10-QPeriod: Q3 FY2013

TransDigm Group INC Quarterly Report for Q3 Ended Jun 29, 2013

Filed August 7, 2013For Securities:TDG

Summary

TransDigm Group Inc. reported its financial results for the third quarter ended June 29, 2013. The company experienced a notable increase in net sales, reaching $488.6 million, up from $461.7 million in the same period last year, driven by both organic growth and strategic acquisitions. Despite a rise in sales, net income saw a decrease to $76.7 million from $90.4 million year-over-year. This reduction is largely attributable to significant non-recurring expenses, including a substantial stock compensation expense related to accelerated vesting provisions and refinancing costs associated with debt. The company continued its aggressive acquisition strategy, closing on Whippany Actuation Systems, Arkwin Industries, and Aerosonic Corporation during the quarter, which contributed to a significant increase in goodwill and intangible assets on the balance sheet.

Financial Highlights

48 data points
Beta

Revenue

$488.64M

55.0% Gross Margin

Net Income

$76.66M

15.7% Net Margin

EPS (Diluted)

$0.71

Total Assets

$5.81B

Cash & Equivalents

$269.17M

Free Cash Flow

$62.43M

Financial Statements
Beta
Revenue$488.64M
Cost of Revenue$219.65M
Gross Profit$268.99M
SG&A Expenses$82.77M
Operating Income$176.72M
Net Income$76.66M
EPS (Basic)$0.71
Shares Outstanding (Basic)54.51M

Key Highlights

  • 1Net sales increased by 5.8% to $488.6 million for the thirteen-week period ended June 29, 2013, compared to $461.7 million for the same period in 2012.
  • 2Net income decreased by 15.2% to $76.7 million for the thirteen-week period ended June 29, 2013, compared to $90.4 million for the same period in 2012.
  • 3Diluted earnings per share decreased to $0.71 from $1.68 year-over-year, impacted by higher stock compensation expenses and dividend allocations.
  • 4The company completed three significant acquisitions during the quarter: Whippany Actuation Systems, Arkwin Industries, and Aerosonic Corporation, totaling approximately $513.4 million.
  • 5Total debt increased significantly, primarily due to the refinancing and expansion of the credit facility and the issuance of new senior subordinated notes, reflecting the company's leveraged growth strategy.
  • 6Selling and administrative expenses increased by 47.6% due to substantial stock compensation expenses related to accelerated vesting and acquisition-related expenses.
  • 7The company ended the quarter with a strong backlog of $1,107 million, up from $824 million at the end of the prior fiscal year's third quarter, indicating robust future demand.

Frequently Asked Questions

The sales increase was driven by a combination of organic sales growth across commercial and defense sectors and the contribution from recent acquisitions, including Whippany Actuation Systems, Arkwin Industries, and Aerosonic Corporation, which were integrated during the quarter. The total sales increase for the thirteen-week period was 5.8%.

The decrease in net income was primarily due to significant non-operational expenses. These included a substantial stock compensation expense of $21 million related to the accelerated vesting of stock options and $30.3 million in refinancing costs associated with the debt restructuring. Additionally, increased interest expenses from higher debt levels also contributed to the lower net income.

TransDigm significantly increased its debt during the period. This included refinancing its existing credit facilities into a larger $2.2 billion term loan facility and a $310 million revolving credit facility (the '2013 Credit Facility') and issuing $550 million in Senior Subordinated Notes due 2020. The company utilized these proceeds for acquisitions and debt repayment, signaling a continued strategy of financial leverage for growth.

The acquisitions of Whippany Actuation Systems, Arkwin Industries, and Aerosonic Corporation are strategically important for TransDigm. They expand the company's portfolio of highly engineered, proprietary aerospace components and align with its focus on niche markets with significant aftermarket potential. These acquisitions contributed to a notable increase in goodwill and intangible assets on the balance sheet.