Cover and table of contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒			Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended April 1, 2023

☐			Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission File Number 001-32833

TransDigm Group Incorporated

(Exact name of registrant as specified in its charter)

Delaware

(State or other jurisdiction of incorporation or organization)

41-2101738

(I.R.S. Employer Identification No.)

1301 East 9th Street,			Suite 3000,			Cleveland,			Ohio						44114
(Address of principal executive offices)															(Zip Code)

(216) 706-2960

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report.)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, accelerated filer, non-accelerated filer, smaller reporting company or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer			☒						Accelerated Filer			☐
Non-Accelerated Filer			☐						Smaller Reporting Company			☐
Emerging Growth Company			☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.												☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Securities registered pursuant to Section 12(b) of the Act:
Title of each class:						Trading Symbol:						Name of each exchange on which registered:
Common Stock, $0.01 par value						TDG						New York Stock Exchange

The number of shares outstanding of TransDigm Group Incorporated’s common stock, par value $.01 per share, was 54,928,292 as of April 30, 2023.

TABLE OF CONTENTS

															Page
PART I						FINANCIAL INFORMATION
ITEM 1									Financial Statements
									Condensed Consolidated Balance Sheets – April 1, 2023 and September 30, 2022						1
									Condensed Consolidated Statements of Income – Thirteen and Twenty-Six Week Periods Ended April 1, 2023 and April 2, 2022						2
									Condensed Consolidated Statements of Comprehensive Income – Thirteen and Twenty-Six Week Periods Ended April 1, 2023 and April 2, 2022						3
									Condensed Consolidated Statements of Changes in Stockholders’ Deficit – Thirteen and Twenty-Six Week Periods Ended April 1, 2023 and April 2, 2022						4
									Condensed Consolidated Statements of Cash Flows – Twenty-Six Week Periods Ended April 1, 2023 and April 2, 2022						6
									Notes to Condensed Consolidated Financial Statements						7
ITEM 2									Management’s Discussion and Analysis of Financial Condition and Results of Operations						25
ITEM 3									Quantitative and Qualitative Disclosure About Market Risk						46
ITEM 4									Controls and Procedures						46
PART II						OTHER INFORMATION									47
ITEM 1									Legal Proceedings						47
ITEM 1A									Risk Factors						47
ITEM 2									Unregistered Sales of Equity Securities and Use of Proceeds: Purchases of Equity Securities by the Issuer						47
ITEM 6									Exhibits						48
SIGNATURES															49

TRANSDIGM GROUP INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in millions, except share amounts)

(Unaudited)

			April 1, 2023						September 30, 2022
ASSETS
CURRENT ASSETS:
Cash and cash equivalents			$	3,418					$	3,001
Restricted cash			1,100						—
Trade accounts receivable—Net			1,018						967
Inventories—Net			1,529						1,332
Prepaid expenses and other			391						349
Total current assets			7,456						5,649
PROPERTY, PLANT AND EQUIPMENT—NET			872						807
GOODWILL			8,743						8,641
OTHER INTANGIBLE ASSETS—NET			2,725						2,750
OTHER NON-CURRENT ASSETS			212						260
TOTAL ASSETS			$	20,008					$	18,107
LIABILITIES AND STOCKHOLDERS’ DEFICIT
CURRENT LIABILITIES:
Current portion of long-term debt			$	1,162					$	76
Short-term borrowings—trade receivable securitization facility			350						350
Accounts payable			292						279
Accrued and other current liabilities			718						721
Total current liabilities			2,522						1,426
LONG-TERM DEBT			19,349						19,369
DEFERRED INCOME TAXES			599						596
OTHER NON-CURRENT LIABILITIES			431						482
Total liabilities			22,901						21,873
TD GROUP STOCKHOLDERS’ DEFICIT:
Common stock - $.01 par value; authorized 224,400,000 shares; issued 60,571,649 and 60,049,685 at April 1, 2023 and September 30, 2022, respectively			1						1
Additional paid-in capital			2,284						2,113
Accumulated deficit			(3,384)						(3,914)
Accumulated other comprehensive loss			(96)						(267)
Treasury stock, at cost; 5,688,639 shares at April 1, 2023 and September 30, 2022, respectively			(1,706)						(1,706)
Total TD Group stockholders’ deficit			(2,901)						(3,773)
NONCONTROLLING INTERESTS			8						7
Total stockholders’ deficit			(2,893)						(3,766)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT			$	20,008					$	18,107

See notes to condensed consolidated financial statements

TRANSDIGM GROUP INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Amounts in millions, except per share amounts)

(Unaudited)

			Thirteen Week Periods Ended												Twenty-Six Week Periods Ended
			April 1, 2023						April 2, 2022						April 1, 2023						April 2, 2022
NET SALES			$	1,592					$	1,327					$	2,989					$	2,521
COST OF SALES			663						591						1,268						1,124
GROSS PROFIT			929						736						1,721						1,397
SELLING AND ADMINISTRATIVE EXPENSES			199						183						369						353
AMORTIZATION OF INTANGIBLE ASSETS			35						33						68						69
INCOME FROM OPERATIONS			695						520						1,284						975
INTEREST EXPENSE—NET			295						266						581						530
REFINANCING COSTS			5						—						9						—
OTHER INCOME			(2)						(6)						(3)						(8)
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES			397						260						697						453
INCOME TAX PROVISION			93						61						164						91
INCOME FROM CONTINUING OPERATIONS			304						199						533						362
INCOME FROM DISCONTINUED OPERATIONS, NET OF TAX			—						—						—						1
NET INCOME			304						199						533						363
LESS: NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS			—						—						(1)						(1)
NET INCOME ATTRIBUTABLE TO TD GROUP			$	304					$	199					$	532					$	362
NET INCOME APPLICABLE TO TD GROUP COMMON STOCKHOLDERS			$	304					$	199					$	494					$	316
Earnings per share attributable to TD Group common stockholders:
Earnings per share from continuing operations—basic and diluted			$	5.32					$	3.38					$	8.65					$	5.33
Earnings per share from discontinued operations—basic and diluted			—						—						—						0.02
Earnings per share			$	5.32					$	3.38					$	8.65					$	5.35
Weighted-average shares outstanding:
Basic and diluted			57.1						58.9						57.1						59.0

See notes to condensed consolidated financial statements

TRANSDIGM GROUP INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Amounts in millions)

(Unaudited)

			Thirteen Week Periods Ended												Twenty-Six Week Periods Ended
			April 1, 2023						April 2, 2022						April 1, 2023						April 2, 2022
Net income			$	304					$	199					$	533					$	363
Less: Net income attributable to noncontrolling interests			—						—						(1)						(1)
Net income attributable to TD Group			$	304					$	199					$	532					$	362
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment			43						(43)						180						(53)
Unrealized (losses) gains on derivatives			(31)						170						(9)						228
Pension and postretirement benefit plans adjustment			—						—						—						—
Other comprehensive income, net of tax, attributable to TD Group			12						127						171						175
TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO TD GROUP			$	316					$	326					$	703					$	537

See notes to condensed consolidated financial statements

TRANSDIGM GROUP INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

(Amounts in millions, except share amounts)

(Unaudited)

			TD Group Stockholders
			Common Stock												Additional Paid-In Capital						Accumulated Deficit						Accumulated Other Comprehensive Loss						Treasury Stock
			Number of Shares						Par Value						Number of Shares						Value						Noncontrolling Interests						Total
BALANCE—September 30, 2021			59,403,100						$	1					$	1,830					$	(3,705)					$	(248)					(4,198,226)						$	(794)					$	6					$	(2,910)
Changes in noncontrolling interest of consolidated subsidiaries, net			—						—						—						—						—						—						—						1						1
Accrued unvested dividend equivalents and other			—						—						—						(3)						—						—						—						—						(3)
Compensation expense recognized for employee stock options			—						—						35						—						—						—						—						—						35
Exercise of employee stock options			215,817						—						40						—						—						—						—						—						40
Net income attributable to TD Group			—						—						—						163						—						—						—						—						163
Foreign currency translation adjustment, net of tax			—						—						—						—						(10)						—						—						—						(10)
Unrealized gain on derivatives, net of tax			—						—						—						—						58						—						—						—						58
Pension and postretirement benefit plans adjustment, net of tax			—						—						—						—						—						—						—						—						—
BALANCE—January 1, 2022			59,618,917						$	1					$	1,905					$	(3,545)					$	(200)					(4,198,226)						$	(794)					$	7					$	(2,626)
Changes in noncontrolling interest of consolidated subsidiaries, net			—						—						—						—						—						—						—						(1)						(1)
Accrued unvested dividend equivalents and other			—						—						—						(4)						—						—						—						—						(4)
Compensation expense recognized for employee stock options			—						—						39						—						—						—						—						—						39
Exercise of employee stock options			191,403						—						40						—						—						—						—						—						40
Stock repurchases under repurchase program			—						—						—						—						—						(1,046,815)						(667)						—						(667)
Net income attributable to TD Group			—						—						—						199						—						—						—						—						199
Foreign currency translation adjustment, net of tax			—						—						—						—						(43)						—						—						—						(43)
Unrealized gain on derivatives, net of tax			—						—						—						—						170						—						—						—						170
Pension and postretirement benefit plans adjustment, net of tax			—						—						—						—						—						—						—						—						—
BALANCE—April 2, 2022			59,810,320						$	1					$	1,984					$	(3,350)					$	(73)					(5,245,041)						$	(1,461)					$	6					$	(2,893)

See notes to condensed consolidated financial statements

TRANSDIGM GROUP INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

(Amounts in millions, except share amounts)

(Unaudited)

			TD Group Stockholders
			Common Stock												Additional Paid-In Capital						Accumulated Deficit						Accumulated Other Comprehensive Loss						Treasury Stock
			Number of Shares						Par Value						Number of Shares						Value						Noncontrolling Interests						Total
BALANCE—September 30, 2022			60,049,685						$	1					$	2,113					$	(3,914)					$	(267)					(5,688,639)						$	(1,706)					$	7					$	(3,766)
Changes in noncontrolling interest of consolidated subsidiaries, net			—						—						—						—						—						—						—						1						1
Accrued unvested dividend equivalents and other			—						—						—						(1)						—						—						—						—						(1)
Compensation expense recognized for employee stock options			—						—						24						—						—						—						—						—						24
Exercise of employee stock options			121,490						—						27						—						—						—						—						—						27
Net income attributable to TD Group			—						—						—						228						—						—						—						—						228
Foreign currency translation adjustment, net of tax			—						—						—						—						137						—						—						—						137
Unrealized gain on derivatives, net of tax			—						—						—						—						22						—						—						—						22
Pension and postretirement benefit plans adjustment, net of tax			—						—						—						—						—						—						—						—						—
BALANCE—December 31, 2022			60,171,175						$	1					$	2,164					$	(3,687)					$	(108)					(5,688,639)						$	(1,706)					$	8					$	(3,328)
Accrued unvested dividend equivalents and other			—						—						—						(1)						—						—						—						—						(1)
Compensation expense recognized for employee stock options			—						—						28						—						—						—						—						—						28
Exercise of employee stock options			400,474						—						92						—						—						—						—						—						92
Net income attributable to TD Group			—						—						—						304						—						—						—						—						304
Foreign currency translation adjustment, net of tax			—						—						—						—						43						—						—						—						43
Unrealized loss on derivatives, net of tax			—						—						—						—						(31)						—						—						—						(31)
Pension and postretirement benefit plans adjustment, net of tax			—						—						—						—						—						—						—						—						—
BALANCE—April 1, 2023			60,571,649						$	1					$	2,284					$	(3,384)					$	(96)					(5,688,639)						$	(1,706)					$	8					$	(2,893)

See notes to condensed consolidated financial statements

TRANSDIGM GROUP INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in millions)

(Unaudited)

			Twenty-Six Week Periods Ended
			April 1, 2023						April 2, 2022
OPERATING ACTIVITIES:
Net income			$	533					$	363
Income from discontinued operations, net of tax			—						(1)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation			61						58
Amortization of intangible assets and product certification costs			68						69
Amortization of debt issuance costs, original issue discount and premium			20						17
Amortization of inventory step-up			2						1
Amortization of loss contract reserves			(19)						(20)
Refinancing costs			9						—
Gain on sale of businesses, net			—						(3)
Non-cash stock and deferred compensation expense			77						82
Deferred income taxes			—						(1)
Foreign currency exchange losses (gains)			22						(2)
Changes in assets/liabilities, net of effects from acquisitions and sales of businesses:
Trade accounts receivable			(33)						(8)
Inventories			(176)						(62)
Income taxes payable (receivable)			21						(20)
Other assets			(26)						(16)
Accounts payable			6						13
Accrued interest			14						(64)
Accrued and other liabilities			(72)						(40)
Net cash provided by operating activities			507						366
INVESTING ACTIVITIES:
Capital expenditures			(66)						(57)
Acquisition of businesses, net of cash acquired			(10)						—
Net proceeds from sale of businesses			—						3
Net cash used in investing activities			(76)						(54)
FINANCING ACTIVITIES:
Proceeds from exercise of stock options			119						80
Dividend equivalent payments			(38)						(46)
Repurchases of common stock			—						(667)
Proceeds from issuance of senior secured notes, net			2,066						—
Repayment on revolving credit facility			—						(200)
Proceeds from term loans, net			6,235						—
Repayment on term loans			(7,303)						(38)
Financing costs and other, net			(11)						(1)
Net cash provided by (used in) financing activities			1,068						(872)
EFFECT OF EXCHANGE RATE CHANGES ON CASH, CASH EQUIVALENTS AND RESTRICTED CASH			18						(11)
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH			1,517						(571)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD			3,001						4,787
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD			$	4,518					$	4,216
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest, net			$	545					$	574
Cash paid during the period for income taxes, net of refunds			$	154					$	95

See notes to condensed consolidated financial statements

TRANSDIGM GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

TWENTY-SIX WEEK PERIODS ENDED APRIL 1, 2023 AND APRIL 2, 2022

(UNAUDITED)

1. 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 products. 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, 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.

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 condensed consolidated financial statements for the interim periods presented. These financial statements and notes should be read in conjunction with the financial statements and related notes for the fiscal year ended September 30, 2022 included in TD Group’s Form 10-K filed on November 10, 2022. As disclosed therein, the Company’s annual consolidated financial statements were prepared in conformity with generally accepted accounting principles in the United States (“U.S. GAAP”). The September 30, 2022 condensed consolidated balance sheet was derived from TD Group’s audited financial statements. The results of operations for the twenty-six week period ended April 1, 2023 are not necessarily indicative of the results to be expected for the full year. Certain reclassifications have been made to the prior year amounts to conform to the current year presentation, none of which are material.

3. ACQUISITIONS

Calspan Corporation – On March 14, 2023, the Company entered into a definitive agreement to acquire all the outstanding stock of Calspan Corporation (“Calspan”) for a total purchase price of approximately $725 million in cash. The acquisition was completed on May 8, 2023 and financed through existing cash on hand. Calspan operates from seven primary facilities within the United States and is a leading independent provider of proprietary highly engineered testing and technology development services and systems primarily for the aerospace and defense industry. Calspan’s state of the art transonic wind tunnel is used across a range of important aftermarket-focused development activities for both the commercial and defense aerospace end markets. Calspan will be included within TransDigm's Airframe segment.

DART Aerospace – On May 25, 2022, the Company acquired all the outstanding stock of DART Aerospace (“DART”) for a total purchase price of $359 million in cash, which is net of a working capital settlement received in the fourth quarter of fiscal 2022 of approximately $1 million. The acquisition was financed through existing cash on hand. DART operates from four primary facilities and is a leading provider of highly engineered, unique helicopter mission equipment solutions that predominantly service civilian aircraft. The products are primarily proprietary with significant aftermarket content. DART's operating results are included within TransDigm's Airframe segment.

The Company accounted for the DART acquisition using the acquisition method of accounting and third-party valuation appraisals and included the results of operations of the acquisition in its condensed consolidated financial statements from the effective date of the acquisition. The total purchase price of DART 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. As of April 1, 2023, the measurement period (not to exceed one year) is open; therefore, the assets acquired and liabilities assumed related to the DART acquisition are subject to adjustment until the end of the respective measurement period, including those related to deferred taxes and income taxes. The fair values of acquired intangibles are determined based on estimates and assumptions that are deemed reasonable by the Company. Significant assumptions include the discount rates and certain assumptions that form the basis of the forecasted results of the acquired business including revenue, earnings before interest, taxes, depreciation and amortization (“EBITDA”), growth rates, royalty rates and technology obsolescence rates. These assumptions are forward looking and could be affected by future economic and market conditions. Pro forma net sales and results of operations for the acquisition had it occurred at the beginning of the twenty-six week periods ended April 1, 2023 or April 2, 2022 are not material and, accordingly, are not provided.

The allocation of the estimated fair value of assets acquired and liabilities assumed in the DART acquisition as of the May 25, 2022 acquisition date is summarized in the table below (in millions):

						Preliminary						Measurement Period						Adjusted Preliminary
						Allocation						Adjustments (2)						Allocation
Assets acquired (excluding cash):
Trade accounts receivable						$	16					$	(1)					$	15
Inventories						33						(1)						32
Prepaid expenses and other						4						1						5
Property, plant and equipment						9						—						9
Goodwill						236						(33)						203			(1)
Other intangible assets						112						36						148			(1)
Other non-current assets						8						9						17
Total assets acquired (excluding cash)						418						11						429
Liabilities assumed:
Accounts payable						4						—						4
Accrued and other current liabilities						11						3						14
Deferred income taxes						35						1						36
Other non-current liabilities						8						8						16
Total liabilities assumed						58						12						70
Net assets acquired						$	360					$	(1)					$	359

(1)The Company expects that none of the approximately $203 million of goodwill and $148 million of other intangible assets recognized for the acquisition will be deductible for tax purposes.

(2)Measurement period adjustments primarily relate to the adjustments in the fair values of the acquired other intangible assets from the third-party valuation. The principal offset was to goodwill.

Extant Aerospace Acquisitions – For the fiscal year ended September 30, 2022, the Company's Extant Aerospace subsidiary, which is included within TransDigm’s Power & Control segment, completed a series of acquisitions of substantially all of the assets and technical data rights of certain product lines, each meeting the definition of a business, for a total purchase price of $88 million, of which $10 million was paid using existing cash on hand in the first quarter of fiscal 2023. The allocation of the purchase prices for certain acquisitions remains preliminary and will likely change in future periods up to the expiration of the respective one year measurement period as fair value estimates of the assets acquired and liabilities assumed are finalized. The Company expects that all of the approximately $60 million of goodwill and all of the approximately $37 million of other intangible assets recognized for the acquisitions will be deductible for tax purposes over 15 years. Pro forma net sales and results of operations for the Extant Aerospace acquisitions had they occurred at the beginning of the twenty-six week periods ended April 1, 2023 or April 2, 2022 are not material and, accordingly, are not provided.

The acquisitions completed by the Company strengthen and expand the Company’s position to design, produce and supply highly engineered proprietary aerospace components, services and systems 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, continually improving our cost structure, and providing highly engineered value-added products to customers). The purchase prices paid reflect the current EBITDA and cash flows, as well as the future EBITDA and cash flows expected to be generated by the businesses, 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.

4. RECENT ACCOUNTING PRONOUNCEMENTS

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform.” Certain amendments were provided for in ASU 2021-01, “Reference Rate Reform (ASC 848): Scope,” which was issued in January 2021, and ASU 2022-06, “Reference Rate Reform (ASC 848): Deferral of the Sunset Date.” ASU 2021-01 provides optional guidance for a limited period of time to ease potential accounting impacts associated with transitioning away from reference rates that are expected to be discontinued, such as the London Interbank Offered Rate (“LIBOR”). The amendments in this ASU apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued. As a result of ASU 2022-06 deferring the sunset date, ASC 848 is effective through December 31, 2024. During the second quarter of fiscal 2023, the Company entered into LIBOR to Term Secured Overnight Financing Rate (“Term SOFR”) basis interest rate swap and cap agreements to effectively convert its existing swaps and caps from LIBOR-based to Term SOFR-based. The practical expedients permissible under ASC 848 were applied and resulted in the Company preserving the presentation of its existing swaps and caps as qualifying cash flow hedges. Refer to Note 13, “Derivatives and Hedging Activities,” for further disclosure of the hedging transactions entered into during the second quarter of fiscal 2023. The adoption of this standard is not expected to have a material impact on the Company's condensed consolidated financial statements and disclosures.

5. REVENUE RECOGNITION

TransDigm's sales are concentrated in the aerospace and defense industry. The Company’s customers include: distributors of aerospace components, commercial airlines, large commercial transport and regional and business aircraft original equipment manufacturers (“OEMs”), various armed forces of the United States (“U.S.”) and friendly foreign governments, defense OEMs, system suppliers, and various other industrial customers.

The Company's revenue is primarily recorded at a point in time basis. 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.

We consider the contractual consideration payable by the customer and assess variable consideration that may affect the total transaction price. Variable consideration is included in the estimated transaction price when there is a basis to reasonably estimate the amount, including whether the estimate should be constrained in order to avoid a significant reversal of revenue in a future period. These estimates are based on historical experience, anticipated performance under the terms of the contract and our best judgment at the time.

When contracts are modified to account for changes in contract specifications and requirements, the Company considers whether the modification either creates new or changes the existing enforceable rights and obligations. Contract modifications that are for goods or services that are not distinct from the existing contract, due to the significant integration with the original good or service provided, are accounted for as if they were part of that existing contract. The effect of a contract modification to an existing contract on the transaction price and our measure of progress for the performance obligation to which it relates, is recognized as an adjustment to revenue on a cumulative catch-up basis. When the modifications include additional performance obligations that are distinct and at relative stand-alone selling price, they are accounted for as a new contract and performance obligation, which are recognized prospectively.

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 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 (Deferred revenue) 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):

			April 1, 2023						September 30, 2022
Contract assets, current (1)			$	160					$	119
Contract assets, non-current (2)			1						1
Total contract assets			161						120
Contract liabilities, current (3)			60						45
Contract liabilities, non-current (4)			7						9
Total contract liabilities			67						54
Net contract assets			$	94					$	66

(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 and other current liabilities on the condensed consolidated balance sheets.

(4)Included in other non-current liabilities on the condensed consolidated balance sheets.

The increase in the Company's total contract assets at April 1, 2023 compared to September 30, 2022 is primarily due to the timing and status of work in process and/or milestones of certain contracts. The increase in the Company's total contract liabilities at April 1, 2023 compared to September 30, 2022 is primarily due to the receipt of advance payments. For the twenty-six week period ended April 1, 2023, the revenue recognized that was previously included in contract liabilities was not material.

Refer to Note 14, “Segments,” for disclosures related to the disaggregation of revenue.

Allowance for Credit Losses – The Company's allowance for credit losses is the allowance for uncollectible accounts. The allowance for uncollectible accounts reduces the trade accounts receivable balance to the estimated net realizable value equal to the amount that is expected to be collected.

The Company’s method for developing its allowance for credit losses is based on historical write-off experience, the aging of receivables, an assessment of the creditworthiness of customers, economic conditions and other external market information. The allowance also incorporates a provision for the estimated impact of disputes with customers. All provisions for allowances for uncollectible accounts are included in selling and administrative expenses. The determination of the amount of the allowance for uncollectible accounts is subject to judgment and estimation by management. If circumstances change or economic conditions deteriorate or improve, the allowance for uncollectible accounts could increase or decrease.

As of April 1, 2023 and September 30, 2022, the allowance for uncollectible accounts was $35 million. The allowance for uncollectible accounts is assessed individually at each operating unit by the operating unit’s management team.

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
			April 1, 2023						April 2, 2022						April 1, 2023						April 2, 2022
Numerator for earnings per share:
Income from continuing operations			$	304					$	199					$	533					$	362
Less: Net income attributable to noncontrolling interests			—						—						(1)						(1)
Net income from continuing operations attributable to TD Group			304						199						532						361
Less: Dividends paid on participating securities			—						—						(38)						(46)
Income from discontinued operations, net of tax			—						—						—						1
Net income applicable to TD Group common stockholders—basic and diluted			$	304					$	199					$	494					$	316
Denominator for basic and diluted earnings per share under the two-class method:
Weighted-average common shares outstanding			54.7						55.2						54.6						55.2
Vested options deemed participating securities			2.4						3.7						2.5						3.8
Total shares for basic and diluted earnings per share			57.1						58.9						57.1						59.0
Earnings per share from continuing operations—basic and diluted			$	5.32					$	3.38					$	8.65					$	5.33
Earnings per share from discontinued operations—basic and diluted			—						—						—						0.02
Earnings per share			$	5.32					$	3.38					$	8.65					$	5.35

7. STOCK REPURCHASE PROGRAM

On January 27, 2022, the Board of Directors of the Company (the “Board”) authorized a new stock repurchase program to permit repurchases of its outstanding common stock not to exceed $2,200 million in the aggregate (the “$2,200 million stock repurchase program”), replacing the $650 million stock repurchase program previously authorized by the Board on November 8, 2017, subject to any restrictions specified in the Second Amended and Restated Credit Agreement dated as of June 4, 2014, and/or Indentures governing the Company's existing Notes. There is no expiration date for this program.

During fiscal year 2022, the Company repurchased 1,490,413 shares of common stock at an average price of $612.13 per share for a total amount of $912 million, of which 1,046,815 shares of common stock were repurchased during the second quarter of fiscal 2022 at an average price of $636.93 per share for a total amount of $667 million. The repurchased shares of common stock are classified as treasury stock in the statement of changes in stockholders' deficit. No repurchases were made under the program in the first half of fiscal 2023. As of April 1, 2023, $1,288 million remains available for repurchase under the $2,200 million stock repurchase program.

8. 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):

			April 1, 2023						September 30, 2022
Raw materials and purchased component parts			$	1,082					$	959
Work-in-progress			427						359
Finished goods			227						210
Total			1,736						1,528
Reserves for excess and obsolete inventory			(207)						(196)
Inventories—Net			$	1,529					$	1,332

9. INTANGIBLE ASSETS

Other intangible assets–net in the condensed consolidated balance sheets consist of the following (in millions):

			April 1, 2023																		September 30, 2022
			Gross Carrying Amount						Accumulated Amortization						Net						Gross Carrying Amount						Accumulated Amortization						Net
Trademarks & trade names			$	1,000					$	—					$	1,000					$	990					$	—					$	990
Technology			2,081						836						1,245						2,054						780						1,274
Order backlog			7						5						2						7						3						4
Customer relationships			595						121						474						580						104						476
Other			9						5						4						9						3						6
Total			$	3,692					$	967					$	2,725					$	3,640					$	890					$	2,750

The aggregate amortization expense on identifiable intangible assets is approximately $35 million and $33 million for the thirteen week periods ended April 1, 2023 and April 2, 2022, respectively, and $68 million and $69 million for the twenty-six week periods ended April 1, 2023 and April 2, 2022, respectively.

The following is a summary of changes in the carrying value of goodwill by segment from September 30, 2022 through April 1, 2023 (in millions):

			Power & Control						Airframe						Non-aviation						Total
Balance at September 30, 2022			$	4,155					$	4,393					$	93					$	8,641
Purchase price allocation adjustments (1)			3						1						—						4
Currency translation adjustments and other			32						66						—						98
Balance at April 1, 2023			$	4,190					$	4,460					$	93					$	8,743

(1)Primarily related to opening balance sheet adjustments recorded from the series of acquisitions completed during fiscal year 2022 by the Company's Extant Aerospace subsidiary (Power & Control) and the acquisition of DART (Airframe). Refer to Note 3, “Acquisitions,” for further information.

The Company performs its annual impairment test for goodwill and other intangible assets as of the first day of the fourth fiscal quarter of each year, or more frequently, if events or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. We assessed the changes in events and circumstances during the first and second quarters of fiscal 2023 and concluded that no triggering events occurred that would require interim quantitative testing.

10. DEBT

The Company’s debt consists of the following (in millions):

			April 1, 2023
			Gross Amount						Debt Issuance Costs						Original Issue (Discount) or Premium						Net Amount
Short-term borrowings—trade receivable securitization facility			$	350					$	—					$	—					$	350
Term loans			$	6,278					$	(28)					$	(54)					$	6,196
8.00% senior secured notes due 2025 (“2025 Secured Notes”)			1,100						(5)						—						1,095
6.375% senior subordinated notes due 2026 (“6.375% 2026 Notes”)			950						(3)						—						947
6.875% senior subordinated notes due 2026 (“6.875% 2026 Notes”)			500						(3)						(1)						496
6.25% secured notes due 2026 (“2026 Secured Notes”)			4,400						(30)						3						4,373
7.50% senior subordinated notes due 2027 (“7.50% 2027 Notes”)			550						(3)						—						547
5.50% senior subordinated notes due 2027 (“5.50% 2027 Notes”)			2,650						(14)						—						2,636
6.75% secured notes due 2028 (“2028 Secured Notes”)			2,100						(22)						(11)						2,067
4.625% senior subordinated notes due 2029 (“4.625% 2029 Notes”)			1,200						(8)						—						1,192
4.875% senior subordinated notes due 2029 (“4.875% 2029 Notes”)			750						(5)						—						745
Government refundable advances			22						—						—						22
Finance lease obligations			195						—						—						195
			20,695						(121)						(63)						20,511
Less: current portion			1,168						(6)						—						1,162
Long-term debt			$	19,527					$	(115)					$	(63)					$	19,349

			September 30, 2022
			Gross Amount						Debt Issuance Costs						Original Issue (Discount) or Premium						Net Amount
Short-term borrowings—trade receivable securitization facility			$	350					$	—					$	—					$	350
Term loans			$	7,298					$	(29)					$	(13)					$	7,256
2025 Secured Notes			1,100						(6)						—						1,094
6.375% 2026 Notes			950						(4)						—						946
6.875% 2026 Notes			500						(3)						(2)						495
2026 Secured Notes			4,400						(35)						3						4,368
7.50% 2027 Notes			550						(3)						—						547
5.50% 2027 Notes			2,650						(15)						—						2,635
4.625% 2029 Notes			1,200						(9)						—						1,191
4.875% 2029 Notes			750						(6)						—						744
Government refundable advances			23						—						—						23
Finance lease obligations			146						—						—						146
			19,567						(110)						(12)						19,445
Less: current portion			77						(1)						—						76
Long-term debt			$	19,490					$	(109)					$	(12)					$	19,369

Accrued interest, which is classified as a component of accrued and other current liabilities on the condensed consolidated balance sheets, was $184 million and $170 million as of April 1, 2023 and September 30, 2022, respectively.

Amendment No. 10, Loan Modification Agreement and Refinancing Facility Agreement – On December 14, 2022, the Company entered into Amendment No. 10, Loan Modification Agreement and Refinancing Facility Agreement (herein, “Amendment No. 10”) to the Second Amended and Restated Credit Agreement dated as of June 4, 2014 (the “Credit Agreement”). Under the terms of Amendment No. 10, the Company, among other things, repaid in full its existing approximately $1,725 million in Tranche G term loans maturing August 22, 2024 and replaced such loans with approximately $1,725 million in Tranche H term loans maturing February 22, 2027. The Tranche H term loans bear interest at Term SOFR plus 3.25% compared to the former Tranche G term loans which bore interest at LIBOR plus 2.25%. The Tranche H term loans were issued at a discount of 2.00%, or approximately $34.5 million. The Tranche H term loans were fully drawn on December 14, 2022 and the other terms and conditions that apply to the Tranche H term loans are substantially the same as the terms and conditions that applied to the term loans immediately prior to Amendment No. 10.

The Company capitalized $0.9 million and expensed $3.0 million of refinancing costs associated with the refinancing during the twenty-six week period ended April 1, 2023. Additionally, the Company wrote-off $0.2 million in unamortized debt issuance costs and $0.1 million of original issue discount related to the Tranche G terms loans during the twenty-six week period ended April 1, 2023.

Amendment No. 11, Loan Modification Agreement and Refinancing Facility Agreement – On February 24, 2023, the Company entered into Amendment No. 11, Loan Modification Agreement and Refinancing Facility Agreement (herein, “Amendment No. 11”) to the Credit Agreement. Under the terms of Amendment No. 11, the Company, among other things, repaid in full its existing approximately $2,149 million in Tranche E term loans maturing May 30, 2025 and approximately $3,410 million in Tranche F term loans maturing December 9, 2025 and replaced such loans with approximately $4,559 million in Tranche I term loans maturing August 24, 2028 and the $1,000 million 2028 Secured Notes further described below. The Tranche I term loans bear interest at Term SOFR plus 3.25% compared to the former Tranche E and Tranche F term loans which bore interest at LIBOR plus 2.25%. The Tranche I term loans were issued at a discount of 0.25%, or approximately $11.4 million. The Tranche I term loans were fully drawn on February 24, 2023 and the other terms and conditions that apply to the Tranche I term loans are substantially the same as the terms and conditions that applied to the term loans immediately prior to Amendment No. 11.

The Company capitalized $2.5 million and expensed $5.6 million of refinancing costs associated with the refinancing during the twenty-six week period ended April 1, 2023. Additionally, the Company wrote-off $0.1 million in unamortized debt issuance costs and $0.1 million of original issue discount related to the Tranche I terms loans during the twenty-six week period ended April 1, 2023.

Issuance of $1,000 million Senior Secured Notes due 2028 – On February 24, 2023, the Company entered into a purchase agreement in connection with a private offering of $1,000 million in aggregate principal amount of 6.75% senior secured notes due 2028 (the “$1,000 million 2028 Secured Notes”) at an issue price of 100% of the principal amount. The $1,000 million 2028 Secured Notes were issued pursuant to an indenture, dated as of February 24, 2023, amongst TransDigm, as issuer, TransDigm Group, TransDigm UK and the other subsidiaries of TransDigm named therein, as guarantors. The $1,000 million 2028 Secured 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, the 2025 Secured Notes and 2026 Secured Notes. The proceeds were used, along with the proceeds from the Tranche I term loans further described above, to repurchase the Tranche E and Tranche F term loans.

The $1,000 million 2028 Secured Notes bear interest at a rate of 6.75% per annum, which accrues from February 24, 2023 and is payable semiannually in arrears on February 15th and August 15th of each year, commencing on August 15, 2023. The $1,000 million 2028 Secured Notes mature on August 15, 2028, unless earlier redeemed or repurchased, and are subject to the terms and conditions set forth in the indenture.

The Company capitalized $11.4 million in debt issuance costs associated with the $1,000 million 2028 Secured Notes during the twenty-six week period ended April 1, 2023.

Issuance of $1,100 million Senior Secured Notes due 2028 – On March 9, 2023, the Company entered into into a purchase agreement in connection with a private offering of $1,100 million in aggregate principal amount of 6.75% senior secured notes due 2028 (the “$1,100 million 2028 Secured Notes”) at an issue price of 99% of the principal amount, which represents an approximately $11.0 million discount. The $1,100 million 2028 Secured Notes are an additional issuance of the Company's existing $1,000 million 2028 Secured Notes (collectively, the “2028 Secured Notes”), and were issued under the indenture dated as of February 24, 2023 pursuant to which the Company previously issued $1,000 million 2028 Secured Notes and a supplemental indenture dated as of March 9, 2023. The $1,100 million 2028 Secured Notes are the same class and series as, and otherwise identical to, the $1,000 million 2028 Secured Notes other than with respect to the date of issuance and issue price. The proceeds are classified as restricted cash on the condensed consolidated balance sheet as of April 1, 2023, as they were committed to be used to redeem the $1,100 million in 2025 Secured Notes further described below.

The $1,100 million 2028 Secured Notes bear interest at a rate of 6.75% per annum, which accrues from February 24, 2023 and is payable semiannually in arrears on February 15th and August 15th of each year, commencing on August 15, 2023. The $1,100 million 2028 Secured Notes mature on August 15, 2028, unless earlier redeemed or repurchased, and are subject to the terms and conditions set forth in the indentures.

The Company capitalized $11.2 million in debt issuance costs associated with the $1,100 million 2028 Secured Notes during the twenty-six week period ended April 1, 2023.

Subsequent Event - Redemption of Senior Secured Notes due 2025 – On March 9, 2023, the Company announced a cash tender offer for any and all of its outstanding 2025 Secured Notes. On April 10, 2023, the Company redeemed the principal amount of $1,100 million, plus accrued interest of approximately $1.7 million and an early redemption premium of $22.0 million associated with the 2025 Secured Notes. As the notification of redemption was made in March 2023, the 2025 Secured Notes obligation is classified as current portion of long-term debt on the condensed consolidated balance sheet as of April 1, 2023.

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 based on year-over-year commercial aviation revenue growth for certain product lines at CMC Electronics, which is a wholly-owned subsidiary of TransDigm. As of April 1, 2023 and September 30, 2022, the outstanding balance of these advances was $22 million and $23 million, respectively.

Obligations under Finance Leases – The Company leases certain buildings and equipment under finance leases. The present value of the minimum finance lease payments, net of the current portion, represents a balance of $195 million and $146 million at April 1, 2023 and September 30, 2022, respectively. The increase in the current fiscal year is attributable to certain new leases of facilities and amendments to previous agreements qualifying as lease modifications resulting in a change in classification from an operating lease to a finance lease. Refer to Note 16, “Leases,” for further disclosure of the Company's lease obligations.

11. 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.

During the thirteen week periods ended April 1, 2023 and April 2, 2022, the effective income tax rate was 23.4% and 23.5%, respectively. The Company’s slightly lower effective income tax rate for the thirteen week period ended April 1, 2023 was primarily the result of a more significant impact of the discrete tax benefit associated with share-based payments. During the twenty-six week periods ended April 1, 2023 and April 2, 2022, the effective income tax rate was 23.5% and 20.1%, respectively. The Company’s higher effective income tax rate for the twenty-six week period ended April 1, 2023 was primarily due to a decrease in the impact of the discrete tax benefit associated with share-based payments relative to the comparable prior periods. The reduced impact of the discrete tax benefit was the result of an increase in income from continuing operations before income taxes for the twenty-six week period ended April 1, 2023. The Company's effective income tax rate for the thirteen and twenty-six week period ended April 1, 2023 was higher than the federal statutory tax rate of 21% primarily due to an increase in the valuation allowance applicable to the Company's net interest deduction limitation carryforward, partially offset by the discrete impact of excess tax benefits associated with 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 no longer subject to U.S. federal examinations for years before fiscal 2017. The Company is currently under examination for its federal income taxes in Canada for fiscal years 2013 through 2019, and in Germany for fiscal years 2014 through 2017. In addition, the Company is subject to state income tax examinations for fiscal years 2015 and later.

Unrecognized tax benefits at April 1, 2023 and September 30, 2022, the recognition of which would have an impact on the effective tax rate for each fiscal year, amounted to $17.0 million and $16.6 million, respectively. The Company classifies all income tax-related interest and penalties as income tax expense, which were not material for the thirteen and twenty-six week periods ended April 1, 2023 and April 2, 2022. As of April 1, 2023 and September 30, 2022, the Company accrued $5.7 million and $4.5 million, respectively, for the potential payment of interest and penalties. Within the next 12 months, the Company does not anticipate a material increase or decrease in the amount of unrecognized tax benefits.

12. 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):

									April 1, 2023												September 30, 2022
			Level						Carrying Amount						Fair Value						Carrying Amount						Fair Value
Assets:
Cash and cash equivalents			1						$	3,418					$	3,418					$	3,001					$	3,001
Restricted cash			1						1,100						1,100						—						—
Interest rate swap agreements (1)			2						82						82						77						77
Interest rate swap agreements (2)			2						42						42						68						68
Interest rate cap agreement (2)			2						49						49						50						50
Interest rate collar agreements (2)			2						3						3						—						—
Liabilities:
Foreign currency forward exchange contracts (3)			2						2						2						11						11
Interest rate cap agreement (4)			2						1						1						—						—
Interest rate swap agreements (4)			2						5						5						—						—
Short-term borrowings - trade receivable securitization facility (5)			2						350						350						350						350
Long-term debt, including current portion:
Term loans (5)			2						6,196						6,226						7,256						6,976
2025 Secured Notes (5)			1						1,095						1,110						1,094						1,115
6.375% 2026 Notes (5)			1						947						929						946						884
6.875% 2026 Notes (5)			1						496						494						495						473
2026 Secured Notes (5)			1						4,373						4,400						4,368						4,257
7.50% 2027 Notes (5)			1						547						550						547						524
5.50% 2027 Notes (5)			1						2,636						2,465						2,635						2,286
2028 Secured Notes (5)			1						2,067						2,116						—						—
4.625% 2029 Notes (5)			1						1,192						1,059						1,191						966
4.875% 2029 Notes (5)			1						745						664						744						606
Government refundable advances			2						22						22						23						23
Finance lease obligations			2						195						195						146						146

(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 and other current 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 10, “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 or disclosed using unobservable inputs (i.e., Level 3).

The Company’s derivatives consist of interest rate swap, cap and collar agreements and foreign currency exchange contracts. The fair values of the interest rate swap, cap and collar agreements were derived by taking the net present value of the expected cash flows using observable market inputs (Level 2) such as LIBOR or SOFR rate curves, futures, volatilities and basis spreads (when applicable). The fair values of the foreign currency exchange contracts were derived by using Level 2 inputs based on observable spot and forward exchange rates in active markets. 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 material impact to the fair value of derivative assets based on the Company's evaluation of counterparties' credit risks.

The estimated fair value of the Company’s term loans was based on information provided by the agent under the Company’s Credit Agreement. The estimated fair values of the Company’s notes were based upon quoted market prices.

The fair value of cash and cash equivalents, restricted cash, trade accounts receivable-net and accounts payable approximated carrying value due to the short-term nature of these instruments at April 1, 2023 and September 30, 2022.

13. 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, cap and collar counterparties that contain a provision whereby if the Company defaults on the Credit Agreement, the Company could also be declared in default on its swaps, cap and collars resulting in an acceleration of payment under the swaps, cap and collars.

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 sheets in accumulated other comprehensive loss 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 loss is reclassified into earnings in the same period during which the underlying hedged transaction affects earnings.

Interest Rate Swap, Cap and Collar Agreements – Interest rate swap, cap and collar agreements are used to manage interest rate risk associated with floating rate borrowings (i.e., term loans - see Note 10, “Debt”) under our Credit Agreement. 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. The 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 from the effective date through the maturity date of the respective interest rate swap, cap and collar agreements, thereby reducing the impact of interest rate movements on future interest expense.

Prior to amending the Credit Agreement (as disclosed in Note 10, “Debt”), the Company was exposed to floating rates of LIBOR via the term loans' benchmark interest rate. During the second fiscal quarter ended April 1, 2023, in connection with the amendment of the Credit Agreement impacting the term loans, we entered into LIBOR to Term SOFR basis interest rate swap and cap transactions to effectively convert our existing swaps and cap from LIBOR-based to Term SOFR-based. The basis swaps and cap offset the LIBOR exposure of the existing swaps and cap and effectively fix the Term SOFR rate for the notional amount.

We also entered into forward starting interest rate collar agreements during the second quarter of fiscal 2023. The interest rate collar agreements establish a range where we will pay the counterparties if the three-month Term SOFR rate falls below the established floor rate of 2.0%, and the counterparties will pay us if the three-month Term SOFR rate exceeds the ceiling rate of 3.5%. The collar will settle quarterly from the effective date through the maturity date. No payments or receipts will be exchanged on the interest rate collar contracts unless interest rates rise above or fall below the contracted ceiling or floor rates.

The tables below summarize the key terms of the swaps, cap and collars (aggregated by effective date).

Interest rate swap agreements:

Aggregate Notional Amount (in millions)						Effective Date						Maturity Date						Conversion of Related Variable Rate Debt subject to Term SOFR to Fixed Rate of:
$400						3/31/2023						6/28/2024						6.25% (3.0% plus the 3.25% margin percentage)
$900						3/31/2023						6/28/2024						6.35% (3.1% plus the 3.25% margin percentage)
$500						3/31/2023						3/31/2025						6.25% (3.0% plus the 3.25% margin percentage)
$1,500						3/31/2023						3/31/2025						6.35% (3.1% plus the 3.25% margin percentage)
$700						3/31/2023						9/30/2025						4.55% (1.3% plus the 3.25% margin percentage)

Interest rate cap agreement:

Aggregate Notional Amount (in millions)						Effective Date						Maturity Date						Offsets Variable Rate Debt Attributable to Fluctuations Above:
$700						3/31/2023						9/30/2025						Three-month Term SOFR rate of 1.25%

Interest rate collar agreements:

Aggregate Notional Amount (in millions)						Effective Date						Maturity Date						Offsets Variable Rate Debt Attributable to Fluctuations Below and Above:
$1,100						3/31/2025						9/30/2026						Three-month Term SOFR rate of 2.00% (floor) and 3.50% (cap)
$500						9/30/2025						9/30/2026						Three-month Term SOFR rate of 2.00% (floor) and 3.50% (cap)

These derivative instruments qualify as effective cash flow hedges under U.S. GAAP. For the LIBOR to Term SOFR basis interest rate swap and cap agreements referenced above, we applied the practical expedients permissible under ASC 848 to continue hedge accounting for our existing swaps and cap as effective cash flow hedges. For our cash flow hedges, the effective portion of the gain or loss from the financial instruments is initially reported as a component of accumulated other comprehensive 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 affects earnings. As the interest rate swap, cap and collar 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. Cash flows related to the derivative contracts are included in cash flows from operating activities on the condensed consolidated statements of cash flows.

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 sheets and the net amounts of assets and liabilities presented therein (in millions):

						April 1, 2023												September 30, 2022
						Asset						Liability						Asset						Liability
Interest rate cap agreement						$	49					$	1					$	50					$	—
Interest rate collar agreements						3						—						—						—
Interest rate swap agreements						124						5						145						—
Net derivatives as classified in the condensed consolidated balance sheets (1)						$	176					$	6					$	195					$	—

(1)Refer to Note 12, “Fair Value Measurements,” for the condensed consolidated balance sheets classification of our interest rate swap, cap and collar agreements.

Based on the fair value amounts determined as of April 1, 2023, the estimated net amount of existing (gains) and losses and caplet amortization expected to be reclassified into interest expense-net within the 12 months is approximately $(80.0) 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 April 1, 2023, the Company has outstanding foreign currency forward exchange contracts to sell U.S. dollars with notional amounts of $93.3 million. The maximum duration of the Company’s foreign currency cash flow hedge contracts at April 1, 2023 is 6 months. These notional values consist of contracts for the Canadian dollar and the euro and are stated in U.S. dollar equivalents at spot exchange rates at the respective trade dates. Amounts related to foreign currency forward exchange contracts included in accumulated other comprehensive loss in stockholders' deficit are reclassified into net sales when the hedged transaction settles.

During the twenty-six week period ended April 1, 2023, the losses reclassified on settlements of foreign currency forward exchange contracts designated as cash flow hedges into net sales was approximately $0.6 million. The losses were previously recorded as a component of accumulated other comprehensive loss in stockholders' deficit.

As of April 1, 2023, the Company expects to record a net loss of approximately $0.9 million on foreign currency forward exchange contracts designated as cash flow hedges to net sales over the next 12 months.

14. 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, batteries and chargers, databus and power controls, advanced sensor products, switches and relay panels, high performance hoists, winches and lifting devices, and cargo loading, handling and delivery 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, engineered rods, engineered connectors and elastomer sealing solutions, 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, thermal protection and insulation, lighting and control technology and parachutes. 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 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 non-cash compensation charges incurred in connection with the Company’s stock incentive or deferred compensation plans, foreign currency gains and losses, acquisition-integration costs, acquisition and divestiture transaction-related expenses, and refinancing costs. Acquisition and divestiture-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 for both acquisitions and divestitures 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 U.S. 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 U.S. 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 condensed 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. Corporate consists of our corporate offices. Corporate expenses consist primarily of compensation, benefits, professional services and other administrative costs incurred by the corporate offices. Corporate assets consist primarily of cash and cash equivalents. Corporate expenses and assets reconcile reportable segment data to the consolidated totals. An immaterial amount of corporate expenses is 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
			April 1, 2023						April 2, 2022						April 1, 2023						April 2, 2022
Net sales to external customers
Power & Control
Commercial and non-aerospace OEM			$	167					$	153					$	319					$	288
Commercial and non-aerospace aftermarket			276						202						520						405
Defense			373						353						702						665
Total Power & Control			816						708						1,541						1,358
Airframe
Commercial and non-aerospace OEM			235						178						437						320
Commercial and non-aerospace aftermarket			268						184						503						348
Defense			230						217						429						417
Total Airframe			733						579						1,369						1,085
Total Non-aviation			43						40						79						78
Net Sales			$	1,592					$	1,327					$	2,989					$	2,521

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
			April 1, 2023						April 2, 2022						April 1, 2023						April 2, 2022
EBITDA As Defined
Power & Control			$	452					$	374					$	853					$	703
Airframe			373						273						685						499
Non-aviation			17						14						31						28
Total segment EBITDA As Defined			842						661						1,569						1,230
Less: Unallocated corporate EBITDA As Defined			25						28						53						32
Total Company EBITDA As Defined			817						633						1,516						1,198
Depreciation and amortization expense			65						62						129						127
Interest expense, net			295						266						581						530
Acquisition and divestiture transaction-related expenses			3						3						6						8
Non-cash stock and deferred compensation expense			42						45						77						82
Refinancing costs			5						—						9						—
Other, net			10						(3)						17						(2)
Income from continuing operations before income taxes			$	397					$	260					$	697					$	453

The following table presents total assets by segment (in millions):

			April 1, 2023						September 30, 2022
Total assets
Power & Control			$	7,234					$	6,994
Airframe			8,049						7,781
Non-aviation			233						238
Corporate			4,492						3,094
			$	20,008					$	18,107

15. ACCUMULATED OTHER COMPREHENSIVE LOSS

The following table presents the total changes by component in accumulated other comprehensive loss (“AOCI”), net of taxes, for the twenty-six week periods ended April 1, 2023 and April 2, 2022 (in millions):

			Unrealized gains (losses) on derivatives (1)						Pension and postretirement benefit plans adjustment (2)						Foreign currency translation adjustment (3)						Total
Balance at September 30, 2022			$	123					$	(10)					$	(380)					$	(267)
Net current-period other comprehensive income (loss) (4)			(9)						—						180						171
Balance at April 1, 2023			$	114					$	(10)					$	(200)					$	(96)
Balance at September 30, 2021			$	(229)					$	(18)					$	(1)					$	(248)
Net current-period other comprehensive income (loss) (4)			228						—						(53)						175
Balance at April 2, 2022			$	(1)					$	(18)					$	(54)					$	(73)

(1)Represents unrealized gains (losses) on derivatives designated and qualifying as cash flow hedges, net of taxes, of $7.8 million and $51.5 million for the thirteen week periods ended April 1, 2023 and April 2, 2022, respectively, and $1.2 million and $69.3 million for the twenty-six week periods ended April 1, 2023 and April 2, 2022, respectively.

(2)There were no material pension liability adjustments, net of taxes, related to activity on the defined pension plan and postretirement benefit plan for the thirteen and twenty-six week periods ended April 1, 2023 and April 2, 2022, respectively.

(3)Represents gains (losses) resulting from foreign currency translation of financial statements, including gains (losses) from certain intercompany transactions, into U.S. dollars at the rates of exchange in effect at the balance sheet dates.

(4)Presented net of reclassifications out of AOCI into earnings, specifically interest expense - net, for realized gains (losses) on derivatives designated and qualifying as cash flow hedges of $20.4 million (net of taxes of $6.3 million) and ($53.8) million (net of taxes of $16.5 million) for the twenty-six week periods ended April 1, 2023 and April 2, 2022, respectively.

16. LEASES

The Company leases certain manufacturing facilities, offices, land, equipment and vehicles. Such leases, some of which are noncancellable 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 are as follows (in millions):

									Thirteen Week Periods Ended												Twenty-Six Week Periods Ended
			Classification						April 1, 2023						April 2, 2022						April 1, 2023						April 2, 2022
Operating lease cost			Cost of sales or selling and administrative expenses						$	5					$	4					$	10					$	12
Finance lease cost
Amortization of leased assets			Cost of sales						2						2						5						3
Interest on lease liabilities			Interest expense - net						3						2						6						4
Total lease cost									$	10					$	8					$	21					$	19

Supplemental cash flow information related to leases is as follows (in millions):

						Twenty-Six Week Periods Ended
						April 1, 2023						April 2, 2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflows from operating leases						$	10					$	12
Operating cash outflows from finance leases						5						4
Financing cash outflows from finance leases						2						1
Lease assets obtained in exchange for new lease obligations:
Operating leases						$	5					$	8
Financing leases						48						33

Supplemental balance sheet information related to leases is as follows (in millions):

			Classification						April 1, 2023						September 30, 2022
Operating Leases
Operating lease right-of-use assets			Other non-current assets						$	61					$	85
Current operating lease liabilities			Accrued and other current liabilities						16						18
Long-term operating lease liabilities			Other non-current liabilities						49						71
Total operating lease liabilities									$	65					$	89
Finance Leases
Finance lease right-of-use assets, net			Property, plant and equipment - net						$	181					$	137
Current finance lease liabilities			Current portion of long-term debt						5						2
Long-term finance lease liabilities			Long-term debt						190						144
Total finance lease liabilities									$	195					$	146

As of April 1, 2023, the Company has the following remaining lease term and weighted average discount rates:

Weighted-average remaining lease term
Operating leases			5.3 years
Finance leases			20.4 years
Weighted-average discount rate
Operating leases			5.9%
Finance leases			7.0%

Maturities of lease liabilities at April 1, 2023 are as follows (in millions):

			Operating Leases						Finance Leases
2023			$	10					$	8
2024			18						16
2025			15						17
2026			11						17
2027			9						17
Thereafter			13						313
Total future minimum lease payments			76						388
Less: imputed interest			11						193
Present value of lease liabilities reported			$	65					$	195

17. COMMITMENTS AND CONTINGENCIES

During the ordinary course of business, the Company is from time to time threatened with, or may become a party to, legal actions and other proceedings. While the Company is currently involved in certain legal proceedings, it believes the results of these proceedings will not have a material adverse effect on its financial condition, results of operations, or cash flows.

Litigation Claims – On November 1, 2021, a purported stockholder of the Company filed a derivative complaint, captioned Sciabacucchi v Howley, et al. C.A. No. 2021-0938-LWW (the “Derivative Action”), in the Delaware Court of Chancery (the “Court”). The complaint, which names certain directors of the Company (the “Director Defendants”) as defendants, alleges that the Director Defendants awarded and received excessive compensation. The Director Defendants have denied, and continue to deny, any and all allegations of wrongdoing or liability asserted in the Derivative Action.

Nonetheless, solely to eliminate the uncertainty, distraction, disruption, burden, risk and expense of further litigation, the Company and the Director Defendants entered into a Stipulation and Agreement of Compromise, Settlement and Release (the “Stipulation”) with the plaintiff on August 19, 2022. Pursuant to the terms of the Stipulation, the Director Defendants have agreed to implement and maintain certain changes to the Company’s compensation policies and practices such as to the extent dividend equivalent payments are declared payable to any Company director, those DEPs will not be paid in cash, but instead will be paid via a reduction to the strike price of options that are issued to that director. Other corporate governance enhancements were also agreed to by the Company. The Company is also responsible for the payment of plaintiff’s attorneys’ fees. The proposed settlement as set forth in the Stipulation, other than the amount of the attorneys’ fees, was approved by the Court on November 10, 2022. The settlement (i) fully resolves the Derivative Action by dismissing all asserted claims with prejudice and (ii) releases all claims related to the allegations in the Derivative Action. The settlement is not expected to have a material adverse impact on the Company’s financial statements.

DOD OIG Audit – TransDigm’s subsidiaries are periodically subject to pricing reviews and government buying agencies that purchase some of our subsidiaries’ products are periodically subject to audits by the Department of Defense (“DOD”) Office of Inspector General (“OIG”) with respect to prices paid for such products. In 2019, the DOD OIG received a congressional letter requesting a comprehensive review of TransDigm’s contracts with the DOD from January 2017 through June 2019 to identify whether TransDigm earned excess profits. This subsequently resulted in an audit by the DOD OIG in which the objective was to determine whether TransDigm’s business model impacted the DOD’s ability to pay fair and reasonable prices for spare parts. In December 2021, the OIG completed the audit and issued the related audit report. Despite the audit report making clear there was no wrongdoing by TransDigm, its businesses, or the DOD, the report recommended that TransDigm voluntarily refund at least $20.8 million in excess profit on 150 contracts subject to the audit.

TransDigm disagrees with many of the implications contained in the report, and objects to the use of arbitrary standards and analysis which render many areas of the report inaccurate and misleading. These include: (1) The report expressly acknowledges that it used arbitrary standards that are not applicable to the audited contracts and warns that its arbitrary standards should not be used in the future. The use of inapplicable standards results in flawed analysis and is misleading; (2) The report ignores significant real costs incurred by the business and contrary to law reports these costs as excess profit; (3) Despite data demonstrating that the DOD paid lower prices compared to the commercial prices for similar parts, the report did not conduct a price analysis and instead implies that the DOD negotiated prices were too high.

No loss contingency related to the voluntary refund request has been recorded as of April 1, 2023 as the Company has concluded that based on the current facts and circumstances, it's uncertain as to whether or not the requested voluntary refund will be made.