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Item 2 — Management's Discussion and Analysis
Transdigm Group Incorporated · 10-Q · Q3 FY2026 · Period ended Jun 27, 2026
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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 Securities Exchange Act of 1934, as amended (the “Exchange Act”), and 27A of the Securities Act of 1933, as amended. 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. 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 the risks described in Item 1A, “Risk Factors,” of the Annual Report on Form 10-K. 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 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; supply chain constraints; increases in raw material costs, taxes and labor costs that cannot be recovered in product pricing; failure to complete or successfully integrate acquisitions; our indebtedness; current and future geopolitical or other worldwide events, including, without limitation, wars or conflicts and public health crises; cybersecurity threats; risks related to the transition or physical impacts of climate change and other natural disasters or meeting regulatory requirements; 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; risks related to changes in laws and regulations, including increases in compliance costs and potential changes in trade policies and tariffs; potential environmental liabilities; liabilities arising in connection with litigation; 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 I, 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 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. We believe we have achieved steady, long-term growth in sales and improvements in operating performance due to our competitive strengths and through execution of our value-driven operating strategy. More specifically, focusing our businesses on our value-driven operating strategy of obtaining profitable new business, carefully controlling the cost structure via productivity and cost improvements and pricing our highly engineered value-added products to fairly reflect the value we provide and the resources required to do so has historically resulted in improvements in gross profit and income from operations over the long-term.
Our selective acquisition strategy has also been an important contribution to the growth of our business. We maintain a selective acquisition strategy, concentrating on proprietary commercial aerospace component businesses with significant aftermarket content where we see a clear path to value creation through the application of our three core value drivers. The integration of acquisitions into our existing businesses combined with implementing our proven operating strategy has historically resulted in improvements in the financial performance of the acquired businesses.
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For the third quarter of fiscal 2026, we generated net sales of $2,741 million and net income attributable to TD Group of $539 million. EBITDA As Defined was $1,447 million, or 52.8% 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 net income and net cash provided by operating activities.
Commercial aftermarket sales increased in the first nine months of fiscal 2026 compared to fiscal 2025 primarily due to the overall demand for air travel - both domestic and international in the first nine months of the fiscal year. Passenger load factors remain strong. Our commercial aftermarket demand remains strong despite the softening in overall industry capacity and RPMs arising from the conflict in the Middle East. We are monitoring the ongoing conflict in the Middle East and the adverse impact to global energy supplies and prices, global supply chains, inflationary pressures and commercial air travel. To date, we have not seen a significant change in commercial aftermarket order activity relative to levels prior to the start of the conflict. We continue to monitor the evolving macroeconomic environment; however, at this time we do not expect these factors to result in a material adverse effect on our business, financial condition and results of operations for at least the duration of fiscal 2026.
Our commercial transport original equipment manufacturer (“OEM”) shipments and revenues generally run ahead of aircraft delivery schedules. Consistent with prior years, our first nine months of fiscal 2026 shipments were a function of, among other things, the estimated 2025 and 2026 commercial aircraft production rates for Boeing and Airbus. Airline demand for new aircraft remains high and the OEMs, particularly Boeing and Airbus, continue to steadily increase aircraft production in recent quarters. Commercial OEM sales increased in the first nine months of fiscal 2026 compared to fiscal 2025 primarily due to the aircraft production increases by Boeing and Airbus.
Our defense business fluctuates from year-to-year, and is dependent, to a degree, on government budget constraints, the timing of orders, macro and micro dynamics with respect to the U.S. Department of War (“DOW”) procurement policy and the extent of global conflicts. Likewise, delays in government spending outlays and government funding reprioritization can impact demand. For a variety of reasons, the military spending outlook is very uncertain, though recent DOW budgets have trended upwards due to recent geopolitical challenges and conflicts, and current military modernization efforts. Defense sales increased in the first nine months of fiscal 2026 compared to fiscal 2025 primarily due to continued growth in defense spending in both domestic and international markets.
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, 2025, filed on November 12, 2025. Refer to Note 1, “Basis of Presentation,” 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 2, “Acquisitions,” in the notes to the condensed consolidated financial statements included herein.
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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
June 27, 2026 % of Net Sales June 28, 2025 % of Net Sales
Net sales $ 2,741 100.0 % $ 2,237 100.0 %
Cost of sales 1,113 40.6 % 905 40.5 %
Selling and administrative expenses 332 12.1 % 242 10.8 %
Amortization of intangible assets 69 2.5 % 51 2.3 %
Income from operations 1,227 44.8 % 1,039 46.4 %
Interest expense-net 514 18.8 % 397 17.7 %
Other expense — — % 7 0.3 %
Income tax provision 173 6.3 % 142 6.3 %
Income from continuing operations 540 19.7 % 493 22.0 %
Less: Net income attributable to noncontrolling interests (1) — % (1) — %
Net income attributable to TD Group $ 539 19.7 % $ 492 22.0 %
Net income applicable to TD Group common stockholders $ 539 (1) 19.7 % $ 492 (1) 22.0 %
Earnings per share attributable to TD Group common stockholders:
Basic and diluted $ 9.39 (2) $ 8.47 (2)
Weighted-average shares outstanding—basic and diluted 57.4 58.1
Other Data:
EBITDA $ 1,345 (3) $ 1,123 (3)
EBITDA As Defined $ 1,447 (3) 52.8 % $ 1,217 (3) 54.4 %
(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 equivalents. No special dividends were declared or paid on participating securities, including dividend equivalent payments, for the thirteen week periods ended June 27, 2026 and June 28, 2025.
(2)Earnings per share is calculated by dividing net income applicable to TD Group common stockholders by the basic and diluted weighted average common shares outstanding. Figures in the table may not recalculate exactly due to rounding. Earnings per share is calculated using unrounded numbers.
(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.
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Thirty-Nine Week Periods Ended
June 27, 2026 % of Net Sales June 28, 2025 % of Net Sales
Net sales $ 7,569 100.0 % $ 6,394 100.0 %
Cost of sales 3,078 40.7 % 2,553 39.9 %
Selling and administrative expenses 859 11.3 % 689 10.8 %
Amortization of intangible assets 185 2.4 % 148 2.3 %
Income from operations 3,447 45.5 % 3,004 47.0 %
Interest expense-net 1,472 19.4 % 1,152 18.0 %
Other income (10) (0.1) % (24) (0.4) %
Income tax provision 464 6.1 % 411 6.4 %
Income from continuing operations 1,521 20.1 % 1,465 22.9 %
Less: Net income attributable to noncontrolling interests (2) — % (1) — %
Net income attributable to TD Group $ 1,519 20.1 % $ 1,464 22.9 %
Net income applicable to TD Group common stockholders $ 1,460 (1) 19.3 % $ 1,415 (1) 22.1 %
Earnings per share attributable to TD Group common stockholders:
Basic and diluted $ 25.20 (2) $ 24.31 (2)
Weighted-average shares outstanding—basic and diluted 57.9 58.2
Other Data:
EBITDA $ 3,781 (3) $ 3,299 (3)
EBITDA As Defined $ 3,981 (3) 52.6 % $ 3,441 (3) 53.8 %
(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 $59 million and $49 million for the thirty-nine week periods ended June 27, 2026 and June 28, 2025, respectively.
(2)Earnings per share is calculated by dividing net income applicable to TD Group common stockholders by the basic and diluted weighted average common shares outstanding. Figures in the table may not recalculate exactly due to rounding. Earnings per share is calculated using unrounded numbers.
(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.
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Changes in Results of Operations
Thirteen week period ended June 27, 2026 compared with the thirteen week period ended June 28, 2025
Total Company
•Net Sales. Net organic sales and acquisition sales and the related dollar and percentage changes for the thirteen week periods ended June 27, 2026 and June 28, 2025 were as follows (amounts in millions):
Thirteen Week Periods Ended % Change Net Sales
June 27, 2026 June 28, 2025 Change
Organic sales $ 2,521 $ 2,237 $ 284 12.6 %
Acquisition sales 220 — 220 9.8 %
Net sales $ 2,741 $ 2,237 $ 504 22.5 %
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 from the 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 2, “Acquisitions,” in the notes to the condensed consolidated financial statements included herein for information on the Company’s recent acquisitions.
The increase in organic sales of $284 million for the thirteen week period ended June 27, 2026 compared to the thirteen week period ended June 28, 2025 is related to increases in commercial aftermarket, commercial OEM and defense sales.
•Cost of Sales and Gross Profit. Cost of sales increased by $208 million, or 23.0%, to $1,113 million for the thirteen week period ended June 27, 2026 compared to $905 million for the thirteen week period ended June 28, 2025. Cost of sales and the related percentage of net sales for the thirteen week periods ended June 27, 2026 and June 28, 2025 were as follows (amounts in millions):
Thirteen Week Periods Ended
June 27, 2026 June 28, 2025 Change % Change
Cost of sales - excluding costs below $ 1,061 $ 846 $ 215 25.4 %
% of net sales 38.7 % 37.8 %
Depreciation 41 35 6 17.1 %
% of net sales 1.5 % 1.6 %
Acquisition transaction and integration-related expenses 14 3 11 366.7 %
% of net sales 0.5 % 0.1 %
Foreign currency (gains) losses (3) 21 (24) (114.3) %
% of net sales (0.1) % 0.9 %
Total cost of sales $ 1,113 $ 905 $ 208 23.0 %
% of net sales 40.6 % 40.5 %
Gross profit (Net sales less Total cost of sales) $ 1,628 $ 1,332 $ 296 22.2 %
Gross profit percentage (Gross profit / Net sales) 59.4 % 59.5 %
Cost of sales during the thirteen week period ended June 27, 2026 slightly increased as a percentage of net sales. This was primarily due to the dilutive impact of the fiscal 2026 and 2025 acquisitions. Excluding the dilutive impact from these acquisitions, cost of sales as a percentage of net sales decreased due to sales mix (higher commercial aftermarket sales as a percentage of net sales compared to prior year), the application of our three core value-driven operating strategy (obtaining profitable new business, continually improving our cost structure and providing highly engineered value-added products to customers) coupled with fixed overhead costs spread over a higher production volume.
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•Selling and Administrative Expenses. Selling and administrative expenses increased by $90 million to $332 million for the thirteen week period ended June 27, 2026. The related percentage of net sales for the thirteen week periods ended June 27, 2026 and June 28, 2025 were as follows (amounts in millions):
Thirteen Week Periods Ended
June 27, 2026 June 28, 2025 Change % Change
Selling and administrative expenses - excluding costs below $ 253 $ 190 $ 63 33.2 %
% of net sales 9.2 % 8.5 %
Non-cash stock and deferred compensation expense 59 46 13 28.3 %
% of net sales 2.2 % 2.1 %
Acquisition transaction and integration-related expenses 20 6 14 233.3 %
% of net sales 0.7 % 0.3 %
Total selling and administrative expenses $ 332 $ 242 $ 90 37.2 %
% of net sales 12.1 % 10.8 %
Selling and administrative expenses during the thirteen week period ended June 27, 2026 increased as a percentage of net sales. This was primarily due to the dilutive impact of the fiscal 2026 and 2025 acquisitions and costs incurred to support the higher net sales growth and general and administrative expenses.
•Interest Expense-net. Interest expense-net includes interest on borrowings outstanding, amortization of debt issuance costs, original issue discount, premium, revolving credit facility fees, finance leases, interest income and the impact of interest rate swaps and collars designated and qualifying as cash flow hedges. Interest expense-net increased $117 million, or 29.5%, to $514 million for the thirteen week period ended June 27, 2026 from $397 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 outstanding borrowings. The weighted average interest rate for cash interest payments on total borrowings outstanding was 6.2% for the thirteen week periods ended June 27, 2026 and June 28, 2025.
•Income Tax Provision. Income tax expense as a percentage of income before income taxes was approximately 24.3% for the thirteen week period ended June 27, 2026 compared to 22.4% for the thirteen week period ended June 28, 2025. Refer to Note 9, “Income Taxes”, in the notes to the condensed consolidated financial statements included herein for additional information.
•Earnings per Share. Basic and diluted earnings per share was $9.39 for the thirteen week period ended June 27, 2026 and $8.47 for the thirteen week period ended June 28, 2025.
Business Segments
•Segment Net Sales. Net sales by segment for the thirteen week periods ended June 27, 2026 and June 28, 2025 were as follows (amounts in millions):
Thirteen Week Periods Ended
June 27, 2026 % of Net Sales June 28, 2025 % of Net Sales Change % Change
Power & Control $ 1,509 55.0 % $ 1,139 50.9 % $ 370 32.5 %
Airframe 1,186 43.3 % 1,058 47.3 % 128 12.1 %
Non-aviation 46 1.7 % 40 1.8 % 6 15.0 %
Net sales $ 2,741 100.0 % $ 2,237 100.0 % $ 504 22.5 %
Net sales for the Power & Control segment increased $370 million primarily from increases in sales in commercial aftermarket, commercial OEM and defense.
Net sales for the Airframe segment increased $128 million primarily from increases in sales in commercial aftermarket, commercial OEM and defense.
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•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 June 27, 2026 and June 28, 2025 were as follows (amounts in millions):
Thirteen Week Periods Ended
June 27, 2026 % of Segment Net Sales June 28, 2025 % of Segment Net Sales Change % Change
Power & Control $ 808 53.5 % $ 646 56.7 % $ 162 25.1 %
Airframe 645 54.4 % 569 53.8 % 76 13.4 %
Non-aviation 21 45.7 % 17 42.5 % 4 23.5 %
Total segment EBITDA As Defined 1,474 53.8 % 1,232 55.1 % 242 19.6 %
Less: Unallocated corporate EBITDA As Defined 27 1.0 % (1) 15 0.7 % (1) 12 80.0 %
Total Company EBITDA As Defined $ 1,447 52.8 % (1) $ 1,217 54.4 % (1) $ 230 18.9 %
(1)Calculated as a percentage of consolidated net sales.
EBITDA As Defined for the Power & Control and Airframe segments increased $162 million and $76 million, respectively, due to the increase in net sales described above, along with our application of our three core value-driven operating strategy.
Unallocated corporate EBITDA As Defined consists primarily of corporate expenses which includes compensation, benefits, professional services and other administrative costs incurred by our corporate offices.
Thirty-nine week period ended June 27, 2026 compared with the thirty-nine week period ended June 28, 2025
Total Company
•Net Sales. Net organic sales and acquisition sales and the related dollar and percentage changes for the thirty-nine week periods ended June 27, 2026 and June 28, 2025 were as follows (amounts in millions):
Thirty-Nine Week Periods Ended % Change Net Sales
June 27, 2026 June 28, 2025 Change
Organic sales $ 7,063 $ 6,394 $ 669 10.5 %
Acquisition sales 506 — 506 7.9 %
Net sales $ 7,569 $ 6,394 $ 1,175 18.4 %
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 from the 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 2, “Acquisitions,” in the notes to the condensed consolidated financial statements included herein for information on the Company’s recent acquisitions.
The increase in organic sales of $669 million for the thirty-nine week period ended June 27, 2026 compared to the thirty-nine week period ended June 28, 2025 is related to increases in commercial aftermarket, commercial OEM and defense sales.
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•Cost of Sales and Gross Profit. Cost of sales increased by $525 million, or 20.6%, to $3,078 million for the thirty-nine week period ended June 27, 2026 compared to $2,553 million for the thirty-nine week period ended June 28, 2025. Cost of sales and the related percentage of net sales for the thirty-nine week periods ended June 27, 2026 and June 28, 2025 were as follows (amounts in millions):
Thirty-Nine Week Periods Ended
June 27, 2026 June 28, 2025 Change % Change
Cost of sales - excluding costs below $ 2,931 $ 2,422 $ 509 21.0 %
% of net sales 38.7 % 37.9 %
Depreciation 116 104 12 11.5 %
% of net sales 1.5 % 1.6 %
Acquisition transaction and integration-related expenses 31 16 15 93.8 %
% of net sales 0.4 % 0.3 %
Foreign currency losses — 11 (11) (100.0) %
% of net sales — % 0.2 %
Total cost of sales $ 3,078 $ 2,553 $ 525 20.6 %
% of net sales 40.7 % 39.9 %
Gross profit (Net sales less Total cost of sales) $ 4,491 $ 3,841 $ 650 16.9 %
Gross profit percentage (Gross profit / Net sales) 59.3 % 60.1 %
Cost of sales during the thirty-nine week period ended June 27, 2026 increased as a percentage of net sales. This was primarily due to the dilutive impact of the fiscal 2026 and 2025 acquisitions. Excluding the dilutive impact from these acquisitions, cost of sales as a percentage of net sales decreased due to sales mix (higher commercial aftermarket sales as a percentage of net sales compared to prior year), the application of our three core value-driven operating strategy (obtaining profitable new business, continually improving our cost structure and providing highly engineered value-added products to customers) coupled with fixed overhead costs spread over a higher production volume.
•Selling and Administrative Expenses. Selling and administrative expenses increased by $170 million to $859 million for the thirty-nine week period ended June 27, 2026. The related percentage of net sales for the thirty-nine week periods ended June 27, 2026 and June 28, 2025 were as follows (amounts in millions):
Thirty-Nine Week Periods Ended
June 27, 2026 June 28, 2025 Change % Change
Selling and administrative expenses - excluding costs below $ 718 $ 561 $ 157 28.0 %
% of net sales 9.5 % 8.8 %
Non-cash stock and deferred compensation expense 107 112 (5) (4.5) %
% of net sales 1.4 % 1.8 %
Acquisition transaction and integration-related expenses 34 16 18 112.5 %
% of net sales 0.4 % 0.3 %
Total selling and administrative expenses $ 859 $ 689 $ 170 24.7 %
% of net sales 11.3 % 10.8 %
Selling and administrative expenses during the thirty-nine week period ended June 27, 2026 increased as a percentage of net sales. This was primarily due to the dilutive impact of the fiscal 2026 and 2025 acquisitions and costs incurred to support the higher net sales growth and general and administrative expenses.
•Interest Expense-net. Interest expense-net includes interest on borrowings outstanding, amortization of debt issuance costs, original issue discount, premium, revolving credit facility fees, finance leases, interest income and the impact of interest rate swaps and collars designated and qualifying as cash flow hedges. Interest expense-net increased $320 million, or 27.8%, to $1,472 million for the thirty-nine week period ended June 27, 2026 from $1,152 million for the comparable thirty-nine week period in the prior fiscal year. The increase in interest expense-net was primarily due to an increase in outstanding borrowings. The weighted average interest rate for cash interest payments on total borrowings outstanding was 6.2% for the thirty-nine week periods ended June 27, 2026 and June 28, 2025.
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•Income Tax Provision. Income tax expense as a percentage of income before income taxes was approximately 23.4% for the thirty-nine week period ended June 27, 2026 compared to 21.9% for the thirty-nine week period ended June 28, 2025. Refer to Note 9, “Income Taxes”, in the notes to the condensed consolidated financial statements included herein for additional information.
•Earnings per Share. Basic and diluted earnings per share was $25.20 for the thirty-nine week period ended June 27, 2026 and $24.31 for the thirty-nine week period ended June 28, 2025. Net income attributable to TD Group for the thirty-nine week period ended June 27, 2026 of $1,519 million was decreased by dividend equivalent payments of $59 million, or $1.02 per share, resulting in net income applicable to TD Group common stockholders of $1,460 million. Net income attributable to TD Group for the thirty-nine week period ended June 28, 2025 of $1,464 million was decreased by dividend equivalent payments of $49 million, or $0.83 per share, resulting in net income applicable to TD Group common stockholders of $1,415 million.
Business Segments
•Segment Net Sales. Net sales by segment for the thirty-nine week periods ended June 27, 2026 and June 28, 2025 were as follows (amounts in millions):
Thirty-Nine Week Periods Ended
June 27, 2026 % of Net Sales June 28, 2025 % of Net Sales Change % Change
Power & Control $ 4,099 54.2 % $ 3,274 51.2 % $ 825 25.2 %
Airframe 3,340 44.1 % 3,007 47.0 % 333 11.1 %
Non-aviation 130 1.7 % 113 1.8 % 17 15.0 %
Net sales $ 7,569 100.0 % $ 6,394 100.0 % $ 1,175 18.4 %
Net sales for the Power & Control segment increased $825 million primarily from increases in sales in commercial aftermarket, commercial OEM and defense.
Net sales for the Airframe segment increased $333 million primarily from increases in sales in commercial aftermarket, commercial OEM and defense.
•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 thirty-nine week periods ended June 27, 2026 and June 28, 2025 were as follows (amounts in millions):
Thirty-Nine Week Periods Ended
June 27, 2026 % of Segment Net Sales June 28, 2025 % of Segment Net Sales Change % Change
Power & Control $ 2,197 53.6 % $ 1,868 57.1 % $ 329 17.6 %
Airframe 1,808 54.1 % 1,613 53.6 % 195 12.1 %
Non-aviation 56 43.1 % 45 39.8 % 11 24.4 %
Total segment EBITDA As Defined 4,061 53.7 % 3,526 55.1 % 535 15.2 %
Less: Unallocated corporate EBITDA As Defined 80 1.1 % (1) 85 1.3 % (1) (5) (5.9) %
Total Company EBITDA As Defined $ 3,981 52.6 % (1) $ 3,441 53.8 % (1) $ 540 15.7 %
(1)Calculated as a percentage of consolidated net sales.
EBITDA As Defined for the Power & Control and Airframe segments increased approximately $329 million and $195 million, respectively, due to the increase in net sales described above, along with our application of our three core value-driven operating strategy.
Unallocated corporate EBITDA As Defined consists primarily of corporate expenses which includes compensation, benefits, professional services and other administrative costs incurred by our corporate offices.
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Liquidity and Capital Resources
We 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):
June 27, 2026 September 30, 2025
Selected Balance Sheet Data:
Cash and cash equivalents $ 2,773 $ 2,808
Working capital (Total current assets less total current liabilities) 5,197 4,830
Total assets 26,754 22,909
Total debt (1) 33,485 30,015
TD Group stockholders’ deficit (9,809) (9,686)
(1)Includes debt issuance costs, original issue discount and premium. Reference Note 8, “Debt,” in the notes to the condensed consolidated financial statements included herein for additional information.
Thirty-Nine Week Periods Ended
June 27, 2026 June 28, 2025
Selected Cash Flow and Other Financial Data:
Cash flows provided by (used in):
Operating activities $ 1,691 $ 1,531
Investing activities (3,370) (349)
Financing activities 1,652 (4,669)
Capital expenditures 205 156
Ratio of earnings to fixed charges (1) 2.3x 2.6x
(1)For purposes of computing the ratio of earnings to fixed charges, earnings consist of income 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.
Significant Transactions of Fiscal 2026 and Subsequent Events
Acquisitions
•On October 6, 2025, the Company completed the acquisition of all the outstanding stock of Simmonds for approximately $757 million in cash. The acquisition was financed using cash on hand.
•On April 7, 2026, the Company completed the acquisition of approximately 95% of the outstanding stock of Jet Parts Engineering (“JPE”) and approximately 96% of the outstanding stock of Victor Sierra Aviation Holdings (“VSA”) for approximately $2.2 billion in cash. The definitive agreement to acquire JPE and VSA was entered into on January 13, 2026. The acquisition was financed using cash on hand and the net proceeds from the debt offerings completed in February 2026 (as further described below).
•During the first nine months of fiscal 2026, the Company completed several acquisitions consisting of substantially all of the assets and technical data rights of certain product lines or all the outstanding stock of certain businesses (collectively, referred to herein as the “Other Acquisitions”), each meeting the definition of a business, for a total aggregate purchase price of $257 million in cash. These acquisitions represent bolt-ons to existing TransDigm operating units. Each of the acquisitions was financed using cash on hand.
•On July 13, 2026, the Company announced that it elected to withdraw from its proposed $960 million acquisition of Stellant Systems, Inc. (“Stellant”). The Company had previously entered into a definitive agreement to acquire all the outstanding stock of Stellant on December 30, 2025.
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•On July 27, 2026, the Company announced its definitive agreement to acquire all the outstanding stock of Prince & Izant for approximately $1.1 billion in cash. The acquisition is subject to regulatory approvals in the United States and customary closing conditions.
Debt Financing
•On February 13, 2026, the Company completed $2,000 million in new debt issuances. The new debt was comprised of $1,200 million in aggregate principal amount of senior subordinated notes due 2034 at an issue price of 100% that bear interest at a rate of 6.125% (the “$1,200 million 6.125% 2034 Notes”) and $800 million of Tranche N term loans (the “Initial Tranche N term loans”) that bear interest at a rate of Term SOFR plus 2.50%.
The net proceeds from the February 13, 2026 new debt issuances were used, along with cash on hand, to fund the purchase price of the acquisition of JPE and VSA and for related transaction fees and expenses.
•On April 17, 2026, the Company completed $1,500 million in new debt issuances. The new debt was comprised of an additional $500 million in aggregate principal amount of additional senior subordinated notes due 2034 at an issue price of 100.375%, or a premium of approximately $2 million, that bear interest at a rate of 6.125% (the “$500 million 6.125% 2034 Notes” which collectively; along with the $1,200 million 6.125% 2034 Notes, are referred to herein as the “6.125% 2034 Notes”) and $1,000 million in Tranche N term loans (the “Additional Tranche N term loans”) that bear interest at a rate of Term SOFR plus 2.50% (collectively, the Additional Tranche N term loans and the Initial Tranche N term loans are referred to herein as the “Tranche N term loans”).
The net proceeds from the April 17, 2026 new debt issuances were intended to be used, along with cash on hand, to fund the purchase price of the proposed acquisition of Stellant, common stock repurchases (as further described below) and for general corporate purposes. Notwithstanding the July 13, 2026 announcement that the Company elected to withdraw from its proposed acquisition of Stellant, there was no special mandatory redemption of the April 17, 2026 debt issuances and they remain outstanding.
•On July 10, 2026, the Company amended its trade receivable securitization facility (the “Securitization Facility”) to, among other things, (i) increase the borrowing capacity from $725 million to $1,000 million; and (ii) extend the maturity date to July 9, 2027. The Company subsequently drew $25 million available under the Securitization Facility in July 2026. Prior to the amendment, the Securitization Facility was fully drawn.
Common Stock Repurchases
•For the thirty-nine week period ended June 27, 2026, the Company repurchased, in aggregate, 1,496,383 shares of common stock at an average price of $1,207.50 per share for a total amount of $1,807 million. The repurchased shares of common stock are classified as treasury stock in the statement of changes in stockholders’ deficit. Whether the Company undertakes additional stock repurchases or other aforementioned activities will depend on prevailing market conditions, the Company’s liquidity requirements, contractual restrictions and other factors.
* * * * *
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.
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, caps and collars used to hedge and offset, respectively, the variable interest rates on our term loans are further described in Note 11, “Derivatives and Hedging Activities,” in the notes to the condensed consolidated financial statements included herein. As of June 27, 2026, approximately 75% of our gross debt was fixed rate.
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As of June 27, 2026, the Company has significant cash liquidity as illustrated in the table presented below (in millions):
As of June 27, 2026
Cash and cash equivalents $ 2,773
Availability on revolving credit facility 864
Cash liquidity $ 3,637
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 2028 (fiscal 2028).
In connection with the continued application of our three core value-driven operating strategy, we expect our efforts will continue to generate strong margins and provide sufficient cash from operating activities to meet our interest obligations and liquidity needs. We believe our cash provided by operating activities and available borrowing capacity will enable us to make strategic business acquisitions, pay dividends to our shareholders and make opportunistic investments in our own stock, subject to any restrictions in our existing Second Amended and Restated Credit Agreement dated as of June 4, 2014 (the “Credit Agreement”) and market conditions.
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 $1,691 million of net cash from operating activities during the thirty-nine week period ended June 27, 2026 compared to $1,531 million during the thirty-nine week period ended June 28, 2025.
The change in accounts receivable during the thirty-nine week periods ended June 27, 2026 and June 28, 2025 was a use of cash of $126 million due to the timing of sales and related cash collections. The Company actively manages its accounts receivable, the related agings and collection efforts.
The change in inventories during the thirty-nine week period ended June 27, 2026 was a use of cash of $232 million compared to a use of cash of $158 million during the thirty-nine week period ended June 28, 2025. The increase is due to an increase in raw materials to support the fiscal 2026 sales demand. The Company manages inventory levels in support of customer needs.
The change in accounts payable during the thirty-nine week period ended June 27, 2026 was a source of cash of $7 million compared to a source of cash of $1 million during the thirty-nine week period ended June 28, 2025. The change is due to the timing of payments to suppliers.
Investing Activities. Net cash used in investing activities was $3,370 million during the thirty-nine week period ended June 27, 2026, consisting of the acquisitions of Simmonds, JPE and VSA and other acquisitions of businesses aggregating to $3,159 million, capital expenditures of $205 million and other investing transactions outflows of $6 million.
Net cash used in investing activities was $349 million during the thirty-nine week period ended June 28, 2025, consisting of acquisitions of businesses aggregating to $239 million and capital expenditures of $156 million; partially offset by other investing transactions inflows of $46 million.
Financing Activities. Net cash provided by financing activities was $1,652 million during the thirty-nine week period ended June 27, 2026. The source of cash was attributable to the net proceeds from the February and April 2026 new debt issuances, including fees, aggregating to $3,467 million plus proceeds from stock option exercises of $116 million; partially offset by repurchases of common stock of $1,807 million, repayments on term loans plus other financing costs aggregating to $65 million, and dividend equivalent payments of $59 million.
Net cash used in financing activities was $4,669 million during the thirty-nine week period ended June 28, 2025. The use of cash was attributable to dividend and dividend equivalent payments of $4,396 million, repurchases of common stock of $500 million and repayments on term loans plus other financing costs aggregating to $48 million; partially offset by proceeds from stock option exercises of $147 million and the net proceeds of short-term and long-term debt transactions, including fees, of $128 million.
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Description of Senior Secured Term Loans and Indentures
Senior Secured Term Loans Facilities
TransDigm has $12,868 million in fully drawn term loans (the “Term Loans Facility”) as of June 27, 2026 and a $910 million revolving credit facility. The Term Loans Facility consists of five tranches of term loans with maturity dates ranging from March 22, 2030 to February 13, 2033, and requires quarterly aggregate principal payments of $32 million.
The revolving commitments consist of two tranches which include up to $139 million of multicurrency revolving commitments. At June 27, 2026, the Company had $46 million in letters of credit outstanding and $864 million in borrowings available under the revolving commitments. Draws on the revolving commitments are subject to an interest rate of 2.25%. The unused portion of the revolving commitments is subject to a fee of 0.50% per annum. The maturity date of the revolving credit facility is February 27, 2029.
The interest rates per annum applicable to the Term Loans Facility 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 the Term Loans Facility are not subject to a floor. Refer to Note 11, “Derivatives and Hedging Activities,” in the notes to the condensed consolidated financial statements included herein for information about how our interest rate swaps, caps and collar agreements are used to hedge and offset, respectively, the variable interest rate portion of our debt.
Indentures
The following table represents the senior subordinated and secured notes outstanding as of June 27, 2026:
Description Aggregate Principal Maturity Date Interest Rate
2028 Secured Notes (2) $2,100 million August 15, 2028 6.750%
4.625% 2029 Notes (1) $1,200 million January 15, 2029 4.625%
2029 Secured Notes (2) $2,750 million March 1, 2029 6.375%
4.875% 2029 Notes (1) $750 million May 1, 2029 4.875%
2030 Secured Notes (2) $1,450 million December 15, 2030 6.875%
2031 Secured Notes (2) $1,000 million December 1, 2031 7.125%
2032 Secured Notes (2) $2,200 million March 1, 2032 6.625%
2033 Secured Notes (2) $1,500 million January 15, 2033 6.000%
6.375% 2033 Notes (1) $2,650 million May 31, 2033 6.375%
2034 Secured Notes (2) $500 million January 31, 2034 6.250%
6.750% 2034 Notes (1) $2,000 million January 31, 2034 6.750%
6.125% 2034 Notes (1) $1,700 million July 31, 2034 6.125%
(1)Collectively, referred to as the “Subordinated Notes” herein.
(2)Collectively, referred to as the “Secured Notes” herein.
The Subordinated Notes and Secured Notes do not require principal payments prior to their maturity. Interest under the Subordinated Notes and Secured Notes is payable semi-annually. The Subordinated Notes represent our unsecured obligations ranking subordinate to our senior debt, as defined in the applicable indentures. The Secured Notes represent our secured obligations ranking equally to all existing and future senior debt, as defined in the applicable indentures. The Subordinated Notes and 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 Subordinated Notes and Secured Notes.
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Guarantor Information
The Subordinated Notes are subordinated to all of our existing and future senior secured debt, including indebtedness under TransDigm’s existing senior secured credit facilities, rank equally with all of our existing and future senior subordinated debt and rank senior to all of our future debt that is expressly subordinated to the Subordinated Notes. The 4.625% 2029 Notes and the 4.875% 2029 Notes are fully and unconditionally guaranteed on a senior subordinated unsecured basis by TransDigm Group, TransDigm UK and TransDigm Inc.’s Domestic Restricted Subsidiaries (as defined in the applicable indentures). The 6.375% 2033 Notes, 6.750% 2034 Notes and the 6.125% 2034 Notes are guaranteed, on a senior subordinated basis, by TransDigm Group and each of TransDigm Inc.’s direct and indirect restricted subsidiaries that is a borrower or guarantor under TransDigm’s senior secured credit facilities or that issues or guarantees any capital markets indebtedness of TransDigm or any of the guarantors in an aggregate principal amount of at least $200 million. The table set forth in Exhibit 22.1 filed with this Form 10-Q details the primary obligors and guarantors. The guarantees of the Subordinated Notes are subordinated to all of the guarantors’ existing and future senior debt, rank equally with all of their existing and future senior subordinated debt and rank senior to all of their future debt that is expressly subordinated to the guarantees of the Subordinated Notes. The Subordinated Notes are structurally subordinated to all of the liabilities of TransDigm Group’s non-guarantor subsidiaries.
The Secured Notes are senior secured debt of TransDigm and rank equally in right of payment with all of TransDigm’s existing and future senior secured debt, including indebtedness under TransDigm’s existing senior secured credit facilities, and are senior in right of payment to all of TransDigm’s existing and future senior subordinated debt, including the Subordinated Notes. The 2028 Secured Notes are guaranteed on a senior secured basis by TransDigm Group, TransDigm UK and TransDigm Inc.’s Domestic Restricted Subsidiaries (as defined in the applicable indentures). The 2029 Secured Notes, 2030 Secured Notes, 2031 Secured Notes, 2032 Secured Notes, 2033 Secured Notes and 2034 Secured Notes are guaranteed on a senior secured basis by TransDigm Group and each of TransDigm Inc.’s direct and indirect Restricted Subsidiaries (as defined in the applicable indenture) that is a borrower or guarantor under TransDigm’s senior secured credit facilities or that issues or guarantees any capital markets indebtedness of TransDigm Inc. or any of the guarantors in an aggregate principal amount of at least $200 million. As of the date of this Form 10-Q, the guarantors of the 2029 Secured Notes, 2030 Secured Notes, 2031 Secured Notes, 2032 Secured Notes, 2033 Secured Notes and 2034 Secured Notes are the same as the guarantors of the 2028 Secured Notes. The table set forth in Exhibit 22.1 filed with this Form 10-Q details the primary obligors and guarantors. 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.
Separate financial statements of TransDigm Inc. are not presented because the Subordinated Notes and Secured Notes are fully and unconditionally guaranteed on a senior subordinated unsecured basis (if Subordinated Notes) and senior secured basis (if Secured Notes) by TransDigm Group, TransDigm UK and all of TransDigm Inc.'s Domestic Restricted Subsidiaries. TransDigm Group has no significant operations or assets separate from its investment in TransDigm Inc.
The financial information presented is that of TransDigm Group, TransDigm Inc. and the other Guarantors, which includes TransDigm UK, on a combined basis and the financial information of non-issuer and non-guarantor subsidiaries has been excluded. Intercompany balances and transactions between TransDigm Group, TransDigm Inc. and the other Guarantors have been eliminated, and amounts due from, amounts due to, and transactions with non-issuer and non-guarantor subsidiaries have been presented separately.
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(in millions) As of June 27, 2026 As of September 30, 2025
Current assets $ 4,916 $ 4,494
Goodwill 9,915 8,340
Other non-current assets 5,534 4,003
Current liabilities 1,419 1,048
Non-current liabilities 33,515 30,014
Redeemable noncontrolling interests 81 —
Amounts due (from) to subsidiaries that are non-issuers and non-guarantors-net (2,584) (2,316)
Thirty-Nine Week Period Ended
(in millions) June 27, 2026
Net sales $ 6,103
Sales to subsidiaries that are non-issuers and non-guarantors 27
Cost of sales 2,457
Expense from subsidiaries that are non-issuers and non-guarantors-net 30
Income from operations 1,020
Net income attributable to TD Group 1,019
Certain Restrictive Covenants in Our Debt Documents
The Credit Agreement and the indentures governing the Subordinated Notes and Secured Notes contain restrictive covenants that, among other things, limit the incurrence of additional indebtedness, the payment of special dividends, transactions with affiliates, asset sales, acquisitions, mergers and consolidations, liens and encumbrances, and prepayments of certain other indebtedness.
The 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. 15, executed on March 22, 2024.
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 Subordinated Notes and Secured Notes may elect to declare all outstanding borrowings, together with accrued interest and other amounts payable thereunder, to be immediately due and payable. 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 40% (or, currently, $364 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 7.50x (or, solely with respect to the first four fiscal quarters ending after the consummation of any material acquisition, 8.00x) as of the last day of the fiscal quarter.
As of June 27, 2026, the Company was in compliance with all of its debt covenants and expects to remain in compliance with its debt covenants in subsequent periods.
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Trade Receivable Securitization Facility
During fiscal 2014, the Company established the Securitization Facility. The Company’s 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.
As of June 27, 2026, the Securitization Facility, with borrowing capacity of $725 million, was fully drawn and the applicable interest rate was 5.03%. The Securitization Facility is collateralized by substantially all of the Company’s domestic operations’ trade accounts receivable.
On July 10, 2026, the Company amended the Securitization Facility to, among other things, (i) increase the borrowing capacity from $725 million to $1,000 million; and (ii) extend the maturity date to July 9, 2027. The Company subsequently drew $25 million available under the Securitization Facility in July 2026.
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. During the thirty-nine week period ended June 27, 2026, other than the debt financing activities disclosed in Note 8, “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, 2025.
Dividend and Dividend Equivalent Payments
Pursuant to the Fourth Amended and Restated TransDigm Group Incorporated 2006 Stock Incentive Plan Dividend Equivalent Plan, the Amended and Restated 2014 Stock Option Plan Dividend Equivalent Plan and the 2019 Stock Option Plan Dividend Equivalent Plan, all of the vested 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.
No dividends were declared in the thirty-nine week period ended June 27, 2026. Dividend equivalent payments are made during the Company’s first fiscal quarter each year and also upon payment of any dividends declared. Total dividend equivalent payments in the first quarter of fiscal 2026 were approximately $59 million.
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 June 27, 2026, the Company had $46 million in letters of credit outstanding.
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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 net income 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.
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The following table sets forth a reconciliation of net income to EBITDA and EBITDA As Defined (in millions):
Thirteen Week Periods Ended Thirty-Nine Week Periods Ended
June 27, 2026 June 28, 2025 June 27, 2026 June 28, 2025
Net Income $ 540 $ 493 $ 1,521 $ 1,465
Adjustments:
Depreciation and amortization expense 118 91 324 271
Interest expense-net 514 397 1,472 1,152
Income tax provision 173 142 464 411
EBITDA 1,345 1,123 3,781 3,299
Adjustments:
Acquisition transaction and integration-related expenses (1) 35 9 66 32
Non-cash stock and deferred compensation expense (2) 65 51 118 124
Other, net (3) 2 34 16 (14)
EBITDA As Defined $ 1,447 $ 1,217 $ 3,981 $ 3,441
(1) Represents costs incurred to integrate acquired businesses into our operations; facility relocation costs and other acquisition-related costs; transaction and valuation-related costs for acquisitions comprising deal fees, legal, financial and tax due diligence expenses; and amortization expense of inventory step-up recorded in connection with the purchase accounting of acquired businesses.
(2) Represents the compensation expense recognized under our stock option plans and deferred compensation plans.
(3) Primarily represents foreign currency transaction gains or losses, costs expensed related to debt financing activities, including new issuances, extinguishments, refinancings and amendments to existing agreements, payroll withholding taxes related to dividend equivalent payments and stock option exercises, non-service related pension costs, deferred compensation payments and other miscellaneous income or expense, such as gain on sale of business.
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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
June 27, 2026 June 28, 2025
Net cash provided by operating activities $ 1,691 $ 1,531
Adjustments:
Changes in assets and liabilities, net of effects from acquisitions and sales of businesses 305 337
Interest expense-net (1) 1,437 1,124
Income tax provision-current 466 414
Gain on sale of businesses, net — 17
Non-cash stock and deferred compensation expense (2) (118) (124)
EBITDA 3,781 3,299
Adjustments:
Acquisition transaction and integration-related expenses (3) 66 32
Non-cash stock and deferred compensation expense (2) 118 124
Other, net (4) 16 (14)
EBITDA As Defined $ 3,981 $ 3,441
(1) Represents interest expense, net of interest income, excluding the amortization of debt issuance costs and premium and discount on debt.
(2) Represents the compensation expense recognized under our stock option plans and deferred compensation plans.
(3) Represents costs incurred to integrate acquired businesses into our operations; facility relocation costs and other acquisition-related costs; transaction and valuation-related costs for acquisitions comprising deal fees, legal, financial and tax due diligence expenses; and amortization expense of inventory step-up recorded in connection with the purchase accounting of acquired businesses.
(4) Primarily represents foreign currency transaction gains or losses, costs expensed related to debt financing activities, including new issuances, extinguishments, refinancings and amendments to existing agreements, payroll withholding taxes related to dividend equivalent payments and stock option exercises, non-service related pension costs, deferred compensation payments and other miscellaneous income or expense, such as gain on sale of business.
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