-----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, K/2e4Xz+Mh1jShIKXJ/AwnHzliu/C5LcjvRqW2U8on5FtyCFk5BBfMHoNGc9kKRc 3th8MlONlad/EKsCAasTvg== 0000950152-01-503339.txt : 20010725 0000950152-01-503339.hdr.sgml : 20010725 ACCESSION NUMBER: 0000950152-01-503339 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010724 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRANSDIGM INC CENTRAL INDEX KEY: 0001077670 STANDARD INDUSTRIAL CLASSIFICATION: AIRCRAFT PART & AUXILIARY EQUIPMENT, NEC [3728] STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-71397 FILM NUMBER: 1686901 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 CENTRAL INDEX KEY: 0001077672 STANDARD INDUSTRIAL CLASSIFICATION: AIRCRAFT PART & AUXILIARY EQUIPMENT, NEC [3728] STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-71397-01 FILM NUMBER: 1686902 BUSINESS ADDRESS: STREET 1: 8233 IMPERIAL DRIVE CITY: WACO STATE: TX ZIP: 76712 BUSINESS PHONE: 2547760650 MAIL ADDRESS: STREET 1: 8233 IMPERIAL DRIVE CITY: WACO STATE: TX ZIP: 76712 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MARATHON POWER TECHNOLOGIES CO CENTRAL INDEX KEY: 0001077673 STANDARD INDUSTRIAL CLASSIFICATION: AIRCRAFT PART & AUXILIARY EQUIPMENT, NEC [3728] STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-71397-02 FILM NUMBER: 1686903 BUSINESS ADDRESS: STREET 1: 8233 IMPERIAL DRIVE CITY: WACO STATE: TX ZIP: 76712 BUSINESS PHONE: 2547760650 MAIL ADDRESS: STREET 1: 8233 IMPERIAL DRIVE CITY: WACO STATE: TX ZIP: 76712 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ZMP INC CENTRAL INDEX KEY: 0001084401 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 133733378 STATE OF INCORPORATION: CA FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-71397-03 FILM NUMBER: 1686904 BUSINESS ADDRESS: STREET 1: 8233 IMPERIAL DRIVE CITY: WACO STATE: TX ZIP: 76712 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ADAMS RITE AEROSPACE INC CENTRAL INDEX KEY: 0001084402 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 133733378 STATE OF INCORPORATION: CA FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-71397-04 FILM NUMBER: 1686905 BUSINESS ADDRESS: STREET 1: 8233 IMPERIAL DRIVE CITY: WACO STATE: TX ZIP: 76712 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHAMPION AEROSPACE INC CENTRAL INDEX KEY: 0001142160 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 582623644 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-71397-05 FILM NUMBER: 1686906 BUSINESS ADDRESS: STREET 1: 26380 CURTISS WRIGHT PARKWAY CITY: RICHMOND HEIGHTS STATE: OH ZIP: 44143 BUSINESS PHONE: 2162898900 10-Q 1 l89495ae10-q.txt TRANSDIGM, INC., ET AL 10-Q/QTR END 6-30-01 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 June 30, 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, - -------------------------------------------------------------------------------- Champion Aerospace Inc., 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 (I.R.S. Employer Identification No.) of incorporation or organization) 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 June 30, 2001) Class A Common Stock (Non-Voting) of TransDigm Holding Company, $0.01 Par Value -0- - ---------------------------------------------- ------------------------------ (Class) (Outstanding at June 30, 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 - June 30, 2001 and September 30, 2000 1 Consolidated Statements of Income - Thirteen and Thirty-Nine Week Periods Ended June 30, 2001 and 2000 2 Consolidated Statement of Changes in Stockholders' Deficiency - Thirty-Nine Week Period Ended June 30, 2001 3 Consolidated Statements of Cash Flows - Thirty-Nine Week Periods Ended June 30, 2001 and 2000 4 Notes to Consolidated Financial Statements 5-8 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 9-12 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 15-21
3 PART I: FINANCIAL INFORMATION ITEM 1 TRANSDIGM HOLDING COMPANY CONSOLIDATED BALANCE SHEETS (In Thousands of Dollars) - --------------------------------------------------------------------------------
JUNE 30, SEPTEMBER 30, 2001 2000 ASSETS (Unaudited) CURRENT ASSETS: Cash and cash equivalents $ 10,121 $ 4,309 Accounts receivable, net 36,190 26,796 Inventories (Note 4) 52,674 32,889 Income taxes refundable 1,796 Prepaid expenses and other 746 535 Deferred income taxes 8,057 5,657 --------- --------- Total current assets 107,788 71,982 PROPERTY, PLANT AND EQUIPMENT - Net 41,830 25,029 INTANGIBLE ASSETS - Net 200,973 56,957 DEBT ISSUE COSTS - Net 13,152 9,400 DEFERRED INCOME TAXES AND OTHER 5,370 5,465 --------- --------- TOTAL $ 369,113 $ 168,833 ========= ========= LIABILITIES AND STOCKHOLDERS' DEFICIENCY CURRENT LIABILITIES: Short-term debt and current portions of long-term debt $ 13,269 $ 10,953 Accounts payable 16,575 5,672 Income taxes payable 556 Accrued and other liabilities 22,003 15,460 --------- --------- Total current liabilities 52,403 32,085 LONG-TERM DEBT - Less current portion 402,330 250,648 OTHER NON-CURRENT LIABILITIES 7,795 3,138 CUMULATIVE REDEEMABLE PREFERRED STOCK 12,556 REDEEMABLE COMMON STOCK 1,612 1,371 STOCKHOLDERS' DEFICIENCY: Common stock 102,031 102,156 Warrants 1,934 Accumulated deficit (211,096) (220,115) Accumulated other comprehensive loss (452) (450) --------- --------- Total stockholders' deficiency (107,583) (118,409) --------- --------- TOTAL $ 369,113 $ 168,833 ========= =========
See notes to consolidated financial statements. -1- 4 TRANSDIGM HOLDING COMPANY CONSOLIDATED STATEMENTS OF INCOME FOR THE THIRTEEN AND THIRTY-NINE WEEK PERIODS ENDED JUNE 30, 2001 AND 2000 (IN THOUSANDS OF DOLLARS) (UNAUDITED) - --------------------------------------------------------------------------------
THIRTEEN WEEK THIRTY-NINE WEEK PERIODS ENDED PERIODS ENDED ------------------- ------------------- JUNE 30, JUNE 30, JUNE 30, JUNE 30, 2001 2000 2001 2000 -------- -------- -------- -------- NET SALES $ 54,201 $ 40,233 $132,065 $110,401 COST OF SALES (Including charges of $3,175 and $3,331 during the thirteen and thirty-nine week periods ended June 30, 2001, respectively, due to inventory purchase accounting adjustments) 33,113 22,054 75,933 60,014 -------- -------- -------- -------- GROSS PROFIT 21,088 18,179 56,132 50,387 -------- -------- -------- -------- OPERATING EXPENSES: Selling and administrative 5,181 4,249 13,720 12,440 Amortization of intangibles 865 447 1,704 1,394 Research and development 817 505 2,018 1,477 -------- -------- -------- -------- Total operating expenses 6,863 5,201 17,442 15,311 -------- -------- -------- -------- INCOME FROM OPERATIONS 14,225 12,978 38,690 35,076 INTEREST EXPENSE - Net 7,940 7,292 22,221 21,417 -------- -------- -------- -------- INCOME BEFORE INCOME TAXES 6,285 5,686 16,469 13,659 INCOME TAX PROVISION 2,703 2,257 6,972 5,413 -------- -------- -------- -------- NET INCOME $ 3,582 $ 3,429 $ 9,497 $ 8,246 ======== ======== ======== ========
See notes to consolidated financial statements. -2- 5 TRANSDIGM HOLDING COMPANY CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIENCY FOR THE THIRTY-NINE WEEK PERIOD ENDED JUNE 30, 2001 (In Thousands of Dollars) (Unaudited) - --------------------------------------------------------------------------------
ACCUMULATED OTHER COMMON ACCUMULATED COMPREHENSIVE STOCK WARRANTS DEFICIT LOSS TOTAL BALANCE, OCTOBER 1, 2000 $ 102,156 $ (220,115) $ (450) $ (118,409) ISSUANCE OF WARRANTS FOR $ 1,934 1,934 PURCHASE OF COMMON STOCK PURCHASE OF COMMON STOCK (125) (125) ACCRETION OF REDEEMABLE COMMON STOCK (256) (256) CUMULATIVE REDEEMABLE PREFERRED STOCK: Dividends accrued (200) (200) Accretion for original issuance discount (22) (22) COMPREHENSIVE INCOME: Net income 9,497 9,497 Other comprehensive income (2) (2) ----------- Total comprehensive income 9,495 --------- -------- ------------ -------- ----------- BALANCE, JUNE 30, 2001 $ 102,031 $ 1,934 $ (211,096) $ (452) $ (107,583) ========= ======== ============ ======== ===========
See notes to consolidated financial statements. -3- 6 TRANSDIGM HOLDING COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THIRTY-NINE WEEK PERIODS ENDED JUNE 30, 2001 AND 2000 (In Thousands of Dollars) (Unaudited) - --------------------------------------------------------------------------------
THIRTY-NINE WEEK PERIODS ENDED ------------------------ JUNE 30, JUNE 30, 2001 2000 OPERATING ACTIVITIES: Net income $ 9,497 $ 8,246 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 3,930 3,354 Amortization of intangibles 1,704 1,394 Amortization of debt issue costs 1,294 1,036 Interest deferral on Holdings PIK Notes 2,205 1,940 Changes in assets and liabilities, net of effects from acquisitions of businesses: Accounts receivable (9,394) (1,928) Inventories 1,350 (3,272) Income taxes payable/refundable 2,352 2,526 Prepaid expenses and other assets 12 (203) Accounts payable 6,014 592 Accrued liabilities (2,980) (4,791) --------- --------- Net cash provided by operating activities 15,984 8,894 --------- --------- INVESTING ACTIVITIES: Capital expenditures (2,471) (3,038) Acquisition of Honeywell product line (Note 3) (6,640) Acquisition of Champion Aviation (Note 3) (161,942) Acquisition of Christie Electric Corp. (Note 3) (2,500) --------- --------- Net cash used in investing activities (171,053) (5,538) --------- --------- FINANCING ACTIVITIES: Net borrowings under revolving credit loans 8 4,000 Repayment of term loans (8,215) (5,735) Proceeds from term loans, net of fees of $5,040 154,960 Issuance of preferred stock and related warrants, net of fees of $733 14,267 Proceeds from issuance of capital stock 22 Purchase of common stock, including redeemable common stock (139) (1,576) --------- --------- Net cash provided by (used in) financing activities 160,881 (3,289) --------- --------- INCREASE IN CASH AND CASH EQUIVALENTS 5,812 67 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 4,309 2,729 --------- --------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 10,121 $ 2,796 ========= ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for interest $ 21,213 $ 21,270 ========= ========= Cash paid during the period for income taxes $ 4,510 $ 2,889 ========= =========
See notes to consolidated financial statements. -4- 7 TRANSDIGM HOLDING COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THIRTEEN AND THIRTY-NINE WEEK PERIODS ENDED JUNE 30, 2001 AND 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"), Adams Rite Aerospace, Inc., ("Adams Rite"), and Champion Aerospace Inc. ("Champion 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, igniters, spark plugs, oil filters and oxygen systems related products. 2. UNAUDITED FINANCIAL INFORMATION The September 30, 2000 consolidated balance sheet was derived from the Company's audited financial statements. All of the other 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 thirty-nine week periods ended June 30, 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 thirty-nine week periods ended June 30, 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 cost of inventory is included in accounts payable at June 30, 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 June 30, 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, which is subject to adjustment, 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 thirty-nine week periods ended June 30, 2001, are not significant and accordingly, are not provided. CHAMPION AVIATION - Through a newly-formed, wholly-owned subsidiary, Champion Aerospace Inc., TransDigm acquired substantially all of the assets and certain liabilities of the Champion Aviation Products ("Champion Aviation") business on May 31, 2001 (the "Acquisition"), from Federal Mogul Ignition Company ("Federal-Mogul"), a wholly owned subsidiary of Federal-Mogul Corporation, for approximately $160.1 million in cash, subject to adjustment based on the level of acquired working capital as of the closing of the Acquisition. Champion Aviation is engaged in researching, designing, developing, engineering, manufacturing, marketing, distributing and selling ignition systems and related components and other products, including, without limitation, igniters, spark plugs, exciters; for turbine and piston aircraft applications as well as other aerospace engine and industrial applications. The purchase price consideration of $160.1 million in cash and $1.8 million of costs associated with the Acquisition was funded through: (1) $147.6 million of new borrowings under the Company's existing Senior Credit Facility ("Credit Agreement") and (2) $14.3 million received (net of fees of $.7 million) from the issuance of $15 million of Holdings' 16 percent Cumulative Redeemable Preferred Stock and warrants to purchase 1,381.87 shares of TransDigm Holdings' common stock. TransDigm also borrowed an additional $15 million under the Credit Agreement to pay $5 million of debt issuance costs and provide $10 million of working capital for future operations. Approximately $2.6 million of the additional borrowings were obtained under the Company's revolving credit line, $45 million was added to the Company's existing Tranche B Facility, and $115 million was borrowed in the form of a new Tranche C Facility under the Credit Agreement maturing in May 2007. Dividends on the preferred stock are payable in cash or delivery of additional shares of preferred stock. The preferred stock, including all accumulated and unpaid dividends, is also subject to mandatory redemption in 2010. Prior to the date of mandatory redemption, under certain circumstances (including a change in control), the preferred stock is subject to optional redemption. The terms of the preferred stock require the Company to comply with certain financial covenants pertaining to earnings, interest coverage, and leverage. The warrants to purchase TransDigm Holdings' common stock are exercisable through May 2011 at an exercise price per share of $0.01. The Company accounted for the acquisition as a purchase and included the results of operations of the acquired business in its fiscal 2001 consolidated financial statements from the effective date of the Acquisition. The purchase price was allocated based on a preliminary determination, which is subject to adjustment, of estimated fair values at the date of the Acquisition. Intangible assets recorded in connection with the Acquisition (principally goodwill) of approximately $130.4 million are being amortized on a straight-line basis over forty years. -6- 9 The following table summarizes the unaudited, consolidated pro forma results of operations of the Company, as if the Acquisition had occurred at the beginning of the thirty-nine week periods ended June 30 (in thousands): 2001 2000 Net sales $ 185,012 $ 160,468 Operating income $ 45,720 $ 43,865 Net income $ 7,765 $ 7,585 The consolidated pro forma operating income for the thirty-nine week periods ended June 30, 2001 and 2000 include $953,000 and $750,000, respectively, of corporate charges billed by Federal-Mogul prior 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. 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): JUNE 30, SEPTEMBER 30, 2001 2000 Work-in-progress and finished goods $ 31,863 $ 20,995 Raw materials and purchased component parts 27,246 18,325 -------- -------- Total 59,109 39,320 Reserve for excess and obsolete inventory (6,435) (6,431) -------- -------- Inventories - net $ 52,674 $ 32,889 ======== ======== 5. CONTINGENCIES ENVIRONMENTAL - The soil and groundwater beneath the Company's facility in Waco, Texas has 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. -7- 10 6. NEW ACCOUNTING STANDARDS On June 29, 2001, the Financial Accounting Standards Board ("FASB") concluded its voting process on Statement of Financial Accounting Standards ("SFAS") No. 141, Business Combinations, and this statement will be issued in July 2001. SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. Goodwill and certain intangible assets will remain on the balance sheet and not be amortized. On an annual basis, and when there is reason to suspect that their values have been diminished or impaired, these assets must be tested for impairment, and write-downs may be necessary. The Company is required to implement SFAS No. 141 on July 1, 2001 and it has not determined the impact, if any, that this statement will have on its consolidated financial position or results of operations. On June 29, 2001, FASB concluded its voting process of SFAS No. 142, Goodwill and Other Intangible Assets, and this statement will be issued in July 2001. SFAS No. 142 changes the accounting for goodwill from an amortization method to an impairment-only approach. Amortization of goodwill, including goodwill recorded in past business combinations, will cease upon adoption of this statement. The Company is required to implement SFAS No. 142 on October 1, 2002 and it has not determined the impact, if any, that this statement will have on its consolidated financial position or results of operations. * * * * * * -8- 11 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 supplies. 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. On May 31, 2001, TransDigm (through a newly-formed, wholly-owned subsidiary, Champion Aerospace Inc.) acquired substantially all of the assets and certain liabilities of the Champion Aviation Products business from Federal Mogul Ignition Company ("Federal-Mogul"), a wholly owned subsidiary of Federal-Mogul Corporation for approximately $160.1 million in cash, subject to adjustment based on the level of acquired working capital as of the closing of the acquisition. The Champion Aviation Products ("Champion Aviation") business is engaged in researching, designing, developing, engineering, manufacturing, marketing, distributing and selling ignition systems and related components and other products, including, without limitation, igniters, spark plugs, exciters; for turbine and piston aircraft applications as well as other aerospace engine and industrial applications. 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. -9- 12 RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, certain operating data of the Company as a percentage of net sales. THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED -------------------- ----------------------- JUNE 30, JUNE 30, JUNE 30, JUNE 30, 2001 2000 2001 2000 Net sales 100% 100% 100% 100% --- --- --- --- Gross profit 39 45 42 45 Selling and administrative 10 11 10 11 Amortization of intangibles 2 1 1 1 Research and development 1 1 2 1 --- --- --- --- Operating income 26 32 29 32 Interest expense- net 14 18 17 19 Provision for income taxes 5 6 5 5 --- --- --- --- Net income 7% 8% 7% 8% === === === === CHANGES IN RESULTS OF OPERATIONS THIRTEEN WEEKS ENDED JUNE 30, 2001 COMPARED WITH THIRTEEN WEEKS ENDED JUNE 30, 2000. - - NET SALES. Net sales increased by $14.0 million, or 34.7 percent, to $54.2 million for the quarter ended June 30, 2001 from $40.2 million for the comparable quarter last year, principally due to the acquisitions of Champion Aviation and Honeywell in the current year, increased volume on existing products and new business opportunities. - - GROSS PROFIT. Gross profit (net sales less cost of sales) increased by $2.9 million, or 16 percent, to $21.1 million for the quarter ended June 30, 2001 from $18.2 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 declined to 39 percent during the third quarter of fiscal 2001 from 45 percent during the third quarter of fiscal 2000, principally due to $3.2 million of non-cash charges from Honeywell and Champion Aviation inventory purchase accounting adjustments. - - SELLING AND ADMINISTRATIVE. Selling and administrative expenses increased by $1.0 million, or 21.9 percent, to $5.2 million for the quarter ended June 30, 2001 from $4.2 million for the quarter ended June 30, 2000. This increase principally resulted from the Company's acquisitions of Champion Aviation and Honeywell, and increased sales activities. Selling and administrative expenses as a percentage of net sales was 10 percent for the quarter ended June 30, 2001 and 11 percent for the quarter ended June 30, 2000. - - AMORTIZATION OF INTANGIBLES. Amortization of intangibles increased by $0.5 million, or 93.5 percent, to $0.9 million for the quarter ended June 30, 2001 from $0.4 million for the quarter ended June 30, 2000. This increase is the result of the amortization of the intangible assets recognized in connection with the Honeywell and Champion Aviation acquisitions. - - RESEARCH AND DEVELOPMENT. Research and development expense increased by $0.3 million, or 61.8 percent, to $0.8 million for the quarter ended June 30, 2001 from $0.5 million for the quarter ended June 30, 2000. The increase was the result of the acquisition of Champion Aviation and additional research and development activities to complement the Company's sales efforts. Research and development expense, as a percentage of net sales, was 1.0 percent for the quarters ended June 30, 2001 and 2000. - - OPERATING INCOME. Operating income increased by $1.2 million, or 9.6 percent, to $14.2 million for the third quarter of fiscal 2001 from $13.0 million for the third quarter of fiscal 2000 due to the factors described previously. -10- 13 - - INTEREST EXPENSE. Interest expense increased by $0.6 million, or 8.9 percent, to $7.9 million for the third quarter of fiscal 2001 from $7.3 million for the third quarter of fiscal 2000 as a result of an increase in the average level of outstanding borrowings due to the acquisition of Champion Aviation and an increase in the balance of the Holdings' PIK Notes as a result of the accrual of interest paid in kind. - - INCOME TAXES. Income tax expense as a percentage of income before income taxes was 43 percent for the thirteen weeks ended June 30, 2001 compared to 39.7 percent for the thirteen weeks ended June 30, 2000. The increase in the effective rate resulted from higher non-deductible expenses. - - NET INCOME. The Company earned $3.6 million for the third quarter of fiscal 2001 compared to $3.4 million for the third quarter of fiscal 2000 primarily as a result of the factors referred to above. THIRTY-NINE WEEKS ENDED JUNE 30, 2001 COMPARED WITH THIRTY-NINE WEEKS ENDED JUNE 30, 2000. - - NET SALES. Net sales increased by $21.7 million, or 19.6 percent, to $132.1 million for the thirty-nine weeks ended June 30, 2001 from $110.4 million for the comparable thirty-nine weeks last year, principally due to the acquisitions of Champion Aviation and Honeywell, increased volume on existing products and new business opportunities. - - GROSS PROFIT. Gross profit (net sales less cost of sales) increased by $5.7 million, or 11.4 percent, to $56.1 million for the thirty-nine weeks ended June 30, 2001 from $50.4 million for the comparable thirty-nine weeks last year. This increase is attributable to the higher sales discussed above. Gross profit as a percentage of net sales declined to 42.5 percent during the thirty-nine weeks ended June 30, 2001 from 45.6 percent during the thirty-nine weeks ended June 30, 2000 principally due to $3.3 million of non-cash charges from Honeywell and Champion Aviation inventory purchase accounting adjustments. - - SELLING AND ADMINISTRATIVE. Selling and administrative expenses increased by $1.3 million, or 10.3 percent, to $13.7 million for the thirty-nine weeks ended June 30, 2001 from $12.4 million for the thirty-nine weeks ended June 30, 2000. This increase principally resulted from the Company's acquisitions of Champion Aviation and Honeywell, and increased sales activities. Selling and administrative expenses as a percentage of net sales decreased from 11 percent for the thirty-nine weeks ended June 30, 2000 to 10 percent for the thirty-nine weeks ended June 30, 2001. - - AMORTIZATION OF INTANGIBLES. Amortization of intangibles increased by $.3 million or 22.2 percent to $1.7 million for the quarter ended June 30, 2001 from $1.4 million for the quarter ended June 30, 2000. This increase is the result of amortization of the intangible assets recognized in connection with the Honeywell and Champion Aviation acquisitions. - - RESEARCH AND DEVELOPMENT. Research and development expense increased by $0.5 million, or 36.6 percent, to $2.0 million for the thirty-nine weeks ended June 30, 2001 from $1.5 million for the thirty-nine weeks ended June 30, 2000. The increase was the result of the acquisition of Champion Aviation and additional research and development activities to complement the Company's sales efforts. - - OPERATING INCOME. Operating income increased by $3.6 million, or 10.3%, to $38.7 million for the thirty-nine weeks ended June 30, 2001 from $35.1 million for the thirty-nine weeks ended June 30, 2000 due to the factors described previously. - - INTEREST EXPENSE. Interest expense increased by $0.8 million, or 3.8 percent, to $22.2 million for the thirty-nine weeks ended June 30, 2001 from $21.4 million for the thirty-nine weeks ended June 30, 2000 as a result of the increase in the average level of outstanding borrowings due to the acquisition of Champion Aviation and an increase in the balance of the Holdings' PIK Notes as a result of the accrual of interest paid in kind. - - INCOME TAXES. Income tax expense as a percentage of income before income taxes was 42.3 percent for the thirty-nine weeks ended June 30, 2001 compared to 39.6 percent for the thirty-nine weeks ended June 30, 2000. The increase in the effective rate resulted from higher non-deductible expenses. - - NET INCOME. The Company earned $9.5 million for the thirty-nine weeks ended June 30, 2001 compared to a net income of $8.2 million for the thirty-nine weeks ended June 30, 2000 primarily as a result of the factors referred to above. -11- 14 BACKLOG As of June 30, 2001, the Company estimated its sales order backlog (including backlog related to Champion Aviation) at $109.0 million compared to an estimated $102.7 million as of June 30, 2000. The majority of the purchase orders outstanding as of June 30, 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 June 30, 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. 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 thirty-nine week periods ended June 30, 2001 and 2000 were not significant. LIQUIDITY AND CAPITAL RESOURCES Cash provided by operating activities during the thirty-nine week period ended June 30, 2001 was approximately $16 million compared to approximately $8.9 million provided during the thirty-nine week period ended June 30, 2000. This increase is due to improved operating results, the acquisition of Champion Aviation and changes in operating assets and liabilities. Cash used in investing activities was approximately $171.0 million during the thirty-nine week period ended June 30, 2001 compared to approximately $5.5 million used during the thirty-nine week period ended June 30, 2000. The increase is mainly due to the acquisition of Champion Aviation and the acquisition of the Honeywell product line. Cash provided by financing activities during the thirty-nine week period ended June 30, 2001 was approximately $160.9 million compared to approximately $3.3 million used in financing activities during the thirty-nine week period ended June 30, 2000. This change in financing cash flows was due to the incurrence of substantial indebtedness as a result of the acquisition of Champion Aviation. 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 $2.5 million and $3.0 million during the thirty-nine week periods ended June 30, 2001 and June 30, 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 $26.9 million that bear interest at 12.0 percent annually. Interest expense recognized on the Holdings PIK Notes during the thirteen and thirty-nine week periods ended June 30, 2001 was $0.8 million and $2.2 million, respectively. Interest expense recognized on these notes during the thirteen and thirty-nine week periods ended June 30, 2000 was $.6 million and $1.9 million, respectively. -12- 15 PART I: FINANCIAL INFORMATION ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK At June 30, 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 $263.7 million of borrowings outstanding under the credit facility at June 30, 2001 was 7.3 percent. Also outstanding at June 30, 2001 was $125 million of Company indebtedness in the form of subordinated notes and $26.9 million of Holdings PIK Notes. The interest rates on both of these borrowings are fixed at 10 3/8 percent and 12.0 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 ------- ----------- 3.1 * Restated Certificate of Incorporation, filed on May 31, 2001, of TransDigm Holding Company. 4.1 * Certificate of Designations, Preferences and Relative, Participating, Optional and Other Special Rights of Preferred Stock and Qualifications, Limitations and Restrictions Thereof of 16% Cumulative Redeemable Preferred Stock of TransDigm Holding Company. 4.2 * Amended and Restated Credit Agreement, dated as of December 3, 1998 and amended and restated as of May 31, 2001, by and among TransDigm Holding Company, TransDigm Inc., various lending institutions party thereto, Credit Suisse First Boston, as Syndication Agent and Bankers Trust Company, as Administrative Agent. 4.3 * Investment Agreement, dated as of May 31, 2001, by and between TransDigm Holding Company and First Union Investors, Inc. 99.1 * Press Release dated May 31, 2001. (b) The Company filed a report on Form 8-K on June 11, 2001, related to the acquisition of Champion Aviation. (c) The Company filed a report on Form 8-K/A on July 23, 2001, related to the acquisition of Champion Aviation. * Filed as an exhibit to TransDigm Holdings' Form 8-K dated May 31, 2001 (File No. 1658668) and incorporated by reference and made a part hereof. -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 July 24, 2001. TRANSDIGM HOLDING COMPANY By: /s/ Gregory Rufus ------------------------------------------------------- Name: Gregory Rufus Title: Chief Financial Officer TRANSDIGM INC. By: /s/ Gregory Rufus ------------------------------------------------------- Name: Gregory Rufus Title: Chief Financial Officer MARATHON POWER TECHNOLOGIES COMPANY By: /s/ Gregory Rufus ------------------------------------------------------- Name: Gregory Rufus Title: Chief Financial Officer ZMP, INC. By: /s/ Gregory Rufus ------------------------------------------------------- Name: Gregory Rufus Title: Chief Financial Officer ADAMS RITE AEROSPACE, INC. By: /s/ Gregory Rufus ------------------------------------------------------- Name: Gregory Rufus Title: Chief Financial Officer CHAMPION AEROSPACE INC. By: /s/ Gregory Rufus ------------------------------------------------------- Name: Gregory Rufus Title: 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 July 24, 2001 - ----------------------------------- Executive Officer) and Chairman of the Board Douglas W. Peacock * President and Chief Operating Officer July 24, 2001 - ----------------------------------- (Principal Operating Officer) and Director W. Nicholas Howley /s/Gregory Rufus Chief Financial Officer (Principal Financial July 24, 2001 - ----------------------------------- and Accounting Officer) Gregory Rufus * Director July 24, 2001 - ----------------------------------- Stephen Berger * Director July 24, 2001 - ----------------------------------- William Hopkins * Director July 24, 2001 - ----------------------------------- Muzzafar Mirza * Director July 24, 2001 - ----------------------------------- John W. Paxton * Director July 24, 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 July 24, 2001 - ----------------------------------- Executive Officer) and Chairman of the Board Douglas W. Peacock * President and Chief Operating Officer July 24, 2001 - ----------------------------------- (Principal Operating Officer) and Director W. Nicholas Howley /s/Gregory Rufus Chief Financial Officer (Principal Financial July 24, 2001 - ----------------------------------- and Accounting Officer) Gregory Rufus * Director July 24, 2001 - ----------------------------------- Stephen Berger * Director July 24, 2001 - ----------------------------------- William Hopkins * Director July 24, 2001 - ----------------------------------- Muzzafar Mirza * Director July 24, 2001 - ----------------------------------- John W. Paxton * Director July 24, 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 July 24, 2001 - ----------------------------------- Executive Officer) and Chairman of the Board Douglas W. Peacock * President (Principal Operating Officer) July 24, 2001 - ----------------------------------- Albert J. Rodriguez /s/Gregory Rufus Chief Financial Officer (Principal Financial July 24, 2001 - ----------------------------------- and Accounting Officer) Gregory Rufus * Director July 24, 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 July 24, 2001 - ----------------------------------- President (Principal Executive Officer) Douglas W. Peacock * President (Principal Operating Officer) July 24, 2001 - ----------------------------------- John F. Leary /s/Gregory Rufus Treasurer and Chief Financial Officer July 24, 2001 - ----------------------------------- (Principal Financial and Accounting Officer) Gregory Rufus * Executive Vice President and Director July 24, 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 July 24, 2001 - ----------------------------------- President (Principal Executive Officer) Douglas W. Peacock * President (Principal Operating Officer) July 24, 2001 - ----------------------------------- John F. Leary /s/Gregory Rufus Treasurer and Chief Financial Officer July 24, 2001 - ----------------------------------- (Principal Financial and Accounting Officer) Gregory Rufus * Executive Vice President and Director July 24, 2001 - ----------------------------------- W. Nicholas Howley
-20- 23 CHAMPION 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 * President July 24, 2001 - ----------------------------------- W. Nicholas Howley * Vice President July 24, 2001 - ----------------------------------- Douglas W. Peacock /s/Gregory Rufus Vice President and Secretary July 24, 2001 - ----------------------------------- Gregory Rufus
- - 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 -21- -----END PRIVACY-ENHANCED MESSAGE-----