EDGAR 10-K Filing

Company CIK: 1650962
Filing Year: 2022
Filename: 1650962_10-K_2022_0001650962-22-000037.json

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ITEM 1. BUSINESS
ITEM 1. BUSINESS
Our Company
Welbilt, Inc. ("Welbilt", the "Company", "we", "us" "our") was incorporated in Delaware in 2015 and became publicly traded in March 2016 after a spin-off from The Manitowoc Company, Inc. ("MTW"). Welbilt is one of the world's leading commercial foodservice equipment companies currently leveraging a full suite of equipment capable of storing, cooking, holding, displaying, dispensing and serving in both hot and cold foodservice categories. We are headquartered in New Port Richey, Florida, and operate 19 manufacturing facilities globally.
We design, manufacture and supply best-in-class equipment for the global commercial foodservice market, which is used by commercial and institutional foodservice operators including full-service restaurants, quick-service restaurant ("QSR") chains, hotels, resorts, cruise ships, caterers, supermarkets, convenience stores, hospitals, schools and other institutions. We sell our products in each of our geographical segments, the Americas, EMEA and APAC, through a global network of over 5,000 distributors, dealers, buying groups and manufacturers' representatives (individually and collectively, "channel partners").
Our portfolio of award-winning product brands includes Cleveland™, Convotherm®, Crem®, Delfield®, Frymaster®, Garland®, Kolpak®, Lincoln™, Manitowoc® Ice, Merco®, Merrychef® and Multiplex®. These product brands are supported by three service brands: FitKitchen®, our fully-integrated kitchen systems business, KitchenConnect®, our digital cloud-based application offering, and KitchenCare®, our aftermarket parts and service business. Through these operations, we provide our customers with a full portfolio of products, platforms and solutions specific to meet our customers' needs, drive brand loyalty and maintain high customer satisfaction. With our in-house culinary staff and skilled engineers, we are also able to develop innovative solutions and tailor our product offerings to support our customers’ evolving menu choices and strategic plans, which serves to further strengthen our customer relationships.
We intend to achieve sustainable growth globally and drive increased profitability by leveraging our position as a leading commercial foodservice equipment provider, growing our customer base, expanding the frontiers of foodservice innovation and continuing to attract and grow industry-leading talent. We may explore acquisition opportunities, which will complement our product lines, allow us to expand our presence in international markets, enable us to leverage our distribution capabilities, provide us with selective technologies and/or otherwise support the expansion of our business in a manner that is consistent with our strategic goals.
Impact of COVID-19 Pandemic on Our Business
Global economic conditions will continue to be volatile as long as the COVID-19 pandemic remains a public health threat. The ongoing COVID-19 pandemic has resulted in governments around the world implementing stringent measures to help control the spread of the virus and new strains of the virus, including quarantines, “shelter in place” and “stay at home” orders, curfews, travel restrictions, border closures, limitations on public gatherings, vaccination mandates, social distancing measures and mandated business limitations and closures. These measures have resulted in a disruption in the foodservice industry, including substantial restaurant closures and, as a result, in commercial foodservice equipment markets across the geographies in which we operate. We expect global economic performance and the performance of our businesses to vary by geography and discipline until the impact of the COVID-19 pandemic on the global economy subsides.
Our Company's 2021 net sales, earnings from operations and cash flows all improved significantly in comparison to 2020. While the commercial foodservice industry has continued to recover from the negative impacts of the COVID-19 pandemic, the extent of the ultimate impact of the COVID-19 pandemic, including supply chain disturbances and shipping and logistics delays, on our operational and financial performance will depend significantly on future developments, including the duration, scope and severity of the pandemic, the actions taken to contain, mitigate or recover from its impact in each of the countries where we operate globally (including actions taken to ease supply chain backlogs), the vaccination rates and efficacy, emergence of new strains of the virus, and the timing of the resumption of economic activity to pre-pandemic levels.
Throughout the year ended December 31, 2021, we continued to see increases in the cost of specific commodities, components and parts purchased, as well as in the average cost of commodities, components and parts purchased, as compared to the prior year, driven both by rising inflation rates and rising tariffs, as challenges in the supply chain and shipping and logistics delays continued to persist. The availability of key electronic components used in embedded electronic controls diminished in 2021, and we expended significant effort and resources to utilize available parts and to source these electronic components on the spot market, often at a large premium to historical prices.
The Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was enacted in March 2020 and includes measures intended to assist companies during the COVID-19 pandemic, including temporary changes to income and non-income-based tax laws, some of which had been enacted under the Tax Cuts and Jobs Act ("Tax Act") in 2017. As a result of the Tax Act and the CARES Act, additional legislative and regulatory guidance has been and may continue to be issued, including final regulations that could impact our effective tax rate in future periods.
The Consolidated Appropriations Act of 2021 and the American Rescue Plan Act of 2021 extended eligibility for the employee retention tax credit for qualified wages paid from January 1, 2021, through December 31, 2021. We were not eligible for this incentive during the year ended December 31, 2021.
On November 5th, 2021, the Occupational Safety and Health Administration announced an emergency temporary standard mandating the COVID-19 vaccine or weekly testing for most U.S. employees, which includes our employees. That standard was struck down by the U.S. Supreme Court on January 13, 2022. However, the Biden Administration has indicated that it may seek to impose alternative vaccine mandates and other governmental authorities have imposed more targeted vaccine and testing orders and regulations, and may continue to do so in the future. If a mandate is ultimately issued and implemented in some form, we expect there would be further disruptions to our operations, such as inability to maintain adequate staffing at our facilities, difficulties in replacing disqualified employees with temporary employees or new hires, increased costs and diminished availability of raw materials and component parts, and increased compliance burdens, including financial costs, diversion of administrative resources, and increased downtimes to accommodate for any required ongoing COVID-19 testing, which would result in delays in the manufacturing process, negatively impact our future sales levels and ongoing customer relationships.
We continue to proactively monitor the developments surrounding COVID-19 and may take additional actions based on the requirements and recommendations of governmental and health authorities around the world in an attempt to protect our stakeholders. Although we are currently unable to quantify with certainty the ultimate severity or duration of the impact of the COVID-19 pandemic on our business, we expect that the challenges in the supply chain and shipping and logistics delays will likely have a continued impact on our operating results and financial condition throughout fiscal 2022.
Our History
Our heritage in the commercial foodservice equipment industry stretches back over a century. In 1929, Henry and Alexander Hirsch established the Welbilt Stove Co., which acquired foodservice equipment companies like Garland and Cleveland that had a history dating as far back as the mid-1800s. Our business has grown through strategic and transformational acquisitions of brands that have been integrated to become a foodservice equipment company offering a broad line of product solutions for commercial kitchens. We have also grown organically with expansion of these acquired brands through our long-standing customer relationships that have spanned decades. Coupled with our focus on research and development, innovation, and superior customer service, we have become an industry-leading provider of commercial foodservice equipment.
In October 2008, our former parent, MTW, completed the acquisition of Enodis plc, a global leader in equipment manufacturing for the foodservice industry, for $2.7 billion. With this acquisition, our equipment portfolio expanded to include refrigeration, ice-making, cooking, food preparation, and beverage-dispensing technologies.
In January 2015, MTW announced plans to create two independent public companies to separately operate its two businesses: its crane business and its foodservice business. On March 4, 2016, we spun off from MTW and publicly listed on the New York Stock Exchange under the name Manitowoc Foodservice, Inc. Effective March 6, 2017, we renamed the Company to Welbilt, Inc. and rebranded our logo and brand identity to "Welbilt" as part of our strategic repositioning and long-standing commitment to our customers.
In April 2018, we acquired 100% of the share capital of Avaj International Holding AB, whose wholly-owned subsidiary, Crem International Holding AB ("Crem") develops, manufactures and markets a full suite of commercial coffee machines for use in offices, restaurants, cafes and coffee shops, catering services and convenience stores, for a purchase price of $220.3 million. This acquisition provided us with an established presence in the complementary product category of hot beverage equipment, the potential for operational synergies and cross-selling benefits and an increased presence in both Europe and Asia.
Merger with Ali Holding S.r.l.
On July 14, 2021,Welbilt and Ali Holding S.r.l. (“Ali Group”), a significant and diversified global foodservice equipment manufacturer and distributor, entered into a merger agreement under which Ali Group will acquire the Company in an all-cash transaction for $24.00 per share, or approximately $3.5 billion in aggregate equity value and $4.8 billion in enterprise value. The merger agreement was unanimously approved by the Company's board of directors and on September 30, 2021, was approved by our stockholders.
In accordance with the terms of the merger agreement and immediately prior to the merger:
(i) all of the Company's outstanding and unvested common stock options and restricted stock units will become vested and exchanged for the right to receive cash equal to the $24.00 per share consideration (less the exercise price per share of common stock for the common stock options), and
(ii) all of the Company's outstanding performance share units will also be exchanged, as determined assuming the maximum level of performance is achieved, for the right to receive cash equal to the $24.00 per share consideration,
Upon completion of the transaction, the Company's shares will no longer trade on The New York Stock Exchange.
The Ali Group merger agreement provides that the Company may be required to pay Ali Group a termination fee equal to $110.0 million if the merger agreement is terminated:
(a) by Ali Group due to a breach of a covenant or agreement by the Company that causes the failure of a condition to closing, or
(b) by either party if the Merger has not been consummated prior to July 14, 2022 (subject to extension if certain approvals have not been obtained by such date) or
if, in the case of clauses (a) or (b), an alternative proposal has been publicly disclosed, announced or otherwise made public and has not been withdrawn and within twelve months of such termination our company enters into a definitive agreement with respect to, or consummates, an alternative proposal.
Welbilt and Ali Group have submitted regulatory filings in all required jurisdictions, including the U.S., United Kingdom, and European Union. The companies have decided that they will proceed with divesting the Company's Manitowoc ice brand ( the "Ice Business,") and the companies are confident that this step will ensure regulatory approval.
In October 2021, the Company's board of directors concluded that outside consultants should be authorized to commence a process that could result in the sale of the Ice Business. Our outside consultants, with the assistance of management, have initiated the marketing and due diligence process for the Ice divestiture. The companies expect to complete Ice divestiture in the first half of 2022 with the acquisition of Welbilt by Ali Group to close shortly thereafter.
As of December 31, 2021, we concluded that the Ice business does not meet the criteria to be classified as an asset held for sale or its operations to be classified as discontinued operations in accordance with the applicable accounting literature.
Key milestones in our history are depicted below.
Our Markets
Our global footprint positions us to capitalize on growth in both developed and emerging markets, as our full-line of hot and cold foodservice products, systems and services are sold in more than 100 countries. We manage our business in three geographic business segments: Americas, EMEA and APAC. The Americas segment includes the United States ("U.S."), Canada and Latin America. The EMEA segment consists of markets in Europe, including Middle East, Russia, Africa and the Commonwealth of Independent States. The APAC segment consists primarily of markets in China, India, Australia, South Korea, Singapore, Philippines, Japan, Indonesia, Malaysia, Thailand, Hong Kong, Taiwan, New Zealand and Vietnam.
Based on consolidated net sales by destination for the year ended December 31, 2021 of $1,546.9 million, approximately 37% of our consolidated net sales were generated outside the U.S, with approximately 69% of our revenue generated from customers within the Americas, approximately 19% from EMEA customers and approximately 12% from APAC customers, in each case after giving effect to the elimination of intersegment sales. For the year ended December 31, 2021, we had one customer that represented more than 10% of our consolidated net sales; with sales totaling $167.6 million, across all three of our reportable segments. There were no other direct customers, which includes both channel partners and large chain accounts, that represented 10% or more of our consolidated net sales. For the years ended December 31, 2020 and 2019, none of our direct customers represented 10% or more of our consolidated net sales.
Our portfolio of foodservice products, systems and services provides us with a balanced and diverse revenue base. Net sales by product class are as follows:
(in millions) December 31,
2021 2020 2019
Commercial foodservice equipment $ 1,284.8 $ 966.3 $ 1,335.8
Aftermarket parts and support 262.1 187.1 258.1
Total $ 1,546.9 $ 1,153.4 $ 1,593.9
Strategic Objectives
While our strategic objectives are long-term and remain intact, the uncertainty surrounding the ongoing COVID-19 pandemic will impact the extent and timing of the execution of these objectives. Our immediate focus remains on ensuring the safety of our stakeholders and the balancing productivity gains and the execution of our cost reduction initiatives implemented during our Business Transformation Program ("Transformation Program") and innovation investments with the pace of recovery in our revenues as the industry rebounds. Our specific strategic objectives for the long-term include:
Achieve profitable growth
We intend to grow sales organically with our best-in-class foodservice equipment portfolio of products and an integrated kitchen solution approach. While organic growth across all three of our geographic segments is our first priority, we may selectively pursue strategic acquisitions and partnerships as our capital structure allows in the future. Our industry is fragmented, and we believe there is significant opportunity for consolidation through acquisitions, partnerships and other strategic relationships to drive growth.
Selected initiatives supporting this strategic objective include:
•Product branding and value proposition: We believe that leveraging our individual brand identities allows us to better differentiate ourselves through customer preference enabling deeper customer relationships and in turn produces a competitive advantage. Our customer insight at the brand level enables us to innovate quickly and bring category leading products to market in order to capture sales in higher growth segments.
•Breadth and Go-to-Market approach: Our goal is to improve each customer's experience by effectively going to market as a portfolio of brands offering a broad line of foodservice equipment solutions, thus making it easier for customers to do business with us. Our breadth of product line and global scale allows us to pursue multi-product solutions for a given channel and more fully leverage technologies across our product categories, both of which increase our customer loyalty.
•Identify potential targets for acquisitions and strategic partnerships: We seek to identify, analyze and assess potential targets for acquisitions and partnerships to establish a presence in new markets, supplement our current product offerings or acquire technologies that can be leveraged in our existing product portfolio.
Create innovative products and solutions
To remain an industry leader and grow our reputation as an innovative company, we continuously develop dynamic product and system solutions for the entire kitchen. We leverage our suppliers and customers to actively address product competitiveness and life cycle extensions. We co-create innovation and refresh existing products with new, locally relevant food-inspiring technologies, while simultaneously finding new ways to integrate those technologies into global platforms in a cost-effective manner and create cohesive kitchen systems for our customers.
Selected initiatives supporting this strategic objective include:
▪Digital solutions and KitchenConnect: We are increasingly bringing a harmonized suite of touch-screen and other control technologies to our products. These technologies have significant operator benefits for our customers and offer connectivity out of the box, supporting the integration to KitchenConnect. KitchenConnect is our award-winning open cloud solution for the foodservice industry that improves efficiency, reduces cost and enhances food quality. It is being widely and globally adopted and is at the edge of the current digital transformation in the foodservice industry. We believe our digital connectivity capabilities and KitchenConnect technology strengthens our product offerings and enhances the overall value to our customers.
•FitKitchen: Our FitKitchen methodology is a holistic consultative selling approach that involves a deep understanding of our customers' kitchen operations to help solve their challenges and overcome barriers to growth. The FitKitchen team develops integrated kitchen solutions to meet each customer’s individual needs, including systems and solutions that address equipment requirements, rising labor costs, space constraints, speed of service, operational complexity, food quality and customer experience. We use a multi-phase approach to clearly identify and understand our customers’ goals and objectives, conduct extensive research and analysis, and develop prototypes for testing and further refinement. This customer-focused process leads to new kitchen platforms, product introductions and long-term customer relationships, thereby providing recurring product sales and sustainable growth opportunities.
Enhance customer satisfaction
We believe our broad product portfolio and the positioning of our industry-leading brands enables us to further grow the number of customers we serve and improve overall customer satisfaction as a trusted provider to the largest companies in the foodservice industry.
Selected initiatives supporting this strategic objective include:
•Customer-centric product development and planning: Enhancing the value we provide by placing the customer in the center of our new product development process to increase operating efficiencies and reduce costs across the entire value chain. Our longstanding relationships with our customers allow us to work in partnership to develop cooking solutions that meet their menu change, quality, or labor efficiency initiatives.
•KitchenCare parts and service: Growing our parts and service business to capture a larger market share and further integrate the full solutions offering to our customers to support reduced operator downtime thereby increasing the profitability of our customers.
Drive operational excellence
We are focused on productivity gains and cost reductions across our business and plan to continue to leverage our global footprint to drive greater efficiencies across our operations. We are executing these cost reduction initiatives through our Transformation Program, which was launched in the second quarter of 2019 and completed during the quarter ended December 31, 2021. The Transformation Program was executed in multiple phases and was focused on specific areas of opportunity including strategic sourcing, manufacturing facility workflow redesign, select manufacturing footprint consolidation and distribution and administrative process efficiencies. Going forward, we will continue to execute on the initiatives identified during our Business Transformation and leverage the capabilities and approaches developed in that program. The operational improvements made at all of our facilities through our Transformation Program helped us accelerate our post-COVID production ramp-up capabilities throughout 2021.
Selected initiatives supporting this strategic objective include:
•Global sourcing initiative: Ensuring suppliers are able to provide parts to us at competitive costs and lead times. We have established a procurement center of excellence that leverages our global scale, manages critical vendors and deploys best practices, while developing stronger brand-based procurement capabilities at each of our manufacturing facilities.
•Facility rationalization and lean manufacturing: Reducing excess capacity in our network of global manufacturing facilities, implementing lean principles including Value Analysis Value Engineering initiatives in all operations and incorporating production systems that embed continuous improvement into the culture of our manufacturing processes.
•Quality excellence: Ensuring we deliver high quality products by prioritizing quality and supply chain excellence in all aspects of production, from new product introduction to global manufacturing.
Develop great people
We strive to make Welbilt an employer of choice in our industry. We believe that we demonstrate a strong commitment to our people by providing a diverse and inclusive culture and environment where employee input, efforts and achievements are recognized and valued.
Selected current initiatives supporting this strategic objective include:
•Talent and succession program: Focused development through tailored programs for our top talent with key succession planning identified through a robust talent assessment process.
•Rewards strategy: A total rewards program that recognizes outstanding employee achievements and measurable results in leadership, individual and organizational performance, innovation, and positive culture change that support the values and strategic goals of the business and attracts as well as retains talent.
Our Product and Service Portfolio
We serve our customers using a complementary portfolio of brands integrated under one company. Our commercial foodservice equipment capabilities span storing, cooking, holding, displaying, dispensing and serving technologies. The breadth of our portfolio allows us to meet the needs of entire commercial kitchens and serve the world’s growing demand for food prepared away from home, including the recent growth in "ghost kitchens", which are professional cooking facilities created for the preparation of delivery-only meals which have enabled restaurants to rapidly initiate food delivery services to their customers.
Our foodservice equipment brands include the following within each of our product categories:
•Storing. We design, manufacture and sell commercial upright and undercounter refrigerators and freezers, blast freezers, blast chillers and cook-chill systems under the Delfield brand name. We manufacture modular and fully assembled walk-in refrigerators, coolers and freezers, and prefabricated cooler and freezer panels for use in the construction of refrigerated storage rooms and environmental systems under the Kolpak brand name.
•Cooking. We sell traditional ovens, combination ovens, convection ovens, conveyor ovens, rapid-cooking ovens, range and grill products under the Convotherm, Garland, Lincoln, Merrychef and other brand names. We market fryers and frying systems principally under the Frymaster brand name, and our steam equipment under the Cleveland brand.
•Holding and Displaying. We design, manufacture and sell a range of cafeteria and buffet equipment stations, bins, boxes, warming cabinets, warmers, display and deli cases, and insulated and refrigerated salad and food bars. We market our equipment stations, cases, food bars and food serving lines under the Delfield, Merco and other brand names.
•Dispensing and Serving. We produce beverage dispensers, blended ice machines, ice/beverage dispensers, beer coolers, post-mix dispensing valves, backroom equipment and support system components and related equipment for use by QSR chains, convenience stores, bottling operations, movie theaters, the soft-drink industry and others. We design, manufacture and sell ice machines under the Manitowoc and other brand names. We sell our coffee equipment under the Crem brand name and other beverage-related products under the Multiplex and Manitowoc brand names.
Our foodservice equipment brands are augmented through the following cross-portfolio service offerings:
•FitKitchen. We produce kitchen systems and solutions for our chain customers that optimize the use of our customers' kitchen space through the introduction and benefits of our portfolio of brands, products and technologies. The goal of FitKitchen is to provide customized solutions that reduces the kitchen footprint and right-sizes equipment in order to reduce capital costs while producing improvements in speed of service, quality of food, and labor costs.
•KitchenConnect. Our KitchenConnect enabled products include the option for data output monitoring intended to facilitate menu management by the equipment operators through the interaction of menus and equipment. We believe that these products produce an operator experience that allows for a collaborative and agile service supported by just-in-time maintenance. We believe this reduces downtime, optimizes energy use and improves service response time.
•KitchenCare. We provide a broad range of services and after-market parts and manage a comprehensive factory-authorized service network, assuring proper installation and start-up, preventative maintenance, after-market parts supply and maximum equipment operating time on all of our products.
We take a holistic approach to product innovation with a competitive advantage with respect to technology that digitally connects kitchen operations, which ultimately improves the customer experience. Our focus is centered on establishing a best-in-class connected operator experience through an industry-leading digitally connected offering. Key products related to this strategy include:
Digitalization and Connectivity
•KitchenConnect 3.0 - Our award-winning open-cloud solution for the commercial food service industry provides an overview of the operator's menu, products cooked, product peak demand hours, product utilization, and product maintenance diagnostics, which improves operator efficiency, reduces equipment downtime (ultimately reducing costs), and enhances food quality through real-time operator data visualization. We frequently add new functionality and capabilities to KitchenConnect based on user needs and experience as we focus on continuous improvement to the digital experience of our equipment.
•Common Controller Platform - Making "Born Digital" the new standard for our products, out Common Controller Platform provides a common user interface to control equipment in a consistent manner across each of our equipment offerings, providing for operator level ease-of-use and reduced workforce training requirements. The Common Controller Platform also establishes connectivity to KitchenConnect, and the customer's broader systems infrastructure, resulting in reduced labor and supply costs for our customers. We believe this enhances our equipment as one of the easiest to use in the commercial foodservice industry. The use of a single user interface device across all brands leverages our combined volume across all brands and reduces the number of suppliers required.
•KitchenConnect Virtual Oil Quality Sensor - Virtual oil quality sensor is based in artificial intelligence and designed to create a predictive model used to monitor the quality of the cooking oil in our equipment and advise operators when to discard the oil, eliminating the "discard dilemma", resulting in improved food quality and customer satisfaction. This technology replaces conventional oil sensing hardware that is often prone to failure resulting in increased downtime and operator cost.
Additional key products and product upgrades introduced during 2021 include:
•Garland XHP Broiler - XHP (Extra High Performance) is a new heavy-duty countertop broiler platform that uses patented SynergyTM technology. We believe the XHP Broiler is revolutionizing the industry with its high power and low-energy consumption design, enabling customers to prepare (meat, fish and vegetables) faster while using as much as 50% less gas than a traditional charbroiler. With a novel gas burner and heat dispersal system in which air is mixed with gas, ignited and vortexed under the food-delivering even ultra high heat output. Intensity of the heat causes cooking byproducts to vaporize, giving the food more flavor and significantly reducing the need for daily cleaning.
•Convotherm Maxx Pro - Building on the successful launch of Convothem Maxx in 2020, Maxx Pro introduces new technology into Convotherm’s leading countertop portfolio. The new Maxx Pro retains the premium cooking performance and feature mix of Convotherm Maxx, but additionally includes LED cooking chamber lighting, a triple glazed low energy glass door and a new 10” Welbilt Common Controller.
•Manitowoc Galileo - This CrystalCraft Premier undercounter ice machine produces clear individually formed 1.5” ice cubes, designed to melt slowly for use specifically with whiskeys and hand-crafted premium cocktails. The product was named a 2021 Kitchen Innovations Award winner by the National Restaurant Association.
•Delfield SMART - Delfield’s new smart range of equipment is intended to provide improved customer solutions for front-of-house serving lines in various market segment, including schools, colleges and universities, casinos, business and industry, and healthcare. In order to bring this to market faster, different parts of the portfolio will be brought to market over time, including enhanced Flexishield, FlexiWell Gen2, increased induction offerings, AutoFill options, FlexiTop, beverage coolers and ozone sanitization.
•Lincoln 2424 - The new 2424 is the first in a new family of premium gas/electric conveyor impinger ovens from Lincoln. This touchscreen-controlled compact unit features class high culinary performance, ease of use, reliability, cleaning and serviceability features. The 2424 is the midsize model within what we expect will be a new and expanded product offer planned to be launched in the coming years.
•Garland DSG2 - The new DSG2 is a based on the Garland Double-Sided-Grill. The DSG2 includes ‘Active Compression’, the new Welbilt 7” Common Controller and improved in-field product reliability. Active compression is a new feature allowing the recipe (stored on the controller) to precisely manage the evenness and the amount of compression applied to the food during cooking, thus providing reduced cook times and improved food quality.
•Merco Flow-Thru Order Pickup Locker - The new OrderHQ™ series of foodservice lockers addresses our customer’s biggest order pickup challenges by reducing employee labor, giving customers a fast, contactless experience, and providing new data to optimize order pickup processes.
•FilterQuick 120 - The product was named a 2021 Kitchen Innovations Award winner by the National Restaurant Association. Automatic filtration fryers have been commonly used with freezer-to-fryer products that produce significantly less sediment. Until now, the heavy wet sediment that is inherent when cooking bone-in chicken was dependent on a manual filtration process. Using multiple return ports to direct the flushing of sediment, Frymaster created a large frypot capable of automatically filtering heavy sediment. Additionally, the FilterQuick 120 leveraged the capabilities of our touchscreen controller and automatic internet connection to simplify fryer operations.
Engineering, Research and Development
We have a staff of engineers and technicians, supplemented with external engineering resources, who are collectively responsible for the continual improvements of our existing products and the development of new products. We incurred total engineering costs of $49.5 million, $42.3 million and $47.7 million during the years ended December 31, 2021, 2020 and 2019, respectively, which included research and development costs of $42.5 million, $36.1 million and $41.3 million, respectively.
Customers and Distribution Channels
Our end customer base consists of a wide variety of foodservice providers, including full-service restaurants, QSRs, hotels, resorts, cruise ships, convenience stores, retail stores, supermarkets, leisure and convention facilities, healthcare facilities, schools and universities and many other foodservice outlets (collectively "end customers"). Our end customers range from large, multinational chain operators to independently owned establishments. We have the scale to serve the largest global customers and market expertise to leverage our international presence, along with an experienced and dedicated sales force, to sell directly to multinational and national chain customers.
To ensure our products reach our broad end customer base and promote our product offerings and our portfolio of equipment brands, we distribute our products through a variety of distribution channels. Our distribution network includes an expansive network of channel partners located in over 100 countries worldwide. We believe our distribution network has strengthened in recent years as we have continued to enhance our positive relationships with our channel partners and have demonstrated our customer-centric strategy. In addition, we sell original equipment manufacturer replacement parts through factory authorized service providers.
Competition and Market Conditions
We sell all our products in highly competitive markets and compete based on product design, quality, performance, aftermarket support services, as well as maintenance costs and equipment price. Through 2020 and 2021, the COVID-19 pandemic created a decline in economic activity across the globe. Many hospitality and restaurant companies were forced to close either temporarily or permanently, and the vast majority have experienced a significant decline in revenues. The effects on businesses across many industries was pervasive and has injected uncertainty into the consumer foodservice industry. Full-service restaurants continue the trend as being the most negatively impacted by COVID-19 with limited-service restaurants (which includes QSR and fast casual restaurants) impacted the least. Many economic forecasts continue to show that sales in the consumer foodservice industries will not return to 2019 levels until 2023.
We believe our comprehensive offering of highly innovative and high-quality products and services provides us with the following competitive advantages:
•a complementary portfolio of industry-leading hot and cold food products, as well as cold beverage and coffee products, which are integrated under one operating company and supported by aftermarket parts, service and technical support;
•the ability to integrate food, equipment, digital technologies and people seamlessly through collaborative innovation that enhances our customers’ ability to compete in the marketplace;
•the scale and breadth of our distributor and dealer network to consistently deliver our products to our customers as they expand their operations globally, including into the fast-growing emerging markets;
•long-standing equipment brands and innovative engineering that customers can trust for superior quality and reliability; and
•dedication to prioritizing the customer experience.
Intellectual Property
Our intellectual property assets, including our patents, trademarks, copyrights, know-how, trade secrets and other proprietary rights, are important to our business. We hold numerous patents pertaining to our products and have applications pending for additional patents in the United States and various foreign countries. In addition, we have various registered and unregistered trademarks and licenses that are of material importance to our business. We believe our ownership of this intellectual property is adequately protected in customary fashions under applicable laws. Although certain proprietary intellectual property rights are important to our success, we do not believe we are materially dependent on any particular patent or license, or any particular group of patents or licenses.
Our worldwide intellectual property portfolio provides:
•global protection of our research and development efforts and product development investments,
•recognizable competitive distinctions and proprietary advantages,
•brand support and enhancement; and
•leverage for value creation opportunities such as licenses.
We take efforts to protect, enforce and defend our intellectual property and proprietary rights, as appropriate.
Seasonality
Typically, the first quarter of our fiscal year represents the least favorable period for our financial results while the third quarter of our fiscal year typically is the most favorable. Our customers are primarily located in the northern hemisphere, where the warmer summer weather generally leads to increased levels of construction and remodeling within the foodservice industry. As a result of the impacts of the COVID-19 pandemic, these general trends were disrupted throughout the years ended December 31, 2021 and 2020.
Raw Materials and Component Parts
We support our region-of-use production strategy with corresponding region-of-use supplier partners where appropriate. The primary raw materials that we use in the manufacturing of our products are rolled steel, aluminum, and copper, all of which are generally available in adequate quantities from numerous suppliers, although we cannot predict their future availability. Our raw materials can also be susceptible to currency and price fluctuations due to supply and demand, government regulations, tariffs, and other unforeseen circumstances. We strive to maintain alternative sources of supplies and materials when possible, but some material parts and key components we use in the manufacturing of our products are obtained from sole supply sources. Throughout the year ended December 31, 2021, we experienced interruptions in the availability of raw materials, including intermittent shortages of component parts and reduced freight capacities, as well as price increases in raw materials. Our supply chain experienced disruptions through the year ended December 31, 2021, but to date, none of these disruptions have resulted in significant production delays.
While the commercial foodservice industry has continued to gradually recover from the initial impacts of the COVID-19 pandemic, the extent of the ultimate impact of the pandemic, including through supply chain disturbances and shipping and logistics delays, on our operational and financial performance will depend significantly on future developments, including the duration, scope and severity of the pandemic, the actions taken to contain, mitigate or recover from its impact in each of the countries where we operate globally (including actions taken to ease supply chain backlogs), the vaccination rates and efficacy, emergence of new strains of the virus, and the timing of the resumption of economic activity to pre-pandemic levels.
Our Employees
As of December 31, 2021, we had approximately 4,800 employees, which includes workforce resources from six employee unions in North America, two trade unions and a local works council in Europe and two trade unions in China. We believe our overall relations with our workforce are positive and that the strength of our workforce is a critical success factor as a leader in the commercial foodservice equipment industry. Our employees share an entrepreneurial spirit, a passion for excellence and the inspiration to drive the future of the commercial foodservice equipment industry. Our core values are Integrity, Passion, Teamwork, Entrepreneurship and Accountability. In addition to the initiatives discussed under "Strategic Objectives" above, we continually focus on the following areas in order to ensure the continued strength and well-being of our workforce:
•Health and Safety: The safety and health of our employees is of paramount importance. Our facilities and operations use proven tools and systems to identify hazards and mitigate risk. We emphasize learning from past incidents and continuously review and improve our safety programs. We require that all incidents be reported, recorded and investigated in order to identify the root cause and prevent recurrence. We also expect our suppliers to commit to safety through the training and implementation of processes to prevent, detect and respond to safety and health risks that may impact our employees through a supplier code of conduct.
•Diversity and Inclusion: We value and embrace diversity by fostering a culture that encompasses the unique attributes, ideas, perspectives, and experiences of our employees, customers, suppliers and communities. We believe that in a global marketplace, a more inclusive and diverse work environment allows us to achieve better results and makes us a stronger business.
•Employee Engagement: We strive to create a workplace where employees feel engaged, believe in our mission, understand their role in our strategy and are passionate about the work they do. We conduct employee engagement surveys to provide us with valuable insights into employee perspectives and experiences. We also hold quarterly global town-hall meetings to provide necessary Company updates, celebrate milestones in the business, communicate initiatives, recognize significant individual accomplishments and provide a forum for employees to communicate and engage with executive leadership.
Regulatory and Trade Environment
We actively work with U.S. and foreign-based standards organizations, industry associations, certification parties, and regulatory bodies to develop and promote effective and balanced standards, codes, and regulations that provide for the advancement of sustainable customer solutions, with the highest levels of energy efficiency, sanitation, environmental standards, safety, and food quality. For example, we are active members of the North American Association of Food Equipment Manufacturers, the Air-Conditioning, Heating and Refrigeration Institute, the Underwriters Laboratories task group, the National Sanitation Foundation's International Joint Committee, the American Society of Heating, Refrigerating and Air-Conditioning Engineers, various working groups responsible for European safety standards in Europe, the Industrial Association for House, Heating and Kitchen Technology, and other regional standards organizations. We fully engage with the U.S. Department of Energy on new energy standards, the U.S. Environmental Protection Agency on ENERGY STAR programs and the Significant New Alternatives Policy program related to alternative refrigerant regulations, as well as the European Union's ("EU") Ecodesign directive consultant organizations.
Available Information
We make available, free of charge on our website, www.welbilt.com, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, our proxy statements and any amendments to those reports, as soon as reasonably practicable after we have electronically filed such material with, or furnished it to, the Securities and Exchange Commission ("SEC"). Our SEC reports can be accessed through the investor relations section of our website. Although some of the documents available on our website are filed with the SEC, the information found on our website is not part of this or any other report we file with or furnish to the SEC.
The SEC also maintains a website at www.sec.gov that contains reports, proxy statements and other information about SEC registrants, including Welbilt, Inc.
The information contained on our website and the SEC website referenced in this report is not incorporated by reference into this filing. Further, our references to website URLs are intended to be inactive textual references only.

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ITEM 1A. RISK FACTORS
ITEM 1A. RISK FACTORS
You should carefully consider the risks, uncertainties and cautionary statements described below, together with the other disclosures in this Annual Report on Form 10-K and in our other public filings with the Securities and Exchange Commission. Any such risks and uncertainties, as well as risks and uncertainties not currently known to us or that we currently deem to be immaterial, may materially adversely affect our business, financial condition and operating results.
Risks Relating to Our Business
The ongoing COVID-19 pandemic, and the measures implemented by governmental authorities and other third parties in response to the pandemic, have adversely impacted and will continue to adversely impact our business, results of operations, cash flows and financial position, including without limitation by affecting our supply chain and prices of raw materials and components.
Global economic conditions will continue to be volatile as long as the COVID-19 pandemic remains a public health threat. The ongoing COVID-19 pandemic has resulted in governments around the world implementing stringent measures to help control the spread of the virus and new strains of the virus, including quarantines, “shelter in place” and “stay at home” orders, curfews, travel restrictions, border closures, limitations on public gatherings, vaccination mandates, social distancing measures and mandated business limitations and closures. These measures have resulted in a disruption in the foodservice industry, including substantial restaurant closures and, as a result, in commercial foodservice equipment markets across the geographies in which we operate. We expect global economic performance and the performance of our businesses to vary by geography and discipline until the impact of the COVID-19 pandemic on the global economy subsides. Pandemic-related developments have impacted and are likely to continue to adversely impact our business and results of operations in multiple ways, including, but not limited to, the following:
•We have experienced and may experience in the future, a reduced demand for our products, which requires us to modify our production schedules, which has negatively impacted and could negatively impact our business and financial performance in the future. If the global economic effects caused by the pandemic continue or increase, demand for our products may decrease, which could have a material and adverse effect on our business, results of operations and financial condition.
•We have taken protective measures to modify our production environment to promote the health and safety of our workers which has had an impact, and may continue to have an impact, on our productivity.
•The pandemic has caused us to modify our business practices (including employee travel, mandatory work-from-home policies and cancellation of physical participation in meetings, events and conferences), and we may take further actions that we determine are in the best interests of our employees, customers, partners and suppliers. There is no certainty that such measures will be sufficient to mitigate the risks posed by the disease, and our ability to perform critical functions could be harmed.
•If a significant portion of our workforce or our suppliers’ workforce is affected by the COVID-19 pandemic, either directly or due to governmental mandates or otherwise, associated work stoppages or facility closures could halt or delay production.
•Continued disruptions and uncertainties related to the pandemic for a sustained period could result in delays to the implementation of our Transformation Program or modifications to our strategic plans and hinder our ability to achieve our cost savings objectives.
•The financial impact of the pandemic could negatively impact our future compliance with financial covenants contained in agreements governing our indebtedness, potentially resulting in a default or an acceleration of indebtedness and could otherwise negatively impact our liquidity and ability to make additional borrowings under our revolving credit facility.
•Weaker economic conditions may result in a decrease in fair value of our tangible or intangible assets, which, in turn, could result in an impairment charge in our financial statements.
•We have experienced some disruption in our operations due to higher than normal absenteeism among our production employees and difficulties in replacing such employees with temporary or new hires; further disruption could materially and adversely affect our operations.
•As further described below, we have experienced disruptions and are likely to experience additional shipping and logistics delays and disruptions to our supply chain, resulting in delays, difficulties and increased costs of acquiring components and raw materials.
•We could incur delays in shipments of our products, which could harm our customer relations and adversely impact our sales.
Throughout the year ended December 31, 2021, we continued to see increases in the cost of specific commodities, components and parts purchased, as well as in the average cost of commodities, components and parts purchased, as compared to the prior year, driven both by rising inflation rates and rising tariffs, as challenges in the supply chain and shipping and logistics delays continued to persist. The availability of key electronic components used in embedded electronic controls worsened in 2021, and we expended significant effort and resources to redesign controls to utilize available parts and to source these electronic components on the spot market, often at a large premium to historical prices.
The extent of the ultimate impact of the COVID-19 pandemic on our operational and financial performance will depend significantly on future developments, which cannot be predicted with certainty, including emergence of new variants of the virus, the duration, and severity of the pandemic, mandates and recommended safety measures implemented to contain or mitigate its impact in each of the countries in which we operate, the development of treatments, efficacy and availability of vaccines, the availability of federal, state, local or non-U.S. funding programs, and how quickly and to what extent normal economic and operating conditions can resume, particularly with respect to the foodservice industry. We may continue to experience the effects of the pandemic even after it has waned, and our business, results of operations and financial condition could continue to be affected. Due to the inherent uncertainty of such factors, we cannot predict the extent or materiality of the ultimate impact of the COVID-19 pandemic on our business with certainty or confidence at this time; however, it has
already had a material adverse impact on our results of operations, cash flows, and financial position, and could have a material adverse impact on our future results of operations, cash flows and financial position compared to our current expectations.
Proposed vaccination mandate, if implemented, is likely to adversely impact our business, results of operations, cash flows and financial position.
On November 5, 2021, the Occupational Safety and Health Administration announced an emergency temporary standard mandating the COVID-19 vaccine or weekly testing for most U.S. employees, which includes our employees. That standard was struck down by the U.S. Supreme Court on January 13, 2022. However, the Biden Administration has indicated that it may seek to impose alternative vaccine mandates and other governmental authorities have imposed more targeted vaccine and testing orders and regulations, and may continue to do so in the future. If a mandate is ultimately issued and implemented in some form, we expect there would be further disruptions to our operations, such as inability to maintain adequate staffing at our facilities, difficulties in replacing disqualified employees with temporary employees or new hires, increased costs and diminished availability of raw materials and component parts, and increased compliance burdens, including financial costs, diversion of administrative resources, and increased downtimes to accommodate for any required ongoing COVID-19 testing, which would result in delays in the manufacturing process, negatively impact our future sales levels and ongoing customer relationships.
Our business and financial results are dependent on our ability to execute our manufacturing strategies, including our ability to scale our manufacturing capacity and resources to the level of our customers’ demand.
Our business and financial results depend upon our ability to timely and efficiently execute our manufacturing strategies without disruption to our business, including reducing excess manufacturing capacity, completing plant acquisitions or closures, consolidating existing facilities and operations and renovating existing plants and facilities as needed. We must make highly efficient use of manufacturing capacity to generate competitive profit margins and achieve our stated financial goals, while also managing the risk of insufficient capacity which may expose us to liabilities related to contract commitments. Adapting or modifying our capacity is difficult, as modifications take substantial time to execute and, in some cases, may require regulatory approval. Additionally, delivering products during process or facility modifications requires special coordination. The cost and resources required to adapt our capacity, such as through facility acquisitions, facility closings, or process moves between facilities, as well as coordinating any related reductions or changes in our workforce, may negate any planned cost reductions or may result in costly delays, product quality issues or material shortages, all of which could adversely affect our financial results and our reputation with our customers.
If we are unable to successfully implement cost-reduction initiatives and strategies, or the corresponding cost savings prove to be insufficient, we may not achieve our earnings targets.
In recent years, we have adopted several cost-saving initiatives and operating strategies intended to drive increased profit margins, including, for example, reducing the complexity of our product offerings, and incorporating strategic sourcing. The success these initiatives and strategies is not guaranteed, and we may not achieve the full cost savings we expect or any anticipated benefits might be realized later than expected. These initiatives often involve significant cultural shifts, both internally and for our customers, that may inhibit, delay or impair its successful implementation. Any additional delays in implementing or lower-than-expected benefits from our cost-saving initiatives and strategies may cause us to miss earnings targets and otherwise negatively affect our results of operations. Additionally, if we devote a disproportionate amount of time, personnel and resources to initiatives that yield slower or less than anticipated results or that are ultimately unsuccessful, we may be distracted from other initiatives and priorities that might have yielded more rapid or better results, and our results of operations may suffer.
If we do not develop new and innovative products, adapt to rapid and significant technological change or respond to introductions of new products by competitors, our results of operations could be negatively affected.
Our strategy of creating new and innovative products and solutions for our customers requires significant time and investment toward product innovation, design, development and testing, all of which are necessary to meet our customers’ needs, compete with frequent new product introductions and enhancements and comply with evolving regulatory requirements in the numerous geographic markets we serve. Moreover, some of our competitors manufacture a more narrow product offering, allowing them to concentrate their research and development efforts more directly on products and services for those areas than we may be able to do. To remain competitive, we therefore must develop new and innovative products on a rapid and ongoing basis. If we do not successfully develop new and innovative products, it may be difficult to differentiate our products from our competitors' products and satisfy regulatory requirements, and our sales and earnings would suffer. In addition, if we are unable to deliver products, features, and functionality as projected, we may be unable to meet our commitments to customers, which could have a material adverse effect on our reputation. Any development efforts could divert resources from other potential investments in our business, and these efforts may not lead to the development of new technologies or products on a timely basis or meet the needs of our customers as fully as competitive offerings do. Even with rigorous testing prior to release and investment on product quality processes, problems may be found in newly developed or enhanced products after such products are launched and shipped to customers. Resolution of such issues may cause project delays, additional development costs, and deferred or lost revenue.
If we do not meet customers’ product quality and reliability standards and expectations, we may experience increased or unexpected product warranty claims and other adverse consequences to our business.
Product quality and reliability are significant factors influencing customers’ decisions to purchase our products. Inability to maintain the high quality of our products relative to the perceived or actual quality of similar products offered by competitors could result in the loss of market share, loss of revenue, reduced profitability, increase in warranty costs, and/or damage to our reputation. Similarly, if we fail to provide high level of quality through our KitchenCare aftermarket parts and service segment as we provide in original equipment manufacturing, our revenue and our reputation with our customers could be negatively affected.
Product quality and reliability are determined in part by factors that are outside of our control. We depend on our suppliers for parts and components that meet our standards. If our suppliers fail to meet those standards, we may not be able to deliver the quality products that our customers expect, which may adversely affect our financial condition, results of operations, and cash flows and impair our reputation and lead to higher warranty costs.
We provide our customers a warranty covering workmanship and in some cases materials on products we manufacture. Our warranty generally provides that products will be free from defects for periods ranging from 12 to 60 months with certain equipment having longer term warranties. If a product fails to comply with the warranty, we may be obligated, at our expense, to correct any defect by repairing or replacing the defective product. Although we maintain warranty reserves in an amount based primarily on the number of units shipped and on historical and anticipated warranty claims, there can be no assurance that future warranty claims will follow historical patterns or that we can accurately anticipate the level of future warranty claims. An increase in the rate of warranty claims or the occurrence of unexpected warranty claims could adversely affect our financial condition, results of operations and cash flows.
We have significant manufacturing and sales of our products outside of the U.S., which may present additional risks to our business.
For the years ended December 31, 2021, 2020 and 2019, approximately 37%, 37% and 38%, respectively, of our net sales were attributable to products sold outside of the U.S. We intend to continue to expand our presence in international markets and expect to expend resources in doing so. We are subject to various risks related to conducting business internationally, including:
•potential adverse changes or increased uncertainty relating to the political, social, religious and economic stability of the countries in which we do business or such countries' diplomatic relations with the U.S.;
•the imposition by U.S. and foreign governments of additional taxes, tariffs, economic sanctions, embargoes or other restrictions on foreign trade;
•difficulties in establishing, staffing, and managing foreign operations, including but not limited to our ability to obtain or retain necessary licenses or recruit qualified personnel under local labor market conditions;
•our ability to comply with complex international laws and regulations that may change unexpectedly, differ, or conflict with laws in other countries in which we conduct business;
•concerns about human rights, working conditions and other labor rights and conditions and environmental impact in foreign countries where goods are produced and materials or components are sourced, and changing labor, environmental and other laws in these countries;
•adverse fluctuations in foreign currency exchange rates and interest rates, including risks related to any hedging transactions;
•difficulties in enforcing contractual rights;
•inadequate protection of intellectual property in foreign countries;
•unanticipated delays or disruptions in the global supply chain; and
•our ability to effectively transfer cash between foreign entities and/or jurisdictions, including in a manner that is consistent with our strategic goals and priorities.
Any of these risks or other risks relating to international operations and sales could adversely affect our financial condition, results of operations and cash flows.
In addition, our business has been, and could in the future be, adversely affected by regional or global health crises, including outbreaks of
contagious diseases such as COVID-19. A significant outbreak of a contagious disease and other adverse public health developments, or the fear of such events, could adversely affect global supply chains, economies and financial markets. Any prolonged economic disruption could significantly reduce demand for our products and services and otherwise adversely impact our results of operations and financial condition.
As previously disclosed, we voluntarily disclosed to U.S. Customs and Border Protection ("CBP") certain errors in the declaration of imported products relating to quantity, value, classification, North American Free Trade Agreement eligibility and other matters as well as potential
violations of antidumping and countervailing duties. Following such disclosures, we began a comprehensive review of its import practices in order to quantify the loss of revenue to CBP. Based on our completed analyses, we determined the costs of potential loss for customs duties, fees, and interest owed for previously imported products to be $3.1 million and have reflected this charge in "Restructuring and other expense" in the Consolidated Statements of Operations for the year ended December 31, 2020.
In mid-February 2021, we submitted the completed analysis to CBP and remitted the aforementioned amount due. Significant judgment was required in determining the amounts due to the CBP and although we believe our estimate to be reasonable, no assurance can be given that the final outcome of this matter will be consistent with what has been recorded and remitted by us. To the extent that the final outcome of this matter is different than the amounts recorded, such differences will be recorded in the period in which such determination is made.
On January 27, 2022, one of our Mexican subsidiaries received a notification from the Mexican taxing authority of the preliminary findings identified during a tax audit for the period of April 1, 2016 - February 27, 2018. The preliminary findings stated that the Mexican subsidiary did not evidence the export of goods temporarily imported under Mexico’s Manufacturing, Maquila and Export Services Industries Program (“IMMEX Program”), therefore allegedly triggering the obligation for payment of import duties, fines and surcharges. In response to the notification, on February 1, 2022, we filed a petition outlining our disagreement with the preliminary findings as we believe that appropriate documentation evidencing the export of the goods has been provided to the taxing authority. To date, we have not received a response to its petition.
While we cannot predict with certainty the outcome of this tax audit, based on currently known information we do not believe a loss contingency is either probable or estimable. Accordingly, no loss contingency has been recorded in our financial statements as of December 31, 2021 related to this matter. However, if the final resolution of the tax matter is not favorable to our company, a charge will be recorded in our consolidated financial statements at such time as the range of loss becomes both probable and estimable.
Our business and/or reputation could be negatively affected as a result of actions of activist stockholders, and such activism could impact the trading value of our securities.
Certain of our stockholders may in the future publicly or privately express views with respect to the operation of our business, our business strategy, corporate governance considerations or other matters that may not fully align with our own. Also, increasing focus on climate change, deforestation, water, animal welfare and human rights concerns and other risks associated with the manufacturing industry may lead to increased activism focusing on companies such as ours and their suppliers. Responding to actions by activist stockholders can be costly and time-consuming, disrupt our operations and divert the attention of management and our employees. Perceived uncertainties as to our future direction may result in the loss of potential business opportunities, damage to our reputation, and may make it more difficult to attract and retain qualified directors, personnel and business partners. These actions could also cause our stock price to experience periods of volatility.
Activist stockholders may in the future make strategic proposals, suggestions, or requests for changes concerning the operation of our business, our business strategy, corporate governance considerations, or other matters. We cannot predict, and no assurances can be given, as to the outcome or timing of any consequences arising from these actions, and any such consequences may impact the value of our securities.
Risks Related to the Proposed Transaction with Ali Holding S.r.l.
There are several risks and uncertainties related to the proposed transaction (the "Transaction") with Ali Holding S.r.l. ("Ali Group").
The Transaction is subject to customary closing conditions to both our obligations and the obligations of Ali Group to complete the Transaction, and if these conditions are not satisfied or waived, the Transaction may not be completed on a timely basis or at all.
The completion of the Transaction is subject to several of customary conditions to closing and there can be no assurance that such conditions to closing that remain outstanding will be satisfied or waived (to the extent permitted by law). The failure to timely satisfy the required conditions could delay the completion of the Transaction for a significant period of time or prevent the completion of the Transaction from occurring at all. As of December 31, 2021, the remaining closing conditions include, among others, (i) expiration or termination of any waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and receipt of applicable approvals under certain foreign competition, antitrust or merger control laws, (ii) there being no law or order prohibiting consummation of the Transaction, (iii) subject to specified materiality standards, the accuracy of the representations and warranties of the parties, (iv) compliance by the parties in all material respects with their respective covenants, (v) the absence of a material adverse effect with respect to us and Ali Group, and (vi) the delivery of an officer’s closing certificate by both parties.
Many of the conditions to completion of the Transaction are not within either our or Ali Group’s control, and neither company can predict when, or if, these conditions will be satisfied. If any of these conditions are not satisfied or waived prior to July 14, 2022 (subject to extension if certain approvals have not been obtained by such date), it is possible that the agreement and the plan of merger (the "Merger Agreement") may be terminated. Although we and Ali Group have agreed in the Merger Agreement to use reasonable best efforts to, subject to certain limitations, complete the Transaction as promptly as practicable, these and other conditions to the completion of the Transaction may fail to be satisfied. In addition, satisfying the conditions to and completion of the Transaction may take longer, and could cost more, than we and Ali Group expect. We cannot and Ali Group cannot predict whether and when these other conditions will be satisfied. Furthermore, the requirements for obtaining the required clearances and approvals, including the completion of the Ice Divestiture, could delay the completion of the Transaction for a significant period of time or prevent it from occurring. There can be no assurance that all required regulatory
approvals will be obtained or obtained prior to the termination date. The governmental agencies from which the parties have sought or are seeking certain approvals in connection with the Transaction have broad discretion in administering applicable regulations, and may impose requirements, limitations or costs, require divestitures in addition to the Ice Divestiture or place restrictions on the conduct of the combined company’s business after the closing. Such requirements, limitations, costs, divestitures or restrictions could delay or prevent the consummation of the Transaction.
Failure to consummate the Transaction could negatively impact the share price and our future business and financial results.
If the Transaction is not consummated, our ongoing business may be adversely affected and, without realizing any of the potential benefits of having consummated the Transaction, we will be subject to several risks, including the following:
•We may experience negative reactions from the financial markets, including negative impacts on our stock price;
•We may experience negative reactions from our customers, distributors, suppliers, vendors, business partners and employees;
•We will be required to pay certain costs and expenses relating to the Transaction whether or not the Transaction is consummated, such as legal, accounting, financial advisor and printing fees;
•Matters relating to the Transaction (including integration planning) may require substantial management time and resources, which could otherwise have been devoted to other beneficial opportunities; and
•We could become subject to litigation related to any failure to consummate the Transaction or related to any enforcement proceeding commenced against us to perform our obligations under the Merger Agreement. If the Merger Agreement is terminated in certain circumstances, we may be required to pay a termination fee of $110 million to Ali Group.
If the Transaction is not consummated, these risks may materialize and may materially and adversely affect our business, operations, financial results and share price.
The Merger Agreement subjects us to restrictions on our business activities prior to the Effective Time.
The Merger Agreement subjects us to restrictions on our business activities prior to the Effective Time. The Merger Agreement obligates us to generally conduct our businesses in the ordinary course until the Effective Time and to use our reasonable best efforts to (i) preserve our assets and business organization, (ii) maintain our existing relationships and goodwill with material customers, suppliers, distributors, governmental authorities and business partners, and (iii) to keep available the services of our officers and key employees. These restrictions could prevent us from pursuing certain business opportunities that arise prior to the Effective Time.
The Merger Agreement contains provisions that restrict our ability to pursue alternatives to the Transaction.
Under the Merger Agreement, following receipt of stockholder approval of the Transaction on September 30, 2021, we are prohibited from soliciting alternative business combination proposals from third parties, engaging in discussion or negotiations with respect to such proposals or providing information in connection with such proposals. While we believe these provisions and agreements are reasonable and customary, these provisions restrict us from engaging with a third party that may have an interest in acquiring all or a significant part of us from considering or proposing such acquisition, even if such third party were prepared to pay consideration with a higher value than the merger consideration.
While the Transaction is pending, we are subject to business uncertainties which could adversely affect our business, results of operations, financial condition and cash flows.
Uncertainty about the effect of the Transaction on our employees, customers, distributors, suppliers, vendors and other business partners may have an adverse effect on us. These uncertainties may impair our ability to attract, retain and motivate key personnel until the Transaction is consummated and for a period thereafter. If, despite our retention efforts, key employees depart because of issues relating to the uncertainty and difficulty of integration or a desire not to remain with the combined company, the combined company’s (or, if the Transaction is not consummated, our standalone company) business could be harmed and the ability to realize the anticipated benefits of the Transaction could be adversely affected.
Parties with which we do business may experience uncertainty associated with the Transaction, including with respect to current or future business relationships with us. Our business relationships may be subject to disruption as customers and suppliers may attempt to negotiate changes in existing business relationships or consider entering into business relationships with other parties. These disruptions could have an adverse effect on the businesses, financial condition, our results of operations or our prospects, including an adverse effect on the anticipated benefits of the Transaction. The risk and adverse effect of such disruptions could be exacerbated by a delay in completion of the Transaction or termination of the Merger Agreement. Additionally, completion of the Transaction may trigger change in control or other provisions in certain agreements to which we are a party.
We and Ali Group are targets of legal proceedings that could result in substantial costs and may delay or prevent the Transaction from being completed.
As disclosed in “Item 3. Legal Proceedings - The Ali Merger Cases” below, which disclosure is incorporated herein by reference, Welbilt is currently a named defendant in eight separate litigations (collectively, the “Ali Cases”) arising in connection with a Proxy Statement Welbilt filed with the SEC on August 31, 2021 in connection with the merger between Welbilt and Ali Group. Securities class action lawsuits, derivative lawsuits and other legal proceedings are often brought against public companies that have entered into merger agreements. Even if such legal proceedings are without merit, defending against these claims can result in substantial costs and divert management time and resources. An adverse judgment could result in monetary damages, which could have a negative impact on our liquidity and financial condition. Additionally, if a plaintiff is successful in obtaining an injunction prohibiting completion of the Transaction, such injunction may delay or prevent the Transaction from being completed, or from being completed within the expected timeframe, which may adversely affect our business, financial position and results of operation.
We and Ali Group will incur substantial transaction fees and costs in connection with the Transaction.
We and Ali Group expect to incur substantial non-recurring transaction-related costs associated with completing the Transaction. Non-recurring transaction costs include, but are not limited to, fees paid to legal, financial and accounting advisors, retention, severance, change in control and other integration-related costs, filing fees and printing costs. The costs described above and any unanticipated costs and expenses, many of which will be borne by us even if the Transaction is not completed, could have an adverse effect on our financial condition and operating results.
Our directors and executive officers have interests in the Transaction that may be different from, or in addition to, the interests of our stockholders generally.
Our directors and executive officers have interests in the Transaction that may be different from, or in addition to, the interests of our stockholders generally. The interests of our directors and executive officers include, among others, severance rights, vesting protections for equity awards in the event of termination of employment in connection with a change in control, rights to continuing indemnification and directors’ and officers’ liability insurance. Our board of directors was aware of and carefully considered the interests of our respective directors and officers, among other matters, in evaluating the terms and structure, and overseeing the negotiation of the Transaction, in approving the Merger Agreement, the merger and the other transactions contemplated thereby, and the recommendation of our board of directors that our stockholders adopt the Merger Agreement.
Risks Related to Our Indebtedness
We have substantial indebtedness, and the degree to which we are leveraged may materially and adversely affect our business, financial condition, results of operations and cash flows.
As of December 31, 2021, our total consolidated indebtedness was $1,401.6 million. Our level of indebtedness could have important consequences to our business, including:
•requiring us to dedicate a substantial portion of our cash flow from operations to scheduled interest and principal payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, product innovation, and other general corporate purposes;
•restricting us from pursuing strategic acquisitions or requiring us to make non-strategic divestitures;
•limiting our ability to obtain additional financing for working capital, capital expenditures, product development, acquisitions and other general corporate purposes; increasing our vulnerability to general adverse economic and industry conditions;
•exposing us to the risk of increased interest rates as certain of our borrowings bear variable rates of interest; and
•placing us at a competitive disadvantage compared to our competitors that are less leveraged and thereby have greater financial flexibility.
Our ability to make scheduled payments on our existing indebtedness as well as any future indebtedness that we may incur and to fund planned capital expenditures and other liquidity needs will depend on our ability to generate cash from operations or asset sales as well as our ability to refinance our indebtedness on favorable terms, all of which are subject to economic, financial, competitive and other factors that are beyond our control. We may not generate sufficient funds to service our debt and meet our business needs, such as funding working capital or the expansion of our operations. If we are not able to repay or refinance our debt as it becomes due, the lenders could accelerate amounts due which could potentially trigger a default or acceleration of the maturity of our other debt.
We may increase our debt or raise additional capital in the future, including to fund acquisitions, or for general corporate purposes, which could adversely affect our financial health and decrease our profitability.
We may need to incur substantial additional indebtedness or raise additional capital in the future, subject to the terms and restrictions contained in the agreements governing our existing indebtedness. In addition, we may issue shares of preferred stock without further action by holders of our common stock. If our cash flow from operations is insufficient to meet our cash requirements, we may require additional financing. However, debt or equity financing may not be available to us on terms we find acceptable, if at all. If we incur additional indebtedness or raise equity through the issuance of preferred stock, the risks described above that we now face could intensify. Further, the terms of such indebtedness or preferred stock may give the holders rights, preferences and privileges senior to those of holders of our common stock, particularly in the event of liquidation. If we are unable to raise additional capital when needed, our financial condition could be materially and adversely affected.
Uncertainty about the continuing availability of LIBOR may adversely affect our business.
The interest rates under some of our loans, derivative contracts and other financial instruments, including the 2016 Credit Agreement, which governs the Term Loan B Facility and the Revolving Credit Facility, are calculated by reference to LIBOR. The United Kingdom's Financial Conduct Authority, the authority that regulates LIBOR, announced in 2017 that it intends to stop compelling banks to submit rates required for the calculation of LIBOR after 2021. Subsequently, the cessation date for most LIBOR tenors was extended to June 30, 2023.
In addition, other regulators have suggested reforming or replacing other benchmark rates. These may be replaced by the Secured Overnight Financing Rate or other benchmark rates over the next several years. The discontinuation, reform or replacement of LIBOR or any other benchmark rates may have an unpredictable impact on contractual mechanics in the credit markets or cause disruption to the broader financial markets. These changes, and related uncertainty as to the nature of such potential discontinuation, reform or replacement may create incremental uncertainty in obtaining financing or increase the cost of borrowing. If LIBOR ceases to exist, then we and the administrative agent will endeavor to amend the 2016 Credit Agreement to establish an alternate rate of interest that will apply, giving due consideration to then-prevailing market convention for determining a rate of interest for syndicated loans. It is not possible to predict the effect of these changes, other reforms, tax legislation impacts, or the establishment of alternative reference rates in the United Kingdom, the United States or elsewhere, and such changes may result in, among other things, increased volatility and illiquidity in markets for instruments that currently rely on LIBOR, increased borrowing costs, reductions in the value of certain instruments or the effectiveness of related transactions such as hedges, difficulty and costly processes to amend applicable contracts and instruments and difficulties, complications or delays in connection with future financing and hedging efforts.
Our debt instruments contain restrictive covenants that could limit our financial flexibility.
The terms of the credit agreement that governs our senior secured credit facilities and the indenture governing the high yield notes contain financial and other restrictive covenants that limit our ability to engage in activities that may be in our long-term best interests. Our ability to borrow under our senior secured credit facilities is subject to compliance with a maximum consolidated total leverage ratio covenant and a minimum consolidated interest coverage ratio covenant. We report the status of our compliance with these covenants quarterly. Our failure to comply with these covenants could result in an event of default that, if not cured or waived, could result in the acceleration of substantially all of our funded debt, which could adversely affect our business, earnings and financial condition.
Our senior secured credit facilities include other restrictions that, among other things, limit our ability to incur new indebtedness; grant liens; engage in mergers, consolidations and liquidations; make asset dispositions, restricted payments including dividends and investments; enter into transactions with affiliates; and amend, modify or prepay certain indebtedness. The indenture governing the high yield notes contains limitations on our ability to effect mergers and change of control events as well as other limitations, including limitations on: the declaration and payment of dividends or other restricted payments; incurring additional indebtedness or issuing preferred stock; the creation or existence of certain liens; incurring restrictions on the ability of certain of our subsidiaries to pay dividends or other payments; transactions with affiliates; and the sale of assets.
We are exposed to the risk of changes in interest rates.
We have indebtedness that accrues interest at a variable rate. Increases in interest rates will reduce our operating cash flows and could hinder our ability to fund our operations, capital expenditures, acquisitions or dividends. In such cases we may seek to reduce our exposure to fluctuations in interest rates, but hedging our exposure carries the risk that we may forego the benefits we would otherwise experience if interest rates were to change in our favor. Developing an effective strategy for dealing with movements in interest rates is complex, and no strategy is guaranteed to adequately insulate us from the risks associated with such fluctuations.
Industry and Macroeconomic Risks
Price increases, disruption of supply or our inability to successfully manage our exposures to price fluctuations of our raw materials could adversely affect our profitability and harm our business.
We use large amounts of steel, stainless steel, aluminum, copper, electronic controls and component parts, among other materials, in the manufacturing of our products. Occasionally, market prices of some of our key raw materials increase significantly, due to tariffs or otherwise, which could adversely affect our margins. In addition, because we maintain limited raw material and component inventories and,
in some instances, rely upon single sources of supply, shortages or even brief unanticipated delays in delivery by suppliers, including those due to capacity constraints, labor disputes, impaired financial condition of suppliers, natural disasters, acts of war (including the ongoing armed conflict in Eastern Europe) or terrorism, pandemics or other events outside our control, may increase our production costs, cause delays in the shipment of our products, impair our ability to satisfy customer demand and adversely affect our business and financial performance. The ongoing COVID-19 pandemic has caused us to experience disruptions to our supply chain, resulting in delays, difficulties in obtaining, and increased costs of acquiring raw materials and component parts. If these disruptions to our supply chain were to worsen, our ability to meet our production demands would be adversely affected which could adversely affect our business operations, earnings and financial condition.
Increases in compensation, wage pressure, and other expenses for our employees and the employees of our suppliers may adversely affect our profitability. Increases in other operating costs may increase our cost of products sold or selling, general, and administrative expenses. Our inability to effectively mitigate inflationary increases through various customer pricing actions and cost reduction initiatives may result in a material adverse effect on our business, financial condition, and results of operations.
We have historically hedged a portion of our commodity exposures through derivative financial instruments to fix the future price for a portion of these commodities used in the manufacturing of our products. As a result, we are exposed to the risk of default by or failure of counterparty financial institutions. In the event of default or failure of one or more of our counterparties, we could incur significant losses, which could negatively impact our results of operations and financial condition.
We participate in an industry that is highly competitive, which could have a material adverse impact on our net sales and profitability.
We sell our products in a highly competitive industry. We compete based on product design, product quality, performance and reliability, quality and responsiveness of product support services, maintenance costs and price. Some of our competitors may have greater financial, marketing, manufacturing and distribution resources than we do. This competition as well as competitors' pricing decisions could cause our sales to decrease or compel us to reduce our prices to remain competitive, either of which would adversely affect our financial condition, results of operations and cash flows.
Demands to reduce our prices by a small number of buying groups, which have significant purchasing power in our industry, could adversely affect our sales and profitability.
A substantial portion of our dealer revenue comes from a small number of buying groups, which gives those buying groups a large degree of leverage and purchasing power with us and our competitors. In recent years, those buying groups have used their leverage to extract larger rebates, discounts and other price reductions. If, as a result of increased leverage, buying groups require us to further reduce prices, we may experience reduced margins or choose not to sell our products to particular buying groups, which could result in a decrease in revenues.
We rely on independent dealers and distribution partners to sell our products, and the loss of these dealers and distribution partners could adversely affect our business.
We rely significantly on a global network of independent, regional dealers and distributors to market and distribute our products. Our dealer and distributor arrangements are non-exclusive and allow such parties to represent and promote competing products to the detriment of our products. Dealers and distributors may be unwilling or unable to dedicate the resources necessary to promote our portfolio of product offerings. In addition, our distributors could retain inventory levels that exceed their future anticipated sales, which could thereby affect our future sales to those distributors. The loss of a significant number of distributors or dealers, or an increase in our distributors' or dealers' sales of our competitors' products could materially reduce our sales and profits. Furthermore, failure of our distributors to adhere to our policies designed to promote compliance with global anti-corruption laws, export controls, and local laws, could subject us to criminal or civil penalties and harm our brand and reputation.
Changing consumer tastes and government regulations affecting the QSR industry could negatively affect sales to our largest customers.
Several of our largest customers operate in the Quick Service Restaurant ("QSR") industry. The QSR industry is frequently affected by changes in consumer tastes and eating habits, often as a result of new information or attitudes regarding diet and health or as a result of government regulations requiring QSRs to disclose the nutritional content of food. If consumers’ eating habits change significantly, our customers may choose or be required to modify their menu offerings or cooking methods. Such modifications, or the failure to make the modifications to the extent consumers desire, could have an adverse effect on our customers’ business, financial conditions, results of operations or cash flows, which in turn could adversely affect customers' demand for our products.
Recent changes in trade policies, including the imposition of additional tariffs, could continue to adversely impact our business.
In recent years, the U.S. government began implementing major changes to certain trade policies, such as the imposition of additional tariffs on imported products and the withdrawal from or renegotiation of certain trade agreements, including the recently ratified trilateral trade agreement with the governments of Canada and Mexico, known as the United States-Mexico-Canada Agreement ("USMCA"). It remains to be seen if these changes will continue under the new U.S. Administration. Such changes could also result in retaliatory actions by the United States’ trade partners. For example, the U.S. government has threatened to undertake adverse actions relating to trade with Mexico, including the closure of the border and the imposition of escalating tariffs on goods imported into the U.S. from Mexico. If adopted, such actions could adversely impact our business and disrupt our operations.
Additionally, the previous Administration has recently increased tariffs on certain imports from China, as well as on steel and aluminum products imported from various countries. In response, China, the EU, and several other countries have imposed or proposed additional tariffs on certain exports from the United States. These actions have resulted in an increased cost of materials for our products and may cause our products to become less competitive due to price increases or less profitable due to lower margins. Our inability to effectively manage the negative impacts of changing U.S. and foreign trade policies could adversely affect our business and financial results.
Sales of our products may be impacted by economic conditions and other factors. A downturn or weakness in overall economic activity or fluctuations in weather or other factors could adversely affect us.
Historically, sales of products have been subject to variations caused by changes in general economic conditions and other factors. In particular, the strength of the economy generally may affect the rates of expansion, consolidation, renovation and equipment replacement within the restaurant, hospitality, retail and healthcare industries, which may affect our sales. Any future economic recession may impact leveraged companies like us more than competing companies with less leverage and may adversely affect our financial condition, results of operations and cash flows.
In addition, our business may be negatively impacted by uncertainty and disruptions related to the withdrawal of the United Kingdom and Northern Ireland from the EU, including potential disruptions to our supply chain, increased costs from the re-imposition of tariffs on trade between the United Kingdom and the EU, shipping delays due to new customs inspections and import/export processes and increased volatility in exchange rates and interest rates. The United Kingdom's inability to negotiate a favorable trade agreement with the EU or with other trading partners may result in an adverse impact on labor and trade in addition to creating further short-term uncertainty and currency volatility. Other risks may increase, such as the risk that other countries could come under increasing pressure to leave the EU, the economic and political circumstances of the individual countries in the eurozone, or the long-term stability of the Euro as a single common currency. Persistent disparity with respect to the widely varying economic conditions within the individual countries in the eurozone, and its implications for the euro as well as market perceptions concerning these and related issues, could adversely affect the value of our European operations, have an adverse effect on demand our products and services in the eurozone and have an adverse effect on financial markets in Europe and globally.
Weather conditions can also substantially affect our business, as relatively cool summer weather and cooler-than-normal weather in hot climates tend to decrease sales of ice and beverage dispensers. Our sales depend in part upon our customers’ replacement or repair cycles. Adverse economic conditions may cause customers to forgo or postpone new purchases in favor of repairing existing machinery.
If we are unable to sufficiently adjust to market conditions, among other potential adverse effects on our financial condition, results of operations and cash flows, we could fail to deliver on planned results, fall short of analyst and investor expectations, incur higher fixed costs, and/or fail to benefit from higher than expected customer demand resulting in loss of market share.
We are exposed to the risk of foreign currency fluctuations.
Some of our operations are or may be conducted by subsidiaries in foreign countries. The results of operations and the financial position of these subsidiaries will be reported in the relevant foreign currencies and then translated into U.S. dollars at the applicable exchange rates for inclusion in our consolidated financial statements, which are stated in U.S. dollars. The exchange rates between many foreign currencies and the U.S. dollar have fluctuated significantly in recent years and may continue to fluctuate significantly in the future. Such fluctuations may have a material effect on our results of operations and financial position and may significantly affect the comparability of our results between financial periods.
We also incur currency transaction risk whenever one of our operating subsidiaries enters into a transaction using a different currency than its functional currency. We attempt to reduce currency transaction risk whenever one of our operating subsidiaries enters into a material transaction using a different currency than its functional currency by:
•matching cash flows and payments in the same currency;
•direct foreign currency borrowing; and
•entering into foreign exchange contracts for hedging purposes.
However, we may not be able to hedge such a risk completely or at an acceptable cost, which may adversely affect our financial condition, results of operations and cash flows in future periods.
Security breaches, cybersecurity attacks and other disruptions could compromise our information and expose us to liability, which would cause our business and reputation to suffer.
In the ordinary course of our business, we collect and store sensitive data, including proprietary information of our customers, suppliers and business partners, as well as personally identifiable information of our customers and employees, in our internal and external data centers, cloud services, and on our networks. The secure processing, maintenance and transmission of this information is critical to our operations and business strategy. The number and sophistication of attempted attacks and intrusions that companies have experienced from third parties has
increased over the past several years. It is impossible for us to eliminate risks of such attacks. Our information technology and infrastructure, and that of our partners, may be vulnerable to malicious attacks or breaches due to employee error, malfeasance or other disruptions, including as a result of roll-outs of new systems. In addition, because techniques used by computer programmers and hackers (many of whom are highly sophisticated and well-funded) to access or sabotage networks and computer systems change frequently and often are not recognized until after they are used, we may be unable to anticipate or immediately detect these techniques.
In the event of a data or cybersecurity attack, breach or operational failure, our networks and those of our partners may be compromised or experience interruptions in operations and the information stored on such networks could be accessed, publicly disclosed, subject to ransom demands, lost or stolen. We may also be required to expend substantial time and resources to modify or enhance our protective measures and to investigate and remediate vulnerabilities. Furthermore, certain breaches or attacks could be repeated or compounded before they are discovered and remediated, all of which would further increase the costs and consequences of such an attack. Though we have insurance against some cyber-risks and attacks, we may face financial losses that exceed our policy limits or are not covered under any of our current insurance policies. Any such access, disclosure or other loss of information could result in legal claims or regulatory penalties, disrupt our operations, damage our reputation, and/or cause a loss of confidence in our products and services, which could adversely affect our business.
We may fail to anticipate or adequately mitigate increasingly sophisticated methods to engage in illegal or fraudulent activities perpetrated against us.
Despite the defensive measures that we take to manage threats to our business, our risk and exposure to potential illegal or fraudulent activities remain heightened because of, among other things, the evolving nature of such threats in light of advances in computer capabilities, new discoveries in the field of cryptography, new and sophisticated methods used by criminals including phishing, vishing, social engineering or other illicit acts, or other events or developments that we may be unable to anticipate or fail to adequately mitigate.
Regulatory and Legal Risks
We are involved in litigation that is unpredictable and may have an adverse impact on our financial condition, results of operations and cash flows.
From time to time, we become involved in various lawsuits, claims and proceedings arising out of, or incident to, our ordinary course of business, including lawsuits, claims, investigations or proceedings pertaining to product liability, patent infringement, environmental matters, commercial disputes, warranty claims, trade practices and employment matters. While we cannot predict the outcome of any lawsuit, claim, investigation or proceeding with certainty, we do not believe that the ultimate disposition of any pending matter is likely to have a material adverse effect on our consolidated financial position, liquidity, or results of operations. We refer to the disclosure in “Item 3. Legal Proceedings” under “The Middleby Merger Cases” and “The Ali Group Merger Cases” for a description of recent and ongoing litigation, which disclosure is incorporated herein by reference.
Our international sales and operations are subject to a variety of domestic and international laws relating to trade, export controls and foreign corrupt practices, the violation of which could adversely affect our operations.
We must comply with all applicable international trade, customs, export controls and economic sanctions laws and regulations of the U.S. and the other countries in which we do business. Changes in trade sanctions laws may restrict our business practices, including cessation of business activities in sanctioned countries or with sanctioned entities, and may result in modifications to compliance programs. We are also subject to the U.S. Foreign Corrupt Practices Act ("FCPA") and other anti-bribery laws that generally bar bribes or unreasonable gifts to foreign governments or officials. We operate in many parts of the world that have experienced governmental corruption to some degree and, in certain circumstances strict compliance with anti-bribery laws may conflict with local customs and practices. Although we implement policies and procedures designed to ensure compliance with all such laws and regulations, there can be no assurance that all of our employees, distributors, dealers, and agents will not take actions in violation of our policies or these regulations. Failure by us or our distributors to comply with such laws and regulations may result in civil and criminal enforcement, including monetary fines and possible injunctions against our shipment of product or other activities, which could have a material adverse impact on our financial condition, results of operations and cash flows.
Our reputation, ability to do business and results of operations may be impaired by improper conduct by any of our employees, agents, or business partners.
While we strive to maintain high standards, we cannot provide assurance that our internal controls and compliance systems will always protect us from acts committed by our employees, agents, or business partners that would violate United States and/or non-United States laws or fail to protect our confidential information, including the laws governing anti-kickback and false claims, competition, fraud, money laundering and data privacy, as well as the improper use of proprietary information or social media. Any such violations of law or improper actions could subject us to civil or criminal investigations in the United States and in other jurisdictions, could lead to substantial civil or criminal, monetary and non-monetary penalties and related stockholder lawsuits, could lead to increased costs of compliance and could damage our reputation, our consolidated results of operations, financial condition and cash flows.
Our results of operations may be negatively impacted by product liability lawsuits.
We are subject to potential product liability risks that relate to the design, manufacture, sale and use of our products. To date, we have not incurred material costs related to these product liability claims. While we believe our current general liability and product liability insurance is adequate to protect us from future product liability claims, there can be no assurance that our coverage will be adequate to cover all claims that may arise. Additionally, we may not be able to maintain insurance coverage in the future at an acceptable cost. Significant losses not covered by insurance or for which third-party indemnification is not available could have a material adverse effect on our business, financial condition, results of operations and cash flows. In addition, it may be necessary for us to recall products that do not meet approved specifications, which could result in adverse publicity as well as costs connected to the recall and loss of revenue.
If we fail to protect our intellectual property rights or maintain our rights to use licensed intellectual property, our business could be adversely affected.
Our patents, trademarks and licenses are important in the operation of our businesses. Although we protect our intellectual property rights vigorously, we cannot be certain that we will be successful in doing so. Litigation to enforce our intellectual property rights could result in substantial costs and diversion of our resources. In some cases, including with respect to several of our most important products, there may be no effective legal recourse against duplication by competitors. In the future, we may have to rely on litigation to enforce our intellectual property rights, protect trade secrets, determine the validity and scope of the proprietary rights of others or defend against claims of infringement or invalidity. Any such litigation, whether successful or unsuccessful, could result in substantial costs and diversions of resources, either of which could adversely affect our business.
Any infringement by us on patent rights of others could result in litigation and adversely affect our ability to continue to provide, or could increase the cost of providing, our products and services.
Third parties may assert or prosecute infringement or validity claims against us in connection with the services and products that we offer, and we may or may not be able to successfully defend these claims. Regardless of whether these claims have any merit, such claims can be burdensome and costly to defend or settle and can harm our business and reputation. In addition, if a third-party would prevail in an infringement claim against us, then we would likely need to obtain a license from the third-party on commercial terms, which would likely increase our costs. Our failure to maintain or obtain necessary licenses or an adverse outcome in any litigation relating to patent infringement or other intellectual property matters could have a material adverse effect on our financial condition, results of operations and cash flows.
Our operations and profitability could suffer if we experience labor relations problems.
As of December 31, 2021, we employed approximately 4,800 people worldwide. Our employees include workforce resources from six employee unions in North America, two trade unions and a local works council in Europe and two trade unions in China. Our union contracts and labor agreements are renegotiated periodically, and we cannot predict the outcome of these negotiations. If we are unable to reach new agreements or renew existing agreements on a timely basis, we may experience strikes, work stoppages, delays or other issues which could disrupt our business. Any significant labor relations issues, including issues related to the renewal of expiring union contracts, could adversely affect our operations, reputation, financial condition, results of operations and cash flows.
Recent and anticipated changes to tax laws or exposure to additional tax liabilities may have a negative impact on our operating results.
The U.S. Tax Cuts and Jobs Act (the “Tax Act”), which was enacted in 2017, made broad and complex changes to the U.S. tax code that affect 2017 and subsequent years. The Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was enacted on March 27, 2020 and includes several measures intended to assist companies during the COVID-19 pandemic including temporary changes to income and non-income-based tax laws. Future legislative and regulatory guidance under the Tax Act, CARES Act, United Kingdom's departure from the EU and Organization for Economic Cooperation and Development initiatives, including the global anti-base erosion proposal envisaging global minimum taxation, represent significant changes that could have a material effect upon our effective tax rate, future earnings and cash flows. With the recent changes in the Legislative and Executive branches of the U. S. Government, there is an increased likelihood of additional tax legislation being passed in the near future, which could also have a material effect upon our effective tax rate, future earnings and cash flows.
We regularly undergo tax audits in various jurisdictions in which our products are sold. Although we believe that our tax estimates are reasonable and that we prepare our tax filings in accordance with all applicable tax laws, the final determination with respect to any tax audits, and any related litigation, could be materially different from our estimates or from our historical income tax provisions and accruals. The results of an audit or litigation could materially affect our 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.
We have significant pension obligations with respect to our employees and our available cash flow may be adversely affected in the event that payments become due under any defined benefit plans that are unfunded or underfunded.
A portion of our active and retired employees participate in defined benefit plans under which we are obligated to provide prescribed levels of benefits regardless of the value of the underlying assets, if any, of the applicable defined benefit plan. If our obligations under a plan are unfunded or underfunded, we will have to use cash flow from operations and other sources to pay our obligations either as they become due or over some shorter funding period. As of December 31, 2021, we had approximately $18.2 million in unfunded or underfunded obligations related to our defined benefit plans.
Compliance with regulations related to conflict minerals may force us to incur additional expenses and affect the manufacturing and sale of our products.
In recent years, governments in both the U.S. and Europe have implemented or proposed regulations governing the use of certain minerals, including tin, tantalum, tungsten and gold, which we collectively refer to as conflict minerals. In the U.S., SEC rules require disclosures related to conflict minerals that are necessary to the functionality or production of a product manufactured, or contracted to be manufactured, by an SEC-reporting company, that are sourced from the Democratic Republic of Congo and other countries in central Africa. In the E. U., regulations effective January 1, 2021 require similar disclosures and encompass other geographic regions outside of central Africa.
These disclosure requirements could affect the sourcing and availability of some of the minerals used in the manufacture of our products. Our supply chain is complex, and if we are not able to conclusively verify the origins for all conflict minerals used in our products or determine that our products are "conflict free," we may face reputational challenges with our customers or investors. Furthermore, we may also encounter challenges to satisfy customers who require that our products be certified as "conflict free," which could place us at a competitive disadvantage if we are unable to do so. Additionally, as there may be only a limited number of suppliers offering "conflict free" metals, we cannot be sure that we will be able to obtain necessary metals from such suppliers in sufficient quantities or at competitive prices. For all of these reasons, we could incur significant costs related to the conflict minerals compliance process and face equally significant costs in satisfying the disclosure requirements.
General Risk Factors
The trading price of our common stock has been volatile, and investors in our common stock may experience substantial losses.
We cannot predict the prices at which our common stock may trade. The market price of our common stock may fluctuate widely, depending on many factors, some of which may be beyond our control, including the following:
•our quarterly or annual earnings, or those of other companies in our industry;
•announcements by us or our competitors of significant new business awards;
•announcements of significant acquisitions, divestitures, strategic alliances, joint ventures or dispositions by us or our competitors;
•the failure of securities analysts to cover our common stock;
•changes in earnings estimates by securities analysts;
•the operating and stock price performance of other comparable companies;
•investor perception of our company and the foodservice industry;
•overall market fluctuations;
•changes in capital gains taxes and taxes on dividends affecting stockholders; and
•general economic conditions and other external factors.
Stock markets in general have experienced volatility that has often been unrelated to the operating performance of a particular company. These broad market fluctuations could also adversely affect the trading price of our common stock.
If we fail to establish and maintain adequate internal control over financial reporting, we may not be able to report our financial results in a timely and reliable manner, which could harm our business and impact the value of our securities.
We are required by the SEC to establish and maintain adequate internal control over financial reporting that provides reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements. Accordingly, we are required to assess the effectiveness of our internal control over financial reporting annually and the effectiveness of our disclosure controls and procedures quarterly. We are also required to disclose any change that has materially affected or is reasonably likely to materially affect our internal controls over financial reporting on a quarterly basis.
If we fail to achieve and maintain the adequacy of our internal controls, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting. If we cannot provide reliable financial reports, our business could be harmed, investors could lose confidence in our reported financial information, and the trading price of our common stock could drop significantly. Likewise, if our financial statements are not filed on a timely basis as required by the SEC, we could face severe consequences, and our reputation could be harmed which in turn could affect the value of our securities.
We may not realize expected benefits from acquisitions of or investments in new businesses, products, or technologies, which could harm our business.
As part of our strategy, we may pursue growing our company through the acquisition of businesses, products or technologies. Identifying suitable acquisition candidates can be difficult, time-consuming and costly, and we may not be able to successfully complete identified acquisitions or integrate newly acquired businesses.
Environmental liabilities that may arise in the future could be material to us.
Our operations, facilities and properties are subject to extensive and evolving laws and regulations pertaining to air emissions, wastewater discharges, the handling and disposal of solid and hazardous materials and wastes, the remediation of contamination, and otherwise relating to health, safety and the protection of the environment. As a result, we are involved from time to time in administrative or legal proceedings relating to environmental and health and safety matters, and we have in the past and will continue to incur capital and other expenditures relating to such matters. The possibility of discovering presently unidentified environmental conditions, more vigorous enforcement by regulatory authorities, or other unanticipated events may give rise to additional environmental liabilities, compliance costs and/or penalties that could be material. Further, environmental laws and regulations are constantly evolving and it is impossible to predict accurately the effect any changes may have upon our financial condition, results of operations or cash flows.
Failure to attract, retain and develop personnel or to provide adequate succession plans for key management members could have an adverse effect on our consolidated results of operations, financial condition and cash flows.
Our growth, profitability and effectiveness in conducting our operations and executing our strategic plans depend in part on our ability to attract, retain and develop qualified personnel and maintain adequate succession plans for key management positions and support for strategic initiatives. If we are unsuccessful in these efforts, our consolidated results of operations, financial condition and cash flows could be adversely affected and we could miss opportunities for growth and efficiencies.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.

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ITEM 2. PROPERTIES
ITEM 2. PROPERTIES
The following table outlines the principal facilities we own or lease as of December 31, 2021.
Facility Location
Type of Facility Owned/Leased
Americas
New Port Richey, Florida (1) (2)
Corporate Headquarters Owned/Leased
Covington, Tennessee (1)
Manufacturing/Office/Warehouse Owned/Leased
Parsons, Tennessee (1)
Manufacturing/Office/Warehouse Owned/Leased
Manitowoc, Wisconsin (2)
Manufacturing/Office Owned
Shreveport, Louisiana (1) (2)
Manufacturing/Office/Warehouse Owned
Mt. Pleasant, Michigan (2)
Manufacturing/Office Owned
Concord, Ontario, Canada (2)
Manufacturing/Office Leased
Mississauga, Ontario, Canada (1) (2)
Manufacturing/Office/Warehouse Leased
Monterrey, Mexico Manufacturing/Office/Warehouse Leased
Tijuana, Mexico Manufacturing/Office/Warehouse Leased
EMEA
Eglfing, Germany (2)
Manufacturing/Office/Warehouse Owned
Herborn, Germany Office/Warehouse Leased
Herisau, Switzerland (2)
Manufacturing/Office/Warehouse Leased
Halesowen, United Kingdom (2)
Manufacturing/Office/Warehouse Leased
Sheffield, United Kingdom Manufacturing/Office/Warehouse Leased
Gandia, Spain (1) (2)
Manufacturing/Office Leased
Amotfors, Sweden Office/Warehouse Leased
APAC
Foshan, China (1)
Manufacturing/Office/Warehouse Owned/Leased
Hangzhou, China (2)
Manufacturing/Office/Warehouse Owned
Shanghai, China (2)
Office Leased
Prachinburi, Thailand (1)
Manufacturing/Office Owned
Kwong Min, Singapore Office/Warehouse Leased
(1) There are multiple facilities within these locations.
(2) This location also serves as a research and development center.
In addition, we lease other office and warehouse space within various locations throughout the regions noted above which is used for sales and marketing as well as limited operations support, among other general and administrative purposes.
Beginning in March 2020, a significant number of our office-based employees across all geographic regions have shifted to working from home due to the COVID-19 pandemic. Our focus remains on promoting health and safety measures to protect our employees in our manufacturing plants, warehouses and offices. Through December 31, 2021, we have not terminated any of our significant leasing arrangements.
Refer to Note 16, "Leases", of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional information regarding leases.

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ITEM 3. LEGAL PROCEEDINGS
ITEM 3. LEGAL PROCEEDINGS
From time to time, we become involved in various lawsuits, claims and proceedings arising out of, or incident to, our ordinary course of business, including lawsuits, claims, investigations or proceedings pertaining to product liability, patent infringement, environmental matters, commercial disputes, warranty claims, trade practices and employment matters. While we cannot predict the outcome of any lawsuit, claim, investigation or proceeding with certainty, we do not believe that the ultimate disposition of any pending matter is likely to have a material adverse effect on our consolidated financial position, liquidity, or results of operations.
The Middleby Merger Cases
Welbilt was previously a named defendant in seven separate litigations (collectively, the “Middleby Cases”) arising in connection with a Form S-4 Registration Statement that Welbilt and the Middleby Corporation filed with the SEC on May 28, 2021 in connection with a potential merger between Welbilt and the Middleby Corporation and its affiliates (collectively, “Middleby”).
On June 2, 2021, Shiva Stein, a purported stockholder of Welbilt, filed a lawsuit titled Stein v. Welbilt, Inc., et al. against Welbilt and certain members of Welbilt’s Board of Directors in the United States District Court for the District of Delaware. On June 6, 2021, Sarah Vanmersbergen, a purported stockholder of Welbilt, filed a lawsuit titled Vanmersbergen v. Welbilt, Inc. et al. against Welbilt, Middleby and certain members of Welbilt’s Board of Directors in the United States District Court for the District of Delaware. On June 11, 2021, Therese Newbauer, a purported stockholder of Welbilt, filed a lawsuit titled Newbauer v. Welbilt, Inc. et al. against Welbilt and certain members of Welbilt’s Board of Directors in the United States District Court for the Southern District of New York. On June 15, 2021, Sam Wietschner, a purported stockholder of Welbilt, filed a lawsuit titled Wietschner v. Welbilt, Inc. et al. against Welbilt and certain members of Welbilt’s Board of Directors in the United States District Court for the Southern District of New York. On June 17, 2021, Rodrigo Chapa, a purported stockholder of Welbilt, filed a lawsuit titled Chapa v. Welbilt, Inc. et al. against Welbilt and certain members of Welbilt’s Board of Directors in the United States District Court for the Eastern District of New York. On June 21, 2021, Catherine Nichols, a purported stockholder of Welbilt, filed a lawsuit titled Nichols v. Welbilt, Inc. et al. against Welbilt, Middleby and certain members of Welbilt’s Board of Directors in the United States District Court for the Southern District of New York. On July 2, 2021, Brian Jones, a purported stockholder of Welbilt, filed a lawsuit titled Jones v. Welbilt, Inc. et al. against Welbilt and certain members of Welbilt’s Board of Directors in the United States District Court for the District of Delaware.
The Plaintiffs in all seven of the Middleby Cases alleged that the Defendants purportedly violated Sections 14(a) and 20(a) of the Securities Exchange Act of 1934 (“Exchange Act”), and SEC Rule 14a-9, because the Registration Statement that was filed with the SEC, and disseminated to Welbilt’s stockholders, was materially incomplete and misleading. In addition to these allegations, the Plaintiff in the Nichols litigation further alleged breach of fiduciary duty claims.
As discussed in further detail below, the Plaintiffs in six of the Middleby Cases-the Vanmersbergen, Chapa, Nichols, Jones, Wietschner and Stein litigations-subsequently filed new lawsuits against Welbilt, or amended their preexisting complaints against Welbilt, in connection with Welbilt’s merger with Ali Holding S.r.l. and its affiliates (collectively, “Ali Group”). The Plaintiff in the Newbauer litigation voluntarily dismissed their case, and did not file any new lawsuits against Welbilt.
The Ali Group Merger Cases
Welbilt was a named defendant in eight separate litigations (collectively, the “Ali Group Cases”) arising in connection with a Proxy Statement that Welbilt filed with the SEC on August 31, 2021 in connection with the merger between Welbilt and Ali Group.
On August 20, 2021, Catherine Nichols, a purported stockholder of Welbilt, filed a lawsuit titled Nichols v. Welbilt, Inc. et al. against Welbilt and certain members of Welbilt’s Board of Directors in the United States District Court for the Southern District of New York. On August 25, 2021, the Plaintiff in the Stein litigation filed an amended complaint in the lawsuit titled Stein v. Welbilt, Inc. et al. in the United States District Court for the District of Delaware. Also on August 25, 2021, Sarah Vanmersbergen, a purported stockholder of Welbilt, filed a lawsuit titled Vanmersbergen v. Welbilt, Inc. et al. against Welbilt and certain members of Welbilt’s Board of Directors in the United States District Court for the District of Delaware. On September 8, 2021, Rodrigo Chapa, a purported stockholder of Welbilt, filed a lawsuit titled Chapa v. Welbilt, Inc. et al. against Welbilt and certain members of Welbilt’s Board of Directors in the United States District Court for the Eastern District of New York. On September 9, 2021, Richard Lawrence, a purported stockholder of Welbilt, filed a lawsuit titled Lawrence v. Welbilt, Inc. et al. against Welbilt and certain members of Welbilt’s Board of Directors in the United States District Court for the Eastern District of Michigan. On September 10, 2021, the Plaintiff in the Wietschner litigation filed an amended complaint in the lawsuit titled Wietschner v. Welbilt, Inc. et al. in the United States District Court for the Southern District of New York. Also on September 10, 2021, Brian Jones, a purported stockholder of Welbilt, filed a lawsuit titled Jones v. Welbilt, Inc. et al. against Welbilt and certain members of Welbilt’s Board of Directors in the United States District Court for the District of Delaware. On September 16, 2021, Jordan Wilson, a purported stockholder of Welbilt, filed a lawsuit titled Wilson v. Welbilt, Inc. et al. against Welbilt and certain members of Welbilt’s Board of Directors in the United States District Court for the Eastern District of Michigan.
The plaintiffs in all eight of the Ali Group Cases alleged that the Defendants purportedly violated Sections 14(a) and 20(a) of the Securities Exchange Act of 1934 (“Exchange Act”), and SEC Rule 14a-9, because the Proxy Statement that was filed with the SEC, and disseminated to Welbilt’s stockholders, was materially incomplete and misleading.
Plaintiffs in the Wietschner, Chapa, Lawrence, Jones, Nichols and Wilson litigations have since voluntarily dismissed their lawsuits. The Stein and Vanmersbergen litigations are currently pending.
The Plaintiffs in all seven of the Ali Group Cases allege that the Defendants purportedly violated Sections 14(a) and 20(a) of the Exchange Act, and SEC Rule 14a-9, because the Proxy Statement that was filed with the SEC, and disseminated to Welbilt’s stockholders, was materially incomplete and misleading. Plaintiffs in the Ali Group Cases also seek to enjoin Defendants from taking any steps to consummate the merger with Ali Group unless and until certain material information is disclosed to Welbilt’s stockholders, or in the event the proposed merger is consummated, to recover damages resulting from Defendants’ purported violations of the Exchange Act. Welbilt has yet to be served in any of the Ali Group Cases.
We intend to defend vigorously against the Ali Group Cases and all lawsuits as they may arise in the ordinary course of business. However, litigation is inherently uncertain, and we are unable to predict the outcome of these lawsuits and are unable to estimate the range of loss, if any, that could result from an unfavorable outcome. We also cannot provide any assurance that the ultimate resolution of any lawsuits will not have a material adverse effect on the proposed merger with Ali Group or our reputation, business, prospects, results of operations or financial condition.
From time to time, we become involved in various lawsuits, claims and proceedings arising out of, or incident to, our ordinary course of business, including lawsuits, claims, investigations or proceedings pertaining to product liability, patent infringement, environmental matters, commercial disputes, warranty claims, trade practices and employment matters. For additional information concerning contingencies and uncertainties, see Note 11, "Contingencies and Significant Estimates," of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.

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ITEM 4. MINE SAFETY DISCLOSURE
ITEM 4. MINE SAFETY DISCLOSURES
None.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Shares of our common stock began trading on the New York Stock Exchange ("NYSE") under the ticker symbol "MFS" on March 4, 2016. Prior to that date, there was no public trading market for shares of our common stock. On March 6, 2017, our shares commenced trading under the Company's new name, Welbilt, Inc., and a new NYSE ticker symbol, "WBT."
Holders
As of February 25, 2022, there were 1,241 holders of record of our common stock.
Dividend Policy
The amount and timing of dividends, if any, will be determined by our Board of Directors (the "Board"). The Board has not authorized or paid a dividend since we became an independent public company on March 4, 2016 and does not currently plan on paying dividends in 2022 as we continue to focus on navigating the impact of the COVID-19 pandemic on our business and reducing our outstanding debt obligations. The timing, declaration, amount and payment of any future dividends is within the discretion of the Board and will depend upon many factors, including our financial condition, earnings, corporate strategy, capital requirements of our operating subsidiaries, contractual restrictions, including covenants contained in our senior secured credit facilities and our senior notes indenture, debt service obligations, legal requirements, regulatory constraints, industry practice, ability to access capital markets and other factors deemed relevant by the Board.
Issuer Purchases of Equity Securities
There were no unregistered offerings nor any repurchases of our common stock by us or an "affiliated purchaser" (as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934, as amended (the "Exchange Act") during the year ended December 31, 2021.
Performance Graph
The following graph and table depict the total return to stockholders from March 4, 2016 (the date our common stock began trading on the NYSE) through December 31, 2021, relative to the performance of the S&P 500 Index and the S&P 400 Midcap Index. The graph and table assume $100 invested at the closing price of $13.80 on March 4, 2016.
The performance graph and table are not intended to be indicative of future performance. The performance graph and table shall not be deemed "soliciting material" or to be "filed" with the Securities and Exchange Commission for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any of our filings under the Securities Act of 1933, as amended, or the Exchange Act.
March 4, 2016 December 31, 2016 December 31, 2017 December 31, 2018 December 31, 2019 December 31, 2020 December 31, 2021
WBT $ 100.00 $ 140.07 $ 167.61 $ 80.51 $ 113.12 $ 95.65 $ 172.25
S&P 500 $ 100.00 $ 111.94 $ 139.31 $ 125.34 $ 161.54 $ 187.80 $ 238.94
S&P 400 Midcap $ 100.00 $ 118.68 $ 140.51 $ 118.86 $ 147.44 $ 164.85 $ 203.12

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ITEM 6. SELECTED FINANCIAL DATA
ITEM 6. SELECTED FINANCIAL DATA
The following table presents our selected financial data as of and for each of the periods indicated. We derived the selected consolidated financial data for each of the fiscal years ended December 31, 2021, 2020 and 2019 and as of December 31, 2021 and 2020 from our audited consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K. We derived the selected consolidated financial data for the years ended December 31, 2018 and 2017 and as of December 31, 2019 and 2018 from our audited consolidated financial statements, which are not included in this Annual Report on Form 10-K.
The selected historical financial data presented below should be read in conjunction with our audited consolidated financial statements and notes to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K and Item 7 "Management’s Discussion and Analysis of Financial Condition and Results of Operations." No cash dividends were declared or paid during any of the periods presented.
(in millions, except per share data) December 31,
2021(3)(4)
2020(3)(4)
2019(4)
2018 (5)
Statements of Operations Data (for the year ended):
Net sales $ 1,546.9 $ 1,153.4 $ 1,593.9 $ 1,590.1 $ 1,445.4
Depreciation and amortization $ 63.1 $ 62.2 $ 61.1 $ 55.0 $ 47.9
Earnings (loss) before income taxes $ 99.2 $ (13.7) $ 75.7 $ 89.0 $ 121.4
Net earnings (loss) $ 70.3 $ (7.4) $ 55.9 $ 78.2 $ 132.9
Earnings (loss) per share - Basic $ 0.49 $ (0.05) $ 0.40 $ 0.56 $ 0.96
Earnings (loss) per share - Diluted $ 0.49 $ (0.05) $ 0.39 $ 0.55 $ 0.94
Balance Sheets Data (as of end of year):
Adjusted working capital (1)
$ 384.3 $ 260.1 $ 265.6 $ 152.1 $ 132.4
Total assets $ 2,277.6 $ 2,141.6 $ 2,165.3 $ 2,075.0 $ 1,840.4
Long-term obligations (2)
$ 1,423.3 $ 1,445.5 $ 1,432.2 $ 1,321.8 $ 1,232.2
Capital expenditures $ 25.9 $ 20.1 $ 33.9 $ 21.4 $ 20.7
(1) Adjusted working capital is defined as net receivables and inventory less trade accounts payable.
(2) The long-term obligations as of December 31, 2021, 2020, and 2019 include long-term debt and both long-term operating and finance lease obligations resulting from the adoption of Accounting Standards Update No. 2016-02-Leases as of January 1, 2019, for which the impact is not included in years prior to 2019. Refer to our previously issued consolidated financial statements on Form 10-K for the year ended December 31, 2019 for further discussion of the adoption, included in Note 2, "Basis of Presentation and Summary of Significant Accounting Policies", of the Notes to the Consolidated Financial Statements. The long-term obligations as of December 31, 2018, 2017 and 2016, respectively, include amounts for long-term debt and capital leases only based on the lease accounting standards in effect for the respective periods.
(3) For the years ended and as of December 31, 2021 and 2020 our financial results reflect the impacts of the COVID-19 pandemic on our results of operations and financial condition. Refer to Part II, Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" for additional information.
(4) In May 2019, we launched our Business Transformation Program and incurred consulting costs, restructuring charges and other transformation-related expenses during the years ended December 31, 2021, 2020 and 2019. See Note 14, "Business Transformation Program and Restructuring", of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for further discussion.
(5) On April 19, 2018, we, through a wholly-owned subsidiary, acquired 100% of the share capital of Avaj International Holding AB ("Crem"). Crem's operations have been included in our consolidated results of operations beginning on the acquisition date.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and the related notes included in Part II, Item 8 of this Annual Report on Form 10-K for the fiscal year ended December 31, 2021. The results of operations and other information included herein are not necessarily indicative of the financial condition, results of operations and cash flows that may be expected in future periods. This Annual Report on Form 10-K, including matters discussed in this Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" contains forward-looking statements relating to our plans, estimates and beliefs that involve important risks and uncertainties. See "Cautionary Statements Regarding Forward-Looking Information" and Item 1A. "Risk Factors" for a discussion of uncertainties and assumptions that may cause actual results to differ materially from those expressed or implied in the forward-looking statements. Additionally, we use certain non-GAAP financial measures to evaluate our results of operations, financial condition and liquidity. For important information regarding the use of such non-GAAP measures, including reconciliations to the most comparable GAAP measure, see the section titled "Non-GAAP Financial Measures" below.
This section of this Annual Report on Form 10-K generally discusses 2021 and 2020 items and year-to-year comparisons between 2021 and 2020. Discussions of 2019 items and year-to-year comparisons between 2020 and 2019 that are not included in this Annual Report on Form 10-K can be found in "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.
The financial condition and results of operations discussed in this Management's Discussion and Analysis of Financial Condition and Results of Operations are those of Welbilt, Inc. and its consolidated subsidiaries, collectively, the "Company," "Welbilt," "we," "our" or "us."
Overview
Business Overview
We design, manufacture and supply best-in-class equipment for the global commercial foodservice market with our suite of products capable of storing, cooking, holding, displaying, dispensing and serving in both hot and cold foodservice categories. Our portfolio 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. Our products, product-based services and aftermarket parts and service support are recognized by our customers and channel partners for their quality, reliability and durability which support our end customers by improving menus, enhancing operations and reducing costs.
We manage our business in three geographic business segments: Americas, EMEA and APAC. The Americas segment includes the United States ("U.S."), Canada and Latin America. The EMEA segment consists of markets in Europe, including Middle East, Russia, Africa and the Commonwealth of Independent States. The APAC segment consists primarily of markets in China, India, Australia, South Korea, Singapore, Philippines, Japan, Indonesia, Malaysia, Thailand, Hong Kong, Taiwan, New Zealand and Vietnam. We are required to prepare and present our consolidated financial statements in accordance with accounting principles generally accepted in the U.S. ("U.S. GAAP" or "GAAP"). These geographic business segments represent the level at which separate financial information is available and which is used by management to assess operating performance and allocate resources. We evaluate our segment performance based upon Adjusted Operating EBITDA (a non-GAAP measure). See the definition of Adjusted Operating EBITDA and other non-GAAP measures used by management within the section titled "Non-GAAP Financial Measures" of this Management's Discussion and Analysis of Financial Condition and Results of Operations. In addition, see Note 20, "Business Segments", of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for further discussion of our geographic business segments.
Executive Summary
Merger with Ali Holding S.r.l.
On July 14, 2021,Welbilt and Ali Holding S.r.l. (“Ali Group”), a significant and diversified global foodservice equipment manufacturer and distributor, entered into a merger agreement under which Ali Group will acquire the Company in an all-cash transaction for $24.00 per share, or approximately $3.5 billion in aggregate equity value and $4.8 billion in enterprise value. The merger agreement was unanimously approved by the Company's board of directors and on September 30, 2021, was approved by our stockholders.
In accordance with the terms of the merger agreement and immediately prior to the merger:
(i) all of the Company's outstanding and unvested common stock options and restricted stock units will become vested and exchanged for the right to receive cash equal to the $24.00 per share consideration (less the exercise price per share of common stock for the common stock options), and
(ii) all of the Company's outstanding performance share units will also be exchanged, as determined assuming the maximum level of performance is achieved, for the right to receive cash equal to the $24.00 per share consideration,
Upon completion of the transaction, the Company's shares will no longer trade on The New York Stock Exchange.
The Ali Group merger agreement provides that the Company may be required to pay Ali Group a termination fee equal to $110.0 million if the merger agreement is terminated:
(a) by Ali Group due to a breach of a covenant or agreement by the Company that causes the failure of a condition to closing, or
(b) by either party if the Merger has not been consummated prior to July 14, 2022 (subject to extension if certain approvals have not been obtained by such date) or
if, in the case of clauses (a) or (b), an alternative proposal has been publicly disclosed, announced or otherwise made public and has not been withdrawn and within twelve months of such termination our company enters into a definitive agreement with respect to, or consummates, an alternative proposal.
Welbilt and Ali Group have submitted regulatory filings in all required jurisdictions, including the U.S., United Kingdom, and European Union. The companies have decided that they will proceed with divesting the Ice Divestiture and the companies are confident that this step will ensure regulatory approval.
In October 2021, the Company's board of directors concluded that outside consultants should be authorized to commence a process that could result in the sale of the Ice business. Our outside consultants, with the assistance of management, have initiated the marketing and due diligence process for the Ice divestiture. The companies expect to complete Ice Divestiture in the first half of 2022 with the acquisition of Welbilt by Ali Group to close shortly thereafter.
As of December 31, 2021, we concluded that the Ice business does not meet the criteria to be classified as an asset held for sale or its operations to be classified as discontinued operations in accordance with the applicable accounting literature.
Financial Results Highlights
Highlights of our financial results as of and for the year ended December 31, 2021 as compared to our financial results as of and for the year ended December 31, 2020 include the following:
•Net sales were $1,546.9 million, an increase of 34.1%.
•Organic net sales (a non-GAAP measure) were $1,521.7 million, an increase of 31.9%.
•Gross profit (as a percentage of net sales) was 36.2% compared to 35.5% for the year ended December 31, 2020.
•Earnings from operations were $181.6 million, an increase of 187.8%.
•Adjusted Operating EBITDA (a non-GAAP measure) was $275.4 million, an increase of 61.1%, while Adjusted Operating EBITDA margin (a non-GAAP measure) was 17.8%, compared to 14.8% in 2020.
•Net earnings were $70.3 million and Adjusted Net Earnings (a non-GAAP measure) was $98.5 million.
•Diluted net income per share was $0.49 and Adjusted Diluted Net Earnings Per Share (a non-GAAP measure) was $0.69 as of December 31, 2021. Comparatively, diluted net loss per share was (0.05) and Adjusted Diluted Net Earnings Per Share (a non-GAAP measure) was $0.16 as of December 31, 2020.
•As of December 31, 2021, our total liquidity was $407.6 million, consisting of $134.2 million of cash and cash equivalents and $273.4 million available for additional borrowing under the senior secured revolving credit facility, to the extent we are compliant with financial covenants that permit such borrowings. This compares to liquidity of $375.0 million as of December 31, 2020.
•Our total outstanding long-term debt, excluding finance leases, as of December 31, 2021, was $1,400.0 million.
The following is a summary of factors that impacted our operating results and liquidity during the year ended December 31, 2021 and other notable actions we have taken during the year:
Impact of COVID-19 Pandemic on our Business
Global economic conditions are expected to continue to be volatile as long as the COVID-19 pandemic remains a public health threat. The ongoing COVID-19 pandemic has resulted in governments around the world implementing stringent measures to help control the spread of the virus and emergence of new strains of the virus, including quarantines, “shelter in place” and “stay at home” orders, curfews, travel restrictions, border closures, limitations on public gatherings, vaccination mandates, social distancing measures and mandated business limitations and closures. These measures have resulted in a disruption in the foodservice industry, including substantial restaurant closures and, as a result, in commercial foodservice equipment markets across the geographies in which we operate. We expect global economic performance and the performance of our businesses to vary by geography and discipline until the impact of the COVID-19 pandemic on the global economy subsides.
Our 2021 net sales, earnings from operations and cash flows all improved significantly in comparison to 2020. While the commercial foodservice industry has continued to recover from the immediate impacts of the COVID-19 pandemic, the extent of the ultimate impact of the pandemic, including supply chain disturbances and shipping and logistics delays, on our operational and financial performance will depend significantly on future developments, including the duration, scope and severity of the pandemic, the actions taken to contain, mitigate or recover from its impact in each of the countries where we operate globally (including actions taken to ease supply chain backlogs), the vaccination rates and efficacy, emergence of new strains of the virus, and the timing of the resumption of economic activity to pre-pandemic levels.
Throughout the year ended December 31, 2021, we continued to see increases in the cost of specific commodities, components and parts purchased as compared to the prior year, including the impact of rising inflation rates and tariffs, as challenges in the supply chain and shipping and logistics delays continue to persist. The availability of key electronic components used in embedded electronic controls worsened in 2021, and we expended significant effort and resources to redesign controls to utilize available parts and to source these electronic components on the spot market, often at a large premium to historical prices.
The Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was enacted in March 2020 and includes measures intended to assist companies during the COVID-19 pandemic, including temporary changes to income and non-income-based tax laws, some of which had been enacted under the Tax Cuts and Jobs Act ("Tax Act") in 2017. As a result of the Tax Act and the CARES Act, additional legislative and regulatory guidance has been and may continue to be issued, including final regulations that could impact our effective tax rate in future periods.
The Consolidated Appropriations Act of 2021 and the American Rescue Plan Act of 2021 extended eligibility for the employee retention tax credit for qualified wages paid from January 1, 2021, through December 31, 2021. We were not eligible for this incentive during the year ended December 31, 2021.
On November 5th, 2021, the Occupational Safety and Health Administration announced an emergency temporary standard mandating the COVID-19 vaccine or weekly testing for most U.S. employees, which includes our employees. That standard was struck down by the U.S. Supreme Court on January 13, 2022. However, the Biden Administration has indicated that it may seek to impose alternative vaccine mandates and other governmental authorities have imposed more targeted vaccine and testing orders and regulations, and may continue to do so in the future. If a mandate is ultimately issued and implemented in some form, we expect there would be further disruptions to our operations, such as inability to maintain adequate staffing at our facilities, difficulties in replacing disqualified employees with temporary employees or new hires, increased costs and diminished availability of raw materials and component parts, and increased compliance burdens, including financial costs, diversion of administrative resources, and increased downtimes to accommodate for any required ongoing COVID-19 testing, which would result in delays in the manufacturing process, negatively impact our future sales levels and ongoing customer relationships.
We continue to proactively monitor the developments surrounding COVID-19 and may take additional actions based on the requirements and recommendations of governmental and health authorities around the world in an attempt to protect our stakeholders. Although we are currently unable to quantify with certainty the ultimate severity or duration of the impact of the global COVID-19 pandemic on our business, we expect that the challenges in the supply chain and shipping and logistics delays will likely have a continued impact on our operating results and financial condition in fiscal 2022.
Business Transformation Program Update
Our Business Transformation Program ("Transformation Program") focuses on specific areas of opportunity including strategic sourcing, manufacturing facility workflow redesign, distribution and administrative process efficiencies and optimizing our global brand platforms. We executed the final phases of the Transformation Program during the quarter ended December 31, 2021, as originally planned.
In connection with the execution of the Transformation Program, we incurred $4.6 million of consulting and other related Transformation Program costs for the year ended December 31, 2021. We also incurred $1.4 million of restructuring charges for the year ended December 31, 2021, intended to reduce future operating expenses as a result of the improved efficiencies gained from the execution of the Transformation Program. We have incurred total costs of $73.4 million from the inception of the Transformation Program through December 31, 2021 and have settled these costs primarily in cash.
Industry and Business Conditions
Through 2020 and 2021, the COVID-19 pandemic created a decline in economic activity across the globe and many hospitality and restaurant companies were forced to close either temporarily or permanently, and the vast majority have experienced a significant decline in revenues. The effects on businesses across many industries was pervasive and has injected uncertainty into the consumer foodservice industry. Full-service restaurants continue the trend as being the most negatively impacted by COVID-19 with limited-service restaurants (which includes QSR and fast casual restaurants) impacted the least. Many economic forecasts continue to show the Consumer Foodservice industries sales will not return to 2019 levels until 2023, maintaining the 3-year recovery period to reach pre-pandemic 2019 sales.
Business Strategies
While our strategic objectives are long-term and remain intact, the uncertainty surrounding the ongoing COVID-19 pandemic will impact the extent and timing of the execution of these objectives. Our immediate focus remains on ensuring the safety of our stakeholders and the balancing of our Transformation Program and innovation investments with the pace of recovery in our revenues as the industry rebounds. Our specific strategic objectives, which are discussed in further detail in Part I, Item 1 of this Annual Report on Form 10-K, include:
• Achieve profitable growth
• Create innovative products and solutions
• Enhance customer satisfaction
• Drive operational excellence
• Develop great people
Results of Operations for the Years Ended December 31, 2021 and 2020
The following table sets forth our consolidated financial results for the periods presented:
(in millions, except percentage data) Years Ended December 31, Change
2021 2020 $ %
Net sales $ 1,546.9 $ 1,153.4 $ 393.5 34.1 %
Cost of sales 987.3 743.4 243.9 32.8 %
Gross profit 559.6 410.0 149.6 36.5 %
Gross margin (% of Net sales) 36.2 % 35.5 %
Selling, general and administrative expenses 337.6 285.3 52.3 18.3 %
Amortization expense 39.4 39.1 0.3 0.8 %
Restructuring and other expense 0.6 10.9 (10.3) (94.5) %
Loss from impairment and disposal of assets - net 0.4 11.6 (11.2) (96.6) %
Earnings from operations 181.6 63.1 118.5 187.8 %
Interest expense 74.9 81.4 (6.5) (8.0) %
Other expense (income) - net 7.5 (4.6) 12.1 263.0 %
Earnings (loss) before income taxes 99.2 (13.7) 112.9 824.1 %
Income tax expense (benefit) 28.9 (6.3) 35.2 558.7 %
Net earnings (loss) $ 70.3 $ (7.4) $ 77.7 1,050.0 %
Analysis of Net Sales
"Net sales" for our geographic business segments consist of the following for the periods presented:
(in millions, except percentage data) Years Ended December 31, Change
2021 2020 $ %
Americas $ 1,185.8 $ 867.0 $ 318.8 36.8 %
EMEA 447.1 292.6 154.5 52.8 %
APAC 261.1 202.1 59.0 29.2 %
Elimination of intersegment sales (347.1) (208.3) (138.8) 66.6 %
Total net sales $ 1,546.9 $ 1,153.4 $ 393.5 34.1 %
Net sales totaled $1,546.9 million for the year ended December 31, 2021 representing an increase of $393.5 million, or 34.1%, compared to the prior year. The increase in net sales was primarily the result of: (i) increased volumes largely due to an increase in general market demand, (ii) increased volumes due to rollouts with large chain customers and (iii) increased KitchenCare aftermarket sales, all of which were the result of our continued recovery from the COVID-19 pandemic, and to a much lesser extent, increased net pricing. Foreign currency translation positively impacted net sales for the year ended December 31, 2021 by $25.2 million.
Net sales in the Americas segment for the year ended December 31, 2021 increased by $318.8 million, or 36.8%, compared to the prior year. The increase was primarily driven by increased third-party net sales of $274.9 million and a $43.9 million increase in intersegment sales. The increase in third-party net sales was primarily the result of: (i) increased volumes primarily due to an increase in general market demand, (ii) increased volumes due to rollouts with large chain customers and (iii) increased KitchenCare aftermarket sales, all of which were the result of our continued recovery from the COVID-19 pandemic in the region, and to a much lesser extent, increased net pricing. Foreign currency translation negatively impacted third-party net sales for the year ended December 31, 2021 by $7.1 million.
Net sales in the EMEA segment for the year ended December 31, 2021 increased by $154.5 million, or 52.8%, compared to the prior year. The increase was primarily the result of increased third-party net sales of $81.7 million and a $72.8 million increase in intersegment sales. The increase in third-party net sales was primarily the result of increased volumes in the general market and the increase in intersegment sales was primarily due to increases in sales to the America's region related to rollouts with large chain customers discussed above, both of which were the result of our continued recovery from the ongoing COVID-19 pandemic. Foreign currency translation positively impacted third-party net sales for the year ended December 31, 2021 by $13.4 million.
Net sales in the APAC segment for the year ended December 31, 2021 increased by $59.0 million, or 29.2%, compared to the prior year. The increase was primarily the result of increased third-party net sales of $36.9 million and a $22.1 million increase in intersegment sales. The increase in third-party net sales was primarily driven by increased volumes in the general market and increased KitchenCare aftermarket sales, both of which were the result of our continued recovery from the COVID-19 pandemic. Foreign currency translation positively impacted third-party net sales for the year ended December 31, 2021 by $4.7 million.
Analysis of Earnings from Operations
Gross profit
"Gross profit" for the year ended December 31, 2021 totaled $559.6 million, an increase of $149.6 million, or 36.5%, compared to the prior year. This increase was primarily driven by: (i) a $130.6 million favorable impact from increased product volumes and mix, (ii) a $29.2 million favorable impact from increased net pricing, (iii) $15.5 million of positive foreign currency translation impact and (iv) $14.0 million of favorable labor and other manufacturing costs, primarily due to improved operating efficiencies related to higher volumes and equipment investments in our plants associated with the Transformation Program. These favorable impacts were partially offset by: (i) $19.2 million of increased inbound freight costs resulting from both higher volumes and the continued macroeconomic impacts of the COVID-19 pandemic on the supply chain, (ii) $14.0 million of unfavorable material costs, resulting from broad-based inflation along with the continued macroeconomic impacts of the COVID-19 pandemic on the supply chain, partially offset by the procurement sourcing savings associated with the Transformation Program, (iii) a $4.7 million unfavorable impact from increased tariffs and (iv) $1.6 million of higher depreciation costs.
We expect that the challenges in the supply chain and shipping and logistics delays will likely have a continued impact, which could possibly be material, on our gross profit throughout fiscal 2022. The availability of key electronic components used in embedded electronic controls, for example, worsened in 2021, and we expended significant effort and resources to redesign controls to utilize available parts and to source these electronic components on the spot market, often at a large premium to historical prices. We expect these challenges to continue. If a COVID-19 vaccine or weekly testing mandate were to be imposed on our manufacturing labor force, this could also impact ability to maintain adequate staffing at our facilities, make it difficult to replace disqualified employees with temporary employees or new hires, and increase costs and compliance burden, which could materially adversely affect our gross profit going forward.
Selling, general and administrative expenses
"Selling, general and administrative expenses" for the year ended December 31, 2021 were $337.6 million, an increase of $52.3 million, or 18.3%, compared to the prior year. This increase is primarily driven by: (i) $29.5 million of increased employee-related costs, reflecting the non-recurrence of government subsidies and other measures taken in 2020 to manage the impact of the COVID-19 pandemic, along with higher incentives related to stronger operational performance in 2021, (ii) $26.4 million of increased transaction expenses related to the pending sale of our company, (iii) $9.7 million of higher marketing and commission costs, primarily attributable to increased sales volumes, (iv) a $5.2 million unfavorable foreign currency translation impact as compared to the same period of the prior year and (v) $4.4 million of higher travel and other controllable costs. The impact of these increases was partially offset by: (i) $18.5 million of lower third-party consulting costs incurred in connection with our Transformation Program, (ii) $3.2 million of lower professional fees and (iii) a $2.0 million recovery of funds from an incident in 2018, involving one of our EMEA locations.
Restructuring and other expense
"Restructuring and other expense" for the year ended December 31, 2021 was $0.6 million primarily as a result of a restructuring plan initiated during the first quarter of 2021 for the consolidation of a manufacturing facility in EMEA.
Restructuring and other expense for the year ended December 31, 2020 was $10.9 million consisting of $7.8 million of severance and related costs and a $3.1 million loss contingency charge. The severance and related costs were associated with workforce reductions executed throughout 2020 in the Americas and Corporate regions and a limited management restructuring enabled by the Transformation Program, as well as 2019 actions completed, and 2020 actions initiated in the EMEA and APAC regions. The loss contingency charge was associated with our voluntary review of certain errors in declarations to the U.S. Customs and Border Protection for customs duties, fees and interest owed for previously imported products. See Note 11, "Contingencies and Significant Estimates" for further information.
Analysis of Segment Adjusted Operating EBITDA
"Adjusted Operating EBITDA" (a non-GAAP measure) for our geographic business segments consists of the following for the periods presented:
(in millions, except percentage data) Years Ended December 31, Change
2021 2020 $ %
Americas $ 219.7 $ 155.5 $ 64.2 41.3 %
EMEA 86.7 46.2 40.5 87.7 %
APAC 40.7 31.2 9.5 30.4 %
Total Segment Adjusted Operating EBITDA 347.1 232.9 114.2 49.0 %
Less: Corporate and unallocated expenses (71.7) (62.0) (9.7) (15.6) %
Total Adjusted Operating EBITDA $ 275.4 $ 170.9 $ 104.5 61.1 %
Adjusted Operating EBITDA margin (1)
17.8 % 14.8 % 3.0 %
(1) Adjusted Operating EBITDA margin is calculated by dividing the dollar amount of Adjusted Operating EBITDA by net sales.
Adjusted Operating EBITDA in the Americas segment for the year ended December 31, 2021 increased by $64.2 million, or 41.3%. This increase was primarily driven by: (i) $74.8 million of favorable product volumes and mix, (ii) $33.4 million of favorable impact from net pricing, (iii) $8.2 million of favorable labor and other manufacturing costs, primarily due to improved operating efficiencies related to higher volumes and equipment investments in our plants associated with the Transformation Program, slightly offset by continued inflationary pressures experienced during the year ended December 31, 2021, (iv) $3.9 million of favorable foreign currency translation impact and (v) $0.4 million of lower research and development costs. The impact of these increases was partially offset by: (i) $15.4 million of higher employee-related expenses, including higher incentives resulting from improved operating results in 2021, (ii) $14.6 million of unfavorable inbound freight costs resulting from both higher volumes and the continued on the supply chain challenges, (iii) $12.1 million of higher materials costs, primarily driven by continued inflationary pressures experienced during the year ended December 31, 2021, slightly offset by the procurement sourcing savings associated with the Transformation Program, (iv) $9.6 of higher marketing and commissions costs attributable primarily to increased sales, (v) $4.1 million of increased tariffs and (vi) $1.0 million of lower professional fees.
Adjusted Operating EBITDA in the EMEA segment for the year ended December 31, 2021 increased by $40.5 million, or 87.7%. This increase was primarily driven by: (i) $45.1 million of favorable product volumes and mix, (ii) $4.5 million of favorable foreign currency translation impact, (iii) $2.5 million of favorable labor and other manufacturing costs primarily due to improved operating efficiencies related to higher volumes and equipment investments in our plants, (iv) a $0.7 million decrease in professional fees and (v) $0.5 million of favorable impact from net pricing. The impact of these increases was partially offset by: (i) $4.2 million of unfavorable inbound freight costs resulting from both higher volumes and the continued supply chain challenges, (ii) $3.6 million of higher employee-related, travel and other controllable costs, (iii) $2.6 million of higher materials costs primarily driven by continued inflationary pressures experienced during the year ended December 31, 2021, (iv) $1.7 million of higher research and development costs and (v) $0.6 million of higher marketing and commissions costs attributable primarily to increased sales.
Adjusted Operating EBITDA in the APAC segment for the year ended December 31, 2021 increased by $9.5 million, or 30.4%. This increase was primarily driven by: (i) $7.9 million of favorable product volumes and mix, (ii) $1.9 million of favorable foreign currency translation impact, (iii) $1.3 million of favorable impact from net pricing, (iv) $1.3 million lower research and development costs, (v) $0.8 million of favorable labor and other manufacturing costs primarily due to improved operating efficiencies related to higher volumes and equipment investments in our plants, (vi) $0.7 million of lower material costs and (vii) $0.7 million of lower marketing and commissions costs. These increases were partially offset by: (i) $4.4 million of higher employee-related, travel and other controllable costs, (ii) $0.6 million of increased tariffs and (iii) $0.4 million of unfavorable inbound freight costs resulting from both higher volumes and the continued supply chain challenges.
Corporate and unallocated expenses reflect certain corporate-level expenses and eliminations, which are not allocated to the segments. For the year ended December 31, 2021, corporate and unallocated costs increased by $9.7 million, or 15.6%, compared to the same period of the prior year. This increase was primarily driven by $11.7 million of increased employee-related expenses, including higher incentives resulting from improved operating results, and increased stock compensation expense resulting from an increase in the expected achievement percentage for certain tranches of our performance share units. These decreases were partially offset by a $3.1 million decrease in professional fees.
Analysis of Non-Operating Income Statement Items
For the year ended December 31, 2021, "Interest expense" was $74.9 million, a $6.5 million decrease as compared to the prior year, primarily driven by a decrease in the average borrowings outstanding and an overall decrease in the weighted average interest rate of outstanding debt resulting from a decrease in LIBOR during the year ended December 31, 2021.
For the year ended December 31, 2021, "Other (income) expense - net" was an expense of $7.5 million, compared to income of $4.6 million in the prior year. The decrease in income of $12.1 million is primarily the result of higher net foreign currency losses compared to 2020.
Analysis of Income Taxes
"Income tax (benefit) expense" for the year ended December 31, 2021 was an expense of $28.9 million, which was a change of $35.2 million as compared to a benefit of $6.3 million in the prior year. This increase was primarily driven by our increase in earnings and relative weighting of jurisdictional income.
For the year ended December 31, 2021, our effective tax rate was 29.1%, compared to an effective tax rate of 46.0% for the prior year. The decrease in effective tax rate for the year ended December 31, 2021 was primarily the result of a decrease in income tax benefit of 51.4% for CARES Act net operating loss carryback provisions, and 8.3% for manufacturing and research incentive credits. These decreases were partially offset by 19.0% of income tax expense percentage changes for unrecognized tax benefits related to the Tax Act regulations, 11.8% for U.S. permanent adjustments - Non Tax Act and 11.2% for taxes on foreign income.
For the year ended December 31, 2021, the effective tax rate varied from the 21.0% statutory rate primarily due to the result of a 4.6% increase for taxes on foreign income, 3.0% for Non Tax Act U.S. permanent adjustments, and 1.8% for Global Intangible Low-Taxed Income. These increases were partially offset by a 1.2% decrease for the manufacturing and research incentives and a decrease of 1.1% for Foreign Derived Intangible Income. For the year ended December 31, 2020, the effective tax rate varied from the 21.0% statutory rate primarily due to the result of a 51.2% increase for the CARES Act net operating loss carryback provisions, a 7.1% increase for manufacturing and research incentive credits and a 1.5% increase resulting from the adjustment of valuation allowances. These increases were partially offset by a 19.1% decrease for the unrecognized tax benefits and a decrease of 6.6% impact for income earned in foreign jurisdictions.
As of December 31, 2021, we have determined that a valuation allowance is not required for the deferred tax asset associated with the U.S. interest expense. We may adjust the deferred tax asset valuation allowances based on possible sources of taxable income that may be available to realize a tax benefit for deferred tax assets. As facts and circumstances change, we may adjust our deferred tax asset valuation allowances accordingly. Such changes in the deferred tax asset valuation allowances will be reflected in current operations through our income tax provision and could have a material effect on our operating results.
Liquidity and Capital Resources
Overview of Factors Affecting our Liquidity
We manage cash centrally, generally reinvest net earnings locally and meet our working capital requirements from cash and cash equivalents, cash flows from operations and capacity under our existing credit facilities. As of December 31, 2021, our total liquidity was $407.6 million, consisting of $134.2 million of cash and cash equivalents and $273.4 million available for additional borrowings under our senior secured revolving credit facility ("Revolving Credit Facility"), to the extent our compliance with financial covenants permits such borrowings. This compares to total liquidity of $375.0 million as of December 31, 2020. On an annual basis, our liquidity generally decreases in the first quarter and increases in the remaining quarters of each calendar year driven by our earnings cycle as well as the timing of large cash disbursements made in the first quarter such as annual rebates, incentive compensation and the build-up of inventory in advance of our historically higher sales period in the spring and early summer months. Although our liquidity at December 31, 2021 is consistent with historical year end levels, the components and timing of our liquidity during the current year has been impacted by the effects of the COVID-19 pandemic on our business.
At December 31, 2021, approximately 97% of our cash and cash equivalents were held outside of the U.S. The majority of the cash generated in the U.S. is used to fund current and expected future working capital requirements and to fund debt service obligations. We maintain significant operations outside of the U.S., and as a result, a significant portion of our cash is denominated in foreign currencies. We manage our worldwide cash requirements by reviewing available funds among our subsidiaries through which we conduct our business and the cost effectiveness with which those funds can be accessed. Where local restrictions prevent an efficient intercompany transfer of funds, our intent is to maintain cash balances outside of the U.S. and to meet our liquidity needs through ongoing cash flows, external borrowings, or both. We plan to continue reinvesting foreign earnings indefinitely outside of the U.S with certain limited exceptions.
Our future cash needs are currently expected to be primarily related to operating activities, inclusive of capital investments, working capital and debt service. We estimate that our capital expenditures will be between $25.0 million and $30.0 million for the year ending December 31, 2022. The amount of actual capital expenditures may be impacted by general economic, financial or operational changes, including the future impact of the COVID-19 pandemic on our operating results, the success and timing of the closing of the merger with Ali Group, the anticipated Ice Divestiture, and competitive, legislative and regulatory factors, among other considerations. In response to the COVID-19 pandemic throughout 2020 and the first half of 2021, we implemented contingency plans for our operations and took what we believe were appropriate steps to reduce operating expenses and capital spending, including reductions in the size of our workforce and the temporary furlough of employees during 2020. We expect that our future cash generated from operations, together with our capacity under our existing senior secured revolving credit facility and our access to capital markets, will provide adequate resources to meet our working capital needs and cash requirements for at least the next 12 months.
We expect that the challenges in the supply chain and shipping and logistics delays will likely have a continued impact on our liquidity throughout fiscal 2022, but are not aware of any known trends, demands, commitments, events or uncertainties that will result in or that are reasonably likely to result in a material increase or decrease in our liquidity.
Our access to, and the availability of, financing on acceptable terms in the future may be affected by many factors, including overall liquidity in the financial and capital markets, the state of the economy and our credit rating. The ongoing COVID-19 pandemic, which has continued to cause volatility in the capital markets, could also impact our ability to pursue additional financing opportunities in the future. Moreover, we are unable to quantify the severity or duration of the impact of the COVID-19 pandemic on our operational and financial performance, which could have an adverse impact on our results of operations, cash flows and financial position, potentially resulting in a default or an acceleration of indebtedness, and could otherwise negatively impact our liquidity and ability to make additional borrowings under our Revolving Credit Facility.
Sources and Uses of Cash
Cash and cash equivalents and restricted cash as of December 31, 2021 totaled $134.7 million, an increase of $9.3 million from the December 31, 2020 balance of $125.4 million.
The table below summarizes our consolidated cash flows:
(in millions) Year Ended December 31,
2021 2020
Cash provided by (used in):
Operating activities $ 56.1 $ 15.0
Investing activities (25.9) (24.2)
Financing activities (21.4) (1.3)
Effect of exchange rate changes on cash 0.5 5.2
Net increase (decrease) in cash and cash equivalents and restricted cash $ 9.3 $ (5.3)
Operating Activities
Cash provided by operating activities for the year ended December 31, 2021 was $56.1 million, consisting primarily of net income of $70.3 million, which included non-cash charges of $74.5 million for depreciation and amortization expense, amortization of debt issuance costs, stock-based compensation and deferred income taxes and net cash inflows of $43.4 million related primarily to an increase in accrued rebates, accrued commissions, employee bonuses and customer deposits all resulting from the improvement in our operating results and net cash inflows of $42.9 million related to an increase in trade accounts payable. These inflows were partially offset by a $116.2 million use of cash related to an increase in inventory, $57.9 million use of cash related to a net increase in accounts receivable and a $1.3 million net cash outflow related to an increase in other assets.
Cash provided by operating activities for the year ended December 31, 2020 was $15.0 million, consisting primarily of a net loss of $7.4 million, additional non-cash charges included in the net loss of $72.1 million for depreciation and amortization expense, amortization of debt issuance costs and stock-based compensation, a change in deferred income taxes of $8.2 million and an $11.1 million non-cash impairment charge on trademarks in the EMEA segment. Additionally, there were cash inflows of $21.8 million from a net decrease in accounts receivable and $10.2 million related to a decrease in inventory balance during the year, a $16.9 million increase in our current income tax receivable primarily associated with CARES Act net operating loss carryback provisions, partially offset by a $15.4 million use of cash for rebate payments to customers, a $10.4 million use of cash for the settlement of restructuring activities and $7.5 million of net cash used for professional fees, consisting primarily of third-party consulting costs incurred in connection with our Transformation Program and $34.9 million of cash outflows associated with the timing of other current and long-term liabilities, other assets and trade accounts payable.
Investing Activities
Cash used in investing activities of $25.9 million for the year ended December 31, 2021 was the result of capital expenditures made during the period.
Cash used in investing activities of $24.2 million for the year ended December 31, 2020 consisted of capital expenditures of $20.1 million, largely related to improvements of machinery and equipment within our manufacturing plants in conjunction with our Transformation Program and $3.9 million of payments, net of interest received, made in connection with the maturity of our cross-currency swap in March 2020.
Financing Activities
Cash used in financing activities for the year ended December 31, 2021 was $21.4 million, consisting primarily of $24.2 million of net payments on long-term debt and finance leases partially offset by $2.8 million of net cash received related to the exercise of stock options.
Cash used in financing activities for the year ended December 31, 2021 was $1.3 million, consisting primarily of $2.1 million of capitalized costs incurred in connection with the April 2020 amendment to our 2016 Credit Facility, offset by net borrowings on long-term debt and finance leases of $0.4 million and $0.4 million of net cash received related to the exercise of stock options.
Financing Resources
Our primary financing resources consist of our 2016 Credit Agreement and our 9.50% Senior Notes due 2024. Collectively, these arrangements represent the majority of our financing resources, which combined with cash generated by our business operations, are used to meet our financial obligations and liquidity requirements. The general terms of our financing arrangements as of December 31, 2021 are set forth below.
2016 Credit Agreement
Our 2016 Credit Agreement provides for a $1,300.0 million Senior Secured Credit Facility consisting of (i) a senior secured Term Loan B Facility for $900.0 million and (ii) a Senior Secured Revolving Credit Facility with aggregate commitments of $400.0 million. The maturities of the Term Loan B Facility and Senior Secured Revolving Credit Facility are October 2025 and October 2023, respectively.
In April of 2020, we entered into Amendment No. 7 (the “Amendment”) to the 2016 Credit Agreement, to amend the financial covenants of the Revolving Credit Facility. The terms of the Amendment, among others as set forth in the Amendment, (i) suspend the Consolidated Total Leverage Ratio and Consolidated Interest Coverage Ratio covenants, in each case, as defined in the 2016 Credit Agreement, for four fiscal quarters until March 31, 2021 ("Suspension Period") and (ii) temporarily replace the suspended covenants with a Minimum Consolidated EBITDA covenant and a Maximum Capital Expenditure covenant, each computed on a trailing four quarters basis and measured quarterly, and a Minimum Liquidity covenant that is measured monthly, each as defined in the Amendment, throughout the Suspension Period, with the Minimum Liquidity covenant extended through June 30, 2021.
Beginning in the second quarter of 2021, the Consolidated Total Leverage Ratio and Consolidated Interest Coverage Ratio covenants were reinstated at modified levels as compared to the covenants in effect beginning June 30, 2020 and phased-in to the pre-amendment covenant levels in the fourth quarter of 2021.
In October 2021, we entered into a Suspension of Rights Agreement to the 2016 Credit Agreement, effective December 31, 2021, which: (i) suspends our ability to execute non-USD currency draws under the Revolving Facility, (ii) requires all outstanding non-USD currency loans to be repaid on or before December 31, 2021 and (iii) eliminates the option to select an interest period of 2 months for any borrowings in USD without the lenders' consent. We do not expect that the execution of this agreement will have a material impact on the our future liquidity or consolidated results of operations.
As of December 31, 2021, borrowings under the 2016 Credit Agreement bore interest at a rate per annum equal to, at our option, either (i) London Inter-bank Offered Rate ("LIBOR") plus an applicable margin of 2.50% for the Term Loan B Facility and 1.50% to 2.50%, for the Revolving Credit Facility (depending on our Consolidated Total Leverage Ratio) or (ii) an alternate base rate plus an applicable margin that is 1.00% less than the LIBOR-based applicable margin. The Amendment includes a quarterly fee that was applicable through the fourth quarter of 2021 in an amount equal to a per annum rate of 0.50% on the average outstanding balance of the Revolving Credit Facility, payable on a quarterly basis.
Senior Notes
On February 18, 2016, we issued 9.50% Senior Notes due 2024 (the "Senior Notes") in an aggregate principal amount of $425.0 million, all of which was outstanding as of December 31, 2021. The Senior Notes were issued under an indenture with Wells Fargo Bank, National Association, as trustee, and are fully and unconditionally guaranteed, jointly and severally, on an unsecured basis by each of our domestic restricted subsidiaries that is a borrower or guarantor under the 2016 Credit Agreement.
Covenant Compliance
The 2016 Credit Agreement and indenture governing the Senior Secured Credit Facility contains limitations on our ability to effect mergers and change of control events as well as certain other limitations, including limitations on: (i) the declaration and payment of dividends or other restricted payments, (ii) incurrence of additional indebtedness or issuing preferred stock, (iii) the creation or existence of certain liens, (iv) incurrence of restrictions on the ability of certain of our subsidiaries to pay dividends or other payments, (v) transactions with affiliates and (vi) sales of assets.
We were in compliance with all affirmative and negative covenants, including any financial covenants, pertaining to our financing arrangements, in effect as of December 31, 2021.
A summary of our outstanding financing obligations, excluding finance leases, is as follows:
(in millions) December 31,
2021 2020
Revolving Credit Facility $ 120.0 $ 143.0
Term Loan B Facility 855.0 855.0
9.50% Senior Notes due 2024 425.0 425.0
Total debt $ 1,400.0 $ 1,423.0
Summarized Guarantor Financial Information
In March 2020, the Securities and Exchange Commission adopted amendments to Rule 3-10 of Regulation S-X and created Rule 13-01 to simplify disclosure requirements related to certain registered securities, and such amendments became effective on January 4, 2021, as included below.
As discussed above, and in Note 8, "Debt", of the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, in February 2016, we issued Senior Notes under an indenture with Wells Fargo Bank, National Association, as trustee (the "Trustee"). The Senior Notes were initially sold to qualified institutional buyers pursuant to Rule 144A (and outside the U.S. in reliance on Regulation S) under the Securities Act of 1933 ("Securities Act"). In September 2016, we 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 Senior Notes are fully and unconditionally guaranteed, jointly and severally, on an unsecured basis by each of our domestic restricted subsidiaries that is a borrower or guarantor under the Senior Secured Credit Facilities, discussed above. The Senior Notes and the subsidiary guarantees are unsecured, senior obligations.
We must generally offer to repurchase all 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% in aggregate principal amount of the then-outstanding Senior Notes may declare all the Senior Notes to be due and payable immediately.
The indenture governing the Senior Notes contains limitations on our ability to effect mergers and change of control events as well as other limitations, including limitations on: the declaration and payment of dividends or other restricted payments; incurring additional indebtedness or issuing preferred stock; the creation or existence of certain liens; incurring restrictions on the ability of certain of our subsidiaries to pay dividends or other payments; transactions with affiliates; and sales of assets.
Effective February 15, 2022, the Senior Notes are redeemable, at our option, in whole or in part from time to time, at a redemption price equal to 100.0% of the principal amount.
In accordance with Rule 3-10 of Regulation S-X, the following tables present consolidating financial information for (a) Welbilt ("Parent"); (b) the guarantors of the Senior Notes, which include substantially all of the domestic, 100% owned subsidiaries of Welbilt ("Guarantor Subsidiaries"); and (c) the wholly-owned foreign subsidiaries of Welbilt, which do not guarantee the Senior Notes ("Non-Guarantor Subsidiaries").
The financial information of the Guarantor Subsidiaries in the following table is presented on a combined basis with intercompany balances and transactions between the entities within the Guarantor Subsidiaries eliminated. The information also includes elimination entries necessary to consolidate the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries. Investments in subsidiaries are accounted for using the equity method of accounting. The principal elimination entries eliminate investments in subsidiaries, equity and intercompany balances and transactions. Separate financial statements of the Guarantor Subsidiaries are not presented because as guarantors, these subsidiaries are fully and unconditionally, jointly and severally liable under the guarantees, except for normal and customary release provisions.
As discussed in Note 20, "Business Segments" of the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, we revised the allocation of certain of our functional expenses between the corporate-level and the geographic business segments during the first quarter of 2020. The impacts of the revised allocation predominantly impacts the Parent and Guarantor Subsidiaries financial information included in the tables below and these changes did not impact our previously reported consolidated financial results.
WELBILT, INC.
Consolidating Statement of Operations
For the year ended December 31, 2021
(in millions) Parent Guarantor
Subsidiaries Non-
Guarantor
Subsidiaries Consolidating Adjustments Consolidated
Net sales $ - $ 1,088.7 $ 963.9 $ (505.7) $ 1,546.9
Cost of sales - 827.8 665.2 (505.7) 987.3
Gross profit - 260.9 298.7 - 559.6
Selling, general and administrative expenses 87.7 133.3 116.6 - 337.6
Amortization expense - 28.2 11.2 - 39.4
Restructuring and other (recovery) expense (0.1) (0.1) 0.8 - 0.6
Loss from impairment and disposal of assets - net 0.1 0.2 0.1 - 0.4
(Loss) earnings from operations (87.7) 99.3 170.0 - 181.6
Interest expense 74.4 0.5 - - 74.9
Other (income) expense - net (155.6) (16.2) 31.8 147.5 7.5
Equity in earnings of subsidiaries 207.2 109.1 - (316.3) -
Earnings before income taxes 200.7 224.1 138.2 (463.8) 99.2
Income tax (benefit) expense (17.2) 17.0 29.1 - 28.9
Net earnings $ 217.9 $ 207.1 $ 109.1 $ (463.8) $ 70.3
Total other comprehensive loss, net of tax (5.0) (6.5) (173.7) 180.1 (5.1)
Comprehensive income (loss) $ 212.9 $ 200.6 $ (64.6) $ (283.7) $ 65.2
WELBILT, INC.
Consolidating Balance Sheet
As of December 31, 2021
(in millions) Parent Guarantor
Subsidiaries Non-
Guarantor
Subsidiaries Consolidating Adjustments Consolidated
Assets
Current assets:
Cash and cash equivalents $ 1.8 $ 2.2 $ 130.2 $ - $ 134.2
Restricted cash - - 0.5 - 0.5
Accounts receivable - net 0.4 108.1 112.0 - 220.5
Inventories - net - 163.4 131.0 - 294.4
Prepaids and other current assets 27.0 10.4 21.1 - 58.5
Total current assets 29.2 284.1 394.8 - 708.1
Property, plant and equipment - net 14.7 68.0 52.9 - 135.6
Operating lease right-of-use assets 1.9 5.1 37.2 - 44.2
Goodwill - 832.4 103.9 - 936.3
Other intangible assets - net 0.2 287.6 133.0 - 420.8
Due from affiliates - 3,561.5 - (3,561.5) -
Investment in subsidiaries 4,694.5 - - (4,694.5) -
Other non-current assets 8.6 4.2 19.8 - 32.6
Total assets $ 4,749.1 $ 5,042.9 $ 741.6 $ (8,256.0) $ 2,277.6
Liabilities and equity
Current liabilities:
Trade accounts payable $ - $ 64.1 $ 66.5 $ - $ 130.6
Accrued expenses and other liabilities 32.8 93.5 84.4 - 210.7
Current portion of long-term debt and finance leases - 0.5 0.4 - 0.9
Product warranties - 19.6 11.3 - 30.9
Total current liabilities 32.8 177.7 162.6 - 373.1
Long-term debt and finance leases 1,387.5 - 0.5 - 1,388.0
Deferred income taxes 37.6 - 26.6 - 64.2
Pension and postretirement health liabilities 9.3 8.5 3.9 - 21.7
Due to affiliates 2,910.7 - 650.9 (3,561.6) -
Investment in subsidiaries - 143.6 - (143.6) -
Operating lease liabilities 1.7 3.5 30.1 - 35.3
Other long-term liabilities 11.2 15.1 10.6 - 36.9
Total non-current liabilities 4,358.0 170.7 722.6 (3,705.2) 1,546.1
Total equity (deficit) 358.3 4,694.5 (143.6) (4,550.8) 358.4
Total liabilities and equity $ 4,749.1 $ 5,042.9 $ 741.6 $ (8,256.0) $ 2,277.6
Leasing Arrangements
We lease various assets under leasing arrangements. The future estimated payments under these arrangements are disclosed in Note 16, "Leases", of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.
Contractual Obligations
The following table summarizes our significant contractual obligations as of December 31, 2021:
(in millions) Total 2022 2023 2024 2025 2026 Thereafter
Long-term debt $ 1,400.0 $ - $ 120.0 $ 434.0 $ 846.0 $ - $ -
Interest obligations 227.1 63.0 63.0 62.9 38.2 - -
Finance leases 1.6 1.0 0.3 0.2 0.1 - -
Operating lease liabilities 44.4 9.0 7.8 6.5 4.8 3.4 12.9
Income taxes payable 6.7 6.6 - - - 0.1 -
Purchase obligations 141.7 122.6 18.0 0.7 0.2 0.1 0.1
Total contractual obligations $ 1,821.5 $ 202.2 $ 209.1 $ 504.3 $ 889.3 $ 3.6 $ 13.0
Unrecognized tax benefits totaling $8.1 million as of December 31, 2021 excluding related interests and penalties, are not included in the table above because the timing of their resolution cannot be estimated. See Note 7, "Income Taxes", of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for disclosures surrounding uncertain income tax positions.
We maintain defined benefit plans for certain of our operations in the Americas and EMEA regions. During the year ended December 31, 2021, cash contributions to all of our defined benefit plans were $7.5 million and we estimate that our defined benefit plan contributions will be approximately $6.9 million for the year ending December 31, 2022. See Note 13, "Employee Benefit Plans", of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for further discussion.
See Note 11, "Contingencies and Significant Estimates", of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for disclosures regarding our environmental, health, safety, contingencies and other matters.
Non-GAAP Financial Measures
We use certain non-GAAP financial measures discussed below to evaluate our results of operations, financial condition and liquidity. We believe that the presentation of these non-GAAP financial measures, when viewed as a supplement to our results prepared in accordance with U.S. GAAP, provides useful information to investors in evaluating the ongoing performance of our operating businesses, provides greater transparency into our results of operations and is consistent with how we evaluate our operating performance and liquidity. In addition, these non-GAAP measures address questions we routinely receive from analysts and investors and, in order to ensure that all investors have access to similar data, we make this data available to the public. None of the non-GAAP measures presented should be considered as an alternative to net earnings, earnings from operations, net cash used in operating activities, net sales or any other measures derived in accordance with U.S. GAAP. These non-GAAP measures have important limitations as analytical tools and should not be considered in isolation or as substitutes for financial measures presented in accordance with U.S. GAAP. The presentation of our non-GAAP financial measures may change from time to time, including as a result of changed business conditions, new accounting rules or otherwise. Further, our use of these terms may vary from the use of similarly-titled measures by other companies due to the potential inconsistencies in the method of calculation and differences due to items subject to interpretation.
Free Cash Flow
We refer to "Free Cash Flow", a non-GAAP measure, as our net cash provided by or used in operating activities less capital expenditures plus cash receipts on our beneficial interest in sold receivables and the related impact of terminating our accounts receivable securitization program during the first quarter of 2019. We believe this non-GAAP financial measure is useful to investors in measuring our ability to generate cash internally to fund our debt repayments, acquisitions, dividends and share repurchases, if any. Free Cash Flow reconciles to net cash used in operating activities included in our Consolidated Statements of Cash Flows presented in accordance with U.S. GAAP, as follows:
(in millions) Year Ended December 31,
2021 2020 2019
Net cash provided by (used in) operating activities $ 56.1 $ 15.0 $ (269.7)
Capital expenditures (25.9) (20.1) (33.9)
Cash receipts on beneficial interest in sold receivables (1)
- - 280.7
Termination of accounts receivable securitization program (2)
- - 96.9
Free Cash Flow $ 30.2 $ (5.1) $ 74.0
(1) Represents the cash receipts from the beneficial interest on sold receivables within the accounts receivable securitization program and were classified as “Cash flows from investing activities” in the Consolidated Statements of Cash Flows through final settlement of the program in the second quarter of 2019.
(2) Represents the increase in accounts receivable resulting from the termination of the accounts receivable securitization program during the first quarter of 2019, which is reflected in "Cash flows from operating activities" in the Consolidated Statements of Cash Flows.
Adjusted Operating EBITDA
In addition to analyzing our operating results on a U.S. GAAP basis, we also review our results on an "Adjusted Operating EBITDA" basis. Adjusted Operating EBITDA is defined as net earnings before interest expense, income taxes, other income or expense, depreciation and amortization expense plus certain other items such as loss from impairment of assets, gain or loss from disposal of assets, restructuring activities, loss on modification or extinguishment of debt, acquisition-related transaction and integration costs, Transformation Program expense, separation expense and certain other items, which are non-operating and unusual in nature. We use Adjusted Operating EBITDA as the basis on which we evaluate our financial performance and make resource allocations and other operating decisions. We consider it important that investors review the same operating information used by us. Our Adjusted Operating EBITDA reconciles to net (loss) earnings as presented in the Consolidated Statements of Operations in accordance with U.S. GAAP as follows:
(in millions, except percentage data) Year Ended December 31,
2021 2020 2019
Net earnings (loss) $ 70.3 $ (7.4) $ 55.9
Income tax expense (benefit) 28.9 (6.3) 19.8
Other expense (income) - net 7.5 (4.6) 0.9
Interest expense 74.9 81.4 97.3
Earnings from operations 181.6 63.1 173.9
Loss from impairment and loss on disposal of assets - net 0.4 11.6 0.7
Restructuring activities (1)
1.4 8.2 9.8
Amortization expense 40.9 40.6 39.8
Depreciation expense 22.2 20.7 21.1
Transformation Program expense (2)
4.6 23.3 35.3
Transaction costs (3)
26.4 0.2 1.1
Other items (4)
(2.1) 3.2 4.5
Total Adjusted Operating EBITDA $ 275.4 $ 170.9 $ 286.2
Adjusted Operating EBITDA margin (5)
17.8 % 14.8 % 18.0 %
(1) Restructuring activities include costs associated with actions to improve operating efficiencies and rationalization of our cost structure. Refer to Note 14, "Business Transformation Program and Restructuring" for discussion of the impact to the Consolidated Statements of Operations.
(2) Transformation Program expense includes consulting and other costs associated with executing our Transformation Program initiatives. Refer to Note 14, "Business Transformation Program and Restructuring" for discussion of the impact to the Consolidated Statements of Operations.
(3) Transaction costs are associated with acquisition and integrated-related activities. Transaction costs for the year ended December 31, 2021 are related to the pending sale of the Company and consist primarily of professional services recorded in "Selling, general and administrative expenses." Transaction costs recorded in "Cost of sales" include $0.1 million related to inventory fair value purchase accounting adjustments for the year ended December 31, 2019. Professional services and other direct acquisition and integration costs recorded in "Selling, general and administrative expenses" were $0.2 million and $1.0 million, for the years ended December 31, 2020 and 2019, respectively.
(4) Other items are costs which are not representative of our operational performance. For the year ended December 31, 2021, other items consist primarily of a partial recovery of $2.0 million from the diversion of funds in 2018 from one of our Company's EMEA locations and is included in "Selling, general and administrative expenses" in the Consolidated Statements of Operations. For the year ended December 31, 2020, other items includes an expense of $3.1 million for amounts due for customs duties, fees and interest on previously imported products, which are included in "Restructuring and other expense" in the Consolidated Statements of Operations and $0.1 million of professional fees for recovery of misappropriated funds within the Crem business related to the 2018 matter. Refer to Note 13, "Contingencies and Significant Estimates" for discussion of the impact on the Consolidated Statements of Operations. For the year ended December 31, 2019, the amount includes certain costs related to concluded litigation and other professional fees. Unless otherwise noted, all such amounts are included within "Selling, general and administrative expenses" in the Consolidated Statements of Operations.
(5) Adjusted Operating EBITDA margin is calculated by dividing the dollar amount of Adjusted Operating EBITDA by net sales.
Adjusted Diluted Net Earnings and Adjusted Diluted Net Earnings Per Share
We define Adjusted Diluted Net Earnings as net earnings before the impact of certain items, such as loss on modification or extinguishment of debt, loss from impairment of assets, gain or loss from disposal of assets, restructuring activities, separation expense, Transformation Program expense, acquisition-related transaction and integration costs, certain other items, expenses associated with pension settlements, foreign currency transaction gain or loss, the Tax Act and the tax effect of the aforementioned adjustments, as applicable. Adjusted Diluted Net Earnings Per Share for each period represents Adjusted Net Earnings while giving effect to all potentially dilutive shares of common stock that were outstanding during the period. We believe these measures are useful to investors in assessing the ongoing performance of our underlying businesses before the impact of certain items which are non-operating and unusual in nature. The following table presents Adjusted Diluted Net Earnings and Adjusted Diluted Net Earnings Per Share reconciled to net earnings and diluted net earnings per share, respectively, presented in accordance with U.S. GAAP:
(in millions, except per share data) Year Ended December 31,
2021 2020 2019
Net earnings (loss) $ 70.3 $ (7.4) $ 55.9
Loss from impairment and loss on disposal of assets - net 0.4 11.6 0.7
Restructuring activities (1)
1.4 8.2 9.8
Transformation Program expense (2)
4.6 23.3 35.3
Transaction costs (3)
26.4 0.2 1.1
Other items (4)
(2.1) 3.2 4.5
Pension settlement (5)
- - 1.2
Foreign currency transaction loss (gain) (6)
6.0 (5.7) 0.7
Tax effect of adjustments (7)
(8.5) (10.3) (12.9)
Total Adjusted Net Earnings $ 98.5 $ 23.1 $ 96.3
Per Share Basis
Diluted net earnings (loss) $ 0.49 $ (0.05) $ 0.39
Loss from impairment and loss on disposal of assets - net 0.01 0.08 0.01
Restructuring activities (1)
0.01 0.06 0.07
Transformation Program expense (2)
0.03 0.16 0.25
Transaction costs (3)
0.18 - 0.01
Other items (4)
(0.01) 0.02 0.03
Pension settlement (5)
- - 0.01
Foreign currency transaction loss (gain) (6)
0.04 (0.04) -
Tax effect of adjustments (7)
(0.06) (0.07) (0.09)
Total Adjusted Diluted Net Earnings $ 0.69 $ 0.16 $ 0.68
(1) Restructuring activities include costs associated with actions to improve operating efficiencies and rationalization of our cost structure. Refer to Note 14, "Business Transformation Program and Restructuring" for discussion of the impact to the Consolidated Statements of Operations.
(2) Transformation Program expense includes consulting and other costs associated with executing our Transformation Program initiatives. Refer to Note 14, "Business Transformation Program and Restructuring" for discussion of the impact to the Consolidated Statements of Operations.
(3) Transaction costs are associated with acquisition and integrated-related activities. Transaction costs for the year ended December 31, 2021 are related to the pending sale of the Company and consist primarily of professional services recorded in "Selling, general and administrative expenses." Transaction costs recorded in "Cost of sales" include $0.1 million related to inventory fair value purchase accounting adjustments for the year ended December 31, 2019. Professional services and other direct acquisition and integration costs recorded in "Selling, general and administrative expenses" were $0.2 million and $1.0 million, for the years ended December 31, 2020 and 2019, respectively.
(4) Other items are costs which are not representative of our operational performance. For the year ended December 31, 2021, other items consist primarily of a partial recovery of $2.0 million from the diversion of funds in 2018 from one of our Company's EMEA locations and is included in "Selling, general and administrative expenses" in the Consolidated Statements of Operations. For the year ended December 31, 2020, other items includes an expense of $3.1 million for amounts due for customs duties, fees and interest on previously imported products, which are included in "Restructuring and other expense" in the Consolidated Statements of Operations and $0.1 million of professional fees for recovery of misappropriated funds within the Crem business related to the 2018 matter. Refer to Note 13, "Contingencies and Significant Estimates" for discussion of the impact on the Consolidated Statements of Operations. For the year ended December 31, 2019, the amount includes certain costs related to concluded litigation and other professional fees. Unless otherwise noted, all such amounts are included within "Selling, general and administrative expenses" in the Consolidated Statements of Operations.
(5) Pension settlement represents non-cash pension losses resulting from settlement of pension obligations. Refer to Note 13, "Employee Benefit Plans" for discussion of the impact to the Consolidated Statements of Operations.
(6) Foreign currency transaction gains and losses are inclusive of gains and losses on related foreign currency exchange contracts not designated as hedging instruments for accounting purposes.
(7) The tax effect of adjustments is determined using the statutory tax rates for the countries comprising such adjustments.
Organic Net Sales
We define "Organic net sales" as net sales before the impacts of acquisitions and foreign currency translations during the period. We believe the Organic net sales measure is useful to investors in assessing the ongoing performance of our underlying businesses. Organic net sales reconcile to net sales presented in accordance with U.S. GAAP as follows:
Year Ended December 31,
(in millions) 2021 2020 2019
Consolidated:
Net sales $ 1,894.0 $ 1,361.7 $ 1,853.4
Less: Intersegment sales (347.1) (208.3) (259.5)
Net sales (as reported) 1,546.9 1,153.4 1,593.9
Impact of foreign currency translation(1)
(25.2) - -
Organic net sales $ 1,521.7 $ 1,153.4 $ 1,593.9
Americas:
Net sales $ 1,185.8 $ 867.0 $ 1,208.4
Less: Intersegment sales (136.3) (92.4) (133.1)
Third-party net sales 1,049.5 774.6 1,075.3
Impact of foreign currency translation(1)
(7.1) - -
Total Americas organic net sales $ 1,042.4 $ 774.6 $ 1,075.3
EMEA:
Net sales $ 447.1 $ 292.6 $ 392.7
Less: Intersegment sales (141.9) (69.1) (79.5)
Third-party net sales 305.2 223.5 313.2
Impact of foreign currency translation(1)
(13.4) - -
Total EMEA organic net sales $ 291.8 $ 223.5 $ 313.2
APAC:
Net sales $ 261.1 $ 202.1 $ 252.3
Less: Intersegment sales (68.9) (46.8) (46.9)
Third-party net sales 192.2 155.3 205.4
Impact of foreign currency translation(1)
(4.7) - -
Total APAC organic net sales $ 187.5 $ 155.3 $ 205.4
(1) The impact from foreign currency translation is calculated by translating current period activity at the weighted average prior period rates.
Critical Accounting Estimates
The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions in certain circumstances that affect amounts reported in the consolidated financial statements and related footnotes. In preparing these consolidated financial statements, we have made our best estimates and judgments of certain amounts included in the consolidated financial statements giving due consideration to materiality. However, application of accounting estimates involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates, particularly as it relates to forecasts and other assumptions impacted by the uncertainties surrounding the COVID-19 pandemic. The extent to which the economic disruptions of the COVID-19 pandemic impacts our accounting estimates will depend on future developments, including the duration, scope and severity of the pandemic, the actions taken to contain or mitigate its impact in each of the countries in which we operate globally, the development and global distribution of treatments of COVID-19 vaccines, and the timing of the resumption of economic activity to pre-pandemic levels.
A critical accounting estimate is an estimate that (i) is made in accordance with generally accepted accounting principles, (ii) involves a significant level of estimation uncertainty and (iii) has had or is reasonably likely to have a material impact on our financial condition or results of operations. Our critical accounting estimates appear below. We also believe that our accounting policies are important to the reader.
Therefore, please refer also to the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for more detailed description of these and other accounting policies of Welbilt. We currently disclose the impact of changes to assumptions in the applicable quarterly or annual filings in which there is a material financial statement impact.
Revenue Recognition - Revenue is recognized based on the satisfaction of performance obligations, which occurs when service is provided or control of a good transfers to a customer. A majority of our net sales are recognized at the point in time when products are shipped from our 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. We typically invoice our customers with payment terms of 30 days and our average collection cycle is generally less than 60 days and we have determined these payment terms do not contain a significant financing component. Costs to obtain a customer contract are expensed as incurred as our contract periods are generally short term in nature. The amount of consideration received and revenue recognized varies with marketing incentives such as annual customer rebate programs and right of return terms 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.
In recognizing revenue, we make significant judgments related to 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.
Income Taxes - We are subject to income taxes in the U.S. and various foreign jurisdictions. The determination of our income tax positions involves consideration of uncertainties, changing fiscal policies, tax laws, court rulings, regulations and related legislation. The Tax Act, enacted on December 22, 2017, introduced comprehensive and complex tax legislation, including a provision designed to tax global intangible low-taxed income (“GILTI”), foreign-derived intangible income(“FDII”), and other items that are subject to continuous guidance and interpretations. The Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was enacted on March 27, 2020 and includes many measures intended to assist companies during the COVID-19 pandemic including temporary changes to income and non-income-based tax laws, some of which were enacted under the Tax Cuts and Jobs Act ("Tax Act") in 2017. Accordingly, significant management judgment is required in determining the provision for income taxes, deferred tax assets and liabilities, unrecognized tax benefits, and the valuation allowance recorded against deferred tax assets.
Deferred income taxes arise from temporary differences between the tax bases of assets and liabilities and their reported amounts in the financial statements that will result in taxable or deductible amounts in future years when the reported amount of the assets and liabilities are recovered or settled, respectively. The recognition and measurement of deferred tax asset and liability balances and the corresponding deferred tax expense are determined for each tax-paying component in each applicable jurisdiction. We record a valuation allowance that represents a reduction of deferred tax assets if, based on the weight of available evidence, both positive and negative, it is more-likely-than-not that the deferred tax assets will not be realized.
We also recognize liabilities for unrecognized tax benefits, which are recognized if the weight of available evidence indicates that it is not more-likely-than-not that the positions will be sustained on examination, including resolution of the related appeals or litigation processes, if any. At each reporting period, unrecognized tax benefits are reassessed and adjusted if our judgment changes as a result of new information.
We adopted the period cost method for the computation of GILTI, that was introduced in the Tax Act.
We recognize interest and penalties related to unrecognized tax benefits as a component of income tax expense.
Inventories and Related Reserve for Obsolete and Excess Inventory - The majority of our inventories are valued at the lower of cost or net realizable value using the first-in, first-out (FIFO) method. Certain inventories are valued using the last-in, first-out (LIFO) method. All inventories are reduced by a reserve for excess and obsolete inventories. The estimated reserve is based upon specific identification of excess or obsolete inventories based on historical usage, estimated future usage, sales requiring the inventory and on historical write-off experience, and is subject to change if actual experience deteriorates.
Goodwill, Other Intangible Assets and Other Long-Lived Assets - We perform 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. Our trademarks and tradenames are classified as indefinite-lived intangible assets as there are no regulatory, contractual, competitive, economic or other factors which limit the useful lives of these intangible assets. We perform the goodwill impairment test for each of our reporting units which are the Americas, EMEA and APAC. We perform the indefinite-lived intangible asset impairment test at the unit of account level, which is the Americas, EMEA and APAC. When testing for impairment, we have 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, we evaluate 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 we conclude 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 we choose not to perform a qualitative assessment, or if, based on the qualitative assessment, we conclude 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, we compare 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, we recognize 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 5, "Goodwill and Other Intangible Assets - Net", of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for further details on our impairment assessments.
When reviewing long-lived assets, other than goodwill and other intangible assets with indefinite lives, we group our 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 evaluate the asset group against the sum of the undiscounted future cash flows to determine impairments. 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.
We monitor market conditions and determine if any additional interim reviews of goodwill, other intangibles or long-lived assets are warranted. Deterioration in the market or actual results as compared with our projections may ultimately result in a future impairment. In the event we determine that assets are impaired in the future, we would need to recognize a non-cash impairment charge, which could have a material adverse effect on our Consolidated Balance Sheets and Consolidated Statements of Operations.
Product Warranties - In the normal course of business, we provide our customers warranties covering workmanship, and in some cases materials, on products manufactured by us. Such warranties generally provide that products will be free from defects for periods typically ranging from 12 to 60 months with certain equipment having longer-term warranties. If a product fails to comply with our warranty, we may be obligated, at our expense, to correct any defect by repairing or replacing such defective product. We provide for an estimate of costs that we may incur under our warranty at the time of revenue recognition based on historical warranty experience for the related product or estimates of projected losses due to specific warranty issues on new products. These costs primarily include labor and materials, as necessary, associated with repair or replacement. The primary factors that affect our warranty liability include the number of shipped units and historical and anticipated rates or warranty claims. As these factors are impacted by actual experience and future expectations, we assess the adequacy of our recorded warranty liability and adjust the amounts as necessary.
Product Liabilities - We are subject in the normal course of business to product liability lawsuits. To the extent permitted under applicable laws, our exposure to losses from these lawsuits is mitigated by insurance with self-insurance retention limits. We record product liability reserves for our self-insured portion of any pending or threatened product liability actions. Our reserve is based upon two estimates. First, we track the population of all outstanding pending and threatened product liability cases to determine an appropriate case reserve for each based upon our best judgment and the advice of legal counsel. These estimates are continually evaluated and adjusted based upon changes to the facts and circumstances surrounding the case. Second, we determine the amount of additional reserve required to cover incurred but not reported product liability issues and to account for possible adverse development of the established case reserves. We have established a position within the actuarially determined range that we believe is the best estimate for incurred but unreported claims. We perform this analysis two times per year.
Stock-Based Compensation - The computation of the expense associated with stock-based compensation requires the use of certain valuation models and is based on projected achievement of underlying performance criteria for performance shares. We currently use a Black-Scholes option pricing model to calculate the fair value of our stock options. The Black-Scholes model requires the use of assumptions regarding the volatility of our stock, the expected life of the stock award and our dividend ratio. We primarily use historical data to determine the assumptions to be used in the Black-Scholes model and have no reason to believe that future data is likely to differ materially from historical data. However, changes in the assumptions regarding future stock price volatility, future dividend payments and future stock award exercise experience could result in a change in the assumptions used to value awards in the future and may result in a material change to the fair value calculation of stock-based awards. Stock-based compensation expense is recognized only for those stock-based awards expected to vest.
Employee Benefit Plans - We provide a range of benefits to our employees and retired employees, including pensions and postretirement health care coverage. We record Defined Benefit Plan assets and obligations using amounts calculated annually as of 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 we use to determine the annual assumptions are as follows:
•Discount Rate - Our discount rate assumptions are based on the interest rate of non-callable high-quality corporate bonds, with appropriate consideration of demographics of the participants in our defined benefit plans and benefit payment terms.
•Expected Return on Plan Assets - Our expected return on plan assets assumptions are based on our 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 - Our retirement and mortality rate assumptions are based primarily on actual plan experience and actuarial mortality tables.
•Health Care Cost Trend Rates - Our 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. We review our actuarial assumptions on an annual basis and make 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. We have developed the assumptions with the assistance of our independent actuaries and other relevant sources, and we believe that the assumptions used are reasonable; however, changes in these assumptions could impact our financial position, results of operations or cash flows. Refer to Note 13, "Employee Benefit Plans", of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for a summary of the impact of a 0.5% change in the discount rate and rate of return on plan assets would have on our consolidated financial statements.
Recent Accounting Changes and Pronouncements
See Note 2, "Basis of Presentation and Summary of Significant Accounting Policies", of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for discussion of recently issued accounting pronouncements applicable to us and the impact of those standards on our consolidated financial statements and related disclosures.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
This market risk discussion contains forward-looking statements and actual results may differ materially from the discussion included below based upon general market conditions and changes in the global financial markets.
We have global operations and are exposed to market risks in the ordinary course of our business. The COVID-19 pandemic has caused disruption on a global scale in commercial foodservice equipment end markets across the geographies in which we operate. Due to the inherent uncertainty of the pace of the global recovery from the COVID-19 pandemic, our estimates of the impact of the pandemic on our business may change based on future developments. The market risks may also change over time as business practices evolve and include, but are not limited to, changes in interest rates, commodity price risk and changes in foreign currency exchange rates. To reduce these risks, we may selectively use derivative financial instruments and other proactive management techniques. Our corporate governance includes policies and procedures that place financial instruments under the direction of corporate finance and restrict all derivative transactions to those intended for hedging purposes only. The use of financial instruments for trading purposes or speculation is strictly prohibited.
As further discussed below, we utilize valuation models to estimate the effects of changes in interest and currency rates and commodity prices for each of our derivative instruments in order to determine the impact of a hypothetical change of 10.0% on inputs used in the valuation models.
Interest Rate Risk
We are exposed to market risk from fluctuations in interest rates, which could affect our financial position and cash flows. Our interest rate risk management objective is to limit the impact of interest rate changes and to minimize our overall borrowing costs. We manage our exposure to market risk through a combination of fixed and variable debt and when considered appropriate, through the use of derivative financial instruments. The nature and amount of our long-term and short-term debt can be expected to vary as a result of future business requirements, market conditions and other factors.
We are exposed to interest rate risk on borrowings under the Senior Secured Credit Facility, which bear interest at variable rates and are vulnerable to changes primarily in the LIBOR rate. As of December 31, 2021, we do not have any derivative financial instruments in place to reduce our interest rate risk. As of December 31, 2021, we had $975.0 million of variable rate debt consisting of $855.0 million outstanding under our Term Loan B Facility of the Senior Secured Credit Facility and $120.0 million outstanding under our Revolving Credit Facility. Our interest rate risk relates primarily to fluctuations in LIBOR-based interest rates on the variable component of these instruments. Because of the historically low interest rate environment, a hypothetical change of 10% in short-term interest rates would not have a material impact on our annual interest expense.
As of December 31, 2021, we had $425.0 million of fixed rate debt under our Senior Notes not subject to variable interest rate fluctuations with a fair value of approximately $429.7 million. The terms of the Senior Notes do not generally allow investors to demand payment on these obligations prior to maturity.
Commodity Price Risk
We are exposed to fluctuating market prices for our key commodities utilized in the production of our product offerings, including aluminum, copper and steel. These market prices may be affected by several factors, including inflation, tariffs, duties or the inability of suppliers to absorb incremental costs resulting from the impacts the COVID-19 pandemic. We have procurement programs to manage the negotiations of these commodity prices and strategically work to mitigate any potential unfavorable impact as a result of changes to the cost of the commodities, components and parts used for our product lines. We will continue to mitigate any commodity, components, parts, and accessories cost increases, in part, by collaborating with suppliers, reviewing alternative sourcing options, substituting materials, engaging in internal cost reduction efforts and increasing prices on some of our products, as appropriate. We have historically entered into commodity hedges that fix the price of certain of our key commodities and will continue to evaluate the use of such commodity hedges in the future.
Currency Price Risk
We are subject to foreign currency exchange risk due to our international operations. We have manufacturing, sales and distribution facilities around the world and as a result make investments and enter into transactions denominated in various foreign currencies. Non-U.S. sales were approximately 37% of our total sales for the year ended December 31, 2021, with the largest percentage, 17.6%, being sales into various European countries. The translation of the financial statements of foreign operations into U.S. dollars is also impacted by fluctuations in foreign currency exchange rates, which may positively or negatively impact our results of operations.
To manage a portion of our foreign exchange risk, we enter into limited forward exchange contracts as deemed appropriate to 1) reduce the impact of changes in foreign currency rates between a budgeted rate and the rate realized at the time we recognize a particular purchase or sale transaction and 2) reduce the earnings and cash flow impact on non-functional currency denominated receivables and payables. Our transactions in foreign currencies are denominated primarily in Euro, British Pound, Canadian Dollar, Chinese Yuan, Mexican Peso and Singapore Dollar,
The impact of a 10% change in the underlying functional currencies on our currency forward contracts which are outstanding and continue to qualify for hedge accounting as of December 31, 2021 would be as follows:
(in millions) December 31, 2021
10% Increase 10% Decrease
Currency:
Canadian Dollar $ (0.4) $ 0.5
We are further exposed to foreign currency exchange rate risk as our investments in certain foreign subsidiaries are recorded in currencies other than the U.S. dollar. As these foreign currency denominated investments are translated at the end of each period using period-end exchange rates, fluctuations of exchange rates between the foreign currency and the U.S. dollar increase or decrease the value of those investments. The associated translation adjustments recorded in Accumulated Other Comprehensive Loss in the Consolidated Balance Sheets as of December 31, 2021 was a gain of $9.5 million.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements and Financial Statement Schedule:
Financial Statements:
Report of Independent Registered Public Accounting Firm - Grant Thornton LLP PCAOB ID: 248
Report of Independent Registered Public Accounting Firm - PricewaterhouseCoopers LLP PCAOB ID: 238
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Consolidated Statements of Equity
Notes to Consolidated Financial Statements
Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable, or the required information is shown in the financial statements or notes thereto.
Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders
Welbilt, Inc.
Opinions on the Financial Statements
We have audited the accompanying consolidated balance sheet of Welbilt, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2021, the related consolidated statement of operations, comprehensive income, equity and cash flows for the year ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021, and the results of its operations and its cash flows for the year ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in the 2013 Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated February 28, 2022 expressed an unqualified opinion.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.
/s/ Grant Thornton LLP
Tampa, Florida
February 28, 2022
We have served as the Company's auditor since 2021.
Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders
Welbilt, Inc.
Opinions on Internal Control Over Financial Reporting
We have audited the internal control over financial reporting of Welbilt, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2021, based on criteria established in the 2013 Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in the 2013 Internal Control-Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of and for the year ended December 31, 2021, and our report dated February 28, 2022 expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Grant Thornton LLP
Tampa, Florida
February 28, 2022
We have served as the Company's auditor since 2021.
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Welbilt, Inc.
Opinion on the Financial Statements
We have audited the consolidated balance sheet of Welbilt, Inc. and its subsidiaries (the “Company”) as of December 31, 2020, and the related consolidated statements of operations, of comprehensive income, of equity and of cash flows for each of the two years in the period ended December 31, 2020, including the related notes and schedule of valuation and qualifying accounts for each of the two years in the period ended December 31, 2020 appearing under Item 15 (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2020 in conformity with accounting principles generally accepted in the United States of America.
Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ PriceWaterhouseCoopers LLP
Tampa, Florida
February 26, 2021
We served as the Company's auditor from 2015 to 2021.
WELBILT, INC.
Consolidated Statements of Operations
(In millions, except share and per share data)
Year Ended December 31,
2021 2020 2019
Net sales $ 1,546.9 $ 1,153.4 $ 1,593.9
Cost of sales 987.3 743.4 1,027.0
Gross profit 559.6 410.0 566.9
Selling, general and administrative expenses 337.6 285.3 344.2
Amortization expense 39.4 39.1 38.7
Restructuring and other expense 0.6 10.9 9.4
Loss from impairment and loss on disposal of assets - net 0.4 11.6 0.7
Earnings from operations 181.6 63.1 173.9
Interest expense 74.9 81.4 97.3
Other expense (income) - net 7.5 (4.6) 0.9
Earnings (loss) before income taxes 99.2 (13.7) 75.7
Income tax expense (benefit) 28.9 (6.3) 19.8
Net earnings (loss) $ 70.3 $ (7.4) $ 55.9
Per share data:
Earnings (loss) per share - Basic $ 0.49 $ (0.05) $ 0.40
Earnings (loss) per share - Diluted $ 0.49 $ (0.05) $ 0.39
Weighted average shares outstanding - Basic 142,089,570 141,491,326 140,953,496
Weighted average shares outstanding - Diluted 143,134,460 141,491,326 141,567,785
The accompanying notes are an integral part of these consolidated financial statements.
WELBILT, INC.
Consolidated Statements of Comprehensive Income
(In millions)
Year Ended December 31,
2021 2020 2019
Net earnings (loss) $ 70.3 $ (7.4) $ 55.9
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustments (9.6) 23.4 2.2
Unrealized (loss) gain on derivatives (0.9) 1.6 (2.4)
Employee pension and postretirement benefits 5.4 (3.0) 0.3
Total other comprehensive (loss) income, net of tax (5.1) 22.0 0.1
Comprehensive income $ 65.2 $ 14.6 $ 56.0
The accompanying notes are an integral part of these consolidated financial statements.
WELBILT, INC.
Consolidated Balance Sheets
(In millions, except share and per share data)
As of December 31,
2021 2020
Assets
Current assets:
Cash and cash equivalents $ 134.2 $ 125.0
Restricted cash 0.5 0.4
Accounts receivable, less allowance of $6.6 and $4.4, respectively
220.5 165.9
Inventories - net 294.4 180.6
Prepaids and other current assets 58.5 50.1
Total current assets 708.1 522.0
Property, plant and equipment - net 135.6 129.1
Operating lease right-of-use assets 44.2 47.5
Goodwill 936.3 942.9
Other intangible assets - net 420.8 469.6
Other non-current assets 32.6 30.5
Total assets $ 2,277.6 $ 2,141.6
Liabilities and equity
Current liabilities:
Trade accounts payable $ 130.6 $ 86.4
Accrued expenses and other liabilities 210.7 164.2
Current portion of long-term debt and finance leases 0.9 1.0
Product warranties 30.9 29.9
Total current liabilities 373.1 281.5
Long-term debt and finance leases 1,388.0 1,407.8
Deferred income taxes 64.2 76.5
Pension and postretirement health liabilities 21.7 27.8
Operating lease liabilities 35.3 37.7
Other long-term liabilities 36.9 37.3
Total non-current liabilities 1,546.1 1,587.1
Commitments and contingencies (Note 11)
Total equity:
Common stock ($0.01 par value, 300,000,000 shares authorized, 142,961,244 shares and 141,557,236 shares issued and outstanding as of December 31, 2021 and 2020, respectively)
1.4 1.4
Additional paid-in capital (deficit) (5.4) (25.6)
Retained earnings 387.0 316.7
Accumulated other comprehensive loss (24.6) (19.5)
Total equity 358.4 273.0
Total liabilities and equity $ 2,277.6 $ 2,141.6
The accompanying notes are an integral part of these consolidated financial statements.
WELBILT, INC.
Consolidated Statements of Cash Flows
(In millions)
Year Ended December 31,
2021 2020 2019
Cash flows from operating activities
Net earnings (loss) $ 70.3 $ (7.4) $ 55.9
Adjustments to reconcile net earnings (loss) to cash provided by (used in) operating activities:
Depreciation expense 22.2 21.6 21.3
Amortization of intangible assets 40.9 40.6 39.8
Amortization of debt issuance costs 5.3 5.2 4.7
Deferred income taxes (8.9) (8.2) (19.8)
Stock-based compensation expense 15.0 4.7 7.3
Loss from impairment and loss on disposal of assets 0.4 11.6 0.7
Pension settlement - - 1.2
Gain on remeasurement of debt and other realized foreign currency derivative - - (0.6)
Changes in operating assets and liabilities:
Accounts receivable (57.9) 21.8 (351.4)
Inventories (116.2) 10.2 5.0
Other assets (1.3) (9.2) 13.4
Trade accounts payable 42.9 (21.6) (46.8)
Other current and long-term liabilities 43.4 (54.3) (0.4)
Net cash provided by (used in) operating activities 56.1 15.0 (269.7)
Cash flows from investing activities
Cash receipts on beneficial interest in sold receivables - - 280.7
Capital expenditures (25.9) (20.1) (33.9)
Acquisition of intangible assets - (0.2) -
Proceeds from maturity of short-term investment - - 32.0
Other - (3.9) 1.1
Net cash (used in) provided by investing activities (25.9) (24.2) 279.9
Cash flows from financing activities
Proceeds from long-term debt 232.0 219.1 410.0
Repayments on long-term debt and finance leases (256.2) (218.7) (348.4)
Debt issuance costs - (2.1) -
Repayment of short-term borrowings - - (15.0)
Payment of contingent consideration - - (0.8)
Exercises of stock options 10.9 1.2 3.2
Payments on tax withholdings for equity awards (8.1) (0.8) (2.4)
Net cash (used in) provided by financing activities (21.4) (1.3) 46.6
Effect of exchange rate changes on cash 0.5 5.2 0.7
Net increase (decrease) in cash and cash equivalents and restricted cash 9.3 (5.3) 57.5
Balance at beginning of period 125.4 130.7 73.2
Balance at end of period $ 134.7 $ 125.4 $ 130.7
(Continued)
WELBILT, INC.
Consolidated Statements of Cash Flows (Continued)
(In millions)
Year Ended December 31,
2021 2020 2019
Supplemental disclosures of cash flow information:
Cash paid for income taxes, net of refunds $ 30.8 $ 17.8 $ 36.0
Cash paid for interest, net of related hedge settlements $ 69.9 $ 76.0 $ 79.0
Supplemental disclosures of non-cash activities:
Non-cash investing activity: Beneficial interest obtained in exchange for securitized receivables $ - $ - $ 238.6
Non-cash investing activity: Purchase of property, plant and equipment in accounts payable at period end $ 4.7 $ - $ -
Non-cash financing activity: Reassessments and modifications of right-of-use assets and lease liabilities and assets obtained through leasing arrangements $ 8.4 $ 20.7 $ 14.9
The accompanying notes are an integral part of these consolidated financial statements.
WELBILT, INC.
Consolidated Statements of Equity
(In millions, except share data)
Shares Common Stock Additional Paid-In Capital (Deficit) Retained Earnings Accumulated Other Comprehensive (Loss) Income Treasury Stock (Note 2)
Total Equity
Balance as of December 31, 2018 140,252,693 $ 1.4 $ (41.5) $ 268.4 $ (41.6) $ (0.3) $ 186.4
Cumulative effect of accounting standards adoption(1)
- - - 0.2 - - 0.2
Net earnings - - - 55.9 - - 55.9
Issuance of common stock, stock-based compensation plans 961,302 - 3.2 - - - 3.2
Stock-based compensation expense - - 7.3 - - - 7.3
Other comprehensive loss - - - - 0.1 - 0.1
Value of shares in deferred compensation plan(2)
- - - - - (0.1) (0.1)
Reclassification of deferred compensation liability(2)
- - - - - 0.4 0.4
Balance as of December 31, 2019 141,213,995 $ 1.4 $ (31.0) $ 324.5 $ (41.5) $ - $ 253.4
Cumulative effect of accounting standards adoption (3)
- - - (0.4) - - (0.4)
Net loss - - - (7.4) - - (7.4)
Issuance of common stock, stock-based compensation plans 343,241 - 0.7 - - - 0.7
Stock-based compensation expense - - 4.7 - - - 4.7
Other comprehensive income - - - - 22.0 - 22.0
Balance as of December 31, 2020 141,557,236 $ 1.4 $ (25.6) $ 316.7 $ (19.5) $ - $ 273.0
Net earnings - - 70.3 - - 70.3
Issuance of common stock, stock-based compensation plans 1,404,008 - 5.2 - - - 5.2
Stock-based compensation expense - - 15.0 - - - 15.0
Other comprehensive loss - - - - (5.1) - (5.1)
Balance as of December 31, 2021 142,961,244 $ 1.4 $ (5.4) $ 387.0 $ (24.6) $ - $ 358.4
(1) Effective January 1, 2019, the Company adopted Accounting Standards Update ("ASU") 2016-02, "Leases (Topic 842)" with additional updates subsequently issued (collectively, "ASU 2016-02"). The cumulative effect of the change made to the Consolidated Statement of Equity as of January 1, 2019 for the adoption of ASU 2016-02 is the result of recognizing the remaining deferred gain associated with a previous sale-leaseback transaction.
(2)As of December 31, 2019, the Company reclassified a portion of the liability within the Welbilt Deferred Compensation Plan totaling $0.4 million from "Other long-term liabilities" to "Treasury stock" to properly net the liability with the corresponding Welbilt common stock owned by the Deferred Compensation Plan. See further discussion in the Company's Annual Report on Form 10-K for the year ended December 31, 2020.
(3) Effective January 1, 2020, the Company adopted Accounting Standards Update ("ASU") 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments," including subsequent amendments issued thereafter which clarify the standard (collectively, "Topic 326"). The cumulative effect of the change made to the Consolidated Statement of Equity as of January 1, 2020 for the adoption of ASU 2016-13 is the result of recognizing an additional expected credit loss allowance.
The accompanying notes are an integral part of these consolidated financial statements.
WELBILT, INC.
Notes to Consolidated Financial Statements
1. Business and Organization
Description of the Business
Welbilt, Inc. ("Welbilt" or the "Company") is one of the world's leading commercial foodservice equipment companies leveraging a full suite of equipment capable of storing, cooking, holding, displaying, dispensing and serving in both hot and cold foodservice categories. The Company is headquartered in New Port Richey, Florida, and operates 19 manufacturing facilities globally. The Company designs, manufactures and supplies best-in-class equipment for the global commercial foodservice market, consisting of commercial and institutional foodservice operators represented by full-service restaurants, quick-service restaurant chains, hotels, resorts, cruise ships, caterers, supermarkets, convenience stores, hospitals, schools and other institutions. The Company sells its products through a global network of over 5,000 distributors, dealers, buying groups and manufacturers' representatives.
Welbilt was incorporated in Delaware in 2015 and became publicly traded in March 2016 under the New York Stock Exchange ("NYSE") ticker symbol "MFS" after the Company completed its spin-off from The Manitowoc Company, Inc. ("MTW") (the "Spin-Off"). On March 6, 2017, shares of the Company commenced trading under a new NYSE ticker symbol, "WBT", when the Company effected its name change from "Manitowoc Foodservice, Inc." to "Welbilt, Inc."
The Company manages its business in three geographic business segments: Americas, EMEA and APAC. The Americas segment includes the United States ("U.S."), Canada and Latin America. The EMEA segment consists of markets in Europe, including Middle East, Russia, Africa and the Commonwealth of Independent States. The APAC segment consists primarily of markets in China, India, Australia, South Korea, Singapore, Philippines, Japan, Indonesia, Malaysia, Thailand, Hong Kong, Taiwan, New Zealand and Vietnam.
Merger with Ali Holding S.r.l.
On July 14, 2021, the Company and Ali Holding S.r.l. (“Ali Group”), a significant and diversified global foodservice equipment manufacturer and distributor, entered into a merger agreement under which Ali Group will acquire the Company in an all-cash transaction for $24.00 per share, or approximately $3.5 billion in aggregate equity value and $4.8 billion in enterprise value. The merger agreement was unanimously approved by the Company's board of directors and on September 30, 2021, was approved by the Company's stockholders.
In accordance with the terms of the merger agreement and immediately prior to the merger:
(i) all of the Company's outstanding and unvested common stock options and restricted stock units will become vested and exchanged for the right to receive cash equal to the $24.00 per share consideration (less the exercise price per share of common stock for the common stock options), and
(ii) all of the Company's outstanding performance share units will also be exchanged, as determined assuming the maximum level of performance is achieved, for the right to receive cash equal to the $24.00 per share consideration,
Upon completion of the transaction, the Company's shares will no longer trade on The New York Stock Exchange.
The Ali Group merger agreement provides that the Company may be required to pay Ali Group a termination fee equal to $110.0 million if the merger agreement is terminated:
(a) by Ali Group due to a breach of a covenant or agreement by the Company that causes the failure of a condition to closing, or
(b) by either party if the Merger has not been consummated prior to July 14, 2022 (subject to extension if certain approvals have not been obtained by such date) or
if, in the case of clauses (a) or (b), an alternative proposal has been publicly disclosed, announced or otherwise made public and has not been withdrawn and within twelve months of such termination the Company enters into a definitive agreement with respect to, or consummates, an alternative proposal.
Welbilt and Ali Group have submitted regulatory filings in all required jurisdictions, including the U.S., United Kingdom, and European Union. The companies have decided that they will proceed with divesting the Company's Manitowoc ice brand ( the "Ice Business,") and the companies are confident that this step will ensure regulatory approval.
In October 2021, the Company's board of directors concluded that outside consultants should be authorized to commence a process that could result in the sale of the Ice Business. The Company's outside consultants, with the assistance of management, have initiated the marketing and due diligence process for the divestiture. The companies expect to complete the Ice divestiture in the first half of 2022, with the acquisition of Welbilt by Ali Group shortly thereafter.
As of December 31, 2021, the Company has concluded that the Ice Business does not meet the criteria to be classified as an asset held for sale or its operations to be classified as discontinued operations in accordance with the applicable accounting literature.
2. Basis of Presentation and Summary of Significant Accounting Policies
Principles of Consolidation and Basis of Presentation
The accompanying consolidated financial statements include the accounts of Welbilt and its wholly-owned subsidiaries and have been prepared by the Company, pursuant to the rules and regulations of the SEC. The Company prepares its financial statements in accordance with accounting principles generally accepted in the U.S. ("U.S. GAAP"). All intercompany balances and transactions between the Company and its affiliates have been eliminated in consolidation.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting periods. Significant items subject to such estimates and assumptions include inventory obsolescence costs, fair value of goodwill and indefinite lived intangible assets, 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.
On November 5th, 2021, the Occupational Safety and Health Administration announced an emergency temporary standard mandating the COVID-19 vaccine or weekly testing for most U.S. employees, which includes the Company's employees. That standard was struck down by the U.S. Supreme Court on January 13, 2022. However, the Biden Administration has indicated that it may seek to impose alternative vaccine mandates and other governmental authorities have imposed more targeted vaccine and testing orders and regulations, and may continue to do so in the future. If a mandate is ultimately issued and implemented in some form, the Company expects there would be further disruptions to its operations, such as inability to maintain adequate staffing at the Company's facilities, difficulties in replacing disqualified employees with temporary employees or new hires, increased costs and diminished availability of raw materials and component parts, and increased compliance burdens, including financial costs, diversion of administrative resources, and increased downtimes to accommodate for any required ongoing COVID-19 testing, which would result in delays in the manufacturing process, negatively impact the Company's future sales levels and ongoing customer relationships.
The ongoing global COVID-19 pandemic has created and may continue to create significant uncertainty in the macroeconomic environment which, in addition to other unforeseen effects of this pandemic, may adversely impact the Company's future operating results. As a result, many of the Company's estimates and assumptions may require increased judgment and involve a higher degree of variability and volatility. As the impacts of the pandemic continue and additional information becomes available, these estimates may change materially in future periods.
In the opinion of management, the consolidated financial statements contain all adjustments necessary for a fair statement of the results of operations and comprehensive income for the years ended December 31, 2021, 2020 and 2019, the financial position as of December 31, 2021 and 2020 and the cash flows for the years ended December 31, 2021, 2020 and 2019, and except as otherwise discussed herein, such adjustments consist only of those of a normal recurring nature.
All dollar amounts, except share and per share amounts, are in millions of dollars unless otherwise indicated.
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. The Company's policy is to classify 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, such as letters of credit or bank guarantees, are recorded separately on the Consolidated Balance Sheets.
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.
Accounts Receivable Accounts receivable consist primarily of trade receivables due from customers, consisting of distributors, dealers, buying groups and manufacturers' representatives, and are stated net of 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. Accounts receivable are written off once the account is significantly past due and the Company's collection efforts are unsuccessful.
Inventories Inventories are valued at the lower of cost or net realizable value. Approximately 94.2% and 90.2% of the Company's inventories were valued using the first-in, first-out ("FIFO") method as of December 31, 2021 and 2020, 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 $7.6 million and $4.3 million as of December 31, 2021 and 2020, respectively. Finished goods and work-in-process inventories include material, labor and manufacturing overhead costs.
All inventories are reduced by a reserve for excess and obsolete inventories. The estimated reserve is based upon specific identification of excess or obsolete inventories based on historical usage, estimated future usage, sales requiring the inventory and on historical write-off experience, and is subject to change if the actual experience deteriorates. The inventories' obsolescence reserves are reported as a reduction of the "Inventories - net" balance in the Consolidated Balance Sheets.
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 Company capitalizes certain internal and external costs incurred to acquire or develop software for internal use. Costs incurred during the preliminary project stage and the post-implementation stage are expensed as incurred. All direct costs incurred to develop internal-use software during the development stage are capitalized. 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 or lease periods of the assets using the straight-line depreciation method for financial reporting and on accelerated methods for income tax purposes. Depreciation for internally developed software commences when the software is available for its intended use. The useful lives are estimated based on historical experience with similar assets, taking into account anticipated technological or other changes. The Company periodically reviews these lives relative to physical factors, economic factors and industry trends. If there are changes in the planned use of property or equipment or if technological changes were to occur more rapidly than anticipated, the useful lives assigned to these assets may need to be shortened, resulting in the recognition of accelerated depreciation expense in future periods.
Property, plant and equipment are primarily 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 for internal use 2 - 10
Leases Effective January 1, 2019, the Company adopted the provisions of Accounting Standards Update ("ASU") ASU 2016-02, "Leases (Topic 842)" including subsequent amendments issued thereafter (collectively, "ASC Topic 842"), which requires lessees to recognize a right-of-use asset and corresponding lease liability on the balance sheet for operating leases while the accounting for finance leases remains substantially unchanged. Under ASC Topic 842, a lease is a contract, or part of a contract, that conveys the right to control the use of identified property, plant or equipment (i.e., an identified asset) for a period of time in exchange for consideration. The Company determines if an arrangement is a lease at inception. For a contract to be determined to be a lease or contain a lease, it must include explicitly or implicitly identified assets where the Company has the right to substantially all of the economic benefits of the assets and has the ability to direct how and for what purpose the assets are used during the lease term. Leases are classified as either operating or financing. For operating leases, the Company recognizes a lease liability equal to the present value of the remaining lease payments, and a right-of-use asset equal to the lease liability, subject to certain adjustments, such as prepaid rents. The right-of-use asset represents the right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. The Company uses its incremental borrowing rate to determine the present value of the lease payments. The Company’s incremental borrowing rate is the rate of interest that it would have to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. The Company determines the incremental borrowing rates for its leases by applying its applicable borrowing rate, with adjustment, as appropriate, for instruments with similar characteristics. The lease term at the lease commencement date is determined based on the non-cancellable period for which the Company has the right to use the underlying asset, together with any periods covered by an option to extend the lease if the Company is reasonably certain to exercise that option, periods covered by an option to terminate the lease if the Company is reasonably certain not to exercise that option and periods covered by an option to extend (or not to terminate) the lease in which the exercise of the option is controlled by the lessor. The Company considers a number of factors when evaluating whether the options in its lease contracts are reasonably certain of exercise, such as length of time before an option exercise, expected value of the leased asset at the end of the initial lease term, importance of the lease to the Company's operations, costs to negotiate a new lease and any contractual or economic penalties.
In connection with the adoption of ASU Topic 842, prior period results have not been adjusted and continue to be reported under the accounting standards in effect for such period. The Company elected the package of practical expedients available within the standard and as a result, did not reassess the lease classification of existing contracts or leases or the initial direct costs associated with existing leases. The Company also made an accounting policy election not to recognize right-of-use assets and lease liabilities for leases with a lease term of 12 months or less, including leases with renewal options that are reasonably certain to be exercised, and do not include an option to purchase the underlying asset that is reasonably certain of exercise. Instead, lease payments for these leases are recognized as lease expense on a straight-line basis over the lease term. In addition, the Company did not elect the hindsight practical expedient and has elected not to separate the accounting for lease components and non-lease components, for all classes of leased assets. Certain of the Company’s leases included variable lease costs consisting primarily of reimbursement to the lessor for taxes and insurance expenses, and certain non-lease components that transfer a distinct service to the Company, such as maintenance services and usage charges. See additional disclosure of leases in Note 16, "Leases."
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 that 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 and indefinite lived intangibles are not amortized, but are tested for impairment annually, or more frequently, as events dictate. The Company's trademarks and tradenames are classified as indefinite lived intangible assets as there are no regulatory, contractual, competitive, economic or other factors which limit the useful lives of these intangible assets. 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. For additional discussion of impairment testing related to long-lived assets, refer to "Impairment of Long-Lived Assets," below.
The Company capitalizes certain internal and external costs to develop technology classified as software to be sold or otherwise marketed to customers. Capitalization of these costs begins when a product's technological feasibility has been established and ends when a product is available for general release to customers. Amortization commences when the software is ready for general release to customers with useful lives estimated on a product-by-product basis.
Other intangible assets with finite lives are amortized on a straight-line basis over the following estimated useful lives:
Years
Customer relationships 10 - 20
Engineering drawings 15
Design libraries 7 - 20
Software to be sold 3 - 4
Patents 10 - 20
The Company's annual impairment tests of goodwill and intangible assets with indefinite lives are performed as of June 30 of each fiscal year and whenever a triggering event occurs between annual impairment tests. The indefinite-lived intangible asset impairment test is performed at the Company's unit of account level, which is the Americas, EMEA and APAC. The goodwill impairment test is performed for the Company's reporting units, which are the Americas, EMEA and APAC.
When performing the annual test 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 of the reporting units or indefinite-lived intangible assets. These events and circumstances include, but are not limited to, macroeconomic conditions (including the impacts of the COVID-19 pandemic on the Company's operations), industry and competitive environment conditions, overall financial performance, business 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 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 or unit of account level, as applicable. The Company estimates the fair value of the relevant indefinite lived intangible asset based on an income approach using the relief-from-royalty method. The quantitative impairment test identifies both the existence of impairment and the amount of the impairment loss. In conducting the quantitative analysis, the Company compares the estimated fair value to the carrying values of the relevant indefinite-lived intangible asset. When the carrying amount of the indefinite-lived intangible asset exceeds its estimated fair value, the Company recognizes an impairment loss to the extent the carrying value exceeds the estimated fair
value; however, the impairment loss for goodwill is limited to the total amount of the goodwill allocated to the reporting unit. The fair value is determined based on an income approach using the relief-from-royalty method. This approach is dependent upon several factors, including estimates of future revenue growth rates and trends, long term growth rates, weighted average cost of capital, royalty rates, discount rates and other variables. Management bases its fair value estimates on assumptions believed to be reasonable, but which are inherently uncertain and could materially affect the valuations. See Note 5, "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 had no assets held for sale as of December 31, 2021 or 2020.
Product 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 12, "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 by the Company two times per year.
Foreign Currency Translation and Transactions For most of the Company's foreign operations, local currencies are considered the functional currency. Assets and liabilities of non-U.S. dollar functional currency entities are translated to U.S. dollars at year-end exchange rates and the resulting gains and losses arising from the translation of assets and liabilities located outside the U.S. and are recorded as a component of "Accumulated other comprehensive loss" ("AOCI") in the Consolidated Balance Sheets. Income and expense items are translated at average exchange rates in effect during the period and are recorded as a component of "Other expense (income) - net" in the Consolidated Statements of Operations.
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 Company records the fair values of all derivatives in the Consolidated Balance Sheets. The Company does not offset the fair values of derivative contract assets and liabilities. 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 of the derivative instrument fair market value adjustments for cash flow hedges and net investment hedges are reported in the Company's Consolidated Statements of Comprehensive Income, net of taxes. The Company recognizes 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 in current earnings within the same line item associated with the hedged item.
Stock-Based Compensation The Company's 2016 Omnibus Incentive Plan (the "2016 Plan") permits the granting of stock options, restricted stock awards and units, performance share awards and units, and other types of stock-based and cash awards. Stock-based compensation is measured at the fair value of the stock-based award as of the date of grant and is expensed over the vesting period of the award. The expense, net of forfeitures, is recognized using the straight-line method. Stock-based compensation is recognized only for those stock-based awards expected to vest. Refer to Note 17, "Stock-Based Compensation", for additional discussion regarding details of the Company's stock-based compensation plan.
Defined Benefit Plans The Company provides a range of benefits to its employees and retired employees, including, for certain employees, pensions and postretirement health care coverage. The Company records Defined Benefit Plan assets and obligations using amounts calculated annually as of the Company's 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 demographics of the participants in the Company's pension plans 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 actuarial 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. In accordance with U.S. GAAP, the effects of the modifications are recorded in current periods 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 13, "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's stock held by Program A, carried at cost, and the corresponding deferred compensation liability are net within equity in the Company's 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 Revenue is recognized based on the satisfaction of performance obligations, which occurs when service is provided or control of a good 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. The Company records deferred revenue when payment for products is received or due prior to the shipment of products to a customer. Shipping and handling revenues continue to be included as a component of "Net sales" and shipping and handling costs continue to be included in "Cost of sales" in the Consolidated Statements of Operations. Taxes collected from customers, which are subsequently remitted to governmental authorities, are excluded from revenues.
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 and the Company has determined these payment terms do not contain a significant financing component. Costs to obtain a customer contract are expensed as incurred as the Company's contract periods are generally one year or less. 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 years ended December 31, 2021, 2020 and 2019, respectively. The Company utilizes the practical expedient to not adjust the amount of consideration for the effects of a significant financing component for all instances in which the period between the transfer of goods and payment is one year or less. The Company also utilizes the practical expedient to recognize the costs of obtaining a contract as an expense for contracts with an original expected length of one year or less.
Substantially all of the Company's revenues consist of revenues from contracts with customers. These revenues are disaggregated by major source and geographic location and included in Note 20, "Business Segments." The Company believes this disaggregation best depicts the nature, amount, timing and uncertainty of its revenue and cash flows that are affected by economic factors.
To a much lesser extent, the Company also recognizes other sources of revenue from both specific foodservice-based projects and subscriptions. The foodservice-based project revenues are recognized at either the point-in-time in which control transfers to the customer or may be recognized over time, depending on the nature of the performance obligations in the contract. Subscription revenues, which consist of subscription fees from customers accessing the Company's cloud-based application, are recognized ratably over the customer's subscription term.
The Company sells separately-priced extended warranties that extend coverage beyond the standard product warranty by 12 to 60 months. Payments are made at the inception of the contract and revenue is recognized over the term of the warranty 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.
Government Assistance The Company's policy for government assistance is to recognize the assistance when there is reasonable assurance that the Company has met the substantive conditions of and requirements for receiving the assistance. The government assistance is recorded as a reduction to the related expense to which the assistance relates. Beginning in the second quarter of 2020, as a result of the COVID-19 pandemic, governments in various jurisdictions in which the Company operates have provided financial assistance designed to offset salary expenditures associated with companies maintaining their pre-pandemic employee headcount levels. The Company has applied and will continue to apply for such assistance programs where relevant requirements and conditions have been met.
For the years ended December 31, 2021, the Company believes the requirements were met to receive $3.2 million of government assistance in the form of cash and cost abatements. For the year ended December 31, 2020, the Company met the requirements to receive $14.6 million of government assistance in the form of cash, cost abatements and retention credits. As of December 31, 2021 and December 31, 2020, the Company had receivables of $1.6 million and $2.4 million related to government assistance, respectively.
Government assistance has been reflected as a reduction to the related expense for which the assistance relates as follows:
(in millions) Year ended Year ended
December 31, 2021 December 31, 2020
Reduction to related expense(1):
Cost of sales $ 2.0 $ 7.1
Selling, general and administrative expenses 1.2 5.6
Total $ 3.2 $ 12.7
(1) There was no government assistance included as a reduction of capitalized labor as of December 31, 2021. As of December 31, 2020, $1.9 million of government assistance was included as a reduction in capitalized labor, which is a component of "Inventories - net".
Research and Development Research and development costs are charged to expense as incurred and are included within "Selling, general and administrative expenses" in the Consolidated Statements of Operations. Research and development expenses totaled $42.5 million, $36.1 million and $41.3 million for the years ended December 31, 2021, 2020 and 2019, respectively. Research and development costs include employee-related costs, materials, outsourced services 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 The Company is subject to income taxes in the U.S. and various foreign jurisdictions. The determination of the Company's income tax positions involves consideration of uncertainties, changing fiscal policies, tax laws, court rulings, regulations and related legislation. The Tax Cuts and Jobs Act ("Tax Act"), enacted on December 22, 2017, introduced comprehensive and complex tax legislation, including a provision designed to tax global intangible low-taxed income (“GILTI”), foreign-derived intangible income, and other items that are subject to continuous guidance and interpretations. The Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was enacted on March 27, 2020 and includes several measures intended to assist companies during the COVID-19 pandemic including temporary changes to income and non-income-based tax laws, some of which were enacted under the Tax Act in 2017. Accordingly, significant management judgment is required in determining the provision for income taxes, deferred tax assets and liabilities, unrecognized tax benefits and the valuation allowance recorded against deferred tax assets.
Deferred income taxes arise from temporary differences between the tax bases of assets and liabilities and their reported amounts in the financial statements that will result in taxable or deductible amounts in future years when the reported amount of the assets and liabilities are recovered or settled, respectively. The recognition and measurement of deferred tax asset and liability balances and the corresponding deferred tax expense are determined for each tax-paying component in each relevant jurisdiction. The Company will record a valuation allowance that represents a reduction of deferred tax assets if, based on the weight of available evidence, both positive and negative, it is more-likely-than-not that the deferred tax assets will not be realized.
The Company also recognizes liabilities for unrecognized tax benefits which are recognized if the weight of available evidence indicates that it is not more-likely-than-not that the positions will be sustained on examination, including resolution of the related appeals or litigation processes, if any. As of each balance sheet date, unrecognized tax benefits are reassessed and adjusted if the Company's judgment changes as a result of new information.
The Company adopted the period cost method for the computation of GILTI, that was introduced in the Tax Act.
The Company recognizes interest and penalties related to unrecognized tax benefits as a component of income tax expense.
Advertising Costs Advertising costs are expensed as incurred and included in "Selling, general and administrative expenses." These costs were $10.8 million, $8.5 million and $17.4 million for the years ended December 31, 2021, 2020 and 2019, 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.
Recently Adopted Accounting Pronouncements
In December 2019, the FASB issued ASU 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes ("ASU 2019-12"), which amends, and is intended to simplify, existing guidance related to the accounting for income taxes. ASU 2019-12 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted. This guidance is effective for the Company beginning January 1, 2021. The Company adopted ASU 2019-12 prospectively as of January 1, 2021 and has determined it did not have a material impact on the Company's consolidated financial statements.
Recently Issued Accounting Pronouncements Not Yet Adopted
In November 2021, the FASB issued ASU 2021-10, “Disclosures by Business Entities about Government Assistance”. This ASU provided guidance to increase the transparency of government assistance including the disclosure of (1) the types of assistance, (2) an entity’s accounting for the assistance, and (3) the effect of the assistance on an entity’s financial statements. Under the new guidance, an entity is required to provide the following annual disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy: (1) information about the nature of the transactions and the related accounting policy used to account for the transactions, (2) the line items on the balance sheet and income statement that are affected by the transactions, and the amounts applicable to each financial statement line item and, (3) significant terms and conditions of the transactions, including commitments and contingencies. This guidance is effective for fiscal years beginning after December 15, 2021. The adoption of ASU 2021-10 is not expected to have a material impact on the Company's consolidated financial statements.
In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting" ("ASU 2020-04") to provide temporary optional expedients and exceptions to U.S. GAAP guidance on contract modifications, hedge accounting and other transactions affected by the expected market transition from the London Interbank Offered Rate ("LIBOR") and other interbank offered rates to alternative reference rates. ASU 2020-04 is effective upon issuance and the Company may elect to apply the standard through December 31, 2022. This guidance primarily impacts the interest expense under the Company's 2016 Credit Facility which utilized LIBOR as a basis and may adopt the provisions of this guidance during the year ending December 31, 2022, should the expected transition from LIBOR to alternative reference rates occur.
Recent accounting guidance not discussed above is not applicable, did not have, or is not expected to have a material impact on the Company.
3. Inventories - Net
The components of "Inventories - net" are as follows:
(in millions) As of December 31,
2021 2020
Inventories - net:
Raw materials $ 141.5 $ 85.6
Work-in-process 18.4 13.9
Finished goods 142.1 85.4
Total inventories at FIFO cost 302.0 184.9
LIFO Reserve (7.6) (4.3)
Total inventories - net $ 294.4 $ 180.6
4. Property, Plant and Equipment - Net
The components of "Property, plant and equipment - net" are as follows:
(in millions) As of December 31,
2021 2020
Property, plant and equipment - net:
Land $ 9.6 $ 9.7
Building and improvements 109.7 99.8
Machinery, equipment and tooling 228.6 231.7
Furniture and fixtures 7.4 8.1
Computer hardware and software for internal use 70.8 66.8
Construction in progress 11.6 14.1
Total cost 437.7 430.2
Less accumulated depreciation (302.1) (301.1)
Total property, plant and equipment - net $ 135.6 $ 129.1
5. Goodwill and Other Intangible Assets - Net
During the first quarter of 2020, as a result of the decrease in demand for commercial foodservice equipment and aftermarket parts resulting from the COVID-19 pandemic and impacts on the Company's current and estimated future operating cash flows, management performed a review of the Company's goodwill and indefinite-lived intangible assets to determine whether it was more-likely-than-not that the fair value of such assets was less than their carrying amount as of March 31, 2020.
Management's review concluded for each of its reporting units and for the Americas indefinite-lived intangible assets that it was not more-likely-than-not that the fair value was less than the carrying amount based on the preponderance of evidence. Therefore, no impairment was indicated and no impairment test was required to be performed as of March 31, 2020. However, for both the EMEA and APAC indefinite-lived intangible assets, the review indicated, based on limited fair value cushion and overall financial performance expectations, that it was more-likely-than-not that the fair value of the indefinite-lived intangible assets was less than the carrying amount and, therefore, a quantitative impairment test was performed as of March 31, 2020.
The Company estimated the fair value of the EMEA and APAC indefinite-lived intangible assets which were then compared to the carrying values of the relevant indefinite-lived intangible asset and to the extent the carrying value exceeded the estimated fair value, an impairment loss was recognized in the amount by which the carrying amount of the asset exceeded the estimated fair value of the asset.
As of March 31, 2020, the Company determined that the carrying value of the indefinite-lived intangible assets in the EMEA region exceeded their estimated fair value and as a result, an impairment charge of $11.1 million was recorded for the first quarter of 2020. This impairment charge has been reflected as a component of "Loss from impairment and loss on disposal of assets - net" for the year ended December 31, 2020. Management determined that the fair value of the indefinite-lived intangible assets in the APAC region exceeded the carrying value of these assets and, therefore, concluded there was no impairment of these assets as of March 31, 2020.
As of June 30, 2021, the Company performed the annual impairment testing for its goodwill reporting units, and its indefinite-lived intangible assets, and based on those results, no impairment was indicated. Consistent with the annual impairment testing performed as of June 30, 2021, the Company estimated the fair value of the indefinite-lived intangible assets based on an income approach using the relief-from-royalty method. For each of the Company's regions, the estimated fair values of the relevant indefinite-lived intangible assets was greater than the carrying values, resulting in no impairment of the relevant assets.
The Company determined that no events occurred or circumstances changed during the six months ended December 31, 2021 that would indicate that it is more likely than not that its goodwill was impaired. To the extent that business conditions deteriorate or if changes in key assumptions and estimates differ significantly from management's expectations, it may be necessary to record impairment charges in the future.
The changes in the carrying amount of goodwill by business segment for the years ended December 31, 2021, 2020 and 2019 are as follows:
(in millions) Americas EMEA APAC Total
Goodwill balance at December 31, 2019 (1)
$ 832.6 $ 80.6 $ 19.9 $ 933.1
Foreign currency impact - 8.7 1.1 9.8
Goodwill balance at December 31, 2020 $ 832.6 $ 89.3 $ 21.0 $ 942.9
Foreign currency impact - (6.9) 0.3 (6.6)
Goodwill balance at December 31, 2021 $ 832.6 $ 82.4 $ 21.3 $ 936.3
(1) Goodwill is net of accumulated impairment losses of $515.7 million: $312.2 million recorded for the Americas and $203.5 million recorded for EMEA, both of which were recorded prior to December 31, 2019.
The gross carrying amounts and accumulated amortization of the Company's intangible assets, other than goodwill, are as follows:
(in millions) As of December 31,
2021 2020
Gross
Carrying
Amount Accumulated
Amortization
Amount Net
Book
Value Gross
Carrying
Amount Impairment Charges Accumulated
Amortization
Amount Net
Book
Value
Customer relationships $ 475.1 $ (297.0) $ 178.1 $ 479.1 - $ (271.6) $ 207.5
Trademarks and trade names 206.9 - 206.9 223.1 (11.1) - 212.0
Other intangibles 170.6 (138.1) 32.5 173.1 - (126.6) 46.5
Patents 5.8 (2.5) 3.3 5.8 - (2.2) 3.6
Total $ 858.4 $ (437.6) $ 420.8 $ 881.1 $ (11.1) $ (400.4) $ 469.6
As of December 31, 2021, trademarks and trade names by business segment are: $130.6 million in the Americas, $68.9 million in EMEA and $7.4 million in APAC. As of December 31, 2020, trademarks and trade names by business segment are: $130.6 million in the Americas, $73.6 million in EMEA and $7.8 million in APAC.
Amortization expense for the years ended December 31, 2021, 2020 and 2019 was $40.9 million, $40.6 million and $39.8 million, respectively. Amortization expense related to software to be sold classified as a component of "Cost of sales" in the Consolidated Statements of Operations amounted to $1.5 million, $1.5 million, and $1.1 million for the years ended December 31, 2021, 2020, and 2019 respectively. As of December 31, 2021, the weighted average remaining useful lives of the definite-lived intangible assets for customer relationships, patents, and other intangibles was 7 years, 13 years and 7 years, respectively, and the weighted average remaining useful life of all definite-lived intangible assets was approximately 7 years.
As of December 31, 2021, the estimated future amortization for the Company's definite lived intangible assets for each of the five succeeding years is as follows:
(in millions)
Year ending December 31:
2022 $ 36.1
2023 $ 29.4
2024 $ 28.8
2025 $ 28.7
2026 $ 28.6
6. Accrued Expenses and Other Liabilities
The components of "Accrued expenses and other liabilities" are as follows:
(in millions) As of December 31,
2021 2020
Accrued expenses and other liabilities:
Miscellaneous accrued expenses $ 40.6 $ 37.5
Employee related expenses 51.9 35.6
Accrued rebates and commissions 58.0 40.1
Current portion of operating lease liabilities 9.1 9.7
Interest payable 15.9 16.1
Customer deposits 12.3 3.9
Non-income taxes payable 4.9 3.6
Restructuring liabilities 1.7 4.0
Deferred revenues 4.2 2.9
Pension and postretirement health liabilities 2.1 2.1
Business Transformation Program related expenses - 0.8
Product liabilities 3.4 1.7
Income and other taxes payable 6.6 5.6
Derivative liabilities - 0.6
Total accrued expenses and other liabilities $ 210.7 $ 164.2
7. Income Taxes
The Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was enacted on March 27, 2020 and includes many measures intended to assist companies during the COVID-19 pandemic including temporary changes to income and non-income-based tax laws, some of which were enacted under the Tax Cuts and Jobs Act ("Tax Act") for the year ended December 31, 2017. As a result of the Tax Act and the CARES Act, additional legislative and regulatory guidance has been and may continue to be issued, including final regulations that could impact the Company's effective tax rate in future periods.
"Earnings (loss) before income taxes " in the Consolidated Statements of Operations consists of the following:
(in millions) Years Ended December 31,
2021 2020 2019
Domestic $ (13.5) $ (73.6) $ (35.8)
Foreign 112.7 59.9 111.5
Total earnings (loss) before income taxes $ 99.2 $ (13.7) $ 75.7
"Income tax (benefit) expense" in the Consolidated Statements of Operations consists of the following:
(in millions) Years Ended December 31,
2021 2020 2019
Current:
Federal and state $ 8.2 $ (14.7) $ 9.0
Foreign 29.6 16.6 30.4
Total current tax expense 37.8 1.9 39.4
Deferred:
Federal and state (7.4) (1.8) (15.0)
Foreign (1.5) (6.4) (4.6)
Total deferred tax benefit (8.9) (8.2) (19.6)
Total:
Federal and state 0.8 (16.5) (6.0)
Foreign 28.1 10.2 25.8
Income tax expense (benefit) $ 28.9 $ (6.3) $ 19.8
A reconciliation of the U.S. federal statutory income tax rate to the Company's effective tax rate is as follows:
Years Ended December 31,
2021 2020 2019
Federal income tax at statutory rate 21.0 % 21.0 % 21.0 %
State income expense (benefit) 0.4 1.3 (0.2)
Manufacturing and research incentives (1.2) 7.1 (1.2)
Taxes on foreign income 4.6 (6.6) 8.4
Global intangible low taxed income - Tax Act 1.8 - 2.0
Foreign derived intangible income (1.1) - (1.0)
CARES Act net operating loss carryback (0.2) 51.2 -
Adjustments for valuation allowances 0.7 1.5 (2.1)
Unrecognized tax benefits (0.1) (19.1) (1.9)
US permanent adjustments - Non Tax Act (1)
3.0 (8.8) 0.5
Other items (1)
0.2 (1.6) 0.7
Effective tax rate 29.1 % 46.0 % 26.2 %
(1) Reclassified amounts from "Other items" of 0.5% for the year ended December 31, 2019 to "US Permanent adjustments - Non Tax Act."
As a result of the loss before income taxes for the year ended December 31, 2020, a positive percentage change in the effective tax rate table reflects a favorable income tax benefit, whereas a negative percentage change in the effective tax rate table reflects an unfavorable income tax expense.
For the year ended December 31, 2021, the Company's effective tax rate was 29.1%, compared to an effective tax rate of 46.0% for the year ended December 31, 2020. The decrease in effective tax rate for the year ended December 31, 2021 is primarily the result of a decrease in income tax benefit of 51.4% for CARES Act net operating loss carryback provisions, and a decrease of 8.3% for manufacturing and research incentive credits. These decreases were partially offset by 19.0% of income tax expense percentage changes for unrecognized tax benefits related to the Tax Act regulations, 11.8% for U.S. permanent adjustments - Non Tax Act and 11.2% for taxes on foreign income. Taxes on foreign income unfavorably impacted the effective tax rate for both of the years ended December 31, 2021 and 2020 primarily as a result of earnings in high-tax jurisdictions, including Germany, China, and Canada whose statutory rates range from 25% to 30%.
For the year ended December 31, 2020, the Company's effective tax rate was 46.0%, compared to an effective tax rate of 26.2% for the year ended December 31, 2019. The increase in the effective tax rate was primarily the result of a 51.2% income tax benefit for CARES Act net operating loss carryback provisions, in addition to increased income tax benefit percentage changes of 3.6% for changes in valuation allowances of foreign entities related to loss carryforwards and 8.3% for manufacturing and research incentive credits. These increases are partially offset by 17.2% of income tax expense percentage changes for unrecognized tax benefits related to taxes on foreign income and the Tax Act regulations, 9.3% for U.S. permanent adjustments - Non Tax Act and 15.0% for taxes on foreign income. Taxes on foreign income unfavorably impacted the effective tax rate for both the years ended December 31, 2020 and 2019 primarily as a result of earnings in high-tax jurisdictions, including Germany, China, and Canada whose statutory rates range from 25% to 30%.
As of December 31, 2021, the Company intends to continue reinvesting foreign earnings indefinitely outside the U.S. with certain limited exceptions and has not recorded a deferred tax liability for U.S. state income taxes, foreign withholding or other foreign income taxes that would be due if cash is repatriated to the U.S. because those foreign earnings are considered permanently reinvested or may be remitted substantially free of any additional income or withholding taxes. While the Company does not anticipate a need to repatriate funds to the U.S. to satisfy domestic liquidity needs, management reviews cash positions regularly and, to the extent it is determined that all or a portion of foreign earnings will not remain indefinitely reinvested, the Company will record a liability for the additional taxes, if applicable, including foreign withholding taxes and U.S. state income taxes. Further, the determination of the amount of the unrecognized deferred tax liability related to the undistributed earnings is not practicable.
Deferred income tax assets and liabilities are provided for the impact of temporary differences between amounts of assets and liabilities recognized for financial reporting purposes and the bases of such assets and liabilities as measured by tax laws. 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 are as follows:
(in millions) As of December 31,
2021 2020
Non-current deferred tax assets (liabilities):
Inventories $ 4.2 $ 4.3
Accounts receivable 1.1 0.5
Property, plant and equipment (10.8) (9.0)
Intangible assets (112.6) (123.1)
Deferred employee benefits 13.5 14.8
Product warranty reserves 7.6 7.5
Product liability reserves 1.8 1.7
Operating lease right-of-use assets (9.8) (11.8)
Operating lease liabilities 9.8 11.7
Interest carryforwards 24.9 16.2
Loss carryforwards 51.9 43.4
Credit carryforwards 1.8 6.5
Other 5.2 6.8
Non-current deferred tax liabilities (11.4) (30.5)
Less valuation allowance (40.7) (30.9)
Net non-current deferred tax liabilities $ (52.1) $ (61.4)
Current and long-term tax assets and liabilities included in the Company's Consolidated Balance Sheets consist of the following:
(in millions) As of December 31, Consolidated Balance Sheets Line Item Location
2021 2020
Income tax receivable $ 25.6 $ 27.4 Prepaids and other current assets
Deferred tax assets $ 12.1 $ 15.1 Other non-current assets
Income taxes payable $ (6.6) $ (5.6) Accrued expenses and other liabilities
Income taxes payable $ (0.1) $ (0.1) Other long-term liabilities
Deferred tax liabilities $ (64.2) $ (76.5) Deferred income taxes
As of December 31, 2021, the Company has approximately $198.4 million of pre-tax foreign loss carryforwards, which are available to reduce future foreign taxable income. Substantially all of these foreign loss carryforwards are not subject to any time restrictions on their use. Pre-tax loss carryforwards of $142.1 million resulted in deferred tax assets that were fully offset by a valuation allowance, after considering the weight of all available evidence and determination that it was more-likely-than-not that such deferred tax assets will not be realized.
As of each reporting date, the Company's management considers new evidence, both positive and negative, that could impact management's view regarding the future realization of deferred tax assets. The Company will continue to evaluate its valuation allowance requirements, including the U.S. interest expense limitation of the Tax Act.
As of December 31, 2021, the Company has determined that a valuation allowance is not required for the deferred tax asset associated with U.S. interest expense. The Company may adjust its deferred tax asset valuation allowances accordingly based on possible sources of taxable
income that may be available to realize a tax benefit for deferred tax assets. As facts and circumstances change, the Company may also adjust its deferred tax asset valuation allowances accordingly. Such changes in the deferred tax asset valuation allowances would be reflected in current operations through the Company’s income tax provision and could have a material effect on the Company’s operating results for the respective period.
A reconciliation of the Company's gross change in unrecognized tax benefits, excluding interest and penalties, is as follows:
(in millions) Years Ended December 31,
2021 2020 2019
Balance at beginning of year $ 8.4 $ 2.9 $ 11.5
Additions based on tax positions related to the current year - 2.7 -
Additions for tax positions of prior years - 2.9 -
Reductions based on settlements with taxing authorities - - (1.3)
Reductions for lapse of statute of limitations (0.3) (0.1) (7.3)
Balance at end of year $ 8.1 $ 8.4 $ 2.9
The Company's unrecognized tax benefits, including interest and penalties, were $9.6 million and $9.9 million as of December 31, 2021, and December 31, 2020, respectively. The Company’s unrecognized tax benefits as of December 31, 2021, 2020 and 2019 if recognized, would impact the effective tax rate. During the next twelve months, it is reasonably possible that unrecognized tax benefits could change in the range of $0.1 million to $1.6 million due to the expiration of relevant statutes of limitations and federal, state and foreign tax audit resolutions. In addition, as of December 31, 2021, and December 31, 2020, the Company's Consolidated Balance Sheets includes $25.6 million and $27.4 million, respectively, of income tax receivables, classified within "Prepaids and other current assets."
The Company files tax returns in multiple jurisdictions and is subject to examination by taxing authorities globally. 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, 2021, the Company believes that it is more-likely-than-not that the tax positions it has taken will be sustained upon the resolution of its audits resulting in no material impact on its consolidated financial position, results of operations and cash flows. However, the final determination with respect to any tax audits, and any related litigation, could be materially different from the Company's estimates and/or from its historical income tax provisions and accruals and could have a material effect on operating results and/or cash flows in the periods for which that determination is made. In addition, future period earnings may be adversely impacted by litigation costs, settlements, penalties and/or interest assessments.
The Company is currently under audit by the tax authorities in Germany for the years 2015-2018 and in the U.S. for the 2017-2018 federal income tax returns, as well as various other state income tax and jurisdictional audits. The Company's separate federal and state tax returns for tax years 2017 through 2020 and 2016 through 2020, respectively, remain subject to examination by U.S. federal and various state taxing authorities. The tax years 2016 - 2020 remain subject to examination in Canada and Germany, and tax years 2011 - 2020 remain subject to examination in China.
8. Debt
The carrying value of the Company's outstanding debt consists of the following:
As of December 31, 2021 As of December 31, 2020
(in millions, except percentage data) Carrying value Weighted Average Interest Rate Carrying value Weighted Average Interest Rate
Long-term debt and finance leases:
Revolving Credit Facility $ 120.0 4.50 % $ 143.0 4.21 %
Term Loan B Facility 855.0 2.93 % 855.0 3.45 %
9.50% Senior Notes due 2024
425.0 9.76 % 425.0 9.72 %
Finance leases 1.6 4.42 % 2.2 4.80 %
Total debt and finance leases, including current portion 1,401.6 1,425.2
Less current portion:
Finance leases (0.9) (1.0)
Unamortized debt issuance costs (1)
(12.9) (16.7)
Hedge accounting fair value adjustment (2)
0.2 0.3
Total long-term debt and finance leases $ 1,388.0 $ 1,407.8
(1) Total debt issuance costs, net of amortization as of December 31, 2021 and 2020 were $15.3 million and $20.3 million, respectively, of which $2.4 million and $3.6 million are related to the Revolving Credit Facility and recorded in "Other non-current assets" in the Consolidated Balance Sheets.
(2) Balance represents deferred gains from the terminations of interest rate swaps designated as fair value hedges.
2016 Credit Agreement
In March 2016, the Company entered into a credit agreement, as amended, restated, supplemented or otherwise modified from time to time (the "2016 Credit Agreement") for a $1,300.0 million Senior Secured Credit Facility (the "Senior Secured Credit Facility") consisting of (i) a senior secured Term Loan B facility in an aggregate principal amount of $900.0 million (the "Term Loan B Facility") and (ii) a senior secured revolving credit facility in an aggregate principal amount of $400.0 million (the "Revolving Credit Facility"). The 2016 Credit Agreement also provides for a (i) sublimit for the issuance of letters of credit under the revolving commitments to $30.0 million and (ii) aggregate principal amount of allowed incremental revolving or term loan facilities thereunder in an amount not to exceed the sum of (a) $275.0 million plus (b) an additional amount, as long as after giving effect to the incurrence of such additional amount, the proforma secured leverage ratio does not exceed 3.75:1.00. The maturity of the Term Loan B Facility and Revolving Credit Facility is October 2025 and October 2023, respectively. Each of the terms above were applicable with the latest amendment completed in April 2020, as further discussed below.
The 2016 Credit Agreement contains financial covenants including, but not limited to (a) a Consolidated Interest Coverage Ratio, which measures the ratio of (i) Consolidated EBITDA to (ii) Consolidated Interest Expense, and (b) a Consolidated Total Leverage Ratio, which measures the ratio of (i) Consolidated Indebtedness to (ii) Consolidated EBITDA for the most recent four fiscal quarters, in each case, as defined in the 2016 Credit Agreement.
The 2016 Credit Agreement and indenture governing the Senior Secured Credit Facility contains limitations on the Company's ability to effect mergers and change of control events as well as certain other limitations, including limitations on: (i) the declaration and payment of dividends or other restricted payments, (ii) incurrence of additional indebtedness or issuing preferred stock, (iii) the creation or existence of certain liens, (iv) incurrence of restrictions on the ability of certain of the Company's subsidiaries to pay dividends or other payments, (v) transactions with affiliates and (vi) sales of assets.
The Company’s obligations under the 2016 Credit Agreement 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, (iii) special purpose securitization vehicles and (iv) controlled foreign corporations (“CFCs”) or any subsidiary substantially all the assets of which consist of equity interests of one or more CFCs or other CFC holding companies).
At inception, borrowings under the Senior Secured Credit Facility bore interest at a rate per annum equal to, at the option of the Company, (i) LIBOR plus the applicable margin of 4.75% (reduced in connection with amendments to 3.00% in March 2017, to 2.75% in September 2017 and to 2.50% in October 2018) for the Term Loan B Facility and 1.50% - 2.75% for the Revolving Credit Facility, based on consolidated total leverage, or (ii) an alternate base rate plus the applicable margin, which was 1.00% lower than for LIBOR loans.
During the fourth quarter of 2018 and through the first half of 2019, borrowings under the 2016 Credit Agreement bore interest at a rate per annum equal to, at the Company's option, either (i) LIBOR plus an applicable margin of 2.50% for the Term Loan B Facility and a range from 1.50% to 2.50% for the Revolving Credit Facility (depending on the Company's Consolidated Total Leverage Ratio) or (ii) an alternate base rate plus an applicable margin which was 1.00% less than the LIBOR-based applicable margin. Beginning in the third quarter of 2019, the spreads for LIBOR and alternate base rate borrowings were 2.25% and 1.25%, respectively.
In April 2020, the Company entered into Amendment No. 7 ("Amendment No. 7") to the 2016 Credit Agreement, to amend the financial covenants of the Revolving Credit Facility to prevent non-compliance with these financial covenants for the quarter ended June 30, 2020 resulting from the impact of the COVID-19 pandemic on the commercial foodservice industry and the resulting decrease in demand for the Company's products. The terms of Amendment No. 7, among other items, (i) suspended the Consolidated Total Leverage Ratio and Consolidated Interest Coverage Ratio covenants, in each case, as defined in the 2016 Credit Agreement, for four fiscal quarters until March 31, 2021 ("Suspension Period") and (ii) temporarily replaced the suspended covenants with a Minimum Consolidated EBITDA covenant and a Maximum Capital Expenditure covenant, each computed on a trailing four quarters basis and measured quarterly and a Minimum Liquidity covenant that is measured monthly, each as defined in the Amendment, throughout the Suspension Period, with the Minimum Liquidity covenant effective through June 30, 2021.
Beginning in the second quarter of 2020, the spreads for LIBOR and alternate base rate borrowings for the Revolving Credit Facility were 2.25% and 1.25%, respectively, as a result of a change in the Company's Consolidated Total Leverage Ratio as of March 31, 2020.
Beginning in the second quarter of 2021, the Consolidated Total Leverage Ratio and Consolidated Interest Coverage Ratio covenants were reinstated at modified levels as compared to the covenants in effect beginning June 30, 2020 and phased-in to the pre-amendment covenant levels in the fourth quarter of 2021.
Amendment No. 7 prohibits draws under the Revolving Credit Facility (i) if the Company has not evidenced compliance with the financial covenants for the year ended December 31, 2021 by delivery of a compliance certificate within 90 days, and (ii) to the extent the draw would result in a consolidated cash balance of $100.0 million or greater (excluding cash held in China) through December 31, 2021, with the exception of draws to meet cash uses anticipated in the ordinary course of business that are expected to be paid within 10 days of the draw. Amendment No. 7 also includes additional limitations on restricted payments, investments and other actions that are otherwise allowed under the 2016 Credit Agreement, with a $25.0 million carve-out for general investments. These limitations expired on December 31, 2021.
Amendment No. 7 also included a quarterly fee applicable through the fourth quarter of 2021 in an amount equal to a per annum rate of 0.50% on the average outstanding balance of the Revolving Credit Facility payable on a quarterly basis. The Company incurred total debt issuance costs in connection with Amendment No. 7 of $2.1 million, which were capitalized and included as a component of "Other non-current assets" on the Company's Consolidated Balance Sheets and will be amortized through the maturity of the Revolving Credit Facility.
As of December 31, 2021, the Company had $6.6 million in outstanding stand-by letters of credit and $273.4 million available for additional borrowings under the Revolving Credit Facility to the extent the Company's compliance with financial covenants permits such borrowings. As of December 31, 2021, the Company also had $1.0 million in other outstanding letters of credit or guarantees of payment to certain third-parties in accordance with commercial terms and conditions and which do not reduce the amount available for additional borrowings under the Revolving Credit Facility.
In October 2021, the Company entered into a Suspension of Rights Agreement to the 2016 Credit Agreement, effective December 31, 2021, which: (i) suspends the Company's ability to execute non-USD currency draws under the Revolving Facility, (ii) requires all outstanding non-USD currency loans to be repaid on or before December 31, 2021 and (iii) eliminates the option to select an interest period of 2 months for any borrowings in USD without the lenders' consent. The Company does not expect that the execution of this agreement will have a material impact on the Company's future liquidity or consolidated results of operations.
As of December 31, 2021, the Company was in compliance with all affirmative and negative covenants, including any financial covenants, pertaining to its financing arrangements. The Company continually monitors its compliance with the covenants in its Revolving Credit Facility, and in doing so has made estimates of the negative impact of the COVID-19 pandemic on its financial position, results of operations and cash flows. The Company believes it will remain in compliance with all such covenants for the next 12 months; however, due to the inherent uncertainty of the severity and duration of the COVID-19 pandemic on the Company's business, management's estimates of the achievement of its financial covenants may change in the future.
Senior Notes
In February 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. Effective February 15, 2022, the Senior Notes are redeemable, at the Company's option, in whole or in part from time to time, at a redemption price equal to 100.0% of the principal amount.
The Senior Notes were initially sold to qualified institutional buyers pursuant to Rule 144A (and outside the U.S. in reliance on Regulation S) under the Securities Act of 1933 ("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 Company must generally offer to repurchase all 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% in aggregate principal amount of the then-outstanding Senior Notes may declare all the Senior Notes to be due and payable immediately.
The indenture governing the Senior Notes contains limitations on the Company's ability to effect mergers and change of control events as well as other limitations, including limitations on: the declaration and payment of dividends or other restricted payments; incurring additional indebtedness or issuing preferred stock; the creation or existence of certain liens; incurring restrictions on the ability of certain of the Company's subsidiaries to pay dividends or other payments; transactions with affiliates; and sales of assets.
As of December 31, 2021, the Company was in compliance with all affirmative and negative covenants pertaining to the Senior Notes.
Future Debt Maturities
Future debt maturities, excluding finance leases, as of December 31, 2021 and for succeeding years are as follows:
(in millions)
Year ending December 31:
2022 $ -
2023 120.0
2024 434.0
2025 846.0
2026 -
Thereafter -
Total $ 1,400.0
9. Derivative Financial Instruments
The Company's risk management objective is to ensure that business exposures to risks that have been identified and measured and are capable of being controlled are minimized or managed using what the Company believes to be the most effective and efficient methods to eliminate, reduce or transfer such exposures. Operating decisions consider these associated risks and the Company structures transactions to minimize or manage these risks whenever possible.
The primary risks the Company manages using derivative instruments are interest rate risk, commodity price risk and foreign currency exchange risk. The Company has historically entered into interest rate swap agreements to manage interest rate risk associated with the Company’s fixed and floating-rate borrowings. Cross-currency interest rate swaps are entered into to protect the value of the Company’s investments in its foreign subsidiaries. Swap contracts on various commodities are used to manage the price risk associated with forecasted purchases of materials used in the Company's manufacturing process. The Company also enters into various foreign currency derivative instruments to manage foreign currency risk associated with its projected purchases and sales and foreign currency denominated receivable and payable balances.
The Company recognizes all derivative instruments as either assets or liabilities at fair value in the Consolidated Balance Sheets. Commodity swaps and foreign currency exchange contracts are designated as cash flow hedges of forecasted purchases of commodities and currencies, certain interest rate swaps are designated as cash flow hedges of floating-rate borrowings, and the remainder of the instruments are designated as fair value hedges of fixed-rate borrowings, and a cross-currency interest rate swap as a hedge of net investments in its foreign subsidiaries.
Cash flow hedging strategy
For derivative instruments that are designated and qualify as cash flow hedges, the gain or loss on the derivative is recorded in Accumulated Other Comprehensive Loss ("AOCI") in the Company's Consolidated Balance Sheets and is subsequently reclassified into earnings in the periods in which the hedged transaction affects earnings. During the next twelve months, the Company estimates no unrealized gains or losses, net of tax, related to currency rate and commodity price hedging that will be reclassified from AOCI into earnings. Foreign currency and commodity hedging, prior to de-designation, is generally completed prospectively on a rolling basis for 15 and 36 months, respectively, depending on the type of risk being hedged.
Prior to 2020, the Company entered into interest rate swap agreements, to manage interest rate risk exposure by converting the Company’s floating-rate debt to a fixed-rate basis, thus reducing the impact on future interest expense from fluctuations in future interest rates. These interest rate swap agreements involved the receipt of floating rate amounts in exchange for fixed rate interest payments over the life of the agreements without an exchange of the underlying principal. The Company's remaining interest rate swap agreement with a notional amount of $425.0 million matured during the first quarter of 2020.
The outstanding currency forward contracts, which were entered into as hedges of forecasted transactions and continue to qualify for hedge accounting, are as follows:
Currency Units Hedged (in millions)
As of December 31,
2021 2020 2019
Canadian Dollar 3.8 6.4 8.0
Euro - 3.3 7.6
British Pound - 6.1 8.0
Mexican Peso - 92.8 111.3
Singapore Dollar - 2.3 2.0
The effects of Company's derivative instruments on the Consolidated Statements of Comprehensive Income and Consolidated Statements of Operations for gains or losses initially recognized in AOCI in the Consolidated Balance Sheets were as follows:
Derivatives in cash flow hedging relationships Pretax gain/(loss) recognized in AOCI Pretax gain/(loss) reclassified from AOCI into income
(in millions) Years Ended December 31, Location Years Ended December 31,
2021 2020 2019 2021 2020 2019
Foreign currency exchange contracts $ - $ 0.5 $ 0.4 Cost of sales $ 1.1 $ (0.4) $ (0.9)
Commodity contracts - - (1.2) Cost of sales - (1.0) (1.3)
Interest rate swap contracts - - (1.7) Interest expense - - 2.6
Total $ - $ 0.5 $ (2.5) $ 1.1 $ (1.4) $ 0.4
Fair value hedging strategy
For derivative instruments that qualify and are designated as a fair value hedge (i.e. hedging the exposure to changes in the fair value of an asset or a liability or an identified portion thereof that is attributable to a particular risk), the gain or loss on the derivative instrument as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in the same line item associated with the hedged item in the Company's Consolidated Statements of Operations.
Effect of Fair Value and Cash Flow Derivative Instruments on Consolidated Statements of Operations
The table below presents the effect of the Company’s derivative financial instruments on the Consolidated Statements of Operations:
(in millions) Location and amount of gain/(loss) recognized on effect of fair value and cash flow derivative instruments
Years Ended December 31,
2021 2020 2019
Cost of Sales Interest Expense Cost of Sales Interest Expense Cost of Sales Interest Expense
Total amounts of expense line items presented in the Consolidated Statements of Operations in which effects of fair value and cash flow hedges are recorded $ 987.3 $ 74.9 $ 743.4 $ 81.4 $ 1,027.0 $ 97.3
The effects of fair value and cash flow hedging:
Gain/(loss) on fair value hedging relationship:
Interest rate contract:
Hedged item $ - $ 0.1 $ - $ 0.1 $ - $ (14.2)
Derivative designated as hedging instrument $ - $ - $ - $ - $ - $ 13.3
Gain/(loss) on cash flow hedging relationships:
Foreign currency exchange contracts:
Amount of gain/(loss) reclassified from AOCI into income $ 1.1 $ - $ (0.4) $ - $ (0.9) $ -
Commodity contracts:
Amount of gain/(loss) reclassified from AOCI into income $ - $ - $ (1.0) $ - $ (1.3) $ -
Interest rate contracts:
Amount of gain/(loss) reclassified from AOCI into income $ - $ - $ - $ - $ - $ 2.6
Hedge of net investment in foreign operations strategy
For derivative instruments that qualify and are designated as a hedge of a net investment in a foreign currency, the gain or loss is reported in AOCI as a component of the cumulative translation adjustment. Amounts are reclassified out of AOCI into earnings when the hedged net investment is either sold or substantially liquidated.
In March 2017, the Company entered into a three-year cross-currency interest rate swap contract ("CCS") for a notional value of €50.0 million to protect the value of its net investment in Euros. Prior to the expiration of the CCS in March 2020, the carrying value of the net investment in Euros was designated as a hedging instrument is remeasured at each reporting date to reflect the changes in the foreign currency exchange spot rate, with changes since the last remeasurement date recorded in AOCI. Upon expiration of the CCS in March 2020, the Company paid $4.1 million representing the final notional exchange at the expiration date spot exchange rate, which has been classified as an investing activity in the Company's Consolidated Statements of Cash Flows.
The location and effects of the net investment hedge on the Consolidated Statements of Comprehensive Income and Consolidated Statements of Operations are as follows:
Derivatives in net investments hedging relationships Pretax gain/(loss) recognized in AOCI Gain/(loss) reclassified from AOCI into income Gain/(loss) recognized in income (amount excluded from effectiveness testing)
(in millions) Years Ended December 31, Location Years Ended December 31, Location Years Ended December 31,
2021 2020 2019 2021 2020 2019 2021 2020 2019
Interest rate swap contract $ - $ (0.8) $ 2.8 N/A $ - $ - $ - Other expense (income) - net $ - $ 0.3 $ 1.6
N/A = Not applicable
Derivatives Not Designated as Hedging Instruments
The Company enters into commodity and foreign currency exchange contracts that are not designated as hedge relationships to offset, in part, the impact of certain intercompany transactions and to further mitigate certain other short-term commodity and currency impacts, as identified. For derivative instruments that are not designated as hedging instruments, the gains or losses on the derivatives are recognized in current earnings within "Other expense (income) - net" in the Consolidated Statements of Operations.
As of December 31, 2021, the Company had no outstanding commodity contracts which were not designated as hedging instruments. As of December 31, 2020, the Company had 35 and 18 metric tons of aluminum and copper, respectively, in outstanding commodity contracts that were not designated as hedging instruments. As of December 31, 2019, the Company had 524 and 269 metric tons, and 1,778 short tons of aluminum, copper and steel, respectively, in outstanding commodity contracts that were not designated as hedging instruments.
Currency Contracted Units (in millions)
As of December 31,
2021 2020 2019
Canadian Dollar 1.8 1.1 1.3
Euro - 84.2 75.6
Swiss Franc - 7.0 7.0
British Pound - 1.0 20.3
Singapore Dollar - 0.3 28.4
Mexican Peso - 13.8 11.8
For the year ended December 31, 2021, 2020, and 2019 the Company recognized income of $5.5 million, an expense of $2.6 million, and income of $6.6 million, respectively, related to foreign currency exchange contracts. For the year ended December 31, 2020, and 2019, the Company also recognized an expense of $0.2 million and income of $0.1 million, respectively, related to commodity contracts. The gains and losses related to derivative instruments not designated as hedging instruments are included in Other expense (income) - net in the Company's Consolidated Statements of Operations.
The fair value of outstanding derivative contracts recorded as assets in the Consolidated Balance Sheets are as follows:
(in millions) Balance Sheet Location Asset Derivatives
Fair Value
As of December 31,
2021 2020
Derivatives designated as hedging instruments:
Foreign currency exchange contracts Prepaids and other current assets $ 0.1 $ 1.1
Total derivatives designated as hedging instruments $ 0.1 $ 1.1
Derivatives NOT designated as hedging instruments:
Foreign currency exchange contracts Prepaids and other current assets $ - $ 0.9
Total derivatives NOT designated as hedging instruments $ - $ 0.9
Total asset derivatives $ 0.1 $ 2.0
The fair value of outstanding derivative contracts recorded as liabilities in the Consolidated Balance Sheets are as follows:
(in millions) Balance Sheet Location Liability Derivatives
Fair Value
As of December 31,
2021 2020
Derivatives designated as hedging instruments:
Foreign currency exchange contracts Accrued expenses and other liabilities $ - $ 0.2
Total derivatives designated as hedging instruments $ - $ 0.2
Derivatives NOT designated as hedging instruments:
Foreign currency exchange contracts Accrued expenses and other liabilities $ - $ 0.4
Total derivatives NOT designated as hedging instruments $ - $ 0.4
Total liability derivatives $ - $ 0.6
10. Fair Value of Financial Instruments
In accordance with the Company's policy, fair value is defined as the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The policy classifies the inputs used to measure fair value into the following hierarchy:
Level 1 Unadjusted quoted prices in active markets for identical assets or liabilities
Level 2 Unadjusted quoted prices in active markets for similar assets or liabilities, or
Unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or
Inputs other than quoted prices that are observable for the asset or liability
Level 3 Unobservable inputs for the asset or liability
Disclosures About Fair Value of Financial Instruments
The Company utilizes the best available information in measuring fair value. The carrying values of cash, restricted cash and cash equivalents, accounts receivable and trade accounts payable approximate fair value, without being discounted, as of December 31, 2021 and 2020, due to the short-term nature of these instruments.
The Company's Revolving Credit Facility Term Loan B Facility and Senior Notes are recorded at their carrying values on the Company's Consolidated Balance Sheets, as disclosed in Note 8, "Debt." The carrying value of the Revolving Credit Facility approximates its fair value due to the short-term variable interest rates of the borrowings. The Company estimates the fair value of the Term Loan B Facility and the Senior Notes based on quoted market prices of the instruments. Because these instruments are typically thinly traded, the assets and liabilities are classified as Level 2 of the fair value hierarchy. The fair value of the Company's Term Loan B Facility was approximately $853.9 million and $814.9 million as of December 31, 2021 and 2020, respectively. The fair value of the Company's Senior Notes was approximately $429.7 million and $439.9 million as of December 31, 2021 and 2020, respectively.
Fair Value Measurements on a Recurring Basis
The following tables set forth financial assets and liabilities that were accounted for at fair value on a recurring basis as of December 31, 2021 and 2020 by level within the fair value hierarchy. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
(in millions) Fair Value as of December 31, 2021
Level 1 Level 2 Level 3 Total
Current assets:
Foreign currency exchange contracts $ - $ 0.1 $ - $ 0.1
Total current assets at fair value - 0.1 - 0.1
Total assets at fair value $ - $ 0.1 $ - $ 0.1
(in millions) Fair Value as of December 31, 2020
Level 1 Level 2 Level 3 Total
Current assets:
Foreign currency exchange contracts $ - $ 2.0 $ - $ 2.0
Total current assets at fair value - 2.0 - 2.0
Total assets at fair value $ - $ 2.0 $ - $ 2.0
Current liabilities:
Foreign currency exchange contracts $ - $ 0.6 $ - $ 0.6
Total current liabilities at fair value - 0.6 - 0.6
Total liabilities at fair value $ - $ 0.6 $ - $ 0.6
Fair Value Measurements on a Nonrecurring Basis
The Company's assets and liabilities that are measured at fair value on a nonrecurring basis are primarily property, plant and equipment, operating lease right-of-use assets, goodwill and other intangible assets. These fair value measurements are generally determined when there is a transaction involving those assets and liabilities, such as a purchase transaction, a business combination or an adjustment for impairment.
See Note 5, "Goodwill and Other Intangible Assets - Net", for information regarding the impairment charge resulting from the fair value measurement of the Company's indefinite-lived intangible assets in the EMEA region performed on a nonrecurring basis during the year ended December 31, 2020. The Company determined that the majority of the inputs used to value its EMEA region indefinite-lived intangible assets are unobservable inputs that fall within Level 3 of the fair value hierarchy and include the following assumptions for the impairment charge recorded during the year ended December 31, 2020:
Long Term Growth Rate 2.0%
Discount Rate 12.0%
Pre-Tax Royalty Rate 1.50% - 2.25%
11. Contingencies and Significant Estimates
Product-Related and Environmental Matters
As of December 31, 2021 and 2020, the Company had reserved $42.7 million and $39.9 million, respectively, for product-related warranty claims expected to be paid. Certain of these warranty and other related claims involve matters in dispute that will ultimately be resolved by negotiations, arbitration or litigation. See Note 12, "Product Warranties", for further information.
As of December 31, 2021, the Company has various product liability lawsuits pending. For products sold outside of the U.S. and Canada, the Company is insured by third-party insurance companies. For products sold in the U.S. and Canada, the Company is insured, to the extent permitted under applicable law, with self-insurance retention levels. The Company's self-insurance retention levels vary by business and fluctuate with the Company's risk management practices.
Product liability reserves are included in "Accrued expenses and other liabilities" in the Consolidated Balance Sheets and totaled $3.4 million and $1.7 million as December 31, 2021 and 2020, respectively, consisting of $1.5 million and $0.9 million, respectively, reserved for specific cases and $1.9 million and $0.8 million, respectively, reserved using actuarial methods and anticipated to have occurred but are not yet reported as of December 31, 2021 and 2020. Based on the Company's experience in defending product liability claims, management believes the reserves are adequate for estimated case resolutions on aggregate self-insured claims and third-party insured claims. Any recoveries from insurance carriers are dependent upon the legal sufficiency of claims and solvency of insurance carriers. Such recoveries are not recorded until the associated contingencies are resolved and the recoveries are realizable.
As of December 31, 2021 and 2020, the Company held reserves for environmental matters related to certain of its current and former facilities of approximately $0.5 million and $0.8 million, respectively, which are included in "Accrued expenses and other liabilities" in the Company's Consolidated Balance Sheets. As of December 31, 2021, there have been no other claims asserted for soil or groundwater contamination at any of the Company’s other facilities, but there can be no assurance that such claims will not arise in the future. The ultimate cost of any required remediation will depend upon the results of future investigation and is not reasonably estimable. Based upon available information, the Company does not expect the ultimate costs of any required remediation at any of these facilities will have a material adverse effect on its financial condition, results of operations or cash flows individually or in the aggregate.
It is reasonably possible that the estimates for product warranty, product liability and environmental remediation costs may change based upon new information that may arise or matters that are beyond the scope of the Company's historical experience. Presently, there are no reliable methods to estimate the amount of any such potential changes.
Other Contingencies
The Company is subject to litigation, government inquiries, audits, commercial disputes, claims and other legal proceedings arising in the ordinary course of business. From time to time, the Company may be subject to audits by tax, export, customs and other governmental authorities or incur routine and non-routine fees, expenses or penalties relating to compliance with complex laws and regulations impacting the Company's business. The Company records accruals for anticipated losses related to legal and other matters, which are both probable and reasonably estimable, as well as for related legal costs as incurred. The Company believes that it has adequately accrued for such matters as of December 31, 2021 and 2020 based on the best available information. In the opinion of management, the ultimate resolution of such legal and other matters is not expected to have, individually or in the aggregate, a material adverse effect on the Company's financial condition, results of operations or cash flows.
As previously disclosed, the Company voluntarily disclosed to U.S. Customs and Border Protection ("CBP") certain errors in the declaration of imported products relating to quantity, value, classification, North American Free Trade Agreement eligibility and other matters, as well as potential violations of antidumping and countervailing duties. Following such disclosures, the Company began a comprehensive review of its import practices in order to quantify the loss of revenue to CBP. In April 2020, the Company determined based on its continued analysis and testing of relevant records of import activity, a potential range of loss was both probable and reasonably estimable. As no amount within the range of loss was more likely than any other, the Company recorded a $3.1 million charge as of March 31, 2020, representing the low end of the range of potential loss. The Company continued its analysis and testing of import activity and relevant records throughout 2020 and updated the range of loss to reflect the status of the analysis and testing results as of each of the quarters ended June 30 and September 30, 2020. As of December 31, 2020, the Company concluded its analysis and testing of import activity and determined that an amount of $3.1 million due to the CBP.
In February 2021, the Company submitted the completed analysis to CBP and remitted the aforementioned amount due. Significant judgment was required in determining the amounts due to the CBP and although the Company believes its estimate to be reasonable, no assurance can be given that the final outcome of this matter will be consistent with what has been recorded and remitted by the Company. To the extent that the final outcome of this matter is different than the amounts recorded, such differences will be recorded in the period in which such determination is made.
On January 27, 2022, one of the Company’s Mexican subsidiaries received a notification from the Mexican taxing authority of the preliminary findings identified during a tax audit for the period April 1, 2016 - February 27, 2018. The preliminary findings stated the Mexican subsidiary did not evidence the export of goods temporarily imported under Mexico’s Manufacturing, Maquila and Export Services Industries Program (“IMMEX Program”), therefore triggering the obligation for payment of import duties, fines and surcharges. In response to the notification, on February 1, 2022, the Company filed a petition outlining the Company’s disagreement with the preliminary findings as the Company believes that appropriate documentation evidencing the export of the goods has been provided to the taxing authority. To date, the Company has not received a response to its petition.
While the Company cannot predict with certainty the outcome of this tax audit, based on current known information, the Company does not believe a loss contingency is either probable or estimable. Accordingly, no loss contingency has been recorded in the Company’s financial statements as of December 31, 2021 related to this matter. However, if the final resolution of the tax matter is not favorable to the Company, a charge will be recorded in the Company’s consolidated financial statements at such time as the range of loss becomes both probable and estimable.
12. Product Warranties
In the normal course of business, the Company provides its customers with product warranties covering workmanship, and in some cases materials, on products manufactured by the Company. Such product warranties generally provide that products will be free from defects for periods ranging from 12 to 60 months, with certain equipment having longer-term warranties. If a product fails to comply with the Company’s warranty, the Company may be obligated, at its expense, to correct any defect by repairing or replacing such defective products. The Company accrues an estimate of costs that may be incurred under the product warranty at the time the product revenue is recognized. These costs include estimates of labor and materials, as necessary, associated with repair or replacement of the products. The primary factors which impact the warranty liability include the number of units shipped and historical and anticipated warranty claims. As these factors are impacted by actual experience and future expectations, the Company assesses the adequacy of its recorded warranty liability on an ongoing basis and adjusts the liability as determined necessary.
The product warranty liability activity is as follows:
(in millions) As of December 31,
2021 2020
Balance at the beginning of the period $ 39.9 $ 43.9
Additions for issuance of warranties 31.1 27.7
Settlements (in cash or in kind) (28.3) (32.2)
Currency translation impact - 0.5
Balance at the end of the period (1)
$ 42.7 $ 39.9
(1) Long-term product warranty liabilities are included in "Other long-term liabilities" and totaled $11.8 million and $10.0 million at December 31, 2021 and 2020, respectively.
The Company also sells extended warranties, which are recorded as deferred revenue and are amortized to "Net sales" on a straight-line basis over the extended warranty period. The short-term portion of deferred revenue on extended warranties, included in "Accrued expenses and other liabilities" in the Consolidated Balance Sheets at December 31, 2021 and 2020, was $2.1 million and $1.9 million, respectively. The long-term portion of deferred revenue on warranties included in "Other long-term liabilities" in the Consolidated Balance Sheets as of both December 31, 2021 and 2020 was $3.5 million.
13. Employee Benefit Plans
The Company maintains several retirement plans for certain employees in each of its geographic business segments. The Company has established a Retirement Plan Committee to manage the operations and administration of all retirement plans and related trusts. The details of these retirement plans are included below.
Defined Benefit Plans
The Company sponsors and maintains defined benefit retirement plans ("Pension Plans") and postretirement health and other plans ("Postretirement Health and Other Plans") (collectively "Defined Benefit Plans") for certain retired and current employees at the time of their retirement. Benefits under the employee retirement plans are primarily based on years of service and compensation during the years immediately preceding retirement. The current plans are based largely upon benefit plans in place prior to the Spin-off and have been subsequently maintained by the Company and are generally closed to new participants.
The funded and unfunded positions of the Company's Defined Benefit Plans are recorded in the Consolidated Balance Sheets and the related income and expenses are recorded in the Consolidated Statements of Operations. Actuarial gains and losses that have not yet been recognized in income are recorded in AOCI until such amounts are amortized as a component of the net periodic benefit cost. The determination of the benefit obligations and the recognition of expenses related to each of the Defined Benefit Plans are dependent on various assumptions. The most significant assumptions are the discount rates and long-term expected rates of return on each of the plan's assets. Management develops each assumption using relevant Company experience in conjunction with market-related data for each individual country in which the plans exist. There have been no changes made to the valuation techniques and inputs used to measure the fair values of the Defined Benefit Plans assets and liabilities from the prior year.
The components of periodic benefit costs for the Company's Defined Benefit Plans are as follows:
(in millions, except percentage data) Pension Plans Postretirement Health
and Other Plans
Years Ended December 31, Years Ended December 31,
2021 2020 2019 2021 2020 2019
Service cost - benefits earned during the year $ - $ 0.1 $ 0.1 $ - $ - $ -
Interest cost of projected benefit obligation 2.5 3.8 5.2 0.1 0.2 0.2
Expected return on assets (3.2) (4.1) (4.7) - - -
Amortization of prior service cost - - - (0.2) (0.2) (0.2)
Amortization of actuarial net loss 2.6 2.4 2.5 0.7 0.7 0.3
Settlement loss recognized - - 1.2 - - -
Net periodic benefit cost $ 1.9 $ 2.2 $ 4.3 $ 0.6 $ 0.7 $ 0.3
Weighted average assumptions:
Discount rate 1.6 % 2.4 % 3.3 % 2.0 % 2.6 % 3.8 %
Expected return on plan assets 1.8 % 2.5 % 3.1 % N/A N/A N/A
Rate of compensation increase N/A 1.8 % 2.0 % 3.0 % 3.0 % 3.0 %
Gains and losses in excess of 10% of the greater of the benefit obligation and the market-related value of assets are amortized over the average remaining service period of active participants.
To develop the expected long-term rate of return on assets assumptions, the Company considers the historical returns and future expectations for returns in each asset class, as well as targeted asset allocation percentages within the asset portfolios.
During the first quarter of 2019, the Company took various actions to settle a portion of its pension obligations in the United Kingdom. These actions resulted in a reduction in accrued pension obligations of approximately $5.5 million and a non-cash loss of approximately $1.2 million for the accelerated recognition of unamortized losses, which is included in "Other expense (income) - net" in the Consolidated Statements of Operations for the year ended December 31, 2019.
In March 2021, the American Rescue Plan Act of 2021 (the “Act”) was signed into law. The Act provides additional relief to companies and individuals impacted by the COVID-19 pandemic and includes a reduction of the required minimum contributions to U.S. pension plans for 2021. As a result of the Act, the Company's updated required minimum contributions for the year ended December 31, 2021 for the Company's Pension Plans were $6.5 million, with no planned discretionary or non-cash contributions. The minimum contribution for the year ending December 31, 2022 for the Pension Plans is $5.7 million with no planned discretionary or non-cash contributions. The expected Company paid claims for the Postretirement Health and Other Plans are $1.2 million for the year ending December 31, 2022.
The following is a reconciliation of the changes in benefit obligation, the changes in plan assets and the funded status of the Company's Defined Benefit Plans:
(in millions, except percentage data) Pension Plans Postretirement Health
and Other Plans
As of December 31, As of December 31,
2021 2020 2021 2020
Change in Benefit Obligations:
Benefit obligation, beginning of year $ 207.2 $ 193.4 $ 7.6 $ 7.6
Service cost - 0.1 - -
Interest cost 2.5 3.8 0.1 0.2
Participant contributions - - 0.2 0.3
Plan curtailments - (0.2) - -
Plan settlements - (0.4) - -
Actuarial (gain) loss (8.1) 18.7 (0.6) 0.5
Currency translation adjustment (1.4) 4.7 - -
Benefits paid (12.0) (12.9) (1.2) (1.0)
Benefit obligation, end of year $ 188.2 $ 207.2 $ 6.1 $ 7.6
Change in Plan Assets:
Fair value of plan assets, beginning of year $ 184.8 $ 166.3 $ - $ -
Actual return on plan assets (1.9) 18.0 - -
Employer contributions 6.5 9.3 1.0 0.7
Participant contributions - - 0.2 0.3
Plan settlements - (0.4) - -
Currency translation adjustment (1.3) 4.5 - -
Benefits paid (12.0) (12.9) (1.2) (1.0)
Fair value of plan assets, end of year $ 176.1 $ 184.8 $ - $ -
Unfunded status (1)
$ (12.1) $ (22.4) $ (6.1) $ (7.6)
Weighted-Average Assumptions:
Discount rate 2.1 % 1.6 % 2.4 % 2.0 %
Rate of compensation increase N/A N/A 3.0 % 3.0 %
(1) As of both December 31, 2021 and 2020, the short-term portion of the Company's Pension Plans obligation totaled $0.9 million. The short-term portion of the Company's Postretirement Health and Other Plans obligation totaled $1.2 million, as of both December 31, 2021 and 2020. These short-term obligations are included in "Accrued expenses and other liabilities" in the Consolidated Balance Sheets.
The primary driver of the actuarial gain in the Company's Pension Plans in the year ended December 31, 2021 within the change in the benefit obligation is a result of an increase in the discount rate assumption. The primary driver of the actuarial loss in the Company's Pension Plans in the year ended and December 31, 2020 within the change in benefit obligation is a result of a decrease in the discount rate assumption.
Amounts recognized in AOCI consist of the following:
(in millions) Pension Plans Postretirement
Health and Other
As of December 31, As of December 31,
2021 2020 2021 2020
Net actuarial loss $ (36.9) $ (43.0) $ (2.7) $ (4.0)
Prior service credit 0.5 0.6 1.0 1.2
Total amount recognized $ (36.4) $ (42.4) $ (1.7) $ (2.8)
Assumed health care cost trend rates have a significant effect on the amounts reported for the Company's Postretirement Health and Other Plans. For measurement purposes, a 5.4% annual rate of increase in the per capita cost of covered health care benefits was assumed for the year ended December 31, 2021. The rate was assumed to decrease gradually to 4.0% for 2046 and remain at that level thereafter.
The following table summarizes the sensitivity of the Company's retirement obligations as of December 31, 2021 for retirement benefit costs of the Defined Benefit Plans and the impact of changes to key assumptions used to determine those results (in millions):
Change in assumption: Estimated increase
(decrease) in pension cost for the year ended December 31, 2022 Estimated increase
(decrease) in projected benefit obligation for the year ended December 31, 2021 Estimated increase
(decrease) in other
postretirement benefit
costs for the year ended December 31, 2022 Estimated increase
(decrease) in other
postretirement benefit obligations for the year ended December 31, 2021
0.5% increase in discount rate $ (0.5) $ (10.5) $ - $ (0.2)
0.5% decrease in discount rate $ 0.6 $ 12.8 $ - $ 0.2
0.5% increase in long-term return on assets $ (0.9) N/A N/A N/A
0.5% decrease in long-term return on assets $ 0.9 N/A N/A N/A
The weighted-average asset allocations of the Pension Plans asset portfolios by category are as follows:
As of December 31,
2021 2020
Equity 10.6 % 11.1 %
Debt securities 50.0 % 46.4 %
Other 39.4 % 42.5 %
Investment Strategy
The overall objective of the Company's Pension Plans asset portfolios is to earn a rate of return over time to satisfy the benefit obligations of the Pension Plans and to maintain sufficient liquidity to pay benefits and address other cash requirements of the Pension Plans. Specific investment objectives for the Company's long-term investment strategy include reducing the volatility of pension assets relative to pension liabilities, achieving a competitive total investment return, achieving diversification between and within asset classes and managing other risks. Investment objectives for each asset class are determined based on specific risks and investment opportunities identified.
The Company reviews its long-term, strategic asset allocations annually. The Company uses various analytics to determine the optimal asset mix and considers plan liability characteristics, liquidity characteristics, funding requirements, expected rates of return and the distribution of returns. The Company identifies investment benchmarks for the asset classes in the strategic asset allocation that are market-based and viable where possible.
Actual allocations to each asset class vary from target allocations due to periodic investment strategy changes, market value fluctuations, the length of time it takes to fully implement investment allocation positions and the timing of benefit payments and contributions. The asset allocation is monitored and rebalanced on a monthly basis.
The actual allocations for the Pension Plans asset portfolios and target allocations by asset class as of December 31, 2021, are as follows:
Target Allocations Weighted Average Asset Allocations
Equity securities 11.8 % 10.6 %
Debt securities 49.7 % 50.0 %
Other 38.5 % 39.4 %
Risk Management
In managing the Pension Plans portfolio of plan assets, the Company reviews and manages risk associated with funded status risk, interest rate risk, market risk, counterparty risk, liquidity risk and operational risk. Liability management and asset class diversification are central to the Company's risk management approach and are integral to the overall investment strategy. Further, asset classes are constructed to achieve diversification by investment strategy, by investment manager, by industry or sector and by holding. Investment manager guidelines for publicly traded assets are specified and are monitored regularly.
Fair Value Measurements
The following tables present the Company's Pension Plans asset portfolios using the three levels of the fair value hierarchy which are based on the reliability of the inputs used to determine fair value. Level 1 refers to fair values determined based on quoted prices in active markets for identical assets. Level 2 refers to fair values estimated using significant other observable inputs, and Level 3 includes fair values estimated using significant non-observable inputs. The fair values are as follows:
Assets (in millions) As of December 31, 2021
Quoted Prices in
Active Markets for
Identical Assets
(Level 1) Significant Other
Observable Inputs
(Level 2) Unobservable
Inputs (Level 3) Total
Cash and cash equivalents $ 2.8 $ - $ - $ 2.8
Insurance group annuity contracts - - 66.7 66.7
Common/collective trust funds - Government, corporate and other non-government debt - 87.9 - 87.9
Common/collective trust funds - Corporate equity - 18.7 - 18.7
Total $ 2.8 $ 106.6 $ 66.7 $ 176.1
Assets (in millions) As of December 31, 2020
Quoted Prices in
Active Markets for
Identical Assets
(Level 1) Significant Other
Observable Inputs
(Level 2) Unobservable
Inputs (Level 3) Total
Cash and cash equivalents $ 0.7 $ - $ - $ 0.7
Insurance group annuity contracts - - 73.8 73.8
Common/collective trust funds - Government, corporate and other non-government debt - 85.9 - 85.9
Common/collective trust funds - Corporate equity - 20.4 - 20.4
Common/collective trust funds - Customized strategy - 4.0 - 4.0
Total $ 0.7 $ 110.3 $ 73.8 $ 184.8
Cash equivalents and other short-term investments, which are used to pay benefits, are primarily held in registered money market funds and are valued using a market approach based on the quoted market prices of identical instruments. Other cash equivalent and short-term investments are valued daily using a market approach with inputs that include quoted market prices for similar instruments.
Insurance group annuity contracts are valued at the present value of the future benefit payments owed by the insurance company to the plans’ participants.
Common/collective trust funds are valued at their net asset values calculated by the investment manager or sponsor of the fund and have daily or monthly liquidity.
A reconciliation of the fair value measurements of the Pensions Plans portfolio of assets using significant unobservable inputs (Level 3) from the beginning of the year to the end of the year is as follows:
(in millions) Insurance Contracts
Years Ended December 31,
2021 2020
Beginning Balance $ 73.8 $ 69.0
Contributions - 0.1
Plan settlements - (0.4)
Actual return on assets (1.9) 7.3
Benefit payments (4.6) (4.5)
Foreign currency impact (0.6) 2.3
Ending Balance $ 66.7 $ 73.8
Projected benefit payments from the Defined Benefit Plans as of December 31, 2021 are estimated as follows:
(in millions) Pension Plans Postretirement
Health and Other
Year ending December 31:
2022 $ 11.1 $ 1.2
2023 11.0 1.0
2024 11.0 0.9
2025 10.8 0.6
2026 10.6 0.5
2027-2031 49.3 1.4
Total $ 103.8 $ 5.6
The fair value of the Pension Plans' portfolio of assets for which the accumulated benefit obligation is in excess of the assets is as follows:
(in millions) Pension Plans
As of December 31,
2021 2020
Projected benefit obligation $ 188.2 $ 207.2
Accumulated benefit obligation $ 188.2 $ 207.2
Fair value of plan assets $ 176.1 $ 184.8
The measurement date for the Defined Benefit Plans is December 31, 2021.
The Company, through its former Lincoln Foodservice operation, participated in a multiemployer defined benefit plan under a collective bargaining agreement that covered certain of its union-represented employees. During the year ended December 31, 2013, in conjunction with the finalization of the reorganization and plant restructuring of the Lincoln Foodservice operation, the Company was deemed to have effectively withdrawn its participation in the multiemployer defined benefit plan. This withdrawal obligation is included as a component of the restructuring liability in the Consolidated Balance Sheets as described in Note 14, "Business Transformation Program and Restructuring." At inception of the withdrawal, the obligation totaled $17.5 million, of which $7.2 million and $8.6 million were outstanding as of December 31, 2021 and 2020, respectively. The remaining withdrawal obligation is payable in quarterly installments of principal and accrued interest totaling $0.5 million through April 2026. As the Company was deemed to have effectively withdrawn its participation in this plan during the year ended December 31, 2013, no further contributions have been made to the plan since that date.
Defined Contribution Plans
The Company maintains and sponsors three defined contribution retirement plans for its eligible employees and retirees: (1) the Welbilt 401(k) Retirement Plan; (2) the Welbilt Retirement Savings Plan and (3) the Welbilt Deferred Compensation Plan, each of which is further discussed below.
Welbilt 401(k) Retirement Plan
The Welbilt 401(k) Retirement Plan is a tax-qualified retirement plan available to substantially all non-union U.S. employees of the Company.
Welbilt Retirement Savings Plan
The Welbilt Retirement Savings Plan is a tax-qualified retirement plan available to certain collectively bargained U.S. employees of Welbilt, its subsidiaries and related entities.
For both the Welbilt 401(k) Retirement Plan and the Welbilt Retirement Savings Plan, the Company's portion of total expenses incurred for these plans was $3.3 million, $1.6 million, and $4.4 million for the years ended December 31, 2021, 2020 and 2019, respectively. In March 2020, the Welbilt 401(k) Retirement Plan was amended to remove the safe harbor matching employer contributions, and effective April 2020, the Company suspended the matching contributions to participant accounts. In January 2021, the Company reinstated the matching contributions to participant accounts at the pre-suspension levels prior to April 2020.
Welbilt Deferred Compensation Plan
The Welbilt Deferred Compensation Plan is an unfunded, non-tax-qualified supplemental deferred compensation plan for highly compensated and key management employees and directors which allows participants to defer a portion of their compensation. The Company utilizes a rabbi trust to hold assets intended to satisfy the Company's obligations under the deferred compensation plan. The rabbi trust restricts the Company's use and access to the assets held but is subject to the claims of the Company's general creditors. As of December 31, 2021, the fair value of the investments held in the rabbi trust was $3.8 million and the related liability was $3.2 million. As of December 31, 2020, the fair value of the investments held in trust was $3.6 million, Company stock held in the rabbi trust was $0.4 million, at cost, and the related liability was $4.0 million.
14. Business Transformation Program and Restructuring
Business Transformation Program
During the first quarter of 2019, the Company initiated a comprehensive operational review to validate its long-term growth and margin targets and to refine its execution plans, which culminated into the launch of the Business Transformation Program ("Transformation Program") in May 2019. The Transformation Program is structured in multiple phases and is focused on specific areas of opportunity including strategic sourcing, manufacturing facility workflow redesign, distribution and administrative process efficiencies and optimizing the Company's global brand platforms.
The Company completed its Transformation Program during the quarter ended December 31, 2021. For the years ended December 31, 2021 and 2020, the Transformation Program costs consist primarily of fees for consulting services.
The Transformation Program expenses are classified as follows:
December 31,
(in millions) 2021 2020
Transformation Program expense:
Cost of sales $ 1.8 $ 2.0
Selling, general and administrative expenses 2.8 21.3
Total $ 4.6 $ 23.3
Restructuring
The Company takes actions to improve operating efficiencies, typically in connection with recognizing cost synergies and rationalizing the cost structure of the Company, including actions associated with the Transformation Program. These actions generally include facility rationalization, headcount reductions and organizational integration activities resulting from discrete restructuring events, which are supported by approved plans for workforce reductions.
The Company's restructuring activity and balance of the restructuring liability is as follows:
(in millions) 2021 Plans 2020 Plans 2019 Plans 2018 and Previous Plans
Workforce reductions Workforce reductions Workforce reductions Other Workforce reductions Pension withdrawal obligation Total
Restructuring liability as of December 31, 2019 $ - $ - $ 4.8 $ - $ 0.2 $ 9.9 $ 14.9
Restructuring activities - 5.6 1.2 1.4 - - 8.2
Cash payments - (3.1) (5.8) - (0.2) (1.3) (10.4)
Non-cash adjustments (1)
- (0.1) - (1.4) - - (1.5)
Restructuring liability as of December 31, 2020 - 2.4 0.2 - - 8.6 11.2
Restructuring activities 0.8 (0.1) 0.7 - - - 1.4
Cash payments (0.8) (2.2) (0.7) - - (1.4) (5.1)
Restructuring liability as of December 31, 2021 $ - $ 0.1 $ 0.2 $ - $ - $ 7.2 $ 7.5
(1) Non-cash adjustments primarily consist of stock-based compensation resulting from the accelerated vesting of certain stock awards, inventory write-downs and accelerated depreciation.
As of December 31, 2021 and 2020, the current portion of the restructuring liability was $1.7 million and $4.0 million, respectively, and was included in "Accrued expenses and other liabilities" in the Consolidated Balance Sheets. As of December 31, 2021 and 2020, the long-term portion of the restructuring liability was $5.8 million and $7.2 million, respectively, and was included in "Other long-term liabilities" in the Consolidated Balance Sheets. As of both December 31, 2021 and 2020, the long-term portion of the restructuring liability is for a pension withdrawal obligation incurred in connection with the reorganization and plant restructuring of one of the Company's former operating entities and is expected to be satisfied in April of 2026 when the pension withdrawal obligation is scheduled to have been satisfied.
The Company's restructuring expense by segment is as follows:
(in millions) December 31,
2021 2020 2019
Americas $ - $ 2.3 $ 3.4
EMEA 0.8 2.4 2.6
APAC 0.7 2.2 0.6
Corporate (0.1) 1.3 3.2
Total restructuring activities $ 1.4 $ 8.2 $ 9.8
The Company's restructuring expense is reported in the Consolidated Statements of Operations as follows:
(in millions) December 31,
2021 2020 2019
Cost of sales $ 0.6 $ 0.4 $ 0.4
Restructuring and other expense 0.8 7.8 9.4
Total restructuring activities $ 1.4 $ 8.2 $ 9.8
2019 Restructuring Activities
During the first and second quarters of 2019, the Company recognized $4.2 million and $1.2 million, respectively, totaling $5.4 million of severance and related costs resulting from a global workforce reduction and limited executive management and restructuring actions initiated during the first quarter of 2019. The severance and related costs are included in "Restructuring and other expense" in the Company's Consolidated Statements of Operations for the year ended December 31, 2019.
During the second quarter of 2019, the Company completed the closure and plant consolidation of a small manufacturing facility in Baltimore, Maryland and recognized total costs of $0.6 million, consisting of $0.2 million of inventory write-downs and $0.2 million of accelerated depreciation included in "Cost of sales" and $0.2 million of severance and related costs, which are included in "Restructuring and other expense" in the Company's Consolidated Statements of Operations for the year ended December 31, 2019.
During the fourth quarter of 2019, the Company approved restructuring actions in the Americas and APAC regions in conjunction with the Transformation Program and a restructuring action to reduce overhead in the EMEA region. As a result of these actions, the Company recorded $4.1 million of severance and related costs, consisting of $1.1 million in the Americas, $2.5 million in EMEA and $0.5 million in APAC, which are included in "Restructuring and other expense" in the Consolidated Statements of Operations for the year ended December 31, 2019. Because the restructuring actions were not fully completed at the end of 2019, the Company also incurred severance and related costs of $0.8 million in the APAC region and $0.4 million in the EMEA region and $1.0 million of accelerated depreciation in the APAC region, each of which are included in "Restructuring and other expense" for the year ended December 31, 2020. The Company also recognized $0.4 million of inventory write-down in the APAC region which is included in "Cost of sales" for the year ended December 31, 2020.
2020 Restructuring Activities
Beginning in the first quarter of 2020, the Company continued to initiate restructuring actions intended to reduce operating expenses resulting from improved efficiencies gained from the execution of the Transformation Program. During the year ended December 31, 2020, the Company recognized $3.6 million of severance and related costs resulting from workforce reductions in the Americas region and Corporate as well as limited management restructurings. For the year ended December 31, 2020, these severance and related costs, consisting of $2.3 million in the Americas region and $1.3 million in the Corporate division, are included in "Restructuring and other expense" in the Company's Consolidated Statements of Operations.
During the fourth quarter of 2020, the Company completed a workforce reduction in the EMEA region in an effort to improve the Company's cost structure and optimize operational efficiency. In connection with this action the Company recognized $2.0 million of severance and related costs which are included in "Restructuring and other expense" for the year ended December 31, 2020.
2021 Restructuring Activities
During the first quarter of 2021, the Company initiated the consolidation of a manufacturing facility in EMEA. As a result of this facility consolidation, the Company expects to incur total costs of $1.4 million to $1.6 million associated with employee retention and contract agreements and related costs and inventory write-downs. The Company recognized $0.8 million, of expenses related to employee retention and contract agreements, included in "Restructuring and other expense" in the Company's Consolidated Statements of Operations for the year ended December 31, 2021. As of December 31, 2021, the Company expects to incur remaining costs to complete the facility consolidation of $0.6 million to $0.8 million throughout the year ending December 31, 2022.
During the first quarter of 2021, the Company completed the restructuring actions in the APAC region initiated during the fourth quarter of 2019 and incurred $0.1 million of severance and related costs, included in "Restructuring and other expense" and $0.6 million of inventory write-downs included in "Cost of sales", which are both included in the Company's Consolidated Statements of Operations for the year ended December 31, 2021.
During the second quarter of 2021, the Company also completed the restructuring actions initiated during the third quarter of 2020 in the Corporate division and recognized a $0.1 million recovery included in "Restructuring and other expense" in the Company's Consolidated Statements of Operations for the year ended December 31, 2021.
As the Company completes payments on each of its approved plans, the remaining restructuring liability is adjusted for the actual amounts incurred. No material adjustments for prior period restructuring liabilities were incurred during the years ended December 31, 2021, 2020 and 2019.
15. Accumulated Other Comprehensive Loss
Comprehensive income includes foreign currency translation adjustments, changes in the fair value of certain financial derivative instruments that quality for hedge accounting and actuarial gains and losses arising from the Company's employee pension and postretirement benefit obligations.
The components of the Company's AOCI are as follows:
(in millions) As of December 31,
2021 2020
Accumulated other comprehensive loss:
Foreign currency translation, net of income tax benefit of $1.4 million and $1.4 million, respectively
$ 9.5 $ 19.1
Derivative instrument fair market value, net of income tax benefit of $1.3 million and $1.1 million, respectively
(0.9) -
Employee pension and postretirement benefit adjustments, net of income tax benefit of $4.9 million and $6.6 million, respectively
(33.2) (38.6)
Total accumulated other comprehensive loss $ (24.6) $ (19.5)
The summary of changes in AOCI for the years ended December 31, 2021, 2020 and 2019 are as follows:
(in millions) Foreign Currency Translation Adjustments (1)
Gains and Losses on Cash Flow Hedges Pension & Postretirement Total
Balance as of December 31, 2018 $ (6.5) $ 0.8 $ (35.9) $ (41.6)
Other comprehensive income (loss) before reclassifications 2.7 (2.5) (3.7) (3.5)
Reclassifications - (0.4) 3.8 3.4
Tax effect of reclassifications (0.5) 0.5 0.2 0.2
Net current period other comprehensive income (loss) 2.2 (2.4) 0.3 0.1
Balance as of December 31, 2019 (4.3) (1.6) (35.6) (41.5)
Other comprehensive income (loss) before reclassifications 23.6 0.5 (6.0) 18.1
Reclassifications - 1.4 2.9 4.3
Tax effect of reclassifications (0.2) (0.3) 0.1 (0.4)
Net current period other comprehensive income (loss) 23.4 1.6 (3.0) 22.0
Balance as of December 31, 2020 19.1 - (38.6) (19.5)
Other comprehensive (loss) income before reclassifications (9.6) - 4.0 (5.6)
Reclassifications - (1.1) 3.1 2.0
Tax effect of reclassifications - 0.2 (1.7) (1.5)
Net current period other comprehensive (loss) income (9.6) (0.9) 5.4 (5.1)
Balance as of December 31, 2021 $ 9.5 $ (0.9) $ (33.2) $ (24.6)
(1) Income taxes are not provided for foreign currency translation relating to indefinite investments in foreign subsidiaries, although the income tax effects within cumulative translation does include the impact of the net investment hedge transaction. Reclassification adjustments are made to avoid including items in both comprehensive income (loss) and net earnings (loss).
Reclassifications from AOCI, net of tax, to income were as follows:
(in millions) Years Ended December 31, Location in Consolidated Statements of Operations
2021 2020 2019
Gains (losses) on cash flow hedges:
Foreign currency exchange contracts $ 1.1 $ (0.4) $ (0.9) Cost of sales
Commodity contracts - (1.0) (1.3) Cost of sales
Interest expense - - 2.6 Interest expense
Gains (losses) on cash flow hedges, before tax 1.1 (1.4) 0.4
Tax effect (0.2) 0.3 0.1 Income taxes
Gains (losses) on cash flow hedges, net of tax $ 0.9 $ (1.1) $ 0.5
Amortization of pension and postretirement items:
Amortization of prior service cost $ 0.2 $ 0.2 $ 0.2 Other expense (income) - net
Actuarial losses (3.3) (3.1) (2.8) Other expense (income) - net
Pension settlement - - (1.2) Other expense (income) - net
Amortization of pension and postretirement items, before tax (3.1) (2.9) (3.8)
Tax effect 0.7 0.7 0.4 Income tax (benefit) expense
Amortization of pension and postretirement items, net of tax $ (2.4) $ (2.2) $ (3.4)
Total reclassifications, net of tax $ (1.5) $ (3.3) $ (2.9)
16. Leases
The Company enters into contracts to lease real estate, manufacturing and office equipment and vehicles. Operating leases result in a straight-line lease expense, while the accounting for finance leases results in a front-loaded expense pattern. The Company’s most significant leases are for real estate and have remaining contract lease terms ranging from less than one to 20 years.
The Company does not have any contracts where it is the lessor, does not sublease any of its leased assets to third-parties and is not party to any lease contracts with related parties. The Company’s lease agreements do not contain any residual value guarantees or restrictive covenants. As a lessee, the Company periodically reassesses and remeasures its leases based on certain triggering events or conditions, including whether a contract is or contains a lease, assessment of lease term and purchase options, measurement of lease payments, assessment of lease classification and discount rate. No impairment indicators were identified as of or during the year ended December 31, 2021.
As discussed in Note 2, "Basis of Presentation and Summary of Significant Accounting Policies", effective January 1, 2019, the Company adopted the provisions of Accounting Standards Update ("ASU") ASU 2016-02, "Leases (Topic 842)", and changed its policy for lease accounting prospectively for lease agreements entered into or reassessed from the date of the adoption.
The components of the Company's lease expense are as follows:
Years Ended December 31,
(in millions) 2021 2020
Operating lease expense $ 12.7 $ 14.9
Finance lease expense:
Depreciation of assets 1.1 1.2
Interest on lease liabilities 0.1 0.1
Short-term lease expense 2.5 2.4
Variable lease expense 0.5 0.5
Total lease expense $ 16.9 $ 19.1
The supplemental balance sheet information for the Company's leases is as follows:
As of December 31,
(in millions, except lease term and discount rate) 2021 2020
Operating leases:
Operating lease right-of-use assets $ 44.2 $ 47.5
Current operating lease liabilities $ 9.1 $ 9.7
Non-current operating lease liabilities 35.3 37.7
Total operating lease liabilities $ 44.4 $ 47.4
Finance leases:
Property, plant and equipment, at cost $ 4.5 $ 5.4
Accumulated depreciation (3.0) (2.8)
Total finance leases - property and equipment - net $ 1.5 $ 2.6
Current obligations of finance leases $ 0.9 $ 1.0
Non-current finance lease liabilities 0.7 1.2
Total finance lease liabilities $ 1.6 $ 2.2
Weighted average remaining lease term (in years):
Operating leases 6.7 6.8
Finance leases 2.3 2.8
Weighted average discount rate:
Operating leases 7.0 % 7.1 %
Finance leases 4.4 % 4.8 %
The assets associated with operating leases are included in "Operating lease right-of-use assets" with the current and non-current liabilities included in "Accrued expenses and other liabilities" and "Operating lease liabilities," respectively, in the Company's Consolidated Balance Sheets. The assets associated with finance leases are included in "Property, plant and equipment - net" with the current and non-current liabilities recognized in "Current portion of long-term debt and finance leases" and "Long-term debt and finance leases," respectively, in the Company's Consolidated Balance Sheets.
The supplemental cash flow information for the Company's leases is as follows:
Years Ended December 31,
(in millions) 2021 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows used in operating leases $ 13.3 $ 14.2
Operating cash flows used in financing leases $ 0.1 $ 0.1
Financing cash flows used in financing leases $ 1.2 $ 1.3
Right-of-use assets obtained in exchange for lease obligations:
Operating Leases $ 7.9 $ 19.8
Finance Leases $ 0.5 $ 0.9
The following table presents the future maturities of the Company's lease liabilities as of December 31, 2021:
(in millions) Operating Financing
Year ending December 31:
2022 $ 11.6 $ 1.0
2023 9.9 0.3
2024 8.2 0.2
2025 6.3 0.1
2026 4.6 0.1
Thereafter 16.1 -
Total lease payments 56.7 1.7
Less: imputed interest (12.3) (0.1)
Total lease obligations $ 44.4 $ 1.6
17. Stock-Based Compensation
The Company's 2016 Plan authorizes the Company to grant officers, employees and non-employee members of the Company's Board of Directors stock options awards, restricted stock awards and units, performance share awards and units, and other types of stock-based and cash awards. All awards are recorded at the fair market value of the Company's common stock on the date of grant. In addition, the 2016 Plan provides for an adjustment and replacement of certain awards of MTW common stock that were outstanding immediately prior to the Spin-Off through the issuance of replacement awards from the Company. As of December 31, 2021, the maximum number of shares of common stock available for issuance pursuant to the 2016 Plan was 9.7 million.
The Company's stock-based compensation expense is included in the following financial statement line items:
(in millions) Years Ended December 31,
2021 2020(1)
Stock-based compensation expense:
Selling, general and administrative expenses $ 15.0 $ 5.1 $ 6.4
Restructuring and other expense - (0.4) 0.9
Total stock-based compensation expense $ 15.0 $ 4.7 $ 7.3
(1) Stock-based compensation expense for the year ended December 31, 2020 is inclusive of a $1.2 million and $0.3 million of contra-expense included in "Selling, general and administrative expenses" and "Restructuring and other expense", respectively, which is representative of an adjustment to the expected achievement percentage of the Company's 2019 tranche of performance share units from 100% to 0%.
Stock-based compensation expense included in "Restructuring and other expense" in the Consolidated Statements of Operations for the years ended December 31, 2020 and 2019 is the result of the accelerated vesting of certain equity awards in connection with various restructuring events and adjustments to expected achievement percentages of performance share units for employees impacted by restructuring actions. These events are described in Note 14, "Business Transformation Program and Restructuring."
Stock-based compensation expense by award type is as follows:
(in millions) Years Ended December 31,
2021 2020 2019
Stock-based compensation expense:
Stock options $ 3.0 $ 1.8 $ 1.5
Restricted stock awards and units 6.8 4.0 3.8
Performance share units 5.2 (1.1) 2.0
Total stock-based compensation expense $ 15.0 $ 4.7 $ 7.3
Stock Options
Stock option awards to officers and employees become exercisable in 25% increments annually over a four-year period beginning on the first anniversary of the grant date and expire ten years from the date of grant.
A summary of the Company's stock option activity for the year ended December 31, 2021 is as follows:
(in millions, except weighted average exercise price and contractual life) Options Weighted
Average
Exercise Price Weighted Average Remaining Contractual Life (Years) Aggregate
Intrinsic
Value
Options outstanding as of January 1, 2021 2.1 $ 15.85 6.2 $ -
Granted 0.3 $ 14.78
Exercised (1.2) $ 15.52
Forfeited - $ 14.86
Canceled (0.2) $ 15.85
Options outstanding as of December 31, 2021 (1)
1.0 $ 16.01 6.4 $ 7.3
Options vested or expected to vest as of December 31, 2021 (2)
0.9 $ 16.03 6.4 $ 7.2
Options exercisable as of December 31, 2021 0.4 $ 17.68 4.5 $ 2.6
(1) The outstanding stock options as of December 31, 2021 have exercise prices ranging from $6.91 to $23.14 per share.
(2) The number of options expected to vest is total unvested options less estimated forfeitures.
The Company uses the Black-Scholes valuation model to value stock options. The volatility assumptions are based on a weighting of a peer group of publicly-traded companies and the Company's life-to-date historical volatility since the Spin-off. The risk-free rates are based on ten-year U.S. Treasury rates in effect at the time of the stock grant. The expected stock option life represents the period of time that the stock options granted are expected to be outstanding and is based on historical experience.
The assumptions used in the Black-Scholes option pricing model and the weighted average fair value of option awards granted are as follows:
Years Ended December 31,
2021 2020 2019
Expected life (years) 6.0 6.0 6.0
Risk-free interest rate 0.8 % 1.3 % 2.5 %
Expected volatility 48.6 % 31.9 % 31.0 %
Expected dividend yield - % - % - %
The following represents stock option compensation information:
(in millions, except weighted average grant date fair value per option granted) Years Ended December 31,
2021 2020 2019
Weighted average grant date fair value $ 6.84 $ 4.66 $ 5.27
Fair value of options vested $ 3.8 $ 1.6 $ 1.5
Intrinsic value of options exercised $ 9.2 $ 0.7 $ 2.8
Excess tax benefit for tax deductions related to the exercise of stock options $ 2.6 $ 0.1 $ 0.9
Cash received from option exercises, net of tax withholding $ 16.2 $ 0.9 $ 2.5
Tax benefits for stock-option compensation expense $ 1.5 $ 0.4 $ 0.3
As of December 31, 2021, the Company had $1.5 million of unrecognized compensation expense before tax related to stock options, which is expected to be recognized over a weighted average period of 1.8 years.
Restricted Stock Awards and Units
Beginning in 2019, restricted stock granted to employees generally cliff vest after three years or vest equally over three years beginning on the first anniversary from the date of grant. For awards granted in 2018 and 2017, restricted stock granted to employees generally vests equally over three years beginning on the first anniversary from the date of grant. Restricted stock granted to the Company's directors, generally cliff vests after one year from the date of grant for awards made during the years ended December 31, 2019 and 2018 and two years from the date of grant for awards made during the year ended December 31, 2017. Restricted stock awards made to the chairperson of the Board of Directors vest immediately.
The Company's restricted stock activity for the year ended December 31, 2021 is as follows:
(in millions, except weighted average grant date fair value) Restricted Stock Weighted Average Grant Date Fair Value
Unvested as of January 1, 2021 0.8 $ 11.41
Granted 0.4 $ 16.21
Vested (1)
(0.6) $ 12.40
Unvested as of December 31, 2021 0.6 $ 13.95
(1) During the year ended December 31, 2021, the vesting of 0.3 million shares were accelerated.
The Company's restricted stock expense is as follows:
(in millions, except weighted average grant date fair value per award granted) Years Ended December 31,
2021 2020 2019
Weighted average grant date fair value $ 16.21 $ 10.36 $ 15.29
Fair value of awards vested $ 11.5 $ 1.3 $ 5.4
Tax benefits for restricted stock compensation expense $ 2.4 $ 0.7 $ 0.7
As of December 31, 2021, the Company had $4.4 million of unrecognized compensation expense before tax related to restricted stock, which is expected to be recognized over a weighted average period of 1.9 years.
Performance Share Units
The Company's performance share units ("PSUs") cliff vest after three years. The number of PSUs that vest is determined for each grant based on the achievement of certain Company performance criteria over the 3-year period, as set forth in the award agreement, and may range from zero to 200% of the target shares granted. The PSUs are settled in shares of the Company's common stock, with holders receiving one share of common stock for each PSU that vests. Compensation expense for PSUs is recognized over the vesting period when it is probable the performance criteria will be achieved.
As of December 31, 2021, the following PSU programs were ongoing:
Award Date PSUs Outstanding (in millions) Expected Vesting Threshold
2020 Program 0.1 53 %
2021 Program 0.3 - %
Total PSUs outstanding 0.4
A summary of activity for the Company's PSUs for the year ended December 31, 2021 is as follows:
(in millions, except weighted average grant date fair value) Performance Share Units Weighted
Average
Grant Date Fair Value
Unvested as of January 1, 2021 0.5 $ 14.53
Granted 0.2 $ 14.77
Vested (1)
(0.3) $ 15.12
Unvested as of December 31, 2021 0.4 $ 14.49
(1) The vested PSUs are based on the target amount of the award for the 2019 Program. In accordance with the terms of the underlying award agreements, the actual shares earned and distributed for the three-year performance period ended December 31, 2021 was 1% of the target shares granted, rounded up the nearest whole share. Additionally, the vesting of 0.2 million shares were accelerated during the year ended December 31, 2021.
The following represents PSU information for the periods indicated:
(in millions, except weighted average grant date fair value per award granted) Years Ended December 31,
2021 2020 2019
Weighted average grant date fair value $ 14.77 $ 13.94 $ 15.11
Fair value of awards vested $ 0.1 $ 0.2 $ 2.0
Tax benefits (expenses) for PSU compensation expense $ 1.6 $ (0.3) $ 0.5
As of December 31, 2021, the Company had $0.3 million of unrecognized compensation expense before tax related to PSUs, which is expected to be recognized over a weighted average period of 1.7 years.
18. Other Expense (Income) - Net
The components of "Other (income) expense - net" in the Consolidated Statements of Operations are summarized as follows:
(in millions) Years Ended December 31,
2021 2020 2019
Pension and post-retirement expense $ 2.5 $ 2.8 $ 4.6
Foreign currency transaction losses (gains) 6.0 (5.7) 0.7
Other (1.0) (1.7) (4.4)
Other expense (income) - net $ 7.5 $ (4.6) $ 0.9
19. Earnings (Loss) Per Share
The Company presents earnings (loss) per share on a basic and diluted basis. Basic earnings (loss) per share is computed by dividing net earnings by the weighted average number of common shares outstanding during the reported period. Diluted earnings per share includes the dilutive effect of common stock equivalents consisting of stock options, restricted stock units and performance share units, using the treasury stock method. Performance share units, which are considered contingently issuable, are considered dilutive when the related performance criterion has been met.
As the Company reported net earnings for the year ended December 31, 2021 and December 31, 2019, basic and diluted earnings per share are calculated as outlined above. As the Company reported a net loss for the year ended December 31, 2020, the weighted average shares outstanding is the same for both the basic loss per share and diluted loss per share calculations as the inclusion of potential shares of common stock equivalents would be antidilutive.
The components of weighted average basic and diluted shares outstanding are as follows:
(in millions, except share and per share data) Years Ended December 31,
2021 2020 2019
Net earnings (loss) $ 70.3 $ (7.4) $ 55.9
Weighted average shares outstanding - Basic 142,089,570 141,491,326 140,953,496
Effect of dilutive securities:
Stock options 426,895 - 224,860
Unvested restricted stock units 573,561 - 245,416
Unvested performance share units 44,434 - 144,013
Effect of dilutive securities 1,044,890 - 614,289
Weighted average shares outstanding - Diluted 143,134,460 141,491,326 141,567,785
Earnings (loss) per share - Basic $ 0.49 $ (0.05) $ 0.40
Earnings (loss) per share - Diluted $ 0.49 $ (0.05) $ 0.39
For the years ended December 31, 2021 and December 31, 2019, there were 0.1 million and 1.2 million securities, respectively, excluded from the computation of diluted earnings per share because their effect would have been antidilutive. In addition, certain performance share units whose conditions were not met at the end of the reporting periods have also been excluded from the computation of earnings per share.
The Company did not declare or pay dividends to its stockholders during the years ended December 31, 2021, 2020 and 2019.
The following table summarizes the total number of shares of common stock issuable pursuant to the Company's outstanding stock-based compensation awards. As a result of the Company's net loss for the year ended December 31, 2020, all of the potentially issuable common stock was excluded from the diluted per share calculation because the effect of including these potential shares was antidilutive, even though the exercise price could be less than the average market price of the common shares.
As of December 31, 2020, potentially issuable shares of common stock consisted of the following:
Potential issuable shares of common stock:
Stock options 2,136,827
Unvested restricted stock units 808,363
Unvested performance share units(1)
648,590
Total potential shares of common stock 3,593,780
(1) The number of performance share units that vest is determined for each grant based on the achievement of certain Company performance criteria over the 3 year period, as set forth in each respective award agreement, and may range from zero to 200% of the target shares granted. The unvested performance share units are presented at 100% achievement of the performance target for determination of potential issuable shares of common stock.
20. Business Segments
The Company identifies its geographic business segments using the "management approach," which designates the internal organization used by management for making operating decisions and assessing performance as the source for determining the Company's geographic business segments. Management organizes and manages the business based on three geographic business segments: the Americas, EMEA, and APAC. The accounting policies of the Company's geographic business segments are the same as those described in Note 2, "Basis of Presentation and Summary of Significant Accounting Policies."
The Company evaluates segment performance based on an "Adjusted Operating EBITDA" metric. Adjusted Operating EBITDA, a non-GAAP financial measure, is defined as net earnings before interest expense, income taxes, other income or expense, depreciation and amortization expense plus certain other items such as loss from impairment of assets, gain or loss from disposal of assets, restructuring activities, separation expense, loss on modification or extinguishment of debt, acquisition-related transaction and integration costs, Transformation Program expense and certain other items. In addition, certain corporate-level expenses and eliminations are not allocated to the segments. These unallocated expenses include corporate overhead, stock-based compensation expense and certain other non-operating expenses. The Company's presentation of Adjusted Operating EBITDA may not be comparable to similar measures used by other companies and are not necessarily indicative of the results of operations that would have occurred had each operating business segment been an independent, stand-alone entity during the periods presented.
During the first quarter of 2020, the Company revised the allocation of certain of its functional expenses between the corporate-level and the geographic business segments. Management believes the revised allocation methodology better aligns the operating results of the geographic business segments with how management assesses performance and makes operating decisions. The prior periods segment results and related disclosures have been recast to conform to the current period presentation. These changes did not impact the Company's previously reported consolidated financial results.
The following table presents financial information relating to the Company's geographic business segments, reconciled to "Net sales" and "Earnings (loss) before income taxes " included in the Company's Consolidated Statements of Operations presented in accordance with U.S. GAAP as follows:
(in millions, except percentage data) Years Ended December 31,
2021 2020 2019
Net sales:
Americas $ 1,185.8 $ 867.0 $ 1,208.4
EMEA 447.1 292.6 392.7
APAC 261.1 202.1 252.3
Elimination of intersegment sales (347.1) (208.3) (259.5)
Total net sales $ 1,546.9 $ 1,153.4 $ 1,593.9
Segment Adjusted Operating EBITDA:
Americas $ 219.7 $ 155.5 $ 237.6
EMEA 86.7 46.2 70.6
APAC 40.7 31.2 40.7
Total Segment Adjusted Operating EBITDA 347.1 232.9 348.9
Corporate and unallocated expenses (71.7) (62.0) (62.7)
Depreciation expense (22.2) (20.7) (21.1)
Amortization expense (40.9) (40.6) (39.8)
Transaction costs (1)
(26.4) (0.2) (1.1)
Other items (2)
2.1 (3.2) (4.5)
Transformation Program expense (3)
(4.6) (23.3) (35.3)
Restructuring activities (4)
(1.4) (8.2) (9.8)
Loss from impairment and disposal of assets - net (0.4) (11.6) (0.7)
Earnings from operations 181.6 63.1 173.9
Interest expense (74.9) (81.4) (97.3)
Other (expense) income - net (7.5) 4.6 (0.9)
Earnings (loss) before income taxes $ 99.2 $ (13.7) $ 75.7
(1) Transaction costs are associated with acquisition and integrated-related activities. Transaction costs for the year ended December 31, 2021 are related to the pending sale of the Company and consist primarily of professional services recorded in "Selling, general and administrative expenses." Transaction costs recorded in "Cost of sales" include $0.1 million related to inventory fair value purchase accounting adjustments for the year ended December 31, 2019. Professional services and other direct acquisition and integration costs recorded in "Selling, general and administrative expenses" were $0.2 million and $1.0 million, for the years ended December 31, 2020 and 2019, respectively.
(2) Other items are costs which are not representative of the Company's operational performance. For the year ended December 31, 2021, other items consist primarily of a partial recovery of $2.0 million from the diversion of funds in 2018 from one of the Company's EMEA locations and is included in "Selling, general and administrative expenses" in the Consolidated Statements of Operations. For the year ended December 31, 2020, other items includes an expense of $3.1 million for amounts due for customs duties, fees and interest on previously imported products, which are included in "Restructuring and other expenses" in the Consolidated Statements of Operations and $0.1 million of professional fees for recovery of misappropriated funds within the Crem business related to the 2018 matter. Refer to Note 13, "Contingencies and Significant Estimates" for discussion of the impact on the Consolidated Statements of Operations. For the year ended December 31, 2019, the amount includes certain costs related to concluded litigation and other professional fees. Unless otherwise noted, all such amounts are included within "Selling, general and administrative expenses" in the Consolidated Statements of Operations.
(3) Transformation Program expense includes consulting and other costs associated with executing the Company's Transformation Program initiatives. Refer to Note 14, "Business Transformation Program and Restructuring", for discussion of the impact on the Consolidated Statements of Operations.
(4) Restructuring activities include costs associated with actions to improve operating efficiencies and rationalization of the Company's cost structure. Refer to Note 14, "Business Transformation Program and Restructuring", for discussion of the impact on the Consolidated Statements of Operations.
Adjusted Operating EBITDA % by segment (5):
Americas 18.5 % 17.9 % 19.7 %
EMEA 19.4 % 15.8 % 18.0 %
APAC 15.6 % 15.4 % 16.1 %
(5) Adjusted Operating EBITDA % is calculated by dividing Adjusted Operating EBITDA by net sales for each respective segment.
(in millions) Years Ended December 31,
2021 2020 2019
Third-party net sales by geographic area (6):
United States $ 973.4 $ 725.0 $ 991.8
Other Americas 87.8 60.4 97.8
EMEA 294.3 217.5 308.9
APAC 191.4 150.5 195.4
Total net sales by geographic area $ 1,546.9 $ 1,153.4 $ 1,593.9
(6) Net sales presented in this table are attributed to geographic regions based on location of customer.
Capital expenditures:
Americas $ 12.8 $ 14.5 $ 24.3
EMEA 8.1 1.5 2.9
APAC 1.2 1.6 2.6
Corporate 3.8 2.5 4.1
Total capital expenditures $ 25.9 $ 20.1 $ 33.9
Depreciation:
Americas $ 12.9 $ 11.5 $ 14.1
EMEA 3.2 3.1 3.2
APAC 2.0 3.4 2.7
Corporate 4.1 3.6 1.3
Total depreciation $ 22.2 $ 21.6 $ 21.3
(in millions) As of December 31,
2021 2020
Property, plant and equipment - net by geographic area:
United States $ 77.3 $ 79.0
Other Americas 26.6 24.9
EMEA 18.6 11.3
APAC 13.1 13.9
Total property, plant and equipment $ 135.6 $ 129.1
Assets by geographic business segment:
Americas $ 1,587.1 $ 1,488.0
EMEA 362.3 347.6
APAC 218.8 209.0
Corporate 109.4 97.0
Total assets $ 2,277.6 $ 2,141.6
Net sales by product class and geographic business segment are as follows:
(in millions) Year Ended December 31, 2021
Commercial Foodservice Equipment Aftermarket Parts and Support Total
Americas $ 869.9 $ 179.6 $ 1,049.5
EMEA 253.9 51.3 305.2
APAC 161.0 31.2 192.2
Total net sales $ 1,284.8 $ 262.1 $ 1,546.9
(in millions) Year Ended December 31, 2020
Commercial Foodservice Equipment Aftermarket Parts and Support Total
Americas $ 656.1 $ 118.5 $ 774.6
EMEA 180.0 43.5 223.5
APAC 130.2 25.1 155.3
Total net sales $ 966.3 $ 187.1 $ 1,153.4
(in millions) Year Ended December 31, 2019
Commercial Foodservice Equipment Aftermarket Parts and Support Total
Americas $ 896.3 $ 179.0 $ 1,075.3
EMEA 265.2 48.0 313.2
APAC 174.3 31.1 205.4
Total net sales $ 1,335.8 $ 258.1 $ 1,593.9

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.

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ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Our management has established and maintains disclosure controls and procedures that are designed to ensure that the information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Management carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of December 31, 2021, due to the remediation of the material weakness in our internal control over financial reporting previously identified in our 2020 Annual Report on Form 10-K ("2020 Form 10-K") our disclosure controls and procedures were effective.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as such term is defined in Exchange Act Rule 13a-15(f) and 15d-15(f) under the Exchange Act). The Company's internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, management carried out an evaluation of the effectiveness of the Company's internal control over financial reporting as of December 31, 2021, based on the framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (2013). Based on that evaluation, management concluded that the Company's internal control over financial reporting was effective as of December 31, 2021.
The effectiveness of our internal control over financial reporting as of December 31, 2021 has been audited by Grant Thornton LLP, an independent registered public accounting firm, as stated in their report, which is set forth in Part II, Item 8 of this Annual Report on Form 10-K.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during the three months ended December 31, 2021, that materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.

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ITEM 9B. OTHER INFORMATION
ITEM 9B. OTHER INFORMATION
None.

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this Item 10 will be included in our 2022 Definitive Proxy Statement for our 2022 Annual Meeting of Stockholders (the "Proxy Statement") and is incorporated herein by reference.

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ITEM 11. EXECUTIVE COMPENSATION
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 will be included in the Proxy Statement and is incorporated herein by reference.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by this Item 12 will be included in the Proxy Statement and is incorporated herein by reference.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this Item 13 will be included in the Proxy Statement and is incorporated herein by reference.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this Item 14 will be included in the Proxy Statement and is incorporated herein by reference.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
ITEM 15. EXHIBIT AND FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as part of this Annual Report on Form 10-K:
(1) Consolidated Financial Statements:
The following consolidated financial statements are included in Part II, Item 8, "Financial Statements and Supplementary Data," of this Annual Report on Form 10-K.
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Consolidated Statements of Equity
Notes to Consolidated Financial Statements
(2) Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts
Schedule Description Filed Herewith
II Valuation and Qualifying Accounts X
All other financial statement schedules not listed have been omitted since the required information is included in the consolidated financial statements or the Notes thereto, or is not applicable or required under rules of Regulation S-X.
(b) Exhibits:
Exhibit No. Description Filings Referenced for Incorporation by Reference
2.1(a)
Master Separation and Distribution Agreement, dated March 4, 2016, between The Manitowoc Company, Inc. and Manitowoc Foodservice, Inc.
Exhibit 2.1 to Current Report on Form 8-K filed March 9, 2016
2.1(b)
Agreement and Plan of Merger, dated as of July 14, 2021, by and among Ali Holding S.R.L., Welbilt, Inc., Ali Group North America Corporation, and Ascend Merger Corp.
Exhibit 2.1 to Current Report on Form 8-K filed on July 14, 2021
3.1
Amended and Restated Certificate of Incorporation of Welbilt, Inc., effective March 3, 2017.
Exhibit 3.l to Current Report on Form 8-K filed March 9, 2017
3.2
Amended and Restated Bylaws of Welbilt, Inc., effective July 23, 2020.
Exhibit 3.1 to Current Report on Form 8-K filed July 27, 2020
4.1(a)
Indenture (including Form of Note), dated February 18, 2016, between MTW Foodservice Escrow Corp. and Wells Fargo Bank, National Association, as trustee.
Exhibit 4.1 to Current Report on Form 8-K filed February 24, 2016
4.1(b)
First Supplemental Indenture, dated March 3, 2016, among Manitowoc Foodservice, Inc., the guarantors party thereto and Wells Fargo Bank, National Association, as trustee.
Exhibit 4.1 to Current Report on Form 8-K filed March 9, 2016
4.2
Indenture, dated April 27, 2018, between the Company and U.S. Bank, as trustee.
Exhibit 4.1 to Registration Statement on Form S-3 filed April 27, 2018
4.3
Description of Securities of the Registrant.
Filed herewith
10.1(a)
Settlement Agreement, dated February 6, 2015, among The Manitowoc Company, Inc., Carl C. Icahn, Icahn Partners Master Fund LP, Icahn Offshore LP, Icahn Partners LP, Icahn Onshore LP, Beckton Corp., Hopper Investments LLC, Barberry Corp., High River Limited Partnership, Icahn Capital LP, IPH GP LLC, Icahn Enterprises Holdings L.P. and Icahn Enterprises G.P. Inc.
Exhibit 10.5 to Registration Statement on Form 10 filed September 1, 2015
10.1(b)
Amendment to Settlement Agreement, dated December 31, 2015, among The Manitowoc Company, Inc., Carl C. Icahn, Icahn Partners Master Fund LP, Icahn Offshore LP, Icahn Partners LP, Icahn Onshore LP, Beckton Corp., Hopper Investments LLC, Barberry Corp., High River Limited Partnership, Icahn Capital LP, IPH GP LLC, Icahn Enterprises Holdings L.P. and Icahn Enterprises G.P. Inc.
Exhibit 10.8 to Registration Statement on Form 10 filed January 19, 2016
10.1(c)
Joinder Agreement to Settlement Agreement, dated March 28, 2016 among The Manitowoc Company, Inc., Manitowoc Foodservice, Inc., Carl C. Icahn, Icahn Partners Master Fund LP, Icahn Offshore LP, Icahn Partners LP, Icahn Onshore LP, Beckton Corp., Hopper Investments LLC, Barberry Corp., High River Limited Partnership, Icahn Capital LP, IPH GP LLC, Icahn Enterprises Holdings L.P. and Icahn Enterprises G.P. Inc.
Exhibit 10.1(c) to Annual Report on Form 10-K filed March 30, 2016
10.2
Tax Matters Agreement, dated March 4, 2016, between The Manitowoc Company, Inc. and Manitowoc Foodservice, Inc.
Exhibit 10.2 to Current Report on Form 8-K filed March 9, 2016
10.3(a)
Credit Agreement, dated March 3, 2016, among Manitowoc Foodservice, Inc., the subsidiary borrowers party thereto, the lenders party thereto, JPMorgan Chase Bank, N.A., as administrative agent, Goldman Sachs Bank USA, as syndication agent, HSBC Bank USA, N.A., Citibank, N.A. and Coöperatieve Rabobank U.A., New York Branch, as co-documentation agents and JPMorgan Chase Bank, N.A., Goldman Sachs Bank USA, HSBC Securities (USA) Inc. and Citigroup Global Markets Inc., as joint lead arrangers and joint bookrunners.
Exhibit 10.6 to Current Report on Form 8-K filed March 9, 2016
10.3(b)
Amendment No. 1 to Credit Agreement, dated September 28, 2016, among Manitowoc Foodservice, Inc., the subsidiary borrowers party thereto, JPMorgan Chase Bank, N.A., individually and as administrative agent and the other financial institutions party thereto.
Exhibit 10.1 to Current Report on Form 8-K filed October 4, 2016
10.3(c)
Amendment No. 2 to Credit Agreement, dated March 6, 2017, among Welbilt, Inc., the subsidiary borrowers party thereto, JPMorgan Chase Bank, N.A., individually and as administrative agent and the other lenders party thereto.
Exhibit 10.1 to Current Report on Form 8-K filed March 9, 2017
10.3(d)
Amendment No. 3 to Credit Agreement and Limited Consent, dated September 7, 2017, among Welbilt, Inc., the subsidiary borrowers party thereto, JPMorgan Chase Bank, N.A., individually and as administrative agent and the other lenders party thereto.
Exhibit 10.1 to Current Report on Form 8-K filed September 13, 2017
10.3(e)
Amendment No. 4 to Credit Agreement, dated February 2, 2018, among Welbilt, Inc., the subsidiary borrowers party thereto, JPMorgan Chase Bank, N.A., individually and as administrative agent and the other lenders party thereto.
Exhibit 10.1 to Current Report on Form 8-K filed February 7, 2018
10.3(f)
Incremental Revolving Facility Amendment to Credit Agreement, dated April 13, 2018, among Welbilt, Inc., the subsidiary borrowers party thereto, JPMorgan Chase Bank, N.A., individually and as administrative agent and the other lenders party thereto.
Exhibit 10.1 to Current Report on Form 8-K filed April 18, 2018
10.3(g)
Amendment No. 6 to Credit Agreement, dated October 23, 2018, among Welbilt, Inc., the subsidiary borrowers party thereto, the lenders and other financial parties from time to time party thereto and JPMorgan Chase Bank, N.A., individually and as administrative agent.
Exhibit 10.1 to Current Report on Form 8-K filed October 29, 2018
10.3(h)
Amendment No. 7 to Credit Agreement, dated April 17, 2020, among Welbilt, Inc., the subsidiary borrowers party thereto, the lenders and other financial parties from time to time party thereto and JPMorgan Chase Bank, N.A., individually and as administrative agent.
Exhibit 10.1 to Current Report on Form 8-K filed April 20, 2020
10.4*
Amended and Restated Welbilt, Inc. 2016 Omnibus Incentive Plan.
Exhibit 10.1 to Current Report on Form 8-K filed on April 26, 2021
10.5*
Manitowoc Foodservice, Inc. Deferred Compensation Plan, as amended and restated through March 4, 2016.
Exhibit 10.8 to Current Report on Form 8-K filed March 9, 2016
10.6*
Manitowoc Foodservice, Inc. Supplemental Executive Retirement Plan, as amended and restated through March 4, 2016.
Exhibit 10.9 to Current Report on Form 8-K filed March 9, 2016
10.7*
Form of Agreement Regarding Confidential Information, Intellectual Property, Non-Solicitation of Employees and Non-Compete.
Exhibit 10.13 to Annual Report on Form 10-K filed March 1, 2018
10.8*
Form of Contingent Employment Agreement (for all executive officers).
Exhibit 10.1 to Current Report on Form 8-K filed March 14, 2016
10.9*
Form of Performance Share Award Agreement under the Manitowoc Foodservice, Inc. 2016 Omnibus Incentive Plan.
Exhibit 10.16 to Annual Report on Form 10-K filed March 30, 2016
10.10*
Form of Restricted Stock Award Agreement for Directors under the Manitowoc Foodservice, Inc. 2016 Omnibus Incentive Plan.
Exhibit 10.17 to Annual Report on Form 10-K filed March 30, 2016
10.11*
Form of Restricted Stock Award Agreement for Employees under the Manitowoc Foodservice, Inc. 2016 Omnibus Incentive Plan.
Exhibit 10.18 to Annual Report on Form 10-K filed March 30, 2016
10.12*
Form of Restricted Stock Unit Award Agreement for Directors under the Manitowoc Foodservice, Inc. 2016 Omnibus Incentive Plan.
Exhibit 10.19 to Annual Report on Form 10-K filed March 30, 2016
10.13*
Form of Restricted Stock Unit Award Agreement for Employees under the Manitowoc Foodservice, Inc. 2016 Omnibus Incentive Plan.
Exhibit 10.20 to Annual Report on Form 10-K filed March 30, 2016
10.14*
Form of Non-Qualified Stock Option Award Agreement under the Manitowoc Foodservice, Inc. 2016 Omnibus Incentive Plan.
Exhibit 10.21 to Annual Report on Form 10-K filed March 30, 2016
10.15*
Form of Incentive Stock Option Award Agreement under the Manitowoc Foodservice, Inc. 2016 Omnibus Incentive Plan.
Exhibit 10.22 to Annual Report on Form 10-K filed March 30, 2016
10.16*
Separation Agreement, dated August 9, 2018, between Hubertus Mühlhäuser and Welbilt, Inc.
Exhibit 10.1 to Current Report on Form 8-K filed August 14, 2018
10.17*
Offer Letter, dated October 25, 2018, between William C. Johnson and the Company.
Exhibit 10.1 to Current Report on Form 8-K filed October 29, 2018
10.18*
Welbilt, Inc. Executive Severance Policy.
Exhibit 10.1 to Current Report on Form 8-K filed December 17, 2018
10.19*
Form of Offer Letter for Executive Officers.
Exhibit 10.28 to Annual Report on Form 10-K filed March 1, 2019
10.20*
Offer Letter, dated March 15, 2019, by and between Welbilt, Inc. and Martin D. Agard.
Exhibit 10.1 to Current Report on Form 8-K filed March 18, 2019
10.21*
Letter Agreement, dated as of April 3, 2019, between Welbilt, Inc. and Haresh Shah.
Exhibit 10.3 to Quarterly Report on Form 10-Q filed May 8, 2019
21.1
Subsidiaries of Welbilt, Inc.
Filed herewith
22.1
Listing of Guarantors for 9.50% Senior Notes due 2024
Filed herewith
23.1
Consent of Independent Registered Public Accounting Firm.
Filed herewith
23.2
Consent of Independent Registered Public Accounting Firm.
Filed herewith
31.1
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Filed herewith
31.2
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Filed herewith
32.1
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Furnished herewith
32.2
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Furnished herewith
101 The following materials from the Company's Annual Report on Form 10-K for the year ended December 31, 2021 formatted in Inline Extensible Business Reporting Language ("iXBRL"): (i) the Consolidated Statements of Operations, (ii) the Consolidated Statements of Comprehensive Income, (iii) the Consolidated Balance Sheets, (iv) the Consolidated Statements of Cash Flows, (v) the Consolidated Statements of Equity and (vi) related notes, tagged as blocks of text and including detailed tags.
Filed herewith
104 Cover page from the Company's Annual Report on Form 10-K for the year ended December 31, 2021, formatted in iXBRL (included as Exhibit 101).
Filed herewith
* Represents a management contract or compensatory plan, contract or arrangement.
WELBILT, INC.
Schedule II: Valuation and Qualifying Accounts
For the years ended December 31, 2021, 2020 and 2019
(in millions) Balance at beginning of period Charges to
(recoveries from)
costs and expenses (Utilization of) increases to reserve (1)
Other (2)
Balance at end of period
Year ended December 31,2019
Allowance for doubtful accounts $ 3.9 (0.1) - 0.2 $ 4.0
Deferred tax valuation allowance $ 40.7 (1.6) (10.8) - $ 28.3
Year ended December 31, 2020
Allowance for doubtful accounts $ 4.0 0.9 (0.3) (0.2) $ 4.4
Deferred tax valuation allowance $ 28.3 (0.9) 2.9 0.6 $ 30.9
Year ended December 31, 2021
Allowance for doubtful accounts $ 4.4 2.9 (0.9) 0.2 $ 6.6
Deferred tax valuation allowance $ 30.9 10.2 - (0.4) $ 40.7
(1) For the year ended December 31, 2020, the utilization of the deferred tax valuation allowance represents increases in deferred tax assets primarily associated with loss carryforwards in certain jurisdictions.
(2) Other changes to the balances for allowance for doubtful accounts and the deferred tax valuation allowance consist primarily of the impact of foreign exchange rates.