UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
þ☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 1,December 30, 2016.
OR
¨☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-6357
ESTERLINE TECHNOLOGIES CORPORATION
(Exact name of registrant as specified in its charter)
Delaware |
| 13-2595091 |
(State or other Jurisdiction |
| (I.R.S. Employer |
of incorporation or organization) |
| Identification No.) |
500 108th Avenue N.E., Bellevue, Washington 98004
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code (425) 453-9400
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ☑ No ¨☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ☑ No ¨☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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| Accelerated filer |
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Non-accelerated filer |
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| Smaller reporting company |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨☐ No þ☑
As of May 4, 2016, 29,353,387February 1, 2017, 29,687,833 shares of the issuer’s common stock were outstanding.
1
PART I – FINANCIAL INFORMATION
Item 1.Financial Statements
ESTERLINE TECHNOLOGIES CORPORATION
CONSOLIDATED BALANCE SHEET
As of April 1,December 30, 2016 and October 2, 2015September 30, 2016
(In thousands, except share amounts)
|
| April 1, |
|
| October 2, |
|
|
| December 30, |
|
| September 30, |
|
| ||||
|
| 2016 |
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| 2015 |
|
|
| 2016 |
|
| 2016 |
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| ||||
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| (Unaudited) |
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| (Unaudited) |
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ASSETS |
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Current Assets |
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Cash and cash equivalents |
| $ | 219,271 |
|
| $ | 191,355 |
|
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| $ | 278,024 |
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| $ | 258,520 |
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Cash in escrow |
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| 1,125 |
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| - |
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| - |
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| 1,125 |
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Accounts receivable, net of allowances of $8,746 and $10,050 |
|
| 374,090 |
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| 380,748 |
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Accounts receivable, net of allowances of $15,835 and $17,028 |
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| 363,825 |
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| 422,073 |
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Inventories |
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Raw materials and purchased parts |
|
| 175,848 |
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| 169,153 |
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| 181,157 |
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| 177,069 |
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Work in progress |
|
| 187,056 |
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|
| 181,187 |
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| 171,659 |
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| 171,515 |
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Finished goods |
|
| 97,813 |
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| 96,428 |
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| 101,417 |
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|
| 101,622 |
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|
|
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| 460,717 |
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| 446,768 |
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| 454,233 |
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| 450,206 |
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Income tax refundable |
|
| 11,411 |
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| 12,575 |
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| 10,097 |
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| 5,183 |
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Deferred income tax benefits |
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| - |
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| 41,082 |
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Prepaid expenses |
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| 21,816 |
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| 23,008 |
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| 19,481 |
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| 17,909 |
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Other current assets |
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| 6,213 |
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| 5,427 |
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| 5,130 |
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| 5,322 |
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Current assets of businesses held for sale |
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| 19,217 |
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| 27,851 |
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| 9,618 |
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| 15,450 |
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Total Current Assets |
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| 1,113,860 |
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| 1,128,814 |
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| 1,140,408 |
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| 1,175,788 |
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Property, Plant and Equipment |
|
| 771,321 |
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| 729,317 |
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| 791,958 |
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| 795,790 |
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Accumulated depreciation |
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| 443,957 |
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| 419,918 |
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| 461,393 |
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| 457,756 |
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| 327,364 |
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| 309,399 |
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| 330,565 |
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| 338,034 |
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Other Non-Current Assets |
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Goodwill |
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| 1,042,283 |
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| 1,041,991 |
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| 992,810 |
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| 1,024,667 |
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Intangibles, net |
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| 425,457 |
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| 452,040 |
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| 366,706 |
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| 393,035 |
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Deferred income tax benefits |
|
| 65,783 |
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| 28,979 |
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| 74,133 |
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| 75,409 |
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Other assets |
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| 15,988 |
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| 14,348 |
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| 12,166 |
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| 13,698 |
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Non-current assets of businesses held for sale |
|
| 21,305 |
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| 24,917 |
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| 11,012 |
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| 11,400 |
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Total Assets |
| $ | 3,012,040 |
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| $ | 3,000,488 |
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| $ | 2,927,800 |
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| $ | 3,032,031 |
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2
ESTERLINE TECHNOLOGIES CORPORATION
CONSOLIDATED BALANCE SHEET
As of April 1,December 30, 2016 and October 2, 2015September 30, 2016
(In thousands, except share amounts)
|
| April 1, |
|
| October 2, |
|
|
| December 30, |
|
| September 30, |
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| ||||
|
| 2016 |
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| 2015 |
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| 2016 |
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| 2016 |
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| (Unaudited) |
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| (Unaudited) |
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LIABILITIES AND SHAREHOLDERS' EQUITY |
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Current Liabilities |
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Accounts payable |
| $ | 123,309 |
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| $ | 117,976 |
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| $ | 108,129 |
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| $ | 121,816 |
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Accrued liabilities |
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| 257,681 |
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| 259,734 |
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| 223,561 |
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| 238,163 |
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Current maturities of long-term debt |
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| 17,182 |
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| 13,376 |
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| 16,717 |
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| 16,774 |
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Federal and foreign income taxes |
|
| 1,527 |
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| 2,404 |
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| 9,257 |
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| 10,932 |
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Current liabilities of businesses held for sale |
|
| 14,180 |
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| 17,106 |
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| 9,535 |
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| 10,813 |
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Total Current Liabilities |
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| 413,879 |
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| 410,596 |
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| 367,199 |
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| 398,498 |
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Long-Term Liabilities |
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Credit facilities |
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| 165,000 |
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| 160,000 |
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| 150,000 |
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| 155,000 |
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Long-term debt, net of current maturities |
|
| 698,583 |
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| 701,457 |
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| 671,441 |
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| 698,796 |
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Deferred income tax liabilities |
|
| 63,073 |
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| 73,849 |
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| 40,524 |
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| 53,798 |
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Pension and post-retirement obligations |
|
| 74,188 |
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| 75,019 |
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| 90,726 |
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| 92,520 |
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Other liabilities |
|
| 24,182 |
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| 29,367 |
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| 22,157 |
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| 21,968 |
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Non-current liabilities of businesses held for sale |
|
| 822 |
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| 2,409 |
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| 154 |
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| 320 |
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Shareholders' Equity |
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Common stock, par value $.20 per share, authorized 60,000,000 shares, issued 32,481,814 and 32,378,185 shares |
|
| 6,496 |
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| 6,476 |
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Common stock, par value $.20 per share, authorized 60,000,000 shares, issued 32,801,799 and 32,564,252 shares |
|
| 6,560 |
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| 6,513 |
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Additional paid-in capital |
|
| 694,022 |
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| 682,479 |
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| 715,971 |
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| 702,610 |
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Treasury stock at cost, repurchased 3,033,660 and 2,831,350 shares |
|
| (301,856 | ) |
|
| (289,780 | ) |
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Treasury stock at cost, repurchased 3,135,927 and 3,135,927 shares |
|
| (308,514 | ) |
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| (308,514 | ) |
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Retained earnings |
|
| 1,467,177 |
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| 1,447,120 |
|
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| 1,565,849 |
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| 1,548,805 |
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Accumulated other comprehensive loss |
|
| (304,088 | ) |
|
| (308,828 | ) |
|
|
| (404,733 | ) |
|
| (348,857 | ) |
|
Total Esterline Shareholders' Equity |
|
| 1,561,751 |
|
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| 1,537,467 |
|
|
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| 1,575,133 |
|
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| 1,600,557 |
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Noncontrolling interests |
|
| 10,562 |
|
|
| 10,324 |
|
|
|
| 10,466 |
|
|
| 10,574 |
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Total Shareholders' Equity |
|
| 1,572,313 |
|
|
| 1,547,791 |
|
|
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| 1,585,599 |
|
|
| 1,611,131 |
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Total Liabilities and Shareholders' Equity |
| $ | 3,012,040 |
|
| $ | 3,000,488 |
|
|
| $ | 2,927,800 |
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| $ | 3,032,031 |
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3
ESTERLINE TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS)
For the Three and Six Month Periods Ended AprilDecember 30, 2016 and January 1, 2016 and March 27, 2015
(Unaudited)
(In thousands, except per share amounts)
|
| Three Months Ended |
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| Six Months Ended |
| ||||||||||||||||||
|
| April 1, |
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| March 27, |
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| April 1, |
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| March 27, |
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| Three Months Ended |
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|
| 2016 |
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| 2015 |
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| 2016 |
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| 2015 |
|
| December 30, |
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| January 1, |
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| (Recast) |
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| (Recast) |
|
| 2016 |
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| 2016 |
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Net Sales |
| $ | 490,310 |
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| $ | 468,210 |
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| $ | 931,787 |
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| $ | 972,821 |
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| $ | 457,733 |
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| $ | 441,477 |
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Cost of Sales |
|
| 334,137 |
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|
| 318,193 |
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|
| 637,895 |
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|
| 644,563 |
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|
| 313,686 |
|
|
| 303,758 |
|
|
|
| 156,173 |
|
|
| 150,017 |
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| 293,892 |
|
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| 328,258 |
|
|
| 144,047 |
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|
| 137,719 |
|
Expenses |
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Selling, general & administrative |
| �� | 102,423 |
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| 99,432 |
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| 196,514 |
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| 197,521 |
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| 95,633 |
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|
| 94,091 |
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Research, development and engineering |
|
| 24,974 |
|
|
| 25,143 |
|
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| 50,549 |
|
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| 48,674 |
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|
| 21,038 |
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|
| 25,575 |
|
Restructuring charges |
|
| 940 |
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|
| 1,634 |
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|
| 1,871 |
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|
| 4,927 |
|
|
| - |
|
|
| 931 |
|
Other (income) expense |
|
| - |
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|
| (12,744 | ) |
|
| - |
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| (12,744 | ) | ||||||||
Insurance recovery |
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| (2,600 | ) |
|
| - |
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Total Expenses |
|
| 128,337 |
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|
| 113,465 |
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|
| 248,934 |
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|
| 238,378 |
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|
| 114,071 |
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|
| 120,597 |
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Operating Earnings from Continuing Operations |
|
| 27,836 |
|
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| 36,552 |
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| 44,958 |
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| 89,880 |
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|
| 29,976 |
|
|
| 17,122 |
|
Interest Income |
|
| (94 | ) |
|
| (135 | ) |
|
| (181 | ) |
|
| (319 | ) |
|
| (96 | ) |
|
| (87 | ) |
Interest Expense |
|
| 7,294 |
|
|
| 5,934 |
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|
| 14,510 |
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|
| 14,016 |
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|
| 7,888 |
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|
| 7,216 |
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Earnings from Continuing Operations Before Income Taxes |
|
| 20,636 |
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|
| 30,753 |
|
|
| 30,629 |
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|
| 76,183 |
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|
| 22,184 |
|
|
| 9,993 |
|
Income Tax Expense (Benefit) |
|
| 3,416 |
|
|
| 5,714 |
|
|
| 3,383 |
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|
| 16,686 |
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|
| 420 |
|
|
| (33 | ) |
Earnings from Continuing Operations Including Noncontrolling Interests |
|
| 17,220 |
|
|
| 25,039 |
|
|
| 27,246 |
|
|
| 59,497 |
|
|
| 21,764 |
|
|
| 10,026 |
|
Loss (Earnings) Attributable to Noncontrolling Interests |
|
| (224 | ) |
|
| (108 | ) |
|
| (386 | ) |
|
| (91 | ) | ||||||||
Earnings Attributable to Noncontrolling Interests |
|
| (239 | ) |
|
| (162 | ) | ||||||||||||||||
Earnings from Continuing Operations Attributable to Esterline, Net of Tax |
|
| 16,996 |
|
|
| 24,931 |
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|
| 26,860 |
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|
| 59,406 |
|
|
| 21,525 |
|
|
| 9,864 |
|
Loss from Discontinued Operations Attributable to Esterline, Net of Tax |
|
| (2,023 | ) |
|
| (14,600 | ) |
|
| (6,803 | ) |
|
| (20,476 | ) |
|
| (5,336 | ) |
|
| (4,780 | ) |
Net Earnings Attributable to Esterline |
| $ | 14,973 |
|
| $ | 10,331 |
|
| $ | 20,057 |
|
| $ | 38,930 |
|
| $ | 16,189 |
|
| $ | 5,084 |
|
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Earnings (Loss) Per Share Attributable to Esterline - Basic: | Earnings (Loss) Per Share Attributable to Esterline - Basic: |
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| Earnings (Loss) Per Share Attributable to Esterline - Basic: |
|
|
|
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| ||||
Continuing operations |
| $ | 0.58 |
|
| $ | 0.80 |
|
| $ | 0.91 |
|
| $ | 1.89 |
|
| $ | 0.73 |
|
| $ | 0.33 |
|
Discontinued operations |
|
| (0.07 | ) |
|
| (0.47 | ) |
|
| (0.23 | ) |
|
| (0.65 | ) |
|
| (0.18 | ) |
|
| (0.16 | ) |
Earnings (Loss) Per Share - Basic |
| $ | 0.51 |
|
| $ | 0.33 |
|
| $ | 0.68 |
|
| $ | 1.24 |
|
| $ | 0.55 |
|
| $ | 0.17 |
|
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Earnings (Loss) Per Share Attributable to Esterline - Diluted: | Earnings (Loss) Per Share Attributable to Esterline - Diluted: |
|
|
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|
| Earnings (Loss) Per Share Attributable to Esterline - Diluted: |
|
|
|
|
| ||||
Continuing operations |
| $ | 0.57 |
|
| $ | 0.79 |
|
| $ | 0.90 |
|
| $ | 1.86 |
|
| $ | 0.72 |
|
| $ | 0.33 |
|
Discontinued operations |
|
| (0.07 | ) |
|
| (0.46 | ) |
|
| (0.23 | ) |
|
| (0.64 | ) |
|
| (0.18 | ) |
|
| (0.16 | ) |
Earnings (Loss) Per Share - Diluted |
| $ | 0.50 |
|
| $ | 0.33 |
|
| $ | 0.67 |
|
| $ | 1.22 |
|
| $ | 0.54 |
|
| $ | 0.17 |
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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Net Earnings |
| $ | 14,973 |
|
| $ | 10,331 |
|
| $ | 20,057 |
|
| $ | 38,930 |
|
| $ | 16,189 |
|
| $ | 5,084 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Fair Value of Derivative Financial Instruments |
|
| 20,274 |
|
|
| (12,667 | ) |
|
| 16,101 |
|
|
| (18,747 | ) |
|
| (6,299 | ) |
|
| (4,173 | ) |
Income Tax Expense (Benefit) |
|
| 5,779 |
|
|
| (3,540 | ) |
|
| 4,494 |
|
|
| (5,682 | ) |
|
| (1,909 | ) |
|
| (1,285 | ) |
|
|
| 14,495 |
|
|
| (9,127 | ) |
|
| 11,607 |
|
|
| (13,065 | ) |
|
| (4,390 | ) |
|
| (2,888 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Pension and Post-Retirement Obligations |
|
| (87 | ) |
|
| 9,195 |
|
|
| 2,188 |
|
|
| (626 | ) |
|
| 2,533 |
|
|
| 2,276 |
|
Income Tax Expense (Benefit) |
|
| 83 |
|
|
| 3,005 |
|
|
| 840 |
|
|
| (312 | ) |
|
| 992 |
|
|
| 758 |
|
|
|
| (170 | ) |
|
| 6,190 |
|
|
| 1,348 |
|
|
| (314 | ) |
|
| 1,541 |
|
|
| 1,518 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency Translation Adjustment |
|
| 31,246 |
|
|
| (116,598 | ) |
|
| (8,215 | ) |
|
| (172,596 | ) | ||||||||
Foreign Currency Translation Adjustment |
|
| (53,027 | ) |
|
| (39,461 | ) | ||||||||||||||||
Comprehensive Income (Loss) |
| $ | 60,544 |
|
| $ | (109,204 | ) |
| $ | 24,797 |
|
| $ | (147,045 | ) |
| $ | (39,687 | ) |
| $ | (35,747 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
ESTERLINE TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
For the SixThree Month Periods Ended AprilDecember 30, 2016 and January 1, 2016 and March 27, 2015
(Unaudited)
(In thousands)
|
| April 1, |
|
| March 27, |
|
| |||||||||||
|
| 2016 |
|
| 2015 |
|
|
| December 30, |
|
| January 1, |
|
| ||||
|
|
|
|
|
| (Recast) |
|
|
| 2016 |
|
| 2016 |
|
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows Provided (Used) by Operating Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings including noncontrolling interests |
| $ | 20,443 |
|
| $ | 39,021 |
|
|
| $ | 16,428 |
|
| $ | 5,246 |
|
|
Adjustments to reconcile net earnings including noncontrolling interests to net cash provided (used) by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 48,736 |
|
|
| 49,827 |
|
|
|
| 25,625 |
|
|
| 24,171 |
|
|
Deferred income taxes |
|
| (10,094 | ) |
|
| (9,217 | ) |
|
|
| (9,342 | ) |
|
| (5,902 | ) |
|
Share-based compensation |
|
| 7,578 |
|
|
| 6,274 |
|
|
|
| 4,695 |
|
|
| 3,328 |
|
|
Gain on release of non-income tax liability |
|
| - |
|
|
| (15,656 | ) |
| |||||||||
Excess tax benefits from share-based compensation |
|
| - |
|
|
| (476 | ) |
| |||||||||
Loss on assets held for sale |
|
| 3,572 |
|
|
| 14,447 |
|
|
|
| 4,728 |
|
|
| 2,517 |
|
|
Working capital changes, net of effect of acquisitions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
| 7,700 |
|
|
| (21,394 | ) |
|
|
| 49,181 |
|
|
| 31,763 |
|
|
Inventories |
|
| (7,275 | ) |
|
| (8,789 | ) |
|
|
| (16,201 | ) |
|
| (8,011 | ) |
|
Prepaid expenses |
|
| 1,120 |
|
|
| (3,419 | ) |
|
|
| (2,075 | ) |
|
| 1,489 |
|
|
Other current assets |
|
| 624 |
|
|
| (40 | ) |
|
|
| (876 | ) |
|
| (2,979 | ) |
|
Accounts payable |
|
| 1,439 |
|
|
| 8,866 |
|
|
|
| (10,464 | ) |
|
| (491 | ) |
|
Accrued liabilities |
|
| 917 |
|
|
| 1,907 |
|
|
|
| (13,883 | ) |
|
| (12,888 | ) |
|
Federal and foreign income taxes |
|
| (690 | ) |
|
| (4,506 | ) |
|
|
| (5,585 | ) |
|
| (1,608 | ) |
|
Other liabilities |
|
| (1,345 | ) |
|
| 4,771 |
|
|
|
| 1,361 |
|
|
| (488 | ) |
|
Other, net |
|
| 7,159 |
|
|
| (11,222 | ) |
|
|
| 1,943 |
|
|
| 4,981 |
|
|
|
|
| 79,884 |
|
|
| 50,870 |
|
|
|
| 45,535 |
|
|
| 40,652 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows Provided (Used) by Investing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of capital assets |
|
| (42,506 | ) |
|
| (25,340 | ) |
|
|
| (15,298 | ) |
|
| (14,862 | ) |
|
Escrow deposit |
|
| (1,125 | ) |
|
| - |
|
| |||||||||
Acquisition of businesses, net of cash acquired |
|
| - |
|
|
| (171,070 | ) |
| |||||||||
|
|
| (43,631 | ) |
|
| (196,410 | ) |
|
|
| (15,298 | ) |
|
| (14,862 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows Provided (Used) by Financing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds provided by stock issuance under employee stock plans |
|
| 3,489 |
|
|
| 10,103 |
|
|
|
| 10,729 |
|
|
| 2,609 |
|
|
Excess tax benefits from stock option exercises |
|
| 496 |
|
|
| 2,113 |
|
| |||||||||
Shares repurchased |
|
| (12,076 | ) |
|
| (127,420 | ) |
| |||||||||
Withholding taxes on restricted stock units vested |
|
| (863 | ) |
|
| (1,128 | ) |
| |||||||||
Excess tax benefits from share-based compensation |
|
| - |
|
|
| 476 |
|
| |||||||||
Repayment of long-term credit facilities |
|
| (10,000 | ) |
|
| (10,000 | ) |
|
|
| (10,000 | ) |
|
| (10,000 | ) |
|
Repayment of long-term debt |
|
| (6,158 | ) |
|
| (9,918 | ) |
|
|
| (3,073 | ) |
|
| (3,192 | ) |
|
Proceeds from issuance of long-term credit facilities |
|
| 15,000 |
|
|
| 210,000 |
|
|
|
| 5,000 |
|
|
| - |
|
|
Proceeds from government assistance |
|
| - |
|
|
| 3,310 |
|
| |||||||||
|
|
| (9,249 | ) |
|
| 78,188 |
|
|
|
| 1,793 |
|
|
| (11,235 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of Foreign Exchange Rates on Cash and Cash Equivalents |
|
| 912 |
|
|
| (14,576 | ) |
|
|
| (12,526 | ) |
|
| (5,019 | ) |
|
Net Increase (Decrease) in Cash and Cash Equivalents |
|
| 27,916 |
|
|
| (81,928 | ) |
|
|
| 19,504 |
|
|
| 9,536 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents - Beginning of Year |
|
| 191,355 |
|
|
| 213,251 |
|
|
|
| 258,520 |
|
|
| 191,355 |
|
|
Cash and Cash Equivalents - End of Period |
| $ | 219,271 |
|
| $ | 131,323 |
|
|
| $ | 278,024 |
|
| $ | 200,891 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Cash Flow Information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest |
| $ | 13,314 |
|
| $ | 14,021 |
|
|
| $ | 10,745 |
|
| $ | 10,361 |
|
|
Cash paid for taxes |
|
| 6,654 |
|
|
| 21,852 |
|
|
|
| 13,775 |
|
|
| 5,256 |
|
|
5
ESTERLINE TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Six Month Periods Ended AprilDecember 30, 2016 and January 1, 2016 and March 27, 2015
Note 1 – Basis of Presentation
The consolidated balance sheet as of April 1,December 30, 2016, the consolidated statement of operations and comprehensive income (loss) for the three and six month periods ended AprilDecember 30, 2016, and January 1, 2016, and March 27, 2015, and the consolidated statement of cash flows for the sixthree month periods ended AprilDecember 30, 2016, and January 1, 2016, and March 27, 2015, are unaudited but, in the opinion of management, all of the necessary adjustments, consisting of normal recurring accruals, have been made to present fairly the financial statements referred to above in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the above statements do not include all of the footnotes required for complete financial statements. The results of operations and cash flows for the interim periods presented are not necessarily indicative of results that can be expected for the full year.
The notes to the consolidated financial statements in the Company’s TransitionAnnual Report on Form 10-K for the eleven monthsfiscal year ended October 2, 2015,September 30, 2016, provide a summary of significant accounting policies and additional financial information that should be read in conjunction with this Form 10-Q.
The timing of the Company’s revenues is impacted by the purchasing patterns of customers and, as a result, revenues are not generated evenly throughout the year. Moreover, the Company’sCompany���s first fiscal quarter, October through December, includes significant holiday periods in both Europe and North America.
Note 2 – Change in Fiscal Year End
On June 5, 2014, the Company’s board of directors authorized a change in the Company’s fiscal year end to the last Friday of September from the last Friday in October. The Company reported its financial results for the 11-month transition period of November 1, 2014, through October 2, 2015, on the Transition Report on Form 10-K and thereafter will file its annual report for each 12-month period ending the last Friday of September of each year, beginning with the 12-month period ending September 30, 2016. Refer to the Transition Report on Form 10-K for the eleven months ended October 2, 2015, for additional information regarding the Company’s fiscal year change.
The prior year Consolidated Statement of Operations and Comprehensive Income (Loss) for the three and six month period ended March 27, 2015, and the Consolidated Statement of Cash Flows for the six month period ended March 27, 2015, have been recast to align to the Company’s new quarter end.
Note 32 – Recent Accounting Pronouncements
In March 2016,January 2017, the Financial Accounting Standards Board (FASB) issued new guidance regarding the goodwill impairment test. The new guidance eliminates the Step 2 valuation test, when evaluating goodwill for impairment. The new guidance requires that an entity performs its annual or interim goodwill test by comparing the fair value of the reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. The loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The Company is evaluating the effect the updated standard will have on the Company’s consolidated financial statements and related disclosures. The guidance will be effective for the company in fiscal year 2020, with early adoption permitted.
In October 2016, FASB issued new guidance regarding income taxes. The new guidance will require the tax effects of intercompany transactions, other than sales of inventory, to be recognized currently, eliminating an exception under current Generally Accepted Accounting Principles (GAAP) in which the tax effects of intra-entity asset transfers are deferred until the transferred asset is sold to a third party or otherwise recovered through use. The Company is evaluating the effect the updated standard will have on the Company’s consolidated financial statements and related disclosures. The guidance will be effective for the company in fiscal year 2019, with early adoption permitted.
In August 2016, the FASB issued new guidance addressing how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The Company is evaluating the effect the updated standard will have on the Company’s consolidated financial statements and related disclosures. The guidance will be effective for the Company in fiscal year 2019, with early adoption permitted.
In June 2016, the FASB issued a new standard on the measurement of credit losses, which will impact the Company’s measurement of trade receivables. The new standard replaces the current incurred loss model with a forward-looking expected loss model that is likely to result in earlier recognition of losses. The Company is evaluating the effect the updated standard will have on the Company’s consolidated financial statements and related disclosures. The new standard is effective for the Company in fiscal year 2021, with early adoption permitted, but not earlier than in fiscal year 2020.
In March 2016, the FASB issued new guidance simplifying certain aspects of accounting for share-based payments. The key provision of the new standard requires that excess tax benefits and shortfalls be recorded as income tax benefit or expense in the income statement, rather than in equity. The Company is evaluatingadopted the effect the updated standard will have on the Company’s consolidated financial statements and related disclosures. The new guidance is effectiveduring the first quarter of fiscal 2017, which resulted in a $0.7 million benefit to income tax expense and a favorable impact to operating cash flows of $0.7 million. The Company has also elected to account for the Companyforfeitures as they occur, rather than estimate expected forfeitures, which resulted in fiscal year 2018, with early adoption permitted.a positive cumulative effect on retained earnings of $0.9 million and a reduction of additional paid-in capital of $0.9 million.
In February 2016, the FASB issued a new lease accounting standard, which provides revised guidance on accounting for lease arrangements by both lessors and lessees. The central requirement of the new standard is that lessees must recognize lease related assets and liabilities for all leases with a term longer than 12 months. The Company is evaluating the effect the standard will have on
6
the Company’s consolidated financial statements and related disclosures. The new standard is effective for the Company in fiscal year 2020, with early adoption permitted.
In November 2015, the FASB issued new guidance requiring all deferred tax assets and liabilities to be classified as noncurrent on the balance sheet instead of separating those balances into current and noncurrent amounts. The new guidance is effective for the Company in fiscal year 2018, with early adoption permitted. The Company adopted this guidance prospectively on April 1, 2016, and reclassified the current portion of net deferred tax assets and liabilities to net noncurrent deferred tax assets and liabilities. No prior periods were retrospectively adjusted.
In May 2014, the FASB amended requirements for an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The updated standard will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective, and permits the use of either the retrospective or cumulative effect transition method. Early adoptionThe Company is permitted.evaluating the effect the updated standard will have on the Company’s consolidated financial statements and related disclosures. The updated standard becomes effective for the Company in the first fiscal quarter of 2019. fiscal 2019, with early adoption permitted.
6
The Company has not yet selected a transition method, and is currently evaluating the effect that the updated standard will have on consolidated financial statements and related disclosures.
Note 43 – Earnings Per Share and Shareholders’ Equity
Basic earnings per share is computed on the basis of the weighted average number of shares outstanding during the year. Diluted earnings per share includes the dilutive effect of stock options, and restricted stock units.units and share units related to the Company’s performance share plan to the extent that performance share plan objectives are met. Common shares issuable from stock options excluded from the calculation of diluted earnings per share because they were anti-dilutive were 766,500 and 688,600809,875 in the three and six month periodsperiod ending April 1, 2016, respectively.December 30, 2016. Common shares issuable from stock options excluded from the calculation of diluted earnings per share because they were anti-dilutive were 257,650 and 197,375610,700 in the three and six month periodsperiod ending March 27, 2015, respectively.January 1, 2016. Shares used for calculating earnings per share are disclosed in the following table:
In Thousands |
| Three Months Ended |
|
| Six Months Ended |
|
|
| Three Months Ended |
|
| |||||||||||||||
|
| April 1, |
|
| March 27, |
|
| April 1, |
|
| March 27, |
|
| |||||||||||||
|
| 2016 |
|
| 2015 |
|
| 2016 |
|
| 2015 |
|
|
| December 30, |
|
| January 1, |
|
| ||||||
|
|
|
|
|
| (Recast) |
|
|
|
|
|
| (Recast) |
|
|
| 2016 |
|
| 2016 |
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used for basic earnings per share |
|
| 29,588 |
|
|
| 31,162 |
|
|
| 29,585 |
|
|
| 31,401 |
|
|
|
| 29,547 |
|
|
| 29,582 |
|
|
Shares used for diluted earnings per share |
|
| 29,825 |
|
|
| 31,687 |
|
|
| 29,882 |
|
|
| 31,937 |
|
|
|
| 29,831 |
|
|
| 29,939 |
|
|
The authorized capital stock of the Company consists of 25,000 shares of preferred stock ($100 par value), 475,000 shares of serial preferred stock ($1.00 par value), each issuable in series, and 60,000,000 shares of common stock ($.20 par value). As of April 1,December 30, 2016, and October 2, 2015,September 30, 2016, there were no shares of preferred stock or serial preferred stock outstanding.
On June 19, 2014, the Company’s board of directors approved a $200 million share repurchase program. In March 2015, the Company’s board of directors approved an additional $200 million for the share repurchase program. Under the program, the Company is authorized to repurchase up to $400 million of outstanding shares of common stock from time to time, depending on market conditions, share price and other factors. Repurchases may be made in the open market or through private transactions, in accordance with SEC requirements. The Company may enter into a Rule 10(b)5-1 plan designed to facilitate the repurchase of all or a portion of the repurchase amount. The program does not require the Company to acquire a specific number of shares. Common stock repurchased can be reissued, and accordingly, the Company accounts for repurchased stock under the cost method of accounting.
DuringThere were no shares repurchased during the sixthree months ended April 1,December 30, 2016, or during the Company repurchased 202,310 shares under this program at an average price paid per share of $59.69, for an aggregate purchase price of $12.1 million. During the sixthree months ended March 27, 2015, the Company repurchased 1,167,732 shares under this program at an average price paid per share of $109.12, for an aggregate purchase price of $127.4 million.January 1, 2016. Since the program began, the Company has repurchased 3,033,6603,135,927 shares for an aggregate purchase price of $301.9$308.5 million, leaving $98.1$91.5 million for shares to be repurchased in the future.
Changes in issued and outstanding common shares are summarized as follows:
| Six Months Ended |
|
| Year Ended |
|
| Three Months Ended |
|
| Year Ended |
|
| ||||
| April 1, |
|
| October 2, |
|
| December 30, |
|
| September 30, |
|
| ||||
| 2016 |
|
| 2015 |
|
| 2016 |
|
| 2016 |
|
| ||||
Shares Issued: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year |
| 32,378,185 |
|
|
| 32,123,717 |
|
|
| 32,564,252 |
|
|
| 32,378,185 |
|
|
Shares issued under share-based compensation plans |
| 103,629 |
|
|
| 254,468 |
|
|
| 237,547 |
|
|
| 186,067 |
|
|
Balance, end of current period |
| 32,481,814 |
|
|
| 32,378,185 |
|
|
| 32,801,799 |
|
|
| 32,564,252 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury Stock: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year |
| (2,831,350 | ) |
|
| (269,228 | ) |
|
| (3,135,927 | ) |
|
| (2,831,350 | ) |
|
Shares purchased |
| (202,310 | ) |
|
| (2,562,122 | ) |
|
| - |
|
|
| (304,577 | ) |
|
Balance, end of current period |
| (3,033,660 | ) |
|
| (2,831,350 | ) |
|
| (3,135,927 | ) |
|
| (3,135,927 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares outstanding, end of period |
| 29,448,154 |
|
|
| 29,546,835 |
|
|
| 29,665,872 |
|
|
| 29,428,325 |
|
|
7
The components of Accumulated Other Comprehensive Gain (Loss):
In Thousands | April 1, |
|
| October 2, |
|
| December 30, |
|
| September 30, |
|
| ||||
| 2016 |
|
| 2015 |
|
| 2016 |
|
| 2016 |
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) on derivative contracts | $ | (6,840 | ) |
| $ | (22,941 | ) |
| $ | (10,846 | ) |
| $ | (4,547 | ) |
|
Tax effect |
| 1,542 |
|
|
| 6,036 |
|
|
| 2,986 |
|
|
| 1,077 |
|
|
|
| (5,298 | ) |
|
| (16,905 | ) |
|
| (7,860 | ) |
|
| (3,470 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension and post-retirement obligations |
| (97,535 | ) |
|
| (99,724 | ) |
|
| (113,813 | ) |
|
| (116,346 | ) |
|
Tax effect |
| 32,934 |
|
|
| 33,775 |
|
|
| 38,812 |
|
|
| 39,804 |
|
|
|
| (64,601 | ) |
|
| (65,949 | ) |
|
| (75,001 | ) |
|
| (76,542 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustment |
| (234,189 | ) |
|
| (225,974 | ) |
| ||||||||
Foreign currency translation adjustment |
| (321,872 | ) |
|
| (268,845 | ) |
| ||||||||
Accumulated other comprehensive gain (loss) | $ | (304,088 | ) |
| $ | (308,828 | ) |
| $ | (404,733 | ) |
| $ | (348,857 | ) |
|
Note 54 – Retirement Benefits
The Company’s pension plans principally include a U.S. pension plan maintained by Esterline and a non-U.S. plan maintained by CMC Electronics, Inc. (CMC). The Company also sponsors a number of other non-U.S. defined benefit pension plans, primarily in Belgium, France and Germany. In fiscal 2014, the Company offered vested terminated participants of its U.S. pension plan a one-time opportunity to elect a lump-sum payment from the plan in lieu of a lifetime annuity. In the first fiscal quarter of 2015, the Company made a $16.6 million lump-sum payment to vested terminated pension plan participants from the plan, which resulted in an actuarial settlement charge of $3.0 million. The charge was recorded in selling, general and administrative expenses. Components of periodic pension cost consisted of the following:
In Thousands |
| Three Months Ended |
|
| Six Months Ended |
|
|
| Three Months Ended |
|
| |||||||||||||||
|
| April 1, |
|
| March 27, |
|
| April 1, |
|
| March 27, |
|
|
| December 30, |
|
| January 1, |
|
| ||||||
|
| 2016 |
|
| 2015 |
|
| 2016 |
|
| 2015 |
|
|
| 2016 |
|
| 2016 |
|
| ||||||
|
|
|
|
|
| (Recast) |
|
|
|
|
|
| (Recast) |
|
|
|
|
|
|
|
|
|
|
| ||
Components of Net Periodic Cost | Components of Net Periodic Cost |
|
| Components of Net Periodic Cost |
|
| ||||||||||||||||||||
Service cost |
| $ | 2,945 |
|
| $ | 2,744 |
|
| $ | 5,902 |
|
| $ | 5,446 |
|
|
| $ | 3,357 |
|
| $ | 2,956 |
|
|
Interest cost |
|
| 4,247 |
|
|
| 4,087 |
|
|
| 8,640 |
|
|
| 8,451 |
|
|
|
| 3,721 |
|
|
| 4,393 |
|
|
Expected return on plan assets |
|
| (5,993 | ) |
|
| (6,249 | ) |
|
| (11,904 | ) |
|
| (12,716 | ) |
|
|
| (6,265 | ) |
|
| (5,911 | ) |
|
Settlement |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 2,991 |
|
| |||||||||
Amortization of prior service cost |
|
| 112 |
|
|
| 15 |
|
|
| 226 |
|
|
| 34 |
|
|
|
| 114 |
|
|
| 115 |
|
|
Amortization of actuarial (gain) loss |
|
| 1,577 |
|
|
| 1,105 |
|
|
| 3,059 |
|
|
| 2,316 |
|
|
|
| 1,763 |
|
|
| 1,476 |
|
|
Net periodic cost (benefit) |
| $ | 2,888 |
|
| $ | 1,702 |
|
| $ | 5,923 |
|
| $ | 6,522 |
|
|
| $ | 2,690 |
|
| $ | 3,029 |
|
|
The Company amortizes prior service cost and actuarial gains and losses from accumulated other comprehensive income to expense over the remaining service period.
Note 65 – Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A fair value hierarchy has been established that prioritizes the inputs to valuation techniques used to measure fair value. An asset’s or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The hierarchy of fair value measurements is described below:
Level 1 – Valuations are based on quoted prices that the Company has the ability to obtain in actively traded markets for identical assets and liabilities. Since valuations are based on quoted prices that are readily and regularly available in an active market or exchange traded market, a valuation of these instruments does not require a significant degree of judgment.
Level 2 – Valuations are based on quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.
Level 3 – Valuations are based on model-based techniques for which some or all of the assumptions are obtained from indirect market information that is significant to the overall fair value measurement and which require a significant degree of management judgment.
8
The following table sets forth the Company’s financial assets and liabilities that were measured at fair value on a recurring basis by level within the fair value hierarchy at April 1,December 30, 2016, and October 2, 2015.September 30, 2016.
In Thousands | Level 2 |
|
| Level 2 |
|
| ||||||||||
| April 1, |
|
| October 2, |
|
| December 30, |
|
| September 30, |
|
| ||||
| 2016 |
|
| 2015 |
|
| 2016 |
|
| 2016 |
|
| ||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative contracts designated as hedging instruments | $ | 5,328 |
|
| $ | 1,386 |
|
| $ | 1,389 |
|
| $ | 2,948 |
|
|
Derivative contracts not designated as hedging instruments |
| 560 |
|
|
| 189 |
|
|
| 107 |
|
|
| 143 |
|
|
Embedded derivatives |
| 2,406 |
|
|
| 3,992 |
|
|
| 3,195 |
|
|
| 2,485 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative contracts designated as hedging instruments | $ | 12,505 |
|
| $ | 24,660 |
|
| $ | 12,561 |
|
| $ | 7,828 |
|
|
Derivative contracts not designated as hedging instruments |
| 4,783 |
|
|
| 2,324 |
|
|
| 8,090 |
|
|
| 6,720 |
|
|
Embedded derivatives |
| 1,537 |
|
|
| 380 |
|
|
| 826 |
|
|
| 985 |
|
|
In Thousands | Level 3 |
|
| Level 3 |
|
| ||||||||||
| April 1, |
|
| October 2, |
|
| December 30, |
|
| September 30, |
|
| ||||
| 2016 |
|
| 2015 |
|
| 2016 |
|
| 2016 |
|
| ||||
Assets: |
|
|
|
|
|
|
|
| ||||||||
Estimated value of assets held for sale | $ | 20,630 |
|
| $ | 26,850 |
|
| ||||||||
|
|
|
|
|
|
|
|
| ||||||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent purchase obligation | $ | - |
|
| $ | 3,750 |
|
| ||||||||
Estimated value of liabilities held for sale | $ | 9,689 |
|
| $ | 11,133 |
|
|
The Company’s embedded derivatives are the result of entering into sales or purchase contracts that are denominated in a currency other than the Company’s functional currency or the supplier’s or customer’s functional currency. The fair value is determined by calculating the difference between quoted exchange rates at the time the contract was entered into and the period-end exchange rate. These contracts are categorized as Level 2 in the fair value hierarchy.
From time to time, theThe Company’s derivative contracts consist of foreign currency exchange contracts and, from time to time, interest rate swap agreements. These derivative contracts are over the counter, and their fair value is determined using modeling techniques that include market inputs such as interest rates, yield curves, and currency exchange rates. These contracts are categorized as Level 2 in the fair value hierarchy.
TheIn fiscal 2014, the Company’s contingent purchase obligation consistedboard of additional contingent considerationdirectors approved the plan to sell certain non-core business units. Based upon the estimated fair values, the Company adjusted the carrying value of the assets and liabilities of the businesses to fair value. Principle assumptions used in connection withmeasuring the acquisitionestimated value of Sunbank Familyassets and liabilities held for sale included estimated selling price of Companies, LLC (Sunbank)the discontinued business, discount rates, industry growth rates, and pricing of $3.75 million as of October 2, 2015, which was paidcomparable transactions in the second fiscal quarter of 2016 upon achievement of the performance objectives. The value recorded on the balance sheet at October 2, 2015, was derived from the estimated probability that the performance objectives will be met. The contingent purchase obligation was categorized as Level 3 in the fair value hierarchy.market.
Note 76 – Derivative Financial Instruments
The Company uses derivative financial instruments in the form of foreign currency forward exchange contracts and interest rate swap contracts for the purpose of minimizing exposure to changes in foreign currency exchange rates on business transactions and interest rates, respectively. The Company’s policy is to execute such instruments with banks the Company believes to be creditworthy and not to enter into derivative financial instruments for speculative purposes. These derivative financial instruments do not subject the Company to undue risk, as gains and losses on these instruments generally offset gains and losses on the underlying assets, liabilities, or anticipated transactions that are being hedged.
All derivative financial instruments are recorded at fair value in the Consolidated Balance Sheet. For a derivative that has not been designated as an accounting hedge, the change in the fair value is recognized immediately through earnings. For a derivative that has been designated as an accounting hedge of an existing asset or liability (a fair value hedge), the change in the fair value of both the derivative and underlying asset or liability is recognized immediately through earnings. For a derivative designated as an accounting hedge of an anticipated transaction (a cash flow hedge), the change in the fair value is recorded on the Consolidated Balance Sheet in Accumulated Other Comprehensive Income (AOCI) to the extent the derivative is effective in mitigating the exposure related to the anticipated transaction. The change in the fair value related to the ineffective portion of the hedge, if any, is immediately recognized in earnings. The amount recorded within AOCI is reclassified into earnings in the same period during which the underlying hedged transaction affects earnings.
9
The fair value of derivative instruments is presented on a gross basis, as the Company does not have any derivative contracts which are subject to master netting arrangements. At April 1, 2016, and October 2, 2015, theThe Company did not have any hedges with credit-risk-related contingent features or that required the posting of collateral.collateral as of December 30, 2016, and September 30, 2016. The cash flows from derivative contracts are recorded in operating activities in the Consolidated Statement of Cash Flows.
9
Foreign Currency Forward Exchange Contracts
The Company transacts business in various foreign currencies, which subjects the Company’s cash flows and earnings to exposure related to changes in foreign currency exchange rates. These exposures arise primarily from purchases or sales of products and services from third parties. Foreign currency forward exchange contracts provide for the purchase or sale of foreign currencies at specified future dates at specified exchange rates, and are used to offset changes in the fair value of certain assets or liabilities or forecasted cash flows resulting from transactions denominated in foreign currencies. At April 1,December 30, 2016, and October 2, 2015,September 30, 2016, the Company had outstanding foreign currency forward exchange contracts principally to sell U.S. dollars with notional amounts of $400.1$424.9 million and $402.9$450.9 million, respectively. These notional values consist primarily of contracts for the European euro, British pound sterling and Canadian dollar, and are stated in U.S. dollar equivalents at spot exchange rates at the respective dates.
Interest Rate Swaps
The Company manages its exposure to interest rate risk by maintaining an appropriate mix of fixed and variable rate debt, which over time should moderate the costs of debt financing. When considered necessary, the Company may use financial instruments in the form of interest rate swaps to help meet this objective.
Embedded Derivative Instruments
The Company’s embedded derivatives are the result of entering into sales or purchase contracts that are denominated in a currency other than the Company’s functional currency or the supplier’s or customer’s functional currency.
Net Investment Hedge
In April 2015, the Company issued €330.0 million in 3.625% Senior Notes due April 2023 (2023 Notes) and requiring semi-annual interest payments in April and October each year until maturity. The Company designated the 2023 Notes and accrued interest as a hedge of the investment of certain foreign business units. The foreign currency gain or loss that is effective as a hedge is reported as a component of other comprehensive income (loss) in shareholders’ equity. To the extent that this hedge is ineffective, the foreign currency gain or loss is recorded in earnings. There was no ineffectiveness of the hedge since inception.
Fair Value of Derivative Instruments
Fair value of derivative instruments in the Consolidated Balance Sheet at April 1,December 30, 2016, and October 2, 2015,September 30, 2016, consisted of:
In Thousands |
|
| Fair Value |
|
|
|
| Fair Value |
|
| ||||||||||
|
|
| April 1, |
|
| October 2, |
|
|
|
| December 30, |
|
| September 30, |
|
| ||||
| Classification |
| 2016 |
|
| 2015 |
|
| Classification |
| 2016 |
|
| 2016 |
|
| ||||
Foreign Currency Forward Exchange Contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Other current assets |
| $ | 3,353 |
|
| $ | 1,527 |
|
| Other current assets |
| $ | 811 |
|
| $ | 1,757 |
|
|
| Other assets |
|
| 2,535 |
|
|
| 48 |
|
| Other assets |
|
| 685 |
|
|
| 1,334 |
|
|
| Accrued liabilities |
|
| 14,181 |
|
|
| 20,688 |
|
| Accrued liabilities |
|
| 16,666 |
|
|
| 11,168 |
|
|
| Other liabilities |
|
| 3,107 |
|
|
| 6,296 |
|
| Other liabilities |
|
| 3,985 |
|
|
| 3,380 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Embedded Derivative Instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Other current assets |
| $ | 2,030 |
|
| $ | 2,913 |
|
| Other current assets |
| $ | 2,386 |
|
| $ | 1,864 |
|
|
| Other assets |
|
| 376 |
|
|
| 1,079 |
|
| Other assets |
|
| 809 |
|
|
| 621 |
|
|
| Accrued liabilities |
|
| 1,282 |
|
|
| 351 |
|
| Accrued liabilities |
|
| 783 |
|
|
| 866 |
|
|
| Other liabilities |
|
| 255 |
|
|
| 29 |
|
| Other liabilities |
|
| 43 |
|
|
| 119 |
|
|
The effect of derivative instruments on the Consolidated Statement of Operations and Comprehensive Income (Loss) for the three and six month periods ended AprilDecember 30, 2016, and January 1, 2016, and March 27, 2015, consisted of:
Fair Value Hedges and Embedded Derivatives
WeThe Company recognized the following gains (losses) on contracts designated as fair value hedges and embedded derivatives:
In Thousands |
| Three Months Ended |
|
| Six Months Ended |
|
|
| Three Months Ended |
|
| |||||||||||||||
Gain (Loss) |
| April 1, |
|
| March 27, |
|
| April 1, |
|
| March 27, |
|
|
| December 30, |
|
| January 1, |
|
| ||||||
|
| 2016 |
|
| 2015 |
|
| 2016 |
|
| 2015 |
|
|
| 2016 |
|
| 2016 |
|
| ||||||
|
|
|
|
|
| (Recast) |
|
|
|
|
|
| (Recast) |
|
| |||||||||||
Embedded derivatives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognized in sales |
| $ | (4,708 | ) |
| $ | 4,033 |
|
| $ | (3,607 | ) |
| $ | 5,928 |
|
|
| $ | 253 |
|
| $ | 1,154 |
|
|
10
WeThe Company recognized the following gains (losses) on contracts designated as cash flow hedges:
In Thousands |
| Three Months Ended |
|
| Six Months Ended |
|
|
| Three Months Ended |
|
| |||||||||||||||
Gain (Loss) |
| April 1, |
|
| March 27, |
|
| April 1, |
|
| March 27, |
|
|
| December 30, |
|
| January 1, |
|
| ||||||
|
| 2016 |
|
| 2015 |
|
| 2016 |
|
| 2015 |
|
| |||||||||||||
|
|
|
|
|
| (Recast) |
|
|
|
|
|
| (Recast) |
|
|
| 2016 |
|
| 2016 |
|
| ||||
Foreign currency forward exchange contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognized in AOCI (effective portion) |
| $ | 25,688 |
|
| $ | (5,851 | ) |
| $ | 28,574 |
|
| $ | (7,415 | ) |
|
| $ | (1,874 | ) |
| $ | 2,901 |
|
|
Reclassified from AOCI into sales |
|
| (5,414 | ) |
|
| (6,815 | ) |
|
| (12,473 | ) |
|
| (11,331 | ) |
|
|
| (4,425 | ) |
|
| (7,074 | ) |
|
Net Investment Hedges
WeThe Company recognized the following gains (losses) on contracts designated as net investment hedges:
In Thousands |
| Three Months Ended |
|
| Six Months Ended |
|
|
| Three Months Ended |
|
| |||||||||||||||
Gain (Loss) |
| April 1, |
|
| March 27, |
|
| April 1, |
|
| March 27, |
|
|
| December 30, |
|
| January 1, |
|
| ||||||
|
| 2016 |
|
| 2015 |
|
| 2016 |
|
| 2015 |
|
|
| 2016 |
|
| 2016 |
|
| ||||||
|
|
|
|
|
| (Recast) |
|
|
|
|
|
| (Recast) |
|
| |||||||||||
2023 Notes and Accrued Interest: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognized in AOCI |
| $ | (17,785 | ) |
| $ | - |
|
| $ | (6,252 | ) |
| $ | - |
|
|
| $ | 23,913 |
|
| $ | 11,533 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the first sixthree months of fiscal 20162017 and 2015,2016, the Company recorded losses of $3.6$2.6 million and $3.2$2.4 million, respectively, on foreign currency forward exchange contracts that have not been designated as accounting hedges. These foreign currency exchange gains and losses are included in selling, general and administrative expense.
There was no significant impact to the Company’s earnings related to the ineffective portion of any hedging instruments during the first sixthree months of fiscal 20162017 and 2015.2016. In addition, there was no significant impact to the Company’s earnings when a hedged firm commitment no longer qualified as a fair value hedge or when a hedged forecasted transaction no longer qualified as a cash flow hedge during the first sixthree months of fiscal 20162017 and 2015.2016.
Amounts included in AOCI are reclassified into earnings when the hedged transaction settles. The Company expects to reclassify approximately $8.5$10.3 million of net loss into earnings over the next 12 months. The maximum duration of the Company’s foreign currency cash flow hedge contracts at April 1,December 30, 2016, is 24 months.
Note 87 – Income Taxes
The income tax rate was 16.6%1.9% in the second fiscalfirst quarter of 2016fiscal 2017 compared with 18.6%a 0.3% benefit in the prior-year period. In the second fiscalfirst quarter of 2016,fiscal 2017, the Company recognized $0.3income tax rate was higher primarily due to higher income from continuing operations before income taxes and an increase in the estimated annual effective tax rate as a result of U.K. limitations on interest deductions, partially offset by increased discrete income tax benefits. In the first quarter of fiscal 2017, a reduction of the income tax rate in France for fiscal year 2020 resulted in a reduction in the Company’s net deferred income tax liabilities of $3.8 million, which was primarily related to acquired intangible assets. Secondly, $1.2 million of discrete tax benefits was recorded primarily related to a valuation allowance release due to an expected taxable gain from a foreign income tax return to provision adjustments.law change. Lastly, the early adoption of the accounting standard update for employee share-based payment awards resulted in a $0.7 million tax benefit. In the second fiscal quarter of 2015, the Company recognized $0.5 million of discrete tax expense principally related to the following two items. The first item was a $2.0 million tax expense due to income tax return to provision adjustments. The second item was approximately $1.5��million of discrete tax benefits due toprior-year period, the retroactive extension of the U.S. federal research and experimentation credits. The income tax rate differed from the statutory ratecredits resulted in the second fiscal quarter of 2016 and 2015, as both years benefited from various tax credits and certain foreign interest expense deductions.
The income tax rates were 11.0% and 21.9% for the first six months of fiscal 2016 and 2015, respectively. In the first six months of 2016, the Company recognized $2.2 million of discrete tax benefits principally related to the following items. The first item was a $1.3 million reduction of net deferred income tax liabilities as a result of the enactment of tax laws reducing the U.K. statutory income tax rate. The second item was approximately $1.3 million of discrete tax benefits due to the retroactive extension of the U.S. federal research and experimentation credits. The third item was a $0.4 million tax expense due to income tax return to provision adjustments. In the first six months of 2015, the Company recognized approximately $0.2 million of discrete tax benefits principally related to the following two items. The first item was approximately $1.5 million of discrete tax benefits due to the retroactive extension of the U.S. federal research and experimentation credits. The second item was a $1.3 million tax expense due to income tax return to provision adjustments. The income tax rate differed frombenefit.
During the statutory rate in the first sixnext 12 months, of fiscal 2016 and 2015, as both years benefited from various tax credits and certain foreign interest expense deductions.
Itit is reasonably possible that within the next twelve months approximately $1.1$1.4 million of tax benefits that are currently unrecognized could be recognized as a result of settlement of examinations and/or the expiration of applicable statutes of limitations. The Company recognizes interest related to unrecognized tax benefits in income tax expense.
11
U.S. Credit Facility
On April 9, 2015, the Company amended its secured credit facility to extend the maturity to April 9, 2020, increase the amount available for borrowing under the secured revolving credit facility to $500 million, and provide for a delayed-draw term loan facility of $250 million (U.S. Term Loan, due 2020).million. The Company recorded $2.3 million in debt issuance costs. The credit facility is secured by substantially all the Company’s assets, and interest is based on standard inter-bank offering rates. The interest rate ranges from LIBOR plus 1.25% to LIBOR plus 2.00%. At April 1, 2016, depending on leverage ratios at the time the funds are drawn. The Company had $165.0$150.0 million outstanding under the secured credit facility at an interest rate of LIBOR plus 1.75%, which. At December 30, 2016, the weighted average interest rate was 2.20%2.47%.
11
U.S. Term Loan, due July 2016
In April 2013, the Company amended the secured credit facility to provide for a $175.0 million term loan (U.S. Term Loan, due 2016). On April 8, 2015, the Company paid off the U.S. Term Loan, due 2016. In connection with the repayment, the Company wrote off $0.3 million in unamortized debt issuance costs as a loss on extinguishment of debt in the third fiscal quarter of 2015.
U.S. Term Loan, due April 2020
On August 3, 2015, the Company borrowed $250 million under the U.S. Term Loan, due 2020, provided for under the amended secured credit facility.facility (U.S. Term Loan, due 2020). The interest rate on the U.S. Term Loan, due 2020, ranges from LIBOR plus 1.25% to LIBOR plus 2.00%. At April 1,December 30, 2016, the interest rate was LIBOR plus 1.75%, which equaled 2.19%2.36%. The loan amortizes at 1.25% of the original principal balance quarterly through March 2020, with the remaining balance due in April 2020.
7% Senior Notes, due August 2020
In August 2010, the Company issued $250.0 million in 7% Senior Notes, due August 2020 (2020 Notes) and which require semi-annual interest payments in March and September of each year until maturity.
On August 4, 2015, the proceeds from the U.S. Term Loan, due 2020, were used to redeem all of the 7% 2020 Notes. As part of the redemption, the Company incurred an $8.75 million redemption premium and wrote off $2.4 million in unamortized debt issuance costs as a loss on extinguishment of debt in the fourth fiscal quarter of 2015.
3.625% Senior Notes, due April 2023
In April 2015, the Company issued €330.0 million in 3.625% Notes, due 2023 requiring semi-annual interest payments in April and October of each year until maturity. The net proceeds from the sale of the notes, after deducting $5.9 million of debt issuance costs, were $350.8 million. The 2023 Notes are general unsecured senior obligations of the Company. The 2023 Notes are unconditionally guaranteed on a senior basis by the Company and certain subsidiaries of the Company that are guarantors under the Company’s existing secured credit facility. The 2023 Notes are subject to redemption at the option of the Company at any time prior to April 15, 2018, at a price equal to 100% of the principal amount, plus any accrued interest to the date of redemption and a make-whole provision. The Company may also redeem up to 35% of the 2023 Notes before April 15, 2018, with the net cash proceeds from equity offerings. The 2023 Notes are also subject to redemption at the option of the Company, in whole or in part, on or after April 15, 2018, at redemption prices starting at 102.719% of the principal amount plus accrued interest during the period beginning April 15, 2018, and declining annually to 100% of principal and accrued interest on or after April 15, 2021.
Based on quoted market prices, the fair value of the Company’s 2023 Notes was $329.7$354.0 million and $365.3 million as of April 1,December 30, 2016, and $347.7 million as of October 2, 2015.September 30, 2016, respectively. The carrying amount of the secured credit facility and the U.S. Term Loan, due 2020, approximate fair value. The estimate of fair value for the 2023 Notes is based on Level 2 inputs as defined in the fair value hierarchy described.described in Note 5.
Government Refundable Advances
Government refundable advances consist of payments received from the Canadian government to assist in research and development related to commercial aviation. The requirement to repay this advance is solely based on year-over-year commercial aviation revenue growth at CMC beginning in 2014. Imputed interest on the advance was 3.819%2.9% at April 1,December 30, 2016. The debt recognized was $44.6$44.3 million and $43.3$45.0 million as of April 1,December 30, 2016, and October 2, 2015,September 30, 2016, respectively.
In April 2015, FASB amended requirements related to the presentation of debt issuance costs. Obligation Under Capital Lease
The updated standard requires debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying amountCompany leases building and equipment under capital leases. The present value of the related debt liability instead of being presented as an asset. The recognition and measurement of debt issuance costs are not affected by this amendment. The Company adopted this updated standard during the first fiscal quarter of 2016. The Company reclassified $6.5 million of debt issuance costs from other non-current assets to a reductionminimum capital lease payments, net of the Company’s current maturities of long-term debt of $0.2portion, totaled $66.0 million and a reduction of the Company’s long-term debt of $6.3$66.2 million as of October 2, 2015.December 30, 2016, and September 30, 2016, respectively.
Note 109 – Commitments and Contingencies
The Company is party to various lawsuits and claims, both as a plaintiff and defendant, and has contingent liabilities arising from the conduct of business, none of which, in the opinion of management, is expected to have a material effect on the Company’s financial
12
position or results of operations. The Company believes that it has made appropriate and adequate provisions for contingent liabilities.
As of April 1,December 30, 2016, and October 2, 2015,September 30, 2016, the Company had a liability of $0.8$1.0 million and $1.6$0.8 million, respectively, related to environmental remediation at a previously sold business for which the Company provided indemnification.
On March 5, 2014, the Company entered into a Consent Agreement with the U.S. Department of State’s Directorate of Defense Trade Controls Office of Defense Trade Controls Compliance (DTCC) to resolve alleged International Traffic in Arms Regulations (ITAR) civil violations. The Consent Agreement settled the pending ITAR compliance matter with the DTCC previously reported by the Company that resulted from voluntary reports the Company filed with DTCC that disclosed possible technical and administrative violations of the ITAR. The Consent Agreement has a three-year term and provided for: (i) a payment of $20 million, $10 million of which is suspended and eligible for offset credit based on verified expenditures for past and future remedial compliance measures; (ii) the appointment of an external Special Compliance Official to oversee compliance with the Consent Agreement and the ITAR; (iii) two external audits of the Company’s ITAR compliance program; and (iv) continued implementation of ongoing remedial compliance measures and additional remedial compliance measures related to automated systems and ITAR compliance policies, procedures and training.
The settlement amount inCompany expects to be released from the Consent Agreement was consistent within fiscal 2017, depending upon the amount proposedCompany’s satisfactory completion of the remaining requirements under the agreement and the timing of final approval by DTCC in August 2013, for which the Company estimated and recorded a $10 million charge in the third fiscal quarter ended July 26, 2013.DTCC. The $10 million portion of the settlement that is not subject to suspension will be paid in installments, with $4$8 million paid in Marchover fiscal years 2014, 2015 and 2016. The remaining $2 million paid in February 2015, $2 million paid in March 2016, and $2 million to be paidis payable in March 2017. TheIn fiscal 2016, the DTCC approved costs the Company expects that some part of recent investments made in its ITAR compliance program will be eligible for credit against the suspended portion of the settlement amount, which include: additional staffing, ongoing implementation of a new software system, employee training, and establishment of a regular compliance audit program and corrective action process. The Company expects recent and future investments in remedialincurred to implement compliance measures will be sufficient to coverfully offset the $10 million suspended payment. As
During the first quarter of April 1, 2016, DTCC has accepted $5fiscal 2017, the Company received a $2.6 million insurance recovery due to an energetic incident at one of its countermeasure operations, which occurred in the Company’s investment in remedial compliance measures. An additional amountthird quarter of approximately $15 million in investment in remedial compliance measures will be submitted to the DTCCfiscal 2016. The insurance recovery from this incident in fiscal 2016 was $5 million. A further payment is expected in the second quarter of fiscal 2017. The amount of the payment is subject to be applied against the suspended payment.insurance company’s final review of the claim and is estimated to range between $2.6 million to $5.0 million.
Note 1110 – Employee Stock Plans
As of April 1,December 30, 2016, the Company had three share-based compensation plans, which are described below. The compensation cost that has been charged against income for those plans was $7.6$4.7 million and $6.3$3.3 million for the first sixthree months of fiscal 20162017 and 2015,2016, respectively. During the first sixthree months of fiscal 20162017 and 2015,2016, the Company issued 103,629237,547 and 231,00072,349 shares, respectively, under its share-based compensation plans.
Employee Stock Purchase Plan (ESPP)
The ESPP is a “safe-harbor” designed plan whereby shares are purchased by participants at a discount of 5% of the market value on the purchase date and, therefore, compensation cost is not recorded.
Employee Sharesave Scheme
The Company offers shares under its employee sharesave scheme for U.K. employees. This plan allows participants the option to purchase shares at a 5% discount of the market price of the stock as of the beginning of the offering period. The term of these options is three years. The sharesave scheme is not a “safe-harbor” design, and therefore, compensation cost is recognized on this plan. Under the sharesave scheme, option exercise prices are equal to the fair market value of the Company’s common stock on the date of grant. No optionsThere were granted duringno grants in the first six months of fiscalthree month periods ended December 30, 2016, or 2015.and January 1, 2016.
Equity Incentive Plan
Under the equity incentive plan, option exercise prices are equal to the fair market value of the Company’s common stock on the date of grant. The Company granted 218,200231,100 and 187,500217,200 options to purchase shares in the sixthree month periods ended AprilDecember 30, 2016, and January 1, 2016, and March 27, 2015, respectively. The weighted-average grant date fair value of options granted during the sixthree month periods ended AprilDecember 30, 2016, and January 1, 2016, was $32.55 and March 27, 2015, was $35.84 and $48.62$35.87 per share, respectively.
13
The fair value of each option granted by the Company was estimated using a Black-Scholes pricing model, which uses the assumptions noted in the following table. The Company uses historical data to estimate volatility of the Company’s common stock and option exercise and employee termination assumptions. The risk-free rate for the contractual life of the option is based on the U.S. Treasury zero coupon issues in effect at the time of the grant.
|
| Six Months Ended |
|
| Three Months Ended |
| ||||
|
| April 1, |
| March 27, |
|
| December 30, |
| January 1, |
|
|
| 2016 |
| 2015 |
|
| 2016 |
| 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
Volatility |
| 33.06 - 40.52% |
| 40.73 - 41.89% |
|
| 34.97 - 35.42% |
| 33.06 - 40.52% |
|
Risk-free interest rate |
| 1.61 - 2.24% |
| 1.43 - 2.00% |
|
| 1.98 - 2.51% |
| 1.61 - 2.24% |
|
Expected life (years) |
| 5 - 9 |
| 5 - 9 |
|
| 5 - 9 |
| 5 - 9 |
|
Dividends |
| 0 |
| 0 |
|
| 0 |
| 0 |
|
The Company granted 36,00036,700 and 20,30033,400 restricted stock units in the sixthree month periods ended AprilDecember 30, 2016, and January 1, 2016, and March 27, 2015, respectively. The weighted-average grant date fair value of restricted stock units granted during the sixthree month periods ended AprilDecember 30, 2016, and January 1, 2016, was $76.70 and March 27, 2015, was $85.33 and $113.98$86.29 per share, respectively. The fair value of each restricted stock unit granted by the Company is equal to the fair market value of the Company’s common stock on the date of grant.
The Company granted 55,30042,100 and 34,00055,300 performance share plan (PSP) shares in the sixthree month periods ended AprilDecember 30, 2016, and January 1, 2016, and March 27, 2015, respectively. PSP shares will be paid out in shares of Esterline common stock at the end of the three year performance period. The totalPSP shares granted in each period equaled the number of shares participants would receive if the Company achieves target performance over the relevant period. The actual number of shares that will be paid out upon completion of the performance period is based on actual performance and is therefore at risk if the Company does not achievemay range from 0% to 300% of the target levelnumber of the performance. The grant date fair value of performance share plan shares granted during the six month periods ended April 1, 2016, and March 27, 2015, was $79.31 and $117.53, respectively. The fair value of each performance share plan share granted by the Company is equal to the fair market value of the Company’s common stock on the date of grant.shares.
Note 12 – Acquisitions
On January 31, 2015, the Company acquired the defense, aerospace and training display (DAT) business of Belgium-based Barco N.V. (Barco) for €150 million, or approximately $171 million, in cash before a working capital adjustment of approximately $15 million. The Company incurred a $2.9 million foreign currency exchange loss in the funding of the acquisition in fiscal 2015. Acquisition related costs of $3.4 million were recognized as selling, general and administrative expense in fiscal 2015. The Company financed the acquisition primarily using international cash reserves, with the balance funded by borrowings under its existing credit facility. The DAT business develops and manufactures visualization solutions for a variety of demanding defense and commercial aerospace applications and is included in our Avionics & Controls segment.
The following summarizes the allocation of the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition. The fair value adjustment for inventory was $7.0 million, which was recognized as cost of goods sold over eight months, the estimated inventory turnover. The fair value of acquired programs represented the value of visualization solutions sold under long-term supply agreements with aerospace companies, military contractors, and OEM manufacturers using similar technology. The valuation of the program included the values of program-specific technology, the backlog of contracts, and the relationship with customers which lead to potential future contracts. The valuation of the programs was based upon the discounted cash flow at a market-based discount rate. The purchase price includes the value of existing technologies, the introduction of new technologies, and the addition of new customers. These factors resulted in recording goodwill of $48.5 million. A substantial portion of the amount allocated to goodwill is not deductible for income tax purposes.
14
|
|
|
| |
As of January 31, 2015 |
|
|
|
|
|
|
|
|
|
Current assets | $ | 80,400 |
|
|
Property, plant and equipment |
| 6,206 |
|
|
Intangible assets subject to amortization |
|
|
|
|
Programs (15 year average useful life) |
| 56,455 |
|
|
Programs (3 year average useful life) |
| 677 |
|
|
Trade name (3 year average useful life) |
| 226 |
|
|
Goodwill |
| 48,537 |
|
|
Other assets |
| 3,401 |
|
|
Total assets acquired |
| 195,902 |
|
|
|
|
|
|
|
Current liabilities assumed |
| 34,006 |
|
|
Long-term liabilities assumed |
| 5,921 |
|
|
Net assets acquired | $ | 155,975 |
|
|
To take advantage of synergies across the Company, DAT will be further integrated with existing businesses. As a result of these integration activities, the Company incurred $3.6 million and $7.7 million of integration expenses in the first three and six months of fiscal 2016, respectively.
Note 13 – Restructuring
On December 5, 2013, the Company announced the acceleration of its plans to consolidate certain facilities and create cost efficiencies through shared services in sales, general and administrative and support functions. The costs are for exit and relocation of facilities, losses on the write off of certain property, plant and equipment, and severance.
In the second fiscal quarter of 2016, restructuring expense totaled $1.9 million. In the first six months of fiscal 2016, restructuring expense totaled $3.3 million, as more fully described in the following table:
In Thousands |
|
|
|
| Write Off of |
|
|
|
|
|
|
|
|
|
| |
| Exit & |
|
| Property, |
|
|
|
|
|
|
|
|
|
| ||
| Relocation |
|
| Plant & |
|
|
|
|
|
|
|
|
|
| ||
| of Facilities |
|
| Equipment |
|
| Severance |
|
| Total |
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales | $ | 1,249 |
|
| $ | 18 |
|
| $ | 180 |
|
| $ | 1,447 |
|
|
Restructuring charges |
| 1,451 |
|
|
| - |
|
|
| 420 |
|
|
| 1,871 |
|
|
Total | $ | 2,700 |
|
| $ | 18 |
|
| $ | 600 |
|
| $ | 3,318 |
|
|
In the recast second fiscal quarter of 2015, restructuring expense totaled $3.8 million. In the recast first six months of fiscal 2015, restructuring expense totaled $9.3 million, as more fully described in the following table:
In Thousands |
|
|
|
| Write Off of |
|
|
|
|
|
|
|
|
|
| |
| Exit & |
|
| Property, |
|
|
|
|
|
|
|
|
|
| ||
| Relocation |
|
| Plant & |
|
|
|
|
|
|
|
|
|
| ||
| of Facilities |
|
| Equipment |
|
| Severance |
|
| Total |
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales | $ | 3,014 |
|
| $ | 633 |
|
| $ | 714 |
|
| $ | 4,361 |
|
|
Restructuring charges |
| 3,762 |
|
|
| 48 |
|
|
| 1,117 |
|
|
| 4,927 |
|
|
Total | $ | 6,776 |
|
| $ | 681 |
|
| $ | 1,831 |
|
| $ | 9,288 |
|
|
The Company has recorded an accrued liability of $5.7 million and $5.2 million for these activities as of April 1, 2016, and October 2, 2015, respectively.
Note 1411 – Discontinued Operations
The Company’s board of directors previously approved the plan to sell certain non-core business units including Eclipse Electronic Systems, Inc. (Eclipse), a manufacturer of embedded communication intercept receivers for signal intelligence applications; Wallop Defence Systems, Ltd. (Wallop), a manufacturer of flare countermeasure devices; Pacific Aerospace and Electronics Inc. (PA&E), a manufacturer of hermetically sealed electrical connectors; a small distribution businessbusiness; and a small manufacturing business.
15
On June 5, 2015,May 4, 2016, the Company sold Eclipsecertain assets of Wallop for $7.92.5 million British pounds and retained ownership of the land, building and building improvements, which are held for sale. In addition, on July 20, 2015, the Company sold PA&E for $23.4 million. Under the terms of the stock purchase agreements for the sale of Eclipse and PA&E, the Company agreed to indemnify the buyer for certain breaches of the Company’s representations and warranties and certain other items fordeferred compensation up to $2.8a maximum payment of 9 million British pounds. The deferred compensation is payable based upon receipt of acceptable orders during a three-year period ending May 3, 2019, and $3.9 million, respectively. An escrow account inis equal to the amount of $1.1the acceptable order multiplied by a specified percentage ranging from 26.5% to 31%. The earn-out payment was estimated to be 5.5 million was establishedBritish pounds at closing of the sale of PA&E to partially cover the Company’s indemnification obligations. A claim against the escrow amount, if paid, would result in a corresponding decrease in the purchase price for the sale of PA&E.December 30, 2016.
During the second fiscal quarter of 2016 and 2015, the Company incurred a loss of $2.0 million and $14.6 million, respectively, on discontinued operations. 13
During the first sixthree months of fiscal 20162017 and 2015, the Company incurred a loss of $6.8 million and $20.5 million, respectively. For the first and second fiscal quarters of fiscal 2016, the Company incurred a loss from discontinued operations of $5.3 million and $4.8 million, respectively. Included in the loss of $5.3 million for the first three months of fiscal 2017 was a $4.6 million loss on Wallop assets held for sale, at Advanced Materials of $2.2 million and $1.4 million, respectively. The loss on assets held for sale in both quarters was principally due to a reduction in the estimated sale price and the effect of changes in foreign currency exchange rates on the estimated sale price and Wallop’s assets held for sale. Principal assumptions used in measuring the estimated loss on assets held for sale included estimated selling price of the discontinued business, discount rates, industry growth rates, and pricing of comparable transactions in the market.
During the first six months of fiscal 2015, the Company recorded a $1.7 million increase in a liability related to environmental remediation at a previously sold business for which the Company provided indemnification. A loss of $1.1 million, net of tax, is reflected in discontinued operations.rates.
The operating results of the discontinued operations for the three month period ended April 1,December 30, 2016, consisted of the following:
In Thousands |
| Avionics & |
|
| Sensors & |
|
| Advanced |
|
|
|
|
|
|
|
|
|
|
| Avionics & |
|
| Sensors & |
|
| Advanced |
|
|
|
|
|
|
|
|
|
| ||||||
|
| Controls |
|
| Systems |
|
| Materials |
|
| Other |
|
| Total |
|
|
| Controls |
|
| Systems |
|
| Materials |
|
| Other |
|
| Total |
|
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales |
| $ | 4,479 |
|
| $ | - |
|
| $ | 2,289 |
|
| $ | - |
|
| $ | 6,768 |
|
|
| $ | 2,696 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 2,696 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings (loss) |
|
| 1,072 |
|
|
| (151 | ) |
|
| (2,874 | ) |
|
| (7 | ) |
|
| (1,960 | ) |
|
|
| (871 | ) |
|
| 895 |
|
|
| (5,347 | ) |
|
| (604 | ) |
|
| (5,927 | ) |
|
Tax expense (benefit) |
|
| 273 |
|
|
| - |
|
|
| (210 | ) |
|
| - |
|
|
| 63 |
|
|
|
| (239 | ) |
|
| - |
|
|
| (141 | ) |
|
| (211 | ) |
|
| (591 | ) |
|
Income (loss) from discontinued operations |
| $ | 799 |
|
| $ | (151 | ) |
| $ | (2,664 | ) |
| $ | (7 | ) |
| $ | (2,023 | ) |
|
| $ | (632 | ) |
| $ | 895 |
|
| $ | (5,206 | ) |
| $ | (393 | ) |
| $ | (5,336 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in Operating Earnings (Loss): | Included in Operating Earnings (Loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Included in Operating Earnings (Loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Gain (loss) on net assets held for sale |
|
| 326 |
|
|
| - |
|
|
| (1,381 | ) |
|
| - |
|
|
| (1,055 | ) |
| |||||||||||||||||||||
Loss on net assets held for sale |
| $ | (140 | ) |
| $ | - |
|
| $ | (4,588 | ) |
| $ | - |
|
| $ | (4,728 | ) |
|
The operating results of the discontinued operations for the sixthree month period ended AprilJanuary 1, 2016, consisted of the following:
In Thousands |
| Avionics & |
|
| Sensors & |
|
| Advanced |
|
|
|
|
|
|
|
|
|
| |||
|
| Controls |
|
| Systems |
|
| Materials |
|
| Other |
|
| Total |
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales |
| $ | 10,061 |
|
| $ | - |
|
| $ | 4,773 |
|
| $ | - |
|
| $ | 14,834 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings (loss) |
|
| 1,969 |
|
|
| (307 | ) |
|
| (8,867 | ) |
|
| (11 | ) |
|
| (7,216 | ) |
|
Tax expense (benefit) |
|
| 686 |
|
|
| - |
|
|
| (1,099 | ) |
|
| - |
|
|
| (413 | ) |
|
Income (loss) from discontinued operations |
| $ | 1,283 |
|
| $ | (307 | ) |
| $ | (7,768 | ) |
| $ | (11 | ) |
| $ | (6,803 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in Operating Earnings (Loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Gain (loss) on net assets held for sale |
|
| 56 |
|
|
| - |
|
|
| (3,628 | ) |
|
| - |
|
|
| (3,572 | ) |
|
16
The operating results of the discontinued operations for the recast three month period ended March 27, 2015, consisted of the following:
In Thousands |
| Avionics & |
|
| Sensors & |
|
| Advanced |
|
|
|
|
|
|
|
|
|
| |||
|
| Controls |
|
| Systems |
|
| Materials |
|
| Other |
|
| Total |
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales |
| $ | 13,429 |
|
| $ | 6,329 |
|
| $ | 2,709 |
|
| $ | - |
|
| $ | 22,467 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings (loss) |
|
| (10,624 | ) |
|
| 1,449 |
|
|
| (4,236 | ) |
|
| (1,180 | ) |
|
| (14,591 | ) |
|
Tax expense (benefit) |
|
| 318 |
|
|
| 524 |
|
|
| (420 | ) |
|
| (413 | ) |
|
| 9 |
|
|
Income (loss) from discontinued operations |
| $ | (10,942 | ) |
| $ | 925 |
|
| $ | (3,816 | ) |
| $ | (767 | ) |
| $ | (14,600 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in Operating Earnings (Loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Loss on net assets held for sale |
|
| (11,439 | ) |
|
| - |
|
|
| (3,008 | ) |
|
| - |
|
|
| (14,447 | ) |
|
The operating results of the discontinued operations for the recast six month period ended March 27, 2015, consisted of the following:
In Thousands |
| Avionics & |
|
| Sensors & |
|
| Advanced |
|
|
|
|
|
|
|
|
|
|
| Avionics & |
|
| Sensors & |
|
| Advanced |
|
|
|
|
|
|
|
|
|
| ||||||
|
| Controls |
|
| Systems |
|
| Materials |
|
| Other |
|
| Total |
|
|
| Controls |
|
| Systems |
|
| Materials |
|
| Other |
|
| Total |
|
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales |
| $ | 27,591 |
|
| $ | 12,257 |
|
| $ | 6,150 |
|
| $ | - |
|
| $ | 45,998 |
|
|
| $ | 5,582 |
|
| $ | - |
|
| $ | 2,484 |
|
| $ | - |
|
| $ | 8,066 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings (loss) |
|
| (11,395 | ) |
|
| 1,749 |
|
|
| (11,221 | ) |
|
| (1,692 | ) |
|
| (22,559 | ) |
|
|
| 897 |
|
|
| (156 | ) |
|
| (5,993 | ) |
|
| (4 | ) |
|
| (5,256 | ) |
|
Tax expense (benefit) |
|
| (89 | ) |
|
| 672 |
|
|
| (2,076 | ) |
|
| (590 | ) |
|
| (2,083 | ) |
|
|
| 413 |
|
|
| - |
|
|
| (889 | ) |
|
| - |
|
|
| (476 | ) |
|
Income (loss) from discontinued operations |
| $ | (11,306 | ) |
| $ | 1,077 |
|
| $ | (9,145 | ) |
| $ | (1,102 | ) |
| $ | (20,476 | ) |
|
| $ | 484 |
|
| $ | (156 | ) |
| $ | (5,104 | ) |
| $ | (4 | ) |
| $ | (4,780 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in Operating Earnings (Loss): | Included in Operating Earnings (Loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Included in Operating Earnings (Loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Loss on net assets held for sale |
|
| (11,439 | ) |
|
| - |
|
|
| (3,008 | ) |
|
| - |
|
|
| (14,447 | ) |
| |||||||||||||||||||||
Gain (loss) on net assets held for sale |
| $ | (270 | ) |
| $ | - |
|
| $ | (2,247 | ) |
| $ | - |
|
| $ | (2,517 | ) |
|
Assets and Liabilities Held for Sale within the Consolidated Balance Sheet at April 1, 2016, are comprised of the following:
In Thousands |
|
|
| Avionics & |
|
| Sensors & |
|
| Advanced |
|
|
|
|
|
| |||
|
|
|
| Controls |
|
| Systems |
|
| Materials |
|
| Total |
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net |
|
|
| $ | 4,341 |
|
| $ | - |
|
| $ | 221 |
|
| $ | 4,562 |
|
|
Inventories |
|
|
|
| 11,954 |
|
|
| - |
|
|
| 2,380 |
|
|
| 14,334 |
|
|
Prepaid expenses |
|
|
|
| 82 |
|
|
| - |
|
|
| 239 |
|
|
| 321 |
|
|
Current Assets of Businesses Held for Sale |
|
| 16,377 |
|
|
| - |
|
|
| 2,840 |
|
|
| 19,217 |
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net property, plant and equipment |
|
|
|
| 5,417 |
|
|
| - |
|
|
| 9,463 |
|
|
| 14,880 |
|
|
Intangibles, net |
|
|
|
| - |
|
|
| - |
|
|
| 3,779 |
|
|
| 3,779 |
|
|
Deferred income tax benefits |
|
|
|
| (147 | ) |
|
| - |
|
|
| 1,370 |
|
|
| 1,223 |
|
|
Other assets |
|
|
|
| - |
|
|
| - |
|
|
| 1,423 |
|
|
| 1,423 |
|
|
Non-Current Assets of Businesses Held for Sale |
|
| 5,270 |
|
|
| - |
|
|
| 16,035 |
|
|
| 21,305 |
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
|
|
| 765 |
|
|
| - |
|
|
| 1,837 |
|
|
| 2,602 |
|
|
Accrued liabilities |
|
|
|
| 8,006 |
|
|
| - |
|
|
| 3,572 |
|
|
| 11,578 |
|
|
Current Liabilities of Businesses Held for Sale |
|
| 8,771 |
|
|
| - |
|
|
| 5,409 |
|
|
| 14,180 |
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax liabilities |
|
|
|
| - |
|
|
| - |
|
|
| 319 |
|
|
| 319 |
|
|
Other liabilities |
|
|
|
| 503 |
|
|
| - |
|
|
| - |
|
|
| 503 |
|
|
Non-Current Liabilities of Businesses Held for Sale |
|
| 503 |
|
|
| - |
|
|
| 319 |
|
|
| 822 |
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Assets of Businesses Held for Sale |
| $ | 12,373 |
|
| $ | - |
|
| $ | 13,147 |
|
| $ | 25,520 |
|
|
1714
Assets and Liabilities Held for Sale within the Consolidated Balance Sheet at October 2, 2015, wereDecember 30, 2016, are comprised of the following:
In Thousands |
|
|
| Avionics & |
|
| Sensors & |
|
| Advanced |
|
|
|
|
|
|
|
|
| Avionics & |
|
| Sensors & |
|
| Advanced |
|
|
|
|
|
| ||||||
|
|
|
| Controls |
|
| Systems |
|
| Materials |
|
| Total |
|
|
|
|
| Controls |
|
| Systems |
|
| Materials |
|
| Total |
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net |
|
|
| $ | 5,360 |
|
| $ | - |
|
| $ | 1,546 |
|
| $ | 6,906 |
|
|
|
|
| $ | 1,949 |
|
| $ | - |
|
| $ | 246 |
|
| $ | 2,195 |
|
|
Inventories |
|
|
|
| 14,763 |
|
|
| - |
|
|
| 5,841 |
|
|
| 20,604 |
|
|
|
|
|
| 6,453 |
|
|
| - |
|
|
| 725 |
|
|
| 7,178 |
|
|
Prepaid expenses |
|
|
|
| 156 |
|
|
| - |
|
|
| 185 |
|
|
| 341 |
|
|
|
|
|
| 125 |
|
|
| - |
|
|
| 52 |
|
|
| 177 |
|
|
Income tax refundable |
|
|
|
| - |
|
|
| - |
|
|
| 68 |
|
|
| 68 |
|
| |||||||||||||||||||
Current Assets of Businesses Held for Sale | Current Assets of Businesses Held for Sale |
|
| 20,279 |
|
|
| - |
|
|
| 7,572 |
|
|
| 27,851 |
|
| Current Assets of Businesses Held for Sale |
|
| 8,527 |
|
|
| - |
|
|
| 1,091 |
|
|
| 9,618 |
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net property, plant and equipment |
|
|
|
| 5,474 |
|
|
| - |
|
|
| 12,199 |
|
|
| 17,673 |
|
|
|
|
|
| 5,386 |
|
|
| - |
|
|
| 2,899 |
|
|
| 8,285 |
|
|
Intangibles, net |
|
|
|
| 945 |
|
|
| - |
|
|
| 4,928 |
|
|
| 5,873 |
|
|
|
|
|
| - |
|
|
| - |
|
|
| 1,829 |
|
|
| 1,829 |
|
|
Deferred income tax benefits |
|
|
|
| (147 | ) |
|
| - |
|
|
| - |
|
|
| (147 | ) |
|
|
|
|
| (392 | ) |
|
| - |
|
|
| 400 |
|
|
| 8 |
|
|
Other assets |
|
|
|
| - |
|
|
| - |
|
|
| 1,518 |
|
|
| 1,518 |
|
|
|
|
|
| - |
|
|
| - |
|
|
| 890 |
|
|
| 890 |
|
|
Non-Current Assets of Businesses Held for Sale | Non-Current Assets of Businesses Held for Sale |
|
| 6,272 |
|
|
| - |
|
|
| 18,645 |
|
|
| 24,917 |
|
| Non-Current Assets of Businesses Held for Sale |
|
| 4,994 |
|
|
| - |
|
|
| 6,018 |
|
|
| 11,012 |
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
|
|
| 1,878 |
|
|
| - |
|
|
| 4,837 |
|
|
| 6,715 |
|
|
|
|
|
| 122 |
|
|
| - |
|
|
| 1,325 |
|
|
| 1,447 |
|
|
Accrued liabilities |
|
|
|
| 8,340 |
|
|
| - |
|
|
| 2,051 |
|
|
| 10,391 |
|
|
|
|
|
| 6,631 |
|
|
| - |
|
|
| 1,457 |
|
|
| 8,088 |
|
|
Current Liabilities of Businesses Held for Sale | Current Liabilities of Businesses Held for Sale |
|
| 10,218 |
|
|
| - |
|
|
| 6,888 |
|
|
| 17,106 |
|
| Current Liabilities of Businesses Held for Sale |
|
| 6,753 |
|
|
| - |
|
|
| 2,782 |
|
|
| 9,535 |
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax liabilities |
|
|
|
| - |
|
|
| - |
|
|
| 194 |
|
|
| 194 |
|
|
|
|
|
| - |
|
|
| - |
|
|
| (166 | ) |
|
| (166 | ) |
|
Other liabilities |
|
|
|
| 2,215 |
|
|
| - |
|
|
| - |
|
|
| 2,215 |
|
|
|
|
|
| - |
|
|
| - |
|
|
| 320 |
|
|
| 320 |
|
|
Non-Current Liabilities of Businesses Held for Sale | Non-Current Liabilities of Businesses Held for Sale |
|
| 2,215 |
|
|
| - |
|
|
| 194 |
|
|
| 2,409 |
|
| Non-Current Liabilities of Businesses Held for Sale |
|
| - |
|
|
| - |
|
|
| 154 |
|
|
| 154 |
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Assets of Businesses Held for Sale | Net Assets of Businesses Held for Sale |
| $ | 14,118 |
|
| $ | - |
|
| $ | 19,135 |
|
| $ | 33,253 |
|
| Net Assets of Businesses Held for Sale |
| $ | 6,768 |
|
| $ | - |
|
| $ | 4,173 |
|
| $ | 10,941 |
|
|
Assets and Liabilities Held for Sale within the Consolidated Balance Sheet at September 30, 2016, were comprised of the following:
In Thousands |
|
|
| Avionics & |
|
| Sensors & |
|
| Advanced |
|
|
|
|
|
| |||
|
|
|
| Controls |
|
| Systems |
|
| Materials |
|
| Total |
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net |
|
|
| $ | 2,588 |
|
| $ | - |
|
| $ | 4,093 |
|
| $ | 6,681 |
|
|
Inventories |
|
|
|
| 8,070 |
|
|
| - |
|
|
| 398 |
|
|
| 8,468 |
|
|
Prepaid expenses |
|
|
|
| 127 |
|
|
| - |
|
|
| 103 |
|
|
| 230 |
|
|
Income tax refundable |
|
|
|
| - |
|
|
| - |
|
|
| 71 |
|
|
| 71 |
|
|
Current Assets of Businesses Held for Sale |
|
| 10,785 |
|
|
| - |
|
|
| 4,665 |
|
|
| 15,450 |
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net property, plant and equipment |
|
|
|
| 5,368 |
|
|
| - |
|
|
| 2,869 |
|
|
| 8,237 |
|
|
Intangibles, net |
|
|
|
| - |
|
|
| - |
|
|
| 1,856 |
|
|
| 1,856 |
|
|
Deferred income tax benefits |
|
|
|
| (392 | ) |
|
| - |
|
|
| 400 |
|
|
| 8 |
|
|
Other assets |
|
|
|
| - |
|
|
| - |
|
|
| 1,299 |
|
|
| 1,299 |
|
|
Non-Current Assets of Businesses Held for Sale |
|
| 4,976 |
|
|
| - |
|
|
| 6,424 |
|
|
| 11,400 |
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
|
|
| 441 |
|
|
| - |
|
|
| 1,463 |
|
|
| 1,904 |
|
|
Accrued liabilities |
|
|
|
| 7,000 |
|
|
| - |
|
|
| 1,909 |
|
|
| 8,909 |
|
|
Current Liabilities of Businesses Held for Sale |
|
| 7,441 |
|
|
| - |
|
|
| 3,372 |
|
|
| 10,813 |
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other liabilities |
|
|
|
| - |
|
|
| - |
|
|
| 320 |
|
|
| 320 |
|
|
Non-Current Liabilities of Businesses Held for Sale |
|
| - |
|
|
| - |
|
|
| 320 |
|
|
| 320 |
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Assets of Businesses Held for Sale |
| $ | 8,320 |
|
| $ | - |
|
| $ | 7,397 |
|
| $ | 15,717 |
|
|
15
Note 1512 – Business Segment Information
Business segment information for continuing operations includes the segments of Avionics & Controls, Sensors & Systems and Advanced Materials.
In Thousands |
| Three Months Ended |
|
| Six Months Ended |
|
|
| Three Months Ended |
|
| |||||||||||||||
|
| April 1, |
|
| March 27, |
|
| April 1, |
|
| March 27, |
|
| |||||||||||||
|
| 2016 |
|
| 2015 |
|
| 2016 |
|
| 2015 |
|
|
| December 30, |
|
| January 1, |
|
| ||||||
|
|
|
|
|
| (Recast) |
|
|
|
|
|
| (Recast) |
|
|
| 2016 |
|
| 2016 |
|
| ||||
Sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Avionics & Controls |
| $ | 198,665 |
|
| $ | 187,330 |
|
| $ | 384,910 |
|
| $ | 393,947 |
|
|
| $ | 192,682 |
|
| $ | 186,245 |
|
|
Sensors & Systems |
|
| 176,069 |
|
|
| 171,538 |
|
|
| 328,499 |
|
|
| 354,432 |
|
|
|
| 167,073 |
|
|
| 152,430 |
|
|
Advanced Materials |
|
| 115,576 |
|
|
| 109,342 |
|
|
| 218,378 |
|
|
| 224,442 |
|
|
|
| 97,978 |
|
|
| 102,802 |
|
|
|
| $ | 490,310 |
|
| $ | 468,210 |
|
| $ | 931,787 |
|
| $ | 972,821 |
|
|
| $ | 457,733 |
|
| $ | 441,477 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from Continuing Operations Before Income Taxes | Earnings from Continuing Operations Before Income Taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Earnings from Continuing Operations Before Income Taxes |
|
|
|
|
|
| ||||
Avionics & Controls |
| $ | 2,649 |
|
| $ | 7,934 |
|
| $ | 12,062 |
|
| $ | 45,260 |
|
|
| $ | 17,917 |
|
| $ | 9,413 |
|
|
Sensors & Systems |
|
| 20,944 |
|
|
| 16,256 |
|
|
| 33,728 |
|
|
| 33,714 |
|
|
|
| 19,946 |
|
|
| 12,784 |
|
|
Advanced Materials |
|
| 23,208 |
|
|
| 19,469 |
|
|
| 36,198 |
|
|
| 41,024 |
|
|
|
| 9,880 |
|
|
| 12,990 |
|
|
Segment Earnings |
|
| 46,801 |
|
|
| 43,659 |
|
|
| 81,988 |
|
|
| 119,998 |
|
|
|
| 47,743 |
|
|
| 35,187 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate expense |
|
| (18,965 | ) |
|
| (19,851 | ) |
|
| (37,030 | ) |
|
| (42,862 | ) |
|
|
| (17,767 | ) |
|
| (18,065 | ) |
|
Other income |
|
| - |
|
|
| 12,744 |
|
|
| - |
|
|
| 12,744 |
|
| |||||||||
Interest income |
|
| 94 |
|
|
| 135 |
|
|
| 181 |
|
|
| 319 |
|
|
|
| 96 |
|
|
| 87 |
|
|
Interest expense |
|
| (7,294 | ) |
|
| (5,934 | ) |
|
| (14,510 | ) |
|
| (14,016 | ) |
|
|
| (7,888 | ) |
|
| (7,216 | ) |
|
|
| $ | 20,636 |
|
| $ | 30,753 |
|
| $ | 30,629 |
|
| $ | 76,183 |
|
|
| $ | 22,184 |
|
| $ | 9,993 |
|
|
1816
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
On June 5, 2014, we changed the Company’s fiscal year end to the last Friday of September from the last Friday in October. We reported our financial results for the 11-month transition period of November 1, 2014, through October 2, 2015, on our Transition Report on Form 10-K, and thereafter we will file our annual report for the 12-month period ending the last Friday of September of each year, beginning with the 12-month period ending September 30, 2016. Prior year results have been recast on a calendar quarter basis. Refer to the Transition Report on Form 10-K for the eleven months ended October 2, 2015, for additional information regarding our fiscal year change.
Overview
We operate our businesses in three segments: Avionics & Controls, Sensors & Systems and Advanced Materials. Our segments are structured around our technical capabilities. Sales in all segments include domestic, international, defense and commercial customers.
The Avionics & Controls segment includes avionics systems, control and communication systems, and interface technologies capabilities. The Sensors & Systems segment includes power systems, connection technologies and advanced sensors capabilities. The Advanced Materials segment includes engineered materials and defense technologies capabilities.
Our current business and strategic plan focuses on the continued development of our products principally for aerospace and defense markets.markets and operational excellence. We are concentrating our efforts to expand our capabilities in these markets, to anticipate the global needs of our customers and to respond to such needs with comprehensive solutions.continually improve our operational performance. These efforts focus on continuous research and new product development, acquisitions and strategic realignments of operations to expand our capabilities as aoffer more comprehensive supplier to our customerssolutions across our entire product offering.offerings and the implementation of the principles of our operating system to become a supplier of choice for our customers.
In March 2014, we entered into a Consent Agreement with the U.S. Department of State’s Directorate of Defense Trade Controls Office of Defense Trade Controls Compliance (DDTC) to resolve alleged International Traffic in Arms Regulations (ITAR) civil violations. Among other things, the Consent Agreement required us to pay a $20 million penalty, of which $10 million was suspended and eligible for offset credit. Compliance expense associated with these measures was $5.5 million in the first six months ofIn fiscal 2016, and $7.2the DTCC approved costs we incurred to implement compliance measures to fully offset the $10 million in the prior-year period.suspended payment. More information about the Consent Agreement is set forth in Note 109 to the Consolidated Financial Statements included in Part 1, Item 1 of this report.
On December 5, 2013, we announcedAs explained in Note 11 to the accelerationConsolidated Financial Statements included in Part 1, Item 1 of this report, in fiscal 2014, our plansboard of directors previously approved the plan to consolidatesell certain facilitiesnon-core business units including Wallop Defence Systems, Ltd. (Wallop), a manufacturer of flare countermeasure devices; a small distribution business; and create cost efficiencies through shared servicesa small manufacturing business. The loss from discontinued operations in the first quarter of fiscal 2017 was $5.3 million compared with $4.8 million, in the prior-year period. Included in the loss from discontinued operations was a $4.7 million loss and $2.5 million loss on assets held for sale in the first quarter of fiscal 2017 and 2016, respectively.
Sales for the first quarter of fiscal 2017 were $457.7 million; sales volume increased $22 million over the prior-year period and was mainly due to strong sales of Avionics & Controls and Sensors & Systems segment products.
Gross margin was 31.5% in the first quarter of fiscal 2017 compared with 31.2% in the prior-year period. Gross profit was $144.0 million and $137.7 million for the first quarter of fiscal 2017 and 2016, respectively. Gross profit mainly benefited from higher sales volume and favorable product mix of Sensors & Systems segment products.
For further explanation about changes in sales and gross profit in the first quarter of fiscal 2017 over the prior-year period, please see the table at the end of the Overview section for a roll forward presentation of sales and gross profit.
Selling general and administrative and support functions. Restructuring expenses were $11.7 million and $17.4 million in fiscal 2015 and 2014, respectively, and $3.3 million and $9.3increased by $1.5 million in the first six monthsquarter of fiscal 2016 and 2015, respectively.
Total sales for the second fiscal quarter of 2016 increased by $22.1 million, or 4.7%,2017 over the prior-year period to $490.3 million, mainly reflecting higher sales volumes across all segments due to higher demand$95.6 million.
Research, development and incremental sales from DAT, partially offset by the effect of changes in foreign currency exchange rates relative to the U.S. dollar. Avionics & Controls sales volume increased by $6 million, or 3%, Sensors & Systems increasedengineering expense decreased by $5 million or 3%, and Advanced Materials increased by $9to $21.0 million or 8%. Incremental4.6% of sales, from defense, aerospace and training display (DAT) were $12 million. These increases were partially offset byin the effectfirst quarter of changes in foreign currency exchange rates relative to the U.S. dollarfiscal 2017, compared with the prior-year periodperiod. The decrease mainly reflects lower expense for our Avionics & Controls segment.
During the first quarter of $10 million.
Earnings from continuingfiscal 2017, we received a $2.6 million insurance recovery due to an energetic incident at one of our countermeasure operations, which occurred in the third quarter of fiscal 2016. We received a $5 million insurance recovery in the fourth quarter of fiscal 2016. We anticipate a further payment in the second fiscal quarter of 2016 were $17.0fiscal 2017. The amount of the payment is subject to the insurance company’s final review of the claim and is estimated to range between $2.6 million to $5.0 million.
We adopted the new guidance on accounting for share-based payments during the first quarter of fiscal 2017. The new guidance simplifies certain aspects of accounting for share-based payments. The key provision of the new standard requires that excess tax benefits and shortfalls be recorded as income tax benefit or $0.57 per diluted share,expense in the income statement, rather than in additional paid-in capital. Adoption of the new guidance during the first quarter of fiscal 2017 resulted in a $0.7 million decrease in income tax expense.
The income tax rate was 1.9% in the first quarter of fiscal 2017 compared with $24.9 million, or $0.79 per diluted share,a 0.3% benefit in the prior-year period. Loss from discontinued operations inIn the second fiscalfirst quarter of 2016fiscal 2017, the income tax rate was $2.0 million, or $0.07 per diluted share, compared with $14.6 million, or $0.46 per diluted share, in the prior-year period. Net income in the second fiscal quarter of 2016 was $15.0 million, or $0.50 per diluted share, compared with $10.3 million, or $0.33 per diluted share, in the prior-year period.
Total sales for the first six months of fiscal 2016 decreased by $41.0 million, or 4.2%, over the prior-year period to $931.8 million, reflecting lower sales volumes across all segmentshigher primarily due to decreased demand and the effect of changes in foreign currency exchange rates relative to the U.S. dollar. Avionics & Controls sales volume decreased by $52 million, or 13%, Sensors & Systems decreased by $13 million, or 4%, and Advanced Materials decreased by $2 million, or 1%. Additionally, the effect of changes in foreign currency exchange rates compared with the prior-year period reduced sales by $29 million. These decreases werehigher income from continuing operations before income taxes, partially offset by the incremental sales from DAT of $56 million.increased discrete tax benefits.
Earnings from continuing operations in the first six monthsquarter of fiscal 20162017 were $26.9$21.5 million, or $0.90$0.72 per diluted share, compared with $59.4$9.9 million, or $1.86$0.33 per diluted share, in the prior-year period. Loss from discontinued operations in the first six monthsquarter of fiscal 2016 2017
17
was $6.8$5.3 million, or $0.23$0.18 per diluted share, compared with $20.5$4.8 million, or $0.64$0.16 per diluted share, in the prior-year period. Net income in the first six monthsquarter of fiscal 20162017 was $20.1$16.2 million, or $0.67$0.54 per diluted share, compared with $38.9$5.1 million, or $1.22$0.17 per diluted share, in the prior-year period.
19
Cash flows from operating activities were $79.9$45.5 million in the first six monthsquarter of fiscal 20162017 compared with $50.9$40.7 million in the prior-year period.The increase in cash flow from operating activities reflected higher cash collections of accounts receivable and lower cash payments for income taxes.
Our sales, gross margin and earnings results for the three and six month period ended April 1, 2016,first quarter of fiscal 2017, compared with the prior-year period included a number of significant items which are summarized in the tables below.
The following is a roll forward of sales and gross margin from the recast three month period ended March 27, 2015,January 1, 2016, to the three month period ended April 1,December 30, 2016:
In Thousands | Avionics & |
|
| Sensors & |
|
| Advanced |
|
|
|
|
|
| |||
| Controls |
|
| Systems |
|
| Materials |
|
| Total |
|
| ||||
Sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three month period ended March 27, 2015 | $ | 187,330 |
|
| $ | 171,538 |
|
| $ | 109,342 |
|
| $ | 468,210 |
|
|
Foreign currency gain (loss) |
| (7,128 | ) |
|
| (2,109 | ) |
|
| (2,247 | ) |
|
| (11,484 | ) |
|
Forward contract gain (loss) |
| 531 |
|
|
| 839 |
|
|
| - |
|
|
| 1,370 |
|
|
DAT incremental |
| 12,428 |
|
|
| - |
|
|
| - |
|
|
| 12,428 |
|
|
Sales volume |
| 6,364 |
|
|
| 5,080 |
|
|
| 8,648 |
|
|
| 20,092 |
|
|
Other |
| (860 | ) |
|
| 721 |
|
|
| (167 | ) |
|
| (306 | ) |
|
Three month period ended April 1, 2016 | $ | 198,665 |
|
| $ | 176,069 |
|
| $ | 115,576 |
|
| $ | 490,310 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Margin: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three month period ended March 27, 2015 |
| 55,959 |
|
|
| 60,083 |
|
|
| 33,975 |
|
|
| 150,017 |
|
|
Foreign currency gain (loss) |
| (5,638 | ) |
|
| (1,101 | ) |
|
| (601 | ) |
|
| (7,340 | ) |
|
Forward contract gain (loss) |
| 447 |
|
|
| 839 |
|
|
| - |
|
|
| 1,286 |
|
|
DAT incremental |
| 5,260 |
|
|
| - |
|
|
| - |
|
|
| 5,260 |
|
|
DAT inventory fair value adjustment |
| 1,816 |
|
|
| - |
|
|
| - |
|
|
| 1,816 |
|
|
DAT integration |
| (1,026 | ) |
|
| - |
|
|
| - |
|
|
| (1,026 | ) |
|
Volume/mix |
| 2,372 |
|
|
| 1,222 |
|
|
| 3,884 |
|
|
| 7,478 |
|
|
Lower (higher) manufacturing costs |
| (1,830 | ) |
|
| 412 |
|
|
| 1,120 |
|
|
| (298 | ) |
|
Inventory reserves and EAC adjustment |
| (840 | ) |
|
| (180 | ) |
|
| - |
|
|
| (1,020 | ) |
|
Three month period ended April 1, 2016 | $ | 56,520 |
|
| $ | 61,275 |
|
| $ | 38,378 |
|
| $ | 156,173 |
|
|
20
The following is a roll forward of sales and gross margin from the recast six month period ending March 27, 2015, to the six month period ended April 1, 2016:
In Thousands | Avionics & |
|
| Sensors & |
|
| Advanced |
|
|
|
|
|
| Avionics & |
|
| Sensors & |
|
| Advanced |
|
|
|
|
|
| ||||||
| Controls |
|
| Systems |
|
| Materials |
|
| Total |
|
| Controls |
|
| Systems |
|
| Materials |
|
| Total |
|
| ||||||||
Sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six month period ended March 27, 2015 | $ | 393,947 |
|
| $ | 354,432 |
|
| $ | 224,442 |
|
| $ | 972,821 |
|
| ||||||||||||||||
Three month period ended January 1, 2016 | $ | 186,245 |
|
| $ | 152,430 |
|
| $ | 102,802 |
|
| $ | 441,477 |
|
| ||||||||||||||||
Foreign currency gain (loss) |
| (9,582 | ) |
|
| (13,823 | ) |
|
| (3,464 | ) |
|
| (26,869 | ) |
|
| (2,354 | ) |
|
| (1,651 | ) |
|
| (4,231 | ) |
|
| (8,236 | ) |
|
Forward contract gain (loss) |
| (2,053 | ) |
|
| 234 |
|
|
| - |
|
|
| (1,819 | ) |
|
| 2,845 |
|
|
| (99 | ) |
|
| - |
|
|
| 2,746 |
|
|
DAT incremental |
| 55,554 |
|
|
| - |
|
|
| - |
|
|
| 55,554 |
|
| ||||||||||||||||
Sales volume |
| (51,553 | ) |
|
| (12,806 | ) |
|
| (2,370 | ) |
|
| (66,729 | ) |
|
| 5,946 |
|
|
| 16,393 |
|
|
| (593 | ) |
|
| 21,746 |
|
|
Other |
| (1,403 | ) |
|
| 462 |
|
|
| (230 | ) |
|
| (1,171 | ) |
| ||||||||||||||||
Six month period ended April 1, 2016 | $ | 384,910 |
|
| $ | 328,499 |
|
| $ | 218,378 |
|
| $ | 931,787 |
|
| ||||||||||||||||
Three month period ended December 30, 2016 | $ | 192,682 |
|
| $ | 167,073 |
|
| $ | 97,978 |
|
| $ | 457,733 |
|
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Margin: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six month period ended March 27, 2015 |
| 134,747 |
|
|
| 122,985 |
|
|
| 70,526 |
|
|
| 328,258 |
|
| ||||||||||||||||
Three month period ended January 1, 2016 |
| 59,667 |
|
|
| 50,235 |
|
|
| 27,817 |
|
|
| 137,719 |
|
| ||||||||||||||||
Foreign currency gain (loss) |
| (5,532 | ) |
|
| (3,041 | ) |
|
| (862 | ) |
|
| (9,435 | ) |
|
| (993 | ) |
|
| 59 |
|
|
| (844 | ) |
|
| (1,778 | ) |
|
Forward contract gain (loss) |
| (2,119 | ) |
|
| 234 |
|
|
| - |
|
|
| (1,885 | ) |
|
| 2,796 |
|
|
| (99 | ) |
|
| - |
|
|
| 2,697 |
|
|
DAT incremental |
| 23,309 |
|
|
| - |
|
|
| - |
|
|
| 23,309 |
|
| ||||||||||||||||
DAT inventory fair value adjustment |
| 1,816 |
|
|
| - |
|
|
| - |
|
|
| 1,816 |
|
| ||||||||||||||||
Volume/mix |
| (3,831 | ) |
|
| 10,043 |
|
|
| (2,690 | ) |
|
| 3,522 |
|
| ||||||||||||||||
Factory layout costs (Kaikaku) |
| 1,917 |
|
|
| - |
|
|
| - |
|
|
| 1,917 |
|
| ||||||||||||||||
DAT integration |
| (2,129 | ) |
|
| - |
|
|
| - |
|
|
| (2,129 | ) |
|
| 800 |
|
|
| - |
|
|
| - |
|
|
| 800 |
|
|
Volume/mix |
| (26,531 | ) |
|
| (8,362 | ) |
|
| (1,345 | ) |
|
| (36,238 | ) |
| ||||||||||||||||
Lower (higher) manufacturing costs |
| (4,080 | ) |
|
| (2,514 | ) |
|
| (2,583 | ) |
|
| (9,177 | ) |
| ||||||||||||||||
Cost initiatives |
| 67 |
|
|
| 2,388 |
|
|
| 459 |
|
|
| 2,914 |
|
| ||||||||||||||||
Factory layout costs (Kaikaku) |
| (2,307 | ) |
|
| - |
|
|
| - |
|
|
| (2,307 | ) |
| ||||||||||||||||
Inventory reserves and EAC adjustment |
| (1,054 | ) |
|
| (180 | ) |
|
| - |
|
|
| (1,234 | ) |
| ||||||||||||||||
Six month period ended April 1, 2016 | $ | 116,187 |
|
| $ | 111,510 |
|
| $ | 66,195 |
|
| $ | 293,892 |
|
| ||||||||||||||||
Other |
| 132 |
|
|
| (1,132 | ) |
|
| 170 |
|
|
| (830 | ) |
| ||||||||||||||||
Three month period ended December 30, 2016 | $ | 60,488 |
|
| $ | 59,106 |
|
| $ | 24,453 |
|
| $ | 144,047 |
|
|
The following table shows the average foreign exchange rates for the U.K.British pound, Canadian dollar and euro relative to the U.S. dollar for the three and six month periodsperiod ended April 1,December 30, 2016, and March 27, 2015.January 1, 2016.
| Three Months Ended |
| Six Months Ended |
| Three Months Ended |
| ||||||||||||||||||||||||
| April 1, |
|
| March 27, |
|
|
|
| April 1, |
|
| March 27, |
|
|
|
| December 30, |
|
| January 1, |
|
|
|
| ||||||
| 2016 |
|
|
| 2015 |
|
| Change |
| 2016 |
|
|
| 2015 |
|
| Change |
| 2016 |
|
|
| 2016 |
|
| Change |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GBP to USD |
| 1.4200 |
|
|
| 1.5240 |
|
| (6.8)% |
|
| 1.4670 |
|
|
| 1.5545 |
|
| (5.6)% |
|
| 1.2441 |
|
|
| 1.5139 |
|
| (17.8)% |
|
CAD to USD |
| 0.7337 |
|
|
| 0.8038 |
|
| (8.7)% |
|
| 0.7425 |
|
|
| 0.8422 |
|
| (11.8)% |
|
| 0.7463 |
|
|
| 0.7513 |
|
| (0.7)% |
|
EUR to USD |
| 1.0964 |
|
|
| 1.1341 |
|
| (3.3)% |
|
| 1.0922 |
|
|
| 1.1905 |
|
| (8.3)% |
|
| 1.0819 |
|
|
| 1.0880 |
|
| (0.6)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following tables showtable shows the impact of changes in the foreign currency exchange rates for the U.K.British pound, Canadian dollar and euro relative to the U.S. dollar on operating earnings during the three month period ended April 1,December 30, 2016, compared with the prior-year period.
In Thousands | Avionics & |
|
| Sensors & |
|
| Advanced |
|
|
|
|
|
| |||
| Controls |
|
| Systems |
|
| Materials |
|
| Total |
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency gain (loss) | $ | (8,764 | ) |
| $ | 2,706 |
|
| $ | (468 | ) |
| $ | (6,526 | ) |
|
Forward contract gain (loss) |
| 499 |
|
|
| 1,555 |
|
|
| 376 |
|
|
| 2,430 |
|
|
Impact on Operating Earnings (Loss) | $ | (8,265 | ) |
| $ | 4,261 |
|
| $ | (92 | ) |
| $ | (4,096 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
The following tables show the impact of changes in the foreign currency exchange rates for the U.K. pound, Canadian dollar and euro relative to the U.S. dollar on operating earnings during the six month period ended April 1, 2016, compared with the prior-year period.
In Thousands | Avionics & |
|
| Sensors & |
|
| Advanced |
|
|
|
|
|
| Avionics & |
|
| Sensors & |
|
| Advanced |
|
|
|
|
|
| ||||||
| Controls |
|
| Systems |
|
| Materials |
|
| Total |
|
| Controls |
|
| Systems |
|
| Materials |
|
| Total |
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency gain (loss) | $ | (6,433 | ) |
| $ | 5,280 |
|
| $ | (524 | ) |
| $ | (1,677 | ) |
| $ | 258 |
|
| $ | 1,159 |
|
| $ | (488 | ) |
| $ | 929 |
|
|
Forward contract gain (loss) |
| (2,225 | ) |
|
| 111 |
|
|
| 620 |
|
|
| (1,494 | ) |
|
| 2,041 |
|
|
| (250 | ) |
|
| 278 |
|
|
| 2,069 |
|
|
Impact on Operating Earnings (Loss) | $ | (8,658 | ) |
| $ | 5,391 |
|
| $ | 96 |
|
| $ | (3,171 | ) |
| $ | 2,299 |
|
| $ | 909 |
|
| $ | (210 | ) |
| $ | 2,998 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Results of Operations
For further explanation, please see the roll forward table of sales, gross margin and the analysis of the impact of changes in foreign currency exchange rates at the end of the Overview section.
18
Three Month Period Ended April 1,December 30, 2016, Compared with Three Month Period Ended March 27, 2015January 1, 2016
Total sales for the secondfirst fiscal quarter increased by $22.1$16.3 million, or 4.7%3.7%, over the prior-year period. Sales by segment were as follows:
In Thousands |
|
|
|
| Three Months Ended |
|
|
|
| Three Months Ended |
|
| ||||||||||
| Increase (Decrease) |
|
| April 1, |
|
| March 27, |
|
| Increase (Decrease) |
| December 30, |
|
| January 1, |
|
| |||||
| From Prior Year |
|
| 2016 |
|
| 2015 |
|
| From Prior Year |
| 2016 |
|
| 2016 |
|
| |||||
|
|
|
|
|
|
|
|
| (Recast) |
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Avionics & Controls |
| 6.1% |
|
| $ | 198,665 |
|
| $ | 187,330 |
|
| 3.5% |
| $ | 192,682 |
|
| $ | 186,245 |
|
|
Sensors & Systems |
| 2.6% |
|
|
| 176,069 |
|
|
| 171,538 |
|
| 9.6% |
|
| 167,073 |
|
|
| 152,430 |
|
|
Advanced Materials |
| 5.7% |
|
|
| 115,576 |
|
|
| 109,342 |
|
| (4.7)% |
|
| 97,978 |
|
|
| 102,802 |
|
|
Total Net Sales |
|
|
|
| $ | 490,310 |
|
| $ | 468,210 |
|
|
|
| $ | 457,733 |
|
| $ | 441,477 |
|
|
The $11.3$6.4 million or 6.1%, increase in Avionics & Controls sales over the prior-year period mainly reflected incrementalthe following:
Higher sales from DATvolumes of $12avionics systems of $1 million and higher avionics systemsreflected increased sales of $7 million partiallyin new programs for defense applications substantially offset by lower sales fromof displays due to timing
Higher sales volumes of interface technologies of $7 million mainly for gaming and industrial applications
Lower sales volumes of communication and control devices of $2 million and the effectmainly due to lower sales of changes in foreign currency exchange rates. The increase in avionics systems reflected higher demand for flight management systems mainlycockpit controls for commercial aviation applications. and headset communication devices for defense applications
The decrease$14.6 million increase in interfaceSensor & Systems sales over the prior-year period principally reflected the following:
Higher sales of connection technologies reflected lower demand primarilyof $5 million for large medical diagnostic input consoles. Thecommercial aviation applications and distribution customers
Higher sales of advanced sensors of $7 million and power systems of $5 million for OEM and aftermarket customers
Unfavorable effect of changes in foreign currency exchange rates decreasedof $2 million
The $4.8 million decrease in sales by approximately $7 million compared to the prior-year period.
The $4.5 million, or 2.6%, increase in Sensors & Systems salesAdvanced Materials over the prior-year period was due mainly to unfavorable foreign currency exchange rates at engineered materials. Sales volumes were flat in both defense technologies and engineered materials and reflected higher sales volumes of connection technologies due to higher demand for commercial aviation and industrial applications.
The $6.2 million, or 5.7%, increase in Advanced Materials sales over the prior-year period mainly reflected higherfollowing:
Lower sales volumes of engineered materials for oil and gas and defense technologies. The $6 million increase in engineered materialsapplications offset by higher sales volumes was mainly due to higher demand for elastomer clamping devices for commercial aviation and defense applications. The increase in
Lower sales volumes of defense technologies countermeasure devices were offset by higher sales was due to higher demand forof combustible ordnance. Defense technologies countermeasure sales volumes were impacted by an energetic incident at one of our operations in May 2016. Reduced manufacturing operations commenced in the fourth quarter of fiscal 2016, and management expects the factory to be operating at planned capacity in the second half of fiscal 2017.
Overall, gross margin was 31.9%31.5% and 32.0%31.2% for the second fiscalfirst quarter of 2016fiscal 2017 and 2015,2016, respectively. Gross profit was $156.2$144.0 million and $150.0$137.7 million for the second fiscalfirst quarter of 2016fiscal 2017 and 2015,2016, respectively. Gross profit was impactedand gross margin percentage by $1.0 million and $2.1 million in restructuring expense in the second fiscal quarter of 2016 and 2015, respectively.segment were as follows:
In Thousands |
|
| Three Months Ended |
|
| |||||
| Increase (Decrease) |
| December 30, |
|
| January 1, |
|
| ||
| From Prior Year |
| 2016 |
|
| 2016 |
|
| ||
|
|
|
|
|
|
|
|
|
|
|
Avionics & Controls | 1.4% |
| $ | 60,488 |
|
| $ | 59,667 |
|
|
Sensors & Systems | 17.7% |
|
| 59,106 |
|
|
| 50,235 |
|
|
Advanced Materials | (12.1)% |
|
| 24,453 |
|
|
| 27,817 |
|
|
Total Gross Profit |
|
| $ | 144,047 |
|
| $ | 137,719 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Avionics & Controls | (0.6)% |
|
| 31.4 | % |
|
| 32.0 | % |
|
Sensors & Systems | 2.4% |
|
| 35.4 | % |
|
| 33.0 | % |
|
Advanced Materials | (2.1)% |
|
| 25.0 | % |
|
| 27.1 | % |
|
Gross Margin Percentage |
|
|
| 31.5 | % |
|
| 31.2 | % |
|
Avionics & Controls segment gross margin was 28.5%31.4% and 29.9%32.0% for the second fiscalfirst quarter of 2016fiscal 2017 and 2015,2016, respectively. Segment gross profit was $56.5$60.5 million compared with $56.0$59.7 million in the prior-year period. Gross profit in the second fiscal quarter of 2016 reflected incremental gross margin from DAT of $5The $0.8 million the effect of higher sales volume/mix of $2 million and an inventory fair value adjustment of $2 million recorded in the prior year period, offset by an increase in other expenses of $3 million, and the impact of foreign currency exchange rates. The increase in other expenses included (1) DAT integration costs of $1 million; and (2) other manufacturing costs of $2 million due to production inefficiencies. In addition, gross margin was impacted byprofit is mainly from a $5 million long-term contract loss in both the second fiscal quarter of 2016 and 2015. The loss in the both periods principally related to a scope issue on a long-term contract to upgrade avionics for a military transport aircraft that was settled in the second fiscal quarter of 2016. Gross margin in the second fiscal quarter of 2016 was also impacted by thefavorable effect of changes in foreign currency exchange ratesand higher sales of $5 million.new programs at a lower gross margin.
2219
As of April 1, 2016, the Company has $6.5 million in outstanding accounts receivable on a long-term contract to upgrade avionics on a military transport aircraft. The final payment is due upon contract completion requiring a solution to a radio frequency tuning anomaly which is being tested on the aircraft. Management believes this solution will correct the anomaly, and accordingly, the outstanding receivable is probable of collection.
Sensors & Systems segment gross margin was 34.8%35.4% and 35.0%33.0% for the second fiscalfirst quarter of 2016fiscal 2017 and 2015,2016, respectively. Segment gross profit for the first quarter of fiscal 2017 was $61.3$59.1 million compared with $60.1$50.2 million in the prior-year period, primarily reflecting the effect of higher sales volumes of connection technologies, partially offset by lowerperiod. The $9 million increase in gross profit onprincipally reflected increased sales of advanced sensors due to production inefficiencies.volume and favorable product mix across all platforms.
Advanced Materials segment gross margin was 33.2%25.0% and 31.1%27.1% for the second fiscalfirst quarter of 2016fiscal 2017 and 2015,2016, respectively. Segment gross profit for the first quarter of fiscal 2017 was $38.4$24.5 million compared with $34.0$27.8 million in the prior-year period. The increase$3 million decrease in Advanced Materials gross profit principally reflected a $2 million decrease in gross profit reflectedmargin on sales of defense technologies due to the impactslow ramp up of higher sales volumesmanufacturing following the May 2016 incident noted above and expenses from the introduction of engineered materials.new countermeasure devices.
Selling, general and administrative expenses (which include corporate expenses) totaled $102.4$95.6 million, or 20.9% of sales, and $99.4$94.1 million, or 21.2%21.3% of sales, for the second fiscalfirst quarter of fiscal 2017 and 2016, and 2015, respectively. Selling, general and administrative expenses increased compared with the prior-year period due to incrementalThe increase in selling, general and administrative expenses from DAT of $5expense mainly reflected a $3 million increase in compensation costs, partially offset by lower acquisition expenses.$2 million in favorable exchange rates.
Research, development and engineering spending was $25.0$21.0 million, or 5.1% of sales, for the second fiscal quarter of 2016 compared with $25.1 million, or 5.4% of sales, for the second fiscal quarter of 2015. The decrease reflected lower spending on avionics systems developments, partially offset by incremental research, development and engineering from DAT of $1.4 million.
Total restructuring expenses were $1.9 million, or 0.4% of sales, in the second fiscal quarter of 2016, of which $0.9 million is reported separately as restructuring expenses and $1.0 million is included in cost of goods sold. Total restructuring expenses were $3.8 million, or 0.8% of sales, in the second fiscal quarter of 2015, of which $1.6 million is reported separately as restructuring expenses and $2.1 million is included in cost of goods sold.
During the second fiscal quarter of 2015, we recognized a $15.7 million gain in other income and a $2.4 million reduction in interest expense upon the lapse of a statutory period related to a liability for a non-income tax position of an acquired company.
Segment earnings (operating earnings excluding corporate expenses and other income or expense) for the second fiscal quarter of 2016 totaled $46.8 million, or 9.5% of sales, compared with $43.7 million, or 9.3% of sales, for the second fiscal quarter in 2015.
Avionics & Controls segment earnings were $2.6 million, or 1.3% of sales, in the second fiscal quarter of 2016 and $7.9 million, or 4.2% of sales, in the second fiscal quarter of 2015, mainly reflecting increased operating expenses of $6 million. The increase in operating expenses principally reflects incremental selling, general and administrative expenses and research, development and engineering costs from DAT of $4 million, $3 million in DAT integration expense, and a $3 million foreign currency loss on mainly monetary assets. The loss on monetary assets was due to the strengthening of the Canadian dollar relative to the U.S. dollar from the end of the first fiscal quarter of 2016 to the end of the second fiscal quarter of 2016. In the prior-year period, the Canadian dollar weakened relative to the U.S. dollar. These increases were partially offset by a $2 million write-off of fixed assets due to an avionics systems program realignment recorded in the prior-year period.
Sensors & Systems segment earnings were $20.9 million, or 11.9% of sales, for the second fiscal quarter of 2016 compared with $16.3 million, or 9.5% of sales, for the second fiscal quarter of 2015. The change mainly reflects lower selling, general and administrative expenses due to the effect of changes in foreign currency exchange rates of $3 million. In addition, restructuring expenses were $0.8 million and $2.4 million in the second fiscal quarter of 2016 and 2015, respectively.
Advanced Materials segment earnings were $23.2 million, or 20.1% of sales, for the second fiscal quarter of 2016 compared with $19.5 million, or 17.8% of sales, for the second fiscal quarter of 2015, primarily reflecting higher sales volumes of engineered materials. Restructuring expenses were $0.7 million and $1.0 million in the second fiscal quarter of 2016 and 2015, respectively.
Interest expense for the second fiscal quarter of 2016 was $7.3 million compared with $5.9 million for the second fiscal quarter of 2015. Interest expense in the prior-year was favorably impacted by the $2.4 million adjustment noted above.
The income tax rate was 16.6% in the second fiscal quarter of 2016 compared with 18.6% in the prior-year period. In the second fiscal quarter of 2016, we recognized $0.3 million of discrete tax benefits due to income tax return to provision adjustments. In the second fiscal quarter of 2015, we recognized $0.5 million of discrete tax expense principally related to the following two items. The first item was a $2.0 million tax expense due to income tax return to provision adjustments. The second item was approximately $1.5 million of discrete tax benefits due to the retroactive extension of the U.S. federal research and experimentation credits. The income tax rate differed from the statutory rate in the second fiscal quarters of 2016 and 2015, as both years benefited from various tax credits and certain foreign interest expense deductions.
23
Six Month Period Ended April 1, 2016, Compared with Six Month Period Ended March 27, 2015
Total sales for the first six months of fiscal 2016 decreased by $41.0 million, or 4.2%, over the prior-year period. Sales by segment were as follows:
In Thousands |
|
| Six Months Ended |
|
| |||||
| Increase (Decrease) |
| April 1, |
|
| March 27, |
|
| ||
| From Prior Year |
| 2016 |
|
| 2015 |
|
| ||
|
|
|
|
|
|
| (Recast) |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Avionics & Controls | (2.3)% |
| $ | 384,910 |
|
| $ | 393,947 |
|
|
Sensors & Systems | (7.3)% |
|
| 328,499 |
|
|
| 354,432 |
|
|
Advanced Materials | (2.7)% |
|
| 218,378 |
|
|
| 224,442 |
|
|
Total Net Sales |
|
| $ | 931,787 |
|
| $ | 972,821 |
|
|
The $9.0 million, or 2.3%, decrease in Avionics & Controls sales over the prior-year period mainly reflected lower sales volumes of avionics systems of $23 million, control and communication systems of $22 million, and interface technologies of $6 million. The decrease in avionics systems reflected lower demand and delays for flight management systems for defense applications, including the T6-B military trainer for the U.S. Navy as the T6-B program is nearing completion. The decrease in control and communication systems mainly reflected lower sales of headset communication devices due to higher sales of delinquent orders in the prior-year period. The decrease in interface technologies reflected lower demand primarily for large medical diagnostic input consoles. The effect of changes in foreign currency exchange rates decreased sales by approximately $12 million. These decreases were partially offset by incremental sales from DAT of $55 million.
The $25.9 million, or 7.3%, decrease in Sensors & Systems sales over the prior-year period reflected lower sales volumes of $13 million and weakening foreign currencies. The decrease in sales volume reflected lower sales of advanced sensors of $6 million, power systems of $8 million, partially offset by higher sales of connection technologies. The advanced sensors sales decrease mainly reflected lower OEM demand. The decrease in power systems sales reflected delays in shipments due to export control requirements. The decrease in connection technologies sales reflected lower demand from defense and industrial customers including oil and gas and nuclear. The effect of changes in foreign currency exchange rates decreased sales by approximately $14 million.
The $6.1 million, or 2.7%, decrease in Advanced Materials sales over the prior-year period reflected lower sales volumes of engineered materials under long-term defense contracts for metal insulation applications and the effect of weakening foreign currencies of $3 million.
Overall, gross margin was 31.5% and 33.7% for the first six months of fiscal 2016 and 2015, respectively. Gross profit was $293.9 million and $328.3 million for the first six months of fiscal 2016 and 2015, respectively. Gross profit was impacted by $1.4 million and $4.4 million in restructuring expense in the first six months of fiscal 2016 and 2015, respectively.
Avionics & Controls segment gross margin was 30.2% and 34.2% for the first six months of fiscal 2016 and 2015, respectively. Segment gross profit was $116.2 million compared with $134.7 million in the prior-year period. The decrease in gross profit reflected the impact of lower sales volumes/mix of $27 million and an increase in other expenses of $9 million. The decrease due to sales volume mainly reflected an $11 million impact on lower sales of avionics systems and a $15 million impact on decreased sales of control and communication systems. These lower sales volumes resulted in a lower recovery of fixed costs. The higher other expenses included DAT integration costs of $2 million, the cost of a major factory layout event (Kaikaku) of $2 million, and other manufacturing costs of $5 million due to production inefficiencies. Additionally, gross margin was impacted by the effect of changes in foreign currency exchange rates of $8 million. These decreases were partially offset by incremental gross profit from DAT of $23 million and a $2 million inventory fair value adjustment recorded in the prior year period.
Sensors & Systems segment gross margin was 33.9% and 34.7% for the first six months of fiscal 2016 and 2015, respectively. Segment gross profit was $111.5 million compared with $123.0 million in the prior-year period, primarily reflecting the impact of lower sales volume/mix of advanced sensors of $4 million and power systems of $5 million. Gross margin was impacted by the effects of changes in foreign currency exchange rates of $3 million.
Advanced Materials segment gross margin was 30.3% and 31.4% for the first six months of fiscal 2016 and 2015, respectively. Segment gross profit was $66.2 million compared with $70.5 million in the prior-year period. The decrease in gross profit reflected the impact of higher manufacturing costs of $4 million, mainly due to engineered materials manufacturing inefficiencies.
Selling, general and administrative expenses (which include corporate expenses) totaled $196.5 million, or 21.1% of sales, and $197.5 million, or 20.3%4.6% of sales, for the first six monthsquarter of fiscal 2016 and 2015, respectively. Selling, general and administrative expenses in the first six months of fiscal 2016 reflected the favorable effect of changes in foreign currency exchange rates of $9 million, a $2 million write-off of fixed assets due to an avionics systems program realignment recorded in the prior-year period and
24
lower corporate expenses. Corporate expenses decreased by $6 million principally due to a $3 million pension settlement in the prior-year quarter and decreased acquisition expenses. These decreases were partially offset by incremental selling, general and administrative expenses from DAT of $11 million and $3 million in DAT integration expense.
Research, development and engineering spending was $50.52017 compared with $25.6 million, or 5.4%5.8% of sales, for the first six monthsquarter of fiscal 2016 compared with $48.72016. The $5 million or 5.0% of sales, for the prior-year period. The increasedecrease in research, development and engineering spending principally reflected incrementallower spending in the Avionics & Controls segment.
We expect full year research, development and engineering from DAT of $7 million, partially offset by lower spending on avionics systems and power systems developments.
Total restructuring expenses were $3.3 million, or 0.4%expense will be 5% of sales, reflecting increased engineering efforts over the remaining three quarters in the first six months of 2016, of which $1.9 million is reported separately as restructuring expenses and $1.4 million is included in cost of goods sold. Total restructuring expenses were $9.3 million, or 1.0% of sales, in the first six months of 2015, of which $4.9 million is reported separately as restructuring expenses and $4.4 million is included in cost of goods sold.fiscal 2017.
Segment earnings (operating earnings excluding corporate expenses and other income or expense) for the first six monthsquarter of fiscal 20162017 totaled $82.0$47.7 million, or 8.8%10.4% of sales, compared with $120.0$35.2 million, or 12.3%8.0% of sales, for the first six months of 2015.quarter in fiscal 2016. Segment earnings by segment were as follows:
In Thousands |
|
| Three Months Ended |
|
| |||||
| Increase (Decrease) |
| December 30, |
|
| January 1, |
|
| ||
| From Prior Year |
| 2016 |
|
| 2016 |
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Avionics & Controls | 90.3% |
| $ | 17,917 |
|
| $ | 9,413 |
|
|
Sensors & Systems | 56.0% |
|
| 19,946 |
|
|
| 12,784 |
|
|
Advanced Materials | (23.9)% |
|
| 9,880 |
|
|
| 12,990 |
|
|
Total Segment Earnings |
|
| $ | 47,743 |
|
| $ | 35,187 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Avionics & Controls | 4.2% |
|
| 9.3 | % |
|
| 5.1 | % |
|
Sensors & Systems | 3.5% |
|
| 11.9 | % |
|
| 8.4 | % |
|
Advanced Materials | (2.5)% |
|
| 10.1 | % |
|
| 12.6 | % |
|
Segment Earnings Percentage |
|
|
| 10.4 | % |
|
| 8.0 | % |
|
Avionics & Controls segment earnings were $12.1$17.9 million, or 3.1%9.3% of sales, in the first six monthsquarter of fiscal 20162017 and $45.3$9.4 million, or 11.5%5.1% of sales, in the first six monthsquarter of 2015,fiscal 2016. The $9 million increase in Avionics & Controls segment earnings mainly reflectingreflected a $19$5 million reduction in research, development and engineering and a $3 million decrease in gross margin and increased selling, general and administrative expenses and research, development and engineering expensesexpense due to lower integration expense of $15 million. This increase reflects incremental selling, general and administrative expenses and research, development and engineering expenses from DAT of $18$2 million and $6 millionthe favorable effect of changes in DAT integration expense. These increases were partially offset by lower research, development and engineering expenses for avionics systems of $3 million, lower selling, general and administrative expenses of $3 million, and a $2 million write-off of fixed assets due to an avionics systems program realignment recorded in the prior-year period.foreign currency exchange rates.
Sensors & Systems segment earnings were $33.7$19.9 million, or 10.3%11.9% of sales, for the first six monthsquarter of fiscal 20162017 compared with $33.7$12.8 million, or 9.5%8.4% of sales, for the first six monthsquarter of 2015, mainly reflecting an $11fiscal 2016. The $7 million decreaseincrease in Sensors & Systems segment earnings principally reflected the following:
A $9 million increase in gross margin,profit
Partially offset by lowera $2 million increase in selling, general and administrative expenses principally due to the effects of changes in foreign currency exchange rates of $9 million. In addition, restructuring expenses were $1.3 million and $5.3 million in the first six months of 2016 and 2015, respectively.expense
Advanced Materials segment earnings were $36.2$9.9 million, or 16.6%10.1% of sales, for the first six monthsquarter of fiscal 20162017 compared with $41.0$13.0 million, or 18.3%12.6% of sales, for the first six monthsquarter of 2015, primarily reflecting higher manufacturing costs at engineered materials. Restructuring expenses were $0.9fiscal 2016. The $3 million decrease in Advanced Materials segment earnings mainly reflected the following:
A $3 million decrease in gross profit, mostly offset by a $2.6 million insurance recovery noted above
A $3 million increase in selling, general and $2.4 million in the first six months of 2016 and 2015, respectively.administrative expense
Interest expense for the first six monthsquarter of fiscal 20162017 was $14.5$7.9 million compared with $14.0$7.2 million for the first six monthsquarter of 2015.fiscal 2016. The increase in interest expense mainly reflected a higher interest rate.
20
The income tax rates were 11.0% and 21.9% forrate was 1.9% in the first six monthsquarter of fiscal 2016 and 2015, respectively.2017 compared with a 0.3% benefit in the prior-year period. In the first six monthsquarter of 2016, we recognized $2.2fiscal 2017, the income tax rate was higher primarily due to higher income from continuing operations before income taxes and an increase in the estimated annual effective tax rate as a result of U.K. limitations on interest deductions, partially offset by increased discrete income tax benefits. In the first quarter of fiscal 2017, a reduction of the income tax rate in France for fiscal year 2020 resulted in a reduction in our net deferred income tax liabilities of $3.8 million, which was primarily related to acquired intangible assets. Secondly, $1.2 million of discrete tax benefits principallywas recorded primarily related to the following items. The first item was a $1.3 million reduction of net deferredvaluation allowance release due to an expected taxable gain from a foreign income tax liabilities as a resultlaw change. Lastly, the early adoption of the enactment ofaccounting standard update for employee share-based payment awards resulted in a $0.7 million tax laws reducingbenefit. In the U.K. statutory income tax rate. The second item was approximately $1.3 million of discrete tax benefits due toprior-year period, the retroactive extension of the U.S. federal research and experimentation credits. The third item was a $0.4 million tax expense due to income tax return to provision adjustments. In the first six months of 2015, we recognized approximately $0.2 million of discrete tax benefits principally related to the following two items. The first item was approximately $1.5 million of discrete tax benefits due to the retroactive extension of the U.S. federal research and experimentation credits. The second item wascredits resulted in a $1.3 million tax expense duebenefit.
Recent proposals to income tax return to provision adjustments. Thelower the U.S. corporate income tax rate differed from the current Federal statutory income tax rate of 35% would require us to reduce our net deferred tax assets primarily related to our U.S. post-retirement benefit plan, resulting in a one-time, non-cash increase in income tax expense in the first sixyear of enactment. In subsequent years, our income tax expense would be materially reduced.
During the next 12 months, of fiscal 2016 and 2015, as both years benefited from various tax credits and certain foreign interest expense deductions.
Itit is reasonably possible that within the next twelve months approximately $1.1$1.4 million of tax benefits that are currently unrecognized could be recognized as a result of settlement of examinations and/or the expiration of applicable statutesa statute of limitations. We recognize interest related to unrecognized tax benefits in income tax expense.
New orders for the first six monthsquarter of fiscal 20162017 were $1.1 billion$421.5 million compared with $0.9 billion$458.1 million in the prior-year period, reflecting a decrease in our Avionics & Controls and Sensors & Systems segments, partially offset by an increase in all three segments.our Advanced Materials segment. Backlog was $1.4$1.3 billion at April 1,December 30, 2016, $1.1 billion at March 27, 2015,and September 30, 2016, and $1.2 billion at October 2, 2015.
January 1, 2016.
Liquidity and Capital Resources
Cash and cash equivalents at April 1,December 30, 2016, totaled $219.3$278.0 million, an increase of $27.9$19.5 million from October 2, 2015.September 30, 2016. Net working capital decreased to $700.0$773.2 million at April 1,December 30, 2016, from $718.2$777.3 million at October 2, 2015.September 30, 2016. Sources and uses of cash flows from operating activities principally consisted of cash received from the sale of products and cash payments for material, labor and operating expenses.
Cash flows provided by operating activities were $79.9$45.5 million and $50.9$40.7 million in the first sixthree months of fiscal 2017 and 2016, and 2015, respectively. The increase in cash flow from operating activities reflected higher cash collections of accounts receivable and lower cash payments for income taxes.
25
Cash flows used by investing activities were $43.6$15.3 million and $196.4$14.9 million in the first sixthree months of fiscal 2017 and 2016, respectively, and 2015, respectively. Cash flows used by investing activities in the first six months of fiscal 2016 were primarily for capital expenditures of $42.5 million, including the purchase of a building for our DAT operation. Cash flows used by investing activities in the first six months of fiscal 2015 were primarily capital expenditures of $25.3 million and cash paid for an acquisition of $171.1 million, net of cash acquired.expenditures.
Cash flows usedprovided by financing activities were $9.2$1.8 million in the first sixthree months of fiscal 2016 and2017, mainly reflected a $10.0 million repayment of long-term credit facilities, a $6.2 million repayment of long-term debt, and $12.1reflecting:
$10.7 million in shares repurchased, partially offset by $15.0 million in proceeds from our credit facilities and proceeds of $3.5 million from the issuance of common stock under our employee stock plans. plans
Partially offset by:
$5.0 million net repayment of long-term credit facilities
$3.1 million repayment of long-term debt
Cash flows providedused by financing activities were $78.2$11.2 million in the first sixthree months of fiscal 20152016 and mainly reflected $210.0reflected:
$10.0 million repayment of long-term credit facilities
$3.2 million repayment of long-term debt
Partially offset by $2.6 million in proceeds from our credit facilities and $10.1 million from the issuance of common stock under our employee stock plans partially offset by $127.4 million in shares repurchased, a $10.0 million repayment of long-term credit facilities, and a $9.9 million repayment of long-term debt.
Capital expenditures, consisting of building, machinery, equipment and computers, are anticipated to be approximately $70$60 million during fiscal 2016,2017, compared with $49.3$68.5 million expended in eleven-month fiscal 20152016 (excluding acquisitions). Capital expenditures in fiscal 2017 are lower compared with the prior year due to the purchase of a building for our DAT operation in the prior year.
Total debt at April 1,December 30, 2016, was $880.8$838.2 million and consisted of $242.9$233.7 million of the U.S. Term Loan, due 2020, $370.7$342.5 million (€330.0 million) of the 2023 Notes, $165.0$150.0 million in borrowings under our secured credit facility, $44.6$44.3 million in government refundable advances, $57.4and $67.7 million under capital lease obligations, and $0.2 million under our various foreign currency debt agreements and other debt agreements.obligations.
We believe cash on hand and funds generated from operations and borrowing capacity available under our debt facilities are sufficient to fund operating cash requirements and capital expenditures through the next twelve months.
Forward-Looking Statements
This quarterly report on Form 10-Q contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases you can identify forward-looking statements by terminology such as “anticipate,” “believe,” “continue,
21
“continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “potential,” “predict,” “should” or “will” or the negative of such terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risk factors set forth in “Forward-Looking Statements” and “Risk Factors” in our Transition Report on Form 10-K for the fiscal year ended October 2, 2015,September 30, 2016, that may cause our or the industry’s actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. You should not place undue reliance on these forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, performance or achievements. Given these risks and uncertainties, you are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included or incorporated by reference into this report are made only as of the date hereof. We do not undertake and specifically decline any obligation to update any such statements or to publicly announce the results of any revisions to any such statements to reflect future events or developments.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no significant changes in our exposure to market risk during the first three months of fiscal 2016.2017. A discussion of our exposure to market risk is provided in the Company’s Transition Report on Form 10-K for the fiscal year ended October 2, 2015.September 30, 2016.
Item 4. Controls and Procedures
Our principal executive and financial officers evaluated our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of April 1,December 30, 2016. Based upon that evaluation, they concluded as of April 1,December 30, 2016, that our disclosure controls and procedures were effective to ensure that information we are required to disclose in the reports that we file under the Exchange Act is recorded, processed, summarized and reported within time periods specified in Securities and Exchange Commission rules and forms. In addition, our principal executive and financial officers concluded as of April 1,December 30, 2016, that our disclosure controls and procedures are also effective to ensure that information required to be disclosed in reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including to our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
During the time period covered by this report, there were no changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
26
Item 1. Legal Proceedings
From time to time we are involved in legal proceedings arising in the ordinary course of business. We believe that adequate reserves for these liabilities have been made and that there is no litigation pending that could have a material adverse effect on our results of operations and financial condition.
See Note 109 to the Consolidated Financial Statements included in Part 1, Item 1 of this report for information regarding legal proceedings.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a) | Not applicable. |
(b) | Not applicable. |
(c) |
|
|
|
|
|
|
|
|
|
|
| Total Number of |
|
| Dollar Value |
|
| ||
|
|
|
|
|
|
|
|
|
| Shares Purchased |
|
| of Shares |
|
| ||
|
|
|
|
|
|
|
|
|
| as Part of |
|
| That May Yet |
|
| ||
|
| Total Number |
|
| Average |
|
| Publicly |
|
| Be Purchased |
|
| ||||
|
| of Shares |
|
| Price Paid |
|
| Announced Plans |
|
| Under the Plans |
|
| ||||
Period |
| Repurchased |
|
| Per Share |
|
| or Programs |
|
| or Programs |
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 2, 2016 to January 29, 2016 |
|
| - |
|
| $ | - |
|
|
| 2,831,350 |
|
| $ | 110,220,429 |
|
|
January 30, 2016 to February 26, 2016 |
|
| 61,777 |
|
|
| 53.84 |
|
|
| 2,893,127 |
|
|
| 106,894,136 |
|
|
February 27, 2016 to April 1, 2016 |
|
| 140,533 |
|
|
| 62.26 |
|
|
| 3,033,660 |
|
|
| 98,144,250 |
|
|
Total |
|
| 202,310 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On June 19, 2014, our board of directors authorized a share repurchase program for the repurchase of up to an aggregate of $200 million of the Company’s outstanding common stock. On March 11, 2015, our board of directors authorized an additional $200 million for the repurchase of the Company’s outstanding common stock. All of the repurchases in the table above were made through that program.
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Exhibit |
|
|
Number |
| Exhibit Index |
|
|
|
10.1 | * | Termination Protection Agreement, |
10.2 | * | Esterline Technologies Corporation Fiscal Year 2017 Annual Incentive Compensation Plan. (Incorporated by reference to Exhibit 10.1 to the Company's Annual Report on Form 10-K for the year ended September 30, 2016 [Commission File Number 1-6357].) |
10.3 | * | Esterline Technologies Corporation Long-Term Incentive Performance Share Plan, for fiscal years 2017 - 2019. (Incorporated by reference to Exhibit 10.2 to the Company's Annual Report on Form 10-K for the year ended September 30, 2016 [Commission File Number 1-6357].) |
10.4 | * | Esterline Technologies Corporation 2002 Employee Stock Purchase Plan, as |
10.5 | * | Form on Global Stock Option Agreement for Esterline Technologies Corporation 2013 Equity Incentive Plan (dated November 2016). (Incorporated by reference to Exhibit 10.14 to the Company's Annual Report on Form 10-K for the year ended September 30, 2016 [Commission File Number 1-6357].) |
10.6 | * | Form on Restricted Stock Unit Agreement for Esterline Technologies Corporation 2013 Equity Incentive Plan (dated November 2016). (Incorporated by reference to Exhibit 10.15 to the Company's Annual Report on Form 10-K for the year ended September 30, 2016 [Commission File Number 1-6357].) |
|
|
|
11 |
| Schedule setting forth computation of basic and diluted earnings per share for the three |
|
|
|
31.1 |
| Certification of Chief Executive Officer. |
|
|
|
31.2 |
| Certification of Chief Financial Officer. |
|
|
|
32.1 |
| Certification (of Curtis C. Reusser) pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.2 |
| Certification (of Robert D. George) pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
101.INS |
| XBRL Instance Document |
|
|
|
101.SCH |
| XBRL Taxonomy Extension Schema |
|
|
|
101.CAL |
| XBRL Taxonomy Extension Calculation Linkbase |
|
|
|
101.DEF |
| XBRL Taxonomy Extension Definition Linkbase |
|
|
|
101.LAB |
| XBRL Taxonomy Extension Label Linkbase |
|
|
|
101.PRE |
| XBRL Taxonomy Extension Presentation Linkbase |
* Indicates management contract or compensatory plan or arrangement.
28
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
|
| ESTERLINE TECHNOLOGIES CORPORATION |
|
| (Registrant) |
Dated: |
| By: |
| /s/ Robert D. George |
|
|
|
| Robert D. George |
|
|
|
| Executive Vice President, Chief Financial Officer, and |
|
|
|
| Corporate Development |
|
|
|
| (Principal Financial Officer) |
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