PART I FINANCIAL INFORMATION [ITEM 1 Financial Statements](index=4&type=section&id=ITEM%201%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements, including balance sheets, income statements, comprehensive income, changes in stockholders' deficit, and cash flows, along with detailed notes covering business description, acquisitions, accounting policies, debt, taxes, and commitments [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Condensed Consolidated Balance Sheet Highlights (Amounts in millions) | Metric | July 1, 2023 | Sept 30, 2022 | | :---------------------- | :----------- | :------------ | | Total Assets | $19,555 | $18,107 | | Total Liabilities | $21,942 | $21,873 | | Total Stockholders' Deficit | $(2,387) | $(3,766) | | Cash and cash equivalents | $3,071 | $3,001 | | Inventories—Net | $1,603 | $1,332 | - Total assets increased by **$1,448 million**, and total stockholders' deficit decreased by **$1,379 million** from September 30, 2022, to July 1, 2023[6](index=6&type=chunk) [Condensed Consolidated Statements of Income](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) Condensed Consolidated Statements of Income Highlights (Amounts in millions, except per share amounts) | Metric | 13 Weeks Ended July 1, 2023 | 13 Weeks Ended July 2, 2022 | 39 Weeks Ended July 1, 2023 | 39 Weeks Ended July 2, 2022 | | :----------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net Sales | $1,744 | $1,398 | $4,733 | $3,919 | | Gross Profit | $1,029 | $816 | $2,750 | $2,213 | | Income from Operations | $783 | $599 | $2,067 | $1,574 | | Net Income Attributable to TD Group | $351 | $238 | $883 | $600 | | Earnings per share (basic and diluted) | $6.14 | $4.10 | $14.80 | $9.44 | - Net sales for the thirty-nine-week period increased by **20.8%** year-over-year, while net income attributable to TD Group surged by **47.2%** for the same period[8](index=8&type=chunk) [Condensed Consolidated Statements of Comprehensive Income](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) Condensed Consolidated Statements of Comprehensive Income Highlights (Amounts in millions) | Metric | 13 Weeks Ended July 1, 2023 | 13 Weeks Ended July 2, 2022 | 39 Weeks Ended July 1, 2023 | 39 Weeks Ended July 2, 2022 | | :----------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net income attributable to TD Group | $351 | $238 | $883 | $600 | | Foreign currency translation adjustment | $31 | $(155) | $211 | $(208) | | Unrealized gains on derivatives | $35 | $24 | $26 | $252 | | Total Comprehensive Income Attributable to TD Group | $417 | $113 | $1,120 | $650 | - Total comprehensive income attributable to TD Group for the thirty-nine-week period increased by **72.3%** year-over-year, largely due to a positive swing in foreign currency translation adjustment[9](index=9&type=chunk) [Condensed Consolidated Statements of Changes in Stockholders' Deficit](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Stockholders'%20Deficit) Changes in TD Group Stockholders' Deficit (Amounts in millions) | Metric | Sept 30, 2022 | July 1, 2023 | | :----------------------------------- | :------------ | :----------- | | Total TD Group stockholders' deficit | $(3,773) | $(2,394) | | Accumulated deficit | $(3,914) | $(3,034) | | Accumulated other comprehensive loss | $(267) | $(30) | - The total TD Group stockholders' deficit improved by **$1,379 million** from September 30, 2022, to July 1, 2023, primarily driven by net income and positive changes in accumulated other comprehensive loss[6](index=6&type=chunk)[13](index=13&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Condensed Consolidated Statements of Cash Flows Highlights (Amounts in millions) | Metric | 39 Weeks Ended July 1, 2023 | 39 Weeks Ended July 2, 2022 | | :----------------------------------------- | :-------------------------- | :-------------------------- | | Net cash provided by operating activities | $913 | $675 | | Net cash used in investing activities | $(852) | $(505) | | Net cash used in financing activities | $(11) | $(1,116) | | Net increase (decrease) in cash and cash equivalents | $70 | $(979) | | Cash and cash equivalents, end of period | $3,071 | $3,808 | - Net cash provided by operating activities increased by **$238 million** year-over-year, contributing to a net increase in cash and cash equivalents of **$70 million** for the thirty-nine-week period, a significant improvement from a **$979 million** decrease in the prior year[15](index=15&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) [1. DESCRIPTION OF THE BUSINESS](index=10&type=section&id=1.%20DESCRIPTION%20OF%20THE%20BUSINESS) TransDigm Group Incorporated is a leading global designer, producer, and supplier of highly engineered proprietary aircraft components for use on nearly every commercial and military aircraft, offering a broad range of specialized aerospace products - TransDigm is a leading global designer, producer, and supplier of highly engineered proprietary aircraft components for commercial and military aircraft[16](index=16&type=chunk) - The company offers a broad range of products including mechanical/electro-mechanical actuators, ignition systems, specialized pumps and valves, power conditioning devices, electric motors, batteries, latching devices, cockpit security components, displays, audio/radio/antenna systems, lavatory components, seat belts, interior surfaces, sensor products, switches, thermal protection, lighting, parachutes, hoists, winches, cargo systems, and testing services[16](index=16&type=chunk) [2. UNAUDITED INTERIM FINANCIAL INFORMATION](index=10&type=section&id=2.%20UNAUDITED%20INTERIM%20FINANCIAL%20INFORMATION) The interim financial information is unaudited but includes all necessary recurring adjustments for fair presentation, prepared in conformity with U.S. GAAP, and should be read in conjunction with the prior fiscal year's Form 10-K - The financial information is unaudited but reflects all necessary normal recurring adjustments for fair presentation[17](index=17&type=chunk) - The financial statements are prepared in conformity with U.S. GAAP for interim financial statements[17](index=17&type=chunk) - Results for the thirty-nine-week period ended July 1, 2023, are not necessarily indicative of the results to be expected for the full year[17](index=17&type=chunk) [3. ACQUISITIONS](index=10&type=section&id=3.%20ACQUISITIONS) The company completed the acquisition of Calspan Corporation for $729 million in May 2023 and finalized the DART Aerospace acquisition from May 2022, along with several smaller Extant Aerospace product line acquisitions, all aimed at strengthening its position in proprietary aerospace components with significant aftermarket content - Acquired Calspan Corporation on May 8, 2023, for **$729 million**, a leading independent provider of highly engineered testing and technology development services for the aerospace and defense industry[18](index=18&type=chunk) - Finalized the DART Aerospace acquisition (May 25, 2022) for **$359 million**, a leading provider of helicopter mission equipment solutions[20](index=20&type=chunk) - Completed an **$11 million** product line acquisition for Extant Aerospace in the thirty-nine-week period ended July 1, 2023, and a series of **$88 million** acquisitions in fiscal 2022[23](index=23&type=chunk)[24](index=24&type=chunk) - These acquisitions strengthen and expand the company's position in niche markets with significant aftermarket content and provide opportunities to create value through core operating strategies[26](index=26&type=chunk) [4. RECENT ACCOUNTING PRONOUNCEMENTS](index=13&type=section&id=4.%20RECENT%20ACCOUNTING%20PRONOUNCEMENTS) The company adopted ASU 2020-04, 'Reference Rate Reform,' and related amendments, applying practical expedients to preserve cash flow hedge accounting for LIBOR to Term SOFR conversions, with no material impact on financial statements - Applied ASU 2020-04, 'Reference Rate Reform,' and related amendments (ASU 2021-01, ASU 2022-06) to ease accounting impacts of transitioning away from LIBOR[27](index=27&type=chunk) - Entered into LIBOR to Term SOFR basis interest rate swap and cap agreements, applying practical expedients to preserve existing swaps and caps as qualifying cash flow hedges[27](index=27&type=chunk) - The application of this standard did not have a material impact on the Company's condensed consolidated financial statements and disclosures[27](index=27&type=chunk) [5. REVENUE RECOGNITION](index=13&type=section&

Agenda Operating Performance and Financial Results Mike Lisman CFO Forward Looking Statements & Special Notice Regarding Pro Forma and Non‐GAAP Information TransDigm Overview Proprietary products OEM Aftermarket Comm OEM 27% Comm Afterma rket 31% De fense 42% FY 23 Guidance Midpoint Change Guidance Summary (current guidance includes Calspan) Low High (1) Pro forma revenue is for the fiscal year ended 9/30/2022. Excludes impact of the Calspan Corporation acquisition completed May 2023. Includes full year imp ...

Financial Data and Key Metrics Changes - The company reported a Q2 EBITDA margin improvement to 51.3%, driven by a focus on operating strategy and recovery in commercial aftermarket revenues [16] - Operating cash flow for Q2 was approximately $130 million, with cash on hand exceeding $3.4 billion at the end of the quarter [16][59] - Full fiscal year '23 revenue guidance was raised to a midpoint of $6.455 billion, reflecting a 19% increase, while EBITDA guidance was increased to $3.26 billion, up approximately 23% [19][21] Business Line Data and Key Metrics Changes - Total commercial OEM revenue increased by approximately 25% in Q2 compared to the prior year, with bookings improving over 15% [50] - Commercial aftermarket revenue rose by approximately 38% in Q2, primarily driven by strength in the passenger sub-market [51] - Defense market revenue grew by approximately 5% in Q2 compared to the prior year, with bookings solidly outpacing sales [28] Market Data and Key Metrics Changes - Global domestic air traffic was only down 1% compared to pre-pandemic levels, with U.S. domestic travel also down 1% [26] - International travel was down about 36% in the Asia-Pacific region, showing improvement from previous lows [53] - Global air cargo volumes continued to be lower year-over-year, but the reopening of China has positively impacted air cargo outlook [27] Company Strategy and Development Direction - The company focuses on proprietary aerospace businesses with significant aftermarket content and aims for PE-like returns through acquisitions [6][14] - The recent acquisition of Calspan Corporation for approximately $725 million is expected to enhance the company's service offerings and revenue stability [8][43] - Capital allocation priorities remain focused on reinvesting in businesses, pursuing accretive M&A, and returning capital to shareholders [44] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism regarding the recovery in the commercial aerospace market, with strong demand for travel continuing [15][22] - The company is closely monitoring the aerospace and capital markets and expects to generate significant additional cash throughout the remainder of 2023 [22] - Management noted that while the commercial aftermarket is progressing well, it remains difficult to predict due to the nature of bookings [20] Other Important Information - The company maintains significant liquidity and financial flexibility, with a net debt to EBITDA ratio of about 5.6x, below the pre-COVID average [31] - Over 75% of the total $20 billion gross debt balance is fixed or hedged through fiscal '26, providing a cushion against rising interest rates [33] Q&A Session Summary Question: What is the pricing environment like? - Management noted that while there are more properties available, pricing remains high, and they have not observed significant changes in pricing dynamics [66][77] Question: What is driving the OEM upside in guidance? - The improvement in OEM guidance is attributed to increasing build rates, improved deliveries, and a growing order book [82] Question: How is working capital consumption expected to trend? - Management indicated that while working capital consumption was $220 million in the quarter, they do not expect a significant uptick in future quarters [84] Question: Where do aftermarket volumes stand relative to pre-pandemic levels? - Management believes aftermarket volumes are still 10% to 15% below pre-pandemic levels, indicating potential for further recovery [88] Question: What is the outlook for the defense market? - The defense market is expected to see low to mid-single-digit growth, with steady improvement in government defense spending [28][47] Question: How does the company view its leverage in the current environment? - Management is comfortable operating within a net debt to EBITDA ratio of five to seven times, maintaining flexibility for future opportunities [165]

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q ☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended April 1, 2023 ☐ Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to Commission File Number 001-32833 TransDigm Group Incorporated (Exact name of registrant as specified in its charter) Delaware (State or other jurisdicti ...

TransDigm Group, Inc. (NYSE:TDG) Q1 2023 Earnings Conference Call February 7, 2023 11:00 AM ET Company Participants Jaimie Stemen - Manager, Financial Reporting Kevin Stein - President, CEO & Director Jorge Valladares - COO Michael Lisman - EVP & CFO Conference Call Participants Noah Poponak - Goldman Sachs Group Robert Stallard - Vertical Research Partners Scott Deuschle - Crédit Suisse Matthew Akers - Wells Fargo Securities Andre Madrid - Bank of America Merrill Lynch Peter Arment - Robert W. Baird & Co. ...

PART I FINANCIAL INFORMATION [Financial Statements](index=4&type=section&id=ITEM%201%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements for Q1 FY2023, including balance sheets, income, cash flows, and notes on acquisitions, debt, and segment performance [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of December 31, 2022, total assets increased to **$18,489 million**, while total liabilities slightly decreased to **$21,817 million**, leading to an improved stockholders' deficit of **$(3,328) million** Condensed Consolidated Balance Sheet Highlights (in millions) | Account | Dec 31, 2022 | Sep 30, 2022 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $3,288 | $3,001 | | Total current assets | $5,929 | $5,649 | | Goodwill | $8,719 | $8,641 | | Total Assets | $18,489 | $18,107 | | **Liabilities & Stockholders' Deficit** | | | | Total current liabilities | $1,408 | $1,426 | | Long-term debt | $19,375 | $19,369 | | Total liabilities | $21,817 | $21,873 | | Total stockholders' deficit | $(3,328) | $(3,766) | [Condensed Consolidated Statements of Income](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) For Q1 FY2023, net sales grew **17.0%** to **$1,397 million**, driving a **39.9%** increase in net income to **$228 million**, and diluted EPS reaching **$3.33** Statement of Income Summary (in millions, except per share data) | Metric | Q1 FY2023 (ended Dec 31, 2022) | Q1 FY2022 (ended Jan 1, 2022) | Change (%) | | :--- | :--- | :--- | :--- | | Net Sales | $1,397 | $1,194 | 17.0% | | Gross Profit | $793 | $661 | 20.0% | | Income from Operations | $590 | $455 | 29.7% | | Net Income Attributable to TD Group | $228 | $163 | 39.9% | | Diluted EPS | $3.33 | $1.98 | 68.2% | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For Q1 FY2023, net cash from operating activities increased to **$377 million**, with **$41 million** used in investing and **$65 million** in financing, reflecting debt refinancing Cash Flow Summary (in millions) | Activity | Q1 FY2023 (ended Dec 31, 2022) | Q1 FY2022 (ended Jan 1, 2022) | | :--- | :--- | :--- | | Net cash provided by operating activities | $377 | $279 | | Net cash used in investing activities | $(41) | $(25) | | Net cash used in financing activities | $(65) | $(225) | | Net increase in cash and cash equivalents | $287 | $26 | | Cash and cash equivalents, end of period | $3,288 | $4,813 | [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes provide critical details supporting the financial statements, including the **$359 million** DART Aerospace acquisition, debt refinancing, strong segment growth, and legal contingencies - On May 25, 2022, the Company acquired DART Aerospace for a total purchase price of **$359 million** in cash[15](index=15&type=chunk) - On December 14, 2022, the Company refinanced approximately **$1,725 million** in Tranche G term loans with new Tranche H term loans maturing in **February 2027**, bearing interest at **Term SOFR plus 3.25%**[40](index=40&type=chunk) Net Sales by Segment (in millions) | Segment | Q1 FY2023 | Q1 FY2022 | | :--- | :--- | :--- | | Power & Control | $725 | $650 | | Airframe | $637 | $506 | | Non-aviation | $35 | $38 | | **Total Net Sales** | **$1,397** | **$1,194** | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=25&type=section&id=ITEM%202%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses strong Q1 FY2023 performance, highlighting **17.0%** net sales growth from commercial aerospace recovery, expanded gross profit margin, and robust liquidity with extended debt maturities [Results of Operations](index=27&type=section&id=Results%20of%20Operations) Net sales increased by **$203 million (17.0%)** in Q1 FY2023, driven by strong commercial aftermarket and OEM sales, leading to a gross profit margin improvement to **56.8%** Net Sales Change Analysis (in millions) | Sales Type | Q1 FY2023 | Q1 FY2022 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Organic sales | $1,375 | $1,194 | $181 | 15.2% | | Acquisition sales | $22 | $— | $22 | 1.8% | | **Net sales** | **$1,397** | **$1,194** | **$203** | **17.0%** | - The increase in organic sales was primarily driven by a **$115 million (33.5%)** rise in commercial aftermarket sales and a **$53 million (21.0%)** increase in commercial OEM sales, reflecting the continued recovery in air travel and aircraft production[98](index=98&type=chunk) - Gross profit as a percentage of net sales increased by **1.4 percentage points** to **56.8%**, primarily due to fixed overhead costs being spread over higher production volume and a favorable sales mix with higher commercial aftermarket sales[100](index=100&type=chunk) [Business Segments](index=30&type=section&id=Business%20Segments) Both Power & Control and Airframe segments showed strong growth in Q1 FY2023, driven by commercial aerospace recovery and the DART acquisition, with significant increases in net sales and EBITDA As Defined EBITDA As Defined by Segment (in millions) | Segment | Q1 FY2023 | Q1 FY2022 | % Change | | :--- | :--- | :--- | :--- | | Power & Control | $401 | $328 | 22.3% | | Airframe | $312 | $226 | 38.1% | | Non-aviation | $14 | $14 | 0.0% | | **Total segment EBITDA As Defined** | **$727** | **$568** | **28.0%** | - The Airframe segment's EBITDA As Defined from acquisitions increased by **$6 million** due to the impact of the **DART acquisition**[108](index=108&type=chunk) [Liquidity and Capital Resources](index=32&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintained a strong liquidity position with substantial cash and available credit, generating significant operating cash flow, and strategically managed its debt by refinancing term loans to extend maturities Cash Liquidity as of December 31, 2022 (in millions) | Component | Amount | | :--- | :--- | | Cash and cash equivalents | $3,288 | | Availability on revolving credit facility | $779 | | **Total Cash liquidity** | **$4,067** | - The company's capital allocation priorities are: (1) **capital spending**, (2) **acquisitions**, (3) **special dividends and/or stock repurchases**, and (4) **debt prepayment**[113](index=113&type=chunk) - There is no maturity on any tranche of term loans or notes until **May 2025**, providing **significant financial flexibility**[117](index=117&type=chunk) [Quantitative and Qualitative Disclosure About Market Risk](index=41&type=section&id=ITEM%203%20Quantitative%20and%20Qualitative%20Disclosure%20About%20Market%20Risk) No material changes to market risks were reported for Q1 FY2023 compared to the fiscal year ended September 30, 2022 - Market risks have **not materially changed** for the first quarter of fiscal year 2023 compared to the fiscal year ended September 30, 2022[165](index=165&type=chunk) [Controls and Procedures](index=41&type=section&id=ITEM%204%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of December 31, 2022, with no material changes to internal control over financial reporting during the quarter - Based on an evaluation as of December 31, 2022, the Principal Executive Officer and Principal Financial Officer concluded that the company's disclosure controls and procedures are **effective**[166](index=166&type=chunk) - **No changes** in internal control over financial reporting occurred during the fiscal quarter that **materially affected**, or are reasonably likely to materially affect, the company's internal controls[167](index=167&type=chunk) PART II OTHER INFORMATION [Legal Proceedings](index=42&type=section&id=ITEM%201%20Legal%20Proceedings) The company reports no material adverse effect from legal proceedings, including the settlement of a derivative lawsuit and disagreement with a DOD OIG audit report recommending a **$20.8 million** refund - A derivative complaint filed in 2021 regarding director compensation was **settled**, with the court approving the settlement on November 10, 2022, and is **not expected to have a material adverse impact**[77](index=77&type=chunk)[78](index=78&type=chunk) - In response to a DOD OIG audit report recommending a voluntary refund of **$20.8 million**, TransDigm **disagrees** with the report's methodology and conclusions and has **not recorded a loss contingency** as of December 31, 2022[79](index=79&type=chunk)[80](index=80&type=chunk)[81](index=81&type=chunk) [Risk Factors](index=42&type=section&id=ITEM%201A%20Risk%20Factors) No material changes to risk factors were reported compared to the Form 10-K filed on November 10, 2022 - There have been **no material changes** to the risk factors described in the Form 10-K filed on November 10, 2022[171](index=171&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=42&type=section&id=ITEM%202%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds%3A%20Purchases%20of%20Equity%20Securities%20by%20the%20Issuer) The company made no stock repurchases in Q1 FY2023, with **$1,288 million** remaining available under the **$2,200 million** stock repurchase program - **No stock repurchases** were made during the first quarter of fiscal 2023[173](index=173&type=chunk) - As of December 31, 2022, **$1,288 million** remains available for repurchase under the existing **$2,200 million** stock repurchase program[173](index=173&type=chunk) [Other Information](index=42&type=section&id=ITEM%205%20Other%20Information) Halle Martin, General Counsel, retired effective February 3, 2023, with a Separation and Consulting Agreement allowing continued stock option vesting and consulting services - Halle Martin, General Counsel, **retired on February 3, 2023**. A **Separation and Consulting Agreement** was executed, allowing for **continued vesting** of certain stock options and providing for future consulting services[174](index=174&type=chunk) [Exhibits](index=43&type=section&id=ITEM%206%20Exhibits) This section lists exhibits filed with the Form 10-Q, including Credit Agreement amendments, subsidiary guarantors, and SOX certifications

TransDigm Group Incorporated (NYSE:TDG) Q4 2022 Earnings Conference Call November 10, 2022 11:00 AM ET Company Participants Jaimie Stemen - Director of Investor Relations Kevin Stein - President, Chief Executive Officer, and Director Jorge Valladares - Chief Operating Officer Mike Lisman - Chief Financial Officer Conference Call Participants Myles Walton - Wolfe Research Robert Spingarn - Melius Research Robert Stallard - Vertical Research Noah Poponak - Goldman Sachs & Co. Sheila Kahyaoglu - Jefferies Gaut ...

Financial Performance - Approximately 55% of net sales in fiscal year 2022 were generated from aftermarket revenue, primarily from commercial and military aftermarkets[13] - The company achieved steady long-term growth in sales and improvements in operating performance, focusing on profitable new business and cost control[14] - Research and development costs represented approximately 5% of consolidated net sales for fiscal year 2022[27] - The defense market accounted for approximately 43% of net sales for fiscal year 2022, while the commercial aerospace OEM market accounted for 21%[29] - The top ten customers represented approximately 41% of net sales in fiscal year 2022, with no single customer exceeding 10% of total net sales[31] - Approximately 29% of net sales for fiscal year 2022 came from the commercial, regional, business jet, and general aviation aftermarket[29] - In fiscal year 2022, defense market net sales accounted for 43% of total net sales, a decrease from 50% in fiscal year 2021, indicating a shift as the commercial aerospace industry recovers[30] - The company reported net sales to foreign customers of approximately $1.9 billion for the fiscal year ended September 30, 2022[103] - The company’s commercial business is sensitive to the number of flight hours and the profitability of the airline industry, which are influenced by economic conditions[128] Market Dynamics - The demand for commercial aftermarket parts is influenced by revenue passenger miles (RPMs), the size and age of the aircraft fleet, and airline profitability, with RPMs steadily improving in fiscal 2022[32][43] - The commercial OEM market remained depressed in fiscal 2022 due to COVID-19 impacts and supply chain disruptions, but both Boeing and Airbus are planning production rate increases for calendar 2023[44] - The military business is subject to unpredictability due to government budget constraints and shifting funding priorities, although recent DOD budgets have trended upwards[46] - The COVID-19 pandemic has disrupted the global supply chain, particularly affecting the availability of electronic parts used in defense products[48] - The airline industry has faced significant losses due to reduced traffic, leading to decreased demand for spare parts and potential impacts on financial condition and cash flow generation[129] Product and Service Offerings - The company’s major product offerings include mechanical/electro-mechanical actuators, ignition systems, and specialized pumps and valves[18] - The company has a diversified product range, including mechanical/electro-mechanical actuators, ignition systems, and specialized pumps, primarily serving the aerospace industry[16] - The company aims to develop technical solutions that lead to high-margin, repeatable sales in the aftermarket, aligning with its overall strategy[23] - The company’s segments include Power & Control, Airframe, and Non-aviation, each focusing on different product offerings and customer bases[17][19][20] Operational Efficiency - The company maintains approximately 100 manufacturing facilities to enhance productivity and reduce costs[26] - EBITDA As Defined is the primary measurement used to assess operating performance, which includes adjustments for non-operating items[21] - Engineering and research and development expenses represent approximately 10% of the operating units' aggregate costs, or about 5% of consolidated net sales for fiscal year 2022[27] - The company has structured its sales efforts to focus on major product offerings, with business unit managers responsible for sales growth and profitability[24] - The company relies on major distributors such as Boeing Distribution Services, Inc. and AAR Corp. for logistical support and customer contact[25] Human Resources and Development - As of September 30, 2022, the company employed approximately 14,400 individuals, with 17% represented by labor unions[52] - The company has established TransDigm University to enhance employee skills and retention through formal mentoring and education programs[54] - The Management Development Program (MDP) recruits MBA graduates to prepare them for management roles within the company, focusing on hands-on experience in aerospace operations[55] - The company offers competitive compensation programs, including base pay, bonuses, and equity programs, to attract and retain talent[58] - Approximately 35% of past and present Management Development Program participants are gender and racially diverse, with efforts to improve this percentage[62] Financial Position and Debt Management - As of September 30, 2022, the company's total indebtedness was approximately $20 billion, representing 123.5% of total book capitalization[81] - Approximately 85% of the company's total debt was fixed rate as of September 30, 2022, mitigating exposure to interest rate fluctuations[83] - The company intends to pursue acquisitions to support growth, with a focus on finding suitable candidates at favorable prices[78] - The company has approximately $779 million of unused commitments under its revolving credit facility as of September 30, 2022[82] - The company's indebtedness increases the risk of insufficient cash flow to meet debt obligations, potentially leading to reduced capital investments or asset sales[85] Regulatory and Compliance Issues - The company is subject to unique business risks due to its contracts with the U.S. Government, which can be terminated at the government's convenience[106] - The company may incur substantial costs related to compliance with evolving data protection laws, including GDPR and CCPA[115] - The company has experienced data security incidents, although they have not materially impacted financial results[116] - Environmental liabilities are subject to uncertainties, and adjustments in accruals may be necessary as investigations proceed[120] - The company is subject to stringent regulatory requirements from the FAA and other aviation authorities, impacting its operations and product certifications[36] Environmental and Social Responsibility - The company has established a greenhouse gas emissions reduction target of at least a 50% reduction in Scope 1 and Scope 2 emissions by 2031, using fiscal 2019 as the baseline year[100] - The company is developing new environmentally friendly products and touch-free aircraft lavatory suite products to enhance passenger safety[45] - The company has implemented unconscious bias training for its Board of Directors and management to enhance diversity and inclusion[62] - The company is committed to maintaining high ethical standards and equal employment opportunities across all personnel actions[63] - The company has a commitment to health and safety, requiring monthly reporting on Environmental Health and Safety matters from operating units[65]

TransDigm Group, Inc. (NYSE:TDG) Q3 2022 Earnings Conference Call August 9, 2022 11:00 AM ET Company Participants Jaimie Stemen - Manager, Financial Reporting Kevin Stein - President, CEO & Director Jorge Valladares - COO Michael Lisman - CFO Conference Call Participants David Strauss - Barclays Bank Kenneth Herbert - RBC Capital Markets Noah Poponak - Goldman Sachs Group Nicholas Zhang - Credit Suisse Michael Ciarmoli - Truist Securities Gautam Khanna - Cowen and Company Kristine Liwag - Morgan Stanley Rob ...

PART I FINANCIAL INFORMATION [ITEM 1 Financial Statements](index=4&type=section&id=ITEM%201%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of income, comprehensive income, changes in stockholders' deficit, and cash flows, along with detailed notes explaining the company's accounting policies, acquisitions, debt, and other financial information [Condensed Consolidated Balance Sheets – July 2, 2022 and September 30, 2021](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets%20%E2%80%93%20July%202%2C%202022%20and%20September%2030%2C%202021) Provides a snapshot of the company's financial position, showing assets, liabilities, and stockholders' deficit as of July 2, 2022, and September 30, 2021, with key changes including a decrease in total assets and an increase in treasury stock | Metric | July 2, 2022 (millions) | September 30, 2021 (millions) | Change (millions) | | :-------------------------------- | :---------------------- | :-------------------------- | :---------------- | | Total Assets | $18,819 | $19,315 | $(496) | | Total Liabilities | $21,787 | $22,225 | $(438) | | Total Stockholders' Deficit | $(2,968) | $(2,910) | $(58) | | Cash and cash equivalents | $3,808 | $4,787 | $(979) | | Treasury stock | $(1,706) | $(794) | $(912) | [Condensed Consolidated Statements of Income – Thirteen and Thirty-Nine Week Periods Ended July 2, 2022 and July 3, 2021](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income%20%E2%80%93%20Thirteen%20and%20Thirty-Nine%20Week%20Periods%20Ended%20July%202%2C%202022%20and%20July%203%2C%202021) Presents financial performance for the thirteen and thirty-nine week periods, noting increased net sales and varied net income attributable to TD Group | Metric | July 2, 2022 (millions) | July 3, 2021 (millions) | Change (millions) | % Change | | :------------------------------------- | :---------------------- | :---------------------- | :---------------- | :------- | | Net Sales | $1,398 | $1,218 | $180 | 14.8% | | Gross Profit | $816 | $655 | $161 | 24.6% | | Income from Operations | $599 | $447 | $152 | 34.0% | | Net Income Attributable to TD Group | $238 | $317 | $(79) | (24.9)% | | Earnings per share | $4.10 | $5.43 | $(1.33) | (24.5)% | | Metric | July 2, 2022 (millions) | July 3, 2021 (millions) | Change (millions) | % Change | | :------------------------------------- | :---------------------- | :---------------------- | :---------------- | :------- | | Net Sales | $3,919 | $3,519 | $400 | 11.4% | | Gross Profit | $2,213 | $1,788 | $425 | 23.8% | | Income from Operations | $1,574 | $1,156 | $418 | 36.2% | | Net Income Attributable to TD Group | $600 | $471 | $129 | 27.4% | | Earnings per share | $9.44 | $6.83 | $2.61 | 38.2% | [Condensed Consolidated Statements of Comprehensive Income – Thirteen and Thirty-Nine Week Periods Ended July 2, 2022 and July 3, 2021](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20%E2%80%93%20Thirteen%20and%20Thirty-Nine%20Week%20Periods%20Ended%20July%202%2C%202022%20and%20July%203%2C%202021) Details changes in comprehensive income, including net income and other comprehensive income (loss) components, showing a decrease for the thirteen-week period but remaining flat for the thirty-nine-week period | Metric | Thirteen Week Periods Ended July 2, 2022 (millions) | Thirteen Week Periods Ended July 3, 2021 (millions) | Thirty-Nine Week Periods Ended July 2, 2022 (millions) | Thirty-Nine Week Periods Ended July 3, 2021 (millions) | | :------------------------------------------ | :-------------------------------------------------- | :-------------------------------------------------- | :--------------------------------------------------- | :--------------------------------------------------- | | Net income attributable to TD Group | $238 | $317 | $600 | $471 | | Other comprehensive (loss) income, net of tax, attributable to TD Group | $(125) | $12 | $50 | $179 | | TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO TD GROUP | $113 | $329 | $650 | $650 | - Foreign currency translation adjustment significantly impacted other comprehensive income, moving from a gain of **$10 million** (13 weeks ended July 3, 2021) to a loss of **$(155) million** (13 weeks ended July 2, 2022)[8](index=8&type=chunk) [Condensed Consolidated Statements of Changes in Stockholders' Deficit – Thirteen and Thirty-Nine Week Periods Ended July 2, 2022 and July 3, 2021](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Stockholders%27%20Deficit%20%E2%80%93%20Thirteen%20and%20Thirty-Nine%20Week%20Periods%20Ended%20July%202%2C%202022%20and%20July%203%2C%202021) Outlines changes in stockholders' deficit, including common stock, additional paid-in capital, accumulated deficit, accumulated other comprehensive loss, and treasury stock, with a notable increase in treasury stock due to repurchases | Metric | July 2, 2022 (millions) | September 30, 2021 (millions) | Change (millions) | | :-------------------------------- | :---------------------- | :-------------------------- | :---------------- | | Total TD Group stockholders' deficit | $(2,976) | $(2,916) | $(60) | | Treasury stock, at cost | $(1,706) | $(794) | $(912) | | Accumulated deficit | $(3,114) | $(3,705) | $591 | - The company repurchased **1,490,413 shares** of common stock for **$912 million** during the second and third quarters of fiscal 2022, significantly increasing treasury stock[48](index=48&type=chunk) [Condensed Consolidated Statements of Cash Flows – Thirty-Nine Week Periods Ended July 2, 2022 and July 3, 2021](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows%20%E2%80%93%20Thirty-Nine%20Week%20Periods%20Ended%20July%202%2C%202022%20and%20July%203%2C%202021) Details cash flows from operating, investing, and financing activities, showing increased operating cash flow, decreased cash used in investing, and a significant shift to net cash use in financing due to stock repurchases | Activity | July 2, 2022 (millions) | July 3, 2021 (millions) | Change (millions) | | :-------------------------------- | :---------------------- | :---------------------- | :---------------- | | Net cash provided by operating activities | $675 | $624 | $51 | | Net cash used in investing activities | $(505) | $(748) | $243 | | Net cash used in financing activities | $(1,116) | $(74) | $(1,042) | | Net decrease in cash and cash equivalents | $(979) | $(188) | $(791) | - The significant increase in cash used in financing activities is primarily due to **$912 million** in common stock repurchases in the current period, compared to none in the prior year[12](index=12&type=chunk)[163](index=163&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) These notes provide detailed explanations and disclosures for the condensed consolidated financial statements, covering business description, accounting policies, acquisitions, debt, income taxes, fair value measurements, derivatives, segment information, retirement plans, comprehensive loss, leases, commitments, and subsequent events [Note 1. DESCRIPTION OF THE BUSINESS](index=10&type=section&id=Note%201.%20DESCRIPTION%20OF%20THE%20BUSINESS) TransDigm Group Incorporated is a leading global designer, producer, and supplier of highly engineered aircraft components for commercial and military aircraft, offering a broad range of proprietary aerospace products - TransDigm Group Incorporated is a leading global designer, producer, and supplier of highly engineered aircraft components for use on nearly every commercial and military aircraft[13](index=13&type=chunk) - The company offers a broad range of proprietary aerospace products, including mechanical/electro-mechanical actuators, ignition systems, specialized pumps and valves, and cockpit security components[13](index=13&type=chunk) [