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 March 31, 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 9 th  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 52,430,416 as of April 30, 2018 .

Table of Contents

INDEX
 
 
 
 
Page
Part I
 
FINANCIAL INFORMATION
 
 
Item 1
Financial Statements
 
 
 
Condensed Consolidated Balance Sheets – March 31, 2018 and September 30, 2017
 
 
Condensed Consolidated Statements of Income – Thirteen and Twenty-Six Week Periods Ended March 31, 2018 and April 1, 2017
 
 
Condensed Consolidated Statements of Comprehensive Income – Thirteen and Twenty-Six Week Periods Ended March 31, 2018 and April 1, 2017
 
 
Condensed Consolidated Statement of Changes in Stockholders’ Deficit – Twenty-Six Week Period Ended March 31, 2018
 
 
Condensed Consolidated Statements of Cash Flows – Twenty-Six Week Periods Ended March 31, 2018 and April 1, 2017
 
 
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 1
Legal Proceedings
 
Item 1A
Risk Factors
 
Item 2
Unregistered Sales of Equity Securities and Use of Proceeds
 
Item 6
Exhibits
SIGNATURES
 
 

Table of Contents

TRANSDIGM GROUP INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share amounts)
(Unaudited)
 
March 31, 2018
 
September 30, 2017
ASSETS
 
 
 
CURRENT ASSETS:
 
 
 
Cash and cash equivalents
$
1,011,007

 
$
650,561

Trade accounts receivable - Net
644,985

 
636,127

Inventories - Net
767,232

 
730,681

Assets held-for-sale
—

 
77,500

Prepaid expenses and other
46,880

 
38,683

Total current assets
2,470,104

 
2,133,552

PROPERTY, PLANT AND EQUIPMENT - NET
352,456

 
324,924

GOODWILL
5,758,705

 
5,745,338

OTHER INTANGIBLE ASSETS - NET
1,700,409

 
1,717,862

OTHER
113,003

 
53,985

TOTAL ASSETS
$
10,394,677

 
$
9,975,661

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ DEFICIT
 
 
 
CURRENT LIABILITIES:
 
 
 
Current portion of long-term debt
$
69,147

 
$
69,454

Short-term borrowings - trade receivable securitization facility
299,833

 
299,587

Accounts payable
151,709

 
148,761

Accrued liabilities
292,146

 
335,888

Liabilities held-for-sale
—

 
17,304

Total current liabilities
812,835

 
870,994

LONG-TERM DEBT
11,365,790

 
11,393,620

DEFERRED INCOME TAXES
359,342

 
500,949

OTHER NON-CURRENT LIABILITIES
166,047

 
161,302

Total liabilities
12,704,014

 
12,926,865

STOCKHOLDERS’ DEFICIT:
 
 
 
Common stock - $.01 par value; authorized 224,400,000 shares; issued 56,513,989 and 56,093,659 at March 31, 2018 and September 30, 2017, respectively
565

 
561

Additional paid-in capital
1,143,715

 
1,095,319

Accumulated deficit
(2,684,832
)
 
(3,187,220
)
Accumulated other comprehensive income (loss)
6,519

 
(85,143
)
Treasury stock, at cost; 4,161,326 and 4,159,207 shares at March 31, 2018 and September 30, 2017, respectively
(775,304
)
 
(774,721
)
Total stockholders’ deficit
(2,309,337
)
 
(2,951,204
)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT
$
10,394,677

 
$
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 TWENTY-SIX WEEK PERIODS ENDED
MARCH 31, 2018 AND APRIL 1, 2017
(Amounts in thousands, except per share amounts)
(Unaudited)  
 
Thirteen Week Periods Ended
 
Twenty-Six Week Periods Ended
 
March 31, 2018
 
April 1, 2017
 
March 31, 2018
 
April 1, 2017
NET SALES
$
933,070

 
$
868,728

 
$
1,781,030

 
$
1,682,746

COST OF SALES
398,996

 
379,291

 
770,306

 
749,054

GROSS PROFIT
534,074

 
489,437

 
1,010,724

 
933,692

SELLING AND ADMINISTRATIVE EXPENSES
107,526

 
100,857

 
214,054

 
202,572

AMORTIZATION OF INTANGIBLE ASSETS
17,457

 
22,032

 
34,569

 
47,563

INCOME FROM OPERATIONS
409,091

 
366,548

 
762,101

 
683,557

INTEREST EXPENSE - NET
161,266

 
147,842

 
322,199

 
293,846

REFINANCING COSTS
638

 
3,507

 
1,751

 
35,591

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
247,187

 
215,199

 
438,151

 
354,120

INCOME TAX PROVISION
45,347

 
59,508

 
(75,700
)
 
79,558

INCOME FROM CONTINUING OPERATIONS
201,840

 
155,691

 
513,851

 
274,562

LOSS FROM DISCONTINUED OPERATIONS, NET OF TAX
(5,562
)
 
(186
)
 
(2,798
)
 
(186
)
NET INCOME
$
196,278

 
$
155,505

 
$
511,053

 
$
274,376

NET INCOME APPLICABLE TO COMMON STOCK
$
196,278

 
$
155,505

 
$
454,905

 
$
178,405

Net earnings per share:
 
 
 
 
 
 
 
Net earnings per share from continuing operations--basic and diluted
$
3.63

 
$
2.78

 
$
8.23

 
$
3.17

Net loss per share from discontinued operations--basic and diluted
(0.10
)
 
—

 
(0.05
)
 
—

Net earnings per share
$
3.53

 
$
2.78

 
$
8.18

 
$
3.17

Cash dividends paid per common share
$
—

 
$
—

 
$
—

 
$
24.00

Weighted-average shares outstanding:
 
 
 
 
 
 
 
Basic and diluted
55,605

 
55,894

 
55,599

 
56,211

See notes to condensed consolidated financial statements.

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TRANSDIGM GROUP INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THIRTEEN AND TWENTY-SIX WEEK PERIODS ENDED
MARCH 31, 2018 AND APRIL 1, 2017
(Amounts in thousands)
(Unaudited)
 
Thirteen Week Periods Ended
 
Twenty-Six Week Periods Ended
 
March 31, 2018
 
April 1, 2017
 
March 31, 2018
 
April 1, 2017
Net income
$
196,278

 
$
155,505

 
$
511,053

 
$
274,376

Other comprehensive income, net of tax:
 
 
 
 
 
 
 
Foreign currency translation adjustments
23,036

 
8,050

 
28,188

 
(20,002
)
Interest rate swap and cap agreements
45,226

 
2,179

 
63,474

 
40,954

Other comprehensive income, net of tax
68,262

 
10,229

 
91,662

 
20,952

TOTAL COMPREHENSIVE INCOME
$
264,540

 
$
165,734

 
$
602,715

 
$
295,328

See notes to condensed consolidated financial statements.

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TRANSDIGM GROUP INCORPORATED
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT
FOR THE TWENTY-SIX WEEK PERIOD ENDED MARCH 31, 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
 
 
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
—

 
—

 
—

 
(8,665
)
 
—

 
—

 
—

 
(8,665
)
Compensation expense recognized for employee stock options and restricted stock
—

 
—

 
21,942

 
—

 
—

 
—

 
—

 
21,942

Exercise of employee stock options, restricted stock activity and other, net
419,825

 
4

 
26,305

 
—

 
—

 
(2,119
)
 
(583
)
 
25,726

Common stock issued
505

 
—

 
149

 
—

 
—

 
—

 
—

 
149

Net income
—

 
—

 
—

 
511,053

 
—

 
—

 
—

 
511,053

Foreign currency translation adjustments
—

 
—

 
—

 
—

 
28,188

 
—

 
—

 
28,188

Interest rate swaps and caps, net of tax
—

 
—

 
—

 
—

 
63,474

 
—

 
—

 
63,474

BALANCE, MARCH 31, 2018
56,513,989

 
$
565

 
$
1,143,715

 
$
(2,684,832
)
 
$
6,519

 
(4,161,326
)
 
$
(775,304
)
 
$
(2,309,337
)
See notes to condensed consolidated financial statements.

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TRANSDIGM GROUP INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
 
Twenty-Six Week Periods Ended
 
March 31, 2018
 
April 1, 2017
OPERATING ACTIVITIES:
 
 
 
Net income
$
511,053

 
$
274,376

Net loss from discontinued operations
2,798

 
186

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation
26,727

 
24,733

Amortization of intangible assets and product certification costs
34,882

 
47,975

Amortization of debt issuance costs, original issue discount and premium
10,594

 
10,170

Refinancing costs
1,751

 
35,591

Non-cash equity compensation
22,703

 
21,126

Deferred income taxes
(166,592
)
 
346

Changes in assets/liabilities, net of effects from acquisitions of businesses:
 
 
 
Trade accounts receivable
5,864

 
3,108

Inventories
(16,337
)
 
6,896

Income taxes receivable/payable
26,648

 
23,706

Other assets
(8,803
)
 
(4,151
)
Accounts payable
(624
)
 
(17,545
)
Accrued interest
883

 
(822
)
Accrued and other liabilities
2,137

 
(35,195
)
Net cash provided by operating activities
453,684

 
390,500

INVESTING ACTIVITIES:
 
 
 
Capital expenditures
(30,884
)
 
(38,436
)
Payments made in connection with acquisitions
(50,320
)
 
(30,002
)
Proceeds (payments made) in connection with the sale (purchase)
of discontinued operations
57,686

 
(78,879
)
Net cash used in investing activities
(23,518
)
 
(147,317
)
FINANCING ACTIVITIES:
 
 
 
Proceeds from exercise of stock options
26,305

 
12,345

Special dividend and dividend equivalent payments
(56,148
)
 
(1,375,998
)
Treasury stock purchased
—

 
(339,833
)
Proceeds from term loans, net
793,042

 
1,132,774

Repayment on term loans
(833,052
)
 
(32,302
)
Cash tender and redemption of senior subordinated notes due 2021, including premium
—

 
(528,847
)
Proceeds from additional senior subordinated notes due 2025, net
—

 
301,006

Other
(2,155
)
 
(10,745
)
Net cash used in financing activities
(72,008
)
 
(841,600
)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
2,288

 
(3,188
)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
360,446

 
(601,605
)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
650,561

 
1,586,994

CASH AND CASH EQUIVALENTS, END OF PERIOD
$
1,011,007

 
$
985,389

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
 
 
 
Cash paid during the period for interest
$
310,949

 
$
289,311

Cash paid during the period for income taxes
$
56,606

 
$
55,544

See notes to condensed consolidated financial statements.

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TRANSDIGM GROUP INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
TWENTY-SIX WEEK PERIOD S ENDED MARCH 31, 2018 AND APRIL 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 twenty-six week period ended March 31, 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 twenty-six week period ended March 31, 2018, the Company completed the acquisition of 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 March 31, 2018 , the one-year measurement period is open for Kirkhill and the Third Quarter 2017 Acquisitions; 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. Pro forma net sales and results of operations for the acquisitions had they occurred at the beginning of the applicable twenty-six week period ended March 31, 2018 or April 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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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 $50 million in cash subject to purchase price adjustments. 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 also well represented on newer commercial platforms such as Boeing’s 787, 777X and 737MAX; Airbus’s A320NEO and A350; as well as the military JSF. 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 2017 and an earn-out of $0.4 million paid in the second quarter of 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. 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 , 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.
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.
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 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 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.

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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.
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 (Topic 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 (Topic 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’

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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.
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
 
Twenty-Six Week Periods Ended
 
March 31, 2018
 
April 1, 2017
 
March 31, 2018
 
April 1, 2017
Numerator for earnings per share:
 
 
 
 
 
 
 
Net income from continuing operations
$
201,840

 
$
155,691

 
$
513,851

 
$
274,562

Less dividends paid on participating securities
—

 
—

 
(56,148
)
 
(95,971
)
 
$
201,840

 
$
155,691

 
$
457,703

 
$
178,591

Net loss from discontinued operations
(5,562
)
 
(186
)
 
(2,798
)
 
(186
)
Net income applicable to common stock - basic and diluted
$
196,278

 
$
155,505

 
$
454,905

 
$
178,405

Denominator for basic and diluted earnings per share under the two-class method:
 
 
 
 
 
 
 
Weighted average common shares outstanding
52,229

 
52,849

 
52,127

 
53,108

Vested options deemed participating securities
3,376

 
3,045

 
3,472

 
3,103

Total shares for basic and diluted earnings per share
55,605

 
55,894

 
55,599

 
56,211

 
 
 
 
 
 
 
 
Net earnings per share from continuing operations - basic and diluted
$
3.63

 
$
2.78

 
$
8.23

 
$
3.17

Net loss per share from discontinued operations - basic and diluted
$
(0.10
)
 
$
—

 
(0.05
)
 
—

Net earnings per share
$
3.53

 
$
2.78

 
$
8.18

 
$
3.17

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):
 
March 31, 2018
 
September 30, 2017
Raw materials and purchased component parts
$
517,910

 
$
496,899

Work-in-progress
204,940

 
187,009

Finished goods
134,762

 
131,548

Total
857,612

 
815,456

Reserves for excess and obsolete inventory
(90,380
)
 
(84,775
)
Inventories - Net
$
767,232

 
$
730,681


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7.    INTANGIBLE ASSETS
Other intangible assets - net in the condensed consolidated balance sheets consist of the following (in thousands):
 
March 31, 2018
 
September 30, 2017
 
Gross Carrying
Amount
 
Accumulated
Amortization
 
Net
 
Gross Carrying
Amount
 
Accumulated
Amortization
 
Net
Trademarks and trade names
$
742,028

 
$
—

 
$
742,028

 
$
729,931

 
$
—

 
$
729,931

Technology
1,292,753

 
383,509

 
909,244

 
1,292,719

 
351,638

 
941,081

Order backlog
8,700

 
2,252

 
6,448

 
29,000

 
26,668

 
2,332

Other
63,382

 
20,693

 
42,689

 
63,599

 
19,081

 
44,518

Total
$
2,106,863

 
$
406,454

 
$
1,700,409

 
$
2,115,249

 
$
397,387

 
$
1,717,862

Intangible assets acquired during the twenty-six week period ended March 31, 2018 were as follows (in thousands):
 
Gross Amount
 
Amortization Period
Intangible assets not subject to amortization:
 
 
 
Goodwill
$
2,218

 
 
Trademarks and trade names
10,000

 
 
 
12,218

 
 
Intangible assets subject to amortization:
 
 
 
Technology
2,000

 
20 years
Order backlog
6,000

 
1 year
 
8,000

 
5.8 years
Total
$
20,218

 
 
The aggregate amortization expense on identifiable intangible assets for the twenty-six week period s ended March 31, 2018 and April 1, 2017 was approximately $34.6 million and $47.6 million , respectively. The estimated amortization expense is $71.9 million for fiscal year 2018 , $70.2 million for fiscal year 2019 , and $67.2 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 March 31, 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
—

 
2,218

 
—

 
2,218

Purchase price allocation adjustments
4,508

 
—

 
—

 
4,508

Currency translation adjustment
—

 
6,645

 
—

 
6,645

Other
(191
)
 
187

 
—

 
(4
)
Balance - March 31, 2018
$
3,274,298

 
$
2,391,132

 
$
93,275

 
$
5,758,705


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8.    DEBT
The Company’s debt consists of the following (in thousands):
 
March 31, 2018
 
Gross Amount
 
Debt Issuance Costs
 
Original Issue Discount or Premium
 
Net Amount
Short-term borrowings—trade receivable securitization facility
$
300,000

 
$
(167
)
 
$
—

 
$
299,833

Term loans
$
6,938,145

 
$
(60,435
)
 
$
(18,221
)
 
$
6,859,489

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

 
(2,715
)
 
—

 
547,285

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

 
(6,221
)
 
—

 
1,143,779

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

 
(7,454
)
 
—

 
1,192,546

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

 
(3,769
)
 
3,909

 
750,140

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

 
(8,302
)
 
—

 
941,698

 
11,538,145

 
(88,896
)
 
(14,312
)
 
11,434,937

Less current portion
69,685

 
(538
)
 
—

 
69,147

Long-term debt
$
11,468,460

 
$
(88,358
)
 
$
(14,312
)
 
$
11,365,790

 
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

Accrued interest was $83.1 million and $82.2 million as of March 31, 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, 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 $0.7 million of refinancing costs representing debt issuance costs associated with Amendment No. 4 during the twenty-six week period ended March 31, 2018 . 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 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, including 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.

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The Company capitalized $0.5 million and expensed $0.2 million of refinancing costs representing debt issuance costs associated with the refinancing facility agreement during the twenty-six week period ended March 31, 2018 . Additionally, the Company wrote off $0.2 million in unamortized debt issuance costs related to the tranche G terms loans.
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 March 31, 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. We have recognized a provisional benefit amount of $170.2 million related to the remeasurement of our deferred tax balance for the twenty-six week period ended March 31, 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 twenty-six week period ended March 31, 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 twenty-six week period ended March 31, 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 March 31, 2018 and April 1, 2017 , the effective income tax rate was 18.3% and 27.7% , respectively. During the twenty-six week period s ended March 31, 2018 and April 1, 2017 , the effective income tax rate was (17.3)% and 22.5% , respectively. The Company's lower effective tax rate for the thirteen week ended March 31, 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 twenty-six week period ended March 31, 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 twenty-six week periods ended March 31, 2018 was lower than the Federal statutory tax rate primarily due to enactment of the Act described above. The Company’s effective tax rate for the thirteen and twenty-six periods ended April 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 March 31, 2018 and September 30, 2017 , TD Group had $8.8 million and $8.7 million in unrecognized tax benefits, the recognition of which would have an effect of approximately $8.7 million on the effective tax rate at March 31, 2018 and September 30, 2017 , respectively. 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):
 
 
 
March 31, 2018
 
September 30, 2017
 
Level
 
Carrying
Amount
 
Fair Value
 
Carrying
Amount
 
Fair Value
Assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
1

 
$
1,011,007

 
$
1,011,007

 
$
650,561

 
$
650,561

        Interest rate cap agreements (1)
2

 
27,343

 
27,343

 
12,904

 
12,904

Interest rate swap agreements (2)
2

 
2,507

 
2,507

 
—

 
—

Interest rate swap agreements (1)
2

 
41,719

 
41,719

 
2,905

 
2,905

Liabilities:
 
 
 
 
 
 
 
 
 
Interest rate swap agreements (3)
2

 
1,533

 
1,533

 
20,740

 
20,740

Interest rate swap agreements (4)
2

 
54

 
54

 
9,731

 
9,731

Short-term borrowings - trade receivable securitization facility (5)
1

 
299,833

 
299,833

 
299,587

 
299,587

Long-term debt, including current portion:
 
 
 
 
 
 
 
 
 
Term loans (5)
2

 
6,859,489

 
6,935,358

 
6,889,957

 
6,965,628

2020 Notes (5)
1

 
547,285

 
552,750

 
546,757

 
558,250

2022 Notes (5)
1

 
1,143,779

 
1,173,000

 
1,143,059

 
1,178,750

2024 Notes (5)
1

 
1,192,546

 
1,230,000

 
1,191,958

 
1,236,000

2025 Notes (5)
1

 
750,140

 
765,218

 
750,149

 
776,807

2026 Notes (5)
1

 
941,698

 
954,750

 
941,194

 
971,375

                                     
(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 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 March 31, 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:
$1,000
9/30/2014
6/30/2019
Tranche G
4.90% (2.40% plus the 2.50% margin percentage)
$400
9/30/2017
9/30/2022
Tranche G
4.40% (1.90% plus the 2.50% 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.
 
 
March 31, 2018
 
September 30, 2017
 
 
Asset
 
Liability
 
Asset
 
Liability
Interest rate cap agreements
 
$
27,343

 
$
—

 
$
12,904

 
$
—

Interest rate swap agreements
 
46,604

 
(3,965
)
 
9,235

 
(36,801
)
Total
 
73,947

 
(3,965
)
 
22,139

 
(36,801
)
Effect of counterparty netting
 
(2,378
)
 
2,378

 
(6,330
)
 
6,330

Net derivatives as classified in the balance sheet (1)
 
$
71,569

 
$
(1,587
)
 
$
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.

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Based on the fair value amounts of the interest rate swap and cap agreements determined as of March 31, 2018 , 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 $2.1 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 $2.0 million and $1.9 million for the twenty-six week period s ended March 31, 2018 and April 1, 2017, respectively. The accumulated other comprehensive loss to be reclassified into interest expense over the remaining term of the cap agreements is $8.9 million with a related tax benefit of $2.4 million as of March 31, 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 5.25% , 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 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. Accordingly, amounts previously recorded as a component of accumulated other comprehensive loss in stockholder’s deficit amortized into interest expense was $0.3 million for the twenty-six week period ended March 31, 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 the tranche G term loans in consideration of the Company’s removal of the LIBO rate floor on the tranche G 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 of approximately $12.8 million with a related tax expense of $3.1 million as of March 31, 2018 , 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.

15
Table of Contents

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 twenty-six week period s ended April 1, 2017 and total assets as of September 30, 2017 were reclassified to conform to the presentation for the thirteen and twenty-six week period s ended March 31, 2018 .
The following table presents net sales by reportable segment (in thousands):
 
Thirteen Week Periods Ended
 
Twenty-Six Week Periods Ended
 
March 31, 2018
 
April 1, 2017
 
March 31, 2018
 
April 1, 2017
Net sales to external customers
 
 
 
 
 
 
 
Power & Control
$
528,460

 
$
473,952

 
$
1,011,178

 
$
909,784

Airframe
369,783

 
360,509

 
703,175

 
709,173

Non-aviation
34,827

 
34,267

 
66,677

 
63,789

 
$
933,070

 
$
868,728

 
$
1,781,030

 
$
1,682,746

The following table reconciles EBITDA As Defined by segment to consolidated income from continuing operations before income taxes (in thousands):
 
Thirteen Week Periods Ended
 
Twenty-Six Week Periods Ended
 
March 31, 2018
 
April 1, 2017
 
March 31, 2018
 
April 1, 2017
EBITDA As Defined
 
 
 
 
 
 
 
Power & Control
$
275,562

 
$
232,828

 
$
520,337

 
$
445,746

Airframe
186,006

 
182,980

 
344,425

 
351,509

Non-aviation
10,321

 
11,391

 
19,317

 
20,668

Total segment EBITDA As Defined
471,889

 
427,199

 
884,079

 
817,923

Unallocated corporate expenses
8,766

 
5,523

 
19,423

 
15,053

Total Company EBITDA As Defined
463,123

 
421,676

 
864,656

 
802,870

Depreciation and amortization expense
30,970

 
34,661

 
61,609

 
72,708

Interest expense - net
161,266

 
147,842

 
322,199

 
293,846

Acquisition-related costs
4,485

 
7,752

 
6,559

 
26,320

Stock compensation expense
11,590

 
11,105

 
22,703

 
21,126

Refinancing costs
638

 
3,507

 
1,751

 
35,591

Other, net
6,987

 
1,610

 
11,684

 
(841
)
Income from continuing operations before income taxes
$
247,187

 
$
215,199

 
$
438,151

 
$
354,120


16
Table of Contents

The following table presents total assets by segment (in thousands):
 
March 31, 2018
 
September 30, 2017
Total assets
 
 
 
Power & Control
$
5,177,803

 
$
5,135,459

Airframe
4,021,406

 
3,923,172

Non-aviation
226,005

 
224,936

Corporate
969,463

 
614,594

Assets of discontinued operations
—

 
77,500

 
$
10,394,677

 
$
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) INCOME
The following table presents the components of accumulated other comprehensive (loss) income, net of taxes, for the twenty-six week period ended March 31, 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
61,827

 
—

 
28,188

 
90,015

Amounts reclassified from AOCI related to interest rate swap and cap agreements
1,647

 
—

 
—

 
1,647

Balance at March 31, 2018
$
36,805

 
$
(16,365
)
 
$
(13,921
)
 
$
6,519

                                     
(1)  
Unrealized gain represents interest rate swap and cap agreements, net of taxes of $(14,290) and $(1,310) for the thirteen week periods ended March 31, 2018 and April 1, 2017 and $(24,725) and $(24,427) for the twenty-six week period s ended March 31, 2018 and April 1, 2017 , respectively.
A summary of reclassifications out of accumulated other comprehensive (loss) income for the  twenty-six week period s ended March 31, 2018  and April 1, 2017 is provided below (in thousands):
 
 
Amount reclassified
 
 
Twenty-Six Week Periods Ended
Description of reclassifications out of accumulated other comprehensive (loss) income
 
March 31, 2018
 
April 1, 2017
Amortization from redesignated interest rate swap and cap agreements (1)
 
$
2,213

 
$
1,913

Deferred tax benefit from redesignated interest rate swap and cap agreements
 
(566
)
 
(715
)
Losses reclassified into earnings, net of tax
 
$
1,647

 
$
1,198

                                     
(1)  
This component of accumulated other comprehensive (loss) income 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 , subject to a working capital adjustment. The Company previously acquired Schroth in February 2017 (refer to Note 3, “Acquisitions and Divestitures”).

17
Table of Contents

The loss from discontinued operations was $5.6 million and $2.8 million in the condensed consolidated statements of income for the thirteen and twenty-six week periods ended March 31, 2018 . The loss from discontinued operations was $0.2 million in the condensed consolidated statements of income for the thirteen and twenty-six week periods ended April 1, 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. The following is the summarized operating results for Schroth for the thirteen and twenty-six week periods ended March 31, 2018 and April 1, 2017 (in thousands):
 
Thirteen Week Period Ended
 
Twenty-six Week Period Ended
 
March 31, 2018
 
April 1, 2017
 
March 31, 2018
 
April 1, 2017
Net sales
$
2,679

 
$
4,504

 
$
11,808

 
$
4,504

(Loss) income from discontinued operations before income taxes
(456
)
 
(186
)
 
354

 
(186
)
Income tax benefit
62

 
—

 
2,016

 
—

(Loss) income from discontinued operations, net of tax
(394
)
 
(186
)
 
2,370

 
(186
)
Net loss on sale of discontinued operations, net of tax
(5,168
)
 
—

 
(5,168
)
 
—

Loss from discontinued operations
$
(5,562
)
 
$
(186
)
 
$
(2,798
)
 
$
(186
)

15.    SUBSEQUENT EVENTS
On April 24, 2018, the Company completed the acquisition of Extant Components Group Holdings, Inc. (“Extant”), a portfolio company of Warburg Pincus LLC, for approximately $525 million , subject to adjustment. TransDigm financed the acquisition with cash on hand. Extant provides a broad range of proprietary aftermarket products and repair and overhaul services to the aerospace and defense end markets. Extant will be included in TransDigm's Power & Control segment.
Extant is 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 is chairman of the board of Extant.  Robert Henderson, Vice Chairman of TransDigm, is also on the board of Extant and owns 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 have minority interests of less than 1% in the Warburg Pincus LLC fund that owns Extant.
On May 1, 2018, the Company launched a proposed offering of $500 million aggregate principal amount of senior subordinated notes due 2026 by TransDigm UK Holdings plc, its wholly-owned subsidiary, pursuant to a confidential offering memorandum in a private placement under Rule 144A and Regulation S of the Securities Act of 1933. In the offering memorandum, the Company discloses that it expects to incur $700 million in additional tranche E term loans and reprice the existing tranche E term loans and tranche F term loans, in each case from existing and new lenders under the senior secured credit facilities.
16.    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 March 31, 2018 and September 30, 2017 and its statements of income and comprehensive income and cash flows for the twenty-six week period s ended March 31, 2018 and April 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, (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.


18
Table of Contents

TRANSDIGM GROUP INCORPORATED
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF MARCH 31, 2018
(Amounts in thousands)
 
TransDigm
Group
 
TransDigm
Inc.
 
Subsidiary
Guarantors
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Total
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
 
 
CURRENT ASSETS:
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
14,621

 
$
817,685

 
$
3,284

 
$
175,417

 
$
—

 
$
1,011,007

Trade accounts receivable - Net
—

 
—

 
13,998

 
652,816

 
(21,829
)
 
644,985

Inventories - Net
—

 
46,100

 
603,775

 
120,414

 
(3,057
)
 
767,232

Prepaid expenses and other
—

 
7,477

 
23,855

 
15,548

 
—

 
46,880

Total current assets
14,621

 
871,262

 
644,912

 
964,195

 
(24,886
)
 
2,470,104

INVESTMENT IN SUBSIDIARIES AND INTERCOMPANY BALANCES
(2,323,958
)
 
10,255,472

 
8,266,878

 
2,698,962

 
(18,897,354
)
 
—

PROPERTY, PLANT AND 
EQUIPMENT - NET
—

 
15,611

 
286,939

 
49,906

 
—

 
352,456

GOODWILL
—

 
82,553

 
5,006,108

 
670,044

 
—

 
5,758,705

OTHER INTANGIBLE ASSETS - NET
—

 
26,907

 
1,422,511

 
250,991

 
—

 
1,700,409

OTHER
—

 
78,068

 
29,107

 
5,828

 
—

 
113,003

TOTAL ASSETS
$
(2,309,337
)
 
$
11,329,873

 
$
15,656,455

 
$
4,639,926

 
$
(18,922,240
)
 
$
10,394,677

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

 
$
69,147

 
$
—

 
$
—

 
$
—

 
$
69,147

Short-term borrowings - trade receivable securitization facility
—

 
—

 
—

 
299,833

 
—

 
299,833

Accounts payable
—

 
16,951

 
116,868

 
37,513

 
(19,623
)
 
151,709

Accrued liabilities
—

 
113,827

 
128,807

 
49,512

 
—

 
292,146

Total current liabilities
—

 
199,925

 
245,675

 
386,858

 
(19,623
)
 
812,835

LONG-TERM DEBT
—

 
11,365,790

 
—

 
—

 
—

 
11,365,790

DEFERRED INCOME TAXES
—

 
300,255

 
113

 
58,974

 
—

 
359,342

OTHER NON-CURRENT LIABILITIES
—

 
68,538

 
69,243

 
28,266

 
—

 
166,047

Total liabilities
—

 
11,934,508

 
315,031

 
474,098

 
(19,623
)
 
12,704,014

STOCKHOLDERS’ (DEFICIT) EQUITY
(2,309,337
)
 
(604,635
)
 
15,341,424

 
4,165,828

 
(18,902,617
)
 
(2,309,337
)
TOTAL LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
$
(2,309,337
)
 
$
11,329,873

 
$
15,656,455

 
$
4,639,926

 
$
(18,922,240
)
 
$
10,394,677


19

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


20

TRANSDIGM GROUP INCORPORATED
CONDENSED CONSOLIDATING STATEMENT OF INCOME AND COMPREHENSIVE INCOME
FOR THE TWENTY-SIX WEEK PERIOD ENDED MARCH 31, 2018
(Amounts in thousands)
 
TransDigm
Group
 
TransDigm
Inc.
 
Subsidiary
Guarantors
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Total
Consolidated
NET SALES
$
—

 
$
77,215

 
$
1,441,477

 
$
301,750

 
$
(39,412
)
 
$
1,781,030

COST OF SALES
—

 
43,858

 
577,494

 
188,366

 
(39,412
)
 
770,306

GROSS PROFIT
—

 
33,357

 
863,983

 
113,384

 
—

 
1,010,724

SELLING AND ADMINISTRATIVE EXPENSES
—

 
48,893

 
103,779

 
61,382

 
—

 
214,054

AMORTIZATION OF INTANGIBLE ASSETS
—

 
714

 
29,709

 
4,146

 
—

 
34,569

(LOSS) INCOME FROM OPERATIONS
—

 
(16,250
)
 
730,495

 
47,856

 
—

 
762,101

INTEREST EXPENSE (INCOME) - NET
—

 
318,138

 
(2
)
 
4,063

 
—

 
322,199

REFINANCING COSTS
—

 
1,751

 
—

 
—

 
—

 
1,751

EQUITY IN INCOME OF SUBSIDIARIES
(511,053
)
 
(562,544
)
 
—

 
—

 
1,073,597

 
—

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
511,053

 
226,405

 
730,497

 
43,793

 
(1,073,597
)
 
438,151

INCOME TAX PROVISION
—

 
(284,648
)
 
202,265

 
6,683

 
—

 
(75,700
)
INCOME FROM CONTINUING OPERATIONS
511,053

 
511,053

 
528,232

 
37,110

 
(1,073,597
)
 
513,851

(LOSS) INCOME FROM DISCONTINUED OPERATIONS, NET OF TAX
—

 
—

 
(17,869
)
 
15,071

 
—

 
(2,798
)
NET INCOME
$
511,053

 
$
511,053

 
$
510,363

 
$
52,181

 
$
(1,073,597
)
 
$
511,053

OTHER COMPREHENSIVE INCOME, NET OF TAX
91,662

 
64,166

 
9,719

 
55,674

 
(129,559
)
 
91,662

TOTAL COMPREHENSIVE INCOME
$
602,715

 
$
575,219

 
$
520,082

 
$
107,855

 
$
(1,203,156
)
 
$
602,715


21

TRANSDIGM GROUP INCORPORATED
CONDENSED CONSOLIDATING STATEMENT OF INCOME AND COMPREHENSIVE INCOME
FOR THE TWENTY-SIX WEEK PERIOD ENDED APRIL 1, 2017
(Amounts in thousands)
 
TransDigm
Group
 
TransDigm
Inc.
 
Subsidiary
Guarantors
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Total
Consolidated
NET SALES
$
—

 
$
65,037

 
$
1,409,050

 
$
249,256

 
$
(40,597
)
 
$
1,682,746

COST OF SALES
—

 
36,230

 
605,288

 
148,133

 
(40,597
)
 
749,054

GROSS PROFIT
—

 
28,807

 
803,762

 
101,123

 
—

 
933,692

SELLING AND ADMINISTRATIVE EXPENSES
61

 
47,474

 
127,391

 
27,646

 
—

 
202,572

AMORTIZATION OF INTANGIBLE ASSETS
—

 
387

 
43,108

 
4,068

 
—

 
47,563

(LOSS) INCOME FROM OPERATIONS
(61
)
 
(19,054
)
 
633,263

 
69,409

 
—

 
683,557

INTEREST EXPENSE (INCOME) - NET
—

 
298,005

 
(31
)
 
(4,128
)
 
—

 
293,846

REFINANCING COSTS
—

 
35,591

 
—

 
—

 
—

 
35,591

EQUITY IN INCOME OF SUBSIDIARIES
(274,437
)
 
(629,721
)
 
—

 
—

 
904,158

 
—

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
274,376

 
277,071

 
633,294

 
73,537

 
(904,158
)
 
354,120

INCOME TAX PROVISION
—

 
2,634

 
73,549

 
3,375

 
—

 
79,558

INCOME FROM CONTINUING OPERATIONS
274,376

 
274,437

 
559,745

 
70,162

 
(904,158
)
 
274,562

(LOSS) INCOME FROM DISCONTINUED OPERATIONS, NET OF TAX
—

 
—

 
(423
)
 
237

 


 
(186
)
NET INCOME
$
274,376

 
$
274,437

 
$
559,322

 
$
70,399

 
$
(904,158
)
 
$
274,376

OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX
20,952

 
40,955

 
15,012

 
(59,324
)
 
3,357

 
20,952

TOTAL COMPREHENSIVE INCOME
$
295,328

 
$
315,392

 
$
574,334

 
$
11,075

 
$
(900,801
)
 
$
295,328


22

TRANSDIGM GROUP INCORPORATED
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE TWENTY-SIX WEEK PERIOD ENDED MARCH 31, 2018
(Amounts in thousands)
 
TransDigm
Group
 
TransDigm
Inc.
 
Subsidiary
Guarantors
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Total
Consolidated
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES
$
—

 
$
(157,892
)
 
$
578,789

 
$
29,807

 
$
2,980

 
$
453,684

INVESTING ACTIVITIES:
 
 
 
 
 
 
 
 
 
 
 
Capital expenditures
—

 
(826
)
 
(27,370
)
 
(2,688
)
 
—

 
(30,884
)
Payments made in connection with acquisitions
—

 
(50,320
)
 
—

 
—

 
—

 
(50,320
)
Proceeds in connection with sale of discontinued operations
—

 
57,686

 
—

 
—

 
—

 
57,686

Net cash provided by (used in) investing activities
—

 
6,540

 
(27,370
)
 
(2,688
)
 
—

 
(23,518
)
FINANCING ACTIVITIES:
 
 
 
 
 
 
 
 
 
 
 
Intercompany activities
42,048

 
571,729

 
(547,932
)
 
(62,865
)
 
(2,980
)
 
—

Proceeds from exercise of stock options
26,305

 
—

 
—

 
—

 
—

 
26,305

Special dividend and dividend equivalent payments
(56,148
)
 
—

 
—

 
—

 
—

 
(56,148
)
Proceeds from term loans, net
—

 
793,042

 
—

 
—

 
—

 
793,042

Repayment on term loans
—

 
(833,052
)
 
—

 
—

 
—

 
(833,052
)
Other
—

 
(2,155
)
 
—

 
—

 
—

 
(2,155
)
Net cash provided by (used in) financing activities
12,205

 
529,564

 
(547,932
)
 
(62,865
)
 
(2,980
)
 
(72,008
)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
—

 
—

 
—

 
2,288

 
—

 
2,288

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
12,205

 
378,212

 
3,487

 
(33,458
)
 
—

 
360,446

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
2,416

 
439,473

 
(203
)
 
208,875

 
—

 
650,561

CASH AND CASH EQUIVALENTS, END OF PERIOD
$
14,621

 
$
817,685

 
$
3,284

 
$
175,417

 
$
—

 
$
1,011,007


23

TRANSDIGM GROUP INCORPORATED
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE TWENTY-SIX WEEK PERIOD ENDED APRIL 1, 2017
(Amounts in thousands)
 
TransDigm
Group
 
TransDigm
Inc.
 
Subsidiary
Guarantors
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Total
Consolidated
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES
$
(61
)
 
$
(332,771
)
 
$
720,181

 
$
2,035

 
$
1,116

 
$
390,500

INVESTING ACTIVITIES:
 
 
 
 
 
 
 
 
 
 
 
Capital expenditures


 
(829
)
 
(34,576
)
 
(3,031
)
 
—

 
(38,436
)
Payments made in connection with acquisitions


 
(30,002
)
 


 


 


 
(30,002
)
Payments made in connection with purchase of discontinued operations
—

 
(78,879
)
 
—

 
—

 
—

 
(78,879
)
Net cash used in investing activities
—

 
(109,710
)
 
(34,576
)
 
(3,031
)
 
—

 
(147,317
)
FINANCING ACTIVITIES:
 
 
 
 
 
 
 
 
 
 
 
Intercompany activities
1,691,169

 
(1,028,726
)
 
(693,345
)
 
32,018

 
(1,116
)
 
—

Proceeds from exercise of stock options
12,345

 
—

 
—

 
—

 
—

 
12,345

Special dividend and dividend equivalent payments
(1,375,998
)
 
—

 
—

 
—

 
—

 
(1,375,998
)
Treasury stock repurchased
(339,833
)
 
—

 
—

 
—

 
—

 
(339,833
)
Proceeds from term loans, net
—

 
1,132,774

 
—

 
—

 
—

 
1,132,774

Repayment on term loans
—

 
(32,302
)
 
—

 
—

 
—

 
(32,302
)
Proceeds from additional 2025 Notes offering, net
—

 
301,006

 
—

 
—

 
—

 
301,006

Cash tender and redemption of the 2021 Notes, including premium
—

 
(528,847
)
 
—

 
—

 
—

 
(528,847
)
Other
—

 
(10,745
)
 
—

 
—

 
—

 
(10,745
)
Net cash (used in) provided by financing activities
(12,317
)
 
(166,840
)
 
(693,345
)
 
32,018

 
(1,116
)
 
(841,600
)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
—

 
—

 
—

 
(3,188
)
 
—

 
(3,188
)
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
(12,378
)
 
(609,321
)
 
(7,740
)
 
27,834

 
—

 
(601,605
)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
13,560

 
1,421,251

 
8,808

 
143,375

 
—

 
1,586,994

CASH AND CASH EQUIVALENTS, END OF PERIOD
$
1,182

 
$
811,930

 
$
1,068

 
$
171,209

 
$
—

 
$
985,389


24

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-looking Statements
The following discussion of the Company’s financial condition and results of operations should be read together with TD Group’s consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q. References in this section to “TransDigm,” “the Company,” “we,” “us,” “our,” and similar references refer to TD Group, TransDigm Inc. and TransDigm Inc.’s subsidiaries, unless the context otherwise indicates.
This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including, in particular, the statements about the Company’s plans, strategies and prospects under this section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” When used in this Quarterly Report on Form 10-Q, the words “believe,” “may,” “will,” “should,” “expect,” “intend,” “plan,” “predict,” “anticipate,” “estimate” or “continue” and other words and terms of similar meaning are intended to identify forward-looking statements. Although the Company believes that its plans, intentions and expectations reflected in or suggested by such forward-looking statements are reasonable, such forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from the forward-looking statements made in this report. Many such factors are outside the control of the Company. Consequently, such forward-looking statements should be regarded solely as our current plans, estimates and beliefs. The Company does not undertake, and specifically declines, any obligation, to publicly release the results of any revisions to these forward-looking statements that may be made to reflect any future events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. All forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by these cautionary statements.
Important factors that could cause actual results to differ materially from the forward-looking statements made in this Quarterly Report on Form 10-Q include but are not limited to: the sensitivity of our business to the number of flight hours that our customers’ planes spend aloft and our customers’ profitability, both of which are affected by general economic conditions; future geopolitical or other worldwide events; cyber-security threats and natural disasters; our reliance on certain customers; the U.S. defense budget and risks associated with being a government supplier; failure to maintain government or industry approvals; failure to complete or successfully integrate acquisitions; our substantial indebtedness; potential environmental liabilities; increases in raw material costs, taxes and labor costs that cannot be recovered in product pricing; risks and costs associated with our international sales and operations; and other factors. Please refer to the other information included in this Quarterly Report on Form 10-Q and to Item 1A of the Annual Report on Form 10-K for additional information regarding the foregoing factors that may affect our business.
Overview
We believe we are a leading global designer, producer and supplier of highly engineered aircraft components for use on nearly every commercial and military aircraft in service today. Our business is well diversified due to the broad range of products we offer to our customers. Some of our more significant 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. Each of these product offerings is composed of many individual products that are typically customized to meet the needs of a particular aircraft platform or customer.
For the second quarter of fiscal 2018 , we generated net sales of $933.1 million and net income of $196.3 million . EBITDA As Defined was $463.1 million , or 49.6% of net sales. See the "Non-GAAP Financial Measures" section for certain information regarding EBITDA and EBITDA As Defined, including reconciliations of EBITDA and EBITDA As Defined to net income and net cash provided by operating activities.
Critical Accounting Policies and Estimates
The preparation and fair presentation of the consolidated unaudited interim financial statements and accompanying notes included in this report are the responsibility of management. The financial statements and footnotes have been prepared in accordance with U.S. generally accepted accounting principles for interim financial statements and contain certain amounts that were based upon management’s best estimates, judgments and assumptions that were believed to be reasonable under the circumstances. On an ongoing basis, we evaluate the accounting policies and estimates used to prepare financial statements. Estimates are based on historical experience, judgments and assumptions believed to be reasonable under current facts and circumstances. Actual amounts and results could differ from these estimates used by management.

25
Table of Contents

A comprehensive discussion of the Company’s critical accounting policies and management estimates and significant accounting policies followed in the preparation of the financial statements is included in Item 7 of our Annual Report on Form 10-K for the year ended September 30, 2017. There have been no significant changes in critical accounting policies, management estimates or accounting policies followed since the year ended September 30, 2017. Refer to Note 4, "Recent Accounting Pronouncements," for a discussion of accounting standards recently adopted or required to be adopted in future periods.
Acquisitions
Recent acquisitions are described in Note 3, “Acquisitions,” and Note 15, "Subsequent Events," to the condensed consolidated financial statements included herein.
Results of Operations
The following table sets forth, for the periods indicated, certain operating data of the Company, including presentation of the amounts as a percentage of net sales (amounts in thousands):
 
Thirteen Week Periods Ended
 
March 31, 2018
 
% of Sales
 
April 1, 2017
 
% of Sales
Net sales
$
933,070

 
100.0
 %
 
$
868,728

 
100.0
 %
Cost of sales
398,996

 
42.8
 %
 
379,291

 
43.7
 %
Selling and administrative expenses
107,526

 
11.5
 %
 
100,857

 
11.6
 %
Amortization of intangible assets
17,457

 
1.9
 %
 
22,032

 
2.5
 %
Income from operations
409,091

 
43.8
 %
 
366,548

 
42.2
 %
Interest expense, net
161,266

 
17.3
 %
 
147,842

 
17.0
 %
Refinancing costs
638

 
0.1
 %
 
3,507

 
0.4
 %
Income tax provision
45,347

 
4.9
 %
 
59,508

 
6.9
 %
Income from continuing operations
$
201,840

 
21.6
 %
 
$
155,691

 
17.9
 %
Loss from discontinued operations, net of tax
(5,562
)
 
(0.6
)%
 
(186
)
 
—
 %
Net income
$
196,278

 
21.0
 %
 
$
155,505

 
17.9
 %
 
Twenty-Six Week Periods Ended
 
March 31, 2018
 
% of Sales
 
April 1, 2017
 
% of Sales
Net sales
$
1,781,030

 
100.0
 %
 
$
1,682,746

 
100.0
 %
Cost of sales
770,306

 
43.3
 %
 
749,054

 
44.5
 %
Selling and administrative expenses
214,054

 
12.0
 %
 
202,572

 
12.0
 %
Amortization of intangible assets
34,569

 
1.9
 %
 
47,563

 
2.8
 %
Income from operations
762,101

 
42.8
 %
 
683,557

 
40.6
 %
Interest expense, net
322,199

 
18.1
 %
 
293,846

 
17.5
 %
Refinancing costs
1,751

 
0.1
 %
 
35,591

 
2.1
 %
Income tax provision
(75,700
)
 
(4.3
)%
 
79,558

 
4.7
 %
Income from continuing operations
$
513,851

 
28.9
 %
 
$
274,562

 
16.3
 %
Loss from discontinued operations, net of tax
(2,798
)
 
(0.2
)%
 
(186
)
 
—
 %
Net income
$
511,053

 
28.7
 %
 
$
274,376

 
16.3
 %

26
Table of Contents

Changes in Results of Operations
Thirteen week period ended March 31, 2018 compared with the thirteen week period ended April 1, 2017
Total Company
•
Net Sales . Net organic sales and acquisition sales and the related dollar and percentage changes for the thirteen week periods ended March 31, 2018 and April 1, 2017 were as follows (amounts in millions):
 
Thirteen Week Periods Ended
 
 
 
% Change
Total  Sales
 
March 31, 2018
 
April 1, 2017
 
Change
 
Organic sales
$
925.6

 
$
868.7

 
$
56.9

 
6.6
%
Acquisition sales
7.5

 
—

 
7.5

 
0.8
%
 
$
933.1

 
$
868.7

 
$
64.4

 
7.4
%
The increase in organic sales is primarily related to an increase in commercial aftermarket sales of $43.7 million , or 14.6% , and an increase in defense sales of $13.2 million , or 4.7% . This was partially offset by a decrease in organic commercial OEM sales of $5.2 million , or 2.1% .
Acquisition sales represent sales of acquired businesses for the period up to one year subsequent to their acquisition dates. The amount of acquisition sales shown in the table above for the thirteen week period ended March 31, 2018 was attributable to the Third Quarter 2017 Acquisitions described in Note 3, "Acquisitions and Divestitures."
•
Cost of Sales and Gross Profit . Cost of sales increased by $19.7 million , or 5.2% , to $399.0 million for the thirteen week period ended March 31, 2018 compared to $379.3 million for the thirteen week period ended April 1, 2017 . Cost of sales and the related percentage of total sales for the thirteen week periods ended March 31, 2018 and April 1, 2017 were as follows (amounts in millions):
 
Thirteen Week Periods Ended
 
 
 
 
 
March 31, 2018
 
April 1, 2017
 
Change
 
% Change
Cost of sales - excluding costs below
$
395.2

 
$
374.4

 
$
20.8

 
5.6
 %
% of total sales
42.4
%
 
43.1
%
 
 
 
 
Inventory purchase accounting adjustments
—

 
2.8

 
(2.8
)
 
(100.0
)%
% of total sales
—
%
 
0.3
%
 
 
 
 
Acquisition integration costs
2.6

 
1.0

 
1.6

 
160.0
 %
% of total sales
0.3
%
 
0.1
%
 
 
 
 
Stock compensation expense
1.2

 
1.1

 
0.1

 
9.1
 %
% of total sales
0.1
%
 
0.1
%
 
 
 
 
Total cost of sales
$
399.0

 
$
379.3

 
$
19.7

 
5.2
 %
% of total sales
42.8
%
 
43.7
%
 
 
 
 
Gross profit
$
534.1

 
$
489.4

 
$
44.7

 
9.1
 %
Gross profit percentage
57.2
%
 
56.3
%
 
0.9
 
 
The net increase in the dollar amount of cost of sales during the thirteen week period ended March 31, 2018 was primarily due to increased volume associated with the sales from acquisitions and organic sales growth for both commercial aftermarket and defense markets. This increase due to volume was slightly offset by a reduction in inventory purchase accounting adjustments as shown in the table above.
Gross profit as a percentage of sales increased by 0.9 percentage points to 57.2% for the thirteen week period ended March 31, 2018 from 56.3% for the thirteen week period ended April 1, 2017 . The dollar amount of gross profit increased by $44.7 million , or 9.1% , for the quarter ended March 31, 2018 compared to the comparable quarter in the prior year due to the following items:
•
Gross profit on the sales from the acquisitions indicated above (excluding acquisition-related costs) was approximately $4.1 million for the quarter ended March 31, 2018 , which represented gross profit of approximately 55.1% of the acquisition sales.
•
Organic sales growth as described above, application of our three core value-driven operating strategies (obtaining profitable new business, continually improving our cost structure, and providing highly engineered value-added products to customers) and positive leverage on our fixed overhead costs spread over a higher production volume resulted in a net increase in gross profit of approximately $39.5 million for the quarter ended March 31, 2018 .

27
Table of Contents

•
Further increases in gross profit were due to lower inventory purchase accounting adjustments of $2.8 million partially offset by increases in acquisition integration costs of $1.6 million and stock compensation expense of $0.1 million for the quarter ended March 31, 2018 .
•
Selling and Administrative Expenses. Selling and administrative expenses increased by $6.6 million to $107.5 million , or 11.5% of sales, for the thirteen week period ended March 31, 2018 from $100.9 million , or 11.6% of sales, for the thirteen week period ended April 1, 2017 . Selling and administrative expenses and the related percentage of total sales for the thirteen week periods ended March 31, 2018 and April 1, 2017 were as follows (amounts in millions):
 
Thirteen Week Periods Ended
 
 
 
 
 
March 31, 2018
 
April 1, 2017
 
Change
 
% Change
Selling and administrative expenses - excluding costs below
$
95.2

 
$
87.0

 
$
8.2

 
9.4
 %
% of total sales
10.2
%
 
10.0
%
 
 
 
 
Stock compensation expense
10.4

 
10.0

 
0.4

 
4.0
 %
% of total sales
1.1
%
 
1.2
%
 
 
 
 
Acquisition-related expenses
1.9

 
3.9

 
(2.0
)
 
(51.3
)%
% of total sales
0.2
%
 
0.4
%
 
 
 
 
Total selling and administrative expenses
$
107.5

 
$
100.9

 
$
6.6

 
6.5
 %
% of total sales
11.5
%
 
11.6
%
 
 
 
 
The increase in the dollar amount of selling and administrative expenses during the quarter ended March 31, 2018 is primarily due to higher selling and administrative expenses relating to recent acquisitions.
•
Amortization of Intangible Assets. Amortization of intangible assets was $17.5 million for the quarter ended March 31, 2018 compared to $22.0 million in the quarter ended April 1, 2017 . The decrease in amortization expense of $4.5 million was due to the order backlog recorded in connection with the 2016 acquisitions becoming fully amortized in fiscal 2017. This was slightly offset by amortization expense on the definite-lived intangible assets (i.e., technology and order backlog) recorded in connection with the Third Quarter 2017 acquisitions.
•
Refinancing Costs. Refinancing costs of $0.6 million were recorded for the quarter ended March 31, 2018 which related to the debt refinancing activity described in Note 8, "Debt." Refinancing costs of $3.5 million were recorded for the quarter ended April 1, 2017 representing debt issuance costs expensed in connection with the debt financing activity during the first quarter of the previous year.
•
Interest Expense-net. Interest expense-net includes interest on borrowings outstanding, amortization of debt issuance costs, original issue discount and premium and revolving credit facility fees slightly offset by interest income. Interest expense-net increased $13.5 million , or 9.1% , to $161.3 million for the quarter ended March 31, 2018 from $147.8 million for the comparable quarter last year. The net increase in interest expense-net was primarily due to an increase in the weighted average level of outstanding borrowings, which was approximately $11,856 million for the quarter ended March 31, 2018 and approximately $11,206 million for the quarter ended April 1, 2017 . The increase in weighted average level of borrowings was due to the additional 2025 Notes offering of $300 million in the second fiscal quarter of 2017, the additional $100 million drawn on the trade receivable securitization facility in the fourth quarter of fiscal 2017 and the additional net debt financing of $575 million in the fourth quarter of fiscal 2017. The weighted average interest rate for cash interest payments on total borrowings outstanding at March 31, 2018 was 5.2%.
•
Income Taxes. Income tax expense as a percentage of income before income taxes was approximately 18.3% for the quarter ended March 31, 2018 compared to 27.7% for the quarter ended April 1, 2017 . The Company's lower effective tax rate for the thirteen week period ended March 31, 2018 was primarily due to reduction in U.S. federal corporate tax rate that was enacted in The Tax Cuts and Jobs Act which reduced the tax rate from 35% to 21%. As a result, the blended statutory tax rate for the year is 24.5%. Also contributing to the lower effective tax rate was the impact of excess tax benefits from share based payments
•
Loss from Discontinued Operations . 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. The loss from discontinued operations was $5.6 million for the quarter ended March 31, 2018 . Refer to Note 14, “Discontinued Operations,” for further information. The loss from discontinued operations was $0.2 million for the quarter ended April 1, 2017 .
•
Net Income . Net income increased $40.8 million , or 26.2% , to $196.3 million for the quarter ended March 31, 2018 compared to net income of $155.5 million for the quarter ended April 1, 2017 , primarily as a result of the factors referred to above.

28
Table of Contents

•
Earnings per Share. Basic and diluted earnings per share was $3.53 for the quarter ended March 31, 2018 and $2.78 per share for the quarter ended April 1, 2017 . For the quarter ended March 31, 2018 , basic and diluted earnings per share from continuing operations and discontinued operations were $3.63 and $(0.10) , respectively.
Business 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 week period ended April 1, 2017 were reclassified to conform to the presentation for the thirteen week period ended March 31, 2018 .
•
Segment Net Sales . Net sales by segment for the thirteen week periods ended March 31, 2018 and April 1, 2017 were as follows (amounts in millions):
 
Thirteen Week Periods Ended
 
 
 
 
 
March 31, 2018
 
% of Sales
 
April 1, 2017
 
% of Sales
 
Change
 
% Change
Power & Control
$
528.5

 
56.7
%
 
$
474.0

 
54.6
%
 
$
54.5

 
11.5
%
Airframe
369.8

 
39.6
%
 
360.5

 
41.5
%
 
9.3

 
2.6
%
Non-aviation
34.8

 
3.7
%
 
34.2

 
3.9
%
 
0.6

 
1.8
%
 
$
933.1

 
100.0
%
 
$
868.7

 
100.0
%
 
$
64.4

 
7.4
%
Acquisition sales for the Power & Control segment totaled $7.5 million , or an increase of 1.6% , resulting from the Third Quarter 2017 Acquisitions in fiscal year 2017. Organic sales increased $47.0 million , or an increase of 9.9% , for the thirteen week period ended March 31, 2018 compared to the thirteen week period ended April 1, 2017 . The organic sales increase resulted from increases in commercial aftermarket sales ( $26.8 million , an increase of 18.8% ), defense sales ( $14.7 million , an increase of 7.0% ), and commercial OEM sales ( $3.7 million , an increase of 3.3% ).
Organic sales for the Airframe segment increased $9.3 million , or 2.6% , for the thirteen week period ended March 31, 2018 compared to the thirteen week period ended April 1, 2017 . The organic sales increase primarily resulted from an increase in commercial aftermarket sales ( $17.0 million , an increase of 10.9% ) offset by a decrease in commercial OEM sales ( $6.7 million , a decrease of 5.2% ) and defense sales ( $1.4 million , a decrease of 2.0% ).
•
EBITDA As Defined . EBITDA As Defined by segment for the thirteen week periods ended March 31, 2018 and April 1, 2017 were as follows (amounts in millions):
 
Thirteen Week Periods Ended
 
 
 
 
 
March 31, 2018
 
% of  Segment
Sales
 
April 1, 2017
 
% of  Segment
Sales
 
Change
 
% Change
Power & Control
$
275.6

 
52.1
%
 
$
232.8

 
49.1
%
 
$
42.8

 
18.4
 %
Airframe
186.0

 
50.3
%
 
183.0

 
50.8
%
 
3.0

 
1.6
 %
Non-aviation
10.3

 
29.6
%
 
11.4

 
33.2
%
 
(1.1
)
 
(9.6
)%
 
$
471.9

 
50.6
%
 
$
427.2

 
49.2
%
 
$
44.7

 
10.5
 %
EBITDA As Defined for the Power & Control segment from the Third Quarter 2017 Acquisitions was approximately $3.2 million for the thirteen week period ended March 31, 2018 . Organic EBITDA As Defined increased approximately $39.6 million, or an increase of 17.0%, resulting from organic sales growth, application of our three core value-driven operating strategies, and positive leverage on our fixed overhead costs spread over a higher production volume.
Organic EBITDA As Defined for the Airframe segment increased approximately $3.0 million , or an increase of 1.6% , resulting from organic sales growth and application of our three core value-driven operating strategies.

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Twenty-six week period ended March 31, 2018 compared with the twenty-six week period ended April 1, 2017
Total Company
•
Net Sales . Net organic sales and acquisition sales and the related dollar and percentage changes for the twenty-six week period s ended March 31, 2018 and April 1, 2017 were as follows (amounts in millions):
 
Twenty-Six Week Periods Ended
 
 
 
% Change
Total  Sales
 
March 31, 2018
 
April 1, 2017
 
Change
 
Organic sales
$
1,763.6

 
$
1,682.7

 
$
80.9

 
4.8
%
Acquisition sales
17.4

 
—

 
17.4

 
1.0
%
 
$
1,781.0

 
$
1,682.7

 
$
98.3

 
5.8
%
Organic defense and commercial aftermarket sales increased for the twenty-six week period ended March 31, 2018 compared to the twenty-six week period ended April 1, 2017 by $9.0 million and $70.5 million , or 1.6% and 12.2% , respectively. These increases were slightly offset by a decrease in organic commercial OEM sales of $7.4 million , or 1.6% .
Acquisition sales represent sales of acquired businesses for the period up to one year subsequent to their acquisition dates. The amount of acquisition sales shown in the table above was attributable to the Third Quarter 2017 Acquisitions described in Note 3, "Acquisitions and Divestitures."
•
Cost of Sales and Gross Profit . Cost of sales increased by $21.2 million , or 2.8% , to $770.3 million for the twenty-six week period ended March 31, 2018 compared to $749.1 million for the twenty-six week period ended April 1, 2017 . Cost of sales and the related percentage of total sales for the twenty-six week period s ended March 31, 2018 and April 1, 2017 were as follows (amounts in millions):
 
Twenty-Six Week Periods Ended
 
 
 
 
 
March 31, 2018
 
April 1, 2017
 
Change
 
% Change
Cost of sales - excluding costs below
$
764.5

 
$
726.1

 
$
38.4

 
5.3
 %
% of total sales
43.0
%
 
43.1
%
 
 
 
 
Inventory purchase accounting adjustments
—

 
19.4

 
(19.4
)
 
(100.0
)%
% of total sales
—
%
 
1.2
%
 
 
 
 
Acquisition integration costs
3.5

 
1.5

 
2.0

 
133.3
 %
% of total sales
0.2
%
 
0.1
%
 
 
 
 
Stock compensation expense
2.3

 
2.1

 
0.2

 
9.5
 %
% of total sales
0.1
%
 
0.1
%
 
 
 
 
Total cost of sales
$
770.3

 
$
749.1

 
$
21.2

 
2.8
 %
% of total sales
43.3
%
 
44.5
%
 
 
 
 
Gross profit
$
1,010.7

 
$
933.7

 
$
77.0

 
8.2
 %
Gross profit percentage
56.7
%
 
55.5
%
 
0.016

 
 
The net increase in the dollar amount of cost of sales during the twenty-six week period ended March 31, 2018 was primarily due to increased volume associated with the sales from acquisitions and organic commercial aftermarket sales growth. The increase due to volume was partially offset by lower inventory purchase accounting adjustments as shown in the table above.
Gross profit as a percentage of sales increased by 1.2 percentage points to 56.7% for the twenty-six week period ended March 31, 2018 from 55.5% for the twenty-six week period ended April 1, 2017 . The dollar amount of gross profit increased by $77.0 million , or 8.2% , for the twenty-six week period ended March 31, 2018 compared to the comparable twenty-six week period in the prior year due to the following items:
•
Gross profit on the sales from the acquisitions indicated above (excluding acquisition-related costs) was approximately $10.3 million for the twenty-six week period ended March 31, 2018 , which represented gross profit of approximately 59.0% of the acquisition sales.
•
Organic sales growth described above, application of our three core value-driven operating strategies (obtaining profitable new business, continually improving our cost structure, and providing highly engineered value-added products to customers) and positive leverage on our fixed overhead costs spread over a higher production volume resulted in a net increase in gross profit of approximately $49.5 million for the twenty-six week period ended March 31, 2018 .

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•
Also contributing to the increase in gross profit were lower inventory purchase accounting adjustments of $19.4 million slightly offset by increases in acquisition integration costs of $2.0 million and stock compensation expense of $0.2 million charged to cost of sales for the twenty-six week period ended March 31, 2018 .
•
Selling and Administrative Expenses. Selling and administrative expenses increased by $11.5 million to $214.1 million , or 12.0% of sales, for the twenty-six week period ended March 31, 2018 from $202.6 million , or 12.0% of sales, for the twenty-six week period ended April 1, 2017 . Selling and administrative expenses and the related percentage of total sales for the twenty-six week period s ended March 31, 2018 and April 1, 2017 were as follows (amounts in millions):
 
Twenty-Six Week Periods Ended
 
 
 
 
 
March 31, 2018
 
April 1, 2017
 
Change
 
% Change
Selling and administrative expenses - excluding costs below
$
190.7

 
$
178.1

 
$
12.6

 
7.1
 %
% of total sales
10.7
%
 
10.6
%
 
 
 
 
Stock compensation expense
20.4

 
19.0

 
1.4

 
7.4
 %
% of total sales
1.1
%
 
1.1
%
 
 
 
 
Acquisition-related expenses
3.0

 
5.5

 
(2.5
)
 
(45.5
)%
% of total sales
0.2
%
 
0.3
%
 
 
 
 
Total selling and administrative expenses
$
214.1

 
$
202.6

 
$
11.5

 
5.7
 %
% of total sales
12.0
%
 
12.0
%
 
 
 
 
The increase in the dollar amount of selling and administrative expenses during the twenty-six week period ended March 31, 2018 is primarily due to higher selling and administration expenses related to recent acquisitions.
•
Amortization of Intangible Assets. Amortization of intangible assets was $34.6 million for the twenty-six week period ended March 31, 2018 compared to $47.6 million in the twenty-six week period ended April 1, 2017 . The decrease in amortization expense of $13.0 million was primarily due to the order backlog recorded in connection with the 2016 acquisitions becoming fully amortized in fiscal 2017. This was slightly offset by amortization expense on the definite-lived intangible assets (i.e., technology and order backlog) recorded in connection with the Third Quarter 2017 acquisitions.
•
Refinancing Costs. Refinancing costs of $1.8 million were recorded for the twenty-six week period ended March 31, 2018 , which related to the debt refinancing activity described in Note 8, "Debt." Refinancing costs of $35.6 million were recorded for the twenty-six week period ended April 1, 2017 representing debt issuance costs expensed in connection with the debt financing activity during the first and second quarter of the previous year, which primarily consisted of $28.8 million in premium paid on the redemption of the 2021 Notes and the write-off of $3.1 million in unamortized debt issuance costs, along with $3.3 million of debt issuance costs related to an additional issuance of our existing 2025 Notes.
•
Interest Expense-net. Interest expense-net includes interest on borrowings outstanding, amortization of debt issuance costs, original issue discount and premium and revolving credit facility fees slightly offset by interest income. Interest expense-net increased $28.4 million , or 9.6% , to $322.2 million for the twenty-six week period ended March 31, 2018 from $293.8 million for the comparable twenty-six week period last year. The net increase in interest expense-net was primarily due to an increase in the weighted average level of outstanding borrowings, which was approximately $11,864 million for the twenty-six week period ended March 31, 2018 and approximately $11,045 million for the twenty-six week period ended April 1, 2017 . The increase in weighted average level of borrowings was primarily due to the additional 2025 Notes offering of $300 million in the end of the second fiscal quarter of 2017, the additional $100 million drawn on the trade receivable securitization facility in the fourth quarter of fiscal 2017, and the additional net debt financing of $575 million in the fourth quarter of fiscal 2017. The weighted average interest rate for cash interest payments on total borrowings outstanding at March 31, 2018 was 5.2%.
•
Income Taxes . Income tax expense as a percentage of income before income taxes was approximately (17.3)% for the twenty-six week period ended March 31, 2018 compared to 22.5% for the twenty-six week period ended April 1, 2017 . The Tax Cuts and Jobs Act was enacted on December 22, 2017. The Act reduces the US 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, using a blended rate for the annual period. As a result, the blended statutory tax rate for the year is 24.5%. At March 31, 2018, 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 have recognized a provisional benefit amount of $170.2 million related to the remeasurement of our deferred tax balance for the twenty-six week period ended March 31, 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 twenty-six week period ended March 31, 2018. The one-time transition tax is

31
Table of Contents

based on our total post-1986 E&P that we previously deferred from US 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 benefit amount of $147.1 million as a discrete tax benefit, which is included as a component of income tax expense from continuing operations. The Company's lower effective tax rate for the twenty-six week period ended March 31, 2018 was due to the reduction in the U.S. federal corporate tax rate as well as the discrete adjustment related to the enactment of the Act described above.
•
Loss from Discontinued Operations. 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. The loss from discontinued operations was $2.8 million for the twenty-six week period ended March 31, 2018 . Refer to Note 14, “Discontinued Operations,” for further details. The loss from discontinued operations was $0.2 million for the twenty-six week period ended April 1, 2017 .
•
Net Income . Net income increased $236.7 million , or 86.3% , to $511.1 million for the twenty-six week period ended March 31, 2018 compared to net income of $274.4 million for the twenty-six week period ended April 1, 2017 , primarily as a result of the factors referred to above.
•
Earnings per Share. Basic and diluted earnings per share was $8.18 for the twenty-six week period ended March 31, 2018 and $3.17 per share for the twenty-six week period ended April 1, 2017 . For the twenty-six week period ended March 31, 2018 , basic and diluted earnings per share from continuing operations and discontinued operations were $8.23 and $(0.05) , respectively. Net income for the twenty-six week period ended March 31, 2018 of $513.9 million was decreased by dividend equivalent payments of $56.1 million , resulting in net income available to common shareholders of $454.9 million . Net income for the twenty-six week period ended April 1, 2017 of $274.4 million was decreased by an allocation of dividends on participating securities of $96.0 million , or $1.71 per share, resulting in net income available to common shareholders of $178.4 million .
Business Segments
•
Segment Net Sales . Net sales by segment for the twenty-six week period ended March 31, 2018 and April 1, 2017 were as follows (amounts in millions):
 
Twenty-Six Week Periods Ended
 
 
 
 
 
March 31, 2018
 
% of Sales
 
April 1, 2017
 
% of Sales
 
Change
 
% Change
Power & Control
$
1,011.2

 
56.8
%
 
$
909.8

 
54.1
%
 
$
101.4

 
11.1
 %
Airframe
703.2

 
39.5
%
 
709.2

 
42.1
%
 
(6.0
)
 
(0.8
)%
Non-aviation
66.6

 
3.7
%
 
63.7

 
3.8
%
 
2.9

 
4.6
 %
 
$
1,781.0

 
100.0
%
 
$
1,682.7

 
100.0
%
 
$
98.3

 
5.8
 %
Acquisition sales for the Power & Control segment totaled $17.4 million , or an increase of 1.9% , resulting from the Third Quarter 2017 Acquisitions. Organic sales increased $84.0 million , or an increase of 9.2% , for the twenty-six week period ended March 31, 2018 compared to the twenty-six week period ended April 1, 2017 . The organic sales increase resulted primarily from an increase in commercial aftermarket sales ( $41.8 million , an increase of 15.2% ), defense sales ( $23.3 million , an increase of 5.7% ) and an increase in commercial OEM sales ( $14.5 million , an increase of 7.1% ).
Organic sales for the Airframe business decreased $6.0 million , or 0.8% , for the twenty-six week period ended March 31, 2018 compared to the twenty-six week period ended April 1, 2017 . The organic sales decrease primarily resulted from decreases in defense sales ( $14.7 million , a decrease of 9.5% ) and commercial OEM sales ( $19.8 million , a decrease of 8.0% ) partially offset by an increase in commercial aftermarket sales ( $28.6 million , or 9.5% ).
•
EBITDA As Defined . EBITDA As Defined by segment for the twenty-six week period s ended March 31, 2018 and April 1, 2017 were as follows (amounts in millions):
 
Twenty-Six Week Periods Ended
 
 
 
 
 
March 31, 2018
 
% of  Segment
Sales
 
April 1, 2017
 
% of  Segment
Sales
 
Change
 
% Change
Power & Control
$
520.3

 
51.5
%
 
$
445.7

 
49.0
%
 
$
74.6

 
16.7
 %
Airframe
344.4

 
49.0
%
 
351.5

 
49.6
%
 
(7.1
)
 
(2.0
)%
Non-aviation
19.3

 
29.0
%
 
20.7

 
32.4
%
 
(1.4
)
 
(6.8
)%
 
$
884.0

 
49.6
%
 
$
817.9

 
48.6
%
 
$
66.1

 
8.1
 %

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Table of Contents

EBITDA As Defined for the Power & Control segment from the Third Quarter 2017 Acquisitions was approximately $7.9 million for the twenty-six week period ended March 31, 2018 . Organic EBITDA As Defined increased approximately $66.7 million, or an increase of 15.0%, resulting from organic sales growth in commercial aftermarket sales, commercial OEM sales and defense sales, as well as the application of our three core value-driven operating strategies, and positive leverage on our fixed overhead costs spread over a higher production volume.
Organic EBITDA as Defined for the Airframe segment decreased $7.1 million , a 2.0% decrease, for the twenty-six week period ended March 31, 2018 . Organic EBITDA As Defined decreased as a result of a decrease in commercial OEM sales and defense sales offset by organic sales growth in commercial aftermarket sales and the application of our three core value-driven operating strategies, and positive leverage on our fixed overhead costs spread over a higher production volume.
Backlog
As of March 31, 2018 , the Company estimated its sales order backlog at $1,869 million compared to an estimated sales order backlog of $1,648 million as of April 1, 2017 . The increase in backlog is primarily due to acquisitions and organic growth in both the defense market and the commercial aftermarket. The majority of the purchase orders outstanding as of March 31, 2018 are scheduled for delivery within the next twelve months. Purchase orders may be subject to cancellation or deferral by the customer prior to shipment. The level of unfilled purchase orders at any given date during the year will be materially affected by the timing of the Company’s receipt of purchase orders and the speed with which those orders are filled. Accordingly, the Company’s backlog as of March 31, 2018 may not necessarily represent the actual amount of shipments or sales for any future period.
Foreign Operations
Although we manufacture a significant portion of our products in the United States, we manufacture some products in Belgium, China, Germany, Hungary, Japan, Malaysia, Mexico, Norway, Sri Lanka, Sweden, and the United Kingdom. We sell our products in the United States as well as in foreign countries. Although the majority of sales of our products are made to customers (including distributors) located in the United States, our products are ultimately sold to and used by customers, including airlines and other end users of aircraft, throughout the world. A number of risks inherent in international operations could have a material adverse effect on our results of operations, including currency fluctuations, difficulties in staffing and managing multi-national operations, general economic and political uncertainties and potential for social unrest in countries in which we operate, limitations on our ability to enforce legal rights and remedies, restrictions on the repatriation of funds, change in trade policies, tariff regulation, difficulties in obtaining export and import licenses and the risk of government financed competition.
There can be no assurance that foreign governments will not adopt regulations or take other action that would have a direct or indirect adverse impact on the business or market opportunities of the Company within such governments’ countries. Furthermore, there can be no assurance that the political, cultural and economic climate outside the United States will be favorable to our operations and growth strategy.
Liquidity and Capital Resources
We have historically maintained a capital structure comprising a mix of equity and debt financing. We vary our leverage both to optimize our equity return and to pursue acquisitions. We expect to meet our current debt obligations as they come due through internally generated funds from current levels of operations and/or through refinancing in the debt markets prior to the maturity dates of our debt.
We continually evaluate our debt facilities to assess whether they most efficiently and effectively meet the current and future needs of our business. The Company evaluates from time to time the appropriateness of its current leverage, taking into consideration the Company’s debt holders, equity holders, credit ratings, acquisition opportunities and other factors.
If the Company has excess cash, it generally prioritizes allocating the excess cash in the following manner: (1) capital spending at existing businesses, (2) acquisitions of businesses, (3) payment of a special dividend and/or repurchases of our common stock and (4) prepayment of indebtedness or repurchase of debt. Whether the Company undertakes additional common stock repurchases or other aforementioned activities will depend on prevailing market conditions, the Company's liquidity requirements, contractual restrictions and other factors. The amounts involved may be material. In addition, the Company may issue additional debt if prevailing market conditions are favorable to doing so.
In connection with the continued application of our three core value-driven operating strategies (obtaining profitable new business, continually improving our cost structure and providing highly engineered value-added products to customers), we expect our efforts will continue to generate strong margins and provide more than sufficient cash provided by operating activities to meet our interest obligations and liquidity needs.  We believe our cash provided by operating activities and available borrowing capacity will enable us to make opportunistic investments in our own stock, make strategic business combinations and/or pay dividends to our shareholders.

33
Table of Contents

In the future, the Company may increase its borrowings in connection with acquisitions, if cash flows from operating activities becomes insufficient to fund current operations or for other short-term cash needs or for stock repurchases or special dividends. Our future leverage will also be impacted by the then current conditions of the credit markets.
Operating Activities. The Company generated $453.7 million of net cash from operating activities during the twenty-six week period ended March 31, 2018 compared to $390.5 million during the twenty-six week period ended April 1, 2017 . The net increase of $63.2 million is primarily attributable to an increase in income from continuing operations of $69.3 million (excluding the non-cash effects of the adjustments resulting from the Tax Cuts and Jobs Act (approximately $170 million).
The change in accounts receivable during the twenty-six week period ended March 31, 2018 was a source of cash of $5.9 million compared to a source of cash of $3.1 million during the twenty-six week period ended April 1, 2017 . The increase in the source of cash of $2.8 million is attributable to the higher rate of collections of accounts receivable in second quarter of fiscal year 2018 compared to the second quarter of fiscal 2017.
The change in inventories during the twenty-six week period ended March 31, 2018 was a use of cash of $16.3 million compared to a source of cash of $6.9 million during the twenty-six week period ended April 1, 2017 . The increase in the use of cash of $23.2 million is primarily attributable to acquisitions and an increase in raw material and component purchases in response to the growth in backlog.
The change in accounts payable during the twenty-six week period ended March 31, 2018 was a use of cash of $0.6 million compared to a use of cash of $17.5 million during the twenty-six week period ended April 1, 2017 . The decrease in the use of cash of $16.9 million was primarily attributable to the timing of payments to vendors in connection with continued efforts to improve working capital management.
Investing Activities . Net cash used in investing activities was $23.5 million during the twenty-six week period ended March 31, 2018 consisting of capital expenditures of $30.9 million , and payments for acquisitions of $50.3 million which primarily consisted of the Kirkhill acquisition. The uses of cash related to investing activities was partially offset by the cash proceeds received from the sale of Schroth of $57.7 million .
Net cash used in investing activities during the twenty-six week period ended April 1, 2017 was comprised of capital expenditures of $38.4 million and acquisition activities of $108.9 million , which primarily consisted of $78.9 million for the acquisition of Schroth and $28.7 million for the cash settlement of the Breeze-Eastern dissenting shares litigation.
Financing Activities. Net cash used in financing activities during the twenty-six week period ended March 31, 2018 was $72.0 million . The use of cash was primarily related to the payment of $56.1 million in dividend equivalent payments and $34.5 million in debt service payments on existing term loans, partially offset by $26.3 million in proceeds from stock option exercises.
Net cash used in financing activities during the twenty-six week period ended March 31, 2018 was $841.6 million . The use of cash was primarily related to the aggregate payment of $1,376.0 million for a $24.00 per share special dividend and dividend equivalent payments, redemption and related premium paid on the 2021 Notes aggregating to $528.8 million, $339.8 million related to treasury stock purchases under the Company's share repurchase program, and $32.3 million in debt service payments on the existing term loans. Slightly offsetting the uses of cash were net proceeds from the 2017 term loans and the additional 2025 Notes offering of $1,132.8 million and $301.0 million, respectively, and $12.3 million in proceeds from stock option exercises.
Description of Senior Secured Term Loans and Indentures
Senior Secured Term Loans Facility
TransDigm has $6,938.1 million in fully drawn term loans (the “Term Loans Facility”) and a $600.0 million revolving credit facility. The Term Loans Facility consists of three tranches of term loans as follows (aggregate principal amount disclosed is as of March 31, 2018 ):
Term Loans Facility
 
Aggregate Principal
 
Maturity Date
 
Interest Rate
Tranche E
 
$1,495.8 million
 
May 14, 2022
 
LIBO rate + 2.75%
Tranche F
 
$3,636.9 million
 
June 9, 2023
 
LIBO rate + 2.75%
Tranche G
 
$1,805.4 million
 
August 22, 2024
 
LIBO rate + 2.50%
The Term Loans Facility requires quarterly aggregate principal payments of $17.4 million. The revolving commitments consist of two tranches which includes up to $100 million of multicurrency revolving commitments. At March 31, 2018 , the Company had $15.2 million in letters of credit outstanding and $584.8 million in borrowings available under the revolving commitments.
The interest rates per annum applicable to the loans under the Credit Agreement will be, at TransDigm’s option, equal to either an alternate base rate or an adjusted LIBO rate for one, two, three or six-month (or to the extent agreed to by each relevant lender, nine or twelve-month) interest periods chosen by TransDigm, in each case plus an applicable margin percentage. The adjusted LIBO rate related to the tranche E, tranche F and tranche G term loans are subject to a floor of 0.0%. For the twenty-six week

34
Table of Contents

period ended March 31, 2018 , the applicable interest rates ranged from approximately 4.07% to 4.69% on the existing term loans. Interest rate swaps and caps used to hedge and offset, respectively, the variable interest rates on the credit facility are described in Note 11, “Derivatives and Hedging Activities,” to the condensed consolidated financial statements included herein.
Recent Amendments to the Credit Agreement
On August 22, 2017, the Company entered into Amendment No. 3 and Incremental Term Loan Assumption Agreement to the Second Amended and Restated Credit Agreement (“Amendment No. 3”). Pursuant to Amendment No. 3, TransDigm, among other things, incurred the new tranche G term loans in an aggregate principal amount equal to approximately $1.8 billion and repaid in full all of the tranche C term loans outstanding under the Restated Credit Agreement. The tranche G term loans were fully drawn on August 22, 2017. The tranche G term loans mature on August 22, 2024. The terms and conditions (other than maturity date) that apply to the tranche G term loans, including pricing, are substantially the same as the terms and conditions that applied to the tranche C term loans immediately prior to Amendment No. 3. Amendment No. 3 also permitted (a) payment of a special dividend, share repurchase, or combination thereof, in an aggregate amount up to approximately $1.3 billion within 60 days of the effective date of Amendment No. 3, and (b) certain additional restricted payments, including the ability of the Company to declare or pay dividends or repurchase stock, in an aggregate amount not to exceed $1.5 billion within twelve months of the effective date of Amendment No. 3 provided that, among other conditions, if such additional loans are to be used by the Company to repurchase shares of its capital stock, the consolidated secured net debt ratio would be no greater than 4.00 to 1.00 and if such additional terms loans are to be used by TD Group to pay dividends or other distributions on or in respect of its capital stock, the consolidated net leverage ratio would be no greater than 6.50 to 1.00, in each case, after giving effect to such incremental term loans. If any portion of the $1.5 billion is not used for dividends or share repurchases over such twelve month period, such amount (not to exceed $500 million) may be used to repurchase stock at any time thereafter.
On November 30, 2017, the Company entered into Amendment No. 4 to the Second Amended and Restated Credit Agreement (“Amendment No. 4”) . Pursuant to Amendment No. 4, TransDigm, among other things, converted approximately $798.2 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 and also removed the LIBO rate floor of 0.75%. 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.
On February 22, 2018, the Company entered into a refinancing facility agreement to the Second Amended and Restated Credit 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, excluding 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.
Indentures
Senior Subordinated Notes
 
Aggregate Principal
 
Maturity Date
 
Interest Rate
2020 Notes
 
$550 million
 
October 15, 2020
 
5.50%
2022 Notes
 
$1,150 million
 
July 15, 2022
 
6.00%
2024 Notes
 
$1,200 million
 
July 15, 2024
 
6.50%
2025 Notes
 
$750 million
 
May 15, 2025
 
6.50%
2026 Notes
 
$950 million
 
June 15, 2026
 
6.375%
The 2020 Notes, the 2022 Notes, the 2024 Notes, and the 2026 Notes (the “Notes”) were issued at an issue price of 100% of the principal amount. The initial $450 million offering of the 2025 Notes (also considered to be part of the “Notes”) were issued at an issue price of 100% of the principal amount and the subsequent $300 million offering in the second quarter ended of fiscal 2017 of 2025 Notes were issued at an issue price of 101.5% of the principal amount, resulting in gross proceeds of $304.5 million.
Such Notes do not require principal payments prior to their maturity. Interest under the Notes is payable semi-annually. The Notes represent unsecured obligations of TransDigm Inc. ranking subordinate to TransDigm Inc.’s senior debt, as defined in the applicable Indentures.
The Notes are subordinated to all of TransDigm’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 Notes. The Notes are guaranteed on a senior subordinated unsecured basis by TD Group and its wholly-owned domestic subsidiaries named in the indentures. The guarantees of the Notes are subordinated to all of the guarantors’ existing and future senior debt, rank equally with all of their existing and future senior subordinated debt and rank senior to all of their future debt that is expressly subordinated to the guarantees of the Notes. The Notes are structurally subordinated to all of the liabilities of TD Group’s non-guarantor subsidiaries. The Notes

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contain many of the restrictive covenants included in the Credit Agreement. TransDigm is in compliance with all of the covenants contained in the Notes.
Certain Restrictive Covenants in Our Debt Documents
The Credit Agreement and the Indentures governing the Notes contain restrictive covenants that, among other things, limit the incurrence of additional indebtedness, the payment of special dividends, transactions with affiliates, asset sales, acquisitions, mergers and consolidations, liens and encumbrances, and prepayments of certain other indebtedness.
The restrictive covenants included in the Credit Agreement are subject to amendments executed periodically. The most recent amendment that impacted the restrictive covenants contained in the Credit Agreement is Amendment No. 3. The restrictive covenants are described above in the Recent Amendments to the Credit Agreement section.
Under the terms of the Credit Agreement, TransDigm is entitled, on one or more occasions, to request additional term loans or additional revolving commitments to the extent that the existing or new lenders agree to provide such incremental term loans or additional revolving commitments provided that, among other conditions, our consolidated net leverage ratio would be no greater than 7.25 to 1.00 and the consolidated secured net debt ratio would be no greater than 4.25 to 1.00, in each case, after giving effect to such incremental term loans or additional revolving commitments.
The Credit Agreement requires mandatory prepayments of principal based on certain percentages of Excess Cash Flow (as defined in the Credit Agreement), commencing 90 days after the end of each fiscal year, subject to certain exceptions. In addition, subject to certain exceptions (including, with respect to asset sales, the reinvestment in productive assets), TransDigm will be required to prepay the loans outstanding under the Credit Agreement at 100% of the principal amount thereof, plus accrued and unpaid interest, with the net cash proceeds of certain asset sales and issuance or incurrence of certain indebtedness. No matters mandating prepayments occurred during the quarter ended March 31, 2018 .
In addition, under the Credit Agreement, if the usage of the revolving credit facility exceeds 25% of the total revolving commitments, the Company will be required to maintain a maximum consolidated net leverage ratio of net debt, as defined, to trailing four-quarter EBITDA As Defined. A breach of any of the covenants or an inability to comply with the required leverage ratio could result in a default under the Credit Agreement or the Indentures.
If any such default occurs, the lenders under the Credit Agreement and the holders of the Notes may elect to declare all outstanding borrowings, together with accrued interest and other amounts payable thereunder, to be immediately due and payable. The lenders under the Credit Agreement also have the right in these circumstances to terminate any commitments they have to provide further borrowings. In addition, following an event of default under the Credit Agreement, the lenders thereunder will have the right to proceed against the collateral granted to them to secure the debt, which includes our available cash, and they will also have the right to prevent us from making debt service payments on the Notes.
As of March 31, 2018 , the Company was in compliance with all of its debt covenants.
Trade Receivables Securitization
During fiscal 2014, the Company established a trade receivable securitization facility (the “Securitization Facility”). The Securitization Facility effectively increases the Company’s borrowing capacity depending on the amount of the domestic operations’ trade accounts receivable. The Securitization Facility includes the right for the Company to exercise annual one year extensions as long as there have been no termination events as defined by the agreement. The Company uses the proceeds from the Securitization Facility as an alternative to other forms of debt, effectively reducing borrowing costs. In August 2017, the Company amended the Securitization Facility to increase the borrowing capacity to $300 million and extend the maturity date to August 1, 2018 . As of March 31, 2018 , the Company has borrowed $300 million under the Securitization Facility. The Securitization Facility is collateralized by substantially all of the Company’s domestic operations’ trade accounts receivable.
Stock Repurchase Program
On November 8, 2017, our Board of Directors, authorized a new stock repurchase program replacing the previous $600 million program and permitting repurchases of our outstanding shares not to exceed $650 million in the aggregate, subject to any restrictions specified in the Credit Agreement and/or Indentures governing the existing Notes. No repurchases were made under the program during the quarter and year-to-date period ended March 31, 2018 .

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Non-GAAP Financial Measures
We present below certain financial information based on our EBITDA and EBITDA As Defined. References to “EBITDA” mean earnings before interest, taxes, depreciation and amortization, and references to “EBITDA As Defined” mean EBITDA plus, as applicable for each relevant period, certain adjustments as set forth in the reconciliations of net income to EBITDA and EBITDA As Defined and the reconciliations of net cash provided by operating activities to EBITDA and EBITDA As Defined presented below.
Neither EBITDA nor EBITDA As Defined is a measurement of financial performance under accounting principles generally accepted in the United States of America (“GAAP”). We present EBITDA and EBITDA As Defined because we believe they are useful indicators for evaluating operating performance and liquidity.
Our management believes that EBITDA and EBITDA As Defined are useful as indicators of liquidity because securities analysts, investors, rating agencies and others use EBITDA to evaluate a company’s ability to incur and service debt. In addition, EBITDA As Defined is useful to investors because the revolving credit facility under our senior secured credit facility requires compliance under certain circumstances, on a pro forma basis, with a financial covenant that measures the ratio of the amount of our secured indebtedness to the amount of our Consolidated EBITDA defined in the same manner as we define EBITDA As Defined herein.
In addition to the above, our management uses EBITDA As Defined to review and assess the performance of the management team in connection with employee incentive programs and to prepare its annual budget and financial projections. Moreover, our management uses EBITDA As Defined to evaluate acquisitions.
Although we use EBITDA and EBITDA As Defined as measures to assess the performance of our business and for the other purposes set forth above, the use of these non-GAAP financial measures as analytical tools has limitations, and you should not consider any of them in isolation, or as a substitute for analysis of our results of operations as reported in accordance with GAAP. Some of these limitations are:
•
neither EBITDA nor EBITDA As Defined reflects the significant interest expense, or the cash requirements, necessary to service interest payments on our indebtedness;
•
although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and neither EBITDA nor EBITDA As Defined reflects any cash requirements for such replacements;
•
the omission of the substantial amortization expense associated with our intangible assets further limits the usefulness of EBITDA and EBITDA As Defined;
•
neither EBITDA nor EBITDA As Defined includes the payment of taxes, which is a necessary element of our operations; and
•
EBITDA As Defined excludes the cash expense we have incurred to integrate acquired businesses into our operations, which is a necessary element of certain of our acquisitions.
Because of these limitations, EBITDA and EBITDA As Defined should not be considered as measures of discretionary cash available to us to invest in the growth of our business. Management compensates for these limitations by not viewing EBITDA or EBITDA As Defined in isolation and specifically by using other GAAP measures, such as net income, net sales and operating profit, to measure our operating performance. Neither EBITDA nor EBITDA As Defined is a measurement of financial performance under GAAP, and neither should be considered as an alternative to net income or cash flow from operations determined in accordance with GAAP. Our calculation of EBITDA and EBITDA As Defined may not be comparable to the calculation of similarly titled measures reported by other companies.

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The following table sets forth a reconciliation of net income to EBITDA and EBITDA As Defined (in thousands):
 
Thirteen Week Periods Ended
 
Twenty-Six Week Periods Ended
 
March 31, 2018
 
April 1, 2017
 
March 31, 2018
 
April 1, 2017
 
(in thousands)
 
 
 
 
Net income
$
196,278

 
$
155,505

 
$
511,053

 
$
274,376

Less: Loss from discontinued operations, net of tax (1)
(5,562
)
 
(186
)
 
(2,798
)
 
(186
)
Income from continuing operations
201,840

 
155,691

 
513,851

 
274,562

Adjustments:
 
 
 
 
 
 
 
Depreciation and amortization expense
30,970

 
34,661

 
61,609

 
72,708

Interest expense, net
161,266

 
147,842

 
322,199

 
293,846

Income tax provision
45,347

 
59,508

 
(75,700
)
 
79,558

EBITDA
439,423

 
397,702

 
821,959

 
720,674

Adjustments:
 
 
 
 
 
 
 
Inventory purchase accounting adjustments (2)
—

 
2,799

 
—

 
19,377

Acquisition integration costs (3)
3,980

 
1,399

 
5,329

 
2,509

Acquisition transaction-related expenses (4)
505

 
3,554

 
1,230

 
4,434

Non-cash stock compensation expense (5)
11,590

 
11,105

 
22,703

 
21,126

Refinancing costs (6)
638

 
3,507

 
1,751

 
35,591

Other, net (7)
6,987

 
1,610

 
11,684

 
(841
)
EBITDA As Defined
$
463,123

 
$
421,676

 
$
864,656

 
$
802,870

                                     
(1)  
During the fourth quarter of 2017, the Company committed to disposing of Schroth in connection with the settlement of a Department of Justice investigation into the competitive effects of the acquisition. Therefore, Schroth was classified as held-for-sale beginning September 30, 2017. 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. Refer to Note 14, "Discontinued Operations," for further information.
(2)  
Represents accounting adjustments to inventory associated with acquisitions of businesses and product lines that were charged to cost of sales when the inventory was sold.
(3)  
Represents costs incurred to integrate acquired businesses and product lines into TD Group’s operations, facility relocation costs and other acquisition-related costs.
(4)  
Represents transaction-related costs comprising deal fees; legal, financial and tax due diligence expenses, and valuation costs that are required to be expensed as incurred.
(5)  
Represents the compensation expense recognized by TD Group under our stock incentive plans.
(6)  
Represents costs expensed related to debt financing activities, including new issuances, extinguishments, refinancings and amendments to existing agreements.
(7)  
Primarily represents foreign currency transaction gain or loss, payroll withholding taxes related to dividend equivalent payments and stock option exercises and gain or loss on sale of fixed assets. Prior to the fourth quarter of fiscal 2017, foreign currency transaction gain or loss other than related to intercompany loans was not included in the adjustments to EBITDA, as the foreign currency transaction gain or loss was immaterial during those periods. Therefore, the prior periods presented herein were adjusted to conform to the current year presentation.

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The following table sets forth a reconciliation of net cash provided by operating activities to EBITDA and EBITDA As Defined (in thousands):
 
Twenty-Six Week Periods Ended
 
March 31, 2018
 
April 1, 2017
 
(in thousands)
Net cash provided by operating activities
$
453,684

 
$
390,500

Adjustments:
 
 
 
Changes in assets and liabilities, net of effects from acquisitions of businesses
(9,404
)
 
24,036

Interest expense, net (1)
311,605

 
283,676

Income tax provision - current
90,892

 
79,212

Non-cash stock compensation expense (2)
(22,703
)
 
(21,126
)
Refinancing costs (6)
(1,751
)
 
(35,591
)
EBITDA from discontinued operations (8)
(364
)
 
(33
)
EBITDA
821,959


720,674

Adjustments:
 
 
 
Inventory purchase accounting adjustments (3)
—

 
19,377

Acquisition integration costs (4)
5,329

 
2,509

Acquisition transaction-related expenses (5)
1,230

 
4,434

Non-cash stock compensation expense (2)
22,703

 
21,126

Refinancing costs (6)
1,751

 
35,591

Other, net (7)
11,684

 
(841
)
EBITDA As Defined
$
864,656


$
802,870

                                     
(1)  
Represents interest expense excluding the amortization of debt issuance costs and premium and discount on debt.
(2)  
Represents the compensation expense recognized by TD Group under our stock incentive plans.
(3)  
Represents accounting adjustments to inventory associated with acquisitions of businesses and product lines that were charged to cost of sales when the inventory was sold.
(4)  
Represents costs incurred to integrate acquired businesses and product lines into TD Group’s operations, facility relocation costs and other acquisition-related costs.
(5)  
Represents transaction-related costs comprising deal fees; legal, financial and tax due diligence expenses, and valuation costs that are required to be expensed as incurred.
(6)  
Represents costs expensed related to debt financing activities, including new issuances, extinguishments, refinancings and amendments to existing agreements.
(7)  
Primarily represents foreign currency transaction gain or loss, payroll withholding taxes related to dividend equivalent payments and stock option exercises and gain or loss on sale of fixed assets. Prior to the fourth quarter of fiscal 2017, foreign currency transaction gain or loss other than related to intercompany loans was not included in the adjustments to EBITDA, as the foreign currency transaction gain or loss was immaterial during those periods. Therefore, the prior periods presented herein were adjusted to conform to the current year presentation.
(8)  
During the fourth quarter of 2017, the Company committed to disposing of Schroth in connection with the settlement of a Department of Justice investigation into the competitive effects of the acquisition. Therefore, Schroth was classified as held-for-sale beginning September 30, 2017. 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. Refer to Note 14, "Discontinued Operations," for further information.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The information called for by this item is provided under the caption ' Description of Senior Secured Credit Facilities and Indentures ' under Item 2 - "Management's Discussion and Analysis of Financial Condition and Results of Operations." Market risks are described more fully within “Quantitative and Qualitative Disclosures About Market Risk” in Part II, Item 7A of our most recent Form 10-K. These market risks have not materially changed since the date our most recent Form 10-K was filed with the SEC.
ITEM 4. CONTROLS AND PROCEDURES
As of March 31, 2018 , TD Group carried out an evaluation, under the supervision and with the participation of TD Group’s management, including its President and Chief Executive Officer (Principal Executive Officer) and Executive Vice President and Interim Chief Financial Officer (Principal Financial and Accounting Officer), of the effectiveness of the design and operation of TD Group’s disclosure controls and procedures. Based upon that evaluation, the President and Chief Executive Officer and Executive Vice President and Interim Chief Financial Officer concluded that TD Group’s disclosure controls and procedures are effective to ensure that information required to be disclosed by TD Group in the reports it files or submits under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported, within the time periods specified by the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to TD Group’s management, including President and Chief Executive Officer and Executive Vice President and Interim Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, TD Group’s management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in designing and evaluating the controls and procedures. There have been no significant changes in TD Group’s internal controls or other factors that could significantly affect the internal controls subsequent to the date of TD Group’s evaluations.
Changes in Internal Control over Financial Reporting
There was no change in the Company’s internal control over financial reporting that occurred during the fiscal quarter ended March 31, 2018, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. During the fiscal quarter ending March 31, 2018 and year-ended September 30, 2017, the Company completed the acquisition of Kirkhill and the Third Quarter 2017 Acquisitions. The Company is currently integrating these acquisitions into its operations, compliance programs and internal control processes. As permitted by SEC rules and regulations, the Company has excluded these acquisitions from management's evaluation of internal controls over financial reporting as of March 31, 2018. These acquisitions constituted less than 2% of the Company's total assets as of March 31, 2018, and less than 1% of the Company's net sales in the fiscal quarter ended March 31, 2018.
.

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PART II: OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS
We and certain of our current or former officers and directors are defendants in a consolidated securities class action captioned In re TransDigm Group, Inc. Securities Litigation , Case No. 1:17-cv-01677-DCN (N.D. Ohio).  The cases were originally filed on August 10, 2017, and September 18, 2017 and were consolidated on December 5, 2017.  A consolidated amended complaint was filed on February 16, 2018. The plaintiffs allege that the defendants made false or misleading statements with respect to, or failed to disclose, the impact of certain alleged business practices in connection with sales to the U.S. government on the Company’s growth and profitability.  The plaintiffs assert claims under Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder and Section 20(a) of the Exchange Act, and seek unspecified monetary damages and other relief.  In addition, we, as nominal defendant, and certain of our current or former officers and directors are defendants in a shareholder derivative action captioned Sciabacucchi v. Howley et al. , No. 1:17-cv-1971-DCN (N.D. Ohio). The case was filed on September 19, 2017.  The plaintiffs allege breach of fiduciary duty and other claims arising out of substantially the same actions or inactions alleged in the securities class actions described above. This action has been stayed pending the outcome of an anticipated motion to dismiss on the securities class action.  Although we are only a nominal defendant in the derivative action, we could have indemnification obligations and/or be required to advance the costs and expenses of the officer and director defendants in the action.
We intend to vigorously defend these matters and believe they are without merit.  We also believe we have sufficient insurance coverage available for these matters.  Therefore, we do not expect these matters to have a material adverse impact on our financial condition or results of operations.  However, given the preliminary status of the litigation, it is difficult to predict the likelihood of an adverse outcome or estimate a range of any potential loss.
ITEM 1A. RISK FACTORS
In addition to the other information set forth in this report, you should carefully consider the risk factors disclosed in Item 1A of our Annual Report on Form 10-K for the fiscal year ended September 30, 2017, filed on November 13, 2017. There have been no material changes to the risk factors set forth therein.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS: PURCHASES OF EQUITY SECURITIES BY THE ISSUER
On November 8, 2017, our Board of Directors, authorized a new stock repurchase program replacing the previous $600 million program and permitting repurchases of our outstanding shares not to exceed $650 million in the aggregate, subject to any restrictions specified in the Credit Agreement and/or Indentures governing the existing Notes. No repurchases were made under the program during the thirteen and twenty-six week periods ended March 31, 2018 .

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ITEM 6. EXHIBITS

 

 

 

 

 

 

 

 

  

  

  

  
101

  
Financial Statements and Notes to the Condensed Consolidated Financial Statements formatted in XBRL

* Denotes management contact or compensatory plan or arrangement

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
TRANSDIGM GROUP INCORPORATED
 
SIGNATURE
  
TITLE
  
DATE
/s/ Kevin Stein
  
President and
Chief Executive Officer
(Principal Executive Officer)
  
May 4, 2018
Kevin Stein
 
 
 
 
 
 
 
/s/ James Skulina
  
Executive Vice President and
Interim Chief Financial Officer
(Principal Financial and Accounting Officer)
  
May 4, 2018
James Skulina
 
 

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EXHIBIT INDEX
TO FORM 10-Q FOR THE PERIOD ENDED MARCH 31, 2018
EXHIBIT NO.
  
DESCRIPTION
 
 
 
 
 
 
 
 
  
  
  
  
101
  
Financial Statements and Notes to the Condensed Consolidated Financial Statements formatted in XBRL

* Denotes management contact or compensatory plan or arrangement

44
Exhibit 3.2

AMENDED AND RESTATED BY-LAWS
OF
KIRKHILL INC.

ARTICLE I

Meetings of Stockholders
Section 1. Annual Meetings . The annual meeting of stockholders shall be held at such time and place and on such date in each year as may be fixed by the board of directors and stated in the notice of the meeting, for the election of directors, the consideration of reports to be laid before such meeting and the transaction of such other business as may properly come before the meeting.
Section 2. Special Meetings . Special meetings of the stockholders shall be called upon the written request of the chairman of the board of directors, the chief executive officer, the president, the directors by action at a meeting, a majority of the directors acting without a meeting, or of the holders of shares entitling them to exercise a majority of the voting power of the Corporation entitled to vote thereat. Calls for such meetings shall specify the purposes thereof. No business other than that specified in the call shall be considered at any special meeting.
Section 3. Notices of Meetings . Unless waived, and except as provided in Section 230 of the General Corporation Law of the State of Delaware, written notice of each annual or special meeting stating the date, time, place and purposes thereof shall be given by personal delivery or by mail to each stockholder of record entitled to vote at or entitled to notice of the meeting, not more than sixty days nor less than ten days before any such meeting. If mailed, such notice shall be directed to the stockholder at his address as the same appears upon the records of the Corporation. Any stockholder, either before or after any meeting, may waive any notice required to be given by law or under these By-laws.
Section 4. Place of Meetings . Meetings of stockholders shall be held at the principal office of the Corporation unless the board of directors determines that a meeting shall be held at some other place within or without the State of Delaware and causes the notice thereof to so state.
Section 5. Quorum . The holders of shares entitling them to exercise a majority of the voting power of the Corporation entitled to vote at any meeting, present in person or by proxy, shall constitute a quorum for the transaction of business to be considered at such meeting; provided, however, that no action required by law or by the Certificate of Incorporation or these By-laws to be authorized or taken by the holders of a designated proportion of the shares of any particular class or of each class may be authorized or taken by a lesser proportion; and provided, further, that if a separate class vote is required with respect to any matter, the holders of a majority of the outstanding shares of such class, present in person or by proxy, shall constitute a quorum of such class, and the affirmative vote of the majority of shares of such class so present shall be the act of such class. The holders of a majority of the voting shares represented at a




meeting, whether or not a quorum is present, may adjourn such meeting from time to time, until a quorum shall be present.
Section 6. Record Date . The board of directors may fix a record date for any lawful purpose, including, without limiting the generality of the foregoing, the determination of stockholders entitled to (i) receive notice of or to vote at any meeting of stockholders or any adjournment thereof or to express consent to corporate action in writing without a meeting, (ii) receive payment of any dividend or other distribution or allotment of any rights, or (iii) exercise any rights in respect of any change, conversion or exchange of stock. Such record date shall not precede the date on which the resolution fixing the record date is adopted by the board of directors. Such record date shall not be more than sixty days nor less than ten days before the date of such meeting, nor more than sixty days before the date fixed for the payment of any dividend or distribution or the date fixed for the receipt or the exercise of rights, nor more than ten days after the date on which the resolution fixing the record date for such written consent is adopted by the board of directors, as the case may be.
If a record date shall not be fixed in respect of any such matter, the record date shall be determined in accordance with the General Corporation Law of the State of Delaware.
Section 7. Proxies . A person who is entitled to attend a stockholders’ meeting, to vote thereat, or to execute consents, waivers or releases, may be represented at such meeting or vote thereat, and execute consents, waivers and releases, and exercise any of his other rights, by proxy or proxies appointed by a writing signed by such person.

ARTICLE II

Directors
Section 1. Number of Directors . Until changed in accordance with the provisions of this section, the number of directors of the Corporation, none of whom need be stockholders, shall be no fewer than two (2) and no more than three (3). The number of directors may be fixed or changed by amendment of these By-laws or by resolution of the board of directors.
Section 2. Election of Directors . Directors shall be elected at the annual meeting of stockholders, but when the annual meeting is not held or directors are not elected thereat, they may be elected at a special meeting called and held for that purpose. Such election shall be by ballot whenever requested by any stockholder entitled to vote at such election, but unless such request is made the election may be conducted in any manner approved at such meeting.
At each meeting of stockholders for the election of directors, the persons receiving the greatest number of votes shall be directors.
Section 3. Term of Office . Each director shall hold office until the annual meeting next succeeding his election and until his successor is elected and qualified, or until his earlier resignation, removal from office or death.



Section 4. Removal . All the directors, or all the directors of a particular class, or any individual director may be removed from office, without assigning any cause, by the vote of the holders of a majority of the voting power entitling them to elect directors in place of those to be removed.
Section 5. Vacancies . Vacancies in the board of directors may be filled by a majority vote of the remaining directors until an election to fill such vacancies is held. Stockholders entitled to elect directors shall have the right to fill any vacancy in the board (whether the same has been temporarily filled by the remaining directors or not) at any meeting of the stockholders called for that purpose, and any directors elected at any such meeting of stockholders shall serve until the next annual election of directors and until their successors are elected and qualified.
Section 6. Quorum and Transaction of Business . A majority of the whole authorized number of directors shall constitute a quorum for the transaction of business, except that a majority of the directors in office shall constitute a quorum for filling a vacancy on the board. Whenever less than a quorum is present at the time and place appointed for any meeting of the board, a majority of those present may adjourn the meeting from time to time, until a quorum shall be present. The act of a majority of the directors present at a meeting at which a quorum is present shall be the act of the board.
Section 7. Annual Meeting . Annual meetings of the board of directors shall be held immediately following annual meetings of the stockholders, or as soon thereafter as is practicable. If no annual meeting of the stockholders is held, or if directors are not elected thereat, then the annual meeting of the board of directors shall be held immediately following any special meeting of the stockholders at which directors are elected, or as soon thereafter as is practicable. If such annual meeting of directors is held immediately following a meeting of the stockholders, it shall be held at the same place at which such stockholders’ meeting was held.
Section 8. Regular Meetings . Regular meetings of the board of directors shall be held at such times and places, within or without the State of Delaware, as the board of directors may, by resolution, from time to time determine. The secretary shall give notice of each such resolution to any director who was not present at the time the same was adopted, but no further notice of such regular meeting need be given.
Section 9. Special Meetings . Special meetings of the board of directors may be called by the chairman of the board, the chief executive officer, the president, any vice president or any two members of the board of directors, and shall be held at such times and places, within or without the State of Delaware, as may be specified in such call.
Section 10. Notice of Annual or Special Meetings . Notice of the time and place of each annual or special meeting shall be given to each director by the secretary or by the person or persons calling such meeting. Such notice need not specify the purpose or purposes of the meeting and may be given in any manner or method and at such time so that the director receiving it may have reasonable opportunity to attend the meeting. Such notice shall, in all events, be deemed to have been properly and duly given if mailed at least forty-eight hours prior



to the meeting and directed to the residence of each director as shown upon the secretary’s records. The giving of notice shall be deemed to have been waived by any director who shall attend and participate in such meeting and may be waived, in writing, by any director either before or after such meeting.
Section 11. Compensation . The directors, as such, shall be entitled to receive such reasonable compensation, if any, for their services as may be fixed from time to time by resolution of the board, and expenses of attendance, if any, may be allowed for attendance at each annual, regular or special meeting of the board. Nothing herein contained shall be construed to preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of the executive committee or of any standing or special committee may by resolution of the board be allowed such compensation for their services as the board may deem reasonable, and additional compensation may be allowed to directors for special services rendered.

ARTICLE III
Committees
Section 1. Executive Committee . The board of directors may from time to time, by resolution passed by a majority of the whole board, create an executive committee of three or more directors, the members of which shall be elected by the board of directors to serve during the pleasure of the board. If the board of directors does not designate a chairman of the executive committee, the executive committee shall elect a chairman from its own number. Except as otherwise provided herein and in the resolution creating an executive committee, such committee shall, during the intervals between the meetings of the board of directors, possess and may exercise all of the powers of the board of directors in the management of the business and affairs of the Corporation, other than that of filling vacancies among the directors or in any committee of the directors or except as provided by law. The executive committee shall keep full records and accounts of its proceedings and transactions. All action by the executive committee shall be reported to the board of directors at its meeting next succeeding such action and shall be subject to control, revision and alteration by the board of directors, provided that no rights of third persons shall be prejudicially affected thereby. Vacancies in the executive committee shall be filled by the directors, and the directors may appoint one or more directors as alternate members of the committee who may take the place of any absent member or members at any meeting.
Section 2. Meetings of Executive Committee . Subject to the provisions of these By-laws, the executive committee shall fix its own rules of procedure and shall meet as provided by such rules or by resolutions of the board of directors, and it shall also meet at the call of the chairman of the board, the chief executive officer, the president, the chairman of the executive committee or any two members of the committee. Unless otherwise provided by such rules or by such resolutions, the provisions of Section 10 of Article II relating to the notice required to be given of meetings of the board of directors shall also apply to meetings of the members of the executive committee. A majority of the executive committee shall be necessary to constitute a



quorum. The executive committee may act in writing without a meeting, but no such action of the executive committee shall be effective unless concurred in by all members of the committee.
Section 3. Other Committees . The board of directors may by resolution provide for such other standing or special committees as it deems desirable, and discontinue the same at its pleasure. Each such committee shall have such powers and perform such duties, not inconsistent with law, as may be delegated to it by the board of directors. The provisions of Section 1 and Section 2 of this Article shall govern the appointment and action of such committees so far as consistent, unless otherwise provided by the board of directors. Vacancies in such committees shall be filled by the board of directors or as the board of directors may provide.

ARTICLE IV
Officers
Section 1. General Provisions . The board of directors may elect officers, which may include a chief executive officer, a president, a secretary, a treasurer, or such number of vice presidents, if any, as the board may from time to time determine. The board of directors may also elect a chairman of the board of directors and may from time to time create such offices and appoint such other officers, subordinate officers and assistant officers as it may determine. The chairman of the board, if one be elected, shall be, but the other officers need not be, chosen from among the members of the board of directors. Any two or more of such offices, other than those of president and vice president, may be held by the same person.
Section 2. Term of Office . The officers of the Corporation shall hold office during the pleasure of the board of directors, and, unless sooner removed by the board of directors, until the annual meeting of the board of directors following the date of their election and until their successors are chosen and qualified. The board of directors may remove any officer at any time, with or without cause. Subject to the provisions of Section 6 of Article V of these By-laws, a vacancy in any office, however created, shall be filled by the board of directors.

ARTICLE V
Duties of Officers
Section 1. Chairman of the Board . The chairman of the board, if any, shall preside at all meetings of the board of directors and meetings of stockholders and shall have such other powers and duties as may be prescribed by the board of directors.
Section 2. Chief Executive Officer . The chief executive officer, if any, shall have, subject to the powers of the board of directors, charge of the overall general direction of the business and affairs of the Corporation, control of the general policies relating to all aspects of the Corporation’s business operations, and the power to fix the compensation of officers and the power to remove officers. In the absence of the chairman of the board, or if none be elected, the chief executive officer shall preside at meetings of stockholders. The chief executive officer



may appoint and discharge agents and employees and perform such other duties as are incident to such office. The chief executive officer shall have such other powers and perform such other duties as may be prescribed by the board of directors or as may be provided in these By‑laws. In the absence or disability of the officer designated as chief executive officer, the president shall perform any and all duties of the chief executive officer
Section 3. President . The president shall be the chief operating officer of the Corporation and shall have such other powers and duties as may be prescribed by the board of directors or the chief executive officer. The president shall have authority to sign all certificates for shares and all deeds, mortgages, bonds, agreements, notes, and other instruments requiring his signature; and shall have all the powers and duties prescribed by the General Corporation Law of the State of Delaware and such others as the board of directors may from time to time assign to him.
Section 4. Vice Presidents . The vice presidents shall have such powers and duties as may from time to time be assigned to them by the board of directors, the chief executive officer or the president. At the request of the chief executive officer or the president, or in the case of his absence or disability, the vice president designated by the president (or in the absence of such designation, the vice president designated by the board) shall perform all the duties of the president and, when so acting, shall have all the powers of the president. The authority of vice presidents to sign in the name of the Corporation certificates for shares and deeds, mortgages, bonds, agreements, notes and other instruments shall be coordinate with like authority of the president.
Section 5. Secretary . The secretary shall keep minutes of all the proceedings of the stockholders and the board of directors and shall make proper record of the same, which shall be attested by him; shall have authority to execute and deliver certificates as to any of such proceedings and any other records of the Corporation; shall have authority to sign all certificates for shares and all deeds, mortgages, bonds, agreements, notes and other instruments to be executed by the Corporation which require his signature; shall give notice of meetings of stockholders and directors; shall produce on request at each meeting of stockholders a certified list of stockholders arranged in alphabetical order; shall keep such books and records as may be required by law or by the board of directors; and, in general, shall perform all duties incident to the office of secretary and such other duties as may from time to time be assigned to him by the board of directors, the chief executive officer or the president.
Section 6. Treasurer . The treasurer shall have general supervision of all finances; he shall have in charge all money, bills, notes, deeds, leases, mortgages and similar property belonging to the Corporation, and shall do with the same as may from time to time be required by the board of directors. He shall cause to be kept adequate and correct accounts of the business transactions of the Corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, stated capital and shares, together with such other accounts as may be required; and he shall have such other powers and duties as may from time to time be assigned to him by the board of directors, the chief executive officer or the president.



Section 7. Assistant and Subordinate Officers . Each other officer shall perform such duties as the board of directors, the chief executive officer or the president may prescribe. The board of directors may, from time to time, authorize any officer to appoint and remove subordinate officers, to prescribe their authority and duties, and to fix their compensation.
Section 8. Duties of Officers May Be Delegated . In the absence of any officer of the Corporation, or for any other reason the board of directors may deem sufficient, the board of directors may delegate, for the time being, the powers or duties, or any of them, of such officers to any other officer or to any director.

ARTICLE VI

Indemnification and Insurance
Section 1. Indemnification in Non-Derivative Actions . The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director, officer, member, manager, employee or agent of another corporation, limited liability company, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful.
Section 2. Indemnification in Derivative Actions . The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director, officer, member, manager, employee or agent of another corporation, limited liability company, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of



all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper.
Section 3. Indemnification as a Matter of Right . To the extent that a director, officer, employee or agent of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Sections 1 and 2 of this Article VI, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by him in connection therewith.
Section 4. Determination of Conduct . Any indemnification under Sections 1 and 2 of this Article VI (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in Sections 1 and 2 of this Article VI. Such determination shall be made (1) by the board of directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (2) if such a quorum is not obtainable, or, even if obtainable a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (3) by the stockholders.
Section 5. Advance Payment of Expenses . Expenses incurred in defending a civil or criminal action, suit or proceeding may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation as authorized in this section.
Section 6. Nonexclusivity . The indemnification and advancement of expenses provided by, or granted pursuant to, this Article VI shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any by-law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office.
Section 7. Liability Insurance . The Corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, member, manager, employee or agent of another corporation, limited liability company, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of this section.
Section 8. Corporation . For purposes of this Article VI, references to “the Corporation” shall include, in addition to the resulting entity, any constituent entity (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, members, managers and employees or agents, so that any person who is or was a director, officer, member, manager, employee or agent of such constituent entity, or is or was serving at



the request of such constituent entity as a director, officer, member, manager, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Article VI with respect to the resulting or surviving entity as he would have with respect to such constituent entity if its separate existence had continued.
Section 9. Employee Benefit Plans . For purposes of this Article VI, references to any “other enterprise” shall include employee benefit plans; references to “fines” shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to “serving at the request of the Corporation” shall include any service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner “not opposed to the best interests of the Corporation” as referred to in this Article VI.
Section 10. Continuation . The indemnification and advancement of expenses provided by, or granted pursuant to, this Article VI shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person.

ARTICLE VII
Certificates for Shares
Section 1. Form and Execution . Certificates for shares, certifying the number of full-paid shares owned, may be issued to each stockholder in such form as shall be approved by the board of directors. Such certificates shall be signed by any two of the following officers of the Corporation: the chairman or vice-chairman of the board of directors, the chief executive officer, the president, a vice president, the treasurer, an assistant treasurer, the secretary or an assistant secretary; provided, however, that the signatures of any of such officers and the seal of the Corporation upon such certificates may be facsimiles, engraved, stamped or printed. If any officer or officers who shall have signed, or whose facsimile signature shall have been used, printed or stamped on any certificate or certificates for shares, shall cease to be such officer or officers, because of death, resignation or otherwise, before such certificate or certificates shall have been delivered by the Corporation, such certificate or certificates shall nevertheless be as effective in all respects as though signed by a duly elected, qualified and authorized officer or officers, and as though the person or persons who signed such certificate or certificates, or whose facsimile signature or signatures shall have been used thereon, had not ceased to be an officer or officers of the Corporation.
Section 2. Registration of Transfer . Any certificate for shares of the Corporation shall be transferable in person or by attorney upon the surrender thereof to the Corporation or any transfer agent therefor (for the class of shares represented by the certificate surrendered) properly endorsed for transfer and accompanied by such assurances as the Corporation or such



transfer agent may require as to the genuineness and effectiveness of each necessary endorsement.
Section 3. Lost, Destroyed or Stolen Certificates . A new share certificate or certificates may be issued in place of any certificate theretofore issued by the Corporation which is alleged to have been lost, destroyed or wrongfully taken upon (i) the execution and delivery to the Corporation by the person claiming the certificate to have been lost, destroyed or wrongfully taken of an affidavit of that fact, specifying whether or not, at the time of such alleged loss, destruction or taking, the certificate was endorsed, and (ii) the furnishing to the Corporation of indemnity and other assurances, if any, satisfactory to the Corporation and to all transfer agents and registrars of the class of shares represented by the certificate against any and all losses, damages, costs, expenses or liabilities to which they or any of them may be subjected by reason of the issue and delivery of such new certificate or certificates or in respect of the original certificate.
Section 4. Registered Stockholders . A person in whose name shares are of record on the books of the Corporation shall conclusively be deemed the unqualified owner and holder thereof for all purposes and to have capacity to exercise all rights of ownership. Neither the Corporation nor any transfer agent of the Corporation shall be bound to recognize any equitable interest in or claim to such shares on the part of any other person, whether disclosed upon such certificate or otherwise, nor shall they be obliged to see to the execution of any trust or obligation.

ARTICLE VIII
Fiscal Year
The fiscal year of the Corporation shall end on such date in each year as shall be designated from time to time by the board of directors. In the absence of such designation, the fiscal year of the Corporation shall end on December 31 in each year.

ARTICLE IX
Seal
The board of directors may provide a suitable seal containing the name of the Corporation. If deemed advisable by the board of directors, duplicate seals may be provided and kept for the purposes of the Corporation.

ARTICLE X
Amendments
These By-laws shall be subject to alteration, amendment, repeal, or the adoption of new By-laws either by the affirmative vote or written consent of a majority of the whole board of directors, or by the affirmative vote or written consent of the holders of record of a majority of



the outstanding stock of the Corporation, present in person or represented by proxy and entitled to vote in respect thereof, given at an annual meeting or at any special meeting at which a quorum shall be present.


Exhibit 3.3

CERTIFICATE OF INCORPORATION
OF
KH ACQUISITION I CO.

FIRST:     The name of the Corporation is KH Acquisition I Co.
SECOND:     The address of the Corporation’s registered office in the State of Delaware is The Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle 19801. The name of its registered agent at such address is The Corporation Trust Company.
THIRD:     The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware.
FOURTH:     The total number of shares of stock that the Corporation shall have authority to issue is three thousand (3,000) shares, all of which shall be Common Stock, $0.01 par value per share.
FIFTH:     The name and mailing address of the incorporator is as follows:
Name                  Mailing Address

Dennis B. Angers        Baker & Hostetler LLP
Key Tower
127 Public Square
Suite 2000
Cleveland,OH 44114                         
SIXTH:    Meetings of stockholders shall be held at such place, within or without the State of Delaware, as may be designated by or in the manner provided in the By-laws of the Corporation, or, if not so designated, at the registered office of the Corporation in the State of Delaware. Elections of directors need not be by written ballot unless and to the extent that the By-laws so provide.
THE UNDERSIGNED, being the incorporator above named for the purposes of forming a corporation pursuant to the General Corporation Law of the State of Delaware, has signed this instrument the 21st day of February, 2018, and does thereby acknowledge that it is his act and deed and that the facts stated therein are true.
/s/ Dennis B. Angers            
Dennis B. Angers, Incorporator



Exhibit 3.3

CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
KH ACQUISITION I CO.

(under Section 242 of the Delaware General Corporation Law)
Pursuant to Section 242 of the General Corporation Law of the State of Delaware, the undersigned, being an authorized officer of KH Acquisition I Co., a Delaware corporation (the “ Corporation ”), does hereby certify the following:
FIRST :        The name of the Corporation is KH Acquisition I Co.
SECOND :    The original Certificate of Incorporation of the Corporation was filed with the Secretary of State of Delaware on February 21, 2018.
THIRD:     The Certificate of Incorporation of the Corporation is hereby amended to change the first paragraph thereof, relating to the name of the Corporation. Accordingly, first paragraph of the Certificate of Incorporation shall be amended to read in its entirety as follows:

“FIRST:    The name of the Corporation is Kirkhill Inc.”

FOURTH :    This amendment to the Certificate of Incorporation of the Corporation was approved by the Board of Directors of the Corporation and by written consent of the sole stockholder of the Corporation.

IN WITNESS WHEREOF , the undersigned affirms as true the foregoing under penalties of perjury, and has executed this Certificate this 15th day of March, 2018.



KH Acquisition I Co.


By:     /s/ Halle F. Terrion
Name:    Halle F. Terrion
Title:
Secretary



Exhibit 10.1


SEPARATION AGREEMENT

This Agreement is entered into by TransDigm Inc. (“Company”) and Terrance Paradie (“Executive”).

WHEREAS, Executive’s active employment with Company will cease effective January 2, 2018, but Executive will remain employed by Company until April 2, 2018;

WHEREAS, Company and Executive desire to set forth the payments and benefits to which Executive will be entitled from Company in connection with the cessation of his employment with Company and his execution and non-revocation of a satisfactory release; and

WHEREAS, Company and Executive wish to resolve and settle all matters, claims and issues between them, including, without limitation, Executive’s separation from employment with Company.

NOW, THEREFORE, in consideration of the promises and agreements contained herein and other good and valuable consideration, the sufficiency of which is hereby acknowledged, and intending to be legally bound, Company and Executive hereby agree as follows:
    
ARTICLE I
TERMS
Section 1.01      (a) Separation; Payments . Executive’s last date of employment will be April 2, 2018 (the “Separation Date”). From January 2, 2018 through the Separation Date, Executive will not actively work for Company, however, Executive will respond to requests, as necessary, for assistance in transition issues. During the period prior to the Separation Date, Company will continue to pay Executive’s salary and maintain Executive’s benefits.

Subject to Executive’s execution of a release in the form attached as Exhibit A (the “Release”) on or after the Separation Date and prior to April 9, 2018 and the timely non-revocation the Release, Company will pay Executive the following, subject to applicable withholdings required by law and pursuant to the procedures set forth hereinafter:

(i)    1.0 times Executive’s annual base salary ($600,000);
(ii)    1.0 times the target bonus for fiscal year 2018 ($480,000);

(iii)    18.0 times the difference of (A) the applicable monthly cost charged for health care coverage subject to COBRA determined as of the Separation Date for the Executive’s applicable health plan coverage as in effect on such date, less


(B) the monthly cost to Executive that is being charged for such coverage as of the Separation Date (in the aggregate, $22,204.08).

(iv)    Notwithstanding the provisions of the applicable Option Agreements between TransDigm Group Incorporated and Executive, 60% of the unvested options granted on April 24, 2015 shall be permitted to continue to vest in accordance with their terms after the Separation Date and 20% of the unvested options granted on November 10, 2016 shall be permitted to continue to vest in accordance with their terms after the Separation Date and any other unvested options shall terminate as of the Separation Date. Notwithstanding the provisions of the applicable Option Agreements, all of Executive’s options, whether vested as of the Separation Date or that become vested after the Separation Date in accordance with the previous sentence and the applicable Option Agreement, will remain exercisable under the expiration date set forth in said Option Agreement. For the avoidance of doubt, Executive will retain any shares of restricted stock to which the restriction on forfeiture have lapsed and will forfeit the remaining 1,567 shares of restricted stock to which the restrictions have not lapsed.
 
(b)     The amounts payable under clauses 1.01(a)(i), (ii) and (iii) will be payable to Executive in substantially equal installments over the 12-month period following the Separation Date, commencing no later than 30 days following the execution and non-revocation of the Release, in accordance with Company’s regular payroll practices. Notwithstanding the foregoing to the extent the amounts payable under clauses 1.01(a)(i), (ii) and (iii) prior to July 2, 2018, taken together with amounts paid from January 2, 2018 through the Separation Date would exceed, in the aggregate, $550,000, such excess amount shall not be paid or provided until July 2, 2018, or Executive’s death, whichever occurs first. Any amounts that are withheld under this provision shall be payable in a lump sum on July 2, 2018. For the avoidance of doubt, for purposes of compliance with the requirements of Internal Revenue Code Section 4091A and the Treasury Regulations thereunder, Executive’s “separation from service” within the meaning of Treasury Regulation §1.409A§1(h)(ii) shall have occurred on January 2, 2018.

(c)    Unless otherwise provided in this Agreement, all of the insurance and other benefit programs which covered Executive and/or his eligible dependents terminate as of the Separation Date, with the exception that any group medical and/or dental and/or vision coverage Executive currently has will continue through April 30, 2018. Executive retains any vested interest(s) Executive may otherwise have under any qualified retirement plan(s) of Company, which interest(s) shall be available to Executive subject to the terms and conditions of such plan(s) and applicable law.





ARTICLE II
RELEASE AND RESOLUTION
Section 2.01     Release . Executive, for himself, his heirs, successors, administrators, executors, legal representatives and assigns, does hereby release, acquit and forever discharge Company and its predecessors, successors, parents, subsidiaries, divisions, affiliated entities and their respective officers, shareholders, directors, agents, employees, insurers, sureties, attorneys, representatives and assigns of and from any and all actions, suits, debts, claims, liabilities, damages, demands, costs, fees (including attorney fees), and expenses whatsoever, whether at law or in equity, whether known or unknown, arising prior to and up to and including the date Executive signs this Agreement. This release includes, but is not limited to: (i) all claims, demands and causes of action arising out of or in any way related to Executive’s employment and/or separation from employment with Company including, without limiting the generality of the foregoing, any actions sounding in tort, contract (expressed or implied), any claim for promissory estoppel, emotional distress, pain and suffering, punitive damages, wrongful discharge, violation of public policy, discrimination, harassment or retaliation of any kind and/or causes of action arising under federal, state or local laws prohibiting age, sex, religion, national origin, disability, genetic information, race or any other forms of discrimination, harassment or retaliation, including, but not limited to, the Age Discrimination in Employment Act (ADEA), Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act, the Family and Medical Leave Act, the Genetic Information Nondiscrimination Act, Ohio or other state civil rights statutes and/or claims growing out of any legal restrictions, if any, on an employer’s right to terminate its employees; or (ii) out of any act, failure to act, transaction or other occurrence of any sort arising on or prior to the date Executive signs this Agreement. Excluded from this Agreement are: (i) claims to interpret or enforce this Agreement; (ii) claims under applicable workers compensation statutes; (iii) claims that may arise after the date Executive signs this Agreement; and (iv) any claims which by law cannot be waived or released

Section 2.02    No Admission of Liability . The parties agree that: (i) this Agreement and Executive’s resignation is a means of amicably resolving any differences relating to Executive’s employment and separation from employment; (ii) this Agreement is not intended to be, and should not be construed as, an admission of liability on the part of Company or Executive; and (iii) this Agreement was proposed and entered into as an accommodation solely for the purpose of amicably resolving all issues arising out of Executive’s employment and separation from employment with Company.

Section 2.03    Not Otherwise Entitled to Consideration . Executive further acknowledges that the payments and other consideration provided in this Agreement are solely in exchange for the promises he is making in this Agreement and that he is not otherwise entitled to receive the consideration provided for in this Agreement. By signing this Agreement, Executive expressly waives any claims to


compensation under Sections 5 and 6 of his Employment Agreement dated April 27, 2015, as amended.

ARTICLE III
TIME TO CONSIDER/ADVISED TO CONSULT ATTORNEY
Section 3.01      Time to Consider/Advised to Consult an Attorney . Executive acknowledges he has been given a period of twenty-one (21) days to consider the terms of this Agreement and the Release before he signs them. Executive is advised to consult with an attorney of his choice prior to signing this Agreement and the Release, and acknowledges that if he wished to consult with an attorney, he has done so.

Section 3.02     Effectiveness of Agreement . This Agreement shall become effective seven calendar days after Executive has signed it. Prior to the expiration of the seven-day period, Executive has the right to revoke this Agreement by delivering written notice of revocation to Company c/o W. Nicholas Howley, TransDigm Inc., 1301 E. Ninth St., Suite 3000, Cleveland, Ohio 44114, before the seven-day period ends. If Executive does not revoke this Agreement after signing it and within the seven-day revocation period, this Agreement shall become effective upon the expiration of the revocation period.


ARTICLE IV
NON-DISPARAGEMENT
Section 4.01      Non-Disparagement . Executive further agrees that he will not, directly or indirectly, make or cause to be made any statement to any third party criticizing or disparaging any of the Released Parties. Company agrees that no officer of Company will make any announcement regarding the reasons for Executive’s separation from employment, other than that Executive resigned for “personal reasons”. Any request for a reference on behalf of Employee shall be directed to the TransDigm Executive Chairman or Chief Executive Officer and such persons will respond to such request for reference by confirming Employee’s dates of employment, position held and if requested, final compensation, and by making a nondisparaging statement about Executive’s performance.

ARTICLE V
NO OTHER PAYMENTS
Section 5.01      No Other Payments . Other than the payments described in this Agreement, Executive acknowledges and agrees that he has not earned, and is not eligible for any other monies, bonuses, commissions or other unpaid compensation from Company.




ARTICLE VI
COMPANY CONFIDENTIAL INFORMATION
Section 6.01      Company Confidential Information . Executive acknowledges that as an employee of Company, he acquired valuable and confidential knowledge, including but not limited to information relating to Company’s financial status, business requirements, marketing sources, product designs, ideas, discoveries, creations, developments, improvements, and/or processes (“Confidential Information”), which is very valuable to the Company. Executive agrees not to disclose to or use with any person or entity, any Confidential Information.

Section 6.02      Federal Defend Trade Secrets Act of 2016 – Immunity Notice . Notice is hereby provided to Executive that nothing in this Agreement shall prohibit, and the Company will not retaliate against Executive and Executive cannot be held criminally or civilly liable under any Federal or State trade secret law for: (a) disclosure of a trade secret to a governmental entity solely for the purpose of reporting or investigating a suspected violation of law, or in a complaint or other document filed in a lawsuit or other proceeding if such filing is made under seal; or (b) disclosure of a trade secret to Executive’s attorney or in a court document under seal in connection with a lawsuit Executive files for retaliation by the Company for reporting a suspected violation of law.
 
ARTICLE VII
RETURN OF COMPANY PROPERTY; RESIGNATION OF POSITIONS
Section 7.01      Return of Property/Passwords/User ID . Executive has returned all Company property in his possession. Such property includes, but is not limited to, any Company equipment, keys, Company credit cards, Company records, files, lists and/or any other materials prepared by him or any other Company employee which relate in any way to the Company; provided, however, that Executive may retain his cell phone, laptop computer, keyboard and monitor. Executive also agrees to immediately provide Company with a written list (identified by Company computer/program/system) of all passwords and any user IDs, if any, Executive used while operating Company equipment when in employ of Company.

Section 7.02     Resignation of Positions . Executive hereby resigns, effective as of the date hereof, as a director and/or officer of the Company, TransDigm Group Incorporated and any and all subsidiaries of the Company. Executive shall cooperate with the Company or any such subsidiary in any documentation required to evidence or effect such resignation.






ARTICLE VIII
CONSULTATION AND COOPERATION
Section 8.01      Consultation and Cooperation . Executive agrees prior to and after the date hereof (including after the Separation Date) to cooperate fully with Company in connection with any matters which may arise concerning Company’s business or operations or litigation to which Company or Executive is a party, and agrees to make himself reasonably available to Company for consultation by telephone or in person as Company may from time to time reasonably request. No such request by Company will unreasonably interfere with new employment or other obligations or activities which Executive may undertake.

ARTICLE IX
GOVERNMENT AGENCY PROCEEDINGS

Section 9.01      Government Agency Proceedings . Nothing in this Agreement, including but not limited to the non-disparagement or non-disclosure of Company confidential information or release provisions of this Agreement, nor the Release prevents or prohibits Executive from filing a claim or charge with a government agency that is responsible for enforcing a law or from cooperating, participating or assisting in any government agency or regulatory entity investigation or proceeding. Notwithstanding the foregoing, Executive agrees and understands that Executive will not accept or be entitled to any further personal relief, recovery or monetary damages from any source whatsoever with respect to any claim that has been released in the Release and that this Agreement and the Release shall control and is the exclusive remedy as to any of the claims released herein.

ARTICLE X
MISCELLANEOUS
Section 10.01      Entire Agreement . This Agreement, along with Executive’s Employment Agreement and Option Agreements (except as modified or waived by this Agreement) constitute the entire understanding between the parties with respect to their subject matter and supersede all prior agreements and understandings, written or oral, with respect to such subject matter.

Section 10.02      Binding Effect . This Agreement shall be binding upon and inure to the benefit of Executive and Executive’s heirs, executors and administrators, and upon Company and its affiliates, and Company’s and affiliates’ successors and assigns.

Section 10.03      Governing Law . This Agreement shall be governed by the laws of the State of Ohio. Notwithstanding the choice or conflict of law rules of any court of competent jurisdiction, the laws of Ohio shall be used to interpret and enforce this Agreement.



Section 10.04      Section 409A . This Agreement is intended to comply with Section 409A of the Internal Revenue Code of 1986, as amended (“Section 409A”) or an exemption thereunder and shall be construed and administered in accordance with Section 409A. Notwithstanding any other provision of this Agreement, payments provided hereunder will only be made upon an event and in a manner that complies with Section 409A or an applicable exemption. Any payments hereunder that may be excluded from Section 409A either as separation pay due to an involuntary separation from service or as a short-term deferral shall be deemed excluded from Section 409A to the maximum extent possible. For purposes of Section 409A, each installment payment provided hereunder shall be treated as a separate payment. Notwithstanding the foregoing, Company makes no representations that the payments provided under this Agreement comply with Section 409A.
Section 10.05      Executive Has Read Separation Agreement . Executive acknowledges that he has read and understands this Agreement in its entirety; that he is signing it knowingly and voluntarily; and that he intends to be bound by it.

[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK]


IN WITNESS WHEREOF, the parties have set their hands as of the day written.

 
 
 
TRANSDIGM INC.
 
 
 
 
 
 
 
 
By:
TERRANCE PARADIE
 
 
 
 
 
 
 
 
 
 
 
 
 
DATE
 
DATE
 
 
 
 
 




Exhibit A

RELEASE

Terrance Paradie (“Executive”) hereby executes the following in favor of TransDigm Inc. and TransDigm Group Incorporated (collectively, “Company”)

In exchange for the consideration being provided to Executive under that certain Separation Agreement dated January __, 2018 (the “Separation Agreement”), Executive, for himself, his heirs, successors, administrators, executors, legal representatives and assigns, does hereby release, acquit and forever discharge Company and its predecessors, successors, parents, subsidiaries, divisions, affiliated entities and their respective officers, shareholders, directors, agents, employees, insurers, sureties, attorneys, representatives and assigns of and from any and all actions, suits, debts, claims, liabilities, damages, demands, costs, fees (including attorney fees), and expenses whatsoever, whether at law or in equity, whether known or unknown, arising prior to and up to and including the date Executive signs this Release. This release includes, but is not limited to: (i) all claims, demands and causes of action arising out of or in any way related to Executive’s employment and/or separation from employment with Company including, without limiting the generality of the foregoing, any actions sounding in tort, contract (expressed or implied), any claim for promissory estoppel, emotional distress, pain and suffering, punitive damages, wrongful discharge, violation of public policy, discrimination, harassment or retaliation of any kind and/or causes of action arising under federal, state or local laws prohibiting age, sex, religion, national origin, disability, genetic information, race or any other forms of discrimination, harassment or retaliation, including, but not limited to, the Age Discrimination in Employment Act (ADEA), Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act, the Family and Medical Leave Act, the Genetic Information Nondiscrimination Act, Ohio or other state civil rights statutes and/or claims growing out of any legal restrictions, if any, on an employer’s right to terminate its employees; or (ii) out of any act, failure to act, transaction or other occurrence of any sort arising on or prior to the date Executive signs this Release. Excluded from this Release are: (i) claims to interpret or enforce the Separation Agreement or this Release; (ii) claims under applicable workers compensation statutes; (iii) claims that may arise after the date Executive signs this Release; and (iv) any claims which by law cannot be waived or released

This Release shall become effective seven calendar days after Executive has signed it. Prior to the expiration of the seven-day period, Executive has the right to revoke this Agreement by delivering written notice of revocation to Company c/o W. Nicholas Howley, TransDigm Inc., 1301 E. Ninth St., Suite 3000, Cleveland, Ohio 44114, before the seven-day period ends. If Executive does not revoke this Release after signing it and within the seven-day revocation period, this Release shall become effective upon the expiration of the revocation period.



Executive acknowledges that he has been given a period of twenty-one (21) days to consider the terms of this Release before he signs it, that he has been advised to consult with an attorney of his choice prior to the signing of this Release, and that if he wished to consult with an attorney, he has done so.

IN WITNESS WHEREOF, the undersigned has set his hand as of April __, 2018.


 
 
TERRANCE PARADIE
 
 


Exhibit 10.2

EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated as of February 1, 2018, is made by and between TransDigm Group Incorporated, a Delaware corporation (the “Company”), and Alex Feil (the “Executive”).
RECITALS:
WHEREAS, the Executive holds the position of Executive Vice President of the Company; and
WHEREAS, the parties would like to enter into an employment agreement on the terms and subject to the conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing and of the respective covenants and agreements set forth below, the parties hereto agree as follows:
1. Certain Definitions .
(a) “ Annual Base Salary ” shall have the meaning set forth in Section 4(a).
(b) “ Board ” shall mean the Board of Directors of the Company.
(c) “ Cause ” shall mean either of the following: (i) the repeated failure by the Executive, after written notice from the Board, substantially to perform his material duties and responsibilities as an officer or employee or director of the Company or any of its subsidiaries (other than any such failure resulting from incapacity due to reasonably documented physical or mental illness), or (ii) any willful misconduct by the Executive that has the effect of materially injuring the business of the Company or any of its subsidiaries, including, without limitation, the disclosure of material secret or confidential information of the Company or any of its subsidiaries.
(d) “ COBRA ” shall mean the Consolidated Omnibus Budget Reconciliation Act of 1985, as may be amended from time to time.
(e) “ Code ” shall mean the Internal Revenue Code of 1986, as amended. Reference to a Section of the Code includes all rulings, regulations, notices, announcements, decisions, orders and other pronouncements that are issued by the United States Department of the Treasury, the Internal Revenue Service, or any court of competent jurisdiction that are lawful and pertinent to the interpretation, application or effectiveness of such Section.
(f) “ Common Stock ” shall mean the common stock of the Company, $0.01 par value per share.
(g) “ Company ” shall have the meaning set forth in the preamble hereto.
(h) “ Compensation Committee ” shall mean the Compensation Committee of the Board whose members shall be appointed by the Board from time to time.
(i) “ Date of Termination ” shall mean (i) if the Executive’s employment is terminated by reason of his death, the date of his death, and (ii) if the Executive’s employment is terminated pursuant to Sections 5(a)(ii) - (vi), the date specified in the Notice of Termination.
(j) “ Disability ” shall mean the Executive’s absence from employment with the Company due to: (i) his inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve months; or (ii) such medically determinable physical or mental impairment, which can be expected to result in death or can be expected to last for a continuous period of not less than twelve months, and for which the Executive is receiving income replacement benefits for a period of not less than three months under an accident and health plan covering the Company’s employees.
(k) “ Effective Date ” shall mean the date of this Agreement.
(l) “ Equity Compensation Agreements ” shall mean any written agreements between the Company and the Executive pursuant to which the Executive holds or is granted options to purchase Common Stock, including, without limitation, agreements evidencing options granted under any option plan adopted or maintained by the Company for employees generally, and any management deferred compensation or similar plans of the Company.



(m) “ Exchange Act ” shall mean the Securities Exchange Act of 1934, as amended.
(n) “ Executive ” shall have the meaning set forth in the preamble hereto.
(o) “ Good Reason ” shall mean the occurrence of any of the following: (i) a material diminution in the Executive’s title, duties or responsibilities, without his prior written consent, or (ii) a reduction of the Executive’s aggregate cash compensation (including bonus opportunities), benefits or perquisites, without his prior written consent, or (iii) any material breach of this Agreement by the Company.
(p) “ Notice of Termination ” shall have the meaning set forth in Section 5(b).
(q) “ Payment Period ” shall have the meaning set forth in Section 6(b).
(r) “ Specified Employee ” shall have the meaning set forth in Code Section 409A
(s) “ Term ” shall have the meaning set forth in Section 2.
2. Employment . The Company shall employ the Executive, for the period set forth in this Section 2, in the position(s) set forth in Section 3 and upon the other terms and conditions herein provided. The term of employment under this Agreement (the “Term”) shall be for the period beginning on the Effective Date and ending on December 31, 2022 unless earlier terminated as provided in Section 5.
3. Position and Duties . During the Term, the Executive shall serve as Executive Vice President of each of the Company and its subsidiary, TransDigm, Inc. (“TransDigm”), with such customary responsibilities, duties and authority as may from time to time be assigned to the Executive by the President and Chief Operating Officer. During the Term, the Executive shall devote substantially all his working time and efforts to the business and affairs of the Company and TransDigm; provided, that it shall not be considered a violation of the foregoing for the Executive to (i) with the prior consent of the Board (which consent shall not unreasonably be withheld), serve on corporate, industry, civic or charitable boards or committees, and (ii) manage his personal investments, so long as none of such activities significantly interferes with the Executive’s duties hereunder.
4. Compensation and Related Matters .
(a) Annual Base Salary . During the Term (commencing as of the first pay period following the date of this Agreement), the Executive shall receive a base salary at a rate of $370,000 per annum, payable in accordance with the Company’s normal payroll practices, which shall be reviewed by the Compensation Committee annually and may be increased, but not decreased, upon such review (the “Annual Base Salary”).
(b) Bonus . For each fiscal year during the Term, the Executive shall be eligible to participate in the Company’s annual cash bonus plan in accordance with terms and provisions which shall be consistent with the Company’s executive bonus policy in effect as of the date hereof. The Executive’s target bonus for fiscal year 2018 and thereafter will be 65% of his Annual Base Salary and may be pro rated based on time in position.
(c) Non-Qualified Deferred Compensation . During the Term, the Executive shall be eligible to participate in any non-qualified deferred compensation plan or program (if any) offered by the Company to its executives.
(d) Long Term Incentive Compensation . During the Term, the Executive shall be entitled to participate in the Option Plan or any successor plan thereto.
(e) Benefits . During the Term, the Executive shall be entitled to participate in the other employee benefit plans, programs and arrangements of the Company now (or, to the extent determined by the Board or Compensation
Committee, hereafter) in effect which are applicable to the senior officers of the Company generally, subject to and on a basis consistent with the terms, conditions and overall administration thereof (including the right of the Company to amend, modify or terminate such plans).
(f) Expenses . Pursuant to the Company’s customary policies in force at the time of payment, the Executive shall be reimbursed for all expenses properly incurred by the Executive on the Company’s behalf in the performance of the Executive’s duties hereunder.
(g) Vacation . The Executive shall be entitled to an amount of annual vacation days, and to compensation in respect of earned but unused vacation days in accordance with the Company’s vacation policy as in effect as of the


Effective Date. The Executive shall also be entitled to paid holidays in accordance with the Company’s practices with respect to same as in effect as of the Effective Date.
5. Termination .
(a) The Executive’s employment hereunder may be terminated by the Company or the Executive, as applicable, without any breach of this Agreement only under the following circumstances and in accordance with subsection (b):
(i) Death . The Executive’s employment hereunder shall terminate upon his death.
(ii) Disability . If the Company determines in good faith that the Executive has incurred a Disability, the Company may give the Executive written notice of its intention to terminate the Executive’s employment. In such event, the Executive’s employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive, provided that within such 30 day period the Executive shall not have returned to full-time performance of his duties. The Executive shall continue to receive his Annual Base Salary until the 90th day following the date of the Notice of Termination.
(iii) Termination for Cause . The Company may terminate the Executive’s employment hereunder for Cause.
(iv) Resignation for Good Reason . The Executive may terminate his employment hereunder for Good Reason.
(v) Termination without Cause . The Company may terminate the Executive’s employment hereunder without Cause.
(vi) Resignation without Good Reason . The Executive may resign his employment hereunder without Good Reason.
(b) Notice of Termination . Any termination of the Executive’s employment by the Company or by the Executive under this Section 5 (other than termination pursuant to subsection (a)(i)) shall be communicated by a written notice from the Chief Executive Officer of the Company or the Executive to the other indicating the specific termination provision in this Agreement relied upon, (and, in the case of Resignation for Good Reason, setting forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under Section 5(a)(iv), and specifying a Date of Termination which, in the case of Resignation for Good Reason or Resignation without Good Reason pursuant to Section 5(a)(iv) or 5(a)(vi), respectively, shall be at least 90 days following the date of such notice (a “Notice of Termination”). In the event of the Executive’s Resignation for Good Reason pursuant to Section 5(a)(iv), the Company shall have the right, if the basis for such Good Reason is curable, to cure the same within 30 days following the receipt of the Notice of Termination, and Good Reason shall not be deemed to exist if the Company cures the event giving rise to Good Reason within such 30 day period. The Executive shall continue to receive his Annual Base Salary, annual bonus and all other compensation and perquisites referenced in Section 4 through the Date of Termination.
6. Severance Payments .
(a) Termination for any Reason . In the event the Executive’s employment with the Company is terminated for any reason, the Company shall pay the Executive (or his beneficiary in the event of his death) any unpaid Annual Base Salary that has accrued as of the Date of Termination, any unreimbursed expenses due to the Executive in accordance with the Company’s expense reimbursement policy and an amount equal to compensation for accrued but unused sick days and vacation days. The Company shall permit the Executive to elect to continue health plan coverage in accordance with the requirements of applicable law (e.g. COBRA coverage), at the applicable monthly cost charged for such coverage (the “Monthly COBRA Coverage Continuation Rate”). The Company may require the Executive to complete and file any election forms that are generally required of other employees to obtain COBRA coverage; and the Executive’s COBRA coverage may be terminable in accordance with applicable law. The Executive shall also be entitled to accrued, vested benefits under the Company’s benefit plans and programs as provided therein. The Executive shall be entitled to the additional payments and benefits described below only as set forth herein.
(b) Termination without Cause, Resignation for Good Reason or Termination by Reason of Death or Disability . Subject to Sections 6(c) and (d) and the restrictions contained herein, in the event of the Executive’s


Termination without Cause (pursuant to Section 5(a)(v)), Resignation for Good Reason (pursuant to Section 5(a)(iv)) or termination by reason of death or Disability (pursuant to Section 5(a)(i) or (ii), respectively), the Company shall pay to the Executive the amounts described in subsection (a). In addition, subject to Sections 6(c) and (d) and the restrictions contained herein, and in the case of Termination without Cause (pursuant to Section 5(a)(v), Resignation for Good Reason (pursuant to Section 5(a)(iv) or Disability (pursuant to Section 5(a)(ii)) subject to the Executive’s execution and non-revocation of a customary release in favor of the Company (the “Release”) no later than thirty (30) days following the Date of Termination, the Company shall pay to the Executive (or his beneficiary in the event of his death) an amount equal to the “Severance Amount” described below. For purposes of this Agreement the Severance Amount is equal to the sum of:
(i) 1.25 times his Annual Base Salary,
(ii) 1.25 times the greater of (A) the total of all bonuses paid (or payable) to executive in respect of the fiscal year ending immediately prior to the Date of Termination, excluding any bonuses that are extraordinary in nature (e.g., a transaction related bonus) or (B) the target bonuses for the fiscal year in which the Date of Termination falls, determined in accordance with the Company’s bonus program or programs, if any, and
(iii) 18.0 times the difference of (A) the Monthly COBRA Continuation Coverage Rate determined as of the Date of Termination for the Executive’s applicable health plan coverage as in effect on such date, less (B) the monthly cost to Executive that is being charged for such coverage as of the Date of Termination.
The Severance Amount as so determined shall be payable to the Executive (or his beneficiary) in substantially equal installments over the 12 month period following the Date of Termination (the “Payment Period”) commencing no later than thirty (30) days following the execution and non-revocation of the Release, in accordance with the Company’s regular payroll practices. The first installment payment shall include all amounts that would have otherwise been paid to the Executive during the period beginning on the Date of Termination and ending on the first installment payment date. Notwithstanding the foregoing, in the event that the end of the thirty (30) day notice and revocation period for the Release would result in the first installment payment occurring in the taxable year following the year in which the Date of Termination occurs, the first installment payment shall be made in the taxable year following the year in which the Date of Termination occurs.
(c) Benefits Provided Upon Termination of Employment . If the Executive’s termination or resignation does not constitute a “separation from service,” as such term is defined under Code Section 409A, the Executive shall nevertheless be entitled to receive all of the payments and benefits that the Executive is entitled to receive under this Agreement on account of his termination of employment. However, the payments and benefits that the Executive is entitled to under this Agreement shall not be provided to the Executive until such time as the Executive has incurred a “separation from services” within the meaning of Code Section 409A.

(d) Payments on Account of Termination to a Specified Employee . Notwithstanding the foregoing provisions of Sections 6(a) or 6(b), in the event that the Executive is determined to be a Specified Employee at the time of his termination of employment under this Agreement (or, if later, his “separation from service” under Code Section 409A), to the extent that a payment, reimbursement or benefit under Section 6(b) is considered to provide for a “deferral of compensation” (as determined under Code Section 409A), then such payment, reimbursement or benefit shall not be paid or provided until six months after the Executive’s separation from service, or his death, whichever occurs first. Any payments, reimbursements or benefits that are withheld under this provision for the first six months shall be payable in a lump sum on the 181st day after such termination of employment (or, if later, separation from service). The restrictions in this Section 6(d) shall be interpreted and applied solely to the minimum extent necessary to comply with the requirements of Code Section 409A(a)(2)(B). Accordingly, payments, benefits or reimbursements under Section 6(b) or any other part of this Agreement may nevertheless be provided to Executive with the six-month period following the date of Executive’s termination of employment under this Agreement (or, if later, his “separation from service” under Code Section 409A), to the extent that it would nevertheless be permissible to do so under Code Section 409A because those payments, reimbursements or benefits are (i) described in Treasury Regulations Section 1.409A-1(b)(9)(iii) (i.e., payments within the limitations therein that are being made on account of an involuntary termination or termination for good reason, within the meaning of the Treasury Regulations), or (ii) described in Treasury Regulation Section 1.409A-1(b)(4) (i.e., payments which are treated as


short-term deferrals within the meaning of the Treasury Regulations), or (iii) benefits described in Treasury Regulations Section 1.409A-1(b)(9)(v) (e.g. health care benefits).
7. Competition; Nonsolicitation .
(a) During the Term and, following any termination of Executive’s employment, for a period equal to (i) the Payment Period, in the case of a termination of employment for which payments are made pursuant to Section 6(b) hereof, or (ii) 24 months from the date of such termination in the event of a voluntary termination of employment by the Executive without Good Reason, or a termination by the Company for Cause, the Executive shall not, without the prior written consent of the Board, directly or indirectly engage in, or have any interest in, or manage or operate any person, firm, corporation, partnership or business (whether as director, officer, employee, agent, representative, partner, security holder, consultant or otherwise) that engages in any business (other than a business that constitutes less than 5% of the relevant entity’s net revenue and a proportionate share of its operating income) which competes with any business of the Company or any entity owned by it anywhere in the world; provided, however, that the Executive shall be permitted to acquire a stock interest in such a corporation provided such stock is publicly traded and the stock so acquired does not represent more than one percent of the outstanding shares of such corporation.
(b) During the Term and for a period of two years following any termination of the Executive’s employment, the Executive shall not, directly or indirectly, on his own behalf or on behalf of any other person or entity, whether as an owner, employee, service provider or otherwise, solicit or induce any person who is or was employed by, or providing consulting services to, the Company or any of its subsidiaries during the twelve-month period prior to the date of such termination, to terminate their employment or consulting relationship with the Company or any such subsidiary.
(c) In the event the agreement in this Section 7 shall be determined by any court of competent jurisdiction to be unenforceable by reason of its extending for too great a period of time or over too great a geographical area or by reason of its being too extensive in any other respect, it shall be interpreted to extend only over the maximum period of time for which it may be enforceable, and/or over the maximum geographical area as to which it may be enforceable and/or to the maximum extent in all other respects as to which it may be enforceable, all as determined by such court in such action.
8. Nondisclosure of Proprietary Information .
(a) Except as required in the faithful performance of the Executive’s duties hereunder or pursuant to subsection (c), the Executive shall, in perpetuity, maintain in confidence and shall not directly, indirectly or otherwise, use, disseminate, disclose or publish, or use for his benefit or the benefit of any person, firm, corporation or other entity any confidential or proprietary information or trade secrets of or relating to the Company, including,
without limitation, information with respect to the Company’s operations, processes, products, inventions, business practices, finances, principals, vendors, suppliers, customers, potential customers, marketing methods, costs, prices, contractual relationships, regulatory status, compensation paid to employees or other terms of employment, except for such information which is or becomes publicly available other than as a result of a breach by the Executive of this Section 8, or deliver to any person, firm, corporation or other entity any document, record, notebook, computer program or similar repository of or containing any such confidential or proprietary information or trade secrets. The parties hereby stipulate and agree that as between them the foregoing matters are important, material and confidential proprietary information and trade secrets and affect the successful conduct of the businesses of the Company (and any successor or assignee of the Company).
(b) Upon termination of the Executive’s employment with the Company for any reason, the Executive shall promptly deliver to the Company all correspondence, drawings, manuals, letters, notes, notebooks, reports, programs, plans, proposals, financial documents, or any other documents concerning the Company’s customers, business plans, marketing strategies, products or processes and/or which contain proprietary information or trade secrets.
(c) The Executive may respond to a lawful and valid subpoena or other legal process but shall give the Company the earliest possible notice thereof, shall, as much in advance of the return date as possible, make available to the Company and its counsel the documents and other information sought and shall assist such counsel in resisting or otherwise responding to such process.


9. Injunctive Relief . It is recognized and acknowledged by the Executive that a breach of the covenants contained in Sections 7 and 8 will cause irreparable damage to the Company and its goodwill, the exact amount of which will be difficult or impossible to ascertain, and that the remedies at law for any such breach will be inadequate. Accordingly, the Executive agrees that in the event of a breach of any of the covenants contained in Sections 7 and 8, in addition to any other remedy which may be available at law or in equity, the Company shall be entitled to specific performance and injunctive relief.
10. Survival . The expiration or termination of the Term shall not impair the rights or obligations of any party hereto which shall have accrued hereunder prior to such expiration.
11. Binding on Successors . This Agreement shall be binding upon and inure to the benefit of the Company, the Executive and their respective successors, assigns, personnel and legal representatives, executors, administrators, heirs, distributees, devisees, and legatees, as applicable.
12. Governing Law . This Agreement shall be governed, construed, interpreted and enforced in accordance with the substantive laws of the State of Ohio.
13. Validity . The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.
14. Notices . Any notice, request, claim, demand, document or other communication hereunder to any party shall be effective upon receipt (or refusal of receipt) and shall be in writing and delivered personally or sent by telex, telecopy, or certified or registered mail, postage prepaid, as follows:
(a) If to the Company, to:
TransDigm Group Incorporated
The Tower at Erieview
1301 E. 9 th Street, Suite 3000
Cleveland, Ohio 44114
Attention: W. Nicholas Howley, CEO and Chairman
(b) If to the Executive, to him at the address set forth below under his signature;
or at any other address as any party shall have specified by notice in writing to the other party in accordance with this Section 14.
15. Counterparts . This Agreement may be executed in several counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same agreement.

16. Entire Agreement; Prior Employment Agreement . The terms of this Agreement, together with the Equity Compensation Agreements are intended by the parties to be the final expression of their agreement with respect to the employment of the Executive by the Company and may not be contradicted by evidence of any prior or contemporaneous agreement. The parties further intend that this Agreement, and the aforementioned contemporaneous documents, shall constitute the complete and exclusive statement of its terms and that no extrinsic evidence whatsoever may be introduced in any judicial, administrative, or other legal proceeding to vary the terms of this Agreement.
17. Amendments; Waivers . This Agreement may not be modified, amended, or terminated except by an instrument in writing, signed by the Executive and the Chief Executive Officer. By an instrument in writing similarly executed, the Executive or the Company may waive compliance by the other party or parties with any provision of this Agreement that such other party was or is obligated to comply with or perform; provided, however, that such waiver shall not operate as a waiver of, or estoppel with respect to, any other or subsequent failure. No failure to exercise and no delay in exercising any right, remedy or power hereunder shall preclude any other or further exercise of any other right, remedy or power provided herein or by law or in equity.
18. No Inconsistent Actions . The parties hereto shall not voluntarily undertake or fail to undertake any action or course of action inconsistent with the provisions or essential intent of this Agreement. Furthermore, it is the intent of the parties hereto to act in a fair and reasonable manner with respect to the inte rpretation and application of the provisions of this Agreement.


19. Arbitration . Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration, conducted before a panel of three arbitrators in Cleveland, Ohio, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator’s award in any court having jurisdiction; provided , however , that the Company shall be entitled to seek a restraining order or injunction in any court of competent jurisdiction to prevent any continuation of any violation of the provisions of Section 7 or 8 of this Agreement and the Executive hereby consents that such restraining order or injunction may be granted without the necessity of the Company’s posting any bond; and provided further , that the Executive shall be entitled to seek specific performance of his right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. Each of the parties hereto shall bear its share of the fees and expenses of any arbitration hereunder.
20. Indemnification and Insurance; Legal Expenses . During the Term and so long as the Executive has not breached any of his obligations set forth in Sections 7 and 8, the Company shall indemnify the Executive to the fullest extent permitted by the laws of the State of Delaware, as in effect at the time of the subject act or omission, and shall advance to the Executive reasonable attorneys’ fees and expenses as such fees and expenses are incurred (subject to an undertaking from the Executive to repay such advances if it shall be finally determined by a judicial decision which is not subject to further appeal that the Executive was not entitled to the reimbursement of such fees and expenses) and he shall be entitled to the protection of any insurance policies the Company shall elect to maintain generally for the benefit of its directors and officers (“Directors and Officers Insurance”) against all costs, charges and expenses incurred or sustained by him in connection with any action, suit or proceeding to which he may be made a party by reason of his being or having been a director, officer or employee of the Company or any of its subsidiaries or his serving or having served any other enterprise as a director, officer or employee at the request of the Company (other than any dispute, claim or controversy arising under or relating to this Agreement). The Company covenants to maintain during the Term for the benefit of the Executive (in his capacity as an officer and director of the Company) Directors and Officers Insurance providing customary benefits to the Executive.
(SIGNATURE PAGE FOLLOWS)




IN WITNESS WHEREOF, the parties have executed this Agreement on the date and year first above written.
 
 


TRANSDIGM GROUP INCORPORATED
 
 
By:
 
 
Name:
 
W. Nicholas Howley
Title:
 
Chief Executive Officer
 
EXECUTIVE
 
 
Alex Feil


Exhibit 10.3

EMPLOYMENT AGREEMENT
THIS AGREEMENT, effective as of February 1, 2018, is made by and between TransDigm Group Incorporated, a Delaware corporation (the “Company”), and Rodrigo Rubiano (the “Executive”).
RECITALS:
WHEREAS, the Executive holds the position of Executive Vice President of the Company; and
WHEREAS, the parties would like to enter into an employment agreement on the terms and subject to the conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing and of the respective covenants and agreements set forth below, the parties hereto agree as follows:
1. Certain Definitions .
(a) “ Annual Base Salary ” shall have the meaning set forth in Section 4(a).
(b) “ Board ” shall mean the Board of Directors of the Company.
(c) “ Cause ” shall mean either of the following: (i) the repeated failure by the Executive, after written notice from the Board, substantially to perform his material duties and responsibilities as an officer or employee or director of the Company or any of its subsidiaries (other than any such failure resulting from incapacity due to reasonably documented physical or mental illness), or (ii) any willful misconduct by the Executive that has the effect of materially injuring the business of the Company or any of its subsidiaries, including, without limitation, the disclosure of material secret or confidential information of the Company or any of its subsidiaries.
(d) “ COBRA ” shall mean the Consolidated Omnibus Budget Reconciliation Act of 1985, as may be amended from time to time.
(e) “ Code ” shall mean the Internal Revenue Code of 1986, as amended. Reference to a Section of the Code includes all rulings, regulations, notices, announcements, decisions, orders and other pronouncements that are issued by the United States Department of the Treasury, the Internal Revenue Service, or any court of competent jurisdiction that are lawful and pertinent to the interpretation, application or effectiveness of such Section.
(f) “ Common Stock ” shall mean the common stock of the Company, $0.01 par value per share.
(g) “ Company ” shall have the meaning set forth in the preamble hereto.
(h) “ Compensation Committee ” shall mean the Compensation Committee of the Board whose members shall be appointed by the Board from time to time.
(i) “ Date of Termination ” shall mean (i) if the Executive’s employment is terminated by reason of his death, the date of his death, and (ii) if the Executive’s employment is terminated pursuant to Sections 5(a)(ii) - (vi), the date specified in the Notice of Termination.
(j) “ Disability ” shall mean the Executive’s absence from employment with the Company due to: (i) his inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve months; or (ii) such medically determinable physical or mental impairment, which can be expected to result in death or can be expected to last for a continuous period of not less than twelve months, and for which the Executive is receiving income replacement benefits for a period of not less than three months under an accident and health plan covering the Company’s employees.
(k) “ Effective Date ” shall mean the date of this Agreement.
(l) “ Equity Compensation Agreements ” shall mean any written agreements between the Company and the Executive pursuant to which the Executive holds or is granted options to purchase Common Stock, including, without limitation, agreements evidencing options granted under any option plan adopted or maintained by the Company for employees generally, and any management deferred compensation or similar plans of the Company.



(m) “ Exchange Act ” shall mean the Securities Exchange Act of 1934, as amended.
(n) “ Executive ” shall have the meaning set forth in the preamble hereto.
(o) “ Good Reason ” shall mean the occurrence of any of the following: (i) a material diminution in the Executive’s title, duties or responsibilities, without his prior written consent, or (ii) a reduction of the Executive’s aggregate cash compensation (including bonus opportunities), benefits or perquisites, without his prior written consent, or (iii) any material breach of this Agreement by the Company.
(p) “ Notice of Termination ” shall have the meaning set forth in Section 5(b).
(q) “ Payment Period ” shall have the meaning set forth in Section 6(b).
(r) “ Specified Employee ” shall have the meaning set forth in Code Section 409A
(s) “ Term ” shall have the meaning set forth in Section 2.
2. Employment . The Company shall employ the Executive, for the period set forth in this Section 2, in the position(s) set forth in Section 3 and upon the other terms and conditions herein provided. The term of employment under this Agreement (the “Term”) shall be for the period beginning on the Effective Date and ending on December 31, 2022 unless earlier terminated as provided in Section 5.
3. Position and Duties . During the Term, the Executive shall serve as Executive Vice President of each of the Company and its subsidiary, TransDigm, Inc. (“TransDigm”), with such customary responsibilities, duties and authority as may from time to time be assigned to the Executive by the President and Chief Operating Officer. During the Term, the Executive shall devote substantially all his working time and efforts to the business and affairs of the Company and TransDigm; provided, that it shall not be considered a violation of the foregoing for the Executive to (i) with the prior consent of the Board (which consent shall not unreasonably be withheld), serve on corporate, industry, civic or charitable boards or committees, and (ii) manage his personal investments, so long as none of such activities significantly interferes with the Executive’s duties hereunder.
The Executive and Company acknowledge that it is contemplated that the Executive will relocate to Europe. The parties agree that such relocation will occur within one year from the date hereof, unless the Company otherwise agrees. The parties shall enter into an ex patriot agreement that provides for additional benefits for the Executive related to his relocation.
4. Compensation and Related Matters .
(a) Annual Base Salary . During the Term (commencing as of the first pay period following the date of this Agreement), the Executive shall receive a base salary at a rate of $370,000 per annum, payable in accordance with the Company’s normal payroll practices, which shall be reviewed by the Compensation Committee annually and may be increased, but not decreased, upon such review (the “Annual Base Salary”).
(b) Bonus . For each fiscal year during the Term, the Executive shall be eligible to participate in the Company’s annual cash bonus plan in accordance with terms and provisions which shall be consistent with the Company’s executive bonus policy in effect as of the date hereof. The Executive’s target bonus for fiscal year 2018 and thereafter will be 65% of his Annual Base Salary and may be pro rated based on time in position.
(c) Non-Qualified Deferred Compensation . During the Term, the Executive shall be eligible to participate in any non-qualified deferred compensation plan or program (if any) offered by the Company to its executives.
(d) Long Term Incentive Compensation . During the Term, the Executive shall be entitled to participate in the Option Plan or any successor plan thereto.
(e) Benefits . During the Term, the Executive shall be entitled to participate in the other employee benefit plans, programs and arrangements of the Company now (or, to the extent determined by the Board or Compensation
Committee, hereafter) in effect which are applicable to the senior officers of the Company generally, subject to and on a basis consistent with the terms, conditions and overall administration thereof (including the right of the Company to amend, modify or terminate such plans).


(f) Expenses . Pursuant to the Company’s customary policies in force at the time of payment, the Executive shall be reimbursed for all expenses properly incurred by the Executive on the Company’s behalf in the performance of the Executive’s duties hereunder.
(g) Vacation . The Executive shall be entitled to an amount of annual vacation days, and to compensation in respect of earned but unused vacation days in accordance with the Company’s vacation policy as in effect as of the Effective Date. The Executive shall also be entitled to paid holidays in accordance with the Company’s practices with respect to same as in effect as of the Effective Date.
5. Termination .
(a) The Executive’s employment hereunder may be terminated by the Company or the Executive, as applicable, without any breach of this Agreement only under the following circumstances and in accordance with subsection (b):
(i) Death . The Executive’s employment hereunder shall terminate upon his death.
(ii) Disability . If the Company determines in good faith that the Executive has incurred a Disability, the Company may give the Executive written notice of its intention to terminate the Executive’s employment. In such event, the Executive’s employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive, provided that within such 30 day period the Executive shall not have returned to full-time performance of his duties. The Executive shall continue to receive his Annual Base Salary until the 90th day following the date of the Notice of Termination.
(iii) Termination for Cause . The Company may terminate the Executive’s employment hereunder for Cause.
(iv) Resignation for Good Reason . The Executive may terminate his employment hereunder for Good Reason.
(v) Termination without Cause . The Company may terminate the Executive’s employment hereunder without Cause.
(vi) Resignation without Good Reason . The Executive may resign his employment hereunder without Good Reason.
(b) Notice of Termination . Any termination of the Executive’s employment by the Company or by the Executive under this Section 5 (other than termination pursuant to subsection (a)(i)) shall be communicated by a written notice from the Chief Executive Officer of the Company or the Executive to the other indicating the specific termination provision in this Agreement relied upon, (and, in the case of Resignation for Good Reason, setting forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under Section 5(a)(iv), and specifying a Date of Termination which, in the case of Resignation for Good Reason or Resignation without Good Reason pursuant to Section 5(a)(iv) or 5(a)(vi), respectively, shall be at least 90 days following the date of such notice (a “Notice of Termination”). In the event of the Executive’s Resignation for Good Reason pursuant to Section 5(a)(iv), the Company shall have the right, if the basis for such Good Reason is curable, to cure the same within 30 days following the receipt of the Notice of Termination, and Good Reason shall not be deemed to exist if the Company cures the event giving rise to Good Reason within such 30 day period. The Executive shall continue to receive his Annual Base Salary, annual bonus and all other compensation and perquisites referenced in Section 4 through the Date of Termination.
6. Severance Payments .
(a) Termination for any Reason . In the event the Executive’s employment with the Company is terminated for any reason, the Company shall pay the Executive (or his beneficiary in the event of his death) any unpaid Annual Base Salary that has accrued as of the Date of Termination, any unreimbursed expenses due to the Executive in accordance with the Company’s expense reimbursement policy and an amount equal to compensation for accrued but unused sick days and vacation days. The Company shall permit the Executive to elect to continue health plan coverage in accordance with the requirements of applicable law (e.g. COBRA coverage), at the applicable monthly cost charged for such coverage (the “Monthly COBRA Coverage Continuation Rate”). The Company may require the Executive to complete and file any election forms that are generally required of other employees to obtain COBRA coverage; and the Executive’s COBRA coverage may be terminable in accordance with applicable law. The


Executive shall also be entitled to accrued, vested benefits under the Company’s benefit plans and programs as provided therein. The Executive shall be entitled to the additional payments and benefits described below only as set forth herein.
(b) Termination without Cause, Resignation for Good Reason or Termination by Reason of Death or Disability . Subject to Sections 6(c) and (d) and the restrictions contained herein, in the event of the Executive’s Termination without Cause (pursuant to Section 5(a)(v)), Resignation for Good Reason (pursuant to Section 5(a)(iv)) or termination by reason of death or Disability (pursuant to Section 5(a)(i) or (ii), respectively), the Company shall pay to the Executive the amounts described in subsection (a). In addition, subject to Sections 6(c) and (d) and the restrictions contained herein, and in the case of Termination without Cause (pursuant to Section 5(a)(v), Resignation for Good Reason (pursuant to Section 5(a)(iv) or Disability (pursuant to Section 5(a)(ii)) subject to the Executive’s execution and non-revocation of a customary release in favor of the Company (the “Release”) no later than thirty (30) days following the Date of Termination, the Company shall pay to the Executive (or his beneficiary in the event of his death) an amount equal to the “Severance Amount” described below. For purposes of this Agreement the Severance Amount is equal to the sum of:
(i) 1.25 times his Annual Base Salary,
(ii) 1.25 times the greater of (A) the total of all bonuses paid (or payable) to executive in respect of the fiscal year ending immediately prior to the Date of Termination, excluding any bonuses that are extraordinary in nature (e.g., a transaction related bonus) or (B) the target bonuses for the fiscal year in which the Date of Termination falls, determined in accordance with the Company’s bonus program or programs, if any, and
(iii) 18.0 times the difference of (A) the Monthly COBRA Continuation Coverage Rate determined as of the Date of Termination for the Executive’s applicable health plan coverage as in effect on such date, less (B) the monthly cost to Executive that is being charged for such coverage as of the Date of Termination.
The Severance Amount as so determined shall be payable to the Executive (or his beneficiary) in substantially equal installments over the 12 month period following the Date of Termination (the “Payment Period”) commencing no later than thirty (30) days following the execution and non-revocation of the Release, in accordance with the Company’s regular payroll practices. The first installment payment shall include all amounts that would have otherwise been paid to the Executive during the period beginning on the Date of Termination and ending on the first installment payment date. Notwithstanding the foregoing, in the event that the end of the thirty (30) day notice and revocation period for the Release would result in the first installment payment occurring in the taxable year following the year in which the Date of Termination occurs, the first installment payment shall be made in the taxable year following the year in which the Date of Termination occurs.
(c) Benefits Provided Upon Termination of Employment . If the Executive’s termination or resignation does not constitute a “separation from service,” as such term is defined under Code Section 409A, the Executive shall nevertheless be entitled to receive all of the payments and benefits that the Executive is entitled to receive under this Agreement on account of his termination of employment. However, the payments and benefits that the Executive is entitled to under this Agreement shall not be provided to the Executive until such time as the Executive has incurred a “separation from services” within the meaning of Code Section 409A.

(d) Payments on Account of Termination to a Specified Employee . Notwithstanding the foregoing provisions of Sections 6(a) or 6(b), in the event that the Executive is determined to be a Specified Employee at the time of his termination of employment under this Agreement (or, if later, his “separation from service” under Code Section 409A), to the extent that a payment, reimbursement or benefit under Section 6(b) is considered to provide for a “deferral of compensation” (as determined under Code Section 409A), then such payment, reimbursement or benefit shall not be paid or provided until six months after the Executive’s separation from service, or his death, whichever occurs first. Any payments, reimbursements or benefits that are withheld under this provision for the first six months shall be payable in a lump sum on the 181st day after such termination of employment (or, if later, separation from service). The restrictions in this Section 6(d) shall be interpreted and applied solely to the minimum extent necessary to comply with the requirements of Code Section 409A(a)(2)(B). Accordingly, payments, benefits or reimbursements under Section 6(b) or any other part of this Agreement may nevertheless be provided to Executive with the six-month period following the date of Executive’s termination of employment under this Agreement (or, if later, his “separation from service” under Code Section 409A), to the extent that it would nevertheless be


permissible to do so under Code Section 409A because those payments, reimbursements or benefits are (i) described in Treasury Regulations Section 1.409A-1(b)(9)(iii) (i.e., payments within the limitations therein that are being made on account of an involuntary termination or termination for good reason, within the meaning of the Treasury Regulations), or (ii) described in Treasury Regulation Section 1.409A-1(b)(4) (i.e., payments which are treated as short-term deferrals within the meaning of the Treasury Regulations), or (iii) benefits described in Treasury Regulations Section 1.409A-1(b)(9)(v) (e.g. health care benefits).
7. Competition; Nonsolicitation .
(a) During the Term and, following any termination of Executive’s employment, for a period equal to (i) the Payment Period, in the case of a termination of employment for which payments are made pursuant to Section 6(b) hereof, or (ii) 24 months from the date of such termination in the event of a voluntary termination of employment by the Executive without Good Reason, or a termination by the Company for Cause, the Executive shall not, without the prior written consent of the Board, directly or indirectly engage in, or have any interest in, or manage or operate any person, firm, corporation, partnership or business (whether as director, officer, employee, agent, representative, partner, security holder, consultant or otherwise) that engages in any business (other than a business that constitutes less than 5% of the relevant entity’s net revenue and a proportionate share of its operating income) which competes with any business of the Company or any entity owned by it anywhere in the world; provided, however, that the Executive shall be permitted to acquire a stock interest in such a corporation provided such stock is publicly traded and the stock so acquired does not represent more than one percent of the outstanding shares of such corporation.
(b) During the Term and for a period of two years following any termination of the Executive’s employment, the Executive shall not, directly or indirectly, on his own behalf or on behalf of any other person or entity, whether as an owner, employee, service provider or otherwise, solicit or induce any person who is or was employed by, or providing consulting services to, the Company or any of its subsidiaries during the twelve-month period prior to the date of such termination, to terminate their employment or consulting relationship with the Company or any such subsidiary.
(c) In the event the agreement in this Section 7 shall be determined by any court of competent jurisdiction to be unenforceable by reason of its extending for too great a period of time or over too great a geographical area or by reason of its being too extensive in any other respect, it shall be interpreted to extend only over the maximum period of time for which it may be enforceable, and/or over the maximum geographical area as to which it may be enforceable and/or to the maximum extent in all other respects as to which it may be enforceable, all as determined by such court in such action.
8. Nondisclosure of Proprietary Information .
(a) Except as required in the faithful performance of the Executive’s duties hereunder or pursuant to subsection (c), the Executive shall, in perpetuity, maintain in confidence and shall not directly, indirectly or otherwise, use, disseminate, disclose or publish, or use for his benefit or the benefit of any person, firm, corporation or other entity any confidential or proprietary information or trade secrets of or relating to the Company, including,
without limitation, information with respect to the Company’s operations, processes, products, inventions, business practices, finances, principals, vendors, suppliers, customers, potential customers, marketing methods, costs, prices, contractual relationships, regulatory status, compensation paid to employees or other terms of employment, except for such information which is or becomes publicly available other than as a result of a breach by the Executive of this Section 8, or deliver to any person, firm, corporation or other entity any document, record, notebook, computer program or similar repository of or containing any such confidential or proprietary information or trade secrets. The parties hereby stipulate and agree that as between them the foregoing matters are important, material and confidential proprietary information and trade secrets and affect the successful conduct of the businesses of the Company (and any successor or assignee of the Company).
(b) Upon termination of the Executive’s employment with the Company for any reason, the Executive shall promptly deliver to the Company all correspondence, drawings, manuals, letters, notes, notebooks, reports, programs, plans, proposals, financial documents, or any other documents concerning the Company’s customers, business plans, marketing strategies, products or processes and/or which contain proprietary information or trade secrets.


(c) The Executive may respond to a lawful and valid subpoena or other legal process but shall give the Company the earliest possible notice thereof, shall, as much in advance of the return date as possible, make available to the Company and its counsel the documents and other information sought and shall assist such counsel in resisting or otherwise responding to such process.
9. Injunctive Relief . It is recognized and acknowledged by the Executive that a breach of the covenants contained in Sections 7 and 8 will cause irreparable damage to the Company and its goodwill, the exact amount of which will be difficult or impossible to ascertain, and that the remedies at law for any such breach will be inadequate. Accordingly, the Executive agrees that in the event of a breach of any of the covenants contained in Sections 7 and 8, in addition to any other remedy which may be available at law or in equity, the Company shall be entitled to specific performance and injunctive relief.
10. Survival . The expiration or termination of the Term shall not impair the rights or obligations of any party hereto which shall have accrued hereunder prior to such expiration.
11. Binding on Successors . This Agreement shall be binding upon and inure to the benefit of the Company, the Executive and their respective successors, assigns, personnel and legal representatives, executors, administrators, heirs, distributees, devisees, and legatees, as applicable.
12. Governing Law . This Agreement shall be governed, construed, interpreted and enforced in accordance with the substantive laws of the State of Ohio.
13. Validity . The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.
14. Notices . Any notice, request, claim, demand, document or other communication hereunder to any party shall be effective upon receipt (or refusal of receipt) and shall be in writing and delivered personally or sent by telex, telecopy, or certified or registered mail, postage prepaid, as follows:
(a) If to the Company, to:
TransDigm Group Incorporated
The Tower at Erieview
1301 E. 9 th Street, Suite 3000
Cleveland, Ohio 44114
Attention: W. Nicholas Howley, CEO and Chairman
(b) If to the Executive, to him at the address set forth below under his signature;
or at any other address as any party shall have specified by notice in writing to the other party in accordance with this Section 14.
15. Counterparts . This Agreement may be executed in several counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same agreement.

16. Entire Agreement; Prior Employment Agreement . The terms of this Agreement, together with the Equity Compensation Agreements are intended by the parties to be the final expression of their agreement with respect to the employment of the Executive by the Company and may not be contradicted by evidence of any prior or contemporaneous agreement. The parties further intend that this Agreement, and the aforementioned contemporaneous documents, shall constitute the complete and exclusive statement of its terms and that no extrinsic evidence whatsoever may be introduced in any judicial, administrative, or other legal proceeding to vary the terms of this Agreement.
17. Amendments; Waivers . This Agreement may not be modified, amended, or terminated except by an instrument in writing, signed by the Executive and the Chief Executive Officer. By an instrument in writing similarly executed, the Executive or the Company may waive compliance by the other party or parties with any provision of this Agreement that such other party was or is obligated to comply with or perform; provided, however, that such waiver shall not operate as a waiver of, or estoppel with respect to, any other or subsequent failure. No failure to exercise and no delay in exercising any right, remedy or power hereunder shall preclude any other or further exercise of any other right, remedy or power provided herein or by law or in equity.


18. No Inconsistent Actions . The parties hereto shall not voluntarily undertake or fail to undertake any action or course of action inconsistent with the provisions or essential intent of this Agreement. Furthermore, it is the intent of the parties hereto to act in a fair and reasonable manner with respect to the inte rpretation and application of the provisions of this Agreement.
19. Arbitration . Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration, conducted before a panel of three arbitrators in Cleveland, Ohio, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator’s award in any court having jurisdiction; provided , however , that the Company shall be entitled to seek a restraining order or injunction in any court of competent jurisdiction to prevent any continuation of any violation of the provisions of Section 7 or 8 of this Agreement and the Executive hereby consents that such restraining order or injunction may be granted without the necessity of the Company’s posting any bond; and provided further , that the Executive shall be entitled to seek specific performance of his right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. Each of the parties hereto shall bear its share of the fees and expenses of any arbitration hereunder.
20. Indemnification and Insurance; Legal Expenses . During the Term and so long as the Executive has not breached any of his obligations set forth in Sections 7 and 8, the Company shall indemnify the Executive to the fullest extent permitted by the laws of the State of Delaware, as in effect at the time of the subject act or omission, and shall advance to the Executive reasonable attorneys’ fees and expenses as such fees and expenses are incurred (subject to an undertaking from the Executive to repay such advances if it shall be finally determined by a judicial decision which is not subject to further appeal that the Executive was not entitled to the reimbursement of such fees and expenses) and he shall be entitled to the protection of any insurance policies the Company shall elect to maintain generally for the benefit of its directors and officers (“Directors and Officers Insurance”) against all costs, charges and expenses incurred or sustained by him in connection with any action, suit or proceeding to which he may be made a party by reason of his being or having been a director, officer or employee of the Company or any of its subsidiaries or his serving or having served any other enterprise as a director, officer or employee at the request of the Company (other than any dispute, claim or controversy arising under or relating to this Agreement). The Company covenants to maintain during the Term for the benefit of the Executive (in his capacity as an officer and director of the Company) Directors and Officers Insurance providing customary benefits to the Executive.
(SIGNATURE PAGE FOLLOWS)




IN WITNESS WHEREOF, the parties have executed this Agreement on the date and year first above written.
 
 


TRANSDIGM GROUP INCORPORATED
 
 
By:
 
 
Name:
 
W. Nicholas Howley
Title:
 
Chief Executive Officer
 
EXECUTIVE
 
 
Rodrigo Rubiano




Exhibit 31.1
CERTIFICATION
I, Kevin Stein, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of TransDigm Group Incorporated;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s second fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors:

(a)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: May 4, 2018

/s/ Kevin Stein
Name: Kevin Stein
Title: President and Chief Executive Officer
(Principal Executive Officer)




Exhibit 31.2
CERTIFICATION
I, James Skulina, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of TransDigm Group Incorporated;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s second fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors:

(a)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: May 4, 2018
 
/s/ James Skulina
Name: James Skulina
Title: Executive Vice President and Interim Chief
Financial Officer (Principal Financial and Accounting Officer)




Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of TransDigm Group Incorporated (the “Company”) for the period ended March 31, 2018 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Kevin Stein, President and Chief Executive Officer (Principal Executive Officer), certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
1.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities and Exchange Act of 1934; and
2.
The information contained in the Report fairly presents in all material respects, the financial condition of the Company as of the dates indicated and results of operations of the Company for the periods indicated.

Date: May 4, 2018
 
/s/ Kevin Stein
Name: Kevin Stein
Title: President and Chief Executive Officer
(Principal Executive Officer)




Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of TransDigm Group Incorporated (the “Company”) for the period ended March 31, 2018 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, James Skulina, Executive Vice President and Interim Chief Financial Officer (Principal Financial and Accounting Officer) certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
1.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities and Exchange Act of 1934; and
2.
The information contained in the Report fairly presents in all material respects, the financial condition of the Company as of the dates indicated and results of operations of the Company for the periods indicated.

Date: May 4, 2018
 
/s/ James Skulina
Name: James Skulina
Title: Executive Vice President and Interim Chief
Financial Officer (Principal Financial and Accounting Officer)