UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 1, 2008
TransDigm Group Incorporated
(Exact name of registrant as specified in its charter)
| Delaware | 333-130483 | 51-0484716 | ||
| (State or other jurisdiction of incorporation) |
(Commission File Number) | (IRS Employer Identification No.) |
| 1301 East 9th Street, Suite 3710, Cleveland, Ohio | 44114 | |
| (Address of principal executive offices) | (Zip Code) |
(216) 706-2939
(Registrant’s telephone number, including area code)
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
| ¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 7.01. Regulation FD Disclosure
Attached hereto as Exhibit 99.1 are materials to be used by members of management of TransDigm Group Incorporated in investor presentations at the Company’s analyst day on Tuesday, July 1, 2008.
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
This document contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Act of 1934 as amended. These include statements as to future financial and operating results, and projected earnings per share impact of the proposed amendment as well as any other statements regarding future results or expectations. All statements other than statements of historical fact that address activities, events or developments that we expect, believe or anticipate will or may occur in the future are forward-looking statements, including, in particular, statements about our plans, objectives, strategies and prospects regarding, among other things, our financial condition, results of operations, and business. We have identified some of these forward-looking statements with words like “believe,” “may,” “will,” “should,” “expect,” “intend,” “plan,” “predict,” “anticipate,” “estimate,” “forecast” or “continue” and other words and terms of similar meaning. All forward-looking statements involve risks and uncertainties which could affect TransDigm Group’s actual results and could cause its actual results to differ materially from those expressed in any forward-looking statements made by, or on behalf of, TransDigm Group. These risks and uncertainties include but are not limited to: future terrorist attacks; a decrease in flight hours and our customers’ profitability, both of which are impacted by general economic conditions; our substantial indebtedness; our reliance on certain customers; our fixed price contracts; the U.S. defense budget and risks associated with being a government supplier; failure to maintain government or industry approvals; the pricing review to which certain of our divisions and subsidiaries have been subject; failure to complete or successfully integrate acquisitions; future sales of common stock in the market caused by the substantial amount of stock held by affiliates; and other factors. Further information regarding the important factors that could cause actual results to differ materially from projected results can be found in TransDigm Group’s Annual Report on Form 10-K and any other reports that TransDigm Group or its subsidiaries have filed with the Securities and Exchange Commission. Except as required by law, TransDigm Group undertakes no obligation to revise or update the forward-looking statements contained in this investor presentation.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits
The following exhibits are being filed with this Current Report on Form 8-K:
| Exhibit No. 99.1 | Investor Presentation |
2
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| TRANSDIGM GROUP INCORPORATED | ||
| By | /s/ Gregory Rufus | |
| Gregory Rufus | ||
| Executive Vice President and Chief Financial Officer | ||
Date: July 1, 2008
3
Exhibit Index
| Exhibit No. 99.1 | Investor Presentation |
4
 Analyst Day July 1, 2008 Exhibit 99.1 |
 1 The following information contains forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. These
forward-looking statements are based on management’s current
expectations and beliefs, as well as a number of assumptions concerning future events. These statements are subject to risks, uncertainties, assumptions and
other important factors. You are cautioned not to put undue reliance on such
forward-looking statements because actual results may vary materially from those expressed or implied. The reports filed by TransDigm Group Incorporated pursuant to United States securities laws contain discussions of some of these risks and uncertainties. TransDigm Group Incorporated assumes no obligation to, and expressly disclaims any obligation to, update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. You are
advised to review our filings with the United States Securities and Exchange
Commission. Forward Looking Statements |
 2 Welcome Sean Maroney TDG Overview Nick Howley Management Ray Laubenthal Process Operating Units Bob Henderson M&A Al Rodriguez Financial Information Greg Rufus Q&A Agenda |
 TDG
Overview W. Nicholas Howley |
 4 Proven track record Managed the business through multiple cycles Experience with a leveraged capital structure Deep bench Collectively owns significant equity Experienced Operations with Proven Track Record W. Nicholas Howley Chairman & CEO 1993 Gregory Rufus Executive VP – CFO 2000 Raymond F. Laubenthal President & COO 1993 Robert S. Henderson Executive VP – President AdelWiggins Group 1994 Albert J. Rodriguez Executive VP – Mergers & Acquisitions 1993 James Riley President, AeroControlex Group 1994 EXECUTIVE TITLE YEAR HIRED |
 5 TransDigm Overview Highly engineered aerospace components Proprietary and sole source products Significant aftermarket content High free cash flow (1) Midpoint of May 6, 2008 guidance (excluding CEF Industries) (2) EBITDA As Defined represents EBITDA plus acquisition related costs, non-cash compensation and
deferred compensation costs, public offering costs and other non-cash expenses. ($ in millions) BUSINESS DISTINGUISHING CHARACTERISTICS 9/30/08 E Revenue: $705 EBITDA As Defined (2) : $329 EBITDA As Defined Margin: 46% Formed: 1993 (1) |
 6 Batteries Pumps Transducers Controls/Actuators Main Bus Voltage Harmonic Filter Ignition Systems Highly Engineered Niche Products Rudder Isolation Valves Inverters |
 7 Fluid Products Cockpit Security Systems Engineered Connectors Bin Latches Cockpit LCD Display Highly Engineered Niche Products Motors Flight Deck Audio Controls & Systems Linear Actuator |
 8 Investment Highlights Favorable industry dynamics Niche market positions High margin aftermarket Diverse mix Experienced management team Demonstrated value generation Proven acquisition / integration Market growth New business Acquisitions Value pricing Productivity Consistent Growth and Value Creation ATTRACTIVE MARKET POSITION PROVEN OPERATING STRATEGY MULTIPLE GROWTH PATHS |
 9 Proven Record of Growth and Margin Expansion ($ in millions) % of Sales 20%
19% 23% 27% 31% 39% 39% 36%
36% 39% 42% 46% 44% 45% 46% 46% (1) EBITDA As Defined is a non-GAAP financial measure presented here as supplemental
disclosures to net income. For a presentation of the most directly
comparable GAAP measure and a reconciliation of EBITDA As Defined, please see appendix. (2) Midpoint of May 6, 2008 guidance (excluding CEF Industries) (2) $48 $10 $52 $10 $57 $13 $63 $17 $78 $25 $111 $44 $131 $51 $151 $54 $201 $72 $249 $98 $293 $124 $301 $139 $374 $164 $435 $194 $593 $275 $705 $329 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08E Revenue EBITDA As Defined (1) |
 10 |
 11 Why Did we Perform Thru 9/11? I. 3 Value Drivers 1. Cost Reduction 10% / 15% Reduction within 45 days 2. Pricing 3. New Business Cockpit security II. Acquisitions 1. Honeywell pump & Champion – 2001 III. Military |
 12 Source: Air Transport Association, Airline Monitor. WORLDWIDE REVENUE PASSENGER MILES (billions of miles) Steady Growth in Passenger Traffic Drives Stable Aftermarket Sales . . . |
 13 North America Europe Asia World Analyst # 1 -2% 1% 6% 2% Analyst # 2 - 4% -1% 7% 1% Analyst # 3 0% Average -3% 0% 7% 1% Recent Analyst Forecast 2009 RPM Growth First half of FY 2009 down more TDG modestly Boeing weighted Potential over reactions by A/L |
 14 . . . Despite Market Disruptions 14 25 Domestic 25 Domestic Bankruptcies Bankruptcies US Airways US Airways Delta Air Lines Delta Air Lines Northwest Airlines Northwest Airlines Aloha Airlines Aloha Airlines Southeast Airlines Southeast Airlines |
 15 0 250 500 750 1,000 1,250 1,500 '96 '98 '00 '02 '04 '06 '08E '10E …with a Positive Outlook for OEM Production COMMERCIAL TRANSPORTS Source: Wall Street Research / Airline Monitor / Management estimates. REGIONAL & BUSINESS JETS 0 250 500 750 1,000 1,250 1,500 '96 '98 '00 '02 '04 '06 '08E '10E Regional Jet Business Jet (units delivered) (units delivered) |
 16 Stable Outlook for Military Spending $165.3 $174.4 $180.6 $184.4 $0 $20 $40 $60 $80 $100 $120 $140 $160 $180 $200 '08 '09 '10 '11 O&M BUDGET ($ in billions) Source: National Defense Budget Estimates for FY 2008 |
 17 Significant Barriers to Entry Selection / Qualification Process FAA Certification Niche Markets Risk / Reward Trade-Off |
 18 Recurring Stream of Profitable Aftermarket Revenue 5 10 15 20 25 30 35 40 45 50 55 60 65 70 Profitability / % of Sales Airframe Program Life Cycle (Years) Aftermarket OE Production |
 Other Aftmkt
1% Comm Aerospace OEM 29% Def Aerospace Aftmkt 15% Other OEM 2% Def Aerospace OEM 9% Comm Aerospace Aftmkt 44% 19 Aftermarket OEM Strong Focus on High-Margin Aftermarket NET SALES EBITDA Based on management estimates for the fiscal year ended 9/30/07. Approximately 60% of pro forma net sales and a much higher percentage of EBITDA are from the stable, high-margin aftermarket. |
 Sole Source 80% Non-Sole Source 20% 20 Significant Proprietary and Sole Source Revenue Base Proprietary 95% Non-Proprietary 5% Proprietary Proprietary and and sole sole source source products products represent represent a a significant significant barrier barrier to to entry entry and and a a stable, stable, recurring recurring revenue revenue stream. stream. PROPRIETARY SALES SOLE SOURCE SALES Based on management estimates of pro forma sales for the fiscal year ended
9/30/07. |
 21 Strong Positions on Diverse and Growing Platforms TOP 15 PLATFORMS B737 A320 B747 B777 CRJ Family B767 A330/A340 Cessna Citation Series Gulfstream Series Learjet Series F-18 Embraer RJ Family Challenger Family B757 Apache Helicopter 28% sales 15% sales 8% sales Based on management estimates of pro forma sales for the fiscal year ended
9/30/07. |
 22 DC9/MD80 737 Classics 727 747 Classics * Based on management estimates of pro forma sales for the fiscal year ended
9/30/07. Modest Exposure to Old Platforms 3% Revenue * 1.5% Revenue * |
 23 Proven Operating Strategy Profitable new business Productivity and cost improvement Value-based pricing 3 Value Drivers |
 24 Proven Record of Acquisition & Integration 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Adams Rite Aerospace Christie Champion Honeywell Lube Pump Fuelcom Norco Adel Aeroproducts Wiggins Controlex Marathon Avionic Instruments Skurka Fluid Regulators Eaton Motor Products 2006 2007 Sweeney Electra-Motion CDA InterCorp. Avtech ADS/Transicoil Bruce CEF Management has acquired 22 businesses since 1993, Management has acquired 22 businesses since 1993, including five since October 2006. including five since October 2006. 2008 |
 Management Process Raymond F. Laubenthal |
 26 Organizational Philosophy Corporate Control Local Autonomy Economy of Scale Mgmt Resources Value Generation Strategy Structure Execution Motivation Central Control Local Autonomy Emp- loyees Owners CORPORATE OPERATING UNIT |
 Corporate Structure 27 |
 Division Organization Structure 28 |
 29 Proven Operating Strategy Profitable new business Productivity and cost improvement Value-based pricing 3 Value Drivers Operating Unit Accountability Value driven down through each Product Line Mid-Quarter and Quarter- End Reporting Emphasize Value Creation, Ownership and Accountability |
  30 Product Line Detail Focus Product Team Structure P&L Financial Reporting Value Driver Accountability Attention to Detail: Focus Product Line Value Generation Value Drivers Product Manager Materials Lead Manufacturing Lead Engineering Lead Product Line Team |
 Management Process – Product Line Value Reporting Tools 31 New Business Consistent Product Line Metrics Accountability Quarterly Mid Quarterly |
 Product Line Income Statement FY 2007 % to Q1 08 % to Q2 08 % to Q3 08 % to Q4 08 % to YTD Fcst % to YTD Plan % to Actual Sls Actual Sls Actual Sls Fcst Sls Fcst Sls Through Q3 Sls Through Q3 Sls Top Line Activity: 1,172 3.3% New Biz Bookings 372 4.6% 307 3.1% 480 4.8% 195 1.8% 1,159 4.1% 639 2.5% 38,648 109.8% Total Bookings 7,529 92.6% 13,081 131.4% 10,218 102.0% 10,619 99.4% 30,828 109.7% 27,832 107.2% 35,195 100.0% Sales 8,133 100.0% 9,957 100.0% 10,019 100.0% 10,678 100.0% 28,109 100.0% 25,974 100.0% Product Costs: 8,696 24.7% Material 2,049 25.2% 2,408 24.2% 2,584 25.8% 2,791 26.1% 7,041 25.0% 6,692 25.8% 2,678 7.6% Direct Labor 659 8.1% 770 7.7% 830 8.3% 850 8.0% 2,259 8.0% 1,924 7.4% 6,667 18.9% Overhead 1,349 16.6% 2,005 20.1% 2,047 20.4% 2,068 19.4% 5,401 19.2% 4,868 18.7% 928 2.6% Depreciation 219 2.7% 216 2.2% 215 2.1% 220 2.1% 650 2.3% 628 2.4% - 0.0% Other - 0.0% - 0.0% - 0.0% - 0.0% - 0.0% - 0.0% 18,969 53.9% Total Product Costs 4,276 52.6% 5,399 54.2% 5,676 56.7% 5,929 55.5% 15,351 54.6% 14,112 54.3% 16,226 46.1% Gross Profit 3,857 47.4% 4,558 45.8% 4,343 43.3% 4,749 44.5% 12,758 45.4% 11,862 45.7% G&A Costs: 60 0.2% Engineering 15 0.2% 15 0.2% 16 0.2% 16 0.1% 46 0.2% 48 0.2% 649 1.8% Sales 184 2.3% 177 1.8% 188 1.9% 188 1.8% 549 2.0% 562 2.2% 1,213 3.4% Admin 216 2.7% 203 2.0% 218 2.2% 222 2.1% 637 2.3% 641 2.5% (41) -0.1% Other (2) 0.0% 2 0.0% - 0.0% - 0.0% - 0.0% - 0.0% 64 0.2% Depreciation 16 0.2% 17 0.2% 17 0.2% 17 0.2% 50 0.2% 20 0.1% 1,945 5.5% Total G&A Costs 429 5.3% 414 4.2% 439 4.4% 443 4.1% 1,282 4.6% 1,271 4.9% 14,281 40.6% Product Line EBIT 3,428 42.1% 4,144 41.6% 3,904 39.0% 4,306 40.3% 11,476 40.8% 10,591 40.8% 15,273 43.4% Product Line EBITDA 3,663 45.0% 4,377 44.0% 4,136 41.3% 4,543 42.5% 12,176 43.3% 11,239 43.3% 1,874 5.3% Ttl Sales & Eng. Exp. 523 6.4% 586 5.9% 646 6.4% 646 6.0% 1,755 6.2% 1,816 7.0% 8,933 Ending 90day backlog 9,601 9,269 10,050 110% % to Nxt Qtr Sls 96% 93% 94% SAMPLE 32 |
 Pricing 0.0% 5.0% 10.0% Comm Transp Reg Bus Jet Defense OEM Comm Aftmkt Gov Aftmkt Total YTD FY Plan Inflation YTD Product Line “A” Pricing Results SAMPLE 33 |
 New
Business - Bookings ($K) Major Activities for the Quarter: Captured New Engine Application Won New Bus Jet Airframe Application Delivered New Airframe Prototype SAMPLE 34 Cessna Citation III |
 0 5,000 10,000 15,000 20,000 Q3 '07 Q4 '07 Q1 '08 Q2'08 Q3 '08 A/B Trend ($K) A B 0 5 10 15 3Q07 4Q07 1Q08 2Q08 Q308 Prototype Trend New Business - Pipeline SAMPLE Program Customer P/N 3 Yr. Pot. $000 Q1 2008 Q2 2008 Q3 2008 Q4 2008 2008 Bookings Forecast A Project A Various XXXX-X $5,715 $0 $52 $60 $65 $177 A Project B Various XXXX-X $1,029 $0 $20 $20 $20 $60 A Project C Various XXXX-X $1,019 $18 $64 $120 $75 $277 A Project D Various XXXX-X $1,057 $0 $0 $0 $15 $15 A Project E Various XXXX-X $2,079 $0 $28 $20 $40 $88 A Project F Various XXXX-X $1,815 $0 $14 $20 $25 $59 A Project G Various XXXX-X $429 $0 $0 $0 $15 $15 A Project H Various XXXX-X $434 $0 $0 $0 $30 $30 A Project I Various XXXX-X $572 $2 $10 $15 $20 $47 A Project J Various XXXX-X $504 $16 $10 $15 $15 $56 A Project K Various XXXX-X $889 $0 $5 $10 $10 $25 A Project L Various XXXX-X $219 $0 $0 $0 $25 $25 A Project M Various XXXX-X $715 $0 $0 $10 $10 $20 A Project N Various Multiple $0 $2 $35 $40 $40 $117 A Other - Industrial Apps Various Various $1,000 $71 $199 $179 $75 $524 Total "A" Pgms $17,478 $109 $437 $509 $480 $1,535 B Project O Various XXXX-X $2,288 $0 $0 $0 $0 $0 B Project P Various TBD $200 $0 $0 $0 $0 $0 B Project Q Various TBD $200 $0 $0 $0 $0 $0 B Project R Confidential XXXX-X $150 $0 $0 $0 $25 $25 B Project S Various Various $900 $0 $0 $0 $0 $0 B Project T Confidential Various $750 $0 $0 $0 $0 $0 B Project U Confidential Various $0 $0 $0 $0 $0 $0 B Project V Confidential XXXX-X $1,500 $0 $0 $115 $100 $215 B Project W Confidential Various $0 $0 $0 $0 $0 $0 Total "B" Pgms $5,988 $0 $0 $115 $125 $240 Total "A & B" Pgms $23,466 $109 $437 $624 $605 $1,775 35 |
 Productivity Plan Forecast Cross Training 50 85 Outsourcing Savings 150 225 Cell Weighing Project 0 50 Sintering Inline Measuring 50 29 Automatic Brusher 33 35 Lean Mfg Dept 360 30 32 Heat Treat Savings 0 18 Automatic Plate Loader 14 22 Load Testing Automation 20 25 Auto Inkjet Part Marking 15 18 All Other Projects 175 242 2008 Total 537 781 Productivity ($000) Sales Per Head (Adjusted for Price) 240 $252 $268 $277 195 187 190 185 150 200 250 300 FY '06 FY '07 YTD Plan YTD F/C 150 200 250 300 SAMPLE 36 |
 Talent Development 37 |
 Talent Demand Organic Growth & Mgt. Turnover Acquired Growth & Mgt. Transitions Growth Requires Talent 38 |
 Talent Development & Talent Inventory Management Quarterly Update by Operating Unit Roster by Management Level Bench Strength Development Actions Press Weed-out Actions Press Recruiting Efforts Press for ACTION and CHANGE 39 |
 Weed-out or Promote Talent Pool Weed-out Develop Expand Test Promote Individual Effectiveness Talent Distribution & Action High Low 40 |
 Succession Sort, Develop, Promote President Dir of S&M Dir of Eng Dir of Mfg. Controller Prod Line Mgr Mfg Mgr Eng Lead HR, QC Other President Dir of S&M Dir of Eng Dir of Mfg. Controller Prod Line Mgr Mfg Mgr Eng Lead HR, QC Other New Acquisition Existing Unit OR Key Positions: Dir S&M Dir Mfg Prod. Line Mgr Mfg. Manager President Dir of S&M Dir of Eng Dir of Mfg. Controller Prod Line Mgr Mfg Mgr Eng Lead HR, QC Other President Dir of S&M Dir of Eng Dir of Mfg. Controller Prod Line Mgr Mfg Mgr Eng Lead HR, QC Other 41 |
 Recent Internal Succession & Growth Activity Recent Promotions: 2006 thru 2008 Presidents & Significant Corp. Positions 14 Op Unit Staff Directors & Managers 25 Product Line & Significant Managers 30 42 |
 43 |
 Acquisition Integration 44 Acquisition Value Creation |
 45 Proven Acquisition Integration Incorporate TDG Pricing Methods Right-size the Cost Structure Focus the New Business Organize Into Product Lines Add Value Driver Metrics Align Financial Reporting Acquisition Value Generation $6.0 $2.8 $1.7 $1.5 $12.0 $0 $2 $4 $6 $8 $10 $12 $14 Acquired EBITDA Price Prod. Volume Expected EBITDA EBITDA Margin 21.0%
42.0% |
 Performance Stability 46 Consistent Value Creation Strategy Product Line Detail Focus Active Talent Growth Disciplined Acquisition Integration Solid Value Growth Process |
 Operating Units Robert S. Henderson |
  12
Operating Units 12 Operating Units 34 Product Lines 34 Product Lines $705 M Revenue $705 M Revenue TransDigm Group Inc. 48 |
 Common Distinguishing Characteristics 49 Aerospace components Proprietary engineered products Significant aftermarket content Results in High Cash Flow and EBITDA |
 50 AeroControlex CDA Champion MarathonNorco ADS/Transicoil AI2 Avtech Bruce Skurka AdelWiggins Adams Rite CEF Transdigm Group - Locations |
 51 TransDigm Locations – Adams Rite Aerospace Fullerton, CA |
 52 TransDigm Location – AeroControlex Group Painesville, OH |
 53 TransDigm Locations – Champion Aerospace Liberty, SC |
 54 TransDigm Location – AdelWiggins Group Commerce, CA |
 55 TransDigm Locations – Avionic Instruments Avenel, NJ Avionic Instruments Inc |
 56 TransDigm Location – Skurka Aerospace Camarillo, CA |
 57 TransDigm Locations – CDA Intercorp Deerfield Beach, FL CDA InterCorp |
 58 Waco, TX TransDigm Locations – MarathonNorco Aerospace |
 59 TransDigm Location – ADS/Transicoil Collegeville, PA |
 60 TransDigm Location – Avtech Seattle, WA |
 61 TransDigm Location – Bruce Aerospace Dayton, NV |
 TransDigm Location – CEF Industries 62 Addison, IL |
 63 Recurring Stream of Profitable Aftermarket Revenue 5 10 15 20 25 30 35 40 45 50 55 60 65 70 Profitability/% of Sales Airframe Program Life Cycle (Years) Aftermarket OE Production |
 Life Cycle Revenue Stream 64 Low OEM Revenue / Margin High Spares Parts Generation / Margin |
 Life Cycle Revenue Stream 65 Aftermarket Various Components Replaced on average every 5 years High annual average spare parts sales Aftermarket revenue 70 to 100x OEM revenue |
 Life Cycle Revenue Stream Low OEM Revenue / Negative Margin Consumable – High Aftermarket Sales / Margin 66 |
 Life Cycle Revenue Stream Replaced / Consumed Annually Aftermarket Revenue 100 to 150x OEM Revenue 67 |
 Life Cycle Revenue Stream 68 Low OEM Revenue / Margin High Spares Parts Generation / Margin |
 Life Cycle Revenue Stream 69 Aftermarket Various Components Replaced as needed High annual average spare parts sales Aftermarket revenue 50 to 100x OEM revenue |
 Diverse Products, Platforms and Markets 70 |
 Mergers & Acquisitions Albert J. Rodriguez |
 72 Focused Acquisition Strategy KEY ACQUISITION CRITERIA Aerospace components Proprietary engineered products Significant aftermarket content |
 Significant Opportunities to Complete Accretive Acquisitions EBITDA Margin Distribution Annual Revenue $/Yr. OPPORTUNITY TO CREATE VALUE (1) FRAGMENTED BASE (1) 0% 5% 10% 15% 20% 25% 30% 35% 0-5% 6-10% 11-15% 16-20% 21-25% 26-30% 31-35% 36-40% 0% 10% 20% 30% 40% 50% 60% < $10M $10-$40M $40-$150M $150 Mil + (1) Estimated population = 2,000 businesses . Distribution percentages are
management estimates adjusted for inflation. 73
|
 Proven Record of Acquisition & Integration 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Adams Rite Aerospace Christie Champion Honeywell Lube Pump Fuelcom Norco Adel Aeroproducts Wiggins Controlex Marathon Avionic Instruments Skurka Fluid Regulators Eaton Motor Products 2006 2007 Sweeney Electra-Motion CDA InterCorp. Avtech ADS/Transicoil Bruce CEF Industries Management has acquired 22 businesses since 1993, Management has acquired 22 businesses since 1993, including five since October 2006. including five since October 2006. 2008 74 |
 75 Organization Structure A. Rodriguez K. Kates C. Egan Broker U.K. R. Williams Broker U.S. Direct Company Contact Investment Bankers Regional Brokers Select OEM’s Direct Company Contact Lead Generation |
 Lead Generation is a Systematic Process Privately Held Strategic OEM Auction 76 |
 Lead Generation Techniques Acquisition Lists Privately Held Strategic OEM Auctions Conferences/Shows Networking Internet Searches Cold Calling = Visit, Visit, Visit! 77 |
 Formal Acquisition Process Teaser Confidentiality Agreement Offering Document Expression of Interest Management Meeting Due Diligence 2 nd Round Bid Down Select Negotiate Contract Financing Close Deal 78 |
 Informal Acquisition Process Close Deal Contract Due Diligence Letter of Intent Build Trust 79 |
 80 Active Acquisition Process 200 Introduction 50 Evaluate 6 Letter of Intent Typical Multiple 6 – 10x EBITDA Post Acquisition 50%+ multiple reduction 2 Closed Closed |
 81 Common Issues/Opportunities Excessive costs Sub optimal pricing Unfocused new business process |
 One
Page “Go” or “Stop” Go Go or or 82 Stop Stop Own/Lease Own / lease Proprietary 80% Sales $88,835 Sq. Ft. 270,000 Sole Source 90% COGS $74,903 Headcount 356 Gross Profit $13,931 Sales/Head $250 % 15.7% SG&A $7,960 OEM % 9.0% Union Hds. - Eurofighter $13,650 EBIT $5,971 Embraer 170/190 $6,750 Market (Nominal) % 6.7% NH90 Helicopter $6,075 Price (Real) 1.0% EBITDA $8,141 A109/119 Helicptr $4,800 Productivity 1.0% % 9.2% Citation X/Sovrgn. $3,300 Ariane 5 Rocket $2,950 Q400 $2,550 Purchase Price $65,124 Helicopters $23,985 Other $20,333 Multiple EBITDA 8.0 Fighter/Trainers $23,097 Total $60,408 Regional Jets $18,655 Business Jets $7,995 Aftermarket Beg. EBITDA $8,141 Aftermarket 32% Other $12,102 R&O Tornado $1,100 Market $0 OEM 68% Non Aerospace $3,000 R&O EH101 Heli. $1,000 Price Real $4,531 R&O AM-X Fighter $900 Productivity $829 Commercial 47% R&O A109/119 $600 FCST EBITDA $13,501 Military 50% Spares Tornado $3,200 Other 3% Spares Tornado $3,200 TD Multiple 10.0 Spares Tornado $1,050 TEV $135,006 Total 100% Sub-total $0 All Other R&O/Spares $17,377 Less Debt $35,000 Total $88,835 Total $28,427 Equity $100,006 32% Aerospace Yes Aftermarket Yes Components Yes Proprietary/Sole Source Market Ratios Financials 2007 Color Legend. Green fits criteria, Yellow may fit criteria, Red doesn't fit criteria. (Blue are input fields below) Platforms Markets Segments Value Assumptions |
 OEM OEM Spares Spares Market Market Trends Trends Real Pricing Real Pricing New Business New Business Total Total Revenue Revenue Revenue Forecast Base Revenue Shipset Model 83 |
 Detailed Pricing Review Market Segment Typical Actions Comm OEM LTAs Reset Spares Incr. Comm Aftmkt Repairs Inc. .. Defense OEM .. .. Defense Aftmkt .. $ P/N by P/N Review 84 |
 Productivity 85 |
 Due
Diligence Goal – validate model Look for liabilities/problems 86 Finance / MIS Sales Income Statements Customers/Markets Balance Sheets Platforms Inventory/Valuation Competitors Cost System LTAs MIS System Pricing AR/AP Sales force Liabilities Distribution Engineering Operations Technology MRP/Planning Sole source Suppliers R&D Projects Routings/process sheets Quality System Equipment/Facility Human Resources Taxes / Legal Management Corporate Structure Salaries Past Tax Returns Benefits Environmental Insurance Licenses Permits Litigation |
 87 |
 Additional Equity Created 88 Beginning EBITDA $8.1 Real Price $3.2 Inflation $0.7 Productivity $2.3 Market Growth ($2.8) New Business $2.0 Target EBITDA $13.5 Source of Equity Multiple Expansion / (Contraction) $27.0 Debt Repayment $22.3 Operating Improvement $43.2 Total $92.5 |
 Investment Evaluation – Example Only Purchase Price / Capital Structure EBITDA $ 8,141 Multiple 8.0 Purchase Price $65,128 Fees $1,954 Total Purchase Price $67,082 Debt 4.5x 2008 EBITDA $36,635 Equity Required $30,447 Total $67,082 Debt & Equity Investment Year 1 Year 2 Year 3 Year 4 Year 5 ($30,447) EBITDA $9,017 $9,987 $11,061 $12,251 $13,501 Multiple 10.0 10.0 10.0 10.0 10.0 TEV $90,167 $99,866 $110,608 $122,506 $135,010 Less debt $(33,028) $(29,033) $(24,609) $(19,709) $(14,308) Market Value $57,139 $70,833 $85,999 $102,797 $120,702 ($30,447) 0 0 0 $0 $120,702 IRR 31.7% 89 |
 90 Actual Performance – Example 1 % EBITDA 0% 15% 30% 45% Yr. 0 Price Productivity Volume Yr. 6 Actions: Replaced management Increased aftermarket prices Reduced personnel 15%-20% Focused new business program 95% Aerospace 95% Proprietary At Acquisition Date 45% Aftermarket |
 91 Actual Performance – Example 2 % EBITDA 20% 25% 30% 35% 40% 45% 50% 55% Year 0 Price Productivity Volume Year 2 Actions: Consolidated into existing TransDigm facility Increased Aftermarket Prices Reduced Personnel 35% Focused development activities 85% Aerospace 90% Proprietary 45% Aftermarket At Acquisition Date |
 Financial Information Greg Rufus |
 93 Proven Record of Growth and Margin Expansion ($ in millions) % of Sales 20%
19% 23% 27% 31% 39% 39% 36%
36% 39% 42% 46% 44% 45% 46% 46% (1) EBITDA As Defined is a non-GAAP financial measure presented here as supplemental
disclosures to net income. For a presentation of the most directly
comparable GAAP measure and a reconciliation of EBITDA As Defined, please see appendix. (2) Midpoint of May 6, 2008 Guidance (excluding CEF Industries). (2) $48 $10 $52 $10 $57 $13 $63 $17 $78 $25 $111 $44 $131 $51 $151 $54 $201 $72 $249 $98 $293 $124 $301 $139 $374 $164 $435 $194 $593 $275 $705 $329 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 E Revenue EBITDA As Defined (1) |
 18.7% 14.8% 46.3% 44.7% 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% LTM EBITDA Margin LTM (EBITDA-Capex) Margin Industry Peers TransDigm 94 Industry Leading Financial Performance Note: LTM data as of 9/30/07. EBITDA for TransDigm is EBITDA As Defined (1) Based on publicly available information. Includes PCP, GR, COB, MGGT, HXL, BEAV, MOG,
ESL, COL, CW, HEI. TransDigm’s EBITDA margin and free cash flow are at the top of the aerospace sector. (1) |
 Commonly Asked Questions 95 Commonly Asked Questions: |
 Commonly Asked Questions 96 What Time Zone are You In? Answer: Ohio has elected to let New York participate in our Eastern Time Zone!!! |
 97 Aftermarket OEM Strong Focus on High-Margin Aftermarket Approximately 60% of pro forma net sales and a much higher percentage of EBITDA are from the stable, high-margin aftermarket. NET SALES EBITDA Based on management estimates for the fiscal year ended 9/30/07. Other Aftmkt 1% Comm Aerospace OEM 29% Def Aerospace Aftmkt 15% Other OEM 2% Def Aerospace OEM 9% Comm Aerospace Aftmkt 44% |
 98 Commercial Aircraft Base |
 99 Reported GAAP Sales vs. Installed Base Source: The Airline Monitor May 2008 United States 76% Foreign 24% 2007 GAAP Sales Installed Base of Comm. Aircraft |
 % Acquisitions (Purchase Accounting, Operating Margin, Integration Costs) OEM vs. Aftermarket Sales Mix Strategic Investment Avg. Quarterly Sales $175M Commercial Aftermarket 45%
Implied Aftermarket Sales $ 79M 100 Margin Fluctuations & Quarterly Comparisons Qtr. Example: $4M = 5% Real World Items Retrofits Timing of Large Shipments Govt. Approval Stocking Order Industry Inventory Changes Example |
 101 Capitalization ($ in millions) Cum. Mult. 9/30/08 E EBITDA % of Cap. Cash 200.0 $ Revolver (1) - - - Term Loan 780.0 2.4 25.7% Senior Subordinated Notes 577.2 1.7 19.0% Total Debt 1,357.2 $ 4.1 44.7% Market Equity (2) 1,677.9 55.3% Total Capitalization 3,035.1 $ 100.0% EBITDA As Defined (3) 328.5 $ Net Debt/EBITDA As Defined 3.5 (1) $198.5 million availability (2) Based on shares outstanding of 48.3 million and a 6/26/08 stock price close of
$34.74. (3) Midpoint of May 6th, 2008 Guidance (excluding CEF Industries)
|
 102 Historical Leverage Ratio (1) Total Debt ÷ Proforma EBITDA as Define (2) Total Debt less cash ÷ Proforma EBITDA as Defined |
 103 Significant Free Cash Flow ($ in millions) (1) Midpoint of May 6 th, 2008 Guidance (excluding CEF Industries) (2) Excludes interest paid of $62.7 million in November 2005 on the $200 million of
promissory notes issued in 2003. 2005 2006 2007 2008 E EBITDA As Defined $164.2 $194.4 $274.7 $328.5 (1) CapEx (8.0) (8.4) (10.3) (13.9) Cash Interest Expense (46.0) (74.9) (90.7) (92.5) Cash Taxes (19.2) (8.3) (18.6) (40) Free Cash Flow before WC $91.0 $102.8 $155.1 $182.1 % of EBITDA As Defined 55.4% 52.9% 56.5% 55.4% Fiscal Year Ended September 30, (2) |
 Repurchase Stock Dividend Value Generating Acquisitions Available Funds Est. Cash Balance @ 9/30/08 $200M Unused Revolver $200M $400M Credit Markets ? Pay Down Debt Subordinated Notes: Breakage fees Senior Credit Facility: Low cost and minimum covenants Use of Free Cash Flow 104 |
 Multiple Opportunities to Create Value Value Pricing and Productivity Value Pricing and Productivity Acquisitions Acquisitions Deleveraging Deleveraging Superior Management Superior Management Profitable New Business Profitable New Business Steady Long Term Growth in Passenger Traffic Steady Long Term Growth in Passenger Traffic 105 Steady Top and Bottom Line Growth |
 Q
& A July 1, 2008 |
 107 Appendix Reconciliation of Net Income to EBITDA As Defined (in millions) 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Net Income ($5) $0 $1 $3 $14 ($17) $11 $14 $31 ($76) $14 $35 $25 $89 Depreciation and amortization 7 7 7 6 7 6 7 9 13 10 18 17 16 24 Interest expense, net 5 5 5 3 3 23 28 32 37 43 75 80 77 92 Income tax provision (2) - 2 5 13 (2) 8 9 17 (45) 6 23 16 53 Warrant put value adjustment 1 1 2 5 7 - - - - - - - - - Extraordinary item - - - 2 - - - - - - - - - - EBITDA 6 13 17 24 44 10 54 64 98 (68) 113 155 134 258 Merger expense - - - - - 40 - - - 176 - - - - Acquisition-related costs 4 - - 1 - 1 - 8 - 15 20 2 1 9 Non-cash compensation and deferred compensation costs - - - - - - - - - 1 6 7 1 6 One-time special bonus - - - - - - - - - - - - 6 - Public offering costs - - - - - - - - - - - - 3 2 Refinancing costs - - - - - - - - - - - - 49 - EBITDA As Defined $10 $13 $17 $25 $44 $51 $54 $72 $98 $124 $139 $164 $194 $275 |