OUTSTANDING EQUITY AWARDS AT 2015 FISCAL YEAR END
The following table sets forth the stock option, performance share and restricted stock unit awards previously granted to the named executive officers that were outstanding at the end of 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
Option Awards
|
Stock Awards
|
|
Number of Securities Underlying Unexercised Options (#) Exercisable
|
Number of Securities Underlying Unexercised Options (#) Unexercisable
|
Option Exercise Price ($)
|
Option Expiration Date
|
Number of Shares or Units of Stock That Have Not Vested (#)
|
Market Value of Shares or Units of Stock That Have Not Vested ($)
|
Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights that Have Not Vested (#)
|
Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)
|
|
Hubertus M. Muehlhaeuser
|
|
|
|
|
|
|
|
|
|
Chief Financial Officer
|
|
|
|
|
|
|
|
|
|
Josef Matosevic
|
|
|
|
|
|
|
|
|
|
Maurice D. Jones
|
|
|
|
|
|
|
|
|
|
Robert M. Hund
|
|
|
|
|
|
|
|
|
OPTION EXERCISES AND STOCK VESTED IN FISCAL 2015
The following table presents, for each named executive officer, the stock options exercised and the performance shares vested during 2015. These stock options and performance shares were granted to the named executive officers prior to 2015; consequently, the value realized by the executives was actually earned over several years.
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
Option Awards (1)
|
Stock Awards
|
|
Number of Shares Acquired on Exercise (#)
|
Value Realized on Exercise ($)
|
Number of Shares Acquired on Vesting (#)
|
Value Realized on Vesting ($)
|
|
Hubertus M. Muehlhaeuser
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Chief Financial Officer
|
|
|
|
|
|
Josef Matosevic
|
—
|
|
—
|
|
2,523
|
|
54,926
|
|
|
Maurice D. Jones
|
29,268
|
|
355,899
|
|
16,068
|
|
349,800
|
|
|
Robert M. Hund
|
|
|
3,989
|
|
86,841
|
|
|
|
|
|
(1)
|
The dollar value realized by stock option exercises in 2015 represents the total pre-tax value realized by the named executive officers upon exercise. The realized amount represents the fair market value of the shares on the date exercised minus the exercise price.
|
RETIREMENT AND NON-QUALIFIED DEFERRED COMPENSATION PLANS
Pension Benefits for Fiscal 2015
(Supplemental Executive Retirement Plan)
The following table sets forth information with respect to the Manitowoc ParentCo Supplemental Executive Retirement Plan as of December 31, 2015. Of the named executive officers, only Mr. Jones was eligible to participate in this Plan during 2015.
|
|
|
|
|
|
|
|
|
Name
|
Plan Name
|
Number of Years of Credited Service (#) (1)
|
Present Value of Accumulated Benefit ($)
|
Payments During Last Fiscal Year ($)
|
|
Maurice D. Jones
|
|
|
|
|
|
|
|
|
(1)
|
Reflects the number of years since the participant began participating in the plan. The plan was adopted by Manitowoc ParentCo in 2000. Currently an executive of Manitowoc ParentCo is not eligible to participate under the plan until the executive has at least five credited years of service with Manitowoc ParentCo and satisfies other criteria determined by the Manitowoc ParentCo Compensation Committee.
|
Under Manitowoc ParentCo’s Supplemental Executive Retirement Plan, eligible executives are entitled to receive retirement benefits which are intended to fund an annuity based on a percentage of a participant’s final average pay at the earlier of normal retirement (age 65) or the first of the month following the date on which the participant’s attained age plus years of service with Manitowoc ParentCo equals eighty (80). A participant’s final five-year average pay is computed by averaging the participant’s projected base salary (including elective deferrals) and non-equity incentive plan compensation payable for each year for the five consecutive calendar year period when the participant receives or is projected to receive his or her highest average compensation prior to the earlier of normal retirement (age 65) or the first of the month following the date on which the participant’s attained age plus years of service with Manitowoc ParentCo equals eighty (80). Benefits are computed using a straight-life annuity and are not reduced for social security or other offsets. Under the Plan, an account balance is maintained for each participant, which account reflects (a) an annual contribution credit that is determined by calculating the present value of the lump-sum actuarial equivalent a specified percentage of the participant’s five-year final average pay payable as a life annuity, at the earlier of (i) normal retirement (age 65) or (ii) the first of the month following the date on which the participant’s attained age plus years of service with Manitowoc ParentCo equals eighty (80); and (b) an annual increase in the account balance at the end of each year equal to nine percent (9%) of the account balance at the beginning of the year. When a participant becomes eligible for a distribution under the plan, the participant may elect to receive his/her account balance in a lump-sum or over a fixed number of years not to exceed ten (10) years. The Manitowoc ParentCo Compensation Committee has determined that an executive will not be eligible to participate under the plan until the executive has at least five credited years of service with Manitowoc ParentCo and/or its subsidiaries and satisfies other criteria determined by the Manitowoc ParentCo Compensation Committee. Additionally, for any executive who becomes a participant after 2008 and whose projected total service at his or her target retirement date is less than 25 years, the target retirement benefit will be prorated based on the projected total service years divided by 25. In connection with the spinoff, we intend to adopt a supplemental executive retirement plan similar to Manitowoc ParentCo’s Supplemental Executive Retirement Plan.
Non-Qualified Deferred Compensation for Fiscal 2015
The following table sets forth information with respect to Manitowoc ParentCo’s Deferred Compensation Plan, a non-qualified plan, as of December 31, 2015:
|
|
|
|
|
|
|
|
|
|
Name
|
Executive Contributions in Last FY
|
Registrant Contributions in Last FY
|
Aggregate Earnings in Last FY
|
Aggregate Withdrawals/ Distributions
|
Aggregate Balance at Last FYE
|
|
Hubertus M. Muehlhaeuser
|
|
|
|
|
|
|
Chief Financial Officer
|
|
|
|
|
|
|
Josef Matosevic
|
|
|
|
|
|
|
Maurice D. Jones
|
|
|
|
|
|
|
Robert M. Hund
|
|
|
|
|
|
Post-Employment Compensation
Manitowoc Parent Co has entered into Contingent Employment Agreements with each of the named executive officers. These Agreements provide generally that in the event of a “change in control” (as defined in the Agreements) of Manitowoc ParentCo, each executive will continue to be employed by Manitowoc ParentCo for two years. The Spin-Off is not expected to constitute a change in control within the meaning of the Agreements. Under the Contingent Employment Agreements, each executive would remain employed at the same position held as of the change in control date, and would receive a salary at least equal to the salary in effect as of such date, plus all bonuses, incentive compensation, and other benefits extended by Manitowoc ParentCo to its executive officers and key employees, provided that the plans and bonus opportunity are no less favorable than those that were available prior to a change in control. After a change in control, the executive’s compensation would be subject to upward adjustment at least annually based upon the executive’s contributions and the level of increases provided to other officers and employees. Each Contingent Employment Agreement would terminate prior to the end of the applicable employment period if the executive voluntarily retired from Manitowoc ParentCo or were terminated by Manitowoc ParentCo “for cause,” as defined in the Contingent Employment Agreement.
In the event the executive were terminated by Manitowoc ParentCo without cause following a change in control, the executive would be entitled to receive a monthly amount equal to the base salary and benefits the executive would have otherwise been paid but for the termination, and the annual incentive compensation the executive would have otherwise been paid but for the termination, through the applicable employment period. Upon a change in control, stock options would fully vest, restrictions on restricted stock or similar securities lapse, and each holder of performance shares would have the right to receive, in exchange for the performance shares, cash equal to a pro-rated amount of performance shares based on the amount of time that had lapsed during the performance period up to the change in control. In the event the executive were terminated by Manitowoc ParentCo for cause, the executive would be entitled only to the salary and benefits accrued and vested as of the effective date of the termination. The Contingent Employment Agreements are terminable by either party at any time prior to a change in control.
If a named executive officer were terminated by Manitowoc ParentCo without cause within six months prior to a change in control and it was reasonably demonstrated by the employee that the termination (i) was at the request of a third party who has taken steps reasonably calculated to effect a change in control; or (ii) otherwise arose in connection with or in anticipation of a change in control, the employee would be entitled to the severance payment and benefits that he would have otherwise have received if he were terminated by Manitowoc ParentCo without cause following a change in control.
If any of the payments to a named executive officer would constitute an “excess parachute payment” under Section 280G of the Internal Revenue Code and would result in the imposition on the executive of an excise tax under Section 4999 of the Internal Revenue Code (the “Excise Tax”), the executive would not be entitled to any tax gross up amount; however, the executive would be entitled to receive the “best net” treatment. Under the “best net” treatment, if the after-tax amount (taking into account all federal, state and local excise, income and other taxes) that would be retained by the executive is less than the after-tax amount that would be retained by the executive if the executive were instead to be paid or provided (as the case may be) the maximum amount that the executive could receive without being subject to the Excise Tax (the “Reduced Amount”), then the executive would be entitled to receive the Reduced Amount instead of the full amount that would have been subject to the Excise Tax.
The Contingent Employment Agreements also provide that if the executive was terminated (i) by Manitowoc ParentCo without cause prior to the end of the employment period; or (ii) by Manitowoc ParentCo within six months prior to a change in control in anticipation of a change in control as explained above, the executive will be prohibited from competing with Manitowoc ParentCo for (y) the lesser of two years or the unexpired term of the employment period or (z) two years in the case of a termination of Manitowoc ParentCo within six months prior to a change in control in anticipation of a change in control as described above.
We expect to enter into similar Contingent Employment Agreements that would relate to a change in control of Manitowoc Foodservice rather than Manitowoc ParentCo with each of the named executive officers in connection with the Spin-Off.
In addition to the Contingent Employment Agreements, Manitowoc ParentCo has entered into an employment agreement with Mr. Muehlhaeuser that provides severance benefits upon certain types of termination of employment. Under the agreement, if Mr. Muehlhaeuser’s employment is terminated by Manitowoc ParentCo without cause (as defined in the agreement) or if he terminates his employment with good reason (as defined in the agreement), subject to the execution of a release of any and all claims or potential claims against Manitowoc ParentCo, he will be entitled to receive two years of base salary plus an amount equal to 200% of his target annual incentive compensation for the year of termination (regardless of whether the targeted performance was achieved or exceeded) (the “Severance Payment”), paid over a two-year period (the “Severance Period”). The Severance Payment is subject to offset (but not below zero) by the amount of any base salary, short-term incentive compensation or cash compensation earned by Mr. Muehlhaeuser or to which he is entitled during the Severance Period and which is actually paid to him: (1) from any subsequent employer following the termination of his employment with Manitowoc ParentCo, or (2) from Manitowoc ParentCo under any Contingent Employment Agreement. If Mr. Muehlhaeuser is terminated for cause, payment of all compensation from Manitowoc ParentCo will immediately cease, except for any compensation accrued but unpaid through the date of termination.
The employment agreement defines “cause” generally as any conviction for, or entry of a plea of guilty or nolo contendere with respect to, any felony or any crime involving an act of moral turpitude; engaging in any act involving fraud or theft; neglect or breach of duties or intentional misconduct in discharging such duties; continued absence from duties without consent after receipt of notification, other than absence due to bona fide illness or disability; failure or refusal to comply with the directions of the chairman of the board or with the policies, standards and regulations of Manitowoc ParentCo, provided that such directions, policies, standards or regulations do not require any action which is illegal or the omission of any action required by applicable law, regulations or licensing standards; conduct, actions, or performance that violates policies concerning ethics or employee conduct; or breach of the agreement.
The employment agreement defines “good reason” generally as a material diminution in position, authority or title, or the assignment of duties that are materially inconsistent with the executive’s position or title as described in the agreement; a material diminution in base salary or incentive/bonus opportunities except for across-the-board temporary salary reductions of twenty percent (20%) or less similarly affecting other employees; a change required by our Board of Directors of Manitowoc Foodservice’s principal offices of more than 50 miles from the location of Manitowoc Foodservices’ principal offices at the time of the Spin-Off; a material breach of the agreement by Manitowoc ParentCo or its successors or assigns; a failure of a successor to assume the agreement; the failure of the Spin-Off to occur by December 31, 2016 or the public announcement by the Company of its intention not to consummate the Spin-Off; the failure to appoint the executive a director of Manitowoc Foodservice at its formation (or immediately following the commencement date under the agreement); or the failure of the executive to be elected and maintained as a director of Manitowoc Foodservice after the Spin-Off. If Manitowoc ParentCo sells or publicly announces its intention to sell its Foodservice business to a third party (a “Foodservice Disposition”) in lieu of consummating the Spin-Off
and the Foodservice Disposition would not constitute a change of control under Mr. Muehlhaeuser’s Contingent Employment Agreement, then the Foodservice Disposition will also constitute good reason under the employment agreement.
If Mr. Muehlhaeuser is unable to perform his duties due to his disability, he will continue to receive his standard compensation, reduced by any disability payment to which he may be entitled in lieu of such compensation, until the last day of the term of the employment agreement. At the expiration of the term provided for in Mr. Muehlhaeuser’s agreement, payment of all compensation to Mr. Muehlhaeuser under the employment agreement will immediately cease (except for any payment of compensation accrued but unpaid through that date, COBRA benefits and other benefits to which Mr. Muehlhaeuser may be entitled notwithstanding the termination of his employment). If Mr. Muehlhaeuser dies during the term, all payments and rights to compensation and benefits under the employment agreement will immediately cease, except for any compensation and benefits accrued but unpaid through the date of his death.
Manitowoc ParentCo may assign the employment agreement to us at any time without notice to Mr. Muehlhaeuser, and we expect to assume the employment agreement prior to or in connection with the Spin-Off.
Manitowoc ParentCo also has made equity-based retention awards to certain key employees, including Mr. Matosevic, to provide additional incentive for the employees to continue in employment and contribute toward the successful completion of the contemplated Spin-Off. The retention awards consisted of shares of Manitowoc ParentCo common stock that would vest on the second anniversary of the Spin-Off if the employee was continuously employed with Manitowoc ParentCo or an affiliate through the second anniversary of the effective date of the Spin-Off. The shares would earlier vest in full upon termination of the employee as a result of death, disability or retirement upon or following the Spin-Off. The shares would also vest in full upon an involuntary termination of the employee, other than for cause, by Manitowoc ParentCo, or a termination by the employee for good reason, regardless of whether the Spin-Off had then occurred.
Estimated Payments upon a Change in Control
The following table presents the estimated payouts that would have been made to the named executive officers upon a change in control of Manitowoc ParentCo coupled with an executive’s termination of employment (other than for cause or retirement), assuming the change in control occurred as of December 31, 2015. The calculations are intended to provide reasonable estimates, based on the noted assumptions, of the potential benefits payable. The actual amount of severance benefits, if any, would depend upon the executive’s pay, terms of a change in control transaction and the subsequent impact on the executive’s employment.
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
Base Salary
|
Annual Incentive-Based Compensation
|
Stock Options
|
Restricted Stock Units
|
Performance Shares
|
Benefits
|
Total
|
|
Hubertus M. Muehlhaeuser
|
|
|
|
|
|
|
|
|
Chief Financial Officer
|
|
|
|
|
|
|
|
|
Josef Matosevic
|
|
|
|
|
|
|
|
|
Maurice D. Jones
|
|
|
|
|
|
|
|
|
Robert M. Hund
|
|
|
|
|
|
|
|
As stated in the Compensation Discussion and Analysis, Manitowoc ParentCo also has maintained a formal severance pay plan that establishes a discretionary severance program across Manitowoc ParentCo whereby all severance benefits are provided at Manitowoc ParentCo’s sole discretion and will be designed to meet the specific facts and circumstances of each termination. The Board of Directors of Manitowoc ParentCo has the sole authority to authorize any benefits under the plan to any elected officer of Manitowoc ParentCo. Other than this discretionary severance pay plan and the employment agreement with Mr. Muehlhaeuser, Manitowoc ParentCo does not have a formal severance plan or other forms of employment termination benefits that apply to the named executive officers except in the event of a change in control as described above. Following the Spin-Off, we expect initially to implement severance plans and practices similar to those of Manitowoc ParentCo, although we may modify such plans or practices, or adopt different plans or practices, in the future.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of the date of this Information Statement, Manitowoc ParentCo beneficially owns all of the outstanding shares of our common stock. After the Spin-Off, Manitowoc ParentCo will not own any shares of our common stock. The following tables provide information regarding the anticipated beneficial ownership of our common stock at the time of the Distribution by:
|
|
|
|
•
|
each of the individuals whom we expect to serve as our directors following the Spin-Off;
|
|
|
|
|
•
|
each Named Executive Officer;
|
|
|
|
|
•
|
all of the individuals whom we expect to serve as our directors and executive officers following the Spin-Off as a group; and
|
|
|
|
|
•
|
each of our stockholders whom we believe, based on the assumptions described below, will beneficially own more than 5% of our outstanding common stock at the time of the Distribution.
|
Except as otherwise noted below, we based the share amounts on each person or entity’s beneficial ownership of Manitowoc ParentCo common stock on December 31, 2015, giving effect to a distribution ratio of [
l
] shares of our common stock for every [
l
] shares of Manitowoc ParentCo common stock he, she or it held.
To the extent the individuals whom we expect to serve as our directors and executive officers own Manitowoc ParentCo common stock on the Record Date, they will participate in the Distribution on the same terms as other holders of Manitowoc ParentCo common stock.
Except as otherwise noted in the footnotes below, each person or entity identified in the table has sole voting and investment power with respect to the securities he, she or it holds.
Immediately following the Spin-Off, we estimate that [
l
] million shares of our common stock will be issued and outstanding, based on the approximately [
l
] million shares of Manitowoc ParentCo common stock outstanding on December 31, 2015. The actual number of shares of our common stock to be outstanding following the Spin-Off will be determined on [
l
] , 2016, the Record Date.
|
|
|
|
|
|
|
|
|
|
|
Total Shares to Be Beneficially Owned
|
|
Director or Named Executive Officer
|
|
# of Shares
|
|
% of Class
|
|
Directors
|
|
|
|
|
|
Dino Bianco
|
|
[
l
]
|
|
[
l
]
|
|
Joan K. Chow
|
|
|
|
|
|
Cynthia M. Egnotovich
|
|
|
|
|
|
Andrew Langham
|
|
|
|
|
|
Executive Officers
|
|
|
|
|
|
Hubertus M. Muehlhaeuser
|
|
|
|
|
|
Josef Matosevic
|
|
|
|
|
|
Maurice D. Jones
|
|
|
|
|
|
Robert M. Hund
|
|
|
|
|
|
Richard N. Caron
|
|
|
|
|
|
All directors, named executive officers and current executive officers as a group (
[
l
]
persons)
|
|
[
l
]
|
|
[
l
]
|
|
|
|
|
|
|
|
|
|
|
|
Total Shares to Be Beneficially Owned
|
|
Principal Stockholder and Address
|
|
# of Shares
|
|
% of Class
|
|
[FMR LLC
(1)
245 Summer Street
Boston, MA 02210]
|
|
[
l
]
|
|
[
l
]
|
|
[Carl C. Icahn
(2)
c/o Icahn Capital LP
767 Fifth Avenue, 47th Floor
New York, NY 10153]
|
|
[
l
]
|
|
[
l
]
|
|
[The Vanguard Group, Inc.
(3)
100 Vanguard Boulevard
Malvern, PA 19355]
|
|
[
l
]
|
|
[
l
]
|
|
[Glenview Capital Management, LLC
(4)
767 Fifth Avenue, 44th Floor
New York, NY 10153]
|
|
[
l
]
|
|
[
l
]
|
|
[Alan Fournier
c/o Pennant Capital Management, LLC
(5)
1 DeForest Avenue, Suite 200
Summit, NJ 07901]
|
|
[
l
]
|
|
[
l
]
|
|
[Luxor Capital Partners, LP(6)
1114 Avenue of the Americas, 29th Floor
New York, NY 10036]
|
|
[
l
]
|
|
[
l
]
|
|
|
|
|
(1)
|
[This information is based solely on a Schedule 13G/A regarding Manitowoc ParentCo filed with the SEC by FMR LLC (“FMR”) on May 11, 2015. FMR reported that it may be deemed to have sole voting power with respect to 52,297 shares of Manitowoc ParentCo stock and sole dispositive power with respect to 11,083,334 shares of Manitowoc ParentCo common stock as of May 8, 2015.]
|
|
|
|
|
(2)
|
[The information is based solely on a Schedule 13D/A regarding Manitowoc ParentCo filed with the SEC by Carl C. Icahn and his affiliated entities on January 16, 2015, as amended on February 9, 2015. According to the filing, as of January 16, 2015: (i) High River Limited Partnership, a Delaware limited partnership, has sole voting power and sole dispositive power with respect to 2,116,531 shares of Manitowoc ParentCo common stock; (ii) Hopper Investments LLC, a Delaware limited liability company, has shared voting power and shared dispositive power with respect to 2,116,531 shares of Manitowoc ParentCo common stock; (iii) Barberry Corp., a Delaware corporation, has shared voting power and shared dispositive power with respect to 2,116,531 shares of Manitowoc ParentCo common stock; (iv) Icahn Partners Master Fund LP, a Delaware limited partnership, has sole voting power and sole dispositive power with respect to 3,438,929 shares of Manitowoc ParentCo common stock; (v) Icahn Offshore LP, a Delaware limited partnership, has shared voting power and shared dispositive power with respect to 3,438,629 shares of Manitowoc ParentCo common stock; (vi) Icahn Partners LP, a Delaware limited partnership, has sole voting power and sole dispositive power with respect to 5,027,500 shares of Manitowoc ParentCo common stock; (vii) Icahn Onshore LP, a Delaware limited partnership, has shared voting power and shared dispositive power with respect to 5,027,500 shares of Manitowoc ParentCo common stock; (viii) Icahn Capital LP, a Delaware limited partnership, has shared voting power and shared dispositive power with respect to 8,466,129 shares of Manitowoc ParentCo common stock; (ix) IPH GP LLC, a Delaware limited liability company, has shared voting power and shared dispositive power with respect to 8,466,129 shares of Manitowoc ParentCo common stock; (x) Icahn Enterprises Holdings L.P., a Delaware limited partnership, has shared voting power and shared dispositive power with respect to 8,466,129 shares of Manitowoc ParentCo common stock; (xi) Icahn Enterprises G.P. Inc., a Delaware corporation, has shared voting power and shared dispositive power with respect to 8,466,129 shares of Manitowoc ParentCo common stock; (xii) Beckton Corp., a Delaware corporation, has shared voting power and shared dispositive power with respect to 8,466,129 shares of Manitowoc ParentCo common stock; and (xiii) Carl C. Icahn has shared voting power and shared dispositive power with respect to 10,582,660 shares of Manitowoc ParentCo common stock. Mr. Icahn is in a position indirectly to determine the investment and voting decisions made by each of the affiliated entities.]
|
|
|
|
|
(3)
|
[This information is based solely on a Schedule 13G regarding Manitowoc ParentCo filed with the SEC by The Vanguard Group, Inc. (“Vanguard”) on February 11, 2015. Vanguard reported that it may be deemed to have sole voting power as to 92,088 shares of Manitowoc ParentCo common stock, sole dispositive power with respect to 8,075,349 shares of Manitowoc ParentCo common stock and shared dispositive power with respect to 80,288 shares of Manitowoc ParentCo common stock as of December 31, 2014.]
|
|
|
|
|
(4)
|
This information is based solely on a Schedule 13G regarding Manitowoc ParentCo filed with the SEC by Glenview Capital Management, LLC (“Glenview”) and Lawrence M. Robbins on March 23, 2015 and a Schedule 13D regarding Manitowoc ParentCo filed with the SEC by Glenview and Mr. Robbins on June 1, 2015. According to the filings, as of June 1, 2015, Glenview and Mr. Robbins have shared voting power and shared dispositive power with respect to 9,614,197 shares of Manitowoc ParentCo common stock.]
|
|
|
|
|
(5)
|
[This information is based solely on a Schedule 13G regarding Manitowoc ParentCo filed with the SEC by Alan Fournier, Pennant Capital Management, LLC (“Pennant”) and Pennant Windward Master Fund, L.P. (“Pennant Windward”) on August 10, 2015. According to the filing, as of August 10, 2015, (i) Mr. Fournier has shared voting power and shared dispositive power with respect to 10,130,896 shares of Manitowoc ParentCo common stock, (ii) Pennant has shared voting power and shared dispositive power with respect to 10,130,896 shares of Manitowoc ParentCo common stock and (iii) Pennant Windward has shared voting power and shared dispositive power with respect to 7,101,596 shares of Manitowoc ParentCo common stock.]
|
|
|
|
|
(6)
|
[The information is based solely on a Schedule 13G regarding Manitowoc ParentCo filed with the SEC by Luxor Capital Partners, LP and its affiliated entities on August 10, 2015. According to the filing, as of August 10, 2015, (i) Luxor Capital Partners, LP has shared voting power and shared dispositive power with respect to 3,033,474 shares of Manitowoc ParentCo common stock, (ii) Luxor Wavefront, LP has shared voting power and shared dispositive power with respect to 625,526 shares of Manitowoc ParentCo common stock, (iii) Luxor Capital Partners Offshore Master Fund, LP has shared voting power and shared dispositive power with respect to 3,016,251 shares of Manitowoc ParentCo common stock, (iv) Luxor Capital Partners Offshore, Ltd. has shared voting power and shared dispositive power with respect to 3,016,251 shares of Manitowoc ParentCo common stock, (v) Thebes Offshore Master Fund, LP has shared voting power and shared dispositive power with respect to 153,085 shares of Manitowoc ParentCo common stock, (vi) Thebes Partners Offshore, Ltd. has shared voting power and shared dispositive power with respect to 153,085 shares of Manitowoc ParentCo common stock, (vii) LCG Holdings, LLC has shared voting power and shared dispositive power with respect to 6,828,336 shares of Manitowoc ParentCo common stock, (viii) Luxor Capital Group, LP has shared voting power and shared dispositive power with respect to 6,828,336 shares of Manitowoc ParentCo common stock, (ix) Luxor Management, LLC has shared voting power and shared dispositive power with respect to 6,828,336 shares of Manitowoc ParentCo common stock and (x) Christian Leone has shared voting power and shared dispositive power with respect to 6,828, 336 shares of Manitowoc ParentCo common stock.]
|
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Agreements with Manitowoc ParentCo
Following the Spin-Off, Manitowoc Foodservice and Manitowoc ParentCo will operate separately, each as an independent public company. Manitowoc Foodservice will enter into a Separation and Distribution Agreement with Manitowoc ParentCo. In connection with the Spin-Off, Manitowoc Foodservice will also enter into various other agreements to effect the Spin-Off and provide a framework for its relationship with ParentCo after the separation, such as a transition services agreement, a tax matters agreement, an employee matters agreement and an intellectual property matters agreement. These agreements will provide for the allocation between Manitowoc Foodservice and Manitowoc ParentCo of Manitowoc ParentCo’s assets, employees, liabilities and obligations (including investments, property and employee benefits, and tax-related assets and liabilities) attributable to periods prior to, at and after Manitowoc Foodservice’s separation from Manitowoc ParentCo and will govern certain relationships between Manitowoc Foodservice and Manitowoc ParentCo after the Spin-Off.
The material agreements described below will be filed as exhibits to the registration statement on Form 10 of which this Information Statement is a part. The summaries of each of these agreements set forth the terms of the agreements that we believe are material. These summaries are qualified in their entireties by reference to the full text of the applicable agreements, which are incorporated by reference into this Information Statement.
Separation and Distribution Agreement
Transfer of Assets and Assumption of Liabilities
The Separation and Distribution Agreement will identify the assets to be transferred, the liabilities to be assumed and the contracts to be assigned to each of Manitowoc Foodservice and Manitowoc ParentCo as part of the separation of Manitowoc ParentCo into two companies. We are currently a wholly owned subsidiary of Manitowoc ParentCo. In connection with the Spin-Off, Manitowoc ParentCo and Manitowoc Foodservice have undertaken or will undertake a series of internal reorganization transactions so that we hold the Foodservice Business assets, liabilities and entities and Manitowoc ParentCo holds the Crane Business assets, liabilities and entities. We refer to these transactions collectively as the “Internal Reorganization.”
Except as expressly set forth in the Separation and Distribution Agreement or any ancillary agreement, neither Manitowoc Foodservice nor Manitowoc ParentCo will make any representation or warranty as to the assets, business or liabilities transferred or assumed as part of the Spin-Off, as to any consents required in connection with the transfers, as to the value of or the freedom from any security interests of any of the assets transferred, as to the absence or presence of any defenses or right of setoff or freedom from counterclaim with respect to any claim or other asset of either Manitowoc Foodservice or Manitowoc ParentCo, or as to the legal sufficiency of any assignment, document or instrument delivered to convey title to any asset or thing of value to be transferred in connection with the Spin-Off. All assets will be transferred on an “as is,” “where is” basis, and the respective transferees will bear the economic and legal risks that any conveyance will prove to be insufficient to vest in the transferee good and marketable title, free and clear of all security interests.
Information in this Information Statement with respect to the assets and liabilities of the parties following the Distribution is presented based on the allocation of such assets and liabilities pursuant to the Separation and Distribution Agreement, unless the context otherwise requires.
The Distribution
The Separation and Distribution Agreement will also govern the rights and obligations of the parties regarding the Distribution following the completion of the Spin-Off. On the Distribution Date, Manitowoc ParentCo will distribute to its shareholders that hold Manitowoc ParentCo common stock as of the record date for the Distribution all of the issued and outstanding shares of Manitowoc Foodservice common stock on a pro rata basis.
Conditions to the Distribution
The Separation and Distribution Agreement will provide that the distribution is subject to satisfaction (or waiver by Manitowoc ParentCo) of certain conditions, which are described under “The Spin-Off - Conditions to the Spin-Off.” Manitowoc ParentCo will have the sole and absolute discretion to determine (and change) the terms of, and to determine whether to proceed with, the Distribution and, to the extent that it determines to so proceed, to determine the record date for the Distribution, the Distribution Date and the distribution ratio.
Claims
In general, each party to the Separation and Distribution Agreement will assume liability for all pending, threatened and unasserted legal matters related to its own business or its assumed or retained liabilities and will indemnify the other party for any liability to the extent arising out of or resulting from such assumed or retained legal matters.
Releases
The Separation and Distribution Agreement will provide that Manitowoc Foodservice and its affiliates will release and discharge Manitowoc ParentCo and its affiliates from all liabilities to Manitowoc Foodservice and its affiliates existing or arising from acts occurring or failing to
occur on or before the Distribution Date, including in connection with the implementation of the separation, except as set forth in the Separation and Distribution Agreement. Manitowoc ParentCo and its affiliates will release and discharge Manitowoc Foodservice and its affiliates from all liabilities to Manitowoc ParentCo and its affiliates existing or arising from acts occurring or failing to occur on or before the Distribution Date, including in connection with implementation of the separation, except as set forth in the Separation and Distribution Agreement.
These releases will not extend to obligations or liabilities under any agreements between the parties that remain in effect following the separation, which agreements include, but are not limited to, the Separation and Distribution Agreement, the transition services agreement, the tax matters agreement, the employee matters agreement, and certain other agreements, including the trademark and copyright license agreement and the transfer documents in connection with the separation.
Indemnification
In the Separation and Distribution Agreement, Manitowoc Foodservice will agree to indemnify, defend and hold harmless ParentCo, each of ParentCo’s affiliates and each of ParentCo and its affiliates’ respective directors, officers and employees, from and against all liabilities relating to, arising out of or resulting from:
|
|
|
|
•
|
Manitowoc Foodservice’s failure or the failure of any other person to pay, perform or otherwise promptly discharge any of the Manitowoc Foodservice liabilities, in accordance with their respective terms; and
|
|
|
|
|
•
|
any breach by Manitowoc Foodservice of the Separation and Distribution Agreement or any of the ancillary agreements.
|
Manitowoc ParentCo will agree to indemnify, defend and hold harmless Manitowoc Foodservice, each of Manitowoc Foodservice’s affiliates and each of Manitowoc Foodservice and Manitowoc Foodservice’s affiliates’ respective directors, officers and employees from and against all liabilities relating to, arising out of or resulting from:
|
|
|
|
•
|
the failure of Manitowoc ParentCo or any other person to pay, perform, or otherwise promptly discharge any of the Manitowoc ParentCo liabilities, in accordance with their respective terms; and
|
|
|
|
|
•
|
any breach by Manitowoc ParentCo of the Separation and Distribution Agreement or any of the ancillary agreements.
|
The Separation and Distribution Agreement will also establish procedures with respect to claims subject to indemnification and related matters.
Insurance
The Separation and Distribution Agreement provides for the allocation between the parties of rights and obligations under existing insurance policies with respect to occurrences prior to the Distribution and sets forth procedures for the administration of insured claims.
Further Assurances
In addition to the actions specifically provided for in the Separation and Distribution Agreement, except as otherwise set forth therein or in any ancillary agreement, both Manitowoc Foodservice and Manitowoc ParentCo agree in the Separation and Distribution Agreement to use commercially reasonable efforts, to take all actions as the other party may reasonably request, consistent with the Separation and Distribution Agreement and the ancillary agreements, to effect the provisions and purposes of the Separation and Distribution Agreement and ancillary agreements, and the transactions contemplated therein.
Dispute Resolution
The Separation and Distribution Agreement contains provisions that govern, except as otherwise provided in any ancillary agreement, the resolution of disputes, controversies or claims that may arise between Manitowoc Foodservice and Manitowoc ParentCo related to the Spin-Off and that are unable to be resolved through good faith discussions between Manitowoc Foodservice and Manitowoc ParentCo. These provisions contemplate that efforts will be made to resolve disputes, controversies and claims by escalation of the matter to executives of Manitowoc Foodservice and Manitowoc ParentCo. If such efforts are not successful, either Manitowoc Foodservice or Manitowoc ParentCo may submit the dispute, controversy or claim to nonbinding mediation or, if such nonbinding mediation is not successful, binding alternative dispute resolution, subject to the provisions of the Separation and Distribution Agreement.
Expenses
Manitowoc ParentCo will be responsible for all costs and expenses incurred in connection with the Distribution.
Other Matters
Other matters governed by the Separation and Distribution Agreement will include access to financial and other information, confidentiality and access to and provision of records.
Termination
The Separation and Distribution Agreement will provide that it may be terminated, and the Spin-Off may be modified or abandoned, at any time prior to the Distribution Date in the sole discretion of Manitowoc ParentCo without the approval of any person, including Manitowoc Foodservice. In the event of a termination of the Separation and Distribution Agreement, no party, nor any of its directors, officers or employees, will have any liability of any kind to the other party or any other person. After the Distribution Date, the Separation and Distribution Agreement may not be terminated except by an agreement in writing signed by both Manitowoc ParentCo and Manitowoc Foodservice.
Transition Services Agreement
Manitowoc Foodservice and Manitowoc ParentCo will enter into a Transition Services Agreement in connection with the Spin-Off, pursuant to which Manitowoc ParentCo will provide to Manitowoc Foodservice, on an interim, transitional basis, various services, including, but not limited to, services related to insurance, human resources, finance, sales and marketing, information technology, legal, tax or administrative matters, or any other services that Manitowoc ParentCo and Manitowoc Foodservice may agree upon. Manitowoc ParentCo will perform these and the agreed-upon services in a manner and on a basis that is substantially similar to that during the six-month period immediately prior to the date of the Transition Services Agreement.
The Transition Services Agreement will specify the term during which Manitowoc ParentCo will provide the agreed-upon services, when and how Manitowoc Foodservice may terminate different categories of service, the cost of the services to Manitowoc Foodservice, and any additional obligations of Manitowoc ParentCo to assist in transitioning services to Manitowoc Foodservice’s control.
Manitowoc ParentCo’s liability under the Transition Services Agreement will generally be limited to performing the services in good faith. The Transition Services Agreement will also provide that Manitowoc ParentCo and other service providers will not be liable to Manitowoc Foodservice or other service recipients for any punitive, indirect, incidental, consequential or special damages.
Tax Matters Agreement
In connection with the Spin-Off, Manitowoc Foodservice and Manitowoc ParentCo will enter into a Tax Matters Agreement that will govern the parties’ respective rights, responsibilities and obligations with respect to the allocation of tax liabilities, the preparation and filing of tax returns, tax payments, the parties’ entitlements to tax refunds, the parties’ maintenance of the tax-free status of the Spin-Off, the control of audits and other tax proceedings, assistance and cooperation with respect to tax matters, the maintenance of tax-related records and other tax-related activities.
In addition, the Tax Matters Agreement will impose certain restrictions on us and our subsidiaries (including restrictions on business combinations, sales of assets, liquidations, stock issuances or repurchases and modifications of the voting rights of our stock, among others) that could prevent us from pursuing strategic or other transactions that may maximize the value of our business. The Tax Matters Agreement will provide special rules allocating tax liabilities in the event the Spin-Off, together with certain related transactions, is not treated as tax-free. In general, under the Tax Matters Agreement, each of Manitowoc ParentCo and Manitowoc Foodservice will be responsible for taxes that arise from the failure of the Spin-Off to qualify as a transaction that is generally tax-free, for U.S. federal income tax purposes, under Sections 355, 368 and related provisions of the Code, to the extent that such failure to qualify is attributable to the actions, events or transactions related to each party’s respective stock, assets or business, or a breach of the relevant representations or covenants made by that party in the Tax Matters Agreement. These restrictions and obligations may discourage, delay or prevent a change of control that you may consider favorable. Additionally, though valid as between Manitowoc Foodservice and Manitowoc ParentCo, the Tax Matters Agreement is not binding on the IRS.
Employee Matters Agreement
Manitowoc Foodservice and Manitowoc ParentCo will enter into an Employee Matters Agreement in connection with the Spin-Off to allocate liabilities and responsibilities relating to employment matters, employee compensation and benefits plans and programs, and other related matters. The Employee Matters Agreement will govern certain compensation and employee benefit obligations with respect to the current and former employees and non-employee directors of each company.
The Employee Matters Agreement will provide that, unless otherwise specified, Manitowoc ParentCo will be responsible for liabilities associated with employees who will be employed by Manitowoc ParentCo following the separation and former employees whose last employment was with the business remaining with Manitowoc ParentCo after the separation, and Manitowoc Foodservice will be responsible for liabilities associated with employees who will be employed by Manitowoc Foodservice following the separation and former employees whose last employment was with Manitowoc Foodservice’s business.
In addition, the Employee Matters Agreement will address the treatment of Manitowoc ParentCo's outstanding equity-based incentive awards held by employees who will be employed by Manitowoc Foodservice in connection with the Spin-Off, which has not yet been determined. Prior to the effectiveness of the Registration Statement on Form 10 of which this Information Statement forms a part, we will disclose information concerning the treatment of such awards and how the Employee Matters Agreement will address such treatment.
Intellectual Property Matters Agreement
We intend to enter into an Intellectual Property Matters Agreement with Manitowoc ParentCo that will provide for intellectual property ownership, licensing, consent to use and other arrangements. We have not yet finalized the terms of the Intellectual Property Matters Agreement, and we intend to include additional details on the terms of this agreement in an amendment to this Information Statement.
Procedures for Approval of Related Party Transactions
Manitowoc Foodservice’s Board of Directors will review and approve or ratify the material terms of any transaction involving Manitowoc Foodservice in which a director, a nominee for director, an executive officer, an immediate family member of one of these individuals or a principal stockholder (each of whom is known as a “related party”) has a direct or indirect material interest. The Board of Directors will review to determine whether the terms of the transaction are any less favorable than those generally available from unaffiliated third parties and the extent of the related party’s interest in the transaction.
DESCRIPTION OF MATERIAL INDEBTEDNESS
Manitowoc Foodservice intends to incur certain indebtedness prior to or concurrent with the Spin-Off. Information with respect to our incurrence of debt will be included in an amendment to this Information Statement.
DESCRIPTION OF OUR CAPITAL STOCK
General
Prior to the Distribution Date, Manitowoc ParentCo, as our sole stockholder, will approve and adopt our Certificate of Incorporation, and our Board will approve and adopt our Bylaws. The following summarizes information concerning our capital stock, including provisions of Delaware law and our Certificate of Incorporation and Bylaws. You are encouraged to read our Certificate of Incorporation and Bylaws, which we will file as exhibits to our Registration Statement on Form 10 of which this Information Statement is a part, for greater detail with respect to these provisions.
Distribution of Securities
During the past three years, we have not sold any securities, including sales of reacquired securities, new issues, securities issued in exchange for property, services or other securities, and new securities resulting from the modification of outstanding securities that were not registered under the Securities Act.
Authorized Capital Stock
Immediately following the Spin-Off, our authorized capital stock will consist of [●] shares of common stock, par value $0.01 per share, and [●] shares of preferred stock, par value $0.01 per share. We have no present plans to issue any shares of preferred stock.
Common Stock
Shares Outstanding
. Immediately following the Spin-Off, we estimate that approximately [●] million shares of our common stock will be issued and outstanding, based on the approximately [●] million shares of Manitowoc ParentCo common stock outstanding as of December 31, 2015. The actual number of shares of our common stock outstanding immediately following the Spin-Off will depend on the actual number of shares of Manitowoc ParentCo common stock outstanding on the Record Date, and will reflect any issuance of new shares or exercise of outstanding options pursuant to Manitowoc ParentCo’s equity plans.
Dividends.
Holders of shares of our common stock will be entitled to receive dividends when, as and if declared by our Board at its discretion out of funds legally available for that purpose, subject to the preferential rights of any outstanding shares of preferred stock. The timing, declaration, amount and payment of future dividends will depend on our financial condition, earnings, capital requirements and debt service obligations, as well as legal requirements, regulatory constraints, industry practice and other factors that our Board deems relevant. Our Board will make all decisions regarding our payment of dividends from time-to-time in accordance with applicable law. See “Risk Factors-Risks Relating to Our Common Stock and the Securities Markets-We cannot assure you that we will pay dividends on our common stock, and our indebtedness could limit our ability to pay dividends on our common stock” and “Dividend Policy.”
Voting Rights
. The holders of our common stock will be entitled to one vote for each share held of record on all matters submitted to a vote of the stockholders. With certain exceptions, a majority of the votes cast at a stockholder meeting at which a quorum is present must approve all stockholder matters. Our Certificate of Incorporation will provide that an amendment to our Certificate of Incorporation, a merger, share exchange, domestication, entity conversion, sale of assets that requires stockholder approval or our dissolution must be approved by a majority of all the votes entitled to be cast at a stockholder meeting. Except with respect to vacancies or new directorships, our Bylaws will provide that our directors are elected by the vote of the majority of the votes cast (meaning the number of shares voted “for” a director must exceed the number of shares voted “against” that director). However, if there are more nominees for election than the number of directors to be elected, directors will be elected by a plurality of the votes cast on the election of directors at a stockholder meeting at which a quorum is present.
Other Rights
. Subject to any preferential liquidation rights of holders of preferred stock that may be outstanding, upon our dissolution, the holders of our common stock will be entitled to share ratably in our assets legally available for distribution to our stockholders.
Fully Paid
. The issued and outstanding shares of our common stock are fully paid and non-assessable. Any additional shares of common stock that we may issue in the future will also be fully paid and non-assessable.
The holders of our common stock will not have preemptive rights or preferential rights to subscribe for shares of our capital stock.
Preferred Stock
We are authorized to issue up to [●] shares of preferred stock, par value $0.01 per share. Our Board, without further action by the holders of our common stock may issue shares of our preferred stock. Our Board is vested with the authority to fix by resolution the designations, preferences and relative, participating, optional or other special rights, and such qualifications, limitations or restrictions thereof, including, without limitation, redemption rights, dividend rights, liquidation preferences and conversion or exchange rights of any class or series of preferred stock, and to fix the number of classes or series of preferred stock, the number of shares constituting any such class or series and the voting powers for each class or series.
Our Board’s authority to issue preferred stock could potentially be used to discourage attempts by third parties to obtain control of Manitowoc Foodservice through a merger, tender offer, proxy contest or otherwise by making such attempts more difficult or more costly. Our Board may issue preferred stock with voting rights or conversion rights that, if exercised, could adversely affect the voting power of the
holders of common stock. There are no current agreements or understandings with respect to the issuance of preferred stock and our Board has no present intention to issue any shares of preferred stock.
Size of Board and Vacancies; Removal
Our Certificate of Incorporation provides that the number of directors on the Board shall be fixed from time to time by the Board, and our Bylaws provide that the number of directors shall be fixed from time to time exclusively pursuant to a resolution adopted by a majority of the Board, but that the Board shall at no time consist of greater than nine directors. Any vacancy on the Board, whether resulting from the death, resignation, retirement, disqualification or removal of a director or from a newly created directorship, may be filled only by the affirmative vote of a majority of the remaining directors, even if less than a quorum.
Under our Bylaws, stockholders may remove a member of our Board with the affirmative vote of the holders of a majority of the voting power of all the outstanding shares of common stock, voting together as a single class.
Stockholder Action by Written Consent
Our Certificate of Incorporation provides that any action required or permitted to be taken by our stockholders at a stockholders meeting may only be effected at such a meeting and may not be effected by consent in writing by such stockholders.
Stockholder Meetings
Under our Bylaws, only our Chairman of the Board, the Board or any record holders of shares of our common stock representing in the aggregate not less than ten percent (10%) of the total number of votes entitled to be cast on the matter or matters to be brought before the proposed special meeting will be able to call a special meeting of stockholders. For a stockholder to call a special meeting, the stockholders(s) must comply with the requirements set forth in our Bylaws, including giving notice to our secretary, which notice must include the information described in “Requirements for Advance Notification of Stockholder Nomination and Proposals” below.
Requirements for Advance Notification of Stockholder Nomination and Proposals
Our Bylaws establish advance notice procedures with respect to stockholder proposals and nomination of candidates for the election of directors other than nominations made by or at the direction of our Board or a committee of our Board. Proper notice must be timely; for annual meetings of stockholders, notice must generally be given between 90 and 120 days prior to the first anniversary of the prior year’s annual meeting, and for special meetings of stockholders, notice must generally be given between 90 and 120 days prior to the date of the special meeting. Proper notice must include, among other information, the name and address of the stockholder giving the notice, a representation that such stockholder is a holder of record of our common stock as of the date of the notice, certain information relating to each person whom such stockholder proposes to nominate for election as a director, a brief description of any other business and the text of any proposal such stockholder proposes to bring before the meeting and the reason for bringing such proposal, and the name of each person with whom the stockholder is acting in concert with respect to Manitowoc Foodservice or with whom such stockholder has any agreement, arrangement or understanding (whether written or oral) for the purpose of acquiring, holding, voting or disposing of our common stock, or to cooperate in influencing the control of Manitowoc Foodservice, including details of any such agreement, arrangement or understanding, all shares of our common stock that are beneficially owned or owned of record by such persons, any derivative securities owned by such persons or other similar arrangements with respect to shares of our common stock (including all economic terms), and any other information requested in our Bylaws, including any update or supplement described in our Bylaws.
No Cumulative Voting
Our Certificate of Incorporation provides that stockholders shall not have cumulative voting rights for the election of directors or for any other purpose.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock will be Computershare.
NYSE Listing
Our common stock has been authorized for listing on the NYSE under the ticker symbol “MFS.”
Limitation on Liability of Directors and Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law (“DGCL”) provides that a corporation may indemnify directors and officers as well as other employees and individuals against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement in connection with any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, in which such person is made a party by reason of the fact that the person is or was a director, officer, employee or agent of the corporation (other than an action by or in the right of the corporation-a “derivative action”), if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe such person’s conduct was unlawful. A similar standard is applicable in the case of derivative actions, except that indemnification only extends to expenses (including attorneys’ fees) incurred in connection with the defense or settlement of such action, and the statute requires court approval before there can be any indemnification where the person seeking indemnification has been found liable to
the corporation. The statute provides that it is not exclusive of other indemnification that may be granted by a corporation’s bylaws, disinterested director vote, stockholder vote, agreement or otherwise.
Our certificate of incorporation provides that no director shall be personally liable to us or our stockholders for monetary damages for breach of fiduciary duty as a director, except to the extent such exemption from liability or limitation on liability is not permitted under the DGCL, as now in effect or as amended. Currently, Section 102(b)(7) of the DGCL requires that liability be imposed for the following:
|
|
|
|
•
|
any breach of the director’s duty of loyalty to us or our stockholders;
|
|
|
|
|
•
|
any act or omission not in good faith or which involved intentional misconduct or a knowing violation of law;
|
|
|
|
|
•
|
unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the DGCL; and
|
|
|
|
|
•
|
any transaction from which the director derived an improper personal benefit.
|
Our bylaws provide that, to the fullest extent authorized or permitted by the DGCL, as now in effect or as amended, we will indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding by reason of the fact that such person, or a person of whom he or she is the legal representative, is or was our director or officer, or by reason of the fact that our director or officer is or was serving, at our request, as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans maintained or sponsored by us. We will indemnify such persons against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred in connection with such action if such person acted in good faith and in a manner reasonably believed to be in our best interests and, with respect to any criminal proceeding, had no reason to believe their conduct was unlawful. A similar standard is applicable in the case of derivative actions, except that indemnification only extends to expenses (including attorneys’ fees) incurred in connection with the defense or settlement of such actions, and court approval is required before there can be any indemnification where the person seeking indemnification has been found liable to us. Any amendment of this provision will not reduce our indemnification obligations relating to actions taken before an amendment.
We intend to obtain policies that insure our directors and officers and those of our subsidiaries against certain liabilities they may incur in their capacity as directors and officers. Under these policies, the insurer, on our behalf, may also pay amounts for which we have granted indemnification to the directors or officers.
Certain Matters
On February 6, 2015, Manitowoc ParentCo entered into a Settlement Agreement (the “Settlement Agreement”) with 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. (collectively, the “Icahn Shareholders”). The Icahn Shareholders have disclosed beneficial ownership exceeding 5% of Manitowoc ParentCo’s common stock. See “Security Ownership of Certain Beneficial Owners And Management” above.
Among other things, the Settlement Agreement provides that, in connection with the Spin-Off, one designee of the Icahn Shareholders (the “Icahn Designee”) will be appointed to our Board. The Icahn Designee is subject to the approval of the Manitowoc ParentCo Board, which approval may not be unreasonably withheld, conditioned or delayed. The Icahn Designee will be entitled to serve until our first annual meeting of stockholders, provided that such annual meeting must be held no earlier than the nine-month anniversary of the Spin-Off and no later than the twelve-month anniversary of the Spin-Off (unless the twelve-month anniversary occurs within the 90-day period immediately following our fiscal year end, in which case the deadline will be extended until 135 days after that fiscal year end). The Icahn Designee must promptly resign from our Board if the Icahn Shareholders cease to own a net long position in our voting securities of at least 5% of our voting shares.
The Settlement Agreement also requires us to satisfy certain corporate governance requirements for the duration of a standstill period, which runs until the later of (1) the earlier of (A) the day that is 15 days prior to the advance notice deadline set forth in our Bylaws with respect to our first annual meeting of stockholders and (B) the nine-month anniversary of the Spin-Off, and (2) 25 days after the date that no Icahn Designee serves on our Board.
The foregoing summary of the Settlement Agreement is not complete and is subject to, and qualified in its entirety by, the full text of the Settlement Agreement, which (1) is filed an exhibit to Manitowoc Foodservice's Registration Statement on Form 10 to which this Information Statement is also an exhibit and (2) is incorporated herein by reference.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a Registration Statement on Form 10 with the SEC with respect to the shares of our common stock that Manitowoc ParentCo’s shareholders will receive in the Distribution as contemplated by this Information Statement. This Information Statement is a part of, and does not contain all of the information set forth in, the Registration Statement and the other exhibits and schedules to the Registration Statement. For further information with respect to us and our common stock, please refer to the Registration Statement, including its other exhibits and schedules. Statements we make in this Information Statement relating to any contract or other document are not necessarily complete, and you should refer to the exhibits attached to the Registration Statement for copies of the actual contract or document. You may review a copy of the Registration Statement, including its exhibits and schedules, at the SEC’s public reference room, located at 100 F Street, N.E., Washington, D.C. 20549, as well as on the Internet Web site maintained by the SEC at www.sec.gov. Please call the SEC at 1-800-SEC-0330 for more information on the public reference room. Information contained on any Web site we refer to in this Information Statement does not and will not constitute a part of this Information Statement or the Registration Statement on Form 10 of which this Information Statement is a part.
As a result of the Spin-Off, we will become subject to the information and reporting requirements of the Exchange Act and, in accordance with the Exchange Act, we will file periodic reports, proxy statements and other information with the SEC.
You may request a copy of any of our filings with the SEC at no cost by writing or telephoning us at the following address:
Investor Relations
Manitowoc Foodservice, Inc.
2227 Welbilt Boulevard
New Port Richey, FL 34655
Phone: [●]
Email: [●]
We intend to furnish holders of our common stock with annual reports containing consolidated financial statements prepared in accordance with U.S. GAAP and audited and reported on by an independent registered public accounting firm
INDEX TO FINANCIAL STATEMENTS
AUDITED COMBINED FINANCIAL STATEMENTS:
UNAUDITED CONSENDSED COMBINED FINANCIAL STATEMENTS:
|
|
|
|
|
|
Condensed Combined Statements of Operations for the Six Months Ended June 30, 2015 and 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors of The Manitowoc Company, Inc.:
In our opinion, the accompanying combined balance sheets and the related combined statements of operations, comprehensive income, cash flows, and equity present fairly, in all material respects, the financial position of Manitowoc Foodservice, Inc. at December 31, 2014 and 2013, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2014, in conformity with the accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the management of Manitowoc Foodservice, Inc. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
|
|
|
|
|
|
/s/ PricewaterhouseCoopers LLP
|
|
|
Milwaukee, Wisconsin
|
|
|
September 1, 2015
|
|
MANITOWOC FOODSERVICE
Combined Statements of Operations
For the years ended December 31, 2014, 2013, and 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of dollars
|
|
2014
|
|
2013
|
|
2012
|
|
Operations
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
1,581.3
|
|
|
$
|
1,541.8
|
|
|
$
|
1,486.2
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
1,073.3
|
|
|
1,030.9
|
|
|
997.6
|
|
|
Engineering, selling and administrative expenses
|
|
299.6
|
|
|
289.7
|
|
|
278.5
|
|
|
Amortization expense
|
|
31.8
|
|
|
31.4
|
|
|
31.3
|
|
|
Asset impairment expense
|
|
1.1
|
|
|
—
|
|
|
—
|
|
|
Restructuring expense
|
|
2.6
|
|
|
2.9
|
|
|
2.2
|
|
|
Other expense (income)
|
|
0.4
|
|
|
(0.8
|
)
|
|
1.8
|
|
|
Total costs and expenses
|
|
1,408.8
|
|
|
1,354.1
|
|
|
1,311.4
|
|
|
Operating earnings from continuing operations
|
|
172.5
|
|
|
187.7
|
|
|
174.8
|
|
|
Other (expenses) income:
|
|
|
|
|
|
|
|
|
|
|
Interest expense on capital leases
|
|
(1.3
|
)
|
|
(1.0
|
)
|
|
(1.0
|
)
|
|
Interest income on notes with Manitowoc ParentCo
|
|
16.6
|
|
|
17.2
|
|
|
4.5
|
|
|
Other (expense) income - net
|
|
(0.6
|
)
|
|
0.7
|
|
|
1.2
|
|
|
Total other income
|
|
14.7
|
|
|
16.9
|
|
|
4.7
|
|
|
Earnings from continuing operations before taxes on earnings
|
|
187.2
|
|
|
204.6
|
|
|
179.5
|
|
|
Provision for taxes on earnings
|
|
25.9
|
|
|
55.3
|
|
|
47.5
|
|
|
Earnings from continuing operations
|
|
161.3
|
|
|
149.3
|
|
|
132.0
|
|
|
Discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings from discontinued operations, net of income taxes of $(0.3), $(1.0), and $0.3, respectively
|
|
(0.4
|
)
|
|
(0.5
|
)
|
|
0.6
|
|
|
Loss on sale of discontinued operations, net of income taxes of $(0.6), $4.4 and $0.0, respectively
|
|
(1.1
|
)
|
|
(2.7
|
)
|
|
—
|
|
|
Net earnings
|
|
$
|
159.8
|
|
|
$
|
146.1
|
|
|
$
|
132.6
|
|
The accompanying notes are an integral part of these financial statements.
MANITOWOC FOODSERVICE
Combined Statements of Comprehensive Income
For the years ended December 31, 2014, 2013, and 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of dollars
|
|
2014
|
|
2013
|
|
2012
|
|
Net earnings
|
|
$
|
159.8
|
|
|
$
|
146.1
|
|
|
$
|
132.6
|
|
|
Other comprehensive (loss) income, net of tax
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
(16.9
|
)
|
|
2.6
|
|
|
4.2
|
|
|
Unrealized (loss) income on derivatives, net of income taxes of $0.2, $0.0, and $(0.6), respectively
|
|
(0.6
|
)
|
|
(0.2
|
)
|
|
0.4
|
|
|
Employee pension and postretirement benefits, net of income taxes of $0.3, $(0.6), and $(0.1), respectively
|
|
(4.4
|
)
|
|
5.6
|
|
|
(9.8
|
)
|
|
Total other comprehensive (loss) income, net of tax
|
|
(21.9
|
)
|
|
8.0
|
|
|
(5.2
|
)
|
|
Comprehensive income
|
|
$
|
137.9
|
|
|
$
|
154.1
|
|
|
$
|
127.4
|
|
The accompanying notes are an integral part of these financial statements.
MANITOWOC FOODSERVICE
Combined Balance Sheets
As of December 31, 2014 and 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of dollars
|
|
2014
|
|
2013
|
|
Assets
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
16.5
|
|
|
$
|
9.6
|
|
|
Accounts receivable, less allowances of $3.9 and $3.1, respectively
|
|
71.0
|
|
|
73.3
|
|
|
Inventories — net
|
|
163.2
|
|
|
143.7
|
|
|
Deferred income taxes
|
|
23.7
|
|
|
33.0
|
|
|
Other current assets
|
|
15.1
|
|
|
11.8
|
|
|
Total current assets
|
|
289.5
|
|
|
271.4
|
|
|
Property, plant and equipment — net
|
|
134.3
|
|
|
140.3
|
|
|
Goodwill
|
|
872.8
|
|
|
873.5
|
|
|
Other intangible assets — net
|
|
584.5
|
|
|
623.7
|
|
|
Other non-current assets
|
|
17.2
|
|
|
9.3
|
|
|
Total assets
|
|
1,898.3
|
|
|
1,918.2
|
|
|
Liabilities and Equity
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
332.1
|
|
|
322.5
|
|
|
Current portion of capital leases
|
|
0.5
|
|
|
2.7
|
|
|
Product warranties
|
|
36.0
|
|
|
30.2
|
|
|
Total current liabilities
|
|
368.6
|
|
|
355.4
|
|
|
Non-Current Liabilities:
|
|
|
|
|
|
|
|
Long-term capital leases
|
|
3.6
|
|
|
1.7
|
|
|
Deferred income taxes
|
|
218.0
|
|
|
232.7
|
|
|
Pension and postretirement health obligations
|
|
36.4
|
|
|
29.1
|
|
|
Other non-current liabilities
|
|
20.3
|
|
|
30.9
|
|
|
Total non-current liabilities
|
|
278.3
|
|
|
294.4
|
|
|
Commitments and contingencies (Note 15)
|
|
|
|
|
|
|
|
Total Equity:
|
|
|
|
|
|
|
|
Net parent company investment
|
|
1,272.1
|
|
|
1,267.2
|
|
|
Accumulated other comprehensive (loss) income
|
|
(20.7
|
)
|
|
1.2
|
|
|
Total equity
|
|
1,251.4
|
|
|
1,268.4
|
|
|
Total liabilities and equity
|
|
$
|
1,898.3
|
|
|
$
|
1,918.2
|
|
The accompanying notes are an integral part of these financial statements.
MANITOWOC FOODSERVICE
Combined Statements of Cash Flows
For the years ended December 31, 2014, 2013, and 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of dollars
|
|
2014
|
|
2013
|
|
2012
|
|
Cash Flows From Operations
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
159.8
|
|
|
$
|
146.1
|
|
|
$
|
132.6
|
|
|
Adjustments to reconcile net earnings to cash provided by operating activities of continuing operations:
|
|
|
|
|
|
|
|
|
|
Asset impairments
|
|
1.1
|
|
|
—
|
|
|
—
|
|
|
Discontinued operations, net of income taxes
|
|
0.4
|
|
|
0.5
|
|
|
(0.6
|
)
|
|
Depreciation
|
|
21.2
|
|
|
20.0
|
|
|
22.3
|
|
|
Amortization of intangible assets
|
|
31.8
|
|
|
31.4
|
|
|
31.3
|
|
|
Deferred income taxes
|
|
(17.5
|
)
|
|
(9.6
|
)
|
|
(8.2
|
)
|
|
Loss on sale of property, plant, and equipment
|
|
0.3
|
|
|
0.7
|
|
|
0.6
|
|
|
Loss of sale of discontinued operations
|
|
1.1
|
|
|
2.7
|
|
|
—
|
|
|
Other
|
|
2.4
|
|
|
3.6
|
|
|
4.1
|
|
|
Changes in operating assets and liabilities, excluding the effects of business acquisitions or dispositions:
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
(0.3
|
)
|
|
(3.2
|
)
|
|
10.0
|
|
|
Inventories
|
|
(23.8
|
)
|
|
(8.8
|
)
|
|
(3.8
|
)
|
|
Other assets
|
|
(1.3
|
)
|
|
(5.7
|
)
|
|
(1.9
|
)
|
|
Accounts payable
|
|
21.2
|
|
|
17.0
|
|
|
9.9
|
|
|
Accrued expenses and other liabilities
|
|
4.2
|
|
|
9.6
|
|
|
(35.3
|
)
|
|
Net cash provided by operating activities of continuing operations
|
|
200.6
|
|
|
204.3
|
|
|
161.0
|
|
|
Net cash (used for) provided by operating activities of discontinued operations
|
|
(0.4
|
)
|
|
(2.4
|
)
|
|
3.5
|
|
|
Net cash provided by operating activities
|
|
200.2
|
|
|
201.9
|
|
|
164.5
|
|
|
Cash Flows From Investing
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
(25.3
|
)
|
|
(33.6
|
)
|
|
(17.5
|
)
|
|
Proceeds from sale of property, plant and equipment
|
|
—
|
|
|
1.6
|
|
|
—
|
|
|
Business acquisitions, net of cash acquired
|
|
—
|
|
|
(12.2
|
)
|
|
—
|
|
|
Proceeds from sale of business
|
|
—
|
|
|
0.7
|
|
|
—
|
|
|
Net cash used for investing activities of continuing operations
|
|
(25.3
|
)
|
|
(43.5
|
)
|
|
(17.5
|
)
|
|
Net cash used for investing activities of discontinued operations
|
|
—
|
|
|
0.6
|
|
|
(0.2
|
)
|
|
Net cash used for investing activities
|
|
(25.3
|
)
|
|
(42.9
|
)
|
|
(17.7
|
)
|
|
Cash Flows From Financing
|
|
|
|
|
|
|
|
|
|
|
Payments on capital leases
|
|
(3.4
|
)
|
|
(2.9
|
)
|
|
(0.4
|
)
|
|
Proceeds from capital leases
|
|
3.1
|
|
|
3.4
|
|
|
1.7
|
|
|
Net transactions with Manitowoc ParentCo
|
|
(166.7
|
)
|
|
(171.5
|
)
|
|
(151.8
|
)
|
|
Net cash used for financing activities
|
|
(167.0
|
)
|
|
(171.0
|
)
|
|
(150.5
|
)
|
|
Effect of exchange rate changes on cash
|
|
(1.0
|
)
|
|
(0.6
|
)
|
|
1.0
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
6.9
|
|
|
(12.6
|
)
|
|
(2.7
|
)
|
|
Balance at beginning of year
|
|
9.6
|
|
|
22.2
|
|
|
24.9
|
|
|
Balance at end of year
|
|
$
|
16.5
|
|
|
$
|
9.6
|
|
|
$
|
22.2
|
|
|
Supplemental Cash Flow Information
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
$
|
13.2
|
|
|
$
|
15.9
|
|
|
$
|
6.1
|
|
The accompanying notes are an integral part of these financial statements.
MANITOWOC FOODSERVICE
Combined Statements of Equity
For the years ended December 31, 2014, 2013 and 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of dollars
|
|
2014
|
|
2013
|
|
2012
|
|
Net Parent Company Investment
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
$
|
1,267.2
|
|
|
$
|
1,303.5
|
|
|
$
|
1,339.8
|
|
|
Net earnings
|
|
159.8
|
|
|
146.1
|
|
|
132.6
|
|
|
Net decrease in net parent company investment
|
|
(154.9
|
)
|
|
(182.4
|
)
|
|
(168.9
|
)
|
|
Balance at end of year
|
|
$
|
1,272.1
|
|
|
$
|
1,267.2
|
|
|
$
|
1,303.5
|
|
|
Accumulated Other Comprehensive (Loss) Income
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
$
|
1.2
|
|
|
$
|
(6.8
|
)
|
|
$
|
(1.6
|
)
|
|
Other comprehensive (loss) income
|
|
(21.9
|
)
|
|
8.0
|
|
|
(5.2
|
)
|
|
Balance at end of year
|
|
$
|
(20.7
|
)
|
|
$
|
1.2
|
|
|
$
|
(6.8
|
)
|
|
Total equity
|
|
$
|
1,251.4
|
|
|
$
|
1,268.4
|
|
|
$
|
1,296.7
|
|
The accompanying notes are an integral part of these financial statements.
MANITOWOC FOODSERVICE
Notes to Combined Financial Statements
For the Years Ended December 31, 2014, 2013, and 2012
1. Description of the Business and Basis of Presentation
The Proposed Transaction
On January 29, 2015, Manitowoc ParentCo announced plans to create two independent public companies: the Crane Business and the Foodservice Business. To effect the separation, first, Manitowoc ParentCo will undertake an internal reorganization. Following the internal reorganization, Manitowoc ParentCo will hold the Crane Business, and Manitowoc Foodservice, Manitowoc ParentCo's wholly owned subsidiary, will hold the Foodservice Business. Then, Manitowoc ParentCo will distribute all of Manitowoc Foodservice's common stock to Manitowoc ParentCo’s shareholders, and Manitowoc Foodservice, holding the Foodservice Business, will become an independent publicly traded company.
In these combined financial statements, unless the context otherwise requires:
|
|
|
|
•
|
"Manitowoc Foodservice," "we," "our" and "us" refer to Manitowoc Foodservice, Inc. and its combined subsidiaries, after giving effect to the internal reorganization and the distribution, and
|
|
|
|
|
•
|
"Manitowoc ParentCo" refers to The Manitowoc Company, Inc. and its consolidated subsidiaries, other than, for all periods following the Spin-Off, Manitowoc Foodservice.
|
|
|
|
|
•
|
"Spin-Off" refers to both the above described internal reorganization and distribution, collectively.
|
The Spin-Off is subject to the satisfaction, or Manitowoc ParentCo’s waiver, of a number of conditions. In addition, Manitowoc ParentCo has the right not to complete the Spin-Off if, at any time, the Manitowoc ParentCo Board of Directors determines, in its sole and absolute discretion, that the Spin-Off is not in the best interests of Manitowoc ParentCo or its shareholders or is otherwise not advisable.
Nature of the Business
Manitowoc Foodservice is among the world’s most preferred and innovative commercial foodservice equipment companies. It designs, manufactures, and services an integrated portfolio of hot and cold category products. We have one of the industry’s broadest portfolios of products that create optimal value for our channels partners while delivering superior performance, quality, reliability, and durability for our customers. Our capabilities span refrigeration, ice-making, cooking, holding, food-preparation, and beverage-dispensing technologies, and allow us to equip entire commercial kitchens and serve the world’s growing demand for food prepared away from home. We supply foodservice equipment to commercial and institutional foodservice operators such as full-service restaurants, quick-service restaurant chains, hotels, caterers, supermarkets, convenience stores, business and industry, hospitals, schools and other institutions.
Basis of Presentation
The accompanying combined financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”), and derived from the consolidated financial statements and accounting records of Manitowoc ParentCo. The accompanying combined financial statements include the historical cost basis of assets, liabilities, revenues, and expenses of the individual entities that comprise Manitowoc ParentCo's historical Foodservice segment, in addition to a corporate entity which historically supported Foodservice operations. All intercompany balances and transactions within Manitowoc Foodservice and its affiliates have been eliminated.
As the separate legal entities that comprise the Foodservice business were not historically held by a single legal entity, Net Parent Company Investment is shown in lieu of shareholder’s equity in these combined financial statements. Balances between Manitowoc Foodservice and Manitowoc ParentCo (including its Crane business) that were not historically settled in cash are included in Net Parent Company Investment. Net Parent Company Investment represents Manitowoc ParentCo's interest in the recorded assets of Manitowoc Foodservice and represents the cumulative investment by Manitowoc ParentCo in its Foodservice business through the dates presented, inclusive of operating results.
During the periods presented, the Foodservice business functioned as part of the larger group of companies controlled by Manitowoc ParentCo, accordingly, Manitowoc ParentCo performed certain corporate overhead functions for the Foodservice business. Therefore, certain costs related to the Foodservice business have been allocated from Manitowoc ParentCo. These allocated costs are primarily related to: 1) corporate officers, 2) employee benefits and compensation, 3) share-based compensation, and 4) certain administrative functions, which are not provided at the business level including, but not limited to, finance, treasury, tax, audit, legal, information technology, human resources, and investor relations. Where possible, these costs were allocated based on direct usage, with the remainder allocated on a basis of revenue, headcount, or other measures we have determined as reasonable.
Management of Manitowoc Foodservice believes the assumptions underlying the combined financial statements, including the assumptions regarding the allocated expenses, reasonably reflect the utilization of services provided to or the benefit received by the Foodservice business during the periods presented. Nevertheless, the accompanying combined financial statements may not be indicative of the Foodservice
business's future performance, and do not necessarily include all the of the actual expenses that would have been incurred by the Foodservice business and may not reflect the results of operations, financial position, and cash flows had Manitowoc Foodservice been a standalone company during the periods presented.
Cash is managed centrally and flows through centralized bank accounts controlled and maintained by Manitowoc ParentCo. Accordingly, cash and cash equivalents held by Manitowoc ParentCo at the corporate level were not attributable to the Foodservice business for any of the periods presented. Only cash amounts specifically attributable to the Foodservice business are reflected in the combined balance sheets. Transfers of cash, both to and from Manitowoc ParentCo's centralized cash management system, are reflected as a component of Net Parent Company Investment in the combined balance sheets and as a financing activity on the accompanying combined statements of cash flows. Additionally, none of Manitowoc ParentCo’s debt has been allocated to the combined financial statements as Manitowoc Foodservice has no legal obligation for any of the debt agreements. Manitowoc Foodservice received or provided funding as part of Manitowoc ParentCo's centralized treasury program.
Income tax expense in the combined statement of operations is computed on a separate return basis, as if Manitowoc Foodservice was operating as a separate consolidated group and filed separate tax returns in the jurisdictions in which it operates. As a result of potential changes to our business model and potential past and future tax planning, income tax expense included in the combined financial statements may not be indicative of Manitowoc Foodservice's future expected tax rate. In addition, cash tax payments and items of current and deferred taxes may not be reflective of Manitowoc Foodservice's actual tax balances prior to or subsequent to the Spin-Off.
2. Summary of Significant Accounting Policies
Cash, Cash Equivalents, and Restricted Cash
All short-term investments purchased with an original maturity of three months or less are considered cash equivalents. All cash is managed centrally by Manitowoc ParentCo and cash held by Manitowoc ParentCo at the corporate level were not attributed to the Foodservice business for any periods presented. Only cash amounts specifically attributable to the Foodservice business are reflected in the combined balance sheet.
Inventories
Inventories are valued at the lower of cost or market value. Approximately
88.6%
and
91.8%
of Manitowoc Foodservice's inventories at
December 31, 2014
and
2013
, respectively, were valued using the first-in, first-out (FIFO) method. 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
$3.1 million
and
$2.8 million
at
December 31, 2014
and
2013
, respectively. Finished goods and work-in-process inventories include material, labor and manufacturing overhead costs.
Goodwill and Other Intangible Assets
Manitowoc Foodservice accounts for its goodwill and other intangible assets under the guidance of ASC Subtopic 350-10, “Intangibles — Goodwill and Other.” Under ASC Subtopic 350-10, goodwill is not amortized, but it is tested for impairment annually, or more frequently, as events dictate. See additional discussion of impairment testing under “Impairment of Long-Lived Assets,” below. Manitowoc Foodservice's other intangible assets with indefinite lives, including trademarks and tradenames and in-place distributor networks, are not amortized, but are also tested for impairment annually, or more frequently, as events dictate. Manitowoc Foodservice’s other intangible assets subject to amortization are tested for impairment whenever events or changes in circumstances indicate that their carrying values may not be recoverable. Other intangible assets are amortized straight-line over the following estimated useful lives:
|
|
|
|
|
|
|
Useful lives
|
|
Patents
|
10-20 years
|
|
Engineering drawings
|
15 years
|
|
Customer relationships
|
10-20 years
|
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Expenditures for maintenance, repairs and minor renewals are charged against earnings as incurred. Expenditures for major renewals and improvements that substantially extend the capacity or useful life of an asset are capitalized and are then depreciated. The cost and accumulated depreciation for property, plant and equipment sold, retired, or otherwise disposed of are relieved from the accounts, and resulting gains or losses are reflected in earnings. Property, plant and equipment are depreciated over the estimated useful lives of the assets using the straight-line depreciation method for financial reporting and on accelerated methods for income tax purposes.
Property, plant and equipment are depreciated over the following estimated useful lives:
|
|
|
|
|
|
|
Years
|
|
Building and improvements
|
2 - 40
|
|
Machinery, equipment and tooling
|
2 - 20
|
|
Furniture and fixtures
|
3 - 15
|
|
Computer hardware and software
|
2 - 7
|
Impairment of Long-Lived Assets
Manitowoc Foodservice reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the assets’ carrying amount may not be recoverable. Manitowoc Foodservice conducts its long-lived asset impairment analyses in accordance with ASC Subtopic 360-10-5. ASC Subtopic 360-10-5 requires the company to group 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 to evaluate the asset group against the sum of the undiscounted future cash flows.
For property, plant and equipment and other long-lived assets, other than goodwill and other indefinite lived intangible assets, Manitowoc Foodservice performs undiscounted operating cash flow analyses to determine impairments. If an impairment is determined to exist, any related 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.
Each year, as of June 30, Manitowoc Foodservice tests for impairment of goodwill according to a two-step approach. In the first step, Manitowoc Foodservice estimates the fair values of its reporting units using the present value of future cash flows approach. If the carrying amount exceeds the fair value, the second step of the goodwill impairment test is performed to measure the amount of the impairment loss, if any. In the second step, the implied fair value of the goodwill is estimated as the fair value of the reporting unit used in the first step less the fair values of all other net tangible and intangible assets of the reporting unit. If the carrying amount of the goodwill exceeds its implied fair market value, an impairment loss is recognized in an amount equal to that excess, not to exceed the carrying amount of the goodwill. In addition, goodwill of a reporting unit is tested for impairment between annual tests if an event occurs or circumstances change that would more-likely-than-not reduce the fair value of a reporting unit below its carrying value. For other indefinite lived intangible assets, the impairment test consists of a comparison of the fair value of the intangible assets to their carrying amount. See Note 9, “Goodwill and Other Intangible Assets,” for further details on our impairment assessments.
Warranties
Estimated warranty costs are recorded in cost of sales at the time of sale of the warranted 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.
Environmental Liabilities
Manitowoc Foodservice accrues for losses associated with environmental remediation obligations when such losses are probable and reasonably estimable. Such accruals are adjusted as information develops or circumstances change. Costs of long-term expenditures for environmental remediation obligations are discounted to their present value when the timing of cash flows are estimable.
Product Liabilities
Manitowoc Foodservice 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, Manitowoc Foodservice tracks the population of all outstanding pending and threatened product liability cases to determine an appropriate case reserve for each based upon Foodservice'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 case. Second, Manitowoc Foodservice determines the amount of additional reserve required to cover incurred but not reported product liability obligations and to account for possible adverse development of the established case reserves (collectively referred to as IBNR). This analysis is performed at least once annually.
Foreign Currency Translation
The financial statements of the company’s non-U.S. subsidiaries are translated using the current exchange rate for assets and liabilities and the average exchange rate for the year for income and expense items. Resulting translation adjustments are recorded to Accumulated Other Comprehensive Income (AOCI) as a component of equity.
Derivative Financial Instruments and Hedging Activities
Manitowoc ParentCo enters into derivative instruments on Manitowoc Foodservice's behalf to hedge Manitowoc Foodservice's foreign exchange and commodity exposure associated with aluminum, copper, steel, and natural gas prices. The amounts associated with these derivative contracts have been included in the combined financial statements as they are specifically attributable to the Foodservice business.
Manitowoc ParentCo has 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. Manitowoc ParentCo uses financial instruments to manage the market risk from changes in foreign exchange rates, commodities and interest rates. Manitowoc ParentCo follows the guidance in accordance with ASC Subtopic 815-10, “Derivatives and Hedging.” The fair values of all derivatives are recorded in the combined balance sheets. The change in a derivative’s fair value is recorded each period in current earnings or AOCI depending on whether the derivative is designated and qualifies as part of a hedge transaction and if so, the type of hedge transaction. During 2014, 2013 and 2012, minimal amounts were recognized in earnings due to ineffectiveness of certain commodity hedges. The amount reported as derivative instrument fair market value adjustment in the AOCI account within the combined statements of comprehensive income (loss) represents the net gain (loss) on foreign currency exchange contracts and commodity contracts designated as cash flow hedges, net of income taxes.
Cash Flow Hedges
Manitowoc ParentCo selectively hedges anticipated transactions that are subject to foreign exchange exposure and commodity price exposure, primarily using foreign currency exchange and commodity contracts. These instruments are designated as cash flow hedges in accordance with ASC Subtopic 815-10 and hedges specifically attributable to the Foodservice business are recorded in the combined balance sheets at fair value. The effective portion of the contracts’ gains or losses due to changes in fair value are initially recorded as a component of AOCI and are subsequently reclassified into earnings when the hedged transactions, typically sales and costs related to
sales occur and affect earnings. These contracts are highly effective in hedging the variability in future cash attributable to changes in currency exchange rates or commodity prices.
Stock-Based Compensation
Manitowoc Foodservice employees have historically participated in Manitowoc ParentCo’s stock-based compensation plans. Stock-based compensation expense has been allocated to the Foodservice business based on the awards and terms previously granted to its employees. Until consummation of the proposed transaction, the Foodservice business will continue to participate in Manitowoc ParentCo’s stock-based compensation plans and record stock-based compensation expense based on the stock-based awards granted to the Manitowoc Foodservice employees. Accounting guidance requires that the cost resulting from all stock-based payment transactions be recognized in the financial statements. Guidance establishes fair value as the measurement objective in accounting for stock-based payment arrangements and requires all companies to apply a fair-value-based measurement method in accounting generally for all stock-based payment transactions with employees. Stock based compensation expense related to Manitowoc Foodservice employees of
$2.4 million
,
$3.5 million
and
$4.2 million
of compensation expense has been recorded in the combined statement of operations for the years ended
December 31, 2014
,
2013
and
2012
, respectively.
Revenue Recognition
Revenue is generally recognized and earned when all the following criteria are satisfied with regard to a specific transaction: persuasive evidence of a sales arrangement exists; the price is fixed or determinable; collectability of cash is reasonably assured; and delivery has occurred or services have been rendered. Shipping and handling fees are reflected in net sales and shipping and handling costs are reflected in cost of sales in the combined statements of operations.
Research and Development
Research and development costs are charged to expense as incurred and amounted to
$31.0 million
,
$28.7 million
and
$35.6 million
for the years ended
December 31, 2014
,
2013
and
2012
, respectively. Research and development costs include salaries, materials, contractor fees and other administrative costs.
Income Taxes
In Manitowoc Foodservice’s combined financial statements, income tax expense and deferred tax balances have been calculated on a separate return basis although Manitowoc Foodservice’s operations have historically been included in the tax returns filed by the respective Manitowoc ParentCo entities. In the future, as a standalone entity, Manitowoc Foodservice will file tax returns on its own behalf and its deferred taxes and effective tax rate may differ from those in historical periods.
Manitowoc Foodservice recognizes deferred tax assets and liabilities for the expected future income tax consequences of events that have been recognized in Manitowoc Foodservice's financial statements. Deferred tax assets and liabilities are determined based on the temporary difference between financial statement carrying amounts and the tax basis of assets and liabilities using enacted tax rates in effect in the years in which the temporary differences are expected to reverse. Valuation allowances are provided for deferred tax assets where it is considered more likely than not that the company will not realize the benefit of such assets. Manitowoc Foodservice evaluates its uncertain tax positions as new information becomes available. Tax benefits are recognized to the extent a position is more likely than not to be sustained upon examination by the taxing authority.
Manitowoc Foodservice does not maintain an income tax payable to/from account with Manitowoc ParentCo. With the exception of certain separate filing Foodservice U.S and non-U.S. entities that will transfer to Manitowoc Foodservice after the Spin-Off, current income tax liabilities are deemed to settle immediately with Manitowoc ParentCo tax paying entities in the respective jurisdictions. These settlements are reflected as changes in the net parent company investment account.
Comprehensive Income (Loss)
Comprehensive income (loss) includes, in addition to net earnings, other items that are reported as direct adjustments to equity. Currently, these items are foreign currency translation adjustments, employee postretirement benefit adjustments and the change in fair value of certain derivative instruments.
Concentration of Credit Risk
Credit extended to customers through trade accounts receivable potentially subjects the Foodservice business 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 Foodservice business's receivables are with distributors and large companies in the foodservice and beverage industry. Manitowoc Foodservice currently does not foresee a significant credit risk associated with these individual groups of receivables, but continues to monitor the exposure, if any.
Recent accounting changes and pronouncements
In July 2015, the FASB issued Accounting Standards Update (“ASU”) No. 2015-11, “Inventory (Topic 330): Simplifying the Measurement of Inventory.” This update changes the guidance on accounting for inventory accounted for on a first-in first-out basis (FIFO). Under the revised standard, an entity should measure FIFO inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured on a last-in, first-out basis (LIFO). The amendments in this ASU are effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2016. We believe the adoption of this ASU will not have a material impact on our combined financial statements.
In April 2015, the FASB issued ASU No. 2015-05, “Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement.” This update provides guidance on accounting for a software license in a cloud computing arrangement. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the
arrangement as a service contract. Further, all software licenses are within the scope of Accounting Standards Codification Subtopic 350-40 and will be accounted for consistent with other licenses of intangible assets. The amendments in this ASU are effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. We believe the adoption of this ASU will not have a material impact on our combined financial statements.
In April 2015, the FASB issued ASU No. 2015-03, “Simplifying the Presentation of Debt Issuance Costs.” To simplify the presentation of debt issuance costs, this update requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts, rather than as a deferred asset. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this update. The amendments in this ASU are effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015, with early application permitted. The guidance will be applied on a retrospective basis. Manitowoc Foodservice is evaluating the impact that the adoption of this ASU will have on the its combined financial statements.
In February 2015, the FASB issued ASU No. 2015-02, “Consolidation (Topic 820)—Amendments to the Consolidation Analysis.” This update amends the current consolidation guidance for both the variable interest entity (VIE) and voting interest entity (VOE) consolidation models. The amendments in this ASU are effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. Manitowoc Foodservice believes the adoption of this ASU will not have a material impact on its combined financial statements.
In January 2015, the FASB issued ASU No. 2015-01, “Income Statement—Extraordinary and Unusual Items.” This update eliminates from GAAP the concept of extraordinary items. ASU 2015-01 is effective for the first interim period within fiscal years beginning after December 15, 2015, with early adoption permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. A reporting entity may apply the amendments prospectively or retrospectively to all prior periods presented in the financial statements. Manitowoc Foodservice believes the adoption of this ASU will not have a material impact on its combined financial statements.
In August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements—Going Concern.” This update provided guidance on management’s responsibility in evaluating whether there is substantial doubt about a company’s ability to continue as a going concern and to provide related footnote disclosures. ASU 2014-15 is effective in the first annual period ending after December 15, 2016, with early adoption permitted. Manitowoc Foodservice believes the adoption of this ASU will not have a material impact on its combined financial statements.
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers.” This update provided a principles-based approach to revenue recognition to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU provides a five-step model to be applied to all contracts with customers. The five steps are to identify the contract(s) with the customer, identify the performance obligations in the contact, determine the transaction price, allocate the transaction price to the performance obligations in the contract and recognize revenue when each performance obligation is satisfied. The revenue standard is effective for the first interim period within fiscal years beginning after December 15, 2017 (as finalized by the FASB in August 2015 in ASU 2015-14), and can be applied either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the update recognized at the date of initial application along with additional disclosures. Early adoption is permitted as of the original effective date—the first interim period within fiscal years beginning after December 15, 2016. Manitowoc Foodservice is evaluating the impact, if any, the adoption of this ASU will have on its combined financial statements.
In April 2014, the FASB issued ASU No. 2014-08, “Presentation of Financial Statements and Property, Plant, and Equipment: Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.” This ASU changes the requirements for reporting discontinued operations in Accounting Standards Codification Subtopic 205-20, and now requires a disposal of a component of an entity or a group of components of an entity to be reported in discontinued operations only if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. There will also be additional disclosures required. The amendments in this ASU are effective prospectively for fiscal years (and interim reporting periods within those years) beginning after December 15, 2014. The significance of this guidance for Manitowoc Foodservice is dependent on any future disposals.
In July 2013, the FASB issued ASU No. 2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists.” This new standard generally requires the netting of unrecognized tax benefits (UTBs) against a deferred tax asset for a loss or other carryforward that would apply in settlement of the uncertain tax positions. Under the new standard, UTBs will be netted against all available same-jurisdiction loss or other tax carryforwards that would be utilized, rather than only against carryforwards that are created by the UTBs. The amendments in this ASU are effective prospectively for fiscal years (and interim reporting periods within those years) beginning after December 15, 2013. The adoption of this ASU did not have a material impact on Manitowoc Foodservice's combined financial statements.
In March 2013, the FASB issued ASU No. 2013-05, “Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity.” This ASU changes a parent entity’s accounting for the cumulative translation adjustment upon derecognition of certain subsidiaries or groups of assets within a foreign entity or of an investment in a foreign entity. A parent entity is required to release any related cumulative foreign currency translation adjustment from accumulated other comprehensive income into net income in the following circumstances: (i) a parent entity ceases to have a controlling financial interest in a subsidiary or group of assets that is a business within a foreign entity if the sale or transfer results in the complete or
substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided; (ii) a partial sale of an equity method investment that is a foreign entity; (iii) a partial sale of an equity method investment that is not a foreign entity whereby the partial sale represents a complete or substantially complete liquidation of the foreign entity that held the equity method investment; and (iv) the sale of an investment in a foreign entity. The amendments in this ASU are effective prospectively for fiscal years (and interim reporting periods within those years) beginning after December 15, 2013. The adoption of this ASU did not have a material impact on Manitowoc Foodservice's combined financial statements.
3. Acquisitions
On October 1, 2013, Manitowoc Foodservice acquired all remaining shares of Inducs, AG (“Inducs”) for a purchase price, net of cash acquired, of approximately
$12.2 million
. Manitowoc Foodservice previously held a minority interest in Inducs. Inducs is a leader in induction cooking technology. Allocation of the purchase price resulted in
$5.0 million
of goodwill and
$7.0 million
of intangible assets. The results of Inducs have been included in the Foodservice business since the date of acquisition.
4. Discontinued Operations
During the fourth quarter of 2012, Manitowoc ParentCo decided to divest the warewashing equipment business of its Foodservice segment, which operated under the brand name Jackson, and classified this business as discontinued operations in the Manitowoc Foodservice financial statements. On January 28, 2013, Manitowoc ParentCo sold the Jackson warewashing equipment business to Hoshizaki USA Holdings, Inc. for approximately
$39.2 million
with the net proceeds received by Manitowoc ParentCo. The post-closing working capital adjustment of approximately $0.7 million was received by Manitowoc Foodservice. The transaction resulted in a
$2.7 million
loss on sale, which included
$4.4 million
of income tax expense. The results of these operations have been classified as discontinued operations.
The following selected financial data of the Jackson business for the years ended
December 31, 2014
,
2013
and
2012
is presented for informational purposes only and does not necessarily reflect what the results of operations would have been had the business operated as a stand-alone entity. There was no general corporate expense or interest expense allocated to discontinued operations for this business during the periods presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
2014
|
|
2013
|
|
2012
|
|
Net sales
|
|
$
|
—
|
|
|
$
|
2.5
|
|
|
$
|
32.6
|
|
|
|
|
|
|
|
|
|
|
Pretax earnings from discontinued operation
|
|
$
|
—
|
|
|
$
|
0.1
|
|
|
$
|
1.7
|
|
|
(Benefit) provision for taxes on earnings
|
|
—
|
|
|
(0.4
|
)
|
|
0.7
|
|
|
Net earnings from discontinued operation
|
|
$
|
—
|
|
|
$
|
0.5
|
|
|
$
|
1.0
|
|
During the third quarter of 2014, Manitowoc ParentCo settled a pension obligation related to a previously disposed entity, which resulted in a
$1.1 million
loss on sale of discontinued operations, net of income tax benefit of
$0.6 million
, during the period.
The following selected financial data of various businesses disposed of prior to 2012, primarily consisting of administrative costs, for the years ended
December 31, 2014
,
2013
and
2012
is presented for informational purposes only and does not necessarily reflect what the results of operations would have been had the businesses operated as stand-alone entities. There was no general corporate expense or interest expense allocated to discontinued operations for these businesses during the periods presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
2014
|
|
2013
|
|
2012
|
|
Net sales
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Pretax loss from discontinued operations
|
|
$
|
(0.7
|
)
|
|
$
|
(1.6
|
)
|
|
$
|
(0.8
|
)
|
|
Provision for taxes on earnings
|
|
(0.3
|
)
|
|
(0.6
|
)
|
|
(0.4
|
)
|
|
Net loss from discontinued operations
|
|
$
|
(0.4
|
)
|
|
$
|
(1.0
|
)
|
|
$
|
(0.4
|
)
|
5. Fair Value of Financial Instruments
The following tables sets forth financial assets and liabilities which were attributable to the Foodservice business and were accounted for at fair value on a recurring basis as of
December 31, 2014
and
2013
by level within the fair value hierarchy. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value as of December 31, 2014
|
|
(in millions)
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange contracts
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Total current assets at fair value
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Total assets at fair value
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange contracts
|
|
$
|
—
|
|
|
$
|
0.7
|
|
|
$
|
—
|
|
|
$
|
0.7
|
|
|
Commodity contracts
|
|
—
|
|
|
0.7
|
|
|
—
|
|
|
0.7
|
|
|
Total current liabilities at fair value
|
|
$
|
—
|
|
|
$
|
1.4
|
|
|
$
|
—
|
|
|
$
|
1.4
|
|
|
Non-current Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts
|
|
$
|
—
|
|
|
$
|
0.3
|
|
|
$
|
—
|
|
|
$
|
0.3
|
|
|
Total non-current liabilities at fair value
|
|
$
|
—
|
|
|
$
|
0.3
|
|
|
$
|
—
|
|
|
$
|
0.3
|
|
|
Total liabilities at fair value
|
|
$
|
—
|
|
|
$
|
1.7
|
|
|
$
|
—
|
|
|
$
|
1.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value as of December 31, 2013
|
|
(in millions)
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange contracts
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Commodity contracts
|
|
—
|
|
|
0.1
|
|
|
—
|
|
|
0.1
|
|
|
Total current assets at fair value
|
|
$
|
—
|
|
|
$
|
0.1
|
|
|
$
|
—
|
|
|
$
|
0.1
|
|
|
Total assets at fair value
|
|
$
|
—
|
|
|
$
|
0.1
|
|
|
$
|
—
|
|
|
$
|
0.1
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange contracts
|
|
$
|
—
|
|
|
$
|
0.4
|
|
|
$
|
—
|
|
|
$
|
0.4
|
|
|
Commodity contracts
|
|
—
|
|
|
0.4
|
|
|
—
|
|
|
0.4
|
|
|
Total current liabilities at fair value
|
|
$
|
—
|
|
|
$
|
0.8
|
|
|
$
|
—
|
|
|
$
|
0.8
|
|
|
Non-current Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap contracts: Fixed-to-float
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Total non-current liabilities at fair value
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Total liabilities at fair value
|
|
$
|
—
|
|
|
$
|
0.8
|
|
|
$
|
—
|
|
|
$
|
0.8
|
|
ASC Subtopic 820-10, "Fair Value Measurement," defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Subtopic 820-10 classifies the inputs used to measure fair value into the following hierarchy:
|
|
|
|
Level 1
|
Unadjusted quoted prices in active markets for identical assets or liabilities
|
|
|
|
|
Level 2
|
Unadjusted quoted prices in active markets for similar assets or liabilities, or
|
Unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or
Inputs other than quoted prices that are observable for the asset or liability
|
|
|
|
Level 3
|
Unobservable inputs for the asset or liability
|
Manitowoc Foodservice endeavors to utilize the best available information in measuring fair value. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The carrying values of cash and cash equivalents, accounts receivable, accounts payable, and deferred purchase price notes on receivables sold (see Note 11, “Accounts
Receivable Securitization”), approximate fair value, without being discounted as of
December 31, 2014
and
December 31, 2013
due to the short-term nature of these instruments.
As a result of its global operating and financing activities, Manitowoc Foodservice is exposed to market risks from changes in foreign currency exchange rates, and commodity prices, which may adversely affect its operating results and financial position. When deemed appropriate, Manitowoc Foodservice minimizes these risks through the use of derivative financial instruments. Derivative financial instruments are used to manage risk and are not used for trading or other speculative purposes, and Manitowoc Foodservice does not use leveraged derivative financial instruments. The foreign currency exchange and commodity contracts are valued through an independent valuation source which uses an industry standard data provider, with resulting valuations periodically validated through third-party or counterparty quotes. As such, these derivative instruments are classified within Level 2.
6. Derivative Financial Instruments
Manitowoc Foodservice's risk management objective is to ensure that business exposures to risks that have been identified and measured and are capable of being controlled are minimized or managed using what it believes to be the most effective and efficient methods to eliminate, reduce, or transfer such exposures. Operating decisions consider these associated risks and structure transactions to minimize or manage these risks whenever possible.
Use of derivative instruments is consistent with the overall business and risk management objectives of Manitowoc Foodservice. Derivative instruments may be used to manage business risk within limits specified by Manitowoc ParentCo’s risk policy and manage exposures that have been identified through the risk identification and measurement process, provided that they clearly qualify as “hedging” activities as defined in the risk policy. Use of derivative instruments is not automatic, nor is it necessarily the only response to managing pertinent business risk. Use is permitted only after the risks that have been identified are determined to exceed defined tolerance levels and are considered to be unavoidable.
The primary risks managed by Manitowoc ParentCo on Manitowoc Foodservice's behalf using derivative instruments are commodity price risk and foreign currency exchange risk. Swap contracts on various commodities are used to manage the price risk associated with forecasted purchases of materials used in Manitowoc Foodservice’s manufacturing process. Manitowoc ParentCo also enters into various foreign currency derivative instruments on Manitowoc Foodservice's behalf to help manage foreign currency risk associated with Manitowoc Foodservice's projected purchases and sales and foreign currency denominated receivable and payable balances.
ASC Subtopic 815-10, "Derivatives and Hedges," requires companies to recognize all derivative instruments as either assets or liabilities at fair value in the statement of financial position. In accordance with ASC Subtopic 815-10, Manitowoc Foodservice designates commodity swaps and foreign currency exchange contracts as cash flow hedges of forecasted purchases of commodities and currencies.
For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income (loss) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Gains and losses on the derivative instruments representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings. In the next twelve months Manitowoc Foodservice estimates
$0.8 million
of unrealized
losses
, net of tax, related to commodity price and currency rate hedging will be reclassified from other comprehensive income (loss) into earnings. Foreign currency and commodity hedging is generally completed prospectively on a rolling basis for
twelve
and
twenty-four
months, respectively, depending on the type of risk being hedged.
As of
December 31, 2014
, Manitowoc Foodservice had the following outstanding commodity and currency forward contracts that were entered into as hedge forecasted transactions:
|
|
|
|
|
|
|
|
|
|
|
Commodity
|
|
Units Hedged
|
|
|
|
Type
|
|
Aluminum
|
|
1,657
|
|
MT
|
|
Cash flow
|
|
Copper
|
|
820
|
|
MT
|
|
Cash flow
|
|
Natural gas
|
|
56,792
|
|
MMBtu
|
|
Cash flow
|
|
Steel
|
|
12,634
|
|
Short Tons
|
|
Cash flow
|
|
|
|
|
|
|
|
|
|
Currency
|
|
Units Hedged
|
|
Type
|
|
Canadian Dollar
|
|
7,984,824
|
|
Cash flow
|
|
Mexican Peso
|
|
52,674,383
|
|
Cash flow
|
For derivative instruments that are not designated as hedging instruments under ASC Subtopic 815-10, the gains or losses on the derivatives are recognized in current earnings within other (expense) income, net in the combined statement of operations. As of
December 31, 2014
, Manitowoc Foodservice had the following outstanding currency forward contracts that were not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
Currency
|
|
Units Hedged
|
|
Recognized Location
|
|
Purpose
|
|
European Euro
|
|
2,172,068
|
|
Other (expense) income, net
|
|
Accounts payable and receivable settlement
|
|
Mexican Peso
|
|
3,151,000
|
|
Other (expense) income, net
|
|
Accounts payable and receivable settlement
|
|
Canadian Dollar
|
|
2,516
|
|
Other (expense) income, net
|
|
Accounts payable and receivable settlement
|
The fair value of outstanding derivative contracts recorded as liabilities in the accompanying combined balance sheet as of
December 31, 2014
was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITY DERIVATIVES
|
|
(in millions)
|
|
Balance Sheet Location
|
|
Fair Value
|
|
Derivatives designated as hedging instruments
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
Accounts payable and accrued expenses
|
|
$
|
0.6
|
|
|
Commodity contracts
|
|
Accounts payable and accrued expenses
|
|
0.7
|
|
|
Commodity contracts
|
|
Other non-current liabilities
|
|
0.3
|
|
|
Total derivatives designated as hedging instruments
|
|
|
|
$
|
1.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITY DERIVATIVES
|
|
(in millions)
|
|
Balance Sheet Location
|
|
Fair Value
|
|
Derivatives NOT designated as hedging instruments
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
Accounts payable and accrued expenses
|
|
$
|
0.1
|
|
|
Total derivatives NOT designated as hedging instruments
|
|
|
|
$
|
0.1
|
|
|
|
|
|
|
|
|
|
Total liability derivatives
|
|
|
|
$
|
1.7
|
|
The effect of derivative instruments on the combined statement of operations for the twelve months ended
December 31, 2014
and gains or losses initially recognized in accumulated other comprehensive income (AOCI) in the combined balance sheet was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives in Cash Flow Hedging
Relationships (in millions)
|
|
Amount of Gain or
(Loss) Recognized in
AOCI on Derivative
(Effective Portion, net of
tax)
|
|
Location of Gain or
(Loss) Reclassified
from AOCI into Income
(Effective Portion)
|
|
Amount of Gain or
(Loss) Reclassified from
AOCI into
Income (Effective
Portion)
|
|
Foreign exchange contracts
|
|
$
|
(0.1
|
)
|
|
Cost of sales
|
|
$
|
(0.9
|
)
|
|
Commodity contracts
|
|
(0.5
|
)
|
|
Cost of sales
|
|
(0.3
|
)
|
|
Total
|
|
$
|
(0.6
|
)
|
|
|
|
$
|
(1.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives Relationships (in millions)
|
|
Location of Gain or (Loss)
Recognized in Income on
Derivative (Ineffective Portion
and Amount Excluded from
Effectiveness Testing)
|
|
Amount of Gain or (Loss)
Recognized in Income on
Derivative (Ineffective Portion
and Amount Excluded from
Effectiveness Testing)
|
|
Commodity contracts
|
|
Cost of sales
|
|
$
|
0.1
|
|
|
Total
|
|
|
|
$
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives Not Designated as
Hedging Instruments (in millions)
|
|
Location of Gain or (Loss)
Recognized in Income on
Derivative
|
|
Amount of Gain or (Loss)
Recognized in Income on
Derivative
|
|
Foreign exchange contracts
|
|
Other (expense) income, net
|
|
$
|
—
|
|
|
Total
|
|
|
|
$
|
—
|
|
As of
December 31, 2013
, Manitowoc Foodservice had the following outstanding commodity and currency forward contracts that were entered into as hedge forecasted transactions:
|
|
|
|
|
|
|
|
|
|
|
Commodity
|
|
Units Hedged
|
|
|
|
Type
|
|
Aluminum
|
|
1,622
|
|
MT
|
|
Cash flow
|
|
Copper
|
|
382
|
|
MT
|
|
Cash flow
|
|
Natural gas
|
|
149,994
|
|
MMBtu
|
|
Cash flow
|
|
Steel
|
|
8,806
|
|
Short Tons
|
|
Cash flow
|
|
|
|
|
|
|
|
|
|
Currency
|
|
Units Hedged
|
|
Type
|
|
Canadian Dollar
|
|
10,422,932
|
|
Cash Flow
|
|
European Euro
|
|
13,447,750
|
|
Cash Flow
|
|
United States Dollar
|
|
2,100,000
|
|
Cash Flow
|
For derivative instruments that are not designated as hedging instruments under ASC Subtopic 815-10, the gains or losses on the derivatives are recognized in current earnings within other (expense) income, net. As of
December 31, 2013
, Manitowoc Foodservice had the no outstanding currency forward contracts that were not designated as hedging instruments.
The fair value of outstanding derivative contracts recorded as assets in the accompanying combined balance sheet as of
December 31, 2013
was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSET DERIVATIVES
|
|
(in millions)
|
|
Balance Sheet Location
|
|
Fair Value
|
|
Derivatives designated as hedging instruments
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
Other current assets
|
|
$
|
—
|
|
|
Commodity contracts
|
|
Other current assets
|
|
0.1
|
|
|
Total derivatives designated as hedging instruments
|
|
|
|
$
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSET DERIVATIVES
|
|
(in millions)
|
|
Balance Sheet Location
|
|
Fair Value
|
|
Derivatives NOT designated as hedging instruments
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
Other current assets
|
|
$
|
—
|
|
|
Total derivatives NOT designated as hedging instruments
|
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Total asset derivatives
|
|
|
|
$
|
0.1
|
|
The fair value of outstanding derivative contracts recorded as liabilities in the accompanying combined balance sheet as of
December 31, 2013
was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES DERIVATIVES
|
|
(in millions)
|
|
Balance Sheet Location
|
|
Fair Value
|
|
Derivatives designated as hedging instruments
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
Accounts payable and accrued expenses
|
|
$
|
0.4
|
|
|
Commodity contracts
|
|
Accounts payable and accrued expenses
|
|
0.4
|
|
|
Total derivatives designated as hedging instruments
|
|
|
|
$
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITY DERIVATIVES
|
|
(in millions)
|
|
Balance Sheet Location
|
|
Fair Value
|
|
Derivatives NOT designated as hedging instruments
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
Accounts payable and accrued expenses
|
|
$
|
—
|
|
|
Total derivatives NOT designated as hedging instruments
|
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Total liability derivatives
|
|
|
|
$
|
0.8
|
|
The effect of derivative instruments on the combined statement of operations for the twelve months ended
December 31, 2013
and gains or losses initially recognized in AOCI in the combined balance sheet was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives in Cash Flow Hedging
Relationships (in millions)
|
|
Amount of Gain or
(Loss) Recognized in
AOCI on Derivative
(Effective Portion, net of
tax)
|
|
Location of Gain or
(Loss) Reclassified
from AOCI into Income
(Effective Portion)
|
|
Amount of Gain or
(Loss) Reclassified from
AOCI into
Income (Effective
Portion)
|
|
Foreign exchange contracts
|
|
$
|
(0.3
|
)
|
|
Cost of sales
|
|
$
|
(0.4
|
)
|
|
Commodity contracts
|
|
0.3
|
|
|
Cost of sales
|
|
(1.5
|
)
|
|
Total
|
|
$
|
—
|
|
|
|
|
$
|
(1.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives Relationships (in millions)
|
|
Location of Gain or (Loss)
Recognized in Income on
Derivative (Ineffective Portion
and Amount Excluded from
Effectiveness Testing)
|
|
Amount of Gain or (Loss)
Recognized in Income on
Derivative (Ineffective
Portion and Amount
Excluded from Effectiveness
Testing)
|
|
Commodity contracts
|
|
Cost of sales
|
|
$
|
0.1
|
|
|
Total
|
|
|
|
$
|
0.1
|
|
The effect of derivative instruments on the combined statement of operations for the twelve months ended
December 31, 2012
and gains or losses initially recognized in AOCI in the combined balance sheet was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives in Cash Flow Hedging
Relationships (in millions)
|
|
Amount of Gain or
(Loss) Recognized in
AOCI on Derivative
(Effective Portion, net of
tax)
|
|
Location of Gain or
(Loss) Reclassified
from AOCI into Income
(Effective Portion)
|
|
Amount of Gain or
(Loss) Reclassified from
AOCI into
Income (Effective
Portion)
|
|
Foreign exchange contracts
|
|
$
|
0.1
|
|
|
Cost of sales
|
|
$
|
0.4
|
|
|
Commodity contracts
|
|
0.9
|
|
|
Cost of sales
|
|
(2.2
|
)
|
|
Total
|
|
$
|
1.0
|
|
|
|
|
$
|
(1.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives Relationships (in millions)
|
|
Location of Gain or (Loss)
Recognized in Income on
Derivative (Ineffective Portion
and Amount Excluded from
Effectiveness Testing)
|
|
Amount of Gain or (Loss)
Recognized in Income on
Derivative (Ineffective
Portion and Amount
Excluded from Effectiveness
Testing)
|
|
Commodity contracts
|
|
Cost of sales
|
|
$
|
—
|
|
|
Total
|
|
|
|
$
|
—
|
|
7. Inventories
The components of inventories at
December 31, 2014
and
December 31, 2013
are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
2014
|
|
2013
|
|
Inventories — gross:
|
|
|
|
|
|
|
|
Raw materials
|
|
$
|
77.2
|
|
|
$
|
74.6
|
|
|
Work-in-process
|
|
21.5
|
|
|
19.0
|
|
|
Finished goods
|
|
87.9
|
|
|
72.8
|
|
|
Total inventories — gross
|
|
186.6
|
|
|
166.4
|
|
|
Excess and obsolete inventory reserve
|
|
(20.3
|
)
|
|
(19.9
|
)
|
|
Net inventories at FIFO cost
|
|
166.3
|
|
|
146.5
|
|
|
Excess of FIFO costs over LIFO value
|
|
(3.1
|
)
|
|
(2.8
|
)
|
|
Inventories — net
|
|
$
|
163.2
|
|
|
$
|
143.7
|
|
8. Property, Plant and Equipment
The components of property, plant and equipment at
December 31, 2014
and
December 31, 2013
are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
2014
|
|
2013
|
|
Land
|
|
$
|
6.6
|
|
|
$
|
8.6
|
|
|
Building and improvements
|
|
100.1
|
|
|
102.5
|
|
|
Machinery, equipment and tooling
|
|
237.0
|
|
|
237.2
|
|
|
Furniture and fixtures
|
|
6.6
|
|
|
6.6
|
|
|
Computer hardware and software
|
|
58.5
|
|
|
49.6
|
|
|
Construction in progress
|
|
12.7
|
|
|
24.1
|
|
|
Total cost
|
|
421.5
|
|
|
428.6
|
|
|
Less accumulated depreciation
|
|
(287.2
|
)
|
|
(288.3
|
)
|
|
Property, plant and equipment - net
|
|
$
|
134.3
|
|
|
$
|
140.3
|
|
9. Goodwill and Other Intangible Assets
Manitowoc Foodservice has three reportable segments: Americas, EMEA, and APAC. The changes in carrying amount of goodwill by reportable segment for the years ended
December 31, 2014
and
December 31, 2013
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Americas
|
|
EMEA
|
|
APAC
|
|
Total
|
|
Gross balance as of January 1, 2013
|
|
$
|
1,172.8
|
|
|
$
|
204.5
|
|
|
$
|
7.4
|
|
|
$
|
1,384.7
|
|
|
Acquisition of Inducs
|
|
—
|
|
|
5.0
|
|
|
—
|
|
|
5.0
|
|
|
Restructuring reserve adjustment
|
|
(0.7
|
)
|
|
—
|
|
|
—
|
|
|
(0.7
|
)
|
|
Foreign currency impact
|
|
0.6
|
|
|
(0.6
|
)
|
|
0.1
|
|
|
0.1
|
|
|
Gross balance as of December 31, 2013
|
|
1,172.7
|
|
|
208.9
|
|
|
7.5
|
|
|
1,389.1
|
|
|
Accumulated asset impairments
|
|
(312.2
|
)
|
|
(203.5
|
)
|
|
—
|
|
|
(515.7
|
)
|
|
Net balance as of December 31, 2013
|
|
860.5
|
|
|
5.4
|
|
|
7.5
|
|
|
873.4
|
|
|
Foreign currency impact
|
|
—
|
|
|
(0.5
|
)
|
|
(0.1
|
)
|
|
(0.6
|
)
|
|
Gross balance as of December 31, 2014
|
|
1,172.7
|
|
|
208.4
|
|
|
7.4
|
|
|
1,388.5
|
|
|
Accumulated asset impairments
|
|
(312.2
|
)
|
|
(203.5
|
)
|
|
—
|
|
|
(515.7
|
)
|
|
Net balance as of December 31, 2014
|
|
$
|
860.5
|
|
|
$
|
4.9
|
|
|
$
|
7.4
|
|
|
$
|
872.8
|
|
Manitowoc Foodservice accounts for goodwill and other intangible assets under the guidance of ASC Topic 350, “Intangibles - Goodwill and Other.” Manitowoc Foodservice performs an annual impairment test at June 30 of every year or more frequently if events or changes in circumstances indicate that the asset might be impaired. Manitowoc Foodservice tests its reporting units and indefinite-lived intangible assets using a fair-value method based on the present value of future cash flows, which involves management’s judgments and assumptions about the amounts of those cash flows and the discount rates used. The estimated fair value is then compared with the carrying amount of the reporting unit, including recorded goodwill, or indefinite-lived intangible asset. The intangible asset is then subject to risk of write-down to the extent that the carrying amount exceeds the estimated fair value.
As of June 30, 2014, 2013, and 2012, Manitowoc Foodservice performed the annual impairment test for its reporting units, which were Americas; EMEA; and APAC, as well as its indefinite-lived intangible assets, and based on those results, no impairment was indicated in any of those periods.
As discussed in Note 3, “Acquisitions,” on October 1, 2013, Manitowoc Foodservice acquired all remaining shares of Inducs in which Manitowoc ParentCo previously held a minority interest. The aggregate purchase price of
$12.2 million
, net of cash, resulted in
$7.0 million
of identifiable intangible assets and
$5.0 million
of goodwill. Of the
$7.0 million
of acquired intangible assets,
$0.7 million
was assigned to trademarks that are not subject to amortization,
$1.2 million
was assigned to customer relationships with a useful life of
19
years, and
$5.1 million
was assigned to developed technology with a useful life of
12
years.
The gross carrying amount and accumulated amortization of Manitowoc Foodservice’s intangible assets other than goodwill are as follows as of
December 31, 2014
and
December 31, 2013
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2014
|
|
December 31, 2013
|
|
(in millions)
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
Amount
|
|
Net
Book
Value
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
Amount
|
|
Net
Book
Value
|
|
Trademarks and tradenames
|
|
$
|
199.4
|
|
|
$
|
—
|
|
|
$
|
199.4
|
|
|
$
|
203.9
|
|
|
$
|
—
|
|
|
$
|
203.9
|
|
|
Customer relationships
|
|
415.0
|
|
|
(129.5
|
)
|
|
285.5
|
|
|
415.2
|
|
|
(108.6
|
)
|
|
306.6
|
|
|
Patents
|
|
1.7
|
|
|
(1.4
|
)
|
|
0.3
|
|
|
1.7
|
|
|
(1.2
|
)
|
|
0.5
|
|
|
Other intangibles
|
|
160.7
|
|
|
(61.4
|
)
|
|
99.3
|
|
|
165.1
|
|
|
(52.4
|
)
|
|
112.7
|
|
|
Total
|
|
$
|
776.8
|
|
|
$
|
(192.3
|
)
|
|
$
|
584.5
|
|
|
$
|
785.9
|
|
|
$
|
(162.2
|
)
|
|
$
|
623.7
|
|
Amortization expense for the years ended
December 31, 2014
,
2013
and
2012
was
$31.8 million
,
$31.4 million
and
$31.3 million
, respectively. Excluding the impact of any future acquisitions or divestitures, Manitowoc Foodservice anticipates amortization will be approximately
$32 million
per year for next five years.
10. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses at
December 31, 2014
and
December 31, 2013
are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
2014
|
|
2013
|
|
Trade accounts payable and interest payable
|
|
$
|
161.6
|
|
|
$
|
143.0
|
|
|
Employee related expenses
|
|
31.1
|
|
|
36.7
|
|
|
Restructuring expenses
|
|
15.6
|
|
|
16.3
|
|
|
Profit sharing and incentives
|
|
4.1
|
|
|
17.3
|
|
|
Accrued rebates
|
|
52.3
|
|
|
44.2
|
|
|
Deferred revenue - current
|
|
3.8
|
|
|
4.1
|
|
|
Dividend payable to Manitowoc ParentCo
|
|
6.2
|
|
|
10.9
|
|
|
Income taxes payable
|
|
5.2
|
|
|
3.4
|
|
|
Customer advances
|
|
3.9
|
|
|
2.9
|
|
|
Product liability
|
|
2.2
|
|
|
2.4
|
|
|
Miscellaneous accrued expenses
|
|
$
|
46.1
|
|
|
$
|
41.3
|
|
|
Total accounts payable and accrued expenses
|
|
$
|
332.1
|
|
|
$
|
322.5
|
|
11. Accounts Receivable Securitization
The accounts receivable securitization facility, ("The Securitization Program"), is comprised of two funding entities: Manitowoc Funding, LLC (“U.S. Seller”) and Manitowoc Cayman Islands Funding Ltd. (“Cayman Seller”). The U.S. Seller has historically serviced domestic entities of both the Foodservice and Crane segments of Manitowoc ParentCo and remitted all funds received directly to Manitowoc ParentCo. The Cayman Seller has historically serviced solely Manitowoc Foodservice foreign entities and remitted all funds to Manitowoc Foodservice entities. The U.S. Seller entity will remain with Manitowoc ParentCo subsequent to the Spin-Off, while the Cayman Seller will be transferred to Manitowoc Foodservice subsequent to the Spin-Off. As the U.S. Seller is not directly attributable to Manitowoc Foodservice, only the receivables which were transferred to the U.S. Seller but not sold are reflected in Manitowoc Foodservice combined balance sheet. A portion of the U.S. Seller’s historical expenses related to bond administration fees and settlement fees are allocated to Manitowoc Foodservice. As the Cayman Seller is directly attributable to Manitowoc Foodservice, the assets, liabilities, income, and expenses of the Cayman Seller are included in Manitowoc Foodservice’s combined statement of operations and balance sheet.
On December 15, 2014, Manitowoc ParentCo executed a Fifth Amended and Restated Receivables Purchase Agreement (the “Receivables Purchase Agreement”) among the U.S. Seller and Cayman Seller, as sellers, Manitowoc ParentCo, Garland Commercial Ranges Limited (“Garland”), Convotherm Elektrogeräte GmbH (“Convotherm”), Manitowoc Deutschland GmbH (“Manitowoc Deutschland”), Manitowoc Foodservice UK Limited (“Foodservice UK”), and the other persons from time to time party thereto, as servicers, and Wells Fargo Bank, N.A. (“Wells Fargo” or “Purchaser”), as purchaser and agent. Pursuant to this amendment, (i) the commitment size of this facility increased from up to
$150 million
to up to
$185 million
; and (ii) a German subsidiary (Manitowoc Deutschland) and a United Kingdom subsidiary (Foodservice UK) were added as “originators” under the facility. Manitowoc ParentCo's cost of funds under the facility continues to use a
LIBOR
index rate plus a
1.25%
fixed spread.
Under the Receivables Purchase Agreement (and the related Purchase and Sale Agreements referenced in the Receivables Purchase Agreement), certain of Manitowoc Foodservice's non-U.S. trade accounts receivable are sold to Cayman Seller which, in turn, will sell, convey, transfer and assign to Purchaser, all of the Cayman Seller’s right, title and interest in and to a pool of receivables to the Purchaser.
The Purchaser receives ownership of the pool of receivables, in each instance. New receivables are purchased by Cayman Seller and resold to the Purchaser as cash collections reduce previously sold investments. Garland, Convotherm, Manitowoc Deutschland, and Foodservice UK act as the servicers of the receivables and as such administer, collect and otherwise enforce the receivables. The servicers are compensated for doing so on terms that are generally consistent with what would be charged by an unrelated servicer. As servicers, they initially receive payments made by obligors on the receivables but are required to remit those payments to the Purchaser in accordance with the Receivables Purchase Agreement. The Purchaser has no recourse for uncollectible receivables. The securitization program also contains customary affirmative and negative covenants. As of
December 31, 2014
, Manitowoc ParentCo was in compliance with all affirmative and negative covenants pertaining to the Receivables Purchase Agreement, as amended.
Due to a short average collection cycle of less than
60
days for such accounts receivable as well as Manitowoc Foodservice's collection history, the fair value of Manitowoc Foodservice's deferred purchase price notes approximates book value. The fair value of the deferred purchase price notes recorded at
December 31, 2014
and
2013
was
$33.1 million
and
$7.0 million
, respectively, and is included in accounts receivable in the accompanying combined balance sheets.
Trade accounts receivables sold to the Purchaser and being serviced by the company totaled
$21.1 million
at
December 31, 2014
and
$22.8 million
at
December 31, 2013
.
Transactions under the accounts receivables securitization program are accounted for as sales in accordance with ASC Topic 860, “Transfers and Servicing.” Sales of trade receivables to the Purchaser are reflected as a reduction of accounts receivable in the accompanying combined balance sheets and the proceeds received, including collections on the deferred purchase price notes, are included in cash flows from operating activities in the accompanying combined statements of cash flows. Manitowoc Foodservice deems the interest rate risk related to the deferred purchase price notes to be de minimis, primarily due to the short average collection cycle of the related receivables (i.e.,
60
days) as noted above.
12. Income Taxes
In the combined financial statements, income tax expense and deferred tax balances have been calculated on a separate return basis although the Manitowoc Foodservice operations have historically been included in the tax returns filed by the respective Manitowoc ParentCo entities. Manitowoc Foodservice does not maintain an income tax payable to/from account with Manitowoc ParentCo. With the exception of certain separate filing Foodservice entities that will transfer to Manitowoc Foodservice after the Spin-Off, current income tax liabilities are deemed to settle immediately with Manitowoc ParentCo tax paying entities in the respective jurisdictions. These settlements are reflected as changes in the net parent company investment account. In the future, as a standalone entity, Manitowoc Foodservice will file tax returns on its own behalf and its deferred taxes and effective tax rate may differ from those in historical periods.
Earnings (loss) from continuing operations are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
2014
|
|
2013
|
|
2012
|
|
Earnings (loss) from continuing operations before income taxes:
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
123.3
|
|
|
$
|
157.2
|
|
|
$
|
147.4
|
|
|
Foreign
|
|
63.9
|
|
|
47.4
|
|
|
32.1
|
|
|
Total
|
|
$
|
187.2
|
|
|
$
|
204.6
|
|
|
$
|
179.5
|
|
Provision for income taxes from continuing operations is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
2014
|
|
2013
|
|
2012
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
Federal and state
|
|
$
|
28.3
|
|
|
$
|
51.9
|
|
|
$
|
46.1
|
|
|
Foreign
|
|
15.1
|
|
|
13.0
|
|
|
9.6
|
|
|
Total current
|
|
$
|
43.4
|
|
|
$
|
64.9
|
|
|
$
|
55.7
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
Federal and state
|
|
$
|
(12.0
|
)
|
|
$
|
(9.0
|
)
|
|
$
|
(7.8
|
)
|
|
Foreign
|
|
(5.5
|
)
|
|
(0.6
|
)
|
|
(0.4
|
)
|
|
Total deferred
|
|
$
|
(17.5
|
)
|
|
$
|
(9.6
|
)
|
|
$
|
(8.2
|
)
|
|
Provision for taxes on earnings
|
|
$
|
25.9
|
|
|
$
|
55.3
|
|
|
$
|
47.5
|
|
The differences between the U.S. federal statutory income tax rate and Manitowoc Foodservice's effective tax rate were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014
|
|
2013
|
|
2012
|
|
Federal income tax at statutory rate
|
|
35.0
|
%
|
|
35.0
|
%
|
|
35.0
|
%
|
|
State income provision (benefit)
|
|
1.4
|
|
|
1.9
|
|
|
1.2
|
|
|
Manufacturing & research incentives
|
|
(1.7
|
)
|
|
(2.9
|
)
|
|
(2.0
|
)
|
|
Taxes on foreign income which differ from the U.S. statutory rate
|
|
(2.4
|
)
|
|
(3.2
|
)
|
|
(3.1
|
)
|
|
Adjustments for unrecognized tax benefits
|
|
4.3
|
|
|
(3.5
|
)
|
|
(7.2
|
)
|
|
Adjustments for valuation allowances
|
|
21.5
|
|
|
(0.3
|
)
|
|
1.6
|
|
|
Capital loss generation
|
|
(41.4
|
)
|
|
—
|
|
|
—
|
|
|
Other items
|
|
(2.9
|
)
|
|
—
|
|
|
1.0
|
|
|
Effective tax rate
|
|
13.8
|
%
|
|
27.0
|
%
|
|
26.5
|
%
|
The 2014, 2013 and 2012 effective tax rates were favorably impacted by income earned in jurisdictions where the statutory rate was less than 35%.
In the third quarter of 2014, Manitowoc Foodservice made an election with the IRS to treat Enodis Holdings, Ltd, Manitowoc Foodservice’s UK Holding Company, as a partnership for U.S. income tax purposes. As a result of this status change, Manitowoc Foodservice realized a $
25.6 million
capital loss tax benefit. This transaction resulted in an effective tax rate benefit of
13.7%
unique to 2014.
The 2013 and 2012 effective tax rates benefited from the release of uncertain tax position reserves related to favorable audit settlements.
The significant components of deferred tax assets and deferred tax liabilities were as follows:
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
2014
|
|
2013
|
|
Current deferred tax assets (liabilities):
|
|
|
|
|
|
|
|
Inventories
|
|
5.1
|
|
|
5.4
|
|
|
Accounts receivable
|
|
1.2
|
|
|
1.3
|
|
|
Product warranty reserves
|
|
10.9
|
|
|
10.3
|
|
|
Product liability reserves
|
|
0.8
|
|
|
0.9
|
|
|
Deferred revenue, current portion
|
|
(0.2
|
)
|
|
(0.1
|
)
|
|
Deferred employee benefits
|
|
4.7
|
|
|
5.9
|
|
|
Other reserves and allowances
|
|
5.4
|
|
|
8.0
|
|
|
Less valuation allowance
|
|
(8.3
|
)
|
|
(0.5
|
)
|
|
Net deferred tax assets, current
|
|
19.6
|
|
|
31.2
|
|
|
Non-current deferred tax assets (liabilities):
|
|
|
|
|
|
Property, plant and equipment
|
|
(8.3
|
)
|
|
(9.8
|
)
|
|
Intangible assets
|
|
(242.4
|
)
|
|
(253.4
|
)
|
|
Deferred employee benefits
|
|
12.7
|
|
|
10.8
|
|
|
Product warranty reserves
|
|
3.9
|
|
|
2.9
|
|
|
Loss carryforwards
|
|
119.1
|
|
|
84.1
|
|
|
Deferred revenue
|
|
1.5
|
|
|
2.4
|
|
|
Other
|
|
9.7
|
|
|
12.3
|
|
|
Total non-current deferred tax liabilities
|
|
(103.8
|
)
|
|
(150.7
|
)
|
|
Less valuation allowance
|
|
(104.9
|
)
|
|
(79.7
|
)
|
|
Net deferred tax liabilities, non-current
|
|
(208.7
|
)
|
|
(230.4
|
)
|
Current and long-term tax assets and liabilities included in the combined balance sheets were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
2014
|
|
2013
|
|
Current income tax asset
|
|
$
|
23.7
|
|
|
$
|
33.0
|
|
|
Long-term income tax assets, included in other non-current assets
|
|
9.3
|
|
|
2.3
|
|
|
Current deferred income tax liability, included in accounts payable and accrued expenses
|
|
(4.1
|
)
|
|
(1.8
|
)
|
|
Long-term deferred income tax liability
|
|
(218.0
|
)
|
|
(232.7
|
)
|
|
Net deferred income tax liability
|
|
$
|
(189.1
|
)
|
|
$
|
(199.2
|
)
|
Manitowoc Foodservice has not provided for additional U.S. income taxes on approximately
$73.0 million
of undistributed earnings of combined non-U.S. subsidiaries as of December 31, 2014 because it intends to reinvest such earnings indefinitely outside of the United States. Such earnings could become taxable upon sale or liquidation of these non-U.S. subsidiaries or upon dividend repatriation of cash balances. It is not practicable to estimate the amount of the unrecognized tax liability on such earnings.
As of December 31, 2014, Manitowoc Foodservice has approximately
$365.7 million
of foreign loss carryforwards, which are available to reduce future foreign tax liabilities. Substantially all of the foreign loss carryforwards are not subject to any time restrictions on their future use, and $344.1 million are offset by a valuation allowance. Manitowoc Foodservice also has approximately $139.1 million of U.S. capital loss carryforwards which expire in 2019 and are offset by a valuation allowance.
Manitowoc Foodservice continues to record valuation allowances on the deferred tax assets in the United Kingdom, as it remains more likely than not that they will not be utilized. In 2014, management determined that it was more likely than not that deferred taxes of $4.2 million related to its Spanish operations were realizable, and reduced the related valuation allowance.
Manitowoc Foodservice will continue to periodically evaluate its valuation allowance requirements in light of changing facts and circumstances, and may adjust its deferred tax asset valuation allowances accordingly. It is reasonably possible that Manitowoc Foodservice will either add to, or reverse a portion of its existing deferred tax asset valuation allowances in the future. Such changes in the deferred tax asset valuation allowances will be reflected in the current operations through Manitowoc Foodservice’s income tax provision, and could have a material effect on operating results.
A reconciliation of Manitowoc Foodservice’s unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
2014
|
|
2013
|
|
2012
|
|
Balance at beginning of year
|
|
$
|
7.8
|
|
|
$
|
17.1
|
|
|
$
|
28.7
|
|
|
Additions based on tax positions related to the current year
|
|
14.1
|
|
|
1.0
|
|
|
0.1
|
|
|
Additions for tax positions of prior years
|
|
—
|
|
|
0.1
|
|
|
0.9
|
|
|
Reductions for tax positions of prior years
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Reductions based on settlements with taxing authorities
|
|
(2.8
|
)
|
|
(8.0
|
)
|
|
(11.2
|
)
|
|
Reductions for lapse of statute
|
|
(2.5
|
)
|
|
(2.4
|
)
|
|
(1.4
|
)
|
|
Balance at end of year
|
|
$
|
16.6
|
|
|
$
|
7.8
|
|
|
$
|
17.1
|
|
Substantially all of Manitowoc Foodservice’s unrecognized tax benefits as of December 31, 2014, 2013 and 2012, if recognized, would affect the effective tax rate.
Manitowoc Foodservice recognizes interest and penalties related to tax liabilities as a part of income tax expense. As of December 31, 2014 and 2013, Manitowoc Foodservice has accrued interest and penalties of $0.8 million and $4.7 million, respectively.
Manitowoc ParentCo concluded an examination of its 2007 through 2009 U.S. tax returns during the third quarter of 2014 as well as an examination its 2010 and 2011 U.S. tax returns in the fourth quarter of 2014. The adjustments did not have a material impact on the financial statements.
Manitowoc Foodservice files tax returns in the U.S and various state and foreign jurisdictions. The 2011 through 2014 tax years remain subject to examination by the IRS; the 2011 year due to an amended return filing. The 2010 though 2014 tax years generally remain subject to examination by state authorities, and tax years 2010 through 2014 remain subject to examination in Germany. Tax years 2007 through 2014 remain subject to audit in China.
Manitowoc Foodservice regularly assesses the likelihood of an adverse outcome resulting from examinations to determine the adequacy of its tax reserves. As of December 31, 2014, Manitowoc Foodservice believes that it is more likely than not that the tax positions it has taken will be sustained upon the resolution of its audits resulting in no material impact on its consolidated financial position and the results of operations and cash flows. However, the final determination with respect to any tax audits, and any related litigation, could be materially different from its 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.
During the next twelve months, it is reasonably possible that federal, state and foreign tax audit resolutions could reduce unrecognized tax benefits and income tax expense by up to $0.2 million, either because Manitowoc Foodservice's tax positions are sustained on audit or settled, or the applicable statute of limitations closes.
13. Accumulated Other Comprehensive Income (“AOCI”)
The components of accumulated other comprehensive income (loss) as of
December 31, 2014
and
2013
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
2014
|
|
2013
|
|
Foreign currency translation
|
|
$
|
17.3
|
|
|
$
|
34.2
|
|
|
Derivative instrument fair market value, net of income taxes of $0.4 and $0.2
|
|
(1.0
|
)
|
|
(0.4
|
)
|
|
Employee pension and postretirement benefit adjustments, net of income taxes of $0.8 and $0.5
|
|
(37.0
|
)
|
|
(32.6
|
)
|
|
|
|
$
|
(20.7
|
)
|
|
$
|
1.2
|
|
Summaries of the changes in accumulated other comprehensive income (loss), net of tax, by component for the years ended December 31, 2012,
December 31, 2013
and
December 31, 2014
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Foreign Currency Translation
|
|
Gains and Losses on Cash Flow Hedges
|
|
Pension & Postretirement
|
|
Total
|
|
Balance at December 31, 2012
|
|
$
|
31.6
|
|
|
$
|
(0.2
|
)
|
|
$
|
(38.2
|
)
|
|
$
|
(6.8
|
)
|
|
Other comprehensive loss before reclassifications
|
|
$
|
2.6
|
|
|
$
|
(1.4
|
)
|
|
$
|
4.4
|
|
|
$
|
5.6
|
|
|
Amounts reclassified from accumulated other comprehensive income
|
|
—
|
|
|
1.2
|
|
|
1.2
|
|
|
2.4
|
|
|
Net current period other comprehensive income
|
|
2.6
|
|
|
(0.2
|
)
|
|
5.6
|
|
|
8.0
|
|
|
Balance at December 31, 2013
|
|
$
|
34.2
|
|
|
$
|
(0.4
|
)
|
|
$
|
(32.6
|
)
|
|
$
|
1.2
|
|
|
Other comprehensive loss before reclassifications
|
|
(16.9
|
)
|
|
(1.4
|
)
|
|
(4.8
|
)
|
|
(23.1
|
)
|
|
Amounts reclassified from accumulated other comprehensive income
|
|
—
|
|
|
0.8
|
|
|
0.4
|
|
|
1.2
|
|
|
Net current period other comprehensive loss
|
|
(16.9
|
)
|
|
(0.6
|
)
|
|
(4.4
|
)
|
|
(21.9
|
)
|
|
Balance at December 31, 2014
|
|
$
|
17.3
|
|
|
$
|
(1.0
|
)
|
|
$
|
(37.0
|
)
|
|
$
|
(20.7
|
)
|
A reconciliation of the reclassifications out of accumulated other comprehensive income, net of tax, for the year ended
December 31, 2014
is as follows:
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Amount Reclassified from Accumulated Other Comprehensive Income
|
|
Recognized Location
|
|
Gains and losses on cash flow hedges
|
|
|
|
|
|
Foreign exchange contracts
|
|
$
|
(0.9
|
)
|
|
Cost of sales
|
|
Commodity contracts
|
|
(0.3
|
)
|
|
Cost of sales
|
|
|
|
(1.2
|
)
|
|
Total before tax
|
|
|
|
0.4
|
|
|
Tax expense
|
|
|
|
$
|
(0.8
|
)
|
|
Net of tax
|
|
Amortization of pension and postretirement items
|
|
|
|
|
|
Amortization of prior service cost
|
|
0.3
|
|
(a)
|
|
|
Actuarial losses
|
|
(0.8
|
)
|
(a)
|
|
|
|
|
(0.5
|
)
|
|
Total before tax
|
|
|
|
0.1
|
|
|
Tax benefit
|
|
|
|
$
|
(0.4
|
)
|
|
Net of Tax
|
|
|
|
|
|
|
|
Total reclassifications for the period
|
|
$
|
(1.2
|
)
|
|
Net of Tax
|
|
|
|
|
|
|
(a) These other comprehensive income components are included in the net periodic pension cost (see
Note 18
, “Employee Benefit Plans,” for further details).
|
A reconciliation of the reclassifications out of accumulated other comprehensive income, net of tax, for the year ended
December 31, 2013
is as follows:
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Amount Reclassified from Accumulated Other Comprehensive Income
|
|
Recognized Location
|
|
Gains and losses on cash flow hedges
|
|
|
|
|
|
Foreign exchange contracts
|
|
$
|
(0.4
|
)
|
|
Cost of sales
|
|
Commodity contracts
|
|
(1.5
|
)
|
|
Cost of sales
|
|
|
|
(1.9
|
)
|
|
Total before tax
|
|
|
|
0.7
|
|
|
Tax expense
|
|
|
|
$
|
(1.2
|
)
|
|
Net of tax
|
|
Amortization of pension and postretirement items
|
|
|
|
|
|
Amortization of prior service cost
|
|
0.1
|
|
(a)
|
|
|
Actuarial losses
|
|
(1.3
|
)
|
(a)
|
|
|
|
|
(1.2
|
)
|
|
Total before tax
|
|
|
|
—
|
|
|
Tax benefit
|
|
|
|
$
|
(1.2
|
)
|
|
Net of Tax
|
|
|
|
|
|
|
|
Total reclassifications for the period
|
|
$
|
(2.4
|
)
|
|
Net of Tax
|
|
|
|
|
|
|
|
(a) These other comprehensive income components are included in the net periodic pension cost (see Note 20, “Employee Benefit Plans,” for further details).
|
14. Stock-Based Compensation
During the periods presented certain employees of Manitowoc Foodservice participated in stock-based compensation plans sponsored by Manitowoc ParentCo. Under these stock-based compensation plans, Manitowoc ParentCo provided awards to employees of Manitowoc Foodservice with restricted common stock, restricted stock units, and stock options to purchase shares of Manitowoc ParentCo. Because Manitowoc Foodservice employees provide services in consideration for their participation in Manitowoc ParentCo’s plans, the stock-based compensation expense for the awards granted to Manitowoc Foodservice employees has been reflected in the combined financial statements. See Note 21, “Net Parent Company Investment and Related Party Transactions” for further information on corporate allocations.
Manitowoc Foodservice recognizes expense for all stock-based compensation on a straight-line basis over the vesting period of the entire award.
Total stock-based compensation expense before tax was
$2.4 million
,
$3.5 million
and
$4.2 million
during
2014
,
2013
, and
2012
, respectively.
Stock Options
Any option granted to directors of Manitowoc ParentCo were exercisable immediately upon granting and expire
ten
years subsequent to the grant date. For all outstanding grants made to officers and employees prior to 2011, options become exercisable in
25%
increments annually over a
four
-year period beginning on the second anniversary of the grant date and expire
ten
years subsequent to the grant date. Starting with 2011 grants to officers and directors, such options become exercisable in
25%
increments annually over a
four
-year period beginning on the first anniversary of the grant date and expire
ten
years subsequent to the grant date.
Manitowoc ParentCo granted options to Foodservice employees to acquire
0.1 million
,
0.1 million
and
0.1 million
shares of common stock during
2014
,
2013
, and
2012
, respectively. Stock-based compensation expense is calculated by estimating the fair value of incentive and non-qualified stock options at the time of grant and is amortized over the stock options’ vesting period. Manitowoc Foodservice recognized
$0.9 million
(
$0.5 million
after taxes),
$1.7 million
(
$1.0 million
after taxes) and
$1.3 million
(
$0.8 million
after taxes) of compensation expense associated with stock options during
2014
,
2013
, and
2012
, respectively.
A summary of Manitowoc Foodservice's stock option activity is as follows (in millions, except weighted average exercise price per share):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted
Average
Exercise Price
|
|
Aggregate
Intrinsic
Value
|
|
Options outstanding as of January 1, 2014
|
|
1.2
|
|
|
$
|
14.30
|
|
|
|
|
|
Granted
|
|
0.1
|
|
|
29.07
|
|
|
|
|
|
Exercised
|
|
(0.5
|
)
|
|
13.00
|
|
|
|
|
|
Cancelled
|
|
(0.1
|
)
|
|
38.41
|
|
|
|
|
|
Options outstanding as of December 31, 2014
|
|
0.7
|
|
|
$
|
15.90
|
|
|
$
|
6.4
|
|
|
Options exercisable as of:
|
|
|
|
|
|
|
|
|
|
|
December 31, 2014
|
|
0.5
|
|
|
$
|
14.19
|
|
|
$
|
5.6
|
|
The outstanding stock options at
December 31, 2014
have a range of exercise prices from
$4.41
to
$43.33
per share. The following table shows the options outstanding and exercisable by range of exercise prices at
December 31, 2014
(in millions, except range of exercise price per share, weighted average remaining contractual life and weighted average exercise price):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Range of Exercise Price per Share
|
|
Outstanding
Options
|
|
Weighted
Average
Remaining
Contractual
Life (Years)
|
|
Weighted
Average
Exercise Price
|
|
Exercisable
Options
|
|
Weighted
Average
Exercise Price
|
|
$4.41 - $10.21
|
|
0.2
|
|
|
3.8
|
|
$
|
4.41
|
|
|
0.2
|
|
|
$
|
4.41
|
|
|
$10.22 - $18.13
|
|
0.2
|
|
|
4.7
|
|
12.78
|
|
|
0.1
|
|
|
12.29
|
|
|
$18.14 - $29.06
|
|
0.2
|
|
|
4.8
|
|
19.06
|
|
|
0.1
|
|
|
19.19
|
|
|
$29.07 - $38.86
|
|
0.1
|
|
|
6.0
|
|
29.25
|
|
|
0.1
|
|
|
29.52
|
|
|
$38.87 - $43.33
|
|
—
|
|
|
2.9
|
|
39.34
|
|
|
—
|
|
|
39.34
|
|
|
|
|
0.7
|
|
|
4.6
|
|
$
|
15.90
|
|
|
0.5
|
|
|
$
|
14.19
|
|
Manitowoc Foodservice uses the Black-Scholes valuation model to value stock options. Manitowoc Foodservice used historical stock prices for Manitowoc ParentCo shares of common stock as the basis for its volatility assumption. The assumed risk-free rates were based on
ten
-year U.S. Treasury rates in effect at the time of grant. The expected option life represents the period of time that the options granted are expected to be outstanding and is based on historical experience.
As of
December 31, 2014
, Manitowoc Foodservice has
$1.0 million
of unrecognized compensation expense before tax related to stock options, which will be recognized over a weighted average period of
2.6
years.
The weighted average fair value of options granted per share during the years ended
December 31, 2014
,
2013
, and
2012
was
$14.83
,
$9.00
, and
$7.97
, respectively. The fair value of each option grant was estimated at the date of grant using the Black-Scholes option-pricing method with the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014
|
|
2013
|
|
2012
|
|
Expected Life (years)
|
|
6.0
|
|
|
6.0
|
|
|
6.0
|
|
|
Risk-free Interest rate
|
|
1.9
|
%
|
|
1.1
|
%
|
|
1.1
|
%
|
|
Expected volatility
|
|
55.0
|
%
|
|
56.0
|
%
|
|
55.0
|
%
|
|
Expected dividend yield
|
|
0.4
|
%
|
|
0.6
|
%
|
|
0.6
|
%
|
For the years ended
December 31, 2014
,
2013
, and
2012
the total intrinsic value of stock options exercised was
$8.0 million
,
$1.5 million
, and
$0.5 million
, respectively.
Restricted Stock Units
Manitowoc ParentCo granted restricted performance stock units of
0.1 million
,
0.1 million
and
0.1 million
in
2014
,
2013
, and
2012
, respectively. The restricted stock units are earned based on service over the vesting period and on the extent to which performance goals are met over the applicable performance period (“performance shares”). The performance goals and the applicable performance period vary for each grant year. Manitowoc Foodservice recognized
$0.9 million
(
$0.6 million
after taxes),
$1.0 million
(
$0.6 million
after taxes) and
$1.0 million
(
$0.6 million
after taxes) of compensation expense associated with restricted stock units during
2014
,
2013
and
2012
, respectively.
The restricted stock units granted to employees in 2014 vest on the third anniversary of the grant date. The restricted stock units granted to directors in 2014 vest on the second anniversary of the grant date. The performance shares granted in 2014 are earned based on the extent to
which performance goals are met by Manitowoc Foodservice over a
three
-year period from January 1, 2014 to December 31, 2016. The performance goals for the performance shares granted in 2014 are based fifty percent (
50%
) on total shareholder return relative to a peer group of companies over the three-year period and fifty percent (
50%
) on EVA
®
improvement over the
three
-year period. Depending on the foregoing factors, the number of shares awarded could range from
zero
to
0.1 million
for the 2014 performance share grants. For these awards, the expense is based on the fair value of Manitowoc ParentCo's shares as of the grant date for the EVA
®
improvement criteria and a Monte Carlo model for the total shareholder return criteria.
The performance shares granted in 2013 are earned based on the extent to which performance goals are met by Manitowoc Foodservice over a
three
-year period from January 1, 2013 to December 31, 2015. The performance goals for the performance shares granted in 2013 are based fifty percent (
50%
) on total shareholder return relative to a peer group of companies over the three-year period and fifty percent (
50%
) on debt reduction over the
three
-year period. Depending on the foregoing factors, the number of shares awarded could range from
zero
to
0.1 million
for the 2013 performance share grants. For these awards, the expense is based on the fair value of Manitowoc ParentCo's shares as of the grant date for the debt reduction criteria and a Monte Carlo model for the total shareholder return criteria.
The performance shares granted in 2012 were earned based on the extent to which performance goals were met by Manitowoc Foodservice over a
three
-year period from January 1, 2012 to December 31, 2014. The performance goals for the performance shares granted in 2012 were based fifty percent (
50%
) on total shareholder return relative to a peer group of companies over the
three
-year period and fifty percent (
50%
) on improvement in the company’s total leverage ratio over the
three
-year period. Depending on the foregoing factors, the number of shares awarded could have ranged from
zero
to
0.1 million
for the 2012 performance share grants. For these awards, the expense is based on the fair value of Manitowoc Foodservice's shares as of the grant date for the total leverage ratio criteria and a Monte Carlo model for the total shareholder return criteria.
A summary of activity for restricted stock units for the year ended
December 31, 2014
is as follows (in millions except weighted average grant date fair value):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted
Average
Grant Date Fair Value
|
|
Unvested as of January 1, 2014
|
|
0.1
|
|
|
$
|
21.58
|
|
|
Granted
|
|
0.1
|
|
|
37.10
|
|
|
Vested
|
|
—
|
|
|
17.62
|
|
|
Cancelled
|
|
—
|
|
|
15.95
|
|
|
Unvested as of December 31, 2014
|
|
0.2
|
|
|
$
|
30.72
|
|
As of
December 31, 2014
, Manitowoc Foodservice has
$1.1 million
of unrecognized compensation expense before tax related to restricted performance stock units which will be recognized over a weighted average period of
1.7
years.
15. Contingencies and Significant Estimates
As of
December 31, 2014
, Manitowoc Foodservice held reserves for environmental matters related to Enodis locations of approximately
$0.7 million
. At certain of Manitowoc Foodservice’s other facilities, Manitowoc Foodservice has identified potential contaminants in soil and groundwater. The ultimate cost of any remediation required will depend upon the results of future investigation. Based upon available information, Manitowoc Foodservice does not expect the ultimate costs at any of these locations will have a material adverse effect on its financial condition, results of operations, or cash flows individually or in the aggregate.
Manitowoc Foodservice believes that it has obtained and is in substantial compliance with those material environmental permits and approvals necessary to conduct its various businesses. Based on the facts presently known, Manitowoc Foodservice does not expect environmental compliance costs to have a material adverse effect on its financial condition, results of operations, or cash flows.
As of
December 31, 2014
, various product-related lawsuits were pending. To the extent permitted under applicable law, all of these are insured with self-insurance retention levels. Manitowoc Foodservice’s self-insurance retention levels vary by business, and have fluctuated over the last
ten
years. The range of Manitowoc Foodservice’s self-insured retention levels is
$0.1 million
to
$0.3 million
per occurrence.
As of
December 31, 2014
, the largest self-insured retention level for new occurrences currently maintained by
Manitowoc Foodservice
is
$0.3 million
per occurrence and applies to product liability claims for the hot category products manufactured in the United States.
Product liability reserves in the combined balance sheets at
December 31, 2014
and
December 31, 2013
were
$2.2 million
and
$2.4 million
, respectively;
$0.2 million
and
$0.3 million
, respectively, was reserved specifically for actual cases, and
$2.0 million
and
$2.1 million
, respectively, for claims incurred but not reported, which were estimated using actuarial methods. Based on Manitowoc Foodservice’s experience in defending product liability claims, management believes the current reserves are adequate for estimated case resolutions on
aggregate self-insured claims and insured claims. Any recoveries from insurance carriers are dependent upon the legal sufficiency of claims and solvency of insurance carriers.
At
December 31, 2014
and
December 31, 2013
, Manitowoc Foodservice had reserved
$42.0 million
and
$38.3 million
, respectively, for warranty claims included in product warranties and other non-current liabilities in the combined balance sheets. Certain of these warranty and other related claims involve matters in dispute that ultimately are resolved by negotiations, arbitration, or litigation. See Note 16, “Guarantees,” for further information.
It is reasonably possible that the estimates for environmental remediation, product liability and warranty costs may change in the near future based upon new information that may arise or matters that are beyond the scope of Manitowoc Foodservice’s historical experience. Presently, there are no reliable methods to estimate the amount of any such potential changes.
Manitowoc Foodservice is also involved in various legal actions arising out of the normal course of business, which, taking into account the liabilities accrued and legal counsel’s evaluation of such actions, in the opinion of management, the ultimate resolution of all matters is not expected to have a material adverse effect on Manitowoc Foodservice’s financial condition, results of operations, or cash flows.
16. Guarantees
In the normal course of business, Manitowoc Foodservice provides its customers a warranty covering workmanship, and in some cases materials, on products manufactured by the company. Such warranty generally provides that products will be free from defects for periods ranging from
12
months to
60
months with certain equipment having longer-term warranties. If a product fails to comply with Manitowoc Foodservice’s warranty, Manitowoc Foodservice may be obligated, at its expense, to correct any defect by repairing or replacing such defective products. Manitowoc Foodservice provides for an estimate of costs that may be incurred under its warranty at the time product revenue is recognized. These costs primarily include labor and materials, as necessary, associated with repair or replacement. The primary factors that affect Manitowoc Foodservice’s 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, Manitowoc Foodservice assesses the adequacy of its recorded warranty liability and adjusts the amounts as necessary. Below is a table summarizing the warranty activity for the years ended
December 31, 2014
and
2013
:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
2014
|
|
2013
|
|
Balance at beginning of period
|
|
$
|
38.3
|
|
|
$
|
38.3
|
|
|
Accruals for warranties issued during the period
|
|
27.9
|
|
|
22.6
|
|
|
Settlements made (in cash or in kind) during the period
|
|
(23.7
|
)
|
|
(22.6
|
)
|
|
Currency translation
|
|
(0.5
|
)
|
|
—
|
|
|
Balance at end of period
|
|
$
|
42.0
|
|
|
$
|
38.3
|
|
Manitowoc Foodservice also offers extended warranties, which are recorded as deferred revenue and are amortized to income on a straight-line basis over a period equal to that of the warranty period. The deferred revenue on warranties included in other current and non-current liabilities at
December 31, 2014
and
December 31, 2013
, was
$5.4 million
and
$4.6 million
, respectively.
17. Restructuring
In conjunction with the acquisition of Enodis in October 2008, certain restructuring activities were undertaken to recognize cost synergies and rationalize the new cost structure of the Foodservice business. The restructuring reserve balance as of December 31, 2013 and December 31, 2014, includes certain of these costs, including a pension withdrawal liability. Manitowoc Foodservice recorded additional amounts in 2014 primarily related to employee termination benefits due to the movement of certain Ice manufacturing activities from Manitowoc, Wisconsin, to Monterrey, Mexico.
The following is a rollforward of all restructuring activities related to Manitowoc Foodservice for the twelve-month period ended
December 31, 2014
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring
Reserve Balance as
of
December 31, 2013
|
|
Restructuring
Charges
|
|
Use of Reserve
|
|
Restructuring
Reserve Balance as
of
December 31, 2014
|
|
$
|
16.3
|
|
|
$
|
2.6
|
|
|
$
|
(3.3
|
)
|
|
$
|
15.6
|
|
18. Employee Benefit Plans
Defined Contribution Plans
Manitowoc ParentCo maintains three defined contribution retirement plans for its employees: (1) The Manitowoc Company, Inc. 401(k) Retirement Plan (the “Manitowoc 401(k) Retirement Plan”); (2) The Manitowoc Company, Inc. Retirement Savings Plan (the “Manitowoc Retirement Savings Plan”); and (3) The Manitowoc Company, Inc. Deferred Compensation Plan (the “Manitowoc Deferred Compensation Plan”). Each plan results in individual participant balances that reflect a combination of amounts contributed by Manitowoc ParentCo or deferred by the participant, amounts invested at the direction of either the company or the participant, and the continuing reinvestment of returns until the accounts are distributed.
Manitowoc 401(k) Retirement Plan
The Manitowoc 401(k) Retirement Plan is a tax-qualified retirement plan that is available to substantially all non-union U.S. employees of Manitowoc ParentCo, its subsidiaries and related entities. The company merged the accounts of non-union participants in the Enodis Corporation 401(k) Plan with and into the Manitowoc 401(k) Retirement Plan on December 31, 2009.
The Manitowoc 401(k) Retirement Plan allows employees to make both pre- and post-tax elective deferrals, subject to certain limitations under the Internal Revenue Code of 1986, as amended (the “Tax Code”). Manitowoc ParentCo also has the right to make the following additional contributions: (1) a matching contribution based upon individual employee deferrals and (2) an additional contribution based on Manitowoc ParentCo’s performance metrics. Each participant in the Manitowoc 401(k) Retirement Plan is allowed to direct the investment of that participant’s account among a diverse mix of investment funds, including a company stock alternative. To the extent that any funds are invested in Manitowoc ParentCo stock, that portion of the Manitowoc 401(k) Retirement Plan is an employee stock ownership plan, as defined under the Tax Code (an “ESOP”).
The terms governing the retirement benefits under the Manitowoc 401(k) Retirement Plan are the same for Manitowoc ParentCo’s executive officers as they are for other eligible employees in the United States.
Manitowoc Retirement Savings Plan
The Manitowoc Retirement Savings Plan is a tax-qualified retirement plan that is available to certain collectively bargained U.S. employees of Manitowoc ParentCo, its subsidiaries and related entities. Manitowoc ParentCo merged the following plans with and into the Manitowoc Retirement Savings Plan on December 31, 2009: (1) The Manitowoc Cranes, Inc. Hourly-Paid Employees’ Deferred Profit-Sharing Plan; (2) the Manitowoc Ice, Inc. Hourly-Paid Employees’ Deferred Profit-Sharing Plan; and (3) the accounts of collectively bargained participants in the Enodis Corporation 401(k) Plan.
The Manitowoc Retirement Savings Plan allows employees to make both pre- and post-tax elective deferrals, subject to certain limitations under the Tax Code. Manitowoc ParentCo also has the right to make the following additional contributions: (1) a matching contribution based upon individual employee deferrals; and (2) an additional discretionary or fixed company contribution. Each participant in the Manitowoc Retirement Savings Plan is allowed to direct the investment of that participant’s account among a diverse mix of investment funds, including a company stock alternative. To the extent that any funds are invested in Manitowoc ParentCo stock, that portion of the Manitowoc Retirement Savings Plan is an ESOP.
Manitowoc ParentCo’s executive officers are not eligible to participate in the Manitowoc Retirement Savings Plan. Manitowoc ParentCo contributions to the plans are based upon formulas contained in the plans. For both plans mentioned above, Manitowoc Foodservice's portion of total costs incurred under these plans were $3.7 million, $4.0 million and $2.1 million for the years ended December 31, 2014, 2013 and 2012, respectively.
Manitowoc Deferred Compensation Plan
The Manitowoc Deferred Compensation Plan is a non-tax-qualified supplemental deferred compensation plan for highly compensated and key management employees and for directors. On December 31, 2009, Manitowoc ParentCo merged the Enodis Corporation Supplemental Executive Retirement Plan, another defined contribution deferred compensation plan, with and into the Manitowoc Deferred Compensation Plan. Manitowoc ParentCo maintains the Manitowoc Deferred Compensation Plan to allow eligible individuals to save for retirement in a tax-efficient manner despite Tax Code restrictions that would otherwise impair their ability to do so under the Manitowoc 401(k) Retirement Plan. The Manitowoc Deferred Compensation Plan also assists Manitowoc ParentCo in retaining those key employees and directors.
The Manitowoc Deferred Compensation Plan accounts are credited with: (1) elective deferrals made at the request of the individual participant; and/or (2) a discretionary company contribution for each individual participant. Although unfunded within the meaning of the Tax Code, the Manitowoc Deferred Compensation Plan utilizes a rabbi trust to hold assets intended to satisfy Manitowoc ParentCo’s corresponding future benefit obligations. Each participant in the Manitowoc Deferred Compensation Plan is credited with interest based upon individual elections from amongst a diverse mix of investment funds that are intended to reflect investment funds similar to those offered under the Manitowoc 401(k) Retirement Plan, including company stock. Participants do not receive preferential or above-market rates of return under the Manitowoc Deferred Compensation Plan.
Defined Benefit Plans
Shared Plans
Certain U.S. employees of Manitowoc Foodservice participate in pension and other postretirement benefit plans (the “Shared Plans”) sponsored by Manitowoc ParentCo, which include participants of other Manitowoc ParentCo subsidiaries. Manitowoc Foodservice accounts for these Shared Plans for the purpose of the combined financial statements as a multiemployer plan. Accordingly, Manitowoc Foodservice does not record an asset or liability to recognize the funded status of the Shared Plans. However, the costs associated with these Shared Plans of $1.0 million, $0.8 million, and $0.9 million, for the years ended December 31, 2014, 2013, and 2012, respectively, are reflected on the Manitowoc Foodservice combined statement of operations. This expense reflects an approximation of Manitowoc Foodservice’s portion of the costs of the Shared Plans as well as costs attributable to Manitowoc ParentCo corporate employees, which have been allocated to the Manitowoc Foodservice combined statement of operations based on methodology deemed reasonable by management.
Direct Plans
Certain Manitowoc Foodservice subsidiaries sponsor their own pension and other postretirement benefit plans (the “Direct Plans”), which are accounted for as defined benefit plans. Accordingly, the funded and unfunded position of each Direct Plan is recorded in our combined balance sheets. Actuarial gains and losses that have not yet been recognized through income are recorded in accumulated other comprehensive income net of taxes until they are amortized as a component of net periodic benefit cost. The determination of benefit obligations and the recognition of expenses related to the Direct Plans are dependent on various assumptions. The major assumptions primarily relate to discount rates, long-term expected rates of return on plan assets, and future compensation increases. Management develops each assumption using relevant company experience in conjunction with market-related data for each individual country in which such plans exist.
The components of period benefit costs for the Direct Plans for the years ended
December 31, 2014
,
2013
and
2012
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans
|
|
Postretirement Health
and Other
|
|
(in millions)
|
|
2014
|
|
2013
|
|
2012
|
|
2014
|
|
2013
|
|
2012
|
|
Service cost - benefits earned during the year
|
|
$
|
0.5
|
|
|
$
|
0.5
|
|
|
$
|
0.4
|
|
|
$
|
—
|
|
|
$
|
0.1
|
|
|
$
|
0.1
|
|
|
Interest cost of projected benefit obligation
|
|
8.1
|
|
|
6.8
|
|
|
7.2
|
|
|
0.2
|
|
|
0.2
|
|
|
0.3
|
|
|
Expected return on assets
|
|
(7.1
|
)
|
|
(5.5
|
)
|
|
(6.2
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Amortization of prior service cost
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.3
|
)
|
|
(0.1
|
)
|
|
—
|
|
|
Amortization of actuarial net loss (gain)
|
|
0.9
|
|
|
1.3
|
|
|
0.8
|
|
|
(0.1
|
)
|
|
—
|
|
|
0.1
|
|
|
Curtailment gain recognized
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.8
|
)
|
|
—
|
|
|
Settlement gain recognized
|
|
—
|
|
|
—
|
|
|
(1.6
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Net periodic benefit cost
|
|
$
|
2.4
|
|
|
$
|
3.1
|
|
|
$
|
0.6
|
|
|
$
|
(0.2
|
)
|
|
$
|
(0.6
|
)
|
|
$
|
0.5
|
|
|
Weighted average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
4.4
|
%
|
|
4.0
|
%
|
|
4.7
|
%
|
|
4.5
|
%
|
|
3.6
|
%
|
|
4.4
|
%
|
|
Expected return on plan assets
|
|
4.5
|
%
|
|
3.9
|
%
|
|
4.6
|
%
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
Rate of compensation increase
|
|
4.0
|
%
|
|
3.5
|
%
|
|
3.5
|
%
|
|
1.5
|
%
|
|
3.0
|
%
|
|
3.0
|
%
|
The prior service costs are amortized on a straight-line basis over the average remaining service period of active participants. 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, Manitowoc Foodservice considered the historical returns and future expectations for returns in each asset class, as well as targeted asset allocation percentages within the pension portfolio.
The following is a reconciliation of the changes in benefit obligation, the changes in plan assets, and the funded status of the Direct Plans as of
December 31, 2014
and
2013
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans
|
|
Postretirement
Health
and Other
|
|
(in millions)
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
|
Change in Benefit Obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation, beginning of year
|
|
$
|
186.0
|
|
|
$
|
179.6
|
|
|
$
|
3.3
|
|
|
$
|
5.6
|
|
|
Service cost
|
|
0.5
|
|
|
0.5
|
|
|
—
|
|
|
0.1
|
|
|
Interest cost
|
|
8.1
|
|
|
6.8
|
|
|
0.2
|
|
|
0.2
|
|
|
Participant contributions
|
|
0.1
|
|
|
0.1
|
|
|
0.3
|
|
|
0.3
|
|
|
Medicare subsidies received
|
|
—
|
|
|
—
|
|
|
0.1
|
|
|
—
|
|
|
Plan curtailments
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.7
|
)
|
|
Plan settlements
|
|
1.7
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Plan amendments
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.4
|
)
|
|
Actuarial (gain) loss
|
|
19.3
|
|
|
5.2
|
|
|
(0.5
|
)
|
|
(1.2
|
)
|
|
Currency translation adjustment
|
|
(10.0
|
)
|
|
2.7
|
|
|
(0.1
|
)
|
|
(0.2
|
)
|
|
Benefits paid
|
|
(10.7
|
)
|
|
(8.9
|
)
|
|
(0.5
|
)
|
|
(0.4
|
)
|
|
Benefit obligation, end of year
|
|
$
|
195.0
|
|
|
$
|
186.0
|
|
|
$
|
2.8
|
|
|
$
|
3.3
|
|
|
Change in Plan Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets, beginning of year
|
|
$
|
159.5
|
|
|
$
|
148.8
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Actual return on plan assets
|
|
18.6
|
|
|
14.7
|
|
|
—
|
|
|
—
|
|
|
Employer contributions
|
|
3.1
|
|
|
2.3
|
|
|
0.1
|
|
|
0.1
|
|
|
Participant contributions
|
|
0.1
|
|
|
0.1
|
|
|
0.3
|
|
|
0.3
|
|
|
Medicare subsidies received
|
|
—
|
|
|
—
|
|
|
0.1
|
|
|
—
|
|
|
Currency translation adjustment
|
|
(8.5
|
)
|
|
2.5
|
|
|
—
|
|
|
—
|
|
|
Benefits paid
|
|
(10.7
|
)
|
|
(8.9
|
)
|
|
(0.5
|
)
|
|
(0.4
|
)
|
|
Fair value of plan assets, end of year
|
|
162.1
|
|
|
159.5
|
|
|
—
|
|
|
—
|
|
|
Funded status
|
|
$
|
(32.9
|
)
|
|
$
|
(26.5
|
)
|
|
$
|
(2.8
|
)
|
|
$
|
(3.3
|
)
|
|
Amounts recognized in the Consolidated Balance sheet at December 31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension asset
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Pension obligation
|
|
(32.9
|
)
|
|
(26.5
|
)
|
|
—
|
|
|
—
|
|
|
Postretirement health and other benefit obligations
|
|
—
|
|
|
—
|
|
|
(2.8
|
)
|
|
(3.3
|
)
|
|
Net amount recognized
|
|
$
|
(32.9
|
)
|
|
$
|
(26.5
|
)
|
|
$
|
(2.8
|
)
|
|
$
|
(3.3
|
)
|
|
Weighted-Average Assumptions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
3.5
|
%
|
|
4.4
|
%
|
|
3.7
|
%
|
|
4.5
|
%
|
|
Expected return on plan assets
|
|
4.5
|
%
|
|
3.9
|
%
|
|
N/A
|
|
|
N/A
|
|
|
Rate of compensation increase
|
|
4.0
|
%
|
|
4.3
|
%
|
|
1.5
|
%
|
|
1.5
|
%
|
Amounts recognized in accumulated other comprehensive income as of
December 31, 2014
and
2013
, consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pensions
|
|
Postretirement
Health and Other
|
|
(in millions)
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
|
Net actuarial gain (loss)
|
|
$
|
(38.7
|
)
|
|
$
|
(33.8
|
)
|
|
$
|
0.9
|
|
|
$
|
0.5
|
|
|
Prior service credit
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.3
|
|
|
Total amount recognized
|
|
$
|
(38.7
|
)
|
|
$
|
(33.8
|
)
|
|
$
|
0.9
|
|
|
$
|
0.8
|
|
The amounts in accumulated other comprehensive income that are expected to be recognized as components of net periodic benefit cost during the next fiscal year are
$1.2 million
for the pension plan and gain of
$0.1 million
for the postretirement health and other plans.
For measurement purposes, a
7.0%
annual rate of increase in the per capita cost of covered health care benefits was assumed for
2014
. The rate was assumed to decrease gradually to
4.5%
for 2027 and remain at that level thereafter. Assumed health care cost trend rates have a
significant effect on the amounts reported for the health care plans. The following table summarizes the sensitivity of our
December 31, 2014
retirement obligations and 2015 retirement benefit costs of our plans to changes in the key assumptions used to determine those results (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in assumption:
|
|
Estimated increase
(decrease) in 2015 Pension Cost
|
|
Estimated increase
(decrease) in Projected
Benefit Obligation for the year ended December 31, 2014
|
|
Estimated increase
(decrease) in 2015 Other
Postretirement Benefit
Costs
|
|
Estimated increase
(decrease) in Other
Postretirement Benefit
Obligation
for the year ended December 31, 2014
|
|
0.50% increase in discount rate
|
|
$
|
(0.1
|
)
|
|
$
|
(11.1
|
)
|
|
$
|
—
|
|
|
$
|
(0.1
|
)
|
|
0.50% decrease in discount rate
|
|
0.6
|
|
|
14.1
|
|
|
—
|
|
|
0.1
|
|
|
0.50% increase in long-term return on assets
|
|
(0.8
|
)
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
0.50% decrease in long-term return on assets
|
|
0.8
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
1% increase in medical trend rates
|
|
N/A
|
|
|
N/A
|
|
|
—
|
|
|
0.2
|
|
|
1% decrease in medical trend rates
|
|
N/A
|
|
|
N/A
|
|
|
—
|
|
|
(0.2
|
)
|
It is reasonably possible that the estimate for future retirement and health costs may change in the near future due to changes in the health care environment or changes in interest rates that may arise. Presently, there is no reliable means to estimate the amount of any such potential changes.
The weighted-average asset allocations of the pension plans at
December 31, 2014
and
2013
, by asset category are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
2014
|
|
2013
|
|
Equity
|
|
15.0
|
%
|
|
16.7
|
%
|
|
Debt Securities
|
|
23.8
|
%
|
|
21.3
|
%
|
|
Other
|
|
61.2
|
%
|
|
62.0
|
%
|
|
|
|
100.0
|
%
|
|
100.0
|
%
|
Investment Strategy
The overall objective of Manitowoc Foodservice's pension assets 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 fund. Specific investment objectives for our 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.
Manitowoc Foodservice reviews its long-term, strategic asset allocations annually. Manitowoc Foodservice uses various analytics to determine the optimal asset mix and consider plan liability characteristics, liquidity characteristics, funding requirements, expected rates of return and the distribution of returns. Manitowoc Foodservice identifies investment benchmarks for the asset classes in the strategic asset allocation that are market-based and investable 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 assets at
December 31, 2014
, and target allocations by asset class, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Target Allocations
|
|
Weighted Average Asset Allocations
|
|
Equity Securities
|
|
14.0
|
%
|
|
|
15.0
|
%
|
|
Debt Securities
|
|
23.0
|
%
|
|
|
23.8
|
%
|
|
Other
|
|
63.0
|
%
|
|
|
61.2
|
%
|
Risk Management
In managing the plan assets, we review and manage 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 our 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 table presents our plan assets using the fair value hierarchy as of
December 31, 2014
and
2013
. The fair value hierarchy has three levels 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2014
|
|
Assets (in millions)
|
|
Quoted Prices in Active Markets for Identical Assets
(Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
Unobservable Inputs
(Level 3)
|
|
Total
|
|
Cash
|
|
$
|
0.3
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
0.3
|
|
|
Insurance group annuity contracts
|
|
—
|
|
|
—
|
|
|
98.9
|
|
|
98.9
|
|
|
Common/collective trust funds — Government, corporate and other non-government debt
|
|
—
|
|
|
21.1
|
|
|
—
|
|
|
21.1
|
|
|
Common/collective trust funds — Corporate equity
|
|
—
|
|
|
37.5
|
|
|
—
|
|
|
37.5
|
|
|
Common/collective trust funds — Customized strategy
|
|
—
|
|
|
4.3
|
|
|
—
|
|
|
4.3
|
|
|
Total
|
|
$
|
0.3
|
|
|
$
|
62.9
|
|
|
$
|
98.9
|
|
|
$
|
162.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013
|
|
Assets (in millions)
|
|
Quoted Prices in Active Markets for Identical Assets
(Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
Unobservable Inputs
(Level 3)
|
|
Total
|
|
Cash
|
|
$
|
0.2
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
0.2
|
|
|
Insurance group annuity contracts
|
|
—
|
|
|
—
|
|
|
98.7
|
|
|
98.7
|
|
|
Common/collective trust funds — Government, corporate and other non-government debt
|
|
—
|
|
|
20.8
|
|
|
—
|
|
|
20.8
|
|
|
Common/collective trust funds — Corporate equity
|
|
—
|
|
|
34.6
|
|
|
—
|
|
|
34.6
|
|
|
Common/collective trust funds — Customized strategy
|
|
—
|
|
|
5.2
|
|
|
—
|
|
|
5.2
|
|
|
Total
|
|
$
|
0.2
|
|
|
$
|
60.6
|
|
|
$
|
98.7
|
|
|
$
|
159.5
|
|
Cash equivalents and other short-term investments, which are used to pay benefits, are primarily held in registered money market funds which 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 by the fund 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 funds are typically common or collective trusts valued at their net asset values that are calculated by the investment manager or sponsor of the fund and have daily or monthly liquidity.
A reconciliation of the fair values measurements of plan assets using significant unobservable inputs (Level 3) from the beginning of the year to the end of the year is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance Contracts
Year Ended December 31,
|
|
(in millions)
|
|
2014
|
|
2013
|
|
Beginning Balance
|
|
$
|
98.7
|
|
|
$
|
91.3
|
|
|
Actual return on assets
|
|
11.2
|
|
|
11.3
|
|
|
Benefit payments
|
|
(5.8
|
)
|
|
(5.5
|
)
|
|
Foreign currency impact
|
|
(5.2
|
)
|
|
1.6
|
|
|
Ending Balance
|
|
$
|
98.9
|
|
|
$
|
98.7
|
|
The expected 2015 contributions for pension plans are as follows: the minimum contribution for 2015 is
$3.3 million
; and no planned discretionary or non-cash contributions. Expected company paid claims for the postretirement health and life insurance plans are
$0.2 million
for 2015.
Projected benefit payments from the plans as of
December 31, 2014
are estimated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Pension Plans
|
|
Postretirement
Health and Other
|
|
2015
|
|
$
|
10.6
|
|
|
$
|
0.2
|
|
|
2016
|
|
11.0
|
|
|
0.2
|
|
|
2017
|
|
11.5
|
|
|
0.2
|
|
|
2018
|
|
12.0
|
|
|
0.2
|
|
|
2019
|
|
12.5
|
|
|
0.2
|
|
|
2020 — 2024
|
|
70.3
|
|
|
0.9
|
|
The fair value of plan assets for which the accumulated benefit obligation is in excess of the plan assets as of
December 31, 2014
and
2013
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans
|
|
(in millions)
|
|
2014
|
|
2013
|
|
Projected benefit obligation
|
|
$
|
195.0
|
|
|
$
|
186.0
|
|
|
Accumulated benefit obligation
|
|
194.1
|
|
|
184.9
|
|
|
Fair value of plan assets
|
|
162.1
|
|
|
159.5
|
|
The accumulated benefit obligation for all pension plans as of
December 31, 2014
and
2013
was
$194.1 million
and
$184.9 million
, respectively.
The measurement date for all plans is
December 31, 2014
.
Manitowoc ParentCo, through its Lincoln Foodservice operation, participated in a multiemployer defined benefit pension plan under a collective bargaining agreement that covered certain of its union-represented employees. In 2013, with the finalization of the reorganization and plant restructuring that affected the Lincoln Foodservice operation, Manitowoc ParentCo was deemed to have effectively withdrawn its participation in the multiemployer defined benefit pension plan. This withdrawal obligation is part of the restructuring accrual in our combined balance sheet. The withdrawal obligation (
$14.2 million
as of
December 31, 2014
) is payable in
48
quarterly installments of
$0.5 million
through April 2025.
The contributions by Manitowoc ParentCo to the multiemployer plan for the years ended
December 31, 2014
,
2013
and
2012
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
Pension Fund
|
|
EIN / Pension Plan
Number
|
|
|
|
2014
|
|
2013
|
|
2012
|
|
Sheet Metal Workers’ National Pension Fund
|
|
52-6112463 / 001
|
|
|
|
$
|
—
|
|
|
$
|
0.3
|
|
|
$
|
0.9
|
|
|
|
|
|
|
Total Contributions
|
|
$
|
—
|
|
|
$
|
0.3
|
|
|
$
|
0.9
|
|
19. Leases
Manitowoc Foodservice leases various property, plant and equipment. Terms of the leases vary, but generally require Manitowoc Foodservice to pay property taxes, insurance premiums, and maintenance costs associated with the leased property. Rental expense attributed to operating leases was
$13.8 million
,
$10.8 million
and
$14.8 million
in
2014
,
2013
and
2012
, respectively.
Future minimum rental obligations under non-cancelable operating leases, as of
December 31, 2014
, are payable as follows:
|
|
|
|
|
|
|
|
(in millions)
|
|
|
2015
|
$
|
12.6
|
|
|
2016
|
9.0
|
|
|
2017
|
5.8
|
|
|
2018
|
3.1
|
|
|
2019
|
2.3
|
|
|
Thereafter
|
1.6
|
|
|
Total
|
$
|
34.4
|
|
20. Business Segments
Manitowoc Foodservice identifies its segments using the “management approach,” which designates the internal organization that is used by management for making operating decisions and assessing performance as the source of Manitowoc Foodservice’s reportable segments. Management organizes the business based on geography, and has designated the regions Americas, EMEA, and APAC as reportable segments.
Manitowoc Foodservice designs, manufactures and sells refrigeration, ice-making, cooking, holding, food-preparation, and beverage-dispensing equipment. Manitowoc Foodservice's suite of products is used by commercial and institutional foodservice operators such as full-service restaurants, quick-service chains, hotels, industrial caterers, supermarkets, convenience stores, hospitals, schools and other institutions.
The accounting policies of the segments are the same as those described in the summary of significant accounting policies except that certain expenses are not allocated to the segments. These unallocated expenses are corporate overhead, stock-based compensation expense, amortization expense of intangible assets with definite lives, asset impairment expense, restructuring expense, and other non-operating expenses. Manitowoc Foodservice evaluates segment performance based upon profit and loss before the aforementioned expenses. Financial information relating to Manitowoc Foodservice’s reportable segments for the years ended
December 31, 2014
,
2013
and
2012
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
2014
|
|
2013
|
|
2012
|
|
Net sales from continuing operations:
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
1,301.9
|
|
|
$
|
1,282.6
|
|
|
$
|
1,233.5
|
|
|
EMEA
|
|
315.1
|
|
|
312.6
|
|
|
214.1
|
|
|
APAC
|
|
198.2
|
|
|
129.4
|
|
|
136.0
|
|
|
Elimination of intersegment sales
|
|
(233.9
|
)
|
|
(182.8
|
)
|
|
(97.4
|
)
|
|
Total net sales
|
|
$
|
1,581.3
|
|
|
$
|
1,541.8
|
|
|
$
|
1,486.2
|
|
|
Operating earnings (loss) from continuing operations:
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
201.8
|
|
|
$
|
214.3
|
|
|
$
|
216.0
|
|
|
EMEA
|
|
20.7
|
|
|
22.5
|
|
|
8.5
|
|
|
APAC
|
|
20.8
|
|
|
16.0
|
|
|
17.9
|
|
|
Corporate expense
|
|
(34.9
|
)
|
|
(31.6
|
)
|
|
(32.3
|
)
|
|
Amortization expense
|
|
(31.8
|
)
|
|
(31.4
|
)
|
|
(31.3
|
)
|
|
Asset impairment expense
|
|
(1.1
|
)
|
|
—
|
|
|
—
|
|
|
Restructuring expense
|
|
(2.6
|
)
|
|
(2.9
|
)
|
|
(2.2
|
)
|
|
Other (expense) income
|
|
(0.4
|
)
|
|
0.8
|
|
|
(1.8
|
)
|
|
Operating earnings from continuing operations
|
|
$
|
172.5
|
|
|
$
|
187.7
|
|
|
$
|
174.8
|
|
|
Other (expense) income:
|
|
|
|
|
|
|
|
Interest expense on capital leases
|
|
$
|
(1.3
|
)
|
|
$
|
(1.0
|
)
|
|
$
|
(1.0
|
)
|
|
Interest income on notes with Manitowoc ParentCo
|
|
16.6
|
|
|
17.2
|
|
|
4.5
|
|
|
Other (expense) income - net
|
|
(0.6
|
)
|
|
0.7
|
|
|
1.2
|
|
|
Total other income
|
|
$
|
14.7
|
|
|
$
|
16.9
|
|
|
$
|
4.7
|
|
|
Earnings from continuing operations before taxes on earnings
|
|
$
|
157.8
|
|
|
$
|
170.8
|
|
|
$
|
170.1
|
|
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
12.4
|
|
|
$
|
23.8
|
|
|
$
|
9.1
|
|
|
EMEA
|
|
0.8
|
|
|
1.6
|
|
|
2.1
|
|
|
APAC
|
|
2.9
|
|
|
3.7
|
|
|
3.8
|
|
|
Corporate
|
|
9.2
|
|
|
4.5
|
|
|
2.5
|
|
|
Total capital expenditures
|
|
$
|
25.3
|
|
|
$
|
33.6
|
|
|
$
|
17.5
|
|
|
Depreciation:
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
14.1
|
|
|
$
|
13.6
|
|
|
$
|
15.1
|
|
|
EMEA
|
|
2.3
|
|
|
2.4
|
|
|
2.1
|
|
|
APAC
|
|
3.0
|
|
|
3.4
|
|
|
4.5
|
|
|
Corporate
|
|
1.8
|
|
|
0.6
|
|
|
0.6
|
|
|
Total depreciation
|
|
$
|
21.2
|
|
|
$
|
20.0
|
|
|
$
|
22.3
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
1,636.2
|
|
|
$
|
1,642.3
|
|
|
$
|
1,652.2
|
|
|
EMEA
|
|
158.3
|
|
|
181.5
|
|
|
160.3
|
|
|
APAC
|
|
96.7
|
|
|
81.5
|
|
|
88.8
|
|
|
Corporate
|
|
7.1
|
|
|
12.9
|
|
|
67.7
|
|
|
Total assets
|
|
$
|
1,898.3
|
|
|
$
|
1,918.2
|
|
|
$
|
1,969.0
|
|
Net sales by product class are categorized into commercial foodservice whole goods and aftermarket parts and support. Net sales by product class for the years ended December 31 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
(in millions)
|
|
2014
(2)
|
|
2013
(1)
|
|
2012
(1)
|
|
Commercial foodservice whole goods
|
|
$
|
1,293.6
|
|
|
$
|
1,355.3
|
|
|
$
|
1,486.2
|
|
|
Aftermarket parts and support
|
|
287.7
|
|
|
186.5
|
|
|
n/a
|
|
Total
|
|
$
|
1,581.3
|
|
|
$
|
1,541.8
|
|
|
$
|
1,486.2
|
|
|
|
|
|
|
|
|
|
|
(1)
Manitowoc Foodservice began tracking sales by product class during 2013 in the Americas region; the aftermarket parts and support class shown for 2013 represents the Americas only. Sales by product class are not available for 2012.
|
|
(2)
Manitowoc Foodservice began tracking sales by product class for EMEA and APAC during 2014; the aftermarket parts and support sales for 2014 represents sales from all regions.
|
Net sales in the table below are attributed to geographic regions based on location of customer. Net sales from continuing operations and long-lived asset information by geographic area as of and for the years ended December 31 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
Long-Lived Assets
|
|
(in millions)
|
|
2014
|
|
2013
|
|
2012
|
|
2014
|
|
2013
|
|
United States
|
|
$
|
996.4
|
|
|
$
|
949.2
|
|
|
$
|
930.9
|
|
|
$
|
1,464.3
|
|
|
$
|
1,497.4
|
|
|
Europe
|
|
280.3
|
|
|
283.2
|
|
|
229.9
|
|
|
90.2
|
|
|
103.2
|
|
|
Asia
|
|
177.2
|
|
|
177.0
|
|
|
191.5
|
|
|
28.5
|
|
|
30.4
|
|
|
Other Americas
|
|
127.4
|
|
|
132.4
|
|
|
133.9
|
|
|
16.6
|
|
|
13.6
|
|
|
Total
|
|
$
|
1,581.3
|
|
|
$
|
1,541.8
|
|
|
$
|
1,486.2
|
|
|
$
|
1,599.6
|
|
|
$
|
1,644.6
|
|
Net sales from continuing operations and long-lived asset information for Europe primarily relate to France, Germany and the United Kingdom.
Manitowoc Foodservice sells primarily through distributors and dealers ("direct customers"), who ultimately sell to end customers. No single direct customer represented 10% or greater of Manitowoc Foodservice's net sales in the years ended December 31, 2014, 2013, or 2012. There is one end customer which represented approximately 10% of Manitowoc Foodservice's net sales in the years ended December 31, 2014, 2013, and 2012.
21. Net Parent Company Investment and Related Party Transactions
Related Party Transactions and Cash Management
:
Manitowoc Foodservice does not enter into transactions with related parties to purchase and/or sell goods or services in the ordinary course of business. Transactions between Manitowoc Foodservice and Manitowoc ParentCo (including its Cranes business) are reflected in Net Parent Company Investment in the combined balance sheets and in the combined statements of cash flows as a financing activity in “Net transfers (to) from Parent and affiliates”. Manitowoc Foodservice participated in Manitowoc ParentCo’s centralized cash management program in which cash is swept each day and held in a centralized account at the corporate level. Cash held in these centralized accounts has not been allocated to Manitowoc Foodservice. The only cash reflected in the combined balance sheets is that which is held directly by specific Manitowoc Foodservice entities.
Net Parent Company Investment and Corporate Cost Allocations
: Historically, Manitowoc ParentCo performs certain general and corporate functions on Manitowoc Foodservice’s behalf. These costs include, but are not limited to, accounting, treasury, tax, legal, human resources, audit, and information technology (“general corporate expenses”). For purposes of preparing the combined financial statements these costs have been allocated on a basis of direct usage, where identifiable, or through the use of allocation methodologies based on percentage of sales, headcount, or other methodologies deemed appropriate by management. These general corporate expenses are included within “Engineering, selling, and administrative” costs and Net Parent Company Investment, accordingly. Management believes the assumptions associated with allocating these costs are reasonable. Nevertheless, the combined financial statements may not include all of the actual expense that would have been incurred and may not represent Manitowoc Foodservice’s results of operations, financial position, or cash flows had it been a stand-alone company during the periods presented. Actual costs that would have been incurred if Manitowoc Foodservice had been a standalone company would depend on multiple factors, including organizational structure and strategic decisions made in various areas, including information technology and infrastructure. General corporate expenses allocated to Manitowoc Foodservice during the fiscal years ended
December 31, 2014
,
2013
and
2012
were
$22.1 million
,
$26.3 million
and
$26.6 million
, respectively.
None of Manitowoc ParentCo’s debt has been reflected in the combined balance sheet of Manitowoc Foodservice, because Manitowoc Foodservice is not a party to the obligation between Manitowoc ParentCo and the debt holders. No financing costs or interest expense associated with Manitowoc ParentCo’s debt has been allocated to the combined financial statements.
All significant intercompany transactions between Manitowoc Foodservice and Manitowoc ParentCo (including its Cranes business), have been included within Net Parent Company Investment in the combined balance sheets. The total effect of the settlement of these intercompany transactions is reflected as a financing activity in the combined statements of cash flows.
Guarantees:
Certain of Manitowoc ParentCo’s subsidiaries, which includes selected entities that are part of Manitowoc Foodservice, have entered into guarantee agreements with Manitowoc ParentCo whereby these subsidiaries pledge their assets as collateral in the event of default by Manitowoc ParentCo on its debt or interest obligations. However, none of these Manitowoc Foodservice subsidiaries are named as obligors in the debt agreements held in the name of Manitowoc ParentCo. For that reason, Manitowoc ParentCo has not historically allocated debt balances and/or charged out third-party debt related expenses to its Foodservice Segment.
Furthermore, we expect these guarantee agreements will be terminated pursuant to the close of the Spin-Off. Therefore, Manitowoc Foodservice has not recognized any liability associated with the debt held by Manitowoc ParentCo or the asset collateral guarantee in its combined financial statements. No financing costs or interest expense associated with Manitowoc ParentCo’s debt has been allocated the combined financial statements.
22. Supplement Financial Information
The valuation and qualifying accounts for the years ended December 31, 2014, 2013 and 2012 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Balance at
Beginning of
Year
|
|
Charge to
Costs and
Expenses
|
|
Utilization of
Reserve
|
|
Other, Primarily
Impact of
Foreign
Exchange
Rates
|
|
Balance at end
of Year
|
|
Year End December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
3.8
|
|
|
$
|
1.3
|
|
|
$
|
(1.9
|
)
|
|
$
|
0.1
|
|
|
$
|
3.3
|
|
|
Deferred tax valuation allowance
|
|
54.9
|
|
|
29.0
|
|
|
—
|
|
|
2.0
|
|
|
85.9
|
|
|
Year End December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
3.3
|
|
|
1.7
|
|
|
(1.9
|
)
|
|
—
|
|
|
3.1
|
|
|
Deferred tax valuation allowance
|
|
85.9
|
|
|
(5.4
|
)
|
|
(0.2
|
)
|
|
(0.1
|
)
|
|
80.2
|
|
|
Year End December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
3.1
|
|
|
4.2
|
|
|
(3.2
|
)
|
|
(0.2
|
)
|
|
3.9
|
|
|
Deferred tax valuation allowance
|
|
$
|
80.2
|
|
|
$
|
36.3
|
|
|
$
|
(0.4
|
)
|
|
$
|
(3.0
|
)
|
|
$
|
113.1
|
|
23. Subsequent Events
The combined financial statements reflect management’s evaluation of subsequent events through September 1, 2015, the date Manitowoc Foodservice's audited combined financial statements as of and for the year-ended December 31, 2014, were available to be issued.
On August 31, 2015, Manitowoc ParentCo finalized changes to its accounts receivable securitization program. Among other actions, Manitowoc ParentCo entered into an amendment to the Receivables Purchase Agreement, the results of which were that (i) Foodservice Asia was added as an originator and as a servicer under the facility; and (ii) Manitowoc Foodservice's domestic originators were effectively released from their obligations under the related purchase and sale agreement and will now sell their accounts receivable to the Cayman Seller (prior to these changes, these receivables were sold to the U.S. Seller). The maximum commitment size of the securitization facility did not change and, therefore, remains at $185.0 million.
MANITOWOC FOODSERVICE
Condensed Combined Statements of Operations
For the Six Months Ended June 30, 2015 and 2014
|
|
|
|
|
|
|
|
|
|
|
|
Unaudited
|
Six Months Ended
June 30,
|
|
Millions of dollars
|
2015
|
|
2014
|
|
Net sales
|
$
|
753.1
|
|
|
$
|
790.0
|
|
|
Costs and expenses:
|
|
|
|
|
Cost of sales
|
519.6
|
|
|
526.4
|
|
|
Engineering, selling and administrative expenses
|
151.6
|
|
|
154.1
|
|
|
Amortization expense
|
15.7
|
|
|
16.0
|
|
|
Restructuring expense
|
0.5
|
|
|
1.4
|
|
|
Separation expense
|
0.1
|
|
|
—
|
|
|
Other expense
|
0.4
|
|
|
—
|
|
|
Total costs and expenses
|
687.9
|
|
|
697.9
|
|
|
Operating earnings from continuing operations
|
65.2
|
|
|
92.1
|
|
|
Other (expense) income:
|
|
|
|
|
|
|
Interest expense on capital leases
|
(0.7
|
)
|
|
(0.7
|
)
|
|
Interest income on notes with Manitowoc ParentCo
|
9.3
|
|
|
8.1
|
|
|
Other income (expense) - net
|
0.6
|
|
|
(1.0
|
)
|
|
Total other income
|
9.2
|
|
|
6.4
|
|
|
Earnings from continuing operations before taxes on income
|
74.4
|
|
|
98.5
|
|
|
Provision for taxes on income
|
23.5
|
|
|
28.6
|
|
|
Earnings from continuing operations
|
50.9
|
|
|
69.9
|
|
|
Discontinued operations:
|
|
|
|
|
Loss from discontinued operations, net of income taxes of $0.0 and $(0.2), respectively
|
—
|
|
|
(0.4
|
)
|
|
Net earnings
|
$
|
50.9
|
|
|
$
|
69.5
|
|
The accompanying notes are an integral part of these condensed combined financial statements.
MANITOWOC FOODSERVICE
Condensed Combined Statements of Comprehensive Income
For the Six Months Ended June 30, 2015 and 2014
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
Unaudited
|
Six Months Ended
June 30,
|
|
Millions of dollars
|
2015
|
|
2014
|
|
Net earnings
|
$
|
50.9
|
|
|
$
|
69.5
|
|
|
Other comprehensive (loss) income, net of tax
|
|
|
|
|
Foreign currency translation adjustments
|
(9.8
|
)
|
|
0.1
|
|
|
Unrealized (loss) income on derivatives, net of income taxes of $0.6 and $(0.3), respectively
|
(1.0
|
)
|
|
0.5
|
|
|
Employee pension and postretirement benefits, net of income taxes of $0.0 and $0.0, respectively
|
0.5
|
|
|
0.5
|
|
|
Total other comprehensive (loss) income, net of tax
|
(10.3
|
)
|
|
1.1
|
|
|
Comprehensive income
|
$
|
40.6
|
|
|
$
|
70.6
|
|
The accompanying notes are an integral part of these condensed combined financial statements.
MANITOWOC FOODSERVICE
Condensed Combined Balance Sheets
As of June 30, 2015 and December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
Unaudited
|
June 30,
2015
|
|
December 31,
2014
|
|
Millions of Dollars
|
|
|
Assets
|
|
|
|
|
Current Assets:
|
|
|
|
|
Cash and cash equivalents
|
$
|
14.8
|
|
|
$
|
16.5
|
|
|
Restricted cash
|
0.3
|
|
|
—
|
|
|
Accounts receivable, less allowances of $3.6 and $3.9, respectively
|
100.8
|
|
|
71.0
|
|
|
Inventories - net
|
188.1
|
|
|
163.2
|
|
|
Deferred income taxes
|
23.7
|
|
|
23.7
|
|
|
Other current assets
|
12.7
|
|
|
15.1
|
|
|
Total current assets
|
340.4
|
|
|
289.5
|
|
|
Property, plant and equipment - net
|
134.4
|
|
|
134.3
|
|
|
Goodwill
|
873.0
|
|
|
872.8
|
|
|
Other intangible assets - net
|
565.2
|
|
|
584.5
|
|
|
Other non-current assets
|
16.8
|
|
|
17.2
|
|
|
Total assets
|
$
|
1,929.8
|
|
|
$
|
1,898.3
|
|
|
Liabilities and Equity
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
Accounts payable and accrued expenses
|
$
|
294.5
|
|
|
$
|
332.1
|
|
|
Current portion of capital leases
|
1.7
|
|
|
0.5
|
|
|
Product warranties
|
34.2
|
|
|
36.0
|
|
|
Total current liabilities
|
330.4
|
|
|
368.6
|
|
|
Non-Current Liabilities:
|
|
|
|
|
Long-term capital leases
|
2.6
|
|
|
3.6
|
|
|
Deferred income taxes
|
217.4
|
|
|
218.0
|
|
|
Pension and postretirement health obligations
|
37.7
|
|
|
36.4
|
|
|
Other non-current liabilities
|
19.4
|
|
|
20.3
|
|
|
Total non-current liabilities
|
277.1
|
|
|
278.3
|
|
|
Commitments and contingencies (Note 13)
|
|
|
|
|
Total Equity:
|
|
|
|
|
Net parent company investment
|
1,353.3
|
|
|
1,272.1
|
|
|
Accumulated other comprehensive loss
|
(31.0
|
)
|
|
(20.7
|
)
|
|
Total equity
|
1,322.3
|
|
|
1,251.4
|
|
|
Total liabilities and equity
|
$
|
1,929.8
|
|
|
$
|
1,898.3
|
|
The accompanying notes are an integral part of these condensed combined financial statements.
MANITOWOC FOODSERVICE
Condensed Combined Statements of Cash Flows
For the Six Months Ended June 30, 2015 and 2014
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
Unaudited
|
Six Months Ended
June 30,
|
|
Millions of dollars
|
2015
|
|
2014
|
|
Cash Flows From Operations
|
|
|
|
|
Net earnings
|
$
|
50.9
|
|
|
$
|
69.5
|
|
|
Adjustments to reconcile net earnings to cash (used for) provided by operating activities of continuing operations:
|
|
|
|
|
Discontinued operations, net of income taxes
|
—
|
|
|
0.4
|
|
|
Depreciation
|
10.0
|
|
|
9.8
|
|
|
Amortization of intangible assets
|
15.7
|
|
|
16.0
|
|
|
Deferred income taxes
|
3.5
|
|
|
(3.2
|
)
|
|
Loss on sale of property, plant and equipment
|
0.3
|
|
|
0.1
|
|
|
Other
|
1.6
|
|
|
1.6
|
|
|
Changes in operating assets and liabilities, excluding the effects of business acquisitions or dispositions:
|
|
|
|
|
Accounts receivable
|
(29.6
|
)
|
|
(40.2
|
)
|
|
Inventories
|
(27.0
|
)
|
|
(18.4
|
)
|
|
Other assets
|
(4.0
|
)
|
|
(2.8
|
)
|
|
Accounts payable
|
(18.0
|
)
|
|
1.4
|
|
|
Accrued expenses and other liabilities
|
(13.7
|
)
|
|
(14.9
|
)
|
|
Net cash (used for) provided by operating activities of continuing operations
|
(10.3
|
)
|
|
19.3
|
|
|
Net cash used for operating activities of discontinued operations
|
—
|
|
|
(0.4
|
)
|
|
Net cash (used for) provided by operating activities
|
(10.3
|
)
|
|
18.9
|
|
|
Cash Flows From Investing
|
|
|
|
|
Capital expenditures
|
(6.7
|
)
|
|
(12.8
|
)
|
|
Restricted cash
|
(0.3
|
)
|
|
—
|
|
|
Net cash used for investing activities
|
(7.0
|
)
|
|
(12.8
|
)
|
|
Cash Flows From Financing
|
|
|
|
|
Payments on capital leases
|
(0.2
|
)
|
|
(3.1
|
)
|
|
Proceeds from capital leases
|
0.4
|
|
|
0.4
|
|
|
Net transactions with Manitowoc ParentCo
|
16.3
|
|
|
5.1
|
|
|
Net cash used for financing activities
|
16.5
|
|
|
2.4
|
|
|
Effect of exchange rate changes on cash
|
(0.9
|
)
|
|
(0.1
|
)
|
|
Net (decrease) increase in cash and cash equivalents
|
(1.7
|
)
|
|
8.4
|
|
|
Balance at beginning of year
|
16.5
|
|
|
9.6
|
|
|
Balance at end of year
|
$
|
14.8
|
|
|
$
|
18.0
|
|
The accompanying notes are an integral part of these condensed combined financial statements.
MANITOWOC FOODSERVICE
Notes to Unaudited Condensed Combined Financial Statements
For the Six Months Ended June 30, 2015 and 2014
1. Description of the Business and Basis of Presentation
The Proposed Transaction:
On January 29, 2015, Manitowoc ParentCo announced plans to create two independent public companies: the Crane Business and the Foodservice Business. To effect the separation, first, Manitowoc ParentCo will undertake an internal reorganization. Following the internal reorganization, Manitowoc ParentCo will hold the Crane Business, and Manitowoc Foodservice, Manitowoc ParentCo's wholly owned subsidiary, will hold the Foodservice Business. Then, Manitowoc ParentCo will distribute all of Manitowoc Foodservice's common stock to Manitowoc ParentCo’s shareholders, and Manitowoc Foodservice, holding the Foodservice Business, will become an independent publicly traded company.
In these condensed combined financial statements, unless the context otherwise requires:
|
|
|
|
•
|
"Manitowoc Foodservice," "we," "our" and "us" refer to Manitowoc Foodservice, Inc. and its combined subsidiaries, after giving effect to the internal reorganization and the distribution, and
|
|
|
|
|
•
|
"Manitowoc ParentCo" refers to The Manitowoc Company, Inc. and its consolidated subsidiaries, other than, for all periods following the Spin-Off, Manitowoc Foodservice.
|
|
|
|
|
•
|
"Spin-Off" refers to both the above described internal reorganization and distribution, collectively.
|
The Spin-Off is subject to the satisfaction, or Manitowoc ParentCo’s waiver, of a number of conditions. In addition, Manitowoc ParentCo has the right not to complete the Spin-Off if, at any time, the Manitowoc ParentCo Board of Directors determines, in its sole and absolute discretion, that the Spin-Off is not in the best interests of Manitowoc ParentCo or its shareholders or is otherwise not advisable.
Nature of the Business
Manitowoc Foodservice is among the world’s leading designers and manufacturers of commercial foodservice equipment. It designs, manufactures, and services an integrated portfolio of carefully-selected, high-margin, hot and cold category products. We have one of the industry's broadest portfolios of products that create optimal value for our channels partners while delivering superior performance, quality, reliability, and durability for our customers. Our capabilities span refrigeration, ice-making, cooking, holding, food-preparation, and beverage-dispensing technologies, and allow us to equip entire commercial kitchens and serve the world’s growing demand for food prepared away from home. We supply foodservice equipment to commercial and institutional foodservice operators such as full-service restaurants, quick-service restaurant chains, hotels, caterers, supermarkets, convenience stores, business and industry, hospitals, schools and other institutions.
Basis of Presentation
The accompanying condensed combined financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”), and derived from the consolidated financial statements and accounting records of Manitowoc ParentCo. The accompanying condensed combined financial statements include the historical cost basis of assets and liabilities, revenues, and expenses of the individual entities that comprise Manitowoc ParentCo’s historical Foodservice segment, in addition to a corporate entity which historically supported Manitowoc Foodservice operations. All intercompany balances and transactions within Manitowoc Foodservice have been eliminated.
As the separate legal entities that comprise the Foodservice business were not historically held by a single legal entity, Net Parent Company Investment is shown in lieu of shareholder’s equity in these condensed combined financial statements. Balances between Manitowoc Foodservice and Manitowoc ParentCo (including its Crane business) that were not historically settled in cash are included in Net Parent Company Investment. Net Parent Company Investment represents Manitowoc ParentCo’s interest in the recorded assets of Manitowoc Foodservice and represents the cumulative investment by Manitowoc ParentCo in the Foodservice business through the dates presented, inclusive of operating results.
During the periods presented, the Foodservice business functioned as part of the larger group of companies controlled by Manitowoc ParentCo, accordingly, Manitowoc ParentCo performed certain corporate overhead functions for the Foodservice business. Therefore, certain costs related to the Foodservice business have been allocated from Manitowoc ParentCo. These allocated costs are primarily related to: 1) corporate officers, 2) employee benefits and compensation, 3) share-based compensation, and 4) certain administrative functions, which are not provided at the business level including, but not limited to, finance, audit, legal, information technology, human resources, and investor relations. Where possible, these costs were allocated based on direct usage, with the remainder allocated on a basis of revenue, headcount, or other measures we have determined as reasonable.
Management of Manitowoc Foodservice believes the assumptions underlying the condensed combined financial statements, including the assumptions regarding the allocated expenses, reasonably reflect the utilization of services provided to or the benefit received by the Foodservice business during the periods presented. Nevertheless, the accompanying condensed combined financial statements may not be indicative of the Foodservice business's future performance, and do not necessarily include all the of the actual expenses that would have
been incurred by Foodservice and may not reflect the results of operations, financial position, and cash flows had Manitowoc Foodservice been a standalone company during the periods presented.
Cash is managed centrally and flows through centralized bank accounts controlled and maintained by Manitowoc ParentCo. Accordingly, cash and cash equivalents held by Manitowoc ParentCo at the corporate level were not attributable to the Foodservice business for any of the periods presented. Only cash amounts specifically attributable Manitowoc Foodservice are reflected in the condensed combined balance sheets. Transfers of cash, both to and from Manitowoc ParentCo’s centralized cash management system, are reflected as a component of Net Parent Company Investment in Manitowoc Foodservice’s condensed combined balance sheets and as a financing activity on the accompanying condensed combined statements of cash flows. Additionally, none of Manitowoc ParentCo’s debt has been allocated to the condensed combined financial statements as Manitowoc Foodservice has no legal obligation for any of the debt agreements. Manitowoc Foodservice received funding as part of Manitowoc ParentCo's central treasury program.
Income tax expense in the condensed combined statement of operations is computed on a separate return basis, as if Manitowoc Foodservice was operating as a separate consolidated group and filed separate tax returns in the jurisdictions in which it operates. As a result of potential changes to our business model and potential past and future tax planning, income tax expense included in the condensed combined financial statements may not be indicative of Manitowoc Foodservice's future expected tax rate. In addition, cash tax payments and items of current and deferred taxes may not be reflective of Manitowoc Foodservice's actual tax balances prior to or subsequent to the Spin-Off.
2. Accounting Policies
In the opinion of management, the accompanying unaudited condensed combined financial statements contain all adjustments necessary for a fair statement of the results of operations and comprehensive income for the six months ended
June 30, 2015
and
2014
, the cash flows for the same six-month periods, and the financial position at
June 30, 2015
and December 31, 2014, and except as otherwise discussed such adjustments consist of only those of a normal recurring nature. The interim results are not necessarily indicative of results for a full year and do not contain information included in Manitowoc Foodservice’s annual combined financial statements and notes for the year ended
December 31, 2014
. Certain information and footnote disclosures, normally included in financial statements prepared in accordance with generally accepted accounting principles, have been condensed or omitted pursuant to SEC’s rules and regulations dealing with interim financial statements. However, Manitowoc Foodservice believes that the disclosures made in the condensed combined financial statements included herein are adequate to make the information presented not misleading.
3. Discontinued Operations
The following selected financial data of various businesses disposed of prior to 2014, primarily consisting of administrative costs, for the six months ended
June 30, 2015
and
2014
, is presented for informational purposes only and does not necessarily reflect what the results of operations would have been had the businesses operated as stand-alone entities. There was
no
general corporate expense or interest expense allocated to discontinued operations for these businesses during the periods presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
(in millions)
|
|
2015
|
|
2014
|
|
Net sales
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
Pretax gain (loss) from discontinued operations
|
|
$
|
—
|
|
|
$
|
(0.6
|
)
|
|
Provision (benefit) for taxes on earnings
|
|
—
|
|
|
(0.2
|
)
|
|
Net loss from discontinued operations
|
|
$
|
—
|
|
|
$
|
(0.4
|
)
|
4. Fair Value of Financial Instruments
The following tables set forth financial assets and liabilities which were attributable to Manitowoc Foodservice and were accounted for at fair value on a recurring basis as of
June 30, 2015
and
December 31, 2014
by level within the fair value hierarchy. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value as of June 30, 2015
|
|
(in millions)
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
Foreign currency exchange contracts
|
$
|
—
|
|
|
$
|
0.1
|
|
|
$
|
—
|
|
|
$
|
0.1
|
|
|
Commodity contracts
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total current assets at fair value
|
$
|
—
|
|
|
$
|
0.1
|
|
|
$
|
—
|
|
|
$
|
0.1
|
|
|
Total assets at fair value
|
$
|
—
|
|
|
$
|
0.1
|
|
|
$
|
—
|
|
|
$
|
0.1
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange contracts
|
$
|
—
|
|
|
$
|
0.4
|
|
|
$
|
—
|
|
|
$
|
0.4
|
|
|
Commodity contracts
|
—
|
|
|
2.4
|
|
|
—
|
|
|
2.4
|
|
|
Total current liabilities at fair value
|
$
|
—
|
|
|
$
|
2.8
|
|
|
$
|
—
|
|
|
$
|
2.8
|
|
|
Non-current Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts
|
$
|
—
|
|
|
$
|
0.5
|
|
|
$
|
—
|
|
|
$
|
0.5
|
|
|
Total non-current liabilities at fair value
|
$
|
—
|
|
|
$
|
3.3
|
|
|
$
|
—
|
|
|
$
|
3.3
|
|
|
Total liabilities at fair value
|
$
|
—
|
|
|
$
|
6.1
|
|
|
$
|
—
|
|
|
$
|
6.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value as of December 31, 2014
|
|
(in millions)
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
Foreign currency exchange contracts
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Commodity contracts
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total current assets at fair value
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Total assets at fair value
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Foreign currency exchange contracts
|
$
|
—
|
|
|
$
|
0.7
|
|
|
$
|
—
|
|
|
$
|
0.7
|
|
|
Commodity contracts
|
—
|
|
|
0.7
|
|
|
—
|
|
|
0.7
|
|
|
Total current liabilities at fair value
|
$
|
—
|
|
|
$
|
1.4
|
|
|
$
|
—
|
|
|
$
|
1.4
|
|
|
Non-current Liabilities:
|
|
|
|
|
|
|
|
|
Commodity contracts:
|
$
|
—
|
|
|
$
|
0.3
|
|
|
$
|
—
|
|
|
$
|
0.3
|
|
|
Total non-current liabilities at fair value
|
$
|
—
|
|
|
$
|
0.3
|
|
|
$
|
—
|
|
|
$
|
0.3
|
|
|
Total liabilities at fair value
|
$
|
—
|
|
|
$
|
1.7
|
|
|
$
|
—
|
|
|
$
|
1.7
|
|
ASC Subtopic 820-10, “Fair Value Measurement,” defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Subtopic 820-10 classifies the inputs used to measure fair value into the following hierarchy:
|
|
|
|
Level 1
|
Unadjusted quoted prices in active markets for identical assets or liabilities
|
|
|
|
|
Level 2
|
Unadjusted quoted prices in active markets for similar assets or liabilities, or
|
Unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or
Inputs other than quoted prices that are observable for the asset or liability
|
|
|
|
Level 3
|
Unobservable inputs for the asset or liability
|
Manitowoc Foodservice endeavors to utilize the best available information in measuring fair value. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The carrying values of cash and cash equivalents, accounts receivable, accounts payable, deferred purchase price notes on receivables sold (see Note 9, “Accounts Receivable Securitization”) and short-term variable debt, approximate fair value, without being discounted as of
June 30, 2015
and
December 31, 2014
, due to the short-term nature of these instruments.
As a result of its global operating and financing activities, Manitowoc Foodservice is exposed to market risks from changes in interest rates, foreign currency exchange rates, and commodity prices, which may adversely affect its operating results and financial position. When deemed appropriate, Manitowoc Foodservice minimizes these risks through the use of derivative financial instruments. Derivative financial instruments are used to manage risk and are not used for trading or other speculative purposes, and Manitowoc Foodservice does not use leveraged derivative financial instruments. The foreign currency exchange, commodity, and interest rate contracts are valued through an
independent valuation source that uses an industry standard data provider, with resulting valuations periodically validated through third-party or counterparty quotes. As such, these derivative instruments are classified within Level 2.
5. Derivative Financial Instruments
Manitowoc Foodservice’s risk management objective is to ensure that business exposures to risks that have been identified and measured and are capable of being controlled are minimized or managed using what it believes to be the most effective and efficient methods to manage, eliminate, reduce, or transfer such exposures. Operating decisions consider associated risks and transactions are structured to minimize or manage risk whenever possible.
Use of derivative instruments is consistent with the overall business and risk management objectives of Manitowoc Foodservice. Derivative instruments may be used to manage business risk within limits specified by Manitowoc ParentCo’s risk policy and to manage exposures that have been identified through the risk identification and measurement process, provided that they clearly qualify as “hedging” activities as defined in the risk policy. Use of derivative instruments is not automatic, nor is it necessarily the only response to managing pertinent business risk. Use is permitted only after the risks that have been identified are determined to exceed defined tolerance levels and are considered to be unavoidable.
The primary risks managed by Manitowoc ParentCo on Manitowoc Foodservice's behalf using derivative instruments are commodity price risk and foreign currency exchange risk. Swap contracts on various commodities are used to manage the price risk associated with forecasted purchases of materials used in Manitowoc Foodservice's manufacturing processes. Manitowoc ParentCo also enters into various foreign currency derivative instruments on Manitowoc Foodservice’s behalf to manage foreign currency risk associated with Manitowoc Foodservice’s projected foreign currency denominated purchases, sales, and receivable and payable balances.
ASC Subtopic 815-10, “Derivatives and Hedging,” requires companies to recognize all derivative instruments as either assets or liabilities at fair value in the statement of financial position. In accordance with ASC Subtopic 815-10, Manitowoc Foodservice designates commodity swaps and foreign currency exchange contracts as cash flow hedges of forecasted purchases of commodities and currencies.
For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income (loss) and is reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Gains and losses on the derivative instruments representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings. In the next
twelve months
Manitowoc Foodservice estimates that
$0 million
of unrealized losses net of tax related to commodity price and currency exchange rate hedging will be reclassified from other comprehensive income into earnings. Foreign currency and commodity hedging is generally completed prospectively on a rolling basis for between twelve and twenty-four months, respectively, depending on the type of risk being hedged.
As of
June 30, 2015
and
December 31, 2014
, Manitowoc Foodservice had the following outstanding commodity and foreign currency exchange contracts that were intended to hedge forecasted transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Units Hedged
|
|
|
|
|
|
Commodity
|
|
June 30, 2015
|
|
December 31, 2014
|
|
Unit
|
|
Type
|
|
Aluminum
|
|
1,854
|
|
|
1,657
|
|
|
MT
|
|
Cash flow
|
|
Copper
|
|
727
|
|
|
820
|
|
|
MT
|
|
Cash flow
|
|
Natural gas
|
|
43,424
|
|
|
56,792
|
|
|
MMBtu
|
|
Cash flow
|
|
Steel
|
|
19,725
|
|
|
12,364
|
|
|
Tons
|
|
Cash flow
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Units Hedged
|
|
|
|
Short Currency
|
|
June 30, 2015
|
|
December 31, 2014
|
|
Type
|
|
Canadian Dollar
|
|
2,940,830
|
|
|
7,984,824
|
|
|
Cash flow
|
|
European Euro
|
|
1,488,710
|
|
|
—
|
|
|
Cash flow
|
|
British Pound
|
|
1,050,400
|
|
|
—
|
|
|
Cash flow
|
|
Mexican Peso
|
|
54,808,839
|
|
|
52,674,383
|
|
|
Cash flow
|
For derivative instruments that are not designated as hedging instruments under ASC Subtopic 815-10, the gains or losses on the derivatives are recognized in current earnings within other (expense) income, net in the condensed combined statements of operations. As of
June 30, 2015
and
December 31, 2014
, Manitowoc Foodservice had the following outstanding foreign currency exchange contracts that were not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Units Hedged
|
|
|
|
|
|
Short Currency
|
|
June 30, 2015
|
|
December 31, 2014
|
|
Recognized Location
|
|
Purpose
|
|
Euro
|
|
924,000
|
|
|
2,172,068
|
|
|
Other income, net
|
|
Accounts Payable and Receivable Settlement
|
|
Canadian Dollar
|
|
—
|
|
|
2,516
|
|
|
Other income, net
|
|
Accounts Payable and Receivable Settlement
|
|
Mexican Peso
|
|
—
|
|
|
3,151,000
|
|
|
Other income, net
|
|
Accounts Payable and Receivable Settlement
|
The fair value of outstanding derivative contracts recorded as assets in the accompanying condensed combined balance sheets as of
June 30, 2015
and
December 31, 2014
was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSET DERIVATIVES
|
|
|
|
|
|
June 30,
2015
|
|
December 31,
2014
|
|
(in millions)
|
|
Balance Sheet Location
|
|
Fair Value
|
|
Derivatives designated as hedging instruments
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
Accounts payable and accrued expenses
|
|
$
|
0.1
|
|
|
$
|
—
|
|
|
Total derivatives designated as hedging instruments
|
|
|
|
$
|
0.1
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSET DERIVATIVES
|
|
|
|
|
|
June 30,
2015
|
|
December 31,
2014
|
|
(in millions)
|
|
Balance Sheet Location
|
|
Fair Value
|
|
Derivatives NOT designated as hedging instruments
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
Other current assets
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Total derivatives NOT designated as hedging instruments
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Total asset derivatives
|
|
|
|
$
|
0.1
|
|
|
$
|
—
|
|
The fair value of outstanding derivative contracts recorded as liabilities in the accompanying condensed combined balance sheets as of
June 30, 2015
and
December 31, 2014
was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITY DERIVATIVES
|
|
|
|
|
|
June 30,
2015
|
|
December 31,
2014
|
|
(in millions)
|
|
Balance Sheet Location
|
|
Fair Value
|
|
Derivatives designated as hedging instruments
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
Accounts payable and accrued expenses
|
|
$
|
0.4
|
|
|
$
|
0.6
|
|
|
Commodity contracts
|
|
Accounts payable and accrued expenses
|
|
2.4
|
|
|
0.7
|
|
|
Commodity contracts
|
|
Other non-current liabilities
|
|
0.5
|
|
|
0.3
|
|
|
Total derivatives designated as hedging instruments
|
|
|
|
$
|
3.3
|
|
|
$
|
1.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITY DERIVATIVES
|
|
|
|
|
|
June 30,
2015
|
|
December 31,
2014
|
|
(in millions)
|
|
Balance Sheet Location
|
|
Fair Value
|
|
Derivatives NOT designated as hedging instruments
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
Accounts payable and accrued expenses
|
|
$
|
—
|
|
|
$
|
0.1
|
|
|
Total derivatives NOT designated as hedging instruments
|
|
|
|
$
|
—
|
|
|
$
|
0.1
|
|
|
|
|
|
|
|
|
|
|
Total liability derivatives
|
|
|
|
$
|
3.3
|
|
|
$
|
1.7
|
|
The effect of derivative instruments on the condensed combined statements of operations for the six months ended
June 30, 2015
and
June 30, 2014
for gains or losses initially recognized in accumulated other comprehensive income (AOCI) in the condensed combined balance sheets was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain or (Loss) on Derivative Recognized in AOCI (Effective Portion,
net of tax)
|
|
Location of Gain or (Loss)
Reclassified from
AOCI into Income
(Effective Portion)
|
|
Amount of Gain or (Loss) Reclassified
from AOCI into Income
(Effective Portion)
|
|
Derivatives in Cash Flow Hedging Relationships (in millions)
|
|
June 30,
2015
|
|
June 30,
2014
|
|
|
June 30,
2015
|
|
June 30,
2014
|
|
Foreign exchange contracts
|
|
$
|
0.2
|
|
|
$
|
0.4
|
|
|
Cost of sales
|
|
$
|
(0.9
|
)
|
|
$
|
(0.7
|
)
|
|
Commodity contracts
|
|
(1.2
|
)
|
|
0.2
|
|
|
Cost of sales
|
|
(1.2
|
)
|
|
(0.2
|
)
|
|
Total
|
|
$
|
(1.0
|
)
|
|
$
|
0.6
|
|
|
|
|
$
|
(2.1
|
)
|
|
$
|
(0.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
Location of Gain or (Loss)
on Derivative Recognized in
Income (Ineffective Portion
and Amount Excluded from Effectiveness Testing)
|
|
Amount of Gain or (Loss) on Derivative Recognized in Income (Ineffective Portion and Amount Excluded
from Effectiveness Testing)
|
|
Relationships (in millions)
|
|
|
June 30, 2015
|
|
June 30, 2014
|
|
Commodity contracts
|
|
Cost of sales
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Foreign exchange contracts
|
|
Cost of sales
|
|
—
|
|
|
—
|
|
|
Total
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
6. Inventories
The components of inventories as of
June 30, 2015
and
December 31, 2014
are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
June 30,
2015
|
|
December 31,
2014
|
|
Inventories - gross:
|
|
|
|
|
|
Raw materials
|
|
$
|
78.4
|
|
|
$
|
77.2
|
|
|
Work-in-process
|
|
24.0
|
|
|
21.5
|
|
|
Finished goods
|
|
111.2
|
|
|
87.9
|
|
|
Total inventories - gross
|
|
213.6
|
|
|
186.6
|
|
|
Excess and obsolete inventory reserve
|
|
(22.4
|
)
|
|
(20.3
|
)
|
|
Net inventories at FIFO cost
|
|
191.2
|
|
|
166.3
|
|
|
Excess of FIFO costs over LIFO value
|
|
(3.1
|
)
|
|
(3.1
|
)
|
|
Inventories - net
|
|
$
|
188.1
|
|
|
$
|
163.2
|
|
7. Goodwill and Other Intangible Assets
Manitowoc Foodservice has
three
reportable segments: Americas, EMEA, and APAC. The changes in the carrying amount of goodwill by reportable segment for the year ended
December 31, 2014
and the six months ended
June 30, 2015
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Americas
|
|
EMEA
|
|
APAC
|
|
Total
|
|
Gross balance as of January 1, 2014
|
|
$
|
1,172.7
|
|
|
$
|
208.9
|
|
|
$
|
7.5
|
|
|
$
|
1,389.1
|
|
|
Accumulated asset impairments
|
|
(312.2
|
)
|
|
(203.5
|
)
|
|
—
|
|
|
(515.7
|
)
|
|
Net balance as of January 1, 2014
|
|
860.5
|
|
|
5.4
|
|
|
7.5
|
|
|
873.4
|
|
|
Foreign currency impact
|
|
—
|
|
|
(0.5
|
)
|
|
(0.1
|
)
|
|
(0.6
|
)
|
|
Gross Balance at December 31, 2014
|
|
1,172.7
|
|
|
208.4
|
|
|
7.4
|
|
|
1,388.5
|
|
|
Accumulated asset impairments
|
|
(312.2
|
)
|
|
(203.5
|
)
|
|
—
|
|
|
(515.7
|
)
|
|
Net Balance at December 31, 2014
|
|
860.5
|
|
|
4.9
|
|
|
7.4
|
|
|
872.8
|
|
|
Foreign currency impact
|
|
—
|
|
|
0.2
|
|
|
(0.1
|
)
|
|
0.1
|
|
|
Gross Balance as of June 30, 2015
|
|
1,172.7
|
|
|
208.6
|
|
|
7.3
|
|
|
1,388.6
|
|
|
Accumulated asset impairments
|
|
(312.2
|
)
|
|
(203.5
|
)
|
|
—
|
|
|
(515.7
|
)
|
|
Net Balance as of June 30, 2015
|
|
$
|
860.5
|
|
|
$
|
5.1
|
|
|
$
|
7.3
|
|
|
$
|
872.9
|
|
Manitowoc Foodservice accounts for goodwill and other intangible assets under the guidance of ASC Topic 350, “Intangibles - Goodwill and Other.” Manitowoc Foodservice performs an annual impairment test at June 30 of every year or more frequently if events or changes in circumstances indicate that the asset might be impaired. Manitowoc Foodservice tests its reporting units and indefinite-lived intangible assets using a fair-value method based on the present value of future cash flows, which involves management’s judgments and assumptions about the amounts of those cash flows and the discount rates used. The estimated fair value is then compared with the carrying amount of the reporting unit, including recorded goodwill, or indefinite-lived intangible asset. The intangible asset is then subject to risk of write-down to the extent that the carrying amount exceeds the estimated fair value.
As of June 30, 2015, Manitowoc Foodservice performed the annual impairment test for its reporting units as well as its indefinite-lived intangible assets, and based on those results, no impairment was indicated.
The gross carrying amount, accumulated amortization and net book value of Manitowoc Foodservice’s intangible assets other than goodwill at
June 30, 2015
and
December 31, 2014
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2015
|
|
December 31, 2014
|
|
(in millions)
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Book
Value
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Book
Value
|
|
Trademarks and tradenames
|
|
$
|
196.8
|
|
|
$
|
—
|
|
|
$
|
196.8
|
|
|
$
|
199.4
|
|
|
$
|
—
|
|
|
$
|
199.4
|
|
|
Customer relationships
|
|
415.1
|
|
|
(140.0
|
)
|
|
275.1
|
|
|
415.0
|
|
|
(129.5
|
)
|
|
285.5
|
|
|
Patents
|
|
1.7
|
|
|
(1.5
|
)
|
|
0.2
|
|
|
1.7
|
|
|
(1.4
|
)
|
|
0.3
|
|
|
Other intangibles
|
|
158.9
|
|
|
(65.8
|
)
|
|
93.1
|
|
|
160.7
|
|
|
(61.4
|
)
|
|
99.3
|
|
|
Total
|
|
$
|
772.5
|
|
|
$
|
(207.3
|
)
|
|
$
|
565.2
|
|
|
$
|
776.8
|
|
|
$
|
(192.3
|
)
|
|
$
|
584.5
|
|
Amortization expense for the six months ended
June 30, 2015
and
June 30, 2014
was
$15.7 million
and
$16.0 million
respectively.
8. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses at
June 30, 2015
and
December 31, 2014
are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
June 30,
2015
|
|
December 31,
2014
|
|
Trade accounts payable and interest payable
|
|
$
|
142.2
|
|
|
$
|
161.6
|
|
|
Employee related expenses
|
|
29.9
|
|
|
31.1
|
|
|
Restructuring expenses
|
|
14.9
|
|
|
15.6
|
|
|
Profit sharing and incentives
|
|
3.6
|
|
|
4.1
|
|
|
Accrued rebates
|
|
40.6
|
|
|
52.3
|
|
|
Deferred revenue - current
|
|
4.1
|
|
|
3.8
|
|
|
Dividend payable to Manitowoc ParentCo
|
|
—
|
|
|
6.2
|
|
|
Income taxes payable
|
|
5.2
|
|
|
5.2
|
|
|
Customer advances
|
|
3.7
|
|
|
3.9
|
|
|
Product liability
|
|
2.7
|
|
|
2.2
|
|
|
Miscellaneous accrued expenses
|
|
47.6
|
|
|
46.1
|
|
|
Total accounts payable and accrued expenses
|
|
$
|
294.5
|
|
|
$
|
332.1
|
|
9. Accounts Receivable Securitization
The accounts receivable securitization facility, ("The Securitization Program"), is comprised of two funding entities: Manitowoc Funding, LLC (“U.S. Seller”) and Manitowoc Cayman Islands Funding Ltd. (“Cayman Seller”). The U.S. Seller has historically serviced domestic entities of both the Foodservice and Crane segments of Manitowoc ParentCo and remitted all funds received directly to Manitowoc ParentCo. The Cayman Seller has historically serviced solely Manitowoc Foodservice foreign entities and remitted all funds to Manitowoc Foodservice entities. The U.S. Seller entity will remain with Manitowoc ParentCo subsequent to the Spin-Off, while the Cayman Seller will be transferred to Manitowoc Foodservice subsequent to the Spin-Off. As the U.S. Seller is not directly attributable to Manitowoc Foodservice, only the receivables which were transferred to the U.S. Seller but not sold are reflected in Manitowoc Foodservice condensed combined balance sheet. A portion of the U.S. Seller’s historical expenses related to bond administration fees and settlement fees are allocated to Manitowoc Foodservice. As the Cayman Seller is directly attributable to Manitowoc Foodservice, the assets, liabilities, income, and expenses of the Cayman Seller are included in Manitowoc Foodservice’s combined statement of operations and balance sheet.
Manitowoc ParentCo maintains an accounts receivable securitization program with a commitment size of
$185 million
, whereby transactions under the program are accounted for as sales in accordance with ASC Topic 860, “Transfers and Servicing.” Sales of trade receivables under the program are reflected as a reduction of accounts receivable in the accompanying combined balance sheets and the proceeds received, including collections on the deferred purchase price notes, are included in cash flows from operating activities in the accompanying condensed combined statements of cash flows. Manitowoc Foodservice deems the interest rate risk related to the deferred purchase price notes to be
de minimis
, primarily due to the short average collection cycle of the related receivables (
i.e.
, less than
60 days
) as noted below. Trade accounts receivables sold to a third-party financial institution (“Purchaser”) and being serviced by the company totaled
$25.2 million
as of
June 30, 2015
and
$33.1 million
at
December 31, 2014
.
Due to a short average collection cycle of less than
60 days
for such accounts receivable as well as Manitowoc Foodservice’s collection history, the fair value of Manitowoc Foodservice’s deferred purchase price notes approximates book value. The fair value of the deferred purchase price notes recorded as of
June 30, 2015
and
December 31, 2014
was
$16.9 million
and
$21.1 million
, respectively, and is included in accounts receivable in the accompanying condensed combined balance sheets.
The accounts receivable securitization program also contains customary affirmative and negative covenants. As of June 30, 2015, Manitowoc ParentCo was in compliance with all affirmative and negative covenants pertaining to the accounts receivable securitization program.
10. Income Taxes
For the six months ended
June 30, 2015
, Manitowoc Foodservice recorded income tax expense of
$23.5 million
, compared to income tax expense of
$28.6 million
for the six months ended
June 30, 2014
. The decrease in Manitowoc Foodservice's tax expense for the six months ended
June 30, 2015
relative to the prior year resulted primarily from a lower level of income. Manitowoc Foodservice's effective tax rate is lower than the U.S. federal statutory rate of
35%
due to results of foreign operations that are subject to income taxes at lower statutory rates.
Manitowoc Foodservice will continue to periodically evaluate its valuation allowance requirements in light of changing facts and circumstances, and may adjust its deferred tax asset valuation allowances accordingly. It is reasonably possible that Manitowoc Foodservice will either add to, or reverse a portion of its existing deferred tax asset valuation allowances in the future. Such changes in the deferred tax
asset valuation allowances will be reflected in the current operations through Manitowoc Foodservice’s income tax provision, and could have a material effect on operating results.
Manitowoc Foodservice’s unrecognized tax benefits, excluding interest and penalties, were
$16.6 million
as of
June 30, 2015
, and
$16.6 million
as of
December 31, 2014
. During the next twelve months, it is reasonably possible that
$0.2 million
of the unrecognized tax benefits, if recognized, would affect the annual effective tax rate.
Manitowoc Foodservice regularly assesses the likelihood of an adverse outcome resulting from examinations to determine the adequacy of its tax reserves. As of
June 30, 2015
, Manitowoc Foodservice believes that it is more likely than not that the tax positions it has taken will be sustained upon the resolution of its audits resulting in no material impact on its consolidated financial position and the results of operations and cash flows. However, the final determination with respect to any tax audits, and any related litigation, could be materially different from its 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.
11. Equity
The following is a roll forward of net parent company investment for the six months ended
June 30, 2015
and
2014
:
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Net Parent Company Investment
|
|
Balance at December 31, 2014
|
|
$
|
1,272.1
|
|
|
Net earnings
|
|
50.9
|
|
|
Net increase in net parent company investment
|
|
30.3
|
|
|
Balance at June 30, 2015
|
|
$
|
1,353.3
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Net Parent Company Investment
|
|
Balance at December 31, 2013
|
|
$
|
1,267.2
|
|
|
Net earnings
|
|
69.5
|
|
|
Net increase in net parent company investment
|
|
19.4
|
|
|
Balance at June 30, 2014
|
|
$
|
1,356.1
|
|
Summaries of the changes in accumulated other comprehensive income (loss), net of tax, by component for the six months ended
June 30, 2015
and
2014
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Foreign Currency Translation
|
|
Gains and Losses on Cash Flow Hedges
|
|
Pension & Postretirement
|
|
Total
|
|
Balance at December 31, 2014
|
|
$
|
17.3
|
|
|
$
|
(1.0
|
)
|
|
$
|
(37.0
|
)
|
|
$
|
(20.7
|
)
|
|
Other comprehensive (loss) income before reclassifications
|
|
(9.8
|
)
|
|
(2.3
|
)
|
|
—
|
|
|
(12.1
|
)
|
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
|
—
|
|
|
1.3
|
|
|
0.5
|
|
|
1.8
|
|
|
Net current period other comprehensive (loss) income
|
|
(9.8
|
)
|
|
(1.0
|
)
|
|
0.5
|
|
|
(10.3
|
)
|
|
Balance at June 30, 2015
|
|
$
|
7.5
|
|
|
$
|
(2.0
|
)
|
|
$
|
(36.5
|
)
|
|
$
|
(31.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Foreign Currency items
|
|
Gains and Losses on Cash Flow Hedges
|
|
Pension & Postretirement
|
|
Total
|
|
Balance at December 31, 2013
|
|
$
|
34.2
|
|
|
$
|
(0.4
|
)
|
|
$
|
(32.6
|
)
|
|
$
|
1.2
|
|
|
Other comprehensive income (loss) before reclassifications
|
|
0.1
|
|
|
(0.1
|
)
|
|
—
|
|
|
—
|
|
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
|
—
|
|
|
0.6
|
|
|
0.5
|
|
|
1.1
|
|
|
Net current period other comprehensive income
|
|
0.1
|
|
|
0.5
|
|
|
0.5
|
|
|
1.1
|
|
|
Balance at June 30, 2014
|
|
$
|
34.3
|
|
|
$
|
0.1
|
|
|
$
|
(32.1
|
)
|
|
$
|
2.3
|
|
The following is a reconciliation of the reclassifications out of accumulated other comprehensive income (loss), net of tax, for the six months ended
June 30, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30, 2015
|
|
|
|
(in millions)
|
|
Amount Reclassified from Accumulated Other Comprehensive Income
|
|
Recognized Location
|
|
Gains and losses on cash flow hedges
|
|
|
|
|
|
Foreign exchange contracts
|
|
$
|
(0.9
|
)
|
|
Cost of sales
|
|
Commodity contracts
|
|
(1.2
|
)
|
|
Cost of sales
|
|
|
|
(2.1
|
)
|
|
Total before tax
|
|
|
|
0.8
|
|
|
Tax expense
|
|
|
|
$
|
(1.3
|
)
|
|
Net of tax
|
|
Amortization of pension and postretirement items
|
|
|
|
|
|
Actuarial losses
|
|
(0.5
|
)
|
(a)
|
|
|
|
|
(0.5
|
)
|
|
Total before tax
|
|
|
|
—
|
|
|
Tax benefit
|
|
|
|
$
|
(0.5
|
)
|
|
Net of tax
|
|
|
|
|
|
|
|
|
Total reclassifications for the period
|
|
$
|
(1.8
|
)
|
|
Net of tax
|
|
|
|
|
|
|
(a) These accumulated other comprehensive income (loss) components are included in the computation of net periodic pension cost (see
Note 15,
“Employee Benefit Plans,” for further details).
|
The following is a reconciliation of the reclassifications out of accumulated other comprehensive income (loss), net of tax, for the six months ended
June 30, 2014
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30, 2014
|
|
|
|
(in millions)
|
|
Amount Reclassified from Accumulated Other Comprehensive Income
|
|
Recognized Location
|
|
Gains and losses on cash flow hedges
|
|
|
|
|
|
Foreign exchange contracts
|
|
$
|
(0.7
|
)
|
|
Cost of sales
|
|
Commodity contracts
|
|
(0.2
|
)
|
|
Cost of sales
|
|
|
|
(0.9
|
)
|
|
Total before tax
|
|
|
|
0.3
|
|
|
Tax expense
|
|
|
|
$
|
(0.6
|
)
|
|
Net of tax
|
|
|
|
|
|
|
|
Actuarial losses
|
|
(0.5
|
)
|
(a)
|
|
|
|
|
(0.5
|
)
|
|
Total before tax
|
|
|
|
—
|
|
|
Tax benefit
|
|
|
|
$
|
(0.5
|
)
|
|
Net of Tax
|
|
|
|
|
|
|
|
|
Total reclassifications for the period
|
|
$
|
(1.1
|
)
|
|
Net of Tax
|
|
|
|
|
|
|
(a) These accumulated other comprehensive income (loss) components are included in the computation of net periodic pension cost (see
Note 15
, “Employee Benefit Plans,” for further details).
|
12. Stock-Based Compensation
During the periods presented certain employees of Manitowoc Foodservice participated in stock-based compensation plans sponsored by Manitowoc ParentCo. Under these stock-based compensation plans Manitowoc ParentCo provides awards to employees of Manitowoc Foodservice with restricted common stock, restricted stock units, and stock options to purchase shares of Manitowoc ParentCo. Because Manitowoc Foodservice provides employee services in considerations for participation in Manitowoc ParentCo’s plans, a stock-based compensation expense for the awards granted to Manitowoc Foodservice employees has been reflected in the condensed combined financial statements. See Note 19, “Net Parent Company Investment and Related Party Transactions” for further information on corporate allocations.
Stock-based compensation expense was
$1.6 million
and
$1.5 million
for the six months ended
June 30, 2015
and
2014
, respectively. Manitowoc ParentCo granted options to acquire
0.1 million
and
0.1 million
shares of common stock to employees during the six months ended
June 30, 2015
and
2014
, respectively. In addition, Manitowoc ParentCo issued a total of
0.1 million
restricted stock units to employees and directors during the six months ended
June 30, 2015
, and
0.1 million
shares of restricted stock units to employees and directors during the six months ended
June 30, 2014
. The restricted stock units granted to employees vest on the third anniversary of the grant date. The restricted stock units granted to directors vest on the second anniversary of the grant date.
Manitowoc Foodservice recognizes stock-based compensation expense over the stock-based awards’ vesting period.
13. Contingencies and Significant Estimates
As of
June 30, 2015
, Manitowoc Foodservice held reserves for environmental matters related to Enodis locations of approximately
$0.6 million
. At certain of Manitowoc Foodservice’s other facilities, Manitowoc Foodservice has identified potential contaminants in soil and groundwater. The ultimate cost of any remediation required will depend upon the results of future investigation. Based upon available information, Manitowoc Foodservice does not expect the ultimate costs at any of these locations will have a material adverse effect on its financial condition, results of operations, or cash flows individually or in the aggregate.
Manitowoc Foodservice believes that it has obtained and is in substantial compliance with those material environmental permits and approvals necessary to conduct its various businesses. Based on the facts presently known, Manitowoc Foodservice does not expect environmental compliance costs to have a material adverse effect on its financial condition, results of operations, or cash flows.
As of
June 30, 2015
, various product-related lawsuits were pending. To the extent permitted under applicable law, all of these are insured with self-insurance retention levels. Manitowoc Foodservice’s self-insurance retention levels vary by business, and have fluctuated over the last
ten
years. The range of Manitowoc Foodservice’s self-insured retention levels is
$0.1 million
to
$0.3 million
per occurrence.
As of
June 30, 2015
,
the largest self-insured retention level for new occurrences currently maintained by
Manitowoc Foodservice
is
$0.3 million
per occurrence and applies to product liability claims for the hot and cold category products manufactured in the United States.
Product liability reserves in the combined balance sheets as of
June 30, 2015
and
December 31, 2014
were
$2.7 million
and
$2.2 million
, respectively;
$0.2 million
and
$0.2 million
, respectively, was reserved specifically for actual cases and
$2.5 million
and
$2.0 million
respectively, for claims incurred but not reported, which were estimated using actuarial methods. Based on Manitowoc Foodservice’s experience in defending product liability claims, management believes the current reserves are adequate for estimated case resolutions on aggregate self-insured claims and insured claims. Any recoveries from insurance carriers are dependent upon the legal sufficiency of claims and solvency of insurance carriers.
As of
June 30, 2015
and
December 31, 2014
, Manitowoc Foodservice had reserved
$40.3 million
and
$42.0 million
, respectively, for warranty claims included in product warranties and other non-current liabilities in the combined balance sheets. Certain of these warranty and other related claims involve matters in dispute that ultimately are resolved by negotiation, arbitration, or litigation. See Note 14, "Guarantees," for more information.
It is reasonably possible that the estimates for environmental remediation, product liability and warranty costs may change in the near future based upon new information that may arise or matters that are beyond the scope of Manitowoc Foodservice’s historical experience. Presently, there are no reliable methods to estimate the amount of any such potential changes.
Manitowoc Foodservice is also involved in various legal actions arising out of the normal course of business, which, taking into account the liabilities accrued and legal counsel’s evaluation of such actions, in the opinion of management, the ultimate resolution, individually and in the aggregate, is not expected to have a material adverse effect on Manitowoc Foodservice’s financial condition, results of operations, or cash flows.
14. Guarantees
In the normal course of business, Manitowoc Foodservice provides its customers a warranty covering workmanship, and in some cases materials, on products manufactured by the company. Such warranty generally provides that products will be free from defects for periods ranging from
12
months to
60
months with certain equipment having longer-term warranties. If a product fails to comply with Manitowoc Foodservice’s warranty, Manitowoc Foodservice may be obligated, at its expense, to correct any defect by repairing or replacing such defective products. Manitowoc Foodservice provides for an estimate of costs that may be incurred under its warranty at the time product
revenue is recognized. These costs primarily include labor and materials, as necessary, associated with repair or replacement. The primary factors that affect Manitowoc Foodservice’s 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, Manitowoc Foodservice assesses the adequacy of its recorded warranty liability and adjusts the amounts as necessary. Below is a table summarizing the warranty activity for the six months ended
June 30, 2015
and the year ended
December 31, 2014
:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Six Months Ended June 30, 2015
|
|
Year Ended December 31, 2014
|
|
Balance at beginning of period
|
|
$
|
42.0
|
|
|
$
|
38.3
|
|
|
Accruals for warranties issued during the period
|
|
11.3
|
|
|
27.9
|
|
|
Settlements made (in cash or in kind) during the period
|
|
(12.7
|
)
|
|
(23.7
|
)
|
|
Currency translation
|
|
(0.3
|
)
|
|
(0.5
|
)
|
|
Balance at end of period
|
|
$
|
40.3
|
|
|
$
|
42.0
|
|
15. Employee Benefit Plans
Manitowoc ParentCo maintains
three
defined contribution retirement plans for its employees: (1) The Manitowoc Company, Inc. 401(k) Retirement Plan (the “Manitowoc 401(k) Retirement Plan”); (2) The Manitowoc Company, Inc. Retirement Savings Plan (the “Manitowoc Retirement Savings Plan”); and (3) The Manitowoc Company, Inc. Deferred Compensation Plan (the “Manitowoc Deferred Compensation Plan”). Each plan results in individual participant balances that reflect a combination of amounts contributed by Manitowoc ParentCo or deferred by the participant, amounts invested at the direction of either the company or the participant, and the continuing reinvestment of returns until the accounts are distributed.
In addition, Manitowoc Foodservice employees participate in the defined benefit plans, which are (1) shared with the employees of other Manitowoc ParentCo subsidiaries (the “Shared Plans”) and (2) are sponsored directly by Manitowoc Foodservice subsidiaries (the “Direct Plans”).
Manitowoc Foodservice accounts for these Shared Plans for the purpose of the condensed combined financial statements as a multiemployer plan. Accordingly, Manitowoc Foodservice does not record an asset or liability to recognize the funded status of the Shared Plans. However, the costs associated with these Shared Plans of $0.6 million and $0.4 million for the six months ended June 30, 2015 and 2014, respectively, are reflected on the Manitowoc Foodservice combined statement of operations. This expense reflects an approximation of Manitowoc Foodservice’s portion of the costs of the Shared Plans as well as costs attributable to Manitowoc ParentCo corporate employees, which have been allocated to the Manitowoc Foodservice condensed combined statement of operations based on methodology deemed reasonable by management.
The Direct Plans are accounted for as defined benefit plans. Accordingly, the funded and unfunded position of each Direct Plan is recorded in Manitowoc Foodservice combined balance sheets and the income and expenses recorded in the combined statements of operations. Actuarial gains and losses that have not yet been recognized through income are recorded in accumulated other comprehensive income net of taxes until they are amortized as a component of net periodic benefit cost. The determination of benefit obligations and the recognition of expenses related to the Direct Plans are dependent on various assumptions. The major assumptions primarily relate to discount rates, long-term expected rates of return on plan assets, and future compensation increases. Management develops each assumption using relevant company experience in conjunction with market-related data for each individual country in which such plans exist.
The components of periodic benefit costs for the Direct Plans for the six months ended
June 30, 2015
and
June 30, 2014
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2015
|
|
(in millions)
|
|
Pension Plans
|
|
Postretirement
Health and
Other Plans
|
|
Service cost - benefits earned during the period
|
|
$
|
0.2
|
|
|
$
|
—
|
|
|
Interest cost of projected benefit obligations
|
|
3.3
|
|
|
—
|
|
|
Expected return on plan assets
|
|
(2.7
|
)
|
|
—
|
|
|
Amortization of actuarial net loss
|
|
0.5
|
|
|
—
|
|
|
Net periodic benefit costs
|
|
$
|
1.3
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2014
|
|
(in millions)
|
|
Pension Plans
|
|
Postretirement
Health and
Other Plans
|
|
Service cost - benefits earned during the period
|
|
$
|
0.2
|
|
|
$
|
—
|
|
|
Interest cost of projected benefit obligations
|
|
4.0
|
|
|
0.1
|
|
|
Expected return on plan assets
|
|
(3.6
|
)
|
|
—
|
|
|
Amortization of actuarial net loss
|
|
0.6
|
|
|
(0.2
|
)
|
|
Net periodic benefit costs
|
|
$
|
1.2
|
|
|
$
|
(0.1
|
)
|
16. Restructuring
The following is a roll-forward of all restructuring activities relating to Manitowoc Foodservice for the six months ended
June 30, 2015
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring Reserve
|
|
|
|
|
|
Restructuring Reserve
|
|
Balance as of
December 31, 2014
|
|
Restructuring
Charges
|
|
Use of Reserve
|
|
Balance as of
June 30, 2015
|
|
$
|
15.6
|
|
|
$
|
0.5
|
|
|
$
|
(1.2
|
)
|
|
$
|
14.9
|
|
17. Recent Accounting Changes and Pronouncements
In July 2015, the FASB issued Accounting Standards Update (“ASU”) No. 2015-11, “Inventory (Topic 330): Simplifying the Measurement of Inventory.” This update changes the guidance on accounting for inventory accounted for on a first-in first-out basis (FIFO). Under the revised standard, an entity should measure FIFO inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured on a last-in, first-out basis (LIFO). The amendments in this ASU are effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2016. We believe the adoption of this ASU will not have a material impact on our combined financial statements.
In April 2015, the FASB issued ASU No. 2015-05, “Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement.” This update provides guidance on accounting for a software license in a cloud computing arrangement. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. Further, all software licenses are within the scope of Accounting Standards Codification Subtopic 350-40 and will be accounted for consistent with other licenses of intangible assets. The amendments in this ASU are effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. We believe the adoption of this ASU will not have a material impact on our combined financial statements.
In April 2015, the FASB issued ASU No. 2015-03, “Simplifying the Presentation of Debt Issuance Costs.” To simplify the presentation of debt issuance costs, this update requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts, rather than as a deferred asset. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this update. The amendments in this ASU are effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015, with early application permitted. The guidance will be applied on a retrospective basis. Manitowoc Foodservice is evaluating the impact that the adoption of this ASU will have on the its condensed combined financial statements.
In February 2015, the FASB issued ASU No. 2015-02, “Consolidation (Topic 820)—Amendments to the Consolidation Analysis.” This update amends the current consolidation guidance for both the variable interest entity (VIE) and voting interest entity (VOE) consolidation models. The amendments in this ASU are effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. Manitowoc Foodservice believes the adoption of this ASU will not have a material impact on its condensed combined financial statements.
In January 2015, the FASB issued ASU No. 2015-01, “Income Statement—Extraordinary and Unusual Items.” This update eliminates from GAAP the concept of extraordinary items. ASU 2015-01 is effective for the first interim period within fiscal years beginning after December 15, 2015, with early adoption permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. A reporting entity may apply the amendments prospectively or retrospectively to all prior periods presented in the financial statements. Manitowoc Foodservice believes the adoption of this ASU will not have a material impact on its condensed combined financial statements.
In August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements—Going Concern.” This update provided guidance on management’s responsibility in evaluating whether there is substantial doubt about a company’s ability to continue as a going concern and to provide related footnote disclosures. ASU 2014-15 is effective in the first annual period ending after December 15, 2016, with early adoption permitted. Manitowoc Foodservice believes the adoption of this ASU will not have a material impact on its condensed combined financial statements.
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers.” This update provided a principles-based approach to revenue recognition to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU provides a five-step model to be applied to all contracts with customers. The five steps are to identify the contract(s) with the customer, identify the performance obligations in the contact, determine the transaction price, allocate the transaction price to the performance obligations in the contract and recognize revenue when each performance obligation is satisfied. The revenue standard is effective for the first interim period within fiscal years beginning after December 15, 2017 (as finalized by the FASB in August 2015 in ASU 2015-14), and can be applied either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the update recognized at the date of initial application along with additional disclosures. Early adoption is permitted as of the original effective date—the first interim period within fiscal years beginning after December 15, 2016. Manitowoc Foodservice is evaluating the impact, if any, the adoption of this ASU will have on its condensed combined financial statements.
In April 2014, the FASB issued ASU No. 2014-08, “Presentation of Financial Statements and Property, Plant, and Equipment: Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.” This ASU changes the requirements for reporting discontinued operations in Accounting Standards Codification Subtopic 205-20, and now requires a disposal of a component of an entity or a group of components of an entity to be reported in discontinued operations only if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. There will also be additional disclosures required. The amendments in this ASU are effective prospectively for fiscal years (and interim reporting periods within those years) beginning after December 15, 2014. The significance of this guidance for Manitowoc Foodservice is dependent on any future disposals.
18. Business Segments
Manitowoc Foodservice identifies its segments using the “management approach,” which designates the internal organization that is used by management for making operating decisions and assessing performance as the source of Manitowoc Foodservice’s reportable segments. Management organizes the business based on geography, and has designated the regions Americas, EMEA, and APAC as reportable segments. Net sales and earnings from operations by segment are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
(in millions)
|
|
2015
|
|
2014
|
|
Net sales from continuing operations:
|
|
|
|
|
|
Americas
|
|
$
|
640.4
|
|
|
$
|
661.9
|
|
|
EMEA
|
|
146.0
|
|
|
171.1
|
|
|
APAC
|
|
86.9
|
|
|
93.8
|
|
|
Eliminations
|
|
(120.2
|
)
|
|
(136.8
|
)
|
|
Total net sales
|
|
$
|
753.1
|
|
|
$
|
790.0
|
|
|
Operating earnings (loss) from continuing operations:
|
|
|
|
|
|
|
Americas
|
|
$
|
80.9
|
|
|
$
|
108.7
|
|
|
EMEA
|
|
10.1
|
|
|
8.2
|
|
|
APAC
|
|
9.3
|
|
|
8.8
|
|
|
Corporate expenses
|
|
(18.4
|
)
|
|
(16.2
|
)
|
|
Amortization expense
|
|
(15.7
|
)
|
|
(16.0
|
)
|
|
Restructuring expense
|
|
(0.5
|
)
|
|
(1.4
|
)
|
|
Separation expense
|
|
(0.1
|
)
|
|
—
|
|
|
Other expense
|
|
(0.4
|
)
|
|
—
|
|
|
Operating earnings from continuing operations
|
|
$
|
65.2
|
|
|
$
|
92.1
|
|
|
Other (expenses) income:
|
|
|
|
|
|
Interest expense on capital leases
|
|
$
|
(0.7
|
)
|
|
$
|
(0.7
|
)
|
|
Interest income on notes with ParentCo
|
|
9.3
|
|
|
8.1
|
|
|
Other income (expense), net
|
|
0.6
|
|
|
(1.0
|
)
|
|
Total other income
|
|
$
|
9.2
|
|
|
$
|
6.4
|
|
|
Earnings from continuing operations before taxes on earnings
|
|
$
|
74.4
|
|
|
$
|
98.5
|
|
As of
June 30, 2015
, and December 31, 2014, the total assets by segment were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
June 30,
2015
|
|
December 31,
2014
|
|
Americas
|
|
$
|
1,660.3
|
|
|
$
|
1,636.2
|
|
|
EMEA
|
|
161.7
|
|
|
158.3
|
|
|
APAC
|
|
95.4
|
|
|
96.7
|
|
|
Corporate
|
|
12.4
|
|
|
7.1
|
|
|
Total assets
|
|
$
|
1,929.8
|
|
|
$
|
1,898.3
|
|
19. Net Parent Company Investment and Related Party Transactions
Related Party Transactions and Cash Management:
Manitowoc Foodservice does not enter into transactions with related parties to purchase and/or sell goods or services in the ordinary course of business. Transactions between Manitowoc Foodservice and Manitowoc ParentCo (including its Cranes business) are reflected in Net Parent Company Investment in the combined balance sheets and in the combined statements of cash flows as a financing activity in “Net transfers (to) from Parent and affiliates”. Manitowoc Foodservice participated in Manitowoc ParentCo’s centralized cash management program in which cash is swept each day and held in a centralized account at the corporate level. Cash held in these centralized accounts has not been allocated to Manitowoc Foodservice. The only cash reflected in the combined balance sheets is that which is held directly by specific Manitowoc Foodservice entities.
Net Parent Company Investment and Corporate Cost Allocations:
Historically, Manitowoc ParentCo performs certain general and corporate functions on Manitowoc Foodservice’s behalf. These costs include, but are not limited to, accounting, legal, human resources, audit, and information technology (“general corporate expenses”). For purposes of preparing the condensed combined financial statements these costs have been allocated on a basis of direct usage, where identifiable, or through the use of allocation methodologies based on percentage of sales, headcount, or other methodologies deemed appropriate by management. These general corporate expenses are included within “Engineering, selling, and administrative” costs and Net Parent Company Investment, accordingly. Management believes the assumptions associated with allocating these costs are reasonable. Nevertheless, the condensed combined financial statements may not include all of the actual expense that would have been incurred and may not represent Manitowoc Foodservice’s results of operations, financial position, or cash flows had it been a stand-alone company during the periods presented. Actual costs that would have been incurred if Manitowoc
Foodservice had been a standalone company would depend on multiple factors, including organizational structure and strategic decisions made in various areas, including information technology and infrastructure. General corporate expenses allocated to Manitowoc Foodservice during the six months ended
June 30, 2015
and
2014
were
$13.1 million
and
$13.1 million
, respectively.
All significant intercompany transactions between Manitowoc Foodservice and Manitowoc ParentCo (including its Cranes business) have been included within Net Parent Company Investment in the condensed combined balance sheets. The total effect of the settlement of these intercompany transactions is reflected as a financing activity in the condensed combined statements of cash flows.
Guarantees:
Certain of Manitowoc ParentCo’s subsidiaries, which includes selected entities that are part of Manitowoc Foodservice, have entered into guarantee agreements with Manitowoc ParentCo whereby these subsidiaries pledge their assets as collateral in the event of default by Manitowoc ParentCo on its debt or interest obligations. However, none of these Manitowoc Foodservice subsidiaries are named as obligors in the debt agreements held in the name of Manitowoc ParentCo. For that reason, Manitowoc ParentCo has not historically allocated debt balances and/or charged out third-party debt related expenses to its Foodservice Segment.
Furthermore, we expect these guarantee agreements will be terminated pursuant to the close of the Spin-Off. Therefore, Manitowoc Foodservice has not recognized any liability associated with the debt held by Manitowoc ParentCo or the asset collateral guarantee in its condensed combined financial statements. No financing costs or interest expense associated with Manitowoc ParentCo’s debt has been allocated condensed combined financial statements.
20. Subsequent Events
The condensed combined financial statements reflect management’s evaluation of subsequent events through September 1, 2015, the date Manitowoc Foodservice's unaudited condensed combined financial statements as of and for the six months ended June 30, 2015, were available to be issued.
On August 31, 2015, Manitowoc ParentCo finalized changes to its accounts receivable securitization program. Among other actions, Manitowoc ParentCo entered into an amendment to the Receivables Purchase Agreement, the results of which were that (i) Foodservice Asia was added as an originator and as a servicer under the facility; and (ii) Manitowoc Foodservice's domestic originators were effectively released from their obligations under the related purchase and sale agreement and will now sell their accounts receivable to the Cayman Seller (prior to these changes, these receivables were sold to the U.S. Seller). The maximum commitment size of the securitization facility did not change and, therefore, remains at $185.0 million.
