10-KPeriod: FY2018

TransDigm Group INC Annual Report, Year Ended Sep 30, 2018

Filed November 9, 2018For Securities:TDG

Summary

TransDigm Group Inc. (TDG) reported strong performance for the fiscal year ending September 30, 2018, with net sales reaching $3.81 billion and net income of $957.1 million. The company's "value-driven operating strategy", focused on profitable new business, cost control, and delivering high-value engineered products, continues to be effective, leading to consistent growth and improved profitability, evidenced by a gross profit margin of 57.1%. A significant event during the year was the announcement of the pending $4 billion acquisition of Esterline Technologies Corporation, expected to close in 2019, which TransDigm plans to finance through existing cash and new term loans. Despite a robust operational performance, the company's financial position is characterized by substantial indebtedness, with total debt exceeding $12.8 billion at the end of fiscal 2018, partly due to the impact of special dividends and recent borrowings. The company is actively managing its debt structure and has secured significant financing for the Esterline acquisition. The business remains resilient due to its diversified revenue streams across commercial and military aerospace, with a strong emphasis on the high-margin aftermarket segment (approximately 60% of sales). The company's backlog increased to $2.03 billion as of September 30, 2018, indicating continued demand for its products.

Financial Highlights

56 data points
Beta

Revenue

$3.81B

57.1% Gross Margin

Net Income

$957.00M

25.1% Net Margin

EPS (Diluted)

$16.20

Total Assets

$12.20B

Cash & Equivalents

$2.07B

Free Cash Flow

$949.17M

Financial Statements
Beta
Revenue$3.81B
Cost of Revenue$1.63B
Gross Profit$2.18B
R&D Expenses$73.80M
SG&A Expenses$450.00M
Operating Income$1.66B
Net Income$957.00M
EPS (Basic)$16.20
Shares Outstanding (Basic)55.60M

Key Highlights

  • 1Net sales increased by 8.8% to $3.81 billion in fiscal year 2018, driven by both organic growth and acquisitions.
  • 2Gross profit margin improved to 57.1% from 56.6% in the prior year, demonstrating the effectiveness of the company's value-driven operating strategy.
  • 3The company announced a significant pending acquisition of Esterline Technologies Corporation for approximately $4 billion, expected to close in 2019.
  • 4Net income grew substantially by 60.3% to $957.1 million, translating to diluted EPS of $16.20.
  • 5The company's backlog increased to $2.03 billion as of September 30, 2018, up from $1.67 billion in the prior year.
  • 6As of September 30, 2018, total debt stood at $12.88 billion, reflecting a high leverage ratio, with plans to incur further debt for the Esterline acquisition.
  • 7Approximately 90% of net sales in fiscal 2018 were from proprietary products, and 80% were from sole-source products, highlighting a strong competitive moat.

Frequently Asked Questions

TransDigm's strategy is centered around two core elements: a "value-driven operating strategy" focused on obtaining profitable new business, improving its cost structure, and providing highly engineered, value-added products. The second element is a "selective acquisition strategy" to acquire proprietary aerospace component businesses that can benefit from the application of its core operating strategies. The company emphasizes products with significant aftermarket revenue and proprietary, sole-source content.

For fiscal year 2018, TransDigm reported net sales of $3.81 billion, a 60.3% increase in net income to $957.1 million, and a gross profit margin of 57.1%. The company also saw its backlog grow to $2.03 billion. These results reflect strong operational performance and growth, partly driven by recent acquisitions and the company's core business strategy.

The announced acquisition of Esterline Technologies Corporation for approximately $4 billion is a major strategic move for TransDigm. It is expected to significantly expand the company's product portfolio and market reach within the aerospace industry. The acquisition is anticipated to be financed through a combination of cash on hand and new debt, which will increase the company's leverage but is expected to be accretive to earnings.

TransDigm maintains a significant level of debt, which it uses to finance its operations and growth, particularly through acquisitions. As of September 30, 2018, total debt was approximately $12.88 billion. The company actively manages its debt through various tranches of term loans and notes. The Esterline acquisition will further increase its indebtedness, but the company believes its operational cash flow and refinancing capabilities will enable it to service this debt.