TransDigm(TDG) - 2025 Q2 - Quarterly Report

PART I FINANCIAL INFORMATION ITEM 1 Financial Statements Presents TransDigm's unaudited condensed consolidated financial statements and notes for Q2 FY25 and prior periods Condensed Consolidated Balance Sheets Details the condensed consolidated balance sheets for TransDigm Group Incorporated as of March 29, 2025, and September 30, 2024, outlining assets, liabilities, and stockholders' deficit Condensed Consolidated Balance Sheets Summary | Metric | March 29, 2025 (Millions) | September 30, 2024 (Millions) | | :-------------------------------- | :-------------------------- | :---------------------------- | | ASSETS | | | | Cash and cash equivalents | $2,426 | $6,261 | | Total current assets | $6,408 | $10,029 | | Property, plant and equipment—Net | $1,519 | $1,488 | | Goodwill | $10,355 | $10,419 | | Other intangible assets—Net | $3,422 | $3,446 | | Total assets | $21,905 | $25,586 | | LIABILITIES AND STOCKHOLDERS' DEFICIT | | | | Total current liabilities | $2,074 | $6,339 | | Long-term debt | $24,306 | $24,296 | | Total liabilities | $27,569 | $31,869 | | Total stockholders' deficit | $(5,664) | $(6,283) | | Total liabilities and stockholders' deficit | $21,905 | $25,586 | - Cash and cash equivalents decreased significantly from $6,261 million to $2,426 million, a reduction of $3,835 million, primarily due to dividend payments and stock repurchases[8][156] - Total current liabilities decreased from $6,339 million to $2,074 million, largely driven by the payment of dividends payable which was $4,216 million at September 30, 2024 and zero at March 29, 2025[8][140] Condensed Consolidated Statements of Income Details the condensed consolidated statements of income for the thirteen and twenty-six week periods ended March 29, 2025, and March 30, 2024, showing net sales, gross profit, and net income Condensed Consolidated Statements of Income Summary | Metric (Millions) | 13 Weeks Ended Mar 29, 2025 | 13 Weeks Ended Mar 30, 2024 | 26 Weeks Ended Mar 29, 2025 | 26 Weeks Ended Mar 30, 2024 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net Sales | $2,150 | $1,919 | $4,156 | $3,708 | | Cost of Sales | $876 | $767 | $1,647 | $1,515 | | Gross Profit | $1,274 | $1,152 | $2,509 | $2,193 | | Income from Operations | $991 | $867 | $1,965 | $1,654 | | Interest Expense—Net | $378 | $326 | $756 | $626 | | Net Income Attributable to TD Group | $479 | $403 | $972 | $785 | | Earnings per share (Basic and Diluted) | $8.24 | $6.97 | $15.86 | $11.83 | - Net sales increased by 12.0% for the thirteen-week period and 12.1% for the twenty-six-week period, driven by organic growth in commercial aftermarket and defense sales, and contributions from recent acquisitions[9][114][126] - Net income attributable to TD Group increased by 18.9% for the thirteen-week period and 23.8% for the twenty-six-week period, reflecting higher sales and operational efficiency[9][121][131] Condensed Consolidated Statements of Comprehensive Income Presents the condensed consolidated statements of comprehensive income for the thirteen and twenty-six week periods ended March 29, 2025, and March 30, 2024, including net income and other comprehensive income components Condensed Consolidated Statements of Comprehensive Income Summary | Metric (Millions) | 13 Weeks Ended Mar 29, 2025 | 13 Weeks Ended Mar 30, 2024 | 26 Weeks Ended Mar 29, 2025 | 26 Weeks Ended Mar 30, 2024 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net income | $479 | $404 | $972 | $786 | | Foreign currency translation adjustment | $100 | $(60) | $(127) | $31 | | Unrealized (losses) gains on derivatives | $(24) | $2 | $(2) | $(51) | | Other comprehensive income (loss), net of tax, attributable to TD Group | $76 | $(58) | $(129) | $(20) | | TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO TD GROUP | $555 | $345 | $843 | $765 | - Total comprehensive income attributable to TD Group increased by 60.9% for the thirteen-week period and 10.2% for the twenty-six-week period, primarily influenced by foreign currency translation adjustments[10] Condensed Consolidated Statements of Changes in Stockholders' Deficit Outlines changes in stockholders' deficit for the periods ended March 29, 2025, and March 30, 2024, detailing common stock, accumulated deficit, and treasury stock movements Condensed Consolidated Statements of Changes in Stockholders' Deficit Summary | Metric (Millions) | March 29, 2025 | September 30, 2024 | | :-------------------------------- | :------------- | :----------------- | | Common stock | $1 | $1 | | Additional paid-in capital | $2,981 | $2,819 | | Accumulated deficit | $(6,407) | $(7,362) | | Accumulated other comprehensive loss | $(171) | $(42) | | Treasury stock, at cost | $(2,075) | $(1,706) | | Total TD Group stockholders' deficit | $(5,671) | $(6,290) | - Total TD Group stockholders' deficit improved from $(6,290) million at September 30, 2024, to $(5,671) million at March 29, 2025, primarily due to net income attributable to TD Group of $972 million and a decrease in accumulated deficit[8][12][131] - Treasury stock increased by $369 million due to repurchases of common stock during the twenty-six week period ended March 29, 2025[12][156] Condensed Consolidated Statements of Cash Flows Summarizes cash flows from operating, investing, and financing activities for the twenty-six week periods ended March 29, 2025, and March 30, 2024 Condensed Consolidated Statements of Cash Flows Summary | Metric (Millions) | 26 Weeks Ended Mar 29, 2025 | 26 Weeks Ended Mar 30, 2024 | | :-------------------------------- | :-------------------------- | :-------------------------- | | Net cash provided by operating activities | $900 | $865 | | Net cash used in investing activities | $(191) | $(171) | | Net cash (used in) provided by financing activities | $(4,540) | $668 | | Net (decrease) increase in cash and cash equivalents | $(3,835) | $1,366 | | Cash and cash equivalents, end of period | $2,426 | $4,838 | - Net cash used in financing activities was $(4,540) million for the twenty-six week period ended March 29, 2025, primarily due to $4,396 million in dividend and dividend equivalent payments and $369 million in common stock repurchases[13][156] - Net cash provided by operating activities increased to $900 million from $865 million year-over-year, reflecting strong operational performance[13][150] Notes to Condensed Consolidated Financial Statements Provides detailed explanations of accounting policies, acquisitions, revenue recognition, debt, and segment information supporting the condensed consolidated financial statements 1. Basis of Presentation Describes the basis of preparing unaudited financial statements in conformity with U.S. GAAP and the evaluation of new accounting pronouncements - ASU 2023-07 (Segment Reporting) is effective for fiscal 2025 and interim periods within fiscal 2026, expected to expand disclosures but not impact consolidated financial statements[17] - ASU 2023-09 (Income Taxes) is effective for fiscal 2026, requiring expanded disclosures on effective tax rate reconciliation and income tax payments[18] - ASU 2024-03/2025-01 (Expense Disaggregation) is effective for fiscal 2028, requiring additional disaggregated disclosures for certain income statement expenses[19] 2. Acquisitions Details strategic acquisitions completed in fiscal 2024, totaling approximately $2.2 billion, aimed at strengthening the Company's position in proprietary aerospace components Acquisitions Summary | Acquisition | Date | Purchase Price (Millions) | Segment | Goodwill (Millions) | Other Intangible Assets (Millions) | | :-------------------------------- | :--------- | :------------------------ | :-------- | :------------------ | :--------------------------------- | | Raptor Scientific | Jul 31, 2024 | ~$646 | Airframe | $365 | $264 | | CPI's Electron Device Business | Jun 6, 2024 | ~$1,386 | Power & Control | $752 | $509 | | SEI Industries LTD | May 21, 2024 | ~$171 | Airframe | $103 | $75 | | FPT Industries LLC | Mar 1, 2024 | ~$57 | Airframe | $35 | $19 | | Extant Aerospace product lines (FY25) | Various | ~$113 | Power & Control | $43 | $33 | | Extant Aerospace product lines (FY24) | Various | ~$86 | Power & Control | $40 | $22 | - The acquisitions are expected to create value through recurring aftermarket consumption over the life of aircraft (25-30 years) and align with TransDigm's strategy of obtaining profitable new business, improving cost structure, and providing value-added products[37] - Measurement periods for Raptor Scientific, CPI's Electron Device Business, and SEI are still open as of March 29, 2025, meaning acquired assets and assumed liabilities are subject to adjustment[21][25][30] 3. Revenue Recognition Explains the Company's revenue recognition policies, primarily recognizing revenue from product sales at a point in time when control transfers to the customer - A substantial portion of revenue is recognized at a point in time when control of goods or services transfers to the customer[42] - Revenue is recognized over time for contracts where products are customized, have no alternative use, and the customer is obligated to pay for costs plus profit upon cancellation[43] Contract Assets and Liabilities | Metric (Millions) | March 29, 2025 | September 30, 2024 | | :------------------------ | :------------- | :----------------- | | Total contract assets | $315 | $301 | | Total contract liabilities | $149 | $177 | | Net contract assets | $166 | $124 | 4. Earnings Per Share Details the calculation of basic and diluted earnings per share, with EPS for the twenty-six week period ended March 29, 2025, at $15.86 Earnings Per Share Calculation | Metric | 13 Weeks Ended Mar 29, 2025 | 13 Weeks Ended Mar 30, 2024 | 26 Weeks Ended Mar 29, 2025 | 26 Weeks Ended Mar 30, 2024 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net income applicable to TD Group common stockholders | $479 | $403 | $923 | $684 | | Weighted-average common shares outstanding (millions) | 56.1 | 55.7 | 56.2 | 55.6 | | Total shares for basic and diluted EPS (millions) | 58.1 | 57.8 | 58.2 | 57.8 | | Earnings per share—basic and diluted | $8.24 | $6.97 | $15.86 | $11.83 | - Net income applicable to TD Group common stockholders for the twenty-six week period ended March 29, 2025, was $923 million, an increase from $684 million in the prior year, contributing to higher EPS[56] 5. Stock Repurchase Program Outlines the Company's $2,200 million stock repurchase program, under which 295,469 shares were repurchased for $369 million during the twenty-six week period - The Board authorized a $2,200 million stock repurchase program on January 27, 2022, replacing a previous program, with no expiration date[57] Stock Repurchase Activity | Period | Shares Repurchased | Average Price Per Share | Total Amount (Millions) | | :-------------------------------- | :----------------- | :---------------------- | :---------------------- | | 2nd Quarter FY25 | 42,669 | $1,249.52 | $53 | | 26 Weeks Ended Mar 29, 2025 | 295,469 | $1,248.78 | $369 | | April 2025 (Subsequent Event) | 105,567 | $1,240.91 | $131 | - As of March 29, 2025, $919 million remains available for repurchase under the $2,200 million program[58] 6. Inventories Describes inventory valuation methods and presents net inventories, which increased to $2,010 million as of March 29, 2025 - Inventories are stated at the lower of cost or net realizable value, using average cost and FIFO methods[60] Inventory Components | Inventory Component (Millions) | March 29, 2025 | September 30, 2024 | | :----------------------------- | :------------- | :----------------- | | Raw materials and purchased component parts | $1,460 | $1,314 | | Work-in-progress | $528 | $508 | | Finished goods | $269 | $290 | | Total | $2,257 | $2,112 | | Reserves for excess and obsolete inventory | $(247) | $(236) | | Inventories—Net | $2,010 | $1,876 | 7. Intangible Assets Details the Company's intangible assets, including goodwill, technology, and trademarks, with net other intangible assets at $3,422 million as of March 29, 2025 Other Intangible Assets—Net | Intangible Asset (Millions) | March 29, 2025 (Net) | September 30, 2024 (Net) | | :-------------------------- | :------------------- | :----------------------- | | Trademarks and trade names | $1,141 | $1,165 | | Technology | $1,512 | $1,507 | | Order backlog | $31 | $48 | | Customer relationships | $733 | $720 | | Other | $5 | $6 | | Total Other Intangible Assets—Net | $3,422 | $3,446 | Goodwill by Segment | Goodwill by Segment (Millions) | March 29, 2025 | September 30, 2024 | | :----------------------------- | :------------- | :----------------- | | Power & Control | $5,065 | $5,020 | | Airframe | $5,206 | $5,306 | | Non-aviation | $84 | $93 | | Total Goodwill | $10,355 | $10,419 | - Aggregate amortization expense on identifiable intangible assets increased to $97 million for the twenty-six week period ended March 29, 2025, from $72 million in the prior year, primarily due to fiscal 2024 acquisitions[61] 8. Debt Outlines TransDigm's total debt of $25,049 million as of March 29, 2025, comprising term loans, senior notes, and a $650 million trade receivable securitization facility Debt Instruments | Debt Instrument (Millions) | March 29, 2025 (Net) | September 30, 2024 (Net) | | :-------------------------------- | :------------------- | :----------------------- | | Short-term borrowings—trade receivable securitization facility | $649 | $486 | | Term loans | $8,626 | $8,642 | | 5.50% senior subordinated notes due 2027 | $2,642 | $2,641 | | 6.75% secured notes due 2028 | $2,080 | $2,077 | | 4.625% senior subordinated notes due 2029 | $1,195 | $1,194 | | 6.375% secured notes due 2029 | $2,729 | $2,727 | | 4.875% senior subordinated notes due 2029 | $746 | $746 | | 6.875% secured notes due 2030 | $1,439 | $1,438 | | 7.125% secured notes due 2031 | $986 | $984 | | 6.625% secured notes due 2032 | $2,182 | $2,180 | | 6.00% secured notes due 2033 | $1,487 | $1,486 | | Government refundable advances | $11 | $17 | | Finance lease obligations | $277 | $262 | | Total Long-term debt (net of current portion) | $24,306 | $24,296 | | Total Debt (Gross) | $24,568 | $24,581 | - The trade receivable securitization facility's borrowing capacity was increased from $450 million to $650 million and its maturity extended to July 11, 2025, with the Company drawing the remaining $163 million in Q1 FY25, making it fully drawn at $650 million[67][176][177] - Accrued interest increased to $312 million at March 29, 2025, from $185 million at September 30, 2024[65] 9. Income Taxes Discusses effective income tax rates, which were 23.0% for the thirteen-week period and 21.7% for the twenty-six-week period ended March 29, 2025, influenced by discrete benefits and geographic mix Effective Income Tax Rates | Period | Effective Income Tax Rate | | :-------------------------- | :------------------------ | | 13 Weeks Ended Mar 29, 2025 | 23.0% | | 13 Weeks Ended Mar 30, 2024 | 22.2% | | 26 Weeks Ended Mar 29, 2025 | 21.7% | | 26 Weeks Ended Mar 30, 2024 | 22.0% | - The higher effective tax rate for the thirteen-week period was primarily due to a less significant discrete benefit associated with share-based payments compared to the prior period[71] - Unrecognized tax benefits amounted to $14 million at March 29, 2025, with a potential reduction of approximately $2 million within the next twelve months from tax examination resolutions[73] 10. Fair Value Measurements Explains the Company's fair value measurements for financial instruments using a three-level hierarchy, primarily Level 1 and Level 2 inputs - Financial instruments are categorized into Level 1 (quoted prices in active markets), Level 2 (observable inputs), or Level 3 (unobservable inputs) based on the reliability of inputs[75] Fair Value of Financial Instruments | Financial Instrument (Millions) | Level | March 29, 2025 (Fair Value) | September 30, 2024 (Fair Value) | | :-------------------------------- | :---- | :-------------------------- | :---------------------------- | | Cash and cash equivalents | 1 | $2,426 | $6,261 | | Interest rate swap agreements (assets) | 2 | $23 | $34 | | Interest rate cap agreements (assets) | 2 | $14 | $20 | | Term loans | 2 | $8,664 | $8,694 | | 5.50% 2027 Notes | 1 | $2,617 | $2,637 | | 6.75% 2028 Secured Notes | 1 | $2,129 | $2,160 | | 6.00% 2033 Secured Notes | 1 | $1,476 | $1,521 | - The fair values of interest rate swaps, caps, and collars are derived using observable market inputs (Level 2), while foreign currency exchange contracts use Level 2 inputs based on observable spot and forward exchange rates[77] 11. Derivatives and Hedging Activities Describes the use of derivative financial instruments, including interest rate swaps, caps, collars, and foreign currency forwards, to manage interest rate and foreign currency risks - Interest rate swap, cap, and collar agreements are used to manage interest rate risk by converting a portion of floating-rate debt to a fixed rate[81] - Foreign currency forward exchange contracts are used to offset changes in the fair value of assets, liabilities, or forecasted cash flows denominated in foreign currencies[87] Derivative Instruments Notional Amounts and Maturities | Derivative Type | Aggregate Notional Amount (Millions) | Effective Date | Maturity Date | | :-------------------------- | :--------------------------------- | :------------- | :------------ | | Interest Rate Swaps | $500 | 3/31/2023 | 3/31/2025 | | | $1,500 | 3/31/2023 | 3/31/2025 | | | $700 | 3/31/2023 | 9/30/2025 | | Interest Rate Cap | $700 | 3/31/2023 | 9/30/2025 | | Interest Rate Collars | $1,100 | 3/31/2025 | 9/30/2026 | | | $500 | 9/30/2025 | 9/30/2026 | | | $1,338 | 9/30/2025 | 9/30/2027 | | | $1,550 | 9/30/2026 | 9/30/2027 | | Foreign Currency Forwards | $59 | Various | Within 6 months | 12. Segments Reports on TransDigm's three segments: Power & Control, Airframe, and Non-aviation, highlighting net sales and EBITDA As Defined growth driven by commercial aftermarket and defense - The Company's three reportable segments are Power & Control, Airframe, and Non-aviation[88] Segment Net Sales | Segment Net Sales (Millions) | 13 Weeks Ended Mar 29, 2025 | 13 Weeks Ended Mar 30, 2024 | 26 Weeks Ended Mar 29, 2025 | 26 Weeks Ended Mar 30, 2024 | | :--------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Power & Control | $1,108 | $920 | $2,134 | $1,810 | | Airframe | $1,002 | $959 | $1,949 | $1,821 | | Non-aviation | $40 | $40 | $73 | $77 | | Total Net Sales | $2,150 | $1,919 | $4,156 | $3,708 | Segment EBITDA As Defined | Segment EBITDA As Defined (Millions) | 13 Weeks Ended Mar 29, 2025 | 13 Weeks Ended Mar 30, 2024 | 26 Weeks Ended Mar 29, 2025 | 26 Weeks Ended Mar 30, 2024 | | :----------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Power & Control | $636 | $523 | $1,222 | $1,035 | | Airframe | $529 | $510 | $1,045 | $940 | | Non-aviation | $16 | $16 | $28 | $30 | | Total segment EBITDA As Defined | $1,181 | $1,049 | $2,295 | $2,005 | 13. Accumulated Other Comprehensive Loss Explains the increase in accumulated other comprehensive loss to $(171) million at March 29, 2025, primarily due to foreign currency translation adjustments Accumulated Other Comprehensive Loss Components | Component (Millions) | Balance at Sep 30, 2024 | Net Current-Period OCI/L | Balance at Mar 29, 2025 | | :-------------------------------- | :---------------------- | :----------------------- | :---------------------- | | Unrealized gains (losses) on derivatives | $19 | $(2) | $17 | | Pension and post retirement benefit plans adjustment | $1 | $0 | $1 | | Foreign currency translation adjustment | $(62) | $(127) | $(189) | | Total AOCL | $(42) | $(129) | $(171) | - The significant increase in AOCL was mainly due to a foreign currency translation adjustment of $(127) million for the twenty-six week period ended March 29, 2025[93] 14. Leases Details the Company's operating and finance leases, with total lease cost of $28 million for the twenty-six week period and liabilities of $54 million (operating) and $277 million (finance) as of March 29, 2025 Lease Expense | Lease Expense (Millions) | 13 Weeks Ended Mar 29, 2025 | 13 Weeks Ended Mar 30, 2024 | 26 Weeks Ended Mar 29, 2025 | 26 Weeks Ended Mar 30, 2024 | | :----------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Operating lease cost | $6 | $5 | $12 | $10 | | Finance lease cost (Amortization) | $3 | $3 | $7 | $6 | | Finance lease cost (Interest) | $5 | $4 | $9 | $7 | | Total lease cost | $14 | $12 | $28 | $23 | Lease Liabilities | Lease Liabilities (Millions) | March 29, 2025 | September 30, 2024 | | :--------------------------- | :------------- | :----------------- | | Total operating lease liabilities | $54 | $62 | | Total finance lease liabilities | $277 | $262 | - Weighted-average remaining lease terms are 5.4 years for operating leases and 20.5 years for finance leases, with corresponding weighted-average discount rates of 6.1% and 7.0%[96] ITEM 2 Management's Discussion and Analysis of Financial Condition and Results of Operations Management's analysis of TransDigm's financial condition, operational results, liquidity, capital allocation, and non-GAAP measures Forward-looking Statements Highlights that the report contains forward-looking statements subject to uncertainties and factors that could cause actual results to differ materially - The report contains forward-looking statements regarding future events, financial condition, results of operations, and business plans, identified by words like 'believe,' 'expect,' 'intend,' and 'anticipate'[99] - Actual results may differ materially due to uncertainties and factors such as economic conditions, supply chain constraints, raw material costs, acquisitions, geopolitical events, cybersecurity threats, and regulatory changes[99][100] Overview Introduces TransDigm as a leading global supplier of highly engineered aerospace components, driven by a value-focused operating strategy - TransDigm is a leading global designer, producer, and supplier of highly engineered proprietary aerospace components with significant aftermarket content, focusing on engineering, service, and manufacturing capabilities[101] - The Company's value-driven operating strategy focuses on obtaining profitable new business, continually improving cost structure, and pricing products to reflect value, historically leading to improvements in gross profit and income from operations[101] - In the first half of fiscal 2025, commercial aftermarket sales increased due to strong air travel demand and higher aircraft utilization, while defense sales increased due to improving U.S. Government defense spend outlays[104][106] Critical Accounting Policies and Estimates Emphasizes that financial statement preparation relies on management's estimates and judgments, with a full discussion available in the Annual Report on Form 10-K - The preparation of financial statements relies on management's best estimates, judgments, and assumptions, which are evaluated on an ongoing basis and based on historical experience and current facts[108] - A comprehensive discussion of critical accounting policies and estimates is available in the Annual Report on Form 10-K for the fiscal year ended September 30, 2024[109] Acquisitions Refers to Note 2, 'Acquisitions,' for detailed information on recent acquisitions - Recent acquisitions are detailed in Note 2, 'Acquisitions,' of the condensed consolidated financial statements[110] Results of Operations Analyzes TransDigm's strong financial performance, including significant net sales growth and increased net income, for the thirteen and twenty-six week periods ended March 29, 2025 Changes in Results of Operations (Thirteen week period) Examines the financial performance for the thirteen-week period, noting a 12.0% increase in net sales and a slight decrease in gross profit percentage Total Company For the thirteen-week period, net sales increased by 12.0% to $2,150 million, driven by organic growth and acquisitions, while gross profit percentage slightly decreased Total Company Performance (Thirteen Weeks) | Metric (Millions) | Mar 29, 2025 | Mar 30, 2024 | Change | % Change | | :-------------------------------- | :----------- | :----------- | :----- | :------- | | Net Sales | $2,150 | $1,919 | $231 | 12.0% | | Organic sales | $2,034 | $1,902 | $132 | 6.9% | | Acquisition sales | $116 | $17 | $99 | 5.1% | | Cost of Sales | $876 | $767 | $109 | 14.2% | | Gross Profit | $1,274 | $1,152 | $122 | 10.6% | | Gross profit percentage | 59.3% | 60.0% | -0.7% | | | Selling and Administrative Expenses | $236 | $248 | $(12) | (4.8)% | | Amortization of Intangible Assets | $47 | $37 | $10 | 27.0% | | Interest Expense—Net | $378 | $326 | $52 | 16.0% | | Income Tax Provision | $143 | $115 | $28 | 24.3% | | Net Income Attributable to TD Group | $479 | $403 | $76 | 18.9% | - Organic sales growth was primarily driven by increases in commercial aftermarket sales ($77 million, 13.3%) and defense sales ($69 million, 9.5%), partially offset by a slight decrease in commercial OEM sales[115] - Interest expense-net increased by $52 million, or 16.0%, due to an increase in outstanding borrowings and a $27 million decrease in interest income[117] Business Segments Analyzes segment performance for the thirteen-week period, with Power & Control net sales up 20.4% and Airframe net sales up 4.5%, both benefiting from organic growth and acquisitions Segment Performance (Thirteen Weeks) | Segment (Millions) | Net Sales (Mar 29, 2025) | Net Sales (Mar 30, 2024) | % Change | EBITDA As Defined (Mar 29, 2025) | EBITDA As Defined (Mar 30, 2024) | % Change | | :----------------- | :----------------------- | :----------------------- | :------- | :------------------------------- | :------------------------------- | :------- | | Power & Control | $1,108 | $920 | 20.4% | $636 | $523 | 21.6% | | Airframe | $1,002 | $959 | 4.5% | $529 | $510 | 3.7% | | Non-aviation | $40 | $40 | 0.0% | $16 | $16 | 0.0% | | Total | $2,150 | $1,919 | 12.0% | $1,162 | $1,021 | 13.8% | - Power & Control sales increase was primarily from organic defense ($55 million, 13.0%) and commercial aftermarket ($34 million, 12.1%) sales, along with acquisition sales[118][120] - Airframe sales increase was primarily from organic commercial aftermarket ($43 million, 14.4%) and defense ($15 million, 4.7%) sales, also benefiting from acquisitions[119][120] Changes in Results of Operations (Twenty-six week period) Reviews financial performance for the twenty-six week period, showing a 12.1% increase in net sales and an improved gross profit percentage of 60.4% Total Company For the twenty-six week period, net sales increased by 12.1% to $4,156 million, driven by organic growth and acquisitions, with gross profit percentage improving to 60.4% Total Company Performance (Twenty-Six Weeks) | Metric (Millions) | Mar 29, 2025 | Mar 30, 2024 | Change | % Change | | :-------------------------------- | :----------- | :----------- | :----- | :------- | | Net Sales | $4,156 | $3,708 | $448 | 12.1% | | Organic sales | $3,927 | $3,676 | $251 | 6.8% | | Acquisition sales | $229 | $32 | $197 | 5.3% | | Cost of Sales | $1,647 | $1,515 | $132 | 8.7% | | Gross Profit | $2,509 | $2,193 | $316 | 14.4% | | Gross profit percentage | 60.4% | 59.1% | 1.3% | | | Selling and Administrative Expenses | $447 | $467 | $(20) | (4.3)% | | Amortization of Intangible Assets | $97 | $72 | $25 | 34.7% | | Interest Expense—Net | $756 | $626 | $130 | 20.8% | | Income Tax Provision | $269 | $222 | $47 | 21.2% | | Net Income Attributable to TD Group | $972 | $785 | $187 | 23.8% | | Earnings per Share | $15.86 | $11.83 | $4.03 | 34.1% | - Organic sales growth was primarily driven by increases in defense sales ($149 million, 10.6%) and commercial aftermarket sales ($134 million, 11.6%), partially offset by a decrease in commercial OEM sales ($17 million, 2.1%)[127] - Selling and administrative expenses as a percentage of net sales decreased due to lower non-cash stock and deferred compensation expense, which was impacted by stock price appreciation[129] Business Segments Analyzes segment performance for the twenty-six week period, with Power & Control net sales up 17.9% and Airframe net sales up 7.0%, both benefiting from organic growth and acquisitions Segment Performance (Twenty-Six Weeks) | Segment (Millions) | Net Sales (Mar 29, 2025) | Net Sales (Mar 30, 2024) | % Change | EBITDA As Defined (Mar 29, 2025) | EBITDA As Defined (Mar 30, 2024) | % Change | | :----------------- | :----------------------- | :----------------------- | :------- | :------------------------------- | :------------------------------- | :------- | | Power & Control | $2,134 | $1,810 | 17.9% | $1,222 | $1,035 | 18.1% | | Airframe | $1,949 | $1,821 | 7.0% | $1,045 | $940 | 11.2% | | Non-aviation | $73 | $77 | (5.2)% | $28 | $30 | (6.7)% | | Total | $4,156 | $3,708 | 12.1% | $2,224 | $1,933 | 15.1% | - Power & Control sales increase was primarily from organic defense ($86 million, 10.3%) and commercial aftermarket ($71 million, 12.4%) sales, along with $197 million in aggregate acquisition sales for both segments[132][134] - Airframe sales increase was primarily from organic defense ($64 million, 11.1%) and commercial aftermarket ($63 million, 10.8%) sales, also benefiting from acquisition contributions[133][134] Liquidity and Capital Resources Discusses TransDigm's capital structure, liquidity position of $3,283 million, debt strategy, and capital allocation priorities, including dividends and share repurchases Financial Position Summary | Metric (Millions) | March 29, 2025 | September 30, 2024 | | :-------------------------------- | :------------- | :----------------- | | Cash and cash equivalents | $2,426 | $6,261 | | Working capital | $4,334 | $3,690 | | Total debt | $25,049 | $24,880 | | TD Group stockholders' deficit | $(5,671) | $(6,290) | Cash Flow Summary | Cash Flow (Millions) | 26 Weeks Ended Mar 29, 2025 | 26 Weeks Ended Mar 30, 2024 | | :--------------------------- | :-------------------------- | :-------------------------- | | Operating activities | $900 | $865 | | Investing activities | $(191) | $(171) | | Financing activities | $(4,540) | $668 | - As of March 29, 2025, the Company had $3,283 million in cash liquidity, comprising $2,426 million in cash and cash equivalents and $857 million available on its revolving credit facility[147] - The Company's capital allocation priorities for excess cash are capital spending, acquisitions, special dividends/share repurchases, and debt prepayment[144] - Approximately 75% of the Company's gross debt was fixed rate as of March 29, 2025, aligning with its objective to maintain at least 75% fixed rate and 25% variable rate debt[146] Significant Transactions of Fiscal 2025 Highlights key fiscal 2025 transactions, including a $4,216 million special cash dividend and $369 million in common stock repurchases - On October 18, 2024, the Company paid a special cash dividend of $75.00 per share, totaling $4,216 million, and $131 million in cash dividend equivalent payments[140] - During the first half of fiscal 2025, TransDigm repurchased 295,469 shares of common stock for $369 million[141] - In April 2025, the Company repurchased an additional 105,567 shares for $131 million[142] Operating Activities Analyzes net cash provided by operating activities, which increased to $900 million for the twenty-six week period, influenced by changes in trade accounts receivable and inventories - Net cash from operating activities was $900 million for the twenty-six week period ended March 29, 2025, up from $865 million in the prior year[150] - The change in trade accounts receivable resulted in a $66 million use of cash, compared to a $36 million source of cash in the prior year, primarily due to timing of cash receipts[151] - Inventories used $123 million in cash, a slight increase from $114 million in the prior year, to support increased bookings and manage supply chain challenges[152] Investing Activities Details net cash used in investing activities, totaling $191 million for the twenty-six week period, primarily for product line acquisitions and capital expenditures - Net cash used in investing activities was $191 million for the twenty-six week period ended March 29, 2025[154] - Key investing outflows included $140 million for product line acquisitions and $98 million for capital expenditures[154] - In the prior year, net cash used in investing activities was $171 million, primarily for $87 million in acquisitions and $84 million in capital expenditures[155] Financing Activities Reports net cash used in financing activities of $4,540 million for the twenty-six week period, mainly due to dividend and share repurchase payments - Net cash used in financing activities was $4,540 million for the twenty-six week period ended March 29, 2025[156] - Major uses of cash included $4,396 million for dividends and dividend equivalent payments and $369 million for common stock repurchases[156] - In the prior year, net cash provided by financing activities was $668 million, driven by $2,545 million in net proceeds from short-term and long-term debt[157] Contractual Obligations States that no material changes occurred in contractual obligations during the twenty-six week period ended March 29, 2025, as compared to the Annual Report on Form 10-K - No material changes occurred in contractual obligations during the twenty-six week period ended March 29, 2025, as compared to the Annual Report on Form 10-K[158] Description of Senior Secured Term Loans and Indentures Details TransDigm's $8,680 million in term loans and $15,400 million in senior notes, with approximately 75% of gross debt at a fixed rate Term Loans Facility Details | Term Loans Facility | Aggregate Principal (Millions) | Maturity Date | Interest Rate | | :------------------ | :----------------------------- | :------------ | :------------ | | Tranche I | $1,866 | Aug 24, 2028 | Term SOFR + 2.75% | | Tranche J | $3,623 | Feb 28, 2031 | Term SOFR + 2.50% | | Tranche K | $1,695 | Mar 22, 2030 | Term SOFR + 2.75% | | Tranche L | $1,496 | Jan 19, 2032 | Term SOFR + 2.50% | Notes Outstanding Details | Notes Outstanding | Aggregate Principal (Millions) | Maturity Date | Interest Rate | | :---------------- | :----------------------------- | :------------ | :------------ | | 5.50% 2027 Notes | $2,650 | Nov 15, 2027 | 5.50% | | 6.75% 2028 Secured Notes | $2,100 | Aug 15, 2028 | 6.75% | | 4.625% 2029 Notes | $1,200 | Jan 15, 2029 | 4.625% | | 6.375% 2029 Secured Notes | $2,750 | Mar 1, 2029 | 6.375% | | 4.875% 2029 Notes | $750 | May 1, 2029 | 4.875% | | 6.875% 2030 Secured Notes | $1,450 | Dec 15, 2030 | 6.875% | | 7.125% 2031 Secured Notes | $1,000 | Dec 1, 2031 | 7.125% | | 6.625% 2032 Secured Notes | $2,200 | Mar 1, 2032 | 6.625% | | 6.00% 2033 Secured Notes | $1,500 | Jan 15, 2033 | 6.00% | - The Company had $857 million in borrowings available under its $910 million revolving credit facility as of March 29, 2025[159] Guarantor Information Explains that Subordinated and Secured Notes are fully and unconditionally guaranteed by TD Group, TransDigm UK, and Domestic Restricted Subsidiaries, leading to combined financial reporting - Subordinated Notes are fully and unconditionally guaranteed on a senior subordinated unsecured basis by TD Group, TransDigm UK, and TransDigm Inc.'s Domestic Restricted Subsidiaries[163] - Secured Notes are guaranteed on a senior secured basis by TD Group and each of TransDigm Inc.'s direct and indirect Restricted Subsidiaries that are borrowers or guarantors under senior secured credit facilities[164] - TD Group has no significant operations or assets separate from its investment in TransDigm Inc., leading to combined financial information presentation[165] Certain Restrictive Covenants in Our Debt Documents Details restrictive covenants in debt documents, including limits on indebtedness and dividends, and the requirement to maintain a maximum consolidated net leverage ratio if revolving credit facility usage exceeds 40% - Restrictive covenants limit additional indebtedness, payment of special dividends, transactions with affiliates, asset sales, acquisitions, mergers, and liens[169] - If revolving credit facility usage exceeds 40% ($364 million), the Company must maintain a maximum consolidated net leverage ratio of 7.50x (or 8.00x after material acquisitions)[173] - As of March 29, 2025, TransDigm was in compliance with all debt covenants and expects to remain so[174] Trade Receivable Securitization Facility Describes the $650 million trade receivable securitization facility, fully drawn as of March 29, 2025, with an interest rate of 5.75% - The Securitization Facility's borrowing capacity increased from $450 million to $650 million, and its maturity extended to July 11, 2025[176] - As of March 29, 2025, the Company had borrowed $650 million under the facility, which was fully drawn, at an interest rate of 5.75%[177] - The facility is collateralized by substantially all of the Company's domestic operations' trade accounts receivable[177] Dividend and Dividend Equivalent Payments Reports a $4,216 million special cash dividend paid in October 2024 and $180 million in dividend equivalent payments in Q1 fiscal 2025, with future dividends subject to Board discretion - A special cash dividend of $75.00 per share was declared in September 2024 and paid in October 2024, totaling $4,216 million[179] - Total dividend equivalent payments in the first quarter of fiscal 2025 were approximately $180 million, with $131 million associated with the September 2024 special dividend[179] - Future dividend declarations are subject to Board discretion, results of operations, capital requirements, financial condition, and contractual restrictions under debt agreements[180] Off-Balance Sheet Arrangements Notes the Company's use of letters of credit to back payment and performance obligations, with $53 million outstanding as of March 29, 2025 - The Company uses letters of credit to support payment and performance obligations[181] - As of March 29, 2025, $53 million in letters of credit were outstanding[181] Non-GAAP Financial Measures Presents EBITDA and EBITDA As Defined as non-GAAP measures for evaluating operating performance and liquidity, noting their relevance for debt covenant compliance - EBITDA (earnings before interest, taxes, depreciation, and amortization) and EBITDA As Defined (EBITDA plus certain non-operating adjustments) are presented as useful indicators for evaluating operating performance and liquidity, though they are not U.S. GAAP measures[182][183] - EBITDA As Defined is particularly relevant as the revolving credit facility requires compliance with a financial covenant measuring the ratio of secured indebtedness to Consolidated EBITDA (defined similarly to EBITDA As Defined)[184] Non-GAAP Financial Measures Reconciliation | Metric (Millions) | 13 Weeks Ended Mar 29, 2025 | 13 Weeks Ended Mar 30, 2024 | 26 Weeks Ended Mar 29, 2025 | 26 Weeks Ended Mar 30, 2024 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net Income | $479 | $404 | $972 | $786 | | EBITDA | $1,089 | $919 | $2,176 | $1,777 | | EBITDA As Defined | $1,162 | $1,021 | $2,224 | $1,933 | ITEM 3 Quantitative and Qualitative Disclosure About Market Risk Refers to the Annual Report on Form 10-K for detailed market risk disclosures, confirming no material changes for the second quarter of fiscal year 2025 - Information on market risks is provided under 'Description of Senior Secured Term Loans and Indentures' in Part I, Item 2 of this report and more fully in Part II, Item 7A of the Annual Report on Form 10-K[190] - No material changes to market risks have occurred for the second quarter of fiscal year 2025[190] ITEM 4 Controls and Procedures Confirms the effectiveness of TransDigm's disclosure controls and procedures as of March 29, 2025, with no material changes in internal control over financial reporting - The President, CEO, and CFO concluded that TransDigm's disclosure controls and procedures were effective as of March 29, 2025[191] - No changes in internal control over financial reporting occurred during the fiscal quarter ended March 29, 2025, that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting[192] PART II OTHER INFORMATION ITEM 1 Legal Proceedings TransDigm is involved in routine legal claims, with no material adverse effect expected on financials, and no changes since the last 10-K - The Company is involved in various claims and legal actions arising in the ordinary course of business[193] - Management believes the results of these proceedings will not have a material adverse effect on its financial condition, results of operations, or cash flows[193] - There have been no material changes to the legal proceedings information reported in the Annual Report on Form 10-K for the fiscal year ended September 30, 2024[194] ITEM 1A Risk Factors Refers to risk factors in the Annual Report on Form 10-K for FY24, with no material changes reported - Readers should consider the risk factors disclosed in Part I, Item 1A of the Annual Report on Form 10-K for the fiscal year ended September 30, 2024[195] - No material changes to the risk factors described in the Form 10-K have occurred[195] ITEM 2 Unregistered Sales of Equity Securities and Use of Proceeds: Purchases of Equity Securities by the Issuer Repurchased 42,669 shares for $53 million in Q2 FY25 under the $2.2 billion stock repurchase program, with $919 million remaining Equity Security Repurchases | Period | Total Number of Shares Repurchased | Average Price Paid Per Share | Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (Millions) | | :-------------------------------- | :--------------------------------- | :--------------------------- | :--------------------------------------------------------------------------------- | | Dec 29, 2024 - Jan 25, 2025 | 42,669 | $1,249.52 | $919 | | Jan 26, 2025 - Feb 22, 2025 | — | — | $919 | | Feb 23, 2025 - Mar 29, 2025 | — | — | $919 | | Total | 42,669 | $1,249.52 | | - The repurchases were made under a $2,200 million stock repurchase program authorized on January 27, 2022, which has no expiration date[196] ITEM 5 Other Information CFO Sarah Wynne entered a Rule 10b5-1 trading arrangement on March 13, 2025, to sell 5,000 shares of common stock - CFO Sarah Wynne entered a Rule 10b5-1 trading arrangement on March 13, 2025, to sell 5,000 shares of common stock[197] - The trading arrangement is intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) and terminates no later than December 31, 2025[197] ITEM 6 Exhibits Lists exhibits filed with Form 10-Q, including officer certifications and Inline XBRL documents - Exhibit 22.1 provides a listing of subsidiary guarantors[198] - Exhibits 31.1 and 31.2 are certifications by the Principal Executive Officer and Principal Financial Officer, respectively, pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934[198] - Exhibits 101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, and 101.PRE are Inline XBRL Taxonomy Extension documents[198] SIGNATURES Confirms the report's signing by Kevin Stein, President, CEO, and Director, and Sarah Wynne, CFO, on May 6, 2025 - The report was signed by Kevin Stein, President, Chief Executive Officer and Director, and Sarah Wynne, Chief Financial Officer, on May 6, 2025[200]