Item 8. AND ITEM 15(a) (1)

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX

	Page
Financial Statements:
Report of Independent Registered Public Accounting Firm	F-1
Consolidated Balance Sheets as of September 30, 2019 and 2018	F-3
Consolidated Statements of Income for Fiscal Years Ended September 30, 2019, 2018 and 2017	F-4
Consolidated Statements of Comprehensive Income for Fiscal Years Ended September 30, 2019, 2018 and 2017	F-5
Consolidated Statements of Changes in Stockholders’ Deficit for Fiscal Years Ended September 30, 2019, 2018 and 2017	F-6
Consolidated Statements of Cash Flows for Fiscal Years Ended September 30, 2019, 2018 and 2017	F-7
Notes to Consolidated Financial Statements for Fiscal Years Ended September 30, 2019, 2018 and 2017	F-8 to F-58
Supplementary Data:
Valuation and Qualifying Accounts for the Fiscal Years Ended September 30, 2019, 2018 and 2017	F-59

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders of

TransDigm Group

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of TransDigm Group Incorporated (“the Company”) as of September 30, 2019 and 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, 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, 2019 and 2018, and the consolidated results of its operations and its cash flows for each of the three years in the period ended September 30, 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, 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 19, 2019 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

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.

F-1

		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.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2004.

Cleveland, Ohio

November 19, 2019

F-2

TRANSDIGM GROUP INCORPORATED

CONSOLIDATED BALANCE SHEETS

AS OF SEPTEMBER 30, 2019 AND 2018

(Amounts in thousands, except share amounts)

	2019				2018
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	1,467,486			$	2,073,017
Trade accounts receivable—Net	1,067,603				704,310
Inventories—Net	1,232,649				805,292
Assets held-for-sale	962,129				—
Prepaid expenses and other	135,380				74,668
Total current assets	4,865,247				3,657,287
PROPERTY, PLANT AND EQUIPMENT—NET	756,757				388,333
GOODWILL	7,820,103				6,223,290
OTHER INTANGIBLE ASSETS—NET	2,743,820				1,788,404
OTHER	68,804				140,153
TOTAL ASSETS	$	16,254,731			$	12,197,467
LIABILITIES AND STOCKHOLDERS’ DEFICIT
CURRENT LIABILITIES:
Current portion of long-term debt	$	80,213			$	75,817
Short-term borrowings—trade receivable securitization facility	349,519				299,519
Accounts payable	276,590				173,603
Accrued liabilities	675,695				351,443
Liabilities held-for-sale	156,739				—
Total current liabilities	1,538,756				900,382
LONG-TERM DEBT	16,469,221				12,501,946
DEFERRED INCOME TAXES	440,817				399,496
OTHER NON-CURRENT LIABILITIES	691,020				204,114
Total liabilities	19,139,814				14,005,938
TD GROUP STOCKHOLDERS’ DEFICIT:
Common stock—$.01 par value; authorized 224,400,000 shares; issued 57,623,311 and 56,895,686 shares at September 30, 2019 and 2018	576				569
Additional paid-in capital	1,378,760				1,208,742
Accumulated deficit	(3,119,956		)		(2,246,578		)
Accumulated other comprehensive (loss) income	(378,981		)		4,100
Treasury stock, at cost; 4,161,326 shares at September 30, 2019 and 2018	(775,304		)		(775,304		)
Total TD Group stockholders’ deficit	(2,894,905		)		(1,808,471		)
NONCONTROLLING INTERESTS	9,822				—
Total stockholders’ deficit	(2,885,083		)		(1,808,471		)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT	$	16,254,731			$	12,197,467

See Notes to Consolidated Financial Statements.

F-3

TRANSDIGM GROUP INCORPORATED

CONSOLIDATED STATEMENTS OF INCOME

(Amounts in thousands, except per share amounts)

	Fiscal Years Ended September 30,
	2019				2018				2017
NET SALES	$	5,223,203			$	3,811,126			$	3,504,286
COST OF SALES	2,413,932				1,633,616				1,519,659
GROSS PROFIT	2,809,271				2,177,510				1,984,627
SELLING AND ADMINISTRATIVE EXPENSES	747,773				449,676				412,555
AMORTIZATION OF INTANGIBLE ASSETS	134,952				72,454				89,226
INCOME FROM OPERATIONS	1,926,546				1,655,380				1,482,846
INTEREST EXPENSE—Net	859,753				663,008				602,589
REFINANCING COSTS	3,013				6,396				39,807
OTHER EXPENSE—Net	915				419				3,020
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES	1,062,865				985,557				837,430
INCOME TAX PROVISION	221,986				24,021				208,889
INCOME FROM CONTINUING OPERATIONS INCLUDING NONCONTROLLING INTERESTS	840,879				961,536				628,541
INCOME (LOSS) FROM DISCONTINUED OPERATIONS, NET OF TAX	50,432				(4,474		)		(31,654		)
NET INCOME INCLUDING NONCONTROLLING INTERESTS	891,311				957,062				596,887
NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS	(1,541		)		—				—
NET INCOME ATTRIBUTABLE TO TD GROUP	$	889,770			$	957,062			$	596,887
NET INCOME APPLICABLE TO TD GROUP COMMON STOCK	$	778,749			$	900,914			$	437,630
Net earnings per share attributable to TD Group stockholders:
Net earnings per share from continuing operations—basic and diluted	$	12.94			$	16.28			$	8.45
Net earnings (loss) per share from discontinued operations—basic and diluted	0.90				(0.08		)		(0.57		)
Net earnings per share	$	13.84			$	16.20			$	7.88
Cash dividends paid per common share	$	30.00			$	—			$	46.00
Weighted-average shares outstanding:
Basic and diluted	56,265				55,597				55,530

See Notes to Consolidated Financial Statements.

F-4

TRANSDIGM GROUP INCORPORATED

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Amounts in thousands)

	Fiscal Years Ended September 30,
	2019				2018				2017
Net income including noncontrolling interests	$	891,311			957,062				596,887
Net income attributable to noncontrolling interests	(1,541		)		—				—
Net income attributable to TD Group	889,770				957,062				596,887
Other comprehensive (loss) income, net of tax:
Foreign currency translation	(114,856		)		(10,253		)		22,241
Unrealized (loss) gain on derivatives	(239,221		)		93,860				34,471
Pensions and other postretirement benefits	(29,004		)		5,636				7,932
Other comprehensive (loss) income, net of tax, attributable to TD Group	(383,081		)		89,243				64,644
TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO TD GROUP	$	506,689			$	1,046,305			$	661,531

See Notes to Consolidated Financial Statements.

F-5

TRANSDIGM GROUP INCORPORATED

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

(Amounts in thousands, except share and per share amounts)

	TD Group Stockholders
	Common Stock							Additional Paid-In Capital				Accumulated Deficit				Accumulated Other Comprehensive (Loss) Income				Treasury Stock
	Number of Shares			Common Stock				Number of Shares			Value				Non-controlling Interests				Total
BALANCE—September 30, 2016	55,767,767			$	558			$	1,028,972			$	(1,146,963	)		$	(149,787	)		(2,433,035	)		$	(384,270	)		$	—			$	(651,490	)
Accrued unvested dividend equivalent payments and other	—			—				—				(214,849		)		—				—			—				—				(214,849		)
Compensation expense recognized for employee stock options and restricted stock	—			—				44,931				—				—				—			—				—				44,931
Exercise of employee stock options and restricted stock activity, net	324,908			3				21,177				—				—				(2,548	)		(630		)		—				20,550
Treasury stock purchased	—			—				—				—				—				(1,723,624	)		(389,821		)		—				(389,821		)
Common stock issued	984			—				239				—				—				—			—				—				239
Net income	—			—				—				596,887				—				—			—				—				596,887
Unrealized gain on derivatives, net of tax	—			—				—				—				34,471				—			—				—				34,471
Foreign currency translation adjustments, net of tax	—			—				—				—				22,241				—			—				—				22,241
Pensions and other postretirement benefits adjustments, net of tax	—			—				—				—				7,932				—			—				—				7,932
BALANCE—September 30, 2017	56,093,659			561				1,095,319				(3,187,220		)		(85,143		)		(4,159,207	)		(774,721		)		—				(2,951,204		)
Accrued unvested dividend equivalent payments and other	—			—				—				(16,420		)		—				—			—				—				(16,420		)
Compensation expense recognized for employee stock options and restricted stock	—			—				55,481				—				—				—			—				—				55,481
Exercise of employee stock options and restricted stock activity, net	800,955			8				57,583				—				—				(2,119	)		(583		)		—				57,008
Common stock issued	1,072			—				359				—				—				—			—				—				359
Net income	—			—				—				957,062				—				—			—				—				957,062
Unrealized gain on derivatives, net of tax	—			—				—				—				93,860				—			—				—				93,860
Foreign currency translation adjustments, net of tax	—			—				—				—				(10,253		)		—			—				—				(10,253		)
Pensions and other postretirement benefits adjustments, net of tax	—			—				—				—				5,636				—			—				—				5,636
BALANCE—September 30, 2018	56,895,686			569				1,208,742				(2,246,578		)		4,100				(4,161,326	)		(775,304		)		—				(1,808,471		)
Cumulative effect of ASC 606, adopted October 1, 2018	—			—				—				3,284				—				—			—				—				3,284
Cumulative effect of ASU 2016-16, adopted October 1, 2018	—			—				—				(353		)		—				—			—				—				(353		)
Cumulative effect of ASU 2018-02, adopted October 1, 2018	—			—				—				2,199				(2,199		)		—			—				—				—
Noncontrolling interests assumed related to acquisitions	—			—				—				—				—				—			—				8,281				8,281
Dividends paid	—			—				—				(1,687,910		)		—				—			—				—				(1,687,910		)
Accrued unvested dividend equivalent payments and other	—			—				—				(80,368		)		—				—			—				—				(80,368		)
Compensation expense recognized for employee stock options	—			—				87,727				—				—				—			—				—				87,727
Exercise of employee stock options	726,750			7				81,875				—				—				—			—				—				81,882
Common stock issued	875			—				416				—				—				—			—				—				416
Net income	—			—				—				889,770				—				—			—				1,541				891,311
Unrealized (loss) gain on derivatives, net of tax	—			—				—				—				(237,022		)		—			—				—				(237,022		)
Foreign currency translation adjustments, net of tax	—			—				—				—				(114,856		)		—			—				—				(114,856		)
Pensions and other postretirement benefits adjustments, net of tax	—			—				—				—				(29,004		)		—			—				—				(29,004		)
BALANCE—September 30, 2019	57,623,311			$	576			$	1,378,760			$	(3,119,956	)		$	(378,981	)		(4,161,326	)		$	(775,304	)		$	9,822			$	(2,885,083	)

See Notes to Consolidated Financial Statements.

F-6

TRANSDIGM GROUP INCORPORATED

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

	Fiscal Years Ended September 30,
	2019				2018				2017
OPERATING ACTIVITIES:
Net income including noncontrolling interests	$	891,311			$	957,062			$	596,887
Net (income) loss from discontinued operations	(50,432		)		4,474				31,654
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	89,689				56,397				50,937
Amortization of intangible assets	136,011				73,447				90,088
Amortization of debt issuance costs, original issue discount and premium	28,034				22,128				21,106
Amortization of inventory step-up	76,927				7,080				20,621
Amortization of loss contract reserves	(38,347		)		(10,570		)		(3,477		)
Refinancing costs	3,013				6,396				39,807
Non-cash stock compensation	93,362				58,481				45,524
Deferred income taxes	(349		)		(151,640		)		(918		)
Changes in assets/liabilities, net of effects from acquisitions and sales of businesses:
Trade accounts receivable	(82,268		)		(43,811		)		(54,669		)
Inventories	(35,712		)		(17,888		)		5,127
Income taxes receivable/payable	(2,667		)		36,161				18,219
Other assets	(26,767		)		(4,813		)		(10,564		)
Accounts payable	(1,632		)		18,075				(10,354		)
Accrued interest	(3,948		)		14,368				(958		)
Accrued and other liabilities	(60,753		)		(3,174		)		(50,297		)
Net cash provided by operating activities	1,015,472				1,022,173				788,733
INVESTING ACTIVITIES:
Capital expenditures, net of disposals	(101,591		)		(73,341		)		(71,013		)
Payments made in connection with acquisitions	(3,976,155		)		(667,619		)		(215,990		)
Proceeds in connection with the sale of discontinued operations	188,766				57,383				—
Net cash used in investing activities	(3,888,980		)		(683,577		)		(287,003		)
FINANCING ACTIVITIES:
Proceeds from exercise of stock options	81,875				57,583				21,177
Special dividends and dividend equivalent payments	(1,712,219		)		(56,148		)		(2,581,552		)
Treasury stock purchased	—				—				(389,821		)
Proceeds from term loans, net	—				12,779,694				2,937,773
Repayments on term loans	(76,428		)		(12,174,305		)		(1,284,698		)
Proceeds from senior secured notes due 2026, net	3,935,567				—				—
Proceeds from senior subordinated notes, net	544,248				489,608				300,386
Cash tender and redemption of senior subordinated notes due 2020	(550,000		)		—				—
Cash tender and redemption of senior subordinated notes due 2021, including premium	—				—				(528,847		)
Proceeds from trade receivable securitization facility, net	49,423				—				99,471
Financing fees and other	(1,113		)		(10,832		)		(17,571		)
Net cash provided by (used in) financing activities	2,271,353				1,085,600				(1,443,682		)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS	(3,376		)		(1,740		)		5,519
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS	(605,531		)		1,422,456				(936,433		)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	2,073,017				650,561				1,586,994
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	1,467,486			$	2,073,017			$	650,561
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest	$	877,531			$	634,980			$	587,718
Cash paid during the period for income taxes	$	215,154			$	129,246			$	185,295

See Notes to Consolidated Financial Statements.

F-7

TRANSDIGM GROUP INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FISCAL YEARS ENDED SEPTEMBER 30, 2019, 2018 AND 2017

1. DESCRIPTION OF THE BUSINESS

Description of the Business – TransDigm Group Incorporated (“TD Group”), through its wholly-owned subsidiary, TransDigm Inc., is a leading global designer, producer and supplier of highly engineered aircraft components for use on nearly every commercial and military aircraft in service today. TransDigm Inc., along with TransDigm Inc.’s direct and indirect wholly-owned operating subsidiaries (collectively, with TD Group, the “Company” or “TransDigm”), offers a broad range of proprietary aerospace components. TD Group has no significant assets or operations other than its100% ownership of TransDigm Inc. TD Group’s common stock is listed on the New York Stock Exchange, or the NYSE, under the trading symbol “TDG.”

TransDigm's major product offerings, substantially all of which are ultimately provided to end-users in the aerospace industry, include mechanical/electro-mechanical actuators and controls, ignition systems and engine technology, specialized pumps and valves, power conditioning devices, specialized AC/DC electric motors and generators, NiCad batteries and chargers, engineered latching and locking devices, rods and locking devices, engineered connectors and elastomers, databus and power controls, cockpit security components and systems, specialized cockpit displays, aircraft audio systems, specialized lavatory components, seat belts and safety restraints, engineered interior surfaces and related components, 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.

2. ACQUISITIONS AND DIVESTITURES

During the most recent three fiscal years, the Company completed the acquisitions of Esterline, Skandia, Extant, Kirkhill and substantially all of the assets and technical data rights of several aerospace and defense-related product lines. The Company accounted for the acquisitions using the acquisition method and included the results of operations of the acquisitions in its consolidated financial statements from the effective date of each acquisition. As of September 30, 2019, the one-year measurement period is open for Esterline and certain product line acquisitions; therefore, the assets acquired and liabilities assumed related to these acquisitions are subject to adjustment until the end of their respective one-year measurement periods. Pro forma net sales and results of operations for the acquisitions other than Esterline, had they occurred at the beginning of the applicable fiscal year ended September 30, 2019 or 2018, are not material and, accordingly, are not provided.

The acquisitions strengthen and expand the Company’s position to design, produce and supply highly engineered proprietary aerospace components in niche markets with significant aftermarket content and provide opportunities to create value through the application of our three core value-driven operating strategies (obtaining profitable new business, improving our cost structure, and providing highly engineered value-added products to customers). The purchase price paid for each acquisition reflects the current earnings before interest, taxes, depreciation and amortization (EBITDA) and cash flows, as well as the future EBITDA and cash flows expected to be generated by the business, which are driven in most cases by the recurring aftermarket consumption over the life of a particular aircraft, estimated to be approximately 25 to 30 years.

Acquisitions

Esterline – On March 14, 2019, TransDigm completed the acquisition of all the outstanding stock of 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. TransDigm evaluated the strategic fit and description of each Esterline reporting unit to determine the appropriate business segment for the reporting unit. Each Esterline reporting unit is included in one of TransDigm's segments: Power and Control, Airframe, or Non-aviation. Refer to Note 17, "Segments," for additional information about the Company's segments.

F-8

The total purchase price of Esterline was allocated to the underlying assets acquired and liabilities assumed based upon management’s estimated fair values at the date of acquisition. To the extent the purchase price exceeded the estimated fair value of the net identifiable tangible and intangible assets acquired, such excess was allocated to goodwill. Allocations are based on the acquisition method of accounting and in-process third-party valuation appraisals. The allocation of the purchase price is preliminary and will likely change in future periods, perhaps materially, as fair value estimates of the assets acquired and liabilities assumed are refined and finalized during the allowable one year measurement period.

Except where otherwise noted in the notes to consolidated financial statements, changes in balances and activity where comparable periods are presented in the consolidated financial statements were generally driven by the Esterline acquisition.

The preliminary allocation of the fair value of the Esterline acquisition is summarized in the table below (presented in thousands).

Assets acquired, excluding cash:
Trade accounts receivable	$	386,671
Inventories	588,741
Prepaid expenses and other current assets	421,973
Property, plant, and equipment	472,623
Other intangible assets	1,309,900
Goodwill	2,176,941
Other	22,196
Total assets acquired, excluding cash	5,379,045
Liabilities assumed:
Accounts payable	144,516
Other current liabilities	717,621
Other noncurrent liabilities	593,058
Total liabilities assumed	1,455,195
Net assets acquired	$	3,923,850

The Company currently expects that of the approximately $2.2 billion of goodwill recognized for the acquisition, approximately $25.6 million will be deductible for tax purposes and, of the approximately $1.3 billion of other intangible assets recognized for the acquisition, approximately $48.9 million will be deductible for tax purposes.

In connection with the Esterline acquisition, we acquired existing long-term contracts with customers that were incurring gross margin losses as of the date of acquisition. Based on our review of these contracts, we concluded that the terms of certain contracts were unfavorable when compared to market terms as of the acquisition date. As a result, we recognized loss contract reserves as of the acquisition date of $268.4 million based on the present value of the difference between the contractual cash flows of the existing long-term contracts and the estimated cash flows had the contracts been executed at market terms as of the acquisition date. As of September 30, 2019, we have reclassified $9.3 million in loss contract reserves to liabilities held-for-sale, as it pertains to Souriau-Sunbank. Significant assumptions used to determine the fair value of the loss contract reserves using the discounted cash flow model include discount rates, forecasted quantities of 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. The loss contract reserves are amortized and recorded as an offset to cost of sales over the life of the contracts as actual sales occur under the long-term contracts. Approximately $27.3 million was amortized and recorded as an offset to cost of sales in the consolidated statement of income for the fiscal year ended September 30, 2019. Total loss contract reserves related to the Esterline acquisition were $231.8 million at September 30, 2019, of which $60.0 million is classified in accrued liabilities and $171.8 million is classified in other non-current liabilities in the consolidated balance sheet at September 30, 2019.

The Esterline acquisition contributed net sales and income from continuing operations before taxes of $908.0 million and $57.1 million for the fiscal year ended September 30, 2019. Net income from continuing operations for the fiscal year ended September 30, 2019 included approximately $55.4 million of other intangible asset amortization expense and $71.4 million of inventory step-up amortization expense in cost of sales.

Acquisition costs were expensed as incurred and for the fiscal year ended September 30, 2019 totaled approximately $85.1 million. These costs were recorded in selling and administrative expenses and cost of sales within the consolidated statements of income. In connection with the financing of the Esterline acquisition, approximately $155.3 million of net

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interest expense (comprised of gross interest expense of $163.5 million and interest income of $8.2 million) was recorded for the fiscal year ended September 30, 2019.

The following pro forma information presents consolidated financial information as if Esterline had been acquired at the beginning of fiscal year 2018. Interest expense has been adjusted as though the debt incurred to finance the Esterline acquisition had been outstanding at October 1, 2017. In the pro forma information presented, fiscal year 2018 includes other intangible asset amortization expense of approximately $103.3 million resulting from the preliminary acquisition accounting. In the pro forma information presented, fiscal year 2019 presented includes other intangible asset amortization of approximately $71.5 million resulting from the preliminary acquisition accounting. In the pro forma information presented, fiscal years 2018 and 2019 include property step-up depreciation of approximately $14.4 million resulting from the preliminary acquisition accounting. The full $71.4 million of inventory step-up amortization resulting from the preliminary acquisition accounting asset step-up has been included in the fiscal year 2018 pro forma results to reflect the pro forma transaction date of October 1, 2017, and thus the inventory step-up amortization expense of $71.4 million recorded for the fiscal year ended September 30, 2019, has been excluded.

The unaudited pro forma consolidated financial information does not necessarily reflect the actual results that would have occurred had the acquisition taken place on October 1, 2017, nor is it meant to be indicative of future results of operations of the combined companies under the ownership and operation of the Company.

(Amounts in thousands, except per share amounts)	Fiscal Year Ended
	September 30, 2019				September 30, 2018
Net sales	$	5,860,561			$	5,291,760
Income from continuing operations attributable to TD Group	$	847,055			$	551,211
Net earnings per share attributable to TD Group stockholders from continuing operations - basic and diluted	$	13.08			$	8.90

Skandia – On July 13, 2018, the Company acquired all of the outstanding stock of Skandia for a total purchase price of approximately $84.3 million, which is net of a $0.2 million working capital settlement paid in the fourth quarter of fiscal 2018. Skandia provides highly engineered seating foam, foam fabrication, flammability testing and acoustic solutions for the business jet market. Skandia is included as a product line within an existing reporting unit in TransDigm's Airframe segment. No goodwill recognized for the acquisition is deductible for tax purposes.

Extant – On April 24, 2018, the Company acquired all of the outstanding stock of Extant for a total purchase price of approximately $533.1 million in cash, which is net of a $0.2 million working capital settlement received in the third quarter of fiscal 2018. Extant provides a broad range of proprietary aftermarket products and repair and overhaul services to the aerospace and defense end markets. Extant is included in TransDigm's Power and Control segment.

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

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The total purchase price of Extant was allocated to the underlying assets acquired and liabilities assumed based upon the fair values at the date of acquisition. To the extent the purchase price exceeded the fair value of the net identifiable tangible and intangible assets acquired, such excess was allocated to goodwill. The following table summarizes the purchase price allocation of the fair values of the assets acquired and liabilities assumed at the transaction date (presented in thousands).

Assets acquired:
Current assets, excluding cash acquired	$	53,325
Property, plant, and equipment	4,103
Intangible assets	105,000
Goodwill	407,046
Total assets acquired	569,474
Liabilities assumed:
Current liabilities	9,876
Other noncurrent liabilities	26,453
Total liabilities assumed	36,329
Net assets acquired	$	533,145

Approximately $62.5 million of the $105.0 million other intangible assets recognized for the acquisition is deductible for tax purposes over 15 years. Of the $407.0 million of goodwill recognized for the acquisition, approximately $12.4 million is deductible for tax purposes.

Extant Acquisitions - On August 30, 2019, the Company's Extant subsidiary completed the acquisition of substantially all of the assets and technical data rights of the Stormscope product line from L3Harris Technologies, Inc. for approximately $20 million in cash. Stormscope is a lightning detection system for the general aviation market. Stormscope is included as a product line of Extant, which is included in TransDigm's Power and Control segment. The Company expects that approximately $11.1 million of goodwill recognized for the acquisition and approximately $7.5 million of other intangible assets recognized for the acquisition will be deductible for tax purposes over 15 years.

On October 1, 2018, the Company's Extant subsidiary completed the acquisition of substantially all of the assets and technical data rights of the Corona, California operations of NavCom for approximately $27 million in cash. NavCom develops, manufactures, and supports high-reliability, mission-critical electronics, avionics and sub-assemblies. NavCom is included as a product line of Extant, which is included in TransDigm's Power and Control segment. Approximately $9.0 million of goodwill recognized for the acquisition is deductible for tax purposes over 15 years.

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

Third Quarter Fiscal 2017 Acquisitions – The Company completed three product line acquisitions within the third quarter of fiscal 2017. The third quarter fiscal 2017 acquisitions were acquired for an aggregate purchase price of approximately $106.7 million in cash, which includes working capital settlements totaling $1.0 million paid in the third and fourth quarters of fiscal 2017 and an earn-out of $0.4 million paid in the second quarter of fiscal 2018. All three product lines consist primarily of proprietary, sole source products with significant aftermarket content. The products include highly engineered aerospace controls, quick disconnect couplings, and communication electronics. Each product line acquired was consolidated into an existing TransDigm reporting unit within TransDigm's Power & Control segment. Approximately $66.0 million of goodwill recognized for the acquisitions is deductible for tax purposes over 15 years and approximately $9.0 million of goodwill recognized for the acquisitions is not deductible for tax purposes.

Divestitures

Souriau-Sunbank Companies – On July 21, 2019, TransDigm entered into a binding offer (the “Put Agreement”) with Eaton Corporation plc (“Eaton”) for the acquisition by Eaton of the shares of Souriau SAS, Souriau USA Inc. and Sunbank Family of Companies LLC which comprise the Souriau-Sunbank Connection Technologies business (“Souriau-Sunbank”). Pursuant to the terms of the Put Agreement, after completion of the consultation process with the French works council, TransDigm has the right to require Eaton to enter into a securities purchase agreement (the “Purchase

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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. 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 (refer to Note 23, “Discontinued Operations”).

Esterline Interface Technology Group – 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 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 (refer to Note 23, “Discontinued Operations”).

Schroth – On February 22, 2017, the Company acquired all of the outstanding stock of Schroth Safety Products GmbH and certain aviation and defense assets and liabilities from subsidiaries of Takata Corporation (collectively, "Schroth"), for a total purchase price of approximately $89.7 million, of which consisted primarily of $79.7 million paid in cash during fiscal 2017 and an approximately $9.0 million indemnity holdback, of which $8.5 million was paid in April 2018 and $0.5 million remains a reserve as of September 30, 2019.

In connection with the settlement of a Department of Justice investigation into the competitive effects of the acquisition, during the fourth quarter of 2017, the Company committed to divest of the Schroth business. Therefore, Schroth was classified as held-for-sale beginning in the fourth quarter of 2017. The results of operations of Schroth are presented in discontinued operations in the accompanying consolidated financial statements for all periods presented.

On January 26, 2018, the Company completed the sale of Schroth in a management buyout to a private equity fund and certain members of Schroth management for approximately $61.4 million, which includes a working capital adjustment of $0.3 million that was paid in July 2018. Further disclosure related to Schroth’s discontinued operations is included in Note 23, “Discontinued Operations.”

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Consolidation—The accompanying consolidated financial statements were prepared in conformity with generally accepted accounting principles in the United States (“GAAP”) and include the accounts of TD Group and subsidiaries. All significant intercompany balances and transactions have been eliminated. Certain reclassifications have been made to the prior year consolidated financial statements to conform to current year classifications related to the adoption of ASU 2017-07, "Compensation—Retirement Benefits (ASC 715), impacting the presentation of the net periodic benefit cost in the consolidated statements of income. The accounting pronouncement and impact of the fiscal year 2019 adoption of the pronouncement on the consolidated financial statements is summarized in Note 4, "Recent Accounting Pronouncements."

The Esterline businesses were acquired during 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. For financial information about our segments, see Note 17, "Segments."

Revenue Recognition—The Company adopted Accounting Standards Codification (“ASC”) 606, “Revenue from Contracts with Customers,” in the first quarter of fiscal 2019 using the modified retrospective method. The adoption of this standard did not have a material impact on our consolidated results of operations, financial position or cash flows. The results for periods before fiscal 2019 were not restated for the new standard and the cumulative effect of the change in accounting was recognized through retained earnings at the date of adoption. Refer to Note 5, "Revenue Recognition," for additional disclosures relating to ASC 606.

Revenue is recognized from the sale of products when control transfers to the customer, which is demonstrated by our right to payment, a transfer of title, a transfer of the risk and rewards of ownership, or the customer acceptance, but most frequently upon shipment where the customer obtains physical possession of the goods. The majority of the Company's revenue is recorded at a point in time. Sales recognized over time are generally accounted for using an input measure to determine progress completed at the end of the period. Sales for service contracts generally are recognized as the services are provided. For agreements with multiple performance obligations, judgment is required to determine whether

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performance obligations specified in these agreements are distinct and should be accounted for as separate revenue transactions for recognition purposes.

Shipping and Handling Costs—Shipping and handling costs are included in cost of sales in the consolidated statements of income.

Research and Development Costs—The Company expenses research and development costs as incurred and classifies such amounts in selling and administrative expenses. The expense recognized for research and development costs for the fiscal years ended September 30, 2019, 2018 and 2017 was approximately $116.8 million, $73.8 million, and $73.8 million, respectively.

Cash Equivalents—The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.

Allowance for Uncollectible Accounts—The Company reserves for amounts determined to be uncollectible based on specific identification of losses and estimated losses based on historical experience. The allowance also incorporates a provision for the estimated impact of disputes with customers. The determination of the amount of the allowance for uncollectible accounts is subject to significant levels of judgment and estimation by management. If circumstances change or economic conditions deteriorate or improve, the allowance for uncollectible accounts could increase or decrease.

Inventories—Inventories are stated at the lower of cost or net realizable value. Cost of inventories is generally determined by the average cost and the first-in, first-out (FIFO) methods and includes material, labor and overhead related to the manufacturing process. Provision for potentially obsolete or slow-moving inventory is made based on management’s analysis of inventory levels and future sales forecasts.

Property, Plant and Equipment—Property, plant and equipment are stated at cost and include improvements which significantly increase capacities or extend the useful lives of existing plant and equipment. Depreciation is computed using the straight-line method over the following estimated useful lives: land improvements from 10 to 20 years, buildings and improvements from 5 to 30 years, machinery and equipment from 2 to 10 years and furniture and fixtures from 3 to 10 years. Net gains or losses related to asset dispositions are recognized in earnings in the period in which dispositions occur. Routine maintenance, repairs and replacements are expensed as incurred. Amortization expense of assets accounted for as capital leases is included with depreciation expense.

Property, plant and equipment is assessed for potential impairment whenever indicators of impairment are present by determining whether the carrying value of the property can be recovered through projected, undiscounted cash flows from future operations over the property’s remaining estimated useful life. Any impairment recognized is the amount by which the carrying amount exceeds the fair value of the asset. Fair value is measured based on quoted market prices in active markets, if available. If quoted market prices are not available, the estimate of fair value is based on various valuation techniques, including the discounted value of estimated future cash flows.

Debt Issuance Costs, Premiums and Discounts—The cost of obtaining financing as well as premiums and discounts are amortized using the effective interest method over the terms of the respective obligations as a component of interest expense within the consolidated statements of income. Debt issuance costs are presented in the consolidated balance sheets as a direct reduction from the carrying amount of the related debt liabilities.

Financial Instruments—Interest rate swap and cap agreements are used to manage interest rate risk associated with floating-rate borrowings under our credit facility. The interest rate swap and cap agreements utilized by the Company effectively modify the Company’s exposure to interest rate risk by converting a portion of the Company’s floating-rate debt to a fixed rate basis through the expiration date of the interest rate swap and cap agreements, thereby reducing the impact of interest rate changes on future interest expense. These agreements involve the receipt of floating rate amounts in exchange for fixed rate interest payments over the term of the agreements without an exchange of the underlying principal amount. These derivative instruments qualify as effective cash flow hedges under GAAP.

The Company transacts business in various foreign currencies, which subjects the Company’s cash flows and earnings to exposure related to changes in foreign currency exchange rates. These exposures arise primarily from purchases or sales of products and services from third parties. Foreign currency forward exchange contracts provide for the purchase or sale of foreign currencies at specified future dates at specified exchange rates, and are used to offset changes in the fair value of certain assets or liabilities or forecasted cash flows resulting from transactions denominated in foreign currencies.

For the interest rate swap and cap agreements and the foreign currency forward contracts designated as cash flow hedges, the effective portion of the gain or loss from the financial instruments was initially reported as a component of accumulated other comprehensive loss in stockholders’ deficit and subsequently reclassified into earnings in the same line as the hedged item in the same period or periods during which the hedged item affected earnings. As the interest rate swap and

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cap agreements are used to manage interest rate risk, any gains or losses from the derivative instruments that are reclassified into earnings are recognized in interest expense - net in the consolidated statements of income. As the foreign currency forward exchange contracts are used to manage foreign currency exposure primarily arising from purchases or sales from third parties, any gains or losses from the derivative instruments that are reclassified into earnings are recognized in cost of sales or selling and administrative expenses in the consolidated statements of income.

Goodwill and Other Intangible Assets—In accordance with ASC 805, “Business Combinations,” the Company uses the acquisition method of accounting to allocate costs of acquired businesses to the assets acquired and liabilities assumed based on their estimated fair values at the dates of acquisition. The excess costs of acquired businesses over the fair values of the assets acquired and liabilities assumed were recognized as goodwill. The valuations of the acquired assets and liabilities assumed will impact the determination of future operating results. Determining the fair value of assets acquired and liabilities assumed requires management’s judgment and often involves the use of significant estimates and assumptions, including assumptions with respect to future cash inflows and outflows, revenue growth rates, discount rates, customer attrition rates, royalty rates, asset lives and market multiples, among other items. We determine the fair values of intangible assets acquired generally in consultation with third-party valuation advisors. Fair value adjustments to the Company’s assets and liabilities are recognized and the results of operations of the acquired business are included in our consolidated financial statements from the effective date of the merger or acquisition. Intangible assets other than goodwill are recognized if the benefit of the intangible asset is obtained through contractual or other legal rights, or if the intangible asset can be sold, transferred, licensed or exchanged, regardless of the Company’s intent to do so.

Goodwill is the excess of the purchase price paid over the estimated fair value of the net assets of a business acquired. Other intangible assets consist of identifiable intangibles acquired or recognized in accounting for the acquisitions (trademarks, trade names, technology, customer relationships, order backlog and other intangible assets). Goodwill and intangible assets that have indefinite useful lives (i.e., trademarks and trade names) are subject to annual impairment testing. Management determines fair value using a discounted future cash flow analysis or other accepted valuation techniques. The Company performs an annual impairment test for goodwill and other intangible assets as of the first day of the fourth fiscal quarter of each year, or more frequently, if an event occurs or circumstances change that would more likely than not reduce fair value below current value.

At the time of goodwill impairment testing, the Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, and whether it is therefore necessary to perform the quantitative goodwill impairment test. The quantitative goodwill impairment test consists of two steps. The first step of the goodwill impairment test, used to identify potential impairment, compares the fair value of a reporting unit (as defined) with its carrying amount, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, goodwill is not considered impaired, and the second step of the goodwill impairment test is unnecessary. The second step measures the amount of impairment, if any, by comparing the carrying value of the goodwill associated with a reporting unit to the implied fair value of the goodwill derived from the estimated overall fair value of the reporting unit and the individual fair values of the other assets and liabilities of the reporting unit.

GAAP requires that the annual, and any interim, impairment assessment be performed at the reporting unit level. The reporting unit level is one level below an operating segment. Substantially all goodwill was determined and recognized for each reporting unit pursuant to the accounting for the merger or acquisition as of the date of each transaction. With respect to acquisitions integrated into an existing reporting unit, any acquired goodwill is combined with the goodwill of the reporting unit.

The impairment test for indefinite lived intangible assets consists of a comparison between their fair values and carrying values. If the carrying amounts of intangible assets that have indefinite useful lives exceed their fair values, an impairment loss will be recognized in an amount equal to the sum of any such excesses.

The Company assesses the recoverability of its amortizable intangible assets only when indicators of impairment are present by determining whether the amortization over their remaining lives can be recovered through projected, undiscounted cash flows from future operations. Amortization of amortizable intangible assets is computed using the straight-line method over the following estimated useful lives: technology from 20 to 22 years, order backlog from 1 year to 1.5 years, customer relationships over 20 years and other intangible assets over 20 years.

Stock-Based Compensation—The Company records stock-based compensation expense using the Black-Scholes pricing model based on certain valuation assumptions. Compensation expense is recorded over the vesting periods of the stock options. The Company has classified stock-based compensation primarily within selling and administrative expenses to correspond with the classification of employees that receive stock option grants. No expense is recognized for any stock options ultimately forfeited because the recipients fail to meet vesting requirements.

Income Taxes—The provision for income taxes is calculated using the asset and liability method. Under the asset and liability method, deferred income taxes are recognized for the tax effect of temporary differences between the financial

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statement carrying amount of assets and liabilities and the amounts used for income tax purposes and for certain changes in valuation allowances. Valuation allowances are recorded to reduce certain deferred tax assets when, in our estimation, it is more likely than not that a tax benefit will not be realized.

Contingencies—During the ordinary course of business, the Company is from time to time threatened with, or may become a party to, legal actions and other proceedings. While the Company is currently involved in certain legal proceedings, it believes the results of these proceedings will not have a material adverse effect on its financial condition, results of operations, or cash flows.

Estimates—The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Comprehensive Income (Loss)—The term “comprehensive income (loss)” represents the change in stockholders’ equity (deficit) from transactions and other events and circumstances resulting from non-stockholder sources. The Company’s accumulated other comprehensive income or loss, consisting principally of fair value adjustments to its interest rate swap and cap agreements (net of tax), cumulative foreign currency translation adjustments and pension liability adjustments (net of tax), is reported separately in the accompanying consolidated statements of comprehensive income.

Foreign Currency Translation and Transactions—The assets and liabilities of subsidiaries located outside the United States are translated into U.S. dollars at the rates of exchange in effect at the balance sheet dates. Revenue and expense items are translated at the average monthly exchange rates prevailing during the period. Gains and losses resulting from foreign currency transactions are recognized currently in income, and those resulting from translation of financial statements are accumulated as a separate component of other comprehensive income (loss) for the period. Foreign currency gains or losses recognized currently in income from changes in exchange rates were immaterial to our results of operations.

Earnings per Share—Earnings per share information is determined using the two-class method, which includes the weighted-average number of common shares outstanding during the period and other securities that participate in dividends (“participating securities”). Our vested stock options are considered “participating securities” because they include non-forfeitable rights to dividends. In applying the two-class method, earnings are allocated to both common stock shares and participating securities based on their respective weighted-average shares outstanding for the period. Diluted earnings per share information may include the additional effect of other securities, if dilutive, in which case the dilutive effect of such securities is calculated using the treasury stock method. Contingently issuable shares are not included in earnings per share until the period in which the contingency is satisfied; therefore, basic and diluted earnings per share are the same.

Pension Benefits—The Company accounts for pension expense using the end of the fiscal year as our measurement date. Management selects appropriate assumptions including the discount rate, rate of increase in future compensation levels and assumed long-term rate of return on plan assets. The assumptions are based upon historical results, the current economic environment and reasonable expectations of future events. Actual results which vary from our assumptions are accumulated and amortized over future periods, and accordingly, are recognized in expense in these periods. Significant differences between the assumptions and actual experience or significant changes in assumptions could impact the pension costs and the pension obligation.

4. RECENT ACCOUNTING PRONOUNCEMENTS

In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09, which created a new topic in the Accounting Standards Codification (“ASC”) 606, “Revenue from Contracts with Customers.” In addition to superseding and replacing nearly all existing U.S. GAAP revenue recognition guidance, including industry-specific guidance, ASC 606 requires an entity to recognize revenue in a manner that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard also specifies the accounting of some costs to obtain or fulfill a contract with a customer and expands the disclosure requirements around contracts with customers. The Company adopted this standard in the first quarter of 2019 using the modified retrospective method. The adoption of this standard did not have a material impact on our consolidated results of operations, financial position or cash flows. The results for periods before fiscal 2019 were not restated for the new standard and the cumulative effect of the change in accounting was recognized through retained earnings at the date of adoption. Refer to Note 5, "Revenue Recognition," for additional disclosures relating to ASC 606.

In February 2016, the FASB issued ASU 2016-02, “Leases (ASC 842),” which requires lessees to recognize a right-of-use asset and lease liability for all leases with a term of more than 12 months. ASU 2016-02 is effective for us on October 1, 2019, and requires a modified retrospective application. In July 2018, the FASB issued ASU 2018-11, “Leases (ASC

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842. Targeted Improvements,” which provides an additional transition method that allows entities to initially apply the new standard at the adoption date and recognize a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption without restating prior periods. We plan to utilize this transition method upon adoption, and as a result, we will not adjust comparative period financial information or make the new required lease disclosures for periods before the effective date. Our preparation for the adoption of ASC 842 is substantially complete. We have compiled an inventory of our lease agreements in order to determine the impact the new guidance will have on our financial statements and disclosures and have implemented new lease accounting software in preparation for the standard’s additional reporting requirements. We have elected certain practical expedients available under the guidance, including a package of practical expedients which allows us to not reassess prior conclusions related to contracts containing leases, lease classification, and initial direct costs. Based on our assessment to date, we expect that the adoption of ASC 842 will result in the recognition of right-of-use assets and corresponding lease liabilities of approximately 1% of total assets and liabilities, respectively, in our consolidated balance sheet as of October 1, 2019. We do not expect the new standard to have a material impact on our consolidated results of operations and cash flows.

In June 2016, the FASB issued ASU 2016-13, "Financial Instruments—Credit Losses: Measurement of Credit Losses on Financial Instruments (ASU 2016-13)," which changes the impairment model for most financial assets. The new model uses a forward-looking expected loss method, which will generally result in earlier recognition of allowances for losses. ASU 2016-13 is effective for the Company for annual and interim periods beginning after October 1, 2020 and early adoption is permitted. The Company is currently evaluating the impact of adopting this standard on our consolidated financial statements and disclosures.

In October 2016, the FASB issued ASU 2016-16, “Intra-Entity Transfers of Assets Other Than Inventory” (ASU 2016-16). This accounting standard requires companies to recognize the income tax effects of intercompany sales and transfers of assets, other than inventory, in the period in which the transfer occurs. Under previous guidance companies were required to defer the income tax effects of intercompany transfers of assets by recording prepaid taxes, until such assets were sold to an outside party or otherwise recognized. Current guidance requires companies to write off any income tax amounts previously deferred as prepaid taxes from past intercompany transactions, and to record deferred tax balances for amounts not previously recognized, through a cumulative-effect adjustment to retained earnings. ASU 2016-16 is effective for public business entities for fiscal years beginning after December 15, 2017, including interim periods within those years. The Company adopted this standard in the first quarter of fiscal 2019. The adoption of this standard did not have a material impact on our consolidated financial statements. Refer to the consolidated statements of stockholders' deficit for the impact of the adoption of ASU 2016-16 on retained earnings.

In January 2017, the FASB issued ASU 2017-04, “Simplifying the Test for Goodwill Impairment,” to eliminate Step 2 from the goodwill impairment test in order to simplify the subsequent measurement of goodwill. The guidance is effective for the Company for fiscal years beginning after October 1, 2020, with early adoption permitted. The adoption of this standard is not expected to have a material impact on our consolidated financial statements and disclosures.

In March 2017, the FASB issued ASU 2017-07, "Compensation—Retirement Benefits (ASC 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost," that changes how employers that sponsor defined benefit and/or other postretirement benefit plans present the net periodic benefit cost in the income statement. Under previous guidance, companies included all components of the net periodic benefit costs in the same lines as the service cost component. Current guidance requires employers to present the other components of the net periodic benefit costs separately from the line items that include the service cost and outside of any subtotal of operating income. In addition, only the service cost component will be eligible for capitalization in assets. Employers will have to disclose the lines used to present the other components of net periodic benefit cost, if the components are not presented separately in the income statement. The standard is effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within the fiscal year. The Company adopted this standard in the first quarter of fiscal 2019. The adoption of this standard did not have a material impact on our consolidated financial statements.

In May 2017, the FASB issued ASU 2017-09, "Compensation—Stock Compensation (ASC 718): Scope of Modification Accounting," which provides clarity on which changes to the terms or conditions of share-based payment awards require an entity to apply the modification accounting provisions required in ASC 718. The standard is effective for all entities for annual periods beginning after December 15, 2017, with early adoption permitted, including adoption in any interim period for which financial statements have not yet been issued. The Company adopted this standard in the first quarter of fiscal 2019. The adoption of this standard did not have a material impact on our consolidated financial statements.

In February 2018, the FASB issued ASU 2018-02, "Income Statement - Reporting Comprehensive Income (ASC 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income," which gives entities the option to reclassify tax effects stranded in accumulated other comprehensive income as a result of the Tax Cuts and Jobs Act (the "Act") into retained earnings. The guidance allows entities to reclassify from accumulated other comprehensive income to retained earnings stranded tax effects resulting from the Act's new federal corporate income tax rate. The

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guidance also allows entities to elect to reclassify other stranded tax effects that relate to the Act but do not directly relate to the change in the federal tax rate (e.g., state taxes, changing from a worldwide tax system to a territorial system). Tax effects that are stranded in accumulated other comprehensive income for other reasons (e.g., prior changes in tax law, a change in valuation allowance) may not be reclassified. The standard is effective for the Company for fiscal years beginning after October 1, 2019, and interim periods within the fiscal year. Early adoption is permitted, including adoption in any interim period for which financial statements have not yet been issued. Entities have the option to apply the guidance retrospectively or in the period of adoption. As early adoption is permissible, the Company adopted the pronouncement beginning October 1, 2018. Changes were applied in the period of adoption and prior periods were not adjusted.The adoption of this standard did not have a material impact on our consolidated financial statements.

In August 2018, the FASB issued ASU 2018-14, "Compensation - Retirement Benefits - Defined Benefit Plans - General (ASC 715-20)." ASU 2018-14 modifies disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The ASU also requires an entity to disclose the weighted-average interest crediting rates for cash balance plans and to explain the reasons for significant gains and losses related to changes in the benefit obligation. The ASU is effective for the Company on October 1, 2020 and early adoption is permitted. The Company is currently evaluating the impact of adopting this standard on our consolidated financial statements and disclosures.

5. REVENUE RECOGNITION

The Company’s sales are concentrated in the aerospace industry. TransDigm’s customers include: distributors of aerospace components; commercial airlines, large commercial transport and regional and business aircraft OEMs; various armed forces of the United States and friendly foreign governments; defense OEMs; system suppliers; and various other industrial customers.

In 2019, one customer accounted for approximately 11% of the Company’s net sales for the fiscal year ended 2019. Sales to this customer was split approximately 60% and 40% between the Airframe and Power & Control segments, respectively. No other customer individually accounted for more than 10% of the Company’s net sales.

In 2018 and 2017, two customers individually accounted for more than 10% of the Company’s net sales. One customer accounted for approximately 11% and 13% of the Company’s net sales for fiscal years ended 2018 and 2017, respectively. The second customer accounted for approximately 10% and 11% of the Company’s net sales for fiscal years ended 2018 and 2017, respectively. Sales to these customers were split approximately evenly between the Power & Control and Airframe segments.

Sales to foreign customers, primarily in Western Europe, Canada and Asia, were $1,778.4 million, $1,355.1 million and $1,318.9 million during the fiscal years ended 2019, 2018 and 2017.

Adoption of ASC 606, “Revenue from Contracts with Customers”

The Company adopted ASC 606, “Revenue from Contracts with Customers,” beginning October 1, 2018 using the modified retrospective method.

The new standard primarily impacted the Company's timing of revenue recognition for certain contracts and subcontracts with the U.S. government that contain termination for convenience clauses and for which the product being produced has no alternative use, and resulted in an increase to retained earnings of $3.3 million. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.

The cumulative effect of the changes made to our consolidated balance sheet as of October 1, 2018 for the adoption of ASC 606 were as follows (in thousands):

	September 30, 2018				Adjustments due to ASC 606				October 1, 2018
Assets
Unbilled receivables(1)	$	10,056			$	8,272			$	18,328
Inventories - Net	805,292				(3,977		)		801,315
Liabilities and Stockholders' Deficit
Deferred income taxes	$	399,496			$	1,011			$	400,507
Accumulated deficit	(2,246,578		)		3,284				(2,243,294		)

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

F-17

Revenue is recognized from the sale of products when control transfers to the customer, which is demonstrated by our right to payment, a transfer of title, a transfer of the risk and rewards of ownership, or the customer acceptance, but most frequently upon shipment where the customer obtains physical possession of the goods.

The majority of the Company's revenue is recorded at a point in time.

In certain contracts the Company found that under ASC 606, control transferred to the customer over time primarily in contracts where the customer is required to pay for the cost of both the finished and unfinished goods at the time of cancellation plus a reasonable profit relative to the work performed for products that were customized for the customer. Upon adoption of ASC 606, we recognize revenue over time for those agreements that have a right to margin and where the products being produced have no alternative use. Prior to the adoption date, revenue related to these agreements was recognized when the goods were shipped; as a result of the adoption of ASC 606, a portion of our revenue may be earned in periods earlier than it would have been in prior years. The cumulative adjustment to retained earnings upon adoption, which is presented in the table above, represents those earnings that would have been recognized in the previous year had ASC 606 been in effect during that time.

Based on our production cycle, it is generally expected that goods related to the revenue represented in that adjustment will be shipped and billed within the current year. For revenue recognized over time, we estimate the amount of revenue attributable to a contract earned at a given point during the production cycle based on certain costs, such as materials and labor incurred to date, plus the expected profit, which is a cost-to-cost input method.

The Company’s payment terms vary by the type and location of the customer and the products or services offered. The Company does not offer any payment terms that would meet the requirements for consideration as a significant financing component under ASC 606.

Shipping and handling fees and costs incurred in connection with products sold are recorded in cost of sales in the consolidated statements of income, and are not considered a performance obligation to our customers.

Contract Assets and Liabilities—Contract assets reflect revenue recognized and performance obligations satisfied in advance of customer billing or reimbursable costs related to a specific contract. Contract liabilities relate to payments received in advance of the satisfaction of performance under the contract. We receive payments from customers based on the terms established in our contracts. The following table summarizes our contract assets and liabilities balances (in thousands):

	September 30, 2019				October 1, 2018				Change
Contract assets, current(1)	$	44,097			$	18,328			$	25,769
Contract assets, non-current(2)	7,238				118				7,120
Total contract assets	51,335				18,446				32,889
Contract liabilities, current(3)	17,840				2,742				15,098
Contract liabilities, non-current(4)	13,234				—				13,234
Total contract liabilities	31,074				2,742				28,332
Net contract assets	$	20,261			$	15,704			$	4,557

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

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

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

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

Changes in the contract asset and liability balances during the fiscal year ended September 30, 2019 were not materially impacted by any factors other than the Esterline acquisition. For the fiscal year ended September 30, 2019, the revenue recognized that was previously included in the beginning balance of contract liabilities was immaterial.

Refer to Note 17, “Segments,” for disclosures related to the disaggregation of revenue.

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6. EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share data) using the two-class method:

	Fiscal Years Ended September 30,
	2019				2018				2017
Numerator for earnings per share:
Income from continuing operations including noncontrolling interests	$	840,879			$	961,536			$	628,541
Net income attributable to noncontrolling interests	(1,541		)		—				—
Net income from continuing operations attributable to TD Group	839,338				961,536				628,541
Less dividends paid on participating securities	(111,021		)		(56,148		)		(159,257		)
	728,317				905,388				469,284
Income (loss) from discontinued operations, net of tax	50,432				(4,474		)		(31,654		)
Net income applicable to TD Group common stock—basic and diluted	$	778,749			$	900,914			$	437,630
Denominator for basic and diluted earnings per share under the two-class method:
Weighted-average common shares outstanding	53,091				52,345				52,517
Vested options deemed participating securities	3,174				3,252				3,013
Total shares for basic and diluted earnings per share	56,265				55,597				55,530
Net earnings per share from continuing operations—basic and diluted	$	12.94			$	16.28			$	8.45
Net earnings (loss) per share from discontinued operations—basic and diluted	0.90				(0.08		)		(0.57		)
Net earnings per share	$	13.84			$	16.20			$	7.88

7. TRADE ACCOUNTS RECEIVABLE

Trade accounts receivable consist of the following (in thousands):

	September 30, 2019				September 30, 2018
Trade accounts receivable—gross	$	1,085,005			$	708,984
Allowance for uncollectible accounts	(17,402		)		(4,674		)
Trade accounts receivable—net	$	1,067,603			$	704,310

At September 30, 2019, approximately 20% of the Company’s trade accounts receivable was due from two customers. One customer accounted for approximately 13% percent of the Company’s trade accounts receivable and the other customer accounted for approximately 7% of the Company’s trade accounts receivable. In addition, approximately 36% of the Company’s trade accounts receivable was due from entities that operate principally outside of the United States. Credit is extended based on an evaluation of each customer’s financial condition and collateral is generally not required.

8. INVENTORIES

Inventories consist of the following (in thousands):

	September 30, 2019				September 30, 2018
Raw materials and purchased component parts	$	804,687			$	540,290
Work-in-progress	360,230				237,335
Finished goods	191,535				127,018
Total	1,356,452				904,643
Reserves for excess and obsolete inventory	(123,803		)		(99,351		)
Inventories—Net	$	1,232,649			$	805,292

F-19

9. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following (in thousands):

	September 30, 2019				September 30, 2018
Land and improvements	$	95,536			$	77,455
Buildings and improvements	407,461				171,269
Machinery, equipment and other	628,096				448,014
Construction in progress	52,241				31,237
Total	1,183,334				727,975
Accumulated depreciation	(426,577		)		(339,642		)
Property, plant and equipment—net	$	756,757			$	388,333

10. INTANGIBLE ASSETS

Other intangible assets - net in the consolidated balance sheets consist of the following at September 30 (in thousands):

	2019												2018
	Gross Carrying Amount				Accumulated Amortization				Net				Gross Carrying Amount				Accumulated Amortization				Net
Trademarks and trade names	$	956,377			$	—			$	956,377			$	799,749			$	—			$	799,749
Technology	1,805,715				496,311				1,309,404				1,347,314				416,579				930,735
Order backlog	106,889				44,603				62,286				12,200				5,409				6,791
Customer relationships	437,973				29,777				408,196				62,561				14,277				48,284
Other	16,707				9,150				7,557				10,873				8,028				2,845
Total	$	3,323,661			$	579,841			$	2,743,820			$	2,232,697			$	444,293			$	1,788,404

Information regarding the amortization expense of amortizable intangible assets is detailed below (in thousands):

Annual Amortization Expense:

Years ended September 30,
2019	$	134,952
2018	72,454
2017	89,226

Estimated Amortization Expense:

Years ending September 30,
2020	$	182,583
2021	119,067
2022	119,067
2023	119,067
2024	119,067

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As disclosed in Note 2, "Acquisitions and Divestitures," the estimated fair value of the net identifiable tangible and intangible assets acquired from Esterline are based on the acquisition method of accounting and are subject to adjustment upon completion of the third-party valuation appraisals. Material adjustments may occur. The fair value of the net identifiable tangible and intangible assets acquired will be finalized within the allowable one year measurement period. Intangible assets acquired during fiscal year ended September 30, 2019 are summarized in the table below (in thousands):

	Gross Amount				Amortization Period
Intangible assets not subject to amortization:
Goodwill	$	2,194,324
Trademarks and trade names	238,200
	2,432,524
Intangible assets subject to amortization:
Technology	503,500				20 years
Order backlog	99,100				1.5 years
Customer relationships	483,935				20 years
	1,086,535				18 years
Total	$	3,519,059

The changes in the carrying amount of goodwill by segment for the fiscal years ended September 30, 2018 and 2019 were as follows (in thousands):

	Power & Control				Airframe				Non- aviation				Total
Balance at September 30, 2017	$	3,269,981			$	2,382,082			$	93,275			$	5,745,338
Goodwill acquired during the year (Note 2)	402,540				73,321				—				475,861
Purchase price allocation adjustments	5,354				—				—				5,354
Currency translation adjustment	—				(3,258		)		—				(3,258		)
Other	(192		)		187				—				(5		)
Balance at September 30, 2018	3,677,683				2,452,332				93,275				6,223,290
Goodwill acquired during the year (Note 2)	468,613				1,179,999				545,712				2,194,324
Divestiture of goodwill acquired during the year	—				—				(42,678		)		(42,678		)
Reclassification of goodwill acquired to assets held-for-sale (Note 23)	—				—				(480,312		)		(480,312		)
Purchase price allocation adjustments	(8,690		)		(22,901		)		—				(31,591		)
Currency translation adjustment	(16,422		)		(11,695		)		(14,813		)		(42,930		)
Balance at September 30, 2019	$	4,121,184			$	3,597,735			$	101,184			$	7,820,103

F-21

11. ACCRUED LIABILITIES

Accrued liabilities consist of the following (in thousands):

	September 30, 2019				September 30, 2018
Compensation and related benefits	$	177,862			$	81,035
Interest	92,642				96,590
Interest rate swap agreements	13,219				528
Product warranties	33,882				21,056
Dividend equivalent payments—current (see Note 18)	63,796				24,200
Environmental and other litigation reserves	12,016				31,079
Income taxes payable	44,370				9,168
Loss contract reserves	64,665				11,682
Other	173,243				76,105
Total	$	675,695			$	351,443

12. DEBT

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

	September 30, 2019
	Gross Amount				Debt Issuance Costs				Original Issue Discount or Premium				Net Amount
Short-term borrowings—trade receivable securitization facility	$	350,000			$	(481	)		$	—			$	349,519
Term loans	$	7,523,507			$	(57,744	)		$	(17,214	)		$	7,448,549
6.00% senior subordinated notes due July 15, 2022 (2022 Notes)	1,150,000				(4,061		)		—				1,145,939
6.50% senior subordinated notes due July 15, 2024 (2024 Notes)	1,200,000				(5,690		)		—				1,194,310
6.50% senior subordinated notes due May 15, 2025 (2025 Notes)	750,000				(2,977		)		3,090				750,113
6.375% senior subordinated notes due June 15, 2026 (6.375% 2026 Notes)	950,000				(6,790		)		—				943,210
6.875% senior subordinated notes due May 15, 2026 (6.875% 2026 Notes)	500,000				(5,532		)		(3,137		)		491,331
6.25% secured notes due March 15, 2026 (2026 Secured Notes)	4,000,000				(59,630		)		1,812				3,942,182
7.50% senior subordinated notes due March 15, 2027 (2027 Notes)	550,000				(5,300		)		—				544,700
Government refundable advances	39,195				—				—				39,195
Capital lease obligations	49,905				—				—				49,905
	16,712,607				(147,724		)		(15,449		)		16,549,434
Less current portion	80,951				(738		)		—				80,213
Long-term debt	$	16,631,656			$	(146,986	)		$	(15,449	)		$	16,469,221

F-22

	September 30, 2018
	Gross Amount				Debt Issuance Costs				Original Issue Discount or Premium				Net Amount
Short-term borrowings—trade receivable securitization facility	$	300,000			$	(481	)		$	—			$	299,519
Term loans	$	7,599,932			$	(69,697	)		$	(21,030	)		$	7,509,205
5.50% 2020 Notes	550,000				(2,187		)		—				547,813
6.00% 2022 Notes	1,150,000				(5,501		)		—				1,144,499
6.50% 2024 Notes	1,200,000				(6,866		)		—				1,193,134
6.50% 2025 Notes	750,000				(3,505		)		3,636				750,131
6.375% 2026 Notes	950,000				(7,798		)		—				942,202
6.875% 2026 Notes	500,000				(5,616		)		(3,605		)		490,779
	12,699,932				(101,170		)		(20,999		)		12,577,763
Less current portion	76,427				(610		)		—				75,817
Long-term debt	$	12,623,505			$	(100,560	)		$	(20,999	)		$	12,501,946

Trade Receivable Securitization Facility

During fiscal 2014, the Company established a trade receivable securitization facility (the “Securitization Facility”). The Securitization Facility effectively increases the Company’s borrowing capacity depending on the amount of the domestic operations’ trade accounts receivable. The Securitization Facility includes the right for the Company to exercise annual one year extensions as long as there have been no termination events as defined by the agreement. The Company uses the proceeds from the Securitization Facility as an alternative to other forms of debt, effectively reducing borrowing costs. On July 30, 2019, the Company amended the Securitization Facility to extend the maturity date to July 31, 2020. As of September 30, 2019, the Company has borrowed $350 million under the Securitization Facility, which bears interest at a rate of 0.9% plus LIBOR. At September 30, 2019, the applicable interest rate was 2.94%. The Securitization Facility is collateralized by substantially all of the Company’s domestic operations’ trade accounts receivable.

Issuance of Senior Secured Notes due 2026

On January 30, 2019, the Company entered into a purchase agreement in connection with a private offering of $3.8 billion aggregate principal amount of 6.25% senior secured notes due 2026. In addition, on February 1, 2019, the Company entered into a purchase agreement in connection with a private offering of $200 million aggregate principal amount of 6.25% senior secured notes due 2026 (herein the "2026 Secured Notes"). All $4.0 billion aggregate principal amount of the 2026 Secured Notes constituted a single class and were issued under a single indenture. The notes in the $3.8 billion secured notes offering were issued at a price of 100% of their principal amount and the notes in the $200 million secured notes offering were issued at a price of 101% of their principal amount. The 2026 Secured Notes are guaranteed, with certain exceptions, by TransDigm Group, TransDigm UK and all of TransDigm Inc.’s existing U.S. subsidiaries on a senior secured basis.

The 2026 Secured Notes bear interest at a rate of 6.25% per annum, which accrues from February 13, 2019 and is payable semiannually in arrears on March 15th and September 15th of each year, commencing on September 15, 2019. The 2026 Secured Notes mature on March 15, 2026, unless earlier redeemed or repurchased, and are subject to the terms and conditions set forth in the Secured Notes Indenture.

In addition to the premium of $2.0 million capitalized upon the issuance of the $200 million issuance of the 2026 Senior Notes, the Company capitalized $65.6 million and expensed $0.8 million of debt issuance costs associated with the issuance of the 2026 Senior Secured Notes during the fiscal year ended September 30, 2019.

Issuance of Senior Subordinated Notes due 2027

On February 1, 2019, the Company entered into a purchase agreement in connection with a private offering of $550 million in new 7.50% senior subordinated notes due 2027 (herein the "2027 Notes"). The 2027 Notes were issued pursuant to an indenture, dated as of February 13, 2019, among TransDigm, as issuer, TD Group, TD UK and the other subsidiaries of TransDigm named therein, as guarantors, and The Bank of New York Mellon Trust Company, N.A., as trustee.

F-23

The 2027 Notes bear interest at the rate of 7.50% per annum, which accrues from February 13, 2019 and is payable in arrears on March 15th and September 15th of each year, commencing on September 15, 2019. The 2027 Notes mature on March 15, 2027, unless earlier redeemed or repurchased, and are subject to the terms and conditions set forth in the indenture.

The Company capitalized $5.8 million of debt issuance costs associated with the 2027 Notes during the fiscal year ended September 30, 2019.

Repurchase of Senior Subordinated Notes due 2020

On February 13, 2019, the Company announced a cash tender offer for any and all of its 2020 Notes outstanding. On March 15, 2019, the Company redeemed the principal amount of $550 million, plus accrued interest of approximately $12.6 million.

The Company wrote off $1.7 million in unamortized debt issuance costs during the fiscal year ended September 30, 2019 in conjunction with the redemption of the 2020 Notes.

Amendment No. 6 to the Second Amended and Restated Credit Agreement

On March 14, 2019, the Company entered into Amendment No. 6 to the Second Amended and Restated Credit Agreement (herein, "Amendment No. 6").

Under the terms of Amendment No. 6, certain existing lenders increased the revolving commitments, including $52.1 million in multicurrency revolving commitments, in an aggregate principal amount of $160 million, to a total revolving commitments capacity of $760 million. The revolving commitments consist of two tranches which include up to $151.5 million of multicurrency revolving commitments. The terms and conditions that apply to the revolving credit facility, other than the additional revolving credit commitments, are substantially the same as the terms and conditions that applied to the revolving credit facility immediately prior to Amendment No. 6.

At September 30, 2019, the Company had $41.5 million in letters of credit outstanding, and $718.5 million of borrowings available under the revolving commitments, subject to restrictions under existing debt covenants. The Company utilizes letters of credit to back certain payment and performance obligations.

Government Refundable Advances

Government refundable advances consist of payments received from the Canadian government to assist in research and development related to commercial aviation. The requirement to repay this advance is solely based on year-over-year commercial aviation revenue growth at CMC Electronics, which is a subsidiary of TransDigm (acquired via the Esterline acquisition). These obligations were assumed in connection with the Esterline acquisition and the balance was $39.2 million at September 30, 2019.

Obligations under Capital Leases

The Company leases certain buildings and equipment under capital leases. These obligations were assumed in connection with the Esterline acquisition and the present value of the minimum capital lease payments, net of the current portion, was a balance of $49.9 million at September 30, 2019.

Term Loans

As of September 30, 2019 and 2018, TransDigm had $7,523.5 million and $7,599.9 million in fully drawn term loans and $760 million and $600 million in revolving commitments. The term loans consist of three tranches as follows (in millions):

Term Loan Facility		Maturity Date		Interest Rate		Aggregate Principal as of September 30,
			2019				2018
Tranche E		May 30, 2025		LIBO rate + 2.5%		$	2,221.2			$	2,243.7
Tranche F		June 9, 2023		LIBO rate + 2.5%		$	3,524.1			$	3,559.9
Tranche G		August 22, 2024		LIBO rate + 2.5%		$	1,778.2			$	1,796.3

The interest rates per annum applicable to all of the existing tranches of term loans are, at TransDigm’s option, equal to either an alternate base rate or an adjusted LIBO rate for one, two, three or six-month (or to the extent agreed to by each relevant lender, nine or twelve-month) interest periods chosen by TransDigm, in each case plus an applicable margin percentage. The adjusted LIBO rate is not subject to a floor. At September 30, 2019 and 2018, the applicable interest rates for all existing tranches were 4.83% and 4.58%, respectively.

F-24

Debt Issuance Costs, Premiums and Discounts

During the fiscal year ended September 30, 2019, the Company recorded refinancing costs of $3.0 million representing the repurchase of the $550 million 2020 Senior Subordinated Notes and issuance of the $4.0 billion 2026 Senior Secured Notes. During the fiscal year ended September 30, 2018, the Company recorded refinancing costs of $6.4 million representing the refinancing of tranche D, E, F & G term loans, and issuance of the $500 million 6.875% Senior Subordinated Notes. During the fiscal year ended September 30, 2017, the Company recorded refinancing costs of $39.8 million representing debt issuance costs and premium expensed in conjunction with the new tranche G term loans, the refinancing of the tranche C term loans, and additional $300 million tack-on to the 6.375% Notes.

Interest Rate Swap and Cap Agreements

See Note 21, “Derivatives and Hedging Activities,” for information about how our interest rate swap and cap agreements are used to manage interest rate risk associated with floating-rate borrowings under our credit facilities.

Senior Subordinated Notes

The Notes are subordinated to all of TransDigm’s existing and future senior debt, rank equally with all of its existing and future senior subordinated debt and rank senior to all of its future debt that is expressly subordinated to the Notes. The Notes are guaranteed on a senior subordinated unsecured basis by TD Group and its 100%-owned domestic subsidiaries named in the indentures. The guarantees of the Notes are subordinated to all of the guarantors’ existing and future senior debt, rank equally with all of their existing and future senior subordinated debt and rank senior to all of their future debt that is expressly subordinated to the guarantees of the Notes. See Note 27, “Supplemental Guarantor Information,” for further details. The Notes are structurally subordinated to all of the liabilities of TD Group’s non-guarantor subsidiaries. The Notes contain many of the restrictive covenants included in the Restated Credit Agreement. TransDigm is in compliance with all the covenants contained in the Notes.

At September 30, 2019, future maturities of long-term debt are as follows (in thousands):

Fiscal years ended September 30,
2020	$	80,951
2021	81,979
2022(1)	1,232,200
2023	3,462,528
2024	2,933,675
Thereafter	8,921,274
	$	16,712,607

(1) 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 in which part of the proceeds will be used to repurchase its 2022 Notes in the first quarter of fiscal 2020. Refer to Note 26, “Subsequent Events” to our consolidated financial statements included herein for further details.

Subsequent Event - Cash Tender and Redemption of 2022 Notes

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 cash tender and redeem all of its outstanding (aggregate principal amount of $1.15 billion) 2022 Notes.

F-25

13. RETIREMENT PLANS

The Company maintains certain non-contributory defined benefit pension plans. The plans provide benefits of stated amounts for each year of service. The Company’s funding policy is to contribute actuarially determined amounts allowable under tax and statutory regulations for the qualified plans. The Company uses a September 30th measurement date for its defined benefit pension plans. In addition, the Company makes actuarially computed contributions to these plans as necessary to adequately fund benefits. The Company’s funding policy is consistent with the minimum funding requirements of ERISA.

As part of the Esterline acquisition, the Company acquired the Esterline defined benefit plan that covers certain U.S. employees. Refer to Note 2, “Acquisitions and Divestitures,” for further discussion of the Esterline acquisition. Under the Esterline defined benefit plan, pension benefits are earned under a cash balance formula with annual pay credits ranging from 2% to 6% effective January 1, 2003. Prior to 2003, pension benefits are based on years of service and five-year average compensation for the highest five consecutive years’ compensation during the last ten years of employment. Participants elected either to continue earning benefits under the prior plan formula or to earn benefits under the cash balance formula. Effective January 1, 2003, all new participants were enrolled in the cash balance formula. Additionally, as part of the Esterline acquisition, the Company acquired an unfunded supplemental retirement plan for key Esterline executives providing for periodic payments upon retirement. The Company also sponsors other retirement benefit plans for certain employees in the U.S. Other retirement benefit plans are non-contributory health care and life insurance plans.

The Company sponsors a number of non-U.S. defined benefit pension plans primarily in Canada, Belgium, France, Germany and the United Kingdom. These defined benefit plans generally provide benefits to employees based on formulas recognizing length of service and earnings. The Company also sponsors other retirement benefit plans for its employees in Canada. Other retirement benefit plans are non-contributory health care and life insurance plans.

The accumulated benefit obligation and projected benefit obligation for the U.S. plans are $365.6 million and $378.8 million, respectively, with plan assets of $317.9 million as of September 30, 2019. The underfunded status for the Company’s U.S. plans is $61.0 million at September 30, 2019, of which $22.1 million is for the acquired unfunded supplemental retirement plan for the former Esterline key executives. Contributions to the Company’s qualified and non-qualified U.S. plans totaled $1.4 million and $0.9 million, respectively, in fiscal 2019. Contributions to the Company’s qualified U.S. plans totaled $1.6 million in fiscal 2018. The Company had no unqualified U.S. plans in fiscal 2018. There is an expected funding requirement of $0.7 million for fiscal 2020 for the qualified U.S. pension plans maintained by the Company.

The accumulated benefit obligation and projected benefit obligation for the non-U.S. plans are $258.2 million and $270.0 million, respectively, with plan assets of $233.6 million as of September 30, 2019. The underfunded status for these non-U.S. plans is $36.4 million at September 30, 2019. Contributions to the non-U.S. plans totaled $2.7 million and $1.0 million in fiscal 2019 and 2018, respectively. The expected funding requirement for fiscal 2020 for the non-U.S. plans is $5.3 million.

	U.S. Defined Benefit Pension Plans			Non-U.S. Defined Benefit Pension Plans
Principal assumptions as of year end:	2019	2018		2019	2018
Discount rate	3.03%	3.96%		2.20%	2.68%
Rate of increase in future compensation levels	4.48%	N/A		2.98%	3.22%
Assumed long-term rate of return on plan assets	6.00%	6.50%		4.16%	4.3%

	U.S. Post-Retirement Pension Plans			Non-U.S. Post Retirement Pension Plans
Principal assumptions as of year end:	2019	2018		2019	2018
Discount rate	2.86%	3.99%		2.68%	N/A
Initial weighted average health care trend rate	7.46%	8.50%		5.60%	N/A
Ultimate weighted average health care trend rate	6.00%	6.00%		4.10%	N/A

The Company uses discount rates developed from a yield curve established from high-quality corporate bonds and matched to plan-specific projected benefit payments. Although future changes to the discount rate are unknown, had the discount

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rate increased or decreased by 25 basis points, pension liabilities in total would have decreased $19.2 million or increased $20.3 million, respectively. Had the discount rate increased or decreased by 25 basis points, fiscal 2019 net periodic benefit cost for the pension plans would have remained approximately the same or decreased $0.1 million, respectively. In determining the expected long-term rate of return on the defined benefit pension plans’ assets, the Company considers the historical rates of return, the nature of investments, the asset allocation, and expectations of future investment strategies. Had the expected return on assets increased or decreased by 25 basis points, fiscal 2019 net periodic benefit cost would have decreased $0.8 million or increased $0.8 million, respectively. Management is not aware of any legislative or other initiatives or circumstances that will significantly impact the Company’s pension obligations in fiscal 2020.

The Company’s health care trend rate was based on the experience of its plans and expectations for the future. A 100 basis points increase in the health care trend rate would increase the post-retirement benefit obligation by $1.5 million. A 100 basis points decrease in the health care trend rate would decrease the post-retirement benefit obligation by $1.3 million. Assuming all other assumptions are held constant, the estimated effect on fiscal 2019 post-retirement benefit expense from a hypothetical 100 basis points increase or decrease in the health care trend rate would not have a material effect on our post-retirement benefit expense.

Plan assets are invested in a diversified portfolio of equity and debt securities consisting primarily of common stocks, bonds and government securities. The objective of these investments is to maintain sufficient liquidity to fund current benefit payments and achieve targeted risk-adjusted returns. Management periodically reviews allocations of plan assets by investment type and evaluates external sources of information regarding the long-term historical returns and expected future returns for each investment type.

Allocations by investment type are as follows**:**

				Actual
Plan assets allocation as of fiscal year end:		Target		2019		2018
Equity securities		35 - 70%		35.1%		27.1%
Debt securities		30 - 65%		59.5%		72.5%
Cash		—%		5.4%		0.4%
Total				100.0%		100.0%

The following table presents the fair value of the Company’s pension plan assets as of September 30, 2019, by asset category segregated by level within the fair value hierarchy, as described in Note 20, “Fair Value Measurements” (in thousands):

		Fair Value Hierarchy
		Level 1				Level 2				Total
Investments measured at fair value by category:
Equity Funds:(1)
U.S. Equity Securities		$	3,472			$	—			$	3,472
Non-U.S. Equity Securities		47,903				—				47,903
Fixed Income Securities:(2)
Non-U.S. Foreign Commercial and Government Bonds		—				86,281				86,281
Cash and Cash Equivalents(3)		29,588				—				29,588
		$	80,963			$	86,281			$	167,244
Investments measured at net asset value by category:**(4)
Equity Funds:(1)
Commingled Trust Funds - Non-U.S. Securities										142,132
Fixed Income Securities:(2)
U.S. Government Bonds and Securities										86,214
U.S Corporate Bonds										108,135
Non-U.S. Corporate Bonds										17,449
Non-U.S. Foreign Commercial and Government Bonds										30,330
Total										$	551,504

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The following table presents the fair value of the Company’s pension plan assets as of September 30, 2018, by asset category segregated by level within the fair value hierarchy, as described in Note 20, “Fair Value Measurements” (in thousands):

		Fair Value Hierarchy
		Level 1				Level 2				Total
Investments measured at fair value by category:
Equity Funds:(1)
U.S. Equity Securities		$	3,545			$	—			$	3,545
Non-U.S. Equity Securities		4,959				—				4,959
Cash and Cash Equivalents(3)		295				—				295
		$	8,799			$	—			$	8,799
Investments measured at net asset value by category:**(4)
Equity Funds:(1)
Commingled Trust Funds - Non-U.S. Securities										10,056
Fixed Income Securities:(2)
U.S Corporate Bonds										3,710
Non-U.S. Corporate Bonds										16,759
Non-U.S. Foreign Commercial and Government Bonds										29,131
Total										$	68,455

(1) Level 1 Equity Securities are actively traded on U.S. and non-U.S. exchanges and are either valued using the market approach at quoted market prices on the measurement date or at the net asset value of the shares held by the plan on the measurement date based on quoted market prices.

(2) Level 2 fixed income securities are primarily valued using the market approach at either quoted market prices, pricing models that use observable market data, or bids provided by independent investment brokerage firms.

(3) Cash and cash equivalents include cash which is used to pay benefits and cash invested in a short-term investment fund that holds securities with values based on quoted market prices, but for which the funds are not valued on quoted market basis.

(4) These investments are valued at the net asset value (“NAV”) of units held. The NAV is used to estimated fair value and is based on the fair value of the underlying investments held by the fund less its liability.

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Net periodic pension cost for the Company’s defined benefit plans at the end of each fiscal year consisted of the following (in thousands):

		Defined Benefit Pension Plans
		2019								2018								2017
		U.S. Pension Plans				Non-U.S. Pension Plans				U.S. Pension Plans				Non-U.S. Pension Plans				U.S. Pension Plans				Non-U.S. Pension Plans
Components of Net Periodic Cost
Service cost		$	4,486			$	3,486			$	293			$	545			$	304			$	760
Interest cost		7,434				4,806				778				1,798				1,064				1,721
Expected return on plan assets		(10,339		)		(6,267		)		(517		)		(2,334		)		(463		)		(2,550		)
Settlements		—				70				—				—				—				—
Amortization of prior service cost		62				14				36				—				—				—
Amortization of actuarial loss (gain)		337				221				226				559				630				1,196
Amortization of transition obligation		—				—				209				—				314				—
Net periodic cost (benefit)		$	1,980			$	2,330			$	1,025			$	568			$	1,849			$	1,127

		Post-Retirement Pension Plans
		2019								2018								2017
		U.S. Pension Plans				Non-U.S. Pension Plans				U.S. Pension Plans				Non-U.S. Pension Plans				U.S. Pension Plans				Non-U.S. Pension Plans
Components of Net Periodic Cost
Service cost		$	5			$	208			$	5			$	—			$	5			$	—
Interest cost		40				227				31				—				42				—
Expected return on plan assets		—				—				—				—				—				—
Settlements		—				—				—				—				—				—
Amortization of prior service cost		24				—				12				—				—				—
Amortization of actuarial (gain) loss		(53		)		—				(42		)		—				(117		)		—
Net periodic cost (benefit)		$	16			$	435			$	6			$	—			$	(70	)		$	—

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The funded status of the defined benefit pension and post-retirement plans at the end of fiscal 2019 and 2018 were as follows (in thousands):

	Defined Benefit Pension Plans																Post-Retirement Pension Plans
	September 30, 2019								September 30, 2018								September 30, 2019								September 30, 2018
	U.S. Pension Plans				Non-U.S. Pension Plans				U.S. Pension Plans				Non-U.S. Pension Plans				U.S. Pension Plans				Non-U.S. Pension Plans				U.S. Pension Plans				Non-U.S. Pension Plans
Benefit Obligations
Beginning balance	$	18,683			$	72,540			$	19,966			$	79,495			$	957			$	—			$	1,002			$	—
Currency translation adjustment	—				(3,973		)		—				(1,981		)		—				138				—				—
Service cost	4,486				3,486				277				578				5				208				5				—
Interest cost	7,434				4,806				666				1,821				40				227				31				—
Plan participant contributions	—				380				—				60				—				—				—				—
Actuarial (gain) loss	43,368				28,127				(660		)		(5,387		)		176				1,058				(136		)		—
Acquisitions	318,161				171,377				—				—				196				12,459				—				—
Other adjustments	440				505				—				—				—				—				111				—
Benefits paid	(13,726		)		(7,239		)		(1,566		)		(2,046		)		(90		)		(315		)		(56		)		—
Ending balance	$	378,846			$	270,009			$	18,683			$	72,540			$	1,284			$	13,775			$	957			$	—
Plan Assets - Fair Value
Beginning balance	$	8,655			$	59,800			$	8,006			$	61,884			$	—			$	—			$	—			$	—
Currency translation adjustment	—				(2,719		)		—				(1,572		)		—				—				—				—
Realized and unrealized gain (loss) on plan assets	30,743				18,854				582				425				—				—				—				—
Plan participants contributions	—				380				—				60				—				—				—				—
Company contributions	2,300				2,726				1,633				1,049				90				315				56				—
Acquisitions	289,944				162,015				—				—				—				—				—				—
Other adjustments	—				(209		)		—				—				—				—				—				—
Expenses paid	(20		)		—				—				—				—				—				—				—
Benefits paid	(13,726		)		(7,239		)		(1,566		)		(2,046		)		(90		)		(315		)		(56		)		—
Ending balance	$	317,896			$	233,608			$	8,655			$	59,800			$	—			$	—			$	—			$	—
Funded Status
Fair value of plan assets	$	317,896			$	233,608			$	8,655			$	59,800			$	—			$	—			$	—			$	—
Benefit obligations	(378,846		)		(270,009		)		(18,683		)		(72,540		)		(1,284		)		(13,775		)		(957		)		—
Net amount recognized	$	(60,950	)		$	(36,401	)		$	(10,028	)		$	(12,740	)		$	(1,284	)		$	(13,775	)		$	(957	)		$	—
Amount Recognized on Consolidated Balance Sheet
Non-current asset	$	—			$	3,639			$	—			$	—			$	—			$	—			$	—			$	—
Current liability	(2,460		)		(482		)		(841		)		(254		)		(154		)		(714		)		(88		)		—
Non-current liability	(58,490		)		(39,558		)		(9,187		)		(12,486		)		(1,130		)		(13,061		)		(869		)		—
Net amount recognized	$	(60,950	)		$	(36,401	)		$	(10,028	)		$	(12,740	)		$	(1,284	)		$	(13,775	)		$	(957	)		$	—
Amounts Recognized in Accumulated Other Comprehensive Income
Net actuarial loss (gain)	$	27,809			$	23,533			$	5,183			$	9,416			$	(388	)		$	1,060			$	(617	)		$	—
Prior service cost	766				875				368				185				192				—				216				—
Ending balance	$	28,575			$	24,408			$	5,551			$	9,601			$	(196	)		$	1,060			$	(401	)		$	—

The accumulated benefit obligation for all pension plans was $623.8 million at September 30, 2019 and $89.9 million at September 30, 2018.

During fiscal year 2020, the Company expects to recognize amortization of net actuarial losses and prior service credit of $1.5 million and $0.2 million, respectively, in net periodic benefit cost.

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Estimated future benefit payments expected to be paid from the pension and post-retirement benefit plans or from the Company’s assets are as follows (in thousands):

Fiscal Year
2020		$	34,275
2021		34,700
2022		35,697
2023		37,305
2024		38,059
2025 - 2029		201,998

Defined Contribution Plans

The Company sponsors certain defined contribution employee savings plans that cover substantially all of the Company’s employees. Under certain plans, the Company contributes a percentage of employee compensation and matches a portion of employee contributions. The cost recognized for such contributions for the fiscal years ended September 30, 2019, 2018 and 2017 was approximately $24.5 million, $14.9 million and $14.6 million, respectively.

14. INCOME TAXES

The Company’s income from continuing operations before income taxes includes the following components for the periods shown below (in thousands):

	Fiscal Years Ended September 30,
	2019				2018				2017
United States	$	877,949			$	826,539			$	698,201
Foreign	184,916				159,018				139,229
	$	1,062,865			$	985,557			$	837,430

The Company’s income tax provision on income from continuing operations consists of the following for the periods shown below (in thousands):

	Fiscal Years Ended September 30,
	2019				2018				2017
Current
Federal	$	153,704			$	136,651			$	179,884
State	14,911				11,771				8,596
Foreign	53,720				27,239				21,327
	222,335				175,661				209,807
Deferred	(349		)		(151,640		)		(918		)
	$	221,986			$	24,021			$	208,889

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The differences between the income tax provision on income from continuing operations at the federal statutory income tax rate and the tax provision shown in the accompanying consolidated statements of income for the periods shown below are as follows (in thousands):

	Fiscal Years Ended September 30,
	2019				2018				2017
Tax at statutory rate of 21% (24.5% for fiscal 2018 and 35% for fiscal 2017)	$	223,202			$	241,853			$	293,129
Stock compensation	(57,519		)		(50,796		)		(50,314		)
Domestic manufacturing deduction	—				(15,091		)		(17,832		)
US tax reform(1)	—				(146,380		)		—
Foreign rate differential	2,136				(13,770		)		(29,685		)
Foreign derived intangible income	(15,886		)		—				—
Foreign tax credits	(18,370		)		(2,939		)		—
Changes in valuation allowances impacting results(2)	66,101				—				—
Other—net	22,322				11,144				13,591
Income tax provision	$	221,986			$	24,021			$	208,889

(1) 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. We recorded tax benefits of $176.4 million related to the remeasurement of our net U.S. deferred tax liabilities to reflect the reduction in the corporate tax rate. We also recorded tax expense of $30.0 million related to the one-time transition tax.

(2)

Primarily relates to the Company’s business interest expense limitation pursuant to IRC §163(j) as modified by the Act. Such provision, as modified, is effective for the Company beginning in fiscal 2019. In general, the deduction for interest expense is limited to 30% of the sum of the Company’s adjusted taxable income (ATI) and its business interest income. Interest expense disallowed by such limitation, in a taxable year, may be carried forward indefinitely. Based upon available evidence, a valuation allowance was recorded for the resulting carryforward to reflect the Company’s belief that is more likely than not that that such deferred tax asset will not be realized.

The components of the deferred taxes consist of the following at September 30 (in thousands):

	2019				2018
Deferred tax liabilities:
Intangible assets	$	(709,561	)		$	(469,939	)
Property, plant and equipment	(63,603		)		(26,615		)
Unremitted foreign earnings	(7,310		)		(4,488		)
Employee benefits	122,777				73,906
U.S. interest expense limitation	64,968				—
Loss contract reserves	62,513				12,670
Net operating losses	58,047				46,487
Interest rate swaps and caps	54,643				(20,052		)
Inventories	39,240				20,916
Non-U.S. income tax credits	23,746				289
U.S. income tax credits	16,850				3,114
Environmental reserves	9,636				8,551
Product warranty reserves	8,394				4,471
Other	11,338				(1,557		)
Total	(308,322		)		(352,247		)
Add: Valuation allowance	(117,660		)		(47,249		)
Total net deferred tax liabilities	$	(425,982	)		$	(399,496	)

At September 30, 2019, the Company has United Kingdom net operating loss carryforwards of approximately $12.3 million, German net operating loss carryforwards of approximately $14.2 million, Belgium net operating loss

F-32

carryforwards of $39.5 million, France net operating loss carryforwards of $3.6 million and state net operating loss carryforwards of approximately $1,342.7 million that expire in various years from 2019 to 2039. The Company had U.S. and non-U.S. tax credit carryforwards of $40.6 million that expire beginning in 2025.

The deferred tax assets for the interest expense limitation, net operating losses, and tax credit carryforwards are reduced by a valuation allowance for the amount of such asset that the Company believes will not be realized.

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various state and local jurisdictions, as well as foreign jurisdictions located in Belgium, Canada, China, France, Germany, Hong Kong, Hungary, India, Israel, Japan, Malaysia, Mexico, Norway, Singapore, Spain, Sri Lanka, Sweden and the United Kingdom. The Company is no longer subject to U.S. federal examinations for years before fiscal 2015.The Company is currently under examination for its federal income taxes in the U.S. for fiscal 2016, in Belgium for fiscal(s) 2016, 2017, and 2018, in Canada for fiscal(s) 2013, 2014, and 2015, and in France for fiscal(s) 2015, 2016, 2017, and 2018. The Company expects the examination to be completed during fiscal 2020. In addition, the Company is subject to state income tax examinations for fiscal years 2009 and later.

At September 30, 2018, the Company had not completed its accounting related to the Act. All provisional amounts were based on reasonable estimates using the best information available at the time. During the first quarter of fiscal 2019, the Company completed its accounting related to the Act. Such completion did not have a material impact on the Company’s Consolidated Financial Statements.

Other provisions of the Act became effective for the Company in fiscal 2019. The Foreign-Derived Intangible Income (“FDII”) provision effectively applies a lower U.S. tax rate to intangible income derived from serving non-U.S. markets. Conversely, the Global Intangible Low-Taxed Income (“GILTI”) provision requires the Company to subject to U.S. taxation the portion of its earnings, from foreign subsidiaries that exceed an allowable return. The Company has made an accounting policy election to treat GILTI as a current year tax expense in the period in which it is incurred. We, therefore, have not provided for any deferred income tax impacts of GILTI in our consolidated financial statements for the fiscal year ended September 30, 2019.

The Act’s one-time repatriation tax and GILTI effectively taxed the undistributed earnings previously deferred from U.S. income taxes. We have provided for foreign withholding taxes in jurisdictions in which we are not considered definitely reinvested, however, such amounts are not significant.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

	2019				2018
Balance at October 1	$	14,080			$	8,655
Additions based on tax positions related to the prior year	25,936				4,637
Additions based on tax positions related to the current year	422				2,390
Reductions based on tax positions related to the prior year	(2,691		)		(100		)
Settlement with tax authorities	—				(66		)
Lapse in statute of limitations	(1,238		)		(1,436		)
Balance at September 30	$	36,509			$	14,080

Unrecognized tax benefits at September 30, 2019 and 2018, the recognition of which would have an effect on the effective tax rate for each fiscal year, amounted to $31.4 million and $14.1 million, respectively. The Company classifies all income tax related interest and penalties as income tax expense, which were not significant for the years ended September 30, 2019 and 2018. As of September 30, 2019 and 2018, the Company accrued $5.0 million and $1.9 million, respectively, for the potential payment of interest and penalties. The Company anticipates no significant changes to its total unrecognized tax benefits through fiscal 2020.

15. ENVIRONMENTAL LIABILITIES

Our operations and facilities are subject to a number of federal, state, local and foreign environmental laws and regulations that govern, among other things, discharges of pollutants into the air and water, the generation, handling, storage and disposal of hazardous materials and wastes, the remediation of contamination and the health and safety of our employees. Environmental laws and regulations may require that the Company investigate and remediate the effects of the release or disposal of materials at sites associated with past and present operations. Certain facilities and third-party sites utilized by the Company have been identified as potentially responsible parties under the federal superfund laws and comparable

F-33

state laws. The Company is currently involved in the investigation and remediation of a number of sites under applicable laws.

Estimates of the Company’s environmental liabilities are based on current facts, laws, regulations and technology. These estimates take into consideration the Company’s prior experience and professional judgment of the Company’s environmental advisors. Estimates of the Company’s environmental liabilities are further subject to uncertainties regarding the nature and extent of site contamination, the range of remediation alternatives available, evolving remediation standards, imprecise engineering evaluations and cost estimates, the extent of corrective actions that may be required and the number and financial condition of other potentially responsible parties, as well as the extent of their responsibility for the remediation.

Accordingly, as investigation and remediation proceed, it is likely that adjustments in the Company’s accruals will be necessary to reflect new information. The amounts of any such adjustments could have a material adverse effect on the Company’s results of operations or cash flows in a given period. Based on currently available information, however, the Company does not believe that future environmental costs in excess of those accrued with respect to sites for which the Company has been identified as a potentially responsible party are likely to have a material adverse effect on the Company’s financial condition.

Environmental liabilities are recorded when the liability is probable and the costs are reasonably estimable, which generally is not later than at completion of a feasibility study or when the Company has recommended a remedy or has committed to an appropriate plan of action. The Company also takes into consideration the estimated period of time in which payments will be required. The liabilities are reviewed periodically and, as investigation and remediation proceed, adjustments are made as necessary. Liabilities for losses from environmental remediation obligations do not consider the effects of inflation and anticipated expenditures are not discounted to their present value. The liabilities are not offset by possible recoveries from insurance carriers or other third parties, but do reflect anticipated allocations among potentially responsible parties at federal superfund sites or similar state-managed sites, third party indemnity obligations, and an assessment of the likelihood that such parties will fulfill their obligations at such sites.

The Company’s consolidated balance sheets includes current environmental remediation obligations at September 30, 2019 and 2018 of $9.4 million and $7.3 million classified as a component of accrued liabilities, respectively, and non-current environmental remediation obligations at September 30, 2019 and 2018 of $32.7 million and $31.8 million classified as a component of other non-current liabilities, respectively.

16. CAPITAL STOCK

TD Group consists of 224,400,000 shares of $.01 par value common stock and 149,600,000 shares of $.01 par value preferred stock. The total number of shares of common stock issued at September 30, 2019 and 2018 was 57,623,311 and 56,895,686, respectively. The total number of shares held in treasury at September 30, 2019 and 2018 was 4,161,326. There were no shares of preferred stock outstanding at September 30, 2019 and 2018. The terms of the preferred stock have not been established.

On November 8, 2017, our Board of Directors, authorized a stock repurchase program permitting repurchases of our outstanding shares not to exceed $650 million in the aggregate, subject to any restrictions specified in the Credit Agreement and/or Indentures governing the existing Notes. No repurchases were made under the program during the fiscal years ended September 30, 2019 and 2018. As of September 30, 2019, $650 million in repurchases are allowable under the program subject to any restrictions specified in the Credit Agreement and/or Indentures governing the existing Notes.

17. SEGMENTS

The Company’s businesses are organized and managed in three reporting segments: Power & Control, Airframe and Non-aviation.

The Power & Control segment includes operations that primarily develop, produce and market systems and components that predominately provide power to or control power of the aircraft utilizing electronic, fluid, power and mechanical motion control technologies. Major product offerings include mechanical/electro-mechanical actuators and controls, ignition systems and engine technology, specialized pumps and valves, power conditioning devices, specialized AC/DC electric motors and generators, databus and power controls, advanced sensor products, switches and relay panels, high performance hoists, winches and lifting devices and cargo loading and handling systems. Primary customers of this segment are engine and power system and subsystem suppliers, airlines, third party maintenance suppliers, military buying agencies and repair depots. Products are sold in the original equipment and aftermarket market channels.

The Airframe segment includes operations that primarily develop, produce and market systems and components that are used in non-power airframe applications utilizing airframe and cabin structure technologies. Major product offerings

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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, advanced displays, thermal protection, lighting and control technology, military personnel parachutes and cargo delivery systems. Primary customers of this segment are airframe manufacturers and cabin system suppliers and subsystem suppliers, airlines, third party maintenance suppliers, military buying agencies and repair depots. Products are sold in the original equipment and aftermarket market channels.

The Non-aviation segment includes operations that primarily develop, produce and market products for non-aviation markets. Major product offerings include seat belts and safety restraints for ground transportation applications, mechanical/electro-mechanical actuators and controls for space applications, hydraulic/electromechanical actuators and fuel valves for land based gas turbines, and refueling systems for heavy equipment used in mining, construction and other industries and turbine controls for the energy and oil and gas markets. Primary customers of this segment are off-road vehicle suppliers and subsystem suppliers, child restraint system suppliers, satellite and space system suppliers, manufacturers of heavy equipment used in mining, construction and other industries and turbine original equipment manufacturers, gas pipeline builders and electric utilities.

The primary measurement used by management to review and assess the operating performance of each segment is EBITDA As Defined. The Company defines EBITDA As Defined as earnings before interest, taxes, depreciation and amortization plus certain non-operating items recorded as corporate expenses including refinancing costs, acquisition-related costs, transaction-related costs, foreign currency gains and losses, and non-cash compensation charges incurred in connection with the Company’s stock incentive plans. Acquisition-related costs represent accounting adjustments to inventory associated with acquisitions of businesses and product lines that were charged to cost of sales when the inventory was sold; costs incurred to integrate acquired businesses and product lines into the Company’s operations, facility relocation costs and other acquisition-related costs; transaction-related costs comprising deal fees; legal, financial and tax diligence expenses and valuation costs that are required to be expensed as incurred and other acquisition accounting adjustments.

EBITDA As Defined is not a measurement of financial performance under GAAP. Although the Company uses EBITDA As Defined to assess the performance of its business and for various other purposes, the use of this non-GAAP financial measure as an analytical tool has limitations, and it should not be considered in isolation or as a substitute for analysis of the Company’s results of operations as reported in accordance with GAAP.

The Company’s segments are reported on the same basis used internally for evaluating performance and for allocating resources. The accounting policies for each segment are the same as those described in the summary of significant accounting policies in the Company’s consolidated financial statements. Intersegment sales and transfers are recorded at values based on market prices, which creates intercompany profit on intersegment sales or transfers that is eliminated in consolidation. Intersegment sales were immaterial for the periods presented below. Certain corporate-level expenses are allocated to the operating segments.

The Esterline businesses were acquired during 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.

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

	Fiscal Years Ended September 30,
	2019				2018				2017
Net sales to external customers
Power & Control
Commercial OEM	$	547,462			$	498,654			$	460,444
Commercial Aftermarket	710,099				665,663				606,389
Defense	1,164,545				974,818				860,411
Esterline(1)	313,468				—				—
Total Power & Control	2,735,574				2,139,135				1,927,244
Airframe
Commercial OEM	597,765				508,671				497,612
Commercial Aftermarket	759,697				701,110				630,382
Defense	389,426				321,161				314,079
Esterline(1)	582,520				—				—
Total Airframe	2,329,408				1,530,942				1,442,073
Total Non-aviation	158,221				141,049				134,969
	$	5,223,203			$	3,811,126			$	3,504,286

(1) The sales market classifications associated with the acquired Esterline businesses are currently being assessed by TransDigm management to ensure the reported market classifications are in compliance with TransDigm policy and being computed consistently with that of the existing TransDigm legacy businesses. Therefore, the sales associated with the Esterline acquisition are excluded from the market classifications reported for the fiscal year ended September 30, 2019.

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

	Fiscal Years Ended September 30,
	2019				2018				2017
EBITDA As Defined
Power & Control	$	1,395,085			$	1,114,464			$	980,046
Airframe	1,062,679				759,253				726,630
Non-aviation	50,575				44,310				42,475
Total segment EBITDA As Defined	2,508,339				1,918,027				1,749,151
Unallocated corporate expenses	89,538				41,469				38,588
Total Company EBITDA As Defined	2,418,801				1,876,558				1,710,563
Depreciation and amortization	225,700				129,844				141,025
Interest expense - net	859,753				663,008				602,589
Acquisition-related costs	168,898				28,450				31,191
Stock compensation expense	93,362				58,481				45,524
Refinancing costs	3,013				6,396				39,807
Other, net	5,210				4,822				12,997
Income from continuing operations before income taxes	$	1,062,865			$	985,557			$	837,430

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The following table presents capital expenditures and depreciation and amortization by segment (in thousands):

	Fiscal Years Ended September 30,
	2019				2018				2017
Capital expenditures
Power & Control	$	49,573			$	38,762			$	32,424
Airframe	48,027				32,028				34,526
Non-aviation	2,546				2,156				3,981
Corporate	1,445				395				82
	$	101,591			$	73,341			$	71,013
Depreciation and amortization
Power & Control	$	98,366			$	67,721			$	85,681
Airframe	119,259				55,732				51,440
Non-aviation	6,280				5,276				2,745
Corporate	1,795				1,115				1,159
	$	225,700			$	129,844			$	141,025

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

	September 30, 2019				September 30, 2018
Total assets
Power & Control	$	7,037,090			$	5,698,524
Airframe	6,672,179				4,091,011
Non-aviation	261,841				234,770
Corporate	1,321,492				2,173,162
Assets of discontinued operations	962,129				—
	$	16,254,731			$	12,197,467

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

18. STOCK-BASED COMPENSATION

The Company’s stock compensation plans are designed to assist the Company in attracting, retaining, motivating and rewarding key employees, directors or consultants, and promoting the creation of long-term value for stockholders by closely aligning the interests of these individuals with those of the Company’s stockholders. The Company’s stock compensation plans provide for the granting of stock options and other stock-based incentives.

Non-cash stock compensation expense recognized by the Company during the fiscal years ended September 30, 2019, 2018 and 2017 was $93.4 million, $58.5 million and $45.5 million, respectively.

The weighted-average grant date fair value of options granted during the fiscal years ended September 30, 2019, 2018 and 2017 was $114.43, $81.04 and $67.11, respectively.

Compensation expense is recognized based upon probability assessments of awards that are expected to vest in future periods. Such probability assessments are subject to revision and, therefore, unrecognized compensation expense is subject to future changes in estimate. As of September 30, 2019, there was approximately $103.0 million of total unrecognized compensation expense related to non-vested awards expected to vest, which is expected to be recognized over a weighted-average period of 2.4 years.

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The fair value of the Company’s employee stock options was estimated at the date of grant using a Black-Scholes option-pricing model with the following weighted average assumptions for all options granted during the fiscal years ended:

	Fiscal Years Ended September 30,
	2019		2018		2017
Risk-free interest rate	2.33% to 3.03%		2.01% to 2.84%		1.56% to 2.01%
Expected life of options	5.5 years		5.2 years		5.0 years
Expected dividend yield of stock	—		—		—
Expected volatility of stock	25%		25%		25%

The risk-free interest rate is based upon the Treasury bond rates as of the grant date. The average expected life of stock-based awards is based on the Company’s actual historical exercise experience. Expected volatility of stock was calculated using a rate based upon the historical volatility of TransDigm’s common stock. Notwithstanding the special cash dividends declared and paid from time to time, the Company historically has not declared and paid regular cash dividends and does not anticipate declaring and paying regular cash dividends in future periods; thus, no dividend rate assumption is used.

The total fair value of options vested during fiscal years ended September 30, 2019, 2018 and 2017 was $37.7 million, $44.4 million and $42.9 million, respectively.

2019 Stock Option Plan

In August 2019, the Board of Directors of TD Group adopted a new stock option plan, which 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.

2014 Stock Option Plan

In July 2014, the Board of Directors of TD Group adopted the 2014 stock option plan, which was subsequently approved by stockholders on October 2, 2014. The 2014 stock option plan permits TD Group to award our key employees, directors or consultants stock options. The total number of shares of TD Group common stock reserved for issuance or delivery under the 2014 stock option plan is 5,000,000, 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.

Performance Vested Stock Options—All of the options granted through September 30, 2019 under the 2014 stock option plan have been pursuant to an equity incentive program adopted by the Company in 2008. Under the 2008 equity incentive program, all of the options granted will vest based on the Company’s achievement of established operating performance goals. The following table summarizes the activity, pricing and other information for the Company’s performance vested stock-based award activity during the fiscal year ended September 30, 2019:

	Number of Options			Weighted-Average Exercise Price Per Option				Weighted-Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding at September 30, 2018	2,113,278			$	283.84
Granted	1,184,680			393.32
Exercised	(24,150	)		251.22
Forfeited	(105,350	)		322.71
Expired	(1,000	)		303.90
Outstanding at September 30, 2019	3,167,458			$	323.73			8.3 years		$	623,799,179
Expected to vest	1,820,010			$	323.70			8.3 years		$	358,483,056
Exercisable at September 30, 2019	824,797			$	315.16			8.2 years		$	169,504,031

At September 30, 2019, there were 1,797,892 remaining shares available for award under TD Group’s 2014 stock option plan.

2006 Stock Incentive Plan

In conjunction with the consummation of the Company’s initial public offering, a 2006 stock incentive plan was adopted by TD Group. In July 2008 and March 2011, the plan was amended to increase the number of shares available for issuance thereunder. TD Group reserved 8,119,668 shares of its common stock for issuance to key employees, directors or

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consultants under the plan. Awards under the plan were in the form of options, restricted stock or other stock-based awards. Options granted under the plan expire no later than the tenth anniversary of the applicable date of grant of the options, and have an exercise price of not less than the fair market value of our common stock on the date of grant. Restricted stock granted under the plan vested over three years. No restricted stock units remained outstanding as of September 30, 2018.

Performance Vested Stock Options—All of the options granted under the 2006 stock incentive plan have been pursuant to an equity incentive program adopted by the Company in 2008. Under the 2008 equity incentive program, all of the options granted vest based on the Company’s achievement of established operating performance goals. The following table summarizes the activity, pricing and other information for the Company’s performance vested stock-based award activity during the fiscal year ended September 30, 2019:

	Number of Options			Weighted-Average Exercise Price Per Option				Weighted-Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding at September 30, 2018	3,878,127			$	147.50
Granted	—			—
Exercised	(702,600	)		107.90
Forfeited	(41,505	)		223.42
Expired	—			—
Outstanding at September 30, 2019	3,134,022			$	155.34			3.9 years		$	1,144,952,257
Expected to vest	141,080			$	225.90			6.1 years		$	41,586,446
Exercisable at September 30, 2019	2,995,342			$	152.08			3.8 years		$	1,104,053,108

The 2006 stock incentive plan expired on March 14, 2016 and no further shares were granted under the plan thereafter.

2003 Stock Option Plan

Certain executives and key employees of the Company were granted stock options under TD Group’s 2003 stock option plan. Upon the closing of the acquisition of the Company by Warburg Pincus in 2003, certain employees rolled over certain then-existing options to purchase shares of common stock of TransDigm Holdings. These employees were granted rollover options to purchase an aggregate of 3,870,152 shares of common stock of TD Group (after giving effect to the 149.60 for 1.00 stock split effected on March 14, 2006). All rollover options granted were fully vested on the date of grant. In addition to shares of common stock reserved for issuance upon the exercise of rollover options, an aggregate of 5,469,301 shares of TD Group’s common stock were reserved for issuance upon the exercise of new management options. In general, approximately 20% of all new management options vested based on employment service or a change in control. These time vested options had a graded vesting schedule of up to four years. There were no remaining time vested stock-based options outstanding as of September 30, 2016. Approximately 80% of all new management options vested (i) based upon the satisfaction of specified performance criteria, which is annual and cumulative EBITDA As Defined targets through 2008, or (ii) upon the occurrence of a change in control if the Investor Group (defined as Warburg Pincus and the other initial investors in TD Group) received a minimum specified rate of return. Unless terminated earlier, the options expire ten years from the date of grant.

TD Group reserved a total of 9,339,453 shares of its common stock for issuance to the Company’s employees under the plan, which had all been issued as of September 30, 2013.

Performance Vested Stock Options—The following table summarizes the activity, pricing and other information for the Company’s performance vested stock-based award activity during the fiscal year ended September 30, 2019:

	Number of Options			Weighted-Average Exercise Price Per Option				Weighted-Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding at September 30, 2018	77,829			$	130.09
Granted	—			—
Exercised	—			—
Outstanding at September 30, 2019	77,829			$	130.09			3.1 years		$	30,398,451
Exercisable at September 30, 2019	77,829			$	130.09			3.1 years		$	30,398,451

The total intrinsic value of time, performance and rollover options exercised during the fiscal years ended September 30, 2019, 2018 and 2017 was $240.2 million, $192.5 million and $61.1 million, respectively.

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In addition to shares issued pursuant to options exercised, during the fiscal year ended September 30, 2019, 875 shares of common stock were issued with a weighted-average grant date fair value of $476.33 as payment to directors in lieu of cash.

Dividend Equivalent Plans

Pursuant to the Third Amended and Restated TransDigm Group Incorporated 2003 Stock Option Plan Dividend Equivalent Plan, the Second Amended and Restated TransDigm Group Incorporated 2006 Stock Incentive Plan Dividend Equivalent Plan, the 2014 Stock Option Plan Dividend Equivalent Plan and the 2019 Stock Option Plan Dividend Equivalent Plan, all of the options granted under the 2003 stock option plan, the 2006 stock incentive plan, the 2014 stock option plan and the 2019 stock option plan are entitled to certain dividend equivalent payments in the event of the declaration of a dividend by the Company.

Dividend equivalent payments on vested options were $111.0 million, $56.1 million and $19.5 million during the fiscal years ended September 30, 2019, 2018 and 2017, respectively. At September 30, 2019, there was $63.8 million recorded in accrued liabilities and $48.3 million accrued in other non-current liabilities on the consolidated balance sheets related to the future dividend equivalent payments.

19. LEASES

TransDigm leases certain manufacturing facilities, offices, equipment and vehicles. Such leases, some of which are noncancelable and, in many cases, include renewals, expire at various dates. Rental expense during the fiscal years ended September 30, 2019, 2018 and 2017 was $25.5 million, $19.2 million and $19.0 million, respectively.

Future minimum rental commitments at September 30, 2019 under operating leases having initial or remaining non-cancelable lease terms exceeding one year are $22.3 million in fiscal 2020, $31.5 million in fiscal 2021, $17.2 million in fiscal 2022, $14.1 million in fiscal 2023, $12.5 million in fiscal 2024, and $27.8 million thereafter.

20. FAIR VALUE MEASUREMENTS

The following tables present our assets and liabilities that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy. The fair value hierarchy has three levels based on the reliability of the inputs used to determine fair value. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs (other than quoted prices) that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

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

				September 30, 2019								September 30, 2018
	Level			Carrying Amount				Fair Value				Carrying Amount				Fair Value
Assets:
Cash and cash equivalents	1			$	1,467,486			$	1,467,486			$	2,073,017			$	2,073,017
Interest rate cap agreements(1)	2			1,225				1,225				36,160				36,160
Interest rate swap agreements(2)	2			—				—				11,634				11,634
Interest rate swap agreements(1)	2			—				—				61,126				61,126
Foreign currency forward exchange contracts(2)	2			80				80				—				—
Foreign currency forward exchange contracts(1)	2			21				21				—				—
Liabilities:
Interest rate swap agreements(3)	2			13,218				13,218				528				528
Interest rate swap agreements(4)	2			202,378				202,378				142				142
Foreign currency forward exchange contracts(3)	2			6,308				6,308				—				—
Foreign currency forward exchange contracts(4)	2			403				403				—				—
Short-term borrowings - trade receivable securitization facility(5)	1			349,519				349,519				299,519				299,519
Long-term debt, including current portion:
Term loans(5)	2			7,448,549				7,477,552				7,509,205				7,607,323
5.50% 2020 Notes(5)	1			—				—				547,813				548,625
6.00% 2022 Notes(5)	1			1,145,939				1,167,250				1,144,499				1,155,750
6.50% 2024 Notes(5)	1			1,194,310				1,239,000				1,193,134				1,215,000
6.50% 2025 Notes(5)	1			750,113				781,875				750,131				757,500
6.375% 2026 Notes(5)	1			943,210				998,688				942,202				942,875
6.875% 2026 Notes(5)	1			491,331				535,000				490,779				507,500
6.25% 2026 Notes(5)	1			3,942,182				4,290,000				—				—
7.50% 2027 Notes(5)	1			544,700				595,375				—				—
Government refundable advances	2			39,195				39,195				—				—
Capital lease obligations	2			49,906				49,906				—				—

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

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

(3)	Included in accrued liabilities on the balance sheets.

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

(5)	The carrying amount of the debt instrument is presented net of the debt issuance costs, premium and discount. Refer to Note 12, “Debt,” for gross carrying amounts.

The Company values its financial instruments using an industry standard market approach, in which prices and other relevant information are generated by market transactions involving identical or comparable assets or liabilities. No financial instruments were recognized using unobservable inputs.

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Interest rate swaps were measured at fair value using quoted market prices for the swap interest rate indexes over the term of the swap discounted to present value versus the fixed rate of the contract. The interest rate caps were measured at fair value using implied volatility rates of each individual caplet and the yield curve for the related periods.

The Company’s derivative contracts consist of foreign currency exchange contracts and, from time to time, interest rate swap and cap agreements. These derivative contracts are over-the-counter, and their fair value is determined using modeling techniques that include market inputs such as interest rates, yield curves, and currency exchange rates. These contracts are categorized as Level 2 in the fair value hierarchy.

The estimated fair value of the Company’s term loans was based on information provided by the agent under the Company’s senior secured credit facility. The estimated fair values of the Company’s notes were based upon quoted market prices. There has not been any impact to the fair value of derivative liabilities due to the Company's own credit risk. Similarly, there has not been any impact to the fair value of derivative assets based on the Company's evaluation of counterparties' credit risks.

The fair value of cash and cash equivalents, trade accounts receivable-net and accounts payable approximated book value due to the short-term nature of these instruments at September 30, 2019 and 2018.

21. DERIVATIVES AND HEDGING ACTIVITIES

The Company is exposed to, among other things, the impact of changes in foreign currency exchange rates and interest rates in the normal course of business. The Company’s risk management program is designed to manage the exposure and volatility arising from these risks, and utilizes derivative financial instruments to offset a portion of these risks. The Company uses derivative financial instruments only to the extent necessary to hedge identified business risks and does not enter into such transactions for trading purposes. The Company generally does not require collateral or other security with counterparties to these financial instruments and is therefore subject to credit risk in the event of nonperformance; however, the Company monitors credit risk and currently does not anticipate nonperformance by other parties. These derivative financial instruments do not subject the Company to undue risk, as gains and losses on these instruments generally offset gains and losses on the underlying assets, liabilities, or anticipated transactions that are being hedged. The Company has agreements with each of its swap and cap counterparties that contain a provision whereby if the Company defaults on the credit facility the Company could also be declared in default on its swaps and caps, resulting in an acceleration of payment under the swaps and caps.

All derivative financial instruments are recorded at fair value in the consolidated balance sheets. For a derivative that has not been designated as an accounting hedge, the change in the fair value is recognized immediately through earnings. For a derivative that has been designated as an accounting hedge of an existing asset or liability (a fair value hedge), the change in the fair value of both the derivative and underlying asset or liability is recognized immediately through earnings. For a derivative designated as an accounting hedge of an anticipated transaction (a cash flow hedge), the change in the fair value is recorded on the consolidated balance sheet in accumulated other comprehensive income to the extent the derivative is effective in mitigating the exposure related to the anticipated transaction. The change in the fair value related to the ineffective portion of the hedge, if any, is immediately recognized in earnings. The amount recorded within accumulated other comprehensive income is reclassified into earnings in the same period during which the underlying hedged transaction affects earnings.

Interest Rate Swap and Cap Agreements – Interest rate swap and cap agreements are used to manage interest rate risk associated with floating-rate borrowings under our credit facility. The interest rate swap and cap agreements utilized by the Company effectively modify the Company’s exposure to interest rate risk by converting a portion of the Company’s floating-rate debt to a fixed rate basis through the expiration date of the interest rate swap and cap agreements, thereby reducing the impact of interest rate changes on future interest expense. These agreements involve the receipt of floating rate amounts in exchange for fixed rate interest payments over the term of the agreements without an exchange of the underlying principal amount. These derivative instruments qualify as effective cash flow hedges under GAAP. For these cash flow hedges, the effective portion of the gain or loss from the financial instruments was initially reported as a component of accumulated other comprehensive (loss) income in stockholders’ deficit and subsequently reclassified into earnings in the same line as the hedged item in the same period or periods during which the hedged item affected earnings. As the interest rate swap and cap agreements are used to manage interest rate risk, any gains or losses from the derivative instruments that are reclassified into earnings are recognized in interest expense - net in the consolidated statements of income.

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

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

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

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

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

		September 30, 2019								September 30, 2018
		Asset				Liability				Asset				Liability
Interest rate cap agreements		$	1,225			$	—			$	36,160			$	—
Interest rate swap agreements(1)		—				(215,596		)		72,090				—
Total		1,225				(215,596		)		108,250				—
Effect of counterparty netting		—				—				670				(670		)
Net derivatives as classified in the balance sheet(2)		$	1,225			$	(215,596	)		$	108,920			$	(670	)

(1) The increase in the interest rate swap liability is primarily attributable to a downward trend in the LIBO rate during fiscal 2019.

(2) Refer to Note 20, "Fair Value Measurements," for the consolidated balance sheet classification of our interest rate swap and cap agreements.

Based on the fair value amounts of the interest rate swap and cap agreements determined as of September 30, 2019, the estimated net amount of existing gains and losses and caplet amortization expected to be reclassified into interest expense within the next twelve months is approximately $17.2 million.

Effective September 30, 2016, the Company redesignated the interest rate cap agreements related to the $400 million and the $750 million aggregate notional amount with cap rates of 2.0% and 2.5%, respectively, based on the expected probable cash flows associated with the 2016 term loans and 2015 term loans in consideration of the Company’s ability to select one-month, two-month, three-month, or six-month LIBO rate set forth in the Second Amended and Restated Credit Agreement. Accordingly, amounts previously recorded as a component of accumulated other comprehensive income (loss) in stockholder’s deficit amortized into interest expense was $4.8 million and $4.0 million for the fiscal

F-43

years ended September 30, 2019 and 2018, respectively. The accumulated other comprehensive income to be reclassified into interest expense over the remaining term of the cap agreements is $6.2 million with a related tax benefit of $1.5 million as of September 30, 2019.

Effective December 30, 2017, the Company redesignated the existing interest rate swap agreements related to the $750 million, $500 million, $1,000 million and $750 million aggregate notional amounts with swap rates of 5.0%, 4.4%, 4.3% and 5.3%, respectively, based on the expected probable cash flows associated with certain term loans in consideration of the Company’s removal of the LIBO rate floor on the certain term loans as set forth in Amendment No. 4 to the Second Amended and Restated Credit Agreement. Accordingly, the amount recorded as a component of accumulated other comprehensive income in stockholders’ deficit related to these redesignated interest rate swap hedges will be amortized into earnings based on the original maturity date of the related interest rate swap agreements. Amounts previously recorded as a component of accumulated other comprehensive income in stockholder’s deficit amortized into interest expense was $1.1 million and $0.8 million for the fiscal years ended September 30, 2019 and 2018, respectively. The accumulated other comprehensive income to be reclassified into interest income over the remaining term of the swap agreements is $1.7 million with a related tax expense of $0.4 million as of September 30, 2019.

Effective March 31, 2018, the Company redesignated the existing interest rate swap agreements related to the $1,000 million aggregate notional amount with a swap rate of 4.9%, which expired in June 2019, and the $400 million aggregate notional amount with swap rate of 4.4% based on the expected probable cash flows associated with certain term loans in consideration of the Company’s removal of the LIBO rate floor on the certain term loans as set forth in the refinancing facility agreement dated February 22, 2018 related to the Second Amended and Restated Credit Agreement. Accordingly, the amount recorded as a component of accumulated other comprehensive income in stockholders’ deficit related to these redesignated interest rate swap hedges will be amortized into earnings based on the original maturity date of the related interest rate swap agreements. Amounts previously recorded as a component of accumulated other comprehensive income in stockholder’s deficit amortized into interest income was $2.8 million and $1.4 million for the fiscal years ended September 30, 2019 and 2018. The accumulated other comprehensive income to be reclassified into interest income over the remaining term of the swaps agreements is $8.6 million with a related tax expense of $2.0 million as of September 30, 2019.

Foreign Currency Forward Exchange Contracts – The Company transacts business in various foreign currencies, which subjects the Company’s cash flows and earnings to exposure related to changes in foreign currency exchange rates. These exposures arise primarily from purchases or sales of products and services from third parties. Foreign currency forward exchange contracts provide for the purchase or sale of foreign currencies at specified future dates at specified exchange rates, and are used to offset changes in the fair value of certain assets or liabilities or forecasted cash flows resulting from transactions denominated in foreign currencies. At September 30, 2019, the Company had outstanding foreign currency forward exchange contracts principally to sell U.S. dollars with notional amounts of $217.2 million. These notional values consist primarily of contracts for the British pound sterling, Canadian dollar, and European euro and are stated in U.S. dollar equivalents at spot exchange rates at the respective dates. During the fiscal year ended September 30, 2019, the the Company recognized gains on foreign currency forward exchange contracts designated as fair value hedges of $0.4 million in cost of sales in the consolidated statement of income. During the fiscal year ended September 30, 2019, the gains the Company reclassified on foreign currency forward exchange contracts designated as cash flow hedges in the consolidated income statement are immaterial. The losses were previously recorded as a component of accumulated other comprehensive (loss) income in stockholders' deficit.

During the fiscal year ended September 30, 2019, the Company recorded a gain of $0.1 million on foreign currency forward exchange contracts that have not been designated as accounting hedges. These foreign currency exchange gains are included in selling and administrative expenses.

There was an immaterial impact to the Company’s earnings related to the ineffective portion of any hedging instruments during the fiscal year ended September 30, 2019. In addition, there was an immaterial impact to the Company’s earnings when a hedged firm commitment no longer qualified as a fair value hedge or when a hedged forecasted transaction no longer qualified as a cash flow hedge during the fiscal year ended September 30, 2019.

Amounts related to foreign currency forward exchange contracts included in accumulated other comprehensive (loss) income in stockholders' deficit are reclassified into earnings when the hedged transaction settles. The Company expects to reclassify approximately $5.3 million of net losses into earnings over the next 12 months. The maximum duration of the Company’s foreign currency cash flow hedge contracts at September 30, 2019 was 18 months.

F-44

22. ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME

The following table presents the components of accumulated other comprehensive (loss) income, net of taxes, for the fiscal years ended September 30, 2019, 2018 and 2017 (in thousands):

	Unrealized (loss) gain on derivatives designated and qualifying as cash flow hedges (1)				Defined benefit pension plan activity (2)				Currency translation adjustment				Total
Balance at September 30, 2017	$	(26,669	)		$	(16,365	)		$	(42,109	)		$	(85,143	)
Current-period other comprehensive gain (loss)	91,226				5,636				(10,253		)		86,609
Amounts reclassified from AOCI related to derivative instruments	2,634				—				—				2,634
Net current-period other comprehensive gain (loss)	93,860				5,636				(10,253		)		89,243
Balance at September 30, 2018	67,191				(10,729		)		(52,362		)		4,100
Cumulative effect of ASU 2018-02, adopted October 1, 2018	(2,199		)		—				—				(2,199		)
Current-period other comprehensive (loss) gain	(240,776		)		(29,004		)		(114,856		)		(384,636		)
Amounts reclassified from AOCI related to derivative instruments	3,754				—				—				3,754
Net current-period other comprehensive (loss) gain	(239,221		)		(29,004		)		(114,856		)		(383,081		)
Balance at September 30, 2019	$	(172,030	)		$	(39,733	)		$	(167,218	)		$	(378,981	)

(1)	Unrealized gain (loss) represents derivative instruments, net of taxes of $69,660, $(33,923) and $(20,663) for the fiscal years ended September 30, 2019, 2018 and 2017, respectively.

(2)	Defined benefit pension plan and other post-retirement plan activity represents pension liability adjustments, net of taxes of $8,513, $(1,487) and $(4,130) for the fiscal years ended September 30, 2019, 2018 and 2017, respectively.

A summary of reclassifications out of accumulated other comprehensive (loss) income for the fiscal years ended September 30, 2019 and 2018 is provided below (in thousands):

		Amount Reclassified
		Fiscal Years Ended September 30,
Description of reclassifications out of accumulated other comprehensive (loss) income		2019				2018
Amortization from redesignated interest rate swap and cap agreements(1)		$	3,060			$	3,443
Losses from settlement of foreign currency forward exchange contracts(2)		(20		)		—
Deferred tax expense (benefit) on reclassifications out of accumulated other comprehensive (loss) income		714				(809		)
Losses reclassified into earnings, net of tax		$	3,754			$	2,634

(1)	This component of accumulated other comprehensive (loss) income is included in interest expense (see Note 21, “Derivatives and Hedging Activities,” for additional information).

(2)	This component of accumulated other comprehensive (loss) income is included in net sales (see Note 21, “Derivatives and Hedging Activities,” for additional information).

F-45

23. DISCONTINUED OPERATIONS

Current Year Divestitures

On July 21, 2019, TransDigm entered into a binding offer (the “Put Agreement”) with Eaton Corporation plc (“Eaton”) for the acquisition by Eaton of the shares of Souriau SAS, Souriau USA Inc. and Sunbank Family of Companies LLC which comprise the Souriau-Sunbank Connection Technologies business (“Souriau-Sunbank”). Pursuant to the terms of the Put Agreement, after completion of the consultation process with the French works council, TransDigm has 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.

Souriau-Sunbank, which is a reporting unit within TransDigm’s Non-aviation segment, is classified as held-for-sale as of September 30, 2019. The divestiture represents a strategic shift in TransDigm’s business and, in accordance with US GAAP, qualify as discontinued operations. Therefore, 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.

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 and was included in TransDigm’s Non-aviation segment. The divestiture represents a strategic shift in TransDigm’s business and, in accordance with US GAAP, qualify as discontinued operations. Therefore, 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 income from discontinued operations was $50.4 million in the consolidated statements of income for the fiscal year ended September 30, 2019. Cash related to discontinued operations, which has been excluded from the consolidated statement of cash flows, includes net cash provided by operating activities of $35.3 million and net cash used in investing activities of $10.6 million. The following is the summarized operating results for Souriau-Sunbank and EIT for the fiscal year ended September 30, 2019 (in thousands):

	Fiscal Year Ended September 30, 2019
	Souriau-Sunbank				EIT				Total
Net sales	$	199,356			$	94,619			$	293,975
(Loss) income from discontinued operations before income taxes	(17,176		)		17,112				(64		)
Income tax benefit (expense)	14,254				(1,131		)		13,123
(Loss) income from discontinued operations, net of tax, including noncontrolling interests	(2,922		)		15,981				13,059
Gain from sale of discontinued operations, net of tax	—				37,619				37,619
Less: Income attributable to noncontrolling interests	(98		)		(148		)		(246		)
(Loss) income from discontinued operations, net of tax	$	(3,020	)		$	53,452			$	50,432

F-46

At September 30, 2019, Souriau-Sunbank’s assets held-for-sale and liabilities held-for-sale are $962.1 million and $156.7 million, respectively. Under US GAAP, assets held for sale are to be reported at lower of its carrying amount or fair value less cost to sell. The following is the summarized balance sheet of Souriau-Sunbank’s assets held-for-sale and liabilities held-for-sale as of September 30, 2019 (in thousands):

Assets and Liabilities of Discontinued Operations Held-for-Sale		Fiscal Year Ended September 30, 2019
Cash and cash equivalents		$	28,545
Trade accounts receivable—Net		66,619
Inventories—Net		87,919
Prepaid expenses and other		1,740
Property, plant and equipment—Net		100,759
Goodwill		480,310
Other intangibles—Net		194,483
Other		1,754
Total assets of discontinued operations		$	962,129
Accounts payable		$	33,338
Accrued liabilities		55,031
Long-term debt		5,793
Deferred income taxes		41,769
Other		20,808
Total liabilities of discontinued operations		$	156,739

Prior Year Divestitures

In connection with the settlement of a Department of Justice investigation into the competitive effects of the acquisition, during the fourth quarter of 2017, the Company committed to dispose of the Schroth business. Therefore, Schroth was classified as held-for-sale as of September 30, 2017. The results of operations of Schroth are presented in discontinued operations in the accompanying consolidated financial statements for all periods presented. On January 26, 2018, the Company completed the sale of Schroth in a management buyout to a private equity fund and certain members of Schroth management for approximately $61.4 million, which includes a working capital adjustment of $0.3 million that was paid on July 6, 2018. The Company previously acquired Schroth in February 2017.

The loss from discontinued operations was $4.5 million and $31.7 million in the consolidated statements of income for the fiscal years ended September 30, 2018 and 2017, respectively. Previously, in the fourth quarter of fiscal 2017, the Company recorded a $32.0 million impairment charge to write down the Schroth assets to fair value. The impairment charge was based on an internal assessment of the recovery of Schroth’s assets. The following is the summarized operating results for Schroth for the years ended September 30, 2018 and 2017 (in thousands):

	Fiscal Years Ended September 30,
	2018				2017
Net sales	$	11,808			$	24,590
Income (loss) from discontinued operations before income taxes	354				(5,709		)
Loss on classification as held-for-sale before income taxes	—				(32,000		)
Income tax benefit	2,016				6,055
Income (loss) from discontinued operations, net of tax	2,370				(31,654		)
Loss on sale of discontinued operations, net of tax	(6,844		)		—
Loss from discontinued operations, net of tax	$	(4,474	)		$	(31,654	)

F-47

24. COMMITMENTS AND CONTINGENCIES

On August 8, 2019, a fire caused significant damage to the Niort, France operating facility of Leach International Europe, which is a subsidiary of TransDigm acquired via the Esterline acquisition. Leach International Europe’s results are reported within the Company’s Power & Control segment. The facility as well as certain machinery, equipment and inventory sustained damage. The Company suspended operations at the Niort facility as a result of the fire; however, it is in the process of transferring certain operations to temporary facilities while the facility is rebuilt, which is the rebuilding of the facility is expected to take up to 18 months.

The Company’s insurance covers damage to the facility, equipment, inventory, and other assets, at replacement cost, as well as business interruption, and recovery-related expenses caused by the fire, subject to a $1 million deductible and certain sub-limits based on the nature of the covered item. Anticipated insurance recoveries related to losses and incremental costs incurred are recognized when receipt is probable. Anticipated insurance recoveries in excess of net book value of the damaged property and inventory will not be recorded until all contingencies relating to the claim have been resolved. The timing of and amounts of ultimate insurance recoveries is not known at this time.

For the fiscal year ended September 30, 2019, the Company recorded fire-related expense of $2.4 million, net of insurance recovery receivable, and is recorded within other expense in the consolidated statement of income.

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25. QUARTERLY FINANCIAL DATA (UNAUDITED)

	First Quarter Ended December 29, 2018				Second Quarter Ended March 30, 2019				Third Quarter Ended June 29, 2019				Fourth Quarter Ended September 30, 2019
	(in thousands, except per share amounts)
Fiscal Year Ended September 30, 2019**(1)**
Net sales(2)	$	993,302			$	1,167,520			$	1,521,061			$	1,541,320
Gross profit(2)	564,116				649,964				713,109				882,082
Income from continuing operations, net of tax(2)	196,042				200,021				127,659				317,157
Income from discontinued operations, net of tax(2)	—				2,611				16,951				30,870
Net income attributable to noncontrolling interests(2)	—				(224		)		(160		)		(1,157		)
Net income attributable to TD Group(2)	$	196,042			$	202,408			$	144,450			$	346,870
Net earnings per share from continuing operations—basic and diluted(3)	$	3.05			$	3.55			$	2.27			$	4.08
Net earnings per share from discontinued operations—basic and diluted(3)	—				0.05				0.30				0.55
Net earnings per share(3)	$	3.05			$	3.60			$	2.57			$	4.63

	First Quarter Ended December 30, 2017				Second Quarter Ended March 31, 2018				Third Quarter Ended June 30, 2018				Fourth Quarter Ended September 30, 2018
	(in thousands, except per share amounts)
Fiscal Year Ended September 30, 2018**(1)**
Net sales(2)	$	847,960			$	933,070			$	980,662			$	1,049,434
Gross profit(2)	476,650				534,074				569,520				597,266
Income from continuing operations, net of tax(2)	312,011				201,840				217,391				230,294
Income (loss) from discontinued operations, net of tax(2)	2,764				(5,562		)		(145		)		(1,531		)
Net income attributable to TD Group(2)	$	314,775			$	196,278			$	217,246			$	228,763
Net earnings per share from continuing operations—basic and diluted(3)	$	4.60			$	3.63			$	3.91			$	4.14
Net earnings (loss) per share from discontinued operations—basic and diluted(3)	0.05				(0.10		)		—				(0.03		)
Net earnings per share(3)	$	4.65			$	3.53			$	3.91			$	4.11

(1)	Results adjusted to reflect amounts reclassified to discontinued operations due to the Company’s classification of Souriau-Sunbank and EIT at September 30, 2019, and Schroth at September 30, 2017, as discontinued operations. See Note 23, “Discontinued Operations,” for additional information.

(2)	The Company’s operating results include the results of operations of acquisitions from the effective date of each acquisition. See Note 2 “Acquisitions and Divestitures,” for additional details.

(3)	The sum of the earnings per share for the four quarters in a year does not necessarily equal the total year earnings per share due to the weighted average number of shares outstanding in each quarter.

F-49

26. SUBSEQUENT EVENTS

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) 2022 Notes. The remaining net proceeds will be used for general corporate purposes, which may include potential future acquisitions, dividends or repurchases under its stock repurchase program.

27. SUPPLEMENTAL GUARANTOR INFORMATION

TransDigm Inc.’s 2022 Notes, 2024 Notes, 2025 Notes, 6.375% 2026 Notes, 2026 Secured Notes and 2027 Notes are jointly and severally guaranteed, on a senior subordinated basis, by TD Group, TransDigm UK Holdings plc ("TransDigm UK") and TransDigm Inc.’s Domestic Restricted Subsidiaries, as defined in the applicable Indentures. TransDigm UK's 6.875% 2026 Notes are jointly and severally guaranteed, on a senior subordinated basis, by TD Group, TransDigm Inc. and TransDigm Inc.'s Domestic Restricted Subsidiaries as defined in the applicable indenture. The following supplemental consolidating financial information presents, in separate columns, the balance sheets of the Company as of September 30, 2019 and September 30, 2018 and its statements of income and comprehensive income and cash flows for the fiscal years ended September 30, 2019, 2018 and 2017 for (i) TransDigm Group on a parent only basis with its investment in subsidiaries recorded under the equity method, (ii) TransDigm Inc. including its directly owned operations and non-operating entities, excluding TransDigm UK, (iii) TransDigm UK (iv) the Subsidiary Guarantors (other than TransDigm UK) on a combined basis, (v) Non-Guarantor Subsidiaries and (vi) the Company on a consolidated basis.

Separate financial statements of TransDigm Inc. are not presented because TransDigm Inc.’s 2022 Notes, 2024 Notes, 2025 Notes, 6.375% 2026 Notes, 2026 Secured Notes and 2027 Notes are fully and unconditionally guaranteed on a senior subordinated basis by TD Group, TransDigm UK and all of TransDigm Inc's Domestic Restricted Subsidiaries and because TD Group has no significant operations or assets separate from its investment in TransDigm Inc.

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

F-50

TRANSDIGM GROUP INCORPORATED

CONSOLIDATING BALANCE SHEET

AS OF SEPTEMBER 30, 2019

(Amounts in thousands)

	TransDigm Group				TransDigm Inc.				Transdigm UK				Subsidiary Guarantors				Non-Guarantor Subsidiaries				Eliminations				Total Consolidated
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	29			$	1,092,209			$	280			$	(12,263	)		$	387,231			$	—			$	1,467,486
Trade accounts receivable—Net	—				—				—				172,099				895,504				—				1,067,603
Inventories—Net	—				52,291				—				879,681				315,966				(15,289		)		1,232,649
Assets held-for-sale	—				—				—				206,419				755,710				—				962,129
Prepaid expenses and other	—				27,175				—				45,220				62,985				—				135,380
Total current assets	29				1,171,675				280				1,291,156				2,417,396				(15,289		)		4,865,247
INVESTMENT IN SUBSIDIARIES AND INTERCOMPANY BALANCES	(2,894,934		)		14,729,513				974,663				16,373,195				6,898,707				(36,081,144		)		—
PROPERTY, PLANT AND EQUIPMENT—NET	—				16,971				—				513,337				226,449				—				756,757
GOODWILL	—				82,924				—				5,544,529				2,192,650				—				7,820,103
OTHER INTANGIBLE ASSETS—NET	—				25,444				—				2,063,944				654,432				—				2,743,820
OTHER	—				5,364				—				33,931				29,509				—				68,804
TOTAL ASSETS	$	(2,894,905	)		$	16,031,891			$	974,943			$	25,820,092			$	12,419,143			$	(36,096,433	)		$	16,254,731
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current portion of long-term debt	$	—			$	75,688			$	—			$	1,020			$	3,505			$	—			$	80,213
Short-term borrowings—trade receivable securitization facility	—				—				—				—				349,519				—				349,519
Accounts payable	—				16,517				—				160,793				99,280				—				276,590
Accrued liabilities	—				215,562				12,892				237,026				210,215				—				675,695
Liabilities held-for-sale	—				—				—				22,306				134,433				—				156,739
Total current liabilities	—				307,767				12,892				421,145				796,952				—				1,538,756
LONG-TERM DEBT	—				15,893,314				491,331				49,240				35,336				—				16,469,221
DEFERRED INCOME TAXES	—				—				—				346,456				94,361				—				440,817
OTHER NON-CURRENT LIABILITIES	—				315,262				—				232,520				143,238				—				691,020
Total liabilities	—				16,516,343				504,223				1,049,361				1,069,887				—				19,139,814
TD GROUP STOCKHOLDERS’ (DEFICIT) EQUITY	(2,894,905		)		(484,452		)		470,720				24,770,731				11,339,434				(36,096,433		)		(2,894,905		)
NONCONTROLLING INTEREST	—				—				—				—				9,822				—				9,822
TOTAL LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY	$	(2,894,905	)		$	16,031,891			$	974,943			$	25,820,092			$	12,419,143			$	(36,096,433	)		$	16,254,731

F-51

TRANSDIGM GROUP INCORPORATED

CONSOLIDATING BALANCE SHEET

AS OF SEPTEMBER 30, 2018

(Amounts in thousands)

	TransDigm Group				TransDigm Inc.				TransDigm UK				Subsidiary Guarantors				Non-Guarantor Subsidiaries				Eliminations				Total Consolidated
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	389			$	1,821,437			$	125			$	(1,763	)		$	252,829			$	—			$	2,073,017
Trade accounts receivable—Net	—				—				—				40,916				663,394				—				704,310
Inventories—Net	—				45,262				—				648,574				115,913				(4,457		)		805,292
Prepaid expenses and other	—				16,231				—				47,020				11,417				—				74,668
Total current assets	389				1,882,930				125				734,747				1,043,553				(4,457		)		3,657,287
INVESTMENT IN SUBSIDIARIES AND INTERCOMPANY BALANCES	(1,808,860		)		10,459,497				1,099,886				8,928,726				2,160,236				(20,839,485		)		—
PROPERTY, PLANT AND EQUIPMENT—NET	—				15,562				—				319,567				53,204				—				388,333
GOODWILL	—				97,002				—				5,466,148				660,140				—				6,223,290
OTHER INTANGIBLE ASSETS—NET	—				31,362				—				1,514,983				242,059				—				1,788,404
OTHER	—				104,633				—				29,805				5,715				—				140,153
TOTAL ASSETS	$	(1,808,471	)		$	12,590,986			$	1,100,011			$	16,993,976			$	4,164,907			$	(20,843,942	)		$	12,197,467
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current portion of long-term debt	$	—			$	75,817			$	—			$	—			$	—			$	—			$	75,817
Short-term borrowings—trade receivable securitization facility	—				—				—				—				299,519				—				299,519
Accounts payable	—				18,470				—				115,735				39,398				—				173,603
Accrued liabilities	—				118,600				13,274				162,618				56,951				—				351,443
Total current liabilities	—				212,887				13,274				278,353				395,868				—				900,382
LONG-TERM DEBT	—				12,011,166				490,780				—				—				—				12,501,946
DEFERRED INCOME TAXES	—				345,357				—				(2,329		)		56,468				—				399,496
OTHER NON-CURRENT LIABILITIES	—				77,573				—				104,829				21,712				—				204,114
Total liabilities	—				12,646,983				504,054				380,853				474,048				—				14,005,938
TD GROUP STOCKHOLDERS’ (DEFICIT) EQUITY	(1,808,471		)		(55,997		)		595,957				16,613,123				3,690,859				(20,843,942		)		(1,808,471		)
NONCONTROLLING INTEREST	—				—				—				—				—				—				—
TOTAL LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY	$	(1,808,471	)		$	12,590,986			$	1,100,011			$	16,993,976			$	4,164,907			$	(20,843,942	)		$	12,197,467

F-52

TRANSDIGM GROUP INCORPORATED

CONSOLIDATING STATEMENT OF INCOME AND COMPREHENSIVE INCOME

FOR THE YEAR ENDED SEPTEMBER 30, 2019

(Amounts in thousands)

	TransDigm Group				TransDigm Inc.				TransDigm UK				Subsidiary Guarantors				Non-Guarantor Subsidiaries				Eliminations				Total Consolidated
NET SALES	$	—			$	186,360			$	—			$	4,103,848			$	1,105,379			$	(172,384	)		$	5,223,203
COST OF SALES	—				109,414				—				1,771,217				705,685				(172,384		)		2,413,932
GROSS PROFIT	—				76,946				—				2,332,631				399,694				—				2,809,271
SELLING AND ADMINISTRATIVE EXPENSES	—				258,465				14				348,928				140,366				—				747,773
AMORTIZATION OF INTANGIBLE ASSETS	—				925				—				98,868				35,159				—				134,952
(LOSS) INCOME FROM OPERATIONS	—				(182,444		)		(14		)		1,884,835				224,169				—				1,926,546
INTEREST EXPENSE (INCOME)—NET	—				855,325				35,420				(11,638		)		(19,354		)		—				859,753
REFINANCING COSTS	—				2,745				268				—				—				—				3,013
OTHER (INCOME) EXPENSE	—				(71,003		)		89,539				(590,135		)		572,514				—				915
EQUITY IN INCOME OF SUBSIDIARIES	(889,770		)		(1,866,584		)		—				—				—				2,756,354				—
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES	889,770				897,073				(125,241		)		2,486,608				(328,991		)		(2,756,354		)		1,062,865
INCOME TAX PROVISION	—				—				—				187,331				34,655				—				221,986
INCOME (LOSS) FROM CONTINUING OPERATIONS INCLUDING NONCONTROLLING INTERESTS	889,770				897,073				(125,241		)		2,299,277				(363,646		)		(2,756,354		)		840,879
(LOSS) INCOME FROM DISCONTINUED OPERATIONS, NET OF TAX	—				(7,303		)		—				—				57,735				—				50,432
NET INCOME (LOSS) INCLUDING NONCONTROLLING INTERESTS	889,770				889,770				(125,241		)		2,299,277				(305,911		)		(2,756,354		)		891,311
NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS	—				—				—				—				(1,541		)		—				(1,541		)
NET INCOME (LOSS) ATTRIBUTABLE TO TD GROUP	$	889,770			$	889,770			$	(125,241	)		$	2,299,277			$	(307,452	)		$	(2,756,354	)		$	889,770
OTHER COMPREHENSIVE (LOSS) INCOME, NET OF TAX	(383,081		)		(278,353		)		—				10,204				(147,493		)		415,642				(383,081		)
TOTAL COMPREHENSIVE INCOME (LOSS)	$	506,689			$	611,417			$	(125,241	)		$	2,309,481			$	(454,945	)		$	(2,340,712	)		$	506,689

F-53

TRANSDIGM GROUP INCORPORATED

CONSOLIDATING STATEMENT OF INCOME AND COMPREHENSIVE INCOME

FOR THE YEAR ENDED SEPTEMBER 30, 2018

(Amounts in thousands)

	TransDigm Group				TransDigm Inc.				TransDigm UK				Subsidiary Guarantors				Non-Guarantor Subsidiaries				Eliminations				Total Consolidated
NET SALES	$	—			$	163,348			$	—			$	3,118,032			$	610,688			$	(80,942	)		$	3,811,126
COST OF SALES	—				94,387				—				1,253,018				367,153				(80,942		)		1,633,616
GROSS PROFIT	—				68,961				—				1,865,014				243,535				—				2,177,510
SELLING AND ADMINISTRATIVE EXPENSES	—				110,405				—				425,736				(86,465		)		—				449,676
AMORTIZATION OF INTANGIBLE ASSETS	—				1,261				—				62,915				8,278				—				72,454
(LOSS) INCOME FROM OPERATIONS	—				(42,705		)		—				1,376,363				321,722				—				1,655,380
INTEREST EXPENSE (INCOME)—NET	—				678,155				6,943				1,308				(23,398		)		—				663,008
REFINANCING COSTS	—				6,300				96				—				—				—				6,396
OTHER (INCOME) EXPENSE	—				(1,718		)		—				(156,284		)		158,421				—				419
EQUITY IN INCOME OF SUBSIDIARIES	(957,062		)		(1,306,511		)		—				—				—				2,263,573				—
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES	957,062				581,069				(7,039		)		1,531,339				186,699				(2,263,573		)		985,557
INCOME TAX PROVISION	—				(375,993		)		—				379,665				20,349				—				24,021
INCOME (LOSS) FROM CONTINUING OPERATIONS INCLUDING NONCONTROLLING INTERESTS	957,062				957,062				(7,039		)		1,151,674				166,350				(2,263,573		)		961,536
LOSS FROM DISCONTINUED OPERATIONS, NET OF TAX	—				—				—				(2,427		)		(2,047		)		—				(4,474		)
NET INCOME (LOSS) INCLUDING NONCONTROLLING INTERESTS	957,062				957,062				(7,039		)		1,149,247				164,303				(2,263,573		)		957,062
NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS	—				—				—				—				—				—				—
NET INCOME (LOSS) ATTRIBUTABLE TO TD GROUP	$	957,062			$	957,062			$	(7,039	)		$	1,149,247			$	164,303			$	(2,263,573	)		$	957,062
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX	89,243				95,076				—				8,491				(17,837		)		(85,730		)		89,243
TOTAL COMPREHENSIVE INCOME (LOSS)	$	1,046,305			$	1,052,138			$	(7,039	)		$	1,157,738			$	146,466			$	(2,349,303	)		$	1,046,305

F-54

TRANSDIGM GROUP INCORPORATED

CONSOLIDATING STATEMENT OF INCOME AND COMPREHENSIVE INCOME

FOR THE YEAR ENDED SEPTEMBER 30, 2017

(Amounts in thousands)

	TransDigm Group				TransDigm Inc.				TransDigm UK				Subsidiary Guarantors				Non-Guarantor Subsidiaries				Eliminations				Total Consolidated
NET SALES	$	—			$	143,631			$	—			$	2,911,950			$	535,129			$	(86,424	)		$	3,504,286
COST OF SALES	—				79,403				—				1,191,770				333,985				(85,499		)		1,519,659
GROSS PROFIT	—				64,228				—				1,720,180				201,144				(925		)		1,984,627
SELLING AND ADMINISTRATIVE EXPENSES	69				99,558				—				277,083				35,845				—				412,555
AMORTIZATION OF INTANGIBLE ASSETS	—				1,003				—				80,053				8,170				—				89,226
(LOSS) INCOME FROM OPERATIONS	(69		)		(36,333		)		—				1,363,044				157,129				(925		)		1,482,846
INTEREST EXPENSE (INCOME)—NET	—				614,353				—				(1,248		)		(10,516		)		—				602,589
REFINANCING COSTS	—				39,807				—				—				—				—				39,807
OTHER (INCOME) EXPENSE	—				(1,881		)		—				7,736				(2,835		)		—				3,020
EQUITY IN INCOME OF SUBSIDIARIES	(596,956		)		(1,318,945		)		—				—				—				1,915,901				—
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES	596,887				630,333				—				1,356,556				170,480				(1,916,826		)		837,430
INCOME TAX PROVISION	—				33,377				—				156,251				19,261				—				208,889
INCOME (LOSS) FROM CONTINUING OPERATIONS INCLUDING NONCONTROLLING INTERESTS	596,887				596,956				—				1,200,305				151,219				(1,916,826		)		628,541
LOSS FROM DISCONTINUED OPERATIONS, NET OF TAX	—				—				—				(9,496		)		(22,158		)		—				(31,654		)
NET INCOME (LOSS) INCLUDING NONCONTROLLING INTERESTS	596,887				596,956				—				1,190,809				129,061				(1,916,826		)		596,887
NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS	—				—				—				—				—				—				—
NET INCOME (LOSS) ATTRIBUTABLE TO TD GROUP	$	596,887			$	596,956			$	—			$	1,190,809			$	129,061			$	(1,916,826	)		$	596,887
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX	64,644				31,603				—				16,310				58,856				(106,769		)		64,644
TOTAL COMPREHENSIVE INCOME (LOSS)	$	661,531			$	628,559			$	—			$	1,207,119			$	187,917			$	(2,023,595	)		$	661,531

F-55

TRANSDIGM GROUP INCORPORATED

CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED SEPTEMBER 30, 2019

(Amounts in thousands)

	TransDigm Group				TransDigm Inc.				TransDigm UK				Subsidiary Guarantors				Non-Guarantor Subsidiaries				Eliminations				Total Consolidated
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES	$	—			$	(868,208	)		$	(249,794	)		$	2,449,925			$	(327,283	)		$	10,832			$	1,015,472
INVESTING ACTIVITIES:
Capital expenditures, net of disposals	—				(3,608		)		—				(97,220		)		(763		)		—				(101,591		)
Payments made in connection with acquisitions	—				(3,923,850		)		—				(52,305		)		—				—				(3,976,155		)
Proceeds in connection with sale of discontinued operations	—				188,766				—				—				—				—				188,766
Net cash used in investing activities	—				(3,738,692		)		—				(149,525		)		(763		)		—				(3,888,980		)
FINANCING ACTIVITIES:
Intercompany activities	1,629,984				21,960				250,986				(2,310,900		)		418,802				(10,832		)		—
Proceeds from exercise of stock options	81,875				—				—				—				—				—				81,875
Special dividends and dividend equivalent payments	(1,712,219		)		—				—				—				—				—				(1,712,219		)
Repayment on term loans	—				(76,428		)		—				—				—				—				(76,428		)
Proceeds from senior secured notes due 2026, net	—				3,935,567				—				—				—				—				3,935,567
Proceeds from senior subordinated notes, net	—				544,248				—				—				—				—				544,248
Cash tender and redemption of senior subordinated notes due 2020	—				(550,000		)		—				—				—				—				(550,000		)
Proceeds from trade receivable securitization facility, net	—				—				—				—				49,423				—				49,423
Financing fees and other	—				2,325				(1,037		)		—				(2,401		)		—				(1,113		)
Net cash (used in) provided by financing activities	(360		)		3,877,672				249,949				(2,310,900		)		465,824				(10,832		)		2,271,353
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS	—				—				—				—				(3,376		)		—				(3,376		)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS	(360		)		(729,228		)		155				(10,500		)		134,402				—				(605,531		)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	389				1,821,437				125				(1,763		)		252,829				—				2,073,017
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	29			$	1,092,209			$	280			$	(12,263	)		$	387,231			$	—			$	1,467,486

F-56

TRANSDIGM GROUP INCORPORATED

CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED SEPTEMBER 30, 2018

(Amounts in thousands)

	TransDigm Group				TransDigm Inc.				TransDigm UK				Subsidiary Guarantors				Non-Guarantor Subsidiaries				Eliminations				Total Consolidated
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES	$	—			$	(386,152	)		$	6,598			$	1,216,263			$	183,290			$	2,174			$	1,022,173
INVESTING ACTIVITIES:
Capital expenditures, net of disposals	—				(2,001		)		—				(61,896		)		(9,444		)		—				(73,341		)
Payments made in connection with acquisitions	—				(667,619		)		—				—				—				—				(667,619		)
Proceeds in connection with sale of discontinued operations	—				57,383				—				—				—				—				57,383
Net cash used in investing activities	—				(612,237		)		—				(61,896		)		(9,444		)		—				(683,577		)
FINANCING ACTIVITIES:
Intercompany activities	(3,462		)		1,785,796				(496,081		)		(1,155,927		)		(128,152		)		(2,174		)		—
Proceeds from exercise of stock options	57,583				—				—				—				—				—				57,583
Special dividends and dividend equivalent payments	(56,148		)		—				—				—				—				—				(56,148		)
Proceeds from term loans, net	—				12,779,694				—				—				—				—				12,779,694
Repayment on term loans	—				(12,174,305		)		—				—				—				—				(12,174,305		)
Proceeds from senior subordinated notes, net	—				—				489,608				—				—				—				489,608
Financing fees and other	—				(10,832		)		—				—				—				—				(10,832		)
Net cash (used in) provided by financing activities	(2,027		)		2,380,353				(6,473		)		(1,155,927		)		(128,152		)		(2,174		)		1,085,600
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS	—				—				—				—				(1,740		)		—				(1,740		)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS	(2,027		)		1,381,964				125				(1,560		)		43,954				—				1,422,456
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	2,416				439,473				—				(203		)		208,875				—				650,561
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	389			$	1,821,437			$	125			$	(1,763	)		$	252,829			$	—			$	2,073,017

F-57

TRANSDIGM GROUP INCORPORATED

CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED SEPTEMBER 30, 2017

(Amounts in thousands)

	TransDigm Group				TransDigm Inc.				TransDigm UK				Subsidiary Guarantors				Non-Guarantor Subsidiaries				Eliminations				Total Consolidated
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES	$	(69	)		$	(587,800	)		$	—			$	1,334,099			$	42,028			$	475			$	788,733
INVESTING ACTIVITIES:
Capital expenditures, net of disposals	—				(1,984		)		—				(63,305		)		(5,724		)		—				(71,013		)
Payments made in connection with acquisitions	—				(215,990		)		—				—				—				—				(215,990		)
Net cash used in investing activities	—				(217,974		)		—				(63,305		)		(5,724		)		—				(287,003		)
FINANCING ACTIVITIES:
Intercompany activities	2,939,121				(1,682,518		)		—				(1,279,805		)		23,677				(475		)		—
Proceeds from exercise of stock options	21,177				—				—				—				—				—				21,177
Special dividends and dividend equivalent payments	(2,581,552		)		—				—				—				—				—				(2,581,552		)
Treasury stock purchased	(389,821		)		—				—				—				—				—				(389,821		)
Proceeds from term loan, net	—				2,937,773				—				—				—				—				2,937,773
Repayment on term loans	—				(1,284,698		)		—				—				—				—				(1,284,698		)
Proceeds from senior subordinated notes, net	—				300,386				—				—				—				—				300,386
Cash tender and redemption of senior subordinated notes due 2021, including premium	—				(528,847		)		—				—				—				—				(528,847		)
Proceeds from trade receivable securitization facility, net	—				99,471				—				—				—				—				99,471
Financing fees and other	—				(17,571		)		—				—				—				—				(17,571		)
Net cash (used in) provided by financing activities	(11,075		)		(176,004		)		—				(1,279,805		)		23,677				(475		)		(1,443,682		)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS	—				—				—				—				5,519				—				5,519
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS	(11,144		)		(981,778		)		—				(9,011		)		65,500				—				(936,433		)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	13,560				1,421,251				—				8,808				143,375				—				1,586,994
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	2,416			$	439,473			$	—			$	(203	)		$	208,875			$	—			$	650,561

---

F-58

TRANSDIGM GROUP INCORPORATED

VALUATION AND QUALIFYING ACCOUNTS

FOR THE YEARS ENDED SEPTEMBER 30, 2019**,** 2018**, AND** 2017

(Amounts in Thousands)

Column A	Column B				Column C								Column D				Column E
	Balance at Beginning of Period				Additions								Deductions from Reserve**(1)**				Balance at End of Period
Description	Charged to Costs and Expenses				Acquisitions
Year Ended September 30, 2019
Allowance for uncollectible accounts	$	4,674			$	5,377			$	9,417			$	(2,066	)		$	17,402
Inventory valuation reserves	99,351				17,148				16,980				(9,676		)		123,803
Valuation allowance for deferred tax assets	47,249				39,651				30,760				—				117,660
Year Ended September 30, 2018
Allowance for uncollectible accounts	$	3,819			$	1,498			$	989			$	(1,632	)		$	4,674
Reserve for excess and obsolete inventory	79,775				14,998				10,764				(11,039		)		94,498
Valuation allowance for deferred tax assets	33,214				14,035				—				—				47,249
Year Ended September 30, 2017
Allowance for uncollectible accounts	$	4,414			$	1,095			$	363			$	(2,053	)		$	3,819
Reserve for excess and obsolete inventory	80,039				17,361				4,254				(21,879		)		79,775
Valuation allowance for deferred tax assets	27,286				5,928				—				—				33,214

(1)	The amounts in this column represent charge-offs net of recoveries and the impact of foreign currency translation adjustments.

F-59

EXHIBIT INDEX

TO FORM 10-K FOR THE YEAR ENDED SEPTEMBER 30, 2019

EXHIBIT NO.		DESCRIPTION
3.190		Certificate of Formation, as amended, of Esterline Georgia US LLC (now known as TREALITY SVS LLC)
3.191		Amended and Restated Limited Liability Company Agreement of TREALITY SVS LLC
3.192		Amended and Restated Certificate of Formation, as amended, of Esterline Federal LLC (now known as ScioTeq LLC)
3.193		Amended and Restated Limited Liability Company Agreement of ScioTeq LLC
3.226		Certificate of Incorporation of TDG ESL Holdings Inc.
3.227		By-laws of TDG ESL Holdings Inc.
4.10		Form of Supplemental Indenture to Add New Guarantors
4.19		Description of Securities
10.26		Form of Stock Option Agreement for options awarded in fiscal 2019*
10.49		Eleventh Amendment to the Receivables Purchase Agreement dated as of July 30, 2019, among TransDigm Receivables LLC, TransDigm Inc., PNC Bank, National Association, as a Committed Purchaser, as Purchaser Agent for its Purchaser Group and as Administrator, Atlantic Asset Securitization LLC, as a Conduit Purchaser, Credit Agricole Corporate and Investment Bank, as a Committed Purchaser and as a Purchaser Agent for its and Atlantic’s Purchaser Group, and Fifth Third Bank, as a Committed Purchaser and as Purchaser Agent for its Purchaser Group
21.1		Subsidiaries of TransDigm Group Incorporated
23.1		Consent of Independent Registered Public Accounting Firm
31.1		Certification by Principal Executive Officer of TransDigm Group Incorporated pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification by Principal Financial Officer of TransDigm Group Incorporated pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification by Principal Executive Officer of TransDigm Group Incorporated pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification by Principal Financial Officer of TransDigm Group Incorporated pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101		Financial Statements and Notes to Consolidated Financial Statements formatted in XBRL.
104		Cover Page Interactive Data File (embedded within the Inline XBRL document)

*	Indicates management contract or compensatory plan contract or arrangement.