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EX-32 - EX-32 - Multi Packaging Solutions International Ltdmpsx-20161231xex32.htm
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EX-31.1 - EX-31.1 - Multi Packaging Solutions International Ltdmpsx-20161231ex311e9e7c5.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


FORM 10-Q


 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended December 31, 2016

 

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: 001-37598

 

C:\Users\ross.weiner\Desktop\MPS_logo.jpg

 

Multi Packaging Solutions International Limited

(Exact Name of Registrant as Specified in Its Charter)

 

 

 

 

Bermuda

    

98-1249740

(State or Other Jurisdiction of
Incorporation or Organization)

 

(I.R.S. Employer
Identification Number)

 

 

 

Clarendon House, 2 Church Street
Hamilton, Bermuda

 

HM 11

(Address of Principal Executive Offices)

 

(Zip Code)

 

(441) 295-5950

(Registrant’s Telephone Number, Including Area Code)


 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirement for the past 90 days.   Yes  ☒    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  ☒    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 definition of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

 

 

 

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

☒  (Do not check if a smaller reporting company)

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  ☒ 

 

As of February 3, 2017, there were 77,695,438 common shares, $1.00 par value per share, outstanding.

 

 

 


 

Multi Packaging Solutions International Limited and subsidiaries

FOR THE THREE AND SIX MONTHS ENDED December 31, 2016

 

INDEX

 

PART I ‒  FINANCIAL INFORMATION 

 

 

Item 1. 

Financial Statements (Unaudited)

 

Condensed Consolidated Balance Sheets

 

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

 

Condensed Consolidated Statement of Shareholders’ Equity

 

Condensed Consolidated Statements of Cash Flows

 

Notes to the Condensed Consolidated Financial Statements

Item 2. 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

23 

Item 3. 

Quantitative and Qualitative Disclosures about Market Risk

37 

Item 4. 

Controls and Procedures

37 

 

 

 

 

 

PART II ‒ OTHER INFORMATION 

38 

 

 

Item 1. 

Legal Proceedings

38 

Item 1A. 

Risk Factors

38 

Item 6. 

Exhibits

38 

 

 

 

 

 

 

Signatures 

39 

Exhibit Index 

40 

 

 

 

 

 

 

 


 

Part 1 ‒ Financial Information

 

 

 

ITEM 1.FINANCIAL STATEMENTS 

 

 

MULTI PACKAGING SOLUTIONS INTERNATIONAL LIMITED
AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED BALANCE SHEETS 
(in thousands, except share amounts)

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

    

December 31, 

    

June 30, 

 

 

 

2016

 

2016

 

 

 

(unaudited)

 

 

 

 

Current assets

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

44,644

 

$

44,769

 

Accounts receivable, net

 

 

234,115

 

 

237,179

 

Inventories

 

 

155,877

 

 

165,617

 

Prepaid expenses and other current assets

 

 

26,189

 

 

30,742

 

Total current assets

 

 

460,825

 

 

478,307

 

 

 

 

 

 

 

 

 

Property, plant and equipment

 

 

 

 

 

 

 

Land

 

 

48,390

 

 

52,093

 

Buildings and improvements

 

 

67,173

 

 

65,827

 

Machinery and equipment

 

 

391,157

 

 

393,206

 

Furniture and fixtures

 

 

15,852

 

 

15,580

 

Construction in progress

 

 

19,054

 

 

12,689

 

Total

 

 

541,626

 

 

539,395

 

Less: Accumulated depreciation

 

 

(176,835)

 

 

(155,700)

 

Total property, plant and equipment, net

 

 

364,791

 

 

383,695

 

 

 

 

 

 

 

 

 

Other assets

 

 

 

 

 

 

 

Intangible assets, net

 

 

312,429

 

 

340,858

 

Goodwill

 

 

474,595

 

 

464,714

 

Deferred income taxes

 

 

6,787

 

 

7,210

 

Other assets

 

 

30,445

 

 

32,806

 

Total assets

 

$

1,649,872

 

$

1,707,590

 

 

See notes to condensed consolidated financial statements.

1


 

MULTI PACKAGING SOLUTIONS INTERNATIONAL LIMITED

AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts)

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

    

December 31, 

    

June 30, 

 

 

 

2016

 

2016

 

 

 

(unaudited)

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

Accounts payable

 

$

166,233

 

$

171,935

 

Payroll and benefits

 

 

29,542

 

 

36,977

 

Other current liabilities

 

 

37,767

 

 

40,892

 

Current portion of long-term debt

 

 

8,385

 

 

7,307

 

Income taxes payable

 

 

8,094

 

 

4,489

 

Total current liabilities

 

 

250,021

 

 

261,600

 

 

 

 

 

 

 

 

 

Long-term debt, less current portion

 

 

879,974

 

 

900,516

 

Deferred income taxes

 

 

68,725

 

 

72,625

 

Other long-term liabilities

 

 

30,446

 

 

29,955

 

Total liabilities

 

 

1,229,166

 

 

1,264,696

 

 

 

 

 

 

 

 

 

Shareholders’ equity

 

 

 

 

 

 

 

Authorized share capital – $1.00 par value, 1,000,000,000 shares authorized

 

 

 

 

 

 

 

Preference shares – no shares issued

 

 

 —

 

 

 —

 

Common shares – 77,695,438 and 77,452,946 issued

 

 

77,695

 

 

77,453

 

Additional paid-in capital

 

 

474,331

 

 

469,698

 

Accumulated deficit

 

 

(31,109)

 

 

(43,233)

 

Accumulated other comprehensive loss

 

 

(101,063)

 

 

(63,290)

 

Total Multi Packaging Solutions International Limited shareholders’ equity

 

 

419,854

 

 

440,628

 

Noncontrolling interest

 

 

852

 

 

2,266

 

Total shareholders’ equity

 

 

420,706

 

 

442,894

 

Total liabilities and shareholders’ equity

 

$

1,649,872

 

$

1,707,590

 

 

See notes to condensed consolidated financial statements.

 

 

 

2


 

 

MULTI PACKAGING SOLUTIONS INTERNATIONAL LIMITED
AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND

COMPREHENSIVE INCOME (LOSS)

(in thousands, except per share amounts)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

December 31, 

 

December 31, 

 

 

    

2016

    

2015

    

2016

    

2015

 

Net sales

 

$

386,126

 

$

429,357

 

$

793,951

 

$

888,408

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of goods sold

 

 

303,493

 

 

333,632

 

 

626,974

 

 

693,342

 

Gross profit

 

 

82,633

 

 

95,725

 

 

166,977

 

 

195,066

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

 

55,955

 

 

59,306

 

 

111,980

 

 

117,890

 

Stock based and deferred compensation expense

 

 

1,225

 

 

27,232

 

 

1,534

 

 

26,960

 

Transaction related expenses

 

 

538

 

 

2,064

 

 

822

 

 

2,414

 

Total selling, general and administrative expenses

 

 

57,718

 

 

88,602

 

 

114,336

 

 

147,264

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

 

24,915

 

 

7,123

 

 

52,641

 

 

47,802

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense), net

 

 

2,970

 

 

100

 

 

5,907

 

 

(3,535)

 

Debt extinguishment charges

 

 

(16,569)

 

 

(3,867)

 

 

(16,569)

 

 

(3,867)

 

Interest expense

 

 

(12,903)

 

 

(16,016)

 

 

(27,545)

 

 

(34,745)

 

Total other expense, net

 

 

(26,502)

 

 

(19,783)

 

 

(38,207)

 

 

(42,147)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before income taxes

 

 

(1,587)

 

 

(12,660)

 

 

14,434

 

 

5,655

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax (expense) benefit

 

 

57

 

 

4,656

 

 

(3,095)

 

 

(575)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated net income (loss)

 

 

(1,530)

 

 

(8,004)

 

 

11,339

 

 

5,080

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss attributable to noncontrolling interest

 

 

405

 

 

87

 

 

785

 

 

10

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to shareholders of

 Multi Packaging Solutions International Limited

 

$

(1,125)

 

$

(7,917)

 

$

12,124

 

$

5,090

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to shareholders of

 Multi Packaging Solutions International Limited per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.01)

 

$

(0.11)

 

$

0.16

 

$

0.08

 

Diluted

 

$

(0.01)

 

$

(0.11)

 

$

0.16

 

$

0.08

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average number of common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

77,604

 

 

73,826

 

 

77,528

 

 

67,817

 

Diluted

 

 

77,604

 

 

73,826

 

 

77,528

 

 

67,817

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

Cumulative foreign currency translation adjustment

 

$

(27,629)

 

$

(11,880)

 

$

(36,497)

 

$

(21,572)

 

Adjustment on available-for-sale securities

 

 

4

 

 

(5)

 

 

(12)

 

 

(22)

 

Pension adjustments

 

 

(775)

 

 

662

 

 

(1,264)

 

 

1,454

 

Total other comprehensive loss

 

 

(28,400)

 

 

(11,223)

 

 

(37,773)

 

 

(20,140)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income (loss)

 

 

(29,930)

 

 

(19,227)

 

 

(26,434)

 

 

(15,060)

 

Comprehensive loss (income) attributable to non-controlling interests

 

 

405

 

 

 —

 

 

785

 

 

(17)

 

Comprehensive income (loss) attributable to shareholders of

 Multi Packaging Solutions International Limited

 

$

(29,525)

 

$

(19,227)

 

$

(25,649)

 

$

(15,077)

 

 

See notes to condensed consolidated financial statements.

 

3


 

 

MULTI PACKAGING SOLUTIONS INTERNATIONAL LIMITED
AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

(in thousands, except share amounts)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

Other

 

 

 

 

Total

 

 

 

Common Shares

 

Paid-In

 

Accumulated

 

Comprehensive

 

Noncontrolling

 

Shareholders’

 

 

    

Shares

    

Amount

    

Capital

    

(Deficit)

    

Loss

    

Interest

    

Equity

 

Balance at June 30, 2016

 

77,452,946

 

$

77,453

 

$

469,698

 

$

(43,233)

 

$

(63,290)

 

$

2,266

 

$

442,894

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

 

 

 

 

 

 

12,124

 

 

 

 

(785)

 

 

11,339

 

Stock compensation

 

16,248

 

 

16

 

 

1,230

 

 

 

 

 

 

 

 

1,246

 

Issuance of common shares in connection with acquisitions

 

226,244

 

 

226

 

 

2,774

 

 

 

 

 

 

 

 

3,000

 

Purchase of non-controlling interest

 

 

 

 

 

629

 

 

 

 

 —

 

 

(629)

 

 

 —

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

(37,773)

 

 

 —

 

 

(37,773)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2016

 

77,695,438

 

$

77,695

 

$

474,331

 

$

(31,109)

 

$

(101,063)

 

$

852

 

$

420,706

 

 

See notes to condensed consolidated financial statements.

 

 

 

 

4


 

 

MULTI PACKAGING SOLUTIONS INTERNATIONAL LIMITED
AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 

(in thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended  December 31, 

 

 

 

2016

    

2015

 

Operating Activities

    

 

 

    

 

 

 

Net income

 

$

11,339

 

$

5,080

 

Adjustments to reconcile net income to net cash and cash equivalents provided by operating activities:

 

 

 

 

 

 

 

Depreciation expense

 

 

32,925

 

 

37,930

 

Amortization expense

 

 

25,218

 

 

28,108

 

Amortization of deferred financing fees

 

 

2,043

 

 

2,227

 

Debt extinguishment non-cash charges

 

 

3,296

 

 

3,867

 

Deferred income taxes

 

 

(2,175)

 

 

(5,243)

 

Stock compensation

 

 

1,246

 

 

25,962

 

Unrealized foreign currency (gain) loss

 

 

(4,801)

 

 

1,715

 

Other

 

 

(2,074)

 

 

850

 

Change in assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

 

(3,313)

 

 

(8,273)

 

Inventories

 

 

3,188

 

 

2,421

 

Prepaid expenses and other current assets

 

 

3,581

 

 

369

 

Other assets

 

 

(639)

 

 

(4,239)

 

Accounts payable

 

 

308

 

 

(8,572)

 

Payroll and benefits

 

 

(6,170)

 

 

(12,160)

 

Other current liabilities

 

 

(4,952)

 

 

(4,789)

 

Income taxes payable

 

 

3,744

 

 

(894)

 

Other long-term liabilities

 

 

(1,900)

 

 

(1,543)

 

Net cash and cash equivalents provided by operating activities

 

 

60,864

 

 

62,816

 

 

 

 

 

 

 

 

 

Investing Activities

 

 

 

 

 

 

 

Additions to property, plant and equipment

 

 

(26,047)

 

 

(24,507)

 

Additions to intangible assets

 

 

(74)

 

 

(68)

 

Proceeds from sale of assets

 

 

1,493

 

 

1,003

 

Acquisitions of businesses, net of cash acquired

 

 

(28,273)

 

 

(2,496)

 

Net cash and cash equivalents used in investing activities

 

 

(52,901)

 

 

(26,068)

 

 

 

 

 

 

 

 

 

Financing Activities

 

 

 

 

 

 

 

Proceeds from initial public offering

 

 

 —

 

 

186,424

 

Payments of offering costs

 

 

 —

 

 

(6,125)

 

Proceeds from issuance of long-term debt

 

 

218,900

 

 

 —

 

Proceeds from short-term borrowings

 

 

24,317

 

 

41,619

 

Payments on short-term borrowings

 

 

(24,317)

 

 

(40,876)

 

Payments on long-term debt

 

 

(221,256)

 

 

(216,809)

 

Debt issuance costs

 

 

(3,985)

 

 

 —

 

Net cash and cash equivalents used in financing activities

 

 

(6,341)

 

 

(35,767)

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

 

(1,747)

 

 

2,389

 

Increase (decrease) in cash and cash equivalents

 

 

(125)

 

 

3,370

 

Cash and cash equivalents—beginning

 

 

44,769

 

 

55,675

 

Cash and cash equivalents—ending

 

$

44,644

 

$

59,045

 

 

See notes to condensed consolidated financial statements.

 

 

 

 

5


 

Multi Packaging Solutions International Limited and subsidiaries

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 

(amounts in thousands, except per share amounts)  

(unaudited)  

 

Note 1—Nature of Business

 

The Company

 

“MPS” and the “Company” refer to Multi Packaging Solutions International Limited and its controlled subsidiaries. MPS is a leading, global provider of value-added packaging solutions to a diverse customer base across the healthcare, consumer, and multi-media end markets. MPS provides its customers with print-based specialty packaging, including premium-folding cartons, labels and inserts across a variety of substrates and finishes.

 

Bermuda Reincorporation

 

On October 7, 2015, 100% of the share capital of Multi Packaging Solutions Global Holdings Limited was acquired by Multi Packaging Solutions International Limited, a company incorporated and organized under the laws of Bermuda, from Chesapeake Finance 1 Limited and Mustang Investment Holdings L.P. In connection with the issuance of shares, the number of shares was increased as a result of the par value changing from one British Pound Sterling to one U.S. dollar. The total authorized share capital of the Company is 1 billion shares. The Company’s Board of Directors has the authority to allot and issue any unissued shares as common shares or preference shares, provided the total number of shares of the classes combined does not exceed the total authorized amount. The Board of Directors may also determine the number and specific rights attaching to any preference shares that may be issued. The Company has not issued any preference shares to date.

 

Stock-split and Initial Public Offering

 

On October 8, 2015, the Company’s board of directors approved and the Company executed a 1 for 5.08 reverse stock split of its common shares prior to completing its proposed initial public offering. All share and per share data has been presented to reflect this reverse split. On October 22, 2015, the Company completed its initial public offering of 16,500,000 common shares at a price of $13.00 per share. In connection with the offering, funds controlled by The Carlyle Group (“Carlyle”) and certain current and former employees, sold 1,000,000 common shares (which was included in the 16,500,000 common shares). The underwriters also exercised their rights to purchase an additional 2,475,000 common shares from certain of the selling shareholders, including investment funds controlled by Madison Dearborn (“Madison”) and Carlyle, at the public offering price, less the underwriting discount. The Company did not receive any of the proceeds from the shares sold by Madison or Carlyle, certain current and former employees, or from the exercise of the underwriters’ option. The Company received proceeds of $186,424 from the initial public offering, of which $182,414 was used to repay outstanding borrowings under the Company’s Term Loans, with the remaining amount used to pay a portion of the total offering costs of $7,024.

 

On June 8, 2016, a secondary offering was completed, and Madison and Carlyle sold 10,000,000 common shares. The underwriters also exercised their rights to purchase an additional 1,500,000 common shares from the selling shareholders. The Company did not receive any of the proceeds from the secondary offering.

 

 

Note 2—Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements as of December 31, 2016 and for the three and six months ended December 31, 2016 and 2015 have been prepared in accordance with the accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and pursuant to the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (“SEC”) and on the same basis as the Company prepares its annual audited consolidated financial statements. The condensed consolidated balance sheet as of December 31, 2016 and the condensed consolidated statements of operations and comprehensive income (loss) for the three and six months ended December 31, 2016 and 2015 and the statements of cash flows for the six months ended December 31, 2016 and 2015 and statement of shareholders’ equity for the six months ended December 31, 2016 are

6


 

unaudited, but include all adjustments, consisting only of normal recurring adjustments, which the Company considers necessary for a fair presentation of the consolidated financial position, operating results and cash flows for the periods presented. The results for the three and six months ended December 31, 2016 are not necessarily indicative of results to be expected for the fiscal year ending June 30, 2017 or for any future interim period. The condensed consolidated balance sheet at June 30, 2016 has been derived from the audited consolidated financial statements of the Company. However, the interim financial information does not include all of the information and notes required by GAAP for complete consolidated financial statements. The accompanying condensed consolidated financial statements and notes thereto should be read in conjunction with the consolidated financial statements for the fiscal year June 30, 2016, and notes thereto included in the Company’s Annual Report on Form 10-K.

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of Multi Packaging Solutions International Limited and its controlled subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation.

 

In September 2016, the Company acquired a portion of the remaining noncontrolling interest in one of its subsidiaries, MPS Denver, LLC (“Denver”) for a nominal amount. The transaction was accounted for as an acquisition of noncontrolling interest and included in the statement of stockholders’ equity. As of December 31, 2016, the Company owns 80% of the outstanding ownership interests in Denver.

 

Newly Adopted Accounting Pronouncements

 

In August 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. ASU No. 2016-15 provides guidance on eight specific cash flow issues. The amendments in this update are effective for annual periods beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019. Early adoption is permitted provided all of the amendments are adopted in the same period, and if adopted in an interim period, any adjustments should be reflected as of the beginning of that annual period. The Company elected to early adopt the provisions of ASU No. 2016-15 during the second fiscal quarter. The adoption of the new guidance did not materially impact the Company’s consolidated statements of cash flows.

 

In March 2016, the FASB issued ASU No. 2016-09, Compensation-Stock Compensation (Topic 718). ASU No. 2016-09 requires all income tax effects of awards to be recognized in the income statement when the awards vest or are settled. It also will allow an employer to repurchase more of an employee’s shares than it can today for tax withholding purposes without triggering liability accounting and to make a policy election to account for forfeitures as they occur. The amendments in this update are effective for annual periods beginning after December 15, 2016, and interim periods within such annual period. Early adoption is permitted, however all of the guidance must be adopted in the same period under the transition requirements. The Company elected to early adopt the provisions of ASU No. 2016-09 as of July 1, 2016, which is the beginning of the current fiscal year. The adoption of the new guidance did not materially impact the Company’s consolidated financial position or results of operations. The Company elected to account for forfeitures when they occur. 

 

Recently Issued Accounting Pronouncements

 

In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. ASU No. 2016-16 eliminates the exception of recognizing, at the time of transfer, current and deferred income taxes for intra-entity asset transfers other than inventory. The amendments in this update are effective for annual periods beginning after December 15, 2017, and interim periods within such annual period. Early adoption is permitted as of the beginning of an annual reporting period for which financial statements have not been issued. The Company expects to adopt this guidance as of July 1, 2017 (beginning of fiscal year 2018). The adoption of the provisions of ASU No. 2016-16 is not expected to have a material impact on the Company’s consolidated financial position or results of operations.

 

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires measurement and recognition of expected credit losses for financial assets held. The amendments in this update are effective for annual periods beginning after December 15, 2019, and interim periods within such annual period. Early adoption is permitted for fiscal years beginning after December 15, 2018, including interim periods within such year. The Company is currently evaluating the potential impacts of adopting the provisions of ASU No. 2016-13.

7


 

 

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). ASU No. 2016-02 requires an entity to recognize lease assets and lease liabilities on the balance sheet and to disclose key information about the entity’s leasing arrangements. Lease expenses will be recognized in the income statement in a manner similar to existing requirements. The amendments in this update are effective for annual periods beginning after December 15, 2018, and interim periods within such annual period, and must be adopted using a modified retrospective method for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. Early adoption is permitted. The Company is currently evaluating the potential effects of adopting the provisions of ASU No. 2016-02.

 

In July 2015, the FASB issued ASU No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory. ASU No. 2015-11 requires inventory measured using any method other than last-in, first out or the retail inventory method to be subsequently measured at the lower of cost or net realizable value, rather than at the lower of cost or market. ASU No. 2015-11 is effective for annual reporting periods beginning after December 15, 2016 and for interim periods within such annual period. Early application is permitted. The Company is currently evaluating the potential effects of adopting the provisions of ASU No. 2015-11.

 

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). ASU No. 2014-09 supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance throughout the Industry Topics of the Codification. Additionally, ASU No. 2014-09 supersedes some cost guidance included in Subtopic 605-35, Revenue Recognition-Construction-Type and Production-Type Contracts. Under ASU No. 2014-09, an entity should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU No. 2014-09 also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. Additionally, in May 2016, the FASB issued ASU 2016-12,  Revenue from contracts with customers (Topic 606): Narrow-scope improvements and practical expedients, which contains certain provisions and practical expedients in response to identified implementation issues. The guidance is effective for annual reporting periods beginning after December 15, 2017 and for interim periods within such annual period, with early application prohibited for annual reporting periods beginning after December 15, 2016. Either full retrospective or modified retrospective adoption is permitted. The Company is evaluating the transition method that will be elected and the potential effects of adopting the provisions of ASU No. 2014-09.

 

 

Note 3—Earnings Per Share

 

Earnings per share are computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share are computed using the weighted average number of common shares and, if dilutive, potential common shares outstanding during the period. Potential common shares consist of the incremental common shares issuable for unvested restricted stock, as calculated using the treasury stock method.

8


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

December 31, 

 

December 31, 

 

 

    

2016

    

2015

    

2016

    

2015

 

Numerator:

    

 

 

    

 

 

    

 

 

    

 

 

 

Net income available to common
shareholders—basic and diluted

 

$

(1,125)

 

$

(7,917)

 

$

12,124

 

$

5,090

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of
common shares outstanding—basic

 

 

77,604

 

 

73,826

 

 

77,528

 

 

67,817

 

Effect of unvested restricted stock and restricted stock units *

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Weighted average number of
common shares outstanding—diluted

 

 

77,604

 

 

73,826

 

 

77,528

 

 

67,817

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per common share

 

$

(0.01)

 

$

(0.11)

 

$

0.16

 

$

0.08

 

Dilutive earnings per common share

 

$

(0.01)

 

$

(0.11)

 

$

0.16

 

$

0.08

 

 

* The effect of unvested restricted stock and restricted stock units for the three and six months ended December 31, 2016 was not material.

 

 

Note 4—Acquisitions

 

The Company accounts for acquisitions using the acquisition method of accounting. The results of operations of the acquisitions are included in the consolidated results from their respective dates of acquisition. The purchase price of each acquisition is allocated to the tangible assets, liabilities, and identifiable intangible assets acquired based on their estimated fair values.

 

Fiscal 2017

 

On November 4, 2016, the Company acquired the assets and business of i3 Plastic Cards (“i3”), a fully-integrated solution provider for creating and personalizing plastic transaction cards, including pre-paid gift and loyalty cards that is based in Dallas, Texas. The i3 business complements the Company’s existing transaction card operations and offers customers a broader range of options. The preliminary purchase price included cash consideration of $14,360 and 226,244 common shares of the Company, valued at $3,000. The final purchase price remains subject to a working capital adjustment with the seller. The cash portion of the purchase price was funded with existing cash balances. Additional cash consideration may be paid based on the acquired business’ EBITDA, as defined in the Asset Purchase Agreement, through December 31, 2019. Such additional cash consideration may range from zero to $13,800. The i3 operations, which are included in the North America operating segment, are not material to the Company’s consolidated financial statements.

 

On October 14, 2016, the Company acquired AJS Group Limited (“AJS”), a leading supplier in the United Kingdom of self-adhesive labels. The addition of this specialist business complements the Company’s existing operations and extends the group’s marketing capability and reach to customers within the branded consumer sectors and international beauty and personal care sectors. The cash purchase price, net of cash acquired, totaled £11,414 ($13,913 at the transaction date exchange rate), and was funded with existing cash balances. The AJS operations, which are included in the Europe operating segment, are not material to the Company’s consolidated financial statements.

 

9


 

The following table summarizes the components of the preliminary purchase price allocations for the acquisitions completed in fiscal 2017. The purchase price allocations are based upon preliminary valuations, and the Company’s estimates and assumptions are subject to change within the measurement period as valuations are finalized. Any change in the estimated fair value of the net assets, prior to the finalization of the more detailed analyses, but not to exceed one year from the dates of acquisition, will change the amount of the purchase price allocation.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

i3

 

AJS

 

Total

 

Purchase Price:

 

 

 

 

 

 

 

 

 

 

Cash paid, net of cash acquired

 

$

14,360

 

$

13,913

 

$

28,273

 

Equity issued

 

 

3,000

 

 

 —

 

 

3,000

 

Fair value of contingent consideration

 

 

5,000

 

 

 —

 

 

5,000

 

Total investment:

 

$

22,360

 

$

13,913

 

$

36,273

 

 

 

 

 

 

 

 

 

 

 

 

Allocation:

 

 

 

 

 

 

 

 

 

 

Current assets

 

$

1,835

 

$

3,779

 

$

5,614

 

Property, plant and equipment

 

 

3,090

 

 

2,388

 

 

5,478

 

Identifiable intangible assets

 

 

6,000

 

 

4,790

 

 

10,790

 

Deferred taxes

 

 

 —

 

 

(1,020)

 

 

(1,020)

 

Assumed liabilities

 

 

(4,030)

 

 

(1,910)

 

 

(5,940)

 

Goodwill

 

 

15,465

 

 

5,886

 

 

21,351

 

 

 

$

22,360

 

$

13,913

 

$

36,273

 

 

The preliminary fair values assigned to identifiable intangible assets acquired were based on assumptions and estimates made by management. Identifiable intangible assets acquired consisted of customer relationships valued at $4,790 with an estimated useful life of 13 years and developed technology valued at $6,000 with an estimate useful life of 10 years. The goodwill is the residual of the purchase price in excess of the estimated fair value of the acquired identifiable net assets and represents the future economic benefits expected to arise that could not be individually identified and separately recognized, including the extension of the Company’s sales and marketing capabilities. The goodwill recorded as a result of the AJS acquisition is not expected to be deductible for tax purposes.

 

Fiscal 2016

 

On January 26, 2015, the Company completed the acquisition of Chicago Paper Tube & Can Co. (“CPT”). The acquisition of CPT provides the Company with high-end, round rigid packaging capability in North America. Consideration for the transaction consisted of cash totaling $8,189, net of cash acquired, and was funded from existing cash balances. CPT’s operations, which are included in the North America operating segment, are not material to the Company’s consolidated financial statements.

 

On July 1, 2015, the Company completed the acquisition of BP Media, Ltd. (“BluePrint”). The acquisition of BluePrint provides the Company with pre-press and digital services in the European market, facilitating the processes surrounding translation and interchangeability of print content for foreign locations. In addition, BluePrint provides the Company with an established sales presence in the media markets in Europe, which will enable the Company to serve the European needs of global media releases. Consideration in the transaction consisted of cash totaling £1,587 (approximately $2,496 at the transaction date exchange rate), net of cash acquired. The purchase price was funded from existing cash balances. Subject to the provisions in the agreement, additional consideration of £1,000 (approximately $1,224 at current period-end exchange rates) is payable on June 30, 2018. Further consideration of 25% of the acquired business’s EBITDA, as defined in the share purchase agreement, for the three fiscal years ending June 30, 2018 is also payable to the sellers, subject to the achievement of a minimum EBITDA. The Company estimated £944 (approximately $1,156 at current period-end exchange rates) as the fair value of such contingent consideration as of the acquisition date. There were no material changes to the fair value of the contingent consideration between the acquisition date and December 31, 2016. BluePrint’s operations, which are included in the Europe operating segment, are not material to the Company’s consolidated financial statements.

 

 

 

10


 

Note 5—Inventories

 

Inventories consisted of the following:

 

 

 

 

 

 

 

 

 

 

    

As of

    

As of

 

 

 

December 31, 2016

 

June 30, 2016

 

Raw materials

 

$

52,815

 

$

52,964

 

Work in progress

 

 

26,184

 

 

28,806

 

Finished goods

 

 

76,878

 

 

83,847

 

 

 

$

155,877

 

$

165,617

 

 

 

 

Note 6—Intangible Assets

 

Intangible assets, net, consisted of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Carrying

 

Accumulated

 

 

 

Weighted Average

 

As of December 31, 2016

 

Amount

 

Amortization

 

Net

 

Useful Life (Years)

 

Customer relationships

 

$

437,525

 

$

(141,152)

 

$

296,373

 

20

 

Developed technology

 

 

22,282

 

 

(9,312)

 

 

12,970

 

5

 

Photo library

 

 

1,470

 

 

(809)

 

 

661

 

5

 

Licensing agreements

 

 

3,282

 

 

(857)

 

 

2,425

 

20

 

Total

 

$

464,559

 

$

(152,130)

 

$

312,429

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Carrying

 

Accumulated

 

 

 

Weighted Average

 

As of June 30, 2016

 

Amount

 

Amortization

 

Net

 

Useful Life (Years)

 

Customer relationships

 

$

450,505

 

$

(122,540)

 

$

327,965

 

20

 

Developed technology

 

 

17,746

 

 

(8,256)

 

 

9,490

 

5

 

Photo library

 

 

1,396

 

 

(667)

 

 

729

 

5

 

Licensing agreements

 

 

3,372

 

 

(698)

 

 

2,674

 

20

 

Total

 

$

473,019

 

$

(132,161)

 

$

340,858

 

 

 

 

Amortization expense included in selling, general and administrative expenses was as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

December 31, 

 

December 31, 

 

 

    

2016

    

2015

    

2016

    

2015

 

Amortization of intangible assets

 

$

12,506

 

$

14,044

 

$

25,218

 

$

28,108

 

 

 

 

 

 

Note 7—Goodwill

 

Goodwill represents the excess of the cost of an acquisition over the fair value of the net assets acquired. The Company tests goodwill for impairment annually as of the first day of the fourth fiscal quarter, or more frequently if indicators of potential impairment exist.

 

Changes in the carrying amount of goodwill by segment for the six months ended December 31, 2016 were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

North America

 

Europe

 

Asia

 

Total

 

Balance as of June 30, 2016

 

$

258,081