Document
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 December 30, 2017.
¨
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 52,196,309 as of January 29, 2018.

Table of Contents

INDEX
 
 
 
 
Page
Part I
 
FINANCIAL INFORMATION
 
 
Item 1
Financial Statements
 
 
 
Condensed Consolidated Balance Sheets – December 30, 2017 and September 30, 2017
 
 
Condensed Consolidated Statements of Income – Thirteen Week Periods Ended December 30, 2017 and December 31, 2016
 
 
Condensed Consolidated Statements of Comprehensive Income – Thirteen Week Periods Ended December 30, 2017 and December 31, 2016
 
 
Condensed Consolidated Statement of Changes in Stockholders’ Deficit – Thirteen Week Period Ended December 30, 2017
 
 
Condensed Consolidated Statements of Cash Flows – Thirteen Week Periods Ended December 30, 2017 and December 31, 2016
 
 
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
 
 

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TRANSDIGM GROUP INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share amounts)
(Unaudited)
 
December 30, 2017
 
September 30, 2017
ASSETS
 
 
 
CURRENT ASSETS:
 
 
 
Cash and cash equivalents
$
857,862

 
$
650,561

Trade accounts receivable - Net
556,743

 
636,127

Inventories - Net
743,868

 
730,681

Assets held-for-sale
76,282

 
77,500

Prepaid expenses and other
36,578

 
38,683

Total current assets
2,271,333

 
2,133,552

PROPERTY, PLANT AND EQUIPMENT - NET
327,253

 
324,924

GOODWILL
5,751,093

 
5,745,338

OTHER INTANGIBLE ASSETS - NET
1,697,432

 
1,717,862

OTHER
65,016

 
53,985

TOTAL ASSETS
$
10,112,127

 
$
9,975,661

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ DEFICIT
 
 
 
CURRENT LIABILITIES:
 
 
 
Current portion of long-term debt
$
69,214

 
$
69,454

Short-term borrowings - trade receivable securitization facility
299,710

 
299,587

Accounts payable
145,045

 
148,761

Accrued liabilities
296,013

 
335,888

Liabilities held-for-sale
13,439

 
17,304

Total current liabilities
823,421

 
870,994

LONG-TERM DEBT
11,378,320

 
11,393,620

DEFERRED INCOME TAXES
339,439

 
500,949

OTHER NON-CURRENT LIABILITIES
170,660

 
161,302

Total liabilities
12,711,840

 
12,926,865

STOCKHOLDERS’ DEFICIT:
 
 
 
Common stock - $.01 par value; authorized 224,400,000 shares; issued 56,282,741 and 56,093,659 at December 30, 2017 and September 30, 2017, respectively
563

 
561

Additional paid-in capital
1,113,142

 
1,095,319

Accumulated deficit
(2,876,954
)
 
(3,187,220
)
Accumulated other comprehensive loss
(61,743
)
 
(85,143
)
Treasury stock, at cost; 4,159,207 shares at December 30, 2017 and September 30, 2017
(774,721
)
 
(774,721
)
Total stockholders’ deficit
(2,599,713
)
 
(2,951,204
)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT
$
10,112,127

 
$
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 WEEK PERIODS ENDED
DECEMBER 30, 2017 AND DECEMBER 31, 2016
(Amounts in thousands, except per share amounts)
(Unaudited) 
 
 
Thirteen Week Periods Ended
 
 
December 30, 2017
 
December 31, 2016
NET SALES
 
$
847,960

 
$
814,018

COST OF SALES
 
371,310

 
369,763

GROSS PROFIT
 
476,650

 
444,255

SELLING AND ADMINISTRATIVE EXPENSES
 
106,528

 
101,715

AMORTIZATION OF INTANGIBLE ASSETS
 
17,112

 
25,531

INCOME FROM OPERATIONS
 
353,010

 
317,009

INTEREST EXPENSE - NET
 
160,933

 
146,004

REFINANCING COSTS
 
1,113

 
32,084

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
 
190,964

 
138,921

INCOME TAX PROVISION
 
(121,047
)
 
20,050

INCOME FROM CONTINUING OPERATIONS
 
$
312,011

 
$
118,871

INCOME FROM DISCONTINUED OPERATIONS, NET OF TAX
 
2,764

 
—

NET INCOME
 
$
314,775

 
$
118,871

NET INCOME APPLICABLE TO COMMON STOCK
 
$
258,627

 
$
22,900

Net earnings per share:
 
 
 
 
Net earnings per share from continuing operations--basic and diluted
 
$
4.60

 
$
0.41

Net earnings per share from discontinued operations--basic and diluted
 
0.05

 
—

Net earnings per share
 
$
4.65

 
$
0.41

Cash dividends paid per common share
 
$
—

 
$
24.00

Weighted-average shares outstanding:
 
 
 
 
Basic and diluted
 
55,600

 
56,524

See notes to condensed consolidated financial statements.

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TRANSDIGM GROUP INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THIRTEEN WEEK PERIODS ENDED
DECEMBER 30, 2017 AND DECEMBER 31, 2016
(Amounts in thousands)
(Unaudited)
 
 
Thirteen Week Periods Ended
 
 
December 30, 2017
 
December 31, 2016
Net income
 
$
314,775

 
$
118,871

Other comprehensive income, net of tax:
 
 
 
 
Foreign currency translation adjustments
 
5,152

 
(28,052
)
Interest rate swap and cap agreements
 
18,248

 
38,775

Other comprehensive income, net of tax
 
23,400

 
10,723

TOTAL COMPREHENSIVE INCOME
 
$
338,175

 
$
129,594

See notes to condensed consolidated financial statements.

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TRANSDIGM GROUP INCORPORATED
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT
FOR THE THIRTEEN WEEK PERIOD ENDED DECEMBER 30, 2017
(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, 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
—

 
—

 
—

 
(4,509
)
 
—

 
—

 
—

 
(4,509
)
Compensation expense recognized for employee stock options and restricted stock
—

 
—

 
10,533

 
—

 
—

 
—

 
—

 
10,533

Exercise of employee stock options, restricted stock activity and other, net
189,082

 
2

 
7,290

 
—

 
—

 
—

 
—

 
7,292

Net income
—

 
—

 
—

 
314,775

 
—

 
—

 
—

 
314,775

Foreign currency translation adjustments
—

 
—

 
—

 
—

 
5,152

 
—

 
—

 
5,152

Interest rate swaps and caps, net of tax
—

 
—

 
—

 
—

 
18,248

 
—

 
—

 
18,248

BALANCE, DECEMBER 30, 2017
56,282,741

 
$
563

 
$
1,113,142

 
$
(2,876,954
)
 
$
(61,743
)
 
(4,159,207
)
 
$
(774,721
)
 
$
(2,599,713
)
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
 
December 30, 2017
 
December 31, 2016
OPERATING ACTIVITIES:
 
 
 
Net income
$
314,775

 
$
118,871

Net income from discontinued operations
(2,764
)
 
—

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation
13,385

 
12,284

Amortization of intangible assets and product certification costs
17,254

 
25,764

Amortization of debt issuance costs, original issue discount and premium
5,319

 
4,620

Refinancing costs
1,113

 
32,084

Non-cash equity compensation
11,113

 
10,020

Deferred income taxes
(170,137
)
 
(493
)
Changes in assets/liabilities, net of effects from acquisitions of businesses:
 
 
 
Trade accounts receivable
81,175

 
59,812

Inventories
(12,508
)
 
8,365

Income taxes receivable/payable
50,468

 
21,148

Other assets
1,531

 
(4,826
)
Accounts payable
(4,428
)
 
(26,200
)
Accrued interest
1,672

 
(2,550
)
Accrued and other liabilities
(15,157
)
 
(33,108
)
Net cash provided by operating activities
292,811

 
225,791

INVESTING ACTIVITIES:
 
 
 
Capital expenditures
(15,290
)
 
(21,807
)
Payments made in connection with acquisitions
—

 
(30,002
)
Net cash used in investing activities
(15,290
)
 
(51,809
)
FINANCING ACTIVITIES:
 
 
 
Proceeds from exercise of stock options
7,290

 
3,648

Special dividend and dividend equivalent payments
(56,148
)
 
(1,375,998
)
Proceeds from term loans, net
793,864

 
1,132,774

Repayment on term loans
(815,631
)
 
(16,151
)
Cash tender and redemption of senior subordinated notes due 2021, including premium
—

 
(528,847
)
Other
(362
)
 
(143
)
Net cash used in financing activities
(70,987
)
 
(784,717
)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
767

 
(3,899
)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
207,301

 
(614,634
)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
650,561

 
1,586,994

CASH AND CASH EQUIVALENTS, END OF PERIOD
$
857,862

 
$
972,360

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
 
 
 
Cash paid during the period for interest
$
153,929

 
$
143,702

Cash refunded during the period for income taxes
$
(267
)
 
$
(956
)
See notes to condensed consolidated financial statements.

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TRANSDIGM GROUP INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THIRTEEN WEEK PERIODS ENDED DECEMBER 30, 2017 AND DECEMBER 31, 2016
(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 thirteen week period ended December 30, 2017 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 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 fiscal year ended September 30, 2017, the Company completed the acquisitions of three separate aerospace product lines (collectively, "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 December 30, 2017, the one-year measurement period is open for the Third Quarter 2017 Acquisitions; therefore, the assets acquired and liabilities assumed related to these acquisitions are subject to adjustment until the end of the respective one-year measurement period. Pro forma net sales and results of operations for the acquisitions had they occurred at the beginning of the applicable thirteen week period ended December 30, 2017 or December 31, 2016 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.
Third Quarter 2017 Acquisitions – The Third Quarter 2017 Acquisitions were acquired for a total purchase price of approximately $106.3 million in cash, which includes working capital settlements totaling $1.0 million paid in the third and fourth quarters of 2017. 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

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communication electronics. Each product line acquired was consolidated into an existing TransDigm reporting unit within TransDigm's Power & Control segment. The Company expects that approximately $66 million of goodwill recognized for the acquisitions will be deductible for tax purposes over 15 years and approximately $9 million of goodwill recognized for the acquisitions will not be 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, of which $79.7 million was paid in cash (including a working capital settlement of $0.8 million paid in the third quarter of fiscal 2017) and the remaining approximately $10.0 million is accrued primarily related to an indemnity holdback to be settled within one year of the acquisition date.
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 beginning in the fourth quarter of 2017. The results of operations of Schroth are reflected as discontinued operations in the accompanying condensed consolidated financial statements. Schroth designs and manufactures proprietary, highly engineered, advanced safety systems for aviation, racing and military ground vehicles throughout the world.
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, subject to a working capital adjustment. 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 creates 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; 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 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 is the Company’s planned date of adoption. The Company expects to 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, if any, 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.  The 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

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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 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 its 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.
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
 
 
December 30, 2017
 
December 31, 2016
Numerator for earnings per share:
 
 
 
 
Net income from continuing operations
 
$
312,011

 
$
118,871

Less dividends paid on participating securities
 
(56,148
)
 
(95,971
)
 
 
$
255,863

 
$
22,900

Net income from discontinued operations
 
2,764

 
—

Net income applicable to common stock - basic and diluted
 
$
258,627

 
$
22,900

Denominator for basic and diluted earnings per share under the two-class method:
 
 
 
 
Weighted average common shares outstanding
 
52,024

 
53,365

Vested options deemed participating securities
 
3,576

 
3,159

Total shares for basic and diluted earnings per share
 
55,600

 
56,524

 
 
 
 
 
Net earnings per share from continuing operations - basic and diluted
 
$
4.60

 
$
0.41

Net earnings per share from discontinued operations - basic and diluted
 
0.05

 
—

Net earnings per share
 
$
4.65

 
$
0.41


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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):
 
December 30, 2017
 
September 30, 2017
Raw materials and purchased component parts
$
514,300

 
$
496,899

Work-in-progress
182,132

 
187,009

Finished goods
134,784

 
131,548

Total
831,216

 
815,456

Reserves for excess and obsolete inventory
(87,348
)
 
(84,775
)
Inventories - Net
$
743,868

 
$
730,681

7.    INTANGIBLE ASSETS
Other intangible assets - net in the condensed consolidated balance sheets consist of the following (in thousands):
 
December 30, 2017
 
September 30, 2017
 
Gross Carrying
Amount
 
Accumulated
Amortization
 
Net
 
Gross Carrying
Amount
 
Accumulated
Amortization
 
Net
Trademarks and trade names
$
730,635

 
$
—

 
$
730,635

 
$
729,931

 
$
—

 
$
729,931

Technology
1,289,693

 
367,535

 
922,158

 
1,292,719

 
351,638

 
941,081

Order backlog
2,700

 
1,577

 
1,123

 
29,000

 
26,668

 
2,332

Other
63,403

 
19,887

 
43,516

 
63,599

 
19,081

 
44,518

Total
$
2,086,431

 
$
388,999

 
$
1,697,432

 
$
2,115,249

 
$
397,387

 
$
1,717,862

The aggregate amortization expense on identifiable intangible assets for the thirteen week periods ended December 30, 2017 and December 31, 2016 was approximately $17.1 million and $25.5 million, respectively. The estimated amortization expense is $68.9 million for fiscal year 2018 and $67.1 million for each of the five succeeding fiscal years 2019 through 2023.
The following is a summary of changes in the carrying value of goodwill by segment from September 30, 2017 through December 30, 2017 (in thousands):
 
Power &
Control
 
Airframe
 
Non-
aviation
 
Total
Balance - September 30, 2017
$
3,269,981

 
$
2,382,082

 
$
93,275

 
$
5,745,338

Purchase price allocation adjustments
4,370

 
—

 
—

 
4,370

Currency translation adjustment
—

 
1,385

 
—

 
1,385

Balance - December 30, 2017
$
3,274,351

 
$
2,383,467

 
$
93,275

 
$
5,751,093


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8.    DEBT
The Company’s debt consists of the following (in thousands):
 
December 30, 2017
 
Gross Amount
 
Debt Issuance Costs
 
Original Issue Discount or Premium
 
Net Amount
Short-term borrowings—trade receivable securitization facility
$
300,000

 
$
(290
)
 
$
—

 
$
299,710

Term loans
$
6,955,567

 
$
(63,216
)
 
$
(19,099
)
 
$
6,873,252

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

 
(2,979
)
 
—

 
547,021

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

 
(6,581
)
 
—

 
1,143,419

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

 
(7,748
)
 
—

 
1,192,252

6 1/2% senior subordinated notes due 2025 (2025 Notes)
750,000

 
(3,901
)
 
4,045

 
750,144

6 3/8% senior subordinated notes due 2026 (2026 Notes)
950,000

 
(8,554
)
 
—

 
941,446

 
11,555,567

 
(92,979
)
 
(15,054
)
 
11,447,534

Less current portion
69,776

 
(562
)
 
—

 
69,214

Long-term debt
$
11,485,791

 
$
(92,417
)
 
$
(15,054
)
 
$
11,378,320

 
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

2020 Notes
550,000

 
(3,243
)
 
—

 
546,757

2022 Notes
1,150,000

 
(6,941
)
 
—

 
1,143,059

2024 Notes
1,200,000

 
(8,042
)
 
—

 
1,191,958

2025 Notes
750,000

 
(4,033
)
 
4,182

 
750,149

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

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, converted approximately $798 million of existing tranche D term loans into additional tranche F term loans and 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) that apply to the tranche F term loans, including pricing, are substantially the same as the terms and conditions that apply to the tranche D term loans immediately prior to Amendment No. 4.
The Company capitalized $2.9 million and expensed $0.6 million of refinancing costs representing debt issuance costs associated with Amendment No. 4 during the thirteen week period ended December 30, 2017. Additionally, the Company 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.

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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 December 30, 2017, we have 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. We recognized a provisional amount of $(170.2) million related to the remeasurement of our deferred tax balance. 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 recognized a provisional amount of $23.1 million for our one-time transition tax liability. 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 provisional amount of $(147.1) million as a discrete tax benefit, which is included as a component of income tax expense from continuing operations.
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 December 30, 2017 and December 31, 2016, the effective income tax rate was (63.4)% and 14.4%, respectively. The Company's lower effective tax rate for the thirteen week period ended December 30, 2017 was primarily due to the discrete adjustment related to the enactment of the Act described above. The Company’s effective tax rate for the thirteen week period ended December 30, 2017 was less than the Federal statutory tax rate primarily due to the discrete adjustment related to the enactment of the Act described above. The Company’s effective tax rate for the thirteen week period ended December 31, 2016 was less 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 December 30, 2017 and September 30, 2017, TD Group had $8.7 million in unrecognized tax benefits for both periods, the recognition of which would have an effect of approximately $8.7 million on the effective tax rate at December 30, 2017 and September 30, 2017. The Company believes the tax positions that comprise the unrecognized tax benefits will be reduced by approximately $0.6 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):
 
 
 
December 30, 2017
 
September 30, 2017
 
Level
 
Carrying
Amount
 
Fair Value
 
Carrying
Amount
 
Fair Value
Assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
1

 
$
857,862

 
$
857,862

 
$
650,561

 
$
650,561

        Interest rate cap agreements (1)
2

 
14,131

 
14,131

 
12,904

 
12,904

Interest rate swap agreements (1)
2

 
11,892

 
11,892

 
2,905

 
2,905

Liabilities:
 
 
 
 
 
 
 
 
 
Interest rate swap agreements (2)
2

 
12,488

 
12,488

 
20,740

 
20,740

Interest rate swap agreements (3)
2

 
1,173

 
1,173

 
9,731

 
9,731

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

 
299,710

 
299,710

 
299,587

 
299,587

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

 
6,873,252

 
6,953,393

 
6,889,957

 
6,965,628

2020 Notes (4)
1

 
547,021

 
556,875

 
546,757

 
558,250

2022 Notes (4)
1

 
1,143,419

 
1,170,125

 
1,143,059

 
1,178,750

2024 Notes (4)
1

 
1,192,252

 
1,224,000

 
1,191,958

 
1,236,000

2025 Notes (4)
1

 
750,144

 
767,241

 
750,149

 
776,807

2026 Notes (4)
1

 
941,446

 
959,500

 
941,194

 
971,375

                                     
(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. 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 December 30, 2017 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 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

12
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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 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:
$1,000
9/30/2014
6/30/2019
Tranche G
5.40% (2.40% plus the 3.00% margin percentage)
$400
9/30/2017
9/30/2022
Tranche G
4.90% (1.90% plus the 3.00% margin percentage)
$750
6/30/2020
6/30/2022
Tranche F
5.25% (2.50% plus the 2.75% margin percentage)
$500
12/30/2016
12/31/2021
Tranche F
4.65% (1.90% plus the 2.75% margin percentage)
$1,000
6/28/2019
6/30/2021
Tranche F
4.55% (1.80% plus the 2.75% margin percentage)
$750
3/31/2016
6/30/2020
Tranche F
5.55% (2.80% plus the 2.75% 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
6/30/2020
6/30/2022
Tranche F
Three month LIBO rate of 2.50%
$400
12/30/2016
12/31/2021
Tranche F
Three month LIBO rate of 2.50%
$400
6/30/2016
6/30/2021
Tranche F
Three month LIBO rate of 2.00%
$750
9/30/2015
6/30/2020
Tranche E
Three month LIBO rate of 2.50%
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.
 
 
December 30, 2017
 
September 30, 2017
 
 
Asset
 
Liability
 
Asset
 
Liability
Interest rate cap agreements
 
$
14,131

 
$
—

 
$
12,904

 
$
—

Interest rate swap agreements
 
20,532

 
(22,301
)
 
9,235

 
(36,801
)
Total
 
34,663

 
(22,301
)
 
22,139

 
(36,801
)
Effect of counterparty netting
 
(8,642
)
 
8,642

 
(6,330
)
 
6,330

Net derivatives as classified in the balance sheet (1)
 
$
26,021

 
$
(13,659
)
 
$
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 December 30, 2017, the estimated net amount of existing gains and losses and caplet amortization expected to be reclassified into interest expense within the next twelve months is approximately $16.9 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

13
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one-month, two-month, three-month, or six-month LIBO rate set forth in the Credit Agreement.  Accordingly, amounts previously recorded as a component of accumulated other comprehensive loss in stockholder’s deficit amortized into interest expense was $1.0 million for the both the thirteen week period ended December 30, 2017 and the thirteen week period ended December 31, 2016. The accumulated other comprehensive loss to be reclassified into interest expense over the remaining term of the cap agreements is $9.8 million with a related tax benefit of $2.7 million as of December 30, 2017.
Effective December 30, 2017, the Company redesignated the existing interest rate swap agreements related to the $750 million, the $500 million, the $1,000 million and the $750 million aggregate notional amount with swap rates of 5.25%, 4.65%, 4.55% and 5.55%, respectively, based on the expected probable cash flows associated with the tranche F term loans in consideration of the Company’s removal of the LIBO rate floor on the tranche F term loans as set forth in Amendment No. 4 to the 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.
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.

14
Table of Contents

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 and the Non-Aviation segments. Operating results for the thirteen week period ended December 31, 2016 and total assets as of September 30, 2017 were reclassified to conform to the presentation for the thirteen week period ended December 30, 2017.
The following table presents net sales by reportable segment (in thousands):
 
Thirteen Week Periods Ended
 
December 30, 2017
 
December 31, 2016
Net sales to external customers
 
 
 
Power & Control
$
482,718

 
$
435,832

Airframe
333,392

 
348,664

Non-aviation
31,850

 
29,522

 
$
847,960

 
$
814,018

The following table reconciles EBITDA As Defined by segment to consolidated income from continuing operations before income taxes (in thousands):
 
Thirteen Week Periods Ended
 
December 30, 2017
 
December 31, 2016
EBITDA As Defined
 
 
 
Power & Control
$
244,775

 
$
212,918

Airframe
158,419

 
168,529

Non-aviation
8,996

 
9,277

Total segment EBITDA As Defined
412,190

 
390,724

Unallocated corporate expenses
10,657

 
9,529

Total Company EBITDA As Defined
401,533

 
381,195

Depreciation and amortization expense
30,639

 
38,048

Interest expense - net
160,933

 
146,004

Acquisition-related costs
2,074

 
18,568

Stock compensation expense
11,113

 
10,020

Refinancing costs
1,113

 
32,084

Other, net
4,697

 
(2,450
)
Income from continuing operations before income taxes
$
190,964

 
$
138,921


15
Table of Contents

The following table presents total assets by segment (in thousands):
 
December 30, 2017
 
September 30, 2017
Total assets
 
 
 
Power & Control
$
5,112,315

 
$
5,135,459

Airframe
3,888,862

 
3,923,172

Non-aviation
224,934

 
224,936

Corporate
809,768

 
614,594

Assets of discontinued operations
76,248

 
77,500

 
$
10,112,127

 
$
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.
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 December 30, 2017 (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
17,545

 
—

 
5,152

 
22,697

Amounts reclassified from AOCI related to interest rate cap agreements
703

 
—

 
—

 
703

Balance at December 30, 2017
$
(8,421
)
 
$
(16,365
)
 
$
(36,957
)
 
$
(61,743
)
                                     
(1) 
Unrealized loss represents interest rate swap and cap agreements, net of taxes of $(10,435) and $(23,117) for the thirteen week periods ended December 30, 2017 and December 31, 2016, respectively.
A summary of reclassifications out of accumulated other comprehensive loss for the thirteen week period ended December 30, 2017 is provided below (in thousands):
 
 
Amount reclassified
 
 
Thirteen Week Periods Ended
Description of reclassifications out of accumulated other comprehensive loss
 
December 30, 2017
 
December 31, 2016
Amortization from redesignated interest rate cap agreements (1)
 
$
970

 
$
956

Deferred tax benefit from redesignated interest rate cap agreements
 
(267
)
 
(357
)
Losses reclassified into earnings, net of tax
 
$
703

 
$
599

                                     
(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. The Company previously acquired Schroth in February 2017 (refer to Note 3, “Acquisitions and Divestitures”) and 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, subject to a working capital adjustment.

16
Table of Contents

The income from discontinued operations was $2.8 million in the condensed consolidated statements of income for the thirteen week period ended December 30, 2017. Previously, in the fourth quarter of 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. No additional impairment charge was recorded during the first quarter of fiscal 2018. Schroth’s assets have been recorded at fair value in the condensed consolidated balance sheet as of December 30, 2017. The following is the summarized operating results for Schroth for the thirteen week period ended December 30, 2017 (in thousands):
 
Thirteen Week Period Ended December 30, 2017
Net sales
$
9,129

Income from discontinued operations before income taxes
810

Income tax provision
(1,954
)
Income from discontinued operations
$
2,764

At December 30, 2017, Schroth’s assets-held-for sale and liabilities held-for sale are $76.3 million and $13.4 million, respectively. The following is the summarized balance sheet of Schroth’s assets and liabilities held-for-sale as of December 30, 2017 and September 30, 2017 (in thousands):
Assets and Liabilities of Discontinued Operations Held-for-Sale
 
December 30, 2017
 
September 30, 2017
Trade accounts receivable—Net
 
$
4,414

 
$
5,975

Inventories—Net
 
8,971

 
9,060

Prepaid expenses and other
 
560

 
809

Property, plant, and equipment—Net
 
4,544

 
4,367

Goodwill
 
27,251

 
26,783

Other intangible assets—Net
 
29,868

 
29,841

Other
 
674

 
665

Total assets of discontinued operations
 
$
76,282

 
$
77,500

 
 
 
 
 
Accounts payable
 
$
517

 
$
1,247

Accrued liabilities
 
9,597

 
12,801

Deferred income taxes
 
3,325

 
3,256

Total liabilities of discontinued operations
 
$
13,439

 
$
17,304

15.    SUPPLEMENTAL GUARANTOR INFORMATION
TransDigm’s 2020 Notes, 2022 Notes, 2024 Notes, 2025 Notes and 2026 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 December 30, 2017 and September 30, 2017 and its statements of income and comprehensive income and cash flows for the thirteen week periods ended December 30, 2017 and December 31, 2016 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, 2022 Notes, 2024 Notes, 2025 Notes and 2026 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.


17
Table of Contents

TRANSDIGM GROUP INCORPORATED
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 30, 2017
(Amounts in thousands)
 
TransDigm
Group
 
TransDigm
Inc.
 
Subsidiary
Guarantors
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Total
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
 
 
CURRENT ASSETS:
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
3,492

 
$
758,928

 
$
314

 
$
95,128

 
$
—

 
$
857,862

Trade accounts receivable - Net
—

 
—

 
23,880

 
573,712

 
(40,849
)
 
556,743

Inventories - Net
—

 
47,848

 
583,118

 
116,359

 
(3,457
)
 
743,868

Assets held-for-sale
—

 
—

 
5,440

 
70,842

 
—

 
76,282

Prepaid expenses and other
—

 
4,606

 
22,971

 
9,001

 
—

 
36,578

Total current assets
3,492

 
811,382

 
635,723

 
865,042

 
(44,306
)
 
2,271,333

INVESTMENT IN SUBSIDIARIES AND INTERCOMPANY BALANCES
(2,603,205
)
 
10,090,643

 
8,019,533

 
1,056,590

 
(16,563,561
)
 
—

PROPERTY, PLANT AND 
EQUIPMENT - NET
—

 
15,675

 
263,532

 
48,046

 
—

 
327,253

GOODWILL
—

 
82,454

 
5,003,855

 
664,784

 
—

 
5,751,093

OTHER INTANGIBLE ASSETS - NET
—

 
27,264

 
1,419,518

 
250,650

 
—

 
1,697,432

OTHER
—

 
32,553

 
26,216

 
6,247

 
—

 
65,016

TOTAL ASSETS
$
(2,599,713
)
 
$
11,059,971

 
$
15,368,377

 
$
2,891,359

 
$
(16,607,867
)
 
$
10,112,127

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

 
$
69,214

 
$
—

 
$
—

 
$
—

 
$
69,214

Short-term borrowings - trade receivable securitization facility
—

 
—

 
—

 
299,710

 
—

 
299,710

Accounts payable
—

 
14,724

 
134,139

 
36,408

 
(40,226
)
 
145,045

Accrued liabilities
—

 
141,893

 
102,232

 
51,888

 
—

 
296,013

Liabilities held-for-sale
—

 
—

 
—

 
13,439

 
—

 
13,439

Total current liabilities
—

 
225,831

 
236,371

 
401,445

 
(40,226
)
 
823,421

LONG-TERM DEBT
—

 
11,378,320

 
—

 
—

 
—

 
11,378,320

DEFERRED INCOME TAXES
—

 
280,563

 
127

 
58,749

 
—

 
339,439

OTHER NON-CURRENT LIABILITIES
—

 
71,630

 
71,927

 
27,103

 
—

 
170,660

Total liabilities
—

 
11,956,344

 
308,425

 
487,297

 
(40,226
)
 
12,711,840

STOCKHOLDERS’ (DEFICIT) EQUITY
(2,599,713
)
 
(896,373
)
 
15,059,952

 
2,404,062

 
(16,567,641
)
 
(2,599,713
)
TOTAL LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
$
(2,599,713
)
 
$
11,059,971

 
$
15,368,377

 
$
2,891,359

 
$
(16,607,867
)
 
$
10,112,127


18
Table of Contents

TRANSDIGM GROUP INCORPORATED
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF SEPTEMBER 30, 2017
(Amounts in thousands)
 
TransDigm
Group
 
TransDigm
Inc.
 
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:
 
 
 
 
 
 
 
 
 
 
 
Current portion of long-term debt
$
—

 
$
69,454

 
$
—

 
$
—

 
$
—

 
$
69,454

Short-term borrowings - trade receivable securitization facility
—

 
—

 
—

 
299,587

 
—

 
299,587

Accounts payable
—

 
14,712

 
137,948

 
37,667

 
(41,566
)
 
148,761

Accrued liabilities
—

 
180,916

 
103,902

 
51,070

 
—

 
335,888

Liabilities held-for-sale
—

 
—

 
—

 
17,304

 
—

 
17,304

Total current liabilities
—

 
265,082

 
241,850

 
405,628

 
(41,566
)
 
870,994

LONG-TERM DEBT
—

 
11,393,620

 
—

 
—

 
—

 
11,393,620

DEFERRED INCOME TAXES
—

 
442,415

 
(99
)
 
58,633

 
—

 
500,949

OTHER NON-CURRENT LIABILITIES
—

 
61,347

 
73,245

 
26,710

 
—

 
161,302

Total liabilities
—

 
12,162,464

 
314,996

 
490,971

 
(41,566
)
 
12,926,865

STOCKHOLDERS’ (DEFICIT) EQUITY
(2,951,204
)
 
(1,257,322
)
 
14,634,402

 
2,501,467

 
(15,878,547
)
 
(2,951,204
)
TOTAL LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
$
(2,951,204
)
 
$
10,905,142

 
$
14,949,398

 
$
2,992,438

 
$
(15,920,113
)
 
$
9,975,661


19
Table of Contents

TRANSDIGM GROUP INCORPORATED
CONDENSED CONSOLIDATING STATEMENT OF INCOME AND COMPREHENSIVE INCOME
FOR THE THIRTEEN WEEK PERIOD ENDED DECEMBER 30, 2017
(Amounts in thousands)
 
TransDigm
Group
 
TransDigm
Inc.
 
Subsidiary
Guarantors
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Total
Consolidated
NET SALES
$
—

 
$
36,128

 
$
685,362

 
$
145,530

 
$
(19,060
)
 
$
847,960

COST OF SALES
—

 
19,964

 
277,662

 
91,387

 
(17,703
)
 
371,310

GROSS PROFIT
—

 
16,164

 
407,700

 
54,143

 
(1,357
)
 
476,650

SELLING AND ADMINISTRATIVE EXPENSES
—

 
24,519

 
(85,640
)
 
165,430

 
2,219

 
106,528

AMORTIZATION OF INTANGIBLE ASSETS
—

 
357

 
14,693

 
2,062

 
—

 
17,112

(LOSS) INCOME FROM OPERATIONS
—

 
(8,712
)
 
478,647

 
(113,349
)
 
(3,576
)
 
353,010

INTEREST EXPENSE (INCOME) - NET
—

 
165,860

 
281

 
(5,208
)
 
—

 
160,933

REFINANCING COSTS
—

 
1,113

 
—

 
—

 
—

 
1,113

EQUITY IN INCOME OF SUBSIDIARIES
(314,775
)
 
(309,919
)
 
—

 
—

 
624,694

 
—

INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
314,775

 
134,234

 
478,366

 
(108,141
)
 
(628,270
)
 
190,964

INCOME TAX PROVISION
—

 
(180,541
)
 
54,938

 
4,556

 
—

 
(121,047
)
INCOME (LOSS) FROM CONTINUING OPERATIONS
314,775

 
314,775

 
423,428

 
(112,697
)
 
(628,270
)
 
312,011

INCOME FROM DISCONTINUED OPERATIONS, NET OF TAX
—

 
—

 
1,686

 
1,078

 
—

 
2,764

NET INCOME
$
314,775

 
$
314,775

 
$
425,114

 
$
(111,619
)
 
$
(628,270
)
 
$
314,775

OTHER COMPREHENSIVE INCOME, NET OF TAX
23,400

 
18,932

 
8,975

 
13,419

 
(41,326
)
 
23,400

TOTAL COMPREHENSIVE INCOME (LOSS)
$
338,175

 
$
333,707

 
$
434,089

 
$
(98,200
)
 
$
(669,596
)
 
$
338,175


20
Table of Contents

TRANSDIGM GROUP INCORPORATED
CONDENSED CONSOLIDATING STATEMENT OF INCOME AND COMPREHENSIVE INCOME
FOR THE THIRTEEN WEEK PERIOD ENDED DECEMBER 31, 2016
(Amounts in thousands)
 
TransDigm
Group
 
TransDigm
Inc.
 
Subsidiary
Guarantors
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Total
Consolidated
NET SALES
$
—

 
$
30,617

 
$
682,919

 
$
115,766

 
$
(15,284
)
 
$
814,018

COST OF SALES
—

 
17,253

 
299,661

 
68,133

 
(15,284
)
 
369,763

GROSS PROFIT
—

 
13,364

 
383,258

 
47,633

 
—

 
444,255

SELLING AND ADMINISTRATIVE EXPENSES
—

 
24,320

 
62,699

 
14,696

 
—

 
101,715

AMORTIZATION OF INTANGIBLE ASSETS
—

 
189

 
23,308

 
2,034

 
—

 
25,531

(LOSS) INCOME FROM OPERATIONS
—

 
(11,145
)
 
297,251

 
30,903

 
—

 
317,009

INTEREST EXPENSE (INCOME) - NET
—

 
148,188

 
137

 
(2,321
)
 
—

 
146,004

REFINANCING COSTS
—

 
32,084

 
—

 
—

 
—

 
32,084

EQUITY IN INCOME OF SUBSIDIARIES
(118,871
)
 
(294,988
)
 
—

 
—

 
413,859

 
—

INCOME BEFORE INCOME TAXES
118,871

 
103,571

 
297,114

 
33,224

 
(413,859
)
 
138,921

INCOME TAX PROVISION
—

 
(15,300
)
 
34,606

 
744

 
—

 
20,050

NET INCOME
$
118,871

 
$
118,871

 
$
262,508

 
$
32,480

 
$
(413,859
)
 
$
118,871

OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX
10,723

 
38,772

 
14,619

 
(69,304
)
 
15,913

 
10,723

TOTAL COMPREHENSIVE INCOME (LOSS)
$
129,594

 
$
157,643

 
$
277,127