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; current and future geopolitical or other worldwide events; cybersecurity threats, natural disasters and climate-change related events; our reliance on certain customers; the United States (“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; climate-related regulations; 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 our 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 first quarter of fiscal year 2023, we generated net sales of $1,397 million and net income attributable to TD Group of $228 million. EBITDA As Defined was $699 million, or 50.0% 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 commercial aerospace industry has been significantly disrupted, both domestically and internationally, by the COVID-19 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, throughout fiscal 2022 and in the first quarter of fiscal 2023, we continued to see a rebound in our commercial aerospace end markets. While there is still a sizeable amount of progress that needs to take place before the commercial aerospace industry returns to normalcy and stability, we are encouraged by the progression of the commercial aerospace market recovery to date. Commercial air travel in domestic markets continues to lead the air traffic recovery with certain domestic markets nearing or achieving pre-pandemic air traffic levels. The pace of the international recovery has been slower than the domestic recovery, but international revenue passenger miles (“RPMs”), a metric used to measure air traffic demand, continues to make positive stride as most countries have now fully reopened to international travelers and there is pent-up demand for long-haul travel. The commercial OEM market is continuing to show signs of recovery with airlines returning to the commercial OEMs to place orders; however, the commercial OEM supply chain challenges impacting manufacturers such as Boeing and Airbus are slowing the pace of new aircraft manufacturing. Although the exact pace and timing of the commercial aerospace recovery, particularly internationally, remains uncertain and continues to evolve, we expect the Company's commercial aerospace end markets to continue progressing in fiscal 2023 barring any significant disruptions or setbacks.

The defense aerospace market has been impacted by the pandemic to a lesser extent than the commercial aerospace market with this impact arising primarily from supply chain shortages. Additionally, within the defense market, the pace of U.S. government defense spending outlays and government funding reprioritization provides for uncertainty.

The pandemic has also disrupted the global supply chain and labor markets. The disruption has resulted in delays in the availability of certain raw materials, increased freight costs, raw material costs and labor costs. 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 aviation authority and OEM certification processes associated with aerospace products could prevent efficient replacement of a supplier, raw material or component part.

Because the duration of the pandemic and its ancillary effects is unclear, it is difficult to forecast a precise impact on the Company’s future results.

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, 2022, filed on November 10, 2022. 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

Recent acquisitions are described in Note 3, “Acquisitions,” 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
			December 31, 2022						% of Net Sales						January 1, 2022						% of Net Sales
Net sales			$	1,397					100.0		%				$	1,194					100.0		%
Cost of sales			604						43.2		%				533						44.6		%
Selling and administrative expenses			169						12.1		%				170						14.2		%
Amortization of intangible assets			34						2.4		%				36						3.0		%
Income from operations			590						42.2		%				455						38.1		%
Interest expense, net			286						20.5		%				264						22.1		%
Refinancing costs			4						0.3		%				—						—		%
Other income			(1)						(0.1)		%				(2)						(0.2)		%
Income tax provision			72						5.2		%				30						2.5		%
Income from continuing operations			229						16.4		%				163						13.7		%
Less: Net income attributable to noncontrolling interests			(1)						(0.1)		%				(1)						(0.1)		%
Income from continuing operations attributable to TD Group			228						16.3		%				162						13.6		%
Income from discontinued operations, net of tax			—						—		%				1						0.1		%
Net income attributable to TD Group			$	228					16.3		%				$	163					13.7		%
Net income applicable to TD Group common stockholders			$	190		(1)			13.6		%				$	117		(1)			9.8		%
Earnings per share:
Earnings per share from continuing operations—basic and diluted			$	3.33		(2)									$	1.96		(2)
Earnings per share from discontinued operations—basic and diluted			—			(2)									0.02			(2)
Earnings per share			$	3.33											$	1.98
Weighted-average shares outstanding—basic and diluted			57.1												59.2
Other Data:
EBITDA			$	650		(3)									$	522		(3)
EBITDA As Defined			$	699		(3)			50.0		%				$	565		(3)			47.3		%

(1)Net income applicable to TD Group common stockholders represents net income attributable to TD Group less special dividends paid on participating securities, including dividend equivalent payments of $38 million and $46 million for the thirteen week periods December 31, 2022 and January 1, 2022, 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 U.S. GAAP financial measure.

Changes in Results of Operations

Thirteen week period ended December 31, 2022 compared with the thirteen week period ended January 1, 2022

Total Company

• Net Sales****.** Net organic sales and acquisition sales and the related dollar and percentage changes for the thirteen week periods ended December 31, 2022 and January 1, 2022 were as follows (amounts in millions):

			Thirteen Week Periods Ended																		% Change Net Sales
			December 31, 2022						January 1, 2022						Change
Organic sales			$	1,375					$	1,194					$	181					15.2		%
Acquisition sales			22						—						22						1.8		%
Net sales			$	1,397					$	1,194					$	203					17.0		%

Organic sales represent net sales from existing businesses owned by the Company, excluding sales from acquisitions. Acquisition sales represent net sales from acquired businesses for the period up to one year subsequent to their respective acquisition date. We believe this measure provides investors with a supplemental understanding of underlying sales trends by providing sales growth on a consistent basis. Refer to Note 3, “Acquisitions,” in the notes to the condensed consolidated financial statements included herein for further information on the Company's recent acquisitions activity.

The increase in organic sales of $181 million for the thirteen week period ended December 31, 2022 compared to the thirteen week period ended January 1, 2022 is primarily related to increases in commercial aftermarket sales ($115 million, an increase of 33.5%), commercial OEM sales ($53 million, an increase of 21.0%) and defense sales ($17 million, an increase of 3.3%). The increase in commercial aftermarket sales is primarily attributable to the continued recovery in commercial air travel demand and the resulting higher flight hours and utilization of aircraft in the first quarter of fiscal 2023 compared to fiscal 2022. The increase in OEM sales is primarily attributable to the continued recovery in both narrow-body and wide-body aircraft production and deliveries. The slight increase in defense sales is primarily attributable to slowly improving U.S. government defense spend outlays (though, in management’s estimation, the current lag between spend authorizations and outlays remains longer than historical average levels).

The increase in acquisition sales for the thirteen week period ended December 31, 2022 is attributable to the acquisition of DART Aerospace (“DART”), which was completed in the third quarter of fiscal 2022.

• Cost of Sales and Gross Profit****.** Cost of sales increased by $71 million, or 13.3%, to $604 million for the thirteen week period ended December 31, 2022 compared to $533 million for the thirteen week period ended January 1, 2022. Cost of sales and the related percentage of net sales for the thirteen week periods ended December 31, 2022 and January 1, 2022 were as follows (amounts in millions):

			Thirteen Week Periods Ended
			December 31, 2022						January 1, 2022						Change						% Change
Cost of sales - excluding costs below			$	592					$	542					$	50					9.2		%
% of net sales			42.4		%				45.4		%
Foreign currency losses (gains)			18						(1)						19						1,900.0		%
% of net sales			1.3		%				(0.1)		%
Non-cash stock and deferred compensation expense			4						4						—						—		%
% of net sales			0.3		%				0.3		%
Inventory acquisition accounting adjustments			2						—						2						100.0		%
% of net sales			0.1		%				—		%
Loss contract amortization			(12)						(12)						—						—		%
% of net sales			(0.9)		%				(1.0)		%
Total cost of sales			$	604					$	533					$	71					13.3		%
% of net sales			43.2		%				44.6		%
Gross profit (Net sales less Total cost of sales)			$	793					$	661					$	132					20.0		%
Gross profit percentage (Gross profit / Net sales)			56.8		%				55.4		%

Excluding the specific components to cost of sales listed above, the change in cost of sales during the thirteen week period ended December 31, 2022 decreased as a percentage of net sales despite increased inflationary pressures. This was primarily driven by the application of our three core value-driven operating strategies (obtaining profitable new business, continually improving our cost structure and providing highly engineered value-added products to customers) coupled with fixed overhead costs incurred being spread over a higher production volume. A favorable sales mix, specifically, higher commercial aftermarket sales as a percentage of net sales compared to commercial OEM net sales also contributed to the gross profit as a percentage of net sales increasing by 1.4 percentage points to 56.8% for the thirteen week period ended December 31, 2022 from 55.4% for the thirteen week period ended January 1, 2022.

Regarding the specific components to cost of sales listed above, foreign exchange rates, particularly the U.S. dollar compared to the British pound and the euro, weakened in the first quarter of fiscal 2023 resulting in unfavorable movement. No other material movement in the components to cost of sales were identified.

• Selling and Administrative Expenses.** Selling and administrative expenses decreased by $1 million to $169 million, or 12.1% of net sales, for the thirteen week period ended December 31, 2022 from $170 million, or 14.2% of net sales, for the thirteen week period ended January 1, 2022. Selling and administrative expenses and the related percentage of net sales for the thirteen week periods ended December 31, 2022 and January 1, 2022 were as follows (amounts in millions):

			Thirteen Week Periods Ended
			December 31, 2022						January 1, 2022						Change						% Change
Selling and administrative expenses - excluding costs below			$	137					$	132					$	5					3.8		%
% of net sales			9.8		%				11.1		%
Non-cash stock and deferred compensation expense			31						34						(3)						(8.8)		%
% of net sales			2.2		%				2.8		%
Acquisition integration costs			1						3						(2)						(66.7)		%
% of net sales			0.1		%				0.3		%
Acquisition and divestiture transaction-related expenses			—						1						(1)						(100.0)		%
% of net sales			—		%				0.1		%
Total selling and administrative expenses			$	169					$	170					$	(1)					(0.6)		%
% of net sales			12.1		%				14.2		%

Excluding the specific components to selling and administrative expenses listed above, selling and administrative expenses during the thirteen week period ended December 31, 2022 improved as a percentage of net sales compared to the thirteen week period in the prior fiscal year as a result of higher sales and our continued strategic cost mitigation efforts.

• Amortization of Intangible Assets.** Amortization of intangible assets was $34 million for the thirteen week period ended December 31, 2022 compared to $36 million for the thirteen week period ended January 1, 2022. The slight decrease in amortization expense of $2 million was due to the amortization expense recognized on intangible assets from the fiscal 2022 acquisition of DART being offset by sales order backlog recorded in connection with the Cobham Aero Connectivity (“CAC”) acquisition (acquired January 2021) becoming fully amortized in the first quarter of fiscal 2022.

• 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, finance leases and interest income. Interest expense-net increased $22 million, or 8.3%, to $286 million for the thirteen week period ended December 31, 2022 from $264 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 the London Interbank Offered Rate (“LIBOR”) compared to the prior year, which adversely impacted the interest expense on the gross debt that is variable rate and not hedged via an interest rate swap or cap. This was partially offset by a $19 million increase in interest income. The weighted average interest rate for cash interest payments on total borrowings outstanding for the thirteen week period ended December 31, 2022 was 5.9%.

• Refinancing Costs.** Refinancing costs of $4 million recorded for the thirteen week period ended December 31, 2022 were primarily related to fees incurred for the refinancing activity under Amendment No. 10, Loan Modification Agreement and Refinancing Facility Agreement, to the Second Amended and Restated Credit Agreement, dated June 4, 2014 (herein, “Amendment No. 10”) completed during the first quarter of fiscal 2023. No refinancing costs were recorded for the thirteen week period ended January 1, 2022.

• Other Income.** Other income was $1 million for the thirteen week period ended December 31, 2022 compared to $2 million recorded for the thirteen week period ended January 1, 2022. The activity in both periods primarily relates to the non-service related components of benefit costs on the Company's benefit plans.

• Income Tax Provision.** Income tax expense as a percentage of income before income taxes was approximately 23.9% for the thirteen week period ended December 31, 2022 compared to 15.5% for the thirteen week period ended January 1, 2022. The Company’s higher effective tax rate for the thirteen week period ended December 31, 2022 was primarily due to a more significant discrete benefit associated with excess tax benefits applicable to share-based payments for the thirteen week period ended January 1, 2022.

• Income from Discontinued Operations, net of tax.** No income from discontinued operations, net of tax, was recorded for the thirteen week period ended December 31, 2022. Income from discontinued operations, net of tax, was $1 million for the thirteen week period ended January 1, 2022 and related to a final working capital settlement received on the divestiture of the Souriau-Sunbank Connection Technologies business.

• Net Income Attributable to TD Group****.** Net income attributable to TD Group increased $65 million, or 39.9%, to $228 million for the thirteen week period ended December 31, 2022 compared to net income attributable to TD Group of $163 million for the thirteen week period ended January 1, 2022, primarily as a result of the factors referenced above.

• Earnings per Share.** Basic and diluted earnings per share from continuing operations was $3.33 for the thirteen week period ended December 31, 2022 and $1.96 for the thirteen week period ended January 1, 2022. Basic and diluted earnings per share from discontinued operations was $0.02 for the thirteen week period ended January 1, 2022. There was no impact on earnings per share from discontinued operations for the thirteen week period ended December 31, 2022. Net income attributable to TD Group for the thirteen week period ended December 31, 2022 of $228 million was decreased by dividend equivalent payments of $38 million, or $0.67 per share, resulting in net income applicable to TD Group common stockholders of $190 million, or $3.33 per share. Net income attributable to TD Group for the thirteen week period ended January 1, 2022 of $163 million was decreased by dividend equivalent payments of $46 million, or $0.77 per share, resulting in net income applicable to TD Group common stockholders of $117 million, or $1.98 per share.

Business Segments

• Segment Net Sales****.** Net sales by segment for the thirteen week periods ended December 31, 2022 and January 1, 2022 were as follows (amounts in millions):

			Thirteen Week Periods Ended
			December 31, 2022						% of Net Sales						January 1, 2022						% of Net Sales						Change						% Change
Power & Control			$	725					51.9		%				$	650					54.4		%				$	75					11.5		%
Airframe			637						45.6		%				506						42.4		%				131						25.9		%
Non-aviation			35						2.5		%				38						3.2		%				(3)						(7.9)		%
Net sales			$	1,397					100.0		%				$	1,194					100.0		%				$	203					17.0		%

Net sales for the Power & Control segment increased $75 million, an increase of 11.5%, for the thirteen week period ended December 31, 2022 compared to the thirteen week period ended January 1, 2022. The sales increase resulted primarily from increases in organic sales in the commercial aftermarket ($56 million, an increase of 30.6%), commercial OEM ($14 million, an increase of 11.4%) and defense ($17 million, an increase of 5.4%). The increase in commercial aftermarket sales is primarily attributable to the continued recovery in commercial air travel demand and the resulting higher flight hours and utilization of aircraft in the first quarter of fiscal 2023 compared to fiscal 2022. The increase in OEM sales is primarily attributable to the continued recovery in both narrow-body and wide-body aircraft production and deliveries. The increase in defense sales is primarily attributable to slowly improving U.S. government defense spend outlays (though, in management’s estimation, the current lag between spend authorizations and outlays remains longer than historical average levels).

Net sales for the Airframe segment increased $131 million, an increase of 25.9%, for the thirteen week period ended December 31, 2022 compared to the thirteen week period ended January 1, 2022. The sales increase resulted primarily from increases in organic sales in the commercial aftermarket ($59 million, an increase of 36.9%) and commercial OEM sales ($40 million, an increase of 31.2%). The change in organic defense sales was flat (a decrease of $1 million, or 0.7%). The increase in commercial aftermarket sales is primarily attributable to the continued recovery in commercial air travel demand and the resulting higher flight hours and utilization of aircraft in the first quarter of fiscal 2023 compared to fiscal 2022. The increase in OEM sales is primarily attributable to the continued recovery in both narrow-body and wide-body aircraft production and deliveries. Defense sales were flat primarily due to slowly improving U.S. government defense spend outlays (though, in management’s estimation, the current lag between spend authorizations and outlays remains longer than historical average levels). Acquisition sales increased by $22 million for the thirteen week period ended December 31, 2022 due to the impact on the comparable period from the net sales of DART.

The change in Non-aviation net sales compared to the thirteen week period in the prior fiscal year was not material.

• EBITDA As Defined****.** Refer to “Non-GAAP Financial Measures” in this discussion and analysis for additional information and limitations regarding these non-GAAP financial measures, including a reconciliation to the comparable U.S. GAAP financial measure. EBITDA As Defined by segment for the thirteen week periods ended December 31, 2022 and January 1, 2022 were as follows (amounts in millions):

			Thirteen Week Periods Ended
			December 31, 2022						% of Segment Net Sales						January 1, 2022						% of Segment Net Sales						Change						% Change
Power & Control			$	401					55.3		%				$	328					50.5		%				$	73					22.3		%
Airframe			312						49.0		%				226						44.7		%				86						38.1		%
Non-aviation			14						40.0		%				14						36.8		%				—						—		%
Total segment EBITDA As Defined			727						52.0		%				568						47.6		%				159						28.0		%
Less: Unallocated corporate EBITDA As Defined			28						2.0		%	(1)			3						0.3		%	(1)			25						833.3		%
Total Company EBITDA As Defined			$	699					50.0		%	(1)			$	565					47.3		%	(1)			$	134					23.7		%

(1)Calculated as a percentage of consolidated net sales.

Organic EBITDA As Defined represents EBITDA As Defined from existing businesses owned by the Company as of December 31, 2022, excluding EBITDA As Defined from acquisitions. EBITDA As Defined from acquisitions represents EBITDA As Defined from acquired businesses for the period up to one year subsequent to the respective acquisition date. Refer to Note 3, “Acquisitions,” in the notes to the condensed consolidated financial statements included herein for further information on the Company's recent acquisitions activity.

EBITDA As Defined for the Power & Control segment increased approximately $73 million, an increase of 22.3%, 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 ongoing inflationary environment for freight, labor and certain raw materials.

EBITDA As Defined for the Airframe segment increased approximately $86 million, an increase of 38.1%, 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 ongoing inflationary environment for freight, labor and certain raw materials. EBITDA As Defined for the Airframe segment from acquisitions increased by $6 million due to the impact of DART.

The change in Non-aviation EBITDA as Defined compared to the thirteen week period in the prior fiscal year was not material.

Corporate expenses consist primarily of compensation, benefits, professional services and other administrative costs incurred by the corporate offices. An immaterial amount of corporate expenses is allocated to the operating segments. The increase compared to the thirteen week period in the prior fiscal year is primarily attributable to the deferred compensation plan adopted in the fourth quarter of fiscal 2022 for certain members of non-executive management and certain non-recurring transactions recorded in the first 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):

			December 31, 2022						September 30, 2022
Selected Balance Sheet Data:
Cash and cash equivalents			$	3,288					$	3,001
Working capital (Total current assets less total current liabilities)			4,521						4,223
Total assets			18,489						18,107
Total debt (1)			19,803						19,795
TD Group stockholders’ deficit			(3,336)						(3,773)

(1)Includes debt issuance costs and original issue discount and premiums. Reference Note 9, “Debt,” in the notes to the condensed consolidated financial statements included herein for additional information.

			Thirteen Week Periods Ended
			December 31, 2022						January 1, 2022
Selected Cash Flow and Other Financial Data:
Cash flows provided by (used in):
Operating activities			$	377					$	279
Investing activities			(41)						(25)
Financing activities			(65)						(225)
Capital expenditures			31						25
Ratio of earnings to fixed charges (1)			2.0x						1.7x

(1)For purposes of computing the ratio of earnings to fixed charges, earnings consist of earnings from continuing operations before income taxes plus fixed charges. 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.

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 pandemic.

The Company's objective is to maintain an allocation of at least 75% fixed rate and 25% variable rate debt thereby limiting its exposure to changes in near-term interest rates. Interest rate swaps and caps used to hedge and offset, respectively, the variable interest rates on the credit facility are described in Note 12, “Derivatives and Hedging Activities,” in the notes to the condensed consolidated financial statements included herein. As of December 31, 2022, over 75% of our gross debt is at a fixed rate.

The Company continues to strategically manage its cash and cash equivalents. In the first quarter of fiscal 2023, the Company entered into Amendment No. 10, extending the maturity date on the approximately $1,725 million in Tranche G term loans due August 2024 to new Tranche H term loans due February 2027.

As of December 31, 2022, the Company has significant cash liquidity as illustrated in the table presented below (in millions):

			As of December 31, 2022
Cash and cash equivalents			$	3,288
Availability on revolving credit facility			779
Cash liquidity			$	4,067

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 May 2025.

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 continue to have the financial flexibility to focus on effective capital allocation, which includes making strategic business acquisitions, such as the fiscal 2022 DART acquisition for $359 million, pay dividends to our shareholders, such as the $18.50 per share special dividend paid in the fourth quarter of fiscal 2022, and make opportunistic investments in our own stock, such as the $912 million in share repurchases in fiscal 2022.

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 $377 million of net cash from operating activities during the thirteen week period ended December 31, 2022 compared to $279 million during the thirteen week period ended January 1, 2022.

The change in accounts receivable during the thirteen week period ended December 31, 2022 was a source of cash of $121 million compared to a source of cash of $117 million during the thirteen week period ended January 1, 2022. The increase in the source of cash of $4 million is primarily attributable to the timing of cash receipts. The Company continues to actively manage its accounts receivable, the related agings and collection efforts.

The change in inventories during the thirteen week period ended December 31, 2022 was a use of cash of $89 million compared to a use of cash of $32 million during the thirteen week period ended January 1, 2022. The increase in the use of cash of $57 million is primarily driven by increased purchasing from higher demand in fiscal 2023 as raw materials inventory is up approximately $166 million compared to at January 1, 2022. The Company continues to actively and strategically manage inventory levels in response to the ongoing supply chain challenges.

The change in accounts payable during the thirteen week period ended December 31, 2022 was a use of cash of $13 million compared to a use of cash of $14 million during the thirteen week period ended January 1, 2022. The change is due to the timing of payments to suppliers.

Investing Activities. Net cash used in investing activities was $41 million during the thirteen week period ended December 31, 2022, consisting of capital expenditures of $31 million and the remaining $10 million cash payment due for a certain product line acquired at the end of fiscal 2022.

Net cash used in investing activities was $25 million during the thirteen week period ended January 1, 2022, consisting of capital expenditures of $25 million.

Financing Activities. Net cash used in financing activities during the thirteen week period ended December 31, 2022 was $65 million. The use of cash was primarily attributable to repayments on term loans of $1,739 million, which consists of the full repayment of existing Tranche G term loans and fees ($1,725 million) plus principal payments on Tranche E and Tranche F term loans ($14 million), dividend equivalent payments of $38 million and other financing fees of $5 million. This was partially offset by $1,690 million in proceeds of Tranche H term loans (replacing the Tranche G term loans) and $27 million in proceeds from stock option exercises.

Net cash used in financing activities during the thirteen week period ended January 1, 2022 was $225 million. The use of cash was primarily attributable to a $200 million repayment of a previous draw on the revolving credit facility, dividend equivalent payments of $46 million and repayment on term loans of $19 million. This was partially offset by $40 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 postretirement benefit plans and purchase obligations. During the thirteen week period ended December 31, 2022, other than the execution of Amendment No. 10, which is described further in Note 9, “Debt,” in the notes to the condensed consolidated financial statements included herein, there were no material changes to these obligations as reported in our Annual Report on Form 10-K for the fiscal year ended September 30, 2022.

Description of Senior Secured Term Loans and Indentures

Senior Secured Term Loans Facility

On December 14, 2022, the Company entered into Amendment No. 10. Under the terms of Amendment No. 10, the Company, among other things, repaid in full its existing approximately $1,725 million in Tranche G term loans maturing August 22, 2024 and replaced such loans with approximately $1,725 million in Tranche H term loans maturing February 22, 2027. The applicable margin for the Tranche H term loans bearing interest at Term Secured Overnight Financing Rate (“SOFR”) is 3.25% compared to an applicable margin for the former Tranche G term loans which bore interest at LIBOR plus 2.25%. Original issue discount of 2%, or approximately $34.5 million, was paid to lenders of the Tranche H term loans. The Tranche H term loans were fully drawn on December 14, 2022 and the other terms and conditions that apply to the Tranche H term loans are substantially the same as the terms and conditions that applied to the term loans immediately prior to Amendment No. 10.

As of December 31, 2022, TransDigm has $7,284 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:

Term Loans Facility						Aggregate Principal						Maturity Date						Interest Rate
Tranche E						$2,149 million						May 30, 2025						LIBOR plus 2.25%
Tranche F						$3,410 million						December 9, 2025						LIBOR plus 2.25%
Tranche H						$1,725 million						February 22, 2027						Term SOFR plus 3.25%

The Term Loans Facility requires quarterly aggregate principal payments of $19 million. The revolving commitments consist of two tranches which include up to $152 million of multicurrency revolving commitments. At December 31, 2022, the Company had $31 million in letters of credit outstanding and $779 million in borrowings available under the revolving commitments. Draws on the revolving commitments are subject to an interest rate of 2.50% per annum. The unused portion of the revolving commitments is subject to a fee of 0.5% per annum.

The interest rates per annum applicable to the Tranche E and Tranche F term loans under the Credit Agreement are, at TransDigm’s option, equal to either an alternate base rate or an adjusted LIBOR for one, three or six-month (or to the extent agreed to by each relevant lender, twelve-month or a period less than one month) interest periods chosen by TransDigm, in each case plus an applicable margin percentage. The adjusted LIBOR related to Tranche E and Tranche F term loans are not subject to a floor. For the thirteen week periods ended December 31, 2022 and January 1, 2022, the applicable interest rate (which excludes the impact of our interest rate swaps and caps) was approximately 5.92% and 2.34% on the existing term loans, respectively.

The interest rates per annum applicable to the Tranche H term loans under the Credit Agreement are, at TransDigm’s option, equal to either an alternate base rate or an adjusted Term SOFR for one, three or six-month interest periods chosen by TransDigm, in each case plus an applicable margin percentage. The adjusted Term SOFR related to Tranche H term loans are not subject to a floor. For the thirteen week period ended December 31, 2022, the applicable interest rate was approximately 7.57% on the existing term loans.

Refer to Note 12, “Derivatives and Hedging Activities,” in the notes to the condensed consolidated financial statements included herein for information about how our interest rate swaps and cap agreements are used to hedge and offset, respectively, the variable interest rates on the credit facility.

Indentures

The following table represents the senior subordinated and secured notes outstanding as of December 31, 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 million. The 2025 Secured Notes were issued at a price of 100% of the principal amount. The initial $3,800 million offering of the 2026 Secured Notes (which, along with the 2025 Secured Notes, are collectively referred to as the “Secured Notes”) was issued at a price of 100% of its principal amount and the subsequent $200 million and $400 million offerings of the 2026 Secured Notes in the second quarter of fiscal 2019 and the third quarter of fiscal 2020, respectively, were issued at a price of 101% of their principal amount, resulting in gross proceeds of $4,411 million.

The 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 (as defined in the applicable Indentures). The TransDigm UK Notes are guaranteed on a senior subordinated basis by TransDigm Inc., TD Group and TransDigm Inc.'s Domestic Restricted Subsidiaries. The 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 Inc.’s Domestic Restricted 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 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)			December 31, 2022
Current assets			$	4,232
Goodwill			6,853
Other non-current assets			2,821
Current liabilities			752
Non-current liabilities			20,038
Amounts (from) due to subsidiaries that are non-issuers and non-guarantors - net			(1,423)

			Thirteen Week Period Ended
(in millions)			December 31, 2022
Net sales			$	1,080
Sales to subsidiaries that are non-issuers and non-guarantors			8
Cost of sales			427
Expense from subsidiaries that are non-issuers and non-guarantors - net			10
Income from continuing operations			151
Net income attributable to TD Group			151

Certain Restrictive Covenants in Our Debt Documents

The Credit Agreement and the Indentures governing the Notes and Secured Notes contain restrictive covenants that, among other things, limit the incurrence of additional indebtedness, the payment of special dividends, transactions with affiliates, asset sales, acquisitions, mergers and consolidations, liens and encumbrances, and prepayments of certain other indebtedness.

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 and Refinancing Facility Agreement, executed on February 6, 2020.

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 and Secured Notes may elect to declare all outstanding borrowings, together with accrued interest and other amounts payable thereunder, to be immediately due and payable. 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 and the holders of the Secured Notes will have the right to proceed against the collateral granted to them to secure the debt, which includes our available cash, and they will also have the right to prevent us from making debt service payments on the Notes.

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 $284 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 December 31, 2022, the Company was in compliance with all of its debt covenants and expects to remain in compliance with its debt covenants in subsequent periods.

Trade Receivable Securitization Facility

During fiscal 2014, the Company established a trade receivable securitization facility (the “Securitization Facility”). 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 25, 2022, the Company amended the Securitization Facility to, among other things, extend the maturity date to July 25, 2023 and bear interest at a rate of Term SOFR plus 1.30%, compared to an interest rate of LIBOR plus 1.20% 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 December 31, 2022, the Company has borrowed $350 million under the Securitization Facility, which is fully drawn. For the thirteen week periods ended December 31, 2022 and January 1, 2022, the applicable interest rate was 5.36% and 1.41%, respectively.

Dividend and Dividend Equivalent Payments

No dividends were declared in the first quarter of fiscal 2023. 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, except for grants to the members of the Board of Directors, are entitled to certain dividend equivalent payments in the event of the declaration of a dividend by the Company. In August 2022, all members of the Board of Directors executed amendments to their option agreements resulting in the directors no longer receiving dividend equivalent payments in cash, but rather for dividends declared after June 1, 2022, dividends result in a reduction of strike price on the outstanding options held by the directors.

Dividend equivalent payments are made during the Company's first fiscal quarter each year and also upon payment of any dividends declared within the current fiscal year. Total dividend equivalent payments in the first quarter of fiscal 2023 were approximately $38 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 Credit Agreement 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 Term Loans Facility and Indentures and may be limited by future debt or other agreements that we may enter into.

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 December 31, 2022, the Company had $31 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
															December 31, 2022						January 1, 2022
Income from continuing operations															$	229					$	163
Adjustments:
Depreciation and amortization expense															63						65
Interest expense, net															286						264
Income tax provision															72						30
EBITDA															650						522
Adjustments:
Acquisition and divestiture transaction-related expenses and adjustments (1)															3						5
Non-cash stock and deferred compensation expense (2)															35						37
Refinancing costs (3)															4						—
Other, net (4)															7						1
EBITDA As Defined															$	699					$	565

(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 and deferred compensation plans.
(3)						Represents costs expensed related to debt financing activities, including new issuances, extinguishments, refinancings and amendments to existing agreements.
(4)						Primarily represents foreign currency transaction gain or loss, payroll withholding taxes related to dividend equivalent payments and stock option exercises, non-service related pension costs and deferred compensation payments.

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

			Thirteen Week Periods Ended
			December 31, 2022						January 1, 2022
Net cash provided by operating activities			$	377					$	279
Adjustments:
Changes in assets and liabilities, net of effects from acquisitions and sales of businesses			(49)						(18)
Interest expense, net (1)			277						256
Income tax provision - current			72						30
Loss contract amortization			12						12
Non-cash stock and deferred compensation expense (2)			(35)						(37)
Refinancing costs (3)			(4)						—
EBITDA			650						522
Adjustments:
Acquisition and divestiture transaction-related expenses and adjustments (4)			3						5
Non-cash stock and deferred compensation expense (2)			35						37
Refinancing costs (3)			4						—
Other, net (5)			7						1
EBITDA As Defined			$	699					$	565

(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 and deferred compensation plans.
(3)						Represents costs expensed related to debt financing activities, including new issuances, extinguishments, refinancings and amendments to existing agreements.
(4)						Represents 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)						Primarily represents foreign currency transaction gain or loss, payroll withholding taxes related to dividend equivalent payments and stock option exercises, non-service related pension costs and deferred compensation payments.