Document
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, 2017
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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth 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 |
| Emerging growth company o |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 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 – 66,156,938 shares as of July 31, 2017
POST HOLDINGS, INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
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PART I. | FINANCIAL INFORMATION | |
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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 2. | | |
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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, |
| 2017 | | 2016 | | 2017 | | 2016 |
Net Sales | $ | 1,272.1 |
| | $ | 1,246.1 |
| | $ | 3,777.3 |
| | $ | 3,766.0 |
|
Cost of goods sold | 878.4 |
| | 847.9 |
| | 2,640.3 |
| | 2,596.0 |
|
Gross Profit | 393.7 |
| | 398.2 |
| | 1,137.0 |
| | 1,170.0 |
|
Selling, general and administrative expenses | 164.2 |
| | 216.0 |
| | 615.6 |
| | 608.6 |
|
Amortization of intangible assets | 38.9 |
| | 38.2 |
| | 116.8 |
| | 114.4 |
|
Other operating expenses, net | 0.1 |
| | 2.0 |
| | 0.4 |
| | 9.6 |
|
Operating Profit | 190.5 |
| | 142.0 |
| | 404.2 |
| | 437.4 |
|
Interest expense, net | 76.5 |
| | 77.3 |
| | 229.6 |
| | 232.3 |
|
Loss on extinguishment of debt | 160.4 |
| | — |
| | 222.9 |
| | — |
|
Other expense (income), net | 45.2 |
| | 62.6 |
| | (100.3 | ) | | 169.4 |
|
(Loss) Earnings before Income Taxes | (91.6 | ) | | 2.1 |
| | 52.0 |
| | 35.7 |
|
Income tax (benefit) expense | (32.1 | ) | | (1.2 | ) | | 17.9 |
| | 2.0 |
|
Net (Loss) Earnings | (59.5 | ) | | 3.3 |
| | 34.1 |
| | 33.7 |
|
Preferred stock dividends | (3.4 | ) | | (3.3 | ) | | (10.2 | ) | | (21.7 | ) |
Net (Loss) Earnings Available to Common Shareholders | $ | (62.9 | ) | | $ | — |
| | $ | 23.9 |
| | $ | 12.0 |
|
| | | | | | | |
(Loss) Earnings per Common Share: | | | | | | | |
Basic | $ | (0.93 | ) | | $ | — |
| | $ | 0.35 |
| | $ | 0.17 |
|
Diluted | $ | (0.93 | ) | | $ | — |
| | $ | 0.34 |
| | $ | 0.17 |
|
| | | | | | | |
Weighted-Average Common Shares Outstanding: | | | | | | | |
Basic | 67.5 |
| | 69.2 |
| | 68.3 |
| | 68.6 |
|
Diluted | 67.5 |
| | 69.2 |
| | 69.8 |
| | 70.1 |
|
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).
POST HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (Unaudited)
(in millions)
|
| | | | | | | | | | | | | | | |
| Three Months Ended
June 30, | | Nine Months Ended
June 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Net (Loss) Earnings | $ | (59.5 | ) | | $ | 3.3 |
| | $ | 34.1 |
| | $ | 33.7 |
|
Pension and postretirement benefits adjustments: | | | | | | | |
Unrealized pension and postretirement benefit obligations | — |
| | — |
| | — |
| | 1.6 |
|
Reclassifications to net (loss) earnings | (0.5 | ) | | (0.7 | ) | | (1.7 | ) | | (0.2 | ) |
Unrealized gain on plan amendment | — |
| | — |
| | — |
| | 36.1 |
|
Cash flow hedge adjustments: | | | | | | | |
Unrealized net (loss) on derivatives designated as cash flow hedges | (2.7 | ) | | — |
| | (2.7 | ) | | — |
|
Reclassifications to net (loss) earnings | 0.3 |
| | — |
| | 0.3 |
| | — |
|
Foreign currency translation adjustments: | | | | | | | |
Unrealized foreign currency translation adjustments | 2.1 |
| | (0.2 | ) | | 0.8 |
| | 9.7 |
|
Reclassifications to net (loss) earnings | — |
| | — |
| | — |
| | (1.3 | ) |
Tax benefit (expense) on other comprehensive (loss) income | 1.2 |
| | 0.3 |
| | 1.7 |
| | (14.3 | ) |
Total Comprehensive (Loss) Income | $ | (59.1 | ) | | $ | 2.7 |
| | $ | 32.5 |
| | $ | 65.3 |
|
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).
POST HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(in millions)
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| | | | | | | |
| June 30, 2017 | | September 30, 2016 |
ASSETS |
Current Assets | | | |
Cash and cash equivalents | $ | 2,472.7 |
| | $ | 1,143.6 |
|
Restricted cash | 5.9 |
| | 8.4 |
|
Receivables, net | 480.3 |
| | 385.0 |
|
Inventories | 526.6 |
| | 503.1 |
|
Prepaid expenses and other current assets | 34.7 |
| | 36.8 |
|
Total Current Assets | 3,520.2 |
| | 2,076.9 |
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Property, net | 1,366.9 |
| | 1,354.4 |
|
Goodwill | 3,126.0 |
| | 3,079.7 |
|
Other intangible assets, net | 2,768.3 |
| | 2,833.7 |
|
Other assets | 22.8 |
| | 15.9 |
|
Total Assets | $ | 10,804.2 |
| | $ | 9,360.6 |
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| | | |
LIABILITIES AND SHAREHOLDERS’ EQUITY |
Current Liabilities | | | |
Current portion of long-term debt | $ | 22.7 |
| | $ | 12.3 |
|
Accounts payable | 214.8 |
| | 264.4 |
|
Other current liabilities | 309.8 |
| | 357.3 |
|
Total Current Liabilities | 547.3 |
| | 634.0 |
|
Long-term debt | 6,368.5 |
| | 4,551.2 |
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Deferred income taxes | 793.1 |
| | 726.5 |
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Other liabilities | 344.2 |
| | 440.3 |
|
Total Liabilities | 8,053.1 |
| | 6,352.0 |
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| | | |
Shareholders’ Equity | | | |
Preferred stock | — |
| | — |
|
Common stock | 0.7 |
| | 0.7 |
|
Additional paid-in capital | 3,569.8 |
| | 3,546.0 |
|
Accumulated deficit | (390.2 | ) | | (424.3 | ) |
Accumulated other comprehensive loss | (62.0 | ) | | (60.4 | ) |
Treasury stock, at cost | (367.2 | ) | | (53.4 | ) |
Total Shareholders’ Equity | 2,751.1 |
| | 3,008.6 |
|
Total Liabilities and Shareholders’ Equity | $ | 10,804.2 |
| | $ | 9,360.6 |
|
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).
POST HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in millions)
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| | | | | | | |
| Nine Months Ended
June 30, |
| 2017 | | 2016 |
Cash Flows from Operating Activities | | | |
Net Earnings | $ | 34.1 |
| | $ | 33.7 |
|
Adjustments to reconcile net earnings to net cash flow provided by operating activities: | | | |
Depreciation and amortization | 232.9 |
| | 226.9 |
|
Unrealized (gain) loss on interest rate and cross-currency swaps | (101.8 | ) | | 169.4 |
|
Loss on extinguishment of debt | 222.9 |
| | — |
|
Gain on foreign currency | (34.9 | ) | | (0.3 | ) |
Assets held for sale | (0.2 | ) | | 9.5 |
|
Non-cash stock-based compensation expense | 17.4 |
| | 12.9 |
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Deferred income taxes | 49.6 |
| | (61.9 | ) |
Other, net | 1.3 |
| | 1.2 |
|
Other changes in current assets and liabilities, net of business acquisitions: | | | |
(Increase) decrease in receivables, net | (87.0 | ) | | 14.3 |
|
Increase in inventories | (21.0 | ) | | (41.4 | ) |
Increase in prepaid expenses and other current assets | (0.1 | ) | | (8.4 | ) |
(Decrease) increase in accounts payable and other current liabilities | (106.1 | ) | | 6.6 |
|
Increase in non-current liabilities | 1.1 |
| | 5.0 |
|
Net Cash Provided by Operating Activities | 208.2 |
| | 367.5 |
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| | | |
Cash Flows from Investing Activities | | | |
Business acquisitions, net of cash acquired | (90.2 | ) | | (94.4 | ) |
Additions to property | (125.0 | ) | | (81.1 | ) |
Restricted cash | 2.5 |
| | 16.1 |
|
Proceeds from sale of property and assets held for sale | 10.5 |
| | 1.8 |
|
Proceeds from sale of businesses | — |
| | 6.7 |
|
Net Cash Used in Investing Activities | (202.2 | ) | | (150.9 | ) |
| | | |
Cash Flows from Financing Activities | | | |
Proceeds from issuance of long-term debt | 3,950.0 |
| | — |
|
Repayments of long-term debt | (2,082.2 | ) | | (11.6 | ) |
Purchases of treasury stock | (313.8 | ) | | — |
|
Payments of preferred stock dividends | (10.2 | ) | | (11.0 | ) |
Preferred stock conversion | — |
| | (10.9 | ) |
Payments of debt issuance costs and deferred financing costs | (52.4 | ) | | — |
|
Payments of tender premiums on debt extinguishment | (219.8 | ) | | — |
|
Proceeds from exercise of stock awards | 13.4 |
| | 6.6 |
|
Net cash received from stock repurchase contracts | — |
| | 1.1 |
|
Other, net | 3.2 |
| | 0.2 |
|
Net Cash Provided by (Used in) Financing Activities | 1,288.2 |
| | (25.6 | ) |
Effect of Exchange Rate Changes on Cash and Cash Equivalents | 34.9 |
| | 0.8 |
|
Net Increase in Cash and Cash Equivalents | 1,329.1 |
| | 191.8 |
|
Cash and Cash Equivalents, Beginning of Year | 1,143.6 |
| | 841.4 |
|
Cash and Cash Equivalents, End of Period | $ | 2,472.7 |
| | $ | 1,033.2 |
|
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).
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, 2016. 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, 2016, filed with the SEC on November 18, 2016.
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 results of operations, comprehensive (loss) income, financial position 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 2017 presentation. These reclassifications had no impact on net (loss) earnings or shareholders’ equity, as previously reported.
NOTE 2 - RECENTLY ISSUED ACCOUNTING STANDARDS
The Company has considered all new accounting pronouncements, and has concluded there are no new recently issued pronouncements (other than the ones described below) that had or will have an impact on the results of operations, financial condition or cash flows based on current information.
In March 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-07, “Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” ASU 2017-07 requires an entity to report the service cost component of periodic net benefit cost in the same line item or items as other compensation costs arising from services rendered by employees during the period. Other components of net benefit cost are to be presented in the income statement separately from the service cost component. The amendments in the ASU also allow only the service cost component to be eligible for capitalization when applicable. This ASU is effective for annual periods beginning after December 15, 2017, and interim periods therein (i.e., Post’s financial statements for the year ending September 30, 2019) with early adoption permitted. Additionally, the ASU requires a retrospective method of adoption. The adoption of this guidance will impact the presentation and classification of the components of net periodic benefit cost (gain) for the plans presented in Note 15, however, the impact is not expected to be material.
In January 2017, the FASB issued ASU 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” ASU 2017-04 eliminates step 2 of the goodwill impairment test, which requires the calculation of the implied fair value of goodwill to measure a goodwill impairment charge. Under this ASU, an entity should perform its annual or interim goodwill impairment test by comparing the fair value of the reporting unit with its carrying amount, and should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value with the loss not exceeding the total amount of goodwill allocated to that reporting unit. This ASU is effective for annual periods beginning after December 15, 2019, and interim periods therein (i.e., Post’s financial statements for the year ending September 30, 2021) with early adoption permitted for interim or annual goodwill impairment tests performed after January 1, 2017. Additionally, the ASU requires a prospective method of adoption. The Company is currently evaluating the timing of adopting this ASU. The adoption of this new guidance would affect those reporting units that fail step 1 of the annual goodwill impairment test. At September 30, 2016, the Dymatize reporting unit failed step 1 and subsequently passed step 2, resulting in no impairment charge being recorded. All other reporting units passed step 1 of the goodwill impairment test at September 30, 2016, the last goodwill impairment evaluation date. The impact of this ASU may result in an impairment charge which could be material to the Company.
In January 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business.” ASU 2017-01 adds guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses by providing a more specific definition of a business. This ASU is effective for annual periods beginning after December 15, 2017, and interim periods therein (i.e., Post’s financial statements for the year ending September 30, 2019) with early adoption permitted. This ASU currently has no impact on the Company, however, Post will evaluate the impact of this ASU on future business acquisitions and disposals.
In December 2016, the FASB issued ASU 2016-20, “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers.” ASU 2016-20 is intended to clarify and suggest improvements to the application of current standards under Topic 606 and other Topics amended by ASU 2014-09, “Revenue from Contracts with Customers (Topic 606).” The effective
date of this ASU is the same as the effective date for ASU 2014-09 (i.e., Post’s financial statements for the year ending September 30, 2019).The Company is in the initial stages of assessing the impact that these standards will have on its accounting policies, processes, system requirements, internal controls, and disclosures. Internal resources have been assigned to this assessment, and the Company has engaged a third party to assist in the assessment and implementation. The Company has begun to assess the impact that these standards will have on the financial statements. It has not yet been determined if the full retrospective or the modified retrospective method will be applied.
In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash.” ASU 2016-18 requires that a statement of cash flows explain the change in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents, and therefore, restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning of year cash balance to the end of year cash balance as shown on the statement of cash flows. This ASU is effective for annual periods beginning after December 15, 2017, and interim periods therein (i.e., Post’s financial statements for the year ending September 30, 2019) with early adoption permitted. The Company currently classifies changes in restricted cash as an investing activity in the Condensed Consolidated Statements of Cash Flows, not as a component of cash and cash equivalents as required by this ASU.
In March 2016, the FASB issued ASU 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” The updated guidance changes the accounting for certain aspects of share-based payment awards to employees, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification of certain items in the statement of cash flows. This ASU is effective for annual periods beginning after December 15, 2016, and interim periods therein (i.e., Post’s financial statements for the year ending September 30, 2018) with early adoption permitted. The Company will adopt and implement this ASU in the fourth quarter of fiscal 2017 and does not expect the impact to be material.
NOTE 3 — RESTRUCTURING
In September 2015, the Company announced its plan to close its Dymatize manufacturing facility located in Farmers Branch, Texas and permanently transfer production to third party facilities under co-manufacturing agreements. Plant production ceased in the fourth quarter of 2015, and the facility was sold in December 2016. No additional restructuring costs have been incurred or are expected to be incurred in fiscal 2017.
In May 2015, the Company announced its plan to consolidate its cereal business administrative offices into its Lakeville, Minnesota location. In connection with the consolidation, the Company closed its office located in Parsippany, New Jersey and relocated those functions as well as certain functions located in Battle Creek, Michigan to the Lakeville office. The Parsippany office closure was completed in fiscal 2016. No additional restructuring costs have been incurred or are expected to be incurred in fiscal 2017.
Restructuring charges and the related liabilities are shown in the following table.
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| | | | | | | | | | | |
| Employee-Related Costs | | Accelerated Depreciation | | Total |
Balance at September 30, 2015 | $ | 10.5 |
| | $ | — |
| | $ | 10.5 |
|
Charge to expense | 2.1 |
| | 0.4 |
| | 2.5 |
|
Cash payments | (9.0 | ) | | — |
| | (9.0 | ) |
Non-cash charges | (0.9 | ) | | (0.4 | ) | | (1.3 | ) |
Balance at June 30, 2016 | $ | 2.7 |
| | $ | — |
| | $ | 2.7 |
|
| | | | | |
Balance at September 30, 2016 | $ | 1.1 |
| | $ | — |
| | $ | 1.1 |
|
Charge to expense | — |
| | — |
| | — |
|
Cash payments | (1.0 | ) | | — |
| | (1.0 | ) |
Non-cash charges | — |
| | — |
| | — |
|
Balance at June 30, 2017 | $ | 0.1 |
| | $ | — |
| | $ | 0.1 |
|
| | | | | |
Total expected restructuring charge | $ | 12.6 |
| | $ | 2.5 |
| | $ | 15.1 |
|
Cumulative restructuring charges incurred to date | 12.6 |
| | 2.5 |
| | 15.1 |
|
Remaining expected restructuring charge | $ | — |
| | $ | — |
| | $ | — |
|
In the three and nine months ended June 30, 2016, the Company incurred total restructuring charges of $0.8 and $2.5, respectively, which were reported in “Selling, general and administrative expenses” in the Condensed Consolidated Statements of Operations. No restructuring expenses have been incurred in fiscal 2017. These expenses are not included in the measure of segment performance (see Note 17).
Assets Held for Sale
Related to the closure of its Modesto, California facility in September 2014, the Company had land, building and equipment classified as assets held for sale at September 30, 2016. The carrying value of the assets included in “Prepaid expenses and other current assets” in the Condensed Consolidated Balance Sheets was $4.3 as of September 30, 2016. The land, building and equipment were sold in March 2017. Related to the manufacturing shutdown of its Farmers Branch, Texas facility, the Company had land and buildings classified as assets held for sale as of September 30, 2016. The carrying value of the assets included in “Prepaid expenses and other current assets” on the Condensed Consolidated Balance Sheets was $5.8 as of September 30, 2016. The land and buildings were sold in December 2016. Net gains of $0.2 were recorded in the nine months ended June 30, 2017, to adjust the carrying value of the assets to their fair value less estimated selling costs. Held for sale losses of $1.1 and $9.5 were recorded in the three and nine months ended June 30, 2016, respectively, to adjust the carrying value of the assets to their fair value less estimated selling costs. These gains and losses are reported as “Other operating expenses, net” in the Condensed Consolidated Statements of Operations. This income and expense is not included in the measure of segment performance (see Note 17). There were no assets held for sale at June 30, 2017.
NOTE 4 — BUSINESS COMBINATIONS
On October 3, 2016, the Company completed its acquisition of National Pasteurized Eggs, Inc. (“NPE”) for $93.5, subject to net working capital and other adjustments, resulting in a payment of $97.0. In February 2017, a final settlement of net working capital was reached, resulting in an amount back to the Company of $1.2. In addition, the Company acquired an income tax receivable of $0.7 that is due back to the sellers. NPE is a producer of pasteurized shell eggs, including cage-free and hard boiled eggs. NPE is reported in Post’s Michael Foods Group segment (see Note 17). Based upon the preliminary purchase price allocation, the Company recorded $43.9 of customer relationships to be amortized over a weighted-average period of 16 years and $7.5 of trademarks and brands to be amortized over a weighted-average period of 20 years. NPE operations have been integrated into the Michael Foods business, and due to the level of integration, discrete sales and operating profit data for the three and nine months ended June 30, 2017 is not available for NPE.
On October 3, 2015, the Company completed its acquisition of Willamette Egg Farms (“WEF”) for $90.0, subject to working capital and other adjustments, resulting in a payment at closing of $109.0. In December 2015, a final settlement of net working capital and other adjustments was reached, resulting in an additional amount paid by the Company of $4.6. WEF is a producer, processor and wholesale distributor of eggs and egg products and is also reported in Post’s Michael Foods Group segment (see Note 17).
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 does not expect the final fair value of goodwill related to the acquisition of NPE to be deductible for U.S. income tax purposes.
Certain estimated values for the NPE acquisition, including property, goodwill, other intangible assets and deferred taxes, are not yet finalized pending the final purchase price allocation and are subject to change once additional information is obtained. The following table provides the preliminary allocation of the purchase price related to the acquisition of NPE based upon the fair value of assets and liabilities assumed. Measurement period adjustments have been made to the allocation of purchase price for the acquisition of NPE since the date of acquisition related to working capital settlements, updated valuations of property and intangibles, income tax receivable and deferred taxes.
|
| | | |
Cash and cash equivalents | $ | 5.6 |
|
Receivables | 8.5 |
|
Inventories | 2.1 |
|
Prepaid expenses and other current assets | 0.4 |
|
Property | 10.4 |
|
Goodwill | 46.3 |
|
Other intangible assets | 51.4 |
|
Current portion of capital lease | (0.1 | ) |
Accounts payable | (6.3 | ) |
Other current liabilities | (2.9 | ) |
Long-term capital lease | (0.2 | ) |
Deferred tax liability - long-term | (18.7 | ) |
Total acquisition cost | $ | 96.5 |
|
Acquisition Subsequent to Period End
On July 3, 2017, subsequent to the periods presented in these statements, the Company completed its acquisition of Latimer Newco 2 Limited, a company registered in England and Wales (“Latimer”), and all of Latimer’s direct and indirect subsidiaries, including Weetabix Limited (collectively “Weetabix”). For additional information, see Note 18. This transaction will be accounted for as a business combination under the acquisition method of accounting. The Company will record the assets acquired and liabilities assumed at their fair values as of the acquisition date. Due to the limited time since closing of the acquisition, the valuation efforts and related acquisition accounting are incomplete at the time of filing of the condensed consolidated financial statements. As a result, the Company is unable to provide amounts recognized as of the acquisition date for major classes of assets and liabilities acquired, including property, plant and equipment, intangible assets and goodwill. In addition, because the acquisition accounting is incomplete, the Company is unable to provide the supplemental pro forma revenue and earnings for the combined entity, as the pro forma adjustments are expected to primarily consist of estimates for the depreciation of property, plant and equipment, amortization of identifiable intangible assets acquired and related income tax effects which will result from the purchase price allocation and determination of the fair values for the assets acquired and liabilities assumed. During the three and nine months ended June 30, 2017, the Company recorded net foreign currency gains of $33.5 related to cash held in pounds sterling (GBP) to fund the acquisition of Weetabix, which were recorded in “Selling, general and administrative expenses” in the Condensed Consolidated Statements of Operations.
Transaction related costs
The Company incurred acquisition and divestiture related expenses of $3.3 and $6.8 during the three and nine months ended June 30, 2017, respectively, and $5.1 and $7.3 during the three and nine months ended June 30, 2016, respectively. The costs are recorded as “Selling, general and administrative expenses,” and include amounts for transactions that were signed, spending for due diligence on potential acquisitions that were not signed or announced at the time of the Company’s reporting, and spending for divestiture transactions.
Pro Forma Information
The following unaudited pro forma information presents a summary of the results of operations of the Company combined with the aggregate results of NPE and WEF for the periods presented as if the fiscal 2017 acquisition of NPE had occurred on October 1, 2015 and the fiscal 2016 acquisition of WEF had occurred on October 1, 2014, 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, inventory revaluation adjustments on acquired businesses 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, |
| 2017 | | 2016 | | 2017 | | 2016 |
Pro forma net sales | $ | 1,272.1 |
| | $ | 1,275.0 |
| | $ | 3,777.3 |
| | $ | 3,859.9 |
|
Pro forma net (loss) earnings available to common shareholders | $ | (62.8 | ) | | $ | 1.7 |
| | $ | 24.1 |
| | $ | 18.5 |
|
Pro forma basic (loss) earnings per common share | $ | (0.93 | ) | | $ | 0.02 |
| | $ | 0.35 |
| | $ | 0.27 |
|
Pro forma diluted (loss) earnings per common share | $ | (0.93 | ) | | $ | 0.02 |
| | $ | 0.35 |
| | $ | 0.26 |
|
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, 2016 | | | | | | | | | |
Goodwill (gross) | $ | 1,994.0 |
| | $ | 1,345.8 |
| | $ | 180.7 |
| | $ | 256.6 |
| | $ | 3,777.1 |
|
Accumulated impairment losses | (609.1 | ) | | — |
| | (88.3 | ) | | — |
| | (697.4 | ) |
Goodwill (net) | $ | 1,384.9 |
| | $ | 1,345.8 |
| | $ | 92.4 |
| | $ | 256.6 |
| | $ | 3,079.7 |
|
Goodwill acquired | — |
| | 46.3 |
| | — |
| | — |
| | 46.3 |
|
Balance, June 30, 2017 | | | | | | | | | |
Goodwill (gross) | $ | 1,994.0 |
| | $ | 1,392.1 |
| | $ | 180.7 |
| | $ | 256.6 |
| | $ | 3,823.4 |
|
Accumulated impairment losses | (609.1 | ) | | — |
| | (88.3 | ) | | — |
| | (697.4 | ) |
Goodwill (net) | $ | 1,384.9 |
| | $ | 1,392.1 |
| | $ | 92.4 |
| | $ | 256.6 |
| | $ | 3,126.0 |
|
NOTE 6 — INCOME TAXES
The effective income tax rate was 35.0% and 34.4% for the three and nine months ended June 30, 2017, respectively, and (57.1)% and 5.6% for the three and nine months ended June 30, 2016, respectively. In accordance with Accounting Standards Codification (“ASC”) Topic 740, the Company records income tax (benefit) expense for the interim periods using the estimated annual effective tax rate for the full fiscal year adjusted for the impact of discrete items occurring during the three and nine month periods. In the fiscal 2016 periods, the effective tax rate differed significantly from the statutory rate as a result of discrete items occurring in the nine months ended June 30, 2016 primarily relating to the Company’s decision to exit its Canadian egg business reported in the Michael Foods Group segment and the expectation that the domestic production activities deduction would have a favorable impact on the effective income tax rate.
NOTE 7 — INTANGIBLE ASSETS, NET
Total intangible assets are as follows: |
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2017 | | September 30, 2016 |
| Carrying
Amount | | Accumulated Amortization | | Net
Amount | | Carrying
Amount | | Accumulated Amortization | | Net
Amount |
Subject to amortization: | | | | | | | | | | | |
Customer relationships | $ | 2,056.6 |
| | $ | (385.9 | ) | | $ | 1,670.7 |
| | $ | 2,012.7 |
| | $ | (302.0 | ) | | $ | 1,710.7 |
|
Trademarks/brands | 802.6 |
| | (151.9 | ) | | 650.7 |
| | 795.1 |
| | (120.6 | ) | | 674.5 |
|
Other intangible assets | 21.7 |
| | (9.3 | ) | | 12.4 |
| | 21.7 |
| | (7.7 | ) | | 14.0 |
|
| 2,880.9 |
| | (547.1 | ) | | 2,333.8 |
| | 2,829.5 |
| | (430.3 | ) | | 2,399.2 |
|
Not subject to amortization: | | | | | | | | | | | |
Trademarks/brands | 434.5 |
| | — |
| | 434.5 |
| | 434.5 |
| | — |
| | 434.5 |
|
| $ | 3,315.4 |
| | $ | (547.1 | ) | | $ | 2,768.3 |
| | $ | 3,264.0 |
| | $ | (430.3 | ) | | $ | 2,833.7 |
|
NOTE 8 — (LOSS) EARNINGS PER SHARE
Basic (loss) earnings per share is based on the average number of common shares outstanding during the period. Diluted (loss) earnings per share is based on the average number of shares used for the basic (loss) 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 purchase contract component of 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 (loss) earnings per share. For diluted (loss) earnings 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. All TEU purchase contracts were settled as of June 30, 2017 (see Note 16).
The following table sets forth the computation of basic and diluted (loss) earnings per share for the three and nine months ended June 30, 2017 and 2016, respectively.
|
| | | | | | | | | | | | | | | |
| Three Months Ended
June 30, | | Nine Months Ended
June 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Net (loss) earnings for basic (loss) earnings per share | $ | (62.9 | ) | | $ | — |
| | $ | 23.9 |
| | $ | 12.0 |
|
Net (loss) earnings for diluted (loss) earnings per share | $ | (62.9 | ) | | $ | — |
| | $ | 23.9 |
| | $ | 12.0 |
|
| | | | | | | |
Weighted-average shares outstanding | 65.9 |
| | 64.3 |
| | 64.9 |
| | 63.7 |
|
Effect of TEUs on weighted-average shares for basic (loss) earnings per share | 1.6 |
| | 4.9 |
| | 3.4 |
| | 4.9 |
|
Weighted-average shares for basic (loss) earnings per share | 67.5 |
| | 69.2 |
| | 68.3 |
| | 68.6 |
|
Effect of dilutive securities: | | | | | | | |
Stock options | — |
| | — |
| | 1.2 |
| | 1.1 |
|
Stock appreciation rights | — |
| | — |
| | 0.1 |
| | 0.1 |
|
Restricted stock awards | — |
| | — |
| | 0.2 |
| | 0.3 |
|
Total dilutive securities | — |
| | — |
| | 1.5 |
| | 1.5 |
|
Weighted-average shares for diluted (loss) earnings per share | 67.5 |
| | 69.2 |
| | 69.8 |
| | 70.1 |
|
| | | | | | | |
Basic (loss) earnings per common share | $ | (0.93 | ) | | $ | — |
| | $ | 0.35 |
| | $ | 0.17 |
|
Diluted (loss) earnings per common share | $ | (0.93 | ) | | $ | — |
| | $ | 0.34 |
| | $ | 0.17 |
|
The following table details the securities that have been excluded from the calculation of weighted-average shares for diluted (loss) earnings per share as they were anti-dilutive.
|
| | | | | | | | | | | |
| Three Months Ended
June 30, | | Nine Months Ended
June 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Stock options | 4.2 |
| | 4.2 |
| | 0.3 |
| | 0.3 |
|
Stock appreciation rights | 0.1 |
| | 0.2 |
| | — |
| | — |
|
Restricted stock awards | 0.7 |
| | 0.9 |
| | — |
| | 0.2 |
|
Preferred shares conversion to common | 9.1 |
| | 9.1 |
| | 9.1 |
| | 9.1 |
|
NOTE 9 — INVENTORIES
|
| | | | | | | |
| June 30,
2017 | | September 30,
2016 |
Raw materials and supplies | $ | 120.2 |
| | $ | 112.4 |
|
Work in process | 17.3 |
| | 17.4 |
|
Finished products | 358.4 |
| | 339.3 |
|
Flocks | 30.7 |
| | 34.0 |
|
| $ | 526.6 |
| | $ | 503.1 |
|
NOTE 10 — PROPERTY, NET |
| | | | | | | |
| June 30,
2017 | | September 30,
2016 |
Property, at cost | $ | 2,024.0 |
| | $ | 1,900.3 |
|
Accumulated depreciation | (657.1 | ) | | (545.9 | ) |
| $ | 1,366.9 |
| | $ | 1,354.4 |
|
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. 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. Certain derivatives do not meet the criteria for hedge accounting or simply are not designated as hedging instruments; nonetheless, they are used to manage the future cost of raw materials and other risks. The Company does not hold or issue financial instruments for speculative or trading purposes.
At June 30, 2017, the Company’s derivative instruments consisted of:
Not designated as hedging instruments under ASC Topic 815
| |
• | Commodity and energy futures and option contracts which relate to inputs that generally will be utilized within the next 15 months; |
| |
• | foreign currency exchange option contracts that mature in July 2017 and act as a hedge of a portion of the GBP denominated purchase price of Weetabix; |
| |
• | cross-currency swap maturing in July 2022 that requires quarterly cash settlements and will be used as hedges of the Company’s net investment in Weetabix, which is denominated in GBP; |
| |
• | a pay-fixed, receive-variable interest rate swap maturing in May 2021 that requires monthly settlements and effectively hedges interest payments on debt expected to be issued but not yet priced; and |
| |
• | rate-lock interest rate swaps that require lump sum settlements in July 2018 and December 2019 and effectively hedge interest payments on debt expected to be issued but not yet priced. |
Designated as hedging instruments under ASC Topic 815
| |
• | Foreign currency forward contracts used as a cash flow hedge of forecasted Euro denominated capital purchases occurring within the next 20 months against currency fluctuations between Euro and U.S. dollar and |
| |
• | a pay-fixed, receive-variable interest rate swap maturing in May 2024 that requires monthly settlements and is used as a cash flow hedge of forecasted interest payments on our variable rate term loan (see Note 14). |
The following table shows the notional amounts of derivative instruments held.
|
| | | | | | |
| | June 30,
2017 | | September 30,
2016 |
Not designated as hedging instruments under ASC Topic 815: | | | | |
Commodity contracts | | 77.1 |
| | 49.8 |
|
Energy contracts | | 32.6 |
| | 23.6 |
|
Foreign exchange contracts - Option contracts, net (a) | | — |
| | — |
|
Foreign exchange contracts - Cross-currency swaps | | 448.7 |
| | — |
|
Interest rate swap | | 76.4 |
| | 77.6 |
|
Interest rate swaps - Rate-lock swaps | | 1,649.3 |
| | 1,649.3 |
|
Designated as hedging instruments under ASC Topic 815: | | | | |
Foreign exchange contracts - Forward contracts | | 24.0 |
| | — |
|
Interest rate swap | | 1,000.0 |
| | — |
|
| |
a. | The foreign exchange option contracts consisted of offsetting put and call options resulting in a net zero notional amount at June 30, 2017. |
The following table presents the balance sheet location and fair value of the Company’s derivative instruments as of June 30, 2017 and September 30, 2016, along with the portion designated as hedging instruments under ASC Topic 815. The Company does not offset derivative assets and liabilities within the Condensed Consolidated Balance Sheets.
|
| | | | | | | | | | | | | | | | | | |
| | | | Fair Value | | Portion Designated as Hedging Instruments |
| | Balance Sheet Location | | June 30,
2017 | | September 30,
2016 | | June 30,
2017 | | September 30,
2016 |
Asset Derivatives: | | | | | | | | | | |
Commodity contracts | | Prepaid expenses and other current assets | | $ | 4.6 |
| | $ | 0.6 |
| | $ | — |
| | $ | — |
|
Energy contracts | | Prepaid expenses and other current assets | | 1.6 |
| | 2.4 |
| | — |
| | — |
|
Foreign exchange contracts | | Prepaid expenses and other current assets | | 1.8 |
| | — |
| | 0.5 |
| | — |
|
Foreign exchange contracts | | Other assets | | 0.3 |
| | — |
| | 0.3 |
| | — |
|
| | | | $ | 8.3 |
| | $ | 3.0 |
| | $ | 0.8 |
| | $ | — |
|
| | | | | | | | | | |
Liability Derivatives: | | | | | | | | | | |
Commodity contracts | | Other current liabilities | | $ | 0.6 |
| | $ | 3.3 |
| | $ | — |
| | $ | — |
|
Energy contracts | | Other current liabilities | | 0.4 |
| | 0.2 |
| | — |
| | — |
|
Foreign exchange contracts | | Other current liabilities | | 2.0 |
| | — |
| | — |
| | — |
|
Foreign exchange contracts | | Other liabilities | | 14.0 |
| | — |
| | — |
| | — |
|
Interest rate swaps | | Other current liabilities | | 2.4 |
| | 2.0 |
| | 0.5 |
| | — |
|
Interest rate swaps | | Other liabilities | | 199.6 |
| | 313.2 |
| | 2.8 |
| | — |
|
| | | | $ | 219.0 |
| | $ | 318.7 |
| | $ | 3.3 |
| | $ | — |
|
The following tables present the effects of the Company’s derivative instruments on the Company’s Condensed Consolidated Statements of Operations and Condensed Consolidated Statements of Comprehensive (Loss) Income (“OCI”) for the three months ended June 30, 2017 and 2016.
|
| | | | | | | | | | |
Derivatives Not Designated as Hedging Instruments | | Statement of Operations Location | | (Gain) Loss Recognized in Statement of Operations |
| | 2017 | | 2016 |
Commodity contracts | | Cost of goods sold | | $ | (6.9 | ) | | $ | (1.0 | ) |
Energy contracts | | Cost of goods sold | | 1.5 |
| | (4.1 | ) |
Foreign exchange contracts | | Selling, general and administrative expenses | | 0.8 |
| | — |
|
Foreign exchange contracts | | Other expense (income), net | | 14.7 |
| | — |
|
Interest rate swaps | | Other expense (income), net | | 30.5 |
| | 62.6 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Cash Flow Hedges | | (Gain) Loss Recognized in OCI [Effective Portion] | | Loss Reclassified from Accumulated OCI into Earnings [Effective Portion] | | (Gain) Loss Recognized in Earnings [Ineffective Portion and Amount Excluded from Effectiveness Testing] | | Statement of Operations Location |
| 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 | |
Foreign exchange contracts | | $ | (0.9 | ) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | Selling, general and administrative expenses |
Interest rate swaps | | 3.6 |
| | — |
| | 0.3 |
| | — |
| | — |
| | — |
| | Interest expense, net |
The following tables present the effects of the Company’s derivative instruments on the Company’s Condensed Consolidated Statements of Operations and Condensed Consolidated Statements of Comprehensive (Loss) Income for the nine months ended June 30, 2017 and 2016.
|
| | | | | | | | | | |
Derivatives Not Designated as Hedging Instruments | | Statement of Operations Location | | (Gain) Loss Recognized in Statement of Operations |
| | 2017 | | 2016 |
Commodity contracts | | Cost of goods sold | | $ | (3.5 | ) | | $ | 3.2 |
|
Energy contracts | | Cost of goods sold | | 1.8 |
| | 0.8 |
|
Foreign exchange contracts | | Selling, general and administrative expenses | | 0.9 |
| | — |
|
Foreign exchange contracts | | Other expense (income), net | | 14.7 |
| | — |
|
Interest rate swaps | | Other expense (income), net | | (115.0 | ) | | 169.4 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Cash Flow Hedges | | (Gain) Loss Recognized in OCI [Effective Portion] | | Loss Reclassified from Accumulated OCI into Earnings [Effective Portion] | | (Gain) Loss Recognized in Earnings [Ineffective Portion and Amount Excluded from Effectiveness Testing] | | Statement of Operations Location |
| 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 | |
Foreign exchange contracts | | $ | (0.9 | ) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | Selling, general and administrative expenses |
Interest rate swaps | | 3.6 |
| | — |
| | 0.3 |
| | — |
| | — |
| | — |
| | Interest expense, net |
Approximately $0.5 of the net cash flow hedge losses reported in accumulated OCI at June 30, 2017 is expected to be reclassified into earnings within the next 12 months. For gains or losses associated with foreign exchange forward contracts, the reclassification will occur on a straight-line basis over the useful life of the related capital assets. For gains or losses associated with interest rate swaps, the reclassification will occur on a straight-line basis over the term of the related debt.
At June 30, 2017 and September 30, 2016, the Company had pledged collateral of $4.2 and $6.1, respectively, related to its commodity and energy contracts. These amounts are classified as “Restricted cash” on the Condensed Consolidated Balance Sheets.
NOTE 12 — FAIR VALUE MEASUREMENTS
The following table represents the Company’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, 2017 | | September 30, 2016 |
| Total | | Level 1 | | Level 2 | | Total | | Level 1 | | Level 2 |
Assets: | | | | | | | | | | | |
Deferred compensation investment | $ | 13.8 |
| | $ | 13.8 |
| | $ | — |
| | $ | 11.5 |
| | $ | 11.5 |
| | $ | — |
|
Derivative assets | 8.3 |
| | — |
| | 8.3 |
| | 3.0 |
| | — |
| | 3.0 |
|
| $ | 22.1 |
| | $ | 13.8 |
| | $ | 8.3 |
| | $ | 14.5 |
| | $ | 11.5 |
| | $ | 3.0 |
|
Liabilities: | | | | | | | | | | | |
Deferred compensation liabilities | $ | 19.9 |
| | $ | — |
| | $ | 19.9 |
| | $ | 17.3 |
| | $ | — |
| | $ | 17.3 |
|
Derivative liabilities | 219.0 |
| | — |
| | 219.0 |
| | 318.7 |
| | — |
| | 318.7 |
|
| $ | 238.9 |
| | $ | — |
| | $ | 238.9 |
| | $ | 336.0 |
| | $ | — |
| | $ | 336.0 |
|
The following table presents the fair value of the Company’s long-term debt which is classified as Level 2 in the fair value hierarchy per ASC Topic 820. The senior notes and term loan are valued utilizing an interest rate derived from an estimated yield curve obtained from independent pricing sources for similar types of borrowing arrangements. The carrying value of the remaining debt approximates fair value because of the short maturities of these financial instruments.
|
| | | | | | | |
| June 30,
2017 | | September 30,
2016 |
Senior notes | $ | 4,374.7 |
| | $ | 4,835.9 |
|
Term loan | 2,201.7 |
| | — |
|
TEUs | — |
| | 15.0 |
|
4.57% 2012 Series Bond maturing September 2017 | 0.7 |
| | 1.3 |
|
Capital leases | 0.2 |
| | — |
|
| $ | 6,577.3 |
| | $ | 4,852.2 |
|
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. Changes in the deferred compensation investment and related liability are recorded as “Selling, general and administrative expenses” in the Condensed Consolidated Statements of Operations.
Commodity and energy derivatives are valued using an income approach based on index prices less the contract rate multiplied by the notional amount. Foreign exchange contracts are valued using the spot rate less the forward 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.
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.
As stated previously (see Note 3), the Company had land, buildings and equipment classified as assets held for sale related to the closure of its Modesto, California facility as of September 30, 2016. At September 30, 2016, the carrying value, as determined by estimated fair value less estimated costs to sell, of the assets held for sale was $4.3 and was included in “Prepaid expenses and other current assets” on the Condensed Consolidated Balance Sheets. Related to its Farmers Branch, Texas facility, the Company had land and buildings classified as assets held for sale as of September 30, 2016. The carrying value of the assets included in “Prepaid expenses and other current assets” on the Condensed Consolidated Balance Sheets was $5.8 as of September 30, 2016. The fair value of the assets held for sale were measured at fair value on a nonrecurring basis based on third-party offers to purchase the assets. The fair value measurement was categorized as Level 3, as the fair values utilize significant unobservable inputs. The following table summarizes the Level 3 activity.
|
| | | |
Balance, September 30, 2016 | $ | 10.1 |
|
Gain on assets held for sale | 0.2 |
|
Cash received from sale of assets | (10.3 | ) |
Balance, June 30, 2017 | $ | — |
|
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 (less than 12 months) of these financial instruments.
NOTE 13 — LEGAL PROCEEDINGS
In late 2008 and early 2009, some 22 class action lawsuits were filed in various federal courts against Michael Foods, Inc. and some 20 other defendants (producers of shell eggs and egg products, and egg industry organizations), alleging violations of federal and state antitrust laws in connection with the production and sale of shell eggs and egg products, and seeking unspecified damages. All cases were transferred to the Eastern District of Pennsylvania for coordinated and/or consolidated pretrial proceedings.
The case involves three plaintiff groups: (1) direct purchasers of eggs and egg products; (2) companies (primarily large grocery chains and food companies that purchase considerable quantities of eggs) that opted out of any eventual class and brought their own separate actions against the defendants (“opt-out plaintiffs”); and (3) indirect purchasers of shell eggs.
Motions related to class certification: In September 2015, the court granted the motion of the direct purchaser plaintiffs to certify a shell-egg subclass, but denied their motion to certify an egg-products subclass. Also in September 2015, the court denied the motion of the indirect purchaser plaintiffs for class certification. The indirect purchaser plaintiffs subsequently filed an alternative motion for certification of an injunctive class, and that motion was denied on June 27, 2017.
Motions for summary judgment: In September 2016, the court granted the defendants’ motion for summary judgment based on purchases of egg products, thereby limiting all claims to shell eggs. Also in September 2016, the court denied individual motions for summary judgment made by Michael Foods and three other defendants that had sought the dismissal of all claims against them.
Settlements by Michael Foods: On December 8, 2016, Michael Foods reached an agreement to settle all class claims asserted against it by the direct purchaser plaintiffs for a payment of $75.0. The Company has paid such amount into escrow. This settlement is subject to approval by the court following notice to all class members. While the Company expects the settlement will receive the needed approval, there can be no assurance that the court will approve the agreement as proposed by the parties.
On January 19, 2017, Michael Foods entered into a settlement, the details of which are confidential, with the opt-out plaintiffs (excluding those opt-out plaintiffs whose claims relate primarily or exclusively to egg products; several of those plaintiffs are now appealing the dismissal of the egg products claims). This settlement was paid by the Company as of June 30, 2017. Michael Foods has at all times denied liability in this matter, and neither settlement contains any admission of liability by Michael Foods.
During the nine months ended June 30, 2017, the Company expensed $74.5, included in “Selling, general and administrative expenses” on the Condensed Consolidated Statements of Operations, related to these settlements. Expense of $10.0 was recorded related to these settlements in the three and nine months ended June 30, 2016. At September 30, 2016, the Company had accruals related to these settlements of $28.5 that were included in “Other current liabilities” on the Condensed Consolidated Balance Sheets.
Under current law, any settlement paid, including the settlement with the direct purchaser plaintiffs and the settlement with the opt-out plaintiffs, is deductible for federal income tax purposes.
Remaining portions of the case: The indirect purchaser plaintiffs are seeking to immediately appeal the court’s denial of their motions for class certification. The Third Circuit Court of Appeals has not yet ruled on whether it will accept these matters for review. Additionally, the elimination of egg products from the case is being appealed by the opt-out plaintiffs who purchased egg products. The appeal is fully submitted to the Third Circuit Court of Appeals.
While the likelihood of a material adverse outcome in the egg antitrust litigation has been significantly reduced as a result of the Michael Foods settlements described above, there is still a possibility of an adverse outcome following appellate review of the remaining portions of the case. At this time, however, we do not believe it is possible to estimate any loss in connection with these remaining portions of the egg antitrust litigation. Accordingly, we cannot predict what impact, if any, these remaining matters and any results from such matters could have on our future results of operations.
NOTE 14 — LONG-TERM DEBT
Long-term debt as of the dates indicated consists of the following:
|
| | | | | | | |
| June 30,
2017 | | September 30, 2016 |
5.50% Senior Notes maturing March 2025 | $ | 1,000.0 |
| | $ | — |
|
5.75% Senior Notes maturing March 2027 | 750.0 |
| | — |
|
5.00% Senior Notes maturing August 2026 | 1,750.0 |
| | 1,750.0 |
|
7.75% Senior Notes maturing March 2024 | — |
| | 800.0 |
|
8.00% Senior Notes maturing July 2025 | 137.5 |
| | 400.0 |
|
6.00% Senior Notes maturing December 2022 | 630.0 |
| | 630.0 |
|
6.75% Senior Notes maturing December 2021
| — |
| | 875.0 |
|
7.375% Senior Notes maturing February 2022
| — |
| | 133.0 |
|
Term Loan | 2,200.0 |
| | — |
|
TEUs | — |
| | 11.0 |
|
4.57% 2012 Series Bond maturing September 2017 | 0.7 |
| | 1.3 |
|
Capital leases | 0.2 |
| | — |
|
| $ | 6,468.4 |
| | $ | 4,600.3 |
|
Less: Current portion of long-term debt | (22.7 | ) | | (12.3 | ) |
Debt issuance costs, net | (77.2 | ) | | (53.5 | ) |
Plus: Unamortized premium | — |
| | 16.7 |
|
Total long-term debt | $ | 6,368.5 |
| | $ | 4,551.2 |
|
On February 14, 2017, the Company issued $1,000.0 principal value of 5.50% senior notes due in March 2025 and $750.0 principal value of 5.75% senior notes due in March 2027. The 5.50% and 5.75% senior notes were issued at par and the Company received $1,725.4 after paying investment banking and other fees of $24.6, which will be deferred and amortized to interest expense over the term of the notes. Interest payments on the 5.50% and 5.75% senior notes are due semi-annually each March 1 and September 1.
With the net proceeds received from the February 14, 2017 issuance of the 5.50% and 5.75% senior notes (described above), the Company repaid the remaining $133.0 principal value of the 7.375% senior notes as well as the $875.0 principal value of the 6.75% senior notes. In connection with the early repayment of these notes, the Company recorded expense of $62.5 in the second quarter of fiscal 2017, which is reported as “Loss on extinguishment of debt” in the Condensed Consolidated Statement of Operations. This loss included a tender premium of $67.9 and deferred financing fee write-offs of $10.1, partially offset by the write-off of unamortized debt premium of $15.5.
On May 24, 2017, the Company entered into a Joinder Agreement No. 1 (“Joinder No. 1”). Joinder No.1 provided for an incremental term loan of $1,200.0 (the “ Joinder No. 1 Term Loan”) under the Company’s existing credit agreement amended and restated on March 28, 2017 and further amended on April 28, 2017 (as amended and restated, the “Credit Agreement”), which is discussed in further detail below. Pursuant to Joinder No. 1, the Company borrowed $1,200.0, the net proceeds of which were used to repay the $800.0 principal value of the 7.75% senior notes as well as $262.5 principal value of the 8.00% senior notes along with related tender premiums and other fees and expenses. In connection with the early repayment of these notes, the Company recorded expense of $160.4 in the three months ended June 30, 2017, which is reported as “Loss on extinguishment of debt” in the Condensed Consolidated Statement of Operations. This loss included a tender premium of $151.9 and deferred financing fee write-offs of $8.5. In connection with the early repayment of these notes and the 7.375% and 6.75% notes, the Company recorded expense of $222.9 in the nine months ended June 30, 2017, which is reported as “Loss on extinguishment of debt” in the Condensed Consolidated Statement of Operations. These losses included tender premiums of $219.8 and deferred financing fee write-offs of $18.6 partially offset by the write-off of unamortized debt premium of $15.5.
On June 29, 2017, the Company entered into a Joinder Agreement No. 2 (“Joinder No. 2”). Joinder No. 2 provided for an incremental term loan of $1,000.0 (the “ Joinder No. 2 Term Loan”) under the Credit Agreement. Pursuant to Joinder No.2, the Company borrowed $1,000.0 and used the proceeds, together with cash on hand, to finance its acquisition of Weetabix (see Note 4 and Note 18).
The Joinder No. 2 Term Loan was combined with the outstanding amounts under the Joinder No.1 Term Loan (collectively the “Term Loan”). The outstanding amounts under the Term Loan bear interest at the Eurodollar Rate plus 2.25% or the Base Rate
(as such terms are defined in the Credit Agreement) plus 1.25%. The Term Loan must be repaid in quarterly principal installments of $5.5 beginning on September 30, 2017 and must be repaid in full on May 24, 2024. The Company must make certain prepayments of principal of the Term Loan under circumstances specified in Joinder No. 1. The Company incurred $23.5 of issuance costs in connection with the Term Loan as of June 30, 2017.
On March 28, 2017, the Company amended and restated its prior credit agreement. The Credit Agreement provides for a revolving credit facility in an aggregate principal amount of $800.0 (the “Revolving Credit Facility”), with the commitments thereunder to be made available to the Company in US Dollars, Canadian Dollars, Euros and Pounds Sterling. Letters of credit will be available under the Credit Agreement in an aggregate amount of up to $50.0. The Credit Agreement also provides for potential incremental revolving and term facilities at the request of the Company and at the discretion of the lenders, in each case on terms to be determined, and also permits the Company, subject to certain conditions, to incur incremental equivalent debt, in an aggregate maximum amount (for incremental revolving and term facilities and incremental equivalent debt combined) not to exceed the greater of (1) $700.0 and (2) the maximum amount at which (A) the Company’s pro forma consolidated leverage ratio (as defined in the Credit Agreement) would not exceed 6.50 to 1.00 and (B) the Company’s pro forma senior secured leverage ratio (as defined in the Credit Agreement) would not exceed 3.00 to 1.00 as of the date such indebtedness is incurred. The outstanding amounts under the Revolving Credit Facility must be repaid on or before March 28, 2022. The Company incurred $4.3 of issuance costs in connection with the Credit Agreement. The revolving credit facility has outstanding letters of credit of $10.0 which reduced the available borrowing capacity to $790.0 at June 30, 2017. The Credit Agreement also permits the Company to incur additional unsecured debt if, among other conditions, its consolidated interest coverage ratio (as defined in the Credit Agreement) would be greater than or equal to 2.00 to 1.00 after giving effect to such new debt.
Borrowings under the Revolving Credit Facility will bear interest, at the option of the Company, at an annual rate equal to either the Base Rate, Eurodollar Rate or CDOR Rate (as such terms are defined in the Credit Agreement) plus an applicable margin ranging from 1.75% to 2.25% for Eurodollar Rate-based loans and CDOR Rate-based loans and from 0.75% to 1.25% for Base Rate-based loans, depending in each case on the Company’s senior secured leverage ratio. Commitment fees on the daily unused amount of commitments under the Revolving Credit Facility will accrue at rates ranging from 0.250% to 0.375%, also depending on the Company’s senior secured leverage ratio.
The Credit Agreement contains a financial covenant requiring the Company to maintain a senior secured leverage ratio (as defined in the Credit Agreement) not to exceed 4.25 to 1.00, measured as of the last day of any fiscal quarter if, as of the last day of such fiscal quarter, the aggregate outstanding amount of all revolving credit loans, swing line loans and letter of credit obligations (subject to certain exceptions specified in the Credit Agreement) exceeds 30% of the Company’s revolving credit commitments.
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, attachments issued against all or any 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 accelerate 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 a financial covenant consisting of a ratio for quarterly maximum senior secured leverage if all outstanding amounts under the Revolving Credit Facility exceed 30% of the Company’s revolving credit commitments. As of June 30, 2017, the Company was in compliance with such financial covenant.
NOTE 15 — PENSION AND OTHER POSTRETIREMENT BENEFITS
The Company maintains qualified defined benefit plans in the United States and Canada for certain employees primarily within its Post Consumer Brands segment. 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. Effective January 1, 2011, benefit accruals for defined pension plans were frozen for all administrative employees and certain production employees.
The following tables provide the components of net periodic benefit cost (gain) for the plans.
|
| | | | | | | | | | | | | | | |
| Pension Benefits |
| Three Months Ended
June 30, | | Nine Months Ended
June 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Components of net periodic benefit cost | | | | | | | |
Service cost | $ | 1.0 |
| | $ | 1.0 |
| | $ | 3.0 |
| | $ | 3.0 |
|
Interest cost | 0.6 |
| | 0.7 |
| | 1.7 |
| | 1.9 |
|
Expected return on plan assets | (0.8 | ) | | (0.6 | ) | | (2.3 | ) | | (1.9 | ) |
Recognized net actuarial loss | 0.4 |
| | 0.3 |
| | 1.2 |
| | 0.8 |
|
Recognized prior service cost | 0.1 |
| | — |
| | 0.2 |
| | 0.2 |
|
Net periodic benefit cost | $ | 1.3 |
| | $ | 1.4 |
| | $ | 3.8 |
| | $ | 4.0 |
|
|
| | | | | | | | | | | | | | | |
| Other Benefits |
| Three Months Ended
June 30, | | Nine Months Ended
June 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Components of net periodic benefit cost | | | | | | | |
Service cost | $ | 0.2 |
| | $ | 0.1 |
| | $ | 0.5 |
| | $ | 0.9 |
|
Interest cost | 0.5 |
| | 0.8 |
| | 1.5 |
| | 3.2 |
|
Recognized net actuarial loss | 0.2 |
| | 0.5 |
| | 0.5 |
| | 1.2 |
|
Recognized prior service credit | (1.2 | ) | | (1.5 | ) | | (3.6 | ) | | (2.4 | ) |
Net periodic benefit (gain) cost | $ | (0.3 | ) | | $ | (0.1 | ) | | $ | (1.1 | ) | | $ | 2.9 |
|
NOTE 16 — SHAREHOLDERS’ EQUITY
In the three months ended June 30, 2017, the Company repurchased 2.2 shares of its common stock at an average share price of $81.92 per share for a total cost of $180.7, including brokers’ commissions. In the nine months ended June 30, 2017, the Company repurchased 3.9 shares of its common stock at an average share price of $79.45 per share for a total cost of $313.8, including brokers’ commissions. These share repurchases were recorded as “Treasury stock, at cost” on the Condensed Consolidated Balance Sheets. The Company did not repurchase shares of its common stock in the three and nine months ended June 30, 2016.
Holders of TEUs, or their separated purchase contract components, settled 1.9 and 2.8 purchase contracts during the three and nine months ended June 30, 2017, respectively, for which the Company issued 3.2 and 4.7 shares of common stock during the three and nine months ended June 30, 2017, respectively. No purchase contracts were settled and no shares of common stock were issued relating to the TEUs during the three or nine months ended June 30, 2016. All outstanding purchase contracts were settled as of June 30, 2017.
NOTE 17 — SEGMENTS
The Company’s reportable segments are as follows:
| |
• | Post Consumer Brands: primarily ready-to-eat (“RTE”) cereals; |
| |
• | Michael Foods Group: eggs, potatoes, cheese and pasta; |
| |
• | Active Nutrition: protein shakes, bars and powders and nutritional supplements; and |
| |
• | Private Brands: primarily 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, gain on sale of business and other unallocated corporate income and expenses. The following tables present information about the Company’s reportable segments, including corresponding amounts for the prior year.
|
| | | | | | | | | | | | | | | | | |
| | | Three Months Ended
June 30, | | Nine Months Ended
June 30, |
| | | 2017 | | 2016 | | 2017 | | 2016 |
Net Sales | | | | | | | |
| Post Consumer Brands | $ | 427.3 |
| | $ | 434.5 |
| | $ | 1,279.0 |
| | $ | 1,286.2 |
|
| Michael Foods Group | 524.2 |
| | 518.0 |
| | 1,579.0 |
| | 1,662.1 |
|
| Active Nutrition | 188.7 |
| | 156.1 |
| | 519.9 |
| | 415.7 |
|
| Private Brands | 132.0 |
| | 137.9 |
| | 399.7 |
| | 403.2 |
|
| Eliminations | (0.1 | ) | | (0.4 | ) | | (0.3 | ) | | (1.2 | ) |
| Total | $ | 1,272.1 |
| | $ | 1,246.1 |
| | $ | 3,777.3 |
| | $ | 3,766.0 |
|
Segment Profit | | | | | | | |
| Post Consumer Brands | $ | 96.9 |
| | $ | 75.2 |
| | $ | 268.6 |
| | $ | 212.8 |
|
| Michael Foods Group | 46.4 |
| | 65.6 |
| | 72.1 |
| | 236.0 |
|
| Active Nutrition | 28.0 |
| | 17.7 |
| | 74.1 |
| | 42.0 |
|
| Private Brands | 8.0 |
| | 9.0 |
| | 24.5 |
| | 29.6 |
|
| Total segment profit | 179.3 |
| | 167.5 |
| | 439.3 |
| | 520.4 |
|
General corporate (income) expenses and other | (11.2 | ) | | 25.5 |
| | 35.1 |
| | 83.0 |
|
Interest expense, net | 76.5 |
| | 77.3 |
| | 229.6 |
| | 232.3 |
|
Loss on extinguishment of debt | 160.4 |
| | — |
| | 222.9 |
| | — |
|
Other expense (income), net | 45.2 |
| | 62.6 |
| | (100.3 | ) | | 169.4 |
|
(Loss) earnings before income taxes | $ | (91.6 | ) | | $ | 2.1 |
| | $ | 52.0 |
| | $ | 35.7 |
|
Depreciation and amortization | | | | | | | |
| Post Consumer Brands | $ | 27.4 |
| | $ | 26.1 |
| | $ | 81.5 |
| | $ | 78.6 |
|
| Michael Foods Group | 36.5 |
| | 35.5 |
| | 110.0 |
| | 106.0 |
|
| Active Nutrition | 6.3 |
| | 6.4 |
| | 18.8 |
| | 18.8 |
|
| Private Brands | 6.7 |
| | 6.2 |
| | 19.9 |
| | 18.6 |
|
| | Total segment depreciation and amortization | 76.9 |
| | 74.2 |
| | 230.2 |
| | 222.0 |
|
| Corporate and accelerated depreciation | 0.9 |
| | 1.5 |
| | 2.7 |
| | 4.9 |
|
| Total | $ | 77.8 |
| | $ | 75.7 |
| | $ | 232.9 |
| | $ | 226.9 |
|
| | | | | | | |
| | | | | | |
|
Assets | | | | | June 30,
2017 | | September 30,
2016 |
| Post Consumer Brands | | | | | $ | 3,338.7 |
| | $ | 3,387.0 |
|
| Michael Foods Group | | | | | 3,570.0 |
| | 3,498.1 |
|
| Active Nutrition | | | | | 614.1 |
| | 624.8 |
|
| Private Brands | | | | | 661.2 |
| | 655.9 |
|
| Corporate | | | | | 2,620.2 |
| | 1,194.8 |
|
| Total | | | | | $ | 10,804.2 |
| | $ | 9,360.6 |
|
NOTE 18 — SUBSEQUENT EVENTS
On July 3, 2017, the Company completed its acquisition of Weetabix, a United Kingdom based packaged food company that primarily produces branded and private label RTE cereal products. The purchase price of the transaction was approximately £1,400.0, net of cash acquired, subject to certain adjustments as described in the purchase agreement, resulting in a payment of £1,422.3, net of cash acquired, which was paid from cash on hand, including $1,000.0 in proceeds from the Joinder No. 2 Term Loan (see Note 14).
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion summarizes the significant factors affecting the consolidated operating results, financial condition, liquidity and capital resources of Post Holdings, Inc. This discussion should be read in conjunction with our unaudited condensed consolidated financial statements and notes thereto included herein and our audited Annual Report on Form 10-K for the fiscal year ended September 30, 2016. The terms “our,” “we,” “us,” “Company” and “Post” as used herein refer to Post Holdings, Inc. and its consolidated subsidiaries. Please note these discussions are subject to discussion under “Cautionary Statements Regarding Forward-Looking Statements” included below.
OVERVIEW
We are a consumer packaged goods holding company operating in four reportable segments: Post Consumer Brands, Michael Foods Group, Active Nutrition and Private Brands. Our products are sold through a variety of channels such as grocery, club and drug stores, mass merchandisers, foodservice, ingredient and via the internet.
Acquisitions & Divestitures
We completed the following acquisitions in fiscal 2017 and 2016:
| |
• | National Pasteurized Eggs, Inc. (“NPE”), acquired October 3, 2016; and |
| |
• | Willamette Egg Farms (“WEF”), acquired October 3, 2015. |
We completed the following divestiture in fiscal 2016:
| |
• | Certain assets of our Michael Foods Canadian egg business, sold March 1, 2016. |
On July 3, 2017, subsequent to the end of the period covered by this report, we acquired Latimer Newco 2 Limited, a company registered in England and Wales (“Latimer”), and all of Latimer’s direct and indirect subsidiaries, including Weetabix Limited (collectively “Weetabix”).
RESULTS OF OPERATIONS
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Nine Months Ended June 30, |
| | | | | favorable/(unfavorable) | | | | | | favorable/(unfavorable) |
dollars in millions | 2017 | | 2016 | | $ Change | | % Change | | 2017 | | 2016 | | $ Change | | % Change |
Net Sales | $ | 1,272.1 |
| | $ | 1,246.1 |
| | $ | 26.0 |
| | 2 | % | | $ | 3,777.3 |
| | $ | 3,766.0 |
| | $ | 11.3 |
| | — | % |
| | | | | | | | | | | | | | | |
Operating Profit | $ | 190.5 |
| | $ | 142.0 |
| | $ | 48.5 |
| | 34 | % | | $ | 404.2 |
| | $ | 437.4 |
| | $ | (33.2 | ) | | (8 | )% |
Interest expense, net | 76.5 |
| | 77.3 |
| | 0.8 |
| | 1 | % | | 229.6 |
| | 232.3 |
| | 2.7 |
| | 1 | % |
Loss on extinguishment of debt | 160.4 |
| | — |
| | (160.4 | ) | | n/a |
| | 222.9 |
| | — |
| | (222.9 | ) | | n/a |
|
Other expense (income), net | 45.2 |
| | 62.6 |
| | 17.4 |
| | 28 | % | | (100.3 | ) | | 169.4 |
| | 269.7 |
| | 159 | % |
Income tax (benefit) expense | (32.1 | ) | | (1.2 | ) | | 30.9 |
| | 2,575 | % | | 17.9 |
| | 2.0 |
| | (15.9 | ) | | (795 | )% |
Net (Loss) Earnings | $ | (59.5 | ) | | $ | 3.3 |
| | $ | (62.8 | ) | | (1,903 | )% | | $ | 34.1 |
| | $ | 33.7 |
| | $ | 0.4 |
| | 1 | % |
Net Sales
Net sales increased $26.0 million, or 2%, during the three months ended June 30, 2017, and increased $11.3 million, or less than 1%, during the nine months ended June 30, 2017, compared to the corresponding periods in the prior year. These increases were primarily driven by net sales growth in our egg business, including net sales from the current year acquisition of NPE, and net sales growth in our Premier Protein ready-to-drink (“RTD”) shakes, our Pebbles and Malt-O-Meal ready-to-eat (“RTE”) cereal, our potato business and our traditional and organic peanut butter. These increases were partially offset by reduced net sales in our other RTE cereal brands, cheese, pasta, protein powder and bar and dried fruit and nut products. Net sales in our egg business were down in the nine months ended June 30, 2017. For further discussion, refer to “Segment Results” within this section.
Operating Profit
Operating profit increased $48.5 million, or 34%, during the three months ended June 30, 2017, and decreased $33.2 million, or 8%, during the nine months ended June 30, 2017. The increase in the three month period was primarily due to net foreign currency gains of $33.5 million related to cash held in pounds sterling (GBP) to fund the acquisition of Weetabix. In addition, we had higher segment profit within our Post Consumer Brands and Active Nutrition segments partially offset by segment profit declines within
our Michael Foods Group and Private Brands segments. The decrease in the nine month period was primarily due to reduced segment profit within our Michael Foods Group and Private Brands segments, partially offset by increases in our Post Consumer Brands and Active Nutrition segments. Operating profit was significantly impacted in the nine months ended June 30, 2017 by a provision for legal settlement of $74.5 million (and by $10.0 million in the three and nine month ended June 30, 2016) in the Michael Foods Group, recorded in the first quarter of fiscal 2017, which was partially offset by net foreign currency gains of $33.5 million related to cash held in GBP to fund the acquisition of Weetabix. In addition, general corporate expenses (income) and other, excluding foreign currency gains, were lower in both the three and nine months ended June 30, 2017. For further discussion, refer to “Segment Results” within this section.
Interest Expense, Net
Interest expense decreased $0.8 million, or 1%, during the three months ended June 30, 2017 and $2.7 million, or 1%, during the nine months ended June 30, 2017, compared to the corresponding periods in the prior year. These decreases were primarily due to a decrease in our weighted-average interest rate. Our weighted-average interest rate on our total outstanding debt was 4.8% and 6.9% at June 30, 2017 and 2016, respectively, partially offset by an increase in the outstanding amount of debt principal. For additional information on our debt, refer to Note 14 within the Notes to Condensed Consolidated Financial Statements and Quantitative and Qualitative Disclosures About Market Risk within Item 3.
Loss on Extinguishment of Debt
During the three and nine months ended June 30, 2017, we recognized losses of $160.4 million and $222.9 million, respectively, related to the extinguishment of the entire remaining principal balances of our 7.75%, 7.375% and 6.75% senior notes and a portion of the principal balance of our 8.00% senior notes. During the three months ended June 30, 2017, the expense included tender premiums of $151.9 million and deferred financing fee write-offs of $8.5 million. The nine month period included tender premiums of $219.8 million and deferred financing fee write-offs of $18.6 million, partially offset by the write-off of unamortized debt premium of $15.5 million. No such losses were incurred in the prior year periods. For additional information on our debt, refer to Note 14 in the “Notes to Consolidated Financial Statements.”
Other (Income) Expense, net
During the three and nine months ended June 30, 2017, we recognized net losses (gains) of $45.2 million and $(100.3) million, respectively, on our interest rate swaps and cross-currency foreign exchange contracts, compared to losses of $62.6 million and $169.4 million in the three and nine months ended June 30, 2016, respectively, on our interest rate swaps. The total net losses (gains) were comprised of non-cash mark-to-market adjustments of $44.8 million and $(101.8) million recognized in the three and nine months ended June 30, 2017, respectively, along with $0.4 million and $1.5 million paid for cash settlements of our interest rate swaps in the three and nine months ended June 30, 2017, respectively. For the three and nine months ended June 30, 2016, all losses were related to non-cash mark-to-market adjustments on our interest rate swaps. For additional information on our interest rate swaps, refer to Note 11 within the Notes to Condensed Consolidated Financial Statements and Quantitative and Qualitative Disclosures About Market Risk within Item 3.
Income Taxes
The effective income tax rate was 35% and 34% for the three and nine months ended June 30, 2017, respectively, and (57)% and 6% for the three and nine months ended June 30, 2016, respectively. In accordance with Accounting Standards Codification (“ASC”) Topic 740, we record income tax (benefit) expense for the interim periods using the estimated annual effective tax rate for the full fiscal year adjusted for the impact of discrete items occurring during the three and nine month periods. In the fiscal 2016 periods, the effective tax rate differed significantly from the statutory rate as a result of discrete items occurring in the nine months ended June 30, 2016 primarily relating to our decision to exit our Canadian egg business reported in the Michael Foods Group segment and the expectation that the domestic production activities deduction would have a favorable impact on the effective income tax rate.
SEGMENT RESULTS
Our reportable segments are as follows:
| |
• | Post Consumer Brands: primarily RTE cereals; |
| |
• | Michael Foods Group: eggs, potatoes, cheese and pasta; |
| |
• | Active Nutrition: protein shakes, bars and powders and nutritional supplements; and |
| |
• | Private Brands: primarily peanut and other nut butters, dried fruit and nuts, and granola. |
We evaluate 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, (gains)/losses on assets held for sale, gain on sale of plant and other unallocated corporate income and expenses.
Post Consumer Brands
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Nine Months Ended June 30, |
| | | | | favorable/(unfavorable) | | | | | | favorable/(unfavorable) |
dollars in millions | 2017 | | 2016 | | $ Change | | % Change | | 2017 | | 2016 | | $ Change | | % Change |
Net Sales | $ | 427.3 |
| | $ | 434.5 |
| | $ | (7.2 | ) | | (2 | )% | | $ | 1,279.0 |
| | $ | 1,286.2 |
| | $ | (7.2 | ) | | (1 | )% |
Segment Profit | $ | 96.9 |
| | $ | 75.2 |
| | $ | 21.7 |
| | 29 | % | | $ | 268.6 |
| | $ | 212.8 |
| | $ | 55.8 |
| | 26 | % |
Segment Profit Margin | 23 | % | | 17 | % | | | | | | 21 | % | | 17 | % | | |