Attached files
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EX-32 - EX-32 - Metaldyne Performance Group Inc. | d13413dex32.htm |
EX-31.1 - EX-31.1 - Metaldyne Performance Group Inc. | d13413dex311.htm |
EX-31.2 - EX-31.2 - Metaldyne Performance Group Inc. | d13413dex312.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 June 28, 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 July 31, 2015 the registrant had 67,177,198 shares of voting common stock outstanding.
Table of Contents
METALDYNE PERFORMANCE GROUP INC.
FORM 10-Q
QUARTER AND SIX MONTHS ENDED JUNE 28, 2015
Table of Contents
PART I FINANCIAL INFORMATION
METALDYNE PERFORMANCE GROUP INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands except per share data)
June 28, 2015 |
December 31, 2014 |
|||||||
Assets | ||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 112,673 | 156,498 | |||||
Receivables, net: |
||||||||
Trade |
388,663 | 312,943 | ||||||
Other |
31,065 | 31,943 | ||||||
|
|
|
|
|||||
Total receivables, net |
419,728 | 344,886 | ||||||
Inventories |
190,991 | 204,789 | ||||||
Deferred income taxes |
12,037 | 12,435 | ||||||
Prepaid expenses |
14,287 | 13,004 | ||||||
Other assets |
14,622 | 14,524 | ||||||
|
|
|
|
|||||
Total current assets |
764,338 | 746,136 | ||||||
Property and equipment, net |
754,167 | 750,181 | ||||||
Goodwill |
907,716 | 907,716 | ||||||
Amortizable intangible assets, net |
743,685 | 778,457 | ||||||
Deferred income taxes, noncurrent |
2,213 | 1,359 | ||||||
Other assets |
39,944 | 40,763 | ||||||
|
|
|
|
|||||
Total assets |
$ | 3,212,063 | 3,224,612 | |||||
|
|
|
|
|||||
Liabilities and Stockholders Equity | ||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 263,793 | 285,468 | |||||
Accrued compensation |
46,671 | 50,952 | ||||||
Accrued liabilities |
72,081 | 79,934 | ||||||
Short-term debt |
1,530 | 1,572 | ||||||
Current maturities, long-term debt and capital lease obligations |
15,625 | 16,497 | ||||||
|
|
|
|
|||||
Total current liabilities |
399,700 | 434,423 | ||||||
Long-term debt, less current maturities |
1,883,649 | 1,920,310 | ||||||
Capital lease obligations, less current maturities |
22,350 | 23,425 | ||||||
Deferred income taxes |
257,777 | 260,703 | ||||||
Other long-term liabilities |
57,238 | 60,789 | ||||||
|
|
|
|
|||||
Total liabilities |
2,620,714 | 2,699,650 | ||||||
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|
|
|||||
Stockholders equity: |
||||||||
Common Stock: par $0.001, 400,000 authorized, 67,101 issued and outstanding |
67 | 67 | ||||||
Paid-in capital |
834,689 | 827,307 | ||||||
Deficit |
(199,248 | ) | (269,663 | ) | ||||
Accumulated other comprehensive loss |
(46,870 | ) | (35,248 | ) | ||||
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|
|
|
|||||
Total equity attributable to stockholders |
588,638 | 522,463 | ||||||
Noncontrolling interest |
2,711 | 2,499 | ||||||
|
|
|
|
|||||
Total stockholders equity |
591,349 | 524,962 | ||||||
|
|
|
|
|||||
Total liabilities and stockholders equity |
$ | 3,212,063 | 3,224,612 | |||||
|
|
|
|
See accompanying notes to unaudited condensed financial statements.
3
Table of Contents
METALDYNE PERFORMANCE GROUP INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share amounts)
Quarter Ended | Six Months Ended | |||||||||||||||
June 28, 2015 | June 29, 2014 | June 28, 2015 | June 29, 2014 | |||||||||||||
Net sales |
$ | 800,235 | 641,403 | 1,565,402 | 1,181,862 | |||||||||||
Cost of sales |
658,172 | 537,224 | 1,294,800 | 994,417 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Gross profit |
142,063 | 104,179 | 270,602 | 187,445 | ||||||||||||
Selling, general and administrative expenses |
57,856 | 40,359 | 114,055 | 69,560 | ||||||||||||
Acquisition costs |
| 13,046 | | 13,046 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Operating income |
84,207 | 50,774 | 156,547 | 104,839 | ||||||||||||
Interest expense, net |
26,898 | 22,492 | 54,457 | 41,898 | ||||||||||||
Loss on debt extinguishment |
368 | | 368 | 362 | ||||||||||||
Other, net |
(1,376 | ) | 3,428 | (6,511 | ) | 4,483 | ||||||||||
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|
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|
|
|
|
|||||||||
Other expense, net |
25,890 | 25,920 | 48,314 | 46,743 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Income before tax |
58,317 | 24,854 | 108,233 | 58,096 | ||||||||||||
|
|
|
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|
|
|||||||||
Income tax expense |
14,127 | 9,394 | 31,467 | 19,940 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income |
44,190 | 15,460 | 76,766 | 38,156 | ||||||||||||
Income attributable to noncontrolling interest |
81 | 77 | 216 | 171 | ||||||||||||
Net income attributable to stockholders |
$ | 44,109 | 15,383 | 76,550 | 37,985 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Weighted average shares outstanding |
67,080 | 67,075 | 67,075 | 67,075 | ||||||||||||
Cash dividends declared per share |
$ | | | 0.09 | | |||||||||||
Net income per share attributable to stockholders: |
||||||||||||||||
Basic |
0.66 | 0.23 | 1.14 | 0.57 | ||||||||||||
Diluted |
0.64 | 0.22 | 1.11 | 0.56 |
See accompanying notes to unaudited condensed consolidated financial statements.
4
Table of Contents
METALDYNE PERFORMANCE GROUP INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Quarter Ended | Six Months Ended | |||||||||||||||
June 28, 2015 | June 29, 2014 | June 28, 2015 | June 29, 2014 | |||||||||||||
Net income |
$ | 44,190 | 15,460 | 76,766 | 38,156 | |||||||||||
Other comprehensive income (loss), net of tax: |
||||||||||||||||
Foreign currency translation |
3,948 | 2,577 | (11,783 | ) | 1,760 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Comprehensive income |
48,138 | 18,037 | 64,983 | 39,916 | ||||||||||||
Less comprehensive income attributable to noncontrolling interest |
67 | 74 | 212 | 198 | ||||||||||||
|
|
|
|
|
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|
|
|||||||||
Comprehensive income attributable to stockholders |
$ | 48,071 | 17,963 | 64,771 | 39,718 | |||||||||||
|
|
|
|
|
|
|
|
See accompanying notes to unaudited condensed consolidated financial statements.
5
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 |
(6,135 | ) | (6,135 | ) | ||||||||||||||||||||
Stock-based compensation expense |
7,532 | 7,532 | ||||||||||||||||||||||
Cash settlement of equity awards |
(232 | ) | (232 | ) | ||||||||||||||||||||
Issuance of common stock |
91 | 91 | ||||||||||||||||||||||
Excess tax benefit on stock-based compensation |
99 | 99 | ||||||||||||||||||||||
Offering related costs |
(108 | ) | (108 | ) | ||||||||||||||||||||
Net income |
76,550 | 216 | 76,766 | |||||||||||||||||||||
Other comprehensive (loss) |
(11,779 | ) | (4 | ) | (11,783 | ) | ||||||||||||||||||
Reclassifications, net |
157 | 157 | ||||||||||||||||||||||
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|
|||||||||||||
Balance, June 28, 2015 |
$ | 67 | 834,689 | (199,248 | ) | (46,870 | ) | 2,711 | 591,349 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited condensed consolidated financial statements.
6
Table of Contents
METALDYNE PERFORMANCE GROUP INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Six Months Ended | ||||||||
June 28, 2015 | June 29, 2014 | |||||||
Cash flows from operating activities: |
||||||||
Net income |
$ | 76,766 | 38,156 | |||||
Adjustments to reconcile net income to cash provided by operating activities: |
||||||||
Depreciation and amortization |
115,200 | 90,533 | ||||||
Debt fee amortization |
1,543 | 2,503 | ||||||
Loss on fixed asset dispositions |
348 | 1,185 | ||||||
Deferred income taxes |
(2,891 | ) | (15,883 | ) | ||||
Noncash interest expense |
487 | 856 | ||||||
Stock-based compensation expense |
7,532 | 4,613 | ||||||
Foreign currency adjustment |
(3,688 | ) | (45 | ) | ||||
Other |
5,426 | 1,484 | ||||||
Changes in assets and liabilities: |
||||||||
Receivables, net |
(77,403 | ) | (50,542 | ) | ||||
Inventories |
9,970 | 957 | ||||||
Accounts payable, accrued liabilities and accrued compensation |
(10,871 | ) | 31,253 | |||||
Other, current |
(2,437 | ) | 1,761 | |||||
Other, non-current |
(2,311 | ) | 4,827 | |||||
|
|
|
|
|||||
Net cash provided by operating activities |
117,671 | 111,658 | ||||||
Cash flow from investing activities: |
||||||||
Capital expenditures |
(114,957 | ) | (58,073 | ) | ||||
Proceeds from sale of fixed assets |
1,296 | 271 | ||||||
Capitalized patent costs |
(182 | ) | (165 | ) | ||||
Grede Transaction, net of cash acquired |
| (829,656 | ) | |||||
|
|
|
|
|||||
Net cash used for investing activities |
(113,843 | ) | (887,623 | ) | ||||
Cash flows from financing activities: |
||||||||
Dividends |
(6,035 | ) | (111,259 | ) | ||||
Other stock activity |
| (2,449 | ) | |||||
Proceeds from stock issuance |
91 | 258,553 | ||||||
Cash settlement of equity awards |
(232 | ) | | |||||
Borrowings of revolving lines of credit |
14,300 | 238,597 | ||||||
Payments of revolving lines of credit |
(14,568 | ) | (230,500 | ) | ||||
Proceeds of long-term debt |
1,326,625 | 715,000 | ||||||
Payments on long-term debt |
(1,360,154 | ) | (10,974 | ) | ||||
Payment of debt issue costs |
(149 | ) | (20,231 | ) | ||||
Other debt, net |
(1,548 | ) | (3,766 | ) | ||||
Payment of offering related costs |
(108 | ) | | |||||
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|
|
|
|||||
Net cash used for financing activities |
(41,778 | ) | 832,971 | |||||
Effect of exchange rates on cash |
(5,875 | ) | 828 | |||||
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|
|||||
Net increase (decrease) in cash and cash equivalents |
$ | (43,825 | ) | 57,834 | ||||
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|
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Cash and cash equivalents: |
||||||||
Cash and cash equivalents, beginning of period |
$ | 156,498 | 68,224 | |||||
Net increase (decrease) in cash and cash equivalents |
(43,825 | ) | 57,834 | |||||
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Cash and cash equivalents, end of period |
$ | 112,673 | 126,058 | |||||
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|
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Supplementary cash flow information: |
||||||||
Cash paid for income taxes, net |
$ | 33,407 | 29,453 | |||||
Cash paid for interest |
55,796 | 27,132 | ||||||
Noncash transactions: |
||||||||
Capital expenditures in accounts payables |
19,035 | 14,100 | ||||||
Dividends declared on restricted stock awards, not yet vested |
101 | |
See accompanying notes to unaudited condensed consolidated financial statements.
7
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) applications 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 June 28, 2015 and December 31, 2014, the results of operations and comprehensive income for the quarters ended June 28, 2015 and June 29, 2014, and the results of operations, comprehensive income, and statement of cash flows for the six months ended June 28, 2015 and June 29, 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.
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.
8
Table of Contents
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 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, as agreed to by the FASB, is effective for the interim and annual periods beginning on or after December 15, 2017. Early adoption is permitted on January 1, 2017. 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 balance sheet will be reduced by net debt issuance costs, which totaled $21.0 million as of June 28, 2015.
9
Table of Contents
(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 June 28, 2015 |
Quarter Ended June 29, 2014 |
Six Months June 28, 2015 |
Six Months June 29, 2014 |
|||||||||||||
(In thousands) | ||||||||||||||||
Revenues: Net sales |
$ | 237,383 | 80,973 | 480,820 | 80,973 | |||||||||||
Earnings: Income before income taxes |
12,236 | (13,259 | ) | 30,753 | (13,259 | ) |
Supplemental Pro Forma Information
Pro forma net sales, for the quarter ended June 29, 2014 as if the Grede Transaction had occurred on January 1, 2014, were $817.4 million and pro forma income before income taxes was $53.2 million. Pro forma net sales, for the six months ended June 29, 2014 as if the Grede Transaction had occurred on January 1, 2014, were $1,608.0 million and pro forma income before income taxes was $97.2 million.
(5) Receivables Allowances
Receivables were stated net of the following allowances:
June 28, 2015 |
December 31, 2014 |
|||||||
(In thousands) | ||||||||
Doubtful accounts |
$ | 1,270 | 1,488 | |||||
Pricing accruals and anticipated customer deductions |
5,945 | 4,781 | ||||||
Returns |
1,898 | 1,753 | ||||||
|
|
|
|
|||||
$ | 9,113 | 8,022 | ||||||
|
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|
|
(6) Inventories
Inventories were as follows:
June 28, 2015 |
December 31, 2014 |
|||||||
(In thousands) | ||||||||
Raw materials |
$ | 66,259 | 67,812 | |||||
Work in process |
68,045 | 69,929 | ||||||
Finished goods |
56,687 | 67,048 | ||||||
|
|
|
|
|||||
Total inventories |
$ | 190,991 | 204,789 | |||||
|
|
|
|
(7) Property and Equipment, Net
Accumulated depreciation as of June 28, 2015 and December 31, 2014 was $356.2 million and $283.5 million, respectively.
In June 2015, the Company announced plans to close its Berlin, Wisconsin facility included within the Grede segment. The closure, which is primarily a result of the industrial market slowdown, is expected to be completed by the end of fiscal 2015. The Company recorded a $4.0 million asset impairment charge within cost of sales in conjunction with this announcement.
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Table of Contents
(8) Amortizable Intangible Assets
The carrying amounts and accumulated amortization of intangible assets were as follows:
June 28, 2015 | ||||||||||||
Gross Carrying Amount |
Accumulated Amortization |
Net Carrying Amount |
||||||||||
(In thousands) | ||||||||||||
Customer relationships and platforms |
$ | 745,200 | (106,729 | ) | 638,471 | |||||||
Other |
126,543 | (21,329 | ) | 105,214 | ||||||||
|
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|
|
|
|
|||||||
Total |
$ | 871,743 | (128,058 | ) | 743,685 | |||||||
|
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|
|
|
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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|
|
|
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Table of Contents
(9) Debt
The carrying value of debt was as follows:
June 28, 2015 |
December 31, 2014 |
|||||||
(In thousands) | ||||||||
Short-term debt: |
||||||||
Revolving lines of credit |
$ | | | |||||
Other short-term debt |
1,530 | 1,572 | ||||||
|
|
|
|
|||||
Total short-term debt |
$ | 1,530 | 1,572 | |||||
|
|
|
|
|||||
Long-term debt: |
||||||||
Term loan facility |
$ | | 1,340,000 | |||||
U.S. Dollar term loan |
1,052,573 | | ||||||
Euro term loan |
251,235 | | ||||||
Registered notes |
600,000 | 600,000 | ||||||
Other long-term debt (various interest rates) |
482 | 589 | ||||||
|
|
|
|
|||||
Total |
1.904,290 | 1,940,589 | ||||||
Unamortized discount on term loans |
(7,244 | ) | (6,579 | ) | ||||
Current maturities |
(13,397 | ) | (13,700 | ) | ||||
|
|
|
|
|||||
Total long-term debt |
$ | 1,883,649 | 1,920,310 | |||||
|
|
|
|
Debt Activity
In March 2015, the Company made a voluntary prepayment of $10.0 million on its term loan.
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 were 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. The exchange offer was completed on June 8, 2015, and all outstanding original senior notes were tendered and exchanged for the Registered Notes.
On May 8, 2015, the Company amended its senior credit facilities to reduce the applicable interest rates on the term loan facility and to refinance its 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 0.5 percentage points. The Euro denominated tranche was issued at an original issuance discount of 0.5%, or $1.3 million. The Company also paid fees to third parties totaling $1.8 million, of which $1.6 million was expensed. All other terms on the senior credit facilities remain substantially unchanged.
On June 26, 2015, the Company made a $20.0 million voluntary prepayment on its U.S. Dollar term loan.
Accrued interest of $12.4 million and $15.8 million as of June 28, 2015, and December 31, 2014, was reflected in accrued liabilities.
12
Table of Contents
(10) Equity and Dividends
Dividends
On March 10, 2015, our board of directors declared a dividend of $0.09 per share which was paid on May 26, 2015, to stockholders of record as of May 12, 2015.
Changes in Accumulated Other Comprehensive Loss, Net of Tax
Foreign Currency Items |
Defined Benefit Items |
Total | ||||||||||
(In thousands) | ||||||||||||
Balance, December 31, 2014 |
$ | (27,721 | ) | (7,527 | ) | (35,248 | ) | |||||
Other comprehensive (loss) |
(11,779 | ) | | (11,779 | ) | |||||||
Reclassifications, net |
| 157 | 157 | |||||||||
|
|
|
|
|
|
|||||||
Balance, June 28, 2015 |
$ | (39,500 | ) | (7,370 | ) | (46,870 | ) | |||||
|
|
|
|
|
|
13
Table of Contents
(11) Other, net
Included within other, net were the following (income) and expense items:
Quarter Ended | Six Months Ended | |||||||||||||||
June 28, 2015 |
June 29, 2014 |
June 28, 2015 |
June 29, 2014 |
|||||||||||||
(In thousands) |
||||||||||||||||
Foreign currency (gains) losses |
$ | (3,865 | ) | 1,722 | (8,860 | ) | 1,641 | |||||||||
Debt transaction expenses |
1,640 | 1,769 | 1,640 | 2,836 | ||||||||||||
Other |
849 | (63 | ) | 709 | 6 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Other, net |
$ | (1,376 | ) | 3,428 | (6,511 | ) | 4,483 | |||||||||
|
|
|
|
|
|
|
|
(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 six months ended June 28, 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 |
(14 | ) | 15.96 | |||||
|
|
|||||||
Balance, June 28, 2015 |
1,138 | $ | 16.03 | |||||
|
|
14
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 six months ended June 28, 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 | |||||||||||||
Forfeited |
(32 | ) | 8.58 | 8.0 | ||||||||||||
Exercised |
(43 | ) | 4.26 | 7.5 | ||||||||||||
|
|
|||||||||||||||
Balance, June 28, 2015 |
6,805 | $ | 11.13 | 8.1 | $ | 54.3 | ||||||||||
|
|
|||||||||||||||
Options exercisable, June 28, 2015 |
2,374 | $ | 10.34 | 7.8 | $ | 21.1 |
Stock-based Compensation Expense
Quarter Ended | Six Months Ended | |||||||||||||||
June 28, 2015 |
June 29, 2014 |
June 28, 2015 |
June 29, 2014 |
|||||||||||||
(In thousands) |
||||||||||||||||
Restricted shares |
$ | 1,884 | | 3,304 | | |||||||||||
Options |
2,311 | 3,321 | 4,228 | 4,613 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 4,195 | 3,321 | 7,532 | 4,613 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Tax benefit |
$ | 1,015 | 1,255 | 2,192 | 1,582 |
15
Table of Contents
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 June 28, 2015 was approximately $39.6 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.
Income tax expense for the quarter ended June 28, 2015 and June 29, 2014 was $14.1 million and $9.4 million, respectively. Income tax expense for the six months ended June 28, 2015 and June 29, 2014 was $31.5 million and $19.9 million, respectively. The effective income tax rate for the quarter ended June 28, 2015 and June 29, 2014 was 24.2% and 37.8%, respectively. The effective income tax rate for the six months ended June 28, 2015 and June 29, 2014 was 29.1% and 34.3%, respectively. Income tax expense for the quarter and six month period ended June 28, 2015 includes a tax benefit of $3.1 million relating to the enactment of Senate Bill 441 in the state of Indiana, eliminating the throwback rule for calculating state income tax expense. Income tax expense for the quarter and six month period ended June 29, 2014 includes a tax expense of $1.3 million for establishing a valuation allowance against loss carryforwards of the Companys Brazilian subsidiary, of which $0.9 million represents a discrete tax expense. Due to the history of losses at the entity, the Company concluded it was no longer more likely than not that the net deferred tax asset would be realized.
The effective tax rate for the periods ended June 28, 2015 and June 29, 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. Further, the Companys current and future provision for income taxes may be impacted by the recognition of valuation allowances in certain countries.
(14) Retirement Plans
The net expense recognized for the Companys defined benefit pension plans was $0.5 million and $0.3 million for the quarters ended June 28, 2015 and June 29, 2014, respectively, and $0.7 million for both the six months ended June 28, 2015 and June 29, 2014, respectively.
(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. An accrual 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.
16
Table of Contents
(16) Fair Value
June 28, 2015 | December 31, 2014 | |||||||||||||||
Carrying Value |
Fair Value |
Carrying Value |
Fair Value |
|||||||||||||
(In thousands) | ||||||||||||||||
Registered notes |
$ | 600,000 | 639,000 | 600,000 | 615,000 | |||||||||||
Term loan facility |
| | 1,333,421 | 1,343,350 | ||||||||||||
U.S. Dollar term loan |
1,046,560 | 1,052,574 | | | ||||||||||||
Euro term loan |
250,004 | 251,549 | | |
The fair values of the Registered Notes and term loan facility were estimated using quoted market prices. As the markets for this debt are 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 | Six Months Ended | |||||||||||||||
June 28, 2015 |
June 29, 2014 |
June 28, 2015 |
June 29, 2014 |
|||||||||||||
(In thousands except per share amounts) |
||||||||||||||||
Weighted-average shares outstanding |
||||||||||||||||
Basic shares |
67,080 | 67,075 | 67,075 | 67,075 | ||||||||||||
Equivalent shares for outstanding stock- based compensation awards |
1,630 | 1,585 | 1,625 | 515 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Diluted shares |
68,710 | 68,660 | 68,700 | 67,590 | ||||||||||||
Income attributable to stockholders |
||||||||||||||||
Basic EPS attributable to stockholders |
$ | 0.66 | 0.23 | 1.14 | 0.57 | |||||||||||
Diluted EPS attributable to stockholders |
0.64 | 0.22 | 1.11 | 0.56 |
(18) Related Party Transactions
HHI, Metaldyne and Grede were parties to management services agreements 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 $9.4 million and $10.7 million for the quarter and six months ended June 29, 2014, respectively, were paid to American Securities under the agreements. There were no amounts due to American Securities as of June 28, 2015 and December 31, 2014.
As of June 28, 2015, affiliates of American Securities held 78.5% of the outstanding common stock of the Company.
17
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 June 28, 2015 | ||||||||||||||||||||
External | Intersegment | Adjusted | Capital | Depreciation/ | ||||||||||||||||
Sales | Sales | EBITDA | Spending | Amortization | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
HHI |
$ | 262,105 | 2,137 | 59,316 | 15,267 | 19,643 | ||||||||||||||
Metaldyne |
300,747 | 325 | 56,402 | 19,327 | 20,025 | |||||||||||||||
Grede |
237,383 | 48 | 37,899 | 19,548 | 19,166 | |||||||||||||||
Elimination and other |
| (2,510 | ) | | 91 | | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 800,235 | | 153,617 | 54,233 | 58,834 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Quarter Ended June 29, 2014 | ||||||||||||||||||||
External | Intersegment | Adjusted | Capital | Depreciation/ | ||||||||||||||||
Sales | Sales | EBITDA | Spending | Amortization | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
HHI |
$ | 251,107 | 3,187 | 54,645 | 12,151 | 19,372 | ||||||||||||||
Metaldyne |
309,323 | 153 | 56,231 | 12,750 | 23,539 | |||||||||||||||
Grede |
80,973 | | 12,073 | 2,384 | 4,882 | |||||||||||||||
Elimination and other |
| (3,340 | ) | | | | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 641,403 | | 122,949 | 27,285 | 47,793 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
18
Table of Contents
Six Months Ended June 28, 2015 | ||||||||||||||||||||
External | Intersegment | Adjusted | Capital | Depreciation/ | ||||||||||||||||
Sales | Sales | EBITDA | Spending | Amortization | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
HHI |
$ | 506,165 | 4,442 | 106,108 | 36,584 | 38,426 | ||||||||||||||
Metaldyne |
578,417 | 624 | 103,482 | 38,207 | 39,522 | |||||||||||||||
Grede |
480,820 | 129 | 76,597 | 40,075 | 37,252 | |||||||||||||||
Elimination and other |
| (5,195 | ) | | 91 | | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 1,565,402 | | 286,187 | 114,957 | 115,200 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Six Months Ended June 29, 2014 | ||||||||||||||||||||
External | Intersegment | Adjusted | Capital | Depreciation/ | ||||||||||||||||
Sales | Sales | EBITDA | Spending | Amortization | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
HHI |
$ | 493,155 | 4,591 | 101,036 | 26,510 | 38,468 | ||||||||||||||
Metaldyne |
607,734 | 399 | 109,549 | 29,179 | 47,183 | |||||||||||||||
Grede |
80,973 | | 12,073 | 2,384 | 4,882 | |||||||||||||||
Elimination and other |
| (4,990 | ) | | | | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 1,181,862 | | 222,658 | 58,073 | 90,533 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
19
Table of Contents
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 | Six Months Ended | |||||||||||||||
June 28, 2015 |
June 29, 2014 |
June 28, 2015 |
June 29, 2014 |
|||||||||||||
(In thousands) |
||||||||||||||||
Net income |
$ | 44,190 | 15,460 | 76,766 | 38,156 | |||||||||||
Income tax expense |
14,127 | 9,394 | 31,467 | 19,940 | ||||||||||||
Interest expense, net |
26,898 | 22,492 | 54,457 | 41,898 | ||||||||||||
Depreciation and amortization |
58,834 | 47,793 | 115,200 | 90,533 | ||||||||||||
(Gain) loss on foreign currency |
(3,865 | ) | 1,722 | (8,860 | ) | 1,641 | ||||||||||
Loss on fixed assets |
132 | 509 | 348 | 1,185 | ||||||||||||
Loss on debt extinguishment |
368 | | 368 | 362 | ||||||||||||
Debt transaction expenses |
1,640 | 1,769 | 1,742 | 2,836 | ||||||||||||
Stock-based compensation |
4,195 | 3,321 | 7,532 | 4,613 | ||||||||||||
Sponsor management fees |
| 1,153 | | 2,153 | ||||||||||||
Non-recurring acquisition and purchase accounting items |
386 | 18,138 | 37 | 18,138 | ||||||||||||
Non-recurring operational items |
6,712 | 1,198 | 7,130 | 1,203 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Adjusted EBITDA |
$ | 153,617 | 122,949 | 286,187 | 222,658 | |||||||||||
|
|
|
|
|
|
|
|
20
Table of Contents
(20) Guarantor
Our Registered 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 Registered 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.
21
Table of Contents
Unaudited Condensed Consolidating Balance Sheet
June 28, 2015
(In thousands)
Parent | Issuer | Guarantor | Non-Guarantor | Eliminations | Consolidated | |||||||||||||||||||
Assets | ||||||||||||||||||||||||
Current assets: |
||||||||||||||||||||||||
Cash and cash equivalents |
$ | 215 | 1,598 | 3,818 | 107,042 | | 112,673 | |||||||||||||||||
Receivables, net: |
||||||||||||||||||||||||
Trade |
| | 317,453 | 71,862 | (652 | ) | 388,663 | |||||||||||||||||
Other |
| | 60,359 | 20,282 | (49,576 | ) | 31,065 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total receivables, net |
| | 377,812 | 92,144 | (50,228 | ) | 419,728 | |||||||||||||||||
Inventories |
| | 144,692 | 46,299 | | 190,991 | ||||||||||||||||||
Deferred income taxes |
| | 8,560 | 3,477 | | 12,037 | ||||||||||||||||||
Prepaid expenses |
632 | 3,601 | 5,611 | 4,443 | | 14,287 | ||||||||||||||||||
Other assets |
| | 5,638 | 8,984 | | 14,622 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total current assets |
847 | 5,199 | 546,131 | 262,389 | (50,228 | ) | 764,338 | |||||||||||||||||
Property and equipment, net |
| 115 | 527,472 | 226,580 | | 754,167 | ||||||||||||||||||
Goodwill |
| | 673,209 | 234,507 | | 907,716 | ||||||||||||||||||
Amortizable intangible assets, net |
| | 589,006 | 154,679 | | 743,685 | ||||||||||||||||||
Deferred income taxes, noncurrent |
| | (164 | ) | 2,377 | | 2,213 | |||||||||||||||||
Other assets |
| 24,007 | 37,358 | 13,269 | (34,690 | ) | 39,944 | |||||||||||||||||
Intercompany receivables |
37,290 | 1,812,049 | 1,095 | 47 | (1,851,111 | ) | | |||||||||||||||||
Investment in subsidiaries |
581,049 | 628,149 | 670,120 | | (1,879,318 | ) | | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total assets |
$ | 619,816 | 2,469,519 | 3,044,227 | 893,848 | (3,815,347 | ) | 3,212,063 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Liabilities and Stockholders Equity | ||||||||||||||||||||||||
Current liabilities: |
||||||||||||||||||||||||
Accounts payable |
$ | 10 | 808 | 185,197 | 96,472 | (18,694 | ) | 263,793 | ||||||||||||||||
Accrued compensation |
| 2,094 | 28,630 | 15,947 | | 46,671 | ||||||||||||||||||
Accrued liabilities |
(101 | ) | 13,833 | 36,663 | 53,270 | (31,584 | ) | 72,081 | ||||||||||||||||
Short-term debt |
| | | 1,530 | | 1,530 | ||||||||||||||||||
Current maturities, long-term debt and capital lease obligations |
| 13,238 | 2,209 | 178 | | 15,625 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total current liabilities |
(91 | ) | 29,973 | 252,699 | 167,397 | (50,278 | ) | 399,700 | ||||||||||||||||
Long-term debt, less current maturities |
| 1,883,326 | 12,827 | 22,136 | (34,640 | ) | 1,883,649 | |||||||||||||||||
Capital lease obligations |
| | 22,330 | 20 | | 22,350 | ||||||||||||||||||
Deferred income taxes |
| | 250,966 | 6,811 | | 257,777 | ||||||||||||||||||
Other long-term liabilities |
| | 31,365 | 25,873 | | 57,238 | ||||||||||||||||||
Intercompany payables |
31,269 | (24,829 | ) | 1,845,891 | (1,220 | ) | (1,851,111 | ) | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total liabilities |
31,178 | 1,888,470 | 2,416,078 | 221,017 | (1,936,029 | ) | 2,620,714 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Stockholders equity: |
||||||||||||||||||||||||
Total equity attributable to stockholders |
588,638 | 581,049 | 628,149 | 670,120 | (1,879,318 | ) | 588,638 | |||||||||||||||||
Noncontrolling interest |
| | | 2,711 | | 2,711 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total stockholders equity |
588,638 | 581,049 | 628,149 | 672,831 | (1,879,318 | ) | 591,349 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total liabilities and stockholders equity |
$ | 619,816 | 2,469,519 | 3,044,227 | 893,848 | (3,815,347 | ) | 3,212,063 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
22
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 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
23
Table of Contents
Unaudited Condensed Consolidating Statements of Operations
Quarter Ended June 28, 2015 and June 29, 2014
(In thousands)
Parent | Issuer | Guarantor | Non-Guarantor | Eliminations | Consolidated | |||||||||||||||||||
For the quarter ended June 28, 2015 |
||||||||||||||||||||||||
Net sales |
$ | | | 639,668 | 191,977 | (31,410 | ) | 800,235 | ||||||||||||||||
Cost of sales |
| | 530,420 | 159,162 | (31,410 | ) | 658,172 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Gross profit |
| | 109,248 | 32,815 | | 142,063 | ||||||||||||||||||
Selling, general and administrative expenses |
| | 46,400 | 11,456 | | 57,856 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Operating profit |
| | 62,848 | 21,359 | | 84,207 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Interest expense, net |
| 25,568 | (1,118 | ) | 2,448 | | 26,898 | |||||||||||||||||
Loss on debt extinguishment |
| 368 | | | | 368 | ||||||||||||||||||
Other, net |
| (2,419 | ) | (650 | ) | 1,693 | | (1,376 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Other expense, net |
| (23,517 | ) | (1,768 | ) | 4,141 | | 25,890 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income (loss) before tax |
| 23,517 | 64,616 | 17,218 | | 58,317 | ||||||||||||||||||
Income tax expense (benefit) |
| (7,701 | ) | 18,125 | 3,703 | | 14,127 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income (loss) before from equity in subsidiaries |
| (15,816 | ) | 46,491 | 13,515 | | 44,190 | |||||||||||||||||
Earnings from equity in subsidiaries |
44,109 | 59,925 | 13,434 | | (117,468 | ) | | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income |
44,109 | 44,109 | 59,925 | 13,515 | (117,468 | ) | 44,190 | |||||||||||||||||
Income attributable to noncontrolling interest |
| | | 81 | | 81 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income attributable to stockholders |
$ | 44,109 | 44,109 | 59,925 | 13,434 | (117,468 | ) | 44,109 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
For the quarter ended June 29, 2014 |
||||||||||||||||||||||||
Net sales |
$ | | | 490,454 | 177,698 | (26,749 | ) | 641,403 | ||||||||||||||||
Cost of sales |
| | 412,875 | 151,098 | (26,749 | ) | 537,224 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Gross profit |
| | 77,579 | 26,600 | | 104,179 | ||||||||||||||||||
Selling, general and administrative expenses |
750 | | 31,205 | 8,404 | | 40,359 | ||||||||||||||||||
Acquisition costs |
| | 13,046 | | | 13,046 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Operating profit |
(750 | ) | | 33,328 | 18,196 | | 50,774 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Interest expense, net |
| | 19,967 | 2,525 | | 22,492 | ||||||||||||||||||
Other, net |
| | (2,967 | ) | 6,395 | | 3,428 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Other expense, net |
| | 17,000 | 8,920 | | 25,920 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income before tax |
(750 | ) | | 16,328 | 9,276 | | 24,854 | |||||||||||||||||
Income tax expense |
(263 | ) | | 5,470 | 4,187 | | 9,394 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income before from equity in subsidiaries |
(487 | ) | | 10,858 | 5,089 | | 15,460 | |||||||||||||||||
Earnings from equity in subsidiaries |
15,870 | 15,870 | 5,012 | | (36,752 | ) | | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income |
15,383 | 15,870 | 15,870 | 5,089 | (36,752 | ) | 15,460 | |||||||||||||||||
Income attributable to noncontrolling interest |
| | | 77 | | 77 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income attributable to stockholders |
$ | 15,383 | 15,870 | 15,870 | 5,012 | (36,752 | ) | 15,383 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
24
Table of Contents
Unaudited Condensed Consolidating Statements of Operations
Six Months Ended June 28, 2015 and June 29, 2014
(In thousands)
Parent | Issuer | Guarantor | Non-Guarantor | Eliminations | Consolidated | |||||||||||||||||||
For the six months ended June 28, 2015 |
||||||||||||||||||||||||
Net sales |
$ | | | 1,251,284 | 374,742 | (60,624 | ) | 1,565,402 | ||||||||||||||||
Cost of sales |
| | 1,041,818 | 313,606 | (60,624 | ) | 1,294,800 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Gross profit |
| | 209,466 | 61,136 | | 270,602 | ||||||||||||||||||
Selling, general and administrative expenses |
| | 92,205 | 21,850 | | 114,055 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Operating profit |
| | 117,261 | 39,286 | | 156,547 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Interest expense, net |
| 51,701 | (2,108 | ) | 4,864 | | 54,457 | |||||||||||||||||
Loss on debt extinguishment |
| 368 | | | | 368 | ||||||||||||||||||
Other, net |
| (2,419 | ) | (4,736 | ) | 644 | | (6,511 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Other expense, net |
| 49,650 | (6,844 | ) | 5,508 | | 48,314 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income (loss) before tax |
| (49,650 | ) | 124,105 | 33,778 | | 108,233 | |||||||||||||||||
Income tax expense (benefit) |
| (16,007 | ) | 37,170 | 10,304 | | 31,467 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income (loss) before from equity in subsidiaries |
| (33,643 | ) | 86,935 | 23,474 | | 76,766 | |||||||||||||||||
Earnings from equity in subsidiaries |
76,550 | 110,193 | 23,258 | | (210,001 | ) | | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income |
76,550 | 76,550 | 110,193 | 23,474 | (210,001 | ) | 76,766 | |||||||||||||||||
Income attributable to noncontrolling interest |
| | | 216 | | 216 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income attributable to stockholders |
$ | 76,550 | 76,550 | 110,193 | 23,258 | (210,001 | ) | 76,550 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
For the six months ended June 29, 2014 |
||||||||||||||||||||||||
Net sales |
$ | | | 891,594 | 346,554 | (56,286 | ) | 1,181,862 | ||||||||||||||||
Cost of sales |
| | 755,319 | 295,384 | (56,286 | ) | 994,417 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Gross profit |
| | 136,275 | 51,170 | | 187,445 | ||||||||||||||||||
Selling, general and administrative expenses |
750 | | 52,548 | 16,262 | | 69,560 | ||||||||||||||||||
Acquisition costs |
| | 13,046 | | | 13,046 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Operating profit |
(750 | ) | | 70,681 | 34,908 | | 104,839 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Interest expense, net |
| | 37,066 | 4,832 | | 41,898 | ||||||||||||||||||
Loss on debt extinguishment |
| | 362 | | | 362 | ||||||||||||||||||
Other, net |
| | (6,347 | ) | 10,830 | | 4,483 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Other expense, net |
| | 31,081 | 15,662 | | 46,743 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income before tax |
(750 | ) | | 39,600 | 19,246 | | 58,096 | |||||||||||||||||
Income tax expense |
(263 | ) | | 14,036 | 6,167 | | 19,940 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income before from equity in subsidiaries |
(487 | ) | | 25,564 | 13,079 | | 38,156 | |||||||||||||||||
Earnings from equity in subsidiaries |
38,472 | 38,472 | 12,908 | | (89,852 | ) | | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income |
37,985 | 38,472 | 38,472 | 13,079 | (89,852 | ) | 38,156 | |||||||||||||||||
Income attributable to noncontrolling interest |
| | | 171 | | 171 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income attributable to stockholders |
$ | 37,985 | 38,472 | 38,472 | 12,908 | (89,852 | ) | 37,985 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
25
Table of Contents
Unaudited Condensed Consolidating Statements of Comprehensive Income
Quarter and Six Months Ended June 28, 2015 and June 29, 2014
(In thousands)
Parent | Issuer | Guarantor | Non-Guarantor | Eliminations | Consolidated | |||||||||||||||||||
For the quarter ended June 28, 2015 |
||||||||||||||||||||||||
Net income |
$ | 44,109 | 44,109 | 59,925 | 13,515 | (117,468 | ) | 44,190 | ||||||||||||||||
Other comprehensive income, net of tax: |
||||||||||||||||||||||||
Foreign currency translation |
3,948 | 3,992 | 3,992 | 3,252 | (11,236 | ) | 3,948 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Comprehensive income |
48,057 | 48,101 | 63,917 | 16,767 | (128,704 | ) | 48,138 | |||||||||||||||||
Less comprehensive income attributable to noncontrolling interest |
| | | 67 | | 67 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Comprehensive income attributable to stockholders |
$ | 48,057 | 48,101 | 63,917 | 16,700 | (128,704 | ) | 48,071 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
For the quarter ended June 29 , 2014 |
||||||||||||||||||||||||
Net income |
$ | 15,383 | 15,870 | 15,870 | 5,089 | (36,752 | ) | 15,460 | ||||||||||||||||
Other comprehensive income, net of tax: |
||||||||||||||||||||||||
Foreign currency translation |
2,577 | 2,577 | 2,577 | 2,227 | (7,381 | ) | 2,577 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Comprehensive income |
17,960 | 18,447 | 18,447 | 7,316 | (44,133 | ) | 18,037 | |||||||||||||||||
Less comprehensive income attributable to noncontrolling interest |
| | | 74 | | 74 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Comprehensive income attributable to stockholders |
$ | 17,960 | 18,447 | 18,447 | 7,242 | (44,133 | ) | 17,963 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
For the six months ended June 28, 2015 |
||||||||||||||||||||||||
Net income |
$ | 76,550 | 76,550 | 110,193 | 23,474 | (210,001 | ) | 76,766 | ||||||||||||||||
Other comprehensive loss, net of tax: |
||||||||||||||||||||||||
Foreign currency translation |
(11,783 | ) | (12,043 | ) | (12,043 | ) | (9,646 | ) | 33,732 | (11,783 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Comprehensive income |
64,767 | 64,507 | 98,150 | 13,828 | (176,269 | ) | 64,983 | |||||||||||||||||
Less comprehensive income attributable to noncontrolling interest |
| | | 212 | | 212 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Comprehensive income attributable to stockholders |
$ | 64,767 | 64,507 | 98,150 | 13,616 | (176,269 | ) | 64,771 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
For the six months ended June 29, 2014 |
||||||||||||||||||||||||
Net income |
$ | 37,985 | 38,472 | 38,472 | 13,079 | (89,852 | ) | 38,156 | ||||||||||||||||
Other comprehensive income, net of tax: |
||||||||||||||||||||||||
Foreign currency translation |
1,760 | 1,760 | 1,760 | 1,867 | (5,387 | ) | 1,760 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Comprehensive income |
39,745 | 40,232 | 40,232 | 14,946 | (95,239 | ) | 39,916 | |||||||||||||||||
Less comprehensive income attributable to noncontrolling interest |
| | | 198 | | 198 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Comprehensive income attributable to stockholders |
$ | 39,745 | 40,232 | 40,232 | 14,748 | (95,239 | ) | 39,718 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
26
Table of Contents
Unaudited Condensed Consolidating Statements of Cash Flows
Six Months Ended June 28, 2015 and June 29, 2014
(In thousands)
Parent | Issuer | Guarantor | Non-Guarantor | Eliminations | Consolidated | |||||||||||||||||||
For the six months ended June 28, 2015 |
||||||||||||||||||||||||
Cash flows from operating activities: |
||||||||||||||||||||||||
Net cash provided by (used for) operating activities |
$ | 6,751 | (38,731 | ) | 112,815 | 36,836 | | 117,671 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash flows from investing activities: |
||||||||||||||||||||||||
Capital expenditures |
| (91 | ) | (90,864 | ) | (24,002 | ) | | (114,957 | ) | ||||||||||||||
Proceeds from sale of fixed assets |
| | 1,125 | 171 | | 1,296 | ||||||||||||||||||
Capitalized patent costs |
| | (182 | ) | | | (182 | ) | ||||||||||||||||
Intercompany activity |
(253 | ) | 21,691 | | | (21,438 | ) | | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash (used for) provided by investing activities |
(253 | ) | 21,600 | (89,921 | ) | (23,831 | ) | (21,438 | ) | (113,843 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash flows from financing activities: |
||||||||||||||||||||||||
Dividends |
(6,035 | ) | | | | | (6,035 | ) | ||||||||||||||||
Stock-based compensation activity, net |
(141 | ) | | | | | (141 | ) | ||||||||||||||||
Borrowings of revolving lines of credit |
| 14,300 | | | | 14,300 | ||||||||||||||||||
Repayments of revolving lines of credit |
| (14,300 | ) | (268 | ) | | | (14,568 | ) | |||||||||||||||
Proceeds from long-term debt |
| 1,326,625 | | | | 1,326,625 | ||||||||||||||||||
Payments on long-term debt |
| (1,360,000 | ) | (154 | ) | | | (1,360,154 | ) | |||||||||||||||
Other debt, net |
| | (1,667 | ) | 119 | | (1,548 | ) | ||||||||||||||||
Payment of debt issue costs |
| (149 | ) | | | | (149 | ) | ||||||||||||||||
Payment of offering related costs |
(108 | ) | | | | | (108 | ) | ||||||||||||||||
Intercompany activity |
| | (20,169 | ) | (1,269 | ) | 21,438 | | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash used for financing activities |
(6,284 | ) | (33,524 | ) | (22,258 | ) | (1,150 | ) | 21,438 | (41,778 | ) | |||||||||||||
Effect of exchange rates on cash |
| | | (5,875 | ) | | (5,875 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net increase (decrease) in cash and cash equivalents |
$ | 214 | (50,655 | ) | 636 | 5,980 | | (43,825 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
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 |
214 | (50,655 | ) | 636 | 5,980 | | (43,825 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash and cash equivalents, end of period |
$ | 215 | 1,598 | 3,818 | 107,042 | | 112,673 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
For the six months ended June 29, 2014 |
||||||||||||||||||||||||
Cash flows from operating activities: |
||||||||||||||||||||||||
Net cash provided by operating activities |
$ | 263 | | 55,793 | 55,602 | | 111,658 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash flows from investing activities: |
||||||||||||||||||||||||
Capital expenditures |
| | (43,861 | ) | (14,212 | ) | | (58,073 | ) | |||||||||||||||
Proceeds from sale of fixed assets |
| | 258 | 13 | | 271 | ||||||||||||||||||
Capitalized patent costs |
| | (165 | ) | | | (165 | ) | ||||||||||||||||
Grede Transaction, net of cash acquired |
| | (812,578 | ) | (17,078 | ) | | (829,656 | ) | |||||||||||||||
Intercompany activity |
(263 | ) | | | | 263 | | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash used for investing activities |
(263 | ) | | (856,346 | ) | (31,277 | ) | 263 | (887,623 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash flows from financing activities: |
||||||||||||||||||||||||
Dividends |
| | (111,259 | ) | | | (111,259 | ) | ||||||||||||||||
Other stock activity |
| | (2,449 | ) | | | (2,449 | ) | ||||||||||||||||
Proceeds from stock issuance |
| | 242,885 | 15,668 | | 258,553 | ||||||||||||||||||
Borrowings of revolving lines of credit |
| | 238,597 | | | 238,597 | ||||||||||||||||||
Repayments of revolving lines of credit |
| | (228,200 | ) | (2,300 | ) | | (230,500 | ) | |||||||||||||||
Proceeds from long-term debt |
| | 715,000 | | | 715,000 | ||||||||||||||||||
Payments on long-term debt |
| | (10,974 | ) | | | (10,974 | ) | ||||||||||||||||
Other debt, net |
| | (3,653 | ) | (113 | ) | | (3,766 | ) | |||||||||||||||
Payment of debt issue costs |
| | (20,231 | ) | | | (20,231 | ) | ||||||||||||||||
Intercompany activity |
| | 1,976 | (1,713 | ) | (263 | ) | | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash provided by financing activities |
| | 821,692 | 11,542 | (263 | ) | 832,971 | |||||||||||||||||
Effect of exchange rates on cash |
| | | 828 | | 828 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net increase in cash and cash equivalents |
$ | | | 21,139 | 36,695 | | 57,834 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash and cash equivalents: |
||||||||||||||||||||||||
Cash and cash equivalents, beginning of period |
$ | | | 720 | 67,504 | | 68,224 | |||||||||||||||||
Net increase in cash and cash equivalents |
| | 21,139 | 36,695 | | 57,834 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash and cash equivalents, end of period |
$ | | | 21,859 | 104,199 | | 126,058 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
27
Table of Contents
(21) Subsequent events
On July 29, 2015 our board of directors declared a dividend of $0.09 per share. The dividend is payable August 31, 2015 to stockholders of record as of August 17, 2015.
28
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 applications 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 and tier 1 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.
29
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 June 28, 2015 compared to Quarter Ended June 29, 2014
The following table sets forth our statement of operations for the periods presented.
Quarter Ended | ||||||||
June 28, 2015 | June 29, 2014 | |||||||
(In millions) | ||||||||
Net sales |
$ | 800.2 | 641.3 | |||||
Cost of sales |
658.1 | 537.2 | ||||||
|
|
|
|
|||||
Gross profit |
142.1 | 104.1 | ||||||
Selling, general and administrative expenses |
57.8 | 40.4 | ||||||
Acquisition costs |
| 13.0 | ||||||
|
|
|
|
|||||
Operating income |
84.3 | 50.7 | ||||||
Interest expense, net |
26.9 | 22.6 | ||||||
Loss on debt extinguishment |
0.4 | | ||||||
Other, net |
(1.3 | ) | 3.2 | |||||
|
|
|
|
|||||
Income before taxes |
58.3 | 24.9 | ||||||
Income tax provision |
14.2 | 9.4 | ||||||
|
|
|
|
|||||
Net income |
44.1 | 15.5 | ||||||
Income attributable to noncontrolling interests |
| 0.1 | ||||||
|
|
|
|
|||||
Net income attributable to stockholders |
$ | 44.1 | 15.4 | |||||
|
|
|
|
The quarter ended June 28, 2015 includes three months of results for our Grede segment. The quarter ended June 29, 2014 only includes one month of results for our Grede segment as the Grede Transaction occurred in June 2014.
Net Sales
Net sales were $800.2 million for the quarter ended June 28, 2015 as compared to $641.3 million for the quarter ended June 29, 2014, an increase of $158.9 million. This increase was primarily driven by the impact of the additional two months of Grede segment results of $165.1 million and increased volumes partially offset by foreign currency movements of $20.9 million and lower raw material surcharge pass-through of $14.6 million.
30
Table of Contents
The following table sets forth our net sales by segment for the quarters ended June 28, 2015 and June 29, 2014:
Quarter Ended | Increase | Percent | ||||||||||||||
June 28, 2015 | June, 29, 2014 | (Decrease) | Change | |||||||||||||
(In millions) | ||||||||||||||||
HHI segment |
$ | 262.1 | 251.0 | 11.1 | 4.4 | % | ||||||||||
Metaldyne segment |
300.7 | 309.3 | (8.6 | ) | (2.8 | %) | ||||||||||
Grede segment |
237.4 | 81.0 | 156.4 | |||||||||||||
|
|
|
|
|
|
|||||||||||
Total |
$ | 800.2 | 641.3 | 158.9 | ||||||||||||
|
|
|
|
|
|
The increase in HHI net sales was primarily attributable to increased volumes due to higher North American light vehicle production levels and net price increases partially offset by lower raw material surcharge pass-through.
The decrease in Metaldyne net sales was primarily attributable to foreign currency movements, net price decreases and lower raw material pass-through partially offset by increased volumes due to higher North American and European light vehicle production levels.
The increase in Grede net sales was primarily attributable to the additional two months of results included in the quarter ended June 28, 2015.
Cost of Sales
Cost of sales was $658.1 million for the quarter ended June 28, 2015 as compared to $537.2 million for the quarter ended June 29, 2014, an increase of $120.9 million. This increase was primarily driven by the impact of the additional two months of Grede segment results of $137.7 million, lower scrap sales and higher wages, benefits and utilities. These increases were partially offset by foreign currency movements of $18.7 million, lower raw material surcharge pass-through of $15.0 million, net manufacturing cost reductions and lower depreciation.
The following table sets forth our cost of sales by segment for the quarters ended June 28, 2015 and June 29, 2014:
Quarter Ended | Increase | Percent | ||||||||||||||
June 28, 2015 | June 29, 2014 | (Decrease) | Change | |||||||||||||
(In millions) | ||||||||||||||||
HHI segment |
$ | 208.5 | 204.7 | 3.8 | 1.9 | % | ||||||||||
Metaldyne segment |
248.3 | 261.3 | (13.0 | ) | (5.0 | %) | ||||||||||
Grede segment |
201.3 | 71.2 | 130.1 | |||||||||||||
|
|
|
|
|
|
|||||||||||
Total |
$ | 658.1 | 537.2 | 120.9 | ||||||||||||
|
|
|
|
|
|
The increase in HHI cost of sales is primarily due to increased volumes, lower scrap sales and higher wages, benefits and utilities partially offset by lower raw material surcharge pass-through and net manufacturing cost savings.
The decrease in Metaldyne cost of sales was primarily attributable to foreign currency movements, lower depreciation and raw material surcharge pass-through partially offset by increased volumes and higher wages, benefits and utilities.
The increase in Grede cost of sales was primarily attributable to the additional two months of results included in the quarter ended June 28, 2015.
31
Table of Contents
Gross Profit
Gross profit was $142.1 million for the quarter ended June 28, 2015 as compared to $104.1 million for the quarter ended June 29, 2014, an increase of $38.0 million. This increase was primarily driven by the impact of the additional two months of Grede segment results of $27.4 million, increased volumes, net manufacturing cost reductions and lower depreciation. These increases were partially offset by lower scrap sales of $3.1 million 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 June 28, 2015 and June 29, 2014:
Quarter Ended | Increase | Percent | ||||||||||||||
June 28, 2015 | June 29, 2014 | (Decrease) | Change | |||||||||||||
(In millions) | ||||||||||||||||
HHI segment |
$ | 53.6 | 46.3 | 7.3 | 15.8 | % | ||||||||||
Metaldyne segment |
52.4 | 48.0 | 4.4 | 9.2 | % | |||||||||||
Grede segment |
36.1 | 9.8 | 26.3 | |||||||||||||
|
|
|
|
|
|
|||||||||||
Total |
$ | 142.1 | 104.1 | 38.0 | ||||||||||||
|
|
|
|
|
|
The increase in HHI gross profit was primarily attributable to increased sales volumes, net manufacturing cost savings and net price increases. These increases were partially offset by lower scrap sales and higher wages, benefits and utilities.
The increase in Metaldyne gross profit was primarily attributable to increased sales volumes and lower depreciation, partially offset by foreign currency movements, net price decreases and higher wages, benefits and utilities.
The increase in Grede gross profit was primarily attributable to the additional two months of results included in the quarter ended June 28, 2015.
Operating Income
Operating income was $84.3 million for the quarter ended June 28, 2015 as compared to $50.7 million for the quarter ended June 29, 2014, an increase of $33.6 million. This increase was primarily driven by the impact of $13.0 million of acquisition related costs incurred in June 2014 resulting from the Grede acquisition, the additional two months of Grede segment results of $11.2 million in the quarter ended June 28, 2015 and the increase in gross profit due to the factors discussed above. These increases were partially offset by 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 June 28, 2015 and June 29, 2014:
Quarter Ended | Increase | Percent | ||||||||||||||
June 28, 2015 | June 29, 2014 | (Decrease) | Change | |||||||||||||
(In millions) | ||||||||||||||||
HHI segment |
$ | 38.0 | 30.8 | 7.2 | 23.4 | % | ||||||||||
Metaldyne segment |
34.5 | 30.7 | 3.8 | 12.4 | % | |||||||||||
Grede segment |
11.8 | (10.8 | ) | 22.6 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Total |
$ | 84.3 | 50.7 | 33.6 | ||||||||||||
|
|
|
|
|
|
32
Table of Contents
The increase in HHI operating income was primarily attributable to the increase in gross profit and decrease in stock-based compensation, partially offset by higher professional fees.
The increase in Metaldyne operating income was primarily attributable to the increase in gross profit partially offset by increased stock-based compensation and higher professional fees.
The increase in Grede operating income was primarily attributable to the additional two months of results included in the quarter ended June 28, 2015.
Interest Expense, Net
Interest expense, net was $26.9 million for the quarter ended June 28, 2015 as compared to $22.6 million for the quarter ended June 29, 2014, an increase of $4.3 million. The increase in interest expense, net reflected higher average outstanding borrowings including the additional debt associated with the Grede Transaction in June 2014, increased indebtedness used to fund the return of capital to our stockholders, and higher overall interest rates due to the issuance of our Registered Notes in the fourth quarter of 2014.
Other, Net
Other, net was $1.3 million of income for the quarter ended June 28, 2015 as compared to expense of $3.2 million for the quarter ended June 29, 2014, a favorable change of $4.5 million. The change in other, net was primarily due to a $5.6 million increase in foreign currency transaction gains.
Income Taxes
The income tax provision for the quarter ended June 28, 2015 was $14.2 million as compared to $9.4 million for the quarter ended June 29, 2014. The $4.8 million increase was primarily attributable to higher income before taxes due to the factors discussed above, partially offset by a lower effective tax rate. Our effective tax rate decreased year over year primarily due to a $3.1 million tax benefit that was recorded in the quarter ended June 28, 2015, relating to the enactment of Senate Bill 441 in the state of Indiana, eliminating the throwback rule for calculating state income tax expense. In addition, income tax expense for the quarter ended June 29, 2014 included a tax expense of $1.3 million for establishing a valuation allowance against loss carryforwards of our Brazilian subsidiary, of which $0.9 million represents a discrete tax expense. Our effective tax rate for the quarter ended June 28, 2015 and June 29, 2014 was 24.2% and 37.8%, respectively.
Net Income Attributable to Stockholders
Net income attributable to stockholders was $44.1 million, or 5.5% of net sales for the quarter ended June 28, 2015, as compared to $15.4 million, or 2.4% of net sales for the quarter ended June 29, 2014, an increase of $28.7 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 | ||||||||
June 28, 2015 | June 29, 2014 | |||||||
(In millions) | ||||||||
Adjusted EBITDA |
||||||||
HHI segment |
$ | 59.3 | 54.6 | |||||
Metaldyne segment |
56.4 | 56.3 | ||||||
Grede segment |
37.9 | 12.1 | ||||||
|
|
|
|
|||||
Total |
$ | 153.6 | 123.0 | |||||
|
|
|
|
33
Table of Contents
The following table sets forth the reconciliation between Adjusted EBITDA and net income, the most directly comparable GAAP measure:
Quarter Ended | ||||||||
June 28, 2015 | June 29, 2014 | |||||||
(In millions) | ||||||||
Net income |
$ | 44.1 | 15.5 | |||||
Income tax expense |
14.2 | 9.4 | ||||||
Interest expense, net |
26.9 | 22.6 | ||||||
Depreciation and amortization |
58.8 | 47.8 | ||||||
(Gain) loss on foreign currency |
(3.9 | ) | 1.8 | |||||
Loss on fixed assets |
0.2 | 0.5 | ||||||
Loss on debt extinguishment |
0.4 | | ||||||
Debt transaction expenses |
1.6 | 1.6 | ||||||
Stock-based compensation |
4.2 | 3.3 | ||||||
Sponsor management fees |
| 1.2 | ||||||
Non-recurring acquisition and purchase accounting related items |
0.4 | 18.1 | ||||||
Non-recurring operational items |
6.7 | 1.2 | ||||||
|
|
|
|
|||||
Adjusted EBITDA |
$ | 153.6 | 123.0 | |||||
|
|
|
|
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, including impairment and costs associated with closing the Berlin, Wisconsin facility. |
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; |
34
Table of Contents
| 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.
35
Table of Contents
Six Months Ended June 28, 2015 compared to Six Months Ended June 29, 2014
The following table sets forth our statement of operations for the periods presented.
Six Months Ended | ||||||||
June 28, 2015 | June 29, 2014 | |||||||
(In millions) | ||||||||
Net sales |
$ | 1,565.4 | 1,181.8 | |||||
Cost of sales |
1,294.8 | 994.4 | ||||||
|
|
|
|
|||||
Gross profit |
270.6 | 187.4 | ||||||
Selling, general and administrative expenses |
114.0 | 69.6 | ||||||
Acquisition costs |
| 13.0 | ||||||
|
|
|
|
|||||
Operating income |
156.6 | 104.8 | ||||||
Interest expense, net |
54.5 | 42.0 | ||||||
Loss on debt extinguishment |
0.4 | 0.3 | ||||||
Other, netapplications |
(6.5 | ) | 4.4 | |||||
|
|
|
|
|||||
Income before taxes |
108.2 | 58.1 | ||||||
Income tax provision |
31.5 | 19.9 | ||||||
|
|
|
|
|||||
Net income |
76.7 | 38.2 | ||||||
Income attributable to noncontrolling interests |
0.2 | 0.2 | ||||||
|
|
|
|
|||||
Net income attributable to stockholders |
$ | 76.5 | 38.0 | |||||
|
|
|
|
Net Sales
Net sales were $1,565.4 million for the six months ended June 28, 2015 as compared to $1,181.8 million for the six months ended June 29, 2014, an increase of $383.6 million. This increase was primarily driven by the impact of the additional five months of Grede segment results of $408.6 million and increased volumes partially offset by foreign currency movements of $39.3 million, lower raw material surcharge pass-through of $19.5 million and net price decreases.
The following table sets forth our net sales by segment for the six months ended June 28, 2015 and June 29, 2014:
Six Months Ended | Increase | Percent | ||||||||||||||
June 28, 2015 | June 29, 2014 | (Decrease) | Change | |||||||||||||
(In millions) | ||||||||||||||||
HHI segment |
$ | 506.2 | 493.1 | 13.1 | 2.7 | % | ||||||||||
Metaldyne segment |
578.4 | 607.7 | (29.3 | ) | (4.8 | %) | ||||||||||
Grede segment |
480.8 | 81.0 | 399.8 | |||||||||||||
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|
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Total |
$ | 1,565.4 | 1,181.8 | 383.6 | ||||||||||||
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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.
The decrease in Metaldyne net sales was primarily attributable to foreign currency movements, net price decreases and lower raw material pass-through partially offset by increased volumes due to higher North American and European light vehicle production levels.
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The increase in Grede net sales was primarily attributable to the additional five months of results included in the six months ended June 28, 2015.
Cost of Sales
Cost of sales was $1,294.8 million for the six months ended June 28, 2015 as compared to $994.4 million for the six months ended June 29, 2014, an increase of $300.4 million. This increase was primarily driven by the impact of the additional five months of Grede segment results of $337.6 million, lower scrap sales and higher wages, benefits and utilities. These increases were partially offset by foreign currency movements of $34.7 million, lower raw material surcharge pass-through of $17.9 million, net manufacturing cost reductions and lower depreciation.
The following table sets forth our cost of sales by segment for the six months ended June 28, 2015 and June 29, 2014:
Six Months Ended | Increase | Percent | ||||||||||||||
June 28, 2015 | June 29, 2014 | (Decrease) | Change | |||||||||||||
(In millions) | ||||||||||||||||
HHI segment |
$ | 410.2 | 407.4 | 2.8 | 0.7 | % | ||||||||||
Metaldyne segment |
483.4 | 515.8 | (32.4 | ) | (6.3 | %) | ||||||||||
Grede segment |
401.2 | 71.2 | 330.0 | |||||||||||||
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|
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Total |
$ | 1,294.8 | 994.4 | 300.4 | ||||||||||||
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The increase in HHI cost of sales is primarily due to increased volumes, lower scrap sales and higher wages, benefits and utilities partially offset by lower raw material surcharge pass-through and net manufacturing cost savings.
The decrease in Metaldyne cost of sales was primarily attributable to foreign currency movements, lower depreciation and raw material surcharge pass-through partially offset by increased volumes and higher wages, benefits and utilities.
The increase in Grede cost of sales was primarily attributable to the additional five months of results included in the six months ended June 28, 2015.
Gross Profit
Gross profit was $270.6 million for the six months ended June 28, 2015 as compared to $187.4 million for the six months ended June 29, 2014, an increase of $83.2 million. This increase was primarily driven by the impact of the additional five months of Grede segment results of $70.9 million, increased volumes, net manufacturing cost reductions and lower depreciation. These increases were partially offset by lower scrap sales of $5.8 million and the timing of raw material surcharge pass-through both primarily driven by the decline in the scrap metal market, in addition to the factors discussed above.
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The following table sets forth our gross profit by segment for the six months ended June 28, 2015 and June 29, 2014:
Six Months Ended | Increase | Percent | ||||||||||||||
June 28, 2015 | June 29, 2014 | (Decrease) | Change | |||||||||||||
(In millions) | ||||||||||||||||
HHI segment |
$ | 96.0 | 85.7 | 10.3 | 12.0 | % | ||||||||||
Metaldyne segment |
95.0 | 91.9 | 3.1 | 3.4 | % | |||||||||||
Grede segment |
79.6 | 9.8 | 69.8 | |||||||||||||
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|
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Total |
$ | 270.6 | 187.4 | 83.2 | ||||||||||||
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The increase in HHI gross profit was primarily attributable to increased sales volumes and manufacturing cost savings partially offset by lower scrap sales, the timing of raw material surcharge pass-through, and increased wages, benefits and utilities.
The increase in Metaldyne gross profit was primarily attributable to lower depreciation and increased sales volumes partially offset by net price decreases, foreign currency movements and higher, wages and utilities.
The increase in Grede gross profit was primarily attributable to the additional five months of results included in the six months ended June 28, 2015.
Operating Income
Operating income was $156.6 million for the six months ended June 28, 2015 as compared to $104.8 million for the six months ended June 29, 2014, an increase of $51.8 million. This increase was primarily driven by the impact of the additional five months of Grede segment results of $30.6 million, $13.0 million of acquisition related costs incurred in June 2014 resulting from the Grede acquisition, and the increase in gross profit due to the factors discussed above. These increases were 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 six months ended June 28, 2015 and June 29, 2014:
Six Months Ended | Increase | Percent | ||||||||||||||
June 28, 2015 | June 29, 2014 | (Decrease) | Change | |||||||||||||
(In millions) | ||||||||||||||||
HHI segment |
$ | 64.5 | 56.6 | 7.9 | 14.0 | % | ||||||||||
Metaldyne segment |
60.8 | 59.0 | 1.8 | 3.1 | % | |||||||||||
Grede segment |
31.3 | (10.8 | ) | 42.1 | ||||||||||||
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Total |
$ | 156.6 | 104.8 | 51.8 | ||||||||||||
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The increase in HHI operating income was primarily attributable to the increase in gross profit partially offset by higher professional fees.
The decrease in Metaldyne operating income was primarily attributable to the increase in gross profit partially offset by increased stock-based compensation and higher professional fees.
The increase in Grede operating income was primarily attributable to the additional five months of results included in the six months ended June 28, 2015.
Interest Expense, Net
Interest expense, net was $54.5 million for the six months ended June 28, 2015 as compared to $42.0 million for the six months ended June 29, 2014, an increase of $12.5 million. The increase in interest expense, net reflected higher average outstanding borrowings including the additional debt associated with the Grede Transaction in June 2014, increased indebtedness used to fund the return of capital to our stockholders, and higher overall interest rates due to the issuance of our Registered Notes in the fourth quarter of 2014, partially offset by lower amortization of debt issue costs.
Other, Net
Other, net was $6.5 million of income for the six months ended June 28, 2015 as compared to expense of $4.4 million for the six months ended June 29, 2014, a favorable change of $10.9 million. The change in other, net was primarily due to a $10.5 million increase in foreign currency transaction gains.
Income Taxes
The income tax provision for the six months ended June 28, 2015 and June 29, 2014 was $31.5 million and $19.9 million, respectively. The $11.6 million increase was primarily attributable to higher income before taxes due to the factors discussed above, partially offset by a lower effective tax rate. Our effective tax rate decreased year over year primarily due to a $3.1 million tax benefit that was recorded in the six months ended June 28, 2015, relating to the enactment of Senate Bill 441 in the state of Indiana, eliminating the throwback rule for calculating state income tax expense. In addition, income tax expense for the six months ended June 29, 2014 included a tax expense of $1.3 million for establishing a valuation allowance against loss carryforwards of our Brazilian subsidiary, of which $0.9 million represents a discrete tax expense. Our effective tax rate for the six months ended June 28, 2015 and June 29, 2014 was 29.1% and 34.3%, respectively.
Net Income Attributable to Stockholders
Net income attributable to stockholders was $76.5 million, or 4.9% of net sales for the six months ended June 28, 2015, as compared to $38.0 million, or 3.2% of net sales for the six months ended June 29, 2014, an increase of $38.5 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.
Six Months Ended | ||||||||
June 28, 2015 | June 28, 2014 | |||||||
(In millions) | ||||||||
Adjusted EBITDA |
||||||||
HHI segment |
$ | 106.1 | 101.0 | |||||
Metaldyne segment |
103.5 | 109.6 | ||||||
Grede segment |
76.6 | 12.1 | ||||||
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Total |
$ | 286.2 | 222.7 | |||||
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The following table sets forth the reconciliation between Adjusted EBITDA and net income, the most directly comparable GAAP measure:
Six Months Ended | ||||||||
June 28, 2015 | June 29, 2014 | |||||||
(In millions) | ||||||||
Net income |
$ | 76.7 | 38.2 | |||||
Income tax expense |
31.5 | 19.9 | ||||||
Interest expense, net |
54.5 | 42.0 | ||||||
Depreciation and amortization |
115.2 | 90.5 | ||||||
(Gain) loss on foreign currency |
(8.9 | ) | 1.7 | |||||
Loss on fixed assets |
0.4 | 1.2 | ||||||
Loss on debt extinguishment |
0.4 | 0.3 | ||||||
Debt transaction expenses |
1.7 | 2.8 | ||||||
Stock-based compensation |
7.5 | 4.6 | ||||||
Sponsor management fees |
| 2.2 | ||||||
Non-recurring acquisition and purchase accounting related items |
0.1 | 18.1 | ||||||
Non-recurring operational items |
7.1 | 1.2 | ||||||
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|
|||||
Adjusted EBITDA |
$ | 286.2 | 222.7 | |||||
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Liquidity and Capital Resources
As of June 28, 2015, we had cash and cash equivalents of $112.7 million and total indebtedness, inclusive of capitalized lease obligations, of $1,923.2 million. We also have access to additional liquidity pursuant to the terms of our revolving credit facility. As of June 28, 2015, $235.1 million was available on our revolving credit facility after giving effect to letters of credit of $14.9 million.
As of June 28, 2015, $97.5 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.
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+ | ||
U.S. Dollar term loan |
Ba3 | BB+ | ||
Euro term loan |
Ba3 | BB+ | ||
Registered Notes |
B3 | B+ | ||
Outlook |
Stable | Stable |
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 May 8, 2015, the Company amended and restated its senior credit facilities to reduce the applicable interest rates on our term loan facility and to convert a portion of the liability from U.S. Dollar denominated debt to Euro denominated debt.
The revised terms were as follows:
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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% | ||||
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|
|||||
Total |
$ | 1,327,902 | ||||
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|
The above terms reduced the stated interest rate on our term loan facility by 0.5 percentage points. The Euro denominated tranche was issued at an original issuance discount of 0.5%, or $1.3 million. The Company also paid fees to third parties totaling $1.8 million. All other terms on the senior credit facilities remain substantially unchanged.
In June 2015, the board of directors authorized and the Company made a voluntary prepayment of $20.0 million on our U.S. Dollar denominated term loan.
Included in our total indebtedness are senior notes with an aggregate principal amount of $600.0 million (the Senior Notes). In June 2015, the Company completed an offer to exchange notes registered with the SEC (the Registered Notes) for its original senior notes that were 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. As of the exchange offer expiration on June 8, 2015, all of the outstanding original senior notes were tendered and exchanged for Registered Notes.
On March 10, 2015, our board of directors declared a dividend of $0.09 per share. The dividend was paid on May 26, 2015 to stockholders of record as of May 12, 2015.
On July 29, 2015 our board of directors declared a dividend of $0.09 per share. The dividend is payable August 31, 2015 to stockholders of record as of August 17, 2015.
Cash Flows
The following tables provide a summary of cash flows from operating, investing and financing activities for the periods presented:
Six Months Ended | ||||||||
June 28, 2015 | June 29, 2014 | |||||||
(In millions) | ||||||||
Cash flows from operating activities |
$ | 117.7 | 111.6 | |||||
Cash flows from investing activities |
(113.8 | ) | (887.6 | ) | ||||
Cash flows from financing activities |
(41.8 | ) | 833.0 | |||||
Effect of exchange rates on cash |
(5.9 | ) | 0.8 | |||||
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|
|
|||||
Net increase (decrease) in cash and cash equivalents |
$ | (43.8 | ) | 57.8 | ||||
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|
|
For the six months ended June 28, 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, and a net decrease in working capital. For the six months ended June 29, 2014, cash flows from operating activities reflected results of operations exclusive of non-cash income and expenses, primarily depreciation and amortization less the change in deferred income taxes, partially offset by an increase in working capital.
For the six months ended June 28, 2015, cash flows from investing activities primarily reflected capital expenditures of $115.0 million, offset by cash proceeds from the sale of fixed assets. For the six months ended June 29, 2014, cash flows from investing activities primarily reflected the consideration paid for the Grede Transaction, $829.7 million, and capital expenditures.
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For six months ended June 28, 2015, cash flows from financing activities primarily reflected the re-pricing of our term loan in May 2015, which resulted in a full repayment of previous our term loan and the borrowing of a new U.S. Dollar term loan and a new Euro term loan. Also reflected in cash flows from financing activities were a $20.0 million prepayment made on our new U.S. Dollar term loan, a $10.0 million dollar prepayment made on our previous term loan, and a $6.0 million dividend paid to common stockholders. For the six months ended June 29, 2014, the cash flows from financing activities primarily reflected the issuance of a $600.0 million term loan and a capital contribution of $258.6 million to fund the Grede Transaction and debt issuance costs paid. Additionally, HHI borrowed $115.0 million to fund a dividend to the HHI stockholders of $111.3 million.
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 is 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 June 28, 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 |
$ | (25.1 | ) | $ | 25.1 |
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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 June 28, 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 June 28, 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 June 28, 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 George Thanopoulos |
Chief Executive Officer (Principal Executive Officer) |
August 4, 2015 | ||
/s/ Mark Blaufuss Mark Blaufuss |
Chief Financial Officer (Principal Financial and Accounting Officer) |
August 4, 2015 |
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