Edgar Filing: TransDigm Group INC

Document

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 June 30, 2018



¨	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, smaller reporting company or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.



LARGE ACCELERATED FILER	ý	ACCELERATED FILER	¨
NON-ACCELERATED FILER	¨	SMALLER REPORTING COMPANY	¨
EMERGING GROWTH COMPANY	¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.			¨

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 52,628,694 as of July 31, 2018.

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INDEX



			Page
Part I		FINANCIAL INFORMATION
	Item 1	Financial Statements
		Condensed Consolidated Balance Sheets – June 30, 2018 and September 30, 2017	1
		Condensed Consolidated Statements of Income – Thirteen and Thirty-Nine Week Periods Ended June 30, 2018 and July 1, 2017	2
		Condensed Consolidated Statements of Comprehensive Income – Thirteen and Thirty-Nine Week Periods Ended June 30, 2018 and July 1, 2017	3
		Condensed Consolidated Statement of Changes in Stockholders’ Deficit – Thirty-Nine Week Period Ended June 30, 2018	4
		Condensed Consolidated Statements of Cash Flows – Thirty-Nine Week Periods Ended June 30, 2018 and July 1, 2017	5
		Notes to Condensed Consolidated Financial Statements	6
	Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
	Item 3	Quantitative and Qualitative Disclosure About Market Risk	44
	Item 4	Controls and Procedures	44
Part II		OTHER INFORMATION	45
	Item 1	Legal Proceedings	45
	Item 1A	Risk Factors	45
	Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	45
	Item 6	Exhibits	46
SIGNATURES			48

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TRANSDIGM GROUP INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except share amounts)

(Unaudited)



	June 30, 2018			September 30, 2017
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	1,853,373		$	650,561
Trade accounts receivable - Net	658,168			636,127
Inventories - Net	815,251			730,681
Assets held-for-sale	—			77,500
Prepaid expenses and other	58,610			38,683
Total current assets	3,385,402			2,133,552
PROPERTY, PLANT AND EQUIPMENT - NET	380,475			324,924
GOODWILL	6,209,247			5,745,338
OTHER INTANGIBLE ASSETS - NET	1,715,074			1,717,862
OTHER	114,279			53,985
TOTAL ASSETS	$	11,804,477		$	9,975,661

LIABILITIES AND STOCKHOLDERS’ DEFICIT
CURRENT LIABILITIES:
Current portion of long-term debt	$	75,793		$	69,454
Short-term borrowings - trade receivable securitization facility	299,956			299,587
Accounts payable	155,937			148,761
Accrued liabilities	285,484			335,888
Liabilities held-for-sale	—			17,304
Total current liabilities	817,170			870,994
LONG-TERM DEBT	12,516,010			11,393,620
DEFERRED INCOME TAXES	357,680			500,949
OTHER NON-CURRENT LIABILITIES	212,097			161,302
Total liabilities	13,902,957			12,926,865
STOCKHOLDERS’ DEFICIT:
Common stock - $.01 par value; authorized 224,400,000 shares; issued 56,717,525 and 56,093,659 at June 30, 2018 and September 30, 2017, respectively	567			561
Additional paid-in capital	1,171,549			1,095,319
Accumulated deficit	(2,471,575		)	(3,187,220		)
Accumulated other comprehensive loss	(23,717		)	(85,143		)
Treasury stock, at cost; 4,161,326 and 4,159,207 shares at June 30, 2018 and September 30, 2017, respectively	(775,304		)	(774,721		)
Total stockholders’ deficit	(2,098,480		)	(2,951,204		)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT	$	11,804,477		$	9,975,661

See notes to condensed consolidated financial statements.

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TRANSDIGM GROUP INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

FOR THE THIRTEEN AND THIRTY-NINE WEEK PERIODS ENDED

JUNE 30, 2018 AND JULY 1, 2017

(Amounts in thousands, except per share amounts)

(Unaudited)



	Thirteen Week Periods Ended						Thirty-Nine Week Periods Ended
	June 30, 2018			July 1, 2017			June 30, 2018			July 1, 2017
NET SALES	$	980,662		$	897,655		$	2,761,692		$	2,580,401
COST OF SALES	411,142			377,959			1,181,448			1,127,013
GROSS PROFIT	569,520			519,696			1,580,244			1,453,388
SELLING AND ADMINISTRATIVE EXPENSES	113,019			108,104			327,073			310,677
AMORTIZATION OF INTANGIBLE ASSETS	19,224			23,259			53,793			70,822
INCOME FROM OPERATIONS	437,277			388,333			1,199,378			1,071,889
INTEREST EXPENSE - NET	167,577			152,141			489,776			445,986
REFINANCING COSTS	4,159			345			5,910			35,936
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES	265,541			235,847			703,692			589,967
INCOME TAX PROVISION	48,150			66,015			(27,550		)	145,573
INCOME FROM CONTINUING OPERATIONS	217,391			169,832			731,242			444,394
LOSS FROM DISCONTINUED OPERATIONS, NET OF TAX	(145		)	(779		)	(2,943		)	(965		)
NET INCOME	$	217,246		$	169,053		$	728,299		$	443,429
NET INCOME APPLICABLE TO COMMON STOCK	$	217,246		$	169,053		$	672,151		$	347,458
Net earnings per share:
Net earnings per share from continuing operations - basic and diluted	$	3.91		$	3.09		$	12.14		$	6.25
Net loss per share from discontinued operations - basic and diluted	—			(0.01		)	(0.05		)	(0.02		)
Net earnings per share	$	3.91		$	3.08		$	12.09		$	6.23
Cash dividends paid per common share	$	—		$	—		$	—		$	24.00
Weighted-average shares outstanding:
Basic and diluted	55,597			54,890			55,598			55,773

See notes to condensed consolidated financial statements.

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TRANSDIGM GROUP INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE THIRTEEN AND THIRTY-NINE WEEK PERIODS ENDED

JUNE 30, 2018 AND JULY 1, 2017

(Amounts in thousands)

(Unaudited)



	Thirteen Week Periods Ended						Thirty-Nine Week Periods Ended
	June 30, 2018			July 1, 2017			June 30, 2018			July 1, 2017
Net income	$	217,246		$	169,053		$	728,299		$	443,429
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustments	(32,543		)	24,525			(4,355		)	4,523
Interest rate swap and cap agreements	2,307			(8,386		)	65,781			32,568
Other comprehensive (loss) income, net of tax	(30,236		)	16,139			61,426			37,091
TOTAL COMPREHENSIVE INCOME	$	187,010		$	185,192		$	789,725		$	480,520

See notes to condensed consolidated financial statements.

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TRANSDIGM GROUP INCORPORATED

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT

FOR THE THIRTY-NINE WEEK PERIOD ENDED JUNE 30, 2018

(Amounts in thousands, except share amounts)

(Unaudited)



	Common Stock			Additional Paid-In Capital					Accumulated Other Comprehensive (Loss) Income			Treasury Stock
	Number of Shares	Par Value		Additional Paid-In Capital		Accumulated Deficit			Accumulated Other Comprehensive (Loss) Income			Number of Shares		Value			Total
BALANCE, OCTOBER 1, 2017	56,093,659	$	561	$	1,095,319	$	(3,187,220	)	$	(85,143	)	(4,159,207	)	$	(774,721	)	$	(2,951,204	)
Unvested dividend equivalents and other	—	—		—		(12,654		)	—			—		—			(12,654		)
Compensation expense recognized for employee stock options and restricted stock	—	—		35,460		—			—			—		—			35,460
Exercise of employee stock options, restricted stock activity and other, net	623,361	6		40,621		—			—			(2,119	)	(583		)	40,044
Common stock issued	505	—		149		—			—			—		—			149
Net income	—	—		—		728,299			—			—		—			728,299
Foreign currency translation adjustments	—	—		—		—			(4,355		)	—		—			(4,355		)
Interest rate swaps and caps, net of tax	—	—		—		—			65,781			—		—			65,781
BALANCE, JUNE 30, 2018	56,717,525	$	567	$	1,171,549	$	(2,471,575	)	$	(23,717	)	(4,161,326	)	$	(775,304	)	$	(2,098,480	)

See notes to condensed consolidated financial statements.

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TRANSDIGM GROUP INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)



	Thirty-Nine Week Periods Ended
	June 30, 2018			July 1, 2017
OPERATING ACTIVITIES:
Net income	$	728,299		$	443,429
Net loss from discontinued operations	2,943			965
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	41,248			37,581
Amortization of intangible assets and product certification costs	54,286			71,495
Amortization of debt issuance costs, original issue discount and premium	16,179			15,530
Refinancing costs	5,910			35,936
Non-cash equity compensation	36,411			32,707
Deferred income taxes	(166,783		)	270
Changes in assets/liabilities, net of effects from acquisitions of businesses:
Trade accounts receivable	(861		)	(21,195		)
Inventories	(21,992		)	(325		)
Income taxes receivable/payable	6,730			(12,782		)
Other assets	(2,500		)	(4,104		)
Accounts payable	724			(12,342		)
Accrued interest	6,670			741
Accrued and other liabilities	(16,354		)	(32,690		)
Net cash provided by operating activities	690,910			555,216
INVESTING ACTIVITIES:
Capital expenditures	(50,097		)	(55,671		)
Payments made in connection with acquisitions	(582,262		)	(135,507		)
Proceeds (payments made) in connection with the sale (purchase) of discontinued operations	57,686			(79,695		)
Net cash used in investing activities	(574,673		)	(270,873		)
FINANCING ACTIVITIES:
Proceeds from exercise of stock options	40,621			18,046
Special dividend and dividend equivalent payments	(56,148		)	(1,376,034		)
Treasury stock purchased	—			(389,821		)
Proceeds from term loans, net	12,779,772			1,132,755
Repayments on term loans	(12,155,198		)	(48,453		)
Proceeds from senior subordinated notes due 2026, net	490,411			—
Cash tender and redemption of senior subordinated notes due 2021, including premium	—			(528,847		)
Proceeds from additional senior subordinated notes due 2025, net	—			300,517
Other	(9,904		)	(10,777		)
Net cash provided by (used in) financing activities	1,089,554			(902,614		)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS	(2,979		)	1,833
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	1,202,812			(616,438		)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	650,561			1,586,994
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	1,853,373		$	970,556
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest	$	469,667		$	434,295
Cash paid during the period for income taxes	$	123,597		$	157,899

See notes to condensed consolidated financial statements.

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TRANSDIGM GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THIRTY-NINE WEEK PERIODS ENDED JUNE 30, 2018 AND JULY 1, 2017

(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 every 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, databus and power controls, 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, high performance hoists, winches and lifting devices, 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 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, 2017 included in TD Group’s Form 10-K filed on November 13, 2017. 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, 2017 condensed consolidated balance sheet was derived from TD Group’s audited financial statements. The results of operations for the thirty-nine week period ended June 30, 2018 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 presentation related to the designation of Schroth as discontinued operations beginning in the fourth quarter of fiscal 2017 (refer to Note 14, "Discontinued Operations," for further information) and an organizational realignment effective October 1, 2017 of certain businesses comprising the Power & Control and the Non-Aviation segments.

3. ACQUISITIONS AND DIVESTITURES

During the thirty-nine week period ended June 30, 2018, the Company completed the acquisitions of Extant Components Group Holdings, Inc. ("Extant") and the Kirkhill elastomers business ("Kirkhill") from Esterline Technologies. During the fiscal year ended September 30, 2017, the Company completed the acquisitions of three separate aerospace product lines (collectively, the "Third Quarter 2017 Acquisitions"). The Company accounted for the acquisitions using the acquisition method and included the results of operations of the acquisitions in its condensed consolidated financial statements from the effective date of each acquisition. As of June 30, 2018, the one-year measurement period is open for Extant and Kirkhill; therefore, the assets acquired and liabilities assumed related to these acquisitions are subject to adjustment until the end of their respective one-year measurement periods. The Company is in the process of obtaining a third-party valuation of certain intangible assets and tangible assets and liabilities of Kirkhill and Extant. Pro forma net sales and results of operations for the acquisitions had they occurred at the beginning of the applicable thirty-nine week period ended June 30, 2018 or July 1, 2017 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.

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Extant – On April 24, 2018, the Company acquired all of the outstanding stock of Extant for a total purchase price of approximately $532.5 million in cash, which is net of a $0.2 million working capital settlement received in the third quarter of fiscal 2018. Extant provides a broad range of proprietary aftermarket products and repair and overhaul services to the aerospace and defense end markets. Extant owns or exclusively licenses in excess of 2,500 assemblies and sub-assemblies on over 70 active platforms. Extant is included in TransDigm's Power and Control segment.

Prior to the Company's acquisition of Extant, Extant was owned by an equity fund sponsored by Warburg Pincus LLC. Michael Graff, a director of TransDigm, is a managing director of Warburg Pincus LLC and was chairman of the board of Extant. Robert Henderson, Vice Chairman of TransDigm, was also on the board of Extant and owned less than 2% of Extant on a fully diluted basis. In addition, Mr. Graff, Mr. W. Nicholas Howley, TransDigm's Executive Chairman, and Messrs. Douglas Peacock and David Barr, directors of TransDigm, each had minority interests of less than 1% in the Warburg Pincus LLC fund that owned Extant.

The total purchase price of Extant 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	$	58,021
Property, plant, and equipment	4,124
Intangible assets	36,000
Goodwill	460,707
Other	86
Total assets acquired	558,938
Liabilities assumed:
Current liabilities	9,213
Other noncurrent liabilities	17,226
Total liabilities assumed	26,439
Net assets acquired	$	532,499

The Company expects that approximately $44 million of goodwill recognized for the acquisition will be deductible for tax purposes over 15 years and approximately $417 million of goodwill recognized for the acquisition will not be deductible for tax purposes.

Kirkhill – On March 15, 2018, the Company acquired the assets and certain liabilities of the Kirkhill elastomers business from Esterline Technologies for a total purchase price of approximately $49.3 million, which is net of a $0.6 million working capital settlement received in the third quarter of fiscal 2018. Kirkhill's products are primarily proprietary, sole source with significant aftermarket content and used in a broad variety of most major commercial transport and military platforms. Kirkhill is included in TransDigm's Airframe segment. The Company expects that no goodwill recognized for the acquisition will be deductible for tax purposes.

Third Quarter 2017 Acquisitions – The Third Quarter 2017 Acquisitions were acquired for an aggregate purchase price of approximately $106.7 million in cash, which includes working capital settlements totaling $1.0 million paid in the third and fourth quarters of fiscal 2017 and an earn-out of $0.4 million paid in the second quarter of fiscal 2018. All three product lines consist primarily of proprietary, sole source products with significant aftermarket content. The products include highly engineered aerospace controls, quick disconnect couplings, and communication electronics. Each product line acquired was consolidated into an existing TransDigm reporting unit within TransDigm's Power & Control segment. Approximately $66 million of goodwill recognized for the acquisitions is deductible for tax purposes over 15 years and approximately $9 million of goodwill recognized for the acquisitions is not deductible for tax purposes.

Schroth – On February 22, 2017, the Company acquired all of the outstanding stock of Schroth Safety Products GmbH and certain aviation and defense assets and liabilities from subsidiaries of Takata Corporation (collectively, "Schroth"), for a total purchase price of approximately $89.7 million, which consisted primarily of $79.7 million paid in cash during fiscal 2017 and an approximately $9.0 million indemnity holdback, of which $8.5 million was paid in April 2018.

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On January 26, 2018, the Company completed the sale of Schroth in a management buyout to a private equity fund and certain members of Schroth management for approximately $61.4 million, which includes a working capital adjustment of $0.3 million that was settled in July 2018. Further disclosure related to Schroth’s discontinued operations is included in Note 14.

4. RECENT ACCOUNTING PRONOUNCEMENTS

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, which created a new topic in the Accounting Standards Codification (“ASC”) 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. The new revenue standards may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of adoption. The guidance is effective for the Company for annual reporting periods, including interim periods therein, beginning October 1, 2018, which will be the Company’s date of adoption. The Company will use the modified retrospective method. The Company is continuing to evaluate the impact of the standard. For each reporting unit, we have evaluated a representative sample of contracts and other agreements with our customers and evaluated the provisions contained within these contracts and agreements in consideration of the five step model specified within ASC 606. We are in the process of documenting the impact of the standard on our current accounting policies and practices in order to identify material differences, if any, that would result from applying the new requirements to our revenue contracts. We continue to make progress on our assessment of ASC 606 and are also in the process of evaluating the impact on changes to our business processes, systems, and controls to support recognition and disclosure requirements under ASC 606.

In February 2016, the FASB issued ASU 2016-02, “Leases (ASC 842),” which will require that a lessee recognize assets and liabilities on the balance sheet for all leases with a lease term of more than twelve months, with the result being the recognition of a right of use asset and a lease liability. Additionally, in July 2018, the FASB issued ASU 2018-10, "Codification Improvements to ASC 842, Leases" which provides narrow amendments to clarify how to apply certain aspects of the new leases standard. The new leases standard guidance is effective for the Company for annual reporting periods, including interim periods therein, beginning October 1, 2019, with early adoption permitted. The Company is currently evaluating the impact of adopting this standard on its consolidated financial statements and disclosures.

In June 2016, the FASB issued ASU 2016-13, "Financial Instruments—Credit Losses: Measurement of Credit Losses on Financial Instruments (ASU 2016-13)," which changes the impairment model for most financial assets. The new model uses a forward-looking expected loss method, which will generally result in earlier recognition of allowances for losses. ASU 2016-13 is effective for annual and interim periods beginning after December 15, 2019 and early adoption is permitted for annual and interim periods beginning after December 15, 2018. The Company is currently evaluating the impact of adopting this standard on its consolidated financial statements and disclosures.

In August 2016, the FASB issued ASU 2016-15, "Statement of Cash Flows—Classification of Certain Cash Receipts and Cash Payments," which clarifies existing guidance related to accounting for cash receipts and cash payments and classification on the statement of cash flows. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, with early adoption permitted. The Company elected to early adopt this standard in the fourth quarter of fiscal 2017. The adoption of this standard did not have a material impact on its consolidated statement of cash flows.

In January 2017, the FASB issued ASU 2017-04, “Simplifying the Test for Goodwill Impairment,” to eliminate Step 2 from the goodwill impairment test in order to simplify the subsequent measurement of goodwill. The guidance is effective for fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The adoption of this standard is not expected to have a material impact on its consolidated financial statements and disclosures.

In March 2017, the FASB issued ASU 2017-07, "Compensation—Retirement Benefits (ASC 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost," that will change how employers that sponsor defined benefit and/or other postretirement benefit plans present the net periodic benefit cost in the income statement. Under the new guidance, employers will present the service cost component of the net periodic benefit cost in the same income statement line item(s) as other employee compensation costs arising from services rendered during the period. In addition, only the service cost component will be eligible for capitalization in assets. Employers will present the other components separately from the line item(s) that includes the service cost and outside of any subtotal of operating income, if one is presented. Employers will have to disclose the line(s) used to present the other components of net periodic benefit cost, if the components are not presented separately in the income statement.The standard is effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within the fiscal year. Early adoption is permitted, including adoption in any interim period for which financial statements have not yet been issued. The adoption of this standard is not expected to have a material impact on our consolidated financial statements.

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In May 2017, the FASB issued ASU 2017-09, "Compensation—Stock Compensation (ASC 718): Scope of Modification Accounting," which provides clarity on which changes to the terms or conditions of share-based payment awards require an entity to apply the modification accounting provisions required in ASC 718. The standard is effective for all entities for annual periods beginning after December 15, 2017, with early adoption permitted, including adoption in any interim period for which financial statements have not yet been issued. The adoption of this standard is not expected to have a material impact on our consolidated financial statements.

In August 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging (ASC 815): Targeted Improvements to Accounting for Hedging Activities,” which amends the FASB’s hedge accounting model to enable entities to better portray their risk management activities in financial statements. The guidance eliminates the requirement to separately measure and report hedge ineffectiveness and generally requires the entire change in the fair value of a hedging instrument to be presented in the same income statement line as the hedged item. The guidance also eases certain documentation and assessment requirements and modifies the accounting for components excluded from the assessment of hedge effectiveness. ASU 2017-12 is effective for the Company for annual reporting periods, including interim periods therein, beginning October 1, 2018, with early adoption permitted. As early adoption is permissible, the Company adopted the pronouncement beginning October 1, 2017. Changes were applied prospectively in accordance with the standard and prior periods were not adjusted. The adoption of this standard did not have a material impact on our consolidated financial statements and disclosures.

In February 2018, the FASB issued ASU 2018-02, "Income Statement - Reporting Comprehensive Income (ASC 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income," which gives entities the option to reclassify tax effects stranded in accumulated other comprehensive income as a result of the Tax Cuts and Jobs Act (the "Act") into retained earnings. The guidance allows entities to reclassify from accumulated other comprehensive income to retained earnings stranded tax effects resulting from the Act's new federal corporate income tax rate. The guidance also allows entities to elect to reclassify other stranded tax effects that relate to the Act but do not directly relate to the change in the federal tax rate (e.g., state taxes, changing from a worldwide tax system to a territorial system). Tax effects that are stranded in accumulated other comprehensive income for other reasons (e.g., prior changes in tax law, a change in valuation allowance) may not be reclassified. The standard is effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within the fiscal year. Early adoption is permitted, including adoption in any interim period for which financial statements have not yet been issued. Entities have the option to apply the guidance retrospectively or in the period of adoption. The adoption of this standard is not expected to have a material impact on our consolidated financial statements.

In March 2018, the FASB issued ASU 2018-05, “Income Taxes (ASC 740), Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118.” The ASU adds various SEC paragraphs pursuant to the issuance of the December 2017 SEC Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”), which was effective immediately. The SEC issued SAB 118 to address concerns about reporting entities’ ability to timely comply with the accounting requirements to recognize all of the effects of the Tax Cuts and Jobs Act in the period of enactment. SAB 118 allows disclosure that timely determination of some or all of the income tax effects from the Tax Cuts and Jobs Act are incomplete by the due date of the financial statements and if possible to provide a reasonable estimate. We have accounted for the tax effects of the Tax Cuts and Jobs Act under the guidance of SAB 118, on a provisional basis. Our accounting for certain income tax effects is incomplete, but we have determined reasonable estimates for those effects and have recorded provisional amounts in our condensed consolidated financial statements. Refer to Note 9, "Income Taxes," for further information.

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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						Thirty-Nine Week Periods Ended
	June 30, 2018			July 1, 2017			June 30, 2018			July 1, 2017
Numerator for earnings per share:
Net income from continuing operations	$	217,391		$	169,832		$	731,242		$	444,394
Less dividends paid on participating securities	—			—			(56,148		)	(95,971		)
	$	217,391		$	169,832		$	675,094		$	348,423
Net loss from discontinued operations	(145		)	(779		)	(2,943		)	(965		)
Net income applicable to common stock - basic and diluted	$	217,246		$	169,053		$	672,151		$	347,458
Denominator for basic and diluted earnings per share under the two-class method:
Weighted average common shares outstanding	52,470			51,932			52,241			52,718
Vested options deemed participating securities	3,127			2,958			3,357			3,055
Total shares for basic and diluted earnings per share	55,597			54,890			55,598			55,773

Net earnings per share from continuing operations - basic and diluted	$	3.91		$	3.09		$	12.14		$	6.25
Net loss per share from discontinued operations - basic and diluted	—			(0.01		)	(0.05		)	(0.02		)
Net earnings per share	$	3.91		$	3.08		$	12.09		$	6.23

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):



	June 30, 2018			September 30, 2017
Raw materials and purchased component parts	$	553,006		$	496,899
Work-in-progress	220,883			187,009
Finished goods	139,395			131,548
Total	913,284			815,456
Reserves for excess and obsolete inventory	(98,033		)	(84,775		)
Inventories - Net	$	815,251		$	730,681

7. INTANGIBLE ASSETS

Other intangible assets - net in the condensed consolidated balance sheets consist of the following (in thousands):



	June 30, 2018						September 30, 2017
	Gross Carrying Amount		Accumulated Amortization		Net		Gross Carrying Amount		Accumulated Amortization		Net
Trademarks and trade names	$	746,859	$	—	$	746,859	$	729,931	$	—	$	729,931
Technology	1,309,675		399,828		909,847		1,292,719		351,638		941,081
Order backlog	11,000		4,275		6,725		29,000		26,668		2,332
Other	73,226		21,583		51,643		63,599		19,081		44,518
Total	$	2,140,760	$	425,686	$	1,715,074	$	2,115,249	$	397,387	$	1,717,862

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Intangible assets acquired during the thirty-nine week period ended June 30, 2018 were as follows (in thousands):



	Gross Amount		Amortization Period
Intangible assets not subject to amortization:
Goodwill	$	460,961
Trademarks and trade names	17,300
	478,261
Intangible assets subject to amortization:
Technology	20,600		20 years
Order backlog	8,300		1 year
Customer relationships	10,000		20 years
	38,900		15.9 years
Total	$	517,161

The aggregate amortization expense on identifiable intangible assets for the thirty-nine week periods ended June 30, 2018 and July 1, 2017 was approximately $53.8 million and $70.8 million, respectively. The estimated amortization expense is $73.2 million for fiscal year 2018, $73.3 million for fiscal year 2019, and $68.7 million for each of the four succeeding fiscal years 2020 through 2023.

The following is a summary of changes in the carrying value of goodwill by segment from September 30, 2017 through June 30, 2018 (in thousands):



	Power & Control			Airframe			Non- aviation		Total
Balance - September 30, 2017	$	3,269,981		$	2,382,082		$	93,275	$	5,745,338
Goodwill acquired during the year	460,707			254			—		460,961
Purchase price allocation adjustments	5,354			—			—		5,354
Currency translation adjustment	—			(2,401		)	—		(2,401		)
Other	(192		)	187			—		(5		)
Balance - June 30, 2018	$	3,735,850		$	2,380,122		$	93,275	$	6,209,247

8. DEBT

The Company’s debt consists of the following (in thousands):



	June 30, 2018
	Gross Amount		Debt Issuance Costs			Original Issue Discount or Premium			Net Amount
Short-term borrowings—trade receivable securitization facility	$	300,000	$	(44	)	$	—		$	299,956
Term loans	$	7,619,039	$	(73,105	)	$	(21,984	)	$	7,523,950
5.50% senior subordinated notes due 2020 (2020 Notes)	550,000		(2,451		)	—			547,549
6.00% senior subordinated notes due 2022 (2022 Notes)	1,150,000		(5,861		)	—			1,144,139
6.50% senior subordinated notes due 2024 (2024 Notes)	1,200,000		(7,160		)	—			1,192,840
6.50% senior subordinated notes due 2025 (2025 Notes)	750,000		(3,637		)	3,772			750,135
6.375% senior subordinated notes due 2026 (6.375% 2026 Notes)	950,000		(8,050		)	—			941,950
6.875% senior subordinated notes due 2026 (6.875% 2026 Notes)	500,000		(5,038		)	(3,722		)	491,240
	12,719,039		(105,302		)	(21,934		)	12,591,803
Less current portion	76,427		(634		)	—			75,793
Long-term debt	$	12,642,612	$	(104,668	)	$	(21,934	)	$	12,516,010

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	September 30, 2017
	Gross Amount		Debt Issuance Costs			Original Issue Discount or Premium			Net Amount
Short-term borrowings—trade receivable securitization facility	$	300,000	$	(413	)	$	—		$	299,587
Term loans	$	6,973,009	$	(64,104	)	$	(18,948	)	$	6,889,957
5.50% 2020 Notes	550,000		(3,243		)	—			546,757
6.00% 2022 Notes	1,150,000		(6,941		)	—			1,143,059
6.50% 2024 Notes	1,200,000		(8,042		)	—			1,191,958
6.50% 2025 Notes	750,000		(4,033		)	4,182			750,149
6.375% 2026 Notes	950,000		(8,806		)	—			941,194
	11,573,009		(95,169		)	(14,766		)	11,463,074
Less current portion	70,031		(577		)	—			69,454
Long-term debt	$	11,502,978	$	(94,592	)	$	(14,766	)	$	11,393,620

Accrued interest was $88.9 million and $82.2 million as of June 30, 2018 and September 30, 2017, respectively.

Amendment No. 4 to the Second Amended and Restated Credit Agreement - On November 30, 2017, the Company entered into Amendment No. 4 to the Second Amended and Restated Credit Agreement. Pursuant to Amendment No. 4, TransDigm, among other things, incurred new tranche E term loans and new Tranche F term loans in aggregate principal amounts equal to $1,503 million and $2,857 million, respectively, and repaid in full all of the existing tranche E term loans and Tranche F term loans outstanding under the Second and Amended Restated Credit Agreement immediately prior to the refinancing facility agreement. Additionally, pursuant to Amendment No. 4, TransDigm converted approximately $798 million of existing tranche D term loans into additional tranche F term loans. The refinancing facility agreement also decreased the margin applicable to the existing tranche E term loans and tranche F term loans to LIBO rate plus 2.75% per annum. The terms and conditions (other than maturity date and pricing) that apply to the tranche E and tranche F term loans are substantially the same as the terms and conditions that apply to the tranche D term loans immediately prior to Amendment No. 4.

In addition to the incremental discount of $1.0 million recorded for the tranche F term loans, the Company capitalized $2.9 million and expensed $0.7 million of refinancing costs representing debt issuance costs associated with Amendment No. 4 during the thirty-nine week period ended June 30, 2018. The Company also wrote off $0.5 million in unamortized debt issuance costs related to the tranche D term loans that were converted to tranche F term loans and wrote off $0.2 million in unamortized debt issuance costs related to the tranche F terms loans.

Refinancing Facility Agreement to the Second Amended and Restated Credit Agreement - On February 22, 2018, the Company entered into a refinancing facility agreement. TransDigm, among other things, incurred new tranche G term loans in an aggregate principal amount equal to $1,809 million and repaid in full all of the existing tranche G term loans outstanding under the Second and Amended Restated Credit Agreement immediately prior to the refinancing facility agreement. The refinancing facility agreement also decreased the margin applicable to the tranche G term loans to LIBO rate plus 2.5% per annum. The terms and conditions that apply to the tranche G term loans other than pricing are substantially the same as the terms and conditions that apply to the tranche G term loans immediately prior to the refinancing facility agreement.

The Company capitalized $0.5 million and expensed $0.3 million of refinancing costs representing debt issuance costs associated with the refinancing facility agreement during the thirty-nine week period ended June 30, 2018. Additionally, the Company wrote off $0.2 million in unamortized debt issuance costs related to the tranche G terms loans.

Issuance of Senior Subordinated Notes – On May 8, 2018, TransDigm UK Holdings plc, a wholly-owned, indirect subsidiary of TD Group, issued $500 million in aggregate principal amount of new 6.875% 2026 Notes at an issue price of 99.24% of the principal amount. The 6.875% 2026 Notes bear interest at the rate of 6.875% per annum, which accrues from May 8, 2018 and is payable semiannually in arrears on May 15 and November 15 of each year, commencing on November 15, 2018. The 6.875% 2026 Notes mature on May 15, 2026, unless earlier redeemed or repurchased, and are subject to the terms and conditions set forth in the Indenture governing these 6.875% 2026 Notes.

The 6.875% 2026 Notes are subordinated to all of the Company's existing and future senior debt, rank equally with all of its existing and future senior subordinated debt and rank senior to all of its future debt that is expressly subordinated to the 6.875% 2026 Notes. The 6.875% 2026 Notes are guaranteed on a senior subordinated unsecured basis by TransDigm Inc., TD Group and TransDigm Inc.'s Domestic Restricted Subsidiaries, as defined in the applicable indenture. The guarantees of the 6.875% 2026 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

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subordinated to the guarantees of the 6.875% 2026 Notes. The 6.875% 2026 Notes are structurally subordinated to all of the liabilities of TD Group’s non-guarantor subsidiaries.

The 6.875% 2026 Notes Indenture contains certain covenants that, among other things, limit the incurrence of additional indebtedness, the payment of dividends, transactions with affiliates, asset sales, acquisitions, mergers, and consolidations, liens and encumbrances, and prepayments of certain other indebtedness. The 6.875% 2026 Notes Indenture contains events of default customary for agreements of their type (with customary grace periods, as applicable) and provide that, upon the occurrence of an event of default arising from certain events of bankruptcy or insolvency, all outstanding 6.875% 2026 Notes will become due and payable immediately without further action or notice. If any other type of event of default occurs and is continuing, then the trustee or the holders of at least 25% in principal amount of the outstanding 6.875% 2026 Notes may declare all such notes to be due and payable immediately.

In addition to the discount of $3.8 million recorded upon the issuance of these 6.875% 2026 Notes, the Company capitalized $5.1 million and expensed $0.6 million of refinancing costs associated with the issuance of the 6.875% 2026 Notes during the thirty-nine week period ended June 30, 2018.

Amendment No. 5 to the Second Amended and Restated Credit Agreement - On May 30, 2018, the Company entered into Amendment No. 5 to the Second Amended and Restated Credit Agreement. The Company capitalized $7.2 million of refinancing costs representing fees associated with the execution of Amendment No. 5 during the thirty-nine week period ended June 30, 2018.

Pursuant to Amendment No. 5, the Company, among other things, incurred new tranche E term loans in an aggregate principal amount equal to $1,322 million, and repaid in full all of the existing tranche E term loans outstanding under the Second Amended and Restated Credit Agreement immediately prior to Amendment No. 5. The Company also incurred incremental tranche E term loans in an aggregate principal amount equal to $933 million. The new tranche E term loans and incremental tranche E term loans mature on May 30, 2025. Amendment No. 5 also decreased the margin applicable to the new tranche E term loans to LIBO rate plus 2.5% per annum. The terms and conditions that apply to the tranche E term loans, other than the maturity date and margin, are substantially the same as the terms and conditions that apply to the tranche E term loans immediately prior to Amendment No. 5. In addition to the discount of $4.7 million recorded for the tranche E term loans, the Company capitalized $7.0 million and expensed $2.6 million of refinancing costs representing debt issuance costs associated with Term Loan E during the thirty-nine week period ended June 30, 2018. The Company also wrote off $0.3 million in unamortized debt issuance costs related to the tranche E terms loans.

Additionally, pursuant to Amendment No. 5, the Company incurred new tranche F term loans in an aggregate principal amount equal to $3,578 million, and repaid in full all of the existing tranche F term loans outstanding under the Second and Amended Restated Credit Agreement immediately prior to Amendment No. 5. Amendment No. 5 also decreased the margin applicable to the tranche F term loans to LIBO rate plus 2.5% per annum. The Company capitalized $2.0 million of refinancing costs representing debt issuance costs associated with the tranche F term loans during the thirty-nine week period ended June 30, 2018. Additionally, the Company wrote off $0.3 million in unamortized debt issuance costs related to the tranche F term loans.

Finally, under the terms of Amendment No. 5, the maturity date of our $600 million revolving credit facility was extended to December 28, 2022. The terms and conditions that apply to the revolving credit facility, other than the maturity date, are substantially the same as the terms and conditions that applied to the revolving credit facility immediately prior to Amendment No. 5. At June 30, 2018, the Company had $14.6 million in letters of credit outstanding and $585.4 million of borrowings available under the revolving commitments. During the thirty-nine week period ended June 30, 2018, the Company capitalized $0.4 million and expensed $0.2 million representing debt issuance costs expensed in conjunction with the refinancing of the revolving credit facility.

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9. INCOME TAXES

The Tax Cuts and Jobs Act (the "Act") was enacted on December 22, 2017. The Act reduces the U.S. federal corporate tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign-sourced earnings. The rate change is administratively effective at the beginning of our fiscal year (October 1, 2017), using a blended rate for the annual period. As a result, the blended statutory tax rate for the year is 24.5%. At June 30, 2018, we had not completed our accounting for the tax effects of enactment of the Act; however, in certain cases, we have made a reasonable estimate of the effects on our existing deferred tax balances and the one-time transition tax in accordance with the SEC's amendment to SAB 118. We have recognized a provisional benefit amount of $170.2 million related to the remeasurement of our deferred tax balance for the thirty-nine week period ended June 30, 2018. However, we are still analyzing certain aspects of the Act and refining our calculations, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts. In addition, we have recognized a provisional expense amount of $23.1 million for our one-time transition tax liability for the thirty-nine week period ended June 30, 2018. The one-time transition tax is based on our total post-1986 earnings and profits ("E&P") that we previously deferred from U.S. income taxes and is based in part on the amount of those earnings held in cash and other specified assets. However, we continue to refine the calculation of the total post-1986 E&P for our foreign subsidiaries. This amount may change when we finalize the calculation of post-1986 foreign E&P previously deferred from US federal taxation and finalize the amounts held in cash or other specified assets. As a result of the Act, we recognized a net provisional benefit amount of $147.1 million as a discrete tax benefit, which is included as a component of income tax expense from continuing operations for the thirty-nine week period ended June 30, 2018.

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 June 30, 2018 and July 1, 2017, the effective income tax rate was 18.1% and 28.0%, respectively. During the thirty-nine week periods ended June 30, 2018 and July 1, 2017, the effective income tax rate was (3.9)% and 24.7%, respectively. The Company's lower effective tax rate for the thirteen week period ended June 30, 2018 was primarily due to the reduction in the U.S. federal corporate statutory rate related to the enactment of the Act. The Company’s lower effective tax rate for the thirty-nine week period ended June 30, 2018 was primarily due to the reduction in the U.S. federal corporate tax rate as well as discrete adjustments related to the enactment of the Act described above. The Company’s effective tax rate for the thirteen and thirty-nine week periods ended June 30, 2018 was lower than the Federal statutory tax rate primarily due to the enactment of the Act described above. The Company’s effective tax rate for the thirteen and thirty-nine week periods ended July 1, 2017 was lower than the Federal statutory tax rate primarily due to excess tax benefits from share based payments, 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, Hungary, Japan, 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 U.S. federal examination for fiscal 2014. In addition, the Company is subject to state income tax examinations for fiscal years 2009 and later.

At June 30, 2018 and September 30, 2017, TD Group had $10.3 million and $8.7 million in unrecognized tax benefits, the recognition of which would have an effect of approximately $10.2 million on the effective tax rate at June 30, 2018 and $8.7 million on the effective tax rate at September 30, 2017. The Company believes the tax positions that comprise the unrecognized tax benefits 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 table presents 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.

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The following summarizes the carrying amounts and fair values of financial instruments (in thousands):



		June 30, 2018				September 30, 2017
	Level	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Assets:
Cash and cash equivalents	1	$	1,853,373	$	1,853,373	$	650,561	$	650,561
Interest rate cap agreements ⁽¹⁾	2	31,948		31,948		12,904		12,904
Interest rate swap agreements ⁽²⁾	2	5,458		5,458		—		—
Interest rate swap agreements ⁽¹⁾	2	40,919		40,919		2,905		2,905
Liabilities:
Interest rate swap agreements ⁽³⁾	2	1,554		1,554		20,740		20,740
Interest rate swap agreements ⁽⁴⁾	2	4,153		4,153		9,731		9,731
Short-term borrowings - trade receivable securitization facility ⁽⁵⁾	1	299,956		299,956		299,587		299,587
Long-term debt, including current portion:
Term loans ⁽⁵⁾	2	7,523,950		7,536,675		6,889,957		6,965,628
5.50% 2020 Notes ⁽⁵⁾	1	547,549		548,625		546,757		558,250
6.00% 2022 Notes ⁽⁵⁾	1	1,144,139		1,155,750		1,143,059		1,178,750
6.50% 2024 Notes ⁽⁵⁾	1	1,192,840		1,215,000		1,191,958		1,236,000
6.50% 2025 Notes ⁽⁵⁾	1	750,135		757,500		750,149		776,807
6.375% 2026 Notes ⁽⁵⁾	1	941,950		942,875		941,194		971,375
6.875% 2026 Notes ⁽⁵⁾	1	491,240		506,250		—		—


⁽¹⁾	Included in other non-current assets on the condensed consolidated balance sheet.


⁽²⁾	Included in prepaid expenses and other on the condensed consolidated balance sheet.


⁽³⁾	Included in accrued liabilities on the condensed consolidated balance sheet.


⁽⁴⁾	Included in other non-current liabilities on the condensed consolidated balance sheet.


⁽⁵⁾	The carrying amount of the debt instrument is presented net of debt issuance costs, premium and discount. 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 are 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 Company’s senior secured credit facility. The estimated fair values of the Company’s notes were based upon quoted market prices. There has not been any impact to the fair value of derivative liabilities due to the Company's own credit risk. Similarly, there has not been any impact to the fair value of derivative assets based on the Company's evaluation of counterparties' credit risks.

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 June 30, 2018 and September 30, 2017.

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

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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. As the interest rate swap and cap agreements are used to manage interest rate risk, any gains or losses from the derivative instruments that are reclassified into earnings are recognized in interest expense - net in the condensed consolidated statements of income.

The following table summarizes the Company's interest rate swap agreements:



Aggregate Notional Amount (in millions)	Start Date	End Date	Related Term Loans	Conversion of Related Variable Rate Debt to Fixed Rate of:
$750	3/31/2016	6/30/2020	Tranche E	5.3% (2.8% plus the 2.5% margin percentage)
$500	6/29/2018	3/31/2025	Tranche E	5.5% (3.0% plus the 2.5% margin percentage)
$750	6/30/2020	6/30/2022	Tranche E	5.0% (2.5% plus the 2.5% margin percentage)
$1,500	6/30/2022	3/31/2025	Tranche E	5.6% (3.1% plus the 2.5% margin percentage)
$1,000	9/30/2014	6/28/2019	Tranche F	4.9% (2.4% plus the 2.5% margin percentage)
$1,000	6/28/2019	6/30/2021	Tranche F	4.3% (1.8% plus the 2.5% margin percentage)
$1,400	6/30/2021	3/31/2023	Tranche F	5.5% (3.0% plus the 2.5% margin percentage)
$500	12/30/2016	12/30/2021	Tranche G	4.4% (1.9% plus the 2.5% margin percentage)
$400	9/30/2017	9/30/2022	Tranche G	4.4% (1.9% plus the 2.5% margin percentage)
$900	12/31/2021	6/28/2024	Tranche G	5.6% (3.1% plus the 2.5% margin percentage)
$400	9/30/2022	6/28/2024	Tranche G	5.5% (3.0% plus the 2.5% margin percentage)

The following table summarizes the Company's interest rate cap agreements:



Aggregate Notional Amount (in millions)	Start Date	End Date	Related Term Loans	Offsets Variable Rate Debt Attributable to Fluctuations Above:
$750	9/30/2015	6/30/2020	Tranche E	Three month LIBO rate of 2.5%
$750	6/30/2020	6/30/2022	Tranche E	Three month LIBO rate of 2.5%
$400	6/30/2016	6/30/2021	Tranche F	Three month LIBO rate of 2.0%
$400	12/30/2016	12/30/2021	Tranche G	Three month LIBO rate of 2.5%

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All interest rate swap and cap agreements are recognized in our condensed consolidated balance sheets at fair value. Certain derivative asset and liability balances are offset where master netting agreements provide for the legal right of setoff. For classification purposes, we record the net fair value of each type of derivative position that is expected to settle in less than one year with each counterparty as a net current asset or liability and each type of long-term position as a net long-term asset or liability. The amounts shown in the table below represent the gross amounts of recognized assets and liabilities, the amounts offset in the condensed consolidated balance sheet and the net amounts of assets and liabilities presented therein.



	June 30, 2018						September 30, 2017
	Asset			Liability			Asset			Liability
Interest rate cap agreements	$	31,948		$	—		$	12,904		$	—
Interest rate swap agreements	57,945			(17,275		)	9,235			(36,801		)
Total	89,893			(17,275		)	22,139			(36,801		)
Effect of counterparty netting	(11,568		)	11,568			(6,330		)	6,330
Net derivatives as classified in the balance sheet ⁽¹⁾	$	78,325		$	(5,707	)	$	15,809		$	(30,471	)


⁽¹⁾	Refer to Note 10, "Fair Value Measurements," for the condensed consolidated balance sheet classification of our interest rate swap and cap agreements.

Based on the fair value amounts of the interest rate swap and cap agreements determined as of June 30, 2018, the estimated net amount of existing gains and losses and caplet amortization expected to be reclassified into interest income within the next twelve months is approximately $0.4 million.

Effective September 30, 2016, the Company redesignated the interest rate cap agreements related to the $400 million and the $750 million aggregate notional amount with cap rates of 2.0% and 2.5%, respectively, based on the expected probable cash flows associated with the 2016 term loans and 2015 term loans in consideration of the Company’s ability to select one-month, two-month, three-month, or six-month LIBO rate set forth in the Second Amended and Restated Credit Agreement. Accordingly, amounts previously recorded as a component of accumulated other comprehensive loss in stockholder’s deficit amortized into interest expense was $3.0 million and $2.9 million for the thirty-nine week periods ended June 30, 2018 and July 1, 2017, respectively. The accumulated other comprehensive loss to be reclassified into interest expense over the remaining term of the cap agreements is $7.9 million with a related tax benefit of $2.2 million as of June 30, 2018.

Effective December 30, 2017, the Company redesignated the existing interest rate swap agreements related to the $750 million, $500 million, $1,000 million and $750 million aggregate notional amounts with swap rates of 5.00%, 4.40%, 4.30% and 5.30%, respectively, based on the expected probable cash flows associated with certain term loans in consideration of the Company’s removal of the LIBO rate floor on the certain term loans as set forth in Amendment No. 4 to the Second Amended and Restated Credit Agreement. Accordingly, the amount recorded as a component of accumulated other comprehensive loss in stockholders’ deficit related to these redesignated interest rate swap hedges will be amortized into earnings based on the original maturity date of the related interest rate swap agreements. Amounts previously recorded as a component of accumulated other comprehensive loss in stockholder’s deficit amortized into interest expense was $0.5 million for the thirty-nine week period ended June 30, 2018. The accumulated other comprehensive gain to be reclassified into interest expense over the remaining term of the swap agreements is immaterial.

Effective March 31, 2018, the Company redesignated the existing interest rate swap agreements related to the $1,000 million and the $400 million aggregate notional amount with swap rates of 4.90% and 4.40%, respectively, based on the expected probable cash flows associated with certain term loans in consideration of the Company’s removal of the LIBO rate floor on the certain term loans as set forth in the refinancing facility agreement dated February 22, 2018 related to the Second Amended and Restated Credit Agreement. Accordingly, the amount recorded as a component of accumulated other comprehensive loss in stockholders’ deficit related to these redesignated interest rate swap hedges will be amortized into earnings based on the original maturity date of the related interest rate swap agreements. Amounts previously recorded as a component of accumulated other comprehensive loss in stockholder’s deficit amortized into interest income was $0.7 million for the thirty-nine week period ended June 30, 2018. The accumulated other comprehensive gain to be reclassified into interest income over the remaining term of the swaps agreements is $12.1 million with a related tax expense of $2.9 million as of June 30, 2018.

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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 controls, ignition systems and engine technology, specialized pumps and valves, power conditioning devices, specialized AC/DC electric motors and generators, databus and power controls, high performance hoists, winches and lifting devices 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, engineered connectors and elastomers, 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, refueling systems for heavy equipment used in mining, construction and other industries and turbine controls for the energy and oil and gas markets. Primary customers of this segment are off-road vehicle suppliers and subsystem suppliers, child restraint system suppliers, satellite and space system suppliers, manufacturers of heavy equipment used in mining, construction and other industries and turbine original equipment manufacturers, gas pipeline builders and electric utilities.

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 recorded as corporate expenses including refinancing costs, acquisition-related costs, transaction-related costs and non-cash compensation charges incurred in connection with the Company’s stock option 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. Certain corporate-level expenses are allocated to the operating segments.

Effective October 1, 2017, the Company made an organizational realignment of certain businesses comprising the Power & Control, Airframe and the Non-Aviation segments. Operating results for the thirteen and thirty-nine week periods ended July 1, 2017 and total assets as of September 30, 2017 were reclassified to conform to the presentation for the thirteen and thirty-nine week periods ended June 30, 2018.

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The following table presents net sales by reportable segment (in thousands):



	Thirteen Week Periods Ended				Thirty-Nine Week Periods Ended
	June 30, 2018		July 1, 2017		June 30, 2018		July 1, 2017
Net sales to external customers
Power & Control	$	546,905	$	499,069	$	1,558,083	$	1,408,853
Airframe	398,596		362,871		1,101,771		1,072,044
Non-aviation	35,161		35,715		101,838		99,504
	$	980,662	$	897,655	$	2,761,692	$	2,580,401

The following table reconciles EBITDA As Defined by segment to consolidated income from continuing operations before income taxes (in thousands):



	Thirteen Week Periods Ended					Thirty-Nine Week Periods Ended
	June 30, 2018			July 1, 2017		June 30, 2018		July 1, 2017
EBITDA As Defined
Power & Control	$	288,202		$	262,855	$	808,539	$	708,601
Airframe	196,746			184,091		541,171		535,600
Non-aviation	11,075			11,908		30,392		32,576
Total segment EBITDA As Defined	496,023			458,854		1,380,102		1,276,777
Unallocated corporate expenses	8,882			11,266		28,305		26,319
Total Company EBITDA As Defined	487,141			447,588		1,351,797		1,250,458
Depreciation and amortization expense	33,925			36,367		95,534		109,076
Interest expense - net	167,577			152,141		489,776		445,986
Acquisition-related costs	10,381			4,484		16,940		30,804
Stock compensation expense	13,708			11,580		36,411		32,707
Refinancing costs	4,159			345		5,910		35,936
Other, net	(8,150		)	6,824		3,534		5,982
Income from continuing operations before income taxes	$	265,541		$	235,847	$	703,692	$	589,967

The following table presents total assets by segment (in thousands):



	June 30, 2018		September 30, 2017
Total assets
Power & Control	$	5,712,597	$	5,135,459
Airframe	3,977,451		3,923,172
Non-aviation	227,905		224,936
Corporate	1,886,524		614,594
Assets of discontinued operations	—		77,500
	$	11,804,477	$	9,975,661

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

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13. ACCUMULATED OTHER COMPREHENSIVE LOSS

The following table presents the components of accumulated other comprehensive loss, net of taxes, for the thirty-nine week period ended June 30, 2018 (in thousands):



	Unrealized (loss) gain on derivatives designated and qualifying as cash flow hedges ⁽¹⁾			Defined benefit pension plan activity			Currency translation adjustment			Total
Balance at September 30, 2017	$	(26,669	)	$	(16,365	)	$	(42,109	)	$	(85,143	)
Current-period other comprehensive gain (loss)	63,742			—			(4,355		)	59,387
Amounts reclassified from AOCI related to interest rate swap and cap agreements	2,039			—			—			2,039
Balance at June 30, 2018	$	39,112		$	(16,365	)	$	(46,464	)	$	(23,717	)


⁽¹⁾	Unrealized (loss) gain represents interest rate swap and cap agreements, net of taxes of $(954) and $5,002 for the thirteen week periods ended June 30, 2018 and July 1, 2017 and $(25,679) and $(19,425) for the thirty-nine week periods ended June 30, 2018 and July 1, 2017, respectively.

A summary of reclassifications out of accumulated other comprehensive loss for the thirty-nine week periods ended June 30, 2018 and July 1, 2017 is provided below (in thousands):



	Amount reclassified
	Thirty-Nine Week Periods Ended
Description of reclassifications out of accumulated other comprehensive loss	June 30, 2018			July 1, 2017
Amortization from redesignated interest rate swap and cap agreements ⁽¹⁾	$	2,816		$	2,870
Deferred tax benefit from redesignated interest rate swap and cap agreements	(777		)	(1,072		)
Losses reclassified into earnings, net of tax	$	2,039		$	1,798


⁽¹⁾	This component of accumulated other comprehensive loss is included in interest expense (see Note 11, “Derivatives and Hedging Activities,” for additional information).

14. DISCONTINUED OPERATIONS

In connection with the settlement of a Department of Justice investigation into the competitive effects of the acquisition, during the fourth quarter of 2017, the Company committed to dispose of the Schroth business. Therefore, Schroth was classified as held-for-sale in the fourth quarter of 2017. The results of operations of Schroth are reflected as discontinued operations in the accompanying consolidated financial statements for all periods presented. On January 26, 2018, the Company completed the sale of Schroth in a management buyout to a private equity fund and certain members of Schroth management for approximately $61.4 million, which includes a working capital adjustment of $0.3 million that was settled on July 6, 2018. The Company previously acquired Schroth in February 2017 (refer to Note 3, “Acquisitions and Divestitures”).

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The loss from discontinued operations was $0.1 million and $2.9 million in the condensed consolidated statements of income for the thirteen and thirty-nine week periods ended June 30, 2018. The loss from discontinued operations was $0.8 million and $1.0 million in the condensed consolidated statements of income for the thirteen and thirty-nine week periods ended July 1, 2017. Previously, in the fourth quarter of fiscal 2017, we recorded a $32.0 million impairment charge to write down the Schroth assets to fair value. The impairment charge was based on an internal assessment of the recovery of Schroth’s assets. The following is the summarized operating results for Schroth for the thirteen and thirty-nine week periods ended June 30, 2018 and July 1, 2017 (in thousands):



	Thirteen Week Period Ended						Thirty-Nine Week Period Ended
	June 30, 2018			July 1, 2017			June 30, 2018			July 1, 2017
Net sales	$	—		$	10,012		$	11,808		$	14,516
(Loss) Income from discontinued operations before income taxes	—			(779		)	354			(965		)
Income tax benefit	—			—			2,016			—
(Loss) Income from discontinued operations, net of tax	—			(779		)	2,370			(965		)
Net loss on sale of discontinued operations, net of tax	(145		)	—			(5,313		)	—
Loss from discontinued operations	$	(145	)	$	(779	)	$	(2,943	)	$	(965	)

15. SUBSEQUENT EVENTS

On July 13, 2018, the Company acquired all of the outstanding stock of Skandia Inc. ("Skandia") for a total purchase price of approximately $84 million, including the assumption of debt and subject to purchase price adjustments. The Company financed the acquisition with cash on hand. Skandia provides highly engineered seating foam, foam fabrication, flammability testing and acoustic solutions for the business jet market. Skandia will be included in TransDigm's Airframe segment. The Company expects that no goodwill recognized for the acquisition will be deductible for tax purposes.

On July 31, 2018, the Company amended the trade receivable securitization facility to extend the maturity date to July 31, 2019. In connection with the Company's amendment of the trade receivable securitization facility, the Company increased the borrowing capacity from $300 million to $350 million. As of June 30, 2018, the Company has borrowed $300 million under the trade receivable securitization facility.

16. SUPPLEMENTAL GUARANTOR INFORMATION

TransDigm Inc.’s 2020 Notes, 2022 Notes, 2024 Notes, 2025 Notes and 6.375% 2026 Notes are jointly and severally guaranteed, on a senior subordinated basis, by TD Group, TransDigm UK Holdings plc ("TransDigm UK") and TransDigm Inc.’s Domestic Restricted Subsidiaries, as defined in the applicable Indentures. TransDigm UK's 6.875% 2026 Notes are jointly and severally guaranteed, on a senior subordinated basis, by TD Group, TransDigm Inc. and TransDigm Inc.'s Domestic Restricted Subsidiaries as defined in the applicable indenture. The following supplemental condensed consolidating financial information presents, in separate columns, the balance sheets of the Company as of June 30, 2018 and September 30, 2017 and its statements of income and comprehensive income and cash flows for the thirty-nine week periods ended June 30, 2018 and July 1, 2017 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, excluding TransDigm UK, (iii) TransDigm UK (iv) the Subsidiary Guarantors (other than TransDigm UK) on a combined basis, (v) Non-Guarantor Subsidiaries and (vi) the Company on a consolidated basis.

Separate financial statements of TransDigm Inc. are not presented because TransDigm Inc.’s 2020 Notes, 2022 Notes, 2024 Notes, 2025 Notes and 6.375% 2026 Notes are fully and unconditionally guaranteed on a senior subordinated basis by TD Group, TransDigm UK and all of TransDigm Inc's Domestic Restricted Subsidiaries and because TD Group has no significant operations or assets separate from its investment in TransDigm Inc.

Separate financial statements of TransDigm UK are not presented because TransDigm UK's 6.875% 2026 Notes, issued in May 2018, are fully and unconditionally guaranteed on a senior subordinated basis by TD Group, TransDigm Inc. and all of TransDigm Inc.'s Domestic Restricted Subsidiaries.

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TRANSDIGM GROUP INCORPORATED

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF JUNE 30, 2018

(Amounts in thousands)



	TransDigm Group			TransDigm Inc.			TransDigm UK		Subsidiary Guarantors		Non- Guarantor Subsidiaries		Eliminations			Total Consolidated
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	924		$	1,628,948		$	150	$	25	$	223,326	$	—		$	1,853,373
Trade accounts receivable - Net	—			—			—		22,003		648,401		(12,236		)	658,168
Inventories - Net	—			47,309			—		653,972		117,027		(3,057		)	815,251
Prepaid expenses and other	—			26,406			—		21,188		11,016		—			58,610
Total current assets	924			1,702,663			150		697,188		999,770		(15,293		)	3,385,402
INVESTMENT IN SUBSIDIARIES AND INTERCOMPANY BALANCES	(2,099,404		)	10,325,919			1,096,125		8,600,056		2,177,711		(20,100,407		)	—
PROPERTY, PLANT AND EQUIPMENT - NET	—			15,585			—		314,510		50,380		—			380,475
GOODWILL	—			128,764			—		5,419,486		660,997		—			6,209,247
OTHER INTANGIBLE ASSETS - NET	—			16,583			—		1,453,885		244,606		—			1,715,074
OTHER	—			79,366			—		29,159		5,754		—			114,279
TOTAL ASSETS	$	(2,098,480	)	$	12,268,880		$	1,096,275	$	16,514,284	$	4,139,218	$	(20,115,700	)	$	11,804,477
LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt	$	—		$	75,793		$	—	$	—	$	—	$	—		$	75,793
Short-term borrowings - trade receivable securitization facility	—			—			—		—		299,956		—			299,956
Accounts payable	—			15,974			—		115,763		36,550		(12,350		)	155,937
Accrued liabilities	—			109,607			4,679		124,531		46,667		—			285,484
Total current liabilities	—			201,374			4,679		240,294		383,173		(12,350		)	817,170
LONG-TERM DEBT	—			12,024,770			491,240		—		—		—			12,516,010
DEFERRED INCOME TAXES	—			299,043			—		100		58,537		—			357,680
OTHER NON-CURRENT LIABILITIES	—			110,255			—		74,904		26,938		—			212,097
Total liabilities	—			12,635,442			495,919		315,298		468,648		(12,350		)	13,902,957
STOCKHOLDERS’ (DEFICIT) EQUITY	(2,098,480		)	(366,562		)	600,356		16,198,986		3,670,570		(20,103,350		)	(2,098,480		)
TOTAL LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY	$	(2,098,480	)	$	12,268,880		$	1,096,275	$	16,514,284	$	4,139,218	$	(20,115,700	)	$	11,804,477

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TRANSDIGM GROUP INCORPORATED

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF SEPTEMBER 30, 2017

(Amounts in thousands)



	TransDigm Group			TransDigm Inc.		TransDigm UK		Subsidiary Guarantors			Non- Guarantor Subsidiaries		Eliminations			Total Consolidated
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	2,416		$	439,473	$	—	$	(203	)	$	208,875	$	—		$	650,561
Trade accounts receivable - Net	—			—		—		25,069			652,807		(41,749		)	636,127
Inventories - Net	—			47,051		—		571,712			114,018		(2,100		)	730,681
Assets held-for-sale	—			—		—		6,428			71,072		—			77,500
Prepaid expenses and other	—			4,746		—		24,141			9,796		—			38,683
Total current assets	2,416			491,270		—		627,147			1,056,568		(43,849		)	2,133,552
INVESTMENT IN SUBSIDIARIES AND INTERCOMPANY BALANCES	(2,953,620		)	10,263,999		—		7,599,210			966,675		(15,876,264		)	—
PROPERTY, PLANT AND EQUIPMENT - NET	—			16,032		—		261,434			47,458		—			324,924
GOODWILL	—			85,905		—		4,996,034			663,399		—			5,745,338
OTHER INTANGIBLE ASSETS - NET	—			27,620		—		1,438,006			252,236		—			1,717,862
OTHER	—			20,316		—		27,567			6,102		—			53,985
TOTAL ASSETS	$	(2,951,204	)	$	10,905,142	$	—	$	14,949,398		$	2,992,438	$	(15,920,113	)	$	9,975,661
LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
CURRENT LIABILITIES: