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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------
FORM 10-K
ANNUAL REPORT PURSUANT TO THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2000 COMMISSION FILE NO. 333-71397
TRANSDIGM INC.
TRANSDIGM HOLDING COMPANY
MARATHON POWER TECHNOLOGIES COMPANY
ZMP, INC.
ADAMS RITE AEROSPACE, INC.
(EXACT NAME OF CO-REGISTRANTS AS SPECIFIED IN ITS RESPECTIVE CHARTER)
DELAWARE
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)
26380 CURTISS WRIGHT PARKWAY, RICHMOND HEIGHTS, OHIO
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
13-3733378
(I.R.S. EMPLOYER IDENTIFICATION NO.)
44143
(ZIP CODE)
Registrant's Telephone Number, Including Area Code: (216) 289-4939
Securities Registered Pursuant to Section 12(b) of The Act: None
Securities Registered Pursuant to Section 12(g) of The Act: None
The Co-Registrants meet the conditions set forth in General Instructions
(I)(1)(a) and (b) of Form 10-K and are therefore filing this form with a reduced
disclosure format.
Indicate by checkmark whether the registrant: (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirement for the past 90 days. Yes [X] No [ ]
Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Annual Report on Form 10-K or any
amendment to this Form 10-K. [X]
There currently is no established publicly traded market for the common equity
of TransDigm Holding Company held by non-affiliates.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
<S> <C>
Common Stock (Voting) of TransDigm Holding Company, $0.01 Par Value 119,824
---------------------------------------------------------------------------------- ------------------------------------
(Class) (Outstanding at September 30, 2000)
Class A Common Stock (Non-Voting)
of TransDigm Holding Company, $.01 Par Value -0-
---------------------------------------------------------------------------------- -------------------------------------
(Class) (Outstanding at September 30, 2000)
</TABLE>
All of the outstanding capital stock of TransDigm Inc. is held by TransDigm
Holding Company.
Documents incorporated by reference: See Exhibit Index included elsewhere in
this Form 10-K.
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SECTIONS OF THE 10K
INDEX
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Page
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PART I
Item 1 BUSINESS 1
Item 2 PROPERTIES 8
Item 3 LEGAL PROCEEDINGS 8
Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 8
PART II
Item 5 MARKET FOR OUR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS 9
Item 6 SELECTED FINANCIAL DATA 9
Item 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 12
Item 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 17
Item 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE 17
PART III
Item 10 DIRECTORS AND EXECUTIVE OFFICERS 18
Item 11 EXECUTIVE COMPENSATION 20
Item 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT 25
Item 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 27
PART IV
Item 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K 28
SIGNATURES 32
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA F-1 - F-20
EXHIBIT INDEX i-ix
</TABLE>
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Special Note Regarding Forward-Looking Statements
This Report on Form 10-K (this "Report") contains forward-looking statements
within the meaning of Section 21E of the Securities Exchange Act of 1934 and 27A
of the Securities Act. Discussions containing such forward-looking statements
may be found in Items 1, 3, and 7 hereof, as well as within this Report
generally. In addition, when used in this Report, the words "believes,"
"anticipates," "expects" and similar expressions are intended to identify
forward-looking statements. Although we believe that our plans, intentions and
expectations reflected in or suggested by such forward-looking statements are
reasonable, such forward-looking statements are subject to a number of risks and
uncertainties, and we can give no assurance that such plans, intentions or
exceptions will be achieved. Actual results in the future could differ
materially from those described in the forward-looking statements as a result of
many factors set forth herein as well as under the caption "Risk Factors" in the
Registration Statement filed by us on Form S-4 on January 29, 1999, as amended
through April 23, 1999.
Many such factors are outside the control of TransDigm Holding Company and its
subsidiaries. Consequently, such forward-looking statements should be regarded
solely as our current plans, estimates and beliefs. We do not undertake and
specifically decline any obligation to publicly release the results of any
revisions to these forward-looking statements that may be made to reflect any
future events or circumstances after the date of such statements or to reflect
the occurrence of anticipated or unanticipated events.
In this Report, the terms "TransDigm" and "Company" refer to TransDigm Inc. and
its subsidiaries. The term "Holdings" refers to TransDigm Holding Company, the
parent company of TransDigm.
PART I
ITEM 1. BUSINESS
THE COMPANY
TransDigm is a leading supplier of highly engineered aircraft components for use
on nearly all commercial and military aircraft. TransDigm sells its products to
commercial airlines, aircraft maintenance facilities, aircraft original
equipment manufacturers ("OEMs") and various agencies of the United States
government. TransDigm generates most of its EBITDA, As Defined, from sales of
replacement parts in the aftermarket, including sales to airlines. This is
because most of TransDigm's OEM sales are on an exclusive sole source basis;
therefore, in most cases, TransDigm is the only certified provider of these
parts in the aftermarket. Because aftermarket parts sales are driven by the size
of the worldwide aircraft fleet, they are relatively stable and generate
recurring revenues over the life of an aircraft that are many times the size of
the original OEM purchases. In addition, because TransDigm has over 40 years of
experience in most of its product lines, it benefits from a large and growing
installed base of aircraft.
TransDigm differentiates itself based on its engineering and manufacturing
capabilities, and typically will not bid on non-proprietary "build to print"
business. TransDigm has developed strong product brand names within the airline
industry and a reputation for high quality, reliability and customer service.
TransDigm focuses on developing highly customized products to solve specific
problems of aircraft operators and manufacturers. Management estimates that over
80% of the TransDigm's products are of proprietary design. TransDigm provides
its products to commercial airlines, such as United Airlines and Continental
Airlines, large commercial transport and regional and business aircraft OEMs,
such as Boeing, Bombardier and Cessna, and various agencies of the United States
government. While aftermarket and OEM sales each typically account for
approximately half of TransDigm's revenues, aftermarket sales typically carry a
substantially higher gross margin than sales to OEMs.
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TransDigm is comprised of four business units: (1) AdelWiggins, (2)
AeroControlex, (3) Marathon Power Technologies Company ("Marathon"), and (4)
Adams Rite Aerospace, Inc. ("Adams Rite Aerospace"), each of which has a long
history in the aircraft components industry. AdelWiggins manufactures an
extensive line of fuel and hydraulic system connectors, specialized clamps,
heaters and refueling systems. AeroControlex manufactures customized fuel pumps,
compressors, valves, couplings and mechanical and electromechanical controls.
Adams Rite Aerospace manufactures mechanical hardware, fluid controls, lavatory
hardware, electromechanical controls and oxygen systems related products.
Marathon manufactures nickel cadmium batteries and static inverters. Marathon
and ZMP, Inc. ("ZMP") the corporate parent of Adams Rite Aerospace, were
acquired in August 1997 and April 1999, respectively, as strategic complements
to the AdelWiggins and AeroControlex businesses. Christie Electric Corp.
("Christie") was acquired by Marathon during March 2000 and was subsequently
added as a product line within Marathon.
TransDigm was formed in 1993 through a management-led buyout of IMO Industries.
Since its formation, TransDigm has successfully established leadership positions
in well-defined, profitable niches of the aircraft components market that it
believes offer sustainable growth opportunities.
On December 3, 1998, Phase II Acquisition Corp., an entity formed by affiliates
of Odyssey Investment Partners, LP ("Odyssey"), and Holdings consummated a
recapitalization (the "Recapitalization") pursuant to an agreement and plan of
merger (the "Merger Agreement"). In connection therewith, Phase II Acquisition
Corp. was merged with and into Holdings, with Holdings being the surviving
corporation (the "Merger"). The Merger was treated as a recapitalization for
financial reporting purposes, which had no impact on the historical basis of
Holdings' consolidated assets and liabilities.
PRODUCTS
TransDigm's products are found on virtually all types of aircraft, and TransDigm
supplies components to all major domestic and international airlines. Management
estimates that over 80% of TransDigm's products are of proprietary design and
approximately 70% of TransDigm's sales are derived from parts for which it has
achieved sole source designation. TransDigm's products are grouped into fifteen
major product lines, each of which is profitable and is operated as a
semiautonomous business unit.
Much of TransDigm's recent success has been due to its identification and
development of new products for sale in the commercial aftermarket. TransDigm
works closely with customers to identify their unmet needs, such as a component
that fails to meet performance expectations or that requires excessive
maintenance. TransDigm then utilizes its engineering and design capabilities to
develop a prototype for a component that increases value of the product to the
customer. After rigorous testing requirements have been fulfilled and TransDigm
has obtained necessary regulatory approvals, the product is made available for
sale in the aftermarket and to OEMs.
ADELWIGGINS - AdelWiggins generated 29% of TransDigm's sales for fiscal 2000,
which represents five of TransDigm's fifteen major product lines: (A) flexible
and rigid tube connectors, (B) special connectors, (C) Adel clamps, (D) Wiggins
service systems and (E) heaters and hoses. Tube connectors are fluid line
connectors that provide leak tight joints and are found in flexible fluid
systems on most aircraft platforms including fuel, water, waste and
environmental systems. Special connectors are connectors designed to allow
breaking and reconnecting of fluid lines under pressure and are found in quick
disconnect applications including refueling and other fluid management systems
for military, space and rocket launch applications and in frangible connectors
for large commercial transports. Adel clamps include cushioned clamps,
engineered elastomers, bare metal clamps, clamp shells, block clamps and quick
release clamps used to support fuel, hydraulic, fluid and electric lines and are
found in a broad variety of clamps located throughout the airplane, including in
engines to address high temperature and high vibration requirements. Wiggins
service systems include proprietary refueling nozzles and systems, vents,
receivers and quick disconnects and are found in mine refueling equipment and
military applications such as tanks and armored vehicles that require high flow
capabilities and universal compatibility. Heaters and hoses consists of
specialized hoses and heaters, including blanket and ribbon heaters, heater
cuffs, heated nipples and gaskets and heated tanks throughout the aircraft and
are designed to prevent freezing of fluids such as potable and non-potable water
and waste and to provide heat for hot water service applications.
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AdelWiggins designs its products specifically to meet the engineering
requirements of its customers, focusing on aspects such as: reduced-profile or
low-profile geometry, broad ranges of high-temperature service, ease of
installation and, where possible, utilization of advanced materials to maximize
the strength-to-weight ratios of its components. These factors are critical to
both OEMs and commercial airlines given their emphasis on reducing both
acquisition and operating costs. In addition, TransDigm believes AdelWiggins'
products have a reputation for long service lives and extremely high reliability
in stressful operating environments.
Approximately 60% of AdelWiggins' products are proprietary products designed to
meet specific customer needs. The remaining 40% are industry standard designs.
Roughly 55% of AdelWiggins' products are sole sourced, which is advantageous to
TransDigm because it creates significant switching costs associated with the
development and qualification of alternative engineered solutions. This sole
sourced status has contributed to AdelWiggins achieving aftermarket sales of 27%
of its net sales in fiscal 2000. See "Business-Customers."
AEROCONTROLEX - AeroControlex generated 30% of TransDigm's sales for fiscal
2000, which represents three of TransDigm's fifteen major product lines: (A)
mechanical controls, (B) pumps and (C) valves and quick disconnects. Mechanical
controls include electromechanical control systems, sliding and ball bearing
control cables and gearboxes which are found in the lavatory drain, throttle
control, engine feedback, landing gear release and in ejection seats and fuel
and air systems. Pumps primarily include gear pumps, which are found in
hydraulic and fuel systems applications. Valves and quick disconnects include
fuel and air system valves, compressors and quick disconnects which are found in
air conditioning packages and fuel, radar and potable water systems.
AeroControlex designs, manufactures and sells pumps, compressors, valves,
couplings and mechanical controls primarily for the commercial and military
aircraft markets. AeroControlex has developed a reputation for providing
high-quality, reliable products consistently delivered on time. AeroControlex
works closely with customers to leverage its engineering expertise to create
technical solutions to customer-specific problems. About 95% of AeroControlex
products are proprietary and over 90% are sold on a sole-source basis, which is
advantageous to TransDigm because its creates significant switching costs
associated with the development and qualification of alternative engineered
solutions. This sole sourced status has contributed to AeroControlex achieving
aftermarket sales of 72% of its net sales in fiscal 2000. See
"Business-Customers."
MARATHON - Marathon and its wholly-owned subsidiary, Christie Electric Corp.
acquired in March 2000, generated 15% of TransDigm's sales for fiscal 2000,
which represents three of TransDigm's fifteen major product lines: (A) sealed
cell and vented cell nickel-cadmium batteries, (B) static inverters, and (C)
battery charges and industrial power supplies. Vented cell nickel-cadmium
batteries and sealed cell batteries are used for engine starting and emergency
power aboard various aircraft while static inverters convert DC-AC or DC-DC for
use in applications such as flight instrumentation and communication. Christie's
products include ground based battery charging and power conditioning equipment
for both main aircraft batteries and battery pack products. Approximately 50% of
Marathon's products have achieved sole sourcing status with its customers.
Marathon is one of the world's leading manufacturers of vented cell nickel-
cadmium batteries, which require frequent maintenance, as individual cells
within a battery are replaced throughout the life of the battery. Marathon,
which manufactures and sells both entire batteries and individual cells,
realizes replacement revenue in the aftermarket throughout the life of the
battery as a result of its position as a sole source supplier of products that
accounted for over 50% of its sales. Over 95% of Marathon's sales are
proprietary, the status of which has contributed to Marathon achieving
aftermarket sales of 70% of its net sales in fiscal 2000. Vented cell batteries
are marketed under the Marathon(TM), SuperPower(TM) and Micro Maintenance(TM)
brand names.
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ADAMS RITE AEROSPACE - Adams Rite Aerospace generated 26% of TransDigm's sales
for fiscal 2000, which represents four of TransDigm's fifteen major product
lines: (A) mechanical hardware, (B) fluid control products, (C)
electromechanical control products and (D) oxygen systems related products.
Mechanical hardware include hardware installed inside the aircraft, such as
overhead storage bin latches, lavatory indicator and door latches, seat control
cables and decompression latches, and hardware installed outside of the
aircraft, such as door bolting systems. Fluid control products include various
aircraft water system components, such as spigots, soap dispensers and water
shut-off valves as well as entire self-contained water systems.
Electromechanical control products include throttle quadrants, control wheels,
electric strikes, speed brake controls and a variety of handle grips. Oxygen
systems related products include oxygen cylinders, masks, reducers and control
panels. Adams Rite Aerospace achieved aftermarket sales of 50% of its net sales
for the period ended September 30, 2000. See "Business-Customers."
SALES AND MARKETING
Consistent with TransDigm's overall strategy, TransDigm's sales and marketing
organization is structured to understand and anticipate the needs of customers
in order to continually develop a stream of technical solutions that generate
significant value. In particular, TransDigm focuses on the high-margin,
repeatable aftermarket segment.
TransDigm has structured AdelWiggins', AeroControlex's, Adams Rite Aerospace's,
and Marathon's sales efforts along their collective fifteen major product lines,
assigning a Product Line Manager to each line. The Product Line Managers are
expected to grow the sales and profitability of their product line faster than
the served market and to achieve the targeted annual level of bookings, sales,
new business and profitability for each product. Assisting the Product Line
Managers are Account Managers and Sales Engineers who are responsible for
covering major OEM and airline accounts. Account Managers and Sales Engineers
are expected to be familiar with the personnel, organization and needs of
specific customers, for achieving total bookings and new business goals at each
account, and, in conjunction with the Product Line Managers, for determining
when additional resources are required at customer locations. All of TransDigm's
sales personnel are compensated in part on their bookings and sales and ability
to identify and convert new business opportunities.
Though the majority are employees, the Account Manager function may be performed
by independent representatives depending on the specific customer, product and
geographic location. TransDigm also uses a limited number of distributors to
provide logistical support as well as primary customer contact with certain
smaller accounts. TransDigm's largest distributor is Aviall, which provides
logistic services to the commercial airlines.
BACKLOG
Management believes that sales order backlog (i.e. orders for products that have
not yet been shipped) is a useful indicator of future sales. As of September 30,
2000, the Company estimated its sales order backlog at $75.1 million compared to
an estimated $62.5 million as of September 30, 1999. The majority of the
purchase orders outstanding as of September 30, 2000 are scheduled for delivery
within the next twelve months. Purchase orders are generally subject to
cancellation by the customer prior to shipment. The level of unfilled purchase
orders at any given date during the year will be materially affected by the
timing of the Company's receipt of purchase orders and the speed with which
those orders are filled. Accordingly, the Company's backlog as of September 30,
2000 may not necessarily represent the actual amount of shipments or sales for
any future period.
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FOREIGN OPERATIONS
The Company manufactures all of its products in the United States. However, a
portion of the Company's current sales is conducted abroad. These sales are
subject to numerous additional risks, including the impact of foreign government
regulations, currency fluctuations, political uncertainties and differences in
business practices. There can be no assurance that foreign governments will not
adopt regulations or take other action that would have a direct or indirect
adverse impact on the business or market opportunities of the Company within
such governments' countries. Furthermore, there can be no assurance that the
political, cultural and economic climate outside the United States will be
favorable to the Company's operations and growth strategy.
MANUFACTURING AND ENGINEERING
TransDigm maintains four manufacturing facilities. Each facility serves its
respective operating group and comprises manufacturing, distribution and
engineering as well as administrative functions, including management, sales and
finance. The AdelWiggins, AeroControlex, Marathon and Adams Rite Aerospace
facilities encompass approximately 105,000, 44,000, 150,000 and 50,000 square
feet of manufacturing space in Los Angeles, California, Cleveland, Ohio, Waco,
Texas and Fullerton, California, respectively. In the last several years,
management has taken a number of steps to improve productivity and reduce costs,
including consolidating operations, developing improved control systems that
allow for accurate product line profit and loss accounting, investing in
equipment and tooling, installing modern information systems and implementing a
broad-based employee training program. Management believes that TransDigm's
manufacturing systems and equipment are critical competitive factors that permit
it to meet the rigorous tolerances and cost sensitive price structure of
aircraft customers. TransDigm focuses its manufacturing activities by product
line, alternating its equipment among designs as demand requires.
Each of TransDigm's operating groups attempts to differentiate itself from its
competitors by producing highly engineered products at a low cost. TransDigm's
proprietary products are designed by its engineering staff and intended to serve
an unmet need in the aircraft component industry, particularly through its new
product initiatives. See "Business-Products." These proprietary designs must
withstand the extraordinary conditions and stresses that will be endured by
products during use and meet the rigorous demands of TransDigm's customers'
tolerance and quality requirements.
TransDigm uses sophisticated equipment and procedures to ensure the quality of
its products and to comply with military specifications and Federal Aviation
Administration ("FAA") and OEM certification requirements. TransDigm performs a
variety of testing procedures, including testing under different temperature,
humidity and altitude levels, shock and vibration testing and X-ray fluorescent
measurement. These procedures, together with other customer approved techniques
for document, process and quality control, are used throughout TransDigm's
manufacturing facilities.
CUSTOMERS
TransDigm's customers include: (A) commercial airlines, including national and
regional airlines, particularly for aftermarket MRO components, (B) large
commercial transport and regional and business aircraft OEMs, (C) various
agencies of the United States government, including the United States military,
and (D) various other industrial customers. For the year ended September 30,
2000, two customers represented approximately 10% and 9%, respectively, of the
Company's net sales. Two customers represented approximately 15% and 14%,
respectively, of the Company's net sales during the year ended September 30,
1999, and two customers represented approximately 20% and 14% of the Company's
net sales for the year ended September 30, 1998.
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TransDigm has strong customer relationships with virtually all important large
commercial transport, general aviation and military OEMs. The demand for
TransDigm's aftermarket parts and services is related to TransDigm's extensive
installed base and to revenue passenger miles and, to a lesser extent, to
airline profitability and the size and age of the worldwide aircraft fleet. Some
of TransDigm's business is executed under long-term agreements with customers,
which encompass many products under a common agreement. TransDigm is also a
leading supplier of components used on United States' designed military
aircraft. TransDigm's products are used on a variety of fighter aircraft and
helicopters. Military aircraft using TransDigm's products include the Lockheed
F-15 and F- 16, the E2C (Hawkeye) and Blackhawk and Apache helicopters.
COMPETITION
TransDigm competes with a number of established companies, including divisions
of larger companies that have significantly greater financial, technological and
marketing resources than TransDigm. The niche markets within the aerospace
industry served by TransDigm are relatively fragmented with several competitors
for each of the products and services provided by AdelWiggins, AeroControlex and
Marathon. Due to the global nature of the commercial aircraft industry,
competition in these categories comes from both U.S. and foreign companies.
TransDigm knows of no single competitor, however, that provides the same range
of products and services as those provided by TransDigm. Competitors in
TransDigm's product lines range in size from divisions of large corporations to
small privately held entities, with only one or two components in their entire
product line. TransDigm believes that its ability to compete depends on high
product performance, short lead-time and timely delivery, competitive price, and
superior customer service and support. There can be no assurance that TransDigm
will be able to compete successfully with respect to these or other factors.
GOVERNMENTAL REGULATION
The commercial aircraft component industry is highly regulated by both the FAA
in the United States and by the Joint Aviation Authorities in Europe, while the
military aircraft component industry is governed by military quality
specifications. TransDigm, and the components it manufactures, are required to
be certified by one or more of these entities, and, in some cases, by individual
OEMs in order to engineer and service parts and components used in specific
aircraft models. If material authorizations or approvals were revoked or
suspended, the operations of TransDigm would be adversely affected. In the
future, new and more stringent government regulations may be adopted, or
industry oversight may be heightened, which may have an adverse impact on
TransDigm.
TransDigm must also satisfy the requirements of its customers, including OEMs
and airlines that are subject to FAA regulations, and provide these customers
with products and services that comply with the government regulations
applicable to commercial flight operations. In addition, the FAA requires that
various maintenance routines be performed on aircraft components, and TransDigm
currently satisfies or exceeds these maintenance standards in its repair and
overhaul services. Several of TransDigm's operating divisions include
FAA-approved repair stations.
TransDigm's operations are also subject to a variety of worker and community
safety laws. The Occupational Health and Safety Act ("OHSA") mandates general
requirements for safe workplaces for all employees. In addition, OHSA provides
special procedures and measures for the handling of certain hazardous and toxic
substances. TransDigm believes that its operations are in material compliance
with OHSA's health and safety requirements.
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RAW MATERIALS AND PATENTS
TransDigm requires the use of various raw materials, including titanium,
aluminum, nickel powder, nickel screen, stainless steel and cadmium, in its
manufacturing processes. The availability and prices of such raw materials may
fluctuate and price increases in these supplies may not be able to be recovered.
TransDigm also purchases a variety of manufactured component parts from various
suppliers. TransDigm is concentrating its orders, however, among fewer suppliers
in order to strengthen its supplier relationships. Raw materials and component
parts are generally available from multiple suppliers at competitive prices.
However, any delay in TransDigm's ability to obtain necessary raw materials and
component parts may affect its ability to meet customer production needs.
TransDigm has various trade secrets, proprietary information, trademarks, trade
names, patents, copyrights and other intellectual property rights, which
TransDigm believes, in the aggregate but not individually, are important to its
business.
ENVIRONMENTAL MATTERS
TransDigm's operations and current and/or former facilities are subject to
federal, state and local environmental laws and to regulation by government
agencies, including the Environmental Protection Agency. Among other matters,
these regulatory authorities impose requirements that regulate the emission,
discharge, generation, management, transportation and disposal of hazardous
materials and pollutants, govern response actions to hazardous materials which
may be or have been released to the environment, and require TransDigm to obtain
and maintain permits in connection with its operations. The extensive regulatory
framework imposes significant compliance burdens and risks on TransDigm.
Although management believes that TransDigm's operations and its facilities are
in compliance in all material respects with applicable environmental laws, there
can be no assurance that future changes in such laws, regulations or
interpretations thereof or the nature of TransDigm's operations will not require
TransDigm to make significant additional expenditures to ensure compliance in
the future. According to some environmental laws, a current or previous owner or
operator of real property may be liable for the costs of investigations, removal
or remediation of hazardous materials at such property. Those laws typically
impose liability whether or not the owner or operator knew of, or was
responsible for, the presence of such hazardous materials. Persons who arrange,
or are deemed to have arranged, for disposal or treatment of hazardous materials
also may be liable for the costs of investigation, removal or remediation of
those substances at the disposal or treatment site, regardless of whether the
affected site is owned or operated by that person. Because TransDigm owns and/or
operates a number of facilities, and because TransDigm arranges for the disposal
of hazardous materials at many disposal sites, TransDigm may incur costs for
investigation, removal and remediation, as well as capital costs associated with
compliance. Although those environmental costs have not been material in the
past and are not expected to be material in the future, there can be no
assurance that changes in environmental laws or unexpected investigations and
clean-up costs will not be material. TransDigm does not currently contemplate
material capital expenditures for environmental compliance remediation for
fiscal 2001 or fiscal 2002.
The soil and groundwater beneath TransDigm's facility in Waco, Texas have been
impacted by releases of hazardous materials. Because the majority of the
contaminants identified to date are presently below action levels prescribed by
the Texas Natural Resources Conservation Commission, TransDigm does not believe
the condition of the soil and groundwater at the Waco facility will require
incurrence of material capital expenditures; however, there can be no assurance
that additional contamination will not be discovered or that the remediation
required by the Texas Natural Resources Conservation Commission will not be
material to the financial condition, results of operations or cash flows of
TransDigm.
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EMPLOYEES
As of September 30, 2000, TransDigm had approximately 720 full-time employees
and 37 temporary employees. Approximately 16% of TransDigm employees were
represented by the United Steelworkers Union, and approximately 10% were
represented by the United Automobile, Aerospace and Agricultural Implement
Workers of America. Collective bargaining agreements between TransDigm and these
labor unions expire on April 2002 and November 2004, respectively. TransDigm
considers its relationship with its employees generally to be satisfactory.
ITEM 2. PROPERTIES
TransDigm owns and operates a 130,000 square foot facility in Los Angeles,
California, a 63,000 square foot facility in Cleveland, Ohio and a 219,000
square foot facility in Waco, Texas. In addition, TransDigm leases and operates
a 100,000 square foot facility in Fullerton, California and approximately 17,000
square feet in Richmond Heights, Ohio, which is also TransDigm's headquarters.
TransDigm also leases certain of its other non-material facilities. Management
believes that its machinery, plants and offices are in satisfactory operating
condition, and, will have sufficient capacity to meet foreseeable future needs
without incurring significant additional capital expenditures.
ITEM 3. LEGAL PROCEEDINGS
During the ordinary course of business, TransDigm is from time to time
threatened with, or may become a party to, legal actions and other proceedings.
While TransDigm is currently involved in some legal proceedings, management
believes the results of these proceedings will not have a material effect on the
results of operations of TransDigm, in part due to indemnification arrangements.
TransDigm believes that its potential exposure to those legal actions is
adequately covered by its aviation product and general liability insurance.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of the fiscal year covered by
this report to a vote of our security holders.
-8-
<PAGE> 11
PART II
ITEM 5. MARKET FOR OUR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
There is no established public market for the common stock of Holdings.
HOLDERS
As of September 30, 2000, there were approximately 25 record holders of
Holdings' common stock. Holdings is the sole shareholder of TransDigm's common
stock.
DIVIDENDS
There have been no cash dividends declared on any class of common equity for the
two most recent fiscal years. See restrictions on Holdings' ability to pay
dividends and TransDigm's ability to transfer funds to Holdings in Note 9 to our
consolidated financial statements appearing elsewhere in this Report.
ITEM 6. SELECTED FINANCIAL DATA
SELECTED HISTORICAL FINANCIAL AND OTHER DATA OF TRANSDIGM HOLDING COMPANY
The following table sets forth selected historical consolidated financial and
other data of Holdings for each of the fiscal years ended September 30, 1996
through 2000 which have been derived from Holdings' audited consolidated
financial statements for those years.
The Company acquired Marathon Power Technologies Company on August 8, 1997, ZMP,
Inc. and its wholly-owned subsidiary, Adams Rite Aerospace, on April 23, 1999
and Christie Electric Corp. on March 8, 2000. All of the acquisitions were
accounted for as purchases. The results of operations of Marathon, ZMP, Adams
Rite Aerospace, and Christie Electric Corp. are included in Holdings
consolidated financial statements from the date of each of the acquisitions.
The information presented below should be read together with the "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
section and the consolidated financial statements and the notes thereto included
elsewhere herein.
-9-
<PAGE> 12
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------------
1996 1997 1998 1999 2000
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales $ 62,897 $ 78,159 $ 110,868 $ 130,818 $ 150,457
Gross profit 21,023 28,856 51,473 60,867 68,264
Selling and administrative 6,459 7,561 10,473 13,620 16,799
Amortization of intangibles 3,838 2,089 2,438 2,063 1,843
Research and development 836 1,116 1,724 2,139 2,308
Merger expenses -- -- -- 40,012 --
--------- --------- --------- --------- ---------
Operating income (1) 9,890 18,090 36,838 3,033 47,314
Interest expense, net (2) 4,510 3,463 3,175 22,722 28,563
Warrant put value adjustment 2,160 4,800 6,540 -- --
--------- --------- --------- --------- ---------
Pre-tax income (loss) 3,220 9,827 27,123 (19,689) 18,751
Provision (benefit) for income taxes 2,045 5,193 12,986 (2,772) 7,972
--------- --------- --------- --------- ---------
Income (loss) before extraordinary item 1,175 4,634 14,137 (16,917) 10,779
Extraordinary item -- (1,462) -- -- --
--------- --------- --------- --------- ---------
Net income (loss) $ 1,175 $ 3,172 $ 14,137 $ (16,917) $ 10,779
========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------------
1996 1997 1998 1999 2000
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
Cash flows provided by (used in):
Operating activities $ 18,695 $ 17,468 $ 23,455 $ (16,219) $ 16,305
Investing activities (2,494) (43,160) (4,295) 44,599 (5,120)
Financing activities (13,475) 28,153 (5,071) 44,061 (9,605)
EBITDA (3) 17,213 23,856 43,305 9,407 53,826
EBITDA, As Defined (4) 17,213 24,522 43,547 50,562 54,011
EBITDA, As Defined, margin 27.4 % 31.4 % 39.3 % 38.7 % 35.9 %
Depreciation and amortization $ 7,323 $ 5,766 $ 6,467 $ 6,374 $ 6,512
Capital expenditures 2,494 2,285 5,061 3,043 4,368
Ratio of earnings to fixed charges (5) 1.7x 3.7x 9.0x -- 1.6x
Ratio of EBITDA, As Defined,
to interest expense 3.8x 7.1x 13.7x 2.2x 1.9x
Ratio of EBITDA, As Defined,
to interest expense, As Defined (6) 3.8x 7.1x 13.7x 2.4x 2.1x
Ratio of total debt to EBITDA,
As Defined 1.1x 2.0x 1.0x 5.3x 4.8x
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital $ 16,300 $ 16,520 $ 16,654 $ 35,531 $ 39,897
Total assets 57,666 101,969 115,785 164,417 168,833
Long-term debt, including
current portion 19,124 50,000 45,000 266,557 261,601
Total stockholders' equity (deficiency) 19,670 22,613 36,427 (127,622) (118,409)
-----------
</TABLE>
-10-
<PAGE> 13
(1) Operating income includes the effect of a non-cash charge of $666 in
fiscal 1997 and $242 in fiscal 1998 due to a purchase accounting
adjustment to inventory associated with the acquisition of Marathon, a
non-cash charge of $1,143 in fiscal 1999 due to a purchase accounting
adjustment to inventory associated with the acquisition of Adams Rite
Aerospace, and a non-cash charge of $185 in fiscal 2000 due to a
purchase accounting adjustment to inventory associated with the
acquisition of Christie.
(2) All of the interest expense reported for fiscal 1996 through 1998
represents interest expense of TransDigm. Holdings had no interest
expense prior to the Recapitalization discussed in Note 1 to the
consolidated financial statements of Holdings included elsewhere in
this Report. After the Recapitalization, Holdings incurred $2,600 and
$2,000 of interest expense during fiscal 2000 and 1999, respectively,
relating to the Holdings PIK Notes. Holdings has no other interest
expense. TransDigm is not an obligor or a guarantor under the Holdings
PIK Notes.
(3) EBITDA represents earnings before interest, taxes, depreciation,
amortization, warrant put value adjustment and extraordinary items.
EBITDA is presented because management believes it is frequently used
by securities analysts, investors and other interested parties in the
evaluation of companies in Holdings' industry. However, other companies
in Holdings' industry may calculate EBITDA differently than Holdings
does. EBITDA is not a measurement of financial performance under
accounting principles generally accepted in the United States of
America and should not be considered as an alternative to cash flow
from operating activities, as a measure of liquidity or an alternative
to net income as indicators of Holdings' operating performance or any
other measures of performance derived in accordance with accounting
principles generally accepted in the United States of America. See
Holdings' consolidated statements of cash flows included in Holdings'
consolidated financial statements included elsewhere in this Report.
(4) EBITDA, As Defined, is calculated as follows:
<TABLE>
<CAPTION>
1996 1997 1998 1999 2000
<S> <C> <C> <C> <C> <C>
EBITDA $17,213 $23,856 $43,305 $ 9,407 $53,826
Adjustments:
Merger Expenses -- -- -- 40,012 --
Inventory Purchase Accounting
Adjustments -- 666 242 1,143 185
------- ------- ------- ------- -------
EBITDA, As defined $17,213 $24,522 $43,547 $50,562 $54,011
======= ======= ======= ======= =======
</TABLE>
EBITDA, As Defined, is presented herein to provide additional
information with respect to the ability of Holdings to satisfy its debt
service, capital expenditure and working capital requirements and
because certain types of covenants in TransDigm's and Holdings'
borrowing arrangements are tied to similar measures. While EBITDA-based
measures are frequently used as measures of operations and the ability
to meet debt service requirements, they are not necessarily comparable
to other similarly titled captions of other companies due to
differences in methods of calculation.
(5) For purposes of computing the ratio of earnings to fixed charges,
earnings consist of earnings before income taxes plus fixed charges.
Fixed charges consist of interest expense, amortization of debt expense
and the portion (approximately 33%) of rental expense that management
believes is representative of the interest component of rental expense.
Earnings were insufficient to cover fixed charges by $20 for fiscal
1999.
(6) Interest expense, As Defined, represents the Company's consolidated
interest expense exclusive of the non-cash interest expense recognized
for the Holdings PIK Notes issued in connection with the
Recapitalization. This ratio is provided because a debt covenant in the
Company's credit facility is based on the same measure.
-11-
<PAGE> 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company is a leading supplier of highly engineered aircraft components for
use on nearly all commercial and military aircraft. The Company sells its
products to commercial airlines and aircraft maintenance facilities in the
aftermarket, to most original equipment manufacturers ("OEMs") of aircraft and
to various agencies of the United States government. Sales of the Company's
products are made directly to these organizations as well as through U.S. and
international distributors who maintain inventories throughout the world of
products purchased from the Company and others.
In connection with the Recapitalization discussed in Note 1 to the consolidated
financial statements, including the financing and the application of the
proceeds thereof, the Company incurred certain nonrecurring costs and charges,
consisting primarily of compensation costs for management bonuses and stock
options that were canceled in conjunction with the Recapitalization, the cost of
terminating a financial advisory services agreement with an affiliate of one of
the Company's stockholders, the write-off of deferred financing costs, and
professional, advisory and financing fees. A one-time charge of approximately
$40 million ($29 million after tax) was recorded during the year ended September
30, 1999. Because the cash costs included in this charge were funded principally
through the proceeds of the subordinated notes and borrowings under the new
Senior Credit Facility, this cost did not materially impact the Company's
liquidity, ongoing operations or market position. For a discussion of the
consequences of the incurrence of indebtedness in connection with the
Recapitalization, see the heading "Liquidity and Capital Resources" in this
section.
On April 23, 1999, the Company acquired ZMP, the corporate parent of Adams Rite
Aerospace, under the terms of an agreement and plan of reorganization, dated
March 31, 1999. The purchase price for the acquisition of ZMP was $41 million,
subject to post-closing purchase price adjustments. The acquisition of ZMP and
the related expenses were funded through $36 million of additional borrowings
under the Company's Senior Credit Facility and the use of $5 million of the
Company's cash balances. During the year ended September 30, 2000, the Company
received a purchase price adjustment of $1.6 million, net of expenses.
On March 8, 2000, Marathon acquired all of the issued and outstanding common
shares of Christie Electric Corp. ("Christie") for $2.4 million. Christie was a
well established manufacturer of battery charging and power conditioning
equipment. The product lines are a complement to Marathon's business. Christie's
operating facility was closed and its operations were moved to Marathon during
the fourth quarter of fiscal 2000.
The following is management's discussion and analysis of certain significant
factors that have affected the Company's financial position and operating
results during the periods included in the accompanying consolidated financial
statements. The Company's fiscal year ends on September 30.
-12-
<PAGE> 15
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain operating
data of the Company as a percentage of net sales.
<TABLE>
<CAPTION>
YEARS ENDED
-----------------------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1998 1999 2000
<S> <C> <C> <C>
Net sales 100 % 100 % 100 %
--- --- ---
Gross profit 46 47 45
Selling and administrative 9 10 11
Amortization of intangibles 2 2 1
Research and development 2 2 2
Merger expenses -- 31 --
--- --- ---
Operating income 33 2 31
Interest expense - net 2 17 19
Warrant put value adjustment 6 -- --
Provision (benefit) for income taxes 12 (2) 5
--- --- ---
Net income (loss) 13 % (13)% 7 %
=== === ===
</TABLE>
CHANGES IN RESULTS OF OPERATIONS
FISCAL YEAR ENDED SEPTEMBER 30, 2000 COMPARED WITH FISCAL YEAR ENDED SEPTEMBER
30, 1999.
- NET SALES. Net sales increased by $19.7 million, or 15.1%, to $150.5
million for the year ended September 30, 2000 from $130.8 million for the
year ended September 30, 1999, principally due to the acquisition of ZMP in
April 1999 partially offset by declines in the net sales of AeroControlex
and AdelWiggins due to an industry-wide spare parts inventory correction.
- GROSS PROFIT. Gross profit (net sales less cost of sales) increased by $7.4
million, or 12.2%, to $68.3 million for the year ended September 30, 2000
from $60.9 million for the year ended September 30, 1999. This increase is
attributable to higher sales discussed above. Gross profit as a percentage
of net sales was 45% for the year ended September 30, 2000 and 47% for the
year ended September 30, 1999. This change was the result of the
acquisition of ZMP in April 1999, which has a slightly lower gross profit
margin than the Company as a whole, as well as the decline in sales at
AeroControlex and AdelWiggins discussed previously.
- SELLING AND ADMINISTRATIVE. Selling and administrative expenses increased
by $3.2 million, or 24%, to $16.8 million for the year ended September 30,
2000 from $13.6 million for the year ended September 30, 1999. This
increase principally resulted from the acquisition of ZMP and additional
new business initiatives. Selling and administrative expenses as a
percentage of net sales increased slightly from 10% for the year ended
September 30, 1999 to 11% for the year ended September 30, 2000.
- AMORTIZATION OF INTANGIBLES. Amortization of intangibles decreased by $.3
million, or 14.3%, to $1.8 million for the year ended September 30, 2000
from $2.1 million for the year ended September 30, 1999. This decrease is
the result of certain intangibles being fully amortized.
- RESEARCH AND DEVELOPMENT. Research and development expense increased $.2
million, or 9.5%, to $2.3 million for the year ended September 30, 2000
compared to $2.1 million for the year ended September 30, 1999, principally
due to the acquisition of ZMP in April 1999. Research and development
expense as a percentage of net sales, was 2% for the years ended September
30, 2000 and September 30, 1999.
-13-
<PAGE> 16
- MERGER EXPENSES. Merger costs totaling $40 million were incurred during
fiscal 1999 in connection with the Merger and Recapitalization (see Note 1
to the consolidated financial statements of Holdings included elsewhere in
this Report). The nature of the merger-related charges is detailed below:
(IN THOUSANDS)
Compensation expense on stock options $ 19,437
Management bonuses 6,450
Termination of financial advisory services agreement 5,850
Professional fees and expenses 7,201
Write-off of deferred financing costs 552
Other 522
--------
$ 40,012
========
- OPERATING INCOME. Operating income increased $44.3 million from $3.0
million for the year ended September 30, 1999 to $47.3 million for the year
ended September 30, 2000. Operating income, excluding merger expenses,
increased $4.3 million, or 9.9%. This increase is primarily attributable to
the acquisition of ZMP.
- INTEREST EXPENSE. Interest expense increased by $5.9 million, or 26%, to
$28.6 million for the year ended September 30, 2000 from $22.7 million for
the year ended September 30, 1999. This increase results from the increase
in the average level of outstanding borrowings in connection with the
Recapitalization and acquisition of ZMP and an increase in interest rates.
- INCOME TAXES. Income tax expense (benefit) as a percentage of income (loss)
before income taxes was 42.5% for fiscal 2000 and (14.1%) for fiscal 1999.
The tax provision recorded in fiscal 2000 was significantly impacted by
non-deductible goodwill amortization, particularly the amortization of the
goodwill recognized in conjunction with the acquisition of ZMP. The tax
benefit recorded for fiscal 1999 was significantly impacted by the
non-deductible expenses incurred in connection with the Recapitalization.
- NET INCOME (LOSS). The Company earned $10.8 million for the year ended
September 30, 2000 compared to a net loss of $16.9 million for the year
ended September 30, 1999 primarily as a result of the factors referred to
above.
FISCAL YEAR ENDED SEPTEMBER 30, 1999 COMPARED WITH FISCAL YEAR ENDED SEPTEMBER
30, 1998.
- NET SALES. Net sales increased by $19.9 million, or 17.9%, to $130.8
million for the year ended September 30, 1999 from $110.9 million for the
year ended September 30, 1998, principally due to the acquisition of ZMP
and growth in new business programs.
- GROSS PROFIT. Gross profit (net sales less cost of sales) increased by $9.4
million, or 18.3%, to $60.9 million for the year ended September 30, 1999
from $51.5 million for the year ended September 30, 1998. Approximately
$4.8 million of this increase is attributable to the acquisition of ZMP and
the remaining $4.6 million resulted from improved profitability in the core
businesses derived from new business and productivity efforts. The $4.8
million of ZMP gross profits recorded during the year ended September 30,
1999 are net of a $1.1 million charge relating to the write-up of Adams
Rite Aerospace's inventory in place at the time of the acquisition. Gross
profit as a percentage of net sales was 47% for the year ended September
30, 1999 and 46% for the year ended September 30, 1998.
- SELLING AND ADMINISTRATIVE. Selling and administrative expenses increased
by $3.1 million, or 29.5%, to $13.6 million for the year ended September
30, 1999 from $10.5 million for the year ended September 30, 1998. This
increase principally resulted from the acquisition of ZMP discussed
previously and additional new business initiatives. Selling and
administrative expenses as a percentage of net sales increased slightly
from 9% for the year ended September 30, 1998 to 10% for the year ended
September 30, 1999.
-14-
<PAGE> 17
- AMORTIZATION OF INTANGIBLES. Amortization of intangibles decreased by $.3
million, or 12.5%, to $2.1 million for the year ended September 30, 1999
from $2.4 million for the year ended September 30, 1998 due to the
amortization of intangible assets recognized in connection with the
acquisition of ZMP.
- RESEARCH AND DEVELOPMENT. Research and development expense increased $.4
million, or 24%, to $2.1 million for the year ended September 30, 1999 from
$1.7 million for the year ended September 30, 1998. This increase was
primarily attributable to continued new product development. Research and
development expense, as a percentage of net sales, was 2% for the years
ended September 30, 1998 and September 30, 1999.
- MERGER EXPENSES. Merger costs totaling $40 million were incurred during
fiscal 1999 in connection with the Merger and Recapitalization (see Note 1
to the consolidated financial statements of Holdings included elsewhere in
this Report). The nature of the merger-related charges are detailed in the
Changes in Results of Operations - Fiscal Year Ended September 30, 2000
Compared With Fiscal Year Ended September 30, 1999 section of this report.
- OPERATING INCOME. Operating income decreased from $36.8 million for the
year ended September 30, 1998 to $3.0 million for the year ended September
30, 1999. Operating income decreased by $33.8 million, or 92%. This
decrease was primarily attributable to the Merger and Recapitalization. As
a percentage of net sales, operating income declined from 33% for the year
ended September 30, 1998 to 2% for the year ended September 30, 1999.
- INTEREST EXPENSE. Interest expense increased by $19.5 million to $22.7
million for the year ended September 30, 1999 from $3.2 million for the
year ended September 30, 1998 as a result of the increase in the average
level of outstanding borrowings in connection with the Recapitalization and
acquisition of ZMP.
- INCOME TAXES. Income tax expense (benefit) as a percentage of income (loss)
before income taxes and the non-deductible warrant put value adjustment was
(14%) for fiscal 1999 and 38.6% for fiscal 1998. The tax benefit recorded
for fiscal 1999 was significantly impacted by the non-deductible expenses
incurred in connection with the Recapitalization.
- NET INCOME (LOSS). The Company incurred a net loss of $16.9 million for the
year ended September 30, 1999 compared to net income of $14.1 million for
the year ended September 30, 1998 primarily as a result of the factors
referred to above.
INFLATION
Many of the Company's raw materials and operating expenses are sensitive to the
effects of inflation, which could result in changing operating costs. The
effects of inflation on the Company's businesses during the years ended
September 30, 2000 and September 30, 1999 were not significant.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated approximately $16.3 million cash from operating activities
during the year ended September 30, 2000 compared to approximately $16.2 million
used during the year ended September 30, 1999. The change in operating cash
flows is due to the one-time merger expenses of $40 million in fiscal 1999 and
improved operating results in fiscal 2000, partially offset by an increase in
interest expense in fiscal 2000 due to the recapitalization and an increase in
interest rates.
Cash used in investing activities was approximately $5.1 million during the year
ended September 30, 2000 compared to approximately $44.6 million used during the
year ended September 30, 1999. The change in investing cash flows is primarily
due to the use of $41.6 million of cash in 1999 for the acquisition of Adams
Rite Aerospace. Approximately $2.4 million of cash was used in 2000 for the
acquisition of Christie.
-15-
<PAGE> 18
Cash used in financing activities during the year ended September 30, 2000 was
approximately $9.6 million compared to approximately $44.1 million provided
during the year ended September 30, 1999. This change in financing cash flows
was due to the incurrence and refinancing of substantial indebtedness as a
result of the Recapitalization and the acquisition of ZMP.
The interest rate for the credit facility is, at TransDigm's option, either (A)
a floating rate equal to the Base Rate plus the Applicable Margin, as defined in
the credit facility, or (B) the Eurodollar Rate for fixed periods of one, two,
three, or six months, plus the Applicable Margin. The "Applicable Margin" means
the percentage per year equal to (1) in the case of Tranche A Facility and
Revolving Credit Facility, (A) bearing an interest rate determined by the Base
Rate, plus 2.25%, 2.00%, 1.75% or 1.50% depending on Holdings' ability to
achieve the respective debt coverage ratio specified in the credit facility, as
amended; and (B) bearing an interest rate determined by the Eurodollar Rate,
plus 3.25%, 3.00%, 2.75% or 2.50% depending on Holdings' ability to achieve the
respective debt coverage ratio specified in the credit facility, as amended; and
(2) in the case of Tranche B Facility, (A) bearing an interest rate determined
by the Base Rate, 2.50%; and (B) bearing an interest rate determined by the
Eurodollar Rate, 3.50%. The credit facility is subject to mandatory prepayment
with a defined percentage of net proceeds from certain asset sales, insurance
proceeds or other awards that are payable in connection with the loss,
destruction or condemnation of any assets, certain new debt and equity offerings
and 50% of excess cash flow (as defined in the credit facility) in excess of a
predetermined amount under the credit facility.
The subordinated notes bear interest at 10 3/8% and do not require principal
payments prior to maturity. The Revolving Credit Facility and the Tranche A
Facility will each mature on the six year anniversary of the initial borrowing
date and the Tranche B Facility will mature on the seven and a half year
anniversary of the initial borrowing date. The credit facility requires
TransDigm to amortize the outstanding indebtedness under each of the Tranche A
and the Tranche B Facilities, which commenced in 1999, and contains restrictive
covenants that will, among other things, limit the incurrence of additional
indebtedness, the payment of dividends, transactions with affiliates, asset
sales, acquisitions, mergers and consolidations, liens and encumbrances, and
prepayments of other indebtedness.
The Company's primary cash needs will consist of capital expenditures and debt
service. The Company incurs capital expenditures for the purpose of maintaining
and replacing existing equipment and facilities and, from time to time, for
facility expansion. Capital expenditures totaled approximately $4.4 million and
$3 million during fiscal 2000 and 1999, respectively.
The Company intends to pursue additional acquisitions that present opportunities
to realize significant synergies, operating expense economies or overhead cost
savings or to increase the Company's market position. The Company regularly
engages in discussions with respect to potential acquisitions and investments.
However, there are no binding agreements with respect to any material
acquisitions at this time, and there can be no assurance that we will be able to
reach an agreement with respect to any future acquisition. The Company's
acquisition strategy may require substantial capital, and no assurance can be
given that the Company will be able to raise any necessary funds on terms
acceptable to the Company or at all. If the Company incurs additional debt to
finance acquisitions, its total interest expense will increase.
The Company's ability to make scheduled payments of principal of, or to pay the
interest on, or to refinance, its indebtedness, including the subordinated
notes, or to fund planned capital expenditures and research and development,
will depend on its future performance, which, to a certain extent, is subject to
general economic, financial, competitive, legislative, regulatory and other
factors that are beyond its control. Based upon the current level of operations
and anticipated cost savings and revenue growth, management believes that cash
flow from operations and available cash, together with available borrowings
under the credit facility, will be adequate to meet the Company's future
liquidity needs for at least the next few years. The Company may, however, need
to refinance all or a portion of the principal of the subordinated notes at or
prior to maturity. There can be no assurance that the Company's business will
generate sufficient cash flow from operations and that anticipated revenue
growth and operating improvements will be sufficient to enable the Company to
service its indebtedness, including the subordinated notes, or to fund its other
liquidity needs. In addition, there can be no assurance that the Company will be
able to effect any such refinancing on commercially reasonable terms or at all.
-16-
<PAGE> 19
NEW ACCOUNTING STANDARD
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
establishes accounting and reporting standards for derivative instruments
embedded in other contracts (collectively referred to as derivatives) and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. If certain conditions are met, a derivative may
be specifically designated as (a) a hedge of the exposure to changes in the fair
value of a recognized asset or liability or an unrecognized firm commitment, (b)
a hedge of the exposure to variable cash flows of a forecasted transaction, or
(c) a hedge of the foreign currency exposure of a net investment in a foreign
operation, an unrecognized firm commitment, an available-for-sale security, or a
foreign-currency-denominated forecasted transaction. The Company will adopt this
standard during fiscal 2001. The implementation of this new accounting standard
will not have a material effect on the Company's reported financial condition or
results of operations.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
All of the Company's outstanding indebtedness at September 30, 1998 was repaid
in connection with the Merger and Recapitalization. At September 30, 2000, the
Company is subject to interest rate risk with respect to borrowings under its
credit facility as the interest rates on such borrowings vary with market
conditions and, thus, the amount of outstanding borrowings approximates the fair
value of the indebtedness. On a historical basis, the weighted average interest
rate on the $112.0 million of borrowings outstanding under the credit facility
at September 30, 2000 was 9.5%. The effect of a hypothetical one percentage
point decrease in interest rates would increase the estimated fair value of the
borrowings outstanding under the credit facility on September 30, 2000 by
approximately $2.7 million.
Also outstanding at September 30, 2000 was $125 million of Company indebtedness
in the form of subordinated notes and $24.6 million of Holdings PIK Notes. The
interest rates on both of these borrowings are fixed at 10 3/8% and 12% per
year, respectively. The fair value of the Company's Senior Subordinated Notes
approximated $106 million at September 30, 2000 based upon quoted market prices.
A determination of the fair value of the Holdings PIK Notes is not considered
practicable because they are held by a related party and are not publicly
traded. The effect of a hypothetical one percentage point decrease in interest
rates would increase the estimated fair value of the borrowings on September 30,
2000 by $4.3 million and $.6 million, respectively.
ADDITIONAL DISCLOSURE REQUIRED BY INDENTURE
Separate financial information of TransDigm is not presented since the Senior
Subordinated Notes are guaranteed by Holdings and all direct and indirect
subsidiaries of TransDigm and since Holdings has no operations or assets
separate from its investment in TransDigm. In addition, Holdings' only liability
consists of Holdings PIK Notes of $24.6 million at September 30, 2000 that bear
interest at 12% annually. Interest expense recognized on the Holdings PIK Notes
during the year ended September 30, 2000 was $2.6 million.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is submitted in a separate section of this report
following the signature page.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
There were no changes or disagreements with accountants on accounting and
financial disclosure.
-17-
<PAGE> 20
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning the directors and
executive officers of Holdings and the directors and executive officers of the
Company as of September 30, 2000:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Douglas W. Peacock 61 Chairman of the Board of Directors and Chief Executive Officer
W. Nicholas Howley 48 President, Chief Operating Officer and Director
Robert S. Henderson 44 President, AdelWiggins Group
Raymond F. Laubenthal 39 President, AeroControlex Group
John F. Leary 53 President, Adams Rite Aerospace, Inc.
Albert J. Rodriguez 40 President, Marathon Power Technologies Company
Gregory Rufus 44 Chief Financial Officer
Stephen Berger 61 Director
Muzzafar Mirza 42 Director
William Hopkins 37 Director
Thomas R. Wall, IV 42 Director
John W. Paxton 64 Director
</TABLE>
Mr. Peacock has been Chairman of the Board of Directors and Chief Executive
Officer of TransDigm since its inception in September 1993. He is also a
director of Microporous Products, L.P. Prior to joining TransDigm, Mr. Peacock
spent six years with IMO Industries Inc. as Executive Vice President of IMO'S
Instruments and Aerocomponents Group from 1991-1993, Executive Vice President of
Power Systems from 1989-1991, and managed IMO's turbomachinery business from
1987-1989. Prior to joining IMO, Mr. Peacock spent 15 years in various
managerial positions at Westinghouse Electric Corp. Mr. Peacock received a B.S.
degree in chemical engineering from Washington State University and a Ph.D. in
physical chemistry from the University of Illinois. Mr. Peacock holds an Airline
Transport Pilot Rating and routinely commands flights in TransDigm's corporate
aircraft.
Mr. Howley has been a Director of Holdings and President, Chief Operating
Officer and Director of TransDigm since the consummation of the
Recapitalization. Mr. Howley served as Executive Vice President of TransDigm and
President of the AeroControlex Group from TransDigm's inception in September
1993 to the date of the consummation of the Recapitalization. Prior to joining
TransDigm, Mr. Howley served as General Manager of IMO Industries Inc.
Aeroproducts Division, and Director of Finance for the 15 divisions of IMO's
Turbomachinery, Aerospace, and Power Transmission groups. Prior to joining IMO,
he held various executive positions at Lansdowne Steel/Lansco Corp., a
manufacturer of defense and oil drilling products, and the Engineering and
Construction Group of Raytheon Co. Mr. Howley received his B.S. in engineering
from Drexel University and an MBA from the Harvard University Graduate School of
Business.
Mr. Henderson became President of the AdelWiggins Group in September 1999. He
previously had served as President of Marathon Power Technologies Company since
April 1997. From November 1994 until April 1997, he served as Manager of
Operations for the AdelWiggins Group. From 1991 until 1994, Mr. Henderson served
as Operations Manager at RainBird Sprinkler. Mr. Henderson received his B.A. in
mathematics from Brown University and attended the Harvard University Graduate
School of Business.
Mr. Laubenthal has been President of AeroControlex Group since November 1998.
From December 1996 until November 1998, Mr. Laubenthal served as Director of
Manufacturing and Engineering for the AeroControlex Group and had prior
extensive experience in manufacturing and engineering at Parker Hannifin
Corporation and Textron. From October 1993 to December 1996, Mr. Laubenthal
served as Director of Manufacturing for the AeroControlex Group. Mr. Laubenthal
received a B.S. degree in mechanical engineering from Case Western Reserve
University and an MBA from Northern Illinois University.
-18-
<PAGE> 21
Mr. Leary has been President of Adams Rite Aerospace, Inc. since June 1999. From
1995 to June 1999, Mr. Leary was a General Operations Manager with Furon
Company. From 1991 to 1995, Mr. Leary was the Plant Manager of Emerson Electric,
Chromalox Division. Mr. Leary received his BS in Mechanical Engineering from the
New Jersey Institute of Technology.
Mr. Rodriguez has been President of Marathon Power Technologies Company since
September 1999. From January 1998 until September 1999, Mr. Rodriguez served as
Director of Commercial Operations for the AeroControlex Group. From 1993 to
1997, Mr. Rodriguez served as Director of Sales and Marketing for the
AeroControlex Group. Mr. Rodriguez has prior experience with IMO Industries,
Esterline, as well as Kaiser Electro Precision. Mr. Rodriguez received his
Bachelor of Engineering with a concentration in Chemical Engineering from
Stevens Institute of Technology.
Mr. Rufus became Chief Financial Officer in August 2000. Prior to joining
TransDigm, Mr. Rufus spent 19 years at Emerson Electric, including divisional
vice president responsibilities at Ridge Tool, Liebert Corp., and Harris
Colorific, all part of the Emerson organization. Prior to Emerson, Mr. Rufus
spent four years with Ernst & Young. Mr. Rufus received his CPA certification in
Ohio in 1980. Mr. Rufus received a B.A. degree in accounting from
Baldwin-Wallace College and attended the Weatherhead School of Management at
Case Western Reserve University.
Mr. Berger has served as a Director of Holdings and TransDigm since the
consummation of the Recapitalization. He is also currently serving as Chairman
of Odyssey Investment Partners, LLC. Prior to joining Odyssey Investment
Partners, LLC, Mr. Berger was a general partner of Odyssey Partners, LP. From
1990 to 1993, Mr. Berger served as Chairman and CEO of FGIC, a wholly-owned
subsidiary of GE Capital Corp., and subsequently became Executive Vice President
of GE Capital Corp. From 1985 to 1990, Mr. Berger was Executive Director of the
Port Authority of New York and New Jersey Mr. Berger presently serves as a
member of the Board of Trustees of Brandeis University.
Mr. Mirza has served as a Director of Holdings and TransDigm since the
consummation of the Recapitalization. Mr. Mirza is also currently a member of
Odyssey Investment Partners, LLC and has been a principal in the private equity
investing group of Odyssey Partners, LP since 1993. From 1988 to 1993, Mr. Mirza
was employed by the merchant banking group of GE Capital Corp.
Mr. Hopkins has served as a Director of Holdings and TransDigm since the
consummation of the Recapitalization. Mr. Hopkins is also currently a member of
Odyssey Investment Partners, LLC and has been a principal in the private equity
investing group of Odyssey Partners, LP since 1994. Prior to joining Odyssey,
Mr. Hopkins was a member of the merchant banking group of GE Capital Corp.
Mr. Wall has served as a Director of Holdings and TransDigm since their
inception in 1993. Mr. Wall joined Kelso & Company in 1983 and has served as a
Managing Director of Kelso & Company since 1990. Mr. Wall presently serves as a
member of the Board of Directors of AMF Bowling, Inc., Consolidated Vision
Group, Inc., Cygnus Publishing, Inc., iXL Enterprises, Inc., Mitchell Supreme
Fuel Company Mosler Inc., Peebles, Inc., and 21st Century Newspapers, Inc.
Mr. Paxton has served as a Director of Holdings and TransDigm since the
consummation of the Recapitalization. Mr. Paxton is also currently chairman of
Odyssey Industrial Technologies, LLC, which is a joint venture with Odyssey
Investment Partners, LLC, and Chairman of the Board, President and Chief
Executive Officer of Telxon Corporation. Prior to joining TransDigm as a
Director, Mr. Paxton was a member of the Board of Directors of Paxar Corporation
("Paxar") and President of Paxar's Printing Solution Group from October 1997 to
the calendar year end 1998. Mr. Paxton served as President and Chief Executive
Officer of Monarch Marking Systems from October 1995 to October 1997. Prior to
joining Monarch Marking Systems, Mr. Paxton joined Litton Industries ("Litton")
as a Corporate Vice President in 1991 when Litton acquired Intermec Corporation.
During his years at Litton, Mr. Paxton had responsibility for the Industrial
Automation Group. He became Corporate Executive Vice President and Chief
Operating Officer of the Industrial Automation Systems Group of Western Atlas,
Inc. when Western Atlas, Inc. was spun off by Litton in March 1994. Mr. Paxton
presently serves as a member of the Board of Directors of AIM, National
Association of Manufacturers, World Economic Forum.
-19-
<PAGE> 22
BOARD COMMITTEES
Holdings' Board of Directors has a Compensation Committee and an Audit
Committee. The Compensation Committee, which is comprised of Messrs. Berger,
Mirza and Hopkins, establishes salaries, incentives and other forms of
compensation for executive officers and administers incentive compensation and
benefit plans provided for employees. The Audit Committee, which is comprised of
Messrs. Wall, Mirza and Hopkins, reviews Holdings' and TransDigm's audit
policies and oversees the engagement of Holdings' and TransDigm's independent
auditors.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the aggregate compensation paid or accrued by
TransDigm for services rendered during fiscal 2000, 1999, and 1998 to the Chief
Executive Officer of TransDigm and each of the four other most highly paid
executive officers of TransDigm (collectively the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-------------------
AWARDS
-------------------
ANNUAL COMPENSATION SECURITIES
---------------------------------------------------------- UNDERLYING
NAME AND FISCAL OTHER ANNUAL OPTIONS/ ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS(1) COMPENSATION(2) SARS COMPENSATION
<S> <C> <C> <C> <C> <C> <C>
Douglas W. Peacock, 2000 $ 330,000 $ 200,000 - $ 18,575 (3)
Chairman of the Board 1999 323,750 225,000 4,500 19,659
and CEO 1998 305,000 2,857,500 - 23,518
W. Nicholas Howley, 2000 225,000 135,000 - 12,094 (4)
President, Chief Operating 1999 215,000 130,000 4,500 10,896
Officer and Director 1998 185,000 2,080,000 - 14,446
John F. Leary 2000 148,750 55,000 - 8,742 (5)
President of Adams Rite 1999 46,134 12,000 500 810
Aerospace 1998 - - - -
Robert S. Henderson, 2000 155,000 45,000 - 10,583 (6)
President of AdelWiggins 1999 137,469 60,000 700 9,744
Group 1998 125,000 450,000 - 10,663
Peter B. Radekevich, 2000 138,974 - - 533,875 (7)
Former Chief Financial Officer 1999 118,250 50,000 575 8,558
1998 113,000 196,250 - 8,326
Gregory Rufus, 2000 13,207 40,000 575 279 (8)
Chief Financial Officer 1999 - - - -
1998 - - - -
-----------
</TABLE>
-20-
<PAGE> 23
(1) Bonus for fiscal year 1998 includes a one-time bonus paid by TransDigm
in connection with the Recapitalization.
(2) Does not include perquisites and other personal benefits because the
value of these items did not exceed the lesser of $50,000 or 10% of
reported salary and bonus of any of the listed executives.
(3) Includes $10,200 in contributions by TransDigm, as projected to
calendar year end 2000, to a plan established under Section 401(k) of
the Internal Revenue Code (the "401(k) plan") and $8,375 of
Company-paid life insurance.
(4) Includes $10,200 in contributions by TransDigm, as projected to
calendar year end 2000, to the 401(k) plan and $1,894 in Company-paid
life insurance.
(5) Includes $7,500 in contributions by TransDigm, as projected to calendar
year end 2000, to the 401(k) plan and $1,242 in Company-paid life
insurance.
(6) Includes $9,300,in contributions by TransDigm, as projected to calendar
year end 2000, to the 401(k) plan and $1,283 in Company-paid life
insurance.
(7) Includes $3,200 in contributions by TransDigm, as projected to calendar
year end 2000, to the 401(k) plan and $1,035 in Company-paid life
insurance, as well as $529,640 related to the sale of stock.
(8) Includes $279 in Company-paid life insurance, as projected to calendar
year end 2000.
-21-
<PAGE> 24
AGGREGATED OPTION/SAR EXERCISES
IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of Value of
Shares Shares Underlying Unexercised In-
Acquired Unexercised The Money
Exercise on Value Options/SAR at Options/SARs At
Name Price Exercise Realized Fiscal Year-End Fiscal Year-End
<S> <C> <C> <C> <C> <C> <C> <C>
Douglas W. Peacock, $ 100 - - Exercisable 2,992 Exercisable $3,231,360
Chairman of the Board and Unexercisable - Unexercisable -
Chief Executive Officer 335 - - Exercisable 3,097 Exercisable 2,616,965
Unexercisable - Unexercisable -
1,040 - - Exercisable 900 Exercisable 126,000
Unexercisable 3,600 Unexercisable 504,000
W. Nicholas Howley, 100 - - Exercisable 3,890 Exercisable 4,201,200
President, Chief Operating Unexercisable - Unexercisable -
Officer and Director 335 - - Exercisable 1,900 Exercisable 1,605,500
Unexercisable - Unexercisable -
1,040 - - Exercisable 900 Exercisable 126,000
Unexercisable 3,600 Unexercisable 504,000
John F. Leary 100 - - Exercisable - Exercisable -
President of Adams Rite Unexercisable - Unexercisable -
Aerospace 200 - - Exercisable - Exercisable -
Unexercisable - Unexercisable -
335 - - Exercisable - Exercisable -
Unexercisable - Unexercisable -
1,040 - - Exercisable - Exercisable -
Unexercisable 500 Unexercisable 70,000
Robert S. Henderson, 154 - - Exercisable 172 Exercisable 176,472
President of AdelWiggins Unexercisable - Unexercisable -
Group 200 - - Exercisable 400 Exercisable 392,000
Unexercisable - Unexercisable -
335 - - Exercisable 200 Exercisable 169,000
Unexercisable - Unexercisable -
1,040 - - Exercisable - Exercisable -
Unexercisable 700 Unexercisable 98,000
Peter B. Radekevich, 200 368 $ 360,640 Exercisable - Exercisable -
Former Chief Financial Officer Unexercisable - Unexercisable -
335 200 169,000 Exercisable - Exercisable -
Unexercisable - Unexercisable -
Gregory Rufus, 1,180 - - Exercisable - Exercisable -
Chief Financial Officer Unexercisable 575 Unexercisable -
</TABLE>
-22-
<PAGE> 25
MANAGEMENT STOCKHOLDERS AGREEMENT
Together with the consummation of the Recapitalization, Holdings, Odyssey and
the employee stockholders of Holdings, including the Named Executive Officers
(the "Management Stockholders") entered into a Management Stockholders'
Agreement (the "Management Stockholders' Agreement") which governs the shares of
common stock of Holdings (the "Common Stock") and options to purchase Common
Stock, in each case, retained by such persons after the Recapitalization and any
new options and shares acquired thereafter, including the exercise of options.
See "Executive Compensation-Stock Option Plan."
The Management Stockholders' Agreement provides that, except for certain
transfers to family members and family trusts, no Management Stockholder may
transfer Common Stock until the fifth anniversary of the Recapitalization, and
thereafter, any proposed transfer will be subject to Holdings' right of first
refusal.
The Management Stockholders' Agreement also provides that upon termination of
the employment of a Management Stockholder, that Management Stockholder will
have certain put rights and Holdings will have certain call rights regarding any
Common Stock or any options to purchase Common Stock, in each case, owned by him
at that time.
Upon Mr. Peacock's cessation of active service as Chief Executive Officer on or
after the third anniversary of the Recapitalization, if TransDigm has achieved
specified financial targets, he may require Holdings to repurchase up to 80% of
his Common Stock during the period, if any, for which he is serving as
non-executive Chairman of the Board. See "Executive Compensation-Employment
Agreements." Mr. Peacock may thereafter require repurchase of the remaining 20%
of his Common Stock on or after the fifth anniversary of the Recapitalization or
his later termination of services to Holdings. Holdings will be permitted to
honor its obligation to Mr. Peacock by issuing notes under certain
circumstances.
If the provisions of any law, the terms of credit and financing arrangements or
Holdings' financial circumstances would prevent Holdings from making a
repurchase of shares pursuant to the Management Stockholders' Agreement,
Holdings will not make such purchase until all such prohibitions lapse, and will
then also pay the Management Stockholder a specified rate of interest on the
repurchase price.
The Management Stockholders' Agreement further provides that, in the event of
certain types of transfers of Common Stock by Odyssey, the Management
Stockholders may participate in those transfers and/or Odyssey may require the
Management Stockholders to transfer their shares in those transactions, in each
case, on a pro rata basis.
Pursuant to the Management Stockholders' Agreement, the Management Stockholders
are entitled to participate on a pro rata basis with, and on the same terms as,
Odyssey in any future offering of Common Stock. Those participation rights will
lapse following a public offering of Common Stock if the Common Stock so offered
is then listed on a national exchange or if the public offering includes 50% or
more of the outstanding Common Stock that will have been issued following the
offering.
EMPLOYMENT AGREEMENTS
In connection with the Recapitalization, Holdings entered into an employment
agreement with each of Messrs. Peacock and Howley. Pursuant to the agreement
with Mr. Peacock, Mr. Peacock will continue to serve as Chairman of the Board
and Chief Executive Officer for a period of at least five years, provided that
after three years, Mr. Peacock may elect to continue his service either as Chief
Executive Officer or as a non-executive Chairman. It is intended that Mr. Howley
will be Mr. Peacock's successor. Pursuant to the agreement with Mr. Howley, Mr.
Howley will continue to serve as President and Chief Operating Officer of
Holdings for a period of at least five years. Those employment agreements also
will provide specified severance benefits in the event of termination of
employment under certain circumstances.
-23-
<PAGE> 26
Each of those employment agreements provide that in the event the respective
executive's employment terminates by reason of death, disability, termination
without "cause" or resignation with "good reason" (all as defined in those
employment agreements), Holdings will continue payment of base salary, bonus and
other perquisites and benefits, in the case of Mr. Howley, for 15 months
thereafter and, in the case of Mr. Peacock, for 18 months thereafter or, if
terminated prior to the third anniversary of the Recapitalization, until such
third anniversary, whichever is longer.
Pursuant to those employment agreements, Messrs. Peacock and Howley will receive
annual base salaries no less than $330,000 and $225,000, respectively, in each
case, subject to annual increases as determined by the Compensation Committee,
and annual cash bonuses based on achievement of performance criteria established
by the Board of Directors.
STOCK OPTION PLAN
During fiscal 1999, Holdings adopted the 1998 Stock Option Plan (the "Option
Plan"), pursuant to which stock options may be granted to Independent Directors
(as defined in the Option Plan), employees and consultants of Holdings,
TransDigm and any subsidiary of Holdings or TransDigm (the "Plan Participants").
In addition, the Option Plan governs those options retained pursuant to the
Rollover Investment (the "Rollover Options"). A total of 18,990 shares of Common
Stock of Holdings was reserved for issuance under the Option Plan and 1,695 and
15,115 of the options were issued during fiscal 2000 and 1999, respectively.
During 2000, stock options pertaining to 1,995 shares of common stock were
forfeited by employees due to terminations. These options may be reissued by the
Company to other employees in the future. The Chief Executive Officer has
discretion to select the Plan Participants and to specify the terms of such
options, including the number of shares, the exercise price and the vesting and
expiration of options, subject to approval by the Compensation Committee.
The Compensation Committee has discretion under the Option Plan to adjust
options to reflect certain specified events such as stock dividends, stock
splits, recapitalizations, mergers or reorganizations of, or by Holdings. In
addition, the Board of Directors has the right to amend, suspend or terminate
the Option Plan, subject to stockholder approval for certain amendments.
The Rollover Options are fully vested and nonforfeitable. In connection with the
Recapitalization, Holdings granted options to certain employees of TransDigm
including the Named Executive Officers for the purchase of shares of Common
Stock of Holdings (the "New Options"). Such New Options are intended to qualify
as "incentive stock options" to the extent permitted under the Internal Revenue
Code, and have an exercise price equal to the price per share paid by Odyssey in
connection with the Recapitalization. Twenty percent of each of Messrs.
Peacock's and Howley's New Options were vested as of the date of grant. Subject
to the executive's continued employment with and, in the case of Mr. Peacock,
continued service as non-executive Chairman of the Board of the Company, the
remaining 80% of his New Options will become exercisable upon the earlier of (1)
the Company's achievement of specified financial targets or (2) certain
specified dates in the Option Agreement. Furthermore, in the event of a "change
of control" (as defined in the Option Agreement), a specified percentage of the
New Options may become exercisable based upon the terms of such transaction. The
New Options generally will expire 10 years after grant and may expire earlier in
the event of the executive's earlier termination of employment.
-24-
<PAGE> 27
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock of Holdings with respect to each beneficial owner
of more than 5.0% of the outstanding Common stock of Holdings and beneficial
ownership of the Common Stock of Holdings by each director and named executive
officer and all directors and executive officers as a group:
<TABLE>
<CAPTION>
COMMON STOCK
BENEFICIALLY OWNED
-----------------------------------
NAME OF BENEFICIAL OWNER SHARES PERCENTAGE
<S> <C> <C>
Odyssey (as defined in footnote 1) 100,240 (1) 82.7%
---------- ----------
Kelso (as defined in footnote 2) 18,422 (2) 15.2
---------- ----------
Stephen Berger 100,240 (1)(3) 82.7
---------- ----------
Robert S. Henderson 772 (4) *
---------- ----------
William Hopkins 100,240 (1)(5) 82.7
---------- ----------
W. Nicholas Howley 6,690 (6) 5.5
---------- ----------
Raymond F. Laubenthal 780 (7) *
---------- ----------
Muzzafar Mirza 100,240 (1)(8) 82.7
---------- ----------
Douglas W. Peacock 7,800 (9) 6.4
---------- ----------
Thomas R. Wall, IV 18,422 (2) 15.2
---------- ----------
All officers and directors as a group (12 members) 135,855 (10) 99.0
---------- ----------
</TABLE>
-----------
* Less than 1.0%
(1) Consists of 100,240 shares of common stock owned by Odyssey Investment
Partners, LP (the "Fund"), Odyssey Coinvestment, LLC ("Coinvestment"),
TD Coinvestment I, LLC ("TD I"), and TD Coinvestment II, LLC ("TD II"
and together with the Fund, Coinvestment and TD I, "Odyssey"). Odyssey
Capital Partners, LLC is the general partner of the Fund. Odyssey
Investment Partners, LLC is the manager of the Fund and the managing
member of each of Coinvestment, TD I and TD II. The principal business
address for Odyssey is 280 Park Avenue, West Tower, 38th Floor, New
York, N.Y. 10017. Stephen Berger, Muzzafar Mirza, William Hopkins
(directors of Holdings) and Brian Kwait and Paul Barnett are managing
members of Odyssey Capital Partners, LLC and Odyssey Investment
Partners, LLC and, therefore, may each be deemed to share voting and
investment power with respect to such shares deemed to be owned by
Odyssey. Each of them disclaims beneficial ownership of such shares.
-25-
<PAGE> 28
(2) KIA IV-TD, LLC ("KIA IV-TD) and Kelso Equity Partners II, L.P. ("KEP
II") have beneficial ownership of 17,473 and 949 shares, respectively.
Due to their common control, KIA IV-TD, Kelso Partners IV, L.P., the
managing member of KIA IV-TD ("KP IV" and, together with KIA IV-TD and
KEP II, "Kelso"), and KEP II could be deemed to beneficially own each
other's shares, but each disclaims such beneficial ownership. In
addition, Mr. Wall, Joseph S. Schuchert, Frank T. Nickell, George E.
Matelich, Michael B. Goldberg, David I. Wahrhaftig and Frank K. Bynum,
Jr. may be deemed to share beneficial ownership of shares beneficially
owned by KIA IV-TD, KP IV and KEP II by virtue of their status as
general partners of KP IV, which is the managing member of KIA IV-TD,
and as general partners of KEP II, but each disclaims such beneficial
ownership. The address of each of KIA IV-TD, KP IV, KEP II and Messrs.
Wall, Schuchert, Nickell, Matelich, Goldberg, Wahrhaftig and Bynum is
c/o Kelso & Company, 320 Park Avenue, 24th Floor, New York, New York
10022.
(3) Includes 100,240 shares and votes deemed to be beneficially owned by
Odyssey (as defined). Mr. Berger is a senior managing member of Odyssey
Capital Partners, LLC and Odyssey Investment Partners, LLC. As a
result, Mr. Berger may be deemed to share voting and investment power
with respect to such shares. Mr. Berger disclaims beneficial ownership
of such shares.
(4) Includes 772 shares purchasable within 60 days upon the exercise of
options held by Mr. Henderson.
(5) Includes 100,240 shares and votes deemed to be beneficially owned by
Odyssey. Mr. Hopkins is a managing member of Odyssey Capital Partners,
LLC and Odyssey Investment Partners, LLC. As a result, Mr. Hopkins may
be deemed to share voting and investment power with respect to such
shares. Mr. Hopkins disclaims beneficial ownership of such shares.
(6) Includes 6,690 shares purchasable within 60 days upon the exercise of
options held by Mr. Howley.
(7) Includes 780 shares purchasable within 60 days upon the exercise of
options held by Mr. Laubenthal.
(8) Includes 100,240 shares and votes deemed to be beneficially owned by
Odyssey. Mr. Mirza is a managing member of Odyssey Capital Partners,
LLC and Odyssey Investment Partners, LLC. As a result, Mr. Mirza may be
deemed to share voting and investment power with respect to such
shares. Mr. Mirza disclaims beneficial ownership of such shares.
(9) Includes 6,989 shares purchasable within 60 days upon the exercise of
options held by Mr. Peacock and 811 shares and votes owned by TD Equity
LLC, of which Mr. Peacock is the managing member. Mr. Peacock disclaims
ownership of the 811 shares and votes owned by TD Equity LLC.
(10) As described in footnotes (1), (3), (5) and (7), Messrs. Berger,
Hopkins and Mirza may each be deemed to share investment and voting
power with respect to 100,240 shares deemed to be beneficially owned by
the General Partner of Odyssey, Mr. Wall may be deemed to share
investment and voting power with respect to 18,422 shares owned by
Kelso and Mr. Peacock may be deemed to share investment and voting
power with respect to 811 shares owned by TD Equity LLC. Each of
Messrs. Berger, Hopkins, Mirza, Wall and Peacock disclaims ownership of
such shares. Excluding such shares, all officers and directors as a
group beneficially own 16,382 shares, or 12.5%, which are purchasable
within 60 days upon the exercise of options.
-26-
<PAGE> 29
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TAX ALLOCATION AGREEMENT
TransDigm and Holdings are parties to a Tax Allocation Agreement. Under the
terms of the Tax Allocation Agreement. TransDigm is obligated to make payments
to Holdings equal to the amount of income taxes that TransDigm would have owed
in respect of federal and state income taxes on behalf of TransDigm and its
subsidiaries if TransDigm and its subsidiaries were, for tax purposes, a
separate consolidated group.
ONE-TIME MANAGEMENT BONUSES
Following the consummation of the Recapitalization, TransDigm paid certain
members of senior management an aggregate of $5.9 million as a one-time bonus in
connection with the Recapitalization. See "Executive Compensation."
TERMINATION OF FINANCIAL ADVISORY SERVICES AGREEMENT
TransDigm paid $6.0 million to Kelso & Company, an affiliate of Kelso, in
consideration for the termination of a Financial Advisory Services Agreement.
This payment was made upon consummation of the Recapitalization.
Kelso may be deemed, collectively, to beneficially own 15.2% of the Common Stock
of Holdings on a fully diluted basis. In addition, Mr. Wall, a director of
Holdings and TransDigm, is a general partner of each of the Kelso entities.
KELSO STOCKHOLDERS AGREEMENT
Pursuant to the Merger Agreement, Holdings, Odyssey and KIA IV-TD and KEP II
entered into a stockholders agreement (the "Stockholders Agreement")
concurrently with consummation of the Recapitalization. The Stockholders
Agreement provides for customary transfer restrictions, tag-along and drag-along
rights, registration rights and an agreement among the parties to vote their
shares of Common Stock, including the agreement of Odyssey to designate a
representative of Kelso to the Board of Directors of Holdings. See also
"Directors and Executive Officers" for a description of certain agreements that
have been entered into with certain members of management in connection with the
Recapitalization. See "Certain Relationships and Related
Transactions-Termination of Financial Advisory Services Agreement."
ODYSSEY FINANCIAL SERVICES
As part of the Recapitalization, TransDigm paid Odyssey a fee of approximately
$3.5 million. Odyssey is the majority stockholder of Holdings. In addition,
Messrs. Berger, Hopkins and Mirza, each a director of Holdings and TransDigm,
are managing members of the General Partner of Odyssey.
-27-
<PAGE> 30
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) (1) FINANCIAL STATEMENTS
The following consolidated financial statements of the Company are included in a
separate section of this Report following the signature page:
Independent Auditors' Report
Consolidated Balance Sheets - September 30, 2000 and 1999
Consolidated Statements of Operations - Years Ended September 30, 2000, 1999 and
1998
Consolidated Statements of Changes in Stockholders' Equity (Deficiency) - Years
Ended September 30, 2000, 1999 and 1998
Consolidated Statements of Cash Flows - Years Ended September 30, 2000, 1999 and
1998
Notes to Consolidated Financial Statements
(a) (2) FINANCIAL STATEMENT SCHEDULES
The following financial statement schedule is included in a separate section of
this Report following the signature page - Valuation and Qualifying Accounts -
Years Ended September 30, 2000, 1999 and 1998.
(a) (3) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION OF EXHIBIT
NO.
<S> <C>
*2.1 Agreement and Plan of Merger, dated August 3, 1998, between Phase II Acquisition Corp. and TransDigm Holding
Company.
*2.2 Amendment One, dated November 9, 1998, to the Agreement and Plan of Merger between Phase II Acquisition Corp. and
TransDigm Holding Company.
*2.3 Agreement and Plan of Reorganization, dated as of March 31, 1999, by and among TransDigm Inc., ARA Acquisition
Corporation, ZMP, Inc. and TCW Special Placements Fund II.
*3.1 Restated Certificate of Incorporation, filed on September 28, 1993, of TransDigm Holding Company.
*3.2 Certificate of Amendment, filed on December 21, 1993, of the Restated Certificate of Incorporation of TransDigm
Holding Company.
*3.3 Certificate of Ownership and Merger, filed on December 3, 1998, merging Phase II Acquisition Corp. with and into
TransDigm Holding Company.
*3.4 Certificate of Incorporation, filed on July 2, 1993, of NovaDigm Acquisition, Inc. (TransDigm Inc.).
*3.5 Certificate of Amendment, filed on July 22, 1993, of the Certificate of Incorporation of NovaDigm Acquisition, Inc.
(TransDigm Inc.).
*3.6 Certificate of Ownership and Merger, filed on September 13, 1993,
merging IMO Aerospace Company with and into TransDigm Inc.
*3.7 Certificate of Incorporation, filed on March 28, 1994, of MPT Acquisition Corp. (Marathon Power Technologies
Company).
*3.8 Certificate of Amendment, filed on May 18, 1994, of the Certificate of Incorporation of MPT Acquisition Corp.
(Marathon Power Technologies Company).
*3.9 Certificate of Amendment, filed on May 24, 1994, of the Certificate of Incorporation of MPT Acquisition Corp.
(Marathon Power Technologies Company).
</TABLE>
-28-
<PAGE> 31
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION OF EXHIBIT
NO.
<S> <C>
*3.10 Amended and Restated Articles of Incorporation, filed on April 23, 1999, of ZMP, Inc.
*3.11 Certificate of Ownership and Merger, filed on April 23, 1999, merging ARA Acquisition Corporation with and into ZMP,
Inc.
*3.12 Articles of Incorporation, filed on July 30, 1986, of ARP Acquisition Corporation (Adams Rite Aerospace, Inc.).
*3.13 Certificate of Amendment, filed on September 12, 1986, of the Articles of Incorporation of ARP Acquisition
Corporation (Adams Rite Aerospace, Inc.).
*3.14 Certificate of Amendment, filed on January 27, 1992, of the Articles of Incorporation of Adams Rite Aerospace
Products, Inc. (Adams Rite Aerospace, Inc.).
*3.15 Certificate of Amendment, filed on December 31, 1992, of the Articles of Incorporation of Adams Rite Aerospace
Products, Inc. (Adams Rite Aerospace, Inc.).
*3.16 Certificate of Amendment, filed on August 11, 1997, of the Articles of Incorporation of Adams Rite Aerospace Sabre
International, Inc. (Adams Rite Aerospace, Inc.).
*3.17 Bylaws of TransDigm Holding Company.
*3.18 Bylaws of NovaDigm Acquisition, Inc. (TransDigm Inc.).
*3.19 Bylaws of MPT Acquisition Corp. (Marathon Power Technologies Company).
*3.20 Amended and Restated Bylaws of ZMP, Inc.
*3.21 Amended and Restated Bylaws of Adams Rite Aerospace, Inc.
*4.1 Indenture, dated December 3, 1998, among TransDigm Inc., TransDigm Holding Company and Marathon Power Technologies
Company and State Street Bank and Trust Company, as trustee, relating to $125,000,000 aggregate principal amount of
10 3/8% Senior Subordinated Notes due 2008 and the registered 10 3/8% Senior Subordinated Notes due 2008.
*4.2 Supplemental Indenture, dated April 23, 1999, among ZMP, Inc. and Adams Rite Aerospace, Inc. and State Street Bank
and Trust Company, as trustee.
*4.3 Specimen Certificate of 10 3/8% Senior Subordinated Notes due 2008 (the "Old Notes") (included in Exhibit 4.1
hereto).
*4.4 Specimen Certificate of the registered 10 3/8% Senior Subordinated Notes due 2008 (the "New Notes") (included in
Exhibit 4.1 hereto).
*4.5 Registration Rights Agreement, dated December 3, 1998, among TransDigm Inc., TransDigm Holding Company and Marathon
Power Technologies Company and BT Alex. Brown Incorporated and Credit Suisse First Boston Corporation.
*4.6 Indenture, dated December 3, 1998, between TransDigm Holding Company
and State Street Bank and Trust Company, as trustee, relating to
$20,000,000 aggregate principal amount of 12% Pay-in-Kind Senior
Notes due 2009.
*4.7 Specimen Certificate of 12% Pay-in-Kind Senior Notes due 2009 (included in Exhibit 4.6 hereto).
*4.8 Registration Rights Agreement, dated December 3, 1998, among TransDigm Holding Company and Kelso Investment
Associates IV, L.P. and Kelso Equity Partners II, L.P.
*4.9 Credit Agreement, dated December 3, 1998, among TransDigm Inc. and TransDigm Holding Company and Bankers Trust
Company, as the administrative agent, and the various financial institutions parties thereto.
*4.10 First Amendment to the Credit Agreement, dated December 10, 1998, among TransDigm Inc. and TransDigm Holding Company
and Bankers Trust Company, as the administrative agent, and the various financial institutions parties thereto.
*4.11 Second Amendment to the Credit Agreement, dated April 23, 1999, among TransDigm Inc., TransDigm Holding Company and
Marathon Power Technologies Company and Bankers Trust Company, as the administrative agent, and the various financial
institutions parties thereto.
*4.12 Third Amendment to the Credit Agreement, dated April 23, 1999, among TransDigm Inc. and TransDigm Holding Company and
Bankers Trust Company, as the administrative agent, and the various financial institutions parties thereto.
*4.13 Specimen Revolving Note evidencing the revolving borrowings under the Credit Agreement (included in Exhibit 4.9
hereto).
</TABLE>
-29-
<PAGE> 32
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION OF EXHIBIT
NO.
<S> <C>
*4.14 Specimen Term A Note evidencing the Term A credit advances under the Credit Agreement (included in Exhibit 4.9
hereto).
*4.15 Specimen Term B Note evidencing the Term B credit advances under the Credit Agreement (included in Exhibit 4.9
hereto).
*4.16 Security Agreement, dated December 3, 1998, among TransDigm Inc., TransDigm Holding Company and Marathon Power
Technologies Company and Bankers Trust Company, as the administrative agent under the Credit Agreement.
*4.17 Pledge Agreement, dated December 3, 1998, among TransDigm Inc., TransDigm Holding Company and Marathon Power
Technologies Company and Bankers Trust Company, as the administrative agent under the Credit Agreement.
*4.18 Form of Assignment of Security Interest in United States Copyrights by TransDigm Inc., TransDigm Holding Company and
Marathon Power Technologies Company for the benefit of Bankers Trust Company, as the administrative agent under the
Credit Agreement (included in Exhibit 4.16 hereto).
*4.19 Form of Assignment of Security Interest in United States Trademarks and Patents by TransDigm Inc., TransDigm Holding
Company and Marathon Power Technologies Company for the benefit of Bankers Trust Company, as the administrative agent
under the Credit Agreement (included in Exhibit 4.16 hereto).
*5.1 Opinion of Latham & Watkins regarding the validity of the New Notes.
*10.1 Stockholders' Agreement, dated December 3, 1998, by and among TransDigm Holding Company, Odyssey Investment Partners
Fund, LP, Odyssey Coinvestors, LLC, TD-Equity LLC, KIA IV-TD, LLC and Kelso Equity Partners II, L.P.
*10.2 Stockholders' Agreement, dated December 3, 1998, by and among TransDigm Holding Company, Odyssey Investment Partners
Fund and certain employee stockholders of TransDigm Holding Company.
*10.3 Tax Allocation Agreement, dated December 3, 1998, between TransDigm Holding Company and TransDigm Inc.
**10.4 Employment Agreement dated May 19, 1999, between TransDigm Holding Company and Douglas W. Peacock.
**10.5 Employment Agreement dated May 19, 1999, between TransDigm Holding Company and W. Nicholas Howley.
*10.6 TransDigm Inc. Senior Executive Benefits Plan.
*10.7 Summary of Annual Incentive Compensation Plan for Key Management Employees of TransDigm Inc.
12.1 Statement of Computation of Ratio of Earnings to Fixed Charges.
12.2 Statement of Computation of Ratio of EBITDA, As Defined, to Interest Expense.
12.3 Statement of Computation of Ratio of EBITDA, As Defined, to Interest Expense, As Defined.
12.4 Statement of Computation of Ratio of Total Debt to EBITDA, As Defined.
*21.1 Subsidiaries of TransDigm Holding Company.
24.1 Power of Attorney - TransDigm Holding Company
24.2 Power of Attorney - TransDigm Inc.
24.3 Power of Attorney - Marathon Power Technologies Company
24.4 Power of Attorney - ZMP, Inc.
24.5 Power of Attorney - Adams Rite Aerospace, Inc.
*25.1 Statement of Eligibility and Qualification (form T-1) under the Trust Indenture Act of 1939 of State Street Bank and
Trust Company.
27.1 Financial Data Schedule.
*99.1 Form of Letter of Transmittal and related documents to be used in conjunction with the exchange offer.
-----------
* (Incorporated by reference to same titled exhibit to the
Co-Registrants' Registration Statement on Form S-4 dated January 29,
1999 File No. 333-71397, as amended.)
** (Incorporated by reference to same titled exhibit to the Co-Registrants' Form 10-K dated December 23, 1999
File No. 333-71397.)
</TABLE>
-30-
<PAGE> 33
(b) REPORTS ON FORM 8-K
We did not file any reports on Form 8-K during the fourth quarter of
fiscal 2000.
(c) EXHIBITS
The exhibits which are listed under Item 14(a)(3) are filed or
incorporated by reference herein.
(d) SEPARATE FINANCIAL STATEMENTS AND SCHEDULES
The following financial statement schedule is included in a separate
section of this Report following the signature page - Valuation and
Qualifying Accounts - Years Ended September 30, 2000, 1999 and 1998.
-31-
<PAGE> 34
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Act of 1934, as
amended, each of the Co-Registrants has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Richmond Heights, State of Ohio, on December 28, 2000.
TRANSDIGM HOLDING COMPANY
By: /s/Gregory Rufus
----------------------------------------------------------------
Gregory Rufus
Chief Financial Officer
TRANSDIGM INC.
By: /s/Gregory Rufus
----------------------------------------------------------------
Gregory Rufus
Chief Financial Officer
MARATHON POWER TECHNOLOGIES COMPANY
By: /s/Gregory Rufus
----------------------------------------------------------------
Gregory Rufus
Chief Financial Officer
ZMP, INC.
By: /s/Gregory Rufus
----------------------------------------------------------------
Gregory Rufus
Chief Financial Officer
ADAMS RITE AEROSPACE, INC.
By: /s/Gregory Rufus
----------------------------------------------------------------
Gregory Rufus
Chief Financial Officer
-32-
<PAGE> 35
TRANSDIGM HOLDING COMPANY
Pursuant to the requirements of the Securities Act of 1934, this Report has been
signed below by the following persons on behalf of the Co-Registrant and in the
capacities and as of the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
* Chief Executive Officer (Principal Executive December 28, 2000
------------------------------------ Officer) and Chairman of the Board
Douglas W. Peacock
* President and Chief Operating Officer (Principal December 28, 2000
------------------------------------ Operating Officer) and Director
W. Nicholas Howley
/s/Gregory Rufus Chief Financial Officer (Principal Financial and December 28, 2000
------------------------------------ Accounting Officer)
Gregory Rufus
* Director December 28, 2000
------------------------------------
Stephen Berger
* Director December 28, 2000
------------------------------------
William Hopkins
* Director December 28, 2000
------------------------------------
Muzzafar Mirza
* Director December 28, 2000
------------------------------------
John W. Paxton
* Director December 28, 2000
------------------------------------
Thomas R. Wall, IV
</TABLE>
-33-
<PAGE> 36
TRANSDIGM INC.
Pursuant to the requirements of the Securities Act of 1934, this Report has been
signed below by the following persons on behalf of the Co-Registrant and in the
capacities and as of the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
* Chief Executive Officer (Principal Executive December 28, 2000
------------------------------------ Officer) and Chairman of the Board
Douglas W. Peacock
* President and Chief Operating Officer (Principal December 28, 2000
------------------------------------ Operating Officer) and Director
W. Nicholas Howley
/s/Gregory Rufus Chief Financial Officer (Principal Financial and December 28, 2000
------------------------------------ Accounting Officer)
Gregory Rufus
* Director December 28, 2000
------------------------------------
Stephen Berger
* Director December 28, 2000
------------------------------------
William Hopkins
* Director December 28, 2000
------------------------------------
Muzzafar Mirza
* Director December 28, 2000
------------------------------------
John W. Paxton
* Director December 28, 2000
------------------------------------
Thomas R. Wall, IV
</TABLE>
-34-
<PAGE> 37
MARATHON POWER TECHNOLOGIES COMPANY
Pursuant to the requirements of the Securities Act of 1934, this Report has been
signed below by the following persons on behalf of the Co-Registrant and in the
capacities and as of the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
* Chief Executive Officer (Principal Executive December 28, 2000
------------------------------------ Officer) and Chairman of the Board
Douglas W. Peacock
* President (Principal Operating Officer) December 28, 2000
------------------------------------
Albert J. Rodriguez
/s/Gregory Rufus Chief Financial Officer (Principal Financial and December 28, 2000
------------------------------------ Accounting Officer)
Gregory Rufus
* Director December 28, 2000
------------------------------------
W. Nicholas Howley
</TABLE>
-35-
<PAGE> 38
ZMP, INC.
Pursuant to the requirements of the Securities Act of 1934, this Report has been
signed below by the following persons on behalf of the Co-Registrant and in the
capacities and as of the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
* Chairman of the Board and Executive Vice President December 28, 2000
------------------------------------ (Principal Executive Officer)
Douglas W. Peacock
* President (Principal Operating Officer) December 28, 2000
------------------------------------
John F. Leary
/s/Gregory Rufus Treasurer and Chief Financial Officer (Principal December 28, 2000
------------------------------------ Financial and Accounting Officer)
Gregory Rufus
* Executive Vice President December 28, 2000
------------------------------------ and Director
W. Nicholas Howley
</TABLE>
-36-
<PAGE> 39
ADAMS RITE AEROSPACE, INC.
Pursuant to the requirements of the Securities Act of 1934, this Report has been
signed below by the following persons on behalf of the Co-Registrant and in the
capacities and as of the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
* Chairman of the Board of Executive Vice President December 28, 2000
------------------------------------ (Principal Executive Officer)
Douglas W. Peacock
* President (Principal Operating Officer) December 28, 2000
------------------------------------
John F. Leary
/s/Gregory Rufus Treasurer and Chief Financial Officer (Principal December 28, 2000
------------------------------------ Financial and Accounting Officer)
Gregory Rufus
* Executive Vice President December 28, 2000
------------------------------------ and Director
W. Nicholas Howley
</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.
-37-
<PAGE> 40
TRANSDIGM HOLDING COMPANY AND SUBSIDIARIES
ANNUAL REPORT ON FORM 10-K:
FISCAL YEAR ENDED SEPTEMBER 30, 2000
ITEM 8 AND ITEM 14(a) (1)
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
FINANCIAL STATEMENTS:
Independent Auditors' Report F-1
Consolidated Balance Sheets at September 30, 2000 and 1999 F-2
Consolidated Statements of Operations for the Years Ended
September 30, 2000, 1999 and 1998 F-3
Consolidated Statements of Changes in Stockholders' Equity (Deficiency) for the
Years Ended September 30, 2000, 1999 and 1998 F-4
Consolidated Statements of Cash Flows for the Years Ended
September 30, 2000, 1999 and 1998 F-5 - F-6
Notes to Consolidated Financial Statements F-7 - F-18
SUPPLEMENTARY DATA:
Independent Auditors' Report F-19
Valuation and Qualifying Accounts for the Years Ended
September 30, 2000, 1999 and 1998 F-20
</TABLE>
<PAGE> 41
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of
TransDigm Holding Company
We have audited the accompanying consolidated balance sheets of TransDigm
Holding Company and its subsidiaries (the "Company") as of September 30, 2000
and 1999, and the related consolidated statements of operations, changes in
stockholders' equity (deficiency) and cash flows for each of the three years in
the period ended September 30, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of TransDigm Holding Company and its
subsidiaries as of September 30, 2000 and 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 2000 in conformity with accounting principles generally accepted
in the United States of America.
Deloitte & Touche LLP
Cleveland, Ohio
November 10, 2000
F-1
<PAGE> 42
TRANSDIGM HOLDING COMPANY
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2000 AND 1999
(In Thousands of Dollars)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS 2000 1999 LIABILITIES AND STOCKHOLDERS' DEFICIENCY 2000 1999
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS: CURRENT LIABILITIES:
Cash and cash equivalents $ 4,309 $ 2,729 Current portion of long-term debt (Note 9) $ 10,953 $ 7,595
Accounts receivable - net (Note 4) 26,796 22,399 Accounts payable 5,672 5,322
Inventories (Note 5) 32,889 29,217 Accrued liabilities (Note 8) 15,460 15,719
-------- --------
Income taxes refundable 1,796 2,810 Total current liabilities 32,085 28,636
Deferred income taxes (Note 11) 5,657 6,614
Prepaid expenses and other 535 398 LONG-TERM DEBT - Less current portion (Note 9) 250,648 258,962
---- ----
Total current assets 71,982 64,167
NON-CURRENT PORTION OF ACCRUED
PROPERTY, PLANT AND EQUIPMENT - PENSION COSTS AND OTHER (Note 10) 3,138 3,118
-------- --------
Net (Note 6) 25,029 25,422 Total liabilities 285,871 290,716
-------- --------
INTANGIBLE ASSETS - Net (Note 7) 56,957 58,555 REDEEMABLE COMMON STOCK (Note 12) 1,371 1,323
-------- --------
DEBT ISSUE COSTS - Net 9,400 10,951 STOCKHOLDERS' DEFICIENCY:
Common stock, $.01 par value (Note 12) 102,156 102,097
DEFERRED INCOME TAXES Retained deficit (220,115) (229,237)
AND OTHER (Note 11) 5,465 5,322 Accumulated other comprehensive loss (450) (482)
------ ------ -------- -----
Total stockholders' deficiency (118,409) (127,622)
-------- --------
TOTAL ASSETS $168,833 $164,417 TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $168,833 $164,417
======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE> 43
TRANSDIGM HOLDING COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands of Dollars)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------
2000 1999 1998
<S> <C> <C> <C>
NET SALES (Note 4) $ 150,457 $ 130,818 $ 110,868
COST OF SALES (Including charge of $185, $1,143 and $242
in 2000, 1999 and 1998, respectively, due to inventory
purchase accounting adjustments) (Note 2) 82,193 69,951 59,395
--------- --------- ---------
GROSS PROFIT 68,264 60,867 51,473
--------- --------- ---------
OPERATING EXPENSES:
Selling and administrative 16,799 13,620 10,473
Amortization of intangibles 1,843 2,063 2,438
Research and development 2,308 2,139 1,724
Merger expenses (Note 1) 40,012
--------- --------- ---------
Total operating expenses 20,950 57,834 14,635
--------- --------- ---------
INCOME FROM OPERATIONS 47,314 3,033 36,838
INTEREST EXPENSE - NET 28,563 22,722 3,175
WARRANT PUT VALUE ADJUSTMENT 6,540
--------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES 18,751 (19,689) 27,123
INCOME TAX PROVISION (BENEFIT) (Note 11) 7,972 (2,772) 12,986
--------- --------- ---------
NET INCOME (LOSS) $ 10,779 $ (16,917) $ 14,137
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 44
TRANSDIGM HOLDING COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY (DEFICIENCY)
(In Thousands of Dollars)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON ACCUMULATED
STOCK RETAINED OTHER
(VOTING AND EARNINGS COMPREHENSIVE
CLASS A SHARES) (DEFICIT) INCOME (LOSS) TOTAL
<S> <C> <C> <C> <C>
BALANCE, OCTOBER 1, 1997 $ 24,352 $ (1,237) $ (502) $ 22,613
---------
Comprehensive Income:
Net income 14,137 14,137
Other comprehensive loss (252) (252)
---------
Comprehensive income 13,885
Purchase of common stock (71) (71)
--------- --------- --------- ---------
BALANCE, SEPTEMBER 30, 1998 24,281 12,900 (754) 36,427
---------
Comprehensive Loss:
Net loss (16,917) (16,917)
Other comprehensive income 272 272
---------
Comprehensive loss (16,645)
Issuance of common stock 100,652 100,652
Payment of consideration in
recapitalization (22,808) (224,356) (247,164)
Purchase of common stock (28) (28)
Adjustment of redeemable common stock (864) (864)
--------- --------- --------- ---------
BALANCE, SEPTEMBER 30, 1999 102,097 (229,237) (482) (127,622)
---------
Comprehensive income:
Net income 10,779 10,779
Other comprehensive income 32 32
---------
Comprehensive income 10,811
Exercise of stock options 274 274
Income tax benefit from exercise of
stock options and purchase of
common stock 460 460
Adjustment of redeemable common stock (675) (1,657) (2,332)
--------- --------- --------- ---------
BALANCE, SEPTEMBER 30, 2000 $ 102,156 $(220,115) $ (450) $(118,409)
========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 45
TRANSDIGM HOLDING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands of Dollars)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended September 30,
-------------------------------------------
2000 1999 1998
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 10,779 $(16,917) $ 14,137
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation 4,669 4,311 4,029
Amortization of intangibles 1,843 2,063 2,438
Amortization of debt issue costs 1,705 2,165 267
Interest deferral on Holdings PIK Notes 2,639 2,000
Warrant put value adjustment 6,540
Deferred income taxes 1,684 (1,078) (341)
Changes in assets and liabilities, net of effects from
acquisition of businesses (Note 2):
Accounts receivable (3,970) (5,234) (821)
Inventories (2,337) (842) (870)
Refundable income taxes 1,323
Prepaid expenses and other assets (679) (2,500) 148
Accounts payable 191 (744) 392
Accrued and other liabilities (1,542) 557 (2,464)
-------- -------- --------
Net cash provided by (used in) operating activities 16,305 (16,219) 23,455
-------- -------- --------
INVESTING ACTIVITIES:
Capital expenditures (4,368) (3,043) (5,061)
Acquisition of Christie Electric Corp. (Note 2) (2,400)
Acquisition of ZMP, Inc. (Note 2) 1,648 (41,556)
Marathon Power Technologies Company
purchase price adjustment 766
-------- -------- --------
Net cash used in investing activities (5,120) (44,599) (4,295)
-------- -------- --------
</TABLE>
(Continued)
F-5
<PAGE> 46
TRANSDIGM HOLDING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands of Dollars)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------------------------
2000 1999 1998
<S> <C> <C> <C>
FINANCING ACTIVITIES:
Proceeds from subordinated notes, net of fees of $6,868 118,132
Proceeds from new credit facility, net of fees of $5,361 118,639
Proceeds from Holdings PIK Notes and common stock,
net of fees of $341 19,659
Payment of consideration in recapitalization -
common stock and warrants (263,896)
Proceeds from exercise of stock options and issuance
of common stock, including redeemable common stock 295 100,998
Repayment of term loans and subordinated notes (7,595) (49,443) (5,000)
Purchase of common stock, including
redeemable common stock (2,305) (28) (71)
--------- --------- ---------
Net cash provided by (used in) financing activities (9,605) 44,061 (5,071)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 1,580 (16,757) 14,089
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 2,729 19,486 5,397
--------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 4,309 $ 2,729 $ 19,486
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid during the year for interest $ 23,955 $ 14,955 $ 3,640
========= ========= =========
Cash paid during the year for income taxes $ 5,004 $ 1,195 $ 13,490
========= ========= =========
</TABLE>
See notes to consolidated financial statements. (Concluded)
F-6
<PAGE> 47
TRANSDIGM HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2000, 1999 AND 1998
--------------------------------------------------------------------------------
1. DESCRIPTION OF THE BUSINESS AND MERGER
TransDigm Holding Company ("Holdings"), through its wholly-owned operating
subsidiary, TransDigm Inc. ("TransDigm"), is a premier supplier of
proprietary mechanical components servicing predominantly the aircraft
industry. TransDigm, along with its wholly-owned subsidiaries, Marathon
Power Technologies Company ("Marathon"), ZMP, Inc. ("ZMP") and Adams Rite
Aerospace, Inc., ("Adams Rite Aerospace") (collectively, the "Company"),
offers a broad line of component products including tube connectors,
valves, batteries, static inverters, pumps, quick disconnects, clamps,
ball bearing and sliding controls, mechanical hardware, fluid controls,
lavatory hardware, electromechanical controls, and oxygen systems related
products.
On December 3, 1998, Phase II Acquisition Corp. ("Acquiror"), an entity
formed by affiliates of Odyssey Investment Partners, LP ("Odyssey"), and
Holdings consummated a definitive agreement and plan of merger (the
"Merger Agreement" or the "Merger"). Pursuant to the terms of the Merger,
Acquiror was merged with and into Holdings, with Holdings being the
surviving corporation in the Merger (the "Surviving Corporation"). In the
Merger, owners of Holdings' outstanding common stock received, in exchange
for each outstanding share of common stock (except for shares held
directly or indirectly by Holdings or the Rolled Shares, as defined
below), the "Per Share Merger Consideration," as defined in the Merger
Agreement. The aggregate consideration payable pursuant to the Merger,
including amounts payable to holders of options and warrants, was
approximately $299.7 million.
In connection with the Merger, Kelso Investment Associates IV, LP and
Kelso Equity Partners II, LP (collectively, "Kelso") retained
approximately 15.4% of the Surviving Corporation's outstanding common
stock (the "Rolled Shares"). In addition, certain members of management of
Holdings agreed, in connection with and as a condition to entering into
the Merger Agreement, to rollover stock options with an estimated gross
and net value of approximately $17.2 million and $13.7 million,
respectively. The Merger was treated as a recapitalization (the
"Recapitalization") for financial reporting purposes, which had no impact
on the historical basis of Holdings' consolidated assets and liabilities.
Simultaneously with the Merger, Holdings and TransDigm refinanced all of
their existing debt. The Merger, the refinancing, and payment of fees and
expenses were funded by (i) existing cash balances, (ii) investments by
Odyssey of $100.2 million, (iii) funds from a new $120 million Senior
Credit Facility, (iv) funds from $125 million Senior Subordinated Notes
and (v) Holdings PIK Notes of $20 million issued to certain stockholders.
The Senior Credit Facility was subsequently increased to $154 million in
connection with the acquisition of ZMP and Adams Rite Aerospace (see Note
2).
In connection with the Merger, the Company incurred a one-time charge of
approximately $40 million during the year consisting primarily of
compensation costs recognized as a result of the cancellation of certain
stock options, the costs of terminating a financial advisory services
agreement, the write-off of deferred financing costs and professional
advisory fees.
Separate financial statements of TransDigm are not presented since the
Senior Subordinated Notes are guaranteed by Holdings and all direct and
indirect subsidiaries of TransDigm and since Holdings has no operations or
assets separate from its investment in TransDigm.
F-7
<PAGE> 48
2. ACQUISITIONS
ZMP, INC. AND ADAMS RITE AEROSPACE, INC. - On April 23, 1999, TransDigm
acquired all of the outstanding common stock of ZMP, the corporate parent
of Adams Rite, through a merger. Adams Rite manufactures mechanical
hardware, fluid controls, lavatory hardware, electromechanical controls
and oxygen systems related products. The purchase price for the
acquisition was $41 million, subject to adjustment for changes in working
capital and other matters as defined in the merger agreement. The
acquisition was funded through $36 million of additional borrowings under
the Company's credit facility and the use of approximately $5 million of
the Company's cash balances. During the year ended September 30, 2000, the
Company received a purchase price adjustment of $1.6 million, net of
expenses. As a result of the acquisition, ZMP and Adams Rite Aerospace
became wholly-owned subsidiaries of TransDigm.
The Company accounted for the acquisition as a purchase and included the
results of operations of the acquired companies in the accompanying fiscal
1999 consolidated financial statements from the effective date of the
acquisition. The purchase price (including related expenses) was allocated
based on a determination of estimated fair values at the date of the
acquisition as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Current assets $ 18,218
Property and equipment 4,739
Goodwill 23,971
Other assets 382
Current liabilities (6,494)
Other liabilities (451)
--------
Net $ 40,365
========
</TABLE>
Goodwill is being amortized on a straight-line basis over forty years
The following table summarizes the unaudited, consolidated pro-forma
results of operations, as if the acquisition had occurred at the beginning
of the following periods ended September 30 (in thousands):
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Net sales $ 151,624 $ 146,920
Income from operations 1,913 40,069
Net income (loss) (18,646) 13,867
</TABLE>
The consolidated pro-forma operating loss for the year ended September 30,
1999 includes the following charges recognized by Adams Rite Aerospace
prior to the acquisition: (1) $1.4 million ($.84 million after tax) for
compensation expense recognized in connection with a common stock warrant
granted to its former chief executive officer and (2) $.8 million ($.8
million after tax) for costs directly related to the acquisition.
This pro-forma information is not necessarily indicative of the results
that actually would have been obtained if the operations had been combined
as of the beginning of the periods presented and is not intended to be a
projection of future results.
CHRISTIE ELECTRIC CORP. - On March 8, 2000, Marathon acquired all of the
issued and outstanding common shares of Christie Electric Corp.
("Christie") for $2.4 million. The Company accounted for the acquisition
as a purchase and included the results of operations of Christie, which
are not material to the Company's consolidated results of operations, in
its fiscal 2000 consolidated financial statements from the effective date
of acquisition. Goodwill of $1.8 million, which resulted from the
acquisition, is being amortized on a straight-line basis over forty years.
F-8
<PAGE> 49
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION - The accompanying consolidated financial statements include
the accounts of TransDigm Holding Company and subsidiaries. All
significant intercompany balances and transactions have been eliminated.
REVENUE RECOGNITION - Revenue is recognized when products are shipped to
the customer. Any anticipated losses on contracts are charged to earnings
when identified.
CASH EQUIVALENTS - The Company considers all highly liquid investments
with a maturity of three months or less when purchased to be cash
equivalents.
ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS - The Company reserves for amounts
determined to be uncollectible based on specific identification and
historical experience.
INVENTORIES - Inventories are stated at the lower of cost or market. Cost
of inventories is determined by the average cost and the first-in,
first-out (FIFO) methods. Provision for potentially obsolete or
slow-moving inventory is made based on management's analysis of inventory
levels and future sales forecasts. In accordance with industry practice,
all inventories are classified as current assets even though a portion of
the inventories is not expected to be realized within one year.
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are stated
at cost. Depreciation is computed using the straight-line method at rates
based on the estimated useful lives of the assets.
DEBT ISSUE COSTS AND DISCOUNTS - The cost of obtaining financing as well
as debt discounts are amortized using the interest method over the
respective terms of the related debt issues.
INTANGIBLE ASSETS - Intangible assets are amortized on a straight-line
basis over their respective estimated useful lives ranging from 5 to 40
years. The Company assesses the recoverability of intangibles by
determining whether the amortization over the remaining life can be
recovered through projected, undiscounted, future operations.
INCOME TAXES - The Company accounts for income taxes using an asset and
liability approach. Deferred taxes are recorded for the difference between
the book and tax basis of various assets and liabilities.
PRODUCT WARRANTY COSTS - The Company generally provides a one year
warranty on certain products beginning on the date the product is
installed on an aircraft. A provision for estimated sales returns and the
cost of repairs is recorded at the time of sale and periodically adjusted
to reflect actual experience.
PUT WARRANTS - Prior to their redemption in connection with the Merger
(see Note 1), the Company recorded a liability for the estimated put value
of its outstanding warrants to purchase common stock and recognized in
earnings any changes in the estimated put value.
ESTIMATES - The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
COMPREHENSIVE INCOME - The Company's accumulated other comprehensive
income, consisting principally of its minimum pension liability
adjustment, is reported separately in the accompanying consolidated
balance sheets and statements of changes in stockholders' equity
(deficiency), net of taxes of $317,000, $390,000 and $521,000 at September
30, 2000, 1999 and 1998, respectively.
SEGMENT REPORTING - The Company's principal business, aircraft component
supplier, is reported as one segment. In addition, substantially all of
the Company's operations are located within the United States.
F-9
<PAGE> 50
4. SALES AND ACCOUNTS RECEIVABLE
SALES - The Company's sales and receivables are concentrated in the
aircraft industry. The Company's customers consist primarily of original
equipment manufacturers of aircraft and aircraft subassemblies, commercial
airlines, distributors, and various agencies of the United States
government, including the U.S. military.
Information concerning the Company's net sales by its principal product
categories is as follows for the years ended September 30 (in thousands):
<TABLE>
<CAPTION>
2000 1999 1998
<S> <C> <C> <C>
AeroControlex Division (principally mechanical
controls, valves, compressors, and pumps) $ 44,633 $ 47,592 $ 43,363
AdelWiggins Division (principally connectors, clamps,
service systems, heaters and hoses) 44,191 47,418 44,637
Marathon Division (principally batteries and
static inverters) 22,642 20,945 22,868
Adams Rite Aerospace Division (principally
faucets, oxygen systems, hardware and
electromechanical controls) 38,991 14,863
-------- -------- --------
Total $150,457 $130,818 $110,868
======== ======== ========
</TABLE>
For the year ended September 30, 2000, two customers represented
approximately 10% and 9%, respectively, of the Company's net sales. Two
customers represented approximately 15% and 14%, respectively, of the
Company's net sales during the year ended September 30, 1999 and two
customers represented approximately 20% and 14% of the Company's net sales
for the year ended September 30, 1998. Export sales to customers,
primarily in Western Europe, were $36.2 million in 2000, $30.7 million in
1999, and $17.8 million in 1998.
ACCOUNTS RECEIVABLE - Accounts receivable consist of the following at
September 30 (in thousands):
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
Due from U.S. government or prime contractors under
U.S. government programs $ 4,571 $ 2,033
Commercial customers 22,596 20,807
Allowance for uncollectible accounts (371) (441)
-------- --------
Accounts receivable - net $ 26,796 $ 22,399
======== ========
</TABLE>
Approximately 11% of the Company's receivables at September 30, 2000 were
due from one customer and approximately 17% of the receivables were due
from entities, which principally operate outside of the United States.
Credit is extended based on an evaluation of each customer's financial
condition and collateral is generally not required.
F-10
<PAGE> 51
5. INVENTORIES
Inventories consist of the following at September 30 (in thousands):
2000 1999
Work-in-progress and finished goods $ 20,995 $ 18,892
Raw materials and purchased component parts 18,325 17,435
-------- --------
Total 39,320 36,327
Reserve for excess and obsolete inventory (6,431) (7,110)
-------- --------
Inventories - net $ 32,889 $ 29,217
======== ========
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following at September 30 (in
thousands):
2000 1999
Land and improvements $ 4,720 $ 4,691
Buildings and improvements 10,687 10,404
Machinery and equipment 30,437 28,211
Furniture and fixtures 4,220 3,222
Construction in progress 1,014 274
-------- --------
Total 51,078 46,802
Accumulated depreciation (26,049) (21,380)
-------- --------
Property, plant and equipment - net $ 25,029 $ 25,422
======== ========
7. INTANGIBLE ASSETS
Intangible assets, net of accumulated amortization, consist of the
following at September 30 (in thousands):
2000 1999
Goodwill $56,176 $57,284
Technology and other 781 1,271
------- -------
Total $56,957 $58,555
======= =======
Accumulated amortization of intangibles was $20.3 million at September 30,
2000 and $18.5 million at September 30, 1999.
8. ACCRUED LIABILITIES
Accrued liabilities consist of the following at September 30 (in
thousands):
2000 1999
Compensation and related benefits $ 5,281 $ 5,260
Interest 4,857 4,593
Estimated losses on uncompleted contracts 1,900 2,809
Sales returns and repairs 1,467 1,841
Other 1,955 1,216
------- -------
Total $15,460 $15,719
======= =======
F-11
<PAGE> 52
9. DEBT
SUMMARY - The Company's long-term debt consists of the following at
September 30 (in thousands):
2000 1999
Term loans $ 111,962 $ 119,557
Senior Subordinated Notes 125,000 125,000
Holdings PIK Notes 24,639 22,000
--------- ---------
Total debt 261,601 266,557
Current maturities (10,953) (7,595)
--------- ---------
Long-term portion $ 250,648 $ 258,962
========= =========
REVOLVING CREDIT, SWING LINE, AND TERM LOANS - In connection with the
Merger (see Note 1) and the acquisition of ZMP and Adams Rite (see Note
2), TransDigm repaid its existing term loans and obtained a new $154
million Senior Credit Facility with a group of financial institutions,
which consists of (1) a $30 million revolving credit line (including $3
million of available swing line loans) maturing in 2004 and (2) a term
loan facility in the aggregate of $124 million, consisting of a $62
million Tranche A Facility maturing in 2004 and a $62 million Tranche B
Facility maturing in 2006. At September 30, 2000, the Company had $30
million of borrowings (the entire revolving credit line) available under
the credit facility.
The interest rate for the credit facility is, at TransDigm's option,
either (A) a floating rate equal to the Base Rate plus the Applicable
Margin, as defined in the credit facility; or (B) the Eurodollar Rate for
fixed periods of one, two, three, or six months, plus the Applicable
Margin. The credit facility is subject to mandatory prepayment with a
defined percentage of net proceeds from certain asset sales, insurance
proceeds or other awards that are payable in connection with the loss,
destruction or condemnation of any assets, certain new debt and equity
offerings and 50% of excess cash flow (as defined in the credit facility)
in excess of a predetermined amount under the credit facility. The
interest rate on outstanding borrowings at September 30, 2000 ranged from
9.625% to 10.125%.
All obligations under the Senior Credit Facility are guaranteed by
Holdings and each of the subsidiaries, direct and indirect, of TransDigm.
The indebtedness outstanding under the Senior Credit Facility is secured
by a pledge of the stock of TransDigm and all of its domestic subsidiaries
and a perfected lien and security interest in assets other than real
estate (tangible and intangible) of TransDigm, its direct and indirect
subsidiaries and Holdings. The agreement also contains a number of
restrictive covenants that, among other things, restrict Holdings,
TransDigm and their subsidiaries from various actions, including mergers
and sales of assets, use of proceeds, granting of liens, incurrence of
indebtedness, voluntary prepayment of indebtedness, capital expenditures,
payment of dividends, business activities, investments and acquisitions,
and transactions with affiliates. The agreement also requires the Company
to comply with certain financial covenants pertaining to earnings,
interest coverage and leverage. The Company is in compliance with all
financial covenants of the Senior Credit Facility as of September 30,
2000. The maturities of the Company's term loans by fiscal year are as
follows: $11 million in both 2001 and 2002, $14.4 million in 2003, $13.8
million in 2004, $32.6 million in 2005 and $29.2 million thereafter.
SENIOR SUBORDINATED NOTES - TransDigm's Senior Subordinated Notes (the
"Notes") bear interest at an annual rate of 10 3/8%, maturing on December
1, 2008, and are unsecured obligations of TransDigm ranking subordinate to
the Company's senior debt, as defined in the note agreement. Up to 35% of
the Notes are redeemable by TransDigm prior to December 1, 2001 with the
proceeds of an equity offering. The Notes are also redeemable after
December 1, 2003, in whole or in part, at specified redemption prices,
which decline over the remaining term of the Notes. If a change in control
of the Company occurs, the holders of the Notes will have the right to
demand that the Company redeem the Notes at a purchase price equal to 101%
of the principal amount of the Notes plus accrued interest. The Notes
contain many of the same restrictive covenants included in the Senior
Credit Facility. The Company is in compliance with all financial covenants
of the Notes as of September 30, 2000.
F-12
<PAGE> 53
HOLDINGS PIK NOTES - In connection with the Merger (see Note 1), Holdings
issued $20 million of pay-in-kind notes due 2009 ("Holdings PIK Notes" or
"PIK Notes"). The PIK Notes are unsecured obligations of Holdings, which
has no significant assets or operations. Interest on the PIK Notes is
accrued at an annual fixed rate of 12% and is payable semi-annually in the
form of additional PIK Notes through December 2003. Thereafter, cash
interest is payable semi-annually commencing in the year 2004. The PIK
Notes are redeemable by Holdings prior to their maturity under certain
circumstances and contain many of the same restrictive covenants included
in the Notes and Senior Credit Facility. The Company is in compliance with
all financial covenants of the PIK Notes as of September 30, 2000.
10. RETIREMENT PLANS
The Company has two non-contributory defined benefit pension plans which
together cover all of its union employees. The plans provide benefits of
stated amounts for each year of service. The Company's funding policy is
to contribute actuarially determined amounts allowable under Internal
Revenue Service regulations. The plans' assets consist primarily of
guaranteed investment contracts with an insurance company.
Financial information for the defined benefit plans is provided below (in
thousands):
<TABLE>
<CAPTION>
YEARS ENDED
SEPTEMBER 30,
-----------------------
2000 1999
<S> <C> <C>
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation, beginning of year $ 4,841 $ 4,969
Service cost 87 83
Interest cost 333 319
Benefits paid (261) (252)
Change in actuarial assumptions 34 (278)
------- -------
Benefit obligation, end of year $ 5,034 $ 4,841
======= =======
CHANGE IN PLAN ASSETS:
Fair value of plan assets, beginning of year $ 3,381 $ 2,817
Actual return on plan assets 220 223
Employer contribution 506 593
Benefits paid (261) (252)
------- -------
Fair value of plan assets, end of year $ 3,846 $ 3,381
======= =======
AMOUNTS RECOGNIZED IN THE CONSOLIDATED BALANCE SHEETS AT
SEPTEMBER 30 CONSIST OF: 2000 1999
Intangible assets $ (267) $ (208)
Accrued liabilities 500 600
Non-current portion of accrued pension costs 688 861
Accumulated other comprehensive loss (793) (872)
------- -------
Net amount recognized $ 128 $ 381
======= =======
</TABLE>
F-13
<PAGE> 54
<TABLE>
<CAPTION>
2000 1999
WEIGHTED-AVERAGE ASSUMPTIONS AS OF SEPTEMBER 30:
<S> <C> <C>
Discount rate 7.0% 7.0%
Expected return on plan assets 6.0% 6.0%
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
----------------------------------
2000 1999 1998
Components of net periodic benefit cost:
<S> <C> <C> <C>
Service cost $ 87 $ 83 $ 86
Interest cost 333 319 306
Expected return on plan assets (210) (177) (190)
Net amortization and deferral 71 70 94
----- ----- -----
Net periodic pension cost $ 281 $ 295 $ 296
===== ===== =====
</TABLE>
The Company also sponsors certain defined contribution employee savings
plans that cover substantially all of the Company's non-union employees.
Under the plans, the Company contributes a percentage of employee
compensation and matches a portion of employee contributions. The cost
recognized for such contributions under these plans for the years ended
September 30, was approximately $1.2 million, $.7 million, and $.6 million
in 2000, 1999 and 1998, respectively.
11. INCOME TAXES
The provision (benefit) for income taxes consists of the following for the
years ended September 30 (in thousands):
<TABLE>
<CAPTION>
2000 1999 1998
<S> <C> <C> <C>
Current $ 6,288 $ (1,694) $ 13,327
Deferred 1,545 (481) (341)
Net operating loss carryforward -
state and local income taxes 139 (597) --
-------- --------- --------
Total $ 7,972 $ (2,772) $ 12,986
======== ========= =========
</TABLE>
The difference between the provision (benefit) for income taxes at the
federal statutory income tax rate and the tax shown in the consolidated
statements of operations for the years ended September 30 are as follows
(in thousands):
<TABLE>
<CAPTION>
2000 1999 1998
<S> <C> <C> <C>
Tax at statutory rate of 35% (34% in 1999 and 1998) $ 6,563 $ (6,694) $ 9,493
State and local income taxes 700 (56) 1,053
Nondeductible merger expenses 4,290
Nondeductible warrant put value adjustment 2,289
Benefit from foreign sales corporation (363) (615) (349)
Nondeductible goodwill amortization
and interest expense 711 526 353
Other - net 361 (223) 147
-------- -------- --------
Provision (benefit) for income taxes $ 7,972 $ (2,772) $ 12,986
======== ======== ========
</TABLE>
F-14
<PAGE> 55
The components of the deferred tax assets at September 30 consist of the
following (in thousands):
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
CURRENT ASSET:
Inventory $ 1,921 $ 2,200
Estimated losses on uncompleted contracts 741 1,143
Employee benefits 1,343 1,379
Sales returns and repairs 456 697
Other accrued liabilities 736 598
Net operating loss carryforwards -
state and local income taxes (expiring from 2004 through 2014) 460 597
------- -------
Total $ 5,657 $ 6,614
======= =======
NON-CURRENT ASSET:
Intangible assets $ 3,202 $ 3,639
Retirement and other accrued obligations 1,120 1,215
Holdings PIK Notes interest 1,689 680
Property, plant and equipment (1,562) (914)
------- -------
Total $ 4,449 $ 4,620
======= =======
</TABLE>
12. COMMON STOCK AND OPTIONS
COMMON STOCK - Authorized capital stock of the Company consists of
900,000 shares of common stock (voting), par value $.01 per share and
100,000 shares of Class A (non-voting) common stock. The total number of
shares of voting common stock outstanding at September 30, 2000 and 1999
was 119,824 and 121,195, respectively. No shares of Class A (non-voting)
common stock were outstanding at September 30, 2000 and 1999. Common
stock issued to management personnel is subject to the Management
Shareholders' Agreement which provides management shareholders the right
(a "put") to require the Company to repurchase their shares of common
stock under certain conditions at fair market value. Accordingly, the
estimated put value of the outstanding shares of voting common stock held
by management (1,162 and 1,270 shares at September 30, 2000 and 1999,
respectively) has been classified as redeemable common stock in the
accompanying consolidated balance sheets.
The Company issued 101,503* shares of common stock (voting) principally to
Odyssey in connection with the Merger in 1999 (see Note 1).
The Company also repurchased common stock (voting and non-voting Class A),
principally as a result of the Merger in 1999 (see Note 1) and from
terminated employees in 1998, as follows (dollars in thousands):
YEARS ENDED SEPTEMBER 30,
------------------------------
2000 1999 1998
Number of shares* 231,448 175
======== ======== ========
Acquisition costs* $247,192 $ 71
======== ======== ========
* - Excluding put warrants and redeemable common stock.
F-15
<PAGE> 56
STOCK OPTIONS - The Company has certain stock option plans for its
employees. The options generally vest upon the earlier of: (1) the
occurrence of certain events such as the achievement of certain earnings
targets or a change in the control of the Company or (2) certain specified
dates in the option agreements. The options are not exercisable more than
ten years after the date the options are granted. A summary of the status
of the Company's stock option plans as of September 30, 2000, 1999, and
1998 and changes during the years then ended is presented below:
<TABLE>
<CAPTION>
2000 1999 1998
--------------------------- ---------------------------- ------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year 30,399 $ 623 37,467 $ 158 37,467 $ 158
Granted 1,695 1,180 15,115 1,040
Exercised/cancelled
(see Note 1) (2,563) 864 (22,183) 121
------- ------- -------
Outstanding at end of year 29,531 634 30,399 623 37,467 158
======= ======= =======
Exercisable at end of year 16,516 300 17,084 298 19,670 113
======= ======= =======
</TABLE>
The following table summarizes information about stock options outstanding
at September 30, 2000:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------------------
WEIGHTED-AVERAGE
EXERCISE NUMBER REMAINING NUMBER
PRICES OUTSTANDING CONTRACTUAL LIFE EXERCIEABLE
<S> <C> <C> <C>
$ 100 7,002 3.8 7,002
154 172 4.8 172
200 1,245 5.5 1,245
335 6,297 6.5 6,297
1,040 13,120 8.6 1,800
1,180 1,695 9.8 -
------ ------
29,531 16,516
====== ======
</TABLE>
At September 30, 2000, 4,175 remaining options were available for award
under the Company's stock option plans.
The Company applies Accounting Principles Board Opinion No. 25 and related
interpretations in accounting for its stock option plans. No compensation
cost has been recognized for its stock option plans. Had compensation cost
for the Company's stock option plans been determined based on the fair
value at the grant dates for awards under those plans consistent with the
method specified in Statement No. 123 of the FASB, the Company's net
income for the year ended September 30, 2000 would have been reduced by
approximately $146,000. The Company's net loss for the year ended
September 30, 1999 would have increased by approximately $301,000 and the
Company's net income for the year ended September 30, 1998 would have been
reduced by $115,000.
The weighted average fair value of options granted during the years ended
September 30, 2000, 1999 and 1998 was $399, $383 and $126, respectively.
The fair value of the options granted was estimated on the date of grant
using the Black-Scholes option-pricing model with the following
assumptions: risk-free interest rates ranging from 5.40% to 6.85%,
expected life of approximately seven years, expected volatility and
dividend yield of 0%.
F-16
<PAGE> 57
13. LEASES
The Company leases office space for its corporate headquarters and one of
its divisions. The Company also leases the manufacturing facility utilized
by Adams Rite. The office space lease requires rental payments of
approximately $200,000 per year through 2004. TransDigm may also be
required to share in the operating costs of the facility under certain
conditions. The Adams Rite facility lease requires rental payments ranging
from $540,000 to $780,000 through December 2012. TransDigm also has
commitments under operating leases for vehicles and equipment. Rental
expense was $978,000 in 2000, $688,000 in 1999, and $599,000 in 1998.
Future, minimum rental commitments at September 30, 2000 under operating
leases having initial or remaining non-cancelable lease terms exceeding
one year are $947,000 in 2001, $899,000 in 2002, $840,000 in 2003,
$797,000 in 2004, $631,000 in 2005, and $5,176,000 thereafter.
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has various financial instruments, including cash and cash
equivalents, accounts receivable and payable, accrued liabilities and
long-term debt. The carrying value of the Company's cash and cash
equivalents, accounts receivable and payable, and accrued liabilities
approximates their fair value due to the short-term maturities of these
assets and liabilities. The Company also believes that the aggregate fair
value of its term loans approximates its carrying amount because the
interest rates on the debt are reset on a frequent basis to reflect
current market rates. The fair value of the Company's Senior Subordinated
Notes approximated $106 million at September 30, 2000 based upon quoted
market prices. A determination of the fair value of the Holdings PIK Notes
is not considered practicable because they are held by a related party
(see Note 1) and are not publicly traded.
15. CONTINGENCIES
ENVIRONMENTAL - The soil and groundwater beneath the Company's facility in
Waco, Texas have been impacted by releases of hazardous materials. The
resulting contaminants of concern have been delineated and characterized.
Because the majority of these contaminants are presently below action
levels prescribed by the Texas Natural Resources Conservation Commission
("TNRCC"), and because a $2 million escrow was previously funded in
connection with the Company's acquisition of Marathon to cover the cost of
remediation that TNRCC might require for those contaminants currently in
excess of action limits, the Company does not believe the condition of the
soil and groundwater at the Waco facility will require incurrence of
material expenditures; however, there can be no assurance that additional
contamination will not be discovered or that the remediation required by
the TNRCC will not be material to the financial condition, results of
operations, or cash flows of the Company.
During September 1998, the former owner of Marathon filed a lawsuit
against the Company to release the environmental escrow alleging that the
Company had violated the requirements of the Stock Purchase Agreement
relating to the investigation of the presence of certain contaminants at
the Waco, Texas facility. The Company has filed counter claims against the
seller and the ultimate outcome of this matter cannot presently be
determined.
OTHER - While the Company is currently involved in certain legal
proceedings, management believes the results of these proceedings will not
have a material effect on the financial condition, results of operations
or cash flows of the Company. During the ordinary course of business, the
Company is from time to time threatened with, or may become a party to,
legal actions and other proceedings. The Company believes that its
potential exposure to such legal actions is adequately covered by its
aviation product and general liability insurance.
F-17
<PAGE> 58
16. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------
DECEMBER 31 MARCH 31 JUNE 30 SEPTEMBER 30
(IN THOUSANDS)
<S> <C> <C> <C> <C>
YEAR ENDED SEPTEMBER 30, 2000
Net sales $ 33,734 $ 36,434 $ 40,233 $ 40,056
Gross profit 15,599 16,609 18,179 17,877
Net income 2,100 2,717 3,429 2,533
THREE MONTHS ENDED
------------------------------------------------------------------
JANUARY 1 APRIL 2 JULY 2 SEPTEMBER 30
(IN THOUSANDS)
YEAR ENDED SEPTEMBER 30, 1999
Net sales $ 28,194 $ 31,129 $ 36,438 $ 35,057
Gross profit 13,257 15,136 16,688 15,786
Net income (loss) (24,824) 2,958 2,436 2,513
</TABLE>
17. NEW ACCOUNTING STANDARD
In June 1998, the Financial Accounting Standards Board issued Statement
No. 133, Accounting for Derivative Instruments and Hedging Activities.
This statement establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded
in other contracts (collectively referred to as derivatives), and for
hedging activities. It requires that an entity recognize all derivatives
as either assets or liabilities in the statement of financial position and
measure those instruments at fair value. If certain conditions are met, a
derivative may be specifically designated as (a) a hedge of the exposure
to changes in the fair value of a recognized asset or liability or an
unrecognized firm commitment, (b) a hedge of the exposure to variable cash
flows of a forecasted transaction, or (c) a hedge of the foreign currency
exposure of a net investment in a foreign operation, an unrecognized firm
commitment, an available-for-sale security, or a
foreign-currency-denominated forecasted transaction. The Company will
adopt this standard during fiscal 2001. The implementation of this
standard will not have a significant impact on the Company's reported
financial condition or results of operations.
* * * * * *
F-18
<PAGE> 59
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of
TransDigm Holding Company
We have audited the consolidated balance sheets of TransDigm Holding Company and
its subsidiaries (the "Company") as of September 30, 2000 and 1999, and the
related consolidated statements of operations, changes in stockholders' equity
(deficiency) and of cash flows for each of the three years in the period ended
September 30, 2000 and have issued our report thereon dated November 10, 2000;
such consolidated financial statements and report are included on pages F-1
through F-18 of this Form 10-K. Our audits also included the consolidated
financial statement schedule of the Company, shown on page F-20. This
consolidated financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, such consolidated financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
DELOITTE & TOUCHE LLP
Cleveland, Ohio
November 10, 2000
F-19
<PAGE> 60
TRANSDIGM HOLDING COMPANY
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED SEPTEMBER 30, 2000, 1999 AND 1998
(in thousands)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
------------------------------------------
ADDITIONS
------------------------------------------
BALANCE AT CHARGED TO DEDUCTIONS BALANCE AT
BEGINNING OF COSTS AND CHRISTIE ZMP FROM END OF
DESCRIPTION PERIOD EXPENSES ACQUISITION ACQUISITION RESERVE (1) PERIOD
<S> <C> <C> <C> <C> <C> <C>
Year Ended September 30, 2000:
Allowance for doubtful accounts $ 441 $ 60 $ 20 $ 150 $ 371
Reserve for excess and
and obsolete inventory 7,110 684 100 1,463 6,431
Sales returns and repairs 1,841 (267) 100 207 1,467
Environmental 157 35 17 162 47
Year Ended September 30, 1999:
Allowance for doubtful accounts 265 35 $ 150 9 441
Reserve for excess and
and obsolete inventory 4,335 (437) 2,583 (629) 7,110
Sales returns and repairs 1,391 392 828 770 1,841
Environmental 280 (42) 81 157
Year Ended September 30, 1998:
Allowance for doubtful accounts 503 (165) 73 265
Reserve for excess and
and obsolete inventory 3,771 773 209 4,335
Sales returns and repairs 1,797 273 679 1,391
Environmental 683 (158) 245 280
</TABLE>
(1) For the allowance for doubtful accounts and reserve for excess and
obsolete inventory, the amounts in this column represent charge-offs net
of recoveries. For the sales returns and repairs and environmental
accrued liabilities, the amounts primarily represent expenditures charged
against liabilities.
F-20
<PAGE> 61
EXHIBIT INDEX
TO FORM 10K FOR THE YEAR ENDED SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
<S> <C> <C>
12.1 Computation of Ratio of Earnings to Fixed Charges i
12.2 Ratio of EBITDA (As Defined) to Interest Expense ii
12.3 Ratio of EBITDA (As Defined) to Interest Expense (As Defined) iii
12.4 Ratio of Total Debt to EBITDA (As Defined) iv
24.1 Power of Attorney - TransDigm Holding Company v
24.2 Power of Attorney - TransDigm Inc. vi
24.3 Power of Attorney - Marathon Power Technologies Company vii
24.4 Power of Attorney - ZMP, Inc. viii
24.5 Power of Attorney - Adams Rite Aerospace, Inc. ix
27 Financial Data Schedule x
</TABLE>
F-21
