1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended March 31, 2001.
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from __________________ to _________________
Commission File Number 333-71397
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TRANSDIGM INC., TRANSDIGM HOLDING COMPANY, MARATHON POWER TECHNOLOGIES COMPANY,
ZMP, INC. AND ADAMS RITE AEROSPACE, INC.
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(Exact name of co-registrants as specified in their respective charters)
Delaware 13-3733378
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(State or other Jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
26380 Curtiss Wright Parkway, Richmond Heights, Ohio 44143
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(Address of principal executive offices) (Zip Code)
(216) 289-4939
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X No ___
-----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock (Voting) of TransDigm Holding Company,
$0.01 Par Value 119,814
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(Class) (Outstanding at March 31, 2001)
Class A Common Stock (Non-Voting) of
TransDigm Holding Company, $0.01 Par Value -0-
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(Class) (Outstanding at March 31, 2001)
All of the outstanding capital stock of TransDigm Inc. is held by TransDigm
Holding Company.
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INDEX
Page
Part I Financial Information
Item 1 Financial Statements
Consolidated Balance Sheets - March 31, 2001 and
September 30, 2000 1
Consolidated Statements of Income - Thirteen and Twenty-Six Week
Periods Ended March 31, 2001 and March 31, 2000 2
Consolidated Statement of Changes in Stockholders' Deficiency -
Twenty-Six Week Period Ended March 31, 2001 3
Consolidated Statements of Cash Flows - Twenty-Six Week Periods
Ended March 31, 2001 and March 31, 2000 4
Notes to Consolidated Financial Statements 5
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Item 3 Quantitative and Qualitative Disclosure About Market Risk 13
Part II: Other Information
Item 6 Exhibits and Reports on Form 8-K 14
Signatures 15
3
PART I: FINANCIAL INFORMATION
ITEM 1
TRANSDIGM HOLDING COMPANY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)
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MARCH 31,
2001 SEPTEMBER 30,
ASSETS (Unaudited) 2000
CURRENT ASSETS:
Cash and cash equivalents $ 6,599 $ 4,309
Accounts receivable, net 23,906 26,796
Inventories (Note 4) 41,175 32,889
Income taxes refundable 258 1,796
Prepaid expenses and other 985 535
Deferred income taxes 8,057 5,657
--------- ---------
Total current assets 80,980 71,982
PROPERTY, PLANT AND EQUIPMENT - Net 24,808 25,029
INTANGIBLE ASSETS - Net 71,854 56,957
DEBT ISSUE COSTS - Net 8,596 9,400
DEFERRED INCOME TAXES AND OTHER 5,360 5,465
--------- ---------
TOTAL $ 191,598 $ 168,833
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Short-term and current portions of long-term debt $ 14,953 $ 10,953
Accounts payable 10,747 5,672
Accrued and other liabilities 22,755 15,460
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Total current liabilities 48,455 32,085
LONG-TERM DEBT - Less current portion 246,623 250,648
OTHER NON-CURRENT LIABILITIES 7,785 3,138
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Total liabilities 302,863 285,871
--------- ---------
REDEEMABLE COMMON STOCK 1,612 1,371
--------- ---------
STOCKHOLDERS' DEFICIENCY:
Common stock 102,031 102,156
Accumulated deficit (214,456) (220,115)
Accumulated other comprehensive loss (452) (450)
--------- ---------
Total stockholders' deficiency (112,877) (118,409)
--------- ---------
TOTAL $ 191,598 $ 168,833
========= =========
See notes to consolidated financial statements.
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TRANSDIGM HOLDING COMPANY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THIRTEEN AND TWENTY-SIX WEEK PERIODS ENDED
MARCH 31, 2001 AND MARCH 31, 2000
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
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THIRTEEN WEEK TWENTY-SIX WEEK
PERIODS ENDED PERIODS ENDED
------------------------ -------------------------
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
2001 2000 2001 2000
NET SALES $42,084 $36,434 $77,864 $70,168
COST OF SALES (Including charge of
$156 during the periods ending
March 30, 2001 due to inventory
purchase accounting adjustments) 22,827 19,825 42,820 37,960
------- ------- ------- -------
GROSS PROFIT 19,257 16,609 35,044 32,208
------- ------- ------- -------
OPERATING EXPENSES:
Selling and administrative 4,283 4,059 8,539 8,191
Amortization of intangibles 420 435 839 947
Research and development 688 587 1,201 972
------- ------- ------- -------
Total operating expenses 5,391 5,081 10,579 10,110
------- ------- ------- -------
INCOME FROM OPERATIONS 13,866 11,528 24,465 22,098
INTEREST EXPENSE - Net 7,250 7,030 14,281 14,125
------- ------- ------- -------
INCOME BEFORE INCOME TAXES 6,616 4,498 10,184 7,973
INCOME TAX PROVISION 2,687 1,781 4,269 3,156
------- ------- ------- -------
NET INCOME $ 3,929 $ 2,717 $ 5,915 $ 4,817
======= ======= ======= =======
See notes to consolidated financial statements.
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TRANSDIGM HOLDING COMPANY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIENCY
FOR THE TWENTY-SIX WEEK PERIOD ENDED MARCH 31, 2001
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
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ACCUMULATED
OTHER
COMMON ACCUMULATED COMPREHENSIVE
STOCK DEFICIT LOSS TOTAL
BALANCE, OCTOBER 1, 2000 $ 102,156 $(220,115) $(450) $(118,409)
---------
COMPREHENSIVE INCOME:
Net income 5,915 5,915
Other comprehensive income (2) (2)
---------
Total comprehensive income 5,913
---------
PURCHASE OF COMMON STOCK (125) (125)
ACCRETION OF REDEEMABLE
COMMON STOCK (256) (256)
--------- --------- ----- ---------
BALANCE, MARCH 31, 2001 $ 102,031 $(214,456) $(452) $(112,877)
========= ========= ===== =========
See notes to consolidated financial statements.
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TRANSDIGM HOLDING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE TWENTY-SIX WEEK PERIODS ENDED
MARCH 31, 2001 AND MARCH 31, 2000
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
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TWENTY-SIX WEEK
PERIODS ENDED
--------------------------
MARCH 31, MARCH 31,
2001 2000
OPERATING ACTIVITIES:
Net income $ 5,915 $ 4,817
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 2,510 2,154
Amortization of intangibles 839 947
Amortization of debt issue costs 804 633
Interest deferral on Holdings PIK Notes 1,452 1,280
Changes in assets and liabilities, net of effects from
acquisition of business:
Accounts receivable 2,890 555
Inventories (2,740) (3,439)
Income taxes refundable 1,538 497
Other assets (305) (64)
Accounts payable 617 237
Accrued liabilities and other (1,283) (1,369)
-------- --------
Net cash provided by operating activities 12,237 6,248
-------- --------
INVESTING ACTIVITIES:
Capital expenditures (1,691) (1,849)
Acquisition of Christie Electric Corp. (Note 3) (2,500)
Acquisition of Honeywell product line (Note 3) (6,640)
-------- --------
Net cash used in investing activities (8,331) (4,349)
-------- --------
FINANCING ACTIVITIES:
Net borrowings under revolving credit loans 4,000
Repayment of term loans (5,477) (3,875)
Purchase of capital stock (139)
Proceeds from issuance of capital stock 141
-------- --------
Net cash used in financing activities (1,616) (3,734)
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,290 (1,835)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 4,309 2,729
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 6,599 $ 894
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 12,074 $ 12,023
======== ========
Cash paid during the period for income taxes $ 2,710 $ 2,687
======== ========
See notes to consolidated financial statements.
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TRANSDIGM HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THIRTEEN AND TWENTY-SIX WEEK PERIODS ENDED
MARCH 31, 2001 AND MARCH 31, 2000
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1. DESCRIPTION OF THE BUSINESS AND MERGER
TransDigm Holding Company ("Holdings"), through its wholly-owned operating
subsidiary, TransDigm Inc. ("TransDigm"), is a premier supplier of
proprietary mechanical components servicing predominantly the aircraft
industry. TransDigm, along with its wholly-owned subsidiaries, Marathon
Power Technologies Company ("Marathon"), ZMP, Inc. ("ZMP") and Adams Rite
Aerospace, Inc., ("Adams Rite") (collectively, the "Company"), offers a
broad line of component products including tube connectors, valves,
batteries, static inverters, pumps, quick disconnects, clamps, ball
bearing and sliding controls, mechanical hardware, fluid controls,
lavatory hardware, electromechanical controls, and oxygen systems related
products.
2. UNAUDITED INTERIM FINANCIAL INFORMATION
Except for the September 30, 2000 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 31,
2001 are not necessarily indicative of the results to be expected for the
full year.
3. ACQUISITIONS
CHRISTIE - On March 8, 2000, Marathon acquired all of the issued and
outstanding common shares of Christie Electric Corp. ("Christie") for $2.5
million. The Company accounted for the acquisition as a purchase and
included the results of operations of Christie in its fiscal 2000
consolidated financial statements from the effective date of the
acquisition. Goodwill of $1.9 million, which resulted from the
acquisition, is being amortized on a straight-line basis over forty years.
Pro-forma net sales and results of operations for this acquisition, had
the acquisition occurred at the beginning of the thirteen and twenty-six
weeks ended March 31, 2000, are not significant and, accordingly, are not
provided.
HONEYWELL - During December 2000, the Company entered into agreements with
Honeywell International, Inc. ("Honeywell") to purchase certain inventory
of Honeywell's lubrication and scavenge pump product line for $4.5
million, along with an option to enter into an exclusive, worldwide
license agreement to produce and sell such products for at least forty
years and to buy certain related assets. The Company expects that it will
pay for the inventory by the end of the Company's third quarter and the
cost of the inventory is included in accounts payable at March 31, 2001.
The cost of the option was not significant.
During January 2001, the Company exercised the option and, on March 26,
2001, the Company executed the license agreement, acquired the related
assets (including additional inventory of approximately $1.4 million), and
entered into a five year supply agreement with Honeywell in return for a
cash payment of $6.6 million at closing and a commitment to make future,
specified and variable royalty payments under the license agreement.
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The Company accounted for the acquisition as a purchase and has included
the results of operations of the acquired product line (which were not
material through March 31, 2001) in its fiscal 2001 consolidated financial
statements from the effective date of the acquisition. The closing of the
option transaction was recorded in March 2001 based on a preliminary
determination of the estimated fair values of the assets and liabilities
acquired as a result of the transaction. Intangible assets of $15.8
million, consisting of the license agreement and goodwill, that were
recorded as a result of the acquisition are being amortized on a
straight-line basis over forty years.
The purchase price of the inventory acquired from Honeywell in both
December 2000 and March 2001 is subject to adjustment based upon a final
determination of the value acquired, as defined.
Pro-forma net sales and results of operations for this acquisition, had
the acquisition occurred at the beginning of the thirteen and twenty-six
week periods ended March 31, 2001, are not significant and accordingly,
are not provided.
4. INVENTORIES
Inventories are stated at the lower of cost or market. Cost of inventories
is determined by the average cost and the first-in, first-out (FIFO)
methods. Inventories consist of the following (in thousands):
MARCH 31, SEPTEMBER 30,
2001 2000
Work-in-progress and finished goods $ 26,278 $ 20,995
Raw materials and purchased component parts 21,829 18,325
-------- --------
Total 48,107 39,320
Reserve for excess and obsolete inventory (6,932) (6,431)
-------- --------
Inventories - net $ 41,175 $ 32,889
======== ========
5. CONTINGENCIES
ENVIRONMENTAL - The soil and groundwater beneath the Company's facility in
Waco, Texas have been impacted by releases of hazardous materials. The
resulting contaminants of concern have been delineated and characterized.
The majority of these contaminants are presently below action levels
prescribed by the Texas Natural Resources Conservation Commission
("TNRCC"). In connection with the Company's acquisition of Marathon, a $2
million escrow was previously funded to cover the cost of remediation that
TNRCC might require for those contaminants currently in excess of action
limits. As a result, the Company believes the condition of the soil and
groundwater at the Waco facility will not require the incurrence of
material expenditures. However, there can be no assurance that additional
contamination will not be discovered or that the remediation required by
TNRCC will not be material to the financial condition, results of
operations, or cash flows of the Company.
OTHER - While the Company is currently involved in certain legal
proceedings, management believes the results of these proceedings will not
have a material effect on the financial condition, results of operations
or cash flows of the Company. During the ordinary course of business, the
Company is from time to time threatened with, or may become a party to,
legal actions and other proceedings. The Company believes that its
potential exposure to such legal actions is adequately covered by its
aviation product and general liability insurance.
-6-
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6. NEW ACCOUNTING STANDARD
In June 1998, the Financial Accounting Standards Board issued Statement
No. 133 ("SFAS 133"), Accounting for Derivative Instruments and Hedging
Activities. SFAS 133, as amended and interpreted, establishes accounting
and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively, referred
to as derivatives), and for hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the statement
of financial position and measure those instruments at fair value. If
certain conditions are met, a derivative may be specifically designated as
(a) a hedge of the exposure to changes in the fair value of a recognized
asset or liability or an unrecognized firm commitment; (b) a hedge of the
exposure to variable cash flows of a recorded or forecasted transaction;
or (c) a hedge of the foreign currency exposure of a net investment in a
foreign operation, an unrecognized firm commitment, an available-for-sale
security, or a foreign-currency-denominated forecasted transaction. The
Company adopted SFAS 133 during the quarter ended December 30, 2000. The
implementation of SFAS 133 did not have an impact on the Company's
reported financial condition, results of operations, or cash flows.
7. SUBSEQUENT EVENT
On April 29, 2001, the Company signed an agreement to acquire the assets
of the Champion Aviation Products business ("Champion Aviation") from
Federal-Mogul Ignition Company, a subsidiary of Federal-Mogul Corporation
for $160.1 million in cash, subject to adjustment based on the level of
acquired working capital as of the closing of the transaction. The closing
of acquisition is expected to occur by June 30, 2001 and is subject to
customary closing conditions, including the receipt of all necessary
regulatory approvals. The purchase price is expected to be financed by
additional borrowings under the Company's existing credit facility and
proceeds from preferred stock issued by Holdings and contributed to
TransDigm as a contribution to its equity. Champion Aviation designs and
manufactures various aerospace products, including igniters for turbine
engines and spark plugs and oil filters for piston engines.
* * * * *
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PART I: FINANCIAL INFORMATION
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Quarterly Statement includes "forward-looking statements" within the
meaning of Section 27A of the Securities Act and Section 21E of the Securities
Exchange Act of 1934, as amended, including, in particular, the statements about
our plans, strategies and prospects under this "Management's Discussion and
Analysis of Financial Condition and Results of Operations" section. Although the
Company believes that its plans, intentions and expectations reflected in or
suggested by such forward-looking statements are reasonable, the Company can
give no assurance that such plans, intentions or expectations will be achieved.
Important factors that could cause actual results to differ materially from the
forward-looking statements made in this Quarterly Statement are set forth herein
as well as under the caption "Risk Factors" in the Registration Statement filed
by the Company on Form S-4 on January 29, 1999, as amended through April 23,
1999. All forward-looking statements attributable to the Company or persons
acting on its behalf are expressly qualified in their entirety by those
cautionary statements.
OVERVIEW
The Company is a leading supplier of highly engineered aircraft components for
use on nearly all commercial and military aircraft. The Company sells its
products to commercial airlines and aircraft maintenance facilities in the
aftermarket, to most original equipment manufacturers ("OEMs") of aircraft and
to various agencies of the United States government. Sales of the Company's
products are made directly to these organizations as well as through U.S. and
international distributors who maintain inventories throughout the world of
products purchased from the Company and others.
On March 8, 2000, Marathon acquired Christie Electric Corp. for $2.5 million.
Christie is a well established supplier of battery charging and analyzing
equipment, complete battery management systems and power suppliers. The product
lines of Christie are a complement to Marathon's business.
On March 26, 2001, the Company acquired an exclusive, worldwide license to
produce and sell products composed of Honeywell International, Inc.'s
lubrication and scavenge pump product line along with certain related inventory
and equipment for a cash payment of $6.6 million and a commitment to make
future, specified and variable royalty payments. Prior to the closing of this
transaction, the Company acquired $4.5 million of lube and scavenge pump
inventory from Honeywell in December 2000. The lube and scavenge pump product
line is a complement to AeroControlex's business.
The following is management's discussion and analysis of certain significant
factors that have affected the Company's financial position and operating
results during the periods included in the accompanying consolidated financial
statements. The Company's fiscal year ends on September 30.
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RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain operating
data of the Company as a percentage of net sales.
THIRTEEN WEEK TWENTY-SIX WEEK
PERIODS ENDED PERIODS ENDED
-------------------- -------------------
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
2001 2000 2001 2000
Net sales 100% 100% 100% 100%
---- ---- ---- ----
Gross profit 46 46 45 46
Selling and administrative 10 11 11 12
Amortization of intangibles 1 1 1 1
Research and development 2 2 2 1
-- -- -- --
Income from operations 33 32 31 32
Interest expense- net 18 19 18 20
Provision for income taxes 6 5 5 5
-- -- -- --
Net income 9% 8% 8% 7%
==== ==== ==== ====
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CHANGES IN RESULTS OF OPERATIONS
THIRTEEN WEEK PERIOD ENDED MARCH 31, 2001 COMPARED WITH THE THIRTEEN WEEK PERIOD
ENDED MARCH 31, 2000.
- - NET SALES. Net sales increased by $5.7 million, or 15.5 percent, to $42.1
million for the quarter ended March 31, 2001 from $36.4 million for the
comparable quarter last year, primarily due to increased unit volume on
existing products and new business opportunities.
- - GROSS PROFIT. Gross profit (net sales less cost of sales) increased by $2.7
million, or 15.9 percent, to $19.3 million for the quarter ended March 31,
2001 from $16.6 million from the comparable quarter last year. This
increase is attributable to the higher sales discussed above. Gross profit
as a percentage of net sales was 46 percent during the second quarters of
both fiscal 2001 and 2000.
- - SELLING AND ADMINISTRATIVE. Selling and administrative expenses increased
by $0.2 million, or 5.5 percent, to $4.3 million for the quarter ended
March 31, 2001 from $4.1 million for the quarter ended March 31, 2000. This
increase principally resulted from the Company's increased sales
activities. Selling and administrative expenses as a percentage of net
sales decreased from 11 percent for the quarter ended March 31, 2000 to 10
percent for the quarter ended March 31, 2001.
- - AMORTIZATION OF INTANGIBLES. Amortization of intangibles expense
approximated $0.4 million for the quarter ended March 31, 2001 and the
comparable quarter last year. Amortization expense as a percentage of net
sales, was 1 percent for both quarters.
- - RESEARCH AND DEVELOPMENT. Research and development expense increased by
$0.1 million, or 17.2 percent, to $0.7 million for the quarter ended March
31, 2001 from $0.6 million for the quarter ended March 31, 2000. Research
and development expense, as a percentage of net sales, was 2 percent for
both quarters.
- - INCOME FROM OPERATIONS. Operating income increased by $2.4 million, or 20.3
percent, to $13.9 million for the quarter ended March 31, 2001 from $11.5
million for the quarter ended March 31, 2000, primarily as a result of the
factors referred to above.
- - INTEREST EXPENSE. Interest expense increased by $0.2 million, or 3.1
percent, to $7.2 million for the second quarter of fiscal 2001 from $7.0
million for the second quarter of fiscal 2000.
- - INCOME TAXES. Income tax expense as a percentage of income before income
taxes was approximately 40 percent for the thirteen week period ended March
31, 2001 and the comparable quarter last year.
- - NET INCOME. The Company earned $3.9 million for the second quarter of
fiscal 2001 compared to $2.7 million earned for the second quarter of
fiscal 2000 primarily as a result of the factors referred to above.
TWENTY-SIX WEEK PERIOD ENDED MARCH 31, 2001 COMPARED WITH THE TWENTY-SIX WEEK
PERIOD ENDED MARCH 31, 2000.
- - NET SALES. Net sales increased by $7.7 million, or 11.0 percent, to $77.9
million for the twenty-six week period ended March 31, 2001 from $70.2
million for the comparable twenty-six week period last year, principally
due to increased unit volume on existing products and new business
opportunities.
- - GROSS PROFIT. Gross profit (net sales less cost of sales) increased by $2.8
million, or 8.8 percent, to $35.0 million for the twenty-six week period
ended March 31, 2001 from $32.2 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 percent
during the twenty-six week period ended March 31, 2001 and 46 percent
during the twenty-six week period ended March 31, 2000, principally due to
changes in product mix.
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- - SELLING AND ADMINISTRATIVE. Selling and administrative expenses increased
by $0.3 million, or 4.2 percent, to $8.5 million for the twenty-six week
period ended March 31, 2001 from $8.2 million for the twenty-six week
period ended March 31, 2000. This increase principally resulted from the
Company's increased efforts to develop new business. Selling and
administrative expenses as a percentage of net sales decreased from 12
percent for the twenty-six week period ended March 31, 2000 to 11 percent
for the twenty-six week period ended March 31, 2001.
- - AMORTIZATION OF INTANGIBLES. Amortization of intangible expense decreased
by $0.1 million, or 11.4 percent, to $0.8 million for the twenty-six week
period ended March 31, 2001 from $0.9 million for the twenty-six week
period ended March 31, 2000 as a result of certain intangible assets
becoming fully amortized.
- - RESEARCH AND DEVELOPMENT. Research and development expense increased $0.2
million, or 23.6 percent, from $1.0 million for the twenty-six week period
ended March 31, 2000 to $1.2 million for the twenty-six week period ended
March 31, 2001, principally as a result of the Company's increased efforts
to develop new products.
- - INCOME FROM OPERATIONS. Operating income increased by $2.3 million, or 10.7
percent, from $22.1 million for the twenty-six week period ended March 31,
2000 to $24.4 million for the twenty-six week period ended March 31, 2001,
primarily as a result of the factors referred to above.
- - INTEREST EXPENSE. Interest expense increased by $0.2 million, or 1.1
percent, to $14.3 million for the twenty-six week period ended March 31,
2001 from $14.1 million for the twenty-six week period ended March 31,
2000.
- - INCOME TAXES. Income tax expense as a percentage of income before income
taxes was approximately 40 percent for the twenty-six week period ended
March 31, 2001 and the twenty-six week period ended March 31, 2000.
- - NET INCOME. The Company earned $5.9 million for the twenty-six week period
ended March 31, 2001 compared to net income of $4.8 million for the
twenty-six week period ended March 31, 2000, primarily as a result of the
factors referred to above.
BACKLOG
As of March 31, 2001, the Company estimated its sales order backlog at $83.2
million compared to an estimated $73.4 million as of March 31, 2000. The
majority of the purchase orders outstanding as of March 31, 2001 are scheduled
for delivery within the next twelve months. Purchase orders are generally
subject to cancellation by the customer prior to shipment. The level of unfilled
purchase orders at any given date during the year will be materially affected by
the timing of the Company's receipt of purchase orders and the speed with which
those orders are filled. Accordingly, the Company's backlog as of March 31, 2001
may not necessarily represent the actual amount of shipments or sales for any
future period.
FOREIGN OPERATIONS
The Company manufactures virtually all of its products in the United States.
However, a portion of the Company's current sales is conducted abroad. These
sales are subject to numerous additional risks, including the impact of foreign
government regulations, currency fluctuations, political uncertainties and
differences in business practices. There can be no assurance that foreign
governments will not adopt regulations or take other action that would have a
direct or indirect adverse impact on the business or market opportunities of the
Company within such governments' countries. Furthermore, there can be no
assurance that the political, cultural and economic climate outside the United
States will be favorable to the Company's operations and growth strategy.
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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 31, 2001 and March 31, 2000 were not significant.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities during the twenty-six week period ended
March 31, 2001 was approximately $12.2 million compared to approximately $6.2
million generated during the twenty-six week period ended March 31, 2000,
primarily due to increased collections of accounts receivable and income taxes,
increased earnings and a decline in the rate of increase in inventories during
the twenty-six week period ended March 31, 2001.
Cash used in investing activities was approximately $8.3 million during the
twenty-six weeks ended March 31, 2001 compared to approximately $4.3 million
used during the twenty-six weeks ended March 31, 2000. The increase is mainly
due to the acquisition of the Honeywell lube and scavenge pump product line in
March 2001.
Cash used in financing activities during the twenty-six weeks ended March 31,
2001 was approximately $1.6 million compared to approximately $3.7 million used
in financing activities during the twenty-six weeks ended March 31, 2000,
primarily due to increased repayment of debt obligations offset by the increased
borrowings required to finance the acquisition of the Honeywell lube and
scavenge pumps product line.
The Company's primary future cash needs will consist of capital expenditures and
debt service as well as funds to finance the acquisition of the assets of the
Champion Aviation Products business described in Note 7 on page 7. 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 $1.7 million and $1.8
million during the twenty-six week periods ended March 31, 2001 and March 31,
2000, respectively.
ADDITIONAL DISCLOSURE REQUIRED BY INDENTURE
Separate financial information of TransDigm is not presented since the Senior
Subordinated Notes are guaranteed by Holdings and all direct and indirect
subsidiaries of TransDigm and since Holdings has no operations or assets
separate from its investment in TransDigm. In addition, Holdings' only liability
consists of Holdings PIK Notes of $26.1 million that bear interest at 12 percent
annually. Interest expense recognized on the Holdings PIK Notes during the
thirteen and twenty-six week periods ended March 31, 2001 was $0.8 million and
$1.5 million, respectively. Interest expense recognized on these notes during
the thirteen and twenty-six week periods ended March 31, 2000 was $.7 million
and $1.3 million, respectively.
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15
PART I: FINANCIAL INFORMATION
ITEM 3
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
At March 31, 2001, the Company is subject to interest rate risk with respect to
borrowings under its credit facility as the interest rates on such borrowings
vary with market conditions and, thus, the amount of outstanding borrowings
approximates the fair value of the indebtedness. On a historical basis, the
weighted average interest rate on the $110.5 million of borrowings outstanding
under the credit facility at March 31, 2001 was 8.3 percent. Also outstanding at
March 31, 2001 was $125 million of Company indebtedness in the form of
subordinated notes and $26.1 million of Holdings PIK Notes. The interest rates
on both of these borrowings are fixed at 10 3/8 percent and 12 percent per year,
respectively.
The sensitivity of changes in the fair value of the Company's outstanding
borrowings to changes in interest rates is described on page 17 of our Form 10-K
for the fiscal year ended September 30, 2000. There have been no material
changes in the sensitivity since September 30, 2000.
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PART II: OTHER INFORMATION
ITEM 6 Exhibits and Reports on Form 8-K
(a) Exhibits
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
2.1 Asset Purchase Agreement, dated April 29, 2001, between
Federal-Mogul Ignition Company and Aviation Acquisition
Corporation
(b) The Company did not file any reports on Form 8-K during the
quarter ended March 31, 2001.
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17
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Act of 1934, as
amended, each of the Co-Registrants has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Richmond Heights, State of Ohio, on May 11, 2001.
TRANSDIGM HOLDING COMPANY
By: /s/ GREGORY RUFUS
--------------------------------------------
Gregory Rufus
Chief Financial Officer
TRANSDIGM INC.
By: /s/ GREGORY RUFUS
--------------------------------------------
Gregory Rufus
Chief Financial Officer
MARATHON POWER TECHNOLOGIES COMPANY
By: /s/ GREGORY RUFUS
--------------------------------------------
Gregory Rufus
Chief Financial Officer
ZMP, INC.
By: /s/ GREGORY RUFUS
--------------------------------------------
Gregory Rufus
Chief Financial Officer
ADAMS RITE AEROSPACE, INC.
By: /s/ GREGORY RUFUS
--------------------------------------------
Gregory Rufus
Chief Financial Officer
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18
TRANSDIGM HOLDING COMPANY
Pursuant to the requirements of the Securities Act of 1934, this Report has been
signed below by the following persons on behalf of the Co-Registrant and in the
capacities and as of the dates indicated.
SIGNATURE TITLE DATE
* Chief Executive Officer (Principal May 11, 2001
- ----------------------------------- Executive Officer) and Chairman of the Board
Douglas W. Peacock
* President and Chief Operating Officer May 11, 2001
- ----------------------------------- (Principal Operating Officer) and Director
W. Nicholas Howley
/s/ Gregory Rufus Chief Financial Officer (Principal Financial May 11, 2001
- ----------------------------------- and Accounting Officer)
Gregory Rufus
* Director May 11, 2001
- -----------------------------------
Stephen Berger
* Director May 11, 2001
- -----------------------------------
William Hopkins
* Director May 11, 2001
- -----------------------------------
Muzzafar Mirza
* Director May 11, 2001
- -----------------------------------
John W. Paxton
* Director May 11, 2001
- -----------------------------------
Thomas R. Wall, IV
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19
TRANSDIGM INC.
Pursuant to the requirements of the Securities Act of 1934, this Report has been
signed below by the following persons on behalf of the Co-Registrant and in the
capacities and as of the dates indicated.
SIGNATURE TITLE DATE
* Chief Executive Officer (Principal May 11, 2001
- ----------------------------------- Executive Officer) and Chairman of the Board
Douglas W. Peacock
* President and Chief Operating Officer May 11, 2001
- ----------------------------------- (Principal Operating Officer) and Director
W. Nicholas Howley
/s/ Gregory Rufus Chief Financial Officer (Principal Financial May 11, 2001
- ----------------------------------- and Accounting Officer)
Gregory Rufus
* Director May 11, 2001
- -----------------------------------
Stephen Berger
* Director May 11, 2001
- -----------------------------------
William Hopkins
* Director May 11, 2001
- -----------------------------------
Muzzafar Mirza
* Director May 11, 2001
- -----------------------------------
John W. Paxton
* Director May 11, 2001
- -----------------------------------
Thomas R. Wall, IV
-17-
20
MARATHON POWER TECHNOLOGIES COMPANY
Pursuant to the requirements of the Securities Act of 1934, this Report has been
signed below by the following persons on behalf of the Co-Registrant and in the
capacities and as of the dates indicated.
SIGNATURE TITLE DATE
* Chief Executive Officer (Principal May 11, 2001
- ----------------------------------- Executive Officer) and Chairman of the Board
Douglas W. Peacock
* President (Principal Operating Officer) May 11, 2001
- -----------------------------------
Albert J. Rodriguez
/s/ Gregory Rufus Chief Financial Officer (Principal Financial May 11, 2001
- ----------------------------------- and Accounting Officer)
Gregory Rufus
* Director May 11, 2001
- -----------------------------------
W. Nicholas Howley
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21
ZMP, INC.
Pursuant to the requirements of the Securities Act of 1934, this Report has been
signed below by the following persons on behalf of the Co-Registrant and in the
capacities and as of the dates indicated.
SIGNATURE TITLE DATE
* Chairman of the Board and Executive Vice May 11, 2001
- ----------------------------------- President (Principal Executive Officer)
Douglas W. Peacock
* President (Principal Operating Officer) May 11, 2001
- -----------------------------------
John F. Leary
/s/ Gregory Rufus Treasurer and Chief Financial Officer May 11, 2001
- ----------------------------------- (Principal Financial and Accounting Officer)
Gregory Rufus
* Executive Vice President and Director May 11, 2001
- -----------------------------------
W. Nicholas Howley
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22
ADAMS RITE AEROSPACE, INC.
Pursuant to the requirements of the Securities Act of 1934, this Report has been
signed below by the following persons on behalf of the Co-Registrant and in the
capacities and as of the dates indicated.
SIGNATURE TITLE DATE
* Chairman of the Board and Executive Vice May 11, 2001
- ----------------------------------- President (Principal Executive Officer)
Douglas W. Peacock
* President (Principal Operating Officer) May 11, 2001
- -----------------------------------
John F. Leary
/s/ Gregory Rufus Treasurer and Chief Financial Officer May 11, 2001
- ----------------------------------- (Principal Financial and Accounting Officer)
Gregory Rufus
* Executive Vice President and Director May 11, 2001
- -----------------------------------
W. Nicholas Howley
* The undersigned, by signing his name hereto, does sign and execute this
Annual Report on Form 10-Q pursuant to the Power of Attorney executed by
the above-named officers and Directors of the Co-Registrant and filed with
the Securities and Exchange Commission on behalf of such officers and
Directors.
By: /s/ Gregory Rufus
------------------------------
Gregory Rufus,
ATTORNEY-IN-FACT
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