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