filings.toolsItem 1. FINANCIAL STATEMENTS
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Item 1. FINANCIAL STATEMENTS
TRANSDIGM GROUP INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in millions, except share amounts)
(Unaudited)
| December 28, 2024 | September 30, 2024 | ||||||||||
| ASSETS | |||||||||||
| CURRENT ASSETS: | |||||||||||
| Cash and cash equivalents | $ | 2,459 | $ | 6,261 | |||||||
| Trade accounts receivable—Net | 1,285 | 1,381 | |||||||||
| Inventories—Net | 1,930 | 1,876 | |||||||||
| Prepaid expenses and other | 482 | 511 | |||||||||
| Total current assets | 6,156 | 10,029 | |||||||||
| PROPERTY, PLANT AND EQUIPMENT—NET | 1,477 | 1,488 | |||||||||
| GOODWILL | 10,304 | 10,419 | |||||||||
| OTHER INTANGIBLE ASSETS—NET | 3,360 | 3,446 | |||||||||
| OTHER NON-CURRENT ASSETS | 218 | 204 | |||||||||
| TOTAL ASSETS | $ | 21,515 | $ | 25,586 | |||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | |||||||||||
| CURRENT LIABILITIES: | |||||||||||
| Current portion of long-term debt | $ | 98 | $ | 98 | |||||||
| Short-term borrowings—trade receivable securitization facility | 649 | 486 | |||||||||
| Accounts payable | 315 | 323 | |||||||||
| Dividends payable | — | 4,216 | |||||||||
| Accrued and other current liabilities | 1,222 | 1,216 | |||||||||
| Total current liabilities | 2,284 | 6,339 | |||||||||
| LONG-TERM DEBT | 24,302 | 24,296 | |||||||||
| DEFERRED INCOME TAXES | 762 | 766 | |||||||||
| OTHER NON-CURRENT LIABILITIES | 418 | 468 | |||||||||
| Total liabilities | 27,766 | 31,869 | |||||||||
| TD GROUP STOCKHOLDERS’ DEFICIT: | |||||||||||
| Common stock - $.01 par value; authorized 224,400,000 shares; issued 62,022,913 and 61,904,833 at December 28, 2024 and September 30, 2024, respectively | 1 | 1 | |||||||||
| Additional paid-in capital | 2,887 | 2,819 | |||||||||
| Accumulated deficit | (6,877) | (7,362) | |||||||||
| Accumulated other comprehensive loss | (247) | (42) | |||||||||
| Treasury stock, at cost; 5,941,439 and 5,688,639 shares at December 28, 2024 and September 30, 2024, respectively | (2,022) | (1,706) | |||||||||
| Total TD Group stockholders’ deficit | (6,258) | (6,290) | |||||||||
| NONCONTROLLING INTERESTS | 7 | 7 | |||||||||
| Total stockholders’ deficit | (6,251) | (6,283) | |||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ | 21,515 | $ | 25,586 |
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 | |||||||||||||||||||||||
| December 28, 2024 | December 30, 2023 | ||||||||||||||||||||||
| NET SALES | $ | 2,006 | $ | 1,789 | |||||||||||||||||||
| COST OF SALES | 771 | 747 | |||||||||||||||||||||
| GROSS PROFIT | 1,235 | 1,042 | |||||||||||||||||||||
| SELLING AND ADMINISTRATIVE EXPENSES | 211 | 220 | |||||||||||||||||||||
| AMORTIZATION OF INTANGIBLE ASSETS | 50 | 35 | |||||||||||||||||||||
| INCOME FROM OPERATIONS | 974 | 787 | |||||||||||||||||||||
| INTEREST EXPENSE—NET | 378 | 300 | |||||||||||||||||||||
| OTHER INCOME | (23) | (1) | |||||||||||||||||||||
| INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES | 619 | 488 | |||||||||||||||||||||
| INCOME TAX PROVISION | 126 | 106 | |||||||||||||||||||||
| NET INCOME | 493 | 382 | |||||||||||||||||||||
| LESS: NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS | — | — | |||||||||||||||||||||
| NET INCOME ATTRIBUTABLE TO TD GROUP | $ | 493 | $ | 382 | |||||||||||||||||||
| NET INCOME APPLICABLE TO TD GROUP COMMON STOCKHOLDERS | $ | 444 | $ | 281 | |||||||||||||||||||
| Earnings per share attributable to TD Group common stockholders: | |||||||||||||||||||||||
| Earnings per share | $ | 7.62 | $ | 4.87 | |||||||||||||||||||
| Cash dividends declared per common share | $ | — | $ | 35.00 | |||||||||||||||||||
| Weighted-average shares outstanding: | |||||||||||||||||||||||
| Basic and diluted | 58.3 | 57.7 |
See notes to condensed consolidated financial statements
TRANSDIGM GROUP INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in millions)
(Unaudited)
| Thirteen Week Periods Ended | |||||||||||||||||||||||
| December 28, 2024 | December 30, 2023 | ||||||||||||||||||||||
| Net income | $ | 493 | $ | 382 | |||||||||||||||||||
| Less: Net income attributable to noncontrolling interests | — | — | |||||||||||||||||||||
| Net income attributable to TD Group | $ | 493 | $ | 382 | |||||||||||||||||||
| Other comprehensive (loss) income, net of tax: | |||||||||||||||||||||||
| Foreign currency translation adjustment | (227) | 91 | |||||||||||||||||||||
| Unrealized gains (losses) on derivatives | 22 | (53) | |||||||||||||||||||||
| Pension and post-retirement benefit plans adjustment | — | — | |||||||||||||||||||||
| Other comprehensive (loss) income, net of tax, attributable to TD Group | (205) | 38 | |||||||||||||||||||||
| TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO TD GROUP | $ | 288 | $ | 420 |
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, 2023 | 60,995,513 | $ | 1 | $ | 2,440 | $ | (2,621) | $ | (98) | (5,688,639) | $ | (1,706) | $ | 6 | $ | (1,978) | |||||||||||||||||||||||||||||||||||||
| Changes in noncontrolling interest of consolidated subsidiaries, net | — | — | — | — | — | — | — | 1 | 1 | ||||||||||||||||||||||||||||||||||||||||||||
| Special dividends ($35.00 per share) and vested dividend equivalents | — | — | — | (2,020) | — | — | — | — | (2,020) | ||||||||||||||||||||||||||||||||||||||||||||
| Accrued unvested dividend equivalents and other | — | — | — | (7) | — | — | — | — | (7) | ||||||||||||||||||||||||||||||||||||||||||||
| Compensation expense recognized for employee stock options | — | — | 26 | — | — | — | — | — | 26 | ||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation activity | 216,150 | — | 52 | — | — | — | — | — | 52 | ||||||||||||||||||||||||||||||||||||||||||||
| Net income attributable to TD Group | — | — | — | 382 | — | — | — | — | 382 | ||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment, net of tax | — | — | — | — | 91 | — | — | — | 91 | ||||||||||||||||||||||||||||||||||||||||||||
| Unrealized loss on derivatives, net of tax | — | — | — | — | (53) | — | — | — | (53) | ||||||||||||||||||||||||||||||||||||||||||||
| Pension and postretirement benefit plans adjustment, net of tax | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| BALANCE—December 30, 2023 | 61,211,663 | $ | 1 | $ | 2,518 | $ | (4,266) | $ | (60) | (5,688,639) | $ | (1,706) | $ | 7 | $ | (3,506) | |||||||||||||||||||||||||||||||||||||
| 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, 2024 | 61,904,833 | $ | 1 | $ | 2,819 | $ | (7,362) | $ | (42) | (5,688,639) | $ | (1,706) | $ | 7 | $ | (6,283) | |||||||||||||||||||||||||||||||||||||
| Accrued unvested dividend equivalents and other | — | — | — | (8) | — | — | — | — | (8) | ||||||||||||||||||||||||||||||||||||||||||||
| Compensation expense recognized for employee stock options | — | — | 33 | — | — | — | — | — | 33 | ||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation activity | 118,080 | — | 35 | — | — | — | — | — | 35 | ||||||||||||||||||||||||||||||||||||||||||||
| Stock repurchases under repurchase program | — | — | — | — | — | (252,800) | (316) | — | (316) | ||||||||||||||||||||||||||||||||||||||||||||
| Net income attributable to TD Group | — | — | — | 493 | — | — | — | — | 493 | ||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment, net of tax | — | — | — | — | (227) | — | — | — | (227) | ||||||||||||||||||||||||||||||||||||||||||||
| Unrealized gain on derivatives, net of tax | — | — | — | — | 22 | — | — | — | 22 | ||||||||||||||||||||||||||||||||||||||||||||
| Pension and postretirement benefit plans adjustment, net of tax | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| BALANCE—December 28, 2024 | 62,022,913 | $ | 1 | $ | 2,887 | $ | (6,877) | $ | (247) | (5,941,439) | $ | (2,022) | $ | 7 | $ | (6,251) | |||||||||||||||||||||||||||||||||||||
See notes to condensed consolidated financial statements
TRANSDIGM GROUP INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in millions)
(Unaudited)
| Thirteen Week Periods Ended | |||||||||||
| December 28, 2024 | December 30, 2023 | ||||||||||
| OPERATING ACTIVITIES: | |||||||||||
| Net income | $ | 493 | $ | 382 | |||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation | 40 | 36 | |||||||||
| Amortization of intangible assets and product certification costs | 50 | 35 | |||||||||
| Amortization of debt issuance costs, original issue discount and premium | 9 | 11 | |||||||||
| Amortization of inventory step-up | 7 | 1 | |||||||||
| Amortization of loss contract reserves | (19) | (5) | |||||||||
| Gain on sale of businesses, net | (19) | — | |||||||||
| Non-cash stock and deferred compensation expense | 25 | 51 | |||||||||
| Deferred income taxes | (2) | — | |||||||||
| Foreign currency exchange (gains) losses | (20) | 14 | |||||||||
| Changes in assets/liabilities, net of effects from acquisitions and sales of businesses: | |||||||||||
| Trade accounts receivable | 80 | 94 | |||||||||
| Inventories | (79) | (78) | |||||||||
| Income taxes payable | 91 | 94 | |||||||||
| Other assets | (2) | 3 | |||||||||
| Accounts payable | (3) | (21) | |||||||||
| Accrued interest | 201 | 82 | |||||||||
| Accrued and other liabilities | (100) | (63) | |||||||||
| Net cash provided by operating activities | 752 | 636 | |||||||||
| INVESTING ACTIVITIES: | |||||||||||
| Capital expenditures | (42) | (36) | |||||||||
| Acquisition of businesses, net of cash acquired | (29) | (14) | |||||||||
| Other investing transactions | 47 | — | |||||||||
| Net cash used in investing activities | (24) | (50) | |||||||||
| FINANCING ACTIVITIES: | |||||||||||
| Proceeds from exercise of stock options | 35 | 52 | |||||||||
| Dividends and dividend equivalent payments | (4,396) | (2,038) | |||||||||
| Repurchases of common stock | (316) | — | |||||||||
| Proceeds from issuance of senior secured notes, net | — | 983 | |||||||||
| Proceeds from term loans, net | — | 988 | |||||||||
| Proceeds from trade receivable securitization facility, net | 163 | 100 | |||||||||
| Repayment on term loans | — | (16) | |||||||||
| Financing costs and other, net | (2) | (2) | |||||||||
| Net cash (used in) provided by financing activities | (4,516) | 67 | |||||||||
| EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS | (14) | 10 | |||||||||
| NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS | (3,802) | 663 | |||||||||
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 6,261 | 3,472 | |||||||||
| CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 2,459 | $ | 4,135 | |||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | |||||||||||
| Cash paid during the period for interest, net | $ | 162 | $ | 205 | |||||||
| Cash paid during the period for income taxes, net of refunds | $ | 37 | $ | 11 |
See notes to condensed consolidated financial statements
TRANSDIGM GROUP INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THIRTEEN WEEK PERIODS ENDED DECEMBER 28, 2024 AND DECEMBER 30, 2023
(UNAUDITED)
1. BASIS OF PRESENTATION
As used in this Quarterly Report on Form 10-Q, unless the context otherwise indicates, the terms “the Company,” “TD Group,” “TransDigm,” “we,” “us,” “our,” and similar references refer to TransDigm Group Incorporated and its subsidiaries.
Principles of Consolidation
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, 2024 included in TD Group’s Annual Report on Form 10-K filed on November 7, 2024. 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, 2024 condensed consolidated balance sheet was derived from TD Group’s audited financial statements. The results of operations for the thirteen week period ended December 28, 2024 are not necessarily indicative of the results to be expected for the full year.
Reclassifications
Certain reclassifications have been made to the prior year amounts to conform to the current year presentation, none of which are material.
New Accounting Pronouncements Issued
In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures.” ASU 2023-07 expands disclosures about a public business entity's reportable segments and provides for more detailed information about a reportable segment's expenses. Additionally, ASU 2023-07 requires all segment profit or loss and assets disclosures to be provided on an annual and interim basis. This standard is effective for annual periods beginning after December 15, 2023 (fiscal 2025) and interim periods within fiscal years beginning one year later (fiscal 2026). The Company plans to adopt this standard beginning with our fiscal 2025 Form 10-K. While we expect the adoption of this standard will expand our disclosures within the “Segments” note, we do not expect it to have any impact on our consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures,” which requires a public business entity to disclose specific categories in its annual effective tax rate reconciliation and disaggregated information about significant reconciling items by jurisdiction and by nature. The ASU also requires entities to disclose their income tax payments (net of refunds) to international, federal, and state and local jurisdictions. The standard makes several other changes to income tax disclosure requirements. This standard is effective for annual periods beginning after December 15, 2024 (fiscal 2026), and requires prospective application with the option to apply it retrospectively. Early adoption is permitted. The Company is currently evaluating this standard to determine its impact on our disclosures.
In November 2024, the FASB issued ASU 2024-03, “Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses.” ASU 2024-03 requires, among other items, additional disaggregated disclosures in the notes to financial statements for certain categories of expenses that are included on the face of the statement of income. ASU 2024-03 is effective for fiscal years beginning after December 15, 2026 (fiscal 2028), and for interim periods within fiscal years beginning after December 15, 2027 (fiscal 2029), with early adoption permitted. The Company is currently evaluating this standard to determine its impact on our disclosures.
2. ACQUISITIONS
Raptor Scientific – On July 31, 2024, the Company acquired all the outstanding stock of Raptor Scientific for approximately $646 million, which includes a working capital settlement of $1 million received in the first quarter of fiscal 2025. The acquisition was financed through existing cash on hand. Raptor Scientific is a leading global manufacturer of complex test and measurement solutions primarily serving the aerospace and defense end markets. Its products are highly engineered, proprietary components with significant aftermarket content and a strong presence across major aerospace and defense platforms. The operating results of Raptor Scientific are included within TransDigm's Airframe segment.
As of December 28, 2024, the measurement period (not to exceed one year) is open; therefore, the assets acquired and liabilities assumed related to the acquisition of Raptor Scientific are subject to adjustment until the end of the respective measurement period, including those related to deferred taxes and income taxes.
The Company accounted for the acquisition of Raptor Scientific using the acquisition method of accounting and a third-party valuation appraisal 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 was allocated to identifiable assets and liabilities based upon the respective fair value at the date of acquisition. The fair values of acquired intangibles are determined based on an income approach, using estimates and assumptions that are deemed reasonable by the Company. Certain assumptions include the discount rates and other 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 thirteen week period ended December 30, 2023 are not material and, accordingly, are not provided.
The allocation of the estimated fair value of assets acquired and liabilities assumed in the acquisition of Raptor Scientific as of the July 31, 2024 acquisition date, as well as measurement period adjustments recorded within the permissible one year measurement period, is summarized in the table below (in millions):
| Preliminary | Measurement Period | Adjusted Preliminary | |||||||||||||||||||||
| Allocation | Adjustments (2) | Allocation | |||||||||||||||||||||
| Assets acquired (excluding cash): | |||||||||||||||||||||||
| Trade accounts receivable | $ | 9 | $ | — | $ | 9 | |||||||||||||||||
| Inventories | 22 | — | 22 | ||||||||||||||||||||
| Prepaid expenses and other | 4 | — | 4 | ||||||||||||||||||||
| Property, plant and equipment | 2 | — | 2 | ||||||||||||||||||||
| Goodwill | 426 | (5) | 421 | (1) | |||||||||||||||||||
| Other intangible assets | 197 | 4 | 201 | (1) | |||||||||||||||||||
| Other non-current assets | 5 | — | 5 | ||||||||||||||||||||
| Total assets acquired (excluding cash) | 665 | (1) | 664 | ||||||||||||||||||||
| Liabilities assumed: | |||||||||||||||||||||||
| Accounts payable | 1 | — | 1 | ||||||||||||||||||||
| Accrued and other current liabilities | 13 | — | 13 | ||||||||||||||||||||
| Other non-current liabilities | 4 | — | 4 | ||||||||||||||||||||
| Total liabilities assumed | 18 | — | 18 | ||||||||||||||||||||
| Net assets acquired | $ | 647 | $ | (1) | $ | 646 | |||||||||||||||||
(1)Of the approximately $421 million of goodwill recognized for the acquisition, the Company expects that approximately $406 million of goodwill will be deductible for tax purposes. Of the approximately $201 million of other intangible assets recognized for the acquisition, the Company expects that approximately $191 million will be deductible for tax purposes. The goodwill and intangible assets are expected to be deductible over 15 years.
(2)Measurement period adjustments primarily related to the adjustments in the fair values of the acquired other intangible assets from the third-party valuation. The offset to the measurement period adjustments was to goodwill.
CPI's Electron Device Business – On June 6, 2024, the Company acquired all the outstanding stock of the Electron Device Business of Communications & Power Industries (“CPI's Electron Device Business”) for approximately $1,386 million in cash, which includes a $1 million working capital settlement paid in the first quarter of fiscal 2025. The acquisition was financed through existing cash on hand. CPI’s Electron Device Business is a leading global manufacturer of electronic components and subsystems primarily serving the aerospace and defense market. Its products are highly engineered, proprietary components with significant aftermarket content and a strong presence across major aerospace and defense platforms. The operating results of CPI’s Electron Device Business are included within TransDigm's Power & Control segment.
As of December 28, 2024, the measurement period (not to exceed one year) is open; therefore, the assets acquired and liabilities assumed related to the acquisition of CPI's Electron Device Business are subject to adjustment until the end of the respective measurement period, including those related to deferred taxes and income taxes.
The Company accounted for the acquisition of CPI's Electron Device Business using the acquisition method of accounting and a third-party valuation appraisal 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 was allocated to identifiable assets and liabilities based upon the respective fair value at the date of acquisition. The Company utilized both the cost and market approaches to value property, plant and equipment, which consider external transactions and other comparable transactions, estimated replacement and reproduction costs, and estimated useful lives and consideration for physical, functional and economic obsolescence. The fair values of acquired intangibles are determined based on an income approach, using estimates and assumptions that are deemed reasonable by the Company. Certain assumptions include the discount rates and other 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 thirteen week period ended December 30, 2023 are not material and, accordingly, are not provided.
The allocation of the estimated fair value of assets acquired and liabilities assumed in the acquisition of CPI's Electron Device Business as of the June 6, 2024 acquisition date, as well as measurement period adjustments recorded within the permissible one year measurement period, is summarized in the table below (in millions):
| Preliminary | Measurement Period | Adjusted Preliminary | |||||||||||||||||||||
| Allocation | Adjustments (2) | Allocation | |||||||||||||||||||||
| Assets acquired (excluding cash): | |||||||||||||||||||||||
| Trade accounts receivable | $ | 40 | $ | — | $ | 40 | |||||||||||||||||
| Inventories | 81 | (1) | 80 | ||||||||||||||||||||
| Prepaid expenses and other | 64 | — | 64 | ||||||||||||||||||||
| Property, plant and equipment | 137 | 32 | 169 | ||||||||||||||||||||
| Goodwill | 844 | (96) | 748 | (1) | |||||||||||||||||||
| Other intangible assets | 368 | 141 | 509 | (1) | |||||||||||||||||||
| Other non-current assets | 15 | (14) | 1 | ||||||||||||||||||||
| Total assets acquired (excluding cash) | 1,549 | 62 | 1,611 | ||||||||||||||||||||
| Liabilities assumed: | |||||||||||||||||||||||
| Accounts payable | 18 | (1) | 17 | ||||||||||||||||||||
| Accrued and other current liabilities | 45 | 17 | 62 | ||||||||||||||||||||
| Deferred income taxes | 89 | 55 | 144 | ||||||||||||||||||||
| Other non-current liabilities | 12 | (10) | 2 | ||||||||||||||||||||
| Total liabilities assumed | 164 | 61 | 225 | ||||||||||||||||||||
| Net assets acquired | $ | 1,385 | $ | 1 | $ | 1,386 |
(1)None of the approximately $748 million of goodwill and $509 million of other intangible assets recognized for the acquisition is expected to be deductible for tax purposes.
(2)Measurement period adjustments primarily related to the adjustments in the fair values of the acquired property, plant and equipment and other intangible assets from the third-party valuation and related impact on deferred income taxes. The offset to the measurement period adjustments was to goodwill.
SEI Industries LTD – On May 21, 2024, the Company acquired all the outstanding stock of SEI Industries LTD (“SEI”) for approximately $171 million in cash, which included a working capital settlement of $1 million paid in the first quarter of fiscal 2025. The acquisition was financed through existing cash on hand. SEI, located in Delta, British Columbia, Canada, is a leading provider of highly engineered products for aerial firefighting and other liquid transportation solutions, such as remote refueling, for both the commercial and defense aerospace end markets. The products are primarily proprietary with significant aftermarket content. SEI's operating results are presented within TransDigm's Airframe segment.
As of December 28, 2024, the measurement period (not to exceed one year) is open; therefore, the assets acquired and liabilities assumed related to the acquisition of SEI are subject to adjustment until the end of the respective measurement period.
The Company accounted for the SEI acquisition using the acquisition method of accounting and a third-party valuation appraisal 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 was allocated to identifiable assets and liabilities based upon the respective fair value at the date of acquisition. The fair values of acquired intangibles are determined based on an income approach, using estimates and assumptions that are deemed reasonable by the Company. Certain assumptions include the discount rates and other assumptions that form the basis of the forecasted results of the acquired business including revenue, 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 thirteen week period ended December 30, 2023 are not material and, accordingly, are not provided.
The allocation of the estimated fair value of assets acquired and liabilities assumed in the SEI acquisition as of the May 21, 2024 acquisition date, as well as measurement period adjustments recorded within the permissible one year measurement period, is summarized in the table below (in millions):
| Preliminary | Measurement Period | Adjusted Preliminary | |||||||||||||||||||||
| Allocation | Adjustments (2) | Allocation | |||||||||||||||||||||
| Assets acquired (excluding cash): | |||||||||||||||||||||||
| Trade accounts receivable | $ | 2 | $ | 2 | $ | 4 | |||||||||||||||||
| Inventories | 11 | — | 11 | ||||||||||||||||||||
| Prepaid expenses and other | — | 1 | 1 | ||||||||||||||||||||
| Property, plant and equipment | 1 | — | 1 | ||||||||||||||||||||
| Goodwill | 109 | (6) | 103 | (1) | |||||||||||||||||||
| Other intangible assets | 68 | 7 | 75 | (1) | |||||||||||||||||||
| Total assets acquired (excluding cash) | 191 | 4 | 195 | ||||||||||||||||||||
| Liabilities assumed: | |||||||||||||||||||||||
| Accounts payable | 1 | 1 | 2 | ||||||||||||||||||||
| Accrued and other current liabilities | 1 | — | 1 | ||||||||||||||||||||
| Deferred income taxes | 19 | 2 | 21 | ||||||||||||||||||||
| Total liabilities assumed | 21 | 3 | 24 | ||||||||||||||||||||
| Net assets acquired | $ | 170 | $ | 1 | $ | 171 |
(1)None of the approximately $103 million of goodwill and $75 million of other intangible assets recognized for the acquisition is expected to be deductible for tax purposes.
(2)Measurement period adjustments primarily related to the adjustments in the fair values of the acquired other intangible assets from the third-party valuation. The offset to the measurement period adjustments was to goodwill.
FPT Industries LLC – On March 1, 2024, the Company acquired all the outstanding stock of FPT Industries LLC (“FPT”) for approximately $57 million in cash. The acquisition was financed through existing cash on hand. FPT, which has facilities in the United Kingdom and Alabama, designs and manufactures an extensive range of specialist fuel tanks and flotation systems for both the commercial and defense aerospace end markets. The products are primarily proprietary with significant aftermarket content. FPT's operating results are presented within TransDigm's Airframe segment.
The Company accounted for the FPT acquisition using the acquisition method of accounting and included the results of operations of the acquisition in its condensed consolidated financial statements from the effective date of the acquisition. As of December 28, 2024, the measurement period (not to exceed one year) is open; therefore, the assets acquired and liabilities assumed related to the acquisition of FPT are subject to adjustment until the end of the respective measurement period. The Company expects that $9 million of the approximately $34 million of goodwill recognized for the acquisition will be deductible for tax purposes over 15 years. The Company expects that none of the approximately $19 million of other intangible assets recognized for the acquisition will be deductible for tax purposes.
Pro forma net sales and results of operations for the acquisition, had it occurred at the beginning of the thirteen week period ended December 30, 2023 are not material and, accordingly, are not provided.
The fiscal 2024 acquisitions of Raptor Scientific, CPI's Electron Device Business, SEI and FPT completed by the Company strengthen and expand the Company’s position to design, produce and supply highly engineered proprietary aerospace components in niche markets with significant aftermarket content and provide opportunities to create value through the application of our three core value-driven operating strategy (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 As Defined and cash flows, as well as the future EBITDA As Defined 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.
Extant Aerospace Acquisitions – For the thirteen week period ended December 28, 2024, 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 $29 million. The Company accounted for the acquisitions using the acquisition method of accounting and included the results of operations of the acquisitions in its condensed consolidated financial statements from the effective date of each acquisition. The allocation of the purchase price remains preliminary and will likely change, though not materially, 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 $17 million of goodwill and $10 million of other intangible assets recognized for the acquisitions will be deductible for tax purposes over 15 years.
For the fiscal year ended ended September 30, 2024, the Company's Extant Aerospace subsidiary 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 $86 million. The allocation of the purchase price remains preliminary and will likely change, though not materially, 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 $39 million of goodwill and $22 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 product line acquisitions, had they occurred at the beginning of the thirteen week periods ended December 28, 2024 or December 30, 2023 are not material and, accordingly, are not provided.
3. 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 U.S. and friendly foreign governments, defense OEMs, system suppliers, and various other industrial customers.
The Company recognizes revenue from contracts with customers using the five step model prescribed in ASC 606. A substantial portion of the Company's revenue is recorded at a point in time basis. Revenue is recognized from the sale of products or services when obligations under the terms of the contract are satisfied and control of promised goods or services have transferred to the customer. Control is transferred when the customer has the ability to direct the use of and obtain benefits from the goods or services. Revenue is measured at the amount of consideration the Company expects to be paid in exchange for goods or services.
In a limited number of 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 twelve months. 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.
We have elected to adopt the practical expedient to not disclose the aggregate amount of transaction price allocated to performance obligations that are unsatisfied as of the end of the reporting period for performance obligations that are part of a contract with an original expected duration of one year or less.
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):
| December 28, 2024 | September 30, 2024 | ||||||||||
| Contract assets, current (1) | $ | 253 | $ | 270 | |||||||
| Contract assets, non-current (2) | 41 | 31 | |||||||||
| Total contract assets | 294 | 301 | |||||||||
| Contract liabilities, current (3) | 163 | 168 | |||||||||
| Contract liabilities, non-current (4) | 7 | 9 | |||||||||
| Total contract liabilities | 170 | 177 | |||||||||
| Net contract assets | $ | 124 | $ | 124 |
(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.
For the thirteen week period ended December 28, 2024, the revenue recognized that was included in the contract liabilities was approximately $47 million.
Refer to Note 12, “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 and supportable forward-looking 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 December 28, 2024 and September 30, 2024, the allowance for uncollectible accounts was $35 million and $32 million, respectively. The allowance for uncollectible accounts is assessed individually at each operating unit by the operating unit’s management team.
4. 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 | |||||||||||||||||||||||
| December 28, 2024 | December 30, 2023 | ||||||||||||||||||||||
| Numerator for earnings per share: | |||||||||||||||||||||||
| Net income | $ | 493 | $ | 382 | |||||||||||||||||||
| Less: Net income attributable to noncontrolling interests | — | — | |||||||||||||||||||||
| Net income attributable to TD Group | 493 | 382 | |||||||||||||||||||||
| Less: Dividends paid on participating securities | (49) | (101) | |||||||||||||||||||||
| Net income applicable to TD Group common stockholders—basic and diluted | $ | 444 | $ | 281 | |||||||||||||||||||
| Denominator for basic and diluted earnings per share under the two-class method: | |||||||||||||||||||||||
| Weighted-average common shares outstanding | 56.2 | 55.4 | |||||||||||||||||||||
| Vested options deemed participating securities | 2.1 | 2.3 | |||||||||||||||||||||
| Total shares for basic and diluted earnings per share | 58.3 | 57.7 | |||||||||||||||||||||
| Earnings per share—basic and diluted | $ | 7.62 | $ | 4.87 |
5. STOCK REPURCHASE PROGRAM
Occasionally at management's discretion, the Company repurchases its common stock in the open market, depending on market conditions, stock price and other factors. 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 (the “Credit Agreement”), and indentures governing the Company's existing Notes. There is no expiration date for this program.
During the first quarter of fiscal 2025, the Company repurchased 252,800 shares of common stock at an average price of 1,248.65 per share for a total amount of $316 million. The repurchased shares of common stock are classified as treasury stock in the statement of changes in stockholders' deficit. As of December 28, 2024, $972 million remains available for repurchase under the $2,200 million stock repurchase program.
6. 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):
| December 28, 2024 | September 30, 2024 | ||||||||||
| Raw materials and purchased component parts | $ | 1,387 | $ | 1,314 | |||||||
| Work-in-progress | 500 | 508 | |||||||||
| Finished goods | 282 | 290 | |||||||||
| Total | 2,169 | 2,112 | |||||||||
| Reserves for excess and obsolete inventory | (239) | (236) | |||||||||
| Inventories—Net | $ | 1,930 | $ | 1,876 |
7. INTANGIBLE ASSETS
Other intangible assets–net in the condensed consolidated balance sheets consist of the following (in millions):
| December 28, 2024 | September 30, 2024 | ||||||||||||||||||||||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Net | Gross Carrying Amount | Accumulated Amortization | Net | ||||||||||||||||||||||||||||||
| Trademarks and trade names | $ | 1,121 | $ | — | $ | 1,121 | $ | 1,165 | $ | — | $ | 1,165 | |||||||||||||||||||||||
| Technology | 2,500 | 1,024 | 1,476 | 2,510 | 1,003 | 1,507 | |||||||||||||||||||||||||||||
| Order backlog | 60 | 14 | 46 | 61 | 13 | 48 | |||||||||||||||||||||||||||||
| Customer relationships | 896 | 184 | 712 | 895 | 175 | 720 | |||||||||||||||||||||||||||||
| Other | 11 | 6 | 5 | 12 | 6 | 6 | |||||||||||||||||||||||||||||
| Total | $ | 4,588 | $ | 1,228 | $ | 3,360 | $ | 4,643 | $ | 1,197 | $ | 3,446 |
The aggregate amortization expense on identifiable intangible assets is approximately $50 million and $35 million for the thirteen week periods ended December 28, 2024 and December 30, 2023, respectively.
Intangible assets acquired during the thirteen week period ended December 28, 2024 are summarized in the table below (in millions):
| Gross Amount | Amortization Period | ||||||||||
| Intangible assets not subject to amortization: | |||||||||||
| Goodwill | $ | 17 | |||||||||
| 17 | |||||||||||
| Intangible assets subject to amortization: | |||||||||||
| Technology | 8 | 10 years | |||||||||
| Customer relationships | 2 | 10 years | |||||||||
| 10 | |||||||||||
| Total | $ | 27 |
The following is a summary of changes in the carrying value of goodwill by segment from September 30, 2024 through December 28, 2024 (in millions):
| Power & Control | Airframe | Non-aviation | Total | ||||||||||||||||||||
| Balance at September 30, 2024 | $ | 5,020 | $ | 5,306 | $ | 93 | $ | 10,419 | |||||||||||||||
| Goodwill acquired during the period (Note 2) | 17 | — | — | 17 | |||||||||||||||||||
| Purchase price allocation adjustments (1) | 1 | (5) | — | (4) | |||||||||||||||||||
| Currency translation adjustments and other | (52) | (67) | (9) | (128) | |||||||||||||||||||
| Balance at December 28, 2024 | $ | 4,986 | $ | 5,234 | $ | 84 | $ | 10,304 |
(1)Related to the opening balance sheet adjustments recorded from the acquisition of Raptor Scientific completed during the fourth quarter of fiscal 2024 and CPI's Electron Device Business completed during the third quarter of fiscal 2024, within the allowable measurement period (not to exceed one year). Refer to Note 2, “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 have assessed the changes in events and circumstances through the first quarter of fiscal 2025 and concluded that no triggering events occurred that required an interim test.
8. DEBT
The Company’s debt consists of the following (in millions):
| December 28, 2024 | |||||||||||||||||||||||
| Gross Amount | Debt Issuance Costs | Original Issue Discount | Net Amount | ||||||||||||||||||||
| Short-term borrowings—trade receivable securitization facility | $ | 650 | $ | (1) | $ | — | $ | 649 | |||||||||||||||
| Term loans | $ | 8,702 | $ | (24) | $ | (33) | $ | 8,645 | |||||||||||||||
| 5.50% senior subordinated notes due 2027 (“5.50% 2027 Notes”) | 2,650 | (9) | — | 2,641 | |||||||||||||||||||
| 6.75% secured notes due 2028 (“2028 Secured Notes”) | 2,100 | (14) | (7) | 2,079 | |||||||||||||||||||
| 4.625% senior subordinated notes due 2029 (“4.625% 2029 Notes”) | 1,200 | (6) | — | 1,194 | |||||||||||||||||||
| 6.375% secured notes due 2029 (“2029 Secured Notes”) | 2,750 | (21) | (1) | 2,728 | |||||||||||||||||||
| 4.875% senior subordinated notes due 2029 (“4.875% 2029 Notes”) | 750 | (4) | — | 746 | |||||||||||||||||||
| 6.875% secured notes due 2030 (“2030 Secured Notes”) | 1,450 | (12) | — | 1,438 | |||||||||||||||||||
| 7.125% secured notes due 2031 (“2031 Secured Notes”) | 1,000 | (8) | (6) | 986 | |||||||||||||||||||
| 6.625% secured notes due 2032 (“2032 Secured Notes”) | 2,200 | (19) | — | 2,181 | |||||||||||||||||||
| 6.00% secured notes due 2033 (“2033 Secured Notes”) | 1,500 | (14) | — | 1,486 | |||||||||||||||||||
| Government refundable advances | 16 | — | — | 16 | |||||||||||||||||||
| Finance lease obligations | 260 | — | — | 260 | |||||||||||||||||||
| 24,578 | (131) | (47) | 24,400 | ||||||||||||||||||||
| Less: current portion | 99 | (1) | — | 98 | |||||||||||||||||||
| Long-term debt | $ | 24,479 | $ | (130) | $ | (47) | $ | 24,302 |
| September 30, 2024 | |||||||||||||||||||||||
| Gross Amount | Debt Issuance Costs | Original Issue Discount | Net Amount | ||||||||||||||||||||
| Short-term borrowings—trade receivable securitization facility | $ | 487 | $ | (1) | $ | — | $ | 486 | |||||||||||||||
| Term loans | $ | 8,702 | $ | (25) | $ | (35) | $ | 8,642 | |||||||||||||||
| 5.50% 2027 Notes | 2,650 | (9) | — | 2,641 | |||||||||||||||||||
| 2028 Secured Notes | 2,100 | (15) | (8) | 2,077 | |||||||||||||||||||
| 4.625% 2029 Notes | 1,200 | (6) | — | 1,194 | |||||||||||||||||||
| 2029 Secured Notes | 2,750 | (22) | (1) | 2,727 | |||||||||||||||||||
| 4.875% 2029 Notes | 750 | (4) | — | 746 | |||||||||||||||||||
| 2030 Secured Notes | 1,450 | (12) | — | 1,438 | |||||||||||||||||||
| 2031 Secured Notes | 1,000 | (9) | (7) | 984 | |||||||||||||||||||
| 2032 Secured Notes | 2,200 | (20) | — | 2,180 | |||||||||||||||||||
| 2033 Secured Notes | 1,500 | (14) | — | 1,486 | |||||||||||||||||||
| Government refundable advances | 17 | — | — | 17 | |||||||||||||||||||
| Finance lease obligations | 262 | — | — | 262 | |||||||||||||||||||
| 24,581 | (136) | (51) | 24,394 | ||||||||||||||||||||
| Less: current portion | 99 | (1) | — | 98 | |||||||||||||||||||
| Long-term debt | $ | 24,482 | $ | (135) | $ | (51) | $ | 24,296 |
Accrued interest, which is classified as a component of accrued and other current liabilities on the condensed consolidated balance sheets, was $386 million and $185 million as of December 28, 2024 and September 30, 2024, respectively.
Trade Receivable Securitization Facility – The Company’s trade receivable securitization facility (the “Securitization Facility”) effectively increases the Company’s borrowing capacity depending on the amount of the domestic operations’ trade accounts receivable. The Securitization Facility includes the right for the Company to exercise annual one year extensions as long as there have been no termination events as defined by the agreement. The Company uses the proceeds from the Securitization Facility as an alternative to other forms of debt, effectively reducing borrowing costs. The Securitization Facility is collateralized by substantially all of the Company’s domestic operations’ trade accounts receivable.
On July 12, 2024, the Company amended the Securitization Facility to, among other things, (i) increase the borrowing capacity from $450 million to $650 million; and (ii) extend the maturity date to July 11, 2025 at an interest rate of Term SOFR plus 1.45% compared to an interest rate of Term SOFR plus 1.60% that applied prior to the amendment. The Company drew the remaining $163 million available under the Securitization Facility in the first quarter of fiscal 2025. At December 28, 2024 and September 30, 2024, the applicable interest rate was 6.08% and 6.73%, respectively.
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 December 28, 2024 and September 30, 2024, the outstanding balance of these advances was $16 million and $17 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 $260 million and $262 million at December 28, 2024 and September 30, 2024, respectively. Refer to Note 14, “Leases,” for further disclosure of the Company's lease obligations.
9. 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 December 28, 2024 and December 30, 2023, the effective income tax rate was 20.4% and 21.7%, respectively. The Company’s lower effective income tax rate for the thirteen week period ended December 28, 2024 was primarily due to a less significant impact on the rate from the valuation allowance applicable to the Company's net interest deduction limitation carryforward. The Company’s effective income tax rate for the thirteen week period ended December 28, 2024 was slightly lower than the federal statutory tax rate of 21% primarily due to the discrete impact of excess tax benefits associated with share-based payments offset by an increase in the valuation allowance applicable to the Company’s net interest deduction limitation.
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 2018. The Company is currently under examination for its federal income taxes in Canada for fiscal years 2013 through 2019, in France for fiscal years 2020 through 2022, and in Germany for fiscal years 2017 through 2019. In addition, the Company is subject to state income tax examinations for fiscal years 2015 and later.
Unrecognized tax benefits at December 28, 2024 and September 30, 2024, the recognition of which would have an impact on the effective tax rate for each fiscal year, amounted to $13 million and $14 million, respectively. The Company classifies all income tax-related interest and penalties as income tax expense, which were not significant for the thirteen week periods ended December 28, 2024 and December 30, 2023. As of December 28, 2024 and September 30, 2024, the Company accrued $4 million for the potential payment of interest and penalties. Within the next twelve months, it is reasonably possible that unrecognized tax benefits could be reduced by approximately $2 million resulting primarily from the resolution of tax examinations. Any increase in the amount of unrecognized tax benefits within the next twelve months is not expected to be material.
The Organization for Economic Co-operation and Development (the “OECD”) has proposed a framework comprised of rules and models, collectively referred to as Pillar Two (“P2”), that are designed to ensure that certain multi-national enterprises pay a minimum tax rate of 15% on reported profits arising in each jurisdiction where they operate. Although the OECD provided a framework for applying the minimum tax, individual countries have and may continue to enact P2 rules that are different than the OECD framework. While we continue to monitor P2 developments, we do not anticipate that P2 will have a material impact on our financial position in either the near nor the long-term.
10. 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):
| December 28, 2024 | September 30, 2024 | ||||||||||||||||||||||||||||
| Level | Carrying Amount | Fair Value | Carrying Amount | Fair Value | |||||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||||||||
| Cash and cash equivalents | 1 | $ | 2,459 | $ | 2,459 | $ | 6,261 | $ | 6,261 | ||||||||||||||||||||
| Interest rate swap agreements (1) | 2 | 39 | 39 | 34 | 34 | ||||||||||||||||||||||||
| Interest rate cap agreements (1) | 2 | 20 | 20 | 20 | 20 | ||||||||||||||||||||||||
| Foreign currency forward exchange contracts and other (1) | 2 | — | — | 3 | 3 | ||||||||||||||||||||||||
| Interest rate collar agreements (2) | 2 | 26 | 26 | 3 | 3 | ||||||||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||||||||
| Interest rate swap agreements (3) | 2 | 2 | 2 | 1 | 1 | ||||||||||||||||||||||||
| Interest rate cap agreements (3) | 2 | 1 | 1 | 1 | 1 | ||||||||||||||||||||||||
| Foreign currency forward exchange contracts (3) | 2 | 4 | 4 | — | — | ||||||||||||||||||||||||
| Interest rate collar agreements (4) | 2 | — | — | 8 | 8 | ||||||||||||||||||||||||
| Short-term borrowings - trade receivable securitization facility (5) | 2 | 649 | 649 | 486 | 486 | ||||||||||||||||||||||||
| Long-term debt, including current portion: | |||||||||||||||||||||||||||||
| Term loans (5) | 2 | 8,645 | 8,729 | 8,642 | 8,694 | ||||||||||||||||||||||||
| 5.50% 2027 Notes (5) | 1 | 2,641 | 2,603 | 2,641 | 2,637 | ||||||||||||||||||||||||
| 2028 Secured Notes (5) | 1 | 2,079 | 2,116 | 2,077 | 2,160 | ||||||||||||||||||||||||
| 4.625% 2029 Notes (5) | 1 | 1,194 | 1,122 | 1,194 | 1,160 | ||||||||||||||||||||||||
| 2029 Secured Notes (5) | 1 | 2,728 | 2,757 | 2,727 | 2,836 | ||||||||||||||||||||||||
| 4.875% 2029 Notes (5) | 1 | 746 | 707 | 746 | 729 | ||||||||||||||||||||||||
| 2030 Secured Notes (5) | 1 | 1,438 | 1,472 | 1,438 | 1,519 | ||||||||||||||||||||||||
| 2031 Secured Notes (5) | 1 | 986 | 1,024 | 984 | 1,058 | ||||||||||||||||||||||||
| 2032 Secured Notes (5) | 1 | 2,181 | 2,219 | 2,180 | 2,291 | ||||||||||||||||||||||||
| 2033 Secured Notes (5) | 1 | 1,486 | 1,470 | 1,486 | 1,521 | ||||||||||||||||||||||||
| Government refundable advances | 2 | 16 | 16 | 17 | 17 | ||||||||||||||||||||||||
| Finance lease obligations | 2 | 260 | 260 | 262 | 262 |
(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 8, “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 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, trade accounts receivable-net and accounts payable approximated carrying value due to the short-term nature of these instruments at December 28, 2024 and September 30, 2024.
11. 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 settlement 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 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.
During the second quarter of fiscal 2023, 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 2.00%, and the counterparties will pay us if the three-month Term SOFR rate exceeds the ceiling rate of 3.50%. 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.
During the third quarter of fiscal 2024, we entered into forward starting interest rate collar agreements. 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 2.50%, and the counterparties will pay us if the three-month Term SOFR rate exceeds the ceiling rate of 4.50%. 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 as of December 28, 2024 (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: | |||||||||||||||||
| $500 | 3/31/2023 | 3/31/2025 | 6.25% (3.00% plus the 3.25% margin percentage) | |||||||||||||||||
| $1,500 | 3/31/2023 | 3/31/2025 | 6.35% (3.10% plus the 3.25% margin percentage) | |||||||||||||||||
| $700 | 3/31/2023 | 9/30/2025 | 4.55% (1.30% 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) | |||||||||||||||||
| $1,338 | 9/30/2025 | 9/30/2027 | Three-month Term SOFR rate of 2.50% (floor) and 4.50% (cap) | |||||||||||||||||
| $1,550 | 9/30/2026 | 9/30/2027 | Three-month Term SOFR rate of 2.50% (floor) and 4.50% (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):
| December 28, 2024 | September 30, 2024 | |||||||||||||||||||||||||
| Asset | Liability | Asset | Liability | |||||||||||||||||||||||
| Interest rate cap agreement | $ | 20 | $ | 1 | $ | 20 | $ | 1 | ||||||||||||||||||
| Interest rate collar agreements | 26 | — | 3 | 8 | ||||||||||||||||||||||
| Interest rate swap agreements | 39 | 2 | 34 | 1 | ||||||||||||||||||||||
| Net derivatives as classified in the condensed consolidated balance sheets (1) | $ | 85 | $ | 3 | $ | 57 | $ | 10 |
(1)Refer to Note 10, “Fair Value Measurements,” for the condensed consolidated balance sheets classification of the Company's interest rate swap, cap and collar agreements.
Based on the fair value amounts determined as of December 28, 2024, the estimated net amount of existing (gains) losses and caplet amortization expected to be reclassified into interest expense-net within the next twelve months is approximately $(28) 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 December 28, 2024, the Company has outstanding foreign currency forward exchange contracts to sell U.S. dollars with notional amounts of $91 million. The maximum duration of the Company’s foreign currency cash flow hedge contracts at December 28, 2024 is nine 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. As of December 28, 2024, the Company expects to record a net loss of approximately $4 million on foreign currency forward exchange contracts designated as cash flow hedges to net sales over the next twelve months.
12. SEGMENTS
The Company’s businesses are organized and managed in three reporting segments: Power & Control, Airframe and Non-aviation. Refer to Note 15, “Segments,” in Part IV, Item 15. Exhibits and Financial Statement Schedules, of our Annual Report on Form 10-K for the fiscal year ended September 30, 2024, filed on November 7, 2024, for further information on the composition of the Company's segments.
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 option or deferred compensation plans, foreign currency gains and losses, acquisition-integration costs, acquisition transaction-related expenses, and refinancing costs. Acquisition transaction and integration-related expenses and adjustments represent costs incurred to integrate acquired businesses into TD Group’s operations; facility relocation costs and other acquisition-related costs; transaction and valuation-related costs for acquisitions comprising deal fees, legal, financial and tax due diligence expenses; amortization expense of inventory step-up recorded in connection with the purchase accounting of acquired businesses.
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 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 | |||||||||||||||||||||||
| December 28, 2024 | December 30, 2023 | ||||||||||||||||||||||
| Net sales to external customers | |||||||||||||||||||||||
| Power & Control | |||||||||||||||||||||||
| Commercial and non-aerospace OEM | $ | 195 | $ | 179 | |||||||||||||||||||
| Commercial and non-aerospace aftermarket | 341 | 300 | |||||||||||||||||||||
| Defense | 491 | 411 | |||||||||||||||||||||
| Total Power & Control | 1,027 | 890 | |||||||||||||||||||||
| Airframe | |||||||||||||||||||||||
| Commercial and non-aerospace OEM | 278 | 294 | |||||||||||||||||||||
| Commercial and non-aerospace aftermarket | 333 | 302 | |||||||||||||||||||||
| Defense | 335 | 266 | |||||||||||||||||||||
| Total Airframe | 946 | 862 | |||||||||||||||||||||
| Total Non-aviation | 33 | 37 | |||||||||||||||||||||
| Net Sales | $ | 2,006 | $ | 1,789 |
The following table reconciles EBITDA As Defined by segment to consolidated income from operations before income taxes (in millions):
| Thirteen Week Periods Ended | |||||||||||||||||||||||
| December 28, 2024 | December 30, 2023 | ||||||||||||||||||||||
| EBITDA As Defined | |||||||||||||||||||||||
| Power & Control | $ | 585 | $ | 512 | |||||||||||||||||||
| Airframe | 516 | 431 | |||||||||||||||||||||
| Non-aviation | 12 | 14 | |||||||||||||||||||||
| Total segment EBITDA As Defined | 1,113 | 957 | |||||||||||||||||||||
| Less: Unallocated corporate EBITDA As Defined | 52 | 45 | |||||||||||||||||||||
| Total Company EBITDA As Defined | 1,061 | 912 | |||||||||||||||||||||
| Depreciation and amortization expense | 90 | 71 | |||||||||||||||||||||
| Interest expense-net | 378 | 300 | |||||||||||||||||||||
| Acquisition transaction and integration-related expenses | 13 | 2 | |||||||||||||||||||||
| Non-cash stock and deferred compensation expense | 25 | 51 | |||||||||||||||||||||
| Other, net | (64) | — | |||||||||||||||||||||
| Income from continuing operations before income taxes | $ | 619 | $ | 488 |
The following table presents total assets by segment (in millions):
| December 28, 2024 | September 30, 2024 | ||||||||||
| Total assets | |||||||||||
| Power & Control | $ | 9,172 | $ | 9,180 | |||||||
| Airframe | 9,905 | 10,045 | |||||||||
| Non-aviation | 186 | 193 | |||||||||
| Corporate | 2,252 | 6,168 | |||||||||
| $ | 21,515 | $ | 25,586 |
13. ACCUMULATED OTHER COMPREHENSIVE LOSS
The following table presents the total changes by component in accumulated other comprehensive loss (“AOCL”), net of taxes, for the thirteen week periods ended December 28, 2024 and December 30, 2023 (in millions):
| Unrealized gains (losses) on derivatives (1) | Pension and post-retirement benefit plans adjustment (2) | Foreign currency translation adjustment (3) | Total | ||||||||||||||||||||
| Balance at September 30, 2024 | $ | 19 | $ | 1 | $ | (62) | $ | (42) | |||||||||||||||
| Net current-period other comprehensive income (loss) (4) | 22 | — | (227) | (205) | |||||||||||||||||||
| Balance at December 28, 2024 | $ | 41 | $ | 1 | $ | (289) | $ | (247) | |||||||||||||||
| Balance at September 30, 2023 | $ | 143 | $ | 2 | $ | (243) | $ | (98) | |||||||||||||||
| Net current-period other comprehensive (loss) income (4) | (53) | — | 91 | 38 | |||||||||||||||||||
| Balance at December 30, 2023 | $ | 90 | $ | 2 | $ | (152) | $ | (60) |
(1)Represents unrealized gains (losses) on derivatives designated and qualifying as cash flow hedges, net of taxes, of $7 million and $(18) million for the thirteen week periods ended December 28, 2024 and December 30, 2023, 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 week periods ended December 28, 2024 and December 30, 2023.
(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 AOCL into earnings, specifically net sales and interest expense-net, for realized (losses) gains on derivatives designated and qualifying as cash flow hedges of less than $(1) million (net of taxes of less than $(1) million) and $1 million (net of taxes of less than $1 million), respectively, for the thirteen week period ended December 28, 2024 and $(1) million (net of taxes of less than $(1) million) and $28 million (net of taxes of $9 million), respectively, for the thirteen week period ended December 30, 2023.
14. 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 twelve 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 | |||||||||||||||||||||||||||||
| Classification | December 28, 2024 | December 30, 2023 | |||||||||||||||||||||||||||
| Operating lease cost | Cost of sales or selling and administrative expenses | $ | 6 | $ | 5 | ||||||||||||||||||||||||
| Finance lease cost: | |||||||||||||||||||||||||||||
| Amortization of leased assets | Cost of sales | 3 | 3 | ||||||||||||||||||||||||||
| Interest on lease liabilities | Interest expense-net | 5 | 2 | ||||||||||||||||||||||||||
| Total lease cost | $ | 14 | $ | 10 |
Supplemental cash flow information related to leases is as follows (in millions):
| Thirteen Week Periods Ended | ||||||||||||||
| December 28, 2024 | December 30, 2023 | |||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||||||||
| Operating cash outflows from operating leases | $ | 6 | $ | 5 | ||||||||||
| Operating cash outflows from finance leases | 4 | 3 | ||||||||||||
| Financing cash outflows from finance leases | 2 | 1 | ||||||||||||
| Right-of-use assets obtained in exchange for lease obligations: | ||||||||||||||
| Operating leases | $ | 1 | $ | 1 | ||||||||||
| Financing leases | 1 | 59 |
Supplemental balance sheet information related to leases is as follows (in millions):
| Classification | December 28, 2024 | September 30, 2024 | |||||||||||||||
| Operating Leases | |||||||||||||||||
| Operating lease right-of-use assets | Other non-current assets | $ | 56 | $ | 61 | ||||||||||||
| Current operating lease liabilities | Accrued and other current liabilities | 18 | 19 | ||||||||||||||
| Long-term operating lease liabilities | Other non-current liabilities | 40 | 43 | ||||||||||||||
| Total operating lease liabilities | $ | 58 | $ | 62 | |||||||||||||
| Finance Leases | |||||||||||||||||
| Finance lease right-of-use assets, net | Property, plant and equipment-net | $ | 248 | $ | 252 | ||||||||||||
| Current finance lease liabilities | Current portion of long-term debt | 6 | 6 | ||||||||||||||
| Long-term finance lease liabilities | Long-term debt | 254 | 256 | ||||||||||||||
| Total finance lease liabilities | $ | 260 | $ | 262 |
As of December 28, 2024, 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 | 20.7 years | ||||
| Weighted-average discount rate | |||||
| Operating leases | 6.0% | ||||
| Finance leases | 7.0% |
Maturities of lease liabilities at December 28, 2024 are as follows (in millions):
| Operating Leases | Finance Leases | ||||||||||
| 2025 | $ | 21 | $ | 19 | |||||||
| 2026 | 15 | 22 | |||||||||
| 2027 | 11 | 22 | |||||||||
| 2028 | 7 | 23 | |||||||||
| 2029 | 4 | 23 | |||||||||
| Thereafter | 11 | 423 | |||||||||
| Total future minimum lease payments | 69 | 532 | |||||||||
| Less: imputed interest | 11 | 272 | |||||||||
| Present value of lease liabilities reported | $ | 58 | $ | 260 |
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