Item 6. SELECTED FINANCIAL DATA

The following table sets forth selected historical consolidated financial and other data of TD Group for the fiscal years ended September 30, 2016 to 2020, which have been derived from TD Group’s audited consolidated financial statements.

Separate historical financial information of TransDigm Inc. is not presented since the 6.50% Senior Subordinated Notes issued June 2014 (the “2024 Notes”), the 6.50% Senior Subordinated Notes issued May 2015 (the “2025 Notes”), the 8.00% Secured Notes issued April 2020 (the “2025 Secured Notes”), the 6.375% Senior Subordinated Notes issued June 2016 (the “6.375% 2026 Notes”), the 6.25% Senior Secured Notes issued April 2020 (the “6.25% 2026 New Notes”) and the 6.25% Senior Secured Notes issued January 2019 (collectively, with the 6.25% 2026 New Notes, referred to herein as the “2026 Secured Notes”), the 7.50% Senior Subordinated Notes issued February 2019 (the “7.50% 2027 Notes”) and the 5.50% Senior Subordinated Notes issued November 2019 (the “5.50% 2027 Notes”) are fully and unconditionally guaranteed on a senior subordinated or senior secured basis, as defined in the respective Indenture, by TD Group, TransDigm UK Holding plc (“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 information of TransDigm UK is not presented because TransDigm UK’s 6.875% Senior Subordinated Notes issued in May 2018 (the “6.875% 2026 Notes”) are fully and unconditionally guaranteed on a senior subordinated basis by TD Group, TransDigm Inc., and all of TransDigm Inc.’s Domestic Restricted Subsidiaries.

Acquisitions of businesses completed by TD Group during the last five fiscal years are as follows:

(1)In connection with the settlement of a Department of Justice investigation into the competitive effects of the Schroth acquisition, the Company committed to dispose of the Schroth business during the fourth quarter of 2017. On January 26, 2018, the Company completed the sale of Schroth in a management buyout to a private equity fund and certain members of Schroth management for approximately $61 million, which included a working capital adjustment of $0.3 million that was paid in July 2018.

(2) 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. 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.

Additionally, on December 20, 2019, TransDigm completed the divestiture of Souriau SAS, Souriau USA Inc. and Sunbank Family of Companies LLC (collectively, “Souriau-Sunbank”) to Eaton Corporation plc (“Eaton”) for approximately $920 million. Souriau-Sunbank was classified as held-for-sale beginning September 30, 2019. The results of operations of Souriau-Sunbank are presented in discontinued operations in the accompanying consolidated financial statements for all periods presented since the date acquired.

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

All of the acquisitions were accounted for using the acquisition method. The results of operations of the acquired businesses are included in TD Group’s consolidated financial statements from the effective date of each acquisition.

The information presented below should be read together with Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and accompanying notes included elsewhere herein.

(1)Gross profit and income from operations include the effect of charges relating to purchase accounting adjustments to inventory associated with the acquisition of businesses for the fiscal years ended September 30, 2020, 2019, 2018, 2017 and 2016 of $0, $77, $7, $21 and $23, respectively.

(2)Other income for the fiscal year ended September 30, 2020 primarily relates to proceeds or proceeds receivable from business interruption insurance settlements and non-service related components of net periodic benefit costs on the Company’s defined benefit pension plans. Fiscal years 2019 through 2016 represent the non-service related components of net periodic benefit costs on the Company’s defined benefit pension plans.

(3)Income tax expense as a percentage of income before income taxes was approximately 11.7%, 20.9%, 2.4%, 24.9% and 23.7%, respectively, for the fiscal years ended September 30, 2020, 2019, 2018, 2017 and 2016. Fiscal 2020 income tax expense was impacted by the enactment of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act on March 27, 2020 in response to the COVID-19 pandemic. The most significant impact of the CARES Act for the Company is an increase of the IRC 163(j) interest disallowance limitations from 30% to 50% of adjusted taxable income which allows the Company to deduct additional interest expense for fiscal years 2020 and 2021. Fiscal 2018 income tax expense was impacted by the enactment of the Tax Cuts and Jobs Act (the “Act”) on December 22, 2017. The Act reduced the U.S. federal corporate tax rate from 35% to 21% and required companies to pay a one-time transition tax on earnings from certain foreign subsidiaries that were previously deferred as well as other changes.

(4)The fiscal 2020 results include the results of operations of Souriau-Sunbank prior to disposition and the related gain on sale upon disposition (divested in December 2019). The fiscal 2019 results include the results of operations of EIT and Souriau-Sunbank and the gain on sale related to EIT (divested in September 2019). The fiscal 2018 and 2017 results include the divestiture of Schroth (divested in January 2018). Refer to Note 23, “Discontinued Operations,” in the notes to the consolidated financial statements included herein for further information.

(5)Net income applicable to TD Group common stockholders represents net income attributable to TD Group less special dividends and dividend equivalent payments. Special dividends and dividend equivalent payments for the fiscal years ended September 30, 2020, 2019, 2018, 2017 and 2016 were $185, $111, $56, $159 and $3, respectively.

(6)Earnings per share is calculated by dividing net income applicable to TD Group common stockholders by the basic and diluted weighted average common shares outstanding.

Non-GAAP Financial Measures

We present below certain financial information based on our EBITDA and EBITDA As Defined. References to “EBITDA” mean earnings before interest, taxes, depreciation and amortization, and references to “EBITDA As Defined” mean EBITDA plus, as applicable for each relevant period, certain adjustments as set forth in the reconciliations of income from continuing operations to EBITDA and EBITDA As Defined and the reconciliations of net cash provided by operating activities to EBITDA and EBITDA As Defined presented below.

Neither EBITDA nor EBITDA As Defined is a measurement of financial performance under accounting principles generally accepted in the United States of America (“U.S. GAAP”). We present EBITDA and EBITDA As Defined because we believe they are useful indicators for evaluating operating performance and liquidity.

Our management believes that EBITDA and EBITDA As Defined are useful as indicators of liquidity because securities analysts, investors, rating agencies and others use EBITDA to evaluate a company’s ability to incur and service debt. In addition, EBITDA As Defined is useful to investors because the revolving commitments under our senior secured credit facility requires compliance under certain circumstances, on a pro forma basis, with a financial covenant that measures the ratio of the amount of our secured indebtedness to the amount of our Consolidated EBITDA defined in the same manner as we define EBITDA As Defined herein.

In addition to the above, our management uses EBITDA As Defined to review and assess the performance of the management team in connection with employee incentive programs and to prepare its annual budget and financial projections. Moreover, our management uses EBITDA As Defined to evaluate acquisitions.

Although we use EBITDA and EBITDA As Defined as measures to assess the performance of our business and for the other purposes set forth above, the use of these non-GAAP financial measures as analytical tools has limitations, and you should not consider any of them in isolation, or as a substitute for analysis of our results of operations as reported in accordance with U.S. GAAP. Some of these limitations are:

• neither EBITDA nor EBITDA As Defined reflects the significant interest expense, or the cash requirements, necessary to service interest payments on our indebtedness;

• although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and neither EBITDA nor EBITDA As Defined reflects any cash requirements for such replacements;

• the omission of the substantial amortization expense associated with our intangible assets further limits the usefulness of EBITDA and EBITDA As Defined;

• neither EBITDA nor EBITDA As Defined includes the payment of taxes, which is a necessary element of our operations; and

• EBITDA As Defined excludes the cash expense we have incurred to integrate acquired businesses into our operations, which is a necessary element of certain of our acquisitions.

Because of these limitations, EBITDA and EBITDA As Defined should not be considered as measures of discretionary cash available to us to invest in the growth of our business. Management compensates for these limitations by not viewing EBITDA or EBITDA As Defined in isolation and specifically by using other U.S. GAAP measures, such as net income, net sales and operating profit, to measure our operating performance. Neither EBITDA nor EBITDA As Defined is a measurement of financial performance under U.S. GAAP, and neither should be considered as an alternative to net income or cash flow from operations determined in accordance with U.S. GAAP. Our calculation of EBITDA and EBITDA As Defined may not be comparable to the calculation of similarly titled measures reported by other companies.

(1)The $799 million net inflow from investing activities in fiscal 2020 is attributable to the net proceeds of approximately $904 million received in the Souriau-Sunbank divestiture (net of cash transferred with the divested entities).

(2)For purposes of computing the ratio of earnings to fixed charges, earnings consist of earnings from continuing operations before income taxes plus fixed charges. Fixed charges consist of interest expense, amortization of debt issuance costs, original issue discount and premium and the “interest component” of rental expense.

(3)EBITDA represents earnings from continuing operations before interest, taxes, depreciation and amortization. EBITDA As Defined represents EBITDA plus, as applicable for each relevant period, certain adjustments as set forth in the reconciliation of income from continuing operations to EBITDA and EBITDA As Defined and the reconciliation of net cash provided by operating activities to EBITDA and EBITDA As Defined presented below. See “Non-GAAP Financial Measures” for additional information and limitations regarding these non-GAAP financial measures.

The following table sets forth a reconciliation of income from continuing operations to EBITDA and EBITDA As Defined:

(1)Represents accounting adjustments to inventory associated with acquisitions of businesses and product lines that were charged to cost of sales when the inventory was sold.

(2)Represents costs incurred to integrate acquired businesses and product lines into TD Group’s operations, facility relocation costs and other acquisition-related costs.

(3)Represents transaction-related costs comprising deal fees; legal, financial and tax due diligence expenses; and valuation costs that are required to be expensed as incurred.

(4)Represents the compensation expense recognized by TD Group under our stock incentive plans.

(5)Represents costs expensed related to debt financing activities, including new issuances, extinguishments, refinancings and amendments to existing agreements.

(6)Represents restructuring costs related to the Company's cost reduction measures in response to the COVID-19 pandemic ($46 million) and 737 MAX production rate changes ($3 million). These were costs related to the Company's actions to reduce its workforce to align with customer demand. This also includes $5 million of incremental costs related to the pandemic that are not expected to recur once the pandemic has subsided and are clearly separable from normal operations (e.g., additional cleaning and disinfecting of facilities by contractors above and beyond normal requirements, personal protective equipment, etc.).

(7)Primarily represents foreign currency transaction gains or losses, payroll withholding taxes on dividend equivalent payments and stock option exercises, non-service related pension costs, deferred compensation and gains or losses on the sale of fixed assets.

The following table sets forth a reconciliation of net cash provided by operating activities to EBITDA and EBITDA As Defined:

(1)Represents interest expense excluding the amortization of debt issuance costs, original issue discount and premium.

(2)Represents the compensation expense recognized by TD Group under our stock incentive plans.

(3)Represents costs expensed related to debt financing activities, including new issuances, extinguishments, refinancings and amendments to existing agreements.

(4)Represents accounting adjustments to inventory associated with acquisitions of businesses and product lines that were charged to cost of sales when the inventory was sold.

(5)Represents costs incurred to integrate acquired businesses and product lines into TD Group’s operations, facility relocation costs and other acquisition-related costs.

(6)Represents transaction-related costs comprising deal fees; legal, financial and tax due diligence expenses; and valuation costs that are required to be expensed as incurred.

(7)Represents restructuring costs related to the Company's cost reduction measures in response to the COVID-19 pandemic ($46 million) and 737 MAX production rate changes ($3 million). These were costs related to the Company's actions to reduce its workforce to align with customer demand. This also includes $5 million of incremental costs related to the pandemic that are not expected to recur once the pandemic has subsided and are clearly separable from normal operations (e.g., additional cleaning and disinfecting of facilities by contractors above and beyond normal requirements, personal protective equipment, etc.).

(8)Primarily represents foreign currency transaction gains or losses, payroll withholding taxes on dividend equivalent payments and stock option exercises, non-service related pension costs, deferred compensation and gains or losses on the sale of fixed assets.