Transdigm Group Inc. · NYSE:TDG
Transdigm — Investor Day (June 2014)
128 slides from Transdigm's investor day presentation, Jun 25, 2014
Slide 1: 2014 Analyst Day
2014 ANALYST DAY JUNE 25, 2014
Slide 2: Agenda
Agenda 11:30 Lunch 12:45 Introduction Liza Sabol TDG Overview Nick Howley Management Process / Value Creation Ray Laubenthal Product Line Structure Pete Palmer New Business & Innovation Jorge Valladares Mergers & Acquisitions Bernie Iversen Recent Acquisitions & Integration Bob Henderson 2:15 Break
Slide 3: Executive Management - 2014 Analyst Day Participants
TransDigm Group Inc. Executive Management ‐ 2014 Analyst Day Participants Pictured standing left to right: Peter Palmer, Executive Vice President; Robert S. Henderson, Executive Vice President; Jorge L. Valladares III, Executive Vice President; John F. Leary, Executive Vice President Seated Left to
Slide 4: Forward Looking Statements
Forward Looking Statements This presentation contains forward‐looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including information regarding our guidance for future periods. These forward‐looking statements are based on management’s current expectation
Slide 5: Special Notice Regarding Pro Forma and Non-GAAP Information
Special Notice Regarding Pro Forma and Non‐GAAP Information This presentation sets forth certain pro forma financial information, which is summarized in the appendix. This pro forma financial information gives effect to certain recently completed acquisitions and divestitures. Such pro forma informa
Slide 6: TransDigm Overview
TRANSDIGM OVERVIEW W. NICHOLAS HOWLEY
Slide 7: TransDigm's Unique & Consistent Business Strategy
TransDigm’s Unique & Consistent Business Strategy TransDigm’s Consistent Goal – “Private Equity-Like” Returns to Shareholders Proprietary Aerospace Products with Significant Aftermarket 3-Part Value-Based Operating Strategy Decentralized, Incentivized Organization Focused Acquisition Strateg
Slide 8: TransDigm Overview
TransDigm Overview ($ in millions) Business Distinguishing Characteristics FY 2014 FY 2013 Guidance (1) Actual Mid-Point Uniquely consistent strategy Revenue: $1,924 $2,342 High free cash flow EBITDA As Defined: $900 $1,057 “Private equity-like” business model EBITDA As Defined Margin: 46.8% 4
Slide 9: Continued Consistent, Outstanding Value Creation
Key Business Events Since 2012 Analyst Day Continued Consistent, Outstanding Value Creation $3.2 B in Special Dividends Almost 50% of Beginning Market Equity Value * 5 Acquisitions for Purchase Price of ≈ $775 M New Debt and/or Refinanced ≈ $7.9 B *Calculated based on closing stock price of 6/27/12,
Slide 10: 5 Year Cumulative Total Return
5 Year Cumulative Total Return COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN* $800 Among TransDigm Group, Inc, the S&P Midcap 400 Index, and the S&P 400 Aerospace & Defense Index $725 49% IRR $700 $600 $500 $400 $262 21% IRR $300 $255 $200 21% IRR $100 $0 6/5/09 9/30/09 9/30/10 9/30/11 9/30/12 9/30/1
Slide 11: Consistent Record of Growth and Margin Expansion
Consistent Record of Growth and Margin Expansion Revenue EBITDA As Defined and Margin ($ in millions) ($ in millions) (1) (1) $2,342 $1,057 $900 $1,924 $809 $1,700 $590 $1,206 $412 $828 $375 $762 $333 $714 $593 $275 $435 $194 $374 $164 $293$301 $139 $249 $124 $201 $98 $131$151 $72 $48 $52 $57 $63 $7
Slide 12: Steady Long Term Growth in Total Enterprise Value
Steady Long Term Growth in Total Enterprise Value ($ in millions) ≈$16,000 ≈$7,000 ≈$3,000 ≈$2,000 ≈$1,200 ≈$50 ≈$450 9/93 Original 12/98 Recap 7/03 Recap 3/06 IPO 9/09 9/11 Current Note: Total Enterprise Value is calculated as equity value plus total net debt. 11
Slide 13: Experienced Senior Management Team with Proven Track Record
Experienced Senior Management Team with Proven Track Record EXECUTIVE TITLE YEAR HIRED Officers: W. Nicholas Howley Chairman & CEO 1993 Raymond F. Laubenthal President & COO 1993 Proven track record Gregory Rufus Executive VP – CFO 2000 Robert S. Henderson Executive VP 1994 Managed the business
Slide 14: Diverse Products, Platforms and Markets
Diverse Products, Platforms and Markets 13
Slide 15: TransDigm's Expanding Global Footprint
TransDigm’s Expanding Global Footprint 14
Slide 16: Steady Growth in Passenger Traffic Drives Stable Aftermarket Sales
Steady Growth in Passenger Traffic Drives Stable Aftermarket Sales 15
Slide 17: OEM Production
OEM Production COMMERCIAL TRANSPORTS (units delivered) 1,400 1,200 1,000 800 600 400 200 0 '96 '98 '00 '02 '04 '06 '08 10 '12 '14E '16E Source: Wall Street Research / Airline Monitor / Management estimates as of April 2014. 16
Slide 18: Commercial Transport Installed Base
Commercial Transport Installed Base COMMERCIAL TRANSPORT INSTALLED BASE (Units) 30,000 25,000 20,000 15,000 10,000 5,000 0 08 09 10 11 12 13 14E 15E 16E 17E Installed Base Deliveries Net of Retirements Source: Airline Monitor February 2014 / Management estimates 17
Slide 19: TransDigm's Addressed Market for Commercial Aftermarket
TransDigm’s Addressed Market for Commercial Aftermarket Global Airline Operating Expenses Global Maintenance Spend TDG Addressed Market 2013 Total = $686B 2013 Total = $60.7B 2013 Total = $22.7B Global TDG TDG Commercial Other 26% Maintenance Addressed Aftermarket $60.7B $22.7B ≈ $900M Others Labor
Slide 20: Military Outlook – Flat to Modestly Up
Military Outlook – Flat to Modestly Up 2012 - 2019 TransDigm Base Military Revenue Forecast* $ Millions (Revenue) 700 600 500 400 300 Aftermarket 200 OEM 100 0 2012 2013 2014 2015 2016 2017 2018 2019 S-70, AH-64 and F-35 are Major Military Growth Platforms *Excludes price increase and initial provis
Slide 21: Significant Barriers to Entry
Significant Barriers to Entry Selection / Qualification Process FAA Certification Niche Markets Risk / Reward Trade-Off 20
Slide 22: Recurring Stream of Profitable Aftermarket Revenue
Recurring Stream of Profitable Aftermarket Revenue Profitability % Aftermarket OE Production 5 10 15 20 25 30 35 40 45 50 55 60 65 70 Airframe Program Life Cycle (Years) 21
Slide 23: Strong Focus on High-Margin Aftermarket
Strong Focus on High‐Margin Aftermarket Estimated FY 2014 EBITDA As Defined (1) Pro Forma Revenues (Excluding the Non-Aviation Segment) (1) OEM Defense 31% Comm Aftmkt 38% Aftermarket Comm OEM 31% Aftermarket: 54% OEM: 46% (1) Estimated FY 2014 pro forma revenue is the mid-point of guidance range fo
Slide 24: Significant Proprietary and Sole Source Revenue Base
Significant Proprietary and Sole Source Revenue Base Results in strong market positions and a stable, recurring revenue stream. PROPRIETARY REVENUE SOLE SOURCE REVENUE Sole Proprietary Source ≈ 90% ≈ 75% Non-Sole Source Non-Proprietary ≈ 25% ≈ 10% Based on management estimates of pro forma TDG sales
Slide 25: Strong Positions on Diverse and Growing Platforms
Strong Positions on Diverse and Growing Platforms TOP PLATFORMS B737 A320 B777 ≈30% Sales A330/A340 B747 B757/B767 C130 B787 A380 Blackhawk Gulfstream Series ≈18% Sales CRJ Family C17 Note: Based on Management estimates of sales for 2013. 24 24
Slide 26: 3 Value Drivers
Proven Operating Strategy Productivity Profitable Value Based and Cost New Business Pricing Improvements 3 Value Drivers 25
Slide 27: Organizational Philosophy
Organizational Philosophy CORPORATE Corporate Local Control Autonomy Value Generation Strategy OPERATING UNIT Economy Mgmt Local Emp- Central loyees of Scale Resources Control Autonomy Owners Structure Execution Motivation 26
Slide 28: Key to our Culture
Unique Compensation Concept – “Think/act like an owner” Key to our Culture Low ` High Low ` High Cash Compensation Equity Based Compensation 100% Performance Vesting 100% Shareholder Alignment 27
Slide 29: How Do We Get 15% - 20% /yr Return?
How Do We Get 15% ‐ 20% /yr Return? %/yr 20% 18% Acquisition Acquisition Strategy 16% 14% Leverage Capital Structure 12% 10% 8% 6% Organic EBITDA Market Growth Growth Value Drivers 4% Culture 2% 0% Consistent Strategy 28
Slide 30: Management Process & Value Creation
MANAGEMENT PROCESS & VALUE CREATION RAYMOND F. LAUBENTHAL
Slide 31: Corporate Structure
Corporate Structure Nick Howley CEO Greg Rufus Ray Laubenthal Bernie Iversen CFO COO EVP & M&A Jorge Valladares Bob Henderson John Leary Jim Skulina Pete Palmer EVP EVP EVP EVP EVP 5 Op Units 6 Op Units 4 Op Units 6 Op Units 6 Op Units 30
Slide 32: Executive Vice President Role
Executive Vice President Role EVP ‐ Value Creation Perpetuation EVP Op Unit Business Guidance Op Unit 1 • Quarterly Reviews • Presidential “coaching” • Value Driver Emphasis Op Unit 2 Talent Development Op Unit 3 New • President/Staff President • Weed & Feed Last Year Acquisition Acquisition Value C
Slide 33: Operating Unit Philosophy
Operating Unit Philosophy Structure Execution Motivation Small Operating Units Significant Local Autonomy Think Like Owner Lower Economy of Scale Local Decisions Create Value Few Management Front Line Value Stock Options Layers Generation Product Line Discipline Price Productivity New Business VALUE
Slide 34: Product Line Value Focus
Division Organizational Structure President Director Director Director Sales & Controller Operations Engineering Marketing Product Line Product Manager Team Product Line Product Manager Team Product Teams •Co-Located Product Line Product •Detail Value Focused Manager Team •New Business Development •
Slide 35: 27 Operating Units 60+ Product Lines
Product Line Value Focus 27 Operating Units 60+ Product Lines 34
Slide 36: 3 Value Drivers Operating Unit Accountability
Proven Operation Strategy 3 Value Drivers Operating Unit Accountability Profitable new business Value driven down through each Product Line Productivity and cost improvement Mid-quarter and quarter-end reporting Emphasize value creation, Value-based ownership and accountability pricing 3
Slide 37: Consistent Product Line Metrics Accountability
Management Focus – Product Line Value Reporting Tools Consistent Product Line Metrics Accountability Budgets Pricing Product Line Income % Quarterly Statement Reviews Market Segments Projects Savings Machinery $ Outsourcing $ Mid-Quarter Automation $ $$ Site Visits Productivity Progress 36
Slide 38: Productivity
Productivity YTD YTD Full Yr Full Yr PROJECTS 2nd Source Motors Enacted 29 Plan 54 Forecast 58 Plan 108 Product Line Titanium Purchase 47 35 70 71 Volume Discount 5 5 10 12 $400 Sales Per Head (less Price) Vendor LTAs 10 0 25 0 Outside Processing (OSP) 170 $346 $352 Purchasing Savings 91 94 163 191
Slide 39: New Business Modeling
New Business Modeling Analytical Approach EXAMPLE ONLY Data Driven New Business Model Excerpt Realistic OEM Production Rates Annual Data 2014 2015 2016 2017 2018 2019 Production Sales NRE $494 $740 $987 $1,234 $1,481 Historical NRE Investment Estimates Production COS ($422) ($435) ($640) ($830
Slide 40: Value Creation Focus - Acquisitions
Value Creation Focus ‐ Acquisitions Narrow Acquisition Target Yields Strong Potential Value Creation Proprietary, Sole Source Aerospace Components with Significant Aftermarket Analyze Target & Model Value Negotiate Purchase & Raise Cash Acquire & Create Value Restructure into Product Lines
Slide 41: Talent Development
Talent Development 40
Slide 42: Growing Value Requires Growing Talent
Growing Value Requires Growing Talent Talent Demand Organic Growth Acquired Growth & Mgt. Turnover & Mgt. Transitions Growth Requires Talent 41
Slide 43: Talent Distribution
Talent Distribution Talent Pool Weed-out or Promote Develop Expand Test Weed-out Promote Low Individual Efficacy High 42
Slide 44: Succession, Development, Promotion
Succession, Development, Promotion President President Dir of HR, QC Dir of HR, QC Dir of Eng Dir of Mfg. Controller Dir of Eng Dir of Mfg. Controller S&M Other S&M Other Prod Line Prod Line Eng Lead Mfg Mgr Eng Lead Mfg Mgr Mgr Mgr Key Positions Dir S&M Dir Mfg Prod. Line Mgr Mfg. Manager New Acqui
Slide 45: Talent Development - Structured
Talent Development‐ Structured Financial Competency Value Creation Income Balance Statement Sheet Value Pricing New Business Productivity Modeling Management Planning & Leadership Contracting & Negotiations Risk Management I.P. Protection Aftermarket Access Forecasting Management Tools Skills Pricin
Slide 46: Talent Development - Operational
Talent Development‐ Operational Quarterly Product Line Reviews & Forums Job Rotations & Promotions President Dir of Dir of HR, QC Dir of Eng Controller S&M Mfg. Other Prod Line Eng Lead Mfg Mgr Mgr Site Visits & Operational Reviews LTM Promotions Source External 30% Internal 70% 45
Slide 47: Solid Value Growth Process
Performance Stability Solid Value Growth Process Consistent Value Creation Strategy Product Line Detail Focus Active Talent Growth Disciplined Acquisition Integration 46
Slide 48: Product Line Structure
PRODUCT LINE STRUCTURE PETER PALMER
Slide 49: Product Line Value Creation
Product Line Value Creation Product Line Manager Drives Product Line Team Critical Part of our Value Driven Culture Focus on Value Drivers: Profitable new business Productivity and cost improvement Value-based pricing Standardized Business Metrics across Product Lines 48
Slide 50: Product Line – Income Statement (Sample)
Product Line – Income Statement SAMPLE Prior Year % to Q3 % to YTD % to YTD % to Actual Sls Actual Sls Actual Sls Plan Sls 35,195 100.0% Sales 10,019 100% 28,109 100% 25,974 100% Product Costs: 8,696 24.7% Material 2,584 26% 7,041 25% 6,692 26% 2,678 7.6% Direct Labor 830 8% 2,259 8% 1,924 7% 6,667
Slide 51: Product Line – YTD Sales (Sample)
Product Line – YTD Sales SAMPLE Prior Fcst Fcst Fcst Prior Fcst Fcst Fcst OEM Year Plan Forecast vs. Plan vs. Plan vs. PY Aftermarket Year Plan Forecast vs. Plan vs. Plan vs. PY Commercial 9.0 10.0 10.0 0.0 0% 11% Commercial 13.0 12.0 11.0 (1.0) -8% -15% Reg/Biz Jet 3.0 4.0 3.0 (1.0) -25% 0% Defense
Slide 52: Product Line – YTD Bookings (Sample)
Product Line – YTD Bookings SAMPLE Prior Fcst Fcst Fcst Prior Fcst Fcst Fcst OEM Year Plan Forecast vs. Plan vs. Plan vs. PY Aftermarket Year Plan Forecast vs. Plan vs. Plan vs. PY Commercial $11.0 $11.0 $10.0 ($1.0) -9% -9% Commercial $12.0 $13.0 $10.0 ($3.0) -23% -17% Reg/Biz Jet $4.0 $5.0 $2.0 ($
Slide 53: Product Line – New Business Bookings (Sample)
Product Line – New Business Bookings SAMPLE $2,000 $3,000 1,875 $2,800 2,700 $1,900 1,843 $2,600 2,500 $1,800 $2,400 $1,700 $2,200 $2,000 $1,600 $1,800 $1,500 $1,600 $1,400 $1,400 YTD Actual YTD Plan FY Fcst FY Plan Major issues for the quarter: Awarded contracts on new Commercial Transport Platfo
Slide 54: YTD Booking Margins (Sample)
YTD Booking Margins SAMPLE YTD Bookings PLAN ACTUAL Base Business 53% 54% New Business 35% 39% Total YTD 46% 48% PLAN FORECAST Full Yr Forecast 47% 49% Margin Comments • Q1-Q3 New Business bookings light on high margin product Y • Product X YTD strong 53
Slide 55: Product Line – A/B List (Sample)
Product Line – A/B List SAMPLE 3 Year Current Year Status Customer Platform Program Description Sponsor Name Potential $ Plan $ YTD Act $ A Customer A Door Product 660 320 240 A Customer B Water System Product 312 96 126 A Customer C Lavatory Product 114 40 40 A Customer D Cargo Product 828 178 393
Slide 56: Product Line – Pricing (Sample)
Product Line – Pricing SAMPLE YTD Product Line “A” Pricing Results Percent Increase Comm Transp OEM Reg Bus Jet OEM Defense OEM Comm Aftmkt Gov Aftmkt Total YTD FY Plan Inflation 55
Slide 57: Productivity Summary ($000)
Productivity Summary ($000) Full Yr Project Description YTD Enacted YTD Plan Full Yr Plan Forecast LTA's $792 $792 $792 $792 VMI contract $300 $300 $300 $300 Calibration sourcing $64 $24 $64 $24 SH60 Worm & Wheel in sourcing $216 - $216 $216 LGERS CCA second source - - $44 $44 Other purchasing proje
Slide 58: Product Line Manager Value Creation and Leadership
Product Line Manager Value Creation and Leadership Repair and Overhaul Process Old Process 12 Steps New Process 5 Steps Customer Service Metrics Old Process On-time Delivery Turn Around Time 68% 44 days New Process 94% 15 days 57
Slide 59: Product Line – Forecast (Sample)
Product Line – Forecast SAMPLE ('000) QTR QTR FY FY Fcst Plan Δ Fcst Plan Δ Bookings 12,500 12,000 500 41,000 40,000 1,000 Sales 11,000 10,500 500 40,000 39,000 1,000 EBITDA 5,150 4,800 350 18,500 18,400 100 EBITDA % 47% 46% 1% 47% 46% 1% 58
Slide 60: Product Line Structure – Driving Value Creation
Product Line Structure – Driving Value Creation Consistent Value Generation Detailed Accountability Clear Direct Metrics Value Creation Focus 59
Slide 61: New Business & Innovation
NEW BUSINESS & INNOVATION JORGE L. VALLADARES III
Slide 62: New Business Overview
New Business Overview Drives Organic Growth Customer-Driven Business Opportunities Focus on Profitable Innovative State of the Art Solutions New Business Responsive and Agile Development 61
Slide 63: New Business "How We Do It"
New Business “How We Do It” Focused Engagement with Procurement and Engineering Identify Opportunities Establish Sponsorship Contracting Initial Focus Design and Development Contract Award Key Process Gates Full Scale Development Negotiate Final Terms and Conditions Qualification and Certification P
Slide 64: New Business "How We Do It"
New Business “How We Do It” Customer Relationships Strong Operational Performance Engineer to Engineer Selling Existing Part with Solve Customer Technical Issues New Customer New Part New Part Contracting Focus with with Existing New Strong Attention to Detail Customer Customer Control IP/
Slide 65: New Business Modeling
New Business Modeling Analytical Approach EXAMPLE ONLY Data Driven New Business Model Excerpt Realistic OEM Production Rates Annual Data 2014 2015 2016 2017 2018 2019 Production Sales NRE $494 $740 $987 $1,234 $1,481 Historical NRE Investment Estimates Production COS ($422) ($435) ($640) ($830
Slide 66: Major New Business Content: Commercial
Major New Business Content: Commercial $ / Shipset Growth Over Prior Platforms B787 A320 NEO A350 A380 +23% +75% +97% +7% +130% Prior Platforms A320 NEO 65 Note: As of June 2013. Does not include the recent acquisitions of GE Whippany, Aerosonic, Arkwin and Airborne. 65 65
Slide 67: Major New Business Content: Defense
Major New Business Content: Defense $ / Shipset Growth Over Prior Platforms F-35 / JSF A400M +20% +142% 66 Note: As of June 2013. Does not include the recent acquisitions of GE Whippany, Aerosonic, Arkwin , Airborne and EME. 66 66
Slide 68: Airbus Content
Airbus 350 Content • Composite dielectric isolators • Belly Structure exterior latches • Belly hold net assemblies • Aileron EHA rotor/stator • Composite dielectric isolator and hinges • Trent XWB Engine Ignition system assemblies tubes • Passenger seat belts • APU Hamilton Sundstrand Igniter • Cock
Slide 69: Boeing Content
Boeing 787 Content • Composite dielectric isolators • Nacelle/fan cowl latches • Bulkhead finish surfaces • Thermal barrier nets • Engine and electrical system • Thrust reverser latches • Sidewall finish surfaces • Medical outlet frequency converter elastomeric high temp/high • Crew escape and cargo
Slide 70: Consistent Value Creation
Consistent Value Creation Profitable New Business Technical Innovation Engineered Solutions Grow Faster Than The Markets We Serve Disciplined Data Driven Approach High Sense of Urgency and Responsiveness Key Operating Value Driver 69 69 68
Slide 71: Mergers & Acquisitions
MERGERS & ACQUISITIONS BERNT G. IVERSEN II
Slide 72: The LTM in Review
The LTM in Review… June 2013 June 2013 June 2013 Seller: Public Co. Seller: Privately Held Seller: Strategic Bus. Days to Signing: 158 Bus. Days to Signing: 161 Bus. Days to Signing: 77 Revenue: $31M Revenue: $93M Revenue: $82M December 2013 March 2014 Seller: Private Equity Seller: Privately Held B
Slide 73: Proven Record of Acquisition & Integration
Proven Record of Acquisition & Integration Privately Held NYSE 1993 – 2006 2006 – 2010 2011 – 2012 2013 - 2014 Adel Sweeney Hartwell Beams Aeroproducts Electra-Motion Electromech Aerosonic CDA InterCorp. McKechnie Wiggins Tyee Arkwin Controlex Avtech TAC Whippany Actu
Slide 74: Acquisition Sourcing – Since IPO
Acquisition Sourcing – Since IPO Number of Businesses EBITDA at Time of Acquisition 13% 21% 44% 21% 66% 35% Strategic Private Holder Private Equity Note: Statistics include businesses acquired but later divested. 73 72
Slide 75: Acquisitions Metrics – Weighted Historical Values
Acquisitions Metrics – Weighted Historical Values (Excluding Divestitures) Sole Source 100% 88% 89% 84% 79% 74% 78% 80% 71% 66% 60% 40% 20% 0% FY07 FY08 FY09 FY10 FY11 FY12 FY13 Avg. Commercial vs. Military OEM vs. Aftermarket 100% 100% 80% 80% 60% 60% 40% 40% 20% 20% 0% 0% FY07 FY08 FY09 FY10 FY11
Slide 76: Acquisitions Metrics – Weighted Historical Values
Acquisitions Metrics – Weighted Historical Values (Excluding Divestitures) Revenue by Market Segment 100% 80% 60% 40% 20% 0% FY07 FY08 FY09 FY10 FY11 FY12 FY13 Avg. Comm Trans / Reg 66% 4% 28% 20% 86% 64% 33% 57% BizJet / Heli / Gen Av 8% 38% 37% 39% 3% 3% 10% 11% Non‐Aerospace 0% 0% 0% 3% 3% 23% 7%
Slide 77: Significant Opportunities to Complete Accretive Acquisitions
Significant Opportunities to Complete Accretive Acquisitions OPPORTUNITY TO CREATE VALUE(1) FRAGMENTED BASE(2) Distribution Distribution 35% 70% 30% 60% 25% 50% 20% 40% 15% 30% 10% 20% 5% 10% 0% 0% 0-5% 6-10% 11-15% 16-20% 21-25% 26-30% 31-35% 36-40% < $25M $25-$100M > $100M EBITDA Margin Companies
Slide 78: M&A Organizational Structure
M&A Organizational Structure 77
Slide 79: Lead Generation is a Systematic Process
Lead Generation is a Systematic Process Cold Calling / Internet Searches Privately Held Conferences / Shows Strategic OEM Visit, Visit, Visit! Auction Networking 78
Slide 80: What We Don't Look For
What We Don’t Look For • Synergy • Bigger is better • Market share • Globalization • Fill out product line • Diversify • Excess capacity • Consolidating Industry • Access to markets • Spend $ to make $ • Blah, Blah, blah • Blah, Blah, blah • Get fee • Name in Paper • Get promoted • Increase salary •
Slide 81: What We DO Look For
What We DO Look For Increase Shareholder Value 80
Slide 82: Focused Acquisition Strategy
Focused Acquisition Strategy Aerospace products Proprietary engineered products Significant aftermarket content 81
Slide 83: Active Acquisition Process
Active Acquisition Process Typical Results Typical Multiple: 9 – 12x EBITDA Post Acquisition: 50%+ multiple reduction 82
Slide 84: Formal Acquisition Process
Formal Acquisition Process Teaser Confidentiality Agreement Offering Document Expression of Interest Management Meeting Due Diligence 2nd Round Bid Down Select Negotiate Contract Financing Close Deal 83
Slide 85: Informal Acquisition Process
Informal Acquisition Process Build Trust Letter of Intent Contract Due Diligence Close Deal 84
Slide 86: Due Diligence
Due Diligence Finance / MIS Sales Income Statements Customers/Markets Goal – validate model Balance Sheets Platforms Look for liabilities/problems Inventory/Valuation Competitors Cost System LTAs MIS System Pricing AR/AP Sales force Liabilities Distribution Engineering Operations Technology MRP/Plan
Slide 87: Common Issues
Common Issues Excessive costs Sub optimal pricing Unfocused new business process 86
Slide 88: Revenue Forecast
Revenue Forecast Base Revenue OEM Aftermarket Shipset Model 87
Slide 89: Detailed Pricing Review
Detailed Pricing Review Market Channel Typical Actions Commercial OEM OEM Review Defense OEM Spares Increased Commercial Aftermarket Repairs Increased Defense Aftermarket $$$$ 88
Slide 90: Productivity
Productivity Fast Improvement Slower Improvement 89
Slide 91: Additional Equity Created (Sample)
Additional Equity Created Value Creation Beginning EBITDA $ 16.5 Real Price 6.3 Inflation 2.9 Productivity 7.0 Market Growth (0.4) New Business 2.0 Target EBITDA $ 34.3 Source of Equity Debt Repayment 55.8 Operating Improvement 157.7 Total $ 213.5 $/Share $ 4.95 Note: $/Share calculated by taking th
Slide 92: Investment Evaluation (Sample)
Investment Evaluation Purchase Price / Capital Structure EBITDA $ 16,500 Multiple 10.0 Purchase Price $165,000 Fees $1,750 Total Purchase Price $166,750 Leverage Multiple 5.5 Debt 5.5x Current Year EBITDA $90,750 Equity Required $76,000 Total $166,750 Debt & Equity Investment Year 1 Year 2 Year 3 Ye
Slide 93: Acquisition Integration Process
ACQUISITION INTEGRATION PROCESS ROBERT S. HENDERSON
Slide 94: Now That We Own It – What Do We Do?
Acquisition Integration Process Now That We Own It WHAT DO WE DO?! 93
Slide 95: Acquisition Integration Process - General
Acquisition Integration Process ‐ General Basics – All Acquisitions are Different • Past Operating History Impacts Model and Integration Needs/Process • Different Value Generation Approaches in Acquisition Model • Consolidate or Stand Alone – Productivity Opportunities • Contractual Opportunities &
Slide 96: Acquisition Integration Process - Timeline
Acquisition Integration Process ‐ Timeline Time After Actions ‐ General Acquisition (days) Present TransDigm, Our Culture and Value Generation Strategy 0 ‐ 30 Control Working Capital and Establish Financial Plan 0 ‐ 90 Evaluate Key Staff Personnel Competency 0 ‐ 30 Review OE/AM Contracts and
Slide 97: Arkwin Industries Inc. Westbury, NY
Arkwin Industries Inc. Westbury, NY 96
Slide 98: Whippany Actuation Systems Whippany, NJ
Whippany Actuation Systems Whippany, NJ 97
Slide 99: Airborne Systems
Airborne Systems Llangeinor, Wales UK Pennsauken, NJ Santa Ana, CA Llangeinor , Wales UK Bridgend, Wales UK Bridgend, Wales UK 98
Slide 100: Elektro-Metall Ingolstadt, Germany Paks, Hungary
Elektro‐Metall Ingolstadt, Germany Paks, Hungary 99
Slide 101: Aero-Instruments & Aerosonic Corporation
Aero‐Instruments & Aerosonic Corporation Clearwater, Florida Cleveland, Ohio 100 100
Slide 102: Product Presentation Breakout
Product Presentation Breakout Presentations Covering Starting Location John F. Leary Executive Vice President Willard F. Hagan President, AmSafe Passenger Restraints Group – A Joel Reiss President, Hartwell Corporation Petit Salon Richard Olszewski Director of Sales, Arkwin Industries Jack Stiffler
Slide 103: Financial Overview & Executive Compensation
FINANCIAL OVERVIEW & EXECUTIVE COMPENSATION GREGORY RUFUS
Slide 104: GAAP Financial Highlights
GAAP Financial Highlights SALES EBITDA EBITDA ENTERPRISE (3) (IN MILLIONS) AS DEFINED AS DEFINED VALUE (IN MILLIONS) MARGIN (IN BILLIONS) (1) $2,342 (1) $1,068 $16 49.7% 49.2% $1,924 48.9% (2) $900 ≈ 48% $1,700 $13 $809 47.6% $11 46.8% $1,206 $590 $7 $412 45.2%(1) $828 $762 $375 $5 $3 09 10 11 12 13
Slide 105: Significant Free Cash Flow
Significant Free Cash Flow Free Cash Flow Before WC Exceeds 50% of EBITDA As Defined 100% 90% 80% 54% 56% 56% 60% 61% 57% ≈ +/‐ 50%% 70% 60% 50% 50% 40% 30% 20% 10% 0% 2009 2010 2011 2012 2013 2014 LTM Post Financing 3/29/14 Expectation Cash Interest Cap Ex Cash Taxes Free Cash Flow Note: Free Cash
Slide 106: TransDigm Deleveraging Profile
TransDigm Deleveraging Profile (Net Debt / PF EBITDA As Defined) Refi & Dividend 7.0x 6.5x Warburg Special McKechnie Dividend Pincus Acquisition 6.0x Recap 5.5x IPO Special 5.0x Recap & AmSafe Dividend Dividend Acquisition 4.5x 4.0x 3.5x 3.0x 2.5x 2.0x 1.5x 1.0x 0.5x – 07/03 FY03 FY04 FY05 4/06 FY06
Slide 107: Pro Forma Capitalization Structure
Pro Forma Capitalization Structure ($ in millions) Actual Cum. net Pro forma Cum. net 3/29/14 EBITDA mult. 3/29/14 EBITDA mult. Rate Maturity Cash $476 $656 $420m revolver – – – – L + 3.00% Feb 20 $225m AR securitization facility – – 200 – L + 0.75% Oct 14 First lien term loan B‐2 due 2017 495 0.0x
Slide 108: Sources and Uses of Recent Financing
Sources and Uses of Recent Financing Sources & Uses ($ in millions) Sources AR securitization facility $200 New first lien term loan D due 2021 825 New senior subordinated notes due 2022 1,150 New senior subordinated notes due 2024 1,200 Total sources $3,375 Uses Dividend to stockholders and related
Slide 109: Dry Powder Available for Acquisitions
Dry Powder Available for Acquisitions Dry Powder in Excess of $1.5 B Available Immediately After Dividend Pro Forma Cash 3/29/2014 $ 650 Undrawn Revolver 410 Additional Borrowing Available Under Credit Agreement ≈ 550 Dry Powder Available for Acquisitions ≈ $ 1,610 108
Slide 110: Debt Maturity Profile and Interest Rates
Debt Maturity Profile and Interest Rates Old Debt Maturity Profile ($MM) 4,000 3,129 Weighted Average 3,000 Interest Rate 2,000 1,600 Pre-Financing 1,000 495 500 0 5.7% 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 New Pro Forma Debt Maturity Profile ($MM) 4,000 3,129 Weighted Average 3,000
Slide 111: Dividends – Return of Capital %
Dividends – Return of Capital % % Return of Capital vs Dividend Income November 2012 July 2013 June 2014 $12.85 $22.00 $25.00 100% ≈ 93% ≈ 85% Dividend Income Return of Capital Return of Capital Current Estimate Current Estimate 110
Slide 112: Executive Compensation Discussion
Executive Compensation Discussion 111
Slide 113: Say on Pay Overview
Say on Pay Overview ISS % of Votes Cast Fiscal Year Recommended FOR SOP SOP Vote 2011 AGAINST 54.3% 2012 FOR 96.7% 2013 AGAINST 65.4% No Material Change in Executive Compensation Plan in FY ’11, ‘12 or ‘13 112
Slide 114: Key to our Culture
Unique Compensation Concept – “Think/act like an owner” Key to our Culture Low ` High Low ` High Cash Compensation Equity Based Compensation 100% Performance Vesting 100% Shareholder Alignment 113
Slide 115: 100% Shareholder Alignment – Private Equity Model
100% Shareholder Alignment – Private Equity Model FY 2013 Dividends FY 2014 Dividends Paid ≈ 27%of Beginning FY 13 Market Cap Paid ≈ 19% of Beginning FY 14 Market Cap $141.87 $1.85 $138.70 Billion $1.32 Billion $34.85 $171 $25.00 $22.00 Million $106 Million $12.85 9/28/2012 Dividends Shareholders Ma
Slide 116: Executive Compensation Philosophy: Low Cash, High Performance-Based Equity
Executive Compensation Philosophy: Low Cash Compensation, High Performance‐Based Equity Executive Compensation Key Takeaways (in millions $) Salary and bonus small % of total 65 compensation 60 55 Performance-based compensation is 50 consistently vast majority of total 45 compensation 40 35 Bi
Slide 117: 2013 Key Compensation Highlights
2013 Key Compensation Highlights 2% Salary / Other FY 13 CEO Compensation Only Non-Performance-Based Component 98% Performance-Based - Set well below median of peer group - Strategy to primarily compensate in equity 2% Bonus Salary / Other Based on Achieved Performance Bonus Option Grants DEP 25% St
Slide 118: Option Vesting Requirements
Option Vesting Requirements Vesting Scale 100% V E Zero Vesting S 75% thru 9.9% IRR T I 50% N G 25% Ratable Vesting R between 10% thru A 17.5% IRR T 0% 0% 10% 17.5%20% E INTRINSIC IRR VALUE 17.5% to Fully Vest 117
Slide 119: TransDigm Performance Option Vesting Target vs. Private Funds
TransDigm Performance Option Vesting Target vs. Private Funds IRR Comparison TDG Target vs. Private Equity 18.0% 17.5% 16.0% 14.8% 14.0% 5 Year IRR 12.0% 10.0% 9.4% 8.0% 6.0% 4.0% Private Equity Mean (1) Private Equity Top Quartile (2) TDG Target to Fully Vest (3) (1) 5 Yr Average IRR Private Equity
Slide 120: Dividend Equivalent Payment Logic
Dividend Equivalent Payment Logic Dividend Equivalent Payments (DEPs) Align Management with the Stockholders to Permit the Best Allocation of Capital Resources and Incentivize Long-Term Shareholder Returns DEPs align management with stockholders to preserve value of equity-based incentives intende
Slide 121: Dividend Equivalent Payments – Performance Based Compensation
Dividend Equivalent Payments – Performance Based Compensation Two Performance Criteria Must Occur to Facilitate Dividend Equivalent Payments 1 – Performance Based Option Must Vest to Receive Dividend Equivalent Payment Options vest upon meeting intrinsic share price growth or significant market gr
Slide 122: Consistent Value Creation
Consistent Value Creation Consistent Financial Performance Strong Cash Flow Generation “Private Equity- Like” Returns with Efficient Capital Structure Public Liquidity Maintain Adequate Balance Sheet Capacity Align Management with Shareholders 121
Slide 123: Panel Q&A
TRANSDIGM PANELQ&A
Slide 124: Appendix
TRANSDIGM APPENDIX
Slide 125: Reconciliation of EBITDA and EBITDA As Defined to Net Income
Reconciliation of EBITDA and EBITDA As Defined to Net Income ($ in millions) LTM 3/29 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Income from continuing ops. ($5) $0 $1 $3 $14 ($17) $11 $14 $31 ($76) $14 $35 $25 $89 $133 $163 $163 $152 $32
Slide 126: Reconciliation of EBITDA As Defined to Net Cash Provided by Operating Activities
Reconciliation of EBITDA As Defined to Net Cash Provided by Operating Activities ($ in millions) LTM Fiscal Year Ended September 30, 3/29 2009 2010 2011 2012 2013 2014 Net cash provided by operating activities $197 $197 $261 $414 $470 $493 Changes in assets and liabilities, net of effects from acqui
Slide 127: Reconciliation of Significant Free Cash Flow
Reconciliation of Significant Free Cash Flow ($ in millions) Fiscal Year Ended September 30, LTM 2009 2010 2011 2012 2013 3/29/2014 EBITDA As Defined $375 $412 $590 $809 $900 $987 CapEx ($13) ($13) ($18) ($25) ($36) ($37) Cash Interest Expense ($82) ($98) ($156) ($198) ($237) ($255) Cash Taxes ($75)
Slide 128: 2014 Analyst Day
2014 ANALYST DAY JUNE 25, 2014