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

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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 third quarter of fiscal year 2022, we generated net sales of $1,398 million and net income attributable to TD Group of $238 million. EBITDA As Defined was $696 million, or 49.8% 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 moderately 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 and availability of raw materials, particularly electronic parts. Our business has been adversely affected and could continue to be adversely affected by disruptions in our ability to timely obtain raw materials and components from our suppliers in the quantities we require or on favorable terms. 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 remainder 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 the conflict has not resulted in a direct material adverse impact on TransDigm's business to date, the implications of the Russia and Ukraine conflict in the short-term and long-term are difficult to predict at this time. 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
	July 2, 2022			% of Net Sales		July 3, 2021			% of Net Sales
Net sales	$	1,398		100.0	%	$	1,218		100.0	%
Cost of sales	582			41.6	%	563			46.2	%
Selling and administrative expenses	184			13.2	%	172			14.1	%
Amortization of intangible assets	33			2.4	%	36			3.0	%
Income from operations	599			42.8	%	447			36.7	%
Interest expense, net	269			19.2	%	263			21.6	%
Refinancing costs	—			—	%	13			1.1	%
Other expense (income)	21			1.5	%	(5)			(0.4)	%
Gain on sale of businesses, net	(3)			(0.2)	%	(68)			(5.6)	%
Income tax provision (benefit)	73			5.2	%	(73)			(6.0)	%
Income from continuing operations	239			17.1	%	317			26.0	%
Less: Net income attributable to noncontrolling interests	(1)			(0.1)	%	—			—	%
Income from continuing operations attributable to TD Group	238			17.0	%	317			26.0	%
Net income attributable to TD Group	$	238		17.0	%	$	317		26.0	%
Net income applicable to TD Group common stockholders	$	238	(1)	17.0	%	$	317	(1)	26.0	%
Earnings per share:
Earnings per share from continuing operations—basic and diluted	$	4.10	(2)			$	5.43	(2)
Earnings per share from discontinued operations—basic and diluted	—		(2)			—		(2)
Earnings per share	$	4.10				$	5.43
Weighted-average shares outstanding—basic and diluted	58.0					58.4
Other Data:
EBITDA	$	643	(3)			$	572	(3)
EBITDA As Defined	$	696	(3)	49.8	%	$	559	(3)	45.9	%

(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 July 2, 2022 and July 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.


	Thirty-Nine Week Periods Ended
	July 2, 2022			% of Net Sales		July 3, 2021			% of Net Sales
Net sales	$	3,919		100.0	%	$	3,519		100.0	%
Cost of sales	1,706			43.5	%	1,731			49.2	%
Selling and administrative expenses	537			13.7	%	531			15.1	%
Amortization of intangible assets	102			2.6	%	101			2.9	%
Income from operations	1,574			40.2	%	1,156			32.9	%
Interest expense, net	799			20.4	%	798			22.7	%
Refinancing costs	—			—	%	36			1.0	%
Other expense (income)	15			0.4	%	(37)			(1.1)	%
Gain on sale of businesses, net	(6)			(0.2)	%	(69)			(2.0)	%
Income tax provision (benefit)	165			4.2	%	(45)			(1.3)	%
Income from continuing operations	601			15.3	%	473			13.4	%
Less: Net income attributable to noncontrolling interests	(2)			(0.1)	%	(2)			(0.1)	%
Income from continuing operations attributable to TD Group	599			15.3	%	471			13.4	%
Income from discontinued operations, net of tax	1			—	%	—			—	%
Net income attributable to TD Group	$	600		15.3	%	$	471		13.4	%
Net income applicable to TD Group common stockholders	$	554	(1)	14.1	%	$	398	(1)	11.3	%
Earnings per share:
Earnings per share from continuing operations—basic and diluted	$	9.42	(2)			$	6.83	(2)
Earnings per share from discontinued operations—basic and diluted	0.02		(2)			—		(2)
Earnings per share	$	9.44				$	6.83
Weighted-average shares outstanding—basic and diluted	58.7					58.4
Other Data:
EBITDA	$	1,753	(3)			$	1,414	(3)
EBITDA As Defined	$	1,894	(3)	48.3	%	$	1,552	(3)	44.1	%

(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 thirty-nine week periods ended July 2, 2022 and July 3, 2021, respectively.

Changes in Results of Operations

Thirteen week period ended July 2, 2022 compared with the thirteen week period ended July 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 July 2, 2022 and July 3, 2021 were as follows (amounts in millions):


	Thirteen Week Periods Ended						% Change Net Sales
	July 2, 2022		July 3, 2021		Change
Organic sales	$	1,387	$	1,184	$	203	16.7	%
Acquisition and divestiture sales	11		34		(23)		(1.9)	%
Net sales	$	1,398	$	1,218	$	180	14.8	%

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, were included in the organic growth calculation (acquisition date was January 2021). Beginning in the third quarter of fiscal 2022, DART Aerospace (“DART”) is included in the acquisitions and divestitures classification due to the completion of the acquisition by TransDigm. 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. 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 $203 million for the thirteen week period ended July 2, 2022 compared to the thirteen week period ended July 3, 2021 is primarily related to increases in commercial aftermarket sales ($129 million, an increase of 47.1%), commercial OEM sales ($56 million, an increase of 23.3%) and defense sales ($2 million, an increase of 0.4%). The increase in commercial aftermarket sales is primarily attributable to the continued recovery in commercial air travel demand, particularly the increase in the utilization of narrow-body aircraft, and air cargo demand and the resulting higher flight hours compared to fiscal 2021. The increase in OEM sales is primarily attributable to a higher volume of narrow-body aircraft deliveries by aircraft manufacturers to airlines and also production rate increases of narrow-body aircraft compared to fiscal 2021. The only slight increase in defense sales is attributable to continued supply chain shortages resulting in shipment delays and delays in U.S. government defense spend outlays.

The decrease in acquisition and divestiture sales for the thirteen week period ended July 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; partially offset by the net sales from DART Aerospace (“DART”), which the acquisition was completed in the third quarter of fiscal 2022.

Cost of Sales and Gross Profit****.** Cost of sales increased by $19 million, or 3.4%, to $582 million for the thirteen week period ended July 2, 2022 compared to $563 million for the thirteen week period ended July 3, 2021. Cost of sales and the related percentage of net sales for the thirteen week periods ended July 2, 2022 and July 3, 2021 were as follows (amounts in millions):


	Thirteen Week Periods Ended
	July 2, 2022			July 3, 2021			Change		% Change
Cost of sales - excluding costs below	$	604		$	580		$	24	4.1	%
% of net sales	43.2		%	47.6		%
Non-cash stock compensation expense	4			4			—		—	%
% of net sales	0.3		%	0.3		%
Inventory acquisition accounting adjustments	1			—			1		100.0	%
% of net sales	0.1		%	—		%
Acquisition integration costs	1			2			(1)		(50.0)	%
% of net sales	0.1		%	0.2		%
COVID-19 pandemic restructuring costs	—			1			(1)		(100.0)	%
% of net sales	—		%	0.1		%
Foreign currency gains	(20)			(4)			(16)		(400.0)	%
% of net sales	(1.4)		%	(0.3)		%
Loss contract amortization	(8)			(20)			12		60.0	%
% of net sales	(0.6)		%	(1.6)		%
Total cost of sales	$	582		$	563		$	19	3.4	%
% of net sales	41.6		%	46.2		%
Gross profit	$	816		$	655		$	161	24.6	%
Gross profit percentage	58.4		%	53.8		%

Excluding the specific components to cost of sales listed above, the change in cost of sales during the thirteen week period ended July 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 4.6 percentage points to 58.4% for the thirteen week period ended July 2, 2022 from 53.8% for the thirteen week period ended July 3, 2021.

*•*Selling and Administrative Expenses. Selling and administrative expenses increased by $12 million to $184 million, or 13.2% of net sales, for the thirteen week period ended July 2, 2022 from $172 million, or 14.1% of net sales, for the thirteen week period ended July 3, 2021. Selling and administrative expenses and the related percentage of net sales for the thirteen week periods ended July 2, 2022 and July 3, 2021 were as follows (amounts in millions):


	Thirteen Week Periods Ended
	July 2, 2022			July 3, 2021			Change		% Change
Selling and administrative expenses - excluding costs below	$	147		$	136		$	11	8.1	%
% of net sales	10.5		%	11.2		%
Non-cash stock compensation expense	32			32			—		—	%
% of net sales	2.3		%	2.6		%
Bad debt expense	1			—			1		100.0	%
% of net sales	0.1		%	—		%
Acquisition integration costs	1			2			(1)		(50.0)	%
% of net sales	0.1		%	0.2		%
Acquisition and divestiture transaction-related expenses	3			2			1		50.0	%
% of net sales	0.2		%	0.2		%
Total selling and administrative expenses	$	184		$	172		$	12	7.0	%
% of net sales	13.2		%	14.1		%

Excluding the specific components to selling and administrative expenses listed above, the change in selling and administrative expenses during the thirteen week period ended July 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 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 partially offset by increased costs incurred compared to the prior year for travel and other sales support and administrative costs.

Amortization of Intangible Assets.** Amortization of intangible assets was $33 million for the thirteen week period ended July 2, 2022 compared to $36 million for the thirteen week period ended July 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 third quarter of fiscal 2022 compared to fiscal 2021. This is partially offset by the amortization expense recorded for the estimated other intangible assets from the fiscal 2022 acquisitions.
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 increased $6 million, or 2.3%, to $269 million for the thirteen week period ended July 2, 2022 from $263 million for the comparable thirteen week period in the prior fiscal year. The increase in interest expense-net was primarily due to an increase in LIBOR compared to the prior year, which adversely impacted the interest expense on the approximately 15% of gross debt that is variable rate and not hedged via an interest rate swap or cap. This was slightly offset by an increase in interest income. The weighted average interest rate for cash interest payments on total borrowings outstanding for the thirteen week period ended July 2, 2022 was 5.3%.
Other Expense (Income).** Other expense (income) was $21 million for the thirteen week period ended July 2, 2022 compared to $(5) million for the thirteen week period ended July 3, 2021. Other expense for the thirteen week period ended July 2, 2022 was primarily driven by a pension settlement charge of approximately $21 million for the Esterline Retirement Plan (the “ERP”). Refer to Note 15, “Retirement Plans,” in the notes to the condensed consolidated financial statements included herein for further information. Other income for the thirteen week period ended July 3, 2021 was primarily driven by the release of a litigation reserve ($3 million) and the non-service related components of net periodic benefit costs on the Company's defined benefit pension plans ($2 million).
Income Tax Provision (Benefit).** Income tax expense (benefit) as a percentage of income before income taxes was approximately 23.4% for the thirteen week period ended July 2, 2022 compared to (29.9)% for the thirteen week period ended July 3, 2021. The Company’s significantly lower effective tax rate for the thirteen week period ended July 3, 2021 was primarily due to a one time benefit from a tax election made on the Company's fiscal 2020 U.S. federal income tax return enabling the Company to utilize its net interest deduction limitation carryforward pursuant to IRC Section 163(j) resulting in the release of the valuation allowance applicable to such carryforward.
Net Income Attributable to TD Group****.** Net income attributable to TD Group decreased $79 million, or 24.9%, to $238 million for the thirteen week period ended July 2, 2022 compared to net income attributable to TD Group of $317 million for the thirteen week period ended July 3, 2021, primarily as a result of the significant change in income tax expense (benefit) described above.
Earnings per Share.** Basic and diluted earnings per share was $4.10 for the thirteen week period ended July 2, 2022 and $5.43 per share for the thirteen week period ended July 3, 2021. There was no impact on earnings per share from discontinued operations for the thirteen week periods ended July 2, 2022 and July 3, 2021.

Business Segments

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


	Thirteen Week Periods Ended
	July 2, 2022		% of Net Sales		July 3, 2021		% of Net Sales		Change		% Change
Power & Control	$	737	52.7	%	$	628	51.5	%	$	109	17.4	%
Airframe	620		44.4	%	550		45.2	%	70		12.7	%
Non-aviation	41		2.9	%	40		3.3	%	1		2.5	%
Net sales	$	1,398	100.0	%	$	1,218	100.0	%	$	180	14.8	%

Net sales for the Power & Control segment increased $109 million, an increase of 17.4%, for the thirteen week period ended July 2, 2022 compared to the thirteen week period ended July 3, 2021. The sales increase resulted primarily from increases in organic sales in the commercial aftermarket ($71 million, an increase of 51.6%), commercial OEM ($21 million, an increase of 17.8%) and defense ($6 million, an increase of 1.6%). 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 compared to 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 production rate increases of narrow-body aircraft compared to fiscal 2021. The only slight increase in defense sales is attributable to continued supply chain shortages resulting in shipment delays and delays in U.S. government defense spend outlays.

Net sales for the Airframe segment increased $70 million, an increase of 12.7%, for the thirteen week period ended July 2, 2022 compared to the thirteen week period ended July 3, 2021. The sales increase resulted primarily from increases in organic sales in the commercial aftermarket ($57 million, an increase of 42.4%) and commercial OEM sales ($34 million, an increase of 27.7%); slightly offset by a decrease in organic defense sales ($2 million, a decrease of 0.9%). The increase in commercial aftermarket sales is primarily attributable to the continued recovery in commercial air travel demand, particularly the increase in the utilization of narrow-body aircraft, and air cargo demand and the resulting higher flight hours compared to fiscal 2021. The increase in OEM sales is primarily attributable to a higher volume of narrow-body aircraft deliveries by aircraft manufacturers to airlines and also production rate increases of narrow-body aircraft compared to fiscal 2021. The slight decrease in defense sales is attributable to continued supply chain shortages resulting in shipment delays and delays in U.S. government defense spend outlays. Acquisition and divestiture sales decreased by $23 million for the thirteen week period ended July 2, 2022 due to the impact on the comparable period from the divestitures completed in fiscal 2021; partially offset by the net sales from DART, which the acquisition was completed in the third quarter of fiscal 2022.

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 July 2, 2022 and July 3, 2021 were as follows (amounts in millions):


	Thirteen Week Periods Ended
	July 2, 2022		% of Segment Net Sales		July 3, 2021		% of Segment Net Sales		Change		% Change
Power & Control	$	398	54.0	%	$	331	52.7	%	$	67	20.2	%
Airframe	292		47.1	%	233		42.4	%	59		25.3	%
Non-aviation	16		39.0	%	14		35.0	%	2		14.3	%
	$	706	50.5	%	$	578	47.5	%	$	128	22.1	%

Organic EBITDA As Defined represents EBITDA As Defined from existing businesses owned by the Company as of July 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). Beginning in the third quarter of fiscal 2022, DART is included in the acquisitions and divestitures classification. 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.

EBITDA As Defined for the Power & Control segment increased approximately $67 million, an increase of 20.2%, 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.

EBITDA As Defined for the Airframe segment increased approximately $59 million, an increase of 25.3%, 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 $4 million, primarily due to the impact on the comparable period from the divestitures completed in fiscal year 2021; partially offset by the EBITDA As Defined from DART.

Thirty-nine week period ended July 2, 2022 compared with the thirty-nine week period ended July 3, 2021

Total Company

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


	Thirty-Nine Week Periods Ended						% Change Net Sales
	July 2, 2022		July 3, 2021		Change
Organic sales	$	3,867	$	3,387	$	480	13.6	%
Acquisition and divestiture sales	52		132		(80)		(2.3)	%
Net sales	$	3,919	$	3,519	$	400	11.4	%

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). Beginning in the third quarter of fiscal 2022, DART Aerospace (“DART”) is included in the acquisitions and divestitures classification due to the completion of the acquisition by TransDigm. 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. 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 $480 million for the thirty-nine week period ended July 2, 2022 compared to the thirty-nine week period ended July 3, 2021 is primarily related to increases in commercial aftermarket sales ($358 million, an increase of 47.4%) and commercial OEM sales ($146 million, an increase of 21.3%); partially offset by a decrease in defense sales ($56 million, a decrease of 3.3%). The increase in commercial aftermarket sales is primarily attributable to the continued recovery in commercial air travel demand, particularly the increase in the utilization of narrow-body aircraft, and air cargo demand and the resulting higher flight hours in fiscal 2022 compared to fiscal 2021. The increase in OEM sales is primarily attributable to a higher volume of narrow-body aircraft deliveries by aircraft manufacturers to airlines and also production rate increases of narrow-body aircraft compared to 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 particularly in the first half of our fiscal year and also due to Boeing's quality control issues with the 787 aircraft. The decrease in defense sales is attributable to continued supply chain shortages resulting in shipment delays and delays in U.S. government defense spend outlays.

The decrease in acquisition and divestiture sales for the thirty-nine week period ended July 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 acquisitions of CAC and DART. CAC's sales were classified as acquisition and divestiture sales only through the first quarter of fiscal 2022 as 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 $25 million, or 1.4%, to $1,706 million for the thirty-nine week period ended July 2, 2022 compared to $1,731 million for the thirty-nine week period ended July 3, 2021. Cost of sales and the related percentage of net sales for the thirty-nine week periods ended July 2, 2022 and July 3, 2021 were as follows (amounts in millions):


	Thirty-Nine Week Periods Ended
	July 2, 2022			July 3, 2021			Change		% Change
Cost of sales - excluding costs below	$	1,741		$	1,710		$	31	1.8	%
% of net sales	44.4		%	48.6		%
Non-cash stock compensation expense	12			10			2		20.0	%
% of net sales	0.3		%	0.3		%
Inventory acquisition accounting adjustments	1			6			(5)		(83.3)	%
% of net sales	—		%	0.2		%
Acquisition integration costs	2			3			(1)		(33.3)	%
% of net sales	0.1		%	0.1		%
COVID-19 pandemic restructuring costs	—			29			(29)		(100.0)	%
% of net sales	—		%	0.8		%
Foreign currency (gains) losses	(22)			20			(42)		(210.0)	%
% of net sales	(0.6)		%	0.6		%
Loss contract amortization	(28)			(47)			19		40.4	%
% of net sales	(0.7)		%	(1.2)		%
Total cost of sales	$	1,706		$	1,731		$	(25)	(1.4)	%
% of net sales	43.5		%	49.2		%
Gross profit	$	2,213		$	1,788		$	425	23.8	%
Gross profit percentage	56.5		%	50.8		%

Excluding the specific components to cost of sales listed above, the change in cost of sales during the thirty-nine week period ended July 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 three quarters of fiscal 2022 and foreign exchange rates, particularly the U.S. dollar compared to the British pound and the Euro, strengthened considerably in the third quarter of fiscal 2022, resulting in favorable movement compared to the prior year 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 5.7 percentage points to 56.5% for the thirty-nine week period ended July 2, 2022 from 50.8% for the thirty-nine week period ended July 3, 2021.

Selling and Administrative Expenses.** Selling and administrative expenses increased by $6 million to $537 million, or 13.7% of net sales, for the thirty-nine week period ended July 2, 2022 from $531 million, or 15.1% of net sales, for the thirty-nine week period ended July 3, 2021. Selling and administrative expenses and the related percentage of net sales for the thirty-nine week periods ended July 2, 2022 and July 3, 2021 were as follows (amounts in millions):


	Thirty-Nine Week Periods Ended
	July 2, 2022			July 3, 2021			Change		% Change
Selling and administrative expenses - excluding costs below	$	419		$	405		$	14	3.5	%
% of net sales	10.7		%	11.5		%
Non-cash stock compensation expense	103			95			8		8.4	%
% of net sales	2.6		%	2.7		%
Acquisition integration costs	6			7			(1)		(14.3)	%
% of net sales	0.2		%	0.2		%
Bad debt expense	5			5			—		—	%
% of net sales	0.1		%	0.1		%
Acquisition and divestiture transaction-related expenses	4			8			(4)		(50.0)	%
% of net sales	0.1		%	0.2		%
COVID-19 pandemic restructuring costs	—			11			(11)		(100.0)	%
% of net sales	—		%	0.3		%
Total selling and administrative expenses	$	537		$	531		$	6	1.1	%
% of net sales	13.7		%	15.1		%

Excluding the specific components to selling and administrative expenses listed above, the change in selling and administrative expenses during the thirty-nine week period ended July 2, 2022 improved as a percentage of net sales compared to the thirty-nine week period in the prior year. This is a result of 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 partially offset by increased costs incurred compared to the prior year for travel and other sales support and administrative costs.

Amortization of Intangible Assets.** Amortization of intangible assets was $102 million for the thirty-nine week period ended July 2, 2022 compared to $101 million for the thirty-nine week period ended July 3, 2021. The increase in amortization expense of $1 million was primarily due to the amortization expense recognized on intangible assets from the acquisitions of CAC and DART.
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 increased $1 million, or 0.1%, to $799 million for the thirty-nine week period ended July 2, 2022 from $798 million for the comparable thirty-nine week period in the prior year. The slight increase in interest expense-net was primarily due to an increase in LIBOR compared to the prior year, which adversely impacted the interest expense on the approximately 15% of gross debt that is variable rate and not hedged via an interest rate swap or cap. This was mostly offset by the repayment of $200 million previously drawn on the revolving credit facility in the first quarter of fiscal 2022 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 thirty-nine week period ended July 2, 2022 was 5.3%.
Refinancing Costs.** Refinancing costs were not material for the thirty-nine week period ended July 2, 2022. Refinancing costs of $36 million recorded for the thirty-nine week period ended July 3, 2021 were primarily related to fees incurred on the early redemption of the 6.50% Senior Subordinated Notes due 2024 (the “2024 Notes”) and the 2025 Notes that occurred in the second and third quarters of fiscal 2021.
Other Expense (Income).** Other expense (income) was $15 million for the thirty-nine week period ended July 2, 2022 compared to $(37) million for the thirty-nine week period ended July 3, 2021. Other expense for the thirty-nine week period ended July 2, 2022 was primarily driven by a pension settlement charge of approximately $21 million for the ERP. Refer to Note 15, “Retirement Plans,” in the notes to the condensed consolidated financial statements included herein for further information. Partially offsetting this expense was 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 ($3 million). Other income for the thirty-nine week period ended July 3, 2021 was primarily driven by a $21 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 $16 million was primarily driven by non-service related components of net periodic benefit costs on the Company's defined benefit pension plans ($9 million), receipt of payment of Canadian governmental subsidies ($4 million) and the release of a litigation reserve ($3 million).

*•*Gain on Sale of Businesses-net. Gain on sale of businesses-net of $6 million was recorded for the thirty-nine week period ended July 2, 2022, and is primarily driven by cash proceeds received from a final working capital settlement for the ScioTeq and TREALITY divestiture ($3 million). Gain on sale of businesses-net of $69 million was recorded for the thirty-nine week period ended July 3, 2021, and is primarily related to the net gain on sale recognized on the ScioTeq and TREALITY and TAC divestitures. Refer to Note 3, “Acquisitions and Divestitures,” in the notes to the condensed consolidated financial statements included herein for further information.

Income Tax Provision (Benefit).** Income tax expense (benefit) as a percentage of income before income taxes was approximately 21.5% for the thirty-nine week period ended July 2, 2022 compared to (10.5)% for the thirty-nine week period ended July 3, 2021. The Company’s significantly lower effective tax rate for the thirty-nine week period ended July 3, 2021 was primarily due to a one time benefit from a tax election made on the Company's fiscal 2020 U.S. federal income tax return enabling the Company to utilize its net interest deduction limitation carryforward pursuant to IRC Section 163(j) resulting in the release of the valuation allowance applicable to such carryforward during the third quarter of fiscal 2021.
Income from Discontinued Operations, net of tax.** Income from discontinued operations, net of tax, for the thirty-nine week period ended July 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 thirty-nine week period ended July 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 $129 million, or 27.4%, to $600 million for the thirty-nine week period ended July 2, 2022 compared to net income attributable to TD Group of $471 million for the thirty-nine week period ended July 3, 2021, primarily as a result of the factors referenced above.

*•*Earnings per Share. Basic and diluted earnings per share from continuing operations was $9.42 for the thirty-nine week period ended July 2, 2022 compared to $6.83 per share for the thirty-nine week period ended July 3, 2021. Basic and diluted earnings per share from discontinued operations was $0.02 for the thirty-nine week period ended July 2, 2022. There was no impact on earnings per share from discontinued operations for the thirty-nine week period ended July 3, 2021.

Business Segments

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


	Thirty-Nine Week Periods Ended
	July 2, 2022		% of Net Sales		July 3, 2021		% of Net Sales		Change		% Change
Power & Control	$	2,095	53.5	%	$	1,870	53.1	%	$	225	12.0	%
Airframe	1,705		43.5	%	1,527		43.4	%	178		11.7	%
Non-aviation	119		3.0	%	122		3.5	%	(3)		(2.5)	%
Net sales	$	3,919	100.0	%	$	3,519	100.0	%	$	400	11.4	%

Net sales for the Power & Control segment increased $225 million, an increase of 12.0%, for the thirty-nine week period ended July 2, 2022. The sales increase resulted primarily from increases in organic sales in commercial aftermarket ($180 million, an increase of 44.6%) and commercial OEM ($66 million, an increase of 20.3%); partially offset by a decrease in organic defense sales ($37 million, a decrease of 3.5%). The increase in commercial aftermarket sales is primarily attributable to the continued recovery in commercial air travel demand, particularly the increase in the utilization of narrow-body aircraft, and air cargo demand and the resulting higher flight hours compared to fiscal 2021. The increase in OEM sales is primarily attributable to a higher volume of narrow-body aircraft deliveries by aircraft manufacturers to airlines and also production rate increases of narrow-body aircraft compared to 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 particularly in the first half of our fiscal year and also due to Boeing's quality control issues with the 787 aircraft. The decrease in defense sales is attributable to continued supply chain shortages resulting in shipment delays and delays in U.S. government defense spend outlays. The change in acquisition and divestiture sales was not material for the thirty-nine week period ended July 2, 2022.

Net sales for the Airframe segment increased $178 million, an increase of 11.7%, for the thirty-nine week period ended July 2, 2022. The sales increase resulted primarily from increases in organic sales in commercial aftermarket ($178 million, an increase of 50.5%) and commercial OEM ($81 million, an increase of 23.2%); partially offset by a decrease in organic defense sales ($16 million, a decrease of 2.6%). 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 compared to 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 production rate increases of narrow-body aircraft compared to 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 particularly in the first half of our fiscal year and also due to Boeing's quality control issues with the 787 aircraft. The decrease in defense sales is attributable to continued supply chain shortages resulting in shipment delays and delays in U.S. government defense spend outlays. Acquisition and divestiture sales decreased $74 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 and DART's sales beginning in the third quarter of fiscal 2022.

Net sales for the Non-aviation segment decreased by $3 million, a decrease of 2.5%, for the thirty-nine week period ended July 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 thirty-nine week periods ended July 2, 2022 and July 3, 2021 were as follows (amounts in millions):


	Thirty-Nine Week Periods Ended
	July 2, 2022		% of Segment Net Sales		July 3, 2021		% of Segment Net Sales		Change		% Change
Power & Control	$	1,100	52.5	%	$	944	50.5	%	$	156	16.5	%
Airframe	791		46.4	%	618		40.5	%	173		28.0	%
Non-aviation	45		37.8	%	45		36.9	%	—		—	%
	$	1,936	49.4	%	$	1,607	45.7	%	$	329	20.5	%

EBITDA As Defined for the Power & Control segment increased approximately $156 million, an increase of 16.5%, 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 thirty-nine week period ended July 2, 2022.

EBITDA As Defined for the Airframe segment increased approximately $173 million, an increase of 28.0%, 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 $13 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 (only through the first quarter of fiscal 2022) and DART (beginning in the third quarter of fiscal 2022).

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):


	July 2, 2022		September 30, 2021
Selected Balance Sheet Data:
Cash and cash equivalents	$	3,808	$	4,787
Working capital (Total current assets less total current liabilities)	4,964		5,367
Total assets	18,819		19,315
Total debt (1)	19,809		19,998
TD Group stockholders’ deficit	(2,976)		(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.


	Thirty-Nine Week Periods Ended
	July 2, 2022		July 3, 2021
Selected Cash Flow and Other Financial Data:
Cash flows provided by (used in):
Operating activities	$	675	$	624
Investing activities	(505)		(748)
Financing activities	(1,116)		(74)
Capital expenditures	86		80
Ratio of earnings to fixed charges (1)	2.0x		1.5x

(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 and third quarters of fiscal 2022, the Company repurchased 1,490,413 shares of common stock at an average price of $612.13 per share, aggregating to approximately $912 million in repurchases. The Company may make additional share repurchases in the fourth quarter 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.

In August 2022, TransDigm's Board of Directors authorized and declared a special cash dividend of $18.50 on each outstanding share of common stock and cash dividend equivalent payments on vested options outstanding under its stock incentive plans. The record date and payment date for the special dividend is August 19, 2022 and August 26, 2022, respectively. The total estimated cash payment, using existing cash on hand, related to the special dividend and dividend equivalents is approximately $1,068 million.

The Company’s ability to make scheduled interest payments on, or to refinance, the Company’s indebtedness, or to fund non-acquisition related capital expenditures and research and development efforts, will depend on the Company’s ability to generate cash in the future. 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 July 2, 2022, the Company has significant cash liquidity as illustrated in the table presented below (in millions):


	As of July 2, 2022
Cash and cash equivalents	$	3,808
Availability on revolving credit facility (1)	779
Cash liquidity (2)	$	4,587

(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.

(2)When considering the impact of the estimated $1,068 million payment in special dividends and dividend equivalents in August 2022, the pro forma cash liquidity as of July 2, 2022 is $3,519 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, such as the DART acquisition completed in the third quarter of fiscal 2022 for $360 million using existing cash on hand, pay dividends to our shareholders and make opportunistic investments in our own stock, such as the $912 million in common stock repurchases in 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 $675 million of net cash from operating activities during the thirty-nine week period ended July 2, 2022 compared to $624 million during the thirty-nine week period ended July 3, 2021.

The change in accounts receivable during the thirty-nine week period ended July 2, 2022 was a use of cash of $91 million compared to a source of cash of $23 million during the thirty-nine week period ended July 3, 2021. The change of $114 million is primarily attributable to the timing of cash receipts as there were a higher amount of sales in the month of June 2022 compared to June 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 thirty-nine week period ended July 2, 2022 was a use of cash of $108 million compared to a source of cash of $40 million during the thirty-nine week period ended July 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 thirty-nine week period ended July 2, 2022 was a source of cash of $23 million compared to a use of cash of $19 million during the thirty-nine week period ended July 3, 2021. The change is due to the timing of payments to suppliers.

Investing Activities. Net cash used in investing activities was $505 million during the thirty-nine week period ended July 2, 2022, consisting of the acquisitions of DART and certain product lines for $422 million and capital expenditures of $86 million. This was 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 $748 million during the thirty-nine week period ended July 3, 2021, consisting primarily of the acquisition of CAC for $951 million and capital expenditures of $80 million. This was partially offset by proceeds of $259 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 thirty-nine week period ended July 2, 2022 was $1,116 million. The use of cash was primarily attributable to $912 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 $56 million. This was partially offset by $99 million in proceeds from stock option exercises.

Net cash used in financing activities during the thirty-nine week period ended July 3, 2021 was $74 million. The use of cash was primarily attributable to the redemption of the 2024 Notes and 2025 Notes for $1,220 million and $762 million, respectively, dividend equivalent payments of $73 million and repayments on term loans of $56 million. This was partially offset by $1,189 million in net proceeds from the completion of the 4.625% 2029 Notes offering, $743 million in net proceeds from the completion of the 4.875% 2029 Notes offering and $106 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 thirty-nine week period ended July 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 $7,317 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 July 2, 2022):


Term Loans Facility	Aggregate Principal	Maturity Date	Interest Rate
Tranche E	$2,160 million	May 30, 2025	LIBOR + 2.25%
Tranche F	$3,427 million	December 9, 2025	LIBOR + 2.25%
Tranche G	$1,730 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 July 2, 2022, the Company had $30.6 million in letters of credit outstanding and $779.4 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 thirty-nine week period ended July 2, 2022, the applicable interest rate was approximately 3.92% 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 July 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)	July 2, 2022
Current assets	$	4,570
Goodwill	6,780
Other non-current assets	2,705
Current liabilities	659
Non-current liabilities	20,097
Amounts (from) due to subsidiaries that are non-issuers and non-guarantors - net	(687)


	Thirty-Nine Week Period Ended
(in millions)	July 2, 2022
Net sales	$	3,040
Sales to subsidiaries that are non-issuers and non-guarantors	29
Cost of sales	1,247
Expense from subsidiaries that are non-issuers and non-guarantors - net	48
Income from continuing operations	439
Net income attributable to TD Group	439

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 July 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. The interest rate under the agreement is 1.20% plus three month LIBOR. The Securitization Facility is collateralized by substantially all of the Company’s domestic operations’ trade accounts receivable. As of July 2, 2022, the Company has borrowed $350 million under the Securitization Facility, which is fully drawn. On July 25, 2022, the Company amended the Securitization Facility to, among other things, extend the maturity date to July 25, 2023.

Dividend and Dividend Equivalent Payments

On August 9, 2022, the Company announced that TD Group's Board of Directors authorized and declared a special cash dividend of $18.50 on each outstanding share of common stock and cash dividend equivalent payments on vested options outstanding under its stock incentive plans. The record date and payment date for the special dividend is August 19, 2022 and August 26, 2022, respectively. The total estimated cash payment, using existing cash on hand, related to the special dividend and dividend equivalent payments in the fourth quarter of fiscal 2022 is approximately $1,068 million.

Any future declaration of special cash dividends on our common stock will be at the discretion of our Board of Directors and will depend upon our results of operations, earnings, capital requirements, financial condition, future prospects, contractual restrictions under the 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 as of July 2, 2022 were $46 million. Pursuant to the Fourth Amended and Restated TransDigm Group Incorporated 2006 Stock Incentive Plan Dividend Equivalent Plan and the Amended and Restated 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 July 2, 2022, the Company had $30.6 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				Thirty-Nine Week Periods Ended
	July 2, 2022		July 3, 2021		July 2, 2022		July 3, 2021
Income from continuing operations	$	239	$	317	$	601	$	473
Adjustments:
Depreciation and amortization expense	61		65		188		188
Interest expense, net	269		263		799		798
Income tax provision (benefit)	74		(73)		165		(45)
EBITDA	643		572		1,753		1,414
Adjustments:
Acquisition and divestiture transaction-related expenses and adjustments (1)	5		6		13		24
Non-cash stock compensation expense (2)	36		35		115		105
Refinancing costs (3)	—		13		—		36
COVID-19 pandemic restructuring costs (4)	—		1		—		40
Gain on sale of businesses, net (5)	(3)		(68)		(6)		(69)
Other, net (6)	15		—		19		2
EBITDA As Defined	$	696	$	559	$	1,894	$	1,552



(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 $36 million for the thirteen and thirty-nine week periods ended July 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 $4 million for the thirteen and thirty-nine week periods ended July 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 thirty-nine week periods ended July 2, 2022 were not material.

(5)						Represents the net gain on sale of businesses. Refer to Note 3, “Acquisitions and Divestitures,” in the notes to the condensed consolidated financial statements included herein for further information.

(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 including the pension settlement charge for the Esterline Retirement Plan (further detailed in Note 15, “Retirement Plans”), deferred compensation 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):


	Thirty-Nine Week Periods Ended
	July 2, 2022		July 3, 2021
Net cash provided by operating activities	$	675	$	624
Adjustments:
Changes in assets and liabilities, net of effects from acquisitions and sales of businesses	220		33
Interest expense, net (1)	773		772
Income tax provision - current	166		10
Loss contract amortization	28		47
Non-cash stock compensation expense (2)	(115)		(105)
Refinancing costs (3)	—		(36)
Gain on sale of businesses, net (4)	6		69
EBITDA	1,753		1,414
Adjustments:
Acquisition and divestiture transaction-related expenses and adjustments (5)	13		24
Non-cash stock compensation expense (2)	115		105
Refinancing costs (3)	—		36
COVID-19 pandemic restructuring costs (6)	—		40
Gain on sale of businesses, net (4)	(6)		(69)
Other, net (7)	19		2
EBITDA As Defined	$	1,894	$	1,552



(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 the net gain on sale of businesses. Refer to Note 3, “Acquisitions and Divestitures,” in the notes to the condensed consolidated financial statements included herein for further information.

(5)						Represents accounting adjustments to inventory associated with acquisitions of businesses and product lines that were charged to cost of sales when inventory was sold; costs incurred to integrate acquired businesses and product lines into TD Group’s operations, facility relocation costs and other acquisition-related costs; transaction-related costs for both acquisitions and divestitures comprising deal fees, legal, financial and tax due diligence expenses, and valuation costs that are required to be expensed as incurred.

(6)						Represents restructuring costs related to the Company's cost reduction measures in response to the COVID-19 pandemic of $36 million for the thirty-nine week period ended July 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 $4 million for the thirty-nine week period ended July 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 thirty-nine week period ended July 2, 2022 were not material.

(7)						Primarily represents foreign currency transaction gain or loss, payroll withholding taxes related to special dividend and dividend equivalent payments and stock option exercises, non-service related pension costs including the pension settlement charge for the Esterline Retirement Plan (further detailed in Note 15, “Retirement Plans”), deferred compensation and gain or loss on sale of fixed assets.

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