TRANSDIGM INC - 10-Q Quarterly Report

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 27, 2004.

¨	Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission File Numbers 333-108340 and 333-108340-06


TransDigm Inc.		TransDigm Holding Company
(Exact name of registrant as specified in its charter)		(Exact name of registrant as specified in its charter)

Delaware		Delaware
(State or other Jurisdiction of incorporation or organization)		(State or other Jurisdiction of incorporation or organization)

34-1750032		13-3733378
(I.R.S. Employer Identification No.)		(I.R.S. Employer Identification No.)

26380 Curtiss Wright Parkway, Richmond Heights, Ohio 44143

(Address of principal executive offices) (Zip Code)

(216) 289-4939

(Registrants’ telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report.)

Indicate by check mark whether each of the co-registrants (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 co-registrants was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NO ¨

Indicate by check mark whether the co-registrants are accelerated filers (as defined in Rule 12b-2 of the Exchange Act).

YES ¨ NO x

The number of shares outstanding of TransDigm Inc.’s common stock, par value $.01 per share, was 100 as of March 27, 2004.

The number of shares outstanding of TransDigm Holding Company’s common stock, par value $.01 per share, was 100 as of March 27, 2004.

INDEX


		Page
Part I	FINANCIAL INFORMATION

Item 1	Financial Statements

	Condensed Consolidated Balance Sheets – March 27, 2004 and September 30, 2003	1

	Condensed Consolidated Statements of Income – Thirteen and Twenty-Six Week Periods Ended March 27, 2004 and March 29, 2003	2

	Condensed Consolidated Statement of Changes in Stockholders’ Equity – Twenty-Six Week Period Ended March 27, 2004	3

	Condensed Consolidated Statements of Cash Flows – Twenty-Six Week Periods Ended March 27, 2004 and March 29, 2003	4

	Notes to Condensed Consolidated Financial Statements	5

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18

Item 3	Quantitative and Qualitative Disclosure About Market Risk	29

Item 4	Controls and Procedures	29

Part II	OTHER INFORMATION

Item 6	Exhibits and Reports on Form 8-K	30

SIGNATURES		31

PART I: FINANCIAL INFORMATION

ITEM 1

TRANSDIGM HOLDING COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in Thousands)

(Unaudited)


	March 27, 2004			September 30, 2003
ASSETS

CURRENT ASSETS:
Cash and cash equivalents	$	75,042		$	18,902
Trade accounts receivable, net		41,155			36,709
Income taxes receivable		—			36,703
Inventories, net		59,286			77,386
Deferred income taxes		13,777			8,177
Prepaid expenses and other		1,605			3,850

Total current assets		190,865			181,727

PROPERTY, PLANT AND EQUIPMENT—Net		58,540			60,342

GOODWILL		807,880			807,714

OTHER INTANGIBLE ASSETS—Net		228,982			235,839

DEBT ISSUE COSTS—Net		26,805			28,771

OTHER		726			627


TOTAL ASSETS	$	1,313,798		$	1,315,020


LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES:
Current portion of long-term liabilities	$	4,450		$	7,634
Accounts payable		9,717			11,221
Accrued liabilities		25,544			29,625

Total current liabilities		39,711			48,480

LONG-TERM DEBT—Less current portion		691,313			692,050

DEFERRED INCOME TAXES		64,046			64,364
OTHER NON-CURRENT LIABILITIES		3,043			4,917

Total liabilities		798,113			809,811


STOCKHOLDERS’ EQUITY:
Common stock		513,329			508,100
Retained earnings / (deficit)		2,437			(2,788	)
Accumulated other comprehensive loss		(81	)		(103	)

Total stockholders’ equity		515,685			505,209


TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	1,313,798		$	1,315,020

See notes to condensed consolidated financial statements.

TRANSDIGM HOLDING COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

FOR THE THIRTEEN AND TWENTY-SIX WEEK PERIODS ENDED

MARCH 27, 2004 AND MARCH 29, 2003

(Amounts in Thousands)

(Unaudited)


	Thirteen Week Periods Ended				Twenty-Six Week Periods Ended
	March 27, 2004		(Predecessor) March 29, 2003		March 27, 2004		(Predecessor) March 29, 2003
NET SALES	$	71,903	$	79,616	$	139,585	$	149,421
COST OF SALES (Including inventory purchase accounting charge of $0 and $18,057 for the thirteen and twenty-six weeks ended March 27, 2004, respectively)		34,266		42,691		85,839		78,186

GROSS PROFIT		37,637		36,925		53,746		71,235
OPERATING EXPENSES:
Selling and administrative		7,412		5,998		14,491		11,687
Amortization of intangibles		2,855		287		5,638		571

Total operating expenses		10,267		6,285		20,129		12,258

INCOME FROM OPERATIONS		27,370		30,640		33,617		58,977
INTEREST EXPENSE—Net		12,507		9,043		25,176		17,982

INCOME BEFORE INCOME TAXES		14,863		21,597		8,441		40,995
INCOME TAX PROVISION		5,618		7,929		3,216		15,209

NET INCOME	$	9,245	$	13,668	$	5,225	$	25,786

See notes to condensed consolidated financial statements.

TRANSDIGM HOLDING COMPANY

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN

STOCKHOLDERS’ EQUITY

FOR THE TWENTY-SIX WEEK PERIOD ENDED MARCH 27, 2004

(Amounts in Thousands)

(Unaudited)


	Common Stock			Retained Earnings / (Deficit)			Accumulated Other Comprehensive Loss			Total
BALANCE, OCTOBER 1, 2003	$	508,100		$	(2,788	)	$	(103	)	$	505,209

Equity contributions from TD Holding—
Stock option and deferred compensation costs incurred by TD Holding (Note 8)		3,100			—			—			3,100
Income tax benefit from interest expense incurred by TD Holding (Note 1)		2,625			—			—			2,625
Comprehensive income—
Net income		—			5,225			—			5,225
Foreign currency translation adjustment		—			—			22			22

Comprehensive income											5,247
Purchase of common stock		(520	)		—			—			(520	)
Proceeds from exercise of stock options		24			—			—			24

BALANCE, MARCH 27, 2004	$	513,329		$	2,437		$	(81	)	$	515,685

See notes to condensed consolidated financial statements.

TRANSDIGM HOLDING COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in Thousands)

(Unaudited)


	Twenty-Six Week Periods Ended
				(Predecessor)
	March 27, 2004			March 29, 2003
OPERATING ACTIVITIES:
Net income	$	5,225		$	25,786
Adjustments to reconcile net income to net cash provided by operating activities:
Noncash inventory purchase accounting charge		18,057			—
Depreciation		3,766			3,352
Amortization of intangibles		5,638			571
Amortization of debt issue costs and note premium		2,016			1,404
Interest deferral on Holdings PIK Notes		—			1,546
Noncash stock option and deferred compensation costs		3,100			—
Changes in assets/liabilities, net of effects from acqusition of business:
Accounts receivable		(4,446	)		(7,435	)
Inventories		43			(1,345	)
Income taxes receivable and other assets		33,519			1,210
Accounts payable		(1,504	)		1,681
Accrued and other liabilities		(4,577	)		2,631

Net cash provided by operating activities		60,837			29,401

INVESTING ACTIVITIES:
Acquisition of Norco, Inc. net assets		—			(52,954	)
Capital expenditures		(1,964	)		(2,703	)

Net cash used in investing activities		(1,964	)		(55,657	)

FINANCING ACTIVITIES:
Borrowings under credit facility, net of fees of $200		—			24,800
Repayment of Holdings PIK Notes		—			(32,802	)
Payment of amounts borrowed under credit facility		(737	)		(1,989	)
Payment of license obligation		(1,500	)		(1,200	)
Purchase of common stock		(520	)		—
Proceeds from exercise of stock options		24			—

Net cash used in financing activities		(2,733	)		(11,191	)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		56,140			(37,447	)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		18,902			49,206

CASH AND CASH EQUIVALENTS, END OF PERIOD	$	75,042		$	11,759

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest	$	22,612		$	14,222

Cash (received) paid during the period for income taxes	$	(30,539	)	$	11,180

See notes to condensed consolidated financial statements.

TRANSDIGM HOLDING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THIRTEEN AND TWENTY-SIX WEEK PERIODS ENDED MARCH 27, 2004 AND MARCH 29, 2003 (UNAUDITED)

1.	DESCRIPTION OF THE BUSINESS AND MERGER

Description of the Business—TransDigm Holding Company (“Holdings”), through its wholly-owned subsidiary, TransDigm Inc. (“TransDigm”), is a leading global supplier of highly engineered aircraft components for use on nearly all commercial and military aircraft in service today. TransDigm, which includes the AeroControlex and Adel Wiggins Groups, along with its wholly-owned subsidiaries, Champion Aerospace Inc. (“Champion”), MarathonNorco Aerospace, Inc. (“Marathon”), ZMP, Inc. (“ZMP”), Adams Rite Aerospace, Inc. (“Adams Rite”) and TD Finance Corporation (collectively, and together with Holdings, the “Company”) offers a broad line of proprietary aerospace components in two product categories. Major product offerings in the Power System Components category include ignition system components, gear pumps, mechanical/electromechanical controls and actuators, batteries and chargers, and rods and locking devices used to hold open panels to allow access to engines for maintenance. Major product offerings in the Airframe System Components category include engineered connectors, engineered latches and locking devices, and lavatory hardware and components.

Merger—On July 22, 2003, Holdings consummated a merger with TD Acquisition Corporation (“TD Acquisition”) pursuant to which TD Acquisition merged with and into Holdings, with Holdings continuing as the surviving corporation as a wholly-owned subsidiary of a newly formed corporation, TD Holding Corporation (the “Merger”). In connection with the Merger, TransDigm Inc. completed a tender offer for its outstanding 10³/8% Senior Subordinated Notes due 2008 (the “Senior Subordinated Notes”). Of the $200 million aggregate principal amount of outstanding Senior Subordinated Notes, a total of approximately $197.8 million aggregate principal amount of Senior Subordinated Notes were validly tendered and the remaining $2.2 million aggregate principal amount of Senior Subordinated Notes were defeased pursuant to the terms of the indenture governing the Senior Subordinated Notes. In December 2003, TransDigm Inc. redeemed the defeased Senior Subordinated Notes. In addition, as a result of the consummation of the Merger, the outstanding balance of $197.5 million under TransDigm Inc.’s then existing senior secured credit facility became due and was repaid in its entirety upon the closing of the Merger. The cash merger consideration of approximately $759.7 million paid to Holdings’ former common and preferred stockholders, holders of in-the-money stock options and the holder of the warrant to purchase Holdings’ common stock (including merger related expenses of approximately $29.1 million borne by the then existing equity holders of Holdings and excluding the $35.7 million fair value of stock options rolled over in connection with the Merger), acquisition fees and expenses of approximately $34.7 million and the repayment of substantially all of TransDigm Inc.’s then existing debt in connection with the consummation of the Merger was financed through: (1) an investment of $471.3 million in TD Holding Corporation (“TD Holding”) by Warburg Pincus Private Equity VIII, L.P. (“Warburg Pincus”) and certain other institutional investors which was contributed as equity to TD Acquisition which then contributed such proceeds as equity to TD Funding Corporation which merged with and into TransDigm Inc. in connection with the Merger, (2) $295.0 million of borrowings under a new secured term loan facility, (3) $400.0 million of gross proceeds from the issuance by TransDigm Inc. of new 8³/8% Senior Subordinated Notes due 2011 (the “8³/8% Senior Subordinated Notes”) and (4) the use of existing cash balances. Following the Merger, Warburg Pincus, through its direct and indirect ownership, owns a majority of the outstanding common stock of TD Holding. The new 8³/8% Senior Subordinated Notes are fully and unconditionally guaranteed, jointly and severally and on an unsecured senior subordinated basis, by Holdings and all of TransDigm’s existing domestic subsidiaries.

Prior to the Merger, the Company filed its own consolidated federal income tax return. For periods subsequent to the Merger, the Company will file a consolidated federal income tax return with TD Holding. Accordingly, Holdings, TransDigm and its subsidiaries have entered into a tax sharing agreement with TD Holding under which each company’s federal income tax liability for any period will equal the lesser of (1) each company’s U.S. federal income taxes that would be payable by such company had the company filed a separate income tax return for that fiscal year based on the company’s separate taxable income; or (2) the product of (a) the affiliated group of corporations consisting of TD Holding, as the common parent, and each company’s actual consolidated U.S. federal tax liability for such fiscal year and (b) a fraction, the numerator of which is such company’s separate tax return liability for that fiscal year and the denominator of which is the sum of each company’s separate tax return liability for that fiscal year. Because TD Holding has no operations or assets other than its investment in Holdings,

TD Holding is expected to generate an annual tax loss, resulting from interest expense on the unsecured debt TD Holding incurred to finance its investment in Holdings. As the tax benefits from these losses reduce the federal income tax liability of the Company under the provisions of the tax sharing agreement, they will be recorded as an equity contribution to the Company from TD Holding. For the period ended March 27, 2004, the Company recorded $2.6 million of equity contributions from TD Holding relating to the tax sharing agreement.

The Merger was accounted for as a purchase and preliminary fair value adjustments to the Company’s assets and liabilities were recorded as of the date of the Merger. The Company is in the process of obtaining third-party valuations of certain tangible and intangible assets; thus, the allocation of TD Holding’s investment to the Company’s assets and liabilities is subject to adjustment. The Company expects that $681.1 million of the $807.9 million of goodwill recorded in connection with the Merger will not be deductible for income tax purposes.

The following table summarizes the preliminary fair values assigned to the Company’s assets and liabilities in connection with the Merger (in thousands):


Assets:
	Current assets	$	213,576
	Property, plant and equipment		60,732
	Goodwill		807,880
	Other intangible assets		237,814
	Other assets		30,038

	Total assets		1,350,040

Liabilities:
	Current liabilities		82,100
	Long-term debt		692,788
	Deferred income taxes		63,451
	Other liabilities		4,703

	Total liabilities		843,042

TD Holding investment in Holdings		$	506,998

The following table summarizes the unaudited, consolidated pro forma results of operations of the Company, as if the Merger and the Norco Acquisition (see Note 4) had occurred on the first day of the thirteen and twenty-six weeks ended March 29, 2003 (Predecessor) (in thousands):


	Thirteen Weeks Ended March 29, 2003 (Predecessor)			Twenty-Six Weeks Ended March 29, 2003 (Predecessor)
Net sales	$	81,923		$	156,921
Income from operations		8,679			21,768
Net loss		(2,677	)		(2,924	)

These pro forma results of operations include the effects of the: (i) inventory purchase accounting adjustments of approximately $18.1 million and $30.1 million that were charged to cost of sales during the thirteen and twenty-six weeks ended March 29, 2003 as the inventory on hand as of the date of the transactions was sold, (ii) additional amortization expense that was recognized from the identifiable intangible assets recorded in accounting for the transactions, (iii) additional depreciation expense that resulted from the write-up of the carrying value of property, plant and equipment to fair value in accounting for the Merger, (iv) additional compensation expense that resulted from the new stock option plan and the deferred compensation plans of TD Holding established in conjunction with the Merger that cover certain management personnel of the Company, and (v) additional interest expense that resulted from the Company’s increased indebtedness resulting from the transactions. The pro forma results of operations for the periods ended March 29, 2003 exclude the $176 million Merger charge recorded in July 2003 that was principally composed of compensation costs recognized for stock options redeemed or rolled over in

connection with the Merger, the premium paid to redeem the Senior Subordinated Notes and other costs related to the Merger. This pro forma information is not necessarily indicative of the results that actually would have been obtained if the transactions had occurred as of the beginning of the periods presented and is not intended to be a projection of future results.

Separate Financial Statements—Separate financial statements of TransDigm are not presented since the 8³/8% Senior Subordinated Notes are fully and unconditionally guaranteed on a senior subordinated basis by Holdings and all existing domestic subsidiaries of TransDigm and since Holdings has no significant operations or assets separate from its investment in TransDigm.

2.	UNAUDITED INTERIM FINANCIAL INFORMATION

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. These financial statements and notes should be read in conjunction with the financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2003. The September 30, 2003 condensed consolidated balance sheet was derived from the Company’s audited financial statements. The results of operations for the thirteen and twenty-six week periods ended March 27, 2004 are not necessarily indicative of the results to be expected for the full year. Certain reclassifications have been made to the financial statements for the periods ended March 29, 2003 (Predecessor) to conform to the classifications used in the financial statements for the period ended March 27, 2004.

Since the date of the Merger (see Note 1), the accompanying financial statements include fair value adjustments to assets and liabilities, including inventory, goodwill, other intangible assets and property, plant and equipment and the subsequent impact on cost of sales, amortization, and depreciation expenses. Accordingly, the accompanying condensed consolidated financial statements for periods prior to the Merger are labeled as “Predecessor” financial statements.

3.	NEW ACCOUNTING STANDARDS

During the quarter ended December 27, 2003, the Company implemented the provisions of the Financial Accounting Standards Board’s (the “FASB’s”) Emerging Issues Task Force Abstract No 00-21, Revenue Arrangements with Multiple Deliverables, which provides criteria for determining how to account for multiple-deliverable revenue arrangements. The implementation of this pronouncement had no impact on the Company’s consolidated financial position or results of operations.

During December 2003, the FASB issued a revised Interpretation No. 46, Consolidation of Variable Interest Entities (“FIN 46R”), which requires existing, unconsolidated variable interest entities to be consolidated by their primary beneficiaries if the entities do not effectively disperse risks among the parties involved. The Company is not associated with variable interest entities; therefore, the adoption of this statement did not have any effect on the Company’s consolidated financial position or results of operations.

During December 2003, the FASB also issued a revision to Statement of Financial Accounting Standards No. 132, Employers’ Disclosures about Pensions and Other Postretirement Benefits, an amendment of FASB Statements No. 87, 88, and 106, which expands the disclosure requirements regarding plan assets and benefit obligations for the Company’s two defined benefit pension plans. The implementation of this pronouncement had no impact on the Company’s consolidated financial position or results of operations.

4.	ACQUISITIONS

Norco—On February 24, 2003, Marathon acquired certain assets and assumed certain liabilities of the Norco, Inc. (“Norco”) business from TransTechnology Corporation for $51.0 million in cash (the “Acquisition”). In addition, the Company was required to pay approximately $1.0 million of asset transfer tax payments in accordance with the purchase agreement and, during August 2003, a $1.1 million purchase price adjustment was received from TransTechnology Corporation (excluding related fees and expenses of $0.1 million) based on a final determination of working capital as of the closing of the Norco Acquisition.

Norco is a leading aerospace component manufacturer of proprietary engine hold open mechanisms and specialty connecting devices. The primary reasons for the Acquisition were Norco’s proprietary aerospace components, significant aftermarket sales and large share of niche markets that are consistent with the Company’s overall business and strategic direction. In addition, as a result of the Acquisition, Marathon reduced the combined operating costs through the relocation of the Norco manufacturing process into its existing Waco, Texas facility. During the fourth quarter of fiscal 2003, the Company relocated Norco’s manufacturing operations from Norco’s former facility in Connecticut to Marathon’s Waco, Texas facility. In connection with this relocation, Norco’s lease at its Connecticut facility was cancelled.

The Company accounted for the Acquisition as a purchase and included the results of operations of the acquired business in its consolidated financial statements from the effective date of the Acquisition. Substantially all of the goodwill recognized in accounting for the Acquisition is deductible for income tax purposes.

5.	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 27, 2004			September 30, 2003
Work-in-progress and finished goods ⁽¹⁾	$	34,152		$	49,915
Raw materials and purchased component parts		32,633			34,512

Total		66,785			84,427
Reserve for excess and obsolete inventory		(7,499	)		(7,041	)

Inventories—net	$	59,286		$	77,386

⁽¹⁾ The balance at September 30, 2003 includes $18.1 million of purchase price accounting adjustments recorded in conjunction with the Merger (see Note 1).

6.	INTANGIBLE ASSETS

Intangible assets subject to amortization consist of the following (in thousands):


	March 27, 2004
	Gross Carrying Amount		Accumulated Amortization		Net
Unpatented technology	$	82,033	$	2,459	$	79,574
License agreement		9,468		358		9,110
Trade secrets		11,772		357		11,415
Patented technology		1,345		119		1,226
Order backlog		6,480		4,320		2,160

Total	$	111,098	$	7,613	$	103,485


	September 30, 2003
	Gross Carrying Amount		Accumulated Amortization		Net
Unpatented technology	$	82,033	$	662	$	81,371
License agreement		10,687		101		10,586
Trade secrets		11,772		97		11,675
Patented technology		1,345		15		1,330
Order backlog		6,480		1,100		5,380

Total	$	112,317	$	1,975	$	110,342

The total carrying amount of identifiable intangible assets not subject to amortization consists of $125.5 million of trademarks and trade names at both March 27, 2004 and September 30, 2003.

The aggregate amortization expense on identifiable intangible assets for the thirteen and twenty-six weeks ended March 27, 2004 and March 29, 2003 was approximately $2.9 million, $5.6 million, $0.3 million, and $0.6 million, respectively. The estimated amortization expense for fiscal 2004 is $10.3 million and for each of the five succeeding years 2005 through 2009 is $5.0 million.

The following is a summary of the changes in the carrying value of goodwill from September 30, 2003 through March 27, 2004:


Balance, September 30, 2003	$	807,714
Purchase price allocation adjustments		166

Balance, March 27, 2004	$	807,880

7.	PRODUCT WARRANTY

The Company provides limited warranties in connection with the sale of its products. The warranty period for products sold varies among the Company’s operations, ranging from 90 days to five years; however, the warranty period for the majority of the Company’s sales generally does not exceed one year. A provision for the estimated cost to repair or replace the products is recorded at the time of sale and periodically adjusted to reflect actual experience. The following table presents a reconciliation of changes in the product warranty liability for the twenty-six week periods ended March 27, 2004 and March 29, 2003 (Predecessor) (in thousands):


	Twenty-Six Weeks Ended
				(Predecessor)
	March 27, 2004			March 29, 2003
Liability balance at beginning of period	$	3,070		$	2,356
Accruals for warranties issued		842			1,014
Warranty claims settled		(1,033	)		(647	)

Liability balance at end of period	$	2,879		$	2,723

8.	RETIREMENT PLANS

Defined Benefit Pension Plans—The Company has two non-contributory defined benefit pension plans, which together cover certain union employees. The plans provide benefits of stated amounts for each year of service. The Company’s funding policy is to contribute actuarially determined amounts allowable under Internal Revenue Service regulations. The plans’ assets consist primarily of guaranteed investment contracts with an insurance company.

The components of net periodic benefit cost is detailed below (in thousands):


	Thirteen Weeks Ended						Twenty-Six Weeks Ended
				(Predecessor)						(Predecessor)
	March 27, 2004			March 29, 2003			March 27, 2004			March 29, 2003
Service cost	$	23		$	22		$	45		$	44
Interest cost		94			92			188			184
Expected return on plan assets		(64	)		(73	)		(127	)		(146	)
Net amortization and deferral		7			35			15			70

	$	60		$	76		$	121		$	152

Deferred Compensation Plans—Certain management personnel of the Company participate in one or both of two deferred compensation plans of TD Holding that were established in connection with the Merger. Vested interests in a rollover deferred compensation plan equal to approximately $17.8 million of the $35.7 million fair value of the stock options rolled over in connection with the Merger were issued as partial compensation in exchange for such options (see Note 1). Management’s interest in the rollover deferred compensation plan accretes at a rate of 12% per annum. Notional interests in a management deferred compensation plan totaling $18.1 million were also issued to certain management personnel in connection with the Merger. The vesting provisions of the management deferred compensation plan are identical to the vesting provisions contained in the TD Holding stock option plan and are based on the achievement of time and performance criteria over a five year period. Management’s interests in the management deferred compensation plan were initially valued at zero and accrete at a rate equal to 11.1% of the sum of the interest accrued on the loans extended to TD Holding in connection with the Merger and the notional interest credited under the rollover deferred compensation plan. Because the participants of these deferred compensation plans are management personnel of the Company, the cost of the plans, which totaled $1.6 million and $3.1 million for the thirteen and twenty-six week periods ended period ended March 27, 2004, is pushed-down to the Company and recognized as an expense and a capital contribution from TD Holding. The vested obligations under the deferred compensation plans represent obligations of TD Holding and are not guaranteed by Holdings or any of its subsidiaries.

9.	CONTINGENCIES

During the ordinary course of business, the Company is from time to time threatened with, or may become a party to, legal actions and other proceedings. While the Company is currently involved in certain legal proceedings, it believes the results of these proceedings will not have a material adverse effect on its financial condition, results of operations or cash flows. The Company believes that its potential exposure to such legal actions is adequately covered by its aviation product and general liability insurance.

10.

SUBSEQUENT EVENT

On April 1, 2004, TransDigm’s senior credit facility was amended and restated to refinance approximately $294 million of term loans then outstanding. The scheduled term loan payments under the amended and restated facility are approximately $2.94 million per annum (payable in quarterly installments) through June 30, 2010. The remaining unpaid principal amount of the term loan (approximately $276 million) will be due on July 22, 2010. The Amended and Restated Credit Agreement also eliminated the applicable margin percentage grid with respect to the term loans referred to above and fixed the applicable margin over the interest rate borne by the term loans to 2.25% per annum for adjusted LIBO rate term loans and 1.25% for alternate base rate term loans. Both of the applicable margins were reduced by .75% from the percentages in effect prior to the amendment. The amended and restated senior credit facility did not modify the applicable margin percentage grid with respect to loans made under the revolving credit line.

11.

SUPPLEMENTAL GUARANTOR INFORMATION

TransDigm’s 8³/8% Senior Subordinated Notes (see Note 1) are fully and unconditionally guaranteed by Holdings and all direct and indirect subsidiaries of TransDigm (other than one wholly-owned, non-guarantor subsidiary that has inconsequential assets, liabilities and equity) on a senior subordinated basis. The Holdings guarantee of the Senior Subordinated Notes is subordinated to Holdings’ guarantee of TransDigm’s borrowings under its new senior secured credit facility. The following supplemental consolidating condensed financial information presents the balance sheets of the Company as of March 27, 2004 and September 30, 2003 and its statements of income and cash flows for the twenty-six weeks ended March 27, 2004 and March 29, 2003 (Predecessor).

TRANSDIGM HOLDING COMPANY

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF MARCH 27, 2004

(In Thousands)


	Holdings		TransDigm		Subsidiary Guarantors			Eliminations			Total Consolidated
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	—	$	76,649	$	(1,607	)	$	—		$	75,042
Trade accounts receivable—Net		—		17,463		23,692			—			41,155
Inventories		—		19,920		39,366			—			59,286
Deferred income taxes		—		13,777		—			—			13,777
Prepaid expenses and other		—		560		1,045			—			1,605

Total current assets		—		128,369		62,496			—			190,865
INVESTMENT IN SUBSIDIARIES AND INTERCOMPANY BALANCES		515,766		1,325,921		142,353			(1,984,040	)		—
PROPERTY, PLANT AND EQUIPMENT—Net		—		22,209		36,331			—			58,540
GOODWILL		—		411,986		395,894			—			807,880
OTHER INTANGIBLE ASSETS—Net		—		91,088		137,894			—			228,982
DEBT ISSUE COSTS—Net		—		26,805		—			—			26,805
OTHER		—		726		—			—			726

TOTAL ASSETS	$	515,766	$	2,007,104	$	774,968		$	(1,984,040	)	$	1,313,798

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Current portion of long-term liabilities	$	—	$	4,450	$	—		$	—		$	4,450
Accounts payable		—		4,640		5,077			—			9,717
Accrued liabilities		—		19,208		6,336			—			25,544

Total current liabilities		—		28,298		11,413			—			39,711
LONG-TERM DEBT—Less current portion		—		691,313		—			—			691,313
DEFERRED INCOME TAXES		—		64,046		—			—			64,046
OTHER NON-CURRENT LIABILITIES		—		1,841		1,202			—			3,043

Total liabilities		—		785,498		12,615			—			798,113

STOCKHOLDERS’ EQUITY		515,766		1,221,606		762,353			(1,984,040	)		515,685

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	515,766	$	2,007,104	$	774,968		$	(1,984,040	)	$	1,313,798

TRANSDIGM HOLDING COMPANY

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF SEPTEMBER 30, 2003

(In Thousands)


	Holdings		TransDigm		Subsidiary Guarantors			Eliminations			Total Consolidated
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	—	$	19,352	$	(450	)	$	—		$	18,902
Trade accounts receivable—Net		—		14,520		22,189			—			36,709
Income taxes receivable		36,703		—		—			—			36,703
Inventories		—		26,337		51,049			—			77,386
Deferred income taxes		—		8,177		—			—			8,177
Prepaid expenses and other		—		3,296		554			—			3,850

Total current assets		36,703		71,682		73,342			—			181,727
INVESTMENTS IN SUBSIDIARIES AND INTERCOMPANY BALANCES		468,506		1,371,847		(632,774	)		(1,207,579	)		—
PROPERTY, PLANT AND EQUIPMENT—Net		—		23,295		37,047			—			60,342
GOODWILL		—		412,028		395,686			—			807,714
OTHER INTANGIBLE ASSETS—Net		—		94,845		140,994			—			235,839
DEBT ISSUE COSTS—Net		—		28,771		—			—			28,771
OTHER		—		627		—			—			627

TOTAL ASSETS	$	505,209	$	2,003,095	$	14,295		$	(1,207,579	)	$	1,315,020

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Current portion of long-term liabilities	$	—	$	7,634	$	—		$	—		$	7,634
Accounts payable		—		5,512		5,709			—			11,221
Accrued liabilities		—		21,696		7,929			—			29,625

Total current liabilities		—		34,842		13,638			—			48,480
LONG-TERM DEBT—Less current portion		—		692,050		—			—			692,050
DEFERRED INCOME TAXES		—		64,364		—			—			64,364
OTHER NON-CURRENT LIABILITIES		—		3,715		1,202			—			4,917

Total liabilities		—		794,971		14,840			—			809,811

TOTAL STOCKHOLDERS’ EQUITY (DEFICIENCY)		505,209		1,208,124		(545	)		(1,207,579	)		505,209

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIENCY)	$	505,209	$	2,003,095	$	14,295		$	(1,207,579	)	$	1,315,020

TRANSDIGM HOLDING COMPANY

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE TWENTY-SIX WEEKS ENDED MARCH 27, 2004

(In Thousands)


	Holdings			TransDigm			Subsidiary Guarantors		Eliminations			Total Consolidated
NET SALES	$	—		$	60,703		$	78,882	$	—		$	139,585
COST OF SALES		—			31,676			54,163		—			85,839

GROSS PROFIT		—			29,027			24,719		—			53,746
OPERATING EXPENSES:
Selling and administrative		—			9,014			5,477		—			14,491
Amortization of intangibles		—			2,538			3,100		—			5,638

Total operating expenses		—			11,552			8,577		—			20,129

INCOME FROM OPERATIONS		—			17,475			16,142		—			33,617
OTHER INCOME (EXPENSES):
Interest expense—Net		(4,931	)		(21,786	)		1,541		—			(25,176	)
Equity in income of subsidiaries		8,277			10,946			—		(19,223	)		—

INCOME BEFORE INCOME TAXES		3,346			6,635			17,683		(19,223	)		8,441
INCOME TAX PROVISION (BENEFIT)		(1,879	)		(1,642	)		6,737		—			3,216

NET INCOME	$	5,225		$	8,277		$	10,946	$	(19,223	)	$	5,225

TRANSDIGM HOLDING COMPANY

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE TWENTY-SIX WEEKS ENDED MARCH 29, 2003 (PREDECESSOR)

(In Thousands)


	Holdings			TransDigm			Subsidiary Guarantors			Eliminations			Total Consolidated
NET SALES	$	—		$	59,624		$	89,797		$	—		$	149,421
COST OF SALES		—			25,828			52,358			—			78,186

GROSS PROFIT		—			33,796			37,439			—			71,235
OPERATING EXPENSES:
Selling and administrative		—			6,390			5,297			—			11,687
Amortization of intangibles		—			302			269			—			571

Total operating expenses		—			6,692			5,566			—			12,258

INCOME FROM OPERATIONS		—			27,104			31,873			—			58,977
OTHER INCOME (EXPENSES):
Interest expense—Net		(1,755	)		(12,045	)		(4,182	)		—			(17,982	)
Equity in income of subsidiaries		26,890			17,418			—			(44,308	)		—

INCOME BEFORE INCOME TAXES		25,135			32,477			27,691			(44,308	)		40,995
INCOME TAX PROVISION (BENEFIT)		(651	)		5,587			10,273			—			15,209

NET INCOME	$	25,786		$	26,890		$	17,418		$	(44,308	)	$	25,786

TRANSDIGM HOLDING COMPANY

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE TWENTY-SIX WEEKS ENDED MARCH 27, 2004

(In Thousands)


	Holdings			TransDigm			Subsidiary Guarantors			Eliminations			Total Consolidated
OPERATING ACTIVITIES:
Net income	$	5,225		$	8,277		$	10,946		$	(19,223	)	$	5,225
Adjustments to reconcile net income to net cash provided by operating activities		28,426			(4,639	)		12,602			19,223			55,612

Net cash provided by operating activities		33,651			3,638			23,548			—			60,837

INVESTING ACTIVITIES
Capital expenditures		—			(456	)		(1,508	)		—			(1,964	)

Net cash used in investing activities		—			(456	)		(1,508	)		—			(1,964	)

FINANCING ACTIVITIES:
Changes in intercompany activities		(33,155	)		56,352			(23,197	)		—			—
Payment of amounts borrowed under credit facility		—			(737	)		—			—			(737	)
Payment of license obligation		—			(1,500	)		—			—			(1,500	)
Purchase of common stock		(520	)		—			—			—			(520	)
Proceeds from exercise of stock options		24			—			—			—			24

Net cash provided by (used in) financing activities		(33,651	)		54,115			(23,197	)		—			(2,733	)

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		—			57,297			(1,157	)		—			56,140
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		—			19,352			(450	)		—			18,902

CASH AND CASH EQUIVALENTS, END OF PERIOD	$	—		$	76,649		$	(1,607	)	$	—		$	75,042

TRANSDIGM HOLDING COMPANY

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE TWENTY-SIX WEEKS ENDED MARCH 29, 2003 (PREDECESSOR)

(In Thousands)


	Holdings			TransDigm			Subsidiary Guarantors			Eliminations			Total Consolidated
OPERATING ACTIVITIES:
Net income	$	25,786		$	26,890		$	17,418		$	(44,308	)	$	25,786
Adjustments to reconcile net income to net cash provided by operating activities		(25,135	)		(7,191	)		(8,367	)		44,308			3,615

Net cash provided by operating activities		651			19,699			9,051			—			29,401

INVESTING ACTIVITIES
Acquisition of Norco, Inc. net assets		—			—			(52,954	)		—			(52,954	)
Capital expenditures		—			(1,318	)		(1,385	)		—			(2,703	)

Net cash used in investing activities		—			(1,318	)		(54,339	)		—			(55,657	)

FINANCING ACTIVITIES:
Changes in intercompany activities		32,151			(78,628	)		46,477			—			—
Borrowings under credit facility, net of fees of $200		—			24,800			—			—			24,800
Repayment of Holdings PIK Notes		(32,802	)											(32,802	)
Payment of license obligation		—			(1,200	)		—			—			(1,200	)
Payment of amounts borrowed under credit facility		—			(1,989	)		—			—			(1,989	)

Net cash provided by (used in) financing activities		(651	)		(57,017	)		46,477			—			(11,191	)

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		—			(38,636	)		1,189			—			(37,447	)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		—			50,866			(1,660	)		—			49,206

CASH AND CASH EQUIVALENTS, END OF PERIOD	$	—		$	12,230		$	(471	)	$	—		$	11,759

* * * * *

PART I: FINANCIAL INFORMATION

ITEM 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of the Company’s financial condition and results of operations should be read together with Holdings’ consolidated financial statements and the related notes included elsewhere in the Report. References in this section to “TransDigm,” “we,” “us” or “our” are to TransDigm Inc. and its subsidiaries. References to “Holdings” are to TransDigm Holding Company, which holds all of the outstanding capital stock of TransDigm. References to the “Company” are to Holdings, together with TransDigm. Financial information presented herein for the periods through the merger of TD Acquisition Corporation into Holdings and TD Funding Corporation into TransDigm Inc. on July 22, 2003 (see “—Recent Developments”) is presented as “Predecessor” financial information. The Company’s condensed consolidated financial statements for the period subsequent to the Merger reflect a new basis of accounting incorporating the fair value adjustments made in recording the Merger while prior periods are presented using the historical cost basis of the Company.

This Quarterly Statement includes “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended, including, in particular, the statements about the Company’s plans, strategies and prospects under this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section. Although the Company believes that its plans, intentions and expectations reflected in or suggested by such forward-looking statements are reasonable, the Company can give no assurance that such plans, intentions or expectations will be achieved. Important factors that could cause actual results to differ materially from the forward-looking statements made in this Quarterly Statement include but are not limited to:

We have a substantial amount of indebtedness which could adversely affect our financial health.

Increases in interest rates could increase our interest expense.

Our substantial indebtedness could prevent us from fulfilling our obligations under our indebtedness. To service our indebtedness, we will require a significant amount of cash. Our ability to generate cash depends on many factors beyond our control.

Despite current indebtedness levels, we may still be able to incur substantially more debt.

The terms of our new senior secured credit facility and the indenture governing the senior subordinated notes may restrict our current and future operations, particularly our ability to respond to changes or to take certain actions.

Future terrorist attacks may have a material, adverse impact on our business.

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 rely heavily on certain customers for much of our sales.

We generally do not have guaranteed future sales of our products. Further, we enter into fixed price contracts with some of our customers, so we take the risk for cost overruns.

A decline in the U.S. defense budget or the defense budget of foreign governments may adversely affect our sales of parts used in military aircraft.

Our business may be adversely affected if we lost our government or industry approvals or if more onerous government regulations were enacted or industry oversight increased.

We are dependent on our highly trained employees and any work stoppage or difficulty hiring similar employees would adversely affect our business.

If we lose our senior management, our business may be adversely affected.

Our business is dependent on the availability of certain components and raw materials that we buy from suppliers.

We could incur substantial costs as a result of violations of or liabilities under environmental laws.

Our international business exposes us to risks relating to increased regulation and political or economic instability, globally or within certain foreign countries.

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 have recorded a significant amount of intangible assets, which may never generate the returns we expect.

We face significant competition.

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.

All forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by those cautionary statements. Many such factors are outside the control of the Company. Consequently, such forward-looking statements should be regarded solely as its current plans, estimates and beliefs. The Company does not undertake and specifically declines any obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect any future events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

Overview

TransDigm is a leading supplier of highly engineered aircraft components for use on nearly all commercial and military aircraft. Most of the Company’s products share four common characteristics: (1) highly engineered and proprietary; (2) significant aftermarket content, (3) sole source provider; and (4) large share of niche markets.

TransDigm’s customers include distributors of aerospace components, commercial airlines, aircraft maintenance facilities, aircraft and engine original equipment manufacturers, or OEMs, various armed forces of the United States and foreign governments, and defense OEMs. TransDigm generates the majority of its operating income from sales of replacement parts in the commercial and defense aftermarkets. Most of TransDigm’s OEM sales are on an exclusive sole source basis, meaning that, in most cases, TransDigm is the only certified provider of these parts in the aftermarket. Aftermarket parts sales are driven by the size and usage of the worldwide aircraft fleet, are historically relatively stable and generate recurring revenues over the life of an aircraft that are many times the size of the original OEM purchases. TransDigm has over 40 years of experience in most of its product lines, which allows it to benefit from a large and growing installed base of aircraft.

Recent Developments

On July 22, 2003, Holdings consummated a merger with TD Acquisition Corporation (“TD Acquisition”) pursuant to which TD Acquisition merged with and into Holdings, with Holdings continuing as the surviving corporation as a wholly-owned subsidiary of a newly formed corporation, TD Holding Corporation (the “Merger”). In connection

with the Merger, TransDigm Inc. completed a tender offer for its outstanding 10³/8% Senior Subordinated Notes due 2008 (the “10³/8% Senior Subordinated Notes”). Of the $200 million aggregate principal amount of outstanding 10³/8% Senior Subordinated Notes, a total of approximately $197.8 million aggregate principal amount of 10³/8% Senior Subordinated Notes were validly tendered and the remaining $2.2 million aggregate principal amount of 10³/8% Senior Subordinated Notes were defeased pursuant to the terms of the indenture governing the 10³/8% Senior Subordinated Notes. In December 2003, TransDigm Inc. redeemed the 10³/8% Senior Subordinated Notes that were previously defeased. In addition, as a result of the consummation of the Merger, the outstanding balance of $197.5 million under TransDigm Inc.’s then existing senior credit facility became due and was repaid in its entirety upon the closing of the Merger. The cash merger consideration of $759.7 million paid to Holdings’ former common and preferred stockholders, holders of in-the-money stock options and the holder of the warrant to purchase Holdings’ common stock (including merger related expenses of approximately $29.1 million borne by the then existing equity holders of Holdings and excluding the $35.7 million fair value of stock options rolled over in connection with the Merger), acquisition fees and expenses of approximately $34.7 million, and repayment of substantially all of TransDigm Inc.’s then existing indebtedness in connection with the consummation of the Merger was financed through: (1) an investment of $471.3 million in TD Holding Corporation (“TD Holding”) by Warburg Pincus Private Equity VIII, L.P. (“Warburg Pincus”) and certain other institutional investors which was ultimately contributed as equity to TD Acquisition which then contributed such proceeds as equity to TD Funding Corporation which merged with and into TransDigm Inc. in connection with the Merger, (2) $295.0 million of borrowings under a new secured term loan facility, (3) $400.0 million of proceeds from the issuance of new 8³/8% Senior Subordinated Notes due 2011 (“8³/8% Senior Subordinated Notes”) and (4) the use of existing cash balances. The 8³/8% Senior Subordinated Notes are fully and unconditionally guaranteed, jointly and severally and on an unsecured senior subordinated basis, by Holdings and all of TransDigm’s existing domestic subsidiaries. Following the Merger, Warburg Pincus controls a majority of the outstanding common stock of TD Holding.

The following table sets forth a reconciliation of EBITDA and EBITDA, As Defined, to our net income reported under Generally Accepted Accounting Principles, or GAAP. EBITDA represents earnings before interest, taxes, depreciation and amortization. EBITDA, As Defined, represents EBITDA, plus inventory purchase accounting adjustments, certain other non-recurring merger expenses, non-cash compensation and deferred compensation charges and acquisition integration costs, as applicable. Management believes that the presentation of EBITDA and EBITDA, As Defined, will enhance an investor’s understanding of our operating performance. EBITDA and EBITDA, As Defined, are also the measures used by TransDigm’s senior management to evaluate the performance of TransDigm’s various lines of business and for other required or discretionary purposes, such as measuring performance under our employee incentive programs. The credit agreement requires the Company to comply with certain financial ratios, including a leverage ratio, fixed charged coverage ratio and interest coverage ratio. Leverage ratio is defined in the credit agreement, as of any date, as the ratio of the total indebtedness of the Company on a consolidated basis on such date to Consolidated EBITDA (as defined in the credit agreement) for the period of four consecutive fiscal quarters most recently ended on or prior to such date. Fixed charge coverage ratio is defined in the credit agreement as, for any period, the ratio of (a) Consolidated EBITDA for such period to (b) consolidated fixed charges for such period. Interest coverage ratio is defined as, for any period, the ratio of (a) Consolidated EBITDA for such period to (b) consolidated interest expense for such period. The failure to comply with the financial covenants in the credit agreement could result in an event of default thereunder (and, in turn, an event of default under the credit agreement could result in an event of default under the indenture governing the 8³/8% Senior Subordinated Notes). The credit agreement defines Consolidated EBITDA in a manner equal to how we define EBITDA, As Defined. Neither EBITDA nor EBITDA, As Defined, is a measurement of financial performance under GAAP and neither should be considered as an alternative to (1) net income determined in accordance with GAAP or (2) operating cash flows determined in accordance with GAAP.

Management’s calculation of EBITDA and EBITDA, As Defined, may not be comparable to the calculation of similarly titled measures reported by other companies.


	Thirteen Weeks Ended March 27, 2004		Thirteen Weeks Ended March 29, 2003 (Predecessor)		Twenty-Six Weeks Ended March 27, 2004		Twenty-Six Weeks Ended March 29, 2003 (Predecessor)
	(in millions)
Net income	$	9.2	$	13.7	$	5.2	$	25.8
Adjustments:
Depreciation and amortization expense		4.8		1.9		9.4		3.9
Interest expense, net		12.5		9.0		25.2		18.0
Income tax provision		5.6		7.9		3.2		15.2

EBITDA		32.1		32.5		43.0		62.9
Adjustments:
Inventory purchase accounting adjustments (1)		—		—		18.1		—
Acquisition integration costs (2)		0.3		0.6		1.0		0.6
Non-cash compensation and deferred compensation costs (3)		1.6		—		3.1		—

EBITDA, As Defined	$	34.0	$	33.1	$	65.2	$	63.5

(1)	This represents the portion of the purchase accounting adjustment to inventory pertaining to the Merger that was charged to cost of sales when the inventory was sold.

(2)	Represents costs incurred to integrate the Norco business into the Company’s operations.

(3)	Represents the expenses recognized by the Company under a stock option plan and two deferred compensation plans of TD Holding that relate to the Company’s employees who participate in the plans.

Critical Accounting Policies

Our consolidated financial statements have been prepared in accordance with GAAP, which often requires the judgment of management in the selection and application of certain accounting principles and methods. Management believes that the quality and reasonableness of our most critical policies enable the fair presentation of our financial position and results of operations. However, investors are cautioned that the sensitivity of financial statements to these methods, assumptions and estimates could create materially different results under different conditions or using different assumptions.

We have identified the following as the most critical accounting policies upon which our financial status depends. These critical policies were determined by considering accounting policies that involve the most complex or subjective decisions or assessments. Our most critical accounting policies are as follows:

Revenue Recognition and Related Allowances: Revenues are recognized based upon shipment of products to the customer, at which time title and risk of loss passes to the customer. Substantially all sales are made pursuant to firm, fixed-price purchase orders received from customers. Provisions for returns, estimated contract losses, uncollectible accounts and the cost of repairs under contract warranty provisions are provided for in the same period as the related revenues are recorded and are principally based on historical results modified, as appropriate, by the

most current information available. We have a history of making reasonably dependable estimates of such allowances; however, due to uncertainties inherent in the estimation process, it is possible that actual results may vary from the estimates and the differences could be material.

Management estimates the allowance for doubtful accounts based on the aging of the accounts receivable and customer creditworthiness. The allowance also incorporates a provision for the estimated impact of disputes with customers. Management’s estimate of the allowance amounts that are necessary includes amounts for specifically identified losses and a general amount for estimated losses. The determination of the amount of the allowance for doubtful accounts is subject to significant levels of judgment and estimation by management. If circumstances change or economic conditions deteriorate, management may need to increase the allowance for doubtful accounts.

The Company provides limited warranties in connection with the sale of its products. The warranty period for products sold varies throughout the Company’s operations, ranging from ninety days to five years; however, the warranty period for the majority of the Company’s sales generally does not exceed one year. In addition, certain contracts with distributors contain right of return provisions. The Company accrues for estimated returns and warranty claims based on knowledge of product performance issues and excess inventories provided by its customers and industry sources and also provides a general amount based on historical results. Actual product returns and warranty claims have not differed materially from the estimates originally established; however, due to uncertainties in the estimation process, it is possible that actual results in the future may vary from the estimates and the differences could be material.

Although the majority of the Company’s sales, particularly sales into the aftermarket, are made pursuant to firm, fixed-price purchase orders received from customers without long-term agreements, the Company has executed long-term supply agreements with certain OEMs, which cover particular products and require the Company to supply all the amounts ordered by the customers during the term (generally three to five years) of the agreements at specified prices. The Company expects to incur losses under some of the contracts. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are identified, based on estimated future shipment quantities provided by customers or industry sources and other factors. The cumulative effect of revisions to estimated future contract revenue and completion costs is recorded in the accounting period in which the amounts become known and can be reasonably estimated. Such revisions could occur any time there are changes to estimated future revenues or costs, and the effects could be material.

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. Because the Company sells products that are installed on airframes that can be in-service for twenty or more years, it must keep a supply of such products on hand while the airframes are in use. Provision for potentially obsolete or slow-moving inventory is made based on our analysis of inventory levels, past usage and future sales forecasts. Although management believes that the Company’s estimates of obsolete and slow-moving inventory are reasonable, actual results may differ materially from the estimates and additional provisions may be required in the future. In addition, in accordance with industry practice, all inventories are classified as current assets as all inventories are available and necessary to support current sales, even though a portion of the inventories may not be sold within one year.

Intangible Assets: The Merger has resulted in significant increases in indefinite-lived intangible assets and goodwill. Intangible assets other than goodwill are recognized if the benefit of the intangible asset is obtained through contractual or other legal rights, or if the intangible asset can be sold, transferred, licensed or exchanged, regardless of the Company’s intent to do so. Goodwill and indefinite-lived intangible assets are recorded at fair value on the date of acquisition and, under the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”), are reviewed at least annually for impairment based on cash flow projections and fair value estimates. The determination of undiscounted cash flows is based on the Company’s strategic plans and long-range planning forecasts. The revenue growth rates included in the plans are based on industry and Company specific data. The profit margin assumptions included in the plans are projected based on the current cost structure and anticipated cost changes. If different assumptions were used in these plans, the related undiscounted cash flows used in measuring impairment could be different and the recognition of an impairment loss might be required. Intangible assets, such as goodwill, that have an indefinite useful life are not amortized. All other intangible assets are amortized over their estimated useful lives.

Stock Options and Deferred Compensation Plans: Prior to the Merger, the Company applied Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees”, and related interpretations in accounting for its stock option plans. No compensation cost was recognized for Holdings’ stock option plans because the exercise price of the options issued equaled the fair value of the common stock on the grant date.

Effective with the consummation of the Merger and the issuance of TD Holding stock options to Company employees, the Company adopted the provisions of SFAS No. 123, “Accounting for Stock-Based Compensation”, which requires the measurement of compensation expense under the stock option plan to be based on the estimated fair values of the awards under the plan on the grant dates and amortizes the expense over the options’ vesting periods. In addition, the Company accounts for the cost of the deferred compensation plans of TD Holding established in conjunction with the Merger in accordance with Opinion No. 12 of the Accounting Principles Board, which requires the cost of deferred compensation arrangements to be accrued over the service period of the related employees in a systematic and rational manner.

Because the stock options and deferred compensation plan interests issued to Company employees in conjunction with, or subsequent to, the Merger relate to the stock and employee benefit plans of TD Holding, the cost of such compensation arrangements is recognized by the Company as an expense and capital contribution from TD Holding.

Purchase Accounting and Pending Purchase Price Adjustment: The Merger (see “—Recent Developments”) was accounted for as a purchase and preliminary fair value adjustments to the Company’s assets and liabilities were recorded. The Company is in the process of obtaining third-party valuations of certain tangible and intangible assets; thus, the final allocation of TD Holding’s investment in the Company to its assets and liabilities could result in adjustments to recorded tangible and intangible assets, including related depreciation and amortization expense.

On February 24, 2003, Marathon acquired certain assets and assumed certain liabilities of the Norco, Inc (“Norco”) business from TransTechnology Corporation for $51.0 million in cash. In addition, the Company was required to pay approximately $1.0 million of asset transfer tax payments in accordance with the purchase agreement. During August 2003, a $1.1 million purchase price adjustment was received by the Company based on a final determination of working capital as of the closing of the Norco acquisition. The Company accounted for the Norco acquisition as a purchase and included the results of operations of the acquired business in its consolidated financial statements from the effective date of the acquisition.

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 Periods Ended				Twenty-Six Week Periods Ended
	March 27, 2004		March 29, 2003		March 27, 2004		March 29, 2003
Net sales	100	%	100	%	100	%	100	%

Gross profit	52		46		38		48
Selling and administrative expenses	10		8		10		8
Amortization of intangibles	4		0		4		1

Income from operations	38		38		24		39
Interest expense—net	17		11		18		12
Income tax provision	8		10		2		10

Net income	13	%	17	%	4	%	17	%

Changes in Results of Operations

Thirteen week period ended March 27, 2004 compared with the thirteen week period ended March 29, 2003.

Net Sales. Net sales decreased by $7.7 million, or 9.7%, to $71.9 million for the quarter ended March 27, 2004, from $79.6 million for the comparable quarter last year. The decrease is primarily due to an expected decline in sales of $12.4 million to Airbus due to lower shipments relating to the retro fit portion of the cockpit door security products and a decrease in OEM sales, partially offset by an increase in sales of $2.9 million due to the Norco acquisition and an increase in aftermarket sales.

Gross Profit. Gross profit (net sales less cost of sales) increased by $0.7 million, or 1.9%, to $37.6 million for the quarter ended March 27, 2004 from $36.9 million from the comparable quarter last year. Gross profit as a percentage of sales increased approximately 6% to 52% for the thirteen week periods ended March 27, 2004 from 46% for the thirteen weeks ended March 29, 2003. The increase in gross profit and gross profit as a percentage of sales was primarily due to favorable product mix, the strength of the Company’s proprietary products and market positions and cost reductions realized through the relocation of the Norco manufacturing process in Connecticut into its existing facility in Waco, Texas.

Selling and Administrative Expenses. Selling and administrative expenses increased by $1.4 million, or 23.6%, to $7.4 million for the quarter ended March 27, 2004 from $6.0 million for the comparable quarter last year primarily due to $1.3 million of non-cash stock option and deferred compensation plan expenses that were recognized by the Company from TD Holding. The non-cash stock option and deferred compensation costs pertain to Company employees who participate in a stock option plan and two deferred compensation plans of TD Holding established contemporaneously with the Merger. Selling and administrative expenses increased as a percentage of net sales to 10.3% for the current quarter from 7.5% for the comparable quarter last year primarily due to the non-cash stock option and deferred compensation expense described above.

Amortization of Intangibles. Amortization of intangibles increased by $2.6 million to $2.9 million for the quarter ended March 27, 2004 from $0.3 million for the comparable quarter last year due to the amortization expense on additional identifiable intangible assets recognized in accounting for the Merger.

·	Income from Operations. Operating income decreased by $3.3 million, or 10.7%, to $27.4 million for the quarter ended March 27, 2004 from $30.6 million for the comparable quarter last year, due to the factors described above.

·	Interest Expense. Interest expense increased $3.5 million, or 38.3%, to $12.5 million for the quarter ended March 27, 2004 from $9.0 million for the comparable quarter last year principally due to the additional indebtedness incurred as a result of the Merger.

·	Income Taxes. Income tax expense as a percentage of income before income taxes was 38% for the quarter ended March 27, 2004 and was comparable to the 37% effective tax rate for the quarter ended March 29, 2003.

·	Net Income. The Company earned $9.2 million for the second quarter of fiscal 2004 compared to $13.7 million for the second quarter of fiscal 2003, primarily as a result of the factors referred to above.

Twenty-six week period ended March 27, 2004 compared with the twenty-six week period ended March 29, 2003.

Net Sales. Net sales decreased by $9.8 million, or 6.6%, to $139.6 million for the twenty-six week period ended March 27, 2004, from $149.4 million for the comparable period last year. The decrease is primarily due to an expected decline in sales of $19.4 million to Airbus due to lower shipments relating to the retro fit portion of the cockpit door security products and a decrease in OEM sales, partially offset by an increase in sales of $6.7 million due to the Norco acquisition and an increase in aftermarket sales.

Gross Profit. Gross profit (net sales less cost of sales) decreased by $17.5 million, or 24.6%, to $53.7 million for the twenty-six week period ended March 27, 2004 from $71.2 million from the comparable period last year. This decrease is primarily attributable to the $18.1 million, or 12.9% of net sales, non-cash charge included in cost of sales pertaining to the inventory purchase price adjustment recorded in accounting for the Merger and $1.0 million, or 0.7% of net sales, of non-recurring integration costs pertaining to the Norco acquisition. Gross profit as a percentage of sales decreased to 38.5% for the twenty-six week period ended March 27, 2004 from 47.7% for the comparable period last year principally due to the non-cash and non-recurring charges discussed above partially offset by favorable product mix, continuing cost control measures and the strength of the Company’s proprietary products and market positions. Excluding the non-cash and non-recurring charges, the gross profit margin would have been 52.2% for the current period compared to 48.0% in the comparable period last year that was not impacted by the non-cash charge.

Selling and Administrative Expenses. Selling and administrative expenses increased by $2.8 million, or 24.0%, to $14.5 million for the twenty-six week period ended March 27, 2004 from $11.7 million for the comparable period last year primarily due to $2.8 million of non-cash stock option and deferred compensation plan expenses that were recognized by the Company from TD Holding. Selling and administrative expenses increased as a percentage of net sales to 10.4% for the current period from 7.8% for the comparable period last year primarily due to the non-cash stock option and deferred compensation expense described above. Excluding the non-cash stock option and deferred compensation plan expenses selling, general and administrative expenses as a percentage of sales would have been 8.4% for the current period compared to 7.8% in the comparable period last year.

Amortization of Intangibles. Amortization of intangibles increased by $5.0 million to $5.6 million for the twenty-six week period ended March 27, 2004 from $0.6 million for the comparable period last year due to the amortization expense on additional identifiable intangible assets recognized in accounting for the Merger.

Income from Operations. Operating income decreased by $25.4 million, or 43.0%, to $33.6 million for the twenty-six week period ended March 27, 2004 from $59.0 million for the comparable period last year, due to the factors discussed above. Adjusted for the non-cash charges of $18.1 million and 2.8 million discussed above, operating income would have been $54.5 in the current period, or a 7.6% decrease from $59.0 million for the comparable period last year.

·	Interest Expense. Interest expense increased $7.2 million, or 40.0%, to $25.2 million for the twenty-six week period ended March 27, 2004 from $18.0 million for the comparable period last year principally due to the additional indebtedness incurred as a result of the Merger.

·	Income Taxes. Income tax expense as a percentage of income before income taxes was 38% for the twenty-six week period ended March 27, 2004 compared to the 37% effective tax rate for the comparable period last year.

·	Net Income. The Company earned $5.2 million for the twenty-six week period ended March 27, 2004 compared to $25.8 million for the same period last year, primarily as a result of the factors referred to above.

Backlog

Management believes that sales order backlog (i.e., orders for products that have not yet been shipped) is a useful indicator of future sales. As of March 27, 2004, the Company estimated its sales order backlog at $133.3 million compared to an estimated $125.7 million as of March 29, 2003. The increase in backlog is primarily due to an increase in orders across various product lines in the commercial aftermarket segment partially offset by a decrease of approximately $5 million in orders for the Airbus cockpit door security mechanism due to the completion of the retro fit portion of the Company’s products. The majority of the purchase orders outstanding as of March 27, 2004 are scheduled for delivery within the next twelve months. Purchase orders may be 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 27, 2004 may not necessarily represent the actual amount of shipments or sales for any future period.

Foreign Operations

Although the Company manufactures all of its products in the United States, some components are purchased from foreign suppliers and a portion of the Company’s products are resold to foreign end-users. This activity is subject to numerous additional risks, including the impact of foreign government regulations, currency fluctuations, political uncertainties and differences in business practices. There can be no assurance that foreign governments will not adopt regulations or take other action that would have a direct or indirect adverse impact on the business or market opportunities of the Company within such governments’ countries. Furthermore, there can be no assurance that the political, cultural and economic climate outside the United States will be favorable to the Company’s operations and growth strategy.

Inflation

Many of the Company’s raw materials and operating expenses are sensitive to the effects of inflation, which could result in changing operating costs. The effects of inflation on the Company’s businesses during the thirteen and twenty-six week periods ended March 27, 2004 and March 29, 2003 were not significant.

Liquidity and Capital Resources

The Company generated $60.8 million of cash from operating activities during the twenty-six weeks ended March 27, 2004 compared to $29.4 million generated during the twenty-six weeks ended March 29, 2003. The increase of $31.4 million is primarily due to the receipt of income tax refunds of $33.4 million during the twenty-six week period ended March 27, 2004 resulting primarily from merger expense of $176 million incurred in fiscal 2003.

Cash used in investing activities decreased to $2.0 million during the twenty-six weeks ended March 27, 2004 compared to $55.7 million used during the twenty-six weeks ended March 29, 2003. The decrease is a result of the acquisition of the net assets of Norco, Inc. during the second quarter of fiscal 2003.

Cash used in financing activities during the twenty-six weeks ended March 27, 2004 decreased to $2.7 million compared to $11.2 million during the twenty-six weeks ended March 29, 2003. The decrease of $8.5 million is primarily due to the repayment in the second quarter of fiscal 2003 of the Holdings PIK Notes of $32.8 million offset by the proceeds of new borrowings of $24.8 million under the then existing senior credit facility relating to the acquisition of the net assets of Norco, Inc.

In connection with the consummation of the Merger, TransDigm Inc. obtained new senior secured credit facilities. The new senior secured credit facilities consisted of a $295 million term loan facility, which was fully drawn on the closing date of the Merger, and a $100 million revolving loan facility. On April 1, 2004, the Company amended and restated its existing credit agreement (the “Amended and Restated Credit Agreement”). The Amended and Restated Credit Agreement consists of a term loan facility of $294.3 million, which was fully drawn on the closing date, and a $100 million revolving loan facility, of which $99.5 million was available as of March 27, 2004.

The amended and restated revolving loan facility matures in July 2009 and the amended and restated term loan facility matures in July 2010. The Amended and Restated Credit Agreement requires scheduled quarterly payments of principal on the term loans beginning June 30, 2004 in aggregate annual principal amounts equal to 1% of the original aggregate principal amount of the term loans during the life of the loans, with the balance payable at final maturity. Subject to exceptions, the Amended and Restated Credit Agreement also requires mandatory prepayments of term loans based on certain percentages of excess cash flows, as defined, commencing 95 days after the end of the fiscal year ending on September 30, 2006, net cash proceeds of asset sales, the issuance of equity securities or the issuance of certain debt securities.

In addition, the Company has the right to request (but no lender is committed to provide) additional term loans under such facilities, subject to the satisfaction of customary conditions, including being in compliance with the financial covenants in the credit agreement after giving effect, on a pro forma basis, to any such incremental term loan borrowing.

The interest rates per annum applicable to loans other than swingline loans (i.e., a short term line of credit that is provided as part of the revolving credit facility by the administrative agent, which can be converted at any time by the administrative agent into revolving credit loans under the revolving credit facility), under the Amended and Restated Credit Agreement are, at the Company’s option, equal to either an alternate base rate or an adjusted LIBO rate for one, two, three or six-month interest periods chosen by the Company, in each case, plus an applicable margin percentage. The alternate base rate is the greater of (1) Credit Suisse First Boston’s prime rate or (2) 50 basis points over the weighted average rates on overnight Federal funds as published by the Federal Reserve Bank of New York. The adjusted LIBO rate is determined by reference to settlement rates established for deposits in dollars in the London interbank market for a period equal to the interest period of the loan and the maximum reserve percentages established by the Board of Governors of the United States Federal Reserve to which the Company’s lenders are subject. The applicable margin percentage in the Amended and Restated Credit Agreement is a percentage per annum equal to (1) 1.25% for alternate base rate term loans, (2) 2.25% for adjusted LIBO rate term loans, (3) 2.50% for alternate base rate revolving loans, and (4) 3.50% for LIBO adjusted rate revolving loans. The applicable margin percentages under the revolving loan facility are subject to adjustment in increments based upon the Company’s leverage ratio under the Amended and Restated Credit Agreement so long as no event of default has occurred and is continuing.

All borrowings under the new revolving loan facility are subject to the satisfaction of customary conditions, including absence of a default and accuracy of representations and warranties.

In connection with the Merger, the Company also issued $400 million aggregate principal amount of 8³/8% Senior Subordinated Notes. Such notes do not require principal payments prior to their maturity in July 2011. The notes are fully and unconditionally guaranteed, jointly and severally and on an unsecured senior subordinated basis, by Holdings and all of our existing domestic subsidiaries.

Both the Amended and Restated Credit Agreement and the new 8³/8% Senior Subordinated Notes contain restrictive covenants that, among other things, limit the incurrence of additional indebtedness, the payment of dividends, transactions with affiliates, asset sales, acquisitions, mergers and consolidations, liens and encumbrances, and prepayments of other indebtedness. In addition, the Amended and Restated Credit Agreement and the new 8³/8% Senior Subordinated Notes require the Company to meet certain financial ratios. Any failure to comply with the restrictions of the Amended and Restated Credit Agreement, the new 8³/8% Senior Subordinated Notes or any other subsequent financing agreements may result in an event of default. An event of default may allow the creditors, if the agreements so provide, to accelerate the related debt as well as any other debt to which a cross-acceleration or cross-default provision applies. In addition, the lenders under the Amended and Restated Credit Agreement may be able to terminate any commitments they had made to supply the Company with further funds.

The Company repaid or defeased all of its long-term indebtedness that was outstanding immediately prior to the consummation of the Merger. The Company redeemed the defeased 10³/8% Senior Subordinated Notes in December 2003.

The Company’s primary future cash needs will consist of debt service and capital expenditures. The Company incurs capital expenditures for the purpose of maintaining and replacing existing equipment and facilities and, from time to time, for facility expansion. Capital expenditures totaled approximately $2.0 million and $2.7 million during the twenty-six weeks ended March 27, 2004 and March 29, 2003, respectively. The Company expects its capital expenditures in fiscal 2004 to be approximately $6 million and to increase moderately thereafter.

The Company may from time to time seek to retire its outstanding debt through cash purchases and/or exchanges for equity securities, in open market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, the Company’s liquidity requirements, contractual restrictions and other factors. The amounts involved may be material. In addition, the Company may issue additional debt if prevailing market conditions are favorable to doing so.

The Company intends to pursue acquisitions that present opportunities consistent with the Company’s value generation strategy. The Company regularly engages in discussions with respect to potential acquisitions and investments. However, there are no binding agreements with respect to any acquisitions at this time, and there can be no assurance that the Company will be able to reach an agreement with respect to any future acquisition. The

Company’s acquisition strategy may require substantial capital, and no assurance can be given that the Company will be able to raise any necessary funds on acceptable terms or at all. If the Company incurs additional debt to finance acquisitions, total interest expense will increase.

The Company’s ability to make scheduled payments of principal of, or to pay the interest on, or to refinance, the Company’s indebtedness, or to fund non-acquisition related capital expenditures and research and development efforts, will depend on the Company’s ability to generate cash in the future. This is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond its control. Based on its current levels of operations and anticipated cost savings and operating improvements and absent any disruptive events, management believes that internally generated funds and borrowings available under our revolving loan facility should provide sufficient resources to finance its operations, non-acquisition related capital expenditures, research and development efforts and long-term indebtedness obligations through at least fiscal 2004. There can be no assurance, however, that the Company’s business will generate sufficient cash flow from operations, that currently anticipated cost savings and operating improvements will be realized on schedule, or at all, or that future borrowings will be available to the Company under its Amended and Restated Credit Agreement in an amount sufficient to enable it to pay its indebtedness or to fund its other liquidity needs. The Company may need to refinance all or a portion of its indebtedness on or before maturity. Also, to the extent the Company accelerates its growth plans, consummates acquisitions or has lower than anticipated sales or increases in expenses, the Company may also need to raise additional capital. In particular, increased working capital needs occur whenever the Company consummates acquisitions or experiences strong incremental demand. There can be no assurance that the Company will be able to raise additional capital on commercially reasonable terms or at all.

Contractual Obligations

The following is a summary of contractual cash obligations of the Company for the next several fiscal years (excluding interest), as of March 27, 2004 (in millions):


	2004(1)		2005		2006		2007		2008		2009 and Thereafter		Total
Term Loan Facility	$	2.2	$	2.9	$	2.9	$	2.9	$	2.9	$	280.5	$	294.3
8³/8% Senior Subordinated Notes		—		—		—		—		—		400.0		400.0
Operating Leases		0.7		1.3		1.1		0.8		0.7		3.4		8.0
Other Long-Term Obligations		—		1.5		—		—		—		—		1.5

Total Contractual Cash Obligations	$	2.9	$	5.7	$	4.0	$	3.7	$	3.6	$	683.9	$	703.8

(1) Beginning March 28, 2004.

New Accounting Standards

Company’s two defined benefit pension plans. The implementation of this pronouncement had no impact on the Company’s consolidated financial position or results of operations.

Additional Disclosure Required by Indenture

Separate financial statements of TransDigm are not presented since Holdings has no significant operations or assets separate from its investment in TransDigm and since the 8³/8% Senior Subordinated Notes are guaranteed by Holdings and all direct and indirect domestic restricted subsidiaries of TransDigm. As of March 27, 2004, the only subsidiary of TransDigm that has not guaranteed the notes is one wholly owned, foreign subsidiary that has inconsequential assets, liabilities and equity.

ITEM 3

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

At March 27, 2004, the Company had borrowings under its senior secured credit facilities of $294.3 million that were subject to interest rate risk. Borrowings under the Company’s senior secured credit facility bear interest, at its option, at a rate equal to either an alternate base rate or an adjusted LIBO rate for a one, two, three or six-month interest period chosen by the Company, in each case, plus an applicable margin percentage that will be subject to periodic adjustment based on the achievement of certain performance goals. Accordingly, the Company’s cash flows and earnings will be exposed to the market risk of interest rate changes resulting from variable rate borrowings under its senior secured credit facilities. The effect of a hypothetical one percentage point increase in interest rates would increase the annual interest costs under the senior secured credit facilities by approximately $2.9 million based on the amount of outstanding borrowings at March 27, 2004. The weighted average interest rate on the $294.3 million of borrowings under the senior secured credit facilities on March 27, 2004 was 4.1%.

Because the interest rates on borrowings under the senior secured credit facilities vary with market conditions, the amount of outstanding borrowings under the senior secured credit facilities approximates the fair value of the indebtedness. The fair value of the $400 million aggregate principal amount of the Company’s 8³/8% Senior Subordinated Notes is exposed to the market risk of interest rate changes. The estimated fair value of such notes approximated $422 million at March 27, 2004 based upon quoted market rates.

ITEM 4

CONTROLS AND PROCEDURES

Holdings and TransDigm maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in Holdings’ and TransDigm’s Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to Holdings’ and TransDigm’s management, including their Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As of the end of the period covered by this report, Holdings and TransDigm carried out an evaluation, under the supervision and with the participation of Holdings’ and TransDigm’s management, including Holdings’ and TransDigm’s Chief Executive Officer and Holdings’ and TransDigm’s Chief Financial Officer, of the effectiveness of the design and operation of Holdings’ and TransDigm’s disclosure controls and procedures. Based on the foregoing, Holdings’ and TransDigm’s Chief Executive Officer and Chief Financial Officer concluded that Holdings’ and TransDigm’s disclosure controls and procedures were effective.

There have been no significant changes in Holdings’ or TransDigm’s internal controls or in other factors that could significantly affect the internal controls subsequent to the date Holdings and TransDigm completed their evaluations.

PART II: OTHER INFORMATION

ITEM 6 Exhibits and Reports on Form 8-K

(a) Exhibits

10.1

Amended and Restated Credit Agreement dated as of April 1, 2004, among TransDigm Inc., TransDigm Holding Company, various lenders named therein, and Credit Suisse First Boston, as Administrative Agent and Collateral Agent, Credit Suisse First Boston and Banc of America Securities LLC, as Joint Bookrunners and Joint Lead Arrangers, Bank of America, N.A., as Syndication Agent, and UBS Securities LLC and General Electric Capital Corporation as Documentation Agents.

31.1	Certification by Principal Executive Officer of TransDigm Holding Company pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2	Certification by Principal Financial Officer of TransDigm Holding Company pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.3	Certification by Principal Executive Officer of TransDigm Inc. pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.4	Certification by Principal Financial Officer of TransDigm Inc. pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1	Certification by Chief Executive Officer of TransDigm Holding Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2	Certification by Chief Financial Officer of TransDigm Holding Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.3	Certification by Chief Executive Officer of TransDigm Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.4	Certification by Chief Financial Officer of TransDigm Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(b) Reports on Form 8-K

On January 14, 2004, the Company filed a report on Form 8-K announcing its regular scheduled quarterly conference call.

On January 20, 2004, the Company filed a report on Form 8-K announcing additional information on fiscal year 2003 and fiscal year 2004.

On February 19, 2004, the Company filed a report on Form 8-K announcing its regular scheduled quarterly conference call.

On March 5, 2004, the Company filed a report on Form 8-K announcing its decision to engage Ernst & Young as the Company’s independent accountant for the year ending September 30, 2004.

SIGNATURES

TRANSDIGM HOLDING COMPANY

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 thereunto duly assigned.


SIGNATURE	TITLE	DATE

/s/ W. Nicholas Howley W. Nicholas Howley	President and Chief Executive Officer (Principal Executive Officer) and Director	May 5, 2004

/s/ Gregory Rufus Gregory Rufus	Chief Financial Officer (Principal Financial and Accounting Officer)	May 5, 2004

TRANSDIGM INC.

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 thereunto duly assigned.


SIGNATURE	TITLE	DATE

/s/ W. Nicholas Howley W. Nicholas Howley	President and Chief Executive Officer (Principal Executive Officer) and Director	May 5, 2004

/s/ Gregory Rufus Gregory Rufus	Chief Financial Officer (Principal Financial and Accounting Officer)	May 5, 2004

EXHIBIT INDEX

TO FORM 10-Q FOR THE PERIOD ENDED MARCH 27, 2004


EXHIBIT NO.		DESCRIPTION
10.1		Amended and Restated Credit Agreement dated as of April 1, 2004, among TransDigm Inc., TransDigm Holding Company, various lenders named therein, and Credit Suisse First Boston, as Administrative Agent and Collateral Agent, Credit Suisse First Boston and Banc of America Securities LLC, as Joint Bookrunners and Joint Lead Arrangers, Bank of America, N.A., as Syndication Agent, and UBS Securities LLC and General Electric Capital Corporation as Documentation Agents.

31.1		Certification by Principal Executive Officer of TransDigm Holding Company pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification by Principal Financial Officer of TransDigm Holding Company pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.3		Certification by Principal Executive Officer of TransDigm Inc. pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.4		Certification by Principal Financial Officer of TransDigm Inc. pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification by Chief Executive Officer of TransDigm Holding Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification by Chief Financial Officer of TransDigm Holding Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.3		Certification by Chief Executive Officer of TransDigm Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.4		Certification by Chief Financial Officer of TransDigm Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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