10-Q 1 l88026ae10-q.txt TRANSDIGM INC. AND CO-FILERS FORM 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended March 31, 2001. [ ] Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from __________________ to _________________ Commission File Number 333-71397 ---------------------------------------------------------- TRANSDIGM INC., TRANSDIGM HOLDING COMPANY, MARATHON POWER TECHNOLOGIES COMPANY, ZMP, INC. AND ADAMS RITE AEROSPACE, INC. -------------------------------------------------------------------------------- (Exact name of co-registrants as specified in their respective charters)
Delaware 13-3733378 --------------------------------------------------------------------------------------------------------------- (State or other Jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 26380 Curtiss Wright Parkway, Richmond Heights, Ohio 44143 --------------------------------------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code)
(216) 289-4939 -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X No ___ ----- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Common Stock (Voting) of TransDigm Holding Company, $0.01 Par Value 119,814 ---------------------------------------------------------------- ------------------------------------------- (Class) (Outstanding at March 31, 2001) Class A Common Stock (Non-Voting) of TransDigm Holding Company, $0.01 Par Value -0- ---------------------------------------------------------------- ------------------------------------------- (Class) (Outstanding at March 31, 2001)
All of the outstanding capital stock of TransDigm Inc. is held by TransDigm Holding Company. 2 INDEX
Page Part I Financial Information Item 1 Financial Statements Consolidated Balance Sheets - March 31, 2001 and September 30, 2000 1 Consolidated Statements of Income - Thirteen and Twenty-Six Week Periods Ended March 31, 2001 and March 31, 2000 2 Consolidated Statement of Changes in Stockholders' Deficiency - Twenty-Six Week Period Ended March 31, 2001 3 Consolidated Statements of Cash Flows - Twenty-Six Week Periods Ended March 31, 2001 and March 31, 2000 4 Notes to Consolidated Financial Statements 5 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Item 3 Quantitative and Qualitative Disclosure About Market Risk 13 Part II: Other Information Item 6 Exhibits and Reports on Form 8-K 14 Signatures 15
3 PART I: FINANCIAL INFORMATION ITEM 1 TRANSDIGM HOLDING COMPANY CONSOLIDATED BALANCE SHEETS (IN THOUSANDS OF DOLLARS) -------------------------------------------------------------------------------- MARCH 31, 2001 SEPTEMBER 30, ASSETS (Unaudited) 2000 CURRENT ASSETS: Cash and cash equivalents $ 6,599 $ 4,309 Accounts receivable, net 23,906 26,796 Inventories (Note 4) 41,175 32,889 Income taxes refundable 258 1,796 Prepaid expenses and other 985 535 Deferred income taxes 8,057 5,657 --------- --------- Total current assets 80,980 71,982 PROPERTY, PLANT AND EQUIPMENT - Net 24,808 25,029 INTANGIBLE ASSETS - Net 71,854 56,957 DEBT ISSUE COSTS - Net 8,596 9,400 DEFERRED INCOME TAXES AND OTHER 5,360 5,465 --------- --------- TOTAL $ 191,598 $ 168,833 ========= ========= LIABILITIES AND STOCKHOLDERS' DEFICIENCY CURRENT LIABILITIES: Short-term and current portions of long-term debt $ 14,953 $ 10,953 Accounts payable 10,747 5,672 Accrued and other liabilities 22,755 15,460 --------- --------- Total current liabilities 48,455 32,085 LONG-TERM DEBT - Less current portion 246,623 250,648 OTHER NON-CURRENT LIABILITIES 7,785 3,138 --------- --------- Total liabilities 302,863 285,871 --------- --------- REDEEMABLE COMMON STOCK 1,612 1,371 --------- --------- STOCKHOLDERS' DEFICIENCY: Common stock 102,031 102,156 Accumulated deficit (214,456) (220,115) Accumulated other comprehensive loss (452) (450) --------- --------- Total stockholders' deficiency (112,877) (118,409) --------- --------- TOTAL $ 191,598 $ 168,833 ========= ========= See notes to consolidated financial statements. -1- 4 TRANSDIGM HOLDING COMPANY CONSOLIDATED STATEMENTS OF INCOME FOR THE THIRTEEN AND TWENTY-SIX WEEK PERIODS ENDED MARCH 31, 2001 AND MARCH 31, 2000 (IN THOUSANDS OF DOLLARS) (UNAUDITED) --------------------------------------------------------------------------------
THIRTEEN WEEK TWENTY-SIX WEEK PERIODS ENDED PERIODS ENDED ------------------------ ------------------------- MARCH 31, MARCH 31, MARCH 31, MARCH 31, 2001 2000 2001 2000 NET SALES $42,084 $36,434 $77,864 $70,168 COST OF SALES (Including charge of $156 during the periods ending March 30, 2001 due to inventory purchase accounting adjustments) 22,827 19,825 42,820 37,960 ------- ------- ------- ------- GROSS PROFIT 19,257 16,609 35,044 32,208 ------- ------- ------- ------- OPERATING EXPENSES: Selling and administrative 4,283 4,059 8,539 8,191 Amortization of intangibles 420 435 839 947 Research and development 688 587 1,201 972 ------- ------- ------- ------- Total operating expenses 5,391 5,081 10,579 10,110 ------- ------- ------- ------- INCOME FROM OPERATIONS 13,866 11,528 24,465 22,098 INTEREST EXPENSE - Net 7,250 7,030 14,281 14,125 ------- ------- ------- ------- INCOME BEFORE INCOME TAXES 6,616 4,498 10,184 7,973 INCOME TAX PROVISION 2,687 1,781 4,269 3,156 ------- ------- ------- ------- NET INCOME $ 3,929 $ 2,717 $ 5,915 $ 4,817 ======= ======= ======= =======
See notes to consolidated financial statements. -2- 5 TRANSDIGM HOLDING COMPANY CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIENCY FOR THE TWENTY-SIX WEEK PERIOD ENDED MARCH 31, 2001 (IN THOUSANDS OF DOLLARS) (UNAUDITED) --------------------------------------------------------------------------------
ACCUMULATED OTHER COMMON ACCUMULATED COMPREHENSIVE STOCK DEFICIT LOSS TOTAL BALANCE, OCTOBER 1, 2000 $ 102,156 $(220,115) $(450) $(118,409) --------- COMPREHENSIVE INCOME: Net income 5,915 5,915 Other comprehensive income (2) (2) --------- Total comprehensive income 5,913 --------- PURCHASE OF COMMON STOCK (125) (125) ACCRETION OF REDEEMABLE COMMON STOCK (256) (256) --------- --------- ----- --------- BALANCE, MARCH 31, 2001 $ 102,031 $(214,456) $(452) $(112,877) ========= ========= ===== =========
See notes to consolidated financial statements. -3- 6 TRANSDIGM HOLDING COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE TWENTY-SIX WEEK PERIODS ENDED MARCH 31, 2001 AND MARCH 31, 2000 (IN THOUSANDS OF DOLLARS) (UNAUDITED) --------------------------------------------------------------------------------
TWENTY-SIX WEEK PERIODS ENDED -------------------------- MARCH 31, MARCH 31, 2001 2000 OPERATING ACTIVITIES: Net income $ 5,915 $ 4,817 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 2,510 2,154 Amortization of intangibles 839 947 Amortization of debt issue costs 804 633 Interest deferral on Holdings PIK Notes 1,452 1,280 Changes in assets and liabilities, net of effects from acquisition of business: Accounts receivable 2,890 555 Inventories (2,740) (3,439) Income taxes refundable 1,538 497 Other assets (305) (64) Accounts payable 617 237 Accrued liabilities and other (1,283) (1,369) -------- -------- Net cash provided by operating activities 12,237 6,248 -------- -------- INVESTING ACTIVITIES: Capital expenditures (1,691) (1,849) Acquisition of Christie Electric Corp. (Note 3) (2,500) Acquisition of Honeywell product line (Note 3) (6,640) -------- -------- Net cash used in investing activities (8,331) (4,349) -------- -------- FINANCING ACTIVITIES: Net borrowings under revolving credit loans 4,000 Repayment of term loans (5,477) (3,875) Purchase of capital stock (139) Proceeds from issuance of capital stock 141 -------- -------- Net cash used in financing activities (1,616) (3,734) -------- -------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,290 (1,835) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 4,309 2,729 -------- -------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 6,599 $ 894 ======== ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for interest $ 12,074 $ 12,023 ======== ======== Cash paid during the period for income taxes $ 2,710 $ 2,687 ======== ========
See notes to consolidated financial statements. -4- 7 TRANSDIGM HOLDING COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THIRTEEN AND TWENTY-SIX WEEK PERIODS ENDED MARCH 31, 2001 AND MARCH 31, 2000 -------------------------------------------------------------------------------- 1. DESCRIPTION OF THE BUSINESS AND MERGER TransDigm Holding Company ("Holdings"), through its wholly-owned operating subsidiary, TransDigm Inc. ("TransDigm"), is a premier supplier of proprietary mechanical components servicing predominantly the aircraft industry. TransDigm, along with its wholly-owned subsidiaries, Marathon Power Technologies Company ("Marathon"), ZMP, Inc. ("ZMP") and Adams Rite Aerospace, Inc., ("Adams Rite") (collectively, the "Company"), offers a broad line of component products including tube connectors, valves, batteries, static inverters, pumps, quick disconnects, clamps, ball bearing and sliding controls, mechanical hardware, fluid controls, lavatory hardware, electromechanical controls, and oxygen systems related products. 2. UNAUDITED INTERIM FINANCIAL INFORMATION Except for the September 30, 2000 consolidated balance sheet, which was derived from the Company's audited financial statements, the financial information included herein is unaudited; however, the information reflects all adjustments (consisting solely of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of the Company's financial position and results of operations and cash flows for the interim periods presented. The results of operations for the thirteen and twenty-six week periods ended March 31, 2001 are not necessarily indicative of the results to be expected for the full year. 3. ACQUISITIONS CHRISTIE - On March 8, 2000, Marathon acquired all of the issued and outstanding common shares of Christie Electric Corp. ("Christie") for $2.5 million. The Company accounted for the acquisition as a purchase and included the results of operations of Christie in its fiscal 2000 consolidated financial statements from the effective date of the acquisition. Goodwill of $1.9 million, which resulted from the acquisition, is being amortized on a straight-line basis over forty years. Pro-forma net sales and results of operations for this acquisition, had the acquisition occurred at the beginning of the thirteen and twenty-six weeks ended March 31, 2000, are not significant and, accordingly, are not provided. HONEYWELL - During December 2000, the Company entered into agreements with Honeywell International, Inc. ("Honeywell") to purchase certain inventory of Honeywell's lubrication and scavenge pump product line for $4.5 million, along with an option to enter into an exclusive, worldwide license agreement to produce and sell such products for at least forty years and to buy certain related assets. The Company expects that it will pay for the inventory by the end of the Company's third quarter and the cost of the inventory is included in accounts payable at March 31, 2001. The cost of the option was not significant. During January 2001, the Company exercised the option and, on March 26, 2001, the Company executed the license agreement, acquired the related assets (including additional inventory of approximately $1.4 million), and entered into a five year supply agreement with Honeywell in return for a cash payment of $6.6 million at closing and a commitment to make future, specified and variable royalty payments under the license agreement. -5- 8 The Company accounted for the acquisition as a purchase and has included the results of operations of the acquired product line (which were not material through March 31, 2001) in its fiscal 2001 consolidated financial statements from the effective date of the acquisition. The closing of the option transaction was recorded in March 2001 based on a preliminary determination of the estimated fair values of the assets and liabilities acquired as a result of the transaction. Intangible assets of $15.8 million, consisting of the license agreement and goodwill, that were recorded as a result of the acquisition are being amortized on a straight-line basis over forty years. The purchase price of the inventory acquired from Honeywell in both December 2000 and March 2001 is subject to adjustment based upon a final determination of the value acquired, as defined. Pro-forma net sales and results of operations for this acquisition, had the acquisition occurred at the beginning of the thirteen and twenty-six week periods ended March 31, 2001, are not significant and accordingly, are not provided. 4. INVENTORIES Inventories are stated at the lower of cost or market. Cost of inventories is determined by the average cost and the first-in, first-out (FIFO) methods. Inventories consist of the following (in thousands): MARCH 31, SEPTEMBER 30, 2001 2000 Work-in-progress and finished goods $ 26,278 $ 20,995 Raw materials and purchased component parts 21,829 18,325 -------- -------- Total 48,107 39,320 Reserve for excess and obsolete inventory (6,932) (6,431) -------- -------- Inventories - net $ 41,175 $ 32,889 ======== ======== 5. 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. The majority of these contaminants are presently below action levels prescribed by the Texas Natural Resources Conservation Commission ("TNRCC"). In connection with the Company's acquisition of Marathon, a $2 million escrow was previously funded to cover the cost of remediation that TNRCC might require for those contaminants currently in excess of action limits. As a result, the Company believes the condition of the soil and groundwater at the Waco facility will not require the incurrence of material expenditures. However, there can be no assurance that additional contamination will not be discovered or that the remediation required by TNRCC will not be material to the financial condition, results of operations, or cash flows of the Company. 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. -6- 9 6. NEW ACCOUNTING STANDARD In June 1998, the Financial Accounting Standards Board issued Statement No. 133 ("SFAS 133"), Accounting for Derivative Instruments and Hedging Activities. SFAS 133, as amended and interpreted, 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 recorded or 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 adopted SFAS 133 during the quarter ended December 30, 2000. The implementation of SFAS 133 did not have an impact on the Company's reported financial condition, results of operations, or cash flows. 7. SUBSEQUENT EVENT On April 29, 2001, the Company signed an agreement to acquire the assets of the Champion Aviation Products business ("Champion Aviation") from Federal-Mogul Ignition Company, a subsidiary of Federal-Mogul Corporation for $160.1 million in cash, subject to adjustment based on the level of acquired working capital as of the closing of the transaction. The closing of acquisition is expected to occur by June 30, 2001 and is subject to customary closing conditions, including the receipt of all necessary regulatory approvals. The purchase price is expected to be financed by additional borrowings under the Company's existing credit facility and proceeds from preferred stock issued by Holdings and contributed to TransDigm as a contribution to its equity. Champion Aviation designs and manufactures various aerospace products, including igniters for turbine engines and spark plugs and oil filters for piston engines. * * * * * -7- 10 PART I: FINANCIAL INFORMATION ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Quarterly Statement includes "forward-looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended, including, in particular, the statements about our plans, strategies and prospects under this "Management's Discussion and Analysis of Financial Condition and Results of Operations" section. Although the Company believes that its plans, intentions and expectations reflected in or suggested by such forward-looking statements are reasonable, the Company can give no assurance that such plans, intentions or expectations will be achieved. Important factors that could cause actual results to differ materially from the forward-looking statements made in this Quarterly Statement are set forth herein as well as under the caption "Risk Factors" in the Registration Statement filed by the Company on Form S-4 on January 29, 1999, as amended through April 23, 1999. All forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by those cautionary statements. OVERVIEW The Company is a leading supplier of highly engineered aircraft components for use on nearly all commercial and military aircraft. The Company sells its products to commercial airlines and aircraft maintenance facilities in the aftermarket, to most original equipment manufacturers ("OEMs") of aircraft and to various agencies of the United States government. Sales of the Company's products are made directly to these organizations as well as through U.S. and international distributors who maintain inventories throughout the world of products purchased from the Company and others. On March 8, 2000, Marathon acquired Christie Electric Corp. for $2.5 million. Christie is a well established supplier of battery charging and analyzing equipment, complete battery management systems and power suppliers. The product lines of Christie are a complement to Marathon's business. On March 26, 2001, the Company acquired an exclusive, worldwide license to produce and sell products composed of Honeywell International, Inc.'s lubrication and scavenge pump product line along with certain related inventory and equipment for a cash payment of $6.6 million and a commitment to make future, specified and variable royalty payments. Prior to the closing of this transaction, the Company acquired $4.5 million of lube and scavenge pump inventory from Honeywell in December 2000. The lube and scavenge pump product line is a complement to AeroControlex's business. The following is management's discussion and analysis of certain significant factors that have affected the Company's financial position and operating results during the periods included in the accompanying consolidated financial statements. The Company's fiscal year ends on September 30. -8- 11 RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, certain operating data of the Company as a percentage of net sales. THIRTEEN WEEK TWENTY-SIX WEEK PERIODS ENDED PERIODS ENDED -------------------- ------------------- MARCH 31, MARCH 31, MARCH 31, MARCH 31, 2001 2000 2001 2000 Net sales 100% 100% 100% 100% ---- ---- ---- ---- Gross profit 46 46 45 46 Selling and administrative 10 11 11 12 Amortization of intangibles 1 1 1 1 Research and development 2 2 2 1 -- -- -- -- Income from operations 33 32 31 32 Interest expense- net 18 19 18 20 Provision for income taxes 6 5 5 5 -- -- -- -- Net income 9% 8% 8% 7% ==== ==== ==== ==== -9- 12 CHANGES IN RESULTS OF OPERATIONS THIRTEEN WEEK PERIOD ENDED MARCH 31, 2001 COMPARED WITH THE THIRTEEN WEEK PERIOD ENDED MARCH 31, 2000. - NET SALES. Net sales increased by $5.7 million, or 15.5 percent, to $42.1 million for the quarter ended March 31, 2001 from $36.4 million for the comparable quarter last year, primarily due to increased unit volume on existing products and new business opportunities. - GROSS PROFIT. Gross profit (net sales less cost of sales) increased by $2.7 million, or 15.9 percent, to $19.3 million for the quarter ended March 31, 2001 from $16.6 million from the comparable quarter last year. This increase is attributable to the higher sales discussed above. Gross profit as a percentage of net sales was 46 percent during the second quarters of both fiscal 2001 and 2000. - SELLING AND ADMINISTRATIVE. Selling and administrative expenses increased by $0.2 million, or 5.5 percent, to $4.3 million for the quarter ended March 31, 2001 from $4.1 million for the quarter ended March 31, 2000. This increase principally resulted from the Company's increased sales activities. Selling and administrative expenses as a percentage of net sales decreased from 11 percent for the quarter ended March 31, 2000 to 10 percent for the quarter ended March 31, 2001. - AMORTIZATION OF INTANGIBLES. Amortization of intangibles expense approximated $0.4 million for the quarter ended March 31, 2001 and the comparable quarter last year. Amortization expense as a percentage of net sales, was 1 percent for both quarters. - RESEARCH AND DEVELOPMENT. Research and development expense increased by $0.1 million, or 17.2 percent, to $0.7 million for the quarter ended March 31, 2001 from $0.6 million for the quarter ended March 31, 2000. Research and development expense, as a percentage of net sales, was 2 percent for both quarters. - INCOME FROM OPERATIONS. Operating income increased by $2.4 million, or 20.3 percent, to $13.9 million for the quarter ended March 31, 2001 from $11.5 million for the quarter ended March 31, 2000, primarily as a result of the factors referred to above. - INTEREST EXPENSE. Interest expense increased by $0.2 million, or 3.1 percent, to $7.2 million for the second quarter of fiscal 2001 from $7.0 million for the second quarter of fiscal 2000. - INCOME TAXES. Income tax expense as a percentage of income before income taxes was approximately 40 percent for the thirteen week period ended March 31, 2001 and the comparable quarter last year. - NET INCOME. The Company earned $3.9 million for the second quarter of fiscal 2001 compared to $2.7 million earned for the second quarter of fiscal 2000 primarily as a result of the factors referred to above. TWENTY-SIX WEEK PERIOD ENDED MARCH 31, 2001 COMPARED WITH THE TWENTY-SIX WEEK PERIOD ENDED MARCH 31, 2000. - NET SALES. Net sales increased by $7.7 million, or 11.0 percent, to $77.9 million for the twenty-six week period ended March 31, 2001 from $70.2 million for the comparable twenty-six week period last year, principally due to increased unit volume on existing products and new business opportunities. - GROSS PROFIT. Gross profit (net sales less cost of sales) increased by $2.8 million, or 8.8 percent, to $35.0 million for the twenty-six week period ended March 31, 2001 from $32.2 million for the comparable twenty-six week period last year. This increase is attributable to the higher sales discussed above. Gross profit as a percentage of net sales was 45 percent during the twenty-six week period ended March 31, 2001 and 46 percent during the twenty-six week period ended March 31, 2000, principally due to changes in product mix. -10- 13 - SELLING AND ADMINISTRATIVE. Selling and administrative expenses increased by $0.3 million, or 4.2 percent, to $8.5 million for the twenty-six week period ended March 31, 2001 from $8.2 million for the twenty-six week period ended March 31, 2000. This increase principally resulted from the Company's increased efforts to develop new business. Selling and administrative expenses as a percentage of net sales decreased from 12 percent for the twenty-six week period ended March 31, 2000 to 11 percent for the twenty-six week period ended March 31, 2001. - AMORTIZATION OF INTANGIBLES. Amortization of intangible expense decreased by $0.1 million, or 11.4 percent, to $0.8 million for the twenty-six week period ended March 31, 2001 from $0.9 million for the twenty-six week period ended March 31, 2000 as a result of certain intangible assets becoming fully amortized. - RESEARCH AND DEVELOPMENT. Research and development expense increased $0.2 million, or 23.6 percent, from $1.0 million for the twenty-six week period ended March 31, 2000 to $1.2 million for the twenty-six week period ended March 31, 2001, principally as a result of the Company's increased efforts to develop new products. - INCOME FROM OPERATIONS. Operating income increased by $2.3 million, or 10.7 percent, from $22.1 million for the twenty-six week period ended March 31, 2000 to $24.4 million for the twenty-six week period ended March 31, 2001, primarily as a result of the factors referred to above. - INTEREST EXPENSE. Interest expense increased by $0.2 million, or 1.1 percent, to $14.3 million for the twenty-six week period ended March 31, 2001 from $14.1 million for the twenty-six week period ended March 31, 2000. - INCOME TAXES. Income tax expense as a percentage of income before income taxes was approximately 40 percent for the twenty-six week period ended March 31, 2001 and the twenty-six week period ended March 31, 2000. - NET INCOME. The Company earned $5.9 million for the twenty-six week period ended March 31, 2001 compared to net income of $4.8 million for the twenty-six week period ended March 31, 2000, primarily as a result of the factors referred to above. BACKLOG As of March 31, 2001, the Company estimated its sales order backlog at $83.2 million compared to an estimated $73.4 million as of March 31, 2000. The majority of the purchase orders outstanding as of March 31, 2001 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 March 31, 2001 may not necessarily represent the actual amount of shipments or sales for any future period. FOREIGN OPERATIONS The Company manufactures virtually all of its products in the United States. However, a portion of the Company's current sales is conducted abroad. These sales are subject to numerous additional risks, including the impact of foreign government regulations, currency fluctuations, political uncertainties and differences in business practices. There can be no assurance that foreign governments will not adopt regulations or take other action that would have a direct or indirect adverse impact on the business or market opportunities of the Company within such governments' countries. Furthermore, there can be no assurance that the political, cultural and economic climate outside the United States will be favorable to the Company's operations and growth strategy. -11- 14 INFLATION Many of the Company's raw materials and operating expenses are sensitive to the effects of inflation, which could result in higher operating costs. The effects of inflation on the Company's businesses during the thirteen and twenty-six week periods ended March 31, 2001 and March 31, 2000 were not significant. LIQUIDITY AND CAPITAL RESOURCES Cash provided by operating activities during the twenty-six week period ended March 31, 2001 was approximately $12.2 million compared to approximately $6.2 million generated during the twenty-six week period ended March 31, 2000, primarily due to increased collections of accounts receivable and income taxes, increased earnings and a decline in the rate of increase in inventories during the twenty-six week period ended March 31, 2001. Cash used in investing activities was approximately $8.3 million during the twenty-six weeks ended March 31, 2001 compared to approximately $4.3 million used during the twenty-six weeks ended March 31, 2000. The increase is mainly due to the acquisition of the Honeywell lube and scavenge pump product line in March 2001. Cash used in financing activities during the twenty-six weeks ended March 31, 2001 was approximately $1.6 million compared to approximately $3.7 million used in financing activities during the twenty-six weeks ended March 31, 2000, primarily due to increased repayment of debt obligations offset by the increased borrowings required to finance the acquisition of the Honeywell lube and scavenge pumps product line. The Company's primary future cash needs will consist of capital expenditures and debt service as well as funds to finance the acquisition of the assets of the Champion Aviation Products business described in Note 7 on page 7. 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 $1.7 million and $1.8 million during the twenty-six week periods ended March 31, 2001 and March 31, 2000, 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 $26.1 million that bear interest at 12 percent annually. Interest expense recognized on the Holdings PIK Notes during the thirteen and twenty-six week periods ended March 31, 2001 was $0.8 million and $1.5 million, respectively. Interest expense recognized on these notes during the thirteen and twenty-six week periods ended March 31, 2000 was $.7 million and $1.3 million, respectively. -12- 15 PART I: FINANCIAL INFORMATION ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK At March 31, 2001, 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 $110.5 million of borrowings outstanding under the credit facility at March 31, 2001 was 8.3 percent. Also outstanding at March 31, 2001 was $125 million of Company indebtedness in the form of subordinated notes and $26.1 million of Holdings PIK Notes. The interest rates on both of these borrowings are fixed at 10 3/8 percent and 12 percent per year, respectively. The sensitivity of changes in the fair value of the Company's outstanding borrowings to changes in interest rates is described on page 17 of our Form 10-K for the fiscal year ended September 30, 2000. There have been no material changes in the sensitivity since September 30, 2000. -13- 16 PART II: OTHER INFORMATION ITEM 6 Exhibits and Reports on Form 8-K (a) Exhibits EXHIBIT NO. DESCRIPTION OF EXHIBIT 2.1 Asset Purchase Agreement, dated April 29, 2001, between Federal-Mogul Ignition Company and Aviation Acquisition Corporation (b) The Company did not file any reports on Form 8-K during the quarter ended March 31, 2001. -14- 17 SIGNATURES Pursuant to the requirements of Section 13 of the Securities Act of 1934, as amended, each of the Co-Registrants has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Richmond Heights, State of Ohio, on May 11, 2001. 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 -15- 18 TRANSDIGM HOLDING COMPANY Pursuant to the requirements of the Securities Act of 1934, this Report has been signed below by the following persons on behalf of the Co-Registrant and in the capacities and as of the dates indicated.
SIGNATURE TITLE DATE * Chief Executive Officer (Principal May 11, 2001 ----------------------------------- Executive Officer) and Chairman of the Board Douglas W. Peacock * President and Chief Operating Officer May 11, 2001 ----------------------------------- (Principal Operating Officer) and Director W. Nicholas Howley /s/ Gregory Rufus Chief Financial Officer (Principal Financial May 11, 2001 ----------------------------------- and Accounting Officer) Gregory Rufus * Director May 11, 2001 ----------------------------------- Stephen Berger * Director May 11, 2001 ----------------------------------- William Hopkins * Director May 11, 2001 ----------------------------------- Muzzafar Mirza * Director May 11, 2001 ----------------------------------- John W. Paxton * Director May 11, 2001 ----------------------------------- Thomas R. Wall, IV
-16- 19 TRANSDIGM INC. Pursuant to the requirements of the Securities Act of 1934, this Report has been signed below by the following persons on behalf of the Co-Registrant and in the capacities and as of the dates indicated.
SIGNATURE TITLE DATE * Chief Executive Officer (Principal May 11, 2001 ----------------------------------- Executive Officer) and Chairman of the Board Douglas W. Peacock * President and Chief Operating Officer May 11, 2001 ----------------------------------- (Principal Operating Officer) and Director W. Nicholas Howley /s/ Gregory Rufus Chief Financial Officer (Principal Financial May 11, 2001 ----------------------------------- and Accounting Officer) Gregory Rufus * Director May 11, 2001 ----------------------------------- Stephen Berger * Director May 11, 2001 ----------------------------------- William Hopkins * Director May 11, 2001 ----------------------------------- Muzzafar Mirza * Director May 11, 2001 ----------------------------------- John W. Paxton * Director May 11, 2001 ----------------------------------- Thomas R. Wall, IV
-17- 20 MARATHON POWER TECHNOLOGIES COMPANY Pursuant to the requirements of the Securities Act of 1934, this Report has been signed below by the following persons on behalf of the Co-Registrant and in the capacities and as of the dates indicated.
SIGNATURE TITLE DATE * Chief Executive Officer (Principal May 11, 2001 ----------------------------------- Executive Officer) and Chairman of the Board Douglas W. Peacock * President (Principal Operating Officer) May 11, 2001 ----------------------------------- Albert J. Rodriguez /s/ Gregory Rufus Chief Financial Officer (Principal Financial May 11, 2001 ----------------------------------- and Accounting Officer) Gregory Rufus * Director May 11, 2001 ----------------------------------- W. Nicholas Howley
-18- 21 ZMP, INC. Pursuant to the requirements of the Securities Act of 1934, this Report has been signed below by the following persons on behalf of the Co-Registrant and in the capacities and as of the dates indicated.
SIGNATURE TITLE DATE * Chairman of the Board and Executive Vice May 11, 2001 ----------------------------------- President (Principal Executive Officer) Douglas W. Peacock * President (Principal Operating Officer) May 11, 2001 ----------------------------------- John F. Leary /s/ Gregory Rufus Treasurer and Chief Financial Officer May 11, 2001 ----------------------------------- (Principal Financial and Accounting Officer) Gregory Rufus * Executive Vice President and Director May 11, 2001 ----------------------------------- W. Nicholas Howley
-19- 22 ADAMS RITE AEROSPACE, INC. Pursuant to the requirements of the Securities Act of 1934, this Report has been signed below by the following persons on behalf of the Co-Registrant and in the capacities and as of the dates indicated.
SIGNATURE TITLE DATE * Chairman of the Board and Executive Vice May 11, 2001 ----------------------------------- President (Principal Executive Officer) Douglas W. Peacock * President (Principal Operating Officer) May 11, 2001 ----------------------------------- John F. Leary /s/ Gregory Rufus Treasurer and Chief Financial Officer May 11, 2001 ----------------------------------- (Principal Financial and Accounting Officer) Gregory Rufus * Executive Vice President and Director May 11, 2001 ----------------------------------- W. Nicholas Howley
* The undersigned, by signing his name hereto, does sign and execute this Annual Report on Form 10-Q pursuant to the Power of Attorney executed by the above-named officers and Directors of the Co-Registrant and filed with the Securities and Exchange Commission on behalf of such officers and Directors. By: /s/ Gregory Rufus ------------------------------ Gregory Rufus, ATTORNEY-IN-FACT -20-