| •· | | Income Taxes. In connection with each of the Transactions,Grede Transaction, significant book and tax differences were accounted for in deferred taxes. In addition, prior to the Grede Transaction, Grede was treated as a partnership for U.S. federal income tax purposes and, accordingly, all of the earnings of Grede passed through to its members for U.S. federal income tax purposes. Grede was subject to tax in Mexico and certain states within the United States. In connection with the Grede Transaction, Grede became a corporation for U.S. federal income tax purposes subject to corporate level income taxes in future periods. |
Operational Changes As a result of several factors, including our assessment of plant performance, facilities and equipment operating condition, availability of labor, and related operating costs, we may close or consolidate production lines or entire plants. These changes can result in the transfer or reduction of business, impairment losses, costs to transfer operations to a new plant, and other expenses. In 2013,2015, Grede closed three plants,its Berlin, Wisconsin facility, which resulted in an impairment loss and a decrease in net sales in subsequent periods. Foreign Currency Fluctuations As a result of our global operations, we generate a significant portion of our net sales and incur a substantial portion of our expenses in currencies other than the U.S. dollar. As a result, our net sales, cost of sales, operating expenses, and certain assets and liabilities fluctuate as the value of such currencies fluctuate in relation to the U.S. dollar. In addition, the results of operations of some of our operating entities are reported in currencies other than the U.S. dollar and then translated into U.S. dollars at the applicable exchange rate for inclusion in our financial statements. As a result, appreciation of the U.S. dollar against these other currencies generally will have a negative impact on our reported sales and profits while depreciation of the U.S. dollar against these other currencies will generally have a positive effect on reported sales and profits. Our primary currency exposure is to the Euro in addition to exposure to Mexican Peso, Korean Won and Chinese Renminbi. We have not entered into any significant foreign currency exchange contracts to mitigate this risk. Commodity Price Risk We maintain raw material price pass-through arrangements with our customers on substantially all of our products to reduce exposure to raw material price fluctuations. In instances where the risk is not covered contractually, we have generally been 28
able to adjust customer prices to recover commodity cost increases. As a result, our net sales and cost of sales may increase or decrease based on fluctuations in prevailing commodity prices during the period. Additionally, we sell scrap generated from our manufacturing processes; our cost of sales will increase or decrease based on fluctuations in scrap prices. Debt Refinancings From time to time, we have completed several debt refinancing transactions to take advantage of favorable market conditions and fund the return of capital to our stockholders. These transactions have increased our indebtedness, increased our interest expense and resulted in debt refinancing costs. Interest Rate Fluctuations Our indebtedness contains variable interest rate provisions. As a result, our interest expense may vary from period to period due to variations in prevailing interest rates. Stock-based Compensation In conjunction with the Combination and the IPO and in futuresubsequent periods, we issued and expect to issue long-term equity incentive awards in the form of restricted shares or stock options to our officers, key employees, and non-employees. The result will be an increase in our selling, general, and administrative expenses in future periods as the grant-date value of the awards are recognized in expense over the vesting term of the awards. In connection withThe following grants and modifications of stock-based compensation awards impact the Combination, we issued 1.6 million optionsyear to acquire MPG common stock with a total grant-date valueyear comparability of $17.8 million,our results of which $7.9 million was recognized in expense immediately and the remainder will be recognized in expense over a four-year vesting period. In connection with the IPO, we issued restricted stock awards and restricted stock unit awards with a total grant-date value of $12.7 million, which is to be recognized in expense over the vesting periods of the awards.operations: | · | In connection with the Combination, we issued 1.6 million options to acquire MPG common stock with a total grant-date value of $17.8 million, of which $7.9 million was recognized in expense immediately in 2014 and the remainder will be recognized in expense over a four-year vesting period. |
| · | In connection with the IPO, in December 2014, we issued restricted stock awards and restricted stock unit awards with a total grant-date value of $12.7 million, which is to be recognized in expense over the vesting periods of the awards. |
| · | During 2015, we issued stock-based compensation awards having a total grant-date fair value of $19.1 million, which is to be recognized in expense over the three-year vesting period of the awards. |
| · | During 2015, we modified certain awards in connection with the departure of certain employees which resulted in $11.7 being expensed immediately in 2015. |
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 |
| · | 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.costs, unless the costs are directly associated with one or more segments. Factors Affecting our Results of Operations Industry Trends We primarily serve the global light vehicle and the North American commercial and industrial vehicle and equipment end-markets with a focus on Powertrain and Safety-Critical applications. Our net sales are impacted by demand in these end-markets. Demand in these end-markets is driven by consumer preferences and regulatory requirements (particularly related to fuel economy and safety standards), and macro-economic factors.
29
Economic Conditions Our net sales are driven by the strength of the global light vehicle industry, particularly in North America, as well as the North American commercial and industrial vehicle industry, each of which tends to be highly correlated to macro-economic conditions. The level of demand for our products depends primarily upon the level of consumer demand for new vehicles, as well as the demand for commercial and industrial vehicles, that are manufactured with our products. Variations in global macro-economic conditions, particularly in North America and Europe that result in changes in vehicle sales and production by our customers, have impacted and will continue to impact our net sales. Consumer Preferences and Government Regulations Demand for our component parts is a function of the number of vehicles produced and trends in content per vehicle for specific component categories. These variables are driven by consumer preferences and regulatory requirements, particularly related to fuel economy and safety standards. OEMs continue to source vehicle component parts that improve fuel economy and safety in order to meet increasingly strict regulatory requirements around the world. These trends have impacted and will continue to impact our net sales. Supply Dynamics During 2008 and 2009 a significant amount of the automotive forging and casting capacity was removed from the North American market. According to The American Foundry Society, an estimated 1 million tons, representing over 10% of iron casting capacity and 36 iron metal casters, exited the North American market from 2007 to 2010. In addition, the number of light vehicle Powertrain and Safety-Critical component suppliers declined significantly during 2008 and 2009.significantly. Capacity has not rebounded to historical levels due to the magnitude of the investment and the length of time required to openin opening new facilities, acquireacquiring equipment, and navigatenavigating environmental permitting processes. These trends have impacted and will continue to impact our net sales and gross profit. Globalization of Platforms In recent years, light vehicle OEMs have increasingly consolidated their vehicle engine and transmission Platforms with localized sourcing to improve supply chain efficiency, reduce unit cost, and increase profitability. As a result of our global manufacturing footprint, these trends have impacted and may continue to impact our net sales and gross profit. Pricing Cost-cutting initiatives by vehicle OEMs, as well as ongoing value analysis/value engineering (“VA/VE”), activity, result in changes to the pricing of our products. Many of our long-term contracts with our customers require us to reduce our prices in subsequent years, and all of these contracts provide for pricing adjustments for engineering changes and other changes to specifications. We have historically mitigated the impact of pricing on our margins through working with our customers on VA/VE activities, which generally result in reduced prices in conjunction with reduced costs. We also focus on ongoing cost reductions and increases in manufacturing efficiencies throughout our operations. Our profitability in future periods depends, in part, on our ability to generate sufficient production cost savings as well as VA/VE projects and other efficiency improvements to offset any future price reductions. Key Components of Results of Operations Net Sales We generate net sales primarily from the sale of Powertrain and Safety-Critical products for the global light, commercial and industrial vehicle markets. Our net sales reflect the impact of customer pricing allowances. Net sales are also impacted by volume, customer prices, product mix, material surcharges, and foreign currency fluctuations. These factors all have an impact on future sales as fluctuations in volume, pricing, foreign currency, and material prices directly impact our net sales. Cost of Sales Cost of sales consists of raw material costs, direct labor associated with the manufacture and assembly of our products, and the overhead expense related to our manufacturing operations. For the years ended December 31, 2015, 2014 and 2013, raw material costs, direct labor costs, and overhead expenses were approximately 49%, 22%, and 29%; 48%, 7%, and 45%,; and 52%, 6%, and 42%, respectively, of our total cost of sales. Our direct material costs are comprised primarily of raw materials and sub-component parts used in the production or our components. We maintain raw material price pass-through arrangements with our customers on substantially all of our products 30
whereby increases and decreases in the cost of our raw materials are adjusted in our selling prices either through a change in selling price or a surcharge mechanism. These costs have generally followed the related markets for the underlying commodities that we utilize, including special bar quality steel, scrap steel, powder metal, pig iron, and molten aluminum. The cost changes and the related changes in prices or surcharges are reflected in our cost of sales and our net sales. Our direct labor costs are comprised of the wages of our workforce that is directly associated with the production of our products. Where we have union agreements (see “Item 1. Business—Employees”), wage increases follow the negotiated requirements of the related contract. Wages for non-union employees follow local market conditions for merit increases and employment. Benefit costs are subject to changes in healthcare cost trends, payroll and unemployment tax rates, and changes in benefit plan structure. Our overhead costs are comprised of variable and fixed costs related to the operation of our manufacturing facilities. These costs include depreciation, rent expense, maintenance, perishable tooling, indirect labor costs, including benefits, and utilities. Costs related to overhead are impacted by inflation, changes in production volumes, and the requirements of products produced at each location. Gross Profit Gross profit (net sales less cost of sales) and gross margin (gross profit as a percentage of net sales) are impacted by a number of factors including, product mix, percentage of net sales from raw material price fluctuations, foreign currency fluctuations, overhead cost fluctuations and depreciation and amortization cost fluctuations due to changes in capital expenditures and purchase accounting adjustments. Gross margins on our products vary based on their composition, the complexity of the production process, the length of time that the products have been in production, and other factors. Selling, General and Administrative Expenses Selling, general, and administrative (“SG&A”) expenses consist of salaries and benefits for our sales, marketing, management, and administrative personnel, professional fees, expenses relating to certain IT systems, and amortization of certain of our intangibles. As a result of the IPO, we expect to incurhave incurred significant additional legal, accounting, and other expenses in connection with being a public company including compliance with the Sarbanes-Oxley Act. We have also expect to see an increase in ourincurred increased stock-based compensation expense with the establishment of our new equity incentive plan associated with the Combination and related grants of equity either in the form of restricted stock or options. Goodwill Impairment Goodwill impairment reflects an $11.8 million impairment charge recognized in the fourth quarter of 2014 to fully impair the goodwill assigned to a reportable unit with the HHI segment. Acquisition Costs Acquisition costs consist of direct expenses related to the Transactions. Grede Transaction.Interest Expense, Net Interest expense, net consists primarily of interest on borrowings, and the amortization of costs incurred to obtain long-term financing, partially offset by interest income on short-term cash and cash equivalents. Other, Net Other, net primarily consists of foreign currency gains and losses, debt transaction expenses, and in 2013, a $10.1 million purchase price adjustment related to the Metaldyne Transaction. Income Tax Expense (Benefit) Income tax expense (benefit) consists of federal, state, and local taxes based on income in multiple jurisdictions. Our income tax expense is impacted by the pre-tax earnings in jurisdictions with varying tax rates and any related foreign tax credits that may be available to us. Our current and future provision for income taxes will vary from statutory rates due to the impact of valuation allowances in certain countries, income tax incentives and holidays, certain non-deductible expenses, withholding taxes, and other discrete items. Furthermore, as a result of the Transactions,Grede Transaction, we have significant book and tax accounting differences which impact the amount of deferred taxes. 31
Key Operating Metrics We evaluate the performance of our business using a variety of operating and performance metrics. Set forth below is a description of our key operating metrics. Adjusted EBITDA We define Adjusted EBITDA as net income (loss) before interest expense, provision for (benefit from) income taxes, and depreciation and amortization, with further adjustments to reflect the additions and eliminations of certain income statement items, including (i) gains and losses on foreign currency and fixed assets and debt transaction expenses, (ii) stock-based compensation and other non-cash charges, (iii) sponsor management fees and other income and expense items that we consider to be not indicative of our ongoing operations, (iv) specified non-recurring items, and (v) other adjustments. We believe Adjusted EBITDA is used by investors as a supplemental measure to evaluate the overall operating performance of companies in our industry. Management uses Adjusted EBITDA (i) as a measurement used in comparing our operating performance on a consistent basis, (ii) to calculate incentive compensation for our employees, (iii) for planning purposes, including the preparation of our internal annual operating budget, (iv) to evaluate the performance and effectiveness of our operational strategies, and (v) to assess compliance with various metrics associated with our agreements governing our indebtedness. Accordingly, we believe that Adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating performance in the same manner as our management. For a reconciliation of Adjusted EBITDA to net income before tax, the most directly comparable measure determined under U.S. generally accepted accounting principles (“GAAP”), see “—Year ended December 31, 2015 compared to year ended December 31, 2014—Adjusted EBITDA” and “—Year ended December 31, 2014 compared to year ended December 31, 2013—Adjusted EBITDA” and “—Year ended December 31, 2013 compared to Successor Period 2012 and Predecessor Period 2012—Adjusted EBITDA.” Incremental Business Backlog Incremental business backlog, which we measure as anticipated net product sales from incremental business for the next threefour years, at each year end, net of Programs being phased out and any foreign currency fluctuations, iscontractual pricing changes, was approximately $190$222 million as of December 31, 2014.2015. We are typically awarded Programs one to three years prior to the start of production on new and replacement business. Due to the timing of the OEM sourcing cycle, our anticipated net product sales were measured based on contracts to be executedfulfilled during 20152016 through 2017.2019. Our estimate of anticipated net product sales includes formally awarded new Programs, Programs which we believe are highly probable of being awarded to us, and expected volume and pricing changes on existing Programs. Our estimate may be impacted by various assumptions including vehicle production levels on new and replacement Programs, customer price reductions, scrap prices, material price indices, currency exchange rates and the timing of Program launches. We typically enter into agreements with our customers at the beginning of a vehicle’s life for the fulfillment of customers’ purchasing requirements for the entire production life of the vehicle Program. We believe incremental business backlog is useful to potential investors as an indication of our revenue visibility. However, this anticipated net product sales information could differ significantly from actual firm orders or firm commitments, and awards of business do not represent guarantees of production volumes or revenues. Therefore, this anticipated net product sales information could differ significantly from actual firm orders or firm commitments, and awards of business do not represent guarantees of production volumes or revenues.
32
Results of Operations Year ended December 31, 20142015 compared to year ended December 31, 20132014 The following table sets forth our results of operations: | | | Year Ended December 31, 2014 | | | Year Ended December 31, 2013 | | | Year Ended December 31, 2015 | | | Year Ended December 31, 2014 | | | | (In millions) | | | (In millions) | | Net sales | | $ | 2,717.0 | | | $ | 2,017.3 | | | $ | 3,047.3 | | | | 2,717.0 | | Cost of sales | | | 2,294.1 | | | | 1,708.7 | | | | 2,531.2 | | | | 2,294.1 | | | | | | | | | | Gross profit | | | 422.9 | | | | 308.6 | | | | 516.1 | | | | 422.9 | | Selling, general and administrative expenses | | | 194.6 | | | | 123.2 | | | | 249.7 | | | | 194.6 | | Acquisition costs | | | 13.0 | | | | — | | | | — | | | | 13.0 | | Goodwill impairment | | | 11.8 | | | | — | | | | — | | | | 11.8 | | | | | | | | | | Operating income | | | 203.5 | | | | 185.4 | | | | 266.4 | | | | 203.5 | | Interest expense, net | | | 99.9 | | | | 74.7 | | | | 107.5 | | | | 99.9 | | Loss on debt extinguishment | | | 60.7 | | | | — | | | | 0.4 | | | | 60.7 | | Other, net | | | (11.3 | ) | | | 17.8 | | | | (15.4 | ) | | | (11.3 | ) | | | | | | | | | Income before taxes | | | 54.2 | | | | 92.9 | | | Income before tax | | | | 173.9 | | | | 54.2 | | Income tax expense (benefit) | | | (19.1 | ) | | | 35.0 | | | | 48.1 | | | | (19.1 | ) | | | | | | | | | Net income | | | 73.3 | | | | 57.9 | | | | 125.8 | | | | 73.3 | | Income attributable to noncontrolling interests | | | 0.4 | | | | 0.3 | | | | 0.4 | | | | 0.4 | | | | | | | | | | Net income attributable to stockholders | | $ | 72.9 | | | $ | 57.6 | | | $ | 125.4 | | | | 72.9 | | | | | | | | | |
Net Sales Net sales were $3,047.3 million for the year ended December 31, 2015 as compared to $2,717.0 million for the year ended December 31, 2014, an increase of $330.3 million. This increase was primarily driven by the impact of the Grede acquisition of approximately $409 million and increased volumes, mainly due to light vehicle production volumes, partially offset by foreign currency movements of approximately $70 million, lower raw material surcharge pass-through of approximately $81 million, and net price decreases of approximately $18 million. The following table sets forth our net sales by segment: | | Year Ended December 31, 2015 | | | Year Ended December 31, 2014 | | | Increase (Decrease) | | | Percent Change | | | | (In millions) | | | | | | | | | | HHI segment | | $ | 984.8 | | | | 968.5 | | | | 16.3 | | | | 1.7 | % | Metaldyne segment | | | 1,155.7 | | | | 1,176.4 | | | | (20.7 | ) | | | (1.8 | ) | Grede segment | | | 906.8 | | | | 572.1 | | | | 334.7 | | | | 58.5 | | Total | | $ | 3,047.3 | | | | 2,717.0 | | | | | | | | | |
The increase in HHI net sales was primarily attributable to increased volumes due to higher North American light vehicle production levels partially offset by lower raw material surcharge pass-through and price decreases. 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 five months of results included in the year ended December 31, 2015 partially offset by lower raw material pass-through surcharges and volume reduction in the industrial market. Cost of Sales Cost of sales was $2,531.2 million for the year ended December 31, 2015 as compared to $2,294.1 million for the year ended December 31, 2014, an increase of $237.1 million. This increase was primarily driven by the impact of the Grede acquisition of approximately $338 million, lower scrap sales and higher wages, benefits, and utilities. These increases were partially offset by 33
foreign currency movements of approximately $63 million, lower raw material surcharge costs of approximately $80 million, net manufacturing cost reductions, and lower depreciation. The following table sets forth our cost of sales by segment: | | Year Ended December 31, 2015 | | | Year Ended December 31, 2014 | | | Increase (Decrease) | | | Percent Change | | | | (In millions) | | | | | | | | | | HHI segment | | $ | 809.1 | | | | 804.1 | | | | 5.0 | | | | 0.6 | % | Metaldyne segment | | | 964.3 | | | | 1,003.0 | | | | (38.7 | ) | | | (3.8 | ) | Grede segment | | | 757.8 | | | | 487.0 | | | | 270.8 | | | | 55.6 | | Total | | $ | 2,531.2 | | | | 2,294.1 | | | | | | | | | |
The increase in HHI cost of sales was primarily due to increased volumes, lower scrap sales and higher wages, benefits, and utilities mostly offset by lower raw material surcharge costs 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 costs 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 year ended December 31, 2015 partially offset by raw material surcharge costs. Gross Profit Gross profit was $516.1 million for the year ended December 31, 2015 as compared to $422.9 million for the year ended December 31, 2014, an increase of $93.2 million. This increase was primarily driven by the impact of the Grede acquisition of approximately $71 million, increased volumes, net manufacturing cost reductions, and lower depreciation. These increases were partially offset by lower scrap sales of approximately $11 million 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: | | Year Ended December 31, 2015 | | | Year Ended December 31, 2014 | | | Increase | | | Percent Change | | | | (In millions) | | | | | | | | | | HHI segment | | $ | 175.6 | | | | 164.4 | | | | 11.2 | | | | 6.8 | % | Metaldyne segment | | | 191.5 | | | | 173.4 | | | | 18.1 | | | | 10.4 | | Grede segment | | | 149.0 | | | | 85.1 | | | | 63.9 | | | | 75.1 | | Total | | $ | 516.1 | | | | 422.9 | | | | | | | | | |
The increase in HHI gross profit was primarily attributable to increase in light vehicle sales volume and net manufacturing cost savings partially offset by lower scrap sales and increased wages and benefits. The increase in Metaldyne gross profit was primarily attributable to lower depreciation and increased sales volumes partially offset by net price decreases and foreign currency movements. The increase in Grede gross profit was primarily attributable to the additional five months of results included in the year ended December 31, 2015. Operating Income Operating income was $266.4 million for the year ended December 31, 2015 as compared to $203.5 million for the year ended December 31, 2014, an increase of $62.9 million. This increase was primarily driven by the impact of the additional five months of Grede segment results of approximately $30 million, $13.0 million of acquisition related costs incurred in June 2014 resulting from the Grede acquisition, $11.8 million of goodwill impairment recognized in 2014, and the increase in gross profit due to the factors discussed above. These increases were partially offset by a $10.4 million increase in stock-based compensation expense and additional costs associated with being a public company, including higher professional fees. 34
The following table sets forth our operating income by segment: | | Year Ended December 31, 2015 | | | Year Ended December 31, 2014 | | | Increase | | | Percent Change | | | | (In millions) | | | | | | | | | | HHI segment | | $ | 105.2 | | | | 86.9 | | | | 18.3 | | | | 21.1 | % | Metaldyne segment | | | 116.1 | | | | 100.7 | | | | 15.4 | | | | 15.3 | | Grede segment | | | 45.1 | | | | 15.9 | | | | 29.2 | | | | 183.6 | | Total | | $ | 266.4 | | | | 203.5 | | | | | | | | | |
The increase in HHI operating income was primarily attributable to the increase in gross profit and $11.8 million of goodwill impairment recorded in 2014, 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 five months of results included in the year ended December 31, 2015. Interest Expense, Net Interest expense, net was $107.5 million for the year ended December 31, 2015 as compared to $99.9 million for the year ended December 31, 2014, an increase of $7.6 million. The increase in interest expense, net reflected higher average outstanding borrowings including the additional debt associated with the Grede Transaction in June 2014 and higher overall interest rates due to the issuance of our Senior Notes in the fourth quarter of 2014, partially offset by lower debt fee amortization and the pay down of long-term debt in 2015. Loss on Debt Extinguishment The Company recognized losses on debt extinguishment of $0.4 million and $60.7 million in fiscal years 2015 and 2014, respectively. The loss recognized in 2015 relates to the amendment and refinancing of the Company’s Term Loan Facility in May, 2015. The loss on debt extinguishment recognized in 2014 primarily relates to the full repayment of the outstanding term debts of each segment as part of the Refinancing in October, 2014. Included in the 2014 loss on debt extinguishment are $60.4 million in write-offs of unamortized debt fees, expenses, and original issuance discounts associated with the previous term debts. Other, Net Other, net was $15.4 million of income for the year ended December 31, 2015 as compared to income of $11.3 million for the year ended December 31, 2014, a favorable change of $4.1 million. The change in other, net from 2014 was primarily due to a $2.6 million increase in foreign currency transactions gains and a $1.2 million decrease in debt transaction expenses.. Income Taxes Income taxes were an expense of $48.1 million for the year ended December 31, 2015 and a benefit of $19.1 million for the year ended December 31, 2014. Our effective tax rate was 27.7% for the year ended December 31, 2015 and (35.2)% for the year ended December 31, 2014. The increase in our effective tax rate was primarily attributable to a change in the assertion that the earnings of certain foreign subsidiaries within the Metaldyne segment are indefinitely reinvested, resulting in a $31.6 million deferred tax benefit for the year ended December 31, 2014. In addition, during the year ended December 31, 2014, the Company recognized a net reduction in its unrecognized tax benefits of $2.2 million, primarily resulting from the settlement of a tax audit at one of the Company’s German subsidiaries and from foreign exchange rate fluctuations. The research and experimentation credit recorded by the Company decreased from $3.0 million in the year ended December 31, 2014 to $1.3 million in the year ended December 31, 2015 because the amount recorded in 2014 included retroactive credits for the year ended December 31, 2013. These unfavorable impacts were partially offset by effective tax rate decreases resulting from a goodwill impairment charge in our HHI segment during the year ended December 31, 2014, the effect of changes in prior year estimates, and the impact of changes in certain state tax rates. 35
Net Income Attributable to Stockholders Net income attributable to stockholders was $125.4 million, or 4.1% of net sales for the year ended December 31, 2015, as compared to $72.9 million, or 2.7% of net sales for the year ended December 31, 2014, an increase of $52.5 million, or 72.0%. 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. | | Year Ended December 31, 2015 | | | Year Ended December 31, 2014 | | | | (In millions) | | Adjusted EBITDA | | | | | | | | | HHI segment | | $ | 199.8 | | | | 193.5 | | Metaldyne segment | | | 205.7 | | | | 202.3 | | Grede segment | | | 132.7 | | | | 82.8 | | Total | | $ | 538.2 | | | | 478.6 | |
The following table sets forth a reconciliation of Adjusted EBITDA to income before tax, the most directly comparable GAAP measure: | | Year Ended December 31, 2015 | | | Year Ended December 31, 2014 | | | | (In millions) | | Adjusted EBITDA | | $ | 538.2 | | | | 478.6 | | Interest expense | | | (107.5 | ) | | | (99.9 | ) | Depreciation and amortization | | | (229.8 | ) | | | (210.8 | ) | Loss on debt extinguishment | | | (0.4 | ) | | | (60.7 | ) | Gain on foreign currency | | | 20.2 | | | | 15.7 | | Loss on fixed assets | | | (2.8 | ) | | | (2.1 | ) | Debt transaction expenses | | | (1.7 | ) | | | (3.0 | ) | Stock-based compensation | | | (27.7 | ) | | | (17.3 | ) | Sponsor management fee | | | — | | | | (5.1 | ) | Non-recurring acquisition and purchase accounting related items | | | (3.0 | ) | | | (23.0 | ) | Non-recurring operational items | | | (11.6 | ) | | | (18.2 | ) | Income before tax | | $ | 173.9 | | | | 54.2 | |
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; |
| · | non-recurring acquisition and purchase accounting related items; and |
| · | non-recurring operational items. |
Adjusted EBITDA eliminates the effects of items that we do not consider indicative of our core operating performance. Adjusted EBITDA is a supplemental measure of operating performance that does not represent and should not be considered as an alternative to net income, as determined under GAAP, and our calculation of Adjusted EBITDA may not be comparable to those reported by other companies. 36
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 a supplemental measure 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; |
| · | 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, income before tax. Further, we also review GAAP measures and evaluate individual measures that are not included in Adjusted EBITDA. Year Ended December 31, 2014 compared to year ended December 31, 2013 The following table sets forth results of operations: | | Year Ended December 31, 2014 | | | Year Ended December 31, 2013 | | | | (In millions) | | Net sales | | $ | 2,717.0 | | | | 2,017.3 | | Cost of sales | | | 2,294.1 | | | | 1,708.7 | | Gross profit | | | 422.9 | | | | 308.6 | | Selling, general and administrative expenses | | | 194.6 | | | | 123.2 | | Acquisition costs | | | 13.0 | | | | — | | Goodwill impairment | | | 11.8 | | | | — | | Operating income | | | 203.5 | | | | 185.4 | | Interest expense, net | | | 99.9 | | | | 74.7 | | Loss on debt extinguishment | | | 60.7 | | | | — | | Other, net | | | (11.3 | ) | | | 17.8 | | Income before tax | | | 54.2 | | | | 92.9 | | Income tax (benefit) expense | | | (19.1 | ) | | | 35.0 | | Net income | | | 73.3 | | | | 57.9 | | Income attributable to noncontrolling interests | | | 0.4 | | | | 0.3 | | Net income attributable to stockholders | | $ | 72.9 | | | | 57.6 | |
37
Net Sales Net sales were $2,717.0 million for the year ended December 31, 2014 as compared to $2,017.3 million for the year ended December 31, 2013, an increase of $699.7 million. This increase was primarily driven by the inclusion of Grede segment results of $572.1 million subsequent to the Grede Transaction in June 2014, higher vehicle production levels, and new Program launches. The following table sets forth our net sales by segment: | | | Year Ended December 31, 2014 | | | Year Ended December 31, 2013 | | | Year Ended December 31, 2014 | | | Year Ended December 31, 2013 | | | Increase | | | Percent Change | | | | (In millions) | | | (In millions) | | | | | | | | | | HHI segment | | $ | 977.6 | | | $ | 916.5 | | | $ | 968.5 | | | | 906.5 | | | | 62.0 | | | | 6.8 | % | Metaldyne segment | | | 1,177.5 | | | | 1,112.0 | | | | 1,176.4 | | | | 1,110.8 | | | | 65.6 | | | | 5.9 | | Grede segment | | | 572.1 | | | | — | | | | 572.1 | | | | — | | | | | | | | | | Eliminations | | | (10.2 | ) | | | (11.2 | ) | | | | | | | | | | Total | | $ | 2,717.0 | | | $ | 2,017.3 | | | $ | 2,717.0 | | | | 2,017.3 | | | | | | | | | | | | | | | | | |
HHI segment net sales were $977.6$968.5 million for the year ended December 31, 2014 as compared to $916.5$906.5 million for the year ended December 31, 2013, an increase of $61.1$62.0 million or 6.7%6.8%. This increase was primarily attributable to increased volumes due to higher North American light vehicle production levels and the benefit from net new Programs. The increase in HHI segment net sales was also attributable to higher raw material surcharge pass-through of $13.6 million and net increases in customer prices. Metaldyne segment net sales were $1,177.5$1,176.4 million for the year ended December 31, 2014 as compared to $1,112.0$1,110.8 million for the year ended December 31, 2013, an increase of $65.5$65.6 million or 5.9%. This increase was primarily attributable to increased volumes due to higher North American light vehicle production levels coupled with increased European light vehicle production and the impact of net new Programs. The increase in Metaldyne segment net sales was also attributable to higher raw material surcharge pass-through of $1.4 million and favorable currency movements of $4.4 million, partially offset by net decreases in customer prices. Grede segment net sales for the year ended December 31, 2014 were $572.1 million. Grede segment net sales do not reflect the net sales of Grede prior to the Grede Transaction in June 2014. Cost of Sales Cost of sales was $2,294.1 million for the year ended December 31, 2014 as compared to $1,708.7 million for the year ended December 31, 2013, an increase of $585.4 million, or 34.3%. This increase was primarily driven by the inclusion of Grede segment results of $487.0 million subsequent to the Grede Transaction in June 2014, higher vehicle production levels, and the impact of new Program launches. The following table sets forth our cost of sales by segment: | | | Year Ended December 31, 2014 | | | Year Ended December 31, 2013 | | | Year Ended December 31, 2014 | | | Year Ended December 31, 2013 | | | Increase | | | Percent Change | | | | (In millions) | | | (In millions) | | | | | | | | | | HHI segment | | $ | 813.1 | | | $ | 765.5 | | | $ | 804.1 | | | | 755.5 | | | | 48.6 | | | | 6.4 | % | Metaldyne segment | | | 1,004.2 | | | | 954.4 | | | | 1,003.0 | | | | 953.2 | | | | 49.8 | | | | 5.2 | | Grede segment | | | 487.0 | | | | — | | | | 487.0 | | | | — | | | | | | | | | | Eliminations | | | (10.2 | ) | | | (11.2 | ) | | | | | | | | | | Total | | $ | 2,294.1 | | | $ | 1,708.7 | | | $ | 2,294.1 | | | | 1,708.7 | | | | | | | | | | | | | | | | | |
HHI segment cost of sales was $813.1$804.1 million for the year ended December 31, 2014, or 83.2%83.0% of HHI segment net sales for the same period, as compared to $765.5$755.5 million for the year ended December 31, 2013, or 83.5%83.3% of HHI segment net sales for the same period, an increase of $47.6$48.6 million, or 6.2%6.4%. This increase was primarily driven by increased volumes, higher raw material surcharge pass-through from suppliers of $14.3 million, higher depreciation expense of $4.9 million primarily due to capital expenditures, and net manufacturing cost increases of $3.1 million primarily due to labor, benefits, and new program launch costs. These increases in cost of sales were partially offset by favorable product mix driven by new Programs and increased sales of manufacturing scrap. Metaldyne segment cost of sales was $1,004.2$1,003.0 million for the year ended December 31, 2014, or 85.3% of Metaldyne segment net sales for the same period, as compared to $954.4$953.2 million for the year ended December 31, 2013, or 85.8% of Metaldyne segment net sales for the same period, an increase of $49.8 million or 5.2%. The increase in cost of sales was primarily attributable to 38
foreign currency movements of $2.4 million, higher volumes and unfavorable product mix, and higher depreciation expense of $0.9 million. These increases in cost of sales were partially offset by net manufacturing cost decreases of $4.2 million. Grede segment cost of sales was $487.0 million for the year ended December 31, 2014, or 85.1% of Grede segment net sales for the same period. Grede segment cost of sales does not reflect the cost of sales of Grede prior to the Grede Transaction in June 2014. Gross Profit Gross profit was $422.9 million for the year ended December 31, 2014 as compared to $308.6 million for the year ended December 31, 2013, an increase of $114.3 million or 37.0%. This increase was primarily driven by the inclusion of Grede segment results of $85.1 million subsequent to the Grede Transaction in June 2014 and higher vehicle production levels. The following table sets forth our gross profit (loss) by segment: | | | Year Ended December 31, 2014 | | | Year Ended December 31, 2013 | | | Year Ended December 31, 2014 | | | Year Ended December 31, 2013 | | | Increase | | | Percent Change | | | | (In millions) | | | (In millions) | | | | | | | | | | HHI segment | | $ | 164.4 | | | $ | 151.0 | | | $ | 164.4 | | | | 151.0 | | | | 13.4 | | | | 8.9 | % | Metaldyne segment | | | 173.4 | | | | 157.6 | | | | 173.4 | | | | 157.6 | | | | 15.8 | | | | 10.0 | | Grede segment | | | 85.1 | | | | — | | | | 85.1 | | | | — | | | | | | | | | | | | | | | | | | Total | | $ | 422.9 | | | $ | 308.6 | | | $ | 422.9 | | | | 308.6 | | | | | | | | | | | | | | | | | |
HHI segment gross profit was $164.4 million for the year ended December 31, 2014 or 16.8% of HHI segment net sales for the same period, as compared to $151.0 million for the year ended December 31, 2013 or 16.5% of HHI segment net sales for the same period, an increase of $13.4 million or 8.9%. This increase was primarily attributable to higher volumes, favorable product mix, and net price increases. These increases to HHI segment gross profit were partially offset by higher depreciation expense of $4.9 million primarily due to capital expenditures along with net manufacturing cost increases of $3.1 million primarily due to labor, benefits and new program launch costs. Metaldyne segment gross profit was $173.4 million for the year ended December 31, 2014 or 14.7% of Metaldyne segment net sales for the same period, as compared to $157.6 million for the year ended December 31, 2013 or 14.2% of Metaldyne segment net sales for the same period, an increase of $15.8 million or 10.0%. This increase was primarily attributable to higher volumes, net manufacturing cost decreases of $4.2 million, and foreign currency movements of $2.0 million. The increase in Metaldyne segment gross profit was partially offset by unfavorable product mix, net decreases in customer prices, and higher depreciation expense of $0.9 million. Grede segment gross profit was $85.1 million for the year ended December 31, 2014 or 14.9% of Grede segment net sales for the same period. Grede segment gross profit does not reflect the gross profit of Grede prior to the Grede Transaction in June 2014. Operating Income Operating income was $203.5 million for the year ended December 31, 2014 as compared to $185.4 million for the year ended December 31, 2013, an increase of $18.1 million or 9.8%. This increase was primarily driven by higher gross profit of $114.3 million partially offset by goodwill impairment of $11.8 million at the Company’s KBI wheel bearing reporting unit, increased stock-based compensation expense, and higher professional fees. Additionally, the inclusion of Grede segment results subsequent to the Grede Transaction in June 2014 reflects transaction-related costs and accounting related adjustments resulting from the Grede Transaction, including $13.0 million of acquisition related costs. The following table sets forth our operating income by segment: | | | Year Ended December 31, 2014 | | | Year Ended December 31, 2013 | | | Year Ended December 31, 2014 | | | Year Ended December 31, 2013 | | | Increase (Decrease) | | | Percent Change | | | | (In millions) | | | (In millions) | | | | | | | | | | HHI segment | | $ | 86.9 | | | $ | 96.4 | | | $ | 86.9 | | | | 96.4 | | | | (9.5 | ) | | | (9.9 | )% | Metaldyne segment | | | 100.7 | | | | 89.0 | | | | 100.7 | | | | 89.0 | | | | 11.7 | | | | 13.1 | | Grede segment | | | 15.9 | | | | — | | | | 15.9 | | | | — | | | | | | | | | | | | | | | | | | Total | | $ | 203.5 | | | $ | 185.4 | | | $ | 203.5 | | | | 185.4 | | | | | | | | | | | | | | | | | |
39
HHI segment operating income was $86.9 million or 8.9% of HHI segment net sales for the year ended December 31, 2014, as compared to $96.4 million or 10.5% of HHI segment net sales for the year ended December 31, 2013, a decrease of $9.5 million or 9.9%. The decrease in HHI segment operating income was primarily attributable to goodwill impairment of $11.8 million at the Company’s KBI wheel bearing reporting unit and increased stock-based compensation expense of $9.7 million in SG&A related to the issuance of new stock options, partially offset by the increase in the HHI segment gross profit of $13.4 million. Metaldyne segment operating income was $100.7 million or 8.6% of Metaldyne segment net sales for the year ended December 31, 2014, as compared to $89.0 million or 8.0% of Metaldyne segment net sales for the year ended December 31, 2013, an increase of $11.7 million or 13.1%. The increase was primarily due to the increase in gross profit of $15.8 million, partially offset by higher employee costs and professional fees. Grede segment operating income was $15.9 million for the year ended December 31, 2014 or 2.8% of Grede segment net sales for the same period. Grede segment operating income does not reflect the operating income of Grede prior to the Grede Transaction in June 2014. The operating income in our Grede segment was impacted by acquisition costs of $13.0 million and additional costs related to the Grede Transaction. In addition, Grede’s operating income reflected stock-based compensation expense of $1.9 million in SG&A related to the issuance of new stock options. Interest Expense, Net Interest expense, net was $99.9 million for the year ended December 31, 2014 as compared to $74.7 million for the year ended December 31, 2013, an increase of $25.2 million. The increase in interest expense, net reflected higher average outstanding borrowings including the additional debt associated with the Grede Transaction in June 2014 and increased indebtedness used to fund the return of capital to our stockholders prior to Combination. The increase is also attributable to an increase in the average interest rate due to the Senior Notes as part of the Refinancing. Loss on Debt Extinguishment The Company fully paid the outstanding term debt of each segment as part of the Refinancing, which occurred on October 20, 2014. Included inloss on debt extinguishment is $60.4 million recognized related to the write-off of unamortized debt fees, expenses, and original issue discounts from the prior credit facilities for the Refinancing. Other, Net Other, net was $11.3 million of income for the year ended December 31, 2014 and $17.8 million of expense for the year ended December 31, 2013. Other, net primarily consists of foreign currency transaction gains and losses, debt transaction expenses, and in 2013, a $10.1 million purchase price adjustment related to the Metaldyne Transaction. See Note 5 of the notes to the consolidated financial statements contained within “Item 8. Financial Statements and Supplementary Data” for additional discussion of the $10.1 million purchase price adjustment related to the Metaldyne Transaction. Income Taxes Income taxes were a benefit of $19.1 million for the year ended December 31, 2014 and expense of $35.0 million for the year ended December 31, 2013. Our effective tax rate was (35.2)% for the year ended December 31, 2014 and 37.7% for the year ended December 31, 2013. The decrease in our effective tax rate was primarily attributable to a change in the assertion that the earnings of certain foreign subsidiaries within the Metaldyne segment are indefinitely reinvested, resulting in a $31.6 million deferred tax benefit for the year ended December 31, 2014. In addition, during the year ended December 31, 2014, the Company recorded a research and experimentation credit of $3.0 million, reducing its U.S. federal income tax provision, and recognized a net reduction in its unrecognized tax benefits of $2.2 million, primarily resulting from the settlement of a tax audit at one of the Company’s German subsidiarysubsidiaries and from foreign exchange rate fluctuations. These favorable impacts were offset by effective tax rate increases resulting from a goodwill impairment charge in our HHI segment and changes in prior year estimates. Net Income Attributable to Stockholders Net income attributable to stockholders was $72.9 million or 2.7% of net sales for the year ended December 31, 2014, as compared to $57.6 million or 2.9% of net sales for the year ended December 31, 2013, an increase of $15.3 million or 26.6%. The increase was primarily attributable to the factors discussed above. 40
Adjusted EBITDA Management’s assessment of performance includes an evaluation of Adjusted EBITDA. The following table sets forth Adjusted EBITDA by segment and Adjusted Free Cash Flow.
| | | | | | | | | | | Year Ended December 31, 2014 | | | Year Ended December 31, 2013 | | | | (In millions) | | Adjusted EBITDA | | | | | | | | | HHI segment | | $ | 193.5 | | | $ | 175.0 | | Metaldyne segment | | | 202.3 | | | | 188.1 | | Grede segment | | | 82.8 | | | | — | | | | | | | | | | | Total | | $ | 478.6 | | | $ | 363.1 | | | | | | | | | | |
The following table sets a reconciliation of Adjusted EBITDA to net income, the most directly comparable GAAP measure:
| | | | | | | | | | | Year Ended December 31, 2014 | | | Year Ended December 31, 2013 | | | | (In millions) | | Adjusted EBITDA | | $ | 478.6 | | | $ | 363.1 | | Interest expense | | | (99.9 | ) | | | (74.7 | ) | Income tax expense | | | 19.1 | | | | (35.0 | ) | Depreciation and amortization | | | (210.8 | ) | | | (163.4 | ) | Loss on debt extinguishment | | | (60.7 | ) | | | — | | (Gain) loss on foreign currency | | | 15.7 | | | | (2.3 | ) | (Gain) loss on fixed assets | | | (2.1 | ) | | | (1.4 | ) | Debt transaction expenses | | | (3.0 | ) | | | (6.0 | ) | Stock-based compensation | | | (17.3 | ) | | | (6.2 | ) | Sponsor management fee | | | (5.1 | ) | | | (4.0 | ) | Non-recurring acquisition and purchase accounting related items | | | (23.0 | ) | | | (10.5 | ) | Non-recurring operational items | | | (18.2 | ) | | | (1.7 | ) | | | | | | | | | | Net income | | $ | 73.3 | | | $ | 57.9 | | | | | | | | | | |
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 fee;
non-recurring acquisition and purchase accounting related items; and
non-recurring operational items.
Adjusted EBITDA eliminates the effects of items that we do not consider indicative of our core operating performance. Adjusted EBITDA is a supplemental measure of operating performance that does not represent and should not be considered as alternatives to net income, as determined under GAAP, and our calculation of Adjusted EBITDA may not be comparable to those reported by other companies.
Management believes the inclusion of the adjustments to Adjusted EBITDA are appropriate to provide additional information to investors about certain material non-cash items and about unusual items that we do not expect to continue at the same level in the future. By providing this non-GAAP financial measure, together with a reconciliation to GAAP results, we believe we are
enhancing investors’ understanding of our business and our results of operations, as well as assisting investors in evaluating how well we are executing strategic initiatives. We believe Adjusted EBITDA is used by investors as supplemental measures to evaluate the overall operating performance of companies in our industry.
Management uses Adjusted EBITDA or comparable metrics:
as a measurement used in comparing our operating performance on a consistent basis;
to calculate incentive compensation for our employees;
for planning purposes, including the preparation of our internal annual operating budget;
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.
Year Ended December 31, 2013 compared to Successor Period 2012 and Predecessor Period 2012
The following table sets forth results of operations:
| | | | | | | | | | | | | | | | | Successor | | | | | Predecessor | | | | Year Ended December 31, 2013 | | | Successor Period 2012 | | | | | Predecessor Period 2012 | | | | (In millions) | | Net sales | | $ | 2,017.3 | | | $ | 205.3 | | | | | $ | 680.5 | | Cost of sales | | | 1,708.7 | | | | 199.5 | | | | | | 559.0 | | | | | | | | | | | | | | | | | Gross profit | | | 308.6 | | | | 5.8 | | | | | | 121.5 | | Selling, general and administrative expenses | | | 123.2 | | | | 14.4 | | | | | | 116.6 | | Acquisition costs | | | — | | | | 25.9 | | | | | | 13.4 | | | | | | | | | | | | | | | | | Operating income (loss) | | | 185.4 | | | | (34.5 | ) | | | | | (8.5 | ) | Interest expense, net | | | 74.7 | | | | 11.1 | | | | | | 25.8 | | Other, net | | | 17.8 | | | | 1.5 | | | | | | 2.4 | | | | | | | | | | | | | | | | | Income (loss) before taxes | | | 92.9 | | | | (47.1 | ) | | | | | (36.7 | ) | Income tax provision (benefit) | | | 35.0 | | | | (15.2 | ) | | | | | (11.1 | ) | | | | | | | | | | | | | | | | Net income (loss) | | | 57.9 | | | | (31.9 | ) | | | | | (25.6 | ) | Income attributable to noncontrolling interests | | | 0.3 | | | | — | | | | | | 0.2 | | | | | | | | | | | | | | | | | Net income (loss) attributable to stockholders | | $ | 57.6 | | | $ | (31.9 | ) | | | | $ | (25.8 | ) | | | | | | | | | | | | | | | |
Net Sales
Net sales were $2,017.3 million, $205.3 million and $680.5 million for the year ended December 31, 2013, Successor Period 2012 and Predecessor Period 2012, respectively. Net sales for the year ended December 31, 2013 reflected the results of Metaldyne for the full year as a result of the Metaldyne Transaction.
The following table sets forth our net sales by segment:
| | | | | | | | | | | | | | | | | Successor | | | | | Predecessor | | | | Year Ended December 31, 2013 | | | Successor Period 2012 | | | | | Predecessor Period 2012 | | | | (In millions) | | HHI segment | | $ | 916.5 | | | $ | 186.4 | | | | | $ | 680.5 | | Metaldyne segment | | | 1,112.0 | | | | 18.9 | | | | | | — | | Grede segment | | | — | | | | — | | | | | | — | | Eliminations | | | (11.2 | ) | | | — | | | | | | — | | | | | | | | | | | | | | | | | Total | | $ | 2,017.3 | | | $ | 205.3 | | | | | $ | 680.5 | | | | | | | | | | | | | | | | |
HHI segment net sales were $916.5 million, $186.4 million and $680.5 million for the year ended December 31, 2013, Successor Period 2012 and Predecessor Period 2012, respectively. HHI segment net sales for the year ended December 31, 2013 reflected higher volumes from positive trends in North American light vehicle production as well the impact of net new Program launches in 2013. Net sales also reflected net increases in customer prices, partially offset by lower steel surcharge pass-through of $3.8 million.
Metaldyne segment net sales were $1,112.0 million for the year ended December 31, 2013 and $18.9 million for Successor Period 2012. Predecessor Period 2012 does not reflect any Metaldyne segment net sales. Metaldyne segment net sales for the year ended December 31, 2013 reflected higher volumes resulting from overall market increases in North America, stabilizing European volume and new Program launches as well as the favorable impact of foreign currency fluctuations, partially offset by lower raw material surcharge pass-through.
Our net sales do not reflect any Grede net sales for the year ended December 31, 2013, Successor Period 2012 or Predecessor Period 2012.
Cost of Sales
Cost of sales was $1,708.7 million, $199.5 million and $559.0 million for the year ended December 31, 2013, Successor Period 2012 and Predecessor Period 2012, respectively. Cost of sales for the year ended December 31, 2013 reflected the results of Metaldyne for the full year as a result of the Metaldyne Transaction. The following table sets forth our cost of sales by segment:
| | | | | | | | | | | | | | | | | Successor | | | | | Predecessor | | | | Year Ended December 31, 2013 | | | Successor Period 2012 | | | | | Predecessor Period 2012 | | | | (In millions) | | HHI segment | | $ | 765.5 | | | $ | 173.3 | | | | | $ | 559.0 | | Metaldyne segment | | | 954.4 | | | | 26.2 | | | | | | — | | Grede segment | | | — | | | | — | | | | | | — | | Less: intersegment sales | | | (11.2 | ) | | | — | | | | | | — | | | | | | | | | | | | | | | | | Total | | $ | 1,708.7 | | | $ | 199.5 | | | | | $ | 559.0 | | | | | | | | | | | | | | | | |
HHI segment cost of sales was $765.5 million for the year ended December 31, 2013 as compared to $173.3 million for Successor Period 2012 and $559.0 million for Predecessor Period 2012. Cost of sales for the year ended December 31, 2013 reflected the higher volumes mentioned above, and increased salaries, wages, and benefits of $3.8 million. These increases were partially offset by manufacturing cost improvements, positive product mix, and lower steel surcharge pass-through from suppliers of $2.5 million. Purchase accounting adjustments related to the HHI Transaction in October 2012 also increased cost of sales by $24.9 million related to higher depreciation from the revaluation of fixed assets, partially offset by $11.1 million for the step-up to fair market value and consequent charge for inventory in the Successor Period 2012.
Metaldyne segment cost of sales was $954.4 million for the year ended December 31, 2013 and $26.2 million for Successor Period 2012. Predecessor Period 2012 does not reflect any Metaldyne segment cost of sales. Metaldyne segment cost of sales for the year ended December 31, 2013, which represents a full year of results as compared to fourteen days for Successor Period 2012, reflected higher volumes, higher depreciation resulting from the Metaldyne Transaction purchase accounting and increased labor and overhead costs.
Our cost of sales does not reflect any Grede cost of sales for the year ended December 31, 2013, Successor Period 2012 or Predecessor Period 2012.
Gross Profit
Gross profit was $308.6 million, $5.8 million and $121.5 million for the year ended December 31, 2013, Successor Period 2012 and Predecessor Period 2012, respectively. Gross profit for the year ended December 31, 2013 reflected the results of Metaldyne for the full year as a result of the Metaldyne Transaction. The following table sets forth our gross profit (loss) by segment:
| | | | | | | | | | | | | | | | | Successor | | | | | Predecessor | | | | Year Ended December 31, 2013 | | | Successor Period 2012 | | | | | Predecessor Period 2012 | | | | (In millions) | | HHI segment | | $ | 151.0 | | | $ | 13.1 | | | | | $ | 121.5 | | Metaldyne segment | | | 157.6 | | | | (7.3 | ) | | | | | — | | Grede segment | | | — | | | | — | | | | | | — | | | | | | | | | | | | | | | | | Total | | $ | 308.6 | | | $ | 5.8 | | | | | $ | 121.5 | | | | | | | | | | | | | | | | |
HHI segment gross profit was $151.0 million, or 16.5% of HHI segment net sales for the year ended December 31, 2013 as compared to $13.1 million, or 7.0% of HHI segment net sales for Successor Period 2012 and $121.5 million, or 17.9% of HHI segment net sales for Predecessor Period 2012. HHI segment gross profit for the year ended December 31, 2013 reflected the higher volumes, manufacturing cost improvements, positive product mix, net customer price increases, partially offset by increases to salaries, wages, and benefits of $3.8 million, and the impact of purchase accounting adjustments. Purchase accounting adjustments
related to the HHI Transaction in October 2012 also decreased gross profit by $24.9 million related to higher depreciation from the revaluation of fixed assets, partially offset by $11.1 million for the step-up to fair market value and consequent charge for inventory in the Successor Period 2012.
Metaldyne segment gross profit (loss) was $157.6 million for the year ended December 31, 2013 and $(7.3) million Successor Period 2012. Predecessor Period 2012 does not reflect any Metaldyne segment gross profit. Metaldyne segment gross profit for the year ended December 31, 2013, which represents a full year of results as compared to fourteen days for Successor Period 2012, reflected higher volumes, higher depreciation resulting from the Metaldyne Transaction purchase accounting and increased labor and overhead costs.
Our gross profit does not reflect any Grede gross profit for the year ended December 31, 2013, Successor Period 2012 or Predecessor Period 2012.
Operating Income (Loss)
Operating income (loss) was $185.4 million, $(34.5) million and $(8.5) million for the year ended December 31, 2013, Successor Period 2012 and Predecessor Period 2012, respectively. Operating income for the year ended December 31, 2013 reflected the results of Metaldyne for the full year as a result of the Metaldyne Transaction.
The following table sets forth our operating income (loss) by segment:
| | | | | | | | | | | | | | | | | Successor | | | | | Predecessor | | | | Year Ended December 31, 2013 | | | Successor Period 2012 | | | | | Predecessor Period 2012 | | | | (In millions) | | HHI segment | | $ | 96.4 | | | $ | (8.7 | ) | | | | $ | (8.5 | ) | Metaldyne segment | | | 89.0 | | | | (25.8 | ) | | | | | — | | Grede segment | | | — | | | | — | | | | | | — | | | | | | | | | | | | | | | | | Total | | $ | 185.4 | | | $ | (34.5 | ) | | | | $ | (8.5 | ) | | | | | | | | | | | | | | | |
HHI segment operating income was $96.4 million, or 10.5% of HHI segment net sales for the year ended December 31, 2013, as compared to HHI segment operating loss of $8.7 million, or (4.7)% of HHI segment net sales for Successor Period 2012, and HHI segment operating loss of $8.5 million, or (1.2)% of HHI segment net sales, for Predecessor Period 2012. HHI segment operating income for the year ended December 31, 2013 was primarily driven by higher gross profit. Operating income was also unfavorably impacted by intangible asset amortization of $34.0 million, primarily resulting from purchase accounting for the HHI Transaction. HHI segment operating income included acquisition costs related to the HHI transaction of $10.3 million in Successor Period 2012 and $13.4 million in Predecessor Period 2012 and transaction-related compensation costs of $89.8 million in Predecessor Period 2012.
Metaldyne segment operating income (loss) was $89.0 million for the year ended December 31, 2013 and $(25.8) million for Successor Period 2012, which represented a fourteen-day period. Predecessor period 2012 does not reflect any Metaldyne operating income (loss). Metaldyne Segment operating income for Successor period 2012 reflected $15.6 million of acquisition costs related to the Metaldyne Transaction.
Our operating income (loss) does not reflect any Grede operating income (loss) for the year ended December 31, 2013, Successor Period 2012 or Predecessor Period 2012.
Interest Expense, Net
Interest expense, net was $74.7 million for the year ended December 31, 2013 as compared to $11.1 million for Successor Period 2012 and $25.8 million for Predecessor Period 2012, which reflected the inclusion of interest expense, net for Metaldyne subsequent to the Metaldyne Transaction.
Other, Net
Other, net was $17.8 million for the year ended December 31, 2013 as compared to $1.5 million for Successor Period 2012 and $2.4 million for Predecessor Period 2012. Other, net for the year ended December 31, 2013 included a $10.1 million purchase price adjustment related to the Metaldyne Transaction, foreign currency losses of $2.3 million, and debt transaction expenses of $6.0 million. See Note 5 of the notes to the consolidated financial statements contained within “Item 8. Financial Statements and Supplementary Data” for additional discussion of the $10.1 million purchase price adjustment related to the Metaldyne Transaction.
Income Taxes
The income tax provision (benefit) for the year ended December 31, 2013, Successor Period 2012 and Predecessor Period 2012 was $35.0 million, $(15.2) million and $(11.1) million, respectively, on income (loss) before income tax provision of $92.8 million, $(47.1) million and $(36.7) million, respectively. Our effective tax rates for the year ended December 31, 2013, Successor Period 2012 and Predecessor Period 2012 were 37.7%, 32.3% and 30.2% respectively. The variance in effective rates was due to the impact of acquisition costs associated with the HHI Transaction and the Metaldyne Transaction in 2012 and the mix of domestic and foreign earnings with varying tax rates.
Net Income (Loss) Attributable to Stockholders
Net income attributable to stockholders was $57.6 million, or 2.9% of net sales for the year ended December 31, 2013, as compared to net loss attributable to stockholders of $31.9 million, or (15.5)% of net sales, for Successor Period 2012, and net loss attributable to stockholders of $25.8 million, or (3.8)% of net sales, for Predecessor Period 2012. Net income for the year ended December 31, 2013 reflected the results of Metaldyne for the full year in 2013 as a result of the Metaldyne Transaction.
Adjusted EBITDA
Management’s assessment of performance includes an evaluation of Adjusted EBITDA. The following table sets forth Adjusted EBITDA by segment. | | | Successor | | | | | Predecessor | | | | | Year Ended December 31, 2013 | | | Successor Period 2012 | | | | | Predecessor Period 2012 | | | Year Ended December 31, 2014 | | | Year Ended December 31, 2013 | | | | (In millions) | | | (In millions) | | Adjusted EBITDA | | | | | | | | | | | | | | | | | HHI segment | | $ | 175.0 | | | $ | 28.5 | | | | | $ | 113.8 | | | $ | 193.5 | | | | 175.0 | | Metaldyne segment | | | 188.1 | | | | 0.9 | | | | | | — | | | | 202.3 | | | | 188.1 | | Grede segment | | | — | | | | — | | | | | | — | | | | 82.8 | | | | — | | | | | | | | | | | | | | | Total | | $ | 363.1 | | | $ | 29.4 | | | | | $ | 113.8 | | | $ | 478.6 | | | | 363.1 | | | | | | | | | | | | | | |
The following table sets forth a reconciliation of Adjusted EBITDA to net income before tax, the most directly comparable GAAP measure. | | | Successor | | | | | Predecessor | | | | | Year Ended December 31, 2013 | | | Successor Period 2012 | | | | | Predecessor Period 2012 | | | Year Ended December 31, 2014 | | | Year Ended December 31, 2013 | | | | (In millions) | | | (In millions) | | Adjusted EBITDA | | $ | 363.1 | | | $ | 29.4 | | | | | $ | 113.8 | | | $ | 478.6 | | | | 363.1 | | Interest expense | | | (74.7 | ) | | | (11.1 | ) | | | | | (25.8 | ) | | | (99.9 | ) | | | (74.7 | ) | Income tax (expense) benefit | | | (35.0 | ) | | | 15.2 | | | | | | 11.1 | | | Depreciation and amortization | | | (163.4 | ) | | | (18.7 | ) | | | | | (20.0 | ) | | | (210.8 | ) | | | (163.4 | ) | (Gain) loss on foreign currency | | | (2.3 | ) | | | (1.5 | ) | | | | | — | | | (Gain) loss on fixed assets | | | (1.4 | ) | | | — | | | | | | 1.1 | | | Loss on debt extinguishment | | | | (60.7 | ) | | | — | | Gain (loss) on foreign currency | | | | 15.7 | | | | (2.3 | ) | Loss on fixed assets | | | | (2.1 | ) | | | (1.4 | ) | Debt transaction expenses | | | (6.0 | ) | | | — | | | | | | (2.4 | ) | | | (3.0 | ) | | | (6.0 | ) | Stock-based compensation | | | (6.2 | ) | | | (0.1 | ) | | | | | — | | | | (17.3 | ) | | | (6.2 | ) | Sponsor management fee | | | (4.0 | ) | | | (0.6 | ) | | | | | (0.7 | ) | | | (5.1 | ) | | | (4.0 | ) | Non-recurring acquisition and purchase accounting related items | | | (10.5 | ) | | | (43.3 | ) | | | | | (103.4 | ) | | | (23.0 | ) | | | (10.5 | ) | Non-recurring operational items | | | (1.7 | ) | | | (1.2 | ) | | | | | 0.7 | | | | (18.2 | ) | | | (1.7 | ) | | | | | | | | | | | | | | Net income (loss) | | $ | 57.9 | | | $ | (31.9 | ) | | | | $ | (25.6 | ) | | | | | | | | | | | | | | | Income before taxes | | | $ | 54.2 | | | | 92.9 | |
See “—Year ended December 31, 2014 compared to year ended December 31, 2013—Adjusted EBITDA” for a description of the calculation of Adjusted EBITDA and a discussion of the use of this measure. Liquidity and Capital Resources Our primary cash requirements include the payment of our suppliers and operating expenses, interest and principal payments on our debt and capital expenditures. We have also used cash to return capital to our stockholders through the payment of dividends primarily through cash provided by operations and borrowings under our revolving credit facilities.operations. As of December 31, 2014,2015, we had cash and cash equivalents of $156.5$168.2 million and total indebtedness, inclusive of capitalized lease obligations, of $1,961.8$1,884.4 million. We also have access to additional liquidity pursuant to the terms of the Revolving Credit Facility. Our capital expenditures have been related to the acquisition of machinery and equipment to support our overall business growth as well as increase the efficiency of our manufacturing processes. Our capital expenditures were $226.3 million, $156.4 million, $122.3 million $10.4 million, and $32.6$122.3 million for the yearyears ended December 31, 2015, 2014, the year ended December 31,and 2013, Successor Period 2012, and Predecessor Period 2012, respectively. We believe that our cash flow from operations, available cash and cash equivalents and available borrowings under the Senior Credit Facilities will be sufficient to meet our liquidity needs for the next twelve months and beyond. We anticipate that to the extent that we require additional liquidity, it will be funded through the incurrence of other indebtedness, equity financings or a combination. We cannot assure you that we will be able to obtain this additional liquidity on reasonable terms, or at all. Additionally, our liquidity and our ability to meet our obligations and fund our capital requirements are also dependent on our future financial performance, which is subject to general economic, financial and other factors that are beyond our control. Accordingly, we cannot assure you that our business will generate sufficient cash flow from operations or that future borrowings will be available under our credit facilities or otherwise to meet our liquidity needs. Although we have no specific current plans to do so, if we decide to pursue one or more significant acquisitions, we may incur additional debt or sell additional equity to finance such acquisitions.
41
Our Credit Ratings 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 |
Our Indebtedness Senior Credit Facilities On October 20, 2014, MPG Holdco I Inc., the Company’s wholly owned subsidiary (“MPG Holdco”) entered into the $250.0 million the Revolving Credit Facility. Interest accrues at a rate equal to the London Interbank Offered Rate (“LIBOR’) rate plus an applicable margin of 3.25% or a base rate that is the higher of the Federal Funds Rate (plus 0.50%), the U.S. prime rate as published in theThe Wall Street Journal, or LIBOR (plus 1.00%), plus an applicable margin of 2.25%, at MPG Holdco’s option. The applicable margin is based on a leverage ratio grid and was .25% higher prior to the IPO. The Revolving Credit Facility is a five-year facility that matures in 2019. As of December 31, 2014,2015, there was no balance outstanding on the Revolving Credit Facility. Total available under this facility was $234.4$237.4 million after giving effect to letters of credit of $15.6$12.6 million. MPG Holdco pays fees with respect to the Revolving Credit Facility, including (i) an unused commitment fee of 0.50% or 0.375% based on a leverage ratio and (ii) fixed fees with respect to letters of credit of 3.25% per annum on the stated amount of each letter of credit outstanding during each month and customary administrative fees. On October 20, 2014, MPG Holdco entered into the $1,350.0 million a term loan facility (the “Term Loan Facility”). Interest is accrued at a rate equal to the LIBOR rate (bearing a LIBOR floor of 1.00%) plus an applicable margin of 3.25% or a base rate that is the higher of the Federal Funds Rate (plus 0.50%), the U.S. prime rate as published in theThe Wall Street Journal, or LIBOR (plus 1.00%), plus an applicable margin of 2.25%, at MPG Holdco’s option. Prior to the IPO, the applicable margin was 3.50% for LIBOR rate loans and 2.50% for base rate loans. TheOn May 8, 2015, the Company amended its Senior Credit Facilities to reduce the applicable interest rates on the Term Loan Facility maturesand to convert a portion of the liability from U.S. Dollar denominated debt to Euro denominated debt. The outstanding balance of Term Loan Facility was repaid and refinanced with the Refinanced Term Loan Facility consisting of a $1,072.6 million U.S. Dollar Term Loan and a €225.0 million Euro Term Loan. The USD Term Loan was issued at par and accrues interest at LIBOR, bearing a 1% floor, plus an applicable margin of 2.75%. The Euro Term Loan was issued at an original issuance discount of 0.5%, or $1.3 million, and accrues interest at EURIBOR, bearing a 1% floor, plus an applicable margin of 2.75%. The USD Term Loan and Euro Term Loan mature in 2021 and isare payable in quarterly installments of $3.375 million beginning in March 2015. In December 2014, the Company made a voluntary prepayment of $10.0 million on the principal balanceequal to 0.25% of the original loan balances. The USD Term Loan Facility. Theand Euro Term Loan Facility isare subject to customary mandatory prepayments, including an excess cash flow sweep based on leverage ratio step downs and a mandatory prepayment for certain asset sales. Beginning in 2016,At the beginning of a fiscal year, we aremay be required to prepay a portion of our USD Term Loan Facilityand Euro Term Loan in an amount equal to a percentage of the preceding fiscal year’s excess cash flow, as defined, with such percentage based on our leverage ratio, as defined. As of December 31, 2015, there are no mandatory prepayments due.
During fiscal year 2015, the Company made $10.0 million of voluntary prepayments on the Term Loan Facility and $45.0 million of voluntary prepayments on the USD Term Loan portion of the Refinanced Term Loan Facility. The Senior Credit Facilities, subject to certain exceptions, are guaranteed by the Company and all of MPG Holdco’s direct and indirect existing and future domestic subsidiaries. The agreement governing the Senior Credit Facilities contains certain covenants that, among other things, require MPG Holdco to maintain a leverage ratio once revolver borrowings and letters of credit exceed 35% of aggregate revolving credit commitments as defined under the terms of the Senior Credit Facilities and to comply with customary affirmative and negative covenants. The Senior Credit Facilities also restrict the payment of dividends subject to certain customary exceptions including the ability (i) to pay taxes attributable to MPG Holdco and its subsidiaries, (ii) to pay legal, accounting, and reporting expenses, (iii) to pay general and administrative costs and expenses, and reasonable directors fees and expenses, (iv) to repurchase stock owned by 42
employees subject to certain limitations, (v) to pay management or similar fees subject to certain limitations, (vi) to pay franchise or similar taxes and fees to maintain organizational existence, and (vii) to pay dividends up to $30 million. MPG Holdco Senior Notes On October 20, 2014, MPG Holdco issued $600.0 million of aggregate principal amount notes. The Senior Notes mature on October 15, 2022 and bear interest at a rate of 7.375%, payable semiannually on April 15th and October 15th of each year. The Senior Notes are guaranteed by the Company and all of MPG Holdco’s direct and indirect domestic subsidiaries that guarantee the Senior Credit Facilities. 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. The indenture governing the Senior Notes contains certain covenants, including a covenant that restricts the payment of dividends, subject to certain customary exceptions including the ability (i) to pay taxes attributable to MPG Holdco and its subsidiaries, (ii) to pay legal, accounting, and reporting expenses, (iii) to pay general and administrative costs and expenses, and reasonable directors fees and expenses, (iv) to repurchase stock owned by employees subject to certain limitations, (v) to pay management or similar fees subject to certain limitations, (vi) to pay franchise or similar taxes and fees to maintain organizational existence, and (vii) to pay dividends up to $30 million per year. The proceeds from the Term Loan Facility and Senior Notes were used to prepay the existing debt of Metaldyne, HHI, and Grede, as well as, fees and expenses associated with the Refinancing. Prepayment of the existing debt of Metaldyne, HHI and Grede resulted in the elimination of the restrictions on the ability of each to pay dividends to MPG. Dividends During fiscal year 2015, the Company declared and paid the following cash dividends on its common stock: Date Declared | | Date Paid | | Dividend per share | | October 28, 2015 | | December 3, 2015 | | $ | 0.09 | | July 29, 2015 | | August 31, 2015 | | | 0.09 | | March 10, 2015 | | May 26, 2015 | | | 0.09 | |
On February 24, 2016, our board of directors declared a dividend of $0.09 per share, payable April 26, 2016 to stockholders of record as of April 12, 2016. Other Liquidity and Capital Resource Items As of December 31, 2014, $94.12015, $95.9 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. On January 19, 2016, we filed an S-3 “shelf” registration with the SEC, which was declared effective on February 2, 2016. Under the shelf registration process, we may, over time, offer and sell up to $300 million in total aggregate offering price of any combination of common stock, preferred stock, debt securities, warrants, or units as described in the S-3. 43
Contractual Commitments The following table summarizes our contractual obligations and commitments as of December 31, 2014:2015: | | | Payments Due by Period | | | Payments Due by Period | | | | Total | | | 2015 | | | 2016 - 2017 | | | 2018 - 2019 | | | Thereafter | | | Total | | | 2016 | | | 2017-2018 | | | 2019-2020 | | | Thereafter | | | | (In millions) | | | (In millions) | | Long-term debt | | $ | 1,940.6 | | | $ | 13.7 | | | $ | 27.4 | | | $ | 27.0 | | | $ | 1,872.5 | | | $ | 1,866.7 | | | | 13.3 | | | | 26.6 | | | | 26.4 | | | | 1,800.4 | | Interest on long-term debt (1) | | | 745.4 | | | | 100.3 | | | | 203.4 | | | | 200.7 | | | | 241.0 | | | | 588.1 | | | | 92.5 | | | | 183.1 | | | | 181.2 | | | | 131.3 | | Capital lease obligations (2) | | | 90.9 | | | | 6.7 | | | | 9.2 | | | | 8.2 | | | | 66.8 | | | | 83.8 | | | | 5.0 | | | | 7.9 | | | | 8.3 | | | | 62.6 | | Operating lease obligations | | | 68.9 | | | | 10.9 | | | | 15.5 | | | | 11.3 | | | | 31.2 | | | | 68.1 | | | | 11.1 | | | | 17.6 | | | | 12.3 | | | | 27.1 | | Capital expenditure purchase obligations | | | 57.6 | | | | 57.6 | | | | — | | | | — | | | | — | | | | 95.6 | | | | 86.1 | | | | 9.5 | | | | — | | | | — | | Other purchase obligations | | | 19.1 | | | | 18.4 | | | | 0.7 | | | | — | | | | — | | | | 29.9 | | | | 19.7 | | | | 10.1 | | | | 0.1 | | | | — | | Other long-term liabilities (2) | | | 5.0 | | | | 4.0 | | | | 0.3 | | | | 0.2 | | | | 0.5 | | | | | | | | | | | | | | | | | | | | Other long-term liabilities | | | | 10.9 | | | | 9.3 | | | | 0.6 | | | | 0.5 | | | | 0.5 | | Total (3) | | $ | 2,927.5 | | | $ | 211.6 | | | $ | 256.5 | | | $ | 247.4 | | | $ | 2,212.0 | | | $ | 2,743.1 | | | | 237.0 | | | | 255.4 | | | | 228.8 | | | | 2,021.9 | | | | | | | | | | | | | | | | | | |
(1) | Includes interest on the Term Loan Facility calculated using an average interest rate of 4.25%3.75%. |
(2) | Includes interest totaling $64.7$60.2 million. |
(3) | Due to the high degree of uncertainty regarding the timing of future cash outflows associated with unrecognized tax benefits, we are unable to make a reasonable estimate of the year in which cash settlements may occur with applicable tax authorities. As a result, unrecognized tax benefits of $7.4$7.1 million as of December 31, 20142015 are not reflected in this contractual obligations table. |
Cash Flows Cash flows from operating, investing and financing activities were as follows: | | | Successor | | | | | Predecessor | | | | | Year Ended December 31, 2014 | | | Year Ended December 31, 2013 | | | Successor Period 2012 | | | | | Predecessor Period 2012 | | | Year Ended December 31, 2015 | | Year Ended December 31, 2014 | | Year Ended December 31, 2013 | | | (In millions) | | | (In millions) | Cash flows from operating activities | | $ | 305.4 | | | $ | 234.3 | | | $ | (1.8 | ) | | | | $ | 64.7 | | | $330.0 | | 305.4 | | 234.3 | Cash flows from investing activities | | | (984.9 | ) | | | (116.7 | ) | | | (1,515.0 | ) | | | | | (31.3 | ) | | (222.7) | | (984.9) | | (116.7) | Cash flows from financing activities | | | 776.7 | | | | (91.1 | ) | | | 1,557.1 | | | | | | (27.3 | ) | | (86.2) | | 776.7 | | (91.1) | Effect of exchange rates on cash | | | (8.9 | ) | | | 1.4 | | | | — | | | | | | 0.3 | | | | | | | | | | | | | | | | | | | Effect of exchange rates | | | (9.4) | | (8.9) | | 1.4 | Net increase in cash and cash equivalents | | $ | 88.3 | | | $ | 27.9 | | | $ | 40.3 | | | | | $ | 6.4 | | | $11.7 | | 88.3 | | 27.9 | | | | | | | | | | | | | | | | |
Cash Flows From Operating Activities Cash flows from operating activities were a net inflow of $330.0 million for the year ended December 2015, $305.4 million for the year ended December 2014, and $234.3 million for the year ended December 31, 2013, a net outflow2013. For the year ended December 31, 2015, cash flows from operating activities reflected results of $1.8 million for Successor Period 2012operations exclusive of non-cash income and a net inflow of $64.7 million for Predecessor Period 2012.expenses, primarily depreciation and amortization, deferred income taxes, and stock-based compensation, less gains on foreign currency transactions and an increase in working capital. For the year ended December 31, 2014, cash flows from operating activities reflected results of operations exclusive of non-cash income and expenses, primarily depreciation and amortization, deferred income taxes, losses on debt extinguishments, stock-based compensation, and goodwill impairment, less gains on foreign currency transactions and an increase in working capital. For the year ended December 31, 2013, cash flows from operating activities reflected results of operations exclusive of non-cash income and expenses, primarily depreciation and amortization and the write-down of a purchase price receivable from the Metaldyne Transaction less the change in deferred income taxes, partially offset by an increase in working capital. For the Successor Period 2012, cash flows from operating activities reflected a decrease in working capital less results of operations exclusive ofnon-cash income and expenses, primarily depreciation and amortization less the change in deferred income taxes. For the Predecessor Period 2012, cash flows from operating activities reflected an increase in working capital less results of operations exclusive ofnon-cash income and expenses, primarily depreciation and amortization. Cash Flows From Investing Activities Cash flows from investing activities were net outflows of $222.7 million, $984.9 million, and $116.7 million $1,515.0 million and $31.3 million for the years ended December 31, 2015, 2014, 2013, respectively. For the year ended December 31, 2014, the year ended December 31, 2013, Successor Period 2012 and Predecessor Period 2012, respectively.2015, cash flows from investing activities primarily reflected capital expenditures. For the year ended December 31, 2014, cash flows from investing activities primarily reflected consideration paid for the Grede Transaction, $829.7 million, and capital expenditures. For the year ended December 31, 2013, cash flows from investing activities primarily reflected capital expenditures. For Successor Period 2012, cash flows from investing activities primarily reflected consideration paid for the HHI Transaction, $722.2 million, and consideration paid for the Metaldyne Transaction, $782.2 million, and capital expenditures. For the Predecessor Period 2012, cash flows from investing activities primarily reflected capital expenditures.
44
Cash Flows From Financing Activities Cash flows from financing activities were a net outflow of $86.2 million for the year ended December 31, 2015, a net inflow of $776.7 million for the year ended December 31, 2014, and a net outflow of $91.1 million for the year ended December 31, 2013. For the year ended December 31, 2015, cash flows from financing activities primarily reflected the issuance of long-term debt totaling $1,326.6 million, long-term debt repayments totaling $1,391.8 million, and dividends paid to common stockholders totaling $18.2 million. Total proceeds from long-term debt include $1,072.6 million from the USD Term Loan and $254.1 million from the Euro Term Loan, both used to fund the repayment and refinancing of the Term Loan Facility. Total long-term debt repayments include $1,326.6 million to fully repay the Term Loan Facility, $45.0 million in voluntary prepayments on the USD Term Loan, and $10.0 million in voluntary prepayments on the previous Term Loan Facility, in addition to $10.2 million in scheduled term loan repayments. For the year ended December 31, 2014, cash flows from financing activities primarily reflected the issuance of long-term debt totaling $2,658.3 million and $260.5 million in capital contributions, partially offset by repayments of long-term debt totaling $1,952.1 million, dividend payments to the stockholders of HHI totaling $111.3 million, payments of debt issuance costs totaling $45.3 million, and repayments of other debt totaling $7.7 million. Total long term debt proceeds included a $115.0 million term loan, primarily used to fund dividends to the stockholders of HHI, a $600 million term loan, primarily used to fund the Grede Transaction, and $1,943.3 million from the Term Loan Facility and Senior Notes primarily used to repay the existing debts of Metaldyne, HHI, and Grede. In addition to The Refinancing, total long-term debt repayments also reflected a $10 million prepayment of principal on the Term Loan Facility. The capital contributions of $260.5 million were primarily used to fund the Grede Transaction. For the year ended December 31, 2013, acash flows from financing activities reflected dividend payments to the stockholders of HHI totaling $131.9 million and the stockholders of Metaldyne totaling $125.0 million. These dividends were primarily funded by the issuance of long-term debt totaling $240.0 million. Additionally, principal payments on long-term debt totaled $59.9 million, debt issuance costs paid were $15.0 million, $10.0 million of contingent consideration from the Metaldyne Transaction, and net inflowborrowings under revolving lines of $1,557.1 million for Successor Period 2012 and a net outflow of $27.3 million for Predecessor Period 2012 as detailed in the following table.credit were $12.4 million. | | | | | | | | | | | | | | | | | | | | | Successor | | | | | Predecessor | | | | Year ended December 31, 2014 | | | Year ended December 31, 2013 | | | Successor Period 2012 | | | | | Predecessor Period 2012 | | | | (In millions) | | Cash dividends | | $ | (111.3 | ) | | $ | (256.9 | ) | | $ | — | | | | | $ | (70.0 | ) | Other stock activity | | | (2.4 | ) | | | 0.6 | | | | — | | | | | | — | | Proceeds from stock issuance | | | 260.5 | | | | — | | | | 546.0 | | | | | | — | | Borrowings of short-term debt | | | 388.8 | | | | 545.6 | | | | 6.0 | | | | | | 38.9 | | Repayments of short-term debt | | | (407.4 | ) | | | (533.2 | ) | | | — | | | | | | (38.9 | ) | Proceeds of long-term debt | | | 2,658.2 | | | | 240.0 | | | | 1,040.3 | | | | | | 49.9 | | Principal payments of long-term debt | | | (1,952.0 | ) | | | (59.9 | ) | | | — | | | | | | (2.8 | ) | Payment of debt issue costs | | | (45.4 | ) | | | (14.9 | ) | | | (34.9 | ) | | | | | (2.5 | ) | Proceeds of other debt | | | 1.0 | | | | 1.4 | | | | — | | | | | | — | | Principal payments of other debt | | | (7.7 | ) | | | (3.8 | ) | | | (0.3 | ) | | | | | (1.9 | ) | Payment of offering related costs | | | (5.6 | ) | | | — | | | | — | | | | | | — | | Payment of contingent consideration for the Metaldyne Transaction | | | — | | | | (10.0 | ) | | | — | | | | | | — | | | | | | | | | | | | | | | | | | | | | Total | | $ | 776.7 | | | $ | (91.1 | ) | | $ | 1,557.1 | | | | | $ | (27.3 | ) | | | | | | | | | | | | | | | | | | | |
Critical Accounting Estimates Our discussion and analysis of our financial condition and results of operations is based upon our financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. Certain of our accounting policies require the application of significant judgment by management in selecting the appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. These judgments are based on our historical experience, terms of existing contracts, our evaluation of trends in the industry, information provided by our customers and information available from other outside sources, as appropriate. Our actual results may differ from these estimates. The accounting policies that we believe to be the most critical to an understanding of our financial condition and results of operations and that require the most complex and subjective management judgments are discussed below. Acquisitions The recording of an acquisition entails the allocation of the purchase price of an acquired business to its identifiable assets and liabilities based on their fair value. Any excess amount of the purchase price over the allocated amounts is recognized as goodwill. Determination of identifiable assets and liabilities and their fair values requires us to make significant judgments and estimates. Fair value of assets and liabilities is estimated based upon quoted market prices, the carrying value of the acquired assets and widely accepted valuation techniques, including discounted cash flows and market multiple analyses. Other estimates used in determining fair value include, but are not limited to, future cash flows or income related to intangibles, market rate assumptions, actuarial assumptions for benefit plans and appropriate discount rates. These estimates and assumptions are subject to a considerable degree of uncertainty. 45
The following table describes the methods used to estimate the significant fair values recognized in the accounting for the HHI Transaction, the Metaldyne Transaction and the Grede Transaction for the categories most subject to a considerable degree of uncertainty: | | | Category | | Valuation Method and Inputs | Property and equipment | | | | | Personal property | | Valued using a market approach, which relied upon selling and asking prices for similar assets in the used market, and using a cost approach, which relied on estimated replacement cost new. | | | Real property | | Valued primarily using a market approach, which relied upon an analysis of the cost per square foot of gross building area from comparable sales. | | | | | Estimated remaining useful lives for property and equipment ranged from 1 year to 30 years exclusive of land. | | | Amortizable intangible assets | | | | | Customer relationships and platforms | | Valued using an income approach, the multi-period excess earnings method (“MEEM”). In applying the MEEM, we estimated the future cash flows attributable to the customer relationships and platforms discounted at a risk-adjusted rate. The future cash flows were projected over the typical platform life-cycle of approximately 15approximately10 years for HHI and Metaldyne and 10 years for Grede. |
Goodwill Goodwill is evaluated for impairment annually or more often if a triggering even occurs between annual tests. The annual tests are performed in the fourth quarter. For each reporting unit to which goodwill has been assigned, the evaluation for impairment entails a quantitative analysis of the fair value of the reporting unit compared to the carrying value of the reporting unit or the Company may opt to perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount prior to performing the quantitative assessment. Determination of our reporting units, impairment indicators and fair value requires us to make significant judgments and estimates, including the extent and timing of future cash flows. As part of the determination of future cash flows, we need to make assumptions on future general economic conditions, business projections, growth rates and discount rates. These assumptions are subject to a considerable degree of uncertainty and different assumptions could materially affect our conclusions on this matter. During 2014,2015, we performed our annual evaluations as of the fourth quarter. See Note 9 of the notes to the consolidated financial statements contained within “Item 8. Financial Statements and Supplementary Data” for a discussion of the impairment loss recognized in the fourth quarter of 2014.Data.” Long-lived Assets Long-lived assets other than goodwill are evaluated for impairment if adverse events or changes in circumstances indicate the assets are potentially impaired. For each asset group affected by such impairment indicators, the recoverability of the carrying value of that asset group is determined by comparing the forecasted undiscounted cash flows related to that asset group to the asset group’s carrying value. Determination of our asset groups, impairment indicators and future cash flows requires us to make significant judgments and estimates. As part of the determination of future cash flows, we need to make assumptions on future general economic conditions, business projections, growth rates and discount rates. These assumptions are subject to a considerable degree of uncertainty. During 2014, there were no indicatorsIn 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 potential impairment; therefore, no evaluationthe industrial market slowdown, was completed in fiscal 2015. The Company recorded a $4.0 million asset impairment charge within cost of long-lived assets for impairment was performed.sales in conjunction with this announcement. Stock-based Compensation Stock-based compensation awards to employees and members of our boardsboard of directors are accounted for based upon their grant date calculated value and recognized as expense over the requisite service period. The determination of calculated value differs from fair value in that the volatility assumption used in determining the value of the awards is based on the volatility of comparable companies rather than a volatility assumption for the issuing entity. Use of calculated value is necessary as the issuing entities are non-public entities and, therefore, sufficient information to estimate entity level volatility is unavailable. 46
The following table sets forth the weighted average inputs used to value the MPG stock options converted and granted in 20142015 using the Black-Scholes Pricing Model: | | | Converted Options | | Granted Options | | | Granted Options | | Weighted-average per share fair market value of the underlying stock (1) | | $ | 20.00 | | | $ | 20.00 | | | $ | 18.90 | | Weighted-average exercise price | | | 7.54 | | | 20.00 | | | | 18.90 | | Expected term of the option (2) | | | 6 years | | | 6 years | | | 6 years | | Annual risk-free interest rate over the option’s expected term (3) | | | 1.8 | % | | 1.8 | % | | | 1.8 | % | Expected annual dividend yield on the underlying stock over the option’s expected term (4) | | | 0.0 | % | | 0.0 | % | | | 1.9 | % | Expected stock price volatility over the option’s expected term (5) | | | 65.0 | % | | 65.0 | % | | | 60.0 | % | Grant-date calculated value | | $ | 15.94 | | | $ | 11.48 | | | $ | 9.03 | |
(1) | Based on the estimated fair valueunderlying market price of MPG common stock on conversion orthe grant date. |
(2) | Determined based on the assumption that the employee will exercise options evenly over the period when the options are vested, ending on the date when the options would expire. |
(3) | Based on U.S. Treasury yield curves. If a security matching the expected term of the option was not available, a blended rate was derived from the yield curve of securities with similar terms. |
(4) | As noBased on our current dividend policy was established forand the underlying market price of MPG as ofcommon stock on the conversion or grant date, the dividend assumption was 0%.date. |
(5) | Based on historical volatility of comparable companies within our industry. |
Income Taxes In determining the provision for income taxes for financial statement purposes, we make estimates and judgments which affect our evaluation of the carrying value of our deferred tax assets as well as our calculation of certain tax liabilities. We evaluate the carrying value of our deferred tax assets considering all available positive and negative evidence. Such evidence includes historical operating results, the existence of cumulative losses in the most recent fiscal years, expectations for future pretax operating income, the time period over which our temporary differences will reverse and the implementation of feasible and prudent tax planning strategies. Deferred tax assets are reduced by a valuation allowance if, based on the weight of this evidence, it is more likely than not that all or a portion of the recorded deferred tax assets will not be realized in future periods. In addition, the calculation of our tax benefits and liabilities includes uncertainties in the application of complex tax regulations in a multitude of jurisdictions across our global operations. We recognize tax benefits and liabilities based on our estimate of whether, and the extent to which, additional taxes will be due. We adjust these liabilities based on changing facts and circumstances; however, due to the complexity of some of these uncertainties and the impact of any tax audits, the ultimate resolutions may be materially different from our estimated liabilities. For further information related to income taxes, See Note 17 of the notes to the consolidated financial statements contained within “Item 8. Financial Statements and Supplementary Data”.Data.” Pension Benefits We have obligations for retiree benefits for certain employees under defined benefit pension plans and a cash balance retirement plan.plans. For a description of these plans, See Note 18 of the notes to the consolidated financial statements contained within “Item 8. Financial Statements and Supplementary Data”.Data.” We use actuarial estimated and related actuarial methods to calculate our obligation and expense. We are required to select certain actuarial assumptions, which are determined based on current market conditions, historical information and consultation with and input from our actuaries and asset managers. The key factors which impact our estimates are discount rates, asset return assumptions, compensation increase assumptions and actuarial assumptions such as retirement age and mortality which are determined as of the current year measurement date. We review our actuarial assumptions on an annual basis and make modifications to the assumptions based on current rates and trends when appropriate. These estimates and assumptions are subject to a considerable degree of uncertainty. 47
For the defined benefit pension plans, the obligation as of December 31, 20142015 was determined using an assumed discount rate of 4.10% for the U.S. Plans and 3.46% for Non-U.S. plans. Pension costs for 2015 were determined using a discount rate of 3.77% for the U.S. Plans and 3.08% for Non-U.S. plans. Pension costs for 2014 were determined using a discount rate of 4.04% for the U.S. Plans and 4.26%3.22% for the Non-U.S. plans and long-term asset return assumption of 7.25% for the U.S. Plans and 6.77%6.80% for the Non-U.S. plans. The following table presents the sensitivity of the obligation and expense to a hypothetical change in the discount rate assumptions: | | | | | | | | | | | | | | | | | Change in discount rate: | | 25 Basis Point Increase | | | 25 Basis Point Decrease | | | | U.S. Plans | | | Non-U.S. Plans | | | U.S. Plans | | | Non-U.S. Plans | | | | (In millions) | | Resulting change in obligation | | $ | (1.3 | ) | | $ | (2.4 | ) | | $ | 1.4 | | | $ | 2.5 | | Resulting change in 2014 cost | | | * | | | | * | | | | * | | | | * | |
| | 25 Basis Point Increase | | | 25 Basis Point Decrease | | | | U.S. Plans | | | Non-U.S. Plans | | | U.S. Plans | | | Non-U.S. Plans | | | | (In millions) | | Resulting change in obligation | | $ | (1.1 | ) | | | (2.1 | ) | | | 1.2 | | | | 2.2 | | Resulting change in 2016 cost | | * | | | * | | | * | | | * | |
* | Increase/decrease is less than $0.1 million. |
A hypothetical 50 basis point decrease in the asset return assumption would increase the annual cost of benefits by $0.3$0.2 million. Recently Issued Accounting Pronouncements See Note 4 of the notes to the consolidated financial statements contained within “Item 8. Financial Statements and Supplementary Data.” Off-Balance Sheet Arrangements We do not have any material off-balance sheet arrangements. ITEM 7A. | QUANTITATIVE AND QUALITATIVE ANALYSIS OFDISCLOSURES ABOUT MARKET RISK |
We are exposed to fluctuations in foreign currency exchange rates, interest rates and commodity prices for products we use in our manufacturing and sellable scrap we generate from manufacturing. To reduce our exposure to these risks, we maintain risk management controls to monitor these risks and take appropriate actions to attempt to mitigate such forms of market risks. We do not hold financial instruments for trading or speculative purposes. Foreign Currency Exchange Rate Risk As a result of our global operations, we generate a significant portion of our sales and incur a substantial portion of our expenses in currencies other than the U.S. dollar. To the extent that we have significantly more costs than sales generated in a currency other than the U.S. dollar, we are subject to risk if the currency in which our costs are paid appreciates against the currency in which we generate sales because the appreciation effectively increases our cost in that country. We may selectively employ derivative instruments to reduce our foreign currency exchange risk. As of December 31, 2014,2015, we had no material derivative instruments in place. The financial condition, results of operations and cash flows of some of our operating entities are reported in currencies other than the U.S. dollar and then translated into U.S. dollars at the applicable exchange rate for inclusion in our financial statements. As a result, appreciation of the U.S. dollar against these other currencies generally will have a negative impact on our reported sales and profits while depreciation of the U.S. dollar against these other currencies will generally have a positive effect on reported sales and profits. Our primary exposure is to fluctuations in the Euro exchange rate, and we also have exposure to fluctuations in other currency exchange rates, including the Mexican Peso, Korean Won and Chinese Renminbi exchange rates.Renminbi. The following table sets forth a sensitivity analysis of the effect a hypothetical change in the Euro to U.S. dollar to Euro exchange rate would have on our net sales for the year ended December 31, 2014:2015: | Change in exchange rate: | | 10% increase in U.S. dollar to Euro exchange rate | | | 10% decrease in U.S. dollar to Euro exchange rate | | | 10% increase in Euro to U.S. dollar exchange rate | | | 10% decrease in Euro to U.S. dollar exchange rate | | | | (In millions) | | | (In millions) | | Resulting change in net sales | | $ | (27.7 | ) | | $ | 33.9 | | | $ | 27.2 | | | | (27.2 | ) |
48
The Euro Term Loan 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 Euro to U.S. dollar exchange rate would have on the carrying value of our Euro denominated debt as of December 31, 2015: Change in exchange rate: | | 10% increase in Euro to U.S. dollar exchange rate | | | 10% decrease in Euro to U.S. dollar exchange rate | | | | (In millions) | | Resulting change in carrying value of Euro denominated debt | | $ | 24.3 | | | | (24.3 | ) |
Interest Rate Risk We are subject to interest rate market risk in connection onwith our USD Term Loan, FacilityEuro Term Loan and Revolving Credit Facility (together our “Credit Facilities”). As of December 31, 2014,2015, our Credit Facilities provided for variable rate borrowings of up to $1,574.4$1,503.7 million including $234.4$237.4 million under our Revolving Credit Facilities, net of $15.6$12.6 million of letters of credit. The variable interest raterates on our Term Loan Facility isare subject to a LIBOR floor.and Euribor floors. Our Revolving Credit Facility bears interest at a variable rate based on LIBOR or a base rate plus an applicable margin. Due to the LIBOR floor,and Euribor floors, an assumed 25 basis point change in interest rates would have no impact on our annual interest expense from our USD Term Loan Facility.and Euro Term Loan. However, an assumed 25 basis point change in interest rates would change interest expense on our Revolving Credit Facility by $0.6 million if fully drawn and outstanding for the entire year. Commodity Price Risk We do not use derivative contracts to manage commodity price risk. We maintain raw material price pass-through arrangements with our customers on substantially all of our products to reduce exposure to raw material price fluctuations. In instances where the risk is not covered contractually, we have generally been able to adjust customer prices to recover commodity cost increases. The salvage value of our manufacturing by-product is also subject to fluctuations in scrap metal prices, which historically have not had a material impact on our results of operations.ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
49
ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS | | | | | | | | | Page | | REGISTRANT FINANCIAL STATEMENTS: | | | | | | | | CONSOLIDATED FINANCIAL STATEMENTS OF METALDYNE PERFORMANCE GROUP INC. | | | | | | | | Reports of Independent Registered Public Accounting Firms | | | 53 | 51 | | | | Balance Sheets as of December 31, 20142015 and December 31, 20132014 | | | 55 | 53 | | | | Statements of Operations for the Years Ended December 31, 2015, 2014, and 2013 Successor Period 2012, and Predecessor Period 2012 | | | 56 | 54 | | | | Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2015, 2014, and 2013 Successor Period 2012, and Predecessor Period 2012 | | | 57 | 55 | | | | Statements of Stockholders’ Equity (Deficit) for the Years Ended December 31, 2015, 2014, and 2013 Successor Period 2012, and Predecessor Period 2012 | | | 58 | 56 | | | �� | Statements of Cash Flows for the Years Ended December 31, 2015, 2014, and 2013 Successor Period 2012, and Predecessor Period 2012 | | | 59 | 57 | | | | Notes to the Consolidated Financial Statements | | | 60 | 58 |
50
Report of Independent Registered Public Accounting FirmREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders Metaldyne Performance Group Inc.: We have audited the accompanying consolidated balance sheets of Metaldyne Performance Group Inc. and subsidiaries as of December 31, 20142015 and 2013,2014, and the related consolidated statements of operations, comprehensive income, (loss), stockholders’ equity (deficit), and cash flows for each of the years in the three‑year period ended December 31, 2014 and 2013 and the period from October 6, 2012 through December 31, 2012.2015. In connection with our audits of the consolidated financial statements, we also have audited Schedulefinancial statement schedule II: Valuation and Qualifying Accounts (the financial statement schedule) for the years ended December 31, 2014 and 2013 and the period from October 6, 2012 to December 31, 2012.Accounts. These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits. We did not audit the financial statements and financial statement schedule of ASP HHI Holdings, Inc., a wholly owned subsidiary, which financial statements reflect total assets constituting 45% as of December 31, 2013 and net sales constituting 45% and 91%of consolidated net sales for the year ended December 31, 2013 and the period from October 6, 2012 through December 31, 2012, respectively, of the consolidated totals.2013. Those financial statements and financial statement schedule were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for ASP HHI Holdings, Inc.,Inc, is based solely on the report of the other auditors. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, based on our audits and the report of other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Metaldyne Performance Group Inc. and subsidiaries as of December 31, 20142015 and 2013,2014, and the results of their operations and their cash flows for each of the years in the three‑year period ended December 31, 2014 and 2013 and the period from October 6, 2012 through December 31, 2012,2015, in conformity with U.S. generally accepted accounting principles. Also in our opinion, based on our audits and the report of other auditors, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Metaldyne Performance Group Inc. and subsidiaries internal control over financial reporting as of December 31, 2015, based on the criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 29, 2016 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting. /s/ KPMG LLP Detroit, Michigan March 16, 2015 February 29, 201651
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Metaldyne Performance Group Inc. Plymouth,Southfield, MI
We have audited the consolidated balance sheetssheet of ASP HHI Holdings, Inc. and subsidiaries (the “Company”), a subsidiary of and predecessor to Metaldyne Performance Group Inc. (“MPG”), as of December 31, 2013 (successor) and the related consolidated statements of operations, comprehensive income (loss), stockholders’shareholders’ equity (deficit), and cash flows for the year ended December 31, 2013 (successor), the period from October 6, 2012 through December 31, 2012 (successor), and the period from January 1, 2012 through October 5, 2012 (predecessor).2013. Our auditsaudit also included the financial statement schedule listed in the Index at Item 15. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.audit. The Company’s financial statements and financial statement schedule for the successor periods are not presented separately herein, while the Company’s financial statements and financial statement schedule for the predecessor period are presented as the predecessor entity in the MPG consolidated financial statements.herein. We conducted our auditsaudit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our auditsaudit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provideaudit provides a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of ASP HHI Holdings, Inc. and subsidiaries as of December 31, 2013 (successor) and the results of their operations and their cash flows for the year ended December 31, 2013, (successor), the period from October 6, 2012 through December 31, 2012 (successor), and the period from January 1, 2012 through October 5, 2012 (predecessor), in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the Company’s basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. /s/ Deloitte & Touche LLP Detroit, MI August 22, 2014 (except for Note 24, as to which the date is March 16, 2015)
52
METALDYNE PERFORMANCE GROUP INC. CONSOLIDATED BALANCE SHEETS (In thousands except per share data) | | | December 31, | | | December 31, | | | | 2014 | | 2013 | | | 2015 | | | 2014 | | Assets | | | | | | | | | | | | | Current assets: | | | | | | | | | | | | | Cash and cash equivalents | | $ | 156,498 | | | 68,224 | | | $ | 168,156 | | | | 156,498 | | Receivables, net: | | | | | | | | | | | | | Trade | | | 312,943 | | | 222,304 | | | | 309,079 | | | | 312,943 | | Other | | | 31,943 | | | 26,605 | | | | 35,351 | | | | 31,943 | | | | | | | | | | Total receivables, net | | | 344,886 | | | | 248,909 | | | | 344,430 | | | | 344,886 | | Inventories | | | 204,789 | | | | 154,800 | | | | 186,848 | | | | 204,789 | | Deferred income taxes | | | 12,435 | | | | 10,378 | | | | — | | | | 12,435 | | Prepaid expenses | | | 13,004 | | | | 10,750 | | | | 15,034 | | | | 13,004 | | Other assets | | | 14,524 | | | | 16,121 | | | | 21,487 | | | | 14,524 | | | | | | | | | | Total current assets | | | 746,136 | | | | 509,182 | | | | 735,955 | | | | 746,136 | | Property and equipment, net | | | 750,181 | | | | 539,504 | | | | 785,953 | | | | 750,181 | | Goodwill | | | 907,716 | | | | 657,991 | | | | 907,716 | | | | 907,716 | | Amortizable intangible assets, net | | | 778,457 | | | | 463,956 | | | | 708,910 | | | | 778,457 | | Deferred income taxes, noncurrent | | | 1,359 | | | | 2,785 | | | | 1,701 | | | | 1,359 | | Other assets | | | 40,763 | | | | 43,398 | | | | 36,950 | | | | 40,763 | | | | | | | | | | Total assets | | $ | 3,224,612 | | | | 2,216,816 | | | $ | 3,177,185 | | | | 3,224,612 | | | | | | | | | | Liabilities and Stockholders’ Equity | | | | | | | | | | | | | Current liabilities: | | | | | | | | | | Accounts payable | | $ | 285,468 | | | | 180,581 | | | $ | 248,862 | | | | 285,468 | | Accrued compensation | | | 50,952 | | | | 40,079 | | | | 55,130 | | | | 50,952 | | Accrued liabilities | | | 79,934 | | | | 54,911 | | | | 66,802 | | | | 79,934 | | Deferred income taxes | | | — | | | | 16,959 | | | Short-term debt | | | 1,572 | | | | 20,378 | | | | 723 | | | | 1,572 | | Current maturities, long-term debt and capital lease obligations | | | 16,497 | | | | 24,143 | | | | 14,470 | | | | 16,497 | | | | | | | | | | Total current liabilities | | | 434,423 | | | | 337,051 | | | | 385,987 | | | | 434,423 | | Long-term debt, less current maturities | | | 1,920,310 | | | | 1,209,588 | | | | 1,846,746 | | | | 1,920,310 | | Capital lease obligations, less current maturities | | | 23,425 | | | | 25,937 | | | | 22,489 | | | | 23,425 | | Deferred income taxes | | | 260,703 | | | | 287,960 | | | | 231,326 | | | | 260,703 | | Other long-term liabilities | | | 60,789 | | | | 31,100 | | | | 51,602 | | | | 60,789 | | | | | | | | | | Total liabilities | | | 2,699,650 | | | | 1,891,636 | | | | 2,538,150 | | | | 2,699,650 | | | | | | | | | | Stockholders’ equity: | | | | | | | | | | Common Stock: par $0.001, 400,000 authorized, 67,075 issued and outstanding | | | 67 | | | | 67 | | | Common Stock: par $0.001, 400,000 authorized, and 67,866 and 67,075 issued and outstanding, respectively | | | | 68 | | | | 67 | | Paid-in capital | | | 827,307 | | | | 557,548 | | | | 856,239 | | | | 827,307 | | Deficit | | | (269,663 | ) | | | (231,231 | ) | | | (162,876 | ) | | | (269,663 | ) | Accumulated other comprehensive loss | | | (35,248 | ) | | | (3,299 | ) | | | (57,293 | ) | | | (35,248 | ) | | | | | | | | | Total equity attributable to stockholders | | | 522,463 | | | | 323,085 | | | | 636,138 | | | | 522,463 | | Noncontrolling interest | | | 2,499 | | | | 2,095 | | | | 2,897 | | | | 2,499 | | | | | | | | | | Total stockholders’ equity | | | 524,962 | | | | 325,180 | | | | 639,035 | | | | 524,962 | | | | | | | | | | Total liabilities and stockholders’ equity | | $ | 3,224,612 | | | | 2,216,816 | | | $ | 3,177,185 | | | | 3,224,612 | | | | | | | | | |
See accompanying notes to consolidated financial statements.
53
METALDYNE PERFORMANCE GROUP INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands except per share amounts) | | | Successor | | | | Predecessor | | | | | Year Ended December 31, 2014 | | Year Ended December 31, 2013 | | | Successor Period 2012 | | | | Predecessor Period 2012 | | | Year Ended December 31, 2015 | | | Year Ended December 31, 2014 | | | Year Ended December 31, 2013 | | Net sales | | $ | 2,717,001 | | | 2,017,281 | | | | 205,313 | | | | | $ | 680,514 | | | $ | 3,047,255 | | | | 2,717,001 | | | | 2,017,281 | | Cost of sales | | | 2,294,108 | | | 1,708,673 | | | | 199,514 | | | | | | 558,992 | | | | 2,531,245 | | | | 2,294,108 | | | | 1,708,673 | | | | | | | | | | | | | | | | | | Gross profit | | | 422,893 | | | | 308,608 | | | | 5,799 | | | | | | 121,522 | | | | 516,010 | | | | 422,893 | | | | 308,608 | | Selling, general and administrative expenses | | | 194,590 | | | | 123,239 | | | | 14,354 | | | | | | 116,645 | | | | 249,696 | | | | 194,590 | | | | 123,239 | | Acquisition costs | | | 13,046 | | | | — | | | | 25,921 | | | | | | 13,421 | | | | — | | | | 13,046 | | | | — | | Goodwill impairment | | | 11,803 | | | | — | | | | — | | | | | | — | | | | — | | | | 11,803 | | | | — | | | | | | | | | | | | | | | | | | Operating profit (loss) | | | 203,454 | | | | 185,369 | | | | (34,476 | ) | | | | | (8,544 | ) | | Operating profit | | | | 266,314 | | | | 203,454 | | | | 185,369 | | Interest expense, net | | | 99,894 | | | | 74,667 | | | | 11,148 | | | | | | 25,766 | | | | 107,487 | | | | 99,894 | | | | 74,667 | | Loss on debt extinguishment | | | 60,713 | | | | — | | | | — | | | | | | — | | | | 368 | | | | 60,713 | | | | — | | Other, net | | | (11,332 | ) | | | 17,872 | | | | 1,510 | | | | | | 2,455 | | | | (15,352 | ) | | | (11,332 | ) | | | 17,872 | | | | | | | | | | | | | | | | | | Other expense, net | | | 149,275 | | | | 92,539 | | | | 12,658 | | | | | | 28,221 | | | | 92,503 | | | | 149,275 | | | | 92,539 | | | | | | | | | | | | | | | | | | Income (loss) before tax | | | 54,179 | | | | 92,830 | | | | (47,134 | ) | | | | | (36,765 | ) | | Income before tax | | | | 173,811 | | | | 54,179 | | | | 92,830 | | Income tax expense (benefit) | | | (19,082 | ) | | | 34,969 | | | | (15,247 | ) | | | | | (11,123 | ) | | | 48,064 | | | | (19,082 | ) | | | 34,969 | | | | | | | | | | | | | | | | | | Net income (loss) | | | 73,261 | | | | 57,861 | | | | (31,887 | ) | | | | | (25,642 | ) | | Net income | | | | 125,747 | | | | 73,261 | | | | 57,861 | | Income attributable to noncontrolling interest | | | 434 | | | | 293 | | | | 45 | | | | | | 136 | | | | 443 | | | | 434 | | | | 293 | | | | | | | | | | | | | | | | | | Net income (loss) attributable to stockholders | | $ | 72,827 | | | | 57,568 | | | | (31,932 | ) | | | | $ | (25,778 | ) | | | | | | | | | | | | | | | | | | Net income attributable to stockholders | | | $ | 125,304 | | | | 72,827 | | | | 57,568 | | Weighted average shares outstanding | | | 67,075 | | | | 67,075 | | | | 67,075 | | | | | | 17,694 | | | | 67,284 | | | | 67,075 | | | | 67,075 | | | | | | | Net income (loss) per share attributable to stockholders | | | | | Net income per share attributable to stockholders | | | | | | | | | | | | | | Basic | | $ | 1.09 | | | | 0.86 | | | | (0.48 | ) | | | | $ | (1.46 | ) | | $ | 1.86 | | | | 1.09 | | | | 0.86 | | Diluted | | | 1.06 | | | | 0.86 | | | | (0.48 | ) | | | | | (1.46 | ) | | | 1.80 | | | | 1.06 | | | | 0.86 | |
See accompanying notes to consolidated financial statements.
54
METALDYNE PERFORMANCE GROUP INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (In thousands) | | | | | | | | | | | | | | | | | | | | | Successor | | | | | Predecessor | | | | Year Ended December 31, 2014 | | | Year Ended December 31, 2013 | | | Successor Period 2012 | | | | | Predecessor Period 2012 | | Net income (loss) | | $ | 73,261 | | | | 57,861 | | | | (31,887 | ) | | | | $ | (25,642 | ) | Other comprehensive income (loss), net of tax: | | | | | | | | | | | | | | | | | | | Foreign currency translation | | | (23,984 | ) | | | (3,481 | ) | | | (397 | ) | | | | | 296 | | Net actuarial gain (loss) on defined benefit plans (net of tax of $1,624, $(101), $(4), and $—, respectively) | | | (7,995 | ) | | | 462 | | | | 6 | | | | | | — | | | | | | | | | | | | | | | | | | | | | Other comprehensive income (loss), net of tax | | | (31,979 | ) | | | (3,019 | ) | | | (391 | ) | | | | | 296 | | | | | | | | | | | | | | | | | | | | | Comprehensive income (loss) | | | 41,282 | | | | 54,842 | | | | (32,278 | ) | | | | | (25,346 | ) | Less comprehensive income attributable to noncontrolling interest | | | 404 | | | | 191 | | | | 36 | | | | | | 139 | | | | | | | | | | | | | | | | | | | | | Comprehensive income (loss) attributable to stockholders | | $ | 40,878 | | | | 54,651 | | | | (32,314 | ) | | | | $ | (25,485 | ) | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2015 | | | Year Ended December 31, 2014 | | | Year Ended December 31, 2013 | | Net income | | $ | 125,747 | | | | 73,261 | | | | 57,861 | | Other comprehensive loss, net of tax: | | | | | | | | | | | | | Foreign currency translation | | | (24,303 | ) | | | (23,984 | ) | | | (3,481 | ) | Net actuarial gain (loss) on defined benefit plans (net of tax of $(549), $1,624, and $(101), respectively) | | | 1,781 | | | | (7,995 | ) | | | 462 | | Losses on defined benefit plans recognized in net income | | | 432 | | | | — | | | | — | | Other comprehensive loss, net of tax | | | (22,090 | ) | | | (31,979 | ) | | | (3,019 | ) | Comprehensive income | | | 103,657 | | | | 41,282 | | | | 54,842 | | Less comprehensive income attributable to noncontrolling interest | | | 398 | | | | 404 | | | | 191 | | Comprehensive income attributable to stockholders | | $ | 103,259 | | | | 40,878 | | | | 54,651 | |
See accompanying notes to consolidated financial statements.
55
METALDYNE PERFORMANCE GROUP INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) (In thousands) | | | | | | | | | | | | | | | | | | | | | | | Membership Interests | | | Deficit | | | Accumulated other comprehensive income (loss) | | | Noncontrolling interest | | | Total stockholders’ equity (deficit) | | Predecessor | | | | | | | | | | | | | | | | | | | | | Predecessor balance, December 31, 2011 | | $ | 94,553 | | | | (185,599 | ) | | | (1,285 | ) | | | 597 | | | | (91,734 | ) | Purchase of treasury stock | | | | | | | | | | | | | | | | | | | — | | Stock-based compensation expense reversal | | | (2,561 | ) | | | | | | | | | | | | | | | (2,561 | ) | Dividends, net of $1,323 of tax benefits on restricted stock units | | | | | | | (68,677 | ) | | | | | | | | | | | (68,677 | ) | Net income (loss) | | | | | | | (25,778 | ) | | | | | | | 136 | | | | (25,642 | ) | Other comprehensive income | | | | | | | | | | | 293 | | | | 3 | | | | 296 | | | | | | | | | | | | | | | | | | | | | | | Balance, October 5, 2012 | | $ | 91,992 | | | | (280,054 | ) | | | (992 | ) | | | 736 | | | | (188,318 | ) | | | | | | | | | | | | | | | | | | | | | |
| | Common stock | | | Paid-in capital | | | Deficit | | | Accumulated other comprehensive loss | | | Noncontrolling interest | | | Total stockholders’ equity (deficit) | | Balance, December 31, 2012 | | $ | 67 | | | | 550,846 | | | | (31,932 | ) | | | (382 | ) | | | 1,904 | | | | 520,503 | | Dividends | | | | | | | | | | | (256,867 | ) | | | | | | | | | | | (256,867 | ) | Other | | | | | | | 527 | | | | | | | | | | | | | | | | 527 | | Stock-based compensation expense | | | | | | | 6,175 | | | | | | | | | | | | | | | | 6,175 | | Net income | | | | | | | | | | | 57,568 | | | | | | | | 293 | | | | 57,861 | | Other comprehensive loss | | | | | | | | | | | | | | | (2,917 | ) | | | (102 | ) | | | (3,019 | ) | Balance, December 31, 2013 | | | 67 | | | | 557,548 | | | | (231,231 | ) | | | (3,299 | ) | | | 2,095 | | | | 325,180 | | Recognition of the Grede Transaction | | | | | | | 258,553 | | | | | | | | | | | | | | | | 258,553 | | Pre-combination issuance of additional Grede membership interests | | | | | | | 1,920 | | | | | | | | | | | | | | | | 1,920 | | Dividends | | | | | | | | | | | (111,259 | ) | | | | | | | | | | | (111,259 | ) | Other | | | | | | | (2,450 | ) | | | | | | | | | | | | | | | (2,450 | ) | Stock-based compensation expense | | | | | | | 17,319 | | | | | | | | | | | | | | | | 17,319 | | Offering related costs | | | | | | | (5,583 | ) | | | | | | | | | | | | | | | (5,583 | ) | Net income | | | | | | | | | | | 72,827 | | | | | | | | 434 | | | | 73,261 | | Other comprehensive loss | | | | | | | | | | | | | | | (31,949 | ) | | | (30 | ) | | | (31,979 | ) | Balance, December 31, 2014 | | | 67 | | | | 827,307 | | | | (269,663 | ) | | | (35,248 | ) | | | 2,499 | | | | 524,962 | | Dividends | | | | | | | | | | | (18,517 | ) | | | | | | | | | | | (18,517 | ) | Stock-based compensation expense | | | | | | | 27,664 | | | | | | | | | | | | | | | | 27,664 | | Cash settlement of equity awards | | | | | | | (3,558 | ) | | | | | | | | | | | | | | | (3,558 | ) | Issuance of common stock | | | 1 | | | | 3,024 | | | | | | | | | | | | | | | | 3,025 | | Excess tax benefit on stock-based compensation | | | | | | | 1,930 | | | | | | | | | | | | | | | | 1,930 | | Other stock activity | | | | | | | (20 | ) | | | | | | | | | | | | | | | (20 | ) | Offering related costs | | | | | | | (108 | ) | | | | | | | | | | | | | | | (108 | ) | Net income | | | | | | | | | | | 125,304 | | | | | | | | 443 | | | | 125,747 | | Other comprehensive loss | | | | | | | | | | | | | | | (22,045 | ) | | | (45 | ) | | | (22,090 | ) | Balance, December 31, 2015 | | $ | 68 | | | | 856,239 | | | | (162,876 | ) | | | (57,293 | ) | | | 2,897 | | | | 639,035 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | Common stock | | | Paid-in capital | | | Deficit | | | Accumulated other comprehensive loss | | | Noncontrolling interest | | | Total stockholders’ equity (deficit) | | Successor | | | | | | | | | | | | | | | | | | | | | | | | | Balance, October 6, 2012 | | $ | — | | | | — | | | | — | | | | — | | | | — | | | | — | | Retrospective recognition of the Combination and stock split | | | 67 | | | | | | | | | | | | | | | | | | | | 67 | | Other | | | | | | | 625 | | | | | | | | | | | | | | | | 625 | | Recognition of the HHI Transaction | | | | | | | 254,734 | | | | | | | | | | | | 956 | | | | 255,690 | | Recognition of the Metaldyne Transaction | | | | | | | 295,387 | | | | | | | | | | | | 912 | | | | 296,299 | | Stock-based compensation expense | | | | | | | 100 | | | | | | | | | | | | | | | | 100 | | Net income (loss) | | | | | | | | | | | (31,932 | ) | | | | | | | 45 | | | | (31,887 | ) | Other comprehensive loss | | | | | | | | | | | | | | | (382 | ) | | | (9 | ) | | | (391 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Balance, December 31, 2012 | | | 67 | | | | 550,846 | | | | (31,932 | ) | | | (382 | ) | | | 1,904 | | | | 520,503 | | Dividends | | | | | | | | | | | (256,867 | ) | | | | | | | | | | | (256,867 | ) | Other | | | | | | | 527 | | | | | | | | | | | | | | | | 527 | | Stock-based compensation expense | | | | | | | 6,175 | | | | | | | | | | | | | | | | 6,175 | | Net income | | | | | | | | | | | 57,568 | | | | | | | | 293 | | | | 57,861 | | Other comprehensive loss | | | | | | | | | | | | | | | (2,917 | ) | | | (102 | ) | | | (3,019 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Balance, December 31, 2013 | | | 67 | | | | 557,548 | | | | (231,231 | ) | | | (3,299 | ) | | | 2,095 | | | | 325,180 | | Recognition of the Grede Transaction | | | | | | | 258,553 | | | | | | | | | | | | | | | | 258,553 | | Pre-combination issuance of additional Grede membership interests | | | | | | | 1,920 | | | | | | | | | | | | | | | | 1,920 | | Dividends | | | | | | | | | | | (111,259 | ) | | | | | | | | | | | (111,259 | ) | Other | | | | | | | (2,450 | ) | | | | | | | | | | | | | | | (2,450 | ) | Stock-based compensation expense | | | | | | | 17,319 | | | | | | | | | | | | | | | | 17,319 | | Offering related costs | | | | | | | (5,583 | ) | | | | | | | | | | | | | | | (5,583 | ) | Net income | | | | | | | | | | | 72,827 | | | | | | | | 434 | | | | 73,261 | | Other comprehensive loss | | | | | | | | | | | | | | | (31,949 | ) | | | (30 | ) | | | (31,979 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Balance, December 31, 2014 | | $ | 67 | | | | 827,307 | | | | (269,663 | ) | | | (35,248 | ) | | | 2,499 | | | | 524,962 | | | | | | | | | | | | | | | | | | | | | | | | | | |
See accompanying notes to consolidated financial statements.
56
METALDYNE PERFORMANCE GROUP INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) | | | Year Ended December 31, 2014 | | Year Ended December 31, 2013 | | Successor Period 2012 | | | | Predecessor Period 2012 | | | Year Ended December 31, 2015 | | | Year Ended December 31, 2014 | | | Year Ended December 31, 2013 | | Cash flows from operating activities: | | | | | | | | | | | | | | | | | | | | | | | Net income (loss) | | $ | 73,261 | | | 57,861 | | | (31,887 | ) | | | | $ | (25,642 | ) | | Adjustments to reconcile net income (loss) to cash provided by (used for) operating activities: | | | | | | | | | | | | Net income | | | $ | 125,747 | | | | 73,261 | | | | 57,861 | | Adjustments to reconcile net income to cash provided by operating activities: | | | | | | | | | | | | | | Depreciation and amortization | | | 210,807 | | | 163,382 | | | 18,692 | | | | | | 20,001 | | | | 229,772 | | | | 210,807 | | | | 163,382 | | Debt fee amortization | | | 6,341 | | | 7,628 | | | 944 | | | | | | 2,677 | | | | 3,246 | | | | 6,341 | | | | 7,628 | | Loss on debt extinguishment | | | 60,713 | | | | — | | | | — | | | | | | — | | | | 368 | | | | 60,713 | | | | — | | Goodwill impairment | | | 11,803 | | | | — | | | | — | | | | | | — | | | | — | | | | 11,803 | | | | — | | (Gain) loss on fixed asset dispositions | | | 2,125 | | | 1,419 | | | | — | | | | | | (1,052 | ) | | Loss on fixed asset dispositions | | | | 2,863 | | | | 2,125 | | | | 1,419 | | Deferred income taxes | | | (88,431 | ) | | (9,216 | ) | | (17,364 | ) | | | | | 5,130 | | | | (14,750 | ) | | | (88,431 | ) | | | (9,216 | ) | Recognition of deferred gain | | | — | | | | — | | | | — | | | | | | (729 | ) | | Recognition of deferred revenue | | | (950 | ) | | (1,343 | ) | | (573 | ) | | | | | (1,644 | ) | | | (781 | ) | | | (950 | ) | | | (1,343 | ) | Noncash interest expense | | | 928 | | | 966 | | | 25 | | | | | | — | | | | 1,065 | | | | 928 | | | | 966 | | Write-down of purchase price receivable | | | — | | | 10,121 | | | | — | | | | | | — | | | | — | | | | — | | | | 10,121 | | Stock-based compensation expense | | | 17,319 | | | 6,175 | | | 100 | | | | | | — | | | | 27,664 | | | | 17,319 | | | | 6,175 | | Foreign currency adjustment | | | (12,743 | ) | | 2,204 | | | 1,793 | | | | | | — | | | | (11,177 | ) | | | (12,743 | ) | | | 2,204 | | Other | | | 3,837 | | | 3,706 | | | 56 | | | | | | 2,687 | | | | 6,156 | | | | 3,837 | | | | 3,706 | | Changes in assets and liabilities: | | | | | | | | | | | | | | | | | | | | | | | Receivables, net | | | 20,236 | | | (14,631 | ) | | 19,696 | | | | | | (8,858 | ) | | | (5,808 | ) | | | 20,236 | | | | (14,631 | ) | Inventories | | | (15,571 | ) | | (1,962 | ) | | 12,109 | | | | | | (1,139 | ) | | | 11,997 | | | | (15,571 | ) | | | (1,962 | ) | Prepaid expenses and other assets | | | (1,001 | ) | | 28,550 | | | 6,202 | | | | | | (31,756 | ) | | | (10,338 | ) | | | (1,001 | ) | | | 28,550 | | Accounts payable, accrued liabilities and accrued compensation | | | 22,602 | | | (14,988 | ) | | (10,797 | ) | | | | | 106,010 | | | | (28,452 | ) | | | 22,602 | | | | (14,988 | ) | Long-term assets and liabilities, other | | | (5,855 | ) | | (5,614 | ) | | (807 | ) | | | | | (982 | ) | | | (7,775 | ) | | | (5,855 | ) | | | (5,614 | ) | | | | | | | | | | | | | | | | | Net cash provided by (used for) operating activities | | | 305,421 | | | | 234,258 | | | | (1,811 | ) | | | | | 64,703 | | | | | | | | | | | | | | | | | | | Net cash provided by operating activities | | | | 329,797 | | | | 305,421 | | | | 234,258 | | Cash flows from investing activities: | | | | | | | | | | | | | | | | Capital expenditures | | | (156,390 | ) | | | (122,256 | ) | | | (10,430 | ) | | | | | (32,592 | ) | | | (226,313 | ) | | | (156,390 | ) | | | (122,256 | ) | Proceeds from sale of fixed assets | | | 1,420 | | | | 1,068 | | | | — | | | | | | 1,513 | | | | 4,047 | | | | 1,420 | | | | 1,068 | | Capitalized patent costs | | | (243 | ) | | | (352 | ) | | | (114 | ) | | | | | (222 | ) | | | (394 | ) | | | (243 | ) | | | (352 | ) | Grede Transaction, net of cash acquired | | | (829,656 | ) | | | — | | | | — | | | | | | — | | | | — | | | | (829,656 | ) | | | — | | HHI Transaction, net of cash acquired | | | — | | | | — | | | | (722,248 | ) | | | | | — | | | Metaldyne Transaction, net of cash acquired | | | — | | | | — | | | | (782,165 | ) | | | | | — | | | Release of escrow from the Metaldyne Transaction | | | — | | | | 4,807 | | | | — | | | | | | — | | | | | | | | | | | | | | | | | | | Release of escrow from the acquisition of Metaldyne | | | | — | | | | — | | | | 4,807 | | Net cash used for investing activities | | | (984,869 | ) | | | (116,733 | ) | | | (1,514,957 | ) | | | | | (31,301 | ) | | | (222,660 | ) | | | (984,869 | ) | | | (116,733 | ) | Cash flows from financing activities: | | | | | | | | | | �� | | | | | | Cash dividends | | | (111,259 | ) | | | (256,867 | ) | | | — | | | | | | (70,000 | ) | | | (18,238 | ) | | | (111,259 | ) | | | (256,867 | ) | Other stock activity | | | (2,444 | ) | | | 579 | | | | — | | | | | | — | | | | — | | | | (2,444 | ) | | | 579 | | Proceeds from stock issuance | | | 260,474 | | | | — | | | | 545,993 | | | | | | — | | | | 3,025 | | | | 260,474 | | | | — | | Excess tax benefit on stock-based compensation | | | | 1,930 | | | | — | | | | — | | Cash settlement of equity awards | | | | (3,558 | ) | | | — | | | | — | | Borrowings of short-term debt | | | 388,773 | | | | 545,621 | | | | 6,000 | | | | | | 38,900 | | | | 14,300 | | | | 388,773 | | | | 545,621 | | Repayments of short-term debt | | | (407,357 | ) | | | (533,182 | ) | | | — | | | | | | (38,903 | ) | | | (14,568 | ) | | | (407,357 | ) | | | (533,182 | ) | Proceeds of long-term debt | | | 2,658,250 | | | | 240,000 | | | | 1,040,252 | | | | | | 49,875 | | | | 1,326,625 | | | | 2,658,250 | | | | 240,000 | | Principal payments of long-term debt | | | (1,952,041 | ) | | | (59,904 | ) | | | — | | | | | | (2,814 | ) | | | (1,391,775 | ) | | | (1,952,041 | ) | | | (59,904 | ) | Payment of debt issue costs | | | (45,427 | ) | | | (14,956 | ) | | | (34,851 | ) | | | | | (2,455 | ) | | | (149 | ) | | | (45,427 | ) | | | (14,956 | ) | Proceeds of other debt | | | 998 | | | | 1,390 | | | | — | | | | | | — | | | | 1,399 | | | | 998 | | | | 1,390 | | Principal payments of other debt | | | (7,703 | ) | | | (3,756 | ) | | | (250 | ) | | | | | (1,947 | ) | | | (4,913 | ) | | | (7,703 | ) | | | (3,756 | ) | Payment of offering related costs | | | (5,583 | ) | | | — | | | | — | | | | | | — | | | | (108 | ) | | | (5,583 | ) | | | — | | Payment of contingent consideration for the Metaldyne Transaction | | | — | | | | (10,000 | ) | | | — | | | | | | — | | | | | | | | | | | | | | | | | | | Payment of contingent consideration for the acquisition of Metaldyne | | | | — | | | | — | | | | (10,000 | ) | Net cash provided by (used for) financing activities | | | 776,681 | | | | (91,075 | ) | | | 1,557,144 | | | | | | (27,344 | ) | | | (86,030 | ) | | | 776,681 | | | | (91,075 | ) | Effect of exchange rates on cash | | | (8,959 | ) | | | 1,443 | | | | (45 | ) | | | | | 344 | | | | | | | | | | | | | | | | | | | Effect of exchange rates | | | | (9,449 | ) | | | (8,959 | ) | | | 1,443 | | Net increase in cash and cash equivalents | | $ | 88,274 | | | | 27,893 | | | | 40,331 | | | | | $ | 6,402 | | | $ | 11,658 | | | | 88,274 | | | | 27,893 | | | | | | | | | | | | | | | | | | Cash and cash equivalents: | | | | | | | | | | | | | | | | Cash and cash equivalents, beginning of period | | $ | 68,224 | | | | 40,331 | | | | — | | | | | $ | 4,203 | | | Cash and cash equivalents, beginning of year | | | $ | 156,498 | | | | 68,224 | | | | 40,331 | | Net increase in cash and cash equivalents | | | 88,274 | | | | 27,893 | | | | 40,331 | | | | | | 6,402 | | | | 11,658 | | | | 88,274 | | | | 27,893 | | | | | | | | | | | | | | | | | | Cash and cash equivalents, end of period | | $ | 156,498 | | | | 68,224 | | | | 40,331 | | | | | $ | 10,605 | | | | | | | | | | | | | | | | | | | Cash and cash equivalents, end of year | | | $ | 168,156 | | | | 156,498 | | | | 68,224 | | Supplementary cash flow information: | | | | | | | | | | | | | | | | Cash paid for income taxes, net | | $ | 63,921 | | | | 46,889 | | | | 324 | | | | | $ | 15,549 | | | $ | 67,641 | | | | 63,921 | | | | 46,889 | | Cash paid for interest | | | 74,624 | | | | 77,881 | | | | 5,217 | | | | | | 22,004 | | | | 102,564 | | | | 74,624 | | | | 77,881 | | Noncash transactions: | | | | | | | | | | | | | | | | Capital expenditures in accounts payables | | | 36,192 | | | | 15,378 | | | | 18,213 | | | | | | 2,410 | | | | 29,528 | | | | 36,192 | | | | 15,378 | | Dividends on restricted stock awards, not yet paid | | | | 296 | | | | — | | | | — | |
See accompanying notes to consolidated financial statements. 57
METALDYNE PERFORMANCE GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) Description of the Business Metaldyne Performance Group Inc. is a leading provider of components for use in engine, transmission and driveline (“Powertrain”) and chassis, suspension, steering and brake component (“Safety-Critical”) Platforms for the global light, commercial and industrial vehicle markets. We produce these components using complex metal-forming manufacturing technologies and processes for a global customer base of vehicle original equipment manufacturers (“OEMs”) and tier I suppliers (“Tier I suppliers”). Our components help OEMs meet fuel economy, performance and safety standards. Our metal-forming manufacturing technologies and processes include aluminum casting (“Aluminum Die Casting”), cold, warm or hot forging (“Forging”), iron casting (“Iron Casting”), and powder metal forming (“Powder Metal Forming”), as well as value-added precision machining and assembly (“Advanced 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 transfer, strength and Noise, Vibration and Harshness (“NVH”). Metaldyne Performance Group Inc. is organized and operated as three operating segments: the HHI segment, the Metaldyne segment and the Grede segment. (2) Basis of Presentation and Consolidation Basis of Presentation Metaldyne Performance Group Inc. was formed through the reorganization 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 Metaldyne Performance Group Inc. (“MPG,” the “Company,” “we,” “our” and “us” and similar terms refer to Metaldyne Performance Group Inc. and all of its subsidiaries, including HHI, Metaldyne and Grede). 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 authorized shares was increased to 400.0 million. These financial statements present HHI, as the predecessor to MPG. HHI Group Holdings, Inc. (the “Predecessor Company”) was acquired by an affiliate of American Securities LLC (together with its affiliates, “American Securities”) on October 5, 2012. Metaldyne was acquired by a subsidiary of American Securities on December 18, 2012. Grede was acquired by American Securities on June 2, 2014.
The period from January 1, 2012 to October 5, 2012 is referred to as the Predecessor Period and the period from October 6, 2012 to December 31, 2014 as the Successor Period. The period from October 6, 2012 to December 31, 2012 is referred to as Successor Period 2012 and the period from January 1, 2012 to October 5, 2012 is referred to as Predecessor Period 2012.
Consolidation The Combination has been 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 the Stock Split for all successor periods. These financial statements reflect the accounts of HHI for all periods Metaldyne from December 18, 2012 forward and Grede from June 2, 2014 forward.presented. All significant intercompany balances and transactions have been eliminated in consolidation. (3) Significant Accounting Policies The financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“U.S. GAAP”) as defined by the Financial Accounting Standards Board (“FASB”) within the FASB Accounting Standards Codification. Use of Estimates The preparation of financial statements in conformity with U.S. 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. Revenue Recognition Revenue is recognized when there is evidence of a sale, delivery has occurred or services have been rendered, the sales price is fixed or determinable and the collectability of receivables is reasonably assured. The Company has ongoing adjustments to its pricing arrangements with customers based on the related content and cost of its products. These adjustments are accrued as products are shipped to customers. Such pricing accruals are adjusted periodically and as they are settled with the customers. The Company has agreements allowing the pass-through of changes in the prices of raw materials referred to as material surcharges. Material surcharges 58
are recognized as revenue when an agreement is reached, delivery of the goods has occurred and the amount of the material surcharge is determinable. Cash and Cash Equivalents All highly liquid investments with an initial maturity of three months or less are considered to be cash and cash equivalents. A cash pooling strategy is in place with certain foreign operations. Checks issued but not presented to banks may result in book overdraft balances for accounting purposes and such book overdrafts are classified withinaccounts payableand the change as a component of operating cash flows. Receivables Accounts receivable are stated at amounts estimated by management to be the net realizable value. An allowance for doubtful accounts is recorded when it is probable that amounts will not be collected based on specific identification of customer circumstances, age of the receivable and other pertinent information. Account balances are charged against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. Valuation allowances for doubtful accounts, pricing accruals and anticipated customer deductions and returns are recorded based upon current information. Agreements are in place with international factoring companies to sell customer accounts receivable from locations in France, Germany, the Czech Republic, and the United Kingdom (“U.K.”) on a nonrecourse basis. The Company collects payment and remits such collections to the factoring companies for a portion of the sold receivables. The Company has no continuing involvement with all other sold receivables. A commission is paid to the factoring company plus interest calculated from the date the receivables are sold to either the customer’s due date or a specified number of days thereafter or until the receivable is deemed uncollectible. Inventories Inventories are stated at the lower of cost or market value. Cost is determined using the first-in, first-out method for over 90% of our inventories. Costand includes the cost of materials, direct labor and the applicable share of manufacturing overhead. To the extent management determines it is holding excess or obsolete inventory, the inventory is written down to its net realizable value. Pre-production Costs on Long-term Supply Arrangements Pre-production engineering, research and development costs related to products made for customers under long-term supply agreements are expensed as incurred. Pre-production tooling costs related to products made for customers under long-term supply agreements are expensed when reimbursement is not contractually guaranteed by the customer or where the customer has not provided a noncancelable right to use the tooling. Long-lived assets Long-lived assets other than goodwill are evaluated for impairment if adverse events or changes in circumstances indicate it is more likely than not that the assets are impaired. For each asset group affected by such impairment indicators, the recoverability of the carrying value of that asset group is determined by comparing the forecasted undiscounted cash flows related to that asset group to the asset group’s carrying value. Property and equipment, net: Property and equipment additions, including significant improvements, are recorded at cost, less accumulated depreciation. Upon retirement or disposal of property and equipment, the cost and accumulated depreciation are removed from the accounts and any gain or loss is included in cost of sales. Repair and maintenance costs are charged to expense as incurred. Depreciation is provided for using the straight-line method over the estimated useful lives of the related assets. Assets held under capital lease are included inproperty and equipment, net and the depreciation of these assets is included in accumulated depreciation. Capital lease assets are depreciated over the lesser of the lease term or their useful lives. Amortizable intangible assets, net: The useful lives of intangible assets are determined based on consideration of multiple factors including the Company’s expected use of the assets, the expected useful life of related assets and other external factors that may limit the useful life. Amortization is provided for using the straight-line method over the estimated useful lives for intangible assets with definite useful lives.
59
Goodwill Impairment Testing Goodwill is evaluated for impairment annually or more often if a triggering event occurs between annual tests. The annual tests are performed in the fourth quarter. For each reporting unit to which goodwill has been assigned, the evaluation for impairment entails a quantitative analysis of the fair value of the reporting unit compared to the carrying value of the reporting unit. The Company may opt to perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount prior to performing the quantitative assessment. Foreign Currency Translation The financial statements of foreign subsidiaries are translated to U.S. dollars at end-of-period exchange rates for assets and liabilities and an average monthly exchange rate for revenues and expenses. Translation adjustments are recorded as a component ofaccumulated other comprehensive income (loss) within equity. Transaction gains and losses arising from fluctuations in foreign currency exchange rates on transactions denominated in currencies other than a subsidiary’s functional currency are recognized inother expense, net. Stock-based Compensation Stock-based compensation is measured based on the grant-date calculated value or grant-date fair value of the award, and is recognized as expense over the requisite service period. The determination of calculated value differs from fair value in that the volatility assumption used in determining the value of the awards is based on the volatility of comparable companies rather than a volatility assumption for the issuing entity. Calculated value is used to measure compensation cost when specific entity level volatility information is insufficient or unavailable. To measure compensation cost of stock options, we determined calculated value using a Black-Scholes or binomial option pricing model. To measure compensation cost of restricted stock awards, we use the market value of the Company’s common stock as of the grant date. Employee Benefit Plans Annual net periodic benefit expense and benefit liabilities under defined benefit pension plans and statutory retirement benefits are determined on an actuarial basis. Assumptions used in the actuarial calculations have a significant impact on plan obligations and expense. Pensions and other postretirement employee benefit costs and related liabilities and assets are dependent upon assumptions used in calculating such amounts. These assumptions include discount rates, expected returns on plan assets, health care cost trends, compensation and other factors. Each year end, actual experience is compared to the more significant assumptions used and the assumptions are adjusted, if warranted. Discount rates are based upon an expected benefit payments duration analysis and the equivalent average yield rate for high quality fixed income investments. Certain pension benefits are funded through investment held with trustees and the expected long-term rate of return on fund assets is based on actual historical returns modified for known changes in the market and any expected change in investment policy. Actual results that differ from the assumptions used are accumulated and amortized over future periods and, accordingly, generally affect recognized expense in future periods. Income Taxes Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The effect of income tax positions are recognized only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. Interest and penalties related to unrecognized tax benefits are recorded in income tax expense. Noncontrolling Interests The accumulated amount of noncontrolling interests is classified in the consolidated balance sheets as a component of total stockholders’ equity and noncontrolling interests are reflected in the consolidated statements of stockholders’ equity (deficit) and comprehensive income (loss).
60
Fair Value Measurements The fair values of assets and liabilities disclosed are categorized based on a fair value hierarchy giving the highest priority to the quoted prices in active markets for identical assets and liabilities and lowest priority to unobservable inputs. The various levels of the fair value hierarchy are described as follows: | | | Level 1 | | Financial assets and liabilities whose values are based on quoted market prices for identical assets and liabilities in an active market that the Company has the ability to access. |
| | Level 2 | | Financial assets and liabilities whose values are based on quoted prices in markets that are not active or model inputs that are observable for substantially the full term of the asset or liability. |
| | Level 3 | | Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. |
(4) Recently Issued Accounting Standards Issued But Not Yet Adopted In April 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-08,Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. This ASU changes the criteria for reporting and requires expanded disclosures about discontinued operations. The guidance is effective for fiscal years beginning on or after December 15, 2014 and should be applied prospectively. Early adoption is permitted. The adoption of this ASU is not expected to have a material impact on the consolidated financial statements.
In May 2014, the FASBFinancial Accounting Standards Board (“FASB”) issued ASUAccounting 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, 2016.2017. Early adoption is not permitted.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 $19.6 million as of December 31, 2015. In November 2015, the FASB issued Accounting Standards Update No. 2015-17 (ASU 2015-17), Balance Sheet Classification of Deferred Taxes (Subtopic 740-10). ASU 2015-17 simplifies the presentation of deferred income taxes by eliminating the requirement for companies to present deferred tax liabilities and assets as current and non-current on the Consolidated Balance Sheets. Instead, companies will be required to classify all deferred tax assets and liabilities as non-current. This guidance is effective for annual and interim periods beginning after December 15, 2016 and early adoption is permitted. We elected to early adopt ASU 2015-17 prospectively, on December 31, 2015. The adoption of ASU 2015-17 did not have a material impact on our consolidated financial position, and had no impact on our results of operations or cash flows. No prior periods were retrospectively adjusted (5) Acquisitions Grede Transaction On June 2, 2014 (the “Acquisition Date”), a subsidiary of American Securities, ASP Grede Intermediate Holdings LLC (together with its subsidiaries, “Grede”), purchased 97.1% of the membership interests in Grede Holdings LLC (the “Grede Transaction”). Management and outside investors purchased the remaining membership interests. Upon completion of the Combination, 100% of Grede is owned by the Company. Purchase Accounting The Grede Transaction was a cash purchase and was accounted for under the acquisition method. The accounting for the acquisition has been pushed-down to the financial statements of the Company. All assets acquired and liabilities assumed were recorded in the financial statements at estimated fair value. 61
The purchase price for the acquisition, net of cash and cash equivalents, was $829.7 million. The acquisition was funded by cash from capital contributions ($251.1 million from affiliates of American Securities, $6.5 million from certain members of the Grede management team and $1.0 million from outside investors) and the issuance of term loan debt. The Grede Transaction was recorded, as revised for updated valuation information, in the accounts of the Company as follows: | | | June 2, 2014 | | | June 2, 2014 | | | | (In thousands) | | | (In thousands) | | Fair value of consideration | | $ | 829,656 | | | $ | 829,656 | | Assets acquired: | | | | | | | Receivables | | | 120,232 | | | | 120,232 | | Inventories | | | 40,121 | | | | 40,121 | | Prepaid expenses and other current assets | | | 11,360 | | | | 11,360 | | Property and equipment | | | 208,525 | | | | 208,525 | | Amortizable intangible assets | | | 369,100 | | | | 369,100 | | Other assets | | | 9,107 | | | | 9,107 | | | | | | | Total assets acquired | | | 758,445 | | | | 758,445 | | Liabilities assumed: | | | | | | Accounts payable | | | 94,658 | | | | 94,658 | | Accrued liabilities | | | 25,734 | | | | 25,734 | | Deferred tax liabilities | | | 47,496 | | | | 47,496 | | Short-term debt | | | 1,752 | | | | 1,752 | | Other long-term liabilities | | | 20,677 | | | | 20,677 | | | | | | | Total liabilities assumed | | | 190,317 | | | | 190,317 | | | | | | | Net identifiable assets acquired, net of cash and cash equivalents | | | 568,128 | | | | 568,128 | | | | | | | Goodwill | | $ | 261,528 | | | $ | 261,528 | | | | | | |
The valuation method used to estimate the fair value of assets acquired and liabilities assumed entailed a cost approach, a market approach, an income approach or a combination of those approaches based on the nature of the asset or liability being valued. The estimated value of property and equipment was determined using a cost approach, relying on estimated replacement costs. Within amortizable intangible assets, customer relationships and platforms were valued using an income approach, relying on estimated multi-period excess earnings attributable to the relationship or platform. Goodwill recognized was primarily attributable to potential operational synergies related to overhead cost reductions and the assembled workforce. None of the goodwill recognized is expected to be deductible for tax purposes. Additional details of the assets recognized were as follows: | | | | | | | | | | | June 2, 2014 | | | | | | | (In thousands) | | | | | Inventories | | | | | | | | | Raw materials | | $ | 11,937 | | | | | | Work in process | | | 12,545 | | | | | | Finished goods | | | 15,639 | | | | | | | | | | | | | | | Total inventories | | $ | 40,121 | | | | | | | | | | | | | | | | | | | | June 2, 2014 | | | Estimated Useful Lives | | | | (In thousands) | | | (In years) | | Property and equipment | | | | | | | | | Land | | $ | 12,220 | | | | — | | Buildings | | | 31,839 | | | | 5 - 29 | | Machinery and equipment | | | 148,827 | | | | 1 – 20 | | Assets not yet placed in service | | | 15,639 | | | | — | | | | | | | | | | | Total property and equipment | | $ | 208,525 | | | | | | | | | | | | | | | | | | | | June 2, 2014 | | | Amortization Period | | | | (In thousands) | | | (In years) | | Amortizable intangible assets | | | | | | | | | Customer relationships and platforms | | $ | 338,700 | | | | 10 | | Other: trade names | | | 30,400 | | | | 15 | | | | | | | | | | | Total amortizable intangible assets | | $ | 369,100 | | | | | | | | | | | | | | |
| | June 2, 2014 | | | | (In thousands) | | Inventories | | | | | Raw materials | | $ | 11,937 | | Work in process | | | 12,545 | | Finished goods | | | 15,639 | | Total inventories | | $ | 40,121 | |
| | June 2, 2014 | | | Estimated Useful Lives | | | | (In thousands) | | | (In years) | | Property and equipment | | | | | | | | | Land | | $ | 12,220 | | | | — | | Buildings | | | 31,839 | | | 5 – 29 | | Machinery and equipment | | | 148,827 | | | 1 – 20 | | Assets not yet placed in service | | | 15,639 | | | | — | | Total property and equipment | | $ | 208,525 | | | | | |
62
| | June 2, 2014 | | | Amortization Period | | | | (In thousands) | | | (In years) | | Amortizable intangible assets | | | | | | | | | Customer relationships and platforms | | $ | 338,700 | | | | 10 | | Other: trade names | | | 30,400 | | | | 15 | | Total amortizable intangible assets | | $ | 369,100 | | | | | |
The estimated fair value of inventories was $4.4 million higher than the carrying value at the time of the acquisition. The entire amount of this step-up in value was expensed in cost of sales during 2014 based on an analysis of Grede’s inventory turns. Grede has estimated a remaining useful life of 10 years for the customer relationships and platforms due to the strong and longstanding relationships with our customers, which include many of the leading global OEMs and Tier 1 Suppliers. Grede has estimated a remaining useful life of 15 years for the trade names based on the nature of the industry, the length of time it has been in business and the relative strength of the name in the marketplace. Included withinother long-term liabilities are obligations for noncontributory defined benefit plans maintained by Grede for certain employees covered by collective bargaining agreements. The obligations for these plans were measured as of the acquisition date. The funded status as of the Acquisition Date was as follows: | | | June 2, 2014 | | | June 2, 2014 | | | | (In thousands) | | | (In thousands) | | Projected benefit obligation | | $ | 33,864 | | | $ | 33,864 | | Fair value of plan assets | | | 27,615 | | | | 27,615 | | | | | | | Funded Status | | $ | (6,249 | ) | | $ | (6,249 | ) | | | | | |
A weighted average discount rate of 4.04% was used to determine the projected benefit obligation. The rate of compensation increase is not applicable due to the fact that the plans’ benefits are based on credited years of service. The plans’ assets are composed primarily of pooled separate accounts in which the underlying securities are primarily publicly traded domestic equities and government debt securities. The amount of Grede revenues and earnings included in the consolidated statements of operations subsequent to the Grede Transaction was as follows: | | | 2014 | | | | 2015 | | | | 2014 | | | | (In thousands) | | | (In thousands) | | Revenues: Net sales | | $ | 572,126 | | | $ | 906,749 | | | | 572,126 | | Earnings: Loss before income taxes | | | (19,224 | ) | | Earnings: Income (loss) before tax | | | | 43,346 | | | | (19,224 | ) |
Grede Transaction-related expenses incurred in 2014 were $13.0 million, which were recorded withinacquisition costs, of which $8.3 million was paid to related parties. Metaldyne Transaction
The acquisition of Metaldyne by American Securities (the “Metaldyne Transaction”) on December 17, 2012 was accounted for under the acquisition method. As such, all assets acquired and liabilities assumed were recorded at their estimated fair values at the date of acquisition. The accounting for the acquisition has been pushed-down to the financial statements of the Company.
The purchase price of the Metaldyne Transaction, including contingent consideration was $833.7 million. The Metaldyne Transaction was financed through a $620 million Senior Secured Credit Facility which included a $75 million revolving credit facility (of which $6 million was outstanding as of December 18, 2012), $295 million in cash and equity (of which $290 million was paid by affiliates of American Securities and $0.5 million was paid and $4.8 million of equity was converted by certain members of the Metaldyne management team) and $175 million of Metaldyne’s cash as of December 18, 2012. After the Metaldyne Transaction and prior to the Combination, affiliates of American Securities owned 98.2% and certain members of Metaldyne management owned 1.8% of Metaldyne.
The purchase price of the Metaldyne Transaction reflected a reduction of $14.9 million for a purchase price adjustment recorded under the terms of the Metaldyne Transaction agreement. During 2013, the former stockholders disputed the calculation of the purchase price adjustment. The dispute was ultimately resolved through an arbitration process resulting in a reduction of the purchase price adjustment in favor of the former stockholders of $10.1 million. This amount was recorded inother expense, net in during 2013. The remaining purchase price adjustment of $4.8 million was received in cash in 2013.
Metaldyne Transaction-related expenses of $15.6 million were incurred and recorded withinacquisition costs in Successor Period 2012, of which $8.2 million was paid to related parties.
The amount of Metaldyne revenues and earnings included in the consolidated statements of operations subsequent to the Metaldyne Transaction was as follows:
| | | | | | | | | | | | | | | 2014 | | | 2013 | | | Successor Period 2012 | | | | (In thousands) | | Revenues: Net sales | | $ | 1,176,367 | | | | 1,110,765 | | | | 18,897 | | Earnings: Income (loss) before income taxes | | | 65,960 | | | | 35,796 | | | | (28,748 | ) |
HHI Transaction
The acquisition of HHI by American Securities (the “HHI Transaction”) on October 5, 2012 was accounted for under the acquisition method. As such, all assets acquired and liabilities assumed were recorded at their estimated fair values at the date of acquisition. The accounting for the acquisition has been pushed-down to the financial statements of the Company.
The HHI Transaction was a cash purchase. The purchase price for the HHI Transaction, net of cash and cash equivalents, was $722.2 million. The acquisition was funded by cash from capital contributions ($235.0 million from affiliates of American Securities and $19.7 million from certain members of the HHI management team) and the issuance of term loan debt. After the HHI Transaction and prior to the Combination, affiliates of American Securities owned 92.3% and certain members of HHI management owned 7.7% of HHI. Sale proceeds of $77.3 million were placed into an escrow account to be released upon the finalization of various true-up calculations and once certain representations and warranties have settled. As of December 31, 2013, $32.3 million of the escrow had been released to the sellers, $33.8 million was released in April 2014 and the final release is expected in November 2015, provided the related representations and warranties have settled.
HHI Transaction-related expenses of $10.3 million were incurred and recorded withinacquisition costs in Successor Period 2012, of which $7.5 million was paid to related parties. HHI Transaction-related expenses of $13.4 million were incurred and recorded withinacquisition costs in Predecessor Period 2012.
The amount of HHI revenues and earnings included in the statements of operations subsequent to the HHI Transaction was as follows:
| | | | | | | | | | | | | | | 2014 | | | 2013 | | | Successor Period 2012 | | | | (In thousands) | | Revenues: Net sales | | $ | 968,508 | | | | 906,516 | | | | 186,416 | | Earnings: Income (loss) before income taxes | | | 29,721 | | | | 57,034 | | | | (18,386 | ) |
Supplemental Pro Forma Information (Unaudited) The following table presents the revenues and earnings of MPG on a pro forma basis as if the Grede Transaction had occurred on January 1, 2013: | | | | | | | | | | | Pro Forma | | | | 2014 | | | 2013 | | | | (In thousands) | | Revenues: Net sales. | | $ | 3,144,000 | | | | 3,052,900 | | Earnings: Income before income taxes | | | 93,300 | | | | 103,400 | |
| | Pro Forma | | | | | 2014 | | | | 2013 | | | | (In thousands) | | Revenues: Net sales | | $ | 3,144,000 | | | | 3,052,900 | | Earnings: Income before tax | | | 93,300 | | | | 103,400 | |
These results do not purport to be indicative of the results of operations which actually would have resulted had the Grede Transaction occurred on January 1, 2013, or of the future results of operations of the Company. The following table presents the revenues and earnings of MPG on a pro forma basis as if the HHI Transaction and the Metaldyne Transaction had occurred on January 1, 2011:
| | | | | | | Pro Forma 2012 | | | | (In thousands) | | Revenues: Net sales | | $ | 1,917,600 | | Earnings: Income before income taxes | | | 80,000 | |
These results do not purport to be indicative of the results of operations which actually would have resulted had the HHI Transaction and the Metaldyne Transaction occurred on January 1, 2011, or of the future results of operations of the Company.
63
(6) Receivables Receivables as of December 31 were stated net of the following allowances: | | | 2014 | | | 2013 | | | | 2015 | | | | 2014 | | | | (In thousands) | | | (In thousands) | | Doubtful accounts | | $ | 1,488 | | | | 1,147 | | | $ | 1,437 | | | | 1,488 | | Pricing accruals and anticipated customer deductions | | | 4,781 | | | | 7,955 | | | | 8,109 | | | | 4,781 | | Returns | | | 1,753 | | | | — | | | | 1,923 | | | | 1,753 | | | | | | | | | | $ | 11,469 | | | | 8,022 | | | | $ | 8,022 | | | | 9,102 | | | | | | | | | | |
Receivables available for sale and sold under agreements with international factoring companies as of December 31 were as follows: | | | 2014 | | | 2013 | | | | 2015 | | | | 2014 | | | | (In thousands) | | | (In thousands) | | Available for sale | | $ | 51,865 | | | | 56,067 | | | $ | 47,322 | | | | 51,865 | | Sold | | | 43,844 | | | | 28,915 | | | | 37,678 | | | | 43,844 | |
(7) Inventories Inventories as of December 31 were as follows: | | | 2014 | | | 2013 | | | | 2015 | | | | 2014 | | | | (In thousands) | | | (In thousands) | | Raw materials | | $ | 67,812 | | | | 49,459 | | | $ | 57,339 | | | | 67,812 | | Work in process | | | 69,929 | | | | 55,197 | | | | 66,329 | | | | 69,929 | | Finished goods | | | 67,048 | | | | 50,144 | | | | 63,180 | | | | 67,048 | | | | | | | | | | Total inventories | | $ | 204,789 | | | | 154,800 | | | $ | 186,848 | | | | 204,789 | | | | | | | | | |
(8) Property and Equipment The carrying amount, accumulated depreciation and useful lives of property and equipment as of December 31 were as follows: | | | Estimated Useful Lives | | | 2014 | | | 2013 | | | Estimated Useful Lives | | | 2015 | | | | 2014 | | | | | | | (In thousands) | | | (In thousands) | | Land and land improvements | | | 1 - 30 | | | $ | 28,324 | | | | 16,680 | | | 1 - 30 | | $ | 26,769 | | | | 28,324 | | Buildings and improvements | | | 1 - 30 | | | | 94,050 | | | | 54,260 | | | 1 - 30 | | | 103,622 | | | | 94,050 | | Machinery and equipment | | | 1 - 20 | | | | 797,284 | | | | 537,195 | | | 1 - 20 | | | 930,114 | | | | 797,284 | | Assets not yet placed in service | | | | | 114,053 | | | | 69,749 | | | | | | 145,018 | | | | 114,052 | | | | | | | | | | | | | | | 1,205,523 | | | | 1,033,710 | | | | | 1,033,711 | | | | 677,884 | | | Accumulated depreciation | | | (283,529 | ) | | | (138,380 | ) | | | | | (419,570 | ) | | | (283,529 | ) | | | | | | | | | | | Property and equipment, net | | $ | 750,181 | | | | 539,504 | | | | | $ | 785,953 | | | | 750,181 | | | | | | | | | | | |
Property and equipment are depreciated on a straight-line basis. Depreciation expense was $159.4 million for 2015, $155.0 million for 2014, and $126.9 million for 2013, $14.4 million for Successor Period 2012 and $19.7 million for Predecessor Period 2012.2013. Included in machinery and equipment are gross carrying values for assets under capital lease of $13.9$13.8 million and $15.3$13.9 million as of December 31, 20142015 and 2013,2014, respectively; related accumulated depreciation was $6.8$9.0 million and $4.0$6.8 million as of December 31, 2015 and 2014, respectively. In June 2015, the Company announced plans to close its Berlin, Wisconsin facility included within the Grede segment. In conjunction with this announcement, the Company recorded a $4.0 million asset impairment charge to adjust the property, plant, and 2013, respectively. equipment to their fair values using observable market values for similar assets. The closure, which is primarily a result of the industrial market slowdown, was completed in fiscal 2015.64
(9) Goodwill Changes in the carrying value of goodwill by segment were as follows: | | | | | | | | | | HHI Segment | | | Metaldyne Segment | | | Grede Segment | | | Total | | | | HHI Segment | | | Metaldyne Segment | | | Grede Segment | | | Total | | | | | (In thousands) | | | Balance December 31, 2012 | | $ | 309,399 | | | | 348,592 | | | | — | | | | 657,991 | | | | | | | | | | | | | | | | | (In thousands) | | Balance December 31, 2013 | | | 309,399 | | | | 348,592 | | | | — | | | | 657,991 | | | $ | 309,399 | | | | 348,592 | | | | — | | | | 657,991 | | Goodwill resulting from Grede Transaction | | | — | | | | — | | | | 261,528 | | | | 261,528 | | | | — | | | | — | | | | 261,528 | | | | 261,528 | | Impairment | | | (11,803 | ) | | | — | | | | — | | | | (11,803 | ) | | | (11,803 | ) | | | — | | | | — | | | | (11,803 | ) | | | | | | | | | | | | | | | Balance December 31, 2014 | | $ | 297,596 | | | | 348,592 | | | | 261,528 | | | | 907,716 | | | | 297,596 | | | | 348,592 | | | | 261,528 | | | | 907,716 | | | | | | | | | | | | | | | | Balance December 31, 2015 | | | $ | 297,596 | | | | 348,592 | | | | 261,528 | | | | 907,716 | |
In conjunction with our annual impairment test in 2014, the Company concluded that the goodwill assigned to a reportable unit within the HHI segment (the “Unit”) was no longer recoverable. The Unit manufactures wheel bearings for a large OEM customer at our facility in Sandusky, Ohio (the “Sandusky facility”). Under the terms of our contract with this customer, labor costs at the Sandusky facility arewere subsidized by the customer. In our assessment of the recoverability of the Unit’s goodwill, the Company estimated the fair value of the Unit using an income method based on discounted cash flows, which resulted in a fair value below the carrying value. Key factors impacting a lower fair value included the scheduled attrition of programs for the OEM customer and the expiration of labor subsidies in September 2015. An impairment loss of $11.8 million was recognized in the fourth quarter of 2014, representing the full amount of goodwill assigned to the Unit. (10) Amortizable Intangible Assets The carrying amount and accumulated amortization of intangible assets as of December 31 were as follows: | | | 2014 | | | 2015 | | | | Gross Carrying Amount | | | Accumulated Amortization | | | Net Carrying Amount | | | Gross Carrying Amount | | | Accumulated Amortization | | | Net Carrying Amount | | | | (In thousands) | | | (In thousands) | | Customer relationships and platforms | | $ | 745,200 | | | | (76,514 | ) | | | 668,686 | | | $ | 745,200 | | | | (136,976 | ) | | | 608,224 | | Other | | | 126,360 | | | | (16,589 | ) | | | 109,771 | | | | 126,754 | | | | (26,068 | ) | | | 100,686 | | | | | | | | | | | | | Total | | $ | 871,560 | | | | (93,103 | ) | | | 778,457 | | | $ | 871,954 | | | | (163,044 | ) | | | 708,910 | | | | | | | | | | | | |
| | | 2013 | | | 2014 | | | | Gross Carrying Amount | | | Accumulated Amortization | | | Net Carrying Amount | | | Gross Carrying Amount | | | Accumulated Amortization | | | Net Carrying Amount | | | | (In thousands) | | | (In thousands) | | Customer relationships and platforms | | $ | 406,500 | | | | (30,293 | ) | | | 376,207 | | | $ | 745,200 | | | | (76,514 | ) | | | 668,686 | | Other | | | 95,717 | | | | (7,968 | ) | | | 87,749 | | | | 126,360 | | | | (16,589 | ) | | | 109,771 | | | | | | | | | | | | | Total | | $ | 502,217 | | | | (38,261 | ) | | | 463,956 | | | $ | 871,560 | | | | (93,103 | ) | | | 778,457 | | | | | | | | | | | | |
Amortization expense was $69.9 million for 2015, $54.8 million for 2014, and $34.0 million for 2013, $4.3 million for Successor Period 2012, and $0.3 million for Predecessor Period 2012.2013. As of December 31, 2014,2015, the weighted-average useful lifeamortization period of customer relationships and platforms was 1314 years. Estimated amortization expense for the next five years is $70.1 million for 2015, $70.1$69.9 million for 2016, $70.0$69.9 million for 2017, $68.5$68.3 million for 2018, 2019, and $68.5 million for 2019. 2020 respectively.65
(11) Debt The carrying value of debt as of December 31 was as follows: | | | 2014 | | | 2013 | | | 2015 | | | 2014 | | | | (In thousands) | | | (In thousands) | | Short-term debt: | | | | | | | | | | | | | Revolving lines of credit | | $ | — | | | | 19,039 | | | $ | — | | | | — | | Other short-term debt | | | 1,572 | | | | 1,339 | | | | 723 | | | | 1,572 | | | | | | | | | | Total short-term debt | | $ | 1,572 | | | | 20,378 | | | $ | 723 | | | | 1,572 | | | | | | | | | | Long-term debt: | | | | | | | | | | Term loans | | | | | | | | | | Term Loan Facility | | $ | 1,340,000 | | | | — | | | $ | — | | | | 1,340,000 | | HHI Term Loans | | | — | | | | 565,894 | | | Metaldyne USD Term Loan | | | — | | | | 535,535 | | | Metaldyne Euro Term Loan | | | — | | | | 136,303 | | | Senior Notes | | | 600,000 | | | | — | | | USD Term Loan | | | | 1,022,211 | | | | — | | Euro Term Loan | | | | 244,158 | | | | — | | Registered Notes | | | | 600,000 | | | | 600,000 | | Other long-term debt (various interest rates) | | | 589 | | | | 368 | | | | 364 | | | | 589 | | | | | | | | | | Total | | | 1,940,589 | | | | 1,238,100 | | | | 1,866,733 | | | | 1,940,589 | | Unamortized discount on term loans | | | (6,579 | ) | | | (8,088 | ) | | | (6,680 | ) | | | (6,579 | ) | Current maturities | | | (13,700 | ) | | | (20,424 | ) | | | (13,307 | ) | | | (13,700 | ) | | | | | | | | | Total long-term debt | | $ | 1,920,310 | | | | 1,209,588 | | | $ | 1,846,746 | | | | 1,920,310 | | | | | | | | | |
Credit Facilities In October 2014, MPG Holdco I Inc., the Company’s wholly owned subsidiary (“Holdco”) entered into a senior secured credit facility (the “Senior Credit Facilities”) consisting of a $1,350.0 million term loan (“Term Loan Facility”), maturing in 2021, and a $250.0 million revolving credit facility (“Revolving Credit Facility”)., maturing in 2019. Interest on the Term Loan Facility is accrued at a rate equal to the London Interbank Offered Rate (“LIBOR”) rate (bearing a LIBOR floor of 1.00%) plus an applicable margin of 3.25% or a base rate that is the higher of the Federal Funds Rate (plus 0.50%), the U.S. prime rate as published in theThe Wall Street Journal, or LIBOR (plus 1.00%), plus an applicable margin of 2.25%, at Holdco’s option. Prior to the Company’s initial public offering on December 12, 2014, the applicable margin was 3.50% for LIBOR rate loans and 2.50% for base rate loans. The interest rate in effect as of December 31, 2014 was 4.25%. The Term Loan Facility matures in 2021 and iswas payable in quarterly installments of $3.375 million beginning in March 2015. In December 2014, On May 8, 2015, the Company made a prepayment of $10.0 millionamended its Senior Credit Facilities to reduce the applicable interest rate on the Term Loan Facility and to refinance the outstanding balance of the Term Loan Facility with new term loans (the “Refinanced Term Loan Facility”). The Refinanced Term Loan consists of a $1,072.6 million U.S. Dollar denominated term loan (the “USD Term Loan”) and a €225.0 million Euro denominated term loan (the “Euro Term Loan”). The USD Term Loan was issued at par and accrues interest at LIBOR, bearing a 1.00% floor, plus an applicable margin of 2.75%. The Euro Term Loan was issued at an original issuance discount of 0.50%, or $1.3 million, and accrues interest at the Euro Interbank Offer Rate (“EURIBOR”), bearing a 1.00% floor, plus an applicable margin of 2.75%. At December 31, 2015, the effective interest rate on both the USD Term Loan and Euro Term Loan was 3.75%. Principal repayments on the USD Term Loan and Euro Term Loan are payable in quarterly installments equal to 0.25% of the original loan balances. All other terms of the amended Senior Credit Facilities remain substantially unchanged. In connection with amending the Senior Credit Facilities, the Company paid fees to third parties totaling $1.8 million, of which $1.6 million was expensed. During 2015, the Company made $10.0 million in voluntary prepayments on the previous Term Loan Facility and $45.0 million in voluntary prepayments on the Refinanced Term Loan Facility. Interest on the Revolving Credit Facility is accrued at a rate equal to the LIBOR rate plus an applicable margin of 3.25% or a base rate that is the higher of the Federal Funds Rate (plus 0.50%), the U.S. prime rate as published in theThe Wall Street Journal, or LIBOR (plus 1.00%), plus an applicable margin of 2.25%, at Holdco’s option. The applicable margin is based on a leverage ratio grid and was 0.25% higher prior to the Company’s initial public offering on December 12, 2014. The Revolving Credit Facility is a five-year facility that matures in 2019.grid. As of December 31, 2014,2015, zero was outstanding under the Revolving Credit Facility and $234.4$237.4 million was available after giving effect to outstanding letters of credit. Holdco pays fees with respect to the Revolving Credit Facility, including (i) an unused commitment fee of 0.50% or 0.375% based on a leverage ratio, (ii) fixed fees with respect to letters of credit of 3.25% per annum on the stated amount of each letter of credit outstanding during each month and (iii) customary administrative fees. 66
The agreement governing the Senior Credit Facilities contains certain covenants that, among other things, require MPG Holdco to maintain a leverage ratio once revolver borrowings and letters of credit exceed 35% of aggregate revolving credit commitments as defined under the terms of the Senior Credit Facilities and to comply with customary affirmative and negative covenants. In addition to scheduled maturities, the Refinanced Term Loan Facility is subject to customary mandatory prepayments, including an excess cash flow sweep based on leverage ratio step downs and a mandatory prepayment for certain asset sales. Beginning in 2016, we areThe Company is required to prepay a portion of the Term Loan Facility in an amount equal to a percentage of the preceding fiscal year’s excess cash flow, as defined, with such percentage based on our leverage ratio, as defined. No mandatory prepayments are due in 2016. The agreements governing the Senior Credit Facilities and the SeniorRegistered Notes restrict the payment of dividends except (i) to pay reasonable estimated amount of taxes as long as not prohibited by applicable laws, (ii) to pay legal, accounting, and reporting expenses, (iii) to pay general administrative costs and expenses, and reasonable directors fees, and expenses; (iv) to repurchase stock owned by employees, (v) for management or similar fees, (vi) to pay franchise or similar taxes to maintain corporate existence, (vii) permitted tax distributions, and (viii) to pay dividends up to $30.0 million or 6% of the net cash proceeds from an underwritten public offering of our common stock. The Senior Credit Facilities are guaranteed by MPG and certain of its direct and indirect existing and future domestic subsidiaries and are secured on a first priority basis by all or substantially all of our assets, the assets of Holdco and each guarantor’s assets, including a pledge of capital stock of our U.S. subsidiaries that hold domestic assets and a portion of the capital stock of the first tier foreign subsidiaries of MPG and each guarantor. The SeniorRegistered Notes are guaranteed by MPG and certain of its direct and indirect existing and future domestic subsidiaries. The SeniorRegistered Notes are pari passu in right of payment with the Senior Credit Facilities, but are effectively subordinated to the Senior Credit Facilities to the extent of the value of the assets securing such indebtedness. Registered Notes In October 2014, Holdco issued $600.0 million of senior notes (“Senior Notes”). The Senior Notes mature in 2022, and bear interest at a rate of 7.375%, payable semi-annually on April 15 and October 15 per the terms of the indenture governing the Senior Notes. In May, 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 filed with the SEC on May 1, 2015, and declared effected 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 Registered Notes. The indenture governing the Senior Notes contains certain covenants, including a covenant that restricts the payment of dividends except (i) to pay reasonable estimated amount of taxes as long as not prohibited by applicable laws, (ii) to pay legal, accounting, and reporting expenses, (iii) to pay general and administrative costs and expenses, and reasonable directors fees, and expenses, (iv) to repurchase stock owned by employees, (v) for management or similar fees, (vi) to pay franchise or similar taxes to maintain corporate existence and (vii) to pay dividends up to $30.0 million or 6% of the net cash proceeds from an underwritten public offering of our common stock. The Company has agreed to use commercially reasonable efforts to register notes having substantially identical terms to the Senior Notes with the Securities and Exchange Commission by June 9, 2015.
ExtinguishedScheduled Maturities of Long-term Debt
As of December 31, 2013, the Company had outstanding a combined total of $1,101.4 million in U.S. dollar denominated term loans (the “USD Term Loans”) and €99 million in a Euro denominated term loan (the “Euro Term Loan”). The USD Term Loans bore interest at a variable rate of LIBOR plus 3.75% or a base rate plus 2.75%. LIBOR was subject to a floor of 1.25% and the base rate was subject to a floor of 2.25%. The Euro Term Loan bore interest at a variable rate of Euro InterBank Offered Rate (“EURIBOR”) plus 5.25%. EURIBOR was subject to a floor of 1.25%. The proceeds from the Term Loan Facility and Senior Notes were used to prepay the existing debt of Metaldyne, HHI, and Grede (collectively the “Extinguished Debt”), as well as, fees and expenses associated with the Term Loan Facility and Senior Notes (proceeds, prepayment and related fees and expenses collectively the “Refinancing”). In addition to the term loans outstanding at December 31, 2013, included in the Extinguished Debt was a seven-year $600.0 million term loan agreement maturing in 2021, which Grede entered into in June 2014, an incremental term loan of $115 million, which HHI entered into in May 2014. Prepayment of this debt resulted in the expensing of unamortized debt fees, expenses and original issue discount on the Extinguished Debt totaling $60.7 million withinloss on debt extinguishment.
Prepayment of the Extinguished Debt of Metaldyne, HHI and Grede resulted in the elimination of the restrictions on the ability of each to pay dividends to MPG.
Scheduled Maturities of Long-term Debt
As of December 31, 2014,2015, the Company’s scheduled principal payments of long-term debt for the five succeeding years were $13.7 million for 2015, $13.6$13.3 million for 2016, $13.8$13.4 million for 2017, $13.5$13.2 million for 2018, and $13.5$13.2 million for 2019.2019 and $13.2 million for 2020. The scheduled principal payments are exclusive of potential required prepayments.
(12) Lease Commitments The Company leases certain property and equipment under capital and operating lease arrangements that expire at various dates through 2036. Most of the operating leases provide the option, after the initial lease term, either to purchase the property or renew its lease at the then fair value. 67
Future minimum lease payments by the Company under capital and operating leases that have initial or remaining noncancelable terms in excess of one year as of December 31, 20142015 are as follows: | | | Capital Leases | | | Operating Leases | | | Capital Leases | | | Operating Leases | | | | (In thousands) | | | (In thousands) | | Company minimum lease payments: | | | | | | | | | | | | | 2015 | | $ | 6,711 | | | $ | 10,908 | | | 2016 | | | 5,100 | | | | 8,753 | | | $ | 4,990 | | | | 11,152 | | 2017 | | | 4,037 | | | | 6,769 | | | | 3,928 | | | | 9,425 | | 2018 | | | 4,098 | | | | 5,778 | | | | 3,991 | | | | 8,126 | | 2019 | | | 4,144 | | | | 5,546 | | | | 4,090 | | | | 6,406 | | 2020 | | | | 4,193 | | | | 5,939 | | Thereafter | | | 66,811 | | | | 31,163 | | | | 62,623 | | | | 27,001 | | | | | | | | | | Total minimum payments | | | 90,901 | | | $ | 68,917 | | | | 83,815 | | | $ | 68,049 | | | | | | | | | Amount representing interest | | | (64,679 | ) | | | | (60,163 | ) | | | | | | | | | | | | Obligations under capital leases | | | 26,222 | | | | | 23,652 | | | | | | Obligations due within one year | | | (2,797 | ) | | | | (1,163 | ) | | | | | | | | | | | | Long-term obligations under capital leases | | $ | 23,425 | | | | $ | 22,489 | | | | | | | | | | | | |
Rental expense for operating leases was $12.9 million for 2015, $12.4 million for 2014, and $11.5 million for 2013, $1.6 million for Successor Period 2012 and $5.3 million for Predecessor Period 2012.2013. (13) Equity, Dividends and Change in Accumulated Other Comprehensive IncomeLoss Equity On August 4, 2014, in connection with the Combination, the issued and outstanding shares of HHI, Metaldyne and Grede were converted to shares of MPG. The number of MPG shares issued upon conversion was determined based on the relative fair value of each entity to the overall fair value of MPG at the time of the Combination. Upon completion of the Combination, 13.4 million shares of MPG common stock were issued and outstanding. On November 18, 2014, MPG common stock was split at a 5-to-1 ratio, with each stockholder receiving four additional shares for each share held. Upon completion of the Stock Split, 67.1 million shares were outstanding. The number of authorized shares was increased to 400 million. The Combination and the Stock Split have been retrospectively applied to the Successor Period financial statements. On December 12, 2014, American Securities sold 10,000,000 shares of the Company’s common stock under an initial public offering (the “IPO”),IPO, for which no proceeds were received by the Company. The Company recognized costs directly attributable to the IPO of $5.6 million withinpaid-in capital. On January 15, 2015, the underwriters of the IPO exercised their option to purchase additional shares of our common stock from American Securities. After selling these additional shares, American Securities owned 78.5% of our common stock. Dividends The Company declared the following cash dividends on its common stock in 2015, totaling $18.5 million. Date Declared | | Date Paid | | Dividend per share | | October 28, 2015 | | December 3, 2015 | | $ | 0.09 | | July 29, 2015 | | August 31, 2015 | | | 0.09 | | March 10, 2015 | | May 26, 2015 | | | 0.09 | |
As of December 31, 2015, the Company had accrued dividends of $0.3 million on unvested Restricted Shares, which are to be paid upon vesting. Prior to the Combination, HHI and Metaldyne paid dividends to their respective stockholders. HHI stockholderspaid dividends totaling $111.3 million and $131.9 million on May 2, 2014 and September 20, 2013, respectively. The dividends paid by HHI were primarily funded by incremental term loans. Metaldyne paid a dividend to Metaldyne stockholders totaling $125.0 million on October 31, 2013. The dividend paid by Metaldyne2013, which was funded by an incremental term loan. The Predecessor Company paid dividends totaling $70.0 million in Predecessor Period 2012. 68
Changes in Accumulated Other Comprehensive Income,Loss Attributable to Stockholders, Net of Tax | | | | | | | | Foreign Currency Items | | | Defined Benefit Items | | | Total | | | | Foreign Currency Items | | | Defined Benefit Items | | | Total | | | | | (In thousands) | | | Predecessor | | | | | | | | | | | Balance, December 31, 2011 | | $ | (626 | ) | | | (659 | ) | | | (1,285 | ) | | Other comprehensive income before reclassifications | | | 293 | | | | — | | | | 293 | | | | | | | | | | | | | | Balance, October 5, 2012 | | $ | (333 | ) | | | (659 | ) | | | (992 | ) | | | | | | | | | | | | | | | | Successor | | | | | | | | | | | Balance, October 6, 2012 | | $ | — | | | | — | | | | — | | | Other comprehensive income before reclassifications | | | (388 | ) | | | 6 | | | | (382 | ) | | | | | | | | | | | | | (In thousands) | | Balance, December 31, 2012 | | | (388 | ) | | | 6 | | | | (382 | ) | | $ | (388 | ) | | | 6 | | | | (382 | ) | Other comprehensive income before reclassifications | | | (3,379 | ) | | | 462 | | | | (2,917 | ) | | | (3,379 | ) | | | 462 | | | | (2,917 | ) | | | | | | | | | | | | Balance, December 31, 2013 | | | (3,767 | ) | | | 468 | | | | (3,299 | ) | | | (3,767 | ) | | | 468 | | | | (3,299 | ) | Other comprehensive income before reclassifications | | | (23,954 | ) | | | (8,239 | ) | | | (32,193 | ) | | | (23,954 | ) | | | (8,239 | ) | | | (32,193 | ) | Reclassifications | | | — | | | | 244 | | | | 244 | | | | — | | | | 244 | | | | 244 | | | | | | | | | | | | | Balance, December 31, 2014 | | $ | (27,721 | ) | | | (7,527 | ) | | | (35,248 | ) | | | (27,721 | ) | | | (7,527 | ) | | | (35,248 | ) | | | | | | | | | | | | Other comprehensive income before reclassifications | | | | (24,258 | ) | | | 1,781 | | | | (22,477 | ) | Reclassifications | | | | — | | | | 432 | | | | 432 | | Balance, December 31, 2015 | | | $ | (51,979 | ) | | | (5,314 | ) | | | (57,293 | ) |
(14) Net Income (Loss) Per Share Attributable to Stockholders (“EPS”) The Company’s basic and diluted EPS were calculated as follows: | | | Successor | | | | | Predecessor | | | | | 2014 | | | 2013 | | | Successor Period 2012 | | | | | Predecessor Period 2012 | | | 2015 | | | 2014 | | | 2013 | | | | (In thousands, except per share data) | | | (In thousands, except per share data) | | Weighted-average shares outstanding | | | | | | | | | | | | | | | | | | | | | | | | | Basic | | | 67,075 | | | | 67,075 | | | | 67,075 | | | | | | | | 17,694 | | | | 67,284 | | | | 67,075 | | | | 67,075 | | Equivalent shares for outstanding stock-based compensation awards | | | 1,400 | | | | — | | | | — | | | | | | | | — | | | | 2,445 | | | | 1,400 | | | | — | | | | | | | | | | | | | | | | | | | | Diluted | | | 68,475 | | | | 67,075 | | | | 67,075 | | | | | | 17,694 | | | | 69,729 | | | | 68,475 | | | | 67,075 | | | | | | | | | | | | | | | | | | | | Net income (loss) attributable to stockholders | | $ | 72,827 | | | | 57,568 | | | | (31,932 | ) | | | | $ | (25,778 | ) | | Net income attributable to stockholders | | | $ | 125,304 | | | | 72,827 | | | | 57,568 | | EPS | | | | | | | | | | | | | | | | Basic | | $ | 1.09 | | | | 0.86 | | | | (0.48 | ) | | | | $ | (1.46 | ) | | $ | 1.86 | | | | 1.09 | | | | 0.86 | | Diluted | | | 1.06 | | | | 0.86 | | | | (0.48 | ) | | | | | (1.46 | ) | | | 1.80 | | | | 1.06 | | | | 0.86 | |
For 2014, and 2013, and Successor Period 2012, the weighted average shares outstanding were retrospectively adjusted to reflect MPG common stock outstanding upon completion of the Combination and the Stock Split; the equivalent shares for outstanding stock-based compensation awards were retrospectively adjusted to reflect the conversion of those awards into options to purchase shares of Common Stock of MPG and the Stock Split. For Predecessor Period 2012, the weighted average shares outstanding reflect the capital structure of HHI prior to the HHI Transaction. The number of equivalent shares excluded from the calculation as they were anti-dilutive was de minimis for 2015, 0.8 million for 2014, and 3.5 million for 2013, 0.5 million for Successor Period 2012 and zero for the Predecessor Period 2012. 2013.(15) Other Income (Expense) | | | | | | | | | | | | | | 2015 | | | 2014 | | | 2013 | | | | Successor | | | | | Predecessor | | | (In thousands) | | | | 2014 | | | 2013 | | | Successor Period 2012 | | | | | Predecessor Period 2012 | | | | | (In thousands) | | | Investment income | | $ | 114 | | | | 85 | | | | 11 | | | | | | | $ | — | | | Foreign currency gains (losses) | | | 15,723 | | | | (2,295 | ) | | | (1,548 | ) | | | | | | | — | | | $ | 18,319 | | | | 15,723 | | | | (2,295 | ) | Accounts receivable factoring commission | | | (918 | ) | | | (995 | ) | | | (15 | ) | | | | | | | — | | | | (849 | ) | | | (918 | ) | | | (995 | ) | Debt transaction expenses | | | (2,836 | ) | | | (6,014 | ) | | | — | | | | | | | | (2,455 | ) | | | (1,668 | ) | | | (2,836 | ) | | | (6,014 | ) | Other | | | (751 | ) | | | (8,653 | ) | | | 42 | | | | | | | | — | | | | (450 | ) | | | (637 | ) | | | (8,568 | ) | | | | | | | | | | | | | | | | | | | Total other, net | | $ | 11,332 | | | | (17,872 | ) | | | (1,510 | ) | | | | $ | (2,455 | ) | | $ | 15,352 | | | | 11,332 | | | | (17,872 | ) | | | | | | | | | | | | | | | | | | |
(16) Stock-based Compensation In August 2014, the Board of Directors of MPG approved an equity incentive plan (the “MPG Plan”) for officers, key employees and non-employees. 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.
69
Restricted Shares In December 2014, theThe Company has granted restricted stock awards and restricted stock unit awards to certain members of managementemployees 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 | | | Number of Shares | | | Grant-date Fair Value | | | | (In thousands) | | | | | | (In thousands) | | | | | | 1/4th on the 1st grant date anniversary and 3/4th on the 2nd grant-date anniversary | | | 567 | | | $ | 15.00 | | | 1/3rd per year on grant-date anniversary | | | | 465 | | | $ | 20.02 | | 1/3rd per year on grant-date anniversary | | | | 305 | | | | 18.90 | | 1/4th on the 1st grant-date anniversary and 3/4th on the 2nd grant-date anniversary | | | | 567 | | | | 15.00 | | 1/3rd per year on grant-date anniversary | | | 280 | | | | 15.00 | | | | 280 | | | | 15.00 | | | | | | | | | | 1,617 | | | | | | | | | 847 | | | | | | | | | | |
The Restricted Shares are being expensed based on their grant-date fair values on a straight-line basis over the requisite service period for the entire award. The grant-date fair values were 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 yearyears ended December 31, 2015 and 2014 were as follows: | | | Number of Shares | | | Grant-date Fair Value | | | Number of Shares | | | Weighted Average Grant-date Fair Value | | | Fair Value of Shares Vested | | | | (In thousands) | | | | | | (In thousands) | | | | | | | (In millions) | | Balance, December 31, 2013 | | | — | | | | | | — | | | | | | | | | | Granted | | | 847 | | | $ | 15.00 | | | | 847 | | | $ | 15.00 | | | | | | Forfeited | | | — | | | | | | — | | | | | | | | | | | | | | | | | Balance, December 31, 2014 Total minimum payments | | | 847 | | | | | | | | | | | Balance, December 31, 2014 | | | | 847 | | | | | | | | | | Granted | | | | 770 | | | | 19.58 | | | | | | Vested | | | | (424 | ) | | | 16.20 | | | $ | 7.8 | | Forfeited | | | | (28 | ) | | | 16.30 | | | | | | Balance, December 31, 2015 | | | | 1,165 | | | $ | 17.47 | | | | | |
Options
In August 2014, in conjunctionOptions
The Company has granted options to certain employees to purchase shares of its common stock with the Combination, all outstanding stock-based compensation awards were converted (the “Conversion”) to options to acquire MPG common stock (the “Converted Options”) and new options to acquire MPG common stock were granted (the “New Options” and collectively with the Converted Options, the “MPG Options”). New Options
The following table summarizes the weighted average terms of the New Options:terms:
| Vesting Terms | | Number of Options | | | Exercise Price | | | Contractual Terms | | | Number of Options | | | Weighted Average Exercise Price | | | Contractual Terms | | | | (In thousands) | | | | | | (In years) | | | (In thousands) | | | | | | | (In years) | | 1/3rd per year on grant-date anniversary | | | | 438 | | | $ | 18.90 | | | | 10 | | 100% upon grant | | | 635 | | | $ | 20.00 | | | | 10 | | | | 635 | | | | 20.00 | | | | 10 | | 1/3rd per year on grant-date anniversary | | | 560 | | | | 20.00 | | | | 10 | | | | 560 | | | | 20.00 | | | | 10 | | 1/5th upon grant and 1/5th on December 6 of following 4 years | | | 357 | | | | 20.00 | | | | 10 | | | 1/5th upon grant and 1/5th on December 6th of following 4 years | | | | 357 | | | | 20.00 | | | | 10 | | 1/5th per year on the anniversary of the original grant date | | | | 4,405 | | | | 6.32 | | | | 10 | | 100% on the seventh anniversary of the original grant date | | | | 485 | | | | 18.66 | | | | 10 | | | | | | | | | | | | 6,880 | | | | | | | | | | | | | 1,552 | | | | | | | | | | | | |
The New Options
70
All options are being expensed based on their grant-date calculatedfair values on a straight-line basis over the requisite service period for the entire award. Grant-date calculated The grant-date fair values forof the New Optionsoptions were determined using a Black-Scholes valuation model based on the following weighted average assumptions:
| | | Original Grant Year | | | | | | 2015 | | | 2014 | | | 2013 | | Grant-date calculated value (per share) | | $ | 11.48 | | | $ | 9.03 | | | | 12.66 | | | | 16.05 | | Exercise price | | $ | 20.00 | | | $ | 18.90 | | | | 18.66 | | | | 6.17 | | Expected term | | | 6 years | | | 6 years | | | 7 years | | | 6 years | | Risk-free rate | | | 1.8 | % | | | 1.8 | % | | | 2.0 | % | | | 1.8 | % | Expected volatility | | | 65.0 | % | | | 60.0 | % | | | 65.0 | % | | | 65.0 | % | Expected dividend yield | | | 0.0 | % | | | 1.9 | % | | | 0.0 | % | | | 0.0 | % |
The risk-free rate was determined based on U.S. Treasury yield curves of securities matching the expected term of the awards or a blend of securities with similar terms. 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 expected term. Expected volatility was estimated based on historical volatility of comparable companies within our industry. As noThe expected dividend policyyield was established for MPGdetermined based on the expected annual dividend amount divided by the common stock price as of the grant date,date. Options Outstanding Changes in the dividend yield assumptionnumber of Options outstanding for the years ended December 31, 2015 and 2014 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, 2013 | | | 3,920 | | | $ | 4.79 | | | | | | | | | | Granted | | | 2,522 | | | | 19.48 | | | | | | | | | | Exercised | | | — | | | | — | | | | | | | | | | Forfeited | | | — | | | | — | | | | | | | | | | Balance, December 31, 2014 | | | 6,442 | | | $ | 10.54 | | | | 8.5 | | | $ | 49.2 | | Options exercisable, December 31, 2014 | | | 1,938 | | | $ | 10.60 | | | | 8.2 | | | $ | 15.2 | | Granted | | | 438 | | | | 18.90 | | | | | | | | | | Exercised | | | (566 | ) | | | 5.50 | | | | | | | $ | 8.6 | | Forfeited | | | (45 | ) | | | 10.12 | | | | | | | | | | Balance, December 31, 2015 | | | 6,269 | | | $ | 11.58 | | | | 7.6 | | | $ | 45.5 | | Options exercisable, December 31, 2015 | | | 3,400 | | | $ | 10.82 | | | | 7.4 | | | $ | 27.6 | |
Proceeds and tax benefit realized from the exercise of stock options during the years ended December 31, 2015, 2014 and 2013 were as follows: | | 2015 | | | 2014 | | | 2013 | | | | (In millions) | | Proceeds from the exercise of stock options - gross | | $ | 3.0 | | | | — | | | | — | | Tax benefit | | | 2.7 | | | | — | | | | — | |
Stock-based Compensation Expense | | 2015 | | | 2014 | | | 2013 | | | | (In thousands) | | Restricted shares | | $ | 11,854 | | | | 309 | | | | — | | Options | | | 15,810 | | | | 17,010 | | | | 6,175 | | Total | | $ | 27,664 | | | | 17,319 | | | | 6,175 | | Tax benefit | | $ | 10,286 | | | | 5,429 | | | | 2,270 | |
71
Compensation expense associated with the outstanding stock-based awards was 0%recognized within selling, general and administrative expense. Market valueTotal unrecognized compensation cost related to non-vested awards as of MPG common stockDecember 31, 2015 was estimatedapproximately $31.3 million, which is expected to be $20.00 per share primarily throughrecognized ratably over the useremaining vesting terms. In 2015, the Company modified 297,378 restricted shares and 1,387,087 options in connection with employee separation agreements. In accordance with these agreements, all non-vested vested immediately at the date of an income approachseparation. In addition, the terms of the options were modified from the original term to exercise of 30 days after separation to a term of three or five years based on the discounted cash flow method.respective separation agreement. The modification, which affected five participants, resulted in additional compensation expense related to restricted shares and options of approximately $4.1 million and $7.6 million, respectively, for the year ended December 31, 2015. Converted Options
In August 2014, in conjunction with the Combination, all outstanding stock-based compensation awards were converted (the “Conversion”) to options to acquire MPG common stock. The Conversion was accounted for as a modification resulting from an equity restructuring. The terms of the original awards were modified to eliminate and replace performance-based vesting with time-based vesting over the remaining vesting periods as set forth in the original option agreements. The modification, which affected fifty-nine option holders, resulted in no incremental compensation cost to the Company. The number of options issued upon conversion and the exercise price of those options were determined based on the relative fair valuevalues of the underlying stock (HHI,of HHI, Metaldyne, or Grede) of the original awardsGrede to the overall fair value of MPG common stock at the time of the Combination. In 2014, 970,395 awards were issued by Grede, in 2013, 39,885 awards were issued by HHI and 1,991,305 awards were issued by Metaldyne, and in 2012, 1,888,450 awards were issued under HHI’s plan. The following table summarizes the weighted average terms of the Converted Options:
| | | | | | | | | | | | | Vesting Terms | | Number of Options | | | Exercise Price | | | Contractual Terms | | | | (In thousands) | | | | | | (In years) | | 1/5th per year on the anniversary of the original grant date | | | 4,890 | | | $ | 7.54 | | | | 10 | |
The Converted Options are being expensed based on their grant-date calculated values on a straight-line basis over the requisite service period for the entire award.
Calculated values were determined using a Black-Scholes valuation model based on the following weighted average assumptions:
| | | | | | | | | | | | | | | Original Grant Year | | | | 2014 | | | 2013 | | | 2012 | | Grant-date calculated value (per share) | | $ | 12.66 | | | $ | 16.05 | | | $ | 17.50 | | Exercise price | | $ | 18.66 | | | $ | 6.17 | | | $ | 3.31 | | Expected term | | | 7 years | | | | 6 years | | | | 6 years | | Risk-free rate | | | 2.0 | % | | | 1.8 | % | | | 1.8 | % | Expected volatility | | | 65.0 | % | | | 65.0 | % | | | 65.0 | % | Expected dividend yield | | | 0.0 | % | | | 0.0 | % | | | 0.0 | % |
Options Outstanding
Changes in the number of Options outstanding for the year ended December 31, 2014 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, 2013 | | | 3,920 | | | $ | 4.79 | | | | | | | | | | Granted | | | 2,522 | | | | 19.48 | | | | | | | | | | Exercised | | | — | | | | — | | | | | | | | | | Forfeited | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance, December 31, 2014 | | | 6,442 | | | $ | 10.54 | | | | 8.5 | | | $ | 49.2 | | | | | | | | | | | | | | | | | | | Options exercisable, December 31, 2014 | | | 1,938 | | | $ | 10.60 | | | | 8.2 | | | $ | 15.2 | |
Predecessor Company
The Predecessor Company issued awards to certain key executives. The Predecessor Company primarily had two types of awards. One was based on service (“Timing RSUs”). The other was based upon a change in control of HHI (“Exit RSUs”). The Timing RSUs generally vested ratably over a three-year period from the grant date. The Exit RSUs were not previously recorded in the Predecessor Company’s financial statements, as they only vested once a change in control occurred.
Based on the HHI Transaction, all outstanding awards vested on October 5, 2012. Prior to the transaction, the Timing RSUsCombination and Exit RSUs were accounted for as equity-basedConversion, Grede had issued 970,395 equity awards in 2014, HHI and the value was determined at the grant date. Equity-basedMetaldyne had issued 39,885 and 1,991,305 equity awards with exit features such as a change in control provision are required to be recorded as liability-based awards once the change in control is deemed probable. A sale is probable once the transaction is consummated. As such, the awards were accounted for as fully vested liability awards on October 5, 20122013, respectively, and, recorded at fair value in Predecessor Period 2012. This resulted in recognizing a liability of $88.6 million, additional compensation expense of $86.0 million and a reversal of $2.6 million previously recorded in equity. Compensation expense was included withinselling, general and administrative expense.
The Predecessor Company recognized additional compensation expense of $13.1 million, as part of the $86.0 million discussed above, for the 859,427 shares of Timing RSUs outstanding at the time of the HHI Transaction, when taking into consideration the $2.6 million of compensation expense previously recorded. All Timing RSUs were previously vested and the full grant-date fair value had been expensed during the vesting period, which was prior to 2011. Therefore, there was no compensation expense recognized in 2012 prior to the HHI Transaction.
The Exit RSUs did not vest until there was a change in control of HHI, therefore they became fully vested at the transaction date. The number and amount of vesting for each of the Exit RSUs was based upon return on investment at the time of the change in control of the Predecessor Company’s former parent (“KPS”) and, therefore, the number of Exit RSUs could not previously be computed until there was a change in control. Based on the transaction value, the Exit RSUs received the maximum value of 9.14%. As such, the total number of outstanding Exit RSUs as of the transaction date was 1,780,224 shares. As mentioned above, thebeginning of 2013, HHI Transaction triggered a change in accounting for thehad 1,888,450 equity awards from equity-based to liability-based. Therefore, the full fair value of the awards was expensed in Predecessor Period 2012,issued and a liability established, as no previous compensation expense was recorded. There was also a management catch-up provision to provide for the lost value of the Exit RSUs from the prior dividends taken by KPS. The total amount of compensation expense related to the Exit RSUs was $72.9 million, as part of the $86.0 million discussed above, which was recorded withinselling, general and administrative expense.
Stock-based Compensation Expenseoutstanding.
| | | | | | | | | | | | | | | | | | | | | | | Successor | | | | | | | Predecessor | | | | 2014 | | | 2013 | | | Successor Period 2012 | | | | | | | Predecessor Period 2012 | | | | (In thousands) | | Restricted shares | | $ | 309 | | | | — | | | | — | | | | | | | $ | 86,025 | | Options | | | 17,010 | | | | 6,175 | | | | 100 | | | | | | | | — | | | | | | | | | | | | | | | | | | | | | | | Total | | $ | 17,319 | | | | 6,175 | | | | 100 | | | | | | | $ | 86,025 | | | | | | | | | | | | | | | | | | | | | | | Tax benefit | | $ | 5,429 | | | | 2,270 | | | | 38 | | | | | | | $ | 33,123 | |
Compensation expense associated with the outstanding stock-based awards was recognized withinselling, general and administrative expense. Total unrecognized compensation cost related to nonvested awards as of December 31, 2014 was approximately $37.6 million, which is expected to be recognized ratably over the remaining vesting terms.
(17) Income Taxes | | | Successor | | | | | Predecessor | | | | | 2014 | | | 2013 | | | Successor Period 2012 | | | | | Predecessor Period 2012 | | | 2015 | | | 2014 | | | 2013 | | | | (In thousands) | | | (In thousands) | | Income (loss) before income taxes: | | | | | | | | | | | | | | | | | | | | | | | | | Domestic | | $ | (8,841 | ) | | | 45,101 | | | | (47,304 | ) | | | | | | $ | (37,719 | ) | | $ | 97,769 | | | | (8,841 | ) | | | 45,101 | | Foreign | | | 63,020 | | | | 47,729 | | | | 170 | | | | | | | | 954 | | | | 76,042 | | | | 63,020 | | | | 47,729 | | | | | | | | | | | | | | | | | | | | | | $ | 54,179 | | | | 92,830 | | | | (47,134 | ) | | | | $ | (36,765 | ) | | | | | | | | | | | | | | | | | | | | $ | 173,811 | | | | 54,179 | | | | 92,830 | | Provision (benefit) for income taxes: | | | | | | | | | | | | | | | | Currently payable: | | | | | | | | | | | | | | | | Federal | | $ | 43,789 | | | | 23,609 | | | | 2,283 | | | | | $ | (16,545 | ) | | $ | 31,709 | | | | 43,789 | | | | 23,609 | | Foreign | | | 18,847 | | | | 17,872 | | | | (151 | ) | | | | | 292 | | | | 23,635 | | | | 18,847 | | | | 17,872 | | State and local | | | 7,026 | | | | 2,849 | | | | — | | | | | | — | | | | 8,375 | | | | 7,026 | | | | 2,849 | | | | | | | | | | | | | | | | | | | | | 63,719 | | | | 69,662 | | | | 44,330 | | | | | 69,662 | | | | 44,330 | | | | 2,132 | | | | | | (16,253 | ) | | | | | | | | | | | | | | | | | | | | Deferred: | | | | | | | | | | | | | | | | Federal | | | (81,533 | ) | | | (6,086 | ) | | | (15,374 | ) | | | | | 8,183 | | | | (14,340 | ) | | | (81,533 | ) | | | (6,086 | ) | Foreign | | | (420 | ) | | | (3,496 | ) | | | (151 | ) | | | | | — | | | | 3,973 | | | | (420 | ) | | | (3,496 | ) | State and local | | | (6,791 | ) | | | 221 | | | | (1,854 | ) | | | | | (3,053 | ) | | | (5,288 | ) | | | (6,791 | ) | | | 221 | | | | | | | | | | | | | | | | | | | | | (15,655 | ) | | | (88,744 | ) | | | (9,361 | ) | | | | (88,744 | ) | | | (9,361 | ) | | | (17,379 | ) | | | | | 5,130 | | | | | | | | | | | | | | | | | | | | | Total income tax expense (benefit) | | $ | (19,082 | ) | | | 34,969 | | | | (15,247 | ) | | | | $ | (11,123 | ) | | $ | 48,064 | | | | (19,082 | ) | | | 34,969 | | | | | | | | | | | | | | | | | | | |
72
The components of deferred taxes as of December 31 were as follows: | | | 2014 | | | 2013 | | | 2015 | | | 2014 | | | | (In thousands) | | | (In thousands) | | Deferred tax assets: | | | | | | | | | | | | | Inventories | | $ | 2,221 | | | | 2,836 | | | $ | 4,620 | | | | 2,221 | | Property and equipment | | | 4,025 | | | | 4,405 | | | | 3,011 | | | | 4,025 | | Accrued liabilities and other long-term liabilities | | | 16,586 | | | | 8,422 | | | | 12,957 | | | | 10,621 | | Net operating losses | | | 11,857 | | | | 10,612 | | | | 12,895 | | | | 11,857 | | Capitalized transactions costs | | | 2,469 | | | | 5,041 | | | | 5,535 | | | | 2,469 | | Defined benefit pension plans | | | | 6,633 | | | | 3,069 | | Stock-based compensation | | | | 14,233 | | | | 8,436 | | Other | | | 17,104 | | | | 14,446 | | | | 11,169 | | | | 11,564 | | | | | | | | | | | 71,053 | | | | 54,262 | | | | | 54,262 | | | | 45,762 | | | Valuation allowance | | | (11,923 | ) | | | (7,055 | ) | | | (11,817 | ) | | | (11,923 | ) | | | | | | | | | | | | 42,339 | | | | 38,707 | | | | | | | 59,236 | | | | 42,339 | | Deferred tax liabilities: | | | | | | | | | | Property and equipment | | | 83,574 | | | | 96,395 | | | | 91,206 | | | | 83,574 | | Intangible assets | | | 160,547 | | | | 177,637 | | | | 181,724 | | | | 160,547 | | Investments in foreign subsidiaries | | | 5,157 | | | | 38,873 | | | | 2,163 | | | | 5,157 | | Investment in U.S. partnership | | | 33,938 | | | | — | | | | — | | | | 33,938 | | Debt issuance costs | | | — | | | | 14,663 | | | | 5,041 | | | | — | | Other | | | 6,032 | | | | 2,895 | | | | 8,727 | | | | 6,032 | | | | | | | | | | | 288,861 | | | | 289,248 | | | | | 289,248 | | | | 330,463 | | | | | | | | | | | Net deferred tax liability | | $ | 246,909 | | | | 291,756 | | | $ | 229,625 | | | | 246,909 | | | | | | | | | |
The balance sheet presentation of net deferred tax liability follows: | | | 2014 | | | 2013 | | | 2015 | | | 2014 | | | | (In thousands) | | | (In thousands) | | Assets: | | | | | | | | | | | | | Deferred income taxes, current | | $ | 12,435 | | | | 10,378 | | | $ | — | | | | 12,435 | | Deferred income taxes, noncurrent | | | 1,359 | | | | 2,785 | | | | 1,701 | | | | 1,359 | | Liabilities: | | | | | | | | | | | | | Deferred income taxes, current | | | — | | | | 16,959 | | | | — | | | | — | | Deferred income taxes, noncurrent | | | 260,703 | | | | 287,960 | | | | 231,326 | | | | 260,703 | | | | | | | | | | Net deferred tax liability | | $ | 246,909 | | | | 291,756 | | | $ | 229,625 | | | | 246,909 | | | | | | | | | |
73
The following is a reconciliation of tax computed at the U.S. federal statutory rate to the provision for income taxes allocated to income from continuing operations: | | | Successor | | | | | Predecessor | | | | | 2014 | | 2013 | | Successor Period 2012 | | | | | Predecessor Period 2012 | | | 2015 | | | 2014 | | | 2013 | | | | (In thousands) | | | (In thousands) | | U.S. federal statutory rate | | | 35 | % | | 35 | % | | 35 | % | | | | | | | 35 | % | | | 35 | % | | | 35 | % | | | 35 | % | Tax at U.S. federal statutory rate | | $ | 18,963 | | | 32,491 | | | (16,497 | ) | | | | | | $ | (12,868 | ) | | $ | 60,834 | | | | 18,963 | | | | 32,491 | | Lower effective foreign tax rate | | | | (6,912 | ) | | | (6,048 | ) | | | (6,098 | ) | State and local taxes, net of federal tax benefit | | | (1,439 | ) | | 1,628 | | | (1,534 | ) | | | | | | | (1,288 | ) | | | 4,329 | | | | (1,439 | ) | | | 1,628 | | Lower effective foreign tax rate | | | (6,048 | ) | | (6,098 | ) | | (492 | ) | | | | | | | — | | | Changes in prior-year estimates | | | | (4,198 | ) | | | 2,599 | | | | (386 | ) | Domestic production activities deduction | | | | (3,603 | ) | | | (2,321 | ) | | | (2,368 | ) | Deferred tax on outside basis of foreign shares | | | | (2,994 | ) | | | (31,619 | ) | | | 5,031 | | Non-taxable income | | | (2,870 | ) | | (2,666 | ) | | (91 | ) | | | | | | | — | | | | (2,579 | ) | | | (2,870 | ) | | | (2,666 | ) | Deferred tax on outside basis of foreign shares | | | (31,619 | ) | | 5,031 | | | 470 | | | | | | | | — | | | Change in valuation allowance | | | | 2,361 | | | | 4,868 | | | | (3,030 | ) | Nondeductible transaction/other expenses | | | | 1,729 | | | | 3,655 | | | | 3,438 | | Tax holidays, credits and incentives | | | | (1,389 | ) | | | (4,741 | ) | | | (1,543 | ) | Changes in unrecognized tax benefits | | | | 638 | | | | (2,222 | ) | | | 5,566 | | Goodwill impairment | | | 4,301 | | | | — | | | | — | | | | | | | | — | | | | — | | | | 4,301 | | | | — | | Nondeductible transaction/other expenses | | | 3,655 | | | 3,438 | | | 2,961 | | | | | | | | 1,353 | | | Change in valuation allowance | | | 4,868 | | | (3,030 | ) | | 11 | | | | | | | | — | | | Changes in unrecognized tax benefits | | | (2,222 | ) | | 5,566 | | | | — | | | | | | | | — | | | Changes in prior-year estimates | | | 2,599 | | | (386 | ) | | | — | | | | | | | | — | | | Tax holidays, credits and incentives | | | (4,741 | ) | | (1,543 | ) | | | — | | | | | | | | — | | | Domestic production activities deduction | | | (2,321 | ) | | (2,368 | ) | | (205 | ) | | | | | | | 1,681 | | | Other, net | | | (2,208 | ) | | 2,906 | | | 130 | | | | | | | | (1 | ) | | | (152 | ) | | | (2,208 | ) | | | 2,906 | | | | | | | | | | | | | | | | | | | | Income taxes | | $ | (19,082 | ) | | | 34,969 | | | | (15,247 | ) | | | | $ | (11,123 | ) | | | | | | | | | | | | | | | | | | | | Income tax expense (benefit) | | | $ | 48,064 | | | | (19,082 | ) | | | 34,969 | |
The Company’s domestic
As of December 31, 2015, the Company had approximately $81.0 million of foreign earnings attributed to the foreign subsidiaries that are indefinitely reinvested for which no U.S. income tax provision or deferred tax liabilities netare recorded. Such earnings could become taxable upon the sale or liquidation of reversing domesticthese foreign subsidiaries or upon dividend repatriation. If a U.S. deferred tax assets,liability were to be recorded on those foreign earnings, the estimated tax liability would approximate $18.7 million. For those wholly owned foreign subsidiaries where basis differentials are attributable primarilynot indefinitely reinvested, the Company provides deferred income taxes on the foreign earnings. As of December 31, 2015 and 2014, this deferred income tax liability totaled $2.2 million and $5.2 million, respectively. The Protecting Americans from Tax Hikes Act of 2015 extended the “look-through” rule under subpart F of the U.S. Internal Revenue Code through 2019. The “look-through rule” provides an exception to the basis differenceU.S. taxation of its domestic fixed assets and intangible assets.certain income generated by foreign subsidiaries. As a result of this change in law, the Company recorded a $3.2 million income tax benefit in the fourth quarter of 2015, to derecognize a portion of the deferred tax liabilities previously recorded. In the fourth quarter of 2014, MPG made the assertion that the earnings of certain foreign subsidiaries within the Metaldyne segment are indefinitely reinvested. This determination resulted from the Refinancing in October 2014 and the IPO in December 2014, which added significant flexibility to the Company’s capital structure. The assertion is also supported by the operational and investing needs of the Company’s foreign locations. As a result of this change, the Company recorded a $31.6 million deferred tax benefit for the year ended December 31, 2014 to derecognize a portion of the deferred tax liabilities previously recorded. As of December 31, 2014, the Company had approximately $97.2 million of foreign earnings attributed to the foreign subsidiaries that are indefinitely reinvested for which no U.S. income tax provision or deferred tax liabilities are recorded. If a U.S. deferred tax liability were to be recorded on those foreign earnings, the estimated tax liability would approximate $19.0 million. For those wholly owned foreign subsidiaries where basis differentials are not indefinitely reinvested, the Company provides deferred income taxes on the foreign earnings. As of December 31, 2014, this deferred income tax liability totaled $5.2 million. As of December 31, 2013, prior to the change in the indefinite reinvestment assertion, this amount was $38.9 million. As of December 31, 2014 and 2013, the Company had state income tax NOL carryforwards of $8.3 million and $12.3 million, respectively. Of the December 31, 2014 balance, state NOL carryforwards totaling $7.6 million expire in 2015 and the remaining $0.7 million expire in 2024.
As of December 31, 2014, and 2013, certain foreign subsidiaries have NOL carryforward balances totaling $37.9$40.2 million and $33.9$37.9 million, respectively. Of the December 31, 20142015 balance, foreign NOL carryforwards totaling $4.3$2.6 million will expire in various years ranging from 2018 through 2031,2024, while the remaining balance of $33.6$37.6 million has no expiration date.
The Company continues to maintain a valuation allowance related to its net deferred tax assets in multiple jurisdictions. As of December 31, 2015 and 2014, and 2013, athe Company had valuation allowanceallowances of $10.7$11.8 million and $7.1$11.9 million, has been recorded for therespectively, primarily related to tax effect on $42.5 millionloss and $32.0 million of NOL carryforwards, respectively.credit carryforwards. During the year ended December 31, 2014, the Company recorded a valuation allowance against loss carryforwards of its Brazilian and French subsidiaries for a total of $3.9 million. Due to the history of losses at these entities, the Company concluded the negative evidence outweighed the positive evidence and it was no longer more likely than not that the net deferred tax assets would be realized. In addition to these NOL valuation allowances, the Company also recorded a valuation allowance of $1.3 million against its foreign tax credit carryforwards as of December 31, 2014. The Company believes that its foreign tax credits will not be utilized within the 10 year expiration period. For its U.S. federal income tax provision, the Company has recorded a $3.0 million research and experimentation tax credit of $1.3 million and $3.0 million for the year ended December 31, 2014.2015 and 2014, respectively. In addition, the Company’s subsidiary located in Korea hashad a tax holiday, which reduced tax expense approximately $0.4 million $1.1 million and $0.1$1.1 million for the years ended December 31, 2014 and 2013 and Successor Period 2012, respectively.2013. The Korean tax holiday will expireexpired at the end of 2015. 74
A reconciliation of the total amounts of unrecognized tax benefits for the years ended December 31 2014 and 2013 and the year ended December 31, 2012 (inclusive of Successor Period 2012 and Predecessor Period 2012) follows: | | | 2014 | | | 2013 | | | 2012 | | | 2015 | | | 2014 | | | 2013 | | | | (In thousands) | | | (In thousands) | | Beginning balance | | | $9,606 | | | | 4,040 | | | | 3,703 | | | $ | 7,384 | | | | 9,606 | | | | 4,040 | | Additions to tax positions related to the current period | | | 295 | | | | — | | | | 170 | | | | 260 | | | | 295 | | | | — | | Additions to tax positions related to the prior period | | | 305 | | | | 5,372 | | | | — | | | | 395 | | | | 305 | | | | 5,372 | | Reductions in tax positions resulting from settlements with taxing authorities | | | (1,281 | ) | | | — | | | | — | | | | — | | | | (1,281 | ) | | | — | | Reductions in tax positions resulting from a lapse of the statute of limitations | | | (202 | ) | | | — | | | | — | | | | — | | | | (202 | ) | | | — | | Other | | | (1,339 | ) | | | 194 | | | | 167 | | | | (898 | ) | | | (1,339 | ) | | | 194 | | | | | | | | | | | | | Ending balance | | | $7,384 | | | | 9,606 | | | | 4,040 | | | $ | 7,141 | | | | 7,384 | | | | 9,606 | | | | | | | | | | | | |
The reserve for unrecognized tax benefits totaled $4.4$4.5 million and $6.3$4.4 million as of December 31, 20142015 and 2013,2014, respectively. This reserve primarily consists of foreign tax contingencies related to ongoing tax audits. Additionally, deferred tax assets related to net operating losses have been reduced by $3.0$2.7 million and $3.3$3.0 million as of December 31, 20142015 and 2013,2014, respectively. All of the Company’s unrecognized tax benefits would, if recognized, reduce its effective tax rate. In connection with the Metaldyne Transaction, the former owner’s stockholders have indemnified Metaldyne for all pre-closing taxes for a period of three years following the Metaldyne Transaction. An indemnification asset of $8.3$7.6 million and $7.3$8.3 million related to the foreign tax contingencies is recorded inreceivables, net as of December 31, 20142015 and 2013,2014, respectively. The Company recognizes both interest and penalties accrued with respect to an underpayment of income taxes as income tax expense. Related to the unrecognized tax benefits noted above, the amount of interest and penalty expense was $0.2 million, $0.5 million, $0.2 million, and $0.2$0.5 million for the years ended December 31, 2015, 2014 and 2013, Successor Period 2012 and Predecessor Period 2012, respectively. The Company has open tax years from 2004 to 20142015 with varying taxing jurisdictions where taxes remain subject to examination including, but not limited to, the United States of America, Spain, France, Germany, and India. All necessary adjustments for the anticipated outcomes of ongoing examinations have been properly addressed or accrued. As of December 31, 20142015 and 2013,2014, since existing examinations remain pending, it is not possible to reasonably estimate the expected change to the total amount of unrecognized tax benefits over the next twelve months. (18) Employee Benefit Plans The Company sponsors employee benefit plans for certain of its employees. Defined Benefit Pension Plans The Company sponsors defined benefit pension plans, including certain unfunded supplemental retirement plans, covering certain active and retired employees for its operations in the U.S., U.K., Germany, Mexico, France and Korea (the “Defined Benefit Pension Plans”). The straight-line method is used to amortize prior service amounts and unrecognized net actuarial (gains) losses. 75
Changes in projected benefit obligations and plan assets for the years ended December 31 were as follows: | | | 2014 | | | 2013 | | | 2015 | | | 2014 | | | | U.S. | | | Non-U.S. | | | U.S. | | | Non-U.S. | | | U.S. | | | Non-U.S. | | | U.S. | | | Non-U.S. | | | | (In thousands) | | | (In thousands) | | Accumulated benefit obligation at the end of the year | | $ | 36,642 | | | | 55,049 | | | | — | | | | 49,809 | | | $ | 32,778 | | | | 49,648 | | | | 36,642 | | | | 55,049 | | | Change in projected benefit obligation: | | | | | | | | | | | | | | | | | | | | | | | | | Beginning projected benefit obligation | | $ | — | | | | 51,349 | | | | — | | | | 49,547 | | | $ | 36,642 | | | | 56,779 | | | | — | | | | 51,349 | | Obligations recognized with the Grede Transaction | | | 33,864 | | | | — | | | | — | | | | | | — | | | | — | | | | 33,864 | | | | — | | Service cost | | | 97 | | | | 1,222 | | | | — | | | | 1,200 | | | | 32 | | | | 1,224 | | | | 97 | | | | 1,222 | | Interest cost | | | 765 | | | | 2,112 | | | | — | | | | 2,030 | | | | 1,314 | | | | 1,748 | | | | 765 | | | | 2,112 | | Actuarial (gain) loss | | | 2,968 | | | | 8,824 | | | | — | | | | (1,363 | ) | | | (1,364 | ) | | | (2,864 | ) | | | 2,968 | | | | 8,824 | | Benefits paid | | | (778 | ) | | | (1,590 | ) | | | — | | | | (1,555 | ) | | | (1,248 | ) | | | (2,015 | ) | | | (778 | ) | | | (1,590 | ) | Effect of settlements | | | (274 | ) | | | — | | | | — | | | | — | | | | (2,598 | ) | | | — | | | | (274 | ) | | | — | | Other adjustments | | | | — | | | | 1,668 | | | | — | | | | — | | Exchange rate changes | | | — | | | | (5,138 | ) | | | — | | | | 1,490 | | | | — | | | | (4,430 | ) | | | — | | | | (5,138 | ) | | | | | | | | | | | | | | | Ending projected benefit obligation | | $ | 36,642 | | | | 56,779 | | | | — | | | | 51,349 | | | $ | 32,778 | | | | 52,110 | | | | 36,642 | | | | 56,779 | | | | | | | | | | | | | | | | Change in plan assets: | | | | | | | | | | | | | | | | | | Beginning fair value of plan assets | | $ | — | | | | 27,736 | | | | — | | | | 25,906 | | | $ | 27,338 | | | | 29,203 | | | | — | | | | 27,736 | | Plan assets recognized with the Grede Transaction | | | 27,615 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 27,615 | | | | — | | Actual return on plan assets | | | 434 | | | | 3,425 | | | | — | | | | 1,295 | | | | (326 | ) | | | 57 | | | | 434 | | | | 3,425 | | Employer contributions | | | 341 | | | | 1,562 | | | | — | | | | 1,466 | | | | 728 | | | | 1,792 | | | | 341 | | | | 1,562 | | Benefits paid | | | (778 | ) | | | (1,590 | ) | | | — | | | | (1,555 | ) | | | (1,248 | ) | | | (2,015 | ) | | | (778 | ) | | | (1,590 | ) | Effect of settlements | | | (274 | ) | | | — | | | | — | | | | — | | | | (2,598 | ) | | | — | | | | (274 | ) | | | — | | Exchange rate changes | | | — | | | | (1,930 | ) | | | — | | | | 624 | | | | — | | | | (1,472 | ) | | | — | | | | (1,930 | ) | | | | | | | | | | | | | | | Ending fair value of plan assets | | $ | 27,338 | | | | 29,203 | | | | — | | | | 27,736 | | | $ | 23,894 | | | | 27,565 | | | | 27,338 | | | | 29,203 | | | | | | | | | | | | | | | |
Amounts recognized on the consolidated balance sheets as of December 31 were as follows: | | | 2014 | | | 2013 | | | 2015 | | | 2014 | | | | U.S. | | | Non-U.S. | | | U.S. | | | Non-U.S. | | | U.S. | | | Non-U.S. | | | U.S. | | | Non-U.S. | | | | (In thousands) | | | (In thousands) | | Amounts recognized in liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | Current liabilities | | $ | — | | | | (215 | ) | | | — | | | | (401 | ) | | $ | — | | | | (354 | ) | | | — | | | | (215 | ) | Noncurrent liabilities | | | (9,304 | ) | | | (27,361 | ) | | | — | | | | (23,212 | ) | | | (8,883 | ) | | | (24,191 | ) | | | (9,304 | ) | | | (27,361 | ) | | | | | | | | | | | | | | | Funded status | | | (9,304 | ) | | | (27,576 | ) | | | — | | | | (23,613 | ) | | | (8,883 | ) | | | (24,545 | ) | | | (9,304 | ) | | | (27,576 | ) | Amounts recognized in accumulated other comprehensive income: | | | | | | | | | | | | | | | | | | Net actuarial (gain) loss | | | 3,471 | | | | 5,743 | | | | — | | | | (1,016 | ) | | | | | | | | | | | | | | | | Total recognized on the balance sheets | | $ | (5,833 | ) | | | (21,833 | ) | | | — | | | | (24,629 | ) | | | | | | | | | | | | | | | | Net actuarial loss | | | | 3,680 | | | | 3,974 | | | | 3,471 | | | | 5,743 | | Total recognized on the consolidated balance sheets | | | $ | (5,203 | ) | | | (20,571 | ) | | | (5,833 | ) | | | (21,833 | ) |
The current portion of the above retirement benefit liabilities is recognized inaccrued liabilities and the noncurrent portion is recognized inother long-term liabilities. Changes in accumulated comprehensive income for the years ended December 31 were as follows: | | | 2014 | | | 2013 | | | 2015 | | | 2014 | | | | U.S. | | | Non-U.S. | | | U.S. | | | Non-U.S. | | | U.S. | | | Non-U.S. | | | U.S. | | | Non-U.S. | | | | (In thousands) | | | (In thousands) | | Beginning accumulated other comprehensive income | | $ | — | | | | (1,016 | ) | | | — | | | | — | | | $ | 3,471 | | | | 5,743 | | | | — | | | | (1,016 | ) | Current period (gain) loss | | | 3,471 | | | | 7,280 | | | | — | | | | (965 | ) | | | 209 | | | | (1,167 | ) | | | 3,471 | | | | 7,280 | | Exchange rate changes | | | — | | | | (521 | ) | | | — | | | | (51 | ) | | | — | | | | (602 | ) | | | — | | | | (521 | ) | | | | | | | | | | | | | | | Ending accumulated other comprehensive income | | $ | 3,471 | | | | 5,743 | | | | — | | | | (1,016 | ) | | $ | 3,680 | | | | 3,974 | | | | 3,471 | | | | 5,743 | | | | | | | | | | | | | | | |
The amounts in accumulated other comprehensive income that are expected to be recognized as components of net periodic benefit cost in 20152016 are de minimis for the U.S. plans and $0.2$0.1 million for the non-U.S. plans. 76
Weighted average assumptions used to determine the benefit obligations as of December 31 were as follows: | | | 2014 | | 2013 | | | 2015 | | | 2014 | | | | U.S. | | Non-U.S. | | U.S. | | | Non-U.S. | | | U.S. | | Non-U.S. | | | U.S. | | Non-U.S. | | Discount rate | | | 3.77 | % | | 3.08 | % | | | — | | | | 4.26 | % | | 4.10% | | 3.46% | | | 3.77% | | 3.08% | | Rate of compensation increase | | | Not applicable | | | 4.74 | | | | — | | | | 4.80 | | | Not applicable | | | 4.65 | | | Not applicable | | | 4.74 | |
Weighted average assumptions used to determine net periodic benefit cost for the periods ended of December 31 were as follows: | | | 2014 | | 2013 | | Successor 2012 | | | 2015 | | | 2014 | | | 2013 | | | | U.S. | | Non-U.S. | | U.S. | | | Non-U.S. | | U.S. | | | Non-U.S. | | | U.S. | | | Non-U.S. | | | U.S. | | | Non-U.S. | | | U.S. | | | Non-U.S. | | Discount rate | | | 4.04 | % | | 4.26 | % | | | — | | | | 4.23 | % | | | — | | | | 4.23 | % | | 3.77% | | | 3.22% | | | 4.04% | | | 4.26% | | | | — | | | 4.23% | | Expected long-term return of plan assets | | | 7.25 | | | 6.77 | | | | — | | | | 6.77 | | | | — | | | | 6.77 | | | | 7.25 | | | | 6.80 | | | | 7.25 | | | | 6.77 | | | | — | | | | 6.77 | | Rate of compensation increase | | | Not applicable | | | 4.80 | | | | — | | | | 4.85 | | | | — | | | | 4.86 | | | Not applicable | | | | 4.46 | | | Not applicable | | | | 4.80 | | | | — | | | | 4.85 | |
The discount rate used was determined based upon available yields for high quality corporate and government bonds of the plan countries, utilizing similar durations/terms and currencies of the plan liabilities. The non-U.S. country specific rates are weighted by projected benefit obligation to arrive at a single weighted average rate. The expected long-term rate of return for the plans’ total assets is based on the expected return of each of the below asset categories, weighted based on the target allocation for each class. Equity securities and growth assets are expected to return 7% to 9% over the long-term, while debt securities and liability matching assets are expected to return between 3% and 5%. The rate of compensation increase for the U.S. plans is not applicable as the plans’ benefits are based upon credited years of service. Net periodic benefit cost for the periods ended of December 31 was as follows: | | | 2014 | | | 2013 | | | Successor 2012 | | | 2015 | | | 2014 | | | 2013 | | | | U.S. | | | Non-U.S. | | | U.S. | | | Non-U.S. | | | U.S. | | | Non-U.S. | | | U.S. | | | Non-U.S. | | | U.S. | | | Non-U.S. | | | U.S. | | | Non-U.S. | | | | (In thousands) | | | (In thousands) | | Service cost | | $ | 97 | | | | 1,222 | | | | — | | | | 1,200 | | | | — | | | | 38 | | | $ | 32 | | | | 1,224 | | | | 97 | | | | 1,222 | | | | — | | | | 1,200 | | Interest cost | | | 765 | | | | 2,112 | | | | — | | | | 2,030 | | | | — | | | | 82 | | | | 1,314 | | | | 1,748 | | | | 765 | | | | 2,112 | | | | — | | | | 2,030 | | Expected return on plan assets | | | (959 | ) | | | (1,868 | ) | | | — | | | | (1,693 | ) | | | — | | | | (62 | ) | | | (1,681 | ) | | | (1,949 | ) | | | (959 | ) | | | (1,868 | ) | | | — | | | | (1,693 | ) | Amortization of net actuarial gain | | | — | | | | (12 | ) | | | — | | | | — | | | | — | | | | — | | | Amortization of net actuarial gain (loss) | | | | 4 | | | | 120 | | | | — | | | | (12 | ) | | | — | | | | — | | Effect of settlement | | | 22 | | | | 17 | | | | — | | | | — | | | | — | | | | — | | | | 428 | | | | — | | | | 22 | | | | 17 | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | | | Net periodic benefit cost | | $ | (75 | ) | | | 1,471 | | | | — | | | | 1,537 | | | | — | | | | 58 | | | $ | 97 | | | | 1,143 | | | | (75 | ) | | | 1,471 | | | | — | | | | 1,537 | | | | | | | | | | | | | | | | | | | | | | |
The weighted average asset allocations as of December 31 were as follows: | | | 2014 | | 2013 | | | 2015 | | | 2014 | | | | U.S. | | Non-U.S. | | U.S. | | | Non-U.S. | | | U.S. | | | Non-U.S. | | | U.S. | | | Non-U.S. | | Asset category: | | | | | | | | | | | | | | | | | | | | | | | | | Equity securities | | | 49 | % | | 70 | % | | | — | | | | 76 | % | | | 51 | % | | | 77 | % | | | 49 | % | | | 70 | % | Debt securities | | | 41 | | | 25 | | | | — | | | | 19 | | | | 39 | | | | 16 | | | | 41 | | | | 25 | | Real estate | | | 10 | | | | — | | | | — | | | | — | | | | 10 | | | | — | | | | 10 | | | | — | | Cash | | | — | | | 4 | | | | — | | | | 3 | | | | — | | | | 4 | | | | — | | | | 4 | | Other | | | — | | | 1 | | | | — | | | | 2 | | | | — | | | | 3 | | | | — | | | | 1 | | | | | | | | | | | | | | | | Total | | | 100 | % | | | 100 | % | | | — | | | | 100 | % | | | 100 | % | | | 100 | % | | | 100 | % | | | 100 | % | | | | | | | | | | | | | | |
Certain policies are established to provide for growth of capital with a moderate level of volatility by investing assets per the target allocations. The plans’ asset allocation percentages at December 31, 20142015 and 20132014 approximated the target asset allocation ranges. The targeted asset allocations and the investment policies are reviewed periodically to determine if the policies should be changed. 77
Fair value measurements for plan assets as of December 31, 2015 were as follows: | | Total | | | Level 1 | | | Level 2 | | | Level 3 | | | | (In thousands) | | Asset category: | | | | | | | | | | | | | | | | | U.S. Plans | | | | | | | | | | | | | | | | | Mutual funds: | | | | | | | | | | | | | | | | | Equity securities | | $ | 12,123 | | | | — | | | | 12,123 | | | | — | | Fixed income securities | | | 9,321 | | | | — | | | | 9,321 | | | | — | | Real estate | | | 2,450 | | | | — | | | | 1,189 | | | | 1,261 | | Total | | $ | 23,894 | | | | — | | | | 22,633 | | | | 1,261 | | Non-U.S. Plans | | | | | | | | | | | | | | | | | Cash and cash equivalents | | $ | 1,031 | | | | 1,031 | | | | | | | | — | | Mutual funds (non-U.S.): | | | | | | | | | | | | | | | | | Equity securities | | | 21,353 | | | | — | | | | 21,353 | | | | — | | Fixed income securities | | | 4,308 | | | | — | | | | 4,308 | | | | — | | Mixed asset mutual funds (equity/fixed income) | | | 873 | | | | — | | | | 873 | | | | — | | Total | | $ | 27,565 | | | | 1,031 | | | | 26,534 | | | | — | |
Fair value measurements for plan assets as of December 31, 2014 were as follows: | | | | | | | | | | | | | | | | | | | Total | | | Level 1 | | | Level 2 | | | Level 3 | | | | (In thousands) | | Asset category: | | | | | | | | | | | | | | | | | U.S. Plans | | | | | | | | | | | | | | | | | Mutual funds: | | | | | | | | | | | | | | | | | Equity securities | | $ | 13,379 | | | | — | | | | 13,379 | | | | — | | Fixed income securities | | | 11,279 | | | | — | | | | 11,279 | | | | — | | Real estate | | | 2,680 | | | | — | | | | — | | | | 2,680 | | | | | | | | | | | | | | | | | | | Total | | $ | 27,338 | | | | — | | | | 24,658 | | | | 2,680 | | | | | | | | | | | | | | | | | | | Non-U.S. Plans | | | | | | | | | | | | | | | | | Cash and cash equivalents | | $ | 770 | | | | 770 | | | | — | | | | — | | Mutual funds (non-U.S.): | | | | | | | | | | | | | | | | | Equity securities | | | 20,369 | | | | — | | | | 20,369 | | | | — | | Fixed income securities | | | 6,660 | | | | — | | | | 6,660 | | | | — | | Mixed asset mutual funds (equity/fixed income) | | | 1,404 | | | | — | | | | 1,404 | | | | — | | | | | | | | | | | | | | | | | | | Total | | $ | 29,203 | | | | 770 | | | | 28,433 | | | | — | | | | | | | | | | | | | | | | | | |
Fair value measurements as of December 31, 2013 were as follows:
| | Total | | | Level 1 | | | Level 2 | | | Level 3 | | | | (In thousands) | | Asset category: | | | | | | | | | | | | | | | | | U.S. Plans | | | | | | | | | | | | | | | | | Mutual funds: | | | | | | | | | | | | | | | | | Equity securities | | $ | 13,379 | | | | — | | | | 13,379 | | | | — | | Fixed income securities | | | 11,279 | | | | — | | | | 11,279 | | | | — | | Real estate | | | 2,680 | | | | — | | | | — | | | | 2,680 | | Total | | $ | 27,338 | | | | — | | | | 24,658 | | | | 2,680 | | Non-U.S. Plans | | | | | | | | | | | | | | | | | Cash and cash equivalents | | $ | 770 | | | | 770 | | | | — | | | | — | | Mutual funds (non-U.S.): | | | | | | | | | | | | | | | | | Equity securities | | | 20,369 | | | | — | | | | 20,369 | | | | — | | Fixed income securities | | | 6,660 | | | | — | | | | 6,660 | | | | — | | Mixed asset mutual funds (equity/fixed income) | | | 1,404 | | | | — | | | | 1,404 | | | | — | | Total | | $ | 29,203 | | | | 770 | | | | 28,433 | | | | — | |
| | | | | | | | | | | | | | | | | | | Total | | | Level 1 | | | Level 2 | | | Level 3 | | | | (In thousands) | | Non-U.S. Plans | | | | | | | | | | | | | | | | | Cash and cash equivalents | | $ | 815 | | | | 815 | | | | — | | | | — | | Mutual funds (non-U.S.): | | | | | | | | | | | | | | | | | Equity securities | | | 20,174 | | | | — | | | | 20,174 | | | | — | | Fixed income securities | | | 4,651 | | | | — | | | | 4,651 | | | | — | | Mixed asset mutual funds (equity/fixed income) | | | 2,096 | | | | — | | | | 2,096 | | | | — | | | | | | | | | | | | | | | | | | | Total | | $ | 27,736 | | | | 815 | | | | 26,921 | | | | — | | | | | | | | | | | | | | | | | | |
Level 1 assets include cash and cash equivalents and are valued at cost. Level 2 assets include investments in mutual funds and are valued using observable market inputs. Level 3 assets include investments in real estate and are valued using unobservable inputs that are significant to the overall fair value measurement. The following table summarizes the changes in Level 3 assets: | | | | (In thousands) | | | | (In thousands) | | | Balance as of December 31, 2013 | | $ | — | | | Fair value of plan assets from Grede Transaction | | | 2,839 | | | Balance as of December 31, 2014 | | | $ | 2,680 | | Transfers to Level 2 | | | | (1,334 | ) | Return on plan assets | | | 62 | | | | 174 | | Purchases | | | 39 | | | | 10 | | Sales | | | (260 | ) | | | (269 | ) | | | | | | Balance as of December 31, 2014 | | $ | 2,680 | | | | | | | | Balance as of December 31, 2015 | | | $ | 1,261 | |
Contributions to the U.S. plans and the non-U.S. plans in 20152016 are estimated to be $0.4 millionzero and $1.3$1.4 million, respectively. Contributions are expected to meet or exceed the minimum funding requirements of the relevant governmental authorities. Contributions may be made in excess of the minimum funding requirements in response to the plans’ investment performance, to achieve funding levels required by defined benefit plan arrangements or when deemed to be financially advantageous to do so based on their other cash requirements. 78
The following payments, which reflect expected future service, as appropriate, are expected to be paid by the plans: | | | U.S. | | | Non-U.S. | | | U.S. | | | Non-U.S. | | | | (In thousands) | | | (In thousands) | | December 31: | | | | | | | | | | | | | 2015 | | $ | 1,600 | | | | 1,310 | | | 2016 | | | 1,757 | | | | 1,594 | | | $ | 1,520 | | | | 1,605 | | 2017 | | | 1,677 | | | | 1,693 | | | | 1,750 | | | | 1,787 | | 2018 | | | 2,020 | | | | 1,788 | | | | 1,820 | | | | 1,807 | | 2019 | | | 1,789 | | | | 1,854 | | | | 1,560 | | | | 1,833 | | 2020–2024 | | | 10,900 | | | | 11,438 | | | 2020 | | | | 1,860 | | | | 1,887 | | 2021–2025 | | | | 9,770 | | | | 12,109 | |
Defined Contribution Plans The Company sponsors a number of qualified defined contribution personal savings plans for U.S. hourly and salaried employees. These plans allow eligible employees to contribute a portion of their compensation into the plans and generally provide employer matching contributions. In addition to the employer match, for certain of the plans, a contribution is made for each participant based on a dollar amount per hour worked. Contributions were $7.6 million for 2015, $6.7 million for 2014, and $4.9 million for 2013, and $3.0 million for 2012, inclusive of the Predecessor and Successor Periods. 2013.(19) Fair Value Measurements The carrying value and fair value of the notes and term loans as of December 31 were as follows: | | | | | | | | | | | | | | | | | | | 2014 | | | 2013 | | | | Carrying Value | | | Fair Value | | | Carrying Value | | | Fair Value | | | | (In thousands) | | Senior Notes | | $ | 600,000 | | | | 615,000 | | | | — | | | | — | | Term Loan | | | 1,333,421 | | | | 1,343,350 | | | | — | | | | — | | HHI Term Loan | | | — | | | | — | | | | 561,940 | | | | 572,600 | | Metaldyne Term Loans | | | — | | | | — | | | | 667,704 | | | | 677,721 | |
| | 2015 | | | 2014 | | | | Carrying Value | | | Fair Value | | | Carrying Value | | | Fair Value | | | | (In thousands) | | Registered Notes | | $ | 600,000 | | | | 605,910 | | | $ | 600,000 | | | | 615,000 | | Term Loan Facility | | | — | | | | — | | | | 1,333,421 | | | | 1,343,350 | | USD Term Loan | | | 1,016,643 | | | | 1,000,489 | | | | — | | | | — | | Euro Term Loan | | | 243,046 | | | | 243,242 | | | | — | | | | — | |
The fair values of the SeniorRegistered Notes and Term Loanterm loans were estimated using quoted market prices. As the markets for these loansthis debt are not active, the loans are categorized as Level 2 within the fair value hierarchy. The fair values of the HHI Term Loan were estimated using a discounted cash flow analysis based on inputs consisting of internal forecasts and projections and have, therefore, been categorized as Level 3 within the fair value hierarchy. The fair values of the Metaldyne Term Loans were estimated using quoted market prices. As the markets for these loans are not active, the loans aredebt 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. (20) 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 remedial actions at certain of its facilities. A reserve estimate for each environmental matter is established using standard engineering cost estimating techniques on an undiscounted basis. In determining such costs, consideration is given to the professional judgment of Company environmental engineers. The Company believes any liability that may result from the resolution of environmental matters for which sufficient information is available to support these cost estimates will not have a material adverse effect on the 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. As of December 31, 2014, 38%2015, 39% of the Company’s worldwide labor force was subject to collective bargaining agreements. The Company does not have national agreements in place with any union and its facilities are represented by a variety of different 79
labor organizations. Collective bargaining agreements covering 20%11% of the labor force will expire in 2015.2016. The remaining agreements expire in 2016 through 2018.2017, 2018, and 2019. (21) Related Party Transactions HHI, Metaldyne and Grede were parties to management services agreement with American Securities. Advisory and management fees and expenses totaling $14.7 million for 2014, and $4.5 million for 2013 and $16.3 million for Successor Period 2012 were paid to American Securities under the agreements. These agreements were terminated upon completion of the initial public offering of the Company’s common stock on December 12, 2014. AmountsAs of December 31, 2015 there were no amounts due to American Securities totaled $0.0 million and $0.6 million as of December 31, 2014 and 2013, respectivelySecurities. As of December 31, 2014,2015, affiliates of American Securities held 80.7%75.7% of the outstanding common stock of the Company. Prior to the HHI Transaction, an agreement with KPS and its affiliates to provide management, investment, advisory and consulting services was in place. Advisory fees in connection to the HHI Transaction and management fees and expenses of $1.3 million for Predecessor Period 2012 were paid to KPS under the agreement.
(22) Segment and Geographical Data The Company is organized and operated as three operating segments: the HHI segment, the Metaldyne segment and the Grede segment. The HHI segment manufactures highly-engineered metal-based products for the North American light vehicle market. These components are used in Powertrain and Safety-Critical applications, including transmission components, drive line components, wheel hubs, axle ring and pinion gears, sprockets, balance shaft gears, timing drive systems, variable valve timing (“VVT”)VVT components, transfer case components and wheel bearings. The Metaldyne segment manufactures highly-engineered metal-based Powertrain products for the global light vehicle markets. These components include connecting rods, VVT components, balance shaft systems, and crankshaft dampers, differential gears, pinions and assemblies, valve bodies, hollow and solid shafts, clutch modules and assembled end covers. The Grede segment manufactures cast, machined and assembled components for the light, commercial and industrial (agriculture, construction, mining, rail, wind energy and oil field) vehicle and equipment end-markets. These components are used in Powertrain and Safety-Critical applications, including turbocharger housings, differential carriers and cases, scrolls and covers, brake calipers and housings, knuckles, control arms and axle components. The Company evaluates the performance of its operating segments based on external sales and Adjusted EBITDA. Adjusted EBITDA is calculated asnet income (loss) before tax adjusted to exclude depreciation and amortization expense,interest expense, net and other income and expenses that are either non-recurring or non-cash by nature, as well as management fees paid to American Securities (“sponsor management fees”). Adjusted EBITDA is a primary driver of cash flows from operations and a measure of our ability to maintain and continue to invest in our operations and provide stockholder returns. Adjusted EBITDA may not be comparable to similarly titled measures reported by other companies. Segment information for 2015, 2014 2013 and Successor Period 20122013 was as follows: | | | 2014 | | | December 31, 2014 | | | 2015 | | | December 31, 2015 | | | | External Sales | | | Intersegment Sales | | Adjusted EBITDA | | | Capital Expenditures | | | Depreciation/ Amortization | | | Total Assets | | | External Sales | | | Intersegment Sales | | | Adjusted EBITDA | | | Capital Expenditures | | | Depreciation/ Amortization | | | Total Assets | | | | (In thousands) | | | (In thousands) | | HHI | | $ | 968,508 | | | | 9,036 | | | 193,480 | | | | 61,644 | | | | 76,854 | | | $ | 944,104 | | | $ | 984,765 | | | | 8,887 | | | | 199,835 | | | | 69,853 | | | | 79,106 | | | $ | 905,468 | | Metaldyne | | | 1,176,367 | | | | 1,173 | | | 202,353 | | | | 70,484 | | | | 92,504 | | | | 1,216,375 | | | | 1,155,741 | | | | 1,208 | | | | 205,698 | | | | 85,430 | | | | 78,196 | | | | 1,243,764 | | Grede | | | 572,126 | | | | 7 | | | 82,758 | | | | 24,262 | | | | 41,450 | | | | 982,005 | | | | 906,749 | | | | 343 | | | | 132,700 | | | | 69,050 | | | | 72,404 | | | | 954,633 | | Elimination and other | | | — | | | | (10,216 | ) | | | — | | | | — | | | | — | | | | 82,128 | | | | — | | | | (10,438 | ) | | | — | | | | 1,980 | | | | 66 | | | | 73,320 | | | | | | | | | | | | | | | | | | | | | | Total | | $ | 2,717,001 | | | | — | | | | 478,591 | | | | 156,390 | | | | 210,807 | | | $ | 3,224,612 | | | $ | 3,047,255 | | | | — | | | | 538,233 | | | | 226,313 | | | | 229,772 | | | $ | 3,177,185 | | | | | | | | | | | | | | | | | | | | | |
| | | 2013 | | | December 31, 2013 | | | 2014 | | | December 31, 2014 | | | | External Sales | | | Intersegment Sales | | Adjusted EBITDA | | | Capital Expenditures | | | Depreciation/ Amortization | | | Total Assets | | | External Sales | | | Intersegment Sales | | | Adjusted EBITDA | | | Capital Expenditures | | | Depreciation/ Amortization | | | Total Assets | | | | (In thousands) | | | (In thousands) | | HHI | | $ | 906,516 | | | | 9,942 | | | 175,033 | | | | 45,068 | | | | 71,740 | | | $ | 993,512 | | | $ | 968,508 | | | | 9,036 | | | | 193,480 | | | | 61,644 | | | | 76,854 | | | $ | 944,104 | | Metaldyne | | | 1,110,765 | | | | 1,242 | | | 188,059 | | | | 77,188 | | | | 91,642 | | | | 1,223,984 | | | | 1,176,367 | | | | 1,173 | | | | 202,353 | | | | 70,484 | | | | 92,503 | | | | 1,216,375 | | Grede | | | | 572,126 | | | | 7 | | | | 82,758 | | | | 24,262 | | | | 41,450 | | | | 982,005 | | Elimination and other | | | — | | | | (11,184 | ) | | | — | | | | — | | | | — | | | | (680 | ) | | | — | | | | (10,216 | ) | | | — | | | | — | | | | — | | | | 82,128 | | | | | | | | | | | | | | | | | | | | | | Total | | $ | 2,017,281 | | | | — | | | | 363,092 | | | | 122,256 | | | | 163,382 | | | $ | 2,216,816 | | | $ | 2,717,001 | | | | — | | | | 478,591 | | | | 156,390 | | | | 210,807 | | | $ | 3,224,612 | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | Successor Period 2012 | | | | External Sales | | | Intersegment Sales | | | Adjusted EBITDA | | | Capital Expenditures | | | Depreciation/ Amortization | | | | | | | | | | (In thousands) | | | | | HHI | | $ | 186,416 | | | | — | | | | 28,511 | | | | 8,498 | | | | 15,207 | | Metaldyne | | | 18,897 | | | | 13 | | | | 881 | | | | 1,932 | | | | 3,485 | | Elimination and other | | | — | | | | (13 | ) | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | | | Total | | $ | 205,313 | | | | — | | | | 29,392 | | | | 10,430 | | | | 18,692 | | | | | | | | | | | | | | | | | | | | | | |
80
| | 2013 | | | December 31, 2013 | | | | External Sales | | | Intersegment Sales | | | Adjusted EBITDA | | | Capital Expenditures | | | Depreciation/ Amortization | | | Total Assets | | | | (In thousands) | | HHI | | $ | 906,516 | | | | 9,942 | | | | 175,033 | | | | 45,068 | | | | 71,740 | | | $ | 993,512 | | Metaldyne | | | 1,110,765 | | | | 1,242 | | | | 188,059 | | | | 77,188 | | | | 91,642 | | | | 1,223,984 | | Elimination and other | | | — | | | | (11,184 | ) | | | — | | | | — | | | | — | | | | (680 | ) | Total | | $ | 2,017,281 | | | | — | | | | 363,092 | | | | 122,256 | | | | 163,382 | | | $ | 2,216,816 | |
Elimination and other above reflects the elimination of intercompany sales, payables and receivables and assets held by the parent company. Assets held by the parent company primarily consist of cash and cash equivalents, deferred tax assets and unamortized debt fees. For Predecessor Period 2012, the Company had only one segment. Reconciliation of Adjusted EBITDA to income (loss) before tax follows: | | | Successor | | | | | 2014 | | | 2013 | | | Successor Period 2012 | | | 2015 | | | 2014 | | | 2013 | | | | (In thousands) | | | (In thousands) | | Adjusted EBITDA | | $ | 478,591 | | | | 363,092 | | | | 29,392 | | | $ | 538,233 | | | | 478,591 | | | | 363,092 | | Depreciation and amortization | | | (210,807 | ) | | | (163,382 | ) | | | (18,692 | ) | | | (229,772 | ) | | | (210,807 | ) | | | (163,382 | ) | Interest expense, net | | | (99,894 | ) | | | (74,667 | ) | | | (11,148 | ) | | | (107,487 | ) | | | (99,894 | ) | | | (74,667 | ) | Loss on debt extinguishment | | | (60,713 | ) | | | — | | | | — | | | | (368 | ) | | | (60,713 | ) | | | — | | Gain (loss) on foreign currency | | | 15,723 | | | | (2,295 | ) | | | (1,548 | ) | | | 20,175 | | | | 15,723 | | | | (2,295 | ) | Gain (loss) on fixed assets | | | (2,125 | ) | | | (1,419 | ) | | | — | | | Loss on fixed assets | | | | (2,863 | ) | | | (2,125 | ) | | | (1,419 | ) | Debt transaction expenses | | | (2,973 | ) | | | (6,014 | ) | | | — | | | | (1,774 | ) | | | (2,973 | ) | | | (6,014 | ) | Stock-based compensation | | | (17,319 | ) | | | (6,175 | ) | | | (100 | ) | | | (27,664 | ) | | | (17,319 | ) | | | (6,175 | ) | Sponsor management fees | | | (5,078 | ) | | | (4,000 | ) | | | (555 | ) | | | — | | | | (5,078 | ) | | | (4,000 | ) | Non-recurring acquisition and purchase accounting items | | | (22,994 | ) | | | (10,491 | ) | | | (43,254 | ) | | | (3,042 | ) | | | (22,994 | ) | | | (10,491 | ) | Non-recurring operational items | | | (18,232 | ) | | | (1,819 | ) | | | (1,229 | ) | | | (11,627 | ) | | | (18,232 | ) | | | (1,819 | ) | | | | | | | | | | | | Income (loss) before tax | | $ | 54,179 | | | | 92,830 | | | | (47,134 | ) | | | | | | | | | | | | | Income before tax | | | $ | 173,811 | | | | 54,179 | | | | 92,830 | |
The following table presents total assets, long-lived assets and net assets by geographic area, attributed to each subsidiary’s continent of domicile as of December 31, 20142015 and 2013.2014. | | | 2014 | | | 2013 | | | 2015 | | | 2014 | | | | Total assets | | | Noncurrent assets | | | Net assets | | | Total assets | | | Noncurrent assets | | | Net assets | | | Total assets | | | Noncurrent assets | | | Net assets | | | Total assets | | | Noncurrent assets | | | Net assets | | | | (In thousands) | | | (In thousands) | | United States of America | | $ | 2,684,690 | | | | 2,178,658 | | | | 199,414 | | | | 1,777,301 | | | | 1,456,689 | | | | 50,950 | | | $ | 2,611,978 | | | | 2,130,737 | | | | 264,445 | | | | 2,684,690 | | | | 2,178,658 | | | | 199,414 | | Europe | | | 308,667 | | | | 187,870 | | | | 196,577 | | | | 308,085 | | | | 203,242 | | | | 194,756 | | | | 304,937 | | | | 173,352 | | | | 211,169 | | | | 308,667 | | | | 187,870 | | | | 196,577 | | Other foreign | | | 231,255 | | | | 111,948 | | | | 128,971 | | | | 131,430 | | | | 47,703 | | | | 79,474 | | | | 260,270 | | | | 137,141 | | | | 163,421 | | | | 231,255 | | | | 111,948 | | | | 128,971 | | | | | | | | | | | | | | | | | | | | | | Total foreign | | | 539,922 | | | | 299,818 | | | | 325,548 | | | | 439,515 | | | | 250,945 | | | | 274,230 | | | | 565,207 | | | | 310,493 | | | | 374,590 | | | | 539,922 | | | | 299,818 | | | | 325,548 | | | | | | | | | | | | | | | | | | | | | | Total | | $ | 3,224,612 | | | | 2,478,476 | | | | 524,962 | | | | 2,216,816 | | | | 1,707,634 | | | | 325,180 | | | $ | 3,177,185 | | | | 2,441,230 | | | | 639,035 | | | | 3,224,612 | | | | 2,478,476 | | | | 524,962 | | | | | | | | | | | | | | | | | | | | | |
The following table presents the net sales by geographic area, attributed to each subsidiary’s continent of domicile: | | | Successor | | | | Predecessor | | | | | 2014 | | | 2013 | | | Successor Period 2012 | | | | Predecessor Period 2012 | | | 2015 | | | 2014 | | | 2013 | | | | (In thousands) | | | (In thousands) | | United States of America | | $ | 2,035,941 | | | | 1,487,596 | | | | 193,666 | | | | | | | $ | 674,134 | | | $ | 2,349,731 | | | | 2,035,941 | | | | 1,487,596 | | Europe | | | 403,506 | | | | 384,040 | | | | 4,530 | | | | | | | | — | | | | 365,295 | | | | 403,506 | | | | 384,040 | | Other foreign | | | 277,554 | | | | 145,645 | | | | 7,117 | | | | | | | 6,380 | | | | 332,229 | | | | 277,554 | | | | 145,645 | | | | | | | | | | | | | | | | | | | | Total foreign | | | 681,060 | | | | 529,685 | | | | 11,647 | | | | | | 6,380 | | | | 697,524 | | | | 681,060 | | | | 529,685 | | | | | | | | | | | | | | | | | | | | Total | | $ | 2,717,001 | | | | 2,017,281 | | | | 205,313 | | | | | $ | 680,514 | | | $ | 3,047,255 | | | | 2,717,001 | | | | 2,017,281 | | | | | | | | | | | | | | | | | | | |
During 2014,2015, direct sales to two customers accounted for 16%24% and 10%21% of net sales, respectively. 81
(23) Summarized Quarterly Financial Information (Unaudited) | | | 2014 Quarter Ended | | | 2015 Quarter Ended | | | | March 30 | | | June 29 | | | September 28 | | | December 31 | | | Full Year | | | March 29 | | | June 28 | | | September 27 | | | December 31 | | | Full Year | | | | (In thousands, except EPS amounts) | | | (In thousands, except EPS amounts) | | Net sales | | $ | 540,459 | | | | 641,403 | | | | 772,967 | | | | 762,172 | | | | 2,717,001 | | | $ | 765,167 | | | | 800,235 | | | | 746,640 | | | | 735,213 | | | | 3,047,255 | | Gross profit | | | 83,266 | | | | 104,179 | | | | 117,441 | | | | 118,007 | | | | 422,893 | | | | 128,539 | | | | 142,063 | | | | 126,241 | | | | 119,167 | | | | 516,010 | | Net income attributable to stockholders | | | 22,602 | | | | 15,384 | | | | 24,600 | | | | 10,241 | | | | 72,827 | | | | 32,441 | | | | 44,109 | | | | 28,205 | | | | 20,549 | | | | 125,304 | | | Basic EPS | | $ | 0.34 | | | | 0.23 | | | | 0.37 | | | | 0.15 | | | | 1.09 | | | $ | 0.48 | | | | 0.66 | | | | 0.42 | | | | 0.30 | | | | 1.86 | | Diluted EPS | | | 0.33 | | | | 0.22 | | | | 0.36 | | | | 0.15 | | | | 1.06 | | | | 0.47 | | | | 0.64 | | | | 0.41 | | | | 0.29 | | | | 1.80 | |
| | | 2013 Quarter Ended | | | 2014 Quarter Ended | | | | March 31 | | | June 30 | | | September 29 | | | December 31 | | | Full Year | | | March 30 | | | June 29 | | | September 28 | | | December 31 | | | Full Year | | | | (In thousands, except EPS amounts) | | | (In thousands, except EPS amounts) | | Net sales | | $ | 497,409 | | | | 513,614 | | | | 494,898 | | | | 511,360 | | | | 2,017,281 | | | $ | 540,459 | | | | 641,403 | | | | 772,967 | | | | 762,172 | | | | 2,717,001 | | Gross profit | | | 74,357 | | | | 78,708 | | | | 75,949 | | | | 79,594 | | | | 308,608 | | | | 83,266 | | | | 104,179 | | | | 117,441 | | | | 118,007 | | | | 422,893 | | Net income attributable to stockholders | | | 17,596 | | | | 23,949 | | | | 12,042 | | | | 3,981 | | | | 57,568 | | | | 22,602 | | | | 15,384 | | | | 24,600 | | | | 10,241 | | | | 72,827 | | | Basic EPS | | $ | 0.26 | | | | 0.36 | | | | 0.18 | | | | 0.06 | | | | 0.86 | | | $ | 0.34 | | | | 0.23 | | | | 0.37 | | | | 0.15 | | | | 1.09 | | Diluted EPS | | | 0.26 | | | | 0.36 | | | | 0.18 | | | | 0.06 | | | | 0.86 | | | | 0.33 | | | | 0.22 | | | | 0.36 | | | | 0.15 | | | | 1.06 | |
(24) Guarantor The outstanding balances of the Senior Credit Facilities and SeniorRegistered Notes, entered into and issued on October 20, 2014, 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 Holdco (together, “Parent”(“Issuer”). The guarantee is full, unconditional, joint and several. The Company’s non-domestic subsidiaries have not guaranteed the Senior Credit Facilities or the SeniorRegistered Notes (“Non-Guarantor Subsidiaries”). 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. | | | | | | | | | | | | | | | | | | | | | Condensed Consolidating Balance Sheet | | December 31, 2014 | | (In thousands) | | | | Parent | | | Guarantor | | | Non-Guarantor | | | Eliminations | | | Consolidated | | Assets | | | | | | | | | | | | | | | | | | | | | Current assets: | | | | | | | | | | | | | | | | | | | | | Cash and cash equivalents | | $ | 52,254 | | | | 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 | | | 3,370 | | | | 6,986 | | | | 2,648 | | | | — | | | | 13,004 | | Other assets | | | — | | | | 6,425 | | | | 8,099 | | | | — | | | | 14,524 | | | | | | | | | | | | | | | | | | | | | | | Total current assets | | | 55,890 | | | | 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 | | | 1,864,968 | | | | — | | | | — | | | | (1,864,968 | ) | | | — | | Investment in subsidiaries | | | 529,838 | | | | 656,504 | | | | — | | | | (1,186,342 | ) | | | — | | | | | | | | | | | | | | | | | | | | | | | Total assets | | $ | 2,475,277 | | | | 2,971,350 | | | | 888,340 | | | | (3,110,355 | ) | | | 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 | | | 18,855 | | | | 38,353 | | | | 53,124 | | | | (30,398 | ) | | | 79,934 | | Deferred income taxes | | | — | | | | — | | | | — | | | | — | | | | — | | 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 | | | 32,893 | | | | 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 payable | | | — | | | | 1,864,968 | | | | — | | | | (1,864,968 | ) | | | — | | | | | | | | | | | | | | | | | | | | | | | Total liabilities | | | 1,952,814 | | | | 2,441,512 | | | | 229,337 | | | | (1,924,013 | ) | | | 2,699,650 | | | | | | | | | | | | | | | | | | | | | | | Stockholders’ equity: | | | | | | | | | | | | | | | | | | | | | Total equity attributable to stockholders | | | 522,463 | | | | 529,838 | | | | 656,504 | | | | (1,186,342 | ) | | | 522,463 | | Noncontrolling interest | | | — | | | | — | | | | 2,499 | | | | — | | | | 2,499 | | | | | | | | | | | | | | | | | | | | | | | Total stockholders’ equity | | | 522,463 | | | | 529,838 | | | | 659,003 | | | | (1,186,342 | ) | | | 524,962 | | | | | | | | | | | | | | | | | | | | | | | Total liabilities and stockholders’ equity | | $ | 2,475,277 | | | | 2,971,350 | | | | 888,340 | | | | (3,110,355 | ) | | | 3,224,612 | | | | | | | | | | | | | | | | | | | | | | |
82
Condensed Consolidating Balance Sheet December 31, 20132015 (In thousands) | | | Parent | | | Guarantor | | | Non-Guarantor | | | Eliminations | | Consolidated | | | Parent | | | Issuer | | | Guarantor | | | Non-Guarantor | | | Eliminations | | | Consolidated | | Assets | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Current assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cash and cash equivalents | | $ | — | | | | 720 | | | | 67,504 | | | | — | | | 68,224 | | | $ | — | | | | 50,509 | | | | 10,815 | | | | 106,832 | | | | — | | | | 168,156 | | Receivables, net: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Trade | | | — | | | | 180,015 | | | | 42,289 | | | | — | | | 222,304 | | | | — | | | | — | | | | 242,357 | | | | 67,714 | | | | (992 | ) | | | 309,079 | | Other | | | — | | | | 50,345 | | | | 20,610 | | | | (44,350 | ) | | 26,605 | | | | 57 | | | | — | | | | 70,946 | | | | 19,820 | | | | (55,472 | ) | | | 35,351 | | | | | | | | | | | | | | | | | | | Total receivables, net | | | — | | | | 230,360 | | | | 62,899 | | | | (44,350 | ) | | | 248,909 | | | | 57 | | | | — | | | | 313,303 | | | | 87,534 | | | | (56,464 | ) | | | 344,430 | | Inventories | | | — | | | | 110,010 | | | | 44,790 | | | | — | | | | 154,800 | | | | — | | | | — | | | | 139,127 | | | | 47,721 | | | | — | | | | 186,848 | | Deferred income taxes | | | — | | | | 7,685 | | | | 2,693 | | | | — | | | | 10,378 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | Prepaid expenses | | | — | | | | 8,928 | | | | 1,822 | | | | — | | | | 10,750 | | | | — | | | | 3,218 | | | | 7,437 | | | | 4,379 | | | | — | | | | 15,034 | | Other assets | | | — | | | | 10,989 | | | | 5,132 | | | | — | | | | 16,121 | | | | 5,322 | | | | — | | | | 8,537 | | | | 7,628 | | | | — | | | | 21,487 | | | | | | | | | | | | | | | | | | | Total current assets | | | — | | | | 368,692 | | | | 184,840 | | | | (44,350 | ) | | | 509,182 | | | | 5,379 | | | | 53,727 | | | | 479,219 | | | | 254,094 | | | | (56,464 | ) | | | 735,955 | | Property and equipment, net | | | — | | | | 364,700 | | | | 174,804 | | | | — | | | | 539,504 | | | | — | | | | 2,016 | | | | 546,271 | | | | 237,666 | | | | — | | | | 785,953 | | Goodwill | | | — | | | | 466,749 | | | | 191,242 | | | | — | | | | 657,991 | | | | — | | | | — | | | | 673,209 | | | | 234,507 | | | | — | | | | 907,716 | | Amortizable intangible assets, net | | | — | | | | 350,451 | | | | 113,505 | | | | — | | | | 463,956 | | | | — | | | | — | | | | 561,695 | | | | 147,215 | | | | — | | | | 708,910 | | Deferred income taxes, noncurrent | | | — | | | | — | | | | 2,785 | | | | — | | | | 2,785 | | | | 14,242 | | | | — | | | | — | | | | 1,701 | | | | (14,242 | ) | | | 1,701 | | Other assets | | | — | | | | 42,636 | | | | 14,001 | | | | (13,239 | ) | | | 43,398 | | | | — | | | | 22,336 | | | | 14,178 | | | | 436 | | | | — | | | | 36,950 | | Intercompany receivables | | | | 56,253 | | | | 1,734,587 | | | | — | | | | 4,890 | | | | (1,795,730 | ) | | | — | | Investment in subsidiaries | | | 323,085 | | | | 511,751 | | | | — | | | | (834,836 | ) | | | — | | | | 618,967 | | | | 695,939 | | | | 673,773 | | | | — | | | | (1,988,679 | ) | | | — | | | | | | | | | | | | | | | | | | | Total assets | | $ | 323,085 | | | | 2,104,979 | | | | 681,177 | | | | (892,425 | ) | | | 2,216,816 | | | $ | 694,841 | | | | 2,508,605 | | | | 2,948,345 | | | | 880,509 | | | | (3,855,115 | ) | | | 3,177,185 | | | | | | | | | | | | | | | | | | | Liabilities and Stockholders’ Equity | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Current liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | Accounts payable | | $ | — | | | | 120,967 | | | | 78,323 | | | | (18,709 | ) | | | 180,581 | | | $ | 2 | | | | 1,016 | | | | 165,697 | | | | 104,974 | | | | (22,827 | ) | | | 248,862 | | Accrued compensation | | | — | | | | 28,246 | | | | 11,833 | | | | — | | | | 40,079 | | | | — | | | | 4,385 | | | | 38,409 | | | | 12,336 | | | | — | | | | 55,130 | | Accrued liabilities | | | — | | | | 35,645 | | | | 45,319 | | | | (26,053 | ) | | | 54,911 | | | | 538 | | | | 19,121 | | | | 27,166 | | | | 53,614 | | | | (33,637 | ) | | | 66,802 | | Deferred income taxes | | | — | | | | 16,396 | | | | 563 | | | | — | | | | 16,959 | | | Short-term debt | | | — | | | | 18,439 | | | | 1,939 | | | | — | | | | 20,378 | | | | — | | | | — | | | | — | | | | 723 | | | | — | | | | 723 | | Current maturities, long-term debt and capital lease obligations | | | — | | | | 24,025 | | | | 118 | | | | — | | | | 24,143 | | | | — | | | | 13,180 | | | | 1,145 | | | | 145 | | | | — | | | | 14,470 | | | | | | | | | | | | | | | | | | | Total current liabilities | | | — | | | | 243,718 | | | | 138,095 | | | | (44,762 | ) | | | 337,051 | | | | 540 | | | | 37,702 | | | | 232,417 | | | | 171,792 | | | | (56,464 | ) | | | 385,987 | | Long-term debt, less current maturities | | | — | | | | 1,222,143 | | | | 272 | | | | (12,827 | ) | | | 1,209,588 | | | | — | | | | 1,846,509 | | | | — | | | | 237 | | | | — | | | | 1,846,746 | | Capital lease obligations | | | — | | | | 25,868 | | | | 69 | | | | — | | | | 25,937 | | | | — | | | | — | | | | 22,470 | | | | 19 | | | | — | | | | 22,489 | | Deferred income taxes | | | — | | | | 282,865 | | | | 5,095 | | | | — | | | | 287,960 | | | | — | | | | 5,041 | | | | 233,476 | | | | 7,051 | | | | (14,242 | ) | | | 231,326 | | Other long-term liabilities | | | — | | | | 7,300 | | | | 23,800 | | | | — | | | | 31,100 | | | | — | | | | 386 | | | | 26,476 | | | | 24,740 | | | | — | | | | 51,602 | | | | | | | | | | | | | | | | | | | Intercompany payables | | | | 58,163 | | | | — | | | | 1,737,567 | | | | — | | | | (1,795,730 | ) | | | — | | Total liabilities | | | — | | | | 1,781,894 | | | | 167,331 | | | | (57,589 | ) | | | 1,891,636 | | | | 58,703 | | | | 1,889,638 | | | | 2,252,406 | | | | 203,839 | | | | (1,866,436 | ) | | | 2,538,150 | | | | | | | | | | | | | | | | | | | Stockholders’ equity: | | | | | | | | | | | | | | | | | | | | | | | | | | Total equity attributable to stockholders | | | 323,085 | | | | 323,085 | | | | 511,751 | | | | (834,836 | ) | | | 323,085 | | | | 636,138 | | | | 618,967 | | | | 695,939 | | | | 673,773 | | | | (1,988,679 | ) | | | 636,138 | | Noncontrolling interest | | | — | | | | — | | | | 2,095 | | | | — | | | | 2,095 | | | | — | | | | — | | | | — | | | | 2,897 | | | | — | | | | 2,897 | | | | | | | | | | | | | | | | | | | Total stockholders’ equity | | | 323,085 | | | | 323,085 | | | | 513,846 | | | | (834,836 | ) | | | 325,180 | | | | 636,138 | | | | 618,967 | | | | 695,939 | | | | 676,670 | | | | (1,988,679 | ) | | | 639,035 | | | | | | | | | | | | | | | | | | | Total liabilities and stockholders’ equity | | $ | 323,085 | | | | 2,104,979 | | | | 681,177 | | | | (892,425 | ) | | | 2,216,816 | | | $ | 694,841 | | | | 2,508,605 | | | | 2,948,345 | | | | 880,509 | | | | (3,855,115 | ) | | | 3,177,185 | | | | | | | | | | | | | | | | | | |
Successor
83
Condensed Consolidating Statements of OperationsBalance Sheet December 31, 2014 (In thousands) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | For the Year Ended December 31, 2014 | | Parent | | | Guarantor | | | Non-Guarantor | | | Eliminations | | | Consolidated | | Net sales | | $ | — | | | | 2,109,613 | | | | 723,711 | | | | (116,323 | ) | | | 2,717,001 | | Cost of sales | | | — | | | | 1,793,437 | | | | 616,994 | | | | (116,323 | ) | | | 2,294,108 | | | | | | | | | | | | | | | | | | | | | | | Gross profit | | | — | | | | 316,176 | | | | 106,717 | | | | — | | | | 422,893 | | Selling, general and administrative expenses | | | — | | | | 157,221 | | | | 37,369 | | | | — | | | | 194,590 | | Goodwill impairment | | | — | | | | 11,803 | | | | — | | | | — | | | | 11,803 | | Acquisition costs | | | — | | | | 13,046 | | | | — | | | | — | | | | 13,046 | | | | | | | | | | | | | | | | | | | | | | | Operating profit (loss) | | | — | | | | 134,106 | | | | 69,348 | | | | — | | | | 203,454 | | | | | | | | | | | | | | | | | | | | | | | Interest expense, net | | | 22,279 | | | | 67,395 | | | | 10,220 | | | | — | | | | 99,894 | | Loss on debt extinguishment | | | — | | | | 60,713 | | | | — | | | | — | | | | 60,713 | | Other, net | | | — | | | | (16,356 | ) | | | 5,024 | | | | — | | | | (11,332 | ) | | | | | | | | | | | | | | | | | | | | | | Other expense, net | | | 22,279 | | | | 111,752 | | | | 15,244 | | | | — | | | | 149,275 | | | | | | | | | | | | | | | | | | | | | | | Income (loss) before tax | | | (22,279 | ) | | | 22,354 | | | | 54,104 | | | | — | | | | 54,179 | | Income tax expense (benefit) | | | (8,822 | ) | | | (26,811 | ) | | | 16,551 | | | | — | | | | (19,082 | ) | | | | | | | | | | | | | | | | | | | | | | Income (loss) before from equity in subsidiaries | | | (13,457 | ) | | | 49,165 | | | | 37,553 | | | | — | | | | 73,261 | | Earnings (loss) from equity in subsidiaries | | | 86,284 | | | | 37,119 | | | | — | | | | (123,403 | ) | | | — | | | | | | | | | | | | | | | | | | | | | | | Net income (loss) | | | 72,827 | | | | 86,284 | | | | 37,553 | | | | (123,403 | ) | | | 73,261 | | Income attributable to noncontrolling interest | | | — | | | | — | | | | 434 | | | | — | | | | 434 | | | | | | | | | | | | | | | | | | | | | | | Net income (loss) attributable to stockholders | | $ | 72,827 | | | | 86,284 | | | | 37,119 | | | | (123,403 | ) | | | 72,827 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | For the Year Ended December 31, 2013 | | Parent | | | Guarantor | | | Non-Guarantor | | | Eliminations | | | Consolidated | | Net sales | | $ | — | | | | 1,508,294 | | | | 617,991 | | | | (109,004 | ) | | | 2,017,281 | | Cost of sales | | | — | | | | 1,290,448 | | | | 527,229 | | | | (109,004 | ) | | | 1,708,673 | | | | | | | | | | | | | | | | | | | | | | | Gross profit | | | — | | | | 217,846 | | | | 90,762 | | | | — | | | | 308,608 | | Selling, general and administrative expenses | | | — | | | | 92,782 | | | | 30,457 | | | | — | | | | 123,239 | | | | | | | | | | | | | | | | | | | | | | | Operating profit (loss) | | | — | | | | 125,064 | | | | 60,305 | | | | — | | | | 185,369 | | | | | | | | | | | | | | | | | | | | | | | Interest expense, net | | | — | | | | 65,978 | | | | 8,689 | | | | — | | | | 74,667 | | Other, net | | | — | | | | 3,944 | | | | 13,928 | | | | — | | | | 17,872 | | | | | | | | | | | | | | | | | | | | | | | Other expense, net | | | — | | | | 69,922 | | | | 22,617 | | | | — | | | | 92,539 | | | | | | | | | | | | | | | | | | | | | | | Income (loss) before tax | | | — | | | | 55,142 | | | | 37,688 | | | | — | | | | 92,830 | | Income tax expense (benefit) | | | — | | | | 20,502 | | | | 14,467 | | | | — | | | | 34,969 | | | | | | | | | | | | | | | | | | | | | | | Income (loss) before from equity in subsidiaries | | | — | | | | 34,640 | | | | 23,221 | | | | — | | | | 57,861 | | Earnings (loss) from equity in subsidiaries | | | 57,568 | | | | 22,928 | | | | — | | | | (80,496 | ) | | | — | | | | | | | | | | | | | | | | | | | | | | | Net income (loss) | | | 57,568 | | | | 57,568 | | | | 23,221 | | | | (80,496 | ) | | | 57,861 | | Income attributable to noncontrolling interest | | | — | | | | — | | | | 293 | | | | — | | | | 293 | | | | | | | | | | | | | | | | | | | | | | | Net income (loss) attributable to stockholders | | $ | 57,568 | | | | 57,568 | | | | 22,928 | | | | (80,496 | ) | | | 57,568 | | | | | | | | | | | | | | | | | | | | | | |
| | 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 | | Deferred income taxes | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | 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 | |
84
Condensed Consolidating Statements of Operations (In thousands) | For Successor Period 2012 | | Parent | | Guarantor | | Non-Guarantor | | Eliminations | | Consolidated | | | For the Year Ended December 31, 2015 | | | Parent | | | Issuer | | | Guarantor | | | Non-Guarantor | | | Eliminations | | | Consolidated | | Net sales | | $ | — | | | 194,467 | | | 13,944 | | | (3,098 | ) | | 205,313 | | | $ | — | | | | — | | | | 2,432,296 | | | | 739,748 | | | | (124,789 | ) | | | 3,047,255 | | Cost of sales | | | — | | | 184,814 | | | 17,798 | | | (3,098 | ) | | 199,514 | | | | — | | | | — | | | | 2,034,440 | | | | 621,594 | | | | (124,789 | ) | | | 2,531,245 | | | | | | | | | | | | | | | | | | | Gross profit | | | — | | | | 9,653 | | | | (3,854 | ) | | | — | | | | 5,799 | | | | — | | | | — | | | | 397,856 | | | | 118,154 | | | | — | | | | 516,010 | | Selling, general and administrative expenses | | | — | | | | 13,580 | | | | 774 | | | | — | | | | 14,354 | | | | — | | | | — | | | | 205,577 | | | | 44,119 | | | | — | | | | 249,696 | | Acquisition costs | | | — | | | | 25,921 | | | | — | | | | — | | | | 25,921 | | | | | | | | | | | | | | | | | | | | Operating profit (loss) | | | — | | | | (29,848 | ) | | | (4,628 | ) | | | — | | | | (34,476 | ) | | | | | | | | | | | | | | | | | | | Operating profit | | | | — | | | | — | | | | 192,279 | | | | 74,035 | | | | — | | | | 266,314 | | Interest expense, net | | | — | | | | 10,884 | | | | 264 | | | | — | | | | 11,148 | | | | 8 | | | | 102,213 | | | | (4,201 | ) | | | 9,467 | | | | — | | | | 107,487 | | Loss on debt extinguishment | | | | — | | | | 368 | | | | — | | | | — | | | | — | | | | 368 | | Other, net | | | — | | | | 1,888 | | | | (378 | ) | | | — | | | | 1,510 | | | | 6 | | | | (8,163 | ) | | | (10,575 | ) | | | 3,380 | | | | — | | | | (15,352 | ) | | | | | | | | | | | | | | | | | | Other expense, net | | | — | | | | 12,772 | | | | (114 | ) | | | — | | | | 12,658 | | | | 14 | | | | 94,418 | | | | (14,776 | ) | | | 12,847 | | | | — | | | | 92,503 | | | | | | | | | | | | | | | | | | | Income (loss) before tax | | | — | | | | (42,620 | ) | | | (4,514 | ) | | | — | | | | (47,134 | ) | | | (14 | ) | | | (94,418 | ) | | | 207,055 | | | | 61,188 | | | | — | | | | 173,811 | | Income tax expense (benefit) | | | — | | | | (14,919 | ) | | | (328 | ) | | | — | | | | (15,247 | ) | | | (5 | ) | | | (30,903 | ) | | | 56,178 | | | | 22,794 | | | | — | | | | 48,064 | | Income (loss) before from equity in subsidiaries | | | | (9 | ) | | | (63,515 | ) | | | 150,877 | | | | 38,394 | | | | — | | | | 125,747 | | Earnings from equity in subsidiaries | | | | 125,313 | | | | 188,828 | | | | 37,951 | | | | — | | | | (352,092 | ) | | | — | | Net income | | | | 125,304 | | | | 125,313 | | | | 188,828 | | | | 38,394 | | | | (352,092 | ) | | | 125,747 | | Income attributable to noncontrolling interest | | | | — | | | | — | | | | — | | | | 443 | | | | — | | | | 443 | | Net income attributable to stockholders | | | $ | 125,304 | | | | 125,313 | | | | 188,828 | | | | 37,951 | | | | (352,092 | ) | | | 125,304 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Income (loss) before from equity in subsidiaries | | | — | | | | (27,701 | ) | | | (4,186 | ) | | | — | | | | (31,887 | ) | | Earnings (loss) from equity in subsidiaries | | | (31,932 | ) | | | (4,231 | ) | | | — | | | | 36,163 | | | | — | | | | | | | | | | | | | | | | | | | | Net income (loss) | | | (31,932 | ) | | | (31,932 | ) | | | (4,186 | ) | | | 36,163 | | | | (31,887 | ) | | Income attributable to noncontrolling interest | | | — | | | | — | | | | 45 | | | | — | | | | 45 | | | | | | | | | | | | | | | | | | | | Net income (loss) attributable to stockholders | | $ | (31,932 | ) | | | (31,932 | ) | | | (4,231 | ) | | | 36,163 | | | | (31,932 | ) | | | | | | | | | | | | | | | | | | | | | | | | | For Predecessor Period 2012 | | Parent | | Guarantor | | Non-Guarantor | | Eliminations | | Consolidated | | | For the Year Ended December 31, 2014 | | | Parent | | | Issuer | | | Guarantor | | | Non-Guarantor | | | Eliminations | | | Consolidated | | Net sales | | $ | — | | | 675,141 | | | 6,380 | | | (1,007 | ) | | 680,514 | | | $ | — | | | | — | | | | 2,109,613 | | | | 723,711 | | | | (116,323 | ) | | | 2,717,001 | | Cost of sales | | | — | | | 554,376 | | | 5,623 | | | (1,007 | ) | | 558,992 | | | | — | | | | — | | | | 1,793,437 | | | | 616,994 | | | | (116,323 | ) | | | 2,294,108 | | | | | | | | | | | | | | | | | | | Gross profit | | | — | | | | 120,765 | | | | 757 | | | | — | | | | 121,522 | | | | — | | | | — | | | | 316,176 | | | | 106,717 | | | | — | | | | 422,893 | | Selling, general and administrative expenses | | | — | | | | 116,645 | | | | — | | | | — | | | | 116,645 | | | | — | | | | — | | | | 157,221 | | | | 37,369 | | | | — | | | | 194,590 | | Goodwill impairment | | | | — | | | | — | | | | 11,803 | | | | — | | | | — | | | | 11,803 | | Acquisition costs | | | — | | | | 13,421 | | | | — | | | | — | | | | 13,421 | | | | — | | | | — | | | | 13,046 | | | | — | | | | — | | | | 13,046 | | | | | | | | | | | | | | | | | | | Operating profit (loss) | | | — | | | | (9,301 | ) | | | 757 | | | | — | | | | (8,544 | ) | | | | | | | | | | | | | | | | | | | Operating profit | | | | — | | | | — | | | | 134,106 | | | | 69,348 | | | | — | | | | 203,454 | | Interest expense, net | | | — | | | | 25,766 | | | | — | | | | — | | | | 25,766 | | | | — | | | | 22,279 | | | | 67,395 | | | | 10,220 | | | | — | | | | 99,894 | | Loss on debt extinguishment | | | | — | | | | — | | | | 60,713 | | | | — | | | | — | | | | 60,713 | | Other, net | | | — | | | | 2,652 | | | | (197 | ) | | | — | | | | 2,455 | | | | — | | | | — | | | | (16,356 | ) | | | 5,024 | | | | — | | | | (11,332 | ) | | | | | | | | | | | | | | | | | | Other expense, net | | | — | | | | 28,418 | | | | (197 | ) | | | — | | | | 28,221 | | | | — | | | | 22,279 | | | | 111,752 | | | | 15,244 | | | | — | | | | 149,275 | | | | | | | | | | | | | | | | | | | Income (loss) before tax | | | — | | | | (37,719 | ) | | | 954 | | | | — | | | | (36,765 | ) | | | — | | | | (22,279 | ) | | | 22,354 | | | | 54,104 | | | | — | | | | 54,179 | | Income tax expense (benefit) | | | — | | | | (11,415 | ) | | | 292 | | | | — | | | | (11,123 | ) | | | — | | | | (8,822 | ) | | | (26,811 | ) | | | 16,551 | | | | — | | | | (19,082 | ) | | | | | | | | | | | | | | | | | | Income (loss) before equity in subsidiaries | | | — | | | | (26,304 | ) | | | 662 | | | | — | | | | (25,642 | ) | | Earnings (loss) from equity in subsidiaries | | | — | | | | — | | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | Net income (loss) | | | — | | | | (26,304 | ) | | | 662 | | | | — | | | | (25,642 | ) | | Income (loss) before from equity in subsidiaries | | | | — | | | | (13,457 | ) | | | 49,165 | | | | 37,553 | | | | — | | | | 73,261 | | Earnings from equity in subsidiaries | | | | 72,827 | | | | 86,284 | | | | 37,119 | | | | — | | | | (196,230 | ) | | | — | | Net income | | | | 72,827 | | | | 72,827 | | | | 86,284 | | | | 37,553 | | | | (196,230 | ) | | | 73,261 | | Income attributable to noncontrolling interest | | | — | | | | — | | | | 136 | | | | — | | | | 136 | | | | — | | | | — | | | | — | | | | 434 | | | | — | | | | 434 | | | | | | | | | | | | | | | | | | | Net income (loss) attributable to stockholders | | $ | — | | | | (26,304 | ) | | | 526 | | | | — | | | | (25,778 | ) | | | | | | | | | | | | | | | | | | | Net income attributable to stockholders | | | $ | 72,827 | | | | 72,827 | | | | 86,284 | | | | 37,119 | | | | (196,230 | ) | | | 72,827 | |
| | | | | | | | | | | | | | | | | | | | | Condensed Consolidating Statements of Comprehensive Income (Loss) | | (In thousands) | | | | | | | | | | Parent | | | Guarantor | | | Non-Guarantor | | | Eliminations | | | Consolidated | | Successor: For the year ended December 31, 2014 | | | | | | | | | | | | | | | | | | | | | | | | | | | Net income (loss) | | $ | 72,827 | | | | 86,284 | | | | 37,553 | | | | (123,403 | ) | | | 73,261 | | Other comprehensive income (loss), net of tax: | | | | | | | | | | | | | | | | | | | | | Foreign currency translation | | | (23,984 | ) | | | (23,552 | ) | | | (22,184 | ) | | | 45,736 | | | | (23,984 | ) | Net actuarial gain (loss) on defined benefit plans | | | (7,995 | ) | | | (7,995 | ) | | | (4,730 | ) | | | 12,725 | | | | (7,995 | ) | | | | | | | | | | | | | | | | | | | | | | Other comprehensive income (loss), net of tax | | | (31,979 | ) | | | (31,547 | ) | | | (26,914 | ) | | | 58,461 | | | | (31,979 | ) | | | | | | | | | | | | | | | | | | | | | | Comprehensive income (loss) | | | 40,848 | | | | 54,737 | | | | 10,639 | | | | (64,942 | ) | | | 41,282 | | Less comprehensive income attributable to noncontrolling interest | | | — | | | | — | | | | 404 | | | | — | | | | 404 | | | | | | | | | | | | | | | | | | | | | | | Comprehensive income (loss) attributable to stockholders | | $ | 40,848 | | | | 54,737 | | | | 10,235 | | | | (64,942 | ) | | | 40,878 | | | | | | | | | | | | | | | | | | | | | | | Successor: For the year ended December 31, 2013 | | | | | | | | | | | | | | | | | | | | | | | | | | | Net income (loss) | | $ | 57,568 | | | | 57,568 | | | | 23,221 | | | | (80,496 | ) | | | 57,861 | | Other comprehensive income (loss), net of tax: | | | | | | | | | | | | | | | | | | | | | Foreign currency translation | | | (3,481 | ) | | | (3,481 | ) | | | (1,866 | ) | | | 5,347 | | | | (3,481 | ) | Net actuarial gain (loss) on defined benefit plans | | | 462 | | | | 462 | | | | 708 | | | | (1,170 | ) | | | 462 | | | | | | | | | | | | | | | | | | | | | | | Other comprehensive income (loss), net of tax | | | (3,019 | ) | | | (3,019 | ) | | | (1,158 | ) | | | 4,177 | | | | (3,019 | ) | | | | | | | | | | | | | | | | | | | | | | Comprehensive income (loss) | | | 54,549 | | | | 54,549 | | | | 22,063 | | | | (76,319 | ) | | | 54,842 | | Less comprehensive income attributable to noncontrolling interest | | | — | | | | — | | | | 191 | | | | — | | | | 191 | | | | | | | | | | | | | | | | | | | | | | | Comprehensive income (loss) attributable to stockholders | | $ | 54,549 | | | | 54,549 | | | | 21,872 | | | | (76,319 | ) | | | 54,651 | | | | | | | | | | | | | | | | | | | | | | | Successor: For Successor Period 2012 | | | | | | | | | | | | | | | | | | | | | | | | | | | Net income (loss) | | $ | (31,932 | ) | | | (31,932 | ) | | | (4,186 | ) | | | 36,163 | | | | (31,887 | ) | Other comprehensive income (loss), net of tax: | | | | | | | | | | | | | | | | | | | | | Foreign currency translation | | | (397 | ) | | | (397 | ) | | | (790 | ) | | | 1,187 | | | | (397 | ) | Net actuarial gain (loss) on defined benefit plans | | | 6 | | | | 6 | | | | — | | | | (6 | ) | | | 6 | | | | | | | | | | | | | | | | | | | | | | | Other comprehensive income (loss), net of tax | | | (391 | ) | | | (391 | ) | | | (790 | ) | | | 1,181 | | | | (391 | ) | | | | | | | | | | | | | | | | | | | | | | Comprehensive income (loss) | | | (32,323 | ) | | | (32,323 | ) | | | (4,976 | ) | | | 37,344 | | | | (32,278 | ) | Less comprehensive income attributable to noncontrolling interest | | | — | | | | — | | | | 36 | | | | — | | | | 36 | | | | | | | | | | | | | | | | | | | | | | | Comprehensive income (loss) attributable to stockholders | | $ | (32,323 | ) | | | (32,323 | ) | | | (5,012 | ) | | | 37,344 | | | | (32,314 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Predecessor: For Predecessor Period 2012 | | | | | | | | | | | | | | | | | | | | | Net income (loss) | | $ | — | | | | (26,304 | ) | | | 662 | | | | — | | | | (25,642 | ) | Other comprehensive income (loss), net of tax: | | | | | | | | | | | | | | | | | | | | | Foreign currency translation | | | — | | | | — | | | | 296 | | | | — | | | | 296 | | Net actuarial gain (loss) on defined benefit plans | | | — | | | | — | | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | | | Other comprehensive income (loss), net of tax | | | — | | | | — | | | | 296 | | | | — | | | | 296 | | | | | | | | | | | | | | | | | | | | | | | Comprehensive income (loss) | | | — | | | | (26,304 | ) | | | 958 | | | | — | | | | (25,346 | ) | Less comprehensive income attributable to noncontrolling interest | | | — | | | | — | | | | 139 | | | | — | | | | 139 | | | | | | | | | | | | | | | | | | | | | | | Comprehensive income (loss) attributable to stockholders | | $ | — | | | | (26,304 | ) | | | 819 | | | | — | | | | (25,485 | ) | | | | | | | | | | | | | | | | | | | | | |
85
Condensed Consolidating Statements of Operations (In thousands) For the Year Ended December 31, 2013 | | Parent | | | Issuer | | | Guarantor | | | Non-Guarantor | | | Eliminations | | | Consolidated | | Net sales | | $ | — | | | | — | | | | 1,508,294 | | | | 617,991 | | | | (109,004 | ) | | | 2,017,281 | | Cost of sales | | | — | | | | — | | | | 1,290,448 | | | | 527,229 | | | | (109,004 | ) | | | 1,708,673 | | Gross profit | | | — | | | | — | | | | 217,846 | | | | 90,762 | | | | — | | | | 308,608 | | Selling, general and administrative expenses | | | — | | | | — | | | | 92,782 | | | | 30,457 | | | | — | | | | 123,239 | | Operating profit | | | — | | | | — | | | | 125,064 | | | | 60,305 | | | | — | | | | 185,369 | | Interest expense, net | | | — | | | | — | | | | 65,978 | | | | 8,689 | | | | — | | | | 74,667 | | Other, net | | | — | | | | — | | | | 3,944 | | | | 13,928 | | | | — | | | | 17,872 | | Other expense, net | | | — | | | | — | | | | 69,922 | | | | 22,617 | | | | — | | | | 92,539 | | Income before tax | | | — | | | | — | | | | 55,142 | | | | 37,688 | | | | — | | | | 92,830 | | Income tax expense | | | — | | | | — | | | | 20,502 | | | | 14,467 | | | | — | | | | 34,969 | | Income before from equity in subsidiaries | | | — | | | | — | | | | 34,640 | | | | 23,221 | | | | — | | | | 57,861 | | Earnings from equity in subsidiaries | | | 57,568 | | | | 57,568 | | | | 22,928 | | | | — | | | | (138,064 | ) | | | — | | Net income | | | 57,568 | | | | 57,568 | | | | 57,568 | | | | 23,221 | | | | (138,064 | ) | | | 57,861 | | Income attributable to noncontrolling interest | | | — | | | | — | | | | — | | | | 293 | | | | — | | | | 293 | | Net income attributable to stockholders | | $ | 57,568 | | | | 57,568 | | | | 57,568 | | | | 22,928 | | | | (138,064 | ) | | | 57,568 | |
86
Condensed Consolidating Statements of Comprehensive Income (In thousands) | | Parent | | | Issuer | | | Guarantor | | | Non-Guarantor | | | Eliminations | | | Consolidated | | For the year ended December 31, 2015 | | | | | | | | | | | | | | | | | | | | | | | | | Net income | | $ | 125,304 | | | | 125,313 | | | | 188,828 | | | | 38,394 | | | | (352,092 | ) | | | 125,747 | | Other comprehensive loss, net of tax: | | | | | | | | | | | | | | | | | | | | | | | | | Foreign currency translation | | | (24,303 | ) | | | (24,985 | ) | | | (24,985 | ) | | | (21,828 | ) | | | 71,798 | | | | (24,303 | ) | Net actuarial gain on defined benefit plans | | | 1,781 | | | | 1,781 | | | | 1,781 | | | | 1,102 | | | | (4,664 | ) | | | 1,781 | | Losses on defined benefit plans recognized in net income | | | 432 | | | | 432 | | | | 432 | | | | — | | | | (864 | ) | | | 432 | | Other comprehensive loss, net of tax | | | (22,090 | ) | | | (22,772 | ) | | | (22,772 | ) | | | (20,726 | ) | | | 66,270 | | | | (22,090 | ) | Comprehensive income | | | 103,214 | | | | 102,541 | | | | 166,056 | | | | 17,668 | | | | (285,822 | ) | | | 103,657 | | Less comprehensive income attributable to noncontrolling interest | | | — | | | | — | | | | — | | | | 398 | | | | — | | | | 398 | | Comprehensive income attributable to stockholders | | $ | 103,214 | | | | 102,541 | | | | 166,056 | | | | 17,270 | | | | (285,822 | ) | | | 103,259 | | For the year ended December 31, 2014 | | | | | | | | | | | | | | | | | | | | | | | | | Net income | | $ | 72,827 | | | | 72,827 | | | | 86,284 | | | | 37,553 | | | | (196,230 | ) | | | 73,261 | | Other comprehensive loss, net of tax: | | | | | | | | | | | | | | | | | | | | | | | | | Foreign currency translation | | | (23,984 | ) | | | (23,552 | ) | | | (23,552 | ) | | | (22,184 | ) | | | 69,288 | | | | (23,984 | ) | Net actuarial loss on defined benefit plans | | | (7,995 | ) | | | (7,995 | ) | | | (7,995 | ) | | | (4,730 | ) | | | 20,720 | | | | (7,995 | ) | Other comprehensive loss, net of tax | | | (31,979 | ) | | | (31,547 | ) | | | (31,547 | ) | | | (26,914 | ) | | | 90,008 | | | | (31,979 | ) | Comprehensive income | | | 40,848 | | | | 41,280 | | | | 54,737 | | | | 10,639 | | | | (106,222 | ) | | | 41,282 | | Less comprehensive income attributable to noncontrolling interest | | | — | | | | — | | | | — | | | | 404 | | | | — | | | | 404 | | Comprehensive income attributable to stockholders | | $ | 40,848 | | | | 41,280 | | | | 54,737 | | | | 10,235 | | | | (106,222 | ) | | | 40,878 | | For the year ended December 31, 2013 | | | | | | | | | | | | | | | | | | | | | | | | | Net income | | $ | 57,568 | | | | 57,568 | | | | 57,568 | | | | 23,221 | | | | (138,064 | ) | | | 57,861 | | Other comprehensive loss, net of tax: | | | | | | | | | | | | | | | | | | | | | | | | | Foreign currency translation | | | (3,481 | ) | | | (3,481 | ) | | | (3,481 | ) | | | (1,866 | ) | | | 8,828 | | | | (3,481 | ) | Net actuarial gain on defined benefit plans | | | 462 | | | | 462 | | | | 462 | | | | 708 | | | | (1,632 | ) | | | 462 | | Other comprehensive loss, net of tax | | | (3,019 | ) | | | (3,019 | ) | | | (3,019 | ) | | | (1,158 | ) | | | 7,196 | | | | (3,019 | ) | Comprehensive income | | | 54,549 | | | | 54,549 | | | | 54,549 | | | | 22,063 | | | | (130,868 | ) | | | 54,842 | | Less comprehensive income attributable to noncontrolling interest | | | — | | | | — | | | | — | | | | 191 | | | | — | | | | 191 | | Comprehensive income attributable to stockholders | | $ | 54,549 | | | | 54,549 | | | | 54,549 | | | | 21,872 | | | | (130,868 | ) | | | 54,651 | |
87
Condensed Consolidating Statements of Cash Flows (In thousands) | | | | | | | | | | | | Parent | | | Issuer | | | Guarantor | | | Non-Guarantor | | | Eliminations | | | Consolidated | | | | Parent | | Guarantor | | Non-Guarantor | | Eliminations | | Consolidated | | | Successor: For the year ended December 31, 2014 | | | | For the year ended December 31, 2015 | | | | | | | | | | | | | | | | | | | | | | | | | | Cash flows from operating activities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net cash provided by (used for) operating activities | | $ | 14,750 | | | 205,363 | | | 85,308 | | | | — | | | 305,421 | | | $ | 8,622 | | | | (58,598 | ) | | | 319,321 | | | | 60,452 | | | | — | | | | 329,797 | | | | | | | | | | | | | | | | | | | Cash flows from investing activities: | | | | | | | | | | | | | | | | | | | | | | | | | | Capital expenditures | | | | — | | | | (1,982 | ) | | | (171,694 | ) | | | (52,637 | ) | | | — | | | | (226,313 | ) | Proceeds from sale of fixed assets | | | | — | | | | — | | | | 3,853 | | | | 194 | | | | — | | | | 4,047 | | Capitalized patent costs | | | | — | | | | — | | | | (394 | ) | | | — | | | | — | | | | (394 | ) | Intercompany activity | | | | 8,309 | | | | 134,178 | | | | — | | | | — | | | | (142,487 | ) | | | — | | Net cash provided by (used for) investing activities | | | | 8,309 | | | | 132,196 | | | | (168,235 | ) | | | (52,443 | ) | | | (142,487 | ) | | | (222,660 | ) | Cash flows from financing activities: | | | | | | | | | | | | | | | | | | | | | | | | | | Dividends | | | | (18,221 | ) | | | — | | | | (17 | ) | | | — | | | | — | | | | (18,238 | ) | Stock-based compensation activity, net | | | | 1,397 | | | | — | | | | — | | | | — | | | | — | | | | 1,397 | | 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 | | | | — | | | | (1,391,621 | ) | | | (154 | ) | | | — | | | | — | | | | (1,391,775 | ) | Other debt, net | | | | — | | | | — | | | | (2,787 | ) | | | (727 | ) | | | — | | | | (3,514 | ) | Payment of debt issue costs | | | | — | | | | (149 | ) | | | — | | | | — | | | | — | | | | (149 | ) | Payment of offering related costs | | | | (108 | ) | | | — | | | | — | | | | — | | | | — | | | | (108 | ) | Intercompany activity | | | | — | | | | (10,197 | ) | | | (140,227 | ) | | | 7,937 | | | | 142,487 | | | | — | | Net cash provided by (used for) financing activities | | | | (16,932 | ) | | | (75,342 | ) | | | (143,453 | ) | | | 7,210 | | | | 142,487 | | | | (86,030 | ) | Effect of exchange rates | | | | — | | | | — | | | | — | | | | (9,449 | ) | | | — | | | | (9,449 | ) | Net increase (decrease) in cash and cash equivalents | | | $ | (1 | ) | | | (1,744 | ) | | | 7,633 | | | | 5,770 | | | | — | | | | 11,658 | | Cash and cash equivalents: | | | | | | | | | | | | | | | | | | | | | | | | | | Cash and cash equivalents, beginning of year | | | $ | 1 | | | | 52,253 | | | | 3,182 | | | | 101,062 | | | | — | | | | 156,498 | | Net increase (decrease) in cash and cash equivalents | | | | (1 | ) | | | (1,744 | ) | | | 7,633 | | | | 5,770 | | | | — | | | | 11,658 | | Cash and cash equivalents, end of year | | | $ | — | | | | 50,509 | | | | 10,815 | | | | 106,832 | | | | — | | | | 168,156 | | For the year ended December 31, 2014 | | | | | | | | | | | | | | | | | | | | | | | | | | Cash flows from operating activities: | | | | | | | | | | | | | | | | | | | | | | | | | | Net cash provided by (used for) operating activities | | | $ | 11,982 | | | | 2,768 | | | | 205,363 | | | | 85,308 | | | | — | | | | 305,421 | | Cash flows from investing activities: | | | | | | | | | | | | | | | | | | | | | | | | | | Capital expenditures | | | — | | | | (116,815 | ) | | | (39,575 | ) | | | — | | | | (156,390 | ) | | | — | | | | — | | | | (116,815 | ) | | | (39,575 | ) | | | — | | | | (156,390 | ) | Proceeds from sale of fixed assets | | | — | | | | 541 | | | | 879 | | | | — | | | | 1,420 | | | | — | | | | — | | | | 541 | | | | 879 | | | | — | | | | 1,420 | | Capitalized patent costs | | | — | | | | (243 | ) | | | — | | | | — | | | | (243 | ) | | | — | | | | — | | | | (243 | ) | | | — | | | | — | | | | (243 | ) | Grede Transaction, net of cash acquired | | | — | | | | (812,578 | ) | | | (17,078 | ) | | | — | | | | (829,656 | ) | | | — | | | | — | | | | (812,578 | ) | | | (17,078 | ) | | | — | | | | (829,656 | ) | Intercompany activity | | | (1,864,968 | ) | | | — | | | | — | | | | 1,864,968 | | | | — | | | | (6,399 | ) | | | (1,858,569 | ) | | | — | | | | — | | | | 1,864,968 | | | | — | | | | | | | | | | | | | | | | | | | Net cash used for investing activities | | | (1,864,968 | ) | | | (929,095 | ) | | | (55,774 | ) | | | 1,864,968 | | | | (984,869 | ) | | | (6,399 | ) | | | (1,858,569 | ) | | | (929,095 | ) | | | (55,774 | ) | | | 1,864,968 | | | | (984,869 | ) | | | | | | | | | | | | | | | | | | Cash flows from financing activities: | | | | | | | | | | | | | | | | | | | | | | | | | | Cash dividends | | | — | | | | (111,259 | ) | | | — | | | | — | | | | (111,259 | ) | | | — | | | | — | | | | (111,259 | ) | | | — | | | | — | | | | (111,259 | ) | Proceed from other stock activity | | | — | | | | (2,444 | ) | | | — | | | | — | | | | (2,444 | ) | | Other stock activity | | | | — | | | | — | | | | (2,444 | ) | | | — | | | | — | | | | (2,444 | ) | Proceeds from stock issuance | | | 1 | | | | 244,805 | | | | 15,668 | | | | — | | | | 260,474 | | | | 1 | | | | — | | | | 244,805 | | | | 15,668 | | | | — | | | | 260,474 | | Borrowings of short-term debt | | | — | | | | 388,773 | | | | — | | | | — | | | | 388,773 | | | | — | | | | — | | | | 388,773 | | | | — | | | | — | | | | 388,773 | | Repayments of short-term debt | | | — | | | | (405,057 | ) | | | (2,300 | ) | | | — | | | | (407,357 | ) | | | — | | | | — | | | | (405,057 | ) | | | (2,300 | ) | | | — | | | | (407,357 | ) | Proceeds of long-term debt | | | 1,943,250 | | | | 715,000 | | | | — | | | | — | | | | 2,658,250 | | | | — | | | | 1,943,250 | | | | 715,000 | | | | — | | | | — | | | | 2,658,250 | | Principal payments of long-term debt | | | (10,000 | ) | | | (1,942,041 | ) | | | — | | | | — | | | | (1,952,041 | ) | | | — | | | | (10,000 | ) | | | (1,942,041 | ) | | | — | | | | — | | | | (1,952,041 | ) | Intercompany activity | | | — | | | | 1,864,968 | | | | — | | | | (1,864,968 | ) | | | — | | | | — | | | | — | | | | 1,864,968 | | | | — | | | | (1,864,968 | ) | | | — | | Payment of debt issue costs | | | (25,196 | ) | | | (20,231 | ) | | | — | | | | — | | | | (45,427 | ) | | | — | | | | (25,196 | ) | | | (20,231 | ) | | | — | | | | — | | | | (45,427 | ) | Proceeds of other debt | | | — | | | | — | | | | 998 | | | | — | | | | 998 | | | Principal payments of other debt | | | — | | | | (6,320 | ) | | | (1,383 | ) | | | — | | | | (7,703 | ) | | Other debt, net | | | | — | | | | — | | | | (6,320 | ) | | | (385 | ) | | | — | | | | (6,705 | ) | Payment of offering related costs | | | (5,583 | ) | | | — | | | | — | | | | — | | | | (5,583 | ) | | | (5,583 | ) | | | — | | | | — | | | | — | | | | — | | | | (5,583 | ) | | | | | | | | | | | | | | | | | | Net cash provided by (used for) financing activities | | | 1,902,472 | | | | 726,194 | | | | 12,983 | | | | (1,864,968 | ) | | | 776,681 | | | | (5,582 | ) | | | 1,908,054 | | | | 726,194 | | | | 12,983 | | | | (1,864,968 | ) | | | 776,681 | | Effect of exchange rates on cash | | | — | | | | — | | | | (8,959 | ) | | | — | | | | (8,959 | ) | | | | | | | | | | | | | | | | | | | Effect of exchange rates | | | | — | | | | — | | | | — | | | | (8,959 | ) | | | — | | | | (8,959 | ) | Net increase in cash and cash equivalents | | $ | 52,254 | | | | 2,462 | | | | 33,558 | | | | — | | | | 88,274 | | | $ | 1 | | | | 52,253 | | | | 2,462 | | | | 33,558 | | | | — | | | | 88,274 | | | | | | | | | | | | | | | | | | | Cash and cash equivalents: | | | | | | | | | | | | | | | | | | | | | | | | | | Cash and cash equivalents, beginning of period | | $ | — | | | | 720 | | | | 67,504 | | | | — | | | | 68,224 | | | Cash and cash equivalents, beginning of year | | | $ | — | | | | — | | | | 720 | | | | 67,504 | | | | — | | | | 68,224 | | Net increase in cash and cash equivalents | | | 52,254 | | | | 2,462 | | | | 33,558 | | | | — | | | | 88,274 | | | | 1 | | | | 52,253 | | | | 2,462 | | | | 33,558 | | | | — | | | | 88,274 | | | | | | | | | | | | | | | | | | | Cash and cash equivalents, end of period | | $ | 52,254 | | | | 3,182 | | | | 101,062 | | | | — | | | | 156,498 | | | | | | | | | | | | | | | | | | | | Successor: For the year ended December 31, 2013 | | | | Cash flows from operating activities: | | | Net cash provided by (used for) operating activities | | $ | — | | | | 166,263 | | | | 67,995 | | | | — | | | | 234,258 | | | | | | | | | | | | | | | | | | | | Cash flows from investing activities: | | | Capital expenditures | | | — | | | | (89,060 | ) | | | (33,196 | ) | | | — | | | | (122,256 | ) | | Proceeds from sale of fixed assets | | | — | | | | 1,036 | | | | 32 | | | | — | | | �� | 1,068 | | | Capitalized patent costs | | | — | | | | (352 | ) | | | — | | | | — | | | | (352 | ) | | Release of escrow from the Metaldyne Transaction | | | — | | | | 4,807 | | | | — | | | | — | | | | 4,807 | | | | | | | | | | | | | | | | | | | | Net cash used for investing activities | | | — | | | | (83,569 | ) | | | (33,164 | ) | | | — | | | | (116,733 | ) | | | | | | | | | | | | | | | | | | | Cash flows from financing activities: | | | Cash dividends | | | — | | | | (256,867 | ) | | | — | | | | — | | | | (256,867 | ) | | Proceed from other stock activity | | | — | | | | 579 | | | | — | | | | — | | | | 579 | | | Borrowings of short-term debt | | | — | | | | 545,621 | | | | — | | | | — | | | | 545,621 | | | Repayments of short-term debt | | | — | | | | (533,182 | ) | | | — | | | | — | | | | (533,182 | ) | | Proceeds of long-term debt | | | — | | | | 240,000 | | | | — | | | | — | | | | 240,000 | | | Principal payments of long-term debt | | | — | | | | (59,904 | ) | | | — | | | | — | | | | (59,904 | ) | | Payment of debt issue costs | | | — | | | | (14,956 | ) | | | — | | | | — | | | | (14,956 | ) | | Proceeds of other debt | | | — | | | | 1,022 | | | | 368 | | | | — | | | | 1,390 | | | Principal payments of other debt | | | — | | | | (3,658 | ) | | | (98 | ) | | | — | | | | (3,756 | ) | | Payment of contingent consideration for the Metaldyne Transaction | | | — | | | | (10,000 | ) | | | — | | | | — | | | | (10,000 | ) | | | | | | | | | | | | | | | | | | | Net cash provided by (used for) financing activities | | | — | | | | (91,345 | ) | | | 270 | | | | — | | | | (91,075 | ) | | Effect of exchange rates on cash | | | — | | | | — | | | | 1,443 | | | | — | | | | 1,443 | | | | | | | | | | | | | | | | | | | | Net increase in cash and cash equivalents | | $ | — | | | | (8,651 | ) | | | 36,544 | | | | — | | | | 27,893 | | | | | | | | | | | | | | | | | | | | Cash and cash equivalents: | | | Cash and cash equivalents, beginning of period | | $ | — | | | | 9,371 | | | | 30,960 | | | | — | | | | 40,331 | | | Net increase in cash and cash equivalents | | | — | | | | (8,651 | ) | | | 36,544 | | | | — | | | | 27,893 | | | | | | | | | | | | | | | | | | | | Cash and cash equivalents, end of period | | $ | — | | | | 720 | | | | 67,504 | | | | — | | | | 68,224 | | | | | | | | | | | | | | | | | | | | Cash and cash equivalents, end of year | | | $ | 1 | | | | 52,253 | | | | 3,182 | | | | 101,062 | | | | — | | | | 156,498 | |
88
Condensed Consolidating Statements of Cash Flows (Continued) (In thousands) | | | | | | | | | | | | Parent | | | Issuer | | | Guarantor | | | Non-Guarantor | | | Eliminations | | | Consolidated | | | | Parent | | | Guarantor | | Non- Guarantor | | Eliminations | | | Consolidated | | | Successor: For Successor Period 2012 | | | For the year ended December 31, 2013 | | | | | | | | | | | | | | | | | | | | | | | | | | Cash flows from operating activities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net cash provided by (used for) operating activities | | $ | — | | | | (11,541 | ) | | 9,730 | | | | — | | | | (1,811 | ) | | | | | | | | | | | | | | | | | | | Cash flows from investing activities: | | | Capital expenditures | | | — | | | | (8,669 | ) | | | (1,761 | ) | | | — | | | | (10,430 | ) | | Capitalized patent costs | | | — | | | | (114 | ) | | | — | | | | — | | | | (114 | ) | | HHI Transaction, net of cash acquired | | | — | | | | (717,579 | ) | | | (4,669 | ) | | | — | | | | (722,248 | ) | | Metaldyne Transaction, net of cash acquired | | | — | | | | (810,056 | ) | | | 27,891 | | | | — | | | | (782,165 | ) | | Release of escrow from the Metaldyne Transaction | | | — | | | | — | | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | Net cash used for investing activities | | | — | | | | (1,536,418 | ) | | | 21,461 | | | | — | | | | (1,514,957 | ) | | | | | | | | | | | | | | | | | | | Cash flows from financing activities: | | | Proceeds from stock issuances | | | — | | | | 545,993 | | | | — | | | | — | | | | 545,993 | | | Borrowings of short-term debt | | | — | | | | 6,000 | | | | — | | | | — | | | | 6,000 | | | Proceeds of long-term debt | | | — | | | | 1,040,252 | | | | — | | | | — | | | | 1,040,252 | | | Payment of debt issue costs | | | — | | | | (34,851 | ) | | | — | | | | — | | | | (34,851 | ) | | Principal payments of other debt | | | — | | | | (64 | ) | | | (186 | ) | | | — | | | | (250 | ) | | | | | | | | | | | | | | | | | | | Net cash provided by (used for) financing activities | | | — | | | | 1,557,330 | | | | (186 | ) | | | — | | | | 1,557,144 | | | Effect of exchange rates on cash | | | — | | | | — | | | | (45 | ) | | | — | | | | (45 | ) | | | | | | | | | | | | | | | | | | | Net increase in cash and cash equivalents | | $ | — | | | | 9,371 | | | | 30,960 | | | | — | | | | 40,331 | | | | | | | | | | | | | | | | | | | | Cash and cash equivalents: | | | Cash and cash equivalents, beginning of period | | $ | — | | | | — | | | | — | | | | — | | | | — | | | Net increase in cash and cash equivalents | | | — | | | | 9,371 | | | | 30,960 | | | | — | | | | 40,331 | | | | | | | | | | | | | | | | | | | | Cash and cash equivalents, end of period | | $ | — | | | | 9,371 | | | | 30,960 | | | | — | | | | 40,331 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Predecessor: For Predecessor Period 2012 | | | Cash flows from operating activities: | | | Net cash provided by (used for) operating activities | | $ | — | | | | 64,315 | | | | 388 | | | | — | | | | 64,703 | | | | | | | | | | | | | | | | | | | | Net cash provided by operating activities | | | $ | — | | | | — | | | | 166,263 | | | | 67,995 | | | | — | | | | 234,258 | | Cash flows from investing activities: | | | | | | | | | | | | | | | | | | | | | | | | | | Capital expenditures | | | — | | | | (32,330 | ) | | | (262 | ) | | | — | | | | (32,592 | ) | | | — | | | | — | | | | (89,060 | ) | | | (33,196 | ) | | | — | | | | (122,256 | ) | Proceeds from sale of fixed assets | | | — | | | | 1,513 | | | | — | | | | — | | | | 1,513 | | | | — | | | | — | | | | 1,036 | | | | 32 | | | | — | | | | 1,068 | | Capitalized patent costs | | | — | | | | (222 | ) | | | — | | | | — | | | | (222 | ) | | | — | | | | — | | | | (352 | ) | | | — | | | | — | | | | (352 | ) | | | | | | | | | | | | | | | | | | Release of escrow from the acquisition of Metaldyne | | | | — | | | | — | | | | 4,807 | | | | — | | | | — | | | | 4,807 | | Net cash used for investing activities | | | — | | | | (31,039 | ) | | | (262 | ) | | | — | | | | (31,301 | ) | | | — | | | | — | | | | (83,569 | ) | | | (33,164 | ) | | | — | | | | (116,733 | ) | | | | | | | | | | | | | | | | | | Cash flows from financing activities: | | | | | | | | | | | | | | | | | | | | | | | | | | Cash dividends | | | — | | | | (70,000 | ) | | | — | | | | — | | | | (70,000 | ) | | | — | | | | — | | | | (256,867 | ) | | | — | | | | — | | | | (256,867 | ) | Proceed from other stock activity | | | | — | | | | — | | | | 579 | | | | — | | | | — | | | | 579 | | Borrowings of short-term debt | | | — | | | | 38,900 | | | | — | | | | — | | | | 38,900 | | | | — | | | | — | | | | 545,621 | | | | — | | | | — | | | | 545,621 | | Repayments of short-term debt | | | — | | | | (38,903 | ) | | | — | | | | — | | | | (38,903 | ) | | | — | | | | — | | | | (533,182 | ) | | | — | | | | — | | | | (533,182 | ) | Proceeds of long-term debt | | | — | | | | 49,875 | | | | — | | | | — | | | | 49,875 | | | | — | | | | — | | | | 240,000 | | | | — | | | | — | | | | 240,000 | | Principal payments of long-term debt | | | — | | | | (2,814 | ) | | | — | | | | — | | | | (2,814 | ) | | | — | | | | — | | | | (59,904 | ) | | | — | | | | — | | | | (59,904 | ) | Payment of debt issue costs | | | — | | | | (2,455 | ) | | | — | | | | — | | | | (2,455 | ) | | | — | | | | — | | | | (14,956 | ) | | | — | | | | — | | | | (14,956 | ) | Principal payments of other debt | | | — | | | | (1,947 | ) | | | — | | | | — | | | | (1,947 | ) | | | | | | | | | | | | | | | | | | | Other debt, net | | | | — | | | | — | | | | (2,636 | ) | | | 270 | | | | — | | | | (2,366 | ) | Payment of contingent consideration for the acquisition of Metaldyne | | | | — | | | | — | | | | (10,000 | ) | | | — | | | | — | | | | (10,000 | ) | Net cash provided by (used for) financing activities | | | — | | | | (27,344 | ) | | | — | | | | — | | | | (27,344 | ) | | | — | | | | — | | | | (91,345 | ) | | | 270 | | | | — | | | | (91,075 | ) | Effect of exchange rates on cash | | | — | | | | — | | | | 344 | | | | — | | | | 344 | | | | | | | | | | | | | | | | | | | | Net increase in cash and cash equivalents | | $ | — | | | | 5,932 | | | | 470 | | | | — | | | | 6,402 | | | | | | | | | | | | | | | | | | | | Effect of exchange rates | | | | — | | | | — | | | | - | | | | 1,443 | | | | — | | | | 1,443 | | Net increase (decrease) in cash and cash equivalents | | | $ | — | | | | — | | | | (8,651 | ) | | | 36,544 | | | | — | | | | 27,893 | | Cash and cash equivalents: | | | | | | | | | | | | | | | | | | | | | | | | | | Cash and cash equivalents, beginning of period | | $ | — | | | | 4,203 | | | | — | | | | — | | | | 4,203 | | | Net increase in cash and cash equivalents | | | — | | | | 5,932 | | | | 470 | | | | — | | | | 6,402 | | | | | | | | | | | | | | | | | | | | Cash and cash equivalents, end of period | | $ | — | | | | 10,135 | | | | 470 | | | | — | | | | 10,605 | | | | | | | | | | | | | | | | | | | | Cash and cash equivalents, beginning of year | | | $ | — | | | | — | | | | 9,371 | | | | 30,960 | | | | — | | | | 40,331 | | Net increase (decrease) in cash and cash equivalents | | | | — | | | | — | | | | (8,651 | ) | | | 36,544 | | | | — | | | | 27,893 | | Cash and cash equivalents, end of year | | | $ | — | | | | — | | | | 720 | | | | 67,504 | | | | — | | | | 68,224 | |
89
(25) Subsequent Events On January 15, 2015, the underwriters of the IPO exercised their option to purchase additional shares of our common stock from American Securities. After selling these additional shares, American Securities owned 78.5% of our common stock. On March 10, 2015,February 24, 2016, our board of directors declared a dividend of 9 cents$0.09 per share. The dividend isshare, payable on MayApril 26, 20152016 to stockholders of record as of MayApril 12, 2015. 2016.On February 24, 2016, our board of directors authorized a share repurchase program (the “Share Repurchase Program”) pursuant to which the Company may, from time to time, purchase shares of its common stock for an aggregate repurchase price not to exceed $25.0 million. Subject to applicable rules and regulations, the shares may be repurchased through open market purchases, privately negotiated transactions, or otherwise. The Share Repurchase Program expires in February, 2017, and may be terminated or amended by the Company’s board of directors in its discretion at any time. As of the date of this filing, no shares of our outstanding common stock have been repurchased by the Company. 90
ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTSACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES |
None. ITEM 9A. | CONTROLS AND PROCEDURES |
Disclosure Controls and Procedures The CompanyCompany’s management, including its Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”"Exchange Act"), to ensure as of December 31, 2015. Based on such evaluations, the Chief Executive Officer and Chief Financial Officer have concluded the Company’s disclosure controls and procedures are effective in recording, processing, summarizing, and reporting, on a timely basis, information required to be disclosed by the Company in periodicthe reports filedthat it files or submits 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 itsthe Company’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. As of December 31, 2014, we carried out an evaluation, under the supervision Management’s Annual Report on Internal Control over Financial Reporting The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). The Company’s management, with the participation of our management, including ourthe Company’s Chief Executive Officer and Chief Financial Officer, ofhas evaluated the effectiveness of the design and operationCompany’s internal control over financial reporting based on the framework in Internal Control-Integrated Framework (2013) issued by the Committee of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) underSponsoring Organizations of the Exchange Act.Treadway Commission. Based on this evaluation, our Chief Executive Officer and Chief Financial Officerthe Company’s management has concluded that, our disclosure controls and procedures were not effective at the reasonable assurance level as of December 31, 2014. We2015, the Company’s internal control over financial reporting was effective. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. KPMG LLP, an independent registered public accounting firm, has audited the Company’s consolidated financial statements and the effectiveness of internal control over financial reporting as of December 31, 2015 as stated in its report which is included in “Item 8. Financial Statements and Supplementary Data” of this 10-K. Remediation of Prior Year’s Material Weakness There have been improvements in the Company’s internal controls over financial reporting to remediate the previous year’s material weakness. In the Annual Report on Form 10-K for the year ended December 31, 2014, the Company identified 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. Based on To address the performancematerial weakness, the Company designed and implemented new and enhanced controls. Additionally, the Company comprehensively documented and analyzed its system of additional procedures by management designed to ensure the reliability of our financial reporting, we believe the consolidated financial statements included in this report as of and for the periods ended December 31, 2014 are fairly stated in all material respects. Management’s Annual Report on Internal Control over Financial Reporting
This Form 10-K does not include a report of management’s assessment regarding internal control over financial reporting or an attestationin preparation for its first management report on internal control over financial reporting required in connection with this 10-K.
The Company performed testing to validate the operating effectiveness of our registered public accounting firm due to a transition period established bythese controls. In reviewing the rulesresults from this testing, its management concluded that the above referenced material weakness in internal control over financial reporting has been remediated as of the Securities and Exchange Commission for newly public companies.December 31, 2015. Changes in Internal Control over Financial Reporting There werehas been no changeschange in the Company’s internal control over financial reporting during the quarter ended December 31, 20142015, that havehas materially affected, or areis reasonably likely to materially affect, the Company’s internal control over financial reporting.reporting, other than continued implementation and refinement of the controls necessary to remediate the previous year’s material weakness identified by the Company. Refer to the discussion above under “Remediation of Prior Year’s Material Weakness.” ITEM 9B. | OTHER INFORMATION |
None.
91
PART IIIREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
The following table sets forth the names and ages of the individuals who serve as our executive officers and members of our board of directors. | | | | | Name
| | Age
| | Position
| George Thanopoulos | | 51 | | Chief Executive Officer and Director, and President & CEO of HHI | Mark Blaufuss | | 47 | | Chief Financial Officer and Treasurer | Thomas Amato | | 51 | | Co-President, and President & CEO of Metaldyne | Douglas Grimm | | 53 | | Co-President, and President & CEO of Grede | Kevin Penn | | 53 | | Chairman and Director | Nick Bhambri | | 51 | | Director | Loren Easton | | 35 | | Director | Michael Fisch | | 52 | | Director | William Jackson | | 54 | | Director | John Pearson Smith | | 66 | | Director | Jeffrey Stafeil | | 44 | | Director |
Executive Officer and Director Biographies
George Thanopoulos was named our Chief Executive Officer in August 2014 in connection with the Combination and has served on our board of directors since August 2014. Mr. Thanopoulos is the founder of HHI and serves as its President and Chief Executive Officer since September 2005. Prior to founding HHI, he was a group president of Oldco M Corporation (the former Metaldyne Corporation) and prior to that held multiple positions at MascoTech, Inc., the predecessor company to Oldco M Corporation, over a 15-year period, including engineering, plant management, and executive management. Mr. Thanopoulos served as a member of the board of directors of Global Brass and Copper Holdings, Inc., a converter, fabricator, distributor, and processor of specialized copper and brass products in North America, from 2011 to 2014. Mr. Thanopoulos also served as a director of JL French Automotive Castings, Inc., a supplier of die cast aluminum components and assemblies, from 2006 to 2012 and as a director of Chassis Brakes International, a supplier of automotive foundation brakes and brake components, from 2012 to 2013. Mr. Thanopoulos holds a B.S. degree in Mechanical Engineering from the University of Michigan. Mr. Thanopoulos was chosen as our director because of his extensive experience in management and in the manufacturing industry.
Mark Blaufuss was named our Chief Financial Officer and Treasurer in August 2014 in connection with the Combination. Mr. Blaufuss has also served as Metaldyne’s Chief Financial Officer since May 2011. Prior to joining Metaldyne, Mr. Blaufuss held the Chief Financial Officer position at United Components, Inc., an aftermarket automotive parts supplier, from September 2009 to April 2011, and at Axletech International, a planetary axle supplier, from April 2007 to September 2009. He also worked as director of AlixPartners, a consulting firm, Corporate Controller of JPE, Inc., an automotive parts supplier, and Manager at PricewaterhouseCoopers. Mr. Blaufuss acted as CFO for Stonebridge Industries, Inc. until 2004. Stonebridge Industries, Inc. filed for Chapter 11 bankruptcy in 2005. Mr. Blaufuss holds a B.S. degree in Accounting from Michigan State University.
Thomas Amato was named our Co-President in August 2014 in connection with the Combination. Mr. Amato also serves as the President and Chief Executive Officer of Metaldyne, LLC, which he has done since its founding in 2009. Prior to that, he held multiple positions at Oldco M Corporation (the former Metaldyne Corporation), including as Executive Vice President of Corporate Development and Executive Vice President of Commercial Operations. He was named Chairman, President and Chief Executive Officer of Oldco M Corporation in January 2008 and was also Co-Chief Executive Officer of Asahi Tec, a Japanese casting and forging company publicly traded on the Tokyo Stock Exchange. Mr. Amato also held multiple positions at MascoTech, Inc., the predecessor company to Oldco M Corporation, which he joined in 1994, and he has served on the boards of Asahi Tec and Wolverine Tube. Mr. Amato holds a B.S. degree in Chemical Engineering from Wayne State University and an M.B.A. from the University of Michigan.
Douglas Grimm was named our Co-President in August 2014 in connection with the Combination. Mr. Grimm also serves as President and Chief Executive Officer of Grede which he has done since February 2010. Prior to that, he served as Chief Executive Officer of Citation Corporation, a foundry that manufactures components for the transportation and industrial markets, from January 2008 to February 2010. Prior to co-founding Grede Holdings LLC, Mr. Grimm served as Vice President—Global Ford, Materials Management,
Powertrain Electronics & Fuel Operations of Visteon Corporation, a global automotive supplier that manufactures climate, electronics, and interior products for vehicle manufacturers, from 2006 to 2008. Prior to that time, Mr. Grimm spent five years at Oldco M Corporation (the former Metaldyne Corporation) as a Vice President in various executive positions, including commercial operations, General Manager of forging and casting operations, as well as having responsibility for global purchasing and quality. Before joining Oldco M Corporation in 2001, Mr. Grimm was with Dana Corporation, a worldwide supplier of drivetrain, sealing and thermal management components and systems in 1998 and served as Vice President, Global Strategic Sourcing. Prior to that, Mr. Grimm spent 10 years at Chrysler Corporation in various purchasing management positions. Mr. Grimm is the immediate past Chairman of the Original Equipment Supplier Association (OESA), Vice-Chairman of the Motor & Equipment Manufacturers Association (MEMA) and a director for the Peterson American Corporation. Mr. Grimm holds a B.A. degree in Economics & Management from Hiram College (OH), where he is a member of the board of trustees, and an M.B.A. from the University of Detroit.
Kevin Penn has served on our board of directors since June 2014. Mr. Penn is the Chairman of our board of directors. Mr. Penn is also a Managing Director of American Securities, having joined in 2009. Prior to joining American Securities, he founded and led ACI Capital Co., LLC. Prior thereto, he was Executive Vice President and Chief Investment Officer for a family investment office, First Spring Corporation, where he managed private equity, direct investment, and public investment portfolios. Earlier in his career, Mr. Penn was a principal of the private equity firm Adler & Shaykin and was a founding member of the Leveraged Buyout Group at Morgan Stanley & Co. He was previously Chairman of Metaldyne, Grede, and HHI, and is currently the Chairman of the boards of Frontier Spinning Mills and Learning Care Group. He is also a board member of Unified Logistics and Cornhusker Energy Lexington Holdings. He is also a member of Mount Sinai Hospital Department of Medicine Advisory Board, and he serves as Chairperson of the Board of Overseers of University of Pennsylvania School of Design and as a Governor/Overseer of Hebrew Union College. Mr. Penn holds a B.S. degree in Economics from the Wharton School of University of Pennsylvania and an M.B.A. from Harvard Business School. Mr. Penn was chosen as our director because of his management and financial expertise.
Nick Bhambri has served on our board of directors since August 2014. Mr. Bhambri also served as the President of MECS Inc., a DuPont company, until April 2012. Before MECS was acquired by DuPont, Mr. Bhambri served as President and Chief Executive Officer of MECS since 2007, having joined the company in 1992. Mr. Bhambri was previously a director of HHI. Mr. Bhambri holds a B.S. degree in Mechanical Engineering and an M.B.A. from Washington University in St. Louis. Mr. Bhambri was chosen as our director because of his experience in the manufacturing industry.
Loren Easton has served on our board of directors since June 2014. Mr. Easton is also a Managing Director of American Securities, having joined in 2009. Prior to joining American Securities, Mr. Easton was a Vice President at ACI Capital Co., LLC and was an analyst at Lazard Frères. He was previously a director of Grede and Metaldyne and is currently a director of Frontier Spinning Mills and Unifrax. Mr. Easton holds a B.A. degree and an M.B.A. from the University of Pennsylvania. Mr. Easton was chosen as our director because of his management and financial expertise.
Michael Fisch has served on our board of directors since August 2014. Mr. Fisch is also the President and CEO of American Securities, which he co-founded in 1994. Mr. Fisch was previously a director of Metaldyne, Grede, and HHI and currently serves on the boards of certain American Securities affiliates, including ASP Portfolio Companies. He is a Trustee of Princeton Theological Seminary; board member of Human Rights Watch; and member of Mount Sinai Hospital Department of Medicine Advisory Board. Mr. Fisch holds a B.A. degree from Dartmouth College and an M.B.A. from Stanford University. Mr. Fisch was chosen as our director because of his management and financial expertise.
William Jackson has served on our board of directors since August 2014. Mr. Jackson has been an Executive Vice President of Corporate Development at Johnson Controls Inc. since September 2013 and served as its President of the Automotive Electronics & Interiors since March 2012. Mr. Jackson served as an Executive Vice President of Operations & Innovation at Johnson Controls Inc. from May 2011 to September 2013. Prior to Johnson Controls, he served as Senior Vice President and President of Automotive at Sears Holdings Corporation since March 2009 and was responsible for the oversight, leadership, and strategic growth of its automotive business, both in-store and online. Prior to Sears Holdings Corporation, Mr. Jackson was a Senior Partner and served in various leadership roles of Booz & Company. He served on the board of directors for both Booz Allen Hamilton and Booz & Company and was previously a director of Metaldyne. Mr. Jackson holds a B.S. degree and an M.S. degree in Mechanical Engineering from the University of Illinois and an M.B.A. from the University of Chicago. Mr. Jackson was chosen as our director because of his automotive and industrial consulting experience.
John Pearson Smith (Jack) has served on our board of directors since August 2014. Mr. Smith is also director and co-owner of Silversmith Inc., a producer of metering and automated data reporting systems for natural gas, oil production and waste water disposal. Prior to co-founding Silversmith Inc. in 2003, Mr. Smith was President and Chief Executive Officer of Holland Neway International, a producer of commercial vehicle suspensions and brake systems, with prior experience in engineering management at Ford Heavy Truck Division. Mr. Smith was previously a director of Metaldyne, and currently serves on the board of directors of SRAM Corporation. He is also on the board of Grand Valley State University Foundation. Mr. Smith holds a B.S. degree and an M.S. degree in Mechanical Engineering and an M.B.A. from the University of Michigan. Mr. Smith was chosen as our director because of his operational leadership and automotive expertise.
Jeffrey Stafeil has served on our board of directors since August 2014. Mr. Stafeil has also been Chief Financial Officer at Visteon Corporation since October 2012 and has been its Executive Vice President since November 2012. He served as the Chief Financial Officer and Executive Vice President of DURA Automotive Systems, LLC (alternate name, Dura Automotive Systems Inc.) from December 2008 to 2010 and served as its Chief Executive Officer from October 2010 to 2012. Prior to joining DURA, he served as the Chief Financial Officer and member of management board of Klöckner Pentaplast GmbH & Co. KG. He served as Chief Financial Officer and Executive Vice President of Oldco M Corporation (the former Metaldyne Corporation) from 2001 to 2007, in addition to other management positions since joining Oldco M Corporation in 2001. Mr. Stafeil served as a director of DURA Automotive Systems, LLC from June 2008 to October 2012 and Meridian Corporation since 2006 to 2009. From 2009 to 2012, he served as a director of J.L. French Automotive Castings Inc. and was previously a director of HHI. He currently serves as a director of Mentor Graphics Corp. Mr. Stafeil holds a B.S. degree in Accounting from Indiana University and an M.B.A. from the Fuqua School of Business at Duke University. Mr. Stafeil was chosen as our director because of his operational leadership and financial management experience.
Board of Directors and Stockholders Our businessMetaldyne Performance Group Inc.:
We have audited Metaldyne Performance Group Inc. and affairs are managed under the direction of our board of directors. Our amended and restated bylaws provide that our board of directors will be composed of eight directors or such numbersubsidiaries internal control over financial reporting as the board shall otherwise fix. Our executive officers and key employees serve at the discretion of our board of directors. Controlled Company Exception
As of December 31, 2014, American Securities beneficially owns shares representing more than 50%2015, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the voting power of our shares eligible to vote in the election of directors. As a result, we are a “controlled company” within the meaning of corporate governance standards. Under these corporate governance standards, a company of which more than 50%Treadway Commission (COSO). Metaldyne Performance Group Inc. management is responsible for maintaining effective internal control over financial reporting and for its assessment of the voting power is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain corporate governance standards, including the requirements (1) that a majority of our board of directors consist of independent directors, (2) that our board of directors have a compensation committee that is comprised entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities and (3) that our board of directors have a nominating and corporate governance committee that is comprised entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities. The Company is currently utilizing some of these exemptions. As a result, although we have independent director representation on our compensation and nominating and corporate governance committees, they are not comprised entirely of independent directors, and only half of our board members are independent directors. Although we may transition to fully independent compensation and nominating and corporate governance committees prior to the time we cease to be a “controlled company,” for such period of time you will not have the same protections afforded to stockholders of companies that are subject to all of these corporate governance requirements. The controlled company exemption does not modify the independence requirements for the audit committee, and we currently comply with the requirements of the Sarbanes-Oxley Act and the NYSE rules which require that our audit committee be composed of at least three members, a majority of whom are independent, and plan to comply with the requirement that each audit committee member will be independent within one year of the IPO. In the event that we cease to be a “controlled company” and our shares continue to be listed on the NYSE, we will be required to comply with these provisions within the applicable transition periods.
Director Independence
Our board of directors has affirmatively determined that Mr. Bhambri, Mr. Jackson, Mr. Smith and Mr. Stafeil are independent directors under the applicable rules of the NYSE and as such term is defined in Rule 10A-3(b)(1) under the Exchange Act.
Board Committees
Our board of directors has the authority to appoint committees to perform certain management and administration functions. Our board of directors has three committees: the audit committee, the compensation committee and the nominating and corporate governance committee.
Audit Committee
The primary purpose of our audit committee is to assist the board’s oversight of:
the audits and integrity of our financial statements;
our processes relating to risk management;
our processes relating the systemseffectiveness of internal control over financial reporting, and disclosure controls and procedures;
included in the qualifications, engagement, compensation, independence and performance of our independent auditor; the auditor’s conduct of the annual audit of our financial statements and any other auditor services provided; and
the performance of our internal audit function.
accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our audit committee will also produce the annual report of the audit committee as required by Securities and Exchange Commission rules: our legal and regulatory compliance; and
the application of our codes of business conduct and ethics as established by management and the board.
Mr. Stafeil, Mr. Bhambri, and Mr. Easton serveresponsibility is to express an opinion on the audit committee. Mr. Stafeil serves as chairman of the audit committee and also qualifies as an “audit committeeCompany’s internal control over financial expert” as such term has been defined by the Securities and Exchange Commission in Item 401(h)(2) of Regulation S-K, and each audit committee member meets the financial literacy requirements of the NYSE. Our board of directors has affirmatively determined that Mr. Stafeil and Mr. Bhambri meet the definition of an “independent director” for the purposes of serving on the audit committee under applicable Securities and Exchange Commission and NYSE rules, and we intend to comply with these independence requirements for all members of the audit committee within the time periods specified therein. The audit committee is governed by a charter that complies with the rules of NYSE.
Compensation Committee
The primary purposes of our compensation committee are to:
oversee our employee compensation policies and practices;
determine and approve the compensation of our chief executive officer and other executive officers;
review and approve incentive compensation and equity compensation policies and programs;
produce the annual report of the compensation committee as required by Securities and Exchange Commission rules.
Mr. Penn, Mr. Easton and Mr. Jackson serve on the compensation committee, and Mr. Penn serves as the chairman. The compensation committee is governed by a charter.
Nominating and Corporate Governance Committee
The primary purposes of our nominating and corporate governance committee are to:
identify and screen individuals qualified to serve as directors and recommend to the board of directors candidates for nomination for election;
evaluate, monitor and make recommendations to the board of directors with respect to our corporate governance guidelines;
coordinate and oversee the annual self-evaluation of the board of directors and its committees and management; and
review our overall corporate governance and recommend improvements for approval by the board of directors where appropriate.
Mr. Fisch, Mr. Penn and Mr. Smith serve on the nominating and corporate governance, and Mr. Fisch serves as the chairman. The nominating and corporate governance committee is governed by a charter. The committee has a policy to consider properly submitted stockholder recommendations for candidates for membership on the board of directors. Directors may be nominated pursuant to the Stockholders’ Agreement dated August 4, 2014 among the Company and its stockholders. In addition, the committee will consider recommendations for board candidates submitted by stockholders using substantially the same criteria it applies to recommendations from the committee, directors, and members of management. Stockholders may submit recommendations by providing a person’s name and appropriate background and biographical information in writing to:
Metaldyne Performance Group Inc.
47659 Halyard Drive
Plymouth, MI 48170-2429
Attention: Nominating and Corporate Governance Committee
Board and Committee Meetings
During 2014 and subsequent to the IPO, the board of directors and the audit committee each held one meeting.
Compensation Committee Interlocks and Insider Participation
None of our executive officers serves, or in the past year has served, as a member of the board of directors or compensation committee (or other committee performing equivalent functions) of any entity that has one or more executive officers servingreporting based on our board of directors or compensation committee. No interlocking relationship exists between any member of the compensation committee (or other committee performing equivalent functions) and any executive, member of the board of directors or member of the compensation committee (or other committee performing equivalent functions) and of any other company.
Code of Business Conduct and Ethicsaudit.
We adopted a code of business conduct and ethics that applies to all ofconducted our employees, officers, and directors, including those officers responsible for financial reporting. These standards are designed to deter wrongdoing and to promote honest and ethical conduct. The code of business conduct and ethics is available on our web site atwww.mpgdriven.com. Any waiver of the code for directors or executive officers may be made only by our board of directors and will be promptly disclosed to our stockholders as required by applicable U.S. federal securities laws and the corporate governance rules of the NYSE. Amendments to the code must be approved by our board of directors and will be promptly disclosed (other than technical, administrative, or non-substantive changes). Any amendments to the code, or any waivers of its requirements, will be disclosed on our website. Any person may request a copy of the code of business conduct and ethics, at no cost, by writing to us at the following address: Metaldyne Performance Group Inc.
47659 Halyard Drive
Plymouth, MI 48170-2429
Attention: Corporate Integrity Committee
Corporate Governance Guidelines
Our board of directors adopted corporate governance guidelinesaudit in accordance with the corporate governance rulesstandards of the NYSE,Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as applicable,we considered necessary in the circumstances. We believe that serve asour audit provides a flexible framework within whichreasonable basis for our boardopinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of directorsfinancial reporting and its committees operate. These guidelines cover a numberthe preparation of areas includingfinancial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the sizemaintenance of records that, in reasonable detail, accurately and compositionfairly reflect the transactions and dispositions of the board, board membership criteria and director qualifications, director responsibilities, board agenda, rolesassets of the Chairmancompany; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the board and Chief Executive Officer, executive sessions, standing board committees, board member access tocompany are being made only in accordance with authorizations of management and independent advisors, director communications with third parties, director compensation, director orientationdirectors of the company; and continuing education,(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of senior management and management succession planning. A copy of our corporate governance guidelines is posted on our website www.mpgdriven.com. Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) ofeffectiveness to future periods are subject to the Securities Exchange Act of 1934, as amended, requires our directors and executive officers, and persons who own more than ten percent of our common stock, to file with the Securities and Exchange Commission initial reports of ownership and reportsrisk that controls may become inadequate because of changes in ownershipconditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our common stockopinion, Metaldyne Performance Group Inc. and othersubsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Metaldyne Performance Group Inc. and subsidiaries as of December 31, 2015 and 2014, and the related consolidated statements of operations, comprehensive income, stockholders’ equity securities. Based solely on our review(deficit), and cash flows for each of copies of such forms received by us, or written representations from reporting persons that no such forms were required for those persons, we believe that our insiders complied with all applicable Section 16(a) filing requirements during the fiscal yearyears in the three-year period ended December 31, 2014. ITEM 11. | EXECUTIVE COMPENSATION |
The following discussion2015, and analysisour report dated February 29, 2016 expressed an unqualified opinion on those consolidated financial statements. In connection with our audits of compensation arrangements should be read with the compensation tablesconsolidated financial statements, we also have audited financial statement schedule II: Valuation and related disclosures set forth below. This discussion contains forward-lookingQualifying Accounts. We did not audit the financial statements that are based on our current plans and expectations regarding future compensation programs.
Executive Summary
This compensation discussion and analysis provides an overview and analysisfinancial statement schedule of (i) the elements comprising the compensation programs atASP HHI Metaldyne or Grede, as applicable for our named executive officers,Holdings, Inc., a wholly owned subsidiary, which we refer to in this compensation discussion and analysis as our named executive officers (“NEOs”), (ii) the compensation decisions made under such programs and reflected in the executive compensation tables that follow this compensation discussion and analysis, and (iii) the material factors considered in making those decisions. In addition, this compensation discussion and analysis includes a discussionfinancial statements reflect net sales constituting 45% of our compensation program for executive officers after the Combination.
Our NEOs
Our executive officers were executive officers at HHI, Metaldyne or Grede prior to the Combination. We determined the NEOs based on their position after the Combination and their compensationconsolidated net sales for the year ended December 31, 2014 from HHI, Metaldyne or Grede, as applicable. For the year ended December 31, 2014, our NEOs were:
George Thanopoulos, our Chief Executive Officer,2013. Those financial statements and President & CEO of HHI. In 2014, Mr. Thanopoulos served as the chief executive officer of HHI through August 3, 2014. On August 4, effective with the Combination, Mr. Thanopoulos was named chief executive officer of MPG, in additionfinancial statement schedule were audited by other auditors whose report has been furnished to his role as President & CEO of HHI.
Mark Blaufuss, our Chief Financial Officer and Treasurer. In 2014, Mr. Blaufuss served as the chief financial officer of Metaldyne through August 3, 2014. On August 4, effective with the Combination, Mr. Blaufuss was named chief financial officer and treasurer of MPG.
Thomas Amato, our Co-President, and President & CEO of Metaldyne. In 2014, Mr. Amato served as the president and chief executive officer of Metaldyne through August 3, 2014. On August 4, effective with the combination, Mr. Amato was named Co-President of MPG, in addition to his role as President & CEO Metaldyne.
Douglas Grimm, our Co-President, and President & CEO of Grede. In 2014, Mr. Grimm served as the chairman, president and chief executive officer of Grede through August 3, 2014. On August 4, effective with the Combination, Mr. Grimm was named Co-President of MPG, in addition to his role as and President & CEO of Grede.
Compensation Philosophy
In connection with the Combination, we reviewed and aligned the existing compensation programs of HHI, Metaldyne and Grede into our executive compensation program. Consistent with the existing programs, our overall post-Combination compensation program is structured to attract, motivate and retain highly qualified executives by paying them competitively, with variable components designed to pay them based on results that are consistent with our performance on both a short- and long-term basis and on their contribution to that success. In addition, this program is structured to ensure that a significant portion of compensation opportunity is related to specific, measurable factors that directly and indirectly influence stockholder value. Accordingly, we continue to set goals designed to link each executive officer’s compensation to our performance and the executive officer’s own performance.
Compensation Elements
Our compensation for our executive officers consists primarily of the elements, and their corresponding primary objectives, identified in the following table.
| | | Compensation Element
| | Primary Objective
| Base salary | | To recognize performance of job responsibilities and to attract and retain individuals with superior talent. | | | Annual performance-based compensation | | To promote our near-term performance objectives across the entire workforce and reward individual contributions to the achievement of those objectives. | | | Long-term equity incentive awards | | To emphasize our long-term performance objectives, encourage the maximization of stockholder value and retain key executives by providing an opportunity to own our stock. | | | Severance and change in control benefits | | To encourage the continued attention and dedication of key individuals when considering strategic alternatives. | | | Retirement savings (401(k)) plans | | To provide an opportunity for tax-efficient savings and long-term financial security. | | | Other elements of compensation and perquisites | | To attract and retain talented executives in a cost-efficient manner by providing health, dental, disability and life insurance as well as other benefits with high perceived values at a relatively low cost to us. |
Determination of Compensation Awards
The post-Combination executive compensation program is based on the existing programs at HHI, Metaldyne and Grede and the existing employment agreements for our executive officers, which were revised to reflect the impact of the Combination and changes to responsibilities, as well as to harmonize common elements of each of the senior executive’s employment arrangements, such as severance, change of control and other provisions. We did not use benchmarking or a compensation consultant to establish the terms of the revised employment agreements. We relied upon our judgment and general industry knowledge of managementus, and our board of directors obtained through years of service with comparably sized companies in our industry to determine the terms of our executive compensation program,opinion, insofar as well as the relative roles of the executives and any additional responsibilities to be undertaken by the executives.
Compensation Committee
The compensation committee oversees our executive compensation program and determines the compensation of our executive officers, including our NEOs, and is charged with reviewing executive officer compensation policies and practices to ensure adherence to our compensation philosophies. In addition, the compensation committee is charged with ensuring that the total compensation paid to our executive officers is fair, reasonable and competitive, taking into account our position within our industry, including our comparative performance, and our NEOs’ level of expertise and experience in their positions. The compensation committee has primary responsible for (i) overseeing our executive compensation policies and practices; (ii) reviewing and determining the compensation of our executive officers (including our Chief Executive Officer and other NEOs), including (a) determining base salary and target bonus levels (representing the bonus that may be awarded expressed as a percentage of base salary or as a dollar amount for the year), (b) assessing the performance of the Chief Executive Officer and other NEOs for each applicable performance period, (c) determining the awards to be paid to our Chief Executive Officer and other NEOs under our annual performance-based compensation program for each year, and (d) making equity award grants under our 2014 Equity Incentive Plan (defined below); (iii) providing oversight of our compensation policies, plans and benefit programs including reviewing, approving and administering all compensation and employee benefit plans, policies and programs; and (iv) producing, approving and recommendingit relates to the board of directorsamounts included for approval reports on compensation matters required to be included in our annual proxy statement or annual report.
In determining compensation levels for our NEOs, the compensation committee considers each NEO’s unique position and responsibility and relies upon the judgment and experience of its members, including their review of competitive compensation levels in our industry. We believe that executive officer base salaries should be competitive with the salaries of executive officers in similar positions and with similar responsibilities in our marketplace and adjusted for financial and operating performance, each executive’s level of experience, and each executive’s current and expected future contributions to our results. In this regard, each executive officer’s current and prior compensation is considered as a reference point against which determinations are made as to whether increases are appropriate to retain the NEO in light of competition or in order to provide continuing performance incentives.
Role of Chief Executive Officer
To aid the compensation committee in making its determinations, the Chief Executive Officer will provide recommendations at least annually to the compensation committee regarding the compensation of executive officers other than him. The performance of our executive officers, including the Chief Executive Officer, will be reviewed at least annually by the compensation committee to determine each executive officer’s compensation.
Use of Peer Group Data
In making compensation determinations in connection with the Combination, we did not use benchmarking or compensation consultants, directly compare compensation levels with any other companies or refer to any specific compensation survey or other data. The compensation committee may use compensation consultants and peer group data in making future compensation decisions, including studies on compensation structure and banding as well as our long-term incentive plan in comparison to our peers. Our compensation committee has established the following peer group with which we compete for talent to assist with external benchmarking, and to assist the committee in determining total compensation for executive officers:
| | | | | Ametek | | Allison Transmission | | American Axle | BorgWarner | | Briggs & Stratton | | Brunswick Corp | Cooper Standard | | Dana Holding | | Delphi Automotive | ITT Corp | | Linamar Corp | | Snap-on Inc. | Terex Corp | | Timken Co. | | Titan International | TRW Automotive | | Valmont Industries | | WABCO Holdings |
Compensation Programs
The 2014 compensation for each of our NEOs was determined in accordance with the terms of their respective employment agreements or offer letter and was overseen by the respective compensation committees or boards of directors, as applicable, of HHI, Metaldyne and Grede. The compensation for Mr. Thanopoulos and Mr. Blaufuss in 2014 consisted of base salary, non-equity incentive plan compensation, equity compensation and other compensation (including, amongst other items, 401(k) savings plan match). The compensation for Mr. Amato in 2014 consisted of base salary, non-equity incentive plan compensation, equity compensation and other compensation (including, amongst other items a flexible allowance plan and 401(k) savings plan match). The compensation for Mr. Grimm in 2014 consisted of a base salary, non-equity compensation and other compensation (including, amongst other items, a flexible allowance plan, car allowance and 401(k) savings plan match). Each of the elements of the 2014 compensation for the NEOs is described below.
Base Salary
Each of our NEOs is party to an employment agreement that establishes a minimum base salary (as may be adjusted up but not down by our board of directors from time to time). Base salaries for our executive officers were generally set at levels deemed necessary to attract and retain individuals with superior talent, while taking into account the total compensation package provided to them in their employment agreements. Each year, base salaries will be adjusted, subject to the terms and conditions of their respective employment agreements, based upon the scope of responsibility and demonstrated proficiency of the executive officers as assessed by the compensation committee.
Each of HHI, Metaldyne and Grede paid base compensation commensurate with the position and responsibilities of the NEO. The applicable 2014 base salary for each of our NEOs was determined in accordance with their respective employment agreements and reviewed as part of the combination. The following table sets forth the 2014 base salaries for our NEOs.
| | | | | | | Name | | Principal Position | | 2014 Base Salary (1) | | George Thanopoulos | | Chief Executive Officer, and President & CEO of HHI | | $ | 874,182 | (2) | Mark Blaufuss | | Chief Financial Officer and Treasurer | | $ | 600,000 | (3) | Thomas Amato | | Co-President, and President & CEO of Metaldyne | | $ | 750,000 | (4) | Douglas Grimm | | Co-President, and President & CEO of Grede | | $ | 750,000 | (5) |
(1) | Represents the base salary of our NEOs, as paid by HHI, Metaldyne or Grede, as applicable, in 2014. |
(2) | The base salary of Mr. Thanopoulos was $848,720 for the period from January 1, 2014 through June 30, 2014. It was increased to $874,182 effective as of July 1, 2014. |
(3) | The base salary of Mr. Blaufuss was $337,594 for the period from January 1, 2014 through June 30, 2014. It was increased to $600,000 effective as of July 1, 2014. |
(4) | The base salary of Mr. Amato was $533,820 for the period from January 1, 2014 through June 30, 2014. It was increased to $750,000 effective as of July 1, 2014. |
(5) | The base salary of Mr. Grimm was $590,000 for the period from January 1, 2014 through June 30, 2014. It was increased to $750,000 effective as of July 1, 2014. |
2014 Performance-based Compensation
In 2014, each of HHI, Metaldyne and Grede had a performance-based compensation component to their executive compensation plan to link a portion of the executive officer’s compensation to the respective company’s performance and/or the individual’s performance. Set forth below is a description of performance-based compensation for each of the NEOs.
In accordance with HHI’s performance-based compensation plan, HHI paid each of its executive officers an award based on HHI’s adjusted EBITDA (earnings before interest, taxes, depreciation and amortization and various non-cash or one-time adjustments) and individual performance objectives. Each HHI executive officer was entitled to receive a target award based on a percentage of their base salary. 75% of the award was based on HHI’s adjusted EBITDA and 25% of the award was based on individual performance objectives. To receive an award, HHI’s adjusted EBITDA had to exceed 80% of budgeted adjusted EBITDA and/or the executive officer had to meet his or her individual performance objectives. To receive the target award, HHI had to meet or exceed its budgeted adjusted EBITDA, which was $186.9 million for 2014, and the executive officer had to meet his or her individual performance objectives. In the event HHI’s adjusted EBITDA exceeded budgeted adjusted EBITDA and individual performance objectives were met, an executive officer would be entitled to receive an award in excess of his or her target award. The target award for Mr. Thanopoulos was 100% of his base salary. Since HHI’s adjusted EBITDA was 104% of the pre-determined target and he met his individual objectives, Mr. Thanopoulos received a cash award in the amount of $1,032,819, which was equal to 118% of his target award.
In accordance with Metaldyne’s performance-based compensation plan, Metaldyne paid each of its executive officers an award based on Metaldyne’s adjusted EBITDA (earnings before interest, taxes, depreciation and amortization and various non-cash or one-time adjustments) and Metaldyne’s operating cash flow generation (adjusted EBITDA less capital expenditures plus/minus the change in operating working capital). Each Metaldyne executive officer was entitled to receive a target award based on a percentage of his or her base salary. 50% of the award was based on Metaldyne’s adjusted EBITDA and 50% of the award was based on Metaldyne’s operating cash flow generation. To receive an award, Metaldyne had to achieve 90% of budgeted adjusted EBITDA and 90% of budgeted operating cash flow generation. To receive the target award, Metaldyne had to achieve 100% of both budgeted adjusted EBITDA and budgeted operating cash flow generation which were $195 million and $110.5 million, respectively, for 2014. In the event Metaldyne’s adjusted EBITDA and operating cash flow generation exceeded the budgeted amounts, an executive officer was entitled to receive an award in excess of the target award up to a maximum of 135% of the target award. The target awards for Mr. Blaufuss and Mr. Amato were 60% and 100% of their base salary, respectively. Since Metaldyne’s budgeted adjusted EBITDA and operating cash flow generation were, respectively, 104% and 116% of the pre-determined targets, Mr. Blaufuss and Mr. Amato received cash awards in the amounts of $396,000 and $825,000, respectively, in each case equal to 110% of the target award.
In accordance with Grede’s performance-based compensation plan, Grede paid each of its executive officers an award based on Grede’s adjusted EBITDA (earnings before interest, taxes, depreciation and amortization and various non-cash or one-time adjustments), Grede’s adjusted free cash flow generation and individual performance objectives. Each executive officer was entitled to
receive a target award based on a percentage of base salary with 50% of the award was based on Grede’s adjusted EBITDA, 25% of the award was based on Grede’s adjusted free cash flow generation and 25% of the award was based on individual performance objectives. To receive an award, Grede’s adjusted EBITDA had to exceed 80% of budgeted adjusted EBITDA. To receive the target award, Grede had to meet or exceed its budgeted adjusted EBITDA and adjusted free cash flow, which were $159.3 million and $118 million, respectively, for 2014, and the executive officer had to meet his or her individual performance objectives. In the event Grede’s adjusted EBITDA and adjusted free cash flow exceeded budgeted adjusted EBITDA and adjusted free cash flow and individual performance objectives were met, an executive officer would be entitled to receive an award in excess of his or her target award up to a maximum of 200% of base salary. The target award for Mr. Grimm was 110% of his base salary. Since Grede’s adjusted EBITDA and adjusted free cash flow were each 94% of the pre-determined targets and he met his individual objectives, Mr. Grimm received a cash award in the amount of $679,196, which was equal to 82% of his target award.
2015 Performance-based Compensation
For 2015, the compensation committee structured our performance-based compensation program in a manner that was consistent with the existing programs to reward executive officers based on MPG performance and the performance of the individual executive directors relative to their individual performance objectives. This allows all executive officers to receive incentive bonus compensation in the event certain specified corporate performance measures are achieved.
Under the MPG performance-based compensation plan effective January 1, 2015, each of our executive officers will earn an award based on MPG Adjusted EBITDA, MPG Adjusted EBITDA less capital expenditures and individual performance objectives. Each NEO will be entitled to receive a target award based on a percentage of his base salary in which 50% of the award will be based on MPG Adjusted EBITDA, 25% of the award will be based on MPG Adjusted EBITDA less capital expenditures, and 25% of the award will be based on individual performance objectives. To receive an award, our Adjusted EBITDA has to meet or exceed 90% of budgeted Adjusted EBITDA. To receive the target award, we have to meet or exceed our budgeted Adjusted EBITDA and Adjusted EBITDA less capital expenditures, and the executive officer has to meet their individual performance objectives. In the event our Adjusted EBITDA and Adjusted EBITDA less capital expenditures exceed the budget amounts and the NEO’s meet their performance objectives, the executive officers would be entitled to receive an award in excess of their target award up to a maximum of 200% of their target award. The target awards for Mr. Thanopoulos, Mr. Blaufuss, Mr. Amato and Mr. Grimm will be 100%, 60%, 100% and 110%, respectively, of their base salary.
Long-Term Equity Incentive Awards
We believe that equity ownership provides our NEOs with a strong incentive to increase our value and aligns the interests of our executive officers with the interests of our stockholders. While we do not have a formal policy requiring our officers and directors to own our stock, we may adopt one in the future. However, our NEOs, along with other key employees, were granted stock options and other equity awards at the time of the HHI Transaction, the Metaldyne Transaction and the Grede Transaction, as applicable, which were converted into options to purchase our common stock in the Combination. In addition, we granted additional options in connection with the Combination under our newly adopted equity incentive plan, which we refer to as the Metaldyne Performance Group Inc. 2014 Equity Incentive Plan. The 2014 Equity Incentive Plan is discussed in more detail under “2014 Equity Incentive Plan” below. Our executive officers will be eligible to receive additional awards of stock options or other equity or equity-based awards under our 2014 Equity Incentive Plan at the discretion of the compensation committee, including, in 2015, grants of restricted shares of our common stock in an amount equal to $750,000 in the aggregate at the date of grant and options to purchase our common stock in an amount equal to $750,000 in the aggregate at the date of grant, each vesting over a three-year period from the date of grant. Mr. Thanopoulos, Mr. Blaufuss, Mr. Amato, and Mr. Grimm were each party to a letter agreement entitling them to a grant of restricted shares of our common stock under the 2014 Equity Incentive Plan, these awards were granted on December 11, 2014, the date of the pricing of the IPO, and vests 25% upon the first anniversary of the grant date and 75% upon the second anniversary of the grant date. Under the agreements, Mr. Thanopoulos, Mr. Amato, and Mr. Grimm were granted restricted stock with a fair market value of $2.0 million and Mr. Blaufuss was granted restricted stock with a fair market value of $1.25 million, in each case, based on the $15.00 offering price per share of MPG common stock.
Generally, our existing stock options have vesting schedules that are designed to encourage an optionee’s continued employment and option prices that are designed to reward an optionee for our performance. Options generally expire ten years from the date of the grant and vest in three to five equal annual installments following the date of grant, subject to the optionee’s continued employment on each applicable vesting date.
In connection with the Combination, we assumed the ASP MD Holdings, Inc. Stock Option Plan previously sponsored by Metaldyne (the “Metaldyne Plan”), the ASP HHI Holdings, Inc. Stock Option Plan, previously sponsored by HHI (the “HHI Plan”), and the ASP Grede Intermediate Holdings LLC 2014 Unit Option Plan, previously sponsored by Grede (the “Grede Plan” and, together with the Metaldyne Plan and the HHI Plan, the “Assumed Plans”), together with all stock options to purchase shares of common stock of Metaldyne or HHI and options to purchase units of Grede issued and outstanding under the Assumed Option Plans
as of the time of the Combination, which options were converted in accordance with the terms of the Assumed Plans and the Merger Agreement into options to acquire shares of our common stock (the “Assumed Options”). Following our assumption of the Assumed Plans and the Assumed Options, we entered into new award agreements evidencing the Assumed Options which eliminated any performance-based vesting provisions and such options are now solely subject to time-vesting. Prior to the Combination, Mr. Thanopoulos held options to purchase 110,948 shares of common stock of HHI with a strike price of $27.61 which were converted to options under the HHI Plan (split adjusted) to purchase 926,870 shares of our common stock with a strike price of $3.31 which vested with respect to 20% of the shares subject to the option on each of December 6, 2013 and 2014 and shall vest in respect of another 20% on each of December 6, 2015, 2016 and 2017, subject to continued employment on such dates. Mr. Blaufuss held options to purchase 221,597 shares of common stock of Metaldyne with a strike price of $5.77 which were converted to options under the Metaldyne Plan (split adjusted) to purchase 237,095 shares of our common stock with a strike price of $5.40 which vested with respect to 20% of the shares subject to the option on February 19, 2014 and shall vest in respect of another 20% on each of February 19, 2015, 2016, 2017 and 2018, subject to continued employment on such dates. Mr. Amato held options to purchase 576,153 shares of common stock of Metaldyne with a strike price of $5.77 and 35,000 shares of common stock of Metaldyne with a strike price of $15.77 which were converted to options under the Metaldyne Plan (split adjusted) to purchase 616,450 shares of our common stock with a strike price of $5.40 and 37,445 shares of our common stock with a strike price of $14.75, both of which vested with respect to 20% of the shares subject to the options on February 19, 2014 and each of which shall vest in respect of another 20% on each of February 19, 2015, 2016, 2017 and 2018, subject to continued employment on such dates. Mr. Grimm held options to purchase 9,049 units of Grede with a strike price of $1,000 which were converted to options under the Grede Plan (split adjusted) to purchase 485,205 shares of our common stock with a strike price of $18.66 which vest with respect to 100% of the shares subject to the option on June 2, 2021, subject to continued employment.
In connection with the Combination, we adopted the 2014 Equity Incentive Plan providing for the grant of options, restricted stock awards, restricted stock units, and other equity-based compensation awards. As a holder of options to acquire shares of common stock of HHI, Mr. Thanopoulos received an option granted under the 2014 Equity Incentive Plan (split adjusted) to acquire 424,950 shares of our common stock at a strike price of $20, with respect to which 253,125 of the shares subject to option were fully vested upon grant and 171,825 of the shares subject to option, which shall be 20% vested upon grant and shall vest in respect of another 20% on each of December 6, 2014, 2015, 2016 and 2017, subject to continued employment on such dates. In addition, Mr. Thanopoulos, Mr. Blaufuss, Mr. Amato and Mr. Grimm were also granted fully vested options under the 2014 Equity Incentive Plan (split adjusted) to purchase 139,220, 3,935, 26,285 and 9,385 shares of our common stock, respectively, at an exercise price of $20 per share, which amounts were equal to 10% of the number of shares of our common stock owned by such individual. In addition, in connection with the Combination, Mr. Thanopoulos, Mr. Blaufuss, Mr. Amato and Mr. Grimm were granted options under the 2014 Equity Incentive Plan (split adjusted) to purchase 135,185, 23,710, 65,390 and 48,875 shares of our common stock, respectively, at an exercise price of $20 per share, which amounts were equal to 10% of the number of shares of our common stock held under option by such individual, which options vest one-third on each of August 4, 2015, 2016 and 2017.
All of the foregoing options received by Mr. Thanopoulos, Mr. Blaufuss, Mr. Amato and Mr. Grimm provide for full vesting upon a “transaction” as defined in their individual award agreements and the Assumed Plans, subject to continued employment through consummation of the transaction. The definition of “transaction” under such agreements and plans generally means (i) the sale of all, or substantially all, of our consolidated assets, including, without limitation, a sale of all or substantially all of our assets or the assets of any of our subsidiaries whose assets constitute all or substantially all of our consolidated assets (or the sale of a majority of the outstanding shares of voting capital stock of any subsidiary or subsidiaries whose consolidated assets so constitute), in any single transaction or series of related transactions; (ii) the sale of shares of our common stock by American Securities or its affiliates, which results in American Securities and its affiliates not having the power to elect or appoint a majority of the members of the board; or (iii) any merger or consolidation of us with or into another corporation or entity unless, after giving effect to such merger or consolidation, the holders of our voting securities (on a fully-diluted basis immediately prior to the merger or consolidation), own voting securities (on a fully-diluted basis) of the surviving or resulting corporation or entity representing a majority of the outstanding voting power to elect directors of the surviving or resulting corporation or entity in substantially the same proportions that they held their shares prior to such merger. In addition, options granted to any employees under the 2014 Equity Incentive Plan or the Assumed Plans are subject to full vesting upon a “transaction.” In addition, the Assumed Options received by Mr. Blaufuss and Mr. Amato provide that if an operating division of the Company or an affiliate is sold, our board of directors may, in its discretion, accelerate the vesting of some or all of such executive’s options if the executive’s employment is transferred in connection with such sale.
Retirement Benefits
Each of HHI, Metaldyne and Grede offers their executive officers retirement benefits through 401(k) plans, which provide tax-efficient retirement savings. Each of HHI, Metaldyne and Grede matches a portion of the pre-tax dollar contributions of the executive officer up to a pre-set limit, subject to Internal Revenue Code of 1986, as amended (the “Code”) contribution limits. Matching contributions are immediately vested. In 2014, Mr. Thanopoulos, Mr. Blaufuss, Mr. Amato and Mr. Grimm received matching contributions of $6,120, $7,800, $6,697 and $5,200, respectively.
Perquisites and Other Compensation
We provide our executive officers, including our NEOs, with certain personal benefits and perquisites, which we do not consider to be a significant component of executive compensation but which we recognize are an important factor in attracting and retaining talented executives. Executive officers are eligible under the same plans as all other employees for medical, dental, disability and life insurance. We provide higher levels of long-term disability and life insurance coverages to our executive officers than is generally available to our non-executive employees. We provide these supplemental benefits to our executive officers due to the relatively low cost of such benefits and the value they provide in assisting us in attracting and retaining talented executives.
Each of Metaldyne and Grede also offers certain of its executive officers other compensation and perquisites in order to better enable the companies to attract and retain talented employees to key positions by providing additional benefits with high perceived values at relatively low cost to us. Metaldyne and Grede provided Mr. Amato and Mr. Grimm with a flexible allowance plan that provided reimbursement for certain designated items (including, amongst other items, supplemental life insurance, liability insurance, club membership, financial and estate planning and income tax preparation) as well as a tax gross up for certain reimbursements. Mr. Amato received $25,489 from Metaldyne under this program and Mr. Grimm received $43,483 executive flex and $9,450 for executive life from Grede under this program.
Employment Agreements and Severance Benefits
In connection with the Combination, we entered into new employment agreements with our NEOs. We have described the material terms of these agreements below. These employment agreements establish the terms and conditions of such NEO’s employment relationship with us. These agreements generally provide that such NEO receive a minimum base salary and be eligible to receive an annual bonus, but do not otherwise provide for annual salary or bonus increases or other compensation increases. In addition, these employment agreements provide for benefits upon termination of employment in certain circumstances.
We entered into an employment agreement with George Thanopoulos as of August 4, 2014. Mr. Thanopoulos’ contract period is valid through the earliest of (i) his resignation, (ii) his death or disability and (iii) his termination by us at any time for cause or without cause. The agreement provides that Mr. Thanopoulos will receive an initial annualized base salary of $874,182. The board of directors has discretion to increase (but not reduce) the base salary from time to time. The agreement also provides for an annual cash bonus with a target level of 100% of his base salary, as determined by the board of directors based on performance objectives established with respect to that particular year. Mr. Thanopoulos is eligible to participate in one or more of our equity incentive plans pursuant to the terms and conditions of such plans. If we terminate Mr. Thanopoulos’ employment at any time without cause (as defined in the agreement) or Mr. Thanopoulos resigns with good reason (as defined in the agreement), we must provide Mr. Thanopoulos with the following, subject to his execution of a release of claims and his continued compliance with the restrictive covenants set forth in his employment agreement: (a) an amount equal to his monthly base salary rate paid monthly for a period of 24 months (or 12 months if such termination occurs on or after August 28, 2015), (b) continued group medical coverage, paid for by the Company, for a period of 24 months (or 12 months is such termination occurs on or after August 28, 2015), ceasing earlier if he ceases to be eligible for COBRA continuation coverage or obtains other employment that offers group health benefits, and (c) a pro rata portion of the annual bonus he otherwise would have received for the fiscal year in which he was terminated.
We entered into an employment agreement with Mark Blaufuss as of August 4, 2014. Mr. Blaufuss’ contract period is valid through the earliest of (i) his resignation, (ii) his death or disability and (iii) his termination by us at any time for cause or without cause. The agreement provides that Mr. Blaufuss will receive an initial annualized base salary of $600,000. The board of directors has discretion to increase (but not reduce) the base salary from time to time. The agreement also provides for an annual cash bonus with a target level of 60% of his base salary, as determined by the board of directors based on performance objectives established with respect to that particular year. Mr. Blaufuss is eligible to participate in one or more of our equity incentive plans pursuant to the terms and conditions of such plans. If we terminate Mr. Blaufuss’ employment at any time without cause (as defined in the agreement) or Mr. Blaufuss resigns with good reason (as defined in the agreement) we must provide Mr. Blaufuss with the following, subject to his execution of a release of claims and his continued compliance with the restrictive covenants set forth in his employment agreement: (a) an amount equal to his monthly base salary rate paid monthly for a period of 18 months, (b) continued group medical coverage for a period of 18 months at the same cost as he would have paid as an active participant in the Company’s group health plan, ceasing earlier if he ceases to be eligible for COBRA continuation coverage or obtains other employment that offers group health benefits, and (c) a pro rata portion of the annual bonus he otherwise would have received for the fiscal year in which he was terminated.
We entered into an employment agreement with Thomas Amato as of August 4, 2014. Mr. Amato’s contract period is valid through the earliest of (i) his resignation, (ii) his death or disability and (iii) his termination by us at any time for cause or without cause. The agreement provides that Mr. Amato will receive an initial annualized base salary of $750,000. The board of directors has discretion to increase (but not reduce) the base salary from time to time. The agreement also provides for an annual cash bonus with a target level of 100% of his base salary, as determined by the board of directors based on performance objectives established with respect to that particular year. Mr. Amato receives an executive flex spending allowance and is eligible to participate in one or more of our equity incentive plans pursuant to the terms and conditions of such plans. If we terminate Mr. Amato’s employment at any time without cause (as defined in the agreement), we must provide Mr. Amato with the following, subject to his execution of a release of claims and his continued compliance with the restrictive covenants set forth in his employment agreement: (a) an amount equal to his monthly base salary rate paid monthly for a period of 18 months, (b) continued group medical coverage for a period of 18 months at the same cost as he would have paid as an active participant in the Company’s group health plan, ceasing earlier if he ceases to be eligible for COBRA continuation coverage or obtains other employment that offers group health benefits, and (c) a pro rata portion of the annual bonus he otherwise would have received for the fiscal year in which he was terminated.
We entered into an employment agreement with Douglas Grimm as of August 4, 2014. Mr. Grimm’s contract period is valid through the earliest of (i) his resignation, (ii) his death or disability and (iii) his termination by us at any time for cause or without cause. The agreement provides that Mr. Grimm will receive an initial annualized base salary of $750,000. The board of directors has discretion to increase (but not reduce) the base salary from time to time. The agreement also provides for an annual cash bonus with a target level of 110% of his base salary, as determined by the board of directors based on performance objectives established with respect to that particular year. Mr. Grimm is provided with life insurance coverage carrying a death benefit at least equal to five times his annualized base salary, a cash automobile allowance of $850 per month and an annual perquisite allowance of $25,000, and is eligible to participate in one or more of our equity incentive plans, pursuant to the terms of such plans. If we terminate Mr. Grimm’s employment at any time without cause (as defined in the agreement) or Mr. Grimm resigns with good reason (as defined in the agreement), we must provide Mr. Grimm with the following, subject to his execution of a release of claims and his continued compliance with the restrictive covenants set forth in his employment agreement: (a) an amount, paid in equal monthly installments over the 18 months following his termination, equal to the sum of (1) a prorated portion of his target annual bonus for the year of termination based on the number of days that have elapsed during the year of termination, plus (2) 1.5 times the sum of his annualized base salary rate and his target annual bonus, (b) continued group medical coverage for a period of 18 months at the same cost as he would have paid as an active participant in the Company’s group health plan, ceasing earlier if he ceases to be eligible for COBRA continuation coverage or obtains other employment that offers group health benefits, and (c) outplacement services for a period of six months in an amount not to exceed $40,000 in the aggregate.
For purposes of each of the employment agreements with our NEOs, “cause” means that the executive officer has:
continually failed to perform in a material manner or was materially negligent or committed willful misconduct in the performance of the executive’s duties to us or our subsidiaries for a period of 30 days after written notice was delivered to the executive by or on behalf of our board of directors specifying the manner in which the executive failed to perform (and which such failure or other performance default remains uncured after such time);
materially breached any material provisions in any written agreement between the executive and us or one of our subsidiaries for a period of 30 days after written notice was delivered to the executive by or on behalf of our board of directors specifying the manner in which the executive breached (and which breach remains uncured after such time);
developed or pursued interests materially adverse to us or any of our subsidiaries or willfully failed to observe any of our or any of our subsidiaries’ material written policies applicable to the executive for a period of 30 days after written notice was delivered to the executive by or on behalf of our board of directors specifying the manner in which the executive failed to observe (and which failure remains uncured after such time);
materially breached any non-competition, non-solicitation, or confidentiality agreement or covenant with us or any applicable subsidiary;
engaged in theft, embezzlement, fraud, or misappropriation of any of our or any of our subsidiaries’ property; or
been convicted of or entered a guilty or no contest plea with respect to a felony (other than a vehicular felony or through vicarious liability not related to us or any of our affiliates) or a misdemeanor involving moral turpitude or fraud.
For purposes of each of the employment agreements with our NEOs, “good reason” means the executive’s resignation from employment with us as a result of one or more of the following reasons, provided, in each case, that the executive must deliver written notice of resignation to us within 30 days after the occurrence of any such event, and if we do not cure the breach within 30 days of receipt of such notice, the executive actually terminates his employment within 60 days following the expiration of such cure period:
we reduce the amount of the executive officer’s base salary;
we change the executive officer’s titles or reduce the executive’s responsibilities materially inconsistent with the positions the executive then holds;
we change the executive officer’s place of work to a location more than 35 miles from the executive’s present place of work, other than any relocation to the current business headquarters of any of the Metaldyne, HHI, or Grede businesses, or to any location within five miles of any such headquarters; or
a successor to substantially all of our business and/or assets does not expressly assume and agree to perform such employment agreement and provide the executive with the same or comparable position, duties, base salary, target annual bonus and benefits under such agreement.
The options and restricted stock awards granted to each NEO fully vest upon a termination of employment with us by reason of death or “disability,” termination by us without “cause,” or such individual’s resignation for “good reason,” as those terms are defined in their individual award agreements.
Compensation Policies and Practices as They Relate to Risk Management
The compensation committee has evaluated the policies and practices of compensating our employees in light of the relevant factors, including the following:
allocation of compensation between cash and equity awards and the focus on stock-based compensation, including options and stock awards generally vesting over a period of years, thereby mitigating against short-term risk taking;
performance-based compensation is not based solely on our performance, but also requires achievement of individual performance objectives; and
financial performance targets of our performance-based compensation plan are budgeted objectives that are reviewed and approved by our board of directors and/or our compensation committee.
Based on such evaluation, the compensation committee has determined that our policies and practices do not incentivize taking unnecessary or excessive risks and are not reasonably likely to have a material adverse effect on us.
IRS Code Section 162(m)
Section 162(m)report of the Code generally disallows publicly held companies a tax deduction for compensation in excess of $1,000,000 paid to their chief executive officer and the three other most highly compensated executive officers (other than the chief financial officer) unless such compensation qualifies for an exemption for certain compensation that is based on performance. Section 162(m) of the Code provides transition relief for privately held companies that become publicly held, pursuant to which the foregoing deduction limit does not apply to any remuneration paid pursuant to compensation plans or agreements in existence during the period in which the corporation was not publicly held if, in connection with an initial public offering, the prospectus accompanying the initial public offering discloses information concerning those plans or agreements that satisfies all applicable securities laws then in effect. If the transition requirements are met in connection with an initial public offering, the transition relief continues until the earliest of (i) the expiration of the plan or agreement, (ii) the material modification of the plan or agreement, (iii) the issuance of all employer stock and other compensation that has been allocated under the plan, or (iv) the first meeting of the stockholders at which directors are to be elected that occurs after the close of the third calendar year following the calendar year in which the initial public offering occurs. Our intent generally is to design and administer executive compensation programs in a manner that will preserve the deductibility of compensation paid to our executive officers, and we believe that a substantial portion of our current executive compensation program will satisfy the requirements for exemption from the $1,000,000 deduction limitation, to the extent applicable. However, we reserve the right to design programs that recognize a full range of performance criteria important to our success, even where the compensation paid under such programs may not be deductible. The compensation committee will monitor the tax and other consequences of our executive compensation program as part of its primary objective of ensuring that compensation paid to our executive officers is reasonable, performance based and consistent with our goals and the goals of our stockholders. auditors.Compensation Committee Report/s/ KPMG LLP
The compensation committee of the board of directors (hereafter referred to as the “Committee”) oversees the Company’s programs for compensating executive officers and other key management employees, including the administration of the Company’s equity-based compensation plans, and approves the salaries, bonuses and other awards to executive officers. The Committee has reviewed and discussed the Compensation Discussion and Analysis with management of the Company, and, based on such review and discussion, the Committee has recommended to the board of directors that the Compensation Discussion and Analysis so stated be included in this Form 10-K.Detroit, Michigan February 29, 2016
92
ITEM 9B. | Compensation Committee:
Kevin Penn, Chairman
Loren Easton
William JacksonOTHER INFORMATION
|
Executive Compensation
Summary Compensation Table for 2014
The following table sets forth certain information with respect to the compensation paid to our NEOs during the years ended December 31, 2013 and 2014.None.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Name and Principal Position | | Year | | | Salary ($) | | | Bonus ($) (5) | | | Stock Awards ($)(6) | | | Option Awards ($) (1) | | | Non-equity Incentive Plan Compensation ($) (7) | | | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) | | | All Other Compensation ($) (8) | | | Total ($) | | George Thanopoulos; Chief Executive Officer and President & CEO of HHI (2) | |
| 2014
2013 |
| |
| 857,644
836,360 |
| | | — | | | | 2,000,010 | | | | 7,926,524 | | |
| 1,030,970
1,384,739 |
| | | — | | |
| 639,628
6,120 |
| |
| 12,454,776
2,227,219 |
| | | | | | | | | | | Mark Blaufuss; Chief Financial Officer (3) | |
| 2014
2013 |
| |
| 468,797
328,343 |
| | | — | | | | 1,250,010 | | |
| 327,054
1,247,593 |
| |
| 396,000
224,821 |
| | | — | | |
| 7,800
7,650 |
| |
| 2,449,661
1,808,407 |
| | | | | | | | | | | Thomas Amato; Co-President and President & CEO of Metaldyne (3) | |
| 2014
2013 |
| |
| 658,539
533,820 |
| | | — | | | | 2,000,010 | | |
| 1,072,329
3,349,442 |
| |
| 825,000
603,216 |
| | | — | | |
| 32,185
26,379 |
| |
| 4,588,063
4,512,857 |
| | | | | | | | | | | Douglas Grimm; Co-President and President & CEO of Grede (4) | |
| 2014
2013 |
| |
| 670,004
590,000 |
| | | — | | | | 2,000,010 | | | | 6,830,930 | | |
| 679,196
976,246 |
| | | — | | |
| 68,333
58,932 |
| |
| 10,248,473
1,625,178 |
|
93
PART III (1)ITEM 10. | As required by Securities and Exchange Commission rules, amounts shown in the column “Option Awards” reflects the aggregate grant-date fair value of option awards granted in the fiscal year in accordance with accounting rules ASC 718,Compensation—Stock Compensation. For a description of the assumptions used in calculating the fair value of equity awards in 2014 under ASC 718, see Note 16 of the notes to the consolidated financial statements contained within “Item 8. Financial Statements and Supplementary Data.” These amounts reflect our cumulative accounting expense over the vesting period and do not correspond to the actual values that may be realized by the NEOs.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
The information required by Item 10 is incorporated by reference from our 2016 Proxy Statement. (2)ITEM 11. | Compensation paid by HHI. Does not include $2,485,775 received by Mr. Thanopoulos for the anti-dilution feature of his options related to the dividend paid by HHI during 2014.EXECUTIVE COMPENSATION |
The information required by Item 11 is incorporated by reference from our 2016 Proxy Statement. (3) | Compensation paid by Metaldyne. |
(4) | Compensation paid by Grede. Does not include $23,526,659 received by Mr. Grimm in recognition of the equity units he held related to the Grede Transaction. |
(5) | Does not include the value of 1,016 plan units granted to Mr. Grimm, that vested in 2013, under the Equity Based Compensation Plan previously maintained by Grede Holdings LLC, entitling Mr. Grimm to receive a cash payment in respect of such units in an amount determined as if such units were membership units of Grede Holdings LLC, in a change of control transaction. As of December 31, 2013, the liquidity event (a change of control) was considered not probable of occurring in accordance with ASC 718,Compensation—Stock Compensation. |
(6) | As required by Securities and Exchange Commission rules, the amounts shown in the column “stock awards” reflects the aggregate grant date fair value of restricted stock awards granted in the fiscal year in accordance with accounting rules ASC 718,Compensation—Stock Compensation. The amounts represent our cumulative accounting expense over the vesting period and do not correspond to the actual values that may be realized by the NEO’s. |
(7) | The amounts in column “Non-Equity Incentive Plan Compensation” reflects the 2014 plan year payout, to be paid in March 2015, as part of the previous HHI, Metaldyne, and Grede annual bonus plans. |
(8) | The components of the column “All Other Compensation” for 2014 are summarized in the following table. |
| | | | | | | | | | | | | | | | | | | | | | | | | Name | | 401(k) Match ($) | | | Car Allowance ($) | | | Executive Flex Allowance ($) | | | Executive Life Insurance ($) | | | Other Compensation ($) (1) | | | Total ($) | | George Thanopoulos | | | 6,120 | | | | — | | | | — | | | | — | | | | 633,508 | | | | 639,628 | | Mark Blaufuss | | | 7,800 | | | | — | | | | — | | | | — | | | | — | | | | 7,800 | | Thomas Amato | | | 6,697 | | | | — | | | | 25,488 | | | | — | | | | — | | | | 32,185 | | Douglas Grimm | | | 5,200 | | | | 10,200 | | | | 43,483 | | | | 9,450 | | | | — | | | | 68,333 | |
(1) | Represents a payment of $633,508 for recognition of dividends Mr. Thanopoulos would have received for shares purchased upon the March 2014 escrow release. |
Grants of Plan-Based Awards for 2014
The following table sets forth certain information with respect to the grants of plan-based awards to our NEOs during the year ended December 31, 2014.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Grant Date | | Estimated Future Payouts Under Non-Equity Incentive Plan Awards (1) | | | All Other Stock Awards: Number of Shares of Stock or Units (#) | | | All Other Option Awards: Number of Securities Underlying Options (#) | | | Exercise or Base Price of Option Awards ($/Sh) | | | Grant Date Fair Value of Stock and Option Awards ($)(2) | | Name | | | Threshold ($) | | | Target ($) | | | Maximum ($) | | | | | | George Thanopoulos | | 08/06/2014
08/06/2014 08/06/2014 08/06/2014 08/06/2014 12/11/2014 01/01/2014 | | | 437,091 | | | | 874,182 | | | | — | | | | 133,334 | | |
| 253,125
171,825 136,540 2,680 135,185 |
| |
| 20.00
20.00 20.00 20.00 20.00 |
| |
| 2,793,994
1,978,737 1,507,129 29,582 1,617,083 2,000,010 |
| | | | | | | | | | Mark Blaufuss | | 08/06/2014
08/06/2014 12/11/2014 01/01/2014 | | | 180,000 | | | | 360,000 | | | | 486,000 | | | | 83,334 | | |
| 3,935
23,710 |
| |
| 20.00
20.00 |
| |
| 43,435
283,619 1,250,010 |
| | | | | | | | | | Thomas Amato | | 08/06/2014
08/06/2014 12/11/2014 01/01/2014 | | | 375,000 | | | | 750,000 | | | | 1,012,500 | | | | 133,334 | | |
| 26,285
65,390 |
| |
| 20.00
20.00 |
| |
| 290,134
782,195 2,000,010 |
| | | | | | | | | | Douglas Grimm | | 06/02/2014
08/06/2014 08/06/2014 12/11/2014 01/01/2014 | | | 416,254 | | | | 832,509 | | | | 1,665,018 | | | | 133,334 | | |
| 485,205
9,385 48,875 |
| |
| 18.66
20.00 20.00 |
| |
| 6,142,695
103,592 584,643 2,000,010 |
|
(1) | The amounts shown represent the threshold, target and maximum amounts payable as part of the HHI, Metaldyne, and Grede bonus plans, in which each NEO participated in 2014. |
(2) | As required by Securities and Exchange Commission rules, amounts shown in the column “Grant Date Fair Value of Stock and Option Awards” present the aggregate grant-date fair value of option awards granted in the fiscal year in accordance with accounting rules ASC 718, Compensation—Stock Compensation. For a description of the assumptions used in calculating the fair value of equity awards in 2013 under ASC 718, see the Notes to the Company’s audited financial statements included elsewhere in this Form 10-K. These amounts reflect our cumulative accounting expense over the vesting period and do not correspond to the actual values that may be realized by the NEOs. |
Outstanding Equity Awards at December 31, 2014
The following table provides information regarding the equity awards held by the NEOs as of December 31, 2014.
| | | | | | | | | | | | | | | | | | | | | | | | | Option Awards | | Stock Awards | | Name | | Number of Securities Underlying Unexercised Options (#) Exercisable | | | Number of Securities Underlying Unexercised Options (#) Unexercisable | | | Option Exercise Price ($) | | | Option Expiration Date | | Number of Shares or Units of Stock That Have Not Vested (#) (1) | | �� | Market Value of Shares or Units of Stock That Have Not Vested ($) (2) | | George Thanopoulos | |
| 370,748
253,125 68,730 136,540 2,680 — |
| |
| 556,122
— 103,095 — — 135,185 |
| |
| 3.31
20.00 20.00 20.00 20.00 20.00 |
| | 12/06/2022
08/06/2024 08/06/2024 08/06/2024 08/06/2024 08/06/2024 | | | 133,334 | | | | 2,314,678 | | | | | | | | | Mark Blaufuss | |
| 47,419
3,935 — |
| |
| 189,676
— 23,710 |
| |
| 5.40
20.00 20.00 |
| | 02/19/2023
08/06/2024 08/06/2024 | | | 83,334 | | | | 1,446,678 | | | | | | | | | Thomas Amato | |
| 123,290
7,489 26,285 — |
| |
| 493,160
29,956 — 65,390 |
| |
| 5.40
14.75 20.00 20.00 |
| | 02/19/2023
02/19/2023 08/06/2024 08/06/2024 | | | 133,334 | | | | 2,314,678 | | | | | | | | | Douglas Grimm | |
| —
9,385 — |
| |
| 485,205
— 48,875 |
| |
| 18.66
20.00 20.00 |
| | 06/02/2024
08/06/2024 08/06/2024 | | | 133,334 | | | | 2,314,678 | |
(1) | Refers to Restricted Stock Awards, which vest 25% on the first anniversary of the grant date and 75% on the second anniversary of the grant date. |
(2) | Market Value is determined using the number of awards multiplied by $17.36, which was the closing price of our common stock on the New York Stock Exchange on December 31, 2014. |
Options Exercised and Stock Vested during 2014
None of the NEOs exercised options or had any stock that vested during 2014.
Pension Benefits
Our NEOs did not participate in any defined benefit pension plan during 2014.
Nonqualified Deferred Compensation
In the year ended December 31, 2014, our NEOs received no nonqualified deferred compensation and had no deferred compensation benefits.
Potential Payments upon Termination or Change in Control
The table below shows the estimated value transfer to each NEO upon termination of employment without a Change in Control or in connection with a Change in Control. The table below assumes that such termination occurred on December 31, 2014, when the closing price of our stock was $17.36 and payments are made under the employment agreements then in effect. The actual amounts that would be paid to any NEO can only be determined at the time of an actual termination of employment and would vary from those listed below.
| | | | | | | | | | | | | | | | | | | Termination without Cause or for Good Reason without a Change in Control or within Two Years Following a Change in Control | | | | | Name | | Severance Pay ($) | | | Benefits ($) | | | Accelerated Equity Vesting ($) | | | Total ($) | | George Thanopoulos | | | 2,779,334 | | | | 38,871 | | | | 10,128,192 | | | | 12,946,397 | | Mark Blaufuss | | | 1,296,000 | | | | 18,000 | | | | 3,715,203 | | | | 5,029,203 | | Thomas Amato | | | 1,950,000 | | | | 18,000 | | | | 8,291,057 | | | | 10,259,057 | | Douglas Grimm | | | 2,706,279 | | | | 52,258 | | | | 2,314,678 | | | | 5,073,215 | |
Director Compensation
The following table sets forth compensation received by our directors for their services as a director of the boards of HHI, Metaldyne, or MPG as applicable.
| | | | | NameITEM 12.
| | Fees Earned
or Paid in Cash
($) | | Nick Bhambri (1)
| | | 70,833 | | Jeffrey Stafeil (1)
| | | 81,250 | | William Jackson (2)
| | | 70,833 | | Jack Smith (2)
| | | 70,833 | |
(1) | Compensation paid by HHI and MPG. |
(2) | Compensation paid by Metaldyne and MPG. |
Director Compensation Policy
Following the Combination, each of our non-employee directors received annual cash compensation of $100,000 and will be granted restricted shares of our common stock in an amount equal to $50,000 at the date of grant that will vest over a three-year period from the grant date. Jeff Stafeil will receive an additional annual cash compensation of $25,000 for his services as the chairman of the audit committee. In addition, beginning January 1, 2015, our non-employee directors affiliated with American Securities will quality for the same non-employee director compensation due to the IPO in 2014. As such, the cash compensation paid and restricted shares of our common stock granted for each of our non-employee directors that are affiliated with American Securities will be paid and granted, respectively, directly to American Securities and not to the director individually. Directors who are our employees will not receive any compensation for their service on our board of directors.
ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERSSTOCKHOLDER MATTERS |
The following table shows information as of March 2, 2015required by Item 12 is incorporated by reference from our 2016 Proxy Statement. For information regarding the beneficial ownershipCompany's equity compensation plans, see Item 5 “Market for Common Equity, Related Stockholder Matters, and Issuer Purchases of our common stock by: Equity Securities” in this Annual Report on Form 10-K. each person or group who is known by us to own beneficially more than 5% of our common stock;
each member of our board and each of our NEOs; and
all members of our board and our executive officers as a group.
Beneficial ownership of shares is determined under rules of the Securities and Exchange Commission and generally includes any shares over which a person exercises sole or shared voting or investment power. Except as noted by footnote, and subject to community property laws where applicable, we believe based on the information provided to us that the persons and entities named in the table below have sole voting and investment power with respect to all shares of our common stock shown as beneficially owned by them. Percentage of beneficial ownership is based on 67,075,085 shares of our common stock outstanding and beneficial ownership as of March 2, 2015. Shares of common stock subject to options currently exercisable or exercisable within 60 days are deemed to be outstanding and beneficially owned by the person holding the options for the purposes of computing the percentage of beneficial ownership of that person and any group of which that person is a member, but are not deemed outstanding for the purpose of computing the percentage of beneficial ownership for any other person. Unless otherwise indicated, the address for each holder listed below is 47659 Halyard Drive, Plymouth, MI 48170-2429, c/o Metaldyne Performance Group Inc.
| | | | | | | | | | | Shares of common stock beneficially owned | | Name of beneficial owner | | Number of shares | | | Percentage of shares | | 5% stockholders: | | | | | | | | | ASP MD Investco LP (1) | | | 52,681,147 | | | | 78.5 | % | Named executive officers and directors: | | | | | | | | | George Thanopoulos | | | 2,224,018 | | | | 3.3 | % | Mark Blaufuss (2) | | | 136,728 | | | | * | | Thomas Amato (3) | | | 541,863 | | | | * | | Douglas Grimm | | | 103,215 | | | | * | | Nick Bhambri | | | 22,705 | | | | * | | Loren Easton | | | — | | | | — | | Michael Fisch | | | — | | | | — | | William Jackson | | | 4,278 | | | | * | | Kevin Penn | | | — | | | | — | | John Pearson Smith | | | 4,278 | | | | * | | Jeffrey Stafeil | | | 9,340 | | | | * | | All board of director members and executive officers as a group (11 persons) | | | 3,046,425 | | | | 4.5 | % |
(1) | Based on Schedule 13G filed on February 17, 2015, as of December 31, 2014 ASP MD Investco LP, a Delaware limited partnership. American Securities Partners VI, L.P., American Securities Partners VI(B), L.P., American Securities Partners VI(C), L.P. and American Securities Partners VI(D), L.P. (collectively, the “Sponsors”), are collectively owners of more than 99% of the limited partnership interests of ASP MD Investco LP. The following persons may be deemed having voting or investment power with respect to shares of our common stock beneficially owned by ASP MD Investco LP: (i) David Horing and Michael G. Fisch, in their capacities as the managing members of American Securities Associates VI, LLC, the general partner of each of the Sponsors, and (ii) Michael G. Fisch, in his capacity as trustee of The Michael G. Fisch 2006 Revocable Trust, the manager of ASCP, LLC, the managing member of American Securities LLC, which in turn is (A) the provider of investment advisory services to each Sponsor and (B) the owner of 100% of the issued and outstanding shares of ASP Manager Corp., the general partner of ASP MD Investco LP. Such individuals disclaim beneficial ownership of the shares of common stock held by ASP MD Investco, LP, except to the extent of their pecuniary interests therein. The address for ASP MD Investco LP is c/o American Securities LLC, 299 Park Avenue, 34th Floor, New York, NY 10171. |
(2) | Does not include 1,550 shares of our common stock held in escrow in connection with the Metaldyne Transaction. |
(3) | Does not include 9,700 shares of our common stock held in escrow in connection with the Metaldyne Transaction. |
ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANACTIONSTRANSACTIONS, AND DIRECTOR INDEPENDENCE |
Certain Relationships and Related Transactions
Set forth belowThe information required by Item 13 is a description of certain relationships and related person transactions between us or our subsidiaries, and our directors, executive officers, and holders of more than 5% of our voting securities. We believe that all of the following transactions were entered into with terms as favorable as could have been obtained from unaffiliated third parties.
Merger Agreement
Pursuant to the Merger Agreement, dated as of July 31, 2014 (the “Merger Agreement”), the Combination was consummated on August 4, 2014 whereby HHI, Metaldyne, and Grede became wholly owned subsidiaries of MPG. In connection with the Combination (except for treasury shares or treasury units and certain shares or units ownedincorporated by American Securities, which were cancelled for no consideration), (i) each issued and outstanding unit of ASP Grede Intermediate Holdings LLC was converted into the right to receive 10.72363 shares of our common stock, (ii) each issued and outstanding share of common stock of ASP MD Holdings, Inc. was converted into the right to receive 0.21399 shares of our common stock, (iii) each issued and outstanding share of common stock of ASP HHI Holdings, Inc. was converted into the right to receive 1.67082 shares of our common stock, (iv) each outstanding option to purchase shares of ASP MD Holdings, Inc. was converted into an option to acquire a number of shares of our
common stock , (v) each outstanding option to purchase shares of ASP HHI Holdings, Inc. was converted into an option to acquire a number of shares of our common stock and (vi) each outstanding option to purchase units of ASP Grede Intermediate Holdings LLC was converted into an option to acquire a number of shares of our common stock, in each case, in accordance with and subject to the terms and conditions of the Merger Agreement. In addition, following the Grede merger in the Combination, ASP Grede Holdings, LLC liquidated and distributed the shares of our common stock it received in the Combination to its former unit holder.
For more information regarding the Combination, see “Item 1. Business—Company Organization and History.”
Stockholders’ Agreement
We entered into a Stockholders’ Agreement on August 4, 2014 (the “Stockholders’ Agreement”) that governs our relationship with our stockholders, and which prescribes the rights and restrictions of each stockholder party thereto. Upon completion of the IPO, the provisions in the Stockholders’ Agreement that provide for limitations on transfers (including, among others, the limitations on a minority investor transferring his or her shares, the right of first offer, tag-along rights, drag-along rights and participation rights) terminated. In addition, certain provisions that provide for purchase of minority shares of our common stock upon termination of employment of a minority investor also terminated at that time. All provisions in the Stockholders’ Agreement will terminate upon the sale of all or substantially all of the assets or equity interests in MPG to a third party, whether by merger, consolidation, sale of assets or securities, or otherwise.
The Stockholders’ Agreement provides demand registration rights to American Securities. In connection with any registration effected pursuant to the terms of the Stockholders’ Agreement, we are required to pay for all of the fees and expenses incurred in connection with such registration, including registration fees, filing fees, and printing fees. However, the underwriting discounts and selling commissions payable in respect of registrable securities included in any registration are to be paid by the persons including such registrable securities in any such registration on a pro rata basis. We have also agreed to indemnify the holders of registrable securities against all claims, losses, damages, and liabilities with respect to each registration effected pursuant to the Stockholders’ Agreement.
Management Consulting Agreements
Each of HHI, Metaldyne, and Grede entered into separate management consulting agreements (together, the “Management Consulting Agreements”) with American Securities in connection with the closing of the HHI Transaction, the Metaldyne Transaction and the Grede Transaction. Pursuant to the Management Consulting Agreements, American Securities provided management consulting services to HHI, Metaldyne and Grede. American Securities was also eligible to receive 1% of the value of certain corporate transactions for which they provide advisory services. The Management Consulting Agreements also included customary exculpation and indemnification provisions in favor of American Securities. The Management Consulting Agreements, and fees payable under those agreements, terminated on December 12, 2014 pursuant to their respective terms upon consummation of the IPO.
Pursuant to the Management Consulting Agreements, American Securities received the following fees and expenses:
| | | | | | | | | | | | | | | 2014 | | | 2013 | | | Successor Period 2012 | | | | | | | (In millions) | | | | | Management fees | | $ | 5.1 | | | | 4.0 | | | | 0.5 | | Transaction fees | | | 8.3 | | | | — | | | | 15.7 | | Expense reimbursements | | | 1.4 | | | | 0.5 | | | | 0.1 | | | | | | | | | | | | | | | Total | | $ | 14.7 | | | | 4.5 | | | | 16.3 | | | | | | | | | | | | | | |
Employment Agreements
We have entered into employment agreements with each of George Thanopoulos, Thomas Amato, Douglas Grimm, and Mark Blaufuss. For more information regarding these agreements, see “Item 11. Executive Compensation.”
Indemnification Agreements
We entered into indemnification agreements with our current directors and NEOs and expect to enter in a similar agreement with any new directors or executive officers.
Policies for Approval of Related Person Transactions
We have adopted a written policy relating to the approval of related person transactions. Our audit committee will review and approve or ratify all relationships and related person transactions between us and (i) our directors, director nominees, executive officers, (ii) any 5% record or beneficial owner of our common stock or (iii) any immediate family member of any person specified in (i) and (ii) above. Our General Counsel will be primarily responsible for the development and implementation of processes and controls to obtain informationreference from our directors and executive officers with respect to related party transactions and for determining, based on the facts and circumstances, whether we or a related person have a direct or indirect material interest in the transaction.
As set forth in the related person transaction policy, in the course of its review and approval or ratification of a related party transaction, the committee will consider:
2016 Proxy Statement. the nature of the related person’s interest in the transaction;
the availability of other sources of comparable products or services;
the material terms of the transaction, including, without limitation, the amount and type of transaction; and
the importance of the transaction to us.
Any member of the audit committee who is a related person with respect to a transaction under review will not be permitted to participate in the discussions or approval or ratification of the transaction. However, such member of the audit committee will provide all material information concerning the transaction to the audit committee.
Director Independence
See “Item 10. Directors, Executive Officers and Corporate Governance—Director Independence”.
ITEM 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES |
Audit Fees
The table below presents the fees billedinformation required by Item 14 is incorporated by reference from our principal auditor during the years ended December 31:2016 Proxy Statement. | | | | | | | | | | | 2014 | | | 2013 | | | | (In millions) | | Audit fees | | $ | 4.4 | | | | 1.0 | | Audit-related fees | | | 0.8 | | | | — | | Tax fees | | | 0.2 | | | | 0.2 | | All other fees | | | * | | | | * | |
* | Less than $0.1 million. Within all other fees are those incurred for trade agreement and pension advisory services, accounting research tool subscription and benchmarking data. |
Our audit committee charter, adopted on December 1, 2014, requires the audit committee to consider and, in its discretion, approve in advance any services (including the fees and material terms thereof) proposed to be carried out for the Company by the independent auditor or by any other firm proposed to be engaged by the Company as its independent auditor. All audit services provided for the years ended December 31, 2014 and 2013 were approved by the audit committees of MPG or Metaldyne.
94
PART IV ITEM 15. | EXHIBITS, FINANCIAL STATEMENTS SCHEDULES |
1. Financial Statements Financial statements filed as part of this Form 10-K are listed under “Item 8. Financial Statements and Supplemental Data.” 2. Financial Statement Schedules Schedules Omitted Schedules other than Schedule II are omitted because they are not required or applicable under instructions contained in Regulation S-X or because the information called for is shown in the financial statements and notes thereto. Schedule II: Valuation and Qualifying Accounts | | | Balance at beginning of period | | | Charged to costs and expenses | | | Charged to other accounts (1) | | Deductions | | Balance at end of period | | | Balance at beginning of period | | | Charged to costs and expenses | | | Charged to other accounts (1) | | | Deductions | | | Balance at end of period | | | | | | | | | | (In millions) | | | | | | | | | | | | | | | (In millions) | | | | | | | | | | Allowances on Accounts Receivable | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Year ended December 31, 2015 | | | $ | 8.0 | | | | 20.8 | | | | (0.1 | ) | | | (17.2 | ) | | | 11.5 | | Year ended December 31, 2014 | | $ | 9.0 | | | $ | 5.1 | | | $ | 2.0 | | | $ | (8.1 | ) | | $ | 8.0 | | | | 9.0 | | | | 5.1 | | | | 2.0 | | | | (8.1 | ) | | | 8.0 | | Year ended December 31, 2013 | | | 5.0 | | | | 3.6 | | | | 0.4 | | | | — | | | | 9.0 | | | | 5.0 | | | | 3.6 | | | | 0.4 | | | | — | | | | 9.0 | | Successor period ended December 31, 2012 | | | 0.3 | | | | 0.3 | | | | 4.4 | | | | — | | | | 5.0 | | | Predecessor period ended October 5, 2012 | | | 0.4 | | | | — | | | | — | | | | (0.1 | ) | | | 0.3 | | | Valuation allowance for deferred tax assets | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Year ended December 31, 2015 | | | $ | 11.9 | | | | 2.5 | | | | (1.5 | ) | | | (1.1 | ) | | | 11.8 | | Year ended December 31, 2014 | | $ | 7.1 | | | $ | 4.7 | | | $ | (0.1 | ) | | $ | 0.2 | | | $ | 11.9 | | | | 7.1 | | | | 4.7 | | | | (0.1 | ) | | | 0.2 | | | | 11.9 | | Year ended December 31, 2013 | | | 18.2 | | | | 0.2 | | | | — | | | | (11.3 | ) | | | 7.1 | | | | 18.2 | | | | 0.2 | | | | — | | | | (11.3 | ) | | | 7.1 | | Successor period ended December 31, 2012 | | | — | | | | — | | | | 18.9 | | | | (0.7 | ) | | | 18.2 | | | Predecessor period ended October 5, 2012 | | | — | | | | — | | | | — | | | | — | | | | — | | |
(1) | Includes purchase accounting adjustment to record accounts at fair value. |
95
SignaturesSignatures
Pursuant to the requirements of Section 13 or 15(d) 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, on March 16, 2015.February 29, 2016. METALDYNE PERFORMANCE GROUP INC. (Registrant) | | | By: | | /s/ George Thanopoulos | | | George Thanopoulos, Chief Executive Officer |
Pursuant to the requirements of the Securities exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. | | | | | /s/ George Thanopoulos George Thanopoulos
| | Chief Executive Officer and Director (Principal Executive Officer) | | March 16, 2015February 29, 2016 | George Thanopoulos | | | | | | /s/ Mark Blaufuss Mark Blaufuss
| | Chief Financial Officer and Treasurer (Principal Financial Officer and Principal Accounting Officer) | | March 16, 2015February 29, 2016 | Mark Blaufuss | | | | /s/ Kevin Penn | | Director | | February 29, 2016 | Kevin Penn | | Director | | March 16, 2015 | | | | /s/ Nick Bhambri | | Director | | February 29, 2016 | Nick Bhambri | | Director | | March 16, 2015 | | | | /s/ Loren Easton | | Director | | February 29, 2016 | Loren Easton | | Director | | March 16, 2015 | | | | /s/ Michael Fisch | | Director | | February 29, 2016 | Michael Fisch | | Director | | March 16, 2015 | | | | /s/ William Jackson | | Director | | February 29, 2016 | William Jackson | | Director | | March 16, 2015 | | | | /s/ John Pearson Smith | | Director | | February 29, 2016 | John Pearson Smith | | Director | | March 16, 2015 | | | | /s/ Jeffrey Stafeil | | Director | | February 29, 2016 | Jeffrey Stafeil | | Director | | March 16, 2015 |
96
3. ExhibitExhibit Index | | | | | Exhibit Number | | | | Description | | | | 2.1 | | | | Agreement and Plan of Merger, dated as of July 31, 2014, by and among Metaldyne Performance Group Inc., Grede Merger Sub, LLC, Metaldyne Merger Sub, Inc. and HHI Merger Sub, Inc., ASP Grede Intermediate Holdings LLC, ASP MD Holdings, Inc. and ASP HHI Holdings, Inc. and ASP Grede Holdings LLC (incorporated by reference from Exhibit 2.1 to the Metaldyne Performance Group Inc. Registration Statement on Form S-1 (File No. 333-198316) filed August 22, 2014). | | | | 3.1 | | | | Form of Amended and Restated Certificate of Incorporation of Metaldyne Performance Group Inc. (incorporated by reference from Exhibit 3.1 to the Metaldyne Performance Group Inc. Registration Statement on Form S-1/A (File No. 333-198316) filed December 1, 2014). | | | | 3.2 | | | | Form of Amended and Restated Bylaws of Metaldyne Performance Group Inc. (incorporated by reference from Exhibit 3.2 to the Metaldyne Performance Group Inc. Registration Statement on Form S-1/A (File No.333-198316) filed December 1, 2014). | | | | 4.1 | | | | Form of Common Stock Certificate (incorporated by reference from Exhibit 4.1 to the Metaldyne Performance Group Inc. Registration Statement on Form S-1/A (File No. 333-198316) filed December 4, 2014). | | | | 4.2 | | | | Indenture, dated as of October 20, 2014, among the MPG Holdco I Inc., Metaldyne Performance Group Inc., the subsidiary guarantors party thereto and Wilmington Trust National Association, as trustee (incorporated by reference from Exhibit 4.2 to the Metaldyne Performance Group Inc. Registration Statement on Form S-1/A (File No.333-198316) filed October 29, 2014). | | | | 4.3 | | | | Form of 7.375% Note (included in Exhibit 4.2). | | | | *4.4 | | | | First Supplemental Indenture, dated as of January 29, 2015, between Grede LLC and Wilmington Trust National Association, as trustee. | | | | 4.5 | | | | Registration Rights Agreement, dated as of October 20, 2014, among MPG Holdco I Inc., the guarantors party thereto and Deutsche Bank Securities Inc., Goldman, Sachs & Co. and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as representatives of the several initial purchasers listed therein (incorporated by reference from Exhibit 4.4 to the Metaldyne Performance Group Inc. Registration Statement on Form S-1/A (File No. 333-198316) filed November 14, 2014). | | | | 10.1 | | | | Credit Agreement, dated as of October 20, 2014, among MPG Holdco I Inc., as the borrower, Metaldyne Performance Group Inc., certain subsidiaries from time to time party thereto, as subsidiary guarantors, Goldman Sachs Bank USA, as administrative agent, and the other financial institutions party thereto (incorporated by reference from Exhibit 10.1 to the Metaldyne Performance Group Inc. Registration Statement on Form S-1/A (File No. 333-198316) filed October 29, 2014). | | | | 10.2 | | | | Stockholders’ Agreement, dated as of August 4, 2014, by and among Metaldyne Performance Group Inc., ASP MD Investco LP, ASP HHI Investco LP, ASP Grede Investco LP and the minority investors identified therein (incorporated by reference from Exhibit 10.2 to the Metaldyne Performance Group Inc. Registration Statement on Form S-1 (File No. 333-198316) filed August 22, 2014). | | | | 10.3 | | | | Employment Agreement, effective August 4, 2014, by and between Metaldyne Performance Group Inc. and George Thanopoulos (incorporated by reference from Exhibit 10.3 to the Metaldyne Performance Group Inc. Registration Statement on Form S-1 (File No. 333-198316) filed August 22, 2014). | | | | 10.4 | | | | Employment Agreement, effective August 4, 2014, by and between Metaldyne Performance Group Inc. and Mark Blaufuss (incorporated by reference from Exhibit 10.4 to the Metaldyne Performance Group Inc. Registration Statement on Form S-1/A (File No. 333-198316) filed October 7, 2014). | | | | 10.5 | | | | Employment Agreement, effective August 4, 2014, by and between Metaldyne Performance Group Inc. and Thomas Amato (incorporated by reference from Exhibit 10.5 to the Metaldyne Performance Group Inc. Registration Statement on Form S-1 (File No. 333-198316) filed August 22, 2014). | | | | 10.6 | | | | Employment Agreement, effective August 4, 2014, by and between Metaldyne Performance Group Inc. and Douglas Grimm (incorporated by reference from Exhibit 10.6 to the Metaldyne Performance Group Inc. Registration Statement on Form S-1 (File No. 333-198316) filed August 22, 2014). |
97
| | | Exhibit Number | | Description | | | | 10.7 | | | | Form of Director and Officer Indemnification Agreement (incorporated by reference from Exhibit 10.7 to the Metaldyne Performance Group Inc. Registration Statement on Form S-1/A (File No. 333-198316) filed December 1, 2014). |
| | | | | Exhibit
Number
| | | | Description
| | | | 10.8 | | | | 2014 Equity Incentive Plan (incorporated by reference from Exhibit 10.8 to the Metaldyne Performance Group Inc. Registration Statement on Form S-1/A (File No. 333-198316) filed December 1, 2014). | | | | 10.9 | | | | Annual Bonus Plan (incorporated by reference from Exhibit 10.9 to the Metaldyne Performance Group Inc. Registration Statement on Form S-1/A (File No. 333-198316) filed December 1, 2014). | | | | 10.10A | | | | Form of NEO Restricted Stock Agreement (incorporated by reference from Exhibit 10.10A to the Metaldyne Performance Group Inc. Registration Statement on Form S-1/A (File No. 333-198316) filed December 4, 2014). | | | | 10.10B | | | | Form of CFO Restricted Stock Agreement (incorporated by reference from Exhibit 10.10B to the Metaldyne Performance Group Inc. Registration Statement on Form S-1/A (File No. 333-198316) filed December 4, 2014). | | | | 10.10C | | | | Form I of Restricted Stock Agreement (incorporated by reference from Exhibit 10.10C to the Metaldyne Performance Group Inc. Registration Statement on Form S-1/A (File No. 333-198316) filed December 4, 2014). | | | | 10.10D | | | | Form II of Restricted Stock Agreement (incorporated by reference from Exhibit 10.10D to the Metaldyne Performance Group Inc. Registration Statement on Form S-1/A (File No. 333-198316) filed December 4, 2014). | | | | 10.11 | | | | ASP HHI Holdings, Inc. Stock Option Plan (incorporated by reference from Exhibit 10.11 to the Metaldyne Performance Group Inc. Registration Statement on Form S-1/A (File No. 333-198316) filed October 7, 2014). | | | | 10.12 | | | | ASP MD Holdings, Inc. Stock Option Plan Plan(incorporated by reference from Exhibit 10.12 to the Metaldyne Performance Group Inc. Registration Statement on Form S-1/A (File No. 333-198316) filed October 29, 2014). | | | | 10.13 | | | | ASP Grede Intermediate Holdings LLC 2014 Unit Option Plan (incorporated by reference from Exhibit 10.13 to the Metaldyne Performance Group Inc. Registration Statement on Form S-1/A (File No. 333-198316) filed October 29, 2014). | | | | 10.14 | | | | Nonqualified Stock Option Agreement (Replacement Option; Tranche A), dated as of August 4, 2014, between Metaldyne Performance Group Inc. and Thomas A. Amato (incorporated by reference from Exhibit 10.14 to the Metaldyne Performance Group Inc. Registration Statement on Form S-1/A (File No. 333-198316) filed November 14, 2014). | | | | 10.15 | | | | Nonqualified Stock Option Agreement (Replacement Option; Tranche B), dated as of August 4, 2014, between Metaldyne Performance Group Inc. and Thomas A. Amato (incorporated by reference from Exhibit 10.15 to the Metaldyne Performance Group Inc. Registration Statement on Form S-1/A (File No. 333-198316) filed November 14, 2014). | | | | 10.16 | | | | Nonqualified Stock Option Agreement (Replacement Option), dated as of August 4, 2014, between Metaldyne Performance Group Inc. and Mark Blaufuss (incorporated by reference from Exhibit 10.16 to the Metaldyne Performance Group Inc. Registration Statement on Form S-1/A (File No. 333-198316) filed October 29, 2014). | | | | 10.17 | | | | Nonqualified Stock Option Agreement (Replacement Option), dated as of August 4, 2014, between Metaldyne Performance Group Inc. and Douglas J. Grimm (incorporated by reference from Exhibit 10.17 to the Metaldyne Performance Group Inc. Registration Statement on Form S-1/A (File No. 333-198316) filed October 29, 2014). | | | | 10.18 | | | | Nonqualified Stock Option Agreement (Replacement Option), dated as of August 4, 2014, between Metaldyne Performance Group Inc. and George Thanopoulos (incorporated by reference from Exhibit 10.18 to the Metaldyne Performance Group Inc. Registration Statement on Form S-1/A (File No. 333-198316) filed October 29, 2014). | | | | 10.19 | | | | Form of Nonqualified Stock Option Agreement (10% Grant; Common Share Equivalent) (incorporated by reference from Exhibit 10.19 to the Metaldyne Performance Group Inc. Registration Statement on Form S-1/A (File No. 333-198316) filed October 29, 2014). | | | | 10.20 | | | | Form of Nonqualified Stock Option Agreement (10% Grant; Option Equivalent) (incorporated by reference from Exhibit 10.20 to the Metaldyne Performance Group Inc. Registration Statement on Form S-1/A (File No. 333-198316) filed October 29, 2014). | | | | 10.21 | | | | Nonqualified Stock Option Agreement (HHI True-Up; Common Share Equivalent), dated as of August 4, 2014, between Metaldyne Performance Group Inc. and George Thanopoulos Thanopoulos (incorporated by reference from Exhibit 10.21 to the Metaldyne Performance Group Inc. Registration Statement on Form S-1/A (File No. 333-198316) filed October 29, 2014). |
98
| | | Exhibit Number | | Description | | | | 10.22 | | | | Nonqualified Stock Option Agreement (HHI True-Up; Option Equivalent), dated as of August 4, 2014, between Metaldyne Performance Group Inc. and George Thanopoulos (incorporated by reference from Exhibit 10.22 to the Metaldyne Performance Group Inc. Registration Statement on Form S-1/A (File No. 333-198316) filed October 29, 2014). |
| | | | | Exhibit
Number
| | | | Description
| | | | 10.23 | | | | Lease dated January 23, 2002 by and between Kojaian MD North Vernon, L.L.C., as landlord, and Metaldyne Sintered Components of Indiana, Inc., as tenant (incorporated by reference from Exhibit 10.23 to the Metaldyne Performance Group Inc. Registration Statement on Form S-1/A (File No. 333-198316) filed October 7, 2014). | | | | 10.24 | | | | Lease Agreement, dated as of December 29, 2009, between Dyne (DE) LP, as landlord, and Metaldyne Powertrain Components, Inc., as tenant (incorporated by reference from Exhibit 10.24 to the Metaldyne Performance Group Inc. Registration Statement on Form S-1/A (File No. 333-198316) filed October 7, 2014). | | | | 10.25 | | | | First Amendment, dated May 31, 2012, to Lease Agreement between Dyne (DE) LP, as landlord, and Metaldyne Powertrain Components, Inc, as tenant (incorporated by reference from Exhibit 10.25 to the Metaldyne Performance Group Inc. Registration Statement on Form S-1/A (File No. 333-198316) filed October 7, 2014). | | | | 10.26 | | | | Lease Contract, dated September 6, 2005, between Suzhou Fangzheng Construction Development Company Ltd, as lessor, and Metaldyne, LLC, as lessee (incorporated by reference from Exhibit 10.26 to the Metaldyne Performance Group Inc. Registration Statement on Form S-1/A (File No. 333-198316) filed October 7, 2014). | | | | 10.27 | | | | Commercial Lease, dated June 26, 2012, between Societe Civile Immobiliere Franklin Roosevelt, as lessor, and Metaldyne International France, as lessee (incorporated by reference from Exhibit 10.27 to the Metaldyne Performance Group Inc. Registration Statement on Form S-1/A (File No. 333-198316) filed October 7, 2014). | | | | 10.28 | | | | Lease, dated August 7, 2008, 2509 Hayes LLC, as landlord, and Kyklos Bearing International, Inc., as tenant (incorporated by reference from Exhibit 10.28 to the Metaldyne Performance Group Inc. Registration Statement on Form S-1/A (File No. 333-198316) filed October 7, 2014). | | | | 10.29 | | | | Security Agreement, dated as October 20, 2014, among MPG Holdco I Inc., as the borrower, the guarantors from time to time party thereto and Goldman Sachs Bank USA, as collateral agent (incorporated by reference from Exhibit 10.29 to the Metaldyne Performance Group Inc. Registration Statement on Form S-1/A (File No. 333-198316) filed November 14, 2014). | | | | *14 10.30 | | | | CodeFirst Refinancing Amendment to Credit Agreement, dated as of Business EthicsMay 8, 2015, among the Borrower, the Company, certain subsidiaries of the Borrower from time to time party thereto as subsidiary guarantors, Goldman Sachs Bank USA, as administrative agent, and Conduct.the other financial institutions party thereto, as lenders (incorporated by reference from Exhibit 10.1 to the Metaldyne Performance Group Inc. Current Report on Form 8-K (File No. 001-36774) filed May 12, 2015). | | | | *10.31 | | Separation Agreement and General Release, dated as of December 17, 2015, by and between Metaldyne Performance Group Inc. and Thomas Amato. | | | | *21.1 | | | | Subsidiaries of the Registrant. | | | | *23.1 | | | | Consent of KPMG LLP, an independent registered public accounting firm. | | | | *23.2 | | | | Consent of Deloitte & Touche LLP, an independent registered public accounting firm. | | | | *31.1 | | | | Rule 13a-14(a)/15d-14(a) Certification by Principal Executive Officer. | | | | *31.2 | | | | Rule 13a-14(a)/15d-14(a) Certification by Principal Financial Officer. | | | | *32 | | | | Certification by Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | | | | 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 | | | | | | |
123
100 |