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EXCEL - IDEA: XBRL DOCUMENT - Metaldyne Performance Group Inc. | Financial_Report.xls |
EX-31.2 - EX-31.2 - Metaldyne Performance Group Inc. | d901902dex312.htm |
EX-32.1 - EX-32.1 - Metaldyne Performance Group Inc. | d901902dex321.htm |
EX-31.1 - EX-31.1 - Metaldyne Performance Group Inc. | d901902dex311.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
QUARTERLY REPORT
(Mark One)
x | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended March 29, 2015
OR
¨ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to
Commission file number: 1-36774
Metaldyne Performance Group Inc.
(Exact name of registrant as specified in its charter)
Delaware | 47-1420222 | |
State or other jurisdiction of incorporation or organization |
(I.R.S. Employer Identification No.) |
47659 Halyard Drive, Plymouth, MI | 48170 | |
(Address of principal executive offices) | (Zip Code) |
Registrants telephone number, including area code: (734) 207-6200
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | ¨ | Accelerated filer | ¨ | |||
Non-accelerated filer | x | Smaller reporting company | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ¨ NO x
As of May 11, 2015 the registrant had 67,074,927 shares of voting common stock outstanding.
Table of Contents
METALDYNE PERFORMANCE GROUP INC.
FORM 10-Q
QUARTER ENDED MARCH 29, 2015
ITEM 1. |
||||||
1 | ||||||
2 | ||||||
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME |
3 | |||||
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY |
4 | |||||
5 | ||||||
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
6 | |||||
ITEM 2. |
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
22 | ||||
ITEM 3. |
29 | |||||
ITEM 4. |
30 | |||||
ITEM 1. |
30 | |||||
ITEM 1A. |
30 | |||||
ITEM 6. |
31 |
Table of Contents
PART I FINANCIAL INFORMATION
METALDYNE PERFORMANCE GROUP INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands except per share data)
March 29, 2015 |
December 31, 2014 |
|||||||
Assets | ||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 132,032 | 156,498 | |||||
Receivables, net: |
||||||||
Trade |
403,372 | 312,943 | ||||||
Other |
32,331 | 31,943 | ||||||
|
|
|
|
|||||
Total receivables, net |
435,703 | 344,886 | ||||||
Inventories |
193,419 | 204,789 | ||||||
Deferred income taxes |
11,069 | 12,435 | ||||||
Prepaid expenses |
16,242 | 13,004 | ||||||
Other assets |
12,771 | 14,524 | ||||||
|
|
|
|
|||||
Total current assets |
801,236 | 746,136 | ||||||
Property and equipment, net |
742,748 | 750,181 | ||||||
Goodwill |
907,716 | 907,716 | ||||||
Amortizable intangible assets, net |
761,104 | 778,457 | ||||||
Deferred income taxes, noncurrent |
2,243 | 1,359 | ||||||
Other assets |
39,848 | 40,763 | ||||||
|
|
|
|
|||||
Total assets |
$ | 3,254,895 | 3,224,612 | |||||
|
|
|
|
|||||
Liabilities and Stockholders Equity | ||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 293,048 | 285,468 | |||||
Accrued compensation |
44,226 | 50,952 | ||||||
Accrued liabilities |
109,697 | 79,934 | ||||||
Short-term debt |
2,011 | 1,572 | ||||||
Current maturities, long-term debt and capital lease obligations |
16,103 | 16,497 | ||||||
|
|
|
|
|||||
Total current liabilities |
465,085 | 434,423 | ||||||
Long-term debt, less current maturities |
1,910,488 | 1,920,310 | ||||||
Capital lease obligations, less current maturities |
22,855 | 23,425 | ||||||
Deferred income taxes |
259,910 | 260,703 | ||||||
Other long-term liabilities |
57,657 | 60,789 | ||||||
|
|
|
|
|||||
Total liabilities |
2,715,995 | 2,699,650 | ||||||
|
|
|
|
|||||
Stockholders equity: |
||||||||
Common Stock: par $0.001, 400,000 authorized, 67,075 issued and outstanding |
67 | 67 | ||||||
Paid-in capital |
830,536 | 827,307 | ||||||
Deficit |
(243,358 | ) | (269,663 | ) | ||||
Accumulated other comprehensive loss |
(50,989 | ) | (35,248 | ) | ||||
|
|
|
|
|||||
Total equity attributable to stockholders |
536,256 | 522,463 | ||||||
Noncontrolling interest |
2,644 | 2,499 | ||||||
|
|
|
|
|||||
Total stockholders equity |
538,900 | 524,962 | ||||||
|
|
|
|
|||||
Total liabilities and stockholders equity |
$ | 3,254,895 | 3,224,612 | |||||
|
|
|
|
See accompanying notes to unaudited condensed financial statements.
1
Table of Contents
METALDYNE PERFORMANCE GROUP INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share amounts)
Quarter Ended | ||||||||
March 29, 2015 | March 30, 2014 | |||||||
Net sales |
$ | 765,167 | 540,459 | |||||
Cost of sales |
636,628 | 457,193 | ||||||
|
|
|
|
|||||
Gross profit |
128,539 | 83,266 | ||||||
Selling, general and administrative expenses |
56,199 | 29,201 | ||||||
|
|
|
|
|||||
Operating income |
72,340 | 54,065 | ||||||
Interest expense, net |
27,559 | 19,406 | ||||||
Loss on debt extinguishment |
| 362 | ||||||
Other, net |
(5,135 | ) | 1,055 | |||||
|
|
|
|
|||||
Other expense, net |
22,424 | 20,823 | ||||||
|
|
|
|
|||||
Income before tax |
49,916 | 33,242 | ||||||
Income tax expense |
17,340 | 10,546 | ||||||
|
|
|
|
|||||
Net income |
32,576 | 22,696 | ||||||
Income attributable to noncontrolling interest |
135 | 94 | ||||||
|
|
|
|
|||||
Net income attributable to stockholders |
$ | 32,441 | 22,602 | |||||
|
|
|
|
|||||
Weighted average shares outstanding |
67,075 | 67,075 | ||||||
Cash dividends declared per share |
$ | 0.09 | | |||||
Net income per share attributable to stockholders |
||||||||
Basic |
0.48 | 0.34 | ||||||
Diluted |
0.47 | 0.33 |
See accompanying notes to unaudited condensed consolidated financial statements.
2
Table of Contents
METALDYNE PERFORMANCE GROUP INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Quarter Ended | ||||||||
March 29, 2015 | March 30, 2014 | |||||||
Net income |
$ | 32,576 | 22,696 | |||||
Other comprehensive loss, net of tax: |
||||||||
Foreign currency translation |
(15,731 | ) | (817 | ) | ||||
|
|
|
|
|||||
Comprehensive income |
16,845 | 21,879 | ||||||
Less comprehensive income attributable to noncontrolling interest |
145 | 124 | ||||||
|
|
|
|
|||||
Comprehensive income attributable to stockholders |
$ | 16,700 | 21,755 | |||||
|
|
|
|
See accompanying notes to unaudited condensed consolidated financial statements.
3
Table of Contents
METALDYNE PERFORMANCE GROUP INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(In thousands)
Common stock |
Paid-in capital |
Deficit | Accumulated other comprehensive loss |
Noncontrolling interest |
Total stockholders equity |
|||||||||||||||||||
Balance, December 31, 2014 |
$ | 67 | 827,307 | (269,663 | ) | (35,248 | ) | 2,499 | 524,962 | |||||||||||||||
Dividends |
(6,136 | ) | (6,136 | ) | ||||||||||||||||||||
Stock-based compensation expense |
3,337 | 3,337 | ||||||||||||||||||||||
Offering-related costs |
(108 | ) | (108 | ) | ||||||||||||||||||||
Net income |
32,441 | 135 | 32,576 | |||||||||||||||||||||
Other comprehensive income (loss) |
(15,741 | ) | 10 | (15,731 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balance, March 29, 2015 |
$ | 67 | 830,536 | (243,358 | ) | (50,989 | ) | 2,644 | 538,900 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited condensed consolidated financial statements.
4
Table of Contents
METALDYNE PERFORMANCE GROUP INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Quarter Ended | ||||||||
March 29, 2015 | March 30, 2014 | |||||||
Cash flows from operating activities: |
||||||||
Net income |
$ | 32,576 | 22,696 | |||||
Adjustments to reconcile net income to cash provided by operating activities: |
||||||||
Depreciation and amortization |
56,366 | 42,740 | ||||||
Debt fee amortization |
747 | 2,079 | ||||||
Loss on fixed asset dispositions |
216 | 676 | ||||||
Deferred income taxes |
(278 | ) | (1,303 | ) | ||||
Noncash interest expense |
230 | 210 | ||||||
Stock-based compensation expense |
3,337 | 1,292 | ||||||
Foreign currency adjustment |
484 | (44 | ) | |||||
Other |
87 | 218 | ||||||
Changes in assets and liabilities: |
||||||||
Receivables, net |
(100,963 | ) | (58,081 | ) | ||||
Inventories |
7,026 | (30 | ) | |||||
Accounts payable, accrued liabilities and accrued compensation |
60,715 | 34,734 | ||||||
Other, current |
(7,643 | ) | 475 | |||||
Other, non-current |
(306 | ) | 7,298 | |||||
|
|
|
|
|||||
Net cash provided by operating activities |
52,594 | 52,960 | ||||||
Cash flow from investing activities: |
||||||||
Capital expenditures |
(60,724 | ) | (30,788 | ) | ||||
Proceeds from sale of fixed assets |
114 | 107 | ||||||
Capitalized patent costs |
(123 | ) | (95 | ) | ||||
|
|
|
|
|||||
Net cash used for investing activities |
(60,733 | ) | (30,776 | ) | ||||
Cash flows from financing activities: |
||||||||
Payments on long-term debt |
(10,154 | ) | (579 | ) | ||||
Borrowings of revolving lines of credit |
| 89,800 | ||||||
Payments of revolving lines of credit |
| (95,900 | ) | |||||
Other debt, net |
(504 | ) | (1,530 | ) | ||||
Payment of offering related costs |
(108 | ) | | |||||
Other stock activity |
| 325 | ||||||
|
|
|
|
|||||
Net cash used for financing activities |
(10,766 | ) | (7,884 | ) | ||||
Effect of exchange rates on cash |
(5,561 | ) | (432 | ) | ||||
|
|
|
|
|||||
Net increase (decrease) in cash and cash equivalents |
$ | (24,466 | ) | 13,868 | ||||
|
|
|
|
|||||
Cash and cash equivalents: |
||||||||
Cash and cash equivalents, beginning of period |
$ | 156,498 | 68,224 | |||||
Net increase (decrease) in cash and cash equivalents |
(24,466 | ) | 13,868 | |||||
|
|
|
|
|||||
Cash and cash equivalents, end of period |
$ | 132,032 | 82,092 | |||||
|
|
|
|
|||||
Supplementary cash flow information: |
||||||||
Cash paid for income taxes, net |
$ | 4,863 | 3,062 | |||||
Cash paid for interest |
15,973 | 488 | ||||||
Noncash transactions: |
||||||||
Capital expenditures in accounts payables |
21,598 | 9,376 | ||||||
Dividends declared, not yet paid |
6,136 | |
See accompanying notes to unaudited condensed consolidated financial statements.
5
Table of Contents
METALDYNE PERFORMANCE GROUP INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) Organization
Metaldyne Performance Group Inc. is a leading provider of components for use in engine, transmission and driveline (Powertrain) and chassis, suspension, steering and brake component (Safety-Critical) platforms for the global light, commercial and industrial vehicle markets. We produce these components using complex metal-forming manufacturing technologies and processes for a global customer base of vehicle original equipment manufacturers (OEMs) and tier 1 suppliers. Our components help OEMs meet fuel economy, performance and safety standards. Our metal-forming manufacturing technologies and processes include aluminum casting, cold, warm or hot forging, iron casting, and powder metal forming, as well as value-added precision machining and assembly. These technologies and processes are used to create a wide range of customized Powertrain and Safety-Critical components that address requirements for power density (increased component strength to weight ratio), power generation, power/torque transfers, strength and noise, vibration and harshness.
(2) Accounting Policies
Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared by Metaldyne Performance Group Inc. (the Company, MPG, we, our, or its) in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial reporting and as required by Regulation S-X, Rule 10-01. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of the Companys management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of items of a normal and recurring nature) necessary to present fairly the financial position as of March 29, 2015 and the results of operations, comprehensive income and cash flows for the quarters ended March 29, 2015 and March 30, 2014. The results for interim periods are not necessarily indicative of results that may be expected for any other interim period or for the full year.
MPG was formed through the combination of ASP HHI Holdings, Inc. (together with its subsidiaries, HHI), ASP MD Holdings, Inc. (together with its subsidiaries, Metaldyne) and ASP Grede Intermediate Holdings LLC (together with its subsidiaries, Grede) on August 4, 2014 (the Combination). The Combination occurred through mergers with three separate wholly owned merger subsidiaries of MPG. In connection with the Combination, 13.4 million shares of MPG common stock were issued in exchange for the outstanding shares of HHI, Metaldyne and Grede. On November 18, 2014, the outstanding shares of MPG Common Stock were split at a 5-to-1 ratio (the Stock Split). After the Stock Split, 67.1 million shares were outstanding. The number of shares authorized was increased to 400.0 million.
The Combination was accounted for as a reorganization of entities under common control in a manner similar to a pooling of interests, that is, the bases of accounting of HHI, Metaldyne and Grede were carried over to MPG. These financial statements reflect the retrospective application of the MPG capital structure and Stock Split. These financial statements reflect the accounts of HHI and Metaldyne for both periods and Grede for the quarter ended March 29, 2015.
The condensed consolidated balance sheet as of December 31, 2014 was derived from our audited financial statements. The accompanying unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2014.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported therein. Use of significant estimates and judgments are inherent in the accounting for acquisitions, stock-based compensation, income taxes and employee benefit plans, as
6
Table of Contents
well as in the testing of goodwill and long-lived assets for potential impairment. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may be based upon amounts that differ from these estimates.
(3) Recently Issued Accounting Pronouncements Not Yet Adopted
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) 2014-09, Revenue from Contracts with Customers (Topic 606). This guidance will supersede most current revenue recognition guidance, including industry-specific guidance. The underlying principle is that an entity will recognize revenue to depict the transfer of goods or services to customers at an amount that the entity expects to be entitled to in exchange for those goods or services. The guidance provides a five-step analysis of transactions to determine when and how revenue is recognized. Other major provisions include capitalization of certain contract costs, consideration of time value of money in the transaction price, and allowing estimates of variable consideration to be recognized before contingencies are resolved in certain circumstances. The guidance also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from an entitys contracts with customers. The guidance is effective for the interim and annual periods beginning on or after December 15, 2016. Early adoption is not permitted. The guidance permits the use of either a retrospective or cumulative effect transition method. We have not yet selected a transition method and are currently evaluating the impact of the amended guidance on the consolidated financial statements.
In April 2015, the FASB issued ASU 2015-03, InterestImputation of Interest (Topic 835-30). This guidance requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. This guidance is effective for fiscal years and interim periods beginning after December 15, 2015, and requires retrospective application. We expect to adopt this guidance when effective. Upon adoption of this guidance, the debt and total assets presented on our consolidated balance sheet will be reduced by net debt issuance costs, which totaled $20.6 million as of March 29, 2015.
(4) Acquisitions
Grede was acquired on June 2, 2014 (the Grede Transaction). Grede revenues and earnings included in the consolidated statements of operations subsequent to the Grede Transaction were as follows:
Quarter Ended March 29, 2015 |
||||
(In thousands) | ||||
Revenues: Net sales |
$ | 243,437 | ||
Earnings: Income before income taxes |
18,517 |
Supplemental Pro Forma Information
Pro forma net sales, for the quarter ended March 30, 2014 as if the Grede Transaction had occurred on January 1, 2013, were $790.6 million and pro forma income before income taxes was $44.0 million.
(5) Receivables Allowances
Receivables were stated net of the following allowances:
March 29, 2015 |
December 31, 2014 |
|||||||
(In thousands) | ||||||||
Doubtful accounts |
$ | 1,464 | 1,488 | |||||
Pricing accruals and anticipated customer deductions |
6,087 | 4,781 | ||||||
Returns |
1,676 | 1,753 | ||||||
|
|
|
|
|||||
$ | 9,227 | 8,022 | ||||||
|
|
|
|
7
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(6) Inventories
Inventories were as follows:
March 29, 2015 |
December 31, 2014 |
|||||||
(In thousands) | ||||||||
Raw materials |
$ | 63,431 | 67,812 | |||||
Work in process |
70,674 | 69,929 | ||||||
Finished goods |
59,314 | 67,048 | ||||||
|
|
|
|
|||||
Total inventories |
$ | 193,419 | 204,789 | |||||
|
|
|
|
(7) Property and Equipment, Net
Accumulated depreciation as of March 29, 2015 and December 31, 2014 was $315.8 million and $283.5 million, respectively.
(8) Amortizable Intangible Assets
The carrying amounts and accumulated amortization of intangible assets were as follows:
March 29, 2015 | ||||||||||||
Gross Carrying Amount |
Accumulated Amortization |
Net Carrying Amount |
||||||||||
(In thousands) | ||||||||||||
Customer relationships and platforms |
$ | 745,200 | (91,621) | 653,579 | ||||||||
Other |
126,483 | (18,958) | 107,525 | |||||||||
|
|
|
|
|
|
|||||||
Total |
$ | 871,683 | (110,579) | 761,104 | ||||||||
|
|
|
|
|
|
December 31, 2014 | ||||||||||||
Gross Carrying Amount |
Accumulated Amortization |
Net Carrying Amount |
||||||||||
(In thousands) | ||||||||||||
Customer relationships and platforms |
$ | 745,200 | (76,514) | 668,686 | ||||||||
Other |
126,360 | (16,589) | 109,771 | |||||||||
|
|
|
|
|
|
|||||||
Total |
$ | 871,560 | (93,103) | 778,457 | ||||||||
|
|
|
|
|
|
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Table of Contents
(9) Debt
The carrying value of debt was as follows:
March 29, 2015 | December 31, 2014 | |||||||
(In thousands) | ||||||||
Short-term debt: |
||||||||
Revolving lines of credit |
$ | | | |||||
Other short-term debt |
2,011 | 1,572 | ||||||
|
|
|
|
|||||
Total short-term debt |
$ | 2,011 | 1,572 | |||||
|
|
|
|
|||||
Long-term debt: |
||||||||
Term loan facility |
$ | 1,330,000 | 1,340,000 | |||||
Senior notes |
600,000 | 600,000 | ||||||
Other long-term debt (various interest rates) |
545 | 589 | ||||||
|
|
|
|
|||||
Total |
1,930,545 | 1,940,589 | ||||||
Unamortized discount on term loans |
(13,685 | ) | (6,579 | ) | ||||
Current maturities |
(6,372 | ) | (13,700 | ) | ||||
|
|
|
|
|||||
Total long-term debt |
$ | 1,910,488 | 1,920,310 | |||||
|
|
|
|
Debt Activity
In March 2015, the Company made a voluntary prepayment of $10.0 million on the term loan facility.
Accrued interest of $26.4 million and $15.8 million as of March 29, 2015 and December 31, 2014 was reflected in accrued liabilities.
(10) Equity and Dividends
Dividends
On March 10, 2015, our board of directors declared a dividend of $0.09 per share payable on May 26, 2015 to stockholders of record as of May 12, 2015. As of March 29, 2015, $6.1 million was reflected in accrued liabilities for the dividend declared.
Changes in Accumulated Other Comprehensive Loss, Net of Tax
Foreign Currency Items |
Defined Benefit Items |
Total | ||||||||||
(In thousands) | ||||||||||||
Balance, December 31, 2013 |
$ | (3,763 | ) | 464 | (3,299 | ) | ||||||
Other comprehensive income (loss) |
(878 | ) | 31 | (847 | ) | |||||||
|
|
|
|
|
|
|||||||
Balance, March 30, 2014 |
$ | (4,641 | ) | 495 | (4,146 | ) | ||||||
|
|
|
|
|
|
|||||||
Balance, December 31, 2014 |
$ | (27,721 | ) | (7,527 | ) | (35,248 | ) | |||||
Other comprehensive income (loss) |
(16,166 | ) | 425 | (15,741 | ) | |||||||
|
|
|
|
|
|
|||||||
Balance, March 29, 2015 |
$ | (43,887 | ) | (7,102 | ) | (50,989 | ) | |||||
|
|
|
|
|
|
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(11) Other, net
Included within other, net was the following (income) and expense items:
Quarter ended | ||||||||
March 29, 2015 | March 30, 2014 | |||||||
(In thousands) | ||||||||
Foreign currency gains |
$ | (4,995 | ) | (81 | ) | |||
Debt transaction expenses |
| 1,068 | ||||||
Other |
(140 | ) | 68 | |||||
|
|
|
|
|||||
Other, net |
$ | (5,135 | ) | 1,055 | ||||
|
|
|
|
(12) Stock-based Compensation
In August 2014, our board of directors approved an equity incentive plan (the MPG Plan) for officers, key employees and nonemployees. The MPG Plan permits the grant of equity awards to purchase up to 5.9 million shares of MPG common stock. All awards granted on or after August 4, 2014 were issued under the MPG Plan.
Restricted Shares
In March 2015, the Company granted restricted stock awards and restricted stock unit awards to certain employees and nonemployee directors (collectively, the Restricted Shares).
The following table summarizes the terms of the Restricted Shares:
Vesting Terms |
Number of Shares |
Grant-date Fair Value |
||||||
(In thousands) | ||||||||
1/3rd per year on grant-date anniversary |
305 | $ | 18.90 |
The Restricted Shares are being expensed based on their grant-date fair value on a straight-line basis over the requisite service period for the entire award. The grant-date fair value was determined using the fair value of the Companys common stock as of the grant date.
Changes in the number of Restricted Shares outstanding for the quarter ended March 29, 2015 were as follows:
Number of Restricted Shares |
Weighted Average Grant-date Fair Value |
|||||||
(In thousands) | ||||||||
Balance, December 31, 2014 |
847 | $ | 15.00 | |||||
Granted |
305 | 18.90 | ||||||
Forfeited |
(2 | ) | 15.00 | |||||
|
|
|||||||
Balance, March 29, 2015 |
1,150 | 16.04 | ||||||
|
|
10
Table of Contents
Options
In March 2015, the Company granted options to certain employees with the following terms:
Vesting Terms |
Number of Options |
Exercise Price |
Contractual Terms |
|||||||||
(In thousands) | (In years) | |||||||||||
1/3rd per year on grant-date anniversary |
438 | $ | 18.90 | 10 |
The options are being expensed on their grant-date fair value of $9.03 per option on a straight-line basis over the requisite service period for the entire award. The grant-date fair value for the options was determined using a Black-Scholes valuation model based on the following weighted average assumptions:
Exercise price |
$ | 18.90 | ||
Expected term |
6 years | |||
Risk-free rate |
1.8 | % | ||
Expected volatility |
60.0 | % | ||
Expected dividend yield |
1.9 | % | ||
Per share market value of MPG common stock |
$ | 18.90 |
The risk-free rate was determined based on U.S. Treasury yield curves of securities matching the expected term of the awards. The expected term was determined using the simplified method as the Company did not have sufficient historical exercise data to provide a reasonable basis upon which to estimate an expected term. Expected volatility was estimated based on the historical volatility of comparable companies within our industry. The expected dividend yield was determined based on the expected annual dividend amount divided by the common stock price as of the grant date.
Changes in the number of options outstanding for the quarter ended March 29, 2015 were as follows:
Number of Options |
Weighted Average Exercise Price |
Weighted Average Remaining Contractual Term |
Aggregate Intrinsic Value |
|||||||||||||
(In thousands) | (In years) | (In millions) | ||||||||||||||
Balance, December 31, 2014 |
6,442 | $ | 10.54 | 8.5 | ||||||||||||
Granted |
438 | 18.90 | 10.0 | |||||||||||||
|
|
|||||||||||||||
Balance, March 29, 2015 |
6,880 | 11.07 | 8.3 | $ | 51.6 | |||||||||||
|
|
|||||||||||||||
Options exercisable, March 29, 2015 |
2,323 | 9.84 | 8.0 | 20.4 |
Stock-based Compensation Expense
Quarter ended | ||||||||
March 29, 2015 | March 30, 2014 | |||||||
(In thousands) | ||||||||
Restricted shares |
$ | 1,420 | | |||||
Options |
1,917 | 1,292 | ||||||
|
|
|
|
|||||
Total |
$ | 3,337 | 1,292 | |||||
|
|
|
|
|||||
Tax benefit |
$ | 1,158 | 410 |
Compensation expense associated with the outstanding stock-based awards was recognized within selling, general and administrative expense. Total unrecognized compensation cost related to non-vested awards as of March 29, 2015 was approximately $44.1 million, and is expected to be recognized ratably over the remaining vesting terms.
(13) Income Taxes
The Company is required to adjust its effective tax rate each quarter based upon its estimated annual effective tax rate. The Company must also record the tax impact of certain discrete, unusual or infrequently occurring items, including changes in judgment about valuation allowances and effects of changes in tax laws or rates, in the interim period in which they occur. In addition, jurisdictions with a projected loss for the year or a year-to-date loss where no tax benefit can be recognized are excluded from the estimated annual effective tax rate.
11
Table of Contents
Income tax expense was $17.3 million for the quarter ended March 29, 2015 and $10.5 million for the quarter ended March 30, 2014. The effective income tax rate was 34.7% for the quarter ended March 29, 2015 and 31.7% for the quarter ended March 30, 2014.
The effective tax rate for the quarters ended March 29, 2015 and March 30, 2014 varies from statutory rates primarily due to income taxes on foreign earnings which are taxed at rates different from the U.S. statutory rate and other permanent items.
(14) Retirement Plans
The net expense recognized for the Companys defined benefit pension plans was as follows:
Quarter ended | ||||||||
March 29, 2015 | March 30, 2014 | |||||||
(In thousands) | ||||||||
Service cost |
$ | 289 | 281 | |||||
Interest cost |
877 | 539 | ||||||
Expected return on plan assets |
(889 | ) | (468 | ) | ||||
Other |
(1 | ) | (3 | ) | ||||
|
|
|
|
|||||
Net expense |
$ | 276 | 349 | |||||
|
|
|
|
(15) Commitments and Contingencies
Various claims, lawsuits and administrative proceedings are pending or threatened against the Company or its subsidiaries, covering a wide range of matters that arise in the ordinary course of the Companys business activities, primarily with respect to commercial, environmental and occupational and employment matters. Commercial disputes vary in nature and have historically been resolved by negotiations between the parties. Although the outcome of any of these matters cannot be predicted with certainty, the Company does not believe that any of these proceedings or matters in which the Company is currently involved will have a material adverse effect on the Companys results of operations, financial position or cash flows.
In addition, the Company is conducting remediation actions at certain of its facilities. A reserve estimate for each environmental matter is established using standard engineering cost estimating techniques on an undiscounted basis. In determining such costs, consideration is given to the professional judgment of Company environmental engineers. The Company believes any liability that may result from the resolution of environmental matters for which sufficient information is available to support these cost estimates will not have a material adverse effect on the Companys results of operations, financial position or cash flows. The Company cannot predict the effect of compliance with environmental laws and regulations with respect to unknown environmental matters on the Companys results of operations, financial position or cash flows or the possible effect of compliance with environmental requirements imposed in the future.
12
Table of Contents
(16) Fair Value
March 29, 2015 | December 31, 2014 | |||||||||||||||
Carrying Value |
Fair Value |
Carrying Value |
Fair Value |
|||||||||||||
(In thousands) | ||||||||||||||||
Senior notes |
$ | 600,000 | 637,500 | 600,000 | 615,000 | |||||||||||
Term loan facility |
1,323,628 | 1,333,325 | 1,333,421 | 1,343,350 |
The fair values of the senior notes and term loan facility were estimated using quoted market prices. As the markets for this debt is not active, the debt is categorized as Level 2 within the fair value hierarchy.
The fair value of the Companys other financial instruments, cash and cash equivalents, revolving lines of credit and other long-term debt, are estimated to equal their carrying values due to their nature.
(17) Net Income per Share Attributable to Stockholders (EPS)
The Companys basic and diluted EPS were calculated as follows:
Quarter ended | ||||||||
March 29, 2015 | March 30, 2014 | |||||||
(In thousands except per share amounts) |
||||||||
Weighted-average shares outstanding |
||||||||
Basic shares |
67,075 | 67,075 | ||||||
Equivalent shares for outstanding stock-based compensation awards |
1,515 | 675 | ||||||
|
|
|
|
|||||
Diluted shares |
68,590 | 67,750 | ||||||
|
|
|
|
|||||
Income attributable to stockholders |
$ | 32,441 | 22,602 | |||||
Basic EPS attributable to stockholders |
$ | 0.48 | 0.34 | |||||
Diluted EPS attributable to stockholders |
0.47 | 0.33 |
(18) Related Party Transactions
HHI, Metaldyne and Grede were parties to management services agreement with American Securities. These agreements were terminated upon completion of the initial public offering of the Companys common stock on December 12, 2014. Management fees and expenses totaling $14.7 million for the quarter ended March 30, 2014 were paid to American Securities under the agreements. There were no amounts due to American Securities as of March 29, 2015 and December 31, 2014.
As of March 29, 2015, affiliates of American Securities held 78.5% of the outstanding common stock of the Company.
13
Table of Contents
(19) Segment Information
The Company is organized and operated as three operating segments: the HHI segment, the Metaldyne segment and the Grede segment.
Segment information was as follows:
Quarter ended March 29, 2015 | ||||||||||||||||||||
External Sales |
Intersegment Sales |
Adjusted EBITDA |
Capital Spending |
Depreciation/ Amortization |
||||||||||||||||
(In thousands) | ||||||||||||||||||||
HHI |
$ | 244,060 | 2,305 | 46,792 | 21,317 | 18,783 | ||||||||||||||
Metaldyne |
277,670 | 299 | 47,080 | 18,880 | 19,497 | |||||||||||||||
Grede |
243,437 | 81 | 38,698 | 20,527 | 18,086 | |||||||||||||||
Elimination and other |
| (2,685 | ) | | | | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 765,167 | | 132,570 | 60,724 | 56,366 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
Quarter ended March 30, 2014 | ||||||||||||||||||||
External Sales |
Intersegment Sales |
Adjusted EBITDA |
Capital Spending |
Depreciation/ Amortization |
||||||||||||||||
(In thousands) | ||||||||||||||||||||
HHI |
$ | 242,048 | 1,404 | 46,391 | 14,359 | 19,096 | ||||||||||||||
Metaldyne |
298,411 | 246 | 53,318 | 16,429 | 23,644 | |||||||||||||||
Grede |
| | | | | |||||||||||||||
Elimination and other |
| (1,650 | ) | | | | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 540,459 | | 99,709 | 30,788 | 42,740 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
Elimination and other above reflects the elimination of intercompany sales.
The reconciliation from the Companys net income to Adjusted EBITDA was as follows:
Quarter ended | ||||||||
March 29, 2015 | March 30, 2014 | |||||||
(In thousands) | ||||||||
Net income |
$ | 32,576 | 22,696 | |||||
Income tax expense |
17,340 | 10,546 | ||||||
Interest expense, net |
27,559 | 19,406 | ||||||
Depreciation and amortization |
56,366 | 42,740 | ||||||
Gain on foreign currency |
(4,995 | ) | (81 | ) | ||||
Loss on fixed assets |
216 | 676 | ||||||
Loss on debt extinguishment |
| 362 | ||||||
Debt transaction expenses |
102 | 1,067 | ||||||
Stock-based compensation |
3,337 | 1,292 | ||||||
Sponsor management fees |
| 1,000 | ||||||
Non-recurring acquisition and purchase accounting items |
(349 | ) | | |||||
Non-recurring operational items |
418 | 5 | ||||||
|
|
|
|
|||||
Adjusted EBITDA |
$ | 132,570 | 99,709 | |||||
|
|
|
|
14
Table of Contents
(20) Guarantor
Our senior notes and outstanding balances under our senior credit facilities are guaranteed by all of the Companys existing and future domestic subsidiaries (Guarantor Subsidiaries). All of the Guarantor Subsidiaries are 100% owned by Metaldyne Performance Group Inc. (Parent) and MPG Holdco I Inc., the Companys wholly owned subsidiary (Issuer). The guarantee is full, unconditional, joint and several. The Companys non-domestic subsidiaries (Non-Guarantor Subsidiaries) have not guaranteed the senior notes or the senior credit facilities.
The accompanying supplemental condensed, consolidating financial information is presented using the equity method of accounting for all periods presented. Under this method, investments in subsidiaries are recorded at cost and adjusted for the Companys share in the subsidiaries cumulative results of operations, capital contributions and distributions and other changes in equity. Elimination entries relate primarily to the elimination of investments in subsidiaries and associated intercompany balances and transactions.
15
Table of Contents
Unaudited Condensed Consolidating Balance Sheet
March 29, 2015
(In thousands)
Parent | Issuer | Guarantor | Non-Guarantor | Eliminations | Consolidated | |||||||||||||||||||
Assets | ||||||||||||||||||||||||
Current assets: |
||||||||||||||||||||||||
Cash and cash equivalents |
$ | 1 | 31,072 | 8,188 | 92,771 | 132,032 | ||||||||||||||||||
Receivables, net: |
||||||||||||||||||||||||
Trade |
| | 332,706 | 72,353 | (1,687 | ) | 403,372 | |||||||||||||||||
Other |
| | 54,534 | 21,686 | (43,889 | ) | 32,331 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total receivables, net |
| | 387,240 | 94,039 | (45,576 | ) | 435,703 | |||||||||||||||||
Inventories |
| | 148,049 | 45,370 | | 193,419 | ||||||||||||||||||
Deferred income taxes |
| | 8,560 | 2,509 | | 11,069 | ||||||||||||||||||
Prepaid expenses |
649 | 4,761 | 6,356 | 4,476 | | 16,242 | ||||||||||||||||||
Other assets |
| | 6,015 | 6,756 | | 12,771 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total current assets |
650 | 35,833 | 564,408 | 245,921 | (45,576 | ) | 801,236 | |||||||||||||||||
Property and equipment, net |
| | 521,831 | 220,917 | | 742,748 | ||||||||||||||||||
Goodwill |
| | 673,209 | 234,507 | | 907,716 | ||||||||||||||||||
Amortizable intangible assets, net |
| | 602,690 | 158,414 | | 761,104 | ||||||||||||||||||
Deferred income taxes, noncurrent |
| | | 2,243 | | 2,243 | ||||||||||||||||||
Other assets |
| 23,834 | 37,401 | 13,340 | (34,727 | ) | 39,848 | |||||||||||||||||
Intercompany receivables |
26,429 | 1,862,585 | | | (1,889,014 | ) | | |||||||||||||||||
Investment in subsidiaries |
532,776 | 564,060 | 653,419 | | (1,750,255 | ) | | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total assets |
$ | 559,855 | 2,486,312 | 3,052,958 | 875,342 | (3,719,572 | ) | 3,254,895 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Liabilities and Stockholders Equity | ||||||||||||||||||||||||
Current liabilities: |
||||||||||||||||||||||||
Accounts payable |
$ | | 1,403 | 214,724 | 93,542 | (16,621 | ) | 293,048 | ||||||||||||||||
Accrued compensation |
| 1,038 | 28,826 | 14,362 | | 44,226 | ||||||||||||||||||
Accrued liabilities |
17,782 | 27,467 | 38,189 | 55,301 | (29,042 | ) | 109,697 | |||||||||||||||||
Short-term debt |
| | | 2,011 | | 2,011 | ||||||||||||||||||
Current maturities, long-term debt and capital lease obligations |
| 13,500 | 2,400 | 203 | | 16,103 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total current liabilities |
17,782 | 43,408 | 284,139 | 165,419 | (45,663 | ) | 465,085 | |||||||||||||||||
Long-term debt, less current maturities |
| 1,910,128 | 12,827 | 22,173 | (34,640 | ) | 1,910,488 | |||||||||||||||||
Capital lease obligations |
| | 22,818 | 37 | | 22,855 | ||||||||||||||||||
Deferred income taxes |
| | 254,130 | 5,780 | | 259,910 | ||||||||||||||||||
Other long-term liabilities |
| | 32,343 | 25,314 | | 57,657 | ||||||||||||||||||
Intercompany payable |
5,817 | | 1,882,641 | 556 | (1,889,014 | ) | | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total liabilities |
23,599 | 1,953,536 | 2,488,898 | 219,279 | (1,969,317 | ) | 2,715,995 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Stockholders equity: |
||||||||||||||||||||||||
Total equity attributable to stockholders |
536,256 | 532,776 | 564,060 | 653,419 | (1,750,255 | ) | 536,256 | |||||||||||||||||
Noncontrolling interest |
| | | 2,644 | | 2,644 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total stockholders equity |
536,256 | 532,776 | 564,060 | 656,063 | (1,750,255 | ) | 538,900 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total liabilities and stockholders equity |
$ | 559,855 | 2,486,312 | 3,052,958 | 875,342 | (3,719,572 | ) | 3,254,895 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
16
Table of Contents
Unaudited Condensed Consolidating Balance Sheet
December 31, 2014
(In thousands)
Parent | Issuer | Guarantor | Non-Guarantor | Eliminations | Consolidated | |||||||||||||||||||
Assets | ||||||||||||||||||||||||
Current assets: |
||||||||||||||||||||||||
Cash and cash equivalents |
$ | 1 | 52,253 | 3,182 | 101,062 | | 156,498 | |||||||||||||||||
Receivables, net: |
||||||||||||||||||||||||
Trade |
| | 253,648 | 61,805 | (2,510 | ) | 312,943 | |||||||||||||||||
Other |
| 266 | 55,750 | 19,511 | (43,584 | ) | 31,943 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total receivables, net |
| 266 | 309,398 | 81,316 | (46,094 | ) | 344,886 | |||||||||||||||||
Inventories |
| | 157,379 | 47,410 | | 204,789 | ||||||||||||||||||
Deferred income taxes |
| | 8,560 | 3,875 | | 12,435 | ||||||||||||||||||
Prepaid expenses |
600 | 2,770 | 6,986 | 2,648 | | 13,004 | ||||||||||||||||||
Other assets |
| | 6,425 | 8,099 | | 14,524 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total current assets |
601 | 55,289 | 491,930 | 244,410 | (46,094 | ) | 746,136 | |||||||||||||||||
Property and equipment, net |
| | 517,700 | 232,481 | | 750,181 | ||||||||||||||||||
Goodwill |
| | 673,209 | 234,507 | | 907,716 | ||||||||||||||||||
Amortizable intangible assets, net |
| | 616,313 | 162,144 | | 778,457 | ||||||||||||||||||
Deferred income taxes, noncurrent |
| | | 1,359 | | 1,359 | ||||||||||||||||||
Other assets |
| 24,581 | 15,694 | 13,439 | (12,951 | ) | 40,763 | |||||||||||||||||
Intercompany receivables |
11,982 | 1,858,569 | | | (1,870,551 | ) | | |||||||||||||||||
Investment in subsidiaries |
516,381 | 529,838 | 656,504 | | (1,702,723 | ) | | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total assets |
$ | 528,964 | 2,468,277 | 2,971,350 | 888,340 | (3,632,319 | ) | 3,224,612 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Liabilities and Stockholders Equity | ||||||||||||||||||||||||
Current liabilities: |
||||||||||||||||||||||||
Accounts payable |
$ | | 538 | 197,088 | 103,662 | (15,820 | ) | 285,468 | ||||||||||||||||
Accrued compensation |
| | 36,357 | 14,595 | | 50,952 | ||||||||||||||||||
Accrued liabilities |
918 | 17,937 | 38,353 | 53,124 | (30,398 | ) | 79,934 | |||||||||||||||||
Short-term debt |
| | 268 | 1,304 | | 1,572 | ||||||||||||||||||
Current maturities, long-term debt and capital lease obligations |
| 13,500 | (19,034 | ) | 22,031 | | 16,497 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total current liabilities |
918 | 31,975 | 253,032 | 194,716 | (46,218 | ) | 434,423 | |||||||||||||||||
Long-term debt, less current maturities |
| 1,919,921 | 12,826 | 390 | (12,827 | ) | 1,920,310 | |||||||||||||||||
Capital lease obligations |
| | 23,384 | 41 | | 23,425 | ||||||||||||||||||
Deferred income taxes |
| | 254,433 | 6,270 | | 260,703 | ||||||||||||||||||
Other long-term liabilities |
| | 32,869 | 27,920 | | 60,789 | ||||||||||||||||||
Intercompany payables |
5,583 | | 1,864,968 | | (1,870,551 | ) | | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total liabilities |
6,501 | 1,951,896 | 2,441,512 | 229,337 | (1,929,596 | ) | 2,699,650 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Stockholders equity: |
||||||||||||||||||||||||
Total equity attributable to stockholders |
522,463 | 516,381 | 529,838 | 656,504 | (1,702,723 | ) | 522,463 | |||||||||||||||||
Noncontrolling interest |
| | | 2,499 | | 2,499 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total stockholders equity |
522,463 | 516,381 | 529,838 | 659,003 | (1,702,723 | ) | 524,962 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total liabilities and stockholders equity |
$ | 528,964 | 2,468,277 | 2,971,350 | 888,340 | (3,632,319 | ) | 3,224,612 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
17
Table of Contents
Unaudited Condensed Consolidating Statements of Operations
(In thousands)
For the quarter ended March 29, 2015 | Parent | Issuer | Guarantor | Non-Guarantor | Eliminations | Consolidated | ||||||||||||||||||
Net sales |
$ | | | 611,616 | 182,765 | (29,214 | ) | 765,167 | ||||||||||||||||
Cost of sales |
| | 511,398 | 154,444 | (29,214 | ) | 636,628 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Gross profit |
| | 100,218 | 28,321 | | 128,539 | ||||||||||||||||||
Selling, general and administrative expenses |
| | 45,805 | 10,394 | | 56,199 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Operating profit |
| | 54,413 | 17,927 | | 72,340 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Interest expense, net |
| 26,133 | (990 | ) | 2,416 | | 27,559 | |||||||||||||||||
Other, net |
| | (4,086 | ) | (1,049 | ) | | (5,135 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Other expense, net |
| 26,133 | (5,076 | ) | 1,367 | | 22,424 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income (loss) before tax |
| (26,133 | ) | 59,489 | 16,560 | | 49,916 | |||||||||||||||||
Income tax expense (benefit) |
| (8,306 | ) | 19,045 | 6,601 | | 17,340 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income (loss) before from equity in subsidiaries |
| (17,827 | ) | 40,444 | 9,959 | | 32,576 | |||||||||||||||||
Earnings from equity in subsidiaries |
32,441 | 50,268 | 9,824 | | (92,533 | ) | | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income |
32,441 | 32,441 | 50,268 | 9,959 | (92,533 | ) | 32,576 | |||||||||||||||||
Income attributable to noncontrolling interest |
| | | 135 | | 135 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income attributable to stockholders |
$ | 32,441 | 32,441 | 50,268 | 9,824 | (92,533 | ) | 32,441 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
For the quarter ended March 30, 2014 | Parent | Issuer | Guarantor | Non-Guarantor | Eliminations | Consolidated | ||||||||||||||||||
Net sales |
$ | | | 401,140 | 168,856 | (29,537 | ) | 540,459 | ||||||||||||||||
Cost of sales |
| | 342,444 | 144,286 | (29,537 | ) | 457,193 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Gross profit |
| | 58,696 | 24,570 | | 83,266 | ||||||||||||||||||
Selling, general and administrative expenses |
| | 21,343 | 7,858 | | 29,201 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Operating profit |
| | 37,353 | 16,712 | | 54,065 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Interest expense, net |
| | 17,099 | 2,307 | | 19,406 | ||||||||||||||||||
Loss on debt extinguishment |
| | 362 | | | 362 | ||||||||||||||||||
Other, net |
| | (3,380 | ) | 4,435 | | 1,055 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Other expense, net |
| | 14,081 | 6,742 | | 20,823 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income before tax |
| | 23,272 | 9,970 | | 33,242 | ||||||||||||||||||
Income tax expense |
| | 8,566 | 1,980 | | 10,546 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income before from equity in subsidiaries |
| | 14,706 | 7,990 | | 22,696 | ||||||||||||||||||
Earnings from equity in subsidiaries |
22,602 | 22,602 | 7,896 | | (53,100 | ) | | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income |
22,602 | 22,602 | 22,602 | 7,990 | (53,100 | ) | 22,696 | |||||||||||||||||
Income attributable to noncontrolling interest |
| | | 94 | | 94 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income attributable to stockholders |
$ | 22,602 | 22,602 | 22,602 | 7,896 | (53,100 | ) | 22,602 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
18
Table of Contents
Unaudited Condensed Consolidating Statements of Comprehensive Income (Loss)
(In thousands)
Parent | Issuer | Guarantor | Non-Guarantor | Eliminations | Consolidated | |||||||||||||||||||
For the quarter ended March 29, 2015 |
||||||||||||||||||||||||
Net income |
$ | 32,441 | 32,441 | 50,268 | 9,959 | (92,533 | ) | 32,576 | ||||||||||||||||
Other comprehensive loss, net of tax: |
||||||||||||||||||||||||
Foreign currency translation |
(15,731 | ) | (16,035 | ) | (16,035 | ) | (12,898 | ) | 44,968 | (15,731 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Comprehensive income (loss) |
16,710 | 16,406 | 34,233 | (2,939 | ) | (47,565 | ) | 16,845 | ||||||||||||||||
Less comprehensive income attributable to noncontrolling interest |
| | | 145 | | 145 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Comprehensive income (loss) attributable to stockholders |
$ | 16,710 | 16,406 | 34,233 | (3,084 | ) | (47,565 | ) | 16,700 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
For the quarter ended March 30, 2014 |
||||||||||||||||||||||||
Net income |
$ | 22,602 | 22,602 | 22,602 | 7,990 | (53,100 | ) | 22,696 | ||||||||||||||||
Other comprehensive loss, net of tax: |
||||||||||||||||||||||||
Foreign currency translation |
(817 | ) | (817 | ) | (817 | ) | (360 | ) | 1,994 | (817 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Comprehensive income |
21,785 | 21,785 | 21,785 | 7,630 | (51,106 | ) | 21,879 | |||||||||||||||||
Less comprehensive income attributable to noncontrolling interest |
| | | 124 | | 124 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Comprehensive income attributable to stockholders |
$ | 21,785 | 21,785 | 21,785 | 7,506 | (51,106 | ) | 21,755 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
19
Table of Contents
Unaudited Condensed Consolidating Statements of Cash Flows
(In thousands)
Parent | Issuer | Guarantor | Non-Guarantor | Eliminations | Consolidated | |||||||||||||||||||
For the quarter ended March 29, 2015 |
||||||||||||||||||||||||
Cash flows from operating activities: |
||||||||||||||||||||||||
Net cash provided by (used for) operating activities |
$ | 14,321 | (7,167 | ) | 35,038 | 10,402 | | 52,594 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash flows from investing activities: |
||||||||||||||||||||||||
Capital expenditures |
| | (46,376 | ) | (14,348 | ) | | (60,724 | ) | |||||||||||||||
Proceeds from sale of fixed assets |
| | 104 | 10 | | 114 | ||||||||||||||||||
Capitalized patent costs |
| | (123 | ) | | | (123 | ) | ||||||||||||||||
Intercompany activity |
(14,213 | ) | (4,014 | ) | | | 18,227 | | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash used for investing activities |
(14,213 | ) | (4,014 | ) | (46,395 | ) | (14,338 | ) | 18,227 | (60,733 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash flows from financing activities: |
||||||||||||||||||||||||
Payments on long-term debt |
| (10,000 | ) | (154 | ) | | | (10,154 | ) | |||||||||||||||
Other debt, net |
| | (1,154 | ) | 650 | | (504 | ) | ||||||||||||||||
Payment of offering related costs |
(108 | ) | | | | | (108 | ) | ||||||||||||||||
Intercompany activity |
| | 17,671 | 556 | (18,227 | ) | | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash provided by (used for) financing activities |
(108 | ) | (10,000 | ) | 16,363 | 1,206 | (18,227 | ) | (10,766 | ) | ||||||||||||||
Effect of exchange rates on cash |
| | | (5,561 | ) | | (5,561 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net increase (decrease) in cash and cash equivalents |
$ | | (21,181 | ) | 5,006 | (8,291 | ) | | (24,466 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash and cash equivalents: |
||||||||||||||||||||||||
Cash and cash equivalents, beginning of period |
$ | 1 | 52,253 | 3,182 | 101,062 | | 156,498 | |||||||||||||||||
Net increase (decrease) in cash and cash equivalents |
| (21,181 | ) | 5,006 | (8,291 | ) | | (24,466 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash and cash equivalents, end of period |
$ | 1 | 31,072 | 8,188 | 92,771 | | 132,032 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
For the quarter ended March 30, 2014 |
||||||||||||||||||||||||
Cash flows from operating activities: |
||||||||||||||||||||||||
Net cash provided by operating activities |
$ | | | 36,129 | 16,831 | | 52,960 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash flows from investing activities: |
||||||||||||||||||||||||
Capital expenditures |
| | (22,864 | ) | (7,924 | ) | | (30,788 | ) | |||||||||||||||
Proceeds from sale of fixed assets |
| | 106 | 1 | | 107 | ||||||||||||||||||
Capitalized patent costs |
| | (95 | ) | | | (95 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash used for investing activities |
| | (22,853 | ) | (7,923 | ) | | (30,776 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash flows from financing activities: |
||||||||||||||||||||||||
Borrowings of revolving lines of credit |
| | 89,800 | | | 89,800 | ||||||||||||||||||
Repayments of revolving lines of credit |
| | (95,900 | ) | | | (95,900 | ) | ||||||||||||||||
Principal payments of long-term debt |
| | (579 | ) | | | (579 | ) | ||||||||||||||||
Other debt, net |
| | (1,790 | ) | 260 | | (1,530 | ) | ||||||||||||||||
Other stock activity |
| | 325 | | | 325 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash provided by (used for) financing activities |
| | (8,144 | ) | 260 | | (7,884 | ) | ||||||||||||||||
Effect of exchange rates on cash |
| | | (432 | ) | | (432 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net increase in cash and cash equivalents |
$ | | | 5,132 | 8,736 | | 13,868 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash and cash equivalents: |
||||||||||||||||||||||||
Cash and cash equivalents, beginning of period |
$ | | | 720 | 67,504 | | 68,224 | |||||||||||||||||
Net increase in cash and cash equivalents |
| | 5,132 | 8,736 | | 13,868 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash and cash equivalents, end of period |
$ | | | 5,852 | 76,240 | | 82,092 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
20
Table of Contents
(21) Subsequent events
On May 8, 2015, the Company launched an offer to exchange notes registered (the Registered Notes) with the Securities and Exchange Commission (SEC) for its existing senior notes that are not registered with the SEC. The Registered Notes have substantially identical terms as the senior notes. The exchange offer was made pursuant to a prospectus included in a Registration Statement on Form S-4 that was filed with the SEC on May 1, 2015 and declared effective by the SEC on May 8, 2015.
On May 8, 2015, the Company amended its senior credit facilities to reduce the applicable interest rates on our term loan facility and to refinance our former U.S. Dollar denominated term loan with new U.S. Dollar and Euro dominated term loans as follows:
Principal | Interest Rate | |||||
(In thousands) |
||||||
U.S. Dollar denominated |
$ | 1,072,574 | Libor, bearing a 1% floor, plus an applicable margin of 2.75% | |||
Euro denominated (225,000) |
255,328 | Euribor, bearing a 1% floor, plus an applicable margin of 2.75% | ||||
|
|
|||||
Total |
$ | 1,327,902 | ||||
|
|
The above terms reduced the stated interest rate on our term loan facility by 50 basis points. The Euro denominated tranche was issued at an original issuance discount of 50 basis points, or $1.3 million. The Company also incurred estimated debt issuance fees of approximately $1.7 million. All other terms on the senior credit facilities remain substantially unchanged.
21
Table of Contents
ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
You should read the following discussion in conjunction with Managements Discussion and Analysis of Financial Conditions and Results of Operations included in our Annual Report for the year ended December 31, 2014 as filed on March 16, 2015 with the Securities and Exchange Commission (SEC) and the Notes to our Unaudited Condensed Consolidated Financial Statements included elsewhere in this report.
INFORMATION ABOUT FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (Form 10-Q), including Managements Discussion and Analysis of Financial Condition and Results of Operations in Item 2, contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We may also make forward-looking statements in other reports filed with the SEC, in materials delivered to stockholders, and in press releases. In addition, our representatives may from time to time make oral forward-looking statements.
All statements other than statements of historical fact or relating to present facts or current conditions included in this Form 10-Q are forward-looking statements. Forward-looking statements give our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as anticipate, estimate, expect, will, project, plan, intend, believe, may, should, could, can have, likely and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events.
The forward-looking statements contained in this Form 10-Q are based on assumptions that we have made in light of our industry experience and our perceptions of historical trends, current conditions, expected future developments and other factors we believe are appropriate under the circumstances. As you read and consider this Form 10-Q, you should understand that these statements are not guarantees of performance or results. They involve risks, uncertainties (many of which are beyond our control) and assumptions. Although we believe that these forward-looking statements are based on reasonable assumptions, you should be aware that many factors could affect our actual operating and financial performance and cause our performance to differ materially from the performance anticipated in the forward-looking statements. We believe these factors include, but are not limited to, those described under or incorporated in Item 1A. Risk Factors and Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations. Should one or more of these risks or uncertainties materialize, or should any of these assumptions prove incorrect, our actual operating and financial performance may vary in material respects from the performance projected in these forward-looking statements.
Any forward-looking statement made by us in this Form 10-Q speaks only as of the date on which we make it. Factors or events that could cause our actual operating and financial performance to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.
Overview
We are a leading provider of highly-engineered components for use in Powertrain and Safety-Critical Platforms for the global light, commercial and industrial vehicle markets. We produce these components using complex metal-forming manufacturing technologies and processes for a global customer base of vehicle OEMs and Tier I suppliers. We are headquartered in Plymouth, Michigan, and our manufacturing is conducted in 56 production facilities located throughout North and South America, Europe and Asia.
22
Table of Contents
Our Segments
We are organized in, operate and report our results of operations for three segments:
| HHI segment, which is comprised of the HHI business; |
| Metaldyne segment, which is comprised of the Metaldyne business; and |
| Grede segment, which is comprised of the Grede business. |
We allocate the corporate costs of MPG equally among the three segments due to their similar size and nature of the costs, unless a cost is specific to a certain segment.
Results of Operations
Quarter Ended March 29, 2015 compared to Quarter Ended March 30, 2014
The following table sets forth our statement of operations for the periods presented.
Quarter Ended | ||||||||
March 29, 2015 | March 30, 2014 | |||||||
(In millions) | ||||||||
Net sales |
$ | 765.2 | 540.5 | |||||
Cost of sales |
636.7 | 457.2 | ||||||
|
|
|
|
|||||
Gross profit |
128.5 | 83.3 | ||||||
Selling, general and administrative expenses |
56.2 | 29.2 | ||||||
|
|
|
|
|||||
Operating income |
72.3 | 54.1 | ||||||
Interest expense, net |
27.6 | 19.4 | ||||||
Loss on debt extinguishment |
| 0.3 | ||||||
Other, net |
(5.2 | ) | 1.2 | |||||
|
|
|
|
|||||
Income before taxes |
49.9 | 33.2 | ||||||
Income tax provision |
17.3 | 10.5 | ||||||
|
|
|
|
|||||
Net income |
32.6 | 22.7 | ||||||
Income attributable to noncontrolling interests |
0.2 | 0.1 | ||||||
|
|
|
|
|||||
Net income attributable to stockholders |
$ | 32.4 | 22.6 | |||||
|
|
|
|
Results for our Grede segment are included in the quarter ended March 29, 2015 and excluded from the quarter ended March 30, 2014, as the latter period precedes the Grede Transaction, which occurred in June 2014.
Net Sales
Net sales were $765.2 million for the quarter ended March 29, 2015 as compared to $540.5 million for the quarter ended March 30, 2014, an increase of $224.7 million. This increase was primarily driven by the inclusion of Grede segment results of $243.4 million and increased volumes, partially offset by foreign currency movements of $18.4 million, lower raw material surcharge pass-through of $4.9 million and net price decreases.
23
Table of Contents
The following table sets forth our net sales by segment for the quarters ended March 29, 2015 and March 30, 2014:
Quarter Ended | Increase | Percent | ||||||||||||||
March 29, 2015 | March 30, 2014 | (Decrease) | Change | |||||||||||||
(In millions) | ||||||||||||||||
HHI segment |
$ | 244.1 | 242.1 | 2.0 | 0.8 | % | ||||||||||
Metaldyne segment |
277.7 | 298.4 | (20.7 | ) | (6.9 | )% | ||||||||||
Grede segment |
243.4 | | 243.4 | * | ||||||||||||
|
|
|
|
|
|
|||||||||||
Total |
$ | 765.2 | 540.5 | 224.7 | * | |||||||||||
|
|
|
|
|
|
* | Omitted as Grede Holdings LLC results are not included in the quarter ended March 30, 2014 |
The increase in HHI net sales was primarily attributable to increased volumes due to higher North American light vehicle production levels partially offset by lower raw material surcharge pass-through and net price decreases.
The decrease in Metaldyne net sales was primarily attributable to foreign currency movements, net price decreases and lower raw material pass-through.
Cost of Sales
Cost of sales was $636.7 million for the three months ended March 29, 2015 as compared to $457.2 million for the three months ended March 30, 2014, an increase of $179.5 million. This increase was primarily driven by the inclusion of Grede segment results of $199.9 million, lower-scrap sales and increased volumes, partially offset by foreign currency movements of $16.0 million, lower depreciation, net manufacturing cost reductions and lower raw material surcharge pass-through of $2.9 million.
The following table sets forth our cost of sales by segment for the quarters ended March 29, 2015 and March 30, 2014:
Quarter Ended | Increase | Percent | ||||||||||||||
March 29, 2015 | March 30, 2014 | (Decrease) | Change | |||||||||||||
(In millions) | ||||||||||||||||
HHI segment |
$ | 201.7 | 202.7 | (1.0 | ) | (0.5 | )% | |||||||||
Metaldyne segment |
235.1 | 254.5 | (19.4 | ) | (7.6 | )% | ||||||||||
Grede segment |
199.9 | | 199.9 | * | ||||||||||||
|
|
|
|
|
|
|||||||||||
Total |
$ | 636.7 | 457.2 | 179.5 | * | |||||||||||
|
|
|
|
|
|
* | Omitted as Grede Holdings LLC results are not included in the quarter ended March 30, 2014 |
HHI cost of sales remained relatively flat as increased volumes and lower scrap sales were offset by lower raw material surcharge pass-through and net manufacturing cost savings primarily driven by operational improvement initiatives.
The decrease in Metaldyne cost of sales was primarily attributable to foreign currency movements and lower depreciation.
24
Table of Contents
Gross Profits
Gross profit was $128.5 million for the quarter ended March 29, 2015 as compared to $83.3 million for the quarter ended March 30, 2014, an increase of $45.2 million. This increase was primarily driven by the inclusion of Grede segment results of $43.5 million, lower depreciation, net manufacturing cost reductions and increased volumes. These increases were partially offset by lower scrap sales of $2.5 million and the timing of raw material surcharge pass-through of $2.0 million, both primarily driven by the decline in the scrap metal market, in addition to the factors discussed above.
The following table sets forth our gross profit by segment for the quarters ended March 29, 2015 and March 30, 2014:
Quarter Ended | Increase | Percent | ||||||||||||||
March 29, 2015 | March 30, 2014 | (Decrease) | Change | |||||||||||||
(In millions) | ||||||||||||||||
HHI segment |
$ | 42.4 | 39.4 | 3.0 | 7.6 | % | ||||||||||
Metaldyne segment |
42.6 | 43.9 | (1.3 | ) | (3.0 | )% | ||||||||||
Grede segment |
43.5 | | 43.5 | * | ||||||||||||
|
|
|
|
|
|
|||||||||||
Total |
$ | 128.5 | 83.3 | 45.2 | * | |||||||||||
|
|
|
|
|
|
* | Omitted as Grede Holdings LLC results are not included in the quarter ended March 30, 2014 |
The increase in HHI gross profit was primarily attributable to increased sales volumes and manufacturing cost savings mainly driven by operational improvement initiatives. These increases were partially offset by the timing of raw material surcharge pass-through, lower scrap sales and net price decreases.
The decrease in Metaldyne gross profit was primarily attributable to foreign currency movements and net price decreases, partially offset by lower depreciation.
Operating Income
Operating income was $72.3 million for the three months ended March 29, 2015 as compared to $54.1 million for the three months ended March 30, 2014, an increase of $18.2 million. The increase was primarily driven by the inclusion of Grede segment results of $19.5 million and the increase in gross profit due to the factors discussed above, partially offset by higher stock-based compensation and additional costs associated with being a public company, including higher professional fees.
The following table sets forth our operating income by segment for the quarters ended March 29, 2015 and March 30, 2014:
Quarter Ended | Increase | Percent | ||||||||||||||
March 29, 2015 | March 30, 2014 | (Decrease) | Change | |||||||||||||
(In millions) | ||||||||||||||||
HHI segment |
$ | 26.5 | 25.8 | 0.7 | 2.7 | % | ||||||||||
Metaldyne segment |
26.3 | 28.3 | (2.0 | ) | (7.1 | )% | ||||||||||
Grede segment |
19.5 | | 19.5 | * | ||||||||||||
|
|
|
|
|
|
|||||||||||
Total |
$ | 72.3 | 54.1 | 18.2 | * | |||||||||||
|
|
|
|
|
|
* | Omitted as Grede Holdings LLC results are not included in the quarter ended March 30, 2014 |
The slight increase in HHI operating income was primarily attributable to the increase in gross profit partially offset by increased stock-based compensation and higher professional fees.
The decrease in Metaldyne operating income was primarily attributable to the decrease in gross profit, increased stock-based compensation and higher professional fees.
25
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Interest Expense, Net
Interest expense, net was $27.6 million for the quarter ended March 29, 2015 as compared to $19.4 million for the quarter ended March 30, 2014, an increase of $8.2 million. The increase in interest expense, net reflected higher average outstanding borrowings including the additional debt associated with the Grede Transaction in June 2014 and increased indebtedness used to fund the return of capital to our stockholders, partially offset by lower overall interest rates due to refinancing activities during 2014.
Other, Net
Other, net was $5.2 million of income for the quarter ended March 29, 2015 as compared to expense of $1.2 million for the quarter ended March 30, 2014, a favorable change of $6.4 million. The change in other, net was primarily due to a $4.9 million increase in foreign currency transaction gains.
Income Taxes
The income tax provision for the three months ended March 29, 2015 and March 30, 2014 was $17.3 million and $10.5 million, respectively. The $6.8 million increase was primarily attributable to higher income before taxes due to the factors discussed above, and a higher effective tax rate. Our effective tax rate increased year over year primarily due to the inclusion of Grede in our 2015 effective tax rate calculation. The significance of Gredes U.S. operations and the applicable federal tax rate contribute to a higher overall effective tax rate. Our effective tax rate for the three months ended March 29, 2015 and March 30, 2014 was 34.7% and 31.7%, respectively.
Net Income Attributable to Stockholders
Net income attributable to stockholders was $32.4 million, or 4.2% of net sales for the three months ended March 29, 2015, as compared to $22.6 million, or 4.2% of net sales for the three months ended March 30, 2014, an increase of $9.8 million. The increase was primarily attributable to the factors discussed above.
Adjusted EBITDA
Managements assessment of performance includes an evaluation of Adjusted EBITDA. The following table sets forth Adjusted EBITDA by segment.
Quarter Ended | ||||||||
March 29, 2015 | March 30, 2014 | |||||||
(In millions) | ||||||||
Adjusted EBITDA |
||||||||
HHI segment |
$ | 46.8 | 46.4 | |||||
Metaldyne segment |
47.1 | 53.3 | ||||||
Grede segment |
38.7 | | ||||||
|
|
|
|
|||||
Total |
$ | 132.6 | 99.7 | |||||
|
|
|
|
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The following table sets forth the reconciliation between Adjusted EBITDA and net income, the most directly comparable GAAP measure:
Quarter Ended | ||||||||
March 29, 2015 | March 30, 2014 | |||||||
(In millions) | ||||||||
Net income |
$ | 32.6 | 22.7 | |||||
Income tax expense |
17.3 | 10.5 | ||||||
Interest expense, net |
27.6 | 19.4 | ||||||
Depreciation and amortization |
56.4 | 42.7 | ||||||
Gain on foreign currency |
(5.0 | ) | (0.1 | ) | ||||
Loss on fixed assets |
0.2 | 0.7 | ||||||
Loss on debt extinguishment |
| 0.3 | ||||||
Debt transaction expenses |
0.1 | 1.2 | ||||||
Stock-based compensation |
3.3 | 1.3 | ||||||
Sponsor management fees |
| 1.0 | ||||||
Non-recurring acquisition and purchase accounting related items |
(0.3 | ) | | |||||
Non-recurring operational items |
0.4 | | ||||||
|
|
|
|
|||||
Adjusted EBITDA |
$ | 132.6 | 99.7 | |||||
|
|
|
|
EBITDA is calculated as net income before interest expense, income tax expense (benefit) and depreciation and amortization. Adjusted EBITDA is calculated as EBITDA adjusted for:
| (gain) loss on foreign currency; |
| (gain) loss on fixed assets; |
| debt transaction expenses; |
| stock-based compensation; |
| sponsor management fees; |
| non-recurring acquisition and purchase accounting related items; and |
| non-recurring operational items. |
Adjusted EBITDA eliminates the effects of items that we do not consider indicative of our core operating performance. Adjusted EBITDA is a supplemental measure of operating performance that does not represent and should not be considered as alternatives to net income, as determined under GAAP, and our calculation of Adjusted EBITDA may not be comparable to those reported by other companies.
Management believes the inclusion of the adjustments to Adjusted EBITDA are appropriate to provide additional information to investors about certain material non-cash items and about unusual items that we do not expect to continue at the same level in the future. By providing this non-GAAP financial measure, together with a reconciliation to GAAP results, we believe we are enhancing investors understanding of our business and our results of operations, as well as assisting investors in evaluating how well we are executing strategic initiatives. We believe Adjusted EBITDA is used by investors as supplemental measures to evaluate the overall operating performance of companies in our industry.
Management uses Adjusted EBITDA or comparable metrics:
| as a measurement used in comparing our operating performance on a consistent basis; |
| to calculate incentive compensation for our employees; |
| for planning purposes, including the preparation of our internal annual operating budget; |
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| to evaluate the performance and effectiveness of our operational strategies; and |
| to assess compliance with various metrics associated with our agreements governing our indebtedness. |
Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under GAAP. Some of the limitations are:
| Adjusted EBITDA does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our debt; |
| Adjusted EBITDA does not reflect all GAAP non-cash and non-recurring adjustments; |
| although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect the cash requirements for such replacements; |
| Adjusted EBITDA does not reflect our tax expense or the cash requirements to pay our taxes; and |
| Adjusted EBITDA does not reflect the non-cash component of employee compensation. |
To address these limitations, we reconcile Adjusted EBITDA to the most directly comparable GAAP measure, net income. Further, we also review GAAP measures and evaluate individual measures that are not included in Adjusted EBITDA.
Liquidity and Capital Resources
As of March 29, 2015, we had cash and cash equivalents of $132.0 million and total indebtedness, inclusive of capitalized lease obligations, of $1,951.5 million. We also have access to additional liquidity pursuant to the terms of our revolving credit facility. As of March 29, 2015, $235.1 million was available on our revolving credit facility after giving effect to letters of credit of $14.9 million.
In March 2015, our board of directors authorized and the Company made a voluntary prepayment of $10.0 million on our term loan facility.
On March 10, 2015, our board of directors declared a dividend of $0.09 per share for which $6.1 million was accrued as of March 29, 2015. The dividend is payable on May 26, 2015 to stockholders of record as of May 12, 2015.
The Company has been assigned the following credit ratings and outlook by Moodys Investors Service (Moodys) and Standard & Poors Rating Services (S&P):
Moodys | S&P | |||||||
Corporate |
B1 | BB- | ||||||
Revolving credit facility |
Ba3 | BB+ | ||||||
Term loan facility |
Ba3 | BB+ | ||||||
Senior Notes |
B3 | B+ | ||||||
Outlook |
Stable | Stable |
As of March 29, 2015, $87.1 million of cash and cash equivalents were held by certain foreign subsidiaries whose earnings are reinvested indefinitely. We make this assertion based on the operational and investing needs of the foreign locations and our ability to fund our U.S. operations and obligations from domestic cash flow and capital resources. Based on this assertion, no provision has been made for U.S. income taxes, which would be assessed upon repatriation of the foreign earnings.
Included in our total indebtedness are senior notes with an aggregate principal amount of $600.0 million (the Senior Notes). On May 8, 2015, the Company launched an offer to exchange notes registered with the SEC (the Registered Notes) for its existing senior notes that are not registered with the SEC. The Registered Notes have substantially identical terms as the senior notes. The exchange offer was made pursuant to a prospectus included in a Registration Statement on Form S-4 that was filed with the SEC on May 1, 2015 and declared effective by the SEC on May 8, 2015.
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On May 8, 2015, the Company amended its senior credit facilities to reduce the applicable interest rates on our term loan facility and to refinance our former U.S. Dollar denominated term loan with new U.S. Dollar and Euro denominated term loans as follows:
Principal | Interest Rate | |||||
(In thousands) | ||||||
U.S. Dollar denominated |
$ | 1,072,574 | Libor, bearing a 1% floor, plus an applicable margin of 2.75% | |||
Euro denominated (225,000) |
255,328 | Euribor, bearing a 1% floor, plus an applicable margin of 2.75% | ||||
|
|
|||||
Total |
$ | 1,327,902 | ||||
|
|
The above terms reduced the stated interest rate on our term loan facility by 50 basis points. The Euro denominated tranche was issued at an original issuance discount of 50 basis points, or $1.3 million. The Company also incurred estimated debt issuance fees of approximately $1.7 million. All other terms on the senior credit facilities remain substantially unchanged.
Cash Flows
The following tables provide a summary of cash flows from operating, investing and financing activities for the periods presented:
Quarter Ended | ||||||||
March 29, 2015 | March 30, 2014 | |||||||
(In millions) | ||||||||
Cash flows from operating activities |
$ | 52.6 | 53.0 | |||||
Cash flows from investing activities |
(60.7 | ) | (30.8 | ) | ||||
Cash flows from financing activities |
(10.8 | ) | (7.9 | ) | ||||
Effect of exchange rates on cash |
(5.6 | ) | (0.4 | ) | ||||
|
|
|
|
|||||
Net increase (decrease) in cash and cash equivalents |
$ | (24.5 | ) | 13.9 | ||||
|
|
|
|
For the quarter ended March 29, 2015, cash flows from operating activities reflected results of operations exclusive of non-cash income and expenses, primarily depreciation and amortization, and stock-based compensation expense, offset by a net increase in working capital. For the quarter ended March 30, 2014, cash flows from operating activities reflected results of operations exclusive of non-cash income and expenses, primarily depreciation and amortization, offset by a net increase in working capital.
For the quarters ended March 29, 2015 and March 30, 2014, cash flows from investing activities reflected capital expenditures of $60.7 million and $30.8 million, respectively.
For the quarter ended March 29, 2015, the cash flows from financing activities primarily reflected repayments of long-term debt. For the quarter ended March 30, 2014, the cash flows from financing activities primarily reflected net repayments on revolving lines of credit, partially offset by net borrowings on other debt.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See Item 7AQuantitative and Qualitative Analysis of Market Risk, in our 2014 Annual Report on Form 10-K filed on March 16, 2015.
On May 8, 2015, the Company amended and restated its senior credit facilities agreement to reduce the applicable interest rate on our term loan facility and to convert $255.3 million of the liability from U.S. Dollar denominated debt to 225.0 million of Euro denominated debt. The variable interest rate on U.S. Dollar denominated debt is subject to a LIBOR floor; the Euro denominated debt is subject to a Euribor floor. Due to these floors, an assumed 25 basis point change in Libor or Euribor would have no impact on our annual interest expense from these loans.
The Euro denominated debt will be subject to transaction gains and losses each period. The following table sets forth a sensitivity analysis of the effect a hypothetical change in the U.S. dollar to Euro exchange rate would have on the carrying value of our Euro denominated debt as of May 8, 2015:
Change in exchange rate: |
10% increase in U.S. dollar to Euro exchange rate |
10% decrease in U.S. dollar to Euro exchange rate |
||||||
(In millions) | ||||||||
Resulting change in carrying value of Euro denominated debt |
$ | (25.5 | ) | 25.5 |
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ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The Company evaluated the effectiveness of disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act). The evaluation was to ensure information required to be disclosed in periodic reports filed under the Exchange Act are recorded, processed, summarized, and reported within the time periods specified, and that such information is accumulated and communicated to the Companys management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
As of March 29, 2015, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective at the reasonable assurance level as of March 29, 2015 because we continued to have a material weakness in our internal controls related to inadequate controls around program change, system access, computer operations, and system development for certain IT systems that management relies upon for preparation and review of financial information.
Remediation Efforts to Address Material Weakness
To address the material weakness identified at December 31, 2014 and discussed above, the Company has designed new and enhanced controls. The new and enhanced controls are in the process of being implemented.
The Company believes the new and enhanced controls will be sufficient to remediate the identified material weakness and will strengthen our internal controls over financial reporting. We will monitor the effectiveness of these controls and will make any changes deemed appropriate. The material weakness will not be considered remediated until the implemented controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.
Changes in Internal Control over Financial Reporting
Other than as discussed above under Remediation Efforts to Address Material Weakness there were no changes in our internal control over financial reporting, as defined in Rule 13a-15(e) under the Exchange Act, during the quarter ended March 29, 2015.
Discussion of legal matters is incorporated by reference from Part I, Item 1, Note 15, Commitments and Contingencies of this document, and should be considered an integral part of Part II, Item 1, Legal Proceedings.
For information regarding factors that could affect our results of operations, financial condition and liquidity, see the risk factors discussion in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2014 as filed on March 16, 2015 with the SEC. See also, Information about Forward-Looking Statements included in Part I, Item 2 of this Quarterly Report on Form 10-Q.
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Number | Exhibit | |
31.1 | Rule 13a-14(a)/15d-14(a), Certification of the Chief Executive Officer, filed herewith. | |
31.2 | Rule 13a-14(a)/15d-14(a), Certification of the Chief Financial Officer, filed herewith. | |
32.1 | Section 1350 Certification of the Chief Executive and Chief Financial Officers, filed herewith. | |
101.INS | XBRL Instance Document | |
101.SCH | XBRL Taxonomy Extension Schema Document | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
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Signatures
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 thereunto duly authorized.
Metaldyne Performance Group Inc.
/s/ George Thanopoulos |
Chief Executive Officer | May 11, 2015 | ||
George Thanopoulos | (Principal Executive Officer) | |||
/s/ Mark Blaufuss |
Chief Financial Officer | May 11, 2015 | ||
Mark Blaufuss | (Principal Financial and Accounting Officer) |
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