31, 2017 and 2016 and statement of shareholders’ equity for the nine months ended March 31, 2017 are unaudited, but include all adjustments, consisting only of normal recurring adjustments, which the Company considers necessary for a fair presentation of the consolidated financial position, operating results and cash flows for the periods presented. The results for the three and nine months ended March 31, 2017 are not necessarily indicative of results to be expected for the fiscal year ending June 30, 2017 or for any future interim period. The condensed consolidated balance sheet at June 30, 2016 has been derived from the audited consolidated financial statements of the Company. However, the interim financial information does not include all of the information and notes required by GAAP for complete consolidated financial statements. The accompanying condensed consolidated financial statements and notes thereto should be read in conjunction with the consolidated financial statements for the fiscal year June 30, 2016, and notes thereto included in the Company’s Annual Report on Form 10-K.
Principles of Consolidation
The consolidated financial statements include the accounts of Multi Packaging Solutions International Limited and its controlled subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation.
In September 2016, the Company acquired a portion of the remaining noncontrolling interest in one of its subsidiaries, MPS Denver, LLC (“Denver”) for a nominal amount. The transaction was accounted for as an acquisition of noncontrolling interest and included in the statement of stockholders’ equity. As of March 31, 2017, the Company owns 80% of the outstanding ownership interests in Denver.
Newly Adopted Accounting Pronouncements
In August 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-15,
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments
. ASU No. 2016-15 provides guidance on eight specific cash flow issues. The amendments in this update are effective for annual periods beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019. Early adoption is permitted provided all of the amendments are adopted in the same period, and if adopted in an interim period, any adjustments should be reflected as of the beginning of that annual period. The Company elected to early adopt the provisions of ASU No. 2016-15 during the second fiscal quarter. The adoption of the new guidance did not materially impact the Company’s consolidated statements of cash flows.
In March 2016, the FASB issued ASU No. 2016-09,
Compensation-Stock Compensation (Topic 718)
. ASU No. 2016-09 requires all income tax effects of awards to be recognized in the income statement when the awards vest or are settled. It also will allow an employer to repurchase more of an employee’s shares than it can today for tax withholding purposes without triggering liability accounting and to make a policy election to account for forfeitures as they occur. The amendments in this update are effective for annual periods beginning after December 15, 2016, and interim periods within such annual period. Early adoption is permitted, however all of the guidance must be adopted in the same period under the transition requirements. The Company elected to early adopt the provisions of ASU No. 2016-09 as of July 1, 2016, which is the beginning of the current fiscal year. The adoption of the new guidance did not materially impact the Company’s consolidated financial position or results of operations. The Company elected to account for forfeitures when they occur.
Recently Issued Accounting Pronouncements
In March 2017, the FASB issued ASU 2017-07,
Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost
. The changes to the standard require employers to report the service cost component in the same line item as other compensation costs arising from services rendered by employees during the reporting period. The other components of net benefit costs will be presented in the statement of operations separately from the service cost and outside of a subtotal of operating income from operations. In addition, only the service cost component may be eligible for capitalization where applicable. ASU No. 2017-07 is effective for annual periods beginning after December 15, 2017, including interim periods within such annual period. The Company is currently evaluating the potential impacts of adopting the provisions of ASU No. 2017-07.
In January 2017, the FASB issued ASU No. 2017-04,
Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
. ASU 2017-04 eliminates step 2 from the annual goodwill impairment test no longer requiring the comparison of the implied fair value of a reporting unit's goodwill with the carrying amount of goodwill. Early adoption is permitted and the guidance requires a prospective application. The guidance is effective for annual periods beginning
after December 15, 2019, and the annual and any interim goodwill impairment tests within such fiscal year. The Company is currently evaluating the potential impacts of adopting the provisions of ASU No. 2017-04.
In October 2016, the FASB issued ASU No. 2016-16,
Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory
. ASU No. 2016-16 eliminates the exception of recognizing, at the time of transfer, current and deferred income taxes for intra-entity asset transfers other than inventory. The amendments in this update are effective for annual periods beginning after December 15, 2017, and interim periods within such annual period. Early adoption is permitted as of the beginning of an annual reporting period for which financial statements have not been issued. The Company expects to adopt this guidance as of July 1, 2017 (beginning of fiscal year 2018). The adoption of the provisions of ASU No. 2016-16 is not expected to have a material impact on the Company’s consolidated financial position or results of operations.
In June 2016, the FASB issued ASU No. 2016-13,
Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
, which requires measurement and recognition of expected credit losses for financial assets held. The amendments in this update are effective for annual periods beginning after December 15, 2019, and interim periods within such annual period. Early adoption is permitted for fiscal years beginning after December 15, 2018, including interim periods within such year. The Company is currently evaluating the potential impacts of adopting the provisions of ASU No. 2016-13.
In February 2016, the FASB issued ASU No. 2016-02,
Leases (Topic 842)
. ASU No. 2016-02 requires an entity to recognize lease assets and lease liabilities on the balance sheet and to disclose key information about the entity’s leasing arrangements. Lease expenses will be recognized in the income statement in a manner similar to existing requirements. The amendments in this update are effective for annual periods beginning after December 15, 2018, and interim periods within such annual period, and must be adopted using a modified retrospective method for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. Early adoption is permitted. The Company is currently evaluating the potential effects of adopting the provisions of ASU No. 2016-02.
In July 2015, the FASB issued ASU No. 2015-11,
Inventory (Topic 330): Simplifying the Measurement of Inventory.
ASU No. 2015-11 requires inventory measured using any method other than last-in, first out or the retail inventory method to be subsequently measured at the lower of cost or net realizable value, rather than at the lower of cost or market. ASU No. 2015-11 is effective for annual reporting periods beginning after December 15, 2016 and for interim periods within such annual period. Early application is permitted. The Company is currently evaluating the potential effects of adopting the provisions of ASU No. 2015-11.
In May 2014, the FASB issued ASU No. 2014-09,
Revenue from Contracts with Customers (Topic 606)
. ASU No. 2014-09 supersedes the revenue recognition requirements in
Topic 605, Revenue Recognition
, and most industry-specific guidance throughout the Industry Topics of the Codification. Additionally, ASU No. 2014-09 supersedes some cost guidance included in
Subtopic 605-35, Revenue Recognition-Construction-Type and Production-Type Contracts
. Under ASU No. 2014-09, an entity should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU No. 2014-09 also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract.
Additionally, in May 2016, the FASB issued ASU 2016-12,
Revenue from contracts with customers (Topic 606): Narrow-scope improvements and practical expedients
, which contains certain provisions and practical expedients in response to identified implementation issues. The guidance
is effective for annual reporting periods beginning after December 15, 2017 and for interim periods within such annual period, with early application prohibited for annual reporting periods beginning after December 15, 2016. Either full retrospective or modified retrospective adoption is permitted. The Company is evaluating the transition method that will be elected and the potential effects of adopting the provisions of ASU No. 2014-09.
Note 3—Earnings Per Share
Earnings per share are computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share are computed using the weighted average number of common shares and, if dilutive, potential common shares outstanding during the period. Potential common shares consist of the incremental common shares issuable for unvested restricted stock, as calculated using the treasury stock method.
ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSI
S OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our unaudited condensed consolidated March 31, 2017 quarterly financial statements included elsewhere in this report. The statements in the discussion and analysis regarding industry outlook, our expectations regarding the performance of our business and other forward-looking statements are subject to numerous known and unknown risks and uncertainties, including, but not limited to, the risks and uncertainties described in “Forward-Looking Statements” and “Risk Factors” in our Annual Report on Form 10-K. Our actual results may differ materially from those contained in or implied by any forward-looking statements. For purposes of this section, all references to “we,” “us,” “our,” “MPS” or the “Company” refer to Multi Packaging Solutions International Limited and subsidiaries
.
Any statements made in this quarterly report that are not statements of historical fact, including statements about our beliefs and expectations, are forward-looking statements and should be evaluated as such. Forward-looking statements include information concerning possible or assumed future results of operations, including descriptions of our business plan and strategies. These statements often include words such as “anticipates,” “expects,” “suggests,” “plans,” “believes,” “intends,” “estimates,” “targets,” “projects,” “should,” “could,” “would,” “may,” “will,” “forecasts,” and other similar expressions. We base these forward-looking statements or projections on our current expectations, plans and assumptions that we have made in light of our experience in the industry, as well as our perceptions of historical trends, current conditions, expected future developments and other factors we believe are appropriate under the circumstances and at such time. As you read and consider this quarterly report, you should understand that these statements are not guarantees of performance or results. The forward-looking statements and projections are subject to and involve risks, uncertainties and assumptions and you should not place undue reliance on these forward-looking statements or projections. Although we believe that these forward-looking statements and projections are based on reasonable assumptions at the time they are made, you should be aware that many factors could affect our actual financial results or results of operations and could cause actual results to differ materially from those expressed in the forward-looking statements and projections. Factors that may materially affect such forward-looking statements and projections include:
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the expected timing and likelihood of the completion of our proposed acquisition by WestRock Company (the “Merger”);
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the occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreement;
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the risk that the parties may not be able to satisfy the conditions to the closing of the Merger, including required regulatory approvals, in a timely manner or at all;
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the failure of the Merger to close for any other reason;
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our ability to compete against competitors with greater resources or lower operating costs;
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adverse developments in economic conditions, including downturns in the geographies and target markets that we serve;
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difficulties in restructuring operations, closing facilities or disposing of assets;
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our ability to successfully integrate our acquisitions and identify and integrate future acquisitions;
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our ability to realize the growth opportunities and cost savings and synergies we anticipate from the initiatives that we undertake;
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changes in technology trends and our ability to develop and market new products to respond to changing customer preferences and regulatory environment;
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the impact of electronic media and similar technological changes, including the substitution of physical products for digital content;
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the impact of significant regulations and compliance expenditures as a result of environmental, health and safety laws;
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risks associated with our non-U.S. operations;
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exposure to foreign currency exchange rate volatility;
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negative effects resulting from the United Kingdom’s referendum on withdrawal from the European Union;
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the loss of, or reduced purchases by, one or more of our large customers;
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failure to attract and retain key personnel;
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increased information technology security threats and targeted cybercrime;
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changes in the cost and availability of raw materials;
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operational problems at our facilities;
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the impact of any labor disputes or increased labor costs;
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the failure of quality control measures and systems resulting in faulty or contaminated products;
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the occurrence or threat of extraordinary events, including natural disasters and domestic and international terrorist attacks;
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increased energy or transportation costs;
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our ability to develop product innovations and improve production technology and expertise;
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the impact of litigation, uninsured judgments or increased insurance premiums;
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an impairment of our goodwill or intangible assets;
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our ability to comply with all applicable export control laws and regulations of the United States and other countries and restrictions imposed by the Foreign Corrupt Practices Act;
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the impact of regulations to address climate change;
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risks associated with the funding of our pension plans, including actions by governmental authorities;
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the impact of regulations related to conflict minerals;
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our ability to acquire and protect our intellectual property rights and avoid claims of intellectual property infringement;
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changes in income taxes and other restrictions and limitations if we were to decide to repatriate any of our income, capital or cash to the United States or other jurisdictions;
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the impact of government action or a change in U.S. tax law on our status as a foreign corporation for U.S. federal tax purposes;
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risks related to our substantial indebtedness;
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failure of internal control over financial reporting;
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the amount of the costs related to operating as a publicly traded company;
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the ability of The Carlyle Group and Madison Dearborn Partners to control us;
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other factors disclosed in this quarterly report; and
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other factors beyond our control.
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These cautionary statements should not be construed by you to be exhaustive and are made only as of the date of this quarterly report. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Overview
We print and manufacture high quality paperboard, paper and plastic packaging in the North American, European and Asian segments. Within each of these geographic segments, we sell products into the healthcare, consumer and multi-media end markets.
The healthcare market includes pharmaceutical, nutraceutical and healthcare related products. The consumer market includes cosmetics, personal care and toiletries, food, spirits, sporting goods, transaction and gift cards, confectionary, liquor and general consumer products. The multi-media market includes home video, software, music, video games and media related special packaging products.
Products are manufactured in approximately 60 facilities located in the United States, Europe, Canada, Mexico and China. We also have strategic alliances with companies in Europe and China who outsource certain products and production activities. In some cases, we procure non-paperboard, paper or plastic products to include in special packaging project deliverables for our customers. Products are generally cartons, labels, inserts or other paper or paperboard packaging products.
Cartons are generally paperboard based folding cartons. Labels are generally paper and pressure sensitive label stock printed products that are delivered in reel form or in a cut and stack form and can include basic labels for bottles and boxes, and extended content labels designed to deliver more information to the ultimate purchaser of our customer’s products. Inserts include fine paper folded inserts used in the delivery of detailed warnings, instructions and other information to the ultimate purchaser of our customer’s products. Other products include all remaining products. Often the project deliverables to a customer include all or a combination of these products.
Our strategic objectives are (i) continuing to enhance our position as a leading provider of packaging products to the
segments we serve and can serve in North America, Europe and Asia; (ii) the expansion further into international markets to meet the global sourcing needs of our customers; and (iii) the identification of other areas in the packaging industry that can most benefit from our ability to deliver quality packaging products according to our customers’ needs, including the leveraging of our recent transactions via cross-selling both products and geographies. To achieve these objectives, we intend to continue expanding our printing, packaging and graphic arts capabilities, including the development and application of advanced manufacturing technologies and the establishment of manufacturing facilities in strategic international markets.
Planned Merger with WestRock
On January 23, 2017, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”), by and among the Company, WestRock Company, a Delaware corporation (“WestRock”), and WRK Merger Sub Limited, a Bermuda exempted company and a wholly owned subsidiary of WestRock (“Merger Sub”). Upon the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub will be merged with and into the Company (the “Merger”), pursuant to the provisions of the Companies Act 1981 of Bermuda (the “BCA”), with the Company surviving as a wholly owned subsidiary of WestRock.
Pursuant to the terms of the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each issued and outstanding common share of the Company (other than Company Shares (i) owned by WestRock, Merger Sub or any other direct or indirect wholly owned subsidiary of WestRock, (ii) owned by the Company or its subsidiaries or (iii) held by members who do not vote in favor of the Merger and comply with all of the provisions of the BCA concerning the rights of holders of common shares to require appraisal of their common shares pursuant to Bermuda law) will be cancelled and converted into the right to receive $18.00 per common share in cash subject to any applicable withholding of taxes, without interest (the “Merger Consideration”).
Immediately prior to the Effective Time, each restricted stock unit award of the Company that is subject to performance-based vesting conditions and each restricted stock award of the Company that is then outstanding will be cancelled and terminated and each holder will have the right to receive an amount in cash equal to (i) the number of common shares subject to such award multiplied by (ii) the Merger Consideration less applicable withholding taxes. Each restricted stock unit award of the Company that is not subject to performance-based vesting conditions that is outstanding immediately prior to the Effective Time will be assumed by WestRock and converted into an award of restricted stock units of WestRock after giving effect to appropriate adjustments to reflect the consummation of the Merger, as set forth in the Merger Agreement.
The consummation of the Merger is conditioned, among other things, on: (i) approval and adoption of the Merger Agreement and the statutory merger agreement between the Company and Merger Sub (the “Statutory Merger Agreement”) by holders of at least three-fourths of the issued and outstanding common shares voting at the meeting of the members of the Company (“Company Shareholder Approval”), (ii) receipt of regulatory approvals, including the expiration or termination of the applicable waiting periods (and any extension thereof) under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), and antitrust notification and approvals required in non-U.S. jurisdictions, including Canada, the European Union, and Mexico and (iii) other customary closing conditions. The Merger Agreement generally requires each party to take all actions necessary to resolve objections under any antitrust law, except that WestRock is not required to take any Divestiture Action (as defined in the Merger Agreement) with respect to any products, services, assets, businesses or contractual arrangements of: (i) the Company and its subsidiaries, if such Divestiture Action would reasonably be expected to have a material adverse effect on the Company and its subsidiaries, taken as a whole, or (ii) WestRock or its subsidiaries. The Company or WestRock may terminate the Merger Agreement if the Merger is not consummated by October 23, 2017 (the “End Date”), which date may be extended to January 23, 2018 under certain circumstances described in the Merger Agreement.
The Merger Agreement includes customary representations, warranties and covenants of the Company, WestRock, and Merger Sub. The Company has agreed to operate its business in the ordinary course between the execution of the Merger Agreement and the Effective Time. The Company has also agreed, following receipt of the Company Shareholder Approval, not to solicit or initiate discussions with third parties regarding other proposals to acquire the Company and to certain restrictions on its ability to respond to any such proposals.
The Merger Agreement also includes customary termination provisions for both the Company and WestRock, although
following receipt of the Company Shareholder Approval, the Company would not be obligated to pay a termination fee upon any such termination.
The Merger Agreement and the Statutory Merger Agreement were approved and adopted by the Company’s shareholders on April 5, 2017 and has received the required antitrust approvals under the HSR Act and in Canada
Key Transactions
Acquisition of Paris Art Label
On April 28, 2017, we acquired the assets and business of Paris Art Label Company (“PAL”), a manufacturer of labels and shrink sleeve products to the branded consumer marketplace in the United States. The acquisition is consistent with the Company’s previously announced strategy to expand its capability and presence in the label sector globally. Net sales for PAL for the most recently completed 12 months prior to the acquisition were approximately $26 million.
Acquisition of i3 Plastic Cards
On November 4, 2016, we acquired the assets and business of i3 Plastic Cards (“i3”), a fully-integrated solution provider for creating and personalizing plastic transaction cards including pre-paid gift and loyalty cards that is based in Dallas, Texas. The business complements the Company’s existing transaction card operations and offers customers a broader range of options. Net sales for i3 for the most recently completed 12 months prior to the acquisition were approximately $13 million.
Acquisition of AJS
On October 14, 2016, we acquired AJS Group Limited (“AJS”), a leading supplier in the United Kingdom of self-adhesive labels. The addition of this specialist business complements our existing operations and extends our marketing capability and reach to customers within the branded consumer sectors and international beauty and personal care sectors. AJS’ net sales for the most recently completed 12 months prior to the acquisitions were approximately £9 million (approximately $12 million).
Acquisition of Chicago Paper Tube and Can
On January 26, 2016, we completed the acquisition of Chicago Paper Tube and Can (“CPT”). CPT provides the Company with high end round rigid packaging capability in North America. CPT’s net sales for the most recently completed 12 months prior to the acquisition were approximately $5 million.
Acquisition of BP Media
On July 1, 2015, we completed the acquisition of BP Media, Ltd. (“BluePrint”). The acquisition of BluePrint provides us with pre-press and digital services in the European market, facilitating the processes surrounding translation and interchangeability of print content for foreign locations. In addition, BluePrint provides us with an established sales presence in the media markets in Europe, which will enable us to serve the European needs of global media releases. BluePrint’s net sales for the most recently completed 12 months prior to the acquisition were approximately $23 million.
Acquisition Accounting
All of the transactions described above were accounted for
using the acquisition method of accounting
. Accordingly, in all cases the assets and liabilities of the acquired or merged entities were recorded at fair value as of the respective closing dates and the results of operations of the entities are included in our results of operations from the date of closing.
Trends
General Information
Our largest customers are generally large multinational entities, many of which are consolidating global packaging requirements under a smaller number of suppliers. We believe we are favorably situated for this transition due to our many facilities, global footprint, standardized equipment from plant to plant and our relative size compared to other packaging suppliers. The packaging marketplace is very fragmented, with no one vendor providing a significant portion of the packaging needs.
Net Sales Trends
Net sales are impacted by the macroeconomic performance of our geographic segments and the markets within these geographic segments. Packaging net sales tend to be strongest just before the underlying customer’s busy season, which for high-end branded products is generally strongest in our first and second fiscal quarters.
Healthcare net sales in each of our geographic segments are influenced by the severity of a particular region’s cold and flu seasons, as well as the development and acceptance of certain new products, and the stage of product, from the prescription-only stage to the private label or generic stage.
European consumer net sales of confectionary products are generally stronger in our second quarter due to the holiday season. North American and European consumer net sales of spirits are also generally stronger in our second quarter due to the holiday season. Asia consumer net sales of spirits are generally stronger in their holiday season, generally in our third fiscal quarter.
The net sales to the North American multi-media end market are influenced by the success of a particular year’s movie releases, which can generate special packaging needs for these customers. Net sales of packaging in the North American video game market are generally influenced by the age of existing, and introduction of new, gaming platforms. Product launches, which cannot be predicted far in advance, have an impact on net sales, particularly with respect to special packaging needed for the holiday season. Overall, we have experienced a decline in multi-media net sales in recent years and expect this trend to continue as a percentage of our total net sales.
Impact of Inflation and Pricing
We have not historically been and do not expect to be significantly impacted by inflation. Increases in payroll costs and any increases in raw material costs that we have encountered are generally able to be offset through lean manufacturing activities. We have consistently made annual investments in capital that deliver efficiencies and cost savings. The benefits of these efforts generally offset the margin impact of competitive pricing conditions in all of the markets we serve.
We remain sensitive to price competitiveness in the markets that we serve and in the areas that are targeted for growth, and believe that the installation of state-of-the-art printing and manufacturing equipment as well as utilization of lean manufacturing (and related labor and production efficiencies) will enable us to compete effectively.
Operational Restructurings
We regularly evaluate our operating facilities in our geographic segments in order to share best practices, ensure logistics that serve customers are appropriate and maximize our operating efficiencies. We have successfully integrated our acquisitions, have achieved our original synergy targets, and will continue to optimize our operations over the next several quarters. In connection with these evaluations, we have closed certain facilities in recent periods. The Company previously announced the closure of the former ASG facility located in Melrose Park, Illinois in September 2015, and the closure was completed in February 2016. In May 2016, we announced the intention to relocate our Stuttgart, Germany business, which was completed in March 2017. We have consolidated this facility into other existing facilities in Germany in order to better serve our customers and gain operational efficiencies. In August and December 2016, we announced our intention to close our Bradford and Portsmouth sites, respectively, in the United Kingdom as a result of a customer’s consolidation of all their tobacco carton volumes with other existing suppliers. In October 2016, we announced the closure of one of our North America multi-media facilities in Louisville, Kentucky as a result of the recent sales declines in business in this end market. Finally, in March 2017, we announced the closure of our Montargis, France facility, which is expected to be completed by
the end of June 2017. The business and customers served from this facility will be transferred to other sites in France.
Restructuring charges of $10.9 million were recorded in the nine months ended March 31, 2017, which were primarily related to the aforementioned Stuttgart, Bradford, Portsmouth, Louisville and Montargis sites. We believe all of these operational restructurings will have a positive impact on gross profit and gross profit percentage in future periods.
Our plans also include evaluating several other opportunities over the next few quarters in order to maximize the efficiency of our global manufacturing footprint. In connection with these plans, the Company may record additional restructuring and closure cost charges in the future.
Results of Operations
Three Months Ended March 31, 2017 Compared to Three Months Ended March 31, 2016.
The table below presents our results of operations for the respective periods.
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Three Months Ended
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March 31,
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(amounts in thousands)
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2017
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2016
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Net sales
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$
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382,633
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$
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399,184
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Cost of goods sold
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302,977
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312,437
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Gross profit
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79,656
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86,747
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Selling, general and administrative expenses
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Selling, general and administrative expenses
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57,199
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60,259
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Stock based and deferred compensation expense
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726
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104
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Transaction related expenses
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2,655
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371
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Total selling, general and administrative expenses
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60,580
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60,734
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Operating income
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19,076
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26,013
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Other income (expense), net
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1,898
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(1,262)
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Debt extinguishment charges
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—
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(64)
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Interest expense
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(11,927)
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(14,896)
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Total other expense, net
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(10,029)
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(16,222)
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Income before income taxes
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9,047
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9,791
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Income tax (expense) benefit
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1,234
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(6,178)
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Consolidated net income
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10,281
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3,613
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Net loss attributable to noncontrolling interest
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473
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170
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Net income attributable to shareholders of
Multi Packaging Solutions International Limited
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$
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10,754
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$
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3,783
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|
Net Sales
The decrease in net sales for the three months ended March 31, 2017 was $16.6 million, or 4.1%, when compared to the three months ended March 31, 2016. Net sales were unfavorably impacted by foreign currency changes of $16.1 million, principally from translation differences, which resulted in reduced net sales as compared to the prior year period. Based on current foreign exchange rates, specifically the British Pound Sterling, we expect negative impacts from foreign exchange for the remainder of the current fiscal year when results are compared to the prior year period. We experienced strong sales in our European healthcare market which increased $7.0 million over the prior period on a constant currency basis, as well as general sales increases in our customer portfolio of $7.8 million excluding the following specific items that experienced a reduction in sales. Such specific decreases included a multi-media sales decline in North America of
$4.4 million, a reduction of $3.7 million of sales for three customers in the tobacco industry in the United Kingdom, a reduction of $4.5 million of sales in the North America healthcare market and a reduction of $2.7 million of sales in the North America transaction card business.
We operate our business along the following operating segments, which are grouped based on geographic region: North America, Europe, and Asia. Net sales by geographic segment, as further broken down by end market, are summarized as follows:
Net Sales by Geographic Segment
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
(amounts in thousands)
|
|
2017
|
|
2016
|
|
North America
|
|
|
|
|
|
|
|
Consumer
|
|
$
|
88,339
|
|
$
|
87,926
|
|
Healthcare
|
|
|
72,507
|
|
|
76,977
|
|
Multi-Media
|
|
|
24,610
|
|
|
28,963
|
|
|
|
$
|
185,456
|
|
$
|
193,866
|
|
|
|
|
|
|
|
|
|
Europe
|
|
|
|
|
|
|
|
Consumer
|
|
$
|
89,078
|
|
$
|
96,691
|
|
Healthcare
|
|
|
83,071
|
|
|
83,949
|
|
Multi-Media
|
|
|
2,979
|
|
|
3,852
|
|
|
|
$
|
175,128
|
|
$
|
184,492
|
|
|
|
|
|
|
|
|
|
Asia
|
|
|
|
|
|
|
|
Consumer
|
|
$
|
16,918
|
|
$
|
14,961
|
|
Healthcare
|
|
|
5,131
|
|
|
5,865
|
|
|
|
$
|
22,049
|
|
$
|
20,826
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
382,633
|
|
$
|
399,184
|
|
North America
The decrease in North America net sales for the three months ended March 31, 2017 was $8.4 million, or 4.3%, when compared to the three months ended March 31, 2016. This decrease was primarily the result of a decrease in multi-media sales of $4.4 million, or 15.0%, and a decrease in healthcare sales of $4.5 million, or 5.8%. The consumer market was impacted by the aforementioned decline in transaction card sales, however this was offset by net increases in the remainder of the customer portfolio in this end market and the acquisition of i3 in November 2016. Foreign exchange rates negatively impacted net sales by $0.5 million related to our Canada and Mexico subsidiaries.
Europe
The decrease in Europe net sales for the three months ended March 31, 2017 was $9.4 million, or 5.1%, when compared to the three months ended March 31, 2016. Foreign exchange rates negatively impacted net sales by $14.6 million. The decrease in Europe consumer net sales for the period was $7.6 million, or 7.9%, when compared to the prior year period. This was primarily due to the unfavorable impact of foreign exchange and a reduction in sales of approximately $3.7 million for three customers in the tobacco industry in the United Kingdom. Europe healthcare sales for the three months ended March 31, 2017 decreased $0.9 million, or 1.0%, when compared to the prior year period, however on a constant currency basis, such sales increased approximately 7%. The decrease in Europe multi-media net sales for the period was $0.9 million when compared to the prior year period, which was due to the timing of this business’ sales as certain projects shifted into the first half of the fiscal year as compared to the prior year, and to a lesser extent the negative impact of foreign exchange rates.
Asia
The increase in Asia net sales for three months ended March 31, 2017 was $1.2 million, or 5.9%, when compared to the three months ended March 31, 2016. Foreign exchange rates negatively impacted net sales by $0.9 million. The overall increase in Asia sales on a constant currency basis is primarily the result of increased demand from consumer products companies.
Gross Profit
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
(Dollars in thousands)
|
|
2017
|
|
2016
|
|
Net sales
|
|
$
|
382,633
|
|
$
|
399,184
|
|
Cost of goods sold
|
|
|
302,977
|
|
|
312,437
|
|
Gross profit
|
|
$
|
79,656
|
|
$
|
86,747
|
|
Gross profit %
|
|
|
20.8%
|
|
|
21.7%
|
|
Gross profit for the three months ended March 31, 2017 decreased when compared to the gross profit for the three months ended March 31, 2016 primarily due to the aforementioned decrease in net sales. Gross profit percentage also decreased as a result of the mix of sales, including the lower multi-media sales in the current quarter as compared to the prior year quarter. Such sales typically had higher gross profit percentages due to the specialty nature of such products. The decline also relates to certain operational issues at specific facilities previously identified, the most significant of which impacting the current quarter results were in the Scottish drinks business and the North America transaction card business. These issues relate to the transfer of work in Scotland for the drinks business and lower overhead absorption in the transaction card business due to weakness in EMV card sales.
Additionally, restructuring charges of $2.8 million and $0.2 million are included in cost of goods sold for the three months ended March 31, 2017 and 2016, respectively.
Selling, General and Administrative Expenses
Total selling, general and administrative expenses for the three months ended March 31, 2017 were $60.6 million, a decrease of $0.2 million when compared to the prior period. Such expenses were impacted by an increase of $2.9 million of stock based and deferred compensation expenses and transaction related expenses as compared to the prior year. This increase in transaction related expenses is principally associated with professional fees incurred in the current period related to the pending merger with WestRock and the timing of other acquisition related activities.
Selling, general and administrative expenses as a percentage of net sales were 14.9% for the three months ended March 31, 2017 as compared to 15.1% for the prior period. Selling, general and administrative expenses decreased in the current year by approximately $3.1 million primarily due to the foreign exchange translation impact, and to a lesser extent, other net reductions in these costs. We experienced a decrease in expenses in the current year as a result of our recent restructuring programs and site closures, as well as reduced employee bonus expense in the current period as compared to the prior period. Such decreases were partially offset with additional costs incurred in the current quarter as compared to the prior period associated with operating as a public reporting company.
Other Income (Expense)
Other income (expense) is related to foreign currency gains and losses (principally due to intercompany loan balances) and the change in fair value of our derivative instruments.
Interest expense for the three months ended March 31, 2017 was $11.9 million compared to $14.9 million for the three months ended March 31, 2016. The reduction in interest expense is primarily due to the continued repayment of our outstanding borrowings over the last several quarters. Additionally, our consolidated interest expense is lower as a result of the redemption of the 8.5% Senior Notes and the repricing of our Euro and British Pound Sterling borrowings, as documented by the Fifth Amendment, which occurred in October 2016. Included in interest expense in the three months ended March 31, 2017 and 2016 is amortization of deferred finance fees and debt discount of $1.0 million.
Income Taxes
Our effective income tax rate for the three months ended March 31, 2017 and 2016, was 13.6% and 63.1%, respectively, and is recorded based upon our annual estimated effective tax rate (refer to the Income Taxes section of the nine months ended March 31, 2017 section for additional details). The effective tax rate for the three months ended March 31, 2017 is lower than the statutory rate primarily due to the mix of earnings by jurisdiction, which includes the impact of the $16.6 million debt extinguishment charges recorded during the current fiscal year. Additionally, we recorded discrete income tax benefits of $2.5 million in the current quarter, principally related to the liquidation of certain of the Company’s dormant subsidiaries. The effective tax rate in the prior year period is higher than the statutory rate primarily due to the impact of non-deductible stock compensation expense, and to a lesser extent, the mix of expected income by taxable jurisdiction.
Operating Income/Adjusted EBITDA*
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
(amounts in thousands)
|
|
2017
|
|
2016
|
|
Operating Income
|
|
|
|
|
|
|
|
North America
|
|
$
|
6,195
|
|
$
|
11,945
|
|
Europe
|
|
|
9,319
|
|
|
12,303
|
|
Asia
|
|
|
3,562
|
|
|
1,765
|
|
Total
|
|
$
|
19,076
|
|
$
|
26,013
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
|
|
|
|
|
|
North America
|
|
$
|
24,263
|
|
$
|
26,581
|
|
Europe
|
|
|
24,264
|
|
|
29,063
|
|
Asia
|
|
|
4,331
|
|
|
2,707
|
|
Total
|
|
$
|
52,858
|
|
$
|
58,351
|
|
* Our Chief Operating Decision Maker evaluates operating segment profitability and determines resource allocations based on several factors, of which the primary financial measure is Adjusted EBITDA. Adjusted EBITDA is defined as segment net income (loss) before income taxes, interest, depreciation, amortization, restructuring, transaction, stock-based compensation and certain other costs that do not related to the segment’s ongoing operations. The Company believes that the presentation of this financial measure enhances an investor’s understanding of our financial performance and is a useful financial metric to assess our operating performance from period to period by excluding certain items that we believe are not representative of our core business. We also believe that this financial measure provides investors with a useful tool for assessing the comparability between periods of the ability to generate cash from operations sufficient to pay taxes, to service debt and to undertake capital expenditures. This financial measure is used for business planning purposes and in measuring performance relative to that of competitors and we believe this financial measure is commonly used by investors. However, our use of the term Adjusted EBITDA may vary from that of others in the industry. A reconciliation of Adjusted EBITDA to consolidated net income (loss) is presented in Note 18 to the condensed consolidated financial statements included elsewhere in this report.
North America
North America operating income was $6.2 million and $11.9 million for the three months ended March 31, 2017 and 2016, respectively, and North America Adjusted EBITDA was $24.3 million and $26.6 million for the three months ended March 31, 2017 and 2016, respectively. The decreases from the prior year period are primarily due to the aforementioned impacts of the lower multi-media sales and the related profit impact, and the impact of the lower overhead absorption in the transaction card business. Additionally, certain corporate costs, including the majority of the transaction costs incurred in the current period are included in the North America segment operating income.
Europe
Europe operating income was $9.3 million and $12.3 million for the three months ended March 31, 2017 and 2016, respectively, and Europe Adjusted EBITDA was $24.3 million and $29.1 million for the three months ended March 31, 2017 and 2016, respectively. The decreases from the prior year period are principally due to the aforementioned operational issues associated with the transfer of work in Scotland for the drinks business as well as the impact of foreign exchange rates.
Asia
Asia operating income was $3.6 million and $1.8 million for the three months ended March 31, 2017 and 2016, respectively, and Asia Adjusted EBITDA was $4.3 million and $2.7 million for the three months ended March 31, 2017 and 2016, respectively. Operating income as a percentage of net sales was 16.2% and 8.5% for the three months ended March 31, 2017 and 2016, respectively, which is primarily the result of the increase in sales and operational efficiencies realized in the segment.
Results of Operations
Nine Months Ended March 31, 2017 Compared to Nine Months Ended March 31, 2016.
The table below presents our results of operations for the respective periods.
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
March 31,
|
|
(amounts in thousands)
|
|
2017
|
|
2016
|
|
Net sales
|
|
$
|
1,176,584
|
|
$
|
1,287,592
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
|
929,951
|
|
|
1,005,779
|
|
Gross profit
|
|
|
246,633
|
|
|
281,813
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
169,179
|
|
|
178,149
|
|
Stock based and deferred compensation expense
|
|
|
2,260
|
|
|
27,064
|
|
Transaction related expenses
|
|
|
3,477
|
|
|
2,785
|
|
Total selling, general and administrative expenses
|
|
|
174,916
|
|
|
207,998
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
71,717
|
|
|
73,815
|
|
|
|
|
|
|
|
|
|
Other income (expense), net
|
|
|
7,805
|
|
|
(4,797)
|
|
Debt extinguishment charges
|
|
|
(16,569)
|
|
|
(3,931)
|
|
Interest expense
|
|
|
(39,472)
|
|
|
(49,641)
|
|
Total other expense, net
|
|
|
(48,236)
|
|
|
(58,369)
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
23,481
|
|
|
15,446
|
|
|
|
|
|
|
|
|
|
Income tax (expense) benefit
|
|
|
(1,861)
|
|
|
(6,753)
|
|
|
|
|
|
|
|
|
|
Consolidated net income
|
|
|
21,620
|
|
|
8,693
|
|
|
|
|
|
|
|
|
|
Net loss attributable to noncontrolling interest
|
|
|
1,258
|
|
|
180
|
|
|
|
|
|
|
|
|
|
Net income attributable to shareholders of
Multi Packaging Solutions International Limited
|
|
$
|
22,878
|
|
$
|
8,873
|
|
Net Sales
The decrease in net sales for the nine months ended March 31, 2017 was $110.0 million, or 8.6%, when compared to the nine months ended March 31, 2016. Net sales were unfavorably impacted by foreign currency changes of $54.3 million, principally from translation differences, which resulted in reduced net sales as compared to the prior year period. Based on current foreign exchange rates, specifically the British Pound Sterling, we expect negative impacts from foreign exchange for the remainder of the current fiscal year when results are compared to the prior year period. We experienced a reduction in multi-media sales of $38.1 million, a reduction of $11.9 million of sales for three customers in the tobacco industry in the United Kingdom, a reduction of $7.6 million of sales for three drinks customers in the United Kingdom and a reduction of $11.5 million of sales in the North America healthcare market. There was a net increase in sales of $13.4 million for the remainder of our business, which primarily was in European healthcare sales as sales increased on a constant currency basis.
We operate our business along the following operating segments, which are grouped based on geographic region: North America, Europe and Asia. Net sales by geographic segment, as further broken down by end market, are summarized as follows:
Net Sales by Geographic Segment
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
March 31,
|
|
(amounts in thousands)
|
|
2017
|
|
2016
|
|
North America
|
|
|
|
|
|
|
|
Consumer
|
|
$
|
249,926
|
|
$
|
255,513
|
|
Healthcare
|
|
|
208,419
|
|
|
219,889
|
|
Multi-Media
|
|
|
97,820
|
|
|
135,441
|
|
|
|
$
|
556,165
|
|
$
|
610,843
|
|
|
|
|
|
|
|
|
|
Europe
|
|
|
|
|
|
|
|
Consumer
|
|
$
|
300,362
|
|
$
|
350,391
|
|
Healthcare
|
|
|
234,099
|
|
|
238,602
|
|
Multi-Media
|
|
|
17,447
|
|
|
17,883
|
|
|
|
$
|
551,908
|
|
$
|
606,876
|
|
|
|
|
|
|
|
|
|
Asia
|
|
|
|
|
|
|
|
Consumer
|
|
$
|
52,009
|
|
$
|
53,760
|
|
Healthcare
|
|
|
16,502
|
|
|
16,113
|
|
|
|
$
|
68,511
|
|
$
|
69,873
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,176,584
|
|
$
|
1,287,592
|
|
North America
The decrease in North America net sales for the nine months ended March 31, 2017 was $54.7 million, or 9.0%, when compared to the nine months ended March 31, 2016. This decrease was primarily the result of a decrease in multi-media sales of $37.6 million, or 27.8%, and a decrease in healthcare sales of $11.5 million, or 5.2%. The consumer market was impacted by the aforementioned decline in transaction card sales, however this was offset by net increases in the remainder of the customer portfolio in this end market and the acquisition of i3 in November 2016. Foreign exchange rates negatively impacted net sales by $1.7 million related to our Canada and Mexico subsidiaries.
Europe
The decrease in Europe net sales for the nine months ended March 31, 2017 was $55.0 million, or 9.1%, when compared to the nine months ended March 31, 2016. Foreign exchange rates negatively impacted net sales by $49.4 million. The decrease in Europe consumer net sales for the period was $50.0 million, or 14.3%, when compared to the prior year period. This was primarily due to the unfavorable impact of foreign exchange, a reduction in sales of approximately $11.9 million for three customers in the tobacco industry in the United Kingdom and a reduction in sales of $7.6 million for three drinks customers in the United Kingdom. Europe healthcare sales for the period ended March 31, 2017 decreased $4.5 million, or 1.9%, when compared to the prior year period, however on a constant currency basis, such sales increased approximately 9%. Europe multi-media net sales for the period were relatively flat, as local currency increases in sales were offset by the translation impact from unfavorable foreign exchange rates.
Asia
The decrease in Asia net sales for nine months ended March 31, 2017 was $1.4 million, or 1.9%, when compared to the nine months ended March 31, 2016. Foreign exchange rates negatively impacted net sales by $3.2 million. On a constant currency basis, Asia sales increased when compared to the prior year period due to increased demand from certain customers and new projects.
Gross Profit
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
March 31,
|
|
(Dollars in thousands)
|
|
2017
|
|
2016
|
|
Net sales
|
|
$
|
1,176,584
|
|
$
|
1,287,592
|
|
Cost of goods sold
|
|
|
929,951
|
|
|
1,005,779
|
|
Gross profit
|
|
$
|
246,633
|
|
$
|
281,813
|
|
Gross profit %
|
|
|
21.0%
|
|
|
21.9%
|
|
Gross profit for the nine months ended March 31, 2017 decreased when compared to the gross profit for the nine months ended March 31, 2016 primarily due to the aforementioned decrease in net sales. Gross profit percentage also decreased as a result of the mix of sales, including the lower multi-media sales in the current period as compared to the prior year. Such sales typically had higher gross profit percentages due to the specialty nature of such products. The decline also relates to certain operational issues at specific facilities identified in the fourth quarter of the prior fiscal year that continued into the current fiscal year. These issues relate to the transfer of work from Scotland to China for the drinks business, lower overhead absorption in the transaction card business due to weakness in EMV card sales, and costs associated with the German operations as the Company implements new ERP systems.
Additionally, restructuring charges of $8.4 million and $3.6 million are included in cost of goods sold for the nine months ended March 31, 2017 and 2016, respectively.
Selling, General and Administrative Expenses
Total selling, general and administrative expenses for the nine months ended March 31, 2017 were $174.9 million, a decrease of $33.1 million when compared to the prior period. Such expenses were significantly impacted by a decrease of $24.8 million of stock based and deferred compensation expenses principally associated with the vesting of incentive units held by employees at the date of the Company’s initial public offering in the prior year.
Selling, general and administrative expenses as a percentage of net sales were 14.4% for the nine months ended March 31, 2017 as compared to 13.8% for the prior period, which is principally attributable to a portion of the Company’s costs being fixed and the impact of lower than anticipated sales in the current period. Selling, general and administrative expenses decreased in the current year period by approximately $9.0 million primarily due to the foreign exchange translation impact as other changes in these costs generally offset one another. We experienced a decrease in expenses in the current year as a result of our recent restructuring programs and site closures, as well as reduced employee bonus expense in the current period as compared to the prior period. Such decreases were partially offset with additional costs incurred in the current quarter as compared to the prior period associated with operating as a public reporting company.
Other Income (Expense)
Other income (expense) is related to foreign currency gains and losses (principally due to intercompany loan balances) and the change in fair value of our derivative instruments.
Interest expense for the nine months ended March 31, 2017 was $39.5 million compared to $49.6 million for the nine months ended March 31, 2016. The reduction in interest expense is primarily due to the repayment of $182.4 million of term loans with the proceeds of our initial public offering and $55.2 million from the voluntary early partial repayment of term and other loans during the prior fiscal year. Additionally, our consolidated interest expense is lower as a result of the redemption of the 8.5% Senior Notes and the repricing of our Euro and British Pound Sterling borrowings, as documented by the Fifth Amendment, which occurred in October 2016. Included in interest expense in the nine months ended March 31, 2017 and 2016 is amortization of deferred finance fees and debt discount of $3.1 million and $3.2 million, respectively.
Income Taxes
Our effective income tax rate for the nine months ended March 31, 2017 and 2016, was 7.9% and 43.7%, respectively, and is recorded based upon our annual estimated effective tax rate. The effective tax rate for the nine months ended March 31, 2017 is lower than the statutory rate primarily due to the mix of earnings by jurisdiction. This includes the debt extinguishment charges recorded in the current period associated with the Fifth Amendment (see Note 13 to the financial statements included elsewhere in this quarterly report), which were primarily recorded in the United States. Also included in the nine months ended March 31, 2017 were discrete tax items, which resulted in a net tax benefit of $2.4 million, which primarily related to the liquidation of certain of the Company’s dormant subsidiaries. The effective tax rate in the prior year period is higher than the statutory tax rate primarily due to the impact of non-deductible stock compensation expense associated with the vesting of incentive units held by employees at the date of the Company’s initial public offering, and to a lesser extent, the mix of income by taxable jurisdiction.
Operating Income/Adjusted EBITDA*
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
March 31,
|
|
(amounts in thousands)
|
|
2017
|
|
2016
|
|
Operating Income
|
|
|
|
|
|
|
|
North America
|
|
$
|
25,007
|
|
$
|
21,242
|
|
Europe
|
|
|
36,957
|
|
|
42,846
|
|
Asia
|
|
|
9,753
|
|
|
9,727
|
|
Total
|
|
$
|
71,717
|
|
$
|
73,815
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
|
|
|
|
|
|
North America
|
|
$
|
75,691
|
|
$
|
88,382
|
|
Europe
|
|
|
82,358
|
|
|
103,423
|
|
Asia
|
|
|
12,406
|
|
|
13,148
|
|
Total
|
|
$
|
170,455
|
|
$
|
204,953
|
|
North America
North America operating income was $25.0 million for the nine months ended March 31, 2017 as compared to $21.2 million for the nine months ended March 31, 2016, and North America Adjusted EBITDA was $75.7 million and $88.4 million for the nine months ended March 31, 2017 and 2016, respectively. Operating income in the prior year period was most significantly impacted by the recording of $18.5 million of stock based compensation expense associated with the vesting of incentive units held by employees at the date of the Company’s initial public offering. The decrease in Adjusted EBITDA from the prior year period is primarily due to the aforementioned impact of the lower multi-media sales and the related profit impact, and the impact of the lower overhead absorption in the transaction card business. Additionally, certain corporate costs, including the increased costs as a result of operating as a public reporting company are included in the North America segment.
Europe
Europe operating income was $37.0 million and $42.8 million for the nine months ended March 31, 2017 and 2016, respectively, and Europe Adjusted EBITDA was $82.4 million and $103.4 million for the nine months ended March 31, 2017 and 2016, respectively. Operating income in the prior year was most significantly impacted by the recording of $8.5 million of stock based compensation expense associated with the vesting of incentive units held by employees at the date of the Company’s initial public offering. The decrease in Adjusted EBITDA from the prior year period is principally due to the aforementioned operational issues associated with the transfer of work in Scotland for the drinks business, costs associated with the Germany operations as the Company implemented a new ERP system as well as the impact of foreign exchange rates.
Asia
Asia operating income was $9.8 million and $9.7 million for the nine months ended March 31, 2017 and 2016, respectively, and Asia Adjusted EBITDA was $12.4 million and $13.2 million for the nine months ended March 31, 2017 and 2016, respectively. Operating income as a percentage of net sales was 14.2% and 13.9% for the nine months ended March 31, 2017 and 2016, respectively, which is primarily the result of the increase in sales and operational efficiencies realized in the segment.
Liquidity and Capital Resources
At March 31, 2017 and June 30, 2016, the Company had cash and cash equivalents of $63.5 million and $44.8 million, respectively, of which $45.5 million and $31.1 million, respectively, were held outside the United States. Liquidity is affected by many factors, some of which are based on normal ongoing operations of our business and some of
which
arise from fluctuations related to global economics and markets. Cash balances are generated and held in many locations throughout the world. It is our current intent to indefinitely reinvest the earnings of our subsidiaries in those respective jurisdictions and our current plans do not demonstrate a need to repatriate them to the parent company. If these funds were needed for our operations in other jurisdictions, we may be required to record and pay significant income taxes to repatriate these funds to the parent company. As a result of the 2016 U.S. election and ongoing activity in the U.S. Congress relating to tax reform proposals, there is in particular a heightened possibility of significant changes to U.S. federal tax laws. Additionally, local government regulations may restrict our ability to move cash balances to meet cash needs under certain circumstances. We currently do not expect such regulations and restrictions to impact our ability to make acquisitions or to pay vendors and conduct operations throughout the global organization.
As of March 31, 2017, we had $51.6 million in borrowing capacity under our U.S. dollar revolving credit facility and £50.0 million ($62.3 million as of March 31, 2017) in borrowing capacity available under our British Pound Sterling revolving credit facility. As of March 31, 2017 and June 30, 2016, total debt, net of cash, was $845.2 million and $863.1 million, respectively. Working capital was $231.5 million as compared to $216.7 million and the current ratio was 1.9 to one as compared to 1.8 to one, as of March 31, 2017 and June 30, 2016, respectively.
We believe that our cash on hand at March 31, 2017, as well as projected cash flows from operations and availability under our Amended and Restated Credit Agreement, as subsequently amended, (collectively, the “Credit Agreement”) are sufficient to fund our working capital needs in the ordinary course of business, anticipated capital expenditures, and our other cash requirements for at least the next twelve months. Additionally, we expect that the potential sale of the underlying assets or funds generated from operations will be sufficient to cover the cash requirements related to the aforementioned intention to close certain facilities.
Cash flow provided by (used in) operating activities, investing activities and financing activities is summarized in the following table:
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|
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|
|
|
Nine Months Ended
|
|
|
|
March 31,
|
|
(amounts in thousands)
|
|
2017
|
|
2016
|
|
Cash flows provided by (used in):
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
77,264
|
|
$
|
88,917
|
|
Investing activities
|
|
|
(63,967)
|
|
|
(45,053)
|
|
Financing activities
|
|
|
7,406
|
|
|
(55,480)
|
|
Effect of exchange rate changes
|
|
|
(2,022)
|
|
|
2,492
|
|
Net increase (decrease) in cash and cash equivalents
|
|
$
|
18,681
|
|
$
|
(9,124)
|
|
Cash Flow Provided by Operating Activities
Cash flow provided by operating activities for the nine months ended March 31, 2017 decreased by $11.7 million when compared to the prior year period, which was principally due to the decrease in Adjusted EBITDA as discussed above. The decrease in net income and other non-cash items was $39.4 million in the current period as compared to the prior year period. This was offset by the change in working capital accounts of $27.7 million as compared to the prior year period
which was principally due to net cash inflows in these accounts as reduced investments in working capital were required due to the lower than anticipated sales in the current period.
Cash Flow Used in Investing Activities
Cash flow used in investing activities for the nine months ended March 31, 2017 increased by $18.9 million when compared to the prior year period. The increase was principally due to cash used to fund the current year acquisitions of AJS and i3, which exceeded the amount of cash used in the prior year period to fund the acquisitions of CPT and BluePrint.
Cash Flow Provided by (Used in) Financing Activities
Cash flow provided by financing activities was $7.4 million for the nine months ended March 31, 2017 compared to cash flow used in financing activities of $55.5 million for the nine months ended March 31, 2016. The net cash provided in the current year period relates to proceeds from net borrowings at the end of March 2017, which were used to fund the acquisition of PAL in April 2017. This was offset by the current year repayments of outstanding balances under the Term Loans. The net cash used in the prior year period principally reflects scheduled principal repayments and additional voluntary repayments on the Company’s then outstanding debt balances. In the prior year, this included debt repayments made with the proceeds of the Company’s initial public offering.
Contractual Obligations
During the nine months ended March 31, 2017, there were no significant changes to the amounts disclosed in the Company’s contractual obligations table in the Company’s Annual Report on Form 10-K, except that in October 2016, the Company entered into that certain Fifth Amendment to the Credit Agreement and Third Incremental Joinder and redeemed the Notes. See Note 13 to the
Notes to Condensed Consolidated Financial Statements
.
Off-Balance Sheet Arrangements
The Company has no off-balance sheet arrangements.
Critical Accounting Policies and Estimates
The Company’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the company to make significant estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses and related disclosure of contingent assets and liabilities. The Company evaluates its estimates on an ongoing basis. The Company bases its estimates on historical experience and on various other assumptions that are believed reasonable under the circumstances; the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
There were no significant changes during the nine months ended March 31, 2017 to the items disclosed as Significant Accounting Policies and Critical Accounting Estimates in the Company’s
Annual Report on Form 10-K, except for the adoption of ASU
No. 2016-15,
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments
and ASU No. 2016-09,
Compensation-Stock Compensation (Topic 718)
as described in Note 2 of the Notes to Condensed Consolidated Financial Statements. The adoption of the new guidance did not materially impact the Company’s consolidated financial position or results of operations
See also Note 2 of the Notes to Condensed Consolidated Financial Statements for a full description of recent accounting pronouncements that have not yet been adopted by the Company, including the anticipated dates of adoption and the effects on the Company’s consolidated financial position and results of operations.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no significant changes in market risk for the nine months ended March 31, 2017 from those addressed in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2016. See the information set forth in Part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risk, of the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2016.
ITEM 4.
CONTROLS AND PROCEDURES
.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of March 31, 2017. Based on the evaluation of our disclosure controls and procedures as of March 31, 2017, our principal executive officer and principal financial officer concluded that, as of such date, our disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in the reports that we file or submit under the Exchange Act is (a) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (b) accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate to allow for timely decisions regarding required disclosure.
PART II – OTHER INFORMATION
ITEM 1.
LEGAL PROCEEDINGS
We are from time to time party to legal proceedings that arise in the ordinary course of business. We are not involved in any litigation other than that which has arisen in the ordinary course of business. We do not expect that any currently pending lawsuits will have a material effect on us.
ITEM 1A.
RISK FACTORS
We have disclosed the risk factors affecting our business, results of operations and financial condition in the section entitled “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2016, filed with the SEC on August 23, 2016. There have been no material changes from the risk factors previously disclosed.
ITEM 6.
EXHIBITS
See the Exhibit Index following the signature page hereto, which is incorporated herein by reference.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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MULTI PACKAGING SOLUTIONS INTERNATIONAL LIMITED
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Date: May 12, 2017
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By:
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/s/ Marc Shore
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Marc Shore
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Chairman of the Board and Chief Executive Officer
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(Principal Executive Officer)
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Date: May 12, 2017
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By:
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/s/ Ross Weiner
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Ross Weiner
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Vice President and Chief Financial Officer
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(Principal Financial Officer)
|
EXHIBIT INDEX
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Exhibit
No.
|
|
Description
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3.1
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Amended Memorandum of Association of Multi Packaging Solutions International Limited (the “Company”) (incorporated by reference to Exhibit 3.1 of Amendment No. 4 to the Company’s Registration Statement on Form S-1 (File No. 333-205278), originally filed with the SEC on October 9, 2015)
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3.2
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Amendment to the Memorandum of Association of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q (File No. 001-37598), filed with the SEC on November 13, 2015)
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3.3
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Amended and Restated Bye-laws of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q (File No. 001-37598), filed with the SEC on November 13, 2015)
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31.1*
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Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
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31.2*
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Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
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32*
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|
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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101.INS*
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XBRL Instance Document
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101.SCH*
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XBRL Taxonomy Extension Schema
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101.CAL*
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XBRL Taxonomy Extension Calculation Linkbase Document
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101.DEF*
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XBRL Taxonomy Extension Definition Linkbase Document
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101.LAB*
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XBRL Taxonomy Extension Label Linkbase Document
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101.PRE*
|
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XBRL Taxonomy Extension Presentation Linkbase Document
|
* Filed herewith
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