10-Q
Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
ý
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the quarterly period ended January 2, 2016.
¨
Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from             to            
Commission File Number 001-32833
TransDigm Group Incorporated
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
41-2101738
(I.R.S. Employer Identification No.)
1301 East 9th Street, Suite 3000, Cleveland, Ohio
 
44114
(Address of principal executive offices)
 
(Zip Code)
(216) 706-2960
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    YES  ý    NO  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    YES  ý    NO  ¨
Indicate by check mark whether the registrant is a large accelerated filer, accelerated filer, non-accelerated filer, or smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
LARGE ACCELERATED FILER
ý
  
ACCELERATED FILER
¨
NON-ACCELERATED FILER
¨
  
SMALLER REPORTING COMPANY
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES  ¨    NO  ý
The number of shares outstanding of TransDigm Group Incorporated’s common stock, par value $.01 per share, was 53,466,525 as of January 26, 2016.


Table of Contents

INDEX
 
 
 
 
Page
Part I
 
FINANCIAL INFORMATION
 
 
Item 1
Financial Statements
 
 
 
Condensed Consolidated Balance Sheets – January 2, 2016 and September 30, 2015
 
 
Condensed Consolidated Statements of Income – Thirteen Week Periods Ended January 2, 2016 and December 27, 2014
 
 
Condensed Consolidated Statements of Comprehensive Income – Thirteen Week Periods Ended January 2, 2016 and December 27, 2014
 
 
Condensed Consolidated Statement of Changes in Stockholders’ Deficit – Thirteen Week Period Ended January 2, 2016
 
 
Condensed Consolidated Statements of Cash Flows – Thirteen Week Periods Ended January 2, 2016 and December 27, 2014
 
 
Notes to Condensed Consolidated Financial Statements
 
Item 2
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
Item 3
Quantitative and Qualitative Disclosure About Market Risk
 
Item 4
Controls and Procedures
Part II
 
OTHER INFORMATION
 
Item 1A
Risk Factors
 
Item 2
Unregistered Sales of Equity Securities and Use of Proceeds
 
Item 6
Exhibits
SIGNATURES
 
 

Table of Contents

TRANSDIGM GROUP INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share amounts)
(Unaudited)
 
January 2, 2016
 
September 30, 2015
ASSETS
 
 
 
CURRENT ASSETS:
 
 
 
Cash and cash equivalents
$
805,291

 
$
714,033

Trade accounts receivable - Net
427,265

 
444,072

Inventories - Net
599,311

 
591,401

Prepaid expenses and other
28,908

 
37,081

Total current assets
1,860,775

 
1,786,587

PROPERTY, PLANT AND EQUIPMENT - Net
268,028

 
260,684

GOODWILL
4,683,630

 
4,686,220

OTHER INTANGIBLE ASSETS - Net
1,487,316

 
1,539,851

OTHER
30,229

 
30,593

TOTAL ASSETS
$
8,329,978

 
$
8,303,935

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ DEFICIT
 
 
 
CURRENT LIABILITIES:
 
 
 
Current portion of long-term debt
$
43,445

 
$
43,427

Short-term borrowings - trade receivable securitization facility
199,817

 
199,792

Accounts payable
113,607

 
142,822

Accrued liabilities
299,573

 
271,553

Total current liabilities
656,442

 
657,594

LONG-TERM DEBT
8,099,159

 
8,106,383

DEFERRED INCOME TAXES
410,110

 
404,997

OTHER NON-CURRENT LIABILITIES
128,537

 
173,267

Total liabilities
9,294,248

 
9,342,241

STOCKHOLDERS’ DEFICIT:
 
 
 
Common stock - $.01 par value; authorized 224,400,000 shares; issued 55,323,774 and 55,100,094 at January 2, 2016 and September 30, 2015, respectively
553

 
551

Paid-in capital
984,436

 
950,324

Accumulated deficit
(1,606,443
)
 
(1,717,232
)
Accumulated other comprehensive loss
(96,101
)
 
(96,009
)
Treasury stock, at cost; 1,738,968 and 1,415,100 shares at January 2, 2016 and September 30, 2015, respectively
(246,715
)
 
(175,940
)
Total stockholders’ deficit
(964,270
)
 
(1,038,306
)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT
$
8,329,978

 
$
8,303,935

See notes to condensed consolidated financial statements.

1
Table of Contents

TRANSDIGM GROUP INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THIRTEEN WEEK PERIODS ENDED
JANUARY 2, 2016 AND DECEMBER 27, 2014
(Amounts in thousands, except per share amounts)
(Unaudited) 
 
Thirteen Week Periods Ended
 
January 2, 2016
 
December 27, 2014
NET SALES
$
701,695

 
$
586,898

COST OF SALES
327,128

 
265,725

GROSS PROFIT
374,567

 
321,173

SELLING AND ADMINISTRATIVE EXPENSES
82,203

 
67,479

AMORTIZATION OF INTANGIBLE ASSETS
16,323

 
13,026

INCOME FROM OPERATIONS
276,041

 
240,668

INTEREST EXPENSE - Net
111,983

 
98,935

INCOME BEFORE INCOME TAXES
164,058

 
141,733

INCOME TAX PROVISION
49,157

 
46,200

NET INCOME
$
114,901

 
$
95,533

NET INCOME APPLICABLE TO COMMON STOCK
$
111,901

 
$
92,168

Net earnings per share - see Note 5:
 
 
 
Basic and diluted
$
1.97

 
$
1.63

Weighted-average shares outstanding:
 
 
 
Basic and diluted
56,805

 
56,591

See notes to condensed consolidated financial statements.

2
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TRANSDIGM GROUP INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THIRTEEN WEEK PERIODS ENDED
JANUARY 2, 2016 AND DECEMBER 27, 2014
(Amounts in thousands)
(Unaudited)
 
Thirteen Week Periods Ended
 
January 2, 2016
 
December 27, 2014
Net income
$
114,901

 
$
95,533

Other comprehensive loss, net of tax:
 
 
 
Foreign currency translation adjustments
(8,950
)
 
(10,748
)
Interest rate swap and cap agreements, net of taxes of $(5,092) and $5,892 for the thirteen week periods ended January 2, 2016 and December 27, 2014, respectively
8,858

 
(10,538
)
Other comprehensive loss, net of tax
(92
)
 
(21,286
)
TOTAL COMPREHENSIVE INCOME
$
114,809

 
$
74,247

See notes to condensed consolidated financial statements.

3
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TRANSDIGM GROUP INCORPORATED
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT
FOR THE THIRTEEN WEEK PERIOD ENDED JANUARY 2, 2016
(Amounts in thousands, except share amounts)
(Unaudited)
 
Common Stock
 
Additional Paid-In
Capital
 
 
 
Accumulated Other Comprehensive Loss
 
Treasury Stock
 
 
 
Number
of Shares
 
Par
Value
 
 
Accumulated
Deficit
 
 
Number
of Shares
 
Value
 
Total
BALANCE, OCTOBER 1, 2015
55,100,094

 
$
551

 
$
950,324

 
$
(1,717,232
)
 
$
(96,009
)
 
(1,415,100
)
 
$
(175,940
)
 
$
(1,038,306
)
Unvested dividend equivalents
—

 
—

 
—

 
(4,112
)
 
—

 
—

 
—

 
(4,112
)
Compensation expense recognized for employee stock options
—

 
—

 
10,681

 
—

 
—

 
—

 
—

 
10,681

Excess tax benefits related to share-based payment arrangements
—

 
—

 
14,539

 
—

 
—

 
—

 
—

 
14,539

Exercise of employee stock options
223,680

 
2

 
8,892

 
—

 
—

 
—

 
—

 
8,894

Treasury stock purchased
—

 
—

 
—

 
—

 
—

 
(323,868
)
 
(70,775
)
 
(70,775
)
Net income
—

 
—

 
—

 
114,901

 
—

 
—

 
—

 
114,901

Foreign currency translation adjustments
—

 
—

 
—

 
—

 
(8,950
)
 
—

 
—

 
(8,950
)
Interest rate swaps and caps, net of tax
—

 
—

 
—

 
—

 
8,858

 
—

 
—

 
8,858

BALANCE, JANUARY 2, 2016
55,323,774

 
$
553

 
$
984,436

 
$
(1,606,443
)
 
$
(96,101
)
 
(1,738,968
)
 
$
(246,715
)
 
$
(964,270
)
See notes to condensed consolidated financial statements.

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TRANSDIGM GROUP INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
 
Thirteen Week Periods Ended
 
January 2, 2016
 
December 27, 2014
OPERATING ACTIVITIES:
 
 
 
Net income
$
114,901

 
$
95,533

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation
9,700

 
8,425

Amortization of intangible assets
16,501

 
13,357

Amortization of debt issuance costs
3,832

 
3,999

Non-cash equity compensation
10,681

 
5,764

Excess tax benefits related to share-based payment arrangements
(14,539
)
 
(8,264
)
Deferred income taxes
601

 
923

Changes in assets/liabilities, net of effects from acquisitions of businesses:
 
 
 
Trade accounts receivable
14,368

 
17,096

Inventories
(14,108
)
 
(12,646
)
Income taxes receivable/payable
30,343

 
40,589

Other assets
917

 
(3,156
)
Accounts payable
(28,160
)
 
(22,773
)
Accrued interest
29,939

 
74,471

Accrued and other liabilities
(10,846
)
 
(24,359
)
Net cash provided by operating activities
164,130

 
188,959

INVESTING ACTIVITIES:
 
 
 
Capital expenditures, net of disposals
(10,172
)
 
(8,138
)
Net cash used in investing activities
(10,172
)
 
(8,138
)
FINANCING ACTIVITIES:
 
 
 
Excess tax benefits related to share-based payment arrangements
14,539

 
8,264

Proceeds from exercise of stock options
8,892

 
7,391

Dividends paid
(3,000
)
 
(3,365
)
Treasury stock purchased
(70,775
)
 
—

Repayment on term loans
(10,960
)
 
—

Other
(87
)
 
(41
)
Net cash (used in) provided by financing activities
(61,391
)
 
12,249

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
(1,309
)
 
(989
)
NET INCREASE IN CASH AND CASH EQUIVALENTS
91,258

 
192,081

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
714,033

 
819,548

CASH AND CASH EQUIVALENTS, END OF PERIOD
$
805,291

 
$
1,011,629

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
 
 
 
Cash paid during the period for interest
$
78,733

 
$
15,307

Cash paid during the period for income taxes
$
884

 
$
944

See notes to condensed consolidated financial statements.

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TRANSDIGM GROUP INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THIRTEEN WEEK PERIODS ENDED JANUARY 2, 2016 AND DECEMBER 27, 2014
(UNAUDITED)
 
1.    DESCRIPTION OF THE BUSINESS
Description of the Business – TransDigm Group Incorporated (“TD Group”), through its wholly-owned subsidiary, TransDigm Inc., is a leading global designer, producer and supplier of highly engineered aircraft components for use on nearly all commercial and military aircraft in service today. TransDigm Inc. along with TransDigm Inc.’s direct and indirect wholly-owned operating subsidiaries (collectively, with TD Group, the “Company” or “TransDigm”), offers a broad range of proprietary aerospace components. TD Group has no significant assets or operations other than its 100% ownership of TransDigm Inc. TD Group’s common stock is listed on the New York Stock Exchange, or the NYSE, under the trading symbol “TDG.”
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, NiCad batteries and chargers, engineered latching and locking devices, rods and locking devices, engineered connectors and elastomers, cockpit security components and systems, specialized cockpit displays, aircraft audio systems, specialized lavatory components, seat belts and safety restraints, engineered interior surfaces and related components, lighting and control technology, military personnel parachutes, and cargo loading, handling and delivery systems.

2.    UNAUDITED INTERIM FINANCIAL INFORMATION
The financial information included herein is unaudited; however, the information reflects all adjustments (consisting solely of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of the Company’s financial position and results of operations and cash flows for the interim periods presented. These financial statements and notes should be read in conjunction with the financial statements and related notes for the year ended September 30, 2015 included in TD Group’s Form 10-K filed on November 13, 2015. As disclosed therein, the Company’s annual consolidated financial statements were prepared in conformity with generally accepted accounting principles in the United States (“GAAP”). The September 30, 2015 condensed consolidated balance sheet was derived from TD Group’s audited financial statements. The results of operations for the thirteen week period ended January 2, 2016 are not necessarily indicative of the results to be expected for the full year.
Certain reclassifications have been made to the prior year financial statements to conform to current year classifications related to the adoption of new accounting pronouncements during the thirteen week period ended January 2, 2016 impacting the classification of both debt issuance costs and deferred income taxes in the Condensed Consolidated Balance Sheets. The accounting pronouncements and impact of the adoption of the pronouncements are summarized in Note 4, "Recent Accounting Pronouncements."

3.    ACQUISITIONS
During the fiscal year ended September 30, 2015, the Company completed the acquisitions of PneuDraulics, Inc. ("PneuDraulics"), the assets of the aerospace business of Pexco LLC (“Pexco Aerospace”), the aerospace business of Franke Aquarotter GmbH (now named Adams Rite Aerospace GmbH), and the Telair Cargo Group (“Telair”). The Company accounted for the acquisitions using the acquisition method and included the results of operations of the acquisitions in its consolidated financial statements from the effective date of each acquisition. As of January 2, 2016, the purchase price allocations for each of the acquisitions referenced above remain preliminary as the Company completes its assessments of deferred taxes and certain reserves. Pro forma net sales and results of operations for the acquisitions had they occurred at the beginning of the applicable thirteen week periods ended January 2, 2016 or December 27, 2014 are not material and, accordingly, are not provided.
The acquisitions strengthen and expand the Company’s position to design, produce and supply highly-engineered proprietary aerospace components in niche markets with significant aftermarket content and provide opportunities to create value through the application of our three core value-driven operating strategies (obtaining profitable new business, improving our cost structure, and providing highly engineered value-added products to customers). The purchase price paid for each acquisition reflects the current earnings before interest, taxes, depreciation and amortization (EBITDA) and cash flows, as well as, the future EBITDA and cash flows expected to be generated by the business, which are driven in most cases by the recurring aftermarket consumption over the life of a particular aircraft, estimated to be approximately 25 to 30 years.

6
Table of Contents

PneuDraulics – On August 19, 2015, TransDigm Inc. acquired all of the outstanding stock of PneuDraulics for approximately $323.5 million in cash. PneuDraulics manufactures proprietary, highly engineered aerospace pneumatic and hydraulic components and subsystems for commercial transport, regional, business jet and military applications. These products fit well with TransDigm’s overall business direction. PneuDraulics is included in TransDigm’s Power & Control segment. The purchase price includes approximately $104.5 million of tax benefits to be realized by the Company over a 15 year period beginning in 2015, and the Company expects that approximately $220.9 million of goodwill recognized for the acquisition will be deductible for tax purposes.
Pexco Aerospace – On May 14, 2015, Pexco Aerospace, Inc., a newly formed subsidiary of TransDigm Inc., acquired the assets of the aerospace business of Pexco LLC (“Pexco Aerospace”) for a total purchase price of approximately $496.4 million in cash, less a purchase price adjustment of $0.4 million received in the fourth quarter of fiscal 2015. Pexco Aerospace manufactures extruded plastic interior parts for use in the commercial aerospace industry. These products fit well with TransDigm’s overall business direction. Pexco Aerospace is included in TransDigm’s Airframe segment. The purchase price includes approximately $166.4 million of tax benefits to be realized by TransDigm over a 15 year period beginning in 2015, and the Company expects that approximately $407.4 million of goodwill recognized for the acquisition will be deductible for tax purposes.
Adams Rite Aerospace GmbH – On March 31, 2015, the Company’s Adams Rite subsidiary acquired the aerospace business of Franke Aquarotter GmbH (now known as Adams Rite Aerospace GmbH) for approximately $75.3 million in cash. Adams Rite Aerospace GmbH manufactures proprietary faucets and related products for use on commercial transports and regional jets. These products fit well with TransDigm’s overall business direction. Adams Rite Aerospace GmbH is included in TransDigm’s Airframe segment. The Company expects that approximately $63.9 million of goodwill recognized for the acquisition will not be deductible for tax purposes.
Telair Cargo Group – On March 26, 2015, TransDigm Germany GmbH, a subsidiary of TransDigm Inc., acquired all of the outstanding stock of Telair International GmbH ("Telair International"), TransDigm Inc. acquired all of the outstanding stock of Nordisk Aviation Products ("Nordisk"), and Telair US LLC, a newly formed subsidiary of TransDigm Inc. ("Telair US"), acquired the assets of the AAR Cargo business (collectively, "Telair Cargo Group"). The total purchase price was approximately $730.9 million in cash, which included a net $7.7 million purchase price adjustment paid in the fourth quarter of fiscal 2015. Telair Cargo Group manufactures aerospace on-board cargo loading and handling, restraint systems and unit load devices for a variety of commercial and military platforms with positions on a wide range of new and existing aircraft. These products fit well with TransDigm’s overall business direction. The business consists of three major operating units: Telair International, Nordisk and Telair US. Telair International and Telair US are included in TransDigm’s Power & Control segment and Nordisk is included in TransDigm’s Airframe segment.
The total purchase price of Telair Cargo Group was allocated to the underlying assets acquired and liabilities assumed based upon management’s estimated fair values at the date of acquisition. To the extent the purchase price exceeded the estimated fair value of the net identifiable tangible and intangible assets acquired, such excess was allocated to goodwill. The following table summarizes the purchase price allocation of the estimated fair values of the assets acquired and liabilities assumed at the transaction date (in thousands).
Assets acquired:
 
Current assets, excluding cash acquired
$
143,417

Property, plant, and equipment
16,011

Intangible assets
203,860

Goodwill
489,790

Other
1,445

Total assets acquired
$
854,523

Liabilities assumed:
 
Current liabilities
$
59,661

Other noncurrent liabilities
64,001

Total liabilities assumed
$
123,662

Net assets acquired
$
730,861

The Company expects that approximately $35.8 million of goodwill recognized for the acquisition will be deductible for tax purposes and approximately $454.0 million of goodwill recognized for the acquisition will not be deductible for tax purposes.


7
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4.    RECENT ACCOUNTING PRONOUNCEMENTS
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09 which creates a new topic in the Accounting Standards Codification (“ASC”) Topic 606, “Revenue From Contracts With Customers.” In addition to superseding and replacing nearly all existing U.S. GAAP revenue recognition guidance, including industry-specific guidance, ASC 606 establishes a new control-based revenue recognition model; changes the basis for deciding when revenue is recognized over time or at a point in time; provides new and more detailed guidance on specific topics; and expands and improves disclosures about revenue. The guidance is effective for the Company for annual reporting periods, including interim periods therein, beginning October 1, 2018. The Company is currently evaluating the impact that the update will have on its financial position, results of operations, cash flows and financial statement disclosures.
In April 2015, the FASB issued ASU 2015-03, “Simplifying the Presentation of Debt Issuance Costs,” which expands upon the guidance on the presentation of debt issuance costs. The guidance requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the debt liability, consistent with debt discounts. The guidance does not change the current requirements surrounding the recognition and measurement of debt issuance costs, and the amortization of debt issuance costs will continue to be reported as interest expense. The guidance is effective for the Company beginning October 1, 2016. However, as early adoption is permissible, the Company adopted the pronouncement effective October 1, 2015. The adoption of this pronouncement did not have a significant impact on our consolidated financial position and results of operations, although it did change the financial statement classification of debt issuance costs. In connection with adopting the pronouncement beginning October 1, 2015, the Company reclassified $74.2 million and $77.7 million in debt issuance costs as of January 2, 2016 and September 30, 2015, to Current portion of long-term debt and Long-term debt in the liabilities section of the Condensed Consolidated Balance Sheets, respectively.
In September 2015, the FASB issued ASU 2015-16, "Simplifying the Accounting for Measurement-Period Adjustments," a new standard intended to simplify the accounting for measurement period adjustments in a business combination. Measurement period adjustments are changes to provisional amounts recorded when the accounting for a business combination is incomplete as of the end of a reporting period. The measurement period can extend for up to a year following the transaction date. During the measurement period, companies may make adjustments to provisional amounts when information necessary to complete the measurement is received. The new guidance requires companies to recognize these adjustments, including any related impacts to net income, in the reporting period in which the adjustments are determined. Companies are no longer required to retroactively apply measurement period adjustments to all periods presented. The guidance is effective for the Company on October 1, 2016. However, as early adoption is permissible, the Company adopted the pronouncement beginning October 1, 2015. The adoption of this pronouncement did not have a significant impact on the Company's financial statements and financial statement disclosures.
In November 2015, the FASB issued ASU 2015-17, “Balance Sheet Classification of Deferred Taxes,” which will require entities to present deferred tax assets and liabilities as noncurrent in a classified balance sheet. This guidance simplifies the current guidance, which requires entities to separately present deferred tax assets and liabilities as current and noncurrent in a classified balance sheet. ASU 2015-17 is effective for fiscal years beginning after December 15, 2016, and interim periods within those years, and may be applied either prospectively to all deferred tax assets and liabilities or retrospectively to all periods presented. As early adoption is permissible, the Company adopted this pronouncement beginning October 1, 2015 and applied this pronouncement retrospectively. The adoption of this pronouncement resulted in the reclassification of $45.6 million from Current deferred income tax assets and $0.4 million from Other long-term assets in the Condensed Consolidated Balance Sheet as of January 2, 2016 to Noncurrent deferred income tax liabilities. Additionally, $45.4 million was reclassified from Current deferred income tax assets in the Condensed Consolidated Balance Sheet as of September 30, 2015 to Noncurrent deferred income tax liabilities.


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5.    EARNINGS PER SHARE (TWO-CLASS METHOD)
The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share data):
 
Thirteen Week Periods Ended
 
January 2, 2016
 
December 27, 2014
Numerator for earnings per share:
 
 
 
Net income
$
114,901

 
$
95,533

Less dividends paid on participating securities
(3,000
)
 
(3,365
)
Net income applicable to common stock - basic and diluted
$
111,901

 
$
92,168

Denominator for basic and diluted earnings per share under the two-class method:
 
 
 
Weighted average common shares outstanding
53,706

 
52,511

Vested options deemed participating securities
3,099

 
4,080

Total shares for basic and diluted earnings per share
56,805

 
56,591

Basic and diluted earnings per share
$
1.97

 
$
1.63


6.    INVENTORIES
Inventories are stated at the lower of cost or market. Cost of inventories is generally determined by the average cost and the first-in, first-out (FIFO) methods and includes material, labor and overhead related to the manufacturing process.
Inventories consist of the following (in thousands):
 
January 2, 2016
 
September 30, 2015
Raw materials and purchased component parts
$
403,127

 
$
371,073

Work-in-progress
147,039

 
164,793

Finished Goods
119,716

 
122,956

Total
669,882

 
658,822

Reserves for excess and obsolete inventory and LIFO
(70,571
)
 
(67,421
)
Inventories - net
$
599,311

 
$
591,401


7.    INTANGIBLE ASSETS
Intangible assets subject to amortization consist of the following (in thousands):
 
January 2, 2016
 
September 30, 2015
 
Gross  Carrying
Amount
 
Accumulated
Amortization
 
Net
 
Gross  Carrying
Amount
 
Accumulated
Amortization
 
Net
Technology
$
1,077,848

 
$
246,643

 
$
831,205

 
$
1,100,317

 
$
233,434

 
$
866,883

Order backlog
17,835

 
13,059

 
4,776

 
19,501

 
10,709

 
8,792

Other
43,215

 
14,132

 
29,083

 
43,229

 
13,557

 
29,672

Total
$
1,138,898

 
$
273,834

 
$
865,064

 
$
1,163,047

 
$
257,700

 
$
905,347

 
The aggregate amortization expense on identifiable intangible assets for the thirteen week periods ended January 2, 2016 and December 27, 2014 was approximately $16.3 million and $13.0 million, respectively. The estimated amortization expense is $64.7 million for fiscal year 2016 and $57.5 million for each of the five succeeding fiscal years 2017 through 2021.

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The following is a summary of changes in the carrying value of goodwill by segment from September 30, 2015 through January 2, 2016 (in thousands):
 
Power &
Control
 
Airframe
 
Non-
aviation
 
Total
Balance, September 30, 2015
$
2,238,443

 
$
2,392,408

 
$
55,369

 
$
4,686,220

Purchase price allocation adjustments
4,165

 
35

 
—

 
4,200

Other
2

 
(6,792
)
 
—

 
(6,790
)
Balance, January 2, 2016
$
2,242,610

 
$
2,385,651

 
$
55,369

 
$
4,683,630


8.    DEBT
The Company’s debt consists of the following (in thousands):
 
January 2, 2016
 
Gross Amount
 
Debt Issuance Costs
 
Original Issue Discount
 
Net Amount
Short-term borrowings—trade receivable securitization facility
$
200,000

 
$
(183
)
 
$
—

 
$
199,817

Term loans
$
4,371,854

 
$
(41,309
)
 
$
(5,266
)
 
$
4,325,279

5 1/2% senior subordinated notes due 2020 (2020 Notes)
550,000

 
(5,091
)
 
—

 
544,909

7 1/2% senior subordinated notes due 2021 (2021 Notes)
500,000

 
(3,627
)
 
—

 
496,373

6% senior subordinated notes due 2022 (2022 Notes)
1,150,000

 
(9,461
)
 
—

 
1,140,539

6 1/2% senior subordinated notes due 2024 (2024 Notes)
1,200,000

 
(10,100
)
 
—

 
1,189,900

6 1/2% senior subordinated notes due 2025 (2025 Notes)
450,000

 
(4,396
)
 
—

 
445,604

 
8,221,854

 
(73,984
)
 
(5,266
)
 
8,142,604

Less current portion
43,840

 
(395
)
 
—

 
43,445

Long-term debt
$
8,178,014

 
$
(73,589
)
 
$
(5,266
)
 
$
8,099,159

 
September 30, 2015
 
Gross Amount
 
Debt Issuance Costs
 
Original Issue Discount
 
Net Amount
Short-term borrowings—trade receivable securitization facility
$
200,000

 
$
(208
)
 
$
—

 
$
199,792

Term loans
$
4,382,813

 
$
(43,660
)
 
$
(5,471
)
 
$
4,333,682

2020 Notes
550,000

 
(5,355
)
 
—

 
544,645

2021 Notes
500,000

 
(3,789
)
 
—

 
496,211

2022 Notes
1,150,000

 
(9,821
)
 
—

 
1,140,179

2024 Notes
1,200,000

 
(10,394
)
 
—

 
1,189,606

2025 Notes
450,000

 
(4,513
)
 
—

 
445,487

 
8,232,813

 
(77,532
)
 
(5,471
)
 
8,149,810

Less current portion
43,840

 
(413
)
 
—

 
43,427

Long-term debt
$
8,188,973

 
$
(77,119
)
 
$
(5,471
)
 
$
8,106,383


9.    INCOME TAXES
At the end of each reporting period, TD Group makes an estimate of its annual effective income tax rate. The estimate used in the year-to-date period may change in subsequent periods. During the thirteen week periods ended January 2, 2016 and December 27, 2014, the effective income tax rate was 30.0% and 32.6%, respectively. The Company’s lower effective tax rate for the thirteen week period was primarily due to foreign earnings taxed at rates lower than the U.S. statutory rate and a discrete adjustment related to the permanent reinstatement of the US research and development tax credit. The Company’s effective tax rate for these periods was less than the Federal statutory tax rate primarily due to the domestic manufacturing deduction and foreign earnings taxed at rates lower than the U.S. statutory rate.
The Company and its subsidiaries file income tax returns in the U.S federal jurisdiction, various state and local jurisdictions as well as foreign jurisdictions located in Belgium, Canada, China, France, Germany, Hong Kong,

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Hungary, Malaysia, Mexico, Norway, Singapore, Sri Lanka, Sweden and the United Kingdom. The Company is no longer subject to U.S. federal examinations for years before fiscal 2014. The Company is currently under examination in Belgium for its fiscal years of 2013 and 2014. In addition, the Company is subject to state income tax examinations for fiscal years 2009 and later.
At January 2, 2016 and September 30, 2015, TD Group had $6.6 million and $6.9 million in unrecognized tax benefits, the recognition of which would have an effect of approximately $6.3 million and $6.5 million on the effective tax rate at January 2, 2016 and September 30, 2015, respectively. The Company believes that the tax positions that comprise the unrecognized tax benefit will be reduced by approximately $1.6 million over the next 12 months. The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense.

10.    FAIR VALUE MEASUREMENTS
The following tables present our assets and liabilities that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy. The fair value hierarchy has three levels based on the reliability of the inputs used to determine fair value. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs (other than quoted prices) that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.
The following summarizes the carrying amounts and fair values of financial instruments (in thousands):
 
 
 
January 2, 2016
 
September 30, 2015
 
Level
 
Carrying
Amount
 
Fair Value
 
Carrying
Amount
 
Fair Value
Assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
1

 
$
805,291

 
$
805,291

 
$
714,033

 
$
714,033

        Interest rate cap agreements (1)
2

 
7,980

 
7,980

 
8,180

 
8,180

Liabilities:
 
 
 
 
 
 
 
 
 
Interest rate swap agreements (2)
2

 
25,500

 
25,500

 
24,770

 
24,770

Interest rate swap agreements (3)
2

 
34,850

 
34,850

 
49,730

 
49,730

Short-term borrowings - trade receivable securitization facility (4)
1

 
199,817

 
199,817

 
199,792

 
199,792

Long-term debt, including current portion:
 
 
 
 
 
 
 
 
 
Term loans (4)
2

 
4,325,279

 
4,223,000

 
4,333,682

 
4,344,000

2020 Notes (4)
1

 
544,909

 
534,000

 
544,645

 
520,000

2021 Notes (4)
1

 
496,373

 
513,000

 
496,211

 
524,000

2022 Notes (4)
1

 
1,140,539

 
1,121,000

 
1,140,179

 
1,081,000

2024 Notes (4)
1

 
1,189,900

 
1,167,000

 
1,189,606

 
1,119,000

2025 Notes (4)
1

 
445,604

 
435,000

 
445,487

 
417,000

(1)
Included in Other non-current assets on the Condensed Consolidated Balance Sheet.
(2)
Included in Accrued liabilities on the Condensed Consolidated Balance Sheet.
(3)
Included in Other non-current liabilities on the Condensed Consolidated Balance Sheet.
(4)
The carrying amount of the debt instrument is presented net of the debt issuance costs in connection with the Company's adoption of ASU 2015-03. Refer to Note 8, "Debt," for gross carrying amounts.
The Company values its financial instruments using an industry standard market approach, in which prices and other relevant information is generated by market transactions involving identical or comparable assets or liabilities. No financial instruments were recognized using unobservable inputs.
Interest rate swaps were measured at fair value using quoted market prices for the swap interest rate indexes over the term of the swap discounted to present value versus the fixed rate of the contract. The interest rate caps were measured at fair value using implied volatility rates of each individual caplet and the yield curve for the related periods. The estimated fair value of the Company’s term loans was based on information provided by the agent under the

11
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Company’s senior secured credit facility. The estimated fair values of the Company’s 2020 Notes, 2021 Notes, 2022 Notes, 2024 Notes and 2025 Notes were based upon quoted market prices.
The fair value of Cash and cash equivalents, Trade accounts receivable-net and Accounts payable approximated book value due to the short-term nature of these instruments at January 2, 2016 and September 30, 2015.

11.    DERIVATIVES AND HEDGING ACTIVITIES
The Company is exposed to, among other things, the impact of changes in interest rates in the normal course of business. The Company’s risk management program is designed to manage the exposure and volatility arising from these risks, and utilizes derivative financial instruments to offset a portion of these risks. The Company uses derivative financial instruments only to the extent necessary to hedge identified business risks and does not enter into such transactions for trading purposes. The Company generally does not require collateral or other security with counterparties to these financial instruments and is therefore subject to credit risk in the event of nonperformance; however, the Company monitors credit risk and currently does not anticipate nonperformance by other parties. The Company has agreements with each of its swap and cap counterparties that contain a provision whereby if the Company defaults on the credit facility the Company could also be declared in default on its swaps and caps, resulting in an acceleration of payment under the swaps and caps.
Interest rate swap and cap agreements are used to manage interest rate risk associated with floating-rate borrowings under our credit facility. The interest rate swap and cap agreements utilized by the Company effectively modify the Company’s exposure to interest rate risk by converting a portion of the Company’s floating-rate debt to a fixed rate basis through the expiration date of the interest rate swap and cap agreements, thereby reducing the impact of interest rate changes on future interest expense. These agreements involve the receipt of floating rate amounts in exchange for fixed rate interest payments over the term of the agreements without an exchange of the underlying principal amount. These derivative instruments qualify as effective cash flow hedges under GAAP. For these cash flow hedges, the effective portion of the gain or loss from the financial instruments was initially reported as a component of accumulated other comprehensive loss in stockholders’ deficit and subsequently reclassified into earnings in the same line as the hedged item in the same period or periods during which the hedged item affected earnings.
At January 2, 2016, five forward-starting interest rate swap agreements beginning March 31, 2016 were in place to hedge the variable interest rates on the 2014 Term Loans for a fixed rate based on an aggregate notional amount of $750 million through June 30, 2020. These forward-starting interest rate swap agreements will effectively convert the variable interest rate on the aggregate notional amount of the 2014 Term Loans to a fixed rate of 5.8% (2.8% plus the 3% margin percentage) over the term of the interest rate swap agreements.
At January 2, 2016, six interest rate cap agreements beginning September 30, 2015 were in place to offset the variable interest rates on the 2015 Term Loans based on an aggregate notional amount of $750 million. These interest rate cap agreements offset the variability in expected future cash flows on the Company's variable rate debt attributable to fluctuations above the three month LIBOR of 2.5% through June 30, 2020.
At January 2, 2016, three interest rate swap agreements beginning September 30, 2014 were in place to hedge the variable interest rates on the 2014 Term Loans for a fixed rate based on an aggregate notional amount of $1.0 billion through June 30, 2019. These interest rate swap agreements converted the variable interest rate on the aggregate notional amount of the 2014 Term Loans to a fixed rate of 5.4% (2.4% plus the 3% margin percentage) over the term of the interest rate swap agreements.
In connection with the refinancing of the 2011 Term Loans, the Company no longer designated the interest rate swap agreements relating to the $353 million aggregate notional amount as cash flow hedges for accounting purposes. Accordingly, amounts previously recorded as a component of accumulated other comprehensive loss in stockholder’s deficit amortized into earnings totaled $1.1 million for the thirteen week period ended December 27, 2014. There is no remaining amortization for these dedesignated swap agreements as of September 30, 2015.
Based on the fair value amounts of the interest rate swap agreements determined as of January 2, 2016, the estimated net amount of existing gains and losses expected to be reclassified into interest expense within the next twelve months is approximately $25.5 million.

12.    SEGMENTS
The Company’s businesses are organized and managed in three reporting segments: Power & Control, Airframe and Non-aviation.
The Power & Control segment includes operations that primarily develop, produce and market systems and components that predominately provide power to or control power of the aircraft utilizing electronic, fluid, power and mechanical motion control technologies. Major product offerings include mechanical/electro-mechanical actuators and

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controls, ignition systems and engine technology, specialized pumps and valves, power conditioning devices, specialized AC/DC electric motors and generators, and cargo loading and handling systems. Primary customers of this segment are engine and power system and subsystem suppliers, airlines, third party maintenance suppliers, military buying agencies and repair depots. Products are sold in the original equipment and aftermarket market channels.
The Airframe segment includes operations that primarily develop, produce and market systems and components that are used in non-power airframe applications utilizing airframe and cabin structure technologies. Major product offerings include engineered latching and locking devices, rods and locking devices, cockpit security components and systems, aircraft audio systems, specialized lavatory components, seat belts and safety restraints, engineered interior surfaces and related components, lighting and control technology, military personnel parachutes, and cargo delivery systems. Primary customers of this segment are airframe manufacturers and cabin system suppliers and subsystem suppliers, airlines, third party maintenance suppliers, military buying agencies and repair depots. Products are sold in the original equipment and aftermarket market channels.
The Non-aviation segment includes operations that primarily develop, produce and market products for non-aviation markets. Major product offerings include seat belts and safety restraints for ground transportation applications, mechanical/electro-mechanical actuators and controls for space applications, and refueling systems for heavy equipment used in mining, construction and other industries. Primary customers of this segment are off-road vehicle suppliers and subsystem suppliers, child restraint system suppliers, satellite and space system suppliers and manufacturers of heavy equipment used in mining, construction and other industries.
The primary measurement used by management to review and assess the operating performance of each segment is EBITDA As Defined. The Company defines EBITDA As Defined as earnings before interest, taxes, depreciation and amortization plus certain non-operating items including refinancing costs, acquisition-related costs, transaction-related costs and non-cash compensation charges incurred in connection with the Company’s stock incentive plans. Acquisition-related costs represent accounting adjustments to inventory associated with acquisitions of businesses and product lines that were charged to cost of sales when the inventory was sold; costs incurred to integrate acquired businesses and product lines into the Company’s operations, facility relocation costs and other acquisition-related costs; transaction related costs comprising deal fees; legal, financial and tax diligence expenses and valuation costs that are required to be expensed as incurred and other acquisition accounting adjustments.
EBITDA As Defined is not a measurement of financial performance under GAAP. Although the Company uses EBITDA As Defined to assess the performance of its business and for various other purposes, the use of this non-GAAP financial measure as an analytical tool has limitations, and it should not be considered in isolation or as a substitute for analysis of the Company’s results of operations as reported in accordance with GAAP.
The Company’s segments are reported on the same basis used internally for evaluating performance and for allocating resources. The accounting policies for each segment are the same as those described in the summary of significant accounting policies in the Company’s consolidated financial statements. Intersegment sales and transfers are recorded at values based on market prices, which creates intercompany profit on intersegment sales or transfers that is eliminated in consolidation. Intersegment sales were insignificant for the periods presented below.
The following table presents net sales by reportable segment (in thousands):
 
 
Thirteen Week Periods Ended
 
 
January 2, 2016
 
December 27, 2014
Net sales to external customers
 
 
 
 
Power & Control
 
$
347,209

 
$
283,379

Airframe
 
331,138

 
281,614

Non-aviation
 
23,348

 
21,905

 
 
$
701,695

 
$
586,898


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The following table reconciles EBITDA As Defined by segment to consolidated income before income taxes (in thousands):
 
 
Thirteen Week Periods Ended
 
 
January 2, 2016
 
December 27, 2014
EBITDA As Defined
 
 
 
 
Power & Control
 
$
161,776

 
$
146,128

Airframe
 
155,088

 
125,821

Non-aviation
 
6,386

 
4,738

Total segment EBITDA As Defined
 
323,250

 
276,687

Unallocated corporate expenses
 
3,837

 
6,959

Total Company EBITDA As Defined
 
319,413

 
269,728

Depreciation and amortization expense
 
26,201

 
21,785

Interest expense - net
 
111,983

 
98,935

Acquisition-related costs
 
7,225

 
1,700

Stock compensation expense
 
10,681

 
5,764

Other, net
 
(735
)
 
(189
)
Income before income taxes
 
$
164,058

 
$
141,733

The following table presents total assets by segment (in thousands):
 
January 2, 2016
 
September 30, 2015
Total assets
 
 
 
Power & Control
$
3,558,152

 
$
3,550,866

Airframe
3,883,245

 
3,922,439

Non-aviation
130,349

 
129,935

Corporate
758,232

 
700,695

 
$
8,329,978

 
$
8,303,935

The Company’s sales principally originate from the United States, and the Company’s long-lived assets are principally located in the United States.

13.    ACCUMULATED OTHER COMPREHENSIVE LOSS
The following table presents the components of accumulated other comprehensive loss, net of taxes, for the thirteen week period ended January 2, 2016 (in thousands):
 
Unrealized (loss) gain on derivatives designated and qualifying as cash flow hedges
 
Defined benefit pension plan activity
 
Currency translation adjustment
 
Total
Balance at September 30, 2015
$
(51,492
)
 
$
(12,013
)
 
$
(32,504
)
 
$
(96,009
)
Current-period other comprehensive income (loss)
8,858

 
—

 
(8,950
)
 
(92
)
Balance at January 2, 2016
$
(42,634
)
 
$
(12,013
)
 
$
(41,454
)
 
$
(96,101
)

14.    SUBSEQUENT EVENTS
On January 4, 2016, Hook Acquisition Sub Inc., a subsidiary of TransDigm Inc., completed the tender offer of all the outstanding stock of Breeze-Eastern Corporation (“Breeze-Eastern”) for $19.61 per share in cash. Following consummation of the tender offer, Hook Acquisition Sub Inc. was merged into Breeze-Eastern on January 4, 2016; in connection therewith, all outstanding stock of Breeze-Eastern was canceled and Breeze-Eastern became a wholly owned subsidiary of TransDigm Inc. The purchase price for the tender offer, net of cash acquired of approximately $27 million, was approximately $178 million in cash. Breeze-Eastern manufactures high performance lifting and pulling devices for military and civilian aircraft, including rescue hoists, winches and cargo hooks, and weapons-lifting

14
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systems. These products fit well with TransDigm’s overall business direction and Breeze-Eastern will be included in TransDigm's Power & Control segment.
Subsequent to the end of the thirteen week period ended January 2, 2016 and prior to the new program described in the next paragraph becoming effective, the Company repurchased 128,319 shares of its common stock at a gross cost of approximately $27.9 million at the weighted-average price per share of $217.47 under the stock repurchase program authorized on October 22, 2014.
On January 21, 2016, our Board of Directors authorized a stock repurchase program replacing our previous repurchase program permitting us to repurchase a portion of our outstanding shares not to exceed $450 million. The Company repurchased 324,200 shares of its common stock at a gross cost of approximately $63.7 million at the weighted-average price per share of $196.47 under the stock repurchase program authorized on January 21, 2016.

15.    SUPPLEMENTAL GUARANTOR INFORMATION
TransDigm’s 2020 Notes, 2021 Notes, 2022 Notes, 2024 Notes and 2025 Notes are jointly and severally guaranteed, on a senior subordinated basis, by TD Group and TransDigm Inc.’s 100% Domestic Restricted Subsidiaries, as defined in the Indentures. The following supplemental condensed consolidating financial information presents, in separate columns, the balance sheets of the Company as of January 2, 2016 and September 30, 2015 and its statements of income and comprehensive income and cash flows for the thirteen week periods ended January 2, 2016 and December 27, 2014 for (i) TransDigm Group on a parent only basis with its investment in subsidiaries recorded under the equity method, (ii) TransDigm Inc. including its directly owned operations and non-operating entities, (iii) the Subsidiary Guarantors on a combined basis, (iv) Non-Guarantor Subsidiaries and (v) the Company on a consolidated basis.
Separate financial statements of TransDigm Inc. are not presented because TransDigm Inc.’s 2020 Notes, 2021 Notes, 2022 Notes, 2024 Notes and 2025 Notes are fully and unconditionally guaranteed on a senior subordinated basis by TD Group and all existing 100% owned domestic subsidiaries of TransDigm Inc. and because TD Group has no significant operations or assets separate from its investment in TransDigm Inc.


15
Table of Contents

TRANSDIGM GROUP INCORPORATED
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF JANUARY 2, 2016
(Amounts in thousands)
 
TransDigm
Group
 
TransDigm
Inc.
 
Subsidiary
Guarantors
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Total
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
 
 
CURRENT ASSETS:
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
20,286

 
$
730,494

 
$
4,349

 
$
50,162

 
$
—

 
$
805,291

Trade accounts receivable - Net
—

 
—

 
40,775

 
405,540

 
(19,050
)
 
427,265

Inventories - Net
—

 
41,270

 
456,600

 
102,141

 
(700
)
 
599,311

Prepaid expenses and other
—

 
4,425

 
16,802

 
7,681

 
—

 
28,908

Total current assets
20,286

 
776,189

 
518,526

 
565,524

 
(19,750
)
 
1,860,775

INVESTMENT IN SUBSIDIARIES AND INTERCOMPANY BALANCES
(984,556
)
 
6,972,463

 
4,664,857

 
(29,095
)
 
(10,623,669
)
 
—

PROPERTY, PLANT AND 
EQUIPMENT -Net
—

 
16,447

 
209,947

 
41,634

 
—

 
268,028

GOODWILL
—

 
39,333

 
4,012,751

 
631,546

 
—

 
4,683,630

OTHER INTANGIBLE ASSETS - Net
—

 
38,245

 
1,188,955

 
261,577

 
(1,461
)
 
1,487,316

OTHER
—

 
13,941

 
14,620

 
1,668

 
—

 
30,229

TOTAL ASSETS
$
(964,270
)
 
$
7,856,618

 
$
10,609,656

 
$
1,472,854

 
$
(10,644,880
)
 
$
8,329,978

LIABILITIES AND STOCKHOLDERS’
(DEFICIT) EQUITY
 
 
 
 
 
 
 
 
 
 
 
CURRENT LIABILITIES:
 
 
 
 
 
 
 
 
 
 
 
Current portion of long-term debt
$
—

 
$
43,445

 
$
—

 
$
—

 
$
—

 
$
43,445

Short-term borrowings - trade receivable securitization facility
—

 
—

 
—

 
199,817

 
—

 
199,817

Accounts payable
—

 
14,828

 
80,246

 
34,222

 
(15,689
)
 
113,607

Accrued liabilities
—

 
159,158

 
99,800

 
40,615

 
—

 
299,573

Total current liabilities
—

 
217,431

 
180,046

 
274,654

 
(15,689
)
 
656,442

LONG-TERM DEBT
—

 
8,099,159

 
—

 
—

 
—

 
8,099,159

DEFERRED INCOME TAXES
—

 
319,247

 
2,330

 
88,533

 
—

 
410,110

OTHER NON-CURRENT LIABILITIES
—

 
69,359

 
39,788

 
19,390

 
—

 
128,537

Total liabilities
—

 
8,705,196

 
222,164

 
382,577

 
(15,689
)
 
9,294,248

STOCKHOLDERS’ (DEFICIT) EQUITY
(964,270
)
 
(848,578
)
 
10,387,492

 
1,090,277

 
(10,629,191
)
 
(964,270
)
TOTAL LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
$
(964,270
)
 
$
7,856,618

 
$
10,609,656

 
$
1,472,854

 
$
(10,644,880
)
 
$
8,329,978


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Table of Contents

TRANSDIGM GROUP INCORPORATED
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF SEPTEMBER 30, 2015
(Amounts in thousands)
 
TransDigm
Group
 
TransDigm
Inc.
 
Subsidiary
Guarantors
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Total
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
 
 
CURRENT ASSETS:
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
1,500

 
$
659,365

 
$
7,911

 
$
45,257

 
$
—

 
$
714,033

Trade accounts receivable - Net
—

 
—

 
48,369

 
413,380

 
(17,677
)
 
444,072

Inventories - Net
—

 
34,457

 
461,103

 
96,541

 
(700
)
 
591,401

Prepaid expenses and other
—

 
2,804

 
15,096

 
19,181

 
—

 
37,081

Total current assets
1,500

 
696,626

 
532,479

 
574,359

 
(18,377
)
 
1,786,587

INVESTMENT IN SUBSIDIARIES AND INTERCOMPANY BALANCES
(1,039,806
)
 
6,963,034

 
4,501,501

 
(33,208
)
 
(10,391,521
)
 
—

PROPERTY, PLANT AND EQUIPMENT - Net
—

 
16,565

 
201,499

 
42,620

 
—

 
260,684

GOODWILL
—

 
65,886

 
3,984,199

 
636,135

 
—

 
4,686,220

OTHER INTANGIBLE ASSETS - Net
—

 
38,621

 
1,236,376

 
266,315

 
(1,461
)
 
1,539,851

OTHER
—

 
13,712

 
14,528

 
2,353

 
—

 
30,593

TOTAL ASSETS
$
(1,038,306
)
 
$
7,794,444

 
$
10,470,582

 
$
1,488,574

 
$
(10,411,359
)
 
$
8,303,935

LIABILITIES AND STOCKHOLDERS’
(DEFICIT) EQUITY
 
 
 
 
 
 
 
 
 
 
 
CURRENT LIABILITIES:
 
 
 
 
 
 
 
 
 
 
 
Current portion of long-term debt
$
—

 
$
43,427

 
$
—

 
$
—

 
$
—

 
$
43,427

Short-term borrowings - trade receivable securitization facility
—

 
—

 
—

 
199,792

 
—

 
199,792

Accounts payable
—

 
16,826

 
102,968

 
37,556

 
(14,528
)
 
142,822

Accrued liabilities
—

 
97,045

 
117,243

 
57,265

 
—

 
271,553

Total current liabilities
—

 
157,298

 
220,211

 
294,613

 
(14,528
)
 
657,594

LONG-TERM DEBT
—

 
8,106,383

 
—

 
—

 
—

 
8,106,383

DEFERRED INCOME TAXES
—

 
334,848

 
2,410

 
67,739

 
—

 
404,997

OTHER NON-CURRENT LIABILITIES
—

 
99,743

 
35,222

 
38,302

 
—

 
173,267

Total liabilities
—

 
8,698,272

 
257,843

 
400,654

 
(14,528
)
 
9,342,241

STOCKHOLDERS’ (DEFICIT) EQUITY
(1,038,306
)
 
(903,828
)
 
10,212,739

 
1,087,920

 
(10,396,831
)
 
(1,038,306
)
TOTAL LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
$
(1,038,306
)
 
$
7,794,444

 
$
10,470,582

 
$
1,488,574

 
$
(10,411,359
)
 
$
8,303,935


17
Table of Contents

TRANSDIGM GROUP INCORPORATED
CONDENSED CONSOLIDATING STATEMENT OF INCOME AND COMPREHENSIVE INCOME
FOR THE THIRTEEN WEEK PERIOD ENDED JANUARY 2, 2016
(Amounts in thousands)
 
TransDigm
Group
 
TransDigm
Inc.
 
Subsidiary
Guarantors
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Total
Consolidated
NET SALES
$
—

 
$
26,689

 
$
576,421

 
$
104,280

 
$
(5,695
)
 
$
701,695

COST OF SALES
—

 
15,265

 
252,748

 
64,810

 
(5,695
)
 
327,128

GROSS PROFIT
—

 
11,424

 
323,673

 
39,470

 
—

 
374,567

SELLING AND ADMINISTRATIVE EXPENSES
—

 
12,816

 
53,940

 
15,447

 
—

 
82,203

AMORTIZATION OF INTANGIBLE ASSETS
—

 
363

 
13,463

 
2,497

 
—

 
16,323

(LOSS) INCOME FROM OPERATIONS
—

 
(1,755
)
 
256,270

 
21,526

 
—

 
276,041

INTEREST EXPENSE (INCOME) - Net
—

 
115,391

 
(555
)
 
(2,853
)
 
—

 
111,983

EQUITY IN INCOME OF SUBSIDIARIES
(114,901
)
 
(205,972
)
 
—

 
—

 
320,873

 
—

INCOME BEFORE INCOME TAXES
114,901

 
88,826

 
256,825

 
24,379

 
(320,873
)
 
164,058

INCOME TAX (BENEFIT) PROVISION
—

 
(26,075
)
 
78,533

 
(3,301
)
 
—

 
49,157

NET INCOME
$
114,901

 
$
114,901

 
$
178,292

 
$
27,680

 
$
(320,873
)
 
$
114,901

OTHER COMPREHENSIVE (LOSS) INCOME, NET OF TAX
(92
)
 
6,241

 
(3,564
)
 
(11,758
)
 
9,081

 
(92
)
TOTAL COMPREHENSIVE INCOME
$
114,809

 
$
121,142

 
$
174,728

 
$
15,922

 
$
(311,792
)
 
$
114,809


18
Table of Contents

TRANSDIGM GROUP INCORPORATED
CONDENSED CONSOLIDATING STATEMENT OF INCOME AND COMPREHENSIVE INCOME
FOR THE THIRTEEN WEEK PERIOD ENDED DECEMBER 27, 2014
(Amounts in thousands)
 
TransDigm
Group
 
TransDigm
Inc.
 
Subsidiary
Guarantors
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Total
Consolidated
NET SALES
$
—

 
$
31,568

 
$
511,507

 
$
46,886

 
$
(3,063
)
 
$
586,898

COST OF SALES
—

 
18,484

 
217,985

 
32,319

 
(3,063
)
 
265,725

GROSS PROFIT
—

 
13,084

 
293,522

 
14,567

 
—

 
321,173

SELLING AND ADMINISTRATIVE EXPENSES
—

 
15,758

 
43,899

 
7,822

 
—

 
67,479

AMORTIZATION OF INTANGIBLE ASSETS
—

 
347

 
10,701

 
1,978

 
—

 
13,026

(LOSS) INCOME FROM OPERATIONS
—

 
(3,021
)
 
238,922

 
4,767

 
—

 
240,668

INTEREST EXPENSE (INCOME) - Net
—

 
101,418

 
48

 
(2,531
)
 
—

 
98,935

EQUITY IN INCOME OF SUBSIDIARIES
(95,533
)
 
(165,836
)
 
—

 
—

 
261,369

 
—

INCOME BEFORE INCOME TAXES
95,533

 
61,397

 
238,874

 
7,298

 
(261,369
)
 
141,733

INCOME TAX (BENEFIT) PROVISION
—

 
(34,136
)
 
78,514

 
1,822

 
—

 
46,200

NET INCOME
$
95,533

 
$
95,533

 
$
160,360

 
$
5,476

 
$
(261,369
)
 
$
95,533

OTHER COMPREHENSIVE LOSS, NET OF TAX
(21,286
)
 
(6,709
)
 
(287
)
 
(14,290
)
 
21,286

 
(21,286
)
TOTAL COMPREHENSIVE INCOME (LOSS)
$
74,247

 
$
88,824

 
$
160,073

 
$
(8,814
)
 
$
(240,083
)
 
$
74,247


19
Table of Contents

TRANSDIGM GROUP INCORPORATED
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE THIRTEEN WEEK PERIOD ENDED JANUARY 2, 2016
(Amounts in thousands)
 
TransDigm
Group
 
TransDigm
Inc.
 
Subsidiary
Guarantors
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Total
Consolidated
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES
$
—

 
$
(45,640
)
 
$
187,569

 
$
21,989

 
$
212

 
$
164,130

INVESTING ACTIVITIES:
 
 
 
 
 
 
 
 
 
 
 
Capital expenditures, net of disposals
—

 
(455
)
 
(8,043
)
 
(1,674
)
 
—

 
(10,172
)
Net cash used in investing activities
—

 
(455
)
 
(8,043
)
 
(1,674
)
 
—

 
(10,172
)
FINANCING ACTIVITIES:
 
 
 
 
 
 
 
 
 
 
 
Intercompany activities
69,130

 
128,271

 
(183,088
)
 
(14,101
)
 
(212
)
 
—

Excess tax benefits related to share-based payment arrangements
14,539

 
—

 
—

 
—

 
—

 
14,539

Proceeds from exercise of stock options
8,892

 
—

 
—

 
—

 
—

 
8,892

Dividends paid
(3,000
)
 
—

 
—

 
—

 
—

 
(3,000
)
Treasury stock purchased
(70,775
)
 
—

 
—

 
—

 
—

 
(70,775
)
Repayment on term loans
—

 
(10,960
)
 
—

 
—

 
—

 
(10,960
)
Other
—

 
(87
)
 
—

 
—

 
—

 
(87
)
Net cash provided by (used in) financing activities
18,786

 
117,224

 
(183,088
)
 
(14,101
)
 
(212
)
 
(61,391
)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
—

 
—

 
—

 
(1,309
)
 
—

 
(1,309
)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
18,786

 
71,129

 
(3,562
)
 
4,905

 
—

 
91,258

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
1,500

 
659,365

 
7,911

 
45,257

 
—

 
714,033

CASH AND CASH EQUIVALENTS, END OF PERIOD
$
20,286

 
$
730,494

 
$
4,349

 
$
50,162

 
$
—

 
$
805,291


20
Table of Contents

TRANSDIGM GROUP INCORPORATED
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE THIRTEEN WEEK PERIOD ENDED DECEMBER 27, 2014
(Amounts in thousands)
 
TransDigm
Group
 
TransDigm
Inc.
 
Subsidiary
Guarantors
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Total
Consolidated
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
$
—

 
$
59,985

 
$
142,334

 
$
(2,765
)
 
$
(10,595
)
 
$
188,959

INVESTING ACTIVITIES:
 
 
 
 
 
 
 
 
 
 
 
Capital expenditures, net of disposals
—

 
(467
)
 
(6,576
)
 
(1,095
)
 
—

 
(8,138
)
Net cash used in investing activities
—

 
(467
)
 
(6,576
)
 
(1,095
)
 
—

 
(8,138
)
FINANCING ACTIVITIES:
 
 
 
 
 
 
 
 
 
 
 
Intercompany activities
(13,663
)
 
146,927

 
(139,352
)
 
(4,507
)
 
10,595

 
—

Excess tax benefits related to share-based payment arrangements
8,264

 
—

 
—

 
—

 
—

 
8,264

Proceeds from exercise of stock options
7,391

 
—

 
—

 
—

 
—

 
7,391

Dividends paid
(3,365
)
 
—

 
—

 
—

 
—

 
(3,365
)
Other
—

 
(41
)
 
—

 
—

 
—

 
(41
)
Net cash (used in) provided by financing activities
(1,373
)
 
146,886

 
(139,352
)
 
(4,507
)
 
10,595

 
12,249

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
—

 
—

 
—

 
(989
)
 
—

 
(989
)
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
(1,373
)
 
206,404

 
(3,594
)
 
(9,356
)
 
—

 
192,081

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
2,088

 
782,648

 
3,793

 
31,019

 
—

 
819,548

CASH AND CASH EQUIVALENTS, END OF PERIOD
$
715

 
$
989,052

 
$
199

 
$
21,663

 
$
—