<Page>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
<Table>
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended March 30, 2002.
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from __________________ to _________________
Commission File Number 333-71397
----------------------------------------------------------------------------------------------
TransDigm Inc. TransDigm Holding Company
- ----------------------------------------------------------- ------------------------------------------------------
(Exact name of registrant as specified in its charter) (Exact name of registrant as specified in its
charter)
Delaware Delaware
- ----------------------------------------------------------- ------------------------------------------------------
(State or other Jurisdiction of (State or other Jurisdiction of
incorporation or organization) incorporation or organization)
34-1750032 13-3733378
- ----------------------------------------------------------- ------------------------------------------------------
(I.R.S. Employer Identification No.) (I.R.S. Employer Identification No.)
26380 Curtiss Wright Parkway, Richmond Heights, Ohio 44143
- --------------------------------------------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(216) 289-4939
- --------------------------------------------------------------------------------------------------------------------
(Registrants' telephone number, including area code)
- --------------------------------------------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES /X/ No / /
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock (Voting) of TransDigm Holding Company,
$0.01 Par Value 119,804
- ---------------------------------------------------------------- ---------------------------------------
(Class) (Outstanding at March 30, 2002)
Class A Common Stock (Non-Voting) of
TransDigm Holding Company, $0.01 Par Value -0-
- ---------------------------------------------------------------- ---------------------------------------
(Class) (Outstanding at March 30, 2002)
</Table>
All of the outstanding capital stock of TransDigm Inc. is held by TransDigm
Holding Company.
<Page>
INDEX
<Table>
<Caption>
Page
Part I: FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets - March 30, 2002 and
September 30, 2001 1
Consolidated Statements of Income - Thirteen and Twenty-Six Week
Periods Ended March 30, 2002 and March 31, 2001 2
Consolidated Statement of Changes in Stockholders' Deficiency -
Twenty-Six Week Period Ended March 30, 2002 3
Consolidated Statements of Cash Flows - Twenty-Six Week Periods
Ended March 30, 2002 and March 31, 2001 4
Notes to Consolidated Financial Statements 5
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Item 3 Quantitative and Qualitative Disclosure About Market Risk 15
Part II: Other Information
Item 6 Exhibits and Reports on Form 8-K 16
Signatures 17
</Table>
<Page>
PART I: FINANCIAL INFORMATION
ITEM 1
<Table>
<Caption>
TRANSDIGM HOLDING COMPANY
CONSOLIDATED BALANCE SHEETS
(In Thousands of Dollars)
- --------------------------------------------------------------------------
MARCH 30,
2002 SEPTEMBER 30,
ASSETS (Unaudited) 2001
----------- -------------
CURRENT ASSETS:
Cash and cash equivalents $ 28,975 $ 11,221
Accounts receivable, net 32,536 40,215
Inventories (Note 3) 49,600 47,872
Deferred income taxes 9,749 9,749
Prepaid expenses and other 1,009 447
--------- ---------
Total current assets 121,869 109,504
PROPERTY, PLANT AND EQUIPMENT - Net 39,677 42,095
INTANGIBLE ASSETS - Net 201,311 203,858
DEBT ISSUE COSTS - Net 11,230 12,494
DEFERRED INCOME TAXES AND OTHER 4,942 4,947
--------- ---------
TOTAL $ 379,029 $ 372,898
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Current portion of long-term liabilities $ 18,965 $ 15,822
Accounts payable 7,861 9,181
Accrued liabilities 30,501 28,829
--------- ---------
Total current liabilities 57,327 53,832
LONG-TERM DEBT - Less current portion 391,839 399,587
OTHER NON-CURRENT LIABILITIES 6,143 8,033
--------- ---------
Total liabilities 455,309 461,452
--------- ---------
CUMULATIVE REDEEMABLE PREFERRED STOCK 14,558 13,222
REDEEMABLE COMMON STOCK (Note 4) 1,701 1,612
STOCKHOLDERS' DEFICIENCY:
Common stock 102,080 102,080
Warrants 1,934 1,934
Retained deficit (196,052) (206,901)
Accumulated other comprehensive loss (501) (501)
--------- ---------
Total stockholders' deficiency (92,539) (103,388)
--------- ---------
TOTAL $ 379,029 $ 372,898
========= =========
</Table>
See notes to consolidated financial statements.
1
<Page>
TRANSDIGM HOLDING COMPANY
<Table>
<Caption>
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THIRTEEN AND TWENTY-SIX WEEK PERIODS ENDED
MARCH 30, 2002 AND MARCH 31, 2001
(In Thousands of Dollars)
(Unaudited)
- ----------------------------------------------------------------------------------------
Thirteen Week Twenty-Six Week
Periods Ended Periods Ended
--------------------- ----------------------
March 30, March 31, March 30, March 31,
2002 2001 2002 2001
NET SALES $ 59,888 $ 42,084 $117,613 $ 77,864
COST OF SALES (Including charge of
$156 during the periods ending
March 31, 2001 due to inventory
purchase accounting adjustments) 32,450 22,827 64,148 42,820
-------- -------- -------- --------
GROSS PROFIT 27,438 19,257 53,465 35,044
-------- -------- -------- --------
OPERATING EXPENSES:
Selling and administrative 5,135 4,283 10,475 8,539
Amortization of intangibles 1,774 420 3,167 839
Research and development 692 688 1,372 1,201
-------- -------- -------- --------
Total operating expenses 7,601 5,391 15,014 10,579
-------- -------- -------- --------
INCOME FROM OPERATIONS 19,837 13,866 38,451 24,465
INTEREST EXPENSE - Net 8,281 7,250 16,885 14,281
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES 11,556 6,616 21,566 10,184
INCOME TAX PROVISION 4,970 2,687 9,277 4,269
-------- -------- -------- --------
NET INCOME $ 6,586 $ 3,929 $ 12,289 $ 5,915
======== ======== ======== ========
</Table>
See notes to consolidated financial statements.
2
<Page>
TRANSDIGM HOLDING COMPANY
<Table>
<Caption>
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIENCY
FOR THE TWENTY-SIX WEEK PERIOD ENDED MARCH 30, 2002
(In Thousands of Dollars)
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------
ACCUMULATED
OTHER
COMMON RETAINED COMPREHENSIVE
STOCK WARRANTS DEFICIT LOSS TOTAL
--------- --------- --------- --------- ---------
BALANCE, OCTOBER 1, 2001 $ 102,080 $ 1,934 $(206,901) $ (501) $(103,388)
Net income 12,289 12,289
Accretion of redeemable common stock (104) (104)
Cumulative redeemable preferred stock:
Dividends accrued (1,200) (1,200)
Amortization of original issue discount (136) (136)
--------- --------- --------- --------- ---------
BALANCE, MARCH 30, 2002 $ 102,080 $ 1,934 $(196,052) $ (501) $ (92,539)
========= ========= ========= ========= =========
</Table>
See notes to consolidated financial statements.
3
<Page>
TRANSDIGM HOLDING COMPANY
<Table>
<Caption>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE TWENTY-SIX WEEK PERIODS ENDED
MARCH 30, 2002 AND MARCH 31, 2001
(In Thousands of Dollars)
(Unaudited)
- --------------------------------------------------------------------------------------
Twenty-Six Week
Periods Ended
-----------------------
March 30, March 31,
2002 2001
-------- --------
OPERATING ACTIVITIES:
Net income $ 12,289 $ 5,915
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 3,474 2,510
Amortization of intangibles 3,167 839
Amortization of debt issue costs 1,264 804
Interest deferral on Holdings PIK Notes 1,626 1,452
Changes in assets and liabilities, net of effects from
acquisition of business:
Accounts receivable 7,679 2,890
Inventories (1,728) (2,740)
Other assets (1,177) 1,233
Accounts payable (1,320) 617
Accrued liabilities and other 182 (1,283)
-------- --------
Net cash provided by operating activities 25,456 12,237
-------- --------
INVESTING ACTIVITIES:
Capital expenditures (1,056) (1,691)
Acquisition of product line -- (6,640)
-------- --------
Net cash used in investing activities (1,056) (8,331)
-------- --------
FINANCING ACTIVITIES:
Net borrowings under revolving credit loans -- 4,000
Repayment of term loans (6,631) (5,477)
Purchase of capital stock (15) (139)
-------- --------
Net cash used in financing activities (6,646) (1,616)
-------- --------
INCREASE IN CASH AND CASH EQUIVALENTS 17,754 2,290
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 11,221 4,309
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 28,975 $ 6,599
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 13,891 $ 12,074
======== ========
Cash paid during the period for income taxes $ 8,574 $ 2,710
======== ========
</Table>
See notes to consolidated financial statements.
4
<Page>
TRANSDIGM HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THIRTEEN AND TWENTY-SIX WEEK PERIODS ENDED
MARCH 30, 2002 AND MARCH 31, 2001
- --------------------------------------------------------------------------------
1. DESCRIPTION OF THE BUSINESS
TransDigm Holding Company ("Holdings"), through its wholly-owned operating
subsidiary, TransDigm Inc. ("TransDigm"), is a leading supplier of highly
engineered power system and airframe components servicing predominantly
the aerospace industry. TransDigm, which includes the AeroControlex and
AdelWiggins Groups, along with its wholly-owned subsidiaries, Champion
Aerospace Inc. ("Champion"), Marathon Power Technologies Company
("Marathon"), ZMP, Inc. ("ZMP"), and Adams Rite Aerospace, Inc. ("Adams
Rite") (collectively, the "Company") offers a broad line of proprietary
aerospace components. Major product offerings in the Power System
Components category include ignition system components, fuel and lube
pumps, mechanical controls, and batteries and chargers. Major product
offerings in the Airframe System Components category include engineered
connectors, engineered latches, and lavatory hardware and components.
2. UNAUDITED INTERIM FINANCIAL INFORMATION
Except for the September 30, 2001 consolidated balance sheet, which was
derived from the Company's audited financial statements, the financial
information included herein is unaudited; however, the information
reflects all adjustments (consisting solely of normal recurring
adjustments) that are, in the opinion of management, necessary for a fair
presentation of the Company's financial position and results of operations
and cash flows for the interim periods presented. The results of
operations for the thirteen and twenty-six week periods ended March 30,
2002 are not necessarily indicative of the results to be expected for the
full year.
3. INVENTORIES
Inventories are stated at the lower of cost or market. Cost of inventories
is determined by the average cost and the first-in, first-out (FIFO)
methods. Inventories consist of the following (in thousands):
<Table>
<Caption>
MARCH 30, SEPTEMBER 30,
2002 2001
-------- -------------
Work-in-progress and finished goods $ 32,060 $ 36,787
Raw materials and purchased component parts 24,920 18,380
-------- --------
Total 56,980 55,167
Reserve for excess and obsolete inventory (7,380) (7,295)
-------- --------
Inventories - net $ 49,600 $ 47,872
======== ========
</Table>
4. CONTINGENCIES
ENVIRONMENTAL - The Company has been addressing contaminated soil and
groundwater beneath its facility in Waco, Texas. Although there can be no
assurance that material expenditures will not be required in the future to
address currently unidentified contamination or to satisfy further
requirements of the Texas Natural Resources Conservation Commission
("TNRCC"), the Company believes that the current soil and groundwater
remediation at the Waco facility will not require the incurrence of
material expenditures.
In connection with the Company's acquisition of Marathon, a $2 million
escrow was created to cover the cost of remediation that TNRCC might
require at the facility. 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.
5
<Page>
PUT OPTION - During the thirteen-week period ended March 30, 2002, a put
option ("put") became exercisable enabling the holder to require the
Company to purchase up to 80% of his Common Stock (including shares
acquired through the exercise of stock options and held at least six
months) at fair value, subject to certain restrictions under the Company's
long-term debt agreements and his continued service as Chairman of the
Board of Holdings and TransDigm. As of March 30, 2002, there were no
outstanding shares of Common Stock subject to the put; however, 8,114
shares of Common Stock that can be acquired under exercisable stock
options at March 30, 2002 are subject to the put. The estimated fair value
of such shares, net of the exercise price of the related stock options,
totaled approximately $8.6 million at March 30, 2002. An additional 2,475
shares of Common Stock that are issuable in the future if certain stock
options become exercisable upon the occurrence of certain events (change
in control, achievement of certain earnings targets, etc.) or certain
specified dates in the option agreements are also subject to the put. The
estimated fair value of such shares, net of the exercise price of the
related stock options, totaled approximately $1.1 million at March 30,
2002.
OTHER - During the ordinary course of business, the Company is from time
to time threatened with, or may become a party to, legal actions and other
proceedings. While the Company is currently involved in some legal
proceedings, it believes the results of these proceedings will not have a
material effect on its financial condition, results of operations, or cash
flows. The Company believes that its potential exposure to such legal
actions is adequately covered by its aviation product and general
liability insurance.
5. ACQUISITION
CHAMPION AEROSPACE- Through a newly-formed, wholly-owned subsidiary,
Champion Aerospace Inc., TransDigm acquired substantially all of the
assets and certain liabilities of the Champion Aviation Products
("Champion Aerospace") business on May 31, 2001 (the "Acquisition") from
Federal Mogul Ignition Company ("Federal-Mogul"), a wholly-owned
subsidiary of Federal-Mogul Corporation, for approximately $160.1 million
in cash, subject to adjustment based on the level of acquired working
capital as of the closing of the Acquisition. Champion Aerospace is
engaged in researching, designing, developing, engineering, manufacturing,
marketing, distributing and selling ignition systems and related
components and other products (including, without limitation, igniters,
spark plugs, and exciters) for turbine and piston aircraft applications as
well as other aerospace engine and industrial applications.
The purchase price consideration of $160.1 million in cash and $2.2
million of costs associated with the Acquisition was funded through: (1)
$147.6 million of new borrowings under the Company's existing Senior
Credit Facility, (2) $14.3 million received (net of fees of $.7 million)
from the issuance of $15 million of Holdings' 16 percent Cumulative
Redeemable Preferred Stock and warrants to purchase 1,381.87 shares of
Holdings' common stock, and (3) the use of $.4 million of the Company's
existing cash balances. TransDigm also borrowed an additional $15 million
under the Senior Credit Facility to pay $5 million of debt issuance costs
and provide $10 million of working capital for future operations.
Approximately $2.6 million of the additional borrowings were obtained
under the Company's revolving credit line, $45 million was added to the
Company's existing Tranche B Facility, and $115 million was borrowed in
the form of a new Tranche C Facility maturing in May 2007 under the Senior
Credit Facility.
The Company accounted for the Acquisition as a purchase and included the
results of operations of the acquired business in its fiscal 2001
consolidated financial statements from the effective date of the
Acquisition. The purchase price was allocated based on a preliminary
determination, which is subject to adjustment, of estimated fair values at
the date of the Acquisition and resulted in goodwill of approximately $134
million being recorded on the Company's consolidated balance sheet. This
goodwill is being amortized on a straight-line basis over forty years.
6
<Page>
The following table summarizes the unaudited, consolidated pro forma
results of operations of the Company, as if the Acquisition had occurred
at the beginning of the twenty-six week period ended March 31, 2001 (in
thousands):
<Table>
Net sales $ 113,037
Operating income $ 33,087
Net income $ 8,188
</Table>
This pro forma information is not necessarily indicative of the results
that actually would have been obtained if the operations had been combined
as of the beginning of the period presented and is not intended to be a
projection of future results.
* * * * *
7
<Page>
PART I: FINANCIAL INFORMATION
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
REFERENCES IN THIS SECTION TO "TRANSDIGM" ARE TO TRANSDIGM INC. REFERENCES TO
"HOLDINGS" ARE TO TRANSDIGM HOLDING COMPANY, WHICH OWNS ALL OF THE OUTSTANDING
CAPITAL STOCK OF TRANSDIGM. REFERENCES TO THE "COMPANY" ARE TO HOLDINGS,
TOGETHER WITH TRANSDIGM AND ITS SUBSIDIARIES.
THIS QUARTERLY STATEMENT INCLUDES "FORWARD-LOOKING STATEMENTS" WITHIN THE
MEANING OF SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED, INCLUDING, IN PARTICULAR, THE STATEMENTS ABOUT
THE COMPANY'S PLANS, STRATEGIES AND PROSPECTS UNDER THIS "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS"
SECTION. ALTHOUGH THE COMPANY BELIEVES THAT ITS PLANS, INTENTIONS AND
EXPECTATIONS REFLECTED IN OR SUGGESTED BY SUCH FORWARD-LOOKING STATEMENTS ARE
REASONABLE, THE COMPANY CAN GIVE NO ASSURANCE THAT SUCH PLANS, INTENTIONS OR
EXPECTATIONS WILL BE ACHIEVED.
OVERVIEW
TransDigm is a leading supplier of highly engineered aircraft components for use
on nearly all commercial and military aircraft. Most of the Company's products
share three common characteristics: (1) highly engineered and proprietary; (2)
significant aftermarket content; and (3) large shares of niche markets.
TransDigm sells its products to commercial airlines, aircraft maintenance
facilities, aircraft and aircraft system original equipment manufacturers
("OEMs"), and various agencies of the United States and foreign governments.
TransDigm generates the majority of its income from operations and earnings
before interest, taxes, depreciation and amortization ("EBITDA") from sales of
replacement parts in the commercial and defense aftermarkets. 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. Aftermarket parts sales are driven by the size of the worldwide
aircraft fleet, are relatively stable and generate recurring revenues over the
life of an aircraft that are many times the size of the original OEM purchases.
TransDigm has over 40 years of experience in most of its product lines,
therefore it benefits from a large and growing installed base of aircraft.
SIGNIFICANT ACQUISITIONS
In the ordinary course of business, the Company pursues acquisitions where it
believes it can enhance value, reduce costs and develop new business. The
following is a summary of a significant acquisition during 2001.
On May 31, 2001, TransDigm (through a newly-formed, wholly-owned subsidiary,
Champion Aerospace Inc.) acquired substantially all of the assets and certain
liabilities of the Champion Aviation Products business from Federal Mogul
Ignition Company ("Federal-Mogul"), a wholly-owned subsidiary of Federal-Mogul
Corporation, for approximately $160.1 million in cash, subject to adjustment
based on the level of acquired working capital as of the closing of the
acquisition. The Champion Aviation Products ("Champion Aerospace") business is
engaged in researching, designing, developing, engineering, manufacturing,
marketing, distributing and selling ignition systems and related components and
other products, including, without limitation, igniters, spark plugs, exciters;
for turbine and piston aircraft applications as well as other aerospace engine
and industrial applications.
The following is management's discussion and analysis of certain significant
factors that have affected the Company's financial position and operating
results during the periods included in the accompanying consolidated financial
statements. The Company's fiscal year ends on September 30.
RECENT DEVELOPMENTS
The aerospace industry was hit particularly hard by the events of September
11, 2001. The immediate reduction in air traffic severely impacted the
profitability of the airline industry, which began to curtail flights and
stretch out or cancel airframe deliveries. Facing this expected downturn, the
Company promptly developed a near term market forecast to use as a basis for
fiscal 2002 planning. Based on this forecast, which the Company believed to
be conservative, the Company implemented a series of actions to significantly
reduce its cost structure while maintaining its ability to respond to market
8
<Page>
dynamics and develop new business. As part of this effort, the Company
significantly reduced its workforce in early October.
It currently appears that the overall market forecast the Company used for
planning purposes was somewhat conservative. Although the Company continues to
experience a significant downturn in the commercial aerospace markets, air
travel appears to be recovering faster than the Company initially anticipated
and the Company currently expects the aftermarket sector to recover slowly over
the next four to six quarters as improvements in air traffic continue. The
Company expects commercial transport OEM production rates to continue to decline
in the near term as new transport delivery schedules are canceled or extended.
The Company also expects regional and business jet operations and production
rates to be negatively impacted to a lesser degree. Military activity is
difficult to predict, but based upon the Company's broad base of applications,
the Company anticipates a modest increase in military orders over the near term.
Sales generation during the first half of fiscal year 2002 was higher than the
Company anticipated compared to its near term market forecast immediately
following September 11th. Although the Company expects full year fiscal 2002 net
sales to be below fiscal year 2001 net sales (pro forma for the acquisition of
Champion Aerospace), it now believes the results will be better than the
estimates it made immediately following September 11th.
This section includes forward-looking statements within the meaning of Section
27A of the Securities Act and Section 21E of the Securities Exchange Act of
1934, as amended. There can be no assurances that the Company's current outlook
will prove to be correct.
SIGNIFICANT ACCOUNTING POLICIES
The Company's consolidated financial statements reflect the selection and
application of accounting policies that require management to make significant
estimates and assumptions. The Company's significant accounting policies are
described in Note 3 to the consolidated financial statements included with the
Company's Form 10-K for the fiscal year ended September 30, 2001.
Accounting estimates are an integral part of the consolidated financial
statements and are based on knowledge and experience about past and current
events and on assumptions about future events. Significant accounting estimates
reflected in the Company's consolidated financial statements for the 2001 fiscal
year and the thirteen and twenty-six week periods ended March 30, 2002 and March
31, 2001 include the valuation allowances for inventory obsolescence and
uncollectible accounts receivable, accrued liabilities recognized for losses on
uncompleted contracts, environmental costs, sales returns and repairs, and
preliminary allocations of purchase prices for business combinations along with
the pending purchase price adjustment amounts.
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>
THIRTEEN WEEK TWENTY-SIX WEEK
PERIODS ENDED PERIODS ENDED
--------------------- ---------------------
MARCH 30, MARCH 31, MARCH 30, MARCH 31,
2002 2001 2002 2001
----- ----- ----- -----
Net sales 100% 100% 100% 100%
----- ----- ----- -----
Gross profit 46 46 45 45
Selling and administrative 9 10 9 11
Amortization of intangibles 3 1 3 1
Research and development 1 2 1 2
----- ----- ----- -----
Income from operations 33 33 33 31
Interest expense- net 14 18 14 18
Provision for income taxes 8 6 8 5
----- ----- ----- -----
Net income 11% 9% 11% 8%
===== ===== ===== =====
</Table>
9
<Page>
CHANGES IN RESULTS OF OPERATIONS
THIRTEEN WEEK PERIOD ENDED MARCH 30, 2002 COMPARED WITH THE THIRTEEN WEEK PERIOD
ENDED MARCH 31, 2001.
o NET SALES. Net sales increased by $17.8 million, or 42.3%, to $59.9 million
for the quarter ended March 30, 2002 from $42.1 million for the comparable
quarter last year, primarily due to the Champion Aerospace acquisition.
o GROSS PROFIT. Gross profit (net sales less cost of sales) increased by $8.1
million, or 42.5%, to $27.4 million for the quarter ended March 30, 2002
from $19.3 million for the comparable quarter last year. This increase is
attributable to the higher sales discussed above. Gross profit as a
percentage of net sales was 46% during the second quarters of both fiscal
2002 and 2001.
o SELLING AND ADMINISTRATIVE. Selling and administrative expenses increased
by $0.8 million, or 19.9%, to $5.1 million for the quarter ended March 30,
2002 from $4.3 million for the quarter ended March 31, 2001. This increase
principally resulted from the Champion Aerospace acquisition, partially
offset by the cost saving actions taken as a result of the September 11th
terrorist attacks. Selling and administrative expenses as a percentage of
net sales decreased from 10.2% for the quarter ended March 31, 2001 to 8.6%
for the quarter ended March 30, 2002 due to increased selling and
administrative efficiencies as a result of the Champion Aerospace
acquisition and the cost reductions discussed above.
o AMORTIZATION OF INTANGIBLES. Amortization of intangibles expense increased
by $1.4 million for the quarter ended March 30, 2002 to $1.8 million from
$0.4 million for the comparable quarter last year, mostly due to
amortization of the intangible assets recognized in connection with the
Champion Aerospace acquisition.
o RESEARCH AND DEVELOPMENT. Research and development expense of $0.7 million
for the quarter ended March 30, 2002 was consistent with the expense for
the quarter ended March 31, 2001 of $0.7 million. Research and development
expense, as a percentage of net sales, decreased from 2% for the quarter
ended March 31, 2001 to 1% for the quarter ended March 30, 2002.
o INCOME FROM OPERATIONS. Operating income increased by $5.9 million, or
43.1%, to $19.8 million for the quarter ended March 30, 2002 from $13.9
million for the quarter ended March 31, 2001, primarily as a result of the
factors referred to above.
o INTEREST EXPENSE. Interest expense increased by $1.0 million, or 14.2%, to
$8.3 million for the second quarter of fiscal 2002 from $7.3 million for
the second quarter of fiscal 2001. This was caused by an increase in the
level of outstanding borrowings as a result of the Champion Aerospace
acquisition partially offset by a decrease in interest rates.
o INCOME TAXES. Income tax expense as a percentage of income before income
taxes was approximately 43% for the thirteen week period ended March 30,
2002 and was comparable to the 41% effective tax rate for the second
quarter last year.
o NET INCOME. The Company earned $6.6 million for the second quarter of
fiscal 2002 compared to $3.9 million earned for the second quarter of
fiscal 2001 primarily as a result of the factors referred to above.
TWENTY-SIX WEEK PERIOD ENDED MARCH 30, 2002 COMPARED WITH THE TWENTY-SIX WEEK
PERIOD ENDED MARCH 31, 2001.
o NET SALES. Net sales increased by $39.7 million, or 51.0%, to $117.6
million for the twenty-six week period ended March 30, 2002 from $77.9
million for twenty-six week period ended March 31, 2001, primarily due to
the Champion Aerospace acquisition.
o GROSS PROFIT. Gross profit (net sales less cost of sales) increased by
$18.4 million, or 52.6%, to $53.5 million for the twenty-six week period
ended March 30, 2002 from $35.1 million for the comparable twenty-six week
period last year. This increase is attributable to the higher sales
discussed above. Gross profit as a percentage of net sales was 45% for both
periods.
o SELLING AND ADMINISTRATIVE. Selling and administrative expenses increased
by $2.0 million, or 22.7%, to $10.5 million for the twenty-six week period
ended March 30, 2002 from $8.5 million for the twenty-six week period
10
<Page>
ended March 31, 2001 primarily due to the Champion Aerospace acquisition,
partially offset by cost saving actions taken as a result of the September
11th terrorist attacks. Selling and administrative expenses decreased as a
percentage of net sales to 9.0% for the twenty-six week period ended March
30, 2002 from 11.0% for the twenty-six week period ended March 31, 2001 due
to increased selling and administrative efficiencies as a result of the
Champion Aerospace acquisition and the cost saving actions discussed above.
o AMORTIZATION OF INTANGIBLES. Amortization of intangibles expense increased
by $2.4 million for the twenty-six week period ended March 30, 2002 to $3.2
million from $0.8 million for the twenty-six week period ended March 31,
2001 primarily as a result of amortization of the intangible assets
recognized in connection with the Champion Aerospace acquisition.
o RESEARCH AND DEVELOPMENT. Research and development expense increased $0.2
million, or 14.2%, from $1.2 million for the twenty-six week period ended
March 31, 2001 to $1.4 million for the twenty-six week period ended March
30, 2002 as a result of additional research and development activities to
complement the Company's sales efforts. Research and development expense,
as a percentage of net sales, decreased from 2% for the quarter ended March
31, 2001 to 1% for the quarter ended March 30, 2002.
o INCOME FROM OPERATIONS. Operating income increased by $14.0 million, or
57.2%, from $24.5 million for the twenty-six week period ended March 31,
2001 to $38.5 million for the twenty-six week period ended March 30, 2002,
primarily as a result of the factors referred to above.
o INTEREST EXPENSE. Interest expense increased by $2.6 million, or 18.2%, to
$16.9 million for the twenty-six week period ended March 30, 2002 from
$14.3 million for the twenty-six week period ended March 31, 2001. This was
caused by an increase in the level of outstanding borrowings as a result of
the Champion Aerospace acquisition partially offset by a decrease in
interest rates.
o INCOME TAXES. Income tax expense as a percentage of income before income
taxes was approximately 43% for the twenty-six week period ended March 30,
2002 and was comparable to the 42% effective tax rate for the twenty-six
week period ended March 31, 2001.
o NET INCOME. The Company earned $12.3 million for the twenty-six week period
ended March 30, 2002 compared to net income of $5.9 million for the
twenty-six week period ended March 31, 2001, primarily as a result of the
factors referred to above.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated approximately $25.5 million of cash from operating
activities during the twenty-six week period ended March 30, 2002 compared to
approximately $12.2 million during the twenty-six week period ended March 31,
2001. The increase is primarily due to increased earnings from the Champion
Aerospace acquisition along with cost saving actions the Company undertook as a
result of the September 11th terrorist attacks.
Cash used in investing activities was approximately $1.1 million during the
twenty-six weeks ended March 30, 2002 compared to approximately $8.3 million
during the twenty-six weeks ended March 31, 2001. The change is mainly due to
the acquisition of a product line in the first six months of 2001 and a decrease
in capital expenditures.
Cash used in financing activities during the twenty-six weeks ended March 30,
2002 was approximately $6.6 million compared to approximately $1.6 million
during the twenty-six weeks ended March 31, 2001. This increase in cash used in
financing activities was due to decreased borrowings (in March 2001, borrowings
were made to finance the acquisition of a product line) and an increase in the
repayment of debt obligations.
The Company's senior secured credit facility (the "Senior Credit Facility")
consists of (1) a $30.0 million Revolving Credit Facility maturing six years
from December 3, 1998 (the "Execution Date") and (2) a Term Loan Facility in an
aggregate principal amount of $263.8 million, consisting of a $43.3 million
Tranche A Facility maturing six years from the Execution Date, a $105.5 million
Tranche B Facility maturing seven and a half years from the Execution Date and a
$115.0 Tranche C Facility maturing eight and a half years from the Execution
Date. As of March 30, 2002, the outstanding balances of the Tranche A, B and C
facilities were $35.5 million, $104.3 million and $114.1 million, respectively.
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The interest rate for the Senior Credit Facility is, at the Company's option,
either (A) a floating rate equal to the base rate plus the applicable margin, as
defined in the Senior Credit Facility, or (B) the Eurodollar rate for fixed
periods of one, two, three, or six months, plus the applicable margin. The
overall interest rate and applicable margin are determined based on (1) in the
case of the Tranche A Facility and the Revolving Credit Facility, (A) 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 Senior Credit Facility, as amended; or (B) 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 Senior Credit Facility, as amended; and (2) in the case of the Tranche B
Facility and the Tranche C Facility, (A) an interest rate determined by the base
rate, plus 2.50%; or (B) an interest rate determined by the Eurodollar rate,
plus 3.50%. The Senior 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 Senior Credit Facility) in excess of a
predetermined amount under the Senior Credit Facility.
The Senior Credit Facility requires the Company to repay the outstanding
indebtedness on a periodic basis through the various maturity dates. The Senior
Credit Facility also contains restrictive covenants that, 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 Chairman of the Board of Directors of TransDigm and Holdings, Mr.
Peacock, holds a presently-exercisable put option enabling him to require
Holdings to purchase up to 80% of his common stock (including shares acquired
through the exercise of stock options and held at least six months) at fair
value, subject to certain restrictions under the Company's long-term debt
agreements and subject to his continued service as Chairman of the Board of
TransDigm and Holdings. As of March 30, 2002, 8,114 shares of common stock
that Mr. Peacock can acquire under presently-exercisable stock options are
subject to the put. The estimated fair value of such shares, net of the
exercise price of the related stock options, totaled approximately $8.6
million at March 30, 2002. Mr. Peacock and other members of management hold
put rights that may become exercisable in the future with respect to other
shares of common stock, including shares of common stock subject to options.
Also see Note 4 to the Notes to the Consolidated Financial Statements.
The following table sets forth the Company's contractual cash obligations and
other commercial commitments for the next several fiscal years (in millions):
<Table>
<Caption>
2007 AND
2002 (1) 2003 2004 2005 2006 THEREAFTER TOTAL
--------- -------- -------- -------- ------- ---------- ---------
CONTRACTUAL CASH OBLIGATIONS:
Long-Term Debt............................. $ 7.0 $ 19.4 $ 29.4 $ 48.6 $ 67.7 $ 236.1 $ 408.2
Operating Leases........................... .6 1.2 1.2 1.1 1.0 5.5 10.6
Redeemable Preferred Stock................. - - - - - 14.6 14.6
Other Long-Term Obligations................ .4 2.2 2.2 2.2 - - 7.0
--------- -------- -------- -------- ------- ---------- ---------
Total Contractual Cash Obligations...... $ 8.0 $ 22.8 $ 32.8 $ 51.9 $ 68.7 $ 256.2 $ 440.4
========= ======== ======== ======== ======= ========== =========
</Table>
- ------------------
(1) Beginning March 31, 2002.
The Company's primary future cash needs will consist of debt service, income tax
payments and capital expenditures. 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 $4.5 million and $4.4 million during fiscal 2001 and 2000,
respectively. Going forward, the Company expects its capital expenditures will
increase moderately.
The Company may from time to time seek to retire its outstanding debt through
cash purchases and/or exchanges for equity securities, in open market purchases,
privately negotiated transactions or otherwise. Such repurchases or exchanges,
if any, will depend on prevailing market conditions, the Company's liquidity
requirements, contractual restrictions and other factors. The amounts involved
may be material. In addition, the Company may issue additional debt if
prevailing market conditions are favorable to doing so.
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The Company intends to pursue additional acquisitions that present opportunities
to realize significant synergies, operating expense economies or overhead cost
savings or to increase its 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 the Company 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 acceptable terms or at all.
If the Company incurs additional debt to finance acquisitions, 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, the Company's indebtedness, or to fund planned
capital expenditures and research and development efforts, will depend on its
ability to generate cash in the future. This, to a certain extent, is subject to
general economic, financial, competitive, legislative, regulatory and other
factors that are beyond its control. Based on its current level of operations
and anticipated cost savings and operating improvements, management believes
that cash flow from operations, available cash and available borrowings under
the Senior Credit Facility, will be adequate to meet future liquidity needs for
at least the next several years. There can be no assurance, however, that the
Company's business will generate sufficient cash flow from operations, that
currently anticipated cost savings and operating improvements will be realized
on schedule or at all or that future borrowings will be available to the Company
under the Senior Credit Facility in an amount sufficient to enable it to pay its
indebtedness or to fund its other liquidity needs. The Company may need to
refinance all or a portion of its indebtedness on or before maturity. There can
be no assurance that the Company will be able to refinance any of its
indebtedness on commercially reasonable terms or at all.
BACKLOG
The Company 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 March
30, 2002, the Company estimated its sales order backlog at $117.0 million
compared to an estimated $83.2 million (which did not include Champion
Aerospace) reported as of March 31, 2001. The majority of the purchase orders
outstanding as of March 30, 2002 are scheduled for delivery within the next
twelve months. Purchase orders are generally subject to cancellation by the
customer prior to shipment. The level of unfilled purchase orders at any given
date during the year will be materially affected by the timing of the Company's
receipt of purchase orders and the speed with which those orders are filled.
Accordingly, the Company's backlog as of March 30, 2002 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 and a portion of
Company's products are resold to foreign end-users. These sales are subject to
numerous additional risks, including the impact of foreign government
regulations, currency fluctuations, political uncertainties and differences in
business practices. There can be no assurance that foreign governments will not
adopt regulations or take other action that would have a direct or indirect
adverse impact on the business or market opportunities of the Company within
such governments' countries. Furthermore, there can be no assurance that the
political, cultural and economic climate outside the United States will be
favorable to the Company's operations and growth strategy.
INFLATION
Many of the Company's raw materials and operating expenses are sensitive to the
effects of inflation, which could result in higher operating costs. The effects
of inflation on the Company's businesses during the thirteen and twenty-six week
periods ended March 30, 2002 and March 31, 2001 were not significant.
ADDITIONAL DISCLOSURE REQUIRED BY INDENTURE
Separate financial information of TransDigm Inc. is not presented since
Holdings has no operations or assets separate from its investment in
TransDigm Inc. and since the Senior Subordinated Notes are guaranteed by
Holdings and all direct and indirect subsidiaries of TransDigm Inc. (other
than two wholly-owned, non-guarantor subsidiaries that have inconsequential
assets, liabilities and equity, and whose only operations are the result of
intercompany activity which is immediately dividended back to TransDigm
Inc.). In addition, Holdings' only obligations at March 30, 2002 other than
its guarantees of debt under the indenture that governs the Senior
Subordinated Notes and the Senior Credit Facility consist of (1) the Holdings
PIK Notes of $29.2 million due 2009; (2) the Holdings 16% Preferred Stock
with an aggregate liquidation preference of $15.0 million; and (3) "put"
rights held by certain persons to require Holdings to repurchase, at fair
market value, shares of Holdings' common stock (including shares that may be
acquired through the exercise of stock options) held by such persons. The
Holdings PIK Notes bear interest in the form of additional Holdings PIK Notes
at 12% annually and the Holdings 16% Preferred Stock accrue dividends in
cash, or at Holdings' option, in the form of additional shares of Holdings
cumulative redeemable preferred stock, at 16% annually. Interest expense
recognized on the Holdings PIK Notes during the thirteen and twenty-six week
periods ended March 30, 2002 was $0.8 and $1.6 million, respectively.
Interest expense recognized on these notes during the thirteen and twenty-six
week periods ended March 31, 2001 was $0.8 million and $1.5 million,
respectively. Dividend accrual on the Holdings 16% Preferred Stock during the
thirteen and twenty-six week periods ended March 30, 2002 was $0.6 million
and $1.2 million, respectively. As of March 30, 2002, 8,114 shares of common
stock that the Chairman of the Board of Directors of TransDigm and Holdings,
Mr. Peacock, can acquire under presently-exercisable stock options are
subject to a put after such shares are held at least six months, subject to
certain restrictions under the Company's long-term debt agreements and
subject to his continued service as Chairman of the Board of TransDigm and
Holdings. The estimated fair value of such shares, net of the exercise price
of the related stock options, totaled approximately $8.6 million at March 30,
2002. Mr. Peacock and other members of management hold put rights that may
become exercisable in the future with respect to other shares of common
stock, including shares of common stock subject to options. Because the
common stock subject to put rights is required to be repurchased at fair
market value, the value of Holdings' repurchase obligation will increase to
the extent the fair market value of Holdings' common stock increases.
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PART I: FINANCIAL INFORMATION
ITEM 3
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
At March 30, 2002, the Company is subject to interest rate risk with respect to
borrowings under its Senior 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. The weighted average
interest rate on the $254.0 million of borrowings outstanding under the Senior
Credit Facility at March 30, 2002 was 5.4%. The effect of a hypothetical one
percentage point increase in interest rates would increase the Company's annual
interest costs under the Senior Credit Facility by approximately $2.5 million
based on the amount of borrowings outstanding at March 30, 2002.
Also outstanding at March 30, 2002 was $125.0 million of Company indebtedness in
the form of the Senior Subordinated Notes, $29.2 million of the Holdings PIK
Notes and Holdings 16% Preferred Stock with an aggregate liquidation
preference of $15.0 million. In addition, as of March 30, 2002, 8,114 shares
of common stock that the Chairman of the Board of Directors of TransDigm and
Holdings, Mr. Peacock, can acquire under presently-exercisable stock options
are subject to a put that enables Mr. Peacock to require Holdings to
repurchase, at fair market value, shares held by Mr. Peacock after such
shares are held at least six months, subject to certain restrictions under
the Company's long-term debt agreements and subject to his continued service
as Chairman of the Board of TransDigm and Holdings. The estimated fair value
of such shares, net of the exercise price of the related stock options,
totaled approximately $8.6 million at March 30, 2002. Mr. Peacock and other
members of management hold put rights that may become exercisable in the
future with respect to other shares of common stock, including shares of
common stock subject to options. The interest rates on the Senior
Subordinated Notes and the Holdings PIK Notes are fixed at 10 3/8 % and 12%
per year, respectively, and the dividends accrue on the Holdings 16%
Preferred Stock at 16% annually. The fair value of the Senior Subordinated
Notes was approximately $126.3 million at March 30, 2002, based upon quoted
market prices. A determination of the fair value of each of the Holdings PIK
Notes and the Holdings 16% Preferred Stock is not considered practicable
because they are held by related parties and are not publicly traded. Because
the common stock subject to put rights is required to be repurchased at fair
market value, the value of Holdings' repurchase obligation will increase to
the extent the fair market value of Holdings' common stock increases.
15
<Page>
PART II: OTHER INFORMATION
ITEM 6 Exhibits and Reports on Form 8-K
(a) Exhibits
2.1 Asset Purchase Agreement, dated as of April 29, 2001, by and
between Aviation Acquisition Corporation and Federal-Mogul
Ignition Company. (Incorporated herein by reference to Exhibit
2.1 to TransDigm Holdings Form 10-Q for the period ended March
31, 2001). (File No. 1631079).
(b) Reports on Form 8-K
On February 15, 2002, the Company announced its regularly
scheduled quarterly conference call to discuss its first
quarter results.
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SIGNATURES
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/ W. Nicholas Howley President and Chief Executive Officer May 13, 2002
- ----------------------------------- (Principal Executive Officer) and Director
W. Nicholas Howley
/s/ Gregory Rufus Chief Financial Officer (Principal Financial May 13, 2002
- ----------------------------------- and Accounting Officer)
Gregory Rufus
</Table>
17
<Page>
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/ W. Nicholas Howley President and Chief Executive Officer May 13, 2002
- ----------------------------------- (Principal Executive Officer) and Director
W. Nicholas Howley
/s/ Gregory Rufus Chief Financial Officer (Principal Financial May 13, 2002
- ----------------------------------- and Accounting Officer)
Gregory Rufus
</Table>
18