NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 all commercial and military aircraft in service today. TransDigm Inc. along with TransDigm Inc.’s direct and indirect wholly-owned operating subsidiaries (collectively, with TD Group, the “Company” or “TransDigm”), offers a broad range of proprietary aerospace components. TD Group has no significant assets or operations other than its
100%
ownership of TransDigm Inc. TD Group’s common stock is listed on the New York Stock Exchange, or the NYSE, under the trading symbol “TDG.”
Major product offerings, substantially all of which are ultimately provided to end-users in the aerospace industry, include mechanical/electro-mechanical actuators and controls, ignition systems and engine technology, specialized pumps and valves, power conditioning devices, specialized AC/DC electric motors and generators, NiCad batteries and chargers, engineered latching and locking devices, rods and locking devices, engineered connectors and elastomers, databus and power controls, cockpit security components and systems, specialized cockpit displays, aircraft audio systems, specialized lavatory components, seat belts and safety restraints, engineered interior surfaces and related components, lighting and control technology, military personnel parachutes high performance hoists, winches and lifting devices, and cargo loading, handling and delivery systems.
2. ACQUISITIONS
During the last three fiscal years, the Company completed the acquisitions of Tactair, DDC, Breeze-Eastern, PneuDraulics, Pexco Aerospace, Adams Rite Aerospace GmbH, Telair Cargo Group, EME and Airborne. 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, 2016
, the one-year measurement period is open for Tactair, Breeze-Eastern and DDC and therefore the assets acquired and liabilities assumed related to these acquisitions are subject to adjustment. The Company is in the process of obtaining a third-party valuation of certain tangible and intangible assets of Tactair and DDC; therefore, the values attributed to those acquired assets in the consolidated financial statements are subject to adjustment. Pro forma net sales and results of operations for the acquisitions, had they occurred at the beginning of the applicable fiscal year ended
September 30, 2016
or
2015
, are not significant 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
.
Tactair
– On September 23, 2016, the Company acquired all of the outstanding stock of Young & Franklin, Inc., the parent company of Tactair Fluid Controls, Inc., for approximately
$256.1 million
in cash, subject to a working capital adjustment. Tactair manufactures proprietary, highly engineered valves and actuators. These products fit well with TransDigm’s overall business direction. Tactair is included in TransDigm’s Power & Control segment. The purchase price includes approximately
$73.2 million
of tax benefits being realized by the Company over a
15
-year period that will begin in the first quarter of fiscal 2017, and the Company expects that all of the approximately
$132.3 million
of goodwill recognized for the acquisition will be deductible for tax purposes.
Data Device Corporation
– On June 23, 2016, the Company acquired all of the outstanding stock of ILC Holdings, Inc., the parent company of Data Device Corporation, from Behrman Capital for a total purchase price of approximately
$1.0 billion
in cash. In October 2016, the Company received a working capital settlement of
$1.4 million
. TransDigm financed the acquisition of DDC with cash proceeds from the 2026 Notes and Tranche F Term Loans. DDC is a supplier of databus and power controls and related products that are used primarily in military avionics, commercial aerospace and space applications. These products fit well with TransDigm’s overall business direction. DDC is included in TransDigm’s Power & Control segment.
The total purchase price of DDC 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. The following table summarizes the preliminary purchase price allocation of the estimated fair values of the assets acquired and liabilities assumed at the transaction date (in thousands).
|
|
|
|
|
Assets acquired:
|
|
Current assets, excluding cash acquired
|
$
|
100,647
|
|
Property, plant, and equipment
|
24,076
|
|
Intangible assets
|
229,300
|
|
Goodwill
|
760,743
|
|
Other
|
2,036
|
|
Total assets acquired
|
1,116,802
|
|
Liabilities assumed:
|
|
Current liabilities
|
16,955
|
|
Other noncurrent liabilities
|
100,787
|
|
Total liabilities assumed
|
117,742
|
|
Net assets acquired
|
$
|
999,060
|
|
The Company expects that all of the approximately
$760.7 million
of goodwill recognized for the acquisition will not be deductible for tax purposes.
Breeze-Eastern
– On January 4, 2016, the Company completed the tender offer for all of the outstanding stock of Breeze-Eastern for
$19.61
per share in cash. The purchase price was approximately
$205.9 million
, of which
$146.4 million
(net of cash acquired of $
30.8 million
) was paid at closing and
$34.9 million
was accrued for payment to dissenting shareholders. Of the accrual,
$28.7 million
related to the original merger consideration and
$6.2 million
represented the settlement reached with the dissenting shareholders resolving the dispute over the dissenting shareholders’ statutory appraisal action. Of the
$6.2 million
settlement,
$4.9 million
was recorded as selling and administrative expense and
$1.3 million
was recorded as interest expense under Delaware General Corporate Law. On October 20, 2016, the Company paid the
$34.9 million
settlement to the dissenting shareholders and the dissenting stockholders fully released their claims against the Company. Breeze-Eastern manufactures high performance lifting and pulling devices for military and civilian aircraft, including rescue hoists, winches and cargo hooks, and weapons-lifting systems. These products fit well with TransDigm’s overall business direction. Breeze-Eastern is included in TransDigm’s Power & Control segment. The Company expects that all of the approximately
$115.4 million
of goodwill recognized for the acquisition will not be deductible for tax purposes.
The Breeze-Eastern acquisition includes environmental reserves recorded at a fair value of approximately
$25.8 million
. Of the
$25.8 million
in environmental reserves,
$3.9 million
is included in accrued liabilities and
$21.9 million
is included in other non-current liabilities in the consolidated balance sheet. The estimated
$25.8 million
fair value of the environmental reserves for Breeze-Eastern is preliminary and recorded at the respective probable and estimable amount. The environmental matters relate to soil and groundwater contamination and other environmental matters at several former facilities unrelated to Breeze-Eastern’s current operations.
PneuDraulics
– On August 19, 2015, the Company acquired all of the outstanding stock of PneuDraulics, Inc. for approximately
$321.5 million
in cash, which is net of a working capital settlement received in fiscal 2016 of
$2.0 million
. PneuDraulics manufactures proprietary, highly engineered aerospace pneumatic and hydraulic components and subsystems for commercial transport, regional, business jet and military applications. These products fit well with TransDigm’s overall business direction. PneuDraulics is included in TransDigm’s Power & Control segment. The purchase price includes approximately
$108.1 million
of tax benefits being realized by the Company over a
15
-year period that began in the fourth quarter of fiscal 2015. All of the approximately
$222.7 million
of goodwill recognized for the acquisition is deductible for tax purposes.
Pexco Aerospace
– On May 14, 2015, the Company acquired the assets of the aerospace business of Pexco LLC (“Pexco Aerospace”) for a total purchase price of approximately
$496.4 million
in cash. Pexco Aerospace manufactures extruded plastic interior parts for use in the commercial aerospace industry. These products fit well with TransDigm’s overall business direction. Pexco Aerospace is included in TransDigm’s Airframe segment. The purchase price includes approximately
$166.4 million
of tax benefits being realized by TransDigm over a
15
-year period that began in the third quarter of fiscal 2015. All of the approximately
$405.7 million
of goodwill recognized for the acquisition is deductible for tax purposes.
Adams Rite Aerospace GmbH
– On March 31, 2015, the Company acquired the aerospace business of Franke Aquarotter GmbH (now known as Adams Rite Aerospace GmbH) for approximately
$75.3 million
in cash. Adams Rite Aerospace GmbH manufactures proprietary faucets and related products for use on commercial transports and regional jets. These products fit well with TransDigm’s overall business direction. Adams Rite Aerospace GmbH is included in TransDigm’s Airframe segment. All of the approximately
$63.7 million
of goodwill recognized for the acquisition is not deductible for tax purposes.
Telair Cargo Group
– On March 26, 2015, the Company acquired all of the outstanding stock of Telair International GmbH (“Telair International”), all of the outstanding stock of Nordisk Aviation Products (“Nordisk”) and the assets of the AAR Cargo business (collectively, “Telair Cargo Group”). The total purchase price was approximately
$730.9 million
in cash. Telair Cargo Group manufactures aerospace on-board cargo loading and handling, restraint systems and unit load devices for a variety of commercial and military platforms with positions on a wide range of new and existing aircraft. These products fit well with TransDigm’s overall business direction. The business consists of three major operating units: Telair International, Nordisk and Telair US. Telair International and Telair US are included in TransDigm’s Power & Control segment and Nordisk is included in TransDigm’s Airframe segment. Approximately
$33.2 million
of goodwill recognized for the acquisition is deductible for tax purposes and approximately
$450.2 million
of goodwill recognized for the acquisition is not deductible for tax purposes.
EME
– On March 6, 2014, TransDigm Germany GmbH, a newly formed subsidiary of TransDigm Inc., acquired EME for approximately
$49.6 million
, which comprises
$40.4 million
in cash plus the assumption of approximately
$9.2 million
of net indebtedness. EME manufactures proprietary, highly engineered aerospace electromechanical actuators, electrical and electromechanical components and assemblies for commercial aircraft, helicopters and other specialty applications. These products fit well with TransDigm’s overall business direction. EME is included in TransDigm’s Airframe segment. Approximately
$20.3 million
of goodwill recognized for the acquisition is not deductible for tax purposes.
Airborne
– On December 19, 2013, TransDigm Inc. acquired all of the outstanding stock of Airborne for approximately
$264.2 million
in cash. Airborne manufactures personnel parachutes, cargo aerial delivery systems, emergency escape systems, naval decoys and other related products. These products fit well with TransDigm’s overall business direction. Airborne is included in TransDigm’s Airframe segment. Approximately
$158.2 million
of goodwill recognized for the acquisition is not deductible for tax purposes.
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 financial statements to conform to the current year adoption of recently released accounting standards. Refer to Note 4, “Recent Accounting Pronouncements” for additional details on the reclassifications.
Revenue Recognition and Related Allowances
—Revenue is recognized from the sale of products when title and risk of loss passes to the customer, which is generally at the time of shipment. Substantially all product sales are made pursuant to firm, fixed-price purchase orders received from customers. Provisions for estimated returns, uncollectible accounts and the cost of repairs under contract warranty provisions are provided for in the same period as the related revenues are recorded and are principally based on historical results modified, as appropriate, by the most current information available. Due to uncertainties in the estimation process, it is possible that actual results may vary from the estimates.
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 years ended
September 30, 2016
,
2015
and
2014
was approximately
$58.6 million
,
$48.3 million
, and
$42.3 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 doubtful accounts is subject to significant levels of judgment and estimation by management. If circumstances change or economic conditions deteriorate or improve, the allowance for doubtful accounts could increase or decrease.
Inventories
—Inventories are stated at the lower of cost or market. Cost of inventories is generally determined by the average cost and the first-in, first-out (FIFO) methods and includes material, labor and overhead related to the manufacturing process. Provision for potentially obsolete or slow-moving inventory is made based on management’s analysis of inventory
levels and future sales forecasts. In accordance with industry practice, all inventories are classified as current assets even though a portion of the inventories may not be sold within
one year
.
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.
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. Refer to Note 4, “Recent Accounting Pronouncements” and Note 11, “Debt,” for balance sheet presentation of debt issuance costs, premiums and discounts.
Intangible Assets
—Intangible assets consist of identifiable intangibles acquired or recognized in accounting for the acquisitions (trademarks, trade names, technology, order backlog and other intangible assets) and goodwill. 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.
A two-step impairment test is used to identify potential goodwill impairment. 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 over
one year
, and other intangible assets over
20
years.
Stock-Based Compensation
—The Company records stock-based compensation expense using the fair value method of accounting. Compensation expense is recorded over the vesting periods of the stock options, restricted stock and other stock-based incentives. No expense is recognized for any stock options, restricted stock and other stock-based incentives ultimately forfeited because the recipients fail to meet vesting requirements.
Income Taxes
—The Company accounts for income taxes using an asset and liability approach. Deferred taxes are recorded for the difference between the book and tax basis of various assets and liabilities. A valuation allowance is provided when it is more likely than not that some or all of a deferred tax asset 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 and unvested 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 their issuance becomes probable; therefore, basic and diluted earnings per share are the same.
4. RECENT ACCOUNTING PRONOUNCEMENTS
In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-09 which creates a new topic in the Accounting Standards Codification (“ASC”) Topic 606, “
Revenue From Contracts With Customers.”
In addition to superseding and replacing nearly all existing U.S. GAAP revenue recognition guidance, including industry-specific guidance, ASC 606 establishes a new control-based revenue recognition model; changes the basis for deciding when revenue is recognized over time or at a point in time; provides new and more detailed guidance on specific topics; and expands and improves disclosures about revenue. The new revenue standards may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of adoption. The guidance is effective for the Company for annual reporting periods, including interim periods therein, beginning October 1, 2018. We have performed a preliminary review of the new guidance as compared to our current accounting policies and a contract review has begun. The Company is currently evaluating the impact that adopting the standard, along with the subsequent updates and clarifications, will have on its consolidated financial statements and disclosures. During fiscal 2017, we plan to finalize our review and determine our date and method of adoption.
In April 2015, the FASB issued ASU 2015-03, “Simplifying the Presentation of Debt Issuance Costs,” which expands upon the guidance on the presentation of debt issuance costs. The guidance requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the debt liability, consistent with debt discounts. The guidance does not change the current requirements surrounding the recognition and measurement of debt issuance costs, and the amortization of debt issuance costs will continue to be reported as interest expense. The guidance was effective for the Company beginning October 1, 2016. However, as early adoption is permissible, the Company adopted the pronouncement effective October 1, 2015. The adoption of this pronouncement did not have a significant impact on our consolidated financial position and results of operations, although it did change the financial statement classification of debt issuance costs. In connection with adopting the pronouncement beginning October 1, 2015, the Company reclassified
$77.7 million
in debt issuance costs as of September 30, 2015, to current portion of long-term debt and long-term debt in the liabilities section of the consolidated balance sheet.
In September 2015, the FASB issued ASU 2015-16, “Simplifying the Accounting for Measurement-Period Adjustments,” a new standard intended to simplify the accounting for measurement period adjustments in a business combination. Measurement period adjustments are changes to provisional amounts recorded when the accounting for a business combination is incomplete as of the end of a reporting period. The measurement period can extend for up to a year following the transaction
date. During the measurement period, companies may make adjustments to provisional amounts when information necessary to complete the measurement is received. The new guidance requires companies to recognize these adjustments, including any related impacts to net income, in the reporting period in which the adjustments are determined. Companies are no longer required to retroactively apply measurement period adjustments to all periods presented. The guidance was effective for the Company on October 1, 2016. However, as early adoption is permissible, the Company adopted the pronouncement beginning October 1, 2015. The adoption of this pronouncement did not have a significant impact on the Company’s consolidated financial statements and disclosures.
In November 2015, the FASB issued ASU 2015-17, “Balance Sheet Classification of Deferred Taxes,” which requires entities to present deferred tax assets and liabilities as noncurrent in a classified balance sheet. This guidance simplifies the current guidance, which requires entities to separately present deferred tax assets and liabilities as current and non-current in a classified balance sheet. ASU 2015-17 is effective for fiscal years beginning after December 15, 2016, and interim periods within those years, and may be applied either prospectively to all deferred tax assets and liabilities or retrospectively to all periods presented. As early adoption is permissible, the Company adopted this pronouncement beginning October 1, 2015 and applied this pronouncement retrospectively. In connection with adopting the pronouncement beginning October 1, 2015, the Company reclassified
$45.4 million
from current deferred income tax assets in the consolidated balance sheet as of September 30, 2015 to non-current deferred income tax liabilities.
In February 2016, the FASB issued ASU 2016-02, “Leases (ASC 842),” which will require that a lessee recognize assets and liabilities on the balance sheet for all leases with a lease term of more than twelve months, with the result being the recognition of a right of use asset and a lease liability. The guidance is effective for the Company for annual reporting periods, including interim periods therein, beginning October 1, 2019, with early adoption permitted. The Company is currently evaluating the impact of adopting this standard on its consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting.” The guidance requires the recognition of the income tax effects of awards in the income statement when the awards vest or are settled, thus eliminating additional paid in capital pools. The guidance also allows for the employer to repurchase more of an employee’s shares for tax withholding purposes without triggering liability accounting. In addition, the guidance allows for a policy election to account for forfeitures as they occur rather than on an estimated basis. ASU 2016-09 was effective for the Company for annual reporting periods, including interim periods therein, beginning October 1, 2017, with early adoption permitted. As early adoption is permissible, the Company adopted this standard in the fourth quarter of fiscal 2016. Changes have been applied prospectively in accordance with the standard and prior periods have not been adjusted. In addition, the Company continued to account for forfeitures on an estimated basis. Refer to Note 13, “Income Taxes” for additional information.
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments (ASU 2016-13),” which changes the impairment model for most financial assets. The new model uses a forward-looking expected loss method, which will generally result in earlier recognition of allowances for losses. ASU 2016-13 is effective for annual and interim periods beginning after December 15, 2019 and early adoption is permitted for annual and interim periods beginning after December 15, 2018. The Company is currently evaluating the impact of adopting this standard on its consolidated financial statements.
5. EARNINGS PER SHARE (TWO-CLASS METHOD)
The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended September 30,
|
|
2016
|
|
2015
|
|
2014
|
Numerator for earnings per share:
|
|
|
|
|
|
Net income
|
$
|
586,414
|
|
|
$
|
447,212
|
|
|
$
|
306,910
|
|
Less dividends paid on participating securities
|
(3,000
|
)
|
|
(3,365
|
)
|
|
(126,626
|
)
|
Net income applicable to common stock—basic and diluted
|
$
|
583,414
|
|
|
$
|
443,847
|
|
|
$
|
180,284
|
|
Denominator for basic and diluted earnings per share under the two-class method:
|
|
|
|
|
|
Weighted average common shares outstanding
|
53,326
|
|
|
53,112
|
|
|
52,748
|
|
Vested options deemed participating securities
|
2,831
|
|
|
3,494
|
|
|
4,245
|
|
Total shares for basic and diluted earnings per share
|
56,157
|
|
|
56,606
|
|
|
56,993
|
|
Net earnings per share—basic and diluted
|
$
|
10.39
|
|
|
$
|
7.84
|
|
|
$
|
3.16
|
|
6. SALES AND TRADE ACCOUNTS RECEIVABLE
Sales
—The Company’s sales and receivables 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.
Two customers accounted for approximately
13%
,
11%
and
8%
and
12%
,
12%
and
12%
of the Company’s net sales for fiscal years ended
2016
,
2015
and
2014
, 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
$1,169.5 million
,
$881.1 million
and
$735.9 million
during fiscal years ended
2016
,
2015
and
2014
.
Trade Accounts Receivable
—Trade accounts receivable consist of the following at September 30 (in thousands):
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Trade accounts receivable—gross
|
$
|
580,753
|
|
|
$
|
447,873
|
|
Allowance for uncollectible accounts
|
(4,414
|
)
|
|
(3,801
|
)
|
Trade accounts receivable—net
|
$
|
576,339
|
|
|
$
|
444,072
|
|
At
September 30, 2016
, approximately
13%
of the Company’s trade accounts receivable was due from
one
customer. In addition, approximately
43%
of the Company’s trade accounts receivable was due from entities that principally operate outside of the United States. Credit is extended based on an evaluation of each customer’s financial condition and collateral is generally not required.
7. INVENTORIES
Inventories consist of the following at September 30 (in thousands):
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Raw materials and purchased component parts
|
$
|
464,410
|
|
|
$
|
371,073
|
|
Work-in-progress
|
188,417
|
|
|
164,793
|
|
Finished Goods
|
153,253
|
|
|
122,956
|
|
Total
|
806,080
|
|
|
658,822
|
|
Reserves for excess and obsolete inventory
|
(82,069
|
)
|
|
(67,421
|
)
|
Inventories—net
|
$
|
724,011
|
|
|
$
|
591,401
|
|
8. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following at September 30 (in thousands):
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Land and improvements
|
$
|
57,510
|
|
|
$
|
42,235
|
|
Buildings and improvements
|
153,691
|
|
|
133,290
|
|
Machinery, equipment and other
|
338,527
|
|
|
283,670
|
|
Construction in progress
|
15,958
|
|
|
20,867
|
|
Total
|
565,686
|
|
|
480,062
|
|
Accumulated depreciation
|
(255,106
|
)
|
|
(219,378
|
)
|
Property, plant and equipment—net
|
$
|
310,580
|
|
|
$
|
260,684
|
|
9. INTANGIBLE ASSETS
Other intangible assets - net in the consolidated balance sheets consist of the following at September 30 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
Gross Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
|
|
Gross Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
|
Trademarks and trade names
|
$
|
720,263
|
|
|
$
|
—
|
|
|
$
|
720,263
|
|
|
$
|
634,504
|
|
|
$
|
—
|
|
|
$
|
634,504
|
|
Technology
|
1,279,335
|
|
|
288,429
|
|
|
990,906
|
|
|
1,100,317
|
|
|
233,434
|
|
|
866,883
|
|
Order backlog
|
55,341
|
|
|
29,641
|
|
|
25,700
|
|
|
19,501
|
|
|
10,709
|
|
|
8,792
|
|
Other
|
43,331
|
|
|
15,857
|
|
|
27,474
|
|
|
43,229
|
|
|
13,557
|
|
|
29,672
|
|
Total
|
$
|
2,098,270
|
|
|
$
|
333,927
|
|
|
$
|
1,764,343
|
|
|
$
|
1,797,551
|
|
|
$
|
257,700
|
|
|
$
|
1,539,851
|
|
Information regarding the amortization expense of amortizable intangible assets is detailed below (in thousands):
Aggregate Amortization Expense:
|
|
|
|
|
Years ended September 30,
|
|
2016
|
$
|
77,445
|
|
2015
|
54,219
|
|
2014
|
63,608
|
|
Estimated Amortization Expense:
|
|
|
|
|
Years ending September 30,
|
|
2017
|
$
|
92,411
|
|
2018
|
66,711
|
|
2019
|
66,711
|
|
2020
|
66,711
|
|
2021
|
66,711
|
|
Intangible assets acquired during the year ended
September 30, 2016
were as follows (in thousands):
|
|
|
|
|
|
|
|
Gross Amount
|
|
Amortization
Period
|
Intangible assets not subject to amortization:
|
|
|
|
Goodwill
|
$
|
1,008,510
|
|
|
|
Trademarks and trade names
|
101,500
|
|
|
|
|
1,110,010
|
|
|
|
Intangible assets subject to amortization:
|
|
|
|
Technology
|
206,700
|
|
|
20 years
|
Order backlog
|
36,600
|
|
|
1 year
|
|
243,300
|
|
|
17.1 years
|
Total
|
$
|
1,353,310
|
|
|
|
The changes in the carrying amount of goodwill by segment for the fiscal years ended
September 30, 2015
and
2016
were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Power &
Control
|
|
Airframe
|
|
Non-
aviation
|
|
Total
|
Balance at September 30, 2014
|
$
|
1,563,447
|
|
|
$
|
1,906,261
|
|
|
$
|
55,369
|
|
|
$
|
3,525,077
|
|
Goodwill acquired during the year (Note 2)
|
674,123
|
|
|
504,141
|
|
|
—
|
|
|
1,178,264
|
|
Purchase price allocation adjustments
|
—
|
|
|
(4,541
|
)
|
|
—
|
|
|
(4,541
|
)
|
Currency translation adjustment
|
873
|
|
|
(13,453
|
)
|
|
—
|
|
|
(12,580
|
)
|
Balance at September 30, 2015
|
2,238,443
|
|
|
2,392,408
|
|
|
55,369
|
|
|
4,686,220
|
|
Goodwill acquired during the year (Note 2)
|
1,008,510
|
|
|
—
|
|
|
—
|
|
|
1,008,510
|
|
Purchase price allocation adjustments
|
505
|
|
|
(792
|
)
|
|
—
|
|
|
(287
|
)
|
Currency translation adjustment
|
32
|
|
|
(15,023
|
)
|
|
—
|
|
|
(14,991
|
)
|
Balance at September 30, 2016
|
$
|
3,247,490
|
|
|
$
|
2,376,593
|
|
|
$
|
55,369
|
|
|
$
|
5,679,452
|
|
10. ACCRUED LIABILITIES
Accrued liabilities consist of the following at September 30 (in thousands):
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Compensation and related benefits
|
$
|
88,826
|
|
|
$
|
68,034
|
|
Interest
|
83,180
|
|
|
65,247
|
|
Breeze-Eastern dissenting shares (see Note 2)
|
33,644
|
|
|
—
|
|
Interest rate swap agreements
|
29,191
|
|
|
24,770
|
|
Product warranties
|
24,334
|
|
|
20,592
|
|
Other
|
84,937
|
|
|
92,910
|
|
Total
|
$
|
344,112
|
|
|
$
|
271,553
|
|
11. DEBT
The Company’s debt consists of the following at September 30 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
Gross Amount
|
|
Debt Issuance Costs
|
|
Original Issue Discount
|
|
Net Amount
|
Short-term borrowings—trade receivable securitization facility
|
$
|
200,000
|
|
|
$
|
(229
|
)
|
|
$
|
—
|
|
|
$
|
199,771
|
|
Term loans
|
$
|
5,288,708
|
|
|
$
|
(42,662
|
)
|
|
$
|
(11,439
|
)
|
|
$
|
5,234,607
|
|
2020 Notes
|
550,000
|
|
|
(4,299
|
)
|
|
—
|
|
|
545,701
|
|
2021 Notes
|
500,000
|
|
|
(3,141
|
)
|
|
—
|
|
|
496,859
|
|
2022 Notes
|
1,150,000
|
|
|
(8,381
|
)
|
|
—
|
|
|
1,141,619
|
|
2024 Notes
|
1,200,000
|
|
|
(9,218
|
)
|
|
—
|
|
|
1,190,782
|
|
2025 Notes
|
450,000
|
|
|
(4,144
|
)
|
|
—
|
|
|
445,856
|
|
2026 Notes
|
950,000
|
|
|
(9,588
|
)
|
|
—
|
|
|
940,412
|
|
|
10,088,708
|
|
|
(81,433
|
)
|
|
(11,439
|
)
|
|
9,995,836
|
|
Less current portion
|
53,074
|
|
|
(429
|
)
|
|
—
|
|
|
52,645
|
|
Long-term debt
|
$
|
10,035,634
|
|
|
$
|
(81,004
|
)
|
|
$
|
(11,439
|
)
|
|
$
|
9,943,191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
Gross Amount
|
|
Debt Issuance Costs
|
|
Original Issue Discount
|
|
Net Amount
|
Short-term borrowings—trade receivable securitization facility
|
$
|
200,000
|
|
|
$
|
(208
|
)
|
|
$
|
—
|
|
|
$
|
199,792
|
|
Term loans
|
$
|
4,382,813
|
|
|
$
|
(43,660
|
)
|
|
$
|
(5,471
|
)
|
|
$
|
4,333,682
|
|
2020 Notes
|
550,000
|
|
|
(5,355
|
)
|
|
—
|
|
|
544,645
|
|
2021 Notes
|
500,000
|
|
|
(3,789
|
)
|
|
—
|
|
|
496,211
|
|
2022 Notes
|
1,150,000
|
|
|
(9,821
|
)
|
|
—
|
|
|
1,140,179
|
|
2024 Notes
|
1,200,000
|
|
|
(10,394
|
)
|
|
—
|
|
|
1,189,606
|
|
2025 Notes
|
450,000
|
|
|
(4,513
|
)
|
|
—
|
|
|
445,487
|
|
|
8,232,813
|
|
|
(77,532
|
)
|
|
(5,471
|
)
|
|
8,149,810
|
|
Less current portion
|
43,840
|
|
|
(413
|
)
|
|
—
|
|
|
43,427
|
|
Long-term debt
|
$
|
8,188,973
|
|
|
$
|
(77,119
|
)
|
|
$
|
(5,471
|
)
|
|
$
|
8,106,383
|
|
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 trade accounts receivable. The Securitization Facility includes the right for the Company to exercise annual
one year
extensions as long as there have been no termination events as defined by the agreement. The Company uses the proceeds from the Securitization Facility as an alternative to other forms of debt, effectively reducing borrowing costs. In August 2016, the Company amended the Securitization Facility to extend the maturity date to August 1, 2017. The borrowing capacity remains at
$250 million
and as of
September 30, 2016
, the Company has borrowed
$200 million
under the Securitization Facility. The Securitization Facility is collateralized by substantially all of the Company’s domestic operations’ trade accounts receivable.
Term Loans
As of
September 30, 2016
and
2015
, TransDigm had
$5,288.7 million
and
$4,382.8 million
in fully drawn term loans and
$600.0 million
in revolving commitments. The term loans consist of four tranches as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term Loan Facility
|
|
Maturity Date
|
|
Interest Rate
|
|
Aggregate Principal as of September 30,
|
|
|
|
2016
|
|
2015
|
Tranche C
|
|
February 28, 2020
|
|
LIBO rate
(1)
+3.00%
|
|
$
|
1,228.3
|
|
|
$
|
2,035.4
|
|
Tranche D
|
|
June 4, 2021
|
|
LIBO rate
(1)
+ 3.00%
|
|
806.4
|
|
|
814.7
|
|
Tranche E
|
|
May 14, 2022
|
|
LIBO rate
(1)
+ 3.00%
|
|
1,518.0
|
|
|
1,532.7
|
|
Tranche F
|
|
June 9, 2023
|
|
LIBO rate
(1)
+ 3.00%
|
|
1,736.0
|
|
|
—
|
|
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 subject to a floor of
0.75%
. At
September 30, 2016
and
2015
, the applicable interest rates were as follows:
|
|
|
|
|
|
|
|
Term Loan Facility
|
|
Interest Rate as of September 30,
|
|
2016
|
|
2015
|
Tranche C
|
|
3.75
|
%
|
|
3.75
|
%
|
Tranche D
|
|
3.75
|
%
|
|
3.75
|
%
|
Tranche E
|
|
3.75
|
%
|
|
3.50
|
%
|
Tranche F
|
|
3.75
|
%
|
|
—
|
%
|
Second Amended and Restated Credit Agreement
On June 4, 2014, TransDigm Inc. amended and restated its existing credit agreement by entering into a Second Amended and Restated Credit Agreement (the “Credit Agreement”). The term loans under the Credit Agreement (the “2014 Term Loans”) consisted of
three
tranches of term loans, all of which were fully drawn—Tranche B Term Loans (
$500 million
), Tranche C Term Loans (
$2,600 million
) and the Tranche D Term Loans (
$825 million
). The revolving credit facility consisted of one
tranche—Revolving B Commitments (capacity up to
$420 million
, of which
$100 million
were multi-currency revolving commitments). The Tranche B Term Loans and Revolving B Commitments were refinanced in May 2015. The May 2015 financing is detailed in the “2015 Incremental Assumption and Refinancing Facility Agreement” section below. Approximately
$790 million
of existing Tranche C term loans were refinanced in June 2016 in connection with the incurrence of Tranche F Term Loans. The June 2016 financing is detailed in the “2016 Amendment to the Credit Agreement” section below. Pursuant to the June 2016 financing, aggregate quarterly principal payments of
$13.3 million
on the term loans are required, which began on
June 30, 2016
. Prior to the June 2016 financing, commencing on
June 30, 2015
, aggregate quarterly principal payments of
$7.3 million
were required.
Under the terms of the Credit Agreement, TransDigm is entitled on one or more occasions, subject to the satisfaction of certain conditions, to request additional commitments under the revolving credit facility or additional term loans in the aggregate principal amount of up to
$1,000 million
to the extent that existing or new lenders agree to provide such additional term loans.
2015 Incremental Assumption and Refinancing Facility Agreement
On May 14, 2015, TransDigm Inc., TD Group and certain subsidiaries of TransDigm entered into an Incremental Assumption and Refinancing Facility Agreement with Credit Suisse AG, as administrative agent and collateral agent, and the other agents and lenders named therein. Pursuant to the Incremental Assumption and Refinancing Facility Agreement, TransDigm, among other things, incurred new tranche E term loans under the Credit Agreement in an aggregate principal amount equal to
$1,000 million
and refinanced the existing Tranche B Term Loans in an aggregate principal amount equal to
$498 million
into additional Tranche E Term Loans (collectively, the “Tranche E Term Loans”). The terms and conditions (other than maturity date) that apply to the Tranche E Term Loans, including pricing, are substantially the same as the terms and conditions that apply to the Tranche B Term Loans immediately prior to the Incremental Assumption and Refinancing Facility Agreement. At
September 30, 2016
and
2015
, the unamortized original issue discount on the Tranche E Term Loans was
$4.7 million
and
$5.4 million
.
2016 Amendment to the Credit Agreement
On June 9, 2016, TransDigm Inc., TD Group and certain subsidiaries of TransDigm entered into Amendment No. 1 to the Credit Agreement (“Amendment to the Credit Agreement”) with Credit Suisse AG, as administrative agent and collateral agent, and the other agents and lenders named therein. Pursuant to the Amendment to the Credit Agreement, TransDigm, among other things, incurred new tranche F term loans (the “New Tranche F Term Loans”) in an aggregate principal amount equal to
$500 million
, received commitments in respect of delayed draw tranche F term loans (the “Delayed Draw Tranche F Term Loans”) in an aggregate amount equal to
$450 million
, converted approximately
$790 million
of existing Tranche C Term Loans into additional tranche F term loans (the “Converted Tranche F Term Loans” and together with the New Tranche F Term Loans and the Delayed Draw Tranche F Term Loans, the “Tranche F Term Loans”) and increased the margin applicable to the existing Tranche E Term Loans to LIBO rate plus
3.0%
per annum. The New Tranche F Term Loans and the Converted Tranche F Term Loans were fully drawn on June 9, 2016. Borrowing under the Delayed Draw Tranche F Term Loans was contingent upon the completion of the acquisition of Data Device Corporation, which was completed on June 23, 2016, and the Delayed Draw Tranche F Term Loans were fully drawn thereafter. The Tranche F Term Loans mature on
June 9, 2023
. The terms and conditions (other than maturity date) that apply to the Tranche F Term Loans, including pricing, are substantially the same as the terms and conditions that apply to the Tranche C Term Loans immediately prior to the Amendment to the Credit Agreement. The Tranche F Term Loans require quarterly principal payments of
$4.4 million
, which began on
September 30, 2016
. At
September 30, 2016
, the unamortized original issue discount on the Tranche F Term Loans was
$6.8 million
.
Under the terms of the Amendment to the Credit Agreement, certain existing revolving lenders increased the revolving commitments in an aggregate principal amount of
$50 million
(the “Extended Revolving Commitments”). The terms and conditions that apply to the Extended Revolving Commitments are the same as those of the existing US Dollar revolving credit commitments under the Credit Agreement. The Extended Revolving Commitments and existing revolving commitments consist of two tranches, of which approximately
$53 million
matures on February 28, 2018 and approximately
$547 million
matures on February 28, 2020. At
September 30, 2016
, the Company had
$17 million
letters of credit outstanding and
$583 million
of borrowings available in the aggregate under revolving commitments pursuant to the Credit Agreement, as amended.
Pursuant to the Amendment to the Credit Agreement and subject to certain conditions, TransDigm may make certain additional restricted payments, including to declare or pay dividends or repurchase stock, in an aggregate amount not to exceed
$1,500 million
on or prior to December 31, 2016. Subsequent to December 31, 2016, the aggregate amount of restricted payments remaining, not to exceed
$500 million
, may be made solely to the extent that the proceeds are used to repurchase stock.
On October 14, 2016, the Company announced that TD Group’s Board of Directors authorized and declared a special cash dividend of
$24.00
on each outstanding share of common stock and cash dividend equivalent payments on options granted under its stock option plans. The record date for the special dividend was October 24, 2016, and the payment date for the
dividend was November 1, 2016. The total cash payment related to the special dividend and dividend equivalent payments in the first quarter of fiscal 2017 will be approximately
$1,400 million
. Refer to Note 23, “Subsequent Events,” for further details.
All of the indebtedness outstanding under the Credit Agreement is guaranteed by TD Group and all of TransDigm’s current and future domestic restricted subsidiaries (other than immaterial subsidiaries). In addition, the obligations of TransDigm and the guarantors under the Credit Agreement, as amended, are secured ratably in accordance with each lender’s respective revolving and term loan commitments by a first priority security interest in substantially all of the existing and future property and assets, including inventory, equipment, general intangibles, intellectual property, investment property and other personal property (but excluding leasehold interests and certain other assets) of TransDigm and its existing and future domestic restricted subsidiaries (other than immaterial subsidiaries), and a first priority pledge of the capital stock of TransDigm and its subsidiaries (other than foreign subsidiaries and certain domestic subsidiaries, of which
65%
of the voting capital stock is pledged).
The term loans require mandatory prepayments of principal based on certain percentages of Excess Cash Flow (as defined in the Credit Agreement), commencing
90 days
after the end of each fiscal year, subject to certain exceptions. In addition, subject to certain exceptions (including, with respect to asset sales, the reinvestment in productive assets), TransDigm will be required to prepay the loans outstanding under the term loan facility at
100%
of the principal amount thereof, plus accrued and unpaid interest, with the net cash proceeds of certain asset sales and issuance or incurrence of certain indebtedness. No prepayments were required during fiscal 2016.
The Credit Agreement contains certain covenants that limit the ability of TD Group, TransDigm and TransDigm’s restricted subsidiaries to, among other things: (i) incur or guarantee additional indebtedness or issue preferred stock; (ii) pay distributions on, redeem or repurchase capital stock or redeem or repurchase subordinated debt; (iii) make investments; (iv) sell assets; (v) enter into agreements that restrict distributions or other payments from restricted subsidiaries to TransDigm; (vi) incur or suffer to exist liens securing indebtedness; (vii) consolidate, merge or transfer all or substantially all of their assets; and (viii) engage in transactions with affiliates.
In addition, under the Credit Agreement, if the usage of the revolving credit facility exceeds
25%
of the total revolving commitments, the Company will be required to maintain a maximum consolidated net leverage ratio of net debt, as defined, to trailing four-quarter EBITDA As Defined. A breach of any of the covenants or an inability to comply with the required leverage ratio could result in a default under the Credit Agreement or the Company’s Indentures for its senior subordinated notes.
If any such default occurs, the lenders under the Credit Agreement and the holders of the senior subordinated notes may elect to declare all outstanding borrowings, together with accrued interest and other amounts payable thereunder, to be immediately due and payable. The lenders under the Credit Agreement also have the right in these circumstances to terminate any commitments they have to provide further borrowings. In addition, following an event of default under the Credit Agreement, the lenders thereunder will have the right to proceed against the collateral granted to them to secure the debt, which includes our available cash, and they will also have the right to prevent us from making debt service payments on the senior subordinated notes.
Under the terms of the Credit Agreement, TransDigm is entitled, on one or more occasions, to request additional revolving commitments, additional term loans or a combination thereof, to the extent that the existing or new lenders agree to provide such additional commitments provided that, among other conditions, our consolidated net leverage ratio would be no greater than
7.25
to
1.00
and the consolidated secured net debt ratio would be no greater than
4.25
to
1.00
, in each case, after giving effect to such additional revolving commitments or additional term loans.
Debt Issuance Costs, Premiums and Discounts
During the year ended
September 30, 2016
, the Company recorded refinancing costs of
$15.8 million
representing debt issuance costs expensed in conjunction with the refinancing of the Tranche C Term Loans. During the year ended
September 30, 2015
the Company recorded refinancing costs of
$18.4 million
representing debt issuance costs expensed in conjunction with the refinancing of the Tranche B Term Loans and Revolving B Commitments. During the year ended
September 30, 2014
the Company recorded refinancing costs of
$131.6 million
representing debt issuance costs expensed in conjunction with the repurchase of the 7.75% Senior Subordinated Notes issued December 2010 (the “2018 Notes”). The charge consisted of the premium of
$121.1 million
paid to redeem the 2018 Notes and the write-off of debt issuance costs of
$10.5 million
.
Interest Rate Swap and Cap Agreements
See Note 20, “Derivatives and Hedging Instruments” 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
On October 15, 2012, TransDigm Inc. issued
$550 million
in aggregate principal amount of its 2020 Notes at an issue price of
100%
of the principal amount. The 2020 Notes bear interest at the rate of
5.50%
per annum, which accrues from October 15, 2012 and is payable
semiannually on April 15 and October 15 of each year
. The 2020 Notes mature on
October 15, 2020
, unless earlier redeemed or repurchased, and are subject to the terms and conditions as defined in the indenture governing the 2020 Notes.
On July 1, 2013, TransDigm issued
$500 million
in aggregate principal amount of its 2021 Notes at an issue price of
100%
of the principal amount. The 2021 Notes bear interest at the rate of
7.50%
per annum, which accrues from July 1, 2013 and is payable
semiannually on January 15 and July 15 of each year, commencing on January 15, 2014
. The 2021 Notes mature on
July 15, 2021
, unless earlier redeemed or repurchased, and are subject to the terms and conditions as defined in the indenture governing the 2021 Notes. On October 13, 2016, the Company announced the commencement of a cash tender offer for any and all of its outstanding 2021 Notes. Refer to Note 23, “Subsequent Events,” for further details.
On June 4, 2014, TransDigm Inc. issued
$2,350 million
in aggregate principal amount of Senior Subordinated Notes, consisting of
$1,150 million
aggregate principal amount of the 2022 Notes and
$1,200 million
aggregate principal amount of the 2024 Notes at an issue price of
100%
of the principal amount for both notes. The 2022 Notes bear interest at the rate of
6.00%
per annum, which accrues from June 4, 2014 and is payable
semiannually in arrears on January 15 and July 15 of each year, commencing on January 15, 2015
. The 2022 Notes mature on
July 15, 2022
, unless earlier redeemed or repurchased, and are subject to the terms and conditions set forth in the indenture governing the 2022 Notes. The 2024 Notes bear interest at the rate of
6.50%
per annum, which accrues from June 4, 2014 and is payable
semiannually in arrears on January 15 and July 15 of each year, commencing on January 15, 2015.
The 2024 Notes mature on
July 15, 2024
, unless earlier redeemed or repurchased, and are subject to the terms and conditions set forth in the indenture governing the 2024 Notes.
On May 14, 2015, TransDigm Inc. issued
$450 million
in aggregate principal amount of its 2025 Notes at an issue price of
100%
of the principal amount. The 2025 Notes bear interest at the rate of
6.50%
per annum, which accrues from May 14, 2015 and is payable
semiannually in arrears on May 15 and November 15 of each year, commencing on November 15, 2015
. The 2025 Notes mature on
May 15, 2025
, unless earlier redeemed or repurchased, and are subject to the terms and conditions set forth in the indenture governing the 2025 Notes.
On June 9, 2016, TransDigm Inc. issued
$950 million
in aggregate principal amount of its 2026 Notes at an issue price of
100%
of the principal amount. The 2026 Notes bear interest at the rate of
6.375%
per annum, which accrues from June 9, 2016 and is payable
semiannually in arrears on June 15 and December 15 of each year, commencing on December 15, 2016
. The 2026 Notes mature on
June 15, 2026
, unless earlier redeemed or repurchased, and are subject to the terms and conditions set forth in the indentures governing the 2026 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. 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 2014 Term Loans. TransDigm is in compliance with all the covenants contained in the Notes.
At
September 30, 2016
, future maturities of long-term debt are as follows (in thousands):
|
|
|
|
|
Years ended September 30,
|
|
2017
|
$
|
53,074
|
|
2018
|
53,074
|
|
2019
|
53,074
|
|
2020
|
1,230,345
|
|
2021
(1)
|
1,855,498
|
|
Thereafter
|
6,843,641
|
|
|
$
|
10,088,706
|
|
(1) On October 14, 2016, the Company entered into an Incremental Term Loan Assumption Agreement in which part of the proceeds will be used to repurchase its 2021 Notes in the first quarter of fiscal 2017. Refer to Note 23, “Subsequent Events” to our consolidated financial statements included herein for further details.
12. RETIREMENT PLANS
Defined Contribution Plans
—
The Company sponsors certain defined contribution employee savings plans that cover substantially all of the Company’s non-union 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 years ended
September 30, 2016
,
2015
and
2014
was approximately
$12.7 million
,
$9.9 million
and
$8.7 million
, respectively.
Defined Benefit Pension Plans
—
The Company maintains certain non-contributory defined benefit pension plans. 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.
The Company maintains certain qualified, non-contributory defined benefit pension plans, which together cover certain union employees.
The plans provide benefits of stated amounts for each year of service. The plan assets as of
September 30, 2016
and
2015
were approximately
$67.0 million
and
$65.5 million
, respectively. The Company’s projected benefit obligation for these defined benefit pension plans at
September 30, 2016
and
2015
was
$100.6 million
and
$81.5 million
, respectively. The total liability recognized at
September 30, 2016
and
2015
was
$33.6 million
and
$16.0 million
, respectively. The increase in the total liability at September 30, 2016 compared to September 30, 2015 is primarily attributable to the change in pension assumptions, particularly a lower discount rate and expected rate of return on assets, for the AmSafe Bridport Limited pension plan.
The net periodic pension cost recognized in the consolidated statements of income for the years ended
September 30, 2016
,
2015
, and
2014
was
$1.0 million
,
$0.6 million
, and
$0.5 million
, respectively.
The Company has a non-qualified, non-contributory defined benefit pension plan, which covers certain retired employees. The plan is unfunded and provides defined benefits based on the final average salary of the employees as defined in the plan. The projected benefit obligation for this defined benefit pension plan and the total liability recognized in the Consolidated Balance Sheet at
September 30, 2016
and
2015
was approximately
$8.6 million
and
$8.4 million
, respectively. The net periodic pension cost recognized in the consolidated statements of income for each of the years ended
September 30, 2016
,
2015
and
2014
was
$0.4 million
.
13. INCOME TAXES
The Company’s income tax provision on income before income taxes consists of the following for the periods shown below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended September 30,
|
|
2016
|
|
2015
|
|
2014
|
Current
|
|
|
|
|
|
Federal
|
$
|
153,957
|
|
|
$
|
163,182
|
|
|
$
|
138,596
|
|
State
|
9,234
|
|
|
7,823
|
|
|
7,807
|
|
Foreign
|
12,703
|
|
|
17,947
|
|
|
4,613
|
|
|
175,894
|
|
|
188,952
|
|
|
151,016
|
|
Deferred
|
5,808
|
|
|
660
|
|
|
(9,416
|
)
|
|
$
|
181,702
|
|
|
$
|
189,612
|
|
|
$
|
141,600
|
|
The differences between the income tax provision on income before income taxes 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,
|
|
2016
|
|
2015
|
|
2014
|
Tax at statutory rate of 35%
|
$
|
268,841
|
|
|
$
|
222,888
|
|
|
$
|
156,979
|
|
State and local income taxes, net of federal benefit
|
2,677
|
|
|
4,931
|
|
|
5,658
|
|
Stock compensation
|
(43,565
|
)
|
|
—
|
|
|
—
|
|
Foreign rate differential
|
(30,079
|
)
|
|
(14,332
|
)
|
|
(4,034
|
)
|
Domestic manufacturing deduction
|
(16,902
|
)
|
|
(17,834
|
)
|
|
(13,980
|
)
|
Other—net
|
730
|
|
|
(6,041
|
)
|
|
(3,023
|
)
|
Income tax provision
|
$
|
181,702
|
|
|
$
|
189,612
|
|
|
$
|
141,600
|
|
The components of the deferred taxes consist of the following at September 30 (in thousands):
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Deferred tax liabilities:
|
|
|
|
Intangible assets
|
$
|
627,633
|
|
|
$
|
508,485
|
|
Property, plant and equipment
|
31,438
|
|
|
21,083
|
|
Unremitted foreign earnings
|
9,434
|
|
|
7,178
|
|
Employee benefits, compensation and other accrued obligations
|
(86,229
|
)
|
|
(65,245
|
)
|
Interest rate swaps and caps
|
(36,478
|
)
|
|
(29,811
|
)
|
Net operating losses
|
(29,266
|
)
|
|
(15,945
|
)
|
Inventory
|
(22,382
|
)
|
|
(22,047
|
)
|
Environmental
|
(16,958
|
)
|
|
(7,897
|
)
|
Product warranties
|
(9,007
|
)
|
|
(6,247
|
)
|
Other
|
(3,216
|
)
|
|
(2,202
|
)
|
Total
|
464,969
|
|
|
387,352
|
|
Add: Valuation allowance
|
27,286
|
|
|
17,645
|
|
Total net deferred tax liabilities
|
$
|
492,255
|
|
|
$
|
404,997
|
|
At
September 30, 2016
, the Company has United Kingdom net operating loss carryforwards of approximately
$22.9 million
and state net operating loss carryforwards of approximately
$630.2 million
that expire in various years from
2016
to
2033
. A valuation allowance has been established equal to the amount of the net operating losses that the Company believes will not be utilized. The Company had state tax credit carryforwards of
$2.6 million
that expire from
2023 to 2029
.
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, Malaysia, Mexico, Norway, Singapore, Sri Lanka, Sweden and the United Kingdom. The Company is no longer subject to U.S. federal examinations for years before fiscal 2013. The Company is currently under examination in the U.S. for its fiscal 2014 federal taxes and in Belgium for its fiscal 2013 and 2014 years. The Company expects the examinations to be completed during fiscal 2017. In addition, the Company is subject to state income tax examinations for fiscal years 2009 and later.
The cumulative amount of the Company’s foreign undistributed net earnings for which no deferred taxes have been provided is approximately
$79.1 million
at
September 30, 2016
. The Company has no plans to repatriate such earnings in the foreseeable future.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Balance at beginning of period
|
$
|
6,859
|
|
|
$
|
13,951
|
|
Additions based on tax positions related to the prior year
|
2,014
|
|
|
1,304
|
|
Additions based on tax positions related to the current year
|
913
|
|
|
—
|
|
Reductions based on tax positions related to the prior year
|
(801
|
)
|
|
(2,099
|
)
|
Settlement with tax authorities
|
—
|
|
|
(957
|
)
|
Lapse in statute of limitations
|
(1,483
|
)
|
|
(3,645
|
)
|
Acquisitions
|
1,204
|
|
|
(1,695
|
)
|
Balance at end of period
|
$
|
8,706
|
|
|
$
|
6,859
|
|
Unrecognized tax benefits at
September 30, 2016
and
2015
, the recognition of which would have an effect on the effective tax rate for each fiscal year, amounted to
$8.5 million
and
$6.5 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,
2016
,
2015
and
2014
. As of
September 30, 2016
and
2015
, the Company accrued
$1.1 million
and
$1.4 million
, respectively, for the potential payment of interest and penalties. The Company anticipates no significant changes to its total unrecognized tax benefits through fiscal
2016
.
As disclosed in Note 4, “Recent Accounting Pronouncements,” during the fourth quarter of 2016, the Company adopted ASU No. 2016-09 “Improvements to Employee Share-Based Payment Accounting.” Therefore, effective October 1, 2015, excess tax benefits for share-based payments are recognized in the income tax provision rather than in additional paid-in capital. The impact on the Company’s financial statements for the fiscal year ended September 30, 2016 is summarized below:
|
|
|
|
|
Fiscal Year Ended
|
|
September 30, 2016
|
Decrease in Additional paid-in capital
|
43,565
|
|
Decrease in Income tax provision and increase in Net income
|
43,565
|
|
Increase in basic and diluted earnings per common share
|
0.78
|
|
14. 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 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 reduced 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 sheet includes environmental remediation obligations at
September 30, 2016
and
2015
of
$46.1 million
and
$21.9 million
, respectively. The increase in the environmental remediation obligations compared to September 30, 2015 is attributable to the environmental obligations assumed in the Breeze-Eastern acquisition as disclosed in Note 2, “Acquisitions.”
15. CAPITAL STOCK
Authorized capital stock of 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, 2016
and
2015
was
55,767,767
and
55,100,094
, respectively. The total number of shares held in treasury at September 30, 2016 and 2015 were
2,433,035
and
1,415,100
, respectively. There were
no
shares of preferred stock outstanding at
September 30, 2016
and
2015
. The terms of the preferred stock have not been established.
On October 22, 2014, our Board of Directors authorized a stock repurchase program permitting us to repurchase a portion of our outstanding shares not to exceed
$300 million
in the aggregate. During fiscal 2016, until the
$300 million
program was replaced on January 21, 2016, the Company had repurchased
452,187
shares of its common stock at a gross cost of approximately
$98.7
million at the weighted-average price per share of
$218.23
.
On January 21, 2016, our Board of Directors authorized a stock repurchase program replacing the
$300 million
program with a repurchase program permitting us to repurchase a portion of our outstanding shares not to exceed
$450 million
in the aggregate. For the fiscal year ended
September 30, 2016
, the Company had repurchased
563,200
shares of its common stock at a gross cost of approximately
$109.1 million
at the weighted-average price per share of
$193.67
under the
$450 million
stock repurchase program.
16. SEGMENTS
The Company’s businesses are organized and managed in
three
reporting segments: Power & Control, Airframe and Non-aviation.
The Power & Control segment includes operations that primarily develop, produce and market systems and components that predominately provide power to or control power of the aircraft utilizing electronic, fluid, power and mechanical motion control technologies. Major product offerings include mechanical/electro-mechanical actuators and controls, ignition systems and engine technology, specialized pumps and valves, power conditioning devices, specialized AC/DC electric motors and generators, databus and power controls, high performance hoists, winches and lifting devices and cargo loading and handling systems. Primary customers of this segment are engine and power system and subsystem suppliers, airlines, third party maintenance suppliers, military buying agencies and repair depots. Products are sold in the original equipment and aftermarket market channels.
The Airframe segment includes operations that primarily develop, produce and market systems and components that are used in non-power airframe applications utilizing airframe and cabin structure technologies. Major product offerings include engineered latching and locking devices, rods and locking devices, engineered connectors and elastomers, cockpit security components and systems, aircraft audio systems, specialized lavatory components, seat belts and safety restraints, engineered interior surfaces and related components, lighting and control technology, military personnel parachutes and cargo delivery systems. Primary customers of this segment are airframe manufacturers and cabin system suppliers and subsystem suppliers, airlines, third party maintenance suppliers, military buying agencies and repair depots. Products are sold in the original equipment and aftermarket market channels.
The Non-aviation segment includes operations that primarily develop, produce and market products for non-aviation markets. Major product offerings include seat belts and safety restraints for ground transportation applications, mechanical/electro-mechanical actuators and controls for space applications, and refueling systems for heavy equipment used in mining, construction and other industries. Primary customers of this segment are off-road vehicle suppliers and subsystem suppliers, child restraint system suppliers, satellite and space system suppliers and manufacturers of heavy equipment used in mining, construction and other industries.
The primary measurement used by management to review and assess the operating performance of each segment is EBITDA As Defined. The Company defines EBITDA As Defined as earnings before interest, taxes, depreciation and amortization plus certain non-operating items recorded as corporate expenses including refinancing costs, acquisition-related costs, transaction-related costs and non-cash compensation charges incurred in connection with the Company’s stock option plans. Acquisition-related costs represent accounting adjustments to inventory associated with acquisitions of businesses and product lines that were charged to cost of sales when the inventory was sold; costs incurred to integrate acquired businesses and product lines into the Company’s operations, facility relocation costs and other acquisition-related costs; transaction related costs comprising deal fees; legal, financial and tax diligence expenses and valuation costs that are required to be expensed as incurred and other acquisition accounting adjustments.
EBITDA As Defined is not a measurement of financial performance under GAAP. Although the Company uses EBITDA As Defined to assess the performance of its business and for various other purposes, the use of this non-GAAP financial measure as an analytical tool has limitations, and it should not be considered in isolation or as a substitute for analysis of the Company’s results of operations as reported in accordance with GAAP.
The Company’s segments are reported on the same basis used internally for evaluating performance and for allocating resources. The accounting policies for each segment are the same as those described in the summary of significant accounting policies in the Company’s consolidated financial statements. Intersegment sales and transfers are recorded at values based on market prices, which creates intercompany profit on intersegment sales or transfers that is eliminated in consolidation. Intersegment sales were insignificant for the periods presented below. Certain corporate-level expenses are allocated to the operating segments.
The following table presents net sales by reportable segment (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended September 30,
|
|
2016
|
|
2015
|
|
2014
|
Net sales to external customers
|
|
|
|
|
|
Power & Control
|
$
|
1,621,741
|
|
|
$
|
1,330,135
|
|
|
$
|
1,161,808
|
|
Airframe
|
1,447,894
|
|
|
1,280,706
|
|
|
1,115,594
|
|
Non-aviation
|
101,776
|
|
|
96,274
|
|
|
95,504
|
|
|
$
|
3,171,411
|
|
|
$
|
2,707,115
|
|
|
$
|
2,372,906
|
|
The following table reconciles EBITDA As Defined by segment to consolidated income before income taxes (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended September 30,
|
|
2016
|
|
2015
|
|
2014
|
EBITDA As Defined
|
|
|
|
|
|
Power & Control
|
$
|
787,418
|
|
|
$
|
653,050
|
|
|
$
|
585,671
|
|
Airframe
|
709,858
|
|
|
585,472
|
|
|
494,076
|
|
Non-aviation
|
28,228
|
|
|
22,406
|
|
|
18,479
|
|
Total segment EBITDA As Defined
|
1,525,504
|
|
|
1,260,928
|
|
|
1,098,226
|
|
Unallocated corporate expenses
|
30,308
|
|
|
27,274
|
|
|
25,019
|
|
Total Company EBITDA As Defined
|
1,495,196
|
|
|
1,233,654
|
|
|
1,073,207
|
|
Depreciation and amortization
|
121,670
|
|
|
93,663
|
|
|
96,385
|
|
Interest expense, net
|
483,850
|
|
|
418,785
|
|
|
347,688
|
|
Acquisition-related costs
|
57,699
|
|
|
36,205
|
|
|
21,160
|
|
Stock compensation expense
|
48,306
|
|
|
31,500
|
|
|
26,332
|
|
Refinancing costs
|
15,794
|
|
|
18,393
|
|
|
131,622
|
|
Other, net
|
(239
|
)
|
|
(1,716
|
)
|
|
1,510
|
|
Income before income taxes
|
$
|
768,116
|
|
|
$
|
636,824
|
|
|
$
|
448,510
|
|
The following table presents capital expenditures and depreciation and amortization by segment (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended September 30,
|
|
2016
|
|
2015
|
|
2014
|
Capital expenditures
|
|
|
|
|
|
Power & Control
|
$
|
25,120
|
|
|
$
|
24,664
|
|
|
$
|
13,882
|
|
Airframe
|
16,498
|
|
|
28,086
|
|
|
17,096
|
|
Non-aviation
|
2,169
|
|
|
1,889
|
|
|
3,097
|
|
Corporate
|
195
|
|
|
232
|
|
|
71
|
|
|
$
|
43,982
|
|
|
$
|
54,871
|
|
|
$
|
34,146
|
|
Depreciation and amortization
|
|
|
|
|
|
Power & Control
|
$
|
65,488
|
|
|
$
|
39,336
|
|
|
$
|
40,401
|
|
Airframe
|
52,198
|
|
|
50,355
|
|
|
50,311
|
|
Non-aviation
|
2,860
|
|
|
2,846
|
|
|
4,579
|
|
Corporate
|
1,124
|
|
|
1,126
|
|
|
1,094
|
|
|
$
|
121,670
|
|
|
$
|
93,663
|
|
|
$
|
96,385
|
|
The following table presents total assets by segment (in thousands):
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
September 30, 2015
|
Total assets
|
|
|
|
Power & Control
|
$
|
5,184,303
|
|
|
$
|
3,550,866
|
|
Airframe
|
3,922,532
|
|
|
3,922,439
|
|
Non-aviation
|
131,319
|
|
|
129,935
|
|
Corporate
|
1,488,123
|
|
|
700,695
|
|
|
$
|
10,726,277
|
|
|
$
|
8,303,935
|
|
The Company’s sales principally originate from the United States, and the Company’s long-lived assets are principally located in the United States.
17. 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, restricted stock and other stock-based incentives.
Non-cash stock compensation expense recognized by the Company during the years ended
September 30, 2016
,
2015
and
2014
was
$48.3 million
,
$31.5 million
and
$26.3 million
, respectively.
During the year ended September 30, 2014, the Company recorded additional stock compensation expense of
$6.4 million
representing costs that would have been recognized over the remaining requisite service period of the award for options granted in fiscal 2012 that became fully vested under the market sweep provision, as discussed further below.
The weighted-average grant date fair value of options granted during the fiscal years ended
September 30, 2016
,
2015
and
2014
was
$57.47
,
$65.57
and
$57.53
, 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, 2016
, there was approximately
$52.2 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
2.6 years
.
The fair value of the Company’s employee stock options was estimated at the date of grant using a Black-Scholes-Merton option-pricing model with the following weighted average assumptions for all options granted during the fiscal years ended:
|
|
|
|
|
|
|
|
Fiscal Years Ended September 30,
|
|
2016
|
|
2015
|
|
2014
|
Risk-free interest rate
|
1.33% to 1.73%
|
|
1.33% to 1.64%
|
|
1.71% to 2.03%
|
Expected life of options
|
5 years
|
|
5 years
|
|
6 years
|
Expected dividend yield of stock
|
—
|
|
—
|
|
—
|
Expected volatility of stock
|
25%
|
|
35%
|
|
35%
|
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 both TransDigm’s common stock and the stock of publicly traded companies in the Company’s peer group in the aerospace industry. Notwithstanding the special cash dividends declared and paid in June 2014 and November 2016, 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, 2016
,
2015
and
2014
was
$36.6 million
,
$14.9 million
and
$23.6 million
, respectively.
2014 Stock Option Plan
In July 2014, the Board of Directors of TD Group adopted a new 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, 2016
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, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Options
|
|
Weighted-Average
Exercise Price Per
Option
|
|
Weighted-Average
Remaining
Contractual Term
|
|
Aggregate
Intrinsic Value
|
Outstanding at September 30, 2015
|
—
|
|
|
$
|
—
|
|
|
|
|
|
Granted
|
147,935
|
|
|
228.73
|
|
|
|
|
|
Exercised
|
—
|
|
|
—
|
|
|
|
|
|
Forfeited
|
—
|
|
|
—
|
|
|
|
|
|
Expired
|
—
|
|
|
—
|
|
|
|
|
|
Outstanding at September 30, 2016
|
147,935
|
|
|
$
|
228.73
|
|
|
9.3 years
|
|
$
|
8,933,125
|
|
Expected to vest
|
72,636
|
|
|
$
|
229.19
|
|
|
9.3 years
|
|
$
|
4,352,809
|
|
Exercisable at September 30, 2016
|
32,195
|
|
|
$
|
229.79
|
|
|
9.3 years
|
|
$
|
1,910,135
|
|
At
September 30, 2016
, there were
4,852,065
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 has reserved
8,119,668
shares of its common stock for issuance to key employees, directors or consultants under the plan. Awards under the plan may be in the form of options, restricted stock or other stock-based awards. Options granted under the plan will expire no later than the tenth anniversary of the applicable date of grant of the options, and will 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 vests over
three years
.
In connection with the
$12.85
per share special cash dividend paid in November 2012, in order to take into account the earlier return of capital, the TD Group compensation committee adjusted the market-based vesting features in outstanding options pursuant to the authority granted to the committee under the TD Group stock incentive plan. Under this “market sweep” provision, unvested options granted prior to October 1, 2011 would accelerate and become fully vested if the closing price of the Company’s common stock exceeded
$147.15
per share (originally
$160
per share) on any
60
trading days during any consecutive 12-month period commencing March 1, 2013.
In addition, in connection with the
$12.85
per share special cash dividend paid in November 2012 and the
$22.00
per share special cash dividend paid in July 2013, in order to take into account the earlier return of capital, the TD Group compensation committee adjusted the market-based vesting features in outstanding options pursuant to the authority granted to the committee under the TD Group stock incentive plan. Under this “market sweep” provision, unvested options granted in fiscal 2012 would accelerate and become fully vested if the closing price of the Company’s common stock exceeded
$135.15
per share (originally
$170
per share) on any
60
trading days during any consecutive 12-month period commencing two years from the date of grant. Options granted since fiscal 2012 do not contain such accelerated vesting provision.
The Company also granted
17,700
restricted stock units with a weighted-average grant date fair value of
$189.97
during the fiscal year ended September 30, 2015. During the fiscal year ended
September 30, 2016
,
5,900
restricted stock units vested, and
11,800
restricted stock units were outstanding at
September 30, 2016
.
Performance Vested Stock Options
—All of the options granted through
September 30, 2016
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 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, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Options
|
|
Weighted-Average
Exercise Price Per
Option
|
|
Weighted-Average
Remaining
Contractual Term
|
|
Aggregate
Intrinsic Value
|
Outstanding at September 30, 2015
|
5,265,543
|
|
|
$
|
110.82
|
|
|
|
|
|
Granted
|
745,844
|
|
|
225.66
|
|
|
|
|
|
Exercised
|
(634,536
|
)
|
|
46.06
|
|
|
|
|
|
Forfeited
|
(136,980
|
)
|
|
179.82
|
|
|
|
|
|
Expired
|
—
|
|
|
—
|
|
|
|
|
|
Outstanding at September 30, 2016
|
5,239,871
|
|
|
$
|
133.20
|
|
|
6.1 years
|
|
$
|
816,998,251
|
|
Expected to vest
|
1,479,304
|
|
|
$
|
170.03
|
|
|
7.6 years
|
|
$
|
176,171,905
|
|
Exercisable at September 30, 2016
|
3,110,037
|
|
|
$
|
95.45
|
|
|
4.8 years
|
|
$
|
602,359,974
|
|
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
. 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.
Time Vested Stock Options
—During the fiscal year ended September 30, 2016,
5,486
of the Company’s time vested stock-based options, with a weighted-average exercise price per option of
$39.88
, were exercised. There are
no
remaining options outstanding as of September 30, 2016.
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, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Options
|
|
Weighted-Average
Exercise Price Per
Option
|
|
Weighted-Average
Remaining
Contractual Term
|
|
Aggregate
Intrinsic Value
|
Outstanding at September 30, 2015
|
113,016
|
|
|
$
|
98.11
|
|
|
|
|
|
Granted
|
—
|
|
|
—
|
|
|
|
|
|
Exercised
|
(26,687
|
)
|
|
24.99
|
|
|
|
|
|
Outstanding at September 30, 2016
|
86,329
|
|
|
$
|
120.72
|
|
|
5.6 years
|
|
$
|
14,538,166
|
|
Exercisable at September 30, 2016
|
47,414
|
|
|
$
|
113.02
|
|
|
5.1 years
|
|
$
|
8,349,513
|
|
The total intrinsic value of time, performance and rollover options exercised during the fiscal years ended
September 30, 2016
,
2015
and
2014
was
$133.2 million
,
$206.9 million
and
$88.7 million
, respectively.
In addition to shares issued pursuant to options exercised, during the fiscal year ended
September 30, 2016
,
964
shares of common stock were issued with a weighted-average grant date fair value of
$247.51
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 and the 2014 Stock Option Plan Dividend Equivalent Plan, all of the options granted under the 2003 stock option plan, the 2006 stock incentive plan and the 2014 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 (including those options that became fully vested under market sweep provisions thereof) were
$3.0 million
,
$3.4 million
and
$126.6 million
during the years ended
September 30, 2016
,
2015
and
2014
, respectively. In connection with the special dividend declared in October 2016, we will pay approximately
$100 million
in dividend equivalent payments in the first quarter of fiscal 2017.
18. 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 years ended September 30,
2016
,
2015
and
2014
was
$18.3 million
,
$14.0 million
and
$12.1 million
, respectively.
Future minimum rental commitments at
September 30, 2016
under operating leases having initial or remaining non-cancelable lease terms exceeding one year are
$14.5 million
in fiscal
2017
,
$14.0 million
in fiscal
2018
,
$11.6 million
in fiscal
2019
,
$9.9 million
in fiscal
2020
,
$10.8 million
in fiscal
2021
, and
$30.2 million
thereafter.
19. 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.
The following summarizes the carrying amounts and fair values of financial instruments (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
September 30, 2015
|
|
Level
|
|
Carrying
Amount
|
|
Fair Value
|
|
Carrying
Amount
|
|
Fair Value
|
Assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
1
|
|
|
$
|
1,586,994
|
|
|
$
|
1,586,994
|
|
|
$
|
714,033
|
|
|
$
|
714,033
|
|
Interest rate cap agreements
(1)
|
2
|
|
|
4,232
|
|
|
4,232
|
|
|
8,180
|
|
|
8,180
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreements
(2)
|
2
|
|
|
29,191
|
|
|
29,191
|
|
|
24,770
|
|
|
24,770
|
|
Interest rate swap agreements
(3)
|
2
|
|
|
53,824
|
|
|
53,824
|
|
|
49,730
|
|
|
49,730
|
|
Short-term borrowings - trade receivable securitization facility
(4)
|
1
|
|
|
199,771
|
|
|
199,771
|
|
|
199,792
|
|
|
199,792
|
|
Long-term debt, including current portion:
|
|
|
|
|
|
|
|
|
|
Term loans
(4)
|
2
|
|
|
5,234,607
|
|
|
5,284,037
|
|
|
4,333,682
|
|
|
4,344,000
|
|
2020 Notes
(4)
|
1
|
|
|
545,701
|
|
|
566,500
|
|
|
544,645
|
|
|
520,000
|
|
2021 Notes
(4)
|
1
|
|
|
496,859
|
|
|
530,000
|
|
|
496,211
|
|
|
524,000
|
|
2022 Notes
(4)
|
1
|
|
|
1,141,619
|
|
|
1,214,688
|
|
|
1,140,179
|
|
|
1,081,000
|
|
2024 Notes
(4)
|
1
|
|
|
1,190,782
|
|
|
1,266,000
|
|
|
1,189,606
|
|
|
1,119,000
|
|
2025 Notes
(4)
|
1
|
|
|
445,856
|
|
|
469,125
|
|
|
445,487
|
|
|
417,000
|
|
2026 Notes
(4)
|
1
|
|
|
940,412
|
|
|
985,625
|
|
|
—
|
|
|
—
|
|
|
|
(1)
|
Included in other non-current assets on the consolidated balance sheet.
|
|
|
(2)
|
Included in accrued liabilities on the consolidated balance sheet.
|
|
|
(3)
|
Included in other non-current liabilities on the consolidated balance sheet.
|
|
|
(4)
|
The carrying amount of the debt instrument is presented net of the debt issuance costs in connection with the Company’s adoption of ASU 2015-03. Refer to Note 11, “Debt,” for gross carrying amounts.
|
The Company values its financial instruments using an industry standard market approach, in which prices and other relevant information is generated by market transactions involving identical or comparable assets or liabilities. No financial instruments were recognized using unobservable inputs.
Interest rate swaps were measured at fair value using quoted market prices for the swap interest rate indexes over the term of the swap discounted to present value versus the fixed rate of the contract. The interest rate caps were measured at fair value using implied volatility rates of each individual caplet and the yield curve for the related periods. The estimated fair value of the Company’s term loans was based on information provided by the agent under the Company’s senior secured credit facility. The estimated fair values of the Company’s notes were based upon quoted market prices. There has not been any impact to the fair value of derivative liabilities due to the Company’s own credit risk. Similarly, there has not been any impact to the fair value of derivative assets based on the Company’s evaluation of counterparties’ credit risks.
The fair value of cash and cash equivalents, trade accounts receivable-net and accounts payable approximated book value due to the short-term nature of these instruments at September 30,
2016
and
2015
.
20. DERIVATIVES AND HEDGING ACTIVITIES
The Company is exposed to, among other things, the impact of changes in interest rates in the normal course of business. The Company’s risk management program is designed to manage the exposure and volatility arising from these risks, and utilizes derivative financial instruments to offset a portion of these risks. The Company uses derivative financial instruments only to the extent necessary to hedge identified business risks and does not enter into such transactions for trading purposes. The Company generally does not require collateral or other security with counterparties to these financial instruments and is therefore subject to credit risk in the event of nonperformance; however, the Company monitors credit risk and currently does not anticipate nonperformance by other parties. The Company has agreements with each of its swap and cap counterparties that contain a provision whereby if the Company defaults on the credit facility the Company could also be declared in default on its swaps and caps, resulting in an acceleration of payment under the swaps and caps.
Interest rate swap and cap agreements are used to manage interest rate risk associated with floating-rate borrowings under our credit facilities. 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 that 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 income (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.
The following table summarizes the Company’s interest rate swap agreements:
|
|
|
|
|
|
Aggregate Notional Amount
(in millions)
|
Start Date
|
End Date
|
Related Debt
|
Conversion of Related Variable Rate Debt to Fixed Rate of:
|
$1,000
|
6/28/2019
|
6/30/2021
|
Tranche F Term Loans
|
4.8% (1.8% plus the 3% margin percentage)
|
$750
|
3/31/2016
|
6/30/2020
|
Tranche D Term Loans
|
5.8% (2.8% plus the 3% margin percentage)
|
$1,000
|
9/30/2014
|
6/30/2019
|
Tranche C Term Loans
|
5.4% (2.4% plus the 3% 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:
|
$400
|
6/30/2016
|
6/30/2021
|
Tranche F Term Loans
|
Three month LIBO rate of 2.0%
|
$750
|
9/30/2015
|
6/30/2020
|
Tranche E Term Loans
|
Three month LIBO rate of 2.5%
|
In connection with the refinancing of the 2011 Term Loans, the Company no longer designated the interest rate swap agreements relating to the
$353 million
aggregate notional amount as cash flow hedges for accounting purposes. Accordingly, amounts previously recorded as a component of accumulated other comprehensive loss in stockholder’s deficit amortized into earnings totaled
$3.2 million
and
$4.2 million
for the fiscal years ended September 30, 2015 and 2014. There was no remaining amortization for these dedesignated swap agreements as of September 30, 2015.
Based on the fair value amounts of the interest rate swap and cap agreements determined as of
September 30, 2016
, 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
$33.9 million
.
Effective September 30, 2016, the Company redesignated the existing interest rate cap agreements 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 Credit Agreement. Accordingly, the amount recorded as a component of accumulated other comprehensive loss in stockholders’ deficit related to these redesignated interest rate cap hedges of approximately
$14.6 million
as of September 30, 2016 will be amortized into earnings based on the remaining term of the related interest rate cap agreements.
21. ACCUMULATED OTHER COMPREHENSIVE LOSS
The following table presents the components of “Accumulated other comprehensive loss” (“AOCI”) in the consolidated balance sheet, net of taxes, for the years ended September 30,
2016
,
2015
and
2014
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized (loss) gain on derivatives designated and qualifying as cash flow hedges
(2)
|
|
Defined benefit pension plan activity
(3)
|
|
Currency translation adjustment
|
|
Total
|
Balance at September 30, 2014
|
$
|
(15,888
|
)
|
|
$
|
(6,227
|
)
|
|
$
|
(3,056
|
)
|
|
$
|
(25,171
|
)
|
Other comprehensive loss before reclassification
|
(38,754
|
)
|
|
(5,786
|
)
|
|
(29,448
|
)
|
|
(73,988
|
)
|
Amounts reclassified from AOCI related to interest rate swap agreements
(1)
|
3,150
|
|
|
—
|
|
|
—
|
|
|
3,150
|
|
Net current-period other comprehensive loss
|
$
|
(35,604
|
)
|
|
$
|
(5,786
|
)
|
|
$
|
(29,448
|
)
|
|
$
|
(70,838
|
)
|
Balance at September 30, 2015
|
$
|
(51,492
|
)
|
|
$
|
(12,013
|
)
|
|
$
|
(32,504
|
)
|
|
$
|
(96,009
|
)
|
Other comprehensive loss before reclassification
|
(9,664
|
)
|
|
(12,284
|
)
|
|
(31,846
|
)
|
|
(53,794
|
)
|
Amounts reclassified from AOCI related to interest rate swap agreements
(1)
|
16
|
|
|
—
|
|
|
—
|
|
|
16
|
|
Net current-period other comprehensive loss
|
$
|
(9,648
|
)
|
|
$
|
(12,284
|
)
|
|
$
|
(31,846
|
)
|
|
$
|
(53,778
|
)
|
Balance at September 30, 2016
|
$
|
(61,140
|
)
|
|
$
|
(24,297
|
)
|
|
$
|
(64,350
|
)
|
|
$
|
(149,787
|
)
|
|
|
(1)
|
This component of AOCI is included in interest expense (see Note 20, “Derivatives and Hedging Activities,” for additional details).
|
|
|
(2)
|
Unrealized loss represents interest rate swap and cap agreements, net of taxes of
$6,868
,
$20,716
and
$3,704
for the years ended
September 30, 2016
,
2015
and
2014
, respectively.
|
|
|
(3)
|
Defined benefit pension plan activity represent pension liability adjustments, net of tax of
$6,017
,
$3,299
and
$2,818
, respectively.
|
22. QUARTERLY FINANCIAL DATA (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
Ended
January 2, 2016
|
|
Second Quarter
Ended
April 2, 2016
|
|
Third Quarter
Ended
July 2, 2016
|
|
Fourth Quarter
Ended
September 30, 2016
|
|
(in thousands, except per share amounts)
|
Year Ended September 30, 2016
|
|
|
|
|
|
|
|
Net sales
(2)
|
$
|
701,695
|
|
|
$
|
796,801
|
|
|
$
|
797,692
|
|
|
$
|
875,223
|
|
Gross profit
(2)
|
374,567
|
|
|
425,662
|
|
|
443,515
|
|
|
484,319
|
|
Net income
(2)(3)
|
129,441
|
|
|
141,683
|
|
|
160,622
|
|
|
154,668
|
|
Net earnings per share—basic and diluted
(1)(3)
|
$
|
2.23
|
|
|
$
|
2.52
|
|
|
$
|
2.88
|
|
|
$
|
2.77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
Ended
December 27, 2014
|
|
Second Quarter
Ended
March 28, 2015
|
|
Third Quarter
Ended
June 27, 2015
|
|
Fourth Quarter
Ended
September 30, 2015
|
|
(in thousands, except per share amounts)
|
Year Ended September 30, 2015
|
|
|
|
|
|
|
|
Net sales
(2)
|
$
|
586,898
|
|
|
$
|
619,030
|
|
|
$
|
691,395
|
|
|
$
|
809,792
|
|
Gross profit
(2)
|
321,173
|
|
|
341,617
|
|
|
359,455
|
|
|
427,600
|
|
Net income
(2)
|
95,533
|
|
|
110,894
|
|
|
99,112
|
|
|
141,673
|
|
Net earnings (loss) per share—basic and diluted
(1)
|
$
|
1.63
|
|
|
$
|
1.96
|
|
|
$
|
1.75
|
|
|
$
|
2.50
|
|
|
|
(1)
|
The sum of the earnings per share for the four quarters in a year does not necessarily equal the total year earnings per share.
|
|
|
(2)
|
The Company’s operating results include the results of operations of acquisitions from the effective date of each acquisition. See Note 2 “Acquisitions,” for additional details.
|
|
|
(3)
|
The Company adopted ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting.” in the fourth quarter of fiscal 2016. Therefore, effective October 1, 2015, quarterly net income and net earnings per share - basic and diluted were adjusted in accordance with ASU 2016-09 and prior periods have not been adjusted. Refer to Note 4, “Recent Accounting Pronouncements,” and Note 13, “Income Taxes” for additional information.
|
23. SUBSEQUENT EVENTS
On October 14, 2016, the Company entered into an Incremental Term Loan Assumption Agreement (the “Assumption Agreement”) with Credit Suisse AG, as administrative agent and collateral agent, and as a lender, in connection with the 2016 Term Loans. The Assumption Agreement, among other things, provides for (i) additional tranche F term loans in an aggregate principal amount equal to
$650 million
, which were fully drawn on October 14, 2016 (the “Initial Additional Tranche F Term Loans”), and (ii) additional delayed draw tranche F term loans in an aggregate principal amount not to exceed
$500 million
, which were fully drawn on October 27, 2016 (the “Delayed Draw Additional Tranche F Term Loans”, and together with the Initial Additional Tranche F Term Loans, the “Additional Tranche F Term Loans”), the proceeds of which will be used to repurchase its 2021 Notes in the first quarter of fiscal 2017. The terms and conditions that apply to the Additional Tranche F Term Loans are substantially the same as the terms and conditions that apply to the Tranche F Term Loans under the 2016 Term Loans immediately prior to the Assumption Agreement.
On October 14, 2016, the Company announced that TD Group’s Board of Directors authorized and declared a special cash dividend of
$24.00
on each outstanding share of common stock and cash dividend equivalent payments on options granted under its stock option plans. The record date for the special dividend was October 24, 2016, and the payment date for the dividend was November 1, 2016. The total cash payment related to the special dividend and dividend equivalent payments in the first quarter of fiscal 2017 will be approximately
$1,400 million
.
24. SUPPLEMENTAL GUARANTOR INFORMATION
TransDigm’s 2020 Notes, 2021 Notes, 2022 Notes, 2024 Notes, 2025 Notes and 2026 Notes are jointly and severally guaranteed, on a senior subordinated basis, by TD Group and TransDigm Inc.’s
100%
Domestic Restricted Subsidiaries, as defined in the Indentures. The following supplemental condensed consolidating financial information presents, in separate columns, the balance sheets of the Company as of
September 30, 2016
and
September 30, 2015
and its statements of income and cash flows for the fiscal years ended
September 30, 2016
,
2015
and
2014
for (i) TransDigm Group on a parent only basis with its investment in subsidiaries recorded under the equity method, (ii) TransDigm Inc. including its directly owned operations and non-operating entities, (iii) the Subsidiary Guarantors on a combined basis, (iv) Non-Guarantor Subsidiaries and (v) the Company on a consolidated basis.
Separate financial statements of TransDigm Inc. are not presented because TransDigm Inc.’s 2020 Notes, 2021 Notes, 2022 Notes, 2024 Notes, 2025 Notes and 2026 Notes are fully and unconditionally guaranteed on a senior subordinated basis by TD Group and all existing 100% owned domestic subsidiaries of TransDigm Inc. and because TD Group has no significant operations or assets separate from its investment in TransDigm Inc.
TRANSDIGM GROUP INCORPORATED
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF SEPTEMBER 30,
2016
(Amounts in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TransDigm
Group
|
|
TransDigm
Inc.
|
|
Subsidiary
Guarantors
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Total
Consolidated
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
13,560
|
|
|
$
|
1,421,251
|
|
|
$
|
8,808
|
|
|
$
|
143,375
|
|
|
$
|
—
|
|
|
$
|
1,586,994
|
|
Trade accounts receivable—Net
|
—
|
|
|
—
|
|
|
26,210
|
|
|
561,124
|
|
|
(10,995
|
)
|
|
576,339
|
|
Inventories—Net
|
—
|
|
|
42,309
|
|
|
586,648
|
|
|
96,229
|
|
|
(1,175
|
)
|
|
724,011
|
|
Prepaid expenses and other
|
—
|
|
|
8,209
|
|
|
27,381
|
|
|
7,763
|
|
|
—
|
|
|
43,353
|
|
Total current assets
|
13,560
|
|
|
1,471,769
|
|
|
649,047
|
|
|
808,491
|
|
|
(12,170
|
)
|
|
2,930,697
|
|
INVESTMENT IN SUBSIDIARIES AND INTERCOMPANY BALANCES
|
(665,050
|
)
|
|
9,671,019
|
|
|
6,182,809
|
|
|
861,647
|
|
|
(16,050,425
|
)
|
|
—
|
|
PROPERTY, PLANT AND EQUIPMENT—Net
|
—
|
|
|
15,991
|
|
|
250,544
|
|
|
44,045
|
|
|
—
|
|
|
310,580
|
|
GOODWILL
|
—
|
|
|
68,593
|
|
|
4,952,950
|
|
|
657,909
|
|
|
—
|
|
|
5,679,452
|
|
OTHER INTANGIBLE ASSETS—Net
|
—
|
|
|
24,801
|
|
|
1,483,285
|
|
|
256,257
|
|
|
—
|
|
|
1,764,343
|
|
OTHER
|
—
|
|
|
10,319
|
|
|
24,063
|
|
|
6,823
|
|
|
—
|
|
|
41,205
|
|
TOTAL ASSETS
|
$
|
(651,490
|
)
|
|
$
|
11,262,492
|
|
|
$
|
13,542,698
|
|
|
$
|
2,635,172
|
|
|
$
|
(16,062,595
|
)
|
|
$
|
10,726,277
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
$
|
—
|
|
|
$
|
52,645
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
52,645
|
|
Short-term borrowings—trade receivable securitization facility
|
—
|
|
|
—
|
|
|
—
|
|
|
199,771
|
|
|
—
|
|
|
199,771
|
|
Accounts payable
|
—
|
|
|
15,347
|
|
|
120,455
|
|
|
31,560
|
|
|
(11,287
|
)
|
|
156,075
|
|
Accrued liabilities
|
—
|
|
|
159,909
|
|
|
123,646
|
|
|
60,557
|
|
|
|
|
|
344,112
|
|
Total current liabilities
|
—
|
|
|
227,901
|
|
|
244,101
|
|
|
291,888
|
|
|
(11,287
|
)
|
|
752,603
|
|
LONG-TERM DEBT
|
—
|
|
|
9,943,191
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9,943,191
|
|
DEFERRED INCOME TAXES
|
—
|
|
|
434,013
|
|
|
(544
|
)
|
|
58,786
|
|
|
—
|
|
|
492,255
|
|
OTHER NON-CURRENT LIABILITIES
|
—
|
|
|
82,677
|
|
|
70,124
|
|
|
36,917
|
|
|
—
|
|
|
189,718
|
|
Total liabilities
|
—
|
|
|
10,687,782
|
|
|
313,681
|
|
|
387,591
|
|
|
(11,287
|
)
|
|
11,377,767
|
|
STOCKHOLDERS’ (DEFICIT) EQUITY
|
(651,490
|
)
|
|
574,710
|
|
|
13,229,017
|
|
|
2,247,581
|
|
|
(16,051,308
|
)
|
|
(651,490
|
)
|
TOTAL LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
|
$
|
(651,490
|
)
|
|
$
|
11,262,492
|
|
|
$
|
13,542,698
|
|
|
$
|
2,635,172
|
|
|
$
|
(16,062,595
|
)
|
|
$
|
10,726,277
|
|
TRANSDIGM GROUP INCORPORATED
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF SEPTEMBER 30,
2015
(Amounts in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TransDigm
Group
|
|
TransDigm
Inc.
|
|
Subsidiary
Guarantors
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Total
Consolidated
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
1,500
|
|
|
$
|
659,365
|
|
|
$
|
7,911
|
|
|
$
|
45,257
|
|
|
$
|
—
|
|
|
$
|
714,033
|
|
Trade accounts receivable—Net
|
—
|
|
|
—
|
|
|
48,369
|
|
|
413,380
|
|
|
(17,677
|
)
|
|
444,072
|
|
Inventories—Net
|
—
|
|
|
34,457
|
|
|
461,103
|
|
|
96,541
|
|
|
(700
|
)
|
|
591,401
|
|
Prepaid expenses and other
|
—
|
|
|
2,804
|
|
|
15,096
|
|
|
19,181
|
|
|
—
|
|
|
37,081
|
|
Total current assets
|
1,500
|
|
|
696,626
|
|
|
532,479
|
|
|
574,359
|
|
|
(18,377
|
)
|
|
1,786,587
|
|
INVESTMENT IN SUBSIDIARIES AND INTERCOMPANY BALANCES
|
(1,039,806
|
)
|
|
6,963,034
|
|
|
4,501,501
|
|
|
(33,208
|
)
|
|
(10,391,521
|
)
|
|
—
|
|
PROPERTY, PLANT AND EQUIPMENT—Net
|
—
|
|
|
16,565
|
|
|
201,499
|
|
|
42,620
|
|
|
—
|
|
|
260,684
|
|
GOODWILL
|
—
|
|
|
65,886
|
|
|
3,984,199
|
|
|
636,135
|
|
|
—
|
|
|
4,686,220
|
|
OTHER INTANGIBLE ASSETS—Net
|
—
|
|
|
38,621
|
|
|
1,236,376
|
|
|
266,315
|
|
|
(1,461
|
)
|
|
1,539,851
|
|
OTHER
|
—
|
|
|
13,712
|
|
|
14,528
|
|
|
2,353
|
|
|
—
|
|
|
30,593
|
|
TOTAL ASSETS
|
$
|
(1,038,306
|
)
|
|
$
|
7,794,444
|
|
|
$
|
10,470,582
|
|
|
$
|
1,488,574
|
|
|
$
|
(10,411,359
|
)
|
|
$
|
8,303,935
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
$
|
—
|
|
|
$
|
43,427
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
43,427
|
|
Short-term borrowings—trade receivable securitization facility
|
—
|
|
|
—
|
|
|
—
|
|
|
199,792
|
|
|
—
|
|
|
199,792
|
|
Accounts payable
|
—
|
|
|
16,826
|
|
|
102,968
|
|
|
37,556
|
|
|
(14,528
|
)
|
|
142,822
|
|
Accrued liabilities
|
—
|
|
|
97,045
|
|
|
117,243
|
|
|
57,265
|
|
|
—
|
|
|
271,553
|
|
Total current liabilities
|
—
|
|
|
157,298
|
|
|
220,211
|
|
|
294,613
|
|
|
(14,528
|
)
|
|
657,594
|
|
LONG-TERM DEBT
|
—
|
|
|
8,106,383
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
8,106,383
|
|
DEFERRED INCOME TAXES
|
—
|
|
|
334,848
|
|
|
2,410
|
|
|
67,739
|
|
|
—
|
|
|
404,997
|
|
OTHER NON-CURRENT LIABILITIES
|
—
|
|
|
99,743
|
|
|
35,222
|
|
|
38,302
|
|
|
—
|
|
|
173,267
|
|
Total liabilities
|
—
|
|
|
8,698,272
|
|
|
257,843
|
|
|
400,654
|
|
|
(14,528
|
)
|
|
9,342,241
|
|
STOCKHOLDERS’ (DEFICIT) EQUITY
|
(1,038,306
|
)
|
|
(903,828
|
)
|
|
10,212,739
|
|
|
1,087,920
|
|
|
(10,396,831
|
)
|
|
(1,038,306
|
)
|
TOTAL LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
|
$
|
(1,038,306
|
)
|
|
$
|
7,794,444
|
|
|
$
|
10,470,582
|
|
|
$
|
1,488,574
|
|
|
$
|
(10,411,359
|
)
|
|
$
|
8,303,935
|
|
TRANSDIGM GROUP INCORPORATED
CONDENSED CONSOLIDATING STATEMENT OF INCOME AND COMPREHENSIVE INCOME
FOR THE YEAR ENDED SEPTEMBER 30,
2016
(Amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TransDigm
Group
|
|
TransDigm
Inc.
|
|
Subsidiary
Guarantors
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Total
Consolidated
|
NET SALES
|
$
|
—
|
|
|
$
|
132,407
|
|
|
$
|
2,580,091
|
|
|
$
|
486,198
|
|
|
$
|
(27,285
|
)
|
|
$
|
3,171,411
|
|
COST OF SALES
|
—
|
|
|
75,521
|
|
|
1,105,893
|
|
|
289,219
|
|
|
(27,285
|
)
|
|
1,443,348
|
|
GROSS PROFIT
|
—
|
|
|
56,886
|
|
|
1,474,198
|
|
|
196,979
|
|
|
—
|
|
|
1,728,063
|
|
SELLING AND ADMINISTRATIVE EXPENSES
|
—
|
|
|
114,546
|
|
|
210,209
|
|
|
58,103
|
|
|
—
|
|
|
382,858
|
|
AMORTIZATION OF INTANGIBLE ASSETS
|
—
|
|
|
684
|
|
|
65,299
|
|
|
11,462
|
|
|
—
|
|
|
77,445
|
|
(LOSS) INCOME FROM OPERATIONS
|
—
|
|
|
(58,344
|
)
|
|
1,198,690
|
|
|
127,414
|
|
|
—
|
|
|
1,267,760
|
|
INTEREST EXPENSE (INCOME)—Net
|
—
|
|
|
490,974
|
|
|
259
|
|
|
(7,383
|
)
|
|
—
|
|
|
483,850
|
|
REFINANCING COSTS
|
—
|
|
|
15,794
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
15,794
|
|
EQUITY IN INCOME OF SUBSIDIARIES
|
(586,414
|
)
|
|
(1,044,371
|
)
|
|
—
|
|
|
—
|
|
|
1,630,785
|
|
|
—
|
|
INCOME BEFORE INCOME TAXES
|
586,414
|
|
|
479,259
|
|
|
1,198,431
|
|
|
134,797
|
|
|
(1,630,785
|
)
|
|
768,116
|
|
INCOME TAX (BENEFIT) PROVISION
|
—
|
|
|
(107,155
|
)
|
|
285,887
|
|
|
2,970
|
|
|
—
|
|
|
181,702
|
|
NET INCOME
|
$
|
586,414
|
|
|
$
|
586,414
|
|
|
$
|
912,544
|
|
|
$
|
131,827
|
|
|
$
|
(1,630,785
|
)
|
|
$
|
586,414
|
|
OTHER COMPREHENSIVE (LOSS) INCOME, NET OF TAX
|
(53,778
|
)
|
|
6,381
|
|
|
(9,598
|
)
|
|
(39,461
|
)
|
|
42,678
|
|
|
(53,778
|
)
|
TOTAL COMPREHENSIVE INCOME
|
$
|
532,636
|
|
|
$
|
592,795
|
|
|
$
|
902,946
|
|
|
$
|
92,366
|
|
|
$
|
(1,588,107
|
)
|
|
$
|
532,636
|
|
TRANSDIGM GROUP INCORPORATED
CONDENSED CONSOLIDATING STATEMENT OF INCOME AND COMPREHENSIVE INCOME
FOR THE YEAR ENDED SEPTEMBER 30,
2015
(Amounts in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TransDigm
Group
|
|
TransDigm
Inc.
|
|
Subsidiary
Guarantors
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Total
Consolidated
|
NET SALES
|
$
|
—
|
|
|
$
|
131,378
|
|
|
$
|
2,262,842
|
|
|
$
|
324,675
|
|
|
$
|
(11,780
|
)
|
|
$
|
2,707,115
|
|
COST OF SALES
|
—
|
|
|
79,174
|
|
|
973,908
|
|
|
215,968
|
|
|
(11,780
|
)
|
|
1,257,270
|
|
GROSS PROFIT
|
—
|
|
|
52,204
|
|
|
1,288,934
|
|
|
108,707
|
|
|
—
|
|
|
1,449,845
|
|
SELLING AND ADMINISTRATIVE EXPENSES
|
—
|
|
|
72,792
|
|
|
197,914
|
|
|
50,918
|
|
|
—
|
|
|
321,624
|
|
AMORTIZATION OF INTANGIBLE ASSETS
|
—
|
|
|
1,392
|
|
|
45,337
|
|
|
7,490
|
|
|
—
|
|
|
54,219
|
|
(LOSS) INCOME FROM OPERATIONS
|
—
|
|
|
(21,980
|
)
|
|
1,045,683
|
|
|
50,299
|
|
|
—
|
|
|
1,074,002
|
|
INTEREST EXPENSE (INCOME)—Net
|
—
|
|
|
430,224
|
|
|
(487
|
)
|
|
(10,952
|
)
|
|
—
|
|
|
418,785
|
|
REFINANCING COSTS
|
—
|
|
|
18,393
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
18,393
|
|
EQUITY IN INCOME OF SUBSIDIARIES
|
(447,212
|
)
|
|
(773,510
|
)
|
|
—
|
|
|
—
|
|
|
1,220,722
|
|
|
—
|
|
INCOME BEFORE INCOME TAXES
|
447,212
|
|
|
302,913
|
|
|
1,046,170
|
|
|
61,251
|
|
|
(1,220,722
|
)
|
|
636,824
|
|
INCOME TAX (BENEFIT) PROVISION
|
—
|
|
|
(144,299
|
)
|
|
315,017
|
|
|
18,894
|
|
|
—
|
|
|
189,612
|
|
NET INCOME
|
$
|
447,212
|
|
|
$
|
447,212
|
|
|
$
|
731,153
|
|
|
$
|
42,357
|
|
|
$
|
(1,220,722
|
)
|
|
$
|
447,212
|
|
OTHER COMPREHENSIVE (LOSS) INCOME, NET OF TAX
|
(70,838
|
)
|
|
(55,338
|
)
|
|
770
|
|
|
(29,147
|
)
|
|
83,715
|
|
|
(70,838
|
)
|
TOTAL COMPREHENSIVE INCOME
|
$
|
376,374
|
|
|
$
|
391,874
|
|
|
$
|
731,923
|
|
|
$
|
13,210
|
|
|
$
|
(1,137,007
|
)
|
|
$
|
376,374
|
|
TRANSDIGM GROUP INCORPORATED
CONDENSED CONSOLIDATING STATEMENT OF INCOME AND COMPREHENSIVE INCOME
FOR THE YEAR ENDED SEPTEMBER 30,
2014
(Amounts in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TransDigm
Group
|
|
TransDigm
Inc.
|
|
Subsidiary
Guarantors
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Total
Consolidated
|
NET SALES
|
$
|
—
|
|
|
$
|
125,389
|
|
|
$
|
2,051,541
|
|
|
$
|
206,952
|
|
|
$
|
(10,976
|
)
|
|
$
|
2,372,906
|
|
COST OF SALES
|
—
|
|
|
74,312
|
|
|
895,041
|
|
|
146,878
|
|
|
(11,199
|
)
|
|
1,105,032
|
|
GROSS PROFIT
|
—
|
|
|
51,077
|
|
|
1,156,500
|
|
|
60,074
|
|
|
223
|
|
|
1,267,874
|
|
SELLING AND ADMINISTRATIVE EXPENSES
|
—
|
|
|
65,272
|
|
|
176,516
|
|
|
34,658
|
|
|
—
|
|
|
276,446
|
|
AMORTIZATION OF INTANGIBLE ASSETS
|
—
|
|
|
1,388
|
|
|
55,730
|
|
|
6,490
|
|
|
—
|
|
|
63,608
|
|
(LOSS) INCOME FROM OPERATIONS
|
—
|
|
|
(15,583
|
)
|
|
924,254
|
|
|
18,926
|
|
|
223
|
|
|
927,820
|
|
INTEREST EXPENSE (INCOME)—Net
|
—
|
|
|
349,289
|
|
|
(36
|
)
|
|
(1,565
|
)
|
|
—
|
|
|
347,688
|
|
REFINANCING COSTS
|
—
|
|
|
131,622
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
131,622
|
|
EQUITY IN INCOME OF SUBSIDIARIES
|
(306,910
|
)
|
|
(639,539
|
)
|
|
—
|
|
|
—
|
|
|
946,449
|
|
|
—
|
|
INCOME BEFORE INCOME TAXES
|
306,910
|
|
|
143,045
|
|
|
924,290
|
|
|
20,491
|
|
|
(946,226
|
)
|
|
448,510
|
|
INCOME TAX (BENEFIT) PROVISION
|
—
|
|
|
(163,865
|
)
|
|
293,961
|
|
|
11,504
|
|
|
—
|
|
|
141,600
|
|
NET INCOME
|
$
|
306,910
|
|
|
$
|
306,910
|
|
|
$
|
630,329
|
|
|
$
|
8,987
|
|
|
$
|
(946,226
|
)
|
|
$
|
306,910
|
|
OTHER COMPREHENSIVE LOSS, NET OF TAX
|
(18,655
|
)
|
|
(3,951
|
)
|
|
(1,520
|
)
|
|
(13,184
|
)
|
|
18,655
|
|
|
(18,655
|
)
|
TOTAL COMPREHENSIVE INCOME (LOSS)
|
$
|
288,255
|
|
|
$
|
302,959
|
|
|
$
|
628,809
|
|
|
$
|
(4,197
|
)
|
|
$
|
(927,571
|
)
|
|
$
|
288,255
|
|
TRANSDIGM GROUP INCORPORATED
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED SEPTEMBER 30,
2016
(Amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TransDigm
Group
|
|
TransDigm
Inc.
|
|
Subsidiary
Guarantors
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Total
Consolidated
|
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES
|
$
|
—
|
|
|
$
|
(245,299
|
)
|
|
$
|
944,152
|
|
|
$
|
(25,496
|
)
|
|
$
|
(4,427
|
)
|
|
$
|
668,930
|
|
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
—
|
|
|
(1,716
|
)
|
|
(32,608
|
)
|
|
(9,658
|
)
|
|
—
|
|
|
(43,982
|
)
|
Acquisition of business, net of cash acquired
|
—
|
|
|
(1,399,064
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,399,064
|
)
|
Net cash used in investing activities
|
—
|
|
|
(1,400,780
|
)
|
|
(32,608
|
)
|
|
(9,658
|
)
|
|
—
|
|
|
(1,443,046
|
)
|
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany activities
|
192,703
|
|
|
580,487
|
|
|
(910,647
|
)
|
|
133,030
|
|
|
4,427
|
|
|
—
|
|
Proceeds from exercise of stock options
|
30,112
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
30,112
|
|
Dividends paid
|
(3,000
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,000
|
)
|
Treasury stock purchased
|
(207,755
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(207,755
|
)
|
Proceeds from 2016 Term Loans, net
|
—
|
|
|
1,725,883
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,725,883
|
|
Repayment on 2016 Term Loans
|
—
|
|
|
(4,351
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4,351
|
)
|
Repayment on term loans
|
—
|
|
|
(830,058
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(830,058
|
)
|
Proceeds from 2026 Notes, net
|
—
|
|
|
939,584
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
939,584
|
|
Other
|
—
|
|
|
(3,580
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,580
|
)
|
Net cash provided by (used in) financing activities
|
12,060
|
|
|
2,407,965
|
|
|
(910,647
|
)
|
|
133,030
|
|
|
4,427
|
|
|
1,646,835
|
|
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
|
—
|
|
|
—
|
|
|
—
|
|
|
242
|
|
|
—
|
|
|
242
|
|
NET INCREASE IN CASH AND CASH EQUIVALENTS
|
12,060
|
|
|
761,886
|
|
|
897
|
|
|
98,118
|
|
|
—
|
|
|
872,961
|
|
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
|
1,500
|
|
|
659,365
|
|
|
7,911
|
|
|
45,257
|
|
|
—
|
|
|
714,033
|
|
CASH AND CASH EQUIVALENTS, END OF PERIOD
|
$
|
13,560
|
|
|
$
|
1,421,251
|
|
|
$
|
8,808
|
|
|
$
|
143,375
|
|
|
$
|
—
|
|
|
$
|
1,586,994
|
|
TRANSDIGM GROUP INCORPORATED
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED SEPTEMBER 30,
2015
(Amounts in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TransDigm
Group
|
|
TransDigm
Inc.
|
|
Subsidiary
Guarantors
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Total
Consolidated
|
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES
|
$
|
—
|
|
|
$
|
(298,797
|
)
|
|
$
|
734,130
|
|
|
$
|
82,451
|
|
|
$
|
3,154
|
|
|
$
|
520,938
|
|
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
—
|
|
|
(2,871
|
)
|
|
(44,564
|
)
|
|
(7,436
|
)
|
|
—
|
|
|
(54,871
|
)
|
Acquisition of business, net of cash acquired
|
—
|
|
|
(1,624,278
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,624,278
|
)
|
Net cash used in investing activities
|
—
|
|
|
(1,627,149
|
)
|
|
(44,564
|
)
|
|
(7,436
|
)
|
|
—
|
|
|
(1,679,149
|
)
|
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany activities
|
(120,862
|
)
|
|
867,990
|
|
|
(685,448
|
)
|
|
(58,526
|
)
|
|
(3,154
|
)
|
|
—
|
|
Excess tax benefits related to share-based payment arrangements
|
61,965
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
61,965
|
|
Proceeds from exercise of stock options
|
61,674
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
61,674
|
|
Dividends paid
|
(3,365
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,365
|
)
|
Proceeds from term loans, net
|
—
|
|
|
1,515,954
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,515,954
|
|
Proceeds from Revolving Commitment
|
—
|
|
|
75,250
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
75,250
|
|
Repayment on term loans
|
—
|
|
|
(1,025,318
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,025,318
|
)
|
Repayment on Revolving Commitment
|
—
|
|
|
(75,250
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(75,250
|
)
|
Proceeds from senior subordinated notes, net
|
—
|
|
|
445,303
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
445,303
|
|
Other
|
—
|
|
|
(1,266
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,266
|
)
|
Net cash (used in) provided by financing activities
|
(588
|
)
|
|
1,802,663
|
|
|
(685,448
|
)
|
|
(58,526
|
)
|
|
(3,154
|
)
|
|
1,054,947
|
|
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,251
|
)
|
|
—
|
|
|
(2,251
|
)
|
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
|
(588
|
)
|
|
(123,283
|
)
|
|
4,118
|
|
|
14,238
|
|
|
—
|
|
|
(105,515
|
)
|
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
|
2,088
|
|
|
782,648
|
|
|
3,793
|
|
|
31,019
|
|
|
—
|
|
|
819,548
|
|
CASH AND CASH EQUIVALENTS, END OF PERIOD
|
$
|
1,500
|
|
|
$
|
659,365
|
|
|
$
|
7,911
|
|
|
$
|
45,257
|
|
|
$
|
—
|
|
|
$
|
714,033
|
|
TRANSDIGM GROUP INCORPORATED
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED SEPTEMBER 30,
2014
(Amounts in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TransDigm
Group
|
|
TransDigm
Inc.
|
|
Subsidiary
Guarantors
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Total
Consolidated
|
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES
|
$
|
—
|
|
|
$
|
(123,074
|
)
|
|
$
|
952,855
|
|
|
$
|
(303,763
|
)
|
|
$
|
15,204
|
|
|
$
|
541,222
|
|
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
—
|
|
|
(2,666
|
)
|
|
(28,927
|
)
|
|
(2,553
|
)
|
|
—
|
|
|
(34,146
|
)
|
Acquisition of businesses, net of cash acquired
|
|
|
|
(311,872
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(311,872
|
)
|
Cash proceeds from sale of investment
|
—
|
|
|
—
|
|
|
16,380
|
|
|
—
|
|
|
—
|
|
|
16,380
|
|
Net cash used in investing activities
|
—
|
|
|
(314,538
|
)
|
|
(12,547
|
)
|
|
(2,553
|
)
|
|
—
|
|
|
(329,638
|
)
|
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany activities
|
1,533,571
|
|
|
(694,208
|
)
|
|
(944,415
|
)
|
|
120,256
|
|
|
(15,204
|
)
|
|
—
|
|
Excess tax benefits related to share-based payment arrangements
|
51,709
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
51,709
|
|
Proceeds from exercise of stock options
|
26,738
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
26,738
|
|
Dividends paid
|
(1,451,391
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,451,391
|
)
|
Treasury stock purchased
|
(159,852
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(159,852
|
)
|
Proceeds from term loans, net
|
—
|
|
|
805,360
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
805,360
|
|
Repayment on term loans
|
—
|
|
|
(33,107
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(33,107
|
)
|
Proceeds from senior subordinated notes, net
|
—
|
|
|
2,326,393
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,326,393
|
|
Repurchase of 2018 Notes
|
—
|
|
|
(1,721,014
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,721,014
|
)
|
Proceeds from trade receivable securitization facility, net
|
—
|
|
|
—
|
|
|
—
|
|
|
199,164
|
|
|
—
|
|
|
199,164
|
|
Other
|
—
|
|
|
(27
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(27
|
)
|
Net cash provided by (used in) financing activities
|
775
|
|
|
683,397
|
|
|
(944,415
|
)
|
|
319,420
|
|
|
(15,204
|
)
|
|
43,973
|
|
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
|
—
|
|
|
—
|
|
|
—
|
|
|
(749
|
)
|
|
—
|
|
|
(749
|
)
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
775
|
|
|
245,785
|
|
|
(4,107
|
)
|
|
12,355
|
|
|
—
|
|
|
254,808
|
|
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
|
1,313
|
|
|
536,863
|
|
|
7,900
|
|
|
18,664
|
|
|
—
|
|
|
564,740
|
|
CASH AND CASH EQUIVALENTS, END OF PERIOD
|
$
|
2,088
|
|
|
$
|
782,648
|
|
|
$
|
3,793
|
|
|
$
|
31,019
|
|
|
$
|
—
|
|
|
$
|
819,548
|
|
*****
TRANSDIGM GROUP INCORPORATED
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED SEPTEMBER 30,
2016
,
2015
, AND
2014
(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, 2016
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
$
|
3,801
|
|
|
$
|
1,043
|
|
|
$
|
724
|
|
|
$
|
(1,154
|
)
|
|
$
|
4,414
|
|
Reserve for excess and obsolete inventory
|
64,158
|
|
|
26,407
|
|
|
—
|
|
|
(10,526
|
)
|
|
80,039
|
|
Valuation allowance for deferred tax assets
|
17,645
|
|
|
9,641
|
|
|
—
|
|
|
—
|
|
|
27,286
|
|
Year Ended September 30, 2015
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
$
|
4,091
|
|
|
$
|
(376
|
)
|
|
$
|
271
|
|
|
$
|
(185
|
)
|
|
$
|
3,801
|
|
Reserve for excess and obsolete inventory
|
55,586
|
|
|
15,554
|
|
|
—
|
|
|
(6,982
|
)
|
|
64,158
|
|
Valuation allowance for deferred tax assets
|
24,267
|
|
|
(6,622
|
)
|
|
—
|
|
|
—
|
|
|
17,645
|
|
Year Ended September 30, 2014
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
$
|
5,485
|
|
|
$
|
682
|
|
|
$
|
81
|
|
|
$
|
(2,157
|
)
|
|
$
|
4,091
|
|
Reserve for excess and obsolete inventory
|
45,369
|
|
|
16,027
|
|
|
—
|
|
|
(5,810
|
)
|
|
55,586
|
|
Valuation allowance for deferred tax assets
|
26,125
|
|
|
(4,494
|
)
|
|
2,636
|
|
|
—
|
|
|
24,267
|
|
|
|
(1)
|
The amounts in this column represent charge-offs net of recoveries and the impact of foreign currency translation adjustments.
|