Filed Pursuant to Rule 424(b)(3) and Rule 424(c)
Registration No. 333-211876
Prospectus Supplement No. 1
Manitowoc Foodservice, Inc.
2016 Omnibus Incentive Plan
Thisprospectussupplementno.1amendsourprospectusdatedJune10,2016.Thesharesofcommonstock,$0.01parvalue(“CommonStock”),coveredbytheprospectusmaybeacquiredbycertainparticipantsintheManitowocFoodservice,Inc.2016OmnibusIncentivePlan(the“Plan”)pursuanttoawardsunderthePlan(the“awards”),includingupontheexerciseofcertainoptionstopurchaseourCommonStock.AllawardsaresubjecttothetermsofthePlanandtheapplicableawardagreement.AnyproceedsreceivedbyusfromtheexerciseofstockoptionscoveredbythePlanwillbeusedforgeneralcorporatepurposes.
Thisprospectussupplementno.1isbeingfiledtoincludetheinformationsetforthinourQuarterlyReportonForm10-QforthequarterlyperiodendedJune30,2016,whichwasfiledwiththeSecuritiesandExchangeCommissiononAugust15,2016andwhichissetforthbelow.Thisprospectussupplementno.1shouldbereadinconjunctionwiththeprospectusdatedJune10,2016.
OurCommonStockislistedontheNewYorkStockExchangeunderthesymbol“MFS.”
In reviewing this prospectus supplement, you should carefully consider the matters described under the caption “RiskFactors” beginning on page 5 of the prospectus.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved ofthese securities or determined if the related prospectus is truthful or complete. Any representation to the contrary is acriminal offense.
ProspectusSupplementNo.1,datedAugust18,2016
TableofContents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549
FORM 10-Q
xQuarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2016
or
oo Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from to
Commission File Number
1-37548
Manitowoc Foodservice, Inc.(Exactnameofregistrantasspecifiedinitscharter)
Delaware 47-4625716
(Stateorotherjurisdiction (I.R.S.Employer
ofincorporation) IdentificationNumber)
2227 Welbilt Boulevard New Port Richey, FL 34655
(Addressofprincipalexecutiveoffices) (ZipCode)
(727) 375-7010
(Registrant’stelephonenumber,includingareacode)
IndicatebycheckmarkwhethertheRegistrant:(1)hasfiledallreportsrequiredtobefiledbySection13or15(d)oftheSecuritiesExchangeActof1934duringthepreceding12months(orforsuchshorterperiodthattheRegistrantwasrequiredtofilesuchreports),and(2)hasbeensubjecttosuchfilingrequirementsforthepast90days.YesxNoo
Indicatebycheckmarkwhethertheregistranthassubmittedelectronicallyandpostedonitscorporatewebsite,ifany,everyInteractiveDataFilerequiredtobesubmittedandpostedpursuanttoRule405ofRegulationS-T(§232.405ofthischapter)duringthepreceding12months(orforsuchshorterperiodthattheregistrantwasrequiredtosubmitandpostsuchfiles).YesxNoo
Indicatebycheckmarkwhethertheregistrantisalargeacceleratedfiler,anacceleratedfiler,anon-acceleratedfilerorasmallerreportingcompany.Seethedefinitionsof“largeacceleratedfiler,acceleratedfiler,andsmallerreportingcompany”inRule12b-2oftheExchangeAct.
Largeacceleratedfilero Acceleratedfilero
Non-acceleratedfilerx(Donotcheckifasmallerreportingcompany) Smallerreportingcompanyo
IndicatebycheckmarkwhethertheRegistrantisashellcompany(asdefinedinRule12b-2oftheAct).YesoNox
Thenumberofsharesoutstandingoftheregistrant’sCommonStockasofJune30,2016,themostrecentpracticabledate,was137,182,606.
DOCUMENTS INCORPORATED BY REFERENCE
SeeIndextoExhibitsimmediatelyfollowingthesignaturepageofthisreport,whichisincorporatedhereinbyreference.
MANITOWOCFOODSERVICE,INC.IndextoQuarterlyReportonForm10-Q
FortheQuarterlyPeriodEndedJune30,2016
PagePART I. FINANCIAL INFORMATION
Item1 FinancialStatements(Unaudited) 5
Item2Management’sDiscussionandAnalysisofFinancialConditionandResultsofOperations
29Item3 QuantitativeandQualitativeDisclosuresAboutMarketRisk 37Item4 ControlsandProcedures 37
PART II. OTHER INFORMATION
Item1A RiskFactors 38Item6 Exhibits 38
EXHIBITS
ExhibitIndex 40
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PART I: FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS (UNAUDITED)
IndextoConsolidated(Condensed)FinancialStatements:
FinancialStatements: Page
Consolidated(Condensed)StatementsofOperations 6
Consolidated(Condensed)StatementsofComprehensiveIncome 7
Consolidated(Condensed)BalanceSheets 8
Consolidated(Condensed)StatementsofCashFlows 9
NotestotheConsolidated(Condensed)FinancialStatements 10
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MANITOWOCFOODSERVICE,INC.Consolidated (Condensed) Statements of OperationsFortheThreeandSixMonthsEndedJune30,2016and2015(Unaudited)
Three Months Ended
June 30, Six Months Ended
June 30,
Millions of dollars, except per share data 2016 2015 2016 2015
Netsales $ 368.4 $ 407.7 $ 693.9 $ 753.1
Costofsales 233.7 280.8 441.6 519.6
Grossprofit 134.7 126.9 252.3 233.5
Selling,generalandadministrativeexpenses 75.4 69.2 147.2 151.6
Amortizationexpense 7.9 7.9 15.7 15.7
Separationexpense 1.3 0.5 4.3 0.5
Restructuringexpense 0.3 (0.2) 1.6 0.5
Earningsfromoperations 49.8 49.5 83.5 65.2
Interestexpense 27.0 0.4 35.5 0.7
Interest(income)expenseonnoteswithMTW-net — (4.6) 0.1 (9.3)
Other(income)expense-net 3.6 (0.2) 6.0 (0.6)
Earningsbeforeincometaxes 19.2 53.9 41.9 74.4
Incometaxes 4.1 17.0 8.7 23.5
Netearnings $ 15.1 $ 36.9 $ 33.2 $ 50.9
Per Share Data Earningspercommonshare-Basic $ 0.11 $ 0.27 $ 0.24 $ 0.37
Earningspercommonshare-Diluted $ 0.11 $ 0.27 $ 0.24 $ 0.37
Weightedaveragesharesoutstanding-Basic 137,131,572 137,016,712 137,105,290 137,016,712
Weightedaveragesharesoutstanding-Diluted 138,374,379 137,016,712 138,356,213 137,016,712
Theaccompanyingnotesareanintegralpartoftheseunauditedconsolidated(condensed)financialstatements.
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MANITOWOCFOODSERVICE,INC.Consolidated (Condensed) Statements of Comprehensive Income (Loss)FortheThreeandSixMonthsEndedJune30,2016and2015(Unaudited)
Three Months Ended
June 30, Six Months Ended
June 30,
Millions of dollars 2016 2015 2016 2015
Netearnings $ 15.1 $ 36.9 $ 33.2 $ 50.9
Othercomprehensiveincome(loss),netoftax: Foreigncurrencytranslationadjustments (6.1) 1.3 11.1 (9.8)Unrealizedgain(loss)onderivatives,netofincometaxes(benefit)of$0.3,$0.0,$0.7and$0.6,respectively 1.5 0.7 2.4 (1.0)
Employeepensionandpost-retirementbenefits,netofincometaxes(benefit)of$0.1,$(0.5),$(5.8)and$0.0,respectively 0.3 (1.2) (8.6) 0.5
Totalothercomprehensiveincome(loss),netoftax (4.3) 0.8 4.9 (10.3)
Comprehensiveincome(loss) $ 10.8 $ 37.7 $ 38.1 $ 40.6
Theaccompanyingnotesareanintegralpartoftheseunauditedconsolidated(condensed)financialstatements.
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MANITOWOCFOODSERVICE,INC.Consolidated (Condensed) Balance SheetsAsofJune30,2016(Unaudited)andDecember31,2015
June 30, December 31,
Millions of dollars, except share data 2016 2015
Assets
CurrentAssets:
Cashandcashequivalents $ 40.7 $ 32.0
Restrictedcash 0.4 0.6
Accountsreceivable,lessallowancesof$3.7and$4.0,respectively 100.7 63.8
Inventories—net 163.6 145.9
Prepaidsandothercurrentassets 10.7 10.3
Currentassetsheldforsale 6.2 —
Totalcurrentassets 322.3 252.6
Property,plantandequipment—net 111.4 116.4
Goodwill 845.9 845.8
Otherintangibleassets—net 503.3 519.6
Othernon-currentassets 24.1 15.9
Long-termassetsheldforsale — 3.7
Totalassets $ 1,807.0 $ 1,754.0
LiabilitiesandEquity CurrentLiabilities: Accountspayable $ 124.4 $ 129.0
Accruedexpensesandotherliabilities 146.3 157.6
Short-termborrowings 0.1 —Currentportionoflong-termdebtandcapitalleases 1.3 0.4
Productwarranties 31.1 34.3
Totalcurrentliabilities 303.2 321.3
Long-termdebtandcapitalleases 1,369.9 2.3
Deferredincometaxes 152.8 167.9
Pensionandpostretirementhealthobligations 58.8 33.3
Otherlong-termliabilities 33.4 20.5
Totalnon-currentliabilities 1,614.9 224.0
Commitmentsandcontingencies(Note13) TotalEquity(Deficit): Commonstock(300,000,000and0sharesauthorized,137,221,917sharesand0sharesissuedand137,182,606sharesand0sharesoutstanding,respectively) 1.4 —
Additionalpaid-incapital(deficit) (90.8) —
Retainedearnings 17.9 —
Netparentcompanyinvestment — 1,253.2
Accumulatedothercomprehensiveloss (39.6) (44.5)
Totalequity(deficit) (111.1) 1,208.7
Totalliabilitiesandequity $ 1,807.0 $ 1,754.0
Theaccompanyingnotesareanintegralpartoftheseunauditedconsolidated(condensed)financialstatements.
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MANITOWOCFOODSERVICE,INC.Consolidated (Condensed) Statements of Cash FlowsFortheSixMonthsEndedJune30,2016and2015(Unaudited)
Six Months Ended
June 30,
Millions of dollars 2016 2015
Cash Flows From Operating activities
Netearnings $ 33.2 $ 50.9
Adjustmentstoreconcilenetearningstonetcashprovidedby(usedfor)operatingactivities:
Depreciation 8.8 10.0
Amortizationofintangibleassets 15.7 15.7
Amortizationofdeferredfinancingfees 1.9 —
Deferredincometaxes (5.7) 3.5
Stock-basedcompensationexpense 3.4 1.6
Lossonsaleofproperty,plant,andequipment 0.1 0.3
Changesinoperatingassetsandliabilities,excludingtheeffectsofbusinessacquisitionsordispositions:
Accountsreceivable (22.3) (29.6)
Inventories (17.7) (27.0)
Otherassets (5.9) (2.6)
Accountspayable (4.3) (18.0)
Othercurrentandlong-termliabilities (5.0) (15.1)
Netcashprovidedby(usedfor)operatingactivities 2.2 (10.3)
Cash Flows From Investing activities
Capitalexpenditures (6.2) (6.7)
Changesinrestrictedcash 0.2 (0.3)
Netcashusedforinvestingactivities (6.0) (7.0)
Cash Flows From Financing activities
Proceedsfromlong-termdebtandcapitalleases 1,457.0 0.4
Repaymentsonlong-termdebtandcapitalleases (49.6) (0.2)
Debtissuancecosts (40.9) —
Changesinshort-termborrowings 0.1 —
DividendpaidtoMTW (1,362.0) —
NettransactionswithMTW 7.6 16.3
Exercisesofstockoptions 0.4 —
Netcashprovidedbyfinancingactivities 12.6 16.5
Effectofexchangeratechangesoncash (0.1) (0.9)
Netincrease(decrease)incashandcashequivalents 8.7 (1.7)
Balanceatbeginningofperiod 32.0 16.5
Balanceatendofperiod $ 40.7 $ 14.8
Theaccompanyingnotesareanintegralpartoftheseunauditedconsolidated(condensed)financialstatements.
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MANITOWOC FOODSERVICE, INC.Notes to Unaudited Consolidated (Condensed) Financial Statements
For the Three and Six Months Ended June 30, 2016, and 2015 (Unaudited)
1. Description of the Business and Basis of Presentation
The Spin-Off
OnJanuary29,2015,TheManitowocCompany,Inc.("MTW")announcedplanstocreatetwoindependentpubliccompaniestoseparatelyoperateitstwobusinesses:itsCranesbusinessanditsFoodservicebusiness.Toeffecttheseparation,MTWfirstundertookaninternalreorganization,followingwhichMTWheldtheCranesbusiness,andManitowocFoodservice,Inc.("MFS")heldtheFoodservicebusiness.ThenonMarch4,2016,MTWdistributedalltheMFScommonstocktoMTW’sshareholdersonaproratabasis,andMFSbecameanindependentpubliclytradedcompany(the"Distribution").AsusedinthisQuarterlyReportonForm10-Q,“Spin-Off”referstoboththeabovedescribedinternalreorganizationandDistribution,collectively.
Intheseconsolidated(condensed)financialstatements,unlessthecontextotherwiserequires:
• "MFS"andthe"Company"refertoManitowocFoodservice,Inc.anditsconsolidatedsubsidiaries,aftergivingeffecttotheinternalreorganizationandthedistribution,or,inthecaseofinformationasofdatesorforperiodspriortoitsseparationfromMTW,thecombinedentitiesoftheFoodservicebusiness,andcertainotherassetsandliabilitiesthatwerehistoricallyheldattheMTWcorporatelevel,butwerespecificallyidentifiableandattributabletotheFoodservicebusiness;and
• "MTW"referstoTheManitowocCompany,Inc.anditsconsolidatedsubsidiaries,otherthan,forallperiodsfollowingtheSpin-Off,MFS.
• "Spin-Off"referstoboththeabovedescribedinternalreorganizationanddistribution,collectively.
Description of the Business
TheCompanyisamongtheworld’smostpreferredandinnovativecommercialfoodserviceequipmentcompanies.Itdesigns,manufactures,andservicesanintegratedportfolioofhotandcoldcategoryproducts.Ithasoneoftheindustry’sbroadestportfoliosofproductsthatcreateoptimalvalueforitschannelpartnerswhiledeliveringsuperiorperformance,quality,reliability,anddurabilityforitscustomers.TheCompany'scapabilitiesspanrefrigeration,ice-making,cooking,holding,food-preparation,andbeverage-dispensingtechnologies,andallowittoequipentirecommercialkitchensandservetheworld’sgrowingdemandforfoodpreparedawayfromhome.TheCompanysuppliesfoodserviceequipmenttocommercialandinstitutionalfoodserviceoperatorssuchasfull-servicerestaurants,quick-servicerestaurantchains,hotels,caterers,supermarkets,conveniencestores,businessandindustry,hospitals,schoolsandotherinstitutions.
Basis of Presentation
Theaccompanyingunauditedconsolidated(condensed)financialstatementshavebeenpreparedinaccordancewithaccountingprinciplesgenerallyacceptedintheUnitedStates("U.S.GAAP").AllintercompanybalancesandtransactionsbetweentheCompanyanditsaffiliateshavebeeneliminated.
DuringtheperiodspresentedpriortotheSpin-OffonMarch4,2016,theCompany'sfinancialstatementswerepreparedonacombinedstandalonebasisderivedfromtheconsolidatedfinancialstatementsandaccountingrecordsofMTW.TheCompanyfunctionedaspartofthelargergroupofcompaniescontrolledbyMTW.Accordingly,MTWperformedcertaincorporateoverheadfunctionsfortheCompany.Therefore,certaincostsrelatedtotheCompanyhavebeenallocatedfromMTWfortheportionofthethreemonthsendedMarch31,2016uptotheSpin-OffonMarch4,2016andfortheentiretyofthethreemonthsendedMarch31,2015.Theseallocatedcostsareprimarilyrelatedto:1)corporateofficers,2)employeebenefitsandcompensation,3)share-basedcompensation,and4)certainadministrativefunctions,whicharenotprovidedatthebusinesslevelincluding,butnotlimitedto,finance,treasury,tax,audit,legal,informationtechnology,humanresources,andinvestorrelations.Wherepossible,thesecostswereallocatedbasedondirectusage,withtheremainderallocatedonabasisofrevenue,headcount,orothermeasurestheCompanydeterminedasreasonable.
ManagementoftheCompanybelievestheassumptionsunderlyingtheunauditedconsolidated(condensed)financialstatements,includingtheassumptionsregardingtheallocatedexpenses,reasonablyreflecttheutilizationofservicesprovidedtoorthebenefitreceivedbytheCompanyduringtheperiodspresented.Nevertheless,theaccompanyingunauditedconsolidated(condensed)financialstatementsmaynotbeindicativeoftheCompany'sfutureperformance,anddonotnecessarilyincludealloftheactualexpensesthatwouldhavebeenincurredbytheCompanyandmaynotreflecttheresultsofoperations,financialposition,andcashflowshadtheCompanybeenastandalonecompanyduringtheentiretyoftheperiodspresented.
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Accounting Policies
Intheopinionofmanagement,theaccompanyingunauditedconsolidated(condensed)financialstatementscontainalladjustmentsnecessaryforafairstatementoftheresultsofoperationsandcomprehensiveincomeforthethreeandsixmonthsendedJune30,2016and2015,thecashflowsforthesixmonthsendedJune30,2016and2015,andthebalancesheetatJune30,2016andDecember31,2015,andexceptasotherwisediscussedsuchadjustmentsconsistofonlythoseofanormalrecurringnature.TheinterimresultsarenotnecessarilyindicativeofresultsforafullyearanddonotcontaininformationincludedintheCompany’sannualconsolidatedfinancialstatementsandnotesfortheyearendedDecember31,2015.Certaininformationandfootnotedisclosures,normallyincludedinfinancialstatementspreparedinaccordancewithU.S.GAAP,havebeencondensedoromittedpursuanttotheSEC’srulesandregulationsdealingwithinterimfinancialstatements.However,theCompanybelievesthatthedisclosuresmadeintheunauditedconsolidated(condensed)financialstatementsincludedhereinareadequatetomaketheinformationpresentednotmisleading.ItissuggestedthattheseunauditedfinancialstatementsbereadinconjunctionwiththefinancialstatementsandthenotestothefinancialstatementsincludedintheCompany’slatestannualreportonForm10-K.
Certainpriorperiodamountshavebeenreclassifiedtoconformtothecurrentperiodpresentation.Alldollaramounts,exceptshareandpershareamounts,areinmillionsofdollarsthroughoutthetablesincludedinthesenotesunlessotherwiseindicated.
Recent Accounting Changes and Pronouncements
OnMarch30,2016,theFinancialAccountingStandardsBoard("FASB")issuedAccountingStandardsUpdate("ASU")No.2016-09,“StockCompensation(Topic718)”whichsimplifiesseveralaspectsoftheaccountingforshare-basedpaymentawardtransactions.ThisASUrequiresthatallexcesstaxbenefitsandtaxdeficienciesshouldberecognizedasincometaxexpenseorbenefitontheincomestatement.Theexcesstaxitemsshouldbeclassifiedwithotherincometaxcashflowsasanoperatingactivity.ThisASUalsoallowsanentitytoaccountforforfeitureswhentheyoccurratherthanthecurrentU.S.GAAPpracticewhereanentitymakesanentity-wideaccountingpolicyelectiontoestimatethenumberofawardsthatareexpectedtovest.ThisASUiseffectiveforpubliccompaniesforfiscalyearsbeginningafterDecember15,2016,includinginterimperiodswithinthosefiscalyearswithearlyadoptionpermitted.TheCompanyiscurrentlyevaluatingtheimpactthattheadoptionofthisASUwillhaveonitsconsolidatedfinancialstatements.
OnFebruary25,2016,theFASBissuedASUNo.2016-02,"Leases(Topic842)"whichrequireslesseestorecognizeright-of-useassetsandleaseliability,initiallymeasuredatpresentvalueoftheleasepayments,onitsbalancesheetforleaseswithtermslongerthan12monthsandclassifiedaseitherfinancingoroperatingleases.ASU2016-02requiresamodifiedretrospectivetransitionapproachforcapitalandoperatingleasesexistingat,orenteredintoafter,thebeginningoftheearliestcomparativeperiodpresentedinthefinancialstatements,andprovidescertainpracticalexpedientsthatcompaniesmayelect.ThisASUiseffectiveforpubliccompaniesforfiscalyearsbeginningafterDecember15,2018,includinginterimperiodswithinthosefiscalyearswithearlyadoptionpermitted.TheCompanyiscurrentlyevaluatingtheimpactthattheadoptionofthisASUwillhaveonitsconsolidatedfinancialstatements.
InJanuary2016,theFASBissuedASUNo.2016-01,"FinancialInstruments(Subtopic825-10)-RecognitionandMeasurementofFinancialAssetsandFinancialLiabilities."ThisASUprovidesguidancefortherecognition,measurement,presentation,anddisclosureoffinancialinstruments.ThisASUiseffectiveforannualandinterimperiodsbeginningafterDecember15,2017,andearlyadoptionisnotpermitted.TheCompanyiscurrentlyevaluatingtheimpacttheadoptionofthisASUwillhaveonitsconsolidatedfinancialstatements.
InNovember2015,theFASBissuedASUNo.2015-17,"BalanceSheetClassificationofDeferredTaxes(Subtopic740-10)."ASU2015-17simplifiesthepresentationofdeferredincometaxesbyeliminatingtherequirementforcompaniestopresentdeferredtaxliabilitiesandassetsascurrentandnon-currentonthebalancesheet.Instead,companieswillberequiredtoclassifyalldeferredtaxassetsandliabilitiesasnon-current.ThisguidanceiseffectiveforannualandinterimperiodsbeginningafterDecember15,2016andearlyadoptionispermitted.TheCompanyearlyadoptedthisASUonaprospectivebasisasofDecember31,2015.Priorperiodswerenotretrospectivelyadjusted.
InSeptember2015,theFASBissuedASUNo.2015-16,"BusinessCombinations(Topic805)-SimplifyingtheAccountingforMeasurement-PeriodAdjustments."TheamendmentsinthisASUrequirethatanacquirerinabusinesscombinationrecognizeadjustmentstoprovisionalamountsthatareidentifiedduringthemeasurementperiodinthereportingperiodinwhichtheadjustmentamountsaredetermined,ratherthanasretrospectiveadjustments.TheamendmentsinthisASUareeffectiveforfiscalyearsbeginningafterDecember15,2015,includinginterimperiodswithinthosefiscalyears.TheamendmentsinthisASUshouldbeappliedprospectivelytoadjustmentstoprovisionalamountsthatoccuraftertheeffectivedateofthisASUwithearlierapplicationpermittedforfinancialstatementsthathavenotbeenissued.TheCompanyadoptedthisaccountingguidanceinthefirstquarteroffiscalyear2016.TheadoptionofthisASUdidnothaveamaterialimpactontheCompany'sconsolidated(condensed)financialstatements.
InAugust2015,theFASBissuedASUNo.2015-15,"PresentationandSubsequentMeasurementofDebtIssuanceCostsAssociatedwithLine-of-CreditArrangements."ThisASUclarifiestheguidancerelatedtoaccountingfordebtissuancecostsrelatedtoline-of-creditarrangements.InApril2015,theFASBissuedASUNo.2015-03,"SimplifyingthePresentationofDebtIssuanceCosts,"whichrequiresentitiestopresentdebtissuancecostsrelatedtoarecognizeddebtliabilityasadirectdeductionfromthecarryingamountofthatdebtliability.WiththeissuanceofASU2015-15,theSECstaffwouldnotobjecttoanentitydeferringandpresentingdebtissuancecostsasanassetandsubsequentlyamortizingthedeferreddebtissuancecostsratablyoverthetermoftheline-of-creditarrangement,regardlessofwhetherthereareanyoutstandingborrowingsontheline-of-creditarrangement.TheCompanyadoptedthisaccountingguidanceinthefirstquarteroffiscalyear2016anditsimpactispresentedintheconsolidated(condensed)financialstatements.
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InJuly2015,theFASBissuedASUNo.2015-11,"Inventory(Topic330):SimplifyingtheMeasurementofInventory."ThisASUchangestheguidanceonaccountingforinventoryaccountedforonafirst-infirst-outbasis(FIFO).Undertherevisedstandard,anentityshouldmeasureFIFOinventoryatthelowerofcostandnetrealizablevalue.Netrealizablevalueistheestimatedsellingpriceintheordinarycourseofbusiness,lessreasonablypredictablecostsofcompletion,disposal,andtransportation.Subsequentmeasurementisunchangedforinventorymeasuredonalast-in,first-outbasis(LIFO).TheamendmentsinthisASUareeffectiveforfiscalyears,andforinterimperiodswithinthosefiscalyears,beginningafterDecember15,2016.TheCompanybelievestheadoptionofthisASUwillnothaveamaterialimpactonitsconsolidatedfinancialstatements.
InApril2015,theFASBissuedASUNo.2015-05,"Customer’sAccountingforFeesPaidinaCloudComputingArrangement."ThisASUprovidesguidanceonaccountingforasoftwarelicenseinacloudcomputingarrangement.Ifacloudcomputingarrangementincludesasoftwarelicense,thenthecustomershouldaccountforthesoftwarelicenseelementofthearrangementconsistentwiththeacquisitionofothersoftwarelicenses.Ifacloudcomputingarrangementdoesnotincludeasoftwarelicense,thecustomershouldaccountforthearrangementasaservicecontract.Further,allsoftwarelicensesarewithinthescopeofAccountingStandardsCodification("ASC")Subtopic350-40andwillbeaccountedforconsistentwithotherlicensesofintangibleassets.TheamendmentsinthisASUareeffectiveforfiscalyears,andforinterimperiodswithinthosefiscalyears,beginningafterDecember15,2015.TheCompanyadoptedthisaccountingguidanceinthefirstquarteroffiscalyear2016.TheadoptionofthisASUdidnothaveamaterialimpactontheCompany'sconsolidatedfinancialstatements.
InFebruary2015,theFASBissuedASUNo.2015-02,"Consolidation(Topic820)—AmendmentstotheConsolidationAnalysis."ThisASUamendsthecurrentconsolidationguidanceforboththevariableinterestentity(VIE)andvotinginterestentity(VOE)consolidationmodels.TheamendmentsinthisASUareeffectiveforfiscalyears,andforinterimperiodswithinthosefiscalyears,beginningafterDecember15,2015.TheCompanyadoptedthisaccountingguidanceinthefirstquarteroffiscalyear2016.TheadoptionofthisASUdidnothaveamaterialimpactontheCompany'sconsolidatedfinancialstatements.
InJanuary2015,theFASBissuedASUNo.2015-01,"IncomeStatement—ExtraordinaryandUnusualItems."ThisupdateeliminatesfromU.S.GAAPtheconceptofextraordinaryitems.ThisASUiseffectiveforthefirstinterimperiodwithinfiscalyearsbeginningafterDecember15,2015,withearlyadoptionpermittedprovidedthattheguidanceisappliedfromthebeginningofthefiscalyearofadoption.Areportingentitymayapplytheamendmentsprospectivelyorretrospectivelytoallpriorperiodspresentedinthefinancialstatements.TheCompanyadoptedthisaccountingguidanceinthefirstquarteroffiscalyear2016.TheadoptionofthisASUdidnothaveamaterialimpactonitsconsolidatedfinancialstatements.
InAugust2014,theFASBissuedASUNo.2014-15,"PresentationofFinancialStatements—GoingConcern."Thisupdateprovidesguidanceonmanagement’sresponsibilityinevaluatingwhetherthereissubstantialdoubtaboutacompany’sabilitytocontinueasagoingconcernandtoproviderelatedfootnotedisclosures.ThisASUiseffectiveinthefirstannualperiodendingafterDecember15,2016,withearlyadoptionpermitted.TheCompanybelievestheadoptionofthisASUwillnothaveamaterialimpactonitsconsolidatedfinancialstatements.
InMay2014,theFASBissuedASUNo.2014-09,"RevenuefromContractswithCustomers."ThisASUprovidesaprinciples-basedapproachtorevenuerecognitiontorecordthetransferofgoodsorservicestocustomersinanamountthatreflectstheconsiderationtowhichtheentityexpectstobeentitledinexchangeforthosegoodsorservices.ThisASUprovidesafive-stepmodeltobeappliedtoallcontractswithcustomers.Thefivestepsaretoidentifythecontract(s)withthecustomer,identifytheperformanceobligationsinthecontact,determinethetransactionprice,allocatethetransactionpricetotheperformanceobligationsinthecontractandrecognizerevenuewheneachperformanceobligationissatisfied.TherevenuestandardiseffectiveforthefirstinterimperiodwithinfiscalyearsbeginningafterDecember15,2017(asfinalizedbytheFASBinAugust2015inASU2015-14andasupdatedbyASUs2016-10,2016-11and2016-12),andcanbeappliedeitherretrospectivelytoeachpriorreportingperiodpresentedorretrospectivelywiththecumulativeeffectofinitiallyapplyingtheupdaterecognizedatthedateofinitialapplicationalongwithadditionaldisclosures.Earlyadoptionispermittedasoftheoriginaleffectivedate—thefirstinterimperiodwithinfiscalyearsbeginningafterDecember15,2016.TheCompanyisevaluatingtheimpacttheadoptionofthisASUwillhaveonitsconsolidatedfinancialstatements.
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2. Fair Value of Financial Instruments
ThefollowingtablessetforthfinancialassetsandliabilitiesthatwereaccountedforatfairvalueonarecurringbasisasofJune30,2016andDecember31,2015bylevelwithinthefairvaluehierarchy.Financialassetsandliabilitiesareclassifiedintheirentiretybasedonthelowestlevelofinputthatissignificanttothefairvaluemeasurement.
Fair Value as of June 30, 2016
(in millions) Level 1 Level 2 Level 3 TotalCurrent assets:
Foreigncurrencyexchangecontracts $ — $ 1.3 $ — $ 1.3
Commoditycontracts — 0.1 — 0.1
Total current assets at fair value $ — $ 1.4 $ — $ 1.4
Non-current Assets: Commoditycontracts — 0.1 — 0.1
Total non-current assets at fair value — 0.1 — 0.1
Total assets at fair value $ — $ 1.5 $ — $ 1.5
Current Liabilities:
Foreigncurrencyexchangecontracts $ — $ 0.9 $ — $ 0.9
Commoditycontracts — 0.7 — 0.7
Total current liabilities at fair value $ — $ 1.6 $ — $ 1.6
Total liabilities at fair value $ — $ 1.6 $ — $ 1.6
Fair Value as of December 31, 2015
(in millions) Level 1 Level 2 Level 3 TotalCurrent Assets:
Foreigncurrencyexchangecontracts $ — $ — $ — $ —
Total current assets at fair value $ — $ — $ — $ —
Total assets at fair value $ — $ — $ — $ —
Current Liabilities:
Foreigncurrencyexchangecontracts $ — $ 0.1 $ — $ 0.1
Commoditycontracts — 3.1 — 3.1
Total current liabilities at fair value $ — $ 3.2 $ — $ 3.2
Non-current Liabilities:
Commoditycontracts $ — $ 0.4 $ — $ 0.4
Total non-current liabilities at fair value $ — $ 0.4 $ — $ 0.4
Total liabilities at fair value $ — $ 3.6 $ — $ 3.6
ThefairvalueoftheCompany’s9.50%SeniorNotesdue2024(the"SeniorNotes")andTermLoanBunderitsSeniorSecuredCreditFacilitieswasapproximately$477.3millionand$960.7million,respectively,asofJune30,2016.NeithertheSeniorNotesnortheTermLoanBexistedasofDecember31,2015.SeeNote9,"Debt,"foradescriptionofthedebtinstrumentsandtheirrelatedcarryingvalues.
ASCSubtopic820-10,"FairValueMeasurement,"definesfairvalueasthepricethatwouldbereceivedtosellanassetorpaidtotransferaliabilityinanorderlytransactionbetweenmarketparticipantsatthemeasurementdate.ASCSubtopic820-10classifiestheinputsusedtomeasurefairvalueintothefollowinghierarchy:
Level1 Unadjustedquotedpricesinactivemarketsforidenticalassetsorliabilities
Level2 Unadjustedquotedpricesinactivemarketsforsimilarassetsorliabilities,or
Unadjustedquotedpricesforidenticalorsimilarassetsorliabilitiesinmarketsthatarenotactive,or
Inputsotherthanquotedpricesthatareobservablefortheassetorliability
Level3 Unobservableinputsfortheassetorliability
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TheCompanyendeavorstoutilizethebestavailableinformationinmeasuringfairvalue.TheCompanyestimatesthefairvalueofitsSeniorNotesandTermLoanBbasedonquotedmarketpricesoftheinstruments.Becausethesemarketsaretypicallythinlytraded,theassetsandliabilitiesareclassifiedasLevel2withinthevaluationhierarchy.Thecarryingvaluesofcashandcashequivalents,accountsreceivable,accountspayable,anddeferredpurchasepricenotesonreceivablessold(seeNote8,"AccountsReceivableSecuritization"),approximatefairvalue,withoutbeingdiscountedasofJune30,2016andDecember31,2015duetotheshort-termnatureoftheseinstruments.
Asaresultofitsglobaloperatingandfinancingactivities,theCompanyisexposedtomarketrisksfromchangesinforeigncurrencyexchangerates,andcommodityprices,whichmayadverselyaffectitsoperatingresultsandfinancialposition.Whendeemedappropriate,theCompanyminimizestheserisksthroughtheuseofderivativefinancialinstruments.Derivativefinancialinstrumentsareusedtomanageriskandarenotusedfortradingorotherspeculativepurposes,andtheCompanydoesnotuseleveragedderivativefinancialinstruments.Theforeigncurrencyexchangeandcommoditycontractsarevaluedthroughanindependentvaluationsourcewhichusesanindustrystandarddataprovider,withresultingvaluationsperiodicallyvalidatedthroughthird-partyorcounterpartyquotes.Assuch,thesederivativeinstrumentsareclassifiedwithinLevel2.
3. Derivative Financial Instruments
TheCompanyusesderivativeinstrumentstomanagebusinessriskexposuresthathavebeenidentifiedthroughtheriskidentificationandmeasurementprocess,providedtheyclearlyqualifyas"hedging"activitiesasdefinedinitsriskpolicy.ItistheCompany’spolicytoenterintoderivativetransactionsonlytotheextenttrueexposuresexist;theCompanydoesnotenterintoderivativetransactionsfortradingorotherspeculativepurposes.
TheprimaryriskstheCompanymanagesusingderivativeinstrumentsarecommoditypriceriskandforeigncurrencyexchangerisk.SwapcontractsonvariouscommoditiesareusedtomanagethepriceriskassociatedwithforecastedpurchasesofmaterialsusedintheCompany’smanufacturingprocess.TheCompanyalsoentersintovariousforeigncurrencyderivativeinstrumentstohelpmanageforeigncurrencyriskassociatedwithitsprojectedpurchasesandsalesandforeigncurrencydenominatedreceivableandpayablebalances.
TheCompanydesignatescommodityswapsandforeigncurrencyexchangecontractsascashflowhedgesofforecastedpurchasesofcommoditiesandcurrencies.
Forderivativeinstrumentsthataredesignatedandqualifyascashflowhedges,theeffectiveportionofthegainorlossonthederivativeisreportedasacomponentofothercomprehensiveincome(loss)andreclassifiedintoearningsinthesameperiodorperiodsduringwhichthehedgedtransactionaffectsearnings.Gainsandlossesonthederivativeinstrumentsrepresentingeitherhedgeineffectivenessorhedgecomponentsexcludedfromtheassessmentofeffectivenessarerecognizedincurrentearnings.InthenexttwelvemonthstheCompanyestimates$0.3millionofunrealizedgain,netoftax,relatedtocommoditypriceandcurrencyratehedgingwillbereclassifiedfromothercomprehensive(loss)incomeintoearnings.Foreigncurrencyandcommodityhedgingisgenerallycompletedprospectivelyonarollingbasisfortwelveandtwenty-fourmonths,respectively,dependingonthetypeofriskbeinghedged.
Forderivativeinstrumentsthatarenotdesignatedashedginginstruments,thegainsorlossesonthederivativesarerecognizedincurrentearningswithinother(expense)income,netintheconsolidated(condensed)statementofoperations.
Thefairvalueofoutstandingderivativecontractsrecordedasliabilitiesintheaccompanyingconsolidated(condensed)balancesheetasofJune30,2016andDecember31,2015areincludedwithinaccountspayable,accruedexpensesandotherlong-termliabilitiesandwerenotmaterialintheperiodspresented.
4. Inventories
ThecomponentsofinventoriesatJune30,2016andDecember31,2015aresummarizedasfollows:
June 30, December 31,
(in millions) 2016 2015Inventories—gross:
Rawmaterials $ 74.1 $ 70.7
Work-in-process 19.4 18.7
Finishedgoods 98.2 83.4
Totalinventories—gross 191.7 172.8
Excessandobsoleteinventoryreserve (24.7) (23.5)
NetinventoriesatFIFOcost 167.0 149.3
ExcessofFIFOcostsoverLIFOvalue (3.4) (3.4)
Inventories—net $ 163.6 $ 145.9
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5. Property, Plant and Equipment
Thecomponentsofproperty,plantandequipmentatJune30,2016andDecember31,2015aresummarizedasfollows:
June 30, December 31,
(in millions) 2016 2015Land $ 7.3 $ 7.3
Buildingandimprovements 91.8 94.3
Machinery,equipmentandtooling 213.2 216.0
Furnitureandfixtures 6.0 6.2
Computerhardwareandsoftware 53.8 51.2
Constructioninprogress 10.2 9.8
Totalcost 382.3 384.8
Lessaccumulateddepreciation (270.9) (268.4)
Property,plantandequipment-net $ 111.4 $ 116.4
6. Goodwill and Other Intangible Assets
TheCompanyhasthreereportablesegments:Americas,EMEA,andAPAC.TheAmericassegmentincludestheU.S.,CanadaandLatinAmerica.TheEMEAsegmentismadeupofmarketsinEurope,MiddleEastandAfrica,includingRussiaandthecommonwealthofindependentstates.TheAPACsegmentisprincipallycomprisedofmarketsinChina,Singapore,Australia,India,Malaysia,Indonesia,ThailandandPhilippines.ThechangesinthecarryingamountofgoodwillbyreportablesegmentforthesixmonthsendedJune30,2016,wereasfollows:
(in millions) Americas EMEA APAC Total
BalanceasofDecember31,2015 $ 832.6 $ 4.8 $ 8.4 $ 845.8
Foreigncurrencyimpact — 0.1 — 0.1
BalanceasofJune30,2016 $ 832.6 $ 4.9 $ 8.4 $ 845.9
TheCompanyaccountsforgoodwillandotherintangibleassetsundertheguidanceofASCTopic350,"Intangibles-GoodwillandOther."TheCompanyperformsanannualimpairmenttestormorefrequentlyifeventsorchangesincircumstancesindicatethattheassetmightbeimpaired.TheCompanytestsitsreportingunitsandindefinite-livedintangibleassetsusingafair-valuemethodbasedonthepresentvalueoffuturecashflows,whichinvolvesmanagement’sjudgmentsandassumptionsabouttheamountsofthosecashflowsandthediscountratesused.Theestimatedfairvalueisthencomparedwiththecarryingamountofthereportingunit,includingrecordedgoodwill,orindefinite-livedintangibleasset.Theintangibleassetisthensubjecttoriskofwrite-downtotheextentthatthecarryingamountexceedstheestimatedfairvalue.
AsofJune30,2016,theCompanyperformedtheannualimpairmenttestforitsreportingunits,whichwereAmericas,EMEA,andAPAC,aswellasitsindefinite-livedintangibleassets,andbasedonthoseresults,thefairvalueofeachoftheCompany'sreportingunitsexceededtheirrespectivecarryingvaluesandnoimpairmentwasindicated.
ThegrosscarryingamountandaccumulatedamortizationoftheCompany'sintangibleassetsotherthangoodwillareasfollowsasofJune30,2016andDecember31,2015:
June 30, 2016 December 31, 2015
(in millions)
GrossCarryingAmount
AccumulatedAmortizationAmount
NetBookValue
GrossCarryingAmount
AccumulatedAmortizationAmount
NetBookValue
Trademarksandtradenames $ 174.8 $ — $ 174.8 $ 175.1 $ — $ 175.1
Customerrelationships 415.3 (161.0) 254.3 415.2 (150.4) 264.8
Patents 1.7 (1.7) — 1.7 (1.6) 0.1
Otherintangibles 142.6 (68.4) 74.2 143.2 (63.6) 79.6
Total $ 734.4 $ (231.1) $ 503.3 $ 735.2 $ (215.6) $ 519.6
AmortizationexpenseforthethreemonthsendedJune30,2016and2015was$7.9million.
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AmortizationexpenseforthesixmonthsendedJune30,2016and2015was$15.7million.
7. Accounts Payable and Accrued Expenses and Other Liabilities
AccountspayableandAccruedexpensesandotherliabilitiesatJune30,2016andDecember31,2015aresummarizedasfollows:
June 30, December 31,
(in millions) 2016 2015
Accountspayable: Tradeaccountspayableandinterestpayable $ 123.1 $ 121.7
Incometaxespayable 1.3 7.3
Totalaccountspayable $ 124.4 $ 129.0
Accruedexpensesandotherliabilities: Employeerelatedexpenses $ 31.9 $ 24.5
Restructuringexpenses 4.5 16.8
Profitsharingandincentives 10.9 3.9
Accruedrebates 41.6 51.6
Deferredrevenue-current 3.6 3.8
DividendpayabletoMTW — 10.2
Customeradvances 5.8 2.9
Productliability 3.1 2.6
Miscellaneousaccruedexpenses 44.9 41.3
Totalaccruedexpensesandotherliabilities $ 146.3 $ 157.6
8. Accounts Receivable Securitization
PriortotheSpin-Off,MFSsoldaccountsreceivablethroughanaccountsreceivablesecuritizationfacility,("thePriorSecuritizationProgram"),comprisedoftwofundingentities:ManitowocFunding,LLC("U.S.Seller")andManitowocCaymanIslandsFundingLtd.("CaymanSeller").TheU.S.SellerhistoricallyserviceddomesticentitiesofboththeFoodserviceandCranessegmentsofMTWandremittedallfundsreceiveddirectlytoMTW.TheCaymanSellerhistoricallyservicedsolelyMFSforeignentitiesandremittedallfundstoMFSentities.TheU.S.SellerentityremainedwithMTWsubsequenttotheSpin-Off,whiletheCaymanSellerwastransferredtoMFSsubsequenttotheSpin-Off.AstheU.S.SellerisnotdirectlyattributabletoMFS,onlythereceivableswhichweretransferredtotheU.S.SellerbutnotsoldarereflectedinMFS'consolidated(condensed)balancesheet.AportionoftheU.S.Seller’shistoricalexpensesrelatedtobondadministrationfeesandsettlementfeesareallocatedtoMFS.AstheCaymanSellerisdirectlyattributabletoMFS,theassets,liabilities,incomeandexpensesoftheCaymanSellerareincludedinMFS’consolidated(condensed)statementofoperationsandbalancesheet.MFS'costoffundsunderthefacilityusedaLIBORindexrateplusa1.25%fixedspread.
OnMarch3,2016,theCompanyenteredintoanew$110.0millionaccountsreceivablesecuritizationprogram(the"2016SecuritizationFacility")amongtheCaymanSeller,asseller,MFS,GarlandCommercialRangesLimited,ConvothermElektrogeräteGmbH,ManitowocDeutschlandGmbH,ManitowocFoodserviceUKLimited,ManitowocFoodserviceAsiaPacificPrivateLimited,andtheotherpersonswhomaybefromtimetotime,apartythereto,asservicers,withWellsFargoBank,NationalAssociation,aspurchaserandagent,wherebyMFSwillsellcertainofitsdomestictradeaccountsreceivableandcertainofitsnon-U.S.tradeaccountsreceivabletoawholly-owned,bankruptcy-remote,foreignspecialpurposeentity,whichentityinturn,willsell,convey,transferandassigntoathird-partyfinancialinstitution(a“Purchaser”),alloftheright,titleandinterestinandtoitspoolofreceivables.ThePurchaserwillreceiveownershipofthepoolofreceivables.TheCompany,alongwithcertainofitssubsidiaries,actasservicersofthereceivablesandassuchadminister,collectandotherwiseenforcethereceivables.Theservicerswillbecompensatedfordoingsoontermsthataregenerallyconsistentwithwhatwouldbechargedbyanunrelatedservicer.Asservicers,theywillinitiallyreceivepaymentsmadebyobligorsonthereceivablesbutwillberequiredtoremitthosepaymentsinaccordancewithareceivablespurchaseagreement.ThePurchaserwillhavenorecourseforuncollectiblereceivables.The2016SecuritizationFacilityalsocontainscustomaryaffirmativeandnegativecovenants.Amongotherrestrictions,thesecovenantsrequiretheCompanytomeetspecifiedfinancialtests,whichincludeaConsolidatedInterestCoverageRatioandaConsolidatedTotalLeverageRatiothatarethesameasthecovenantratiosrequiredperthe2016CreditAgreement.
Duetoashortaveragecollectioncycleoflessthan60daysforsuchaccountsreceivableaswellastheCompany'scollectionhistory,thefairvalueofitsdeferredpurchasepricenotesapproximatedbookvalue.ThefairvalueofthedeferredpurchasepricenotesrecordedatJune30,2016andDecember31,2015was$75.9millionand$48.4million,respectively,andisincludedinaccountsreceivableintheaccompanyingconsolidated(condensed)balancesheets.
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TradeaccountsreceivablessoldtothePurchaserandbeingservicedbytheCompanytotaled$90.7millionatJune30,2016and$100.9millionatDecember31,2015.Ofthisdecrease,approximately$15.9millionwasattributabletothebalancebeingallocatedfromMTWfromacombinedsecuritizationfacilityonacarveoutbasisatDecember31,2015ascomparedtothespecificdeferredpurchasepricenotesonastandalonebasisatJune30,2016andisreflectedinNetTransactionswithMTWintheCashFlowsfromFinancingactivitiessectionoftheconsolidated(condensed)statementofcashflows.
Transactionsunderthe2016SecuritizationFacilityandthePriorSecuritizationProgramwereaccountedforassalesinaccordancewithASCTopic860,"TransfersandServicing."SalesoftradereceivablestothePurchaserarereflectedasareductionofaccountsreceivableintheaccompanyingconsolidated(condensed)balancesheetsandtheproceedsreceived,includingcollectionsonthedeferredpurchasepricenotes,areincludedincashflowsfromoperatingactivitiesintheaccompanyingconsolidated(condensed)statementsofcashflows.TheCompanydeemstheinterestrateriskrelatedtothedeferredpurchasepricenotestobedeminimis,primarilyduetotheshortaveragecollectioncycleoftherelatedreceivables(i.e.,60days)asnotedabove.
9. Debt
Senior Secured Credit Facilities
OnMarch3,2016,theCompanyenteredintoacreditagreement(the"2016CreditAgreement")foranewseniorsecuredrevolvingcreditfacilityinanaggregateprincipalamountof$225.0million(the"RevolvingFacility")andaseniorsecuredTermLoanBfacilityinanaggregateprincipalamountof$975.0million(the"TermLoanBFacility"and,togetherwiththeRevolvingFacility,the"SeniorSecuredCreditFacilities")withJPMorganChaseBank,N.A,asadministrativeagentandcollateralagent,J.P.MorganSecuritiesLLC,GoldmanSachsBankUSA,HSBCSecurities(USA)Inc.,andCitigroupGlobalMarketsInc.,onbehalfofcertainofitsaffiliates,asjointleadarrangersandjointbookrunners,andcertainlenders,aslenders.TheRevolvingFacilityincludes(i)a$20.0millionsublimitfortheissuanceoflettersofcreditoncustomaryterms,and(ii)a$40.0millionsublimitforswinglineloansoncustomaryterms.TheCompanyenteredintosecurityandotheragreementsrelatingtothe2016CreditAgreement.
BorrowingsundertheSeniorSecuredCreditFacilitiesbearinterestatarateperannumequalto,attheoptionofMFS,(i)LIBORplustheapplicablemarginofapproximately4.75%fortermloanssubjecttoa1.00%LIBORfloorand1.50%-2.75%forrevolvingloans,basedonconsolidatedtotalleverage,or(ii)analternatebaserateplustheapplicablemargin,whichwillbe1.00%lowerthanforLIBORloans.
The2016CreditAgreementcontainsfinancialcovenantsincluding(a)aConsolidatedInterestCoverageRatio,whichmeasurestheratioof(i)ConsolidatedEBITDA,asdefinedinthe2016CreditAgreement,to(ii)consolidatedcashinterestexpense,(b)aConsolidatedTotalLeverageRatio,whichmeasurestheratioof(i)consolidatedindebtednessto(ii)ConsolidatedEBITDAforthemostrecentfourfiscalquarters.ThecurrentcovenantlevelsofthefinancialcovenantsundertheSeniorSecuredCreditFacilityareassetforthbelow:
Fiscal Quarter Ending Consolidated Total Leverage Ratio (less than) Consolidated Interest Coverage Ratio (greater than)March31,2016 6.25:1.00 2.00:1.00June30,2016 6.25:1.00 2.00:1.00
ObligationsoftheCompanyundertheSeniorSecuredCreditFacilitiesarejointlyandseverallyguaranteedbycertainofitsexistingandfuturedirectandindirectlywholly-ownedU.S.subsidiaries(butexcluding(i)unrestrictedsubsidiaries,(ii)immaterialsubsidiaries,and(iii)specialpurposesecuritizationvehicles).
ThereisafirstpriorityperfectedlienonsubstantiallyalloftheassetsandpropertyoftheCompanyandguarantorsandproceedstherefromexcludingcertainexcludedassets.ThelienssecuringtheobligationsoftheCompanyundertheRevolvingFacilityandtheTermLoanBFacilityareparipassu.
Senior Notes
TheCompanyissued9.50%SeniorNotesdue2024inanaggregateprincipalamountof$425.0million(the"SeniorNotes")underanindenturewithWellsFargoBank,NationalAssociation,astrustee(the"Trustee").TheSeniorNotesweresoldtoqualifiedinstitutionalbuyerspursuanttoRule144A(andoutsidetheUnitedStatesinrelianceonRegulationS)undertheSecuritiesAct.TheSeniorNotesarefullyandunconditionallyguaranteed,jointlyandseverally,onanunsecuredbasisbyeachoftheCompany’sdomesticrestrictedsubsidiariesthatisaborrowerorguarantorundertheSeniorSecuredCreditFacilities.TheSeniorNotesandthesubsidiaryguaranteesareunsecured,seniorobligations.Thenotesareredeemable,attheCompany'soption,inwholeorinpartfromtimetotime,atanytimepriortoFebruary15,2019,atapriceequalto100.0%oftheprincipalamountthereofplusa“make-whole”premiumandaccruedbutunpaidinteresttothedateofredemption.Inaddition,theCompanymayredeemthenotesatitsoption,inwholeorinpart,atthefollowingredemptionprices(expressedaspercentagesoftheprincipalamountthereof)ifredeemedduringthe12-monthperiodcommencingonFebruary15oftheyearssetforthbelow:
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Year Percentage
2019 107.1%2020 104.8%2021 102.4%2022andthereafter 100.0%
TheCompanymustgenerallyoffertorepurchasealloftheoutstandingSeniorNotesupontheoccurrenceofcertainspecificchangeofcontroleventsatapurchasepriceequalto101.0%oftheprincipalamountofSeniorNotespurchasedplusaccruedandunpaidinteresttothedateofpurchase.Theindentureprovidesforcustomaryeventsofdefault.Generally,ifaneventofdefaultoccurs(subjecttocertainexceptions),theTrusteeortheholdersofatleast25.0%inaggregateprincipalamountofthethen-outstandingSeniorNotesmaydeclarealltheSeniorNotestobedueandpayableimmediately.
OutstandingdebtatJune30,2016andDecember31,2015issummarizedasfollows:
June 30, December 31,
(in millions) 2016 2015
Revolvingcreditfacility $ 32.0 $ —
TermLoanB 950.0 —
SeniorNotesdue2024 425.0 —
Other 3.3 2.7
Totaldebtandcapitalleasesincludingcurrentportion 1,410.3 2.7
Lesscurrentportionandshort-termborrowings (1.4) (0.4)
Lessunamortizeddebtissuancecosts (39.0) —
Totallong-termdebtandcapitalleases $ 1,369.9 $ 2.3
AsofJune30,2016,theCompanyhadoutstanding$3.3millionofotherindebtednessthathasaweighted-averageinterestrateofapproximately4.39%perannum.
AsofJune30,2016,theCompanyhad$32.0millionofborrowingsoutstandingundertheRevolvingFacility.DuringthequarterendedJune30,2016,thehighestdailyborrowingwas$49.0millionandtheaverageborrowingwas$31.8million,whiletheaverageinterestratewas3.47%perannum.TheinterestratefluctuatesbaseduponLIBORoraPrimerateplusaspread,whichisbasedupontheConsolidatedTotalLeverageRatiooftheCompany.AsofJune30,2016,thespreadsforLIBORandPrimeborrowingswere2.75%and1.75%,respectively,giventheCompany’seffectiveConsolidatedTotalLeverageRatioforthisperiod.
AsofJune30,2016,theCompanywasincompliancewithallaffirmativeandnegativecovenantsinitsdebtinstruments,inclusiveofthefinancialcovenantspertainingtotheSeniorSecuredCreditFacilityandthe2024SeniorNotes.Baseduponmanagement’scurrentplansandoutlook,managementbelievestheCompanywillbeabletocomplywiththesecovenantsduringthesubsequent12months.AsofJune30,2016theCompany'sConsolidatedTotalLeverageRatiowas5.52:1,whilethemaximumratiois6.25:1anditsConsolidatedInterestCoverageRatiowas3.25:1,abovetheminimumratioof2.00:1.
10. Income Taxes
ForthethreemonthsendedJune30,2016,theCompanyrecordeda$4.1millionincometaxprovision,comparedtoa$17.0millionincometaxprovisionforthethreemonthsendedJune30,2015.ThedecreaseintheCompany’staxprovisionforthethreemonthsendedJune30,2016,relativetothethreemonthsendedJune30,2015,resultedprimarilyfroma$34.7millionreductioninearningsfromoperationsbeforeincometaxesandtherelativeweightingofforeignearningsbeforeincometaxesintherespectiveperiods.
ForthesixmonthsendedJune30,2016,theCompanyrecordedan$8.7millionincometaxprovision,comparedtoa$23.5millionincometaxprovisionforthesixmonthsendedJune30,2015.ThedecreaseintheCompany’staxprovisionforthesixmonthsendedJune30,2016,relativetotheprioryearresultedprimarilyfrom$2.9millionintax-relatedout-of-periodbalancesheetadjustmentsrelatedtotheSpin-Offthatwererecognizedasdiscreteadjustmentsintheincometaxprovisionforthefirstquarterof2016.TheCompanydoesnotbelievetheseadjustmentsarematerialtoitsunauditedconsolidated(condensed)financialstatementsforthesixmonthsendedJune30,2016,oritscomparativeannualorquarterlyfinancialstatements.Theseadjustmentswerecoupledwitha$32.5millionreductioninearningsfromoperationsbeforeincometaxesforthesixmonthperiodendedJune30,2016comparedtothefirstsixmonthsof2015.
TheCompany'seffectivetaxratevariesfromthe35%U.S.federalstatutoryrateduetotherelativeweightingofforeignearningsbeforeincometaxesandforeigneffectivetaxratesthataregenerallylowerthantheU.S.federalstatutoryrate.ForeignearningsaregeneratedfromoperationsinthethreereportablesegmentsofAmericas,EMEA,andAPAC.
TheCompanywillcontinuetoperiodicallyevaluateitsvaluationallowancerequirementsinlightofchangingfactsandcircumstances,andmayadjustitsdeferredtaxassetvaluationallowancesaccordingly.ItisreasonablypossiblethattheCompanywilleitheraddto,orreversea
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portionofitsexistingdeferredtaxassetvaluationallowancesinthefuture.SuchchangesinthedeferredtaxassetvaluationallowanceswillbereflectedinthecurrentoperationsthroughtheCompany’sincometaxprovision,andcouldhaveamaterialeffectonoperatingresults.
TheCompany'sunrecognizedtaxbenefits,includinginterestandpenalties,were$12.1millionand$16.6millionasofJune30,2016andDecember31,2015,respectively.ThedecreaseforthesixmonthsendedJune30,2016relatedtotheportionoftheunrecognizedtaxbenefitsallocabletotheCompanythatwereincludedinequityandasecondquarterreductioninunrecognizedtaxbenefitsof$0.4million.Duringthenexttwelvemonths,itisreasonablypossiblethatunrecognizedtaxbenefitswilldecreaseby$1.2millionduetoexpirationofstatuteoflimitationperiodsfortherelateditems.
TheCompanyregularlyassessesthelikelihoodofanadverseoutcomeresultingfromexaminationstodeterminetheadequacyofitstaxreserves.AsofJune30,2016,theCompanybelievesthatitismorelikelythannotthatthetaxpositionsithastakenwillbesustainedupontheresolutionofitsauditsresultinginnomaterialimpactonitsconsolidatedfinancialpositionandtheresultsofoperationsandcashflows.However,thefinaldeterminationwithrespecttoanytaxaudits,andanyrelatedlitigation,couldbemateriallydifferentfromtheCompany’sestimatesand/orfromitshistoricalincometaxprovisionsandaccrualsandcouldhaveamaterialeffectonoperatingresultsand/orcashflowsintheperiodsforwhichthatdeterminationismade.Inaddition,futureperiodearningsmaybeadverselyimpactedbylitigationcosts,settlements,penalties,and/orinterestassessments.
11. Equity
OnMarch4,2016,MTWdistributed137.0millionsharesofMFScommonstocktoMTW’sshareholdersonaproratabasis,andMFSbecameanindependentpubliclytradedcompanywitheachshareholderreceivingoneshareofitscommonstockforeachshareofMTWcommonstockheldbytheshareholderonFebruary22,2016,therecorddateforthedistribution.AnyfractionalsharesofitscommonstockotherwiseissuabletoMTWshareholderswereaggregatedintowholesharesandsoldontheopenmarket,andthefractionalshareholderswillreceiveaproratashareoftheproceedsofthesale,afterdeductinganytaxesrequiredtobewithheldandafterdeductinganamountequaltoallbrokeragefeesandothercostsattributedtothesale.
OnMarch3,2016,priortothecompletionoftheSpin-Off,MFSpaidaone-timecashdividendtoMTWof$1.362billion.MFSdidnotdeclareorpayanyotherdividendstoitsstockholdersduringthethreeorsixmonthsendedJune30,2016orJune30,2015,respectively.
ThefollowingisarollforwardofequityforthesixmonthsendedJune30,2016and2015:
(in millions, except share data) SharesCommonStock
AdditionalPaid-In Capital
(Deficit)RetainedEarnings
Net ParentCompanyInvestment
Accumulated OtherComprehensive (Loss)
IncomeTotal Equity(Deficit)
BalanceatDecember31,2015 — $ — $ — $ — $ 1,253.2 $ (44.5) $ 1,208.7Netearnings — — — 17.9 15.3 — 33.2NettransferstoMTW — — — — (1,362.0) — (1,362.0)Separationrelatedadjustments — — — — (1.0) (47.4) (48.4)Reclassificationofnetinvestmenttoadditionalpaid-incapital — — (94.5) — 94.5 — —IssuanceofcommonstockatSpin-off 137,016,712 1.4 (1.4) — — — —Issuanceofcommonstock,equity-basedcompensationplans 165,894 — 1.1 — — — 1.1Stock-basedcompensationexpense
— — 3.4 — — — 3.4AdjustmentfromSpin-off — — 0.6 — — — 0.6Othercomprehensiveincome(loss) — — — — — 52.3 52.3
BalanceatJune30,2016 137,182,606 $ 1.4 $ (90.8) $ 17.9 $ — $ (39.6) $ (111.1)
(in millions, except share data) SharesCommonStock
Additional Paid-InCapital
RetainedEarnings
Net ParentCompanyInvestment
Accumulated OtherComprehensive (Loss)
Income Total Equity
BalanceatDecember31,2014 — $ — $ — $ — $ 1,272.1 $ (20.7) $ 1,251.4Netearnings — — — — 50.9 — 50.9Othercomprehensiveincome(loss) — — — — — (10.3) (10.3)Netincreaseinnetparentcompanyinvestment — — — — 30.3 — 30.3
BalanceatJune30,2015 — $ — $ — $ — $ 1,353.3 $ (31.0) $ 1,322.3
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Reconciliationsforthechangesinaccumulatedothercomprehensiveincome(loss),netoftax,bycomponentforthethreeandsixmonthsendedJune30,2016and2015areasfollows:
(in millions) Foreign Currency
Translation Gains and Losses onCash Flow Hedges Pension & Postretirement Total
BalanceatDecember31,2015 $ (7.9) $ (1.8) $ (34.8) $ (44.5)Othercomprehensiveincome(loss)beforereclassifications 17.2 0.3 (9.4) 8.1Amountsreclassifiedfromaccumulatedothercomprehensiveincome(loss) — 0.6 0.5 1.1Netcurrentperiodothercomprehensiveincome(loss) 17.2 0.9 (8.9) 9.2
BalanceatMarch31,2016 $ 9.3 $ (0.9) $ (43.7) $ (35.3)Othercomprehensive(loss)incomebeforereclassifications (6.1) 1.1 0.1 (4.9)Amountsreclassifiedfromaccumulatedothercomprehensiveincome(loss) — 0.4 0.2 0.6Netcurrentperiodothercomprehensiveincome(loss) (6.1) 1.5 0.3 (4.3)
BalanceatJune30,2016 $ 3.2 $ 0.6 $ (43.4) $ (39.6)
(in millions) Foreign Currency
Translation Gains and Losses onCash Flow Hedges Pension & Postretirement Total
BalanceatDecember31,2014 $ 17.3 $ (1.0) $ (37.0) $ (20.7)Othercomprehensiveincome(loss)beforereclassifications (11.1) (2.4) 1.4 (12.1)Amountsreclassifiedfromaccumulatedothercomprehensiveincome(loss) — 0.7 0.3 1.0Netcurrentperiodothercomprehensiveincome(loss) (11.1) (1.7) 1.7 (11.1)
BalanceatMarch31,2015 $ 6.2 $ (2.7) $ (35.3) $ (31.8)Othercomprehensive(loss)incomebeforereclassifications 1.3 0.1 (1.4) —Amountsreclassifiedfromaccumulatedothercomprehensiveincome(loss) — 0.6 0.2 0.8Netcurrentperiodothercomprehensiveincome(loss) 1.3 0.7 (1.2) 0.8
BalanceatJune30,2015 $ 7.5 $ (2.0) $ (36.5) $ (31.0)
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Thefollowingisareconciliationofthereclassificationsoutofaccumulatedothercomprehensiveincome(loss),netoftax,forthethreeandsixmonthsendedJune30,2016:
Three Months Ended June 30, 2016 Six Months EndedJune 30, 2016
(in millions)
Amount Reclassified fromAccumulated Other Comprehensive
Income
Amount Reclassified fromAccumulated Other Comprehensive
Income Recognized Location
Gainsandlossesoncashflowhedges Foreignexchangecontracts $ — $ (0.1) Costofsales
Commoditycontracts (0.3) (1.2) Costofsales
$ (0.3) $ (1.3) Totalbeforetax
0.1 0.5 Taxexpense
$ (0.2) $ (0.8) Netoftax
Amortizationofpensionandpostretirementitems Actuariallosses $ (0.7) $ (1.3) (a)
$ (0.7) $ (1.3) Totalbeforetax
0.3 0.5 Taxbenefit
$ (0.4) $ (0.8) Netoftax
Totalreclassificationsfortheperiod $ (0.6) $ (1.6) Netoftax
Thefollowingisareconciliationofthereclassificationsoutofaccumulatedothercomprehensiveincome(loss),netoftax,forthethreeandsixmonthsendedJune30,2015:
Three Months Ended
June 30, 2015 Six Months EndedJune 30, 2015
(in millions)
Amount Reclassified fromAccumulated Other Comprehensive
Income
Amount Reclassified fromAccumulated Other Comprehensive
Income Recognized Location
Gainsandlossesoncashflowhedges Foreignexchangecontracts $ (0.4) $ (0.9) Costofsales
Commoditycontracts (0.6) (1.2) Costofsales
$ (1.0) $ (2.1) Totalbeforetax
0.4 0.8 Taxexpense
$ (0.6) $ (1.3) Netoftax
Amortizationofpensionandpostretirementitems Actuariallosses $ (0.2) $ (0.5) (a)
$ (0.2) $ (0.5) Totalbeforetax
— — Taxbenefit
$ (0.2) $ (0.5) Netoftax
Totalreclassificationsfortheperiod,netoftax $ (0.8) $ (1.8) Netoftax
(a)Theseothercomprehensiveincome(loss)componentsareincludedinthenetperiodicpensioncost(seeNote16,"EmployeeBenefitPlans,"forfurtherdetails).
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12. Stock-Based Compensation
TheCompany'semployeeshavehistoricallyparticipatedinMTW'sstock-basedcompensationplans.Stock-basedcompensationexpensehasbeenallocatedtotheCompanybasedontheawardsandtermspreviouslygrantedtoitsemployees.UntilconsummationoftheSpin-Off,theCompanycontinuedtoparticipateinMTW'sstock-basedcompensationplansandrecordstock-basedcompensationexpensebasedonthestock-basedawardsgrantedtotheCompany'semployees.
TheCompanyadoptedtheMFS2016OmnibusIncentiveCompensationPlan(the"2016Plan"),underwhichitmakesequity-basedandcash-basedincentiveawardstoattract,retain,focusandmotivateexecutivesandotherselectedemployees,directors,consultantsandadvisors.The2016PlanisintendedtoaccomplishtheseobjectivesbyofferingparticipantstheopportunitytoacquiresharesofMFScommonstock,receivemonetarypaymentsbasedonthevalueofsuchcommonstockorreceiveotherincentivecompensationunderthe2016Plan.Inaddition,the2016Planpermitstheissuanceofawards("ReplacementAwards")inpartialsubstitutionforawardsrelatingtosharesofcommonstockofMTWthatwereoutstandingimmediatelypriortotheSpin-Off.
TheCompany'sCompensationCommitteeadministersthe2016Plan(the"Administrator").The2016PlanauthorizestheAdministratortointerprettheprovisionsofthe2016Plan;prescribe,amendandrescindrulesandregulationsrelatingtothe2016Plan;correctanydefect,supplyanyomission,orreconcileanyinconsistencyinthe2016Plan,anyawardoranyagreementcoveringanaward;andmakeallotherdeterminationsnecessaryoradvisablefortheadministrationofthe2016Plan,ineachcaseinitssolediscretion.
The2016Planpermitsthegrantingofstockoptions(includingincentivestockoptions),stockappreciationrights,restrictedstockawards,restrictedstockunits,performanceshares,performanceunits,annualcashincentives,long-termcashincentives,dividendequivalentunitsandothertypesofstock-basedawards.Underthe2016Plan16.2millionsharesofMFScommonstockhavebeenreservedforissuance,allofwhichmaybeissuedupontheexerciseofincentivestockoptions.Thesenumbersmaybeadjustedintheeventofcertaincorporatetransactionsorothereventsspecifiedinthe2016Plan.
FollowingtheSpin-OffinMarch2016,MFSgrantedlong-termstock-basedincentiveawardsunderthe2016Plantoitsexecutiveofficers.Thelong-termstock-basedincentiveawardsconsistedofstockoptionswith4-yearratablevesting(25%oftheaggregategrantvalueofthelong-termincentiveaward)andperformanceshares(75%oftheaggregategrantvalueofthelong-termincentiveaward)thatwillbeearnedorforfeitedbasedonperformanceasmeasuredbycumulativefullydilutedearningspershareandreturnoninvestedcapitalovera3-yearperformanceperiod.ThedetailsoftheseawardstotheCompany'snamedexecutiveofficerswillbedisclosedasrequiredbyapplicableSECregulationsintheCompany’sproxystatementforitsannualmeetingin2017.
Totalstock-basedcompensationexpensewas$1.8millionand$0.6millionforthethreemonthsendedJune30,2016and2015,respectively.ThethreemonthsendedJune30,2016alsoincluded$0.3millionofadditionalseparationexpenserecordedasaresultofthemodificationofcertainMTWrestrictedstockunitawardstopayoutattargetuponconsummationoftheSpin-Off.Totalstock-basedcompensationexpensewas$2.6millionand$1.6millionforthesixmonthsendedJune30,2016and2015,respectively.ThesixmonthsendedJune30,2016alsoincluded$0.8millionofadditionalseparationexpenserecordedasaresultofthemodificationofcertainMTWrestrictedstockunitawardstopayoutattargetuponconsummationoftheSpin-Off.
TheCompanyrecognizesstock-basedcompensationexpenseoverthestock-basedawards’vestingperiod.
TheCompanygrantedoptionstoacquire0.3millionand0.1millionsharesofcommonstocktoemployeesduringthesixmonthsendedJune30,2016and2015,respectively.Inaddition,theCompanyissuedatotalof0.3millionrestrictedstockunitstoemployeesanddirectorsduringthesixmonthsendedJune30,2016,and0.2millionrestrictedstockunitstoemployeesanddirectorsduringthesixmonthsendedJune30,2015.Therestrictedstockunitsgrantedtoemployeesin2015and2016vestonthethirdanniversaryofthegrantdate.Therestrictedstockunitsgrantedtodirectorsin2015vestonthesecondanniversaryofthegrantdate.
13. Contingencies and Significant Estimates
AsofJune30,2016,theCompanyheldreservesforenvironmentalmattersrelatedtocertainlocationsofapproximately$0.3million.AtcertainoftheCompany'sotherfacilities,ithasidentifiedpotentialcontaminantsinsoilandgroundwater.Theultimatecostofanyremediationrequiredwilldependupontheresultsoffutureinvestigation.Baseduponavailableinformation,theCompanydoesnotexpecttheultimatecostsatanyoftheselocationswillhaveamaterialadverseeffectonitsfinancialcondition,resultsofoperations,orcashflowsindividuallyorintheaggregate.
TheCompanybelievesthatithasobtainedandisinsubstantialcompliancewiththosematerialenvironmentalpermitsandapprovalsnecessarytoconductitsvariousbusinesses.Basedonthefactspresentlyknown,itdoesnotexpectenvironmentalcompliancecoststohaveamaterialadverseeffectonitsfinancialcondition,resultsofoperations,orcashflows.
AsofJune30,2016,variousproduct-relatedlawsuitswerepending.Totheextentpermittedunderapplicablelaw,alloftheseareinsuredwithself-insuranceretentionlevels.TheCompany'sself-insuranceretentionlevelsvarybybusiness,andhavefluctuatedoverthelast10years.TherangeoftheCompany'sself-insuredretentionlevelsis$0.1millionto$0.3millionperoccurrence.AsofJune30,2016,thelargestself-insuredretentionlevelfornewoccurrencescurrentlymaintainedbytheCompanywas$0.3millionperoccurrenceandappliedtoproductliabilityclaimsforthehotcategoryproductsmanufacturedintheUnitedStates.
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Productliabilityreservesintheconsolidated(condensed)balancesheetsatJune30,2016andDecember31,2015were$3.1millionand$2.6million,respectively;$1.2millionand$0.9million,respectively,wasreservedspecificallyforactualcases,and$1.9millionand$1.7million,respectively,forclaimsincurredbutnotreported,whichwereestimatedusingactuarialmethods.BasedontheCompany'sexperienceindefendingproductliabilityclaims,managementbelievesthecurrentreservesareadequateforestimatedcaseresolutionsonaggregateself-insuredclaimsandinsuredclaims.Anyrecoveriesfrominsurancecarriersaredependentuponthelegalsufficiencyofclaimsandsolvencyofinsurancecarriers.
AtJune30,2016andDecember31,2015,theCompanyhadreserved$31.1millionand$34.3million,respectively,forwarrantyclaimsincludedinproductwarrantiesandothernon-currentliabilitiesintheconsolidated(condensed)balancesheets.Certainofthesewarrantyandotherrelatedclaimsinvolvemattersindisputethatultimatelyareresolvedbynegotiations,arbitration,orlitigation.SeeNote14,“ProductWarranties,”forfurtherinformation.
Itisreasonablypossiblethattheestimatesforenvironmentalremediation,productliabilityandwarrantycostsmaychangeinthenearfuturebaseduponnewinformationthatmayariseormattersthatarebeyondthescopeofitshistoricalexperience.Presently,therearenoreliablemethodstoestimatetheamountofanysuchpotentialchanges.
TheCompanyisalsoinvolvedinvariouslegalactionsarisingoutofthenormalcourseofbusiness,which,takingintoaccounttheliabilitiesaccruedandlegalcounsel’sevaluationofsuchactions,intheopinionofmanagement,theultimateresolutionofallmattersisnotexpectedtohaveamaterialadverseeffectontheCompany'sfinancialcondition,resultsofoperations,orcashflows.
14. Product Warranties
Inthenormalcourseofbusiness,theCompanyprovidesitscustomersproductwarrantiescoveringworkmanship,andinsomecasesmaterials,onproductsmanufacturedbytheCompany.Suchproductwarrantiesgenerallyprovidethatproductswillbefreefromdefectsforperiodsrangingfrom12monthsto60monthswithcertainequipmenthavinglonger-termwarranties.IfaproductfailstocomplywiththeCompany'swarranty,theCompanymaybeobligated,atitsexpense,tocorrectanydefectbyrepairingorreplacingsuchdefectiveproducts.TheCompanyprovidesforanestimateofcoststhatmaybeincurredunderitswarrantyatthetimeproductrevenueisrecognized.Thesecostsprimarilyincludelaborandmaterials,asnecessary,associatedwithrepairorreplacement.Theprimaryfactorsthataffectitswarrantyliabilityincludethenumberofunitsshippedandhistoricalandanticipatedwarrantyclaims.Asthesefactorsareimpactedbyactualexperienceandfutureexpectations,theCompanyassessestheadequacyofitsrecordedwarrantyliabilityandadjuststheamountsasnecessary.
BelowisatablesummarizingtheproductwarrantiesactivityforthesixmonthsendedJune30,2016andforthetwelvemonthsendedDecember31,2015:
June 30, December 31,
(in millions) 2016 2015
Balanceatthebeginningoftheperiod $ 40.0 $ 42.0
Accrualsforwarrantiesissued 12.3 24.2
Settlementsmade(incashorinkind) (15.5) (25.2)
Currencytranslationimpact (0.2) (1.0)
Balanceattheendoftheperiod $ 36.6 $ 40.0
TheCompanyalsooffersextendedwarranties,whicharerecordedasdeferredrevenueandareamortizedtoincomeonastraight-linebasisoveraperiodequaltothatofthewarrantyperiod.Thedeferredrevenueonwarrantiesincludedinothercurrentandnon-currentliabilitiesatJune30,2016andDecember31,2015,was$5.5millionand$5.7million,respectively.Removingdeferredrevenuefromtheendingbalancesdetailedabove,thetotalamountofproductwarrantiesatJune30,2016andDecember31,2015,was$31.1millionand$34.3million,respectively.
15. Restructuring
InconjunctionwiththeacquisitionofEnodisinOctober2008,certainrestructuringactivitieswereundertakentorecognizecostsynergiesandrationalizethenewcoststructureoftheCompany.TherestructuringreservebalanceasofJune30,2016andDecember31,2015,includescertainofthesecosts,includingapensionwithdrawalliability,whicharerecordedinaccruedexpensesandotherliabilitiesandotherlong-termliabilitiesintheconsolidated(condensed)balancesheets.TheCompanyrecordedadditionalamountsin2016primarilyrelatedtothepensionwithdrawalliability.TheCompanyrecordedadditionalamountsin2015primarilyrelatedtoacompany-widereductioninforceandtheproposedclosingoftheClevelandfacility.
ThefollowingisarollforwardofallrestructuringactivitiesforthesixmonthsendedJune30,2016(inmillions):
Restructuring ReserveBalance as of
December 31, 2015 Restructuring
Charges Use of Reserve
Restructuring ReserveBalance as ofJune 30, 2016
$ 16.8 $ 1.6 $ (2.2) $ 16.2
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16. Employee Benefit Plans
TheCompanymaintainsseveraldifferentretirementplansforitsoperationsintheUnitedStates,EuropeandAsia.ThisfootnotedescribesthoseretirementplansthataremaintainedfortheCompany'sUS-basedemployees.ThecurrentplansarebasedlargelyuponbenefitplansthatMTWmaintainedpriortotheSpin-Off.TheCompanyhasestablishedaRetirementPlanCommitteetomanagetheoperationsandadministrationofallretirementplansandrelatedtrusts.
Defined Benefit Plans
PriortoDecember31,2015,MTWmaintainedtwodefinedbenefitpensionplansforitseligibleemployeesandretirees:(1)TheManitowocCompany,Inc.PensionPlan(the“MTWPension”);and(2)TheManitowocCompany,Inc.SupplementalExecutiveRetirementPlan(the“MTWSERP”).TheMTWPensionPlanandtheMTWSERP(together,the“MTWDBPlans”)coveredeligibleemployeesofMTW,includingMTW’sCranesbusinessandfoodservicebusiness.TheMTWPensionPlanisfrozentonewparticipantsandfuturebenefitaccruals.
EffectiveJanuary1,2016,aportionofeachMTWDBPlanwasspunofftocreateseparateplansforMTW’sFoodservicebusiness:(1)theManitowocFoodservicePensionPlan(the“MFSPensionPlan”);and(2)theManitowocFoodserviceSupplementalExecutiveRetirementPlan(the“MFSSERP”).TheMFSPensionPlanandtheMFSSERP(together,the“MFSDBPlans”)wereinitiallysponsoredbyManitowocFSGU.S.Holding,LLC.MFSassumedsponsorshipoftheMFSDBPensionPlansonMarch4,2016.MFSnolongerparticipatesintheMTWDBPlans.TheMFSDBPlansaresubstantiallysimilartotheformerMTWDBPlans.
Whencomparingthecurrentfinancialinformationtofinancialstatementsforprioryears,itisimportanttodistinguishbetween:(1)thedefinedbenefitplanthatalsocoveredemployeesofMTWandotherMTWsubsidiaries(the“SharedPlans”);and(2)thedefinedbenefitplanswhicharesponsoreddirectlybyMFSoritssubsidiariesandofferedonlytoMFSemployeesorretirees(the“DirectPlans”).
MFSaccountedfortheSharedPlansforthepurposeoftheconsolidated(condensed)financialstatementsasamultiemployerplan.Accordingly,MFSdidnotrecordanassetorliabilitytorecognizethefundedstatusoftheSharedPlans.However,thecostsassociatedwiththeseSharedPlansof$0.1millionand$0.8millionforthesixmonthsendedJune30,2016and2015,respectively,arereflectedontheMFSconsolidated(condensed)statementofoperations.ThisexpensereflectsanapproximationofMFS’portionofthecostsoftheSharedPlansaswellascostsattributabletoMTWcorporateemployees,whichhavebeenallocatedtotheMFSconsolidated(condensed)statementofoperationsbasedonmethodologydeemedreasonablebymanagement.
DuringthesixmonthsendedJune30,2016,MFSassumedcertainpensionobligationsof$55.6millionandrelatedplanassetsof$34.1million,andcertainpostretirementhealthobligationsof$6.8million,tonewly-createdsingleemployerplansforMFSemployeesandcertainotherMTW-sponsoredpensionplans,asdescribedabove.Thisnettransferofapproximately$28.3millionwastreatedasanon-cashtransactionbetweentheCompanyandMTW.TheCompanyalsoassumedafter-taxdeferredgainsof$6.1millionrelatedtotheseplans,whichwererecordedinAOCI.
TheDirectPlansareaccountedforasdefinedbenefitplans.Accordingly,thefundedandunfundedpositionofeachDirectPlanisrecordedinMFSconsolidated(condensed)balancesheetsandtheincomeandexpensesrecordedintheconsolidated(condensed)statementsofoperations.Actuarialgainsandlossesthathavenotyetbeenrecognizedthroughincomearerecordedinaccumulatedothercomprehensive(loss)incomenetoftaxesuntiltheyareamortizedasacomponentofnetperiodicbenefitcost.ThedeterminationofbenefitobligationsandtherecognitionofexpensesrelatedtotheDirectPlansaredependentonvariousassumptions.Themajorassumptionsprimarilyrelatetodiscountrates,long-termexpectedratesofreturnonplanassets,andfuturecompensationincreases.Managementdevelopseachassumptionusingrelevantcompanyexperienceinconjunctionwithmarket-relateddataforeachindividualcountryinwhichsuchplansexist.
ThecomponentsofperiodicbenefitcostsfortheDirectPlansforthethreeandsixmonthsendedJune30,2016and2015areasfollows:
Three Months Ended
June 30, 2016 Six Months EndedJune 30, 2016
(in millions) Pension Plans
PostretirementHealth andOther Plans Pension Plans
PostretirementHealth andOther Plans
Servicecost-benefitsearnedduringtheperiod $ 0.1 $ — $ 0.1 $ —
Interestcostofprojectedbenefitobligations 2.1 0.1 4.3 0.2
Expectedreturnonplanassets (1.6) — (3.2) —
Amortizationofactuarialnetloss 0.7 — 1.3 —
Netperiodicbenefitcosts $ 1.3 $ 0.1 $ 2.5 $ 0.2
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Three Months Ended
June 30, 2015 Six Months EndedJune 30, 2015
(in millions) Pension Plans
PostretirementHealth andOther Plans Pension Plans
PostretirementHealth andOther Plans
Servicecost-benefitsearnedduringtheperiod $ 0.1 $ — $ 0.2 $ —
Interestcostofprojectedbenefitobligations 1.6 0.1 3.2 0.1
Expectedreturnonplanassets (1.4) — (2.7) —
Amortizationofactuarialnetloss 0.3 — 0.6 —
Netperiodicbenefitcosts $ 0.6 $ 0.1 $ 1.3 $ 0.1
Defined Contribution Plans
PriortoDecember31,2015,MTWmaintainedthreedefinedcontributionretirementplansforitseligibleemployeesandretirees:(1)TheManitowocCompany,Inc.401(k)RetirementPlan(the“MTW401(k)RetirementPlan”);(2)TheManitowocCompany,Inc.RetirementSavingsPlan(the“MTWRetirementSavingsPlan”);and(3)TheManitowocCompany,Inc.DeferredCompensationPlan(the“MTWDeferredCompensationPlan”).TheMTW401(k)RetirementPlan,theMTWRetirementSavingsPlanandtheMTWDeferredCompensationPlan(together,the“MTWDCPlans”)coveredeligibleemployeesofMTW,includingMTW’sCranesbusinessandFoodservicebusiness.
EffectiveJanuary1,2016,aportionofeachMTWDCPlanwasspunofftocreateseparateplansforMTW’sFoodservicebusiness:(1)theManitowocFoodservice401(k)RetirementPlan(the“MFS401(k)RetirementPlan”);(2)theManitowocFoodserviceRetirementSavingsPlan(the“MFSRetirementSavingsPlan”);and(3)theManitowocFoodserviceDeferredCompensationPlan(the“MFSDeferredCompensationPlan”).TheMFS401(k)RetirementPlan,theMFSRetirementSavingsPlanandtheMFSDeferredCompensationPlan(together,the“MFSDCPlans”)wereinitiallysponsoredbyManitowocFSGU.S.Holding,LLC.MFSassumedsponsorshipoftheMFSDCPensionPlansonMarch4,2016.MFSnolongerparticipatesintheMTWDCPlans.TheMFSDCPlansaresubstantiallysimilartotheformerMTWDBPlans.
TheMTWDCPlansandtheMFSDCPlansresultinindividualparticipantbalancesthatreflectacombinationofamountscontributedbyMTW/MFSordeferredbytheparticipant,amountsinvestedatthedirectionofeitherthecompanyortheparticipant,andthecontinuingreinvestmentofreturnsuntiltheaccountsaredistributed.
17. Business Segments
TheCompanyidentifiesitssegmentsusingthe“managementapproach,”whichdesignatestheinternalorganizationthatisusedbymanagementformakingoperatingdecisionsandassessingperformanceasthesourceofMFS’reportablesegments.Managementorganizesthebusinessbasedongeography,andhasdesignatedtheregionsAmericas,EMEA,andAPACasreportablesegments.
TheaccountingpoliciesofthesegmentsarethesameasthosedescribedinthesummaryofaccountingpoliciesexceptthatcertaincorporatelevelexpenseswerenotallocatedtothesegmentsfortheperiodspriortotheSpin-Off.Theseunallocatedexpensesarecorporateoverhead,stock-basedcompensationexpense,amortizationexpenseofintangibleassetswithdefinitelives,restructuringexpense,andothernon-operatingexpenses.MFSevaluatessegmentperformancebaseduponearningsbeforeinterest,taxes,other(income)expenseandamortization(OperatingEBITA)beforetheaforementionedexpenses.FinancialinformationrelatingtotheCompany’sreportablesegmentsforthethreeandsixmonthsendedJune30,2016and2015isasfollows:
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Three months ended June 30, Six months ended June 30,
(in millions) 2016 2015 2016 2015
Net sales: Americas $ 301.2 $ 346.7 $ 564.8 $ 640.4
EMEA 76.3 75.8 144.9 146.0
APAC 43.1 45.6 82.0 86.9
Eliminationofintersegmentsales (52.2) (60.4) (97.8) (120.2)
Totalnetsales $ 368.4 $ 407.7 $ 693.9 $ 753.1
Earnings before interest, taxes, other (income) expense and amortization(Operating EBITA): Netearnings $ 15.1 $ 36.9 $ 33.2 $ 50.9
Incometaxes 4.1 17.0 8.7 23.5
Other(income)expense-net 3.6 (0.2) 6.0 (0.6)
Interest(income)expenseonnoteswithMTW-net — (4.6) 0.1 (9.3)
Interestexpense 27.0 0.4 35.5 0.7
Earningsfromoperations 49.8 49.5 83.5 65.2
Amortizationexpense 7.9 7.9 15.7 15.7Earningsbeforeinterest,taxes,other(income)expenseandamortization(OperatingEBITA) $ 57.7 $ 57.4 $ 99.2 $ 80.9
Earnings before interest, taxes, other (income) expense and amortization(Operating EBITA) by segment: Americas $ 55.0 $ 51.7 $ 101.7 $ 79.7
EMEA 10.1 6.8 16.9 10.5
APAC 4.2 6.2 7.3 10.2
Corporateandunallocated (11.6) (7.3) (26.7) (19.5)Totalearningsbeforeinterest,taxes,other(income)expenseandamortization(OperatingEBITA) $ 57.7 $ 57.4 $ 99.2 $ 80.9
Operating EBITA % by segment (1) : Americas 18.3% 14.9% 18.0% 12.4%
EMEA 13.2% 9.0% 11.7% 7.2%
APAC 9.7% 13.6% 8.9% 11.7%(1)OperatingEBITA%inthesectionaboveiscalculatedbydividingthedollaramountofOperatingEBITAbynetsales.
Net sales by geographic area (2) : UnitedStates $ 244.1 $ 281.2 $ 456.2 $ 516.4
OtherAmericas 24.0 26.9 47.0 51.0
EMEA 63.6 61.5 120.8 114.8
APAC 36.7 38.1 69.9 70.9
Totalnetsalesbygeographicarea: $ 368.4 $ 407.7 $ 693.9 $ 753.1
(2)Netsalesinthesectionaboveareattributedtogeographicregionsbasedonlocationofcustomer.
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AsofJune30,2016andDecember31,2015,totalassetsbysegmentwereasfollows:
(in millions) June 30, 2016 December 31, 2015
Total assets by segment: Americas $ 1,441.9 $ 1,495.2
EMEA 160.1 148.5
APAC 138.7 96.5
Corporate 66.3 13.8
Total $ 1,807.0 $ 1,754.0
18. Net Parent Company Investment and Related Party Transactions
Related Party Transactions and Cash Management Prior to the Spin-Off : MFSdoesnotenterintotransactionswithrelatedpartiestopurchaseand/orsellgoodsorservicesintheordinarycourseofbusiness.TransactionsbetweenMFSandMTWarereflectedinNetParentCompanyInvestmentintheconsolidated(condensed)balancesheetsandintheconsolidated(condensed)statementsofcashflowsasafinancingactivityin“NettransactionswithMTW”.PriortotheSpin-Off,MFSparticipatedinMTW’scentralizedcashmanagementprograminwhichcashwasswepteachdayandheldinacentralizedaccountatthecorporatelevel.
Net Parent Company Investment and Corporate Cost Allocations Prior to the Spin-Off :PriortotheSpin-Off,MTWperformedcertaingeneralandcorporatefunctionsonMFS’behalf.Therelatedcostsincluded,butwerenotlimitedto,accounting,treasury,tax,legal,humanresources,audit,andinformationtechnology(“generalcorporateexpenses”).ForpurposesofpreparingthecombinedfinancialstatementsforperiodspriortotheSpin-Offthesecostswereallocatedonabasisofdirectusage,whereidentifiable,orthroughtheuseofallocationmethodologiesbasedonpercentageofsales,headcount,orothermethodologiesdeemedappropriatebymanagement.Thesegeneralcorporateexpenseswereincludedwithin“Selling,generalandadministrative”costsandNetParentCompanyInvestment,accordingly.Managementbelievestheassumptionsassociatedwithallocatingthesecostsarereasonable.Nevertheless,thecombinedfinancialstatementsmaynotincludealloftheactualexpensethatwouldhavebeenincurredandmaynotrepresentMFS’resultsofoperations,financialposition,orcashflowshaditbeenastand-alonecompanyduringtheperiodspriortotheSpin-Off.ActualcoststhatwouldhavebeenincurredifMFShadbeenastandalonecompanywoulddependonmultiplefactors,includingorganizationalstructureandstrategicdecisionsmadeinvariousareas,includinginformationtechnologyandinfrastructure.GeneralcorporateexpensesallocatedtoMFSduringthethreeandsixmonthsendedJune30,2016,and2015were$0.0millionand$5.2millionand$1.6millionand$13.1million,respectively.
NoneofMTW’sdebthasbeenreflectedintheconsolidated(condensed)balancesheetofMFSasofDecember31,2015,becauseMFSwasnotapartytotheobligationsbetweenMTWandthedebtholders.NofinancingcostsorinterestexpenseassociatedwithMTW'sdebthasbeenallocatedtotheconsolidated(condensed)financialstatementsforperiodspriortotheSpin-Off.
AllsignificantintercompanytransactionsbetweenMFSandMTW,havebeenincludedwithinNetParentCompanyInvestmentintheconsolidated(condensed)balancesheetrelatedtotheperiodendedDecember31,2015.Thetotaleffectofthesettlementoftheseintercompanytransactionsisreflectedasafinancingactivityintheconsolidated(condensed)statementsofcashflows.However,theinterestincomeandexpenserelatedtothenoteswithMTWispresentedonanetbasisintheconsolidated(condensed)statementsofoperations.TherewasnointerestincomeonthenoteswithMTWduringthethreeandsixmonthsendedJune30,2016.InterestincomeonthenoteswithMTWwas$4.6millionand$9.3millionforthethreeandsixmonthsendedJune30,2015,respectively.InterestexpenseonthenoteswithMTWwas$0.1millionforthesixmonthsendedJune30,2016.TherewasnointerestexpenseonthenoteswithMTWduringthesixmonthsendedJune30,2015.
ThenotesreceivablebalancefromMTWasoftheyearendedDecember31,2015was$70.8million.ThenotespayablebalancetoMTWasoftheyearendedDecember31,2015was$9.9million.
Guarantees Prior to the Spin-Off: CertainofMTW’ssubsidiaries,whichincludesselectedentitiesthatarepartofMFS,enteredintoguaranteeagreementswithMTW'slenderswherebythesesubsidiariesguaranteedtheobligationsunder,and/orpledgedtheirassetsascollateral,withrespecttosuchMTWdebt.However,noneoftheseMFSsubsidiarieswerenamedasobligorsinthedebtagreementsheldinthenameofMTW.Forthatreason,MTWdidnothistoricallyallocatedebtbalancesand/orchargeoutthird-partydebtrelatedexpensestoMFS.
Post Spin-Off Activity: InconnectionwiththeSpin-Off,theCompanyenteredintoaseriesofagreementswithMTWwhichareintendedtogoverntherelationshipbetweenMFSandMTWandtofacilitateanorderlyseparationofMFSfromMTW.TheseagreementsincludeaMasterSeparationandDistributionAgreement("SeparationAgreement"),TransitionServicesAgreement("TSA"),EmployeeMattersAgreement,IntellectualPropertyMattersAgreement,andTaxMattersAgreement.
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InaccordancewiththeSeparationAgreement,atthetimeoftheSpin-Off,MTWcontributeditsnetinvestmentinMFSandcertainassetsandliabilitiesinexchangefora$1,362.0millioncashdistributionwhichwasfundedthroughthelong-termdebtincurredbyMFS.Inaddition,separationrelatedadjustmentsareincludedinadditionalpaid-incapital(deficit)ontheconsolidated(condensed)balancesheetconsistingofnetliabilitiesassumedbyMFSrelatedtothepensionplansof$21.5million,post-retirementmedicalobligationsof$6.8million,incometaxespayableof$0.6millionand$47.4millionofothercomprehensiveincomerelatedtopensionandcurrencytranslation,netoftax.
TheSeparationAgreementincludedprovisionsontheallocationofassetsandliabilitiesbetweenlegalentitiesthatwerebeingsplitintoaseparateMTWandMFSlegalentityaspartoftheSpin-Off.TheSeparationAgreementalsoincludedprovisionsonthesplitofjointadministrativecoststhatwereincurredpostSpin-Off.
UndertheTSA,MFSandMTWwillprovideeachothercertainspecifiedservicesonatransitionalbasis,including,amongothers,payrollandotherhumanresourceservices,informationsystems,insurance,legal,financeandothercorporateservices,aswellasprocurementandsourcingsupport.Thechargesforthetransitionservicesaregenerallyintendedtoallowtheprovidingcompanytofullyrecovertheallocateddirectcostsofprovidingtheservices,plusallout-of-pocketcostsandexpenses,generallywithoutprofitexceptwhererequiredbylocallaw.MFSanticipatesthatitwillgenerallybeinapositiontocompletethetransitionofmostservicesonorbefore24monthsfollowingthedateoftheSpin-Off.TheexpensesrelatedtotheTSAthroughJune30,2016wereimmaterial.
19. Earnings Per Share
OnMarch4,2016,MTWdistributed137.0millionsharesofMFScommonstocktoMTWshareholders,therebycompletingtheSpin-Off.BasicanddilutedearningspercommonshareandtheaveragenumberofcommonsharesoutstandingwereretrospectivelyrestatedforthenumberofMFSsharesoutstandingimmediatelyfollowingthistransaction.Thesamenumberofshareswereusedtocalculatebasicanddilutedearningspershare,forthepriorperiodspresented,sincenoequityawardswereoutstandingpriortotheSpin-Off.
Thefollowingisareconciliationoftheaveragesharesoutstandingusedtocomputebasicanddilutedearningspershare.
Three Months Ended
June 30, Six Months Ended
June 30,
2016 2015 2016 2015
Basicweightedaveragecommonsharesoutstanding 137,131,572 137,016,712 137,105,290 137,016,712
Effectofdilutivesecurities 1,242,807 — 1,250,923 —
Dilutedweightedaveragecommonsharesoutstanding 138,374,379 137,016,712 138,356,213 137,016,712
ForthethreeandsixmonthsendedJune30,2016,3.5millionofcommonsharesissuableupontheexerciseofstockoptionswereanti-dilutiveandwereexcludedfromthecalculationofdilutedshares.
OnMarch3,2016,priortothecompletionoftheSpin-Off,MFSpaidaone-timecashdividendtoMTWofapproximately$1.362billion.MFSdidnotdeclareorpayanyotherdividendstoitsstockholdersduringthethreeorsixmonthsendedJune30,2016orJune30,2015,respectively.
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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations for the Three and Six Months Ended June 30, 2016 and June 30, 2015
Analysis of Net Sales
Thefollowingtablepresentsnetsalesbybusinesssegment:
Three Months Ended June 30,
Percent Change
Fav / (Unfav)
Percent of Sales
(in millions) 2016 2015 2016 2015
Netsales: Americas $ 301.2 $ 346.7 (13.1)% 81.8% 85.0%
EMEA 76.3 75.8 0.7% 20.7% 18.6%
APAC 43.1 45.6 (5.5)% 11.6% 11.2%
Eliminationofinter-segmentsales (52.2) (60.4) (13.6)% (14.1)% (14.8)%
Netsales $ 368.4 $ 407.7 (9.6)% 100.0% 100.0%
Six Months Ended June 30,
Dollars of Sales Percent Change
Fav / (Unfav)
Percent of Sales
(in millions) 2016 2015 2016 2015
Netsales: Americas $ 564.8 $ 640.4 (11.8)% 81.4% 85.0%
EMEA 144.9 146.0 (0.8)% 20.9% 19.4%
APAC 82.0 86.9 (5.6)% 11.8% 11.5%
Eliminationofinter-segmentsales (97.8) (120.2) (18.6)% (14.1)% (15.9)%
Netsales $ 693.9 $ 753.1 (7.9)% 100.0% 100.0%
ConsolidatednetsalesforthethreemonthsendedJune30,2016decreasedby9.6percentto$368.4millionfrom$407.7millionforthesameperiodin2015.Thedecreaseinnetsaleswasprincipallydrivenbya13.1percentdecreaseintheAmericassegmentanda5.5percentdecreaseintheAPACsegment,respectively,forthethreemonthsendedJune30,2016comparedtotheprioryearperiod.Prioryearnetsalesforthisperiodincluded$35.1millionfromKysorPanelSystems("KPS"),whichwassoldinDecember2015.Inaddition,foreigncurrencytranslationnegativelyimpacted2016secondquarternetsalesby$5.0millionor1.3percent.
ConsolidatednetsalesforthesixmonthsendedJune30,2016decreasedby7.9percentto$693.9millionfrom$753.1millionforthesameperiodin2015.Thedecreaseinnetsaleswasprincipallydrivenbyan11.8percentdecreaseintheAmericassegmentanda5.6percentdecreaseintheAPACsegment,respectively,forthesixmonthsendedJune30,2016.Prioryearnetsalesforthisperiodincluded$60.5millionfromKPS.Inaddition,foreigncurrencytranslationnegativelyimpactednetsalesforthesixmonthsendedJune30,2016by$11.7million,or1.7percent.
NetsalesintheAmericassegmentforthethreemonthsendedJune30,2016decreased$45.5million,or13.1percent,to$301.2million,comparedto$346.7millionforthesameperiodin2015.ThisdecreasewasprimarilydrivenbythedivestitureofKPSinDecember2015,whichcausedadecreaseofapproximately$35.1million.AdjustedforthedivestitureofKPS,netsalesdecreased$10.4millionfromtheprioryearprimarilydrivenbylowerintersegmentnetsales,whichdecreasedby$5.5million.Thirdpartynetsalesdecreasedby$4.9millionduetolowergrowthinhot-sideproductssalesandtheexpectedseasonalincreaseinicemachinesaleswasslowertomaterializeinthesecondquarterof2016.Thedecreasewaspartiallyoffsetbypricingrealizationfromthe80/20Simplificationinitiative.TheCompany’sSimplificationandRight-Sizinginitiativesinclude80/20,productcosttakeout,leanimplementation,strategicsourcing,manufacturingcapacityreduction,andreductioninworkforce(SimplificationandRight-Sizinginitiatives).Foreigncurrencytranslationhada$2.7millionnegativeimpactonthirdpartynetsalesinthesecondquarterof2016.
NetsalesintheAmericassegmentforthesixmonthsendedJune30,2016decreased$75.6million,or11.8percent,to$564.8million,comparedto$640.4millionforthesameperiodin2015.ThisdecreasewasprimarilydrivenbythedivestitureofKPSinDecember2015,whichcausedadecreaseofapproximately$60.5million.AdjustedforthedivestitureofKPS,netsalesdecreased$15.1millionfromtheprioryearprimarilydrivenbylowerintersegmentnetsales,whichdecreasedby$11.4millionandthirdpartynetsalesdecreasedby$3.7millionduetosoftnessinsalesofhot-sideproductsinthefirstsixmonthsof2016.Thedecreasewaspartiallyoffsetbypricingrealizationfromthe80/20Simplificationinitiative.Foreigncurrencytranslationhada$6.1millionnegativeimpactonthirdpartynetsalesinthesixmonthsendedJune30,2016.
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NetsalesintheEMEAsegmentforthethreemonthsendedJune30,2016increased$0.5million,or0.7percent,to$76.3million,comparedto$75.8millionforthesameperiodin2015.Theincreasewasprincipallydrivenbyincreasedthirdpartynetsalesof$2.1million,partiallyoffsetbya$1.6milliondecreaseinintersegmentnetsales.ThirdpartynetsalesincreasedprimarilyduetostrongsalesofMerrychefhigh-speedovens,improvementinKitchenCaresalesintheregionof$2.3million,andpricingrealizationfromthe80/20Simplificationinitiative.Foreigncurrencytranslationhada$1.4millionnegativeimpactonthirdpartynetsalesinthesecondquarterof2016.
NetsalesintheEMEAregionforthesixmonthsendedJune30,2016decreased$1.1million,or0.8percent,to$144.9million,comparedto$146.0millionforthesameperiodin2015.Thedecreasewasdrivenbylowerintersegmentnetsalesof$7.1million,partiallyoffsetbya$6.0millionincreaseinthirdpartynetsales.ThirdpartynetsalesincreasedprimarilyduetostrongsalesofMerrychefhigh-speedovens,improvementinKitchenCaresalesintheregionof$2.3million,andpricingrealizationfromtheSimplificationandRight-sizinginitiatives.Foreigncurrencytranslationhada$3.7millionnegativeimpactonthirdpartynetsalesinthesixmonthsendedJune30,2016.
NetsalesintheAPACregionforthethreemonthsendedJune30,2016decreased$2.5million,or5.5percent,to$43.1million,comparedto$45.6millionforthesameperiodin2015.Currentyearnetsalesincluded$2.5millionfromtheWelbiltThailandacquisitioninOctober2015.Thirdpartynetsalesdecreased$1.4millionmainlyduetolowerquick-servicerestaurantnewstoreopeningsinChinaandsoftergeneralmarketsalesinthequarter.Netsalesalsodecreased$1.1millionduetolowerintersegmentnetsales.Foreigncurrencytranslationhada$0.9millionnegativeimpactonthirdpartynetsalesinthesecondquarterof2016.
NetsalesintheAPACregionforthesixmonthsendedJune30,2016decreased$4.9million,or5.6percent,to$82.0million,comparedto$86.9millionforthesameperiodin2015.Currentyearnetsalesincluded$4.8millionfromtheWelbiltThailandacquisitioninOctober2015.Thedecreasewasprimarilydrivenbylowerthirdpartynetsalesof$1.0millionandintersegmentnetsales,whichdecreasedby$3.9million.Thirdpartynetsalesdecreasedduetolowerquick-servicerestaurantnewstoreopeningsinChinaandsoftergeneralmarketsales.Foreigncurrencytranslationhada$1.9millionnegativeimpactonthirdpartynetsalesinthesixmonthsendedJune30,2016.
Analysis of Earnings from Operations
Thefollowingtablepresentsearningsfromoperationsbybusinesssegment.
Three Months Ended June 30, Six Months Ended June 30,
Percent Change
Fav / (Unfav)
Percent Change
Fav / (Unfav)(in millions) 2016 2015 2016 2015 Earningsfromoperations Americas $ 47.8 $ 44.3 7.9% $ 87.4 $ 65.2 34.0%
EMEA 9.5 6.2 53.2% 15.6 9.3 67.7%
APAC 4.2 6.2 (32.3)% 7.3 10.2 (28.4)%
Corporateandunallocated (11.7) (7.2) 62.5% (26.8) (19.5) 37.4%
Totalearningsfromoperations $ 49.8 $ 49.5 0.6% $ 83.5 $ 65.2 28.1%
ConsolidatedearningsfromoperationsforthethreemonthsendedJune30,2016was$49.8million,anincreaseof$0.3millioncomparedtothe$49.5millionofconsolidatedearningsfromoperationsforthesameperiodin2015.ConsolidatedearningsfromoperationsforthesixmonthsendedJune30,2016was$83.5million,anincreaseof$18.3millioncomparedtothe$65.2millionofconsolidatedearningsfromoperationsforthesameperiodin2015.TheincreaseinconsolidatedearningsfromoperationsforthethreeandsixmonthsendedJune30,2016,comparedtotherespectiveprioryearperiods,wasprincipallydrivenbysavingsfromtheCompany'sSimplificationandRight-Sizinginitiativesofapproximately$13.4millionand$24.0million,respectively,partiallyoffsetbylowerfixedcostabsorptionandhigherincentivecompensation.
ForthethreemonthsendedJune30,2016,comparedtothesameperiodin2015,earningsfromoperationsfortheAmericasregionincreasedby$3.5millionto$47.8milliondespitethedecreaseinnetsales.AdjustedforthedivestitureofKPSof$3.8million,earningsfromoperationsincreasedfromtheprioryearby$7.3million.Theincreaseinearningsfromoperationswasprimarilydrivenby$10.2millionofsavingsfromtheCompany'sSimplificationandRight-Sizinginitiatives,a$3.9millionimprovementinKitchenCareoperationsandoperatingefficiencyimprovements.Theseincreaseswerepartiallyoffsetbylowerfixedcostabsorptionandhigherincentivecompensation.
ForthesixmonthsendedJune30,2016,comparedtothesameperiodin2015,earningsfromoperationsfortheAmericasregionincreasedby$22.2millionto$87.4milliondespitethedecreaseinnetsales.AdjustedforthedivestitureofKPSof$4.9million,earningsfromoperationsincreasedfromtheprioryearby$27.1million.Theincreaseinearningsfromoperationswasprimarilydrivenby$18.6millionofsavingsfromtheCompany'sSimplificationandRight-Sizinginitiatives,an$8.3millionimprovementinKitchenCareoperationsandoperatingefficiencyimprovements.Theseincreaseswerepartiallyoffsetbylowerfixedcostabsorptionandhigherincentivecompensation.
ForthethreemonthsendedJune30,2016,comparedtothesameperiodin2015,earningsfromoperationsfortheEMEAregionincreasedby$3.3millionto$9.5million.Theincreasewasprimarilydrivenbycostsavingsofapproximately$2.5millionfromtheCompany'sSimplificationandRight-Sizinginitiatives,a$2.4millionimprovementinKitchenCareoperations,betterproductmixfromnewproductintroductionsandoperatingefficiencyimprovements.Theseincreaseswerepartiallyoffsetbylowerfixedcostabsorption.
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ForthesixmonthsendedJune30,2016,comparedtothesameperiodin2015,earningsfromoperationsfortheEMEAregionincreasedby$6.3millionto$15.6million.Theincreasewasprimarilydrivenbycostsavingsofapproximately$4.5millionfromtheCompany'sSimplificationandRight-Sizinginitiatives,a$3.5millionimprovementinKitchenCareoperationsintheregion,andoperatingefficiencyimprovements.Theseincreaseswerepartiallyoffsetbylowerfixedcostabsorption.
ForthethreemonthsendedJune30,2016,comparedtothesameperiodin2015,earningsfromoperationsfortheAPACregiondecreasedby$2.0millionto$4.2million.Thedecreasewasprimarilydrivenbythenegativeimpactoflowersalesvolumesonfixedcostabsorption,partiallyoffsetbysavingsfromtheCompany'sSimplificationandRight-Sizinginitiativesof$0.7million.
ForthesixmonthsendedJune30,2016,comparedtothesameperiodin2015,earningsfromoperationsfortheAPACregiondecreasedby$2.9millionto$7.3million.Thedecreasewasprimarilydrivenbythenegativeimpactoflowersalesvolumesonfixedcostabsorption,partiallyoffsetbysavingsfromtheCompany'sSimplificationandRight-Sizinginitiativesof$0.9million,andoperatingefficiencyimprovements.
Totalselling,generalandadministrativeexpensesamountedto$75.4millionforthethreemonthsendedJune30,2016,anincreaseof9.0percentor$6.2millioncomparedtotheprioryearperiod.Theincreasewasprincipallydrivenbya$5.6millionincreaseinexpensesrelatedtoincentivecompensationanda$3.8millionincreaseinresearchanddevelopmentandmarketingandspinrelatedexpenses,partiallyoffsetbytheimpactfromthedivestitureoftheKPSbusinessofapproximately$2.3millionandsavingsfromtheCompany'sSimplificationandRight-Sizinginitiativesofapproximately$1.6million.
Totalselling,generalandadministrativeexpensesamountedto$147.2millionforthesixmonthsendedJune30,2016,adecreaseof2.9percentor$4.4millioncomparedtotheprioryearperiod.ThedecreasewasprincipallydrivenbytheimpactfromthedivestitureoftheKPSbusinessofapproximately$5.0million,savingsfromtheCompany'sSimplificationandRight-Sizinginitiativesofapproximately$3.2millionandcostcontainmentsavingsofapproximately$2.0million.Thesedecreaseswerepartiallyoffsetbya$5.4millionincreaseinincentivecompensationexpenses.
Analysis of Non-Operating Income Statement Items
ForthethreemonthsendedJune30,2016,comparedtothesameperiodin2015,interestexpenseincreasedby$26.6millionto$27.0million.ForthesixmonthsendedJune30,2016,comparedtothesameperiodin2015,interestexpenseincreasedby$34.8millionto$35.5million.Theincreaseininterestexpensewasrelatedto$1,400.0millionoflong-termdebtissuedbytheCompany,asaresultoftheSpin-Off,inthefirstquarterof2016.AssumingtheCompanyonlymakestherequiredminimumpaymentsundertheagreement,theCompany’scashobligationsduetointerestonlong-termdebtwillbe$47.8millionfortheremainderof2016,$95.8millionin2017,$95.8millionin2018,$95.4millionin2019,$95.0millionin2020and$257.9millionthereafter.
Theremainderofnon-operatingcostsforthethreemonthsendedJune30,2016consistedofforeigncurrencygainsandlossesof$2.3millionandamortizationofdeferredfinancingfeesof$1.5million.Theremainderofnon-operatingcostsforthesixmonthsendedJune30,2016consistedofforeigncurrencygainsandlossesof$4.0million,amortizationofdeferredfinancingfeesof$1.9millionandalossondisposalofassetsof$0.2million.
Financial Condition
First Six Months of 2016
CashandcashequivalentsasofJune30,2016totaled$40.7million,anincreaseof$8.7millionfromtheDecember31,2015balanceof$32.0million.Cashflowsprovidedbyoperatingactivitiesforthefirstsixmonthsof2016were$2.2millioncomparedtocashflowsusedforoperatingactivitiesof$10.3millionforthefirstsixmonthsof2015.Theincreaseincashgeneratedfromoperatingactivitiesof$12.5millionwasprimarilyattributabletoasmallerincreaseinoperatingassets,primarilyinventoryandaccountsreceivables,asmallerdecreaseinaccountspayable,andanincreaseinothercurrentandlong-termliabilitiescomparedtotheprioryearperiod.Thesefavorablechangeswerepartiallyoffsetbylowernetearnings,whichismainlyduetotheincreaseininterestexpensein2016.Inventoryincreasedprincipallyduetohighersafetystocklevelstoreducecustomerleadtimesand,temporarily,toensuresatisfactoryleadtimesrelatedtothetransferofproductionfromourCleveland,Ohioplanttothreereceivingplants.
Cashflowsusedforinvestingactivitiesof$6.0millionforthefirstsixmonthsof2016consistedprimarilyofcapitalexpendituresof$6.2million,withthemajorityofthecapitalexpendituresrelatedtofixedassetequipmentpurchases.
Cashflowsprovidedbyfinancingactivitiesof$12.6millionforthefirstsixmonthsof2016consistedprimarilyofproceedsfromnewindebtednesssubsequentlyusedtofundacashdistributiontoMTWaspartoftheSpin-Off,tomake$49.6millionofpaymentsonlong-termdebtandcapitalleases,andtofundworkingcapitalneedsinthefirstsixmonths.
First Six Months of 2015
CashandcashequivalentsbalanceasofJune30,2015totaled$14.8millionadecreaseof$1.7millionfromtheDecember31,2014balanceof$16.5million.Cashflowsusedforoperatingactivitiesforthefirstsixmonthsof2015were$10.3million.Duringthefirstsixmonthsof2015,cashflowsusedforoperationswasprincipallyrelatedtoincreasesinreceivablesandinventoryanddecreasesinaccountspayableduetohigherseasonalworkingcapitalrequirementsinthefirsthalfoftheyear,aswelltheincreasedinventorylevelsinKitchenCareoperationscomparedtotheprioryear.
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Cashflowsusedforinvestingactivitiesof$7.0millionforthefirstsixmonthsof2015consistedofcapitalexpendituresof$6.7million,relatedtofixedassetequipmentpurchases.
Cashflowsprovidedbyfinancingactivitiesof$16.5millionforthefirstsixmonthsof2015consistedprimarilyrelatedtofinancingtransactionswithMTWduringtheperiod.
Liquidity and Capital Resources
Senior Secured Credit Facilities
OnMarch3,2016,theCompanyenteredintoacreditagreement(the"2016CreditAgreement")foranewseniorsecuredrevolvingcreditfacilityinanaggregateprincipalamountof$225.0million(the"RevolvingFacility")andaseniorsecuredTermLoanBfacilityinanaggregateprincipalamountof$975.0million(the"TermLoanBFacility"and,togetherwiththeRevolvingFacility,the"SeniorSecuredCreditFacilities")withJPMorganChaseBank,N.A,asadministrativeagentandcollateralagent,J.P.MorganSecuritiesLLC,GoldmanSachsBankUSA,HSBCSecurities(USA)Inc.,andCitigroupGlobalMarketsInc.,onbehalfofcertainofitsaffiliates,asjointleadarrangersandjointbookrunners,andcertainlenders,aslenders.TheRevolvingFacilityincludes(i)a$20.0millionsublimitfortheissuanceoflettersofcreditoncustomaryterms,and(ii)a$40.0millionsublimitforswinglineloansoncustomaryterms.TheCompanyenteredintosecurityandotheragreementsrelatingtothe2016CreditAgreement.
BorrowingsundertheSeniorSecuredCreditFacilitieswillbearinterestatarateperannumequalto,attheoptionofMFS,(i)LIBORplustheapplicablemarginofapproximately4.75%fortermloanssubjecttoa1.00%LIBORfloorand1.50%-2.75%forrevolvingloans,basedonconsolidatedtotalleverage,or(ii)analternatebaserateplustheapplicablemargin,whichwillbe1.00%lowerthanforLIBORloans.
The2016CreditAgreementcontainsfinancialcovenantsincluding(a)aConsolidatedInterestCoverageRatio,whichmeasurestheratioof(i)ConsolidatedEBITDA,asdefinedinthe2016CreditAgreement,to(ii)consolidatedcashinterestexpense,and(b)aConsolidatedTotalLeverageRatio,whichmeasurestheratioof(i)consolidatedindebtednessto(ii)ConsolidatedEBITDAforthemostrecentfourfiscalquarters.ThecurrentcovenantlevelsofthefinancialcovenantsundertheSeniorSecuredCreditFacilityareassetforthbelow:
Fiscal Quarter Ending Consolidated Total Leverage Ratio (less than) Consolidated Interest Coverage Ratio (greater than)March31,2016 6.25:1.00 2.00:1.00June30,2016 6.25:1.00 2.00:1.00
ObligationsoftheCompanyundertheSeniorSecuredCreditFacilitiesarejointlyandseverallyguaranteedbycertainofitsexistingandfuturedirectandindirectlywholly-ownedU.S.subsidiaries(butexcluding(i)unrestrictedsubsidiaries,(ii)immaterialsubsidiaries,and(iii)specialpurposesecuritizationvehicles).
ThereisafirstpriorityperfectedlienonsubstantiallyalloftheassetsandpropertyofMFSandguarantorsandproceedstherefromexcludingcertainexcludedassets.ThelienssecuringtheobligationsoftheCompanyundertheRevolvingFacilityandtheTermLoanBFacilityareparipassu.
Senior Notes
TheCompanyissued9.50%SeniorNotesdue2024inanaggregateprincipalamountof$425.0million(the“SeniorNotes”)underanindenturewithWellsFargoBank,NationalAssociation,astrustee(the“Trustee”).TheSeniorNotesweresoldtoqualifiedinstitutionalbuyerspursuanttoRule144A(andoutsidetheUnitedStatesinrelianceonRegulationS)undertheSecuritiesAct.TheSeniorNotesarefullyandunconditionallyguaranteed,jointlyandseverally,onanunsecuredbasisbyeachoftheCompany’sdomesticrestrictedsubsidiariesthatisaborrowerorguarantorundertheSeniorSecuredCreditFacilities.TheSeniorNotesandthesubsidiaryguaranteesareunsecured,seniorobligations.Thenotesareredeemable,attheCompany'soption,inwholeorinpartfromtimetotime,atanytimepriortoFebruary15,2019,atapriceequalto100%oftheprincipalamountthereofplusa“make-whole”premiumandaccruedbutunpaidinteresttothedateofredemption.Inaddition,theCompanymayredeemthenotesatitsoption,inwholeorinpart,atthefollowingredemptionprices(expressedaspercentagesoftheprincipalamountthereof)ifredeemedduringthe12-monthperiodcommencingonFebruary15oftheyearssetforthbelow:
Year Percentage
2019 107.1%2020 104.8%2021 102.4%2022andthereafter 100.0%
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TheCompanymustgenerallyoffertorepurchasealloftheoutstandingSeniorNotesupontheoccurrenceofcertainspecificchangeofcontroleventsatapurchasepriceequalto101%oftheprincipalamountofSeniorNotespurchasedplusaccruedandunpaidinteresttothedateofpurchase.Theindentureprovidesforcustomaryeventsofdefault.Generally,ifaneventofdefaultoccurs(subjecttocertainexceptions),theTrusteeortheholdersofatleast25%inaggregateprincipalamountofthethen-outstandingSeniorNotesmaydeclarealltheSeniorNotestobedueandpayableimmediately.
OutstandingdebtatJune30,2016andDecember31,2015issummarizedasfollows:
June 30, December 31,
(in millions) 2016 2015
Revolvingcreditfacility $ 32.0 $ —
TermLoanB 950.0 —
SeniorNotesdue2024 425.0 —
Other 3.3 2.7
Totaldebtandcapitalleasesincludingcurrentportion 1,410.3 2.7
Lesscurrentportionandshort-termborrowings (1.4) (0.4)
Lessunamortizeddebtissuancecosts (39.0) —
Totallong-termdebtandcapitalleases $ 1,369.9 $ 2.3
Off-balance sheet arrangements
TheCompany'sdisclosuresconcerningtransactions,arrangementsandotherrelationshipswithuncombinedentitiesorotherpersonsthatarereasonablylikelytomateriallyaffectliquidityortheavailabilityoforrequirementsforcapitalresourcesareasfollows:
• TheCompanydiscloseditsaccountsreceivablesecuritizationarrangementinNote8,"AccountsReceivableSecuritization,"totheconsolidated(condensed)financialstatements.
• TheCompanyleasesvariousassetsunderoperatingleases.ThefutureestimatedpaymentsunderthesearrangementshavenotmateriallychangedsincebeingdisclosedinNote20,"Leases,"totheauditedcombinedfinancialstatementsintheCompany’slatestannualreportonForm10-K.
OnMarch3,2016,theCompanyenteredintoanew$110.0millionaccountsreceivablesecuritizationprogram(the“2016SecuritizationFacility”)withWellsFargoBank,NationalAssociation,aspurchaserandagent,wherebytheCompanywillsellcertainofitsdomestictradeaccountsreceivableandcertainofitsnon-U.S.tradeaccountsreceivabletoawholly-owned,bankruptcy-remote,foreignspecialpurposeentity,whichentity,inturn,willsell,convey,transferandassigntoathird-partyfinancialinstitution(a“Purchaser”),alloftheright,titleandinterestinandtoitspoolofreceivablestothePurchaser.ThePurchaserwillreceiveownershipofthepoolsofreceivables.TheCompany,alongwithcertainofitssubsidiaries,actasservicersofthereceivablesandassuchadminister,collectandotherwiseenforcethereceivables.Theservicerswillbecompensatedfordoingsoontermsthataregenerallyconsistentwithwhatwouldbechargedbyanunrelatedservicer.Asservicers,theywillinitiallyreceivepaymentsmadebyobligorsonthereceivablesbutwillberequiredtoremitthosepaymentsinaccordancewithareceivablespurchaseagreement.ThePurchaserwillhavenorecourseforuncollectiblereceivables.The2016SecuritizationFacilityalsocontainscustomaryaffirmativeandnegativecovenants.Amongotherrestrictions,thesecovenantsrequiretheCompanytomeetspecifiedfinancialtests,whichincludeaConsolidatedInterestCoverageRatioandaConsolidatedTotalLeverageRatiothatarethesameasthecovenantratiosrequiredperthe2016CreditAgreement.
Non-GAAP financial measures
ThissectionincludesfinancialinformationpreparedinaccordancewithaccountingprinciplesgenerallyacceptedintheUnitedStates(GAAP),aswellascertainnon-GAAPfinancialmeasures.Generally,anon-GAAPfinancialmeasureisanumericalmeasureoffinancialperformancethatexcludes(orincludes)amountsthatareincludedin(orexcludedfrom)themostdirectlycomparablemeasurecalculatedandpresentedinaccordancewithGAAP.Thenon-GAAPfinancialmeasuresshouldbeviewedasasupplementto,andnotasubstitutefor,financialmeasurespresentedinaccordancewithGAAP.TheCompany'snon-GAAPmeasuresmaynotbecomparabletosimilarlytitledmeasuresusedbyothercompanies.
TheCompanybelievesthatthesemeasuresarehelpfultoinvestorsinassessingtheCompany'songoingperformanceofitsunderlyingbusinessesbeforetheimpactofspecialitems.Inaddition,thesenon-GAAPmeasuresprovideacomparisontocommonlyusedfinancialmetricswithintheprofessionalinvestingcommunitywhichdonotincludespecialitems.
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AreconciliationofU.S.GAAPfinancialmeasurestonon-GAAPfinancialmeasuresisasfollows:
Three Months Ended Six Months Ended
Millions of dollars June 30,2016
June 30, 2015
June 30,2016
June 30, 2015
Free cash flow Netcashprovidedby(usedfor)operatingactivities $ 25.2 $ (2.6) $ 2.2 $ (10.3)
Netcapitalexpenditures (1.7) (3.5) (6.2) (6.7)
Freecashflow(1) $ 23.5 $ (6.1) $ (4.0) $ (17.0)
(1)Freecashflowrepresentsoperatingcashflowslessproperty,plant,andequipmentadditions.
Adjusted earnings before interest, taxes, other (income) expense andamortization (Adjusted Operating EBITA) Netearnings $ 15.1 $ 36.9 $ 33.2 $ 50.9
Incometaxes 4.1 17.0 8.7 23.5
Other(income)expense,net 3.6 (0.2) 6.0 (0.6)
Interest(income)expenseonnoteswithMTW,net — (4.6) 0.1 (9.3)
Interestexpense 27.0 0.4 35.5 0.7
Restructuring(income)expense 0.3 (0.2) 1.6 0.5
Separationexpense 1.3 0.5 4.3 0.5
Amortizationexpense 7.9 7.9 15.7 15.7Adjustedearningsbeforeinterest,taxes,other(income)expenseandamortization(AdjustedOperatingEBITA) $ 59.3 $ 57.7 $ 105.1 $ 81.9
Adjusted Operating EBITA margin (2) : 16.1% 14.2% 15.1% 10.9%(2)AdjustedOperatingEBITAmargininthesectionaboveiscalculatedbydividingthedollaramountofAdjustedOperatingEBITAbynetsales.
Adjusted net earnings (3) Netearnings $ 15.1 $ 36.9 $ 33.2 $ 50.9
Restructuringexpense(netoftax) 0.1 (0.2) 1.0 0.3
Separationexpense(netoftax) 0.8 0.3 2.7 0.3
Adjustednetearnings $ 16.0 $ 37.0 $ 36.9 $ 51.5
(3)Adjustednetearningsrepresentsnetearningsbeforetheimpactofcertainitemssuchasrestructuringandseparationcharges.
Adjusted net earnings per share Dilutedearningspershare $ 0.11 $ 0.27 $ 0.24 $ 0.37
Restructuringexpensepershare(netoftax) — — 0.01 —
Separationexpensepershare(netoftax) 0.01 — 0.02 —
Adjustednetearningspershare $ 0.12 $ 0.27 $ 0.27 $ 0.37
Organic net sales and organic net sales in constant currency Netsales $ 368.4 $ 407.7 $ 693.9 $ 753.1
Less:KysorPanelSystemssales — (35.1) — (60.5)
Plus:WelbiltThailandsales 1.6 — 3.8
Organicnetsales 368.4 374.2 693.9 696.4
Foreigncurrencytranslation 5.0 — 11.7 —
Organicnetsalesinconstantcurrency $ 373.4 $ 374.2 $ 705.6 $ 696.4
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Critical Accounting Policies
TheCompany'scriticalaccountingpolicieshavenotmateriallychangedsinceitfileditsAnnualReportonForm10-KfortheyearendedDecember31,2015.
Cautionary Statements about Forward-Looking Information
StatementsinthisreportandinotherCompanycommunicationsthatarenothistoricalfactsareforward-lookingstatements,whicharebasedupontheCompany'scurrentexpectations,withinthemeaningofthePrivateSecuritiesLitigationReformActof1995.
Thesestatementsinvolverisksanduncertaintiesthatcouldcauseactualresultstodiffermateriallyfromwhatappearswithinthisquarterlyreport.
Forward-lookingstatementsincludedescriptionsofplansandobjectivesforfutureoperations,andtheassumptionsbehindthoseplans.Thewords"anticipates,""believes,""intends,""estimates,""targets,""expects,""could,""will,""may"orsimilarexpressions,usuallyidentifyforward-lookingstatements.Anyandallprojectionsoffutureperformanceareforward-lookingstatements.
Inadditiontotheassumptions,uncertainties,andotherinformationreferredtospecificallyintheforward-lookingstatements,anumberoffactorscouldcauseactualresultstobesignificantlydifferentfromwhatispresentedinthisQuarterlyReportonForm10-Q.Thosefactorsinclude,withoutlimitation,thefollowing:
• theimpactoftheCompany'sseparationfromTheManitowocCompany,Inc.andrisksrelatingtoitsabilitytooperateeffectivelyasanindependent,publiclytradedcompany;• efficienciesandcapacityutilizationoffacilities;
• issuesrelatingtotheabilitytotimelyandefficientlyexecuteonmanufacturingstrategies,includingissuesrelatingtonewplantstart-ups,plantclosings,workforcereductionsorramp-ups,and/orconsolidationsofexistingfacilitiesandoperations;
• theCompany'sabilitytoretainitsexecutivemanagementteamandtoattractqualifiednewpersonnel;
• realizationofanticipatedearningsenhancements,costsavings,strategicoptionsandothersynergies,andtheanticipatedtimingtorealizethoseenhancements,savings,synergies,andoptions;
• availabilityofcertainrawmaterials;• growthofgeneralandadministrativeexpenses,includinghealthcareandpostretirementcosts;• changesinrawmaterialprices,commoditypricesandhedgesinplace;• actionsofcompetitors,includingcompetitivepricing;• thesuccessfuldevelopmentofinnovativeproductsandmarketacceptanceofnewandinnovativeproducts;• theabilitytofocusandcapitalizeonproductqualityandreliability;• unanticipatedissuesassociatedwiththequalityofmaterialsandcomponentssourcedfromthirdpartiesandresolutionofthoseissues;
• unanticipatedissuesassociatedwithrefresh/renovationplans,newproductrolloutsand/ornewequipmentbynationalrestaurantaccountsandglobalchains;
• consumerdemandforproductsfromthequick-servicerestaurantchainsandkiosks;• growthindemandforfoodserviceequipmentbycustomersinemergingmarkets;• globalexpansionofcustomers;• changesinthemarketstheCompanyserves;• unanticipatedchangesinconsumerspending;• unfavorableoutcomesinproductliabilitylawsuits,oranincreaseinthevolumeofproductliabilitylawsuits;• unexpectedcostsincurredinprotectingitsintellectualproperty;• weather;• changesindomesticandinternationaleconomicandindustryconditions;• workstoppages,labornegotiations,ratesandtemporarylabor;• theavailabilityoflocalsuppliersandskilledlabor;• unanticipatedchangesincapitalandfinancialmarkets;• changesintheinterestrateenvironment;• pressureoffinancingleverage;• compliancewithdebtcovenantsandmaintenanceofcreditratingsaswellastheimpactofinterestandprincipalrepaymentofitsdebtobligations;• foreigncurrencyfluctuationsandtheirimpactonreportedresultsandhedgesinplace;• unexpectedissuesaffectingitseffectivetaxrate,including,butnotlimitedto,globaltaxpolicies,taxreform,andtaxlegislation;• unanticipatedissuesassociatedwiththeresolutionorsettlementofuncertaintaxpositionsorunfavorableresolutionoftaxaudits;
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• thetaxtreatmentoftheDistributionandtherestrictionsonpost-DistributionactivitiesimposedontheCompanyundertheTaxMattersAgreementwithTheManitowocCompany,Inc.inordertopreservethetax-freetreatmentoftheSpin-Off;
• actionsofactivistshareholders;• costsassociatedwithunanticipatedenvironmentalliabilities;• risksassociatedwithdatasecurityandtechnologysystemsandprotections;• world-widepoliticalrisk;• healthoutbreaksornaturaldisastersdisruptingcommerceinoneormoreregionsoftheworld;• actsofterrorism;• geographicfactorsandeconomicrisks;• changesinlawsandregulations,aswellastheirenforcement,throughouttheworld;• changesinthecostsofcompliancewithlawsregardingtrade,exportcontrolsandforeigncorruptpractices;• foodserviceequipmentreplacementcyclesintheU.S.andothermaturemarkets;
• theabilitytocompeteandappropriatelyintegrate,and/ortransition,restructureandconsolidateacquisitions,divestitures,strategicalliances,jointventuresandotherstrategicalternativesandotherwisecapitalizeonkeystrategicopportunities;
• inconnectionwithacquisitions,divestitures,strategicalliancesandjointventures,thefinalizationofthepriceandotherterms,therealizationofcontingenciesconsistentwithanyestablishedreserves,andunanticipatedissuesassociatedwithtransitionalservices;and
• othereventsoutsidetheCompany'scontrol.
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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
TheCompany’smarketriskdisclosureshavenotmateriallychangedsinceitsAnnualReportonForm10-K,fortheyearendedDecember31,2015wasfiled.TheCompany’squantitativeandqualitativedisclosuresaboutmarketriskareincorporatedbyreferencefromPartII,Item7AoftheCompany’sAnnualReportonForm10-K,fortheyearendedDecember31,2015.
Item 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
TheCompany’smanagement,withtheparticipationoftheCompany’sChiefExecutiveOfficerandChiefFinancialOfficer,haveevaluatedtheeffectivenessoftheCompany’sdisclosurecontrolsandproceduresassuchtermisdefinedinRules13a-15(e)and15(d)-15(e)undertheSecuritiesExchangeActof1934,asamended(the"ExchangeAct")asoftheendoftheperiodcoveredbythisreport.Basedonsuchevaluation,theCompany’sChiefExecutiveOfficerandChiefFinancialOfficerhaveconcludedthat,asoftheendofsuchperiod,theCompany’sdisclosurecontrolsandproceduresareeffectiveinrecording,processing,summarizing,andreporting,onatimelybasis,informationrequiredtobedisclosedbytheCompanyinthereportsthatitfilesorsubmitsundertheExchangeAct,andthatsuchinformationisaccumulatedandcommunicatedtotheChiefExecutiveOfficerandChiefFinancialOfficer,asappropriate,toallowtimelydiscussionsregardingrequireddisclosure.
Changes in Internal Control Over Financial Reporting
BeforetheSpin-Off,theCompanyreliedoncertainfinancialinformationandresourcesofMTWtomanageaspectsoftheCompany’sbusinessandtoreportfinancialresults.Theseincludedinvestorrelations,corporatecommunications,certainaccounting,tax,legal,humanresources,benefitplanadministration,benefitplanreporting,generalmanagement,realestate,treasury,insuranceandriskmanagement,andoversightfunctions,suchastheBoardofDirectorsandinternalauditwhichincludesSarbanes-Oxleycompliance.InconjunctionwiththeSpin-off,theCompanyenhanceditsownfinancial,administrative,andothersupportsystems.TheCompanyisexpandingitsinternalaccounting,reporting,legal,andinternalauditdepartmentsandupdatingitspoliciesandsystems,asneeded,tomeetallregulatoryrequirementsonastandalonebasis.TheCompanywillcontinuetoreview,documentandtestitsinternalcontrolsoverfinancialreporting,andmayfromtimetotimemakechangesaimedatenhancingtheireffectivenessandtoensurethatitssystemsevolvewithitsbusiness.Theseeffortsmayleadtochangesinourinternalcontroloverfinancialreporting.
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PART II: OTHER INFORMATION
Item 1A. RISK FACTORS
Withtheexceptionoftherevisedriskfactorsetforthbelow,therehavebeennomaterialchangesinourriskfactorsfromtheriskfactorsdisclosedintheCompany’sAnnualReportonForm10-KfortheyearendedDecember31,2015.
We are exposed to the risk of changes in interest rates or foreign currency fluctuations.
Wehaveindebtednessthataccruesinterestatavariablerate.Increasesininterestrateswillreduceouroperatingcashflowsandcouldhinderourabilitytofundouroperations,capitalexpenditures,acquisitionsordividends.Insuchcaseswemayseektoreduceourexposuretofluctuationsininterestrates,buthedgingourexposurecarriestheriskthatwemayforegothebenefitswewouldotherwiseexperienceifinterestratesweretochangeinourfavor.Developinganeffectivestrategyfordealingwithmovementsininterestratesiscomplex,andnostrategyisguaranteedtocompletelyinsulateusfromtherisksassociatedwithsuchfluctuations.
Additionally,someofouroperationsareormaybeconductedbysubsidiariesinforeigncountries.TheresultsoftheoperationsandthefinancialpositionofthesesubsidiarieswillbereportedintherelevantforeigncurrenciesandthentranslatedintoU.S.dollarsattheapplicableexchangeratesforinclusioninourcombinedfinancialstatements,whicharestatedinU.S.dollars.TheexchangeratesbetweenmanyofthesecurrenciesandtheU.S.dollarhavefluctuatedsignificantlyinrecentyearsandmaycontinuetofluctuatesignificantlyinthefuture.Suchfluctuationsmayhaveamaterialeffectonourresultsofoperationsandfinancialpositionandmaysignificantlyaffectthecomparabilityofourresultsbetweenfinancialperiods.Inparticular,weexpecttherecentweakeningoftheBritishpoundfollowingtheUnitedKingdom'svotetoexittheEuropeanUnion("Brexit")tohavenegativeforeigncurrencytranslationimpactonourStatementsofOperationsfortheremainderofFiscal2016,andsimilarnegativeimpactscouldcontinueinthefuture.
Wealsoincurcurrencytransactionriskwheneveroneofouroperatingsubsidiariesentersintoatransactionusingadifferentcurrencythanitsfunctionalcurrency.Weattempttoreducecurrencytransactionriskwheneveroneofouroperatingsubsidiariesentersintoamaterialtransactionusingadifferentcurrencythanitsfunctionalcurrencyby:
• matchingcashflowsandpaymentsinthesamecurrency;
• directforeigncurrencyborrowing;and
• enteringintoforeignexchangecontractsforhedgingpurposes
However,wemaynotbeabletohedgethisriskcompletelyoratanacceptablecost,whichmayadverselyaffectourresultsofoperations,financialconditionandcashflowsinfutureperiods.
Item 6. EXHIBITS
SeeexhibitindexfollowingthesignaturepageofthisQuarterlyReportonForm10-Q,whichisincorporatedhereinbyreference.
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SIGNATURES
PursuanttotherequirementsofSection13or15(d)oftheSecuritiesExchangeActof1934,theregistranthasdulycausedthisReporttobesignedonitsbehalfbythe
undersigned,thereuntodulyauthorized:
Date:August15,2016
Manitowoc Foodservice, Inc.
/s/HubertusM.Muehlhaeuser HubertusM.Muehlhaeuser PresidentandChiefExecutiveOfficer
/s/JohnO.Stewart JohnO.Stewart SeniorVicePresidentandChiefFinancialOfficer
/s/HareshShah HareshShah VicePresidentCorporateControllerandChiefAccountingOfficer
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MANITOWOC FOODSERVICE, INC.EXHIBIT INDEXTO FORM 10-Q
FOR QUARTERLY PERIOD ENDED JUNE 30, 2016
Exhibit No. Description Filed/Furnished
Herewith
10.1 FormofEmploymentAgreement(forJosefMatosevic,MauriceD.JonesandRichardCaron)(filedasExhibit10.1totheCompany’sCurrentReportonForm8-K(FileNo.001-37548),filedonApril28,2016andincorporatedhereinbyreference).
31.1 Rule13a-14(a)/15d-14(a)-ChiefExecutiveOfficerCertification X(1)
31.2 Rule13a-14(a)/15d-14(a)-ChiefFinancialOfficerCertification X(1)
32.1 CertificationofCEOpursuantto18U.S.C.Section1350 X(2)
32.2 CertificationofCFOpursuantto18U.S.C.Section1350 X(2)
101
ThefollowingmaterialsfromtheCompany’sQuarterlyReportonForm10-QforthequarterendedJune30,2016formattedinExtensibleBusinessReportingLanguage(XBRL):(i)theConsolidated(Condensed)StatementsofIncome,(ii)theConsolidated(Condensed)StatementsofComprehensiveIncome(iii)theConsolidated(Condensed)BalanceSheets,(iv)theConsolidated(Condensed)StatementsofCashFlowsand(v)relatednotes.
X(1)
(1)Filedherewith
(2)Furnishedherewith
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