TransDigm(TDG) - 2022 Q2 - Quarterly Report

PART I FINANCIAL INFORMATION Financial Statements The unaudited condensed consolidated financial statements present the company's financial position, results of operations, and cash flows for the recent reporting periods Condensed Consolidated Balance Sheets Total assets were $18.84 billion as of April 2, 2022, with a stockholders' deficit of $2.89 billion Condensed Consolidated Balance Sheet Highlights (in millions) | Account | April 2, 2022 | September 30, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $4,216 | $4,787 | | Total current assets | $6,564 | $7,030 | | Goodwill | $8,544 | $8,568 | | Total Assets | $18,841 | $19,315 | | Liabilities & Stockholders' Deficit | | | | Total current liabilities | $1,301 | $1,663 | | Long-term debt | $19,394 | $19,372 | | Total liabilities | $21,734 | $22,225 | | Total stockholders' deficit | $(2,893) | $(2,910) | | Total Liabilities & Stockholders' Deficit | $18,841 | $19,315 | Condensed Consolidated Statements of Income Net sales grew to $1.33 billion for the quarter, driving net income to $199 million and diluted EPS to $3.38 Statement of Income Summary (in millions, except per share data) | Metric | Thirteen Weeks Ended April 2, 2022 | Thirteen Weeks Ended April 3, 2021 | Twenty-Six Weeks Ended April 2, 2022 | Twenty-Six Weeks Ended April 3, 2021 | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $1,327 | $1,194 | $2,521 | $2,301 | | Gross Profit | $736 | $592 | $1,397 | $1,132 | | Income from Operations | $520 | $394 | $975 | $709 | | Net Income | $199 | $105 | $363 | $155 | | Diluted EPS | $3.38 | $1.79 | $5.35 | $1.40 | Condensed Consolidated Statements of Cash Flows Net cash from operations was $366 million for the twenty-six week period, with significant cash used for stock repurchases Cash Flow Summary - Twenty-Six Week Periods Ended (in millions) | Activity | April 2, 2022 | April 3, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $366 | $372 | | Net cash used in investing activities | $(54) | $(952) | | Net cash used in financing activities | $(872) | $(73) | | Net decrease in cash and cash equivalents | $(571) | $(645) | | Cash and cash equivalents, end of period | $4,216 | $4,072 | Notes to Condensed Consolidated Financial Statements Key notes detail the company's business, M&A activity, a new stock repurchase program, and an ongoing DoD OIG audit - TransDigm is a leading global designer, producer, and supplier of highly engineered aircraft components for nearly every commercial and military aircraft[13] - On March 14, 2022, the Company entered into a definitive agreement to acquire DART Aerospace for $360 million, expected to close in the second half of fiscal 2022[15] - On January 27, 2022, the Board authorized a new stock repurchase program for up to $2.2 billion; during Q2 2022, the company repurchased 1,046,815 shares for $667 million[42][43] - The Department of Defense (DoD) Office of Inspector General (OIG) completed an audit and recommended a voluntary refund of $20.8 million; TransDigm disagrees with the findings and has not recorded a loss contingency[91][92][93] Management's Discussion and Analysis of Financial Condition and Results of Operations Net sales increased 11.1% in Q2 2022, driven by strong organic growth from the continued recovery in commercial aerospace markets Results of Operations Q2 net sales rose 11.1% to $1.33 billion, fueled by a 45.6% surge in commercial aftermarket sales and improved gross margins Net Sales Change - Thirteen Weeks Ended April 2, 2022 (in millions) | Category | Thirteen Weeks Ended April 2, 2022 | Thirteen Weeks Ended April 3, 2021 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Organic sales | $1,327 | $1,146 | $181 | 15.1% | | Acquisition and divestiture sales | $0 | $48 | $(48) | (4.0)% | | Net sales | $1,327 | $1,194 | $133 | 11.1% | - The increase in organic sales was driven by a $117 million (45.6%) rise in commercial aftermarket sales and a $62 million (27.8%) increase in commercial OEM sales, reflecting the ongoing recovery in commercial air travel[111] - Gross profit margin for Q2 2022 increased to 55.5% from 49.6% in the prior-year quarter, driven by a favorable sales mix and the application of value-driven operating strategies[114][115] Net Income and EPS - Thirteen Weeks Ended | Metric | April 2, 2022 | April 3, 2021 | % Change | | :--- | :--- | :--- | :--- | | Net Income Attributable to TD Group (millions) | $199 | $104 | 91.3% | | Earnings per Share (Diluted) | $3.38 | $1.79 | 88.8% | Business Segments Both Power & Control and Airframe segments delivered strong sales and EBITDA growth, benefiting from the commercial aerospace recovery Segment Net Sales - Thirteen Weeks Ended (in millions) | Segment | April 2, 2022 | April 3, 2021 | % Change | | :--- | :--- | :--- | :--- | | Power & Control | $708 | $641 | 10.5% | | Airframe | $579 | $513 | 12.9% | | Non-aviation | $40 | $40 | 0.0% | | Total Net Sales | $1,327 | $1,194 | 11.1% | Segment EBITDA As Defined - Thirteen Weeks Ended (in millions) | Segment | April 2, 2022 | % of Sales | April 3, 2021 | % of Sales | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | | Power & Control | $374 | 52.8% | $309 | 48.2% | 21.0% | | Airframe | $273 | 47.2% | $208 | 40.5% | 31.3% | | Non-aviation | $14 | 35.0% | $16 | 40.0% | (12.5)% | Liquidity and Capital Resources The company maintains a strong liquidity position with $4.2 billion in cash and continues to execute its capital allocation priorities, including share repurchases Liquidity Position as of April 2, 2022 (in millions) | Component | Amount | | :--- | :--- | | Cash and cash equivalents | $4,216 | | Availability on revolving credit facility | $775 | | Total Cash Liquidity | $4,991 | - Capital allocation priorities are: (1) capital spending, (2) acquisitions, (3) special dividends and/or share repurchases, and (4) debt prepayment[146] - In Q2 2022, the company repurchased 1,046,815 shares of common stock for approximately $667 million[147] - The company's debt consists of a $7.34 billion Term Loans Facility and various senior notes, and the company is in compliance with all debt covenants[163][167][181] Quantitative and Qualitative Disclosure About Market Risk There have been no material changes to the company's primary market risks, which relate to interest rates and foreign currency exchange - Market risks have not materially changed for the second quarter of fiscal year 2022, as described in the most recent Form 10-K[198] Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal controls during the quarter - The President, CEO, and CFO concluded that the company's disclosure controls and procedures are effective[199] - No material changes were made to the company's internal control over financial reporting during the fiscal quarter ended April 2, 2022[200] PART II OTHER INFORMATION Legal Proceedings Current legal proceedings are not expected to have a material adverse effect on the company's financial condition - The company believes that the results of current legal proceedings will not have a material adverse effect on its financial condition, results of operations, or cash flows[202] - There have been no material changes to the legal proceedings information disclosed in the Annual Report on Form 10-K for the fiscal year ended September 30, 2021[203] Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K - There have been no material changes to the risk factors described in the Form 10-K filed on November 16, 2021[204] Unregistered Sales of Equity Securities and Use of Proceeds: Purchases of Equity Securities by the Issuer The company repurchased 1,046,815 shares for $667 million in Q2 2022 under a new $2.2 billion repurchase program Share Repurchases - Q2 Fiscal 2022 | Period | Total Number of Shares Repurchased | Average Price Paid Per Share | Total Dollar Value (millions) | | :--- | :--- | :--- | :--- | | Jan 2 - Jan 29, 2022 | — | $— | $— | | Jan 30 - Feb 26, 2022 | 243,319 | $646.69 | ~$157.3 | | Feb 26 - Apr 2, 2022 | 803,496 | $633.97 | ~$509.4 | | Total | 1,046,815 | $636.93 | ~$666.7 | - A new $2.2 billion stock repurchase program was authorized on January 27, 2022, replacing the previous $650 million program; as of April 2, 2022, $1,533 million remains available[205] Exhibits The filing includes required CEO/CFO certifications and Inline XBRL documents as exhibits - Exhibits filed include CEO and CFO certifications pursuant to Sarbanes-Oxley Act Sections 302 and 906, a list of subsidiary guarantors, and Inline XBRL documents[206] Signatures The report was duly signed by the Principal Executive Officer and Principal Financial Officer on May 10, 2022 - The report was signed by Kevin Stein (CEO) and Michael Lisman (CFO) on May 10, 2022[208]