1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 8-K/A
TRANSDIGM INC., TRANSDIGM HOLDING COMPANY, MARATHON POWER TECHNOLOGIES COMPANY,
CHAMPION AEROSPACE INC., ZMP, INC. AND ADAMS RITE AEROSPACE, INC.
AMENDMENT #1 TO CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
May 31, 2001
------------------------------------------------
Date of report (Date of earliest event reported)
TRANSDIGM INC., TRANSDIGM HOLDING COMPANY, MARATHON POWER TECHNOLOGIES COMPANY,
CHAMPION AEROSPACE INC., ZMP, INC. AND ADAMS RITE AEROSPACE, INC.
(exact name of co-registrant as specified in their respective charters)
Delaware 333-71397 13-3733378
- ----------------------------- ----------------------- ------------------
(State or other Jurisdiction of Commission File Number (I.R.S. Employer
incorporation or organization) Identification No.)
26380 Curtiss Wright Parkway, Richmond Heights, Ohio 44143
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(216) 289-4939
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)
2
INDEX
PAGE
Item 7 FINANCIAL STATEMENTS, PRO FORMA FINANCIAL
INFORMATION AND EXHIBITS
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
Report of Ernst & Young LLP, Independent Auditors 1
Audited financial statements of Federal-Mogul Aviation, Inc.
as of December 31, 2000 and 1999 and for the Years Then Ended,
the Period from October 10, 1998 through December 31, 1998,
and the Period from January 1, 1998 through October 9, 1998 2
Unaudited financial statements of Federal-Mogul Aviation Inc. as of
March 31, 2001 and December 31, 2000 and for the Thirteen Weeks Ended
March 31, 2001 and 2000 10
(b) UNAUDITED PRO FORMA FINANCIAL INFORMATION
Unaudited Pro Forma Consolidated Statement of Operations -
Year Ended September 30, 2000 (Year Ended December 31, 2000 for Aviation) 16
Unaudited Pro Forma Consolidated Statement of Operations -
Twenty-Six Week Period Ended March 31, 2001 18
Unaudited Pro Forma Consolidated Balance Sheet - March 31, 2001 20
Signatures 22
3
ITEM 7 a. FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Federal-Mogul Corporation:
We have audited the accompanying balance sheets of Federal-Mogul Aviation,
Inc. as of December 31, 2000 and 1999 and the related statements of operations
and cash flows for the years then ended, the period from October 10, 1998
through December 31, 1998 and for the Aviation Division of the Cooper Automotive
Division of Cooper Industries (the Predecessor) for the period from January 1,
1998 through October 9, 1998. These financial statements are the responsibility
of the respective Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Federal-Mogul Aviation, Inc.
at December 31, 2000 and 1999 and the results of its operations and its cash
flows for the years then ended, the period from October 10, 1998 through
December 31, 1998 and for the Predecessor for the period from January 1, 1998
through October 9, 1998, in conformity with accounting principles generally
accepted in the United States.
/S/ ERNST & YOUNG LLP
Detroit, Michigan
March 1, 2001, except for Note 7, as to which the date is
May 31, 2001
-1-
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FEDERAL-MOGUL AVIATION, INC.
STATEMENTS OF OPERATIONS
(THOUSANDS OF DOLLARS)
PREDECESSOR
YEAR ENDED -----------
DECEMBER 31, OCTOBER 10- JANUARY 1-
-------------- DECEMBER 31, OCTOBER 9,
2000 1999 1998 1988
---- ---- ---- ----
Net sales .............................. $68,616 $64,584 $13,628 $47,034
Cost of products sold .................. 41,392 38,977 8,641 30,298
Selling, general and administrative
expenses ............................. 7,146 7,228 1,380 5,446
Amortization expense ................... 2,219 2,092 289 309
Other expense, net ..................... 1,986 1,858 1,618 12
------- ------- ------- -------
Earnings before income taxes 15,873 14,429 1,700 10,969
Income taxes ........................... 6,875 6,278 776 4,314
------- ------- ------- -------
Net Earnings ................ $ 8,998 $ 8,151 $ 924 $ 6,655
======= ======= ======= =======
See accompanying Notes to Financial Statements.
-2-
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FEDERAL-MOGUL AVIATION, INC.
BALANCE SHEETS
(THOUSANDS OF DOLLARS)
DECEMBER 31,
---------------
2000 1999
Assets
Cash ..................................................... $ 1 $ 1
Other receivables ........................................ 25 378
Inventories .............................................. 10,805 11,454
Perishable tooling and supplies .......................... 1,942 1,710
-------- --------
Total current assets .......................... 12,773 13,543
Property, plant and equipment, less accumulated
depreciation ........................................... 18,223 19,073
Goodwill, less accumulated amortization .................. 81,938 84,097
Other intangibles, less accumulated amortization ......... 759 818
Other assets ............................................. 6 51
-------- --------
Total Assets .................................. $113,699 $117,582
======== ========
LIABILITIES AND NET PARENT INVESTMENT
Accounts payable ......................................... $ 1,743 $ 4,598
Accrued compensation ..................................... 90 125
Other accrued liabilities ................................ 751 1,517
-------- --------
Total current liabilities ................................ 2,584 6,240
Net parent investment .................................... 111,115 111,342
-------- --------
Total Liabilities and Net Parent Investment ... $113,699 $117,582
======== ========
See accompanying Notes to Financial Statements.
-3-
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FEDERAL-MOGUL AVIATION, INC.
STATEMENTS OF CASH FLOWS
(THOUSANDS OF DOLLARS)
PREDECESSOR
-----------
YEAR ENDED OCTOBER 10- JANUARY 1-
DECEMBER 31, THROUGH THROUGH
----------------- DECEMBER 31, OCTOBER 9,
2000 1999 1998 1998
---- ---- ---- ----
Cash flows from operating activities:
Net Earnings ...................................... $ 8,998 $ 8,151 $ 924 $ 6,655
Adjustments to reconcile to net cash provided by
operating activities:
Depreciation expense .............................. 1,509 1,286 519 2,122
Amortization expense .............................. 2,219 2,092 289 309
Changes in assets and liabilities:
Other receivables ............................ 353 (378) 600 (1,618)
Inventories .................................. 649 5,120 300 (4,883)
Accounts payable and accrued liabilities ..... (3,621) 660 (795) (1,624)
Other assets and liabilities, net ............ (3) 523 - 23
-------- -------- -------- --------
Net cash provided by operating activities... 10,104 17,454 1,837 984
Cash flows from investing activities:
Capital expenditures .............................. (879) (799) (275) (420)
Cash flows from financing activities:
Net inter-company activity with parent ............ (9,225) (16,655) (1,562) (564)
-------- -------- -------- --------
Change in cash ......................................... - - - -
Cash at beginning of period ................ 1 1 1 1
-------- -------- -------- --------
Cash at end of period ...................... $ 1 $ 1 $ 1 $ 1
======== ======== ======== ========
See accompanying Notes to Financial Statements.
-4-
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FEDERAL-MOGUL AVIATION, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1: BASIS OF PRESENTATION
The accompanying financial statements reflect the assets, liabilities
and operations of Federal-Mogul Aviation, Inc. ("Aviation"). Aviation is a
wholly owned subsidiary of Federal-Mogul Corporation ("Federal-Mogul"). Aviation
was previously an operating unit included in the Cooper Automotive Division of
Cooper Industries, Inc. ("Cooper"). Federal-Mogul purchased the automotive
divisions of Cooper, including Aviation, on October 9, 1998.
Aviation operates with complete financial and operations staff on a
decentralized basis. Its parent provides certain centralized services for
employee benefits administration, cash management, risk management, legal
services, public relations, domestic tax reporting and internal and external
audit. Its parent bills Aviation for all direct costs incurred on behalf of
Aviation. General corporate, accounting, tax, legal and other administrative
costs that are not directly attributable to the operations of Aviation have been
allocated to Aviation in the accompanying financial statements.
The accompanying financial statements are presented as if Aviation had
existed as an entity separate from its parent during the period presented and
include the assets, liabilities, revenues and expenses that are directly related
to Aviation's operations. Since the date of Federal-Mogul's acquisition of
Aviation, the financial statements include the push-down of fair value
adjustments to assets and liabilities, including goodwill, other intangible
assets and property, plant and equipment and their related amortization and
depreciation adjustments.
Because Aviation is fully integrated into its parent's worldwide cash
management system, all of its cash requirements are provided by its parent and
any excess cash generated by Aviation is transferred to its parent. Aviation
participates in Federal-Mogul's accounts receivable securitization program. On
an ongoing basis, Aviation sells certain accounts receivable to Federal-Mogul
Funding Corporation ("FMFC"), a wholly owned subsidiary of Federal-Mogul, which
then sells such receivables, without recourse, to a financial conduit. The
transfers of these receivables are charged to the net parent investment account.
Aviation does not retain any interest in these receivables and the accounts
receivable are sold at carrying value.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Inventories: Inventories are carried at cost or, if lower, net realizable
value. Prior to Federal-Mogul's acquisition of Aviation, cost was determined
using the first-in, first-out ("FIFO") method. Subsequent to Federal-Mogul's
acquisition of Aviation, cost was determined using the last-in, first-out
("LIFO") method, which approximated FIFO for all years presented.
-5-
8
At December 31, inventories consisted of the following (in thousands):
2000 1999
Raw materials ............ $ 3,382 $ 3,067
Work-in-process .......... 6,136 6,795
Finished goods ........... 1,287 1,592
------- -------
Net inventories $10,805 $11,454
======= =======
Revenue Recognition: Aviation recognizes revenues and the related customer
incentives when there is evidence of a sales agreement, the delivery of the
goods has occurred, the sales price is fixed or determinable and the ability to
collect the revenue is reasonably assured. Aviation generally records revenue
upon shipment of product to the customer, which coincides with the transfer of
title under standard commercial terms.
Research and Development Costs: Aviation expenses research and development
costs when incurred. Research and development costs were $1.6 million and $1.9
million for the years ended December 31, 2000 and 1999 and $1.4 million and $0.4
million for the period from January 1, 1998 through October 9, 1998 and October
10, 1998 through December 31, 1998, respectively.
Property, Plant and Equipment: Property, plant and equipment are stated at
Federal-Mogul's cost. Depreciation is provided over the estimated useful lives
of the related assets using the straight-line method, which in general are
depreciated over the following lives: buildings--10 to 40 years and machinery
and equipment--3 to 20 years.
At December 31, property, plant and equipment consisted of the
following (in thousands):
2000 1999
---- ----
Property, Plant and equipment:
Land ........................ $ 110 $ 110
Buildings ................... 9,288 8,656
Machinery and equipment ..... 11,270 11,390
Construction-in-progress .... 869 722
-------- --------
21,537 20,878
Accumulated depreciation .... (3,314) (1,805)
-------- --------
$ 18,223 $ 19,073
======== ========
Goodwill and Other Intangible Assets: At December 31, goodwill and other
intangible assets, which resulted from Federal-Mogul's acquisition of Aviation,
consisted of the following (in thousands):
ESTIMATED
USEFUL LIFE 2000 1999
----------- ---- ----
Goodwill ................. 40 years $ 86,406 $ 86,406
Accumulated amortization (4,468) (2,309)
-------- --------
Net goodwill ............. $ 81,938 $ 84,097
======== ========
Assembled workforce ...... 15 years $ 891 $ 891
Accumulated amortization.. (132) (73)
-------- --------
Net assembled workforce... $ 759 $ 818
======== ========
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Intangible assets are periodically reviewed for impairment indicators. If
impairment indicators exist, an assessment of undiscounted future cash flows
related to assets held for use or fair value for assets held for sale are
evaluated accordingly. Intangible assets are amortized on a straight-line basis
over their estimated useful lives.
Net Parent Investment: The Net Parent Investment account includes
Aviation's historical earnings, intercompany amounts, income taxes deferred and
payable, postemployment benefit liabilities and other transactions between
Aviation and its parent.
Fair Value of Financial Instruments: The carrying amounts of certain
financial instruments such as other receivables and accounts payable approximate
their fair value for all years presented.
NOTE 3: NET PARENT INVESTMENT
Changes in net parent investment during the three years ended December 31,
were as follows (in thousands):
Balance at January 1, 1998 ............................................ $ 42,904
Net inter-company transactions with parent ..................... (1,927)
Net income for period from January 1, 1998 to October 9, 1998 .. 6,655
---------
Balance at October 9, 1998 ............................................ $ 47,632
=========
Federal-Mogul's initial investment in Aviation ........................ $ 81,979
Net inter-company transactions with parent ..................... 1,290
Net income for period from October 10, 1998 to December 31, 1998 924
---------
Balance at December 31, 1998 .......................................... 84,193
Net inter-company transactions with parent ..................... 18,998
Net income ..................................................... 8,151
---------
Balance at December 31, 1999 .......................................... 111,342
Net inter-company transactions with parent ..................... (9,225)
Net income ..................................................... 8,998
---------
Balance at December 31, 2000 .......................................... $ 111,115
=========
Intercompany transactions are principally cash transfers and non-cash
charges between Aviation and its parent.
Aviation has an inter-company loan with Federal-Mogul in the amount of
$30.5 million, which is included in the net parent investment balance at
December 31, 2000, 1999 and 1998. In 2000, 1999 and 1998 Federal-Mogul charged
interest on this balance based on the stated rate of 6.9%.
Federal-Mogul has pledged 100% of Aviation's capital stock and also
provided collateral in the form of a pledge of inventories, property, plant and
equipment, real property and intellectual properties to secure certain
outstanding debt of Federal-Mogul. In addition, Aviation has guaranteed fully
and unconditionally, on a joint and several basis, the obligation to pay
principal and interest under Federal-Mogul's Senior Credit Agreements and its
publicly traded registered debt. Such pledges and guarantees have also been made
by certain other subsidiaries of Federal-Mogul.
-7-
10
NOTE 4: INCOME TAXES
Aviation files a consolidated return with its parent for U.S. federal
income tax purposes. Federal income tax expense is calculated on a
separate-return basis for financial reporting purposes. A reconciliation between
Aviation's statutory federal income tax rate and its effective tax rate is
summarized below:
PERIOD FROM PERIOD FROM
YEAR ENDED DECEMBER 31, JANUARY 1, 1998 OCTOBER 10, 1998
----------------------- THROUGH THROUGH
2000 1999 OCTOBER 9, 1998 DECEMBER 31, 1998
---- ---- --------------- -----------------
Effective tax rate reconciliation:
U.S. Federal statutory rate . 35% 35% 35% 35%
Non-deductible goodwill ..... 5 6 8 1
State and Local Taxes ....... 3 3 3 3
-- -- -- --
Effective Tax Rate .......... 43% 44% 46% 39%
== == == ==
Deferred taxes and income taxes payable are a component of the net
investment in parent.
NOTE 5: PENSION PLANS
In 1998, prior to Federal-Mogul's acquisition of Aviation, the various
pension plans of Aviation were merged into one plan of Cooper. As such, the
related pension liabilities were recorded to net parent investment. This plan
was assumed by Federal-Mogul in its acquisition of the automotive divisions of
Cooper. This plan was required to be fully funded by Cooper prior to the
acquisition by Federal-Mogul. In 2000, Federal-Mogul consolidated all domestic
qualified defined benefit plans into one plan, the Federal Mogul Corporation
Pension Plan.
The expense charged to Aviation was $0.2 million and $0.2 million for the
years ended December 31, 2000 and 1999 and $0.3 million for the period from
January 1, 1998 through October 8, 1998. There was no expense recorded for the
period from October 9, 1998 through December 31, 1998.
At December 31, 2000 and 1999, the Federal-Mogul Corporation Pension Plan's
projected benefit obligation was $721.8 million and $345.6 million based on
discount rates of 8% and 7.75%, and the fair value of plan assets were $852.5
million and $327.0 million, respectively.
-8-
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NOTE 6: CONCENTRATION OF CREDIT RISK AND OTHER
Aviation grants credit to their customers, which are primarily in the
aerospace industry. Credit risk with respect to trade receivables is generally
diversified due to the large number of entities comprising Aviation's customer
base. Aviation performs periodic credit evaluations of their customers and
generally do not require collateral.
Aviation operates in a single business segment, manufacturing primarily
engine ignition systems and related parts for the aerospace industry. Aviation
manufactures and distributes these products for use in the aerospace aftermarket
and original equipment segments of the industry. Two distributors accounted for
approximately 25% and 12%, 27% and 10%, and 31% and 11% of net sales for the
years ended December 31, 2000, 1999 and 1998, respectively. No other customer
accounted for 10% or more of revenues in 2000, 1999 or 1998. All of Aviation's
operations are conducted in the United States. Net sales to customers outside
the United States, principally to European customers, were 22%, 20%, and 22% of
the total net sales for the years ended December 31, 2000, 1999 and 1998,
respectively.
NOTE 7: SUBSEQUENT EVENT
On May 31, 2001, a corporation formed by TransDigm Inc. acquired
substantially all of the assets and assumed certain liabilities of Aviation for
approximately $160.1 million in cash. The purchase price is subject to
adjustment for changes in working capital as defined in the Asset Purchase
Agreement.
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FEDERAL-MOGUL AVIATION, INC.
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
MARCH 31, DECEMBER 31,
2001 2000
(UNAUDITED)
ASSETS
Cash $ 1 $ 1
Other receivables 10 25
Inventories (Note 3) 12,282 10,805
Perishable tooling and supplies 2,021 1,942
-------- --------
Total current assets 14,314 12,773
-------- --------
Property, plant and equipment, less accumulated depreciation 17,881 18,223
Goodwill, less accumulated amortization 81,362 81,938
Other intangibles, less accumulated amortization 726 759
Other assets 6
-------- --------
TOTAL ASSETS $114,283 $113,699
======== ========
LIABILITIES AND NET PARENT INVESTMENT
Accounts payable $ 3,410 $ 1,743
Accrued compensation 93 90
Other accrued liabilities 1,205 751
-------- --------
Total current liabilities 4,708 2,584
-------- --------
Net parent investment 109,575 111,115
-------- --------
TOTAL LIABILITIES AND NET PARENT INVESTMENT $114,283 $113,699
======== ========
See accompanying Notes to Financial Statements.
-10-
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FEDERAL-MOGUL AVIATION, INC.
STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
THIRTEEN WEEK
PERIOD ENDED
MARCH 31,
----------------------
2001 2000
NET SALES $18,458 $17,473
COST OF SALES 11,325 9,875
------- -------
GROSS PROFIT 7,133 7,598
------- -------
OPERATING EXPENSES:
Selling and administrative 1,574 1,369
Amortization of intangibles 609 449
Research and development 387 477
Federal-Mogul corporate charge 318 318
------- -------
Total operating expenses 2,888 2,613
------- -------
INCOME FROM OPERATIONS 4,245 4,985
INTEREST EXPENSE - NET 518 518
------- -------
INCOME BEFORE INCOME TAXES 3,727 4,467
INCOME TAX PROVISION 1,691 1,917
------- -------
NET INCOME $ 2,036 $ 2,550
======= =======
See accompanying Notes to Financial Statements.
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FEDERAL-MOGUL AVIATION, INC.
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
- --------------------------------------------------------------------------------
THIRTEEN WEEK
PERIOD ENDED
MARCH 31,
-------------------
2001 2000
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,036 $ 2,550
Adjustments to reconcile to net cash provided by operating activities:
Depreciation expense 407 435
Amortization expense 609 449
Changes in assets and liabilities:
Other receivables 15 345
Inventories (1,477) 305
Accounts payable and accrued liabilities 2,124 (734)
Other assets and liabilities, net (73) 44
------- -------
Net cash provided by operating activities 3,641 3,394
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (65) (125)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net inter-company activity with parent (3,576) (3,269)
------- -------
CHANGE IN CASH - -
CASH, BEGINNING OF PERIOD 1 1
------- -------
CASH, END OF PERIOD $ 1 $ 1
======= =======
See accompanying Notes to Financial Statements.
-12-
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FEDERAL-MOGUL AVIATION, INC.
NOTES TO FINANCIAL STATEMENTS
AS OF MARCH 31, 2001 AND DECEMBER 31, 2000
AND FOR THE THIRTEEN WEEK PERIODS ENDED MARCH 31, 2001 AND 2000
- --------------------------------------------------------------------------------
1. DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION
The accompanying financial statements reflect the assets, liabilities and
operations of Federal-Mogul Aviation, Inc. ("Aviation"). Aviation is a
wholly-owned subsidiary of Federal-Mogul Corporation ("Federal-Mogul").
Aviation was previously an operating unit included in the Cooper
Automotive Division of Cooper Industries, Inc. ("Cooper"). Federal-Mogul
purchased the automotive divisions of Cooper, including Aviation, on
October 9, 1998.
Prior to the transaction described in Note 4, Aviation operated with
complete financial and operations staff on a decentralized basis. Its
parent provided certain centralized services for employee benefits
administration, cash management, risk management, legal services, public
relations, domestic tax reporting and internal and external audit. Its
parent billed Aviation for all direct costs incurred on behalf of
Aviation. General corporate, accounting, tax, legal and other
administrative costs that were not directly attributable to the operations
of Aviation have been allocated to Aviation in the accompanying financial
statements.
The accompanying financial statements are presented as if Aviation had
existed as an entity separate from its parent during the period presented
and include the assets, liabilities, revenues and expenses that are
directly related to Aviation's operations. Since the date of
Federal-Mogul's acquisition of Aviation, the financial statements include
the push-down of fair value adjustments to assets and liabilities,
including goodwill, other intangible assets and property, plant and
equipment and their related amortization and depreciation of adjustments.
2. UNAUDITED FINANCIAL INFORMATION
The unaudited financial statements included herein reflect all adjustments
(consisting solely of normal recurring adjustments) that are, in the
opinion of management, necessary for a fair presentation of Aviation's
financial position and results of operations and cash flows for the
interim periods presented in accordance with accounting principles
generally accepted in the United States of America and with instructions
to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the financial
statements do not include all the information and footnotes required under
accounting principles generally accepted in the United States of
America for complete financial statements. The results of operations for
the thirteen week period ended March 31, 2001 are not necessarily
indicative of the results to be expected for the full year. For further
information, refer to the consolidated financial statements and footnotes
included in this document for the year ended December 31, 2000.
3. INVENTORIES
Inventories are carried at cost, or if lower, net realizable value. Cost
of inventories is determined by the first-in, first-out (FIFO) method.
Inventories consist of the following (in thousands):
MARCH 31, DECEMBER 31,
2001 2000
---- ----
Raw materials $ 4,171 $ 3,382
Work-in-progress 6,398 6,136
Finished goods 1,713 1,287
------- -------
Inventories - net $12,282 $10,805
======= =======
-13-
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FEDERAL-MOGUL AVIATION, INC.
NOTES TO FINANCIAL STATEMENTS
AS OF MARCH 31, 2001 AND DECEMBER 31, 2000
AND FOR THE THIRTEEN WEEK PERIODS ENDED MARCH 31, 2001 AND 2000
- --------------------------------------------------------------------------------
4. SUBSEQUENT EVENT
On May 31, 2001, a corporation formed by TransDigm Inc. acquired
substantially all of the assets and assumed certain liabilities of
Aviation for approximately $160.1 million in cash. The purchase price is
subject to adjustment for changes in working capital as defined in the
Asset Purchase Agreement.
-14-
17
ITEM 7b. UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following pro forma consolidated financial information of TransDigm Holdings
is based on the historical consolidated financial statements and the
accompanying notes of TransDigm Holdings and the historical financial statements
and the accompanying notes of Federal-Mogul Aviation, Inc. ("Aviation"). The pro
forma consolidated statements of operations give effect to the Acquisition as if
it had been consummated at the beginning of each respective period. The pro
forma consolidated balance sheet gives effect to the Acquisition and the related
borrowings under the Credit Agreement as if they had occurred as of the balance
sheet date. 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
Acquisition been consummated on the respective dates indicated and do not
purport to indicate results of operations for any future period.
The Acquisition has been accounted for as a purchase. The purchase price
consideration of $160.1 million in cash and $1.8 million of costs associated
with the Acquisition was funded through: (1) $147.6 million of new borrowings
under the Credit Agreement and (2) $14.3 million received (net of fees of $.7
million) from the issuance of $15 million of TransDigm Holdings' 16% Cumulative
Redeemable Preferred Stock and warrants to purchase 1,381.87 shares of TransDigm
Holdings' common stock. TransDigm also borrowed an additional $15 million under
the Credit Agreement to pay $5 million of debt issuance costs and provide $10
million of working capital for future operations. The purchase price has been
allocated to the assets acquired and liabilities assumed based on a preliminary
analysis of their fair values, which is subject to adjustment. The purchase
price is subject to adjustment for changes in working capital as of the closing
of the Acquisition.
-15-
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TRANSDIGM HOLDING COMPANY
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 2000 (YEAR ENDED DECEMBER 31, 2000 FOR AVIATION)
(IN THOUSANDS OF DOLLARS)
- --------------------------------------------------------------------------------
TRANSDIGM
HOLDINGS AVIATION PRO FORMA PRO FORMA
HISTORICAL HISTORICAL(1) ADJUSTMENTS(2) CONSOLIDATED
NET SALES $150,457 $ 68,616 $219,073
COST OF SALES 82,193 41,392 $ 3,194(a) 126,779
-------- -------- -------- --------
GROSS PROFIT 68,264 27,224 (3,194) 92,294
-------- -------- -------- --------
OPERATING EXPENSES:
Selling and administrative 16,799 4,256 21,055
Amortization of intangibles 1,843 2,219 1,100(b) 5,162
Research and development 2,308 1,620 3,928
Federal-Mogul corporate charge 1,270 1,270
-------- -------- -------- --------
Total operating expenses 20,950 9,365 1,100 31,415
-------- -------- -------- --------
INCOME FROM OPERATIONS 47,314 17,859 (4,294) 60,879
INTEREST EXPENSE - NET 28,563 1,986 13,354(c) 41,917
(1,986)(d)
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES 18,751 15,873 (15,662) 18,962
INCOME TAX PROVISION 7,972 6,875 (6,265)(e) 8,582
-------- -------- -------- --------
NET INCOME $ 10,779 $ 8,998 $ (9,397) $ 10,380
======== ======== ======== ========
-16-
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TRANSDIGM HOLDING COMPANY
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 2000 (YEAR ENDED DECEMBER 31, 2000
FOR AVIATION)
(1) Represents the operations of Aviation for the year ended December 31,
2000.
(2) Represents the adjustments resulting from the Acquisition that are
necessary to determine TransDigm Holdings' pro forma results of operations
as follows:
(a) Represents the inventory purchase accounting adjustment that will be
charged to cost of sales as the Aviation inventory on hand at the
date of the Acquisition is sold.
(b) Represents the change in amortization expense resulting from the
amortization of the additional intangible assets (principally
goodwill) recorded in connection with the Acquisition over 40 years
using the straight-line method.
(c) Represents the interest expense on the additional indebtedness
incurred in connection with the Acquisition (at a weighted average
rate of 7.54%) along with the amortization of the related,
additional debt issuance costs. A 0.250% increase or decrease in the
weighted average interest rate applicable to the additional
indebtedness incurred in connection with the Acquisition would
change the pro forma interest expense and net income by $406 and
$244, respectively, for the year ended September 30, 2000.
(d) Represents the elimination of intercompany interest expense charged
by Federal-Mogul, which was terminated as a result of the
Acquisition.
(e) Represents the tax effect of pro forma adjustments to income before
income taxes and is based on the estimated, applicable statutory tax
rates.
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20
TRANSDIGM HOLDING COMPANY
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
TWENTY-SIX WEEK PERIOD ENDED MARCH 31, 2001
(IN THOUSANDS OF DOLLARS)
- --------------------------------------------------------------------------------
TRANSDIGM
HOLDINGS AVIATION PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS(1) CONSOLIDATED
-------- -------- -------- --------
NET SALES $ 77,864 $ 35,206 $113,070
COST OF SALES 42,820 21,713 $ 3,194(a) 67,727
-------- -------- -------- --------
GROSS PROFIT 35,044 13,493 (3,194) 45,343
-------- -------- -------- --------
OPERATING EXPENSES:
Selling and administrative 8,539 2,479 - 11,018
Amortization of intangibles 839 1,247 550(b) 2,636
Research and development 1,201 843 - 2,044
Federal-Mogul corporate charge - 635 - 635
-------- -------- -------- --------
Total operating expenses 10,579 5,204 550 16,333
-------- -------- -------- --------
INCOME FROM OPERATIONS 24,465 8,289 (3,744) 29,010
INTEREST EXPENSE - NET 14,281 1,036 6,677(c) 20,958
(1,036)(d)
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES 10,184 7,253 (9,385) 8,052
INCOME TAX PROVISION 4,269 3,046 (3,753)(e) 3,562
-------- -------- -------- --------
NET INCOME $ 5,915 $ 4,207 $ (5,632) $ 4,490
======== ======== ======== ========
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21
TRANSDIGM HOLDING COMPANY
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
TWENTY-SIX WEEK PERIOD ENDED MARCH 31, 2001
(1) Represents the adjustments resulting from the Acquisition that are
necessary to determine TransDigm Holding's pro forma results of operations
as follows:
(a) Represents the inventory purchase accounting adjustment that will be
charged to cost of sales as the Aviation inventory on hand at the
date of the Acquisition is sold.
(b) Represents the change in amortization expense resulting from the
amortization of the additional intangible assets (principally
goodwill) recorded in connection with the Acquisition over 40 years
using the straight-line method.
(c) Represents the interest expense on the additional indebtedness
incurred in connection with the Acquisition (at a weighted average
rate of 7.54%) along with the amortization of the related,
additional debt issuance costs. A 0.250% increase or decrease in the
weighted average interest rate applicable to the additional
indebtedness incurred in connection with the Acquisition would
change the pro forma interest expense and net income by $203 and
$122, respectively, for the twenty-six week period ended March 31,
2001.
(d) Represents the elimination of intercompany interest expense charged
by Federal-Mogul, which was terminated as a result of the
Acquisition.
(e) Represents the tax effect of pro forma adjustments to income before
income taxes and is based on the estimated, applicable statutory tax
rates.
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22
TRANSDIGM HOLDING COMPANY
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 2001
(IN THOUSANDS OF DOLLARS)
- --------------------------------------------------------------------------------
TRANSDIGM
HOLDINGS AVIATION PRO FORMA PRO FORMA
ASSETS HISTORICAL HISTORICAL ADJUSTMENTS(1) CONSOLIDATED
--------- --------- -------- ---------
CURRENT ASSETS:
Cash and equivalents $ 6,599 $ 1 $ 10,000(a) $ 16,600
Accounts receivable - net 23,906 10 23,916
Inventories 41,175 12,282 3,194(b) 56,651
Income taxes refundable 258 258
Prepaid expenses and other 985 2,021 (1,941)(c) 1,065
Deferred income taxes 8,057 8,057
--------- --------- -------- ---------
Total current assets 80,980 14,314 11,253 106,547
--------- --------- -------- ---------
PROPERTY, PLANT AND EQUIPMENT - NET 24,808 17,881 42,689
INTANGIBLE ASSETS - NET 71,854 82,088 51,032(d) 204,974
DEBT ISSUE COSTS - NET 8,596 5,040(e) 13,636
DEFERRED INCOME TAXES AND OTHER 5,360 5,360
--------- --------- -------- ---------
TOTAL ASSETS $ 191,598 $ 114,283 $ 67,325 $ 373,206
========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Current portion of long-term debt $ 14,953 $ 4,648(f) $ 19,601
Accounts payable 10,747 $ 3,410 14,157
Accrued liabilities 22,755 1,298 24,053
--------- --------- -------- ---------
Total current liabilities 48,455 4,708 4,648 57,811
LONG-TERM DEBT - LESS CURRENT
PORTION 246,623 157,985(f) 404,608
OTHER LIABILITIES 7,785 7,785
CUMULATIVE REDEEMABLE
PREFERRED STOCK 12,333(g) 12,333
REDEEMABLE COMMON STOCK 1,612 1,612
STOCKHOLDERS' EQUITY (DEFICIENCY):
Common stock 102,031 102,031
Warrants 1,934(g) 1,934
Net parent investment 109,575 (109,575)(h)
Retained deficit (214,456) (214,456)
Accumulated other comprehensive loss (452) (452)
--------- --------- -------- ---------
Total stockholders' equity (deficiency) (112,877) 109,575 (107,641) (110,943)
--------- --------- -------- ---------
TOTAL $ 191,598 $ 114,283 $ 67,325 $ 373,206
========= ========= ======== =========
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23
TRANSDIGM HOLDING COMPANY
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 2001
(1) Represents the adjustments resulting from the Acquisition that are
necessary to determine TransDigm Holdings' pro forma consolidated balance
sheet:
(a) Represents the recognition of the portion of the proceeds of the
additional borrowings described under (f) that provided additional
funds for future operations.
(b) Represents the excess of the fair value of Aviation's inventory over
its carrying value. As the inventory is sold, this adjustment will
be charged to cost of sales. TransDigm expects this inventory to be
sold over a three month period.
(c) Represents the writeoff of Aviation's perishable tooling and
supplies to conform to TransDigm Holdings' accounting policy of
expensing such items when purchased.
(d) Represents the allocation of the purchase price to intangible
assets, principally goodwill.
(e) Represents the costs incurred to obtain the additional borrowings
described in (f).
(f) Represents additional borrowings made under the Credit Agreement to
finance the purchase price and the direct costs of the Acquisition.
(g) Represents the proceeds from the preferred stock and related
warrants issued to provide financing for the Acquisition, net of the
costs of issuance.
(h) Eliminates the net parent investment in Aviation.
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24
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934 each of the
co-registrants has duly caused this report to be signed on its behalf by the
undersigned, hereunto duly authorized, in the City of Richmond Heights, State of
Ohio, on July 23, 2001.
TRANSDIGM HOLDING COMPANY
By: /s/ Gregory Rufus
----------------------------------------
Name: Gregory Rufus
Title: Chief Financial Officer
TRANSDIGM INC.
By: /s/ Gregory Rufus
----------------------------------------
Name: Gregory Rufus
Title: Chief Financial Officer
MARATHON POWER TECHNOLOGIES COMPANY
By: /s/ Gregory Rufus
----------------------------------------
Name: Gregory Rufus
Title: Chief Financial Officer
ZMP, INC.
By: /s/ Gregory Rufus
----------------------------------------
Name: Gregory Rufus
Title: Chief Financial Officer
ADAMS RITE AEROSPACE, INC.
By: /s/ Gregory Rufus
----------------------------------------
Name: Gregory Rufus
Title: Chief Financial Officer
CHAMPION AEROSPACE INC.
By: /s/ Gregory Rufus
----------------------------------------
Name: Gregory Rufus
Title: Chief Financial Officer
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