Item 7.01. Regulation FD Disclosure.
Senior Secured Notes Offering
On April 2, 2020, TransDigm Group Incorporated ("TransDigm Group") issued a
press release (the "Press Release") relating to the proposed offering of senior
secured notes (the "Notes") by TransDigm Inc., its wholly-owned subsidiary,
pursuant to a confidential offering memorandum (the "Offering Memorandum") in a
private placement under Rule 144A and Regulation S of the Securities Act of 1933
(the "Securities Act"). A copy of the Press Release is furnished as Exhibit 99.1
to this Current Report on Form 8-K.
In the Offering Memorandum, TransDigm Group discloses net sales from continuing
operations and EBITDA As Defined of $5,695 million and $2,613 million,
respectively, for the twelve-month period ended December 28, 2019. Had the
acquisition of Esterline Technologies Corporation ("Esterline") closed at the
beginning of that period, based on management's estimates, the transactions
would have contributed additional net sales from continuing operations and
EBITDA As Defined of approximately $286 million and $23 million, respectively,
for the twelve-month period ended December 28, 2019. The reconciliations of
income from continuing operations to EBITDA, EBITDA As Defined and Pro Forma
EBITDA As Defined and the reconciliations of net cash provided by operating
activities to EBITDA, EBITDA As Defined and Pro Form EBITDA As Defined, in each
case for the twelve-month period ended December 28, 2019, are furnished as
Exhibit 99.2 to this Current Report on Form 8-K.
The Notes will not be registered under the Securities Act or any state
securities laws and may not be offered or sold in the United States without
registration or an applicable exemption from the registration requirements of
the Securities Act and applicable state securities laws. Neither the Press
Release nor this Current Report on Form 8-K constitutes an offer to sell or the
solicitation of an offer to buy the Notes, nor shall there be any sale of the
Notes in any state in which such offer, solicitation or sale would be unlawful
prior to registration or qualification under the securities laws of any such
state.
TransDigm Group expects to use the net proceeds from the offering of the Notes
for general corporate purposes, including further increasing its liquidity.
COVID-19
In December 2019, a novel strain of coronavirus ("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.
As of December 28, 2019, the COVID-19 pandemic had not had a significant impact
on TransDigm Group's business. However, efforts to contain the spread of
COVID-19 have intensified. Several countries, including the United States, have
taken steps to restrict travel, temporarily close businesses and issue
quarantine orders, and it remains unclear how long such measures will remain in
place. The airline industry, in particular, has been significantly disrupted,
both domestically and internationally. Within the United States, TransDigm
Group's business has been designated an essential business, which allows
TransDigm Group to continue to serve its customers.
On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief
and Economic Security Act (the "CARES Act"). The CARES Act, among other things,
includes provisions relating to refundable payroll tax credits, deferment of
employer side social security payments, net operating loss carryback periods,
alternative minimum tax credit refunds, modifications to the net interest
deduction limitations and technical corrections to tax depreciation methods for
qualified improvement property. It is currently unclear how or if TransDigm
Group will benefit from the CARES Act, but TransDigm Group continues to examine
the impacts the CARES Act may have on its business, results of operations,
financial condition or liquidity.
In the near term, the outbreak and worsening of the COVID-19 pandemic will
adversely impact TransDigm Group's commercial aftermarket sales. TransDigm Group
believes that the COVID-19 pandemic will also adversely impact its commercial
original equipment manufacturer ("OEM") sales over the long term. In response to
the COVID-19 pandemic and the estimated decrease in shipping levels, TransDigm
Group will reduce its workforce by up to 15%, as well as implement temporary
furloughs in response to business unit-specific situations. The impact of the
COVID-19 pandemic is fluid and continues to evolve, and therefore, TransDigm
Group cannot currently predict the extent to which its business, results of
operations, financial condition or liquidity will ultimately be impacted.
--------------------------------------------------------------------------------
Impact on Second Quarter Results
TransDigm Group has not yet finalized its financial results for the second
quarter of fiscal 2020. At this time, it is difficult to estimate sales, EBITDA
As Defined, and earnings per share for this time period. TransDigm Group
expects these quarterly amounts may have been modestly adversely impacted by
decreases in sales in its commercial aftermarket and commercial OEM channels
during approximately the last three weeks of the second quarter of fiscal 2020
due to the impact of the COVID-19 pandemic on its non-defense customers and
their demand for its products and services. Because this situation is ongoing
and because the duration and severity of the pandemic are unclear, it is
difficult to forecast any impacts on TransDigm Group's future results. However,
TransDigm Group currently expects the COVID-19 pandemic to have a significant
adverse impact on its sales, EBITDA As Defined, and net income for the third
quarter of fiscal 2020 under the assumption that the COVID-19 pandemic will
adversely affect its non-defense customers and their demand for its products and
services during the entire third quarter of fiscal 2020.
The information in this Current Report on Form 8-K and in the Press Release
shall not be deemed "filed" for purposes of Section 18 of the Exchange Act of
1934 (the "Exchange Act"), nor shall it be deemed incorporated by reference in
filings under the Securities Act.
NON-GAAP FINANCIAL MEASURES
This Current Report on Form 8-K contains non-GAAP financial measures such as
EBITDA, EBITDA As Defined and Pro Forma EBITDA As Defined, none of which are
measurements of financial performance under generally accepted accounting
principles in the United States ("GAAP"). TransDigm Group defines "EBITDA" as
earnings before interest, taxes, depreciation and amortization, "EBITDA As
Defined" as EBITDA plus, as applicable for each relevant period, certain
adjustments as set forth in the reconciliations of income from continuing
operations to EBITDA and EBITDA As Defined and the reconciliations of net cash
provided by operating activities to EBITDA and EBITDA As Defined presented in
Exhibit 99.2 hereto and "Pro Forma EBITDA As Defined" (for the twelve-month
period ended December 28, 2019) as EBITDA As Defined plus management's estimates
of the impact of the acquisition of Esterline Technologies Corporation
("Esterline") as if such acquisition occurred at the beginning of the
twelve-month period ended December 28, 2019; however, "Pro Forma EBITDA As
Defined" does not give effect to the sale of the Esterline Interface Technology
group of businesses on September 20, 2019 or the sale of the Souriau-Sunbank
Connection Technologies business on December 20, 2019, both of which TransDigm
Group acquired as part of its acquisition of Esterline. TransDigm Group presents
EBITDA, EBITDA As Defined and Pro Forma EBITDA As Defined because it believes
they are useful indicators for evaluating operating performance and liquidity.
TransDigm Group's management believes that EBITDA, EBITDA As Defined and Pro
Forma EBITDA As Defined are useful as indicators of liquidity because securities
analysts, investors, rating agencies and others use EBITDA to evaluate a
company's ability to incur and service debt. In addition, EBITDA As Defined is
useful to investors because the revolving credit facility under TransDigm
Group's senior secured credit facilities requires compliance under certain
circumstances, on a pro forma basis, with a financial covenant that measures the
ratio of the amount of TransDigm Group's total net indebtedness to the amount of
its Consolidated EBITDA, defined in substantially the same manner as it defines
EBITDA As Defined herein. This financial covenant is a material term of
TransDigm Group's revolving credit facility under its senior secured credit
facilities as the failure to comply with such financial covenant could result in
an event of default in respect of its senior secured credit facilities (and such
an event of default could, in turn, result in an event of default under the
indentures governing its notes).
In addition to the above, TransDigm Group's management uses EBITDA As Defined to
review and assess the performance of the management team in connection with
employee incentive programs and to prepare its annual budget and financial
projections. Moreover, TransDigm Group's management uses EBITDA As Defined to
evaluate acquisitions.
Although TransDigm Group uses EBITDA, EBITDA As Defined and Pro Forma EBITDA As
Defined as measures to assess the performance of its business and for the other
purposes set forth above, the use of these non-GAAP financial measures as
analytical tools has limitations, and you should not consider any of them in
isolation, or as a substitute for analysis of TransDigm Group's results of
operations as reported in accordance with GAAP. Some of these limitations are:
• none of EBITDA, EBITDA As Defined or Pro Forma EBITDA As Defined
reflect the significant interest expense, or the cash requirements,
necessary to service interest payments on TransDigm Group's
indebtedness;
• although depreciation and amortization are non-cash charges, the
assets being depreciated and amortized will often have to be
replaced in the future, and none of EBITDA, EBITDA As Defined or Pro
Forma EBITDA As Defined reflect any cash requirements for such
replacements;
• the omission of the substantial amortization expense associated with
TransDigm Group's intangible assets further limits the usefulness of
EBITDA, EBITDA As Defined and Pro Forma EBITDA As Defined;
• none of EBITDA, EBITDA As Defined or Pro Forma EBITDA As Defined
includes the payment of taxes, which is a necessary element of
TransDigm Group's operations; and
--------------------------------------------------------------------------------
• EBITDA As Defined and Pro Forma EBITDA As Defined exclude the cash
expense TransDigm Group has incurred to integrate acquired
businesses into its operations, which is a necessary element of
certain of its acquisitions.
Because of these limitations, EBITDA, EBITDA As Defined and Pro Forma EBITDA As
Defined should not be considered as measures of discretionary cash available to
TransDigm Group to invest in the growth of its business. Management compensates
for these limitations by not viewing EBITDA, EBITDA As Defined or Pro Forma
EBITDA As Defined in isolation and specifically by using other GAAP measures,
such as net income, net sales and operating profit, to measure TransDigm Group's
operating performance. None of EBITDA, EBITDA As Defined or Pro Forma EBITDA As
Defined is a measurement of financial performance under GAAP, and none should be
considered as an alternative to net income or cash flow from operations
determined in accordance with GAAP. TransDigm Group's calculation of EBITDA,
EBITDA As Defined and Pro Forma EBITDA As Defined may not be comparable to the
calculation of similarly titled measures reported by other companies.
FORWARD-LOOKING STATEMENTS
This Current Report on Form 8-K contains forward-looking statements within the
meaning of Section 21E of the Exchange Act and 27A of the Securities Act. When
used in this Current Report on Form 8-K, the words "believe," "may," "will,"
"should," "expect," "intend," "plan," "predict," "anticipate," "estimate" or
"continue" and other words and terms of similar meaning are intended to identify
forward-looking statements. Although TransDigm Group believes that its plans,
intentions and expectations reflected in or suggested by such forward-looking
statements are reasonable, such forward-looking statements are subject to a
number of risks and uncertainties that could cause actual results to differ
materially from the forward-looking statements made in this Current Report on
Form 8-K. The more important of such risks and uncertainties are set forth under
"Item 1A. Risk Factors" in TransDigm Group's Annual Report on Form 10-K for the
fiscal year ended September 30, 2019 and other reports that TransDigm Group or
its subsidiaries have filed with the Securities and Exchange Commission ("SEC").
Many such factors are outside the control of TransDigm Group. Consequently, such
forward-looking statements should be regarded solely as TransDigm Group's
current plans, estimates and beliefs. TransDigm Group does not undertake, and
specifically declines, any obligation, to publicly release the results of any
revisions to these forward-looking statements that may be made to reflect any
future events or circumstances after the date of such statements or to reflect
the occurrence of anticipated or unanticipated events. All forward-looking
statements attributable to TransDigm Group or persons acting on its behalf are
expressly qualified in their entirety by these cautionary statements.
Important factors that could cause actual results to differ materially from the
forward-looking statements made in this Current Report on Form 8-K include, but
are not limited to: the impact that the COVID-19 pandemic has on TransDigm
Group's business, results of operations, financial condition and liquidity; the
sensitivity of TransDigm Group's business to the number of flight hours that its
customers' planes spend aloft and its customers' profitability, both of which
are affected by general economic conditions; future geopolitical or worldwide
events; cyber-security threats and natural disasters; TransDigm Group's reliance
on certain customers; the U.S. defense budget and risks associated with being a
government supplier, including government audits and inspections; failure to
maintain government or industry approvals; failure to complete or successfully
integrate acquisitions, including TransDigm Group's acquisition of Esterline;
TransDigm Group's indebtedness; potential environmental liabilities; liabilities
arising in connection with litigation; increases in raw material costs, taxes
and labor costs that cannot be recovered in product pricing; risks and costs
associated with TransDigm Group's international sales and operations; TransDigm
Group's ability to successfully complete the offering of the Notes; and other
factors. Please refer to "Risk Factors" in TransDigm Group's Annual Report on
Form 10-K for the fiscal year ended September 30, 2019 and other reports that
TransDigm Group or its subsidiaries have filed with the SEC for additional
information regarding the foregoing factors that may affect TransDigm Group's
business.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits
The following exhibits are being furnished with this Current Report on Form 8-K:
Exhibit No. Description
99.1 Press Release
99.2 Reconciliations of Income from Continuing Operations and Net Cash
Provided by Operating Activities to EBITDA, EBITDA As Defined and
Pro Forma EBITDA As Defined for the Twelve-Month Period Ended
December 28, 2019
Cover Page Interactive Data File (embedded within the Inline XBRL
104 document)
--------------------------------------------------------------------------------
© Edgar Online, source Glimpses
TRANSDIGM GROUP INC. 
