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)

Registrant’s 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

INDEX

 

PART I – FINANCIAL INFORMATION

  
ITEM 1.   FINANCIAL STATEMENTS   
  UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS      3   
  UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS      4   
  UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME      5   
  UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY      6   
  UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS      7   
  NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS      8   

ITEM 2.

  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS      29   

ITEM 3.

  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK      43   

ITEM 4.

  CONTROLS AND PROCEDURES      44   

PART II – OTHER INFORMATION

  

ITEM 1.

  LEGAL PROCEEDINGS      44   
  ITEM 1A. RISK FACTORS      44   

ITEM 6.

  EXHIBITS      45   


Table of Contents

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

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   
  

 

 

   

 

 

 

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
  

 

 

   

 

 

 

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.

 

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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   
  

 

 

   

 

 

    

 

 

   

 

 

 

Other expense, net

     25,890        25,920         48,314        46,743   
  

 

 

   

 

 

    

 

 

   

 

 

 

Income before tax

     58,317       24,854         108,233        58,096   
  

 

 

   

 

 

    

 

 

   

 

 

 

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.

 

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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   
  

 

 

    

 

 

    

 

 

   

 

 

 

Comprehensive income attributable to stockholders

   $  48,071         17,963         64,771        39,718   
  

 

 

    

 

 

    

 

 

   

 

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

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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   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, June 28, 2015

   $ 67         834,689        (199,248     (46,870     2,711        591,349   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

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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 )     —     
  

 

 

   

 

 

 

Net cash used for financing activities

     (41,778     832,971   

Effect of exchange rates on cash

     (5,875     828   
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

   $ (43,825     57,834   
  

 

 

   

 

 

 

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   
  

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ 112,673        126,058   
  

 

 

   

 

 

 

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.

 

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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 Company’s 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.

 

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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 entity’s 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, Interest—Imputation 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.

 

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(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   
  

 

 

    

 

 

 

(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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(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   
  

 

 

    

 

 

    

 

 

 

Total

   $ 871,743         (128,058      743,685   
  

 

 

    

 

 

    

 

 

 

 

     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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(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.

 

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(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
  

 

 

    

 

 

    

 

 

 

 

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(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 Company’s 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   
  

 

 

    

 

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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   

 

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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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s results of operations, financial position or cash flows or the possible effect of compliance with environmental requirements imposed in the future.

 

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(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 Company’s 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 Company’s 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 Company’s 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.

 

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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   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

 

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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   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

 

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Table of Contents

Elimination and other above reflects the elimination of intercompany sales.

The reconciliation from the Company’s 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   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents

(20) Guarantor

Our Registered Notes and outstanding balances under our senior credit facilities are guaranteed by all of the Company’s 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 Company’s wholly owned subsidiary (“Issuer”). The guarantee is full, unconditional, joint and several. The Company’s 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 Company’s 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.

 

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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


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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   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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(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.

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion in conjunction with Management’s 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 “Management’s 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. Management’s 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.

 

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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.

 

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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.

 

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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      
  

 

 

    

 

 

    

 

 

    

 

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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

Management’s 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   
  

 

 

    

 

 

 

 

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The following table sets forth the reconciliation between Adjusted EBITDA and net income, the most directly comparable GAAP measure:

 

     Quarter Ended  
     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;

 

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    to evaluate the performance and effectiveness of our operational strategies; and

 

    to assess compliance with various metrics associated with our agreements governing our indebtedness.

Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under GAAP. Some of the limitations are:

 

    Adjusted EBITDA does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our debt;

 

    Adjusted EBITDA does not reflect all GAAP non-cash and non-recurring adjustments;

 

    although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect the cash requirements for such replacements;

 

    Adjusted EBITDA does not reflect our tax expense or the cash requirements to pay our taxes; and

 

    Adjusted EBITDA does not reflect the non-cash component of employee compensation.

To address these limitations, we reconcile Adjusted EBITDA to the most directly comparable GAAP measure, net income. Further, we also review GAAP measures and evaluate individual measures that are not included in Adjusted EBITDA.

 

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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      
  

 

 

    

 

 

    

 

 

    

Total

   $ 1,565.4         1,181.8         383.6      
  

 

 

    

 

 

    

 

 

    

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      
  

 

 

    

 

 

    

 

 

    

Total

   $ 1,294.8         994.4         300.4      
  

 

 

    

 

 

    

 

 

    

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      
  

 

 

    

 

 

    

 

 

    

Total

   $ 270.6         187.4         83.2      
  

 

 

    

 

 

    

 

 

    

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      
  

 

 

    

 

 

    

 

 

    

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

Management’s 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   
  

 

 

    

 

 

 

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   
  

 

 

    

 

 

 

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 Moody’s Investors Service (“Moody’s”) and Standard & Poor’s Rating Services (“S&P”):

 

     Moody’s    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%
  

 

 

    

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. 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   
  

 

 

    

 

 

 

Net increase (decrease) in cash and cash equivalents

   $ (43.8      57.8   
  

 

 

    

 

 

 

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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Table of Contents

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 7A—Quantitative 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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Table of Contents

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 Company’s 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.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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.”

ITEM 1A. RISK FACTORS

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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Table of Contents

ITEM 6. EXHIBITS

 

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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Table of Contents

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

 

46



EXHIBIT 31.1

RULE 13A-14(A)/15D-14(A) CERTIFICATION BY PRINCIPAL EXECUTIVE OFFICER

I, George Thanopoulos, certify that:

 

1. I have reviewed this Quarterly Report on Form 10-Q of Metaldyne Performance Group Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

 

  (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  (b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  (c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an Annual Report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 4, 2015

 

/s/ George Thanopoulos

George Thanopoulos

Chief Executive Officer



EXHIBIT 31.2

RULE 13A-14(A)/15D-14(A) CERTIFICATION BY PRINCIPAL FINANCIAL OFFICER

I, Mark Blaufuss, certify that:

 

1. I have reviewed this Quarterly Report on Form 10-Q of Metaldyne Performance Group Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

 

  (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  (b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  (c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an Annual Report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 4, 2015

 

/s/ Mark Blaufuss

Mark Blaufuss

Chief Financial Officer



EXHIBIT 32.1

Certifications of Chief Executive Officer and Chief Financial Officer

Pursuant to 18 U.S.C. Section 1350

In connection with the Quarterly Report of Metaldyne Performance Group Inc. (the “Company”) on Form 10-Q for the quarterly period ended June 28, 2015 (the “Report”), each of the undersigned officers of the Company certifies, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that to the best of such officer’s knowledge:

 

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 4, 2015

 

/s/ George Thanopoulos

George Thanopoulos

/s/ Mark Blaufuss

Mark Blaufuss

Chief Executive Officer Chief Financial Officer

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

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