Item 2.02.
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Results of Operations and Financial Condition.
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In a press release dated April 18, 2017, a copy of which
is attached hereto as Exhibit 99.1, and the text of which is incorporated by reference herein, the Company announced certain preliminary results for its second quarter ended March 31, 2017 and commented on financial guidance for fiscal 2017.
Additionally, on April 18, 2017, the Company will hold a conference call and simultaneous presentation to investors at 8 a.m. EDT (1:00 p.m. BST) to
discuss the acquisition of the Group. The investor presentation is attached hereto as Exhibit 99.2 and is incorporated by reference herein.
The
information contained in Item 2.02 and Exhibits 99.1 and 99.2 attached hereto shall not be deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the Exchange Act), or otherwise
subject to the liabilities of that Section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended (the Securities Act) or the Exchange Act, except as expressly set forth by specific
reference in such filing.
In the Companys press release and investor presentation, the Company makes reference to certain
non-GAAP
financial measures, including Adjusted EBITDA and free cash flow. Management uses certain
non-GAAP
measures, including Adjusted EBITDA and free cash flow, as key
metrics in the evaluation of underlying Company and segment performance, in making financial, operating and planning decisions, and, in part, in the determination of cash bonuses for its executive officers and employees. Management believes the use
of
non-GAAP
measures, including Adjusted EBITDA and free cash flow, provides increased transparency and assists investors in understanding the underlying operating performance of the Company and its segments
and in the analysis of ongoing operating trends.
The Company considers Adjusted EBITDA as an important supplemental measure of performance and ability to
service debt. Adjusted EBITDA is often used to assess performance because it allows comparison of operating performance on a consistent basis across periods by removing the effects of various items.
In the Companys press release and investor presentation, the Company provides Adjusted EBITDA guidance and discloses its expectations as to the effect
of the transaction described in Item 1.01 above on Posts Adjusted EBITDA, including the expected annual contribution of the Group, and free cash flow only on a
non-GAAP
basis and does not provide a
reconciliation of its forward-looking
non-GAAP
guidance measures to the mostly directly comparable GAAP measures due to the inherent difficulty in forecasting and quantifying certain amounts that are necessary
for such reconciliations, including adjustments that could be made for
non-cash
mark-to-market
adjustments and cash settlements
on interest rate swaps, provision for legal settlement, transaction and integration costs, restructuring and plant closure costs, losses on assets held for sale,
mark-to-market
adjustments on commodity hedges, and other charges reflected in the Companys reconciliation of historic numbers, the amounts of which, based on
historical experience, could be significant.
Because the Company discusses free cash flow in Exhibits 99.1 and 99.2 only in relation to managements
expectations of the future effect of the transaction discussed in Item 1.01 above on this
non-GAAP
measure, the Company has not, for the reasons discussed above, provided a reconciliation of its
forward-looking free cash flow expectations to the most directly comparable GAAP measures.
The Company believes that Adjusted EBITDA is useful to
investors in evaluating the Companys operating performance and liquidity because (i) the Company believes it is widely used to measure a companys operating performance without regard to items such as depreciation and amortization,
which can vary depending upon accounting methods and the book value of assets, (ii) it presents a measure of corporate performance exclusive of the Companys capital structure and the method by which the assets were acquired, and
(iii) it is a financial indicator of a companys ability to service its debt, as the Company is required to comply with certain covenants and limitations that are based on variations of EBITDA in the Companys financing documents.
The calculation of Adjusted EBITDA is not specified by GAAP, and may not be comparable to similarly titled measures of other companies. Adjusted EBITDA
should not be considered as a substitute for, and should only be read in conjunction with, measures of financial performance prepared in accordance with GAAP. For additional information, see the
non-GAAP
reconciliation table furnished with this Form
8-K
in each of Exhibits 99.1 and 99.2.
Preliminary Adjusted EBITDA
for the Company for the fiscal year ended September 30, 2016 and for the quarter ended March 31, 2017 reflects adjustments for net interest expense, income taxes, depreciation and amortization, as well as the following adjustments:
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a.
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Loss on extinguishment of debt
: The Company has excluded losses recorded on extinguishment of debt as such losses are inconsistent in amount and frequency. Additionally, the Company believes that these costs do
not reflect expected ongoing future operating expenses and do not contribute to a meaningful evaluation of the Companys current operating performance or comparisons of the Companys operating performance to other periods.
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b.
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Non-cash
mark-to-market
adjustments and cash settlements on interest rate swaps
: The Company
has excluded the impact of
non-cash
mark-to-market
adjustments and cash settlements on interest rate swaps due to the inherent
uncertainty and volatility associated with such amounts based on changes in assumptions with respect to estimates of fair value and economic conditions and the amount and frequency of such adjustments and settlements are not consistent.
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c.
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Provision for legal settlement
: The Company has excluded gains and losses recorded to recognize a receivable or liability associated with an anticipated resolution of certain ongoing litigation as the Company
believes such gains and losses do not reflect expected ongoing future operating expenses and do not contribute to a meaningful evaluation of the Companys current operating performance or comparisons of the Companys operating performance
to other periods.
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d.
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Non-cash
stock-based compensation
: The Companys compensation strategy includes the use of stock-based compensation to attract and retain executives and employees by
aligning their long-term compensation interests with shareholders investment interests. The Company has excluded
non-cash
stock-based compensation as
non-cash
stock-based compensation can vary significantly based on reasons such as the timing, size and nature of the awards granted and subjective assumptions which are unrelated to operational decisions and performance in any particular period and do not
contribute to meaningful comparisons of the Companys operating performance to other periods.
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e.
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Transaction costs and integration costs
: The Company has excluded transaction costs related to
professional service fees and other related costs associated with signed and closed business combinations and divestitures and integration costs incurred to integrate acquired or
to-be-acquired
businesses as the Company believes that these exclusions allow for more meaningful evaluation of the Companys current operating performance and
comparisons of the Companys operating performance to other periods. The Company believes such costs are generally not relevant to assessing or estimating the long-term performance of acquired assets as part of the Company or the performance of
the divested assets, and are
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not factored into managements evaluation of potential acquisitions or its performance after completion of an acquisition or the evaluation to divest an asset. In addition, the frequency and
amount of such charges varies significantly based on the size and timing of the acquisitions and divestitures and the maturities of the businesses being acquired or divested. Also, the size, complexity and/or volume of past acquisitions and
divestitures, which often drive the magnitude of such expenses, may not be indicative of the size, complexity and/or volume of future acquisitions or divestitures. By excluding these expenses, management is better able to evaluate the Companys
ability to utilize its existing assets and estimate the long-term value that acquired assets will generate for the Company. Furthermore, the Company believes that the adjustments of these items more closely correlate with the sustainability of the
Companys operating performance.
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f.
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Restructuring and plant closure costs, including accelerated depreciation
: The Company has excluded certain costs associated with facility closures as the amount and frequency of such adjustments are not
consistent. Additionally, the Company believes that these costs do not reflect expected ongoing future operating expenses and do not contribute to a meaningful evaluation of the Companys current operating performance or comparisons of the
Companys operating performance to other periods.
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g.
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Assets held for sale
: The Company has excluded adjustments recorded to adjust the carrying value of facilities and other assets classified as held for sale as such adjustments represent
non-cash
items and the amount and frequency of such adjustments are not consistent. Additionally, the Company believes that these adjustments do not reflect expected ongoing future operating expenses and do not
contribute to a meaningful evaluation of the Companys current operating performance or comparisons of the Companys operating performance to other periods.
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h.
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Inventory valuation adjustments on acquired businesses
: The Company has excluded the impact of fair value
step-up
adjustments to inventory in connection with business
combinations as such adjustments represent
non-cash
items, are not consistent in amount and frequency and are significantly impacted by the timing and size of the Companys acquisitions.
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i.
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Mark-to-market
adjustments on commodity hedges
: The Company has excluded the impact of
mark-to-market
adjustments on commodity hedges due to the inherent uncertainty and volatility associated with such amounts based on changes in assumptions with respect to fair value estimates. Additionally,
these adjustments are primarily
non-cash
items and the amount and frequency of such adjustments are not consistent.
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j.
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Gain on sale of business and/or plant
: The Company has excluded gains recorded on divestitures as such adjustments represent
non-cash
items and the amount and frequency of
such adjustments are not consistent. Additionally, the Company believes that these costs do not reflect expected ongoing future operating expenses and do not contribute to a meaningful evaluation of the Companys current operating performance
or comparisons of the Companys operating performance to other periods.
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k.
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Foreign currency gains and losses on intercompany loans
: The Company has excluded the impact of foreign currency fluctuations related to intercompany loans denominated in currencies other than the functional
currency of the respective legal entity in evaluating Company performance to allow for more meaningful comparisons of performance to other periods.
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