-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QqkpvX0slp/r2r4BHJq7BTgAK5g+708PUr4WFJ5YhhF1vNXcwg/aJt9K+SKIpGLN 8I8m5LbJROz2fMq/UcNnOg== 0000950152-00-001003.txt : 20000215 0000950152-00-001003.hdr.sgml : 20000215 ACCESSION NUMBER: 0000950152-00-001003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRANSDIGM INC /FA/ CENTRAL INDEX KEY: 0001077670 STANDARD INDUSTRIAL CLASSIFICATION: AIRCRAFT PART & AUXILIARY EQUIPMENT, NEC [3728] STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-71397 FILM NUMBER: 538011 BUSINESS ADDRESS: STREET 1: 8233 IMPERIAL DRIVE CITY: WACO STATE: TX ZIP: 76712 BUSINESS PHONE: 2547760650 MAIL ADDRESS: STREET 1: 8233 IMPERIAL DRIVE CITY: WACO STATE: TX ZIP: 76712 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRANSDIGM HOLDING CO /FA/ CENTRAL INDEX KEY: 0001077672 STANDARD INDUSTRIAL CLASSIFICATION: AIRCRAFT PART & AUXILIARY EQUIPMENT, NEC [3728] STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-71397-01 FILM NUMBER: 538012 BUSINESS ADDRESS: STREET 1: 8233 IMPERIAL DRIVE CITY: WACO STATE: TX ZIP: 76712 BUSINESS PHONE: 2547760650 MAIL ADDRESS: STREET 1: 8233 IMPERIAL DRIVE CITY: WACO STATE: TX ZIP: 76712 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MARATHON POWER TECHNOLOGIES CO CENTRAL INDEX KEY: 0001077673 STANDARD INDUSTRIAL CLASSIFICATION: AIRCRAFT PART & AUXILIARY EQUIPMENT, NEC [3728] STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-71397-02 FILM NUMBER: 538013 BUSINESS ADDRESS: STREET 1: 8233 IMPERIAL DRIVE CITY: WACO STATE: TX ZIP: 76712 BUSINESS PHONE: 2547760650 MAIL ADDRESS: STREET 1: 8233 IMPERIAL DRIVE CITY: WACO STATE: TX ZIP: 76712 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ZMP INC CENTRAL INDEX KEY: 0001084401 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 133733378 STATE OF INCORPORATION: CA FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-71397-01 FILM NUMBER: 538014 BUSINESS ADDRESS: STREET 1: 8233 IMPERIAL DRIVE CITY: WACO STATE: TX ZIP: 76712 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ADAMS RITE AEROSPACE INC CENTRAL INDEX KEY: 0001084402 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 133733378 STATE OF INCORPORATION: CA FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-71397-02 FILM NUMBER: 538015 BUSINESS ADDRESS: STREET 1: 8233 IMPERIAL DRIVE CITY: WACO STATE: TX ZIP: 76712 10-Q 1 TRANSDIGM INC. & CO-FILERS QUARTERLY REPORT 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended December 31, 1999. [_] Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from __________________ to _________________ Commission File Number 333-71397 ---------------------------------------------------------- TransDigm Inc., TransDigm Holding Company, Marathon Power Technologies Company, - ------------------------------------------------------------------------------- ZMP, Inc. and Adams Rite Aerospace, Inc. - ---------------------------------------- (Exact name of co-registrants as specified in their respective charters) Delaware 13-3733378 - ------------------------------------------------------------------------------------------------------------------- (State or other Jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 26380 Curtiss Wright Parkway, Richmond Heights, Ohio 44143 - ------------------------------------------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code)
(216) 289-4939 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X No ___ --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock (Voting) of TransDigm Holding Company, $0.01 Par Value 121,195 - ---------------------------------------------------------------- ---------------------------------- (Class) (Outstanding at December 31, 1999) Class A Common Stock (Non-Voting) of TransDigm Holding Company,$0.01 Par Value -0- - ---------------------------------------------------------------- ---------------------------------- (Class) (Outstanding at December 31, 1999)
All of the outstanding capital stock of TransDigm Inc. is held by TransDigm Holding Company. 2 INDEX
Page Part I FINANCIAL INFORMATION Item 1 Financial Statements Consolidated Balance Sheets - December 31, 1999 and September 30, 1999 1 Consolidated Statements of Operations - Thirteen Weeks Ended December 31, 1999 and January 1, 1999 2 Consolidated Statement of Changes in Stockholders' Equity (Deficiency) - Thirteen Weeks Ended December 31, 1999 3 Consolidated Statements of Cash Flows - Thirteen Weeks Ended December 31, 1999 and January 1, 1999 4 Notes to Consolidated Financial Statements 5 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Item 3 Quantitative and Qualitative Disclosure About Market Risk 13 Part II: OTHER INFORMATION Item 6 Exhibits and Reports on Form 8-K 14 Signatures 15 Exhibit Index 21
3 PART I: FINANCIAL INFORMATION ITEM 1 TRANSDIGM HOLDING COMPANY CONSOLIDATED BALANCE SHEETS (IN THOUSANDS OF DOLLARS) (UNAUDITED) - -------------------------------------------------------------------------------- DECEMBER 31, SEPTEMBER 30, ASSETS 1999 1999 CURRENT ASSETS: Cash and cash equivalents $ 208 $ 2,729 Accounts receivable, net 21,307 22,399 Inventories 31,327 29,217 Income taxes refundable 1,562 2,810 Deferred income taxes and other 6,990 7,012 --------- --------- Total current assets 61,394 64,167 PROPERTY, PLANT AND EQUIPMENT - Net 25,070 25,422 INTANGIBLE ASSETS - Net 58,084 58,555 DEBT ISSUE COSTS - Net 10,660 10,951 DEFERRED INCOME TAXES AND OTHER 5,427 5,322 --------- --------- TOTAL $ 160,635 $ 164,417 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) CURRENT LIABILITIES: Current portion of long-term debt $ 8,818 $ 7,595 Accounts payable 5,011 5,322 Accrued liabilities 11,076 15,719 --------- --------- Total current liabilities 24,905 28,636 LONG-TERM DEBT - Less current portion 256,823 258,962 NON-CURRENT PORTION OF ACCRUED PENSION COSTS AND OTHER 3,106 3,118 --------- --------- Total liabilities 284,834 290,716 --------- --------- COMMITMENTS AND CONTINGENCIES -- -- --------- --------- REDEEMABLE COMMON STOCK 1,499 1,323 --------- --------- STOCKHOLDERS' EQUITY (DEFICIENCY): Common stock 102,097 102,097 Retained earnings (deficit) (227,313) (229,237) Accumulated other comprehensive income (loss) (482) (482) --------- --------- Total stockholders' equity (deficiency) (125,698) (127,622) --------- --------- TOTAL $ 160,635 $ 164,417 ========= ========= See notes to consolidated financial statements. -1- 4 TRANSDIGM HOLDING COMPANY CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS OF DOLLARS) (UNAUDITED) - -------------------------------------------------------------------------------- THIRTEEN WEEKS ENDED ------------------------ DECEMBER 31, JANUARY 1, 1999 1999 NET SALES $ 33,734 $ 28,194 COST OF SALES 18,135 14,937 ---------- ---------- GROSS PROFIT 15,599 13,257 ---------- ---------- OPERATING EXPENSES: Selling and administrative 4,132 2,685 Amortization of intangibles 512 645 Research and development 385 448 Merger expenses 39,593 ---------- ---------- Total operating expenses 5,029 43,371 ---------- ---------- INCOME (LOSS) FROM OPERATIONS 10,570 (30,114) INTEREST EXPENSE - Net 7,095 2,276 ---------- ---------- INCOME (LOSS) BEFORE INCOME TAXES 3,475 (32,390) INCOME TAX PROVISON (BENEFIT) 1,375 (7,566) ---------- ---------- NET INCOME (LOSS) $ 2,100 $ (24,824) ========== ========== See notes to consolidated financial statements. -2- 5 TRANSDIGM HOLDING COMPANY CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY) FOR THE THIRTEEN WEEKS ENDED DECEMBER 31, 1999 (IN THOUSANDS OF DOLLARS) (UNAUDITED) - --------------------------------------------------------------------------------
ACCUMULATED RETAINED OTHER COMMON EARNINGS COMPREHENSIVE STOCK (DEFICIT) INCOME (LOSS) TOTAL BALANCE, OCTOBER 1, 1999 $ 102,097 $(229,237) $ (482) $(127,622) NET INCOME 2,100 2,100 ACCRETION OF REDEEMABLE COMMON STOCK (176) (176) --------- --------- ------- --------- BALANCE, DECEMBER 31, 1999 $ 102,097 $(227,313) $ (482) $(125,698) ========= ========= ====== =========
See notes to consolidated financial statements. -3- 6 TRANSDIGM HOLDING COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS OF DOLLARS) (UNAUDITED) - --------------------------------------------------------------------------------
THIRTEEN WEEKS ENDED --------------------------- DECEMBER 31, JANUARY 1, 1999 1999 OPERATING ACTIVITIES: Net income (loss) $ 2,100 $ (24,824) Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation 954 954 Amortization of intangibles 512 645 Amortization of debt issue costs 384 766 Interest deferral on Holdings PIK Notes 600 200 Changes in assets and liabilities: Accounts receivable 1,092 (1,873) Inventories (2,110) 100 Refundable income taxes 1,248 (7,692) Other assets (83) (28) Accounts payable (311) (113) Accrued liabilities and other (4,790) (870) --------- --------- Net cash used in operating activities (404) (32,735) --------- --------- INVESTING ACTIVITIES - Capital expenditures (602) (712) --------- --------- FINANCING ACTIVITIES: Proceeds from subordinated notes, net of fees of $6,155 118,845 Proceeds from new credit facility, net of fees of $4,765 87,832 Proceeds from Holdings PIK Notes and common stock, net of fees of $341 19,659 Payment of consideration in recapitalization - common stock and warrants (263,875) Net borrowings (repayments) under revolving credit loans 500 (1,597) Repayment of term loans (2,015) (45,000) Proceeds from issuance of capital stock 100,200 --------- --------- Net cash provided by (used in) financing activities (1,515) 16,064 --------- --------- DECREASE IN CASH AND CASH EQUIVALENTS (2,521) (17,383) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,729 19,486 --------- --------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 208 $ 2,103 ========= ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for interest $ 9,250 $ 1,293 ========= ========= Cash paid during the period for income taxes $ 127 $ 506 ========= =========
See notes to consolidated financial statements. -4- 7 TRANSDIGM HOLDING COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THIRTEEN WEEKS ENDED DECEMBER 31, 1999 AND JANUARY 1, 1999 (UNAUDITED) - -------------------------------------------------------------------------------- 1. DESCRIPTION OF THE BUSINESS AND MERGER TransDigm Holding Company ("Holdings"), through its wholly-owned operating subsidiary, TransDigm Inc. ("TransDigm"), is a premier supplier of proprietary mechanical components servicing predominantly the aircraft industry. TransDigm, along with its wholly-owned subsidiaries, Marathon Power Technologies Company ("Marathon"), ZMP, Inc. ("ZMP") and Adams Rite Aerospace, Inc., ("Adams Rite") (collectively, the "Company") offers a broad line of component products including tube connectors, valves, batteries, static inverters, pumps, quick disconnects, clamps, ball bearing and sliding controls, mechanical hardware, fluid controls, lavatory hardware, electromechanical controls, and oxygen systems related products. On December 3, 1998, Phase II Acquisition Corp. ("Acquiror"), an entity formed by affiliates of Odyssey Investment Partners, LP ("Odyssey"), and Holdings consummated a definitive agreement and plan of merger (the "Merger Agreement" or the "Merger"). Pursuant to the terms of the Merger, Acquiror was merged with and into Holdings, with Holdings being the surviving corporation in the Merger (the "Surviving Corporation"). In the Merger, owners of Holdings' outstanding common stock received, in exchange for each outstanding share of common stock (except for shares held directly or indirectly by Holdings or the Rolled Shares, as defined below), the "Per Share Merger Consideration," as defined in the Merger Agreement. The aggregate consideration payable pursuant to the Merger, including amounts payable to holders of options and warrants, was approximately $299.7 million. In connection with the Merger, Kelso Investment Associates IV, LP and Kelso Equity Partners II, LP (collectively, "Kelso") retained approximately 15.4% of the Surviving Corporation's outstanding common stock (the "Rolled Shares"). In addition, certain members of management of Holdings agreed, in connection with and as a condition to entering into the Merger Agreement, to rollover stock options with an estimated gross and net value of approximately $17.2 million and $13.7 million, respectively. The Merger was treated as a Recapitalization (the "Recapitalization") for financial reporting purposes, which had no impact on the historical basis of Holdings' consolidated assets and liabilities. Simultaneously with the Merger, Holdings and TransDigm refinanced all of their existing debt. The Merger, the refinancing, and payment of fees and expenses were funded by (i) existing cash balances, (ii) investments by Odyssey of $100.2 million, (iii) funds from a new $120 million Senior Credit Facility, (iv) funds from $125 million Senior Subordinated Notes and (v) Holdings PIK Notes of $20 million issued to certain stockholders. The Senior Credit Facility was subsequently increased to $154 million in connection with the acquisition of ZMP and Adams Rite (see Note 3). In connection with the Merger, the Company incurred a one-time charge of approximately $40 million during the thirteen weeks ended January 1, 1999, consisting primarily of compensation costs recognized as a result of the cancellation of certain stock options, the costs of terminating a financial advisory services agreement, the write-off of deferred financing costs and professional advisory fees. Separate financial statements of TransDigm are not presented since the Senior Subordinated Notes are guaranteed by Holdings and all direct and indirect subsidiaries of TransDigm and since Holdings has no operations or assets separate from its investment in TransDigm. 2. UNAUDITED FINANCIAL INFORMATION Except for the September 30, 1999 consolidated balance sheet, which was derived from the Company's audited financial statements, the financial information included herein is unaudited; however, the information reflects all adjustments (consisting solely of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of the Company's financial position and results of operations and cash flows for the interim periods presented. The results of operations for the thirteen weeks ended December 31, 1999 are not necessarily indicative of the results to be expected for the full year. -5- 8 3. ACQUISITION On April 23, 1999, TransDigm acquired all of the outstanding common stock of ZMP, Inc., the corporate parent of Adams Rite, through a merger. Adams Rite manufactures mechanical hardware, fluid controls, lavatory hardware, electromechanical controls and oxygen systems related products. The purchase price for the acquisition was $41 million, subject to adjustment for changes in working capital and other matters as defined in the merger agreement. The acquisition was funded through $36 million of additional borrowings under the Company's credit facility and the use of approximately $5 million of the Company's cash balances. As a result of the acquisition, ZMP and Adams Rite became wholly-owned subsidiaries of TransDigm. The Company accounted for the acquisition as a purchase and included the results of operations of the acquired companies in the fiscal 1999 consolidated financial statements from the effective date of the acquisition. The purchase price was allocated based on a preliminary determination of estimated fair values at the date of the acquisition. Goodwill representing the excess of the purchase price over assets acquired of $25.5 million is being amortized on a straight-line basis over forty years. The following table summarizes the unaudited, consolidated pro-forma results of operations, as if the acquisition had occurred at the beginning of the thirteen week period ended January 1, 1999 (in thousands): Net sales $ 37,855 Operating loss (30,686) Net loss (25,017) The consolidated pro-forma operating loss for the thirteen week period ended January 1, 1999 includes approximately $.8 million ($.8 million after tax) of costs directly related to the acquisition. This pro-forma information is not necessarily indicative of the results that actually would have been obtained if the operations had been combined as of the beginning of the period presented and is not intended to be a projection of future results. 4. INVENTORIES Inventories are stated at the lower of cost or market. Cost of inventories is determined by the average cost and the first-in, first-out (FIFO) methods. Inventories consist of the following (in thousands): DECEMBER 31, SEPTEMBER 30, 1999 1999 Work-in-progress and finished goods $ 30,551 $ 28,846 Raw materials and purchased component parts 7,757 7,481 -------- -------- Total 38,308 36,327 Reserve for excess and obsolete inventory (6,981) (7,110) -------- -------- Inventories - net $ 31,327 $ 29,217 ======== ======== 5. INCOME TAXES Income tax expense (benefit) as a percentage of income (loss) before income taxes was 39.6% for the thirteen weeks ended December 31, 1999 compared to (23.3)% for the thirteen weeks ended January 1, 1999. The tax benefit recorded for the thirteen weeks ended January 1, 1999 was significantly impacted by the non-deductible expenses incurred in connection with the Recapitalization. -6- 9 6. REDEEMABLE COMMON STOCK The redeemable common stock represents the estimated value of common stock held by management shareholders that have certain put rights. 7. CONTINGENCIES ENVIRONMENTAL - The soil and groundwater beneath the Company's facility in Waco, Texas have been impacted by releases of hazardous materials. The resulting contaminants of concern have been delineated and characterized. Because the majority of these contaminants are presently below action levels prescribed by the Texas Natural Resources Conservation Commission ("TNRCC"), and because an escrow was previously funded to cover the cost of remediation that TNRCC might require for those contaminants currently in excess of action limits, the Company does not believe the condition of the soil and groundwater at the Waco facility will require incurrence of material expenditures; however, there can be no assurance that additional contamination will not be discovered or that the remediation required by the TNRCC will not be material to the financial condition, results of operations, or cash flows of the Company. OTHER - 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. The Company believes that its potential exposure to such legal actions is adequately covered by its aviation product and general liability insurance. 8. NEW ACCOUNTING STANDARD In June 1998, the Financial Accounting Standards Board issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. This statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives), and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. If certain conditions are met, a derivative may be specifically designated as (a) a hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment; (b) a hedge of the exposure to variable cash flows of a forecasted transaction; or (c) a hedge of the foreign currency exposure of a net investment in a foreign operation, an unrecognized firm commitment, an available-for-sale security, or a foreign-currency-denominated forecasted transaction. The Company will adopt this standard during fiscal 2001. While management has not completed its analysis of this new accounting standard, its adoption is not expected to have a material effect on the Company's financial statements. * * * * * -7- 10 PART I: FINANCIAL INFORMATION ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Quarterly Statement includes "forward-looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended, including, in particular, the statements about our plans, strategies and prospects under this "Management's Discussion and Analysis of Financial Condition and Results of Operations" section. Although the Company believes that its plans, intentions and expectations reflected in or suggested by such forward-looking statements are reasonable, the Company can give no assurance that such plans, intentions or expectations will be achieved. Important factors that could cause actual results to differ materially from the forward-looking statements made in this Quarterly Statement are set forth herein as well as under the caption "Risk Factors" in the Registration Statement filed by the Company on Form S-4 on January 29, 1999, as amended through April 23, 1999. All forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by those cautionary statements. OVERVIEW The Company is a leading supplier of highly engineered aircraft components for use on nearly all commercial and military aircraft. The Company sells its products to commercial airlines and aircraft maintenance facilities in the aftermarket, to most original equipment manufacturers ("OEMs") of aircraft and to various agencies of the United States government. Sales of the Company's products are made directly to these organizations as well as through U.S. and international distributors who maintain inventories throughout the world of products purchased from the Company and others. In connection with the Recapitalization discussed in Note 1 to the consolidated financial statements, including the financing and the application of the proceeds thereof, the Company incurred certain nonrecurring costs and charges, consisting primarily of compensation costs for management bonuses and stock options that were canceled in conjunction with the Recapitalization, the cost of terminating a financial advisory services agreement with an affiliate of one of the Company's stockholders, the write-off of deferred financing costs, and professional, advisory and financing fees. A one-time charge of approximately $40 million ($29 million after tax) was recorded during the thirteen weeks ended January 1, 1999. Because the cash costs included in this charge were funded principally through the proceeds of the subordinated notes and borrowings under the new Senior Credit Facility, this cost did not materially impact the Company's liquidity, ongoing operations or market position. For a discussion of the consequences of the incurrence of indebtedness in connection with the Recapitalization, see the heading "Liquidity and Capital Resources" in this section. On April 23, 1999, the Company acquired ZMP, Inc. under the terms of an agreement and plan of reorganization dated March 31, 1999. The purchase price for the acquisition of ZMP was $41 million, subject to post-closing purchase price adjustments. The acquisition of ZMP and the related expenses were funded through $36 million of additional borrowings under the Company's Senior Credit Facility and the use of $5 million of the Company's cash balances. Adams Rite is a well established supplier of highly engineered aircraft components that complements the businesses of AdelWiggins, AeroControlex and Marathon. Through the acquisition of ZMP, the Company acquired four additional major product lines of Adams Rite consisting of mechanical hardware, fluid control products, electromechanical control products and oxygen system related products. The following is management's discussion and analysis of certain significant factors that have affected the Company's financial position and operating results during the periods included in the accompanying consolidated financial statements. The Company's fiscal year ends on September 30. -8- 11 RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, certain operating data of the Company as a percentage of net sales. THIRTEEN WEEKS ENDED ------------------------------- DECEMBER 31, JANUARY 1, 1999 1999 Net sales 100 % 100 % ---- ---- Gross profit 46 47 Selling and administrative 12 10 Amortization of intangibles 2 2 Research and development 1 1 Merger expenses -- 141 ---- ---- Operating income (loss) 31 (107) Interest expense- net 21 8 Provision (benefit) for income taxes 4 (27) ---- ---- Net income (loss) 6 % (88)% ==== ==== CHANGES IN RESULTS OF OPERATIONS THIRTEEN WEEKS ENDED DECEMBER 31, 1999 COMPARED WITH THIRTEEN WEEKS ENDED JANUARY 1, 1999. - - NET SALES. Net sales increased by $5.5 million, or 19.5%, to $33.7 million for the quarter ended December 31, 1999 from $28.2 million for the comparable quarter last year, principally due to the acquisition of ZMP, partially offset by a decline in net sales at other Company locations as a result of reduced production volumes in commercial jet transport products as well as inventory reductions at both the OEM's and in the aftermarket. Revenue passenger miles continue to grow; this leads us to believe the aftermarket softness is not a long-term phenomenon. - - GROSS PROFIT. Gross profit (net sales less cost of sales) increased by $2.3 million, or 17.3%, to $15.6 million for the quarter ended December 31, 1999 from $13.3 million from the comparable quarter last year. Gross profit as a percentage of net sales was 46% during the first quarter of fiscal 2000 and 47% during the first quarter of fiscal 1999. - - SELLING AND ADMINISTRATIVE. Selling and administrative expenses increased by $1.4 million, or 51.9%, to $4.1 million for the quarter ended December 31, 1999 from $2.7 million for the quarter ended January 1, 1999. This increase principally resulted from the acquisition of ZMP discussed previously as well as the Company's increased efforts to develop new business. Selling and administrative expenses as a percentage of net sales increased from 10% for the quarter ended January 1, 1999 to 12% for the quarter ended December 31, 1999. - - AMORTIZATION OF INTANGIBLES. Amortization of intangibles decreased by $.1 million, or 20.6%, to $.5 million for the quarter ended December 31, 1999 from $.6 million for the quarter ended January 1, 1999 as a result of certain intangible assets becoming fully amortized. - - RESEARCH AND DEVELOPMENT. Research and development expense approximated $.4 million for the quarter ended December 31, 1999 and the comparable quarter last year. Research and development expense, as a percentage of net sales, was 1% for both quarters. -9- 12 - - MERGER EXPENSES. Merger costs totaling $39.6 million were incurred during the thirteen weeks ended January 1, 1999 in connection with the Merger and Recapitalization. The nature of the merger-related charges is detailed below: (IN THOUSANDS) Compensation expense on stock options $19,437 Management bonuses 6,450 Termination of financial advisory service agreement 5,850 Professional fees and expenses 6,673 Write-off of deferred financing costs 552 Other 631 ------- Total $39,593 ======= - - OPERATING INCOME (LOSS). Operating income increased from a $30.1 million loss in the first quarter of fiscal 1999 to income of $10.6 million in the first quarter of fiscal 2000. Operating income, excluding merger expenses, increased by $1.1 million, or 11.5%. This increase was primarily attributable to the acquisition of ZMP partially offset by the decline in sales volume at other Company locations. - - INTEREST EXPENSE. Interest expense increased by $4.8 million to $7.1 million for the first quarter of fiscal 2000 from $2.3 million for the first quarter of fiscal 1999 as a result of the increase in the average level of outstanding borrowings in connection with the Recapitalization and acquisition of ZMP. - - INCOME TAXES. Income tax expense (benefit) as a percentage of income (loss) before income taxes was 39.6% for the thirteen weeks ended December 31, 1999 compared to (23.3)% for the thirteen weeks ended January 1, 1999. The tax benefit recorded for the thirteen weeks ended January 1, 1999 was significantly impacted by the non-deductible expenses incurred in connection with the Recapitalization. - - NET INCOME (LOSS). The Company earned $2.1 million for the first quarter of fiscal 2000 compared to a net loss of $24.8 million for the first quarter of fiscal 1999 primarily as a result of the factors referred to above. BACKLOG Management believes that sales order backlog (i.e. orders for products that have not yet been shipped) is a useful indicator of sales to OEMs. As of December 31, 1999, the Company estimated its sales order backlog at $64.3 million compared to an estimated $62.8 million as of January 1, 1999 (including $19.4 million relating to Adams Rite). The majority of the purchase orders outstanding as of December 31, 1999 are scheduled for delivery within the next twelve months. Purchase orders are generally subject to cancellation by the customer prior to shipment. The level of unfilled purchase orders at any given date during the year will be materially affected by the timing of the Company's receipt of purchase orders and the speed with which those orders are filled. Accordingly, the Company's backlog as of December 31, 1999 may not necessarily represent the actual amount of shipments or sales for any future period. FOREIGN OPERATIONS The Company manufactures virtually all of its products in the United States. However, a portion of the Company's current sales is conducted abroad. These sales are subject to numerous additional risks, including the impact of foreign government regulations, currency fluctuations, political uncertainties and differences in business practices. There can be no assurance that foreign governments will not adopt regulations or take other action that would have a direct or indirect adverse impact on the business or market opportunities of the Company within such governments' countries. Furthermore, there can be no assurance that the political, cultural and economic climate outside the United States will be favorable to the Company's operations and growth strategy. -10- 13 INFLATION Many of the Company's raw materials and operating expenses are sensitive to the effects of inflation, which could result in higher operating costs. The effects of inflation on the Company's businesses during the thirteen week periods ended December 31, 1999 and January 1, 1999 were not significant. LIQUIDITY AND CAPITAL RESOURCES The Company used approximately $.4 million of cash in operating activities during the thirteen weeks ended December 31, 1999 compared to approximately $32.7 million used during the thirteen weeks ended January 1, 1999. Such increase in operating cash flows is due to the one-time merger expenses incurred during the first quarter of fiscal 1999, partially offset by an increase in interest expense as a result of the increase in the average level of outstanding borrowings in connection with the Recapitalization and acquisition of ZMP. Cash used in investing activities was approximately $.6 million during the thirteen weeks ended December 31, 1999 compared to approximately $.7 million used during the thirteen weeks ended January 1, 1999. Cash used in financing activities during the thirteen weeks ended December 31, 1999 was approximately $1.5 million compared to approximately $16.1 million provided by financing activities during the thirteen weeks ended January 1, 1999. This change in financing cash flows was due to the incurrence and refinancing of substantial indebtedness as a result of the Recapitalization and the acquisition of ZMP. The interest rate for the Company's existing credit facility is, at TransDigm's option, either (A) a floating rate equal to the Base Rate plus the Applicable Margin, as defined in the credit facility; or (B) the Eurodollar Rate for fixed periods of one, two, three, or six months, plus the Applicable Margin. The "Applicable Margin" means the percentage per year equal to (1) in the case of Tranche A Facility and Revolving Credit Facility, (A) bearing an interest rate determined by the Base Rate, plus 2.25%, 2.00%, 1.75% or 1.50% depending on Holdings' ability to achieve the respective debt coverage ratio specified in the credit facility, as amended; and (B) bearing an interest rate determined by the Eurodollar Rate, plus 3.25%, 3.00%, 2.75% or 2.50% depending on Holdings' ability to achieve the respective debt coverage ratio specified in the credit facility, as amended; and (2) in the case of Tranche B Facility, (A) bearing an interest rate determined by the Base Rate, 2.50%; and (B) bearing an interest rate determined by the Eurodollar Rate, 3.50%. The credit facility is subject to mandatory prepayment with a defined percentage of net proceeds from certain asset sales, insurance proceeds or other awards that are payable in connection with the loss, destruction or condemnation of any assets, certain new debt and equity offerings and 50% of excess cash flow (as defined in the credit facility) in excess of a predetermined amount under the credit facility. The subordinated notes bear interest at 10 3/8% and do not require principal payments prior to maturity. The Revolving Credit Facility and the Tranche A Facility will each mature on the six year anniversary of the initial borrowing date and the Tranche B Facility will mature on the seven and a half year anniversary of the initial borrowing date. The credit facility requires TransDigm to amortize the outstanding indebtedness under each of the Tranche A and the Tranche B Facilities, commencing in 1999, and contains restrictive covenants that will, among other things, limit the incurrence of additional indebtedness, the payment of dividends, transactions with affiliates, asset sales, acquisitions, mergers and consolidations, liens and encumbrances, and prepayments of other indebtedness. The Company's primary cash needs will consist of capital expenditures and debt service. The Company incurs capital expenditures for the purpose of maintaining and replacing existing equipment and facilities and, from time to time, for facility expansion. Capital expenditures totaled approximately $.6 million and $.7 million during the thirteen weeks ended December 31, 1999 and January 1, 1999, respectively. -11- 14 The Company intends to pursue additional acquisitions that present opportunities to realize significant synergies, operating expense economies or overhead cost savings or to increase the Company's market position. The Company regularly engages in discussions with respect to potential acquisitions and investments. However, there are no binding agreements with respect to any material acquisitions at this time, and there can be no assurance that we will be able to reach an agreement with respect to any future acquisition. The Company's acquisition strategy may require substantial capital, and no assurance can be given that the Company will be able to raise any necessary funds on terms acceptable to the Company or at all. If the Company incurs additional debt to finance acquisitions, its total interest expense will increase. The Company's ability to make scheduled payments of principal of, or to pay the interest on, or to refinance, its indebtedness, including the subordinated notes, or to fund planned capital expenditures and research and development, will depend on its future performance, which, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond its control. Based upon the current level of operations and anticipated cost savings and revenue growth, management believes that cash flow from operations and available cash, together with available borrowings under the credit facility, will be adequate to meet the Company's future liquidity needs for at least the next few years. The Company may, however, need to refinance all or a portion of the principal of the subordinated notes on or prior to maturity. There can be no assurance that the Company's business will generate sufficient cash flow from operations and that anticipated revenue growth and operating improvements will be sufficient to enable the Company to service its indebtedness, including the subordinated notes, or to fund its other liquidity needs. In addition, there can be no assurance that the Company will be able to effect any such refinancing on commercially reasonable terms or at all. In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement establishes accounting and reporting standards for derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. If certain conditions are met, a derivative may be specifically designated as (a) a hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment, (b) a hedge of the exposure to variable cash flows of a forecasted transaction, or (c) a hedge of the foreign currency exposure of a net investment in a foreign operation, an unrecognized firm commitment, an available-for-sale security, or a foreign-currency-denominated forecasted transaction. The Company will adopt this standard during fiscal 2001. While management has not completed its analysis of this new accounting standard, its adoption is not expected to have a material effect on the Company's financial statements. IMPACT OF YEAR 2000 ISSUE The Company has not encountered year 2000 problems with respect to its information technology systems; however, the Company's accounting and business information systems are not complex, and manual procedures could be performed for a period of time to provide the information necessary to continue to operate the business. In the event that year 2000 problems arise within embedded systems, the Company intends to employ its existing subcontractor machinists to manufacture the affected components. The Company will continue to monitor year 2000 issues. ADDITIONAL DISCLOSURE REQUIRED BY INDENTURE Separate financial information of TransDigm is not presented since the Senior Subordinated Notes are guaranteed by Holdings and all direct and indirect subsidiaries of TransDigm and since Holdings has no operations or assets separate from its investment in TransDigm. In addition, Holdings' only liability consists of Holdings PIK Notes of $20 million that bear interest at 12% annually. Interest expense recognized on the Holdings PIK Notes during the thirteen week periods ended December 31, 1999 and January 1, 1999 was $.6 million and $.2 million, respectively. -12- 15 PART I: FINANCIAL INFORMATION ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK At December 31, 1999, the Company is subject to interest rate risk with respect to borrowings under its credit facility as the interest rates on such borrowings vary with market conditions and, thus, the amount of outstanding borrowings approximates the fair value of the indebtedness. On a historical basis, the weighted average interest rate on the $118.1 million of borrowings outstanding under the credit facility at December 31, 1999 was 9.5%. The effect of a hypothetical one percentage point decrease in interest rates would increase the estimated fair value of the borrowings outstanding under the credit facility on December 31, 1999 by approximately $6 million. Also outstanding at December 31, 1999 was $125 million of Company indebtedness in the form of subordinated notes and $22.6 million of Holdings PIK Notes. The interest rates on both of these borrowings are fixed at 10 3/8% and 12% per year, respectively. Although management believes that the fair value of these debt obligations approximates their outstanding balance at December 31, 1999, the effect of a hypothetical one percentage point decrease in interest rates would increase the estimated fair value of the borrowings by $13.2 million and $2.4 million, respectively. -13- 16 PART II: OTHER INFORMATION ITEM 6 Exhibits and Reports on Form 8-K (a) Exhibits 27 Financial Data Schedule (b) The Company did not file any reports on Form 8-K during the quarter ended December 31, 1999. -14- 17 SIGNATURES Pursuant to the requirements of Section 13 of the Securities Act of 1934, as amended, each of the Co-Registrants has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Richmond Heights, State of Ohio, on February 14, 2000. TRANSDIGM HOLDING COMPANY By: /s/ PETER B. RADEKEVICH --------------------------------------- Peter B. Radekevich Chief Financial Officer TRANSDIGM INC. By: /s/ PETER B. RADEKEVICH --------------------------------------- Peter B. Radekevich Chief Financial Officer MARATHON POWER TECHNOLOGIES COMPANY By: /s/ PETER B. RADEKEVICH --------------------------------------- Peter B. Radekevich Chief Financial Officer ZMP, INC. By: /s/ PETER B. RADEKEVICH --------------------------------------- Peter B. Radekevich Chief Financial Officer ADAMS RITE AEROSPACE, INC. By: /s/ PETER B. RADEKEVICH --------------------------------------- Peter B. Radekevich Chief Financial Officer -15- 18 TRANSDIGM HOLDING COMPANY Pursuant to the requirements of the Securities Act of 1934, this Report has been signed below by the following persons on behalf of the Co-Registrant and in the capacities and as of the dates indicated.
SIGNATURE TITLE DATE * Chief Executive Officer (Principal February 14, 2000 - ----------------------------------- Executive Officer) and Chairman of the Board Douglas W. Peacock * President and Chief Operating Officer February 14, 2000 - ----------------------------------- (Principal Operating Officer) and Director W. Nicholas Howley /s/ Peter B. Radekevich Chief Financial Officer (Principal Financial February 14, 2000 - ----------------------------------- and Accounting Officer) Peter B. Radekevich * Director February 14, 2000 - ----------------------------------- Stephen Berger * Director February 14, 2000 - ----------------------------------- William Hopkins * Director February 14, 2000 - ----------------------------------- Muzzafar Mirza * Director February 14, 2000 - ----------------------------------- John W. Paxton * Director February 14, 2000 - ----------------------------------- Thomas R. Wall, IV
-16- 19 TRANSDIGM INC. Pursuant to the requirements of the Securities Act of 1934, this Report has been signed below by the following persons on behalf of the Co-Registrant and in the capacities and as of the dates indicated.
SIGNATURE TITLE DATE * Chief Executive Officer (Principal February 14, 2000 - ----------------------------------- Executive Officer) and Chairman of the Board Douglas W. Peacock * President and Chief Operating Officer February 14, 2000 - ----------------------------------- (Principal Operating Officer) and Director W. Nicholas Howley /s/ Peter B. Radekevich Chief Financial Officer (Principal Financial February 14, 2000 - ----------------------------------- and Accounting Officer) Peter B. Radekevich * Director February 14, 2000 - ----------------------------------- Stephen Berger * Director February 14, 2000 - ----------------------------------- William Hopkins * Director February 14, 2000 - ----------------------------------- Muzzafar Mirza * Director February 14, 2000 - ----------------------------------- John W. Paxton * Director February 14, 2000 - ----------------------------------- Thomas R. Wall, IV
-17- 20 MARATHON POWER TECHNOLOGIES COMPANY Pursuant to the requirements of the Securities Act of 1934, this Report has been signed below by the following persons on behalf of the Co-Registrant and in the capacities and as of the dates indicated.
SIGNATURE TITLE DATE * Chief Executive Officer (Principal February 14, 2000 - ----------------------------------- Executive Officer) and Chairman of the Board Douglas W. Peacock * President (Principal Operating Officer) February 14, 2000 - ----------------------------------- Albert J. Rodriguez /s/ Peter B. Radekevich Chief Financial Officer (Principal Financial February 14, 2000 - ----------------------------------- and Accounting Officer) Peter B. Radekevich * Director February 14, 2000 - ----------------------------------- W. Nicholas Howley
-18- 21 ZMP, INC. Pursuant to the requirements of the Securities Act of 1934, this Report has been signed below by the following persons on behalf of the Co-Registrant and in the capacities and as of the dates indicated.
SIGNATURE TITLE DATE * Chairman of the Board and Executive Vice February 14, 2000 - ----------------------------------- President (Principal Executive Officer) Douglas W. Peacock * President (Principal Operating Officer) February 14, 2000 - ----------------------------------- John F. Leary /s/ Peter B. Radekevich Treasurer and Chief Financial Officer February 14, 2000 - ----------------------------------- (Principal Financial and Accounting Officer) Peter B. Radekevich * Executive Vice President and Director February 14, 2000 - ----------------------------------- W. Nicholas Howley
-19- 22 ADAMS RITE AEROSPACE, INC. Pursuant to the requirements of the Securities Act of 1934, this Report has been signed below by the following persons on behalf of the Co-Registrant and in the capacities and as of the dates indicated.
SIGNATURE TITLE DATE * Chairman of the Board and Executive Vice February 14, 2000 - ----------------------------------- President (Principal Executive Officer) Douglas W. Peacock * President (Principal Operating Officer) February 14, 2000 - ----------------------------------- John F. Leary /s/ Peter B. Radekevich Treasurer and Chief Financial Officer February 14, 2000 - ----------------------------------- (Principal Financial and Accounting Officer) Peter B. Radekevich * Executive Vice President and Director February 14, 2000 - ----------------------------------- W. Nicholas Howley
* The undersigned, by signing his name hereto, does sign and execute this Annual Report on Form 10-K pursuant to the Power of Attorney executed by the above-named officers and Directors of the Co-Registrants and filed with the Securities and Exchange Commission on behalf of such officers and Directors. By: /s/ Peter B. Radekevich ------------------------------ Peter B. Radekevich, ATTORNEY-IN-FACT -20- 23 EXHIBIT INDEX TO FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 1999 EXHIBIT NO. DESCRIPTION PAGE 27 Financial Data Schedule 22 -21- EX-27 2 EXHIBIT 27
5 0001077670 TRANSDIGM INC. 1,000 3-MOS SEP-30-2000 OCT-01-1999 DEC-31-1999 208 0 21,810 503 31,327 61,394 47,404 22,334 160,635 24,905 256,823 1,499 0 102,097 (227,795) 160,635 33,734 33,734 18,135 18,135 5,029 0 7,095 3,475 1,375 2,100 0 0 0 2,100 0 0
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