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8-K - FORM 8-K - TransDigm Group INCd820129d8k.htm

Exhibit 99.1

 

LOGO

TransDigm Group Reports Fiscal 2014 Fourth Quarter and Year-End Results

Cleveland, Ohio, November 13, 2014/PRNewswire via COMTEX/ — TransDigm Group Incorporated (NYSE: TDG), a leading global designer, producer and supplier of highly engineered aircraft components, today reported results for the fourth quarter and fiscal year ended September 30, 2014.

Highlights for the quarter and fiscal year include:

 

    Fourth quarter net sales of $642.2 million, up 19.0% from $539.7 million;

 

    Fourth quarter EBITDA As Defined of $291.1 million, up 17.3% from $248.2 million;

 

    Fourth quarter adjusted earnings per share of $2.21, up 26.3% from $1.75;

 

    Fiscal 2014 net sales of $2,372.9 million, up 23.3% from $1,924.4 million;

 

    Fiscal 2014 EBITDA As Defined of $1,073.2 million, up 19.2% from $900.3 million;

 

    Fiscal 2014 net income of $306.9 million, up 1.4% from $302.8 million;

 

    Fiscal 2014 earnings per share of $3.16, up 32.2% from $2.39; and

 

    Fiscal 2014 adjusted earnings per share of $7.76, up 12.5% from $6.90.

Net sales for the quarter rose 19.0% to $642.2 million from $539.7 million in the comparable quarter a year ago. Organic net sales grew approximately 10.1%, of which approximately two-thirds was attributable to strong commercial aftermarket sales. The favorable contribution from the acquisitions of Airborne and Elektro-Metall (EME) accounted for the balance of the increase in net sales.

Net income for the quarter increased 36.0% to $114.3 million, or $1.91 earnings per share, compared with $84.0 million, or $.20 loss per share, in the comparable quarter a year ago. Earnings per share were reduced in both 2014 and 2013 by $0.11 and $1.67 per share respectively, representing dividend equivalent payments during each quarter. The increase in net income was primarily due to growth in net sales described above and lower acquisition-related costs partially offset by higher interest expense as a result of an increase in the level of outstanding borrowings and higher non-cash compensation costs. The higher interest expense was due to an increase in outstanding borrowings from $5.7 billion to $7.5 billion to fund the $25.00 per share dividend paid in June 2014. The current quarter included acquisition-related costs and non-cash compensation costs of $11.0 million, net of tax, or $0.19 per share. The comparable quarter a year ago reflected acquisition-related and non-cash compensation costs of $14.4 million, net of tax, or $0.26 per share.


Adjusted net income for the quarter rose 25.7% to $125.4 million, or $2.21 per share, from $99.7 million, or $1.75 per share, in the comparable quarter a year ago.

EBITDA for the quarter increased 22.2% to $280.4 million from $229.5 million for the comparable quarter a year ago. EBITDA As Defined for the period increased 17.3% to $291.1 million compared with $248.2 million in the quarter a year ago. EBITDA As Defined as a percentage of net sales for the quarter was 45.3%.

Full Fiscal Year Results

Fiscal 2014 net sales rose 23.3% to $2,372.9 million from $1,924.4 million in the comparable period last year. Organic net sales grew approximately 8.1%. The favorable contribution from the acquisitions of Aerosonic, Airborne, Elektro-Metall (EME), Arkwin and Whippany accounted for the balance of the increase in net sales.

Fiscal 2014 net income increased 1.4% to $306.9 million, or $3.16 per share, compared with $302.8 million, or $2.39 per share, in fiscal 2013. Earnings per share were reduced in both fiscal 2014 and 2013 by $2.22 per share and $3.11 per share respectively, representing dividend equivalent payments made during each fiscal year. The slight increase in net income in the current year was significantly impacted by one-time costs attributable to the refinancing of our $1.6 billion aggregate principal amount of 7 34% Senior Subordinated Notes in June 2014 of $90.0 million, net of tax, or $1.58 per share and higher interest expense. More than offsetting these costs was the growth in net sales described above and lower non-cash compensation costs. The prior year included one-time costs attributable to the refinancing of our senior secured credit facility in February 2013 of $20.4 million, net of tax, or $0.37 per share.

Fiscal 2014 adjusted net income rose 16.4% to $442.4 million, or $7.76 per share, from $380.1 million, or $6.90 per share, in the comparable period a year ago. The adjusted earnings per share increase of 12.5% was lower than the increase in adjusted net income of 16.4% as a result of higher weighted average shares of 57.0 million, up from 55.1 million in the prior year period.

Fiscal 2014 EBITDA increased 12.6% to $892.6 million from $792.7 million for the comparable period a year ago. EBITDA As Defined for the period increased 19.2% to $1,073.2 million compared with $900.3 million in the comparable period a year ago. EBITDA As Defined as a percentage of net sales for the period was 45.2%.

“Fiscal 2014 was a good year for TransDigm,” stated W. Nicholas Howley, TransDigm Group’s Chairman and Chief Executive Officer. “The commercial aftermarket recovered nicely in the second half of our fiscal year, and perhaps even ran a little ahead of itself in the fourth quarter.”

Mr. Howley continued, “In fiscal 2014 we took advantage of favorable credit markets to both fund the payment of a $25 per share special dividend and refinance approximately $1.6 billion of 7 34% Senior Subordinated Notes with lower interest cost. We also completed the acquisition of two aerospace businesses for about $310 million and purchased 909,700 shares of our own stock all while supporting our existing businesses and maintaining financial flexibility.”

 

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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 2015 Outlook

Assuming no acquisition activity and based upon current market conditions, the Company expects fiscal 2015 financial performance to be as follows:

 

  Net sales are anticipated to be in the range of $2,510 million to $2,550 million compared with $2,373 million in fiscal 2014;

 

  EBITDA As Defined is anticipated to be in the range of $1,163 million to $1,183 million compared with $1,073 million in fiscal 2014;

 

  Net income is anticipated to be in the range of $429 million to $443 million compared with $307 million in fiscal 2014;

 

  Earnings per share are expected to be in the range of $7.51 to $7.77 per share based upon weighted average shares outstanding of 56.6 million compared with $3.16 per share in fiscal 2014; and

 

  Adjusted earnings per share are expected to be in the range of $8.03 to $8.29 per share compared with $7.76 per share in fiscal 2014.

Mr. Howley continued, “Our fiscal 2015 guidance assumes that our commercial aftermarket revenues will be up in the high single-digit percentage after strong growth in 2014. The commercial OEM revenues are expected to be in the mid-single digit range and defense revenues about flat.”

Conference Call

TransDigm Group will host a conference call for investors and security analysts on November 13, 2014, beginning at 11:00 a.m., Eastern Time. To join the call, dial (877) 280-4955 and enter the pass code 46244665. International callers should dial (857) 244-7312 and use the same pass code. A live audio webcast can be accessed online at http://www.transdigm.com. A slide presentation will also be available for reference during the conference call; go to the investor relations page of our website and click on “Presentations.”

The call will be archived on the website and available for replay at approximately 2:00 p.m., Eastern Time. A telephone replay will be available for two weeks by dialing (888) 286-8010 and entering the pass code 97669083. International callers should dial (617) 801-6888 and use the same pass code.

 

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About TransDigm Group

TransDigm Group, through its wholly-owned subsidiaries, is a leading global designer, producer and supplier of highly engineered aircraft components for use on nearly all commercial and military aircraft in service today. Major product offerings, substantially all of which are ultimately provided to end-users in the aerospace industry, include mechanical/electro-mechanical actuators and controls, ignition systems and engine technology, specialized pumps and valves, power conditioning devices, specialized AC/DC electric motors and generators, NiCad batteries and chargers, engineered latching and locking devices, rods and locking devices, engineered connectors and elastomers, cockpit security components and systems, specialized cockpit displays, aircraft audio systems, specialized lavatory components, seatbelts and safety restraints, engineered interior surfaces, lighting and control technology and military personnel parachutes and cargo delivery systems.

Non-GAAP Supplemental Information

EBITDA, EBITDA As Defined, EBITDA As Defined Margin, adjusted net income and adjusted earnings per share are non-GAAP financial measures presented in this press release as supplemental disclosures to net income and reported results. TransDigm Group defines EBITDA as earnings before interest, taxes, depreciation and amortization and defines EBITDA As Defined as EBITDA plus certain non-operating items, refinancing costs, acquisition-related costs, transaction-related costs and non-cash charges incurred in connection with certain employee benefit plans. TransDigm Group defines adjusted net income as net income plus purchase accounting backlog amortization expense, effects from the sale on businesses, refinancing costs, acquisition-related costs, transaction-related costs and non-cash charges incurred in connection with certain employee benefit plans. EBITDA As Defined Margin represents EBITDA As Defined as a percentage of net sales. TransDigm Group defines adjusted diluted earnings per share as adjusted net income divided by the total shares for basic and diluted earnings per share. For more information regarding the computation of EBITDA, EBITDA As Defined and adjusted net income and adjusted earnings per share, please see the attached financial tables.

TransDigm Group presents these non-GAAP financial measures because it believes that they are useful indicators of its operating performance. TransDigm Group believes that EBITDA is useful to investors because it is frequently used by securities analysts, investors and other interested parties to measure operating performance among companies with different capital structures, effective tax rates and tax attributes, capitalized asset values and employee compensation structures, all of which can vary substantially from company to company. In addition, analysts, rating agencies and others use EBITDA to evaluate a company’s ability to incur and service debt. EBITDA As Defined is used to measure TransDigm Inc.’s compliance with the financial covenant contained in its credit facility. TransDigm Group’s management also uses EBITDA As Defined to review and assess its operating performance, to prepare its annual budget and financial projections and to review and evaluate its management team in connection with employee incentive programs. Moreover, TransDigm Group’s management uses EBITDA As Defined to evaluate acquisitions and as a liquidity measure. In addition, TransDigm Group’s management uses adjusted net income as a measure of comparable operating performance between time periods and among companies as it is reflective of changes in pricing decisions, cost controls and other factors that affect operating performance.

 

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None of EBITDA, EBITDA As Defined, EBITDA As Defined Margin, adjusted net income or adjusted earnings per share is a measurement of financial performance under GAAP and such financial measures should not be considered as an alternative to net income, operating income, earnings per share, cash flows from operating activities or other measures of performance determined in accordance with GAAP. In addition, TransDigm Group’s calculation of these non-GAAP financial measures may not be comparable to the calculation of similarly titled measures reported by other companies.

Although we use EBITDA and EBITDA As Defined as measures to assess the performance of our business and for the other purposes set forth above, the use of these non-GAAP financial measures as analytical tools has limitations, and you should not consider any of them in isolation, or as a substitute for analysis of our results of operations as reported in accordance with GAAP. Some of these limitations are:

 

    neither EBITDA nor EBITDA As Defined reflects the significant interest expense, or the cash requirements necessary to service interest payments, on our indebtedness;

 

    although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and neither EBITDA nor EBITDA As Defined reflects any cash requirements for such replacements;

 

    the omission of the substantial amortization expense associated with our intangible assets further limits the usefulness of EBITDA and EBITDA As Defined;

 

    neither EBITDA nor EBITDA As Defined includes the payment of taxes, which is a necessary element of our operations; and

 

    EBITDA As Defined excludes the cash expense we have incurred to integrate acquired businesses into our operations, which is a necessary element of certain of our acquisitions.

Because of these limitations, EBITDA and EBITDA As Defined should not be considered as measures of discretionary cash available to us to invest in the growth of our business. Management compensates for these limitations by not viewing EBITDA or EBITDA As Defined in isolation and specifically by using other GAAP measures, such as net income, net sales and operating profit, to measure our operating performance. Neither EBITDA nor EBITDA As Defined is a measurement of financial performance under GAAP, and neither should be considered as an alternative to net income or cash flow from operations determined in accordance with GAAP. Our calculation of EBITDA and EBITDA As Defined may not be comparable to the calculation of similarly titled measures reported by other companies.

Forward-Looking Statements

Statements in this press release that are not historical facts, including statements under the heading “Fiscal 2015 Outlook,” are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “believe,” “may,” “will,” “should,” “expect,” “intend,” “plan,” “predict,” “anticipate,” “estimate,” or “continue” and other words and terms of similar meaning may identify forward-looking statements.

 

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All forward-looking statements involve risks and uncertainties which could affect TransDigm Group’s actual results and could cause its actual results to differ materially from those expressed or implied in any forward-looking statements made by, or on behalf of, TransDigm Group. These risks and uncertainties include but are not limited to: the sensitivity of our business to the number of flight hours that our customers’ planes spend aloft and our customers’ profitability, both of which are affected by general economic conditions; future terrorist attacks; our reliance on certain customers; the U.S. defense budget and risks associated with being a government supplier; failure to maintain government or industry approvals; failure to complete or successfully integrate acquisitions; our substantial indebtedness; potential environmental liabilities; and other factors. Further information regarding the important factors that could cause actual results to differ materially from projected results can be found in TransDigm Group’s Annual Report on Form 10-K and other reports that TransDigm Group or its subsidiaries have filed with the Securities and Exchange Commission. Except as required by law, TransDigm Group undertakes no obligation to revise or update the forward-looking statements contained in this press release.

 

Contact: Liza Sabol

Investor Relations

 

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TRANSDIGM GROUP INCORPORATED

  

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

  

FOR THE THIRTEEN WEEK PERIODS AND FISCAL YEARS ENDED

  

SEPTEMBER 30, 2014 AND SEPTEMBER 30, 2013

   Table 1

(Amounts in thousands, except per share amounts)

  

(Unaudited)

  

 

     Thirteen Week Periods Ended     Fiscal Years Ended  
     September 30,
2014
     September 30,
2013
    September 30,
2014
     September 30,
2013
 

NET SALES

   $ 642,241       $ 539,737      $ 2,372,906       $ 1,924,400   

COST OF SALES

     293,613         257,018        1,105,032         874,838   
  

 

 

    

 

 

   

 

 

    

 

 

 

GROSS PROFIT

     348,628         282,719        1,267,874         1,049,562   

SELLING AND ADMINISTRATIVE EXPENSES

     76,685         61,071        276,446         254,468   

AMORTIZATION OF INTANGIBLE ASSETS

     13,223         15,875        63,608         45,639   
  

 

 

    

 

 

   

 

 

    

 

 

 

INCOME FROM OPERATIONS

     258,720         205,773        927,820         749,455   

INTEREST EXPENSE - Net

     96,933         81,246        347,688         270,685   

REFINANCING COSTS

     132         —          131,622         30,281   
  

 

 

    

 

 

   

 

 

    

 

 

 

INCOME BEFORE INCOME TAXES

     161,655         124,527        448,510         448,489   

INCOME TAX PROVISION

     47,400         40,500        141,600         145,700   
  

 

 

    

 

 

   

 

 

    

 

 

 

NET INCOME

   $ 114,255       $ 84,027      $ 306,910       $ 302,789   
  

 

 

    

 

 

   

 

 

    

 

 

 

NET INCOME (LOSS) APPLICABLE TO COMMON STOCK

   $ 108,157       $ (11,110   $ 180,284       $ 131,546   
  

 

 

    

 

 

   

 

 

    

 

 

 

Net earnings per share:

          

Basic and diluted

   $ 1.91       $ (0.20   $ 3.16       $ 2.39   

Cash dividends paid per common share

   $ —         $ 22.00      $ 25.00       $ 34.85   

Weighted-average shares outstanding:

          

Basic and diluted

     56,731         56,862        56,993         55,080   

 

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TRANSDIGM GROUP INCORPORATED

  

SUPPLEMENTAL INFORMATION—RECONCILIATION OF EBITDA,

  

EBITDA AS DEFINED TO NET INCOME

  

FOR THE THIRTEEN WEEK PERIODS AND FISCAL YEARS ENDED

  

SEPTEMBER 30, 2014 AND SEPTEMBER, 30 2013

   Table 2

(Amounts in thousands)

  
(Unaudited)   

 

     Thirteen Week
Periods Ended
    Fiscal Years Ended  
     September 30,
2014
    September 30,
2013
    September 30,
2014
    September 30,
2013
 

Net income

   $ 114,255      $ 84,027      $ 306,910      $ 302,789   

Adjustments:

        

Depreciation and amortization expense

     21,844        23,680        96,385        73,515   

Interest expense, net

     96,933        81,246        347,688        270,685   

Income tax provision

     47,400        40,500        141,600        145,700   
  

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

     280,432        229,453        892,583        792,689   

Adjustments:

        

Acquisition related expenses and adjustments (1)

     3,048        13,877        20,541        26,433   

Non-cash stock compensation expense (2)

     7,483        2,904        26,332        48,884   

Refinancing costs (3)

     132        —          131,622        30,281   

Other nonrecurring charges

     3        1,991        2,129        1,991   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross Adjustments to EBITDA

     10,666        18,772        180,624        107,589   
  

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA As Defined

   $ 291,098      $ 248,225      $ 1,073,207      $ 900,278   
  

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA As Defined, Margin (4)

     45.3     46.0     45.2     46.8

 

(1)  Represents accounting adjustments to inventory associated with acquisitions of businesses and product lines that were charged to cost of sales when the inventory was sold; costs incurred to integrate acquired businesses and product lines into TD Group’s operations, facility relocation costs and other acquisition-related costs; transaction-related costs comprising deal fees; legal, financial and tax due diligence expenses and valuation costs that are required to be expensed as incurred and other acquisition accounting adjustments.
(2) Represents the compensation expense recognized by TD Group under our stock option plans.
(3) Represents costs expensed including the premium paid to redeem our 2018 Notes in June 2014 and the refinancing of our 2010 Credit Facility and 2011 Credit Facility in February 2013, respectively.
(4) The EBITDA As Defined margin represents the amount of EBITDA As Defined as a percentage of sales.

 

8


TRANSDIGM GROUP INCORPORATED

  

SUPPLEMENTAL INFORMATION—RECONCILIATION OF

  

REPORTED EARNINGS (LOSS) PER SHARE TO

  

ADJUSTED EARNINGS PER SHARE

   Table 3

FOR THE THIRTEEN WEEK PERIODS AND FISCAL YEARS ENDED

  

SEPTEMBER 30, 2014 AND SEPTEMBER 30, 2013

  

(Amounts in thousands, except per share amounts)

  

(Unaudited)

  

 

     Thirteen Week
Periods Ended
    Fiscal Years Ended  
     September 30,
2014
    September 30,
2013
    September 30,
2014
    September 30,
2013
 

Reported Earnings Per Share

        

Net income

   $ 114,255      $ 84,027      $ 306,910      $ 302,789   

Less: dividends on participating securities

     (6,098     (95,137     (126,626     (171,243
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) applicable to common stock—basic and diluted

   $ 108,157      $ (11,110   $ 180,284      $ 131,546   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average shares outstanding under the two-class method:

        

Weighted average common shares outstanding

     52,579        52,580        52,748        52,258   

Vested options deemed participating securities

     4,152        4,282        4,245        2,822   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total shares for basic and diluted earnings per share

     56,731        56,862        56,993        55,080   
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic and diluted earnings (loss) per share

   $ 1.91      $ (0.20   $ 3.16      $ 2.39   
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted Earnings Per Share

    

Net income

   $ 114,255      $ 84,027      $ 306,910      $ 302,789   

Gross adjustments to EBITDA

     10,666        18,772        180,624        107,589   

Purchase accounting backlog amortization

     2,122        4,515        17,390        6,976   

Tax adjustment

     (1,689     (7,578     (62,515     (37,219
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted net income

   $ 125,354      $ 99,736      $ 442,409      $ 380,135   
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted diluted earnings per share under the two-class method

   $ 2.21      $ 1.75      $ 7.76      $ 6.90   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted Earnings (Loss) Per Share to Adjusted Earnings Per Share

    

Diluted earnings (loss) per share

   $ 1.91      $ (0.20   $ 3.16      $ 2.39   

Adjustments to diluted earnings (loss) per share:

        

Inclusion of the dividend equivalent payment

     0.11        1.67        2.22        3.11   

Non-cash stock compensation expense

     0.11        0.03        0.32        0.60   

Acquisition related expenses

     0.08        0.23        0.46        0.41   

Refinancing costs

     —          —          1.58        0.37   

Other nonrecurring charges

     —          0.02        0.02        0.02   
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted earnings per share

   $ 2.21      $ 1.75      $ 7.76      $ 6.90   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

9


TRANSDIGM GROUP INCORPORATED

  

SUPPLEMENTAL INFORMATION—RECONCILIATION OF NET CASH

  

PROVIDED BY OPERATING ACTIVITIES TO EBITDA, EBITDA AS DEFINED

  

FOR THE FISCAL YEARS ENDED

  

SEPTEMBER 30, 2014 AND SEPTEMBER 30, 2013

   Table 4

(Amounts in thousands)

  

(Unaudited)

  

 

     Fiscal Years Ended  
     September 30,
2014
    September 30,
2013
 

Net Cash Provided by Operating Activities

   $ 541,222      $ 470,205   

Adjustments:

    

Changes in assets and liabilities, net of effects from acquisitions of businesses

     (27,967     (71,618

Net gain on sale of real estate

     804        —     

Interest expense—net (1)

     333,753        258,752   

Income tax provision—current

     151,016        148,314   

Non-cash stock compensation expense (2)

     (26,332     (48,884

Excess tax benefit from exercise of stock options

     51,709        66,201   

Refinancing costs (4)

     (131,622     (30,281
  

 

 

   

 

 

 

EBITDA

     892,583        792,689   

Adjustments:

    

Acquisition related expenses (3)

     20,541        26,433   

Non-cash stock compensation expense (2)

     26,332        48,884   

Refinancing costs (4)

     131,622        30,281   

Other nonrecurring charges

     2,129        1,991   
  

 

 

   

 

 

 

EBITDA As Defined

   $ 1,073,207      $ 900,278   
  

 

 

   

 

 

 

 

(1)  Represents interest expense excluding the amortization of debt issue costs and note premium and discount.
(2)  Represents the compensation expense recognized by TD Group under our stock option plans.
(3)  Represents accounting adjustments to inventory associated with acquisitions of businesses and product lines that were charged to cost of sales when the inventory was sold; costs incurred to integrate acquired businesses and product lines into TD Group’s operations, facility relocation costs and other acquisition-related costs; transaction-related costs comprising deal fees; legal, financial and tax due diligence expenses and valuation costs that are required to be expensed as incurred and other acquisition accounting adjustments.
(4)  Represents costs expensed including the premium paid to redeem our 2018 Notes in June 2014 and the refinancing of our 2010 Credit Facility and 2011 Credit Facility in February 2013, respectively.

 

10


TRANSDIGM GROUP INCORPORATED

  

SUPPLEMENTAL INFORMATION—BALANCE SHEET DATA

  

(Amounts in thousands)

   Table 5

(Unaudited)

  

 

     September 30, 2014     September 30, 2013  

Cash and cash equivalents

   $ 819,548      $ 564,740   

Trade accounts receivable—Net

     351,307        290,449   

Inventories—Net

     459,074        413,581   

Short-term borrowing—trade receivables securitization facility

     200,000        —     

Current portion of long-term debt

     39,295        31,045   

Accounts payable

     115,741        106,768   

Accrued current liabilities

     230,871        184,687   

Long-term debt

     7,233,836        5,700,193   

Total stockholders’ (deficit) equity

     (1,556,099     (336,381

 

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