<Page>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): May 29, 2002
TransDigm Inc. TransDigm Holding Company
- ---------------------------------------- -------------------------------------
(Exact name of registrant as specified (Exact name of registrant as
in its charter) 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.)
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ITEM 5. OTHER EVENTS.
On May 23, 2002, TransDigm Inc. issued a press release relating to its
proposed offering of an additional $75 million of its 10 3/8% Senior
Subordinated Notes due 2008 in a private placement. The press release was
attached as Exhibit 99.1 to a Current Report on Form 8-K filed by TransDigm Inc.
and TransDigm Holding Company on May 24, 2002.
ITEM 9. REGULATION FD DISCLOSURE.
TransDigm Inc. is conducting an offering of $75 million of its 10 3/8%
Senior Subordinated Notes due 2008. The offering will be a private placement
under Rule 144A and Regulation S under the Securities Act of 1933 and will be
made only to qualified institutional buyers or outside the United States.
TransDigm Inc. and TransDigm Holding Company have provided the following
information, which has not been previously publicly disclosed, in connection
with the private offering.
In this filing, the words "TransDigm," "we," "us" and "our" refer to
TransDigm Inc. and our subsidiaries unless the context otherwise indicates. The
term "Holdings" refers to TransDigm Holding Company, the parent holding company
of TransDigm, which has no assets other than the capital stock of TransDigm. The
term "Champion Aerospace" refers to Champion Aviation Products, a division of
Federal Mogul Ignition Company that we acquired on May 31, 2001. The term
"notes" refers to the $75 million Senior Subordinated Notes due 2008 that we are
offering in a private placement as well as the $125 million Senior Subordinated
Notes due 2008 we issued in December 1998, which we refer to as the 1998 notes.
The term "pro forma," when used to describe our operations, refers to our
operations after giving effect to our acquisition of Champion Aerospace and,
where relevant, the notes offering, as though those transactions had occurred at
the beginning of the referenced period.
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
The matters described in this filing contain "forward-looking statements"
within the meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act including, in particular, the statements about our plans,
strategies and prospects. Although we believe that such statements are based on
reasonable assumptions, these forward-looking statements are subject to numerous
factors, risks and uncertainties that could cause actual outcomes and results to
be materially different from those projected. These factors, risks and
uncertainties include, among others, the following:
o the impact of general economic conditions in the regions in
which we do business;
o general industry conditions, including competition and
product, raw material and energy prices;
o changes in exchange rates and currency values;
o capital expenditure requirements;
o access to capital markets; and
o other factors described in this filing.
Our actual results, performance or achievements could differ materially
from those expressed in, or implied by, the forward-looking statements. We can
give no assurances that any of the events anticipated by the forward-looking
statements will occur or, if any of them do, what impact they will have on our
results of operations and financial condition. Any forward-looking statement
made in this filing, or elsewhere, speaks only as of the date on which it is
made. We and Holdings assume no obligation to update such information.
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COMPETITIVE STRENGTHS
We believe our key competitive strengths are:
o LARGE INSTALLED PRODUCT BASE AND RECURRING REVENUE STREAM. We estimate
that approximately 75% of our net sales are derived from parts for
which we have achieved sole source designation, and that over 90% of
our net sales are derived from products of proprietary design. As a
result, we have a large and growing installed base of products on large
commercial transport aircraft as well as regional, business and
military aircraft platforms. This installed base affords us the
opportunity to capture a long-term stream of highly profitable
aftermarket revenues. Over the life of an aircraft, sales of
replacement parts can generate revenues many times the size of the
original OEM purchases. Aftermarket sales generate most of our EBITDA
because they typically carry gross margins that are significantly
higher than those generated from OEM sales.
o PROVEN ABILITY TO DEVELOP NEW PRODUCTS. We have a successful record of
introducing solutions-oriented products. We work closely with aircraft
operators and OEMs to identify their unmet needs, such as a component
that fails to meet performance expectations or that requires excessive
maintenance. We then utilize our engineering and design capabilities to
develop a prototype for a component that increases the value of the
product to the customer. After we have fulfilled rigorous testing
requirements and obtained necessary regulatory approvals, the product
is made available for sale in the aftermarket and to OEMs. We believe
that our ability to successfully develop new products has contributed
to our significant growth.
o DIVERSIFIED BUSINESS MIX. Our business is diversified between sales in
the aftermarket and sales to OEMs. In addition, each of these segments
is further diversified among the large commercial transport, regional,
business and military aircraft markets. As a result, we are not overly
dependent on any one segment or platform. The large commercial
transport OEM market accounted for approximately 15% of our net sales
in fiscal 2001.
o LEADING POSITIONS IN NICHE MARKETS. With over 40 years of experience in
most of our product lines, we have well-established and highly regarded
products and trade names, such as "Adel," "Wiggins," "Controlex,"
"Marathon" and "Champion Aerospace(R)," and are a leader iN many of our
product lines. For example, Champion Aerospace(R) has one of the
strongest brands in the aerospace industry with a 95-year history as a
leader in the aircraft ignitor market.
o SUCCESSFUL TRACK RECORD OF INTEGRATING ACQUISITIONS. Our experienced
management team has a proven track record of consolidating operations,
reducing overhead and rationalizing costs. Management has successfully
integrated a number of acquisitions. In each case, management has
substantially improved the operating margins through the systematic
implementation of our three value generation principles.
BUSINESS STRATEGY
Key elements of our strategy are:
o PROVIDE VALUE ADDED PRODUCTS TO CUSTOMERS. We will continue to focus on
marketing and manufacturing highly engineered products to customers
that place a premium on our capabilities. We have been effective in
communicating to aircraft operators the value of our products in terms
of cost savings generated by their greater reliability and performance,
as well as reduced maintenance requirements. Our reputation for quality
and sole supplier status for many parts has allowed us to capture a
significant portion of the value generated by our products. We intend
to continue to develop and market high value added products that
provide significant benefits to our customers.
o GENERATE NEW BUSINESS INITIATIVES. We have been successful in
identifying and commercializing new business opportunities to drive
revenue growth. We have been particularly effective in creating
aftermarket opportunities by developing superior products to retrofit
aircraft already in service. For example, in response to the heightened
demand for security since the recent terrorist attacks, we developed a
highly engineered cockpit door safety mechanism that simultaneously
prevents penetration into the cockpit while providing a rapid response
in the event of an emergency, such as depressurization. Airbus(R)
recently
2
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committed to purchase these components to offer as a retrofit to the
existing Airbus(R) fleet and tO include them on all new deliveries. We
intend to continue to aggressively pursue growth opportunities through
our new business initiatives.
o REALIZE PRODUCTIVITY SAVINGS. We will continue to focus on improving
operating margins through manufacturing improvements and increases in
employee productivity. We have achieved significant increases in
productivity since our formation in 1993. We have rationalized our
manufacturing facilities and redesigned our manufacturing and other
business practices to maximize efficiency. For example, we encourage
our employees through performance incentives to learn to operate
multiple manufacturing stations in order to minimize overall labor
costs. This initiative and others like it have enabled us to
significantly increase sales without material increases in headcount.
o PURSUE STRATEGIC ACQUISITIONS. We intend to pursue acquisitions where
we believe that we can enhance value, reduce costs and develop new
business. The aircraft component industry is highly fragmented, with
many of the companies in the industry being small operators or small
non-core operations of larger businesses. We believe the industry is
experiencing consolidation due to customer requirements that favor more
focused and sophisticated suppliers.
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, we
promptly developed a near term market forecast to use as a basis for fiscal 2002
planning. Based on this forecast, which we believed to be conservative, we
implemented a series of actions to significantly reduce our cost structure while
maintaining our ability to respond to market dynamics and develop new business.
As part of this effort, we significantly reduced our workforce in early October.
It currently appears that the overall market forecast we used for planning
purposes was somewhat conservative. Although we continue to experience a
significant downturn in the commercial aerospace markets, air travel appears to
be recovering faster than we initially anticipated and we currently expect the
aftermarket sector to recover slowly over the next four to six quarters as
improvements in air traffic continue. We expect commercial transport OEM
production rates to continue to decline in the near term as new transport
delivery schedules are canceled or extended. We also expect 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 our
broad base of applications, we anticipate a modest increase in military orders
over the near term.
Sales generation during the first half of fiscal year 2002 was higher than
we anticipated compared to our near term market forecast immediately following
September 11th. Although we expect full year fiscal 2002 net sales to be below
fiscal year 2001 pro forma net sales, we now believe the results will be better
than the estimates we made immediately following September 11th. In addition, as
a result of our rapid cost reductions, continued productivity efforts,
proprietary niche market positions and continued new business generation, we
believe pro forma EBITDA, As Defined, for the twelve months ended March 30, 2002
is reasonably indicative of our expected EBITDA, As Defined, for fiscal 2002.
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USE OF PROCEEDS
We intend to use the proceeds of the notes offering to repay all of our
existing indebtedness under the Tranche A facility of our credit facility, the
outstanding balance of which was $35.5 million as of March 30, 2002, to repay
portions of our indebtedness under the Tranche B and Tranche C facilities of our
credit facility on a pro rata basis, the outstanding balances of which were
$104.3 million and $114.1 million as of March 30, 2002, respectively, and to pay
related fees and expenses. As of March 30, 2002, the loans under the Tranche A
facility, the Tranche B facility and the Tranche C facility bore interest rates
of 4.9%, 5.4% and 5.4%, respectively, and these facilities mature on November
15, 2004, May 15, 2006 and May 15, 2007, respectively.
CAPITALIZATION
The following table sets forth the consolidated capitalization of Holdings
as of March 30, 2002, on a historical basis and a pro forma basis after giving
effect to the notes offering and the use of proceeds therefrom as if it had
occurred on March 30, 2002. This table should be read in conjunction with the
information contained in "Use of Proceeds," "Unaudited Pro Forma Consolidated
Financial Information" and the notes thereto as well as the Consolidated
Historical Financial Statements and the notes thereto included in our most
recent Quarterly Report filed with the Securities and Exchange Commission. All
amounts are presented in thousands.
<Table>
<Caption>
MARCH 30, 2002
----------------------
ACTUAL PRO FORMA
--------- ---------
(UNAUDITED)
Cash and cash equivalents ............................ $ 28,975 $ 28,975
========= =========
Total debt (including current maturities):
Credit facility: (1)
Revolving credit facility ...................... $ -- $ --
Tranche A facility ............................. 35,547 --
Tranche B facility ............................. 104,298 86,892
Tranche C facility ............................. 114,137 95,090
10 3/8% Senior Subordinated Notes due 2008 (2) .... 125,000 200,000
--------- ---------
Total TransDigm Inc. debt ...................... 378,982 381,982
--------- ---------
Holdings PIK Notes (3) ............................ 29,222 29,222
--------- ---------
Total Holdings debt ............................ 408,204 411,204
--------- ---------
Holdings Redeemable Common Stock (3) ................. 1,701 1,701
Holdings 16% Cumulative Redeemable Preferred Stock (3) 14,558 14,558
Stockholders' equity (deficit):
Common stock $0.01 par value and paid-in capital . 102,080 102,080
Other stockholders' equity (deficit) .............. (194,619) (195,648)
--------- ---------
Total stockholders' equity (deficit) ........... (92,539) (93,568)
--------- ---------
Total capitalization ................................. $ 331,924 $ 333,895
========= =========
</Table>
- ------------
(1) The credit facility includes a $30.0 million revolving credit facility, of
which $30.0 million was available for borrowing by us as of March 30, 2002.
The indebtedness under the credit facility is an obligation of TransDigm
Inc. and is guaranteed by Holdings and certain subsidiaries of TransDigm
Inc.
(2) This indebtedness represents an obligation of TransDigm Inc. and is
guaranteed by Holdings and certain subsidiaries of TransDigm Inc.
(3) The Holdings PIK Notes, Holdings Redeemable Common Stock and the Holdings
16% Cumulative Redeemable Preferred Stock, which we refer to as the Holdings
16% Preferred Stock, are each obligations of Holdings and are not
obligations of TransDigm Inc. or the obligations of any of its subsidiaries.
4
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UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following pro forma consolidated financial information of Holdings has
been derived by the application of pro forma adjustments to Holdings' historical
consolidated financial statements for (1) the year ended September 30, 2001, (2)
the six months ended March 30, 2002 and (3) the twelve months ended March 30,
2002. The pro forma consolidated statements of operations for the year ended
September 30, 2001 and the twelve months ended March 30, 2002 give effect to the
notes offering and the use of proceeds therefrom as well as the acquisition of
Champion Aerospace, as if such transactions had been consummated on the first
day of the periods presented. The pro forma consolidated statement of operations
for the six months ended March 30, 2002 gives effect to the notes offering and
the use of proceeds therefrom as if it had been consummated on October 1, 2001.
The pro forma consolidated balance sheet as of March 30, 2002 gives effect to
the notes offering and the use of proceeds therefrom as if it had occurred as of
March 30, 2002. The adjustments necessary to fairly present this pro forma
consolidated financial information have been made based on available information
and, in the opinion of management, are reasonable and are described in the
accompanying notes. The pro forma consolidated financial information should not
be considered indicative of actual results that would have been achieved had the
Champion Aerospace acquisition and the notes offering been consummated on the
respective dates indicated and do not purport to indicate balance sheet data or
results of operations as of any future date or for any future period. We cannot
assure you that the assumptions used in the preparation of the pro forma
consolidated financial information will prove to be correct. You should read the
pro forma consolidated financial statements together with the "Use of Proceeds"
section and the Consolidated Historical Financial Statements and the notes
thereto, and other financial information included in our most recent annual,
quarterly and current reports filed with the Securities and Exchange Commission.
The acquisition of Champion Aerospace has been accounted for as a purchase.
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 our existing credit facility, (2) $14.3 million received
(net of fees of $0.7 million) from the issuance of $15.0 million of Holdings 16%
Cumulative Redeemable Preferred Stock, which we refer to as the 16% Holdings
Preferred Stock, and warrants to purchase 1,381.9 shares of Holdings' common
stock and (3) the use of $0.4 million of existing cash balances. We also
borrowed an additional $15.0 million under the credit facility to pay $5.0
million of debt issuance costs and provide $10.0 million of working capital for
future operations. The purchase price has been allocated to the assets acquired
and liabilities assumed of Champion Aerospace based on a preliminary analysis of
their fair values.
5
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TRANSDIGM HOLDING COMPANY
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FISCAL YEAR ENDED SEPTEMBER 30, 2001
(IN THOUSANDS)
<Table>
<Caption>
CHAMPION
HOLDINGS AEROSPACE PRO FORMA HOLDINGS
HISTORICAL(1) HISTORICAL(2) ADJUSTMENTS(3) PRO FORMA
------------- ------------- -------------- ---------
Net sales ....................... $200,773 $ 46,988 -- $247,761
Cost of sales ................... 118,525 30,038 -- 148,563
-------- -------- -------- --------
Gross profit .................... 82,248 16,950 -- 99,198
-------- -------- -------- --------
Operating expenses:
Selling and administrative .... 20,669 3,483 -- 24,152
Amortization of intangibles ... 2,966 572 $ 1,663(a) 5,201
Research and development ...... 2,943 1,342 -- 4,285
Federal-Mogul corporate charge -- 848 (848)(b) --
-------- -------- -------- --------
Total operating expenses .... 26,578 6,245 815 33,638
-------- -------- -------- --------
Income from operations .......... 55,670 10,705 (815) 65,560
Interest expense--net ........... 31,926 1,381 7,888(c) 41,195
-------- -------- -------- --------
Income before income taxes ...... 23,744 9,324 (8,703) 24,365
Income tax provision ............ 9,386 3,506 (3,481)(d) 9,411
-------- -------- -------- --------
Net income ...................... $ 14,358 $ 5,818 $ (5,222) $ 14,954
======== ======== ======== ========
EBITDA, As Defined (4) .......... $ 70,955 $ 12,355 $ 848 $ 84,158
======== ======== ======== ========
</Table>
6
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TRANSDIGM HOLDING COMPANY
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED MARCH 30, 2002
(IN THOUSANDS)
<Table>
<Caption>
HOLDINGS PRO FORMA HOLDINGS
HISTORICAL(1) ADJUSTMENTS(3) PRO FORMA
------------- -------------- ---------
Net sales ................... $117,613 -- $117,613
Cost of sales ............... 64,148 -- 64,148
-------- -------- --------
Gross profit ................ 53,465 -- 53,465
-------- -------- --------
Operating expenses:
Selling and administrative 10,475 -- 10,475
Amortization of intangibles 3,167 -- 3,167
Research and development .. 1,372 -- 1,372
-------- -------- --------
Total operating expenses 15,014 -- 15,014
-------- -------- --------
Income from operations ...... 38,451 -- 38,451
Interest expense--net ....... 16,885 $ 1,836(c) 18,721
-------- -------- --------
Income before income taxes .. 21,566 (1,836) 19,730
Income tax provision ........ 9,277 (734)(d) 8,543
-------- -------- --------
Net income .................. $ 12,289 $ (1,102) $ 11,187
======== ======== ========
EBITDA, As Defined(4) ....... $ 45,092 $ -- $ 45,092
======== ======== ========
</Table>
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TRANSDIGM HOLDING COMPANY
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
TWELVE MONTHS ENDED MARCH 30, 2002
(IN THOUSANDS)
<Table>
<Caption>
CHAMPION
HOLDINGS AEROSPACE PRO FORMA HOLDINGS
HISTORICAL(1) HISTORICAL(2) ADJUSTMENTS(3) PRO FORMA
------------- ------------- -------------- ---------
Net sales ...................... $240,522 $ 11,815 -- $252,337
Cost of sales .................. 139,853 8,452 -- 148,305
-------- -------- -------- --------
Gross profit ................... 100,669 3,363 -- 104,032
-------- -------- -------- --------
Operating expenses:
Selling and administrative ... 22,605 1,037 -- 23,642
Amortization of intangibles .. 5,294 119 $ 440(a) 5,853
Research and development ..... 3,114 499 -- 3,613
Federal-Mogul corporate charge -- 213 (213)(b) --
-------- -------- -------- --------
Total operating expenses ... 31,013 1,868 227 33,108
-------- -------- -------- --------
Income from operations ......... 69,656 1,495 (227) 70,924
Interest expense--net .......... 34,530 345 4,269(c) 39,144
-------- -------- -------- --------
Income before income taxes ..... 35,126 1,150 (4,496) 31,780
Income tax provision ........... 14,394 460 (1,798)(d) 13,056
-------- -------- -------- --------
Net income ..................... $ 20,732 $ 690 $ (2,698) $ 18,724
======== ======== ======== ========
EBITDA, As Defined(4) .......... $ 88,077 $ 1,881 $ 213 $ 90,171
======== ======== ======== ========
</Table>
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TRANSDIGM HOLDING COMPANY
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(1) The amounts in this column represent the reported results for Holdings for
the applicable period, which include the acquisition of Champion Aerospace from
May 31, 2001 through the end of the applicable period.
(2) The amounts in this column represent the results for Champion Aerospace for
the applicable period prior to May 31, 2001, the date of the acquisition.
(3) The amounts in this column represent the adjustments necessary to give
effect to the acquisition of Champion Aerospace, the notes offering and the use
of proceeds therefrom as follows:
(a) This adjustment reflects Champion Aerospace goodwill amortization.
(b) This reflects the reversal of the corporate charge allocated to
Champion Aerospace by Federal-Mogul, its former parent company.
(c) The adjustment to interest expense reflects the following (amounts
in thousands):
<Table>
<Caption>
TWELVE MONTHS
FISCAL YEAR ENDED SIX MONTHS ENDED ENDED
SEPTEMBER 30, 2001 MARCH 30, 2002 MARCH 30, 2002
------------------ -------------- --------------
Interest expense on the
indebtedness related to
the Champion Aerospace
acquisition ............ $ 5,962 -- $ 1,490
Amortization of debt
issuance costs on the
indebtedness related to
the Champion Aerospace
acquisition ............ 672 -- 168
Elimination of the
Champion Aerospace
interest expense
allocated by Federal-
Mogul for the period
prior to May 31, 2001 .. (1,381) -- (345)
Elimination of the
interest expense related
to debt to be retired in
connection with the
notes offering ......... (5,208) $(2,055) (4,834)
Elimination of the
amortization of debt
issuance costs related
to the debt retired in
connection with the
notes offering ......... (363) (212) (416)
Additional interest
expense related to the
notes .................. 7,781 3,891 7,781
Amortization of debt
issuance costs on the
notes .................. 425 212 425
------- ------- -------
Total adjustment ......... $ 7,888 $ 1,836 $ 4,269
======= ======= =======
</Table>
For purposes of this pro forma presentation, we have assumed the notes
will be sold at the principal amount thereof. In addition, the pro forma
amounts do not incorporate any adjustment for accrued interest. A 0.125%
increase or decrease in the assumed weighted average interest rate
applicable to TransDigm Inc.'s indebtedness outstanding under TransDigm
Inc.'s credit facility would change the pro forma interest expense and net
income after giving effect to the notes offering by $0.2 million and $0.1
million, respectively.
(d) The tax effect of pro forma adjustments to income before income taxes
is based on the estimated applicable tax rates.
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TRANSDIGM HOLDING COMPANY
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (CONTINUED)
(4) EBITDA, As Defined, represents earnings before interest, taxes, depreciation
and amortization plus incremental inventory costs associated with the write
up of inventory required by the purchase accounting treatment of the
Champion Aerospace acquisition and the acquisition of a product line as
follows (the amounts in the Champion Aerospace column represent the reported
results for Champion Aerospace prior to May 31, 2001, the date of the
acquisition) (all amounts in thousands):
FISCAL YEAR ENDED SEPTEMBER 30, 2001
<Table>
<Caption>
CHAMPION TRANSDIGM
HOLDINGS AEROSPACE INC. HOLDINGS
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
---------- ---------- --------- ---------
Net income ........................ $14,358 $ 5,818 $16,812 $14,954
Income tax provision .............. 9,386 3,506 10,542 9,411
Interest expense .................. 31,926 1,381 38,206 41,195
Depreciation and amortization ..... 8,646 1,650 11,959 11,959
Champion Aerospace and product line
acquisition inventory purchase
accounting adjustments .......... 6,639 -- 6,639 6,639
------- ------- ------- -------
EBITDA, As Defined ................ $70,955 $12,355 $84,158 $84,158
======= ======= ======= =======
<Caption>
SIX MONTHS ENDED MARCH 30, 2002
<Caption>
TRANSDIGM
HOLDINGS INC. HOLDINGS
HISTORICAL PRO FORMA PRO FORMA
---------- --------- ---------
Net income ...................... $12,289 $12,118 $11,187
Income tax provision ............ 9,277 9,254 8,543
Interest expense ................ 16,885 17,079 18,721
Depreciation and amortization ... 6,641 6,641 6,641
------- ------- -------
EBITDA, As Defined .............. $45,092 $45,092 $45,092
======= ======= =======
<Caption>
TWELVE MONTHS ENDED MARCH 30, 2002
CHAMPION TRANSDIGM
HOLDINGS AEROSPACE INC. HOLDINGS
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
---------- ---------- --------- ---------
Net income ........................ $20,732 $ 690 $20,693 $18,724
Income tax provision .............. 14,394 460 14,430 13,056
Interest expense .................. 34,530 345 35,801 39,144
Depreciation and amortization ..... 11,938 386 12,764 12,764
Champion Aerospace and product line
acquisition inventory purchase
accounting adjustments .......... 6,483 -- 6,483 6,483
------- ------- ------- -------
EBITDA, As Defined ................ $88,077 $ 1,881 $90,171 $90,171
======= ======= ======= =======
</Table>
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TRANSDIGM HOLDING COMPANY
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET (1)
MARCH 30, 2002
(IN THOUSANDS)
<Table>
<Caption>
HOLDINGS PRO FORMA HOLDINGS
HISTORICAL ADJUSTMENTS(2) PRO FORMA
---------- -------------- ---------
Current assets:
Cash and cash equivalents .............. $ 28,975 -- $ 28,975
Accounts receivable, net ............... 32,536 -- 32,536
Inventories ............................ 49,600 -- 49,600
Deferred income taxes .................. 9,749 -- 9,749
Prepaid expenses and other ............. 1,009 -- 1,009
--------- --------- ---------
Total current assets .................. 121,869 -- 121,869
Property, plant and equipment--net ....... 39,677 -- 39,677
Intangible assets--net ................... 201,311 -- 201,311
Debt issue costs--net .................... 11,230 $ 1,285(a) 12,515
Deferred income taxes and other .......... 4,942 -- 4,942
--------- --------- ---------
TOTAL .................................... $ 379,029 $ 1,285 $ 380,314
========= ========= =========
LIABILITIES & STOCKHOLDERS' DEFICIENCY
Current liabilities:
Current portion of long-term liabilities $ 18,965 $ (12,803)(b) $ 6,162
Accounts payable ....................... 7,861 -- 7,861
Accrued liabilities .................... 30,501 (686)(c) 29,815
--------- --------- ---------
Total current liabilities ............. 57,327 (13,489) 43,838
Long-term debt--less current portion ..... 391,839 15,803(b) 407,642
Other non-current liabilities ............ 6,143 -- 6,143
--------- --------- ---------
Total liabilities ..................... 455,309 2,314 457,623
--------- --------- ---------
Cumulative Redeemable Preferred Stock .... 14,558 -- 14,558
Holdings Redeemable common stock ......... 1,701 -- 1,701
Stockholders' equity (deficit):
Common stock ........................... 102,080 -- 102,080
Warrants ............................... 1,934 -- 1,934
Retained earnings (deficit) ............ (196,052) (1,715)(a) (197,081)
686(c)
Accumulated other comprehensive loss ... (501) -- (501)
--------- --------- ---------
Total stockholders' equity (deficit) ... (92,539) (1,029) (93,568)
--------- --------- ---------
TOTAL .................................. $ 379,029 $ 1,285 $ 380,314
========= ========= =========
</Table>
11
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TRANSDIGM HOLDING COMPANY
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(1) The Unaudited Pro Forma Consolidated Balance Sheet assumes the notes
offering was consummated on March 30, 2002. We intend to use the net proceeds of
the notes offering to repay existing indebtedness under our credit facility,
including $35.5 million of indebtedness under our Tranche A facility, $17.4
million under our Tranche B facility and $19.1 million under our Tranche C
facility and to pay estimated related fees and expenses of $3.0 million. See
"Use of Proceeds."
(2) The amounts in this column represent the adjustments necessary to determine
Holdings' pro forma consolidated balance sheet after giving effect to the notes
offering and the application of the proceeds therefrom.
(a) This adjustment represents the recognition of debt issuance costs
associated with the offering as well as the write-off of debt issuance
costs associated with the Tranche A facility, and the portions of the
Tranche B and Tranche C facilities being paid off.
(b) This adjustment represents the $75.0 million of notes offered
less the $35.5 million payoff of the Tranche A Facility, the $17.4
million paydown of the Tranche B facility and the $19.1 million
paydown of the Tranche C Facility.
(c) This adjustment represents the tax benefit of the write-off of debt
issuance costs associated with the Tranche A facility, and the portions
of the Tranche B and Tranche C facilities being paid off, based on the
estimated applicable statutory tax rates.
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INDUSTRY OVERVIEW
The aircraft components industry is highly fragmented, consisting of a
large number of small, specialized companies and a limited number of
well-capitalized companies. We compete in product-specific markets that we
estimate range in size from $10 million to $100 million in annual revenues. We
believe that the small size of our markets, combined with the industry's
stringent regulatory approval and certification requirements and the need to
make significant investments in research and development, reduces the risk of
new entrants. Specifically, we believe most of our markets are too small to
attract large aerospace companies and that the financial resources and technical
expertise required to introduce or improve a product, and thereby compete in
these markets, are beyond the reach of most small companies. In addition, all
potential competitors must meet the certification requirements and qualification
approvals required by the FAA as well as aircraft and engine OEMs.
The aerospace industry was significantly impacted by the events of
September 11th. 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. Since the September 11th system
shutdown, there has been a slow, but steady, recovery in air traffic trends for
the worldwide airlines. According to the Air Transport Association, worldwide
revenue passenger miles were down approximately 9% in March 2002 versus the
prior year, as compared to a decline of approximately 50% in the second half of
September 2001 and a decline of approximately 26% in October 2001 versus the
prior year.
AFTERMARKET
The large worldwide aircraft fleet that must be serviced regularly to meet
FAA standards and aircraft reliability requirements creates a large and
profitable aftermarket for replacement parts. Demand for aftermarket parts
depends on revenue passenger miles and, to a lesser extent, on airline
profitability, each of which has historically been correlated with changes in
general economic conditions and the size and age of the worldwide aircraft
fleet. We believe that aftermarket sales will continue to be an attractive
market as a result of the following factors:
o Worldwide large commercial transport revenue passenger miles, or RPMs,
have increased from approximately 680 billion in 1981 to approximately
two trillion in 2001, with 1991 and 2001 representing the only two
years in the last twenty in which annual revenue passenger miles
decreased. The FAA forecasts that revenue passenger miles will recover
to pre-September 11 th levels by the end of 2003 and will continue to
grow at an average growth rate of approximately 5% through 2013. The
aircraft fleet installed base has continued to increase over time
despite volatility in aircraft deliveries and retirements. At the end
of 2001, the large commercial aircraft fleet of Boeing and Airbus
aircraft consisted of approximately 13,700 aircraft, a compound annual
increase of approximately 4% from approximately 9,200 aircraft in 1991.
Following September 11 th, grounded aircraft in storage rose from 1,100
in August 2001 to approximately 2,000 as of December 2001. It is
uncertain how many of these aircraft will return to service.
o The regional airline industry has been a fast growing sector within
recent years as a result of the introduction of regional jets in the
late 1980s. RPMs for U.S. carriers grew from 7.8 billion in 1991 to
25.7 billion in 2001, a compound annual increase of approximately
12.5%. The installed base of regional jets has increased since their
introduction in the late 1980s to approximately 1,200 aircraft at the
end of 2001. The FAA forecasts that regional carriers will continue to
experience secular growth and that RPMs for the entire regional airline
industry (jets and turboprops) will increase at an average annual
growth rate greater than 7% through 2013.
o The business jet sector has also experienced rapid growth in recent
years with the introduction of fractional ownership programs such as
Net Jets and Flight Options. Hours flown by general aviation aircraft
operating with turbine-powered engines has increased from 2.3 million
in 1994 to 4.7 million in 2000, a compound annual increase of
approximately 13%. The FAA forecasts that business jet hours should
increase by approximately 4% annually over the next 10 years.
o Aircraft capacity utilization remains at high levels. Passenger load
factors (measured as the percentage of occupied seats per flight) for
U.S. carriers as reported by the Air Transport Association increased
from 63%
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in 1991 to over 70% prior to September 11th. Passenger load factors
improved to over 75% in March 2002 from a trough in September 2001 of
59% as airlines have had positive trends in airline traffic and reduced
capacity since the September 11th shutdown. Load factors are currently
at levels that are significantly higher than prior cycles.
OEM
Demand for OEM components depends on new aircraft deliveries. Demand for
new aircraft is a function of (1) demand for air travel, (2) aircraft operator
profitability, (3) fleet age, (4) regulatory mandates such as noise reduction,
and (5) the lag time between order and delivery, which causes airlines to order
aircraft according to perceived future need.
o In the early 1990's, many airlines significantly reduced spending on
new aircraft due to weakened financial performance. With the return of
airline profitability, commercial OEMs experienced a surge in large
aircraft deliveries from fewer than 400 aircraft in 1995 to a peak of
914 aircraft in 1999. As a result of the events of September 11 th and
a weakened economy, many industry analysts expect aircraft deliveries
to trend significantly downward from over 850 aircraft delivered in
2001.
o The regional jet aircraft market has grown significantly in recent
years as large airlines have realized significant cost savings by
passing shorter routes to regional carriers. The new turbine engine
aircraft also offers greater comfort and flying range, attracting
increasing numbers of passengers. Regional jet deliveries have
increased significantly to over 300 in 2001 since their introduction in
the late 1980s.
o The business jet market is driven by, among other factors, the
increasing popularity of fractional ownership and the increasing demand
for more expedient and convenient travel. Deliveries of business jets
have increased significantly in recent years, growing from
approximately 250 aircraft annually in the early 1990s to in excess of
700 deliveries in 2000.
o While military spending for new aircraft has significantly declined
with the end of the cold war, military parts and repair spending has
been relatively stable for the last several years, as existing
platforms require parts to remain operational. The recent terrorist
attacks and significant concerns over military readiness are driving an
increase in defense spending forecasts.
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ADDITIONAL REQUIRED DISCLOSURE
The Tranche A facility and part of the Tranche B and C facilities will be
repaid with a portion of the proceeds from this offering. We intend to amend our
credit facility in connection with the offering of the notes. We expect that the
amendments to the credit facility will
o allow us to incur the indebtedness represented by the notes;
o allow us to pay dividends to Holdings for the purpose of
retiring the Holdings PIK Notes;
o allow us to incur up to $150.0 million of additional bank
borrowings or subordinated debt (for which there are currently
no commitments to provide such funds), subject to certain
restrictions, including a requirement that such debt must be
used:
o to finance acquisitions permitted by the amended
credit facility, or
o to pay the dividends to Holdings to retire the
Holdings PIK Notes;
o allow us to effect permitted acquisitions, with the aggregate
amount paid for all such permitted acquisitions not to exceed
$225.0 million;
o require that at least $10.0 million must remain unused and
available under our $30.0 million revolving credit facility
immediately following any acquisition;
o modify certain existing financial covenants; and
o waive any mandatory prepayment from excess cash flow for
fiscal 2002.
The prepayment provision of the Holdings PIK Notes contains a prepayment
penalty that begins to increase on December 4, 2003. We may pay a dividend to
Holdings to repurchase the Holdings PIK Notes prior to December 4, 2003. We
expect that the amendment to our credit facility will permit this dividend. In
addition, we anticipate that on the date of its payment, this dividend will be
permitted under the restricted payments covenant of the indenture.
The following table sets forth contractual cash obligations for the next
several fiscal years giving effect to the notes offering, assuming that the net
proceeds from such offering are used solely to repay all of the Tranche A
facility and a pro rata portion of each of the Tranche B and Tranche C
facilities under the credit facility (dollars in millions):
<Table>
<Caption>
2007 AND
2002(1) 2003 2004 2005 2006 THEREAFTER TOTAL
------- ---- ---- ---- ---- ---------- -----
CONTRACTUAL CASH OBLIGATIONS:
Long-Term Debt ..................... $ 1.5 $ 4.6 $ 13.5 $ 37.7 $ 56.4 $ 297.5/(2)/ $ 411.2
Operating Leases ................... 0.6 1.2 1.2 1.1 1.0 5.5 10.6
Redeemable Preferred Stock ......... -- -- -- -- -- 14.6 14.6
Other Long-Term Obligations ........ 0.4 2.2 2.2 2.2 -- -- 7.0
Total Contractual Cash Obligations $ 2.5 $ 8.0 $ 16.9 $ 41.0 $ 57.4 $ 317.6 $ 443.4
====== ====== ======= ======= ======= ======= ========
</Table>
- ------------
(1) Beginning March 31, 2002.
(2) This amount includes $29.2 million relating to the Holdings PIK
Notes. As mentioned earlier, TransDigm may pay a dividend to
Holdings to be used to prepay the Holdings PIK Notes in fiscal 2004.
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In connection with the Champion Aerospace acquisition, we paid Odyssey a
fee of approximately $1.7 million. We reimburse Odyssey for all of its
reasonable and customary out of pocket expenses that it incurs in connection
with advisory services that it provides to us.
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RISK FACTORS
SUBSTANTIAL LEVERAGE--OUR SUBSTANTIAL INDEBTEDNESS COULD ADVERSELY AFFECT OUR
FINANCIAL HEALTH.
We have now and, after the notes offering, will continue to have a
significant amount of indebtedness. Holdings' ratio of earnings to fixed charges
would have been 1.8 to 1.0 on a pro forma basis for the twelve months ended
March 30, 2002. The following chart shows certain of our important credit
statistics and is presented assuming we had completed the notes offering as of
the date specified below and applied the proceeds as intended (dollars in
millions):
<Table>
<Caption>
AT
MARCH 30, 2002
--------------
Total TransDigm Inc. indebtedness............................. $382.0
TransDigm Inc. stockholders' equity (deficit)................. $(48.1)
</Table>
In addition, Holdings has an additional $29.2 million of indebtedness
represented by the Holdings PIK Notes (all of which will be senior to Holdings'
guarantee of the notes) and, on a pro forma basis, Holdings has a stockholders'
deficit of approximately $93.6 million. See "Unaudited Pro Forma Consolidated
Financial Information."
Our substantial indebtedness could have important consequences to you. For
example, it could:
o increase our vulnerability to general adverse economic and industry
conditions;
o limit our ability to fund future working capital, capital expenditures,
research and development costs and other general corporate
requirements;
o require us to dedicate a substantial portion of our cash flow from
operations to payments on our indebtedness, thereby reducing the
availability of our cash flow to fund working capital, capital
expenditures, research and development efforts and other general
corporate purposes;
o limit our flexibility in planning for, or reacting to, changes in our
business and the industry in which we operate;
o place us at a competitive disadvantage compared to our competitors that
have less debt; and
o limit, along with the financial and other restrictive covenants in our
indebtedness, among other things, our ability to borrow additional
funds. And, failing to comply with those covenants could result in an
event of default which, if not cured or waived, could have a material
adverse effect on us.
ADDITIONAL BORROWINGS AVAILABLE--DESPITE CURRENT INDEBTEDNESS LEVELS, WE AND OUR
SUBSIDIARIES MAY STILL BE ABLE TO INCUR SUBSTANTIALLY MORE DEBT. THIS COULD
FURTHER EXACERBATE THE RISKS ASSOCIATED WITH OUR SUBSTANTIAL LEVERAGE.
We and our subsidiaries may be able to incur substantial additional
indebtedness in the future. The terms of the indenture governing the notes do
not fully prohibit us or our subsidiaries from doing so. Our credit facility
will permit additional borrowings of up to $180.0 million, including $30.0
million under our revolving credit facility and $150.0 million of uncommitted
additional bank borrowings after completion of the notes offering. If new debt
is added to our and our subsidiaries' current debt levels, the related risks
that we and they now face could intensify.
ABILITY TO SERVICE DEBT--TO SERVICE OUR INDEBTEDNESS, WE WILL REQUIRE A
SIGNIFICANT AMOUNT OF CASH. OUR ABILITY TO GENERATE CASH DEPENDS ON MANY FACTORS
BEYOND OUR CONTROL.
Our ability to make payments on and to refinance our indebtedness and to
fund planned capital expenditures and research and development efforts will
depend on our ability to generate cash in the future. This, to a certain
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extent, is subject to general economic, financial, competitive, legislative,
regulatory and other factors that are beyond our control.
Based on our current level of operations and anticipated cost savings and
operating improvements, we believe our cash flow from operations, available cash
and available borrowings under our credit facility, will be adequate to meet our
future liquidity needs for at least the next several years.
We cannot assure you, however, that our 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 us under our credit facility in an amount sufficient to
enable us to pay our indebtedness or to fund our other liquidity needs. We may
need to refinance all or a portion of our indebtedness on or before maturity. We
cannot assure you that we will be able to refinance any of our indebtedness,
including our credit facility and the notes, on commercially reasonable terms or
at all.
RISKS RELATED TO TERRORISM--WE MAY NOT YET KNOW THE FULL IMPACT OF THE SEPTEMBER
11TH TERRORIST ATTACKS, AND ANY FUTURE TERRORIST ATTACKS MAY HAVE A MATERIAL
ADVERSE IMPACT ON OUR BUSINESS.
On September 11, 2001, the United States was subjected to multiple
terrorist attacks, which involved the hijacking of four U.S. commercial
aircraft. In the aftermath of the terrorist attacks, passenger traffic on
commercial flights was significantly lower than prior to the attacks and many
commercial airlines reduced their operating schedules. The overall result of the
terrorist attacks was billions of dollars in losses to the airlines industry.
The full impact of these events and any future terrorist attacks is not yet
known and could cause airlines to delay purchases of spare parts and new
aircraft. If demand for new aircraft and spare parts decreases, there may be a
decrease in demand for certain of our products.
DEPENDENCE ON MAJOR CUSTOMERS--WE RELY HEAVILY ON CERTAIN CUSTOMERS FOR MUCH OF
OUR SALES.
Our two largest customers for the year ended September 30, 2001, were
Aviall (a distributor of aftermarket parts to airlines throughout the world) and
Boeing (including McDonnell Douglas). These customers accounted for
approximately 17% and 8%, respectively, of our consolidated net sales in fiscal
2001. Our top ten customers for the year ended September 30, 2001 accounted for
approximately 55% of our consolidated net sales. The loss of any one or more of
these key customers could have a material adverse effect on our business.
CUSTOMER CONTRACTS--WE GENERALLY DO NOT HAVE GUARANTEED FUTURE SALES OF OUR
PRODUCTS. FURTHER, WE ARE OBLIGATED UNDER FIXED PRICE CONTRACTS WITH SOME OF OUR
CUSTOMERS, SO WE TAKE THE RISK FOR COST OVERRUNS.
As is customary in our business, we do not have long-term contracts with
most of our aftermarket customers and therefore do not have guaranteed future
sales. Although we do have long-term contracts with many of our OEM customers,
some of those customers, such as the United States government, may terminate
these contracts on short notice and, in many other cases, our customers have not
committed to buy any minimum quantity of our products. In addition, we must
anticipate the future volume of orders based upon the historic purchasing
patterns of customers and upon our discussions with customers as to their
anticipated future requirements. Cancellations, reductions or delays in orders
by a customer or a group of customers could have a material adverse effect on
our business, financial condition and results of operations.
We also have entered into fixed-price contracts with some of our customers,
where we agree to perform the work for a fixed price and, accordingly, realize
all the benefit or detriment resulting from any decreased or increased costs for
making these products. Sometimes we accept a fixed-price contract for a product
which we have not yet produced, which increases the risks of delays or cost
overruns.
A number of our contracts do not permit us to recover for increases in
input prices, taxes or labor costs, although some contracts provide for
renegotiation to address certain material adverse changes. Any such increases
are likely to have an adverse effect on our business.
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AIRCRAFT COMPONENTS SEGMENT RISKS--OUR BUSINESS IS SENSITIVE TO THE NUMBER OF
FLIGHT HOURS THAT OUR CUSTOMERS' PLANES SPEND ALOFT AND TO OUR CUSTOMERS'
PROFITABILITY. THESE ITEMS ARE, IN TURN, AFFECTED BY GENERAL ECONOMIC
CONDITIONS. IN ADDITION, OUR SALES TO MANUFACTURERS OF NEW LARGE AIRCRAFT ARE
CYCLICAL.
We compete in the aircraft component segment of the aerospace industry. Our
business is directly affected by economic factors and other trends that affect
our customers, including projected market growth that may not materialize or be
sustainable. Specifically, the aircraft component segment is sensitive to
changes in the number of miles flown by paying customers of commercial airlines,
which we refer to as revenue passenger miles, and, to a lesser extent, to
changes in the profitability of the commercial airline industry and the size and
age of the worldwide aircraft fleet.
Revenue passenger miles and airline profitability have historically been
correlated with the general economic environment, although national and
international events can also play a key role. For example, revenue passenger
miles declined primarily as a result of increased security concerns among
airline customers following the events of September 11th. See "--Risks Related
to Terrorism." Any future reduction would reduce the use of commercial aircraft
and, consequently, the need for spare parts and new aircraft. During periods of
reduced airline profitability, some airlines may elect to delay purchases of
spare parts, preferring instead to deplete existing inventories. If demand for
new aircraft and spare parts decreases, there may be a decrease in demand for
certain of our products. Therefore, any future decline in revenue passenger
miles, airline profitability or the size of the worldwide aircraft fleet, for
any reason, could have a material adverse effect on our business. See "Industry
Overview."
In addition, sales to manufacturers of large commercial aircraft, which
accounted for approximately 15% of our net sales in fiscal 2001, have
historically experienced periodic downturns. In the past, these sales have been
affected by airline profitability, which is impacted by fuel and labor costs and
price competition, and other things. Due in part to these factors, the number of
large commercial aircraft delivered has dropped from a peak of 914 aircraft in
1999. As a result of the events of September 11th and a weakened economy, many
industry analysts expect aircraft deliveries to trend significantly downward
from over 850 aircraft delivered in 2001. Prior downturns have adversely
effected our net sales, gross margin and net income. These and certain other
factors may cause a downturn in sales to manufacturers of large commercial
aircraft in the future which may have a material adverse effect on our business.
FLUCTUATIONS IN DEFENSE SPENDING--A DECLINE IN THE U.S. DEFENSE BUDGET MAY
ADVERSELY AFFECT OUR SALES OF PARTS USED IN MILITARY AIRCRAFT.
Approximately 20% of our sales in fiscal 2001 were related to products used
in military aircraft, over half of which were spare parts provided to various
governmental agencies.
The United States' defense budget has fluctuated in recent years, at times
resulting in reduced demand for new aircraft and, to a lessor extent, spare
parts. In addition, foreign military sales are affected by U.S. government
regulations, regulations by the purchasing foreign government and political
uncertainties in the United States and abroad. The United States' defense budget
may continue to fluctuate, and may decline, and sales of defense related items
to foreign governments may decrease. If there is a decline which reduces demand
for our components, our business may be adversely affected.
In addition, the terms of defense contracts with the U.S. government
generally permit the government to terminate contracts partially or completely,
with or without cause, at any time. Any unexpected termination of a significant
government contract could have an adverse effect on our business.
GOVERNMENT REGULATION AND INDUSTRY OVERSIGHT--OUR BUSINESS WOULD BE ADVERSELY
AFFECTED IF WE LOST OUR GOVERNMENT OR INDUSTRY APPROVALS OR IF MORE ONEROUS
GOVERNMENT REGULATIONS WERE ENACTED OR INDUSTRY OVERSIGHT INCREASED.
The aircraft component industry is highly regulated in the United States
and in other countries. In order to sell our components, we and the components
we manufacture must be certified by the Federal Aviation
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Administration, the United States Department of Defense and similar agencies in
foreign countries and by individual manufacturers.
If new and more stringent government regulations are adopted or if industry
oversight increases we might incur significant expenses to comply with any new
regulations or heightened industry oversight. If material authorizations or
approvals were revoked or suspended, our business would be adversely affected.
To the extent that we operate outside the United States, we are subject to
the Foreign Corrupt Practices Act, or FCPA, which generally prohibits United
States companies and their intermediaries from bribing foreign officials for the
purpose of obtaining or keeping business or otherwise obtaining favorable
treatment. In particular, we may be held liable for actions taken by our
strategic or local partners even though such partners are foreign companies that
are not subject to the FCPA. Any determination that we have violated the FCPA
could result in sanctions that could have a material adverse effect on our
business.
RISKS ASSOCIATED WITH OUR WORKFORCE--WE ARE DEPENDENT ON OUR HIGHLY TRAINED
EMPLOYEES AND ANY WORK STOPPAGE OR DIFFICULTY HIRING SIMILAR EMPLOYEES WOULD
ADVERSELY AFFECT OUR BUSINESS.
Because our products are complicated and very detailed, we are highly
dependent on an educated and trained workforce. There is substantial competition
for skilled personnel in the aircraft component industry and we could be
adversely affected by a shortage of skilled employees. We may not be able to
fill new positions or vacancies created by expansion or turnover or attract and
retain qualified personnel.
At March 30, 2002, we had approximately 950 employees. Approximately 9% of
our employees were represented by the United Steelworkers Union, and
approximately 6% were represented by the United Automobile, Aerospace and
Agricultural Implement Workers of America. Our collective bargaining agreements
with these labor unions expire in April 2005 and November 2004, respectively.
Although we believe that our relations with our employees are good, we cannot
assure you that we will be able to negotiate a satisfactory renewal of these
collective bargaining agreements or that our employee relations will remain
stable. Because we maintain a relatively small inventory of finished goods and
operate on relatively short lead times for our products, any work shortage could
have a material adverse effect on our business.
DEPENDENCE ON KEY PERSONNEL--IF WE LOSE OUR SENIOR MANAGEMENT OR TECHNICAL
PERSONNEL, OUR BUSINESS MAY BE ADVERSELY AFFECTED.
Our success is dependent upon our senior management, as well as on our
ability to attract and retain qualified personnel, including engineers. There is
substantial competition for these kinds of personnel in the aircraft component
industry. We may not be able to retain our existing senior management or
engineering staff, fill new positions or vacancies created by expansion or
turnover, or attract additional qualified personnel. Although we have entered
into employment agreements with certain executive officers, these agreements may
not be renewed.
RISKS ASSOCIATED WITH SUPPLIERS--OUR BUSINESS IS DEPENDENT ON THE AVAILABILITY
OF CERTAIN COMPONENTS AND RAW MATERIALS THAT WE BUY FROM SUPPLIERS.
Our business is affected by the price and availability of the raw materials
and component parts that we use to manufacture our components. Our business,
therefore, could be adversely affected by factors affecting our suppliers, or by
increased costs of such raw materials or components if we are unable to pass
along such price increases to our customers. Because we maintain a relatively
small inventory of raw materials and component parts, our business could be
adversely affected if we are unable to obtain these raw materials and components
from our suppliers in the quantities we require or on favorable terms. Although
we believe that we could identify alternative suppliers, or alternative raw
materials or component parts, the lengthy and expensive FAA and OEM
certification process associated with aerospace products could prevent efficient
replacement of a material or supplier and could have a material adverse effect
on our business.
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POTENTIAL EXPOSURE TO ENVIRONMENTAL LIABILITIES--WE MAY BE LIABLE FOR PENALTIES
UNDER A VARIETY OF ENVIRONMENTAL LAWS, EVEN IF WE DID NOT CAUSE ANY
ENVIRONMENTAL PROBLEMS. CHANGES IN ENVIRONMENTAL LAWS OR UNEXPECTED
INVESTIGATIONS COULD ADVERSELY AFFECT OUR BUSINESS.
Our business and our facilities are subject to a number of federal, state
and local laws and regulations, which govern, among other things, the discharge
of hazardous materials into the air and water as well as the handling, storage
and disposal of such materials.
Pursuant to certain environmental laws, a current or previous owner or
operator of land may be liable for the costs of investigation, removal or
remediation of hazardous materials at such property. These laws typically impose
liability whether or not the owner or operator knew of, or was responsible for,
the presence of any hazardous materials. Persons who arrange (as defined under
these statutes) for the disposal or treatment of hazardous materials also may be
liable for the costs of investigation, removal or remediation of such substances
at the disposal or treatment site, regardless of whether the affected site is
owned or operated by them.
Because we own and operate a number of facilities, and because we arrange
for the disposal of hazardous materials at many disposal sites, we may incur
costs for investigation, removal and remediation, as well as capital costs
associated with compliance with environmental laws. Although such environmental
costs have not been material in the past and are not expected to be material in
the future, changes in environmental laws or unexpected investigation and
clean-up costs could have a material adverse effect on our business.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS --OUR INTERNATIONAL BUSINESS
EXPOSES US TO RISKS RELATING TO INCREASED REGULATION AND POLITICAL OR ECONOMIC
INSTABILITY, GLOBALLY OR WITHIN CERTAIN FOREIGN COUNTRIES.
Our export sales to customers were approximately $54.8 million, $36.2
million and $30.7 million in fiscal 2001, fiscal 2000 and fiscal 1999,
respectively. In addition, a portion of the products we sell to domestic
distributors is 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.
Foreign governments could adopt regulations or take other actions that
would have a direct or indirect adverse impact on our business or market
opportunities abroad. Furthermore, the political, cultural and economic climate
outside the United States may not be favorable to our business and growth
strategy.
RISKS RELATED TO POTENTIAL FUTURE ACQUISITIONS--WE INTEND TO PURSUE FUTURE
ACQUISITIONS AND OUR BUSINESS MAY BE ADVERSELY AFFECTED IF WE CANNOT CONSUMMATE
ACQUISITIONS ON SATISFACTORY TERMS OR EFFECTIVELY INTEGRATE NEW OPERATIONS.
We intend to pursue acquisitions that we believe will present opportunities
to realize significant synergies, operating expense reductions or overhead cost
savings and increase our market position. This acquisition strategy may require
substantial capital, and we may not be able to raise the necessary funds on
terms satisfactory to us or at all. Our acquisition strategy is also limited by
the availability of suitable acquisition candidates. We cannot assure you that
we will be able to consummate any future acquisitions.
We regularly engage in discussions with respect to potential acquisition
and investment opportunities. If we consummate an acquisition, our
capitalization and results of operations may change significantly and you will
not have the opportunity to evaluate the economic, financial and other relevant
information that we will consider in determining the application of these funds.
Future acquisitions would likely result in the incurrence of debt and contingent
liabilities and an increase in interest expense and amortization expenses or
periodic impairment charges related to goodwill and other intangible assets,
which could have a material adverse effect upon our business.
Acquisitions involve numerous risks, including difficulties in the
assimilation of the operations, technologies, services and products of the
acquired companies and the diversion of management's attention from other
business concerns. For all of these reasons, if any such acquisitions occur, our
business could be adversely affected.
COMPETITION--WE FACE SIGNIFICANT COMPETITION.
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We operate in a highly competitive global industry and compete against a
number of companies, including divisions of larger companies, some of which have
significantly greater financial, technological and marketing resources than us.
Competitors in our product lines are both U.S. and foreign companies and range
in size from divisions of large corporations to small privately held entities.
We believe that our ability to compete depends on high product performance,
consistently high quality, short lead-time and timely delivery, competitive
price, superior customer service and support and continued certification under
customer quality requirements and assurance programs. Our inability to compete
successfully with respect to these or other factors may materially adversely
affect our business and financial condition.
CONTROL BY ODYSSEY--WE ARE CONTROLLED BY ODYSSEY, WHOSE INTERESTS MAY NOT BE
ALIGNED WITH YOURS.
Odyssey and its co-investors indirectly own approximately 83.7% of the
common equity interests in our parent company, Holdings and, therefore, have the
power, subject to certain exceptions, to control Holdings. They also control the
appointment of management and the entering into of mergers, sales of
substantially all assets and other extraordinary transactions. The interests of
Odyssey may not in all cases be aligned with yours.
PRODUCT LIABILITY; CLAIMS EXPOSURE--WE COULD BE ADVERSELY AFFECTED AS A RESULT
OF A LAWSUIT IF ONE OF OUR COMPONENTS CAUSES AN AIRCRAFT TO CRASH AND WE ARE NOT
COVERED BY OUR INSURANCE POLICIES.
Our operations expose us to potential liabilities for personal injury or
death as a result of the failure of an aircraft component that has been
designed, manufactured or serviced by us. While we believe that our liability
insurance is adequate to protect us from future products liability claims, if
claims were to arise, such insurance coverage may not be adequate.
Additionally, we may not be able to maintain insurance coverage in the
future at an acceptable cost. Any such liability not covered by insurance or for
which third party indemnification is not available could have a material adverse
effect on our business.
22
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Co-Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
TRANSDIGM HOLDING COMPANY
By: /s/ Gregory Rufus
--------------------------------------
Gregory Rufus
Chief Financial Officer
Date: May 29, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Co-Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
TRANSDIGM INC.
By: /s/ Gregory Rufus
--------------------------------------
Gregory Rufus
Chief Financial Officer
Date: May 29, 2002