-----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, LpGGyrA+ew8epHNHh6OlywY19yJ7+e273lIfnMCcSRCeunTRBF2IjPR6Avi1XOrI eC+JycHIm8A78Y9L8CXFKA== 0000950152-00-008711.txt : 20001229 0000950152-00-008711.hdr.sgml : 20001229 ACCESSION NUMBER: 0000950152-00-008711 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001228 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-K405 SEC ACT: SEC FILE NUMBER: 333-71397 FILM NUMBER: 797482 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-K405 SEC ACT: SEC FILE NUMBER: 333-71397-01 FILM NUMBER: 797483 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-K405 SEC ACT: SEC FILE NUMBER: 333-71397-02 FILM NUMBER: 797484 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-K405 SEC ACT: SEC FILE NUMBER: 333-71397-01 FILM NUMBER: 797485 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-K405 SEC ACT: SEC FILE NUMBER: 333-71397-02 FILM NUMBER: 797486 BUSINESS ADDRESS: STREET 1: 8233 IMPERIAL DRIVE CITY: WACO STATE: TX ZIP: 76712 10-K405 1 l85607ae10-k405.txt TRANSDIGM, INC. ET. AL. 10-K405 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------- FORM 10-K ANNUAL REPORT PURSUANT TO THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2000 COMMISSION FILE NO. 333-71397 TRANSDIGM INC. TRANSDIGM HOLDING COMPANY MARATHON POWER TECHNOLOGIES COMPANY ZMP, INC. ADAMS RITE AEROSPACE, INC. (EXACT NAME OF CO-REGISTRANTS AS SPECIFIED IN ITS RESPECTIVE CHARTER) DELAWARE (STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) 26380 CURTISS WRIGHT PARKWAY, RICHMOND HEIGHTS, OHIO (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) 13-3733378 (I.R.S. EMPLOYER IDENTIFICATION NO.) 44143 (ZIP CODE) Registrant's Telephone Number, Including Area Code: (216) 289-4939 Securities Registered Pursuant to Section 12(b) of The Act: None Securities Registered Pursuant to Section 12(g) of The Act: None The Co-Registrants meet the conditions set forth in General Instructions (I)(1)(a) and (b) of Form 10-K and are therefore filing this form with a reduced disclosure format. Indicate by checkmark whether the registrant: (1) has filed all reports to be filed by Section 13 or 15(d) of the Securities and 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 requirement for the past 90 days. Yes [X] No [ ] Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Annual Report on Form 10-K or any amendment to this Form 10-K. [X] There currently is no established publicly traded market for the common equity of TransDigm Holding Company held by non-affiliates. 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 119,824 - ---------------------------------------------------------------------------------- ------------------------------------ (Class) (Outstanding at September 30, 2000) Class A Common Stock (Non-Voting) of TransDigm Holding Company, $.01 Par Value -0- - ---------------------------------------------------------------------------------- ------------------------------------- (Class) (Outstanding at September 30, 2000)
All of the outstanding capital stock of TransDigm Inc. is held by TransDigm Holding Company. Documents incorporated by reference: See Exhibit Index included elsewhere in this Form 10-K. 2 SECTIONS OF THE 10K INDEX
Page PART I Item 1 BUSINESS 1 Item 2 PROPERTIES 8 Item 3 LEGAL PROCEEDINGS 8 Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 8 PART II Item 5 MARKET FOR OUR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 9 Item 6 SELECTED FINANCIAL DATA 9 Item 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 12 Item 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 17 Item 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 17 PART III Item 10 DIRECTORS AND EXECUTIVE OFFICERS 18 Item 11 EXECUTIVE COMPENSATION 20 Item 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 25 Item 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 27 PART IV Item 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K 28 SIGNATURES 32 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA F-1 - F-20 EXHIBIT INDEX i-ix
3 Special Note Regarding Forward-Looking Statements This Report on Form 10-K (this "Report") contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 and 27A of the Securities Act. Discussions containing such forward-looking statements may be found in Items 1, 3, and 7 hereof, as well as within this Report generally. In addition, when used in this Report, the words "believes," "anticipates," "expects" and similar expressions are intended to identify forward-looking statements. Although we believe that our plans, intentions and expectations reflected in or suggested by such forward-looking statements are reasonable, such forward-looking statements are subject to a number of risks and uncertainties, and we can give no assurance that such plans, intentions or exceptions will be achieved. Actual results in the future could differ materially from those described in the forward-looking statements as a result of many factors set forth herein as well as under the caption "Risk Factors" in the Registration Statement filed by us on Form S-4 on January 29, 1999, as amended through April 23, 1999. Many such factors are outside the control of TransDigm Holding Company and its subsidiaries. Consequently, such forward-looking statements should be regarded solely as our current plans, estimates and beliefs. We do not undertake and specifically decline any obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect any future events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. In this Report, the terms "TransDigm" and "Company" refer to TransDigm Inc. and its subsidiaries. The term "Holdings" refers to TransDigm Holding Company, the parent company of TransDigm. PART I ITEM 1. BUSINESS THE COMPANY TransDigm is a leading supplier of highly engineered aircraft components for use on nearly all commercial and military aircraft. TransDigm sells its products to commercial airlines, aircraft maintenance facilities, aircraft original equipment manufacturers ("OEMs") and various agencies of the United States government. TransDigm generates most of its EBITDA, As Defined, from sales of replacement parts in the aftermarket, including sales to airlines. This is because most of TransDigm's OEM sales are on an exclusive sole source basis; therefore, in most cases, TransDigm is the only certified provider of these parts in the aftermarket. Because aftermarket parts sales are driven by the size of the worldwide aircraft fleet, they are relatively stable and generate recurring revenues over the life of an aircraft that are many times the size of the original OEM purchases. In addition, because TransDigm has over 40 years of experience in most of its product lines, it benefits from a large and growing installed base of aircraft. TransDigm differentiates itself based on its engineering and manufacturing capabilities, and typically will not bid on non-proprietary "build to print" business. TransDigm has developed strong product brand names within the airline industry and a reputation for high quality, reliability and customer service. TransDigm focuses on developing highly customized products to solve specific problems of aircraft operators and manufacturers. Management estimates that over 80% of the TransDigm's products are of proprietary design. TransDigm provides its products to commercial airlines, such as United Airlines and Continental Airlines, large commercial transport and regional and business aircraft OEMs, such as Boeing, Bombardier and Cessna, and various agencies of the United States government. While aftermarket and OEM sales each typically account for approximately half of TransDigm's revenues, aftermarket sales typically carry a substantially higher gross margin than sales to OEMs. -1- 4 TransDigm is comprised of four business units: (1) AdelWiggins, (2) AeroControlex, (3) Marathon Power Technologies Company ("Marathon"), and (4) Adams Rite Aerospace, Inc. ("Adams Rite Aerospace"), each of which has a long history in the aircraft components industry. AdelWiggins manufactures an extensive line of fuel and hydraulic system connectors, specialized clamps, heaters and refueling systems. AeroControlex manufactures customized fuel pumps, compressors, valves, couplings and mechanical and electromechanical controls. Adams Rite Aerospace manufactures mechanical hardware, fluid controls, lavatory hardware, electromechanical controls and oxygen systems related products. Marathon manufactures nickel cadmium batteries and static inverters. Marathon and ZMP, Inc. ("ZMP") the corporate parent of Adams Rite Aerospace, were acquired in August 1997 and April 1999, respectively, as strategic complements to the AdelWiggins and AeroControlex businesses. Christie Electric Corp. ("Christie") was acquired by Marathon during March 2000 and was subsequently added as a product line within Marathon. TransDigm was formed in 1993 through a management-led buyout of IMO Industries. Since its formation, TransDigm has successfully established leadership positions in well-defined, profitable niches of the aircraft components market that it believes offer sustainable growth opportunities. On December 3, 1998, Phase II Acquisition Corp., an entity formed by affiliates of Odyssey Investment Partners, LP ("Odyssey"), and Holdings consummated a recapitalization (the "Recapitalization") pursuant to an agreement and plan of merger (the "Merger Agreement"). In connection therewith, Phase II Acquisition Corp. was merged with and into Holdings, with Holdings being the surviving corporation (the "Merger"). The Merger was treated as a recapitalization for financial reporting purposes, which had no impact on the historical basis of Holdings' consolidated assets and liabilities. PRODUCTS TransDigm's products are found on virtually all types of aircraft, and TransDigm supplies components to all major domestic and international airlines. Management estimates that over 80% of TransDigm's products are of proprietary design and approximately 70% of TransDigm's sales are derived from parts for which it has achieved sole source designation. TransDigm's products are grouped into fifteen major product lines, each of which is profitable and is operated as a semiautonomous business unit. Much of TransDigm's recent success has been due to its identification and development of new products for sale in the commercial aftermarket. TransDigm works closely with customers to identify their unmet needs, such as a component that fails to meet performance expectations or that requires excessive maintenance. TransDigm then utilizes its engineering and design capabilities to develop a prototype for a component that increases value of the product to the customer. After rigorous testing requirements have been fulfilled and TransDigm has obtained necessary regulatory approvals, the product is made available for sale in the aftermarket and to OEMs. ADELWIGGINS - AdelWiggins generated 29% of TransDigm's sales for fiscal 2000, which represents five of TransDigm's fifteen major product lines: (A) flexible and rigid tube connectors, (B) special connectors, (C) Adel clamps, (D) Wiggins service systems and (E) heaters and hoses. Tube connectors are fluid line connectors that provide leak tight joints and are found in flexible fluid systems on most aircraft platforms including fuel, water, waste and environmental systems. Special connectors are connectors designed to allow breaking and reconnecting of fluid lines under pressure and are found in quick disconnect applications including refueling and other fluid management systems for military, space and rocket launch applications and in frangible connectors for large commercial transports. Adel clamps include cushioned clamps, engineered elastomers, bare metal clamps, clamp shells, block clamps and quick release clamps used to support fuel, hydraulic, fluid and electric lines and are found in a broad variety of clamps located throughout the airplane, including in engines to address high temperature and high vibration requirements. Wiggins service systems include proprietary refueling nozzles and systems, vents, receivers and quick disconnects and are found in mine refueling equipment and military applications such as tanks and armored vehicles that require high flow capabilities and universal compatibility. Heaters and hoses consists of specialized hoses and heaters, including blanket and ribbon heaters, heater cuffs, heated nipples and gaskets and heated tanks throughout the aircraft and are designed to prevent freezing of fluids such as potable and non-potable water and waste and to provide heat for hot water service applications. -2- 5 AdelWiggins designs its products specifically to meet the engineering requirements of its customers, focusing on aspects such as: reduced-profile or low-profile geometry, broad ranges of high-temperature service, ease of installation and, where possible, utilization of advanced materials to maximize the strength-to-weight ratios of its components. These factors are critical to both OEMs and commercial airlines given their emphasis on reducing both acquisition and operating costs. In addition, TransDigm believes AdelWiggins' products have a reputation for long service lives and extremely high reliability in stressful operating environments. Approximately 60% of AdelWiggins' products are proprietary products designed to meet specific customer needs. The remaining 40% are industry standard designs. Roughly 55% of AdelWiggins' products are sole sourced, which is advantageous to TransDigm because it creates significant switching costs associated with the development and qualification of alternative engineered solutions. This sole sourced status has contributed to AdelWiggins achieving aftermarket sales of 27% of its net sales in fiscal 2000. See "Business-Customers." AEROCONTROLEX - AeroControlex generated 30% of TransDigm's sales for fiscal 2000, which represents three of TransDigm's fifteen major product lines: (A) mechanical controls, (B) pumps and (C) valves and quick disconnects. Mechanical controls include electromechanical control systems, sliding and ball bearing control cables and gearboxes which are found in the lavatory drain, throttle control, engine feedback, landing gear release and in ejection seats and fuel and air systems. Pumps primarily include gear pumps, which are found in hydraulic and fuel systems applications. Valves and quick disconnects include fuel and air system valves, compressors and quick disconnects which are found in air conditioning packages and fuel, radar and potable water systems. AeroControlex designs, manufactures and sells pumps, compressors, valves, couplings and mechanical controls primarily for the commercial and military aircraft markets. AeroControlex has developed a reputation for providing high-quality, reliable products consistently delivered on time. AeroControlex works closely with customers to leverage its engineering expertise to create technical solutions to customer-specific problems. About 95% of AeroControlex products are proprietary and over 90% are sold on a sole-source basis, which is advantageous to TransDigm because its creates significant switching costs associated with the development and qualification of alternative engineered solutions. This sole sourced status has contributed to AeroControlex achieving aftermarket sales of 72% of its net sales in fiscal 2000. See "Business-Customers." MARATHON - Marathon and its wholly-owned subsidiary, Christie Electric Corp. acquired in March 2000, generated 15% of TransDigm's sales for fiscal 2000, which represents three of TransDigm's fifteen major product lines: (A) sealed cell and vented cell nickel-cadmium batteries, (B) static inverters, and (C) battery charges and industrial power supplies. Vented cell nickel-cadmium batteries and sealed cell batteries are used for engine starting and emergency power aboard various aircraft while static inverters convert DC-AC or DC-DC for use in applications such as flight instrumentation and communication. Christie's products include ground based battery charging and power conditioning equipment for both main aircraft batteries and battery pack products. Approximately 50% of Marathon's products have achieved sole sourcing status with its customers. Marathon is one of the world's leading manufacturers of vented cell nickel- cadmium batteries, which require frequent maintenance, as individual cells within a battery are replaced throughout the life of the battery. Marathon, which manufactures and sells both entire batteries and individual cells, realizes replacement revenue in the aftermarket throughout the life of the battery as a result of its position as a sole source supplier of products that accounted for over 50% of its sales. Over 95% of Marathon's sales are proprietary, the status of which has contributed to Marathon achieving aftermarket sales of 70% of its net sales in fiscal 2000. Vented cell batteries are marketed under the Marathon(TM), SuperPower(TM) and Micro Maintenance(TM) brand names. -3- 6 ADAMS RITE AEROSPACE - Adams Rite Aerospace generated 26% of TransDigm's sales for fiscal 2000, which represents four of TransDigm's fifteen major product lines: (A) mechanical hardware, (B) fluid control products, (C) electromechanical control products and (D) oxygen systems related products. Mechanical hardware include hardware installed inside the aircraft, such as overhead storage bin latches, lavatory indicator and door latches, seat control cables and decompression latches, and hardware installed outside of the aircraft, such as door bolting systems. Fluid control products include various aircraft water system components, such as spigots, soap dispensers and water shut-off valves as well as entire self-contained water systems. Electromechanical control products include throttle quadrants, control wheels, electric strikes, speed brake controls and a variety of handle grips. Oxygen systems related products include oxygen cylinders, masks, reducers and control panels. Adams Rite Aerospace achieved aftermarket sales of 50% of its net sales for the period ended September 30, 2000. See "Business-Customers." SALES AND MARKETING Consistent with TransDigm's overall strategy, TransDigm's sales and marketing organization is structured to understand and anticipate the needs of customers in order to continually develop a stream of technical solutions that generate significant value. In particular, TransDigm focuses on the high-margin, repeatable aftermarket segment. TransDigm has structured AdelWiggins', AeroControlex's, Adams Rite Aerospace's, and Marathon's sales efforts along their collective fifteen major product lines, assigning a Product Line Manager to each line. The Product Line Managers are expected to grow the sales and profitability of their product line faster than the served market and to achieve the targeted annual level of bookings, sales, new business and profitability for each product. Assisting the Product Line Managers are Account Managers and Sales Engineers who are responsible for covering major OEM and airline accounts. Account Managers and Sales Engineers are expected to be familiar with the personnel, organization and needs of specific customers, for achieving total bookings and new business goals at each account, and, in conjunction with the Product Line Managers, for determining when additional resources are required at customer locations. All of TransDigm's sales personnel are compensated in part on their bookings and sales and ability to identify and convert new business opportunities. Though the majority are employees, the Account Manager function may be performed by independent representatives depending on the specific customer, product and geographic location. TransDigm also uses a limited number of distributors to provide logistical support as well as primary customer contact with certain smaller accounts. TransDigm's largest distributor is Aviall, which provides logistic services to the commercial airlines. BACKLOG Management believes that sales order backlog (i.e. orders for products that have not yet been shipped) is a useful indicator of future sales. As of September 30, 2000, the Company estimated its sales order backlog at $75.1 million compared to an estimated $62.5 million as of September 30, 1999. The majority of the purchase orders outstanding as of September 30, 2000 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 September 30, 2000 may not necessarily represent the actual amount of shipments or sales for any future period. -4- 7 FOREIGN OPERATIONS The Company manufactures 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. MANUFACTURING AND ENGINEERING TransDigm maintains four manufacturing facilities. Each facility serves its respective operating group and comprises manufacturing, distribution and engineering as well as administrative functions, including management, sales and finance. The AdelWiggins, AeroControlex, Marathon and Adams Rite Aerospace facilities encompass approximately 105,000, 44,000, 150,000 and 50,000 square feet of manufacturing space in Los Angeles, California, Cleveland, Ohio, Waco, Texas and Fullerton, California, respectively. In the last several years, management has taken a number of steps to improve productivity and reduce costs, including consolidating operations, developing improved control systems that allow for accurate product line profit and loss accounting, investing in equipment and tooling, installing modern information systems and implementing a broad-based employee training program. Management believes that TransDigm's manufacturing systems and equipment are critical competitive factors that permit it to meet the rigorous tolerances and cost sensitive price structure of aircraft customers. TransDigm focuses its manufacturing activities by product line, alternating its equipment among designs as demand requires. Each of TransDigm's operating groups attempts to differentiate itself from its competitors by producing highly engineered products at a low cost. TransDigm's proprietary products are designed by its engineering staff and intended to serve an unmet need in the aircraft component industry, particularly through its new product initiatives. See "Business-Products." These proprietary designs must withstand the extraordinary conditions and stresses that will be endured by products during use and meet the rigorous demands of TransDigm's customers' tolerance and quality requirements. TransDigm uses sophisticated equipment and procedures to ensure the quality of its products and to comply with military specifications and Federal Aviation Administration ("FAA") and OEM certification requirements. TransDigm performs a variety of testing procedures, including testing under different temperature, humidity and altitude levels, shock and vibration testing and X-ray fluorescent measurement. These procedures, together with other customer approved techniques for document, process and quality control, are used throughout TransDigm's manufacturing facilities. CUSTOMERS TransDigm's customers include: (A) commercial airlines, including national and regional airlines, particularly for aftermarket MRO components, (B) large commercial transport and regional and business aircraft OEMs, (C) various agencies of the United States government, including the United States military, and (D) various other industrial customers. For the year ended September 30, 2000, two customers represented approximately 10% and 9%, respectively, of the Company's net sales. Two customers represented approximately 15% and 14%, respectively, of the Company's net sales during the year ended September 30, 1999, and two customers represented approximately 20% and 14% of the Company's net sales for the year ended September 30, 1998. -5- 8 TransDigm has strong customer relationships with virtually all important large commercial transport, general aviation and military OEMs. The demand for TransDigm's aftermarket parts and services is related to TransDigm's extensive installed base and to revenue passenger miles and, to a lesser extent, to airline profitability and the size and age of the worldwide aircraft fleet. Some of TransDigm's business is executed under long-term agreements with customers, which encompass many products under a common agreement. TransDigm is also a leading supplier of components used on United States' designed military aircraft. TransDigm's products are used on a variety of fighter aircraft and helicopters. Military aircraft using TransDigm's products include the Lockheed F-15 and F- 16, the E2C (Hawkeye) and Blackhawk and Apache helicopters. COMPETITION TransDigm competes with a number of established companies, including divisions of larger companies that have significantly greater financial, technological and marketing resources than TransDigm. The niche markets within the aerospace industry served by TransDigm are relatively fragmented with several competitors for each of the products and services provided by AdelWiggins, AeroControlex and Marathon. Due to the global nature of the commercial aircraft industry, competition in these categories comes from both U.S. and foreign companies. TransDigm knows of no single competitor, however, that provides the same range of products and services as those provided by TransDigm. Competitors in TransDigm's product lines range in size from divisions of large corporations to small privately held entities, with only one or two components in their entire product line. TransDigm believes that its ability to compete depends on high product performance, short lead-time and timely delivery, competitive price, and superior customer service and support. There can be no assurance that TransDigm will be able to compete successfully with respect to these or other factors. GOVERNMENTAL REGULATION The commercial aircraft component industry is highly regulated by both the FAA in the United States and by the Joint Aviation Authorities in Europe, while the military aircraft component industry is governed by military quality specifications. TransDigm, and the components it manufactures, are required to be certified by one or more of these entities, and, in some cases, by individual OEMs in order to engineer and service parts and components used in specific aircraft models. If material authorizations or approvals were revoked or suspended, the operations of TransDigm would be adversely affected. In the future, new and more stringent government regulations may be adopted, or industry oversight may be heightened, which may have an adverse impact on TransDigm. TransDigm must also satisfy the requirements of its customers, including OEMs and airlines that are subject to FAA regulations, and provide these customers with products and services that comply with the government regulations applicable to commercial flight operations. In addition, the FAA requires that various maintenance routines be performed on aircraft components, and TransDigm currently satisfies or exceeds these maintenance standards in its repair and overhaul services. Several of TransDigm's operating divisions include FAA-approved repair stations. TransDigm's operations are also subject to a variety of worker and community safety laws. The Occupational Health and Safety Act ("OHSA") mandates general requirements for safe workplaces for all employees. In addition, OHSA provides special procedures and measures for the handling of certain hazardous and toxic substances. TransDigm believes that its operations are in material compliance with OHSA's health and safety requirements. -6- 9 RAW MATERIALS AND PATENTS TransDigm requires the use of various raw materials, including titanium, aluminum, nickel powder, nickel screen, stainless steel and cadmium, in its manufacturing processes. The availability and prices of such raw materials may fluctuate and price increases in these supplies may not be able to be recovered. TransDigm also purchases a variety of manufactured component parts from various suppliers. TransDigm is concentrating its orders, however, among fewer suppliers in order to strengthen its supplier relationships. Raw materials and component parts are generally available from multiple suppliers at competitive prices. However, any delay in TransDigm's ability to obtain necessary raw materials and component parts may affect its ability to meet customer production needs. TransDigm has various trade secrets, proprietary information, trademarks, trade names, patents, copyrights and other intellectual property rights, which TransDigm believes, in the aggregate but not individually, are important to its business. ENVIRONMENTAL MATTERS TransDigm's operations and current and/or former facilities are subject to federal, state and local environmental laws and to regulation by government agencies, including the Environmental Protection Agency. Among other matters, these regulatory authorities impose requirements that regulate the emission, discharge, generation, management, transportation and disposal of hazardous materials and pollutants, govern response actions to hazardous materials which may be or have been released to the environment, and require TransDigm to obtain and maintain permits in connection with its operations. The extensive regulatory framework imposes significant compliance burdens and risks on TransDigm. Although management believes that TransDigm's operations and its facilities are in compliance in all material respects with applicable environmental laws, there can be no assurance that future changes in such laws, regulations or interpretations thereof or the nature of TransDigm's operations will not require TransDigm to make significant additional expenditures to ensure compliance in the future. According to some environmental laws, a current or previous owner or operator of real property may be liable for the costs of investigations, removal or remediation of hazardous materials at such property. Those laws typically impose liability whether or not the owner or operator knew of, or was responsible for, the presence of such hazardous materials. Persons who arrange, or are deemed to have arranged, for disposal or treatment of hazardous materials also may be liable for the costs of investigation, removal or remediation of those substances at the disposal or treatment site, regardless of whether the affected site is owned or operated by that person. Because TransDigm owns and/or operates a number of facilities, and because TransDigm arranges for the disposal of hazardous materials at many disposal sites, TransDigm may incur costs for investigation, removal and remediation, as well as capital costs associated with compliance. Although those environmental costs have not been material in the past and are not expected to be material in the future, there can be no assurance that changes in environmental laws or unexpected investigations and clean-up costs will not be material. TransDigm does not currently contemplate material capital expenditures for environmental compliance remediation for fiscal 2001 or fiscal 2002. The soil and groundwater beneath TransDigm's facility in Waco, Texas have been impacted by releases of hazardous materials. Because the majority of the contaminants identified to date are presently below action levels prescribed by the Texas Natural Resources Conservation Commission, TransDigm does not believe the condition of the soil and groundwater at the Waco facility will require incurrence of material capital expenditures; however, there can be no assurance that additional contamination will not be discovered or that the remediation required by the Texas Natural Resources Conservation Commission will not be material to the financial condition, results of operations or cash flows of TransDigm. -7- 10 EMPLOYEES As of September 30, 2000, TransDigm had approximately 720 full-time employees and 37 temporary employees. Approximately 16% of TransDigm employees were represented by the United Steelworkers Union, and approximately 10% were represented by the United Automobile, Aerospace and Agricultural Implement Workers of America. Collective bargaining agreements between TransDigm and these labor unions expire on April 2002 and November 2004, respectively. TransDigm considers its relationship with its employees generally to be satisfactory. ITEM 2. PROPERTIES TransDigm owns and operates a 130,000 square foot facility in Los Angeles, California, a 63,000 square foot facility in Cleveland, Ohio and a 219,000 square foot facility in Waco, Texas. In addition, TransDigm leases and operates a 100,000 square foot facility in Fullerton, California and approximately 17,000 square feet in Richmond Heights, Ohio, which is also TransDigm's headquarters. TransDigm also leases certain of its other non-material facilities. Management believes that its machinery, plants and offices are in satisfactory operating condition, and, will have sufficient capacity to meet foreseeable future needs without incurring significant additional capital expenditures. ITEM 3. LEGAL PROCEEDINGS During the ordinary course of business, TransDigm is from time to time threatened with, or may become a party to, legal actions and other proceedings. While TransDigm is currently involved in some legal proceedings, management believes the results of these proceedings will not have a material effect on the results of operations of TransDigm, in part due to indemnification arrangements. TransDigm believes that its potential exposure to those legal actions is adequately covered by its aviation product and general liability insurance. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted during the fourth quarter of the fiscal year covered by this report to a vote of our security holders. -8- 11 PART II ITEM 5. MARKET FOR OUR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS MARKET INFORMATION There is no established public market for the common stock of Holdings. HOLDERS As of September 30, 2000, there were approximately 25 record holders of Holdings' common stock. Holdings is the sole shareholder of TransDigm's common stock. DIVIDENDS There have been no cash dividends declared on any class of common equity for the two most recent fiscal years. See restrictions on Holdings' ability to pay dividends and TransDigm's ability to transfer funds to Holdings in Note 9 to our consolidated financial statements appearing elsewhere in this Report. ITEM 6. SELECTED FINANCIAL DATA SELECTED HISTORICAL FINANCIAL AND OTHER DATA OF TRANSDIGM HOLDING COMPANY The following table sets forth selected historical consolidated financial and other data of Holdings for each of the fiscal years ended September 30, 1996 through 2000 which have been derived from Holdings' audited consolidated financial statements for those years. The Company acquired Marathon Power Technologies Company on August 8, 1997, ZMP, Inc. and its wholly-owned subsidiary, Adams Rite Aerospace, on April 23, 1999 and Christie Electric Corp. on March 8, 2000. All of the acquisitions were accounted for as purchases. The results of operations of Marathon, ZMP, Adams Rite Aerospace, and Christie Electric Corp. are included in Holdings consolidated financial statements from the date of each of the acquisitions. The information presented below should be read together with the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section and the consolidated financial statements and the notes thereto included elsewhere herein. -9- 12
FISCAL YEAR ENDED SEPTEMBER 30, ----------------------------------------------------------- 1996 1997 1998 1999 2000 (DOLLARS IN THOUSANDS) STATEMENT OF OPERATIONS DATA: Net sales $ 62,897 $ 78,159 $ 110,868 $ 130,818 $ 150,457 Gross profit 21,023 28,856 51,473 60,867 68,264 Selling and administrative 6,459 7,561 10,473 13,620 16,799 Amortization of intangibles 3,838 2,089 2,438 2,063 1,843 Research and development 836 1,116 1,724 2,139 2,308 Merger expenses -- -- -- 40,012 -- --------- --------- --------- --------- --------- Operating income (1) 9,890 18,090 36,838 3,033 47,314 Interest expense, net (2) 4,510 3,463 3,175 22,722 28,563 Warrant put value adjustment 2,160 4,800 6,540 -- -- --------- --------- --------- --------- --------- Pre-tax income (loss) 3,220 9,827 27,123 (19,689) 18,751 Provision (benefit) for income taxes 2,045 5,193 12,986 (2,772) 7,972 --------- --------- --------- --------- --------- Income (loss) before extraordinary item 1,175 4,634 14,137 (16,917) 10,779 Extraordinary item -- (1,462) -- -- -- --------- --------- --------- --------- --------- Net income (loss) $ 1,175 $ 3,172 $ 14,137 $ (16,917) $ 10,779 ========= ========= ========= ========= =========
FISCAL YEAR ENDED SEPTEMBER 30, ----------------------------------------------------------- 1996 1997 1998 1999 2000 (DOLLARS IN THOUSANDS) OTHER FINANCIAL DATA: Cash flows provided by (used in): Operating activities $ 18,695 $ 17,468 $ 23,455 $ (16,219) $ 16,305 Investing activities (2,494) (43,160) (4,295) 44,599 (5,120) Financing activities (13,475) 28,153 (5,071) 44,061 (9,605) EBITDA (3) 17,213 23,856 43,305 9,407 53,826 EBITDA, As Defined (4) 17,213 24,522 43,547 50,562 54,011 EBITDA, As Defined, margin 27.4 % 31.4 % 39.3 % 38.7 % 35.9 % Depreciation and amortization $ 7,323 $ 5,766 $ 6,467 $ 6,374 $ 6,512 Capital expenditures 2,494 2,285 5,061 3,043 4,368 Ratio of earnings to fixed charges (5) 1.7x 3.7x 9.0x -- 1.6x Ratio of EBITDA, As Defined, to interest expense 3.8x 7.1x 13.7x 2.2x 1.9x Ratio of EBITDA, As Defined, to interest expense, As Defined (6) 3.8x 7.1x 13.7x 2.4x 2.1x Ratio of total debt to EBITDA, As Defined 1.1x 2.0x 1.0x 5.3x 4.8x BALANCE SHEET DATA (AT END OF PERIOD): Working capital $ 16,300 $ 16,520 $ 16,654 $ 35,531 $ 39,897 Total assets 57,666 101,969 115,785 164,417 168,833 Long-term debt, including current portion 19,124 50,000 45,000 266,557 261,601 Total stockholders' equity (deficiency) 19,670 22,613 36,427 (127,622) (118,409) - -----------
-10- 13 (1) Operating income includes the effect of a non-cash charge of $666 in fiscal 1997 and $242 in fiscal 1998 due to a purchase accounting adjustment to inventory associated with the acquisition of Marathon, a non-cash charge of $1,143 in fiscal 1999 due to a purchase accounting adjustment to inventory associated with the acquisition of Adams Rite Aerospace, and a non-cash charge of $185 in fiscal 2000 due to a purchase accounting adjustment to inventory associated with the acquisition of Christie. (2) All of the interest expense reported for fiscal 1996 through 1998 represents interest expense of TransDigm. Holdings had no interest expense prior to the Recapitalization discussed in Note 1 to the consolidated financial statements of Holdings included elsewhere in this Report. After the Recapitalization, Holdings incurred $2,600 and $2,000 of interest expense during fiscal 2000 and 1999, respectively, relating to the Holdings PIK Notes. Holdings has no other interest expense. TransDigm is not an obligor or a guarantor under the Holdings PIK Notes. (3) EBITDA represents earnings before interest, taxes, depreciation, amortization, warrant put value adjustment and extraordinary items. EBITDA is presented because management believes it is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in Holdings' industry. However, other companies in Holdings' industry may calculate EBITDA differently than Holdings does. EBITDA is not a measurement of financial performance under accounting principles generally accepted in the United States of America and should not be considered as an alternative to cash flow from operating activities, as a measure of liquidity or an alternative to net income as indicators of Holdings' operating performance or any other measures of performance derived in accordance with accounting principles generally accepted in the United States of America. See Holdings' consolidated statements of cash flows included in Holdings' consolidated financial statements included elsewhere in this Report. (4) EBITDA, As Defined, is calculated as follows:
1996 1997 1998 1999 2000 EBITDA $17,213 $23,856 $43,305 $ 9,407 $53,826 Adjustments: Merger Expenses -- -- -- 40,012 -- Inventory Purchase Accounting Adjustments -- 666 242 1,143 185 ------- ------- ------- ------- ------- EBITDA, As defined $17,213 $24,522 $43,547 $50,562 $54,011 ======= ======= ======= ======= =======
EBITDA, As Defined, is presented herein to provide additional information with respect to the ability of Holdings to satisfy its debt service, capital expenditure and working capital requirements and because certain types of covenants in TransDigm's and Holdings' borrowing arrangements are tied to similar measures. While EBITDA-based measures are frequently used as measures of operations and the ability to meet debt service requirements, they are not necessarily comparable to other similarly titled captions of other companies due to differences in methods of calculation. (5) For purposes of computing the ratio of earnings to fixed charges, earnings consist of earnings before income taxes plus fixed charges. Fixed charges consist of interest expense, amortization of debt expense and the portion (approximately 33%) of rental expense that management believes is representative of the interest component of rental expense. Earnings were insufficient to cover fixed charges by $20 for fiscal 1999. (6) Interest expense, As Defined, represents the Company's consolidated interest expense exclusive of the non-cash interest expense recognized for the Holdings PIK Notes issued in connection with the Recapitalization. This ratio is provided because a debt covenant in the Company's credit facility is based on the same measure. -11- 14 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 year ended September 30, 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, the corporate parent of Adams Rite Aerospace, 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. During the year ended September 30, 2000, the Company received a purchase price adjustment of $1.6 million, net of expenses. On March 8, 2000, Marathon acquired all of the issued and outstanding common shares of Christie Electric Corp. ("Christie") for $2.4 million. Christie was a well established manufacturer of battery charging and power conditioning equipment. The product lines are a complement to Marathon's business. Christie's operating facility was closed and its operations were moved to Marathon during the fourth quarter of fiscal 2000. 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. -12- 15 RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, certain operating data of the Company as a percentage of net sales.
YEARS ENDED ----------------------------------------- SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 1998 1999 2000 Net sales 100 % 100 % 100 % --- --- --- Gross profit 46 47 45 Selling and administrative 9 10 11 Amortization of intangibles 2 2 1 Research and development 2 2 2 Merger expenses -- 31 -- --- --- --- Operating income 33 2 31 Interest expense - net 2 17 19 Warrant put value adjustment 6 -- -- Provision (benefit) for income taxes 12 (2) 5 --- --- --- Net income (loss) 13 % (13)% 7 % === === ===
CHANGES IN RESULTS OF OPERATIONS FISCAL YEAR ENDED SEPTEMBER 30, 2000 COMPARED WITH FISCAL YEAR ENDED SEPTEMBER 30, 1999. - - NET SALES. Net sales increased by $19.7 million, or 15.1%, to $150.5 million for the year ended September 30, 2000 from $130.8 million for the year ended September 30, 1999, principally due to the acquisition of ZMP in April 1999 partially offset by declines in the net sales of AeroControlex and AdelWiggins due to an industry-wide spare parts inventory correction. - - GROSS PROFIT. Gross profit (net sales less cost of sales) increased by $7.4 million, or 12.2%, to $68.3 million for the year ended September 30, 2000 from $60.9 million for the year ended September 30, 1999. This increase is attributable to higher sales discussed above. Gross profit as a percentage of net sales was 45% for the year ended September 30, 2000 and 47% for the year ended September 30, 1999. This change was the result of the acquisition of ZMP in April 1999, which has a slightly lower gross profit margin than the Company as a whole, as well as the decline in sales at AeroControlex and AdelWiggins discussed previously. - - SELLING AND ADMINISTRATIVE. Selling and administrative expenses increased by $3.2 million, or 24%, to $16.8 million for the year ended September 30, 2000 from $13.6 million for the year ended September 30, 1999. This increase principally resulted from the acquisition of ZMP and additional new business initiatives. Selling and administrative expenses as a percentage of net sales increased slightly from 10% for the year ended September 30, 1999 to 11% for the year ended September 30, 2000. - - AMORTIZATION OF INTANGIBLES. Amortization of intangibles decreased by $.3 million, or 14.3%, to $1.8 million for the year ended September 30, 2000 from $2.1 million for the year ended September 30, 1999. This decrease is the result of certain intangibles being fully amortized. - - RESEARCH AND DEVELOPMENT. Research and development expense increased $.2 million, or 9.5%, to $2.3 million for the year ended September 30, 2000 compared to $2.1 million for the year ended September 30, 1999, principally due to the acquisition of ZMP in April 1999. Research and development expense as a percentage of net sales, was 2% for the years ended September 30, 2000 and September 30, 1999. -13- 16 - - MERGER EXPENSES. Merger costs totaling $40 million were incurred during fiscal 1999 in connection with the Merger and Recapitalization (see Note 1 to the consolidated financial statements of Holdings included elsewhere in this Report). 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 services agreement 5,850 Professional fees and expenses 7,201 Write-off of deferred financing costs 552 Other 522 -------- $ 40,012 ======== - - OPERATING INCOME. Operating income increased $44.3 million from $3.0 million for the year ended September 30, 1999 to $47.3 million for the year ended September 30, 2000. Operating income, excluding merger expenses, increased $4.3 million, or 9.9%. This increase is primarily attributable to the acquisition of ZMP. - - INTEREST EXPENSE. Interest expense increased by $5.9 million, or 26%, to $28.6 million for the year ended September 30, 2000 from $22.7 million for the year ended September 30, 1999. This increase results from the increase in the average level of outstanding borrowings in connection with the Recapitalization and acquisition of ZMP and an increase in interest rates. - - INCOME TAXES. Income tax expense (benefit) as a percentage of income (loss) before income taxes was 42.5% for fiscal 2000 and (14.1%) for fiscal 1999. The tax provision recorded in fiscal 2000 was significantly impacted by non-deductible goodwill amortization, particularly the amortization of the goodwill recognized in conjunction with the acquisition of ZMP. The tax benefit recorded for fiscal 1999 was significantly impacted by the non-deductible expenses incurred in connection with the Recapitalization. - - NET INCOME (LOSS). The Company earned $10.8 million for the year ended September 30, 2000 compared to a net loss of $16.9 million for the year ended September 30, 1999 primarily as a result of the factors referred to above. FISCAL YEAR ENDED SEPTEMBER 30, 1999 COMPARED WITH FISCAL YEAR ENDED SEPTEMBER 30, 1998. - - NET SALES. Net sales increased by $19.9 million, or 17.9%, to $130.8 million for the year ended September 30, 1999 from $110.9 million for the year ended September 30, 1998, principally due to the acquisition of ZMP and growth in new business programs. - - GROSS PROFIT. Gross profit (net sales less cost of sales) increased by $9.4 million, or 18.3%, to $60.9 million for the year ended September 30, 1999 from $51.5 million for the year ended September 30, 1998. Approximately $4.8 million of this increase is attributable to the acquisition of ZMP and the remaining $4.6 million resulted from improved profitability in the core businesses derived from new business and productivity efforts. The $4.8 million of ZMP gross profits recorded during the year ended September 30, 1999 are net of a $1.1 million charge relating to the write-up of Adams Rite Aerospace's inventory in place at the time of the acquisition. Gross profit as a percentage of net sales was 47% for the year ended September 30, 1999 and 46% for the year ended September 30, 1998. - - SELLING AND ADMINISTRATIVE. Selling and administrative expenses increased by $3.1 million, or 29.5%, to $13.6 million for the year ended September 30, 1999 from $10.5 million for the year ended September 30, 1998. This increase principally resulted from the acquisition of ZMP discussed previously and additional new business initiatives. Selling and administrative expenses as a percentage of net sales increased slightly from 9% for the year ended September 30, 1998 to 10% for the year ended September 30, 1999. -14- 17 - - AMORTIZATION OF INTANGIBLES. Amortization of intangibles decreased by $.3 million, or 12.5%, to $2.1 million for the year ended September 30, 1999 from $2.4 million for the year ended September 30, 1998 due to the amortization of intangible assets recognized in connection with the acquisition of ZMP. - - RESEARCH AND DEVELOPMENT. Research and development expense increased $.4 million, or 24%, to $2.1 million for the year ended September 30, 1999 from $1.7 million for the year ended September 30, 1998. This increase was primarily attributable to continued new product development. Research and development expense, as a percentage of net sales, was 2% for the years ended September 30, 1998 and September 30, 1999. - - MERGER EXPENSES. Merger costs totaling $40 million were incurred during fiscal 1999 in connection with the Merger and Recapitalization (see Note 1 to the consolidated financial statements of Holdings included elsewhere in this Report). The nature of the merger-related charges are detailed in the Changes in Results of Operations - Fiscal Year Ended September 30, 2000 Compared With Fiscal Year Ended September 30, 1999 section of this report. - - OPERATING INCOME. Operating income decreased from $36.8 million for the year ended September 30, 1998 to $3.0 million for the year ended September 30, 1999. Operating income decreased by $33.8 million, or 92%. This decrease was primarily attributable to the Merger and Recapitalization. As a percentage of net sales, operating income declined from 33% for the year ended September 30, 1998 to 2% for the year ended September 30, 1999. - - INTEREST EXPENSE. Interest expense increased by $19.5 million to $22.7 million for the year ended September 30, 1999 from $3.2 million for the year ended September 30, 1998 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 and the non-deductible warrant put value adjustment was (14%) for fiscal 1999 and 38.6% for fiscal 1998. The tax benefit recorded for fiscal 1999 was significantly impacted by the non-deductible expenses incurred in connection with the Recapitalization. - - NET INCOME (LOSS). The Company incurred a net loss of $16.9 million for the year ended September 30, 1999 compared to net income of $14.1 million for the year ended September 30, 1998 primarily as a result of the factors referred to above. INFLATION Many of the Company's raw materials and operating expenses are sensitive to the effects of inflation, which could result in changing operating costs. The effects of inflation on the Company's businesses during the years ended September 30, 2000 and September 30, 1999 were not significant. LIQUIDITY AND CAPITAL RESOURCES The Company generated approximately $16.3 million cash from operating activities during the year ended September 30, 2000 compared to approximately $16.2 million used during the year ended September 30, 1999. The change in operating cash flows is due to the one-time merger expenses of $40 million in fiscal 1999 and improved operating results in fiscal 2000, partially offset by an increase in interest expense in fiscal 2000 due to the recapitalization and an increase in interest rates. Cash used in investing activities was approximately $5.1 million during the year ended September 30, 2000 compared to approximately $44.6 million used during the year ended September 30, 1999. The change in investing cash flows is primarily due to the use of $41.6 million of cash in 1999 for the acquisition of Adams Rite Aerospace. Approximately $2.4 million of cash was used in 2000 for the acquisition of Christie. -15- 18 Cash used in financing activities during the year ended September 30, 2000 was approximately $9.6 million compared to approximately $44.1 million provided during the year ended September 30, 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 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, which commenced 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 $4.4 million and $3 million during fiscal 2000 and 1999, respectively. 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 at 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. -16- 19 NEW ACCOUNTING STANDARD 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. The implementation of this new accounting standard will not have a material effect on the Company's reported financial condition or results of operations. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK All of the Company's outstanding indebtedness at September 30, 1998 was repaid in connection with the Merger and Recapitalization. At September 30, 2000, 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 $112.0 million of borrowings outstanding under the credit facility at September 30, 2000 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 September 30, 2000 by approximately $2.7 million. Also outstanding at September 30, 2000 was $125 million of Company indebtedness in the form of subordinated notes and $24.6 million of Holdings PIK Notes. The interest rates on both of these borrowings are fixed at 10 3/8% and 12% per year, respectively. The fair value of the Company's Senior Subordinated Notes approximated $106 million at September 30, 2000 based upon quoted market prices. A determination of the fair value of the Holdings PIK Notes is not considered practicable because they are held by a related party and are not publicly traded. The effect of a hypothetical one percentage point decrease in interest rates would increase the estimated fair value of the borrowings on September 30, 2000 by $4.3 million and $.6 million, respectively. 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 $24.6 million at September 30, 2000 that bear interest at 12% annually. Interest expense recognized on the Holdings PIK Notes during the year ended September 30, 2000 was $2.6 million. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The response to this item is submitted in a separate section of this report following the signature page. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There were no changes or disagreements with accountants on accounting and financial disclosure. -17- 20 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS The following table sets forth certain information concerning the directors and executive officers of Holdings and the directors and executive officers of the Company as of September 30, 2000:
NAME AGE POSITION Douglas W. Peacock 61 Chairman of the Board of Directors and Chief Executive Officer W. Nicholas Howley 48 President, Chief Operating Officer and Director Robert S. Henderson 44 President, AdelWiggins Group Raymond F. Laubenthal 39 President, AeroControlex Group John F. Leary 53 President, Adams Rite Aerospace, Inc. Albert J. Rodriguez 40 President, Marathon Power Technologies Company Gregory Rufus 44 Chief Financial Officer Stephen Berger 61 Director Muzzafar Mirza 42 Director William Hopkins 37 Director Thomas R. Wall, IV 42 Director John W. Paxton 64 Director
Mr. Peacock has been Chairman of the Board of Directors and Chief Executive Officer of TransDigm since its inception in September 1993. He is also a director of Microporous Products, L.P. Prior to joining TransDigm, Mr. Peacock spent six years with IMO Industries Inc. as Executive Vice President of IMO'S Instruments and Aerocomponents Group from 1991-1993, Executive Vice President of Power Systems from 1989-1991, and managed IMO's turbomachinery business from 1987-1989. Prior to joining IMO, Mr. Peacock spent 15 years in various managerial positions at Westinghouse Electric Corp. Mr. Peacock received a B.S. degree in chemical engineering from Washington State University and a Ph.D. in physical chemistry from the University of Illinois. Mr. Peacock holds an Airline Transport Pilot Rating and routinely commands flights in TransDigm's corporate aircraft. Mr. Howley has been a Director of Holdings and President, Chief Operating Officer and Director of TransDigm since the consummation of the Recapitalization. Mr. Howley served as Executive Vice President of TransDigm and President of the AeroControlex Group from TransDigm's inception in September 1993 to the date of the consummation of the Recapitalization. Prior to joining TransDigm, Mr. Howley served as General Manager of IMO Industries Inc. Aeroproducts Division, and Director of Finance for the 15 divisions of IMO's Turbomachinery, Aerospace, and Power Transmission groups. Prior to joining IMO, he held various executive positions at Lansdowne Steel/Lansco Corp., a manufacturer of defense and oil drilling products, and the Engineering and Construction Group of Raytheon Co. Mr. Howley received his B.S. in engineering from Drexel University and an MBA from the Harvard University Graduate School of Business. Mr. Henderson became President of the AdelWiggins Group in September 1999. He previously had served as President of Marathon Power Technologies Company since April 1997. From November 1994 until April 1997, he served as Manager of Operations for the AdelWiggins Group. From 1991 until 1994, Mr. Henderson served as Operations Manager at RainBird Sprinkler. Mr. Henderson received his B.A. in mathematics from Brown University and attended the Harvard University Graduate School of Business. Mr. Laubenthal has been President of AeroControlex Group since November 1998. From December 1996 until November 1998, Mr. Laubenthal served as Director of Manufacturing and Engineering for the AeroControlex Group and had prior extensive experience in manufacturing and engineering at Parker Hannifin Corporation and Textron. From October 1993 to December 1996, Mr. Laubenthal served as Director of Manufacturing for the AeroControlex Group. Mr. Laubenthal received a B.S. degree in mechanical engineering from Case Western Reserve University and an MBA from Northern Illinois University. -18- 21 Mr. Leary has been President of Adams Rite Aerospace, Inc. since June 1999. From 1995 to June 1999, Mr. Leary was a General Operations Manager with Furon Company. From 1991 to 1995, Mr. Leary was the Plant Manager of Emerson Electric, Chromalox Division. Mr. Leary received his BS in Mechanical Engineering from the New Jersey Institute of Technology. Mr. Rodriguez has been President of Marathon Power Technologies Company since September 1999. From January 1998 until September 1999, Mr. Rodriguez served as Director of Commercial Operations for the AeroControlex Group. From 1993 to 1997, Mr. Rodriguez served as Director of Sales and Marketing for the AeroControlex Group. Mr. Rodriguez has prior experience with IMO Industries, Esterline, as well as Kaiser Electro Precision. Mr. Rodriguez received his Bachelor of Engineering with a concentration in Chemical Engineering from Stevens Institute of Technology. Mr. Rufus became Chief Financial Officer in August 2000. Prior to joining TransDigm, Mr. Rufus spent 19 years at Emerson Electric, including divisional vice president responsibilities at Ridge Tool, Liebert Corp., and Harris Colorific, all part of the Emerson organization. Prior to Emerson, Mr. Rufus spent four years with Ernst & Young. Mr. Rufus received his CPA certification in Ohio in 1980. Mr. Rufus received a B.A. degree in accounting from Baldwin-Wallace College and attended the Weatherhead School of Management at Case Western Reserve University. Mr. Berger has served as a Director of Holdings and TransDigm since the consummation of the Recapitalization. He is also currently serving as Chairman of Odyssey Investment Partners, LLC. Prior to joining Odyssey Investment Partners, LLC, Mr. Berger was a general partner of Odyssey Partners, LP. From 1990 to 1993, Mr. Berger served as Chairman and CEO of FGIC, a wholly-owned subsidiary of GE Capital Corp., and subsequently became Executive Vice President of GE Capital Corp. From 1985 to 1990, Mr. Berger was Executive Director of the Port Authority of New York and New Jersey Mr. Berger presently serves as a member of the Board of Trustees of Brandeis University. Mr. Mirza has served as a Director of Holdings and TransDigm since the consummation of the Recapitalization. Mr. Mirza is also currently a member of Odyssey Investment Partners, LLC and has been a principal in the private equity investing group of Odyssey Partners, LP since 1993. From 1988 to 1993, Mr. Mirza was employed by the merchant banking group of GE Capital Corp. Mr. Hopkins has served as a Director of Holdings and TransDigm since the consummation of the Recapitalization. Mr. Hopkins is also currently a member of Odyssey Investment Partners, LLC and has been a principal in the private equity investing group of Odyssey Partners, LP since 1994. Prior to joining Odyssey, Mr. Hopkins was a member of the merchant banking group of GE Capital Corp. Mr. Wall has served as a Director of Holdings and TransDigm since their inception in 1993. Mr. Wall joined Kelso & Company in 1983 and has served as a Managing Director of Kelso & Company since 1990. Mr. Wall presently serves as a member of the Board of Directors of AMF Bowling, Inc., Consolidated Vision Group, Inc., Cygnus Publishing, Inc., iXL Enterprises, Inc., Mitchell Supreme Fuel Company Mosler Inc., Peebles, Inc., and 21st Century Newspapers, Inc. Mr. Paxton has served as a Director of Holdings and TransDigm since the consummation of the Recapitalization. Mr. Paxton is also currently chairman of Odyssey Industrial Technologies, LLC, which is a joint venture with Odyssey Investment Partners, LLC, and Chairman of the Board, President and Chief Executive Officer of Telxon Corporation. Prior to joining TransDigm as a Director, Mr. Paxton was a member of the Board of Directors of Paxar Corporation ("Paxar") and President of Paxar's Printing Solution Group from October 1997 to the calendar year end 1998. Mr. Paxton served as President and Chief Executive Officer of Monarch Marking Systems from October 1995 to October 1997. Prior to joining Monarch Marking Systems, Mr. Paxton joined Litton Industries ("Litton") as a Corporate Vice President in 1991 when Litton acquired Intermec Corporation. During his years at Litton, Mr. Paxton had responsibility for the Industrial Automation Group. He became Corporate Executive Vice President and Chief Operating Officer of the Industrial Automation Systems Group of Western Atlas, Inc. when Western Atlas, Inc. was spun off by Litton in March 1994. Mr. Paxton presently serves as a member of the Board of Directors of AIM, National Association of Manufacturers, World Economic Forum. -19- 22 BOARD COMMITTEES Holdings' Board of Directors has a Compensation Committee and an Audit Committee. The Compensation Committee, which is comprised of Messrs. Berger, Mirza and Hopkins, establishes salaries, incentives and other forms of compensation for executive officers and administers incentive compensation and benefit plans provided for employees. The Audit Committee, which is comprised of Messrs. Wall, Mirza and Hopkins, reviews Holdings' and TransDigm's audit policies and oversees the engagement of Holdings' and TransDigm's independent auditors. ITEM 11. EXECUTIVE COMPENSATION The following table sets forth the aggregate compensation paid or accrued by TransDigm for services rendered during fiscal 2000, 1999, and 1998 to the Chief Executive Officer of TransDigm and each of the four other most highly paid executive officers of TransDigm (collectively the "Named Executive Officers"): SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION ------------------- AWARDS ------------------- ANNUAL COMPENSATION SECURITIES ---------------------------------------------------------- UNDERLYING NAME AND FISCAL OTHER ANNUAL OPTIONS/ ALL OTHER PRINCIPAL POSITION YEAR SALARY BONUS(1) COMPENSATION(2) SARS COMPENSATION Douglas W. Peacock, 2000 $ 330,000 $ 200,000 - $ 18,575 (3) Chairman of the Board 1999 323,750 225,000 4,500 19,659 and CEO 1998 305,000 2,857,500 - 23,518 W. Nicholas Howley, 2000 225,000 135,000 - 12,094 (4) President, Chief Operating 1999 215,000 130,000 4,500 10,896 Officer and Director 1998 185,000 2,080,000 - 14,446 John F. Leary 2000 148,750 55,000 - 8,742 (5) President of Adams Rite 1999 46,134 12,000 500 810 Aerospace 1998 - - - - Robert S. Henderson, 2000 155,000 45,000 - 10,583 (6) President of AdelWiggins 1999 137,469 60,000 700 9,744 Group 1998 125,000 450,000 - 10,663 Peter B. Radekevich, 2000 138,974 - - 533,875 (7) Former Chief Financial Officer 1999 118,250 50,000 575 8,558 1998 113,000 196,250 - 8,326 Gregory Rufus, 2000 13,207 40,000 575 279 (8) Chief Financial Officer 1999 - - - - 1998 - - - - - -----------
-20- 23 (1) Bonus for fiscal year 1998 includes a one-time bonus paid by TransDigm in connection with the Recapitalization. (2) Does not include perquisites and other personal benefits because the value of these items did not exceed the lesser of $50,000 or 10% of reported salary and bonus of any of the listed executives. (3) Includes $10,200 in contributions by TransDigm, as projected to calendar year end 2000, to a plan established under Section 401(k) of the Internal Revenue Code (the "401(k) plan") and $8,375 of Company-paid life insurance. (4) Includes $10,200 in contributions by TransDigm, as projected to calendar year end 2000, to the 401(k) plan and $1,894 in Company-paid life insurance. (5) Includes $7,500 in contributions by TransDigm, as projected to calendar year end 2000, to the 401(k) plan and $1,242 in Company-paid life insurance. (6) Includes $9,300,in contributions by TransDigm, as projected to calendar year end 2000, to the 401(k) plan and $1,283 in Company-paid life insurance. (7) Includes $3,200 in contributions by TransDigm, as projected to calendar year end 2000, to the 401(k) plan and $1,035 in Company-paid life insurance, as well as $529,640 related to the sale of stock. (8) Includes $279 in Company-paid life insurance, as projected to calendar year end 2000. -21- 24 AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUES
Number of Value of Shares Shares Underlying Unexercised In- Acquired Unexercised The Money Exercise on Value Options/SAR at Options/SARs At Name Price Exercise Realized Fiscal Year-End Fiscal Year-End Douglas W. Peacock, $ 100 - - Exercisable 2,992 Exercisable $3,231,360 Chairman of the Board and Unexercisable - Unexercisable - Chief Executive Officer 335 - - Exercisable 3,097 Exercisable 2,616,965 Unexercisable - Unexercisable - 1,040 - - Exercisable 900 Exercisable 126,000 Unexercisable 3,600 Unexercisable 504,000 W. Nicholas Howley, 100 - - Exercisable 3,890 Exercisable 4,201,200 President, Chief Operating Unexercisable - Unexercisable - Officer and Director 335 - - Exercisable 1,900 Exercisable 1,605,500 Unexercisable - Unexercisable - 1,040 - - Exercisable 900 Exercisable 126,000 Unexercisable 3,600 Unexercisable 504,000 John F. Leary 100 - - Exercisable - Exercisable - President of Adams Rite Unexercisable - Unexercisable - Aerospace 200 - - Exercisable - Exercisable - Unexercisable - Unexercisable - 335 - - Exercisable - Exercisable - Unexercisable - Unexercisable - 1,040 - - Exercisable - Exercisable - Unexercisable 500 Unexercisable 70,000 Robert S. Henderson, 154 - - Exercisable 172 Exercisable 176,472 President of AdelWiggins Unexercisable - Unexercisable - Group 200 - - Exercisable 400 Exercisable 392,000 Unexercisable - Unexercisable - 335 - - Exercisable 200 Exercisable 169,000 Unexercisable - Unexercisable - 1,040 - - Exercisable - Exercisable - Unexercisable 700 Unexercisable 98,000 Peter B. Radekevich, 200 368 $ 360,640 Exercisable - Exercisable - Former Chief Financial Officer Unexercisable - Unexercisable - 335 200 169,000 Exercisable - Exercisable - Unexercisable - Unexercisable - Gregory Rufus, 1,180 - - Exercisable - Exercisable - Chief Financial Officer Unexercisable 575 Unexercisable -
-22- 25 MANAGEMENT STOCKHOLDERS AGREEMENT Together with the consummation of the Recapitalization, Holdings, Odyssey and the employee stockholders of Holdings, including the Named Executive Officers (the "Management Stockholders") entered into a Management Stockholders' Agreement (the "Management Stockholders' Agreement") which governs the shares of common stock of Holdings (the "Common Stock") and options to purchase Common Stock, in each case, retained by such persons after the Recapitalization and any new options and shares acquired thereafter, including the exercise of options. See "Executive Compensation-Stock Option Plan." The Management Stockholders' Agreement provides that, except for certain transfers to family members and family trusts, no Management Stockholder may transfer Common Stock until the fifth anniversary of the Recapitalization, and thereafter, any proposed transfer will be subject to Holdings' right of first refusal. The Management Stockholders' Agreement also provides that upon termination of the employment of a Management Stockholder, that Management Stockholder will have certain put rights and Holdings will have certain call rights regarding any Common Stock or any options to purchase Common Stock, in each case, owned by him at that time. Upon Mr. Peacock's cessation of active service as Chief Executive Officer on or after the third anniversary of the Recapitalization, if TransDigm has achieved specified financial targets, he may require Holdings to repurchase up to 80% of his Common Stock during the period, if any, for which he is serving as non-executive Chairman of the Board. See "Executive Compensation-Employment Agreements." Mr. Peacock may thereafter require repurchase of the remaining 20% of his Common Stock on or after the fifth anniversary of the Recapitalization or his later termination of services to Holdings. Holdings will be permitted to honor its obligation to Mr. Peacock by issuing notes under certain circumstances. If the provisions of any law, the terms of credit and financing arrangements or Holdings' financial circumstances would prevent Holdings from making a repurchase of shares pursuant to the Management Stockholders' Agreement, Holdings will not make such purchase until all such prohibitions lapse, and will then also pay the Management Stockholder a specified rate of interest on the repurchase price. The Management Stockholders' Agreement further provides that, in the event of certain types of transfers of Common Stock by Odyssey, the Management Stockholders may participate in those transfers and/or Odyssey may require the Management Stockholders to transfer their shares in those transactions, in each case, on a pro rata basis. Pursuant to the Management Stockholders' Agreement, the Management Stockholders are entitled to participate on a pro rata basis with, and on the same terms as, Odyssey in any future offering of Common Stock. Those participation rights will lapse following a public offering of Common Stock if the Common Stock so offered is then listed on a national exchange or if the public offering includes 50% or more of the outstanding Common Stock that will have been issued following the offering. EMPLOYMENT AGREEMENTS In connection with the Recapitalization, Holdings entered into an employment agreement with each of Messrs. Peacock and Howley. Pursuant to the agreement with Mr. Peacock, Mr. Peacock will continue to serve as Chairman of the Board and Chief Executive Officer for a period of at least five years, provided that after three years, Mr. Peacock may elect to continue his service either as Chief Executive Officer or as a non-executive Chairman. It is intended that Mr. Howley will be Mr. Peacock's successor. Pursuant to the agreement with Mr. Howley, Mr. Howley will continue to serve as President and Chief Operating Officer of Holdings for a period of at least five years. Those employment agreements also will provide specified severance benefits in the event of termination of employment under certain circumstances. -23- 26 Each of those employment agreements provide that in the event the respective executive's employment terminates by reason of death, disability, termination without "cause" or resignation with "good reason" (all as defined in those employment agreements), Holdings will continue payment of base salary, bonus and other perquisites and benefits, in the case of Mr. Howley, for 15 months thereafter and, in the case of Mr. Peacock, for 18 months thereafter or, if terminated prior to the third anniversary of the Recapitalization, until such third anniversary, whichever is longer. Pursuant to those employment agreements, Messrs. Peacock and Howley will receive annual base salaries no less than $330,000 and $225,000, respectively, in each case, subject to annual increases as determined by the Compensation Committee, and annual cash bonuses based on achievement of performance criteria established by the Board of Directors. STOCK OPTION PLAN During fiscal 1999, Holdings adopted the 1998 Stock Option Plan (the "Option Plan"), pursuant to which stock options may be granted to Independent Directors (as defined in the Option Plan), employees and consultants of Holdings, TransDigm and any subsidiary of Holdings or TransDigm (the "Plan Participants"). In addition, the Option Plan governs those options retained pursuant to the Rollover Investment (the "Rollover Options"). A total of 18,990 shares of Common Stock of Holdings was reserved for issuance under the Option Plan and 1,695 and 15,115 of the options were issued during fiscal 2000 and 1999, respectively. During 2000, stock options pertaining to 1,995 shares of common stock were forfeited by employees due to terminations. These options may be reissued by the Company to other employees in the future. The Chief Executive Officer has discretion to select the Plan Participants and to specify the terms of such options, including the number of shares, the exercise price and the vesting and expiration of options, subject to approval by the Compensation Committee. The Compensation Committee has discretion under the Option Plan to adjust options to reflect certain specified events such as stock dividends, stock splits, recapitalizations, mergers or reorganizations of, or by Holdings. In addition, the Board of Directors has the right to amend, suspend or terminate the Option Plan, subject to stockholder approval for certain amendments. The Rollover Options are fully vested and nonforfeitable. In connection with the Recapitalization, Holdings granted options to certain employees of TransDigm including the Named Executive Officers for the purchase of shares of Common Stock of Holdings (the "New Options"). Such New Options are intended to qualify as "incentive stock options" to the extent permitted under the Internal Revenue Code, and have an exercise price equal to the price per share paid by Odyssey in connection with the Recapitalization. Twenty percent of each of Messrs. Peacock's and Howley's New Options were vested as of the date of grant. Subject to the executive's continued employment with and, in the case of Mr. Peacock, continued service as non-executive Chairman of the Board of the Company, the remaining 80% of his New Options will become exercisable upon the earlier of (1) the Company's achievement of specified financial targets or (2) certain specified dates in the Option Agreement. Furthermore, in the event of a "change of control" (as defined in the Option Agreement), a specified percentage of the New Options may become exercisable based upon the terms of such transaction. The New Options generally will expire 10 years after grant and may expire earlier in the event of the executive's earlier termination of employment. -24- 27 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information regarding the beneficial ownership of the Common Stock of Holdings with respect to each beneficial owner of more than 5.0% of the outstanding Common stock of Holdings and beneficial ownership of the Common Stock of Holdings by each director and named executive officer and all directors and executive officers as a group:
COMMON STOCK BENEFICIALLY OWNED ----------------------------------- NAME OF BENEFICIAL OWNER SHARES PERCENTAGE Odyssey (as defined in footnote 1) 100,240 (1) 82.7% ---------- ---------- Kelso (as defined in footnote 2) 18,422 (2) 15.2 ---------- ---------- Stephen Berger 100,240 (1)(3) 82.7 ---------- ---------- Robert S. Henderson 772 (4) * ---------- ---------- William Hopkins 100,240 (1)(5) 82.7 ---------- ---------- W. Nicholas Howley 6,690 (6) 5.5 ---------- ---------- Raymond F. Laubenthal 780 (7) * ---------- ---------- Muzzafar Mirza 100,240 (1)(8) 82.7 ---------- ---------- Douglas W. Peacock 7,800 (9) 6.4 ---------- ---------- Thomas R. Wall, IV 18,422 (2) 15.2 ---------- ---------- All officers and directors as a group (12 members) 135,855 (10) 99.0 ---------- ----------
- ----------- * Less than 1.0% (1) Consists of 100,240 shares of common stock owned by Odyssey Investment Partners, LP (the "Fund"), Odyssey Coinvestment, LLC ("Coinvestment"), TD Coinvestment I, LLC ("TD I"), and TD Coinvestment II, LLC ("TD II" and together with the Fund, Coinvestment and TD I, "Odyssey"). Odyssey Capital Partners, LLC is the general partner of the Fund. Odyssey Investment Partners, LLC is the manager of the Fund and the managing member of each of Coinvestment, TD I and TD II. The principal business address for Odyssey is 280 Park Avenue, West Tower, 38th Floor, New York, N.Y. 10017. Stephen Berger, Muzzafar Mirza, William Hopkins (directors of Holdings) and Brian Kwait and Paul Barnett are managing members of Odyssey Capital Partners, LLC and Odyssey Investment Partners, LLC and, therefore, may each be deemed to share voting and investment power with respect to such shares deemed to be owned by Odyssey. Each of them disclaims beneficial ownership of such shares. -25- 28 (2) KIA IV-TD, LLC ("KIA IV-TD) and Kelso Equity Partners II, L.P. ("KEP II") have beneficial ownership of 17,473 and 949 shares, respectively. Due to their common control, KIA IV-TD, Kelso Partners IV, L.P., the managing member of KIA IV-TD ("KP IV" and, together with KIA IV-TD and KEP II, "Kelso"), and KEP II could be deemed to beneficially own each other's shares, but each disclaims such beneficial ownership. In addition, Mr. Wall, Joseph S. Schuchert, Frank T. Nickell, George E. Matelich, Michael B. Goldberg, David I. Wahrhaftig and Frank K. Bynum, Jr. may be deemed to share beneficial ownership of shares beneficially owned by KIA IV-TD, KP IV and KEP II by virtue of their status as general partners of KP IV, which is the managing member of KIA IV-TD, and as general partners of KEP II, but each disclaims such beneficial ownership. The address of each of KIA IV-TD, KP IV, KEP II and Messrs. Wall, Schuchert, Nickell, Matelich, Goldberg, Wahrhaftig and Bynum is c/o Kelso & Company, 320 Park Avenue, 24th Floor, New York, New York 10022. (3) Includes 100,240 shares and votes deemed to be beneficially owned by Odyssey (as defined). Mr. Berger is a senior managing member of Odyssey Capital Partners, LLC and Odyssey Investment Partners, LLC. As a result, Mr. Berger may be deemed to share voting and investment power with respect to such shares. Mr. Berger disclaims beneficial ownership of such shares. (4) Includes 772 shares purchasable within 60 days upon the exercise of options held by Mr. Henderson. (5) Includes 100,240 shares and votes deemed to be beneficially owned by Odyssey. Mr. Hopkins is a managing member of Odyssey Capital Partners, LLC and Odyssey Investment Partners, LLC. As a result, Mr. Hopkins may be deemed to share voting and investment power with respect to such shares. Mr. Hopkins disclaims beneficial ownership of such shares. (6) Includes 6,690 shares purchasable within 60 days upon the exercise of options held by Mr. Howley. (7) Includes 780 shares purchasable within 60 days upon the exercise of options held by Mr. Laubenthal. (8) Includes 100,240 shares and votes deemed to be beneficially owned by Odyssey. Mr. Mirza is a managing member of Odyssey Capital Partners, LLC and Odyssey Investment Partners, LLC. As a result, Mr. Mirza may be deemed to share voting and investment power with respect to such shares. Mr. Mirza disclaims beneficial ownership of such shares. (9) Includes 6,989 shares purchasable within 60 days upon the exercise of options held by Mr. Peacock and 811 shares and votes owned by TD Equity LLC, of which Mr. Peacock is the managing member. Mr. Peacock disclaims ownership of the 811 shares and votes owned by TD Equity LLC. (10) As described in footnotes (1), (3), (5) and (7), Messrs. Berger, Hopkins and Mirza may each be deemed to share investment and voting power with respect to 100,240 shares deemed to be beneficially owned by the General Partner of Odyssey, Mr. Wall may be deemed to share investment and voting power with respect to 18,422 shares owned by Kelso and Mr. Peacock may be deemed to share investment and voting power with respect to 811 shares owned by TD Equity LLC. Each of Messrs. Berger, Hopkins, Mirza, Wall and Peacock disclaims ownership of such shares. Excluding such shares, all officers and directors as a group beneficially own 16,382 shares, or 12.5%, which are purchasable within 60 days upon the exercise of options. -26- 29 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS TAX ALLOCATION AGREEMENT TransDigm and Holdings are parties to a Tax Allocation Agreement. Under the terms of the Tax Allocation Agreement. TransDigm is obligated to make payments to Holdings equal to the amount of income taxes that TransDigm would have owed in respect of federal and state income taxes on behalf of TransDigm and its subsidiaries if TransDigm and its subsidiaries were, for tax purposes, a separate consolidated group. ONE-TIME MANAGEMENT BONUSES Following the consummation of the Recapitalization, TransDigm paid certain members of senior management an aggregate of $5.9 million as a one-time bonus in connection with the Recapitalization. See "Executive Compensation." TERMINATION OF FINANCIAL ADVISORY SERVICES AGREEMENT TransDigm paid $6.0 million to Kelso & Company, an affiliate of Kelso, in consideration for the termination of a Financial Advisory Services Agreement. This payment was made upon consummation of the Recapitalization. Kelso may be deemed, collectively, to beneficially own 15.2% of the Common Stock of Holdings on a fully diluted basis. In addition, Mr. Wall, a director of Holdings and TransDigm, is a general partner of each of the Kelso entities. KELSO STOCKHOLDERS AGREEMENT Pursuant to the Merger Agreement, Holdings, Odyssey and KIA IV-TD and KEP II entered into a stockholders agreement (the "Stockholders Agreement") concurrently with consummation of the Recapitalization. The Stockholders Agreement provides for customary transfer restrictions, tag-along and drag-along rights, registration rights and an agreement among the parties to vote their shares of Common Stock, including the agreement of Odyssey to designate a representative of Kelso to the Board of Directors of Holdings. See also "Directors and Executive Officers" for a description of certain agreements that have been entered into with certain members of management in connection with the Recapitalization. See "Certain Relationships and Related Transactions-Termination of Financial Advisory Services Agreement." ODYSSEY FINANCIAL SERVICES As part of the Recapitalization, TransDigm paid Odyssey a fee of approximately $3.5 million. Odyssey is the majority stockholder of Holdings. In addition, Messrs. Berger, Hopkins and Mirza, each a director of Holdings and TransDigm, are managing members of the General Partner of Odyssey. -27- 30 ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) (1) FINANCIAL STATEMENTS The following consolidated financial statements of the Company are included in a separate section of this Report following the signature page: Independent Auditors' Report Consolidated Balance Sheets - September 30, 2000 and 1999 Consolidated Statements of Operations - Years Ended September 30, 2000, 1999 and 1998 Consolidated Statements of Changes in Stockholders' Equity (Deficiency) - Years Ended September 30, 2000, 1999 and 1998 Consolidated Statements of Cash Flows - Years Ended September 30, 2000, 1999 and 1998 Notes to Consolidated Financial Statements (a) (2) FINANCIAL STATEMENT SCHEDULES The following financial statement schedule is included in a separate section of this Report following the signature page - Valuation and Qualifying Accounts - Years Ended September 30, 2000, 1999 and 1998. (a) (3) EXHIBITS
EXHIBIT DESCRIPTION OF EXHIBIT NO. *2.1 Agreement and Plan of Merger, dated August 3, 1998, between Phase II Acquisition Corp. and TransDigm Holding Company. *2.2 Amendment One, dated November 9, 1998, to the Agreement and Plan of Merger between Phase II Acquisition Corp. and TransDigm Holding Company. *2.3 Agreement and Plan of Reorganization, dated as of March 31, 1999, by and among TransDigm Inc., ARA Acquisition Corporation, ZMP, Inc. and TCW Special Placements Fund II. *3.1 Restated Certificate of Incorporation, filed on September 28, 1993, of TransDigm Holding Company. *3.2 Certificate of Amendment, filed on December 21, 1993, of the Restated Certificate of Incorporation of TransDigm Holding Company. *3.3 Certificate of Ownership and Merger, filed on December 3, 1998, merging Phase II Acquisition Corp. with and into TransDigm Holding Company. *3.4 Certificate of Incorporation, filed on July 2, 1993, of NovaDigm Acquisition, Inc. (TransDigm Inc.). *3.5 Certificate of Amendment, filed on July 22, 1993, of the Certificate of Incorporation of NovaDigm Acquisition, Inc. (TransDigm Inc.). *3.6 Certificate of Ownership and Merger, filed on September 13, 1993, merging IMO Aerospace Company with and into TransDigm Inc. *3.7 Certificate of Incorporation, filed on March 28, 1994, of MPT Acquisition Corp. (Marathon Power Technologies Company). *3.8 Certificate of Amendment, filed on May 18, 1994, of the Certificate of Incorporation of MPT Acquisition Corp. (Marathon Power Technologies Company). *3.9 Certificate of Amendment, filed on May 24, 1994, of the Certificate of Incorporation of MPT Acquisition Corp. (Marathon Power Technologies Company).
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EXHIBIT DESCRIPTION OF EXHIBIT NO. *3.10 Amended and Restated Articles of Incorporation, filed on April 23, 1999, of ZMP, Inc. *3.11 Certificate of Ownership and Merger, filed on April 23, 1999, merging ARA Acquisition Corporation with and into ZMP, Inc. *3.12 Articles of Incorporation, filed on July 30, 1986, of ARP Acquisition Corporation (Adams Rite Aerospace, Inc.). *3.13 Certificate of Amendment, filed on September 12, 1986, of the Articles of Incorporation of ARP Acquisition Corporation (Adams Rite Aerospace, Inc.). *3.14 Certificate of Amendment, filed on January 27, 1992, of the Articles of Incorporation of Adams Rite Aerospace Products, Inc. (Adams Rite Aerospace, Inc.). *3.15 Certificate of Amendment, filed on December 31, 1992, of the Articles of Incorporation of Adams Rite Aerospace Products, Inc. (Adams Rite Aerospace, Inc.). *3.16 Certificate of Amendment, filed on August 11, 1997, of the Articles of Incorporation of Adams Rite Aerospace Sabre International, Inc. (Adams Rite Aerospace, Inc.). *3.17 Bylaws of TransDigm Holding Company. *3.18 Bylaws of NovaDigm Acquisition, Inc. (TransDigm Inc.). *3.19 Bylaws of MPT Acquisition Corp. (Marathon Power Technologies Company). *3.20 Amended and Restated Bylaws of ZMP, Inc. *3.21 Amended and Restated Bylaws of Adams Rite Aerospace, Inc. *4.1 Indenture, dated December 3, 1998, among TransDigm Inc., TransDigm Holding Company and Marathon Power Technologies Company and State Street Bank and Trust Company, as trustee, relating to $125,000,000 aggregate principal amount of 10 3/8% Senior Subordinated Notes due 2008 and the registered 10 3/8% Senior Subordinated Notes due 2008. *4.2 Supplemental Indenture, dated April 23, 1999, among ZMP, Inc. and Adams Rite Aerospace, Inc. and State Street Bank and Trust Company, as trustee. *4.3 Specimen Certificate of 10 3/8% Senior Subordinated Notes due 2008 (the "Old Notes") (included in Exhibit 4.1 hereto). *4.4 Specimen Certificate of the registered 10 3/8% Senior Subordinated Notes due 2008 (the "New Notes") (included in Exhibit 4.1 hereto). *4.5 Registration Rights Agreement, dated December 3, 1998, among TransDigm Inc., TransDigm Holding Company and Marathon Power Technologies Company and BT Alex. Brown Incorporated and Credit Suisse First Boston Corporation. *4.6 Indenture, dated December 3, 1998, between TransDigm Holding Company and State Street Bank and Trust Company, as trustee, relating to $20,000,000 aggregate principal amount of 12% Pay-in-Kind Senior Notes due 2009. *4.7 Specimen Certificate of 12% Pay-in-Kind Senior Notes due 2009 (included in Exhibit 4.6 hereto). *4.8 Registration Rights Agreement, dated December 3, 1998, among TransDigm Holding Company and Kelso Investment Associates IV, L.P. and Kelso Equity Partners II, L.P. *4.9 Credit Agreement, dated December 3, 1998, among TransDigm Inc. and TransDigm Holding Company and Bankers Trust Company, as the administrative agent, and the various financial institutions parties thereto. *4.10 First Amendment to the Credit Agreement, dated December 10, 1998, among TransDigm Inc. and TransDigm Holding Company and Bankers Trust Company, as the administrative agent, and the various financial institutions parties thereto. *4.11 Second Amendment to the Credit Agreement, dated April 23, 1999, among TransDigm Inc., TransDigm Holding Company and Marathon Power Technologies Company and Bankers Trust Company, as the administrative agent, and the various financial institutions parties thereto. *4.12 Third Amendment to the Credit Agreement, dated April 23, 1999, among TransDigm Inc. and TransDigm Holding Company and Bankers Trust Company, as the administrative agent, and the various financial institutions parties thereto. *4.13 Specimen Revolving Note evidencing the revolving borrowings under the Credit Agreement (included in Exhibit 4.9 hereto).
-29- 32
EXHIBIT DESCRIPTION OF EXHIBIT NO. *4.14 Specimen Term A Note evidencing the Term A credit advances under the Credit Agreement (included in Exhibit 4.9 hereto). *4.15 Specimen Term B Note evidencing the Term B credit advances under the Credit Agreement (included in Exhibit 4.9 hereto). *4.16 Security Agreement, dated December 3, 1998, among TransDigm Inc., TransDigm Holding Company and Marathon Power Technologies Company and Bankers Trust Company, as the administrative agent under the Credit Agreement. *4.17 Pledge Agreement, dated December 3, 1998, among TransDigm Inc., TransDigm Holding Company and Marathon Power Technologies Company and Bankers Trust Company, as the administrative agent under the Credit Agreement. *4.18 Form of Assignment of Security Interest in United States Copyrights by TransDigm Inc., TransDigm Holding Company and Marathon Power Technologies Company for the benefit of Bankers Trust Company, as the administrative agent under the Credit Agreement (included in Exhibit 4.16 hereto). *4.19 Form of Assignment of Security Interest in United States Trademarks and Patents by TransDigm Inc., TransDigm Holding Company and Marathon Power Technologies Company for the benefit of Bankers Trust Company, as the administrative agent under the Credit Agreement (included in Exhibit 4.16 hereto). *5.1 Opinion of Latham & Watkins regarding the validity of the New Notes. *10.1 Stockholders' Agreement, dated December 3, 1998, by and among TransDigm Holding Company, Odyssey Investment Partners Fund, LP, Odyssey Coinvestors, LLC, TD-Equity LLC, KIA IV-TD, LLC and Kelso Equity Partners II, L.P. *10.2 Stockholders' Agreement, dated December 3, 1998, by and among TransDigm Holding Company, Odyssey Investment Partners Fund and certain employee stockholders of TransDigm Holding Company. *10.3 Tax Allocation Agreement, dated December 3, 1998, between TransDigm Holding Company and TransDigm Inc. **10.4 Employment Agreement dated May 19, 1999, between TransDigm Holding Company and Douglas W. Peacock. **10.5 Employment Agreement dated May 19, 1999, between TransDigm Holding Company and W. Nicholas Howley. *10.6 TransDigm Inc. Senior Executive Benefits Plan. *10.7 Summary of Annual Incentive Compensation Plan for Key Management Employees of TransDigm Inc. 12.1 Statement of Computation of Ratio of Earnings to Fixed Charges. 12.2 Statement of Computation of Ratio of EBITDA, As Defined, to Interest Expense. 12.3 Statement of Computation of Ratio of EBITDA, As Defined, to Interest Expense, As Defined. 12.4 Statement of Computation of Ratio of Total Debt to EBITDA, As Defined. *21.1 Subsidiaries of TransDigm Holding Company. 24.1 Power of Attorney - TransDigm Holding Company 24.2 Power of Attorney - TransDigm Inc. 24.3 Power of Attorney - Marathon Power Technologies Company 24.4 Power of Attorney - ZMP, Inc. 24.5 Power of Attorney - Adams Rite Aerospace, Inc. *25.1 Statement of Eligibility and Qualification (form T-1) under the Trust Indenture Act of 1939 of State Street Bank and Trust Company. 27.1 Financial Data Schedule. *99.1 Form of Letter of Transmittal and related documents to be used in conjunction with the exchange offer. - ----------- * (Incorporated by reference to same titled exhibit to the Co-Registrants' Registration Statement on Form S-4 dated January 29, 1999 File No. 333-71397, as amended.) ** (Incorporated by reference to same titled exhibit to the Co-Registrants' Form 10-K dated December 23, 1999 File No. 333-71397.)
-30- 33 (b) REPORTS ON FORM 8-K We did not file any reports on Form 8-K during the fourth quarter of fiscal 2000. (c) EXHIBITS The exhibits which are listed under Item 14(a)(3) are filed or incorporated by reference herein. (d) SEPARATE FINANCIAL STATEMENTS AND SCHEDULES The following financial statement schedule is included in a separate section of this Report following the signature page - Valuation and Qualifying Accounts - Years Ended September 30, 2000, 1999 and 1998. -31- 34 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 December 28, 2000. TRANSDIGM HOLDING COMPANY By: /s/Gregory Rufus ---------------------------------------------------------------- Gregory Rufus Chief Financial Officer TRANSDIGM INC. By: /s/Gregory Rufus ---------------------------------------------------------------- Gregory Rufus Chief Financial Officer MARATHON POWER TECHNOLOGIES COMPANY By: /s/Gregory Rufus ---------------------------------------------------------------- Gregory Rufus Chief Financial Officer ZMP, INC. By: /s/Gregory Rufus ---------------------------------------------------------------- Gregory Rufus Chief Financial Officer ADAMS RITE AEROSPACE, INC. By: /s/Gregory Rufus ---------------------------------------------------------------- Gregory Rufus Chief Financial Officer -32- 35 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 Executive December 28, 2000 - ------------------------------------ Officer) and Chairman of the Board Douglas W. Peacock * President and Chief Operating Officer (Principal December 28, 2000 - ------------------------------------ Operating Officer) and Director W. Nicholas Howley /s/Gregory Rufus Chief Financial Officer (Principal Financial and December 28, 2000 - ------------------------------------ Accounting Officer) Gregory Rufus * Director December 28, 2000 - ------------------------------------ Stephen Berger * Director December 28, 2000 - ------------------------------------ William Hopkins * Director December 28, 2000 - ------------------------------------ Muzzafar Mirza * Director December 28, 2000 - ------------------------------------ John W. Paxton * Director December 28, 2000 - ------------------------------------ Thomas R. Wall, IV
-33- 36 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 Executive December 28, 2000 - ------------------------------------ Officer) and Chairman of the Board Douglas W. Peacock * President and Chief Operating Officer (Principal December 28, 2000 - ------------------------------------ Operating Officer) and Director W. Nicholas Howley /s/Gregory Rufus Chief Financial Officer (Principal Financial and December 28, 2000 - ------------------------------------ Accounting Officer) Gregory Rufus * Director December 28, 2000 - ------------------------------------ Stephen Berger * Director December 28, 2000 - ------------------------------------ William Hopkins * Director December 28, 2000 - ------------------------------------ Muzzafar Mirza * Director December 28, 2000 - ------------------------------------ John W. Paxton * Director December 28, 2000 - ------------------------------------ Thomas R. Wall, IV
-34- 37 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 Executive December 28, 2000 - ------------------------------------ Officer) and Chairman of the Board Douglas W. Peacock * President (Principal Operating Officer) December 28, 2000 - ------------------------------------ Albert J. Rodriguez /s/Gregory Rufus Chief Financial Officer (Principal Financial and December 28, 2000 - ------------------------------------ Accounting Officer) Gregory Rufus * Director December 28, 2000 - ------------------------------------ W. Nicholas Howley
-35- 38 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 President December 28, 2000 - ------------------------------------ (Principal Executive Officer) Douglas W. Peacock * President (Principal Operating Officer) December 28, 2000 - ------------------------------------ John F. Leary /s/Gregory Rufus Treasurer and Chief Financial Officer (Principal December 28, 2000 - ------------------------------------ Financial and Accounting Officer) Gregory Rufus * Executive Vice President December 28, 2000 - ------------------------------------ and Director W. Nicholas Howley
-36- 39 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 of Executive Vice President December 28, 2000 - ------------------------------------ (Principal Executive Officer) Douglas W. Peacock * President (Principal Operating Officer) December 28, 2000 - ------------------------------------ John F. Leary /s/Gregory Rufus Treasurer and Chief Financial Officer (Principal December 28, 2000 - ------------------------------------ Financial and Accounting Officer) Gregory Rufus * Executive Vice President December 28, 2000 - ------------------------------------ and Director 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. -37- 40 TRANSDIGM HOLDING COMPANY AND SUBSIDIARIES ANNUAL REPORT ON FORM 10-K: FISCAL YEAR ENDED SEPTEMBER 30, 2000 ITEM 8 AND ITEM 14(a) (1) FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX
PAGE FINANCIAL STATEMENTS: Independent Auditors' Report F-1 Consolidated Balance Sheets at September 30, 2000 and 1999 F-2 Consolidated Statements of Operations for the Years Ended September 30, 2000, 1999 and 1998 F-3 Consolidated Statements of Changes in Stockholders' Equity (Deficiency) for the Years Ended September 30, 2000, 1999 and 1998 F-4 Consolidated Statements of Cash Flows for the Years Ended September 30, 2000, 1999 and 1998 F-5 - F-6 Notes to Consolidated Financial Statements F-7 - F-18 SUPPLEMENTARY DATA: Independent Auditors' Report F-19 Valuation and Qualifying Accounts for the Years Ended September 30, 2000, 1999 and 1998 F-20
41 INDEPENDENT AUDITORS' REPORT To the Shareholders and Board of Directors of TransDigm Holding Company We have audited the accompanying consolidated balance sheets of TransDigm Holding Company and its subsidiaries (the "Company") as of September 30, 2000 and 1999, and the related consolidated statements of operations, changes in stockholders' equity (deficiency) and cash flows for each of the three years in the period ended September 30, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of TransDigm Holding Company and its subsidiaries as of September 30, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 2000 in conformity with accounting principles generally accepted in the United States of America. Deloitte & Touche LLP Cleveland, Ohio November 10, 2000 F-1 42 TRANSDIGM HOLDING COMPANY CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 2000 AND 1999 (In Thousands of Dollars) - --------------------------------------------------------------------------------
ASSETS 2000 1999 LIABILITIES AND STOCKHOLDERS' DEFICIENCY 2000 1999 CURRENT ASSETS: CURRENT LIABILITIES: Cash and cash equivalents $ 4,309 $ 2,729 Current portion of long-term debt (Note 9) $ 10,953 $ 7,595 Accounts receivable - net (Note 4) 26,796 22,399 Accounts payable 5,672 5,322 Inventories (Note 5) 32,889 29,217 Accrued liabilities (Note 8) 15,460 15,719 -------- -------- Income taxes refundable 1,796 2,810 Total current liabilities 32,085 28,636 Deferred income taxes (Note 11) 5,657 6,614 Prepaid expenses and other 535 398 LONG-TERM DEBT - Less current portion (Note 9) 250,648 258,962 ---- ---- Total current assets 71,982 64,167 NON-CURRENT PORTION OF ACCRUED PROPERTY, PLANT AND EQUIPMENT - PENSION COSTS AND OTHER (Note 10) 3,138 3,118 -------- -------- Net (Note 6) 25,029 25,422 Total liabilities 285,871 290,716 -------- -------- INTANGIBLE ASSETS - Net (Note 7) 56,957 58,555 REDEEMABLE COMMON STOCK (Note 12) 1,371 1,323 -------- -------- DEBT ISSUE COSTS - Net 9,400 10,951 STOCKHOLDERS' DEFICIENCY: Common stock, $.01 par value (Note 12) 102,156 102,097 DEFERRED INCOME TAXES Retained deficit (220,115) (229,237) AND OTHER (Note 11) 5,465 5,322 Accumulated other comprehensive loss (450) (482) ------ ------ -------- ----- Total stockholders' deficiency (118,409) (127,622) -------- -------- TOTAL ASSETS $168,833 $164,417 TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $168,833 $164,417 ======== ======== ======== ========
See notes to consolidated financial statements. F-2 43 TRANSDIGM HOLDING COMPANY CONSOLIDATED STATEMENTS OF OPERATIONS (In Thousands of Dollars) - --------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, ---------------------------------- 2000 1999 1998 NET SALES (Note 4) $ 150,457 $ 130,818 $ 110,868 COST OF SALES (Including charge of $185, $1,143 and $242 in 2000, 1999 and 1998, respectively, due to inventory purchase accounting adjustments) (Note 2) 82,193 69,951 59,395 --------- --------- --------- GROSS PROFIT 68,264 60,867 51,473 --------- --------- --------- OPERATING EXPENSES: Selling and administrative 16,799 13,620 10,473 Amortization of intangibles 1,843 2,063 2,438 Research and development 2,308 2,139 1,724 Merger expenses (Note 1) 40,012 --------- --------- --------- Total operating expenses 20,950 57,834 14,635 --------- --------- --------- INCOME FROM OPERATIONS 47,314 3,033 36,838 INTEREST EXPENSE - NET 28,563 22,722 3,175 WARRANT PUT VALUE ADJUSTMENT 6,540 --------- --------- --------- INCOME (LOSS) BEFORE INCOME TAXES 18,751 (19,689) 27,123 INCOME TAX PROVISION (BENEFIT) (Note 11) 7,972 (2,772) 12,986 --------- --------- --------- NET INCOME (LOSS) $ 10,779 $ (16,917) $ 14,137 ========= ========= =========
See notes to consolidated financial statements. F-3 44 TRANSDIGM HOLDING COMPANY CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY) (In Thousands of Dollars) - --------------------------------------------------------------------------------
COMMON ACCUMULATED STOCK RETAINED OTHER (VOTING AND EARNINGS COMPREHENSIVE CLASS A SHARES) (DEFICIT) INCOME (LOSS) TOTAL BALANCE, OCTOBER 1, 1997 $ 24,352 $ (1,237) $ (502) $ 22,613 --------- Comprehensive Income: Net income 14,137 14,137 Other comprehensive loss (252) (252) --------- Comprehensive income 13,885 Purchase of common stock (71) (71) --------- --------- --------- --------- BALANCE, SEPTEMBER 30, 1998 24,281 12,900 (754) 36,427 --------- Comprehensive Loss: Net loss (16,917) (16,917) Other comprehensive income 272 272 --------- Comprehensive loss (16,645) Issuance of common stock 100,652 100,652 Payment of consideration in recapitalization (22,808) (224,356) (247,164) Purchase of common stock (28) (28) Adjustment of redeemable common stock (864) (864) --------- --------- --------- --------- BALANCE, SEPTEMBER 30, 1999 102,097 (229,237) (482) (127,622) --------- Comprehensive income: Net income 10,779 10,779 Other comprehensive income 32 32 --------- Comprehensive income 10,811 Exercise of stock options 274 274 Income tax benefit from exercise of stock options and purchase of common stock 460 460 Adjustment of redeemable common stock (675) (1,657) (2,332) --------- --------- --------- --------- BALANCE, SEPTEMBER 30, 2000 $ 102,156 $(220,115) $ (450) $(118,409) ========= ========= ========= =========
See notes to consolidated financial statements. F-4 45 TRANSDIGM HOLDING COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands of Dollars) - --------------------------------------------------------------------------------
Year Ended September 30, ------------------------------------------- 2000 1999 1998 OPERATING ACTIVITIES: Net income (loss) $ 10,779 $(16,917) $ 14,137 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation 4,669 4,311 4,029 Amortization of intangibles 1,843 2,063 2,438 Amortization of debt issue costs 1,705 2,165 267 Interest deferral on Holdings PIK Notes 2,639 2,000 Warrant put value adjustment 6,540 Deferred income taxes 1,684 (1,078) (341) Changes in assets and liabilities, net of effects from acquisition of businesses (Note 2): Accounts receivable (3,970) (5,234) (821) Inventories (2,337) (842) (870) Refundable income taxes 1,323 Prepaid expenses and other assets (679) (2,500) 148 Accounts payable 191 (744) 392 Accrued and other liabilities (1,542) 557 (2,464) -------- -------- -------- Net cash provided by (used in) operating activities 16,305 (16,219) 23,455 -------- -------- -------- INVESTING ACTIVITIES: Capital expenditures (4,368) (3,043) (5,061) Acquisition of Christie Electric Corp. (Note 2) (2,400) Acquisition of ZMP, Inc. (Note 2) 1,648 (41,556) Marathon Power Technologies Company purchase price adjustment 766 -------- -------- -------- Net cash used in investing activities (5,120) (44,599) (4,295) -------- -------- --------
(Continued) F-5 46 TRANSDIGM HOLDING COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands of Dollars) - --------------------------------------------------------------------------------
Year Ended September 30, --------------------------------------------- 2000 1999 1998 FINANCING ACTIVITIES: Proceeds from subordinated notes, net of fees of $6,868 118,132 Proceeds from new credit facility, net of fees of $5,361 118,639 Proceeds from Holdings PIK Notes and common stock, net of fees of $341 19,659 Payment of consideration in recapitalization - common stock and warrants (263,896) Proceeds from exercise of stock options and issuance of common stock, including redeemable common stock 295 100,998 Repayment of term loans and subordinated notes (7,595) (49,443) (5,000) Purchase of common stock, including redeemable common stock (2,305) (28) (71) --------- --------- --------- Net cash provided by (used in) financing activities (9,605) 44,061 (5,071) --------- --------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,580 (16,757) 14,089 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 2,729 19,486 5,397 --------- --------- --------- CASH AND CASH EQUIVALENTS, END OF YEAR $ 4,309 $ 2,729 $ 19,486 ========= ========= ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the year for interest $ 23,955 $ 14,955 $ 3,640 ========= ========= ========= Cash paid during the year for income taxes $ 5,004 $ 1,195 $ 13,490 ========= ========= =========
See notes to consolidated financial statements. (Concluded) F-6 47 TRANSDIGM HOLDING COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2000, 1999 AND 1998 - -------------------------------------------------------------------------------- 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 Aerospace") (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 Aerospace (see Note 2). In connection with the Merger, the Company incurred a one-time charge of approximately $40 million during the year 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. F-7 48 2. ACQUISITIONS ZMP, INC. AND ADAMS RITE AEROSPACE, INC. - On April 23, 1999, TransDigm acquired all of the outstanding common stock of ZMP, 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. During the year ended September 30, 2000, the Company received a purchase price adjustment of $1.6 million, net of expenses. As a result of the acquisition, ZMP and Adams Rite Aerospace 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 accompanying fiscal 1999 consolidated financial statements from the effective date of the acquisition. The purchase price (including related expenses) was allocated based on a determination of estimated fair values at the date of the acquisition as follows (in thousands):
Current assets $ 18,218 Property and equipment 4,739 Goodwill 23,971 Other assets 382 Current liabilities (6,494) Other liabilities (451) -------- Net $ 40,365 ========
Goodwill 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 following periods ended September 30 (in thousands):
1999 1998 Net sales $ 151,624 $ 146,920 Income from operations 1,913 40,069 Net income (loss) (18,646) 13,867
The consolidated pro-forma operating loss for the year ended September 30, 1999 includes the following charges recognized by Adams Rite Aerospace prior to the acquisition: (1) $1.4 million ($.84 million after tax) for compensation expense recognized in connection with a common stock warrant granted to its former chief executive officer and (2) $.8 million ($.8 million after tax) for 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 periods presented and is not intended to be a projection of future results. CHRISTIE ELECTRIC CORP. - On March 8, 2000, Marathon acquired all of the issued and outstanding common shares of Christie Electric Corp. ("Christie") for $2.4 million. The Company accounted for the acquisition as a purchase and included the results of operations of Christie, which are not material to the Company's consolidated results of operations, in its fiscal 2000 consolidated financial statements from the effective date of acquisition. Goodwill of $1.8 million, which resulted from the acquisition, is being amortized on a straight-line basis over forty years. F-8 49 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONSOLIDATION - The accompanying consolidated financial statements include the accounts of TransDigm Holding Company and subsidiaries. All significant intercompany balances and transactions have been eliminated. REVENUE RECOGNITION - Revenue is recognized when products are shipped to the customer. Any anticipated losses on contracts are charged to earnings when identified. 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 and historical experience. 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. 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 is not expected to be realized within one year. PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are stated at cost. Depreciation is computed using the straight-line method at rates based on the estimated useful lives of the assets. DEBT ISSUE COSTS AND DISCOUNTS - The cost of obtaining financing as well as debt discounts are amortized using the interest method over the respective terms of the related debt issues. INTANGIBLE ASSETS - Intangible assets are amortized on a straight-line basis over their respective estimated useful lives ranging from 5 to 40 years. The Company assesses the recoverability of intangibles by determining whether the amortization over the remaining life can be recovered through projected, undiscounted, future operations. 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. PRODUCT WARRANTY COSTS - The Company generally provides a one year warranty on certain products beginning on the date the product is installed on an aircraft. A provision for estimated sales returns and the cost of repairs is recorded at the time of sale and periodically adjusted to reflect actual experience. PUT WARRANTS - Prior to their redemption in connection with the Merger (see Note 1), the Company recorded a liability for the estimated put value of its outstanding warrants to purchase common stock and recognized in earnings any changes in the estimated put value. ESTIMATES - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 - The Company's accumulated other comprehensive income, consisting principally of its minimum pension liability adjustment, is reported separately in the accompanying consolidated balance sheets and statements of changes in stockholders' equity (deficiency), net of taxes of $317,000, $390,000 and $521,000 at September 30, 2000, 1999 and 1998, respectively. SEGMENT REPORTING - The Company's principal business, aircraft component supplier, is reported as one segment. In addition, substantially all of the Company's operations are located within the United States. F-9 50 4. SALES AND ACCOUNTS RECEIVABLE SALES - The Company's sales and receivables are concentrated in the aircraft industry. The Company's customers consist primarily of original equipment manufacturers of aircraft and aircraft subassemblies, commercial airlines, distributors, and various agencies of the United States government, including the U.S. military. Information concerning the Company's net sales by its principal product categories is as follows for the years ended September 30 (in thousands):
2000 1999 1998 AeroControlex Division (principally mechanical controls, valves, compressors, and pumps) $ 44,633 $ 47,592 $ 43,363 AdelWiggins Division (principally connectors, clamps, service systems, heaters and hoses) 44,191 47,418 44,637 Marathon Division (principally batteries and static inverters) 22,642 20,945 22,868 Adams Rite Aerospace Division (principally faucets, oxygen systems, hardware and electromechanical controls) 38,991 14,863 -------- -------- -------- Total $150,457 $130,818 $110,868 ======== ======== ========
For the year ended September 30, 2000, two customers represented approximately 10% and 9%, respectively, of the Company's net sales. Two customers represented approximately 15% and 14%, respectively, of the Company's net sales during the year ended September 30, 1999 and two customers represented approximately 20% and 14% of the Company's net sales for the year ended September 30, 1998. Export sales to customers, primarily in Western Europe, were $36.2 million in 2000, $30.7 million in 1999, and $17.8 million in 1998. ACCOUNTS RECEIVABLE - Accounts receivable consist of the following at September 30 (in thousands):
2000 1999 Due from U.S. government or prime contractors under U.S. government programs $ 4,571 $ 2,033 Commercial customers 22,596 20,807 Allowance for uncollectible accounts (371) (441) -------- -------- Accounts receivable - net $ 26,796 $ 22,399 ======== ========
Approximately 11% of the Company's receivables at September 30, 2000 were due from one customer and approximately 17% of the receivables were due from entities, which 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. F-10 51 5. INVENTORIES Inventories consist of the following at September 30 (in thousands): 2000 1999 Work-in-progress and finished goods $ 20,995 $ 18,892 Raw materials and purchased component parts 18,325 17,435 -------- -------- Total 39,320 36,327 Reserve for excess and obsolete inventory (6,431) (7,110) -------- -------- Inventories - net $ 32,889 $ 29,217 ======== ======== 6. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consist of the following at September 30 (in thousands): 2000 1999 Land and improvements $ 4,720 $ 4,691 Buildings and improvements 10,687 10,404 Machinery and equipment 30,437 28,211 Furniture and fixtures 4,220 3,222 Construction in progress 1,014 274 -------- -------- Total 51,078 46,802 Accumulated depreciation (26,049) (21,380) -------- -------- Property, plant and equipment - net $ 25,029 $ 25,422 ======== ======== 7. INTANGIBLE ASSETS Intangible assets, net of accumulated amortization, consist of the following at September 30 (in thousands): 2000 1999 Goodwill $56,176 $57,284 Technology and other 781 1,271 ------- ------- Total $56,957 $58,555 ======= ======= Accumulated amortization of intangibles was $20.3 million at September 30, 2000 and $18.5 million at September 30, 1999. 8. ACCRUED LIABILITIES Accrued liabilities consist of the following at September 30 (in thousands): 2000 1999 Compensation and related benefits $ 5,281 $ 5,260 Interest 4,857 4,593 Estimated losses on uncompleted contracts 1,900 2,809 Sales returns and repairs 1,467 1,841 Other 1,955 1,216 ------- ------- Total $15,460 $15,719 ======= ======= F-11 52 9. DEBT SUMMARY - The Company's long-term debt consists of the following at September 30 (in thousands): 2000 1999 Term loans $ 111,962 $ 119,557 Senior Subordinated Notes 125,000 125,000 Holdings PIK Notes 24,639 22,000 --------- --------- Total debt 261,601 266,557 Current maturities (10,953) (7,595) --------- --------- Long-term portion $ 250,648 $ 258,962 ========= ========= REVOLVING CREDIT, SWING LINE, AND TERM LOANS - In connection with the Merger (see Note 1) and the acquisition of ZMP and Adams Rite (see Note 2), TransDigm repaid its existing term loans and obtained a new $154 million Senior Credit Facility with a group of financial institutions, which consists of (1) a $30 million revolving credit line (including $3 million of available swing line loans) maturing in 2004 and (2) a term loan facility in the aggregate of $124 million, consisting of a $62 million Tranche A Facility maturing in 2004 and a $62 million Tranche B Facility maturing in 2006. At September 30, 2000, the Company had $30 million of borrowings (the entire revolving credit line) available under the credit facility. The interest rate for the 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 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 interest rate on outstanding borrowings at September 30, 2000 ranged from 9.625% to 10.125%. All obligations under the Senior Credit Facility are guaranteed by Holdings and each of the subsidiaries, direct and indirect, of TransDigm. The indebtedness outstanding under the Senior Credit Facility is secured by a pledge of the stock of TransDigm and all of its domestic subsidiaries and a perfected lien and security interest in assets other than real estate (tangible and intangible) of TransDigm, its direct and indirect subsidiaries and Holdings. The agreement also contains a number of restrictive covenants that, among other things, restrict Holdings, TransDigm and their subsidiaries from various actions, including mergers and sales of assets, use of proceeds, granting of liens, incurrence of indebtedness, voluntary prepayment of indebtedness, capital expenditures, payment of dividends, business activities, investments and acquisitions, and transactions with affiliates. The agreement also requires the Company to comply with certain financial covenants pertaining to earnings, interest coverage and leverage. The Company is in compliance with all financial covenants of the Senior Credit Facility as of September 30, 2000. The maturities of the Company's term loans by fiscal year are as follows: $11 million in both 2001 and 2002, $14.4 million in 2003, $13.8 million in 2004, $32.6 million in 2005 and $29.2 million thereafter. SENIOR SUBORDINATED NOTES - TransDigm's Senior Subordinated Notes (the "Notes") bear interest at an annual rate of 10 3/8%, maturing on December 1, 2008, and are unsecured obligations of TransDigm ranking subordinate to the Company's senior debt, as defined in the note agreement. Up to 35% of the Notes are redeemable by TransDigm prior to December 1, 2001 with the proceeds of an equity offering. The Notes are also redeemable after December 1, 2003, in whole or in part, at specified redemption prices, which decline over the remaining term of the Notes. If a change in control of the Company occurs, the holders of the Notes will have the right to demand that the Company redeem the Notes at a purchase price equal to 101% of the principal amount of the Notes plus accrued interest. The Notes contain many of the same restrictive covenants included in the Senior Credit Facility. The Company is in compliance with all financial covenants of the Notes as of September 30, 2000. F-12 53 HOLDINGS PIK NOTES - In connection with the Merger (see Note 1), Holdings issued $20 million of pay-in-kind notes due 2009 ("Holdings PIK Notes" or "PIK Notes"). The PIK Notes are unsecured obligations of Holdings, which has no significant assets or operations. Interest on the PIK Notes is accrued at an annual fixed rate of 12% and is payable semi-annually in the form of additional PIK Notes through December 2003. Thereafter, cash interest is payable semi-annually commencing in the year 2004. The PIK Notes are redeemable by Holdings prior to their maturity under certain circumstances and contain many of the same restrictive covenants included in the Notes and Senior Credit Facility. The Company is in compliance with all financial covenants of the PIK Notes as of September 30, 2000. 10. RETIREMENT PLANS The Company has two non-contributory defined benefit pension plans which together cover all of its union employees. The plans provide benefits of stated amounts for each year of service. The Company's funding policy is to contribute actuarially determined amounts allowable under Internal Revenue Service regulations. The plans' assets consist primarily of guaranteed investment contracts with an insurance company. Financial information for the defined benefit plans is provided below (in thousands):
YEARS ENDED SEPTEMBER 30, ----------------------- 2000 1999 CHANGE IN BENEFIT OBLIGATION: Benefit obligation, beginning of year $ 4,841 $ 4,969 Service cost 87 83 Interest cost 333 319 Benefits paid (261) (252) Change in actuarial assumptions 34 (278) ------- ------- Benefit obligation, end of year $ 5,034 $ 4,841 ======= ======= CHANGE IN PLAN ASSETS: Fair value of plan assets, beginning of year $ 3,381 $ 2,817 Actual return on plan assets 220 223 Employer contribution 506 593 Benefits paid (261) (252) ------- ------- Fair value of plan assets, end of year $ 3,846 $ 3,381 ======= ======= AMOUNTS RECOGNIZED IN THE CONSOLIDATED BALANCE SHEETS AT SEPTEMBER 30 CONSIST OF: 2000 1999 Intangible assets $ (267) $ (208) Accrued liabilities 500 600 Non-current portion of accrued pension costs 688 861 Accumulated other comprehensive loss (793) (872) ------- ------- Net amount recognized $ 128 $ 381 ======= =======
F-13 54
2000 1999 WEIGHTED-AVERAGE ASSUMPTIONS AS OF SEPTEMBER 30: Discount rate 7.0% 7.0% Expected return on plan assets 6.0% 6.0%
YEARS ENDED SEPTEMBER 30, ---------------------------------- 2000 1999 1998 Components of net periodic benefit cost: Service cost $ 87 $ 83 $ 86 Interest cost 333 319 306 Expected return on plan assets (210) (177) (190) Net amortization and deferral 71 70 94 ----- ----- ----- Net periodic pension cost $ 281 $ 295 $ 296 ===== ===== =====
The Company also sponsors certain defined contribution employee savings plans that cover substantially all of the Company's non-union employees. Under the plans, the Company contributes a percentage of employee compensation and matches a portion of employee contributions. The cost recognized for such contributions under these plans for the years ended September 30, was approximately $1.2 million, $.7 million, and $.6 million in 2000, 1999 and 1998, respectively. 11. INCOME TAXES The provision (benefit) for income taxes consists of the following for the years ended September 30 (in thousands):
2000 1999 1998 Current $ 6,288 $ (1,694) $ 13,327 Deferred 1,545 (481) (341) Net operating loss carryforward - state and local income taxes 139 (597) -- -------- --------- -------- Total $ 7,972 $ (2,772) $ 12,986 ======== ========= =========
The difference between the provision (benefit) for income taxes at the federal statutory income tax rate and the tax shown in the consolidated statements of operations for the years ended September 30 are as follows (in thousands):
2000 1999 1998 Tax at statutory rate of 35% (34% in 1999 and 1998) $ 6,563 $ (6,694) $ 9,493 State and local income taxes 700 (56) 1,053 Nondeductible merger expenses 4,290 Nondeductible warrant put value adjustment 2,289 Benefit from foreign sales corporation (363) (615) (349) Nondeductible goodwill amortization and interest expense 711 526 353 Other - net 361 (223) 147 -------- -------- -------- Provision (benefit) for income taxes $ 7,972 $ (2,772) $ 12,986 ======== ======== ========
F-14 55 The components of the deferred tax assets at September 30 consist of the following (in thousands):
2000 1999 CURRENT ASSET: Inventory $ 1,921 $ 2,200 Estimated losses on uncompleted contracts 741 1,143 Employee benefits 1,343 1,379 Sales returns and repairs 456 697 Other accrued liabilities 736 598 Net operating loss carryforwards - state and local income taxes (expiring from 2004 through 2014) 460 597 ------- ------- Total $ 5,657 $ 6,614 ======= ======= NON-CURRENT ASSET: Intangible assets $ 3,202 $ 3,639 Retirement and other accrued obligations 1,120 1,215 Holdings PIK Notes interest 1,689 680 Property, plant and equipment (1,562) (914) ------- ------- Total $ 4,449 $ 4,620 ======= =======
12. COMMON STOCK AND OPTIONS COMMON STOCK - Authorized capital stock of the Company consists of 900,000 shares of common stock (voting), par value $.01 per share and 100,000 shares of Class A (non-voting) common stock. The total number of shares of voting common stock outstanding at September 30, 2000 and 1999 was 119,824 and 121,195, respectively. No shares of Class A (non-voting) common stock were outstanding at September 30, 2000 and 1999. Common stock issued to management personnel is subject to the Management Shareholders' Agreement which provides management shareholders the right (a "put") to require the Company to repurchase their shares of common stock under certain conditions at fair market value. Accordingly, the estimated put value of the outstanding shares of voting common stock held by management (1,162 and 1,270 shares at September 30, 2000 and 1999, respectively) has been classified as redeemable common stock in the accompanying consolidated balance sheets. The Company issued 101,503* shares of common stock (voting) principally to Odyssey in connection with the Merger in 1999 (see Note 1). The Company also repurchased common stock (voting and non-voting Class A), principally as a result of the Merger in 1999 (see Note 1) and from terminated employees in 1998, as follows (dollars in thousands): YEARS ENDED SEPTEMBER 30, ------------------------------ 2000 1999 1998 Number of shares* 231,448 175 ======== ======== ======== Acquisition costs* $247,192 $ 71 ======== ======== ======== * - Excluding put warrants and redeemable common stock. F-15 56 STOCK OPTIONS - The Company has certain stock option plans for its employees. The options generally vest upon the earlier of: (1) the occurrence of certain events such as the achievement of certain earnings targets or a change in the control of the Company or (2) certain specified dates in the option agreements. The options are not exercisable more than ten years after the date the options are granted. A summary of the status of the Company's stock option plans as of September 30, 2000, 1999, and 1998 and changes during the years then ended is presented below:
2000 1999 1998 --------------------------- ---------------------------- ------------------------ WEIGHTED- WEIGHTED- WEIGHTED- AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE SHARES PRICE SHARES PRICE SHARES PRICE Outstanding at beginning of year 30,399 $ 623 37,467 $ 158 37,467 $ 158 Granted 1,695 1,180 15,115 1,040 Exercised/cancelled (see Note 1) (2,563) 864 (22,183) 121 ------- ------- ------- Outstanding at end of year 29,531 634 30,399 623 37,467 158 ======= ======= ======= Exercisable at end of year 16,516 300 17,084 298 19,670 113 ======= ======= =======
The following table summarizes information about stock options outstanding at September 30, 2000:
OPTIONS OUTSTANDING ------------------------------------------------ WEIGHTED-AVERAGE EXERCISE NUMBER REMAINING NUMBER PRICES OUTSTANDING CONTRACTUAL LIFE EXERCIEABLE $ 100 7,002 3.8 7,002 154 172 4.8 172 200 1,245 5.5 1,245 335 6,297 6.5 6,297 1,040 13,120 8.6 1,800 1,180 1,695 9.8 - ------ ------ 29,531 16,516 ====== ======
At September 30, 2000, 4,175 remaining options were available for award under the Company's stock option plans. The Company applies Accounting Principles Board Opinion No. 25 and related interpretations in accounting for its stock option plans. No compensation cost has been recognized for its stock option plans. Had compensation cost for the Company's stock option plans been determined based on the fair value at the grant dates for awards under those plans consistent with the method specified in Statement No. 123 of the FASB, the Company's net income for the year ended September 30, 2000 would have been reduced by approximately $146,000. The Company's net loss for the year ended September 30, 1999 would have increased by approximately $301,000 and the Company's net income for the year ended September 30, 1998 would have been reduced by $115,000. The weighted average fair value of options granted during the years ended September 30, 2000, 1999 and 1998 was $399, $383 and $126, respectively. The fair value of the options granted was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions: risk-free interest rates ranging from 5.40% to 6.85%, expected life of approximately seven years, expected volatility and dividend yield of 0%. F-16 57 13. LEASES The Company leases office space for its corporate headquarters and one of its divisions. The Company also leases the manufacturing facility utilized by Adams Rite. The office space lease requires rental payments of approximately $200,000 per year through 2004. TransDigm may also be required to share in the operating costs of the facility under certain conditions. The Adams Rite facility lease requires rental payments ranging from $540,000 to $780,000 through December 2012. TransDigm also has commitments under operating leases for vehicles and equipment. Rental expense was $978,000 in 2000, $688,000 in 1999, and $599,000 in 1998. Future, minimum rental commitments at September 30, 2000 under operating leases having initial or remaining non-cancelable lease terms exceeding one year are $947,000 in 2001, $899,000 in 2002, $840,000 in 2003, $797,000 in 2004, $631,000 in 2005, and $5,176,000 thereafter. 14. FAIR VALUE OF FINANCIAL INSTRUMENTS The Company has various financial instruments, including cash and cash equivalents, accounts receivable and payable, accrued liabilities and long-term debt. The carrying value of the Company's cash and cash equivalents, accounts receivable and payable, and accrued liabilities approximates their fair value due to the short-term maturities of these assets and liabilities. The Company also believes that the aggregate fair value of its term loans approximates its carrying amount because the interest rates on the debt are reset on a frequent basis to reflect current market rates. The fair value of the Company's Senior Subordinated Notes approximated $106 million at September 30, 2000 based upon quoted market prices. A determination of the fair value of the Holdings PIK Notes is not considered practicable because they are held by a related party (see Note 1) and are not publicly traded. 15. 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 a $2 million escrow was previously funded in connection with the Company's acquisition of Marathon 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. During September 1998, the former owner of Marathon filed a lawsuit against the Company to release the environmental escrow alleging that the Company had violated the requirements of the Stock Purchase Agreement relating to the investigation of the presence of certain contaminants at the Waco, Texas facility. The Company has filed counter claims against the seller and the ultimate outcome of this matter cannot presently be determined. OTHER - While the Company is currently involved in certain legal proceedings, management believes the results of these proceedings will not have a material effect on the financial condition, results of operations or cash flows of the Company. 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. F-17 58 16. QUARTERLY FINANCIAL DATA (UNAUDITED)
THREE MONTHS ENDED ------------------------------------------------------------------ DECEMBER 31 MARCH 31 JUNE 30 SEPTEMBER 30 (IN THOUSANDS) YEAR ENDED SEPTEMBER 30, 2000 Net sales $ 33,734 $ 36,434 $ 40,233 $ 40,056 Gross profit 15,599 16,609 18,179 17,877 Net income 2,100 2,717 3,429 2,533 THREE MONTHS ENDED ------------------------------------------------------------------ JANUARY 1 APRIL 2 JULY 2 SEPTEMBER 30 (IN THOUSANDS) YEAR ENDED SEPTEMBER 30, 1999 Net sales $ 28,194 $ 31,129 $ 36,438 $ 35,057 Gross profit 13,257 15,136 16,688 15,786 Net income (loss) (24,824) 2,958 2,436 2,513
17. 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. The implementation of this standard will not have a significant impact on the Company's reported financial condition or results of operations. * * * * * * F-18 59 INDEPENDENT AUDITORS' REPORT To the Shareholders and Board of Directors of TransDigm Holding Company We have audited the consolidated balance sheets of TransDigm Holding Company and its subsidiaries (the "Company") as of September 30, 2000 and 1999, and the related consolidated statements of operations, changes in stockholders' equity (deficiency) and of cash flows for each of the three years in the period ended September 30, 2000 and have issued our report thereon dated November 10, 2000; such consolidated financial statements and report are included on pages F-1 through F-18 of this Form 10-K. Our audits also included the consolidated financial statement schedule of the Company, shown on page F-20. This consolidated financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. DELOITTE & TOUCHE LLP Cleveland, Ohio November 10, 2000 F-19 60 TRANSDIGM HOLDING COMPANY VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED SEPTEMBER 30, 2000, 1999 AND 1998 (in thousands) - --------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E ------------------------------------------ ADDITIONS ------------------------------------------ BALANCE AT CHARGED TO DEDUCTIONS BALANCE AT BEGINNING OF COSTS AND CHRISTIE ZMP FROM END OF DESCRIPTION PERIOD EXPENSES ACQUISITION ACQUISITION RESERVE (1) PERIOD Year Ended September 30, 2000: Allowance for doubtful accounts $ 441 $ 60 $ 20 $ 150 $ 371 Reserve for excess and and obsolete inventory 7,110 684 100 1,463 6,431 Sales returns and repairs 1,841 (267) 100 207 1,467 Environmental 157 35 17 162 47 Year Ended September 30, 1999: Allowance for doubtful accounts 265 35 $ 150 9 441 Reserve for excess and and obsolete inventory 4,335 (437) 2,583 (629) 7,110 Sales returns and repairs 1,391 392 828 770 1,841 Environmental 280 (42) 81 157 Year Ended September 30, 1998: Allowance for doubtful accounts 503 (165) 73 265 Reserve for excess and and obsolete inventory 3,771 773 209 4,335 Sales returns and repairs 1,797 273 679 1,391 Environmental 683 (158) 245 280
(1) For the allowance for doubtful accounts and reserve for excess and obsolete inventory, the amounts in this column represent charge-offs net of recoveries. For the sales returns and repairs and environmental accrued liabilities, the amounts primarily represent expenditures charged against liabilities. F-20 61 EXHIBIT INDEX TO FORM 10K FOR THE YEAR ENDED SEPTEMBER 30, 2000
EXHIBIT NO. DESCRIPTION PAGE 12.1 Computation of Ratio of Earnings to Fixed Charges i 12.2 Ratio of EBITDA (As Defined) to Interest Expense ii 12.3 Ratio of EBITDA (As Defined) to Interest Expense (As Defined) iii 12.4 Ratio of Total Debt to EBITDA (As Defined) iv 24.1 Power of Attorney - TransDigm Holding Company v 24.2 Power of Attorney - TransDigm Inc. vi 24.3 Power of Attorney - Marathon Power Technologies Company vii 24.4 Power of Attorney - ZMP, Inc. viii 24.5 Power of Attorney - Adams Rite Aerospace, Inc. ix 27 Financial Data Schedule x
F-21 EX-12.1 2 l85607aex12-1.txt EXHIBIT 12.1 1 EXHIBIT 12.1 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
1996 1997 1998 1999 2000 Earnings: Total earnings (loss) $ 1,175 $ 3,172 $ 14,137 $(16,917) $ 10,779 Income tax provision (credit) 2,045 5,193 12,986 (2,772) 7,972 Extraordinary item 1,462 -------- -------- -------- -------- -------- Pre-tax earnings (loss) 3,220 9,827 27,123 (19,689) 18,751 -------- -------- -------- -------- -------- Fixed charges: Interest charges 4,510 3,463 3,175 22,722 28,563 Interest factor of operating rents 188 178 197 227 323 -------- -------- -------- -------- -------- Total fixed charges 4,698 3,641 3,372 22,949 28,886 -------- -------- -------- -------- -------- Earnings as adjusted $ 7,918 $ 13,468 $ 30,495 $ 3,260 $ 47,637 ======== ======== ======== ======== ======== Ratio of earnings to fixed charges 1.7 3.7 9.0 -- 1.6 ======== ======== ======== ======== ========
i EX-12.2 3 l85607aex12-2.txt EXHIBIT 12.2 1 EXHIBIT 12.2 RATIO OF EBITDA (AS DEFINED) TO INTEREST EXPENSE 1996 1997 1998 1999 2000 EBITDA (as defined) $17,213 $24,522 $43,547 $50,562 $54,011 Interest expense 4,510 3,463 3,175 22,722 28,563 ------- ------- ------- ------- ------- Ratio 3.8 7.1 13.7 2.2 1.9 ======= ======= ======= ======= ======= EX-12.3 4 l85607aex12-3.txt EXHIBIT 12.3 1 EXHIBIT 12.3 RATIO OF EBITDA (AS DEFINED) TO INTEREST EXPENSE (AS DEFINED) 1996 1997 1998 1999 2000 EBITDA (as defined) $17,213 $24,522 $43,547 $50,562 $54,011 Interest expense (as defined) 4,510 3,463 3,175 20,722 25,924 ------- ------- ------- ------- ------- Ratio 3.8 7.1 13.7 2.4 2.1 ======= ======= ======= ======= ======= iii EX-12.4 5 l85607aex12-4.txt EXHIBIT 12.4 1 EXHIBIT 12.4 RATIO OF TOTAL DEBT TO EBITDA (AS DEFINED) 1996 1997 1998 1999 2000 Total debt $ 19,124 $ 50,000 $ 45,000 $266,557 $261,601 EBITDA (as defined) 17,213 24,522 43,547 50,562 54,011 -------- -------- -------- -------- -------- Ratio 1.1 2.0 1.0 5.3 4.8 ======== ======== ======== ======== ======== iv EX-24.1 6 l85607aex24-1.txt EXHIBIT 24.1 1 EXHIBIT 24.1 DIRECTORS AND OFFICERS OF TRANSDIGM HOLDING COMPANY POWER OF ATTORNEY The undersigned directors and officers of TransDigm Holding Company, hereby constitute and appoint Gregory Rufus, with full power of substitution and resubstitution, as attorney-in-fact for each of the undersigned, and in the name, place and stead of each of the undersigned, to execute on behalf of each of the undersigned an Annual Report on Form 10-K for the fiscal year ended September 30, 2000 pursuant to Section 13 of the Securities and Exchange Act of 1934 and to execute any and all amendments to such report and to file the same, with all exhibits thereto and other documents required to be filed in connection therewith, granting to such attorney full power to act with or without the others, and to have full power and authority to do and perform, in the name and on behalf of each of the undersigned, every act whatsoever necessary, advisable or appropriate to be done in the premises, hereby ratifying and approving the act of said attorney and any such substitute. This Power of Attorney may be executed in multiple counterparts, each of which shall be deemed an original with respect to the person executing it.
EXECUTED as of December 28, 2000. /s/Douglas W. Peacock /s/William Hopkins - ------------------------------------------------- ------------------------------------------------------------ Douglas W. Peacock William Hopkins, Director Chairman of the Board and Chief Executive Officer (Principal Executive Officer) /s/W. Nicholas Howley /s/Muzzafar Mirza - ------------------------------------------------- ------------------------------------------------------------ W. Nicholas Howley Muzzafar Mirza, Director President and Chief Operating Officer (Principal Operating Officer) /s/Stephen Berger /s/John W. Paxton - ------------------------------------------------- ------------------------------------------------------------ Stephen Berger, Director John W. Paxton, Director /s/Thomas R. Wall, IV - ------------------------------------------------- Thomas R. Wall, IV, Director
EX-24.2 7 l85607aex24-2.txt EXHIBIT 24.2 1 EXHIBIT 24.2 DIRECTORS AND OFFICERS OF TRANSDIGM INC. POWER OF ATTORNEY The undersigned directors and officers of TransDigm Holding Company, hereby constitute and appoint Gregory Rufus, with full power of substitution and resubstitution, as attorney-in-fact for each of the undersigned, and in the name, place and stead of each of the undersigned, to execute on behalf of each of the undersigned an Annual Report on Form 10-K for the fiscal year ended September 30, 2000 pursuant to Section 13 of the Securities and Exchange Act of 1934 and to execute any and all amendments to such report and to file the same, with all exhibits thereto and other documents required to be filed in connection therewith, granting to such attorney full power to act with or without the others, and to have full power and authority to do and perform, in the name and on behalf of each of the undersigned, every act whatsoever necessary, advisable or appropriate to be done in the premises, hereby ratifying and approving the act of said attorney and any such substitute. This Power of Attorney may be executed in multiple counterparts, each of which shall be deemed an original with respect to the person executing it.
EXECUTED as of December 28, 2000. /s/Douglas W. Peacock /s/ William Hopkins - ------------------------------------------------- ------------------------------------------------------------ Douglas W. Peacock William Hopkins, Director Chairman of the Board and Chief Executive Officer (Principal Executive Officer) /s/W. Nicholas Howley /s/ Muzzafar Mirza - ------------------------------------------------- ------------------------------------------------------------ W. Nicholas Howley Muzzafar Mirza, Director President and Chief Operating Officer (Principal Operating Officer) /s/Stephen Berger /s/John W. Paxton - ------------------------------------------------- ------------------------------------------------------------ Stephen Berger, Director John W. Paxton, Director /s/Thomas R. Wall, IV - ------------------------------------------------- Thomas R. Wall, IV, Director
EX-24.3 8 l85607aex24-3.txt EXHIBIT 24.3 1 EXHIBIT 24.3 DIRECTORS AND OFFICERS OF MARATHON POWER TECHNOLOGIES COMPANY POWER OF ATTORNEY The undersigned directors and officers of TransDigm Holding Company, hereby constitute and appoint Gregory Rufus, with full power of substitution and resubstitution, as attorney-in-fact for each of the undersigned, and in the name, place and stead of each of the undersigned, to execute on behalf of each of the undersigned an Annual Report on Form 10-K for the fiscal year ended September 30, 2000 pursuant to Section 13 of the Securities and Exchange Act of 1934 and to execute any and all amendments to such report and to file the same, with all exhibits thereto and other documents required to be filed in connection therewith, granting to such attorney full power to act with or without the others, and to have full power and authority to do and perform, in the name and on behalf of each of the undersigned, every act whatsoever necessary, advisable or appropriate to be done in the premises, hereby ratifying and approving the act of said attorney and any such substitute. This Power of Attorney may be executed in multiple counterparts, each of which shall be deemed an original with respect to the person executing it. EXECUTED as of December 28, 2000. /s/Douglas W. Peacock - ----------------------------------------------------- Douglas W. Peacock Chairman of the Board and Chief Executive Officer (Principal Executive Officer) /s/Albert J. Rodriguez - ----------------------------------------------------- Albert J. Rodriguez President (Principal Operating Officer) /s/ W. Nicholas Howley - ----------------------------------------------------- W. Nicholas Howley Executive Vice President and Director vii EX-24.4 9 l85607aex24-4.txt EXHIBIT 24.4 1 EXHIBIT 24.4 DIRECTORS AND OFFICERS OF ZMP, INC. POWER OF ATTORNEY The undersigned directors and officers of TransDigm Holding Company, hereby constitute and appoint Gregory Rufus, with full power of substitution and resubstitution, as attorney-in-fact for each of the undersigned, and in the name, place and stead of each of the undersigned, to execute on behalf of each of the undersigned an Annual Report on Form 10-K for the fiscal year ended September 30, 2000 pursuant to Section 13 of the Securities and Exchange Act of 1934 and to execute any and all amendments to such report and to file the same, with all exhibits thereto and other documents required to be filed in connection therewith, granting to such attorney full power to act with or without the others, and to have full power and authority to do and perform, in the name and on behalf of each of the undersigned, every act whatsoever necessary, advisable or appropriate to be done in the premises, hereby ratifying and approving the act of said attorney and any such substitute. This Power of Attorney may be executed in multiple counterparts, each of which shall be deemed an original with respect to the person executing it. EXECUTED as of December 28, 2000. /s/Douglas W. Peacock - -------------------------------------------------- Douglas W. Peacock Chairman of the Board and Executive Vice President (Principal Executive Officer) /s/John F. Leary - -------------------------------------------------- John F. Leary President (Principal Operating Officer) /s/W. Nicholas Howley - -------------------------------------------------- W. Nicholas Howley Executive Vice President and Director viii EX-24.5 10 l85607aex24-5.txt EXHIBIT 24.5 1 EXHIBIT 24.5 DIRECTORS AND OFFICERS OF ADAMS RITE AEROSPACE, INC. POWER OF ATTORNEY The undersigned directors and officers of TransDigm Holding Company, hereby constitute and appoint Gregory Rufus, with full power of substitution and resubstitution, as attorney-in-fact for each of the undersigned, and in the name, place and stead of each of the undersigned, to execute on behalf of each of the undersigned an Annual Report on Form 10-K for the fiscal year ended September 30, 2000 pursuant to Section 13 of the Securities and Exchange Act of 1934 and to execute any and all amendments to such report and to file the same, with all exhibits thereto and other documents required to be filed in connection therewith, granting to such attorney full power to act with or without the others, and to have full power and authority to do and perform, in the name and on behalf of each of the undersigned, every act whatsoever necessary, advisable or appropriate to be done in the premises, hereby ratifying and approving the act of said attorney and any such substitute. This Power of Attorney may be executed in multiple counterparts, each of which shall be deemed an original with respect to the person executing it. EXECUTED as of December 28, 2000. /s/Douglas W. Peacock - ----------------------------------------------------- Douglas W. Peacock Chairman of the Board and Executive Vice President (Principal Executive Officer) /s/John F. Leary - ----------------------------------------------------- John F. Leary President (Principal Operating Officer) /s/W. Nicholas Howley - ----------------------------------------------------- W. Nicholas Howley Executive Vice President and Director ix EX-27 11 l85607aex27.txt EXHIBIT 27
5 0001077670 TRANSDIGM INC. 1,000 12-MOS SEP-30-2000 OCT-01-1999 SEP-30-2000 4,309 0 27,167 371 32,889 71,982 51,078 26,049 168,833 32,085 250,648 0 0 102,156 (220,115) 168,833 150,457 150,457 82,193 82,193 20,950 0 28,563 18,751 7,972 10,779 0 0 0 10,779 0 0
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