TransDigm Group (TDG) 10-K risk factor changes: FY2019 vs FY2018

[removed: Set] [added: *Set] forth below are important risks and uncertainties that could negatively affect our business and financial condition and could cause our actual results to differ materially from those expressed in forward-looking statements contained in this [removed: report.][added: report.*]

[removed: Our] [added: Our] commercial business is sensitive to the number of flight hours that our customers’ planes spend aloft, the size and age of the worldwide aircraft fleet and our customers’ profitability.

These items are, in turn, affected by general economic and geopolitical and other worldwide [removed: conditions.][added: conditions.]

[removed: Our] [added: Our] sales to manufacturers of aircraft are cyclical, and a downturn in sales to these manufacturers may adversely affect [removed: us.][added: us.]

Our sales to manufacturers of large commercial aircraft, such as The Boeing Company, Airbus S.A.S, and related OEM suppliers, as well as manufacturers of business jets (which collectively accounted for approximately [removed: 24%] [added: 26%] of our net sales in fiscal year [removed: 2018)] [added: 2019)] have historically experienced periodic downturns.

[removed: We] [added: We] rely heavily on certain customers for much of our [removed: sales.][added: sales.]

Our [removed: two] largest [removed: customers] [added: customer] for fiscal year [removed: 2018 were Airbus S.A.S. (which includes Satair A/S) and] [added: 2019 was] The Boeing Company (which includes Aviall, Inc.).

[removed: Airbus S.A.S. accounted for approximately 11% of our net sales and] The Boeing Company accounted for approximately [removed: 10%] [added: 11%] of our net sales in fiscal year [removed: 2018.][added: 2019.]

Our top ten customers for fiscal year [removed: 2018] [added: 2019] accounted for approximately [removed: 43%] [added: 42%] of our net sales.

[removed: We] [added: We] generally do not have guaranteed future sales of our products.

Further, when we enter into fixed price contracts with some of our customers, we take the risk for cost [removed: overruns.][added: overruns.]

[removed: U.S.] [added: U.S.] military spending is dependent upon the U.S. defense [removed: budget.][added: budget.]

[removed: We] [added: We] intend to pursue acquisitions.

Our business may be adversely affected if we cannot consummate acquisitions on satisfactory terms, or if we cannot effectively integrate acquired [removed: operations.][added: operations.]

Future acquisitions could result in margin dilution and further likely result in the incurrence of additional debt and contingent liabilities and an increase in interest and [added: amortization]

[removed: amortization] expenses or periodic impairment charges related to goodwill and other intangible assets as well as significant charges relating to integration costs.

We are subject to many of the foregoing risks in connection with our [removed: recently announced agreement to acquire Esterline,] [added: acquisition of Esterline completed in March 2019,] and these risks may be exacerbated due to the scale and complexity of that acquisition as compared to our recent acquisitions.

[removed: If the] [added: The] acquisition [removed: is completed, it] [added: has required and] will [added: continue to] require extensive integration efforts.

These efforts could result in significant unforeseen costs and [removed: will] require substantial attention from our senior management.

It is also possible that the substantial management attention required by, and the indebtedness [removed: to be] incurred in connection [removed: with,] [added: with] the transaction could cause us to forgo other acquisition opportunities, particularly if we encounter [removed: delays or] unexpected costs or the acquisition otherwise does not perform to our expectations.

[removed: We] [added: We] are subject to certain unique business risks as a result of supplying equipment and services to the U.S. [removed: Government.][added: Government.]

Companies engaged in supplying defense-related equipment and services to U.S. Government [removed: agencies] [added: agencies, whether through direct contracts with the U.S. government or a as a subcontractor to customers contracting with the U.S. government,] are subject to business risks specific to the defense industry.

Most of our U.S. Government contracts can be terminated by the U.S. Government [removed: for] [added: at] its convenience without significant notice.

Furthermore, even where the price is not based on cost, the U.S. Government may seek to review our costs to determine whether our pricing is “fair and reasonable.” Our subsidiaries are periodically subject to [removed: a] pricing [removed: review] [added: reviews] and [removed: in fact,] government buying agencies that purchase some of our subsidiaries’ products are [removed: currently the] [added: periodically] subject [removed: of a] [added: to audits by the] DOD Office of Inspector General [removed: audit] [added: (“OIG”)] with respect to prices paid for such products.

Pricing reviews and government audits, including the [removed: one] [added: audit] underway, [removed: could be] [added: and the Congressional inquiry are] costly and time consuming for our management and could distract from our ability to effectively manage the business.

As a result of [removed: such a review,] [added: these reviews, audits and inquiries,] we could be subject to providing [removed: a refund] [added: further refunds] to the U.S. Government or we could be asked to enter into an arrangement whereby our prices would be based on [removed: cost or] [added: cost,] the DOD could seek to pursue alternative sources of supply for our [removed: parts.][added: parts, or the U.S. government could take other adverse actions with respect to our contracts.]

[removed: Our] [added: Our] business may be adversely affected if we would lose our government or industry approvals or if more stringent government regulations are enacted or if industry oversight is [removed: increased.][added: increased.]

If new and more stringent government regulations are adopted or if industry oversight increases, we [added: might incur significant expenses to comply with any new regulations or heightened industry oversight.]

[removed: Our] [added: Our] indebtedness could adversely affect our financial health and could harm our ability to react to changes to our business and prevent us from fulfilling our obligations under our [removed: indebtedness.][added: indebtedness.]

As of September 30, [removed: 2018,] [added: 2019,] our total indebtedness, excluding approximately [removed: $17.5] [added: $41.5] million of letters of credit outstanding, was approximately [removed: $12.9] [added: $16.9] billion, which was [removed: 116.3%] [added: 120.7%] of our total book capitalization as a result of [removed: our prior year] special dividends being funded, in part, with indebtedness and the addition of approximately [removed: $1.1] [added: $4.0] billion in net new incremental borrowings during fiscal [removed: 2018.][added: 2019 in connection with the financing of the Esterline acquisition.]

[removed: For example,] [added: Also,] as of September 30, [removed: 2018,] [added: 2019,] we had approximately [removed: $582.5] [added: $718.5] million of unused commitments under our revolving loan facility.

For example, if the usage of the revolving loan facility exceeds [removed: 25%] [added: 35%] 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.

[removed: In addition, all] [added: All] of our debt under the senior secured credit facility, which includes [removed: $7.6] [added: $7.5] billion in term loans and a revolving loan facility of [removed: $600] [added: $760] million, bears interest at variable [removed: rates.][added: rates primarily based on the London interbank offered rate (LIBOR) for deposits of U.S. dollars.]

Accordingly, if [added: LIBOR or other variable] interest rates increase, our debt service expense will also increase.

For information about our interest rate swap and cap agreements, see Note [removed: 20,] [added: 21,] “Derivatives and Hedging Instruments,” in the notes to the consolidated financial statements included herein.

[removed: To] [added: To] service our indebtedness, we will require a significant amount of cash.

Our ability to generate cash depends on many factors beyond our control and any failure to meet our debt service obligations could harm our business, financial condition and results of [removed: operations.][added: operations.]

Our ability to make payments on and to refinance our indebtedness, including the Indentures, amounts borrowed under the senior secured credit facility, amounts due under our Securitization Facility, and to fund our operations, will depend on our ability [added: to generate cash in the future, which, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.]

[removed: The] [added: The] terms of the senior secured credit facility and Indentures may restrict our current and future operations, particularly our ability to respond to changes or to take certain [removed: actions.][added: actions.]

[removed: We] [added: We] could incur substantial costs as a result of violations of or liabilities under environmental laws and [removed: regulations.][added: regulations.]

In 2019, The Boeing Company announced a production rate decrease on the Boeing 737 MAX from 52 to 42 airplanes per month.

The Company does not anticipate the current production rate decrease to have a material impact on the Company’s financial results.

| • | revoke required security clearances; |

In the third quarter of fiscal 2019, we voluntarily refunded $16 million to the U.S. government following an OIG audit, and another OIG audit is underway.

In addition, our defense-related business is the subject of an ongoing Congressional inquiry by the House Oversight Committee.

If a government inquiry or investigation uncovers improper or illegal activities, we could be subject to civil or criminal penalties or administrative sanctions, including contract termination, fines, forfeiture of fees, suspension of payment and suspension or debarment from doing business with U.S. government agencies, any of which could materially adversely affect our reputation, business, financial condition and results of operations.

U.S. laws and regulations applicable to us include the Arms Export Control Act, the International Traffic in Arms Regulations ("ITAR"), the Export Administration Regulations ("EAR") and the trade sanctions laws and regulations administered by the United States Department of the Treasury's Office of Foreign Assets Control ("OFAC").

EAR restricts the export of dual-use products and technical data to certain countries, while ITAR restricts the export of defense products, technical data and defense services.

For example, on October 29, 2019, the Company entered into a purchase agreement in connection with a private offering of $2.65 billion aggregate principal amount in 5.50% senior subordinated notes due November 15, 2027.

The settlement of the debt financing transaction occurred on November 13, 2019.

The notes were issued at a price of 100% of their principal amount.

The Company will use a portion of the net proceeds from the offering of the notes to redeem all of its outstanding (aggregate principal amount of $1.15 billion) 6.000% senior subordinated notes due 2022.

In addition, on July 27, 2017, the Financial Conduct Authority (FCA) in the U.K. announced that it would phase out LIBOR as a benchmark by the end of calendar year 2021.

The expected discontinuation of LIBOR may require us to amend certain agreements governing our debt and, although the U.S. and other jurisdictions are working to replace LIBOR with alternative reference rates, we cannot predict what alternative index, margin adjustments and related terms would be negotiated with our counterparties.

As a result, our interest expense could increase.

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| --- | --- |

loss may remain unknown for substantial periods of time.

Should insurance or other risk transfer mechanisms, such as our existing disaster recovery and business continuity plans, be insufficient to recover all costs, we could experience a material adverse effect on our business, financial condition and results of operations.

Volatility in the equity markets or interest rates could substantially increase our pension costs and required pension contributions.

The Company sponsors qualified defined benefit pension plans and a nonqualified postretirement plan.

Certain qualified defined benefit pension plans are funded with trust assets invested in a diversified portfolio of debt and equity securities and other investments.

Among other factors, changes in interest rates, investment returns and the market value of plan assets can (i) affect the level of plan funding; (ii) cause volatility in the net periodic pension cost; and (iii) increase our future contribution requirements.

A significant decrease in investment returns or the market value of plan assets or a significant decrease in interest rates could increase our net periodic pension costs and adversely affect our results of operations.

A significant increase in our contribution requirements with respect to our qualified defined benefit pension plans could have an adverse impact on our cash flow.

The acquisition is not expected to close until 2019, subject to approval of Esterline’s shareholders, as well as other customary closing conditions, including the receipt of required regulatory approvals, so there can be no assurance that we will not encounter unforeseen expenses, complications and delays in the process or that we will be able to consummate the acquisition as contemplated or at all.

might incur significant expenses to comply with any new regulations or heightened industry oversight.

Also, in connection with the merger agreement to acquire Esterline for approximately $4 billion, the Company entered into a commitment letter for a senior secured term facility up to $3.7 billion.

The actual amount and timing of the new senior secured term facility is subject to the closing of the Esterline acquisition and the cash on hand at that time.

to generate cash in the future, which, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.

Any disruption of our ability to operate our business could result in a material decrease in our revenues or significant additional costs to replace, repair or insure our assets, which could have a material adverse impact on our financial condition and results of operations.

On July 3, 2013, June 4, 2014, October 14, 2016 and August 23, 2017, the Company’s Board of Directors authorized and declared special cash dividends of $22.00, $25.00, $24.00 and $22.00, respectively, on each outstanding share of common stock and cash dividend equivalent payments to holders of options under its stock option plans.

[removed: Interest] [added: *Interest] Rate [removed: Risk][added: Risk*]

At September 30, [removed: 2018,] [added: 2019,] we had borrowings under our term loans of approximately [removed: $7,600] [added: $7,524] million that were subject to interest rate risk.

The Company's objective is to maintain an allocation of [removed: approximately] [added: at least] 75% fixed rate and 25% variable rate debt thereby limiting its exposure to changes in near-term interest rates.

The effect of a hypothetical one percentage point increase in interest rates would increase the annual interest costs under our term loans by approximately [removed: $76] [added: $75] million based on the amount of outstanding borrowings at September 30, [removed: 2018.][added: 2019.]

The weighted average interest rate on the [removed: $7,600] [added: $7,524] million of borrowings under our term loans on September 30, [removed: 2018] [added: 2019] was [removed: 4.5%.][added: 4.8%.]

Interest rate swaps and caps used to hedge and offset, respectively, the variable interest rates on the credit facility are described in Note [removed: 20,] [added: 21,] “Derivatives and Hedging Activities,” to our consolidated financial statements included herein.

For information about the fair value of the aggregate principal amount of borrowings under our term loans and the fair value of the Notes, see Note [removed: 19,] [added: 20,] “Fair Value Measurements,” to our consolidated financial statements included herein.

[removed: ITEM] [added: ITEM] 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY [removed: DATA][added: DATA]

The information required by this Item is contained on pages F-1 through [removed: F-44] [added: F-59] of this Report.

| [removed: ITEM 9.] [added: ITEM 9.] | [removed: CHANGES] [added: CHANGES] IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL [removed: DISCLOSURE] [added: DISCLOSURE] |

As of September 30, 2019, approximately 83% of our debt was fixed rate debt.

*Foreign Currency Risk*

Certain of our foreign subsidiaries’ sales and results of operations are subject to the impact of foreign currency fluctuations.

Because our consolidated financial statements are presented in U.S. dollars, increases or decreases in the value of the U.S. dollar relative to other currencies in which we transact business could materially adversely affect our net sales, net income and the carrying values of our assets located outside the U.S. Global economic uncertainty continues to exist.

Strengthening of the U.S. dollar relative to other currencies may adversely affect our operating results.

If the U.S. dollar were to strengthen, our foreign results of operations would be unfavorably impacted, but the effect is not expected to be material.

A 10% change in foreign currency exchange rates would not have resulted in a material impact to net income for the fiscal years ended September 30, 2019 and 2018.

[removed: The Company][added: The Company]

We estimate that [removed: about] [added: approximately] 90% of our net sales for fiscal year [removed: 2018] [added: 2019] were generated by proprietary products.

In [removed: addition,] [added: addition] for fiscal year [removed: 2018,] [added: 2019,] we estimate that we generated [removed: about] [added: approximately] 80% of our net sales from products [removed: for] [added: in] which we are the sole source provider.

We estimate that approximately [removed: 60%] [added: 52%] of our net sales in fiscal year [removed: 2018] [added: 2019] were generated from aftermarket sales, the vast majority of which come from the commercial and military aftermarkets.

[removed: Products][added: Products]

We typically choose not to compete for non-proprietary “build to print” business because it frequently offers lower [added: margins than proprietary]

We believe that our products have strong brand names within the industry and that we have a reputation for high quality, reliability and [added: strong] customer support.

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, [added: advanced sensor products, switches and relay panels, advanced displays, thermal protection and insulation,] lighting and control technology, military personnel parachutes, high performance hoists, winches and lifting devices, and cargo loading, handling and delivery systems.

[removed: Segments][added: Segments]

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, [added: advanced sensor products, switches and relay panels,] high performance hoists, winches and lifting devices and cargo loading and handling systems.

Products are sold in the [removed: OEM] [added: original equipment] and aftermarket market channels.

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, [added: advanced displays, thermal protection,] lighting and control technology, military personnel parachutes and cargo delivery systems.

Major product offerings include seat belts and safety restraints for ground transportation applications, mechanical/electro-mechanical actuators and controls for space applications, [added: hydraulic/electromechanical actuators] and [added: fuel valves for land based gas turbines, and] refueling systems for heavy equipment used in mining, construction and other [removed: industries.][added: 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 [removed: suppliers and] [added: suppliers,] manufacturers of heavy equipment used in mining, construction and other [removed: industries.][added: industries and turbine original equipment manufacturers, gas pipeline builders and electric utilities.]

For financial information about our segments, see Note [removed: 16,] [added: 17,] “Segments,” to the consolidated financial statements included [removed: herein, which is incorporated by reference.][added: herein.]

[removed: Pending Acquisition] [added: Acquisition] of Esterline Technologies [removed: Corporation][added: Corporation]

For further details on the acquisitions and [removed: divestiture] [added: divestitures] that occurred during fiscal [removed: 2018,] [added: 2019,] refer to Note 2, “Acquisitions and Divestitures,” to the consolidated financial statements included [removed: herein, which is incorporated by reference.][added: herein.]

[removed: Sales] [added: Sales] and [removed: Marketing][added: Marketing]

Account managers and sales engineers are expected to be familiar with the personnel, organization and needs of specific customers to achieve total bookings and new business goals [removed: at] [added: for] each account and, together with the business unit managers, to determine when additional resources are required at customer locations.

[removed: Manufacturing] [added: Manufacturing] and [removed: Engineering][added: Engineering]

We maintain approximately [removed: 80] [added: 110] manufacturing facilities.

Our engineering costs are recorded in cost of sales and in selling and administrative expenses [removed: and research and development costs are recorded] in [removed: selling and administrative expenses in] our consolidated statements of income.

The aggregate of engineering expense and research and development expense represents approximately [removed: 8%] [added: 9%] of our operating units’ aggregate costs, or approximately [removed: 4%] [added: 5%] of our consolidated net sales for fiscal year [removed: 2018.][added: 2019.]

Refer to Note 3, “Summary of Significant Accounting Policies,” to the consolidated financial statements included herein with respect to total costs of research and [removed: development, which is incorporated by reference.][added: development.]

[removed: Customers][added: Customers]

We predominantly serve customers in the commercial, regional, business jet and general aviation aftermarket, which accounts for approximately [removed: 36%] [added: 32%] of total sales; the commercial aerospace OEM market, comprising large commercial transport manufacturers and regional and business jet manufacturers, which accounts for approximately [removed: 24%] [added: 26%] of total sales; and the defense market, which accounts for approximately [removed: 35%] [added: 37%] of total sales.

For the [added: fiscal] year ended September 30, [removed: 2018, Airbus S.A.S. (which includes Satair A/S, a distributor of commercial aftermarket parts to airlines throughout the world) accounted for approximately 11% of our net sales and] [added: 2019,] The Boeing Company (which includes Aviall, Inc., [removed: also] a distributor of commercial aftermarket parts to airlines throughout the world) accounted for approximately [removed: 10%] [added: 11%] of our net sales.

Our top ten customers for fiscal year [removed: 2018] [added: 2019] accounted for approximately [removed: 43%] [added: 42%] of our net sales.

The demand for our commercial aftermarket parts and services depends on, among other things, the breadth of our installed OEM base, revenue passenger miles (“RPMs”), the size and age of the worldwide aircraft fleet, the percentage of the worldwide fleet [removed: that is in warranty, and airline profitability.]

[removed: Competition][added: Competition]

[removed: Government Contracts][added: Government Contracts]

[removed: Governmental Regulation][added: Governmental Regulation]

[removed: Market Channels][added: Market Channels]

The commercial aerospace industry, including the aftermarket and OEM market, is impacted by the health of the global economy and [removed: geo-political] [added: geopolitical] events around the world.

The commercial aerospace industry has shown strength with increases in revenue passenger miles, or RPMs, since 2010, and positive growth continued through [removed: 2018] [added: 2019] with [removed: increases] [added: increase] in [removed: RPMs,] [added: RPMs ,] as well as [removed: the] [added: general] growth in the large commercial OEM sector (aircraft with 100 or more seats) with order announcements by The Boeing Company and Airbus [removed: S.A.S.] [added: S.A.S] leading to planned increases in production.

The [removed: 2019] [added: 2020] leading indicators [removed: and] [added: or] industry consensus suggest a continuation of current trends in the commercial transport market sector supported by continued RPM growth and increases in production at the OEM level.

[removed: However, due to differences] between the profitability of our products sold to OEM and aftermarket customers, variation in product mix can cause variation in gross margin.

There are many short-term factors (including inventory corrections, unannounced changes in order patterns, [removed: strikes] [added: strikes, facility shutdowns caused by fires, hurricanes or other incidents] and mergers and acquisitions) that can cause short-term disruptions in our quarterly shipment patterns as compared to previous quarters and the same periods in prior years.

[removed: Commercial Aftermarket][added: Commercial Aftermarket]

[removed: Commercial] [added: Commercial] OEM [removed: Market][added: Market]

products.

On March 14, 2019, TransDigm completed the acquisition of all the outstanding stock of Esterline Technologies Corporation (“Esterline”) for $122.50 per share in cash, plus the repayment of Esterline debt.

The purchase price, net of cash acquired of approximately $398.2 million, totaled approximately $3,923.9 million.

Of the $3,923.9 million purchase price, $3,536.3 million was paid at closing and the remaining $387.6 million was classified as restricted cash for the redemption of Esterline’s outstanding senior notes due 2023 (herein the "2023 Notes").

The 2023 Notes were redeemed on April 15, 2019.

Esterline, through its subsidiaries, is an industry leader in specialized manufacturing for the aerospace and defense industry, primarily within three core disciplines: advanced materials, avionics and controls and sensors and systems.

The acquisition of Esterline expands TransDigm's platform of proprietary and sole source content for the aerospace and defense industry and the Esterline products have significant aftermarket exposure.

Products are sold in the original equipment and aftermarket market channels.

The Esterline businesses were acquired towards the end of the second quarter of fiscal 2019 and preliminarily assessed as a separate segment of the Company.

During the third quarter of fiscal 2019, the Esterline businesses were integrated into TransDigm's existing Power & Control, Airframe and Non-aviation segments.

Research and development costs are recorded in selling and administrative expenses in our consolidated statements of income.

that is in warranty, and airline profitability.

The primary exception to this was the production rate decrease on the Boeing 737 MAX, although not material to TransDigm’s financial results.

However, due to differences

The commercial transport market sector, the largest sector in the commercial OEM market, declined in 2019 primarily due to the 737 MAX production rate cuts at The Boeing Company.

However, the rate cuts did not have a material impact on our commercial OEM revenue as our revenue growth outperformed the general market.

We also purchase replacement parts, which are utilized in our various repair and overhaul operations.

margins than proprietary products.

On October 9, 2018, the Company entered into a merger agreement with Esterline Technologies Corporation (“Esterline”), under which the Company agreed to acquire Esterline.

Under the terms of the merger agreement, the Company will purchase each share of Esterline common stock outstanding for $122.50 per share in cash.

TransDigm anticipates that the total transaction value will be approximately $4 billion, representing the $122.50 price paid per share for common stock outstanding plus existing debt.

The Company expects the acquisition to be financed primarily through existing cash on hand and the incurrence of new term loans.

In connection with the merger agreement, the Company entered into a commitment letter for a senior secured term facility up to $3.7 billion.

The actual amount and timing of the new senior secured term facility is subject to the closing of the Esterline acquisition and the cash on hand at that time.

The Company currently expects that the merger will be completed in 2019, subject to approval of Esterline’s shareholders, as well as other customary closing conditions, including the receipt of required regulatory approvals.

Active commercial production programs include the Boeing 737 (including the 737MAX), 747, 767, 777 and 787, the Airbus A220 (previously known as the Bombardier CSeries), A320 family (including neo), A330, A350 and A380, the Bombardier CRJs, Q400/Dash-8 aircraft, Challenger and Learjets, the Embraer regional and business jets, the Cessna Citation family, the Gulfstream aircraft family, the Dassault aircraft family, the HondaJet and the ATR42/72 turboprop.

Military platforms include aircraft such as the Boeing AH-64 Apache, CH-47, C-17, F-15, F-18, KC46 Tanker, P-8 and V-22, the Airbus A400M, the Lockheed Martin C-130J, F-16 and F-35 Joint Strike Fighter, UH-60 Blackhawk helicopter, the Northrop Grumman E-2C Hawkeye, the General

Atomics Predator Drone and the Raytheon Patriot Missile.

We have been awarded numerous contracts for the development of engineered products for production on the Airbus A330neo, the Boeing 777x, the Bombardier Global 7500/8000, the Embraer E2, the Mitsubishi Regional Jet and the Sikorsky S-97 and JMR helicopter.

The commercial transport market sector, the largest sector in the commercial OEM market, grew modestly during 2018.

We and certain of our current or former officers and directors are defendants in a consolidated securities class action captioned [removed: In] [added: *In] re TransDigm Group, Inc. Securities [removed: Litigation,] [added: Litigation*,] Case No. 1:17-cv-01677-DCN (N.D. Ohio).

The plaintiffs assert claims under Section 10(b) of the Exchange Act and Rule 10b-5 promulgated [added: 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 [removed: Sciabacucchi] [added: *Sciabacucchi] v.

Howley et [removed: al.,] [added: al.*,] No. 1:17-cv-1971-DCN (N.D. Ohio).

[removed: PART II][added: PART II]

| [removed: ITEM 5.] [added: ITEM 5.] | [removed: MARKET] [added: MARKET] FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY [removed: SECURITIES] [added: SECURITIES] |

[removed: Market Information][added: Market Information]

[removed: Holders][added: Holders]

[removed: We estimate that] [added: As of October 21, 2019,] there were [added: 33 stockholders of record of our common stock and] approximately [removed: 70,000] [added: 134,000 of] beneficial stockholders, which includes an estimated amount of stockholders who have their shares held in their accounts by banks and brokers.

During fiscal [removed: 2017,] [added: 2019,] TD Group’s Board of Directors authorized and declared [added: a] special cash [removed: dividends] [added: dividend] of [removed: $24.00 (in October 2016) and $22.00] [added: $30.00] (in August [removed: 2017)] [added: 2019)] on each outstanding share of common stock and cash dividend equivalent payments under options granted under its stock incentive plans.

[removed: Performance Graph][added: Performance Graph]

Set forth below is a line graph comparing the cumulative total return of a hypothetical investment in the shares of common stock of TD Group with the cumulative total return of a hypothetical investment in each of the S&P 500 [added: Index, the S&P Aerospace & Defense Select] Index and the S&P MidCap 400 Aerospace & Defense [removed: Index based on the respective market prices of each such investment on the dates shown below, assuming an initial investment of $100 on September 30, 2013.][added: Index.]

[removed: COMPARISON] [added: COMPARISON] OF 5 YEAR CUMULATIVE TOTAL [removed: RETURN*][added: RETURN*]

Among TransDigm Group Inc., the S&P 500 [added: Index, S&P Aerospace & Defense Select] Index [added: and]

[removed: and] [added: the] S&P MidCap 400 Aerospace & Defense Index

[removed: ][added: ]

*$100 invested on [removed: 9/30/13] [added: 9/30/14] in stock or index, including reinvestment of dividends.

Copyright [removed: 2018] [added: 2019] Standard & Poor’s, a division of S&P Global.

[removed: Purchases] [added: Purchases] of Equity Securities by the Issuer or Affiliated [removed: Purchaser][added: Purchaser]

On November 8, 2017, our Board of Directors, authorized a [removed: new] stock repurchase program [removed: replacing the $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 as described within the [removed: Liquidity] [added: *Liquidity] and Capital [removed: Resources] [added: Resources*] section of Item 7.

[added: and Analysis of Financial Conditions and Results of Operations.” No] repurchases were made under the program during the fiscal [removed: year] [added: years] ended September 30, [added: 2019 and] 2018.

As of September 30, [removed: 2018, the entire] [added: 2019,] $650 million [removed: of] [added: in] repurchases [added: are] allowable under the program [removed: remained,] subject to any restrictions specified in the Credit Agreement and/or Indentures governing the existing Notes.

During the fiscal [removed: years] [added: year] ended September 30, [removed: 2018 and 2017,] [added: 2018,] the Company received 2,119 shares [removed: and 2,548 shares, respectively] as forfeitures in lieu of payment for withholding taxes on the vesting of restricted stock.

The deemed gross cost of the shares was approximately $0.6 million [removed: in both periods] at a weighted-average price per share [removed: of $274.62 and $247.33, respectively.][added: $274.62.]

Dividend Policy

Also, the Company currently has an accumulated deficit which could limit or restrict our ability to pay dividends in the future.

An investment of $100 (with reinvestment of all dividends) is assumed to have been made in our common stock and in each of the indexes on September 30, 2014, and its relative performance is tracked through September 30, 2019

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| | | | | | | | | | | | | | | | | |

| | 9/30/14 | | | 9/30/15 | | 9/30/16 | | | 9/30/17 | | | 9/30/18 | | | 9/30/19 | |

| TransDigm Group Inc. | 100.00 | | | 115.23 | | 156.85 | | | 164.27 | | | 239.22 | | | 354.00 | |

| S&P 500 Index | 100.00 | | | 99.39 | | 114.72 | | | 136.07 | | | 160.44 | | | 167.27 | |

| S&P Aerospace & Defense Select Index | 100.00 | | | 102.94 | | 119.95 | | | 171.11 | | | 213.77 | | | 225.91 | |

| S&P MidCap 400 Aerospace & Defense Index | 100.00 | | | 100.89 | | 133.13 | | | 163.10 | | | 262.80 | | | 286.46 | |

“Management’s Discussion

No restricted stock units remained outstanding as of September 30, 2018.

A consolidated amended complaint was filed on February 16, 2018.

thereunder and Section 20(a) of the Exchange Act, and seek unspecified monetary damages and other relief.

On November 2, 2018, there were 35 stockholders of record of our common stock.

Dividends

Fiscal year ending September 30.

| | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | 9/30/13 | | | 9/30/14 | | 9/30/15 | | 9/30/16 | | | 9/30/17 | | | 9/30/18 | |

| TransDigm Group Inc. | 100.00 | | | 152.71 | | 175.97 | | 239.52 | | | 250.86 | | | 365.32 | |

| S&P 500 Index | 100.00 | | | 119.73 | | 119.00 | | 137.36 | | | 162.92 | | | 192.10 | |

| S&P MidCap 400 Aerospace & Defense Index | 100.00 | | | 128.40 | | 109.15 | | 136.91 | | | 175.37 | | | 237.67 | |

- “Management’s Discussion and Analysis of Financial Conditions and Results of Operations.” No

[removed: UNITED STATES][added: UNITED STATES]

[removed: SECURITIES] [added: SECURITIES] AND EXCHANGE [removed: COMMISSION][added: COMMISSION]

[removed: Washington,] [added: Washington,] D.C. [removed: 20549][added: 20549]

[removed: | FORM 10-K |][added: FORM 10-K]

| [removed: x] [added: ☒] | [removed: ANNUAL] [added: ANNUAL] REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF [removed: 1934] [added: 1934] |

For the fiscal year ended September 30, [removed: 2018][added: 2019]

| [removed: ¨] [added: ☐] | [removed: TRANSITION] [added: TRANSITION] REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF [removed: 1934] [added: 1934] |

[removed: | TransDigm Group Incorporated (Exact] [added: (Exact] name of registrant as specified in its [removed: charter) | | |][added: charter)]

[removed: Delaware][added: Delaware]

[removed: (State] [added: (State] or other jurisdiction of incorporation or [removed: organization)][added: organization)]

[removed: 41-2101738][added: 41-2101738]

[removed: (I.R.S.] [added: (I.R.S.] Employer Identification [removed: No.)][added: No.)]

| [removed: 1301] [added: 1301] East 9th [removed: Street, Suite 3000, Cleveland, Ohio] [added: Street,] | [added: Suite 3000,] | [removed: 44114] [added: Cleveland,] | [added: Ohio | | 44114 |]

| [removed: (Address] [added: (Address] of principal executive [removed: offices)] [added: offices)] | | [removed: (Zip Code)] | [added: | | (Zip Code) |]

[removed: (216) 706-2960][added: (216) 706-2960]

[removed: (Registrants’] [added: (Registrants’] telephone number, including area [removed: code)][added: code)]

[removed: Securities] [added: Securities] registered pursuant to Section 12(b) of the [removed: Act:][added: Act:]

| [removed: Common Stock] [added: Common Stock, $0.01 par value] | | [removed: New] [added: TDG | | New] York Stock [removed: Exchange] [added: Exchange] |

| [removed: (Title)] [added: Title of each class] | | [removed: (Name] [added: Trading symbol | | Name] of exchange on which [removed: registered)] [added: registered] |

[removed: Securities] [added: Securities] registered pursuant to Section 12(g) of the [removed: Act:][added: Act:]

Yes [removed: ¨] [added: ☐] No x

| [removed: LARGE ACCELERATED FILER] [added: Large Accelerated Filer] | [removed: ý] [added: ☒] | | [removed: ACCELERATED FILER] [added: Accelerated Filer] | [removed: ¨] [added: ☐] |

| [removed: NON-ACCELERATED FILER] [added: Non-Accelerated Filer] | [removed: ¨] [added: ☐] | | [removed: SMALLER REPORTING COMPANY] [added: Smaller Reporting Company] | [removed: ¨] [added: ☐] |

| [removed: EMERGING GROWTH COMPANY] [added: Emerging Growth Company] | [removed: ¨] [added: ☐] | | | |

| 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. | | | | [removed: ¨] [added: ☐] |

The aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant as of March 31, [removed: 2018,] [added: 2019,] based upon the last sale price of such voting and non-voting common stock on that date, was [removed: $14,986,503,095.][added: $24,193,750,882.]

The number of shares outstanding of TransDigm Group Incorporated’s common stock, par value $.01 per share, was [removed: 52,748,435] [added: 53,548,349] as of November [removed: 2, 2018.][added: 17, 2019.]

Documents incorporated by reference: [removed: The registrant incorporates by reference in Part III hereof portions] [added: Certain sections] of [removed: its] [added: the registrant’s] definitive Proxy Statement [removed: for] [added: to be filed in connection with] its [removed: 2019] [added: 2020] Annual Meeting of [removed: Stockholders.][added: Shareholders, are incorporated by reference into Part III of this Annual Report on Form 10-K.]

[removed: TABLE] [added: TABLE] OF [removed: CONTENTS][added: CONTENTS]

| | | [removed: Page] [added: Page] |

| [removed: PART I] [added: PART I] | | |

| [ITEM [removed: 1](#s2316838D00705453B213A1E8A5233842)] [added: 1](#s867B13244ACB59FC8543AF52B80EB823)] | [removed: [BUSINESS](#s2316838D00705453B213A1E8A5233842)] [added: [BUSINESS](#s867B13244ACB59FC8543AF52B80EB823)] | [removed: [1](#s2316838D00705453B213A1E8A5233842)] [added: [1](#s867B13244ACB59FC8543AF52B80EB823)] |

| [ITEM [removed: 1A](#sD4ACA91D2AB7590984323F45E86B2D2E)] [added: 1A](#s9F85F180A0A15B358D1984552026E5D3)] | [RISK [removed: FACTORS](#sD4ACA91D2AB7590984323F45E86B2D2E)] [added: FACTORS](#s9F85F180A0A15B358D1984552026E5D3)] | [removed: [6](#sD4ACA91D2AB7590984323F45E86B2D2E)] [added: [6](#s9F85F180A0A15B358D1984552026E5D3)] |

| [ITEM [removed: 1B](#s98E5F53AD93558BD9C649BAC2C374EED)] [added: 1B](#s9240D31B972B5A439B49A0BE078C22E6)] | [UNRESOLVED STAFF [removed: COMMENTS](#s98E5F53AD93558BD9C649BAC2C374EED)] [added: COMMENTS](#s9240D31B972B5A439B49A0BE078C22E6)] | [removed: [14](#s98E5F53AD93558BD9C649BAC2C374EED)] [added: [14](#s9240D31B972B5A439B49A0BE078C22E6)] |

| [ITEM [removed: 2](#sFCD967EF08655C1984429573C564A6E4)] [added: 2](#s36BB92727BAF5782838AF15C684555E4)] | [removed: [PROPERTIES](#sFCD967EF08655C1984429573C564A6E4)] [added: [PROPERTIES](#s36BB92727BAF5782838AF15C684555E4)] | [removed: [14](#sFCD967EF08655C1984429573C564A6E4)] [added: [15](#s36BB92727BAF5782838AF15C684555E4)] |

| [ITEM [removed: 3](#s6802C99D72BC5B31A2538710F09C6A57)] [added: 3](#s7DB3E3040151587A9B244F549A8E7D81)] | [LEGAL [removed: PROCEEDINGS](#s6802C99D72BC5B31A2538710F09C6A57)] [added: PROCEEDINGS](#s7DB3E3040151587A9B244F549A8E7D81)] | [removed: [15](#s6802C99D72BC5B31A2538710F09C6A57)] [added: [17](#s7DB3E3040151587A9B244F549A8E7D81)] |

| [removed: PART II] [added: PART II] | | |

| [ITEM [removed: 5](#sD4A4C25BA47F5C34823E613CDEE9FDEA)] [added: 5](#s3614FC17B6F658BC9E25B2AA13A94558)] | [MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY [removed: SECURITIES](#sD4A4C25BA47F5C34823E613CDEE9FDEA)] [added: SECURITIES](#s3614FC17B6F658BC9E25B2AA13A94558)] | [removed: [16](#sD4A4C25BA47F5C34823E613CDEE9FDEA)] [added: [17](#s3614FC17B6F658BC9E25B2AA13A94558)] |

| [ITEM [removed: 6](#sDD7B1111DADD514FB686FDCFAC6E4BD1)] [added: 6](#sA98B47901CD55D12B4BB14B6D9367CAD)] | [SELECTED FINANCIAL [removed: DATA](#sDD7B1111DADD514FB686FDCFAC6E4BD1)] [added: DATA](#sA98B47901CD55D12B4BB14B6D9367CAD)] | [removed: [19](#sDD7B1111DADD514FB686FDCFAC6E4BD1)] [added: [20](#sA98B47901CD55D12B4BB14B6D9367CAD)] |

| [ITEM [removed: 7](#sA1612B16DC7651E382515E4315FB3E83)] [added: 7](#sA5F2338305D852FD929519F29FBD41B9)] | [MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF [removed: OPERATIONS](#sA1612B16DC7651E382515E4315FB3E83)] [added: OPERATIONS](#sA5F2338305D852FD929519F29FBD41B9)] | [removed: [25](#sA1612B16DC7651E382515E4315FB3E83)] [added: [27](#sA5F2338305D852FD929519F29FBD41B9)] |

TransDigm Group Incorporated

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| --- | --- | --- | --- | --- | --- |

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| | | | | |

| --- | --- | --- | --- | --- |

| | | | | |

10-K 1 tdg2018-09x3010xk.htm 10-K

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| --- |

| | | |

| --- | --- | --- |

TransDigm’s principal owned properties (defined as greater than [removed: 10,000] [added: 20,000] square feet or related to a principal operation) as of September 30, [removed: 2018] [added: 2019] are as follows:

| [removed: Location] [added: Location] | [removed: Reporting Segment] [added: Reporting Segment] | [removed: Square Footage] [added: Square Footage] | |

| [removed: Meisbach,] [added: Miesbach,] Germany | Power & Control | 242,000 | |

The Brea, Liberty, [removed: Kent,] [added: Kent (Ohio),] Union Gap, Bohemia, Addison, [added: Kent (Washington), 88,400 square feet Valencia, Coachella] and 47,000 square feet Rancho Cucamonga properties are subject to mortgage liens under our senior secured credit [removed: facility.][added: facility and our 6.25% secured notes due March 15, 2026.]

TransDigm’s principal leased properties (defined as greater than [removed: 10,000] [added: 20,000] square feet or related to a principal operation) as of September 30, [removed: 2018] [added: 2019] are as follows:

| [removed: Erie, PA] [added: Harelbeke, Belgium] | Airframe | [removed: 30,500] [added: 40,500] | |

| [removed: Lund, Sweden] [added: Lillington, NC] | Power & Control | [removed: 19,800] [added: 48,800] | |

| [removed: Matamoros,] [added: Tijuana,] Mexico | Power & Control | [removed: 15,000] [added: 63,500] | |

| Cleveland, OH | [removed: Power & Control] [added: Corporate] | [removed: 13,100] [added: 20,100] | |

| [removed: Long Beach, CA] [added: Platteville, WI] | Airframe | [removed: 12,200] [added: 21,200] | |

| Stillington, United Kingdom | Airframe | 274,800 | |

| Montreal, Canada | Airframe | 271,700 | |

| Champagne, France | Airframe | 189,100 | |

| Coachella, CA | Power & Control | 140,000 | |

| Marolles, France | Power & Control | 139,900 | |

| Kortrijk, Belgium | Airframe | 130,000 | |

| Buena Park, CA | Power & Control | 115,000 | |

| Bourges, France | Power & Control | 109,500 | |

| Kent, WA | Airframe | 100,000 | |

| Valencia, CA | Airframe | 88,400 | |

| Niort, France | Airframe | 69,000 | |

| Xenia, OH | Airframe | 51,000 | |

| Sarralbe, France | Power & Control | 45,200 | |

| Sarralbe, France | Non-aviation | 32,700 | |

| Cluses, France | Non-aviation | 29,500 | |

| Coimbatore, India | Non-aviation | 21,000 | |

| Location | Reporting Segment | Square Footage | |

| East Camden, AR | Power & Control | 276,000 | |

| Everett, WA | Airframe | 216,000 | |

| Tijuana, Mexico | Airframe | 141,000 | |

| Tijuana, Mexico | Non-aviation | 129,200 | |

| Tanger, Morocco | Non-aviation | 115,200 | |

| Farnborough, United Kingdom | Power & Control | 103,400 | |

| Sylmar, CA | Airframe | 103,000 | |

| Kanata, Canada | Airframe | 82,900 | |

| Paso Robles, CA | Non-aviation | 72,600 | |

| Gloucestor, United Kingdom | Airframe | 67,800 | |

| Tijuana, Mexico | Non-aviation | 61,300 | |

| Sugar Grove, IL | Airframe | 45,000 | |

| Zunyi, China | Power & Control | 43,000 | |

| La Ferte Benard, France | Non-aviation | 42,000 | |

| Santiago, Dominican Republic | Non-aviation | 40,000 | |

| Brea, CA | Airframe | 39,000 | |

| Rancho Santa Margarita, CA | Airframe | 35,200 | |

| Bangalore, India | Non-aviation | 28,200 | |

| | | | |

| --- | --- | --- | --- |

| | | | |

| Location | Reporting Segment | Square Footage | |

| Toulouse, France | Airframe | 26,000 | |

| Poway, CA | Power & Control | 12,800 | |

| Corona, CA | Airframe | 12,500 | |

The following table sets forth selected historical consolidated financial and other data of TD Group for the fiscal years ended September 30, [removed: 2014] [added: 2015] to [removed: 2018,] [added: 2019,] which have been derived from TD Group’s audited consolidated financial statements.

Separate historical financial information of TransDigm Inc. is not presented since the [removed: 5.50% Senior Subordinated Notes issued in October 2012 (the “2020 Notes”), the] 6.00% Senior Subordinated Notes issued in June 2014 (the “2022 Notes”), the 6.50% Senior Subordinated Notes issued June 2014 (the “2024 Notes”), the 6.50% Senior Subordinated Notes issued May 2015 (the “2025 [removed: Notes”) and] [added: Notes”),] the 6.375% Senior Subordinated Notes issued June 2016 (the “6.375% 2026 [added: Notes”), the 6.25% Senior Secured Notes issued in January 2019 (the “2026 Secured] Notes”) [added: and the 7.50% Senior Subordinated Notes issued February 2019 (the “2027 Notes”)] (also together with the [removed: 2020 Notes, the] 2022 Notes, the 2024 Notes, the 2025 Notes, [removed: and] the [added: 6.375%] 2026 Notes, the [added: 2026 Secured Notes and the 2027 Notes, the] “Notes”) are fully and unconditionally guaranteed on a senior subordinated basis by TD Group, TransDigm UK and all of TransDigm Inc.’s Domestic Restricted Subsidiaries and because TD Group has no significant operations or assets separate from its investment in TransDigm Inc.

| [removed: Date] [added: Date] | [removed: Acquisition] [added: Acquisition] |

| April 24, 2018 [added: et al.] | Extant Components Group Holdings, Inc. (together with [removed: the] [added: related subsequent] product line [removed: acquisition on August 17, 2018 listed below,] [added: acquisitions,] “Extant”) |

[removed: The results of operations of Schroth are reflected as] [added: Further disclosure related to Schroth’s] discontinued operations [removed: in] [added: is included within Note 23, “Discontinued Operations,” to] the [removed: accompanying] 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, which [removed: includes] [added: included] a working capital adjustment of $0.3 million that was [removed: settled] [added: paid] in July 2018.

Further disclosure related to [removed: Schroth’s] [added: EIT’s] discontinued operations is included within Note [removed: 22,] [added: 23,] “Discontinued Operations,” to the consolidated financial statements.

[removed: The information presented below should be read together with] “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and accompanying notes included elsewhere herein.

| | [removed: Fiscal] [added: Fiscal] Years Ended September [removed: 30,] [added: 30,] | | | | | | | | | | | | | | | | | | |

| | [removed: 2018] [added: 2019] | | | | [removed: 2017] [added: 2018] | | | | [removed: 2016] [added: 2017] | | | | [removed: 2015] [added: 2016] | | | | [removed: 2014] [added: 2015] | | |

| | [removed: (in] [added: (in] thousands, except per share amounts [removed: )] [added: )] | | | | | | | | | | | | | | | | | | |

| [removed: Statement] [added: Statement] of Income [removed: Data:] [added: Data:] | | | | | | | | | | | | | | | | | | | |

| Net sales | $ | [removed: 3,811,126] [added: 5,223,203] | | | $ | [removed: 3,504,286] [added: 3,811,126] | | | $ | [removed: 3,171,411] [added: 3,504,286] | | | $ | [removed: 2,707,115] [added: 3,171,411] | | | $ | [removed: 2,372,906] [added: 2,707,115] | |

| Gross profit(1) | [removed: 2,177,510] [added: 2,809,271] | | | | [removed: 1,984,627] [added: 2,177,510] | | | | [removed: 1,728,063] [added: 1,984,627] | | | | [removed: 1,449,845] [added: 1,728,063] | | | | [removed: 1,267,874] [added: 1,449,845] | | |

| Amortization of intangible assets | [removed: 72,454] [added: 134,952] | | | | [removed: 89,226] [added: 72,454] | | | | [removed: 77,445] [added: 89,226] | | | | [removed: 54,219] [added: 77,445] | | | | [removed: 63,608] [added: 54,219] | | |

| Interest expense—net | [removed: 663,008] [added: 859,753] | | | | [removed: 602,589] [added: 663,008] | | | | [removed: 483,850] [added: 602,589] | | | | [removed: 418,785] [added: 483,850] | | | | [removed: 347,688] [added: 418,785] | | |

| Refinancing costs | [removed: 6,396] [added: 3,013] | | | | [removed: 39,807] [added: 6,396] | | | | [removed: 15,794] [added: 39,807] | | | | [removed: 18,393] [added: 15,794] | | | | [removed: 131,622] [added: 18,393] | | |

| Income from continuing operations before income taxes | [removed: 985,557] [added: 1,062,865] | | | | [removed: 837,430] [added: 985,557] | | | | [removed: 768,116] [added: 837,430] | | | | [removed: 636,824] [added: 768,116] | | | | [removed: 448,510] [added: 636,824] | | |

| Income tax [removed: provision] [added: provision(3)] | [removed: 24,021] [added: 221,986] | | | | [removed: 208,889] [added: 24,021] | | | | [removed: 181,702] [added: 208,889] | | | | [removed: 189,612] [added: 181,702] | | | | [removed: 141,600] [added: 189,612] | | |

| Income from continuing operations | [removed: 961,536] [added: $] | [added: 840,879] | | | [removed: 628,541] [added: $] | [added: 961,536] | | | [removed: 586,414] [added: $] | [added: 628,541] | | | [removed: 447,212] [added: $] | [added: 586,414] | | | [removed: 306,910] [added: $] | [added: 447,212] | |

| [removed: Loss] [added: Income (loss)] from discontinued operations, net of [removed: tax (5)] [added: tax(4)] | [removed: (4,474] [added: 50,432] | | [removed: )] | | [removed: (31,654] [added: (4,474] | | ) | | [removed: —] [added: (31,654] | | [added: )] | | — | | | | — | | |

| Net income [added: attributable to TD Group] | $ | [removed: 957,062] [added: 889,770] | | | $ | [removed: 596,887] [added: 957,062] | | | $ | [removed: 586,414] [added: 596,887] | | | $ | [removed: 447,212] [added: 586,414] | | | $ | [removed: 306,910] [added: 447,212] | |

| Net income applicable to [added: TD Group] common stock | $ | [removed: 900,914] [added: 778,749] | | | $ | [removed: 437,630] [added: 900,914] | | | $ | [removed: 583,414] [added: 437,630] | | | $ | [removed: 443,847] [added: 583,414] | | | $ | [removed: 180,284] [added: 443,847] | |

| [removed: Denominator] [added: Denominator] for basic and diluted earnings per share under the two-class [removed: method:] [added: method:] | | | | | | | | | | | | | | | | | | | |

| Weighted-average common shares outstanding | [removed: 52,345] [added: 53,091] | | | | [removed: 52,517] [added: 52,345] | | | | [removed: 53,326] [added: 52,517] | | | | [removed: 53,112] [added: 53,326] | | | | [removed: 52,748] [added: 53,112] | | |

| Vested options deemed participating securities | [removed: 3,252] [added: 3,174] | | | | [removed: 3,013] [added: 3,252] | | | | [removed: 2,831] [added: 3,013] | | | | [removed: 3,494] [added: 2,831] | | | | [removed: 4,245] [added: 3,494] | | |

| Total shares for basic and diluted earnings per share | [removed: 55,597] [added: 56,265] | | | | [removed: 55,530] [added: 55,597] | | | | [removed: 56,157] [added: 55,530] | | | | [removed: 56,606] [added: 56,157] | | | | [removed: 56,993] [added: 56,606] | | |

| [removed: Net] [added: Net] earnings per [removed: share:] [added: share:] | | | | | | | | | | | | | | | | | | | |

| Net earnings per share from continuing operations—basic and diluted | $ | [removed: 16.28] [added: 12.94] | | | $ | [removed: 8.45] [added: 16.28] | | | $ | [removed: 10.39] [added: 8.45] | | | $ | [removed: 7.84] [added: 10.39] | | | $ | [removed: 3.16] [added: 7.84] | |

| Net [removed: loss] [added: earnings (loss)] per share from discontinued operations—basic and diluted | [removed: (0.08] [added: 0.90] | | [removed: )] | | [removed: (0.57] [added: (0.08] | | ) | | [removed: —] [added: (0.57] | | [added: )] | | — | | | | — | | |

| Net earnings per [removed: share(2)] [added: share(5)] | $ | [removed: 16.20] [added: 13.84] | | | $ | [removed: 7.88] [added: 16.20] | | | $ | [removed: 10.39] [added: 7.88] | | | $ | [removed: 7.84] [added: 10.39] | | | $ | [removed: 3.16] [added: 7.84] | |

| Cash dividends paid per common share | $ | [removed: —] [added: 30.00] | | | $ | [removed: 46.00] [added: —] | | | $ | [removed: —] [added: 46.00] | | | $ | — | | | $ | [removed: 25.00] [added: —] | |

| | [removed: As] [added: As] of September [removed: 30,] [added: 30,] | | | | | | | | | | | | | | | | | | |

| | [removed: (in thousands)] [added: (in thousands)] | | | | | | | | | | | | | | | | | | |

| [removed: Balance] [added: Balance] Sheet [removed: Data:] [added: Data:] | | | | | | | | | | | | | | | | | | | |

| Cash and cash equivalents | $ | [removed: 2,073,017] [added: 1,467,486] | | | $ | [removed: 650,561] [added: 2,073,017] | | | $ | [removed: 1,586,994] [added: 650,561] | | | $ | [removed: 714,033] [added: 1,586,994] | | | $ | [removed: 819,548] [added: 714,033] | |

| Working [removed: capital(3,4)] [added: capital(6,7)] | [removed: 2,756,905] [added: 3,326,491] | | | | [removed: 1,262,558] [added: 2,756,905] | | | | [removed: 2,178,094] [added: 1,262,558] | | | | [removed: 1,128,993] [added: 2,178,094] | | | | [removed: 1,066,735] [added: 1,128,993] | | |

| Total [removed: assets(3,4)] [added: assets(6,7)] | [removed: 12,197,467] [added: 16,254,731] | | | | [removed: 9,975,661] [added: 12,197,467] | | | | [removed: 10,726,277] [added: 9,975,661] | | | | [removed: 8,303,935] [added: 10,726,277] | | | | [removed: 6,626,786] [added: 8,303,935] | | |

| [removed: Long-term debt, including current portion(4)] [added: Total debt(7)] | [removed: 12,877,282] [added: 16,898,953] | | | | [removed: 11,762,661] [added: 12,877,282] | | | | [removed: 10,195,607] [added: 11,762,661] | | | | [removed: 8,349,602] [added: 10,195,607] | | | | [removed: 7,380,738] [added: 8,349,602] | | |

| [removed: Stockholders’] [added: TD Group stockholders’] deficit | [removed: (1,808,471] [added: (2,894,905] | | ) | | [removed: (2,951,204] [added: (1,808,471] | | ) | | [removed: (651,490] [added: (2,951,204] | | ) | | [removed: (1,038,306] [added: (651,490] | | ) | | [removed: (1,556,099] [added: (1,038,306] | | ) |

| March 14, 2019 | Esterline Technologies Corporation (“Esterline”) |

On July 21, 2019, TransDigm entered into a binding offer (the “Put Agreement”) with Eaton Corporation plc (“Eaton”) for the the acquisition by Eaton of the shares of Souriau SAS, Souriau USA Inc. and Sunbank Family of Companies LLC (collectively, “Souriau-Sunbank”).

Pursuant to the terms of the Put Agreement, after completion of the consultation process with the Business’ French works council, TransDigm had the right to require Eaton to enter into a securities purchase agreement (the “Purchase Agreement”) providing for the purchase by Eaton from TransDigm of the shares of Souriau-Sunbank.

The Purchase Agreement was entered into by the parties on October 28, 2019.

Pursuant to the terms of the Purchase Agreement, Eaton will purchase the shares of the Souriau-Sunbank for a cash purchase price of approximately $920 million.

The transaction is subject to execution and delivery of the Purchase Agreement and other definitive agreements, the satisfaction or waiver of customary closing conditions and receipt of required regulatory approvals, all of which have been received other than

the French foreign investment approval.

The parties expect to complete the transaction during the first quarter of fiscal 2020.

Therefore, Souriau-Sunbank is classified as held-for-sale as of September 30, 2019.

The results of operations of Souriau-Sunbank are presented in discontinued operations in the accompanying consolidated financial statements for all periods presented since the date acquired.

Further disclosure related to Souriau-Sunbank’s discontinued operations is included within Note 23, “Discontinued Operations,” to the consolidated financial statements.

On September 20, 2019, TransDigm completed the divestiture of its Esterline Interface Technology (“EIT”) group of businesses to an affiliate of KPS Capital Partners, LP for approximately $190 million.

EIT was acquired by TransDigm as part of its acquisition of Esterline Technologies Corporation in March 2019.

The results of operations of EIT are presented in discontinued operations in the accompanying consolidated financial statements for all periods presented since the date acquired.

The information presented below should be read together with Item 7.

| Selling and administrative expenses | 747,773 | | | | 449,676 | | | | 412,555 | | | | 383,319 | | | | 324,097 | | |

| Income from operations(1) | 1,926,546 | | | | 1,655,380 | | | | 1,482,846 | | | | 1,267,299 | | | | 1,071,529 | | |

| Other expense (income)(2) | 915 | | | | 419 | | | | 3,020 | | | | (461 | | ) | | (2,473 | | ) |

| Income from continuing operations including noncontrolling interests | 840,879 | | | | 961,536 | | | | 628,541 | | | | 586,414 | | | | 447,212 | | |

| Net income including noncontrolling interests | 891,311 | | | | 957,062 | | | | 596,887 | | | | 586,414 | | | | 447,212 | | |

| Net income attributable to noncontrolling interests | (1,541 | | ) | | — | | | | — | | | | — | | | | — | | |

| | 2019 | | | | 2018 | | | | 2017 | | | | 2016 | | | | 2015 | | |

| (2) | The prior period operating data has been adjusted as a result of Accounting Standards Update ("ASU") 2017-07, Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost ("ASU 2017-07"). |

| (3) | On December 22, 2017, the Tax Cuts and Jobs Act (the “Act”) was enacted. 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 from certain foreign subsidiaries that were previously deferred as well as other changes. Income tax expense as a percentage of income before income taxes was approximately 20.9% for the fiscal year ended September 30, 2019 compared to 2.4% for the fiscal year ended September 30, 2018. |

| (4) | The fiscal 2019 results include the divestitures of Souriau-Sunbank (expected first quarter of fiscal 2020) and EIT (September 2019). The fiscal 2018 and 2017 results include the divestiture of Schroth (January 2018). Refer to Note 23, “Discontinued Operations,” to the consolidated financial statements for further information. |

| | 2019 | | | | 2018 | | | | 2017 | | | | 2016 | | | | 2015 | | |

| | (in thousands) | | | | | | | | | | | | | | | | | | |

| | Fiscal Years Ended September 30, | | | | | | | | | | | | | | | | | | |

| | 2019 | | | | 2018 | | | | 2017 | | | | 2016 | | | | 2015 | | |

| | (in thousands) | | | | | | | | | | | | | | | | | | |

| Income tax provision | 221,986 | | | | 24,021 | | | | 208,889 | | | | 181,702 | | | | 189,612 | | |

| | Fiscal Years Ended September 30, | | | | | | | | | | | | | | | | | | |

| | 2019 | | | | 2018 | | | | 2017 | | | | 2016 | | | | 2015 | | |

| | (in thousands) | | | | | | | | | | | | | | | | | | |

| EBITDA | 2,148,318 | | | | 1,778,409 | | | | 1,581,044 | | | | 1,373,636 | | | | 1,149,272 | | |

| EBITDA As Defined | $ | 2,418,801 | | | $ | 1,876,558 | | | $ | 1,710,563 | | | $ | 1,495,196 | | | $ | 1,233,654 | |

| (9) | The fiscal 2019 results include the divestitures of Souriau-Sunbank (expected first quarter of fiscal 2020) and EIT (September 2019). The fiscal 2018 and 2017 results include the divestiture of Schroth (January 2018). Refer to Note 23, “Discontinued Operations,” to the consolidated financial statements for further information. |

Barriers to Entry.

In fiscal 2019, we completed our largest acquisition to date when we acquired Esterline.

Esterline, through its subsidiaries, is an industry

| December 19, 2013 | Airborne Global Inc. (“Airborne”) |

| March 6, 2014 | Elektro-Metall Export GmbH (“EME”) |

| August 17, 2018 | Certain assets and liabilities of Rockwell Collins (Extant product line acquisition) |

| Selling and administrative expenses | 450,095 | | | | 415,575 | | | | 382,858 | | | | 321,624 | | | | 276,446 | | |

| Income from operations(1) | 1,654,961 | | | | 1,479,826 | | | | 1,267,760 | | | | 1,074,002 | | | | 927,820 | | |

| (5) | During the fourth quarter of fiscal 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. The loss from discontinued operations in the consolidated statements of income for the year ended September 30, 2017 includes a $32.0 million impairment charge to write down the assets to fair value. On January 26, 2018, the Company completed the sale of Schroth in a management buyout to a private equity fund and certain members of Schroth management for approximately $61.4 million, which includes a working capital adjustment of $0.3 million that was settled in July 2018. Refer to Note 22, “Discontinued Operations,” to the consolidated financial statements for further information. |

| (1) | During the fourth quarter of fiscal 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, which includes a working capital adjustment of $0.3 million that was settled in July 2018. Refer to Note 22, "Discontinued Operations," to the consolidated financial statements for further information. |

| Net gain on sale of real estate | — | | | | — | | | | — | | | | — | | | | 804 | | |

| (9) | During the fourth quarter of fiscal 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, which includes a working capital adjustment of $0.3 million that was settled in July 2018. Refer to Note 22, "Discontinued Operations," to the consolidated financial statements for further information. |

We provide components to a large and growing installed base of aircraft to which we supply aftermarket products.

Diversified Revenue Base.

Barriers to Entry.

Our three core value drivers are:

Selective Acquisition Strategy.

Revenue Recognition and Related Allowances: Revenue is recognized from the sale of products when title and risk of loss passes to the customer, which is generally at the time of shipment.

Substantially all product sales are made pursuant to firm, fixed-price purchase orders received from customers.

Collectibility of amounts recorded as revenue is reasonably assured at the time of sale.

Provisions for returns, uncollectible accounts and the cost of repairs under contract warranty provisions are provided for in the same period as the related revenues are recorded and are principally based on historical results modified, as appropriate, by the most current information available.

We have a history of making reasonably dependable estimates of such allowances; however, due to uncertainties inherent in the estimation process, it is possible that actual results may vary from the estimates and the differences could be material.

Allowance for Uncollectible Accounts: Management estimates the allowance for uncollectible accounts based on the aging of the accounts receivable and customer creditworthiness.

The allowance also incorporates a provision for the estimated impact of disputes with customers.

Management’s estimate of the allowance amounts that are necessary includes amounts for specifically identified credit losses and estimated credit losses based on historical information.

The determination of the amount of the allowance for uncollectible accounts is subject to significant levels of judgment and estimation by management.

Depending on the resolution of potential credit and other collection issues, or if the financial condition of any of the Company’s customers were to deteriorate and their ability to make required payments were to become impaired, increases in these allowances may be required.

Historically, changes in estimates in the allowance for uncollectible accounts have not been significant.

In addition to using management estimates and negotiated amounts, the Company used a variety of information sources to determine the estimated fair values of acquired assets and liabilities including third-party appraisals for the estimated value and lives of identifiable intangible assets.

unit pursuant to the accounting for the merger or acquisition as of the date of each transaction.

| | | | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Selling and administrative expenses | 450,095 | | | | 11.8 | | | 415,575 | | | | 11.9 | | | 382,858 | | | | 12.1 | |

| Income from operations | 1,654,961 | | | | 43.4 | | | 1,479,826 | | | | 42.2 | | | 1,267,760 | | | | 40.0 | |

| Loss from discontinued operations, net of tax | (4,474 | | ) | | (0.1 | ) | | (31,654 | | ) | | (0.9 | ) | | — | | | | — | |

Net Sales.

| | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Organic sales | $ | 3,695.9 | | | $ | 3,504.3 | | | $ | 191.6 | | | 5.5 | % |

| Acquisition sales | 115.2 | | | | — | | | | 115.2 | | | | 3.3 | % |

| | $ | 3,811.1 | | | $ | 3,504.3 | | | $ | 306.8 | | | 8.8 | % |

The increase in organic sales was primarily driven by commercial aftermarket sales increasing by $109.6 million, or 9.0%, defense sales increasing by $62.3 million, or 5.3%, and commercial OEM sales increasing by $7.5 million, or 0.8%.

Cost of Sales and Gross Profit.

[removed: Evaluation] [added: Evaluation] of Disclosure Controls and [removed: Procedures][added: Procedures]

As of September 30, [removed: 2018,] [added: 2019,] TD Group carried out an evaluation, under the supervision and with the participation of TD Group’s management, including its President, Chief Executive Officer and Director (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer), of the effectiveness of the design and operation of TD Group’s disclosure controls and procedures.

[removed: Management’s] [added: Management’s] Report on Internal Control Over Financial [removed: Reporting][added: Reporting]

Using criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (COSO) in Internal Control-Integrated Framework, TransDigm’s management assessed the effectiveness of the Company’s internal control over financial reporting as of September 30, [removed: 2018.][added: 2019.]

Based on our assessment, management concluded that the Company’s internal control over financial reporting was effective as of September 30, [removed: 2018.][added: 2019.]

As permitted by the Securities and Exchange Commission rules and regulations, we have excluded these acquisitions from our assessment of the effectiveness of our internal control over financial reporting as of September 30, [removed: 2018.][added: 2019.]

Total assets as of September 30, [removed: 2018,] [added: 2019,] net sales and income from continuing operations before income taxes for the fiscal year ended September 30, [removed: 2018] [added: 2019] for these fiscal [removed: 2018] [added: 2019] acquisitions constituted approximately [removed: 6%, 2%] [added: 26%, 18%] and [removed: 2%,] [added: 6%,] respectively, of each of these key measures as reported in our consolidated financial statements.

The effectiveness of the Company’s internal control over financial reporting as of September 30, [removed: 2018] [added: 2019] has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report, which is included elsewhere in this Annual Report on Form 10-K and is incorporated herein by reference.

[removed: Changes] [added: Changes] in Internal Control Over Financial [removed: Reporting][added: Reporting]

There have been no changes in the Company’s internal control over financial reporting that occurred during the fourth quarter of fiscal [removed: 2018] [added: 2019] that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

[removed: Report] [added: Report] of Independent Registered Public Accounting [removed: Firm][added: Firm]

[removed: Opinion] [added: Opinion] on Internal Control over Financial [removed: Reporting][added: Reporting]

We have audited TransDigm Group Incorporated’s ("the Company") internal control over financial reporting as of September 30, [removed: 2018,] [added: 2019,] based on criteria established in Internal Control- Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria).

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, [removed: 2018,] [added: 2019,] based on the COSO [removed: criteria.][added: criteria.]

As indicated in the accompanying Management’s Report on Internal Control Over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of [removed: Kirkhill, Extant] [added: the acquisitions of Esterline] and [removed: Skandia,] [added: of assets of certain product lines,] which are included in the [removed: 2018] [added: 2019] consolidated financial statements of TransDigm Group Incorporated and constituted [removed: 6%] [added: 26%] of total assets as of September 30, [removed: 2018, 2%] [added: 2019, 18%] of [removed: revenues] [added: net sales] and [removed: 2%] [added: 6%] of [removed: pre-tax] income [added: from continuing operations before income taxes] for the year then ended.

Our audit of internal control over financial reporting of TransDigm Group Incorporated also did not include an evaluation of the internal control over financial reporting of [removed: Kirkhill, Extant] [added: the acquisitions of Esterline] and [removed: Skandia.][added: of assets of certain product lines.]

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of September 30, [removed: 2018] [added: 2019] and [removed: 2017,] [added: 2018,] the related consolidated statements of income, comprehensive income, cash flows and changes in stockholders’ deficit for each of the three years in the period ended September 30, [removed: 2018] [added: 2019] and the related notes and financial statement schedule listed in the Index at Item 15(a) of the Company and our report dated November [removed: 9, 2018] [added: 19, 2019] expressed an unqualified opinion thereon.

[removed: Basis] [added: Basis] for [removed: Opinion][added: Opinion]

[removed: Definition] [added: Definition] and Limitations of Internal Control Over Financial [removed: Reporting][added: Reporting]

During fiscal 2019, we completed the acquisition of all of the outstanding stock of Esterline and of assets of certain product lines.

November 19, 2019

During fiscal 2018, we completed the acquisitions of Kirkhill, Extant and Skandia.

November 9, 2018

[removed: PART III][added: PART III]

None.

Appointment of Officer

The Company has, effective November 10, 2018, appointed Sarah Wynne, age 44, as Chief Accounting Officer of the Company.

Ms. Wynne was most recently a Group Controller of the Company (since 2015).

Prior to that, Ms. Wynne was Controller at Aero Fluid Products, a TransDigm operating company (2009 -2015) and held accounting positions with increasing responsibility.

Employment Agreement with Named Executive Officer

On November 6, 2018, the Company entered into a Third Amended and Restated Employment Agreement with Robert Henderson whereby Mr. Henderson will continue to serve as Vice Chairman of the Company.

Mr. Henderson’s prior employment agreement was scheduled to terminate on December 31, 2018.

It is intended that Mr. Henderson will be responsible for planning for the integration of the Esterline acquisition and, upon closing, integrating the Esterline business.

The Employment Agreement replaced Mr. Henderson’s Second Amended and Restated Employment Agreement dated January 25, 2018.

The term of the Employment Agreement will expire on December 31, 2021, unless earlier terminated by the Company or Mr. Henderson; provided, however, that if the Esterline acquisition has not been completed by December 31, 2019, the Employment Agreement will terminate.

The Employment Agreement contemplates that Mr. Henderson will spend full time working for the Company.

This is a change from the prior agreement, which contemplated that Mr. Henderson would work approximately three-quarters time.

Mr. Henderson will receive equity compensation in lieu of cash compensation for salary and bonus on similar terms to those contained in the employment agreement of Mr. Howley, the Company’s Executive Chairman.

Under the terms of the Employment Agreement, Mr. Henderson will receive $10,000 in cash to cover his employee co-premiums for health benefits and related taxes and, for 2019 salary, a grant of options calculated on a Black Scholes basis with a 37.5% risk premium equal to $750,000.

In addition, Mr. Henderson is entitled to participate in the Company’s annual cash incentive plan with a target bonus of 80%, which will be paid in options calculated in the same manner as his salary.

Mr. Henderson may give notice one time during the term of the Employment Agreement if he wishes to discontinue his receipt of equity compensation effective with his bonus or as of the following year.

Other than the manner in calculating the option grant, which was a fixed number in Mr. Henderson’s prior employment agreement, these provisions did not change materially from the prior employment agreement.

The options granted in lieu of salary and bonus will vest 40% immediately and, to the extent the performance criteria is met, 40% at completion of the first fiscal year after the grant and 20% after the second fiscal year after the date of grant.

These options will include provisions with regard to post-employment vesting upon termination of employment by reason of death, disability, good reason, without cause or retirement (each as defined in the Employment Agreement).

More specifically, if Mr. Henderson’s employment terminates for the aforementioned reasons after the first fiscal year following the date of grant but on or after the second fiscal year end following the date of grant, 40% of the remaining unvested options may continue to vest in accordance with their terms; if Mr. Henderson’s employment terminates for the aforementioned reasons after the second fiscal year end following the date of grant but on or prior to the third fiscal year end following the date of grant, 80% of the remaining unvested options may continue to vest in accordance with their terms; and if Mr. Henderson’s employment terminates for any of the aforementioned reasons after the third fiscal year end following the date of grant, 100% of the remaining unvested options may continue to vest in accordance with their terms.

Mr. Henderson is entitled to participate in the Company’s stock option plan and the other employee benefit plans, programs and arrangements that the Company may maintain from time to time for its senior officers.

These provisions did not change from the prior employment agreement.

The Employment Agreement provides that if Mr. Henderson is terminated for any reason, he will be entitled to payment of any accrued but unpaid base salary through the termination date, any unreimbursed expenses, an amount for accrued but unused sick and vacation days, and benefits owing to him under the benefit plans and programs sponsored by the Company.

In addition, if Mr. Henderson’s employment is terminated without cause, if he terminates his employment for customary good reasons, or if his employment terminates due to his death or disability, the Company will pay him, in substantially equal installments over a 12-month period, an amount equal to one times his salary plus one times the greater of the all of the bonuses paid or payable to him for the prior fiscal year (excluding any extraordinary bonus) or the target bonuses for the year in which his employment terminates, determined in accordance with the Company’s bonus program(s) if any, plus 18 times the difference of the monthly COBRA continuation coverage rate and the monthly cost of coverage to Mr. Henderson as of the date of termination.

The Employment Agreement also includes non-competition, non-solicitation provisions, confidentiality and indemnity consistent with Mr. Henderson’s prior agreement.

The foregoing description of the terms of the Employment Agreement is qualified in its entirety by the full text of the Third Amended and Restated Employment Agreement, a copy of which is filed herewith.

[removed: Directors] [added: Directors] and Executive [removed: Officers][added: Officers]

| [removed: Name] [added: Name] | [removed: Age] [added: Age] | | [removed: Position] [added: Position] |

| W. Nicholas Howley | [removed: 66] [added: 67] | | Executive Chairman of the Board of Directors |

| Kevin Stein | [removed: 52] [added: 53] | | President, Chief Executive Officer and Director |

| Robert S. Henderson | [removed: 62] [added: 63] | | Vice Chairman |

| Jorge L. Valladares III | [removed: 44] [added: 45] | | Chief Operating [removed: Officer—Power and Control] [added: Officer] |

| Michael Lisman | [removed: 35] [added: 37] | | Chief Financial Officer |

| Bernt G. Iversen II | [removed: 61] [added: 62] | | Executive Vice President—Mergers & Acquisitions and Business Development |

| Halle Terrion | [removed: 50] [added: 51] | | General Counsel, Chief Compliance Officer & Secretary |

Mr. Valladares was appointed Chief Operating [removed: Officer—Power] [added: Officer] in [removed: June 2018.][added: April 2019.]

Prior to that, Mr. Valladares served as [added: Chief Operating Officer — Power & Control from June 2018 to March 2019,] Executive Vice President from October 2013 to May 2018, as President of AvtechTyee, Inc. (formerly Avtech Corporation), a wholly-owned subsidiary of TransDigm Inc., from August 2009 to September 2013, and as President of AdelWiggins Group, a division of TransDigm Inc., from April 2008 to July 2009.

Ms. Terrion was appointed General Counsel and Chief Compliance [removed: Office] [added: Officer] in March 2012 and Secretary in May 2015.

[removed: Section] [added: Section] 16(a) Beneficial Ownership Reporting [removed: Compliance][added: Compliance]

[removed: Code] [added: Code] of [removed: Ethics][added: Ethics]

We have adopted a Code of Business Conduct and Ethics, which applies to all of our directors, officers, and employees and a Code of Ethics for Senior Financial Officers which includes additional ethical obligations for our senior financial management (which includes our [removed: chief] executive [removed: officer] [added: chairman, president] and [removed: president,] chief [removed: financial] [added: executive] officer, [removed: senior] vice [removed: president of finance,] [added: chairman, chief operating officer, chief financial officer, chief accounting officer,] division presidents, controllers, treasurer, and chief internal auditor).

Our Code of Business Conduct and Ethics and our Code of Ethics for Senior Financial Officers is available on our website at [removed: www.transdigm.com.][added: *www.transdigm.com*.]

[removed: Nominations] [added: Nominations] of [removed: Directors][added: Directors]

[removed: Audit Committee][added: Audit Committee]

| Sarah Wynne | 45 | | Chief Accounting Officer |

Ms. Wynne was appointed Chief Accounting Officer in November 2018.

Prior to that, Ms. Wynne served as Group Controller from April 2015 to October 2018, as Controller of the Aero Fluid Products division of AeroControlex Group, Inc., a wholly-owned subsidiary of TransDigm Inc., from October 2009 to March 2015, and previously in other accounting roles with the Company.

| James Skulina | 59 | | Senior Vice President of Finance |

Prior to joining TransDigm, Mr. Lisman was a Vice President at Warburg Pincus from 2011 to 2015.

Mr. Skulina was appointed Senior Vice President of Finance in July 2018.

Prior to that, Mr. Skulina served as Interim Chief Financial Officer from January 2018 to June 2018, Executive Vice President from January 2012 to December 2017, as President of the Aero Fluid Products division of AeroControlex Group, Inc., a wholly-owned subsidiary of TransDigm Inc., from September 2009 to December 2011, and as Controller of TransDigm Inc., from August 2007 to August 2009.

[removed: Equity] [added: Equity] Compensation Plan [removed: Information][added: Information]

| [removed: Plan category] [added: Plan category] | [removed: Number] [added: Number] of Securities to Be Issued upon Exercise of Outstanding Options, Warrants and [removed: Rights (a)] [added: Rights (a)] | | | [removed: Weighted-Average] [added: Weighted-Average] Exercise Price of Outstanding Options, Warrants and [removed: Rights (b)] [added: Rights (b)] | | | | [removed: Number] [added: Number] of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (excluding securities reflected in column [removed: (a)) (c)] [added: (a)) (c)] | | |

| (2) | This amount represents 77,829, [removed: 3,878,127] [added: 3,134,022] and [removed: 2,113,278] [added: 3,167,458] shares subject to outstanding stock options under our 2003 stock option plan, 2006 stock incentive plan and 2014 stock option plan, respectively. No further grants may be made under our 2003 stock option plan and 2006 stock incentive plan, although outstanding stock options continue in force in accordance with their terms. |

| [removed: ITEM 13.] [added: ITEM 13.] | [removed: CERTAIN] [added: CERTAIN] RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR [removed: INDEPENDENCE] [added: INDEPENDENCE] |

| Equity compensation plans approved by security holders(1) | 6,379,309 | | (2) | $ | 238.64 | | | 5,797,892 | | (3) |

| (3) | This amount represents remaining shares available for award under our 2014 stock option plan and 2019 stock option plan. In August 2019, the 2019 stock option plan was adopted by the Board of Directors of TD Group and was subsequently approved by stockholders on October 3, 2019. The 2019 stock option plan permits TD Group to award stock options to our key employees, directors or consultants. The total number shares of TD Group common stock reserved for issuance or delivery under the 2019 stock option plan is 4,000,000, subject to adjustment in the event of any stock dividend or split, reorganization, recapitalization, merger, share exchange or any other similar corporate transaction or event. No shares have been issued from TD Group’s 2019 stock option plan. |

| Equity compensation plans approved by security holders(1) | 6,069,234 | | (2) | $ | 194.75 | | | 2,876,222 | | (3) |

| (3) | This amount represents remaining shares available for award under our 2014 stock option plan. |

[removed: PART IV][added: PART IV]

15.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Documents Filed with Report

(a) (1) Financial Statements

| | |

| --- | --- |

| | |

| | Page |

| Report of Independent Registered Public Accounting Firm | [F-1](#s6AD264ACB3F45947BB1702F6FBBA815C) |

| Consolidated Balance Sheets as of September 30, 2019 and 2018 | [F-3](#s66D4DCA01DB951F39363FABD5D3B2137) |

| Consolidated Statements of Income for Fiscal Years Ended September 30, 2019, 2018 and 2017 | [F-4](#s1FC3696A91C85DEEAC3316CA55F5F7FF) |

| Consolidated Statements of Comprehensive Income for Fiscal Years Ended September 30, 2019, 2018 and 2017 | [F-5](#s7E99B14CD1C159B6B1CB02D91B624D9D) |

| Consolidated Statements of Changes in Stockholders’ Deficit for Fiscal Years Ended September 30, 2019, 2018 and 2017 | [F-6](#s9C263647343F5FEFB65F92096A144434) |

| Consolidated Statements of Cash Flows for Fiscal Years Ended September 30, 2019, 2018 and 2017 | [F-7](#sBDFF1726BFCC558BB446F97658641B27) |

| Notes to Consolidated Financial Statements for Fiscal Years Ended September 30, 2019, 2018 and 2017 | pages F-8 to F-58 |

| | |

| (a) (2) Financial Statement Schedules | |

| Valuation and Qualifying Accounts for the Fiscal Years Ended September 30, 2019, 2018 and 2017 | [F-59](#sFE08A94B0A9D5853BCA40FB7F879BFA7) |

(a) (3) Exhibits

| | | | | |

| --- | --- | --- | --- | --- |

| | | | | |

| Exhibit No. | | Description | | Filed Herewith or Incorporated by Reference From |

| [2.1](http://www.sec.gov/Archives/edgar/data/1260221/000126022118000060/ex21esterlinemergeragreeme.htm) | | Agreement and Plan of Merger dated as of October 9, 2018, by and among Esterline Technologies Corporation, TransDigm Group Incorporated and Thunderbird Merger Sub Inc. | | [Incorporated by reference to TransDigm Group Incorporated’s Form 8-K, filed October 11, 2018 (File No. 001-32833)](http://www.sec.gov/Archives/edgar/data/1260221/000126022118000060/ex21esterlinemergeragreeme.htm) |

| [2.2](http://www.sec.gov/Archives/edgar/data/1260221/000126022118000060/ex22esterlinefirstamendmen.htm) | | First Amendment to Agreement and Plan of Merger dated as of October 10, 2018, by and among Esterline Technologies Corporation, TransDigm Group Incorporated and Thunderbird Merger Sub Inc. | | [Incorporated by reference to TransDigm Group Incorporated’s Form 8-K, filed October 11, 2018 (File No. 001-32833)](http://www.sec.gov/Archives/edgar/data/1260221/000126022118000060/ex22esterlinefirstamendmen.htm) |

| [3.1](http://www.sec.gov/Archives/edgar/data/1260221/000119312514163517/d716424dex31.htm) | | Second Amended and Restated Certificate of Incorporation, filed April 28, 2014, of TransDigm Group Incorporated | | [Incorporated by reference to TransDigm Group Incorporated’s Form 8-K, filed April 28, 2014 (File No. 001-32833)](http://www.sec.gov/Archives/edgar/data/1260221/000119312514163517/d716424dex31.htm) |

| [3.2](http://www.sec.gov/Archives/edgar/data/1260221/000126022118000010/ex31tdgthirdamendedandrest.htm) | | Third Amended and Restated Bylaws of TransDigm Group Incorporated | | [Incorporated by reference to TransDigm Group Incorporated’s Form 8-K, filed January 30, 2018 (File No. 001-32833)](http://www.sec.gov/Archives/edgar/data/1260221/000126022118000010/ex31tdgthirdamendedandrest.htm) |

| [3.3](http://www.sec.gov/Archives/edgar/data/1077670/0001047469-99-002648.txt) | | Certificate of Incorporation, filed July 2, 1993, of NovaDigm Acquisition, Inc. (now known as TransDigm Inc.) | | [Incorporated by reference to TransDigm Inc.’s and TransDigm Holding Company’s Form S-4, filed January 29, 1999 (File No. 333-71397)](http://www.sec.gov/Archives/edgar/data/1077670/0001047469-99-002648.txt) |

| [3.4](http://www.sec.gov/Archives/edgar/data/1077670/0001047469-99-002648.txt) | | Certificate of Amendment, filed July 22, 1993, of the Certificate of Incorporation of NovaDigm Acquisition, Inc. (now known as TransDigm Inc.) | | [Incorporated by reference to TransDigm Inc.’s and TransDigm Holding Company’s Form S-4, filed January 29, 1999 (File No. 333-71397)](http://www.sec.gov/Archives/edgar/data/1077670/0001047469-99-002648.txt) |

| [3.5](http://www.sec.gov/Archives/edgar/data/1077670/0001047469-99-002648.txt) | | Bylaws of NovaDigm Acquisition, Inc. (now known as TransDigm Inc.) | | [Incorporated by reference to TransDigm Inc.’s and TransDigm Holding Company’s Form S-4, filed January 29, 1999 (File No. 333-71397)](http://www.sec.gov/Archives/edgar/data/1077670/0001047469-99-002648.txt) |

| [3.6](http://www.sec.gov/Archives/edgar/data/1260221/000119312509165052/dex31.htm) | | Certificate of Incorporation, filed July 10, 2009, of Acme Aerospace, Inc. | | [Incorporated by reference to TransDigm Group Incorporated’s Form 10-Q, filed August 5, 2009 (File No. 001-32833)](http://www.sec.gov/Archives/edgar/data/1260221/000119312509165052/dex31.htm) |

| [3.7](http://www.sec.gov/Archives/edgar/data/1260221/000119312509165052/dex32.htm) | | By-laws of Acme Aerospace, Inc. | | [Incorporated by reference to TransDigm Group Incorporated’s Form 10-Q, filed August 5, 2009 (File No. 001-32833)](http://www.sec.gov/Archives/edgar/data/1260221/000119312509165052/dex32.htm) |

| [3.8](http://www.sec.gov/Archives/edgar/data/1077670/0001047469-99-016106.txt) | | Articles of Incorporation, filed July 30, 1986, of ARP Acquisition Corporation (now known as Adams Rite Aerospace, Inc.) | | [Incorporated by reference to TransDigm Inc.’s and TransDigm Holding Company’s Form S-4, filed April 23, 1999 (File No. 333-71397)](http://www.sec.gov/Archives/edgar/data/1077670/0001047469-99-016106.txt) |

| [3.9](http://www.sec.gov/Archives/edgar/data/1077670/0001047469-99-016106.txt) | | Certificate of Amendment, filed September 12, 1986, of the Articles of Incorporation of ARP Acquisition Corporation (now known as Adams Rite Aerospace, Inc.) | | [Incorporated by reference to TransDigm Inc.’s and TransDigm Holding Company’s Form S-4, filed April 23, 1999 (File No. 333-71397)](http://www.sec.gov/Archives/edgar/data/1077670/0001047469-99-016106.txt) |

| [3.10](http://www.sec.gov/Archives/edgar/data/1077670/0001047469-99-016106.txt) | | Certificate of Amendment, filed January 27, 1992, of the Articles of Incorporation of Adams Rite Products, Inc. (now known as Adams Rite Aerospace, Inc.) | | [Incorporated by reference to TransDigm Inc.’s and TransDigm Holding Company’s Form S-4, filed April 23, 1999 (File No. 333-71397)](http://www.sec.gov/Archives/edgar/data/1077670/0001047469-99-016106.txt) |

| [3.11](http://www.sec.gov/Archives/edgar/data/1077670/0001047469-99-016106.txt) | | Certificate of Amendment, filed December 31, 1992, of the Articles of Incorporation of Adams Rite Products, Inc. (now known as Adams Rite Aerospace, Inc.) | | [Incorporated by reference to TransDigm Inc.’s and TransDigm Holding Company’s Form S-4, filed April 23, 1999 (File No. 333-71397)](http://www.sec.gov/Archives/edgar/data/1077670/0001047469-99-016106.txt) |

| [3.12](http://www.sec.gov/Archives/edgar/data/1077670/0001047469-99-016106.txt) | | Certificate of Amendment, filed August 11, 1997, of the Articles of Incorporation of Adams Rite Sabre International, Inc. (now known as Adams Rite Aerospace, Inc.) | | [Incorporated by reference to TransDigm Inc.’s and TransDigm Holding Company’s Form S-4, filed April 23, 1999 (File No. 333-71397)](http://www.sec.gov/Archives/edgar/data/1077670/0001047469-99-016106.txt) |

| [3.13](http://www.sec.gov/Archives/edgar/data/1077670/0001047469-99-016106.txt) | | Amended and Restated Bylaws of Adams Rite Aerospace, Inc. | | [Incorporated by reference to TransDigm Inc.’s and TransDigm Holding Company’s Form S-4, filed April 23, 1999 (File No. 333-71397)](http://www.sec.gov/Archives/edgar/data/1077670/0001047469-99-016106.txt) |

| [3.14](http://www.sec.gov/Archives/edgar/data/714124/000104746907005464/a2178691zex-3_66.htm) | | Certificate of Incorporation, filed June 18, 2007, of AeroControlex Group, Inc. | | [Incorporated by reference to TransDigm Inc.’s and TransDigm Group Incorporated’s Form S-4, filed July 6, 2007 (File No. 333-144366)](http://www.sec.gov/Archives/edgar/data/714124/000104746907005464/a2178691zex-3_66.htm) |

| [3.15](http://www.sec.gov/Archives/edgar/data/714124/000104746907005464/a2178691zex-3_67.htm) | | By-laws of AeroControlex Group, Inc. | | [Incorporated by reference to TransDigm Inc.’s and TransDigm Group Incorporated’s Form S-4, filed July 6, 2007 (File No. 333-144366)](http://www.sec.gov/Archives/edgar/data/714124/000104746907005464/a2178691zex-3_67.htm) |

[removed: FINANCIAL] [added: FINANCIAL] STATEMENTS AND SUPPLEMENTARY [removed: DATA][added: DATA]

[removed: INDEX][added: INDEX]

| | [removed: Page] [added: Page] |

| [removed: Financial Statements:] [added: Financial Statements:] | |

[removed: | Report] [added: Report] of Independent Registered Public Accounting [removed: Firm | [F-1](#s366123D432825BBE88E0EEC749B7570B) |][added: Firm]

| Consolidated Balance Sheets as of September 30, [removed: 2018] [added: 2019] and [removed: 2017] [added: 2018] | [removed: [F-2](#s196154E91FAA5CDD9A6760E1343EDE58)] [added: [F-3](#s66D4DCA01DB951F39363FABD5D3B2137)] |

| Consolidated Statements of Income for Fiscal Years Ended September 30, [removed: 2018, 2017] [added: 2019, 2018] and [removed: 2016] [added: 2017] | [removed: [F-3](#s73DED37A2669557FB49934032439913C)] [added: [F-4](#s1FC3696A91C85DEEAC3316CA55F5F7FF)] |

| Consolidated Statements of Comprehensive Income for Fiscal Years Ended September 30, [removed: 2018, 2017] [added: 2019, 2018] and [removed: 2016] [added: 2017] | [removed: [F-4](#sB70D10D6AB875B85A538536C83FB01A1)] [added: [F-5](#s7E99B14CD1C159B6B1CB02D91B624D9D)] |

| Consolidated Statements of Changes in Stockholders’ Deficit for Fiscal Years Ended September 30, [removed: 2018, 2017] [added: 2019, 2018] and [removed: 2016] [added: 2017] | [removed: [F-5](#sA59A390A8EFF50A4AB03D61A2F6C7A0F)] [added: [F-6](#s9C263647343F5FEFB65F92096A144434)] |

| Consolidated Statements of Cash Flows for Fiscal Years Ended September 30, [removed: 2018, 2017] [added: 2019, 2018] and [removed: 2016] [added: 2017] | [removed: [F-6](#s07E471FE15E858F8B55800AAB6F06655)] [added: [F-7](#sBDFF1726BFCC558BB446F97658641B27)] |

| Notes to Consolidated Financial Statements for Fiscal Years Ended September 30, [removed: 2018, 2017] [added: 2019, 2018] and [removed: 2016] [added: 2017] | [removed: F-7 – F-43] [added: F-8 to F-58] |

| [removed: Supplementary Data:] [added: Supplementary Data:] | |

| Valuation and Qualifying Accounts for the Fiscal Years Ended September 30, [removed: 2018, 2017] [added: 2019, 2018] and [removed: 2016] [added: 2017] | [removed: [F-44](#sA9A31C726FE3510A8AB6866D5162DA85)] [added: [F-59](#sFE08A94B0A9D5853BCA40FB7F879BFA7)] |

[added: |] Report of Independent Registered Public Accounting Firm [added: | [F-1](#s6AD264ACB3F45947BB1702F6FBBA815C) |]

[removed: Opinion] [added: Opinion] on the Financial [removed: Statements][added: Statements]

We have audited the accompanying consolidated balance sheets of TransDigm Group Incorporated (“the Company”) as of September 30, [removed: 2018] [added: 2019] and [removed: 2017,] [added: 2018,] the related consolidated statements of income, comprehensive income, changes in stockholders’ deficit, and cash flows for each of the three years in the period ended September 30, [removed: 2018,] [added: 2019,] and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company at September 30, [removed: 2018] [added: 2019] and [removed: 2017,] [added: 2018,] and the consolidated results of its operations and its cash flows for each of the three years in the period ended September 30, [removed: 2018,] [added: 2019,] in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of September 30, [removed: 2018,] [added: 2019,] based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated November [removed: 9, 2018] [added: 19, 2019] expressed an unqualified opinion thereon.

[removed: Basis] [added: Basis] for [removed: Opinion][added: Opinion]

[removed: TRANSDIGM] [added: TRANSDIGM] GROUP [removed: INCORPORATED][added: INCORPORATED]

[removed: CONSOLIDATED] [added: CONSOLIDATED] BALANCE [removed: SHEETS][added: SHEETS]

[removed: AS] [added: AS] OF SEPTEMBER [removed: 30, 2018 AND 2017][added: 30, 2019 AND 2018]

[removed: (Amounts] [added: (Amounts] in thousands, except share [removed: amounts)][added: amounts)]

| | [removed: 2018] [added: 2019] | | | | [removed: 2017] [added: 2018] | | | [added: | 2017 | | |]

| [removed: ASSETS] [added: ASSETS] | | | | | | | |

| [removed: Cash and cash equivalents | $] [added: CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD] | 2,073,017 | | | [removed: $] | 650,561 | | [added: | | 1,586,994 | | |]

| Trade accounts receivable—Net | [removed: 704,310] [added: 1,067,603] | | | | [removed: 636,127] [added: 704,310] | | |

| Inventories—Net | [removed: 805,292] [added: 1,232,649] | | | | [removed: 730,681] [added: 805,292] | | |

| Assets held-for-sale | [removed: —] [added: 962,129] | | | | [removed: 77,500] [added: —] | | |

| Prepaid expenses and other | [removed: 74,668] [added: 135,380] | | | | [removed: 38,683] [added: 74,668] | | |

| Total current assets | [removed: 3,657,287] [added: 4,865,247] | | | | [removed: 2,133,552] [added: 3,657,287] | | |

| PROPERTY, PLANT AND [removed: EQUIPMENT—Net] [added: EQUIPMENT—NET] | [removed: 388,333] [added: 756,757] | | | | [removed: 324,924] [added: 388,333] | | |

| GOODWILL | [removed: 6,223,290] [added: 7,820,103] | | | | [removed: 5,745,338] [added: 6,223,290] | | |

| OTHER INTANGIBLE [removed: ASSETS—Net] [added: ASSETS—NET] | [removed: 1,788,404] [added: 2,743,820] | | | | [removed: 1,717,862] [added: 1,788,404] | | |

| TOTAL ASSETS | $ | [removed: 12,197,467] [added: 16,254,731] | | | $ | [removed: 9,975,661] [added: 12,197,467] | |

| [removed: LIABILITIES] [added: LIABILITIES] AND STOCKHOLDERS’ [removed: DEFICIT] [added: DEFICIT] | | | | | | | |

| Current portion of long-term debt | $ | [removed: 75,817] [added: 80,213] | | | $ | [removed: 69,454] [added: 75,817] | |

| Short-term borrowings—trade receivable securitization facility | [removed: 299,519] [added: 349,519] | | | | [removed: 299,587] [added: 299,519] | | |

| Accounts payable | [removed: 173,603] [added: 276,590] | | | | [removed: 148,761] [added: 173,603] | | |

| Accrued liabilities | [removed: 351,443] [added: 675,695] | | | | [removed: 335,888] [added: 351,443] | | |

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

| | | Valuation of intangible assets and loss contract reserves for Esterline acquisition |

| *Description of the Matter* | | As described in Note 2 to the consolidated financial statements, during 2019, the Company completed the acquisition of all the outstanding stock of Esterline Technologies Corporation (“Esterline”) for a total purchase price of approximately $3,924 million, net of cash acquired. The acquisition was accounted for under the acquisition method of accounting whereby the total purchase price was allocated to tangible and intangible assets acquired and liabilities assumed based on the respective estimated fair values. Management’s accounting for the Company’s 2019 acquisition of Esterline was significant to our audit because the amounts are material to the consolidated financial statements and the related accounting for this transaction involved a high degree of subjectivity in determination of the fair value of the $1,310 million acquired intangible assets, and $268 million loss contract reserves. The acquired intangible assets principally consisted of trademarks and tradenames, technology, order backlog, and customer relationships. The loss contract reserves related to acquired contracts with customers that were determined to have below market terms. The high degree of subjectivity was primarily due to the sensitivity of the respective fair values to underlying assumptions about the future performance of the acquired business. The Company used a discounted cash flow model to measure the intangible assets and loss contract reserves. The significant assumptions used to estimate the value of the intangible assets included discount rates and certain assumptions that form the basis of the forecasted results (e.g., revenue growth rates, customer attrition rates, and royalty rates). The significant assumptions used to estimate the value of the loss contract reserves included discount rates, forecasted quantities of the products to be sold under the long-term contracts and market prices for respective products. These significant assumptions are forward looking and could be affected by future economic and market conditions. |

| *How We Addressed the Matter in Our Audit* | | We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s accounting for the recognition and measurement of the intangible assets and loss contract reserves. This included testing controls over management’s review of the fair value methodology and significant assumptions used to develop the estimates of fair value for those intangible assets and loss contract reserves. To test the estimated fair values of the acquired intangible assets and loss contract reserves, our audit procedures included, among others, assessing the appropriateness of the valuation methodology and testing the significant assumptions discussed above and the underlying data used by the Company. We involved our valuation specialists in assessing the fair value methodology applied and evaluating certain significant assumptions. When evaluating the significant assumptions used to determine the fair value of the acquired intangible assets, we compared the assumptions to the past performance of Esterline, peer companies within the industry, similar acquisitions made by the Company, market data and expected industry trends. When evaluating the significant assumptions used to value the loss contract reserves, we reviewed market data, historical sales and backlog of products sold under the respective contracts and assessed reasonableness of market prices of such products through review of sales of such products or similar products to other customers. Furthermore, we assessed the appropriateness of the disclosures in the consolidated financial statements regarding the acquisition. |

November 19, 2019

| OTHER | 68,804 | | | | 140,153 | | |

| Total TD Group stockholders’ deficit | (2,894,905 | | ) | | (1,808,471 | | ) |

| NONCONTROLLING INTERESTS | 9,822 | | | | — | | |

TRANSDIGM GROUP INCORPORATED

| SELLING AND ADMINISTRATIVE EXPENSES | 747,773 | | | | 449,676 | | | | 412,555 | | |

| INCOME FROM OPERATIONS | 1,926,546 | | | | 1,655,380 | | | | 1,482,846 | | |

| OTHER EXPENSE—Net | 915 | | | | 419 | | | | 3,020 | | |

| NET INCOME INCLUDING NONCONTROLLING INTERESTS | 891,311 | | | | 957,062 | | | | 596,887 | | |

| NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS | (1,541 | | ) | | — | | | | — | | |

| Net earnings per share attributable to TD Group stockholders: | | | | | | | | | | | |

TRANSDIGM GROUP INCORPORATED

| Net income including noncontrolling interests | $ | 891,311 | | | 957,062 | | | | 596,887 | | |

| Net income attributable to noncontrolling interests | (1,541 | | ) | | — | | | | — | | |

| Unrealized (loss) gain on derivatives | (239,221 | | ) | | 93,860 | | | | 34,471 | | |

| Pensions and other postretirement benefits | (29,004 | | ) | | 5,636 | | | | 7,932 | | |

TRANSDIGM GROUP INCORPORATED