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, 2014
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, $.01 par value, outstanding as of April 24, 2014, was 76,488,409.
TABLE OF CONTENTS
Page 2 of 40
PART I. ― FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DRESSER-RAND GROUP INC.
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
Three Months Ended March 31, |
||||||
2014 |
2013 |
|||||
($ in millions, except per share amounts) |
||||||
Net sales of products |
$ |
541.8 |
$ |
572.0 | ||
Net sales of services |
157.3 | 194.4 | ||||
Total revenues |
699.1 | 766.4 | ||||
Cost of products sold |
429.7 | 458.2 | ||||
Cost of services sold |
122.0 | 136.2 | ||||
Total cost of sales |
551.7 | 594.4 | ||||
Gross profit |
147.4 | 172.0 | ||||
Selling and administrative expenses |
99.8 | 96.2 | ||||
Research and development expenses |
7.4 | 10.3 | ||||
Income from operations |
40.2 | 65.5 | ||||
Interest expense, net |
(13.0) | (14.3) | ||||
Other income (expense), net |
3.3 | (1.0) | ||||
Income before income taxes |
30.5 | 50.2 | ||||
Provision for income taxes |
13.9 | 15.8 | ||||
Net income |
16.6 | 34.4 | ||||
Net income attributable to noncontrolling interest |
- |
(1.5) | ||||
Net income attributable to Dresser-Rand |
$ |
16.6 |
$ |
32.9 | ||
Net income attributable to Dresser-Rand per share |
||||||
Basic |
$ |
0.22 |
$ |
0.43 | ||
Diluted |
$ |
0.22 |
$ |
0.43 | ||
Weighted-average shares outstanding - (in thousands) |
||||||
Basic |
76,371 | 75,798 | ||||
Diluted |
76,952 | 76,749 |
See accompanying notes to consolidated financial statements.
Page 3 of 40
DRESSER-RAND GROUP INC.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended March 31, |
||||||
2014 |
2013 |
|||||
($ in millions) |
||||||
Net income |
$ |
16.6 |
$ |
34.4 | ||
Other comprehensive income (loss) |
||||||
Foreign currency translation adjustments |
4.1 | (25.0) | ||||
Unrealized gain on derivatives - net of tax of $0.0 and $0.0 for the three months ended March 31, 2014 and 2013, respectively |
0.1 | 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 $0.3 and $0.8 for the three months ended March 31, 2014 and 2013, respectively |
0.5 | 1.4 | ||||
Total other comprehensive income (loss) |
4.7 | (23.5) | ||||
Total comprehensive income |
21.3 | 10.9 | ||||
Comprehensive income attributable to noncontrolling interest |
- |
(0.5) | ||||
Comprehensive income attributable to Dresser-Rand |
$ |
21.3 |
$ |
10.4 |
See accompanying notes to consolidated financial statements.
Page 4 of 40
DRESSER-RAND GROUP INC.
CONSOLIDATED BALANCE SHEET
(Unaudited)
March 31, |
December 31, |
|||||
2014 |
2013 |
|||||
($ in millions) |
||||||
Assets |
||||||
Current assets |
||||||
Cash and cash equivalents |
$ |
178.9 |
$ |
190.4 | ||
Restricted cash |
9.0 | 8.1 | ||||
Accounts receivable, less allowance for losses of $7.3 at 2014 and $9.1 at 2013 |
627.2 | 727.4 | ||||
Inventories, net |
743.9 | 716.0 | ||||
Prepaid expenses and other |
75.7 | 68.8 | ||||
Deferred income taxes, net |
22.3 | 25.2 | ||||
Total current assets |
1,657.0 | 1,735.9 | ||||
Property, plant and equipment, net |
477.6 | 472.3 | ||||
Goodwill |
929.8 | 927.6 | ||||
Intangible assets, net |
471.7 | 479.0 | ||||
Deferred income taxes |
12.5 | 11.8 | ||||
Other assets |
124.9 | 111.2 | ||||
Total assets |
$ |
3,673.5 |
$ |
3,737.8 | ||
Liabilities and Stockholders' Equity |
||||||
Current liabilities |
||||||
Accounts payable and accruals |
$ |
672.5 |
$ |
729.1 | ||
Customer advance payments |
188.8 | 164.5 | ||||
Accrued income taxes payable |
38.4 | 36.1 | ||||
Short-term borrowings and current portion of long-term debt |
45.7 | 40.1 | ||||
Total current liabilities |
945.4 | 969.8 | ||||
Deferred income taxes |
57.5 | 55.4 | ||||
Postemployment and other employee benefit liabilities |
68.3 | 74.0 | ||||
Long-term debt |
1,185.0 | 1,246.9 | ||||
Other noncurrent liabilities |
91.3 | 90.3 | ||||
Total liabilities |
2,347.5 | 2,436.4 | ||||
Commitments and contingencies (Note 13) |
||||||
Stockholders' equity |
||||||
Common stock, $0.01 par value, 250,000,000 shares |
||||||
authorized; and 76,476,205 and 76,293,924 shares issued and |
||||||
outstanding at March 31, 2014 and December 31, 2013, respectively |
0.8 | 0.8 | ||||
Additional paid-in capital |
165.7 | 162.4 | ||||
Retained earnings |
1,269.6 | 1,253.0 | ||||
Accumulated other comprehensive loss |
(114.1) | (118.8) | ||||
Total Dresser-Rand stockholders' equity |
1,322.0 | 1,297.4 | ||||
Noncontrolling interest |
4.0 | 4.0 | ||||
Total stockholders' equity |
1,326.0 | 1,301.4 | ||||
Total liabilities and stockholders' equity |
$ |
3,673.5 |
$ |
3,737.8 |
See accompanying notes to consolidated financial statements.
Page 5 of 40
DRESSER-RAND GROUP INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Three Months Ended March 31, |
||||||
2014 |
2013 |
|||||
($ in millions) |
||||||
Cash flows from operating activities |
||||||
Net income |
$ |
16.6 |
$ |
34.4 | ||
Adjustments to reconcile net income to net cash provided by (used in) operating |
||||||
activities: |
||||||
Depreciation and amortization |
23.6 | 24.3 | ||||
Deferred income taxes |
(2.0) | 0.2 | ||||
Stock-based compensation |
7.3 | 10.6 | ||||
Excess tax benefits from stock-based compensation |
(0.7) | (6.1) | ||||
Amortization of debt financing costs |
0.5 | 1.0 | ||||
Provision for losses on inventory |
1.6 | 0.4 | ||||
Provision for losses on accounts receivable |
0.8 | 1.1 | ||||
Loss (gain) from equity investments |
1.2 | (0.3) | ||||
Changes in working capital and other |
||||||
Accounts receivable |
103.3 | 47.0 | ||||
Inventories |
(31.6) | (74.3) | ||||
Prepaid expenses and other |
(6.1) | (14.3) | ||||
Accounts payable and accruals |
(59.3) | 15.7 | ||||
Customer advances |
23.9 | (72.6) | ||||
Taxes payable |
4.2 | (3.7) | ||||
Pension and other post-retirement benefits |
(4.9) | (4.6) | ||||
Other |
(19.3) | (2.0) | ||||
Net cash provided by (used in) operating activities |
59.1 | (43.2) | ||||
Cash flows from investing activities |
||||||
Capital expenditures |
(10.8) | (19.9) | ||||
Other investments |
(2.5) | (3.5) | ||||
Increase in restricted cash balances |
(0.8) | (7.8) | ||||
Net cash used in investing activities |
(14.1) | (31.2) | ||||
Cash flows from financing activities |
||||||
Proceeds from exercise of stock options |
- |
1.1 | ||||
Proceeds from borrowings |
354.0 | 488.7 | ||||
Repayments of borrowings |
(410.9) | (385.0) | ||||
Excess tax benefits from stock-based compensation |
0.7 | 6.1 | ||||
Repurchase of common stock |
(4.9) | (1.5) | ||||
Net cash (used in) provided by financing activities |
(61.1) | 109.4 | ||||
Effect of exchange rate changes on cash and cash equivalents |
4.6 | (0.8) | ||||
Net (decrease) increase in cash and cash equivalents |
(11.5) | 34.2 | ||||
Cash and cash equivalents, beginning of period |
190.4 | 122.8 | ||||
Cash and cash equivalents, end of period |
$ |
178.9 |
$ |
157.0 |
See accompanying notes to consolidated financial statements.
Page 6 of 40
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, 2013 |
$ |
0.8 |
$ |
162.4 |
$ |
1,253.0 |
$ |
(118.8) |
$ |
4.0 |
$ |
1,301.4 | ||||||
Stock-based compensation |
- |
3.3 |
- |
- |
- |
3.3 | ||||||||||||
Net income |
- |
- |
16.6 |
- |
- |
16.6 | ||||||||||||
Other comprehensive income (loss) |
||||||||||||||||||
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 |
Accumulated |
||||||||||||||||||
Additional |
Other |
Non- |
Total |
|||||||||||||||
Common |
Paid-in |
Retained |
Comprehensive |
Controlling |
Stockholders' |
|||||||||||||
Stock |
Capital |
Earnings |
(Loss) Income |
Interest |
Equity |
|||||||||||||
($ in millions) |
||||||||||||||||||
At December 31, 2012 |
$ |
0.8 |
$ |
140.5 |
$ |
1,084.6 |
$ |
(134.7) |
$ |
3.7 |
$ |
1,094.9 | ||||||
Stock-based compensation |
- |
3.5 |
- |
- |
- |
3.5 | ||||||||||||
Stock repurchases |
- |
(1.5) |
- |
- |
- |
(1.5) | ||||||||||||
Net income |
- |
- |
32.9 |
- |
1.5 | 34.4 | ||||||||||||
Other comprehensive (loss) income |
||||||||||||||||||
Foreign currency translation adjustments |
- |
- |
- |
(24.0) | (1.0) | (25.0) | ||||||||||||
Unrealized gain on derivatives, net of tax of $0.0 |
- |
- |
- |
0.1 |
- |
0.1 | ||||||||||||
Pension and other postretirement benefit plans - |
||||||||||||||||||
net of tax of $0.8 |
||||||||||||||||||
Amortization of prior service cost and net |
||||||||||||||||||
actuarial loss included in net periodic costs |
- |
- |
- |
1.4 |
- |
1.4 | ||||||||||||
At March 31, 2013 |
$ |
0.8 |
$ |
142.5 |
$ |
1,117.5 |
$ |
(157.2) |
$ |
4.2 |
$ |
1,107.8 |
See accompanying notes to consolidated financial statements.
Page 7 of 40
DRESSER-RAND GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
($ in millions, except per share amounts)
Unless the context otherwise indicates, the terms “we,” “our,” “us,” the “Company,” 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 normal recurring adjustments that are, in the opinion of management, necessary for the fair presentation of the Company's Consolidated Balance Sheets as of March 31, 2014, and December 31, 2013; the Consolidated Statements of Income and Comprehensive Income for the three months ended March 31, 2014 and 2013; and the Consolidated Statements of Cash Flows and Changes in Stockholders’ Equity for the three months ended March 31, 2014 and 2013. 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 for the year ended December 31, 2013, and our other filings with the Securities and Exchange Commission. Operating results for the three months ended March 31, 2014, are not indicative of the results that may be expected for the year ending December 31, 2014. Certain amounts in the prior periods consolidated financial statements have been reclassified to conform to the current period’s presentation.
Revenue Recognition
We recognize revenue when it is realized or realizable and earned. Generally, we consider revenue realized or realizable and earned when we have persuasive evidence of an arrangement, delivery of the product or service has occurred, the sales price is fixed or determinable and collectability is reasonably assured. Delivery does not occur until products have been shipped or services have been provided to the client, risk of loss has transferred to the client, and either any required client acceptance has been obtained (or such provisions have lapsed) or we have objective evidence that the criteria specified in the client acceptance provisions have been satisfied. The amount of revenue related to any contingency is not recognized until the contingency is resolved.
Multiple-element arrangements
A substantial portion of our arrangements are multiple-element revenue arrangements or contracts, where multiple products and/or services are involved. Products involved in multiple-element arrangements may include centrifugal compressors, gas turbines, power turbines, power recovery expanders, reciprocating compressors (process and separable), steam turbines and engines. Our typical arrangement includes one of our classes of compressors and a driver (e.g., a motor or an engine). In addition to our products, we perform installation and commissioning, training, and other services, and we purchase any number of standard or engineered items from third parties (“buyouts”) that support the application in which our equipment is being used. Generally, buyouts, installation and commissioning, training and each of our products listed above are considered separate deliverables for a number of reasons, including the following:
· |
Clients would purchase each of those products or services apart from other products or services; |
Page 8 of 40
DRESSER-RAND GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
($ in millions, except per share amounts)
· |
The products and services being provided are at the request of the client and for the client’s sole benefit, apart from any other product or service in the transaction; |
· |
The other deliverables can be performed without the service or product in question being performed or delivered; |
· |
Contractual payments are typically tied to the delivery or performance of the specific product or service; |
· |
The skills or equipment required to perform the services are readily available in the marketplace; and |
· |
Clients attribute significant value to each product or service. |
These contracts generally can take fifteen months or more to complete and in one case we have a contract which may take up to sixty months to complete, or longer. The timing between the first deliverable and the last deliverable is generally three to twelve months, and services are typically delivered last.
Because the aforementioned separate deliverables have value to the client on a stand-alone basis, they are typically considered separate units of accounting. The entire contract value is allocated to each unit of accounting. Revenue allocated to products is recognized upon delivery, while revenue allocated to services is recognized when the service is performed. We use the selling price hierarchy described below to determine how to separate multiple-element revenue arrangements into separate units of accounting and how to allocate the arrangement consideration among those separate units of accounting:
· |
Vendor-specific objective evidence (“VSOE”). |
· |
Third-party evidence (“TPE”), if vendor-specific objective evidence is not available. |
· |
Estimated selling price (“ESP”), determined in the same manner as that used to determine the price at which we sell the deliverables on a stand-alone basis, if neither vendor-specific objective evidence nor third-party evidence is available. |
In substantially all of our multi-element arrangements, we use ESP to allocate arrangement consideration. We determine ESP based on our normal pricing and discounting practices. In determining ESP, we apply significant judgment as we weigh a variety of factors, based on the facts of the arrangement. We typically arrive at an ESP by considering client and entity-specific factors such as existing pricing, price discounts, geographies, competitive landscape, internal costs and profitability objectives.
Our sales arrangements do not include a general right of return of the delivered unit(s). In certain cases, the cancellation terms of a contract provide us with the opportunity to bill for certain incurred costs and penalties.
If it is determined that the separate deliverables do not have value on a stand-alone basis, the entire arrangement is accounted for as one unit of accounting, which results in revenue being recognized when the last unit is delivered based on the revenue recognition policy described above.
It is uncommon for Dresser-Rand to have contract scope adjustments that impact the selling price for specific units of accounting resulting in changes in the allocation of the selling price. In the event of such an adjustment, we apply the change in the allocation of the selling price to the units of accounting that are not yet delivered. As our business and offerings evolve over time, our pricing practices may be required to be modified accordingly, which could result in changes in selling prices in subsequent periods. Historically, there have been no material impacts, nor do we currently expect material impacts in the next twelve months, on our revenue recognition due to changes in our VSOE, TPE or ESP.
Percentage of completion
We also enter into certain large contracts with expanded construction-type scope and risk. These contractual arrangements have a scope of activity that differs in substance from the scope of deliverables found in our traditional sales agreements. For these types of contracts, we apply the guidelines of ASC 605-35 – Construction-Type and Production-
Page 9 of 40
DRESSER-RAND GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
($ in millions, except per share amounts)
Type Contracts and utilize the percentage of completion method of revenue recognition. Non-traditional scope arrangements include activities typically performed by engineering, procurement and construction contractors. Our clients on these projects typically require us to act as a general construction contractor for all or a portion of these projects. These arrangements are often executed in the form of turnkey contracts, where the Company designs, engineers, manufactures, constructs, transports, erects and hands over to the client at the designated destination point the fully commissioned and tested module or facility, which is ready for operation. Percentage of completion revenue represents approximately 5.0% and 5.5% of consolidated revenues for the three months ended March 31, 2014 and 2013, respectively.
Under the percentage of completion method, revenue is recognized as work on a contract progresses. For each contractual arrangement that qualifies for the percentage of completion method of accounting, the Company recognizes revenue, cost of sales and gross profit in the amounts that are equivalent to a percentage of the total estimated contract sales value, estimated cost of sales and estimated gross profit to be achieved upon completion of the project. This percentage is generally determined by dividing the cumulative amount of labor costs and labor converted material costs incurred to date by the sum of the cumulative costs incurred to date plus the estimated remaining costs to be incurred in order to complete the contract. Preparing these estimates is a process requiring judgment, as described below. Factors influencing these estimates include, but are not limited to, historical performance trends, inflationary trends, productivity and labor disruptions, availability of materials, claims, change orders and other factors as set forth in the Risk Factors included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013. In the event that the Company experiences changes in estimated revenues, cost of sales and gross profit, they would be recognized using a cumulative catch-up adjustment that recognizes in the current period the cumulative effect of the changes on current and prior periods based on a contract’s updated percentage of completion.
We apply the percentage of completion method of accounting to agreements when the following conditions exist:
•The costs are reasonably estimable;
•The contract includes provisions that clearly specify the enforceable rights regarding products and services to be provided and received by the parties, the consideration to be exchanged and the manner and terms of settlement;
•The customer can be expected to satisfy all obligations under the contract; and
•We expect to perform all of our contractual obligations.
Cost of revenue for our construction-type contracts includes contract costs, such as materials and labor, and indirect costs that are attributable to contract activity. Generally, we bill our customers based on advance billing terms or completion of certain contract milestones. Cumulative costs and estimated earnings recognized to date in excess of cumulative billings are included in accounts receivable on the consolidated balance sheet. Cumulative billings in excess of cumulative costs and estimated earnings recognized to date are included in accounts payable and accruals on the consolidated balance sheet.
We estimate the future costs and estimated gross profit that will be incurred related to sales arrangements to determine whether any arrangement will result in a loss. These costs include material, labor and overhead. Factors influencing these future costs include the availability of materials and skilled laborers. We record provisions for estimated losses on uncompleted contracts in the period in which such losses are identified.
Business interruption insurance recoveries
We recognize, as operating revenue, proceeds from business interruption insurance claims in the period in which the insurance company confirms that proceeds for insurance claims will be paid. Proceeds from casualty insurance settlements in excess of the carrying value of damaged assets are recognized in the period that the applicable proof of loss documentation is received. Proceeds from casualty insurance settlements that are expected to be less than the carrying value of damaged assets are recognized at the time the loss is incurred.
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:
Page 10 of 40
DRESSER-RAND GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
($ in millions, except per share amounts)
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.
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, interest rate swaps, tradable emission allowances 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 |
|||||
Acquired assets and liabilities |
Note 3 |
Level 3 |
Not applicable |
Income approach using projected results and weighted-average cost of capital |
|||||
Financial derivatives |
Note 8 |
Level 2 |
Quoted prices of similar assets or liabilities in active markets |
Not applicable |
|||||
Tradable emission allowances |
Note 8 |
Level 1 |
Not applicable |
Not applicable |
|||||
Long-term debt (disclosure only) |
Note 10 |
Level 2 |
Quoted prices in markets that are not active |
Not applicable |
Page 11 of 40
DRESSER-RAND GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ― (continued)
(Unaudited)
($ in millions, except per share amounts)
2.New Accounting Standards
Effective January 1, 2014, the Company adopted FASB ASU 2013-04, Liabilities (Topic 405): Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation is Fixed at the Reporting Date (“ASU 2013-04”). The amendments in ASU 2013-04 provide guidance for the recognition, measurement and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation is fixed at the reporting date, except for obligations addressed within existing guidance in U.S. GAAP. In accordance with the amendments, an entity will measure the obligation as the sum of (1) the amount the reporting entity agreed to pay on the basis of its arrangements among its co-obligors, and (2) any additional amount the reporting entity expects to pay on behalf of its co-obligors. The amendments in ASU 2013-04 also require an entity to disclose the nature and amount of the obligation as well as other information about those obligations. The adoption of ASU 2013-04 did not have a material impact on the Company’s consolidated financial statements.
Effective January 1, 2014, the Company adopted FASB ASU 2013-05, Foreign Currency Matters (Topic 830): Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity (“ASU 2013-05”). The amendments in ASU 2013-05 resolve the diversity in practice in applying Subtopic 810-10, Consolidation, and Subtopic 830-30, Foreign Currency Matters, when a reporting entity ceases to have a controlling financial interest in a subsidiary within a foreign entity. The amendments in ASU 2013-05 require the reporting entity to release any related cumulative translation adjustment into net income only if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary resided. For an equity method investment that is a foreign entity, a pro rata portion of the cumulative translation adjustment should be released into net income upon a partial sale of such an equity method investment, if significant influence is retained. Additionally, the amendments clarify that the sale of an investment in a foreign entity includes both (1) events that result in the loss of a controlling financial interest in a foreign entity; and (2) events that result in an acquirer obtaining control of an acquiree in which it held an equity interest immediately before the acquisition date (step acquisition). The adoption of ASU 2013-05 did not have a material impact on the Company’s consolidated financial statements.
Effective January 1, 2014, the Company adopted FASB ASU 2013-07, Presentation of Financial Statements (Topic 205): Liquidation Basis of Accounting (“ASU 2013-07”). The amendments in ASU 2013-07 clarify when an entity should apply the liquidation basis of accounting and provide principles for the recognition and measurement of associated assets and liabilities. In accordance with the amendments, the liquidation basis is used when liquidation is imminent. Liquidation is considered imminent when the likelihood is remote that the organization will return from liquidation and either: (a) a plan for liquidation is approved by the person or persons with the authority to make such a plan effective and the likelihood is remote that the execution of the plan will be blocked by other parties; or (b) a plan for liquidation is being imposed by other forces. The adoption of ASU 2013-07 did not have a material impact on the Company’s consolidated financial statements.
Effective January 1, 2014, the Company adopted FASB ASU 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (“ASU 2013-11”). The amendments in ASU 2013-11 clarify that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward if such settlement is required or expected in the event the uncertain tax position is disallowed. In situations where a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction or the tax law of the jurisdiction does not require, and the entity does not intend to use the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The adoption of ASU 2013-11 did not have a material impact on the Company’s consolidated financial statements.
In April 2014, the FASB issued 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, only disposals representing a strategic shift in operations should be presented as discontinued operations. Additionally, the new guidance requires expanded disclosures about
Page 12 of 40
DRESSER-RAND GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ― (continued)
(Unaudited)
($ in millions, except per share amounts)
discontinued operations that will provide financial statement users with more information about the assets, liabilities, income and expenses of discontinued operations. The amendments in ASU 2014-08 are effective prospectively for all disposals (or classifications as held for sale) of components of an entity, and for all businesses that, on acquisition, are classified as held for sale that occur within annual periods beginning on or after December 15, 2014, and interim periods within those years. The Company is currently evaluating the new guidance to determine the impact it may have to its consolidated financial statements.
3. 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 will 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. As of March 31, 2014, the Company had invested a total of $5.0 for an 8.1% ownership interest in Bethel. The remaining 91.9% 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 will 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, 2014, Bethel has borrowed $8.0 from the Company. On April 24, 2014, the Company loaned an additional $10.6 under the agreement. In determining whether the Company should consolidate Bethel, the Company considered that its board participation and ownership interest 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 $5.0 at March 31, 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 will pay Echogen a royalty based on future equipment sales in these markets. Aggregate minimum royalties of $6.0 must be paid in the first five years of commercialization, which has not begun, regardless of the amount of revenues generated, or the license will become non-exclusive. On March 26, 2014, the Company entered into an agreement for exclusive license rights to certain of Echogen’s intellectual property for utilization in the Company’s exclusive licensed fields of use in exchange for $2.5 of cash and the relief of the obligation to provide certain equipment which was required under the original agreement. These rights are represented by the remaining shares of Echogen held by the Company, which will be exchanged for an exclusive license when Echogen’s intellectual property is proven and immediately in exchange for relief of the obligation to provide certain equipment which was required under the original agreement. As of March 31, 2014, the Company had invested a total of $25.5 for a 33.4% noncontrolling interest in Echogen. In determining whether the Company should consolidate Echogen, the Company considered that its board participation and ownership interest would not give the 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 $19.1 at March 31, 2014.
In April 2009, the Company and Al Rushaid Petroleum Investment Company (“ARPIC”) executed a Business Venture Agreement to form a joint venture, Dresser-Rand Arabia LLC (“D-R Arabia”). D-R Arabia was formed to execute manufacturing, repair, and other services, and to provide technical expertise and training in the Kingdom of Saudi Arabia. The Company and ARPIC each own approximately 50% of D-R Arabia. In determining whether the Company should consolidate D-R Arabia, the Company considered that its ownership, board participation and other related contractual rights would give the Company the ability to direct the activities of D-R Arabia, which would result in the Company being the primary beneficiary. Consequently, D-R Arabia is consolidated in the financial results of the Company.
Page 13 of 40
DRESSER-RAND GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ― (continued)
(Unaudited)
($ in millions, except per share amounts)
D-R Arabia has until May 22, 2014, to satisfy two issues raised by the Saudi Arabian General Investment Authority (“SAGIA”), concerning adding licensing to provide services works and increasing its capitalization. These issues can be easily addressed with filings made to SAGIA. However, the filings require the approval of both shareholders of the joint venture company. ARPIC has been unwilling to provide its signed approvals of these filings, although the parties continue discussions. If the filings are not made by this date and SAGIA does not provide any further extensions, this joint venture company may have to cease its operations, which could have a material adverse effect.
In 2008, the Company entered into an agreement by which it acquired a noncontrolling interest in Ramgen Power Systems, LLC (“Ramgen”), a privately-held company that is developing compressor technology that applies proven supersonic aircraft technology to ground-based air and gas compressors. In addition to receiving a noncontrolling interest, the Company received an option to acquire the business of Ramgen at a price of $25.0 and a royalty commitment. The option is exercisable at any time through November 10, 2014. The Company has made investments totaling $34.4, which have resulted in an aggregate noncontrolling interest of 42.2% at March 31, 2014. The Company’s maximum exposure to loss on its investment in Ramgen is limited to amounts invested plus any amounts the Company may choose to invest in the future. In determining whether the Company should consolidate Ramgen at March 31, 2014, the Company considered that its board participation, ownership interest and the option to acquire would not give the Company the power to direct the activities of Ramgen and, consequently, would not result in the Company being the primary beneficiary. The investment in Ramgen 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 $29.2 at March 31, 2014. See Note 19 for additional details regarding Ramgen.
4.Costs and Estimated Earnings on Uncompleted Contracts
Costs and estimated earnings on uncompleted contracts were as follows:
March 31, |
December 31, |
||||||
2014 |
2013 |
||||||
Costs incurred on uncompleted contracts |
$ |
223.3 |
$ |
195.5 | |||
Estimated earnings |
59.3 | 52.4 | |||||
282.6 | 247.9 | ||||||
Less: billings to date |
(327.1) | (162.7) | |||||
$ |
(44.5) |
$ |
85.2 | ||||
Costs and estimated earnings in excess of billings |
$ |
9.2 |
$ |
98.1 | |||
Billings in excess of costs and estimated earnings |
(53.7) | (12.9) | |||||
$ |
(44.5) |
$ |
85.2 |
Page 14 of 40
DRESSER-RAND GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ― (continued)
(Unaudited)
($ in millions, except per share amounts)
5.Intangible Assets and Goodwill
The following table sets forth the weighted-average useful life, gross amount and accumulated amortization of intangible assets:
March 31, 2014 |
December 31, 2013 |
|||||||||||||
Cost |
Accumulated Amortization |
Weighted-Average Useful Lives |
Cost |
Accumulated Amortization |
||||||||||
Trade names |
$ |
120.1 |
$ |
25.2 |
39 years |
$ |
120.0 |
$ |
24.2 | |||||
Customer relationships |
334.1 | 83.5 |
32 years |
333.2 | 79.4 | |||||||||
Non-compete agreements |
5.5 | 5.3 |
3 years |
5.5 | 5.0 | |||||||||
Existing technology |
160.6 | 57.1 |
23 years |
160.6 | 55.3 | |||||||||
Contracts and purchase agreements |
10.5 | 1.5 |
11 years |
10.2 | 1.4 | |||||||||
Software |
28.7 | 27.0 |
10 years |
28.7 | 26.3 | |||||||||
In-process research and development |
12.7 | 0.9 |
10 years |
12.7 | 0.3 | |||||||||
Total amortizable intangible assets |
$ |
672.2 |
$ |
200.5 |
$ |
670.9 |
$ |
191.9 |
Intangible asset amortization expense was $8.3 and $7.3 for the three months ended March 31, 2014 and 2013, respectively, and is estimated to be $25.2 for the remainder of fiscal year 2014. Estimated amortization expense for each of the subsequent five fiscal years is expected to be as follows: $28.1 in 2015, $27.5 in 2016, $27.3 in 2017, $26.9 in 2018 and $26.6 in 2019.
The following table represents the changes in goodwill in total and by segment (see Note 15 for additional segment information):
Aftermarket |
|||||||||
Parts and |
|||||||||
New Units |
Services |
Total |
|||||||
Balance, December 31, 2013 |
$ |
488.4 |
$ |
439.2 |
$ |
927.6 | |||
Foreign currency adjustments |
1.6 | 0.6 | 2.2 | ||||||
Balance, March 31, 2014 |
$ |
490.0 |
$ |
439.8 |
$ |
929.8 |
Page 15 of 40
DRESSER-RAND GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ― (continued)
(Unaudited)
($ in millions, except per share amounts)
6. Inventories, net
Inventories were as follows:
March 31, |
December 31, |
||||||
2014 |
2013 |
||||||
Raw materials |
$ |
125.4 |
$ |
71.0 | |||
Finished parts |
277.9 | 262.4 | |||||
Work-in-process |
757.7 | 845.9 | |||||
1,161.0 | 1,179.3 | ||||||
Less: progress payments from clients |
(417.1) | (463.3) | |||||
Inventories, net |
$ |
743.9 |
$ |
716.0 |
Finished parts may be used in production or sold to customers. Progress payments represent payments from clients based on milestone completion schedules. Any payments received in excess of inventory investment are classified as “Customer Advance Payments” in the current liabilities section of the consolidated balance sheet. Progress payments to suppliers are included in work-in-process and were $128.8 and $129.0 at March 31, 2014, and December 31, 2013, respectively. The total allowance for obsolescence for slow-moving inventory for all categories of inventory was $33.2 and $30.7 at March 31, 2014, and December 31, 2013, respectively.
7. Property, plant and equipment
Property, plant and equipment were as follows:
March 31, |
December 31, |
||||||
2014 |
2013 |
||||||
Cost: |
|||||||
Land |
$ |
32.5 |
$ |
33.1 | |||
Buildings and improvements |
266.7 | 261.4 | |||||
Machinery and equipment |
493.0 | 479.0 | |||||
792.2 | 773.5 | ||||||
Less: accumulated depreciation |
(314.6) | (301.2) | |||||
Property, plant and equipment, net |
$ |
477.6 |
$ |
472.3 |
Depreciation expense was $15.3 and $17.0 for the three months ended March 31, 2014 and 2013, respectively.
Conditional Asset Retirement Obligations
Any legal obligation to perform an asset retirement activity in which the timing and (or) method of settlement are conditional on a future event that may not be within our control is recognized as a liability at the fair value of the conditional asset retirement obligation, if the fair value of the liability can be reasonably estimated. U.S. GAAP acknowledges that, in some cases, sufficient information may not be available to reasonably estimate the fair value of an asset retirement obligation.
We are contractually or legally obligated to decommission our cogeneration sites in Brazil and Spain upon site exit. The Company has not recorded any conditional asset retirement obligations on its cogeneration facilities in Brazil because there is no current active market in which the obligations could be transferred and we do not have sufficient information to reasonably estimate the range of settlement dates and their related probabilities. The decommissioning activities in Brazil are less significant than those in Spain, and the Company believes any obligations arising from such activities are immaterial to the financial statements. The Spanish government published a draft regulation at the beginning of February
Page 16 of 40
DRESSER-RAND GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ― (continued)
(Unaudited)
($ in millions, except per share amounts)
2014 that, if implemented, reflected a reduction in the tariffs that resulted in the Company suspending operations at its six cogeneration facilities in Spain. As a result, the Company recorded a conditional asset retirement obligation related to its Spanish cogeneration facilities in 2014. The changes in the Company’s asset retirement obligations were as follows:
March 31, |
December 31, |
|||||
2014 |
2013 |
|||||
Beginning balance |
$ |
- |
$ |
- |
||
Provisions |
4.5 |
- |
||||
Effects of exchange rate changes |
0.1 |
- |
||||
Ending balance |
$ |
4.6 |
$ |
- |
8. Financial Instruments (€ in millions)
The Company manages exposure to changes in foreign currency exchange rates and interest rates through its normal operating and financing activities as well as through the use of financial instruments.
The purpose of the Company’s hedging activities is to mitigate the economic impact of changes in foreign currency exchange rates and interest rates. The Company attempts to hedge transaction exposures through natural offsets. To the extent that this is not practicable, the Company may enter into forward exchange contracts or interest rate swaps. Major exposure areas considered for hedging include foreign currency denominated receivables and payables, firm committed transactions, forecast sales and purchases and variable interest rates.
The Company has entered into an interest rate swap agreement to minimize the economic impact of unexpected fluctuations in interest rates on the lease of its compressor testing facility in France. The interest rate swap has a notional amount of €18.0 (approximately $24.8) and effectively converts substantially the entire interest component of the lease from a variable rate of interest to a fixed rate of interest of approximately 3.87% per annum. The interest rate swap has been designated as a cash flow hedge for accounting purposes, and unrealized gains and losses are recognized in other comprehensive income. The fair value of the interest rate swap at March 31, 2014, and December 31, 2013 was $0.6 and $0.7, respectively, and the related unrealized gain for the three months ended March 31, 2014 and 2013, was $0.1 and $0.1, respectively.
None of the Company’s other derivative financial instruments are designated as hedges for accounting purposes. Changes in the fair values of derivatives that are not designated as hedges for accounting purposes are immediately recognized in the consolidated statement of income in other income (expense), net.
All of the Company’s foreign currency derivative contracts are subject to master netting arrangements. These arrangements provide for the option to settle contracts on a net basis when they settle on the same day and the same currency. In addition, these arrangements provide for a net settlement of all contracts with a given counterparty in the event that the arrangement is terminated due to the occurrence of default or a termination event. The Company has elected to present the derivative contracts on a gross basis in the consolidated balance sheet. The Company recognizes derivatives in prepaid expenses and other, or accounts payable and accruals, as appropriate, on the consolidated balance sheet and measures them at fair value each reporting period. Had the Company presented its derivative contracts on a net basis, the amounts recorded in the consolidated balance sheet would not be materially different from the presentation in the table below. In addition, the Company does not have any cash collateral due under such arrangements.
The following table sets forth the Company’s foreign currency exchange contracts that were accounted for at fair value on a recurring basis:
Page 17 of 40
DRESSER-RAND GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ― (continued)
(Unaudited)
($ in millions, except per share amounts)
March 31, |
December 31, |
||||||
2014 |
2013 |
||||||
Foreign currency exchange contracts assets |
$ |
3.1 |
$ |
5.4 | |||
Foreign currency exchange contracts liabilities |
$ |
11.2 |
$ |
16.3 |
The notional amount for the forward exchange contracts outstanding as of March 31, 2014, and December 31, 2013, was $552.4 and $546.6, respectively. The net foreign currency gains (losses) recognized for forward currency contracts were $2.8 and $(4.3) for the three months ended March 31, 2014 and 2013, respectively.
Certain countries in which the Company operates have emission reduction programs under which the Company receives tradable emission allowances. To the extent that actual emissions exceed tradable emission allowances, the Company records a liability at fair value. Changes in the fair value of this liability are recorded in other income (expense), net. The fair value of the liability from the shortfall of tradable emission allowances was $0.1 at March 31, 2014, and December 31, 2013.
9.Income taxes
We operate in numerous countries and tax jurisdictions around the world and there is no assurance that future tax audits will not result in significant tax adjustments. Management believes that it has provided adequate estimated liabilities for taxes based on its understanding of the tax laws and regulations in those countries.
Our estimated income tax provisions for the three months ended March 31, 2014 and 2013, result in effective rates that differ from the U.S. federal statutory rate of 35% principally because of different tax rates in foreign tax jurisdictions and certain deductions and credits allowable for income tax purposes, partially offset by state and local income taxes and valuation allowances on net operating loss carryforwards that more-likely-than-not will not be realized. We will adjust the valuation allowances in the future when it becomes more-likely-than-not that the benefits of deferred tax assets will not be realized.
The Company released the valuation allowance placed on Venezuelan deferred tax assets of approximately $1.7 during the three months ended March 31, 2014. Management’s forecasts of 2014 earnings for Venezuela indicate continued profitability and future utilization of existing net operating loss carryforwards.
The increase in the effective tax rate for the three months ended March 31, 2014, as compared to the three months ended March 31, 2013, is principally due to a less favorable mix of U.S. earnings versus foreign earnings. Additionally, during the three months ended March 31, 2014, we incurred a disproportionate amount of net operating losses in certain foreign countries that resulted in deferred tax assets which more-likely-than-not will not be realized, and we have recorded a valuation allowance against the deferred tax assets, thus increasing the effective tax rate.
On January 2, 2013, the American Taxpayer Relief Act (“ATRA”) of 2012 was signed into law. Some of the provisions were retroactive to January 1, 2012, including the exclusion from U.S. federal taxable income of certain interest, dividends, rents, and royalty income of foreign affiliates, as well as the tax benefits of the credits associated with that income and an extension of the research and experimentation credit. Therefore, as required by U.S. GAAP, a $4.4 benefit was reflected in the three months ended March 31, 2013 as a discrete event. These provisions were not extended for 2014 causing an increase in the effective tax rate as compared to the three months ended March 31, 2013.
As a result of the devaluation of the Venezuelan bolivar on February 8, 2013, the Company recorded a nondeductible foreign exchange loss in its Consolidated Statement of Income of approximately $3.1 for the three months ended March 31, 2013. Had this amount been deductible, our effective tax rate would have been 0.4% lower for the three months ended March 31, 2013.
Page 18 of 40
DRESSER-RAND GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ― (continued)
(Unaudited)
($ in millions, except per share amounts)
Certain foreign subsidiaries in Brazil and India are operating under tax holiday arrangements that will expire during 2014 and 2015, respectively, subject to potential extensions. For the three months ended March 31, 2014 and 2013, the impact of these tax holiday arrangements lowered income tax expense by $1.2 ($0.02 per diluted share) and $1.0 ($0.01 per diluted share), respectively.
Management has decided to permanently reinvest the unremitted earnings of the Company’s foreign subsidiaries and, therefore, no provision for U.S. federal or state income taxes has been provided on those foreign earnings. If any permanently reinvested foreign earnings are distributed, in the form of dividends or otherwise, the Company could be subject to additional U.S. income taxes (subject to adjustment for foreign tax credits), as well as withholding taxes imposed by certain foreign jurisdictions.
10.Long-Term Debt
Long-term debt consists of the following:
March 31, |
December 31, |
||||
2014 |
2013 |
||||
Amended Credit Facility |
$ |
823.6 |
$ 884.5 |
||
6½% Senior Subordinated Notes due May 2021 |
375.0 | 375.0 | |||
Bank overdraft facility |
10.7 | 4.6 | |||
Other indebtedness |
21.4 | 22.9 | |||
Total debt |
1,230.7 | 1,287.0 | |||
Less: current portion |
(45.7) | (40.1) | |||
Total long-term debt |
$ |
1,185.0 | 1,246.9 |
At March 31, 2014, the Company was in compliance with its debt covenants.
Senior Subordinated Notes
The carrying and fair values of the Company’s Senior Subordinated Notes were as follows:
March 31, 2014 |
December 31, 2013 |
|||||||||||
Carrying Value |
Fair Value |
Carrying Value |
Fair Value |
|||||||||
6½% senior subordinated notes due May 2021 |
$ |
375.0 |
$ |
400.3 |
$ |
375.0 |
$ |
400.5 |
The carrying values of all of the Company’s other long-term debt materially approximate their fair values.
Page 19 of 40
DRESSER-RAND GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ― (continued)
(Unaudited)
($ in millions, except per share amounts)
11. Pension Plans
The components of net pension expense were as follows for the three months ended March 31:
U.S. Plans |
Non-U.S. Plans |
|||||||||||
2014 |
2013 |
2014 |
2013 |
|||||||||
Service cost |
$ |
0.9 |
$ |
1.0 |
$ |
0.6 |
$ |
1.4 | ||||
Interest cost |
3.3 | 2.9 | 1.4 | 1.6 | ||||||||
Expected return on plan assets |
(4.6) | (4.0) | (1.6) | (1.7) | ||||||||
Amortization of net actuarial loss |
0.7 | 2.0 |
- |
0.1 | ||||||||
Amortization of prior service cost |
0.1 |
- |
- |
- |
||||||||
Net pension expense |
$ |
0.4 |
$ |
1.9 |
$ |
0.4 |
$ |
1.4 |
The fair value measurement of certain plan assets (approximately 3.5% of total plan assets) is derived using significant unobservable inputs (Level 3). Level 3 assets consist of annuities held as investments within the plan that cover a set amount of liabilities and the effects of changes in the values of the related assets and liabilities are generally offsetting. Level 3 assets also consist of annuities that require contribution premiums to fund ongoing liabilities as required by foreign governmental regulations. Annuities are valued using standard actuarial calculations such as discount rates, mortality rates and participant population.
The Company made pension contributions of $5.5 during each of the three months ended March 31, 2014 and 2013.
12.Post-Retirement Benefits Other than Pensions
The components of the net post-retirement benefit expense were as follows:
Three Months Ended March 31, |
||||||
2014 |
2013 |
|||||
Interest cost |
$ |
0.1 |
$ |
0.2 | ||
Amortization of net actuarial loss |
- |
0.1 | ||||
Net post-retirement benefits expense |
$ |
0.1 |
$ |
0.3 |
13.Commitments and Contingencies (£, € and R$ in millions)
Legal Proceedings
We are involved in various litigation, claims and administrative proceedings arising in the normal course of business. Amounts recorded for identified contingent liabilities are estimates, which are regularly reviewed and adjusted to reflect additional information when it becomes available. We are indemnified by our former owner, Ingersoll Rand Company Limited, for certain of these matters as part of Ingersoll Rand’s sale of the Company and by the sellers of Grupo Guascor for certain of these matters in connection with our acquisition of Grupo Guascor, S.L. (“Guascor”) in May 2011. While adverse decisions in certain of these litigation matters, claims and administrative proceedings could have a material effect on a particular period’s results of operations, subject to the uncertainties inherent in estimating future costs for contingent liabilities and the benefit of the indemnities from Ingersoll Rand and the sellers of Guascor, management believes that any
Page 20 of 40
DRESSER-RAND GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ― (continued)
(Unaudited)
($ in millions, except per share amounts)
future accruals with respect to these currently known contingencies would not have a material effect on the financial condition, liquidity or cash flows of the Company.
Painted Post Labor Litigation
In November 2007, Local 313 of IUE-CWA, the union that represents certain employees at the Company’s Painted Post, New York, facility (the “IUE”) made an offer to have its striking members return to work under the terms of the previously expired union agreement. The Company rejected that offer and locked out these represented employees. Approximately one week later, after reaching an impasse in negotiations, the Company exercised its right to implement the terms of its last contract offer, ended the lockout, and the employees represented by the IUE agreed to return to work under the implemented terms. Subsequently, the IUE filed several unfair labor practice (“ULP”) charges against the Company with Region 3 of the National Labor Relations Board (“NLRB”), asserting multiple allegations arising from the protracted labor dispute, its termination, contract negotiations and related matters.
Region 3 of the NLRB decided to proceed to complaint on only one-third of the ULP allegations asserted by the IUE, while the remaining claims were dismissed. Notably, the NLRB found that many of the critical aspects of the Company’s negotiations with the IUE were handled appropriately, including the NLRB’s findings that the union’s strike was not an unfair labor practice strike and the Company’s declaration of impasse and its unilateral implementation of its last offer were lawful. The Company, therefore, continued to operate under a more contemporary and competitive implemented contract offer while contract negotiations with the IUE continued in 2008 and 2009. In November 2009, a collective bargaining agreement between the IUE and the Company was ratified, which agreement was renegotiated in 2013 and extended to March 2016.
The claims that proceeded to complaint before the NLRB included the Company’s handling of the one week lockout, the negotiation of the recall process used to return employees to the facility after reaching impasse and lifting the lockout, and the termination of two employees who engaged in misconduct on the picket line during the strike. The trial of this matter took place before a NLRB Administrative Law Judge (the “ALJ”) in Elmira and Painted Post, New York, during the summer of 2009. On January 29, 2010, the ALJ issued his decision in which he found in favor of the union on some issues and upheld the Company’s position on others. The Company timely appealed the ALJ’s rulings against the Company to the NLRB in Washington, D.C. On August 6, 2012, the NLRB affirmed the ALJ’s rulings. The Company timely appealed the matter to the U.S. Fifth Circuit Court of Appeals, which stayed the proceedings in July 2013 pending a ruling by the U.S. Supreme Court on a constitutional issue, in an unrelated case, that is also in controversy in the Company’s appeal. The Company continues to believe it complied with the law and that it will ultimately prevail with respect to these ULP allegations. The litigation process, including further appeals, could reasonably take one to two years to resolve with finality. Given the broad scope of possible remedies that may apply pursuant to conflicting case law, the Company cannot estimate the range of loss, if any, at this time. Although the ultimate outcome of these matters cannot be ascertained at this time, it is the opinion of management that the resolution of such matters will not have a material adverse effect on the Company’s financial condition.
United Kingdom (“UK”) Pension Plan
During July 2009, the Company received notification from the current plan trustees of one of its subsidiaries' pension plans in the UK that sex equalization under the plan may have been achieved later than originally expected. The third-party trustee at the time action was taken believes that it had taken the appropriate steps to amend properly the plan as originally expected. In June 2012, interpretation proceedings commenced in the English High Court to determine whether sex equalization of the plan was correctly implemented. The Company accrued £3.0 (approximately $5.0) to address its estimate of contingent exposure regarding this dispute over potential unequal treatment of men and women under the pension plan related to a period in the 1990s and is exploring its rights against others. On January 31, 2014, the High Court found that the sex equalization had been correctly implemented at the relevant time. Accordingly, the Company does not believe that it has any further financial or legal exposure relating to this matter, and this accrual was eliminated as of December 31, 2013.
Banco Santos Litigation
Page 21 of 40
DRESSER-RAND GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ― (continued)
(Unaudited)
($ in millions, except per share amounts)
In July 2004, Guascor SA and Jaguari Energetica SA, subsidiaries of Guascor (collectively, the “GG Entities”), entered into an agreement (the “BNDES Agreement”) with the Bank of National Economic and Social Development (“BNDES”) for the construction of a hydroelectric dam in Rio Grande do Sul, Brazil (the “Project”). Pursuant to the terms of the BNDES Agreement, in August 2004, the GG Entities entered into a separate agreement (the “Banco Santos Agreement”) with Banco Santos, a Brazilian bank previously based in Sao Paulo, Brazil. Per the terms of the Banco Santos Agreement, Banco Santos and the GG Entities agreed that: (i) in exchange for a fee paid by the GG Entities, Banco Santos would establish a reserve in favor of the GG Entities in the amount of R$3.6 (approximately $1.6) (the “Reserve”) to ensure that funds for a twelve month term would be available (if needed) by the GG Entities to fund their performance obligations under the BNDES Agreement; (ii) the GG Entities would issue twelve banking credit notes (the “Notes”) to Banco Santos (one for each of the twelve months), under which Notes the GG Entities would be obligated to make a payment to Banco Santos if the GG Entities used the applicable portion of the Reserve associated with a Note; and (iii) no portion of the Reserve would be invested by Banco Santos in any high risk investments. The GG Entities completed the Project in December 2006 and fulfilled their obligations under the BNDES Agreement, without using any portion of the Reserve. Accordingly, we believe that, pursuant to the terms of the Banco Santos Agreement, none of the Notes securing the Reserve became due or payable by the GG Entities to Banco Santos.
In September 2004, Banco Santos, without the knowledge or consent of the GG Entities, transferred the Reserve to its affiliates, Santos Credit Yield (“SCY”) and Santos Credit Master (“SCM,” and together with SCY, the “BS Affiliates”). Upon the receipt of the Reserve, the BS Affiliates invested the funds in a high risk investment, resulting in the loss of the entire Reserve. In addition, concurrently with the transfer of the Reserve, Banco Santos assigned its rights in the Notes to the BS Affiliates. Shortly after the assignment of the Notes, Banco Santos declared bankruptcy.
The GG Entities commenced an action (the “Declaratory Action”) in the Civil Courts in the State of Sao Paulo, Brazil, in April 2005 seeking a declaratory judgment that the BS Affiliates were barred from recovering any amounts with regard to the Notes because such Notes were null and void pursuant to the terms of the Banco Santos Agreement. In the fourth quarter of 2012, the Court appointed an expert to evaluate the GG Entities’ claims and allegations. However, notwithstanding the issuance of an expert’s report that was favorable to the GG Entities, the Court denied the declaratory relief sought by the GG Entities and ordered the GG Entities to pay attorneys’ fees. The GG Entities timely appealed the adverse judgment in August 2013, which appeal is currently pending.
In December 2010, while the Declaratory Action was still pending, the BS Affiliates filed a separate action (the “BS Action”) in the Sao Paulo Civil Court seeking to recover from the GG Entities the amount of the Reserve. The Court stayed the BS Action in September 2011 pending a final ruling in the Declaratory Action.
Although we believe, based on the factual circumstances and the applicable law, that Banco Santos and the BS Affiliates violated the terms of the Banco Santos Agreement and the payment terms of the Notes, and that the GG Entities should prevail in both Declaratory Action and the BS Action, the ultimate outcome of these proceedings cannot be ascertained at this time. The Company estimates that the total aggregate exposure for damages, interest and attorneys’ fees could be up to R$37.5 (approximately $16.6). Moreover, the Company has an indemnification claim against the sellers of Guascor with regard to this matter.
Italian Value-Added Tax Claim
The Company is in litigation with the Italian tax authorities regarding value-added taxes for tax years 2005-2008 and the application of Italian and European Union laws. The Company received an adverse judgment from the Italian Tax Court (i.e., the Commissione Tributaria Provinciale Di Genova) in February 2012 for tax years 2005-2006 for approximately €4.2 ($5.8). On March 6, 2014, as requested by the Italian Tax Court with regard to tax years 2007 and 2008, the Court of Justice of the European Union issued an advisory, preliminary ruling, which ruling supported the Company’s position with regard to the value-added tax regulations that no such taxes are owed. The Company then requested that the Italian Tax Court issue its judgment with regard to tax years 2007 and 2008, which judgment the Company intends to present to the appeals court in connection with its appeal of the Italian Tax Court’s adverse judgment with respect to tax years 2005 and 2006. The Company estimates the total aggregate exposure for taxes, interest and penalties could be up to €10.1 ($13.9).
Page 22 of 40
DRESSER-RAND GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ― (continued)
(Unaudited)
($ in millions, except per share amounts)
14. Warranties
We maintain a product warranty liability that represents estimated future claims for equipment, parts and services covered during a warranty period. A warranty liability is provided at the time of revenue recognition based on historical experience and is adjusted as required.
The following table represents the changes in the product warranty liability:
Three Months Ended March 31, |
|||||
2014 |
2013 |
||||
Beginning balance |
$ |
21.4 |
$ |
20.1 | |
Provision for warranties issued during period |
3.7 | 2.4 | |||
Adjustments to warranties issued in prior periods |
0.8 | 0.7 | |||
Payments during the period |
(4.5) | (3.6) | |||
Foreign currency adjustments |
0.2 | (0.3) | |||
Ending balance |
$ |
21.6 |
$ |
19.3 |
15.Segment Information
The Company has two reportable segments based on the engineering and production processes, and the products and services provided by each segment, as follows:
1) |
New units are predominately highly engineered solutions to new requests from clients. New units also include standardized equipment such as engines and single stage steam turbines. The segment includes engineering, manufacturing, project management, packaging, testing, sales and administrative support. |
2) |
Aftermarket parts and services consist of support solutions for the existing population of installed equipment and the operation and maintenance of several types of energy plants. The segment includes engineering, manufacturing, project management, installation, commissioning, start-up and other field services, repairs, overhauls, refurbishment, sales and administrative support. |
These functions have been defined as the operating segments of the Company because they are the segments (1) that engage in business activities from which revenues are earned and expenses are incurred; (2) whose operating results are regularly reviewed by the Corporation’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance; and (3) for which discrete financial information is available.
Unallocated amounts represent expenses and assets that cannot be assigned directly to either reportable segment because of their nature. Unallocated net expenses include certain corporate expenses and research and development expenses. Assets that are directly assigned to the two reportable segments are trade accounts receivable, net inventories and goodwill. Unallocated assets include cash, prepaid expenses and other, deferred taxes, property, plant and equipment and intangible assets. There are no significant intercompany transactions between our reportable segments.
Page 23 of 40
DRESSER-RAND GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ― (continued)
(Unaudited)
($ in millions, except per share amounts)
Segment results for the three months ended March 31, 2014 and 2013 were as follows:
Three Months Ended March 31, |
||||||
2014 |
2013 |
|||||
Revenues |
||||||
New units |
$ |
391.3 |
$ |
443.2 | ||
Aftermarket parts and services |
307.8 | 323.2 | ||||
Total revenues |
$ |
699.1 |
$ |
766.4 | ||
Income from operations |
||||||
New units |
$ |
15.7 |
$ |
28.6 | ||
Aftermarket parts and services |
49.8 | 66.4 | ||||
Unallocable |
(25.3) | (29.5) | ||||
Total income from operations |
$ |
40.2 |
$ |
65.5 | ||
Depreciation and amortization |
||||||
New units |
$ |
12.7 |
$ |
14.1 | ||
Aftermarket parts and services |
10.9 | 10.2 | ||||
Total depreciation and amortization |
$ |
23.6 |
$ |
24.3 |
Total assets by segment were as follows:
March 31, |
December 31, |
||||||||
2014 |
2013 |
||||||||
Total assets (including goodwill) |
|||||||||
New units |
$ |
1,178.2 |
$ |
1,113.8 | |||||
Aftermarket parts and services |
1,313.8 | 1,305.0 | |||||||
Unallocable |
1,181.5 | 1,319.0 | |||||||
Total assets |
$ |
3,673.5 |
$ |
3,737.8 |
16.Incentive Stock-Based Compensation Plans
During the three months ended March 31, 2014, the Compensation Committee of the Company’s Board of Directors, and with respect to the President and Chief Executive Officer, the independent members of the Board of Directors, approved grants of options and stock appreciation rights for 291,810 shares of common stock and grants of 312,460 shares of time-vested restricted stock units to employees under the Dresser-Rand Group Inc. 2008 Stock Incentive Plan and approved the issuance of Performance Restricted Stock Units with a target grant amount of 69,499 restricted stock units.
The Company also granted 15,736 shares of stock to non-employee Directors in February 2014.
The difference between basic weighted-average shares outstanding and diluted weighted-average shares outstanding in the computation of earnings per share presented in the Consolidated Statement of Income is comprised entirely of the dilutive effect of the stock-based compensation awards described above for all periods presented.
17.Accumulated Other Comprehensive Income (Loss) (“AOCI”)
AOCI and the changes in AOCI by component were as follows:
Page 24 of 40
DRESSER-RAND GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ― (continued)
(Unaudited)
($ in millions, except per share amounts)
Foreign |
Pension and |
|||||||||||
Currency |
Unrealized |
Other |
||||||||||
Translation |
(Loss) Gain on |
Postretirement |
||||||||||
Adjustments |
Derivatives |
Benefit Plans |
Total |
|||||||||
At December 31, 2013 |
$ |
(69.5) |
$ |
(0.4) |
$ |
(48.9) |
$ |
(118.8) | ||||
Other comprehensive gain before reclassifications |
4.1 |
- |
- |
4.1 | ||||||||
Amounts reclassified from AOCI |
- |
0.1 | 0.5 | 0.6 | ||||||||
Net current period other comprehensive income |
4.1 | 0.1 | 0.5 | 4.7 | ||||||||
At March 31, 2014 |
$ |
(65.4) |
$ |
(0.3) |
$ |
(48.4) |
$ |
(114.1) |
Foreign |
Pension and |
|||||||||||
Currency |
Unrealized |
Other |
||||||||||
Translation |
(Loss) Gain on |
Postretirement |
||||||||||
Adjustments |
Derivatives |
Benefit Plans |
Total |
|||||||||
At December 31, 2012 |
$ |
(51.3) |
$ |
(0.7) |
$ |
(82.7) |
$ |
(134.7) | ||||
Other comprehensive loss before reclassifications |
(24.0) |
- |
- |
(24.0) | ||||||||
Amounts reclassified from AOCI |
- |
0.1 | 1.4 | 1.5 | ||||||||
Net current period other comprehensive (loss) income |
(24.0) | 0.1 | 1.4 | (22.5) | ||||||||
At March 31, 2013 |
$ |
(75.3) |
$ |
(0.6) |
$ |
(81.3) |
$ |
(157.2) |
Items reclassified out of AOCI into net income for the three months ended March 31, 2014 and 2013 were as follows:
Amount Reclassified From AOCI into Net Income |
Affected Line Item in the |
|||||||
Three Months Ended |
Consolidated Statement |
|||||||
Details About AOCI Components |
March 31, 2014 |
March 31, 2013 |
of Income |
|||||
Unrealized gain on derivatives |
$ |
(0.1) |
$ |
(0.1) |
Interest expense, net |
|||
- |
- |
Provision for income taxes |
||||||
$ |
(0.1) |
$ |
(0.1) |
Net of tax |
||||
Pension and other postretirement benefit plans |
||||||||
Amortization of net actuarial loss |
$ |
(0.8) |
$ |
(2.2) |
(a) |
|||
0.3 | 0.8 |
Provision for income taxes |
||||||
$ |
(0.5) |
$ |
(1.4) |
Net of tax |
||||
Total reclassifications, net of tax |
$ |
(0.6) |
$ |
(1.5) |
Net of tax |
(a)These items are included in the computation of net pension expense and net post-retirement benefits expense. See Note 11, Pension Plans and Note 12, Post-Retirement Benefits Other than Pensions for additional information.
18. Significant Concentration of Credit Risk
Page 25 of 40
DRESSER-RAND GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ― (continued)
(Unaudited)
($ in millions, except per share amounts)
At March 31, 2014, approximately 15.1% of the Company’s net accounts receivable was from Petroleos de Venezuela, S.A. (“PDVSA”). Historically, the Company has collected its outstanding receivables from PDVSA and payments of approximately $25.5 were received during the three months ended March 31, 2014. The Company believes that, based on this historical experience and discussions with PDVSA, the outstanding balance is ultimately collectible. Consequently, a provision for bad debts has not been recorded for these accounts receivable.
19. Subsequent Event
On April 4, 2014, the Company entered into an Asset Purchase Agreement (“APA”) to acquire substantially all of the assets of Ramgen, with an expected closing date no later than August 15, 2014. Under the terms of the APA, the Company will exchange its existing equity ownership in Ramgen, cash of approximately $1.0 and the rights to royalty payments from certain future sales for substantially all of the assets of Ramgen. This agreement supersedes all prior agreements between the Company and Ramgen.
Page 26 of 40
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ($ in millions)
Overview
We are among the largest global suppliers of custom-engineered rotating equipment solutions for long-life, critical applications in the oil, gas, chemical, petrochemical, process, power generation, military and other industries worldwide. Our equipment and service solutions are also used in energy infrastructure, including oil and gas, environmental solutions and power generation.
Our products and services are widely used in oil and gas applications that include hydrogen recycle, make-up, wet gas and other applications for the refining industry; cracked gas, propylene and ethylene compression for petrochemical facilities; ammonia syngas, refrigeration, and carbon dioxide compression for fertilizer production; a number of compression duties for chemical plants; gas gathering, export, lift and re-injection of natural gas or carbon dioxide (“CO2”) to meet regulatory requirements or for enhanced oil recovery in the upstream market; gas processing, main refrigeration compression and a variety of other duties required in the production of liquefied natural gas (“LNG”); gas processing duties, storage and pipeline transmission compression for the midstream market; synthetic fuels; and steam or gas turbine mechanical drives or power generation packages for floating production, storage and offloading (“FPSO”) vessels and offshore platforms as well as for a variety of compression and pumping applications in various segments of the oil and gas market. We are also a supplier of diesel and gas engines that provides customized energy solutions across worldwide energy infrastructure markets based upon reciprocating engine power systems technologies.
Our custom-engineered products are also used in other advanced applications in the environmental markets we serve. These applications use renewable energy sources, reduce carbon footprint, recover energy and/or increase energy efficiency. These products include, among others, compression technologies for carbon capture and sequestration (“CCS”); hot gas turbo-expanders for energy recovery in refineries and certain chemical facilities; co- and tri-generation combined heat and power (“CHP”) packages for institutional and other clients; and a large number of steam turbine applications to generate power using steam produced by recovering exhaust heat from the main engines in ships, recovering heat from mining and metals production facilities and exhaust heat recovery from gas turbines in on-shore and off-shore sites. We also have experience in the design, construction and development of power generation and cogeneration plants and mini-hydroelectric plants, and the development and exploitation of wind farms and biomass, used oil and landfill gas, photovoltaic solar energy and farm waste processing. Other biomass and biogas applications for our steam turbine product line include gasification of municipal solid waste or incineration of wood, palm oil, sugar or pulp and paper residues to generate power. Our equipment is used for compressed air energy storage (“CAES”) for utility sized power generation. A CAES plant makes use of our classes of axial compressors, centrifugal compressors, gas expanders, controls and rotating equipment system integration capabilities. These applications are environmentally-friendly and provide unique response features for grid management. Other general industrial markets served include steel and distributed power generation. We operate globally with manufacturing facilities in the United States (“U.S.”), France, United Kingdom (“UK”), Germany, Spain, Norway, Brazil and India.
In addition to our products and services, we provide complete, turnkey compression and power generation solutions to our clients in the oil, gas and environmental markets we serve. These solutions typically incorporate one or more of our products and services into the compression or power generation facility, which may include process equipment, such as coolers, vessels, gas dehydration systems, process and utility piping and valves, process instrumentation, transformers and switch gears, and facility controls, as well as civil works and structures. We manage the complete project, including engineering, project controls, procurement, construction, installation, commissioning and start-up of the facility.
We provide a wide array of products and services to our worldwide client base in over 150 countries from our global locations in 18 U.S. states and 32 countries through our 73 sales offices, 49 service and support centers, including six engineering and research and development centers, and 14 manufacturing locations.
Our solutions-based service offering combines our industry-leading technology, extensive worldwide service center network, deep product expertise, project management capabilities and a culture of safety (which we believe to be industry-leading) and continuous improvement. This approach drives our growth as we offer integrated service solutions that help our clients lower the life cycle costs of their rotating equipment, minimize adverse environmental impact and maximize returns on their production and processing equipment. We believe our business model and alliance-based approach built on alliance and frame agreements align us with our clients who increasingly choose service providers that can help optimize performance over the entire life cycle of their equipment. Our alliance/frame agreement program encompasses the provision of new units and/or parts and services. We offer our clients a dedicated team, advanced business tools, a streamlined engineering and procurement process, and a life cycle approach to manufacturing, operating and maintaining their equipment, whether originally manufactured by us or by a third party.
Page 27 of 40
From a long-term perspective, we believe that the fundamentals driving trends in our industry include population and economic growth; maturing producing oil and gas fields worldwide that require greater use of compression equipment to maintain production levels; the advancement of shale gas technologies which require compression for both transmission and gas processing activities; the increase in demand for electricity requiring greater use of power generation equipment; the increase in demand for natural gas that is driving growth in gas production, storage, transmission infrastructure and LNG; international regulatory and environmental initiatives, including clean fuel legislation and stricter emission controls; the aging installed base of our class of equipment that is increasing demand for aftermarket parts and services, overhauls and upgrades; and the increased outsourcing of equipment maintenance and operation. With respect to our long-term business strategy, certain of our key strategic objectives include:
· |
Increasing sales of aftermarket parts and services to the installed base of Dresser-Rand equipment; |
· |
Expanding sales of aftermarket parts and services to non-Dresser-Rand equipment in our class; |
· |
Growing alliances; |
· |
Expanding our performance-based long-term service contracts; |
· |
Introducing new and innovative products and technologies; |
· |
Improving profitability; and |
· |
Selectively pursuing acquisitions. |
Segment information
We have two reportable segments based on the engineering and production processes, and the products and services provided by each segment, as follows:
1) |
New units are predominately highly engineered solutions to new requests from clients. New units also include standardized equipment such as engines and single stage steam turbines. The segment includes engineering, manufacturing, project management, packaging, testing, sales and administrative support. |
2) |
Aftermarket parts and services consist of support solutions for the existing population of installed equipment and the operation and maintenance of several types of energy plants. The segment includes engineering, manufacturing, project management, installation, commissioning, start-up and other field services, repairs, overhauls, refurbishment, sales and administrative support. |
These functions have been defined as the operating segments of the Company because they are the segments (1) that engage in business activities from which revenues are earned and expenses are incurred; (2) whose operating results are regularly reviewed by the Company’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance; and (3) for which discrete financial information is available.
Unallocated amounts represent expenses and assets that cannot be assigned directly to either reportable segment because of their nature. Unallocated net expenses include certain corporate expenses and research and development expenses. Assets that are directly assigned to the two reportable segments are trade accounts receivable, net inventories and goodwill. Unallocated assets include cash, prepaid expenses and other, deferred taxes, property, plant and equipment and intangible assets. There are no significant intercompany transactions between our reportable segments.
Page 28 of 40
Results of Operations
Three months ended March 31, 2014, compared to the three months ended March 31, 2013:
Three Months Ended |
Three Months Ended |
Period to Period Change |
||||||||||||
March 31, 2014 |
March 31, 2013 |
2013 to 2014 |
% Change |
|||||||||||
Consolidated Statement of Operations Data: |
||||||||||||||
Revenues |
$ |
699.1 | 100.0% |
$ |
766.4 | 100.0% |
$ |
(67.3) |
(8.8)% |
|||||
Cost of sales |
551.7 | 78.9 | 594.4 | 77.6 | (42.7) |
(7.2)% |
||||||||
Gross profit |
147.4 | 21.1 | 172.0 | 22.4 | (24.6) |
(14.3)% |
||||||||
Selling and administrative expenses |
99.8 | 14.3 | 96.2 | 12.6 | 3.6 | 3.7% | ||||||||
Research and development expenses |
7.4 | 1.1 | 10.3 | 1.3 | (2.9) |
(28.2)% |
||||||||
Income from operations |
40.2 | 5.8 | 65.5 | 8.5 | (25.3) |
(38.6)% |
||||||||
Interest expense, net |
(13.0) | (1.9) | (14.3) | (1.9) | 1.3 |
(9.1)% |
||||||||
Other income (expense), net |
3.3 | 0.5 | (1.0) | 0.0 | 4.3 |
(430.0)% |
||||||||
Income before income taxes |
30.5 | 4.4 | 50.2 | 6.6 | (19.7) |
(39.2)% |
||||||||
Provision for income taxes |
13.9 | 2.0 | 15.8 | 2.1 | (1.9) |
(12.0)% |
||||||||
Net income |
16.6 | 2.4 | 34.4 | 4.5 | (17.8) |
(51.7)% |
||||||||
Net income attributable to noncontrolling |
||||||||||||||
interest |
- |
(0.1) | (1.5) | (0.2) | 1.5 |
(100.0)% |
||||||||
Net income attributable to Dresser-Rand |
$ |
16.6 | 2.4% |
$ |
32.9 | 4.3% |
$ |
(16.3) |
(49.5)% |
|||||
Bookings |
$ |
594.2 |
$ |
667.8 |
$ |
(73.6) |
(11.0)% |
|||||||
Backlog - ending |
$ |
2,749.2 |
$ |
2,863.7 |
$ |
(114.5) |
(4.0)% |
|||||||
Revenues. Revenues were $699.1 for the three months ended March 31, 2014, compared to $766.4 for the three months ended March 31, 2013, a decrease of $67.3 or 8.8%. Generally, oil prices and other macroeconomic conditions that affect the oil and gas industry have an impact on our business over an extended period of time. On a quarterly or annual basis, however, there is typically not a direct correlation of short-term volatility in these factors to our periodic financial results. Fluctuations in revenues and bookings are generally due to variability in the timing and size of very large orders in the new units segment, which is typical in the oil and gas industry. This occurs because our equipment, in many cases, is used in very large capital projects that take years to plan and execute, and such projects do not occur on a regular or consistent basis due to their size, location, technical resources, client capital expenditure constraints and long-term relationship to global energy supply and demand. While a change in these factors at a macroeconomic level will tend to have a corresponding overall effect on our revenue, the timing of such effect on our quarterly or even annual revenues is not directly correlated because of the very long lead times required to evaluate the macroeconomic landscape and then plan, permit and execute the projects. Furthermore, the highly engineered nature of our worldwide products and services does not easily lend itself to measuring the impact of price, volume and mix on changes in our total revenues from year to year. Nevertheless, based on factors such as measures of labor hours and purchases from suppliers, revenues decreased due to lower volume during the three months ended March 31, 2014 as a result of the timing issues discussed above. Specifically, we have been impacted by (1) delays in major upstream projects by our end-user clients in an effort to address their escalating capital costs relating to projects and (2) engineering resource constraints experienced by our end-user clients and their third-party contractors. Revenues were also negatively impacted by six of our cogeneration facilities in Spain. The Spanish government released a draft regulation at the beginning of February 2014 that reflects an approximate 37% reduction in the tariffs payable to such facilities. In connection with the draft regulation being issued and the reduction of the tariffs and the temporary shutdown of the facilities, revenues for the three months ended March 31, 2014 are lower by approximately $26.4. The decrease in revenues for the three months ended March 31, 2014, is also partially attributable to a reduction in shipments to one Latin American national oil company. An adverse translation impact of foreign currency fluctuations of approximately $8.8, resulting from a stronger U.S. dollar, also impacted revenues. The decrease in revenue on extended scope projects, which are accounted for under the percentage of completion method of accounting, was $7.5 for the three months ended March 31, 2014.
Cost of sales. Cost of sales was $551.7 for the three months ended March 31, 2014, compared to $594.4 for the three months ended March 31, 2013. As a percentage of revenues, cost of sales was 78.9% for the three months ended March 31,
Page 29 of 40
2014, compared to 77.6% for the three months ended March 31, 2013. The increase in cost of sales as a percentage of revenues from the three months ended March 31, 2013 to the three months ended March 31, 2014 was principally the result of reduced operating leverage on fixed costs as a result of lower volumes. The proposed change in the tariffs reflected in the draft Spanish regulation discussed above contributed approximately 0.7% to the increase in cost of sales as a percentage of revenues.
Gross profit. Gross profit was $147.4 for the three months ended March 31, 2014, compared to $172.0 for the three months ended March 31, 2013. As a percentage of revenues, gross profit was 21.1% for the three months ended March 31, 2014, compared to 22.4% for the three months ended March 31, 2013. We experienced decreased gross profit as a percentage of revenues as a result of the factors discussed above.
Selling and administrative expenses. Selling and administrative expenses were $99.8 for the three months ended March 31, 2014, compared to $96.2 for the three months ended March 31, 2013. The increase in selling and administrative expenses was generally the result of cost inflation and higher third party commissions driven by the mix of sales. As a percentage of revenues, selling and administrative expenses increased to 14.3% from 12.6%.
Research and development expenses. Research and development expenses for the three months ended March 31, 2014, were $7.4, compared to $10.3 for the three months ended March 31, 2013. The decline in research and development expenses is the result of the timing of such expenditures, as we expect our total 2014 research and development expense to be consistent with 2013. We continue to effectively execute our strategy to introduce new and innovative products and technologies with a focus on key new product development initiatives for DATUM®, DATUM® Integrated Compression System (“ICS”), subsea compression, LNG, steam turbines and reciprocating engines.
Income from operations. Income from operations was $40.2 for the three months ended March 31, 2014, compared to $65.5 for the three months ended March 31, 2013, a decrease of $25.3 or 38.6%. As a percentage of revenues, income from operations for the three months ended March 31, 2014 was 5.8% compared to 8.5% for the three months ended March 31, 2013. The decrease in income from operations and income from operations as a percentage of revenues is the result of the factors discussed above. The proposed change in tariffs reflected in the draft Spanish regulation discussed above reduced income from operations as a percentage of sales by approximately 1.3 percentage points.
Interest expense, net. Interest expense, net was $13.0 for the three months ended March 31, 2014, compared to $14.3 for the three months ended March 31, 2013. The decrease is partially due to lower weighted-average debt outstanding. Additionally, we experienced higher interest income for the three months ended March 31, 2014, due to higher average interest-bearing cash balances.
Other income (expense), net. Other income, net was $3.3 for the three months ended March 31, 2014, compared to other expense, net of $1.0 for the three months ended March 31, 2013. Other income (expense), net, consists principally of net currency gains and losses, gains and losses on tradable emission allowances and earnings and losses on investments accounted for under the equity method of accounting. The change in other income (expense), net for the three months ended March 31, 2014 is principally the result of losses on equity method investments discussed below, and normal foreign currency fluctuations. Other expense, net for the three months ended March 31, 2013, was impacted by the devaluation of the Venezuelan bolivar on February 8, 2013. As a result of this devaluation, the Company recorded a non-deductible foreign exchange loss in its Consolidated Statement of Income of approximately $3.1 for the three months ended March 31, 2013.
Provision for income taxes. Provision for income taxes was $13.9 for the three months ended March 31, 2014, and $15.8 for the three months ended March 31, 2013. Our estimated income tax provision for the three months ended March 31, 2014 and 2013, generally differs from the U.S. federal statutory rate of 35% because of different tax rates in foreign tax jurisdictions and certain exemptions and credits allowable for income tax purposes, partially offset by state and local income taxes, and valuation allowances on net operating loss carryforwards that more-likely-than-not will not be realized. We will adjust the valuation allowances in the future when it becomes more-likely-than-not that the benefits of deferred tax assets will not be realized.
The Company released the valuation allowance placed on Venezuelan deferred tax assets of approximately $1.7 during the three months ended March 31, 2014. Management’s forecasts of 2014 earnings for Venezuela indicate continued profitability and future utilization of existing net operating loss carryforwards.
The increase in the effective tax rate for the three months ended March 31, 2014, as compared to the three months ended March 31, 2013, is principally due to a less favorable mix of U.S. earnings versus foreign earnings. Additionally, during the three months ended March 31, 2014, we incurred a disproportionate amount of net operating losses in certain foreign
Page 30 of 40
countries that resulted in deferred tax assets which more-likely-than-not will not be realized, and we have recorded a valuation allowance against the deferred tax assets, thus increasing the effective tax rate.
On January 2, 2013, the ATRA of 2012 was signed into law. Some of the provisions were retroactive to January 1, 2012, including the exclusion from U.S. federal taxable income of certain interest, dividends, rents, and royalty income of foreign affiliates, as well as the tax benefits of the credits associated with that income and an extension of the research and experimentation credit. Therefore, as required by U.S. GAAP, a $4.4 benefit was reflected in the three months ended March 31, 2013 as a discrete event. These provisions were not extended for 2014 causing an increase in the effective tax rate as compared to the three months ended March 31, 2013.
As a result of the devaluation of the Venezuelan bolivar on February 8, 2013, the Company recorded a nondeductible foreign exchange loss in its Consolidated Statement of Income of approximately $3.1 for the three months ended March 31, 2013. Had this amount been deductible, our effective tax rate would have been 0.4% lower for the three months ended March 31, 2013.
Certain foreign subsidiaries in Brazil and India are operating under tax holiday arrangements that will expire during 2014 and 2015, respectively, subject to potential extensions. For the three months ended March 31, 2014 and 2013, the impact of these tax holiday arrangements lowered income tax expense by $1.2 ($0.02 per diluted share) and $1.0 ($0.01 per diluted share), respectively.
Noncontrolling interest. Noncontrolling interest includes the share of net income and net losses in consolidated entities that are not 100% owned by us.
Bookings and backlog. Bookings for the three months ended March 31, 2014, were $594.2 compared to $667.8 for the three months ended March 31, 2013, a decrease of $73.6 or 11.0%. The Company believes that the decrease in bookings is due to (1) delays in major upstream projects by our end-user clients in an effort to address their escalating capital costs relating to those projects and (2) engineering resource constraints being experienced by our end-user clients and their third-party contractors. In addition, due to the proposed change in the tariffs reflected in the draft Spanish regulation discussed above, our 2014 aftermarket bookings are lower by approximately $26.4. The decrease is also attributable to a reduction in bookings for one Latin American national oil company client. Backlog was $2,749.2 at March 31, 2014, compared to $2,863.7 at March 31, 2013.
Page 31 of 40
Segment Analysis — three months ended March 31, 2014, compared to three months ended March 31, 2013:
Three Months Ended |
Three Months Ended |
Period to Period Change |
|||||||||||
March 31, 2014 |
March 31, 2013 |
2013 to 2014 |
% Change |
||||||||||
Revenues |
|||||||||||||
New units |
$ |
391.3 | 56.0% |
$ |
443.2 | 57.8% |
$ |
(51.9) |
(11.7)% |
||||
Aftermarket parts and services |
307.8 | 44.0% | 323.2 | 42.2% | (15.4) |
(4.8)% |
|||||||
Total revenues |
$ |
699.1 | 100.0% |
$ |
766.4 | 100.0% |
$ |
(67.3) |
(8.8)% |
||||
Gross profit |
|||||||||||||
New units |
$ |
47.3 |
$ |
55.5 |
$ |
(8.2) |
(14.8)% |
||||||
Aftermarket parts and services |
100.1 | 116.5 | (16.4) |
(14.1)% |
|||||||||
Total gross profit |
$ |
147.4 |
$ |
172.0 |
$ |
(24.6) |
(14.3)% |
||||||
Income from operations |
|||||||||||||
New units |
$ |
15.7 |
$ |
28.6 |
$ |
(12.9) |
(45.1)% |
||||||
Aftermarket parts and services |
49.8 | 66.4 | (16.6) |
(25.0)% |
|||||||||
Unallocated |
(25.3) | (29.5) | 4.2 |
(14.2)% |
|||||||||
Total income from operations |
$ |
40.2 |
$ |
65.5 |
$ |
(25.3) |
(38.6)% |
||||||
Bookings |
|||||||||||||
New units |
$ |
243.8 |
$ |
268.8 |
$ |
(25.0) |
(9.3)% |
||||||
Aftermarket parts and services |
350.5 | 399.0 | (48.5) |
(12.2)% |
|||||||||
Total bookings |
$ |
594.3 |
$ |
667.8 |
$ |
(73.5) |
(11.0)% |
||||||
Backlog - ending |
|||||||||||||
New units |
$ |
2,045.8 |
$ |
2,207.7 |
$ |
(161.9) |
(7.3)% |
||||||
Aftermarket parts and services |
703.4 | 656.0 | 47.4 | 7.2% | |||||||||
Total backlog |
$ |
2,749.2 |
$ |
2,863.7 |
$ |
(114.5) |
(4.0)% |
||||||
New Units
Revenues. Revenues for this segment were $391.3 for the three months ended March 31, 2014, compared to $443.2 for the three months ended March 31, 2013, a decrease of $51.9 or 11.7%. The business impact of oil prices, other macroeconomic conditions and the timing and size of orders on this segment is more fully described above in the Revenues caption in the section titled Three months ended March 31, 2014, compared to the three months ended March 31, 2013. Based on factors such as measures of labor hours and purchases from suppliers, volumes decreased during the three months ended March 31, 2014, principally as a result of the timing issues discussed in the section referenced above. Specifically, we have been impacted by (1) delays in major upstream projects by our end-user clients in an effort to address their escalating capital costs relating to projects and (2) engineering resource constraints experienced by our end-user clients and their third-party contractors. The decrease in revenue on extended scope projects, which are accounted for under the percentage of completion method of accounting, was $7.5 for the three months ended March 31, 2014.
Gross profit. Gross profit was $47.3 for the three months ended March 31, 2014, compared to $55.5 for the three months ended March 31, 2013. Gross profit as a percentage of segment revenues, was 12.1% for the three months ended March 31, 2014, compared to 12.5% for the three months ended March 31, 2013. We experienced decreased gross profit as a percentage of sales in our new units segment primarily due to a shift in mix during the period, as well as reduced operating leverage on fixed costs as a result of lower volumes.
Income from operations. Income from operations was $15.7 for the three months ended March 31, 2014, compared to $28.6 for the three months ended March 31, 2013. As a percentage of segment revenues, income from operations was 4.0% for the three months ended March 31, 2014, compared to 6.5% for the three months ended March 31, 2013. Income from operations as a percentage of revenues decreased compared to the prior year as a result of the factors discussed above.
Page 32 of 40
Bookings and backlog. New units bookings for the three months ended March 31, 2014, were $243.8, compared to $268.8 for the three months ended March 31, 2013. The Company believes that the decrease in bookings is due to (1) delays in major upstream projects by our end-user clients in an effort to address their escalating capital costs relating to those projects and (2) engineering resource constraints being experienced by our end-user clients and their third-party contractors. Backlog was $2,045.8 at March 31, 2014, compared to $2,207.7 at March 31, 2013.
Aftermarket Parts and Services
Revenues. Revenues for this segment were $307.8 for the three months ended March 31, 2014, compared to $323.2 for the three months ended March 31, 2013, a decrease of $15.4 or 4.8%. Generally, oil prices and other macroeconomic conditions that affect the oil and gas industry have an impact on our business over an extended period of time, but less so in this segment. On a quarterly or annual basis, however, there is typically not a meaningful correlation of those factors to our periodic financial results. The decrease in revenues for the three months ended March 31, 2014, is partially attributable to a reduction in shipments to one Latin American national oil company. Additionally, in connection with the proposed change in the tariffs reflected in the draft Spanish regulation discussed above, our 2014 revenues are lower by approximately $26.4. Revenues also decreased due to an adverse translation impact of foreign currency fluctuations of approximately $7.2, resulting from a stronger U.S. dollar.
Gross profit. Gross profit was $100.1 for the three months ended March 31, 2014, compared to $116.5 for the three months ended March 31, 2013. Gross profit as a percentage of segment revenues for the three months ended March 31, 2014, of 32.5% decreased from 36.0% for the three months ended March 31, 2013. Gross profit as a percentage of revenues declined by approximately 0.6 percentage points because of the proposed change in the tariffs reflected in the draft Spanish regulation discussed above.
Income from operations. Income from operations was $49.8 for the three months ended March 31, 2014, compared to $66.4 for the three months ended March 31, 2013. As a percentage of segment revenues, income from operations decreased to 16.2% for the three months ended March 31, 2014, from 20.5% for the three months ended March 31, 2013. The changes in income from operations and income from operations as a percentage of segment revenues resulted principally from the factors discussed above. The proposed change in tariffs in the draft Spanish legislation reduced operating income as a percentage of revenues by 2.1 percentage points.
Bookings and backlog. Bookings for the three months ended March 31, 2014, were $350.5, compared to $399.0 for the three months ended March 31, 2013. The decrease is partially attributable to a reduction in bookings for one Latin American national oil company client. Additionally, the proposed retroactive change in the tariffs reflected in the draft Spanish regulation discussed above reduced 2014 aftermarket bookings by approximately $26.4. Bookings during the three months ended March 31, 2013, included a large long-term service agreement to provide energy in Brazil. Backlog was $703.4 at March 31, 2014, compared to $656.0 at March 31, 2013.
Liquidity and Capital Resources
Current Liquidity
As of March 31, 2014, we had cash and cash equivalents of $178.9 and the ability to borrow $552.7 under the $1,168.9 revolving portion of our Amended Credit Facility, as $83.8 was used for outstanding letters of credit and $532.4 of borrowings was outstanding. In addition to these letters of credit, $236.1 of letters of credit and bank guarantees were outstanding at March 31, 2014, which were issued by banks offering uncommitted lines of credit. At March 31, 2014, we were in compliance with our debt covenants.
As of March 31, 2014, approximately $176.8 of our cash was held outside of the U.S. Except for approximately $8.5 of cash held by our Venezuelan subsidiary, there are no legal restrictions regarding repatriation from any of the countries outside of the U.S. where we have cash; however, as of March 31, 2014, approximately $90.9 of our cash is not available for general corporate use in the U.S. because such cumulative earnings have been permanently reinvested in foreign countries or foreign markets. Currently, we have no plans to repatriate any of the foreign-based cash or unremitted earnings based on our intended uses of the foreign-based cash and our existing cash and cash equivalents balances in the U.S. If foreign funds are needed for our operations in the U.S., we would be required to accrue and pay U.S. taxes, net of applicable foreign tax credits, to repatriate these funds. However, our intent is to permanently reinvest these funds outside the U.S., and our current plans do not demonstrate a need to repatriate permanently reinvested earnings to fund our U.S. operations.
Although there can be no assurances, based on our current and anticipated levels of operations and conditions in our markets and industry, we believe that our cash flow from operations, available cash and available borrowings under the
Page 33 of 40
Amended Credit Facility will be adequate to meet our working capital, capital expenditures, interest payments and other funding requirements for the next 12 months and our long-term future contractual obligations in the U.S. and in foreign countries.
Sources and Uses of Liquidity
Net cash provided by operating activities for the three months ended March 31, 2014, was $59.1, compared to net cash used in operating activities of $43.2 for the three months ended March 31, 2013. The increase in cash provided by operations in the three months ended March 31, 2014, is principally the result of decreased investment in working capital. Accounts receivable decreased for the three months ended March 31, 2014, as a result of cyclically lower volume and timely cash collections from clients related to high fourth quarter 2013 sales. Additionally, costs and estimated earnings on uncompleted contracts decreased related to contracts being recognized on the percentage of completion accounting method primarily as a result of the receipt of a large payment from a national oil company. Accounts payable and accruals decreased for the three months ended March 31, 2014, principally as a result of the timing of payments. The increase in inventories related principally to LNGoTM, the Company’s small-scale LNG product offering. Lower customer advances are also attributable to a higher percentage of business with large national oil company clients. In addition, we made $5.5 of minimum required pension contributions in each of the three months ended March 31, 2014, in accordance with our funding policy.
Net cash used in investing activities was $14.1 for the three months ended March 31, 2014, compared to $31.2 for the three months ended March 31, 2013. Capital expenditures decreased to $10.8 for the three months ended March 31, 2014, from $19.9 for the three months ended March 31, 2013. During the three months ended March 31, 2014, we invested an additional $2.5 in Echogen in connection with an agreement discussed more fully in Note 3, Other Investments in the consolidated financial statements.
Net cash used in financing activities was $61.1 for the three months ended March 31, 2014, compared to net cash provided by financing activities of $109.4 for the three months ended March 31, 2013. Included in net cash used in financing activities for the three months ended March 31, 2014, are $354.0 of borrowings to fund operating cash flows and $410.9 of repayments on the Company’s Amended Credit Facility. Borrowings on the Amended Credit Facility during the three months ended March 31, 2014, primarily relate to changes in working capital requirements and our ability to take advantage of favorable interest rates. Management views the Amended Credit Facility as a cost efficient funding mechanism and uses it as a primary source of funding.
The Company is required to maintain sinking funds associated with certain of its borrowings, generally based on the short-term debt service requirements of such borrowings. Sinking fund requirements totaled $9.0 at March 31, 2014, and have been classified as restricted cash in the current assets section of the consolidated balance sheet.
We provide a range of benefits to employees and retired former employees, including pensions, postretirement, postemployment and healthcare benefits. We have considered the impact of the provisions of the Patient Protection and Affordable Care Act (“PPACA”) on our postretirement medical benefit plans as of March 31, 2014. Although there are a number of aspects of the PPACA that could affect our plans, none of these provisions have had a measurable impact on our postretirement medical benefit plan liabilities.
New Accounting Standards
The Company has adopted or is required to adopt certain new accounting standards which are described in Note 2, New Accounting Standards to the consolidated financial statements, none of which have had, or are expected to have, a material effect on the consolidated financial statements included herein in Part I, Financial Information, Item 1, Financial Statements (unaudited).
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-Q includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements concerning our plans, objectives, goals, strategies, future events, future revenue or performance, capital expenditures, financing needs, plans or intentions relating to acquisitions, business trends and other information that is not historical information. When used in this Form 10-Q, the words “anticipates,” “believes,” “estimates,” “expects,” “intends” and similar expressions identify such forward-looking statements. Although we believe that such statements are based on reasonable assumptions, these forward-looking statements are subject to numerous factors, risks and uncertainties that could cause actual outcomes and results to be materially different from those projected. These factors, risks and uncertainties include, among others, the following:
Page 34 of 40
· |
economic or industry downturns; |
· |
volatility and disruption of the credit markets; |
· |
our ability to implement our business strategy; |
· |
delivery delays by third-party suppliers; |
· |
the risk of cost overruns on fixed price contracts; |
· |
our ability to comply with local content requirements; |
· |
payment and administrative delays of certain of our national oil company customers; |
· |
our ability to generate cash and access capital on reasonable terms; |
· |
competition in our markets; |
· |
the variability of bookings and revenues due to volatile market conditions, client subjectivity in placing orders, potential preference for bundling and timing of large orders; |
· |
failure to integrate, or achieve the expected benefits from, acquisitions, joint ventures or strategic investments; |
· |
economic, political and other risks associated with our international sales and operations; |
· |
fluctuations in currency values and exchange rates; |
· |
loss of our senior management or other key personnel; |
· |
environmental compliance costs and liabilities and responses to concerns regarding climate change; |
· |
new regulations relating to “conflict minerals”; |
· |
failure to maintain safety performance acceptable to our clients; |
· |
failure to negotiate new collective bargaining agreements; |
· |
information systems security threats and computer crime; |
· |
unexpected product claims or regulations; |
· |
infringement of our intellectual property rights or our infringement of others’ intellectual property rights; |
· |
difficulties implementing an Oracle-based information management system; |
· |
certain covenants in our principal debt instruments impose restrictions that may limit our operating and financial flexibility; |
· |
our brand name may be confused with others; |
· |
our pension expenses and funding requirements; |
· |
feed-in tariffs and regulations in our energy generating business; and |
· |
other factors described in this Form 10-Q and as set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013. |
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ($ in millions)
Our results of operations are affected by fluctuations in the value of local currencies in which we transact business. The most significant exposures are to the euro, and to a lesser extent, the Brazilian real, the Indian rupee, the Norwegian krone and the British pound. Assets and liabilities of non-U.S. consolidated entities that use the local currency as the functional currency are translated at period-end exchange rates, while income and expenses are translated using weighted average-for-
Page 35 of 40
the-period exchange rates. The effect on our results of operations of fluctuations in currency exchange rates depends on various currency exchange rates and the magnitude of the transactions completed in currencies other than the U.S. dollar. Generally, a weakening of the U.S. dollar improves our reported results when the local currency financial statements are translated into U.S. dollars for inclusion in our consolidated financial statements and the strengthening of the U.S. dollar impacts our results negatively. An adverse hypothetical 1% change in the exchange rates for the three months ended March 31, 2014, would impact revenues and operating income by approximately $3.8 and $0.4, respectively.
We enter into financial instruments to mitigate the impact of changes in currency exchange rates on transactions when we deem appropriate. Net foreign currency gains (losses) were $4.4 and $(3.4) for the three months ended March 31, 2014 and 2013, respectively.
The Company has entered into an interest rate swap agreement to minimize the economic impact of unexpected fluctuations in interest rates on the lease of its compressor testing facility in France. Additionally, certain countries in which the Company operates have emission reduction programs under which the Company receives tradable emission allowances. The interest rate swap agreement and tradable emission allowances are described further in Note 8, Financial Instruments to the consolidated financial statements included herein in Part I, Financial Information, Item 1, Financial Statements (unaudited).
ITEM 4. CONTROLS AND PROCEDURES
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of the design and operation 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, 2014. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2014, our disclosure controls and procedures were effective at a reasonable assurance level.
Changes in Internal Control Over Financial Reporting
There have been no changes in internal control over financial reporting during the three months ended March 31, 2014, that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.
PART II. ― OTHER INFORMATION
The disclosures required in this Item 1 are included in Note 13, Commitments and Contingencies ― Legal Proceedings, in the consolidated financial statements included in Part I, Financial Information, Item 1, Financial Statements (unaudited) and incorporated herein by reference.
Page 36 of 40
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Equity Securities
The following table contains information about repurchases of our common stock during the three months ended March 31, 2014:
Period |
Total Number of Shares Purchased |
Average Price Paid Per Share |
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs |
||||||
January 2014 |
- |
$ |
- |
- |
$ |
- |
||||
February 2014 |
82,274 |
(a) |
$ |
58.70 |
- |
$ |
- |
|||
March 2014 |
- |
$ |
- |
- |
$ |
- |
||||
Total |
82,274 |
- |
$ |
- |
(a) |
These shares were withheld or purchased as payment for withholding taxes due on the vesting of restricted stock issued under our 2008 Stock Incentive Plan. |
The following exhibits are filed with this report:
Exhibit No. |
Description |
2.1 |
Share Purchase Agreement by and among Dresser-Rand Group Inc., Grupo Guascor S.L. and the shareholders of Grupo Guascor S.L. dated March 3, 2011 (incorporated by reference to Exhibit 2.1 to Dresser-Rand Group Inc.’s Current Report on Form 8-K, filed March 4, 2011, File No. 001-32586). |
3.1 |
Amended and Restated Certificate of Incorporation of Dresser-Rand Group Inc. (incorporated by reference to Exhibit 3.1 to Dresser-Rand Group Inc.’s Registration Statement on Form S-1/A, filed July 18, 2005, File No. 333-124963). |
3.2 |
Amended and Restated By-Laws of Dresser-Rand Group Inc. (incorporated by reference to Exhibit 3.2 to Dresser-Rand Group Inc.’s Current Report on Form 8-K, filed August 9, 2013, File No. 001-32586). |
4.1 |
Form of certificate of Dresser-Rand Group Inc. common stock (incorporated by reference to Exhibit 4.1 to Dresser-Rand Group Inc.’s Registration Statement on Form S-1/A, filed July 18, 2005, File No. 333-124963). |
4.2 |
Indenture, dated March 22, 2011, by and among Dresser-Rand Group Inc., the guarantors named therein and Wilmington Trust Company, as trustee (incorporated by reference to Exhibit 4.1 to Dresser-Rand Group Inc.’s Current Report on Form 8-K, filed March 24, 2011, File No. 001-32586). |
4.3 |
First Supplemental Indenture, dated as of September 6, 2012, by and among Dresser-Rand Group Inc., DR Acquisition LLC and Wilmington Trust, National Association, as trustee (incorporated by reference to Exhibit 4.3 to Dresser-Rand Group Inc.’s Quarterly Report on Form 10-Q, filed November 1, 2012, File No. 001-32586). |
Page 37 of 40
10.1& |
Form of Grant Notice for 2008 Stock Incentive Plan Nonqualified Stock Options (incorporated by reference to Exhibit 10.20 to Dresser-Rand Group Inc.’s Annual Report on Form 10-K, filed March 14, 2014, File No. 001-32586). |
10.2& |
Dresser-Rand Group Inc. Standard Terms and Conditions for Employee Non-Qualified Stock Options (incorporated by reference to Exhibit 10.1 to Dresser-Rand Group Inc.’s Current Report on Form 8-K, filed February 4, 2014, File No. 001-32586). |
10.3& |
Form of Grant Notice for 2008 Stock Incentive Plan Restricted Stock (incorporated by reference to Exhibit 10.21 to Dresser-Rand Group Inc.’s Annual Report on Form 10-K, filed March 14, 2014, File No. 001-32586). |
10.4& |
Dresser-Rand Group Inc. Standard Terms and Conditions for Restricted Stock (incorporated by reference to Exhibit 10.2 to Dresser-Rand Group Inc.’s Current Report on Form 8-K, filed February 4, 2014, File No. 001-32586). |
10.5& |
Form of Grant Notice for 2008 Stock Incentive Plan Restricted Stock Units (incorporated by reference to Exhibit 10.22 to Dresser-Rand Group Inc.’s Annual Report on Form 10-K, filed March 14, 2014, File No. 001-32586). |
10.6& |
Dresser-Rand Group Inc. Standard Terms and Conditions for Restricted Stock Units (incorporated by reference to Exhibit 10.3 to Dresser-Rand Group Inc.’s Current Report on Form 8-K, filed February 4, 2014, File No. 001-32586). |
10.7& |
Form of Grant Notice for 2008 Stock Incentive Plan Stock Appreciation Rights (incorporated by reference to Exhibit 10.23 to Dresser-Rand Group Inc.’s Annual Report on Form 10-K, filed March 14, 2014, File No. 001-32586). |
10.8& |
Dresser-Rand Group Inc. Standard Terms and Conditions for Stock Appreciation Rights (incorporated by reference to Exhibit 10.5 to Dresser-Rand Group Inc.’s Current Report on Form 8-K, filed February 4, 2014, File No. 001-32586). |
10.9& |
Form of Grant Notice for 2008 Stock Incentive Plan Performance Restricted Stock Units (incorporated by reference to Exhibit 10.26 to Dresser-Rand Group Inc.’s Annual Report on Form 10-K, filed March 14, 2014, File No. 001-32586). |
10.10& |
Dresser-Rand Group Inc. Standard Terms and Conditions for Performance Restricted Stock Units (incorporated by reference to Exhibit 10.4 to Dresser-Rand Group Inc.’s Current Report on Form 8-K, filed February 4, 2014, File No. 001-32586). |
(31.1) |
Certification of the President and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
(31.2) |
Certification of the Executive Vice President and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
(32.1) |
Certification of the President and Chief Executive Officer pursuant to Title 18, United States Code, Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith). (This certification is being furnished and shall not be deemed “filed” with the SEC for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the Registrant specifically incorporates it by reference.) |
Page 38 of 40
(32.2) |
Certification of the Executive Vice President and Chief Financial Officer pursuant to Title 18, United States Code, Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith). (This certification is being furnished and shall not be deemed “filed” with the SEC for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the Registrant specifically incorporates it by reference.) |
(101) |
The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Statement of Income for the three months ended March 31, 2014 and 2013, (ii) Consolidated Statement of Comprehensive Income for the three months ended March 31, 2014 and 2013, (iii) Consolidated Balance Sheet at March 31, 2014 and December 31, 2013, (iv) Consolidated Statement of Cash Flows for the three months ended March 31, 2014 and 2013, (v) Consolidated Statement of Changes in Stockholders' Equity for the three months ended March 31, 2014 and 2013, and (vi) Notes to Consolidated Financial Statements. |
____________
& Management contract.
( ) Filed or furnished herewith.
Page 39 of 40
Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
DRESSER-RAND GROUP INC. |
|
|
|
Date: May 2, 2014 |
|
/s/ Raymond L. Carney Jr. |
|
|
Raymond L. Carney Jr. |
|
|
Vice President, Controller and Chief |
|
|
Accounting Officer |
Page 40 of 40
SECTION 302 CERTIFICATION
I, Vincent R. Volpe Jr., certify that:
1. |
I have reviewed this quarterly report on Form 10-Q for the quarter ending March 31, 2014, of Dresser-Rand Group Inc.; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. |
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Date: |
May 2, 2014 |
By: |
/s/ Vincent R. Volpe Jr. |
Vincent R. Volpe Jr. |
|||
President and Chief Executive Officer |
|||
SECTION 302 CERTIFICATION
I, Jan Kees van Gaalen, certify that:
1. |
I have reviewed this quarterly report on Form 10-Q for the quarter ending March 31, 2014, of Dresser-Rand Group Inc.; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. |
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Date: |
May 2, 2014 |
By: |
/s/ Jan Kees van Gaalen |
Jan Kees van Gaalen |
|||
Executive Vice President and |
|||
Chief Financial Officer |
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Dresser-Rand Group Inc. (the “Company”) on Form 10-Q for the quarter ending March 31, 2014, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Vincent R. Volpe Jr., President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1) |
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: |
May 2, 2014 |
By: |
/s/ Vincent R. Volpe Jr. |
Vincent R. Volpe Jr. |
|||
President and Chief Executive Officer |
|||
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Dresser-Rand Group Inc. (the “Company”) on Form 10-Q for the quarter ending March 31, 2014, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jan Kees van Gaalen, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1) |
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: |
May 2, 2014 |
By: |
/s/ Jan Kees van Gaalen |
Jan Kees van Gaalen |
|||
Executive Vice President and |
|||
Chief Financial Officer |
Segment Information (Tables)
|
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2014
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Information [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Results |
Total assets by segment were as follows:
|
Income Taxes - (Narrative) (Details) (USD $)
In Millions, except Per Share data, unless otherwise specified |
3 Months Ended | ||
---|---|---|---|
Mar. 31, 2014
|
Mar. 31, 2013
|
Dec. 31, 2013
|
|
Income Taxes [Line Items] | |||
U.S. federal statutory income tax rate | 35.00% | ||
Valuation Allowances And Reserves Deductions | $ 1.7 | ||
Tax expense associated with discrete event | 4.4 | ||
Impact of tax holiday arrangements on income tax expense | 1.2 | 1.0 | |
Impact of tax holiday arrangements per diluted share | $ 0.02 | $ 0.01 | |
Accrued income taxes payable | 38.4 | 36.1 | |
Devaluation Of Venezuelan Bolivar [Member]
|
|||
Income Taxes [Line Items] | |||
Foreign exchange loss | $ 3.1 | ||
Percentage point increase decrease in effective tax rate | (0.40%) |
Inventories, Net - (Narrative) (Details) (USD $)
In Millions, unless otherwise specified |
Mar. 31, 2014
|
Dec. 31, 2013
|
---|---|---|
Inventory, Net [Abstract] | ||
Progress payments to suppliers included in work-in-process | $ 128.8 | $ 129.0 |
Allowance for obsolescence for slow-moving inventory | $ 33.2 | $ 30.7 |
^60&;U*,8#88T+[+Z(
M.35E%><6,Y<9]Q:#6L*[P4Q0C?T;C#&2[Q7 */;\H?EL73"1YH1ZAWMGH'UUZ"MYYZ
M4^04?+I4>^;"61IN#+\,T<*$=RRT2LR@*O[ZE__]OMSXZU_^CW[-5HOX>[6Y6+$'_
M%OFEE?ZVVF-]^:TI=G\450[9ACK1"KS4]2M%O^_H?\'!KG;T,ZO`GXVUR_?I
MVZG[J[[\GA>'8P?E#N&*Z(4M=S^?\C:#C$(8QP]II*P^@0#XURH+VAJ0D?2#
M_;X4N^ZXMH/(">=>0`"W7O*V>RYH2-O*WMJN+O_C$!&A>!!?!('?(@@)G9D?
MSN,I40(1!7Y?H_B.'X
?&HQ'0PNAI/3:J7XWX3`FB7B@(D;.A?H;4B!@$26=M]V!C!+CWTDAAD)
M*1,1L1,<[0A("_&J:1R%\.6IO'U/R%DOMGU*A0G3DJ/E^=CDM9']#2/H@TAR
M__WMD!)F\E(OM582GJ]+3&").G?L`0=U6RM,_95UI/03!T&9?^)I1O:`A7A#
M"`PI7J*WLN4AJ=CX1B"#%%Z7:6B"_5H+I6U52YVJG-0"*H&DG9J/S-!4";DF
M0*I"(8CL`,:E&BCF5NQ?/AY8R]8L6)?3KE]!K?0F