|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 1, 2017
|
|
September 30, 2016
|
|
|
Asset
|
|
Liability
|
|
Asset
|
|
Liability
|
Interest rate cap agreements
|
|
$
|
15,008
|
|
|
$
|
—
|
|
|
$
|
4,232
|
|
|
$
|
—
|
|
Interest rate swap agreements
|
|
15,007
|
|
|
(40,088
|
)
|
|
—
|
|
|
(83,015
|
)
|
Total
|
|
30,015
|
|
|
(40,088
|
)
|
|
4,232
|
|
|
(83,015
|
)
|
Effect of counterparty netting
|
|
(8,247
|
)
|
|
8,247
|
|
|
—
|
|
|
—
|
|
Net derivatives as classified in the balance sheet
(1)
|
|
$
|
21,768
|
|
|
$
|
(31,841
|
)
|
|
$
|
4,232
|
|
|
$
|
(83,015
|
)
|
|
|
(1)
|
Refer to Note 10, "Fair Value Measurements," for the condensed consolidated balance sheet classification of our interest rate swap and cap agreements.
|
Based on the fair value amounts of the interest rate swap and cap agreements determined as of
April 1, 2017
, the estimated net amount of existing gains and losses and caplet amortization expected to be reclassified into interest expense within the next
twelve months
is approximately
$28.0 million
.
Effective September 30, 2016, the Company redesignated the interest rate cap agreements related to the
$400 million
and the
$750 million
aggregate notional amount with cap rates of
2.0%
and
2.5%
, respectively, based on the expected probable cash flows associated with the 2016 term loans and 2015 term loans in consideration of the Company’s ability to select one-month, two-month, three-month, or six-month LIBO rate set forth in the Credit Agreement. Accordingly, amounts previously recorded as a component of accumulated other comprehensive loss in stockholder’s deficit amortized into interest expense was
$1.9 million
for the
twenty-six week period
ended
April 1, 2017
. The accumulated other comprehensive loss to be reclassified into interest expense over the remaining term of the cap agreements is
$12.7 million
with a related tax benefit of
$4.7 million
as of
April 1, 2017
.
12. SEGMENTS
The Company’s businesses are organized and managed in
three
reporting segments: Power & Control, Airframe and Non-aviation.
The Power & Control segment includes operations that primarily develop, produce and market systems and components that predominately provide power to or control power of the aircraft utilizing electronic, fluid, power and mechanical motion control technologies. Major product offerings include mechanical/electro-mechanical actuators and controls, ignition systems and engine technology, specialized pumps and valves, power conditioning devices, specialized AC/DC electric motors and generators, databus and power controls, high performance hoists, winches and lifting devices, and cargo loading and handling systems. Primary customers of this segment are engine and power system and subsystem suppliers, airlines, third party maintenance suppliers, military buying agencies and repair depots. Products are sold in the original equipment and aftermarket market channels.
The Airframe segment includes operations that primarily develop, produce and market systems and components that are used in non-power airframe applications utilizing airframe and cabin structure technologies. Major product offerings include engineered latching and locking devices, rods and locking devices, cockpit security components and systems, aircraft audio systems, specialized lavatory components, seat belts and safety restraints, engineered interior surfaces and related components, lighting and control technology, military personnel parachutes, and cargo delivery systems. Primary customers of this segment are airframe manufacturers and cabin system suppliers and subsystem suppliers, airlines, third party maintenance suppliers, military buying agencies and repair depots. Products are sold in the original equipment and aftermarket market channels.
The Non-aviation segment includes operations that primarily develop, produce and market products for non-aviation markets. Major product offerings include seat belts and safety restraints for ground transportation applications, mechanical/electro-mechanical actuators and controls for space applications, and refueling systems for heavy equipment used in mining, construction and other industries. Primary customers of this segment are off-road vehicle suppliers and subsystem suppliers, child restraint system suppliers, satellite and space system suppliers and manufacturers of heavy equipment used in mining, construction and other industries.
The primary measurement used by management to review and assess the operating performance of each segment is EBITDA As Defined. The Company defines EBITDA As Defined as earnings before interest, taxes, depreciation and amortization plus certain non-operating items including refinancing costs, acquisition-related costs, transaction-related costs and non-cash compensation charges incurred in connection with the Company’s stock incentive plans. Acquisition-related costs represent accounting adjustments to inventory associated with acquisitions of businesses and product lines that were charged to cost of sales when the inventory was sold; costs incurred to integrate acquired businesses and product lines into the Company’s operations, facility relocation costs and other acquisition-related costs; transaction related costs
comprising deal fees; legal, financial and tax diligence expenses and valuation costs that are required to be expensed as incurred and other acquisition accounting adjustments.
EBITDA As Defined is not a measurement of financial performance under GAAP. Although the Company uses EBITDA As Defined to assess the performance of its business and for various other purposes, the use of this non-GAAP financial measure as an analytical tool has limitations, and it should not be considered in isolation or as a substitute for analysis of the Company’s results of operations as reported in accordance with GAAP.
The Company’s segments are reported on the same basis used internally for evaluating performance and for allocating resources. The accounting policies for each segment are the same as those described in the summary of significant accounting policies in the Company’s consolidated financial statements. Intersegment sales and transfers are recorded at values based on market prices, which creates intercompany profit on intersegment sales or transfers that is eliminated in consolidation. Intersegment sales were immaterial for the periods presented below. Certain corporate-level expenses are allocated to the operating segments.
The following table presents net sales by reportable segment (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Week Periods Ended
|
|
Twenty-Six Week Periods Ended
|
|
April 1, 2017
|
|
April 2, 2016
|
|
April 1, 2017
|
|
April 2, 2016
|
Net sales to external customers
|
|
|
|
|
|
|
|
Power & Control
|
$
|
479,760
|
|
|
$
|
405,491
|
|
|
$
|
920,834
|
|
|
$
|
752,700
|
|
Airframe
|
365,013
|
|
|
365,749
|
|
|
713,677
|
|
|
696,887
|
|
Non-aviation
|
28,459
|
|
|
25,561
|
|
|
52,739
|
|
|
48,909
|
|
|
$
|
873,232
|
|
|
$
|
796,801
|
|
|
$
|
1,687,250
|
|
|
$
|
1,498,496
|
|
The following table reconciles EBITDA As Defined by segment to consolidated income before income taxes (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Week Periods Ended
|
|
Twenty-Six Week Periods Ended
|
|
April 1, 2017
|
|
April 2, 2016
|
|
April 1, 2017
|
|
April 2, 2016
|
EBITDA As Defined
|
|
|
|
|
|
|
|
Power & Control
|
$
|
234,531
|
|
|
$
|
192,180
|
|
|
$
|
451,313
|
|
|
$
|
354,646
|
|
Airframe
|
182,916
|
|
|
179,822
|
|
|
353,427
|
|
|
335,544
|
|
Non-aviation
|
8,976
|
|
|
6,538
|
|
|
17,578
|
|
|
12,993
|
|
Total segment EBITDA As Defined
|
426,423
|
|
|
378,540
|
|
|
822,318
|
|
|
703,183
|
|
Unallocated corporate expenses
|
5,208
|
|
|
9,935
|
|
|
16,153
|
|
|
15,165
|
|
Total Company EBITDA As Defined
|
421,215
|
|
|
368,605
|
|
|
806,165
|
|
|
688,018
|
|
Depreciation and amortization expense
|
34,879
|
|
|
29,337
|
|
|
72,927
|
|
|
55,537
|
|
Interest expense - net
|
147,842
|
|
|
111,288
|
|
|
293,846
|
|
|
223,271
|
|
Acquisition-related costs
|
8,104
|
|
|
17,623
|
|
|
26,672
|
|
|
24,847
|
|
Stock compensation expense
|
11,106
|
|
|
11,767
|
|
|
21,126
|
|
|
22,448
|
|
Refinancing costs
|
3,507
|
|
|
—
|
|
|
35,591
|
|
|
—
|
|
Other, net
|
764
|
|
|
(2,197
|
)
|
|
2,069
|
|
|
(2,931
|
)
|
Income before income taxes
|
$
|
215,013
|
|
|
$
|
200,787
|
|
|
$
|
353,934
|
|
|
$
|
364,846
|
|
The following table presents total assets by segment (in thousands):
|
|
|
|
|
|
|
|
|
|
April 1, 2017
|
|
September 30, 2016
|
Total assets
|
|
|
|
Power & Control
|
$
|
5,140,403
|
|
|
$
|
5,184,303
|
|
Airframe
|
3,986,150
|
|
|
3,922,532
|
|
Non-aviation
|
133,222
|
|
|
131,319
|
|
Corporate
|
927,552
|
|
|
1,488,123
|
|
|
$
|
10,187,327
|
|
|
$
|
10,726,277
|
|
The Company’s sales principally originate from the United States, and the Company’s long-lived assets are principally located in the United States.
13. ACCUMULATED OTHER COMPREHENSIVE LOSS
The following table presents the components of accumulated other comprehensive loss, net of taxes, for the
twenty-six week period
ended
April 1, 2017
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized (loss) gains on derivatives designated and qualifying as cash flow hedges
(1)
|
|
Defined benefit pension plan activity
|
|
Currency translation adjustment
|
|
Total
|
Balance at September 30, 2016
|
$
|
(61,140
|
)
|
|
$
|
(24,297
|
)
|
|
$
|
(64,350
|
)
|
|
$
|
(149,787
|
)
|
Current-period other comprehensive gain (loss)
|
39,756
|
|
|
—
|
|
|
(20,002
|
)
|
|
19,754
|
|
Amounts reclassified from AOCI related to interest rate cap agreements
|
1,198
|
|
|
—
|
|
|
—
|
|
|
1,198
|
|
Balance at April 1, 2017
|
$
|
(20,186
|
)
|
|
$
|
(24,297
|
)
|
|
$
|
(84,352
|
)
|
|
$
|
(128,835
|
)
|
|
|
(1)
|
Unrealized loss represents interest rate swap and cap agreements, net of taxes of
$(1,310)
and
$(10,567)
for the thirteen week periods ended April 1, 2017 and April 2, 2016 and
$(24,427)
and
$(5,475)
for the
twenty-six week period
s ended
April 1, 2017
and
April 2, 2016
, respectively.
|
A summary of reclassifications out of accumulated other comprehensive loss for the
twenty-six week period
ended
April 1, 2017
is provided below (in thousands):
|
|
|
|
|
|
Description of reclassifications out of accumulated other comprehensive loss
|
|
Amount reclassified
|
Amortization from redesignated interest rate cap agreements
(1)
|
|
$
|
1,913
|
|
Deferred tax benefit from redesignated interest rate cap agreements
|
|
(715
|
)
|
Losses reclassified into earnings, net of tax
|
|
$
|
1,198
|
|
|
|
(1)
|
This component of accumulated other comprehensive loss is included in interest expense (see Note 11, “Derivatives and Hedging Activity,” for additional information).
|
14. SPECIAL DIVIDEND AND DIVIDEND EQUIVALENT PAYMENTS
On October 14, 2016, the Company's Board of Directors authorized and declared a special cash dividend of
$24.00
on each outstanding share of common stock and cash dividend equivalent payments on options granted under its stock option plans. The record date for the special dividend was October 24, 2016, and the payment date for the dividend was November 1, 2016. The total cash payment related to the special dividend and related dividend equivalent payments in the first quarter of fiscal 2017 was approximately
$1,280.1 million
and
$76.4 million
, respectively. For the
twenty-six week period
ended
April 1, 2017
, dividend equivalent payments related to dividends declared in fiscal 2013 and fiscal 2014 totaled
$19.5 million
.
15. SUPPLEMENTAL GUARANTOR INFORMATION
TransDigm’s 2020 Notes, 2022 Notes, 2024 Notes, 2025 Notes and 2026 Notes are jointly and severally guaranteed, on a senior subordinated basis, by TD Group and TransDigm Inc.’s
100%
Domestic Restricted Subsidiaries, as defined in the Indentures. The following supplemental condensed consolidating financial information presents, in separate columns, the balance sheets of the Company as of
April 1, 2017
and September 30,
2016
and its statements of income and
comprehensive income and cash flows for the
twenty-six week period
s ended
April 1, 2017
and
April 2, 2016
for (i) TransDigm Group on a parent only basis with its investment in subsidiaries recorded under the equity method, (ii) TransDigm Inc. including its directly owned operations and non-operating entities, (iii) the Subsidiary Guarantors on a combined basis, (iv) Non-Guarantor Subsidiaries and (v) the Company on a consolidated basis.
Separate financial statements of TransDigm Inc. are not presented because TransDigm Inc.’s 2020 Notes, 2022 Notes, 2024 Notes, 2025 Notes and 2026 Notes are fully and unconditionally guaranteed on a senior subordinated basis by TD Group and all existing 100% owned domestic subsidiaries of TransDigm Inc. and because TD Group has no significant operations or assets separate from its investment in TransDigm Inc.
TRANSDIGM GROUP INCORPORATED
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF
APRIL 1, 2017
(Amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TransDigm
Group
|
|
TransDigm
Inc.
|
|
Subsidiary
Guarantors
|
|
Non-
Guarantor
Subsidiaries
|
|
Eliminations
|
|
Total
Consolidated
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
1,182
|
|
|
$
|
811,930
|
|
|
$
|
1,068
|
|
|
$
|
171,209
|
|
|
$
|
—
|
|
|
$
|
985,389
|
|
Trade accounts receivable - Net
|
—
|
|
|
—
|
|
|
32,697
|
|
|
577,812
|
|
|
(36,557
|
)
|
|
573,952
|
|
Inventories - Net
|
—
|
|
|
43,873
|
|
|
568,355
|
|
|
114,356
|
|
|
(1,559
|
)
|
|
725,025
|
|
Prepaid expenses and other
|
—
|
|
|
4,290
|
|
|
23,238
|
|
|
8,535
|
|
|
—
|
|
|
36,063
|
|
Total current assets
|
1,182
|
|
|
860,093
|
|
|
625,358
|
|
|
871,912
|
|
|
(38,116
|
)
|
|
2,320,429
|
|
INVESTMENT IN SUBSIDIARIES AND INTERCOMPANY BALANCES
|
(2,039,946
|
)
|
|
10,125,821
|
|
|
6,877,350
|
|
|
849,010
|
|
|
(15,812,235
|
)
|
|
—
|
|
PROPERTY, PLANT AND
EQUIPMENT - NET
|
—
|
|
|
15,671
|
|
|
258,740
|
|
|
44,992
|
|
|
—
|
|
|
319,403
|
|
GOODWILL
|
—
|
|
|
65,117
|
|
|
4,983,714
|
|
|
690,868
|
|
|
—
|
|
|
5,739,699
|
|
OTHER INTANGIBLE ASSETS - NET
|
—
|
|
|
24,724
|
|
|
1,458,894
|
|
|
264,926
|
|
|
—
|
|
|
1,748,544
|
|
OTHER
|
—
|
|
|
27,918
|
|
|
23,526
|
|
|
7,808
|
|
|
—
|
|
|
59,252
|
|
TOTAL ASSETS
|
$
|
(2,038,764
|
)
|
|
$
|
11,119,344
|
|
|
$
|
14,227,582
|
|
|
$
|
2,729,516
|
|
|
$
|
(15,850,351
|
)
|
|
$
|
10,187,327
|
|
LIABILITIES AND STOCKHOLDERS’
(DEFICIT) EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
$
|
—
|
|
|
$
|
64,064
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
64,064
|
|
Short-term borrowings - trade receivable securitization facility
|
—
|
|
|
—
|
|
|
—
|
|
|
199,909
|
|
|
—
|
|
|
199,909
|
|
Accounts payable
|
—
|
|
|
13,868
|
|
|
127,308
|
|
|
33,932
|
|
|
(36,105
|
)
|
|
139,003
|
|
Accrued liabilities
|
—
|
|
|
148,619
|
|
|
119,018
|
|
|
62,038
|
|
|
(12
|
)
|
|
329,663
|
|
Total current liabilities
|
—
|
|
|
226,551
|
|
|
246,326
|
|
|
295,879
|
|
|
(36,117
|
)
|
|
732,639
|
|
LONG-TERM DEBT
|
—
|
|
|
10,839,282
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
10,839,282
|
|
DEFERRED INCOME TAXES
|
—
|
|
|
456,859
|
|
|
(544
|
)
|
|
62,598
|
|
|
—
|
|
|
518,913
|
|
OTHER NON-CURRENT LIABILITIES
|
—
|
|
|
36,326
|
|
|
63,758
|
|
|
35,173
|
|
|
—
|
|
|
135,257
|
|
Total liabilities
|
—
|
|
|
11,559,018
|
|
|
309,540
|
|
|
393,650
|
|
|
(36,117
|
)
|
|
12,226,091
|
|
STOCKHOLDERS’ (DEFICIT) EQUITY
|
(2,038,764
|
)
|
|
(439,674
|
)
|
|
13,918,042
|
|
|
2,335,866
|
|
|
(15,814,234
|
)
|
|
(2,038,764
|
)
|
TOTAL LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
|
$
|
(2,038,764
|
)
|
|
$
|
11,119,344
|
|
|
$
|
14,227,582
|
|
|
$
|
2,729,516
|
|
|
$
|
(15,850,351
|
)
|
|
$
|
10,187,327
|
|
TRANSDIGM GROUP INCORPORATED
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF SEPTEMBER 30,
2016
(Amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TransDigm
Group
|
|
TransDigm
Inc.
|
|
Subsidiary
Guarantors
|
|
Non-
Guarantor
Subsidiaries
|
|
Eliminations
|
|
Total
Consolidated
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
13,560
|
|
|
$
|
1,421,251
|
|
|
$
|
8,808
|
|
|
$
|
143,375
|
|
|
$
|
—
|
|
|
$
|
1,586,994
|
|
Trade accounts receivable - Net
|
—
|
|
|
—
|
|
|
26,210
|
|
|
561,124
|
|
|
(10,995
|
)
|
|
576,339
|
|
Inventories - Net
|
—
|
|
|
42,309
|
|
|
586,648
|
|
|
96,229
|
|
|
(1,175
|
)
|
|
724,011
|
|
Prepaid expenses and other
|
—
|
|
|
8,209
|
|
|
27,381
|
|
|
7,763
|
|
|
—
|
|
|
43,353
|
|
Total current assets
|
13,560
|
|
|
1,471,769
|
|
|
649,047
|
|
|
808,491
|
|
|
(12,170
|
)
|
|
2,930,697
|
|
INVESTMENT IN SUBSIDIARIES AND INTERCOMPANY BALANCES
|
(665,050
|
)
|
|
9,671,019
|
|
|
6,182,809
|
|
|
861,647
|
|
|
(16,050,425
|
)
|
|
—
|
|
PROPERTY, PLANT AND EQUIPMENT - NET
|
—
|
|
|
15,991
|
|
|
250,544
|
|
|
44,045
|
|
|
—
|
|
|
310,580
|
|
GOODWILL
|
—
|
|
|
68,593
|
|
|
4,952,950
|
|
|
657,909
|
|
|
—
|
|
|
5,679,452
|
|
OTHER INTANGIBLE ASSETS - NET
|
—
|
|
|
24,801
|
|
|
1,483,285
|
|
|
256,257
|
|
|
—
|
|
|
1,764,343
|
|
OTHER
|
—
|
|
|
10,319
|
|
|
24,063
|
|
|
6,823
|
|
|
—
|
|
|
41,205
|
|
TOTAL ASSETS
|
$
|
(651,490
|
)
|
|
$
|
11,262,492
|
|
|
$
|
13,542,698
|
|
|
$
|
2,635,172
|
|
|
$
|
(16,062,595
|
)
|
|
$
|
10,726,277
|
|
LIABILITIES AND STOCKHOLDERS’
(DEFICIT) EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
$
|
—
|
|
|
$
|
52,645
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
52,645
|
|
Short-term borrowings - trade receivable securitization facility
|
—
|
|
|
—
|
|
|
—
|
|
|
199,771
|
|
|
—
|
|
|
199,771
|
|
Accounts payable
|
—
|
|
|
15,347
|
|
|
120,455
|
|
|
31,560
|
|
|
(11,287
|
)
|
|
156,075
|
|
Accrued liabilities
|
—
|
|
|
159,909
|
|
|
123,646
|
|
|
60,557
|
|
|
—
|
|
|
344,112
|
|
Total current liabilities
|
—
|
|
|
227,901
|
|
|
244,101
|
|
|
291,888
|
|
|
(11,287
|
)
|
|
752,603
|
|
LONG-TERM DEBT
|
—
|
|
|
9,943,191
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9,943,191
|
|
DEFERRED INCOME TAXES
|
—
|
|
|
434,013
|
|
|
(544
|
)
|
|
58,786
|
|
|
—
|
|
|
492,255
|
|
OTHER NON-CURRENT LIABILITIES
|
—
|
|
|
82,677
|
|
|
70,124
|
|
|
36,917
|
|
|
—
|
|
|
189,718
|
|
Total liabilities
|
—
|
|
|
10,687,782
|
|
|
313,681
|
|
|
387,591
|
|
|
(11,287
|
)
|
|
11,377,767
|
|
STOCKHOLDERS’ (DEFICIT) EQUITY
|
(651,490
|
)
|
|
574,710
|
|
|
13,229,017
|
|
|
2,247,581
|
|
|
(16,051,308
|
)
|
|
(651,490
|
)
|
TOTAL LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
|
$
|
(651,490
|
)
|
|
$
|
11,262,492
|
|
|
$
|
13,542,698
|
|
|
$
|
2,635,172
|
|
|
$
|
(16,062,595
|
)
|
|
$
|
10,726,277
|
|
TRANSDIGM GROUP INCORPORATED
CONDENSED CONSOLIDATING STATEMENT OF INCOME AND COMPREHENSIVE INCOME
FOR THE
TWENTY-SIX WEEK PERIOD ENDED
APRIL 1, 2017
(Amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TransDigm
Group
|
|
TransDigm
Inc.
|
|
Subsidiary
Guarantors
|
|
Non-
Guarantor
Subsidiaries
|
|
Eliminations
|
|
Total
Consolidated
|
NET SALES
|
$
|
—
|
|
|
$
|
65,037
|
|
|
$
|
1,411,061
|
|
|
$
|
251,749
|
|
|
$
|
(40,597
|
)
|
|
$
|
1,687,250
|
|
COST OF SALES
|
—
|
|
|
36,230
|
|
|
606,429
|
|
|
149,845
|
|
|
(40,597
|
)
|
|
751,907
|
|
GROSS PROFIT
|
—
|
|
|
28,807
|
|
|
804,632
|
|
|
101,904
|
|
|
—
|
|
|
935,343
|
|
SELLING AND ADMINISTRATIVE EXPENSES
|
61
|
|
|
47,475
|
|
|
128,278
|
|
|
28,109
|
|
|
384
|
|
|
204,307
|
|
AMORTIZATION OF INTANGIBLE ASSETS
|
—
|
|
|
387
|
|
|
43,129
|
|
|
4,149
|
|
|
—
|
|
|
47,665
|
|
(LOSS) INCOME FROM OPERATIONS
|
(61
|
)
|
|
(19,055
|
)
|
|
633,225
|
|
|
69,646
|
|
|
(384
|
)
|
|
683,371
|
|
INTEREST EXPENSE (INCOME) - NET
|
—
|
|
|
298,005
|
|
|
(31
|
)
|
|
(4,128
|
)
|
|
—
|
|
|
293,846
|
|
REFINANCING COSTS
|
—
|
|
|
35,591
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
35,591
|
|
EQUITY IN INCOME OF SUBSIDIARIES
|
(274,437
|
)
|
|
(629,722
|
)
|
|
—
|
|
|
—
|
|
|
904,159
|
|
|
—
|
|
INCOME BEFORE INCOME TAXES
|
274,376
|
|
|
277,071
|
|
|
633,256
|
|
|
73,774
|
|
|
(904,543
|
)
|
|
353,934
|
|
INCOME TAX (BENEFIT) PROVISION
|
—
|
|
|
2,634
|
|
|
73,549
|
|
|
3,375
|
|
|
—
|
|
|
79,558
|
|
NET INCOME
|
$
|
274,376
|
|
|
$
|
274,437
|
|
|
$
|
559,707
|
|
|
$
|
70,399
|
|
|
$
|
(904,543
|
)
|
|
$
|
274,376
|
|
OTHER COMPREHENSIVE (LOSS) INCOME, NET OF TAX
|
20,952
|
|
|
40,955
|
|
|
15,012
|
|
|
(59,324
|
)
|
|
3,357
|
|
|
20,952
|
|
TOTAL COMPREHENSIVE INCOME
|
$
|
295,328
|
|
|
$
|
315,392
|
|
|
$
|
574,719
|
|
|
$
|
11,075
|
|
|
$
|
(901,186
|
)
|
|
$
|
295,328
|
|
TRANSDIGM GROUP INCORPORATED
CONDENSED CONSOLIDATING STATEMENT OF INCOME AND COMPREHENSIVE INCOME
FOR THE
TWENTY-SIX WEEK PERIOD ENDED
APRIL 2, 2016
(Amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TransDigm
Group
|
|
TransDigm
Inc.
|
|
Subsidiary
Guarantors
|
|
Non-
Guarantor
Subsidiaries
|
|
Eliminations
|
|
Total
Consolidated
|
NET SALES
|
$
|
—
|
|
|
$
|
60,703
|
|
|
$
|
1,229,024
|
|
|
$
|
220,024
|
|
|
$
|
(11,255
|
)
|
|
$
|
1,498,496
|
|
COST OF SALES
|
—
|
|
|
38,372
|
|
|
532,646
|
|
|
138,504
|
|
|
(11,255
|
)
|
|
698,267
|
|
GROSS PROFIT
|
—
|
|
|
22,331
|
|
|
696,378
|
|
|
81,520
|
|
|
—
|
|
|
800,229
|
|
SELLING AND ADMINISTRATIVE EXPENSES
|
—
|
|
|
36,736
|
|
|
113,198
|
|
|
27,333
|
|
|
—
|
|
|
177,267
|
|
AMORTIZATION OF INTANGIBLE ASSETS
|
—
|
|
|
543
|
|
|
27,560
|
|
|
6,742
|
|
|
—
|
|
|
34,845
|
|
(LOSS) INCOME FROM OPERATIONS
|
—
|
|
|
(14,948
|
)
|
|
555,620
|
|
|
47,445
|
|
|
—
|
|
|
588,117
|
|
INTEREST EXPENSE (INCOME) - NET
|
—
|
|
|
229,983
|
|
|
(537
|
)
|
|
(6,175
|
)
|
|
—
|
|
|
223,271
|
|
REFINANCING COSTS
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
EQUITY IN INCOME OF SUBSIDIARIES
|
(271,124
|
)
|
|
(438,948
|
)
|
|
—
|
|
|
—
|
|
|
710,072
|
|
|
—
|
|
INCOME BEFORE INCOME TAXES
|
271,124
|
|
|
194,017
|
|
|
556,157
|
|
|
53,620
|
|
|
(710,072
|
)
|
|
364,846
|
|
INCOME TAX (BENEFIT) PROVISION
|
—
|
|
|
(77,107
|
)
|
|
170,905
|
|
|
(76
|
)
|
|
—
|
|
|
93,722
|
|
NET INCOME
|
$
|
271,124
|
|
|
$
|
271,124
|
|
|
$
|
385,252
|
|
|
$
|
53,696
|
|
|
$
|
(710,072
|
)
|
|
$
|
271,124
|
|
OTHER COMPREHENSIVE (LOSS) INCOME, NET OF TAX
|
(13,839
|
)
|
|
20,261
|
|
|
(928
|
)
|
|
(11,850
|
)
|
|
(7,483
|
)
|
|
(13,839
|
)
|
TOTAL COMPREHENSIVE INCOME
|
$
|
257,285
|
|
|
$
|
291,385
|
|
|
$
|
384,324
|
|
|
$
|
41,846
|
|
|
$
|
(717,555
|
)
|
|
$
|
257,285
|
|
TRANSDIGM GROUP INCORPORATED
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE
TWENTY-SIX WEEK PERIOD ENDED
APRIL 1, 2017
(Amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TransDigm
Group
|
|
TransDigm
Inc.
|
|
Subsidiary
Guarantors
|
|
Non-
Guarantor
Subsidiaries
|
|
Eliminations
|
|
Total
Consolidated
|
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES
|
$
|
(61
|
)
|
|
$
|
(332,771
|
)
|
|
$
|
720,565
|
|
|
$
|
2,035
|
|
|
$
|
732
|
|
|
$
|
390,500
|
|
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
—
|
|
|
(829
|
)
|
|
(34,576
|
)
|
|
(3,031
|
)
|
|
—
|
|
|
(38,436
|
)
|
Payments made in connection with acquisitions - see Note 3
|
—
|
|
|
(108,881
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(108,881
|
)
|
Net cash used in investing activities
|
—
|
|
|
(109,710
|
)
|
|
(34,576
|
)
|
|
(3,031
|
)
|
|
—
|
|
|
(147,317
|
)
|
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany activities
|
1,691,169
|
|
|
(1,028,726
|
)
|
|
(693,729
|
)
|
|
32,018
|
|
|
(732
|
)
|
|
—
|
|
Proceeds from exercise of stock options
|
12,345
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
12,345
|
|
Special dividend and dividend equivalent payments
|
(1,375,998
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,375,998
|
)
|
Treasury stock purchased
|
(339,833
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(339,833
|
)
|
Proceeds from 2017 term loans, net
|
—
|
|
|
1,132,774
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,132,774
|
|
Repayment on term loans
|
—
|
|
|
(32,302
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(32,302
|
)
|
Cash tender and redemption of the 2021 Notes, including premium
|
—
|
|
|
(528,847
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(528,847
|
)
|
Proceeds from additional 2025 Notes offering, net
|
—
|
|
|
301,006
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
301,006
|
|
Other
|
—
|
|
|
(10,745
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(10,745
|
)
|
Net cash (used in) provided by financing activities
|
(12,317
|
)
|
|
(166,840
|
)
|
|
(693,729
|
)
|
|
32,018
|
|
|
(732
|
)
|
|
(841,600
|
)
|
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,188
|
)
|
|
—
|
|
|
(3,188
|
)
|
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
|
(12,378
|
)
|
|
(609,321
|
)
|
|
(7,740
|
)
|
|
27,834
|
|
|
—
|
|
|
(601,605
|
)
|
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
|
13,560
|
|
|
1,421,251
|
|
|
8,808
|
|
|
143,375
|
|
|
—
|
|
|
1,586,994
|
|
CASH AND CASH EQUIVALENTS, END OF PERIOD
|
$
|
1,182
|
|
|
$
|
811,930
|
|
|
$
|
1,068
|
|
|
$
|
171,209
|
|
|
$
|
—
|
|
|
$
|
985,389
|
|
TRANSDIGM GROUP INCORPORATED
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE
TWENTY-SIX WEEK PERIOD ENDED
APRIL 2, 2016
(Amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TransDigm
Group
|
|
TransDigm
Inc.
|
|
Subsidiary
Guarantors
|
|
Non-
Guarantor
Subsidiaries
|
|
Eliminations
|
|
Total
Consolidated
|
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES
|
$
|
—
|
|
|
$
|
(109,171
|
)
|
|
$
|
382,596
|
|
|
$
|
18,337
|
|
|
$
|
(4,882
|
)
|
|
$
|
286,880
|
|
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
—
|
|
|
(950
|
)
|
|
(16,396
|
)
|
|
(4,968
|
)
|
|
—
|
|
|
(22,314
|
)
|
Payments made in connection with acquisitions - see Note 3
|
—
|
|
|
(144,380
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(144,380
|
)
|
Net cash used in investing activities
|
—
|
|
|
(145,330
|
)
|
|
(16,396
|
)
|
|
(4,968
|
)
|
|
—
|
|
|
(166,694
|
)
|
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany activities
|
201,915
|
|
|
146,738
|
|
|
(367,855
|
)
|
|
14,320
|
|
|
4,882
|
|
|
—
|
|
Proceeds from exercise of stock options
|
12,384
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
12,384
|
|
Dividend equivalent payments
|
(3,000
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,000
|
)
|
Treasury stock repurchased
|
(207,755
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(207,755
|
)
|
Repayment on term loans
|
—
|
|
|
(21,920
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(21,920
|
)
|
Other
|
—
|
|
|
(53
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(53
|
)
|
Net cash provided by (used in) financing activities
|
3,544
|
|
|
124,765
|
|
|
(367,855
|
)
|
|
14,320
|
|
|
4,882
|
|
|
(220,344
|
)
|
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,860
|
)
|
|
—
|
|
|
(1,860
|
)
|
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
3,544
|
|
|
(129,736
|
)
|
|
(1,655
|
)
|
|
25,829
|
|
|
—
|
|
|
(102,018
|
)
|
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
|
1,500
|
|
|
659,365
|
|
|
7,911
|
|
|
45,257
|
|
|
—
|
|
|
714,033
|
|
CASH AND CASH EQUIVALENTS, END OF PERIOD
|
$
|
5,044
|
|
|
$
|
529,629
|
|
|
$
|
6,256
|
|
|
$
|
71,086
|
|
|
$
|
—
|
|
|
$
|
612,015
|
|
* * * * *
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-looking Statements
The following discussion of the Company’s financial condition and results of operations should be read together with TD Group’s consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q. References in this section to “TransDigm,” “the Company,” “we,” “us,” “our,” and similar references refer to TD Group, TransDigm Inc. and TransDigm Inc.’s subsidiaries, unless the context otherwise indicates.
This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including, in particular, the statements about the Company’s plans, strategies and prospects under this section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” When used in this Quarterly Report on Form 10-Q, the words “believe,” “may,” “will,” “should,” “expect,” “intend,” “plan,” “predict,” “anticipate,” “estimate” or “continue” and other words and terms of similar meaning are intended to identify forward-looking statements. Although the Company believes that its plans, intentions and expectations reflected in or suggested by such forward-looking statements are reasonable, such forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from the forward-looking statements made in this report. Many such factors are outside the control of the Company. Consequently, such forward-looking statements should be regarded solely as our current plans, estimates and beliefs. The Company does not undertake, and specifically declines, any obligation, to publicly release the results of any revisions to these forward-looking statements that may be made to reflect any future events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. All forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by these cautionary statements.
Important factors that could cause actual results to differ materially from the forward-looking statements made in this Quarterly Report on Form 10-Q include but are not limited to: the sensitivity of our business to the number of flight hours that our customers’ planes spend aloft and our customers’ profitability, both of which are affected by general economic conditions; future terrorist attacks; cyber-security threats and natural disasters; our reliance on certain customers; the U.S. defense budget and risks associated with being a government supplier; failure to maintain government or industry approvals; failure to complete or successfully integrate acquisitions; our substantial indebtedness; potential environmental liabilities; increases in raw material costs, taxes and labor costs that cannot be recovered in product pricing; risks and costs associated with our international sales and operations; and other factors. Please refer to the other information included in this Quarterly Report on Form 10-Q and to Item 1A of the Annual Report on Form 10-K for additional information regarding the foregoing factors that may affect our business.
Overview
We believe we are a leading global designer, producer and supplier of highly engineered aircraft components for use on nearly all commercial and military aircraft in service today. Our business is well diversified due to the broad range of products we offer to our customers. Some of our more significant product offerings, substantially all of which are ultimately provided to end-users in the aerospace industry, include mechanical/electro-mechanical actuators and controls, ignition systems and engine technology, specialized pumps and valves, power conditioning devices, specialized AC/DC electric motors and generators, NiCad batteries and chargers, engineered latching and locking devices, rods and locking devices, engineered connectors and elastomers, databus and power controls, cockpit security components and systems, specialized cockpit displays, aircraft audio systems, specialized lavatory components, seat belts and safety restraints, engineered interior surfaces and related components, lighting and control technology, military personnel parachutes, high performance hoists, winches and lifting devices, and cargo loading, handling and delivery systems. Each of these product offerings is composed of many individual products that are typically customized to meet the needs of a particular aircraft platform or customer.
For the
second
quarter of fiscal
2017
, we generated net sales of
$873.2 million
and net income of
$155.5 million
. EBITDA As Defined was
$421.2 million
, or
48.2%
of net sales. See the "Non-GAAP Financial Measures" section for certain information regarding EBITDA and EBITDA As Defined, including reconciliations of EBITDA and EBITDA As Defined to net income and net cash provided by operating activities.
Acquisitions
Recent acquisitions are described in Note 3, “Acquisitions” to the condensed consolidated financial statements included herein.
Results of Operations
The following table sets forth, for the periods indicated, certain operating data of the Company, including presentation of the amounts as a percentage of net sales (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Week Periods Ended
|
|
April 1, 2017
|
|
% of Sales
|
|
April 2, 2016
|
|
% of Sales
|
Net sales
|
$
|
873,232
|
|
|
100.0
|
%
|
|
$
|
796,801
|
|
|
100.0
|
%
|
Cost of sales
|
382,144
|
|
|
43.8
|
%
|
|
371,140
|
|
|
46.6
|
%
|
Selling and administrative expenses
|
102,592
|
|
|
11.7
|
%
|
|
95,064
|
|
|
11.9
|
%
|
Amortization of intangible assets
|
22,134
|
|
|
2.5
|
%
|
|
18,522
|
|
|
2.3
|
%
|
Income from operations
|
366,362
|
|
|
42.0
|
%
|
|
312,075
|
|
|
39.2
|
%
|
Interest expense, net
|
147,842
|
|
|
16.9
|
%
|
|
111,288
|
|
|
14.0
|
%
|
Refinancing costs
|
3,507
|
|
|
0.4
|
%
|
|
—
|
|
|
—
|
%
|
Income tax provision
1
|
59,508
|
|
|
6.8
|
%
|
|
59,104
|
|
|
7.4
|
%
|
Net income
1
|
$
|
155,505
|
|
|
17.8
|
%
|
|
$
|
141,683
|
|
|
17.8
|
%
|
|
|
1
|
As a result of adopting ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting” in the fourth quarter of fiscal 2016, the condensed consolidated financial statements for the thirteen week period ended
April 2, 2016
were recasted where presented within this Form 10-Q to reflect the impact of this standard as if the Company had adopted as of the beginning of fiscal 2016. Therefore, approximately $3,056 in quarter-to-date excess tax benefits as of
April 2, 2016
were reclassified from a component of additional paid-in-capital to a component of the income tax provision. This resulted in a decrease of $3,056 to our income tax provision and an increase of $3,056 to our net income for the thirteen week period ended
April 2, 2016
. Refer to Note 4 of the condensed consolidated financial statements for further details of the adoption of ASU 2016-09.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-Six Week Periods Ended
|
|
April 1, 2017
|
|
% of Sales
|
|
April 2, 2016
|
|
% of Sales
|
Net sales
|
$
|
1,687,250
|
|
|
100.0
|
%
|
|
$
|
1,498,496
|
|
|
100.0
|
%
|
Cost of sales
|
751,907
|
|
|
44.6
|
%
|
|
698,267
|
|
|
46.6
|
%
|
Selling and administrative expenses
|
204,307
|
|
|
12.1
|
%
|
|
177,267
|
|
|
11.8
|
%
|
Amortization of intangible assets
|
47,665
|
|
|
2.8
|
%
|
|
34,845
|
|
|
2.3
|
%
|
Income from operations
|
683,371
|
|
|
40.5
|
%
|
|
588,117
|
|
|
39.2
|
%
|
Interest expense, net
|
293,846
|
|
|
17.4
|
%
|
|
223,271
|
|
|
14.9
|
%
|
Refinancing costs
|
35,591
|
|
|
2.1
|
%
|
|
—
|
|
|
—
|
%
|
Income tax provision
1
|
79,558
|
|
|
4.7
|
%
|
|
93,722
|
|
|
6.3
|
%
|
Net income
1
|
$
|
274,376
|
|
|
16.3
|
%
|
|
$
|
271,124
|
|
|
18.1
|
%
|
|
|
1
|
As a result of adopting ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting” in the fourth quarter of fiscal 2016, the condensed consolidated financial statements for the twenty-six week period ended
April 2, 2016
were recasted where presented within this Form 10-Q to reflect the impact of this standard as if the Company had adopted as of the beginning of fiscal 2016. Therefore, approximately $17,595 in year-to-date excess tax benefits as of
April 2, 2016
were reclassified from a component of additional paid-in-capital to a component of the income tax provision. This resulted in a decrease of $17,595 to our income tax provision and an increase of $17,595 to our net income for the twenty-six week period ended
April 2, 2016
Refer to Note 4 of the condensed consolidated financial statements for further details of the adoption of ASU 2016-09.
|
Changes in Results of Operations
Thirteen week period ended
April 1, 2017
compared with the thirteen week period ended
April 2, 2016
Total Company
|
|
•
|
Net Sales
.
Net organic sales and acquisition sales and the related dollar and percentage changes for the thirteen week periods ended
April 1, 2017
and
April 2, 2016
were as follows (amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Week Periods Ended
|
|
|
|
% Change
Total Sales
|
|
April 1, 2017
|
|
April 2, 2016
|
|
Change
|
|
Organic sales
|
$
|
803.5
|
|
|
$
|
796.8
|
|
|
$
|
6.7
|
|
|
0.8
|
%
|
Acquisition sales
|
69.7
|
|
|
—
|
|
|
69.7
|
|
|
8.7
|
%
|
|
$
|
873.2
|
|
|
$
|
796.8
|
|
|
$
|
76.4
|
|
|
9.6
|
%
|
Organic commercial OEM and defense sales increased by
$6.1 million
and
$4.7 million
, or
2.6%
and
2.1%
, respectively. Partially offsetting these increases was a decrease in organic commercial aftermarket sales of
$5.1 million
, or
1.7%
, for the quarter ended
April 1, 2017
compared to the quarter ended
April 2, 2016
.
Acquisition sales represent sales of acquired businesses for the period up to one year subsequent to their acquisition dates. The amount of acquisition sales shown in the table above was attributable to the acquisitions of DDC and Y&F/Tactair in fiscal year 2016 and Schroth in fiscal year 2017.
|
|
•
|
Cost of Sales and Gross Profit
.
Cost of sales increased by
$11.0 million
, or
3.0%
, to
$382.1 million
for the thirteen week period ended
April 1, 2017
compared to
$371.1 million
for the thirteen week period ended
April 2, 2016
. Cost of sales and the related percentage of total sales for the thirteen week periods ended
April 1, 2017
and
April 2, 2016
were as follows (amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Week Periods Ended
|
|
|
|
|
|
April 1, 2017
|
|
April 2, 2016
|
|
Change
|
|
% Change
|
Cost of sales - excluding costs below
|
$
|
376.8
|
|
|
$
|
359.5
|
|
|
$
|
17.3
|
|
|
4.8
|
%
|
% of total sales
|
43.2
|
%
|
|
45.1
|
%
|
|
|
|
|
Inventory purchase accounting adjustments
|
3.2
|
|
|
5.6
|
|
|
(2.4
|
)
|
|
(42.9
|
)%
|
% of total sales
|
0.4
|
%
|
|
0.7
|
%
|
|
|
|
|
Acquisition integration costs
|
1.0
|
|
|
4.2
|
|
|
(3.2
|
)
|
|
(76.2
|
)%
|
% of total sales
|
0.1
|
%
|
|
0.5
|
%
|
|
|
|
|
Stock compensation expense
|
1.1
|
|
|
1.8
|
|
|
(0.7
|
)
|
|
(38.9
|
)%
|
% of total sales
|
0.1
|
%
|
|
0.2
|
%
|
|
|
|
|
Total cost of sales
|
$
|
382.1
|
|
|
$
|
371.1
|
|
|
$
|
11.0
|
|
|
3.0
|
%
|
% of total sales
|
43.8
|
%
|
|
46.6
|
%
|
|
|
|
|
Gross profit
|
$
|
491.1
|
|
|
$
|
425.7
|
|
|
$
|
65.4
|
|
|
15.4
|
%
|
Gross profit percentage
|
56.2
|
%
|
|
53.4
|
%
|
|
2.8
|
|
|
The net increase in the dollar amount of cost of sales during the thirteen week period ended
April 1, 2017
was primarily due to increased volume associated with the sales from acquisitions and organic sales growth for both commercial OEM and defense markets. This increase due to volume was partially offset by lower inventory purchase accounting adjustments, acquisition integration costs and stock compensation expense as shown in the table above.
Gross profit as a percentage of sales increased by
2.8
percentage points to
56.2%
for the thirteen week period ended
April 1, 2017
from
53.4%
for the thirteen week period ended
April 2, 2016
. The dollar amount of gross profit increased by
$65.4 million
, or
15.4%
, for the quarter ended
April 1, 2017
compared to the comparable quarter in the prior year due to the following items:
|
|
•
|
Gross profit on the sales from the acquisitions indicated above (excluding acquisition-related costs) was approximately $42.7 million for the quarter ended
April 1, 2017
, which represented gross profit of approximately 60.8% of the acquisition sales.
|
|
|
•
|
Organic sales growth as described above, application of our three core value-driven operating strategies (obtaining profitable new business, continually improving our cost structure, and providing highly engineered value-added products to customers) and positive leverage on our fixed overhead costs spread over a higher production volume resulted in a net increase in gross profit of approximately $16.4 million for the quarter ended
April 1, 2017
.
|
|
|
•
|
Further increases in gross profit were due to lower acquisition integration costs of
$3.2 million
, lower inventory purchase accounting adjustments of
$2.4 million
, and lower stock compensation expense of
$0.7 million
for the quarter ended
April 1, 2017
.
|
|
|
•
|
Selling and Administrative Expenses.
Selling and administrative expenses increased by
$7.5 million
to
$102.6 million
, or
11.7%
of sales, for the thirteen week period ended
April 1, 2017
from
$95.1 million
, or
11.9%
of sales, for the thirteen week period ended
April 2, 2016
. Selling and administrative expenses and the related percentage of total sales for the thirteen week periods ended
April 1, 2017
and
April 2, 2016
were as follows (amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Week Periods Ended
|
|
|
|
|
|
April 1, 2017
|
|
April 2, 2016
|
|
Change
|
|
% Change
|
Selling and administrative expenses - excluding costs below
|
$
|
88.7
|
|
|
$
|
77.3
|
|
|
$
|
11.4
|
|
|
14.7
|
%
|
% of total sales
|
10.2
|
%
|
|
9.7
|
%
|
|
|
|
|
Stock compensation expense
|
10.0
|
|
|
10.0
|
|
|
—
|
|
|
—
|
%
|
% of total sales
|
1.1
|
%
|
|
1.3
|
%
|
|
|
|
|
Acquisition-related expenses
|
3.9
|
|
|
7.8
|
|
|
(3.9
|
)
|
|
(50.0
|
)%
|
% of total sales
|
0.4
|
%
|
|
1.0
|
%
|
|
|
|
|
Total selling and administrative expenses
|
$
|
102.6
|
|
|
$
|
95.1
|
|
|
$
|
7.5
|
|
|
7.9
|
%
|
% of total sales
|
11.7
|
%
|
|
11.9
|
%
|
|
|
|
|
The increase in the dollar amount of selling and administrative expenses during the quarter ended
April 1, 2017
is primarily due to higher selling and administrative expenses relating to recent acquisitions of approximately $15.2 million, which was approximately 21.8% of the acquisition sales, slightly offset by lower acquisition-related expenses of
$3.9 million
.
|
|
•
|
Amortization of Intangible Assets.
Amortization of intangible assets was
$22.1 million
for the quarter ended
April 1, 2017
compared to
$18.5 million
in the quarter ended
April 2, 2016
. The increase in amortization expense of
$3.6 million
was due to the amortization expense on the definite-lived intangible assets (i.e., technology and order backlog) recorded in connection with the fiscal 2016 and fiscal 2017 acquisitions.
|
|
|
•
|
Refinancing Costs.
Refinancing costs of
$3.5 million
were recorded for the quarter ended
April 1, 2017
representing debt issuance costs expensed in connection with the debt financing activity that occurred during the quarter ended April 1, 2017 as disclosed in Note 8, "Debt," to the condensed consolidated financial statements. There were no refinancing costs recorded for the quarter ended
April 2, 2016
.
|
|
|
•
|
Interest Expense-net.
Interest expense-net includes interest on borrowings outstanding, amortization of debt issuance costs and revolving credit facility fees slightly offset by interest income. Interest expense-net increased
$36.5 million
, or
32.8%
, to
$147.8 million
for the quarter ended
April 1, 2017
from
$111.3 million
for the comparable quarter last year. The net increase in interest expense-net was primarily due to an increase in the weighted average level of outstanding borrowings, which was approximately $11.2 billion for the quarter ended
April 1, 2017
and approximately $8.4 billion for the quarter ended
April 2, 2016
. The increase in weighted average level of borrowings was primarily due to the issuance of the 2026 Notes for $950 million in June 2016, the incremental term loans of $950 million in June 2016, the additional net debt financing of $641 million in the first fiscal quarter of 2017 and the additional 2025 Notes offering of $300 million in the second fiscal quarter of 2017. The weighted average interest rate for cash interest payments on total borrowings outstanding at
April 1, 2017
was 5.1%.
|
|
|
•
|
Income Taxes
.
Income tax expense as a percentage of income before income taxes was approximately
27.7%
for the quarter ended
April 1, 2017
compared to
29.4%
for the quarter ended
April 2, 2016
. The Company’s lower effective tax rate for the thirteen week period ended
April 1, 2017
was primarily due to a higher discrete adjustment from the application of ASU 2016-09 (see Note 4, "Recent Accounting Pronouncements," to the condensed consolidated financial statements) as it pertains to the accounting treatment of excess tax benefits on equity compensation and foreign earnings taxed at lower rates than the U.S. statutory rate.
|
|
|
•
|
Net Income
.
Net income increased
$13.8 million
, or
9.8%
, to
$155.5 million
for the quarter ended
April 1, 2017
compared to net income of
$141.7 million
for the quarter ended
April 2, 2016
, primarily as a result of the factors referred to above.
|
|
|
•
|
Earnings per Share.
Basic and diluted earnings per share was
$2.78
for the quarter ended
April 1, 2017
and
$2.52
per share for the quarter ended
April 2, 2016
. The increase in basic and diluted earnings per share of
$0.26
per share to
$2.78
per share is a result of the factors referred to above. In connection with the fourth quarter of fiscal 2016 adoption of ASU 2016-09, approximately
$3.1 million
in quarter-to-date excess tax benefits as of
April 2, 2016
were reclassified from a component of additional paid-in-capital to a component of the income tax provision resulting in a favorable impact to basic and diluted earnings per common share of
$0.05
for the quarter ended April 2, 2016.
|
Business Segments
|
|
•
|
Segment Net Sales
.
Net sales by segment for the thirteen week periods ended
April 1, 2017
and
April 2, 2016
were as follows (amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Week Periods Ended
|
|
|
|
|
|
April 1, 2017
|
|
% of Sales
|
|
April 2, 2016
|
|
% of Sales
|
|
Change
|
|
% Change
|
Power & Control
|
$
|
479.8
|
|
|
54.9
|
%
|
|
$
|
405.5
|
|
|
50.9
|
%
|
|
$
|
74.3
|
|
|
18.3
|
%
|
Airframe
|
365.0
|
|
|
41.8
|
%
|
|
365.7
|
|
|
45.9
|
%
|
|
(0.7
|
)
|
|
(0.2
|
)%
|
Non-aviation
|
28.4
|
|
|
3.3
|
%
|
|
25.6
|
|
|
3.2
|
%
|
|
2.8
|
|
|
10.9
|
%
|
|
$
|
873.2
|
|
|
100.0
|
%
|
|
$
|
796.8
|
|
|
100.0
|
%
|
|
$
|
76.4
|
|
|
9.6
|
%
|
Acquisition sales for the Power & Control segment totaled
$65.5 million
, or an increase of
16.1%
, resulting from the acquisitions of DDC and Y&F/Tactair in fiscal year 2016. Organic sales increased
$8.8 million
, or an increase of
2.2%
, for the thirteen week period ended
April 1, 2017
compared to the thirteen week period ended
April 2, 2016
. The organic sales increase resulted from increases in commercial aftermarket sales (
$4.2 million
, an increase of
3.1%
), defense sales (
$3.7 million
, an increase of
2.4%
), and commercial OEM sales (
$1.2 million
, an increase of
1.1%
).
Acquisition sales for the Airframe segment totaled
$4.2 million
, or an increase of
1.2%
, resulting from the acquisition of Schroth in fiscal year 2017. Organic sales decreased
$5.0 million
, or a decrease of
1.4%
, for the thirteen week period ended
April 1, 2017
compared to the thirteen week period ended
April 2, 2016
. The organic sales decrease primarily resulted from a decrease in commercial aftermarket sales (
$9.3 million
, a decrease of
5.7%
) partially offset by increases in commerical OEM sales (
$3.2 million
, an increase of
2.6%
) and defense sales (
$1.4 million
, an increase of
2.0%
).
|
|
•
|
EBITDA As Defined
.
EBITDA As Defined by segment for the thirteen week periods ended
April 1, 2017
and
April 2, 2016
were as follows (amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Week Periods Ended
|
|
|
|
|
|
April 1, 2017
|
|
% of Segment
Sales
|
|
April 2, 2016
|
|
% of Segment
Sales
|
|
Change
|
|
% Change
|
Power & Control
|
$
|
234.5
|
|
|
48.9
|
%
|
|
$
|
192.2
|
|
|
47.4
|
%
|
|
$
|
42.3
|
|
|
22.0
|
%
|
Airframe
|
182.9
|
|
|
50.1
|
%
|
|
179.8
|
|
|
49.2
|
%
|
|
3.1
|
|
|
1.7
|
%
|
Non-aviation
|
9.0
|
|
|
31.6
|
%
|
|
6.5
|
|
|
25.6
|
%
|
|
2.5
|
|
|
38.5
|
%
|
|
$
|
426.4
|
|
|
48.8
|
%
|
|
$
|
378.5
|
|
|
47.5
|
%
|
|
$
|
47.9
|
|
|
12.7
|
%
|
EBITDA As Defined for the Power & Control segment from the acquisitions of DDC and Y&F/Tactair in fiscal year 2016 was approximately $28.6 million for the thirteen week period ended
April 1, 2017
. Organic EBITDA As Defined increased approximately $13.7 million, or an increase of 7.1%, resulting from organic sales growth, application of our three core value-driven operating strategies, and positive leverage on our fixed overhead costs spread over a higher production volume.
EBITDA as Defined for the Airframe segment from the acquisition of Schroth in fiscal year 2017 was approximately $0.4 million for the thirteen week period ended April 1, 2017. Organic EBITDA As Defined increased approximately $2.7 million, or an increase of 1.5%, resulting from organic sales growth, application of our three core value-driven operating strategies, and positive leverage on our fixed overhead costs spread over a higher production volume.
Twenty-six week period ended
April 1, 2017
compared with the
twenty-six week period
ended
April 2, 2016
Total Company
|
|
•
|
Net Sales
.
Net organic sales and acquisition sales and the related dollar and percentage changes for the
twenty-six week period
s ended
April 1, 2017
and
April 2, 2016
were as follows (amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-Six Week Periods Ended
|
|
|
|
% Change
Total Sales
|
|
April 1, 2017
|
|
April 2, 2016
|
|
Change
|
|
Organic sales
|
$
|
1,530.1
|
|
|
$
|
1,498.5
|
|
|
$
|
31.6
|
|
|
2.1
|
%
|
Acquisition sales
|
157.2
|
|
|
—
|
|
|
157.2
|
|
|
10.5
|
%
|
|
$
|
1,687.3
|
|
|
$
|
1,498.5
|
|
|
$
|
188.8
|
|
|
12.6
|
%
|
Organic defense, commercial aftermarket, and commercial OEM sales all increased for the
twenty-six week period
ended
April 1, 2017
compared to the
twenty-six week period
ended
April 2, 2016
by
$24.9 million
,
$4.8 million
, and
$1.3 million
, or
5.9%
,
0.8%
, and
0.3%
, respectively.
Acquisition sales represent sales of acquired businesses for the period up to one year subsequent to their acquisition dates. The amount of acquisition sales shown in the table above was attributable to the acquisitions of Breeze-Eastern, DDC and Y&F/Tactair in fiscal year 2016 and Schroth in fiscal year 2017.
|
|
•
|
Cost of Sales and Gross Profit
.
Cost of sales increased by
$53.6 million
, or
7.7%
, to
$751.9 million
for the
twenty-six week period
ended
April 1, 2017
compared to
$698.3 million
for the
twenty-six week period
ended
April 2, 2016
. Cost of sales and the related percentage of total sales for the
twenty-six week period
s ended
April 1, 2017
and
April 2, 2016
were as follows (amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-Six Week Periods Ended
|
|
|
|
|
|
April 1, 2017
|
|
April 2, 2016
|
|
Change
|
|
% Change
|
Cost of sales - excluding costs below
|
$
|
728.6
|
|
|
$
|
681.3
|
|
|
$
|
47.3
|
|
|
6.9
|
%
|
% of total sales
|
43.2
|
%
|
|
45.5
|
%
|
|
|
|
|
Inventory purchase accounting adjustments
|
19.7
|
|
|
8.4
|
|
|
11.3
|
|
|
134.5
|
%
|
% of total sales
|
1.2
|
%
|
|
0.6
|
%
|
|
|
|
|
Acquisition integration costs
|
1.5
|
|
|
5.2
|
|
|
(3.7
|
)
|
|
(71.2
|
)%
|
% of total sales
|
0.1
|
%
|
|
0.3
|
%
|
|
|
|
|
Stock compensation expense
|
2.1
|
|
|
3.4
|
|
|
(1.3
|
)
|
|
(38.2
|
)%
|
% of total sales
|
0.1
|
%
|
|
0.2
|
%
|
|
|
|
|
Total cost of sales
|
$
|
751.9
|
|
|
$
|
698.3
|
|
|
$
|
53.6
|
|
|
7.7
|
%
|
% of total sales
|
44.6
|
%
|
|
46.6
|
%
|
|
|
|
|
Gross profit
|
$
|
935.3
|
|
|
$
|
800.2
|
|
|
$
|
135.1
|
|
|
16.9
|
%
|
Gross profit percentage
|
55.4
|
%
|
|
53.4
|
%
|
|
2
|
|
|
|
The net increase in the dollar amount of cost of sales during the
twenty-six week period
ended
April 1, 2017
was primarily due to increased volume associated with the sales from acquisitions. There were also higher inventory purchase accounting adjustments, partially offset by lower acquisition integration costs and stock compensation expense as shown in the table above.
Gross profit as a percentage of sales increased by
2
percentage points to
55.4%
for the
twenty-six week period
ended
April 1, 2017
from
53.4%
for the
twenty-six week period
ended
April 2, 2016
. The dollar amount of gross profit increased by
$135.1 million
, or
16.9%
, for the
twenty-six week period
ended
April 1, 2017
compared to the comparable
twenty-six week period
in the prior year due to the following items:
|
|
•
|
Gross profit on the sales from the acquisitions indicated above (excluding acquisition-related costs) was approximately $93.0 million for the
twenty-six week period
ended
April 1, 2017
, which represented gross profit of approximately 58.8% of the acquisition sales.
|
|
|
•
|
Organic sales growth described above, application of our three core value-driven operating strategies (obtaining profitable new business, continually improving our cost structure, and providing highly engineered value-added products to customers) and positive leverage on our fixed overhead costs spread over a higher production volume resulted in a net increase in gross profit of approximately $48.4 million for the
twenty-six week period
ended
April 1, 2017
.
|
|
|
•
|
Also contributing to increases in gross profit were lower acquisition integration costs of
$3.7 million
and lower stock compensation expense of
$1.3 million
charged to cost of sales for the
twenty-six week period
ended
April 1, 2017
. Slightly offsetting the increases in gross profit was the impact of higher inventory purchase accounting adjustments of
$11.3 million
.
|
|
|
•
|
Selling and Administrative Expenses.
Selling and administrative expenses increased by
$27.0 million
to
$204.3 million
, or
12.1%
of sales, for the
twenty-six week period
ended
April 1, 2017
from
$177.3 million
, or
11.8%
of sales, for the
twenty-six week period
ended
April 2, 2016
. Selling and administrative expenses and the related percentage of total sales for the
twenty-six week period
s ended
April 1, 2017
and
April 2, 2016
were as follows (amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-Six Week Periods Ended
|
|
|
|
|
|
April 1, 2017
|
|
April 2, 2016
|
|
Change
|
|
% Change
|
Selling and administrative expenses - excluding costs below
|
$
|
179.8
|
|
|
$
|
147.0
|
|
|
$
|
32.8
|
|
|
22.3
|
%
|
% of total sales
|
10.7
|
%
|
|
9.8
|
%
|
|
|
|
|
Stock compensation expense
|
19.0
|
|
|
19.1
|
|
|
(0.1
|
)
|
|
(0.5
|
)%
|
% of total sales
|
1.1
|
%
|
|
1.3
|
%
|
|
|
|
|
Acquisition-related expenses
|
5.5
|
|
|
11.2
|
|
|
(5.7
|
)
|
|
(50.9
|
)%
|
% of total sales
|
0.3
|
%
|
|
0.7
|
%
|
|
|
|
|
Total selling and administrative expenses
|
$
|
204.3
|
|
|
$
|
177.3
|
|
|
$
|
27.0
|
|
|
15.2
|
%
|
% of total sales
|
12.1
|
%
|
|
11.8
|
%
|
|
|
|
|
The increase in the dollar amount of selling and administrative expenses during the
twenty-six week period
ended
April 1, 2017
is primarily due to higher selling and administrative expenses relating to recent acquisitions of approximately $31.7 million, which was approximately 20.2% of the acquisition sales, partially offset by lower stock compensation expense and acquisition-related expenses of
$0.1 million
and
$5.7 million
, respectively.
|
|
•
|
Amortization of Intangible Assets.
Amortization of intangible assets was
$47.7 million
for the
twenty-six week period
ended
April 1, 2017
compared to
$34.8 million
in the
twenty-six week period
ended April 2, 2016. The increase in amortization expense of
$12.9 million
was primarily due to the amortization expense on the definite-lived intangible assets (i.e., technology and order backlog) recorded in connection with the fiscal 2017 and 2016 acquisitions.
|
|
|
•
|
Interest Expense-net.
Interest expense-net includes interest on borrowings outstanding, amortization of debt issuance costs and revolving credit facility fees slightly offset by interest income. Interest expense-net increased
$70.5 million
, or
31.6%
, to
$293.8 million
for the
twenty-six week period
ended
April 1, 2017
from
$223.3 million
for the comparable
twenty-six week period
last year. The net increase in interest expense-net was primarily due to an increase in the weighted average level of outstanding borrowings, which was approximately $11.0 billion for the
twenty-six week period
ended
April 1, 2017
and approximately $8.4 billion for the
twenty-six week period
ended
April 2, 2016
. The increase in weighted average level of borrowings was primarily due to the issuance of the 2026 Notes for $950 million in June 2016, the incremental term loans of $950 million in June 2016, the additional net debt financing of $641 million in the first fiscal quarter of 2017 and the additional 2025 Notes offering of $300 million in the second fiscal quarter of 2017. The weighted average interest rate for cash interest payments on total borrowings outstanding at
April 1, 2017
was 5.1%.
|
|
|
•
|
Income Taxes
.
Income tax expense as a percentage of income before income taxes was approximately
22.5%
for the
twenty-six week period
ended
April 1, 2017
compared to
25.7%
for the
twenty-six week period
ended
April 2, 2016
. The Company’s lower effective tax rate for the
twenty-six week period
ended
April 1, 2017
was primarily due to a higher discrete adjustment from the application of ASU 2016-09 (see Note 4, "Recent Accounting Pronouncements," to the condensed consolidated financial statements) as it pertains to the accounting treatment of excess tax benefits on equity compensation and foreign earnings taxed at lower rates than the U.S. statutory rate.
|
|
|
•
|
Net Income
.
Net income increased
$3.3 million
, or
1.2%
, to
$274.4 million
for the
twenty-six week period
ended
April 1, 2017
compared to net income of
$271.1 million
for the
twenty-six week period
ended
April 2, 2016
, primarily as a result of the factors referred to above.
|
|
|
•
|
Earnings per Share.
The basic and diluted earnings per share were
$3.17
for the
twenty-six week period
ended
April 1, 2017
and
$4.75
per share for the
twenty-six week period
ended
April 2, 2016
. Net income for the
twenty-six week period
ended
April 1, 2017
of
$274.4 million
was decreased by an allocation of dividends on participating securities of
$96.0 million
, or
$1.71
, resulting in net income available to common shareholders of
$178.4 million
. Net income for the
twenty-six week period
ended
April 2, 2016
of
$271.1 million
was decreased by an allocation of dividends on participating securities of
$3.0 million
, or $0.05 per share, resulting in net income available to common shareholders of
$268.1 million
. The decrease in earnings per share of
$1.58
per share to
$3.17
per share is a result of the factors referred to above. In connection with the fourth quarter of fiscal 2016 adoption of ASU 2016-09, approximately
$17.6 million
in year-to-date excess tax benefits as of
April 2, 2016
were reclassified from a component of additional paid-in-capital to a component of the income tax provision with a year-to-date favorable impact to basic and diluted earnings per common share of
$0.31
.
|
Business Segments
|
|
•
|
Segment Net Sales
.
Net sales by segment for the
twenty-six week period
ended
April 1, 2017
and
April 2, 2016
were as follows (amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-Six Week Periods Ended
|
|
|
|
|
|
April 1, 2017
|
|
% of Sales
|
|
April 2, 2016
|
|
% of Sales
|
|
Change
|
|
% Change
|
Power & Control
|
$
|
920.9
|
|
|
54.6
|
%
|
|
$
|
752.7
|
|
|
50.2
|
%
|
|
$
|
168.2
|
|
|
22.3
|
%
|
Airframe
|
713.7
|
|
|
42.3
|
%
|
|
696.9
|
|
|
46.5
|
%
|
|
16.8
|
|
|
2.4
|
%
|
Non-aviation
|
52.7
|
|
|
3.1
|
%
|
|
48.9
|
|
|
3.3
|
%
|
|
3.8
|
|
|
7.8
|
%
|
|
$
|
1,687.3
|
|
|
100.0
|
%
|
|
$
|
1,498.5
|
|
|
100.0
|
%
|
|
$
|
188.8
|
|
|
12.6
|
%
|
Acquisition sales for the Power & Control segment totaled
$153.0 million
, or an increase of
20.3%
, resulting from the acquisitions of Breeze-Eastern, DDC, and Y&F/Tactair in fiscal year 2016. Organic sales increased
$15.1 million
, or an increase of
2.0%
, for the
twenty-six week period
ended
April 1, 2017
compared to the
twenty-six week period
ended
April 2, 2016
. The organic sales increase resulted primarily from an increase in commercial aftermarket sales (
$17.2 million
, an increase of
6.8%
) and defense sales (
$5.3 million
, an increase of
1.8%
) partially offset by a decrease in commercial OEM sales (
$7.0 million
, a decrease of
3.5%
).
Acquisition sales for the Airframe segment totaled
$4.2 million
, or an increase of
0.6%
, resulting from the acquisition of Schroth in fiscal year 2017. Organic sales increased
$12.6 million
, or an increase of
1.8%
, for the
twenty-six week period
ended
April 1, 2017
compared to the
twenty-six week period
ended
April 2, 2016
. The organic sales increase primarily resulted from increases in defense sales (
$19.7 million
, an increase of
14.6%
) and commercial OEM sales (
$6.7 million
, an increase of
2.8%
) partially offset by a decrease in commercial aftermarket sales (
$12.5 million
, a decrease of
4.0%
).
|
|
•
|
EBITDA As Defined
.
EBITDA As Defined by segment for the
twenty-six week period
s ended
April 1, 2017
and
April 2, 2016
were as follows (amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-Six Week Periods Ended
|
|
|
|
|
|
April 1, 2017
|
|
% of Segment
Sales
|
|
April 2, 2016
|
|
% of Segment
Sales
|
|
Change
|
|
% Change
|
Power & Control
|
$
|
451.3
|
|
|
49.0
|
%
|
|
$
|
354.6
|
|
|
47.1
|
%
|
|
$
|
96.7
|
|
|
27.3
|
%
|
Airframe
|
353.4
|
|
|
49.5
|
%
|
|
335.5
|
|
|
48.1
|
%
|
|
17.9
|
|
|
5.3
|
%
|
Non-aviation
|
17.6
|
|
|
33.3
|
%
|
|
13.0
|
|
|
26.6
|
%
|
|
4.6
|
|
|
35.4
|
%
|
|
$
|
822.3
|
|
|
48.7
|
%
|
|
$
|
703.1
|
|
|
46.9
|
%
|
|
$
|
119.2
|
|
|
17.0
|
%
|
EBITDA As Defined for the Power & Control segment from the acquisitions of Breeze-Eastern, DDC and Y&F/Tactair in fiscal year 2016 was approximately $64.0 million for the
twenty-six week period
ended
April 1, 2017
. Organic EBITDA As Defined increased approximately $32.7 million, or an increase of 9.2%, resulting from organic sales growth, application of our three core value-driven operating strategies, and positive leverage on our fixed overhead costs spread over a higher production volume.
EBITDA as Defined for the Airframe segment from the acquisition of Schroth in fiscal year 2017 was approximately $0.4 million for the twenty-six week period ended April 1, 2017. Organic EBITDA As Defined increased approximately $17.5 million, or an increase of 5.2%, resulting from organic sales growth, application of our three core value-driven operating strategies, and positive leverage on our fixed overhead costs spread over a higher production volume.
Backlog
As of
April 1, 2017
, the Company estimated its sales order backlog at $1,648 million compared to an estimated sales order backlog of $1,570 million as of
April 2, 2016
. The increase in backlog is primarily due to acquisitions. The majority of the purchase orders outstanding as of
April 1, 2017
are scheduled for delivery within the next twelve months. Purchase orders may be subject to cancellation or deferral by the customer prior to shipment. The level of unfilled purchase orders at any given date during the year will be materially affected by the timing of the Company’s receipt of purchase orders and the speed with which those orders are filled. Accordingly, the Company’s backlog as of
April 1, 2017
may not necessarily represent the actual amount of shipments or sales for any future period.
Foreign Operations
Although we manufacture a significant portion of our products in the United States, we manufacture some products in Belgium, China, Germany, Hungary, Malaysia, Mexico, Norway, Sri Lanka, Sweden, and the United Kingdom. We sell our products in the United States as well as in foreign countries. Although the majority of sales of our products are made to customers (including distributors) located in the United States, our products are ultimately sold to and used by customers, including airlines and other
end users of aircraft, throughout the world. A number of risks inherent in international operations could have a material adverse effect on our results of operations, including currency fluctuations, difficulties in staffing and managing multi-national operations, general economic and political uncertainties and potential for social unrest in countries in which we operate, limitations on our ability to enforce legal rights and remedies, restrictions on the repatriation of funds, change in trade policies, tariff regulation, difficulties in obtaining export and import licenses and the risk of government financed competition.
There can be no assurance that foreign governments will not adopt regulations or take other action that would have a direct or indirect adverse impact on the business or market opportunities of the Company within such governments’ countries. Furthermore, there can be no assurance that the political, cultural and economic climate outside the United States will be favorable to our operations and growth strategy.
Liquidity and Capital Resources
We have historically maintained a capital structure comprising a mix of equity and debt financing. We vary our leverage both to optimize our equity return and to pursue acquisitions. At this time, we expect to meet our current debt obligations as they come due through internally generated funds from current levels of operations and/or through refinancing in the debt markets prior to the maturity dates of our debt. We continually evaluate our debt facilities to assess whether they most efficiently and effectively meet the current and future needs of our business. The Company evaluates from time to time the appropriateness of its current leverage, taking into consideration the Company’s debt holders, equity holders, credit ratings, acquisition opportunities and other factors.
As a result of the new debt financing during the twenty-six week period ended April 1, 2017, interest payments will increase going forward in line with the terms of the related debt agreements. However, in connection with the continued application of our three core value-driven operating strategies (obtaining profitable new business, continually improving our cost structure and providing highly engineered value-added products to customers), we expect our efforts will continue to generate strong margins and provide more than sufficient cash provided by operating activities to meet our interest obligations and liquidity needs. We believe our cash provided by operating activities and available borrowing capacity will enable us to make opportunistic investments in our own stock, make strategic business combinations and/or pay dividends to our shareholders.
Operating Activities.
The Company generated
$390.5 million
of net cash from operating activities during the
twenty-six week period
ended
April 1, 2017
compared to
$286.9 million
during the
twenty-six week period
ended
April 2, 2016
. The net increase of
$103.6 million
is primarily attributable to items adjusting net income for non-cash expenses and income of
$51.9 million
, and favorable changes in trade accounts receivable, inventories, and accounts payable of
$54.1 million
, net. Partially offsetting the increases were higher interest payments of
$74.3 million
.
The change in accounts receivable during the
twenty-six week period
ended
April 1, 2017
was source of cash of
$3.1 million
compared to a use of cash of
$18.5 million
during the
twenty-six week period
ended
April 2, 2016
. The additional source of cash of
$21.6 million
is attributable to the higher rate of collections of accounts receivable in fiscal 2017 compared to fiscal 2016.
The change in inventories during the
twenty-six week period
ended
April 1, 2017
was source of cash of
$6.9 million
compared to a use of cash of
$15.5 million
during the
twenty-six week period
ended
April 2, 2016
. The additional source of cash of
$22.4 million
is primarily attributable to increased monitoring of inventory management.
Investing Activities
. Net cash used in investing activities was
$147.3 million
during the
twenty-six week period
ended
April 1, 2017
consisting of capital expenditures of
$38.4 million
, the cash settlement of the Breeze-Eastern dissenting shares litigation for $28.7 million, and the Schroth acquisition of $78.9 million. Additional investing activities consisted of a favorable working capital settlement of $1.4 million for the DDC acquisition and an unfavorable working capital settlement of $2.7 million for the Y&F/Tactair acquisition, respectively.
Net cash used in investing activities was comprised primarily of capital expenditures of
$22.3 million
and the Breeze-Eastern acquisition of $146.4 million during the
twenty-six week period
ended
April 2, 2016
.
Financing Activities.
Net cash used in financing activities during the
twenty-six week period
ended
April 1, 2017
was
$841.6 million
. The use of cash was primarily related to the aggregate payment of $1,376.0 million for a $24.00 per share special dividend and dividend equivalent payments, redemption and related premium paid on the 2021 Notes aggregating to $528.8 million, $339.8 million related to treasury stock purchases under the Company's share repurchase program, and $32.3 million in debt service payments on the existing term loans. Slightly offsetting the uses of cash were net proceeds from the 2017 term loans and the additional 2025 Notes offering of
$1,132.8 million
and
$301.0 million
, respectively, and
$12.3 million
in proceeds from stock option exercises.
Net cash used in financing activities during the
twenty-six week period
ended
April 2, 2016
was
$220.3 million
, which primarily was comprised of $207.8 million in treasury stock purchases under the Company's share repurchase program, debt service payments of
$21.9 million
, and $3.0 million of dividend equivalent payments. Slightly offsetting these uses in cash was
$12.4 million
in proceeds from stock option exercises.
Description of Senior Secured Credit Facilities and Indentures
Senior Secured Credit Facilities
On June 9, 2016, TD Group and certain subsidiaries of TransDigm entered into Amendment No. 1 to the Second Amended and Restated Credit Agreement (the "Credit Agreement"). Refer to Note 11, "Debt," to the consolidated financial statements included within our Annual Report on Form 10-K for further information regarding the tranche F term loans, the conversion of a portion of the existing tranche C term loans to tranche F, the repricing of the tranche E terms loans and amendment to the revolving commitments.
On October 14, 2016, the Company entered into the Assumption Agreement with Credit Suisse AG, as administrative agent and collateral agent, and as a lender, in connection with the 2016 term loans. The Assumption Agreement, among other things, provided for (i) additional tranche F term loans in an aggregate principal amount equal to $650 million, which were fully drawn on October 14, 2016, and (ii) additional delayed draw tranche F term loans in an aggregate principal amount not to exceed $500 million, which were fully drawn on October 27, 2016, the proceeds of which were used to repurchase its 2021 Notes in connection the tender offer announced on October 13, 2016. The terms and conditions that apply to the Additional Tranche F Term Loans are substantially the same as the terms and conditions that apply to the tranche F term loans under the 2016 term loans immediately prior to the Assumption Agreement.
On March 6, 2017, TD Group and certain subsidiaries of TransDigm entered into Amendment No. 2 to the Credit Agreement. Refer to Note 8, "Debt," to the condensed consolidated financial statements included within this Form 10-Q for further information regarding the authorized dividends and share repurchases and the increase to the general investment basket established by Amendment No. 2 to the Credit Agreement.
TransDigm has
$6,406 million
in fully drawn term loans (the “Term Loans Facility”) and a $600 million revolving credit facility. The Term Loans Facility consists of four tranches of term loans as follows (aggregate principal amount disclosed is as of
April 1, 2017
):
|
|
|
|
|
|
|
|
Term Loans Facility
|
|
Aggregate Principal
|
|
Maturity Date
|
|
Interest Rate
|
Tranche C
|
|
$1,222 million
|
|
February 28, 2020
|
|
LIBO rate
(1)
+3.00%
|
Tranche D
|
|
$802 million
|
|
June 4, 2021
|
|
LIBO rate
(1)
+ 3.00%
|
Tranche E
|
|
$1,511 million
|
|
May 14, 2022
|
|
LIBO rate
(1)
+ 3.00%
|
Tranche F
|
|
$2,871 million
|
|
June 9, 2023
|
|
LIBO rate
(1)
+ 3.00%
|
|
|
(1)
|
LIBO rate is subject to a floor of 0.75%.
|
The Term Loans Facility requires quarterly aggregate principal payments of $16.2 million. The revolving commitments consist of one tranche which includes up to $100 million of multicurrency revolving commitments. At
April 1, 2017
, the Company had
$14 million
in letters of credit outstanding and
$586 million
in borrowings available under the revolving commitments.
The interest rates per annum applicable to the loans under the Credit Agreement will be, at TransDigm’s option, equal to either an alternate base rate or an adjusted LIBO rate for one, two, three or six-month (or to the extent agreed to by each relevant lender, nine or twelve-month) interest periods chosen by TransDigm, in each case plus an applicable margin percentage. The adjusted LIBO rate is subject to a floor of 0.75%. For the
twenty-six week period
ended
April 1, 2017
, the applicable interest rates ranged from approximately 3.75% to 4.00% on the existing term loans.
Under the terms of the Credit Agreement, TransDigm is entitled, on one or more occasions, to request additional term loans to the extent that the existing or new lenders agree to provide such incremental term loans provided that, among other conditions, our consolidated net leverage ratio would be no greater than 7.25 to 1.00 and the consolidated secured net debt ratio would be no greater than 4.25 to 1.00, in each case, after giving effect to such incremental term loans. Under Amendment No. 2 to the Credit Agreement, TransDigm may use such additional term loans to make restricted payments in an aggregate amount not to exceed $1,500 million, provided that, among other conditions, if such additional loans are to be used by TD Group to repurchase shares of its capital stock, the consolidated secured net debt ratio would be no greater than 4.00 to 1.00 and if such additional terms loans are to be used by TD Group to pay dividends or other distributions on or in respect of its capital stock, the consolidated net leverage ratio would be no greater than 6.50 to 1.00, in each case, after giving effect to such incremental term loans, and subject to certain exceptions, such restricted payment shall be made on or before March 6, 2018.
The Credit Agreement requires mandatory prepayments of principal based on certain percentages of Excess Cash Flow (as defined in the Credit Agreement), commencing 90 days after the end of each fiscal year, subject to certain exceptions. In addition, subject to certain exceptions (including, with respect to asset sales, the reinvestment in productive assets), TransDigm will be required to prepay the loans outstanding under the Credit Agreement at 100% of the principal amount thereof, plus accrued and unpaid interest, with the net cash proceeds of certain asset sales and issuance or incurrence of certain indebtedness. No matters mandating prepayments occurred during the quarter ended
April 1, 2017
.
Interest rate swaps and caps used to hedge and offset, respectively, the variable interest rates on the credit facility are described in Note 11, “Derivatives and Hedging Activities” to the condensed consolidated financial statements included herein.
Indentures
|
|
|
|
|
|
|
|
Senior Subordinated Notes
|
|
Aggregate Principal
|
|
Maturity Date
|
|
Interest Rate
|
2020 Notes
|
|
$550 million
|
|
October 15, 2020
|
|
5.50%
|
2022 Notes
|
|
$1,150 million
|
|
July 15, 2022
|
|
6.00%
|
2024 Notes
|
|
$1,200 million
|
|
July 15, 2024
|
|
6.50%
|
2025 Notes
|
|
$750 million
|
|
May 15, 2025
|
|
6.50%
|
2026 Notes
|
|
$950 million
|
|
June 15, 2026
|
|
6.375%
|
The 2020 Notes, the 2022 Notes, the 2024 Notes, and the 2026 Notes (the “Notes”) were issued at an issue price of 100% of the principal amount. The initial $450 million offering of the 2025 Notes (also considered to be part of the "Notes") were issued at an issue price of 100% of the principal amount and the subsequent $300 million offering in the quarter ended April 1, 2017 of 2025 Notes (further described below) were issued at an issue price of 101.5% of the principal amount.
Such Notes do not require principal payments prior to their maturity. Interest under the Notes is payable semi-annually. The Notes represent unsecured obligations of TransDigm Inc. ranking subordinate to TransDigm Inc.’s senior debt, as defined in the applicable Indentures.
The Notes are subordinated to all of TransDigm’s existing and future senior debt, rank equally with all of its existing and future senior subordinated debt and rank senior to all of its future debt that is expressly subordinated to the Notes. The Notes are guaranteed on a senior subordinated unsecured basis by TD Group and its wholly-owned domestic subsidiaries named in the indentures. The guarantees of the Notes are subordinated to all of the guarantors’ existing and future senior debt, rank equally with all of their existing and future senior subordinated debt and rank senior to all of their future debt that is expressly subordinated to the guarantees of the Notes. The Notes are structurally subordinated to all of the liabilities of TD Group’s non-guarantor subsidiaries. The Notes contain many of the restrictive covenants included in the Credit Agreement. TransDigm is in compliance with all the covenants contained in the Notes.
During the first quarter of fiscal 2017, the Company cash tendered all of its 2021 Notes outstanding with a portion of the proceeds received from the Incremental Term Loan Assumption Agreement.
During the second quarter of fiscal 2017, the Company issued $300 million in aggregate principal of its 2025 Notes at a premium of 1.5%, resulting in gross proceeds of $304.5 million. The new notes offered are an additional issuance to our existing 2025 Notes and were issued under the same indenture as the original issuance of the $450 million in 2025 Notes. With the addition of this issuance, there is a total of $750 million in aggregate principal of 2025 Notes.
Certain Restrictive Covenants in Our Debt Documents
The Credit Agreement and the Indentures governing the Notes contain restrictive covenants that, among other things, limit the incurrence of additional indebtedness, the payment of dividends, transactions with affiliates, asset sales, acquisitions, mergers and consolidations, liens and encumbrances, and prepayments of other indebtedness.
Pursuant to the Credit Agreement, prior to Amendment No. 2 as described below, and subject to certain conditions, TransDigm was permitted to make certain additional restricted payments, including to declare or pay dividends or repurchase stock, in an aggregate amount not to exceed $1,500 million on or prior to December 31, 2016. Subsequent to December 31, 2016, the aggregate amount of restricted payments remaining, not to exceed $500 million, were permissible solely to the extent that the proceeds were used to repurchase stock. The total restricted payments, as described above, made prior to December 31, 2016 totaled $1,326 million (all related to the special dividend payment and dividend equivalent payments). The remaining $50 million in dividend equivalent payments made in the quarter ended December 31, 2016 were applied against allowable restricted payments that carried over from previous years under our Credit Agreement. During January 2017, $150 million in stock repurchases were made (up to $174 million in stock repurchases were allowable) under this agreement.
On March 6, 2017, TD Group and certain subsidiaries of TransDigm entered into Amendment No. 2 to the Credit Agreement. Amendment No. 2 permits, among other things, up to $1,500 million of dividends and share repurchases on or prior to March 6, 2018. If any portion of the $1,500 million is not used for dividends or share repurchases by March 6, 2018, such amount (not to exceed $500 million) may be used to repurchase stock at any time thereafter. During March 2017, $190 million in stock repurchases were made under Amendment No. 2. Therefore, approximately $1,310 million in restricted payments are permissible under Amendment No. 2 as of April 1, 2017.
In addition, under the Credit Agreement, if the usage of the revolving credit facility exceeds 25% of the total revolving commitments, the Company will be required to maintain a maximum consolidated net leverage ratio of net debt, as defined, to trailing four-
quarter EBITDA As Defined. A breach of any of the covenants or an inability to comply with the required leverage ratio could result in a default under the Credit Agreement or the Indentures.
If any such default occurs, the lenders under the Credit Agreement and the holders of the Notes may elect to declare all outstanding borrowings, together with accrued interest and other amounts payable thereunder, to be immediately due and payable. The lenders under the Credit Agreement also have the right in these circumstances to terminate any commitments they have to provide further borrowings. In addition, following an event of default under the Credit Agreement, the lenders thereunder will have the right to proceed against the collateral granted to them to secure the debt, which includes our available cash, and they will also have the right to prevent us from making debt service payments on the Notes.
As of April 1, 2017, the Company was in compliance with all of its debt covenants.
Trade Receivables Securitization
During fiscal 2014, the Company established a trade accounts receivable securitization facility (the “Securitization Facility”). The Securitization Facility effectively increases the Company’s borrowing capacity depending on the amount of the Company's domestic operations' trade accounts receivable. The Securitization Facility includes the right for the Company to exercise annual one year extensions as long as there have been no termination events as defined by the agreement. The Company uses the proceeds from the Securitization Facility as an alternative to other forms of debt, effectively reducing borrowing costs. In August 2015, the Company increased the borrowing capacity from $225 million to $250 million in connection with amending the Securitization Facility. In August 2016, the Company amended the Securitization Facility to extend the maturity date to August 1, 2017. As of
April 1, 2017
, the Company has borrowed $200 million under the Securitization Facility. The Securitization Facility is collateralized by substantially all of the Company’s domestic operations' trade accounts receivable.
Stock Repurchase Program
On January 21, 2016, our Board of Directors authorized a stock repurchase program permitting us to repurchase a portion of our outstanding shares not to exceed $450.0 million in the aggregate, subject to any restrictions specified in the Credit Agreement and/or Indentures. On January 26, 2017, our Board of Directors increased the authorized amount of repurchases allowable under the stock program from $450.0 million to $472.0 million. The $22.0 million increase in the repurchases allowable under the stock repurchase program aligned the program with the restricted payments allowable under the Credit Agreement. During January 2017, the Company repurchased 666,755 shares of its common stock at a gross cost of approximately $150.0 million at the weighted average cost of $224.97 under the $472.0 million stock repurchase program.
On March 7, 2017, our Board of Directors authorized a stock repurchase program replacing the $472.0 million program with a repurchase program permitting us to repurchase a portion of our outstanding shares not to exceed $600.0 million in the aggregate, subject to any restrictions specified in the Credit Agreement and/or Indentures governing the existing Notes. During March 2017, the Company repurchased 851,069 shares of its common stock at a gross cost of approximately $189.8 million at the weighted average cost of $223.05 under the new $600.0 million stock repurchase program. As of
April 1, 2017
, the remaining amount of repurchases allowable under the $600.0 million program was $410.2 million subject to any restrictions specified in the Credit Agreement and/or Indentures governing the existing Notes.
Non-GAAP Financial Measures
We present below certain financial information based on our EBITDA and EBITDA As Defined. References to “EBITDA” mean earnings before interest, taxes, depreciation and amortization, and references to “EBITDA As Defined” mean EBITDA plus, as applicable for each relevant period, certain adjustments as set forth in the reconciliations of net income to EBITDA and EBITDA As Defined and the reconciliations of net cash provided by operating activities to EBITDA and EBITDA As Defined presented below.
Neither EBITDA nor EBITDA As Defined is a measurement of financial performance under accounting principles generally accepted in the United States of America (“GAAP”). We present EBITDA and EBITDA As Defined because we believe they are useful indicators for evaluating operating performance and liquidity.
Our management believes that EBITDA and EBITDA As Defined are useful as indicators of liquidity because securities analysts, investors, rating agencies and others use EBITDA to evaluate a company’s ability to incur and service debt. In addition, EBITDA As Defined is useful to investors because the revolving credit facility under our senior secured credit facility requires compliance under certain circumstances, on a pro forma basis, with a financial covenant that measures the ratio of the amount of our secured indebtedness to the amount of our Consolidated EBITDA defined in the same manner as we define EBITDA As Defined herein.
In addition to the above, our management uses EBITDA As Defined to review and assess the performance of the management team in connection with employee incentive programs and to prepare its annual budget and financial projections. Moreover, our management uses EBITDA As Defined to evaluate acquisitions.
Although we use EBITDA and EBITDA As Defined as measures to assess the performance of our business and for the other purposes set forth above, the use of these non-GAAP financial measures as analytical tools has limitations, and you should not
consider any of them in isolation, or as a substitute for analysis of our results of operations as reported in accordance with GAAP. Some of these limitations are:
|
|
•
|
neither EBITDA nor EBITDA As Defined reflects the significant interest expense, or the cash requirements necessary to service interest payments, on our indebtedness;
|
|
|
•
|
although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and neither EBITDA nor EBITDA As Defined reflects any cash requirements for such replacements;
|
|
|
•
|
the omission of the substantial amortization expense associated with our intangible assets further limits the usefulness of EBITDA and EBITDA As Defined;
|
|
|
•
|
neither EBITDA nor EBITDA As Defined includes the payment of taxes, which is a necessary element of our operations; and
|
|
|
•
|
EBITDA As Defined excludes the cash expense we have incurred to integrate acquired businesses into our operations, which is a necessary element of certain of our acquisitions.
|
Because of these limitations, EBITDA and EBITDA As Defined should not be considered as measures of discretionary cash available to us to invest in the growth of our business. Management compensates for these limitations by not viewing EBITDA or EBITDA As Defined in isolation and specifically by using other GAAP measures, such as net income, net sales and operating profit, to measure our operating performance. Neither EBITDA nor EBITDA As Defined is a measurement of financial performance under GAAP, and neither should be considered as an alternative to net income or cash flow from operations determined in accordance with GAAP. Our calculation of EBITDA and EBITDA As Defined may not be comparable to the calculation of similarly titled measures reported by other companies.
The following table sets forth a reconciliation of net income to EBITDA and EBITDA As Defined (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Week Periods Ended
|
|
Twenty-Six Week Periods Ended
|
|
April 1, 2017
|
|
April 2, 2016
|
|
April 1, 2017
|
|
April 2, 2016
|
|
(in thousands)
|
|
(in thousands)
|
Net income
|
$
|
155,505
|
|
|
$
|
141,683
|
|
|
$
|
274,376
|
|
|
$
|
271,124
|
|
Adjustments:
|
|
|
|
|
|
|
|
Depreciation and amortization expense
|
34,879
|
|
|
29,337
|
|
|
72,927
|
|
|
55,537
|
|
Interest expense, net
|
147,842
|
|
|
111,288
|
|
|
293,846
|
|
|
223,271
|
|
Income tax provision
|
59,508
|
|
|
59,104
|
|
|
79,558
|
|
|
93,722
|
|
EBITDA
|
397,734
|
|
|
341,412
|
|
|
720,707
|
|
|
643,654
|
|
Adjustments:
|
|
|
|
|
|
|
|
Inventory purchase accounting adjustments
(1)
|
3,151
|
|
|
5,618
|
|
|
19,729
|
|
|
8,420
|
|
Acquisition integration costs
(2)
|
1,399
|
|
|
9,696
|
|
|
2,509
|
|
|
14,047
|
|
Acquisition transaction-related expenses
(3)
|
3,554
|
|
|
2,309
|
|
|
4,434
|
|
|
2,380
|
|
Non-cash stock compensation expense
(4)
|
11,106
|
|
|
11,767
|
|
|
21,126
|
|
|
22,448
|
|
Refinancing costs
(5)
|
3,507
|
|
|
—
|
|
|
35,591
|
|
|
—
|
|
Other, net
(6)
|
764
|
|
|
(2,197
|
)
|
|
2,069
|
|
|
(2,931
|
)
|
EBITDA As Defined
|
$
|
421,215
|
|
|
$
|
368,605
|
|
|
$
|
806,165
|
|
|
$
|
688,018
|
|
|
|
(1)
|
Represents accounting adjustments to inventory associated with acquisitions of businesses and product lines that were charged to cost of sales when the inventory was sold.
|
|
|
(2)
|
Represents costs incurred to integrate acquired businesses and product lines into TD Group’s operations, facility relocation costs and other acquisition-related costs.
|
|
|
(3)
|
Represents transaction-related costs comprising deal fees; legal, financial and tax due diligence expenses; and valuation costs that are required to be expensed as incurred.
|
|
|
(4)
|
Represents the compensation expense recognized by TD Group under our stock incentive plans.
|
|
|
(5)
|
For the thirteen week period ended April 1, 2017, represents debt issuance costs expensed in conjunction with the additional 2025 Notes. For the twenty-six week period ended April 1, 2017, represents debt issuance costs expensed in conjunction with the incremental term loan (tranche F), refinancing of the 2021 Notes and the additional 2025 Notes.
|
|
|
(6)
|
Primarily represents foreign currency transaction gain or loss on intercompany loans to be settled, gain or loss on sale of fixed assets and payroll withholding taxes related to dividend equivalent payments.
|
The following table sets forth a reconciliation of net cash provided by operating activities to EBITDA and EBITDA As Defined (in thousands):
|
|
|
|
|
|
|
|
|
|
Twenty-Six Week Periods Ended
|
|
April 1, 2017
|
|
April 2, 2016
|
|
(in thousands)
|
Net cash provided by operating activities
|
$
|
390,500
|
|
|
$
|
286,880
|
|
Adjustments:
|
|
|
|
Changes in assets and liabilities, net of effects from acquisitions of businesses
|
24,036
|
|
|
72,517
|
|
Interest expense, net
(1)
|
283,676
|
|
|
215,607
|
|
Income tax provision - current
|
79,212
|
|
|
91,098
|
|
Non-cash stock compensation expense
(2)
|
(21,126
|
)
|
|
(22,448
|
)
|
Refinancing costs
(6)
|
(35,591
|
)
|
|
—
|
|
EBITDA
|
720,707
|
|
|
643,654
|
|
Adjustments:
|
|
|
|
Inventory purchase accounting adjustments
(3)
|
19,729
|
|
|
8,420
|
|
Acquisition integration costs
(4)
|
2,509
|
|
|
14,047
|
|
Acquisition transaction-related expenses
(5)
|
4,434
|
|
|
2,380
|
|
Non-cash stock compensation expense
(2)
|
21,126
|
|
|
22,448
|
|
Refinancing costs
(6)
|
35,591
|
|
|
—
|
|
Other, net
(7)
|
2,069
|
|
|
(2,931
|
)
|
EBITDA As Defined
|
$
|
806,165
|
|
|
$
|
688,018
|
|
|
|
(1)
|
Represents interest expense excluding the amortization of debt issuance costs and discount on debt.
|
|
|
(2)
|
Represents the compensation expense recognized by TD Group under our stock incentive plans.
|
|
|
(3)
|
Represents accounting adjustments to inventory associated with acquisitions of businesses and product lines that were charged to cost of sales when the inventory was sold.
|
|
|
(4)
|
Represents costs incurred to integrate acquired businesses and product lines into TD Group’s operations, facility relocation costs and other acquisition-related costs.
|
|
|
(5)
|
Represents transaction-related costs comprising deal fees; legal, financial and tax due diligence expenses; and valuation costs that are required to be expensed as incurred.
|
|
|
(6)
|
For the twenty-six week period ended April 1, 2017, represents debt issuance costs expensed in conjunction with the incremental term loan (tranche F), refinancing of the 2021 Notes and the additional 2025 Notes.
|
|
|
(7)
|
Primarily represents foreign currency transaction gain or loss on intercompany loans to be settled, gain or loss on sale of fixed assets and payroll withholding taxes related to dividend equivalent payments.
|
Critical Accounting Policies
Our consolidated financial statements have been prepared in accordance with GAAP, which often requires the judgment of management in the selection and application of certain accounting principles and methods. Management believes that the quality and reasonableness of our most critical policies enable the fair presentation of our financial position and results of operations. However, investors are cautioned that the sensitivity of financial statements to these methods, assumptions and estimates could create materially different results under different conditions or using different assumptions.
A summary of our significant accounting policies and estimates is included in the Annual Report on Form 10-K for the year ended
September 30, 2016
. There have been no significant changes to our critical accounting policies during the
twenty-six week period
ended
April 1, 2017
. Refer to Note 4, "Recent Accounting Pronouncements," for a discussion of accounting standards recently adopted or required to be adopted in the future.