Whirlpool Corp 8-K/A, filed Dec 6, 2022
Whirlpool Corp (WHR)
8-K/A
2022-12-06
For: 2022-11-01
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Added on
April 07, 2026
About this 8-K/A
Whirlpool Corp filed this 8-K/A on December 6, 2022, reporting on events of November 1, 2022.
Items reported
- Item 2.01: Completed an acquisition or sale of assets
- Item 9.01: Financial statements and exhibits
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): November 1, 2022
WHIRLPOOL CORPORATION
(Exact name of registrant as Specified in Charter)
| (State or Other Jurisdiction of Incorporation) | (Commission File Number) | (I.R.S. Employer Identification No.) | |||||||||||||||
| (Address of principal executive offices) | (Zip Code) | ||||||||||||||||
Registrant’s telephone number, including area code (269 ) 923-5000
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | |||||
Soliciting material pursuant to rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | |||||
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | |||||
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) | |||||
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol(s) | Name of each exchange on which registered | ||||||||||||||||||
| and | ||||||||||||||||||||
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 2.01. Completion of Acquisition or Disposition of Assets
This Amendment No. 1 on Form 8-K/A is being filed to amend the Current Report on Form 8-K filed November 1, 2022 (the "Initial 8-K") by Whirlpool Corporation ("Whirlpool") to include, among other things, the pro forma financial information referred to in Item 9.01(b) relating to the acquisition of InSinkErator.
Pursuant to the requirements of Item 9.01 of Form 8-K, Whirlpool hereby amends Item 9.01 of the Initial 8-K to include historical financial information of InSinkErator and pro forma financial information, and to provide the consent of InSinkErator's independent auditor.
Item 9.01. Financial Statements and Exhibits
(a) Financial Statements of Businesses Acquired.
(1) The historical audited consolidated financial statements of InSinkErator as of September 30, 2021 and 2020 and for the years ended September 30, 2021, 2020 and 2019, are filed as Exhibit 99.2 to this Form 8-K/A, and are incorporated by reference herein
(2) The historical unaudited financial statements of InSinkErator as of June 30, 2022 and September 31, 2021 and for the nine months ended June 30, 2022 and 2021 are filed as Exhibit 99.3 to this Form 8-K/A, and are incorporated by reference herein
(3) The consent of InSinkErator's independent auditor is attached as Exhibit 23.1 to the Form 8-K/A
(b) Pro forma financial information.
(1) The Unaudited Pro Forma Condensed Combined Balance Sheet as of September 30, 2022 and the Unaudited Pro Forma Condensed Combined Statements of Income (Loss) for the nine months ended September 30, 2022 and for the year ended December 31, 2021, are attached as Exhibit 99.1 to the Form 8-K/A
The Unaudited Pro Forma Combined Statements of Income combine the historical consolidated statements of income of Whirlpool and the historical consolidated statements of income of InSinkErator. The Unaudited Pro Forma Combined Balance Sheet combines the historical consolidated balance sheet of Whirlpool and the historical consolidated balance sheet of InSinkErator.
(d) Exhibits
| Exhibit No. | Description | ||||
| 23.1 | |||||
| 99.1 | |||||
| 99.2 | |||||
| 99.3 | |||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL) | ||||
Website Disclosure
We routinely post important information for investors on our website, whirlpoolcorp.com, in the "Investors" section. We also intend to update the Hot Topics Q&A portion of this webpage as a means of disclosing material, non-public information and for complying with our disclosure obligations under Regulation FD. Accordingly, investors should monitor the Investors section of our website, in addition to following our press releases, SEC filings, public conference calls, presentations and webcasts. The information contained on, or that may be accessed through, our webpage is not incorporated by reference into, and is not a part of, this document.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Date: December 6, 2022
WHIRLPOOL CORPORATION
By: /s/ JAMES W. PETERS
Name: James W. Peters
Title: Executive Vice President and Chief Financial Officer
Consent of Independent Auditors
We consent to the incorporation by reference in the registration statements (No. 33-34037, 333-77167, 333-125260, 333-143372, 333-150942, 333-157392, 333-166484, 333-181339, 333-187948, 333-203704, 333-228927, 333-203704-1, 333-224381, 33-26680, 33-53196, 333-66163, 333-138711, 333-179695, 333-132875, 333-102002, 333-101995, and 333-121368) of Whirlpool Corporation of our report dated July 15, 2022, with respect to the consolidated and combined financial statements of InSinkErator as of September 30, 2020 and 2021, and for the years ended September 30, 2019, 2020, and 2021 incorporated by reference in this Form 8-K/A of Whirlpool Corporation filed December 6, 2022.
/s/KPMG LLP
Milwaukee, Wisconsin
December 6, 2022
KPMG LLP, a Delaware limited liability partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee.
Unaudited Pro Forma Condensed Combined Financial Information
Introduction
On October 31, 2022 (the “Closing Date”), Whirlpool Corporation (“Whirlpool”) completed its previously announced acquisition (the “Acquisition”) of the InSinkErator business (“InSinkErator”) from Emerson Electric Co. (“Emerson”) pursuant to the terms of the Asset and Stock Purchase Agreement (the “Purchase Agreement”), dated as of August 7, 2022.
Whirlpool acquired InSinkErator from Emerson for an aggregate purchase price of $3.0 billion, inclusive of adjustments for closing working capital, closing indebtedness, and closing cash. The Company funded the purchase price with a combination of the proceeds from a $2.5 billion Term Loan Agreement (“Term Loan”) entered into on September 23, 2022 and cash on hand (the “Acquisition Financing”).
The following unaudited pro forma condensed combined financial information has been prepared in accordance with Article 11 of Regulation S-X and has been prepared using the acquisition method of accounting in accordance with Accounting Standards Codification (“ASC”) Topic 805, Business Combinations (“ASC 805”). Under this method of accounting, the aggregate purchase consideration will be allocated to InSinkErator’s assets acquired and liabilities assumed based upon their estimated fair values at the date of completion of the Acquisition. The process of valuing the net assets of InSinkErator immediately prior to the Acquisition, as well as evaluating accounting policies for conformity, is preliminary. Any differences between the estimated fair value of the consideration transferred and the estimated fair value of the assets acquired and liabilities assumed will be recorded as goodwill. Accordingly, the aggregate purchase consideration allocation and related adjustments reflected in this unaudited pro forma condensed combined financial information are preliminary and subject to revision based on a final determination of fair value. Refer to Note 1 - Basis of Presentation for more information.
Whirlpool and InSinkErator have different fiscal years. Whirlpool’s fiscal year ends on December 31, whereas InSinkErator’s fiscal year has historically ended on September 30. The unaudited pro forma condensed combined balance sheet and statements of income have been prepared utilizing period ends that differ by less than 93 days, as permitted by Rule 11-02 of Regulation S-X of the Exchange Act.
The unaudited pro forma condensed combined financial information is presented to illustrate the estimated effects of the Acquisition and the Acquisition Financing based on the historical financial position and results of operations of Whirlpool and InSinkErator. It is presented as follows:
•The unaudited pro forma condensed combined balance sheet as of September 30, 2022 was prepared based on (i) the historical unaudited condensed consolidated balance sheet of Whirlpool as of September 30, 2022 and (ii) the historical unaudited consolidated and condensed combined balance sheet of InSinkErator as of June 30, 2022, giving effect to the Acquisition and Acquisition Financing as if they had occurred or had become effective on September 30, 2022.
•The unaudited pro forma condensed combined statement of income for the year ended December 31, 2021 was prepared based on (i) the historical audited statement of income of Whirlpool for the year ended December 31, 2021 and (ii) the historical audited statement of earnings of InSinkErator for the year ended September 30, 2021, giving effect to the Acquisition and Acquisition Financing as if they had occurred or had become effective on January 1, 2021.
•The unaudited pro forma condensed combined statement of income for the nine months ended September 30, 2022 was prepared based on (i) the historical unaudited statement of operations of Whirlpool for the nine months ended September 30, 2022 and (ii) the historical unaudited statement of earnings of InSinkErator for the nine months ended June 30, 2022, giving effect to the Acquisition and Acquisition Financing as if they had occurred or had become effective on January 1, 2021.
The historical financial statements of Whirlpool and InSinkErator have been adjusted in the accompanying unaudited pro forma condensed combined financial information to give effect to pro forma events that are transaction accounting adjustments which are necessary to account for the Acquisition and Acquisition Financing in accordance with U.S. GAAP. The unaudited pro forma adjustments are based upon available information and certain assumptions that management believes are reasonable.
The unaudited pro forma condensed combined financial information should be read in conjunction with the historical financial statements of Whirlpool included in its Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q and of the annual and interim carve-out financial statements of InSinkErator that are included in this Form 8-K/A as exhibits [99.2] and [99.3]. Assumptions underlying the pro forma adjustments are described in the accompanying notes, which should be read in conjunction with the unaudited pro forma condensed combined financial information.
The unaudited pro forma condensed combined financial information presented is for informational purposes only and is not necessarily indicative of the financial position or results of operations that would have been realized if the Acquisition and Acquisition Financing had been completed on the dates set forth above, nor is it indicative of the future results or financial position of the combined company.
1
WHIRLPOOL CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
(Millions of dollars, except share data)
| Historical | Transaction Accounting Adjustments | ||||||||||||||||||||||||||||||||||
| Whirlpool as of September 30, 2022 | InSinkErator as of June 30, 2022 (Reclassified - See Note 2) | Acquisition Financing Adjustments | (Note 4) | Acquisition Adjustments | (Note 4) | Pro Forma Combined | |||||||||||||||||||||||||||||
| Assets | |||||||||||||||||||||||||||||||||||
| Current Assets | |||||||||||||||||||||||||||||||||||
| Cash and cash equivalents | $ | 1,794 | $ | 4 | $ | 2,497 | (a) | $ | (3,007) | (b) | $ | 1,288 | |||||||||||||||||||||||
| Accounts receivable, net | 2,410 | 90 | 2,500 | ||||||||||||||||||||||||||||||||
| Inventories | 2,884 | 75 | 19 | (c), (d) | 2,978 | ||||||||||||||||||||||||||||||
| Prepaid and other current assets | 831 | 8 | (1) | (e) | 838 | ||||||||||||||||||||||||||||||
| Total Current Assets | 7,919 | 177 | 2,497 | (2,989) | 7,604 | ||||||||||||||||||||||||||||||
| Property, net | 2,569 | 137 | 44 | (f) | 2,750 | ||||||||||||||||||||||||||||||
| Right of use assets | 833 | 10 | 843 | ||||||||||||||||||||||||||||||||
| Goodwill | 2,177 | 2 | 1,146 | (g) | 3,325 | ||||||||||||||||||||||||||||||
| Other intangibles, net | 1,800 | — | 1,630 | (g) | 3,430 | ||||||||||||||||||||||||||||||
| Deferred income taxes | 1,741 | 1 | 5 | (h) | 1,747 | ||||||||||||||||||||||||||||||
| Other noncurrent assets | 472 | — | 472 | ||||||||||||||||||||||||||||||||
| Total Assets | $ | 17,511 | $ | 327 | $ | 2,497 | $ | (164) | $ | 20,171 | |||||||||||||||||||||||||
| Liabilities and stockholders’ equity | |||||||||||||||||||||||||||||||||||
| Current Liabilities | |||||||||||||||||||||||||||||||||||
| Accounts payable | 4,445 | 75 | 4,520 | ||||||||||||||||||||||||||||||||
| Accrued expenses | 580 | 19 | 29 | (i) | 628 | ||||||||||||||||||||||||||||||
| Accrued advertising and promotions | 692 | 22 | 714 | ||||||||||||||||||||||||||||||||
| Employee compensation | 240 | 20 | 260 | ||||||||||||||||||||||||||||||||
| Notes payable | 8 | — | 8 | ||||||||||||||||||||||||||||||||
| Current maturities of long-term debt | 248 | — | 248 | ||||||||||||||||||||||||||||||||
| Other current liabilities | 596 | 13 | 609 | ||||||||||||||||||||||||||||||||
| Total Current Liabilities | $ | 6,809 | $ | 149 | $ | — | $ | 29 | $ | 6,987 | |||||||||||||||||||||||||
| Noncurrent liabilities | |||||||||||||||||||||||||||||||||||
| Long-term debt | 4,722 | — | 2,497 | (a) | 7,219 | ||||||||||||||||||||||||||||||
| Pension benefits | 273 | — | 273 | ||||||||||||||||||||||||||||||||
| Postretirement benefits | 132 | — | 132 | ||||||||||||||||||||||||||||||||
| Lease liabilities | 699 | 8 | 707 | ||||||||||||||||||||||||||||||||
| Other noncurrent liabilities | 525 | 9 | (6) | (h) | 528 | ||||||||||||||||||||||||||||||
| Total noncurrent liabilities | $ | 6,351 | $ | 17 | $ | 2,497 | $ | (6) | $ | 8,859 | |||||||||||||||||||||||||
| Stockholders' Equity | |||||||||||||||||||||||||||||||||||
| Common stock | 114 | — | 114 | ||||||||||||||||||||||||||||||||
| Additional paid-in capital | 3,053 | — | 3,053 | ||||||||||||||||||||||||||||||||
| Retained earnings | 9,960 | — | (26) | (j) | 9,934 | ||||||||||||||||||||||||||||||
| Accumulated other comprehensive loss | (1,939) | (2) | 2 | (k) | (1,939) | ||||||||||||||||||||||||||||||
| Treasury stock | (7,010) | — | (7,010) | ||||||||||||||||||||||||||||||||
| Net parent investment | — | 163 | (163) | (k) | — | ||||||||||||||||||||||||||||||
| Total Whirlpool stockholders' equity | $ | 4,178 | $ | 161 | $ | — | $ | (187) | $ | 4,152 | |||||||||||||||||||||||||
| Noncontrolling interests | 173 | — | 173 | ||||||||||||||||||||||||||||||||
| Total stockholders' equity | 4,351 | 161 | — | (187) | 4,325 | ||||||||||||||||||||||||||||||
| Total liabilities and stockholders' equity | $ | 17,511 | $ | 327 | $ | 2,497 | $ | (164) | $ | 20,171 | |||||||||||||||||||||||||
2
WHIRLPOOL CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
(Millions of dollars, except share data)
| Historical | Transaction Accounting Adjustments | ||||||||||||||||||||||||||||||||||
| Whirlpool 9 Months Ended September 30, 2022 | InSinkErator 9 Months Ended June 30, 2022 (Reclassified - See Note 2) | Acquisition Financing Adjustments | (Note 5) | Acquisition Adjustments | (Note 5) | Pro Forma Combined | |||||||||||||||||||||||||||||
| Net sales | $ | 14,801 | $ | 480 | $ | 15,281 | |||||||||||||||||||||||||||||
| Expenses | |||||||||||||||||||||||||||||||||||
| Cost of products sold | 12,373 | 303 | 4 | (c) | 12,680 | ||||||||||||||||||||||||||||||
| Gross margin | 2,428 | 177 | — | (4) | 2,601 | ||||||||||||||||||||||||||||||
| Selling, general and administrative | 1,283 | 65 | 2 | (c), (d) | 1,350 | ||||||||||||||||||||||||||||||
| Intangible amortization | 24 | — | 15 | (c) | 39 | ||||||||||||||||||||||||||||||
| Restructuring costs | 13 | — | 13 | ||||||||||||||||||||||||||||||||
| Impairment of goodwill and other intangibles | 384 | — | 384 | ||||||||||||||||||||||||||||||||
| Loss on sale and disposal of business | 348 | — | 348 | ||||||||||||||||||||||||||||||||
| Operating profit | 376 | 112 | 0 | (21) | 467 | ||||||||||||||||||||||||||||||
| Other (income) expense | |||||||||||||||||||||||||||||||||||
| Interest and sundry (income) expense | (45) | 3 | (42) | ||||||||||||||||||||||||||||||||
| Interest expense | 126 | — | 85 | (a) | 211 | ||||||||||||||||||||||||||||||
| Earnings before income taxes | 295 | 109 | (85) | (21) | 298 | ||||||||||||||||||||||||||||||
| Income tax expense | 196 | 27 | (21) | (b) | (5) | (e) | 197 | ||||||||||||||||||||||||||||
| Equity method investment (loss), net of tax | (6) | — | (6) | ||||||||||||||||||||||||||||||||
| Net Earnings (Loss) | 93 | 82 | (64) | (16) | 95 | ||||||||||||||||||||||||||||||
| Less: Net earnings (loss) available to noncontrolling interests | 8 | — | 8 | ||||||||||||||||||||||||||||||||
| Net earnings (loss) available to Whirlpool | $ | 85 | $ | 82 | $ | (64) | $ | (16) | $ | 87 | |||||||||||||||||||||||||
| Per share of common stock | |||||||||||||||||||||||||||||||||||
| Basic net earnings available to Whirlpool | $ | 1.52 | $ | 1.54 | |||||||||||||||||||||||||||||||
| Diluted net earnings available to Whirlpool | $ | 1.51 | $ | 1.53 | |||||||||||||||||||||||||||||||
| Weighted-average shares outstanding (in millions) | |||||||||||||||||||||||||||||||||||
| Basic | 56.3 | 56.3 | |||||||||||||||||||||||||||||||||
| Diluted | 56.7 | 56.7 | |||||||||||||||||||||||||||||||||
3
WHIRLPOOL CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
(Millions of dollars, except share data)
| Historical | Transaction Accounting Adjustments | ||||||||||||||||||||||||||||||||||
| Whirlpool Year Ended December 31, 2021 | InSinkErator Year Ended September 30, 2021 (Reclassified - See Note 2) | Acquisition Financing Adjustments | (Note 5) | Acquisition Adjustments | (Note 5) | Pro Forma Combined | |||||||||||||||||||||||||||||
| Net sales | $ | 21,985 | $ | 565 | $ | 22,550 | |||||||||||||||||||||||||||||
| Expenses | |||||||||||||||||||||||||||||||||||
| Cost of products sold | 17,576 | 361 | 21 | (c), (f), (g), (h) | 17,958 | ||||||||||||||||||||||||||||||
| Gross margin | 4,409 | 204 | — | (21) | 4,592 | ||||||||||||||||||||||||||||||
| Selling, general and administrative | 2,081 | 61 | 32 | (c), (d), (i) | 2,174 | ||||||||||||||||||||||||||||||
| Intangible amortization | 47 | — | 21 | (c) | 68 | ||||||||||||||||||||||||||||||
| Restructuring costs | 38 | — | 38 | ||||||||||||||||||||||||||||||||
| Impairment of goodwill and other intangibles | — | — | — | ||||||||||||||||||||||||||||||||
| (Gain) on sale and disposal of business | (105) | — | (105) | ||||||||||||||||||||||||||||||||
| Operating profit | 2,348 | 143 | — | (74) | 2,417 | ||||||||||||||||||||||||||||||
| Other (income) expense | |||||||||||||||||||||||||||||||||||
| Interest and sundry (income) expense | (159) | 3 | (156) | ||||||||||||||||||||||||||||||||
| Interest expense | 175 | — | 131 | (a) | 306 | ||||||||||||||||||||||||||||||
| Earnings (loss) before income taxes | 2,332 | 140 | (131) | (74) | 2,267 | ||||||||||||||||||||||||||||||
| Income tax expense (benefit) | 518 | 35 | (32) | (b) | (18) | (e) | 503 | ||||||||||||||||||||||||||||
| Equity method investment (loss), net of tax | (8) | — | (8) | ||||||||||||||||||||||||||||||||
| Net Earnings (Loss) | 1,806 | 105 | (99) | (56) | 1,756 | ||||||||||||||||||||||||||||||
| Less: Net earnings (loss) available to noncontrolling interests | 23 | — | 23 | ||||||||||||||||||||||||||||||||
| Net earnings (loss) available to Whirlpool | $ | 1,783 | $ | 105 | $ | (99) | $ | (56) | $ | 1,733 | |||||||||||||||||||||||||
| Per share of common stock | |||||||||||||||||||||||||||||||||||
| Basic net earnings available to Whirlpool | $ | 28.73 | $ | 27.90 | |||||||||||||||||||||||||||||||
| Diluted net earnings available to Whirlpool | $ | 28.36 | $ | 27.54 | |||||||||||||||||||||||||||||||
| Weighted-average shares outstanding (in millions) | |||||||||||||||||||||||||||||||||||
| Basic | 62.1 | 62.1 | |||||||||||||||||||||||||||||||||
| Diluted | 62.9 | 62.9 | |||||||||||||||||||||||||||||||||
4
NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
Note 1 - Basis of Presentation
The unaudited pro forma condensed combined financial information has been prepared by Whirlpool in connection with Whirlpool’s acquisition of InSinkErator, a leading provider of food waste disposals, water products, and other commercial equipment from Emerson and is based on the historical consolidated financial statements of Whirlpool and the historical consolidated and combined financial statements of InSinkErator prepared on a carve-out basis, as adjusted to give effect to the pro forma adjustments. Whirlpool and InSinkErator’s historical financial statements were prepared in accordance with U.S. GAAP. There were no material transactions and balances between Whirlpool and InSinkErator for any periods presented.
The accompanying unaudited pro forma condensed combined financial information and related notes were prepared using the acquisition method of accounting in accordance with ASC 805, Business Combinations, with Whirlpool considered the accounting acquirer of InSinkErator. ASC 805 requires, among other things, that the assets acquired and liabilities assumed in a business combination be recognized at their fair values as of the acquisition date. For purposes of the unaudited pro forma condensed combined balance sheet, the purchase price consideration has been allocated to the assets acquired and liabilities assumed of InSinkErator based upon management’s preliminary estimate.
The excess of the purchase price consideration over the fair value of assets acquired and liabilities assumed is allocated to goodwill. Accordingly, the purchase price allocation and related adjustments reflected in the unaudited pro forma condensed combined financial information are preliminary and subject to adjustment based on a final determination of fair value. The purchase price consideration as well as the estimated fair values of the assets and liabilities will be updated and finalized as soon as practicable, but no later than one year from the closing of the acquisition. The final determination of fair values of assets acquired and liabilities assumed relating to the Acquisition could differ materially from the preliminary allocation of aggregate purchase consideration.
The unaudited pro forma condensed combined financial information does not reflect any anticipated synergies or dis-synergies, operating efficiencies or cost savings that may result from the Acquisition and any integration costs that may be incurred. The pro forma adjustments are based upon available information and certain assumptions that we believe are reasonable. Management has included certain reclassification and accounting policy alignment adjustments for consistency in presentation as indicated in the subsequent notes (see Note 2 for further details). The unaudited pro forma condensed combined financial information is provided for informational purposes only and do not purport to represent or be indicative of the consolidated results of operations or financial condition of Whirlpool had the InSinkErator Acquisition or the Acquisition Financing been completed as of the dates presented and should not be construed as representative of the future consolidated results of operations or financial condition of the combined entity.
5
Note 2 – Pro Forma Reclassification Adjustments
Certain reclassifications and accounting policy alignment adjustments have been recorded to InSinkErator’s historical financial statements to conform to Whirlpool’s presentation and accounting policies, as follows:
InSinkErator’s Unaudited Reclassified Condensed Combined Balance Sheet as of June 30, 2022 (in millions):
| Financial Statement Line | InSinkErator Historical | Reclassifications | Note | InSinkErator Reclassed | ||||||||||
| Assets | ||||||||||||||
| Cash and cash equivalents | $ | 4 | $ | — | $ | 4 | ||||||||
| Receivables, net | 90 | (90) | (a) | — | ||||||||||
| Accounts receivable, net | — | 90 | (a) | 90 | ||||||||||
| Inventories | 75 | — | 75 | |||||||||||
| Income tax receivable | 3 | (3) | (b) | — | ||||||||||
| Other current assets | 5 | (5) | (c) | — | ||||||||||
| Prepaid and other current assets | — | 8 | (b),(c) | 8 | ||||||||||
| Property, plant and equipment, net | 135 | (135) | (d) | — | ||||||||||
| Property, net | — | 137 | (d),(e) | 137 | ||||||||||
| Right of use assets | — | 10 | (f) | 10 | ||||||||||
| Goodwill | 2 | — | 2 | |||||||||||
| Other intangible assets | 2 | (2) | (e) | — | ||||||||||
| Deferred income taxes | 1 | — | 1 | |||||||||||
| Other | 10 | (10) | (f) | — | ||||||||||
| Liabilities | ||||||||||||||
| Accounts payable | $ | 75 | $ | — | $ | 75 | ||||||||
| Accrued expenses | 74 | (55) | (g),(h),(i) | 19 | ||||||||||
| Accrued advertising and promotions | — | 22 | (g) | 22 | ||||||||||
| Employee compensation | — | 20 | (h) | 20 | ||||||||||
| Other current liabilities | — | 13 | (i) | 13 | ||||||||||
| Lease liabilities | — | 8 | (j) | 8 | ||||||||||
| Deferred income taxes | 7 | (7) | (k) | — | ||||||||||
| Other long-term liabilities | 10 | (10) | (i),(j) | — | ||||||||||
| Other noncurrent liabilities | — | 9 | (k), (l) | 9 | ||||||||||
6
InSinkErator’s Unaudited Reclassified Condensed Combined Statement of Earnings for the nine months ended June 30, 2022 (in millions):
| Financial Statement Line | InSinkErator Historical | Adjustments | Note | InSinkErator Reclassed | ||||||||||
| Net sales | $ | 480 | $ | — | $ | 480 | ||||||||
| Cost of sales | 297 | (297) | (m),(n) | — | ||||||||||
| Cost of products sold | — | 303 | (n) | 303 | ||||||||||
| Selling, general and administrative expenses | 71 | (71) | (o) | — | ||||||||||
| Selling, general and administrative | — | 65 | (m),(o) | 65 | ||||||||||
| Other deductions, net | 3 | (3) | (p) | — | ||||||||||
| Interest and sundry (income) expense | — | 3 | (p) | 3 | ||||||||||
| Income taxes | 27 | (27) | (q) | — | ||||||||||
| Income tax expense (benefit) | — | 27 | (q) | 27 | ||||||||||
InSinkErator’s Reclassified Condensed Combined Statement of Earnings for the year ended September 30, 2021 (in millions):
| Financial Statement Line | InSinkErator Historical | Adjustments | Note | InSinkErator Reclassed | ||||||||||
| Net sales | $ | 565 | $ | — | $ | 565 | ||||||||
| Cost of sales | 337 | (337) | (m),(n) | — | ||||||||||
| Cost of products sold | — | 361 | (n) | 361 | ||||||||||
| Selling, general and administrative expenses | 85 | (85) | (o) | — | ||||||||||
| Selling, general and administrative | — | 61 | (m),(o) | 61 | ||||||||||
| Other deductions, net | 3 | (3) | (p) | — | ||||||||||
| Interest and sundry (income) expense | — | 3 | (p) | 3 | ||||||||||
| Income taxes | 35 | (35) | (q) | — | ||||||||||
| Income tax expense (benefit) | — | 35 | (q) | 35 | ||||||||||
(a)Represents a $90 million reclassification of receivables, net to conform with Whirlpool's presentation in accounts receivable, net.
(b)Represents a $3 million reclassification of income tax receivable to conform with Whirlpool's presentation in prepaid and other current assets.
(c)Represents a $5 million reclassification of prepaids in other current assets to conform with Whirlpool's presentation in prepaid and other current assets.
(d)Represents a $135 million reclassification of property, plant and equipment, net to conform with Whirlpool's presentation in property, net.
(e)Represents a $2 million reclassification of capitalized software to conform with Whirlpool's presentation in property, net.
(f)Represents a $10 million reclassification of other to conform with Whirlpool's presentation in right of use assets.
(g)Represents a $22 million reclassification of customer rebates and promotions to conform with Whirlpool's presentation in accrued advertising and promotions.
(h)Represents a $20 million reclassification of employee related accruals to conform with Whirlpool's presentation in employee compensation.
(i)Represents a $13 million reclassification of warranties to conform with Whirlpool's presentation in other current liabilities.
(j)Represents a $8 million reclassification of operating lease liabilities to conform with Whirlpool's presentation in lease liabilities.
(k)Represents a $7 million reclassification of deferred income taxes to conform with Whirlpool's presentation in other noncurrent liabilities.
(l)Represents a $2 million reclassification of miscellaneous accrual to conform with Whirlpool's presentation in other noncurrent liabilities.
(m)Represents a reclassification of certain costs from cost of sales for the nine months ended June 30, 2022 and the year ended September 30, 2021 of $6 million and $24 million, respectively, to conform with Whirlpool's presentation in selling, general and administrative.
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(n)Represents a reclassification of cost of sales for the nine months ended June 30, 2022 and the year ended September 30, 2021 of $303 million and $361 million, respectively, to conform with Whirlpool's presentation in cost of products sold.
(o)Represents a reclassification of selling, general and administrative expenses for the nine months ended June 30, 2022 and the year ended September 30, 2021 of $71 million and $85 million, respectively, to conform with Whirlpool's presentation in selling, general and administrative.
(p)Represents a reclassification of other deductions, net for the nine months ended June 30, 2022 and the year ended September 30, 2021 of $3 million and $3 million, respectively, to conform with Whirlpool's presentation in interest and sundry (income) expense.
(q)Represents a reclassification of income taxes for the nine months ended June 30, 2022 and the year ended September 30, 2021 of $27 million and $35 million, respectively, to conform with Whirlpool's presentation in income tax expense (benefit).
Note 3 – Preliminary Purchase Price Allocation
The Acquisition is being accounted for as a business combination using the acquisition method of accounting, whereby the assets acquired and liabilities assumed are recognized based upon their estimated fair values at the acquisition date, under ASC 805.
The fair values of the assets and liabilities in the unaudited pro forma condensed combined financial statements are based upon a preliminary assessment of fair value and may change when the final valuation of assets acquired and liabilities assumed and working capital settlements are made. Whirlpool expects to finalize the purchase price allocation as soon as practicable, but no later than one year from the acquisition date. Assuming the Acquisition was consummated on September 30, 2022, the preliminary purchase price for InSinkErator would be $3.0 billion, inclusive of adjustments for working capital, cash on hand, and indebtedness.
Whirlpool estimated total acquisition consideration and the preliminary allocation of fair value to the related assets and liabilities as follows:
| (in millions) | Amount | ||||
| Cash and cash equivalents | $ | 4 | |||
| Receivables, net | 90 | ||||
| Inventories | 92 | ||||
| Income tax receivable | 3 | ||||
| Other current assets | 5 | ||||
| Property, plant and equipment, net | 179 | ||||
| Goodwill | 1,148 | ||||
| Other intangible assets | 1,630 | ||||
| Deferred income taxes | 6 | ||||
| Other | 10 | ||||
| Accounts payable | 75 | ||||
| Accrued expenses | 74 | ||||
| Income taxes payable | — | ||||
| Deferred income taxes | 1 | ||||
| Other long-term liabilities | 10 | ||||
| Total Estimated Purchase Consideration | $ | 3,007 | |||
Preliminary identifiable intangible assets in the unaudited pro forma condensed combined financial information consists of the following:
| (in millions) | Preliminary Fair Value | Estimated Useful Life | ||||||
| Preliminary fair value of intangible assets acquired: | ||||||||
| Trade names and trademarks | $ | 1,300 | Indefinite | |||||
| Customer relationships | 330 | 15-18 years | ||||||
| Intangible assets acquired | $ | 1,630 | ||||||
8
A 10% change in the valuation of intangible assets would cause a corresponding increase or decrease in the amortization expense of approximately $1.5 million for the nine months ended September 30, 2022 and $2.1 million for the year ended December 31, 2021. Pro forma amortization is preliminary and based on the use of straight-line amortization. The amount of amortization following the Acquisition may differ significantly between periods based upon the final value assigned and estimated useful life used for each identifiable intangible asset.
Note 4 – Transaction Adjustments to the Unaudited Pro Forma Condensed Combined Balance Sheet
The following provides explanations of the various adjustments to the unaudited pro forma condensed combined balance sheet:
Acquisition Financing Adjustments
(a)Represents net proceeds from expected borrowings under the Term Loan of $2.5 billion, inclusive of $3 million in financing-related transaction costs, and results in an increase to long-term debt in the same amount.
Acquisition Adjustments
(b)Reflects adjustment to cash and cash equivalents to reflect the cash paid to acquire InSinkErator:
| (in millions) | Amount | ||||
| Preliminary purchase price prior to adjustments | $ | 3,000 | |||
| InSinkErator working capital adjustments | — | ||||
| InSinkErator cash on hand | 7 | ||||
| InSinkErator indebtedness | — | ||||
| Net pro forma transaction accounting adjustment to cash and cash equivalents | $ | 3,007 | |||
(c)Represents an increase of $17 million in the carrying value of InSinkErator inventory to its estimated acquisition-date fair value.
(d)Represents a $2 million removal of inventory shrink reserve to conform InSinkErator to Whirlpool’s accounting policies.
(e)Represents a $1 million removal of a vendor prepaid to conform InSinkErator to Whirlpool’s accounting policies.
(f)Represents $44 million of incremental fair value recognized for plant and equipment acquired by Whirlpool.
(g)Represents $1,630 million of incremental fair value recognized for intangible assets acquired by Whirlpool, as well as a $1,146 million adjustment to eliminate historical goodwill and to reflect the total goodwill resulting from the Acquisition. Refer to Note 3 for additional detail regarding the intangible assets acquired.
(h)Reflects adjustments to deferred taxes related to estimated acquisition costs paid by Whirlpool as well as the net change to deferred taxes as a result of fair value adjustments to the acquired assets and liabilities assumed. Deferred taxes are based on a blended statutory U.S. federal and state tax rate and statutory tax rates of the respective foreign jurisdictions in which both Whirlpool and InSinkErator operate ranging from 19% to 34%. A majority of the acquired assets receive step-up in the historical tax basis. For these items, the historical deferred tax has been eliminated. The historical deferred taxes related to the portion of the transaction that does not receive step-up has also been adjusted to reflect the deferred tax impact of the pro forma fair value adjustments being recorded. The effective tax rate of the combined company could be significantly different (either higher or lower) depending on post-acquisition activities, including cash needs, the geographical mix of income and changes in tax law. Because the tax rates used for the pro forma financial information are estimated, the blended rate will likely vary from the actual effective rate in periods subsequent to completion of the Acquisition. This determination is preliminary and subject to change based upon the final determination of the fair value of the acquired assets and assumed liabilities.
(i)Represents the payment and estimated acquisition costs of $41 million, of which $12 million were incurred and accrued as of September 30, 2022. Acquisition costs of $29 million expected to be incurred after September 30, 2022 are reflected as a reduction to retained earnings. Acquisition costs consist of legal advisory, financial advisory, accounting and consulting costs.
(j)Represents a $26 million net impact to retained earnings from the adjustments related to policy alignments and transaction costs as illustrated above.
(k)Reflects a $161 million elimination of InSinkErator’s historical equity balances.
9
Note 5 – Adjustments to the Unaudited Condensed Combined Statements of Income
The following provides explanations of the various adjustments to the unaudited pro forma condensed combined statements of income:
Acquisition Financing Adjustments
(a)Reflects the interest expense and amortization of debt issuance costs associated with the Term Loan. The unaudited pro forma financial information assumes an average estimated interest rate of 5.3% for the Term Loan. If the actual annual interest rates of the Term Loan were to vary by 1/8th of a percent, the pro forma adjustment for interest expense would change by $3 million for the year ended December 31, 2021 and $2 million for the nine months ended September 30, 2022.
(b)Reflects a reduction to income tax expense for the nine months ended September 30, 2022 and the year ended December 21, 2021 of $21 million and $32 million, respectively, associated with the incremental interest expense from the financing adjustments, assuming a blended statutory U.S. federal and state tax rate of 24.6%.
Acquisition Adjustments
(c)Represents adjustments to cost of products sold, selling, general and administrative expenses, and intangible amortization of $5 million and $21 million, respectively, during the year ended December 31, 2021 related to added depreciation and amortization expense associated with plant and equipment and intangible assets acquired in the Acquisition. Added depreciation and amortization expense results in an increase to cost of products sold and intangible amortization of $4 million and $15 million, respectively, during the nine months ended September 30, 2022.
(d)Represents the impact for the nine months ended September 30, 2022 and the year ended December 21, 2021of $2 million and $3 million, respectively, of cash and equity retention bonuses to be paid or granted after September 30, 2022 to certain InSinkErator executives and employees recognized ratably over the service period.
(e)Reflects a reduction in income tax expense for the nine months ended September 30, 2022 and the year ended December 21, 2021 of $5 million and $18 million, respectively, associated with the transaction accounting adjustments, assuming a blended statutory U.S. federal and state tax rate and statutory tax rates of the respective foreign jurisdictions in which both Whirlpool and InSinkErator operate ranging from 19% to 34%. The effective tax rate of the combined company could be significantly different (either higher or lower) depending on post-acquisition activities, including cash needs, the geographical mix of income and changes in tax law. Because the tax rates used for the pro forma financial information are estimated, the blended rate will likely vary from the actual effective rate in periods subsequent to completion of the Acquisition.
(f)Represents incremental cost of products sold of $17 million associated with the step-up in fair value associated with acquired inventory.
(g)Represents a $2 million reduction of inventory shrinkage loss to conform InSinkErator to Whirlpool’s accounting policies.
(h)Represents the expensing of a $1 million vendor prepaid to conform InSinkErator to Whirlpool’s accounting policies.
(i)Represents acquisition costs of $29 million incurred by the Company subsequent to September 30, 2022 but prior to the Closing Date of October 31, 2022 that have not been included in Whirlpool’s historical statements of income and therefore are added as an additional expense for the year ended December 31, 2021. Acquisition costs that will have a recurring effect on the results of operations beyond one year are not expected to be material.
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InSinkErator A Business Unit of Emerson Electric Co. Consolidated and Combined Financial Statements as of September 30, 2020 and 2021, and for the Years Ended September 30, 2019, 2020 and 2021 (with Independent Auditors’ Report Thereon)
INDEX TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS Audited Consolidated and Combined Financial Statements of InSinkErator Independent Auditors’ Report 3 Consolidated and Combined Statements of Earnings for the years ended September 30, 2019, 2020 and 2021 4 Consolidated and Combined Statements of Comprehensive Income for the years ended September 30, 2019, 2020 and 2021 5 Consolidated and Combined Balance Sheets as of September 30, 2020 and 2021 6 Consolidated and Combined Statements of Equity for the years ended September 30, 2019, 2020 and 2021 7 Consolidated and Combined Statements of Cash Flows for the years ended September 30, 2019, 2020 and 2021 8 Notes to Consolidated and Combined Financial Statements 9 2
KPMG LLP Suite 1050 833 East Michigan Street Milwaukee, WI 53202-5337 KPMG LLP, a Delaware limited liability partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. Independent Auditors’ Report Those Charged with Governance InSinkErator (A Business Unit of Emerson Electric Co.): We have audited the accompanying consolidated and combined financial statements of InSinkErator (A Business Unit of Emerson Electric Co.), which comprise the consolidated and combined balance sheets as of September 30, 2021 and 2020, and the related consolidated and combined statements of earnings, comprehensive income, equity, and cash flows for each of the years in the three-year period ended September 30, 2021, and the related notes to the consolidated and combined financial statements. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these consolidated and combined financial statements in accordance with U.S. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated and combined financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility Our responsibility is to express an opinion on these consolidated and combined financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated and combined financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated and combined financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the consolidated and combined financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated and combined financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated and combined financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated and combined financial statements referred to above present fairly, in all material respects, the financial position of InSinkErator (A Business Unit of Emerson Electric Co.) as of September 30, 2021 and 2020, and the results of their operations and their cash flows for each of the years in the three-year period ended September 30, 2021 in accordance with U.S. generally accepted accounting principles. Milwaukee, Wisconsin July 15, 2022
Consolidated and Combined Statements of Earnings InSinkErator Years ended September 30 (Dollars in millions) 2019 2020 2021 Net sales $ 534.0 530.6 565.2 Cost of sales 323.0 324.5 337.0 Selling, general and administrative expenses 80.0 80.0 84.7 Other deductions, net 5.3 4.4 2.9 Earnings before income taxes 125.7 121.7 140.6 Income taxes 31.8 30.5 35.4 Net earnings $ 93.9 91.2 105.2 See accompanying Notes to Consolidated and Combined Financial Statements. 4
Consolidated and Combined Statements of Comprehensive Income InSinkErator Years ended September 30 (Dollars in millions) 2019 2020 2021 Net earnings $ 93.9 91.2 105.2 Other comprehensive income (loss), net of tax: Foreign currency translation (0.4) 0.5 0.5 Comprehensive income $ 93.5 91.7 105.7 See accompanying Notes to Consolidated and Combined Financial Statements. 5
Consolidated and Combined Balance Sheets InSinkErator September 30 (Dollars in millions) 2020 2021 ASSETS Current assets Cash and equivalents $ 3.7 2.8 Receivables, net of allowances for credit losses of $0.1 and $0.1, respectively 76.8 84.0 Inventories 44.5 51.9 Income tax receivable — 1.4 Other current assets 3.4 4.8 Total current assets 128.4 144.9 Property, plant and equipment, net 114.0 127.6 Other assets Goodwill 2.3 2.4 Other intangible assets 4.6 3.4 Deferred income taxes 1.0 1.0 Other 2.7 11.7 Total other assets 10.6 18.5 Total assets $ 253.0 291.0 LIABILITIES AND EQUITY Current liabilities Accounts payable $ 61.1 97.8 Accrued expenses 60.6 65.1 Income taxes payable 2.2 0.9 Total current liabilities 123.9 163.8 Deferred income taxes 6.1 9.0 Other long-term liabilities 4.5 10.0 Equity Net parent investment 119.4 108.6 Accumulated other comprehensive income (0.9) (0.4) Total equity 118.5 108.2 Total liabilities and equity $ 253.0 291.0 See accompanying Notes to Consolidated and Combined Financial Statements. 6
Consolidated and Combined Statements of Equity InSinkErator Years ended September 30 (Dollars in millions) 2019 2020 2021 Net parent investment Beginning balance $ 136.4 125.1 119.4 Net earnings 93.9 91.2 105.2 Net transfer to Emerson (105.2) (96.9) (116.0) Ending balance 125.1 119.4 108.6 Accumulated other comprehensive income (loss) Beginning balance (1.0) (1.4) (0.9) Foreign currency translation (0.4) 0.5 0.5 Ending balance (1.4) (0.9) (0.4) Total equity $ 123.7 118.5 108.2 See accompanying Notes to Consolidated and Combined Financial Statements. 7
Consolidated and Combined Statements of Cash Flows InSinkErator Years ended September 30 (Dollars in millions) 2019 2020 2021 Operating activities Net earnings $ 93.9 91.2 105.2 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 15.2 20.1 16.8 Net foreign currency losses (gains) 0.4 (0.2) 0.3 Other 0.4 0.1 0.2 Changes in assets and liabilities: Receivables 11.9 (8.9) (6.9) Inventories 0.5 (5.8) (6.9) Other current assets 0.3 (0.5) (1.3) Deferred income taxes 2.1 (0.5) 2.8 Other assets (0.1) 7.1 3.0 Accounts payable (3.5) 10.4 40.3 Accrued expenses 4.5 6.4 3.6 Income taxes (9.7) 5.5 (2.8) Other liabilities — (4.2) (4.2) Net cash provided by operating activities 115.9 120.7 150.1 Investing activities Capital expenditures (17.2) (22.8) (34.4) Proceeds from disposal of property, plant and equipment 6.0 1.9 0.5 Other, net (1.4) (1.0) (1.1) Net cash used in investing activities (12.6) (21.9) (35.0) Financing activities Net transfer to Emerson (105.2) (96.9) (116.0) Net cash used in financing activities (105.2) (96.9) (116.0) Effect of exchange rate changes on cash and equivalents 0.1 0.2 — Increase (Decrease) in cash and equivalents (1.8) 2.1 (0.9) Beginning cash and equivalents 3.4 1.6 3.7 Ending cash and equivalents $ 1.6 3.7 2.8 Noncash Disclosures Change in property, plant and equipment additions in accounts payable $ 0.5 3.7 (5.7) Right-of-use asset additions 2.7 11.8 See accompanying Notes to Consolidated and Combined Financial Statements. 8
Notes to Consolidated and Combined Financial Statements InSinkErator Years ended September 30 (Dollars in millions, except where noted) (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Description of Business InSinkErator (ISE or the Company) operates as a business unit of Emerson Electric Co.’s (Emerson) Commercial & Residential Solutions platform and is a leading provider of food waste disposals, water products, and other commercial equipment. Product offerings include a range of residential food waste disposals from the standard series up to the high-end power and quiet series which offer more grinding power and noise reduction. Other products include instant hot water dispensers and commercial food waste disposals. Basis of Presentation and Principles of Consolidation The Company has operated as part of Emerson and not as a stand-alone entity. These consolidated and combined financial statements present the historical financial position, results of operations, and cash flows of the Company as if it had operated on a stand-alone basis subject to Emerson’s control, and include all accounts of the Company and its subsidiaries and affiliates on a consolidated and combined basis. Intercompany transactions, profits and balances among ISE entities have been eliminated in consolidation. These financial statements were derived from Emerson’s financial statements and accounting records and have been prepared in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP). Sale and purchase transactions between the Company and other Emerson affiliates are included in the financial statements. See Note 9. As a business unit of Emerson, ISE has been charged for costs directly related to the Company and has been allocated a portion of Emerson’s general corporate costs. All these costs are reflected in the financial statements. The Company participates in various Emerson programs which include information technology services, employee benefits, medical insurance, and other programs. Costs associated with these programs are charged to the Company based on Emerson’s actual cost and the Company’s relative level of usage. The Company also utilizes Emerson’s global shared service centers and is charged for direct costs and its share of facilities overhead. Emerson provides certain oversight and support services, including assistance with management strategy, logistics, marketing, finance, treasury, tax, human resources, legal and other activities. A charge for these services has been allocated to the Company based principally on revenue. While management believes the methodologies and assumptions used to allocate these costs are reasonable, the financial statements do not purport to represent the financial position, or the results of operations, changes in equity, and cash flows of the Company in the future, or what they would have been had the Company operated as a stand-alone entity during the periods presented. Emerson utilizes a centralized treasury function which manages the working capital and financing needs of all its business operations. This function oversees a cash pooling arrangement which sweeps participating ISE cash accounts into pooled Emerson cash accounts on a daily basis. Pooled cash and nontrade intercompany balances attributable to Emerson have not been presented as assets and liabilities in the accompanying consolidated and combined financial statements. These balances are reflected as "Net parent investment" in the equity section of the consolidated and combined balance sheets. Changes in these balances are reflected as "Net transfer to Emerson" in the financing activities section of the consolidated and combined statements of cash flows. Cash and cash equivalents from entities not participating in the Emerson centralized treasury function and specifically attributable to the Company have been reflected in the consolidated and combined financial statements. Use of Estimates The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that could affect the reported amounts of assets, liabilities, revenue and expenses for the periods presented and disclosure of contingent assets and liabilities at the date of the financial statement. Actual results could differ from those estimates. 9
Foreign Currency The financial statements are presented in U.S. dollars, which is the Company’s reporting currency. The functional currency for all non-U.S. operations is the local currency. Adjustments resulting from translating local currency financial statements into U.S. dollars are reflected in accumulated other comprehensive income. Transactions denominated in currencies other than the functional currencies are subject to changes in exchange rates with resulting gains/losses recorded in net earnings. Cash and Equivalents Cash equivalents consist of highly-liquid investments with original maturities of three months or less. Receivables and Allowance for Credit Losses Receivables are shown net of allowance for credit losses. The Company monitors customer-specific payment and write-off history as well as a forward-looking trends and macro-economic factors to estimate an allowance for credit losses. Inventories Inventories are primarily stated at the lower of cost or net realizable value and are based on standard costs which approximate average costs. Cost standards are revised at the beginning of each fiscal year. The annual effect of resetting standards plus operating variances incurred during each period are allocated between inventories and recognized in cost of sales as products are sold. Following are the components of inventories as of September 30: 2020 2021 Raw materials $ 14.4 17.9 Work in process 2.7 2.4 Finished products 27.4 31.6 Total inventories $ 44.5 51.9 Property, Plant and Equipment The Company records investments in land, buildings, and machinery and equipment at cost. Depreciation is computed principally using the straight-line method over estimated service lives, which for principal assets are 30 to 40 years for buildings and 10 to 12 years for machinery and equipment. Long-lived tangible assets are reviewed for impairment whenever events or changes in business circumstances indicate the carrying value of the assets may not be recoverable. Impairment losses, if any, are recognized based on estimated fair values if the sum of expected future undiscounted cash flows of the related assets is less than the carrying values. There were no impairments for any of the years presented. Following are the components of property, plant and equipment as of September 30: 2020 2021 Land $ 7.8 7.9 Buildings 49.8 49.4 Machinery and equipment 183.7 197.4 Construction in progress 23.5 27.2 Property, plant and equipment, at cost 264.8 281.9 Less: Accumulated depreciation (150.8) (154.3) Property, plant and equipment, net $ 114.0 127.6 Goodwill and Other Intangibles Assets and liabilities acquired in business combinations are accounted for using the acquisition method and recorded at their respective fair values. Goodwill represents the excess of consideration paid over total fair value of the net assets acquired. The Company conducts its annual impairment test of goodwill in the fourth quarter and between tests if events or circumstances indicate its fair value may be less than carrying value. If an initial assessment indicates it is more likely than not goodwill might be impaired, it is evaluated by comparing the Company’s estimated fair value to its carrying value. An impairment charge would be recorded for the amount by 10
which the carrying value of the company exceeds its estimated fair value. Estimated fair values are developed primarily under an income approach that discounts estimated future cash flows using risk adjusted interest rates, as well as earnings multiples or other techniques as warranted. Fair values are subject to changes in underlying economic conditions. All of the Company’s identifiable intangible assets are subject to amortization on a straight-line basis over their estimated useful lives. Identifiable intangible assets primarily consist of capitalized software and are also subject to evaluation for potential impairment if events or circumstances indicate the carrying value may not be recoverable. No goodwill or intangible asset impairment was recorded for any of the periods presented. Leases The Company leases offices; manufacturing facilities and equipment; and transportation, information technology, and office equipment primarily under operating lease arrangements. The Company determines whether an arrangement is, or contains, a lease at contract inception. An arrangement contains a lease if the Company has the right to direct the use of and obtain substantially all of the economic benefits of an identified asset. Right-of-use assets and lease liabilities are recognized at lease commencement based on the present value of lease payments over the lease term. Leases with an initial term of 12 months or less are not recognized on the balance sheet and are recorded as short-term lease expense. The discount rate used to calculate present value is the Company’s incremental borrowing rate based on the lease term and the economic environment of the applicable country or region. Certain leases have renewal options or options to terminate prior to lease expiration, which are included in the measurement of right-of-use assets and lease liabilities when it is reasonably certain they will be exercised. The Company has elected to account for lease and non-lease components as a single lease component for its offices and manufacturing facilities. Some lease arrangements include payments that are adjusted periodically based on actual charges incurred for common area maintenance, utilities, taxes and insurance, or changes in an index or rate referenced in the lease. The fixed portion of these payments is included in the measurement of right-of-use assets and lease liabilities at lease commencement, while the variable portion is recorded as variable lease expense. The Company’s leases do not contain material residual value guarantees or restrictive covenants. Net Parent Investment The net parent investment balance included in the consolidated and combined balance sheets represents Emerson’s historical investment in the Company, the Company’s accumulated net earnings after income taxes, and the net effect of transactions with Emerson. Revenue Recognition In accordance with Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers, the Company evaluates its contracts with customers to identify the promised goods or services and recognize revenue for the identified performance obligations at the amount the Company expects to be entitled to in exchange for those goods or services. A performance obligation is a promise in a contract to transfer a distinct good or service to a customer. Revenue is recognized when, or as performance obligations are satisfied, and control has transferred to the customer, typically when products are shipped or delivered, title and risk of loss pass to the customer, and the Company has a present right to payment. Substantially all of Company’s revenues are performance obligations related to the sale of manufactured products which are recognized at a point in time when control transfers in accordance with shipping terms. For certain customers, rebates and other sales incentives, promotional allowances or discounts are offered, typically related to customer purchase volumes, most of which are fixed and determinable and are recorded as a reduction in revenue at the time of sale. Although some are cash settled, amounts due to customers are typically settled via issuance of debit and credit memos between the parties at various intervals throughout the year. The revenue cycle is short-term in nature with shipments typically occurring within four weeks from order and does not include a material long-term financing component, implicitly or explicitly. Payment terms generally range between 10 to 120 days, with the majority between 30 and 60 days, and vary by geography, product type and volume, among other factors. Other than standard product warranty provisions, sales arrangements generally provide no other post shipment performance obligations on the Company. In most instances, returns are limited to product quality issues. 11
In the years presented, the Company had three significant customers who each accounted for over 10 percent of net sales. Two customers each had approximately 20 to 25 percent of net sales in 2021, 2020, and 2019. Another customer had approximately 10 to 11 percent of net sales in 2021, 2020, and 2019. The Company records amounts billed to customers for the costs of shipping and handling in sales transactions as revenue and such costs are not considered separate performance obligations. Shipping and handling costs incurred by the Company were $12.2, $10.4 and $10.1 for 2021, 2020 and 2019, respectively, and were reported in selling, general and administrative expenses. See Note 12 for disaggregation of revenue by geography. Warranty Warranties are largely offered to provide assurance that the product will function as intended. Warranty terms range from 12 to 144 months. Provisions for warranty expense are estimated at the time of sale based on historical experience and adjusted quarterly for any known issues that may arise. Warranty costs were $13.5, $9.8 and $8.8, respectively, or approximately 2.4 percent, 1.8 percent and 1.6 percent of net sales in 2021, 2020 and 2019, respectively. Fair Value Measurement ASC 820, Fair Value Measurement, establishes a formal hierarchy and framework for measuring certain financial statement items at fair value, and requires disclosures about fair value measurements and the reliability of valuation inputs. Under ASC 820, measurement assumes the transaction to sell an asset or transfer a liability occurs in the principal or at least the most advantageous market for that asset or liability. Within the hierarchy, Level 1 instruments use observable market prices for the identical item in active markets and have the most reliable valuations. Level 2 instruments are valued through broker/dealer quotation or through market-observable inputs for similar items in active markets, including forward and spot prices, interest rates and volatilities. Level 3 instruments are valued using inputs not observable in an active market, such as company-developed future cash flows, and are considered the least reliable. Carrying value approximates fair value for cash and equivalents, accounts receivable and accounts payable. Income Taxes The Company’s operations have historically been included in Emerson’s combined U.S. and non-U.S. income tax returns in most locations. Income tax expense included in the financial statements has been calculated following the separate return method, which applies ASC 740, Income Taxes, as if the Company was a stand-alone enterprise and a separate taxpayer for the periods presented. The calculation of income taxes on a separate return basis requires considerable judgment and the use of both estimates and allocations that affect the calculation of certain tax liabilities and the determination of the recoverability of certain deferred tax assets, which arise from temporary differences between the tax and financial statement recognition of revenue and expenses. As a result, the Company’s deferred income tax rate and deferred tax balances may differ from those in Emerson’s historical results. The provision for income taxes is determined using the asset and liability approach of ASC 740. Under this approach, deferred taxes represent the future tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid. Deferred taxes result from differences between financial statement and tax basis of the Company’s assets and liabilities and are measured using enacted rates in effect for the year in which the temporary differences are expected to be recovered or settled. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. The tax carryforwards reflected in the Company’s consolidated and combined financial statements have been determined using the separate return method. The complexity of tax regulations require assessments of uncertainties in estimating taxes the Company will ultimately pay. The Company recognizes liabilities for anticipated tax audit uncertainties in the U.S. and other tax jurisdictions based on its estimate of whether, and the extent to which additional taxes would be due on a separate return basis. Tax liabilities are presented net of any related tax loss carryforwards. 12
The Company also provides for income taxes, net of any potentially available foreign tax credits, on earnings intended to be repatriated from foreign subsidiaries. The undistributed earnings of foreign subsidiaries as of September 30, 2021 are considered permanently invested or otherwise indefinitely retained for continuing international operations. Recognition of income taxes on undistributed foreign earnings, if any, would be triggered by a decision to repatriate earnings. Determination of the amount of taxes that might be paid on any undistributed earnings if eventually remitted is not practicable. Adopted Accounting Pronouncements Effective October 1, 2020, the Company adopted the following accounting standards update and one new accounting standard both of which had an immaterial impact on the Company’s financial statements. • Updates to ASC 350, Intangibles – Goodwill and Other, which eliminate the requirement to measure impairment based on the implied fair value of goodwill compared to the carrying amount of a reporting unit’s goodwill. Instead, goodwill impairment will be measured as the excess of a reporting unit’s carrying amount over its estimated fair value. • Adoption of ASC 326, Financial Instruments – Credit Losses, which amends the impairment model by requiring entities to use a forward-looking approach to estimate lifetime expected credit losses on certain types of financial instruments, including trade receivables. On October 1, 2019, the Company adopted ASC 842, Leases, which requires rights and obligations related to lease arrangements to be recognized on the balance sheet, using the optional transition method under which prior periods were not adjusted. The Company elected the package of practical expedients for leases that commenced prior to the adoption date, which included carrying forward the historical lease classification as operating or finance. The adoption of ASC 842 resulted in the recognition of operating lease right-of-use assets and related lease liabilities of approximately $7.0 as of October 1, 2019, but did not materially impact the Company’s earnings or cash flows for the year ended September 30, 2020. The Company’s financial statements for 2019 continue to be reported in accordance with the Company’s historical accounting under ASC 840, Leases. On October 1, 2018, the Company adopted ASC 606, Revenue from Contracts with Customers, which updated and consolidated revenue recognition guidance from multiple sources into a single, comprehensive standard to be applied for all contracts with customers. The fundamental principle of the revised standard is to recognize revenue based on the transfer of goods and services to customers at the amount the Company expects to be entitled to in exchange for those goods and services. The adoption of ASC 606 did not materially impact the Company’s consolidated and combined financial statements as of and for the year ended September 30, 2019. (2) OTHER DEDUCTIONS, NET Other deductions, net are summarized as follows: 2019 2020 2021 Restructuring expense (see Note 3) $ 4.3 4.4 2.4 Other, net 1.0 — 0.5 Total $ 5.3 4.4 2.9 Other, net is composed of several items that are individually immaterial, including foreign currency transaction gains or losses, losses on disposals of property, plant and equipment and other items. (3) RESTRUCTURING Restructuring activity reflects costs associated with the Company's efforts to continually improve operational efficiency and deploy assets to remain competitive. Shutdown costs can include severance, benefits, stay bonuses, contract terminations and asset write-downs. Start-up and moving costs include costs of moving fixed assets, employee training and relocation. Vacant facility costs include security, maintenance, utilities and other costs. Restructuring expenses were $2.4, $4.4 and $4.3, for 2021, 2020 and 2019, respectively. 13
The change in the liability for the restructuring of operations during the years ended September 30 follows: 2019 Expense Utilized/Paid 2020 Expense Utilized/Paid 2021 Severance and benefits $ 0.7 0.1 (0.6) 0.2 0.4 (0.1) 0.5 Facilities 0.2 4.3 (4.4) 0.1 2.0 (2.1) — Total $ 0.9 4.4 (5.0) 0.3 2.4 (2.2) 0.5 Costs incurred in 2021 and 2020 related to shutdown, start-up costs, and severance from a facility move. The actions resulted in workforce reductions of approximately 50 employees. Costs incurred in 2019 primarily related to shutdown costs to move disposer operations to existing facilities and severance costs from a voluntary retirement program that resulted in workforce reductions of approximately 16 employees. (4) GOODWILL AND OTHER INTANGIBLES The change in the carrying value of goodwill for the years ended September 30, 2021 and 2020 is attributable to foreign currency translation. The Company has recognized no impairments of goodwill. Other intangibles for the years ended September 30, 2021 and 2020 consisted of capitalized software for internal use and customer relationships. (5) LEASES The vast majority of Company leases relate to offices and manufacturing facilities. The table below presents information regarding lease assets and liabilities for the years ended September 30: 2020 2021 Assets Operating lease right-of-use assets (Other assets) $ 2.6 11.6 2020 2021 Liabilities Operating lease liabilities (Accrued expenses) $ 2.0 2.7 Operating lease liabilities (Other liabilities) $ 3.5 8.8 Operating lease right-of-use asset additions were $11.8 and $2.7 for the years ended September 30, 2021 and 2020, respectively. The increase in operating lease right-of-use assets in 2021 was due to executing a long-term lease on a facility. The components of lease expense for the years ended September 30 follows: 2020 2021 Operating lease expense $ 7.0 3.3 The decrease in operating lease expense in 2021 was primarily due to accelerated lease amortization of $3.3 to exit a facility in 2020. Short-term lease expense and variable lease expense for 2020 and 2021 was immaterial. Cash paid for operating leases are classified within operating cash flows as summarized below: 2020 2021 Operating leases (Operating cash flow) $ 4.4 3.2 Weighted-average remaining lease term (years) 2020 2021 Operating leases 4.2 7.7 Weighted-average discount rate 2020 2021 Operating leases 2.2 % 2.1 % 14
Future maturities of operating lease liabilities as of September 30, 2021 are summarized below: Operating leases 2022 $ 3.0 2023 2.4 2024 2.1 2025 1.1 2026 1.1 Thereafter 5.5 Total lease payments 15.2 Less: Interest 3.6 Total lease liabilities $ 11.6 Lease commitments that have not yet commenced were immaterial as of September 30, 2021. (6) RETIREMENT PLANS Most of the Company’s employees participate in defined contribution plans, including 401(k), profit sharing, and other savings plans that provide retirement benefits. Total expenses related to employees participating in these plans were $9.5, $10.0, and $8.3 for 2021, 2020, and 2019, respectively. (7) INCOME TAXES The Company’s operations have historically been included in Emerson’s combined U.S. and non-U.S. income tax returns, in most locations. Income tax expense and deferred income tax balances are presented in the consolidated and combined financial statements as if the Company filed its own income tax returns in each jurisdiction. Accordingly, tax results are presented utilizing the separate return method, are not necessarily indicative of future performance and do not necessarily reflect the results that the Company would have generated as a separate and independent company for the periods presented. Earnings before income taxes consist of the following: 2019 2020 2021 United States $ 121.6 116.1 134.4 Non-U.S. 4.1 5.6 6.2 Total earnings before income taxes $ 125.7 121.7 140.6 The principal components of income tax expense follow: 2019 2020 2021 Current: Federal $ 21.7 22.3 23.6 State and local 6.6 7.0 7.1 Non-U.S. 1.5 1.8 1.9 Deferred: Federal 1.7 (0.2) 2.3 State and local 0.4 (0.3) 0.6 Non-U.S. (0.1) (0.1) (0.1) Income tax expense $ 31.8 30.5 35.4 15
Reconciliation of U.S. federal statutory taxes to the Company’s total income tax expense follows: 2019 2020 2021 Taxes at U.S. statutory rate (21%) $ 26.4 25.6 29.5 State and local taxes, net of federal tax benefit 5.5 5.3 6.1 Non-U.S. rate differential 0.2 0.3 0.5 Other (0.3) (0.7) (0.7) Total income tax expense $ 31.8 30.5 35.4 The Company has elected to recognize the U.S. tax on global intangible low-taxed income as a period expense when it is incurred. The Company has no unrecognized tax benefits and is not expecting a significant increase in the next 12 months. The Company accrues interest and penalties related to income taxes in income tax expense. No interest and penalties were recognized or accrued for all periods presented. The U.S. is the major jurisdiction for which the Company files income tax returns. Examinations for the U.S. are complete through 2017, with the exception of 2014. The status of state and other non-U.S. tax examinations varies due to the numerous legal entities and jurisdictions in which the Company operates. The principal items that gave rise to deferred income tax assets and liabilities follow: 2020 2021 Deferred tax assets: Net operating losses and tax credits $ 0.6 0.7 Accrued liabilities 2.4 2.8 Employee compensation and benefits 3.1 2.8 Other 3.0 3.1 Total $ 9.1 9.4 Valuation allowances $ (0.6) (0.7) Deferred tax liabilities: Property, equipment and leasehold improvements (12.4) (16.0) Other (1.2) (0.6) Total $ (13.6) (16.6) Net deferred income tax asset $ (5.1) (7.9) Total income taxes paid were approximately $35.4, $25.7, $37.0, in 2021, 2020, and 2019, respectively. The $0.7 of net operating losses and tax credits can be carried forward indefinitely. (8) STOCK-BASED COMPENSATION Certain employees of the Company participate in Emerson stock-based compensation plans, which include stock options, performance shares and restricted stock. Compensation expense is recognized based on Emerson’s cost of the awards determined under ASC 718, Compensation – Stock Compensation. Stock-based compensation expense recognized by Emerson related to Company employees was $2.8, $1.5 and $1.6 for 2021, 2020 and 2019, respectively. These costs are reflected as compensation expense in these consolidated and combined financial statements. (9) RELATED PARTY TRANSACTIONS As a business unit of Emerson, the Company has been charged for costs directly attributable to ISE and allocated a portion of Emerson’s general corporate costs. All these costs are reflected in the Company’s financial statements. Management believes the methodologies and assumptions used to allocate costs to the Company are reasonable. 16
Emerson maintains a centralized information technology function that supports its business units. Services provided include application hosting, network support, network security, messaging and technology related services. Charges to the Company for these services are based on Emerson’s cost and the Company’s actual usage. Emerson administers a medical insurance program for its U.S. employees in which the Company participates and for which it records the cost of claims incurred each period. The Company participates in other Emerson programs including, but not limited to, workers’ compensation, supply chain and general and product liability insurance. Other Emerson programs are charged to the Company based on costs incurred and usage. The Company utilizes Emerson global shared service centers that host Company-dedicated resources providing customer facing support, engineering and back office financial services. Costs for these resources are charged directly to the Company, with the majority relating to employee compensation and benefits and the remaining portion relating to facility overhead. In addition, general corporate costs incurred by Emerson are allocated to the Company primarily based on its proportionate share of Emerson’s total consolidated revenue, and include the cost of support functions such as procurement, logistics, marketing, human resources, legal, finance, internal audit and other Emerson corporate functions. Costs incurred for Emerson-managed functions for the years ended September 30 follow: 2019 2020 2021 Information technology $ 2.3 2.6 2.9 Insurance / other services $ 10.9 9.7 10.0 Shared services $ 1.2 1.3 1.4 Corporate costs $ 8.6 8.0 9.2 The Company engages in various transactions to sell and purchase goods or services in the ordinary course of business with Emerson affiliates. Purchases primarily consist of motors. Sales to and purchases from Emerson affiliates for the years ended September 30 follow: 2019 2020 2021 Sales to Emerson affiliates $ 0.1 0.1 0.1 Purchases from Emerson affiliates $ 63.9 60.6 64.1 Related-party amounts reported in the balance sheet as of September 30 follow: 2020 2021 Accounts receivable $ 0.2 0.4 Accounts payable $ 10.5 46.1 (10) CONTINGENT LIABILITIES AND COMMITMENTS The Company is a party to a number of pending legal proceedings and claims, including those involving general and product liability, workers’ compensation, and other matters. The Company accrues for such liabilities when it is probable that future costs (including legal fees and expenses) will be incurred and such costs can be reasonably estimated. Accruals are based on developments to date; management's estimates of the outcomes of these matters; the Company's experience in contesting, litigating and settling similar matters; and any related insurance coverage. While the Company believes a material adverse impact is unlikely, it is not possible to predict the ultimate outcome of these matters. Given the inherent uncertainty of litigation, a remote possibility does exist that a future development could have a material adverse impact on the Company. As of September 30, 2021, there were no contingent liabilities (including guarantees, taxes and other claims) that management believes will be material in relation to the Company’s financial statements, nor were there any material commitments outside the normal course of business. (11) ACCUMULATED OTHER COMPREHENSIVE INCOME 2019 2020 2021 Foreign currency translation, beginning $ (1.0) (1.4) (0.9) Other comprehensive income (loss) (0.4) 0.5 0.5 Foreign currency translation, ending $ (1.4) (0.9) (0.4) 17
(12) GEOGRAPHIC INFORMATION Sales by Destination Property, Plant and Equipment, net 2019 2020 2021 2020 2021 Americas $ 471.5 469.8 492.8 $ 113.2 126.8 Europe 22.0 20.9 26.2 0.1 0.1 Asia 40.5 39.9 46.2 0.7 0.7 Total $ 534.0 530.6 565.2 $ 114.0 127.6 Property, plant and equipment primarily relates to manufacturing operations in the United States. (13) OTHER FINANCIAL DATA Items reported in earnings during the years ended September 30 included the following: 2019 2020 2021 Selling expense $ 31.9 30.5 31.4 Depreciation expense $ 13.2 18.5 14.4 Items reported in accrued expenses included the following: 2020 2021 Customer rebates and quantity discounts $ 15.7 14.3 Warranty $ 8.8 12.6 Salaries and other employee compensation $ 10.7 11.0 Profit sharing $ 10.0 9.7 (14) Subsequent Events The Company has evaluated subsequent events through July 15, 2022 which is the date the financial statements were available to be issued. '* * * 18
InSinkErator A Business Unit of Emerson Electric Co. Unaudited Condensed, Consolidated and Combined Financial Statements as of September 30, 2021 and June 30, 2022, and for the Nine Months Ended June 30, 2021 and 2022
INDEX TO UNAUDITED CONDENSED, CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS Unaudited Condensed, Consolidated and Combined Financial Statements of InSinkErator Unaudited Condensed, Consolidated and Combined Statements of Earnings for the nine months ended June 30, 2021 and 2022 3 Unaudited Condensed, Consolidated and Combined Statements of Comprehensive Income for the nine months ended June 30, 2021 and 2022 4 Condensed, Consolidated and Combined Balance Sheets as of September 30, 2021 and June 30, 2022 (Unaudited) 5 Unaudited Condensed, Consolidated and Combined Statements of Equity for the nine months ended June 30, 2021 and 2022 6 Unaudited Condensed, Consolidated and Combined Statements of Cash Flows for the nine months ended June 30, 2021 and 2022 7 Notes to Unaudited Condensed, Consolidated and Combined Financial Statements 8 2
Unaudited Condensed, Consolidated and Combined Statements of Earnings InSinkErator Nine months ended June 30, 2021 and 2022 (Dollars in millions) 2021 2022 Net sales $ 427.7 479.8 Cost of sales 254.8 297.1 Selling, general and administrative expenses 63.9 70.7 Other deductions, net 2.3 2.5 Earnings before income taxes 106.7 109.5 Income taxes 26.9 27.0 Net earnings $ 79.8 82.5 See accompanying Notes to Unaudited Condensed, Consolidated and Combined Financial Statements. 3
Unaudited Condensed, Consolidated and Combined Statements of Comprehensive Income InSinkErator Nine months ended June 30, 2021 and 2022 (Dollars in millions) 2021 2022 Net earnings $ 79.8 82.5 Other comprehensive income (loss), net of tax: Foreign currency translation 0.5 (1.1) Comprehensive income $ 80.3 81.4 See accompanying Notes to Unaudited Condensed, Consolidated and Combined Financial Statements. 4
Condensed, Consolidated and Combined Balance Sheets InSinkErator (Dollars in millions) Sept 30, 2021 June 30, 2022 ASSETS (Unaudited) Current assets Cash and cash equivalents $ 2.8 4.1 Receivables, net of allowances for credit losses of $0.1 and $0.1, respectively 84.0 90.2 Inventories 51.9 75.2 Income tax receivable 1.4 2.9 Other current assets 4.8 5.0 Total current assets 144.9 177.4 Property, plant and equipment, net 127.6 134.9 Other assets Goodwill 2.4 2.2 Other intangible assets 3.4 2.2 Deferred income taxes 1.0 1.2 Other 11.7 10.0 Total other assets 18.5 15.6 Total assets $ 291.0 327.9 LIABILITIES AND EQUITY Current liabilities Accounts payable $ 97.8 75.1 Accrued expenses 65.1 74.3 Income taxes payable 0.9 — Total current liabilities 163.8 149.4 Deferred income taxes 9.0 6.9 Other long-term liabilities 10.0 9.6 Equity Net parent investment 108.6 163.5 Accumulated other comprehensive income (0.4) (1.5) Total equity 108.2 162.0 Total liabilities and equity $ 291.0 327.9 See accompanying Notes to Unaudited Condensed, Consolidated and Combined Financial Statements. 5
Unaudited Condensed, Consolidated and Combined Statements of Equity InSinkErator Nine months ended June 30, 2021 and 2022 (Dollars in millions) 2021 2022 Net parent investment Beginning balance $ 119.4 108.6 Net earnings 79.8 82.5 Net transfer to Emerson (100.0) (27.6) Ending balance 99.2 163.5 Accumulated other comprehensive income (loss) Beginning balance (0.9) (0.4) Foreign currency translation 0.5 (1.1) Ending balance (0.4) (1.5) Total equity $ 98.8 162.0 See accompanying Notes to Unaudited Condensed, Consolidated and Combined Financial Statements. 6
Unaudited Condensed, Consolidated and Combined Statements of Cash Flows InSinkErator Nine months ended June 30, 2021 and 2022 (Dollars in millions) 2021 2022 Operating activities Net earnings $ 79.8 82.5 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 13.4 14.1 Net foreign currency losses 0.1 1.1 Other 0.2 — Changes in assets and liabilities: Receivables 5.7 (7.0) Inventories (3.2) (24.9) Other current assets (0.8) (0.3) Deferred income taxes 2.1 (2.4) Other assets 2.7 2.7 Accounts payable 27.2 (23.8) Accrued expenses 0.4 11.3 Income taxes (1.0) (2.3) Other liabilities (2.5) (2.6) Net cash provided by operating activities 124.1 48.4 Investing activities Capital expenditures (24.9) (19.3) Proceeds from disposal of property, plant and equipment 0.6 0.3 Other, net (0.5) (0.3) Net cash used in investing activities (24.8) (19.3) Financing activities Net transfer to Emerson (100.0) (27.6) Net cash used in financing activities (100.0) (27.6) Effect of exchange rate changes on cash and cash equivalents 0.1 (0.2) Increase (decrease) in cash and cash equivalents (0.6) 1.3 Beginning cash and cash equivalents 3.7 2.8 Ending cash and cash equivalents $ 3.1 4.1 Noncash Disclosures Change in property, plant and equipment additions in accounts payable $ (6.2) 1.0 Right-of-use asset additions $ 1.8 1.2 See accompanying Notes to Unaudited Condensed, Consolidated and Combined Financial Statements. 7
Notes to Unaudited Condensed, Consolidated and Combined Financial Statements InSinkErator Nine months ended June 30, 2021 and 2022 (Dollars in millions, except where noted) (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Description of Business InSinkErator (ISE or the Company) operates as a business unit of Emerson Electric Co.’s (Emerson) Commercial & Residential Solutions platform and is a leading provider of food waste disposals, water products, and other commercial equipment. Product offerings include a range of residential food waste disposals from the standard series up to the high-end power and quiet series which offer more grinding power and noise reduction. Other products include instant hot water dispensers and commercial food waste disposals. Basis of Presentation and Principles of Consolidation The Company has operated as part of Emerson and not as a stand-alone entity. These unaudited condensed, consolidated and combined financial statements present the historical financial position, results of operations, and cash flows of the Company as if it had operated on a stand-alone basis subject to Emerson’s control, and include all accounts of the Company and its subsidiaries and affiliates on a condensed, consolidated and combined basis. Intercompany transactions, profits and balances among ISE entities have been eliminated in consolidation. These financial statements were derived from Emerson’s financial statements and accounting records and have been prepared in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP). Sale and purchase transactions between the Company and other Emerson affiliates are included in the financial statements. See Note 6. Emerson entered into an agreement (the Transaction) as of August 8, 2022 to sell ISE to Whirlpool Corporation for $3 billion. The Transaction is expected to close by the end of calendar 2022, subject to customary regulatory approvals. No adjustment has been made to these unaudited condensed, consolidated, and combined financial statements to reflect specifically included or excluded assets or liabilities under the provisions of the Transaction. As a business unit of Emerson, ISE has been charged for costs directly related to the Company and has been allocated a portion of Emerson’s general corporate costs. All these costs are reflected in the financial statements. The Company participates in various Emerson programs which include information technology services, employee benefits, medical insurance, and other programs. Costs associated with these programs are charged to the Company based on Emerson’s actual cost and the Company’s relative level of usage. The Company also utilizes Emerson’s global shared service centers and is charged for direct costs and its share of facilities overhead. Emerson provides certain oversight and support services, including assistance with management strategy, logistics, marketing, finance, treasury, tax, human resources, legal and other activities. A charge for these services has been allocated to the Company based principally on revenue. While management believes the methodologies and assumptions used to allocate these costs are reasonable, the financial statements do not purport to represent the financial position, or the results of operations, changes in equity, and cash flows of the Company in the future, or what they would have been had the Company operated as a stand-alone entity during the periods presented. Emerson utilizes a centralized treasury function which manages the working capital and financing needs of all its business operations. This function oversees a cash pooling arrangement which sweeps participating ISE cash accounts into pooled Emerson cash accounts on a daily basis. Pooled cash and nontrade intercompany balances attributable to Emerson have not been presented as assets and liabilities in the accompanying unaudited condensed, consolidated and combined financial statements. These balances are reflected as "Net parent investment" in the equity section of the condensed, consolidated and combined balance sheets. Changes in these balances are reflected as "Net transfer to Emerson" in the financing activities section of the unaudited condensed, consolidated and combined statements of cash flows. Cash and cash equivalents from entities not participating in the Emerson centralized treasury function and specifically attributable to the Company have been reflected in the unaudited condensed, consolidated and combined financial statements. 8
In the opinion of management, the accompanying unaudited condensed, consolidated and combined financial statements include all adjustments necessary to fairly present the financial position of the Company as of June 30, 2022 and September 30, 2021, and its results of operations and cash flows for the nine months ended June 30, 2022 and June 30, 2021. Adjustments consist of normal and recurring accruals. The unaudited condensed, consolidated and combined financial statements included herein have been prepared by the Company pursuant to the rules and regulations of the SEC and consequently do not include all disclosures required for annual financial statements presented in conformity with U.S. GAAP. However, the Company believes that the disclosures are adequate to make the information presented not misleading. The unaudited condensed, consolidated and combined financial statements should be read in conjunction with the consolidated and combined financial statements as of and for the year ended September 30, 2021 and the notes thereto. (2) OTHER FINANCIAL INFORMATION Inventories Sept 30, 2021 June 30, 2022 Raw materials $ 17.9 21.5 Work in process 2.4 6.1 Finished products 31.6 47.6 Total inventories $ 51.9 75.2 Property, Plant and Equipment Sept 30, 2021 June 30, 2022 Land $ 7.9 7.9 Buildings 49.4 50.3 Machinery and equipment 197.4 203.7 Construction in progress 27.2 38.7 Property, plant and equipment, at cost 281.9 300.6 Less: Accumulated depreciation (154.3) (165.7) Property, plant and equipment, net $ 127.6 134.9 Leases Sept 30, 2021 June 30, 2022 Assets Operating lease right-of-use assets (Other assets) $ 11.6 10.0 Liabilities Operating lease liabilities (Accrued expenses) $ 2.7 1.5 Operating lease liabilities (Other liabilities) $ 8.8 8.4 9
Items Reported in Accrued Expenses Items reported in accrued expenses include the following: Sept 30, 2021 June 30, 2022 Customer rebates and quantity discounts $ 14.3 20.8 Warranty $ 12.6 14.0 Salaries and other employee compensation $ 11.0 9.8 Product liability $ 4.1 8.4 Profit sharing $ 9.7 7.0 Items Reported in Earnings Items reported in earnings during the nine months ended June 30, 2021 and 2022 include the following: 2021 2022 Selling expense $ 23.7 25.3 Depreciation expense $ 11.7 12.6 (3) OTHER DEDUCTIONS, NET Other deductions, net are summarized as follows for the nine months ended June 30: 2021 2022 Restructuring expense (see Note 4) $ 2.0 1.6 Foreign currency loss, net 0.1 1.1 Other, net 0.2 (0.2) Total $ 2.3 2.5 Other, net is composed of several items that are individually immaterial, including losses on disposals of property, plant and equipment and other items. (4) RESTRUCTURING Restructuring activity reflects costs associated with the Company's efforts to continually improve operational efficiency and deploy assets to remain competitive. Restructuring expenses were $1.6 and $2.0, for the nine months ended June 30, 2022 and 2021, respectively. The change in the liability for the restructuring costs during the nine months ended June 30, 2022 is as follows: 2021 Expense Utilized/Paid 2022 Severance and benefits $ 0.5 0.1 (0.3) 0.3 Facilities — 1.5 (1.5) — Total $ 0.5 1.6 (1.8) 0.3 Costs incurred in 2021 and 2022 primarily related to costs from a facility move including contract termination, outside storage, moving fixed assets, and information technology. (5) GOODWILL AND OTHER INTANGIBLES The change in the carrying value of goodwill during the nine months ended June 30, 2022 is attributable to foreign currency translation. The Company has recognized no impairments of goodwill. Other intangibles consisted of capitalized software for internal use and customer relationships. 10
(6) RELATED PARTY TRANSACTIONS As a business unit of Emerson, the Company has been charged for costs directly attributable to ISE and allocated a portion of Emerson’s general corporate costs. All these costs are reflected in the Company’s financial statements. Management believes the methodologies and assumptions used to allocate costs to the Company are reasonable. Emerson maintains a centralized information technology function that supports its business units. Services provided include application hosting, network support, network security, messaging and technology related services. Charges to the Company for these services are based on Emerson’s cost and the Company’s actual usage. Emerson administers a medical insurance program for its U.S. employees in which the Company participates and for which it records the cost of claims incurred each period. The Company participates in other Emerson programs including, but not limited to, workers’ compensation, supply chain and general and product liability insurance. Other Emerson programs are charged to the Company based on costs incurred and usage. The Company utilizes Emerson global shared service centers that host Company-dedicated resources providing customer facing support, engineering and back office financial services. Costs for these resources are charged directly to the Company, with the majority relating to employee compensation and benefits and the remaining portion relating to facility overhead. In addition, general corporate costs incurred by Emerson are allocated to the Company primarily based on its proportionate share of Emerson’s total consolidated revenue, and include the cost of support functions such as procurement, logistics, marketing, human resources, legal, finance, internal audit and other Emerson corporate functions. Costs incurred for Emerson-managed functions for the nine months ended June 30, 2021 and 2022 are as follows: 2021 2022 Information technology $ 2.2 2.3 Insurance / other services $ 7.5 16.9 Shared services $ 1.0 1.0 Corporate costs $ 6.9 7.9 The Company engages in various transactions to sell and purchase goods or services in the ordinary course of business with Emerson affiliates. Purchases primarily consist of motors. Sales to and purchases from Emerson affiliates for the nine months ended June 30, 2021 and 2022 are as follows: 2021 2022 Sales to Emerson affiliates $ 0.1 0.1 Purchases from Emerson affiliates $ 46.4 66.0 Related-party amounts reported in the balance sheet are as follows: Sept 30, 2021 June 30, 2022 Accounts receivable $ 0.4 0.3 Accounts payable $ 46.1 11.4 (7) CONTINGENT LIABILITIES AND COMMITMENTS The Company is a party to a number of pending legal proceedings and claims, including those involving general and product liability, workers’ compensation, and other matters. The Company accrues for such liabilities when it is probable that future costs (including legal fees and expenses) will be incurred and such costs can be reasonably estimated. Accruals are based on developments to date; management's estimates of the outcomes of these matters; the Company's experience in contesting, litigating and settling similar matters; and any related insurance coverage. While the Company believes a material adverse impact is unlikely, it is not possible to predict the ultimate outcome of these matters. Given the inherent uncertainty of litigation, a remote possibility does exist that a future development could have a material adverse impact on the Company. As of June 30, 2022, there were no contingent liabilities (including guarantees, taxes and other claims) that management believes will be material in relation to the Company’s financial statements, nor were there any material commitments outside the normal course of business. 11
(8) ACCUMULATED OTHER COMPREHENSIVE INCOME Activity in accumulated other comprehensive income (loss) for the nine months ended June 30, 2021 and 2022 are as follows: 2021 2022 Foreign currency translation, beginning $ (0.9) (0.4) Other comprehensive income (loss) 0.5 (1.1) Foreign currency translation, ending $ (0.4) (1.5) (9) GEOGRAPHIC INFORMATION Sales by destination for the nine months ended June 30, 2021 and 2022 and Property, Plant and Equipment, net by geographic region are as follows: Sales by Destination Property, Plant and Equipment, net 2021 2022 Sept 30, 2021 June 30, 2022 Americas $ 371.7 427.3 $ 126.8 134.1 Europe 19.9 20.2 0.1 0.1 Asia 36.1 32.3 0.7 0.7 Total $ 427.7 479.8 $ 127.6 134.9 Property, plant and equipment primarily relates to manufacturing operations in the United States. (10) Subsequent Events The Company has evaluated subsequent events through October 18, 2022 which is the date the financial statements were available to be issued. '* * * 12