Annual Reports

 
Quarterly Reports

  • 10-Q (May 8, 2015)
  • 10-Q (Nov 7, 2014)
  • 10-Q (Aug 4, 2014)
  • 10-Q (May 2, 2014)
  • 10-Q (Nov 1, 2013)
  • 10-Q (Jul 25, 2013)

 
8-K

 
Other

Dresser-Rand Group 10-Q 2015

Documents found in this filing:

  1. 10-Q
  2. Ex-31.1
  3. Ex-31.2
  4. Ex-32.1
  5. Ex-32.2
  6. Ex-32.2
20150331 Q1

 

 

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION 

Washington, D.C. 20549

________________

Form 10-Q

 

 Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934>

For the Quarterly Period Ended March 31, 2015

 

or

 

 Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Transition Period from _____ to _____

 

 

Commission File Number: 001-32586

________________

DRESSER-RAND GROUP INC.

(Exact name of registrant as specified in its charter)

 

 

 

 

 

 

Delaware

 

20-1780492

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

 

 

 

 

 

 

 

West8 Tower, Suite 1000

10205 Westheimer Road

Houston, TX, U.S.A.

 

112 Avenue Kleber

Cedex 16, Paris, France

 

77042

 

 

 

75784

(Addresses of principal executive offices)

 

(Zip Codes)

 

(713) 354-6100 (Houston)

33 156 26 7171 (Paris)

(Registrant’s telephone numbers, including area code)

 

(Former name, former address and former fiscal year, if changed since last report)

 

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     No 

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§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     No 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one): 

 

 

 

 

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

   (Do not check if smaller reporting company)

Smaller reporting company

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes      No 

 

The number of shares of common stock, $.01 par value, outstanding as of May 1, 2015, was 76,928,710.

 

 


 

TABLE OF CONTENTS

 

 

 

 

PART I. FINANCIAL INFORMATION

Page

Item 1. Financial Statements (unaudited): 

 

Consolidated Statement of Income for the three months ended March 31, 2015 and 2014 

3

Consolidated Statement of Comprehensive Income for the three months ended March 31, 2015 and 2014 

4

Consolidated Balance Sheet at March 31, 2015 and December 31, 2014 

5

Consolidated Statement of Cash Flows for the three months ended March 31, 2015 and 2014 

6

Consolidated Statement of Changes in Stockholders’ Equity for the three months ended March 31, 2015 and 2014 

7

Notes to Consolidated Financial Statements at March  31, 2015 

8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 

26

Item 3. Quantitative and Qualitative Disclosures about Market Risk 

35

Item 4. Controls and Procedures 

35

 

 

PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings 

36

Item 1A. Risk Factors 

36

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 

36

Item 6. Exhibits 

36

Signatures 

39

 

 

 

 

 

 

     

Page 2 of 39


 

Table of Contents

PART I. FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

DRESSER-RAND GROUP INC.

CONSOLIDATED STATEMENT OF INCOME

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales of products

 

$

372.9 

 

$

541.8 

Net sales of services

 

 

144.0 

 

 

157.3 

Total revenues

 

 

516.9 

 

 

699.1 

Cost of products sold, including $9.8 of inventory charges (Note 3)

 

 

294.8 

 

 

429.7 

Cost of services sold

 

 

106.1 

 

 

122.0 

Total cost of sales

 

 

400.9 

 

 

551.7 

Gross profit

 

 

116.0 

 

 

147.4 

Selling and administrative expenses

 

 

95.6 

 

 

99.8 

Research and development expenses

 

 

8.3 

 

 

7.4 

Restructuring charges (Note 3)

 

 

18.1 

 

 

 -

Transaction-related expenses (Note 1)

 

 

1.6 

 

 

 -

(Loss) income from operations

 

 

(7.6)

 

 

40.2 

Interest expense, net

 

 

(12.6)

 

 

(13.0)

Other (expense) income, net

 

 

(9.2)

 

 

3.3 

(Loss) income before income taxes

 

 

(29.4)

 

 

30.5 

(Benefit from) provision for income taxes

 

 

(5.4)

 

 

13.9 

Net (loss) income

 

 

(24.0)

 

 

16.6 

Net loss (income) attributable to noncontrolling interest

 

 

0.3 

 

 

 -

Net (loss) income attributable to Dresser-Rand

 

$

(23.7)

 

$

16.6 

Net (loss) income attributable to Dresser-Rand per share

 

 

 

 

 

 

Basic

 

$

(0.31)

 

$

0.22 

Diluted

 

$

(0.31)

 

$

0.22 

Weighted-average shares outstanding - (in thousands)

 

 

 

 

 

 

Basic

 

 

76,699 

 

 

76,371 

Diluted

 

 

76,699 

 

 

76,952 

 

 

See accompanying notes to consolidated financial statements.

 

 

Page 3 of 39


 

Table of Contents

DRESSER-RAND GROUP INC.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income

 

 

$

(24.0)

 

$

16.6 

Other comprehensive (loss) income

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

 

(96.4)

 

 

4.1 

Unrealized gain on derivatives - net of tax of $0.0 and $0.0 for the three months ended March 31, 2015 and 2014, respectively

 

 

 

 -

 

 

0.1 

Reclassification of unrealized gain on expired derivatives - net of tax of $0.0 and $0.0 for the three months ended March 31, 2015 and 2014, respectively

 

 

 

0.1 

 

 

 -

Pension and other postretirement benefit plans:

 

 

 

 

 

 

 

Amortization of prior service cost and net actuarial loss included in net periodic costs - net of tax of $0.8 and $0.3 for the three months ended March 31, 2015 and 2014, respectively

 

 

 

1.0 

 

 

0.5 

  Total other comprehensive (loss) income

 

 

 

(95.3)

 

 

4.7 

Total comprehensive (loss) income

 

 

 

(119.3)

 

 

21.3 

Comprehensive loss (income) attributable to noncontrolling interest

 

 

 

1.3 

 

 

 -

Comprehensive (loss) income attributable to Dresser-Rand

 

 

$

(118.0)

 

$

21.3 

 

 

See accompanying notes to consolidated financial statements.

 

 

Page 4 of 39


 

Table of Contents

DRESSER-RAND GROUP INC.

CONSOLIDATED BALANCE SHEET

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

 

 

2015

 

2014

 

 

 

 

 

 

 

 

($ in millions)

Assets

Current assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

111.5 

 

$

183.4 

Restricted cash

 

 

2.5 

 

 

3.3 

Accounts receivable, less allowance for losses of $8.5 at 2015 and $8.7 at 2014

 

 

607.5 

 

 

660.7 

Inventories, net

 

 

641.8 

 

 

669.0 

Prepaid expenses and other

 

 

83.8 

 

 

72.5 

Deferred income taxes

 

 

67.9 

 

 

66.8 

Total current assets

 

 

1,515.0 

 

 

1,655.7 

Property, plant and equipment, net

 

 

442.8 

 

 

450.9 

Goodwill 

 

 

763.1 

 

 

832.9 

Intangible assets, net

 

 

417.3 

 

 

444.4 

Deferred income taxes

 

 

4.3 

 

 

5.5 

Other assets

 

 

94.2 

 

 

99.3 

Total assets

 

$

3,236.7 

 

$

3,488.7 

 

 

 

 

 

 

 

Liabilities and Stockholders' Equity

Current liabilities

 

 

 

 

 

 

Accounts payable and accruals

 

$

608.4 

 

$

653.8 

Customer advance payments

 

 

185.5 

 

 

183.3 

Accrued income taxes payable

 

 

15.1 

 

 

26.9 

Short-term borrowings and current portion of long-term debt

 

 

25.4 

 

 

30.1 

Total current liabilities

 

 

834.4 

 

 

894.1 

Deferred income taxes

 

 

43.0 

 

 

48.4 

Postemployment and other employee benefit liabilities

 

 

92.3 

 

 

97.5 

Long-term debt

 

 

993.7 

 

 

1,053.6 

Other noncurrent liabilities

 

 

84.2 

 

 

88.9 

Total liabilities

 

 

2,047.6 

 

 

2,182.5 

Commitments and contingencies  (Note 14)

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

Common stock, $0.01 par value, 250,000,000 shares

 

 

 

 

 

 

authorized; and 76,926,555 and 76,666,104 shares issued and

 

 

 

 

 

 

outstanding at March 31, 2015, and December 31, 2014, respectively

 

 

0.8 

 

 

0.8 

Additional paid-in capital

 

 

190.7 

 

 

188.5 

Retained earnings

 

 

1,352.0 

 

 

1,375.7 

Accumulated other comprehensive loss

 

 

(358.9)

 

 

(264.6)

Total Dresser-Rand stockholders' equity

 

 

1,184.6 

 

 

1,300.4 

Noncontrolling interest

 

 

4.5 

 

 

5.8 

Total stockholders' equity

 

 

1,189.1 

 

 

1,306.2 

Total liabilities and stockholders' equity

 

$

3,236.7 

 

$

3,488.7 

 

 

See accompanying notes to consolidated financial statements.

 

 

Page 5 of 39


 

Table of Contents

DRESSER-RAND GROUP INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

2015

 

2014

 

 

 

 

 

 

 

 

 

($ in millions)

Cash flows from operating activities

 

 

 

 

 

 

Net (loss) income

 

$

(24.0)

 

$

16.6 

Adjustments to reconcile net (loss) income to net cash provided by operating

 

 

 

 

 

 

activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

22.4 

 

 

23.6 

Restructuring charges

 

 

18.1 

 

 

 -

Deferred income taxes

 

 

(8.4)

 

 

(2.0)

Stock-based compensation

 

 

8.4 

 

 

7.3 

Excess tax benefits from stock-based compensation

 

 

(3.2)

 

 

(0.7)

Amortization of debt financing costs

 

 

0.6 

 

 

0.5 

Provision for losses on inventory

 

 

10.1 

 

 

1.6 

Loss from equity investments

 

 

0.4 

 

 

1.2 

Loss on disposal of assets

 

 

0.2 

 

 

 -

Changes in working capital and other, net of acquisitions

 

 

 

 

 

 

Accounts receivable, net

 

 

29.7 

 

 

104.1 

Inventories

 

 

(4.1)

 

 

(31.6)

Prepaid expenses and other

 

 

(15.6)

 

 

(6.1)

Accounts payable and accruals

 

 

(15.6)

 

 

(59.3)

Customer advances

 

 

7.0 

 

 

23.9 

Taxes payable

 

 

(7.2)

 

 

4.2 

Pension and other post-retirement benefits

 

 

(1.3)

 

 

(4.9)

Other

 

 

5.4 

 

 

(19.3)

Net cash provided by operating activities

 

 

22.9 

 

 

59.1 

Cash flows from investing activities

 

 

 

 

 

 

Capital expenditures

 

 

(31.5)

 

 

(10.8)

Proceeds from sales of assets

 

 

0.1 

 

 

 -

Other loans and investments

 

 

(2.1)

 

 

(2.5)

Decrease (increase) in restricted cash balances

 

 

0.4 

 

 

(0.8)

Net cash used in investing activities

 

 

(33.1)

 

 

(14.1)

Cash flows from financing activities

 

 

 

 

 

 

Proceeds from exercise of stock options

 

 

0.7 

 

 

 -

Proceeds from borrowings

 

 

401.8 

 

 

354.0 

Repayments of borrowings

 

 

(445.9)

 

 

(410.9)

Excess tax benefits from stock-based compensation

 

 

3.2 

 

 

0.7 

Repurchase of common stock

 

 

(10.1)

 

 

(4.9)

Net cash used in financing activities

 

 

(50.3)

 

 

(61.1)

Effect of exchange rate changes on cash and cash equivalents

 

 

(11.4)

 

 

4.6 

Net decrease in cash and cash equivalents

 

 

(71.9)

 

 

(11.5)

Cash and cash equivalents, beginning of period

 

 

183.4 

 

 

190.4 

Cash and cash equivalents, end of period

 

$

111.5 

 

$

178.9 

 

See accompanying notes to consolidated financial statements.

 

 

 

Page 6 of 39


 

Table of Contents

DRESSER-RAND GROUP INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

Other

 

Non-

 

Total

 

 

Common

 

Paid-in

 

Retained

 

Comprehensive

 

Controlling

 

Stockholders'

 

 

Stock

 

Capital

 

Earnings

 

(Loss) Income

 

Interest

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

($ in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At December 31, 2014

 

$

0.8 

 

$

188.5 

 

$

1,375.7 

 

$

(264.6)

 

$

5.8 

 

$

1,306.2 

Stock-based compensation

 

 

 -

 

 

2.2 

 

 

 -

 

 

 -

 

 

 -

 

 

2.2 

Net loss

 

 

 -

 

 

 -

 

 

(23.7)

 

 

 -

 

 

(0.3)

 

 

(24.0)

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

 -

 

 

 -

 

 

 -

 

 

(95.4)

 

 

(1.0)

 

 

(96.4)

Reclassification of unrealized gain on expired

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

derivatives - net of tax of $0.0

 

 

 -

 

 

 -

 

 

 -

 

 

0.1 

 

 

 -

 

 

0.1 

Pension and other postretirement benefit plans -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

net of tax of $0.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of prior service cost and net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

actuarial loss included in net periodic costs

 

 

 -

 

 

 -

 

 

 -

 

 

1.0 

 

 

 -

 

 

1.0 

At March 31, 2015

 

$

0.8 

 

$

190.7 

 

$

1,352.0 

 

$

(358.9)

 

$

4.5 

 

$

1,189.1 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

Other

 

Non-

 

Total

 

 

Common

 

Paid-in

 

Retained

 

Comprehensive

 

Controlling

 

Stockholders'

 

 

Stock

 

Capital

 

Earnings

 

(Loss) Income

 

Interest

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

($ in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At December 31, 2013

 

$

0.8 

 

$

162.4 

 

$

1,253.0 

 

$

(118.8)

 

$

4.0 

 

$

1,301.4 

Stock-based compensation

 

 

 -

 

 

3.3 

 

 

 -

 

 

 -

 

 

 -

 

 

3.3 

Stock repurchases

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

Net income

 

 

 -

 

 

 -

 

 

16.6 

 

 

 -

 

 

 -

 

 

16.6 

Other comprehensive (loss) income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

 -

 

 

 -

 

 

 -

 

 

4.1 

 

 

 -

 

 

4.1 

Unrealized gain on derivatives, net of tax of $0.0

 

 

 -

 

 

 -

 

 

 -

 

 

0.1 

 

 

 -

 

 

0.1 

Pension and other postretirement benefit plans -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

net of tax of $0.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of prior service cost and net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

actuarial loss included in net periodic costs

 

 

 -

 

 

 -

 

 

 -

 

 

0.5 

 

 

 -

 

 

0.5 

At March 31, 2014

 

$

0.8 

 

$

165.7 

 

$

1,269.6 

 

$

(114.1)

 

$

4.0 

 

$

1,326.0 

 

 

See accompanying notes to consolidated financial statements.

 

 

 

Page 7 of 39


 

Table of Contents

DRESSER-RAND GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

($ in millions, except per share amounts)

 

1.Basis of Presentation

 

Unless the context otherwise indicates, the terms “we,” “our,” “us,” the “Company,” “Dresser-Rand” and similar terms refer to Dresser-Rand Group Inc. and its consolidated subsidiaries.

 

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information.  The information furnished herein reflects all adjustments that are, in the opinion of management, necessary for the fair presentation of the Company's Consolidated Balance Sheets as of March 31, 2015, and December 31, 2014; the Consolidated Statements of Income and Comprehensive Income for the three months ended March 31, 2015 and 2014; and the Consolidated Statements of Cash Flows and Changes in Stockholders’ Equity for the three months ended March 31, 2015 and 2014.  The year-end balance sheet data was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. 

 

In preparing financial statements in accordance with U.S. GAAP, management makes informed judgments and estimates that affect the reported amounts of assets, liabilities, revenues and expenses.  Management evaluates its estimates and related assumptions regularly, including those related to fair values, allowance for losses on receivables, depreciation and amortization, inventory adjustments related to lower of cost or market, the carrying value and estimated useful lives of long-lived assets, valuation of assets including goodwill and other intangible assets, product warranties, sales allowances, taxes, pensions, postemployment benefits, stock-based compensation, stage of completion and ultimate profitability for certain long-term revenue contracts accounted for under the percentage of completion method, contract losses, penalties, environmental contingencies, product liability, self-insurance programs and other contingencies (including purchase price contingencies).  Changes in facts and circumstances or additional information may result in revised estimates and actual results may differ from these estimates. 

 

These financial statements should be read in conjunction with our Annual Report on Form 10-K, as amended, for the year ended December 31, 2014, and our other filings with the Securities and Exchange Commission.  Operating results for the three months ended March 31, 2015, are not indicative of the results that may be expected for the year ending December 31, 2015.  Certain amounts in the prior periods consolidated financial statements have been reclassified to conform to the current period’s presentation.

 

On September 21, 2014, the Company entered into an Agreement and Plan of Merger with Siemens Energy, Inc. (“Siemens”) whereby Siemens will acquire the Company (the “Merger”).  Additional information regarding the Merger and the related terms and conditions is set forth in Note 1, Basis of Presentation, to the consolidated financial statements in Item 14, Exhibits, Financial Statements and Schedules, of the Company’s Annual Report on Form 10-K, as amended, for the year ended December 31, 2014

 

Fair Value Measurements

 

Fair value, as defined in U.S. GAAP, is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). U.S. GAAP classifies the inputs used to measure fair value into the following hierarchy:

 

 

 

 

 

 

 

Level 1

Unadjusted quoted prices in active markets for identical assets or liabilities

 

 

Level 2

Unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability

 

 

Level 3

Unobservable inputs for the asset or liability

 

 

Recurring Fair Value Measurements —  Fair values of the Company’s cash and cash equivalents, restricted cash, accounts receivable, short-term borrowings, accounts payable and customer advance payments approximate their carrying values due to the short-term nature of these instruments.  The Company’s financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

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DRESSER-RAND GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

($ in millions, except per share amounts)

 

 

Nonrecurring Fair Value Measurements  Fair value measurements were applied with respect to the Company’s nonfinancial assets and liabilities measured on a nonrecurring basis, which consists primarily of intangible assets, other long-lived assets and other assets acquired and liabilities assumed, including contingent consideration, related to purchased businesses in business combinations and impairments.

 

Fair Value of Financial Instruments  Recurring fair value measurement of financial instruments consist principally of foreign currency derivatives, an interest rate swap and fixed rate long-term debt.

  

Input levels used for fair value measurements are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Input

 

 

 

 

 

 

Description

Disclosure

 

Level

 

Level 2 Inputs

 

Level 3 Inputs

 

 

Impairment of long-lived assets

Note 3

 

Level 3

 

Not applicable

 

Level 3 inputs are more fully described in Note 3.

 

 

Financial derivatives

Note 9

 

Level 2

 

Quoted prices of similar assets or liabilities in active markets

 

Not applicable

 

 

Long-term debt (disclosure only)

Note 11

 

Level 2

 

Quoted prices in markets that are not active

 

Not applicable

 

 

 

 

2.New Accounting Standards

 

Effective January 1, 2015, the Company adopted FASB Accounting Standards Update (“ASU”) 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity (“ASU 2014-08”). The amendments in ASU 2014-08 change the criteria for reporting discontinued operations while enhancing disclosures in this area. Under the new guidance, disposals representing a strategic shift in operations should be presented as discontinued operations. Additionally, the new guidance requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income and expenses of discontinued operations. The adoption of ASU 2014-08 did not have a material impact on the Company’s consolidated financial statements.

 

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). This ASU is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of 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. The amendments in this ASU are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period, with early application not permitted.  Companies may use either a full retrospective or a modified retrospective approach to adopt this ASU and the Company is currently evaluating which transition approach to use.  In April 2015, the FASB issued an exposure draft of a proposal to delay the effective date of ASU 2014-09 by one year.  The Company is currently evaluating the new pronouncement to determine the impact it may have to its consolidated financial statements.

 

In June 2014, the FASB issued ASU 2014-10, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation (“ASU 2014-10”). The amendments in ASU 2014-10 remove an exception provided to development stage entities in Topic 810, Consolidation, for determining whether an entity is a variable interest entity. The revised consolidation standards are effective for annual reporting periods beginning after December 15, 2015, including interim periods within that reporting period, with early application permitted.  The adoption of ASU 2014-10 is not expected to have a material impact on the Company’s consolidated financial statements.

 

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DRESSER-RAND GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ―  (continued)

(Unaudited)

 

($ in millions, except per share amounts)

 

 

In June 2014, the FASB issued ASU 2014-12, Compensation – Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved After the Requisite Service Period (“ASU 2014-12”). The amendments in ASU 2014-12 require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. The amendments in this ASU are effective for annual reporting periods beginning after December 15, 2015, including interim periods within that reporting period, with early application permitted.  Companies may use either a prospective or a retrospective approach to adopt this ASU and the Company is currently evaluating which transition approach to use.  The adoption of ASU 2014-12 is not expected to have a material impact on the Company’s consolidated financial statements.

 

In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements—Going Concern (“ASU 2014-15”). Prior to the issuance of this standard, there was no guidance in U.S.  GAAP about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern or to provide related footnote disclosure.  ASU 2014-15 requires management to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the  date that the  financial statements are issued  (or within one year after the date  that the  financial statements are available to be issued  when applicable) in connection with preparing financial statements for each annual and interim reporting period. ASU 2014-15 states that substantial doubt about an entity’s ability to continue as a going concern exists when relevant conditions and events, considered in the aggregate, indicate that it is probable that the entity will be unable to meet its obligations as they become due within one year after the date that the financial statements are issued (or available to be issued). ASU 2014-15 is not expected to have a material impact on the Company’s consolidated financial statements.

 

In January 2015, the FASB issued ASU 2015-01, Income Statement – Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items (“ASU 2015-01”). The amendments in ASU 2015-01 eliminate from U.S. GAAP the concept of extraordinary items. The amendments in this ASU are effective for annual reporting periods beginning after December 15, 2015, including interim periods within that reporting period, with early application permitted provided that the guidance is applied from the beginning of the fiscal year of adoption.  Companies may use either a prospective or a retrospective approach to adopt this ASU and the Company is currently evaluating which transition approach to use.  The adoption of ASU 2015-01 is not expected to have a material impact on the Company’s consolidated financial statements

 

In February 2015, the FASB issued ASU 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis (“ASU 2015-02”). The amendments in ASU 2015-02 change the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. The amendments in this ASU are effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. A reporting entity may apply the amendments in this ASU using a modified retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning of the fiscal year of adoption. A reporting entity also may apply the amendments retrospectively. The adoption of ASU 2015-02 is not expected to have a material impact on the Company’s consolidated financial statements.

 

In April 2015, the FASB issued ASU 2015-03, Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”). The amendments in ASU 2015-03 require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The amendments in this ASU are effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period. The amendments should be applied on a retrospective basis, wherein the balance sheet of each individual period presented should be adjusted to reflect the period-specific effects of applying the new guidance. The adoption of ASU 2015-03 is not expected to have a material impact on the Company’s consolidated financial statements.

 

In April 2015, the FASB issued ASU 2015-05, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement (“ASU 2015-05”). The amendments in ASU 2015-05 provide guidance to customers about whether a cloud computing arrangement includes a software license.  As a result of the amendments, all software licenses within the scope of Subtopic 350-40 will be accounted for consistent with

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DRESSER-RAND GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ―  (continued)

(Unaudited)

 

($ in millions, except per share amounts)

 

other licenses of intangible assets. The amendments in this ASU are effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted. An entity can elect to adopt the amendments either prospectively or retrospectively. The adoption of ASU 2015-05 is not expected to have a material impact on the Company’s consolidated financial statements.

 

3.Restructuring Charges 

 

On February 25, 2015, the Company’s Board of Directors approved a series of actions intended to improve operating performance.  The Company announced a planned reduction in workforce of approximately 8%, which covers its world-wide operations and associated overhead costs from the different support disciplines. The announced actions result in reduced overhead through the optimization of the Company’s workforce and certain non-cash charges (impairments and other charges) related to the restructuring or disposal of certain facilities and assets. The Company currently estimates the overall pre-tax costs of the program to be between approximately $40.0 and $50.0. These strategic initiatives originate from the prevailing view that oil prices are expected to remain under pressure in the near future leading our clients to either delay large projects in order to reschedule their investments (or optimize their cash flows), or apply pressure on their suppliers to reduce their prices.  As a result, the Company is taking appropriate measures to continue its emphasis on operating earnings growth, even in what is expected to be a relatively stable year in sales in 2015.  The  Company initiated the announced actions in the first quarter of 2015 and expects to complete the actions by the end of 2015.

 

The restructuring charges in the consolidated statement of income totaled $18.1 for the three months ended March 31, 2015.  Detailed information related to the restructuring program activities during the three months ended March 31, 2015, is outlined below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee

 

 

 

 

 

 

 

 

 

Severance and

 

 

 

 

 

 

 

 

 

Other Related

 

Asset Impairments

 

 

 

 

 

 

 

 

Costs

 

and Other Charges

 

Other

 

Total

Balance, December 31, 2014

 

$

 -

 

$

 -

 

$

 -

 

$

 -

Net current period charges

 

 

6.6 

 

 

11.4 

 

 

0.1 

 

 

18.1 

Cash payments

 

 

(2.5)

 

 

 -

 

 

(0.1)

 

 

(2.6)

Non-cash charges used

 

 

(0.5)

 

 

(11.4)

 

 

 -

 

 

(11.9)

Balance, March 31, 2015

 

$

3.6 

 

$

 -

 

$

 -

 

$

3.6 

 

 

In addition to the above charges, the Company recorded inventory charges of $9.8 during the three months ended March 31, 2015, related to the planned exit of certain non-core businesses primarily in North America.  In accordance with ASC 420-10-S99-3, these charges were not included in the restructuring charges line item in the consolidated statement of income.  The Company has included these charges in the cost of products sold line item in the consolidated statement of income.

 

Employee Severance and Other Related Costs

 

During the three months ended March 31, 2015, the Company initiated a reduction in workforce which includes the elimination of approximately 400 personnel worldwide.  As of March 31, 2015, the Company eliminated approximately 200 personnel, and the Company expects to eliminate the remaining 200 personnel by the end of 2015.  Included in the restructuring charges for the three months ended March 31, 2015, are $6.6 of employee severance and other related costs.  Total employee severance and other related costs associated with the plan are expected be approximately $13.0.  Amounts related to employee severance and other costs have been accrued as required by ASC 712, Compensation – Nonretirement Postemployment Benefits.

 

Asset Impairments and Other Charges  

 

As part of the restructuring program, the Company is exiting certain non-core businesses and/or disposing of certain facilities and assets.  Intangible asset impairments related to the planned exit of certain businesses were $11.4 for the three  

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DRESSER-RAND GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ―  (continued)

(Unaudited)

 

($ in millions, except per share amounts)

 

months ended March 31, 2015.  The impairment charge is primarily related to existing technology, customer relationships and trade names for the planned exit of a European manufacturing location.  The fair value of these assets was based on market offers to purchase the assets.  The impairment charge also includes a trade name that was part of a separate non-core business in Europe that we plan to exit.

 

The Company intends to sell the European manufacturing location; however, these assets have not been classified as assets held for sale as of March 31, 2015, as the necessary approvals to sell the assets have not yet been received.  In the event we do not sell the facility, additional restructuring charges may be recorded to dispose of the assets.

 

Segment profit is determined based on internal performance measures used by the chief operating decision maker to assess the performance of each segment. The chief operating decision maker has excluded restructuring charges from the assessment of segment performance, and as such, we have not assigned the restructuring charges to either segment, but rather have included the charges as unallocated expenses for segment reporting.

 

4. Other Investments

 

On June 28, 2013, the Company and Apex Compressed Air Energy Storage, LLC (“APEX”) formed Bethel Holdco, LLC (“Bethel”) to develop a 317 megawatt compressed air energy storage (“CAES”) facility to be constructed in the north zone of Texas.  The Company expects to manufacture and supply the compression trains, expansion trains, balance of plant process equipment and installation, commissioning, start-up and on-site testing services to a subsidiary of Bethel, subject to the project reaching full financing. Although the project is not yet fully financed, management believes that even in the event the project is not fully financed, it will not have a material adverse effect on the Company’s financial condition.  As of March 31, 2015, the Company had invested a total of $5.0 for an approximate 5.7% ownership interest in Bethel.  The remaining 94.3% interest is held by APEX.  The Company has certain rights, but no obligations, to make additional capital contributions to Bethel.    In connection with its investment in Bethel, the Company received an option to sell all of its initial ownership interests in Bethel to APEX at such time on or after the second anniversary of the CAES facility achieving commercial operation that Bethel has a net positive amount of available cash to distribute to its members for a trailing twelve-month period.  The sale price under the option is the Company’s purchase price for the Bethel interests.    On February 14, 2014, the Company entered into a term loan agreement with Bethel to help fund the construction of the CAES facility.  The Company may loan Bethel an aggregate principal amount of up to $25.0, with interest rates ranging from 8.0% to 16.0% per annum.  Loans made under the arrangement mature no later than eight years from the date of issuance.  As of March 31, 2015, Bethel has borrowed $18.6 from the Company.  The Company’s maximum exposure to loss on its investment in Bethel is limited to amounts invested (including amounts loaned) plus any amounts the Company may choose to invest in the future. In determining whether the Company should consolidate Bethel, the Company considered that its board participation, ownership interest and loan would not give the Company the power to direct the activities of Bethel and, consequently, would not result in the Company being the primary beneficiary.  The investment in Bethel is being accounted for under the equity method of accounting, and the amount of the investment recorded in other noncurrent assets on the consolidated balance sheet is $4.9 at March 31, 2015.  The Company has recognized no revenues from APEX in the three months ended March 31, 2015 or 2014.  

 

In February 2011, the Company entered into an agreement to acquire a noncontrolling interest in Echogen Power Systems, LLC (“Echogen”), a privately-held technology company that is developing and commercializing power generation systems that harness waste heat for power and cooling applications using a proprietary supercritical carbon dioxide process technology. The Company agreed to pay Echogen a royalty based on future equipment sales in these markets. Aggregate minimum royalties of $6.0 were to be paid in the first five years of commercialization (which has not begun), regardless of the amount of revenues generated, or the license would become non-exclusive.  On March 26, 2014, the Company entered into an agreement for exclusive license rights to certain of Echogen’s intellectual property in exchange for $2.5 of cash and the relief of the Company’s obligation to provide certain equipment which was required under the original agreement. These exclusive license rights are represented by the remaining shares of Echogen held by the Company, which will be exchanged for an exclusive license if Echogen’s intellectual property is proven. On March 18, 2015, the Company amended its agreement with Echogen to satisfy the minimum royalty requirement with a prepaid royalty of $4.0 and to change the effective period of the license to five years from the date of receiving third party funding from a source other than the Company. No additional royalties are required to be paid during this period. As of March 31, 2015, the Company had invested a total of $26.5 for a 33.9% noncontrolling interest in Echogen. The Company’s maximum exposure to loss on its investment in Echogen is limited to amounts invested plus any amounts the Company may choose to invest in the future. In determining whether the Company should consolidate Echogen, the Company considered that its board participation and ownership interest would not give the

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DRESSER-RAND GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ―  (continued)

(Unaudited)

 

($ in millions, except per share amounts)

 

Company the power to direct the activities of Echogen and, consequently, would not result in the Company being the primary beneficiary.  The investment in Echogen is being accounted for under the equity method of accounting, and the amount of the investment recorded in other noncurrent assets on the consolidated balance sheet is $14.0 at March 31, 2015.

 

In April 2009, the Company and Al Rushaid Petroleum Investment Company (“ARPIC”) executed a Business Venture Agreement to form a joint venture, Dresser-Rand Arabia LLC (“D-R Arabia”). D-R Arabia was formed to execute manufacturing, repair, and other services, and to provide technical expertise and training in the Kingdom of Saudi Arabia. The Company and ARPIC each own approximately 50% of D-R Arabia. In determining whether the Company should consolidate D-R Arabia, the Company determined that its ownership, board participation and other related contractual rights would give the Company the ability to direct the activities of D-R Arabia, which would result in the Company being the primary beneficiary. Consequently, D-R Arabia is consolidated in the financial results of the Company.

 

At March 31, 2015, D-R Arabia has total assets of approximately $58.1, consisting principally of property, plant and equipment, and total liabilities of approximately $87.0, consisting principally of intercompany loans. The assets have been classified accordingly in the Company’s consolidated balance sheet, and the loans have been eliminated in consolidation. Both parties to the joint venture have signed resolutions committing to provide financial support to D-R Arabia, as needed, to meet D-R Arabia’s obligations as they become due through 2013.  For the year 2014, ARPIC has signed neither D-R Arabia’s audited financial statements nor the current resolution, wherein the two parties to the joint venture would commit to continue the operations and provide financial support as needed, to meet D-R Arabia’s obligations as they become due.  If ARPIC fails to sign these documents, it may affect D-R Arabia’s ability to renew its commercial registration and continue operations, which could have a material adverse effect on the Company’s ability to do business in the Kingdom of Saudi Arabia and on our assets associated with that business.

 

5.Costs and Estimated Earnings on Uncompleted Contracts

 

Costs and estimated earnings on uncompleted contracts were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

 

 

2015

 

2014

 

 

 

 

 

 

 

Costs incurred on uncompleted contracts

 

$

287.0 

 

$

276.8 

Estimated earnings

 

 

69.9 

 

 

70.4 

 

 

 

356.9 

 

 

347.2 

Less: billings to date

 

 

(350.5)

 

 

(347.8)

 

 

$

6.4 

 

$

(0.6)

Costs and estimated earnings in excess of billings

 

$

22.4 

 

$

18.4 

Billings in excess of costs and estimated earnings

 

 

(16.0)

 

 

(19.0)

 

 

$

6.4 

 

$

(0.6)

 

 

 

 

 

 

 

6.Intangible Assets and Goodwill

 

The following table sets forth the weighted-average useful life, gross amount and accumulated amortization of intangible

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DRESSER-RAND GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ―  (continued)

(Unaudited)

 

($ in millions, except per share amounts)

 

assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2015

 

 

 

December 31, 2014

 

 

Cost

 

Accumulated Amortization

 

Weighted-Average Useful Lives

 

Cost

 

Accumulated Amortization

Trade names

 

$

111.0 

 

$

28.5 

 

36 years

 

$

116.5 

 

$

27.5 

Customer relationships

 

 

301.3 

 

 

89.4 

 

32 years

 

 

317.4 

 

 

91.0 

Non-compete agreements

 

 

2.5 

 

 

2.5 

 

0 years

 

 

4.8 

 

 

4.8 

Existing technology

 

 

166.4 

 

 

63.9 

 

23 years

 

 

171.7 

 

 

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