Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

112K characters. Original on sec.gov · Markdown

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-looking Statements

The following discussion of the Company’s financial condition and results of operations should be read together with TD Group’s condensed consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q. References in this section to “TransDigm,” “the Company,” “we,” “us,” “our,” and similar references refer to TD Group, TransDigm Inc. and TransDigm Inc.’s subsidiaries, unless the context otherwise indicates.

This Quarterly Report on Form 10-Q contains both historical and “forward-looking statements” within the meaning of Section 21E of the Exchange Act, and 27A of the Securities Act. All statements other than statements of historical fact included that address activities, events or developments that we expect, believe or anticipate will or may occur in the future are forward-looking statements, including, in particular, the statements about our plans, objectives, strategies and prospects regarding, among other things, our financial condition, results of operations and business. We have identified some of these forward-looking statements with words like “believe,” “may,” “will,” “should,” “expect,” “intend,” “plan,” “predict,” “anticipate,” “estimate” or “continue” and other words and terms of similar meaning. These forward-looking statements may be contained throughout this Quarterly Report on Form 10-Q. These forward-looking statements are based on current expectations about future events affecting us and are subject to uncertainties and factors relating to, among other things, our operations and business environment, all of which are difficult to predict and many of which are beyond our control. Many factors mentioned in our discussion in this Quarterly Report on Form 10-Q, including the risks outlined under “Risk Factors,” will be important in determining future results. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we do not know whether our expectations will prove correct. They can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties, including those described under “Risk Factors” in the Quarterly Report on Form 10-Q. Since our actual results, performance or achievements could differ materially from those expressed in, or implied by, these forward-looking statements, we cannot give any assurance that any of the events anticipated by these forward-looking statements will occur or, if any of them does occur, what impact they will have on our business, results of operations and financial condition. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date they are made. We do not undertake any obligation to update these forward-looking statements or the risk factors contained in this Quarterly Report on Form 10-Q to reflect new information, future events or otherwise, except as may be required under federal securities laws.

Important factors that could cause actual results to differ materially from the forward-looking statements made in this Quarterly Report on Form 10-Q include but are not limited to: the impact that the COVID-19 pandemic has on our business, results of operations, financial condition and liquidity; the sensitivity of our business to the number of flight hours that our customers’ planes spend aloft and our customers’ profitability, both of which are affected by general economic conditions; future geopolitical or other worldwide events; cyber-security threats and natural disasters; our reliance on certain customers; the U.S. defense budget and risks associated with being a government supplier including government audits and investigations; failure to maintain government or industry approvals; failure to complete or successfully integrate acquisitions; our indebtedness; potential environmental liabilities; liabilities arising in connection with litigation; increases in raw material costs, taxes and labor costs that cannot be recovered in product pricing; risks and costs associated with our international sales and operations; and other factors. Refer to Part II, Item 1A included in this Quarterly Report on Form 10-Q and to Part II, Item 1A of the Annual Report on Form 10-K for additional information regarding the foregoing factors that may affect our business.

Overview

We believe we are a leading global designer, producer and supplier of highly engineered proprietary aerospace components with significant aftermarket content. We seek to develop highly customized products to solve specific needs for aircraft operators and manufacturers. We attempt to differentiate ourselves based on engineering, service and manufacturing capabilities. We typically choose not to compete for non-proprietary “build to print” business because it frequently offers lower margins than proprietary products. We believe that our products have strong brand names within the industry and that we have a reputation for high quality, reliability and strong customer support. Our business is well diversified due to the broad range of products that we offer to our customers. 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. Each of these product offerings is composed of many individual products that are typically customized to meet the needs of a particular aircraft platform or customer.

For the second quarter of fiscal year 2022, we generated net sales of $1,327 million and net income attributable to TD Group of $199 million. EBITDA As Defined was $633 million, or 47.7% of net sales. Refer to the “Non-GAAP Financial Measures” section for certain information regarding EBITDA and EBITDA As Defined, including reconciliations of EBITDA and EBITDA As Defined to income from continuing operations and net cash provided by operating activities.

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. This is due to the numerous uncertainties that have risen from the pandemic, including the severity of the disease, the duration of the outbreak, the likelihood of resurgences of the outbreak, including due to the emergence and spread of variants, actions that may be taken by governmental authorities in response to the disease including vaccination mandates, the continued efficacy and public acceptance of vaccines, and unintended consequences of the foregoing.

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. 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. However, commercial air travel has increasingly shown signs of recovery in recent months with increasing air traffic, primarily in certain domestic markets. The recovery in international commercial air travel has been slower with international travel only slightly recovered from COVID-19 pandemic lows. The exact pace and timing of the commercial air travel recovery remains uncertain and is expected to continue to be uneven depending on factors such as trends in the number of COVID-19 infections (e.g., impact of new variants of COVID-19 resurfacing), the continued efficacy and public acceptance of vaccines and easing of quarantines and travel restrictions, among other factors.

The COVID-19 pandemic has also disrupted the global supply chain to a certain extent and availability of raw materials, particularly electronic parts. Because we strive to limit the volume of raw materials and component parts on hand, our business could be adversely affected if we were unable to obtain these raw materials and components from our suppliers in the quantities we require or on favorable terms. Although we believe in most cases that we could identify alternative suppliers, or alternative raw materials or component parts, the lengthy and expensive Federal Aviation Administration (“FAA”) and OEM certification processes associated with aerospace products could prevent efficient replacement of a supplier, raw material or component part.

We currently expect COVID-19 to continue to cause an adverse impact on our net sales, net income and EBITDA As Defined compared to pre-pandemic levels for the duration of fiscal 2022. Longer-term, because the duration of the pandemic is unclear, it is difficult to forecast a precise impact on the Company’s future results. We will continue to evaluate the nature and extent to which COVID-19 will impact our business, supply chain, consolidated results of operations, financial condition, and liquidity.

We are also 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. Although we currently do not believe there will be a direct material adverse impact on TransDigm's business, the implications of the Russia and Ukraine conflict in the short-term and long-term are difficult to predict at this time. Factors 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.

Critical Accounting Policies and Estimates

The preparation and fair presentation of the consolidated unaudited interim financial statements and accompanying notes included in this report are the responsibility of management. The financial statements and footnotes have been prepared in conformity with generally accepted accounting principles in the United States (“U.S. GAAP”) for interim financial statements and contain certain amounts that were based upon management’s best estimates, judgments and assumptions that were believed to be reasonable under the circumstances. On an ongoing basis, we evaluate the accounting policies and estimates used to prepare financial statements. Estimates are based on historical experience, judgments and assumptions believed to be reasonable under current facts and circumstances. Actual amounts and results could differ from these estimates used by management.

A comprehensive discussion of the Company’s critical accounting policies and management estimates and significant accounting policies followed in the preparation of the financial statements is included in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended September 30, 2021, filed on November 16, 2021. Refer to Note 4, “Recent Accounting Pronouncements,” in the notes to the condensed consolidated financial statements included herein for further disclosure of accounting standards recently adopted or required to be adopted in the future.

Acquisitions and Divestitures

Recent acquisitions and divestitures are described in Note 3, “Acquisitions and Divestitures,” in the notes to the condensed consolidated financial statements included herein.

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):


	Thirteen Week Periods Ended
	April 2, 2022			% of Net Sales		April 3, 2021			% of Net Sales
Net sales	$	1,327		100.0	%	$	1,194		100.0	%
Cost of sales	591			44.5	%	602			50.4	%
Selling and administrative expenses	183			13.8	%	162			13.6	%
Amortization of intangible assets	33			2.5	%	36			3.0	%
Income from operations	520			39.2	%	394			33.0	%
Interest expense, net	266			20.0	%	268			22.4	%
Refinancing costs	—			—	%	24			2.0	%
Other income	(6)			(0.5)	%	(28)			(2.3)	%
Income tax provision	61			4.6	%	25			2.1	%
Income from continuing operations	199			15.0	%	105			8.8	%
Less: Net income attributable to noncontrolling interests	—			—	%	(1)			(0.1)	%
Income from continuing operations attributable to TD Group	199			15.0	%	104			8.7	%
Net income attributable to TD Group	$	199		15.0	%	$	104		8.7	%
Net income applicable to TD Group common stockholders	$	199	(1)	15.0	%	$	104	(1)	8.7	%
Earnings per share:
Earnings per share from continuing operations—basic and diluted	$	3.38	(2)			$	1.79	(2)
Earnings per share from discontinued operations—basic and diluted	—		(2)			—		(2)
Earnings per share	$	3.38				$	1.79
Weighted-average shares outstanding—basic and diluted	58.9					58.4
Other Data:
EBITDA	$	588	(3)			$	464	(3)
EBITDA As Defined	$	633	(3)	47.7	%	$	519	(3)	43.5	%

**(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. No special dividends were declared or paid on participating securities, including dividend equivalent payments, for the thirteen week periods ended April 2, 2022 and April 3, 2021, respectively.

(2)Earnings per share from continuing operations is calculated by dividing net income applicable to TD Group common stockholders, excluding income from discontinued operations, net of tax, by the basic and diluted weighted average common shares outstanding. Earnings per share from discontinued operations is calculated by dividing income from discontinued operations, net of tax, by the basic and diluted weighted average common shares outstanding.

(3)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.


	Twenty-Six Week Periods Ended
	April 2, 2022			% of Net Sales		April 3, 2021			% of Net Sales
Net sales	$	2,521		100.0	%	$	2,301		100.0	%
Cost of sales	1,124			44.6	%	1,169			50.8	%
Selling and administrative expenses	353			14.0	%	358			15.6	%
Amortization of intangible assets	69			2.7	%	65			2.8	%
Income from operations	975			38.7	%	709			30.8	%
Interest expense, net	530			21.0	%	535			23.3	%
Refinancing costs	—			—	%	24			1.0	%
Other income	(8)			(0.3)	%	(33)			(1.4)	%
Income tax provision	91			3.6	%	28			1.2	%
Income from continuing operations	362			14.4	%	155			6.7	%
Less: Net income attributable to noncontrolling interests	(1)			—	%	(1)			—	%
Income from continuing operations attributable to TD Group	361			14.3	%	154			6.7	%
Income from discontinued operations, net of tax	1			—	%	—			—	%
Net income attributable to TD Group	$	362		14.4	%	$	154		6.7	%
Net income applicable to TD Group common stockholders	$	316	(1)	12.5	%	$	81	(1)	3.5	%
Earnings per share:
Earnings per share from continuing operations—basic and diluted	$	5.33	(2)			$	1.40	(2)
Earnings per share from discontinued operations—basic and diluted	0.02		(2)			—		(2)
Earnings per share	$	5.35				$	1.40
Weighted-average shares outstanding—basic and diluted	59.0					58.4
Other Data:
EBITDA	$	1,110	(3)			$	842	(3)
EBITDA As Defined	$	1,198	(3)	47.5	%	$	993	(3)	43.2	%

(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 $46 million and $73 million for the twenty-six week periods ended April 2, 2022 and April 3, 2021, respectively.

Changes in Results of Operations

Thirteen week period ended April 2, 2022 compared with the thirteen week period ended April 3, 2021

Total Company

Net Sales****.** Net organic sales and acquisition and divestiture sales and the related dollar and percentage changes for the thirteen week periods ended April 2, 2022 and April 3, 2021 were as follows (amounts in millions):


	Thirteen Week Periods Ended						% Change Net Sales
	April 2, 2022		April 3, 2021		Change
Organic sales	$	1,327	$	1,146	$	181	15.1	%
Acquisition and divestiture sales	—		48		(48)		(4.0)	%
Net sales	$	1,327	$	1,194	$	133	11.1	%

Organic sales represent net sales from existing businesses owned by the Company, excluding sales from acquisitions and divestitures. Acquisition sales represent net sales from acquired businesses for the period up to one year subsequent to their respective acquisition date. Therefore, beginning in the second quarter of fiscal 2022, Cobham Aero Connectivity's (“CAC's”) net sales, including the comparable thirteen week period in the prior year, are included in the organic growth calculation (acquisition date was January 2021). Divestiture sales represent net sales from businesses up to the date the respective divestiture was completed. 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. No acquisitions or divestitures occurred in the second quarter of fiscal 2022. Refer to Note 3, “Acquisitions and Divestitures,” in the notes to the condensed consolidated financial statements included herein for further information on the Company's recent acquisition and divestiture activity.

The increase in organic sales of $181 million for the thirteen week period ended April 2, 2022 compared to the thirteen week period ended April 3, 2021 is primarily related to increases in commercial aftermarket sales ($117 million, an increase of 45.6%) and commercial OEM sales ($62 million, an increase of 27.8%); partially offset by a decrease in defense sales ($12 million, a decrease of 2.1%). 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 the second quarter of fiscal 2022 compared to the second quarter of fiscal 2021. The increase in OEM sales is primarily attributable to a higher volume of narrow-body aircraft deliveries by aircraft manufacturers to airlines and also expected production rate increases of narrow-body aircraft compared to the second quarter of fiscal 2021. Partially offsetting the OEM sales growth are wide-body aircraft production and delivery slowdowns due to the COVID-19 pandemic adversely impacting international travel and also due to Boeing's quality control issues with the 787 aircraft. The decrease in defense sales is primarily attributable to supply chain-induced delays in fulfilling orders at certain operating units, particularly related to the OEM market.

The decrease in acquisition and divestiture sales for the thirteen week period ended April 2, 2022 is attributable to the divestitures of ScioTeq and TREALITY Simulation Visual Systems (“ScioTeq and TREALITY”), Technical Airborne Components (“TAC”), Racal Acoustics (“Racal”) and Avista, Inc. (“Avista”), all of which were completed in fiscal 2021.

Cost of Sales and Gross Profit****.** Cost of sales decreased by $11 million, or 1.8%, to $591 million for the thirteen week period ended April 2, 2022 compared to $602 million for the thirteen week period ended April 3, 2021. Cost of sales and the related percentage of net sales for the thirteen week periods ended April 2, 2022 and April 3, 2021 were as follows (amounts in millions):


	Thirteen Week Periods Ended
	April 2, 2022			April 3, 2021			Change		% Change
Cost of sales - excluding costs below	$	595		$	585		$	10	1.7	%
% of net sales	44.8		%	49.0		%
Non-cash stock compensation expense	4			2			2		100.0	%
% of net sales	0.3		%	0.2		%
Inventory acquisition accounting adjustments	1			6			(5)		(83.3)	%
% of net sales	0.1		%	0.5		%
Acquisition integration costs	—			2			(2)		(100.0)	%
% of net sales	—		%	0.2		%
COVID-19 pandemic restructuring costs	—			15			(15)		(100.0)	%
% of net sales	—		%	1.3		%
Foreign currency (gains) losses	(1)			1			(2)		(200.0)	%
% of net sales	(0.1)		%	0.1		%
Loss contract amortization	(8)			(9)			1		11.1	%
% of net sales	(0.6)		%	(0.8)		%
Total cost of sales	$	591		$	602		$	(11)	(1.8)	%
% of net sales	44.5		%	50.4		%
Gross profit	$	736		$	592		$	144	24.3	%
Gross profit percentage	55.5		%	49.6		%

Excluding the specific components to cost of sales listed above, the change in cost of sales during the thirteen week period ended April 2, 2022, which decreased as a percentage of net sales, was primarily driven by a favorable sales mix, specifically, higher commercial aftermarket net sales as a percentage of net sales compared to commercial OEM net sales in the comparable period one year ago.

In addition, despite the inflationary pressures existing for labor and certain raw materials, particularly those related to electronics and castings, the continued application of our three core value-driven operating strategies (obtaining profitable new business, continually improving our cost structure and providing highly engineered value-added products to customers) coupled with fixed overhead costs incurred being spread over a higher production volume, resulted in gross profit as a percentage of net sales increasing by 5.9 percentage points to 55.5% for the thirteen week period ended April 2, 2022 from 49.6% for the thirteen week period ended April 3, 2021.

*•*Selling and Administrative Expenses. Selling and administrative expenses increased by $21 million to $183 million, or 13.8% of net sales, for the thirteen week period ended April 2, 2022 from $162 million, or 13.6% of net sales, for the thirteen week period ended April 3, 2021. Selling and administrative expenses and the related percentage of net sales for the thirteen week periods ended April 2, 2022 and April 3, 2021 were as follows (amounts in millions):


	Thirteen Week Periods Ended
	April 2, 2022			April 3, 2021			Change		% Change
Selling and administrative expenses - excluding costs below	$	139		$	133		$	6	4.5	%
% of net sales	10.5		%	11.1		%
Non-cash stock compensation expense	38			19			19		100.0	%
% of net sales	2.9		%	1.6		%
Bad debt expense	4			—			4		100.0	%
% of net sales	0.3		%	—		%
Acquisition integration costs	2			3			(1)		(33.3)	%
% of net sales	0.2		%	0.3		%
Acquisition and divestiture transaction-related expenses	—			4			(4)		(100.0)	%
% of net sales	—		%	0.3		%
COVID-19 pandemic restructuring costs	—			3			(3)		(100.0)	%
% of net sales	—		%	0.3		%
Total selling and administrative expenses	$	183		$	162		$	21	13.0	%
% of net sales	13.8		%	13.6		%

Excluding the specific components to selling and administrative expenses listed above, the change in selling and administrative expenses during the thirteen week period ended April 2, 2022 improved as a percentage of net sales compared to the thirteen week period in the prior year. This is a result of the increased costs incurred compared to the prior year for travel and other sales support and administrative costs being offset by the continued realization of the cost mitigation measures that were enacted in the second half of fiscal 2020 and in fiscal 2021 in response to the COVID-19 pandemic.

Regarding the specific components to selling and administrative expenses listed above, the increase in non-cash stock compensation expense is attributable to the new stock option grants awarded in fiscal 2022 and the impact on the Black-Scholes fair value under ASC 718 on the options granted in fiscal 2021 and fiscal 2020 from the Compensation Committee of the Board of Directors approving, in November 2021, the Company’s established performance criteria required to be achieved for these grants for the remainder of their respective vesting periods. Bad debt expense was primarily related to an increase in the estimate for credit losses on accounts receivable for certain customers impacted by the Russia and Ukraine conflict.

*•*Amortization of Intangible Assets. Amortization of intangible assets was $33 million for the thirteen week period ended April 2, 2022 compared to $36 million for the thirteen week period ended April 3, 2021. The decrease in amortization expense of $3 million was due to amortization expense on sales order backlog for the CAC acquisition becoming fully amortized in the second quarter of fiscal 2022 reducing the total amortization expense recorded in the second quarter of fiscal 2022 compared to fiscal 2021.

Interest Expense-net.** Interest expense-net includes interest on borrowings outstanding, amortization of debt issuance costs, original issue discount and premium, revolving credit facility fees and interest on finance leases; slightly offset by interest income. Interest expense-net decreased $2 million, or 0.7%, to $266 million for the thirteen week period ended April 2, 2022 from $268 million for the comparable thirteen week period in the prior fiscal year. The decrease in interest expense-net was primarily due to the repayment of $200 million previously drawn on the revolving credit facility and the favorable impact from refinancing the 6.50% Senior Subordinated Notes due 2025 (the “2025 Notes”) in the third quarter of fiscal 2021, effectively resulting in a reduced interest rate of 4.875% and an extended maturity date of $750 million in senior subordinated notes. The weighted average interest rate for cash interest payments on total borrowings outstanding for the thirteen week period ended April 2, 2022 was 5.1%.
Other Income.** Other income was $6 million for the thirteen week period ended April 2, 2022 compared to $28 million for the thirteen week period ended April 3, 2021. Other income for the thirteen week period ended April 2, 2022 was primarily driven by cash proceeds received from a final working capital settlement for the ScioTeq and TREALITY divestiture ($3 million), the release of a contingent liability ($2 million) and the non-service related components of net periodic benefit costs on the Company's defined benefit pension plans ($1 million). Other income for the thirteen week period ended April 3, 2021 was primarily driven by a $22 million gain on the settlement of the property insurance portion of the claim for Leach International Europe's Niort, France operating facility fire in August 2019. The gain represented the insurance proceeds received in excess of the carrying value of the damaged fixed assets and inventory. The remaining $6 million was primarily driven by non-service related components of net periodic benefit costs on the Company's defined benefit pension plans ($3 million), receipt of payment of Canadian governmental subsidies ($2 million) and a net gain on sale recorded on the completed divestitures of certain businesses ($1 million).
Income Taxes.** Income tax expense as a percentage of income before income taxes was approximately 23.5% for the thirteen week period ended April 2, 2022 compared to 19.2% for the thirteen week period ended April 3, 2021. The Company's higher effective tax rate for the thirteen week period ended April 2, 2022 was primarily a result of a decrease in the impact of the discrete tax benefit associated with share-based payments on the effective tax rate relative to comparable prior fiscal year periods. The reduced impact of the discrete tax benefit was the result of an increase in income from continuing operations before income taxes compared to the prior year.
Net Income Attributable to TD Group****.** Net income attributable to TD Group increased $95 million, or 91.3%, to $199 million for the thirteen week period ended April 2, 2022 compared to net income attributable to TD Group of $104 million for the thirteen week period ended April 3, 2021, primarily as a result of the factors referenced above.
Earnings per Share.** Basic and diluted earnings per share was $3.38 for the thirteen week period ended April 2, 2022 and $1.79 per share for the thirteen week period ended April 3, 2021. There was no impact on earnings per share from discontinued operations for the thirteen week periods ended April 2, 2022 and April 3, 2021.

Business Segments

Segment Net Sales****.** Net sales by segment for the thirteen week periods ended April 2, 2022 and April 3, 2021 were as follows (amounts in millions):


	Thirteen Week Periods Ended
	April 2, 2022		% of Net Sales		April 3, 2021		% of Net Sales		Change		% Change
Power & Control	$	708	53.4	%	$	641	53.7	%	$	67	10.5	%
Airframe	579		43.6	%	513		43.0	%	66		12.9	%
Non-aviation	40		3.0	%	40		3.3	%	—		—	%
Net sales	$	1,327	100.0	%	$	1,194	100.0	%	$	133	11.1	%

Net sales for the Power & Control segment increased $67 million, an increase of 10.5%, for the thirteen week period ended April 2, 2022 compared to the thirteen week period ended April 3, 2021. The sales increase resulted primarily from increases in organic sales in the commercial aftermarket ($51 million, an increase of 35.9%) and commercial OEM ($25 million, an increase of 23.9%); partially offset by a decrease in organic defense sales ($13 million, a decrease of 3.6%). 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 the second quarter of fiscal 2022 compared to the second quarter of fiscal 2021. The increase in OEM sales is primarily attributable to a higher volume of narrow-body aircraft deliveries by aircraft manufacturers to airlines and also expected production rate increases of narrow-body aircraft compared to the second quarter of fiscal 2021. Partially offsetting the OEM sales growth are wide-body aircraft production and delivery slowdowns due to the COVID-19 pandemic adversely impacting international travel and also due to Boeing's quality control issues with the 787 aircraft. The decrease in defense sales is primarily attributable to supply chain-induced delays in fulfilling orders at certain operating units, particularly related to the OEM market. The change in acquisition and divestiture sales was not material for the thirteen week period ended April 2, 2022.

Net sales for the Airframe segment increased $66 million, an increase of 12.9%, for the thirteen week period ended April 2, 2022 compared to the thirteen week period ended April 3, 2021. The sales increase resulted primarily from increases in organic sales in the commercial aftermarket ($67 million, an increase of 57.5%) and commercial OEM sales ($38 million, an increase of 34.2%). The change in organic defense sales was less than $1 million for the thirteen week period ended April 2, 2022 compared to the thirteen week period ended April 3, 2021. 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 the second quarter of fiscal 2022 compared to the second quarter of fiscal 2021. The increase in OEM sales is primarily attributable to a higher volume of narrow-body aircraft deliveries by aircraft manufacturers to airlines and also expected production rate increases of narrow-body aircraft compared to the second quarter of fiscal 2021. Partially offsetting the OEM sales growth are wide-body aircraft production and delivery slowdowns due to the COVID-19 pandemic adversely impacting international travel and also due to Boeing's quality control issues with the 787 aircraft. Acquisition and divestiture sales decreased by $47 million for the thirteen week period ended April 2, 2022 due to the impact on the comparable period from the divestitures completed in fiscal 2021.

EBITDA As Defined****.** Refer to “Non-GAAP Financial Measures” in this discussion and analysis for further information on EBITDA As Defined. EBITDA As Defined by segment for the thirteen week periods ended April 2, 2022 and April 3, 2021 were as follows (amounts in millions):


	Thirteen Week Periods Ended
	April 2, 2022		% of Segment Net Sales		April 3, 2021		% of Segment Net Sales		Change		% Change
Power & Control	$	374	52.8	%	$	309	48.2	%	$	65	21.0	%
Airframe	273		47.2	%	208		40.5	%	65		31.3	%
Non-aviation	14		35.0	%	16		40.0	%	(2)		(12.5)	%
	$	661	49.8	%	$	533	44.6	%	$	128	24.0	%

Organic EBITDA As Defined represents EBITDA As Defined from existing businesses owned by the Company as of April 2, 2022, excluding EBITDA As Defined from acquisitions and divestitures. EBITDA As Defined from acquisitions and divestitures represents EBITDA As Defined from acquired businesses for the period up to one year subsequent to the respective acquisition date and from businesses up to the date the respective divestiture was completed. Therefore, beginning in the second quarter of fiscal 2022, CAC's EBITDA As Defined, including the comparable thirteen week period in the prior year, is included in the organic growth calculation (acquisition date was January 2021). No acquisitions or divestitures occurred in the second quarter of fiscal 2022.

EBITDA As Defined for the Power & Control segment increased approximately $65 million, an increase of 21.0%, resulting from higher organic sales, particularly in the commercial aftermarket and OEM channels. 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 current inflationary environment for labor and certain raw materials. The change in EBITDA As Defined for the Power & Control segment from acquisitions and divestitures was immaterial for the thirteen week period ended April 2, 2022.

EBITDA As Defined for the Airframe segment increased approximately $65 million, an increase of 31.3%, resulting primarily from higher organic sales, particularly in the commercial aftermarket and OEM channels. 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 current inflationary environment for labor and certain raw materials. EBITDA As Defined for the Airframe segment from acquisitions and divestitures decreased by $10 million, primarily due to the impact on the comparable period from the divestitures completed in fiscal year 2021.

EBITDA As Defined for the Non-aviation segment decreased approximately $2 million, a decrease of 12.5% to the comparable period from the prior year.

Twenty-six week period ended April 2, 2022 compared with the twenty-six week period ended April 3, 2021

Total Company

Net Sales****.** Net organic sales and acquisition and divestiture sales and the related dollar and percentage changes for the twenty-six week periods ended April 2, 2022 and April 3, 2021 were as follows (amounts in millions):


	Twenty-Six Week Periods Ended						% Change Net Sales
	April 2, 2022		April 3, 2021		Change
Organic sales	$	2,480	$	2,203	$	277	12.0	%
Acquisition and divestiture sales	41		98		(57)		(2.5)	%
Net sales	$	2,521	$	2,301	$	220	9.5	%

Organic sales represent net sales from existing businesses owned by the Company, excluding sales from acquisitions and divestitures. Acquisition sales represent net sales from acquired businesses for the period up to one year subsequent to their respective acquisition date. Therefore, beginning in the second quarter of fiscal 2022, CAC's net sales, including the comparable period in the prior year, are included in the organic growth calculation (acquisition date was January 2021). Divestiture sales represent net sales from businesses up to the date the respective divestiture was completed. 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. No acquisitions or divestitures occurred in the first half of fiscal 2022. Therefore, the acquisition and divestiture sales presented above relate to acquisitions and divestitures completed in fiscal 2021. Refer to Note 3, “Acquisitions and Divestitures,” in the notes to the condensed consolidated financial statements included herein for further information on the Company's recent acquisition and divestiture activity.

The increase in organic sales of $277 million for the twenty-six week period ended April 2, 2022 compared to the twenty-six week period ended April 3, 2021 is primarily related to increases in commercial aftermarket sales ($229 million, an increase of 47.5%) and commercial OEM sales ($90 million, an increase of 20.2%); partially offset by a decrease in defense sales ($58 million, a decrease of 5.2%). 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 the first half of fiscal 2022 compared to the first half of fiscal 2021. The increase in OEM sales is primarily attributable to a higher volume of narrow-body aircraft deliveries by aircraft manufacturers to airlines and also expected production rate increases of narrow-body aircraft compared to the first half of fiscal 2021. Partially offsetting the OEM sales growth are wide-body aircraft production and delivery slowdowns due to the COVID-19 pandemic adversely impacting international travel and also due to Boeing's quality control issues with the 787 aircraft. The decrease in defense sales is primarily attributable to supply chain-induced delays in fulfilling orders at certain operating units.

The decrease in acquisition and divestiture sales for the twenty-six week period ended April 2, 2022 is primarily attributable to the divestitures of ScioTeq and TREALITY, TAC, Racal and Avista, all of which were completed in fiscal 2021; partially offset by the acquisition of CAC. CAC's sales were classified as acquisition and divestiture sales through the first quarter of fiscal 2022, and upon reaching one year subsequent to the acquisition date in the second quarter of fiscal 2022, CAC's sales were included within organic sales.

Cost of Sales and Gross Profit****.** Cost of sales decreased by $45 million, or 3.8%, to $1,124 million for the twenty-six week period ended April 2, 2022 compared to $1,169 million for the twenty-six week period ended April 3, 2021. Cost of sales and the related percentage of net sales for the twenty-six week periods ended April 2, 2022 and April 3, 2021 were as follows (amounts in millions):


	Twenty-Six Week Periods Ended
	April 2, 2022			April 3, 2021			Change		% Change
Cost of sales - excluding costs below	$	1,136		$	1,130		$	6	0.5	%
% of net sales	45.1		%	49.1		%
Non-cash stock compensation expense	8			7			1		14.3	%
% of net sales	0.3		%	0.3		%
Inventory acquisition accounting adjustments	1			6			(5)		(83.3)	%
% of net sales	—		%	0.3		%
Acquisition integration costs	1			2			(1)		(50.0)	%
% of net sales	—		%	0.1		%
COVID-19 pandemic restructuring costs	—			28			(28)		(100.0)	%
% of net sales	—		%	1.2		%
Foreign currency (gains) losses	(2)			23			(25)		(108.7)	%
% of net sales	(0.1)		%	1.0		%
Loss contract amortization	(20)			(27)			7		25.9	%
% of net sales	(0.8)		%	(1.1)		%
Total cost of sales	$	1,124		$	1,169		$	(45)	(3.8)	%
% of net sales	44.6		%	50.8		%
Gross profit	$	1,397		$	1,132		$	265	23.4	%
Gross profit percentage	55.4		%	49.2		%

Excluding the specific components to cost of sales listed above, the change in cost of sales during the twenty-six week period ended April 2, 2022, which decreased as a percentage of net sales, was primarily driven by a favorable sales mix, specifically, higher commercial aftermarket sales as a percentage of net sales compared to commercial OEM net sales in the comparable period one year ago.

Regarding the specific components to cost of sales listed above, COVID-19 pandemic restructuring costs were not material in the first half of fiscal 2022 and foreign exchange rates, particularly the U.S. dollar compared to the British pound and the Euro, were significantly less volatile compared to the first half of fiscal 2021 when the U.S. dollar depreciated against both the British pound and Euro resulting in foreign currency losses.

In addition, despite the inflationary pressures existing for labor and certain raw materials, particularly those related to electronics and castings, the continued application of our three core value-driven operating strategies (obtaining profitable new business, continually improving our cost structure and providing highly engineered value-added products to customers) coupled with fixed overhead costs incurred being spread over a higher production volume, resulted in gross profit as a percentage of net sales increasing by 6.2 percentage points to 55.4% for the twenty-six week period ended April 2, 2022 from 49.2% for the twenty-six week period ended April 3, 2021.

Selling and Administrative Expenses.** Selling and administrative expenses decreased by $5 million to $353 million, or 14.0% of net sales, for the twenty-six week period ended April 2, 2022 from $358 million, or 15.6% of net sales, for the twenty-six week period ended April 3, 2021. Selling and administrative expenses and the related percentage of net sales for the twenty-six week periods ended April 2, 2022 and April 3, 2021 were as follows (amounts in millions):


	Twenty-Six Week Periods Ended
	April 2, 2022			April 3, 2021			Change		% Change
Selling and administrative expenses - excluding costs below	$	272		$	269		$	3	1.1	%
% of net sales	10.8		%	11.7		%
Non-cash stock compensation expense	71			63			8		12.7	%
% of net sales	2.8		%	2.7		%
Acquisition integration costs	5			5			—		—	%
% of net sales	0.2		%	0.2		%
Bad debt expense	4			5			(1)		(20.0)	%
% of net sales	0.2		%	0.2		%
Acquisition and divestiture transaction-related expenses	1			6			(5)		(83.3)	%
% of net sales	—		%	0.3		%
COVID-19 pandemic restructuring costs	—			10			(10)		(100.0)	%
% of net sales	—		%	0.4		%
Total selling and administrative expenses	$	353		$	358		$	(5)	(1.4)	%
% of net sales	14.0		%	15.6		%

Excluding the specific components to selling and administrative expenses listed above, the change in selling and administrative expenses during the twenty-six week period ended April 2, 2022 improved as a percentage of net sales compared to the twenty-six week period in the prior year. This is a result of the increased costs incurred compared to the prior year for travel and other sales support and administrative costs being offset by the continued realization of the cost mitigation measures that were enacted in the second half of fiscal 2020 and in fiscal 2021 in response to the COVID-19 pandemic.

Regarding the specific components to selling and administrative expenses listed above, the increase in non-cash stock compensation expense is attributable to the new stock option grants awarded in fiscal 2022 and the impact on the Black-Scholes fair value under ASC 718 on the options granted in fiscal 2021 and fiscal 2020 from the Compensation Committee of the Board of Directors approving, in November 2021, the Company’s established performance criteria required to be achieved for these grants for the remainder of their respective vesting periods. COVID-19 pandemic restructuring costs were not material for the twenty-six week period ended April 2, 2022.

Amortization of Intangible Assets.** Amortization of intangible assets was $69 million for the twenty-six week period ended April 2, 2022 compared to $65 million for the twenty-six week period ended April 3, 2021. The increase in amortization expense of $4 million was primarily due to the amortization expense recognized on intangible assets from the acquisition of CAC.
Interest Expense-net.** Interest expense-net includes interest on borrowings outstanding, amortization of debt issuance costs, original issue discount and premium, revolving credit facility fees and interest on finance leases; slightly offset by interest income. Interest expense-net decreased $5 million, or 0.9%, to $530 million for the twenty-six week period ended April 2, 2022 from $535 million for the comparable twenty-six week period last year. The decrease in interest expense-net was primarily due to the repayment of $200 million previously drawn on the revolving credit facility and the favorable impact from refinancing the 2025 Notes in the third quarter of fiscal 2021, effectively resulting in a reduced interest rate of 4.875% and an extended maturity date of $750 million in senior subordinated notes. The weighted average interest rate for cash interest payments on total borrowings outstanding for the twenty-six week period ended April 2, 2022 was 5.1%.
Refinancing Costs.** Refinancing costs were not material for the twenty-six week period ended April 2, 2022. Refinancing costs of $24 million recorded for the twenty-six week period ended April 3, 2021 were primarily related to fees incurred on the early redemption of the 6.50% Senior Subordinated Notes due 2024 (the “2024 Notes”) that occurred in the second quarter of fiscal 2021.
Other Income.** Other income was $8 million for the twenty-six week period ended April 2, 2022 compared to $33 million for the twenty-six week period ended April 3, 2021. Other income for the twenty-six week period ended April 2, 2022 was primarily driven by cash proceeds received from a final working capital settlement for the ScioTeq and TREALITY divestiture ($3 million), the release of a contingent liability ($2 million) and the non-service related components of net periodic benefit costs on the Company's defined benefit pension plans ($2 million). Other income for the twenty-six week period ended April 3, 2021 was primarily driven by a $22 million gain on the settlement of the property insurance portion of the claim for Leach International Europe's Niort, France operating facility fire in August 2019. The gain represented the insurance proceeds received in excess of the carrying value of the damaged fixed assets and inventory. The remaining $11 million was primarily driven by non-service related components of net periodic benefit costs on the Company's defined benefit pension plans ($6 million), receipt of payment of Canadian governmental subsidies ($4 million) and a net gain on sale recorded on the completed divestitures of certain businesses ($1 million).

*•*Income Tax Provision. Income tax expense as a percentage of income before income taxes was approximately 20.1% for the twenty-six week period ended April 2, 2022 compared to 15.3% for the twenty-six week period ended April 3, 2021. The Company’s higher effective income tax rate for the twenty-six week period ended April 2, 2022, which was still lower than the federal statutory tax rate of 21%, was primarily due to the discrete impact of excess tax benefits associated with share-based payments through the first half of fiscal 2022, partially offset by an increase in the Company’s net interest deduction limitation pursuant to IRC Section 163(j).

*•*Income from Discontinued Operations. Income from discontinued operations, net of tax, for the twenty-six week period ended April 2, 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. There was no income from discontinued operations for the twenty-six week period ended April 3, 2021. Refer to Note 3, “Acquisitions and Divestitures,” in the notes to the condensed consolidated financial statements included herein for further information.

•Net Income Attributable to TD Group.** Net income attributable to TD Group increased $208 million, or 135.1%, to $362 million for the twenty-six week period ended April 2, 2022 compared to net income attributable to TD Group of $154 million for the twenty-six week period ended April 3, 2021, primarily as a result of the factors referenced above.

*•*Earnings per Share. Basic and diluted earnings per share was $5.35 for the twenty-six week period ended April 2, 2022 compared to $1.40 per share for the twenty-six week period ended April 3, 2021. Basic and diluted earnings per share from discontinued operations was $0.02 for the twenty-six week period ended April 2, 2022. There was no impact on earnings per share from discontinued operations for the twenty-six week period ended April 3, 2021.

Business Segments

Segment Net Sales****.** Net sales by segment for the twenty-six week periods ended April 2, 2022 and April 3, 2021 were as follows (amounts in millions):


	Twenty-Six Week Periods Ended
	April 2, 2022		% of Net Sales		April 3, 2021		% of Net Sales		Change		% Change
Power & Control	$	1,358	53.9	%	$	1,242	54.0	%	$	116	9.3	%
Airframe	1,085		43.0	%	977		42.4	%	108		11.1	%
Non-aviation	78		3.1	%	82		3.6	%	(4)		(4.9)	%
Net sales	$	2,521	100.0	%	$	2,301	100.0	%	$	220	9.6	%

Net sales for the Power & Control segment increased $116 million, an increase of 9.3%, for the twenty-six week period ended April 2, 2022. The sales increase resulted primarily from increases in organic sales in commercial aftermarket ($109 million, an increase of 41.0%) and commercial OEM ($45 million, an increase of 21.6%); partially offset by a decrease in organic defense sales ($43 million, a decrease of 6.1%). 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 the second half of fiscal 2022 compared to the second half of fiscal 2021. The increase in OEM sales is primarily attributable to a higher volume of narrow-body aircraft deliveries by aircraft manufacturers to airlines and also expected production rate increases of narrow-body aircraft compared to the second half of fiscal 2021. Partially offsetting the OEM sales growth are wide-body aircraft production and delivery slowdowns due to the COVID-19 pandemic adversely impacting international travel and also due to Boeing's quality control issues with the 787 aircraft. The decrease in defense sales is primarily attributable to supply chain-induced delays in fulfilling orders at certain operating units. The change in acquisition and divestiture sales was not material for the twenty-six week period ended April 2, 2022.

Net sales for the Airframe segment increased $108 million, an increase of 11.1%, for the twenty-six week period ended April 2, 2022. The sales increase resulted primarily from increases in organic sales in commercial aftermarket ($120 million, an increase of 55.5%) and commercial OEM ($47 million, an increase of 20.7%); partially offset by a decrease in organic defense sales ($14 million, a decrease of 3.6%). 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 the second half of fiscal 2022 compared to the second half of fiscal 2021. The increase in OEM sales is primarily attributable to a higher volume of narrow-body aircraft deliveries by aircraft manufacturers to airlines and also expected production rate increases of narrow-body aircraft compared to the second half of fiscal 2021. Partially offsetting the OEM sales growth are wide-body aircraft production and delivery slowdowns due to the COVID-19 pandemic adversely impacting international travel and also due to Boeing's quality control issues with the 787 aircraft. The decrease in defense sales is primarily attributable to supply chain-induced delays in fulfilling orders at certain operating units. Acquisition and divestiture sales decreased $51 million, primarily due to the divestitures completed during fiscal 2021, partially offset by the impact of CAC's sales being included in acquisition and divestiture sales through the first quarter of fiscal 2022.

Net sales for the Non-aviation segment decreased by $4 million, a decrease of 4.9%, for the twenty-six week period ended April 2, 2022. The sales decrease resulted primarily from the decrease in acquisition and divestiture sales of $5 million for the divestitures completed during fiscal 2021.

EBITDA As Defined****.** EBITDA As Defined by segment for the twenty-six week periods ended April 2, 2022 and April 3, 2021 were as follows (amounts in millions):


	Twenty-Six Week Periods Ended
	April 2, 2022		% of Segment Net Sales		April 3, 2021		% of Segment Net Sales		Change		% Change
Power & Control	$	703	51.8	%	$	613	49.4	%	$	90	14.7	%
Airframe	499		46.0	%	385		39.4	%	114		29.6	%
Non-aviation	28		35.9	%	31		37.8	%	(3)		(9.7)	%
	$	1,230	48.8	%	$	1,029	44.7	%	$	201	19.5	%

EBITDA As Defined for the Power & Control segment increased approximately $90 million, an increase of 14.7%, resulting from higher organic sales, particularly in the commercial aftermarket and OEM channels. 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 current inflationary environment for labor and certain raw materials. The change in EBITDA As Defined for the Power & Control segment from acquisitions and divestitures was immaterial for the twenty-six week period ended April 2, 2022.

EBITDA As Defined for the Airframe segment increased approximately $114 million, an increase of 29.6%, resulting primarily from higher organic sales, particularly in the commercial aftermarket and OEM channels. 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 current inflationary environment for labor and certain raw materials. EBITDA As Defined for the Airframe segment from acquisitions and divestitures decreased by $9 million, primarily due to the impact on the comparable period from the divestitures completed in fiscal year 2021, partially offset by the impact of CAC's sales being included in acquisition and divestiture sales through the first quarter of fiscal 2022.

EBITDA As Defined for the Non-aviation segment decreased approximately $3 million, a decrease of 9.7% to the comparable period from the prior year.

Liquidity and Capital Resources

We have historically maintained a capital structure comprising a mix of equity and debt financing. We vary our leverage both to optimize our equity return and to pursue acquisitions. We expect to meet our current debt obligations as they come due through internally generated funds from current levels of operations and/or through refinancing in the debt markets prior to the maturity dates of our debt.

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):


	April 2, 2022		September 30, 2021
Selected Balance Sheet Data:
Cash and cash equivalents	$	4,216	$	4,787
Working capital	5,263		5,367
Total assets	18,841		19,315
Total debt (1)	19,823		19,998
TD Group stockholders’ deficit	(2,899)		(2,916)

(1)Includes debt issuance costs and original issue discount and premiums. Reference Note 10, “Debt,” in the notes to the condensed consolidated financial statements included herein for additional information.


	Twenty-Six Week Periods Ended
	April 2, 2022		April 3, 2021
Selected Cash Flow and Other Financial Data:
Cash flows provided by (used in):
Operating activities	$	366	$	372
Investing activities	(54)		(952)
Financing activities	(872)		(73)
Capital expenditures	57		60
Ratio of earnings to fixed charges (1)	1.8x		1.3x

(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. Fixed charges consist of interest expense, amortization of debt issuance costs, original issue discount and premium and the “interest component” of rental expense.

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.

In the second quarter of fiscal 2022, the Company repurchased 1,046,815 shares of common stock at an average price of $636.93 per share, aggregating to approximately $667 million in repurchases. The Company may make additional share repurchases in the second half of fiscal year 2022. Whether the Company undertakes additional share repurchases or other aforementioned activities will depend on prevailing market conditions, the Company's liquidity requirements, contractual restrictions and other factors.

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, including the ongoing COVID-19 pandemic.

The Company is continuing to strategically manage the Company’s cash and cash equivalents in response to the ongoing COVID-19 pandemic and related uncertainty of the duration and impact of the pandemic on the Company’s business in fiscal 2022 and beyond. In the first quarter of fiscal 2022, the Company entered into Amendment No. 9 and Incremental Revolving Credit Assumption Agreement (herein, “Amendment No. 9”) to the Second Amended and Restated Credit Agreement dated as of June 4, 2014 (the “Credit Agreement”), increasing the capacity under the revolving credit facility from $760 million to $810 million. The Company also repaid $200 million previously drawn on the revolving credit facility. In fiscal 2021, due to favorable market conditions in the high yield bond market, the Company refinanced $1,950 million of its senior subordinated notes resulting in a reduced interest rate (estimated $35 million reduction in annual interest payments) and an extended maturity date.

As of April 2, 2022, the Company has significant cash liquidity as illustrated in the table presented below (in millions):


	As of April 2, 2022
Cash and cash equivalents	$	4,216
Availability on revolving credit facility (1)	775
Cash liquidity	$	4,991

(1)On December 29, 2021, the Company entered into Amendment No. 9 and Incremental Revolving Credit Assumption Agreement to the Second Amended and Restated Credit Agreement dated as of June 4, 2014, which increased the capacity under the revolving credit facility from $760 million to $810 million.

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. Long-term cash liquidity requirements consist primarily of obligations under our long-term debt agreements. There is no maturity on any tranche of term loans or notes until August 2024.

In connection with the continued application of our three core value-driven operating strategies (obtaining profitable new business, continually improving our cost structure and providing highly engineered value-added products to customers), we expect our efforts will continue to generate strong margins and provide sufficient cash provided by operating activities to meet our interest obligations and liquidity needs. 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, such as the $667 million in common stock repurchases in the second quarter of fiscal 2022, subject to any restrictions in our existing credit agreement and market conditions in consideration of the ongoing COVID-19 pandemic.

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. Our future leverage will also be impacted by the then current conditions of the credit markets.

Operating Activities. The Company generated $366 million of net cash from operating activities during the twenty-six week period ended April 2, 2022 compared to $372 million during the twenty-six week period ended April 3, 2021.

The change in accounts receivable during the twenty-six week period ended April 2, 2022 was a use of cash of $8 million compared to a source of cash of $39 million during the twenty-six week period ended April 3, 2021. The change of $47 million is primarily attributable to the timing of cash receipts as there were a higher amount of sales in the month of March 2022 compared to March 2021. The Company continues to actively manage its accounts receivable, the related agings and collection efforts in response to the COVID-19 pandemic.

The change in inventories during the twenty-six week period ended April 2, 2022 was a use of cash of $62 million compared to a source of cash of $32 million during the twenty-six week period ended April 3, 2021. The change is primarily driven by increased purchasing from higher demand in fiscal 2022. The Company continues to actively manage inventory levels in response to the pandemic and its adverse impact on the supply chain.

The change in accounts payable during the twenty-six week period ended April 2, 2022 was a source of cash of $13 million compared to a use of cash of $7 million during the twenty-six week period ended April 3, 2021. The change is due to the timing of payments to suppliers.

Investing Activities. Net cash used in investing activities was $54 million during the twenty-six week period ended April 2, 2022, consisting of capital expenditures of $57 million, slightly offset by $3 million in proceeds received from the final working capital settlement for the ScioTeq and TREALITY divestiture.

Net cash used in investing activities was $952 million during the twenty-six week period ended April 3, 2021, consisting primarily of the acquisition of CAC for $951 million and capital expenditures of $60 million. This was partially offset by proceeds of $35 million from the completion of the divestiture of certain businesses and $24 million of insurance proceeds received from the Leach International Europe fire property claim.

Financing Activities. Net cash used in financing activities during the twenty-six week period ended April 2, 2022 was $872 million. The use of cash was primarily attributable to $667 million in common stock repurchases, the $200 million repayment of a previous draw on the revolving credit facility, dividend equivalent payments of $46 million and repayment on term loans of $38 million. This was partially offset by $80 million in proceeds from stock option exercises.

Net cash used in financing activities during the twenty-six week period ended April 3, 2021 was $73 million. The use of cash was primarily attributable to the redemption of the 2024 Notes for $1,220 million, dividend equivalent payments of $73 million and repayments on term loans of $38 million. This was partially offset by $1,189 million in net proceeds from the completion of the 4.625% Senior Subordinated Notes due 2029 (the “4.625% 2029 Notes”) offering and $69 million in proceeds from stock option exercises.

Contractual Obligations

We have future obligations under various contracts relating to debt and interest payments, finance and operating leases, pension and post-retirement benefit plans and purchase obligations. There were no material changes during the twenty-six week period ended April 2, 2022 to these obligations as reported in our Annual Report on Form 10-K for the fiscal year ended September 30, 2021 other than the first quarter fiscal 2022 repayment of $200 million previously drawn on the revolving credit facility.

Description of Senior Secured Term Loans and Indentures

Senior Secured Term Loans Facility

TransDigm has $7,336 million in fully drawn term loans (the “Term Loans Facility”) and an $810 million revolving credit facility. The Term Loans Facility consists of three tranches of term loans as follows (aggregate principal amount disclosed is as of April 2, 2022):


Term Loans Facility	Aggregate Principal	Maturity Date	Interest Rate
Tranche E	$2,166 million	May 30, 2025	LIBOR + 2.25%
Tranche F	$3,436 million	December 9, 2025	LIBOR + 2.25%
Tranche G	$1,734 million	August 22, 2024	LIBOR + 2.25%

The Term Loans Facility requires quarterly aggregate principal payments of $18.8 million. The revolving commitments consist of two tranches which include up to $151.5 million of multicurrency revolving commitments. At April 2, 2022, the Company had $35.3 million in letters of credit outstanding and $774.7 million in borrowings available under the revolving commitments.

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 adjusted LIBOR related to tranche E, tranche F and tranche G term loans are not subject to a floor. For the twenty-six week period ended April 2, 2022, the applicable interest rate was approximately 2.71% on the existing term loans. Interest rate swaps and caps used to hedge and offset, respectively, the variable interest rates on the credit facility are described in Note 13, “Derivatives and Hedging Activities,” in the notes to the condensed consolidated financial statements included herein.

Fiscal 2022 Amendment to the Credit Agreement

On December 29, 2021, the Company entered into Amendment No. 9 and Incremental Revolving Credit Assumption Agreement to the Credit Agreement, which increases the capacity under the revolving credit facility from $760 million to $810 million. The terms and conditions that apply to Amendment No. 9 are the same as the terms and conditions that apply to the existing dollar revolving commitments and term loans under the Credit Agreement.

Indentures

The following table represents the notes outstanding as of April 2, 2022:


Description	Aggregate Principal	Maturity Date	Interest Rate
2025 Secured Notes	$1,100 million	December 15, 2025	8.00%
2026 Secured Notes	$4,400 million	March 15, 2026	6.25%
6.875% 2026 Notes	$500 million	May 15, 2026	6.875%
6.375% 2026 Notes	$950 million	June 15, 2026	6.375%
7.50% 2027 Notes	$550 million	March 15, 2027	7.50%
5.50% 2027 Notes	$2,650 million	November 15, 2027	5.50%
4.625% 2029 Notes	$1,200 million	July 15, 2029	4.625%
4.875% 2029 Notes	$750 million	October 15, 2029	4.875%

The 6.375% 2026 Notes, the 7.50% 2027 Notes, the 5.50% 2027 Notes, the 4.625% 2029 Notes and the 4.875% 2029 Notes (collectively, the “TransDigm Inc. Notes”) were issued at a price of 100% of the principal amount. The 6.875% 2026 Notes (the “TransDigm UK Notes” and together with the TransDigm Inc. Notes, the “Notes,” are further described below) offered in May 2018 were issued at a price of 99.24% of the principal amount, resulting in gross proceeds of $496.2 million. The 2025 Secured Notes (the “Secured Notes”) were issued at a price 100% of the principal amount. The initial $3,800 million offering of the 2026 Secured Notes (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 $4,410.5 million.

The Notes do not require principal payments prior to their maturity. Interest under the Notes is payable semi-annually. The Notes represent our unsecured obligations ranking subordinate to our senior debt, as defined in the applicable indentures. The Notes contain many of the restrictive covenants included in the Credit Agreement. 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. Notes are fully and unconditionally guaranteed on a senior subordinated unsecured basis by TD Group and TransDigm Inc.'s Domestic Restricted Subsidiaries. The TransDigm UK Notes are guaranteed on a senior subordinated basis by TransDigm Inc., TD Group and TransDigm Inc.'s Domestic Restricted Subsidiaries. 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 Notes are structurally subordinated to all of the liabilities of TD Group’s non-guarantor subsidiaries.

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 guaranteed on a senior secured basis by TD Group, TransDigm UK and TransDigm’s wholly-owned U.S. subsidiaries named in the Secured Notes Indenture. The guarantees of the Secured Notes rank equally in right of payment with all of the guarantors’ existing and future senior secured debt and are senior in right of payment to all of their existing and future senior subordinated debt. The Secured Notes are structurally subordinated to all of the liabilities of TransDigm’s non-guarantor subsidiaries. The Secured Notes contain many of the restrictive covenants included in the Credit Agreement. TransDigm is in compliance with all of the covenants contained in the Secured Notes.

Separate financial statements of TransDigm Inc. are not presented because the Secured Notes are fully and unconditionally guaranteed on a senior secured basis by TD Group, TransDigm UK and all of TransDigm Inc.'s Domestic Restricted Subsidiaries. TD Group has no significant operations or assets separate from its investment in TransDigm Inc.

Separate financial statements of TransDigm Inc. are not presented because the TransDigm Inc. Notes are fully and unconditionally guaranteed on a senior subordinated basis by TD Group, TransDigm UK and all of TransDigm Inc.'s Domestic Restricted Subsidiaries. TD Group has no significant operations or assets separate from its investment in TransDigm Inc.

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. TD Group has no significant operations or assets separate from its investment in TransDigm Inc.

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. 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.


(in millions)	April 2, 2022
Current assets	$	4,947
Goodwill	6,726
Other non-current assets	2,708
Current liabilities	627
Non-current liabilities	20,065
Amounts (from) due to subsidiaries that are non-issuers and non-guarantors - net	(685)


	Twenty-Six Week Period Ended
(in millions)	April 2, 2022
Net sales	$	1,935
Sales to subsidiaries that are non-issuers and non-guarantors	20
Cost of sales	785
Expense from subsidiaries that are non-issuers and non-guarantors - net	22
Income from continuing operations	380
Net income attributable to TD Group	380

Certain Restrictive Covenants in Our Debt Documents

The Credit Agreement and the Indentures governing the 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 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.

Under the terms of the Credit Agreement, TransDigm is entitled, on one or more occasions, to request additional term loans or additional revolving commitments to the extent that the existing or new lenders agree to provide such incremental term loans or additional revolving commitments provided that, among other conditions, our consolidated net leverage ratio would be no greater than 7.25x and the consolidated secured net debt ratio would be no greater than 5.00x, in each case, after giving effect to such incremental term loans or additional revolving commitments.

If any such default occurs, the lenders under the Credit Agreement 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. The lenders under the Credit Agreement also have the right in these circumstances to terminate any commitments they have to provide further borrowings. In addition, following an event of default under the Credit Agreement, the lenders thereunder 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.

With the exception of the revolving credit facility, the Company has no maintenance covenants in its existing term loan and indenture agreements. Under the Credit Agreement, if the usage of the revolving credit facility exceeds 35%, or $283.5 million, of the total revolving commitments, the Company is required to maintain a maximum consolidated net leverage ratio of net debt to trailing four-quarter EBITDA As Defined of 7.25x as of the last day of the fiscal quarter.

As of April 2, 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 Receivables Securitization Facility

During fiscal 2014, the Company established a trade receivable securitization facility (the “Securitization Facility”). The Securitization Facility effectively increases the Company’s borrowing capacity depending on the amount of the domestic operations’ trade accounts receivable. The Securitization Facility includes the right for the Company to exercise annual one year extensions as long as there have been no termination events as defined by the agreement. The Company uses the proceeds from the Securitization Facility as an alternative to other forms of debt, effectively reducing borrowing costs.

On July 27, 2021, the Company amended the Securitization Facility to, among other things, (i) extend the maturity date to July 26, 2022, and (ii) bear interest at a rate of 1.20% plus three month LIBOR, compared to the interest rate of 1.35% plus 0.50% or three month LIBOR, whichever is greater, that applied prior to the amendment. The Securitization Facility is collateralized by substantially all of the Company’s domestic operations’ trade accounts receivable. As of April 2, 2022, the Company has borrowed $350 million under the Securitization Facility, which is fully drawn.

Dividend and Dividend Equivalent Payments

No dividends were declared or paid in the first half of fiscal year 2022. We do not anticipate declaring regular quarterly or annual cash dividends on our common stock in the near future. Any declaration of special cash dividends on our common stock in the future 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 senior secured credit facility and Indentures, the availability of surplus under Delaware law and other factors deemed relevant by our Board of Directors. TD Group is a holding company and conducts all of its operations through direct and indirect subsidiaries. Unless TD Group receives dividends, distributions, advances, transfers of funds or other payments from our subsidiaries, TD Group will be unable to pay any dividends on our common stock in the future. The ability of any subsidiaries to take any of the foregoing actions is limited by the terms of our senior secured credit facility and Indentures and may be limited by future debt or other agreements that we may enter into.

Dividend equivalent payments made in fiscal year 2022 were $46 million. Pursuant to the Third Amended and Restated TransDigm Group Incorporated 2003 Stock Option Plan Dividend Equivalent Plan, the Second Amended and Restated TransDigm Group Incorporated 2006 Stock Incentive Plan Dividend Equivalent Plan and the 2014 Stock Option Plan Dividend Equivalent Plan, all of the options granted under the existing stock option plans are entitled to certain dividend equivalent payments in the event of the declaration of a dividend by the Company.

Off-Balance Sheet Arrangements

The Company utilizes letters of credit to back certain payment and performance obligations. Letters of credit are subject to limits based on amounts outstanding under the Company’s revolving credit facility. As of April 2, 2022, the Company had $35.3 million in letters of credit outstanding.

Non-GAAP Financial Measures

We present below certain financial information based on our EBITDA and EBITDA As Defined. References to “EBITDA” mean earnings before interest, taxes, depreciation and amortization, and references to “EBITDA As Defined” mean EBITDA plus, as applicable for each relevant period, certain adjustments as set forth in the reconciliations of income from continuing operations to EBITDA and EBITDA As Defined and the reconciliations of net cash provided by operating activities to EBITDA and EBITDA As Defined presented below.

Neither EBITDA nor EBITDA As Defined is a measurement of financial performance under U.S. GAAP. We present EBITDA and EBITDA As Defined because we believe they are useful indicators for evaluating operating performance and liquidity.

Our management believes that EBITDA and EBITDA As Defined are useful as indicators of liquidity because securities analysts, investors, rating agencies and others use EBITDA to evaluate a company’s ability to incur and service debt. In addition, EBITDA As Defined is useful to investors because the revolving credit facility under our senior secured credit facility requires compliance under certain circumstances, on a pro forma basis, with a financial covenant that measures the ratio of the amount of our secured indebtedness to the amount of our Consolidated EBITDA defined in the same manner as we define EBITDA As Defined herein.

In addition to the above, our management uses EBITDA As Defined to review and assess the performance of the management team in connection with employee incentive programs and to prepare its annual budget and financial projections. Moreover, our management uses EBITDA As Defined to evaluate acquisitions.

Although we use EBITDA and EBITDA As Defined as measures to assess the performance of our business and for the other purposes set forth above, the use of these non-GAAP financial measures as analytical tools has limitations, and you should not consider any of them in isolation, or as a substitute for analysis of our results of operations as reported in accordance with U.S. GAAP. Some of these limitations are:

neither EBITDA nor EBITDA As Defined reflects the significant interest expense, or the cash requirements, necessary to service interest payments on our indebtedness;
although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and neither EBITDA nor EBITDA As Defined reflects any cash requirements for such replacements;
the omission of the substantial amortization expense associated with our intangible assets further limits the usefulness of EBITDA and EBITDA As Defined;
neither EBITDA nor EBITDA As Defined includes the payment of taxes, which is a necessary element of our operations; and
EBITDA As Defined excludes the cash expense we have incurred to integrate acquired businesses into our operations, which is a necessary element of certain of our acquisitions.

Because of these limitations, EBITDA and EBITDA As Defined should not be considered as measures of discretionary cash available to us to invest in the growth of our business. Management compensates for these limitations by not viewing EBITDA or EBITDA As Defined in isolation and specifically by using other U.S. GAAP measures, such as net income, net sales and operating profit, to measure our operating performance. Neither EBITDA nor EBITDA As Defined is a measurement of financial performance under U.S. GAAP, and neither should be considered as an alternative to net income or cash flow from operations determined in accordance with U.S. GAAP. Our calculation of EBITDA and EBITDA As Defined may not be comparable to the calculation of similarly titled measures reported by other companies.

The following table sets forth a reconciliation of income from continuing operations to EBITDA and EBITDA As Defined (in millions):


	Thirteen Week Periods Ended				Twenty-Six Week Periods Ended
	April 2, 2022		April 3, 2021		April 2, 2022		April 3, 2021
Income from continuing operations	$	199	$	105	$	362	$	155
Adjustments:
Depreciation and amortization expense	62		66		127		124
Interest expense, net	266		268		530		535
Income tax provision	61		25		91		28
EBITDA	588		464		1,110		842
Adjustments:
Acquisition and divestiture transaction-related expenses and adjustments (1)	3		16		8		19
Non-cash stock compensation expense (2)	42		21		79		70
Refinancing costs (3)	—		24		—		24
COVID-19 pandemic restructuring costs (4)	—		18		—		39
Other, net (5)	—		(24)		1		(1)
EBITDA As Defined	$	633	$	519	$	1,198	$	993



(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.

(2)						Represents the compensation expense recognized by TD Group under our stock incentive plans.

(3)						Represents costs expensed related to debt financing activities, including new issuances, extinguishments, refinancings and amendments to existing agreements.

(4)						Represents restructuring costs related to the Company's cost reduction measures in response to the COVID-19 pandemic of $17 million and $36 million for the thirteen and twenty-six week periods ended April 3, 2021, respectively. These are costs related to the Company's actions to reduce its workforce and consolidate certain facilities to align with customer demand. This also includes $1 million and $3 million for the thirteen and twenty-six week periods ended April 3, 2021, respectively, of 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, etc.). Restructuring costs incurred in response to the COVID-19 pandemic for the thirteen and twenty-six week periods ended April 2, 2022 were not material.

(5)						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, deferred compensation, proceeds received from a final working capital settlement for the ScioTeq and TREALITY divestiture and gain or loss on sale of fixed assets.

The following table sets forth a reconciliation of net cash provided by operating activities to EBITDA and EBITDA As Defined (in millions):


	Twenty-Six Week Periods Ended
	April 2, 2022		April 3, 2021
Net cash provided by operating activities	$	366	$	372
Adjustments:
Changes in assets and liabilities, net of effects from acquisitions and sales of businesses	198		(9)
Interest expense, net (1)	513		518
Income tax provision - current	92		28
Loss contract amortization	20		27
Non-cash stock compensation expense (2)	(79)		(70)
Refinancing costs (3)	—		(24)
EBITDA	1,110		842
Adjustments:
Acquisition and divestiture transaction-related expenses and adjustments (4)	8		19
Non-cash stock compensation expense (2)	79		70
Refinancing costs (3)	—		24
COVID-19 pandemic restructuring costs (5)	—		39
Other, net (6)	1		(1)
EBITDA As Defined	$	1,198	$	993



(1)						Represents interest expense excluding the amortization of debt issuance costs and premium and discount on debt.

(2)						Represents the compensation expense recognized by TD Group under our stock incentive plans.

(3)						Represents costs expensed related to debt financing activities, including new issuances, extinguishments, refinancings and amendments to existing agreements.

(4)						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.

(5)						Represents restructuring costs related to the Company's cost reduction measures in response to the COVID-19 pandemic of $36 million for the twenty-six week period ended April 3, 2021. These are costs related to the Company's actions to reduce its workforce and consolidate certain facilities to align with customer demand. This also includes $3 million for the twenty-six week period ended April 3, 2021 of 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, etc.). Restructuring costs incurred in response to the COVID-19 pandemic for the twenty-six week period ended April 2, 2022 were not material.

(6)						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, deferred compensation, proceeds received from a final working capital settlement for the ScioTeq and TREALITY divestiture and gain or loss on sale of fixed assets.

Previous: Cover and table of contents · Next: Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK