Project Lightning Redacted.pdf

Quality of earnings the potential earnings

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Quality of earnings The potential earnings adjustments reflected in the table are not deemed to be all-inclusive and are based on information provided by Management. Additional analysis of the income statement and balance sheet through a financial statement audit or additional due diligence could result in the identification of additional or different amounts of potential adjustments to EBITDA. Insights Overall, Management adjusted EBITDA increased to $20,696 in TTM 16 driven by increasing revenues leveraging fixed manufacturing overhead and SG&A overhead costs. Income taxes added back to EBITDA consist solely of income-based state taxes. Revenue based state taxes have not been added back to EBITDA.
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© 2016 Grant Thornton LLP | Project Lightning | October 21, 2016 DRAFT 18 $ in thousands Ref. No. Fiscal 14 Fiscal 15 TTM 16 Rev enue, unadjusted 203,580 208,107 257,299 Net income 5,972 5,200 16,159 Add-backs Interest (income) / ex pense (27) (147) (247) Depreciation and amortization 4,140 3,981 4,158 Income tax ex pense / (benefit) 116 116 116 Reported EBITDA 10,201 9,151 20,186 Management adjustments Workers comp normalization MA-01 268 215 415 Bonus and profit sharing ex pense MA-02 - 347 261 Credit memo reserve MA-03 - - (285) Oracle implementation MA-04 - - 272 Shared services MA-05 (237) (388) (287) Vacation accrual MA-06 - - (172) Engineering reserve MA-07 - - 150 Loss on sale of assets MA-08 19 97 124 Group insurance accrual MA-09 - - 102 Bad debt ex pense MA-10 23 (105) (87) Warranty methodology change MA-11 (1,440) - - Total Management adjustments (1,367) 167 492 Management adjusted EBITDA 8,834 9,317 20,678 Pro forma adjustments State 2 closure PF-01 358 403 421 Pro forma EBITDA 9,192 9,720 21,098 % of revenue Reported EBITDA % 5.0% 4.4% 7.8% Management adjusted EBITDA % 4.3% 4.5% 8.0% Pro forma EBITDA % 4.5% 4.7% 8.2% Management adjustments Quality of earnings Management adjustments MA-01 Workers comp normalization: Due to the limited history of standalone Subsidiary incident and injury rates under Target Co. ownership, the Company utilized blended rates from Target Co. and Subsidiary to estimate workers' compensation liabilities during this Historical Period. As Subsidiary accumulated more standalone rate data, the blended mix of Subsidiary and Target Co. rates shifted more heavily to Subsidiary rates. As of August 27, 2016, the Company began fully using historical Subsidiary incident rates. This change resulted in an increase to the required liability from $975 at November 29, 2014 to $1,512 as of November 28, 2015, and further to $1,862 as of August 27, 2016. As a result, the Company incurred significant, non-recurring expenses in Fiscal 15 to catch-up the accrual for prior periods. The table below presents the impact on working capital and EBITDA, had the Company utilized full Subsidiary incident rates in estimating workers compensation liabilities over the Historical Period. See also WC-09 in the working capital section of the report. Additionally, Management included an over accrual of $92 at TTM 16 within this adjustment using the latest historical Subsidiary incident and injury rates.
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  • Spring '08
  • McCaffrey
  • Revenue, Grant Thornton LLP

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