 
$
1.0

Commodity contracts
 

 
0.1

 

 
0.1

Total current liabilities at fair value
 

 
1.1

 

 
1.1

Total liabilities at fair value
 
$

 
$
1.1

 
$

 
$
1.1


The fair value of the Company's 9.50% Senior Notes due 2024 under its Senior Secured Credit Facilities was approximately $489.1 million and $496.2 million as of September 30, 2017 and December 31, 2016, respectively. The fair value of the Company's Term Loan B under its Senior Secured Credit Facilities was approximately $817.0 million and $838.4 million as of September 30, 2017 and December 31, 2016, respectively. See Note 10, "Debt," for a description of the debt instruments and their related carrying values.

Accounting Standards Codification ("ASC") Subtopic 820-10, "Fair Value Measurement," defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Subtopic 820-10 classifies the inputs used to measure fair value into the following hierarchy:

Level 1
Unadjusted quoted prices in active markets for identical assets or liabilities

Level 2
Unadjusted quoted prices in active markets for similar assets or liabilities, or

Unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or

Inputs other than quoted prices that are observable for the asset or liability

Level 3
Unobservable inputs for the asset or liability

The Company endeavors to utilize the best available information in measuring fair value. The Company estimates the fair value of its Senior Notes due 2024 and Term Loan B based on quoted market prices of the instruments. Because these markets are typically thinly traded, the assets and liabilities are classified as Level 2 of the fair value hierarchy. The carrying values of cash and cash equivalents, accounts receivable, accounts payable and deferred purchase price notes on receivables sold (see Note 9, "Accounts Receivable Securitization"), approximate fair value, without being discounted as of September 30, 2017 and December 31, 2016 due to the short-term nature of these instruments.

As a result of its global operating and financing activities, the Company is exposed to market risks from changes in foreign currency exchange rates, commodity prices, and interest rates which may adversely affect its operating results and financial position. When deemed appropriate, the Company minimizes these risks through the use of derivative financial instruments. Derivative financial instruments are used to manage risk and are not used for trading or other speculative purposes, and the Company does not use leveraged derivative financial instruments. The Company's derivative instruments are valued through an independent valuation source which uses an industry standard data provider, with resulting valuations periodically validated through third-party or counterparty quotes. As such, these derivative instruments are classified as Level 2 of the fair value hierarchy.

4. Derivative Financial Instruments

The Company's risk management objective is to ensure that business exposures to risks that have been identified and measured and are capable of being controlled are minimized or managed using what it believes to be the most effective and efficient methods to eliminate, reduce or transfer such exposures. Operating decisions consider these associated risks and structure transactions to minimize or manage these risks whenever possible.
 
The use of derivative instruments is consistent with the overall business and risk management objectives of the Company. The Company uses derivative instruments to manage business risk exposures that have been identified through the risk identification and measurement process,

-11-


provided that they clearly qualify as "hedging" activities as defined in its risk policy. It is the Company's policy to enter into derivative transactions only to the extent true exposures exist; the Company does not enter into derivative transactions for trading or other speculative purposes.

The primary risks the Company manages using derivative instruments are commodity price risk, interest rate risk and foreign currency exchange risk. Swap contracts on various commodities are used to manage the price risk associated with forecasted purchases of materials used in the Company's manufacturing process. The Company also enters into various foreign currency derivative instruments to help manage foreign currency risk associated with its projected purchases and sales and foreign currency denominated receivable and payable balances. Interest rate swaps are entered into to manage interest rate risk associated with the Company’s fixed and floating-rate borrowings. Cross-currency interest rate swaps are entered into to protect the value of the Company’s investments in its foreign subsidiaries.
   
ASC Subtopic 815-10, "Derivatives and Hedges," requires companies to recognize all derivative instruments as either assets or liabilities at fair value in the balance sheet. In accordance with ASC Subtopic 815-10, the Company designates commodity swaps and foreign currency exchange contracts as cash flow hedges of forecasted purchases of commodities and currencies, certain interest rate swaps as cash flow hedges of floating-rate borrowings, and the remainder as fair value hedges of fixed-rate borrowings, and certain cross-currency interest rate swaps as hedges of net investments in its foreign subsidiaries.

Cash flow hedging strategy

For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income (loss) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Gains and losses on the derivative instruments representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings. In the next twelve months, the Company estimates $2.0 million of unrealized gains, net of tax, related to commodity price and currency rate hedging, which will be reclassified from other comprehensive income (loss) into earnings. Foreign currency and commodity hedging is generally completed prospectively on a rolling basis for fifteen and thirty-six months, respectively, depending on the type of risk being hedged.

During the first quarter of 2017, the Company entered into two interest rate swap agreements with a total notional amount of $600.0 million to manage interest rate risk exposure by converting the Company’s floating-rate debt to a fixed-rate basis for the next two to three years, thus reducing the impact from fluctuations in interest rates on future interest expense. These agreements involve the receipt of floating rate amounts in exchange for fixed rate interest payments over the life of the agreements without an exchange of the underlying principal. Approximately 45.5% of the Company’s outstanding long-term debt had its interest payments designated as cash flow hedges under these interest rate swap agreements as of September 30, 2017. The Company did not enter into any interest rate swap agreements during the nine months ended September 30, 2016.

As of September 30, 2017 and December 31, 2016, the Company had the following outstanding commodity and currency forward contracts that were entered into as hedge forecasted transactions:

 
 
Units Hedged
 
 
 
 
Commodity
 
September 30, 2017
 
December 31, 2016
 
Unit
 
Type
Aluminum
 
1,855

 
1,663

 
MT
 
Cash flow
Copper
 
759

 
746

 
MT
 
Cash flow
Natural gas
 
12,400

 
56,416

 
MMBtu
 
Cash flow
Steel
 
10,453

 
8,663

 
Short tons
 
Cash flow

 
 
Units Hedged
 
 
Currency
 
September 30, 2017
 
December 31, 2016
 
Type
Canadian Dollar
 
34,180,000

 
26,130,000

 
Cash flow
European Euro
 
14,580,560

 
11,261,848

 
Cash flow
British Pound
 
13,586,529

 
4,191,763

 
Cash flow
Mexican Peso
 
181,600,000

 
148,200,000

 
Cash flow
Thailand Baht
 
2,322,970

 
23,231,639

 
Cash flow
Singapore Dollar
 
3,280,000

 
4,375,000

 
Cash flow


-12-


For derivative instruments that are not designated as hedging instruments, the gains or losses on the derivatives are recognized in current earnings within "Other expense — net" in the consolidated (condensed) statements of operations. As of September 30, 2017 and December 31, 2016, the Company had the following outstanding commodity and currency forward contracts that were not designated as hedging instruments:

 
 
Units Hedged
 
 
 
 
Commodity
 
September 30, 2017
 
December 31, 2016
 
Unit
 
Type
Aluminum
 

 
28

 
MT
 
Cash flow
Steel
 

 
340

 
Short tons
 
Cash flow

 
 
Units Hedged
 
 
Currency
 
September 30, 2017
 
December 31, 2016
 
Purpose
Singapore Dollar
 
28,127,000

 

 
Notes payable and receivable settlement
European Euro
 
71,300,000

 
16,000,000

 
Notes and accounts payable and receivable settlement
British Pound
 
13,414,816

 
8,192,692

 
Accounts payable and receivable settlement
Chinese Yuan
 
65,767,259

 

 
Notes payable and receivable settlement
Swiss Franc
 
4,800,000

 
3,150,000

 
Accounts payable and receivable settlement

Fair value hedging strategy

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

During the first quarter of 2017, the Company entered into an interest rate swap agreement with a total notional amount of $425.0 million to manage interest rate risk exposure by converting the Company’s fixed-rate debt to a floating-rate basis for the next seven years. This agreement involved the receipt of fixed rate amounts in exchange for floating rate interest payments over the life of the agreement without an exchange of the underlying principal. On June 14, 2017, this interest rate swap agreement was terminated and the Company received $7.7 million, the fair value of the swap including accrued interest. Accordingly, hedge accounting was discontinued and the hedge accounting adjustment to the Company's Senior Notes due 2024 of $0.3 million will be amortized to "Interest expense" in the consolidated (condensed) statements of operations through February 2024. The Company did not enter into any interest rate swap agreements during the nine months ended September 30, 2016.

Hedge of net investment in foreign operations strategy

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

During the first quarter of 2017, the Company entered into a cross-currency interest rate swap contract to protect the value of its net investment in Euros. The carrying value of the net investment in Euros that is designated as a hedging instrument is remeasured at each reporting date to reflect the changes in the foreign currency exchange spot rate, with changes since the last remeasurement date recorded in other comprehensive income (loss). The Company uses the forward-rate method of assessing hedge effectiveness when cross-currency swap contracts are designated as hedging instruments.

Derivatives Not Designated as Hedging Instruments

The Company enters into foreign currency exchange contracts that are not designated as hedge relationships to offset, in part, the impact of certain intercompany transactions and to further mitigate short-term currency impacts. These derivative instruments are not designated as hedging relationships; therefore, fair value gains and losses on these contracts are recorded in earnings. The Company does not hold or issue derivative financial instruments for trading purposes.

-13-



The fair value of outstanding derivative contracts recorded as assets in the consolidated (condensed) balance sheets as of September 30, 2017 and December 31, 2016 was as follows:

 
 
Asset Derivatives
(in millions)
 
Balance Sheet Location
 
Fair Value
 
 
 
 
September 30, 2017
 
December 31, 2016
Derivatives designated as hedging instruments:
 
 
 
 
 
 
Foreign currency exchange contracts
 
Prepaids and other current assets
 
$
2.7

 
$
0.6

Commodity contracts
 
Prepaids and other current assets
 
1.2

 
0.9

Cross-currency swap contract
 
Prepaids and other current assets
 
1.1

 

Commodity contracts
 
Other non-current assets
 
0.5

 
0.2

Interest rate swap contracts
 
Other non-current assets
 
0.4

 

Total derivatives designated as hedging instruments
 
 
 
5.9

 
1.7

 
 
 
 
 
 
 
Total asset derivatives
 
 
 
$
5.9

 
$
1.7


The fair value of outstanding derivative contracts recorded as liabilities in the consolidated (condensed) balance sheets as of September 30, 2017 and December 31, 2016 was as follows:

 
 
Liability Derivatives
(in millions)
 
Balance Sheet Location
 
Fair Value
 
 
 
 
September 30, 2017
 
December 31, 2016
Derivatives designated as hedging instruments:
 
 
 
 
 
 
Foreign currency exchange contracts
 
Accrued expenses and other liabilities
 
$
0.5

 
$
0.8

Commodity contracts
 
Accrued expenses and other liabilities
 
0.1

 
0.1

Interest rate swap contracts
 
Accrued expenses and other liabilities
 
1.3

 

Cross-currency swap contract
 
Other long-term liabilities
 
7.5

 

Total derivatives designated as hedging instruments
 
 
 
9.4

 
0.9

 
 
 
 
 
 
 
Derivatives NOT designated as hedging instruments:
 
 
 
 
 
 
Foreign currency exchange contracts
 
Accrued expenses and other liabilities
 
1.0

 
0.2

Total derivatives NOT designated as hedging instruments
 
 
 
1.0

 
0.2

 
 
 
 
 
 
 
Total liability derivatives
 
 
 
$
10.4

 
$
1.1



-14-


The effects of derivative instruments in the consolidated (condensed) statements of operations for the three and nine months ended September 30, 2017 and 2016 for gains or losses initially recognized in "Accumulated other comprehensive loss" ("AOCI") in the consolidated (condensed) balance sheets were as follows:

Derivatives in cash flow hedging relationships (in millions)
 
Amount of gain (loss) recognized in AOCI on derivative (effective portion, net of tax)
 
Location of gain (loss) reclassified from AOCI into income (effective portion)
 
Amount of gain (loss) reclassified from AOCI into income (effective portion)
 
 
Three Months Ended September 30,
 
 
 
Three Months Ended September 30,
 
 
2017
 
2016
 
 
 
2017
 
2016
Foreign currency exchange contracts
 
$
1.0

 
$
(0.3
)
 
Cost of sales
 
$
1.6

 
$
0.4

Commodity contracts
 
0.5

 

 
Cost of sales
 
0.4

 
(0.2
)
Interest rate swap contracts
 
0.5

 

 
Interest expense
 

 

Cross-currency swap contract (1)
 
(5.8
)
 

 
Selling, general and administrative expense
 

 

Total
 
$
(3.8
)
 
$
(0.3
)
 
 
 
$
2.0

 
$
0.2


Derivatives in cash flow hedging relationships (in millions)
 
Amount of gain (loss) recognized in AOCI on derivative (effective portion, net of tax)
 
Location of gain (loss) reclassified from AOCI into income (effective portion)
 
Amount of gain (loss) reclassified from AOCI into income (effective portion)
 
 
Nine Months Ended September 30,
 
 
 
Nine Months Ended September 30,
 
 
2017
 
2016
 
 
 
2017
 
2016
Foreign currency exchange contracts
 
$
2.5

 
$
0.4

 
Cost of sales
 
$
2.3

 
$
0.3

Commodity contracts
 
0.5

 
1.7

 
Cost of sales
 
0.8

 
(1.4
)
Interest rate swap contracts
 
(0.6
)
 

 
Interest expense
 

 

Cross-currency swap contract (1)
 
(3.9
)
 

 
Selling, general and administrative expense
 

 

Total
 
$
(1.5
)
 
$
2.1

 
 
 
$
3.1

 
$
(1.1
)
(1) The amount of gain (loss) recognized in AOCI for the cross-currency swap contract is included in other comprehensive income (loss) as part of the cumulative translation adjustment in the consolidated (condensed) statements of comprehensive income.

Derivatives relationships (in millions)
 
Amount of gain (loss) recognized in income on derivative (ineffective portion and amount excluded from effectiveness testing)
 
Location of gain (loss) recognized in income on derivative (ineffective portion and amount excluded from effectiveness testing)
 
 
Three Months Ended September 30,
 
 
 
 
2017
 
2016
 
 
Commodity contracts
 
$
(0.1
)
 
$

 
Cost of sales
Total
 
$
(0.1
)
 
$

 
 

Derivatives relationships (in millions)
 
Amount of gain (loss) recognized in income on derivative (ineffective portion and amount excluded from effectiveness testing)
 
Location of gain (loss) recognized in income on derivative (ineffective portion and amount excluded from effectiveness testing)
 
 
Nine Months Ended September 30,
 
 
 
 
2017
 
2016
 
 
Commodity contracts
 
$
0.1

 
$

 
Cost of sales
Total
 
$
0.1

 
$

 
 


-15-


Derivatives NOT designated as hedging instruments (in millions)
 
Amount of gain (loss) recognized in income on derivative
 
Location of gain (loss) recognized in income on derivative
 
 
Three Months Ended September 30,
 
 
 
 
2017
 
2016
 
 
Foreign currency exchange contracts
 
$
(0.5
)
 
$
0.6

 
Other expense (income) — net
Total
 
$
(0.5
)
 
$
0.6

 
 

Derivatives NOT designated as hedging instruments (in millions)
 
Amount of gain (loss) recognized in income on derivative
 
Location of gain (loss) recognized in income on derivative
 
 
Nine Months Ended September 30,
 
 
 
 
2017
 
2016
 
 
Foreign currency exchange contracts
 
$
(4.9
)
 
$

 
Other expense (income) — net
Commodity contracts
 

 
0.7

 
Other expense (income) — net
Total
 
$
(4.9
)
 
$
0.7

 
 

5. Inventories — Net

The components of inventories — net at September 30, 2017 and December 31, 2016 are summarized as follows:

 
 
September 30,
 
December 31,
(in millions)
 
2017
 
2016
Inventories — gross:
 
 

 
 

Raw materials
 
$
74.6

 
$
68.2

Work-in-process
 
22.3

 
18.3

Finished goods
 
101.7

 
85.1

Total inventories — gross
 
198.6

 
171.6

Excess and obsolete inventory reserve
 
(26.0
)
 
(22.5
)
Net inventories at FIFO cost
 
172.6

 
149.1

Excess of FIFO costs over LIFO value
 
(3.5
)
 
(3.5
)
Inventories — net
 
$
169.1

 
$
145.6


6. Property, Plant and Equipment — Net

The components of property, plant and equipment — net at September 30, 2017 and December 31, 2016 are summarized as follows:

 
 
September 30,
 
December 31,
(in millions)
 
2017
 
2016
Land
 
$
9.4

 
$
7.3

Building and improvements
 
86.6

 
91.3

Machinery, equipment and tooling
 
230.1

 
215.1

Furniture and fixtures
 
5.9

 
5.8

Computer hardware and software
 
55.1

 
52.9

Construction in progress
 
13.6

 
11.2

Total cost
 
400.7

 
383.6

Less accumulated depreciation
 
(290.2
)
 
(274.5
)
Property, plant and equipment net
 
$
110.5

 
$
109.1



-16-


7. Goodwill and Other Intangible Assets

The Company has three reportable segments: Americas; Europe, Middle East and Africa ("EMEA"); and Asia Pacific ("APAC"). The Americas segment includes the U.S., Canada and Latin America. The EMEA segment is made up of markets in Europe, Middle East and Africa, including Russia and the Commonwealth of Independent States. The APAC segment is principally comprised of markets in China, Singapore, Australia, New Zealand, India, Malaysia, Indonesia, Thailand, Japan, South Korea and the Philippines. The changes in the carrying amount of goodwill by reportable segment for the nine months ended September 30, 2017 are as follows:

(in millions)
 
Americas
 
EMEA
 
APAC
 
Total
Balance as of December 31, 2016
 
$
832.6

 
$
4.7

 
$
8.0

 
$
845.3

Foreign currency translation impact
 
(0.1
)
 
0.3

 
0.5

 
0.7

Balance as of September 30, 2017
 
$
832.5

 
$
5.0

 
$
8.5

 
$
846.0


The Company accounts for goodwill and other intangible assets under the guidance of ASC Topic 350, "Intangibles - Goodwill and Other." The Company performs an annual impairment test or more frequently if events or changes in circumstances indicate that the asset might be impaired. The Company tests its reporting units and indefinite-lived intangible assets using a fair-value method based on the present value of future cash flows, which involves management's judgments and assumptions about the amounts of those cash flows and the discount rates used. The estimated fair value is then compared with the carrying amount of the reporting unit, including recorded goodwill, or indefinite-lived intangible asset. The intangible asset is then subject to risk of write-down to the extent that the carrying amount exceeds the estimated fair value.
  
The Company early adopted ASU 2017-04, "Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment," as of January 1, 2017 and applied the guidance from this standard beginning with its annual goodwill assessment performed as of June 30, 2017. The adoption of this standard did not have an impact on the Company’s consolidated (condensed) financial statements and related disclosures.
 
As of June 30, 2017, the Company performed the annual impairment test for its reporting units, which were Americas, EMEA, and APAC, as well as its indefinite-lived intangible assets, and based on those results, the fair value of each of the Company's reporting units exceeded their respective carrying values and no impairment was indicated.
 
The gross carrying amount and accumulated amortization of the Company's intangible assets other than goodwill as of September 30, 2017 and December 31, 2016 were as follows:

 
 
September 30, 2017
 
December 31, 2016
(in millions)
 
Gross
Carrying
Amount
 
Accumulated
Amortization
Amount
 
Net
Book
Value
 
Gross
Carrying
Amount
 
Accumulated
Amortization
Amount
 
Net
Book
Value
Trademarks and tradenames
 
$
177.0

 
$

 
177.0

 
$
172.4

 
$

 
$
172.4

Customer relationships
 
415.3

 
(187.1
)
 
228.2

 
415.2

 
(171.4
)
 
243.8

Patents
 
1.7

 
(1.7
)
 

 
1.6

 
(1.6
)
 

Other intangibles
 
144.5

 
(82.3
)
 
62.2

 
140.7

 
(72.5
)
 
68.2

Total
 
$
738.5

 
$
(271.1
)
 
$
467.4

 
$
729.9

 
$
(245.5
)
 
$
484.4


The gross carrying and accumulated amortization amounts included in the table above are impacted by foreign currency translation. Amortization expense for the three months ended September 30, 2017 and 2016 was $7.9 million and $7.8 million, respectively. Amortization expense for the nine months ended September 30, 2017 and 2016 was $23.4 million and $23.5 million, respectively.
 

-17-


8. Accounts Payable and Accrued Expenses and Other Liabilities

Accounts payable and accrued expenses and other liabilities at September 30, 2017 and December 31, 2016 are summarized as follows:

 
 
September 30,
 
December 31,
(in millions)
 
2017
 
2016
Accounts payable:
 
 
 
 
Trade accounts payable
 
$
108.1

 
$
108.4

Total accounts payable
 
$
108.1

 
$
108.4

Accrued expenses and other liabilities:
 
 
 
 
Interest payable
 
$
5.5

 
$
15.7

Income taxes payable
 
9.8

 
2.5

Employee related expenses
 
29.6

 
29.8

Restructuring expenses
 
5.9

 
3.3

Profit sharing and incentives
 
15.7

 
14.2

Accrued rebates
 
44.0

 
56.0

Deferred revenue - current
 
3.3

 
4.4

Customer advances
 
3.6

 
7.4

Product liability
 
2.0

 
2.3

Miscellaneous accrued expenses
 
43.5

 
38.9

Total accrued expenses and other liabilities
 
$
162.9

 
$
174.5


9. Accounts Receivable Securitization

Prior to the Spin-Off, the Company sold accounts receivable through an accounts receivable securitization facility, ("the Prior Securitization Program"), comprised of two funding entities: Manitowoc Funding, LLC ("U.S. Seller") and Manitowoc Cayman Islands Funding Ltd. ("Cayman Seller"). The U.S. Seller historically serviced domestic entities of both the Foodservice and Cranes segments of MTW and remitted all funds received directly to MTW. The Cayman Seller historically serviced solely Welbilt foreign entities and remitted all funds to Welbilt entities. The U.S. Seller remained with MTW subsequent to the Spin-Off, while the Cayman Seller was transferred to Welbilt subsequent to the Spin-Off. As the U.S. Seller is not directly attributable to Welbilt, only the receivables which were transferred to the U.S. Seller but not sold are reflected in the consolidated (condensed) balance sheets. A portion of the U.S. Seller's historical expenses related to bond administration fees and settlement fees was allocated to the Company. As the Cayman Seller is directly attributable to Welbilt, the assets, liabilities, income and expenses of the Cayman Seller are included in the consolidated (condensed) statements of operations and balance sheets. The Company's cost of funds under the facility used a London Interbank Offered Rate ("LIBOR") index rate plus a 1.25% fixed spread.

On March 3, 2016, the Company entered into a new $110.0 million accounts receivable securitization program (the "2016 Securitization Facility") among the Cayman Seller, as seller, Welbilt, Garland Commercial Ranges Limited, Convotherm Elektrogeräte GmbH, Welbilt Deutschland GmbH, Welbilt UK Limited, Welbilt Asia Pacific Private Limited and the other persons who may be from time to time, a party thereto, as servicers, with Wells Fargo Bank, National Association, as purchaser and agent, whereby the Company will sell certain of its domestic trade accounts receivable and certain of its non-U.S. trade accounts receivable to a wholly-owned, bankruptcy-remote, foreign special purpose entity, which in turn, will sell, convey, transfer and assign to a third-party financial institution (the “Purchaser”), all of the rights, title and interest in and to its pool of receivables. The Purchaser will receive ownership of the pool of receivables. The Company, along with certain of its subsidiaries, acts as servicers of the receivables and as such administer, collect and otherwise enforce the receivables. The servicers will be compensated for doing so on terms that are generally consistent with what would be charged by an unrelated servicer. As servicers, they will initially receive payments made by obligors on the receivables but will be required to remit those payments in accordance with a receivables purchase agreement. The Purchaser will have no recourse for uncollectible receivables. The 2016 Securitization Facility also contains customary affirmative and negative covenants. Among other restrictions, these covenants require the Company to meet specified financial tests, which include a Consolidated Interest Coverage Ratio and a Consolidated Total Leverage Ratio that are the same as the covenant ratios required under the 2016 Credit Agreement as described in Note 10, "Debt."
 
Due to a short average collection cycle of less than 60 days for such accounts receivable as well as the Company's collection history, the fair value of its deferred purchase price notes approximated book value. The fair value of the deferred purchase price notes as of September 30, 2017 and December 31, 2016 was $63.3 million and $60.0 million, respectively, and is included in "Accounts receivable, less allowances" in the consolidated (condensed) balance sheets.

Trade accounts receivables sold to the Purchaser and being serviced by the Company totaled $100.0 million and $96.7 million at September 30, 2017 and December 31, 2016, respectively.

-18-


Transactions under the 2016 Securitization Facility and the Prior Securitization Program were accounted for as sales in accordance with ASC Topic 860, "Transfers and Servicing." Sales of trade receivables to the Purchaser are reflected as a reduction of accounts receivable in the consolidated (condensed) balance sheets and the proceeds received, including collections on the deferred purchase price notes, are included in cash flows from operating activities in the consolidated (condensed) statements of cash flows. The Company deems the interest rate risk related to the deferred purchase price notes to be de minimis, primarily due to the short average collection cycle of the related receivables (i.e., 60 days) as noted above.

10. Debt

Senior Secured Credit Facilities

On March 3, 2016, the Company entered into a credit agreement (the "2016 Credit Agreement") for a new senior secured revolving credit facility in an aggregate principal amount of $225.0 million (the "Revolving Facility") and a senior secured Term Loan B facility in an aggregate principal amount of $975.0 million (the "Term Loan B Facility" and, together with the Revolving Facility, the "Senior Secured Credit Facilities") with JPMorgan Chase Bank, N.A, as administrative agent and collateral agent, J.P. Morgan Securities LLC, Goldman Sachs Bank USA, HSBC Securities (USA) Inc., and Citigroup Global Markets Inc., on behalf of certain of its affiliates, as joint lead arrangers and joint bookrunners, and certain lenders, as lenders. The Revolving Facility includes (i) a $20.0 million sublimit for the issuance of letters of credit on customary terms, and (ii) a $40.0 million sublimit for swingline loans on customary terms. The Company entered into security and other agreements relating to the 2016 Credit Agreement. During the first quarter of 2017, the Company recorded an out-of-period adjustment of $2.7 million to correct for the loss incurred on the prepayments made in 2016 on the Term Loan B Facility related to unamortized debt issuance costs, which is included in "Loss on early extinguishment of debt" in the consolidated (condensed) statements of operations. The related income tax benefit of $1.0 million was recognized as a discrete item in "Income taxes" in the consolidated (condensed) statements of operations during the first quarter of 2017. Management has determined the error correction is not material to the periods of origination nor the period of correction.

On March 6, 2017, the 2016 Credit Agreement was amended, providing for a decrease to the maximum applicable margin for LIBOR and Alternate Base Rate (“ABR”) loans by 1.75% on the Term Loan B Facility (the "Second Amendment"). The repricing was completed at par, and establishes for six months a 1.0% premium in the case of another repricing event. JPMorgan Chase Bank, N.A., as administrative agent, and JPMorgan Chase Bank, N.A. and Goldman Sachs Bank, USA were joint bookrunners on the repricing. In connection with the Second Amendment, the Company incurred costs of $1.4 million during the first quarter of 2017, which were recorded in "Long-term debt and capital leases" in the consolidated (condensed) balance sheets and are being amortized over the remaining term of the Term Loan B Facility. Additionally, the Company recorded a loss on early extinguishment of debt of $0.5 million during the first quarter of 2017, related to unamortized debt issuance costs as a result of the Second Amendment.

Subsequent to the Second Amendment, the borrowings under the Senior Secured Credit Facilities bear interest at a rate per annum equal to, at the option of the Company, (i) LIBOR plus an applicable margin of 3.00% for term loans subject to a 1.00% LIBOR floor and LIBOR plus 1.50% - 2.75% for revolving loans, based on consolidated total leverage, or (ii) an alternate base rate plus the applicable margin, which will be 1.00% lower than for LIBOR loans.

On September 7, 2017, the 2016 Credit Agreement was again amended, providing for a decrease to the maximum applicable margin for LIBOR and ABR loans by 0.25% on the Term Loan B Facility (the "Third Amendment"). The repricing was completed at par, and establishes for six months a 1.0% premium in the case of another repricing event. JPMorgan Chase Bank, N.A., was the administrative agent on this repricing. In connection with the Third Amendment, the Company incurred costs of $0.6 million during the third quarter of 2017, which were recorded in "Long-term debt and capital leases" in the consolidated (condensed) balance sheets and are being amortized over the remaining term of the Term Loan B Facility. Additionally, the Company recorded a loss on early extinguishment of debt of $1.0 million during the third quarter of 2017, related to unamortized debt issuance costs as a result of the Third Amendment.

Subsequent to the Third Amendment, the borrowings under the Senior Secured Credit Facilities bear interest at a rate per annum equal to, at the option of the Company, (i) LIBOR plus an applicable margin of 2.75% for term loans subject to a 1.00% LIBOR floor and LIBOR plus 1.50% - 2.75% for revolving loans, based on consolidated total leverage, or (ii) an alternate base rate plus the applicable margin, which will be 1.00% lower than for LIBOR loans.

The 2016 Credit Agreement contains financial covenants including (a) a Consolidated Interest Coverage Ratio, which measures the ratio of (i) Consolidated EBITDA, as defined in the 2016 Credit Agreement, to (ii) Consolidated Cash Interest Expense, and (b) a Consolidated Total Leverage Ratio, which measures the ratio of (i) Consolidated Indebtedness to (ii) Consolidated EBITDA for the most recent four fiscal quarters. The current covenant levels of the financial covenants under the Senior Secured Credit Facilities are set forth below:

Fiscal Quarter Ending
 
Consolidated Total Leverage Ratio (less than)
 
Actual Consolidated Total Leverage Ratio
 
Consolidated Interest Coverage Ratio (greater than)
 
Actual Consolidated Interest Coverage Ratio
September 30, 2017
 
5.00:1.00
 
4.82:1.00
 
2.75:1.00
 
3.06:1.00


-19-



Obligations of the Company under the Senior Secured Credit Facilities are jointly and severally guaranteed by certain of its existing and future direct and indirectly wholly-owned U.S. subsidiaries (but excluding (i) unrestricted subsidiaries, (ii) immaterial subsidiaries and (iii) special purpose securitization vehicles).

There is a first priority perfected lien on substantially all of the assets and property of the Company and guarantors and proceeds therefrom excluding certain assets. The liens securing the obligations of the Company under the Senior Secured Credit Facilities are pari passu.

Senior Notes

On February 18, 2016, the Company issued 9.50% Senior Notes due 2024 in an aggregate principal amount of $425.0 million (the "Senior Notes") under an indenture with Wells Fargo Bank, National Association, as trustee (the "Trustee"). The Senior Notes are fully and unconditionally guaranteed, jointly and severally, on an unsecured basis by each of the Company's domestic restricted subsidiaries that is a borrower or guarantor under the Senior Secured Credit Facilities. The Senior Notes and the subsidiary guarantees are unsecured, senior obligations.
 
The Senior Notes were initially sold to qualified institutional buyers pursuant to Rule 144A (and outside the United States in reliance on Regulation S) under the Securities Act of 1933, as amended (the "Securities Act"). In September 2016, the Company completed an exchange offer pursuant to which all of the initial Senior Notes were exchanged for new Senior Notes, the issuance of which was registered under the Securities Act.
  
The notes are redeemable, at the Company's option, in whole or in part from time to time, at any time prior to February 15, 2019, at a price equal to 100.0% of the principal amount thereof plus a “make-whole” premium and accrued but unpaid interest to the date of redemption. The Company may redeem the notes at its option, in whole or in part, at the following redemption prices (expressed as percentages of the principal amount thereof) if redeemed during the 12-month period commencing on February 15 of the years set forth below:

Year
 
Percentage
2019
 
107.1
%
2020
 
104.8
%
2021
 
102.4
%
2022 and thereafter
 
100.0
%

The Company must generally offer to repurchase all of the outstanding Senior Notes upon the occurrence of certain specific change of control events at a purchase price equal to 101.0% of the principal amount of Senior Notes purchased plus accrued and unpaid interest to the date of purchase. The indenture provides for customary events of default. Generally, if an event of default occurs (subject to certain exceptions), the Trustee or the holders of at least 25.0% in aggregate principal amount of the then-outstanding Senior Notes may declare all the Senior Notes to be due and payable immediately.
 
Outstanding debt at September 30, 2017 and December 31, 2016 is summarized as follows:

 
 
September 30,
 
December 31,
(in millions)
 
2017
 
2016
Revolving credit facility
 
$
80.0

 
$
63.5

Term Loan B
 
815.0

 
825.0

Senior Notes due 2024
 
425.0

 
425.0

Other
 
6.9

 
3.3

Total debt and capital leases, including current portion
 
1,326.9

 
1,316.8

Less: current portion and short-term borrowings
 
(4.5
)
 
(1.6
)
Less: unamortized debt issuance costs and debt discount
 
(30.1
)
 
(36.5
)
Plus: fair value of the interest rate swap
 
0.3

 

Total long-term debt and capital leases
 
$
1,292.6

 
$
1,278.7

 
As of September 30, 2017, the Company had outstanding $6.9 million of other indebtedness that has a weighted-average interest rate for the three months ended September 30, 2017 of approximately 3.05% per annum.
 
As of September 30, 2017, the Company had $80.0 million of borrowings outstanding under the Revolving Facility. During the three months ended September 30, 2017, the highest daily borrowing was $143.0 million and the average borrowing was $121.7 million, while the average interest rate was 3.81% per annum. The interest rate fluctuates based upon LIBOR or an alternate base rate plus a spread, which is based upon the Consolidated Total Leverage Ratio of the Company. As of September 30, 2017, the spreads for LIBOR and alternate base rate borrowings were 2.50% and 1.50%, respectively, given the Company's effective Consolidated Total Leverage Ratio for this period.

-20-



As of September 30, 2017, the Company was in compliance with all affirmative and negative covenants in its debt instruments, inclusive of the financial covenants pertaining to the Senior Secured Credit Facilities and the Senior Notes.

11. Income Taxes

The Company's effective tax rate varies from the 35.0% U.S. federal statutory rate due to the relative weighting of foreign earnings before income taxes and foreign effective tax rates that are generally lower than the U.S. federal statutory rate in addition to discrete tax adjustments recorded in 2016 and the first nine months of 2017. Foreign earnings are generated from operations in the Company's three reportable segments of Americas, EMEA, and APAC.

For the three months ended September 30, 2017, the Company recorded an $11.9 million income tax provision, reflecting a 26.4% effective tax rate, compared to a $7.1 million income tax provision, reflecting a 22.2% effective tax rate for the three months ended September 30, 2016. The increase in the Company's effective tax rate for the three months ended September 30, 2017, relative to the three months ended September 30, 2016, was primarily due to a $1.3 million decrease in the discrete benefit related to the valuation allowance release recorded in the second quarter of 2017 of $9.5 million, which was associated with deferred tax assets for certain entities in the United Kingdom (“U.K.”).

For the nine months ended September 30, 2017, the Company recorded a $13.8 million income tax provision, reflecting a 16.8% effective tax rate, compared to a $15.8 million income tax provision, reflecting a 21.4% effective tax rate for the nine months ended September 30, 2016. The decrease in the Company's effective tax rate for the nine months ended September 30, 2017, relative to the nine months ended September 30, 2016, was primarily due to the release of the relevant valuation allowance totaling $8.2 million recorded against the deferred tax assets for certain entities in the U.K. as a discrete adjustment. Additionally, a $1.0 million income tax benefit was recognized as a discrete item during the first quarter of 2017 related to the $2.7 million out-of-period adjustment for unamortized debt issuance costs of the Term Loan B facility as discussed in Note 10, “Debt”. These were partially offset by the out-of-period balance sheet adjustments related to the Spin-Off of $2.9 million that was recognized as a discrete benefit in the income tax provision for the nine months ended September 30, 2016.

In connection with the Spin-Off and as a result of MTW filing the 2016 U.S. corporate income tax returns at the end of the third quarter of 2017, an adjustment was recorded during the three months ended September 30, 2017 to true-up for the correction of differences between the book and tax bases of certain assets and liabilities, resulting in a $7.2 million increase in deferred tax liabilities with an offsetting decrease in additional paid-in capital. The true-up was not material to the previously issued consolidated (condensed) financial statements.

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. As of September 30, 2017, the Company determined that sufficient positive evidence exists as of September 30, 2017, to conclude that it is more likely than not that additional deferred taxes of $8.2 million of the total $36.1 million recorded in the U.K. are realizable, and therefore, reduced the valuation allowance accordingly. The Company will continue to regularly evaluate its valuation allowance requirements, recorded against the remaining deferred taxes in the U.K. and other jurisdictions, in light of changing facts and circumstances, and may adjust its deferred tax asset valuation allowances accordingly.

The Company's unrecognized tax benefits, including interest and penalties, were $12.7 million and $12.6 million as of September 30, 2017, and December 31, 2016, respectively. The increase is due to audit and interest accruals partially offset by the release of uncertain tax benefits that are no longer uncertain. During the next twelve months, it is reasonably possible that federal, state and foreign tax resolutions could change unrecognized tax benefits and income tax expense in the range of $0.1 million to $0.5 million.

The Company regularly assesses the likelihood of an adverse outcome resulting from examinations to determine the adequacy of its tax reserves. As of September 30, 2017, the Company believes that it is more likely than not that the tax positions it has taken will be sustained upon the resolution of its audits resulting in no material impact on its consolidated financial position and the results of operations and cash flows. However, the final determination with respect to any tax audits, and any related litigation, could be materially different from the Company's estimates and/or from its historical income tax provisions and accruals and could have a material effect on operating results and/or cash flows in the periods for which that determination is made. In addition, future period earnings may be adversely impacted by litigation costs, settlements, penalties, and/or interest assessments.

12. Equity

On March 4, 2016, MTW distributed 137.0 million shares of Welbilt common stock to MTW's shareholders on a pro rata basis, and Welbilt became an independent publicly traded company with each shareholder receiving one share of its common stock for each share of MTW common stock held by the shareholder on February 22, 2016, the record date for the Distribution. Any fractional shares of its common stock otherwise issuable to MTW shareholders were aggregated into whole shares and sold on the open market, and the fractional shareholders received a pro rata share of the proceeds of the sale, after deducting any taxes required to be withheld and after deducting an amount equal to all brokerage fees and other costs attributed to the sale.
 
On March 3, 2016, prior to the completion of the Spin-Off, the Company paid a one-time cash dividend to MTW of $1,362.0 million. The Company did not declare or pay any other dividends to its stockholders during the nine months ended September 30, 2017 and 2016.


-21-


The following is a rollforward of equity for the nine months ended September 30, 2017:

(in millions, except share data)
 
Shares
 
Common Stock
 
Additional Paid-In Capital (Deficit)
 
Retained Earnings
 
Accumulated Other Comprehensive (Loss) Income
 
Total Equity (Deficit)
Balance at December 31, 2016
 
138,601,327

 
$
1.4

 
$
(72.0
)
 
$
70.5

 
$
(43.4
)
 
$
(43.5
)
Net earnings
 

 

 

 
68.2

 

 
68.2

Issuance of common stock, equity-based compensation plans
 
710,972

 

 
3.2

 

 

 
3.2

Stock-based compensation expense
 

 

 
9.2

 

 

 
9.2

Separation related adjustment (1)
 

 

 
(7.2
)
 

 

 
(7.2
)
Other comprehensive income ("OCI")
 

 

 

 

 
14.1

 
14.1

Balance at September 30, 2017
 
139,312,299

 
$
1.4

 
$
(66.8
)
 
$
138.7

 
$
(29.3
)
 
$
44.0

(1) See Note 11, "Income Taxes," for discussion of the separation related adjustment.

Reconciliations for the changes in accumulated other comprehensive income (loss), net of tax, by component for the three and nine months ended September 30, 2017 and 2016 are as follows:

(in millions)
 
Foreign Currency Translation
 
Gains and Losses on Cash Flow Hedges
 
Pension & Postretirement
 
Total
Balance at December 31, 2016
 
$
(9.8
)
 
$
0.8

 
$
(34.4
)
 
$
(43.4
)
OCI before reclassifications
 
7.0

(a)
(0.4
)
 

 
6.6

Amounts reclassified from AOCI
 

 
(0.2
)
 
0.4

 
0.2

Net current period OCI
 
7.0

 
(0.6
)
 
0.4

 
6.8

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

 
$
(34.0
)
 
$
(36.6
)
OCI before reclassifications
 
$
3.7

(a)
$
1.1

 
$

 
$
4.8

Amounts reclassified from AOCI
 

 
(0.4
)
 
0.4

 

Net current period OCI
 
3.7

 
0.7

 
0.4

 
4.8

Balance at June 30, 2017
 
$
0.9

 
$
0.9

 
$
(33.6
)
 
$
(31.8
)
OCI before reclassifications
 
$
1.4

(a)
$
2.0

 
$

 
$
3.4

Amounts reclassified from AOCI
 

 
(1.2
)
 
0.3

 
(0.9
)
Net current period OCI
 
1.4

 
0.8

 
0.3

 
2.5

Balance at September 30, 2017
 
$
2.3

 
$
1.7

 
$
(33.3
)
 
$
(29.3
)


-22-


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

 
0.3

 
(9.4
)
 
8.1

Amounts reclassified from AOCI
 

 
0.6

 
0.5

 
1.1

Net current period OCI
 
17.2

 
0.9

 
(8.9
)
 
9.2

Balance at March 31, 2016
 
$
9.3

 
$
(0.9
)
 
$
(43.7
)
 
$
(35.3
)
OCI before reclassifications
 
$
(6.1
)
 
$
1.1

 
$
0.1

 
$
(4.9
)
Amounts reclassified from AOCI
 

 
0.4

 
0.2

 
0.6

Net current period OCI
 
(6.1
)
 
1.5

 
0.3

 
(4.3
)
Balance at June 30, 2016
 
$
3.2

 
$
0.6

 
$
(43.4
)
 
$
(39.6
)
OCI before reclassifications
 
$
(0.5
)
 
$
(0.2
)
 
$
(1.1
)
 
$
(1.8
)
Amounts reclassified from AOCI
 

 
(0.1
)
 
0.4

 
0.3

Net current period OCI
 
(0.5
)
 
(0.3
)
 
(0.7
)
 
(1.5
)
Balance at September 30, 2016
 
$
2.7

 
$
0.3

 
$
(44.1
)
 
$
(41.1
)
(a) Includes the amount of gain (loss) recognized for the Company's cross-currency swap contract as discussed in Note 4, "Derivative Financial Instruments."

The following is a reconciliation of the reclassifications out of accumulated other comprehensive income (loss), net of tax, for the three months ended September 30, 2017 and 2016:

 
 
Three months ended September 30,
 
 
(in millions)
 
2017
 
2016
 
Recognized Location
Gains and losses on cash flow hedges
 
 
 
 
 
 
  Foreign currency exchange contracts
 
$
1.6

 
$
0.4

 
Cost of sales
  Commodity contracts
 
0.4

 
(0.2
)
 
Cost of sales
 
 
2.0

 
0.2

 
Total before tax
 
 
(0.8
)
 
(0.1
)
 
Tax benefit
 
 
$
1.2

 
$
0.1

 
Net of tax
Amortization of pension and postretirement items
 
 
 
 
 
 
  Actuarial losses
 
(0.5
)
 
(0.6
)
(a)
 
 
 
(0.5
)
 
(0.6
)
 
Total before tax
 
 
0.2

 
0.2

 
Tax expense
 
 
$
(0.3
)
 
$
(0.4
)
 
Net of tax
 
 
 
 
 
 
 
Total reclassifications for the period, net of tax
 
$
0.9

 
$
(0.3
)
 
Net of tax

-23-


The following is a reconciliation of the reclassifications out of accumulated other comprehensive income (loss), net of tax, for the nine months ended September 30, 2017 and 2016:
 
 
Nine months ended September 30,
 
 
(in millions)
 
2017
 
2016