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

1

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

2

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

3

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

4

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

5

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

6

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.

7

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.

8

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.

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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.

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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

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