10-QPeriod: Q3 FY2011

TransDigm Group INC Quarterly Report for Q3 Ended Apr 2, 2011

Filed May 11, 2011For Securities:TDG

Summary

TransDigm Group Inc. (TDG) reported significant growth in its second quarter fiscal year 2011, driven by strategic acquisitions and organic sales increases. The company's net sales grew substantially due to the integration of recent acquisitions, most notably McKechnie Aerospace, and a notable rise in commercial aftermarket sales, indicating a strengthening market demand. Despite increased sales, the company experienced a decrease in net income for the twenty-six week period, largely attributable to substantial refinancing costs related to its debt structure, increased interest expenses from higher borrowings, and acquisition-related integration costs. However, the company's liquidity remains strong, with significant cash generated from operations and a well-managed debt structure following a comprehensive refinancing. Investors should note the company's strategic focus on acquiring and integrating businesses within niche aerospace markets, which has led to a considerable increase in goodwill and intangible assets. The divestiture of the fastener business also streamlined operations. The company's backlog has significantly increased, providing a positive outlook for future revenue.

Financial Highlights

47 data points
Beta

Revenue

$304.31M

51.9% Gross Margin

Net Income

$55.82M

18.3% Net Margin

EPS (Diluted)

$1.04

Total Assets

$4.39B

Cash & Equivalents

$505.34M

Free Cash Flow

$61.60M

Financial Statements
Beta
Revenue$304.31M
Cost of Revenue$146.43M
Gross Profit$157.87M
SG&A Expenses$33.17M
Operating Income$113.24M
Net Income$55.82M
EPS (Basic)$1.04

Key Highlights

  • 1Net sales increased by 51.1% to $311.3 million for the thirteen-week period ended April 2, 2011, driven by acquisitions and organic growth.
  • 2The company completed significant acquisitions, including McKechnie Aerospace for approximately $1.27 billion and Talley Actuation for approximately $94 million, expanding its product portfolio and market reach.
  • 3A strategic divestiture of the fastener business was completed for approximately $240 million, which has been presented as discontinued operations.
  • 4The company undertook a significant debt refinancing, issuing $1.6 billion in Senior Subordinated Notes due 2018 and drawing a new $1.55 billion term loan, which resulted in substantial refinancing costs ($72.4 million for the 26-week period).
  • 5Interest expense increased significantly due to higher average borrowings, rising from $56.9 million in the prior year's comparable period to $86.7 million for the twenty-six week period ended April 2, 2011.
  • 6Total assets grew substantially to $4.39 billion from $2.68 billion in the prior year, largely due to increases in goodwill and intangible assets from acquisitions.
  • 7The sales order backlog significantly increased to $670.0 million from $429.5 million, primarily due to purchase orders acquired through recent acquisitions.

Frequently Asked Questions

The acquisitions, particularly McKechnie Aerospace and Talley Actuation, significantly boosted TransDigm's net sales by contributing $81.2 million in the most recent quarter and $114.3 million over the twenty-six week period. These acquisitions also led to a substantial increase in goodwill and intangible assets on the balance sheet. However, they also contributed to higher acquisition integration costs and amortization expenses.

TransDigm completed a major debt refinancing, issuing new notes and drawing a new term loan. This transaction resulted in significant one-time refinancing costs of $72.4 million for the twenty-six week period, impacting net income. While the refinancing increased total debt and consequently interest expense, it also extended maturity dates and provided significant liquidity.

The company's sales order backlog increased substantially to $670.0 million from $429.5 million, largely due to purchase orders from newly acquired businesses. This significant increase indicates a strong demand for TransDigm's products and provides a positive outlook for future revenue, with most orders scheduled for delivery within the next twelve months.

The decrease in net income for the twenty-six week period was primarily due to substantial refinancing costs of $72.4 million, increased interest expense resulting from higher debt levels used to finance acquisitions, and integration costs associated with those acquisitions. The divestiture of the fastener business also resulted in a gain, but overall, these factors led to a net income decrease compared to the prior year period.