TransDigm Group Reports Fiscal 2013 Third Quarter Results

CLEVELAND, Aug. 6, 2013 /PRNewswire/ — TransDigm Group Incorporated (NYSE: TDG), a leading global designer, producer and supplier of highly engineered aircraft components, today reported results for the third quarter ended June 29, 2013.

Highlights for the third quarter include:

Net sales of $488.6 million, up 5.8% from $461.7 million;
EBITDA As Defined of $231.9 million, up 7.0% from $216.7 million;
Net income of $76.7 million, down 15.2% from $90.4 million;
Earnings per share of $0.71, down 57.7% from $1.68; and
Adjusted earnings per share of $1.89, up 0.5% from $1.88.
Net sales for the quarter rose 5.8% to $488.6 million from $461.7 million in the comparable quarter a year ago. Organic net sales growth of 4.5% was driven by an increase in sales over the prior year in commercial OEM and defense sales. The favorable contribution from the acquisitions of Arkwin, Aerosonic and Aero-Instruments accounted for the balance of the sales increase.

Net income for the quarter decreased 15.2% to $76.7 million, or $0.71 per share, compared with $90.4 million, or $1.68 per share, in the comparable quarter a year ago. Earnings per share were reduced by $0.70 per share representing dividend equivalent payments of $38 million related to the accelerated vesting of 2.4 million stock options under the “market sweep” provision for all options granted prior to October 1, 2011. The decrease in net income reflects non-cash compensation costs of $21.3 million, net of tax, or $0.39 per share relating to the accelerated vesting of stock options and higher interest expense due to an increase in the level of outstanding borrowings. The comparable quarter a year ago reflected non-cash compensation costs of $4.1 million, net of tax, or $0.08 per share. The decrease in net income during the quarter is partially offset by the growth in net sales described above.

Adjusted net income for the quarter rose 1.9% to $103.1 million, or $1.89 per share, from $101.2 million, or $1.88 per share, in the comparable quarter a year ago.

EBITDA for the quarter decreased 5.3% to $192.8 million from $203.5 million for the comparable quarter a year ago. EBITDA As Defined for the period increased 7.0% to $231.9 million compared with $216.7 million in the quarter a year ago. EBITDA As Defined as a percentage of net sales for the quarter was 47.5%.

“Overall we see positive signs in our third quarter results,” stated W. Nicholas Howley, TransDigm Group’s Chairman and Chief Executive Officer. “Our sales and bookings results in the quarter may have begun to indicate an inflection point for recovery in the commercial aftermarket. Though too soon to tell with certainty, we are hopeful this trend will continue. In addition, our organic commercial OEM and defense revenues continued to perform better than originally anticipated. Our third quarter EBITDA As Defined margin remained strong at 47.5%, in spite of both acquisition and ongoing unfavorable sales mix dilution.”

Year-to-Date Results

Net sales for the thirty-nine week period ended June 29, 2013 rose 11.9% to $1,384.7 million from $1,237.6 million in the comparable period last year. The favorable contribution from the acquisitions of Harco, AmSafe, Aero-Instruments, Arkwin and Aerosonic, accounted for $127.6 million of the increase in net sales during the period. Organic net sales growth was 2.7%.

Net income for the thirty-nine week period decreased 7.7% to $218.8 million, or $2.62 per share, compared with $237.1 million, or $4.34 per share. Earnings per share were reduced by $1.40 per share representing dividend equivalent payments of $76 million. The decrease in net income primarily reflects higher interest expense due to an increase in the level of outstanding borrowings, one-time costs attributable to the refinancing of our senior secured credit facility in February 2013 of $20.4 million, net of tax, or $0.38 per share and additional non-cash compensation cost recorded in June 2013 relating to the accelerated vesting of stock options. The non-cash compensation cost for the thirty-nine week period ended June 30, 2013 was $31.0 million, net of tax, or $0.57 per share compared to $9.7 million, net of tax, or $0.18 per share in the prior year. The decrease in net income during the period is partially offset by the growth in net sales described above and lower acquisition-related costs.

Earnings per share for the thirty-nine week period ended June 30, 2012 were reduced by $0.06 per share representing dividend equivalent payments.

Adjusted net income for the thirty-nine week period rose 5.1% to $280.4 million, or $5.15 per share, from $266.7 million, or $4.95 per share, in the comparable period a year ago.

EBITDA for the thirty-nine week period increased 0.8% to $563.2 million from $559.0 million for the comparable period a year ago. EBITDA As Defined for the period increased 9.8% to $652.1 million compared with $593.9 million in the comparable period a year ago. EBITDA As Defined as a percentage of net sales for the period was 47.1%.

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.

Fiscal 2013 Outlook

Mr. Howley continued, “We have been busy with acquisition and capital market activity in the last quarter. The Company is revising the full year fiscal 2013 guidance to reflect the recent acquisitions of Arkwin, GE Whippany and Aerosonic; additional interest related to the $1.4 billion of new debt financed to pay a $22 dividend; the impact of the accelerated vesting of 2.4 million stock options; performance experienced to date and fiscal fourth quarter expectations.”

The Company is adjusting full year fiscal 2013 guidance, which assumes no additional acquisitions, as follows:

Net sales are anticipated to be in the range of $1,907 million to $1,927 million (previously in the range of $1,840 million to $1,880 million) compared with $1,700 million in fiscal 2012;
EBITDA As Defined is anticipated to be in the range of $890 million to $900 million (previously in the range of $878 million to $898 million) compared with $809 million in fiscal 2012;
Net income is anticipated to be in the range of $297 million to $303 million (previously in the range of $326 million to $338 million) compared with $325 million in fiscal 2012;
Earnings per share are expected to be in the range of $2.28 to $2.40 per share based upon weighted average shares outstanding of 55.1 million (previously in the range of $5.29 to $5.51 per share) compared with $5.97 per share in fiscal 2012; and
Adjusted earnings per share are expected to be in the range of $6.74 to $6.86 per share (previously in the range of $6.83 to $7.05 per share) compared with $6.67 per share in fiscal 2012.