TRANSDIGM GROUP INC. Financial Analysis Report on Transdigm Group Inc. Nan Li CIPA Class 2017 8/6/2017 Professional Report Financial Analysis Report on Transdigm Group Inc. Index I. Introduction 1.1 Business Description II. Business Segments 2.1 Power and Control Segment 2.2 Airframe Segment 2.3 Non-Aviation Segment III. Investment Thesis 3.1 Thesis Point 1 3.2 Thesis Point 2 3.3 Thesis Point 3 IV. Management Team V. Valuation VI. Appendix I. Introduction This is an investment analysis report on TransDigm Group Incorporated (TDG), which is a manufacturing company that designs, produces and distributes aircraft components in the United States. We are writing this report to clarify why TDG stock is worth investing in the public market. TDG has compounded its return in the past three years, and we believe it should continue to generate meaningful returns. We recommend to buy TDG stocks based upon three key reasons: (1) TDG's moat should drive future organic EBITDA growth; (2) TDG's track record of making intelligent acquisitions should drive inorganic returns; and (3) TDG's capital allocation policies should magnify returns even further. In this report, we'll introduce its business segments, explain the above mentioned three investment thesis, dig into its management team and conduct valuation analysis. TDG operates through three segments: Power & Control, Airframe and Non-aviation. The Power & Control segment produces power or power control components for aircrafts, like electronic, fluid, power and motion control products. The Airframe segment provides non-power airframe products and cabin structure technologies. The Non-aviation segment provides seat belts and safety restraints for ground transportation and electro-mechanical actuators for space applications. The primary clients include commercial airline operators, third party maintenance suppliers, military buying agencies, and repair depots. TransDigm Group Incorporated was founded in 1993 and is based in Cleveland, Ohio1. 1.1 Business Description Most analysts frame Transdigm by its end-market exposure in two key segments: OEM and Aftermarket. Like many aerospace businesses, TDG sells OEM parts to Boeing or Airbus at a fairly low margin, but makes extremely high margins on the steady stream of aftermarket or "spare" parts. OEMs typically manufacture a plane for a cycle of 25 - 30 years, and then planes fly for 25 - 30 years, leading to a total selling window of 50 - 60 years for TDG components. The OEM end-market segment delivers mission critical parts to key airline manufacturers (think Boeing, Airbus, but also some military contracts as well). This is a bit of a cyclical business but still high margin. The cyclicality actually comes from incremental orders, e.g. the airline cycle / new plane orders. Pre­ existing contracts are very long-term in nature (think 15 to 20 years or more), allowing some measure of underlying stability. More interesting is the Aftermarket end-market. The Aftermarket distributes mission critical parts to planes that need parts as part of an ordinary maintenance. FAA regulations actually prohibit planes from taking off if they don't possess these 'mission critical' parts2. Because 90%+ of TDG's products are 1'Transdigm Group Inc. Profile," Reuters, accessed August 6, 2017, http://in.reuters.eom/finance/stocks/companvProfile7svmbohTDG.N. 2 "A Comparison of DOD and Commercial Airline Purchasing Practices," United States General Accounting Office, accessed November 1999, http://www.gao.gov/assets/230/228420.pdf. proprietary and they are the sole provider of 80%+ of their products, this is an incredibly stable business. We believe the Aftermarket end-channel is the 'source' of TDG's high margins. The mix and growth rate of both the Aftermarket and OEM3 end market channels are shown below - 120.0% 100.0% Aftermarket and OEM YoY % Revenue Growth and Total Revenue Contribution 80.0% 60.0% 40.0% 20. 0% 0.0% 2011 2012 2013 2014 2015 Afterm arket % of Total Sales Afterm arket YoY % Growth OE M % of Total Sales OE M YoY % Growth Yet the OEM and Aftermarket are not two separate businesses, they are linked: in order to access the Aftermarket, one must make big up front investments and defer returns through the long OEM phase. This reinforces the stickiness of TDG's 'mission critical parts. What are these mission critical parts? They range from batteries to seatbelts. In fact, if you ever noticed on the seatbelt logo when you flew on a plane, they are made by the same TDG owned firm: AmSafe. Some of these mission critical parts are shown4 below - Diverse Products, Platforms and Markets % - •ndControl. •ndSyotam. "S' > s yg —iO Sp AihW LiMtghOlmumoaonnd ca ".m* * •m. m& / IP * m. «* * o *s*r m? m. >hm.r % m m* h jjjj %m \ ft' ft & *0 4 w> S mt & / 'Ska1 > &u 1w & TRANS 11 3Commercial OEM is ~ 70% while the remaining 30% is Defense OEM. 4"2016 Analyst Day Presentation," Transdigm Group Inc., ftp://www.tra nsdigm.com/phoenix.zhtm I?c=196053&p=irol-presentations. Transdigm sells these mission critical parts not just in the U.S.5 but globally. And foreign sales have approached 1/3 of the business over the past several years - 120.0% 100.0% 80.0% 60.0% 40.0% 20.0% 0.0% Revenue Growth and Mix by Geography 2011 2012 2013 2014 Domestic %of Total Sales Domestic YoY %Growth Foreign % of Total Sales Foreign YoY% Growth 2015 How did TDG come to accumulate such a broad portfolio of products? The answer resides in a history of acquisitions as shown below - Proven Record of Acquisition & Integration Privately Held 1 9 9 3 -2 0 0 6 2 0 0 6 -2 0 1 0 ------------------ > N Y S E <----------2 0 1 1 -2 0 1 2 2 0 1 3 -2 0 1 6 Adel Aeroproducts Wiggins Controlex M a ra th o n Adams Rite Aerospace Christie Champion Honeywell Lube Pump Fuelcom Norco Avionic Instruments Skurka Fluid Regulators Eaton Motors ■ Sweeney m Electra-Motion ■ CDA InterCorp. ■ Avtech ■ ADS/Transicoil ■ Bruce . CEF ■ Unison/GE ■ APC/GE a Armf Woodward HRT ■ ■ Hartwell . Beams ■ Electromech ■ Aerosonic ■ Tyee ■ Arkwin ■ TAC ■ Lin re a d '1 ■ Valley-Todeco1" ■ AQS"’ 5 i ■ Whippany Actuation ■ Airborne Systems - North America ■ Airborne Systems - ■ Talley Actuation a ■ Elektro-Metall Export ■ Telair International \ ■ AmSafe Passenger Restraints ■ AmSafe Commercial Products ■ AAR Cargo Systems ■ Nordisk Aviation 1 > Franke Aquarotter * ■ Pexco ■ AmSafe Cargo Restraints 1 ■ PneuDraulics & Specialty Devises ■ Breeze-Eastern ■ Aero-Instruments ■ D D C (pending) Including DDC, TransDigm has acquired 57 businesses since 1993, including 42 since its IPO. In fact, we actually went through each of TDG's historical acquisitions including what they paid and who was the seller (e.g. was it a strategic or financial seller). But perhaps more interesting is that TDG's acquisitions in themselves fit into a myriad of 26 business units. While these acquisitions certainly have contributed to overall growth of the business, they also don't' distract from the firm's underlying stability which contributes to roughly 3% to 5% in organic growth - 5While TDG does manufacture a significant portion of their products in the U.S., they also manufacture some products in Belgium, China, Germany, Hungary, Malaysia, Mexico, Norway, Sri Lanka, Sweden, the United Kingdom, and even Singapore. 'TDG FY'15 10-K," Edgar, p. 4 - 5, https://www.sec.gov/Archives/edgar/data/1260221/000126022115000013/tdg2015-09x3Q10k.htm These acquisitions have also helped TDG sustain fairly high incremental margin contributions (40%+): 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% TDG Incremental Margin Contributions 2012 2013 2014 2015 Q1FY16 Q2FY16 Q3FY16 Which have corresponded to EBITDA margins in the high 40% range - And considering the asset light nature of the business, CapEx is often less than 2.5% of sales - Which in turn has produced a high degree of Cash Conversion for the business - Cash Conversion (OCF as a % of Net Income) 250.0% -50.0% Each of these acquisitions fall into the reported business segments of which there are three: Power & Control, Airframe, and Non-Aviation. Each segment's contribution to total revenues is shown below - TDG Revenue Breakdown (in mm of USD) 50.0% 45.0% 40.0% IiHiHilni 35.0% 30.0% 25.0% 20.0% 15.0% 10. 0% 5.0% 0.0% # ^ ^a/V / b ^ ^ah J p . a5o j> cy cy cy cy cy X* I Backlog ■Backlog YoY% Growth 70.0% 60.0% 50.0% 40.0% 30.0% 20. 0% 10.0% 0 .0 % These headwinds ignored what is an otherwise incredibly stable business. Let us explain - TDG's products are mission critical parts for airplanes. Because FAA and international regulations preclude planes from departing with these critical parts, there's a bit of stability and inherent demand.10 More interesting, TDG does not products that are tailored to a customer's exact specifications. That's because they have intellectual property which they vigorously defend. These proprietary products which comprise ~90% of their offerings - are much higher margin. When combined the fact that TDG is the sole supplier of ~80% of its offerings, this creates a powerful competitive dynamic. 10 "A Comparison of DOD and Commercial Airline Purchasing Practices," United States General Accounting Office, accessed November 1999, http://www.gao.gov/assets/230/228420.pdf. But we can dig even deeper. It turns out that TDG's parts are actually a low part of the overall cost structure for airplanes. To make an airplane costs hundreds of thousands of dollars. Yet ASP's for TDG can range from $500 to $5,000 while some other products are even $10,000. But this is still cheap relative to the entire budget meaning TDG can get away with increasing prices. Spare parts are a minor expense for airlines compared to Fuel and Personnel. And when OEMs seek to drive cost cuts they target bigger items like engines. Even the Department Of Defense11 admits they have very little negotiating leverage and typically accept the offered price. While there have been challenges to 'price increases' in some industries lately, we think there's a nuance with TDG. • First, airline manufacturers don't have the same public sympathy as individuals that have increasingly high medical expenditures; • Second, most manufacturers are reluctant to switch; • Third, the price increases, on average, are roughly 5% to 7%, which is far tamer than increasing 50%+ per year. Taken together, we think that assuming at 5% to 7% top-line organic growth is sensible. In fact, if we ignore the FY'15 headwinds, we can see that organic revenue growth is reflective of those price increases - U SD in millions, except per share and per unit data O raanic & Inoraanic % G row th C ontribution Pow er & Control O rganic G rowth Commercial OEM Commercial A lter Market Defense Total Power & Control Organic Growth Total Power & Control Inorganic Growth Total Power & Control Revenue Growth Airfram e O rganic Grow th Commercial OEM Commercial After Market Defense Total Airframe Organic Growth Total Airframe Inorganic Growth Total Airfram e Revenue Growth Non-Aviation O rganic Grow th Commercial OEM Commercial After Market Defense Total Non-Aviation Organic Growth Total Non-Aviation Inorganic Growth Total Non-Aviation Revenue Growth Total Firm G rowth Commercial OEM Commercial After Market Defense Total Organic Growth Total Inorganic Growth Total Revenue Growth Y ear Ended S e p te m b e r 30, 2011 2012 2013 2014 Q1 2015 Q2 Q3 Q4 2015 Q1 2016 Q2 Q3 Q4 NA 2 .2 % 0 .5 % 0.9°/o NA NA 0.7% 1.7% 3.4% NA NA 4 .5 % -2.3% 1.8% NA NA 7.5% -0.1% 6.1% 3.4°/o NA 7 .5 % 9 .0 % 16.6% 0.0% NA 16.1%' 21.9%' 22.7% 3.4% NA 9 .1 % 5 .9 % 4.1% NA NA 3 .8 % -1.2% 6.6% NA NA 2 .9 % 1.8% 1.2% NA NA 15.8% 6.5% 11.9% 2.4% NA 51.2% 9 .8 % 15.1% 19.1% NA 67.0% 4.0%' 27.2%' 21.5% NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA -13.7% -7.9% NA NA 38.6% 2.8% NA NA 25.4%' -5.1% NA 6.6% NA 2.5% NA 9 ^ -----NA C L j l 6 % ' NA 29.2% NA 40.7% 3 .0 % 0 .2 % 5 2% 10.9%n 16.1% 2.6% 4.7% -------- J-4 % \1 5 .2 % ’ 2s^% 1.7% 2.0% -0.7% 3.0% 8.4°/£ 11.4% -1.4% 1.8% 2.1% 2.4% 0.0% 3.0%' NA NA NA 4.0%" 3.0% 7.0% NA NA NA 0.2% 2.5% 0.7% 3.4% 1.4% 4.8% 1.1% -0.7% 1.6% 2.1%' 15.4%' 17.5% -1.0% 2.1% 3.2% 4.3% 0.6%' 10.9% NA NA NA 0.0% 0.7% 2.3% 3 .0 % ' 10 5% 13.5% NA NA 2.0% 2.8%V 11.7%’ 14.5% -3.0% -2.3% 0.0% -5.4% 27.9%' 2 2 .5 % -0.6% 4.3% -2.5% 1.2% 3 7 .6 % ' 38.8% 0.1% 5.6% 1.7% 7.3% 10.3%’ 17.6% 1.1% 3.0% -0.1%’ 4.0% 10.8%’ 14.8% 1.5% 1.6% -0.3% 2.5% ^ 15.1% 17.6% 0.5% 5.2% 1.6% 7.2% 13.4%' 2 0 .7 % ' 4.5% 3.7% 1.4% 9 7% 4 .2% ' 13.9% 0.6%' NA NA 0.8% 0.0% 0.8% NA NA NA 6.8% 0.0% 6.8% NA NA NA 7.2% 0.0% 7.2% NA NA NA NA NA 3.7% 0.7% 1.6% 1.3% 3.5% 10.8%^ 14.3% -0.7% -0.4% -0.2% -1.2% 2 0 .7 % / 1 9 .§ ^ 0.2% 4.6% __ Q W * 4.3% 2 4 .3 % ’ 28.6% 2.3% 4.5% -8d2> 7 1%' 15.2% Organic Growth Rate Primarily Comprised of 'Price Increases.' 11"A Comparison of DOD and Commercial Airline Purchasing Practices," United States General Accounting Office, accessed November 1999, http://www.gao.gov/assets/230/228420.pdf. Yet TDG's strategy doesn't stop there. TDG runs a lean ship with low OpEx. This is partially due to aggressive cost cutting for incremental acquisitions and in part due to CEO's Nick Howley's stake in the firm (more on this later). 3.2 Thesis Point 2: TDG's Track Record of Making Intelligent Acquisitions Should Drive Inorganic Returns As previously mentioned, TDG has historically made intelligent acquisitions that complement its existing offerings. This isn't just a 'roll-up' story but rather a means for TDG to strengthen its competitive positioning, take advantage of scale and disciplined a cost structure, and to grow. We did go through every one of TDG's historical acquisitions. We noted several things - • First, there is definitely a healthy mix of both strategic and financial sellers. We note how some of these sellers have done multiple deals with TDG. While other sellers benefitted as both a buyer and seller by virtue of being on TDG's board. For example, Berkshire Partners is on the Board of TDG. Berkshire benefited from a sale of another of their portfolio companies (AmSafe) back in 2 0 12.12 • These acquisitions are almost entirely paid for in cash though the firm will issue debt and use the proceeds to make incremental acquisitions. • Most of the acquisitions tilt towards Power & Control though there is an occasional Airframe acquisition. We took several approaches to evaluate the return on the acquisitions themselves. One simple approach was to compare Operating Cash Flows per dollar amount of acquisition dollars spent - U S D in m illions, except per share and per unit data Yea r Ended Septem ber 30, 2011 2012 2013 2014 Q1 2015 Q2 Q3 Q4 2016 Q1 2016 Q2 Q3 Q4 Operating Cash Flow s % Margin % Y oY Growth Levered Free Cash Flow % Margin % Y oY Growth + A cquisition Related Expenses Levered Free Cash Flow, net of Acquisitions % Y oY Growth 260.4 21.6% 32.0% 242.4 20.1% 31.4% (1,650.4) (1,408.0) -7984% 413.9 24.3% 59.0% 388.6 22.9% 60.4% (868.7) (480.1) 65.9% 470.2 24.4% 13.6% 434.7 22.6% 11.8% (483.3) (48.6) 89.9% 541.2 22.8% 15.1% 507.1 21.4% 16.7% (311.9) 195.2 501.8% 189.0 32.2% 63.3% 180.8 30.8% (6.0) -1.0% -105.8% (20.9) -3.4% 191.1 27.6% 413.7% 173.8 25.1% (723.2) (570.3) 180.8 (744.1) (396.5) 146.9 18.1% -12.5% 132.4 16.3% (330.8) (198.4) 520.9 19.2% -3.7% 466.1 17.2% -8.1% (1,624.3) (1,158.2) -693.3% 164.1 23.4% -13.1% r 154.0 21.9% -14.9% F 154.0 -14.9% 105.0 13.2% 1838.0% 92.9 11.7% 544.4% (144.4) (51.5) 93.1% 175.3 22.0% -8.3% 167.6 21.0% -3.6% (998.6) (831.0) -109.6% - If we assume some lag and take a run-rate for FY'16, we are yielding a return of roughly 9% to 15%13. We find this 'okay' but note that the cost savings and general nature of this industry create incredible levels of 'lags' to the business. 12"Berkshire Partners Announces Agreement to Sell AmSafe to TransDigm," Berkshire Partners, http://www.berkshirepartners.com/berkshire-partners-announces-agreement-to-sell-amsafe-to-transdigm. 13This depends on assumptions relating to the run-rate for Q4 FY'16. TRANSOGM 71 In some sense, TDG is essentially an aerospace Private Equity (PE) shop imbedded in a highly profitable industrial company. PE is part of the company's heritage, as TDG was PE owned from 1993 until their IPO in 2006. Through disciplined acquisitions TDG aims to achieve returns exceeding those of top quartile private equity funds while providing shareholders with the liquidity of the public markets. TDG has structural advantages as an acquirer over traditional PE or strategic buyers: a) Compared to PE, TDG brings deep sector expertise and the ability to save on costs through consolidating factories and G&A savings; b) TDG employs the capital structure of a PE fund, enabling competitive bids versus strategic TDG only has about 4% of the total addressable market currently, creating a very long runway for further M&A a) Over the last one, three, and five year intervals cash allocated to M&A has exceeded cash flow from operations highlighting the array of reinvestment opportunities available; and We think the Street doesn't model incremental M&A which tends to discount the actual NPV of TDG (assuming TDG can generate positive returns from incremental M&A which we think TDG can and does). Considering how this is part of TDG's core strategy, we don't think this can be ignored. We think this ignores ~ 4% to 8% in incremental inorganic EBITDA growth.14 With that said, we now turn to Thesis Point 3. 3.3 Thesis Point 3: TDG's Capital Allocation Policies Should Magnify Returns Even Further 14This is partially based on the implied multiples paid, coupled with synergies and our own arbitrary discounting. TDG's highly predictable cash flow stream allows it to afford a healthy dose of leverage. But we contend TDG takes things even further and believe that they take leverage to levels that are a rarity among public companies. In fact, TDG essentially hyper-levered the business back in 2013 when they took on more debt and essentially were running 'net levered' as shown below - U SD in m illion s, excep t p e r sha re and p e r unit data BALANCE SHEET Net D e b t/ (C a s h ) Debt / EBITDA Net Debt / E B IT D A M etrics A ssets C ash a n d C ash E quivalents S T Investm ents / M arketable S ecurities C ash and S T Investm ents, net Total Assets L ia b ilitie s C urrent P ortion o f Long-Term D ebt S T B orrow ings - Trade R eceivable S e cu ritiza tio n F a c ility Long-Term Debt Total Debt Total Liabilities Shareh old ers' Equity L ia b ilitie s and Shareholders' Equity Y e a r E nded S e p te m b e r 30, 2011 2012 2013 2014 Q1 2015 Q2 Q3 Q4 2015 Q1 2016 Q2 Q3 Q4 2,762.2 5.7x 5. Ox 3,178.6 4.7x 4.1x 5,166.5 7 .Ox 6.3x 6,653.6 7.3x 6.5x 6,461.5 7,146.0 7,533.7 7,713.3 r 7.2x 6.6x 7,713.3 7.2x 6.6x 7,537.1 6.9x 6.2x 7,723.3 6.5x 6.1x 8,539.0 7.6x 6.4x O.Ox O.Ox 376.2 376.2 4,513.6 440.5 440.5 5,576.1 564.7 564.7 6,148.9 819.5 1,011.6 392.5 915.4 714.0 819.5 6,756.8 1,011.6 6,913.6 392.5 7,226.2 915.4 8,350.4 714.0 8,427.1 714.0 805.3 714.0 8,427.1 805.3 8,330.0 612.0 1,666.7 612.0 8,359.5 1,666.7 10,570.5 - 15.5 3,122.9 3,138.4 3,693.8 819.9 4,513.6 20.5 3,598.6 3,619.1 4,240.8 1,335.3 5,576.1 31.0 5,700.2 5,731.2 K 6,485.3 V " Nl l (336.4) ) ^ --------6,148.9 39.3 200.0 7,233.8 7,473.1 8,312.9 39.3 200.0 7,233.8 7,473.1 8,378.3 (1,556.1) (1,464.7) 6,756.8 6,913.6 39.3 200.0 7,299.3 7,538.6 8,552.4 (1,326.2) 7,226.2 44.2 200.0 8,204.9 8,449.1 9,519.4 (1,169.0) 8,350.4 43.8 200.0 8,183.5 8,427.3 9,465.4 (1 ,0 3 8 .3 ) 8,427.1 43.8 200.0 8,183.5 8,427.3 9,465.4 (1 ,0 3 8 .3 ) 8,427.1 43.4 199.8 8,099.2 8,342.4 9,294.2 (964.3) 8,330.0 43.5 199.9 8,091.9 8,335.3 9,321.3 52.6 200.0 9,953.1 10,205.7 11,378.7 (961.8) (808.2) 8,359.5 10,570.5 . This leverage greatly magnified returns. In fact, based on our compounder playbook equation, we believe leverage is actually the greatest piece of return for TDG, representing ~ 15% in returns.15Such high leverage not only magnifies returns but would also magnify losses in times of crisis, a dynamic we will discuss later under risks. Still, the debt itself is a mix of PE style debt with no amortization and high yield bonds (~ 5.4% total cost of debt), with maturities out to 2020 - 2024 and ~75% of the rates locked-in or hedged out. Aside from special dividends16 paid in 2009, 2012, 2013, and 2014, TDG doesn't pay a regular dividend. Even more interesting is that TDG almost never repurchases shares, opting to use leverage and excess cash to reinvest in the business or pursue incremental roll-ups. This changed in FY'16 after the 'frictional FY'15' put a damper on the stock and the firm used its 2014 share repurchase program to buy back shares. And in the January of 2016, management actually increased the amount allowed under their pre-existing share repurchase program, quote: "On October 22, 2014, our Board o f Directors authorized a stock repurchase program replacing our previous repurchase program permitting us to repurchase a portion o f our outstanding shares not to exceed $300 million in the aggregate. During fiscal 2016, until the $300 million program was replaced on January 21, 2016, the Company had repurchased 452,187 shares o f its 15This is based on the implied returns from organic and inorganic growth. 16This amounted to ~ $3B, which is a lot for a firm with a current JEM of ~$24B. These were paid when M&A opportunities were lukewarm. common stock at a gross cost of approximately $98.7 million at the weighted-average price per share o f $218.23. On January 21, 2016, our Board o f Directors authorized a stock repurchase program replacing the $300 million program with a repurchase program permitting us to repurchase a portion of our outstanding shares not to exceed $450 million in the aggregate. As o f July 2, 2016, the Company had repurchased 563,200 shares o f its common stock at a gross cost o f approximately $109.1 million at the weighted-average price per share o f $193.67 under the $450 million stock repurchase program. During the thirteen week period ended July 2, 2016, there were no issuer purchases o f its common shares outstanding."17 We think this is telling for several reasons - • First, it tells us that management isn't afraid to repurchase shares if it's optimal to do so. This means even if the M&A pipeline isn't attractive. • Second, the fact that the program was expanded and still hasn't even exceeded the original $300mm repurchase program, could indicate that management is cognizant of where we are in the cycle; and • Three, the lack of buybacks in Q2 could be indicative that management thinks shares are currently expensive, or perhaps more optimistically, they think they are better served allocating capital elsewhere. And while TDG does have a lot of leverage, there are two things to consider (a) 75% of their debt is actually fixed and not due until 2020 and beyond; and (b) They still have ~ $400mm available to borrow for incremental M&A.18 On a high level, the combination of M&A, special dividends, and share buybacks tells us that management isn't afraid to optimally deploy capital. So who runs TDG? This brings us to Management. IV. Management Team Douglas Peacock was the co-founder of TDG and the retired CEO/Chairman.19 But today, TDG is run by Nicholas Howley who owns 1.49% of TDG (in other words, there is skin in the game) - 17 'TDG Q3 FY'16 10-Q," P- 37, Edgar, https://www.sec.gov/Archives/edgar/data/1260221/000126022116000077/tdg2016a310-q.htm. 18When combined with cash, TDG actually has ~ $1.850B for incremental acquisitions. 19 'TDG FY'16 Proxy," p. 4, Edgar, https://www.sec.gov/Archives/edgar/data/1260221/000119312516434Q69/d30579ddefl4a.htm. Amountand Nature ofBeneficially Ownership^) Shares Subject toOptions Currently Total Exercisable or Number Beneficial Owner W*am Dries Mervii Dunn Shares 1.013 2,143 Exercisable within60 Gays 4.790 17.690 of Shares 5,803 19.833 Percentage of Class * Mkhaei Graff2! Sean P. Hennessy W. NichotesHowley3 Raymond F LaubenthaM) DouglasW Peacock' RobertJ. Sma»8) John Staer 28,067 15.717 26,735 166.938 3,787 2,771,100 91 1,790 17.690 786.700 215.000 17.690 7292 3,390 29,877 33,407 813.435 381.938 21,477 2778.392 3.481 1.49% 5.17% Terrance Parade Robert Henderson Kevin Stef# Gregory Rufus 5,000 22,400 27,400 15,000 206.400 221.400 13.000 39.600 52600 11,000 140.000 151.000 Afdneo'sendweeufwoSsrsas agroup120persons! 3.109.459 2086.807 5.196.266 9.30% 1 lessthan IS (t) Inckidessharesofwhichthefetedbeneficialownerisdeemed tohaw thelighttoacquirebeneficialownershipunderRule 13d-3undertneSecurities EicnsngeAa asamended (the‘Eicnange Aa't within60daysofDecember18.2015 Thenunteiofsharesoutstanding used incalculating thepercentageofbeneficialownershipforeach personisled belowincludesthesharesunderlying optonsheldbysuchpersonsthatareexetcsabfewithn80days ofDecember 18,2015, butexcludessharesunderlyitgoptxtnsheldbyanyotherperson. Percentage ofownershipisbasedon53,758,120sharesofcommonstockofthe Companyoutstandwigas of December 18,2015. (2) Includes3,382sharesheldbyMr Graffasthetrusteeofcertaintrustscreated forthebenefitofhisninorchidien and 16,093sharesheldbya trusteeofa trustcreatedfa; Mr. Graffswifeforthebenefitoftheirchidien. Alsoincludes269shareswhdi arebenefbalyownedbyVVbrburgPincusandastowhch Mr Grafdisdainsbeneficial interest, except totheextentofhispecunaiyinterest theten. (3) Includesoptonstopurchase 18,924sharesthataie heldbyBratenahlCapitalPartners. LtdfBratenahl) ByvirtueofhisindiectownershipinterestinBratenahl, Mr HowleymaybedeemedtobethebeneficialownerwithinthemeaningofRule13d-3under EichangeAd] oftheoptonsthat areownedbyBiatenahl Mr. HowleydisciaimsbenefbaiownershpofalloptionsownedbyBratenahl and reportedheren asbenefwalyowed except totheextent ofanypecuniaryrteresttheren. (5) Includes3.000sharesheldit trustby AY Peacockswe astrustee.ifr. Peacockdoesnothave anydrectvotng ordspositwpowe?ivertheffust'oreconomc nteresttheren.and. therefore, dsdamsbenefealownershp. (8) Includes2.711.047heldbyentitiesrelatedtoBerkshirePartnersLLC(see footnote(5)abo*e). Mr.Smaldsdsmsbeneficialownershpofat sharesownedorcontroledbytheBertshie entitiesexcepttotheextentofanypecuniaryinteresttherein Alsoincludes0,113sharesheldbyMr Smalastrusteeoverwhichhe hasvoting powerbutdoesnothawanyeconorricinterest (7) Includes4,700sharesofrestrictedstock, subjecttoforfeitureifAY Parade eno longeremployedbytheCompany.Theriskofforfetufewi!spse(i.e.,thestocl