01—Abstract
Summary
Summary of the 10-K filed November 24, 2009. Cited figures are marked; the original filing is the authoritative source.
TransDigm Group (TDG) closed fiscal 2009 (year ended September 30, 2009) with net sales of $761.6 milliona, up 6.7% from $713.7 million, and net income of $162.9 million, up 22.4%.
Organic sales declined 2.4%: commercial OEM sales fell on business jet production cuts and a Boeing strike, and commercial aftermarket dropped, but defense sales rose $37.9 millionb. Acquisitions (Aircraft Parts Corporation, Acme Aerospace, and the Woodward HRT product line) added $64.7 million of sales. Operating income rose 12.1% to $335.4 million, and EBITDA As Defined reached $374.7 million, or 49.2% of sales.
Gross margin improved to roughly 56.4% from 54.1%, driven by proprietary product strength and productivity gains. The balance sheet is highly leveraged. Total debt was about $1.36 billionc, roughly 62% of total capitalization.
Subsequent to year-end, in October 2009, TransDigm issued $425 milliond of new 7 3/4% senior subordinated notes and used the proceeds, along with other funds, to pay a $7.65 per share special dividend (about $375 million) and about $30 million in option dividend equivalents. On a pro forma basis, debt represents about 81% of capitalization. Management expects the business to generate sufficient cash to fund operations through at least fiscal 2010, but leverage and floating-rate exposure on the $780 million term loan are significant considerations for equity and debt holders.
Key risks include concentration in aerospace end markets (about 65% commercial, 32% defense), with the top two customers, Boeing and Honeywell, accounting for about 22% of sales. The company also faces a DOD Inspector General pricing review covering five subsidiaries, which recommended a voluntary refund of about $2.6 million, and reliance on acquisitions for growth. The company reported a backlog of $402 million, down from $418 million, and management expects military sales to be flat in 2010.
02—Key points
Key Highlights
- Fiscal 2009 net sales rose 6.7% to $761.6 million, with acquisitions contributing $64.7 million while organic sales declined 2.4%.
- Net income increased 22.4% to $162.9 million, and diluted EPS was $3.23 versus $2.65 in fiscal 2008.
- EBITDA As Defined was $374.7 million (49.2% of sales), and operating income rose 12.1% to $335.4 million.
- Approximately 60% of sales came from aftermarket and about 80% from sole-source products, supporting high margins and recurring revenue over roughly 30-year aircraft lives.
- Total debt was about $1.36 billion (62.4% of capitalization). A $425 million note issuance in October 2009 funded a $7.65 per share special dividend, raising pro forma leverage to about 81% of capitalization.
- Backlog declined to $402 million from $418 million, reflecting weaker business jet and commercial aftermarket demand.
- Operating cash flow was $197.1 million and capital expenditures were $13.2 million, with 2010 capex guided to $15 to $20 million.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2009, TransDigm Group kept $0.21.
- Revenue$761.6M100.0%
- Cost of revenue−$332.2M43.6%
- Gross profit$429.3M56.4%
- Operating costs−$93.9M12.3%
- Operating income$335.4M44.0%
- Interest, other & tax−$172.5M22.7%
- Net income$162.9M21.4%
Where FY2009 revenue went
$761.6M- Cost of revenue: $332.2M, 44% of revenue
- Interest, other & tax: $172.5M, 23% of revenue
- Net income: $162.9M, 21% of revenue
- R&D: $12.6M, 1.7% of revenue
- SG&A: $80.0M, 11% of revenue
Kept 21% as net incomeR&D $12.6M · 1.7%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2009filed November 24, 2009Financial Statements
FY2009 against FY2008
| Line item | FY2009FY2008 | Change |
|---|---|---|
| Revenue | $761.55M$713.71M | +6.7% |
| Cost of Revenue | $332.21M$327.78M | +1.4% |
| Gross Profit | $429.35M$385.93M | +11.2% |
| R&D Expenses | $12.60M— | — |
| SG&A Expenses | $80.02M$74.65M | +7.2% |
| Operating Expenses | $93.95M$86.65M | +8.4% |
| Operating Income | $335.40M$299.28M | +12.1% |
| Net Income | $162.90M$133.13M | +22.4% |
| EPS (Basic) | $3.10— | — |
05—Questions
Frequently Asked Questions
How did TransDigm perform financially in fiscal 2009?
Net sales grew 6.7% to $761.6 million and net income grew 22.4% to $162.9 million. Growth came mainly from acquisitions and defense demand, offset by organic declines in commercial OEM and aftermarket sales during the economic downturn.
Why is the company's leverage a concern for investors?
Total debt is about $1.36 billion, or roughly 62% of capitalization, and rises to about 81% pro forma for the October 2009 notes issuance that funded the special dividend. Most of the senior secured term loan bears floating rates, so higher rates would increase interest costs. A one percentage point rate increase would add about $7.8 million in annual interest.
What is the special dividend and how was it funded?
In October 2009, TD Group declared a special cash dividend of $7.65 per share, totaling about $375 million, plus about $30 million in dividend equivalent payments to option holders. It was funded by TransDigm Inc.'s $425 million offering of 7 3/4% senior subordinated notes due 2014. The company does not intend to pay regular dividends.
What are the main risks to TransDigm's business?
Key risks include dependence on aircraft flight hours and airline profitability, cyclical OEM demand, concentration with Boeing and Honeywell (about 22% of sales combined), U.S. defense budget dependence, government contract termination and audit rights, and a DOD Inspector General pricing review of five subsidiaries. The company also relies on acquisitions for growth and faces high indebtedness and covenant restrictions.
Is TransDigm's growth organic or acquisition-driven?
Both. Acquisitions drove much of the reported 6.7% sales growth, adding $64.7 million in fiscal 2009, while organic sales fell 2.4%. Over the longer term, management says a significant portion of growth has come from acquisitions, which it expects to continue pursuing. Those acquisitions have been financed in part with debt.
06—Continue