TransDigm Group Reports Fiscal 2011 Third Quarter Results

CLEVELAND, Aug. 9, 2011 /PRNewswire/ — TransDigm Group Incorporated (NYSE: TDG), a leading global designer, producer and supplier of highly engineered aircraft components, today reported results for the fiscal third quarter ended July 2, 2011.

Highlights for the third quarter:

Net sales of $325.2 million, up 51.8% from $214.2 million;

EBITDA As Defined of $161.4 million, up 52.5% from $105.8 million;

Net income of $56.3 million, up 27.9% from $44.0 million;

Earnings per share of $1.06, up 27.7% from $0.83;

Adjusted earnings per share of $1.21, up 37.5% from $0.88; and

Upward revision in fiscal 2011 outlook

Net sales for the quarter rose 51.8% to $325.2 million from $214.2 million in the comparable quarter a year ago. Organic net sales growth was approximately 13.2% driven by improvement in both the commercial aftermarket and OEM markets partially offset by a slight decline in defense sales. The acquisitions of McKechnie Aerospace, Talley Actuation and Semco Instruments accounted for the balance of the sales increase.

Net income for the quarter increased 27.9% to $56.3 million, or $1.06 per share. This includes a loss of $2.1 million, or $0.04 per share, from discontinued operations. Income from continuing operations of $58.4 million, or $1.10 per share, increased from $44.0 million, or $0.83 per share, in the prior year. Income in the quarter was negatively impacted by acquisition-related expenses of $4.3 million, net of tax, or $0.08 per share, and higher interest expense related to the refinancing of the Company’s debt structure in the first quarter of fiscal 2011. Net income in the comparable quarter a year ago of $44.0 million, or $0.83 per share, included acquisition-related expenses of $1.3 million, net of tax, or $0.02 per share.

Adjusted net income for the quarter rose 38.8% to $64.5 million, or $1.21 per share, from $46.5 million, or $0.88 per share, in the comparable quarter a year ago.

EBITDA for the quarter increased 52.3% to $156.7 million from $102.9 million for the comparable quarter a year ago. EBITDA As Defined for the period, increased 52.5% to $161.4 million compared with $105.8 million in the quarter a year ago. EBITDA As Defined as a percentage of net sales for the quarter was 49.6%.

“We are pleased with our operating results,” stated W. Nicholas Howley, TransDigm Group’s Chairman and Chief Executive Officer. "The commercial aerospace revenues continue the strong growth in both the aftermarket and OEM markets. The defense revenues, on the other hand, continue to be soft. Operationally, we had a strong quarter at almost 50% EBITDA As Defined margin. The dilutive impact of recent acquisitions reduced margins by approximately two margin points. This financial performance continues to reflect the consistent ability of our proven operating strategy to create intrinsic shareholder value.

He continued, “We ended the quarter with approximately $550 million in cash and almost $240 million of capacity on our revolving credit facility. This strong liquidity position provides us with adequate financial flexibility to continue to pursue acquisition opportunities and/or optimize our capital structure.”

As previously announced, on August 5, 2011, TransDigm entered into a definitive agreement to acquire Schneller Holdings LLC (Schneller), from an affiliate of Graham Partners, Inc., for approximately $288.5 million in cash. The acquisition, subject to review under the Hart-Scott-Rodino Act and other customary closing conditions, is expected to close by September 30, 2011.

On April 7, 2011, TransDigm completed the sale of its distribution business to Satair for approximately $30 million in cash. This business was acquired as part of the McKechnie Aerospace acquisition in December 2010. Accordingly, the results of the distribution business are presented as discontinued operations and, as such, are excluded from continuing operations along with the results of the fasteners businesses that were divested in March 2011. The net loss from discontinued operations for the quarter related to these divestitures was $2.1 million, net of tax, and is excluded from the Company’s EBITDA As Defined, adjusted net income and adjusted earnings per share.

Year-to-Date Results

Net sales for the 39-week period ended July 2, 2011 rose 42.8% to $863.1 million from $604.5 million in the comparable period last year. This increase is primarily due to recent acquisitions, with organic sales up 11.8%.

Net income for the 39-week period decreased 7.2% to $104.7 million, or $1.91 per share. This includes $16.8 million, or $0.31 per share, from discontinued operations. Income from continuing operations decreased 22.1% to $87.9 million, or $1.60 per share, reflecting one-time costs attributable to the capital structure refinancing of $46.9 million, net of tax, or $0.88 per share, acquisition-related expenses of $22.0 million, net of tax, or $0.41 per share and higher interest related to the refinancing in the first quarter of fiscal 2011. In addition, earnings per share were reduced by $0.05 per share due to dividend equivalent payments in the first quarter. Net income in the comparable period a year ago of $112.8 million, or $1.56 per share, included acquisition-related expenses of $7.2 million, net of tax, or $0.14 per share. In addition, earnings per share were reduced by $0.57 per share due to dividend equivalent payments.

Adjusted net income for the 39-week period rose 30.9% to $161.3 million, or $3.02 per share, from $123.2 million, or $2.33 per share, in the comparable period a year ago.

EBITDA (which excludes discontinued operations) for the 39-week period increased 11.6% to $315.2 million from $282.3 million in the comparable period a year ago. EBITDA As Defined for the period, increased 41.2% to $418.0 million compared with $296.0 million in the comparable period a year ago. EBITDA As Defined as a percentage of net sales for the period was 48.4%.

Please see the attached tables for a reconciliation of net income to EBITDA, EBITDA As Defined, and adjusted net income; a reconciliation of net cash provided by operating activities to EBITDA and EBITDA As Defined, and a reconciliation of earnings per share to adjusted earnings per share for the periods discussed in this press release.

Earnings per share is calculated under the “two-class method.” The application of the two-class method as compared to the treasury stock method requires the inclusion of approximately two million additional shares outstanding for the quarter, which results in dilution of earnings per share by approximately 3% on a fully diluted basis.

Fiscal 2011 Outlook

Mr. Howley continued, “The Company is revising the full year fiscal 2011 guidance to reflect the continuing improvement in the commercial market and operations. As a result of the sales growth in the commercial aftermarket as well as positive performance from the McKechnie acquisition, we now believe our fiscal 2011 EBITDA margins will continue to expand and approach 49% for the full year.”

Based upon current market conditions, excluding the impact, if any, from the previously announced agreement to acquire Schneller, and assuming no other acquisitions or divestitures, the revised guidance is as follows:

Revenues from continuing operations are anticipated to be in the range of $1,189 million to $1,199 million (previously in the range of $1,179 million to $1,189 million) compared with $828 million in fiscal 2010;
EBITDA As Defined is anticipated to be in the range of $579 million to $585 million (previously in the range of $574 million to $580 million) compared with $412 million in fiscal 2010;
Net income is anticipated to be in the range of $162 million to $166 million (previously in the range of $150 million to $158 million) compared with $163 million in fiscal 2010;
Earnings per share are expected to be in the range of $2.98 to $3.06 per share (previously in the range of $2.76 to $2.91 per share) compared with $2.52 per share in fiscal 2010; and
Adjusted earnings per share are expected to be in the range of $4.22 to $4.30 per share (previously in the range of $3.97 to $4.12 per share) compared with $3.35 per share in fiscal 2010.