POST-6.30.15-10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2015
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period from _____ to _____
Commission File Number: 1-35305
Post Holdings, Inc.
(Exact name of registrant as specified in its charter)
|
| | |
Missouri | | 45-3355106 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
2503 S. Hanley Road
St. Louis, Missouri 63144
(Address of principal executive offices) (Zip Code)
(314) 644-7600
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. |
| |
Large accelerated filer x | Accelerated filer o |
Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
Common stock, $0.01 Par Value – 54,852,040 shares as of August 3, 2015
POST HOLDINGS, INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
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PART I. | FINANCIAL INFORMATION | Page |
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Item 1. | | |
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Item 2. | | |
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Item 3. | | |
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Item 4. | | |
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PART II. | | |
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Item 1. | | |
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Item 1A. | | |
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Item 6. | | |
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PART I. FINANCIAL INFORMATION.
ITEM 1. FINANCIAL STATEMENTS.
POST HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(in millions, except per share data)
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Nine Months Ended June 30, |
| 2015 | | 2014 | | 2015 | | 2014 |
Net Sales | $ | 1,211.8 |
| | $ | 633.0 |
| | $ | 3,338.4 |
| | $ | 1,368.0 |
|
Cost of goods sold | 895.3 |
| | 484.4 |
| | 2,497.3 |
| | 975.5 |
|
Gross Profit | 316.5 |
| | 148.6 |
| | 841.1 |
| | 392.5 |
|
| | | | | | | |
Selling, general and administrative expenses | 193.3 |
| | 119.9 |
| | 536.9 |
| | 320.3 |
|
Amortization of intangible assets | 36.7 |
| | 20.4 |
| | 103.9 |
| | 38.8 |
|
Other operating expenses, net | 5.2 |
| | 0.3 |
| | 28.4 |
| | 0.5 |
|
Operating Profit | 81.3 |
| | 8.0 |
| | 171.9 |
| | 32.9 |
|
Interest expense, net | 65.0 |
| | 57.0 |
| | 184.9 |
| | 123.3 |
|
Other (income) expense | (41.9 | ) | | 6.8 |
| | 41.5 |
| | 6.8 |
|
Earnings (Loss) before Income Taxes | 58.2 |
| | (55.8 | ) | | (54.5 | ) | | (97.2 | ) |
Income tax expense (benefit) | 34.2 |
| | (20.7 | ) | | (11.7 | ) | | (41.4 | ) |
Net Earnings (Loss) | 24.0 |
| | (35.1 | ) | | (42.8 | ) | | (55.8 | ) |
Preferred stock dividends | (4.2 | ) | | (4.2 | ) | | (12.7 | ) | | (11.1 | ) |
Net Earnings (Loss) Available to Common Shareholders | $ | 19.8 |
| | $ | (39.3 | ) | | $ | (55.5 | ) | | $ | (66.9 | ) |
| | | | | | | |
Earnings (Loss) per Common Share: | | | | | | | |
Basic | $ | 0.34 |
| | $ | (0.92 | ) | | $ | (1.02 | ) | | $ | (1.84 | ) |
Diluted | $ | 0.33 |
| | $ | (0.92 | ) | | $ | (1.02 | ) | | $ | (1.84 | ) |
| | | | | | | |
Weighted-Average Common Shares Outstanding: | | | | | | | |
Basic | 58.9 |
| | 42.6 |
| | 54.4 |
| | 36.3 |
|
Diluted | 60.8 |
| | 42.6 |
| | 54.4 |
| | 36.3 |
|
See accompanying Notes to Condensed Consolidated Financial Statements.
POST HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)
(in millions)
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Nine Months Ended June 30, |
| 2015 | | 2014 | | 2015 | | 2014 |
Net Earnings (Loss) | $ | 24.0 |
| | $ | (35.1 | ) | | $ | (42.8 | ) | | $ | (55.8 | ) |
Amortization of actuarial loss (benefit) and prior service cost for pension and postretirement benefits, net of tax benefit of $(0.1), $0.1, $0.0 and $0.3, respectively | 0.2 |
| | (0.1 | ) | | 0.8 |
| | (0.4 | ) |
Foreign currency translation adjustments | 7.2 |
| | 12.4 |
| | (33.7 | ) | | 10.9 |
|
Total Comprehensive Income (Loss) | $ | 31.4 |
| | $ | (22.8 | ) | | $ | (75.7 | ) | | $ | (45.3 | ) |
See accompanying Notes to Condensed Consolidated Financial Statements.
POST HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(in millions)
|
| | | | | | | |
| June 30, 2015 | | September 30, 2014 |
ASSETS |
Current Assets | | | |
Cash and cash equivalents | $ | 274.3 |
| | $ | 268.4 |
|
Restricted cash | 10.7 |
| | 84.8 |
|
Receivables, net | 399.2 |
| | 413.7 |
|
Inventories | 491.3 |
| | 380.7 |
|
Deferred income taxes | 22.8 |
| | 27.0 |
|
Prepaid expenses and other current assets | 71.0 |
| | 44.4 |
|
Total Current Assets | 1,269.3 |
| | 1,219.0 |
|
Property, net | 1,344.6 |
| | 831.9 |
|
Goodwill | 3,142.1 |
| | 2,886.7 |
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Other intangible assets, net | 3,019.1 |
| | 2,643.0 |
|
Other assets | 84.6 |
| | 150.5 |
|
Total Assets | $ | 8,859.7 |
| | $ | 7,731.1 |
|
| | | |
LIABILITIES AND SHAREHOLDERS’ EQUITY |
Current Liabilities | | | |
Current portion of long-term debt | $ | 32.1 |
| | $ | 25.6 |
|
Accounts payable | 258.2 |
| | 225.0 |
|
Other current liabilities | 295.3 |
| | 269.3 |
|
Total Current Liabilities | 585.6 |
| | 519.9 |
|
Long-term debt | 4,495.9 |
| | 3,830.5 |
|
Deferred income taxes | 871.5 |
| | 915.1 |
|
Other liabilities | 237.7 |
| | 182.4 |
|
Total Liabilities | 6,190.7 |
| | 5,447.9 |
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| | | |
Shareholders’ Equity | | | |
Preferred stock | 0.1 |
| | 0.1 |
|
Common stock | 0.6 |
| | 0.5 |
|
Additional paid-in capital | 3,130.7 |
| | 2,669.3 |
|
Accumulated deficit | (348.5 | ) | | (305.7 | ) |
Accumulated other comprehensive loss | (60.5 | ) | | (27.6 | ) |
Treasury stock, at cost | (53.4 | ) | | (53.4 | ) |
Total Shareholders’ Equity | 2,669.0 |
| | 2,283.2 |
|
Total Liabilities and Shareholders’ Equity | $ | 8,859.7 |
| | $ | 7,731.1 |
|
See accompanying Notes to Condensed Consolidated Financial Statements.
POST HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in millions)
|
| | | | | | | |
| Nine Months Ended June 30, |
| 2015 | | 2014 |
Cash Flows from Operating Activities | | | |
Net Loss | $ | (42.8 | ) | | $ | (55.8 | ) |
Adjustments to reconcile net loss to net cash flow provided by operating activities: | | | |
Depreciation and amortization | 196.7 |
| | 93.9 |
|
Premium from issuance of long-term debt | — |
| | 20.1 |
|
Loss on interest rate swaps | 41.5 |
| | 11.8 |
|
Loss on foreign currency | 1.8 |
| | 6.1 |
|
Loss on assets held for sale | 27.4 |
| | — |
|
Stock-based compensation expense | 20.2 |
| | 11.0 |
|
Deferred income taxes | (60.9 | ) | | (38.1 | ) |
Other, net | 3.0 |
| | 11.1 |
|
Other changes in current assets and liabilities, net of business acquisitions: | | | |
Decrease (increase) in receivables, net | 69.0 |
| | (33.6 | ) |
Decrease in inventories | 17.0 |
| | 16.4 |
|
Increase in prepaid expenses and other current assets | (1.7 | ) | | (1.7 | ) |
(Decrease) increase in accounts payable and other current and non-current liabilities | (9.5 | ) | | 33.3 |
|
Net Cash Provided by Operating Activities | 261.7 |
| | 74.5 |
|
| | | |
Cash Flows from Investing Activities | | | |
Business acquisitions, net of cash acquired | (1,240.4 | ) | | (3,543.7 | ) |
Additions to property | (74.3 | ) | | (78.7 | ) |
Restricted cash | 74.0 |
| | 34.8 |
|
Insurance proceeds on property losses | 1.8 |
| | — |
|
Other, net | 0.2 |
| | — |
|
Net Cash Used by Investing Activities | (1,238.7 | ) | | (3,587.6 | ) |
| | | |
Cash Flows from Financing Activities | | | |
Proceeds from issuance of long-term debt | 696.5 |
| | 2,385.6 |
|
Proceeds from issuance of preferred stock, net of issuance costs | — |
| | 310.2 |
|
Proceeds from issuance of common stock, net of issuance costs | 341.4 |
| | 593.4 |
|
Proceeds from issuance of debt component of tangible equity units | — |
| | 41.8 |
|
Proceeds from issuance of equity component of tangible equity units, net of issuance costs | — |
| | 238.1 |
|
Repayments of long-term debt | (20.7 | ) | | — |
|
Payment of preferred stock dividend | (12.8 | ) | | (10.2 | ) |
Payments of debt issuance costs (Note 14) | (18.5 | ) | | (63.8 | ) |
Other, net | (1.7 | ) | | 0.2 |
|
Net Cash Provided by Financing Activities | 984.2 |
| | 3,495.3 |
|
Effect of Exchange Rate Changes on Cash | (1.3 | ) | | (6.9 | ) |
Net Increase (Decrease) in Cash and Cash Equivalents | 5.9 |
| | (24.7 | ) |
Cash and Cash Equivalents, Beginning of Year | 268.4 |
| | 402.0 |
|
Cash and Cash Equivalents, End of Period | $ | 274.3 |
| | $ | 377.3 |
|
See accompanying Notes to Condensed Consolidated Financial Statements.
POST HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(in millions, except per share information and where indicated otherwise)
NOTE 1 — BASIS OF PRESENTATION
These unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”), under the rules and regulations of the United States Securities and Exchange Commission (the “SEC”), and on a basis substantially consistent with the audited consolidated financial statements of Post Holdings, Inc. (herein referred to as “Post,” “the Company,” “us,” “our” or “we”) as of and for the fiscal year ended September 30, 2014. These unaudited condensed consolidated financial statements should be read in conjunction with such audited consolidated financial statements, which are included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2014, portions of which were recast in the Company’s Current Report on Form 8-K filed with the SEC on May 11, 2015.
These unaudited condensed consolidated financial statements include all adjustments (consisting of normal recurring adjustments and accruals) that management considers necessary for a fair statement of the Company’s financial position, results of operations, comprehensive income (loss) and cash flows for the interim periods presented. Interim results are not necessarily indicative of the results for any other interim period or for the entire fiscal year. Certain prior year amounts have been reclassified to conform with the 2015 presentation.
Related to the closures of its Modesto, California and Boise, Idaho facilities, as well as the sale of a peanut butter manufacturing facility located in Portales, New Mexico (completed July 29, 2015) and the sale of its Australian business and Musashi trademark (completed July 1, 2015), the Company had assets and liabilities classified as held for sale at June 30, 2015. Net losses of $4.9 and $27.4 were recorded in the three and nine months ended June 30, 2015, respectively, to adjust the carrying value of the assets to their estimated fair value less estimated selling costs. These amounts include $0.3 of foreign exchange losses that were previously included in accumulated other comprehensive income. The losses are included in “Other operating expenses, net” on the Condensed Consolidated Statements of Operations. For additional information, see Note 12.
On May 4, 2015, Post completed the acquisition of MOM Brands Company (“MOM Brands”). MOM Brands operates on a different fiscal calendar than Post. The quarter close date for MOM Brands was June 27, 2015 and results have not been adjusted to conform with Post’s fiscal calendar.
NOTE 2 - RECENTLY ISSUED AND ADOPTED ACCOUNTING STANDARDS
In the quarter ended June 30, 2015, Post early adopted Accounting Standards Update (“ASU”) 2014-08 “Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity” issued by the Financial Accounting Standards Board (“FASB”) in April 2014. ASU 2014-08 provides a revised definition of discontinued operations. The standard update requires that only disposals of components of an entity (or groups of components) that represent a strategic shift that has or will have a major effect on the reporting entity’s operations are reported in the financial statements as discontinued operations. The standard also provides guidance on the financial statement presentations and disclosures of discontinued operations. The implementation of this standard did not have a significant impact on the Company’s consolidated financial statements.
In April 2015, the FASB issued ASU 2015-03 “Simplifying the Presentation of Debt Issuance Costs,” which changes the presentation of debt issuance costs in financial statements. The standards update requires an entity to present debt issuance costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset. The ASU requires retrospective application and is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years, with early adoption permitted. The Company is currently in the process of determining the method of adoption and evaluating the impact of adopting this guidance.
In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)," which will supersede all existing revenue recognition guidance under GAAP. The standard's core principle is that a company will recognize revenue when it transfers promised goods or services to a customer in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In July 2015, the FASB made its final decision to defer the adoption of this standard update one year, making it effective for annual and interim periods beginning on or after December 15, 2017 (i.e. Post’s financial statements for the year ending September 30, 2019), and adoption is not permitted prior to the original effective date of the ASU (i.e. Post’s financial statements for the year ending September 30, 2018). Entities will have the option of using either a full retrospective approach or a modified approach to adopt the guidance in the ASU. The Company is currently in the process of determining the method of adoption and evaluating the impact of adopting this guidance.
NOTE 3 — RESTRUCTURING
In May 2015, the Company announced its plan to consolidate its administrative offices supporting its cereal businesses in Lakeville, Minnesota. As a result of the announcement, the Company plans to close its office located in Parsippany, New Jersey
and relocate certain functions located in Battle Creek, Michigan to the Lakeville office. The office closure is expected to be completed by May 2016.
In March 2015, the Company announced its plan to close its facility in Boise, Idaho, which manufactures certain PowerBar products distributed in North America. Plant production ceased in June 2015.
In April 2013, the Company announced management’s decision to close its plant located in Modesto, California as part of a cost savings and capacity rationalization effort. The transfer of production capabilities and closure of the plant was completed during September 2014, and no additional costs were incurred in the nine months ended June 30, 2015.
Restructuring charges and the related liabilities are shown in the following table.
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| | | | | | | | | | | | | | | |
| Employee-Related Costs | | Pension Curtailment | | Accelerated Depreciation | | Total |
Balance at September 30, 2013 | $ | 2.1 |
| | $ | — |
| | $ | — |
| | $ | 2.1 |
|
Charge to expense | 0.9 |
| | — |
| | 6.8 |
| | 7.7 |
|
Cash payments | (0.9 | ) | | — |
| | — |
| | (0.9 | ) |
Non-cash charges | — |
| | — |
| | (6.8 | ) | | (6.8 | ) |
Balance at June 30, 2014 | $ | 2.1 |
| | $ | — |
| | $ | — |
| | $ | 2.1 |
|
| | | | | | | |
Balance at September 30, 2014 | $ | 0.7 |
| | $ | — |
| | $ | — |
| | $ | 0.7 |
|
Charge to expense | 12.8 |
| | — |
| | 1.0 |
| | 13.8 |
|
Cash payments | (0.8 | ) | | — |
| | — |
| | (0.8 | ) |
Non-cash charges | — |
| | — |
| | (1.0 | ) | | (1.0 | ) |
Balance at June 30, 2015 | $ | 12.7 |
| | $ | — |
| | $ | — |
| | $ | 12.7 |
|
| | | | | | | |
Total expected restructuring charge | $ | 16.0 |
| | $ | 1.7 |
| | $ | 20.7 |
| | $ | 38.4 |
|
Cumulative restructuring charges incurred to date | 16.0 |
| | 1.7 |
| | 18.6 |
| | 36.3 |
|
Remaining expected restructuring charge | $ | — |
| | $ | — |
| | $ | 2.1 |
| | $ | 2.1 |
|
In the three and nine months ended June 30, 2015, the Company incurred total restructuring charges of $10.7 and $13.8, respectively, which were reported in “Selling, general and administrative expenses” in the Condensed Consolidated Statements of Operations. In the three and nine months ended June 30, 2014, total restructuring charges of $2.3 and $7.7, respectively, were reported in the Condensed Consolidated Statements of Operations. Of the total restructuring charges, $0.2 and $0.9 were reported in “Selling, general and administrative expenses” for the three and nine months ended June 30, 2014, respectively. The remaining costs were included in “Cost of good sold.” These expenses are not included in the measure of segment performance for any segment (see Note 16).
NOTE 4 — BUSINESS COMBINATIONS
On May 4, 2015, Post completed its acquisition of MOM Brands, a manufacturer and distributer of ready-to-eat (“RTE”) cereals. MOM Brands is reported in the Post Consumer Brands segment (see Note 16). The closing purchase price of the transaction was $1,181.5 and was partially paid by the issuance of 2.45 million shares of the Company’s common stock to the former owners of MOM Brands. The shares were valued at the May 1, 2015 closing price of $46.60 per share for a total issuance of $114.4. The parties have not yet agreed on the final net working capital adjustment. However, Post currently estimates the final net working capital settlement will result in an amount due back to Post of approximately $6.0. Net sales and operating loss included in the Condensed Consolidated Statements of Operations related to MOM Brands were $122.6 and $(0.5), respectively, for both the three and nine months ended June 30, 2015. Based upon the preliminary purchase price allocation, the Company has recorded $185.6 of customer relationships to be amortized over a weighted-average period of 20 years and $178.8 to trademarks and brands to be amortized over a weighted-average period of 20 years.
On November 1, 2014, the Company completed its acquisition of American Blanching Company (“ABC”) for $128.0. ABC is a manufacturer of peanut butter for national brands, private label retail and industrial markets and provider of peanut blanching, granulation and roasting services for the commercial peanut industry. ABC is reported in Post’s Private Brands segment (see Note 16). Based upon the preliminary purchase price allocation, the Company has recorded $63.9 of customer relationships to be amortized over a weighted-average period of 17 years and $8.0 to trademarks and brands to be amortized over a weighted-average period of 10 years. ABC’s operations have been integrated into the Company’s existing peanut butter business, and due to the level of integration, discrete sales and operating profit data is not available for ABC, which is discussed further below.
On October 1, 2014, the Company completed its acquisition of the PowerBar and Musashi brands and related worldwide assets from Nestlé S.A (“PowerBar”) for $150.0, subject to a working capital adjustment, which resulted in a payment at closing of $136.1. In March 2015, a final settlement of net working capital and other adjustments was reached, resulting in an amount back to the Company of approximately $1.7. PowerBar is reported in Post’s Active Nutrition segment (see Note 16). Based upon the preliminary purchase price allocation, the Company has recorded $21.0 of customer relationships to be amortized over a weighted-average period of 18.3 years and $40.0 to trademarks and brands to be amortized over a weighted-average period of 20 years. Net sales and operating loss included in the Condensed Consolidated Statements of Operations related to PowerBar were $40.4 and $(3.7), respectively, for the three months ended June 30, 2015 and $106.6 and $(16.2), respectively, for the nine months ended June 30, 2015.
On August 1, 2014, Post Foods, LLC, a subsidiary of the Company, acquired a cereal brand and related inventory for $20.4. The brand is reported as part of the Post Consumer Brands segment.
On June 2, 2014, the Company completed its acquisition of MFI Holding Corporation (“Michael Foods”), which is reported in Post’s Michael Foods Group segment (see Note 16). Michael Foods manufactures and distributes egg products, refrigerated potato products and also distributes cheese and other dairy case products to the retail, food service and food ingredient channels. Net sales and operating profit included in the Condensed Consolidated Statements of Operations related to this acquisition were $495.4 and $43.2, respectively, for the three months ended June 30, 2015 and $1,511.6 and $112.1, respectively, for the nine months ended June 30, 2015. In fiscal 2014, net sales and operating loss included in the Condensed Consolidated Statements of Operations related to this acquisition were $150.5 and $(12.5), respectively, for both the three and nine months ended June 30, 2014.
On February 1, 2014, Post completed its acquisition of Golden Boy Foods Ltd. (“Golden Boy”), a manufacturer of private label peanut and other nut butters, as well as dried fruits and baking and snacking nuts. Golden Boy is reported in Post’s Private Brands segment (see Note 16). Net sales and operating profit included in the Condensed Consolidated Statements of Operations related to this acquisition were $109.4 and $7.1, respectively, for the three months ended June 30, 2015 and $309.9 and $3.1, respectively, for the nine months ended June 30, 2015. These net sales and operating profit amounts are inclusive of ABC. For fiscal 2014, net sales and operating profit included in the Condensed Consolidated Statements of Operations related to this acquisition were $71.9 and $3.1, respectively, for the three months ended June 30, 2014 and $110.9 and $5.0, respectively, for the nine months ended June 30, 2014.
On February 1, 2014, Post completed its acquisition of Dymatize Enterprises, LLC (“Dymatize”), a manufacturer and marketer of protein powders and bars and nutritional supplements. Dymatize is reported in Post’s Active Nutrition segment (see Note 16). Net sales and operating loss included in the Condensed Consolidated Statements of Operations were $47.2 and $(4.0), respectively, for the three months ended June 30, 2015 and $142.3 and $(13.6), respectively, for the nine months ended June 30, 2015. In fiscal 2014, net sales and operating loss included in the Condensed Consolidated Statements of Operations related to Dymatize were $47.6 and $(3.2), respectively, for the three months ended June 30, 2014 and $75.8 and $(5.7), respectively, for the nine months ended June 30, 2014.
On January 1, 2014, Post completed its acquisition of Agricore United Holdings Inc. (“Agricore”) from Viterra Inc. Agricore is the parent company of Dakota Growers Pasta Company, Inc. (“Dakota Growers”), a manufacturer of dry pasta for the private label, foodservice and ingredient markets. Dakota Growers is reported in Post’s Michael Foods Group segment (see Note 16). Net sales and operating profit included in the Condensed Consolidated Statements of Operations related to Dakota Growers were $69.3 and $5.2, respectively, for the three months ended June 30, 2015 and $202.7 and $18.2, respectively, for the nine months ended June 30, 2015. In fiscal 2014, net sales and operating profit included in the Condensed Consolidated Statements of Operations related to this acquisition were $62.2 and $2.9, respectively, for the three months ended June 30, 2014 and $128.9 and $1.7, respectively, for the nine months ended June 30, 2014.
Each of the acquisitions was accounted for using the acquisition method of accounting, whereby the results of operations are included in the financial statements from the date of acquisition. The respective purchase prices were allocated to acquired assets and assumed liabilities based on their estimated fair values at the date of acquisition, and any excess was allocated to goodwill, as shown in the table below. Goodwill represents the value the Company expects to achieve through the implementation of operational synergies and the expansion of the business into new or growing segments of the industry. The Company expects substantially all of the final fair value of goodwill related to the acquisitions of PowerBar and MOM Brands to be deductible for U.S. income tax purposes and does not expect the final fair value of goodwill related to the acquisition of ABC to be deductible for U.S. income tax purposes.
Certain estimated values for the PowerBar, ABC and MOM Brands acquisitions, including goodwill, intangible assets, inventory and deferred taxes, are not yet finalized pending the final purchase price allocations and are subject to change once additional information is obtained.
The following table provides the allocation of the purchase price based upon the fair value of assets and liabilities assumed for each acquisition completed in fiscal 2015.
|
| | | | | | | | | | | |
| PowerBar | | ABC | | MOM Brands |
Cash and cash equivalents | $ | 2.4 |
| | $ | 0.6 |
| | $ | 11.1 |
|
Receivables | 6.5 |
| | 12.8 |
| | 41.7 |
|
Inventories | 23.1 |
| | 15.5 |
| | 97.9 |
|
Prepaid expenses and other current assets | 0.1 |
| | 0.4 |
| | 6.2 |
|
Property | 17.9 |
| | 19.7 |
| | 532.1 |
|
Goodwill | 18.8 |
| | 49.6 |
| | 196.7 |
|
Other intangible assets | 61.0 |
| | 71.9 |
| | 364.4 |
|
Deferred tax asset - long-term | 11.7 |
| | — |
| | — |
|
Other assets | — |
| | 0.4 |
| | — |
|
Accounts payable | (1.2 | ) | | (9.0 | ) | | (43.0 | ) |
Deferred tax liability - current | (0.2 | ) | | (0.4 | ) | | (5.4 | ) |
Other current liabilities | (4.6 | ) | | (2.8 | ) | | (19.3 | ) |
Deferred tax liability - long-term | (1.1 | ) | | (30.7 | ) | | (6.9 | ) |
Total acquisition cost | $ | 134.4 |
| | $ | 128.0 |
| | $ | 1,175.5 |
|
The following table summarizes the provisional amounts recognized related to fiscal 2014 acquisitions as of September 30, 2014, as well as measurement period adjustments made in the nine months ended June 30, 2015 (all of which were recorded in the quarter ended March 31, 2015). The adjustments did not have a significant impact on the consolidated statements of operations, balance sheets or cash flows in any period; therefore, the financial statements have not been retrospectively adjusted.
|
| | | | | | | | | | | |
| Acquisition Date Amounts Recognized as of September 30, 2014 (a) | | Adjustments During the Nine Months Ended June 30, 2015 | | Acquisition Date Amounts Recognized (as Adjusted) |
Cash and cash equivalents | $ | 73.8 |
| | $ | — |
| | $ | 73.8 |
|
Restricted cash | 3.4 |
| | — |
| | 3.4 |
|
Receivables (b) (d) | 219.6 |
| | (0.3 | ) | | 219.3 |
|
Income tax receivable | 62.5 |
| | — |
| | 62.5 |
|
Inventories | 289.9 |
| | — |
| | 289.9 |
|
Deferred tax asset - current (b) | 5.4 |
| | 0.7 |
| | 6.1 |
|
Prepaid expenses and other current assets | 9.3 |
| | — |
| | 9.3 |
|
Property | 440.5 |
| | — |
| | 440.5 |
|
Goodwill | 1,605.4 |
| | 5.2 |
| | 1,610.6 |
|
Other intangible assets | 1,883.7 |
| | — |
| | 1,883.7 |
|
Other assets | 9.1 |
| | — |
| | 9.1 |
|
Current portion of long-term debt | (3.7 | ) | | — |
| | (3.7 | ) |
Accounts payable (d) | (142.6 | ) | | 0.2 |
| | (142.4 | ) |
Other current liabilities (d) | (121.5 | ) | | (0.3 | ) | | (121.8 | ) |
Long-term debt | (8.4 | ) | | — |
| | (8.4 | ) |
Deferred tax liability - long-term (b) | (697.1 | ) | | 7.0 |
| | (690.1 | ) |
Other liabilities (b) | (11.8 | ) | | (9.0 | ) | | (20.8 | ) |
Total acquisition cost (c) | $ | 3,617.5 |
| | $ | 3.5 |
| | $ | 3,621.0 |
|
Adjustments during the nine months ended June 30, 2015:
(a) As previously reported in Post’s Current Report on Form 8-K filed with the SEC on May 11, 2015;
(b) The adjustments to “Receivables,” “Deferred income taxes” and “Other liabilities” reflect: 1) the impact on deferred tax assets and related reserves for uncertain tax positions of certain state tax elections made on final pre-acquisition short period tax returns and 2) the impact of certain return to provision adjustments;
(c) Dymatize working capital adjustment; and
(d) Other Dymatize adjustments
The following unaudited pro forma information presents a summary of the results of operations of the Company combined with the aggregate results of Dakota Growers, Dymatize, Golden Boy, Michael Foods, PowerBar, ABC and MOM Brands for the periods presented as if the fiscal 2015 acquisitions had occurred on October 1, 2013 and the fiscal 2014 acquisitions had occurred on October 1, 2012, along with certain pro forma adjustments. These pro forma adjustments give effect to the amortization of certain definite-lived intangible assets, adjusted depreciation based upon fair value of assets acquired, interest expense related to the financing of the business combinations, and related income taxes. The following unaudited pro forma information has been prepared for comparative purposes only and is not necessarily indicative of the results of operations as they would have been had the acquisitions occurred on the assumed dates, nor is it necessarily an indication of future operating results.
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Nine Months Ended June 30, |
| 2015 | | 2014 | | 2015 | | 2014 |
Pro forma net sales | $ | 1,283.7 |
| | $ | 1,245.5 |
| | $ | 3,813.3 |
| | $ | 3,689.1 |
|
Pro forma net income (loss) available to common shareholders | 45.9 |
| | (18.3 | ) | | (3.2 | ) | | (45.8 | ) |
Pro forma basic income (loss) per share | $ | 0.78 |
| | $ | (0.43 | ) | | $ | (0.06 | ) | | $ | (1.26 | ) |
Pro forma diluted income (loss) per share | $ | 0.75 |
| | $ | (0.43 | ) | | $ | (0.06 | ) | | $ | (1.26 | ) |
NOTE 5 — GOODWILL
The changes in the carrying amount of goodwill by segment are noted in the following table.
|
| | | | | | | | | | | | | | | | | | | |
| Post Consumer Brands | | Michael Foods Group | | Active Nutrition | | Private Brands | | Total |
Balance, September 30, 2014 | | | | | | | | | |
Goodwill (gross) | $ | 1,799.3 |
| | $ | 1,347.2 |
| | $ | 151.3 |
| | $ | 229.3 |
| | $ | 3,527.1 |
|
Accumulated impairment losses | (609.1 | ) | | — |
| | (31.3 | ) | | — |
| | (640.4 | ) |
Goodwill (net) | $ | 1,190.2 |
| | $ | 1,347.2 |
| | $ | 120.0 |
| | $ | 229.3 |
| | $ | 2,886.7 |
|
Goodwill acquired | 196.7 |
| | — |
| | 18.8 |
| | 49.6 |
| | 265.1 |
|
Acquisition related adjustment | — |
| | (5.6 | ) | | 10.8 |
| | — |
| | 5.2 |
|
Currency translation adjustment | (0.6 | ) | | — |
| | — |
| | (14.3 | ) | | (14.9 | ) |
Balance, June 30, 2015 | | | | | | | | | |
Goodwill (gross) | $ | 1,995.4 |
| | $ | 1,341.6 |
| | $ | 180.9 |
| | $ | 264.6 |
| | $ | 3,782.5 |
|
Accumulated impairment losses | (609.1 | ) | | — |
| | (31.3 | ) | | — |
| | (640.4 | ) |
Goodwill (net) | $ | 1,386.3 |
| | $ | 1,341.6 |
| | $ | 149.6 |
| | $ | 264.6 |
| | $ | 3,142.1 |
|
NOTE 6 — INCOME TAXES
For the three and nine months ended June 30, 2015, the effective income tax rate is 58.8% and 21.5%, respectively. In accordance with Accounting Standards Codification (“ASC”) Topic 740, the Company has recorded tax expense for the three and nine months ended June 30, 2015 using the estimated annual effective tax rate for the Company’s full fiscal year. The estimated annual effective tax rate differs significantly from the statutory tax rate primarily due to the Company’s estimate of full year earnings before income taxes which causes small variations in estimated permanent differences to have a magnified impact on the effective income tax rate percentage, the expectation that nondeductible merger and acquisition expenses and other permanently nondeductible expenses will have an unfavorable impact on the effective income tax rate and the expectation that the Domestic Production Activities Deduction and tax planning strategies implemented for certain recent acquisitions will have a favorable impact on the effective income tax rate.
NOTE 7 — INTANGIBLE ASSETS, NET
Total intangible assets are as follows: |
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2015 | | September 30, 2014 |
| Carrying Amount | | Accumulated Amortization | | Net Amount | | Carrying Amount | | Accumulated Amortization | | Net Amount |
Subject to amortization: | | | | | | | | | | | |
Customer relationships | $ | 2,004.4 |
| | $ | (166.3 | ) | | $ | 1,838.1 |
| | $ | 1,743.7 |
| | $ | (90.9 | ) | | $ | 1,652.8 |
|
Trademarks/brands | 782.9 |
| | (69.1 | ) | | 713.8 |
| | 554.7 |
| | (43.9 | ) | | 510.8 |
|
Other intangible assets | 22.8 |
| | (5.1 | ) | | 17.7 |
| | 24.7 |
| | (3.0 | ) | | 21.7 |
|
| 2,810.1 |
| | (240.5 | ) | | 2,569.6 |
| | 2,323.1 |
| | (137.8 | ) | | 2,185.3 |
|
Not subject to amortization: | | | | | | | | | | | |
Trademarks/brands | 449.5 |
| | — |
| | 449.5 |
| | 457.7 |
| | — |
| | 457.7 |
|
| $ | 3,259.6 |
| | $ | (240.5 | ) | | $ | 3,019.1 |
| | $ | 2,780.8 |
| | $ | (137.8 | ) | | $ | 2,643.0 |
|
NOTE 8 — EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is based on the average number of common shares outstanding during the period. Diluted earnings (loss) per share is based on the average number of shares used for the basic earnings per share calculation, adjusted for the dilutive effect of stock options, stock appreciation rights and restricted stock equivalents using the “treasury stock” method. The impact of potentially dilutive convertible preferred stock is calculated using the “if-converted” method. The Company’s tangible equity units (“TEUs”) are assumed to be settled at the minimum settlement amount of 1.7114 shares per TEU for weighted-average shares for basic earnings (loss) per share. For diluted earnings (loss) per share, the shares, to the extent dilutive, are assumed to be settled at a conversion factor based on the Company’s daily volume-weighted average price per share of the Company’s common stock not to exceed 2.0964 shares per TEU.
The following table sets forth the computation of basic and diluted earnings (loss) per share for the three and nine months ended June 30, 2015 and 2014.
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Nine Months Ended June 30, |
| 2015 | | 2014 | | 2015 | | 2014 |
Net earnings for basic earnings (loss) per share | $ | 19.8 |
| | $ | (39.3 | ) | | $ | (55.5 | ) | | $ | (66.9 | ) |
Net earnings for diluted earnings (loss) per share | $ | 19.8 |
| | $ | (39.3 | ) | | $ | (55.5 | ) | | $ | (66.9 | ) |
| | | | | | | |
Weighted-average shares outstanding | 54.0 |
| | 42.6 |
| | 49.5 |
| | 36.3 |
|
Effect of TEUs on weighted-average shares for basic earnings (loss) per share | 4.9 |
| | — |
| | 4.9 |
| | — |
|
Weighted-average shares for basic earnings (loss) per share | 58.9 |
| | 42.6 |
| | 54.4 |
| | 36.3 |
|
Effect of dilutive securities: | | | | | | | |
Stock options | 0.7 |
| | — |
| | — |
| | — |
|
Stock appreciation rights | 0.1 |
| | — |
| | — |
| | — |
|
Restricted stock awards | 0.3 |
| | — |
| | — |
| | — |
|
TEUs | 0.8 |
| | — |
| | — |
| | — |
|
Total dilutive securities | 1.9 |
| | — |
| | — |
| | — |
|
Weighted-average shares for diluted earnings (loss) per share | 60.8 |
| | 42.6 |
| | 54.4 |
| | 36.3 |
|
| | | | | | | |
Basic earnings (loss) per common share | $ | 0.34 |
| | $ | (0.92 | ) | | $ | (1.02 | ) | | $ | (1.84 | ) |
Diluted earnings (loss) per common share | $ | 0.33 |
| | $ | (0.92 | ) | | $ | (1.02 | ) | | $ | (1.84 | ) |
The following table details the securities that have been excluded from the calculation of weighted-average shares for diluted earnings (loss) per share as they were anti-dilutive.
|
| | | | | | | | | | | |
| Three Months Ended June 30, | | Nine Months Ended June 30, |
| 2015 | | 2014 | | 2015 | | 2014 |
Stock options | 1.3 |
| | 3.0 |
| | 4.6 |
| | 3.0 |
|
Stock appreciation rights | 0.1 |
| | 0.5 |
| | 0.3 |
| | 0.5 |
|
Restricted stock awards | — |
| | 0.3 |
| | 0.5 |
| | 0.3 |
|
TEUs | — |
| | 0.8 |
| | 0.9 |
| | 0.8 |
|
Preferred shares conversion to common | 11.0 |
| | 11.0 |
| | 11.0 |
| | 11.0 |
|
NOTE 9 — INVENTORIES
|
| | | | | | | |
| June 30, 2015 | | September 30, 2014 |
Raw materials and supplies | $ | 144.5 |
| | $ | 99.2 |
|
Work in process | 16.3 |
| | 16.3 |
|
Finished products | 316.2 |
| | 235.8 |
|
Flocks | 14.3 |
| | 29.4 |
|
| $ | 491.3 |
| | $ | 380.7 |
|
NOTE 10 — PROPERTY, NET |
| | | | | | | |
| June 30, 2015 | | September 30, 2014 |
Property, at cost | $ | 1,718.6 |
| | $ | 1,121.0 |
|
Accumulated depreciation | (374.0 | ) | | (289.1 | ) |
| $ | 1,344.6 |
| | $ | 831.9 |
|
NOTE 11 — DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING
In the ordinary course of business, the Company is exposed to commodity price risks relating to the acquisition of raw materials and supplies, interest rate risks relating to floating rate debt, and foreign currency exchange rate risks relating to its foreign subsidiaries. The Company utilizes derivative financial instruments, including (but not limited to) futures contracts, option contracts, forward contracts and swaps, to manage certain of these exposures by hedging when it is practical to do so. The Company does not hold or issue financial instruments for speculative or trading purposes.
The Company maintains options, futures contracts and interest rate swaps which have been designated as economic hedges of raw materials, fuel and energy purchases and variable rate debt.
At June 30, 2015, the notional amounts of commodity contracts and natural gas and heating oil futures were $61.0 and $28.3, respectively. These contracts relate to inputs that generally will be utilized within the next 12 months. At June 30, 2015 and September 30, 2014, the Company had pledged collateral of $8.5 and $12.6, respectively, related to its commodity contracts and natural gas and heating oil futures. These amounts are classified as “Restricted cash” on the Condensed Consolidated Balance Sheets.
As of June 30, 2015, the Company had interest rate swaps with a notional amount of $869.5 that obligate Post to pay a fixed rate of 3.1% and receive one-month LIBOR. These swaps have the effect of converting a portion of our variable interest rate term loan debt to fixed interest rates beginning in June 2016. In addition, the Company has interest rate swaps with a $750.0 notional amount that obligate Post to pay a weighted average fixed rate of approximately 4% and receive three-month LIBOR and will result in a net settlement in July 2018.
Commodity, natural gas and heating oil derivatives are valued using an income approach based on index prices less the contract rate multiplied by the notional amount. The Company’s calculation of the fair value of interest rate swaps is derived from a discounted cash flow analysis based on the terms of the contract and the interest rate curve.
The following tables present the balance sheet location and fair value of the Company’s derivative instruments on a gross and net basis as of June 30, 2015 and September 30, 2014.
|
| | | | | | | | | | | | | | |
| | | | Fair Value of Assets as of June 30, 2015 |
| | Balance Sheet Location | | Gross Amounts of Recognized Assets | | Gross Amounts Offset in the Condensed Consolidated Balance Sheet | | Net Amounts of Assets Presented in the Condensed Consolidated Balance Sheet |
Commodity contracts | Prepaid expenses and other current assets | $ | 5.3 |
| | $ | — |
| | $ | 5.3 |
|
Natural gas and heating oil futures | Prepaid expenses and other current assets | 1.1 |
| | — |
| | 1.1 |
|
| | $ | 6.4 |
| | $ | — |
| | $ | 6.4 |
|
|
| | | | | | | | | | | | | | |
| | | | Fair Value of Liabilities as of June 30, 2015 |
| | Balance Sheet Location | | Gross Amounts of Recognized Liabilities | | Gross Amounts Offset in the Condensed Consolidated Balance Sheet | | Net Amounts of Liabilities Presented in the Condensed Consolidated Balance Sheet |
Commodity contracts | Other current liabilities | $ | 1.8 |
| | $ | — |
| | $ | 1.8 |
|
Natural gas and heating oil futures | Other current liabilities | | 3.7 |
| | — |
| | 3.7 |
|
Interest rate swaps | | Other current liabilities | | 1.7 |
| | — |
| | 1.7 |
|
Interest rate swaps | | Other liabilities | | 80.2 |
| | — |
| | 80.2 |
|
| | | | $ | 87.4 |
| | $ | — |
| | $ | 87.4 |
|
|
| | | | | | | | | | | | | | |
| | | | Fair Value of Liabilities as of September 30, 2014 |
| | Balance Sheet Location | | Gross Amounts of Recognized Liabilities | | Gross Amounts Offset in the Condensed Consolidated Balance Sheet | | Net Amounts of Liabilities Presented in the Condensed Consolidated Balance Sheet |
Commodity contracts | Other current liabilities | | $ | 8.0 |
| | $ | — |
| | $ | 8.0 |
|
Natural gas and heating oil futures | Other current liabilities | | 0.9 |
| | — |
| | 0.9 |
|
Interest rate swaps | | Other current liabilities | | 2.7 |
| | — |
| | 2.7 |
|
Interest rate swaps | | Other liabilities | | 40.4 |
| | — |
| | 40.4 |
|
| | | | $ | 52.0 |
| | $ | — |
| | $ | 52.0 |
|
The following table presents the (gain) loss from derivative instruments that were not designated as hedging instruments and were recorded on the Company’s Condensed Consolidated Statements of Operations.
|
| | | | | | | | | | | | | | | | | | |
| | | | (Gain) Loss Recognized in Earnings |
| | | | Three Months Ended June 30, | | Nine Months Ended June 30, |
| | Location of (Gain) Loss Recognized in Earnings | | |
Derivative Instrument | | | 2015 | | 2014 | | 2015 | | 2014 |
Commodity contracts | | Cost of goods sold | | $ | (4.8 | ) | | $ | 1.9 |
| | $ | (13.2 | ) | | $ | 0.9 |
|
Natural gas and heating oil futures | Cost of goods sold | | 4.5 |
| | (0.7 | ) | | 8.1 |
| | (1.2 | ) |
Foreign exchange contracts | | Selling, general and administrative expenses | — |
| | — |
| | — |
| | 6.3 |
|
Interest rate swaps | | Other (income) expense | | (41.9 | ) | | 6.8 |
| | 41.5 |
| | 6.8 |
|
NOTE 12 — FAIR VALUE MEASUREMENTS
The following table represents Post’s assets and liabilities measured at fair value on a recurring basis and the basis for that measurement according to the levels in the fair value hierarchy in ASC Topic 820.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2015 | | September 30, 2014 |
| Total | | Level 1 | | Level 2 | | Total | | Level 1 | | Level 2 |
Assets: | | | | | | | | | | | |
Deferred compensation investment | $ | 11.2 |
| | $ | 11.2 |
| | $ | — |
| | $ | 10.2 |
| | $ | 10.2 |
| | $ | — |
|
Derivative assets | 6.4 |
| | — |
| | 6.4 |
| | — |
| | — |
| | — |
|
| $ | 17.6 |
| | $ | 11.2 |
| | $ | 6.4 |
| | $ | 10.2 |
| | $ | 10.2 |
| | $ | — |
|
Liabilities: | | | | | | | | | | | |
Deferred compensation liabilities | $ | 16.3 |
| | $ | — |
| | $ | 16.3 |
| | $ | 12.3 |
| | $ | — |
| | $ | 12.3 |
|
Derivative liabilities | 87.4 |
| | — |
| | 87.4 |
| | 52.0 |
| | — |
| | 52.0 |
|
| $ | 103.7 |
| | $ | — |
| | $ | 103.7 |
| | $ | 64.3 |
| | $ | — |
| | $ | 64.3 |
|
The following table represents the fair value of Post’s long-term debt which is classified as Level 2 in the fair value hierarchy per ASC Topic 820:
|
| | | | | | | |
| June 30, 2015 | | September 30, 2014 |
Senior notes | $ | 2,870.0 |
| | $ | 2,768.2 |
|
Term loan | 1,568.7 |
| | 872.9 |
|
TEUs | 29.7 |
| | 29.5 |
|
4.57% 2012 Series Bond maturing September 2017 | 3.9 |
| | 4.8 |
|
Secured notes | — |
| | 1.1 |
|
Capital leases | 3.1 |
| | 3.8 |
|
| $ | 4,475.4 |
| | $ | 3,680.3 |
|
The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources, while unobservable inputs reflect a reporting entity’s pricing based upon its own market assumptions. The fair value hierarchy consists of three levels:
Level 1 — Inputs are quoted prices in active markets for identical assets or liabilities.
Level 2 — Inputs are quoted prices of similar assets or liabilities in an active market, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable and market-corroborated inputs which are derived principally from or corroborated by observable market data.
Level 3 — Inputs are derived from valuation techniques in which one or more significant inputs or value drivers are unobservable.
The deferred compensation investment is invested primarily in mutual funds and its fair value is measured using the market approach. This investment is in the same funds and purchased in substantially the same amounts as the participants’ selected investment options (excluding Post common stock equivalents), which represent the underlying liabilities to participants in the Company’s deferred compensation plans. Deferred compensation liabilities are recorded at amounts due to participants in cash, based on the fair value of participants’ selected investment options (excluding certain Post common stock equivalents to be distributed in shares) using the market approach. The Company utilizes the income approach to measure fair value for its derivative assets, which include commodity options and futures contracts. The income approach uses pricing models that rely on market observable inputs such as yield curves and forward prices. Changes in the deferred compensation investment and related liability are recorded as a component of selling, general and administrative expenses.
Refer to Note 11 for the classification of changes in fair value of derivative assets and liabilities measured at fair value on a recurring basis within the Condensed Consolidated Statements of Operations.
Related to the closures of its Modesto, California and Boise, Idaho facilities, as well as the sale of a peanut butter manufacturing facility located in Portales, New Mexico (completed July 29, 2015) and the sale of its Australian business and Musashi trademark (completed July 1, 2015), the Company had assets and liabilities classified as held for sale at June 30, 2015. At June 30, 2015 and September 30, 2014, the carrying value of the assets held for sale was $31.7 and $16.4, respectively, and is included in “Prepaid expenses and other current assets” on the Condensed Consolidated Balance Sheets. At June 30, 2015, the carrying value of the liabilities held for sale was $5.5 and is included in “Other current liabilities” on the Condensed Consolidated Balance Sheets. No such liabilities existed at September 30, 2014. The fair value of the assets and liabilities held for sale were measured at fair value
on a nonrecurring basis based on third-party offers to purchase the facilities, business and trademark. The fair value measurement was categorized as Level 3, as the offers utilize significant unobservable inputs.
The carrying amounts reported on the Condensed Consolidated Balance Sheets for cash and cash equivalents, receivables and accounts payable approximate fair value because of the short maturities of these financial instruments.
NOTE 13 — SHAREHOLDERS’ EQUITY
On May 4, 2015, the Company completed its acquisition of MOM Brands. The purchase price was partially funded by the issuance of 2.45 million shares, par value $0.01, of the Company’s common stock to the former owners of MOM Brands. The shares were valued at the May 1, 2015 closing price of $46.60 per share for a total issuance of $114.4. The Company will not receive any of the proceeds from the sale of shares of common stock by any selling shareholder.
In February 2015, the Company issued 7.475 million shares of common stock, par value $0.01 per share, at a price to the public of $47.50 per share. The Company received net proceeds of $341.4 after paying offering related fees and expenses of approximately $13.7.
Reclassifications out of accumulated other comprehensive income (loss) for the reported periods include the amortization of actuarial loss (benefit) and prior service cost for pension and postretirement benefits totaling $0.3 and $(0.2) for the three month periods ended June 30, 2015 and 2014, respectively, and $0.8 and $(0.7) for the nine month periods ended June 30, 2015 and 2014, respectively. Amounts are primarily classified as “Cost of goods sold” on the Condensed Consolidated Statements of Operations.
NOTE 14 — LONG-TERM DEBT
Long-term debt as of the dates indicated consists of the following:
|
| | | | | | | |
| June 30, 2015 | | September 30, 2014 |
7.375% Senior Notes maturing February 2022 | $ | 1,375.0 |
| | $ | 1,375.0 |
|
6.75% Senior Notes maturing December 2021 | 875.0 |
| | 875.0 |
|
6.00% Senior Notes maturing December 2022 | 630.0 |
| | 630.0 |
|
Term loan | 1,574.4 |
| | 882.8 |
|
TEUs | 28.5 |
| | 38.4 |
|
4.57% 2012 Series Bond maturing September 2017 | 3.9 |
| | 4.8 |
|
Secured notes | — |
| | 1.1 |
|
Capital leases | 3.1 |
| | 3.8 |
|
| $ | 4,489.9 |
| | $ | 3,810.9 |
|
Less: Current portion | (32.1 | ) | | (25.6 | ) |
Plus: Unamortized premium (discount), net | 38.1 |
| | 45.2 |
|
Total long-term debt | $ | 4,495.9 |
| | $ | 3,830.5 |
|
On January 29, 2014, the Company entered into a credit agreement (as subsequently amended, the “Credit Agreement”). The Credit Agreement provides for a revolving credit facility with an aggregate principal value of $400.0. The revolving credit facility has outstanding letters of credit of $4.2 which reduced the available borrowing capacity to $395.8 at June 30, 2015. On May 1, 2014, the Company entered into a First Amendment to the Credit Agreement (the “First Amendment”). The First Amendment amended the Credit Agreement to, among other matters, permit an incremental term loan (the “Prior Term Loan”) of $885.0.
On March 6, 2015, the Company entered into a Second Amendment to Credit Agreement (the “Second Amendment”). On May 4, 2015, Post entered into a Joinder Agreement No. 3 (the “Joinder No. 3”), by and among Credit Suisse AG, Cayman Islands Branch, the Company and the guarantors party thereto, and consented to by Wells Fargo Bank, National Association, as Administrative Agent. The Joinder No. 3 provided for, in connection with the completion of the Company’s acquisition of MOM Brands, an incremental term loan of $700.0 (the “New Term Loan”) under the Company’s Credit Agreement. The Company incurred $18.5 of issuance costs in connection with the Credit Agreement and the New Term Loan as of June 30, 2015. The outstanding amounts under the New Term Loan will bear interest at the same rate as the outstanding amounts under the Prior Term Loan, and the Company’s quarterly principal payments aggregate both the New Term Loan and the Prior Term Loan.
The Credit Agreement, as amended, contains customary affirmative and negative covenants for agreements of this type, including delivery of financial and other information, compliance with laws, maintenance of property, existence, insurance and books and records, inspection rights, obligation to provide collateral and guarantees by new subsidiaries, limitations with respect to indebtedness, liens, fundamental changes, restrictive agreements, use of proceeds, amendments of organization documents,
accounting changes, prepayments and amendments of indebtedness, dispositions of assets, acquisitions and other investments, transactions with affiliates, dividends and redemptions or repurchases of stock, capital expenditures, and granting liens on certain real property. The Credit Agreement also contains customary financial covenants including (a) a quarterly maximum senior secured leverage ratio of 3.00 to 1.00, and (b) a quarterly minimum interest coverage ratio of 1.75 to 1.00. The Credit Agreement permits the Company to incur additional unsecured debt only if its consolidated interest coverage ratio, calculated as provided in the Credit Agreement would be greater than 2.00 to 1.00 after giving effect to such new debt.
The Credit Agreement provides for customary events of default, including material breach of representations and warranties, failure to make required payments, failure to comply with certain agreements or covenants, failure to pay, or default under, certain other material indebtedness, certain events of bankruptcy and insolvency, inability to pay debts, the occurrence of one or more unstayed or undischarged judgments in excess of $75.0, or attachments issued against a material part of the Company’s property, change in control, the invalidity of any loan document, the failure of the collateral documents to create a valid and perfected first priority lien and certain ERISA events. Upon the occurrence of an event of default, the maturity of the loans under the Credit Agreement may be accelerated and the agent and lenders under the Credit Agreement may exercise other rights and remedies available at law or under the loan documents, including with respect to the collateral and guarantees for the Company’s obligations under the Credit Agreement.
Debt Covenants
Under the terms of the Credit Agreement, the Company is required to comply with certain financial covenants consisting of ratios for quarterly maximum senior secured leverage and minimum interest coverage. As of June 30, 2015, the Company was in compliance with such financial covenants. The Company does not believe non-compliance is reasonably likely in the foreseeable future.
NOTE 15 — PENSION AND OTHER POSTRETIREMENT BENEFITS
Certain of the Company’s employees are eligible to participate in the Company’s qualified and supplemental noncontributory defined benefit pension plans and other postretirement benefit plans (partially subsidized retiree health and life insurance) or separate plans for Post Foods Canada Inc. Amounts for the Canadian plans are included in these disclosures and are not disclosed separately because they do not constitute a significant portion of the combined amounts.
The following tables provide the components of net periodic benefit cost for the plans.
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| | | | | | | | | | | | | | | |
| Pension Benefits |
| Three Months Ended June 30, | | Nine Months Ended June 30, |
| 2015 | | 2014 | | 2015 | | 2014 |
Components of net periodic benefit cost | | | | | | | |
Service cost | $ | 0.8 |
| | $ | 0.9 |
| | $ | 2.7 |
| | $ | 2.7 |
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Interest cost | 0.6 |
| | 0.6 |
| | 1.7 |
| | 1.7 |
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Expected return on plan assets | (0.6 | ) | | (0.5 | ) | | (1.8 | ) | | (1.6 | ) |
Recognized net actuarial loss | 0.3 |
| | 0.1 |
| | 0.7 |
| | 0.5 |
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Recognized prior service cost | — |
| | 0.1 |
| | 0.2 |
| | 0.3 |
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Net periodic benefit cost | $ | 1.1 |
| | $ | 1.2 |
| | $ | 3.5 |
| | $ | 3.6 |
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| | | | | | | | | | | | | | | |
| Other Benefits |
| Three Months Ended June 30, | | Nine Months Ended June 30, |
| 2015 | | 2014 | | 2015 | | 2014 |
Components of net periodic benefit cost | | | | | | | |
Service cost | $ | 0.5 |
| | $ | 0.5 |
| | $ | 1.5 |
| | $ | 1.5 |
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Interest cost | 1.2 |
| | 1.1 |
| | 3.6 |
| | 3.4 |
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Recognized net actuarial loss | 0.3 |
| | 0.1 |
| | 1.0 |
| | 0.3 |
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Recognized prior service credit | (0.4 | ) | | (0.6 | ) | | (1.2 | ) | | (1.8 | ) |
Net periodic benefit cost | $ | 1.6 |
| | $ | 1.1 |
| | $ | 4.9 |
| | $ | 3.4 |
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NOTE 16 — SEGMENTS
During the three months ended June 30, 2015, the Company reorganized its management reporting and realigned its reportable segments in accordance with ASC 280, “Segment Reporting.” Effective as of the quarter ended June 30, 2015, the reportable segments were as follows:
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• | Post Consumer Brands: primarily consisting of branded RTE cereals; |
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• | Michael Foods Group: including the predominantly foodservice and food ingredient egg, potato and pasta businesses and the retail cheese business; |
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• | Active Nutrition: including protein shakes, bars and powders and nutritional supplements; and |
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• | Private Brands: primarily consisting of peanut and other nut butters, dried fruit and nuts, and granola. |
Management evaluates each segment’s performance based on its segment profit, which is its operating profit before impairment of property and intangible assets, facility closure related costs, restructuring expenses, losses on assets held for sale and other unallocated corporate income and expenses. During the first quarter of fiscal 2015, the Company changed its methodology for allocating certain corporate costs to segment profit. Accordingly, segment profit for the three and nine months ended June 30, 2014 has been adjusted to align with current year presentation. The following tables present information about the Company’s reportable segments, including corresponding amounts for the three and nine month periods of fiscal 2015 as well as for the corresponding periods of the prior year.
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| | | | | | | | | | | | | | | | | |
| | | Three Months Ended June 30, | | Nine Months Ended June 30, |
| | | 2015 | | 2014 | | 2015 | | 2014 |
Net Sales | | | | | | | |
| Post Consumer Brands | $ | 356.9 |
| | $ | 238.2 |
| | $ | 818.3 |
| | $ | 714.6 |
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| Michael Foods Group | 564.7 |
| | 212.7 |
| | 1,714.3 |
| | 279.4 |
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| Active Nutrition | 153.8 |
| | 86.7 |
| | 418.8 |
| | 194.5 |
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| Private Brands | 136.7 |
| | 95.6 |
| | 389.4 |
| | 180.0 |
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| Eliminations | (0.3 | ) | | (0.2 | ) | | (2.4 | ) | | (0.5 | ) |
| Total | $ | 1,211.8 |
| | $ | 633.0 |
| | $ | 3,338.4 |
| | $ | 1,368.0 |
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Segment Profit (Loss) | | | |
| Post Consumer Brands | $ | 51.6 |
| | $ | 44.8 |
| | $ | 140.0 |
| | $ | 126.4 |
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| Michael Foods Group | 48.4 |
| | (9.6 | ) | | 130.3 |
| | (10.8 | ) |
| Active Nutrition | 7.9 |
| | (2.5 | ) | | (2.9 | ) | | 1.9 |
|
| Private Brands | 10.5 |
| | 5.0 |
| | 27.8 |
| | 11.5 |
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| Total segment profit | 118.4 |
| | 37.7 |
| | 295.2 |
| | 129.0 |
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General corporate expenses and other | 37.1 |
| | 29.7 |
| | 123.3 |
| | 96.1 |
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Interest expense, net | 65.0 |
| | 57.0 |
| | 184.9 |
| | 123.3 |
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Other (income) expense | (41.9 | ) | | 6.8 |
| | 41.5 |
| | 6.8 |
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Income (loss) before income taxes | $ | 58.2 |
| | $ | (55.8 | ) | | $ | (54.5 | ) | | $ | (97.2 | ) |
Depreciation and amortization | | | | | | | |
| Post Consumer Brands | $ | 19.4 |
| | $ | 13.0 |
| | $ | 43.6 |
| | $ | 38.9 |
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| Michael Foods Group | 35.7 |
| | 15.3 |
| | 108.8 |
| | 20.5 |
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| Active Nutrition | 6.8 |
| | 5.5 |
| | 20.6 |
| | 11.4 |
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| Private Brands | 6.3 |
| | 5.2 |
| | 18.8 |
| | 10.8 |
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| | Total segment depreciation and amortization | 68.2 |
| | 39.0 |
| | 191.8 |
| | 81.6 |
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| Corporate and accelerated depreciation | 2.2 |
| | 3.7 |
| | 4.9 |
| | 12.3 |
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| Total | $ | 70.4 |
| | $ | 42.7 |
| | $ | 196.7 |
| | $ | 93.9 |
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| | | | | | | |
| | |
| | June 30, 2015 | | September 30, 2014 |
Assets | | | | | | | |
| Post Consumer Brands | | | | | $ | 3,517.7 |
| | $ | 2,325.1 |
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| Michael Foods Group | | | | | 3,541.7 |
| | 3,726.5 |
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| Active Nutrition | | | | | 761.0 |
| | 607.1 |
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| Private Brands | | | | | 679.3 |
| | 558.6 |
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| Corporate | | | | | 360.0 |
| | 513.8 |
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| Total | | | | | $ | 8,859.7 |
| | $ | 7,731.1 |
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NOTE 17 — CONDENSED CONSOLIDATING FINANCIAL STATEMENTS OF GUARANTORS
On February 3, 2012, the Company issued 7.375% senior notes due February 2022 in an aggregate principal amount of $775.0 to Ralcorp pursuant to a contribution agreement in connection with the internal reorganization. The aggregate principal amount of the 7.375% senior notes was increased to a total of $1,375.0 by subsequent issuances completed on October 25, 2012 and July 18, 2013.
On November 18, 2013, the Company issued 6.75% senior notes due December 2021 in an aggregate principal amount of $525.0 to certain qualified institutional buyers. The aggregate principal amount of the 6.75% senior notes was increased to a total of $875.0 by a subsequent issuance completed on March 19, 2014.
On June 2, 2014, the Company issued 6.00% senior notes due December 2022 in an aggregate principal amount of $630.0 to certain qualified institutional buyers.
The 7.375% senior notes, the 6.75% senior notes and the 6.00% senior notes are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by each of our existing and future domestic subsidiaries, the “Guarantors.” Our foreign subsidiaries, the “Non-Guarantors,” do not guarantee the senior notes. These guarantees are subject to release in limited circumstances (only upon the occurrence of certain customary conditions).
POST HOLDINGS, INC.
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS (Unaudited)
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| | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2015 |
| Parent | | | | Non- | | | | |
| Company | | Guarantors | | Guarantors | | Eliminations | | Total |
Net Sales | $ | — |
| | $ | 1,077.8 |
| | $ | 149.3 |
| | $ | (15.3 | ) | | $ | 1,211.8 |
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Cost of goods sold | — |
| | 782.6 |
| | 128.0 |
| | (15.3 | ) | | 895.3 |
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Gross Profit | — |
| | 295.2 |
| | 21.3 |
| | — |
| | 316.5 |
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| | | | | | | | | |
Selling, general and administrative expenses | 3.9 |
| | 176.9 |
| | 12.5 |
| | — |
| | 193.3 |
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Amortization of intangible assets | — |
| | 34.2 |
| | 2.5 |
| | — |
| | 36.7 |
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Other operating expenses, net | 1.0 |
| | 4.2 |
| | — |
| | — |
| | 5.2 |
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Operating (Loss) Profit | (4.9 | ) | | 79.9 |
| | 6.3 |
| | — |
| | 81.3 |
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| | | | | | | | | |
Interest expense (income), net | 61.9 |
| | (0.2 | ) | | 3.3 |
| | — |
| | 65.0 |
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Other expense, net | (41.9 | ) | | — |
| | — |
| | — |
| | (41.9 | ) |
(Loss) Earnings before Income Taxes | (24.9 | ) | | 80.1 |
| | 3.0 |
| | — |
| | 58.2 |
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Income tax (benefit) expense | 34.3 |
| | (2.3 | ) | | 2.2 |
| | — |
| | 34.2 |
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Net Earnings (Loss) before Equity in Subsidiaries | (59.2 | ) | | 82.4 |
| | 0.8 |
| | — |
| | 24.0 |
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Equity (loss) earnings in subsidiaries | 83.2 |
| | (1.1 | ) | | — |
| | (82.1 | ) | | — |
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Net Earnings (Loss) | $ | 24.0 |
| | $ | 81.3 |
| | $ | 0.8 |
| | $ | (82.1 | ) | | $ | 24.0 |
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Total Comprehensive Income (Loss) | $ | 31.4 |
| | $ | 81.5 |
| | $ | 4.4 |
| | $ | (85.9 | ) | | $ | 31.4 |
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| | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2014 |
| Parent | | | | Non- | | | | |
| Company | | Guarantors | | Guarantors | | Eliminations | | Total |
Net Sales | $ | — |
| | $ | 547.9 |
| | $ | 92.1 |
| | $ | (7.0 | ) | | $ | 633.0 |
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Cost of goods sold | — |
| | 411.1 |
| | 80.3 |
| | (7.0 | ) | | 484.4 |
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Gross Profit | — |
| | 136.8 |
| | 11.8 |
| | — |
| | 148.6 |
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| | | | | | | | | |
Selling, general and administrative expenses | 0.1 |
| | 112.6 |
| | 7.2 |
| | — |
| | 119.9 |
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Amortization of intangible assets | — |
| | 17.6 |
| | 2.8 |
| | — |
| | 20.4 |
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Other operating expenses, net | — |
| | 0.3 |
| | — |
| | — |
| | 0.3 |
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Operating (Loss) Profit | (0.1 | ) | | 6.3 |
| | 1.8 |
| | — |
| | 8.0 |
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| | | | | | | | | |
Interest expense, net | 53.8 |
| | (0.1 | ) | | 3.3 |
| | — |
| | 57.0 |
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Other expense (income) | 6.8 |
| | — |
| | — |
| | — |
| | 6.8 |
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(Loss) Earnings before Income Taxes | (60.7 | ) | | 6.4 |
| | (1.5 | ) | | — |
| | (55.8 | ) |
Income tax (benefit) expense | (18.8 | ) | | (1.8 | ) | | (0.1 | ) | | — |
| | (20.7 | ) |
Net (Loss) Earnings before Equity in Subsidiaries | (41.9 | ) | | 8.2 |
| | (1.4 | ) | | — |
| | (35.1 | ) |
Equity earnings in subsidiaries | 6.8 |
| | (0.8 | ) | | — |
| | (6.0 | ) | | — |
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Net (Loss) Earnings | $ | (35.1 | ) | | $ | 7.4 |
| | $ | (1.4 | ) | | $ | (6.0 | ) | | $ | (35.1 | ) |
Total Comprehensive (Loss) Income | $ | (22.8 | ) | | $ | 7.3 |
| | $ | 2.8 |
| | $ | (10.1 | ) | | $ | (22.8 | ) |