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What changed in TransDigm Group's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of TransDigm Group's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+341 added−368 removedSource: 10-K (2023-11-09) vs 10-K (2022-11-10)

Top changes in TransDigm Group's 2023 10-K

341 paragraphs added · 368 removed · 255 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

41 edited+9 added−17 removed65 unchanged
Biggest changeMany of our U.S.-based operating units have specific programs or initiatives that provide career opportunities to veterans as they transition into the civilian workforce. Health and Safety Our commitment to manufacturing the safest, highest quality products is matched by our commitment to keeping our employees healthy and safe as they work to produce these products.
Biggest changeSupporting our veterans as they enter the civilian workforce is incredibly important to us given their valuable wealth of knowledge and skills. Many of our U.S.-based operating units have specific programs or initiatives that provide career opportunities to veterans as they transition into the civilian workforce.
Major product offerings include seat belts and safety restraints for ground transportation applications, mechanical/electro-mechanical actuators and controls for space applications, hydraulic/electromechanical actuators and fuel valves for land-based gas turbines, and refueling systems for heavy equipment used in mining, construction and other industries and turbine controls for the energy and oil and gas markets.
Major product offerings include seat belts and safety restraints for ground transportation applications, mechanical/electromechanical actuators and controls for space applications, hydraulic/electromechanical actuators and fuel valves for land-based gas turbines, and refueling systems for heavy equipment used in mining, construction and other industries and turbine controls for the energy and oil and gas markets.
We are committed to diversity at all levels of management and leadership, and our leadership team and Board of Directors are committed to improving diversity throughout the Company and fostering a more inclusive and open environment. Diversity and inclusion make us stronger as a business so we can effectively serve all our stakeholders.
We are committed to diversity at all levels of management and leadership, and our leadership team and Board of Directors are committed to improving diversity throughout the Company and fostering a more inclusive and open environment. Diversity, equity and inclusion make us stronger as a business so we can effectively serve all our stakeholders.
Major product offerings include mechanical/electro-mechanical actuators and controls, ignition systems and engine technology, specialized pumps and valves, power conditioning devices, specialized AC/DC electric motors and generators, batteries and chargers, databus and power controls, advanced sensor products, switches and relay panels, high performance hoists, winches and lifting devices, and cargo loading, handling and delivery systems.
Major product offerings include mechanical/electromechanical actuators and controls, ignition systems and engine technology, specialized pumps and valves, power conditioning devices, specialized AC/DC electric motors and generators, batteries and chargers, databus and power controls, advanced sensor products, switches and relay panels, high performance hoists, winches and lifting devices, and cargo loading, handling and delivery systems.
We also use a number of distributors to provide logistical support as well as serve as a primary customer contact with certain smaller accounts. Boeing Distribution Services, Inc., Satair A/S (a subsidiary of Airbus S.A.S.) and AAR Corp., among others, are our major distributors. Manufacturing and Engineering We maintain approximately 100 manufacturing facilities.
We also use a number of distributors to provide logistical support as well as serve as a primary customer contact with certain smaller accounts. Boeing Distribution Services, Inc. and Satair A/S (a subsidiary of Airbus S.A.S.) among others, are our major distributors. Manufacturing and Engineering We maintain approximately 100 manufacturing facilities.
We know that the tone is set from the top, and our commitment to diversity and inclusion must be reflected within our leadership team as well as our Board of Directors. TransDigm implemented unconscious bias training for our Board of Directors and management in fiscal 2022.
We know that the tone is set from the top, and our commitment to diversity, equity and inclusion must be reflected within our leadership team as well as our Board of Directors. Beginning in fiscal 2022, TransDigm implemented unconscious bias training for our Board of Directors and management.
Our commercial transport OEM shipments and revenues generally run ahead of Boeing and Airbus aircraft delivery schedules. As a result, and consistent with prior years, our fiscal 2023 shipments will be a function of, among other things, the estimated 2023 and 2024 commercial aircraft production rates.
Our commercial transport OEM shipments and revenues generally run ahead of Boeing and Airbus aircraft delivery schedules. As a result, and consistent with prior years, our fiscal 2024 shipments will be a function of, among other things, the estimated 2024 and 2025 commercial aircraft production rates.
COVID-19 restructuring costs represented actions primarily taken by the Company in fiscal 2021 and 2020 to reduce its workforce to align with customer demand, as well as incremental costs related to the pandemic that are not expected to recur once the pandemic has subsided and are clearly separable from normal operations (e.g., additional cleaning and disinfecting of facilities by contractors above and beyond normal requirements, personal protective equipment).
COVID-19 restructuring costs represented actions primarily taken by the Company in fiscal 2021 and 2020 only, to reduce its workforce to align with customer demand, as well as incremental costs related to the pandemic that were not expected to recur once the pandemic subsided and were clearly separable from normal operations (e.g., additional cleaning and disinfecting of facilities by contractors above and beyond normal requirements, personal protective equipment).
Our top ten customers for fiscal year 2022 accounted for approximately 41% of our net sales. Products supplied to many of our customers are used on multiple platforms. None of our customers individually accounted for greater than 10% of our net sales for fiscal year 2022.
Our top ten customers for fiscal year 2023 accounted for approximately 41% of our net sales. Products supplied to many of our customers are used on multiple platforms. None of our customers individually accounted for greater than 10% of our net sales for fiscal year 2023.
Although we believe in most cases that we could identify alternative suppliers, or alternative raw materials or component parts, the lengthy and expensive FAA and OEM certification processes associated with aerospace products could prevent efficient replacement of a supplier, raw material or component part.
Although we believe in most cases that we could identify alternative suppliers, or alternative raw materials or component parts, the lengthy and expensive aviation authority and OEM certification processes associated with aerospace products could prevent efficient replacement of a supplier, raw material or component part.
The Company is currently involved in the investigation and remediation of a number of sites under applicable laws. 6 Table of Contents For information regarding environmental accruals, refer to Note 15, “Commitments and Contingencies,” in the notes to the consolidated financial statements included herein.
The Company is currently involved in the investigation and remediation of a number of sites under applicable laws. For information regarding environmental accruals, refer to Note 15, “Commitments and Contingencies,” in the notes to the consolidated financial statements included herein.
We estimate that approximately 90% of our net sales for fiscal year 2022 were generated by proprietary products. Most of our products generate significant aftermarket revenue.
We estimate that approximately 90% of our net sales for fiscal year 2023 were generated by proprietary products. Most of our products generate significant aftermarket revenue.
Our major product offerings, substantially all of which are ultimately provided to end-users in the aerospace industry, include mechanical/electro-mechanical actuators and controls, ignition systems and engine technology, specialized pumps and valves, power conditioning devices, specialized AC/DC electric motors and generators, batteries and chargers, engineered latching and locking devices, engineered rods, engineered connectors and elastomer sealing solutions, databus and power controls, cockpit security components and systems, specialized and advanced cockpit displays, engineered audio, radio and antenna systems, specialized lavatory components, seat belts and safety restraints, engineered and customized interior surfaces and related components, advanced sensor products, switches and relay panels, thermal protection and insulation, lighting and control technology, parachutes, high performance hoists, winches and lifting devices, and cargo loading, handling and delivery systems.
Our major product offerings, substantially all of which are ultimately provided to end-users in the aerospace industry, include mechanical/electromechanical 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, cargo loading, handling and delivery systems and specialized flight, wind tunnel and jet engine testing services and equipment.
The demand for our commercial aftermarket parts and services depends on, among other things, the breadth of our installed OEM base, revenue passenger miles (“RPMs”), the size and age of the worldwide aircraft fleet, the percentage of the worldwide fleet that is in warranty, and airline profitability.
The demand for our commercial aftermarket parts and services depends on, among other things, the breadth of our installed OEM base, revenue passenger kilometers (“RPKs”), the size and age of the worldwide aircraft fleet, the percentage of the worldwide fleet that is in warranty, and airline profitability.
These procedures, together with other customer approved techniques for document, process and quality control, are used throughout our manufacturing facilities. 3 Table of Contents Customers We predominantly serve customers in the commercial, regional, business jet and general aviation aftermarket, which accounted for approximately 29% of our net sales for fiscal year 2022; the commercial aerospace OEM market, comprising large commercial transport manufacturers and regional and business jet manufacturers, which accounted for approximately 21% of our net sales for fiscal year 2022; and the defense market (which includes defense OEMs and aftermarket sales to the U.S. and friendly foreign governments), which accounted for approximately 43% of our net sales for fiscal year 2022.
These procedures, together with other customer approved techniques for document, process and quality control, are used throughout our manufacturing facilities. 3 Table of Contents Customers We predominantly serve customers in the commercial, regional, business jet and general aviation aftermarket, which accounted for approximately 32% of our net sales for fiscal year 2023; the commercial aerospace OEM market, comprising large commercial transport manufacturers and regional and business jet manufacturers, which accounted for approximately 22% of our net sales for fiscal year 2023; and the defense market (which includes defense OEMs and aftermarket sales to the U.S. and friendly foreign governments), which accounted for approximately 39% of our net sales for fiscal year 2023.
Commercial Aftermarket The key market factors in the commercial aftermarket include worldwide RPMs and the size and activity level of the worldwide fleet of aircraft and the percentage of the fleet that is in warranty.
Market Channels Commercial Aftermarket The key market factors in the commercial aftermarket include RPKs and the size and activity level of the worldwide fleet of aircraft and the percentage of the fleet that is in warranty.
The aggregate of engineering expense and research and development expense represents approximately 10% of our operating units’ aggregate costs, or approximately 5% of our consolidated net sales for fiscal year 2022. Our proprietary products, and particularly our new product initiatives, are designed by our engineers and are intended to serve the needs of the aircraft component industry.
The aggregate of engineering expense and research and development expense represents approximately 9% of our operating units’ aggregate costs, or approximately 4% of our consolidated net sales for fiscal year 2023. Our proprietary products, and particularly our new product initiatives, are designed by our engineers and are intended to serve the needs of the aircraft component industry.
We estimate that approximately 55% of our net sales in fiscal year 2022 were generated from the aftermarket, the vast majority of which come from the commercial and military aftermarkets.
We estimate that approximately 56% of our net sales in fiscal year 2023 were generated from the aftermarket, the vast majority of which come from the commercial and military aftermarkets.
Compliance with federal, state, local and foreign environmental laws during fiscal 2022 had no material impact on our capital expenditures or results of operations.
Compliance with federal, state, local and foreign environmental laws during fiscal 2023 had no material impact on our capital expenditures, results of operations or cash flows.
Major product offerings include engineered latching and locking devices, engineered rods, engineered connectors and elastomer sealing solutions, cockpit security components and systems, specialized and advanced cockpit displays, engineered audio, radio and antenna systems, specialized lavatory components, seat belts and safety restraints, engineered and customized interior surfaces and related components, thermal protection and insulation, lighting and control technology and parachutes.
Major product offerings include engineered latching and locking devices, engineered rods, engineered connectors and elastomer sealing solutions, cockpit security components and systems, specialized and advanced cockpit displays, engineered audio, radio and antenna systems, specialized lavatory components, seat belts and safety restraints, engineered and customized interior surfaces and related components, thermal protection and insulation, lighting and control technology, parachutes and specialized flight, wind tunnel and jet engine testing services and equipment.
Historically, these aftermarket revenues have produced a higher gross profit and have been more stable than net sales to original equipment manufacturers (“OEMs”). 1 Table of Contents Pre-pandemic, and as our business continues to recover from the COVID-19 pandemic, we believe we have achieved steady, long-term growth in sales and improvements in operating performance we believe that due to our competitive strengths and through execution of our value-driven operating strategy.
Historically, these aftermarket revenues have produced a higher gross profit and have been more stable than net sales to original equipment manufacturers (“OEMs”). 1 Table of Contents We believe we have achieved steady, long-term growth in sales and improvements in operating performance we believe that due to our competitive strengths and through execution of our value-driven operating strategy.
Our current initiatives include creating new products that are more environmentally friendly, such as radiation-free exciters, and creating new products that will help further improve commercial airlines’ efforts to keep passengers healthy and safe, such as touch-free aircraft lavatory suite products.
Our current initiatives include creating new products that are more environmentally friendly, creating new products that will help further improve commercial airlines’ efforts to keep passengers healthy and safe, such as touch-free aircraft lavatory suite products and air shields to better cabin air quality.
“Risk Factors.” Human Capital Resources As of September 30, 2022, we had approximately 14,400 full-time, part-time and temporary employees. Approximately 17% of our full-time and part-time employees are represented by labor unions. Collective bargaining agreements between us and these labor unions expire at various dates up to September 2026. Talent Development We consider our employees to be our greatest asset.
“Risk Factors.” Human Capital Resources As of September 30, 2023, we had approximately 15,500 full-time, part-time and temporary employees. Approximately 18% of our full-time and part-time employees are represented by labor unions. Collective bargaining agreements between us and these labor unions expire at various dates up to September 2027. Talent Development We consider our employees to be our greatest asset.
We began to see this expected trend in fiscal 2022, as defense sales represented 43% of net sales compared to 50% of net sales in fiscal 2021.
We began to see this expected trend in fiscal 2022 and this trend has continued in fiscal 2023, as defense sales represented 39% of net sales compared to 43% of net sales in fiscal 2022 and 50% of net sales in fiscal 2021.
Outside of the market disruption caused by COVID-19, there are many short-term factors (including customer inventory level adjustments, supply chain issues, unannounced changes in order patterns, strikes, facility shutdowns caused by fires, hurricanes, health crises or other incidents and mergers and acquisitions) that can cause short-term disruptions in our quarterly shipment patterns as compared to previous quarters and the same periods in prior years.
However, due to differences between the profitability of our products sold to OEM and aftermarket customers, variation in product mix can cause variation in gross profit. 5 Table of Contents Outside of the market disruptions caused by COVID-19, there are other factors (including customer inventory level adjustments, supply chain issues, unannounced changes in order patterns, strikes, facility shutdowns caused by fires, hurricanes, health crises or other incidents and mergers and acquisitions) that can cause short-term disruptions in our quarterly shipment patterns as compared to previous quarters and the same periods in prior years.
In fiscal years 2015 through 2019, defense market net sales ranged from 29% to 37% of total net sales. As the commercial aerospace industry continues to recover, we expect defense market net sales to account for a percentage of total net sales that is relatively in line with our historical levels prior to the COVID-19 pandemic.
As the commercial aerospace industry continues to recover, defense market net sales continue to trend to account for a percentage of total net sales that is relatively in line with our historical levels prior to the COVID-19 pandemic.
To support the advancement of our employees, we offer training and development programs encouraging advancement from within and continue to fill our team with strong and experienced management talent. We leverage both formal and informal programs to identify, foster, and retain top talent at both the corporate and operating unit level.
To support the advancement of our employees, we offer training and development programs encouraging advancement from within and continue to fill our team with strong and experienced management talent.
We have established TransDigm University, in partnership with the University of Southern California Marshall School of Business, a formal mentoring and education program with a curated curriculum and established leadership serving as mentors.
We leverage both formal and informal programs to identify, foster, and retain top talent at both the corporate and operating unit level. 6 Table of Contents We have established TransDigm University, in partnership with the University of Southern California Marshall School of Business, a formal mentoring and education program with a curated curriculum and established leadership serving as mentors.
The commercial OEM market is now showing signs of recovery with airlines returning to the commercial OEMs to place orders; however, the commercial OEM supply chain challenges impacting Boeing and Airbus are slowing the pace of new aircraft manufacturing. Both Boeing and Airbus have disclosed further planned OEM production rate increases for calendar 2023.
Commercial OEM Market The commercial OEM market recovery is progressing with airlines returning to the commercial OEMs to place orders; however, the continuation of commercial OEM supply chain challenges impacting manufacturers such as Boeing and Airbus are slowing the pace of new aircraft manufacturing.
Defense Our military business fluctuates from year-to-year, and is dependent, to a degree, on government budget constraints, the timing of orders, macro and micro dynamics with respect to the U.S. Department of Defense (“DOD”) procurement policy and the extent of global conflicts.
We strive to create new products that ensure the safety of our customer’s endeavors on the land, sea and space. Defense Our military business fluctuates from year-to-year, and is dependent, to a degree, on government budget constraints, the timing of orders, macro and micro dynamics with respect to the U.S.
Also, delays in government spending outlays and government funding reprioritization, such as shifting funds to efforts to combat the impact of the pandemic or efforts to assist Ukraine in the Russia and Ukraine conflict, provides for further unpredictability in the military spending outlook.
Department of Defense (“DOD”) procurement policy and the extent of global conflicts, such as the existing conflicts between Russia and Ukraine and Israel and Hamas. Also, delays in government spending outlays and government funding reprioritization, such as shifting funds to efforts to assist friendly countries in conflicts, provides for further unpredictability in the military spending outlook.
Historically, our presence in both the commercial aerospace and military sectors of the aerospace industry has served to mitigate the impact on our business of any specific industry risk.
For a variety of reasons, the military spending outlook is very uncertain, though recent DOD budgets have trended upwards. Other Considerations Historically, our presence in both the commercial aerospace and military sectors of the aerospace industry has served to mitigate the impact on our business of any specific industry risk.
Non-aerospace net sales comprised approximately 7% of our net sales for fiscal year 2022. As a result of the COVID-19 pandemic and its adverse impact on air travel worldwide, the commercial aerospace industry has been significantly disrupted.
Non-aerospace net sales comprised approximately 7% of our net sales for fiscal year 2023. The commercial aerospace industry was significantly disrupted by the COVID-19 pandemic and its adverse impact on air travel worldwide. To a lesser extent, the defense aerospace market was adversely impacted by the COVID-19 pandemic, with this impact arising primarily from supply chain shortages.
Our approach to equity has a track record of success and we believe that the continued use of performance-based stock options will help retain the Company’s key employees and recruit the talented minds of the future. 7 Table of Contents Diversity At TransDigm, we value new ideas, different experiences and fresh perspectives, and we firmly believe this is enhanced by a more diverse workforce throughout all levels of our organization.
Our approach to equity has a track record of success and we believe that the continued use of performance-based stock options will help retain the Company’s key employees and recruit the talented minds of the future.
For a variety of reasons, the military spending outlook is very uncertain, though recent DOD budgets have trended upwards. Raw Materials We require the use of various raw materials in our manufacturing processes. We purchase a variety of manufactured component parts from various suppliers. We also purchase replacement parts, which are utilized in our various repair and overhaul operations.
Raw Materials We require the use of various raw materials in our manufacturing processes. We purchase a variety of manufactured component parts from various suppliers. We also purchase replacement parts, which are utilized in our various repair and overhaul operations. At times, we concentrate our orders among a few suppliers in order to strengthen our supplier relationships.
To a lesser extent, the defense aerospace market has been adversely impacted by the COVID-19 pandemic, with this impact arising primarily from supply chain shortages. This has led to the defense market comprising a greater percentage of our net sales in fiscal years 2022, 2021 and 2020 compared to pre-pandemic historical levels.
This led to the defense market comprising a greater percentage of our net sales in fiscal years 2023, 2022 and 2021 compared to pre-pandemic historical levels. In fiscal years 2015 through 2019, defense market net sales ranged from 29% to 37% of total net sales.
Our workforce includes talented people from many backgrounds. Discrimination is not tolerated at TransDigm. We are committed to high ethical standards and equal employment opportunities in all personnel actions without regard to race, color, religion, gender, national origin, citizenship status, age, marital status, gender identity or expression, sexual orientation, physical or mental disability, or veteran status.
We are committed to high ethical standards and equal employment opportunities in all personnel actions without regard to race, color, religion, gender, national origin, citizenship status, age, marital status, gender identity or expression, sexual orientation, physical or mental disability, or veteran status. 7 Table of Contents As a company whose products and values are closely tied to supporting the U.S. military and its allies, we are dedicated to offering employment opportunities to U.S. military veterans.
Because we strive to limit the volume of raw materials and component parts on hand, our business could be adversely affected if we are unable to obtain these raw materials and components from our suppliers in the quantities we require or on favorable terms.
Our business has been adversely affected, though not materially, and could continue to be adversely affected in fiscal 2024 by disruptions in our ability to timely obtain raw materials and components from our suppliers in the quantities we require or on favorable terms.
We expect personnel to report and communicate risks, potential hazards, incidents and near hits so that they can be investigated, and appropriate action can be taken to prevent future issues. To elevate the importance of this, we began to require our operating units to individually report on Environmental Health and Safety matters monthly to the executive team.
We also seek to empower and support our employees to prevent accidents and promote a safe environment. We expect personnel to report and communicate risks, potential hazards, incidents and near hits so that they can be investigated, and appropriate action can be taken to prevent future issues.
We are dedicated to building, designing, maintaining, and operating our facilities to effectively manage process safety and other hazards, and to minimize risks. We also seek to empower and support our employees to prevent accidents and promote a safe environment.
Health and Safety Our commitment to manufacturing the safest, highest quality products is matched by our commitment to keeping our employees healthy and safe as they work to produce these products. We are dedicated to building, designing, maintaining, and operating our facilities to effectively manage process safety and other hazards, and to minimize risks.
At times, we concentrate our orders among a few suppliers in order to strengthen our supplier relationships. Most of our raw materials and component parts are generally available from multiple suppliers at competitive prices.
Most of our raw materials and component parts are generally available from multiple suppliers at competitive prices. In fiscal 2023, the global supply chain continued to be disrupted by the pandemic, though the disruption has gradually improved.
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Market Channels The commercial aerospace industry, including the aftermarket and OEM markets, is impacted by the health of the global economy and geopolitical events around the world. The commercial aerospace industry, in particular, has been significantly disrupted, both domestically and internationally, by the COVID-19 pandemic.
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Throughout fiscal 2023, we continued to see a rebound in our commercial aerospace end markets from the COVID-19 pandemic and are encouraged by the progression of the commercial aerospace market recovery to date. Commercial air travel in domestic markets continues to lead the air traffic recovery with most domestic markets nearing, achieving or surpassing pre-pandemic air traffic levels.
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The commercial aerospace industry experienced a steep decline in RPMs beginning in the second half of our fiscal 2020 due to the COVID-19 pandemic’s impact on worldwide air travel demand. RPMs have significantly recovered from pandemic lows, but remained depressed in fiscal 2022 when compared to pre-pandemic levels.
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The pace of the international recovery has been slower than the domestic recovery and remains below pre-pandemic levels. However, RPKs, which is a key metric used to measure air traffic demand, continues to make positive strides as most countries have removed international traveler restrictions and there is pent-up demand for long-haul travel.
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Also, as a result of the pandemic and decreased demand in commercial air travel, the commercial OEM sector experienced reductions in commercial OEM production rates, including reductions at the two largest commercial OEMs, The Boeing Company (“Boeing”) and Airbus S.A.S. (“Airbus”). Throughout fiscal 2022, the commercial aerospace industry continued to recover towards pre-pandemic levels.
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Current industry consensus indicates that worldwide RPKs will recover and surpass the calendar year 2019 (i.e., pre-pandemic levels) in calendar year 2024. Therefore, we expect the Company's commercial aerospace end markets to continue progressing into fiscal 2024 barring any significant disruptions or setbacks.
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In fiscal 2022, commercial air travel demand trended upward, and both Boeing and Airbus increased OEM production rates. Boeing and Airbus are also expecting further improvement in OEM production rates during calendar 2023. These trends are favorable; however, uncertainty remains in the shape and pace of the commercial aerospace industry’s path to a full recovery.
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In fiscal 2023, we experienced improved sales in the commercial OEM sector primarily due to increased production by Boeing and Airbus. Both Boeing and Airbus have disclosed further planned OEM production rate increases for calendar 2024. Our businesses continually seek to provide innovative solutions for our customers and others in the commercial aerospace and defense industries.
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The defense aerospace market is dependent on government budget constraints, the timing of orders, political pressures and the extent of global conflicts. It is not necessarily affected by the same general economic conditions that affect the commercial aerospace industry.
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The disruption has resulted in delays in the availability of certain raw materials and increased raw material costs, among other costs such as labor.
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The defense aerospace market has been impacted by the COVID-19 pandemic to a lesser extent than the commercial aerospace market with this impact arising primarily from supply chain shortages. Additionally, within the defense market, the pace of U.S. government defense spending outlays and government funding reprioritization provides for uncertainty.
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Diversity At TransDigm, we value new ideas, different experiences and fresh perspectives, and we firmly believe this is enhanced by a more diverse workforce throughout all levels of our organization.
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However, due to differences between the profitability of our products sold to OEM and aftermarket customers, variation in product mix can cause variation in gross profit.
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Approximately 44% of the most recent MDP participant group is gender and racially diverse, which is almost double that of the program’s inaugural class in 2019. Total past and present MDP participants are approximately 39% gender or racially diverse, and we continuously work to enhance the diversity of the program.
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As a result of the COVID-19 pandemic and the stringent measures implemented to help control the pandemic, demand for air travel declined at a rapid pace and led to a significant reduction in flights.
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Our workforce includes talented people from many backgrounds. Discrimination is not tolerated at TransDigm.
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Although worldwide air traffic remains significantly lower than pre-pandemic levels, RPMs continued to steadily improve in fiscal 2022 and many aircraft parked by airlines have been returned to service. Commercial air travel in domestic markets continued to lead the air traffic recovery in fiscal 2022 with certain domestic markets nearing pre-pandemic air traffic levels.
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Our operating units report on environmental health and safety matters to the TransDigm executive management on a monthly basis.
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The pace of the international air traffic recovery has been slower than the domestic recovery, but international RPMs made positive strides in fiscal 2022 and are catching up to the domestic air traffic recovery. Current industry consensus indicates that worldwide RPMs will continue to recover in 2023.
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Overall, the timing and pace of the commercial aftermarket recovery remains uncertain and continues to evolve. 5 Table of Contents Commercial OEM Market The commercial OEM market remained depressed in fiscal 2022 primarily due to the continued impact of the COVID-19 pandemic, the supply chain disruptions throughout the commercial OEM supply chain and Boeing’s ongoing regulatory and quality challenges with the 737 MAX aircraft (particularly in China) and the 787 aircraft.
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We have been experiencing depressed net sales across the commercial OEM sector primarily due to the lower than pre-pandemic production rates at Boeing and Airbus, although production rates slowly began to improve in fiscal 2022. We expect demand for our commercial OEM products to continue to be reduced in the short-term.
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The pace of the recovery of the commercial OEM market remains uncertain and continues to evolve. Our businesses continually seek to provide solutions for our customers and others in the commercial aerospace industry.
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The COVID-19 pandemic has continued to disrupt the global supply chain to a certain extent and availability of raw materials, particularly electronic parts, which primarily are utilized to produce products in the defense market channel.
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Also, for the fiscal 2022 MDP class and moving forward, we expanded the MDP recruitment program to include nine additional colleges and universities, and we also focused on creating a more diverse class. Approximately 35% of total past and present MDP participants are gender and racially diverse, and we are working to further improve that percentage in the future.
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As a company whose products and values are closely tied to supporting the U.S. military and its allies, we are dedicated to offering employment opportunities to U.S. military veterans. Supporting our veterans as they enter the civilian workforce is incredibly important to us given their valuable wealth of knowledge and skills.
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Throughout the COVID-19 pandemic, we have been following guidance from the World Health Organization and the U.S. Center for Disease Control to protect employees and prevent the spread of the virus within all of our facilities globally.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

70 edited+16 added−26 removed82 unchanged
Biggest changeA number of risks inherent in international operations could have a material adverse effect on our results of operations, including war, sanctions, global health crises, currency fluctuations, difficulties in staffing and managing multinational operations, general economic and political uncertainties and potential for social unrest in countries in which we operate, limitations on our ability to enforce legal rights and remedies, restrictions on the repatriation of funds, change in trade policies, tariff regulation, difficulties in obtaining export and import licenses and the risk of government financed competition.
Biggest changeA number of risks inherent in international operations could have a material adverse effect on our results of operations, including war, sanctions, global health crises, currency fluctuations, difficulties in staffing and managing multinational operations, general economic and political uncertainties and potential for social unrest in countries in which we operate, limitations on our ability to enforce legal rights and remedies, restrictions on the repatriation of funds, change in trade policies, tariff regulation, difficulties in obtaining export and import licenses and the risk of government financed competition. 13 Table of Contents Issues with the global supply chain can also rise due to some of the aforementioned risks, as well as the availability and cost of raw materials to suppliers, merchandise quality or safety issues, shipping and transport availability and cost, increases in wage rates and taxes, transport security, inflation and other factors relating to the suppliers and the countries in which they are located or from which they import.
In recent years, such as in fiscal 2021 and the second half of fiscal 2020, we have experienced decreased sales across the commercial OEM sector driven primarily by the decrease in production by Boeing and Airbus related to reduced demand in the commercial aerospace industry from the COVID-19 pandemic, and airlines deferring or cancelling orders.
In recent years, such as in fiscal 2021 and the second half of fiscal 2020, we experienced decreased sales across the commercial OEM sector driven primarily by the decrease in production by Boeing and Airbus related to reduced demand in the commercial aerospace industry from the COVID-19 pandemic, and airlines deferring or cancelling orders.
If any such default occurs, the lenders under the senior secured credit facility and the holders of the senior secured and senior subordinated notes may elect to declare all outstanding borrowings, together with accrued interest and other amounts payable thereunder, to be immediately due and payable.
If any such default occurs, the lenders under the senior secured credit facility and the holders of the Notes may elect to declare all outstanding borrowings, together with accrued interest and other amounts payable thereunder, to be immediately due and payable.
Our senior secured credit facility and the Indentures contain a number of restrictive covenants that impose significant operating and financial restrictions on TD Group, TransDigm Inc. and its subsidiaries (in the case of the senior secured credit facility) and TransDigm Inc. and its subsidiaries (in the case of the Indentures) and may limit their ability to engage in acts that may be in our long-term best interests.
Our senior secured credit facility and the indentures governing the Notes contain a number of restrictive covenants that impose significant operating and financial restrictions on TD Group, TransDigm Inc. and its subsidiaries (in the case of the senior secured credit facility) and TransDigm Inc. and its subsidiaries (in the case of the indentures) and may limit their ability to engage in acts that may be in our long-term best interests.
We cannot assure that our business will generate sufficient cash flow from operations, or that future borrowings will be available to us under the senior secured credit facility or otherwise in amounts sufficient to enable us to service our indebtedness, including the amounts borrowed under the senior secured credit facility, amounts borrowed under our Securitization Facility and the Indentures, or to fund our other liquidity needs.
We cannot assure that our business will generate sufficient cash flow from operations, or that future borrowings will be available to us under the senior secured credit facility or otherwise in amounts sufficient to enable us to service our indebtedness, including the amounts borrowed under the senior secured credit facility, amounts borrowed under our Securitization Facility and the Notes, or to fund our other liquidity needs.
Failure to comply with such government contracting requirements could result in civil and criminal penalties that could have a material adverse effect on the Company’s results of operations. Our business may be adversely affected if we would lose our government or industry approvals or if more stringent government regulations are enacted or if industry oversight is increased.
Failure to comply with such government contracting requirements could result in civil and criminal penalties that could have a material adverse effect on the Company’s results of operations. 14 Table of Contents Our business may be adversely affected if we would lose our government or industry approvals or if more stringent government regulations are enacted or if industry oversight is increased.
Should insurance or other risk transfer mechanisms, such as our existing disaster recovery and business continuity plans, be insufficient to recover all costs, we could experience a material adverse effect on our business, results of operations, financial position and cash flows. 13 Table of Contents Operations and sales outside of the United States may be subject to additional risks.
Should insurance or other risk transfer mechanisms, such as our existing disaster recovery and business continuity plans, be insufficient to recover all costs, we could experience a material adverse effect on our business, results of operations, financial position and cash flows. Operations and sales outside of the United States may be subject to additional risks.
The senior secured credit facility and Indentures include covenants restricting, among other things, the ability of TD Group, TransDigm Inc. and its subsidiaries (in the case of the senior secured credit facility) and TransDigm Inc. and its subsidiaries (in the case of the Indentures) to: • incur or guarantee additional indebtedness or issue preferred stock; • pay distributions on, redeem or repurchase our capital stock or redeem or repurchase our subordinated debt; • make investments; • sell assets; 11 Table of Contents • enter into agreements that restrict distributions or other payments from our restricted subsidiaries to us; • incur or allow to exist liens; • consolidate, merge or transfer all or substantially all of our assets; • engage in transactions with affiliates; • create unrestricted subsidiaries; and • engage in certain business activities.
The senior secured credit facility and indentures governing the Notes include covenants restricting, among other things, the ability of TD Group, TransDigm Inc. and its subsidiaries (in the case of the senior secured credit facility) and TransDigm Inc. and its subsidiaries (in the case of the indentures) to: • incur or guarantee additional indebtedness or issue preferred stock; • pay distributions on, redeem or repurchase our capital stock or redeem or repurchase our subordinated debt; • make investments; • sell assets; • enter into agreements that restrict distributions or other payments from our restricted subsidiaries to us; • incur or allow to exist liens; • consolidate, merge or transfer all or substantially all of our assets; • engage in transactions with affiliates; • create unrestricted subsidiaries; and • engage in certain business activities.
Although our senior secured credit facility and the indentures governing the various senior secured and senior subordinated notes outstanding (the “Indentures”) contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of significant qualifications and exceptions, and the indebtedness incurred in compliance with these qualifications and exceptions could be substantial.
Although our senior secured credit facility and the indentures governing the various series of senior secured and senior subordinated notes outstanding (the “Notes”) contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of significant qualifications and exceptions, and the indebtedness incurred in compliance with these qualifications and exceptions could be substantial.
The terms of the senior secured credit facility and Indentures may restrict our current and future operations, particularly our ability to respond to changes or to take certain actions.
The terms of the senior secured credit facility and indentures governing the Notes may restrict our current and future operations, particularly our ability to respond to changes or to take certain actions.
In fiscal year 2022, no customer individually accounted for 10% or more of the Company’s net sales; however, our top ten customers for fiscal year 2022 accounted for approximately 41% of our net sales.
In fiscal year 2023, no customer individually accounted for 10% or more of the Company’s net sales; however, our top ten customers for fiscal year 2023 accounted for approximately 41% of our net sales.
The terms of existing or future debt instruments, the Securitization Facility, the Indentures and the senior secured credit facility may restrict us from adopting any of these alternatives.
The terms of existing or future debt instruments, the Securitization Facility, the indentures governing the Notes and the senior secured credit facility may restrict us from adopting any of these alternatives.
If we cannot service our debt, we will have to take actions such as reducing or delaying capital investments, selling assets, restructuring or refinancing our debt or seeking additional equity capital. To service our indebtedness, we will require a significant amount of cash.
If we cannot service our debt, we will have to take actions such as reducing or delaying capital investments, selling assets, restructuring or refinancing our debt or seeking additional equity capital. 10 Table of Contents To service our indebtedness, we will require a significant amount of cash.
RPMs and airline profitability have historically been correlated with the general economic environment, although national and international events also play a key role.
RPKs and airline profitability have historically been correlated with the general economic environment, although national and international events also play a key role.
Additional examples include future geopolitical or other worldwide events, such as war, terrorist acts, or additional worldwide infectious disease outbreaks. 17 Table of Contents In addition, global market and economic conditions have been challenging due to turbulence in the U.S. and international markets and economies and have prolonged declines in business and consumer spending.
Additional examples include future geopolitical or other worldwide events, such as war, terrorist acts, or additional worldwide infectious disease outbreaks. In addition, global market and economic conditions have been challenging due to turbulence in the U.S. and international markets and economies and have prolonged declines in business and consumer spending.
Regulatory and quality challenges, such as with Boeing’s 737 MAX aircraft and 787 aircraft, also has an adverse impact. Downturns adversely affect our results of operations, financial position and cash flows. 12 Table of Contents Our business is dependent on the availability of certain components and raw materials from suppliers.
Regulatory and quality challenges, such as with Boeing’s 737 MAX aircraft and 787 aircraft, also has had an adverse impact. Downturns adversely affect our results of operations, financial position and cash flows. Our business is dependent on the availability of certain components and raw materials from suppliers.
Government may seek to review our costs to determine whether our pricing is “fair and reasonable.” Our subsidiaries are periodically subject to pricing reviews and government buying agencies that purchase some of our subsidiaries’ products are periodically subject to audits by the DOD Office of Inspector General (“OIG”) with respect to prices paid for such products.
Government may seek to review our costs to determine whether our pricing is “fair and reasonable.” Our subsidiaries are periodically subject to pricing reviews and government buying agencies that purchase some of our subsidiaries’ products are periodically subject to audits by the DOD with respect to prices paid for such products.
During a prolonged period of significant market disruption in the aerospace and defense industry, such as the adverse impact that the COVID-19 pandemic has had and is expected to continue to have on the commercial aerospace market, and other macroeconomic factors such as when recessions occur, our business may be disproportionately impacted compared to peer companies that are more diversified in the industries they serve.
During a prolonged period of significant market disruption in the aerospace and defense industry, such as the adverse impact that the COVID-19 pandemic had on the commercial aerospace market, and other macroeconomic factors such as when recessions occur, our business may be disproportionately impacted compared to peer companies that are more diversified in the industries they serve.
A breach of any of these covenants could result in a default under the senior secured credit facility or the Indentures.
A breach of any of these covenants could result in a default under the senior secured credit facility or the indentures governing the Notes.
We are monitoring the ongoing conflict between Russia and Ukraine and the related export controls and financial and economic sanctions imposed on certain industry sectors, including the aviation sector, and parties in Russia by the U.S., the U.K., the European Union and others.
We are monitoring the ongoing conflicts between Israel and Hamas and between Russia and Ukraine and the related export controls and financial and economic sanctions imposed on certain industry sectors, including the aviation sector, and parties in Russia by the U.S., the U.K., the European Union and others.
A material reduction in purchasing by one of our larger customers for any reason, including but not limited to the COVID-19 pandemic, general economic or aerospace downturn, decreased production, strike or resourcing, could have a material adverse effect on results of operations, financial position and cash flows. We generally do not have guaranteed future sales of our products.
A material reduction in purchasing by one of our larger customers for any reason, including but not limited to general economic or aerospace downturns, decreased production, strike or resourcing, could have a material adverse effect on results of operations, financial position and cash flows. We generally do not have guaranteed future sales of our products.
Our ability to make payments on and to refinance our indebtedness, including the Indentures, amounts borrowed under the senior secured credit facility, amounts due under our trade receivable securitization facility (“Securitization Facility”), and to fund our operations, will depend on our ability to generate cash in the future, which, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.
Our ability to make payments on and to refinance our indebtedness, including the Notes, amounts borrowed under the senior secured credit facility, amounts due under our Securitization Facility, and to fund our operations, will depend on our ability to generate cash in the future, which, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.
For example, in addition to the current COVID-19 pandemic and the adverse impact it has had on the airline industry, past examples in which the airline industry has been negatively affected include downturns in the global economy, higher fuel prices, increased security concerns among airline customers following the events of September 11, 2001, the Severe Acute Respiratory Syndrome (“SARS”) epidemic, and conflicts abroad.
For example, in addition to the COVID-19 pandemic, past examples in which the airline industry has been negatively affected include downturns in the global economy, higher fuel prices, increased security concerns among airline customers following the events of September 11, 2001, the Severe Acute Respiratory Syndrome (“SARS”) epidemic, and conflicts abroad.
Government purchasing regulations, some of our costs, including most financing costs, amortization of intangible assets, portions of research and development costs, and certain marketing expenses may not be subject to reimbursement. 14 Table of Contents Furthermore, even where the price is not based on cost, the U.S.
Government purchasing regulations, some of our costs, including most financing costs, amortization of intangible assets, portions of research and development costs, and certain marketing expenses may not be subject to reimbursement under cost-reimbursement contracts. Furthermore, even where the price is not based on cost, the U.S.
The ultimate resolution of these matters through settlement, mediation, or court judgment could have a material impact on our financial condition, results of operations, and cash flows. 16 Table of Contents We could be adversely affected if one of our products cause an aircraft to crash.
The ultimate resolution of these matters through settlement, mediation, or court judgment could have a material impact on our financial condition, results of operations, and cash flows. We could be adversely affected if one of our products causes an aircraft to crash.
In addition, any failure to make payments of interest and principal on our outstanding indebtedness on a timely basis would likely result in a reduction of our credit rating, which could harm our ability to incur additional indebtedness on acceptable terms and would otherwise adversely affect the Indentures.
In addition, any failure to make payments of interest and principal on our outstanding indebtedness on a timely basis would likely result in a reduction of our credit rating, which could harm our ability to incur additional indebtedness on acceptable terms and could otherwise adversely affect our business, financial condition and results of operations.
Government, we could be asked to enter into an arrangement whereby our prices would be based on cost, the DOD could seek to pursue alternative sources of supply for our parts, or the U.S. Government could take other adverse actions with respect to our contracts.
As a result of these audits, we could be asked to enter into an arrangement whereby our prices would be based on cost, plus a nominal fee, the DOD could seek to pursue alternative sources of supply for our parts, or the U.S. Government could take other adverse actions with respect to our contracts.
Government to unilaterally: • suspend us from receiving new contracts based on alleged violations of procurement laws or regulations; • terminate existing contracts; • revoke required security clearances; • reduce the value of existing contracts; and • audit our contract-related costs and fees, including allocated indirect costs. Most of our U.S. Government contracts can be terminated by the U.S.
Government to unilaterally: • suspend or debar from receiving new contracts based on alleged violations of procurement laws or regulations; • terminate existing contracts; • revoke required security clearances; and • audit contract-related costs and fees, including allocated indirect costs. Most U.S. Government contracts can be terminated by the U.S. Government at its convenience without significant notice.
We are subject to certain unique business risks as a result of supplying equipment and services to the U.S. Government. Companies engaged in supplying defense-related equipment and services to U.S. Government agencies, whether through direct contracts with the U.S. Government or as a subcontractor to customers contracting with the U.S.
Companies engaged in supplying defense-related equipment and services to U.S. Government agencies, whether through direct contracts with the U.S. Government or as a subcontractor to customers contracting with the U.S. Government, are subject to business risks specific to the defense industry. These risks include the ability of the U.S.
Our stock price may be volatile, and an investment in our common stock could suffer a decline in value. There has been significant volatility in the market price and trading volume of equity securities, which is unrelated to the operating performance of the companies issuing the securities. These market fluctuations may negatively affect the market price of our common stock.
There has been significant volatility in the market price and trading volume of equity securities, which is unrelated to the operating performance of the companies issuing the securities. These market fluctuations may negatively affect the market price of our common stock.
Our indebtedness increases the possibility that we may be unable to generate cash sufficient to pay, when due, the principal of, interest on or other amounts due in respect of our indebtedness, including the Indentures.
Our indebtedness increases the possibility that we may be unable to generate cash sufficient to pay, when due, the principal of, interest on or other amounts due in respect of our indebtedness, including debt under the senior secured credit facility and the Notes.
Based on the results of such audits, the U.S. Government may adjust our contract-related costs and fees, including allocated indirect costs. In addition, under U.S.
Government may review our costs and performance, as well as our accounting and general business practices. Based on the results of such audits, the U.S. Government may adjust our contract-related costs and fees, including allocated indirect costs. In addition, under U.S.
Complying with these various laws is difficult and could cause us to incur substantial costs or require us to change our business practices in a manner adverse to our business.
It is possible that these laws may be interpreted and applied in a manner that is inconsistent with our data practices. Complying with these various laws is difficult and could cause us to incur substantial costs or require us to change our business practices in a manner adverse to our business.
Although the conflict has not resulted in a direct material adverse impact on TransDigm's business to date, the implications of the Russia and Ukraine conflict in the short-term and long-term are difficult to predict at this time.
Although the conflicts have not, nor are expected to, have a direct material adverse impact on TransDigm's business, the implications of the Israel and Hamas and Russia and Ukraine conflicts in the short-term and long-term are difficult to predict at this time.
Our commercial business is directly affected by, among other factors, changes in RPMs, the size and age of the worldwide aircraft fleet, the percentage of the fleet that is out-of-warranty and changes in the profitability of the commercial airline industry.
These items are, in turn, affected by general economic and geopolitical and other worldwide conditions. Our commercial business is directly affected by, among other factors, changes in RPKs, the size and age of the worldwide aircraft fleet, the percentage of the fleet that is out-of-warranty and changes in the profitability of the commercial airline industry.
Our net sales to foreign customers were approximately $1.9 billion for the fiscal year ended September 30, 2022.
Our net sales to foreign customers were approximately $2.3 billion for the fiscal year ended September 30, 2023.
Identifiable intangible assets, which primarily include trademarks, trade names, customer relationships, and technology, were approximately $2.8 billion at September 30, 2022, representing approximately 15% of our total assets. Goodwill recognized in accounting for the mergers and acquisitions was approximately $8.6 billion at September 30, 2022, representing approximately 48% of our total assets.
Identifiable intangible assets, which primarily include trademarks, trade names, customer relationships, and technology, were approximately $2.7 billion at September 30, 2023, representing approximately 14% of our total assets. Goodwill recognized in accounting for mergers and acquisitions was approximately $9.0 billion at September 30, 2023, representing approximately 45% of our total assets.
In addition, following an event of default under the senior secured credit facility, the lenders under that facility will have the right to proceed against the collateral granted to them to secure the debt, which includes our available cash, and they will also have the right to prevent us from making debt service payments on the senior subordinated notes.
In addition, subject to the terms of an intercreditor agreement, following an event of default under the senior secured credit facility or the indentures governing our various series of outstanding senior secured notes, the lenders thereunder or the holders thereof, as applicable, will have the right to proceed against the collateral granted to them to secure the debt, which includes our available cash, and they will also have the right to prevent us from making debt service payments on the senior subordinated notes.
We cannot be assured that we can continue to hire, train and retain qualified employees at current wage rates since we operate in a competitive labor market, and there are currently significant inflationary and other pressures on wages.
We may not be able to fill new positions or vacancies created by expansion or turnover or attract and retain qualified personnel. We cannot be assured that we can continue to hire, train and retain qualified employees at current wage rates since we operate in a competitive labor market, and there are currently significant inflationary and other pressures on wages.
In order to mitigate the interest rate risk of these variable rate borrowings, we entered into interest rate swap and cap agreements that cover a significant portion of the existing variable rate debt.
In order to mitigate the interest rate risk of these variable rate borrowings, we have in the past entered into interest rate swap, cap, and collar agreements that cover a significant portion of the existing variable rate debt and may do so in the future, subject to market and other conditions.
Government’s budget deficits, spending priorities (e.g., shifting funds to efforts to combat the impact of the pandemic or efforts to assist Ukraine in the Russia and Ukraine conflict), the cost of sustaining the U.S. military presence internationally and possible political pressure to reduce U.S.
Government’s budget deficits, spending priorities (e.g., shifting funds to assist Ukraine in the Russia and Ukraine conflict or to assist Israel), the cost of sustaining the U.S. military presence internationally and possible political pressure to reduce U.S. Government military spending, each of which could cause the DOD budget to remain unchanged or to decline.
Risks Related to our Operations Our sales to manufacturers of aircraft are cyclical, and a downturn in sales to these manufacturers may adversely affect us. Our sales to manufacturers of large commercial aircraft, such as Boeing, Airbus, and related OEM suppliers, as well as manufacturers of business jets have historically experienced periodic downturns.
Our sales to manufacturers of large commercial aircraft, such as Boeing, Airbus, and related OEM suppliers, as well as manufacturers of business jets have historically experienced periodic downturns.
Our business, therefore, could be adversely impacted by factors affecting our suppliers (such as the destruction of our suppliers’ facilities or their distribution infrastructure, a work stoppage or strike by our suppliers’ employees or the failure of our suppliers to provide materials of the requisite quality), or by increased costs of such raw materials or components if we were unable to pass along such price increases to our customers.
Our business, therefore, could be adversely impacted by factors affecting our suppliers (such as the destruction of our suppliers’ facilities or their distribution infrastructure, a work stoppage or strike by our suppliers’ employees or the failure of our suppliers to provide materials of the requisite quality), or by increased costs of such raw materials or components if we were unable to pass along such price increases to our customers. 12 Table of Contents We are currently experiencing supply shortages and inflationary pressures for certain components and raw materials that are important to our manufacturing process, particularly electronic parts, due to global supply chain constraints.
As of September 30, 2022, our total indebtedness, excluding approximately $31 million in letters of credit outstanding, was approximately $20 billion, which was 123.5% of our total book capitalization. In addition, we may be able to incur substantial additional indebtedness in the future.
As of September 30, 2023, our total indebtedness, excluding approximately $51 million in letters of credit outstanding, approximately $193 million of finance lease obligation liabilities and approximately $21 million of government refundable advances, was approximately $20 billion, which was approximately 111% of our total book capitalization. In addition, we may be able to incur substantial additional indebtedness in the future.
Notwithstanding special cash dividends, of which the most recent declaration by the Company’s Board of Directors in the fourth quarter of fiscal 2022 in the amount of $18.50 per outstanding share of common stock, we do not anticipate declaring regular quarterly or annual cash dividends on our common stock or any other equity security in the foreseeable future.
Notwithstanding special cash dividends, of which the most recent declaration by the Company’s Board of Directors was on November 9, 2023 in the amount of $35.00 per outstanding share of common stock, which is payable on November 27, 2023 to stockholders of record as of November 20, 2023, we do not anticipate declaring regular cash dividends, whether quarterly or annual, on our common stock or any other equity security in the foreseeable future.
Future acquisitions could result in margin dilution and further likely result in the incurrence of additional debt and contingent liabilities and an increase in interest and amortization expenses or periodic impairment charges related to goodwill and other intangible assets as well as significant charges relating to integration costs.
Future acquisitions could result in margin dilution and further likely result in the incurrence of additional debt and contingent liabilities and an increase in interest and amortization expenses or periodic impairment charges related to goodwill and other intangible assets as well as significant charges relating to integration costs. 9 Table of Contents Acquisitions involve risks that the businesses acquired will not perform in accordance with expectations and that business judgments concerning the value, strengths and weaknesses of businesses acquired will prove incorrect.
Factors such as increased energy costs, increased freight costs, the availability of certain raw materials for aircraft manufacturers, embargoes on flights from Russian airlines, sanctions on Russian companies, and the stability of Ukrainian customers could impact the global economy and aviation sector.
Factors such as increased energy costs, the availability of certain raw materials for aircraft manufacturers, embargoes on flights from certain airlines, sanctions on certain companies, and the stability of certain customers could impact the global economy and aviation sector. We are subject to certain unique business risks as a result of supplying equipment and services to the U.S. Government.
Sometimes we accept a fixed-price contract for a product that we have not yet produced, and this increases the risk of cost overruns or delays in the completion of the design and manufacturing of the product.
Sometimes we accept a fixed-price contract for a product that we have not yet produced, and this increases the risk of cost overruns or delays in the completion of the design and manufacturing of the product. Most of our contracts do not permit us to recover increases in raw material prices, taxes or labor costs. We intend to pursue acquisitions.
For information about our interest rate swap and cap agreements, refer to Note 21, “Derivatives and Hedging Instruments,” in the notes to the consolidated financial statements included herein. 10 Table of Contents In July 2017, the U.K.
As of September 30, 2023, approximately 90% of our total debt was fixed rate. For information about our interest rate swap, cap and collar agreements, refer to Note 21, “Derivatives and Hedging Instruments,” in the notes to the consolidated financial statements included herein.
Government at its convenience without significant notice. Termination for convenience provisions provide only for our recovery of costs incurred or committed, settlement expenses and profit on the work completed prior to termination. On contracts for which the price is based on cost, the U.S. Government may review our costs and performance, as well as our accounting and general business practices.
Termination for convenience provisions provide only for recovery of costs incurred or committed, settlement expenses and profit on the work completed prior to termination. Most of our U.S. Government contracts are based on a firm-fixed price. On contracts for which the price is based on the reimbursement of costs, the U.S.
If a crash were to be caused by one of our products, or if we were to otherwise fail to maintain a satisfactory record of safety and reliability, our ability to retain and attract customers may be materially adversely affected.
If a crash were to be caused by one of our products, or if we were to otherwise fail to maintain a satisfactory record of safety and reliability, our ability to retain and attract customers may be materially adversely affected. 16 Table of Contents Our ability to achieve our environmental, social and governance goals are subject to risks, many of which are outside of our control, and our reputation and brands could be harmed if we fail to meet such goals.
However, we may not be able to find suitable acquisition candidates to purchase or may be unable to acquire desired businesses or assets on economically acceptable terms or may be unable to receive necessary regulatory approvals or support. In addition, we may not be able to raise the capital necessary to fund future acquisitions.
We intend to pursue acquisitions that we believe will present opportunities consistent with our overall business strategy. However, we may not be able to find suitable acquisition candidates to purchase or may be unable to acquire desired businesses or assets on economically acceptable terms or may be unable to receive necessary regulatory approvals or support.
The Company's objective is to maintain an allocation of at least 75% fixed rate and 25% variable rate debt thereby limiting its exposure to changes in near-term interest rates. As of September 30, 2022, approximately 85% of our total debt was fixed rate.
In connection with our term loans, we entered into various interest rate swap, cap and collar agreements associated with Term SOFR. The Company's objective is to maintain an allocation of at least 75% fixed rate and 25% variable rate debt thereby limiting its exposure to changes in near-term interest rates.
The successful integration of new businesses, with the most significant recent acquisition being the DART Aerospace acquisition in the third quarter of fiscal 2022, depends on our ability to manage these new businesses and cut excess costs.
In addition, we may not be able to successfully integrate any business we acquire into our existing business. The successful integration of new businesses, with the most significant recent acquisition being the Calspan Corporation (“Calspan”) acquisition in the third quarter of fiscal 2023, depends on our ability to manage these new businesses and cut excess costs.
Government military spending, each of which could cause the DOD budget to remain unchanged or to decline. A significant decline in U.S. military expenditures could result in a reduction in the amount of our products sold to the various agencies and buying organizations of the U.S. Government.
A significant decline in U.S. military expenditures could result in a reduction in the amount of our products sold to the various agencies and buying organizations of the U.S. Government. Our stock price may be volatile, and an investment in our common stock could suffer a decline in value.
Further, the amount of insurance coverage that we maintain may be inadequate to cover claims or liabilities relating to a cybersecurity incident. Depending on the nature and magnitude of these events, they may have an adverse impact on our results of operations or financial condition.
Further, the amount of insurance coverage that we maintain may be inadequate to cover claims or liabilities relating to a cybersecurity incident.
In addition, the amount of income taxes paid by the Company is subject to ongoing audits by U.S. federal, state and local tax authorities and by non-U.S. tax authorities.
As of September 30, 2023, among the jurisdictions where the Company operates, only the U.K. has enacted legislation adopting the Pillar Two Rules, effective in fiscal 2025. In addition, the amount of income taxes paid by the Company is subject to ongoing audits by U.S. federal, state and local tax authorities and by non-U.S. tax authorities.
The interpretation and application of data protection laws in the U.S. and Europe, including but not limited to the General Data Protection Regulation (the “GDPR”) and the California Consumer Privacy Act (the “CCPA”), and elsewhere are uncertain and evolving. It is possible that these laws may be interpreted and applied in a manner that is inconsistent with our data practices.
The interpretation and application of data protection laws in the U.S. and globally, including but not limited to the General Data Protection Regulation (the “GDPR”), the California Consumer Privacy Act (the “CCPA”) and China’s Personal Information Protection Law (“PIPL”), are uncertain and evolving.
Failure to comply with these laws could subject the Company to civil and criminal penalties that could materially adversely affect the Company’s results of operations, financial position and cash flows.
Bribery Act and similar local anti-bribery laws, which generally prohibit companies and their employees, agents and contractors from making improper payments for the purpose of obtaining or retaining business. Failure to comply with these laws could subject the Company to civil and criminal penalties that could materially adversely affect the Company’s results of operations, financial position and cash flows.
Further, although we have implemented internal controls and procedures designed to ensure compliance with the GDPR, CCPA and other privacy-related laws, rules and regulations (collectively, the “Data Protection Laws”), there can be no assurance that our controls and procedures will enable us to be fully compliant with all Data Protection Laws. 15 Table of Contents Increased cybersecurity threats and more sophisticated and targeted computer crime have posed and could continue to pose a risk to our information technology systems and a disruption to or breach in the security of such systems, if material, could have adverse effects on our result of operations and financial condition.
Further, although we have implemented internal controls and procedures designed to ensure compliance with the GDPR, CCPA, PIPL and other privacy-related laws, rules and regulations (collectively, the “Data Protection Laws”), there can be no assurance that our controls and procedures will enable us to be fully compliant with all Data Protection Laws.
Risks Related to Legal and Regulatory Matters We could incur substantial costs as a result of violations of or liabilities under environmental laws and regulations.
Depending on the nature and magnitude of these events, they may have an adverse impact on our results of operations or financial condition. 15 Table of Contents Risks Related to Legal and Regulatory Matters We could incur substantial costs as a result of violations of or liabilities under environmental laws and regulations.
Because we may actively pursue a number of opportunities simultaneously, we may encounter unforeseen expenses, complications and delays, including regulatory complications or difficulties in employing sufficient staff and maintaining operational and management oversight. We regularly engage in discussions with respect to potential acquisition and investment opportunities. If we consummate an acquisition, our capitalization and results of operations may change significantly.
We regularly engage in discussions with respect to potential acquisition and investment opportunities. If we consummate an acquisition, our capitalization and results of operations may change significantly.
All of our debt under the senior secured credit facility, which includes $7.3 billion in term loans and a revolving credit facility of $810 million, bears interest at variable rates primarily based on the London interbank offered rate (“LIBOR”) for deposits of U.S. dollars. Accordingly, if LIBOR or other variable interest rates increase, our debt service expense will also increase.
All of our debt under the senior secured credit facility, which includes $6.2 billion in term loans and a revolving credit facility of $810 million, and the Securitization Facility bears interest at variable rates primarily based on the Term Secured Overnight Financing Rate (“Term SOFR”).
Therefore, shareholders should not rely on regular quarterly or annual dividend income from shares of our common stock and should not rely on special dividends with any regularity or at all.
Therefore, shareholders should not rely on regular quarterly or annual dividend income from shares of our common stock and should not rely on special dividends with any regularity or at all. 17 Table of Contents General Risks Our commercial business is sensitive to the number of flight hours that our customers’ planes spend aloft, the size and age of the worldwide aircraft fleet and our customers’ profitability.
As of September 30, 2022, we had approximately $779 million of unused commitments under our revolving credit facility.
As of September 30, 2023, we had approximately $759 million of unused commitments under our revolving credit facility and $100 million of additional borrowing capacity under our trade receivable securitization facility (the “Securitization Facility”).
Any future growth through acquisitions will be partially dependent upon the continued availability of suitable acquisition candidates at favorable prices and upon advantageous terms and conditions. We intend to pursue acquisitions that we believe will present opportunities consistent with our overall business strategy.
Our business may be adversely affected if we cannot consummate acquisitions on satisfactory terms, or if we cannot effectively integrate acquired operations. A significant portion of our growth has occurred through acquisitions. Any future growth through acquisitions will be partially dependent upon the continued availability of suitable acquisition candidates at favorable prices and upon advantageous terms and conditions.
Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations and financial condition. Risks Related to our Strategy We face risks related to the current COVID-19 pandemic and other health pandemics, epidemics and outbreaks .
Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations and financial condition. You should not interpret the disclosure of any risk factor to imply that the risk has not already materialized. Risks Related to our Strategy Our business focuses almost exclusively on the aerospace and defense industry.
Historically, there has been substantial competition for skilled personnel in the aerospace and defense industry, and we could be adversely affected by a shortage of skilled employees. We may not be able to fill new positions or vacancies created by expansion or turnover or attract and retain qualified personnel.
Because our products are complicated and highly engineered, we depend on an educated and trained workforce. Historically, there has been substantial competition for skilled personnel in the aerospace and defense industry, and we could be adversely affected by a shortage of skilled employees.
Such issues are often beyond our control and could adversely affect our operations and profitability.
Such issues are often beyond our control and could adversely affect our operations and profitability. Furthermore, the Company is subject to laws and regulations, such as the Foreign Corrupt Practices Act, U.K.
If the debt under the senior secured credit facility or the senior secured or subordinated notes were to be accelerated, we cannot assure that our assets would be sufficient to repay in full our debt.
If the debt under the senior secured credit facility or the Notes were to be accelerated, we cannot assure that our assets would be sufficient to repay in full our debt. 11 Table of Contents We are dependent on our executive officers, senior management team and highly trained employees and any work stoppage, difficulty hiring similar employees, or ineffective succession planning could adversely affect our business.
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The COVID-19 pandemic is continuing to cause an adverse impact on our employees, operations, supply chain and distribution system and the long-term impact to our business remains unknown.
Added
In addition, we may not be able to raise the capital necessary to fund future acquisitions. Because we may actively pursue a number of opportunities simultaneously, we may encounter unforeseen expenses, complications and delays, including regulatory complications or difficulties in employing sufficient staff and maintaining operational and management oversight.
Removed
This is due to the numerous uncertainties that have risen from the pandemic, including the likelihood of resurgences and the emergence and spread of variants, actions that may be taken by governmental authorities in response to the disease, the continued efficacy and public acceptance of vaccines, and unintended consequences of the foregoing.
Added
Accordingly, if Term SOFR or other variable interest rates increase, our debt service expense will also increase.
Removed
The commercial aerospace industry, in particular, has been significantly disrupted, both domestically and internationally, by the pandemic. The pandemic has resulted in governments around the world implementing stringent measures to help control the spread of the virus, including quarantines, “shelter in place” and “stay at home” orders, travel restrictions, business curtailments and other measures.
Added
Public health crises, such as the COVID-19 pandemic, and other health pandemics, epidemics and outbreaks could adversely affect our business . A significant public health crisis, such as the COVID-19 pandemic, could cause disruption to our operations. The COVID-19 pandemic had a negative effect on our business, results of operations, cash flows and financial condition.
Removed
As a result, demand for travel declined at a rapid pace beginning in the second half of fiscal 2020 and has remained depressed compared to pre-pandemic levels. The COVID-19 pandemic has also disrupted the global supply chain and availability of raw materials, particularly electronic parts.
Added
It affected our business due to the impact on the global economy, including its effects on the commercial aerospace industry, the supply chain and raw material availability, production efforts and customer demand for our products and services. Our ability to predict and respond to future changes resulting from potential health crises is uncertain.
Removed
The disruption in the supply chain has resulted in increased freight costs, raw material costs and labor costs from the ongoing inflationary environment. Our business has been adversely affected and could continue to be adversely affected by disruptions in our ability to timely obtain raw materials and components from our suppliers in the quantities we require or on favorable terms.
Added
Even after a public health crises subsides, there may be long-term effects on our business practices and customers in economies in which we operate that could severely disrupt our operations and could have a material adverse effect on our business, results of operations, cash flows and financial condition.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changePROPERTIES TransDigm’s principal owned properties (defined as greater than 20,000 square feet or related to a principal operation) as of September 30, 2022 are as follows: Location Reporting Segment Square Footage Brea, CA (1) Airframe 315,000 Stillington, United Kingdom Airframe 274,800 Montreal, Canada Airframe 271,700 Miesbach, Germany Power & Control 242,000 Liberty, SC (1) Power & Control 219,000 Waco, TX Power & Control 218,800 Liverpool, NY Power & Control 197,100 Ingolstadt, Germany Airframe 191,900 Kent, OH (1) Airframe 185,000 Bridport, United Kingdom Airframe 174,700 Lillington, NC Power & Control 162,400 Union Gap, WA (1) Airframe 144,400 Coachella, CA (1) Power & Control 140,000 Phoenix, AZ Airframe 138,700 Paks, Hungary Airframe 137,800 Los Angeles, CA Power & Control 131,000 Bohemia, NY (1) Power & Control 124,000 Buena Park, CA Power & Control 115,000 Llangeinor, United Kingdom Airframe 110,000 Bourges, France Power & Control 109,400 Westbury, NY Power & Control 106,800 Kent, WA (1) Airframe 100,000 Painesville, OH Power & Control 94,200 Valencia, CA (1) Airframe 88,400 Letchworth, United Kingdom Airframe 88,200 Placentia, CA Airframe 86,600 Addison, IL (1) Power & Control 83,300 Sarralbe, France Power & Control 77,900 Niort, France Power & Control 69,000 Prescott, AZ Airframe 66,200 Clearwater, FL Power & Control 64,200 South Euclid, OH Power & Control 60,000 Wichita, KS Power & Control 57,000 Branford, CT Airframe 52,000 Hawkesbury, Canada Airframe 50,000 Avenel, NJ Power & Control 48,500 Rancho Cucamonga, CA (1) Power & Control 47,000 Pennsauken, NJ Airframe 38,000 Ryde, United Kingdom Power & Control 33,200 Rancho Cucamonga, CA Airframe 32,700 Melaka, Malaysia Power & Control 24,800 Cheveley, United Kingdom Airframe 24,000 Broussard, LA Airframe 22,000 Deerfield Beach, FL Non-aviation 20,000 (1) Subject to mortgage liens under our senior secured credit facility, our 6.25% secured notes due March 15, 2026 (“2026 Secured Notes”) and our 8.00% secured notes due December 15, 2025 (“2025 Secured Notes”). 19 Table of Contents TransDigm’s principal leased properties (defined as greater than 20,000 square feet or related to a principal operation) as of September 30, 2022 are as follows: Location Reporting Segment Square Footage Everett, WA Airframe 339,300 East Camden, AR Power & Control 276,000 Whippany, NJ Power & Control 230,500 Nittambuwa, Sri Lanka Airframe 168,000 Santa Ana, CA Airframe 159,200 Dayton, NV Airframe 144,000 Tijuana, Mexico Airframe 141,000 Holmestrand, Norway Airframe 139,500 Anaheim, CA Airframe 138,900 Marlow, United Kingdom Airframe 116,100 Tijuana, Mexico Power & Control 112,800 Melbourne, FL Power & Control 107,000 Farnborough, United Kingdom Power & Control 103,400 Goldsboro, NC Power & Control 101,000 Fullerton, CA Airframe 100,000 Kunshan, China Airframe 99,500 Sylmar, CA Airframe 93,000 Elkhart, IN Non-aviation 91,500 Davis Junction, IL Airframe 84,500 Miesbach, Germany Power & Control 80,800 Kunshan, China Non-aviation 75,300 Camarillo, CA Power & Control 70,000 Gloucestor, United Kingdom Airframe 69,100 Matamoros, Mexico Power & Control 60,500 Chihuahua, Mexico Airframe 55,000 Portland, Oregon Airframe 50,000 Sugar Grove, IL Airframe 45,000 Zunyi, China Power & Control 43,000 Tempe, AZ Power & Control 40,200 Fort Collins, CO Airframe 40,000 Collegeville, PA Airframe 37,000 Chongqing, China Airframe 36,300 Rancho Santa Margarita, CA Airframe 35,200 Joensuu, Finland Airframe 32,300 Eloy, AZ Airframe 28,100 Ashford, United Kingdom Power & Control 28,000 Nogales, Mexico Airframe 27,000 Redhill, United Kingdom Airframe 22,700 Ravenna, OH Airframe 22,500 Pennsauken, NJ Airframe 20,500 Cleveland, OH Corporate 20,100 Our Cleveland, OH and Pasadena, CA corporate facilities house our principal executive offices, and we currently lease approximately 20,100 square feet and 5,300 square feet, respectively, for those purposes.
Biggest changePROPERTIES TransDigm’s principal owned properties (defined as greater than 20,000 square feet or related to a principal operation) as of September 30, 2023 are as follows: Location Reporting Segment Square Footage Cheektowaga, NY Airframe 656,200 Brea, CA (1) Airframe 315,000 Stillington, United Kingdom Airframe 274,800 Montreal, Canada Airframe 271,700 Miesbach, Germany Power & Control 242,000 Liberty, SC (1) Power & Control 219,000 Waco, TX Power & Control 218,800 Liverpool, NY Power & Control 197,100 Ingolstadt, Germany Airframe 191,900 Kent, OH (1) Airframe 185,000 Bridport, United Kingdom Airframe 174,700 Lillington, NC Power & Control 162,400 Union Gap, WA (1) Airframe 144,400 Coachella, CA (1) Power & Control 140,000 Phoenix, AZ Airframe 138,700 Paks, Hungary Airframe 137,800 Los Angeles, CA Power & Control 131,000 Bohemia NY (1) Power & Control 124,000 Buena Park, CA Power & Control 115,000 Llangeinor, United Kingdom Airframe 112,300 Bourges, France Power & Control 109,400 Westbury, NY Power & Control 106,800 Kent, WA (1) Airframe 100,000 Painesville, OH Power & Control 94,200 Newport News, VA Airframe 93,000 Valencia, CA (1) Airframe 88,400 Letchworth, United Kingdom Airframe 88,200 Placentia, CA Airframe 86,600 Addison, IL (1) Power & Control 83,300 Niagara Falls, NY Airframe 82,500 Sarralbe, France Power & Control 77,900 Niort, France Power & Control 69,000 Prescott, AZ Airframe 66,200 Clearwater, FL Power & Control 64,200 South Euclid, OH Power & Control 60,000 Wichita, KS Power & Control 57,000 Branford, CT Airframe 52,000 Ontario, Canada Airframe 50,000 Avenel, NJ Power & Control 48,500 Rancho Cucamonga, CA (1) Power & Control 47,000 Pennsauken, NJ Airframe 38,000 Ryde, United Kingdom Power & Control 33,200 Rancho Cucamonga, CA Airframe 32,700 Plymouth, MN Airframe 25,000 Melaka, Malaysia Power & Control 24,800 Cheveley, United Kingdom Airframe 24,000 Broussard, LA Airframe 22,000 Deerfield Beach, FL Non-aviation 20,000 (1) Subject to mortgage liens under our senior secured credit facility, our 6.25% secured notes due March 15, 2026 (“2026 Secured Notes”), our 6.75% secured notes due August 15, 2028 (“2028 Secured Notes”) and our 6.875% secured notes due December 15, 2030 (“2030 Secured Notes”). 19 Table of Contents TransDigm’s principal leased properties (defined as greater than 20,000 square feet or related to a principal operation) as of September 30, 2023 are as follows: Location Reporting Segment Square Footage Everett, WA Airframe 339,300 East Camden, AR Power & Control 276,000 Whippany, NJ Power & Control 230,500 Nittambuwa, Sri Lanka Airframe 168,000 Santa Ana, CA Airframe 159,200 Dayton, NV Airframe 144,000 Tijuana, Mexico Airframe 141,000 Holmestrand, Norway Airframe 139,500 Marlow, United Kingdom Airframe 116,100 Tijuana, Mexico Power & Control 112,800 Melbourne, FL Power & Control 107,000 Farnborough, United Kingdom Power & Control 103,400 Goldsboro, NC Power & Control 101,000 Fullerton, CA Airframe 100,000 Kunshan, China Airframe 99,500 Sylmar, CA Airframe 93,000 Elkhart, IN Non-aviation 91,500 Carson City, NV Airframe 90,100 Kunshan, China Non-aviation 86,100 Miesbach, Germany Power & Control 85,600 Davis Junction, IL Airframe 84,500 Camarillo, CA Power & Control 70,000 Matamoros, Mexico Power & Control 69,200 Gloucestor, United Kingdom Airframe 69,100 St.
Added
Paul, MN Airframe 66,600 Chihuahua, Mexico Airframe 55,000 Portland, OR Airframe 50,000 Zunyi, China Power & Control 45,600 Sugar Grove, IL Airframe 45,000 Tempe, AZ Power & Control 40,200 Anaheim, CA Airframe 39,000 Collegeville, PA Airframe 37,000 Chongqing, China Airframe 36,300 Rancho Santa Margarita, CA Airframe 35,200 Joensuu, Finland Airframe 32,300 Eloy, AZ Airframe 28,100 Ashford, United Kingdom Power & Control 28,000 Nogales, Mexico Airframe 27,000 Niagara Falls, NY Airframe 24,200 Redhill, United Kingdom Airframe 22,700 Ravenna, OH Airframe 22,500 Pennsauken, NJ Airframe 20,500 Our Cleveland, OH and Pasadena, CA corporate facilities house our principal executive offices, and we currently lease approximately 20,100 square feet and 5,300 square feet, respectively, for those purposes.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeITEM 3. LEGAL PROCEEDINGS The Company is involved in various claims and legal actions arising in the ordinary course of business. SEC regulations require us to disclose certain information about environmental proceedings when a governmental authority is a party to the proceedings if we reasonably believe that such proceedings may result in monetary sanctions above a stated threshold.
Biggest changeThe Securities and Exchange Commission (“SEC”) regulations require us to disclose certain information about environmental proceedings when a governmental authority is a party to the proceedings if we reasonably believe that such proceedings may result in monetary sanctions above a stated threshold.
Added
ITEM 3. LEGAL PROCEEDINGS The Company is involved in various claims and legal actions arising in the ordinary course of business.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeDividends In August 2022, TD Group’s Board of Directors declared a special cash dividend of $18.50 on each outstanding share of common stock and cash dividend equivalent payments on options granted under its equity compensation plans to non-directors. Directors received an $18.50 reduction in the strike price of their respective vested options in lieu of a cash payment.
Biggest changeDividends During fiscal 2022, TD Group’s Board of Directors (the “Board”) declared a special cash dividend of $18.50 (in August 2022) on each outstanding share of common stock and cash dividend equivalent payments on eligible vested options granted under its stock option plans.
An investment of $100 (with reinvestment of all dividends) is assumed to have been made in our common stock and in each of the indexes on September 30, 2017, and its relative performance is tracked through September 30, 2022. 21 Table of Contents The following performance graph and related information shall not be deemed “soliciting material” nor to be “filed” with the SEC, nor shall such information be incorporated by reference into any future filings under the Securities Act of 1933 or the Securities Exchange Act of 1934, each as amended, except to the extent we specifically incorporate it by reference into such filing.
An investment of $100 (with reinvestment of all dividends) is assumed to have been made in our common stock and in each of the indexes on September 30, 2018, and its relative performance is tracked through September 30, 2023. 21 Table of Contents The following performance graph and related information shall not be deemed “soliciting material” nor to be “filed” with the SEC, nor shall such information be incorporated by reference into any future filings under the Securities Act of 1933 or the Securities Exchange Act of 1934, each as amended, except to the extent we specifically incorporate it by reference into such filing.
The repurchased shares of common stock are classified as treasury stock in the statement of changes in stockholders' deficit. As of September 30, 2022, $1,288 million remains available for repurchase under the $2,200 million stock repurchase program.
The repurchased shares of common stock are classified as treasury stock in the statement of changes in stockholders' deficit. As of September 30, 2023, $1,288 million remains available for repurchase under the $2,200 million stock repurchase program.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN* Among TransDigm Group Inc., the S&P 500 Index and S&P Aerospace & Defense Select Index *$100 invested on 9/30/2017 in stock or index, including reinvestment of dividends. Copyright 2022 Standard & Poor’s, a division of S&P Global.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN* Among TransDigm Group Inc., the S&P 500 Index and S&P Aerospace & Defense Select Index *$100 invested on 9/30/2018 in stock or index, including reinvestment of dividends. Copyright 2023 Standard & Poor’s, a division of S&P Global.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Our common stock is traded on the New York Stock Exchange, or NYSE, under the ticker symbol “TDG.” Holders As of October 18, 2022, there were 36 stockholders of record of our common stock and approximately 251,000 beneficial stockholders, which includes an estimated number of stockholders who have their shares held in their accounts by banks and brokers.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Our common stock is traded on the New York Stock Exchange, or NYSE, under the ticker symbol “TDG.” Holders As of October 12, 2023, there were 34 stockholders of record of our common stock and approximately 434,000 beneficial stockholders, which includes an estimated number of stockholders who have their shares held in their accounts by banks and brokers.
There is no expiration date for this program. No repurchases were made under the program d uring the fourth quarter of fiscal 2022. During the second and third quarters of fiscal 2022, the Company repurchased 1,490,413 shares of common stock at an average price of $612.13 per share, for a total amount of $912 million.
There is no expiration date for this program. No repurchases were made under the program d uring fiscal 2023. During fiscal 2022, the Company repurchased 1,490,413 shares of common stock at an average price of $612.13 per share, for a total amount of $912 million.
All rights reserved. 9/30/2017 9/30/2018 9/30/2019 9/30/2020 9/30/2021 9/30/2022 TransDigm Group Inc. 100.00 145.63 215.50 207.98 273.40 236.22 S&P 500 Index 100.00 117.91 122.93 141.55 184.02 155.55 S&P Aerospace & Defense Select Index 100.00 126.38 137.35 113.48 156.92 121.51 Purchases of Equity Securities by the Issuer or Affiliated Purchaser On January 27, 2022, the Board of Directors of the Company 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 Credit Agreement and/or Indentures governing the Company's existing Notes.
All rights reserved. 9/30/2018 9/30/2019 9/30/2020 9/30/2021 9/30/2022 9/30/2023 TransDigm Group Inc. 100.00 147.98 142.82 187.74 162.21 260.59 S&P 500 Index 100.00 104.25 120.05 156.07 131.92 160.44 S&P Aerospace & Defense Select Index 100.00 108.68 89.79 124.17 96.14 118.54 Purchases of Equity Securities by the Issuer or Affiliated Purchaser On January 27, 2022, the Board of Directors of the Company 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.
Added
On November 9, 2023, the Company announced that TD Group's Board of Directors authorized and declared a special cash dividend of $35.00 on each outstanding share of common stock and cash dividend equivalent payments on eligible vested options outstanding under its stock option plans.
Added
The record date and payment date for the special dividend is November 20, 2023 and November 27, 2023, respectively. The total estimated cash payment, to be funded by existing cash on hand, related to the special dividend and dividend equivalent payments in the first quarter of fiscal 2024 is approximately $2,020 million.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeFactors such as increased energy costs, the availability of certain raw materials for aircraft manufacturers, embargoes on flights from Russian airlines, sanctions on Russian companies, and the stability of Ukrainian customers could impact the global economy and aviation sector. 24 Table of Contents Results of Operations The following table sets forth, for the periods indicated, certain operating data of the Company, including presentation of the amounts as a percentage of net sales (amounts in millions, except per share data): Fiscal Years Ended September 30, 2022 % of Net Sales 2021 % of Net Sales Net sales $ 5,429 100.0 % $ 4,798 100.0 % Cost of sales 2,330 42.9 % 2,285 47.6 % Selling and administrative expenses 748 13.8 % 685 14.3 % Amortization of intangible assets 136 2.5 % 137 2.9 % Income from operations 2,215 40.8 % 1,691 35.2 % Interest expense, net 1,076 19.8 % 1,059 22.1 % Refinancing costs 1 — % 37 0.8 % Other expense (income) 18 0.3 % (51) (1.1) % Gain on sale of businesses, net (7) (0.1) % (69) (1.4) % Income tax provision 261 4.8 % 34 0.7 % Income from continuing operations 866 16.0 % 681 14.2 % Less: Net income attributable to noncontrolling interests (1) — % (1) — % Income from continuing operations attributable to TD Group 865 15.9 % 680 14.2 % Income from discontinued operations, net of tax 1 — % — — % Net income attributable to TD Group $ 866 16.0 % $ 680 14.2 % Net income applicable to TD Group common stockholders $ 780 (1) 14.4 % $ 607 (1) 12.7 % Earnings per share: Earnings per share from continuing operations—basic and diluted $ 13.38 (2) $ 10.41 (2) Earnings per share from discontinued operations—basic and diluted 0.02 (2) — (2) Earnings per share $ 13.40 $ 10.41 Cash dividends declared per common share $ 18.50 $ — Weighted-average shares outstanding—basic and diluted 58.2 58.4 Other Data: EBITDA $ 2,456 (3) $ 2,027 (3) EBITDA As Defined $ 2,646 (3) 48.7 % $ 2,189 (3) 45.6 % (1) Net income applicable to TD Group common stockholders represents net income attributable to TD Group less special dividends paid on participating securities, including dividend equivalent payments of $86 million and $73 million for the fiscal years ended September 30, 2022 and 2021, respectively.
Biggest changeAlthough we believe in most cases that we could identify alternative suppliers, or alternative raw materials or component parts, the lengthy and expensive aviation authority and OEM certification processes associated with aerospace products could prevent efficient replacement of a supplier, raw material or component part. 24 Table of Contents Results of Operations The following table sets forth, for the periods indicated, certain operating data of the Company, including presentation of the amounts as a percentage of net sales (amounts in millions, except per share data): Fiscal Years Ended September 30, 2023 % of Net Sales 2022 % of Net Sales Net sales $ 6,585 100.0 % $ 5,429 100.0 % Cost of sales 2,743 41.7 % 2,330 42.9 % Selling and administrative expenses 780 11.8 % 748 13.8 % Amortization of intangible assets 139 2.1 % 136 2.5 % Income from operations 2,923 44.4 % 2,215 40.8 % Interest expense-net 1,164 17.7 % 1,076 19.8 % Refinancing costs 56 0.9 % 1 — % Other (income) expense (13) (0.2) % 18 0.3 % Gain on sale of businesses-net — — % (7) (0.1) % Income tax provision 417 6.3 % 261 4.8 % Income from continuing operations 1,299 19.7 % 866 16.0 % Less: Net income attributable to noncontrolling interests (1) — % (1) — % Income from continuing operations attributable to TD Group 1,298 19.7 % 865 15.9 % Income from discontinued operations, net of tax — — % 1 — % Net income attributable to TD Group $ 1,298 19.7 % $ 866 16.0 % Net income applicable to TD Group common stockholders $ 1,260 (1) 19.1 % $ 780 (1) 14.4 % Earnings per share attributable to TD Group common stockholders: Earnings per share from continuing operations—basic and diluted $ 22.03 (2) $ 13.38 (2) Earnings per share from discontinued operations—basic and diluted — (2) 0.02 (2) Earnings per share $ 22.03 $ 13.40 Cash dividends paid per common share $ — $ 18.50 Weighted-average shares outstanding—basic and diluted 57.2 58.2 Other Data: EBITDA $ 3,148 (3) $ 2,456 (3) EBITDA As Defined $ 3,395 (3) 51.6 % $ 2,646 (3) 48.7 % (1) Net income applicable to TD Group common stockholders represents net income attributable to TD Group less special dividends declared or paid on participating securities, including dividend equivalent payments of $38 million and $86 million for the fiscal years ended September 30, 2023 and 2022, respectively.
The guarantees of the Notes are subordinated to all of the guarantors’ existing and future senior debt, rank equally with all of their existing and future senior subordinated debt and rank senior to all of their future debt that is expressly subordinated to the guarantees of the Notes.
The guarantees of the Subordinated Notes are subordinated to all of the guarantors’ existing and future senior debt, rank equally with all of their existing and future senior subordinated debt and rank senior to all of their future debt that is expressly subordinated to the guarantees of the Subordinated Notes.
The Notes are structurally subordinated to all of the liabilities of TD Group’s non-guarantor subsidiaries.
The Subordinated Notes are structurally subordinated to all of the liabilities of TD Group’s non-guarantor subsidiaries.
In addition, interest payments include the impact of the existing interest rate swap and cap agreements described in Note 21, “Derivatives and Hedging Activities,” in the notes to the consolidated financial statements included herein. (4) Represents future benefit payments expected to be paid from the pension and post-retirement benefit plans or from the Company’s assets.
In addition, interest payments include the impact of the existing interest rate swap, cap and collar agreements described in Note 21, “Derivatives and Hedging Activities,” in the notes to the consolidated financial statements included herein. (4) Represents future benefit payments expected to be paid from the pension and post-retirement benefit plans or from the Company’s assets.
If any such default occurs, the lenders under the Credit Agreement and the holders of the Notes and Secured Notes may elect to declare all outstanding borrowings, together with accrued interest and other amounts payable thereunder, to be immediately due and payable.
If any such default occurs, the lenders under the Credit Agreement and the holders of the Subordinated Notes and Secured Notes may elect to declare all outstanding borrowings, together with accrued interest and other amounts payable thereunder, to be immediately due and payable.
A 10% change in our excess and obsolete inventory reserve at September 30, 2022 would not have a material impact on our results. In accordance with industry practice, all inventories are classified as current assets as all inventories are available and necessary to support current sales, even though a portion of the inventories may not be sold within one year.
A 10% change in our excess and obsolete inventory reserve at September 30, 2023 would not have a material impact on our results. In accordance with industry practice, all inventories are classified as current assets as all inventories are available and necessary to support current sales, even though a portion of the inventories may not be sold within one year.
Any future declaration of special cash dividends on our common stock will be at the discretion of our Board of Directors and will depend upon our results of operations, earnings, capital requirements, financial condition, future prospects, contractual restrictions under the Credit Agreement and Indentures, the availability of surplus under Delaware law and other factors deemed relevant by our Board of Directors.
Any future declaration of special cash dividends on our common stock will be at the discretion of our Board of Directors and will depend upon our results of operations, earnings, capital requirements, financial condition, future prospects, contractual restrictions under the Credit Agreement and indentures governing the Notes, the availability of surplus under Delaware law and other factors deemed relevant by our Board of Directors.
The Company may issue additional debt if prevailing market conditions are favorable to doing so. In addition, the Company may increase its borrowings in connection with acquisitions, if cash flow from operating activities becomes insufficient to fund current operations or for other short-term cash needs or for common stock repurchases or dividends.
The Company may issue additional debt or refinance existing debt if prevailing market conditions are favorable to doing so. In addition, the Company may increase its borrowings in connection with acquisitions, if cash flow from operating activities becomes insufficient to fund current operations or for other short-term cash needs or for common stock repurchases or dividends.
The initial $3,800 million offering of the 2026 Secured Notes (which, along with the 2025 Secured Notes, are collectively referred to as the “Secured Notes”) was issued at a price of 100% of its principal amount and the subsequent $200 million and $400 million offerings of the 2026 Secured Notes in the second quarter of fiscal 2019 and the third quarter of fiscal 2020, respectively, were issued at a price of 101% of their principal amount, resulting in gross proceeds of $4,411 million.
The initial $3,800 million offering of the 2026 Secured Notes (which, along with the 2028 Secured Notes and 2030 Secured Notes, are collectively referred to as the “Secured Notes”) was issued at a price of 100% of its principal amount and the subsequent $200 million and $400 million offerings of the 2026 Secured Notes in the second quarter of fiscal 2019 and the third quarter of fiscal 2020, respectively, were issued at a price of 101% of their principal amount, resulting in gross proceeds of $4,411 million.
In the case of larger acquisitions that consist of multiple operating units (such as the Esterline acquisition), we may pursue opportunities to divest certain acquired operating units that are not in line with our long-term acquisition strategy.
In the case of larger acquisitions that consist of multiple operating units (such as the Esterline acquisition in fiscal 2019), we may pursue opportunities to divest certain acquired operating units that are not in line with our long-term acquisition strategy.
As of September 30, 2022, the Company was in compliance with all of its debt covenants and expects to remain in compliance with its debt covenants in subsequent periods. Trade Receivable Securitization Facility During fiscal 2014, the Company established a trade receivable securitization facility (the “Securitization Facility”).
As of September 30, 2023, the Company was in compliance with all of its debt covenants and expects to remain in compliance with its debt covenants in subsequent periods. Trade Receivable Securitization Facility During fiscal 2014, the Company established a trade receivable securitization facility (the “Securitization Facility”).
The restrictive covenants included in the Credit Agreement are subject to amendments executed periodically. The most recent amendment that impacted the restrictive covenants contained in the Credit Agreement is Amendment No. 7.
The restrictive covenants included in the Credit Agreement are subject to amendments executed periodically. The most recent amendment that impacted the restrictive covenants contained in the Credit Agreement is Amendment No. 11.
As of September 30, 2022, the Company had $31 million in letters of credit outstanding. 36 Table of Contents Critical Accounting Policies and Estimates Our consolidated financial statements have been prepared in conformity with U.S. GAAP, which often requires the judgment of management in the selection and application of certain accounting principles and methods.
As of September 30, 2023, the Company had $51 million in letters of credit outstanding. 36 Table of Contents Critical Accounting Policies and Estimates Our consolidated financial statements have been prepared in conformity with U.S. GAAP, which often requires the judgment of management in the selection and application of certain accounting principles and methods.
If determined to be a modification, the Black-Scholes pricing model is updated as of the date of the modification resulting in a cumulative catch-up to expense. 38 Table of Contents Income Taxes – The Company estimates income taxes in each jurisdiction in which it operates.
If determined to be a modification, the Black-Scholes pricing model is updated as of the date of the modification resulting in a cumulative catch-up to expense. Income Taxes – The Company estimates income taxes in each jurisdiction in which it operates.
As of the date of this report, we have successfully acquired approximately 87 businesses and product lines since our formation in 1993.
As of the date of this report, we have successfully acquired approximately 88 businesses and product lines since our formation in 1993.
Our business has been adversely affected and could continue to be adversely affected by disruptions in our ability to timely obtain raw materials and components from our suppliers in the quantities we require or on favorable terms.
Our business has been adversely affected, though not materially, and could continue to be adversely affected by disruptions in our ability to timely obtain raw materials and components from our suppliers in the quantities we require or on favorable terms.
Fiscal year ended September 30, 2021 compared with fiscal year ended September 30, 2020 For our results of operations for fiscal 2021 compared with fiscal 2020, refer to the discussion in Item 7.
Fiscal year ended September 30, 2022 compared with fiscal year ended September 30, 2021 For our results of operations for fiscal 2022 compared with fiscal 2021, refer to the discussion in Item 7.
TD Group has no significant operations or assets separate from its investment in TransDigm Inc. 34 Table of Contents The financial information presented is that of TD Group and the Guarantors, which includes TransDigm Inc. and TransDigm UK, on a combined basis and the financial information of non-issuer and non-guarantor subsidiaries has been excluded.
TD Group has no significant operations or assets separate from its investment in TransDigm Inc. The financial information presented is that of TD Group, TransDigm Inc. and the other Guarantors, which includes TransDigm UK, on a combined basis and the financial information of non-issuer and non-guarantor subsidiaries has been excluded.
There was no impact on earnings per share from discontinued operations for the fiscal year ended September 30, 2021.
There was no impact on earnings per share from discontinued operations for the fiscal year ended September 30, 2023.
“Management’s Discussion and Analysis of Financial Conditions and Results of Operations” of Form 10-K for the fiscal year ended September 30, 2021, as filed with the Securities and Exchange Commission on November 16, 2021. Liquidity and Capital Resources We have historically maintained a capital structure comprising a mix of equity and debt financing.
“Management’s Discussion and Analysis of Financial Conditions and Results of Operations” of Form 10-K for the fiscal year ended September 30, 2022, as filed with the Securities and Exchange Commission on November 10, 2022. 29 Table of Contents Liquidity and Capital Resources We have historically maintained a capital structure comprising a mix of equity and debt financing.
Refer to Note 2, “Acquisitions and Divestitures,” in the notes to the consolidated financial statements included herein for further information. • Income Tax Provision. Income tax expense as a percentage of income before income taxes was approximately 23.2% for the fiscal year ended September 30, 2022 compared to 4.8% for the fiscal year ended September 30, 2021.
Refer to Note 2, “Acquisitions and Divestitures,” in the notes to the consolidated financial statements included herein for further information. • Income Tax Provision. Income tax expense as a percentage of income before income taxes was approximately 24.3% for the fiscal year ended September 30, 2023 compared to 23.2% for the fiscal year ended September 30, 2022.
The revolving commitments consist of two tranches which include up to $152 million of multicurrency revolving commitments. At September 30, 2022, the Company had $31 million in letters of credit outstanding and $779 million in borrowings available under the revolving commitments. Draws on the revolving commitments are subject to an interest rate of 2.50% per annum.
The revolving commitments consist of two tranches which include up to $152 million of multicurrency revolving commitments. At September 30, 2023, the Company had $51 million in letters of credit outstanding and $759 million in borrowings available under the revolving commitments. Draws on the revolving commitments are subject to an interest rate of 2.50% per annum.
In addition, following an event of default under the Credit Agreement, the lenders thereunder and the holders of the Secured Notes will have the right to proceed against the collateral granted to them to secure the debt, which includes our available cash, and they will also have the right to prevent us from making debt service payments on the Notes.
In addition, following an event of default under the Credit Agreement or the indentures governing the Secured Notes, the lenders thereunder or the holders thereof, as applicable, will have the right to proceed against the collateral granted to them to secure the debt, which includes our available cash, and they will also have the right to prevent us from making debt service payments on the Subordinated Notes.
Net income attributable to TD Group for the fiscal year ended September 30, 2022 of $866 million was decreased by dividend equivalent payments of $86 million, or $1.47 per share, resulting in net income applicable to TD Group common stockholders of $780 million, or $13.40 per share.
Net income attributable to TD Group for the fiscal year ended September 30, 2022 of $866 million was decreased by dividend equivalent payments of $86 million, or $1.47 per share, resulting in net income applicable to TD Group common stockholders of $780 million. Business Segments • Segment Net Sales .
Our future leverage will also be impacted by the then current conditions of the credit markets. Operating Activities . The Company generated $948 million of net cash from operating activities during fiscal 2022 compared to $913 million during fiscal 2021.
Our future leverage will also be impacted by the then current conditions of the credit markets. Operating Activities . The Company generated $1,375 million of net cash from operating activities during fiscal 2023 compared to $948 million during fiscal 2022.
Intercompany balances and transactions between TD Group and Guarantors have been eliminated, and amounts due from, amounts due to, and transactions with non-issuer and non-guarantor subsidiaries have been presented separately.
Intercompany balances and transactions between TD Group, TransDigm Inc. and the other Guarantors have been eliminated, and amounts due from, amounts due to, and transactions with non-issuer and non-guarantor subsidiaries have been presented separately.
The following tables present selected balance sheet, cash flow and other financial data relevant to the liquidity or capital resources of the Company for the periods specified below (amounts in millions): September 30, 2022 September 30, 2021 Selected Balance Sheet Data: Cash and cash equivalents $ 3,001 $ 4,787 Working capital (Total current assets less total current liabilities) 4,223 5,367 Total assets 18,107 19,315 Total debt (1) 19,795 19,998 TD Group stockholders’ deficit (3,773) (2,916) (1) Includes debt issuance costs and original issue discount and premiums.
The following tables present selected balance sheet, cash flow and other financial data relevant to the liquidity or capital resources of the Company for the periods specified below (amounts in millions): September 30, 2023 September 30, 2022 Selected Balance Sheet Data: Cash and cash equivalents $ 3,472 $ 3,001 Working capital (Total current assets less total current liabilities) 5,159 4,223 Total assets 19,970 18,107 Total debt (1) 19,750 19,795 TD Group stockholders’ deficit (1,984) (3,773) (1) Includes debt issuance costs and original issue discount and premiums.
Also contributing to the increase in EBITDA As Defined was the application of our three core value-driven operating strategies and positive leverage on our fixed overhead costs spread over a higher production volume despite the ongoing inflationary environment for freight, labor and certain raw materials.
Also contributing to the increase in EBITDA As Defined was the application of our three core value-driven operating strategies and positive leverage on our fixed overhead costs spread over a higher production volume despite the ongoing inflationary environment for freight, labor and certain raw materials. EBITDA As Defined for the Airframe segment increased approximately $426 million, an increase of 38.0%.
The increase in commercial aftermarket sales is primarily attributable to the continued recovery in commercial air travel demand, particularly the increase in the utilization of narrow-body aircraft, and air cargo demand and the resulting higher flight hours in fiscal 2022 compared to fiscal 2021.
The increase in commercial aftermarket sales is primarily attributable to the continued recovery in commercial air travel demand and the resulting higher flight hours and utilization of aircraft in fiscal 2023 compared to fiscal 2022.
The Secured Notes are senior secured obligations of TransDigm and rank equally in right of payment with all of TransDigm’s existing and future senior secured debt, including indebtedness under TransDigm’s existing senior secured credit facilities, and are senior in right of payment to all of TransDigm’s existing and future senior subordinated debt, including the Notes, TransDigm’s other outstanding senior subordinated notes and TransDigm’s guarantees in respect of TransDigm UK’s outstanding senior subordinated notes.
The Secured Notes are senior secured debt of TransDigm and rank equally in right of payment with all of TransDigm’s existing and future senior secured debt, including indebtedness under TransDigm’s existing senior secured credit facilities, and are senior in right of payment to all of TransDigm’s existing and future senior subordinated debt, including the Subordinated Notes.
Fiscal Years Ended September 30, 2022 2021 Selected Cash Flow and Other Financial Data: Cash flows provided by (used in): Operating activities $ 948 $ 913 Investing activities (553) (785) Financing activities (2,148) (70) Capital expenditures 119 105 Ratio of earnings to fixed charges (1) 2.0x 1.7x (1) For purposes of computing the ratio of earnings to fixed charges, earnings consist of earnings from continuing operations before income taxes plus fixed charges.
Fiscal Years Ended September 30, 2023 2022 Selected Cash Flow and Other Financial Data: Cash flows provided by (used in): Operating activities $ 1,375 $ 948 Investing activities (900) (553) Financing activities (16) (2,148) Capital expenditures 139 119 Ratio of earnings to fixed charges (1) 2.5x 2.0x (1) For purposes of computing the ratio of earnings to fixed charges, earnings consist of earnings from continuing operations before income taxes plus fixed charges.
The Company had 47 reporting units with goodwill and 44 reporting units with indefinite-lived intangible assets as of the first day of the fourth quarter of fiscal 2022, the date of the annual impairment test.
The Company had 49 reporting units with goodwill and 46 reporting units with indefinite-lived intangible assets as of the first day of the fourth quarter of fiscal 2023, the date of the annual impairment test.
(4) Represents the compensation expense recognized by TD Group under our stock incentive plans and deferred compensation plans. (5) Represents costs expensed related to debt financing activities, including new issuances, extinguishments, refinancings and amendments to existing agreements.
(2) Represents the compensation expense recognized by TD Group under our stock incentive plans and deferred compensation plans. (3) Represents costs expensed related to debt financing activities, including new issuances, extinguishments, refinancings and amendments to existing agreements. (4) Represents the net gain on sale of businesses.
Notes are fully and unconditionally guaranteed on a senior subordinated unsecured basis by TD Group and TransDigm Inc.'s Domestic Restricted Subsidiaries (as defined in the applicable Indentures). The TransDigm UK Notes are guaranteed on a senior subordinated basis by TransDigm Inc., TD Group and TransDigm Inc.'s Domestic Restricted Subsidiaries.
The 2026 Secured Notes and the 2028 Secured Notes are guaranteed on a senior secured basis by TD Group, TransDigm UK and TransDigm Inc.’s Domestic Restricted Subsidiaries (as defined in the applicable indentures).
Management utilizes the royalty savings valuation method to determine the estimated fair value for each indefinite-lived intangible asset. In this method, management estimates the royalty savings arising from the ownership of the intangible asset. The key assumptions used in estimating the royalty savings for impairment testing include discount rates, royalty rates, growth rates, sales projections and terminal value rates.
In this method, management estimates the royalty savings arising from the ownership of the intangible asset. The key assumptions used in estimating the royalty savings for impairment testing include discount rates, royalty rates, growth rates, sales projections and terminal value rates.
The majority of the Company's revenue is recorded at a point in time. Sales recognized over time are generally accounted for using an input measure to determine progress completed at the end of the period. Sales for service contracts generally are recognized as the services are provided.
Sales recognized over time are generally accounted for using an input measure to determine progress completed at the end of the period. Sales for service contracts generally are recognized as the services are provided.
If the Company has excess cash, it generally prioritizes allocating the excess cash in the following manner: (1) capital spending at existing businesses, (2) acquisitions of businesses, (3) payment of a special dividend and/or repurchases of our common stock and (4) prepayment of indebtedness or repurchase of debt. 31 Table of Contents In fiscal 2022, the Company returned approximately $2 billion to shareholders through share repurchases and a special dividend payment.
If the Company has excess cash, it generally prioritizes allocating the excess cash in the following manner: (1) capital spending at existing businesses, (2) acquisitions of businesses, (3) payment of a special dividend and/or repurchases of our common stock and (4) prepayment of indebtedness or repurchase of debt.
Basic and diluted earnings per share from continuing operations and discontinued operations were $13.38 and $0.02, respectively, for the fiscal year ended September 30, 2022. Basic and diluted earnings per share from continuing operations was $10.41 for the fiscal year ended September 30, 2021.
Basic and diluted earnings per share from continuing operations was $22.03 for the fiscal year ended September 30, 2023 and $13.38 for the fiscal year ended September 30, 2022. Basic and diluted earnings per share from discontinued operations was $0.02 for the fiscal year ended September 30, 2022.
Net income attributable to TD Group increased $186 million, or 27.4%, to $866 million for the fiscal year ended September 30, 2022 compared to net income attributable to TD Group of $680 million for the fiscal year ended September 30, 2021, primarily as a result of the factors referenced above. • Earnings per Share .
Net income attributable to TD Group increased $432 million, or 49.9%, to $1,298 million for the fiscal year ended September 30, 2023 compared to net income attributable to TD Group of $866 million for the fiscal year ended September 30, 2022, primarily as a result of the factors referenced above. • Earnings per Share .
The interest rates per annum applicable to the loans under the Credit Agreement are, at TransDigm’s option, equal to either an alternate base rate or an adjusted LIBOR for one, two, three or six-month (or to the extent agreed to by each relevant lender, nine or twelve-month) interest periods chosen by TransDigm, in each case plus an applicable margin percentage.
The interest rates per annum applicable to the Tranche H and Tranche I term loans under the Credit Agreement are, at TransDigm’s option, equal to either an alternate base rate or an adjusted Term SOFR for one, three or six-month interest periods chosen by TransDigm, in each case plus an applicable margin percentage.
The increase in commercial aftermarket sales is primarily attributable to the continued recovery in commercial air travel demand, particularly the increase in the utilization of narrow-body aircraft, and air cargo demand and the resulting higher flight hours compared to fiscal 2021.
The increase in commercial aftermarket sales is primarily attributable to the continued recovery in commercial air travel demand and the resulting higher flight hours and utilization of aircraft in fiscal 2023 compared to fiscal 2022. The increase in commercial OEM sales is primarily attributable to the continued recovery in both narrow-body and wide-body aircraft production and deliveries.
Discount rates used are similar to the rates developed by the WACC methodology considering any differences in company-specific risk factors between reporting units and the indefinite-lived intangible assets. Royalty rates are established by management with the advice of valuation experts. Management, considering industry and company-specific historical and projected data, develops growth rates and sales projections for each significant intangible asset.
Discount rates used are similar to the rates developed by the WACC methodology, inclusive of considering any differences in company-specific risk factors between reporting units and the indefinite-lived intangible assets. Royalty rates are established by management with the advice of valuation experts.
Selling and administrative expenses increased by $63 million to $748 million, or 13.8% of net sales, for the fiscal year ended September 30, 2022 from $685 million, or 14.3% of net sales, for the fiscal year ended September 30, 2021.
Selling and administrative expenses increased by $32 million to $780 million, or 11.8% of net sales, for the fiscal year ended September 30, 2023 from $748 million, or 13.8% of net sales, for the fiscal year ended September 30, 2022.
(3) Assumes that the variable interest rate on our Tranche E, Tranche F and Tranche G term loans under our Term Loans Facility range from approximately 5.82% to 7.21% based on anticipated movements in the LIBOR, which given the ongoing volatility in rates, are highly uncertain.
(3) Assumes that the variable interest rate on our Tranche H and Tranche I term loans under our Term Loans Facility range from approximately 5.8% to 6.8% based on anticipated movements in Term SOFR, which given the ongoing volatility in rates, are highly uncertain.
We believe our cash provided by operating activities and available borrowing capacity will enable us to make strategic business acquisitions, such as the DART acquisition completed in the third quarter of fiscal 2022 for $359 million, pay dividends to our shareholders and make opportunistic investments in our own stock, subject to any restrictions in our existing credit agreement and market conditions.
We believe our cash provided by operating activities and available borrowing capacity will enable us to make strategic business acquisitions, pay dividends to our shareholders and make opportunistic investments in our own stock, subject to any restrictions in our existing credit agreement and market conditions.
(2) Represents costs incurred to integrate acquired businesses and product lines into TD Group’s operations, facility relocation costs and other acquisition-related costs. (3) Represents transaction-related costs for both acquisitions and divestitures comprising deal fees, legal, financial and tax due diligence expenses, and valuation costs that are required to be expensed as incurred.
(5) Represents accounting adjustments to inventory associated with acquisitions of businesses and product lines that were charged to cost of sales when inventory was sold; costs incurred to integrate acquired businesses and product lines into TD Group’s operations, facility relocation costs and other acquisition-related costs; transaction-related costs for both acquisitions and divestitures comprising deal fees, legal, financial and tax due diligence expenses, and valuation costs that are required to be expensed as incurred.
Separate financial statements of TransDigm UK are not presented because TransDigm UK's 6.875% 2026 Notes, issued in May 2018, are fully and unconditionally guaranteed on a senior subordinated basis by TD Group, TransDigm Inc. and all of TransDigm Inc.'s Domestic Restricted Subsidiaries.
Separate financial statements of TransDigm Inc. are not presented because the Subordinated Notes and Secured Notes are fully and unconditionally guaranteed on a senior subordinated unsecured basis (if Subordinated Notes) and senior secured basis (if Secured Notes) by TD Group, TransDigm UK and all of TransDigm Inc.'s Domestic Restricted Subsidiaries.
TransDigm is in compliance with all of the covenants contained in the Notes. Guarantor Information The Notes are subordinated to all of our existing and future senior debt, rank equally with all of our existing and future senior subordinated debt and rank senior to all of our future debt that is expressly subordinated to the Notes. The TransDigm Inc.
TransDigm is in compliance with all of the covenants contained in the Subordinated Notes and Secured Notes. 33 Table of Contents Guarantor Information The Subordinated Notes are subordinated to all of our existing and future senior secured debt, including indebtedness under TransDigm’s existing senior secured credit facilities, rank equally with all of our existing and future senior subordinated debt and rank senior to all of our future debt that is expressly subordinated to the Subordinated Notes.
(in millions) September 30, 2022 Current assets $ 3,954 Goodwill 6,849 Other non-current assets 2,843 Current liabilities 735 Non-current liabilities 20,077 Amounts (from) due to subsidiaries that are non-issuers and non-guarantors - net (1,334) Fiscal Year Ended (in millions) September 30, 2022 Net sales $ 4,208 Sales to subsidiaries that are non-issuers and non-guarantors 50 Cost of sales 1,724 Expense from subsidiaries that are non-issuers and non-guarantors - net 69 Income from continuing operations 552 Net income attributable to TD Group 552 Certain Restrictive Covenants in Our Debt Documents The Credit Agreement and the Indentures governing the Notes and Secured Notes contain restrictive covenants that, among other things, limit the incurrence of additional indebtedness, the payment of special dividends, transactions with affiliates, asset sales, acquisitions, mergers and consolidations, liens and encumbrances, and prepayments of certain other indebtedness.
(in millions) September 30, 2023 Current assets $ 4,723 Goodwill 7,112 Other non-current assets 3,237 Current liabilities 868 Non-current liabilities 20,034 Amounts (from) due to subsidiaries that are non-issuers and non-guarantors-net (1,496) Fiscal Year Ended (in millions) September 30, 2023 Net sales $ 5,184 Sales to subsidiaries that are non-issuers and non-guarantors 37 Cost of sales 2,022 Expense from subsidiaries that are non-issuers and non-guarantors-net 52 Income from continuing operations 909 Net income attributable to TD Group 909 34 Table of Contents Certain Restrictive Covenants in Our Debt Documents The Credit Agreement and the indentures governing the Subordinated Notes and Secured Notes contain restrictive covenants that, among other things, limit the incurrence of additional indebtedness, the payment of special dividends, transactions with affiliates, asset sales, acquisitions, mergers and consolidations, liens and encumbrances, and prepayments of certain other indebtedness.
The weighted average interest rate for cash interest payments on total borrowings outstanding for the fiscal year ended September 30, 2022 was 5.3%. • Refinancing Costs. Refinancing costs of $1 million were recorded for the fiscal year ended September 30, 2022.
The weighted average interest rate for cash interest payments on total borrowings outstanding for the fiscal year ended September 30, 2023 was 6.2% compared to 5.3% for the fiscal year ended September 30, 2022. • Refinancing Costs.
We expect to meet our short-term cash liquidity requirements (including interest obligations and capital expenditures) through net cash from operating activities, cash on hand and, if needed, draws on the revolving credit facility. Long-term cash liquidity requirements consist primarily of obligations under our long-term debt agreements.
We believe our significant cash liquidity will allow us to meet our anticipated funding requirements. We expect to meet our short-term cash liquidity requirements (including interest obligations and capital expenditures) through net cash from operating activities, cash on hand and, if needed, draws on the revolving credit facility.
Cost of sales increased by $45 million, or 2.0%, to $2,330 million for the fiscal year ended September 30, 2022 compared to $2,285 million for the fiscal year ended September 30, 2021.
Cost of sales increased by $413 million or 17.7%, to $2,743 million for the fiscal year ended September 30, 2023 compared to $2,330 million for the fiscal year ended September 30, 2022.
The impairment test for indefinite-lived intangible assets consists of a comparison between the estimated fair values and carrying values. If the carrying amounts of intangible assets that have indefinite useful lives exceed their estimated fair values, an impairment loss will be recognized in an amount equal to the difference.
If the carrying amounts of intangible assets that have indefinite useful lives exceed their estimated fair values, an impairment loss will be recognized in an amount equal to the difference. Management utilizes the royalty savings valuation method to determine the estimated fair value for each indefinite-lived intangible asset.
The adjusted LIBOR related to Tranche E, Tranche F and Tranche G term loans are not subject to a floor.
The adjusted Term SOFR related to the Tranche H and Tranche I term loans are not subject to a floor.
Our calculation of EBITDA and EBITDA As Defined may not be comparable to the calculation of similarly titled measures reported by other companies. 40 Table of Contents The following table sets forth a reconciliation of income from continuing operations to EBITDA and EBITDA As Defined (in millions): Fiscal Years Ended September 30, 2022 2021 Income from continuing operations $ 866 $ 681 Adjustments: Depreciation and amortization expense 253 253 Interest expense, net 1,076 1,059 Income tax provision 261 34 EBITDA 2,456 2,027 Adjustments: Inventory acquisition accounting adjustments (1) 3 6 Acquisition integration costs (2) 11 14 Acquisition and divestiture transaction-related expenses (3) 4 15 Non-cash stock and deferred compensation expense (4) 184 130 Refinancing costs (5) 1 37 COVID-19 pandemic restructuring costs (6) — 40 Gain on sale of businesses, net (7) (7) (69) Other, net (8) (6) (11) EBITDA As Defined $ 2,646 $ 2,189 (1) Represents accounting adjustments to inventory associated with acquisitions of businesses and product lines that were charged to cost of sales when inventory was sold.
Our calculation of EBITDA and EBITDA As Defined may not be comparable to the calculation of similarly titled measures reported by other companies. 40 Table of Contents The following table sets forth a reconciliation of income from continuing operations to EBITDA and EBITDA As Defined (in millions): Fiscal Years Ended September 30, 2023 2022 Income from continuing operations $ 1,299 $ 866 Adjustments: Depreciation and amortization expense 268 253 Interest expense-net 1,164 1,076 Income tax provision 417 261 EBITDA 3,148 2,456 Adjustments: Acquisition and divestiture transaction-related expenses and adjustments (1) 18 18 Non-cash stock and deferred compensation expense (2) 157 184 Refinancing costs (3) 56 1 Gain on sale of businesses-net (4) — (7) Other, net (5) 16 (6) EBITDA As Defined $ 3,395 $ 2,646 (1) Represents accounting adjustments to inventory associated with acquisitions of businesses and product lines that were charged to cost of sales when inventory was sold; costs incurred to integrate acquired businesses and product lines into TD Group’s operations, facility relocation costs and other acquisition-related costs; transaction-related costs for both acquisitions and divestitures comprising deal fees, legal, financial and tax due diligence expenses, and valuation costs that are required to be expensed as incurred.
Discount rates are set by using the Weighted Average Cost of Capital (“WACC”) methodology. The WACC methodology considers market and industry data as well as company specific risk factors for each reporting unit in determining the appropriate discount rates to be used. The Company utilizes a third party valuation firm to assist in the determination of the WACC.
The WACC methodology considers market and industry data in determining the appropriate discount rates to be used, inclusive of company-specific risk factors. The Company utilizes a third party valuation firm to assist in the determination of the WACC.
Gain on sale of businesses-net of $69 million was recorded for the fiscal year ended September 30, 2021, and is primarily related to the net gain on sale recognized on the ScioTeq and TREALITY and TAC divestitures.
Gain on sale of businesses-net of $7 million was recorded for the fiscal year ended September 30, 2022, and is primarily related to the net gain on sale recognized on the ScioTeq and TREALITY Simulation Visual Systems (“ScioTeq and TREALITY”) and Technical Airborne Components (“TAC”) divestitures.
The use of cash was primarily attributable to $1,091 million of dividends and dividend equivalent payments, $912 million in common stock repurchases, the $200 million repayment of a previous draw on the revolving commitments and repayment on term loans of $75 million. This was partially offset by $132 million in proceeds from stock option exercises.
Net cash used in financing activities was $2,148 million during fiscal 2022. The use of cash was primarily attributable to $1,091 million of dividends and dividend equivalent payments, $912 million in common stock repurchases, the $200 million repayment of a previous draw on the revolving commitments and repayment on term loans of $75 million.
Net income attributable to TD Group for the fiscal year ended September 30, 2021 of $680 million was decreased by dividend equivalent payments of $73 million, or $1.24 per share, resulting in net income applicable to TD Group common stockholders of $607 million, or $10.41 per share. Business Segments • Segment Net Sales .
Net income attributable to TD Group for the fiscal year ended September 30, 2023 of $1,298 million was decreased by dividend equivalent payments of $38 million, or $0.67 per share, resulting in net income applicable to TD Group common stockholders of $1,260 million.
The Company’s ability to make scheduled interest payments on, or to refinance, the Company’s indebtedness, or to fund non-acquisition related capital expenditures and research and development efforts, will depend on the Company’s ability to generate cash in the future.
The Company’s ability to make scheduled interest payments on, or to refinance, the Company’s indebtedness, or to fund non-acquisition related capital expenditures and research and development efforts, will depend on the Company’s ability to generate cash in the future. This is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond its control.
Terminal value rate determination follows a common methodology of capturing the present value of perpetual cash flow estimates beyond the last projected period assuming a constant WACC and low long-term growth rates. Management tests indefinite-lived intangible assets for impairment at the asset level, as determined by appropriate asset valuation at the time of acquisition.
Terminal value rate determination follows a common methodology of capturing the present value of perpetual cash flow estimates beyond the last projected period assuming a constant WACC and low long-term growth rates. The impairment test for indefinite-lived intangible assets consists of a comparison between the estimated fair values and carrying values.
The increase in the use of cash of $213 million is primarily driven by increased purchasing from higher demand in fiscal 2022 and fiscal 2023 as raw material inventory is up approximately $109 million compared to at September 30, 2021.
The increase in the use of cash of $127 million is primarily driven by increased purchasing from higher demand in fiscal 2023 as raw material inventory is up approximately $185 million compared to at September 30, 2022. The Company also continues to actively and strategically manage inventory levels in response to existing ongoing supply chain challenges.
Income from discontinued operations, net of tax, for the fiscal year ended September 30, 2022 was $1 million, which was driven by cash proceeds received during the first quarter of fiscal 2022 from a final working capital settlement for the Souriau-Sunbank Connection Technologies (“Souriau-Sunbank”) divestiture.
Income from discontinued operations, net of tax, was $1 million for the fiscal year ended September 30, 2022 and related to a final working capital settlement received on the divestiture of the Souriau-Sunbank Connection Technologies business. • Net Income Attributable to TD Group .
The change in Non-aviation EBITDA as Defined compared to the prior fiscal year was not material. Corporate expenses consist primarily of compensation, benefits, professional services and other administrative costs incurred by the corporate offices. An immaterial amount of corporate expenses is allocated to the operating segments. The change in corporate expenses compared to the prior fiscal year was not material.
EBITDA As Defined from acquisitions represents EBITDA As Defined from acquired businesses for the period up to one year subsequent to the respective acquisition date. The change in Non-aviation EBITDA as Defined compared to the prior fiscal year was not material. Corporate expenses consist primarily of compensation, benefits, professional services and other administrative costs incurred by the corporate offices.
(8) Primarily represents foreign currency transaction gain or loss, payroll withholding taxes related to special dividend and dividend equivalent payments and stock option exercises, non-service related pension costs, including the pension settlement charge for the Esterline Retirement Plan (further detailed in Note 15, “Retirement Plans”) and gain or loss on sale of fixed assets. 41 Table of Contents The following table sets forth a reconciliation of net cash provided by operating activities to EBITDA and EBITDA As Defined (in millions): Fiscal Years Ended September 30, 2022 2021 Net cash provided by operating activities $ 948 $ 913 Adjustments: Changes in assets and liabilities, net of effects from acquisitions and sales of businesses 288 98 Interest expense, net (1) 1,076 1,059 Income tax provision - current 283 — Loss contract amortization 39 55 Non-cash stock and deferred compensation expense (2) (184) (130) Refinancing costs (3) (1) (37) Gain on sale of businesses, net (4) 7 69 EBITDA 2,456 2,027 Adjustments: Inventory acquisition accounting adjustments (5) 3 6 Acquisition integration costs (6) 11 14 Acquisition and divestiture transaction-related expenses (7) 4 15 Non-cash stock and deferred compensation expense (2) 184 130 Refinancing costs (3) 1 37 COVID-19 pandemic restructuring costs (8) — 40 Gain on sale of businesses, net (4) (7) (69) Other, net (9) (6) (11) EBITDA As Defined $ 2,646 $ 2,189 (1) Represents interest expense excluding the amortization of debt issuance costs and premium and discount on debt.
(5) Primarily represents foreign currency transaction (gains) or losses, payroll withholding taxes related to dividend equivalent payments and stock option exercises, deferred compensation payments, non-service related pension costs including the pension settlement (gain) loss for the ERP (further disclosed in Note 13, “Retirement Plans,” in the notes to the consolidated financial statements included herein ), and for fiscal 2022, proceeds received from a final working capital settlement for the ScioTeq and TREALITY divestiture. 41 Table of Contents The following table sets forth a reconciliation of net cash provided by operating activities to EBITDA and EBITDA As Defined (in millions): Fiscal Years Ended September 30, 2023 2022 Net cash provided by operating activities $ 1,375 $ 948 Adjustments: Changes in assets and liabilities, net of effects from acquisitions of businesses 415 288 Interest expense-net (1) 1,123 1,076 Income tax provision - current 414 283 Loss contract amortization 34 39 Non-cash stock and deferred compensation expense (2) (157) (184) Refinancing costs (3) (56) (1) Gain on sale of businesses-net (4) — 7 EBITDA 3,148 2,456 Adjustments: Acquisition and divestiture transaction-related expenses and adjustments (5) 18 18 Non-cash stock and deferred compensation expense (2) 157 184 Refinancing costs (3) 56 1 Gain on sale of businesses-net (4) — (7) Other, net (6) 16 (6) EBITDA As Defined $ 3,395 $ 2,646 (1) Represents interest expense excluding the amortization of debt issuance costs and premium and discount on debt.
Selling and administrative expenses and the related percentage of net sales for the fiscal years ended September 30, 2022 and 2021 were as follows (amounts in millions): Fiscal Years Ended September 30, 2022 September 30, 2021 Change % Change Selling and administrative expenses - excluding costs below $ 563 $ 534 $ 29 5.4 % % of net sales 10.4 % 11.1 % Non-cash stock and deferred compensation expense 165 117 48 41.0 % % of net sales 3.0 % 2.4 % Bad debt expense 9 (2) 11 550.0 % % of net sales 0.2 % — % Acquisition integration costs 7 10 (3) (30.0) % % of net sales 0.1 % 0.2 % Acquisition and divestiture transaction-related expenses 4 15 (11) (73.3) % % of net sales 0.1 % 0.3 % COVID-19 pandemic restructuring costs — 11 (11) (100.0) % % of net sales — % 0.2 % Total selling and administrative expenses $ 748 $ 685 $ 63 9.2 % % of net sales 13.8 % 14.3 % Excluding the specific components to selling and administrative expenses listed above, the change in selling and administrative expenses during the fiscal year ended September 30, 2022 improved as a percentage of net sales compared to the prior fiscal year ended September 30, 2021.
Selling and administrative expenses and the related percentage of net sales for the fiscal years ended September 30, 2023 and 2022 were as follows (amounts in millions): Fiscal Years Ended September 30, 2023 September 30, 2022 Change % Change Selling and administrative expenses - excluding costs below $ 629 $ 563 $ 66 11.7 % % of net sales 9.6 % 10.4 % Non-cash stock and deferred compensation expense 141 165 (24) (14.5) % % of net sales 2.1 % 3.0 % Acquisition integration costs 8 7 1 14.3 % % of net sales 0.1 % 0.1 % Acquisition and divestiture transaction-related expenses 6 4 2 50.0 % % of net sales 0.1 % 0.1 % Bad debt expense (4) 9 (13) (144.4) % % of net sales (0.1) % 0.2 % Total selling and administrative expenses $ 780 $ 748 $ 32 4.3 % % of net sales 11.8 % 13.8 % Selling and administrative expenses during the fiscal year ended September 30, 2023 improved as a percentage of net sales compared to the fiscal year ended September 30, 2022 as a result of higher net sales and our continued strategic cost mitigation efforts.
The change in Non-aviation net sales compared to the prior fiscal year was not material. • EBITDA As Defined . Refer to “Non-GAAP Financial Measures” in this discussion and analysis for additional information and limitations regarding these non-GAAP financial measures, including a reconciliation to the comparable GAAP financial measure.
Refer to “Non-GAAP Financial Measures” in this discussion and analysis for additional information and limitations regarding these non-GAAP financial measures, including a reconciliation to the comparable U.S. GAAP financial measure.
Net organic sales and acquisition and divestiture sales and the related dollar and percentage changes for the fiscal years ended September 30, 2022 and 2021 were as follows (amounts in millions): Fiscal Years Ended % Change Net Sales September 30, 2022 September 30, 2021 Change Organic sales $ 5,355 $ 4,665 $ 690 14.4 % Acquisition and divestiture sales 74 133 (59) (1.2) % Net sales $ 5,429 $ 4,798 $ 631 13.2 % Organic sales represent net sales from existing businesses owned by the Company, excluding sales from acquisitions and divestitures.
Net organic sales and acquisition sales and the related dollar and percentage changes for the fiscal years ended September 30, 2023 and 2022 were as follows (amounts in millions): Fiscal Years Ended % Change Net Sales September 30, 2023 September 30, 2022 Change Organic sales $ 6,414 $ 5,429 $ 985 18.1 % Acquisition sales 171 — 171 3.1 % Net sales $ 6,585 $ 5,429 $ 1,156 21.2 % Organic sales represent net sales from existing businesses owned by the Company, excluding sales from acquisitions.
Acquisitions and divestitures during the most recent three fiscal years are described in Note 2, “Acquisitions and Divestitures,” in the notes to the consolidated financial statements included herein. The commercial aerospace industry, in particular, has been significantly disrupted, both domestically and internationally, by the pandemic.
Acquisitions and divestitures during the most recent three fiscal years is described in Note 2, “Acquisitions and Divestitures,” in the notes to the consolidated financial statements included herein.
Total cash payments related to the special dividend and dividend equivalent payments in fiscal 2022 and 2021 were approximately $1,091 million and $73 million, respectively . Refer to Note 18, “Stock-Based Compensation,” in the notes to the consolidated financial statements herein for further information on the Company’s dividend equivalent payments .
Refer to Note 18, “Stock-Based Compensation,” in the notes to the consolidated financial statements herein for further information on the Company’s dividend equivalent payments .
Net sales by segment for the fiscal years ended September 30, 2022 and 2021 were as follows (amounts in millions): Fiscal Years Ended September 30, 2022 % of Net Sales 2021 % of Net Sales Change % Change Power & Control $ 2,873 52.9 % $ 2,550 53.1 % $ 323 12.7 % Airframe 2,391 44.1 % 2,083 43.5 % 308 14.8 % Non-aviation 165 3.0 % 165 3.4 % — — % Net sales $ 5,429 100.0 % $ 4,798 100.0 % $ 631 13.2 % 29 Table of Contents Net sales for the Power & Control segment increased $323 million, an increase of 12.7%, for the fiscal year ended September 30, 2022.
Net sales by segment for the fiscal years ended September 30, 2023 and 2022 were as follows (amounts in millions): Fiscal Years Ended September 30, 2023 % of Net Sales 2022 % of Net Sales Change % Change Power & Control $ 3,316 50.3 % $ 2,873 52.9 % $ 443 15.4 % Airframe 3,094 47.0 % 2,391 44.1 % 703 29.4 % Non-aviation 175 2.7 % 165 3.0 % 10 6.1 % Net sales $ 6,585 100.0 % $ 5,429 100.0 % $ 1,156 21.3 % Net sales for the Power & Control segment increased $443 million, an increase of 15.4%, for the fiscal year ended September 30, 2023 compared to the fiscal year ended September 30, 2022.
The sales increase resulted primarily from increases in organic sales in commercial aftermarket ($237 million, an increase of 46.2%) and commercial OEM ($138 million, an increase of 29.3%); partially offset by a decrease in organic defense sales ($23 million, a decrease of 2.6%).
The sales increase resulted primarily from increases in organic sales in the commercial aftermarket ($236 million, an increase of 29.6%), defense ($145 million, an increase of 10.2%) and commercial OEM ($86 million, an increase of 16.3%).
The Company continues to actively manage its accounts receivable, the related agings and collection efforts in response to the COVID-19 pandemic and other factors, such as the Russia and Ukraine conflict. The change in inventories during fiscal 2022 was a use of cash of $134 million compared to a source of cash of $79 million in fiscal 2021.
The Company continues to actively manage its accounts receivable, the related agings and collection efforts. 31 Table of Contents The change in inventories during fiscal 2023 was a use of cash of $261 million compared to a use of cash of $134 million in fiscal 2022.
Based on its initial qualitative assessment over each of the reporting units, the Company identified 13 reporting units to test for impairment using a quantitative test for both goodwill and indefinite-lived intangible assets. The 13 reporting units selected for quantitative testing have higher commercial aerospace content and, as a result, have been more adversely impacted by the COVID-19 pandemic.
Based on its initial qualitative assessment over each of the reporting units, the Company identified five reporting units to test for impairment using a quantitative test for both goodwill and indefinite-lived intangible assets.
Description of Senior Secured Term Loans and Indentures Senior Secured Term Loans Facility TransDigm has $7,298 million in fully drawn term loans (the “Term Loans Facility”) and an $810 million revolving credit facility.
This was partially offset by $132 million in proceeds from stock option exercises. Description of Senior Secured Term Loans and Indentures Senior Secured Term Loans Facility TransDigm has $6,249 million in fully drawn term loans (the “Term Loans Facility”) and an $810 million revolving credit facility.
EBITDA As Defined by segment for the fiscal years ended September 30, 2022 and 2021 were as follows (amounts in millions): Fiscal Years Ended September 30, 2022 % of Segment Net Sales 2021 % of Segment Net Sales Change % Change Power & Control $ 1,531 53.3 % $ 1,319 51.7 % $ 212 16.1 % Airframe 1,121 46.9 % 878 42.2 % 243 27.7 % Non-aviation 65 39.4 % 62 37.6 % 3 4.8 % Total segment EBITDA As Defined 2,717 50.0 % 2,259 47.1 % 458 20.3 % Less: Unallocated corporate expenses 71 1.3 % (1) 70 1.5 % (1) 1 1.4 % Total Company EBITDA As Defined $ 2,646 48.7 % (1) $ 2,189 45.6 % (1) $ 457 20.9 % (1) Calculated as a percentage of consolidated net sales.
EBITDA As Defined by segment for the fiscal years ended September 30, 2023 and 2022 were as follows (amounts in millions): Fiscal Years Ended September 30, 2023 % of Segment Net Sales 2022 % of Segment Net Sales Change % Change Power & Control $ 1,866 56.3 % $ 1,531 53.3 % $ 335 21.9 % Airframe 1,547 50.0 % 1,121 46.9 % 426 38.0 % Non-aviation 71 40.6 % 65 39.4 % 6 9.2 % Total segment EBITDA As Defined 3,484 52.9 % 2,717 50.0 % 767 28.2 % Less: Unallocated corporate EBITDA As Defined 89 1.3 % (1) 71 1.3 % (1) 18 25.4 % Total Company EBITDA As Defined $ 3,395 51.6 % (1) $ 2,646 48.7 % (1) $ 749 28.3 % (1) Calculated as a percentage of consolidated net sales.
Contractual Obligations and Commitments The following table summarizes the Company’s cash requirements from all significant contractual obligations as of September 30, 2022 (in millions): Total Payment Due by Period Contractual Less than Between Between Over Obligations 1 Year 1-3 Years 3-5 Years 5 Years Senior subordinated and secured notes (1) $ 12,100 $ — $ — $ 7,500 $ 4,600 Term Loans Facility (2) 7,298 75 3,910 3,313 — Scheduled interest payments (3) 4,273 1,177 2,126 780 190 Pension funding minimums (4) 127 12 24 25 66 Securitization Facility 350 350 — — — Finance leases 294 12 26 26 230 Operating leases 113 21 34 23 35 Total contractual cash obligations $ 24,555 $ 1,647 $ 6,120 $ 11,667 $ 5,121 (1) Represents principal maturities which excludes interest, debt issuance costs, original issue discount and premiums.
Contractual Obligations and Commitments The following table summarizes the Company’s cash requirements from all significant contractual obligations as of September 30, 2023 (in millions): Total Payment Due by Period Contractual Less than Between Between Over Obligations 1 Year 1-3 Years 3-5 Years 5 Years Senior Subordinated and Secured Notes (1) $ 13,100 $ — $ 4,400 $ 5,300 $ 3,400 Term Loans Facility (2) 6,249 63 126 6,060 — Scheduled interest payments (3) 5,179 1,234 2,244 1,443 258 Pension funding minimums (4) 117 11 23 23 60 Securitization Facility 350 350 — — — Finance leases 379 16 34 34 295 Operating leases 80 20 31 16 13 Total contractual cash obligations $ 25,454 $ 1,694 $ 6,858 $ 12,876 $ 4,026 (1) Represents principal maturities which excludes interest, debt issuance costs, original issue discount and premiums.
This was slightly offset by $3 million in proceeds received from the final working capital settlement for the ScioTeq and TREALITY divestiture. The Company estimates its capital expenditures in fiscal year 2023 to be approximately 2% to 3% of net sales, which is consistent with its historical annual spend as a percentage of net sales.
The Company estimates its capital expenditures in fiscal year 2024 to be approximately 2% to 3% of net sales, which is consistent with its historical annual spend as a percentage of net sales.
Actual results could differ from these assumptions. Management believes the assumptions used are reflective of what a market participant would have used in calculating fair value considering the current economic conditions.
The discounted cash flow and royalty savings valuation methodologies require management to make certain assumptions based upon information available at the time the valuations are performed. Actual results could differ from these assumptions. Management believes the assumptions used are reflective of what a market participant would have used in calculating fair value considering the current economic conditions.
Acquisition and divestiture sales are excluded from organic sales due to the variability in the nature, timing and extent of acquisitions and divestitures and resulting variable impact on underlying trends. Refer to Note 2, “Acquisitions and Divestitures,” in the notes to the consolidated financial statements included herein for further information on the Company's recent acquisition and divestiture activity.
Refer to Note 2, “Acquisitions and Divestitures,” in the notes to the consolidated financial statements included herein for further information on the Company's recent acquisitions activity.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

8 edited+1 added−10 removed3 unchanged
Biggest changeWe will continue to evaluate the risks and opportunities related to LIBOR transition. At September 30, 2022, we had borrowings under our Term Loans Facility, which consists of three tranches of term loans, of approximately $7,298 million that were subject to interest rate risk.
Biggest changeITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest Rate Risk At September 30, 2023, we had borrowings under our Term Loans Facility, which consists of two tranches of term loans of approximately $6,249 million, as well as $350 million from the Securitization Facility, that are subject to interest rate risk, particularly movements in Term SOFR.
Interest rate swaps and caps used to hedge and offset, respectively, the variable interest rates on the credit facility are described in Note 21, “Derivatives and Hedging Activities,” in the notes to the consolidated financial statements included herein. We do not hold or issue derivative instruments for speculative purposes.
Interest rate swaps, caps and collars used to hedge and offset, respectively, the variable interest rates on the credit facility are described in Note 21, “Derivatives and Hedging Activities,” in the notes to the consolidated financial statements included herein. We do not hold or issue derivative instruments for speculative purposes.
The foreign currency forward exchange contracts entered into by the Company are described in Note 21, “Derivatives and Hedging Activities,” in the notes to the consolidated financial statements included herein. A 10% change in foreign currency exchange rates would not have resulted in a material impact to net income for the fiscal year ended September 30, 2022.
The foreign currency forward exchange contracts entered into by the Company are described in Note 21, “Derivatives and Hedging Activities,” in the notes to the consolidated financial statements included herein. A 10% change in foreign currency exchange rates would not have resulted in a material impact to net income for the fiscal year ended September 30, 2023.
For information about the fair value of the aggregate principal amount of borrowings under our term loans and the fair value of the Notes, refer to Note 20, “Fair Value Measurements,” in the notes to the consolidated financial statements included herein.
For information about the fair value of the aggregate principal amount of borrowings under our term loans and the fair value of the senior secured and subordinated notes, refer to Note 20, “Fair Value Measurements,” in the notes to the consolidated financial statements included herein.
As of September 30, 2022, approximately 85% of our total debt was fixed rate. The effect of a hypothetical one percentage point increase in interest rates would increase the annual interest costs under our term loans by approximately $74 million based on the amount of outstanding borrowings at September 30, 2022.
As of September 30, 2023, approximately 90% of our gross debt was fixed rate. The effect of a hypothetical one percentage point increase in interest rates would increase the annual interest costs under our Term Loans Facility and Securitization Facility by approximately $44 million based on the amount of outstanding borrowings at September 30, 2023.
Borrowings under our term loans bear interest, at our option, at a rate equal to either an alternate base rate or an adjusted LIBOR for a one-, two-, three- or six-month (or to the extent available to each lender, nine- or twelve-month) interest period chosen by us, in each case, plus an applicable margin percentage.
Borrowings under our term loans bear interest, at our option, at a rate equal to either an alternate base rate or an adjusted Term SOFR for a one-, three- or six-month thereafter (in each case, subject to the availability thereof), interest period chosen by us, in each case, plus an applicable margin percentage.
Accordingly, the Company’s cash flows and earnings will be exposed to the market risk of interest rate changes resulting from variable rate borrowings under our term loans. The Company's objective is to maintain an allocation of at least 75% fixed rate and 25% variable rate debt thereby limiting its exposure to changes in near-term interest rates.
The Company's objective is to maintain an allocation of at least 75% fixed rate and 25% variable rate debt thereby limiting its exposure to changes in near-term interest rates.
The weighted average interest rate on the $7,298 million of borrowings under our Term Loans Facility on September 30, 2022 was 6.3%.
The weighted average interest rate on the $6,249 million of term loans and the $350 million drawn on the Securitization Facility at September 30, 2023 was 6.3%.
Removed
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest Rate Risk Our main exposure to market risk relates to interest rates. Our financial instruments that are subject to interest rate risk is principally our variable rate debt. In July 2017, the U.K.
Added
Our Securitization Facility bears interest at a rate of three-month Term SOFR plus 1.60%. Accordingly, the Company’s cash flows and earnings will be exposed to the market risk of interest rate changes resulting from variable rate borrowings under our term loans.
Removed
Financial Conduct Authority (the authority that regulates LIBOR) announced that it intended to stop compelling banks to submit rates for the calculation of LIBOR after 2021.
Removed
The discontinuation date for submission and publication of rates for the remaining tenors of USD LIBOR (one-month, three-month, six-month and twelve-month) was subsequently extended by the ICE Benchmark Administration (the administrator of LIBOR) until June 30, 2023. It is unclear whether new methods of calculating LIBOR will be established such that it continues to exist after 2023.
Removed
Similarly, it is not possible to predict whether LIBOR will continue to be viewed as an acceptable market benchmark, what rate or rates may become acceptable alternatives to LIBOR, or what effect these changes in views or alternatives may have on financial markets for LIBOR-linked financial instruments. While the U.S.
Removed
Federal Reserve, in conjunction with the Alternative Reference Rates Committee, has chosen the secured overnight financing rate (“SOFR”) as the recommended risk-free reference rate for the U.S. (calculated based on repurchase agreements backed by treasury securities), we cannot currently predict the extent to which this index will gain widespread acceptance as a replacement for LIBOR.
Removed
It is not possible to predict the effect of these changes, other reforms or the establishment of alternative reference rates. In February 2020, in connection with Amendment No. 7 to the Credit Agreement, we amended our Credit Agreement to include a provision for the determination of an alternative reference interest rate.
Removed
Additionally, with respect to our derivatives portfolio, we have elected the LIBOR protocols issued by the International Swaps and Derivatives Association, but the discontinuation of LIBOR may also require our derivative agreements to be amended in some way. Once the alternative interest rate has replaced LIBOR, our future interest expense could be impacted.
Removed
Strengthening of the U.S. dollar relative to other currencies may adversely affect our operating results.
Removed
As disclosed elsewhere in this report, the future impacts of the Russia and Ukraine conflict and the COVID-19 pandemic and their residual effects, including economic uncertainty, inflationary environment and disruption within the global supply chain, labor markets and aerospace industry, on our business remain uncertain.
Removed
As we cannot anticipate the ultimate duration or scope of the Russia-Ukraine war and the COVID-19 pandemic, the ultimate financial impact to our results cannot be reasonably estimated, but could be material.

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