NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
TWENTY-SIX WEEK PERIODS ENDED MARCH 28, 2020 AND MARCH 30, 2019
(UNAUDITED)
1. DESCRIPTION OF THE BUSINESS
Description of the Business – TransDigm Group Incorporated (“TD Group”), through its wholly-owned subsidiary, TransDigm Inc., is a leading global designer, producer and supplier of highly engineered aircraft components for use on nearly every commercial and military aircraft in service today. TransDigm Inc., along with TransDigm Inc.’s direct and indirect wholly-owned operating subsidiaries (collectively, with TD Group, the “Company” or “TransDigm”), offers a broad range of proprietary aerospace components. TD Group has no significant assets or operations other than its 100% ownership of TransDigm Inc. TD Group’s common stock is listed on the New York Stock Exchange, or the NYSE, under the trading symbol “TDG.”
TransDigm's 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, databus and power controls, cockpit security components and systems, specialized cockpit displays, aircraft audio systems, specialized lavatory components, seat belts and safety restraints, engineered interior surfaces and related components, advanced sensor products, switches and relay panels, advanced displays, thermal protection and insulation, lighting and control technology, military personnel parachutes, high performance hoists, winches and lifting devices, and cargo loading, handling and delivery systems.
2. UNAUDITED INTERIM FINANCIAL INFORMATION
The financial information included herein is unaudited; however, the information reflects all adjustments (consisting of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of the Company’s financial position and results of operations and cash flows for the interim periods presented. These financial statements and notes should be read in conjunction with the financial statements and related notes for the year ended September 30, 2019 included in TD Group’s Form 10-K filed on November 19, 2019. As disclosed therein, the Company’s annual consolidated financial statements were prepared in conformity with generally accepted accounting principles in the United States (“US GAAP”). The September 30, 2019 condensed consolidated balance sheet was derived from TD Group’s audited financial statements. The results of operations for the twenty-six week period ended March 28, 2020 are not necessarily indicative of the results to be expected for the full year.
Historical information has been retrospectively adjusted to reflect the classification of discontinued operations. Discontinued operations are further described in Note 3, "Acquisitions and Divestitures," and Note 18, "Discontinued Operations."
3. ACQUISITIONS AND DIVESTITURES
During the fiscal year ended September 30, 2019, the Company completed the acquisitions of Esterline Technologies Corporation ("Esterline") and substantially all of the assets and technical data rights of the Stormscope product line from L3Harris Technologies, Inc. ("Stormscope") and NavCom Defense Electronics ("NavCom"). The Company accounted for the acquisitions using the acquisition method and included the results of operations of the acquisitions in its condensed consolidated financial statements from the effective date of each acquisition.
The acquisitions strengthen and expand the Company’s position to design, produce and supply highly engineered proprietary aerospace components in niche markets with significant aftermarket content and provide opportunities to create value through the application of our three core value-driven operating strategies (obtaining profitable new business, improving our cost structure, and providing highly engineered value-added products to customers). The purchase price paid for each acquisition reflects the current earnings before interest, taxes, depreciation and amortization (EBITDA) and cash flows, as well as the future EBITDA and cash flows expected to be generated by the business, which are driven in most cases by the recurring aftermarket consumption over the life of a particular aircraft, estimated to be approximately 25 to 30 years.
Acquisitions
Esterline – On March 14, 2019, TransDigm completed the acquisition of all the outstanding stock of Esterline for $122.50 per share in cash, plus the payoff of Esterline debt. The purchase price, net of cash acquired of approximately $398.2 million, totaled approximately $3,923.9 million. Of the $3,923.9 million purchase price, $3,536.3 million was paid at closing and the remaining $387.6 million was classified as restricted cash for the redemption of the outstanding senior notes due 2023 (herein the "2023 Notes"). The 2023 Notes were redeemed on April 15, 2019. Esterline, through its subsidiaries, was an industry leader in specialized manufacturing for the aerospace and defense industry primarily within three core disciplines: advanced materials, avionics and controls and sensors and systems. The acquisition of Esterline expands TransDigm's platform of proprietary and sole source content for the aerospace and defense industry. TransDigm evaluated the strategic fit and description of each Esterline reporting unit to determine the appropriate business segment for the reporting unit. Each Esterline reporting unit is included in one of TransDigm's segments: Power and Control, Airframe, or Non-aviation. Refer to Note 13, "Segments," for additional information about the Company's segments.
The total purchase price of Esterline was allocated to the underlying assets acquired and liabilities assumed based upon the respective fair value at the date of acquisition. To the extent the purchase price exceeded the fair value of the net identifiable tangible and intangible assets acquired, such excess was allocated to goodwill. Allocations are based on the acquisition method of accounting and third-party valuation appraisals.
Except where otherwise noted in the notes to the condensed consolidated financial statements, changes in balances and activity where comparable periods are presented in the condensed consolidated financial statements were generally driven by the Esterline acquisition.
The allocation of the fair value of the assets acquired and liabilities assumed in the Esterline acquisition as of the acquisition date of March 14, 2019 is summarized in the table below (in millions).
|
|
|
|
|
|
|
|
Assets acquired:
|
|
|
Trade accounts receivable
|
$
|
384
|
|
|
Inventories
|
583
|
|
|
Prepaid expenses and other
|
423
|
|
|
Property, plant, and equipment
|
469
|
|
|
Other intangible assets
|
1,301
|
|
|
Goodwill
|
2,256
|
|
|
Other
|
20
|
|
|
Total assets acquired
|
5,436
|
|
|
Liabilities assumed:
|
|
|
Accounts payable
|
146
|
|
|
Accrued liabilities
|
751
|
|
|
Other non-current liabilities
|
615
|
|
|
Total liabilities assumed
|
1,512
|
|
|
Net assets acquired
|
$
|
3,924
|
|
Of the approximately $2.3 billion of goodwill recognized for the acquisition, approximately $25.6 million is deductible for tax purposes. Also, of the approximately $1.3 billion of other intangible assets recognized for the acquisition, approximately $48.9 million is deductible for tax purposes.
In connection with the Esterline acquisition, we acquired existing long-term contracts with customers that were incurring gross margin losses as of the date of acquisition. Based on our review of these contracts, we concluded that the terms of certain of these loss-making contracts were unfavorable when compared to market terms as of the acquisition date. As a result, we recognized loss contract reserves as of the acquisition date of $267.9 million based on the present value of the difference between the contractual cash flows of the existing long-term contracts and the estimated cash flows had the contracts been executed at market terms as of the acquisition date. These adjustments apply only to contracts generating a margin as of the date of acquisition. As of September 30, 2019, we reclassified $9.3 million in loss contract reserves to liabilities held-for-sale, as it pertained to Souriau-Sunbank. Significant assumptions used to determine the fair value of the loss contract reserves using the discounted cash flow model include discount rates, forecasted quantities of products to be sold under the long-term contracts and market prices for respective products. While the Company conservatively selected values for these assumptions, they are forward looking and could be affected by future economic and market conditions. The loss contract reserves are amortized and recorded as an offset to cost of sales over the life of the contracts as actual sales occur under the long-term contracts. Approximately $19.8 million was amortized and recorded as an offset to cost of sales in the condensed consolidated statement of income for the twenty-six week period ended March 28, 2020. Total loss contract reserves related to the Esterline acquisition are $211.1 million and $231.8 million at March 28, 2020 and September 30, 2019, respectively, of which $64.3 million and $60.0 million is classified in accrued liabilities and $146.8 million and $171.8 million is classified in other non-current liabilities in the condensed consolidated balance sheets at March 28, 2020 and September 30, 2019, respectively.
Extant Acquisitions – On August 30, 2019, the Company's Extant subsidiary completed the acquisition of substantially all of the assets and technical data rights of the Stormscope product line from L3Harris Technologies, Inc. for approximately $20 million in cash. Stormscope is a lightning detection system for the general aviation and business jet markets. Stormscope is included as a product line of Extant, which is included in TransDigm's Power and Control segment. The Company expects that approximately $11.1 million of goodwill recognized for the acquisition and approximately $7.5 million of other intangible assets recognized for the acquisition will be deductible for tax purposes over 15 years.
On October 1, 2018, the Company's Extant subsidiary completed the acquisition of substantially all of the assets and technical data rights from the Corona, California operations of NavCom for approximately $27 million in cash. NavCom develops, manufactures, and supports high-reliability, mission-critical electronics, avionics and sub-assemblies. NavCom is included as a product line of Extant, which is included in TransDigm's Power and Control segment. Approximately $9.0 million of goodwill recognized for the acquisition is deductible for tax purposes over 15 years.
Pro forma net sales and results of operations for the Extant acquisitions had they occurred at the beginning of the applicable twenty-six week periods ended March 28, 2020 and March 30, 2019 are not material and, accordingly, are not provided.
Divestitures
Souriau-Sunbank – On December 20, 2019, TransDigm completed the divestiture of the Souriau-Sunbank Connection Technologies business (“Souriau-Sunbank”) with Eaton Corporation plc (“Eaton”) for approximately $920 million. Souriau-Sunbank was acquired by TransDigm as part of its acquisition of Esterline in March 2019.
Esterline Interface Technology Group – On September 20, 2019, TransDigm completed the divestiture of its Esterline Interface Technology (“EIT”) group of businesses to an affiliate of KPS Capital Partners, LP for approximately $190 million, which included a working capital settlement of $0.7 million that was paid in February 2020. EIT was acquired by TransDigm as part of its acquisition of Esterline in March 2019.
Refer to Note 18, "Discontinued Operations," for further information on the Company's divestitures.
4. RECENT ACCOUNTING PRONOUNCEMENTS
In February 2016, the FASB issued ASU 2016-02, “Leases (ASC 842),” which requires lessees to recognize a right-of-use asset and lease liability for all leases with a term of more than 12 months. ASU 2016-02 was effective for the Company on October 1, 2019, and required a modified retrospective application. In July 2018, the FASB issued ASU 2018-11, “Leases (ASC 842) Targeted Improvements,” which provided an additional transition method that allowed entities to initially apply the new standard at the adoption date and recognize a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption without restating prior periods. The Company has completed the necessary changes to the consolidated financial statements and related disclosures, internal controls, financial policies and information systems. On October 1, 2019, the Company adopted ASC 842 and related amendments using the modified retrospective method. Results for reporting periods beginning after October 1, 2019, are presented under ASC 842, while prior period amounts continue to be reported under ASC 840, “Leases." The Company elected to apply the package of practical expedients permitted within the new standard, which among other things, allows the carry forward of historical lease classification of existing leases. Additionally, the adoption of the new standard resulted in the recording of lease assets and lease liabilities for operating leases of $99 million and $105 million, respectively, as of October 1, 2019. The effects of our transition to ASC 842 resulted in no cumulative adjustment to retained earnings in the period of adoption. The adoption of the standard did not have a material impact on our condensed consolidated statements of income or cash flows. Refer to Note 16, "Leases," for additional information.
In June 2016, the FASB issued ASU 2016-13, "Financial Instruments—Credit Losses: Measurement of Credit Losses on Financial Instruments (ASU 2016-13)," which changes the impairment model for most financial assets. The new model uses a forward-looking expected loss method, which will generally result in earlier recognition of allowances for losses. ASU 2016-13 is effective for the Company for annual and interim periods beginning after October 1, 2020 and early adoption is permitted. The Company is currently evaluating the impact of adopting this standard on our consolidated financial statements and disclosures.
In January 2017, the FASB issued ASU 2017-04, “Simplifying the Test for Goodwill Impairment,” to eliminate Step 2 from the goodwill impairment test in order to simplify the subsequent measurement of goodwill. The guidance is effective for the Company for fiscal years beginning after October 1, 2020, with early adoption permitted. The adoption of this standard is not expected to have a material impact on our consolidated financial statements and disclosures.
In December 2019, the FASB issued ASU 2019-12, “Income Taxes (ASC 740) - Simplifying the Accounting for Income Taxes,” which simplifies the accounting for income taxes by removing certain exceptions to the general principles in ASC 740. The amendments also improve consistent application of and simplify US GAAP for other areas of ASC 740 by clarifying and amending existing guidance. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption of the amendments is permitted, including adoption in any interim period for which financial statements have not yet been issued. Depending on the amendment, adoption may be applied on the retrospective, modified retrospective or prospective basis. The Company is currently evaluating the impact of adopting this standard on our consolidated financial statements and disclosures.
5. REVENUE RECOGNITION
TransDigm's sales are concentrated in the aerospace industry. The Company’s customers include: distributors of aerospace components, commercial airlines, large commercial transport and regional and business aircraft OEMs, various armed forces of the United States and friendly foreign governments, defense OEMs, system suppliers, and various other industrial customers.
The majority of the Company's revenue is recorded at a point in time. Revenue is recognized from the sale of products when control transfers to the customer, which is demonstrated by our right to payment, a transfer of title, a transfer of the risk and rewards of ownership, or the customer acceptance, but most frequently upon shipment where the customer obtains physical possession of the goods.
In some contracts, control transfers to the customer over time, primarily in contracts where the customer is required to pay for the cost of both the finished and unfinished goods at the time of cancellation plus a reasonable profit relative to the work performed for products that were customized for the customer. Therefore, we recognize revenue over time for those agreements that have a right to margin and where the products being produced have no alternative use.
Based on our production cycle, it is generally expected that goods related to the revenue will be shipped and billed within the current year. For revenue recognized over time, we estimate the amount of revenue attributable to a contract earned at a given point during the production cycle based on certain costs, such as materials and labor incurred to date, plus the expected profit, which is a cost-to-cost input method.
The Company’s payment terms vary by the type and location of the customer and the products or services offered. The Company does not offer any payment terms that would meet the requirements for consideration as a significant financing component.
Shipping and handling fees and costs incurred in connection with products sold are recorded in cost of sales in the condensed consolidated statements of income, and are not considered a performance obligation to our customers.
The Company pays sales commissions that relate to contracts for products or services that are satisfied at a point in time or over a period of one year or less and are expensed as incurred. These costs are reported as a component of selling and administrative expenses in the unaudited condensed consolidated statements of income.
Contract Assets and Liabilities - Contract assets reflect revenue recognized and performance obligations satisfied in advance of customer billing or reimbursable costs related to a specific contract. Contract liabilities relate to payments received in advance of the satisfaction of performance under the contract. We receive payments from customers based on the terms established in our contracts. The following table summarizes our contract assets and liabilities balances (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 28, 2020
|
|
September 30, 2019
|
|
Change
|
|
Contract assets, current (1)
|
$
|
40
|
|
|
$
|
44
|
|
|
$
|
(4
|
)
|
|
Contract assets, non-current (2)
|
6
|
|
|
7
|
|
|
(1
|
)
|
|
Total contract assets
|
46
|
|
|
51
|
|
|
(5
|
)
|
|
Contract liabilities, current (3)
|
21
|
|
|
18
|
|
|
3
|
|
|
Contract liabilities, non-current (4)
|
15
|
|
|
13
|
|
|
2
|
|
|
Total contract liabilities
|
36
|
|
|
31
|
|
|
5
|
|
|
Net contract assets
|
$
|
10
|
|
|
$
|
20
|
|
|
$
|
(10
|
)
|
|
|
|
|
(1)
|
Included in prepaid expenses and other on the condensed consolidated balance sheets.
|
|
|
|
|
(2)
|
Included in other non-current assets on the condensed consolidated balance sheets.
|
|
|
|
|
(3)
|
Included in accrued liabilities on the condensed consolidated balance sheets.
|
|
|
|
|
(4)
|
Included in other non-current liabilities on the condensed consolidated balance sheets.
|
For the thirteen and twenty-six week periods ended March 28, 2020, the revenue recognized that was previously included in contract liabilities was not material.
Refer to Note 13, “Segments,” for disclosures related to the disaggregation of revenue.
6. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share (in millions, except per share data) using the two-class method:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Week Periods Ended
|
|
Twenty-Six Week Periods Ended
|
|
|
March 28, 2020
|
|
March 30, 2019
|
|
March 28, 2020
|
|
March 30, 2019
|
|
Numerator for earnings per share:
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
$
|
323
|
|
|
$
|
200
|
|
|
$
|
556
|
|
|
$
|
396
|
|
|
Less: Net income attributable to noncontrolling interests
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
Net income from continuing operations attributable to TD Group
|
323
|
|
|
200
|
|
|
555
|
|
|
396
|
|
|
Less: Special dividends declared or paid on participating securities
|
—
|
|
|
—
|
|
|
(185
|
)
|
|
(24
|
)
|
|
|
323
|
|
|
200
|
|
|
370
|
|
|
372
|
|
|
(Loss) income from discontinued operations, net of tax
|
(4
|
)
|
|
2
|
|
|
68
|
|
|
2
|
|
|
Net income applicable to TD Group common stockholders - basic and diluted
|
$
|
319
|
|
|
$
|
202
|
|
|
$
|
438
|
|
|
$
|
374
|
|
|
Denominator for basic and diluted earnings per share under the two-class method:
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding
|
53.8
|
|
|
53.0
|
|
|
53.7
|
|
|
52.9
|
|
|
Vested options deemed participating securities
|
3.6
|
|
|
3.3
|
|
|
3.7
|
|
|
3.4
|
|
|
Total shares for basic and diluted earnings per share
|
57.4
|
|
|
56.3
|
|
|
57.4
|
|
|
56.3
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share from continuing operations - basic and diluted
|
$
|
5.63
|
|
|
$
|
3.56
|
|
|
$
|
6.45
|
|
|
$
|
6.61
|
|
|
(Loss) Earnings per share from discontinued operations - basic and diluted
|
(0.07
|
)
|
|
0.04
|
|
|
1.18
|
|
|
0.04
|
|
|
Earnings per share
|
$
|
5.56
|
|
|
$
|
3.60
|
|
|
$
|
7.63
|
|
|
$
|
6.65
|
|
7. INVENTORIES
Inventories are stated at the lower of cost or net realizable value. Cost of inventories is generally determined by the average cost and the first-in, first-out (FIFO) methods and includes material, labor and overhead related to the manufacturing process.
Inventories consist of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
March 28, 2020
|
|
September 30, 2019
|
|
Raw materials and purchased component parts
|
$
|
867
|
|
|
$
|
805
|
|
|
Work-in-progress
|
389
|
|
|
360
|
|
|
Finished goods
|
208
|
|
|
192
|
|
|
Total
|
1,464
|
|
|
1,357
|
|
|
Reserves for excess and obsolete inventory
|
(151
|
)
|
|
(124
|
)
|
|
Inventories - Net
|
$
|
1,313
|
|
|
$
|
1,233
|
|
8. INTANGIBLE ASSETS
Other intangible assets - net in the condensed consolidated balance sheets consist of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 28, 2020
|
|
September 30, 2019
|
|
|
Gross Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
|
|
Gross Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
|
|
Trademarks and trade names
|
$
|
954
|
|
|
$
|
—
|
|
|
$
|
954
|
|
|
$
|
956
|
|
|
$
|
—
|
|
|
$
|
956
|
|
|
Technology
|
1,829
|
|
|
542
|
|
|
1,287
|
|
|
1,806
|
|
|
496
|
|
|
1,310
|
|
|
Order backlog
|
90
|
|
|
65
|
|
|
25
|
|
|
107
|
|
|
45
|
|
|
62
|
|
|
Customer relationships
|
436
|
|
|
41
|
|
|
395
|
|
|
438
|
|
|
30
|
|
|
408
|
|
|
Other
|
18
|
|
|
10
|
|
|
8
|
|
|
17
|
|
|
9
|
|
|
8
|
|
|
Total
|
$
|
3,327
|
|
|
$
|
658
|
|
|
$
|
2,669
|
|
|
$
|
3,324
|
|
|
$
|
580
|
|
|
$
|
2,744
|
|
The aggregate amortization expense on identifiable intangible assets for the twenty-six week periods ended March 28, 2020 and March 30, 2019 was approximately $86 million and $42 million, respectively. The estimated amortization expense is $172 million for fiscal year 2020 and $115 million for each of the five succeeding fiscal years 2021 through 2025.
The following is a summary of changes in the carrying value of goodwill by segment from September 30, 2019 through March 28, 2020 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Power &
Control
|
|
Airframe
|
|
Non-
aviation
|
|
Total
|
|
Balance at September 30, 2019
|
$
|
4,121
|
|
|
$
|
3,598
|
|
|
$
|
101
|
|
|
$
|
7,820
|
|
|
Purchase price allocation adjustments
|
(14
|
)
|
|
51
|
|
|
(1
|
)
|
|
36
|
|
|
Currency translation adjustments
|
4
|
|
|
(14
|
)
|
|
—
|
|
|
(10
|
)
|
|
Balance at March 28, 2020
|
$
|
4,111
|
|
|
$
|
3,635
|
|
|
$
|
100
|
|
|
$
|
7,846
|
|
The purchase price allocation adjustments relate to opening balance sheet adjustments recorded by the sixteen reporting units acquired from Esterline.
Interim Impairment Evaluation
US GAAP requires that both indefinite-lived intangible assets and goodwill are tested for impairment annually and more frequently if events or changes in circumstances indicate that it is more likely than not (i.e., a likelihood greater than 50%) that the intangible asset or the reporting unit is impaired. Therefore, during interim periods, ASC 350 requires companies to focus on those events and circumstances that affect significant inputs used to determine the fair value of the asset, asset group or reporting unit to determine whether an interim quantitative impairment test is required. Given the adverse global economic and market conditions attributable to the novel strain of coronavirus (“COVID-19”) pandemic, particularly as it pertains to the commercial sector of the aerospace and defense industry, the Company determined that an interim impairment evaluation of goodwill and indefinite-lived intangible assets was necessary as of March 28, 2020 for certain reporting units in which it was concluded a potential impairment existed.
For the identified reporting units, a Step 1 impairment test was performed using an income approach based on management’s determination of the prospective financial information with consideration taken of the existing uncertainty in the global economy and aerospace and defense industry, particularly the commercial sector. Management also included projected declines and subsequent recovery in commercial OEM and aftermarket as a percentage of sales based on available industry data. The Company utilized a third party valuation firm to assist in the determination of the weighted average cost of capital. For each indefinite-lived intangible asset and reporting unit tested, the fair value sufficiently exceeded carrying value.
As a result of the interim impairment testing performed as of March 28, 2020, no indefinite-lived intangible assets or goodwill was determined to be impaired.
9. DEBT
The Company’s debt consists of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 28, 2020
|
|
|
Gross Amount
|
|
Debt Issuance Costs
|
|
Original Issue Discount or Premium
|
|
Net Amount
|
|
Short-term borrowings—trade receivable securitization facility
|
$
|
350
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
350
|
|
|
Term loans
|
$
|
7,503
|
|
|
$
|
(52
|
)
|
|
$
|
(24
|
)
|
|
$
|
7,427
|
|
|
Revolving credit facility
|
200
|
|
|
—
|
|
|
—
|
|
|
200
|
|
|
6.50% senior subordinated notes due 2024 (2024 Notes)
|
1,200
|
|
|
(5
|
)
|
|
—
|
|
|
1,195
|
|
|
6.50% senior subordinated notes due 2025 (2025 Notes)
|
750
|
|
|
(3
|
)
|
|
3
|
|
|
750
|
|
|
6.375% senior subordinated notes due 2026 (6.375% 2026 Notes)
|
950
|
|
|
(6
|
)
|
|
—
|
|
|
944
|
|
|
6.875% senior subordinated notes due 2026 (6.875% 2026 Notes)
|
500
|
|
|
(5
|
)
|
|
(3
|
)
|
|
492
|
|
|
6.25% secured notes due 2026 (2026 Secured Notes)
|
4,000
|
|
|
(55
|
)
|
|
2
|
|
|
3,947
|
|
|
7.50% senior subordinated notes due 2027 (7.50% 2027 Notes)
|
550
|
|
|
(5
|
)
|
|
—
|
|
|
545
|
|
|
5.50% senior subordinated notes due 2027 (5.50% 2027 Notes
|
2,650
|
|
|
(23
|
)
|
|
—
|
|
|
2,627
|
|
|
Government refundable advances
|
27
|
|
|
—
|
|
|
—
|
|
|
27
|
|
|
Finance lease obligations
|
58
|
|
|
—
|
|
|
—
|
|
|
58
|
|
|
|
18,388
|
|
|
(154
|
)
|
|
(22
|
)
|
|
18,212
|
|
|
Less current portion
|
280
|
|
|
(1
|
)
|
|
—
|
|
|
279
|
|
|
Long-term debt
|
$
|
18,108
|
|
|
$
|
(153
|
)
|
|
$
|
(22
|
)
|
|
$
|
17,933
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
|
Gross Amount
|
|
Debt Issuance Costs
|
|
Original Issue Discount or Premium
|
|
Net Amount
|
|
Short-term borrowings—trade receivable securitization facility
|
$
|
350
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
350
|
|
|
Term loans
|
$
|
7,524
|
|
|
$
|
(58
|
)
|
|
$
|
(17
|
)
|
|
$
|
7,449
|
|
|
6.00% 2022 Notes
|
1,150
|
|
|
(4
|
)
|
|
—
|
|
|
1,146
|
|
|
6.50% 2024 Notes
|
1,200
|
|
|
(6
|
)
|
|
—
|
|
|
1,194
|
|
|
6.50% 2025 Notes
|
750
|
|
|
(3
|
)
|
|
3
|
|
|
750
|
|
|
6.375% 2026 Notes
|
950
|
|
|
(7
|
)
|
|
—
|
|
|
943
|
|
|
6.875% 2026 Notes
|
500
|
|
|
(6
|
)
|
|
(3
|
)
|
|
491
|
|
|
6.25% 2026 Secured Notes
|
4,000
|
|
|
(60
|
)
|
|
2
|
|
|
3,942
|
|
|
7.50% 2027 Notes
|
550
|
|
|
(5
|
)
|
|
—
|
|
|
545
|
|
|
Government refundable advances
|
39
|
|
|
—
|
|
|
—
|
|
|
39
|
|
|
Finance lease obligations
|
50
|
|
|
—
|
|
|
—
|
|
|
50
|
|
|
|
16,713
|
|
|
(149
|
)
|
|
(15
|
)
|
|
16,549
|
|
|
Less current portion
|
81
|
|
|
(1
|
)
|
|
—
|
|
|
80
|
|
|
Long-term debt
|
$
|
16,632
|
|
|
$
|
(148
|
)
|
|
$
|
(15
|
)
|
|
$
|
16,469
|
|
Accrued interest, which is classified as a component of accrued liabilities, was $160.4 million and $92.6 million as of March 28, 2020 and September 30, 2019, respectively.
Issuance of Senior Subordinated Notes due 2027 – On October 29, 2019, the Company entered into a purchase agreement in connection with a private offering of $2,650 million in new 5.50% senior subordinated notes due 2027 (herein the "5.50% 2027 Notes"). The 5.50% 2027 Notes were issued pursuant to an indenture, dated as of November 13, 2019, among TransDigm, as issuer, TransDigm Group, TransDigm UK and the other subsidiaries of TransDigm named therein, as guarantors.
The 5.50% 2027 Notes bear interest at the rate of 5.50% per annum, which accrues from November 13, 2019 and is payable in arrears on May 15th and November 15th of each year, commencing on May 15, 2020. The 5.50% 2027 Notes mature on November 15, 2027, unless earlier redeemed or repurchased, and are subject to the terms and conditions set forth in the indenture.
The Company capitalized $23.6 million and expensed $1.1 million of refinancing costs representing debt issuance costs associated with the 5.50% 2027 Notes during the twenty-six week period ended March 28, 2020.
Repurchase of Senior Subordinated Notes due 2022 – On October 29, 2019, the Company announced a cash tender offer for any and all of its 2022 Notes outstanding. On November 26, 2019, the Company redeemed the principal amount of $1,150 million, plus accrued interest of approximately $25.5 million and early redemption premium of $17.3 million.
The Company wrote off $3.8 million in unamortized debt issuance costs during the twenty-six week period ended March 28, 2020 in conjunction with the redemption of the 2022 Notes.
Amendment No. 7 and Refinancing Facility Agreement – On February 6, 2020, the Company entered into Amendment No. 7 and Refinancing Facility Agreement (herein, "Amendment No. 7") to the Second Amended and Restated Credit Agreement dated as of June 4, 2014 (herein, the "Credit Agreement").
Under the terms of Amendment No. 7, the Company, among other things, (i) incurred new tranche E term loans in an aggregate principal amount equal to approximately $2,216 million, new tranche F term loans in an aggregate principal amount equal to approximately $3,515 million and new tranche G term loans, (collectively, the "New Term Loans") in an aggregate principal amount equal to approximately $1,774 million, (ii) repaid in full all of the prior existing tranche E term loans, tranche F term loans and tranche G term loans outstanding under the Credit Agreement immediately prior to Amendment No. 7 and (iii) extend the maturity date of the new tranche F term loans to December 9, 2025. The New Term Loans were fully drawn on February 6, 2020. The LIBOR interest rate per annum applicable to the New Term Loans is 2.25%, a decrease from the 2.50% rate that applied to the previous existing term loans.
In addition to a discount of $8.8 million recorded in conjunction with the new tranche F term loans, the Company capitalized $1.6 million and expensed $1.9 million of refinancing costs representing debt issuance costs associated with Amendment No. 7 during the twenty-six week period ended March 28, 2020.
Revolving Credit Facility – On March 24, 2020, the Company drew $200 million on the revolving commitments. As of March 28, 2020, the Company had $41.7 million in letters of credit outstanding and $518.3 million of borrowings available under the revolving commitments. The Company intends to use the cash drawn for general corporate purposes. The Company utilizes letters of credit to back certain payment and performance obligations.
Subsequent Event - Issuance of Senior Secured Notes due 2025 – On April 8, 2020, the Company entered into a purchase agreement in connection with a private offering of $1,100 million in aggregate principal amount of 8.00% Senior Secured Notes due 2025 (herein the "8.00% 2025 Notes") at an issue price of 100% of the principal amount. The 8.00% 2025 Notes were issued pursuant to an indenture, dated as of April 8, 2020, amongst TransDigm, as issuer, TransDigm Group, TransDigm UK and the other subsidiaries of TransDigm named therein, as guarantors. The 8.00% 2025 Notes are secured by a first-priority security interest in substantially all the assets of TransDigm, TransDigm Group, TransDigm UK and each other guarantor on an equal and ratable basis with any other existing and future senior secured debt, including indebtedness under the Company's senior secured credit facilities and the 2026 Secured Notes.
The 8.00% 2025 Notes bear interest at the rate of 8.00% per annum, which accrues from April 8, 2020 and is payable in arrears on April 1 and October 1 of each year, commencing on October 1, 2020. The 8.00% 2025 Notes mature on December 15, 2025, unless earlier redeemed or repurchased, and are subject to the terms and conditions set forth in the indenture.
The Company intends to use the net proceeds from the offering of the 8.00% 2025 Notes for general corporate purposes, including increasing its liquidity.
Subsequent Event - Issuance of New Senior Secured Notes due 2026 – On April 17, 2020, the Company entered into a purchase agreement in connection with a private offering of $400 million in aggregate principal amount of 6.25% Senior Secured Notes due 2026 (herein the "6.25% 2026 New Notes") at an issue price of 101% of the principal amount. The 6.25% 2026 New Notes are an additional issuance of the Company's existing 6.25% 2026 Senior Secured Notes, and were issued under the indenture dated as of February 13, 2019 pursuant to which the Company previously issued $4,000 million aggregate principal amount of 6.25% Senior Secured Notes due 2026. The 6.25% 2026 New Notes, together with the 6.25% 2026 Secured Notes, will be treated as a single class for all purposes under the indenture. The 6.25% 2026 New Notes will be of the same class and series as, and otherwise identical to, the 6.25% 2026 Secured Notes other than with respect to the date of issuance and issue price.
The 6.25% 2026 New Notes bear interest at a rate of 6.25% per annum, which accrues from March 15, 2020 and is payable semiannually in arrears on March 15th and September 15th of each year, commencing on September 15, 2020. The 6.25% 2026 New Notes mature on March 15, 2026, unless earlier redeemed or repurchased, and are subject to the terms and conditions set forth in the indenture.
The Company intends to use the net proceeds from the offering of the 6.25% 2026 New Notes for general corporate purposes, including increasing its liquidity.
Government Refundable Advances - Government refundable advances consist of payments received from the Canadian government to assist in research and development related to commercial aviation. The requirement to repay this advance is solely based on year-over-year commercial aviation revenue growth at CMC Electronics, which is a subsidiary of TransDigm. These obligations were assumed in connection with the Esterline acquisition and the balance was $26.7 million at March 28, 2020 and $39.2 million at September 30, 2019.
Obligations under Finance Leases - The Company leases certain buildings and equipment under finance leases. These obligations were assumed in connection with the Esterline acquisition and the present value of the minimum capital lease payments, net of the current portion, represents a balance of $57.5 million at March 28, 2020 and $49.9 million at September 30, 2019. Refer to Note 16, "Leases," for further disclosure on the Company's finance lease obligations.
10. INCOME TAXES
At the end of each reporting period, TD Group makes an estimate of its annual effective income tax rate. The estimate used in the year-to-date period may change in subsequent periods. On March 27, 2020, the President of the United States signed the Coronavirus Aid, Relief, and Economic Security ("CARES") Act, a substantial tax-and-spending package intended to provide additional economic stimulus to address the impact of the COVID-19 pandemic. The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, and modifications to the net interest deduction limitations. The most significant impact of the CARES Act for the Company is an increase of the IRC 163(j) Interest Disallowance Limitations from 30% to 50% of adjusted taxable income which will allow the Company to deduct additional interest for fiscal years 2020 and 2021. During the thirteen week periods ended March 28, 2020 and March 30, 2019, the effective income tax rate was 4.2% and 24.2%, respectively. During the twenty-six week periods ended March 28, 2020 and March 30, 2019, the effective income tax rate was 11.6% and 22.9%, respectively. The Company's lower effective tax rate for the thirteen and twenty-six week periods ended March 28, 2020 was primarily due to a discrete benefit recognized for excess tax benefits for share-based payments in addition to the modification of the interest expense limitation under IRC Section 163(j) enacted as part of the CARES Act, effective for TD Group beginning October 1, 2019. The Company's effective tax rate for the thirteen and twenty-six week periods ended March 28, 2020 was lower than the Federal statutory rate of 21% primarily due to a discrete benefit recognized for excess tax benefits for share-based payments, partially offset by our foreign earnings taxed at rates higher than the U.S. statutory rate. The Company’s effective tax rate for the thirteen and twenty-six week periods ended March 30, 2019 was slightly higher than the Federal statutory tax rate primarily resulting from a valuation allowance associated with our net interest expense limitation under IRC Section 163(j), foreign earnings taxed at rates higher than the U.S. statutory rate, partially offset by the benefit associated with FDII and excess tax benefits for share-based payments.
The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various state, local and foreign jurisdictions. The Company is currently under examination for its federal income taxes in the U.S. for fiscal 2016, in Belgium for fiscal years 2016 through 2018, in Canada for fiscal years 2013 through 2015, in France for fiscal years 2015 through 2018, and in Germany for fiscal years 2014 through 2017. The Company is no longer subject to U.S. federal examinations for years before fiscal year 2015. The Company is subject to state income tax examinations for fiscal years 2009 and later.
At March 28, 2020 and September 30, 2019, TD Group had $40.9 million and $36.5 million, respectively, in unrecognized tax benefits, the recognition of which would have an effect of approximately $36.2 million and $31.4 million on the effective tax rate at March 28, 2020 and September 30, 2019, respectively. The Company believes the tax positions that comprise the unrecognized tax benefits will be reduced by approximately $1.5 million over the next 12 months. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense.
11. FAIR VALUE MEASUREMENTS
The following table presents our assets and liabilities that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy. The fair value hierarchy has three levels based on the reliability of the inputs used to determine fair value. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs (other than quoted prices) that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.
The following summarizes the carrying amounts and fair values of financial instruments (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 28, 2020
|
|
September 30, 2019
|
|
|
Level
|
|
Carrying
Amount
|
|
Fair Value
|
|
Carrying
Amount
|
|
Fair Value
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
1
|
|
|
$
|
2,668
|
|
|
$
|
2,668
|
|
|
$
|
1,467
|
|
|
$
|
1,467
|
|
|
Interest rate cap agreements (1)
|
2
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
1
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreements (3)
|
2
|
|
|
38
|
|
|
38
|
|
|
13
|
|
|
13
|
|
|
Interest rate swap agreements (4)
|
2
|
|
|
329
|
|
|
329
|
|
|
202
|
|
|
202
|
|
|
Foreign currency forward exchange contracts and other (3)
|
2
|
|
|
10
|
|
|
10
|
|
|
6
|
|
|
6
|
|
|
Short-term borrowings - trade receivable securitization facility (5)
|
1
|
|
|
350
|
|
|
350
|
|
|
350
|
|
|
350
|
|
|
Long-term debt, including current portion:
|
|
|
|
|
|
|
|
|
|
|
Term loans (5)
|
2
|
|
|
7,427
|
|
|
6,158
|
|
|
7,449
|
|
|
7,478
|
|
|
Revolving credit facility (5)
|
2
|
|
|
200
|
|
|
200
|
|
|
—
|
|
|
—
|
|
|
6.00% 2022 Notes (5)
|
1
|
|
|
—
|
|
|
—
|
|
|
1,146
|
|
|
1,167
|
|
|
6.50% 2024 Notes (5)
|
1
|
|
|
1,195
|
|
|
1,110
|
|
|
1,194
|
|
|
1,239
|
|
|
6.50% 2025 Notes (5)
|
1
|
|
|
750
|
|
|
694
|
|
|
750
|
|
|
782
|
|
|
6.375% 2026 Notes (5)
|
1
|
|
|
944
|
|
|
884
|
|
|
943
|
|
|
999
|
|
|
6.875% 2026 Notes (5)
|
1
|
|
|
492
|
|
|
460
|
|
|
491
|
|
|
535
|
|
|
6.25% 2026 Notes (5)
|
1
|
|
|
3,947
|
|
|
3,980
|
|
|
3,942
|
|
|
4,290
|
|
|
7.50% 2027 Notes (5)
|
1
|
|
|
545
|
|
|
528
|
|
|
545
|
|
|
595
|
|
|
5.50% 2027 Notes (5)
|
1
|
|
|
2,627
|
|
|
2,385
|
|
|
—
|
|
|
—
|
|
|
Government Refundable Advances
|
2
|
|
|
27
|
|
|
27
|
|
|
39
|
|
|
39
|
|
|
Finance Lease Obligations
|
2
|
|
|
58
|
|
|
58
|
|
|
50
|
|
|
50
|
|
|
|
|
|
(1)
|
Included in other non-current assets on the condensed consolidated balance sheets.
|
|
|
|
|
(2)
|
Included in prepaid expenses and other on the condensed consolidated balance sheets.
|
|
|
|
|
(3)
|
Included in accrued liabilities on the condensed consolidated balance sheets.
|
|
|
|
|
(4)
|
Included in other non-current liabilities on the condensed consolidated balance sheets.
|
|
|
|
|
(5)
|
The carrying amount of the debt instrument is presented net of debt issuance costs, premium and discount. Refer to Note 9, "Debt," for gross carrying amounts.
|
The Company values its financial instruments using an industry standard market approach, in which prices and other relevant information are generated by market transactions involving identical or comparable assets or liabilities. No financial instruments were recognized using unobservable inputs.
Interest rate swaps were measured at fair value using quoted market prices for the swap interest rate indexes over the term of the swap discounted to present value versus the fixed rate of the contract. The interest rate caps were measured at fair value using implied volatility rates of each individual caplet and the yield curve for the related periods.
The Company’s derivative contracts consist of foreign currency exchange contracts and, from time to time, interest rate swap and cap agreements. These derivative contracts are over-the-counter, and their fair value is determined using modeling techniques that include market inputs such as interest rates, yield curves, and currency exchange rates. These contracts are categorized as Level 2 in the fair value hierarchy.
The estimated fair value of the Company’s term loans was based on information provided by the agent under the Company’s senior secured credit facility. The estimated fair values of the Company’s notes were based upon quoted market prices. There has not been any impact to the fair value of derivative liabilities due to the Company's own credit risk. Similarly, there has not been any impact to the fair value of derivative assets based on the Company's evaluation of counterparties' credit risks.
The fair value of cash and cash equivalents, trade accounts receivable-net and accounts payable approximated book value due to the short-term nature of these instruments at March 28, 2020 and September 30, 2019.
12. DERIVATIVES AND HEDGING ACTIVITIES
The Company is exposed to, among other things, the impact of changes in foreign currency exchange rates and interest rates in the normal course of business. The Company’s risk management program is designed to manage the exposure and volatility arising from these risks, and utilizes derivative financial instruments to offset a portion of these risks. The Company uses derivative financial instruments only to the extent necessary to hedge identified business risks and does not enter into such transactions for trading purposes. The Company generally does not require collateral or other security with counterparties to these financial instruments and is therefore subject to credit risk in the event of nonperformance; however, the Company monitors credit risk and currently does not anticipate nonperformance by other parties. These derivative financial instruments do not subject the Company to undue risk, as gains and losses on these instruments generally offset gains and losses on the underlying assets, liabilities, or anticipated transactions that are being hedged. The Company has agreements with each of its swap and cap counterparties that contain a provision whereby if the Company defaults on the credit facility the Company could also be declared in default on its swaps and caps, resulting in an acceleration of payment under the swaps and caps.
All derivative financial instruments are recorded at fair value in the condensed consolidated balance sheets. For a derivative that has not been designated as an accounting hedge, the change in the fair value is recognized immediately through earnings. For a derivative that has been designated as an accounting hedge of an existing asset or liability (a fair value hedge), the change in the fair value of both the derivative and underlying asset or liability is recognized immediately through earnings. For a derivative designated as an accounting hedge of an anticipated transaction (a cash flow hedge), the change in the fair value is recorded on the condensed consolidated balance sheet in accumulated other comprehensive income to the extent the derivative is effective in mitigating the exposure related to the anticipated transaction. The change in the fair value related to the ineffective portion of the hedge, if any, is immediately recognized in earnings. The amount recorded within accumulated other comprehensive income is reclassified into earnings in the same period during which the underlying hedged transaction affects earnings.
Interest Rate Swap and Cap Agreements – Interest rate swap and cap agreements are used to manage interest rate risk associated with floating-rate borrowings under our credit facility. The interest rate swap and cap agreements utilized by the Company effectively modify the Company’s exposure to interest rate risk by converting a portion of the Company’s floating-rate debt to a fixed rate basis through the expiration date of the interest rate swap and cap agreements, thereby reducing the impact of interest rate changes on future interest expense. These agreements involve the receipt of floating rate amounts in exchange for fixed rate interest payments over the term of the agreements without an exchange of the underlying principal amount. These derivative instruments qualify as effective cash flow hedges under US GAAP. For these cash flow hedges, the effective portion of the gain or loss from the financial instruments was initially reported as a component of accumulated other comprehensive income (loss) in stockholders’ deficit and subsequently reclassified into earnings in the same line as the hedged item in the same period or periods during which the hedged item affected earnings. As the interest rate swap and cap agreements are used to manage interest rate risk, any gains or losses from the derivative instruments that are reclassified into earnings are recognized in interest expense - net in the condensed consolidated statements of income.
The following table summarizes the Company's interest rate swap agreements:
|
|
|
|
|
|
|
|
|
Aggregate Notional Amount
(in millions)
|
Start Date
|
End Date
|
Related Term Loans
|
Conversion of Related Variable Rate Debt to
Fixed Rate of:
|
|
$750
|
3/31/2016
|
6/30/2020
|
Tranche E
|
5.05% (2.8% plus the 2.25% margin percentage)
|
|
$500
|
6/29/2018
|
3/31/2025
|
Tranche E
|
5.25% (3.0% plus the 2.25% margin percentage)
|
|
$750
|
6/30/2020
|
6/30/2022
|
Tranche E
|
4.75% (2.5% plus the 2.25% margin percentage)
|
|
$1,500
|
6/30/2022
|
3/31/2025
|
Tranche E
|
5.35% (3.1% plus the 2.25% margin percentage)
|
|
$1,000
|
6/28/2019
|
12/9/2025
|
Tranche F
|
4.05% (1.8% plus the 2.25% margin percentage)
|
|
$1,400
|
6/30/2021
|
12/9/2025
|
Tranche F
|
5.25% (3.0% plus the 2.25% margin percentage)
|
|
$500
|
12/30/2016
|
12/31/2021
|
Tranche G
|
4.15% (1.9% plus the 2.25% margin percentage)
|
|
$400
|
9/30/2017
|
9/30/2022
|
Tranche G
|
4.15% (1.9% plus the 2.25% margin percentage)
|
|
$900
|
12/31/2021
|
6/28/2024
|
Tranche G
|
5.35% (3.1% plus the 2.25% margin percentage)
|
|
$400
|
9/30/2022
|
6/28/2024
|
Tranche G
|
5.25% (3.0% plus the 2.25% margin percentage)
|
The following table summarizes the Company's interest rate cap agreements:
|
|
|
|
|
|
|
|
|
Aggregate Notional Amount
(in millions)
|
Start Date
|
End Date
|
Related Term Loans
|
Offsets Variable Rate Debt Attributable to
Fluctuations Above:
|
|
$750
|
9/30/2015
|
6/30/2020
|
Tranche E
|
Three month LIBO rate of 2.5%
|
|
$750
|
6/30/2020
|
6/30/2022
|
Tranche E
|
Three month LIBO rate of 2.5%
|
|
$400
|
6/30/2016
|
6/30/2021
|
Tranche F
|
Three month LIBO rate of 2.0%
|
|
$400
|
12/30/2016
|
12/31/2021
|
Tranche G
|
Three month LIBO rate of 2.5%
|
Certain derivative asset and liability balances are offset where master netting agreements provide for the legal right of setoff. For classification purposes, we record the net fair value of each type of derivative position that is expected to settle in less than one year with each counterparty as a net current asset or liability and each type of long-term position as a net non-current asset or liability. The amounts shown in the table below represent the gross amounts of recognized assets and liabilities, the amounts offset in the condensed consolidated balance sheet and the net amounts of assets and liabilities presented therein (in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 28, 2020
|
|
September 30, 2019
|
|
|
|
Asset
|
|
Liability
|
|
Asset
|
|
Liability
|
|
Interest rate cap agreements
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
Interest rate swap agreements (1)
|
|
—
|
|
|
(367
|
)
|
|
—
|
|
|
(216
|
)
|
|
Net derivatives as classified in the balance sheet (2)
|
|
$
|
—
|
|
|
$
|
(367
|
)
|
|
$
|
1
|
|
|
$
|
(216
|
)
|
|
|
|
|
(1)
|
The increase in the interest rate swap liability is primarily attributable to a downward trend in the LIBO rate during the second quarter of fiscal 2020.
|
|
|
|
|
(2)
|
Refer to Note 11, "Fair Value Measurements," for the condensed consolidated balance sheet classification of our interest rate swap and cap agreements.
|
Based on the fair value amounts of the interest rate swap and cap agreements determined as of March 28, 2020, the estimated net amount of existing gains and losses and caplet amortization expected to be reclassified into interest expense within the next twelve months is approximately $39.4 million.
Foreign Currency Forward Exchange Contracts – The Company transacts business in various foreign currencies, which subjects the Company’s cash flows and earnings to exposure related to changes in foreign currency exchange rates. These exposures arise primarily from purchases or sales of products and services from third parties. Foreign currency forward exchange contracts provide for the purchase or sale of foreign currencies at specified future dates at specified exchange rates, and are used to offset changes in the fair value of certain assets or liabilities or forecasted cash flows resulting from transactions denominated in foreign currencies. At March 28, 2020, the Company had outstanding foreign currency forward exchange contracts principally to sell U.S. dollars with notional amounts of $145.9 million. These notional values consist primarily of contracts for the Canadian dollar and European euro and are stated in U.S. dollar equivalents at spot exchange rates at the respective dates. During the twenty-six week period ended March 28, 2020, the Company recognized gains on foreign currency forward exchange contracts designated as fair value hedges of $1.8 million in cost of sales in the condensed consolidated statement of income. During the twenty-six week period ended March 28, 2020, the gains the Company reclassified on foreign currency forward exchange contracts designated as cash flow hedges in the condensed consolidated income statement are immaterial. The gains (losses) were previously recorded as a component of accumulated other comprehensive income (loss) in stockholders' deficit.
During the twenty-six week period ended March 28, 2020, the Company recorded a gain of $0.3 million on foreign currency forward exchange contracts that have not been designated as accounting hedges. These foreign currency exchange gains are included in selling and administrative expenses.
There was an immaterial impact to the Company’s earnings related to the ineffective portion of any hedging instruments during the twenty-six week period ended March 28, 2020. In addition, there was an immaterial impact to the Company’s earnings when a hedged firm commitment no longer qualified as a fair value hedge or when a hedged forecasted transaction no longer qualified as a cash flow hedge during the twenty-six week period ended March 28, 2020.
Amounts related to foreign currency forward exchange contracts included in accumulated other comprehensive income (loss) in stockholders' deficit are reclassified into earnings when the hedged transaction settles. The Company expects to reclassify approximately $9.9 million of net losses into earnings over the next 12 months. The maximum duration of the Company’s foreign currency cash flow hedge contracts at March 28, 2020 is 12 months.
13. SEGMENTS
The Company’s businesses are organized and managed in three reporting segments: Power & Control, Airframe and Non-aviation.
The Power & Control segment includes operations that primarily develop, produce and market systems and components that predominately provide power to or control power of the aircraft utilizing electronic, fluid, power and mechanical motion control technologies. Major product offerings 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, databus and power controls, advanced sensor products, switches and relay panels, high performance hoists, winches and lifting devices and cargo loading and handling systems. Primary customers of this segment are engine and power system and subsystem suppliers, airlines, third party maintenance suppliers, military buying agencies and repair depots. Products are sold in the original equipment and aftermarket market channels.
The Airframe segment includes operations that primarily develop, produce and market systems and components that are used in non-power airframe applications utilizing airframe and cabin structure technologies. Major product offerings include engineered latching and locking devices, rods and locking devices, engineered connectors and elastomers, cockpit security components and systems, aircraft audio systems, specialized lavatory components, seat belts and safety restraints, engineered interior surfaces and related components, advanced displays, thermal protection, lighting and control technology, military personnel parachutes and cargo delivery systems. Primary customers of this segment are airframe manufacturers and cabin system suppliers and subsystem suppliers, airlines, third party maintenance suppliers, military buying agencies and repair depots. Products are sold in the original equipment and aftermarket market channels.
The Non-aviation segment includes operations that primarily develop, produce and market products for non-aviation markets. Major product offerings include headsets for high-noise, medium-noise, and dismounted applications, seat belts and safety restraints for ground transportation applications, mechanical/electro-mechanical actuators and controls for space applications, hydraulic/electromechanical actuators and fuel valves for land based gas turbines, and refueling systems for heavy equipment used in mining, construction and other industries and turbine controls for the energy and oil and gas markets. Primary customers of this segment are off-road vehicle suppliers and subsystem suppliers, child restraint system suppliers, satellite and space system suppliers, manufacturers of heavy equipment used in mining, construction and other industries and turbine original equipment manufacturers, gas pipeline builders and electric utilities.
The primary measurement used by management to review and assess the operating performance of each segment is EBITDA As Defined. The Company defines EBITDA As Defined as earnings before interest, taxes, depreciation and amortization plus certain non-operating items recorded as corporate expenses including refinancing costs, acquisition-related costs, transaction-related costs, foreign currency gains and losses, and non-cash compensation charges incurred in connection with the Company’s stock incentive plans. Acquisition-related costs represent 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 the Company’s operations, facility relocation costs and other acquisition-related costs; transaction related costs comprising deal fees; legal, financial and tax diligence expenses and valuation costs that are required to be expensed as incurred and other acquisition accounting adjustments.
EBITDA As Defined is not a measurement of financial performance under US GAAP. Although the Company uses EBITDA As Defined to assess the performance of its business and for various other purposes, the use of this non-GAAP financial measure as an analytical tool has limitations, and it should not be considered in isolation or as a substitute for analysis of the Company’s results of operations as reported in accordance with US GAAP.
The Company’s segments are reported on the same basis used internally for evaluating performance and for allocating resources. The accounting policies for each segment are the same as those described in the summary of significant accounting policies in the Company’s consolidated financial statements. Intersegment sales and transfers are recorded at values based on market prices, which creates intercompany profit on intersegment sales or transfers that is eliminated in consolidation. Intersegment sales were immaterial for the periods presented below. Certain corporate-level expenses are allocated to the operating segments.
The following table presents net sales by reportable segment (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Week Periods Ended
|
|
Twenty-Six Week Periods Ended
|
|
|
March 28, 2020
|
|
March 30, 2019
|
|
March 28, 2020
|
|
March 30, 2019
|
|
Net sales to external customers
|
|
|
|
|
|
|
|
|
Power & Control
|
|
|
|
|
|
|
|
|
Commercial OEM
|
$
|
191
|
|
|
$
|
146
|
|
|
$
|
375
|
|
|
$
|
278
|
|
|
Commercial Aftermarket
|
225
|
|
|
186
|
|
|
445
|
|
|
344
|
|
|
Defense
|
331
|
|
|
299
|
|
|
679
|
|
|
570
|
|
|
Total Power & Control
|
747
|
|
|
631
|
|
|
1,499
|
|
|
1,192
|
|
|
|
|
|
|
|
|
|
|
|
Airframe
|
|
|
|
|
|
|
|
|
Commercial OEM
|
243
|
|
|
176
|
|
|
473
|
|
|
308
|
|
|
Commercial Aftermarket
|
220
|
|
|
203
|
|
|
465
|
|
|
382
|
|
|
Defense
|
192
|
|
|
120
|
|
|
391
|
|
|
208
|
|
|
Total Airframe
|
655
|
|
|
499
|
|
|
1,329
|
|
|
898
|
|
|
|
|
|
|
|
|
|
|
|
Total Non-aviation
|
41
|
|
|
38
|
|
|
80
|
|
|
71
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,443
|
|
|
$
|
1,168
|
|
|
$
|
2,908
|
|
|
$
|
2,161
|
|
The following table reconciles EBITDA As Defined by segment to consolidated income from continuing operations before income taxes (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Week Periods Ended
|
|
Twenty-Six Week Periods Ended
|
|
|
March 28, 2020
|
|
March 30, 2019
|
|
March 28, 2020
|
|
March 30, 2019
|
|
EBITDA As Defined
|
|
|
|
|
|
|
|
|
Power & Control
|
$
|
381
|
|
|
$
|
329
|
|
|
$
|
766
|
|
|
$
|
628
|
|
|
Airframe
|
296
|
|
|
243
|
|
|
602
|
|
|
434
|
|
|
Non-aviation
|
14
|
|
|
12
|
|
|
26
|
|
|
22
|
|
|
Total segment EBITDA As Defined
|
691
|
|
|
584
|
|
|
1,394
|
|
|
1,084
|
|
|
Less: Unallocated corporate expenses
|
16
|
|
|
18
|
|
|
38
|
|
|
31
|
|
|
Total Company EBITDA As Defined
|
675
|
|
|
566
|
|
|
1,356
|
|
|
1,053
|
|
|
Depreciation and amortization expense
|
72
|
|
|
39
|
|
|
141
|
|
|
74
|
|
|
Interest expense - net
|
252
|
|
|
202
|
|
|
501
|
|
|
374
|
|
|
Acquisition-related costs
|
9
|
|
|
38
|
|
|
16
|
|
|
50
|
|
|
Stock compensation expense
|
12
|
|
|
21
|
|
|
37
|
|
|
38
|
|
|
Refinancing costs
|
3
|
|
|
3
|
|
|
26
|
|
|
3
|
|
|
Other, net
|
(10
|
)
|
|
—
|
|
|
6
|
|
|
1
|
|
|
Income from continuing operations before income taxes
|
$
|
337
|
|
|
$
|
263
|
|
|
$
|
629
|
|
|
$
|
513
|
|
The following table presents total assets by segment (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
March 28, 2020
|
|
September 30, 2019
|
|
Total assets
|
|
|
|
|
Power & Control
|
$
|
7,114
|
|
|
$
|
7,037
|
|
|
Airframe
|
6,738
|
|
|
6,672
|
|
|
Non-aviation
|
259
|
|
|
262
|
|
|
Corporate
|
2,524
|
|
|
1,322
|
|
|
Assets of discontinued operations
|
—
|
|
|
962
|
|
|
|
$
|
16,635
|
|
|
$
|
16,255
|
|
The Company’s sales principally originate from the United States, and the Company’s long-lived assets are principally located in the United States.
14. RETIREMENT PLANS
The components of net periodic pension cost for the Company's defined benefit plans were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Week Periods Ended
|
|
Twenty-Six Week Periods Ended
|
|
|
March 28, 2020
|
|
March 30, 2019
|
|
March 28, 2020
|
|
March 30, 2019
|
|
|
U.S. Pension Plans
|
|
Non-U.S. Pension Plans
|
|
U.S. Pension Plans
|
|
Non-U.S. Pension Plans
|
|
U.S. Pension Plans
|
|
Non-U.S. Pension Plans
|
|
U.S. Pension Plans
|
|
Non-U.S. Pension Plans
|
|
Service cost
|
$
|
2
|
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
4
|
|
|
$
|
2
|
|
|
$
|
2
|
|
|
$
|
2
|
|
|
Interest cost
|
3
|
|
|
1
|
|
|
2
|
|
|
1
|
|
|
5
|
|
|
3
|
|
|
4
|
|
|
2
|
|
|
Expected return on plan assets
|
(5
|
)
|
|
(1
|
)
|
|
(3
|
)
|
|
(1
|
)
|
|
(9
|
)
|
|
(4
|
)
|
|
(5
|
)
|
|
(3
|
)
|
|
Amortization of prior service cost
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Amortization of actuarial loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Amortization of transition obligation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Net periodic pension cost
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
1
|
|
The net periodic pension cost for the Company's post-retirement pension plans was immaterial for the thirteen and twenty-six week periods ended March 28, 2020 and March 30, 2019. The defined benefit plan components of total pension cost, other than service cost, are included in other expense in the Company's condensed consolidated statements of income.
15. ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME
The following table presents the components of accumulated other comprehensive (loss) income, net of taxes, for the twenty-six week period ended March 28, 2020 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) on derivatives designated and qualifying as cash flow hedges (1)
|
|
Defined benefit pension plan activity (2)
|
|
Currency translation adjustment
|
|
Total
|
|
Balance at September 30, 2019
|
$
|
(172
|
)
|
|
$
|
(40
|
)
|
|
$
|
(167
|
)
|
|
$
|
(379
|
)
|
|
Current-period other comprehensive (loss) income
|
(122
|
)
|
|
6
|
|
|
(8
|
)
|
|
(124
|
)
|
|
Balance at March 28, 2020
|
$
|
(294
|
)
|
|
$
|
(34
|
)
|
|
$
|
(175
|
)
|
|
$
|
(503
|
)
|
|
|
|
|
(1)
|
Unrealized loss represents derivative instruments, net of taxes of $43 million and $19 million for the thirteen week periods ended March 28, 2020 and March 30, 2019, respectively, and $34 million and $41 million for the twenty-six week periods ended March 28, 2020 and March 30, 2019, respectively.
|
|
|
|
|
(2)
|
There were no material pension liability adjustments, net of taxes for the thirteen and twenty-six week periods ended March 28, 2020 and March 30, 2019.
|
A summary of reclassifications out of accumulated other comprehensive (loss) income for the twenty-six week periods ended March 28, 2020 and March 30, 2019 is provided below (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount reclassified
|
|
|
|
Twenty-Six Week Periods Ended
|
|
Description of reclassifications out of accumulated other comprehensive (loss) income
|
|
March 28, 2020
|
|
March 30, 2019
|
|
Amortization from redesignated interest rate swap and cap agreements (1)
|
|
$
|
2
|
|
|
$
|
1
|
|
|
Losses from settlement of foreign currency forward exchange contracts (2)
|
|
—
|
|
|
1
|
|
|
Deferred tax benefit on reclassifications out of accumulated other comprehensive (loss) income
|
|
—
|
|
|
(1
|
)
|
|
Losses reclassified into earnings, net of tax
|
|
$
|
2
|
|
|
$
|
1
|
|
|
|
|
|
(1)
|
This component of accumulated other comprehensive (loss) income is included in interest expense (see Note 12, “Derivatives and Hedging Activities,” for additional information).
|
|
|
|
|
(2)
|
This component of accumulated other comprehensive (loss) income is included in net sales (see Note 12, “Derivatives and Hedging Activities,” for additional information).
|
16. LEASES
The Company leases certain manufacturing facilities, offices, land, equipment and vehicles. Such leases, some of which are noncancelable and, in many cases, include renewals, expire at various dates. Such options to renew are included in the lease term when it is reasonably certain that the option will be exercised. The Company’s lease agreements typically do not contain any significant residual value guarantees or restrictive covenants, and payments within certain lease agreements are adjusted periodically for changes in an index or rate.
The Company determines if an arrangement is a lease at inception. Operating lease assets and liabilities are recognized at the commencement date of the lease based on the present value of lease payments over the lease term. Lease assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. The discount rate implicit within our leases is generally not determinable and therefore we determine the discount rate based on our incremental borrowing rate. The incremental borrowing rate for our leases is determined based on the lease term and the currency in which lease payments are made. The length of a lease term includes options to extend or terminate the lease when it is reasonably certain that the Company will exercise those options. The Company made an accounting policy election to not recognize lease assets or liabilities for leases with a term of 12 months or less. Additionally, when accounting for leases, the Company combines payments for leased assets, related services and other components of a lease.
The components of lease expense for the thirteen and twenty-six week periods ended March 28, 2020 are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Classification
|
|
Thirteen Week Period Ended
March 28, 2020
|
|
Twenty-Six Week Period Ended
March 28, 2020
|
|
Operating lease cost
|
Cost of Sales or Selling and Administrative Expenses
|
|
$
|
7
|
|
|
$
|
14
|
|
|
Finance lease cost
|
|
|
|
|
|
|
Amortization of leased assets
|
Cost of Sales
|
|
1
|
|
|
1
|
|
|
Interest on lease liabilities
|
Interest Expense - Net
|
|
1
|
|
|
2
|
|
|
Total lease cost
|
|
|
$
|
9
|
|
|
$
|
17
|
|
Supplemental cash flow information related to leases for the twenty-six week period ended March 28, 2020 is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
March 28, 2020
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
Operating cash outflows from operating leases
|
|
$
|
14
|
|
|
Operating cash outflows from finance leases
|
|
2
|
|
|
Financing cash outflows from finance leases
|
|
1
|
|
|
|
|
|
|
Lease assets obtained in exchange for new lease obligations:
|
|
|
|
Operating leases
|
|
$
|
15
|
|
Supplemental balance sheet information related to leases is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
Classification
|
|
March 28, 2020
|
|
Operating Leases
|
|
|
|
|
Operating lease right-of-use assets
|
Other Assets
|
|
$
|
102
|
|
|
|
|
|
|
|
Current operating lease liabilities
|
Accrued Liabilities
|
|
21
|
|
|
Long-term operating lease liabilities
|
Other Non-current Liabilities
|
|
86
|
|
|
Total operating lease liabilities
|
|
|
$
|
107
|
|
|
|
|
|
|
|
Finance Leases
|
|
|
|
|
Finance lease right-of-use assets, net
|
Property, Plant and Equipment—Net
|
|
$
|
71
|
|
|
|
|
|
|
|
Current finance lease liabilities
|
Accrued Liabilities
|
|
2
|
|
|
Long-term finance lease liabilities
|
Other Non-current Liabilities
|
|
56
|
|
|
Total finance lease liabilities
|
|
|
$
|
58
|
|
As of March 28, 2020, the Company has the following remaining lease term and weighted average discount rates:
|
|
|
|
|
|
Weighted-average remaining lease term
|
|
|
Operating leases
|
6.2 years
|
|
Finance leases
|
16.8 years
|
|
|
|
|
Weighted-average discount rate
|
|
|
Operating leases
|
6.2%
|
|
Finance leases
|
7.2%
|
Maturities of lease liabilities at March 28, 2020 are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Leases
|
|
Finance Leases
|
|
2020
|
$
|
14
|
|
|
$
|
3
|
|
|
2021
|
26
|
|
|
6
|
|
|
2022
|
22
|
|
|
6
|
|
|
2023
|
17
|
|
|
6
|
|
|
2024
|
14
|
|
|
6
|
|
|
Thereafter
|
38
|
|
|
76
|
|
|
Total future minimum lease payments
|
131
|
|
|
103
|
|
|
Less: imputed interest
|
24
|
|
|
45
|
|
|
Present value of lease liabilities reported
|
$
|
107
|
|
|
$
|
58
|
|
A summary of minimum rental commitments at March 28, 2020 under noncancelable operating leases, which expire at various dates and in most cases contain renewal options, for each of the next five years and thereafter in the aggregate, is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
Operating Leases
|
|
2020
|
|
$
|
14
|
|
|
2021
|
|
26
|
|
|
2022
|
|
23
|
|
|
2023
|
|
18
|
|
|
2024
|
|
14
|
|
|
Thereafter
|
|
39
|
|
|
Total lease commitments
|
|
$
|
134
|
|
17. COMMITMENTS AND CONTINGENCIES
On August 8, 2019, a fire caused significant damage to the Niort, France operating facility of Leach International Europe, which is a subsidiary of TransDigm acquired via the Esterline acquisition. Leach International Europe’s results are reported within the Company’s Power & Control segment. The facility as well as certain machinery, equipment and inventory sustained damage. The Company suspended operations at the Niort facility as a result of the fire; however, has transferred certain operations to temporary facilities until operations are fully restored at the rebuilt facility. The facility is estimated to be complete and fully operational between the first and second quarter of fiscal 2021.
The Company’s insurance covers damage to the facility, equipment, inventory, and other assets, at replacement cost, as well as business interruption, and recovery-related expenses caused by the fire, subject to a $1 million deductible and certain sub-limits based on the nature of the covered item. Anticipated insurance recoveries related to losses and incremental costs incurred are recognized when receipt is probable. Anticipated insurance recoveries in excess of net book value of the damaged property and inventory will not be recorded until all contingencies relating to the claim have been resolved. The timing of and amounts of ultimate insurance recoveries is not known at this time. Expenses incurred relating to this event for the thirteen and twenty-six week periods ended March 28, 2020 were not material.
18. DISCONTINUED OPERATIONS
Current Year Divestitures
On December 20, 2019, TransDigm completed the divestiture of the Souriau-Sunbank Connection Technologies business (“Souriau-Sunbank”) with Eaton Corporation plc (“Eaton”) for approximately $920 million. Souriau-Sunbank was acquired by TransDigm as part of its acquisition of Esterline in March 2019 and was included in TransDigm’s Non-aviation segment. The divestiture represented a strategic shift in TransDigm’s business and, in accordance with US GAAP, qualified as discontinued operations.
(Loss) income from discontinued operations, net of tax in the condensed consolidated statements of income for the thirteen and twenty-six week periods ended March 28, 2020 was $(4) million and $68 million, respectively. The $68 million income from discontinued operations, net of tax for the twenty-six week period ended March 28, 2020 was comprised of $8 million income from Souriau-Sunbank's operations and a gain on the sale of Souriau-Sunbank, net of tax, of $60 million. Income from discontinued operations, net of tax was $1 million for the thirteen and twenty-six week periods ended March 30, 2019.
At September 30, 2019, Souriau-Sunbank’s assets held-for-sale and liabilities held-for-sale were $962 million and $157 million, respectively. Under US GAAP, assets held for sale are to be reported at lower of its carrying amount or fair value less cost to sell. The following is the summarized balance sheet of Souriau-Sunbank’s assets held-for-sale and liabilities held-for-sale as of September 30, 2019 (in millions):
|
|
|
|
|
|
|
|
|
Assets and Liabilities of Discontinued Operations Held-for-Sale
|
|
Fiscal Year Ended September 30, 2019
|
|
Cash and cash equivalents
|
|
$
|
29
|
|
|
Trade accounts receivable—Net
|
|
67
|
|
|
Inventories—Net
|
|
88
|
|
|
Prepaid expenses and other
|
|
2
|
|
|
Property, plant and equipment—Net
|
|
101
|
|
|
Goodwill
|
|
480
|
|
|
Other intangibles—Net
|
|
194
|
|
|
Other
|
|
1
|
|
|
Total assets of discontinued operations
|
|
$
|
962
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
33
|
|
|
Accrued liabilities
|
|
55
|
|
|
Long-term debt
|
|
6
|
|
|
Deferred income taxes
|
|
42
|
|
|
Other
|
|
21
|
|
|
Total liabilities of discontinued operations
|
|
$
|
157
|
|
Prior Year Divestitures
On September 20, 2019, TransDigm completed the divestiture of its Esterline Interface Technology (“EIT”) group of businesses to an affiliate of KPS Capital Partners, LP for approximately $190 million. EIT was acquired by TransDigm as part of its acquisition of Esterline in March 2019 and was included in TransDigm’s Non-aviation segment. The divestiture represented a strategic shift in TransDigm’s business and, in accordance with US GAAP, qualified as discontinued operations.
There was no impact to the (loss) income from discontinued operations, net of tax in the condensed consolidated statements of income for the thirteen and twenty-six week periods ended March 28, 2020. Income from discontinued operations, net of tax was $1 million for the thirteen and twenty-six week periods ended March 30, 2019.
Operating Results Summary
The following is the summarized operating results for Souriau-Sunbank for the thirteen and twenty-six week periods ended March 28, 2020 and March 30, 2019 and EIT for the thirteen and twenty-six week periods ended March 30, 2019 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Week Period Ended
|
|
Twenty-Six Week Period Ended
|
|
|
|
March 28, 2020
|
|
March 30, 2019
|
|
March 28, 2020
|
|
March 30, 2019
|
|
Net sales
|
|
$
|
—
|
|
|
$
|
28
|
|
|
$
|
79
|
|
|
$
|
28
|
|
|
Income from discontinued operations before income taxes
|
|
—
|
|
|
3
|
|
|
13
|
|
|
3
|
|
|
Income tax expense
|
|
1
|
|
|
1
|
|
|
5
|
|
|
1
|
|
|
(Loss) Income from discontinued operations, net of tax
|
|
(1
|
)
|
|
2
|
|
|
8
|
|
|
2
|
|
|
(Loss) Gain from sale of discontinued operations, net of tax
|
|
(3
|
)
|
|
—
|
|
|
60
|
|
|
—
|
|
|
(Loss) Income from discontinued operations, net of tax
|
|
$
|
(4
|
)
|
|
$
|
2
|
|
|
$
|
68
|
|
|
$
|
2
|
|
19. SUPPLEMENTAL GUARANTOR INFORMATION
TransDigm Inc.’s 2024 Notes, 2025 Notes, 6.375% 2026 Notes, 2026 Secured Notes, 7.50% 2027 Notes and 5.50% 2027 Notes are jointly and severally guaranteed, on a senior subordinated basis, by TD Group, TransDigm UK Holdings plc ("TransDigm UK") and TransDigm Inc.’s Domestic Restricted Subsidiaries, as defined in the applicable Indentures. TransDigm UK's 6.875% 2026 Notes are jointly and severally guaranteed, on a senior subordinated basis, by TD Group, TransDigm Inc. and TransDigm Inc.'s Domestic Restricted Subsidiaries as defined in the applicable indenture. The following supplemental condensed consolidating financial information presents, in separate columns, the balance sheets of the Company as of March 28, 2020 and September 30, 2019 and its statements of income and comprehensive income and cash flows for the twenty-six week periods ended March 28, 2020 and March 30, 2019 for (i) TransDigm Group on a parent only basis with its investment in subsidiaries recorded under the equity method, (ii) TransDigm Inc. including its directly owned operations and non-operating entities, excluding TransDigm UK, (iii) TransDigm UK (iv) the Subsidiary Guarantors (other than TransDigm UK) on a combined basis, (v) Non-Guarantor Subsidiaries and (vi) the Company on a consolidated basis.
Separate financial statements of TransDigm Inc. are not presented because TransDigm Inc.’s 2024 Notes, 2025 Notes, 6.375% 2026 Notes, 2026 Secured Notes, 7.50% 2027 Notes and 5.50% 2027 Notes are fully and unconditionally guaranteed on a senior subordinated basis by TD Group, TransDigm UK and all of TransDigm Inc's Domestic Restricted Subsidiaries and because TD Group has no significant operations or assets separate from its investment in TransDigm Inc.
Separate financial statements of TransDigm UK are not presented because TransDigm UK's 6.875% 2026 Notes, issued in May 2018, are fully and unconditionally guaranteed on a senior subordinated basis by TD Group, TransDigm Inc. and all of TransDigm Inc.'s Domestic Restricted Subsidiaries.
TRANSDIGM GROUP INCORPORATED
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF MARCH 28, 2020
(Amounts in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TransDigm
Group
|
|
TransDigm
Inc.
|
|
TransDigm UK
|
|
Subsidiary
Guarantors
|
|
Non-
Guarantor
Subsidiaries
|
|
Eliminations
|
|
Total
Consolidated
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
21
|
|
|
$
|
2,245
|
|
|
$
|
1
|
|
|
$
|
(15
|
)
|
|
$
|
416
|
|
|
$
|
—
|
|
|
$
|
2,668
|
|
|
Trade accounts receivable - Net
|
—
|
|
|
—
|
|
|
—
|
|
|
147
|
|
|
852
|
|
|
—
|
|
|
999
|
|
|
Inventories - Net
|
—
|
|
|
56
|
|
|
—
|
|
|
936
|
|
|
338
|
|
|
(17
|
)
|
|
1,313
|
|
|
Prepaid expenses and other
|
—
|
|
|
92
|
|
|
—
|
|
|
63
|
|
|
65
|
|
|
—
|
|
|
220
|
|
|
Total current assets
|
21
|
|
|
2,393
|
|
|
1
|
|
|
1,131
|
|
|
1,671
|
|
|
(17
|
)
|
|
5,200
|
|
|
INVESTMENT IN SUBSIDIARIES AND INTERCOMPANY BALANCES
|
(4,230
|
)
|
|
17,962
|
|
|
974
|
|
|
19,222
|
|
|
9,680
|
|
|
(43,608
|
)
|
|
—
|
|
|
PROPERTY, PLANT AND
EQUIPMENT - NET
|
—
|
|
|
18
|
|
|
—
|
|
|
512
|
|
|
218
|
|
|
—
|
|
|
748
|
|
|
GOODWILL
|
—
|
|
|
83
|
|
|
—
|
|
|
6,413
|
|
|
1,350
|
|
|
—
|
|
|
7,846
|
|
|
OTHER INTANGIBLE ASSETS - NET
|
—
|
|
|
25
|
|
|
—
|
|
|
2,025
|
|
|
619
|
|
|
—
|
|
|
2,669
|
|
|
DEFERRED INCOME TAXES
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
13
|
|
|
—
|
|
|
13
|
|
|
OTHER
|
—
|
|
|
9
|
|
|
—
|
|
|
104
|
|
|
46
|
|
|
—
|
|
|
159
|
|
|
TOTAL ASSETS
|
$
|
(4,209
|
)
|
|
$
|
20,490
|
|
|
$
|
975
|
|
|
$
|
29,407
|
|
|
$
|
13,597
|
|
|
$
|
(43,625
|
)
|
|
$
|
16,635
|
|
|
LIABILITIES AND STOCKHOLDERS’
(DEFICIT) EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
$
|
—
|
|
|
$
|
275
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
3
|
|
|
$
|
—
|
|
|
$
|
279
|
|
|
Short-term borrowings - trade receivable securitization facility
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
350
|
|
|
—
|
|
|
350
|
|
|
Accounts payable
|
—
|
|
|
17
|
|
|
—
|
|
|
151
|
|
|
98
|
|
|
—
|
|
|
266
|
|
|
Accrued liabilities
|
—
|
|
|
249
|
|
|
13
|
|
|
239
|
|
|
260
|
|
|
—
|
|
|
761
|
|
|
Total current liabilities
|
—
|
|
|
541
|
|
|
13
|
|
|
391
|
|
|
711
|
|
|
—
|
|
|
1,656
|
|
|
LONG-TERM DEBT
|
—
|
|
|
17,368
|
|
|
492
|
|
|
42
|
|
|
31
|
|
|
—
|
|
|
17,933
|
|
|
DEFERRED INCOME TAXES
|
—
|
|
|
—
|
|
|
—
|
|
|
289
|
|
|
96
|
|
|
—
|
|
|
385
|
|
|
OTHER NON-CURRENT LIABILITIES
|
—
|
|
|
434
|
|
|
—
|
|
|
268
|
|
|
164
|
|
|
—
|
|
|
866
|
|
|
Total liabilities
|
—
|
|
|
18,343
|
|
|
505
|
|
|
990
|
|
|
1,002
|
|
|
—
|
|
|
20,840
|
|
|
TD GROUP STOCKHOLDERS'
(DEFICIT) EQUITY
|
(4,209
|
)
|
|
2,147
|
|
|
470
|
|
|
28,417
|
|
|
12,591
|
|
|
(43,625
|
)
|
|
(4,209
|
)
|
|
NONCONTROLLING INTERESTS
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4
|
|
|
—
|
|
|
4
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
|
$
|
(4,209
|
)
|
|
$
|
20,490
|
|
|
$
|
975
|
|
|
$
|
29,407
|
|
|
$
|
13,597
|
|
|
$
|
(43,625
|
)
|
|
$
|
16,635
|
|
TRANSDIGM GROUP INCORPORATED
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF SEPTEMBER 30, 2019
(Amounts in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TransDigm
Group
|
|
TransDigm
Inc.
|
|
TransDigm UK
|
|
Subsidiary
Guarantors
|
|
Non-
Guarantor
Subsidiaries
|
|
Eliminations
|
|
Total
Consolidated
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
—
|
|
|
$
|
1,092
|
|
|
$
|
—
|
|
|
$
|
(12
|
)
|
|
$
|
387
|
|
|
$
|
—
|
|
|
$
|
1,467
|
|
|
Trade accounts receivable - Net
|
—
|
|
|
—
|
|
|
—
|
|
|
172
|
|
|
896
|
|
|
—
|
|
|
1,068
|
|
|
Inventories - Net
|
—
|
|
|
52
|
|
|
—
|
|
|
880
|
|
|
316
|
|
|
(15
|
)
|
|
1,233
|
|
|
Assets held-for-sale
|
—
|
|
|
—
|
|
|
—
|
|
|
206
|
|
|
756
|
|
|
—
|
|
|
962
|
|
|
Prepaid expenses and other
|
—
|
|
|
27
|
|
|
—
|
|
|
45
|
|
|
63
|
|
|
—
|
|
|
135
|
|
|
Total current assets
|
—
|
|
|
1,171
|
|
|
—
|
|
|
1,291
|
|
|
2,418
|
|
|
(15
|
)
|
|
4,865
|
|
|
INVESTMENT IN SUBSIDIARIES AND INTERCOMPANY BALANCES
|
(2,894
|
)
|
|
14,729
|
|
|
975
|
|
|
16,373
|
|
|
6,898
|
|
|
(36,081
|
)
|
|
—
|
|
|
PROPERTY, PLANT AND EQUIPMENT - NET
|
—
|
|
|
17
|
|
|
—
|
|
|
513
|
|
|
227
|
|
|
—
|
|
|
757
|
|
|
GOODWILL
|
—
|
|
|
83
|
|
|
—
|
|
|
5,544
|
|
|
2,193
|
|
|
—
|
|
|
7,820
|
|
|
OTHER INTANGIBLE ASSETS - NET
|
—
|
|
|
25
|
|
|
—
|
|
|
2,064
|
|
|
655
|
|
|
—
|
|
|
2,744
|
|
|
OTHER
|
—
|
|
|
6
|
|
|
—
|
|
|
35
|
|
|
28
|
|
|
—
|
|
|
69
|
|
|
TOTAL ASSETS
|
$
|
(2,894
|
)
|
|
$
|
16,031
|
|
|
$
|
975
|
|
|
$
|
25,820
|
|
|
$
|
12,419
|
|
|
$
|
(36,096
|
)
|
|
$
|
16,255
|
|
|
LIABILITIES AND STOCKHOLDERS’
(DEFICIT) EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
$
|
—
|
|
|
$
|
76
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
3
|
|
|
$
|
—
|
|
|
$
|
80
|
|
|
Short-term borrowings - trade receivable securitization facility
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
350
|
|
|
—
|
|
|
350
|
|
|
Accounts payable
|
—
|
|
|
17
|
|
|
—
|
|
|
160
|
|
|
99
|
|
|
—
|
|
|
276
|
|
|
Accrued liabilities
|
—
|
|
|
215
|
|
|
12
|
|
|
237
|
|
|
211
|
|
|
—
|
|
|
675
|
|
|
Liabilities held-for-sale
|
—
|
|
|
—
|
|
|
—
|
|
|
22
|
|
|
135
|
|
|
—
|
|
|
157
|
|
|
Total current liabilities
|
—
|
|
|
308
|
|
|
12
|
|
|
420
|
|
|
798
|
|
|
—
|
|
|
1,538
|
|
|
LONG-TERM DEBT
|
—
|
|
|
15,893
|
|
|
492
|
|
|
49
|
|
|
35
|
|
|
—
|
|
|
16,469
|
|
|
DEFERRED INCOME TAXES
|
—
|
|
|
—
|
|
|
—
|
|
|
347
|
|
|
94
|
|
|
—
|
|
|
441
|
|
|
OTHER NON-CURRENT LIABILITIES
|
—
|
|
|
315
|
|
|
—
|
|
|
233
|
|
|
143
|
|
|
—
|
|
|
691
|
|
|
Total liabilities
|
—
|
|
|
16,516
|
|
|
504
|
|
|
1,049
|
|
|
1,070
|
|
|
—
|
|
|
19,139
|
|
|
TD GROUP STOCKHOLDERS'
(DEFICIT) EQUITY
|
(2,894
|
)
|
|
(485
|
)
|
|
471
|
|
|
24,771
|
|
|
11,339
|
|
|
(36,096
|
)
|
|
(2,894
|
)
|
|
NONCONTROLLING INTERESTS
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
10
|
|
|
—
|
|
|
10
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
|
$
|
(2,894
|
)
|
|
$
|
16,031
|
|
|
$
|
975
|
|
|
$
|
25,820
|
|
|
$
|
12,419
|
|
|
$
|
(36,096
|
)
|
|
$
|
16,255
|
|
TRANSDIGM GROUP INCORPORATED
CONDENSED CONSOLIDATING STATEMENT OF INCOME AND COMPREHENSIVE INCOME
FOR THE TWENTY-SIX WEEK PERIOD ENDED MARCH 28, 2020
(Amounts in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TransDigm
Group
|
|
TransDigm
Inc.
|
|
TransDigm UK
|
|
Subsidiary
Guarantors
|
|
Non-
Guarantor
Subsidiaries
|
|
Eliminations
|
|
Total
Consolidated
|
|
NET SALES
|
$
|
—
|
|
|
$
|
84
|
|
|
$
|
—
|
|
|
$
|
2,249
|
|
|
$
|
690
|
|
|
$
|
(115
|
)
|
|
$
|
2,908
|
|
|
COST OF SALES
|
—
|
|
|
46
|
|
|
—
|
|
|
953
|
|
|
404
|
|
|
(115
|
)
|
|
1,288
|
|
|
GROSS PROFIT
|
—
|
|
|
38
|
|
|
—
|
|
|
1,296
|
|
|
286
|
|
|
—
|
|
|
1,620
|
|
|
SELLING AND ADMINISTRATIVE EXPENSES
|
—
|
|
|
91
|
|
|
—
|
|
|
193
|
|
|
97
|
|
|
—
|
|
|
381
|
|
|
AMORTIZATION OF INTANGIBLE ASSETS
|
—
|
|
|
—
|
|
|
—
|
|
|
60
|
|
|
26
|
|
|
—
|
|
|
86
|
|
|
INCOME (LOSS) FROM OPERATIONS
|
—
|
|
|
(53
|
)
|
|
—
|
|
|
1,043
|
|
|
163
|
|
|
—
|
|
|
1,153
|
|
|
INTEREST EXPENSE (INCOME)—NET
|
—
|
|
|
504
|
|
|
18
|
|
|
(22
|
)
|
|
1
|
|
|
—
|
|
|
501
|
|
|
REFINANCING COSTS
|
—
|
|
|
26
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
26
|
|
|
OTHER (INCOME) EXPENSE
|
—
|
|
|
(5
|
)
|
|
(18
|
)
|
|
4
|
|
|
16
|
|
|
—
|
|
|
(3
|
)
|
|
EQUITY IN INCOME OF SUBSIDIARIES
|
(623
|
)
|
|
(1,087
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,710
|
|
|
—
|
|
|
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
|
623
|
|
|
509
|
|
|
—
|
|
|
1,061
|
|
|
146
|
|
|
(1,710
|
)
|
|
629
|
|
|
INCOME TAX PROVISION
|
—
|
|
|
—
|
|
|
—
|
|
|
54
|
|
|
19
|
|
|
—
|
|
|
73
|
|
|
INCOME FROM CONTINUING OPERATIONS
|
623
|
|
|
509
|
|
|
—
|
|
|
1,007
|
|
|
127
|
|
|
(1,710
|
)
|
|
556
|
|
|
INCOME (LOSS) FROM DISCONTINUED OPERATIONS, NET OF TAX
|
—
|
|
|
114
|
|
|
—
|
|
|
—
|
|
|
(46
|
)
|
|
—
|
|
|
68
|
|
|
NET INCOME
|
623
|
|
|
623
|
|
|
—
|
|
|
1,007
|
|
|
81
|
|
|
(1,710
|
)
|
|
624
|
|
|
LESS: NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
(1
|
)
|
|
NET INCOME ATTRIBUTABLE TO TD GROUP
|
$
|
623
|
|
|
$
|
623
|
|
|
$
|
—
|
|
|
$
|
1,007
|
|
|
$
|
80
|
|
|
$
|
(1,710
|
)
|
|
$
|
623
|
|
|
OTHER COMPREHENSIVE (LOSS) INCOME, NET OF TAX
|
(124
|
)
|
|
(122
|
)
|
|
—
|
|
|
4
|
|
|
31
|
|
|
87
|
|
|
(124
|
)
|
|
TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO TD GROUP
|
$
|
499
|
|
|
$
|
501
|
|
|
$
|
—
|
|
|
$
|
1,011
|
|
|
$
|
111
|
|
|
$
|
(1,623
|
)
|
|
$
|
499
|
|
TRANSDIGM GROUP INCORPORATED
CONDENSED CONSOLIDATING STATEMENT OF INCOME AND COMPREHENSIVE INCOME
FOR THE TWENTY-SIX WEEK PERIOD ENDED MARCH 30, 2019
(Amounts in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TransDigm
Group
|
|
TransDigm
Inc.
|
|
TransDigm UK
|
|
Subsidiary
Guarantors
|
|
Non-
Guarantor
Subsidiaries
|
|
Eliminations
|
|
Total
Consolidated
|
|
NET SALES
|
$
|
—
|
|
|
$
|
88
|
|
|
$
|
—
|
|
|
$
|
1,755
|
|
|
$
|
378
|
|
|
$
|
(60
|
)
|
|
$
|
2,161
|
|
|
COST OF SALES
|
—
|
|
|
66
|
|
|
—
|
|
|
724
|
|
|
217
|
|
|
(60
|
)
|
|
947
|
|
|
GROSS PROFIT
|
—
|
|
|
22
|
|
|
—
|
|
|
1,031
|
|
|
161
|
|
|
—
|
|
|
1,214
|
|
|
SELLING AND ADMINISTRATIVE EXPENSES
|
—
|
|
|
101
|
|
|
—
|
|
|
147
|
|
|
34
|
|
|
—
|
|
|
282
|
|
|
AMORTIZATION OF INTANGIBLE ASSETS
|
—
|
|
|
2
|
|
|
—
|
|
|
35
|
|
|
5
|
|
|
—
|
|
|
42
|
|
|
(LOSS) INCOME FROM OPERATIONS
|
—
|
|
|
(81
|
)
|
|
—
|
|
|
849
|
|
|
122
|
|
|
—
|
|
|
890
|
|
|
INTEREST EXPENSE (INCOME)—NET
|
—
|
|
|
378
|
|
|
9
|
|
|
(3
|
)
|
|
(10
|
)
|
|
—
|
|
|
374
|
|
|
REFINANCING COSTS
|
—
|
|
|
3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3
|
|
|
EQUITY IN INCOME OF SUBSIDIARIES
|
(398
|
)
|
|
(726
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,124
|
|
|
—
|
|
|
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
|
398
|
|
|
264
|
|
|
(9
|
)
|
|
852
|
|
|
132
|
|
|
(1,124
|
)
|
|
513
|
|
|
INCOME TAX (BENEFIT) PROVISION
|
—
|
|
|
(134
|
)
|
|
—
|
|
|
234
|
|
|
17
|
|
|
—
|
|
|
117
|
|
|
INCOME (LOSS) FROM CONTINUING OPERATIONS
|
398
|
|
|
398
|
|
|
(9
|
)
|
|
618
|
|
|
115
|
|
|
(1,124
|
)
|
|
396
|
|
|
INCOME FROM DISCONTINUED OPERATIONS, NET OF TAX
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
2
|
|
|
NET INCOME
|
398
|
|
|
398
|
|
|
(9
|
)
|
|
618
|
|
|
117
|
|
|
(1,124
|
)
|
|
398
|
|
|
LESS: NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
NET INCOME (LOSS) ATTRIBUTABLE TO TD GROUP
|
$
|
398
|
|
|
$
|
398
|
|
|
$
|
(9
|
)
|
|
$
|
618
|
|
|
$
|
117
|
|
|
$
|
(1,124
|
)
|
|
$
|
398
|
|
|
OTHER COMPREHENSIVE (LOSS) INCOME, NET OF TAX
|
(161
|
)
|
|
(123
|
)
|
|
—
|
|
|
12
|
|
|
(99
|
)
|
|
210
|
|
|
(161
|
)
|
|
TOTAL COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO TD GROUP
|
$
|
237
|
|
|
$
|
275
|
|
|
$
|
(9
|
)
|
|
$
|
630
|
|
|
$
|
18
|
|
|
$
|
(914
|
)
|
|
$
|
237
|
|
TRANSDIGM GROUP INCORPORATED
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE TWENTY-SIX WEEK PERIOD ENDED MARCH 28, 2020
(Amounts in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TransDigm
Group
|
|
TransDigm
Inc.
|
|
TransDigm UK
|
|
Subsidiary
Guarantors
|
|
Non-
Guarantor
Subsidiaries
|
|
Eliminations
|
|
Total
Consolidated
|
|
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES
|
$
|
—
|
|
|
$
|
(348
|
)
|
|
$
|
1
|
|
|
$
|
668
|
|
|
$
|
272
|
|
|
$
|
1
|
|
|
$
|
594
|
|
|
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
—
|
|
|
(2
|
)
|
|
—
|
|
|
(37
|
)
|
|
(11
|
)
|
|
—
|
|
|
(50
|
)
|
|
Proceeds in connection with sale of discontinued operations, net
|
—
|
|
|
904
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
904
|
|
|
Net cash provided by (used in) investing activities
|
—
|
|
|
902
|
|
|
—
|
|
|
(37
|
)
|
|
(11
|
)
|
|
—
|
|
|
854
|
|
|
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany activities
|
1,899
|
|
|
(1,031
|
)
|
|
—
|
|
|
(634
|
)
|
|
(233
|
)
|
|
(1
|
)
|
|
—
|
|
|
Proceeds from exercise of stock options
|
69
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
69
|
|
|
Dividends and dividend equivalent payments
|
(1,928
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,928
|
)
|
|
Treasury stock purchased
|
(19
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(19
|
)
|
|
Proceeds from revolving credit facility
|
—
|
|
|
200
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
200
|
|
|
Repayments on term loans
|
—
|
|
|
(19
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(19
|
)
|
|
Redemption of senior subordinated notes due 2022, net
|
—
|
|
|
(1,168
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,168
|
)
|
|
Proceeds from 5.50% senior subordinated notes due 2027, net
|
—
|
|
|
2,625
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,625
|
|
|
Financing fees and other, net
|
—
|
|
|
(8
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(8
|
)
|
|
Net cash provided by (used in) financing activities
|
21
|
|
|
599
|
|
|
—
|
|
|
(634
|
)
|
|
(233
|
)
|
|
(1
|
)
|
|
(248
|
)
|
|
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
|
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
21
|
|
|
1,153
|
|
|
1
|
|
|
(3
|
)
|
|
29
|
|
|
—
|
|
|
1,201
|
|
|
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
|
—
|
|
|
1,092
|
|
|
—
|
|
|
(12
|
)
|
|
387
|
|
|
—
|
|
|
1,467
|
|
|
CASH AND CASH EQUIVALENTS, END OF PERIOD
|
$
|
21
|
|
|
$
|
2,245
|
|
|
$
|
1
|
|
|
$
|
(15
|
)
|
|
$
|
416
|
|
|
$
|
—
|
|
|
$
|
2,668
|
|
TRANSDIGM GROUP INCORPORATED
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE TWENTY-SIX WEEK PERIOD ENDED MARCH 30, 2019
(Amounts in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TransDigm
Group
|
|
TransDigm
Inc.
|
|
TransDigm UK
|
|
Subsidiary
Guarantors
|
|
Non-
Guarantor
Subsidiaries
|
|
Eliminations
|
|
Total
Consolidated
|
|
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES
|
$
|
—
|
|
|
$
|
(64
|
)
|
|
$
|
4
|
|
|
$
|
469
|
|
|
$
|
35
|
|
|
$
|
9
|
|
|
$
|
453
|
|
|
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
—
|
|
|
(2
|
)
|
|
—
|
|
|
(36
|
)
|
|
(6
|
)
|
|
—
|
|
|
(44
|
)
|
|
Payments made in connection with acquisitions, net of cash acquired
|
—
|
|
|
(3,538
|
)
|
|
—
|
|
|
(31
|
)
|
|
—
|
|
|
—
|
|
|
(3,569
|
)
|
|
Net cash used in investing activities
|
—
|
|
|
(3,540
|
)
|
|
—
|
|
|
(67
|
)
|
|
(6
|
)
|
|
—
|
|
|
(3,613
|
)
|
|
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany activities
|
(23
|
)
|
|
(701
|
)
|
|
(4
|
)
|
|
(407
|
)
|
|
1,144
|
|
|
(9
|
)
|
|
—
|
|
|
Proceeds from exercise of stock options
|
47
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
47
|
|
|
Dividends and dividend equivalent payments
|
(24
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(24
|
)
|
|
Repayment on term loans
|
—
|
|
|
(38
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(38
|
)
|
|
Cash tender and redemption of senior subordinated notes due 2020
|
—
|
|
|
(550
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(550
|
)
|
|
Proceeds from senior subordinated notes, net
|
—
|
|
|
545
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
545
|
|
|
Proceeds from senior secured notes due 2026, net
|
—
|
|
|
3,937
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,937
|
|
|
Financing fees and other, net
|
—
|
|
|
2
|
|
|
—
|
|
|
(2
|
)
|
|
(2
|
)
|
|
—
|
|
|
(2
|
)
|
|
Net cash provided by (used in) financing activities
|
—
|
|
|
3,195
|
|
|
(4
|
)
|
|
(409
|
)
|
|
1,142
|
|
|
(9
|
)
|
|
3,915
|
|
|
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
|
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
|
—
|
|
|
(409
|
)
|
|
—
|
|
|
(7
|
)
|
|
1,172
|
|
|
—
|
|
|
756
|
|
|
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
|
—
|
|
|
1,821
|
|
|
—
|
|
|
(2
|
)
|
|
254
|
|
|
—
|
|
|
2,073
|
|
|
CASH AND CASH EQUIVALENTS, END OF PERIOD
|
$
|
—
|
|
|
$
|
1,412
|
|
|
$
|
—
|
|
|
$
|
(9
|
)
|
|
$
|
1,426
|
|
|
$
|
—
|
|
|
$
|
2,829
|
|
20. SUBSEQUENT EVENTS
Response to COVID-19
In December 2019, COVID-19 surfaced in Wuhan, China, and has since spread to other countries, including the United States. In March 2020, the World Health Organization characterized COVID-19 as a pandemic. The pandemic has resulted in governments around the world implementing increasingly stringent measures to help control the spread of the virus, including quarantines, “shelter in place” and “stay at home” orders, travel restrictions, business curtailments and other measures. In addition, governments and central banks in several parts of the world have enacted fiscal and monetary stimulus measures to counteract the impacts of COVID-19. The airline industry, in particular, has been significantly disrupted, both domestically and internationally.
Beginning in the third quarter of fiscal 2020, as part of the Company’s response to the impact of the COVID-19 pandemic on its business, the Company is taking cost reduction measures such as: (1) reducing its workforce by up to 15% to align operations with customer demand. These actions are in addition to the cost mitigation efforts implemented earlier this calendar year in response to the 737 MAX production rate changes; (2) implementing one to eight-week unpaid furloughs at many businesses over approximately the next six months in response to business specific situations; (3) TransDigm’s senior management team will substantially reduce their cash compensation for the balance of fiscal 2020; (4) members of TransDigm's Board of Directors will forgo their annual retainer fees; and, (5) the Company has reassessed capital expenditure projects planned and are prioritizing only those projects that are deemed essential in the near term.
The Company continues to closely analyze its cost structure and may implement additional cost reduction measures as necessary due to the ongoing business challenges resulting from the COVID-19 pandemic.