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  • 1. LEVERAGED BUYOUT OF MICRON TECHNOLOGIES DEB SAHOO, MBA, ROSS SCHOOL OF BUSINESS, UNIVERSITY OF MICHIGAN, ANN ARBOR April 25, 2011
  • 2. INDUSTRYNEWS Industry Buzz 2
  • 3. TABLEOFCONTENTS Executive Summary LBO Rationale Financials Industry Comparables Financial Statements Projections Assumptions Transaction Analysis Return Analysis 4 8 10 11 21 23 32 3 Company Overview 6 Exit Strategies 36
  • 4. EXECUTIVE SUMMARY 4
  • 5. EXECUTIVESUMMARY Price PerformanceTarget Overview •Ticker: MU •Market Cap: $11.5B •Number of Shares: 1001.5MM •2011 EBITDA: $3,567.0MM •LTM P/EPS: 7.91 •Total Enterprise Value: $16,408.0MM •5 Year Sales Growth: 15.5% •5 Year EBITDA Growth: 36.3% •5 Year Avg. ROE: 5.2% •Leverage: 0.17x •Price to Book Value: 1.3x •Price to Sales: 1.27x •S&P Rating: B+ Key Financials •Company: Micron Technology •Headquarter: Boise, ID •CEO: Steven R. Appleton •Number of Employees: 25,900 •Manufacturer and marketer of semiconductor devices, principally DRAM, NAND Flash, NOR flash memory and CMOS image sensors •Key industry player in semiconductor memory market •Established customer base Valuation 5 •Stock Price: $11.52 •52 Week High: $11.95 •52 Week Low: $6.36 •Stock Beta: 1.75 Offer Price per Share $15.31 Fully Diluted Shares 1,037.0 Equity Purchase Price $15,877.2 Plus: Existing Net Debt 531.0 Enterprise Value $16,408.2 Purchase Price Exit Year 2016 Entry Multiple 4.6x Exit Multiple 4.6x IRR 28.4% Cash Return 3.5x Return
  • 6. COMPANY OVERVIEW 6
  • 7. COMPANYOVERVIEW Products and ServicesCompany Overview Manufacturer and marketer of semiconductor devices, principally DRAM, NAND Flash, NOR flash memory and CMOS image sensors Products are used in electronic applications, including personal computers, workstations, network servers, mobile phones and other consumer applications including flash memory cards, USB storage devices, digital still cameras, MP3/4 players and in automotive applications Operations in Europe, Asia Pacific and the US Brands: Micron, Numonyx, Lexar, Crucial CustomersIndustry Comparables 7 •DRAM •SDRAM •DDR SDRAM •DDR2 SDRAM •DDR3 SDRAM •RLDRAM Memory •Mobile LPDRAM
  • 8. LBO RATIONALE 8
  • 9. LBORATIONALE Strong FinancialsValue Creation 9 •Strong management team •Potential for expense reduction •Growth potential in emerging markets •Potential to enter new market segment with partnership with leading industry players •Adequate strategic buyers such as AMD, INTEL for exit strategy •Increased dominant position and expanded geographical presence will increase visibility in investor community for IPO •Adequate number of PE firms with matching investment criteria Viable Exit Strategy •Strong defensible market position •Product differentiation through R&D •Economy of Scale and Scope •Known brand name with key customers Industry Positioning •Large amount of cash in hand •Heavy Asset Base for loan collateral •Clean balance sheet with low Leverage •Predictable and steady cash flow in the past •Limited working capital requirements •Minimal future capital
  • 10. FINANCIALS 10
  • 11. FINANCIALS Five Year Income Statement 11 All figures in millions of U.S.Dollar,except per share items 31-Aug-10 31-Aug-09 29-Aug-08 31-Aug-07 31-Aug-06 Sales/Revenue 8,482.0 4,803.0 5,841.0 5,688.0 5,272.0 Cost of Goods Sold (COGS) incl. D&A 5,768.0 4,639.0 5,896.0 4,610.0 4,072.0 COGS excludingD&A 3,763.0 2,500.0 3,836.0 2,892.0 2,791.0 Depreciation & Amortization Expense 2,005.0 2,139.0 2,060.0 1,718.0 1,281.0 Gross Income 2,714.0 164.0 -55.0 1,078.0 1,200.0 SG&A Expense 1,152.0 1,001.0 1,135.0 1,415.0 1,116.0 Other OperatingExpense 0.0 0.0 0.0 0.0 0.0 EBIT (Operating Income) 1,562.0 -837.0 -1,190.0 -337.0 84.0 NonoperatingIncome(Expense) - Net 89.0 -101.0 157.0 228.0 374.0 Interest Expense 178.0 135.0 82.0 40.0 25.0 Unusual Expense(Income) - Net -447.0 731.0 496.0 19.0 0.0 Pretax Income 1,920.0 -1,804.0 -1,611.0 -168.0 433.0 IncomeTaxes -19.0 2.0 18.0 30.0 18.0 Equity in Earnings of Affiliates -39.0 -140.0 0.0 0.0 0.0 Consolidated Net Income 1,900.0 -1,946.0 -1,629.0 -198.0 415.0 Minority Interest Expense 50.0 -111.0 -10.0 122.0 7.0 Net Income 1,850.0 -1,835.0 -1,619.0 -320.0 408.0
  • 12. FINANCIALS Five Year Balance Sheet 12 All figures in millions of U.S. Dollar, except per shareitems 31-Aug-10 31-Aug-09 29-Aug-08 31-Aug-07 31-Aug-06 Assets Cash & ST Investments 2,913.0 1,485.0 1,362.0 2,616.0 3,079.0 Total Accounts Receivable 1,531.0 798.0 1,032.0 994.0 956.0 Inventories 1,770.0 987.0 1,291.0 1,532.0 963.0 Other Current Assets 119.0 74.0 94.0 92.0 103.0 Total Current Assets 6,333.0 3,344.0 3,779.0 5,234.0 5,101.0 Net Property, Plant & Equipment 6,601.0 7,081.0 8,811.0 8,279.0 5,888.0 Total Investments and Advances 936.0 360.0 26.0 27.0 21.0 IntangibleAssets 323.0 344.0 422.0 916.0 890.0 Other Assets 355.0 219.0 318.0 297.0 272.0 Total Assets 14,548.0 11,348.0 13,356.0 14,753.0 12,172.0 Liabilities & Shareholders' Equity ST Debt & Curr. Portion LT Debt 712.0 424.0 373.0 557.0 289.0 Accounts Payable 799.0 526.0 597.0 856.0 854.0 Income TaxPayable 51.0 32.0 27.0 15.0 20.0 Other Current Liabilities 1,140.0 910.0 601.0 598.0 498.0 Total Current Liabilities 2,702.0 1,892.0 1,598.0 2,026.0 1,661.0 Long-Term Debt 1,648.0 2,674.0 2,451.0 1,987.0 405.0 Deferred Taxes -129.0 -103.0 -65.0 -40.0 -21.0 Other Liabilities 511.0 245.0 329.0 421.0 445.0 Total Liabilities 4,732.0 4,708.0 4,313.0 4,394.0 2,490.0 Preferred Stock (CarryingValue) 0.0 0.0 0.0 0.0 0.0 Common Equity 8,020.0 4,654.0 6,178.0 7,752.0 8,114.0 Total Shareholders' Equity 8,020.0 4,654.0 6,178.0 7,752.0 8,114.0 Accumulated Minority Interest 1,796.0 1,986.0 2,865.0 2,607.0 1,568.0 Total Equity 9,816.0 6,640.0 9,043.0 10,359.0 9,682.0 Liabilities & Shareholders' Equity 14,548.0 11,348.0 13,356.0 14,753.0 12,172.0
  • 13. FINANCIALS Five Year Cash Flow Statement 13 All figures in millions of U.S. Dollar,except per share items 31-Aug-10 31-Aug-09 29-Aug-08 31-Aug-07 31-Aug-06 Operating Activities Net Income before Extraordinaries 1,850.0 -1,835.0 -1,619.0 -320.0 408.0 Depreciation,Depletion & Amortization 2,005.0 2,139.0 2,060.0 1,718.0 1,281.0 Deferred Taxes & Investment Tax Credit 0.0 0.0 0.0 -11.0 -24.0 Other Funds -260.0 1,007.0 773.0 141.0 26.0 Funds from Operations 3,595.0 1,311.0 1,214.0 1,528.0 1,691.0 Changes in WorkingCapital -499.0 -105.0 -196.0 -591.0 328.0 Receivables -516.0 126.0 -26.0 5.0 -62.0 Inventories -121.0 -356.0 -40.0 -591.0 -12.0 Accounts Payable 54.0 107.0 -92.0 -1.0 130.0 Other Assets/Liabilities 84.0 18.0 -38.0 -4.0 272.0 Net Operating Cash Flow 3,096.0 1,206.0 1,018.0 937.0 2,019.0 Investing Activities Capital Expenditures 616.0 488.0 2,529.0 3,603.0 1,365.0 Net Assets from Acquisitions 0.0 0.0 0.0 -73.0 -- Saleof Fixed Assets & Businesses 612.0 26.0 187.0 94.0 152.0 Purchase/Sale of Investments -168.0 -243.0 204.0 1,230.0 -858.0 Other Funds -276.0 31.0 46.0 -39.0 315.0 Net Investing Cash Flow -448.0 -674.0 -2,092.0 -2,391.0 -1,756.0 Financing Activities Change in Capital Stock 8.0 276.0 4.0 69.0 284.0 Issuance/Reduction of Debt,Net -970.0 143.0 -248.0 620.0 -624.0 Other Funds -258.0 -709.0 369.0 1,526.0 984.0 Net Financing Cash Flow -1,220.0 -290.0 125.0 2,215.0 644.0 Miscellaneous Funds 0.0 0.0 0.0 0.0 0.0 Net Change in Cash 1,428.0 242.0 -949.0 761.0 907.0
  • 14. FINANCIALS Five Year Key Annual Ratios 14 5 YrAVG 31-Aug-10 31-Aug-09 29-Aug-08 31-Aug-07 31-Aug-06 Valuation Price/Book Value 1.1x 0.8x 1.3x 0.5x 1.1x 1.6x Enterprise Value/EBIT 4.9x -- -- -- 144.4x Enterprise Value/EBITDA 7.1x 2.1x 7.6x 8.7x 8.1x 8.9x Enterprise Value/Sales 1.7x 0.9x 2.1x 1.3x 2.0x 2.3x Profitability Gross Margin 15.2% 32.0% 3.4% -0.9% 19.0% 22.8% OperatingMargin -4.7% 18.4% -17.4% -20.4% -5.9% 1.6% Net Margin -8.4% 21.8% -38.2% -27.7% -5.6% 7.7% Return on Equity -5.2% 29.2% -33.9% -23.2% -4.0% 5.8% Efficiency Receivables Turnover 6.0x 7.3x 5.2x 5.8x 5.8x 6.0x Days of Sales Outstanding 61.2 50.1 69.5 63.3 62.6 60.6 Inventory Turnover 4.2x 4.2x 4.1x 4.2x 3.7x 4.7x Days of Inventory on Hand 88.1 87.2 89.6 87.4 98.8 77.7 Payables Turnover 7.7x 9.9x 7.7x 7.8x 6.1x 6.8x Days of Payables Outstanding 48.9 36.9 47.3 46.9 60.3 53.4 Liquidity Current Ratio 2.43 2.34 1.77 2.36 2.58 3.07 Quick Ratio 1.76 1.69 1.25 1.56 1.83 2.49 Cash Ratio 1.17 1.08 0.78 0.85 1.29 1.85 Credit Analysis Net Debt/EBITDA 0.2x -0.2x 1.2x 1.7x -0.1x -1.7x Net Debt/(EBITDA-Capex) -0.2x 2.0x -0.9x 0.0x -- Total Debt/EBITDA 1.7x 0.7x 2.4x 3.2x 1.8x 0.5x EBITDA/Interest Expense 20.3x 20.0x 9.4x 9.2x 23.8x 39.0x EBIT/Interest Expense (Int. Coverage) -2.6x 8.8x -6.1x -12.5x -5.8x 2.4x Fixed-charge Coverage Ratio -2.6x 8.8x -6.1x -12.5x -5.8x 2.4x Total Debt/Total Equity 36.6% 29.4% 66.6% 45.7% 32.8% 8.6%
  • 15. INDUSTRY COMPARABLES 15
  • 16. INDUSTRYCOMPARABLES Key Industry Comparables 16
  • 17. INDUSTRYCOMPARABLES Capitalization Comparison 17 All values in millions ofU.S. Dollar, except per shareitems. Shares Long LTM as of 20-Apr-2011 Ticker Price Shares Out Equity Enterprise Total Total Term D / Company Name 20-Apr-11 Outstndg Diluted Value Value Debt Assets Debt D+E Micron Technology, Inc. (MU-US) MU 11.39 1,001.5 1,037.3 11,814.8 12,462.8 1,740.0 14,398.0 1,320.0 0.17x Texas Instruments, Incorporated. (TXN-US) TXN 35.13 1,169.0 1,213.0 42,612.7 37,995.0 0.0 12,474.0 0.0 0.00x Intel Corp. (INTC-US) INTC 21.41 5,385.2 5,696.0 121,951.4 95,526.2 2,115.0 62,897.0 2,077.0 0.04x STMicroelectronics NV (STM-FR) STM 12.02 910.4 911.1 10,952.2 10,605.1 1,770.0 13,020.0 1,050.0 0.19x Infineon Technologies AG (IFX-DE) IFX 10.81 1,086.7 1,167.0 12,610.0 10,008.1 504.4 6,434.1 331.4 0.12x NXPSemiconductors NV (NXPI-US) NXPI 33.56 250.8 238.7 8,011.9 12,328.2 4,649.0 7,911.0 4,140.0 0.81x Broadcom Corp. (BRCM-US) BRCM 39.54 485.7 544.6 21,534.0 17,242.6 697.0 7,944.3 697.0 0.11x Xilinx, Inc. (XLNX-US) XLNX 31.72 261.1 263.6 8,361.8 7,403.3 887.2 3,858.4 887.2 0.29x Maxim Integrated Products, Inc. (MXIM-US) MXIM 25.59 296.5 303.3 7,760.4 7,088.5 300.0 3,365.7 300.0 0.11x National Semiconductor Corp. (NSM-US) NSM 24.06 244.8 247.0 5,942.8 6,031.7 1,042.6 1,933.0 1,042.6 0.62x AlteraCorp. (ALTR-US) ALTR 45.63 322.0 313.9 14,323.8 12,354.8 500.0 3,722.5 500.0 0.18x AnalogDevices, Inc. (ADI-US) ADI 38.98 299.6 308.8 12,038.9 9,255.2 537.5 4,542.3 523.0 0.14x nVIDIA Corp. (NVDA-US) NVDA 18.57 595.1 588.7 10,931.9 8,586.0 25.1 4,495.2 23.4 0.01x Linear Technology Corp. (LLTC-US) LLTC 34.53 226.9 232.2 8,017.9 7,861.5 776.2 1,446.2 776.2 0.74x Mean 887.2 925.2 21,926.9 18,637.4 1,061.8 10,311.1 949.8 0.26x Median 322.0 313.9 10,952.2 10,008.1 697.0 4,542.3 697.0 0.14x
  • 18. INDUSTRYCOMPARABLES Valuation Comparison 18 All values in millions of U.S. Dollar, except per shareitems. Price to Price LTM as of 20-Apr-2011 Ticker Book to Company Name Sales EBITDA LTM FY1 FY2 Sales EBIT EBITDA Value Sales Micron Technology, Inc.(MU-US) MU 9,290.0 3,285.0 7.91 18.57 9.22 1.34x 9.9x 3.8x 1.3x 1.27x Texas Instruments,Incorporated. (TXN-US) TXN 13,966.0 5,316.0 13.21 13.96 12.50 2.72x 8.6x 7.1x 3.9x 3.05x Intel Corp. (INTC-US) INTC 43,623.0 20,148.0 10.65 9.52 8.89 2.19x 6.2x 4.7x 2.4x 2.80x STMicroelectronics NV (STM-FR) STM 10,346.0 1,711.0 11.63 12.23 10.90 0.93x 20.4x 5.6x 1.3x 0.93x Infineon Technologies AG (IFX-DE) IFX 4,444.5 1,173.5 9.76 13.56 12.70 2.07x 13.5x 7.8x 2.9x 2.46x NXPSemiconductors NV (NXPI-US) NXPI 4,618.6 717.2 (13.08) 14.20 11.10 2.67x 531.8x 17.2x 7.8x 1.82x Broadcom Corp. (BRCM-US) BRCM 6,818.3 1,291.0 19.87 14.16 12.93 2.53x 14.9x 13.4x 3.7x 3.16x Xilinx, Inc. (XLNX-US) XLNX 2,310.6 835.9 13.50 13.63 15.31 3.20x 9.5x 8.9x 3.8x 3.62x Maxim Integrated Products, Inc. (MXIM-US) MXIM 2,313.9 752.5 30.83 15.77 13.98 3.06x 11.9x 9.4x 3.2x - National Semiconductor Corp.(NSM-US) NSM 1,544.8 647.0 18.94 19.86 19.05 3.90x 10.7x 9.3x 9.0x 3.85x AlteraCorp. (ALTR-US) ALTR 1,954.4 895.9 18.33 18.42 17.15 6.32x 14.2x 13.8x 6.3x 7.33x AnalogDevices, Inc. (ADI-US) ADI 2,887.0 1,103.2 14.82 14.05 13.38 3.21x 9.1x 8.4x 3.5x 4.17x nVIDIA Corp.(NVDA-US) NVDA 3,543.3 579.6 43.19 18.19 14.87 2.42x 21.9x 14.8x 3.4x 3.09x Linear Technology Corp. (LLTC-US) LLTC 1,449.7 800.3 15.77 14.43 14.48 5.42x 10.4x 9.8x 28.0x - Mean 7,678.5 2,767.0 16.0 14.8 13.6 3.1 52.6 10.0 6.1 3.3 Median 3,543.3 895.9 14.8 14.2 13.4 2.7 11.9 9.3 3.7 3.1 Price/EPS Enterprise Value /
  • 19. INDUSTRYCOMPARABLES Margin Comparison 19 All values in millions of U.S.Dollar,except per share items. LTM as of20-Apr-2011 Ticker Gross Margin % EBIT Margin % EBITDA Margin % Net Margin % Company Name FY-1 FY0 LTM FY-1 FY0 LTM FY-1 FY0 LTM FY-1 FY0 LTM Micron Technology,Inc. (MU-US) MU - 32.0 27.9 - 18.4 13.50 - 42.1 35.4 - 21.8 16.2 Texas Instruments, Incorporated.(TXN-US) TXN 47.9 53.6 53.6 21.13 31.5 31.53 30.0 38.1 38.1 14.10 23.1 23.1 Intel Corp. (INTC-US) INTC 55.6 65.2 65.2 16.92 35.6 35.55 31.3 46.2 46.2 12.44 26.3 26.3 STMicroelectronics NV (STM-FR) STM 30.9 38.8 38.8 (11.08) 4.6 4.55 5.0 16.5 16.5 (13.29) 8.0 8.0 Infineon Technologies AG (IFX-DE) IFX 21.8 37.5 - (8.23) 12.5 15.29 9.3 24.2 26.4 (7.43) 9.4 15.5 NXP Semiconductors NV (NXPI-US) NXPI 22.4 25.2 53.2 (28.33) (21.3) 0.50 (5.0) 1.2 15.5 (66.14) (4.6) (14.3) Broadcom Corp.(BRCM-US) BRCM 50.4 51.4 51.4 4.47 16.9 16.92 6.8 18.9 18.9 1.45 15.9 15.9 Xilinx,Inc. (XLNX-US) XLNX 63.0 63.2 65.3 24.74 25.2 33.65 28.7 28.8 36.2 20.58 19.5 27.3 Maxim Integrated Products, Inc.(MXIM-US) MXIM 51.2 60.0 62.0 6.11 14.2 25.85 18.6 22.6 32.5 0.64 6.3 10.9 National Semiconductor Corp. (NSM-US) NSM 62.7 65.9 72.7 22.41 24.3 36.53 30.6 31.0 41.9 5.02 14.7 20.1 Altera Corp. (ALTR-US) ALTR 66.8 71.0 71.0 26.31 44.4 44.43 28.7 45.8 45.8 21.00 40.1 40.1 AnalogDevices, Inc. (ADI-US) ADI 55.8 65.2 67.3 17.36 33.3 35.08 24.3 37.7 38.2 12.28 25.8 28.0 nVIDIA Corp.(NVDA-US) NVDA 35.4 44.9 44.9 (2.97) 11.1 11.08 2.9 16.4 16.4 (2.04) 7.1 7.1 Linear Technology Corp. (LLTC-US) LLTC 75.4 77.0 78.3 42.95 48.2 52.00 47.9 52.0 55.2 29.86 30.9 34.9 Mean 49.2 55.3 60.3 10.1 21.6 26.4 19.9 29.2 32.9 2.2 17.1 18.7 Median 51.2 60.0 63.6 16.9 24.3 31.5 24.3 28.8 36.2 5.0 15.9 20.1
  • 20. INDUSTRYCOMPARABLES Stock Performance Comparison 20 All values in millions ofU.S. Dollar, except per share items. LTM as of20-Apr-2011 Ticker Company Name High Low Beta 1 Week 1 Month 3 Months 6 Months 9 Months 1 Year 2 Years 3 Years 5 Years Micron Technology, Inc. (MU-US) MU 11.95 6.36 1.75 7.25 13.11 18.65 48.11 34.79 5.95 148.15 53.92 (32.20) Texas Instruments, Incorporated. (TXN-US) TXN 36.71 22.65 0.94 2.30 5.31 3.60 25.06 41.82 31.82 102.83 18.68 (1.21) Intel Corp. (INTC-US) INTC 24.25 17.60 0.96 8.24 7.43 2.20 9.01 (1.11) (11.24) 42.73 (5.06) 10.08 STMicroelectronics NV (STM-FR) STM 13.55 6.56 0.83 1.15 (1.19) 2.65 50.85 42.26 13.44 87.86 8.97 (37.39) Infineon Technologies AG (IFX-DE) IFX 11.40 5.05 1.54 8.15 6.32 9.41 36.78 70.65 49.41 473.92 51.66 5.85 NXPSemiconductors NV (NXPI-US) NXPI 34.80 10.23 2.78 6.40 21.81 54.87 175.08 - - - - - Broadcom Corp. (BRCM-US) BRCM 47.39 29.05 0.95 3.73 (0.33) (12.13) 6.26 7.10 11.01 81.46 71.39 (13.61) Xilinx, Inc. (XLNX-US) XLNX 35.42 22.75 0.99 1.73 (0.16) 1.47 21.95 11.49 14.84 54.21 28.79 16.96 Maxim Integrated Products, Inc. (MXIM-US) MXIM 28.44 15.67 1.11 2.90 5.79 (0.04) 33.14 42.80 22.97 83.31 26.20 (31.71) National Semiconductor Corp. (NSM-US) NSM 24.16 11.84 0.80 0.00 72.84 67.43 85.51 67.20 53.05 106.17 17.08 (19.83) AlteraCorp. (ALTR-US) ALTR 45.68 21.97 1.27 6.76 14.65 21.16 57.62 61.18 70.58 162.54 112.63 110.86 AnalogDevices, Inc. (ADI-US) ADI 41.66 26.28 0.98 2.99 3.07 0.13 23.59 29.72 26.76 88.49 23.12 (0.26) nVIDIA Corp. (NVDA-US) NVDA 26.17 8.65 1.39 4.56 5.39 (17.21) 64.48 73.23 8.98 68.05 (2.37) (4.34) Linear Technology Corp. (LLTC-US) LLTC 36.14 26.25 1.03 6.05 6.38 (1.00) 12.81 9.97 10.07 58.76 3.29 (3.66) Mean 31.2 17.3 1.2 4.2 11.3 10.2 46.3 38.0 25.1 117.5 29.5 2.6 Median 34.8 17.6 1.0 3.7 5.8 2.2 33.1 42.0 18.9 85.6 20.9 (2.4) 52 Week Price Change %
  • 21. FINANCIAL STATEMENTS PROJECTIONS ASSUMPTIONS 21
  • 22. FINANCIALSTATEMENTSPROJECTIONSASSUMPTIONS Income Statement and Cash Flow Statement Assumptions 22 Income Statement Projection Period Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Sales (% growth) 8.0% 7.0% 6.0% 5.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% Cost of Goods Sold (% sales) 45.0% 45.0% 45.0% 45.0% 45.0% 45.0% 45.0% 45.0% 45.0% 45.0% SG&A (% sales) 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% Other Expense / (Income) (% of sales) - % - % - % - % - % - % - % - % - % - % Depreciation & Amortization (% sales) 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% Amortization (% sales) - % - % - % - % - % - % - % - % - % - % Interest Income 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% Cash Flow Statement Projection Period Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Capital Expenditures (% sales) 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% Balance Sheet Assumptions Balance Sheet Projection Period Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Days Sales Outstanding (DSO) 61.0 61.0 61.0 61.0 61.0 61.0 61.0 61.0 61.0 61.0 Days Inventory Held (DIH) 88.0 88.0 88.0 88.0 88.0 88.0 88.0 88.0 88.0 88.0 Prepaids and Other Current Assets (% sales) 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% Days Payable Outstanding (DPO) 48.0 48.0 48.0 48.0 48.0 48.0 48.0 48.0 48.0 48.0 Accrued Liabilities (% sales) 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% Other Current Liabilities (% sales) 16.0% 16.0% 16.0% 16.0% 16.0% 16.0% 16.0% 16.0% 16.0% 16.0%
  • 23. TRANSACTION ANALYSIS 23
  • 24. TRANSACTIONANALYSIS Fully Diluted Shares and Purchase Price Calculation 24 Public (1) / Private (2) 2 Entry EBITDA Multiple 4.6x LTM 1/1/2011 EBITDA 3,567.0 Enterprise Value $16,408.2 Less: Total Debt (1,648.0) Less: Preferred Securities - Less: Noncontrolling Interest (1,796.0) Plus: Cash and Cash Equivalents 2,913.0 Equity Purchase Price $15,877.2 Premium Calculation (If Public) Stock Trading at (If Public) $11.00 Implied Premium Paid (If Public) 39% Purchase Price Implied Offer Price per Share $15.31 Stock Trading at (If Public) $11.00 Basic Shares Outstanding 1,037.0 Plus: Shares from In-the-Money Options - Less: Shares Repurchased - Net New Shares from Options - Plus: Shares from Convertible Securities - Fully Diluted Shares Outstanding 1,037.000 Number of Exercise In-the-Money Tranche Shares Price Shares Proceeds Tranche 1 - - - - Tranche 2 - - - - Tranche 3 - - - - Tranche 4 - - - - Tranche 5 - - - - Total - - - Conversion Conversion New Amount Price Ratio Shares Issue 1 - - - - Issue 2 - - - - Issue 3 - - - - Issue 4 - - - - Issue 5 - - - - Total - Options/Warrants Calculation of Fully Diluted Shares Outstanding Convertible Securities
  • 25. TRANSACTIONANALYSIS Sources and Uses of Funds 25 % of Total Equity % Amount Sources 1/1/2011 Cumulative Pricing Revolving Credit - - % - x - x L+325 bps Term Loan A 6,000.0 30.3% 1.7x 1.7x L+300 bps Term Loan B 2,000.0 10.1% 0.6x 2.2x L+350 bps Term Loan C - - % - x 2.2x L+350 bps 2nd Lien - - % - x 2.2x L+350 bps Senior Notes 1,000.0 5.0% 0.3x 2.5x 3.000% Senior Subordinated Notes - - % - x 2.5x 10.000% Sponsor Equity 100% 7,904.5 39.9% 2.2x 4.7x Rollover Equity 0% - - % - x 4.7x Management Equity 0% - - % - x 4.7x Cash on Hand 2,913.0 14.7% 0.8x 5.6x Total Sources $19,817.5 100.0% 5.6x 5.6x Multiple of EBITDA Sources of Funds % of Total Amount Uses Purchase Target Equity $15,877.2 80.1% Repay Existing Debt 1,648.0 8.3% Noncontrolling Interest 1,796.0 9.1% Financing Fees 177.8 0.9% Investment Banking Fees 158.8 0.8% Legal Fees 158.8 0.8% Other Fees and Expenses 1.0 0.0% Miscellaneous Expenses 1 - - % Miscellaneous Expenses 2 - - % Total Uses $19,817.5 100.0% Uses of Funds Offer Price per Share $15.31 Fully Diluted Shares 1,037.0 Equity Purchase Price $15,877.2 Plus: Existing Net Debt 531.0 Enterprise Value $16,408.2 Purchase Price Exit Year 2016 Entry Multiple 4.6x Exit Multiple 4.6x IRR 28.4% Cash Return 3.5x Return
  • 26. TRANSACTIONANALYSIS Financing Fees Amortization 26 Structure 3 Size (%) ($) Revolving Credit Size $300.0 1.750% $5.3 Term Loan A 6,000.0 1.750% 105.0 Term Loan B 2,000.0 1.750% 35.0 Term Loan C - - - 2nd Lien - - - Senior Notes 1,000.0 2.250% 22.5 Senior Subordinated Notes - 2.250% - Senior Bridge Facility 1,000.0 1.000% 10.0 Senior Subordinated Bridge Facility - 1.000% - Other Financing Fees & Expenses - Total Financing Fees $177.8 Financing Fees Fees Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Term 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Revolving Credit Size 6 $0.9 $0.9 $0.9 $0.9 $0.9 $0.9 - - - - Term Loan A 5 21.0 21.0 21.0 21.0 21.0 - - - - - Term Loan B 7 5.0 5.0 5.0 5.0 5.0 5.0 5.0 - - - Term Loan C 7 - - - - - - - - - - 2nd Lien - - - - - - - - - - - Senior Notes 10 2.3 2.3 2.3 2.3 2.3 2.3 2.3 2.3 2.3 2.3 Senior Subordinated Notes 10 - - - - - - - - - - Senior Bridge Facility 10 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 Senior Subordinated Bridge Facility 10 - - - - - - - - - - Other Financing Fees & Expenses 10 - - - - - - - - - - Annual Amortization $30.1 $30.1 $30.1 $30.1 $30.1 $9.1 $8.3 $3.3 $3.3 $3.3 Administrative Agent Fee 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 Amortization of Financing Fees
  • 27. TRANSACTIONANALYSIS Income Statement Projection 27 $ in Millions Historical Period Projection Period LTM Pro forma Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 2008 2009 2010 1/1/2011 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Sales $5,841.0 $4,803.0 $8,482.0 $8,482.0 $8,500.0 $9,180.0 $9,822.6 $10,412.0 $10,932.6 $11,260.5 $11,598.3 $11,946.3 $12,304.7 $12,673.8 $13,054.0 % growth NA (17.8%) 76.6% NA 0.2% 8.0% 7.0% 6.0% 5.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% Cost of Goods Sold 3,836.0 2,500.0 3,763.0 3,763.0 3,825.0 4,131.0 4,420.2 4,685.4 4,919.6 5,067.2 5,219.3 5,375.8 5,537.1 5,703.2 5,874.3 Gross Profit $2,005.0 $2,303.0 $4,719.0 $4,719.0 $4,675.0 $5,049.0 $5,402.4 $5,726.6 $6,012.9 $6,193.3 $6,379.1 $6,570.5 $6,767.6 $6,970.6 $7,179.7 % margin 34.3% 47.9% 55.6% 55.6% 55.0% 55.0% 55.0% 55.0% 55.0% 55.0% 55.0% 55.0% 55.0% 55.0% 55.0% Selling, General & Administrative 1,135.0 1,001.0 1,152.0 1,152.0 1,190.0 1,377.0 1,473.4 1,561.8 1,639.9 1,689.1 1,739.8 1,791.9 1,845.7 1,901.1 1,958.1 % sales 19.4% 20.8% 13.6% 13.6% 14.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% Other Expense / (Income) - - - - - - - - - - - - - - - EBITDA $870.0 $1,302.0 $3,567.0 $3,567.0 $3,485.0 $3,672.0 $3,929.0 $4,164.8 $4,373.0 $4,504.2 $4,639.3 $4,778.5 $4,921.9 $5,069.5 $5,221.6 % margin 14.9% 27.1% 42.1% 42.1% 41.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% Depreciation & Amortization 2,060.0 2,139.0 2,005.0 2,005.0 2,550.0 2,754.0 2,946.8 3,123.6 3,279.8 3,378.2 3,479.5 3,583.9 3,691.4 3,802.1 3,916.2 Amortization - - - - - - - - - - - - - - - EBIT ($1,190.0) ($837.0) $1,562.0 $1,562.0 $935.0 $918.0 $982.3 $1,041.2 $1,093.3 $1,126.1 $1,159.8 $1,194.6 $1,230.5 $1,267.4 $1,305.4 % margin (20.4%) (17.4%) 18.4% 18.4% 11.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% Interest Expense Revolving Credit Facility - - - - - - - - - - - Term Loan A 360.0 268.1 91.9 1.7 - - - - - - - Term Loan B 130.0 129.4 131.0 66.6 - - - - - - - Term Loan C - - - - - - - - - - - Existing Term Loan - - - - - - - - - - - 2nd Lien - - - - - - - - - - - Senior Notes 30.0 30.0 30.0 30.0 30.0 30.0 30.0 30.0 30.0 30.0 30.0 Senior Subordinated Notes - - - - - - - - - - - Commitment Fee on Unused Revolver 1.5 1.5 1.5 1.5 1.5 1.5 1.5 1.5 1.5 1.5 1.5 Administrative Agent Fee 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 Cash Interest Expense $521.7 $429.1 $254.6 $100.0 $31.7 $31.7 $31.7 $31.7 $31.7 $31.7 $31.7 Amortization of Deferred Financing Fees 30.1 30.1 30.1 30.1 30.1 30.1 9.1 8.3 3.3 3.3 3.3 Total Interest Expense $551.8 $459.2 $284.7 $130.1 $61.8 $61.8 $40.8 $39.9 $34.9 $34.9 $34.9 Interest Income - - (5.9) (28.8) (63.5) (99.4) (136.6) (175.2) (215.1) (256.4) Net Interest Expense $459.2 $284.7 $124.2 $33.0 ($1.7) ($58.6) ($96.7) ($140.3) ($180.2) ($221.5) Earnings Before Taxes 458.8 697.6 916.9 1,060.2 1,127.7 1,218.5 1,291.4 1,370.7 1,447.5 1,526.9 Income Tax Expense 174.4 265.1 348.4 402.9 428.5 463.0 490.7 520.9 550.1 580.2 Net Income $284.5 $432.5 $568.5 $657.3 $699.2 $755.5 $800.6 $849.9 $897.5 $946.7 % margin 3.1% 4.4% 5.5% 6.0% 6.2% 6.5% 6.7% 6.9% 7.1% 7.3% LTM Pro forma Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Income Statement Assumptions 2008 2009 2010 1/1/2011 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Sales (% YoY growth) NA (17.8%) 76.6% NA 0.2% 8.0% 7.0% 6.0% 5.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% Cost of Goods Sold (% margin) 65.7% 52.1% 44.4% 44.4% 45.0% 45.0% 45.0% 45.0% 45.0% 45.0% 45.0% 45.0% 45.0% 45.0% 45.0% SG&A (% sales) 19.4% 20.8% 13.6% 13.6% 14.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% Other Expense / (Income) (% of sales) - % - % - % - % - % - % - % - % - % - % - % - % - % - % - % Depreciation & Amortization (% of sales) 35.3% 44.5% 23.6% 23.6% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% Amortization (% of sales) - % - % - % - % - % - % - % - % - % - % - % - % - % - % - % Interest Income 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% Tax Rate 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% Income Statement
  • 28. TRANSACTIONANALYSIS Balance Sheet Projection and Adjustments 28 $ in Millions Projection Period Opening Pro Forma Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 2011 (+) (-) 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Cash and Cash Equivalents $2,913.0 (2,913.0) - - - $1,172.2 $4,579.1 $8,114.8 $11,770.1 $15,556.4 $19,476.2 $23,535.6 $27,738.9 Accounts Receivable 1,531.0 1,531.0 1,534.2 1,641.6 1,740.1 1,827.1 1,881.9 1,938.4 1,996.5 2,056.4 2,118.1 2,181.6 Inventories 1,770.0 1,770.0 996.0 1,065.7 1,129.6 1,186.1 1,221.7 1,258.3 1,296.1 1,335.0 1,375.0 1,416.3 Prepaids and Other Current Assets 119.0 119.0 91.8 98.2 104.1 109.3 112.6 116.0 119.5 123.0 126.7 130.5 Total Current Assets $6,333.0 $3,420.0 $2,622.0 $2,805.5 $4,146.0 $7,701.6 $11,331.0 $15,082.8 $18,968.4 $22,990.6 $27,155.4 $31,467.4 Property, Plant and Equipment, net 6,601.0 6,601.0 4,306.0 1,850.4 (752.6) (3,485.8) (6,300.9) (9,200.5) (12,187.1) (15,263.2) (18,431.7) (21,695.2) Goodwill and Intangible Assets 323.0 7,857.2 8,180.2 8,180.2 8,180.2 8,180.2 8,180.2 8,180.2 8,180.2 8,180.2 8,180.2 8,180.2 8,180.2 Other Assets 1,291.0 1,291.0 1,291.0 1,291.0 1,291.0 1,291.0 1,291.0 1,291.0 1,291.0 1,291.0 1,291.0 1,291.0 Deferred Financing Fees - 177.8 177.8 147.6 117.5 87.4 57.3 27.1 18.0 9.8 6.5 3.3 (0.0) Total Assets $14,548.0 $19,670.0 $16,546.8 $14,244.5 $12,952.0 $13,744.2 $14,528.5 $15,371.5 $16,262.3 $17,205.0 $18,198.2 $19,243.4 Accounts Payable 799.0 799.0 543.3 581.3 616.2 647.0 666.4 686.4 707.0 728.2 750.0 772.5 Accrued Liabilities 346.0 346.0 367.2 392.9 416.5 437.3 450.4 463.9 477.9 492.2 507.0 522.2 Other Current Liabilities 1,557.0 1,557.0 1,468.8 1,571.6 1,665.9 1,749.2 1,801.7 1,855.7 1,911.4 1,968.7 2,027.8 2,088.6 Total Current Liabilities $2,702.0 $2,702.0 $2,379.3 $2,545.8 $2,698.6 $2,833.5 $2,918.5 $3,006.0 $3,096.2 $3,189.1 $3,284.8 $3,383.3 Revolving Credit Facility - - - - - - - - - - - - - Term Loan A - 6,000.0 6,000.0 2,935.1 53.8 - - - - - - - - Term Loan B - 2,000.0 2,000.0 1,980.0 1,960.0 - - - - - - - - Term Loan C - - - - - - - - - - - - - Existing Term Loan 1,648.0 (1,648.0) - - - - - - - - - - - 2nd Lien - - - - - - - - - - - - - Senior Notes - 1,000.0 1,000.0 1,000.0 1,000.0 1,000.0 1,000.0 1,000.0 1,000.0 1,000.0 1,000.0 1,000.0 1,000.0 Senior Subordinated Notes - - - - - - - - - - - - - Other Debt (129.0) (129.0) (129.0) (129.0) (129.0) (129.0) (129.0) (129.0) (129.0) (129.0) (129.0) (129.0) Other Long-Term Liabilities 511.0 511.0 511.0 511.0 511.0 511.0 511.0 511.0 511.0 511.0 511.0 511.0 Total Liabilities $4,732.0 $12,084.0 $8,676.4 $5,941.6 $4,080.6 $4,215.5 $4,300.5 $4,388.0 $4,478.2 $4,571.1 $4,666.8 $4,765.3 Noncontrolling Interest 1,796.0 (1,796.0) - - - - - - - - - - - All Shareholders' Equity 8,020.0 7,586.0 (8,020.0) 7,586.0 7,870.4 8,302.9 8,871.4 9,528.8 10,228.0 10,983.4 11,784.1 12,633.9 13,531.4 14,478.1 Total Shareholders' Equity $9,816.0 $7,586.0 $7,870.4 $8,302.9 $8,871.4 $9,528.8 $10,228.0 $10,983.4 $11,784.1 $12,633.9 $13,531.4 $14,478.1 Total Liabilities and Equity $14,548.0 $19,670.0 $16,546.8 $14,244.5 $12,952.0 $13,744.2 $14,528.5 $15,371.5 $16,262.3 $17,205.0 $18,198.2 $19,243.4 Balance Check 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 Net Working Capital 718.0 718.0 242.7 259.7 275.3 289.0 297.7 306.6 315.8 325.3 335.1 345.1 (Increase) / Decrease in Net Working Capital 475.3 (17.0) (15.6) (13.8) (8.7) (8.9) (9.2) (9.5) (9.8) (10.1) Opening Pro forma Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Balance Sheet Assumptions 2011 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Days Sales Outstanding (DSO) 65.7 65.7 61.0 61.0 61.0 61.0 61.0 61.0 61.0 61.0 61.0 61.0 Days Inventory Held (DIH) 168.9 168.9 88.0 88.0 88.0 88.0 88.0 88.0 88.0 88.0 88.0 88.0 Prepaid and Other Current Assets (% of sales) 1.4% 1.4% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% Days Payable Outstanding (DPO) 76.2 76.2 48.0 48.0 48.0 48.0 48.0 48.0 48.0 48.0 48.0 48.0 Accrued Liabilities (% of sales) 4.1% 4.1% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% Other Current Liabilities (% of sales) 18.3% 18.3% 16.0% 16.0% 16.0% 16.0% 16.0% 16.0% 16.0% 16.0% 16.0% 16.0% Balance Sheet Current Assets Current Liabilities Adjustments
  • 29. TRANSACTIONANALYSIS Cash Flow Statement Projections 29 $ in Millions Projection Period Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Operating Activities Net Income $284.5 $432.5 $568.5 $657.3 $699.2 $755.5 $800.6 $849.9 $897.5 $946.7 Plus: Depreciation & Amortization 2,754.0 2,946.8 3,123.6 3,279.8 3,378.2 3,479.5 3,583.9 3,691.4 3,802.1 3,916.2 Plus: Amortization - - - - - - - - - - Plus: Amortization of Financing Fees 30.1 30.1 30.1 30.1 30.1 9.1 8.3 3.3 3.3 3.3 Changes in Working Capital Items (Inc.) / Dec. in Accounts Receivable (3.2) (107.4) (98.5) (87.0) (54.8) (56.5) (58.2) (59.9) (61.7) (63.5) (Inc.) / Dec. in Inventories 774.0 (69.7) (63.9) (56.5) (35.6) (36.7) (37.8) (38.9) (40.0) (41.3) (Inc.) / Dec. in Prepaid and Other Current Assets 27.2 (6.4) (5.9) (5.2) (3.3) (3.4) (3.5) (3.6) (3.7) (3.8) Inc. / (Dec.) in Accounts Payable (255.7) 38.0 34.9 30.8 19.4 20.0 20.6 21.2 21.8 22.5 Inc. / (Dec.) in Accrued Liabilities 21.2 25.7 23.6 20.8 13.1 13.5 13.9 14.3 14.8 15.2 Inc. / (Dec.) in Other Current Liabilities (88.2) 102.8 94.3 83.3 52.5 54.1 55.7 57.3 59.1 60.8 (Inc.) / Dec. in Net Working Capital 475.3 (17.0) (15.6) (13.8) (8.7) (8.9) (9.2) (9.5) (9.8) (10.1) Cash Flow from Operating Activities $3,543.9 $3,392.4 $3,706.6 $3,953.5 $4,098.8 $4,235.2 $4,383.6 $4,535.0 $4,693.1 $4,856.1 Investing Activities Capital Expenditures (459.0) (491.1) (520.6) (546.6) (563.0) (579.9) (597.3) (615.2) (633.7) (652.7) Other Investing Activities - - - - - - - - - - Cash Flow from Investing Activities ($459.0) ($491.1) ($520.6) ($546.6) ($563.0) ($579.9) ($597.3) ($615.2) ($633.7) ($652.7) Financing Activities Revolving Credit Facility - - - - - - - - - - Term Loan A (3,064.9) (2,881.3) (53.8) - - - - - - - Term Loan B (20.0) (20.0) (1,960.0) - - - - - - - Term Loan C - - - - - - - - - - Existing Term Loan - - - - - - - - - - 2nd Lien - - - - - - - - - - Senior Notes - - - - - - - - - - Senior Subordinated Notes - - - - - - - - - - Other Debt - - - - - - - - - - Dividends - - - - - - - - - - Equity Issuance / (Repurchase) - - - - - - - - - - Cash Flow from Financing Activities ($3,084.9) ($2,901.3) ($2,013.8) - - - - - - - Excess Cash for the Period - - $1,172.2 $3,406.8 $3,535.8 $3,655.2 $3,786.3 $3,919.8 $4,059.4 $4,203.4 Beginning Cash Balance - - - 1,172.2 4,579.1 8,114.8 11,770.1 15,556.4 19,476.2 23,535.6 Ending Cash Balance - - $1,172.2 $4,579.1 $8,114.8 $11,770.1 $15,556.4 $19,476.2 $23,535.6 $27,738.9 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Cash Flow Statement Assumptions 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Capital Expenditures (% of sales) 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% Cash Flow Statement
  • 30. TRANSACTIONANALYSIS Debt Schedule 30 $ in Millions Projection Period Pro forma Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Forward LIBOR Curve 3.00% 3.00% 3.15% 3.30% 3.60% 4.00% 4.35% 4.80% 4.85% 5.10% 5.25% Cash Flow from Operating Activities $3,543.9 $3,392.4 $3,706.6 $3,953.5 $4,098.8 $4,235.2 $4,383.6 $4,535.0 $4,693.1 $4,856.1 Cash Flow from Investing Activities (459.0) (491.1) (520.6) (546.6) (563.0) (579.9) (597.3) (615.2) (633.7) (652.7) Cash Available for Debt Repayment $3,084.9 $2,901.3 $3,186.0 $3,406.8 $3,535.8 $3,655.2 $3,786.3 $3,919.8 $4,059.4 $4,203.4 Total Mandatory Repayments MinCash (20.0) (20.0) (20.0) - - - - - - - Cash From Balance Sheet - - - - 1,172.2 4,579.1 8,114.8 11,770.1 15,556.4 19,476.2 23,535.6 Cash Available for Optional Debt Repayment $3,064.9 $2,881.3 $3,166.0 $4,579.1 $8,114.8 $11,770.1 $15,556.4 $19,476.2 $23,535.6 $27,738.9 Debt Schedule Term Loan A Size $6,000.0 Spread 3.000% Term 5 years Repayment Schedule - % - % - % - % - % 100.0% Beginning Balance $6,000.0 $2,935.1 $53.8 - - - - - - - Mandatory Repayments - - - - - - - - - - Optional Repayments (3,064.9) (2,881.3) (53.8) - - - - - - - Ending Balance $2,935.1 $53.8 - - - - - - - - Interest Rate 6.00% 6.15% 6.30% 6.60% 7.00% 7.35% 7.80% 7.85% 8.10% 8.25% Interest Expense 268.1 91.9 1.7 - - - - - - - Term Loan B Size $2,000.0 Spread 3.500% Term 7 years Repayment Schedule 1.0% Per Annum, Bullet at Maturity Beginning Balance $2,000.0 $1,980.0 $1,960.0 - - - - - - - Mandatory Repayments (20.0) (20.0) (20.0) - - - - - - - Optional Repayments - - (1,940.0) - - - - - - - Ending Balance $1,980.0 $1,960.0 - - - - - - - - Interest Rate 6.50% 6.65% 6.80% 7.10% 7.50% 7.85% 8.30% 8.35% 8.60% 8.75% Interest Expense 129.4 131.0 66.6 - - - - - - - Senior Notes Size $1,000.0 Coupon 3.000% Term 10 years Beginning Balance $1,000.0 $1,000.0 $1,000.0 $1,000.0 $1,000.0 $1,000.0 $1,000.0 $1,000.0 $1,000.0 $1,000.0 Repayment - - - - - - - - - - Ending Balance $1,000.0 $1,000.0 $1,000.0 $1,000.0 $1,000.0 $1,000.0 $1,000.0 $1,000.0 $1,000.0 $1,000.0 Interest Expense 30.0 30.0 30.0 30.0 30.0 30.0 30.0 30.0 30.0 30.0
  • 31. TRANSACTIONANALYSIS Free Cash Flow , Capitalization and Credit Statistics Summary 31 Projection Period LTM Pro forma Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 2008 2009 2010 1/1/2011 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Sales $5,841.0 $4,803.0 $8,482.0 $8,482.0 $8,500.0 $9,180.0 $9,822.6 $10,412.0 $10,932.6 $11,260.5 $11,598.3 $11,946.3 $12,304.7 $12,673.8 $13,054.0 % growth NA (17.8%) 76.6% NA 0.2% 8.0% 7.0% 6.0% 5.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% Gross Profit $2,005.0 $2,303.0 $4,719.0 $4,719.0 $4,675.0 $5,049.0 $5,402.4 $5,726.6 $6,012.9 $6,193.3 $6,379.1 $6,570.5 $6,767.6 $6,970.6 $7,179.7 % margin 34.3% 47.9% 55.6% 55.6% 55.0% 55.0% 55.0% 55.0% 55.0% 55.0% 55.0% 55.0% 55.0% 55.0% 55.0% EBITDA $870.0 $1,302.0 $3,567.0 $3,567.0 $3,485.0 $3,672.0 $3,929.0 $4,164.8 $4,373.0 $4,504.2 $4,639.3 $4,778.5 $4,921.9 $5,069.5 $5,221.6 % margin 14.9% 27.1% 42.1% 42.1% 41.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% Capital Expenditures 2,529.0 488.0 616.0 616.0 616.0 459.0 491.1 520.6 546.6 563.0 579.9 597.3 615.2 633.7 652.7 % sales 43.3% 10.2% 7.3% 7.3% 7.2% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% Cash Interest Expense 521.7 429.1 254.6 100.0 31.7 31.7 31.7 31.7 31.7 31.7 31.7 Total Interest Expense 551.8 459.2 284.7 130.1 61.8 61.8 40.8 39.9 34.9 34.9 34.9 Free Cash Flow EBITDA $3,672.0 $3,929.0 $4,164.8 $4,373.0 $4,504.2 $4,639.3 $4,778.5 $4,921.9 $5,069.5 $5,221.6 Less: Cash Interest Expense (429.1) (254.6) (100.0) (31.7) (31.7) (31.7) (31.7) (31.7) (31.7) (31.7) Plus: Interest Income - - 5.9 28.8 63.5 99.4 136.6 175.2 215.1 256.4 Less: Income Taxes (174.4) (265.1) (348.4) (402.9) (428.5) (463.0) (490.7) (520.9) (550.1) (580.2) Less: Capital Expenditures (459.0) (491.1) (520.6) (546.6) (563.0) (579.9) (597.3) (615.2) (633.7) (652.7) Less: Increase in Net Working Capital 475.3 (17.0) (15.6) (13.8) (8.7) (8.9) (9.2) (9.5) (9.8) (10.1) Free Cash Flow $3,084.9 $2,901.3 $3,186.0 $3,406.8 $3,535.8 $3,655.2 $3,786.3 $3,919.8 $4,059.4 $4,203.4 Cumulative Free Cash Flow 3,084.9 5,986.2 9,172.2 12,579.1 16,114.8 19,770.1 23,556.4 27,476.2 31,535.6 35,738.9 Cash - - - $1,172.2 $4,579.1 $8,114.8 $11,770.1 $15,556.4 $19,476.2 $23,535.6 $27,738.9 Revolving Credit Facility - - - - - - - - - - - Term Loan A 6,000.0 2,935.1 53.8 - - - - - - - - Term Loan B 2,000.0 1,980.0 1,960.0 - - - - - - - - Term Loan C - - - - - - - - - - - Existing Term Loan - - - - - - - - - - - 2nd Lien - - - - - - - - - - - Other Debt (129.0) (129.0) (129.0) (129.0) (129.0) (129.0) (129.0) (129.0) (129.0) (129.0) (129.0) Total Senior Secured Debt $7,871.0 $4,786.1 $1,884.8 ($129.0) ($129.0) ($129.0) ($129.0) ($129.0) ($129.0) ($129.0) ($129.0) Senior Notes 1,000.0 1,000.0 1,000.0 1,000.0 1,000.0 1,000.0 1,000.0 1,000.0 1,000.0 1,000.0 1,000.0 Total Senior Debt $8,871.0 $5,786.1 $2,884.8 $871.0 $871.0 $871.0 $871.0 $871.0 $871.0 $871.0 $871.0 Senior Subordinated Notes - - - - - - - - - - - Total Debt $8,871.0 $5,786.1 $2,884.8 $871.0 $871.0 $871.0 $871.0 $871.0 $871.0 $871.0 $871.0 Shareholders' Equity 7,586.0 7,870.4 8,302.9 8,871.4 9,528.8 10,228.0 10,983.4 11,784.1 12,633.9 13,531.4 14,478.1 Total Capitalization $16,457.0 $13,656.5 $11,187.7 $9,742.4 $10,399.8 $11,099.0 $11,854.4 $12,655.1 $13,504.9 $14,402.4 $15,349.1 % of Bank Debt Repaid - 38.6% 74.8% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% % Debt / Total Capitalization 53.9% 42.4% 25.8% 8.9% 8.4% 7.8% 7.3% 6.9% 6.4% 6.0% 5.7% EBITDA / Cash Interest Expense 6.7x 8.6x 15.4x 41.7x 138.2x 142.3x 146.6x 151.0x 155.5x 160.2x 165.0x (EBITDA - Capex) / Cash Interest Expense 5.5x 7.5x 13.5x 36.4x 120.9x 124.5x 128.3x 132.1x 136.1x 140.2x 144.4x EBITDA / Total Interest Expense 6.3x 8.0x 13.8x 32.0x 70.8x 72.9x 113.8x 119.8x 141.0x 145.3x 149.6x (EBITDA - Capex) / Total Interest Expense 5.2x 7.0x 12.1x 28.0x 61.9x 63.8x 99.6x 104.8x 123.4x 127.1x 130.9x Senior Secured Debt / EBITDA 2.3x 1.3x 0.5x (0.0x) (0.0x) (0.0x) (0.0x) (0.0x) (0.0x) (0.0x) (0.0x) Senior Debt / EBITDA 2.5x 1.6x 0.7x 0.2x 0.2x 0.2x 0.2x 0.2x 0.2x 0.2x 0.2x Total Debt / EBITDA 2.5x 1.6x 0.7x 0.2x 0.2x 0.2x 0.2x 0.2x 0.2x 0.2x 0.2x Net Debt / EBITDA 2.5x 1.6x 0.7x (0.1x) (0.8x) (1.6x) (2.3x) (3.1x) (3.8x) (4.5x) (5.1x) Historical Period Capitalization Credit Statistics Free Cash Flow
  • 32. RETURN ANALYSIS 32
  • 33. RETURNANALYSIS Return Analysis 33 $ in Millions Initial Sponsor Equity $7,904.5 100% Initial Rollover Equity - 0% Initial Management Equity - 0% Total Initial Equity $7,904.5 100% Projection Period Pro forma Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Entry EBITDA Multiple 4.6x EBITDA $3,672.0 $3,929.0 $4,164.8 $4,373.0 $4,504.2 $4,639.3 $4,778.5 $4,921.9 $5,069.5 $5,221.6 Exit EBITDA Multiple 4.6x Enterprise Value at Exit $16,891.2 $18,073.6 $19,158.0 $20,115.9 $20,719.4 $21,341.0 $21,981.2 $22,640.6 $23,319.8 $24,019.4 Less: Net Debt Revolving Credit - - - - - - - - - - Term Loan A 2,935.1 53.8 - - - - - - - - Term Loan B 1,980.0 1,960.0 - - - - - - - - Term Loan C - - - - - - - - - - Existing Term Loan - - - - - - - - - - 2nd Lien - - - - - - - - - - Senior Notes 1,000.0 1,000.0 1,000.0 1,000.0 1,000.0 1,000.0 1,000.0 1,000.0 1,000.0 1,000.0 Senior Subordinated Notes - - - - - - - - - - Other Debt (129.0) (129.0) (129.0) (129.0) (129.0) (129.0) (129.0) (129.0) (129.0) (129.0) Total Debt $5,786.1 $2,884.8 $871.0 $871.0 $871.0 $871.0 $871.0 $871.0 $871.0 $871.0 Less: Cash and Cash Equivalents - - 1,172.2 4,579.1 8,114.8 11,770.1 15,556.4 19,476.2 23,535.6 27,738.9 Net Debt $5,786.1 $2,884.8 ($301.2) ($3,708.1) ($7,243.8) ($10,899.1) ($14,685.4) ($18,605.2) ($22,664.6) ($26,867.9) Less: Fees and Expenses Investment Banking Fees (1% of Transcation Value) 168.9 180.7 191.6 201.2 207.2 213.4 219.8 226.4 233.2 240.2 Legal Fees (1% of Transaction Value) 168.9 180.7 191.6 201.2 207.2 213.4 219.8 226.4 233.2 240.2 Other Fees and Expenses ($1MM) 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 Toal Fees and Expenses 338.8 362.5 384.2 403.3 415.4 427.8 440.6 453.8 467.4 481.4 All Equity Value at Exit $10,766.3 $14,826.3 $19,075.0 $23,420.6 $27,547.8 $31,812.2 $36,225.9 $40,792.0 $45,517.0 $50,406.0 Cash Return 1.4x 1.9x 2.4x 3.0x 3.5x 4.0x 4.6x 5.2x 5.8x 6.4x Sponsor IRR Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Sponsor Equity % 100% 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Initial Equity Investment ($7,904.5) ($7,904.5) ($7,904.5) ($7,904.5) ($7,904.5) ($7,904.5) ($7,904.5) ($7,904.5) ($7,904.5) ($7,904.5) Equity Proceeds $10,766.3 - - - - - - - - - $14,826.3 - - - - - - - - $19,075.0 - - - - - - - $23,420.6 - - - - - - $27,547.8 - - - - - $31,812.2 - - - - $36,225.9 - - - $40,792.0 - - $45,517.0 - $50,406.0 IRR 36.2% 37.0% 34.1% 31.2% 28.4% 26.1% 24.3% 22.8% 21.5% 20.4% Returns Analysis
  • 34. RETURNANALYSIS IRR Sensitivity Analysis w.r.t Entry Multiple and Exit Multiple Assuming Exit in 2016 34 IRR Sensitivity Analysis w.r.t Exit Multiple and Exit Year Assuming 4.6x Entry Multiple IRR - Assuming Exit in 2016E Exit Multiple 28.4% 3.6x 4.1x 4.6x 5.1x 5.6x3.1x 56.7% 59.6% 62.3% 64.8% 67.2% 3.6x 40.2% 42.8% 45.2% 47.5% 49.6% Entry 4.1x 30.6% 33.0% 35.3% 37.4% 39.3% Multiple 4.6x 24.0% 26.2% 28.4% 30.4% 32.2% 5.1x 18.9% 21.1% 23.2% 25.1% 26.9% 5.6x 14.9% 17.0% 19.0% 20.9% 22.6% IRR - Assuming 4.6x Entry Multiple Exit Year 2016 2017 2018 2019 202028.4% 26.1% 24.3% 22.8% 21.5% 3.6x 24.0% 22.9% 21.9% 20.9% 19.9% Exit 4.1x 26.2% 24.6% 23.1% 21.8% 20.7% Multiple 4.6x 28.4% 26.1% 24.3% 22.8% 21.5% 5.1x 30.4% 27.6% 25.4% 23.7% 22.2% 5.6x 32.2% 29.0% 26.5% 24.5% 22.9%
  • 35. RETURNANALYSIS Alternative Financing Structures and Corresponding IRRs 24.0% 35 5 Year IRR 25.5% 27.3% 28.4% 26.4% Structure 1 2 3 4 5 Base Structure 1 Structure 2 Structure 3 Structure 4 Revolving Credit Size $300.0 $300.0 $300.0 $300.0 $300.0 Revolving Credit Draw - - - - - Term Loan A 5,000.0 5,000.0 6,000.0 6,000.0 5,000.0 Term Loan B 1,000.0 2,000.0 2,000.0 2,000.0 2,000.0 Term Loan C - - - - - 2nd Lien - - - - - Senior Notes 500.0 500.0 500.0 1,000.0 1,000.0 Senior Subordinated Notes - - - - - Sponsor Equity 100% 10,404.5 9,404.5 8,404.5 7,904.5 8,904.5 Rollover Equity 0% - - - - - Management Equity 0% - - - - - Cash on Hand 2,913.0 2,913.0 2,913.0 2,913.0 2,913.0 Other Source - - - - - Total Sources of Funds $19,817.5 $19,817.5 $19,817.5 $19,817.5 $19,817.5 Target Equity Purchase Price $15,877.2 $15,877.2 $15,877.2 $15,877.2 $15,877.2 Repay Existing Bank Debt 1,648.0 1,648.0 1,648.0 1,648.0 1,648.0 Noncontrolling Interest 1,796.0 1,796.0 1,796.0 1,796.0 1,796.0 Financing Fees 177.8 177.8 177.8 177.8 177.8 Investment Banking Fees 158.8 158.8 158.8 158.8 158.8 Legal Fees 158.8 158.8 158.8 158.8 158.8 Other Fees and Expenses 1.0 1.0 1.0 1.0 1.0 Miscellaneous Expenses 1 - - - - - Miscellaneous Expenses 2 - - - - - Total Uses of Funds $19,817.5 $19,817.5 $19,817.5 $19,817.5 $19,817.5 Sources of Funds Uses of Funds Financing Structures
  • 36. EXIT STRATEGIES 36
  • 37. EXITSTRATEGIES Potential Strategic Buyers 37 Company Business Description Acquisition Rationale •World's second-largest memory semiconductor supplier of dynamic random access memory ('DRAM') chips and flash memory chips •Will increase its scale that is crucial to profitability • Will give access to US market •Largest manufacturer of memory chips •Will reduce industry overcapacity and give better pricing power •Will access Micron’s technology know how in fast memory chips for video game applications •Best known for its processors, although it also designs, licenses and sells software development tools • Will get better competitive advantage by combining its low priced processors and memory chips for system solutions •Gain access to a wider and fast growing market
  • 38. EXITSTRATEGIES Potential Financial Buyers 38 Private Equity Firm Industry Focus Comments •Consumer Retail •Media and telecommunications •Industrials •Technology •Travel/leisure •Health care •Investment in On Semiconductor Inc • Invested to carve out Conexant from Rockwell Automation •Chemicals •Consumer products •Energy & natural resources •Financial services •Health care •Industrial •Media and communications •Technology •Purchased Agilent Technologies for $2.7 billion •Sold two chip business lines for a combined price of $665 million. •Digital Media •Telecom •Social Commerce •Software •Semiconductor •Clean Technology •Social Network and Gaming • Leader in private investments in technology and technology- enabled industries •Among its most notable investments are Avaya, Sabre Holdings, UGS Corp., Skype, Seagate Technology
  • 39. 39 Prepared by Deb Sahoo MBA, Ross School of Business University of Michigan, Ann Arbor