|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
September 30, 2017
|
|
|
Asset
|
|
Liability
|
|
Asset
|
|
Liability
|
Interest rate cap agreements
|
|
$
|
27,343
|
|
|
$
|
—
|
|
|
$
|
12,904
|
|
|
$
|
—
|
|
Interest rate swap agreements
|
|
46,604
|
|
|
(3,965
|
)
|
|
9,235
|
|
|
(36,801
|
)
|
Total
|
|
73,947
|
|
|
(3,965
|
)
|
|
22,139
|
|
|
(36,801
|
)
|
Effect of counterparty netting
|
|
(2,378
|
)
|
|
2,378
|
|
|
(6,330
|
)
|
|
6,330
|
|
Net derivatives as classified in the balance sheet
(1)
|
|
$
|
71,569
|
|
|
$
|
(1,587
|
)
|
|
$
|
15,809
|
|
|
$
|
(30,471
|
)
|
|
|
(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
March 31, 2018
, 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
$2.1 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 Second Amended and Restated Credit Agreement. Accordingly, amounts previously recorded as a component of accumulated other comprehensive loss in stockholder’s deficit amortized into interest expense was
$2.0 million
and
$1.9 million
for the
twenty-six week period
s ended
March 31, 2018
and April 1, 2017, respectively. The accumulated other comprehensive loss to be reclassified into interest expense over the remaining term of the cap agreements is
$8.9 million
with a related tax benefit of
$2.4 million
as of
March 31, 2018
.
Effective December 30, 2017, the Company redesignated the existing interest rate swap agreements related to the
$750 million
,
$500 million
,
$1,000 million
and
$750 million
aggregate notional amounts with swap rates of
5.25%
,
4.65%
,
4.55%
and
5.55%
, respectively, based on the expected probable cash flows associated with the tranche F term loans in consideration of the Company’s removal of the LIBO rate floor on the tranche F term loans as set forth in Amendment No. 4 to the Second Amended and Restated Credit Agreement. Accordingly, the amount recorded as a component of accumulated other comprehensive loss in stockholders’ deficit related to these redesignated interest rate swap hedges will be amortized into earnings based on the original maturity date of the related interest rate swap agreements. Accordingly, amounts previously recorded as a component of accumulated other comprehensive loss in stockholder’s deficit amortized into interest expense was
$0.3 million
for the
twenty-six week period
ended
March 31, 2018
. The accumulated other comprehensive gain to be reclassified into interest expense over the remaining term of the swap agreements is immaterial.
Effective March 31, 2018, the Company redesignated the existing interest rate swap agreements related to the
$1,000 million
and the
$400 million
aggregate notional amount with swap rates of
4.90%
and
4.40%
, respectively, based on the expected probable cash flows associated with the tranche G term loans in consideration of the Company’s removal of the LIBO rate floor on the tranche G term loans as set forth in the refinancing facility agreement dated February 22, 2018 related to the Second Amended and Restated Credit Agreement. Accordingly, the amount recorded as a component of accumulated other comprehensive loss in stockholders’ deficit related to these redesignated interest rate swap hedges of approximately
$12.8 million
with a related tax expense of
$3.1 million
as of
March 31, 2018
, will be amortized into earnings based on the original maturity date of the related interest rate swap agreements.
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, engineered connectors and elastomers, 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, refueling systems for heavy equipment used in mining, construction and other industries and turbine controls for the energy and oil and gas markets. Primary customers of this segment are off-road vehicle suppliers and subsystem suppliers, child restraint system suppliers, satellite and space system suppliers, manufacturers of heavy equipment used in mining, construction and other industries and turbine original equipment manufacturers, gas pipeline builders and electric utilities.
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 recorded as corporate expenses including refinancing costs, acquisition-related costs, transaction-related costs and non-cash compensation charges incurred in connection with the Company’s stock option 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 insignificant for the periods presented below. Certain corporate-level expenses are allocated to the operating segments.
Effective October 1, 2017, the Company made an organizational realignment of certain businesses comprising the Power & Control, Airframe and the Non-Aviation segments. Operating results for the thirteen and
twenty-six week period
s ended
April 1, 2017
and total assets as of
September 30, 2017
were reclassified to conform to the presentation for the thirteen and
twenty-six week period
s ended
March 31, 2018
.
The following table presents net sales by reportable segment (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Week Periods Ended
|
|
Twenty-Six Week Periods Ended
|
|
March 31, 2018
|
|
April 1, 2017
|
|
March 31, 2018
|
|
April 1, 2017
|
Net sales to external customers
|
|
|
|
|
|
|
|
Power & Control
|
$
|
528,460
|
|
|
$
|
473,952
|
|
|
$
|
1,011,178
|
|
|
$
|
909,784
|
|
Airframe
|
369,783
|
|
|
360,509
|
|
|
703,175
|
|
|
709,173
|
|
Non-aviation
|
34,827
|
|
|
34,267
|
|
|
66,677
|
|
|
63,789
|
|
|
$
|
933,070
|
|
|
$
|
868,728
|
|
|
$
|
1,781,030
|
|
|
$
|
1,682,746
|
|
The following table reconciles EBITDA As Defined by segment to consolidated income from continuing operations before income taxes (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Week Periods Ended
|
|
Twenty-Six Week Periods Ended
|
|
March 31, 2018
|
|
April 1, 2017
|
|
March 31, 2018
|
|
April 1, 2017
|
EBITDA As Defined
|
|
|
|
|
|
|
|
Power & Control
|
$
|
275,562
|
|
|
$
|
232,828
|
|
|
$
|
520,337
|
|
|
$
|
445,746
|
|
Airframe
|
186,006
|
|
|
182,980
|
|
|
344,425
|
|
|
351,509
|
|
Non-aviation
|
10,321
|
|
|
11,391
|
|
|
19,317
|
|
|
20,668
|
|
Total segment EBITDA As Defined
|
471,889
|
|
|
427,199
|
|
|
884,079
|
|
|
817,923
|
|
Unallocated corporate expenses
|
8,766
|
|
|
5,523
|
|
|
19,423
|
|
|
15,053
|
|
Total Company EBITDA As Defined
|
463,123
|
|
|
421,676
|
|
|
864,656
|
|
|
802,870
|
|
Depreciation and amortization expense
|
30,970
|
|
|
34,661
|
|
|
61,609
|
|
|
72,708
|
|
Interest expense - net
|
161,266
|
|
|
147,842
|
|
|
322,199
|
|
|
293,846
|
|
Acquisition-related costs
|
4,485
|
|
|
7,752
|
|
|
6,559
|
|
|
26,320
|
|
Stock compensation expense
|
11,590
|
|
|
11,105
|
|
|
22,703
|
|
|
21,126
|
|
Refinancing costs
|
638
|
|
|
3,507
|
|
|
1,751
|
|
|
35,591
|
|
Other, net
|
6,987
|
|
|
1,610
|
|
|
11,684
|
|
|
(841
|
)
|
Income from continuing operations before income taxes
|
$
|
247,187
|
|
|
$
|
215,199
|
|
|
$
|
438,151
|
|
|
$
|
354,120
|
|
The following table presents total assets by segment (in thousands):
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
September 30, 2017
|
Total assets
|
|
|
|
Power & Control
|
$
|
5,177,803
|
|
|
$
|
5,135,459
|
|
Airframe
|
4,021,406
|
|
|
3,923,172
|
|
Non-aviation
|
226,005
|
|
|
224,936
|
|
Corporate
|
969,463
|
|
|
614,594
|
|
Assets of discontinued operations
|
—
|
|
|
77,500
|
|
|
$
|
10,394,677
|
|
|
$
|
9,975,661
|
|
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) INCOME
The following table presents the components of accumulated other comprehensive (loss) income, net of taxes, for the
twenty-six week period
ended
March 31, 2018
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized (loss) gain on derivatives designated and qualifying as cash flow hedges
(1)
|
|
Defined benefit pension plan activity
|
|
Currency translation adjustment
|
|
Total
|
Balance at September 30, 2017
|
$
|
(26,669
|
)
|
|
$
|
(16,365
|
)
|
|
$
|
(42,109
|
)
|
|
$
|
(85,143
|
)
|
Current-period other comprehensive gain
|
61,827
|
|
|
—
|
|
|
28,188
|
|
|
90,015
|
|
Amounts reclassified from AOCI related to interest rate swap and cap agreements
|
1,647
|
|
|
—
|
|
|
—
|
|
|
1,647
|
|
Balance at March 31, 2018
|
$
|
36,805
|
|
|
$
|
(16,365
|
)
|
|
$
|
(13,921
|
)
|
|
$
|
6,519
|
|
|
|
(1)
|
Unrealized gain represents interest rate swap and cap agreements, net of taxes of
$(14,290)
and
$(1,310)
for the thirteen week periods ended March 31, 2018 and April 1, 2017 and
$(24,725)
and
$(24,427)
for the
twenty-six week period
s ended
March 31, 2018
and
April 1, 2017
, respectively.
|
A summary of reclassifications out of accumulated other comprehensive (loss) income for the
twenty-six week period
s ended
March 31, 2018
and April 1, 2017 is provided below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Amount reclassified
|
|
|
Twenty-Six Week Periods Ended
|
Description of reclassifications out of accumulated other comprehensive (loss) income
|
|
March 31, 2018
|
|
April 1, 2017
|
Amortization from redesignated interest rate swap and cap agreements
(1)
|
|
$
|
2,213
|
|
|
$
|
1,913
|
|
Deferred tax benefit from redesignated interest rate swap and cap agreements
|
|
(566
|
)
|
|
(715
|
)
|
Losses reclassified into earnings, net of tax
|
|
$
|
1,647
|
|
|
$
|
1,198
|
|
|
|
(1)
|
This component of accumulated other comprehensive (loss) income is included in interest expense (see Note 11, “Derivatives and Hedging Activities,” for additional information).
|
14. DISCONTINUED OPERATIONS
In connection with the settlement of a Department of Justice investigation into the competitive effects of the acquisition, during the fourth quarter of 2017, the Company committed to dispose of the Schroth business. Therefore, Schroth was classified as held-for-sale in the fourth quarter of 2017. The results of operations of Schroth are reflected as discontinued operations in the accompanying consolidated financial statements for all periods presented. On January 26, 2018, the Company completed the sale of Schroth in a management buyout to a private equity fund and certain members of Schroth management for approximately
$61.4 million
, subject to a working capital adjustment. The Company previously acquired Schroth in February 2017 (refer to Note 3, “Acquisitions and Divestitures”).
The loss from discontinued operations was
$5.6 million
and
$2.8 million
in the condensed consolidated statements of income for the
thirteen and twenty-six
week periods ended
March 31, 2018
. The loss from discontinued operations was
$0.2 million
in the condensed consolidated statements of income for the
thirteen and twenty-six
week periods ended April 1, 2017. Previously, in the fourth quarter of 2017, we recorded a
$32.0 million
impairment charge to write down the Schroth assets to fair value. The impairment charge was based on an internal assessment of the recovery of Schroth’s assets. The following is the summarized operating results for Schroth for the
thirteen and twenty-six
week periods ended
March 31, 2018
and April 1, 2017 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Week Period Ended
|
|
Twenty-six Week Period Ended
|
|
March 31, 2018
|
|
April 1, 2017
|
|
March 31, 2018
|
|
April 1, 2017
|
Net sales
|
$
|
2,679
|
|
|
$
|
4,504
|
|
|
$
|
11,808
|
|
|
$
|
4,504
|
|
(Loss) income from discontinued operations before income taxes
|
(456
|
)
|
|
(186
|
)
|
|
354
|
|
|
(186
|
)
|
Income tax benefit
|
62
|
|
|
—
|
|
|
2,016
|
|
|
—
|
|
(Loss) income from discontinued operations, net of tax
|
(394
|
)
|
|
(186
|
)
|
|
2,370
|
|
|
(186
|
)
|
Net loss on sale of discontinued operations, net of tax
|
(5,168
|
)
|
|
—
|
|
|
(5,168
|
)
|
|
—
|
|
Loss from discontinued operations
|
$
|
(5,562
|
)
|
|
$
|
(186
|
)
|
|
$
|
(2,798
|
)
|
|
$
|
(186
|
)
|
15. SUBSEQUENT EVENTS
On April 24, 2018, the Company completed the acquisition of Extant Components Group Holdings, Inc. (“Extant”), a portfolio company of Warburg Pincus LLC, for approximately
$525 million
, subject to adjustment. TransDigm financed the acquisition with cash on hand. Extant provides a broad range of proprietary aftermarket products and repair and overhaul services to the aerospace and defense end markets. Extant will be included in TransDigm's Power & Control segment.
Extant is owned by an equity fund sponsored by Warburg Pincus LLC. Michael Graff, a director of TransDigm, is a managing director of Warburg Pincus LLC and is chairman of the board of Extant. Robert Henderson, Vice Chairman of TransDigm, is also on the board of Extant and owns less than 2% of Extant on a fully diluted basis. In addition, Mr. Graff, Mr. W. Nicholas Howley, TransDigm's Executive Chairman, and Messrs. Douglas Peacock and David Barr, directors of TransDigm, each have minority interests of less than 1% in the Warburg Pincus LLC fund that owns Extant.
On May 1, 2018, the Company launched a proposed offering of
$500 million
aggregate principal amount of senior subordinated notes due 2026 by TransDigm UK Holdings plc, its wholly-owned subsidiary, pursuant to a confidential offering memorandum in a private placement under Rule 144A and Regulation S of the Securities Act of 1933. In the offering memorandum, the Company discloses that it expects to incur
$700 million
in additional tranche E term loans and reprice the existing tranche E term loans and tranche F term loans, in each case from existing and new lenders under the senior secured credit facilities.
16. 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
March 31, 2018
and September 30,
2017
and its statements of income and comprehensive income and cash flows for the
twenty-six week period
s ended
March 31, 2018
and
April 1, 2017
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
MARCH 31, 2018
(Amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TransDigm
Group
|
|
TransDigm
Inc.
|
|
Subsidiary
Guarantors
|
|
Non-
Guarantor
Subsidiaries
|
|
Eliminations
|
|
Total
Consolidated
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
14,621
|
|
|
$
|
817,685
|
|
|
$
|
3,284
|
|
|
$
|
175,417
|
|
|
$
|
—
|
|
|
$
|
1,011,007
|
|
Trade accounts receivable - Net
|
—
|
|
|
—
|
|
|
13,998
|
|
|
652,816
|
|
|
(21,829
|
)
|
|
644,985
|
|
Inventories - Net
|
—
|
|
|
46,100
|
|
|
603,775
|
|
|
120,414
|
|
|
(3,057
|
)
|
|
767,232
|
|
Prepaid expenses and other
|
—
|
|
|
7,477
|
|
|
23,855
|
|
|
15,548
|
|
|
—
|
|
|
46,880
|
|
Total current assets
|
14,621
|
|
|
871,262
|
|
|
644,912
|
|
|
964,195
|
|
|
(24,886
|
)
|
|
2,470,104
|
|
INVESTMENT IN SUBSIDIARIES AND INTERCOMPANY BALANCES
|
(2,323,958
|
)
|
|
10,255,472
|
|
|
8,266,878
|
|
|
2,698,962
|
|
|
(18,897,354
|
)
|
|
—
|
|
PROPERTY, PLANT AND
EQUIPMENT - NET
|
—
|
|
|
15,611
|
|
|
286,939
|
|
|
49,906
|
|
|
—
|
|
|
352,456
|
|
GOODWILL
|
—
|
|
|
82,553
|
|
|
5,006,108
|
|
|
670,044
|
|
|
—
|
|
|
5,758,705
|
|
OTHER INTANGIBLE ASSETS - NET
|
—
|
|
|
26,907
|
|
|
1,422,511
|
|
|
250,991
|
|
|
—
|
|
|
1,700,409
|
|
OTHER
|
—
|
|
|
78,068
|
|
|
29,107
|
|
|
5,828
|
|
|
—
|
|
|
113,003
|
|
TOTAL ASSETS
|
$
|
(2,309,337
|
)
|
|
$
|
11,329,873
|
|
|
$
|
15,656,455
|
|
|
$
|
4,639,926
|
|
|
$
|
(18,922,240
|
)
|
|
$
|
10,394,677
|
|
LIABILITIES AND STOCKHOLDERS’
(DEFICIT) EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
$
|
—
|
|
|
$
|
69,147
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
69,147
|
|
Short-term borrowings - trade receivable securitization facility
|
—
|
|
|
—
|
|
|
—
|
|
|
299,833
|
|
|
—
|
|
|
299,833
|
|
Accounts payable
|
—
|
|
|
16,951
|
|
|
116,868
|
|
|
37,513
|
|
|
(19,623
|
)
|
|
151,709
|
|
Accrued liabilities
|
—
|
|
|
113,827
|
|
|
128,807
|
|
|
49,512
|
|
|
—
|
|
|
292,146
|
|
Total current liabilities
|
—
|
|
|
199,925
|
|
|
245,675
|
|
|
386,858
|
|
|
(19,623
|
)
|
|
812,835
|
|
LONG-TERM DEBT
|
—
|
|
|
11,365,790
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
11,365,790
|
|
DEFERRED INCOME TAXES
|
—
|
|
|
300,255
|
|
|
113
|
|
|
58,974
|
|
|
—
|
|
|
359,342
|
|
OTHER NON-CURRENT LIABILITIES
|
—
|
|
|
68,538
|
|
|
69,243
|
|
|
28,266
|
|
|
—
|
|
|
166,047
|
|
Total liabilities
|
—
|
|
|
11,934,508
|
|
|
315,031
|
|
|
474,098
|
|
|
(19,623
|
)
|
|
12,704,014
|
|
STOCKHOLDERS’ (DEFICIT) EQUITY
|
(2,309,337
|
)
|
|
(604,635
|
)
|
|
15,341,424
|
|
|
4,165,828
|
|
|
(18,902,617
|
)
|
|
(2,309,337
|
)
|
TOTAL LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
|
$
|
(2,309,337
|
)
|
|
$
|
11,329,873
|
|
|
$
|
15,656,455
|
|
|
$
|
4,639,926
|
|
|
$
|
(18,922,240
|
)
|
|
$
|
10,394,677
|
|
TRANSDIGM GROUP INCORPORATED
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF SEPTEMBER 30,
2017
(Amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TransDigm
Group
|
|
TransDigm
Inc.
|
|
Subsidiary
Guarantors
|
|
Non-
Guarantor
Subsidiaries
|
|
Eliminations
|
|
Total
Consolidated
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
2,416
|
|
|
$
|
439,473
|
|
|
$
|
(203
|
)
|
|
$
|
208,875
|
|
|
$
|
—
|
|
|
$
|
650,561
|
|
Trade accounts receivable - Net
|
—
|
|
|
—
|
|
|
25,069
|
|
|
652,807
|
|
|
(41,749
|
)
|
|
636,127
|
|
Inventories - Net
|
—
|
|
|
47,051
|
|
|
571,712
|
|
|
114,018
|
|
|
(2,100
|
)
|
|
730,681
|
|
Assets held-for-sale
|
—
|
|
|
—
|
|
|
6,428
|
|
|
71,072
|
|
|
—
|
|
|
77,500
|
|
Prepaid expenses and other
|
—
|
|
|
4,746
|
|
|
24,141
|
|
|
9,796
|
|
|
—
|
|
|
38,683
|
|
Total current assets
|
2,416
|
|
|
491,270
|
|
|
627,147
|
|
|
1,056,568
|
|
|
(43,849
|
)
|
|
2,133,552
|
|
INVESTMENT IN SUBSIDIARIES AND INTERCOMPANY BALANCES
|
(2,953,620
|
)
|
|
10,263,999
|
|
|
7,599,210
|
|
|
966,675
|
|
|
(15,876,264
|
)
|
|
—
|
|
PROPERTY, PLANT AND EQUIPMENT - NET
|
—
|
|
|
16,032
|
|
|
261,434
|
|
|
47,458
|
|
|
—
|
|
|
324,924
|
|
GOODWILL
|
—
|
|
|
85,905
|
|
|
4,996,034
|
|
|
663,399
|
|
|
—
|
|
|
5,745,338
|
|
OTHER INTANGIBLE ASSETS - NET
|
—
|
|
|
27,620
|
|
|
1,438,006
|
|
|
252,236
|
|
|
—
|
|
|
1,717,862
|
|
OTHER
|
—
|
|
|
20,316
|
|
|
27,567
|
|
|
6,102
|
|
|
—
|
|
|
53,985
|
|
TOTAL ASSETS
|
$
|
(2,951,204
|
)
|
|
$
|
10,905,142
|
|
|
$
|
14,949,398
|
|
|
$
|
2,992,438
|
|
|
$
|
(15,920,113
|
)
|
|
$
|
9,975,661
|
|
LIABILITIES AND STOCKHOLDERS’
(DEFICIT) EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
$
|
—
|
|
|
$
|
69,454
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
69,454
|
|
Short-term borrowings - trade receivable securitization facility
|
—
|
|
|
—
|
|
|
—
|
|
|
299,587
|
|
|
—
|
|
|
299,587
|
|
Accounts payable
|
—
|
|
|
14,712
|
|
|
137,948
|
|
|
37,667
|
|
|
(41,566
|
)
|
|
148,761
|
|
Accrued liabilities
|
—
|
|
|
180,916
|
|
|
103,902
|
|
|
51,070
|
|
|
—
|
|
|
335,888
|
|
Liabilities held-for-sale
|
—
|
|
|
—
|
|
|
—
|
|
|
17,304
|
|
|
—
|
|
|
17,304
|
|
Total current liabilities
|
—
|
|
|
265,082
|
|
|
241,850
|
|
|
405,628
|
|
|
(41,566
|
)
|
|
870,994
|
|
LONG-TERM DEBT
|
—
|
|
|
11,393,620
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
11,393,620
|
|
DEFERRED INCOME TAXES
|
—
|
|
|
442,415
|
|
|
(99
|
)
|
|
58,633
|
|
|
—
|
|
|
500,949
|
|
OTHER NON-CURRENT LIABILITIES
|
—
|
|
|
61,347
|
|
|
73,245
|
|
|
26,710
|
|
|
—
|
|
|
161,302
|
|
Total liabilities
|
—
|
|
|
12,162,464
|
|
|
314,996
|
|
|
490,971
|
|
|
(41,566
|
)
|
|
12,926,865
|
|
STOCKHOLDERS’ (DEFICIT) EQUITY
|
(2,951,204
|
)
|
|
(1,257,322
|
)
|
|
14,634,402
|
|
|
2,501,467
|
|
|
(15,878,547
|
)
|
|
(2,951,204
|
)
|
TOTAL LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
|
$
|
(2,951,204
|
)
|
|
$
|
10,905,142
|
|
|
$
|
14,949,398
|
|
|
$
|
2,992,438
|
|
|
$
|
(15,920,113
|
)
|
|
$
|
9,975,661
|
|
TRANSDIGM GROUP INCORPORATED
CONDENSED CONSOLIDATING STATEMENT OF INCOME AND COMPREHENSIVE INCOME
FOR THE
TWENTY-SIX WEEK PERIOD ENDED
MARCH 31, 2018
(Amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TransDigm
Group
|
|
TransDigm
Inc.
|
|
Subsidiary
Guarantors
|
|
Non-
Guarantor
Subsidiaries
|
|
Eliminations
|
|
Total
Consolidated
|
NET SALES
|
$
|
—
|
|
|
$
|
77,215
|
|
|
$
|
1,441,477
|
|
|
$
|
301,750
|
|
|
$
|
(39,412
|
)
|
|
$
|
1,781,030
|
|
COST OF SALES
|
—
|
|
|
43,858
|
|
|
577,494
|
|
|
188,366
|
|
|
(39,412
|
)
|
|
770,306
|
|
GROSS PROFIT
|
—
|
|
|
33,357
|
|
|
863,983
|
|
|
113,384
|
|
|
—
|
|
|
1,010,724
|
|
SELLING AND ADMINISTRATIVE EXPENSES
|
—
|
|
|
48,893
|
|
|
103,779
|
|
|
61,382
|
|
|
—
|
|
|
214,054
|
|
AMORTIZATION OF INTANGIBLE ASSETS
|
—
|
|
|
714
|
|
|
29,709
|
|
|
4,146
|
|
|
—
|
|
|
34,569
|
|
(LOSS) INCOME FROM OPERATIONS
|
—
|
|
|
(16,250
|
)
|
|
730,495
|
|
|
47,856
|
|
|
—
|
|
|
762,101
|
|
INTEREST EXPENSE (INCOME) - NET
|
—
|
|
|
318,138
|
|
|
(2
|
)
|
|
4,063
|
|
|
—
|
|
|
322,199
|
|
REFINANCING COSTS
|
—
|
|
|
1,751
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,751
|
|
EQUITY IN INCOME OF SUBSIDIARIES
|
(511,053
|
)
|
|
(562,544
|
)
|
|
—
|
|
|
—
|
|
|
1,073,597
|
|
|
—
|
|
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
|
511,053
|
|
|
226,405
|
|
|
730,497
|
|
|
43,793
|
|
|
(1,073,597
|
)
|
|
438,151
|
|
INCOME TAX PROVISION
|
—
|
|
|
(284,648
|
)
|
|
202,265
|
|
|
6,683
|
|
|
—
|
|
|
(75,700
|
)
|
INCOME FROM CONTINUING OPERATIONS
|
511,053
|
|
|
511,053
|
|
|
528,232
|
|
|
37,110
|
|
|
(1,073,597
|
)
|
|
513,851
|
|
(LOSS) INCOME FROM DISCONTINUED OPERATIONS, NET OF TAX
|
—
|
|
|
—
|
|
|
(17,869
|
)
|
|
15,071
|
|
|
—
|
|
|
(2,798
|
)
|
NET INCOME
|
$
|
511,053
|
|
|
$
|
511,053
|
|
|
$
|
510,363
|
|
|
$
|
52,181
|
|
|
$
|
(1,073,597
|
)
|
|
$
|
511,053
|
|
OTHER COMPREHENSIVE INCOME, NET OF TAX
|
91,662
|
|
|
64,166
|
|
|
9,719
|
|
|
55,674
|
|
|
(129,559
|
)
|
|
91,662
|
|
TOTAL COMPREHENSIVE INCOME
|
$
|
602,715
|
|
|
$
|
575,219
|
|
|
$
|
520,082
|
|
|
$
|
107,855
|
|
|
$
|
(1,203,156
|
)
|
|
$
|
602,715
|
|
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
|
|
|
$
|
1,409,050
|
|
|
$
|
249,256
|
|
|
$
|
(40,597
|
)
|
|
$
|
1,682,746
|
|
COST OF SALES
|
—
|
|
|
36,230
|
|
|
605,288
|
|
|
148,133
|
|
|
(40,597
|
)
|
|
749,054
|
|
GROSS PROFIT
|
—
|
|
|
28,807
|
|
|
803,762
|
|
|
101,123
|
|
|
—
|
|
|
933,692
|
|
SELLING AND ADMINISTRATIVE EXPENSES
|
61
|
|
|
47,474
|
|
|
127,391
|
|
|
27,646
|
|
|
—
|
|
|
202,572
|
|
AMORTIZATION OF INTANGIBLE ASSETS
|
—
|
|
|
387
|
|
|
43,108
|
|
|
4,068
|
|
|
—
|
|
|
47,563
|
|
(LOSS) INCOME FROM OPERATIONS
|
(61
|
)
|
|
(19,054
|
)
|
|
633,263
|
|
|
69,409
|
|
|
—
|
|
|
683,557
|
|
INTEREST EXPENSE (INCOME) - NET
|
—
|
|
|
298,005
|
|
|
(31
|
)
|
|
(4,128
|
)
|
|
—
|
|
|
293,846
|
|
REFINANCING COSTS
|
—
|
|
|
35,591
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
35,591
|
|
EQUITY IN INCOME OF SUBSIDIARIES
|
(274,437
|
)
|
|
(629,721
|
)
|
|
—
|
|
|
—
|
|
|
904,158
|
|
|
—
|
|
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
|
274,376
|
|
|
277,071
|
|
|
633,294
|
|
|
73,537
|
|
|
(904,158
|
)
|
|
354,120
|
|
INCOME TAX PROVISION
|
—
|
|
|
2,634
|
|
|
73,549
|
|
|
3,375
|
|
|
—
|
|
|
79,558
|
|
INCOME FROM CONTINUING OPERATIONS
|
274,376
|
|
|
274,437
|
|
|
559,745
|
|
|
70,162
|
|
|
(904,158
|
)
|
|
274,562
|
|
(LOSS) INCOME FROM DISCONTINUED OPERATIONS, NET OF TAX
|
—
|
|
|
—
|
|
|
(423
|
)
|
|
237
|
|
|
|
|
|
(186
|
)
|
NET INCOME
|
$
|
274,376
|
|
|
$
|
274,437
|
|
|
$
|
559,322
|
|
|
$
|
70,399
|
|
|
$
|
(904,158
|
)
|
|
$
|
274,376
|
|
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX
|
20,952
|
|
|
40,955
|
|
|
15,012
|
|
|
(59,324
|
)
|
|
3,357
|
|
|
20,952
|
|
TOTAL COMPREHENSIVE INCOME
|
$
|
295,328
|
|
|
$
|
315,392
|
|
|
$
|
574,334
|
|
|
$
|
11,075
|
|
|
$
|
(900,801
|
)
|
|
$
|
295,328
|
|
TRANSDIGM GROUP INCORPORATED
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE
TWENTY-SIX WEEK PERIOD ENDED
MARCH 31, 2018
(Amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TransDigm
Group
|
|
TransDigm
Inc.
|
|
Subsidiary
Guarantors
|
|
Non-
Guarantor
Subsidiaries
|
|
Eliminations
|
|
Total
Consolidated
|
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES
|
$
|
—
|
|
|
$
|
(157,892
|
)
|
|
$
|
578,789
|
|
|
$
|
29,807
|
|
|
$
|
2,980
|
|
|
$
|
453,684
|
|
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
—
|
|
|
(826
|
)
|
|
(27,370
|
)
|
|
(2,688
|
)
|
|
—
|
|
|
(30,884
|
)
|
Payments made in connection with acquisitions
|
—
|
|
|
(50,320
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(50,320
|
)
|
Proceeds in connection with sale of discontinued operations
|
—
|
|
|
57,686
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
57,686
|
|
Net cash provided by (used in) investing activities
|
—
|
|
|
6,540
|
|
|
(27,370
|
)
|
|
(2,688
|
)
|
|
—
|
|
|
(23,518
|
)
|
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany activities
|
42,048
|
|
|
571,729
|
|
|
(547,932
|
)
|
|
(62,865
|
)
|
|
(2,980
|
)
|
|
—
|
|
Proceeds from exercise of stock options
|
26,305
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
26,305
|
|
Special dividend and dividend equivalent payments
|
(56,148
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(56,148
|
)
|
Proceeds from term loans, net
|
—
|
|
|
793,042
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
793,042
|
|
Repayment on term loans
|
—
|
|
|
(833,052
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(833,052
|
)
|
Other
|
—
|
|
|
(2,155
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,155
|
)
|
Net cash provided by (used in) financing activities
|
12,205
|
|
|
529,564
|
|
|
(547,932
|
)
|
|
(62,865
|
)
|
|
(2,980
|
)
|
|
(72,008
|
)
|
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
|
—
|
|
|
—
|
|
|
—
|
|
|
2,288
|
|
|
—
|
|
|
2,288
|
|
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
12,205
|
|
|
378,212
|
|
|
3,487
|
|
|
(33,458
|
)
|
|
—
|
|
|
360,446
|
|
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
|
2,416
|
|
|
439,473
|
|
|
(203
|
)
|
|
208,875
|
|
|
—
|
|
|
650,561
|
|
CASH AND CASH EQUIVALENTS, END OF PERIOD
|
$
|
14,621
|
|
|
$
|
817,685
|
|
|
$
|
3,284
|
|
|
$
|
175,417
|
|
|
$
|
—
|
|
|
$
|
1,011,007
|
|
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
|
)
|
|
$
|
720,181
|
|
|
$
|
2,035
|
|
|
$
|
1,116
|
|
|
$
|
390,500
|
|
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
|
(829
|
)
|
|
(34,576
|
)
|
|
(3,031
|
)
|
|
—
|
|
|
(38,436
|
)
|
Payments made in connection with acquisitions
|
|
|
|
(30,002
|
)
|
|
|
|
|
|
|
|
|
|
|
(30,002
|
)
|
Payments made in connection with purchase of discontinued operations
|
—
|
|
|
(78,879
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(78,879
|
)
|
Net cash used in investing activities
|
—
|
|
|
(109,710
|
)
|
|
(34,576
|
)
|
|
(3,031
|
)
|
|
—
|
|
|
(147,317
|
)
|
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany activities
|
1,691,169
|
|
|
(1,028,726
|
)
|
|
(693,345
|
)
|
|
32,018
|
|
|
(1,116
|
)
|
|
—
|
|
Proceeds from exercise of stock options
|
12,345
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
12,345
|
|
Special dividend and dividend equivalent payments
|
(1,375,998
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,375,998
|
)
|
Treasury stock repurchased
|
(339,833
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(339,833
|
)
|
Proceeds from term loans, net
|
—
|
|
|
1,132,774
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,132,774
|
|
Repayment on term loans
|
—
|
|
|
(32,302
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(32,302
|
)
|
Proceeds from additional 2025 Notes offering, net
|
—
|
|
|
301,006
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
301,006
|
|
Cash tender and redemption of the 2021 Notes, including premium
|
—
|
|
|
(528,847
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(528,847
|
)
|
Other
|
—
|
|
|
(10,745
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(10,745
|
)
|
Net cash (used in) provided by financing activities
|
(12,317
|
)
|
|
(166,840
|
)
|
|
(693,345
|
)
|
|
32,018
|
|
|
(1,116
|
)
|
|
(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
|
|
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 geopolitical or other worldwide events; 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 every 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
2018
, we generated net sales of
$933.1 million
and net income of
$196.3 million
. EBITDA As Defined was
$463.1 million
, or
49.6%
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.
Critical Accounting Policies and Estimates
The preparation and fair presentation of the consolidated unaudited interim financial statements and accompanying notes included in this report are the responsibility of management. The financial statements and footnotes have been prepared in accordance with U.S. generally accepted accounting principles for interim financial statements and contain certain amounts that were based upon management’s best estimates, judgments and assumptions that were believed to be reasonable under the circumstances. On an ongoing basis, we evaluate the accounting policies and estimates used to prepare financial statements. Estimates are based on historical experience, judgments and assumptions believed to be reasonable under current facts and circumstances. Actual amounts and results could differ from these estimates used by management.
A comprehensive discussion of the Company’s critical accounting policies and management estimates and significant accounting policies followed in the preparation of the financial statements is included in Item 7 of our Annual Report on Form 10-K for the year ended September 30, 2017. There have been no significant changes in critical accounting policies, management estimates or accounting policies followed since the year ended September 30, 2017. Refer to Note 4, "Recent Accounting Pronouncements," for a discussion of accounting standards recently adopted or required to be adopted in future periods.
Acquisitions
Recent acquisitions are described in Note 3, “Acquisitions,” and Note 15, "Subsequent Events," 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
|
|
March 31, 2018
|
|
% of Sales
|
|
April 1, 2017
|
|
% of Sales
|
Net sales
|
$
|
933,070
|
|
|
100.0
|
%
|
|
$
|
868,728
|
|
|
100.0
|
%
|
Cost of sales
|
398,996
|
|
|
42.8
|
%
|
|
379,291
|
|
|
43.7
|
%
|
Selling and administrative expenses
|
107,526
|
|
|
11.5
|
%
|
|
100,857
|
|
|
11.6
|
%
|
Amortization of intangible assets
|
17,457
|
|
|
1.9
|
%
|
|
22,032
|
|
|
2.5
|
%
|
Income from operations
|
409,091
|
|
|
43.8
|
%
|
|
366,548
|
|
|
42.2
|
%
|
Interest expense, net
|
161,266
|
|
|
17.3
|
%
|
|
147,842
|
|
|
17.0
|
%
|
Refinancing costs
|
638
|
|
|
0.1
|
%
|
|
3,507
|
|
|
0.4
|
%
|
Income tax provision
|
45,347
|
|
|
4.9
|
%
|
|
59,508
|
|
|
6.9
|
%
|
Income from continuing operations
|
$
|
201,840
|
|
|
21.6
|
%
|
|
$
|
155,691
|
|
|
17.9
|
%
|
Loss from discontinued operations, net of tax
|
(5,562
|
)
|
|
(0.6
|
)%
|
|
(186
|
)
|
|
—
|
%
|
Net income
|
$
|
196,278
|
|
|
21.0
|
%
|
|
$
|
155,505
|
|
|
17.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-Six Week Periods Ended
|
|
March 31, 2018
|
|
% of Sales
|
|
April 1, 2017
|
|
% of Sales
|
Net sales
|
$
|
1,781,030
|
|
|
100.0
|
%
|
|
$
|
1,682,746
|
|
|
100.0
|
%
|
Cost of sales
|
770,306
|
|
|
43.3
|
%
|
|
749,054
|
|
|
44.5
|
%
|
Selling and administrative expenses
|
214,054
|
|
|
12.0
|
%
|
|
202,572
|
|
|
12.0
|
%
|
Amortization of intangible assets
|
34,569
|
|
|
1.9
|
%
|
|
47,563
|
|
|
2.8
|
%
|
Income from operations
|
762,101
|
|
|
42.8
|
%
|
|
683,557
|
|
|
40.6
|
%
|
Interest expense, net
|
322,199
|
|
|
18.1
|
%
|
|
293,846
|
|
|
17.5
|
%
|
Refinancing costs
|
1,751
|
|
|
0.1
|
%
|
|
35,591
|
|
|
2.1
|
%
|
Income tax provision
|
(75,700
|
)
|
|
(4.3
|
)%
|
|
79,558
|
|
|
4.7
|
%
|
Income from continuing operations
|
$
|
513,851
|
|
|
28.9
|
%
|
|
$
|
274,562
|
|
|
16.3
|
%
|
Loss from discontinued operations, net of tax
|
(2,798
|
)
|
|
(0.2
|
)%
|
|
(186
|
)
|
|
—
|
%
|
Net income
|
$
|
511,053
|
|
|
28.7
|
%
|
|
$
|
274,376
|
|
|
16.3
|
%
|
Changes in Results of Operations
Thirteen week period ended
March 31, 2018
compared with the thirteen week period ended
April 1, 2017
Total Company
|
|
•
|
Net Sales
.
Net organic sales and acquisition sales and the related dollar and percentage changes for the thirteen week periods ended
March 31, 2018
and
April 1, 2017
were as follows (amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Week Periods Ended
|
|
|
|
% Change
Total Sales
|
|
March 31, 2018
|
|
April 1, 2017
|
|
Change
|
|
Organic sales
|
$
|
925.6
|
|
|
$
|
868.7
|
|
|
$
|
56.9
|
|
|
6.6
|
%
|
Acquisition sales
|
7.5
|
|
|
—
|
|
|
7.5
|
|
|
0.8
|
%
|
|
$
|
933.1
|
|
|
$
|
868.7
|
|
|
$
|
64.4
|
|
|
7.4
|
%
|
The increase in organic sales is primarily related to an increase in commercial aftermarket sales of
$43.7 million
, or
14.6%
, and an increase in defense sales of
$13.2 million
, or
4.7%
. This was partially offset by a decrease in organic commercial OEM sales of
$5.2 million
, or
2.1%
.
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 for the thirteen week period ended
March 31, 2018
was attributable to the Third Quarter 2017 Acquisitions described in Note 3, "Acquisitions and Divestitures."
|
|
•
|
Cost of Sales and Gross Profit
.
Cost of sales increased by
$19.7 million
, or
5.2%
, to
$399.0 million
for the thirteen week period ended
March 31, 2018
compared to
$379.3 million
for the thirteen week period ended
April 1, 2017
. Cost of sales and the related percentage of total sales for the thirteen week periods ended
March 31, 2018
and
April 1, 2017
were as follows (amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Week Periods Ended
|
|
|
|
|
|
March 31, 2018
|
|
April 1, 2017
|
|
Change
|
|
% Change
|
Cost of sales - excluding costs below
|
$
|
395.2
|
|
|
$
|
374.4
|
|
|
$
|
20.8
|
|
|
5.6
|
%
|
% of total sales
|
42.4
|
%
|
|
43.1
|
%
|
|
|
|
|
Inventory purchase accounting adjustments
|
—
|
|
|
2.8
|
|
|
(2.8
|
)
|
|
(100.0
|
)%
|
% of total sales
|
—
|
%
|
|
0.3
|
%
|
|
|
|
|
Acquisition integration costs
|
2.6
|
|
|
1.0
|
|
|
1.6
|
|
|
160.0
|
%
|
% of total sales
|
0.3
|
%
|
|
0.1
|
%
|
|
|
|
|
Stock compensation expense
|
1.2
|
|
|
1.1
|
|
|
0.1
|
|
|
9.1
|
%
|
% of total sales
|
0.1
|
%
|
|
0.1
|
%
|
|
|
|
|
Total cost of sales
|
$
|
399.0
|
|
|
$
|
379.3
|
|
|
$
|
19.7
|
|
|
5.2
|
%
|
% of total sales
|
42.8
|
%
|
|
43.7
|
%
|
|
|
|
|
Gross profit
|
$
|
534.1
|
|
|
$
|
489.4
|
|
|
$
|
44.7
|
|
|
9.1
|
%
|
Gross profit percentage
|
57.2
|
%
|
|
56.3
|
%
|
|
0.9
|
|
|
The net increase in the dollar amount of cost of sales during the thirteen week period ended
March 31, 2018
was primarily due to increased volume associated with the sales from acquisitions and organic sales growth for both commercial aftermarket and defense markets. This increase due to volume was slightly offset by a reduction in inventory purchase accounting adjustments as shown in the table above.
Gross profit as a percentage of sales increased by
0.9
percentage points to
57.2%
for the thirteen week period ended
March 31, 2018
from
56.3%
for the thirteen week period ended
April 1, 2017
. The dollar amount of gross profit increased by
$44.7 million
, or
9.1%
, for the quarter ended
March 31, 2018
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 $4.1 million for the quarter ended
March 31, 2018
, which represented gross profit of approximately 55.1% 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 $39.5 million for the quarter ended
March 31, 2018
.
|
|
|
•
|
Further increases in gross profit were due to lower inventory purchase accounting adjustments of
$2.8 million
partially offset by increases in acquisition integration costs of
$1.6 million
and stock compensation expense of
$0.1 million
for the quarter ended
March 31, 2018
.
|
|
|
•
|
Selling and Administrative Expenses.
Selling and administrative expenses increased by
$6.6 million
to
$107.5 million
, or
11.5%
of sales, for the thirteen week period ended
March 31, 2018
from
$100.9 million
, or
11.6%
of sales, for the thirteen week period ended
April 1, 2017
. Selling and administrative expenses and the related percentage of total sales for the thirteen week periods ended
March 31, 2018
and
April 1, 2017
were as follows (amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Week Periods Ended
|
|
|
|
|
|
March 31, 2018
|
|
April 1, 2017
|
|
Change
|
|
% Change
|
Selling and administrative expenses - excluding costs below
|
$
|
95.2
|
|
|
$
|
87.0
|
|
|
$
|
8.2
|
|
|
9.4
|
%
|
% of total sales
|
10.2
|
%
|
|
10.0
|
%
|
|
|
|
|
Stock compensation expense
|
10.4
|
|
|
10.0
|
|
|
0.4
|
|
|
4.0
|
%
|
% of total sales
|
1.1
|
%
|
|
1.2
|
%
|
|
|
|
|
Acquisition-related expenses
|
1.9
|
|
|
3.9
|
|
|
(2.0
|
)
|
|
(51.3
|
)%
|
% of total sales
|
0.2
|
%
|
|
0.4
|
%
|
|
|
|
|
Total selling and administrative expenses
|
$
|
107.5
|
|
|
$
|
100.9
|
|
|
$
|
6.6
|
|
|
6.5
|
%
|
% of total sales
|
11.5
|
%
|
|
11.6
|
%
|
|
|
|
|
The increase in the dollar amount of selling and administrative expenses during the quarter ended
March 31, 2018
is primarily due to higher selling and administrative expenses relating to recent acquisitions.
|
|
•
|
Amortization of Intangible Assets.
Amortization of intangible assets was
$17.5 million
for the quarter ended
March 31, 2018
compared to
$22.0 million
in the quarter ended
April 1, 2017
. The decrease in amortization expense of
$4.5 million
was due to the order backlog recorded in connection with the 2016 acquisitions becoming fully amortized in fiscal 2017. This was slightly offset by amortization expense on the definite-lived intangible assets (i.e., technology and order backlog) recorded in connection with the Third Quarter 2017 acquisitions.
|
|
|
•
|
Refinancing Costs.
Refinancing costs of
$0.6 million
were recorded for the quarter ended
March 31, 2018
which related to the debt refinancing activity described in Note 8, "Debt." 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 during the first quarter of the previous year.
|
|
|
•
|
Interest Expense-net.
Interest expense-net includes interest on borrowings outstanding, amortization of debt issuance costs, original issue discount and premium and revolving credit facility fees slightly offset by interest income. Interest expense-net increased
$13.5 million
, or
9.1%
, to
$161.3 million
for the quarter ended
March 31, 2018
from
$147.8 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 $11,856 million for the quarter ended
March 31, 2018
and approximately $11,206 million for the quarter ended
April 1, 2017
. The increase in weighted average level of borrowings was due to the additional 2025 Notes offering of
$300 million
in the second fiscal quarter of 2017, the additional $100 million drawn on the trade receivable securitization facility in the fourth quarter of fiscal 2017 and the additional net debt financing of $575 million in the fourth quarter of fiscal 2017. The weighted average interest rate for cash interest payments on total borrowings outstanding at
March 31, 2018
was 5.2%.
|
|
|
•
|
Income Taxes.
Income tax expense as a percentage of income before income taxes was approximately
18.3%
for the quarter ended
March 31, 2018
compared to
27.7%
for the quarter ended
April 1, 2017
. The Company's lower effective tax rate for the thirteen week period ended
March 31, 2018
was primarily due to reduction in U.S. federal corporate tax rate that was enacted in The Tax Cuts and Jobs Act which reduced the tax rate from 35% to 21%. As a result, the blended statutory tax rate for the year is 24.5%. Also contributing to the lower effective tax rate was the impact of excess tax benefits from share based payments
|
|
|
•
|
Loss from Discontinued Operations
. On January 26, 2018, the Company completed the sale of Schroth in a management buyout to a private equity fund and certain members of Schroth management for approximately
$61.4 million
, subject to a working capital adjustment. The loss from discontinued operations was
$5.6 million
for the quarter ended
March 31, 2018
. Refer to Note 14, “Discontinued Operations,” for further information. The loss from discontinued operations was
$0.2 million
for the quarter ended
April 1, 2017
.
|
|
|
•
|
Net Income
.
Net income increased
$40.8 million
, or
26.2%
, to
$196.3 million
for the quarter ended
March 31, 2018
compared to net income of
$155.5 million
for the quarter ended
April 1, 2017
, primarily as a result of the factors referred to above.
|
|
|
•
|
Earnings per Share.
Basic and diluted earnings per share was
$3.53
for the quarter ended
March 31, 2018
and
$2.78
per share for the quarter ended
April 1, 2017
. For the quarter ended
March 31, 2018
, basic and diluted earnings per share from continuing operations and discontinued operations were
$3.63
and
$(0.10)
, respectively.
|
Business Segments
Effective October 1, 2017, the Company made an organizational realignment of certain businesses comprising the Power & Control, Airframe, and the Non-Aviation segments. Operating results for the thirteen week period ended
April 1, 2017
were reclassified to conform to the presentation for the thirteen week period ended
March 31, 2018
.
|
|
•
|
Segment Net Sales
.
Net sales by segment for the thirteen week periods ended
March 31, 2018
and
April 1, 2017
were as follows (amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Week Periods Ended
|
|
|
|
|
|
March 31, 2018
|
|
% of Sales
|
|
April 1, 2017
|
|
% of Sales
|
|
Change
|
|
% Change
|
Power & Control
|
$
|
528.5
|
|
|
56.7
|
%
|
|
$
|
474.0
|
|
|
54.6
|
%
|
|
$
|
54.5
|
|
|
11.5
|
%
|
Airframe
|
369.8
|
|
|
39.6
|
%
|
|
360.5
|
|
|
41.5
|
%
|
|
9.3
|
|
|
2.6
|
%
|
Non-aviation
|
34.8
|
|
|
3.7
|
%
|
|
34.2
|
|
|
3.9
|
%
|
|
0.6
|
|
|
1.8
|
%
|
|
$
|
933.1
|
|
|
100.0
|
%
|
|
$
|
868.7
|
|
|
100.0
|
%
|
|
$
|
64.4
|
|
|
7.4
|
%
|
Acquisition sales for the Power & Control segment totaled
$7.5 million
, or an increase of
1.6%
, resulting from the Third Quarter 2017 Acquisitions in fiscal year 2017. Organic sales increased
$47.0 million
, or an increase of
9.9%
, for the thirteen week period ended
March 31, 2018
compared to the thirteen week period ended
April 1, 2017
. The organic sales increase resulted from increases in commercial aftermarket sales (
$26.8 million
, an increase of
18.8%
), defense sales (
$14.7 million
, an increase of
7.0%
), and commercial OEM sales (
$3.7 million
, an increase of
3.3%
).
Organic sales for the Airframe segment increased
$9.3 million
, or
2.6%
, for the thirteen week period ended
March 31, 2018
compared to the thirteen week period ended
April 1, 2017
. The organic sales increase primarily resulted from an increase in commercial aftermarket sales (
$17.0 million
, an increase of
10.9%
) offset by a decrease in commercial OEM sales (
$6.7 million
, a decrease of
5.2%
) and defense sales (
$1.4 million
, a decrease of
2.0%
).
|
|
•
|
EBITDA As Defined
.
EBITDA As Defined by segment for the thirteen week periods ended
March 31, 2018
and
April 1, 2017
were as follows (amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Week Periods Ended
|
|
|
|
|
|
March 31, 2018
|
|
% of Segment
Sales
|
|
April 1, 2017
|
|
% of Segment
Sales
|
|
Change
|
|
% Change
|
Power & Control
|
$
|
275.6
|
|
|
52.1
|
%
|
|
$
|
232.8
|
|
|
49.1
|
%
|
|
$
|
42.8
|
|
|
18.4
|
%
|
Airframe
|
186.0
|
|
|
50.3
|
%
|
|
183.0
|
|
|
50.8
|
%
|
|
3.0
|
|
|
1.6
|
%
|
Non-aviation
|
10.3
|
|
|
29.6
|
%
|
|
11.4
|
|
|
33.2
|
%
|
|
(1.1
|
)
|
|
(9.6
|
)%
|
|
$
|
471.9
|
|
|
50.6
|
%
|
|
$
|
427.2
|
|
|
49.2
|
%
|
|
$
|
44.7
|
|
|
10.5
|
%
|
EBITDA As Defined for the Power & Control segment from the Third Quarter 2017 Acquisitions was approximately $3.2 million for the thirteen week period ended
March 31, 2018
. Organic EBITDA As Defined increased approximately $39.6 million, or an increase of 17.0%, 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.
Organic EBITDA As Defined for the Airframe segment increased approximately
$3.0 million
, or an increase of
1.6%
, resulting from organic sales growth and application of our three core value-driven operating strategies.
Twenty-six week period ended
March 31, 2018
compared with the
twenty-six week period
ended
April 1, 2017
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
March 31, 2018
and
April 1, 2017
were as follows (amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-Six Week Periods Ended
|
|
|
|
% Change
Total Sales
|
|
March 31, 2018
|
|
April 1, 2017
|
|
Change
|
|
Organic sales
|
$
|
1,763.6
|
|
|
$
|
1,682.7
|
|
|
$
|
80.9
|
|
|
4.8
|
%
|
Acquisition sales
|
17.4
|
|
|
—
|
|
|
17.4
|
|
|
1.0
|
%
|
|
$
|
1,781.0
|
|
|
$
|
1,682.7
|
|
|
$
|
98.3
|
|
|
5.8
|
%
|
Organic defense and commercial aftermarket sales increased for the
twenty-six week period
ended
March 31, 2018
compared to the
twenty-six week period
ended
April 1, 2017
by
$9.0 million
and
$70.5 million
, or
1.6%
and
12.2%
, respectively. These increases were slightly offset by a decrease in organic commercial OEM sales of
$7.4 million
, or
1.6%
.
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 Third Quarter 2017 Acquisitions described in Note 3, "Acquisitions and Divestitures."
|
|
•
|
Cost of Sales and Gross Profit
.
Cost of sales increased by
$21.2 million
, or
2.8%
, to
$770.3 million
for the
twenty-six week period
ended
March 31, 2018
compared to
$749.1 million
for the
twenty-six week period
ended
April 1, 2017
. Cost of sales and the related percentage of total sales for the
twenty-six week period
s ended
March 31, 2018
and
April 1, 2017
were as follows (amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-Six Week Periods Ended
|
|
|
|
|
|
March 31, 2018
|
|
April 1, 2017
|
|
Change
|
|
% Change
|
Cost of sales - excluding costs below
|
$
|
764.5
|
|
|
$
|
726.1
|
|
|
$
|
38.4
|
|
|
5.3
|
%
|
% of total sales
|
43.0
|
%
|
|
43.1
|
%
|
|
|
|
|
Inventory purchase accounting adjustments
|
—
|
|
|
19.4
|
|
|
(19.4
|
)
|
|
(100.0
|
)%
|
% of total sales
|
—
|
%
|
|
1.2
|
%
|
|
|
|
|
Acquisition integration costs
|
3.5
|
|
|
1.5
|
|
|
2.0
|
|
|
133.3
|
%
|
% of total sales
|
0.2
|
%
|
|
0.1
|
%
|
|
|
|
|
Stock compensation expense
|
2.3
|
|
|
2.1
|
|
|
0.2
|
|
|
9.5
|
%
|
% of total sales
|
0.1
|
%
|
|
0.1
|
%
|
|
|
|
|
Total cost of sales
|
$
|
770.3
|
|
|
$
|
749.1
|
|
|
$
|
21.2
|
|
|
2.8
|
%
|
% of total sales
|
43.3
|
%
|
|
44.5
|
%
|
|
|
|
|
Gross profit
|
$
|
1,010.7
|
|
|
$
|
933.7
|
|
|
$
|
77.0
|
|
|
8.2
|
%
|
Gross profit percentage
|
56.7
|
%
|
|
55.5
|
%
|
|
0.016
|
|
|
|
The net increase in the dollar amount of cost of sales during the
twenty-six week period
ended
March 31, 2018
was primarily due to increased volume associated with the sales from acquisitions and organic commercial aftermarket sales growth. The increase due to volume was partially offset by lower inventory purchase accounting adjustments as shown in the table above.
Gross profit as a percentage of sales increased by 1.2 percentage points to
56.7%
for the
twenty-six week period
ended
March 31, 2018
from
55.5%
for the
twenty-six week period
ended
April 1, 2017
. The dollar amount of gross profit increased by
$77.0 million
, or
8.2%
, for the
twenty-six week period
ended
March 31, 2018
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 $10.3 million for the
twenty-six week period
ended
March 31, 2018
, which represented gross profit of approximately 59.0% 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 $49.5 million for the
twenty-six week period
ended
March 31, 2018
.
|
|
|
•
|
Also contributing to the increase in gross profit were lower inventory purchase accounting adjustments of
$19.4 million
slightly offset by increases in acquisition integration costs of
$2.0 million
and stock compensation expense of
$0.2 million
charged to cost of sales for the
twenty-six week period
ended
March 31, 2018
.
|
|
|
•
|
Selling and Administrative Expenses.
Selling and administrative expenses increased by
$11.5 million
to
$214.1 million
, or
12.0%
of sales, for the
twenty-six week period
ended
March 31, 2018
from
$202.6 million
, or
12.0%
of sales, for the
twenty-six week period
ended
April 1, 2017
. Selling and administrative expenses and the related percentage of total sales for the
twenty-six week period
s ended
March 31, 2018
and
April 1, 2017
were as follows (amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-Six Week Periods Ended
|
|
|
|
|
|
March 31, 2018
|
|
April 1, 2017
|
|
Change
|
|
% Change
|
Selling and administrative expenses - excluding costs below
|
$
|
190.7
|
|
|
$
|
178.1
|
|
|
$
|
12.6
|
|
|
7.1
|
%
|
% of total sales
|
10.7
|
%
|
|
10.6
|
%
|
|
|
|
|
Stock compensation expense
|
20.4
|
|
|
19.0
|
|
|
1.4
|
|
|
7.4
|
%
|
% of total sales
|
1.1
|
%
|
|
1.1
|
%
|
|
|
|
|
Acquisition-related expenses
|
3.0
|
|
|
5.5
|
|
|
(2.5
|
)
|
|
(45.5
|
)%
|
% of total sales
|
0.2
|
%
|
|
0.3
|
%
|
|
|
|
|
Total selling and administrative expenses
|
$
|
214.1
|
|
|
$
|
202.6
|
|
|
$
|
11.5
|
|
|
5.7
|
%
|
% of total sales
|
12.0
|
%
|
|
12.0
|
%
|
|
|
|
|
The increase in the dollar amount of selling and administrative expenses during the
twenty-six week period
ended
March 31, 2018
is primarily due to higher selling and administration expenses related to recent acquisitions.
|
|
•
|
Amortization of Intangible Assets.
Amortization of intangible assets was
$34.6 million
for the
twenty-six week period
ended
March 31, 2018
compared to
$47.6 million
in the
twenty-six week period
ended
April 1, 2017
. The decrease in amortization expense of
$13.0 million
was primarily due to the order backlog recorded in connection with the 2016 acquisitions becoming fully amortized in fiscal 2017. This was slightly offset by amortization expense on the definite-lived intangible assets (i.e., technology and order backlog) recorded in connection with the Third Quarter 2017 acquisitions.
|
|
|
•
|
Refinancing Costs.
Refinancing costs of
$1.8 million
were recorded for the
twenty-six week period
ended
March 31, 2018
, which related to the debt refinancing activity described in Note 8, "Debt." Refinancing costs of
$35.6 million
were recorded for the
twenty-six week period
ended
April 1, 2017
representing debt issuance costs expensed in connection with the debt financing activity during the first and second quarter of the previous year, which primarily consisted of $28.8 million in premium paid on the redemption of the 2021 Notes and the write-off of $3.1 million in unamortized debt issuance costs, along with $3.3 million of debt issuance costs related to an additional issuance of our existing 2025 Notes.
|
|
|
•
|
Interest Expense-net.
Interest expense-net includes interest on borrowings outstanding, amortization of debt issuance costs, original issue discount and premium and revolving credit facility fees slightly offset by interest income. Interest expense-net increased
$28.4 million
, or
9.6%
, to
$322.2 million
for the
twenty-six week period
ended
March 31, 2018
from
$293.8 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 $11,864 million for the
twenty-six week period
ended
March 31, 2018
and approximately $11,045 million for the
twenty-six week period
ended
April 1, 2017
. The increase in weighted average level of borrowings was primarily due to the additional 2025 Notes offering of
$300 million
in the end of the second fiscal quarter of 2017, the additional $100 million drawn on the trade receivable securitization facility in the fourth quarter of fiscal 2017, and the additional net debt financing of $575 million in the fourth quarter of fiscal 2017. The weighted average interest rate for cash interest payments on total borrowings outstanding at
March 31, 2018
was 5.2%.
|
|
|
•
|
Income Taxes
.
Income tax expense as a percentage of income before income taxes was approximately
(17.3)%
for the
twenty-six week period
ended
March 31, 2018
compared to
22.5%
for the
twenty-six week period
ended
April 1, 2017
. The Tax Cuts and Jobs Act was enacted on December 22, 2017. The Act reduces the US federal corporate tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings. The rate change is administratively effective at the beginning of our fiscal year, using a blended rate for the annual period. As a result, the blended statutory tax rate for the year is 24.5%. At March 31, 2018, we have not completed our accounting for the tax effects of enactment of the Act; however, in certain cases, we have made a reasonable estimate of the effects on our existing deferred tax balances and the one-time transition tax. We have recognized a provisional benefit amount of
$170.2 million
related to the remeasurement of our deferred tax balance for the twenty-six week period ended March 31, 2018. However, we are still analyzing certain aspects of the Act and refining our calculations, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts. In addition, we have recognized a provisional expense amount of
$23.1 million
for our one-time transition tax liability for the twenty-six week period ended March 31, 2018. The one-time transition tax is
|
based on our total post-1986 E&P that we previously deferred from US income taxes and is based in part on the amount of those earnings held in cash and other specified assets. However, we continue to refine the calculation of the total post-1986 E&P for our foreign subsidiaries. This amount may change when we finalize the calculation of post-1986 foreign E&P previously deferred from US federal taxation and finalize the amounts held in cash or other specified assets. As a result of the Act, we recognized a provisional benefit amount of $147.1 million as a discrete tax benefit, which is included as a component of income tax expense from continuing operations. The Company's lower effective tax rate for the
twenty-six week period
ended
March 31, 2018
was due to the reduction in the U.S. federal corporate tax rate as well as the discrete adjustment related to the enactment of the Act described above.
|
|
•
|
Loss from Discontinued Operations.
On January 26, 2018, the Company completed the sale of Schroth in a management buyout to a private equity fund and certain members of Schroth management for approximately
$61.4 million
, subject to a working capital adjustment. The loss from discontinued operations was
$2.8 million
for the
twenty-six week period
ended
March 31, 2018
. Refer to Note 14, “Discontinued Operations,” for further details. The loss from discontinued operations was
$0.2 million
for the
twenty-six week period
ended
April 1, 2017
.
|
|
|
•
|
Net Income
.
Net income increased
$236.7 million
, or
86.3%
, to
$511.1 million
for the
twenty-six week period
ended
March 31, 2018
compared to net income of
$274.4 million
for the
twenty-six week period
ended
April 1, 2017
, primarily as a result of the factors referred to above.
|
|
|
•
|
Earnings per Share.
Basic and diluted earnings per share was
$8.18
for the
twenty-six week period
ended
March 31, 2018
and
$3.17
per share for the
twenty-six week period
ended
April 1, 2017
. For the twenty-six week period ended
March 31, 2018
, basic and diluted earnings per share from continuing operations and discontinued operations were
$8.23
and
$(0.05)
, respectively. Net income for the
twenty-six week period
ended
March 31, 2018
of
$513.9 million
was decreased by dividend equivalent payments of
$56.1 million
, resulting in net income available to common shareholders of
$454.9 million
. 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 per share, resulting in net income available to common shareholders of
$178.4 million
.
|
Business Segments
|
|
•
|
Segment Net Sales
.
Net sales by segment for the
twenty-six week period
ended
March 31, 2018
and
April 1, 2017
were as follows (amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-Six Week Periods Ended
|
|
|
|
|
|
March 31, 2018
|
|
% of Sales
|
|
April 1, 2017
|
|
% of Sales
|
|
Change
|
|
% Change
|
Power & Control
|
$
|
1,011.2
|
|
|
56.8
|
%
|
|
$
|
909.8
|
|
|
54.1
|
%
|
|
$
|
101.4
|
|
|
11.1
|
%
|
Airframe
|
703.2
|
|
|
39.5
|
%
|
|
709.2
|
|
|
42.1
|
%
|
|
(6.0
|
)
|
|
(0.8
|
)%
|
Non-aviation
|
66.6
|
|
|
3.7
|
%
|
|
63.7
|
|
|
3.8
|
%
|
|
2.9
|
|
|
4.6
|
%
|
|
$
|
1,781.0
|
|
|
100.0
|
%
|
|
$
|
1,682.7
|
|
|
100.0
|
%
|
|
$
|
98.3
|
|
|
5.8
|
%
|
Acquisition sales for the Power & Control segment totaled
$17.4 million
, or an increase of
1.9%
, resulting from the Third Quarter 2017 Acquisitions. Organic sales increased
$84.0 million
, or an increase of
9.2%
, for the
twenty-six week period
ended
March 31, 2018
compared to the
twenty-six week period
ended
April 1, 2017
. The organic sales increase resulted primarily from an increase in commercial aftermarket sales (
$41.8 million
, an increase of
15.2%
), defense sales (
$23.3 million
, an increase of
5.7%
) and an increase in commercial OEM sales (
$14.5 million
, an increase of
7.1%
).
Organic sales for the Airframe business decreased
$6.0 million
, or
0.8%
, for the
twenty-six week period
ended
March 31, 2018
compared to the
twenty-six week period
ended
April 1, 2017
. The organic sales decrease primarily resulted from decreases in defense sales (
$14.7 million
, a decrease of
9.5%
) and commercial OEM sales (
$19.8 million
, a decrease of
8.0%
) partially offset by an increase in commercial aftermarket sales (
$28.6 million
, or
9.5%
).
|
|
•
|
EBITDA As Defined
.
EBITDA As Defined by segment for the
twenty-six week period
s ended
March 31, 2018
and
April 1, 2017
were as follows (amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-Six Week Periods Ended
|
|
|
|
|
|
March 31, 2018
|
|
% of Segment
Sales
|
|
April 1, 2017
|
|
% of Segment
Sales
|
|
Change
|
|
% Change
|
Power & Control
|
$
|
520.3
|
|
|
51.5
|
%
|
|
$
|
445.7
|
|
|
49.0
|
%
|
|
$
|
74.6
|
|
|
16.7
|
%
|
Airframe
|
344.4
|
|
|
49.0
|
%
|
|
351.5
|
|
|
49.6
|
%
|
|
(7.1
|
)
|
|
(2.0
|
)%
|
Non-aviation
|
19.3
|
|
|
29.0
|
%
|
|
20.7
|
|
|
32.4
|
%
|
|
(1.4
|
)
|
|
(6.8
|
)%
|
|
$
|
884.0
|
|
|
49.6
|
%
|
|
$
|
817.9
|
|
|
48.6
|
%
|
|
$
|
66.1
|
|
|
8.1
|
%
|
EBITDA As Defined for the Power & Control segment from the Third Quarter 2017 Acquisitions was approximately $7.9 million for the
twenty-six week period
ended
March 31, 2018
. Organic EBITDA As Defined increased approximately $66.7 million, or an increase of 15.0%, resulting from organic sales growth in commercial aftermarket sales, commercial OEM sales and defense sales, as well as the application of our three core value-driven operating strategies, and positive leverage on our fixed overhead costs spread over a higher production volume.
Organic EBITDA as Defined for the Airframe segment decreased
$7.1 million
, a
2.0%
decrease, for the
twenty-six week period
ended
March 31, 2018
. Organic EBITDA As Defined decreased as a result of a decrease in commercial OEM sales and defense sales offset by organic sales growth in commercial aftermarket sales and the 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
March 31, 2018
, the Company estimated its sales order backlog at $1,869 million compared to an estimated sales order backlog of $1,648 million as of
April 1, 2017
. The increase in backlog is primarily due to acquisitions and organic growth in both the defense market and the commercial aftermarket. The majority of the purchase orders outstanding as of
March 31, 2018
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
March 31, 2018
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, Japan, 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. 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.
If the Company has excess cash, it generally prioritizes allocating the excess cash in the following manner: (1) capital spending at existing businesses, (2) acquisitions of businesses, (3) payment of a special dividend and/or repurchases of our common stock and (4) prepayment of indebtedness or repurchase of debt. Whether the Company undertakes additional common stock repurchases or other aforementioned activities will depend on prevailing market conditions, the Company's liquidity requirements, contractual restrictions and other factors. The amounts involved may be material. In addition, the Company may issue additional debt if prevailing market conditions are favorable to doing so.
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.
In the future, the Company may increase its borrowings in connection with acquisitions, if cash flows from operating activities becomes insufficient to fund current operations or for other short-term cash needs or for stock repurchases or special dividends. Our future leverage will also be impacted by the then current conditions of the credit markets.
Operating Activities.
The Company generated
$453.7 million
of net cash from operating activities during the
twenty-six week period
ended
March 31, 2018
compared to
$390.5 million
during the
twenty-six week period
ended
April 1, 2017
. The net increase of
$63.2 million
is primarily attributable to an increase in income from continuing operations of $69.3 million (excluding the non-cash effects of the adjustments resulting from the Tax Cuts and Jobs Act (approximately $170 million).
The change in accounts receivable during the
twenty-six week period
ended
March 31, 2018
was a source of cash of
$5.9 million
compared to a source of cash of
$3.1 million
during the
twenty-six week period
ended
April 1, 2017
. The increase in the source of cash of
$2.8 million
is attributable to the higher rate of collections of accounts receivable in second quarter of fiscal year 2018 compared to the second quarter of fiscal 2017.
The change in inventories during the
twenty-six week period
ended
March 31, 2018
was a use of cash of
$16.3 million
compared to a source of cash of
$6.9 million
during the
twenty-six week period
ended
April 1, 2017
. The increase in the use of cash of
$23.2 million
is primarily attributable to acquisitions and an increase in raw material and component purchases in response to the growth in backlog.
The change in accounts payable during the
twenty-six week period
ended
March 31, 2018
was a use of cash of
$0.6 million
compared to a use of cash of
$17.5 million
during the
twenty-six week period
ended
April 1, 2017
. The decrease in the use of cash of
$16.9 million
was primarily attributable to the timing of payments to vendors in connection with continued efforts to improve working capital management.
Investing Activities
. Net cash used in investing activities was
$23.5 million
during the
twenty-six week period
ended
March 31, 2018
consisting of capital expenditures of
$30.9 million
, and payments for acquisitions of
$50.3 million
which primarily consisted of the Kirkhill acquisition. The uses of cash related to investing activities was partially offset by the cash proceeds received from the sale of Schroth of
$57.7 million
.
Net cash used in investing activities during the
twenty-six week period
ended
April 1, 2017
was comprised of capital expenditures of
$38.4 million
and acquisition activities of
$108.9 million
, which primarily consisted of
$78.9 million
for the acquisition of Schroth and $28.7 million for the cash settlement of the Breeze-Eastern dissenting shares litigation.
Financing Activities.
Net cash used in financing activities during the
twenty-six week period
ended
March 31, 2018
was
$72.0 million
. The use of cash was primarily related to the payment of
$56.1 million
in dividend equivalent payments and $34.5 million in debt service payments on existing term loans, partially offset by
$26.3 million
in proceeds from stock option exercises.
Net cash used in financing activities during the
twenty-six week period
ended
March 31, 2018
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.
Description of Senior Secured Term Loans and Indentures
Senior Secured Term Loans Facility
TransDigm has
$6,938.1 million
in fully drawn term loans (the “Term Loans Facility”) and a
$600.0 million
revolving credit facility. The Term Loans Facility consists of three tranches of term loans as follows (aggregate principal amount disclosed is as of
March 31, 2018
):
|
|
|
|
|
|
|
|
Term Loans Facility
|
|
Aggregate Principal
|
|
Maturity Date
|
|
Interest Rate
|
Tranche E
|
|
$1,495.8 million
|
|
May 14, 2022
|
|
LIBO rate + 2.75%
|
Tranche F
|
|
$3,636.9 million
|
|
June 9, 2023
|
|
LIBO rate + 2.75%
|
Tranche G
|
|
$1,805.4 million
|
|
August 22, 2024
|
|
LIBO rate + 2.50%
|
The Term Loans Facility requires quarterly aggregate principal payments of $17.4 million. The revolving commitments consist of two tranches which includes up to $100 million of multicurrency revolving commitments. At
March 31, 2018
, the Company had
$15.2 million
in letters of credit outstanding and
$584.8 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 related to the tranche E, tranche F and tranche G term loans are subject to a floor of 0.0%. For the
twenty-six week
period
ended
March 31, 2018
, the applicable interest rates ranged from approximately 4.07% to 4.69% on the existing term loans. 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.
Recent Amendments to the Credit Agreement
On August 22, 2017, the Company entered into Amendment No. 3 and Incremental Term Loan Assumption Agreement to the Second Amended and Restated Credit Agreement (“Amendment No. 3”). Pursuant to Amendment No. 3, TransDigm, among other things, incurred the new tranche G term loans in an aggregate principal amount equal to approximately $1.8 billion and repaid in full all of the tranche C term loans outstanding under the Restated Credit Agreement. The tranche G term loans were fully drawn on August 22, 2017. The tranche G term loans mature on August 22, 2024. The terms and conditions (other than maturity date) that apply to the tranche G term loans, including pricing, are substantially the same as the terms and conditions that applied to the tranche C term loans immediately prior to Amendment No. 3. Amendment No. 3 also permitted (a) payment of a special dividend, share repurchase, or combination thereof, in an aggregate amount up to approximately $1.3 billion within 60 days of the effective date of Amendment No. 3, and (b) certain additional restricted payments, including the ability of the Company to declare or pay dividends or repurchase stock, in an aggregate amount not to exceed $1.5 billion within twelve months of the effective date of Amendment No. 3 provided that, among other conditions, if such additional loans are to be used by the Company 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. If any portion of the $1.5 billion is not used for dividends or share repurchases over such twelve month period, such amount (not to exceed $500 million) may be used to repurchase stock at any time thereafter.
On November 30, 2017, the Company entered into Amendment No. 4 to the Second Amended and Restated Credit Agreement
(“Amendment No. 4”)
. Pursuant to Amendment No. 4, TransDigm, among other things, converted approximately
$798.2 million
of existing tranche D term loans into additional tranche F term loans and decreased the margin applicable to the existing tranche E term loans and tranche F term loans to LIBO rate plus
2.75%
per annum and also removed the LIBO rate floor of 0.75%. The terms and conditions (other than maturity date) that apply to the tranche F term loans, including pricing, are substantially the same as the terms and conditions that apply to the tranche D term loans immediately prior to Amendment No. 4.
On February 22, 2018, the Company entered into a refinancing facility agreement to the Second Amended and Restated Credit Agreement. TransDigm, among other things,
incurred new tranche G term loans in an aggregate principal amount equal to $1,809 million and repaid in full all of the existing tranche G term loans outstanding under the Second and Amended Restated Credit Agreement immediately prior to the refinancing facility agreement. The refinancing facility agreement also
decreased the margin applicable to the tranche G term loans to LIBO rate plus
2.5%
per annum. The terms and conditions that apply to the tranche G term loans, excluding pricing, are substantially the same as the terms and conditions that apply to the tranche G term loans immediately prior to the refinancing facility agreement.
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 second quarter ended of fiscal 2017 of 2025 Notes were issued at an issue price of 101.5% of the principal amount, resulting in gross proceeds of $304.5 million.
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 of the covenants contained in the 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 special dividends, transactions with affiliates, asset sales, acquisitions, mergers and consolidations, liens and encumbrances, and prepayments of certain other indebtedness.
The restrictive covenants included in the Credit Agreement are subject to amendments executed periodically. The most recent amendment that impacted the restrictive covenants contained in the Credit Agreement is Amendment No. 3. The restrictive covenants are described above in the
Recent Amendments to the Credit Agreement
section.
Under the terms of the Credit Agreement, TransDigm is entitled, on one or more occasions, to request additional term loans or additional revolving commitments to the extent that the existing or new lenders agree to provide such incremental term loans or additional revolving commitments 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 or additional revolving commitments.
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
March 31, 2018
.
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
March 31, 2018
, the Company was in compliance with all of its debt covenants.
Trade Receivables Securitization
During fiscal 2014, the Company established a trade receivable securitization facility (the “Securitization Facility”). The Securitization Facility effectively increases the Company’s borrowing capacity depending on the amount of the 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 2017, the Company amended the Securitization Facility to increase the borrowing capacity to
$300 million
and extend the maturity date to
August 1, 2018
. As of
March 31, 2018
, the Company has borrowed
$300 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 November 8, 2017,
our Board of Directors, authorized a new stock repurchase program replacing the previous $600 million program and permitting repurchases of our outstanding shares not to exceed $650 million in the aggregate, subject to any restrictions specified in the Credit Agreement and/or Indentures governing the existing Notes. No repurchases were made under the program during the quarter and year-to-date period ended
March 31, 2018
.
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:
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•
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neither EBITDA nor EBITDA As Defined reflects the significant interest expense, or the cash requirements, necessary to service interest payments on our indebtedness;
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•
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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;
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•
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the omission of the substantial amortization expense associated with our intangible assets further limits the usefulness of EBITDA and EBITDA As Defined;
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•
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neither EBITDA nor EBITDA As Defined includes the payment of taxes, which is a necessary element of our operations; and
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•
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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.
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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):
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Thirteen Week Periods Ended
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Twenty-Six Week Periods Ended
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|
March 31, 2018
|
|
April 1, 2017
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|
March 31, 2018
|
|
April 1, 2017
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|
(in thousands)
|
|
|
|
|
Net income
|
$
|
196,278
|
|
|
$
|
155,505
|
|
|
$
|
511,053
|
|
|
$
|
274,376
|
|
Less: Loss from discontinued operations, net of tax
(1)
|
(5,562
|
)
|
|
(186
|
)
|
|
(2,798
|
)
|
|
(186
|
)
|
Income from continuing operations
|
201,840
|
|
|
155,691
|
|
|
513,851
|
|
|
274,562
|
|
Adjustments:
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|
|
|
|
|
|
|
Depreciation and amortization expense
|
30,970
|
|
|
34,661
|
|
|
61,609
|
|
|
72,708
|
|
Interest expense, net
|
161,266
|
|
|
147,842
|
|
|
322,199
|
|
|
293,846
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Income tax provision
|
45,347
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|
|
59,508
|
|
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(75,700
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)
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79,558
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EBITDA
|
439,423
|
|
|
397,702
|
|
|
821,959
|
|
|
720,674
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Adjustments:
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Inventory purchase accounting adjustments
(2)
|
—
|
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|
2,799
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|
|
—
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|
|
19,377
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Acquisition integration costs
(3)
|
3,980
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|
|
1,399
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|
|
5,329
|
|
|
2,509
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Acquisition transaction-related expenses
(4)
|
505
|
|
|
3,554
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|
|
1,230
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|
|
4,434
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Non-cash stock compensation expense
(5)
|
11,590
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|
11,105
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22,703
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21,126
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Refinancing costs
(6)
|
638
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|
|
3,507
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|
1,751
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|
35,591
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Other, net
(7)
|
6,987
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|
1,610
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|
11,684
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(841
|
)
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EBITDA As Defined
|
$
|
463,123
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$
|
421,676
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$
|
864,656
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$
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802,870
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(1)
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During the fourth quarter of 2017, the Company committed to disposing of Schroth in connection with the settlement of a Department of Justice investigation into the competitive effects of the acquisition. Therefore, Schroth was classified as held-for-sale beginning September 30, 2017. On January 26, 2018, the Company completed the sale of Schroth in a management buyout to a private equity fund and certain members of Schroth management for approximately $61.4 million, subject to a working capital adjustment. Refer to Note 14, "Discontinued Operations," for further information.
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(2)
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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.
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(3)
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Represents costs incurred to integrate acquired businesses and product lines into TD Group’s operations, facility relocation costs and other acquisition-related costs.
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(4)
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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.
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(5)
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Represents the compensation expense recognized by TD Group under our stock incentive plans.
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(6)
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Represents costs expensed related to debt financing activities, including new issuances, extinguishments, refinancings and amendments to existing agreements.
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(7)
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Primarily represents foreign currency transaction gain or loss, payroll withholding taxes related to dividend equivalent payments and stock option exercises and gain or loss on sale of fixed assets. Prior to the fourth quarter of fiscal 2017, foreign currency transaction gain or loss other than related to intercompany loans was not included in the adjustments to EBITDA, as the foreign currency transaction gain or loss was immaterial during those periods. Therefore, the prior periods presented herein were adjusted to conform to the current year presentation.
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The following table sets forth a reconciliation of net cash provided by operating activities to EBITDA and EBITDA As Defined (in thousands):
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Twenty-Six Week Periods Ended
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|
March 31, 2018
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|
April 1, 2017
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(in thousands)
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Net cash provided by operating activities
|
$
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453,684
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$
|
390,500
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Adjustments:
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Changes in assets and liabilities, net of effects from acquisitions of businesses
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(9,404
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)
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|
24,036
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Interest expense, net
(1)
|
311,605
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|
283,676
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Income tax provision - current
|
90,892
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|
79,212
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Non-cash stock compensation expense
(2)
|
(22,703
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)
|
|
(21,126
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)
|
Refinancing costs
(6)
|
(1,751
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)
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(35,591
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)
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EBITDA from discontinued operations
(8)
|
(364
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)
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(33
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)
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EBITDA
|
821,959
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|
720,674
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Adjustments:
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Inventory purchase accounting adjustments
(3)
|
—
|
|
|
19,377
|
|
Acquisition integration costs
(4)
|
5,329
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|
|
2,509
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Acquisition transaction-related expenses
(5)
|
1,230
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|
|
4,434
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Non-cash stock compensation expense
(2)
|
22,703
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|
|
21,126
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Refinancing costs
(6)
|
1,751
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|
35,591
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Other, net
(7)
|
11,684
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(841
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)
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EBITDA As Defined
|
$
|
864,656
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$
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802,870
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(1)
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Represents interest expense excluding the amortization of debt issuance costs and premium and discount on debt.
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(2)
|
Represents the compensation expense recognized by TD Group under our stock incentive plans.
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(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.
|
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(4)
|
Represents costs incurred to integrate acquired businesses and product lines into TD Group’s operations, facility relocation costs and other acquisition-related costs.
|
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(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.
|
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|
(6)
|
Represents costs expensed related to debt financing activities, including new issuances, extinguishments, refinancings and amendments to existing agreements.
|
|
|
(7)
|
Primarily represents foreign currency transaction gain or loss, payroll withholding taxes related to dividend equivalent payments and stock option exercises and gain or loss on sale of fixed assets. Prior to the fourth quarter of fiscal 2017, foreign currency transaction gain or loss other than related to intercompany loans was not included in the adjustments to EBITDA, as the foreign currency transaction gain or loss was immaterial during those periods. Therefore, the prior periods presented herein were adjusted to conform to the current year presentation.
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(8)
|
During the fourth quarter of 2017, the Company committed to disposing of Schroth in connection with the settlement of a Department of Justice investigation into the competitive effects of the acquisition. Therefore, Schroth was classified as held-for-sale beginning September 30, 2017. On January 26, 2018, the Company completed the sale of Schroth in a management buyout to a private equity fund and certain members of Schroth management for approximately $61.4 million, subject to a working capital adjustment. Refer to Note 14, "Discontinued Operations," for further information.
|