TRANSDIGM GROUP INC. Forward-looking Statements
The following discussion of the Company's financial condition and results of operations should be read together withTD Group's condensed consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q. References in this section to "TransDigm ," "the Company," "we," "us," "our," and similar references refer toTD Group ,TransDigm Inc. andTransDigm Inc.'s subsidiaries, unless the context otherwise indicates. This Quarterly Report on Form 10-Q contains both historical and "forward-looking statements" within the meaning of Section 21E of the Exchange Act, and 27A of the Securities Act. All statements other than statements of historical fact included that address activities, events or developments that we expect, believe or anticipate will or may occur in the future are forward-looking statements, including, in particular, the statements about our plans, objectives, strategies and prospects regarding, among other things, our financial condition, results of operations and business. We have identified some of these forward-looking statements with words like "believe," "may," "will," "should," "expect," "intend," "plan," "predict," "anticipate," "estimate" or "continue" and other words and terms of similar meaning. These forward-looking statements may be contained throughout this Quarterly Report on Form 10-Q. These forward-looking statements are based on current expectations about future events affecting us and are subject to uncertainties and factors relating to, among other things, our operations and business environment, all of which are difficult to predict and many of which are beyond our control. Many factors mentioned in our discussion in this Quarterly Report on Form 10-Q, including the risks outlined under "Risk Factors," will be important in determining future results. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we do not know whether our expectations will prove correct. They can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties, including those described under "Risk Factors" in the Quarterly Report on Form 10-Q. Since our actual results, performance or achievements could differ materially from those expressed in, or implied by, these forward-looking statements, we cannot give any assurance that any of the events anticipated by these forward-looking statements will occur or, if any of them does occur, what impact they will have on our business, results of operations and financial condition. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date they are made. We do not undertake any obligation to update these forward-looking statements or the risk factors contained in this Quarterly Report on Form 10-Q to reflect new information, future events or otherwise, except as may be required under federal securities laws. Important factors that could cause actual results to differ materially from the forward-looking statements made in this Quarterly Report on Form 10-Q include but are not limited to: the impact that the COVID-19 pandemic has on our business, results of operations, financial condition and liquidity; the sensitivity of our business to the number of flight hours that our customers' planes spend aloft and our customers' profitability, both of which are affected by general economic conditions; future geopolitical or other worldwide events; cyber-security threats and natural disasters; our reliance on certain customers; theU.S. defense budget and risks associated with being a government supplier including government audits and investigations; failure to maintain government or industry approvals; failure to complete or successfully integrate acquisitions; our 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 our international sales and operations; and other factors. Refer to Part II, Item 1A included in this Quarterly Report on Form 10-Q and to Part II, Item 1A of the Annual Report on Form 10-K for additional information regarding the foregoing factors that may affect our business.
Overview
We believe we are a leading global designer, producer and supplier of highly
engineered proprietary aerospace components with significant aftermarket
content. We seek to develop highly customized products to solve specific needs
for aircraft operators and manufacturers. We attempt to differentiate ourselves
based on engineering, service and manufacturing capabilities. We typically
choose not to compete for non-proprietary "build to print" business because it
frequently offers lower margins than proprietary products. We believe that our
products have strong brand names within the industry and that we have a
reputation for high quality, reliability and strong customer support. Our
business is well diversified due to the broad range of products that we offer to
our customers. Our 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, batteries and chargers,
engineered latching and locking devices, engineered rods, engineered connectors
and elastomer sealing solutions, databus and power controls, cockpit security
components and systems, specialized and advanced cockpit displays, engineered
audio, radio and antenna systems, specialized lavatory components, seat belts
and safety restraints, engineered and customized interior surfaces and related
components, advanced sensor products, switches and relay panels, thermal
protection and insulation, lighting and control technology, parachutes, high
performance hoists, winches and lifting devices, and cargo loading, handling and
delivery systems. Each of these product offerings is composed of many individual
products that are typically customized to meet the needs of a particular
aircraft platform or customer.
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For the second quarter of fiscal year 2022, we generated net sales of$1,327 million and net income attributable toTD Group of$199 million . EBITDA As Defined was$633 million , or 47.7% of net sales. Refer to the "Non-GAAP Financial Measures" section for certain information regarding EBITDA and EBITDA As Defined, including reconciliations of EBITDA and EBITDA As Defined to income from continuing operations and net cash provided by operating activities. The COVID-19 pandemic is continuing to cause an adverse impact on our employees, operations, supply chain and distribution system and the long-term impact to our business remains unknown. This is due to the numerous uncertainties that have risen from the pandemic, including the severity of the disease, the duration of the outbreak, the likelihood of resurgences of the outbreak, including due to the emergence and spread of variants, actions that may be taken by governmental authorities in response to the disease including vaccination mandates, the continued efficacy and public acceptance of vaccines, and unintended consequences of the foregoing. The commercial aerospace industry, in particular, has been significantly disrupted, both domestically and internationally, by the pandemic. The pandemic has resulted in governments around the world implementing 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. As a result, demand for travel declined at a rapid pace beginning in the second half of fiscal 2020 and has remained depressed compared to pre-pandemic levels. However, commercial air travel has increasingly shown signs of recovery in recent months with increasing air traffic, primarily in certain domestic markets. The recovery in international commercial air travel has been slower with international travel only slightly recovered from COVID-19 pandemic lows. The exact pace and timing of the commercial air travel recovery remains uncertain and is expected to continue to be uneven depending on factors such as trends in the number of COVID-19 infections (e.g., impact of new variants of COVID-19 resurfacing), the continued efficacy and public acceptance of vaccines and easing of quarantines and travel restrictions, among other factors. The COVID-19 pandemic has also disrupted the global supply chain to a certain extent and availability of raw materials, particularly electronic parts. Because we strive to limit the volume of raw materials and component parts on hand, our business could be adversely affected if we were unable to obtain these raw materials and components from our suppliers in the quantities we require or on favorable terms. Although we believe in most cases that we could identify alternative suppliers, or alternative raw materials or component parts, the lengthy and expensiveFederal Aviation Administration ("FAA") and OEM certification processes associated with aerospace products could prevent efficient replacement of a supplier, raw material or component part. We currently expect COVID-19 to continue to cause an adverse impact on our net sales, net income and EBITDA As Defined compared to pre-pandemic levels for the duration of fiscal 2022. Longer-term, because the duration of the pandemic is unclear, it is difficult to forecast a precise impact on the Company's future results. We will continue to evaluate the nature and extent to which COVID-19 will impact our business, supply chain, consolidated results of operations, financial condition, and liquidity. We are also monitoring the ongoing conflict betweenRussia andUkraine and the related export controls and financial and economic sanctions imposed on certain industry sectors, including the aviation sector, and parties inRussia by theU.S. , theU.K. , theEuropean Union and others. Although we currently do not believe there will be a direct material adverse impact onTransDigm's business, the implications of theRussia andUkraine conflict in the short-term and long-term are difficult to predict at this time. Factors such as increased energy costs, the availability of certain raw materials for aircraft manufacturers, embargoes on flights from Russian airlines, sanctions on Russian companies, and the stability of Ukrainian customers could impact the global economy and aviation sector.
Critical Accounting Policies and Estimates
The preparation and fair presentation of the consolidated unaudited interim financial statements and accompanying notes included in this report are the responsibility of management. The financial statements and footnotes have been prepared in conformity with generally accepted accounting principles inthe United States ("U.S. GAAP") for interim financial statements and contain certain amounts that were based upon management's best estimates, judgments and assumptions that were believed to be reasonable under the circumstances. On an ongoing basis, we evaluate the accounting policies and estimates used to prepare financial statements. Estimates are based on historical experience, judgments and assumptions believed to be reasonable under current facts and circumstances. Actual amounts and results could differ from these estimates used by management. A comprehensive discussion of the Company's critical accounting policies and management estimates and significant accounting policies followed in the preparation of the financial statements is included in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year endedSeptember 30, 2021 , filed onNovember 16, 2021 . Refer to Note 4, "Recent Accounting Pronouncements," in the notes to the condensed consolidated financial statements included herein for further disclosure of accounting standards recently adopted or required to be adopted in the future. Acquisitions and Divestitures Recent acquisitions and divestitures are described in Note 3, "Acquisitions and Divestitures," in the notes to the condensed consolidated financial statements included herein. 26
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Results of Operations
The following table sets forth, for the periods indicated, certain operating
data of the Company, including presentation of the amounts as a percentage of
net sales (amounts in millions, except per share data):
Thirteen Week Periods Ended
April 3,
April 2, 2022 % of Net Sales 2021 % of Net Sales
Net sales $ 1,327 100.0 % $ 1,194 100.0 %
Cost of sales 591 44.5 % 602 50.4 %
Selling and administrative expenses 183 13.8 % 162 13.6 %
Amortization of intangible assets 33 2.5 % 36 3.0 %
Income from operations 520 39.2 % 394 33.0 %
Interest expense, net 266 20.0 % 268 22.4 %
Refinancing costs - - % 24 2.0 %
Other income (6) (0.5) % (28) (2.3) %
Income tax provision 61 4.6 % 25 2.1 %
Income from continuing operations 199 15.0 % 105 8.8 %
Less: Net income attributable to noncontrolling
interests - - % (1) (0.1) %
Income from continuing operations attributable to
199 15.0 % 104 8.7 %
Net income attributable to TD Group $ 199 15.0 % $ 104 8.7 %
Net income applicable to TD Group common
stockholders $ 199 (1) 15.0 % $ 104 (1) 8.7 %
Earnings per share: Earnings per share from continuing operations-basic and diluted
$ 3.38 (2) $ 1.79 (2)
Earnings per share from discontinued
operations-basic and diluted - (2) - (2)
Earnings per share $ 3.38 $ 1.79
Weighted-average shares outstanding-basic and
diluted 58.9 58.4
Other Data:
EBITDA $ 588 (3) $ 464 (3)
EBITDA As Defined $ 633 (3) 47.7 % $ 519 (3) 43.5 %
(1)Net income applicable to TD Group common stockholders represents net income
attributable to TD Group less special dividends declared or paid on
participating securities, including dividend equivalent payments. No special
dividends were declared or paid on participating securities, including dividend
equivalent payments, for the thirteen week periods ended April 2, 2022 and
April 3, 2021 , respectively.
(2)Earnings per share from continuing operations is calculated by dividing net
income applicable to TD Group common stockholders, excluding income from
discontinued operations, net of tax, by the basic and diluted weighted average
common shares outstanding. Earnings per share from discontinued operations is
calculated by dividing income from discontinued operations, net of tax, by the
basic and diluted weighted average common shares outstanding.
(3)Refer to "Non-GAAP Financial Measures" in this discussion and analysis for additional information and limitations regarding these non-GAAP financial measures, including a reconciliation to the comparable GAAP financial measure.
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Twenty-Six Week Periods Ended
April 3,
April 2, 2022 % of Net Sales 2021 % of Net Sales
Net sales $ 2,521 100.0 % $ 2,301 100.0 %
Cost of sales 1,124 44.6 % 1,169 50.8 %
Selling and administrative expenses 353 14.0 % 358 15.6 %
Amortization of intangible assets 69 2.7 % 65 2.8 %
Income from operations 975 38.7 % 709 30.8 %
Interest expense, net 530 21.0 % 535 23.3 %
Refinancing costs - - % 24 1.0 %
Other income (8) (0.3) % (33) (1.4) %
Income tax provision 91 3.6 % 28 1.2 %
Income from continuing operations 362 14.4 % 155 6.7 %
Less: Net income attributable to noncontrolling
interests (1) - % (1) - %
Income from continuing operations attributable to
361 14.3 % 154 6.7 %
Income from discontinued operations, net of tax 1 - % - - %
Net income attributable to TD Group $ 362 14.4 % $ 154 6.7 %
Net income applicable to TD Group common
stockholders $ 316 (1) 12.5 % $ 81 (1) 3.5 %
Earnings per share: Earnings per share from continuing operations-basic and diluted
$ 5.33 (2) $ 1.40 (2)
Earnings per share from discontinued
operations-basic and diluted 0.02 (2) - (2)
Earnings per share $ 5.35 $ 1.40
Weighted-average shares outstanding-basic and
diluted 59.0 58.4
Other Data:
EBITDA $ 1,110 (3) $ 842 (3)
EBITDA As Defined $ 1,198 (3) 47.5 % $ 993 (3) 43.2 %
(1)Net income applicable to TD Group common stockholders represents net income
attributable to TD Group less special dividends declared or paid on
participating securities, including dividend equivalent payments of $46 million
and $73 million for the twenty-six week periods ended April 2, 2022 and April 3,
2021 , respectively.
(2)Earnings per share from continuing operations is calculated by dividing net
income applicable to TD Group common stockholders, excluding income from
discontinued operations, net of tax, by the basic and diluted weighted average
common shares outstanding. Earnings per share from discontinued operations is
calculated by dividing income from discontinued operations, net of tax, by the
basic and diluted weighted average common shares outstanding.
(3)Refer to "Non-GAAP Financial Measures" in this discussion and analysis for additional information and limitations regarding these non-GAAP financial measures, including a reconciliation to the comparable GAAP financial measure.
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Changes in Results of Operations
Thirteen week period ended
Total Company
•Net Sales. Net organic sales and acquisition and divestiture sales and the
related dollar and percentage changes for the thirteen week periods ended
Thirteen Week Periods Ended % Change
April 2, 2022 April 3, 2021 Change Net Sales
Organic sales $ 1,327 $ 1,146 $ 181 15.1 %
Acquisition and divestiture sales - 48 (48) (4.0) %
Net sales $ 1,327 $ 1,194 $ 133 11.1 %
Organic sales represent net sales from existing businesses owned by the Company,
excluding sales from acquisitions and divestitures. Acquisition sales represent
net sales from acquired businesses for the period up to one year subsequent to
their respective acquisition date. Therefore, beginning in the second quarter of
fiscal 2022, Cobham Aero Connectivity's ("CAC's") net sales, including the
comparable thirteen week period in the prior year, are included in the organic
growth calculation (acquisition date was January 2021 ). Divestiture sales
represent net sales from businesses up to the date the respective divestiture
was completed. Acquisition and divestiture sales are excluded from organic sales
due to the variability in the nature, timing and extent of acquisitions and
divestitures and resulting variable impact on underlying trends. No acquisitions
or divestitures occurred in the second quarter of fiscal 2022. Refer to Note 3,
"Acquisitions and Divestitures," in the notes to the condensed consolidated
financial statements included herein for further information on the Company's
recent acquisition and divestiture activity.
The increase in organic sales of $181 million for the thirteen week period ended
April 2, 2022 compared to the thirteen week period ended April 3, 2021 is
primarily related to increases in commercial aftermarket sales ($117 million , an
increase of 45.6%) and commercial OEM sales ($62 million , an increase of 27.8%);
partially offset by a decrease in defense sales ($12 million , a decrease of
2.1%). The increase in commercial aftermarket sales is primarily attributable to
the continued recovery in commercial air travel demand, particularly the
increase in the utilization of narrow-body aircraft, and air cargo demand and
the resulting higher flight hours in the second quarter of fiscal 2022 compared
to the second quarter of fiscal 2021. The increase in OEM sales is primarily
attributable to a higher volume of narrow-body aircraft deliveries by aircraft
manufacturers to airlines and also expected production rate increases of
narrow-body aircraft compared to the second quarter of fiscal 2021. Partially
offsetting the OEM sales growth are wide-body aircraft production and delivery
slowdowns due to the COVID-19 pandemic adversely impacting international travel
and also due to Boeing's quality control issues with the 787 aircraft. The
decrease in defense sales is primarily attributable to supply chain-induced
delays in fulfilling orders at certain operating units, particularly related to
the OEM market.
The decrease in acquisition and divestiture sales for the thirteen week period
ended April 2, 2022 is attributable to the divestitures of ScioTeq and TREALITY
Simulation Visual Systems ("ScioTeq and TREALITY"), Technical Airborne
Components ("TAC"), Racal Acoustics ("Racal") and Avista, Inc. ("Avista"), all
of which were completed in fiscal 2021.
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•Cost of Sales and Gross Profit. Cost of sales decreased by$11 million , or 1.8%, to$591 million for the thirteen week period endedApril 2, 2022 compared to$602 million for the thirteen week period endedApril 3, 2021 . Cost of sales and the related percentage of net sales for the thirteen week periods endedApril 2, 2022 andApril 3, 2021 were as follows (amounts in millions): Thirteen Week Periods
Ended
April 2, 2022 April 3, 2021 Change % Change
Cost of sales - excluding costs below $ 595 $ 585 $ 10 1.7 %
% of net sales 44.8 % 49.0 %
Non-cash stock compensation expense 4 2 2 100.0 %
% of net sales 0.3 % 0.2 %
Inventory acquisition accounting adjustments 1 6 (5) (83.3) %
% of net sales 0.1 % 0.5 %
Acquisition integration costs - 2 (2) (100.0) %
% of net sales - % 0.2 %
COVID-19 pandemic restructuring costs - 15 (15) (100.0) %
% of net sales - % 1.3 %
Foreign currency (gains) losses (1) 1 (2) (200.0) %
% of net sales (0.1) % 0.1 %
Loss contract amortization (8) (9) 1 11.1 %
% of net sales (0.6) % (0.8) %
Total cost of sales $ 591 $ 602 $ (11) (1.8) %
% of net sales 44.5 % 50.4 %
Gross profit $ 736 $ 592 $ 144 24.3 %
Gross profit percentage 55.5 % 49.6 %
Excluding the specific components to cost of sales listed above, the change in
cost of sales during the thirteen week period ended April 2, 2022 , which
decreased as a percentage of net sales, was primarily driven by a favorable
sales mix, specifically, higher commercial aftermarket net sales as a percentage
of net sales compared to commercial OEM net sales in the comparable period one
year ago.
In addition, despite the inflationary pressures existing for labor and certain
raw materials, particularly those related to electronics and castings, the
continued application of our three core value-driven operating strategies
(obtaining profitable new business, continually improving our cost structure and
providing highly engineered value-added products to customers) coupled with
fixed overhead costs incurred being spread over a higher production volume,
resulted in gross profit as a percentage of net sales increasing by 5.9
percentage points to 55.5% for the thirteen week period ended April 2, 2022 from
49.6% for the thirteen week period ended April 3, 2021 .
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•Selling and Administrative Expenses. Selling and administrative expenses increased by$21 million to$183 million , or 13.8% of net sales, for the thirteen week period endedApril 2, 2022 from$162 million , or 13.6% of net sales, for the thirteen week period endedApril 3, 2021 . Selling and administrative expenses and the related percentage of net sales for the thirteen week periods endedApril 2, 2022 andApril 3, 2021 were as follows (amounts in millions): Thirteen Week Periods Ended April 2, 2022 April 3, 2021 Change % Change Selling and administrative expenses - excluding costs below$ 139 $ 133 $ 6 4.5 % % of net sales 10.5 % 11.1 % Non-cash stock compensation expense 38 19 19 100.0 % % of net sales 2.9 % 1.6 % Bad debt expense 4 - 4 100.0 % % of net sales 0.3 % - % Acquisition integration costs 2 3 (1) (33.3) % % of net sales 0.2 % 0.3 % Acquisition and divestiture transaction-related expenses - 4 (4) (100.0) % % of net sales - % 0.3 % COVID-19 pandemic restructuring costs - 3 (3) (100.0) % % of net sales - % 0.3 % Total selling and administrative expenses$ 183 $ 162 $ 21 13.0 % % of net sales 13.8 % 13.6 % Excluding the specific components to selling and administrative expenses listed above, the change in selling and administrative expenses during the thirteen week period endedApril 2, 2022 improved as a percentage of net sales compared to the thirteen week period in the prior year. This is a result of the increased costs incurred compared to the prior year for travel and other sales support and administrative costs being offset by the continued realization of the cost mitigation measures that were enacted in the second half of fiscal 2020 and in fiscal 2021 in response to the COVID-19 pandemic. Regarding the specific components to selling and administrative expenses listed above, the increase in non-cash stock compensation expense is attributable to the new stock option grants awarded in fiscal 2022 and the impact on the Black-Scholes fair value under ASC 718 on the options granted in fiscal 2021 and fiscal 2020 from the Compensation Committee of the Board of Directors approving, inNovember 2021 , the Company's established performance criteria required to be achieved for these grants for the remainder of their respective vesting periods. Bad debt expense was primarily related to an increase in the estimate for credit losses on accounts receivable for certain customers impacted by theRussia andUkraine conflict. •Amortization of Intangible Assets. Amortization of intangible assets was$33 million for the thirteen week period endedApril 2, 2022 compared to$36 million for the thirteen week period endedApril 3, 2021 . The decrease in amortization expense of$3 million was due to amortization expense on sales order backlog for the CAC acquisition becoming fully amortized in the second quarter of fiscal 2022 reducing the total amortization expense recorded in the second quarter of fiscal 2022 compared to fiscal 2021. •Interest Expense-net. Interest expense-net includes interest on borrowings outstanding, amortization of debt issuance costs, original issue discount and premium, revolving credit facility fees and interest on finance leases; slightly offset by interest income. Interest expense-net decreased$2 million , or 0.7%, to$266 million for the thirteen week period endedApril 2, 2022 from$268 million for the comparable thirteen week period in the prior fiscal year. The decrease in interest expense-net was primarily due to the repayment of$200 million previously drawn on the revolving credit facility and the favorable impact from refinancing the 6.50% Senior Subordinated Notes due 2025 (the "2025 Notes") in the third quarter of fiscal 2021, effectively resulting in a reduced interest rate of 4.875% and an extended maturity date of$750 million in senior subordinated notes. The weighted average interest rate for cash interest payments on total borrowings outstanding for the thirteen week period endedApril 2, 2022 was 5.1%. 31
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•Other Income. Other income was$6 million for the thirteen week period endedApril 2, 2022 compared to$28 million for the thirteen week period endedApril 3, 2021 . Other income for the thirteen week period endedApril 2, 2022 was primarily driven by cash proceeds received from a final working capital settlement for theScioTeq and TREALITY divestiture ($3 million ), the release of a contingent liability ($2 million ) and the non-service related components of net periodic benefit costs on the Company's defined benefit pension plans ($1 million ). Other income for the thirteen week period endedApril 3, 2021 was primarily driven by a$22 million gain on the settlement of the property insurance portion of the claim forLeach International Europe's Niort, France operating facility fire inAugust 2019 . The gain represented the insurance proceeds received in excess of the carrying value of the damaged fixed assets and inventory. The remaining$6 million was primarily driven by non-service related components of net periodic benefit costs on the Company's defined benefit pension plans ($3 million ), receipt of payment of Canadian governmental subsidies ($2 million ) and a net gain on sale recorded on the completed divestitures of certain businesses ($1 million ). •Income Taxes. Income tax expense as a percentage of income before income taxes was approximately 23.5% for the thirteen week period endedApril 2, 2022 compared to 19.2% for the thirteen week period endedApril 3, 2021 . The Company's higher effective tax rate for the thirteen week period endedApril 2, 2022 was primarily a result of a decrease in the impact of the discrete tax benefit associated with share-based payments on the effective tax rate relative to comparable prior fiscal year periods. The reduced impact of the discrete tax benefit was the result of an increase in income from continuing operations before income taxes compared to the prior year. •Net Income Attributable toTD Group . Net income attributable toTD Group increased$95 million , or 91.3%, to$199 million for the thirteen week period endedApril 2, 2022 compared to net income attributable toTD Group of$104 million for the thirteen week period endedApril 3, 2021 , primarily as a result of the factors referenced above. •Earnings per Share. Basic and diluted earnings per share was$3.38 for the thirteen week period endedApril 2, 2022 and$1.79 per share for the thirteen week period endedApril 3, 2021 . There was no impact on earnings per share from discontinued operations for the thirteen week periods endedApril 2, 2022 andApril 3, 2021 . Business Segments
•Segment
Thirteen Week Periods Ended
April 2, 2022 % of Net Sales April 3, 2021 % of Net Sales Change % Change
Power & Control $ 708 53.4 % $ 641 53.7 % $ 67 10.5 %
Airframe 579 43.6 % 513 43.0 % 66 12.9 %
Non-aviation 40 3.0 % 40 3.3 % - - %
Net sales $ 1,327 100.0 % $ 1,194 100.0 % $ 133 11.1 %
Net sales for the Power & Control segment increased $67 million , an increase of
10.5%, for the thirteen week period ended April 2, 2022 compared to the thirteen
week period ended April 3, 2021 . The sales increase resulted primarily from
increases in organic sales in the commercial aftermarket ($51 million , an
increase of 35.9%) and commercial OEM ($25 million , an increase of 23.9%);
partially offset by a decrease in organic defense sales ($13 million , a decrease
of 3.6%). The increase in commercial aftermarket sales is primarily attributable
to the continued recovery in commercial air travel demand, particularly the
increase in the utilization of narrow-body aircraft, and air cargo demand and
the resulting higher flight hours in the second quarter of fiscal 2022 compared
to the second quarter of fiscal 2021. The increase in OEM sales is primarily
attributable to a higher volume of narrow-body aircraft deliveries by aircraft
manufacturers to airlines and also expected production rate increases of
narrow-body aircraft compared to the second quarter of fiscal 2021. Partially
offsetting the OEM sales growth are wide-body aircraft production and delivery
slowdowns due to the COVID-19 pandemic adversely impacting international travel
and also due to Boeing's quality control issues with the 787 aircraft. The
decrease in defense sales is primarily attributable to supply chain-induced
delays in fulfilling orders at certain operating units, particularly related to
the OEM market. The change in acquisition and divestiture sales was not material
for the thirteen week period ended April 2, 2022 .
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Net sales for the Airframe segment increased$66 million , an increase of 12.9%, for the thirteen week period endedApril 2, 2022 compared to the thirteen week period endedApril 3, 2021 . The sales increase resulted primarily from increases in organic sales in the commercial aftermarket ($67 million , an increase of 57.5%) and commercial OEM sales ($38 million , an increase of 34.2%). The change in organic defense sales was less than$1 million for the thirteen week period endedApril 2, 2022 compared to the thirteen week period endedApril 3, 2021 . The increase in commercial aftermarket sales is primarily attributable to the continued recovery in commercial air travel demand, particularly the increase in the utilization of narrow-body aircraft, and air cargo demand and the resulting higher flight hours in the second quarter of fiscal 2022 compared to the second quarter of fiscal 2021. The increase in OEM sales is primarily attributable to a higher volume of narrow-body aircraft deliveries by aircraft manufacturers to airlines and also expected production rate increases of narrow-body aircraft compared to the second quarter of fiscal 2021. Partially offsetting the OEM sales growth are wide-body aircraft production and delivery slowdowns due to the COVID-19 pandemic adversely impacting international travel and also due to Boeing's quality control issues with the 787 aircraft. Acquisition and divestiture sales decreased by$47 million for the thirteen week period endedApril 2, 2022 due to the impact on the comparable period from the divestitures completed in fiscal 2021. •EBITDA As Defined. Refer to "Non-GAAP Financial Measures" in this discussion and analysis for further information on EBITDA As Defined. EBITDA As Defined by segment for the thirteen week periods endedApril 2, 2022 andApril 3, 2021 were as follows (amounts in millions): Thirteen Week Periods Ended % of Segment % of Segment April 2, 2022 Net Sales April 3, 2021 Net Sales Change % Change Power & Control$ 374 52.8 % $ 309 48.2 %$ 65 21.0 % Airframe 273 47.2 % 208 40.5 % 65 31.3 % Non-aviation 14 35.0 % 16 40.0 % (2) (12.5) %$ 661 49.8 % $ 533 44.6 %$ 128 24.0 % Organic EBITDA As Defined represents EBITDA As Defined from existing businesses owned by the Company as ofApril 2, 2022 , excluding EBITDA As Defined from acquisitions and divestitures. EBITDA As Defined from acquisitions and divestitures represents EBITDA As Defined from acquired businesses for the period up to one year subsequent to the respective acquisition date and from businesses up to the date the respective divestiture was completed. Therefore, beginning in the second quarter of fiscal 2022, CAC's EBITDA As Defined, including the comparable thirteen week period in the prior year, is included in the organic growth calculation (acquisition date wasJanuary 2021 ). No acquisitions or divestitures occurred in the second quarter of fiscal 2022. EBITDA As Defined for the Power & Control segment increased approximately$65 million , an increase of 21.0%, resulting from higher organic sales, particularly in the commercial aftermarket and OEM channels. Also contributing to the increase in EBITDA As Defined was the application of our three core value-driven operating strategies and positive leverage on our fixed overhead costs spread over a higher production volume despite the current inflationary environment for labor and certain raw materials. The change in EBITDA As Defined for the Power & Control segment from acquisitions and divestitures was immaterial for the thirteen week period endedApril 2, 2022 . EBITDA As Defined for the Airframe segment increased approximately$65 million , an increase of 31.3%, resulting primarily from higher organic sales, particularly in the commercial aftermarket and OEM channels. Also contributing to the increase in EBITDA As Defined was the application of our three core value-driven operating strategies and positive leverage on our fixed overhead costs spread over a higher production volume despite the current inflationary environment for labor and certain raw materials. EBITDA As Defined for the Airframe segment from acquisitions and divestitures decreased by$10 million , primarily due to the impact on the comparable period from the divestitures completed in fiscal year 2021.
EBITDA As Defined for the Non-aviation segment decreased approximately
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Twenty-six week period ended
Total Company
•Net Sales. Net organic sales and acquisition and divestiture sales and the
related dollar and percentage changes for the twenty-six week periods ended
Twenty-Six Week Periods Ended % Change
April 2, 2022 April 3, 2021 Change Net Sales
Organic sales $ 2,480 $ 2,203 $ 277 12.0 %
Acquisition and divestiture sales 41 98 (57) (2.5) %
Net sales $ 2,521 $ 2,301 $ 220 9.5 %
Organic sales represent net sales from existing businesses owned by the Company,
excluding sales from acquisitions and divestitures. Acquisition sales represent
net sales from acquired businesses for the period up to one year subsequent to
their respective acquisition date. Therefore, beginning in the second quarter of
fiscal 2022, CAC's net sales, including the comparable period in the prior year,
are included in the organic growth calculation (acquisition date was January
2021 ). Divestiture sales represent net sales from businesses up to the date the
respective divestiture was completed. Acquisition and divestiture sales are
excluded from organic sales due to the variability in the nature, timing and
extent of acquisitions and divestitures and resulting variable impact on
underlying trends. No acquisitions or divestitures occurred in the first half of
fiscal 2022. Therefore, the acquisition and divestiture sales presented above
relate to acquisitions and divestitures completed in fiscal 2021. Refer to Note
3, "Acquisitions and Divestitures," in the notes to the condensed consolidated
financial statements included herein for further information on the Company's
recent acquisition and divestiture activity.
The increase in organic sales of $277 million for the twenty-six week period
ended April 2, 2022 compared to the twenty-six week period ended April 3, 2021
is primarily related to increases in commercial aftermarket sales ($229 million ,
an increase of 47.5%) and commercial OEM sales ($90 million , an increase of
20.2%); partially offset by a decrease in defense sales ($58 million , a decrease
of 5.2%). The increase in commercial aftermarket sales is primarily attributable
to the continued recovery in commercial air travel demand, particularly the
increase in the utilization of narrow-body aircraft, and air cargo demand and
the resulting higher flight hours in the first half of fiscal 2022 compared to
the first half of fiscal 2021. The increase in OEM sales is primarily
attributable to a higher volume of narrow-body aircraft deliveries by aircraft
manufacturers to airlines and also expected production rate increases of
narrow-body aircraft compared to the first half of fiscal 2021. Partially
offsetting the OEM sales growth are wide-body aircraft production and delivery
slowdowns due to the COVID-19 pandemic adversely impacting international travel
and also due to Boeing's quality control issues with the 787 aircraft. The
decrease in defense sales is primarily attributable to supply chain-induced
delays in fulfilling orders at certain operating units.
The decrease in acquisition and divestiture sales for the twenty-six week period
ended April 2, 2022 is primarily attributable to the divestitures of ScioTeq and
TREALITY, TAC, Racal and Avista, all of which were completed in fiscal 2021;
partially offset by the acquisition of CAC. CAC's sales were classified as
acquisition and divestiture sales through the first quarter of fiscal 2022, and
upon reaching one year subsequent to the acquisition date in the second quarter
of fiscal 2022, CAC's sales were included within organic sales.
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•Cost of Sales and Gross Profit. Cost of sales decreased by$45 million , or 3.8%, to$1,124 million for the twenty-six week period endedApril 2, 2022 compared to$1,169 million for the twenty-six week period endedApril 3, 2021 . Cost of sales and the related percentage of net sales for the twenty-six week periods endedApril 2, 2022 andApril 3, 2021 were as follows (amounts in millions): Twenty-Six Week Periods Ended April 2, 2022 April 3, 2021 Change % Change Cost of sales - excluding costs below$ 1,136 $ 1,130 $ 6 0.5 % % of net sales 45.1 % 49.1 % Non-cash stock compensation expense 8 7 1 14.3 % % of net sales 0.3 % 0.3 % Inventory acquisition accounting adjustments 1 6 (5) (83.3) % % of net sales - % 0.3 % Acquisition integration costs 1 2 (1) (50.0) % % of net sales - % 0.1 % COVID-19 pandemic restructuring costs - 28 (28) (100.0) % % of net sales - % 1.2 % Foreign currency (gains) losses (2) 23 (25) (108.7) % % of net sales (0.1) % 1.0 % Loss contract amortization (20) (27) 7 25.9 % % of net sales (0.8) % (1.1) % Total cost of sales$ 1,124 $ 1,169 $ (45) (3.8) % % of net sales 44.6 % 50.8 % Gross profit$ 1,397 $ 1,132 $ 265 23.4 % Gross profit percentage 55.4 % 49.2 % Excluding the specific components to cost of sales listed above, the change in cost of sales during the twenty-six week period endedApril 2, 2022 , which decreased as a percentage of net sales, was primarily driven by a favorable sales mix, specifically, higher commercial aftermarket sales as a percentage of net sales compared to commercial OEM net sales in the comparable period one year ago. Regarding the specific components to cost of sales listed above, COVID-19 pandemic restructuring costs were not material in the first half of fiscal 2022 and foreign exchange rates, particularly theU.S. dollar compared to the British pound and the Euro, were significantly less volatile compared to the first half of fiscal 2021 when theU.S. dollar depreciated against both the British pound and Euro resulting in foreign currency losses. In addition, despite the inflationary pressures existing for labor and certain raw materials, particularly those related to electronics and castings, the continued application of our three core value-driven operating strategies (obtaining profitable new business, continually improving our cost structure and providing highly engineered value-added products to customers) coupled with fixed overhead costs incurred being spread over a higher production volume, resulted in gross profit as a percentage of net sales increasing by 6.2 percentage points to 55.4% for the twenty-six week period endedApril 2, 2022 from 49.2% for the twenty-six week period endedApril 3, 2021 . 35
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•Selling and Administrative Expenses. Selling and administrative expenses decreased by$5 million to$353 million , or 14.0% of net sales, for the twenty-six week period endedApril 2, 2022 from$358 million , or 15.6% of net sales, for the twenty-six week period endedApril 3, 2021 . Selling and administrative expenses and the related percentage of net sales for the twenty-six week periods endedApril 2, 2022 andApril 3, 2021 were as follows (amounts in millions): Twenty-Six Week Periods Ended April 2, 2022 April 3, 2021 Change % Change Selling and administrative expenses - excluding costs below $ 272$ 269 $ 3 1.1 % % of net sales 10.8 % 11.7 % Non-cash stock compensation expense 71 63 8 12.7 % % of net sales 2.8 % 2.7 % Acquisition integration costs 5 5 - - % % of net sales 0.2 % 0.2 % Bad debt expense 4 5 (1) (20.0) % % of net sales 0.2 % 0.2 % Acquisition and divestiture transaction-related expenses 1 6 (5) (83.3) % % of net sales - % 0.3 % COVID-19 pandemic restructuring costs - 10 (10) (100.0) % % of net sales - % 0.4 % Total selling and administrative expenses $ 353$ 358 $ (5) (1.4) % % of net sales 14.0 % 15.6 % Excluding the specific components to selling and administrative expenses listed above, the change in selling and administrative expenses during the twenty-six week period endedApril 2, 2022 improved as a percentage of net sales compared to the twenty-six week period in the prior year. This is a result of the increased costs incurred compared to the prior year for travel and other sales support and administrative costs being offset by the continued realization of the cost mitigation measures that were enacted in the second half of fiscal 2020 and in fiscal 2021 in response to the COVID-19 pandemic. Regarding the specific components to selling and administrative expenses listed above, the increase in non-cash stock compensation expense is attributable to the new stock option grants awarded in fiscal 2022 and the impact on the Black-Scholes fair value under ASC 718 on the options granted in fiscal 2021 and fiscal 2020 from the Compensation Committee of the Board of Directors approving, inNovember 2021 , the Company's established performance criteria required to be achieved for these grants for the remainder of their respective vesting periods. COVID-19 pandemic restructuring costs were not material for the twenty-six week period endedApril 2, 2022 . •Amortization of Intangible Assets. Amortization of intangible assets was$69 million for the twenty-six week period endedApril 2, 2022 compared to$65 million for the twenty-six week period endedApril 3, 2021 . The increase in amortization expense of$4 million was primarily due to the amortization expense recognized on intangible assets from the acquisition of CAC. •Interest Expense-net. Interest expense-net includes interest on borrowings outstanding, amortization of debt issuance costs, original issue discount and premium, revolving credit facility fees and interest on finance leases; slightly offset by interest income. Interest expense-net decreased$5 million , or 0.9%, to$530 million for the twenty-six week period endedApril 2, 2022 from$535 million for the comparable twenty-six week period last year. The decrease in interest expense-net was primarily due to the repayment of$200 million previously drawn on the revolving credit facility and the favorable impact from refinancing the 2025 Notes in the third quarter of fiscal 2021, effectively resulting in a reduced interest rate of 4.875% and an extended maturity date of$750 million in senior subordinated notes. The weighted average interest rate for cash interest payments on total borrowings outstanding for the twenty-six week period endedApril 2, 2022 was 5.1%. •Refinancing Costs. Refinancing costs were not material for the twenty-six week period endedApril 2, 2022 . Refinancing costs of$24 million recorded for the twenty-six week period endedApril 3, 2021 were primarily related to fees incurred on the early redemption of the 6.50% Senior Subordinated Notes due 2024 (the "2024 Notes") that occurred in the second quarter of fiscal 2021. 36
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•Other Income. Other income was$8 million for the twenty-six week period endedApril 2, 2022 compared to$33 million for the twenty-six week period endedApril 3, 2021 . Other income for the twenty-six week period endedApril 2, 2022 was primarily driven by cash proceeds received from a final working capital settlement for theScioTeq and TREALITY divestiture ($3 million ), the release of a contingent liability ($2 million ) and the non-service related components of net periodic benefit costs on the Company's defined benefit pension plans ($2 million ). Other income for the twenty-six week period endedApril 3, 2021 was primarily driven by a$22 million gain on the settlement of the property insurance portion of the claim forLeach International Europe's Niort, France operating facility fire inAugust 2019 . The gain represented the insurance proceeds received in excess of the carrying value of the damaged fixed assets and inventory. The remaining$11 million was primarily driven by non-service related components of net periodic benefit costs on the Company's defined benefit pension plans ($6 million ), receipt of payment of Canadian governmental subsidies ($4 million ) and a net gain on sale recorded on the completed divestitures of certain businesses ($1 million ). •Income Tax Provision. Income tax expense as a percentage of income before income taxes was approximately 20.1% for the twenty-six week period endedApril 2, 2022 compared to 15.3% for the twenty-six week period endedApril 3, 2021 . The Company's higher effective income tax rate for the twenty-six week period endedApril 2, 2022 , which was still lower than the federal statutory tax rate of 21%, was primarily due to the discrete impact of excess tax benefits associated with share-based payments through the first half of fiscal 2022, partially offset by an increase in the Company's net interest deduction limitation pursuant to IRC Section 163(j). •Income from Discontinued Operations. Income from discontinued operations, net of tax, for the twenty-six week period endedApril 2, 2022 was$1 million , which was driven by cash proceeds received during the first quarter of fiscal 2022 from a final working capital settlement for the Souriau-Sunbank Connection Technologies ("Souriau-Sunbank") divestiture. There was no income from discontinued operations for the twenty-six week period endedApril 3, 2021 . Refer to Note 3, "Acquisitions and Divestitures," in the notes to the condensed consolidated financial statements included herein for further information. •Net Income Attributable toTD Group . Net income attributable toTD Group increased$208 million , or 135.1%, to$362 million for the twenty-six week period endedApril 2, 2022 compared to net income attributable toTD Group of$154 million for the twenty-six week period endedApril 3, 2021 , primarily as a result of the factors referenced above. •Earnings per Share. Basic and diluted earnings per share was$5.35 for the twenty-six week period endedApril 2, 2022 compared to$1.40 per share for the twenty-six week period endedApril 3, 2021 . Basic and diluted earnings per share from discontinued operations was$0.02 for the twenty-six week period endedApril 2, 2022 . There was no impact on earnings per share from discontinued operations for the twenty-six week period endedApril 3, 2021 .
Business Segments
•Segment
Twenty-Six Week Periods Ended
April 2, 2022 % of Net Sales April 3, 2021 % of Net Sales Change % Change
Power & Control $ 1,358 53.9 % $ 1,242 54.0 % $ 116 9.3 %
Airframe 1,085 43.0 % 977 42.4 % 108 11.1 %
Non-aviation 78 3.1 % 82 3.6 % (4) (4.9) %
Net sales $ 2,521 100.0 % $ 2,301 100.0 % $ 220 9.6 %
Net sales for the Power & Control segment increased $116 million , an increase of
9.3%, for the twenty-six week period ended April 2, 2022 . The sales increase
resulted primarily from increases in organic sales in commercial aftermarket
($109 million , an increase of 41.0%) and commercial OEM ($45 million , an
increase of 21.6%); partially offset by a decrease in organic defense sales ($43
million , a decrease of 6.1%). The increase in commercial aftermarket sales is
primarily attributable to the continued recovery in commercial air travel
demand, particularly the increase in the utilization of narrow-body aircraft,
and air cargo demand and the resulting higher flight hours in the second half of
fiscal 2022 compared to the second half of fiscal 2021. The increase in OEM
sales is primarily attributable to a higher volume of narrow-body aircraft
deliveries by aircraft manufacturers to airlines and also expected production
rate increases of narrow-body aircraft compared to the second half of fiscal
2021. Partially offsetting the OEM sales growth are wide-body aircraft
production and delivery slowdowns due to the COVID-19 pandemic adversely
impacting international travel and also due to Boeing's quality control issues
with the 787 aircraft. The decrease in defense sales is primarily attributable
to supply chain-induced delays in fulfilling orders at certain operating units.
The change in acquisition and divestiture sales was not material for the
twenty-six week period ended April 2, 2022 .
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Net sales for the Airframe segment increased$108 million , an increase of 11.1%, for the twenty-six week period endedApril 2, 2022 . The sales increase resulted primarily from increases in organic sales in commercial aftermarket ($120 million , an increase of 55.5%) and commercial OEM ($47 million , an increase of 20.7%); partially offset by a decrease in organic defense sales ($14 million , a decrease of 3.6%). The increase in commercial aftermarket sales is primarily attributable to the continued recovery in commercial air travel demand, particularly the increase in the utilization of narrow-body aircraft, and air cargo demand and the resulting higher flight hours in the second half of fiscal 2022 compared to the second half of fiscal 2021. The increase in OEM sales is primarily attributable to a higher volume of narrow-body aircraft deliveries by aircraft manufacturers to airlines and also expected production rate increases of narrow-body aircraft compared to the second half of fiscal 2021. Partially offsetting the OEM sales growth are wide-body aircraft production and delivery slowdowns due to the COVID-19 pandemic adversely impacting international travel and also due to Boeing's quality control issues with the 787 aircraft. The decrease in defense sales is primarily attributable to supply chain-induced delays in fulfilling orders at certain operating units. Acquisition and divestiture sales decreased$51 million , primarily due to the divestitures completed during fiscal 2021, partially offset by the impact of CAC's sales being included in acquisition and divestiture sales through the first quarter of fiscal 2022. Net sales for the Non-aviation segment decreased by$4 million , a decrease of 4.9%, for the twenty-six week period endedApril 2, 2022 . The sales decrease resulted primarily from the decrease in acquisition and divestiture sales of$5 million for the divestitures completed during fiscal 2021. •EBITDA As Defined. EBITDA As Defined by segment for the twenty-six week periods endedApril 2, 2022 andApril 3, 2021 were as follows (amounts in millions): Twenty-Six Week Periods Ended % of Segment % of Segment April 2, 2022 Net Sales April 3, 2021 Net Sales Change % Change Power & Control $ 703 51.8 % $ 613 49.4 %$ 90 14.7 % Airframe 499 46.0 % 385 39.4 % 114 29.6 % Non-aviation 28 35.9 % 31 37.8 % (3) (9.7) %$ 1,230 48.8 %$ 1,029 44.7 %$ 201 19.5 % Organic EBITDA As Defined represents EBITDA As Defined from existing businesses owned by the Company as ofApril 2, 2022 , excluding EBITDA As Defined from acquisitions and divestitures. EBITDA As Defined from acquisitions and divestitures represents EBITDA As Defined from acquired businesses for the period up to one year subsequent to the respective acquisition date and from businesses up to the date the respective divestiture was completed. Therefore, beginning in the second quarter of fiscal 2022, CAC's EBITDA As Defined, including the comparable thirteen week period in the prior year, is included in the organic growth calculation (acquisition date wasJanuary 2021 ). No acquisitions or divestitures occurred in the first half of fiscal 2022. EBITDA As Defined for the Power & Control segment increased approximately$90 million , an increase of 14.7%, resulting from higher organic sales, particularly in the commercial aftermarket and OEM channels. Also contributing to the increase in EBITDA As Defined was the application of our three core value-driven operating strategies and positive leverage on our fixed overhead costs spread over a higher production volume despite the current inflationary environment for labor and certain raw materials. The change in EBITDA As Defined for the Power & Control segment from acquisitions and divestitures was immaterial for the twenty-six week period endedApril 2, 2022 . EBITDA As Defined for the Airframe segment increased approximately$114 million , an increase of 29.6%, resulting primarily from higher organic sales, particularly in the commercial aftermarket and OEM channels. Also contributing to the increase in EBITDA As Defined was the application of our three core value-driven operating strategies and positive leverage on our fixed overhead costs spread over a higher production volume despite the current inflationary environment for labor and certain raw materials. EBITDA As Defined for the Airframe segment from acquisitions and divestitures decreased by$9 million , primarily due to the impact on the comparable period from the divestitures completed in fiscal year 2021, partially offset by the impact of CAC's sales being included in acquisition and divestiture sales through the first quarter of fiscal 2022.
EBITDA As Defined for the Non-aviation segment decreased approximately
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Liquidity and Capital Resources
We have historically maintained a capital structure comprising a mix of equity and debt financing. We vary our leverage both to optimize our equity return and to pursue acquisitions. We expect to meet our current debt obligations as they come due through internally generated funds from current levels of operations and/or through refinancing in the debt markets prior to the maturity dates of our debt.
The following tables present selected balance sheet, cash flow and other financial data relevant to the liquidity or capital resources of the Company for the periods specified below (amounts in millions):
April 2, 2022 September 30, 2021
Selected Balance Sheet Data:
Cash and cash equivalents $ 4,216 $ 4,787
Working capital 5,263 5,367
Total assets 18,841 19,315
Total debt (1) 19,823 19,998
TD Group stockholders' deficit (2,899) (2,916)
(1)Includes debt issuance costs and original issue discount and premiums. Reference Note 10, "Debt," in the notes to the condensed consolidated financial statements included herein for additional information.
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