Exhibit C4
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Exhibit c4
Project Piston
DISCUSSION MATERIALS FOR THE SPECIAL COMMITTEE
AUGUST 15, 2016 | PRELIMINARY DRAFT – SUBJECT TO REVIEW – CONFIDENTIAL
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Table of Contents
Page
1. Executive Summary 3
2. Preliminary Financial Analyses 11
3. Selected Public Market Observations 21
4. Appendix 26 Cost of Capital Considerations 27 Selected Companies—Operating Statistics 33 Company Financial Performance Observations 37 Implied Premiums Paid Observations 40 Illustrative Preliminary Financial Analyses (EBITDA) 43
5. Disclaimer 56
CONFIDENTIAL—PRELIMINARY DRAFT—SUBJECT TO FURTHER REVIEW 2
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Page
1. Executive Summary 3
2. Preliminary Financial Analyses 11
3. Selected Public Market Observations 21
4. Appendix 26
5. Disclaimer 56
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Recent Piston Stock Price Performance
Piston’s stock price has risen since late June 2016, when discussions with IEP paused shortly following public announcement of IEP’s revised $8.00 per share proposal (the “Revised IEP Proposal”).
Stock price is up from $8.16 as of market close on June 17, 2016 (the last trading day prior to public announcement of the Revised IEP Proposal) to $8.81 per share as of market close on August 12, 2016. Over that same period, over 85% of Piston’s trading volume has occurred above $8.25 per share, with close to 50% above $8.75 per share and close to 20% above $9.00 per share.
VWAP since June 29, 2016 (when discussions with IEP paused) is $8.81 per share.
Recent Stock Price and Volume Information
Share Price Volume Stock Price VWAP Since 6/29/2016 Volume (in millions) $10.00 1.000
0.900 $9.50 0.800
VWAP Since 6/29/2016 0.700 $9.00 $8.81 0.600
$8.50 0.500
0.400 $8.00 0.300
0.200 $7.50 0.100
$7.00 0.000 5/2/2016 5/9/2016 5/16/2016 5/23/2016 5/30/2016 6/6/2016 6/13/2016 6/20/2016 6/27/2016 7/4/2016 7/11/2016 7/18/2016 7/25/2016 8/1/2016 8/8/2016
Source: Capital IQ.
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Recent Market Developments
The below schedule highlights recent changes in selected market multiples of other industry participants. The schedule shows both updated market multiples (based on pricing and analyst consensus estimates for each of the selected companies based on information available as of August 12, 2016 market close) and corresponding June 13, 2016 information included in the June 14, 2016 preliminary Special Committee discussion materials.
(dollars in millions, except per share values) June 13, 2016 August 12, 2016 Change
Adjusted Enterprise Value1 Adjusted Enterprise Value1 Adjusted Enterprise Value1 to Adjusted EBITDAP to Adjusted EBITDAP to Adjusted EBITDAP
Selected Company LTM CY 2016E2 CY 2017E2 LTM CY 2016E2 CY 2017E2 LTM CY 2016E2 CY 2017E2
Pow ertrain
BorgWarner Inc. 6.6x 6.3x 5.9x ## 6.4x 6.3x 6.0x 6 9 -0.2x 0.0x 0.1x Carraro SpA 7.8x NA NA NA 6.0x NA NA NA NA -1.7x NA NA Cummins Inc. 6.9x 7.9x 8.1x ## 7.9x 8.7x 8.9x 9 12 1.0x 0.8x 0.8x Dana Incorporated 5.3x 4.7x 4.4x ## 5.8x 5.0x 4.8x 5 9 0.5x 0.3x 0.4x DENSO Corporation 4.8x 4.7x 4.4x ## 4.7x 4.9x 4.7x 5 9 -0.1x 0.2x 0.3x ElringKlinger AG 7.6x 6.8x 6.0x ## 7.3x 7.0x 6.2x 6 14 -0.3x 0.2x 0.2x Linamar Corp. 5.0x 4.7x 4.3x ## 5.0x 4.7x 4.5x 4 9 0.0x 0.0x 0.2x Metaldyne Performance Group Inc. 5.6x 5.4x 5.1x ## 5.8x 5.5x 5.3x 5 9 0.2x 0.1x 0.2x Modine Manufacturing Company 5.4x 5.2x 4.6x ## 5.6x 5.3x 4.7x 5 9 0.2x 0.1x 0.1x Schaeffler AG 6.2x 5.9x 5.6x ## 6.1x 6.0x 5.7x 6 10 -0.1x 0.1x 0.1x Low 4.8x 4.7x 4.3x 4.7x 4.7x 4.5x -0.1x 0.0x 0.2x High 7.8x 7.9x 8.1x 7.9x 8.7x 8.9x 0.1x 0.8x 0.8x Median 5.9x 5.4x 5.1x 5.9x 5.5x 5.3x 0.0x 0.1x 0.2x Mean 6.1x 5.7x 5.4x 6.1x 5.9x 5.7x -0.1x 0.2x 0.3x
Motorparts
Dorman Products, Inc. 10.5x 9.9x 9.2x ## 11.9x 11.3x 10.6x 11 12 1.4x 1.4x 1.4x Genuine Parts Company 12.0x 11.2x 10.7x ## 12.9x 12.0x 11.3x 11 13 0.9x 0.8x 0.6x Motorcar Parts of America, Inc. 16.0x 6.4x 5.6x ## 12.0x 7.9x 6.4x 6 7 -4.0x 1.5x 0.8x Standard Motor Products Inc. 8.4x 7.8x 7.0x ## 9.2x 8.7x 8.5x 8 NA 0.8x 0.9x 1.5x Low 8.4x 6.4x 5.6x 9.2x 7.9x 6.4x 0.8x 1.5x 0.8x High 16.0x 11.2x 10.7x 12.9x 12.0x 11.3x -3.1x 0.8x 0.6x Median 11.2x 8.8x 8.1x 11.9x 10.0x 9.5x 0.7x 1.2x 1.4x Mean 11.7x 8.8x 8.1x 11.5x 10.0x 9.2x -0.3x 1.2x 1.1x
Note: No company used for comparative purposes is identical to Pow ertrain, Motorparts or the Company.
1. Adjusted Enterprise Value equals equity market value + minority interest + debt outstanding + preferred stock – cash and cash equivalents + tax-effected underfunded pension and post-employment liabilities.
2. Multiples based on forw ard-looking financial information for DENSO Corporation, Motorcar Parts of America, Inc. and Modine Manufacturing Company have been calendarized to the Company’s fiscal year-end of December 31. All other companies show n have December 31 fiscal year-ends.
Adjusted EBITDAP refers to Earnings Before Interest, Taxes, Depreciation, Amortization and Pension (and OPEB) Expense, adjusted for certain non-recurring items. CY refers to Calendar Year.
E refers to Estimated.
LTM refers to the most recently completed 12-month period for w hich financial information has been made public. NA refers to Not Available.
Source: Bloomberg, Capital IQ, public filings.
There have been no identified announced transactions with publicly disclosed financial metrics since those referenced in the June 14, 2016 preliminary Special Committee discussion materials.
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Company Financial Update: Powertrain Operating Performance
Recent Performance Selected Highlights from Piston 2Q 2016 vs. Budget Earnings Release and Call Transcript
Revenue EBITDA “We continue to enjoy healthy market conditions for passenger (dollars in millions) Actual Budget Variance Var (%) Actual Budget Variance Var (%) cars, SUVs and pickup trucks here in North America, in Europe,
1Q 2016 1,128 1,157 (29) (2.5%) 119.1 118.6 0.5 0.4% as well as in China and India.”
2Q 2016 1,172 1,201 (29) (2.4%) 134.8 134.0 0.8 0.6% “Unfortunately…revenue continues to be negatively impacted by April 2016 396 400 (4) (1.0%) 46.3 43.9 2.4 5.5% declines in heavy-duty and industrial segments and the May 2016 381 395 (14) (3.5%) 44.2 42.4 1.8 4.2% economic conditions in Brazil…The sale of heavy-duty trucks in the U.S. is down year-over-year by around 8.4%, but production June 2016 396 406 (10) (2.5%) 44.3 47.7 (3.4) (7.1%) of heavy-duty trucks is down by 12.3%, which means …heavy inventory reduction at the OEMs.”
July 2016 323 353 (30) (8.5%) 27.5 31.5 (4.0) (12.7%)
2016 YTD 2,623 2,711 (88) (3.2%) 281.4 284.1 (2.7) (1.0%) “Despite challenging mix with less heavy-duty and industrial business, I’m very pleased to report that Powertrain improved its second quarter EBITDA by $20 million over the same time last Recent Quarterly Performance year, recording $135 million EBITDA, or 11.5% of sales, compared to $115 million, or 9.9% of sales in quarter 2 2015...
Overall, in all product lines, we see solid improvements in
(dollars in millions)
manufacturing performance.”
11.5% $150 10.6% 12%
10.2% 10.1% 9.9%
9.5% 9.7% 9.8% 9.0% “…the picture wouldn’t be complete without mentioning that our $125 8.8% $20 10% EBITDA was also positively impacted by $3 million of currency $100 $9 $14 $16 8% gains, and that we see currently, year-over-year benefits from $14 $17 the lower cost of raw materials like aluminum, platinum, copper
$75 6% and nickel. …we, as a company, benefit especially from lower $116 $117 $115 costs for indirect materials. Unfortunately, in the last few weeks,
$50 $104 $103 $102 $104 4%
$91 $91 some of these material prices have started to creep up again.”
$80
$25 2% while in our operational “In summary, I’m pleased with the trends
$0 0% performance, growing the top line remains the single biggest
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 challenge we have.” 2014 2014 2014 2014 2015 2015 2015 2015 2016 2016
Base EBITDA EBITDA from TRW Total EBITDA Margin
Note: EBITDA figures referenced above do not align with EBITDA used for purposes of financial analyses that follow due to differences in treatment of EBITDA attributable to minority interests, as well as certain pension expenses.
Source: Company management. 6
CONFIDENTIAL—PRELIMINARY DRAFT—SUBJECT TO FURTHER REVIEW
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Company Financial Update: Motorparts Operating Performance
Recent Performance Selected Highlights from Piston 2Q 2016 vs. Budget Earnings Release and Call Transcript
Net Sales EBITDA “Revenue in the second quarter was …6% lower than Q2 2015.”
(dollars in millions) Actual Budget Variance Var (%) Actual Budget Variance Var (%)
“North American aftermarket sales decreased by 10% in the
1Q 2016 823 797 26 0.0 ) 73.7 61.1 12.6 20.6% quarter, at constant exchange, representing most of the year-
2Q 2016 808 845 (37) (4.4%) 61.8 68.6 (6.8) (9.9%) over-year decline. The second quarter of 2015 experienced unusually high sales volume as a result of supply chain issues
April 2016 273 281 (8) (2.8%) 24.4 22.8 1.6 7.0% that impacted the first quarter [of] 2015, leading to a challenging
May 2016 259 275 (16) (5.8%) 20.6 22.6 (2.0) (8.8%) comparison.” June 2016 276 289 (13) (4.5%) 16.8 23.2 (6.4) (27.6%)
“At the same time, the U.S. and Canada aftermarket July 2016 247 270 (23) (8.5%) 19.0 22.0 (3.0) (13.6%) environment was relatively soft in this year’s second quarter, and we have experienced some lost business…given the soft
2016 YTD 1,878 1,912 (34) (1.8%) 154.5 151.7 2.8 1.8% market, there will be some revenue headwinds that will continue throughout the year in the U.S. and Canada.” Recent Quarterly Performance “In general, the aftermarket environment Western Europe remains relatively stagnant and increasingly competitive, in part (dollars in millions) because of channel consolidation…improved OE results in 8.9% [EMEA] were [a] partial offset to the aftermarket decline.” $100 8.0% 9%
7.8% 7.6% 7.4% 6.9% 7.1% 8%
$80 $74 “While relatively small, Asia Pacific remains our primary growth
$68 7%
$63 5.6% $59 $62 market…[but] will require continued investment and results may
$58 6% be volatile from quarter-to-quarter.”
$60 $50
$48 4.0% 5%
3.4% 4% “Our objective is to build the best aftermarket distribution
$40 $31
$28 3% network of any supplier in North America... Currently, our North
2% American services levels are strong, but our supply chain has $20 1% not yet been optimized from a service or cost standpoint. This is
$0 0% a process that will carry into 2017.”
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
“Sales in the second quarter of 2016 were somewhat
2014 2014 2014 2014 2015 2015 2015 2015 2016 2016 disappointing but our operational performance was solid. In EBITDA EBITDA Margin addition, we continue to make progress on our strategic initiatives. ”
Note: EBITDA figures referenced above do not align with EBITDA used for purposes of financial analyses that follow due to differences in treatment of EBITDA attributable to minority interests, as well as certain pension expenses.
Source: Company management. 7
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Company Financial Update: Balance Sheet & Non-Operating Items
Balance sheet financials have been updated through June 30, 2016 as compared to the March 31, 2016 financials referenced in the June 14, 2016 preliminary Special Committee discussion materials.
The schedule below highlights corresponding updates in non-operating metrics (assets, liabilities, etc.) derived from the balance sheet to bridge from enterprise value from operations to per share equity value. For example, net debt declined by $62 million due to cash flows generated in 2Q 2016.
Illustrative Bridge to Per Share Equity Value1
(dollars in millions) March 31, 2016 June 30, 2016
Cash and Cash Equivalents Attributable to the Company $234 $273
Value of NOLs and Tax Credits $79 $79 Other Non-Operating Assets2 $47 $53 Debt Attributable to the Company $3,119 $3,096 Underfunded Pension (and OPEB) Liability3 $935 – $1,052 $921 – $1,036 Other Non-Operating Liabilities4 $17 $18 Shares Outstanding 169.0 169.0
Company management has advised us that its consultants are considering changes to certain assumptions related to the Company’s calculation of pension obligations based on evolving practices observed in the marketplace. These changes include lowering interest rates given the current lower interest rate environment. We understand from Company management that the contemplated changes, if adopted, could result in an increase in the reported pension-related liabilities.
Current estimates of underfunded pension liabilities do not take such changes into account given that potential changes and related financial implications remain under review at this time, per Company management.
1. Refer to pages 11 and 12 for additional detail on line items shown in the “Illustrative Bridge to Per Share Equity Value” chart.
2. Includes the book value of investments in non-consolidated affiliates accounted for using the cost method, as well as the estimated value of certain non-core real estate assets held or available for sale, net of associated sales costs, environmental liabilities and asset retirement obligations.
3. Represents the Company’s reported underfunded pension (and OPEB) liabilities, net of an assumed 10%—20% offset related to tax.
4. Includes net environmental liabilities, as well as net asset retirement obligations.
Source: Piston management and public filings.
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Preliminary Financial Analyses Summary (Pension-Adjusted)
Changes to the June 14, 2016 preliminary Special Committee discussion materials include, among other things: (i) minor changes in Piston’s LTM financials, (ii) net debt reduction of approximately $62 million based on Piston’s latest available financials, (iii) 0.5x increase in selected multiples applied to Motorparts in the preliminary selected companies analysis and (iv) 25 bps increase in selected discount rate range in the not pension-adjusted DCF (informational). Refer to pages 18 and 19 for additional details on selected changes to the preliminary financial analyses.
Implied Equity Value Per Share
$15.00
$13.07 $13.00 $12.27 $11.10 $11.30 $11.00 Piston Closing Stock Price Per Share on 8/12/2016: $8.81 $9.00
Revised IEP $7.00 Proposal: $8.00 $7.26 $6.09 $6.17 $6.13 Piston Unaffected $5.00 Closing Stock Price Per Share on 2/26/2016: $4.98
$3.00
Selected Companies Analysis Selected Companies Analysis Selected Companies Analysis Discounted Cash Flow Analysis (Sum-of-the-Parts) (Sum-of-the-Parts) (Sum-of-the-Parts) (Consolidated)
Pow ertrain Pow ertrain Pow ertrain Perpetuity Grow th 5.50x—6.50x 5.25x—6.25x 4.75x—5.75x Rate Range: LTM ended 6/30/2016 CY 2016E CY 2017E 1.75%—2.25% Adjusted EBITDAP Adjusted EBITDAP Adjusted EBITDAP
Motorparts Motorparts Motorparts Discount 8.50x—9.50x 8.50x—9.50x 7.50x—8.50x Rate Range: LTM ended 6/30/2016 CY 2016E CY 2017E 9.75%—10.75% Adjusted EBITDAP Adjusted EBITDAP Adjusted EBITDAP
Note: No particular w eight w as attributed to any analysis. Based on 169,040,651 outstanding basic shares and no dilutive shares as of August 12, 2016, per Piston public filings and Company management. The Company has stock appreciation rights outstanding that trigger a payment obligation in the event value exceeds ~$19 / share, per Company management.
Adjusted EBITDAP refers to Earnings Before Interest, Taxes, Depreciation, Amortization and Pension (and OPEB) Expense, adjusted for certain non-recurring items. CY refers to Calendar Year.
LTM refers to Latest 12 Months.
Source: Piston financial projections prepared by Piston management.
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Page
1. Executive Summary 3
2. Preliminary Financial Analyses 11
3. Selected Public Market Observations 21
4. Appendix 26
5. Disclaimer 56
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Preliminary Financial Analyses Summary (Pension-Adjusted)
(shares outstanding and dollars in millions, except per share values)
Selected Selected Selected Discounted Companies Companies Companies Cash Flow Analysis Analysis Analysis Analysis
LTM ended 6/30/2016 CY 2016E CY 2017E Pension-Adjusted Adjusted EBITDAP Adjusted EBITDAP Adjusted EBITDAP Perpetuity Grow th Powertrain Discount Rate Range: Corresponding Pow ertrain Base Amount $478 $494 $560 Perpetuity Selected Multiple Range 5.50 x — 6.50 x 5.25 x — 6.25 x 4.75x — 5.75x Grow th Rate Range: Implied Pow ertrain Enterprise Value from Operations Reference Range $2,630 — $3,108 $2,596 — $3,091 $2,659 — $3,219 1.75% — 2.25%
Motorparts Discount Rate Range: Corresponding Motorparts Base Amount $252 $258 $308 9.75% — 10.75% Selected Multiple Range 8.50 x — 9.50 x 8.50 x — 9.50 x 7.50 x — 8.50 x Implied Motorparts Enterprise Value from Operations Reference Range $2,144 — $2,397 $2,192 — $2,450 $2,313 — $2,621
Consolidated Enterprise Value from Operations Range
Corresponding Base Amount $731 $752 $869 Implied Consolidated Multiple Range 6.5 x — 7.5 x 6.4 x — 7.4 x 5.7 x — 6.7 x
Consolidated Enterprise Value from Operations Reference Range¹ $4,775 — $5,505 $4,788 — $5,540 $4,971 — $5,840 $4,860 — $5,782 Add: Cash and Cash Equivalents Attributable to the Company² $273 — $273 $273 — $273 $273 — $273 $273 — $273 Add: Investments in Non-consolidated Affiliates (Cost Method)³ $8 — $8 $8 — $8 $8 — $8 $8 — $8 Add: Real Estate Assets Held for Sale $45 — $45 $45 — $45 $45 — $45 $45 — $45 Add: Value of NOLs and Tax Credits $79 — $79 $79 — $79 $79 — $79 $0 — $0 Implied Total Enterprise Value Reference Range $5,180 — $5,911 $5,193 — $5,946 $5,377 — $6,245 $5,186 — $6,109 Less: Debt Attributable to the Company $3,096 — $3,096 $3,096 — $3,096 $3,096 — $3,096 $3,096 — $3,096 Less: Adjusted Underfunded Pension (and OPEB) Liability as of 6/30/2016 $1,036 — $921 $1,036 — $921 $1,036 — $921 $1,036 — $921 Less: Net Environmental Liabilities $13 — $13 $13 — $13 $13 — $13 $13 — $13 Less: Net Asset Retirement Obligations $5 — $5 $5 — $5 $5 — $5 $5 — $5 Implied Total Equity Value Reference Range $1,030 — $1,876 $1,043 — $1,911 $1,227 — $2,210 $1,036 — $2,074 Shares Outstanding10 169.0 — 169.0 169.0 — 169.0 169.0 — 169.0 169.0 — 169.0 Implied Per Share Equity Value Reference Range $6.09 — $11.10 $6.17 — $11.30 $7.26 — $13.07 $6.13 — $12.27
Source: Piston financial projections prepared by Piston management. Refer to next page for additional notes.
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Preliminary Financial Analyses Summary (Pension-Adjusted)
(cont.) – Footnotes
1. Represents sum of implied enterprise value from operations reference ranges for Pow ertrain and Motorparts.
2. Reflects the Company’s cash balance of $290 million (including $95 million of offshore cash subject to repatriation tax as of December 31, 2015), net of $17 million of pro rata cash attributable to non-controlling interests as of June 30, 2016, per Company management. Assumes no cash from non-consolidated JVs attributable to the Company, per Company management.
3. Represents book value of investments in non-consolidated affiliates accounted for using cost method as of December 31, 2015 (no information available as of June 30, 2016), for w hich earnings are not captured in the Company’s adjusted EBITDA (given insufficient available information), per Company management. Does not include book value of investments in non-consolidated affiliates accounted for using equity method of approximately $258 million (as of June 30, 2016), for w hich earnings are captured in the Company’s adjusted EBITDA, per Company management.
4. Represents estimated value of non-core real estate assets held or available for sale, net of associated sales costs, environmental liabilities and asset retirement obligations, per the Company’s real estate brokers and Company management.
5. Based on $79 million of $1,059 million of asset value of Company NOLs and tax credits not offset by valuation allow ance as of June 30, 2016, per Company management. NOLs and tax credits are incorporated in discounted cash flow analysis through assumed 20.0% tax rate, per Company management. The Company also has a Tax Allocation Agreement (“TAA”) w ith American Entertainment Properties Corp. (“AEP”) pursuant to w hich the Company has contractual rights to 20% of economics of savings generated by AEP’s NOL usage. How ever, per Company management, no NOLs have been used by AEP since inception of the TAA in July 2013 and Company management is unaw are of AEP plans to utilize NOLs going forw ard.
6. Reflects total debt outstanding of $3,109 million, net of $13 million of debt attributable to non-controlling interests as of June 30, 2016, per Company management. Assumes no debt from non-consolidated JVs attributable to the Company, per Company management.
7. Range reflects discount of 10% to 20% relative to the Company’s underfunded pension and post-retirement liabilities of $1,151 million as of June 30, 2016 based on, among other considerations, the follow ing factors, per Company management: (i) approximately 90% of the Company’s obligations reside in the U.S. and Germany, (ii) the Company is not a taxpayer in the U.S. and is not projected to generate income in the U.S. and (iii) the Company pays corporate taxes in Germany based on a corporate rate of 30%.
8. Reflects estimated cost of remediating hazardous substances at third-party sites pursuant to certain national, state and provincial environmental law s and is based on accruals per the Company’s Form 10-Q as of June 30, 2016 and Company management; does not include $44 million of “reasonably possible” exposure based on ongoing assessments, per Company management; figure net of environmental liabilities associated w ith real estate assets held for sale.
9. Reflects estimated remediation costs associated w ith removing hazardous building materials from the Company’s facilities, per Company management; figure net of asset retirement obligations associated w ith real estate assets held for sale.
10. Based on 169,040,651 outstanding basic shares and no dilutive shares as of August 12, 2016, per Piston public filings and Company management. The Company has stock appreciation rights outstanding that trigger a payment obligation in the event value exceeds ~$19 / share, per Company management.
Adjusted EBITDAP refers to Earnings Before Interest, Taxes, Depreciation, Amortization and Pension (and OPEB) Expense, adjusted for certain non-recurring items. E refers to Estimated.
CY refers to Calendar Year. LTM refers to Latest 12 Months.
Source: Piston financial projections prepared by Piston management.
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Selected Consolidated Historical and Projected Financial Data
(dollars in millions) Historical Projected Fiscal Year Ended December 31, LTM Ended LTM Ended Fiscal Year Ending December 31, 2013—2015 2015—2020 2013 2014 2015 3/31/2016 6/30/2016 2016E 2017E 2018E 2019E 2020E CAGR CAGR
Total Revenue¹ $6,786 $7,317 $7,419 $7,481 $7,443 $7,502 $7,914 $8,297 $8,593 $8,973 4.6% 3.9%
Growth % 5.3% 7.8% 1.4% -—- 1.1% 5.5% 4.8% 3.6% 4.4%
Less: Cost of Goods Sold 5,766 6,260 6,345 6,370 6,318 6,316 6,596 6,866 7,131 7,434 Gross Profit $1,020 $1,057 $1,074 $1,111 $1,125 $1,186 $1,318 $1,431 $1,462 $1,539
Margin% 15.0% 14.4% 14.5% 14.9% 15.1% 15.8% 16.7% 17.2% 17.0% 17.2%
Less: Selling, General and Administrative Expenses2,3 719 776 794 789 804 827 866 886 901 913 Less: Restructuring Expense 21 86 89 92 70 35 36 15 18 25 Less: Other Operating Expense² 58 204 190 186 187 67 65 72 73 72 Add: Depreciation & Amortization Expense³ 296 334 341 345 355 373 384 404 426 425 Add: Earnings in Non-consolidated JVs Attributable to Piston 34 48 56 58 61 57 60 67 68 70 Less: EBITDA in Consolidated JVs Attributable to Minority Interests NA 19 20 20 20 23 26 29 32 34 Add: Adjustments 38 248 232 231 209 20 29 7 7 10
Adjusted EBITDA $590 $602 $610 $658 $669 $684 $798 $907 $940 $1,000 1.7% 10.4%
Growth % 22.5% 2.2% 1.2% -—- 12.2% 16.6% 13.8% 3.6% 6.5% Margin% 8.7% 8.2% 8.2% 8.8% 9.0% 9.1% 10.1% 10.9% 10.9% 11.1%
Add: Pension (and OPEB) Expense 55 52 62 61 62 68 71 71 65 61
Adjusted EBITDAP $645 $654 $672 $719 $731 $752 $869 $978 $1,005 $1,061 2.1% 9.6%
Growth % — 1.5% 2.6% -—- 12.0% 15.5% 12.6% 2.7% 5.6% Margin % 9.5% 8.9% 9.1% 9.6% 9.8% 10.0% 11.0% 11.8% 11.7% 11.8%
Less: Depreciation & Amortization Expense³ 294 334 341 345 355 373 384 404 426 425
Adjusted EBITP³ $351 $320 $331 $374 $376 $379 $485 $574 $579 $636 -2.9% 14.0%
Less: Pension (and OPEB) Expense 55 52 62 61 62 68 71 71 65 61
Adjusted EBIT³ $296 $268 $269 $313 $314 $311 $414 $503 $514 $575 -4.7% 16.5%
Adjusted EBITDAP—CapEx $265 $235 $232 $293 $312 $318 $450 $569 $575 $631 Adjusted EBITDA—CapEx $210 $183 $170 $232 $250 $250 $379 $498 $510 $570
Note: Historical financials show n above do not reflect pro forma adjustments for Affinia and Honeyw ell acquisitions completed in May 2014 and July 2014, respectively, or for tw o-stage TRW-Valvetrain acquisition completed in February 2015 and July 2015. Refer to subsequent pages for additional details.
1. Total revenue eliminates intercompany sales from Pow ertrain to Motorparts.
2. Other Operating Expense includes amortization expense over projected period and amortization, impairment and other non-cash expenses on a historical basis. Certain historical “other operating expenses” and SG&A expenses may have been reclassified for purposes of financial projections, per Company management.
3. Approximately $15 million to $25 million of D&A expense incurred at corporate level annually. Accordingly, consolidated SG&A expense, D&A expense, EBITP and EBIT figures w ill not tie to sum of corresponding figures for each of Motorparts and Pow ertrain.
4. FY 2013 and FY 2014 contain $3 million and $1 million of corporate restructuring expense, respectively.
5. The Company has minority investments in 16 joint ventures and other affiliates primarily aimed at developing a presence in emerging markets. The above reflects the aggregate of the Company’s pro rata share of earnings in such affiliates accounted for under the equity method (historical information is based on net earnings—no information is available on EBITDA).
6. The Company has 50% or greater ow nership interests in 21 joint ventures and other affiliates primarily aimed at developing a presence in emerging markets. The above reflects aggregate of pro rata allocation of EBITDA in each such entity attributable to minority interests.
7. Total Adjustments
Extraordinary Restructuring Expenses $13 $71 $74 $77 $55 $20 $29 $7 $7 $10 Asset Impairments 8 24 32 34 32 0 0 0 0 0 Goodw ill & Intangible Impairment Expense 0 120 94 100 106 0 0 0 0 0 Loss on Sale of Equity Method Investment 0 0 11 0 0 0 0 0 0 0 Financing Charges 7 6 9 10 12 0 0 0 0 0 Transaction Related Costs 5 16 6 2 2 0 0 0 0 0 Segmentation Costs 0 10 4 3 2 0 0 0 0 0 Other Non-Recurring Expenses 5 1 2 5 0 0 0 0 0 0
Total Adjustments $38 $248 $232 $231 $209 $20 $29 $7 $7 $10
8. Per Company management, each of Motorparts and Pow ertrain incurs approximately $5 million to $10 milllion of annual restructuring expenses in the ordinary course to preserve top-line and margin performance. Accordingly, adjustments for restructuring expense reflect levels above $7.5 million run-rate for each of Motorparts and Pow ertrain.
Historical adjustments other than restructuring and asset impairment charges not available on segmented basis. Adjusted EBIT refers to Earnings Before Interest and Taxes, adjusted for certain non-recurring items.
Adjusted EBITDA refers to Earnings Before Interest, Taxes, Depreciation & Amortization, adjusted for certain non-recurring items.
Adjusted EBITDAP refers to Earnings Before Interest, Taxes, Depreciation, Amortization and Pension (and OPEB) Expense, adjusted for certain non-recurring items. CAGR refers to Compound Annual Grow th Rate.
CapEx refers to Capital Expenditures. NA refers to Not Available.
Source: Piston management, including projections prepared by Piston management, Company Form 10-K filed on February 29, 2016, Company Form 10-Q filed on April 27, 2016, Company Form 10-Q filed on July 27, 2016.
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Selected Powertrain Historical and Projected Financial Data
(dollars in millions) Fiscal Year Ended December 31, LTM Ended LTM Ended Fiscal Year Ending December 31, Historical Projected 2013 2014 2015 3/31/2016 6/30/2016 2016E 2017E 2018E 2019E 2020E 2013—2015 2015—2020 Shipments $4,173 $4,430 $4,450 $4,440 $4,445 $4,490 $4,906 $5,206 $5,478 $5,714 CAGR CAGR
Growth % — 6.2% 0.5% -—- 0.9% 9.3% 6.1% 5.2% 4.3%
Net Revenue¹ $3,889 $4,163 $4,198 $4,201 $4,217 $4,253 $4,666 $4,966 $5,238 $5,474 3.9% 5.5%
Growth % — 7.0% 0.8% -—- 1.3% 9.7% 6.4% 5.5% 4.5%
Less: Cost of Goods Sold 3,372 3,630 3,661 3,670 3,675 3,678 4,004 4,237 4,467 4,668 Gross Profit $517 $533 $537 $531 $542 $575 $662 $729 $771 $806
Margin% 13.3% 12.8% 12.8% 12.6% 12.9% 13.5% 14.2% 14.7% 14.7% 14.7%
Less: Selling, General and Administrative Expenses² 345 333 388 381 380 349 386 400 413 421 Less: Restructuring Expense 17 59 33 39 39 21 0 0 3 15 Less: Other Operating Expense² 0 0 0 0 0 27 22 29 29 29 Add: Depreciation & Amortization Expense 178 196 208 212 219 217 219 236 261 264 Add: Earnings in Non-consolidated JVs Attributable to Pow ertrain³ 25 35 43 43 43 46 47 52 52 52 Less: EBITDA in Consolidated JVs Attributable to Minority Interests NA 16 18 18 18 20 23 26 28 29 Add: Adjustments 15 59 55 61 59 14 0 0 0 8
Adjusted EBITDA $373 $414 $403 $408 $425 $434 $497 $562 $611 $636 4.0% 9.5%
Growth % 22.5% 11.2% -2.6% -—- 7.7% 14.5% 13.1% 8.7% 4.0% Margin% 9.6% 9.9% 9.6% 9.7% 10.1% 10.2% 10.7% 11.3% 11.7% 11.6%
Add: Pension (and OPEB) Expense 49 44 53 52 53 60 62 62 57 53
Adjusted EBITDAP $421 $458 $456 $460 $478 $494 $560 $625 $668 $689 4.1% 8.6%
Growth % — 8.8% -0.4% -—- 8.4% 13.2% 11.6% 6.9% 3.1% Margin % 10.8% 11.0% 10.9% 10.9% 11.3% 11.6% 12.0% 12.6% 12.8% 12.6%
Less: Depreciation & Amortization Expense 178 196 208 212 219 217 219 236 261 264
Adjusted EBITP $243 $262 $248 $248 $259 $277 $341 $389 $407 $425 1.0% 11.3%
Less: Pension (and OPEB) Expense 49 44 53 52 53 60 62 62 57 53
Adjusted EBIT $195 $218 $195 $196 $206 $217 $278 $326 $350 $372 0.2% 13.7%
Margin % 5.0% 5.2% 4.7% 4.7% 4.9% 5.1% 6.0% 6.6% 6.7% 6.8%
Adjusted EBITDAP—CapEx $145 $190 $155 $161 $169 $196 $267 $336 $358 $369 Adjusted EBITDA—CapEx $97 $146 $102 $109 $116 $136 $204 $273 $301 $316
Note: Historical financials show n above do not reflect pro forma adjustments for tw o-stage TRW-Valvetrain acquisition completed in February 2015 and July 2015. Per Company management, 2015 revenue and EBITDA w ould need to be adjusted by $107 million and $13 million, respectively, to reflect pro forma full-year impact of TRW-Valvetrain acquisition. Per Company management, full year 2015 revenue and EBITDA for TRW-Valvetrain of $524 million and $67 million, respectively, approximates 2013 and 2014 performance of the entity.
1. Net revenue adjusted for intercompany transactions.
2. “Other operating expenses” have been combined w ith SG&A expenses in historical periods given insufficient segment-level detail.
3. The Company has minority investments in 16 joint ventures and other affiliates primarily aimed at developing a presence in emerging markets. The above reflects the aggregate of Pow ertrain’s pro rata share of earnings in such affiliates accounted for under the equity method (historical information is based on net earnings—no information is available on EBITDA).
4. The Company has 50% or greater ow nership interests in 21 joint ventures and other affiliates primarily aimed at developing presence in emerging markets and 100% of EBITDA associated w ith such JVs associated w ith Pow ertrain is consolidated in above financials. The above reflects aggregate of Pow ertrain’s pro rata allocation of EBITDA in each such entity attributable to minority interests.
5. Total Adjustments
Extraordinary Restructuring Expenses $10 $52 $26 $32 $32 $14 $0 $0 $0 $8 Asset Impairments 5 7 29 29 27 0 0 0 0 0 Total Adjustments $15 $59 $55 $61 $59 $14 $0 $0 $0 $8
6. Per Company management, Pow ertrain incurs approximately $5 million to $10 milllion of annual restructuring expenses in the ordinary course to preserve top-line and margin performance. Accordingly, adjustments for restructuring expense reflect levels above $7.5 million run-rate for Pow ertrain.
Adjusted EBIT refers to Earnings Before Interest and Taxes, adjusted for certain non-recurring items.
Adjusted EBITDA refers to Earnings Before Interest, Taxes, Depreciation & Amortization, adjusted for certain non-recurring items.
Adjusted EBITDAP refers to Earnings Before Interest, Taxes, Depreciation, Amortization and Pension (and OPEB) Expense, adjusted for certain non-recurring items. CAGR refers to Compound Annual Grow th Rate.
CapEx refers to Capital Expenditures. NA refers to Not Available.
Source: Piston management, including projections prepared by Piston management, Company Form 10-K filed on February 29, 2016, Company Form 10-Q filed on April 27, 2016, Company Form 10-Q filed on July 27, 2016.
CONFIDENTIAL—PRELIMINARY DRAFT—SUBJECT TO FURTHER REVIEW 14
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Selected Motorparts Historical and Projected Financial Data
(dollars in millions) Fiscal Year Ended December 31, LTM Ended LTM Ended Fiscal Year Ending December 31, Historical Projected 2013 2014 2015 3/31/2016 6/30/2016 2016E 2017E 2018E 2019E 2020E 2013—2015 2015—2020 Shipments $2,935 $3,192 $3,253 $3,311 $3,258 $3,283 $3,282 $3,365 $3,389 $3,533 CAGR CAGR
Growth % — 8.8% 1.9% -—- 0.9% 0.0% 2.5% 0.7% 4.2%
Net Revenue¹ $2,897 $3,154 $3,221 $3,280 $3,226 $3,249 $3,248 $3,331 $3,355 $3,499 5.4% 1.7%
Growth % — 8.9% 2.1% -—- 0.9% 0.0% 2.6% 0.7% 4.3%
Less: Cost of Goods Sold 2,394 2,630 2,684 2,700 2,643 2,638 2,592 2,629 2,664 2,766 Gross Profit $503 $524 $537 $580 $583 $611 $656 $702 $691 $733
Margin% 17.4% 16.6% 16.7% 17.7% 18.1% 18.8% 20.2% 21.1% 20.6% 20.9%
Less: Selling, General and Administrative Expenses² 396 469 456 458 471 453 456 465 470 477 Less: Restructuring Expense 1 26 56 53 31 14 36 15 15 10 Less: Other Operating Expense² 0 0 0 0 0 39 43 43 43 43 Add: Depreciation & Amortization Expense 100 114 119 119 123 130 140 146 146 146 Add: Earnings in Non-consolidated JVs Attributable to Motorparts³ 9 13 13 13 13 11 13 15 16 18 Less: EBITDA in Consolidated JVs Attributable to Minority Interests NA 2 2 2 2 3 3 4 4 5 Add: Adjustments 2 36 52 51 29 6 29 7 7 2
Adjusted EBITDA $217 $189 $206 $249 $243 $250 $299 $344 $328 $365 -2.5% 12.1%
Growth % 22.5% -12.8% 9.1% -—- 21.1% 19.8% 14.9% -4.5% 11.1% Margin% 7.5% 6.0% 6.4% 7.6% 7.5% 7.7% 9.2% 10.3% 9.8% 10.4%
Add: Pension (and OPEB) Expense 6 8 9 9 9 8 9 9 8 8
Adjusted EBITDAP $223 $197 $215 $258 $252 $258 $308 $353 $337 $373 -1.8% 11.6%
Growth % -—11.7% 9.2% -—- 19.8% 19.6% 14.4% -4.6% 10.8% Margin % 7.7% 6.3% 6.7% 7.9% 7.8% 7.9% 9.5% 10.6% 10.0% 10.7%
Less: Depreciation & Amortization Expense 100 114 119 119 123 130 140 146 146 146
Adjusted EBITP $123 $83 $96 $139 $129 $128 $168 $207 $191 $227 -11.6% 18.7%
Less: Pension (and OPEB) Expense 6 8 9 9 9 8 9 9 8 8
Adjusted EBIT $117 $75 $87 $130 $120 $120 $159 $198 $182 $219 -13.6% 20.2%
Margin % 4.0% 2.4% 2.7% 4.0% 3.7% 3.7% 4.9% 5.9% 5.4% 6.3%
Adjusted EBITDAP—CapEx $137 $67 $84 $139 $147 $123 $182 $233 $217 $263 Adjusted EBITDA—CapEx $131 $59 $75 $130 $138 $115 $173 $224 $208 $255
Note: Historical financials show n above do not reflect pro forma adjustments for Affinia and Honeyw ell acquisitions completed in May 2014 and July 2014, respectively. Per Company management, 2014 revenue and EBITDA w ould need to be adjusted by $65 million and $7 million, respectively, to reflect pro forma full-year impact of Affinia acquisition, and 2014 revenue and EBITDA w ould need to be adjusted by $238 million and ($7) million, respectively, to reflect pro forma full-year impact of Honeyw ell acquisition. Per Company management, Affinia w as expected to contribute annual revenue of $200 million and EBITDA of $20 million. Per Company management, at the time of the acquisition, Honeyw ell had annual revenue of $450 million w ith break-even EBITDA; how ever, Honeyw ell w as expected to be fully blended w ithin the Braking business and ultimately reach ~10% EBITDA margins (before corporate allocations).
1. Net revenue adjusted for intercompany transactions.
2. “Other operating expenses” have been combined w ith SG&A expenses in historical periods given insufficient segment-level detail.
3. The Company has minority investments in 16 joint ventures and other affiliates primarily aimed at developing a presence in emerging markets. The above reflects the aggregate of Motorparts’ pro rata share of earnings in such affiliates accounted for under the equity method (historical information based on net earnings—no information is available on EBITDA).
4. The Company has 50% or greater ow nership interests in 21 joint ventures and other affiliates primarily aimed at developing presence in emerging markets and 100% of EBITDA associated w ith such JVs associated w ith Motorparts is consolidated in above financials. The above reflects aggregate of Motorparts’ pro rata allocation of EBITDA in each such entity attributable to minority interests.
5. Total Adjustments
Extraordinary Restructuring Expenses $0 $19 $49 $46 $24 $6 $29 $7 $7 $2 Asset Impairments 2 17 3 5 5 0 0 0 0 0 Total Adjustments $2 $36 $52 $51 $29 $6 $29 $7 $7 $2
6. Per Company management, Motorparts incurs approximately $5 million to $10 milllion of annual restructuring expenses in the ordinary course to preserve top-line and margin performance. Accordingly, adjustments for restructuring expense reflect levels above $7.5 million run-rate for Motorparts.
Adjusted EBIT refers to Earnings Before Interest and Taxes, adjusted for certain non-recurring items.
Adjusted EBITDA refers to Earnings Before Interest, Taxes, Depreciation & Amortization, adjusted for certain non-recurring items.
Adjusted EBITDAP refers to Earnings Before Interest, Taxes, Depreciation, Amortization and Pension (and OPEB) Expense, adjusted for certain non-recurring items. CAGR refers to Compound Annual Grow th Rate.
CapEx refers to Capital Expenditures. NA refers to Not Available.
Source: Piston management, including projections prepared by Piston management, Company Form 10-K filed on February 29, 2016, Company Form 10-Q filed on April 27, 2016, Company Form 10-Q filed on July 27, 2016.
CONFIDENTIAL—PRELIMINARY DRAFT—SUBJECT TO FURTHER REVIEW 15
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Preliminary Selected Companies Analysis (EBITDAP)
(dollars in millions, except per share values)
Closing Adjusted Adjusted Enterprise Value1 Stock Equity Market Enterprise to Adjusted EBITDAP2 Selected Company Price3 Value3,4 Value3,4 LTM CY 2016E5 CY 2017E5
Powertrain
BorgWarner Inc. $33.81 $7,275.7 $9,721.6 6.4x 6.3x 6.0x 6 9 Carraro SpA $1.37 $59.4 $283.0 6.0x NA NA N NA Cummins Inc. $126.73 $21,397.2 $22,322.2 7.9x 8.7x 8.9x 9 # Dana Incorporated $13.83 $1,993.4 $3,212.2 5.8x 5.0x 4.8x 5 9 DENSO Corporation $40.14 $31,819.9 $31,521.6 4.7x 4.9x 4.7x 5 9 ElringKlinger AG $18.42 $1,166.8 $1,896.8 7.3x 7.0x 6.2x 6 # Linamar Corp. $42.89 $2,819.7 $3,858.7 5.0x 4.7x 4.5x 4 9 Metaldyne Performance Group Inc. $15.93 $1,104.8 $2,826.2 5.8x 5.5x 5.3x 5 9 Modine Manufacturing Company $10.12 $486.6 $664.9 5.6x 5.3x 4.7x 5 9 Schaeffler AG $15.69 $10,452.5 $17,186.1 6.1x 6.0x 5.7x 6 # Low 4.7x 4.7x 4.5x High 7.9x 8.7x 8.9x Median 5.9x 5.5x 5.3x Mean 6.1x 5.9x 5.7x
Motorparts
Dorman Products, Inc. $61.72 $2,142.1 $2,054.2 11.9x 11.3x 10.6x # # Genuine Parts Company $101.50 $15,194.7 $15,932.2 12.9x 12.0x 11.3x # # Motorcar Parts of America, Inc. $29.78 $582.8 $604.4 12.0x 7.9x 6.4x 6 7 Standard Motor Products Inc. $42.78 $985.2 $1,074.9 9.2x 8.7x 8.5x 8 NA Low 9.2x 7.9x 6.4x High 12.9x 12.0x 11.3x Median 11.9x 10.0x 9.5x Mean 11.5x 10.0x 9.2x
Note: No company used for comparative purposes is identical to Pow ertrain, Motorparts or the Company.
1. Adjusted Enterprise Value equals equity market value + minority interest + debt outstanding + preferred stock – cash and cash equivalents + tax-effected underfunded pension and post-employment liabilities.
2. For selected companies, CY 2016E and CY 2017E pension expense assumed to equal LTM pension expense.
3. Based on closing stock prices as of August 12, 2016.
4. Based on reported fully-diluted shares.
5. Multiples based on forw ard-looking financial information for DENSO Corporation, Motorcar Parts of America, Inc. and Modine Manufacturing Company have been calendarized to the Company’s fiscal year-end of December 31. All other companies show n have December 31 fiscal year-ends.
Adjusted EBITDAP refers to Earnings Before Interest, Taxes, Depreciation, Amortization and Pension (and OPEB) Expense, adjusted for certain non-recurring items. CY refers to Calendar Year.
E refers to Estimated.
LTM refers to Latest 12 Months. NA refers to Not Available.
Source: Bloomberg, Capital IQ, public filings.
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Preliminary Consolidated Discounted Cash Flow Analysis
Perpetuity Growth Rate (Pension-Adjusted)
(dollars in millions) Terminal Fiscal Year Ending December 31, Value
2016E¹ 2017E 2018E 2019E 2020E Assumptions Implied 2020E Adjusted Revenue $3,681 $7,914 $8,297 $8,593 $8,973 $8,973 EBITDAP Terminal Multiple
Revenue Growth % 1.1% 5.5% 4.8% 3.6% 4.4% — Discount Rate 1.75% 2.00% 2.25%
Less: Cost of Goods Sold 3,087 6,596 6,866 7,131 7,434 7,434 9.75% 5.7x 5.9x 6.1x Less: Selling, General and Administrative Expenses 414 866 886 901 913 918 10.25% 5.3x 5.5x 5.7x Less: Restructuring Expense 14 36 15 18 25 15 10.75% 5.0x 5.2x 5.4x Less: Other Operating Expense 41 65 72 73 72 72 Add: Depreciation & Amortization Expense 193 384 404 426 425 430 Add: Earnings in Non-consolidated JVs Attributable to Piston 24 60 67 68 70 70 Less: EBITDA in Consolidated JVs Attributable to Minority Interests 11 26 29 32 34 34 Add: Pension (and OPEB) Expense 37 71 71 65 61 61
EBITDAP $368 $840 $971 $997 $1,052 $1,061
Less: Depreciation and Amortization Expense 193 384 404 426 425 430 PV of Terminal Value EBITP $175 $456 $567 $571 $627 $631 as a % of Enterprise Value
Less: Taxes² 35 91 113 114 125 126 Discount Rate 1.75% 2.00% 2.25% Unlevered Earnings $140 $365 $454 $457 $501 $505 9.75% 76.5% 77.1% 77.7% Add: Depreciation and Amortization Expense 193 384 404 426 425 430 10.25% 75.2% 75.8% 76.4% Add: Non-cash Restructuring Expense 14 36 15 18 25 15 10.75% 74.0% 74.6% 75.2% Less: Restructuring Payments 57 53 21 25 25 15 Less: Capital Expenditures 239 419 409 430 430 430 Less: Change in Net Working Capital (63) 17 34 7 60 32 Add: Cash Flow from Non-consolidated JVs³ (24) (14) (17) (18) (19) 0
Unlevered Free Cash Flows $90 $282 $391 $421 $417 $473
PV of PV of Terminal Value
Cash Flows Based on Perpetual Growth Rate for Implied Enterprise Value 2016E—2020E 2020E Unlevered Free Cash Flow Discount Rate 1.75% 2.00% 2.25% 1.75% 2.00% 2.25%
9.75% 0.098 $1,288 $4,192 $4,338 $4,494 $5,481 $5,626 $5,782 10.25% 0.103 $1,275 + $3,877 $4,004 $4,139 = $5,152 $5,279 $5,414 10.75% 0.108 $1,262 $3,597 $3,709 $3,828 $4,860 $4,971 $5,090
Note: Present values as of August 12, 2016; mid-year convention applied. Refer to WACC calculation in Appendix for derivation of discount rate.
1. Represents 6.0-month stub period. Calculated as FY 2016 estimated figures, per Company management, less 1H 2016 actual figures, per Company public filings.
2. Tax at 20.0%, per Company management.
3. Represents difference betw een earnings in non-consolidated JVs and dividends received from non-consolidated JVs.
4. Terminal value assumptions include: (i) depreciation and amortization expense equal to capital expenditures, (ii) normalized w orking capital levels for Pow ertrain and Motorparts based on approximately 20% of change in revenue, per Company management, (iii) non-consolidated JV earnings equal to dividends, per Company management, and (iv) normalized restructuring expense at $15 million, per Company management.
5. Implied from corresponding discount rate and perpetual grow th rate applied to 2020E unlevered free cash flow . Show n for informational purposes.
EBITDAP refers to Earnings Before Interest, Taxes, Depreciation, Amortization and Pension (and OPEB) Expense. EBITP refers to Earnings Before Interest, Taxes and Pension (and OPEB) Expense.
Source: Piston management, including projections prepared by Piston management.
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Selected Changes to Preliminary Financial Analyses Since Prior Discussion
Changes to the June 14, 2016 preliminary Special Committee discussion materials include, among other things: (i) minor changes in Piston’s LTM financials, (ii) net debt reduction of approximately $62 million based on Piston’s latest available financials, (iii) 0.5x increase in selected multiples applied to Motorparts in the preliminary selected companies analysis and (iv) 25 bps increase in selected discount rate range in the not pension-adjusted DCF (informational).
(dollars in millions) June 14, 2016 August 15, 2016
Preliminary Selected Companies Analysis (Sum-of-the-Parts) – Pension-Adjusted
LTM 3/31/16 CY 2016E CY 2017E LTM 6/30/16 CY 2016E CY 2017E Metric Capitalized Adjusted EBITDAP Adjusted EBITDAP Adjusted EBITDAP Adjusted EBITDAP Adjusted EBITDAP Adjusted EBITDAP
Base Amount – Powertrain $460 $494 $560 $478 $494 $560 Selected Multiple – Powertrain 5.50x – 6.50x 5.25x – 6.25x 4.75x – 5.75x 5.50x – 6.50x 5.25x – 6.25x 4.75x – 5.75x Base Amount – Motorparts $258 $258 $308 $252 $258 $308
Selected Multiple – Motorparts 8.00x – 9.00x 8.00x – 9.00x 7.00x – 8.00x 8.50x – 9.50x 8.50x – 9.50x 7.50x – 8.50x
Implied Per Share Equity Value $4.55 – $9.49 $4.91 – $10.06 $5.85 – $11.68 $6.09 – $11.10 $6.17 – $11.30 $7.26 – $13.07
Preliminary Selected Companies Analysis (Sum-of-the-Parts) – Not Pension-Adjusted [Informational]
LTM 3/31/16 CY 2016E CY 2017E LTM 6/30/16 CY 2016E CY 2017E Metric Capitalized Adjusted EBITDA Adjusted EBITDA Adjusted EBITDA Adjusted EBITDA Adjusted EBITDA Adjusted EBITDA
Base Amount – Powertrain $408 $434 $497 $425 $434 $497 Selected Multiple – Powertrain 4.75x – 5.75x 4.50x – 5.50x 4.00x – 5.00x 4.75x – 5.75x 4.50x – 5.50x 4.00x – 5.00x Base Amount – Motorparts $249 $250 $299 $243 $250 $299
Selected Multiple – Motorparts 7.75x – 8.75x 7.75x – 8.75x 6.75x – 7.75x 8.25x – 9.25x 8.25x – 9.25x 7.25x – 8.25x
Implied Per Share Equity Value $6.48 – $10.37 $6.59 – $10.64 $7.30 – $12.01 $7.80 – $11.75 $7.73 – $11.78 $8.58 – $13.29
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Selected Changes to Preliminary Financial Analyses Since Prior Discussion (cont.)
The calculation of estimated cash inflows from working capital for the remainder of 2016 used in the preliminary discounted cash flow analysis continues to be refined based on discussions with Company management. While inflows of $97 million were projected for CY2016, intra-year projections were not provided and estimates are complex given seasonality, distribution center consolidation, factoring arrangements and FX impact reflected in reported YTD financials. Accordingly, the current estimate of $63 million of working capital-related cash inflows used in the preliminary discounted cash flow analysis remains subject to change.
(dollars in millions) June 14, 2016 August 15, 2016 Preliminary Selected Transactions Analysis (Sum-of-the-Parts) [Informational] Metric Capitalized LTM 3/31/16 Adjusted EBITDAP LTM 6/30/16 Adjusted EBITDAP
Base Amount – Powertrain $460 $478 Selected Multiple – Powertrain 6.00x – 7.00x 6.00x – 7.00x Base Amount – Motorparts $258 $252
Selected Multiple – Motorparts 8.50x – 9.50x 8.50x – 9.50x Implied Per Share Equity Value $6.68 – $11.62 $7.51 – $12.51
Preliminary Discounted Cash Flow Analysis
[Informational] [Informational] Pension-Adjusted Not Pension-Adjusted Pension-Adjusted Not Pension-Adjusted
Perpetuity Growth Rate Range 1.75% – 2.25% 1.75% – 2.25% 1.75% – 2.25% 1.75% – 2.25%
Discount Rate Range 9.75% – 10.75% 9.75% – 10.75% 9.75% – 10.75% 10.00% – 11.00%
Implied Per Share Equity Value $6.06 – $12.17 $8.23 – $13.07 $6.13 – $12.27 $7.56 – $12.14
Selected Balance Sheet Items
Cash and Cash Equivalents $234 $273
Debt Outstanding $3,119 $3,096
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Page
1. Executive Summary 3
2. Preliminary Financial Analyses 11
3. Selected Public Market Observations 21
4. Appendix 26
5. Disclaimer 56
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Relative Historical Stock Price Performance
Five-Year Relative Price Stock Performance
Piston Index of Selected Powertrain Companies Index of Selected Motorparts Companies S&P 500 Index 220.0%
Date Range: (8/12/2011—8/12/2016) 200.0% Piston: -48.5%
180.0% Index of Selected Pow ertrain Companies¹: 15.0% Index of Selected Motorparts Companies²: 99.5% S&P 500 Index: 85.3%
160.0% 140.0% 120.0% 100.0%
80.0%
60.0%
40.0%
20.0%
0.0%
8/12/2011 8/12/2012 8/12/2013 8/12/2014 8/12/2015 8/12/2016
1. Shown for informational purposes. Index consists of BorgWarner Inc., Carraro SpA, Cummins Inc., Dana Incorporated, DENSO Corporation, ElringKlinger AG, Linamar Corp., Metaldyne Performance Group Inc., Modine Manufacturing Company, and Schaeffler AG.
2. Shown for informational purposes. Index consists of Dorman Products, Inc., Genuine Parts Company, Motorcar Parts of America, Inc., and Standard Motor Products Inc.
Source: Capital IQ.
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Relative Historical Stock Price Performance (cont.)
Relative Stock Price Performance since 12/31/2015
Piston Index of Selected Powertrain Companies Date Range: (12/31/2015—8/12/2016) Index of Selected Motorparts Companies S&P 500 Index Piston: 28.6%
Index of Selected Pow ertrain Companies¹: 28.0%
170.0%
Index of Selected Motorparts Companies²: 18.7% 160.0% S&P 500 Index: 6.9%
150.0% 3
140.0% 5 4
130.0%
120.0%
2
110.0%
1
100.0%
90.0%
80.0%
1
70.0%
60.0%
50.0%
12/31/2015 1/21/2016 2/11/2016 3/3/2016 3/24/2016 4/14/2016 5/5/2016 5/26/2016 6/16/2016 7/7/2016 7/28/2016
Dates Stock Price Announcement
1 1/15/2016 $4.62 Piston cancels plan to spinoff aftermarket division
2 2/29/2016 $7.26 Piston releases FY 2015 financial results; IEP announces initial IEP proposal of $7.00 per share
3 4/27/2016 $9.80 Piston releases Q1 2016 financial results; Company press release indicates IEP has communicated that it is not currently considering selling its stake in Piston
4 6/20/2016 $8.48 IEP announces Revised IEP Proposal of $8.00 per share
5 7/27/2016 $9.16 Piston releases Q2 2016 financial results
1. Shown for informational purposes. Index consists of BorgWarner Inc., Carraro SpA, Cummins Inc., Dana Incorporated, DENSO Corporation, ElringKlinger AG, Linamar Corp., Metaldyne Performance Group Inc., Modine Manufacturing Company, and Schaeffler AG.
2. Shown for informational purposes. Index consists of Dorman Products, Inc., Genuine Parts Company, Motorcar Parts of America, Inc., and Standard Motor Products Inc.
Source: Capital IQ.
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Five-Year Relative EV/EBITDA Multiples (Informational)
Five-Year Piston 2/26/2016 Current¹ Average
Index of Selected Powertrain Companies
Piston 6.0x 6.5x 6.9x
Index of Selected Motorparts Companies
Index of Selected Pow ertrain Companies² 5.6x 5.6x 6.7x
EV/EBITDA
LTM Multiple Index of Selected Motorparts Companies³ 10.8x 12.2x 10.4x
15.0x 14.0x 13.0x 12.0x 11.0x 10.0x 9.0x 8.0x 7.0x 6.0x 5.0x 4.0x
3.0x
8/12/2011 8/12/2012 8/12/2013 8/12/2014 8/12/2015 8/12/2016
Note: Similar data on an EBITDAP basis may show different relationship for Piston relative to selected companies. Shown for informational purposes.
Note: Multiples shown above are sourced from Capital IQ; as such, certain multiples may differ slightly from figures shown on other pages due to differences in EBITDA adjustments.
1. As of August 12, 2016.
2. Represents median EV/EBITDA multiple of selected companies: BorgWarner Inc., Carraro SpA, Cummins Inc., Dana Holding Corporation, DENSO Corporation, ElringKlinger AG, Linamar Corp., Metaldyne Performance Group Inc., Modine Manufacturing Company, and Schaeffler AG.
3. Represents median EV/EBITDA multiple of selected companies: Dorman Products, Inc., Genuine Parts Company, Motorcar Parts of America, Inc., and Standard Motor Products Inc.
EBITDA refers to Earnings Before Interest, Taxes, Depreciation & Amortization. EV refers to Enterprise Value.
Source: Capital IQ.
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Trading Volume
Trading Activity Since Revised IEP Proposal (Since June 20, 2016)
Trading Volume (000s)
5,000
4,000
3,000
88.9% of Piston’s trading volume since IEP announced its Revised IEP Proposal has occurred above $8.00 per share
2,000
1,397 1,170
911 1,000 727 537
91
0 0 0
$7.50—$7.75 $7.75—$8.00 $8.00—$8.25 $8.25—$8.50 $8.50—$8.75 $8.75—$9.00 $9.00—$9.25 $9.25—$9.50
% of Total1 0.0% 11.1% 1.9% 24.2% 15.1% 28.9% 18.9% 0.0% % of Float2 0.0% 1.8% 0.3% 3.9% 2.4% 4.6% 3.0% 0.0%
Note: Stock prices included in each range represent those greater than low-end of range and less than or equal to high-end of range.
1. Represents total volume traded within specified stock price range as percentage of total volume traded over specified date range.
2. Represents total volume traded within specified stock price range as percentage of total float of 30.2 million shares as of August 12, 2016.
Source: Capital IQ.
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Page
1. Executive Summary 3
2. Preliminary Financial Analyses 11
3. Selected Public Market Observations 21
4. Appendix 26 Cost of Capital Considerations 27 Selected Companies—Operating Statistics 33 Company Financial Performance Observations 37 Implied Premiums Paid Observations 40 Illustrative Preliminary Financial Analyses (EBITDA) 43
5. Disclaimer 56
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Page
1. Executive Summary 3
2. Preliminary Financial Analyses 11
3. Selected Public Market Observations 21
4. Appendix 26 Cost of Capital Considerations 27 Selected Companies—Operating Statistics 33 Company Financial Performance Observations 37 Implied Premiums Paid Observations 40 Illustrative Preliminary Financial Analyses (EBITDA) 43
5. Disclaimer 56
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Weighted Average Cost of Capital Calculation Summary (Pension-Adjusted)
Powertrain
Computed Pension-Adjusted Weighted Average Cost of Capital 9.7%
Motorparts
Computed Pension-Adjusted Weighted Average Cost of Capital 10.8%
Weighted Average Cost of Capital 10.3%
Selected Pension-Adjusted Weighted Average Cost of Capital Range 9.75% — 10.75%
Source: Refer to the four following pages for details.
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Weighted Average Cost of Capital Calculation – Powertrain (Pension-Adjusted)
(dollars in millions) Debt + Pension Debt + Pension
Debt + Liab. Liab. Preferred Preferred Equity Market Pension Preferred Equity Market Total to Equity to Total Stock to Equity Stock to Total Value to Total Selected Company Liability1 Stock2 Value3 Capitalization4 Market Value Capitalization Market Value Capitalization Capitalization
BorgWarner Inc. 2,866.5 # 0.0 # 7,275.7 # 10,142.2 # 39.4% # 28.3% # 0.0% # 0.0% # 71.7% # Carraro SpA 312.8 # 0.0 # 59.4 # 372.2 # 526.9% # 84.0% # 0.0% # 0.0% # 16.0% # Cummins Inc. 1,871.0 # 0.0 # 21,397.2 # 23,268.2 # 8.7% # 8.0% # 0.0% # 0.0% # 92.0% # Dana Incorporated 2,032.8 # 0.0 # 1,993.4 # 4,026.2 # 102.0% # 50.5% # 0.0% # 0.0% # 49.5% # DENSO Corporation 4,538.4 # 0.0 # 31,819.9 # 36,358.4 # 14.3% # 12.5% # 0.0% # 0.0% # 87.5% # ElringKlinger AG 774.9 # 0.0 # 1,166.8 # 1,941.6 # 66.4% # 39.9% # 0.0% # 0.0% # 60.1% # Linamar Corp. 1,359.8 # 0.0 # 2,819.7 # 4,179.4 # 48.2% # 32.5% # 0.0% # 0.0% # 67.5% # Metaldyne Performance Group Inc. 1,886.7 # 0.0 # 1,104.8 # 2,991.5 # 170.8% # 63.1% # 0.0% # 0.0% # 36.9% # Modine Manufacturing Company 235.7 # 0.0 # 486.6 # 722.3 # 48.4% # 32.6% # 0.0% # 0.0% # 67.4% # Schaeffler AG 7,273.5 # 0.0 # 10,452.5 # 17,725.9 # 69.6% # 41.0% # 0.0% # 0.0% # 59.0% # Median $1,878.9 $0.0 $2,406.5 $4,102.8 57.4% 36.3% 0.0% 0.0% 63.7% Mean $2,315.2 $0.0 $7,857.6 $10,172.8 109.5% 39.3% 0.0% 0.0% 60.7%
Cost of Levered Unlevered Equity Risk Size Cost of Cost of Preferred
Selected Company Beta5 Beta6 Premium7 Premium8 Equity9 Debt10 Stock11 WACC12
BorgWarner Inc. 1.57 # 1.19 # 6.50% 0.86% 12.9% # 3.6% # NA # 10.1% 0 Carraro SpA 0.92 # 0.18 # 6.50% 5.60% 13.4% # 4.3% # NA # 5.0% 0 Cummins Inc. 1.49 # 1.40 # 6.50% 0.57% 12.1% # 3.9% # NA # 11.4% 0 Dana Incorporated 1.88 # 1.04 # 6.50% 1.63% 15.7% # 5.2% # NA # 9.9% 0 DENSO Corporation 1.22 # 1.09 # 6.50% -0.36% 9.4% # 1.0% # NA # 8.3% 0 ElringKlinger AG 1.18 # 0.77 # 6.50% 1.62% 11.1% # 2.0% # NA # 7.3% 0 Linamar Corp. 1.24 # 0.90 # 6.50% 1.49% 11.4% # 5.1% # NA # 9.0% 0 Metaldyne Performance Group Inc. 1.16 * 0.49 * 6.50% 1.62% 11.0% # 2.6% # NA # 5.4% 0 Modine Manufacturing Company 1.75 # 1.26 # 6.50% 2.04% 15.3% # 5.5% # NA # 11.7% 0 Schaeffler AG 1.17 * 0.75 * 6.50% 0.57% 10.0% # 3.6% # NA # 7.1% 0 Median 1.37 1.07 11.8% 3.8% NA 8.7% Mean 1.41 0.98 12.2% 3.7% NA 8.5%
Note: No company used for comparative purposes is identical to Pow ertrain, Motorparts or the Company.
1. Debt amount and tax-effected underfunded pension liability based on most recent public filing as of August 12, 2016.
2. Preferred stock amount as stated in most recent public filing as of August 12, 2016.
3. Equity market value based on closing price on August 12, 2016 and on reported fully-diluted shares as stated in most recent public filing as of August 12, 2016.
4. Total capitalization equal to equity market value + debt outstanding + preferred stock + tax-effected underfunded pension liability.
5. Based on actual five-year w eekly beta per Bloomberg, as of August 12, 2016.
6. Unlevered Beta = Levered Beta / (1 + ((1 – Tax Rate) * (Debt + Pension Liab. to Equity Market Value)) + (Preferred Stock to Equity Market Value)).
7. Based on review of studies measuring historical returns betw een stocks and bonds, theoretical models such as supply side and demand side models and other materials.
8. 2016 Duff & Phelps Valuation Handbook (“Handbook”).
9. Cost of Equity = Risk-Free Rate of Return + (Levered Beta * Equity Risk Premium) + Size Premium. Risk-Free Rate of Return as of August 12, 2016, based on 20-year U.S. Treasury Bond Yield.
10. Based on selected company w eighted average interest rate per most recent public filings, including w eighted average discount rate assumptions used to determine benefit obligations as of August 12, 2016. 11. Based on selected company w eighted average preferred dividend per most recent public filings as of August 12, 2016.
12. Weighted Average Cost of Capital (WACC) = (Cost of Debt * (1 – Tax Rate) * Debt + Pension Liab. to Total Capitalization) + (Cost of Equity * Equity Market Value to Total Capitalization) + (Cost of Preferred * Preferred Stock to Total Capitalization).
See next page for tax rate assumption. NA refers to Not Available.
*Not reflected in median and mean data given insufficient trading history. Sources: Capital IQ and Bloomberg.
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Weighted Average Cost of Capital Calculation – Powertrain (Pension-Adjusted) (cont.)
Market Assumptions Capital Structure Assumptions Cost of Equity for Computed WACC
Risk-Free Rate of Return¹ 1.85% Debt + Pension Liab. to Total Capitalization 36.3% Selected Unlevered Beta 1.07 Equity Risk Premium² 6.50% Preferred Stock to Total Capitalization 0.0% Computed Levered Beta 1.55 Size Premium³ 1.63% Equity Market Value to Total Capitalization 63.7% Cost of Equity 13.6% Tax Rate 20.00% Debt + Pension Liab. to Equity Market Value 56.9% Preferred Stock to Equity Market Value 0.0% Cost of Debt 3.8% Cost of Preferred Stock NA
Computed Powertrain Weighted Average Cost of Capital 9.7%
1. Risk-Free Rate of Return as of August 12, 2016, based on 20-year U.S. Treasury Bond Yield.
2. Based on review of studies measuring historical returns betw een stocks and bonds, theoretical models such as supply side and demand side models and other materials.
3. Handbook.
4. Per Company management.
5. Based on review of corresponding metrics of selected companies listed on previous page.
6. Based on review of selected companies’ unlevered betas listed on previous page.
7. Computed Levered Beta = Selected Unlevered Beta * (1 + ((Debt + Pension Liab. to Equity Market Value) * (1 – Tax Rate)) + (Preferred Stock to Equity Market Value)). Based on Market and Capital Structure Assumptions.
8. Cost of Equity = Risk-Free Rate of Return + (Computed Levered Beta * Equity Risk Premium) + Size Premium. Based on Market Assumptions.
9. Weighted Average Cost of Capital (WACC) = (Cost of Debt * (1 – Tax Rate) * Debt + Pension Liab. to Total Capitalization) + (Cost of Equity * Equity Market Value to Total Capitalization) + (Cost of Preferred Stock * Preferred Stock to Total Capitalization). Based on “Cost of Equity for Computed WACC” and Market and Capital Structure Assumptions.
NA refers to Not Available. Source: Capital IQ and Bloomberg.
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Weighted Average Cost of Capital Calculation – Motorparts (Pension-Adjusted)
(dollars in millions) Debt + Pension Debt + Pension
Debt + Liab. Liab. Preferred Preferred Equity Market Pension Preferred Equity Market Total to Equity to Total Stock to Equity Stock to Total Value to Total Selected Company Liability1 Stock2 Value3 Capitalization4 Market Value Capitalization Market Value Capitalization Capitalization
Dorman Products, Inc. $0.0 # $0.0 # $2,142.1 # $2,142.1 # 0.0% # 0.0% # 0.0% # 0.0% # 100.0% # Genuine Parts Company 958.5 # 0.0 # 15,194.7 # 16,153.2 # 6.3% # 5.9% # 0.0% # 0.0% # 94.1% # Motorcar Parts of America, Inc. 43.3 # 0.0 # 582.8 # 626.1 # 7.4% # 6.9% # 0.0% # 0.0% # 93.1% # Standard Motor Products Inc. 102.1 # 0.0 # 985.2 # 1,087.3 # 10.4% # 9.4% # 0.0% # 0.0% # 90.6% # Median $72.7 $0.0 $1,563.6 $1,614.7 6.9% 6.4% 0.0% 0.0% 93.6% Mean $276.0 $0.0 $4,726.2 $5,002.2 6.0% 5.6% 0.0% 0.0% 94.4%
Cost of Levered Unlevered Equity Risk Size Cost of Cost of Preferred
Selected Company Beta5 Beta6 Premium7 Premium8 Equity9 Debt10 Stock11 WACC12
Dorman Products, Inc. 1.21 # 1.21 # 6.50% 1.49% 11.2% # NA * NA # 11.2% 0 Genuine Parts Company 1.02 # 0.97 # 6.50% 0.57% 9.0% # 3.2% # NA # 8.7% 0 Motorcar Parts of America, Inc. 1.16 # 1.10 # 6.50% 2.04% 11.4% # 3.1% # NA # 10.8% 0 Standard Motor Products Inc. 1.45 # 1.34 # 6.50% 1.62% 12.9% # 2.3% # NA # 11.9% 0 Median 1.19 1.15 11.3% 3.1% NA 11.0% Mean 1.21 1.16 11.2% 2.8% NA 10.6%
Note: No company used for comparative purposes is identical to Pow ertrain, Motorparts or the Company.
1. Debt amount and tax-effected underfunded pension liability based on most recent public filing as of August 12, 2016.
2. Preferred stock amount as stated in most recent public filing as of August 12, 2016.
3. Equity market value based on closing price on August 12, 2016 and on reported fully-diluted shares as stated in most recent public filing as of August 12, 2016.
4. Total capitalization equal to equity market value + debt outstanding + preferred stock + tax-effected underfunded pension liability.
5. Based on actual five-year w eekly beta per Bloomberg, as of August 12, 2016.
6. Unlevered Beta = Levered Beta / (1 + ((1 – Tax Rate) * (Debt + Pension Liab. to Equity Market Value)) + (Preferred Stock to Equity Market Value)).
7. Based on review of studies measuring historical returns betw een stocks and bonds, theoretical models such as supply side and demand side models and other materials.
8. 2016 Duff & Phelps Valuation Handbook (“Handbook”).
9. Cost of Equity = Risk-Free Rate of Return + (Levered Beta * Equity Risk Premium) + Size Premium. Risk-Free Rate of Return as of August 12, 2016, based on 20-year U.S. Treasury Bond Yield.
10. Based on selected company w eighted average interest rate per most recent public filings, including w eighted average discount rate assumptions used to determine benefit obligations as of August 12, 2016. 11. Based on selected company w eighted average preferred dividend per most recent public filings as of August 12, 2016.
12. Weighted Average Cost of Capital (WACC) = (Cost of Debt * (1 – Tax Rate) * Debt + Pension Liab. to Total Capitalization) + (Cost of Equity * Equity Market Value to Total Capitalization) + (Cost of Preferred * Preferred Stock to Total Capitalization).
See next page for tax rate assumption. NA refers to Not Available.
*Not reflected in median and mean data given insufficient trading history. Sources: Capital IQ and Bloomberg.
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Weighted Average Cost of Capital Calculation – Motorparts (Pension-Adjusted) (cont.)
Market Assumptions Capital Structure Assumptions Cost of Equity for Computed WACC
Risk-Free Rate of Return¹ 1.85% Debt + Pension Liab. to Total Capitalization 6.4% Selected Unlevered Beta 1.15 Equity Risk Premium² 6.50% Preferred Stock to Total Capitalization 0.0% Computed Levered Beta 1.22 Size Premium³ 1.63% Equity Market Value to Total Capitalization 93.6% Cost of Equity 11.4% Tax Rate 20.00% Debt + Pension Liab. to Equity Market Value 6.9% Preferred Stock to Equity Market Value 0.0% Cost of Debt 3.1% Cost of Preferred Stock NA
Computed Motorparts Weighted Average Cost of Capital 10.8%
1. Risk-Free Rate of Return as of August 12, 2016, based on 20-year U.S. Treasury Bond Yield.
2. Based on review of studies measuring historical returns betw een stocks and bonds, theoretical models such as supply side and demand side models and other materials.
3. Handbook.
4. Per Company management.
5. Based on review of corresponding metrics of selected companies listed on previous page.
6. Based on review of selected companies’ unlevered betas listed on previous page.
7. Computed Levered Beta = Selected Unlevered Beta * (1 + ((Debt + Pension Liab. to Equity Market Value) * (1 – Tax Rate)) + (Preferred Stock to Equity Market Value)). Based on Market and Capital Structure Assumptions.
8. Cost of Equity = Risk-Free Rate of Return + (Computed Levered Beta * Equity Risk Premium) + Size Premium. Based on Market Assumptions.
9. Weighted Average Cost of Capital (WACC) = (Cost of Debt * (1 – Tax Rate) * Debt + Pension Liab. to Total Capitalization) + (Cost of Equity * Equity Market Value to Total Capitalization) + (Cost of Preferred Stock * Preferred Stock to Total Capitalization). Based on “Cost of Equity for Computed WACC” and Market and Capital Structure Assumptions.
NA refers to Not Available. Source: Capital IQ and Bloomberg.
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Page
1. Executive Summary 3
2. Preliminary Financial Analyses 11
3. Selected Public Market Observations 21
4. Appendix 26 Cost of Capital Considerations 27 Selected Companies—Operating Statistics 33 Company Financial Performance Observations 37 Implied Premiums Paid Observations 40 Illustrative Preliminary Financial Analyses (EBITDA) 43
5. Disclaimer 56
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Selected Powertrain Companies – Operating Statistics
Size Size¹ Relative Depreciation Internal Investment
(LTM Revenue, millions) (Enterprise Value as of 8/12/2016, millions) (LTM Depreciation to LTM Adjusted EBITDA) (LTM Capital Expenditures to LTM Revenue) DENSO Corporation $44,642.0 DENSO Corporation $30,015.1 Cummins Inc. 18.7% Carraro SpA 3.0% Cummins Inc. $18,205.0 Cummins Inc. $22,322.2 BorgWarner Inc. 23.9% Cummins Inc. 3.8% Schaeffler AG $14,773.4 Schaeffler AG $15,999.9 Schaeffler AG 29.6% Dana Incorporated 4.9% BorgWarner Inc. $8,604.9 BorgWarner Inc. $9,489.9 Linamar Corp. 30.7% Linamar Corp. 6.1% Dana Incorporated $5,838.0 Linamar Corp. $3,858.7 Dana Incorporated 31.4% BorgWarner Inc. 6.1% Linamar Corp. $4,401.7 Dana Incorporated $2,847.4 DENSO Corporation 40.1% Modine Manufacturing Company 6.9% Powertrain $4,217.0 Metaldyne Performance Group Inc. $2,803.7 ElringKlinger AG 40.5% Metaldyne Performance Group Inc. 7.0% Metaldyne Performance Group Inc. $2,949.8 ElringKlinger AG $1,798.7 Modine Manufacturing Company 43.9% Powertrain 7.3% ElringKlinger AG $1,712.6 Modine Manufacturing Company $600.5 Metaldyne Performance Group Inc. 46.2% DENSO Corporation 7.4% Modine Manufacturing Company $1,353.6 Carraro SpA $283.0 Powertrain 51.5% Schaeffler AG 7.8% Carraro SpA $702.7 Carraro SpA 59.9% ElringKlinger AG 11.1%
Historical Growth Projected Growth Projected Growth Projected Growth
(CY 2014 to CY 2015 Revenue) (CY 2015 to CY 2016E Revenue) (CY 2015 to CY 2017E Revenue) (CY 2016E to CY 2017E Revenue)
Linamar Corp. 23.8% Linamar Corp. 19.0% Linamar Corp. 12.8% Powertrain 9.7% ElringKlinger AG 13.7% BorgWarner Inc. 14.0% BorgWarner Inc. 9.1% Linamar Corp. 7.0% Schaeffler AG 9.1% ElringKlinger AG 4.6% Powertrain 5.4% Schaeffler AG 4.7% DENSO Corporation 5.0% Schaeffler AG 2.1% ElringKlinger AG 4.5% ElringKlinger AG 4.5% Powertrain 0.8% Powertrain 1.3% Schaeffler AG 3.4% BorgWarner Inc. 4.5% Cummins Inc. (0.6%) DENSO Corporation 0.0% DENSO Corporation 1.2% Metaldyne Performance Group Inc. 2.9% Metaldyne Performance Group Inc. (3.1%) Modine Manufacturing Company (2.6%) Modine Manufacturing Company (0.6%) Dana Incorporated 2.5% BorgWarner Inc. (3.4%) Dana Incorporated (4.1%) Dana Incorporated (0.8%) DENSO Corporation 2.4% Carraro SpA (7.4%) Metaldyne Performance Group Inc. (6.0%) Metaldyne Performance Group Inc. (1.7%) Modine Manufacturing Company 1.5% Dana Incorporated (8.4%) Cummins Inc. (8.6%) Cummins Inc. (5.1%) Cummins Inc. (1.4%) Modine Manufacturing Company (9.6%) Carraro SpA NA Carraro SpA NA Carraro SpA NA
Historical Growth Projected Growth Projected Growth Projected Growth
(CY 2014 to CY 2015 Adjusted EBITDA) (CY 2015 to CY 2016E Adjusted EBITDA) (CY 2015 to CY 2017E Adjusted EBITDA) (CY 2016E to CY 2017E Adjusted EBITDA) Linamar Corp. 26.6% Linamar Corp. 16.2% Powertrain 11.1% Powertrain 14.5% Schaeffler AG 8.1% Dana Incorporated 10.1% Modine Manufacturing Company 11.0% ElringKlinger AG 14.0% DENSO Corporation 3.9% Modine Manufacturing Company 8.9% Linamar Corp. 11.0% Modine Manufacturing Company 13.2% Cummins Inc. 2.5% BorgWarner Inc. 7.9% ElringKlinger AG 7.8% Linamar Corp. 6.1% Modine Manufacturing Company 1.6% Powertrain 7.7% Dana Incorporated 7.0% Schaeffler AG 5.5% Metaldyne Performance Group Inc. (1.7%) Schaeffler AG 4.0% BorgWarner Inc. 6.1% Metaldyne Performance Group Inc. 4.6% Powertrain (2.6%) Metaldyne Performance Group Inc. 2.6% Schaeffler AG 4.7% BorgWarner Inc. 4.4% BorgWarner Inc. (3.0%) ElringKlinger AG 1.9% Metaldyne Performance Group Inc. 3.6% Dana Incorporated 4.0% ElringKlinger AG (5.1%) DENSO Corporation (6.3%) DENSO Corporation (1.5%) DENSO Corporation 3.6% Carraro SpA (7.5%) Cummins Inc. (15.6%) Cummins Inc. (9.3%) Cummins Inc. (2.4%) Dana Incorporated (18.7%) Carraro SpA NA Carraro SpA NA Carraro SpA NA
Note: No company used for comparative purposes is identical to Pow ertrain. Show n for informational purposes.
Note: Historical financials show n above do not reflect pro forma adjustments for tw o-stage TRW-Valvetrain acquisition completed in February 2015 and July 2015. Per Company management, 2015 revenue and EBITDA w ould need to be adjusted by $107 million and $13 million, respectively, to reflect pro forma full-year impact of TRW-Valvetrain acquisition. Per Company management, full year 2015 revenue and EBITDA for TRW-Valvetrain of $524 million and $67 million, respectively, approximates 2013 and 2014 performance of the entity.
1. Based on public trading prices of common stock.
Adjusted EBITDA refers to Earnings Before Interest, Taxes, Depreciation & Amortization, adjusted for certain non-recurring items. E refers to Estimated.
LTM refers to the most recently completed 12-month period for w hich financial information has been made public. CY refers to calendar year.
NA refers to Not Available.
Source: Public filings, Capital IQ, Bloomberg, Company management.
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Selected Powertrain Companies – Operating Statistics (cont.)
Pension Pension¹ Pension Tax²
(LTM Pension Expense to LTM Adjusted EBITDAP) (Adjusted Pension Liability to Adjusted Enterprise Value) (LTM Pension Expense to Adjusted Pension Liability) (3-Year Average Effective Tax Rate)
DENSO Corporation 13.3% Carraro SpA 0.0% DENSO Corporation 59.5% Powertrain 20.0% Powertrain 11.1% Cummins Inc. 0.0% BorgWarner Inc. 16.1% Linamar Corp. 23.5% Schaeffler AG 4.7% Linamar Corp. 0.0% Schaeffler AG 11.1% DENSO Corporation 25.9% ElringKlinger AG 3.4% Metaldyne Performance Group Inc. 0.8% ElringKlinger AG 8.9% ElringKlinger AG 26.2% Modine Manufacturing Company 3.0% BorgWarner Inc. 2.4% Modine Manufacturing Company 5.6% Cummins Inc. 27.0% Cummins Inc. 2.5% DENSO Corporation 4.8% Metaldyne Performance Group Inc. 4.2% BorgWarner Inc. 28.4% BorgWarner Inc. 2.4% ElringKlinger AG 5.2% Dana Incorporated (0.3%) Dana Incorporated 31.5% Metaldyne Performance Group Inc. 0.2% Schaeffler AG 6.9% Carraro SpA NA Metaldyne Performance Group Inc. 32.7% Linamar Corp. 0.0% Modine Manufacturing Company 9.7% Cummins Inc. NA Schaeffler AG 44.4% Carraro SpA 0.0% Dana Incorporated 11.4% Linamar Corp. NA Modine Manufacturing Company 46.1% Dana Incorporated (0.2%) Powertrain NA Carraro SpA NMF
Profitability Profitability Profitability Profitability
(LTM Adjusted EBITDA to LTM Revenue) (CY 2016E Adjusted EBITDA to CY 2016E Revenue) (CY 2017E Adjusted EBITDA to CY 2017E Revenue) (LTM Free Cash Flow Conversion)
Schaeffler AG 18.1% Schaeffler AG 18.1% Metaldyne Performance Group Inc. 18.2% Cummins Inc. 75.2% Linamar Corp. 17.7% Metaldyne Performance Group Inc. 17.9% Schaeffler AG 18.2% Linamar Corp. 65.6% BorgWarner Inc. 17.3% Linamar Corp. 17.2% Linamar Corp. 17.0% BorgWarner Inc. 64.5% Metaldyne Performance Group Inc. 16.5% BorgWarner Inc. 16.5% BorgWarner Inc. 16.5% Metaldyne Performance Group Inc. 57.8% Cummins Inc. 15.2% ElringKlinger AG 14.8% ElringKlinger AG 16.1% Schaeffler AG 56.7% ElringKlinger AG 14.7% Cummins Inc. 14.2% Cummins Inc. 14.1% Carraro SpA 54.3% DENSO Corporation 13.1% DENSO Corporation 12.6% DENSO Corporation 12.8% Dana Incorporated 48.5% Powertrain 10.1% Dana Incorporated 11.1% Dana Incorporated 11.2% DENSO Corporation 43.4% Dana Incorporated 9.5% Powertrain 10.2% Powertrain 10.7% Powertrain 27.2%
Modine Manufacturing Company 8.5% Modine Manufacturing Company 8.9% Modine Manufacturing Company 10.0% ElringKlinger AG 24.0% Carraro SpA 6.7% Carraro SpA NA Carraro SpA NA Modine Manufacturing Company 18.8%
Profitability Profitability Profitability Profitability
(LTM Adjusted FCF to LTM Revenue) (CY 2016E Adjusted FCF to CY 2016E Revenue) (CY 2017E Adjusted FCF to CY 2017E Revenue) (3-Year Average Free Cash Flow Conversion) Linamar Corp. 11.6% BorgWarner Inc. 10.9% Metaldyne Performance Group Inc. 11.2% Cummins Inc. 74.1% Cummins Inc. 11.4% Metaldyne Performance Group Inc. 10.8% BorgWarner Inc. 10.8% Dana Incorporated 65.1% BorgWarner Inc. 11.1% Cummins Inc. 10.6% Schaeffler AG 10.5% Schaeffler AG 64.6% Schaeffler AG 10.3% Schaeffler AG 10.4% Cummins Inc. 10.3% Metaldyne Performance Group Inc. 62.8% Metaldyne Performance Group Inc. 9.5% Linamar Corp. 9.8% Linamar Corp. 8.0% BorgWarner Inc. 62.1% DENSO Corporation 5.7% Dana Incorporated 5.4% ElringKlinger AG 6.8% Linamar Corp. 60.9% Dana Incorporated 4.6% DENSO Corporation 5.1% Dana Incorporated 6.1% Carraro SpA 49.8% Carraro SpA 3.6% ElringKlinger AG 3.4% DENSO Corporation 5.5% DENSO Corporation 43.4% ElringKlinger AG 3.5% Modine Manufacturing Company 3.4% Modine Manufacturing Company 5.0% ElringKlinger AG 37.8%
Powertrain 2.7% Powertrain 3.2% Powertrain 4.4% Modine Manufacturing Company 29.6% Modine Manufacturing Company 1.6% Carraro SpA NA Carraro SpA NA Powertrain 29.0%
Note: No company used for comparative purposes is identical to Pow ertrain. Show n for informational purposes.
Note: Historical financials show n above do not reflect pro forma adjustments for tw o-stage TRW-Valvetrain acquisition completed in February 2015 and July 2015. Per Company management, 2015 revenue and EBITDA w ould need to be adjusted by $107 million and $13 million, respectively, to reflect pro forma full-year impact of TRW-Valvetrain acquisition. Per Company management, full year 2015 revenue and EBITDA for TRW-Valvetrain of $524 million and $67 million, respectively, approximates 2013 and 2014 performance of the entity.
1. Based on public trading prices of common stock.
2. Piston’s projected tax rate is 20.0%.
Adjusted EBITDA refers to Earnings Before Interest, Taxes, Depreciation & Amortization, adjusted for certain non-recurring items.
Adjusted EBITDAP refers to Earnings Before Interest, Taxes, Depreciation, Amortization and Pension (and OPEB) Expense, adjusted for certain non-recurring items. Adjusted FCF refers to Adjusted Free Cash Flow , w hich is represented as Adjusted EBITDA less Capital Expenditures.
E refers to Estimated.
LTM refers to the most recently completed 12-month period for w hich financial information has been made public. CY refers to calendar year.
NA refers to Not Available.
Source: Public filings, Capital IQ, Bloomberg, Company management. 34
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Selected Motorparts Companies – Operating Statistics
Size Size¹ Relative Depreciation Internal Investment
(LTM Revenue, millions) (Enterprise Value as of 8/12/2016, millions) (LTM Depreciation to LTM Adjusted EBITDA) (LTM Capital Expenditures to LTM Revenue) Genuine Parts Company $15,221.5 Genuine Parts Company $15,748.7 Motorcar Parts of America, Inc. 6.2% Genuine Parts Company 0.8% Motorparts $3,226.0 Dorman Products, Inc. $2,054.2 Dorman Products, Inc. 10.3% Motorcar Parts of America, Inc. 1.3% Standard Motor Products Inc. $1,002.9 Standard Motor Products Inc. $1,073.0 Genuine Parts Company 11.3% Standard Motor Products Inc. 1.8% Dorman Products, Inc. $833.5 Motorcar Parts of America, Inc. $604.4 Standard Motor Products Inc. 16.1% Dorman Products, Inc. 2.5% Motorcar Parts of America, Inc. $368.5 ########## Motorparts 50.5% Motorparts 3.3%
Historical Grow th Projected Growth Projected Growth Projected Growth
(CY 2014 to CY 2015 Revenue) (CY 2015 to CY 2016E Revenue) (CY 2015 to CY 2017E Revenue) (CY 2016E to CY 2017E Revenue)
Motorcar Parts of America, Inc. 22.3% Motorcar Parts of America, Inc. 17.9% Motorcar Parts of America, Inc. 15.7% Motorcar Parts of America, Inc. 13.6% Dorman Products, Inc. 6.9% Standard Motor Products Inc. 7.9% Dorman Products, Inc. 7.6% Dorman Products, Inc. 8.3% Motorparts 2.1% Dorman Products, Inc. 6.9% Standard Motor Products Inc. 6.6% Standard Motor Products Inc. 5.3% Genuine Parts Company (0.4%) Genuine Parts Company 1.3% Genuine Parts Company 2.4% Genuine Parts Company 3.6% Standard Motor Products Inc. (0.9%) Motorparts 0.9% Motorparts 0.4% Motorparts (0.0%)
Historical Grow th Projected Growth Projected Growth Projected Growth
(CY 2014 to CY 2015 Adjusted EBITDA) (CY 2015 to CY 2016E Adjusted EBITDA) (CY 2015 to CY 2017E Adjusted EBITDA) (CY 2016E to CY 2017E Adjusted EBITDA) Motorcar Parts of America, Inc. 24.4% Motorcar Parts of America, Inc. 65.2% Motorcar Parts of America, Inc. 43.6% Motorcar Parts of America, Inc. 24.8%
Motorparts 9.1% Standard Motor Products Inc. 24.9% Motorparts 20.5% Motorparts 19.8%
Dorman Products, Inc. 6.5% Motorparts 21.1% Standard Motor Products Inc. 13.2% Dorman Products, Inc. 7.0% Genuine Parts Company (0.5%) Dorman Products, Inc. 12.0% Dorman Products, Inc. 9.5% Genuine Parts Company 6.1% Standard Motor Products Inc. (14.0%) Genuine Parts Company 5.6% Genuine Parts Company 5.9% Standard Motor Products Inc. 2.5%
Pension Pension¹ Pension Tax²
(LTM Pension Expense to LTM Adjusted EBITDAP) (Adjusted Pension Liability to Adjusted Enterprise Value) (LTM Pension Expense to Adjusted Pension Liability) (3-Year Average Effective Tax Rate)
Motorparts 3.6% Dorman Products, Inc. 0.0% Standard Motor Products Inc. 159.2% Motorparts 20.0% Standard Motor Products Inc. 2.6% Motorcar Parts of America, Inc. 0.0% Genuine Parts Company (5.5%) Standard Motor Products Inc. 36.0% Motorcar Parts of America, Inc. 0.7% Standard Motor Products Inc. 0.2% Dorman Products, Inc. NA Genuine Parts Company 36.0% Dorman Products, Inc. 0.0% Genuine Parts Company 1.2% Motorcar Parts of America, Inc. NA Dorman Products, Inc. 36.2% Genuine Parts Company (0.8%) Motorparts NA Motorcar Parts of America, Inc. 49.8%
Profitability Profitability Profitability Profitability
(LTM Adjusted EBITDA to LTM Revenue) (CY 2016E Adjusted EBITDA to CY 2016E Revenue) (CY 2017E Adjusted EBITDA to CY 2017E Revenue) (LTM Free Cash Flow Conversion)
Dorman Products, Inc. 20.8% Dorman Products, Inc. 21.2% Dorman Products, Inc. 20.9% Motorcar Parts of America, Inc. 90.6% Motorcar Parts of America, Inc. 13.6% Motorcar Parts of America, Inc. 18.2% Motorcar Parts of America, Inc. 20.1% Genuine Parts Company 90.2% Standard Motor Products Inc. 11.4% Standard Motor Products Inc. 11.5% Standard Motor Products Inc. 11.2% Dorman Products, Inc. 88.0% Genuine Parts Company 8.2% Genuine Parts Company 8.6% Motorparts 9.2% Standard Motor Products Inc. 84.2%
Motorparts 7.5% Motorparts 7.7% Genuine Parts Company 8.8% Motorparts 56.7%
Profitability Profitability Profitability Profitability
(LTM Adjusted FCF to LTM Revenue) (CY 2016E Adjusted FCF to CY 2016E Revenue) (CY 2017E Adjusted FCF to CY 2017E Revenue) (3-Year Average Free Cash Flow Conversion) Dorman Products, Inc. 18.3% Dorman Products, Inc. 18.7% Motorcar Parts of America, Inc. 19.0% Motorcar Parts of America, Inc. 91.5% Motorcar Parts of America, Inc. 12.3% Motorcar Parts of America, Inc. 17.1% Dorman Products, Inc. 18.4% Genuine Parts Company 90.7% Standard Motor Products Inc. 9.6% Standard Motor Products Inc. 10.1% Genuine Parts Company 7.9% Standard Motor Products Inc. 86.3% Genuine Parts Company 7.4% Genuine Parts Company 7.7% Motorparts 5.3% Dorman Products, Inc. 83.2%
Motorparts 4.3% Motorparts 3.5% Standard Motor Products Inc. NA Motorparts 43.3%
Note: No company used for comparative purposes is identical to Motorparts. Show n for informational purposes.
Note: Historical financials show n above do not reflect pro forma adjustments for Affinia and Honeyw ell acquisitions completed in May 2014 and July 2014, respectively. Per Company management, 2014 revenue and EBITDA w ould need to be adjusted by $65 million and $7 million, respectively, to reflect pro forma full-year impact of Affinia acquisition, and 2014 revenue and EBITDA w ould need to be adjusted by $238 million and ($7) million, respectively, to reflect pro forma full-year impact of Honeyw ell acquisition. Per Company management, Affinia w as expected to contribute annual revenue of $200 million and EBITDA of $20 million. Per Company management, at the time of the acquisition, Honeyw ell had annual revenue of $450 million w ith break-even EBITDA; how ever, Honeyw ell w as expected to be fully blended w ithin the Braking business and ultimately reach ~10% EBITDA margins (before corporate allocations).
1. Based on public trading prices of common stock.
2. Piston’s projected tax rate is 20.0%.
Adjusted EBITDA refers to Earnings Before Interest, Taxes, Depreciation & Amortization, adjusted for certain non-recurring items.
Adjusted EBITDAP refers to Earnings Before Interest, Taxes, Depreciation, Amortization and Pension (and OPEB) Expense, adjusted for certain non-recurring items. Adjusted FCF refers to Adjusted Free Cash Flow , w hich is represented as Adjusted EBITDA less Capital Expenditures.
E refers to Estimated.
LTM refers to the most recently completed 12-month period for w hich financial information has been made public. CY refers to calendar year.
NA refers to Not Available.
Source: Public filings, Capital IQ, Bloomberg, Company management. 35
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Page
1. Executive Summary 3
2. Preliminary Financial Analyses 11
3. Selected Public Market Observations 21
4. Appendix 26 Cost of Capital Considerations 27 Selected Companies—Operating Statistics 33 Company Financial Performance Observations 37 Implied Premiums Paid Observations 40 Illustrative Preliminary Financial Analyses (EBITDA) 43
5. Disclaimer 56
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Company Historical Budget vs. Actual Performance
The tables below illustrate the financial performance of the Company relative to the budget prepared by the Company’s management in each of the last two fiscal years.
In order to facilitate a “true” comparison to the budget, the actual performance figures below exclude the impact of acquisitions announced in the same year (i.e., 2014 budget and actual performance exclude impact of Honeywell and Affinia in the case of Motorparts, and 2015 budget and actual performance exclude the impact of TRW/Valvetrain in the case of Powertrain).
2014 2015
(dollars in millions) Actual Budget Variance Actual Budget Variance
Powertrain
Revenue 4,430 4,333 2.2% 4,033 4,552 -11.4% EBITDA 431 438 -1.6% 374 476 -21.4% EBITDA Margin 9.7% 10.1% -0.4% 9.3% 10.5% -1.2%
Motorparts
Revenue 2,860 2,935 -2.6% 3,253 3,556 -8.5% EBITDA 188 230 -18.3% 216 280 -22.9% EBITDA Margin 6.6% 7.8% -1.3% 6.6% 7.9% -1.2%
Note: 2014 figures for Motorparts exclude impact of Affinia and Honeywell acquisitions. 2015 figures for Powertrain exclude impact of TRW Valvetrain acquisition. Source: Company management.
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Historical and Projected Restructuring Activity
The table below shows historical and projected restructuring payments by segment, as well as consolidated restructuring expense.
(dollars in millions) 2008A- 2016E-2015A 2020E
2008A 2009A 2010A 2011A 2012A 2013A 2014A 2015A 2016E 2017E 2018E 2019E 2020E Avg. Avg. Restructuring
Powertrain Restructuring Payments $27 $17 $7 $13 $27 $35 $39 $2 $6 $10 $15 $21 $14 Motorparts Restructuring Payments $8 $3 $6 $10 $25 $24 $42 $51 $15 $15 $10 $13 $27 Consolidated Restructuring Payments $40 $94 $36 $21 $15 $23 $52 $59 $81 $53 $21 $25 $25 $43 $41
Consolidated Restructuring Expense $132 $32 $8 $5 $26 $21 $86 $89 $35 $36 $15 $18 $25 $50 $26
Source: Public filings, Company management.
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Page
1. Executive Summary 3
2. Preliminary Financial Analyses 11
3. Selected Public Market Observations 21
4. Appendix 26 Cost of Capital Considerations 27 Selected Companies—Operating Statistics 33 Company Financial Performance Observations 37 Implied Premiums Paid Observations 40 Illustrative Preliminary Financial Analyses (EBITDA) 43
5. Disclaimer 56
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Implied Premiums to Unaffected Stock Price
Implied Premiums to Unaffected Stock Price
Implied Premium over Illustrative Stock Price Revised IEP
Trading Period Closing Proposal Illustrative Stock Price
Prior to 2/29/2016 Stock Price $8.00 $7.00 $7.50 $8.50 $9.00 $9.50 $10.00
1-Day $4.98 60.6% 40.6% 50.6% 70.7% 80.7% 90.8% 100.8%
5-Day Average $4.46 79.5% 57.1% 68.3% 90.8% 102.0% 113.2% 124.4%
10-Day Average $4.35 84.0% 61.0% 72.5% 95.5% 107.0% 118.5% 130.0%
1-Month Average $4.30 85.9% 62.7% 74.3% 97.5% 109.1% 120.8% 132.4%
3-Month Average $5.60 42.8% 24.9% 33.8% 51.7% 60.6% 69.5% 78.5%
6-Month Average $6.80 17.6% 2.9% 10.2% 24.9% 32.3% 39.6% 47.0%
1-Year Average $9.37 (14.6%) (25.3%) (20.0%) (9.3%) (4.0%) 1.4% 6.7%
52-Week High—4/6/2015 $13.91 (42.5%) (49.7%) (46.1%) (38.9%) (35.3%) (31.7%) (28.1%)
52-Week Low—2/11/2016 $3.90 105.1% 79.5% 92.3% 117.9% 130.8% 143.6% 156.4%
Source: Capital IQ.
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Implied Premiums Paid Observations
Implied Premiums Paid¹
Announced Effective Target Acquiror 1-Day² 5-Day² 1-Month
10/15/2015 01/21/2016 Montupet SA Linamar Corp. 15.7% # 29.2% # 7.9% # 07/14/2015 12/02/2015 Miba Aktiengesellschaft Mitterbauer Beteiligungs AG 22.5% # 22.8% # 20.2% # 07/13/2015 11/10/2015 Remy International, Inc. BorgWarner Inc. 43.7% # 39.9% # 34.2% # 07/10/2014 05/15/2015 ZF TRW Automotive Holdings Corp. ZF Friedrichshafen AG 15.5% # 16.0% # 23.1% # 06/23/2014 09/19/2014 Letrika d.d. MAHLE Holding Austria GmbH 24.0% # 22.2% # 29.3% #
Low 15.5% 16.0% 7.9% High 43.7% 39.9% 34.2% Median 22.5% 22.8% 23.1% Mean 24.3% 26.0% 22.9%
02/29/2016 Pending Piston IEP 60.6% 80.2% 67.7%
Mergerstat Control Premium Study 4/1/15-3/31/16 CY 2015 Q1 2016 Domestic and Transportation Domestic ic International al Equipment Transactions Transactions Transactions
Low (87.5%) # (99.9%) # 5.8% High 254.2% # 510.5% # 43.7% Median³ 29.5% # 30.4% # 30.2% Mean³ 41.2% # 44.7% # 27.9%
Average One-Day Prior Acquisition Premiums Average Four-Week Prior Acquisition Premiums
36% 36% 38% 38% 35% 33% 35% 35% 35% 34% 35% 30% 31% 31%
2011 2012 2013 2014 2015 Q1 ‘16 Q2 ‘16 2011 2012 2013 2014 2015 Q1 ‘16 Q2 ‘16
Note: No target show n for comparative purposes is identical to Pow ertrain, Motorparts or the Company. No transaction show n for comparative purposes is identical to a transaction involving the Company.
List of transactions show n above consists of a subset of transactions show n in illustrative selected transactions in the appendix as it only includes information for targets that w ere publicly traded prior to acquisition. Implied premiums show n for IEP / Piston reflect Revised IEP Proposal of $8.00 per share.
1. Based on closing stock price data.
2. Indicates number of trading day(s) prior to announcement of transaction.
3. Excludes negative premiums.
CY refers to Calendar Year. NA refers to Not Available.
Source: Capital IQ, Thomson Reuters, Mergerstat. 41
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Page
1. Executive Summary 3
2. Preliminary Financial Analyses 11
3. Selected Public Market Observations 21
4. Appendix 26 Cost of Capital Considerations 27 Selected Companies—Operating Statistics 33 Company Financial Performance Observations 37 Implied Premiums Paid Observations 40 Illustrative Preliminary Financial Analyses (EBITDA) 43
5. Disclaimer 56
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Illustrative Preliminary Financial Analyses Summary (Not Pension-Adjusted, Except as Noted1) – Informational
Analyses shown below and on the following pages are for illustrative purposes only.
Implied Equity Value Per Share Illustrative Pension-Adjusted / $15.00 Hybrid Approach
$13.29 $13.00 $12.51 $12.14 $11.75 $11.78
$11.00 Piston Closing Stock Price Per Share on 8/12/2016: $8.81 $9.00 $8.58 $7.80 Revised IEP $7.00 $7.73 $7.56 Proposal: $8.00 $7.51
Piston Unaffected $5.00
Closing Stock Price Per Share on 2/26/2016: $4.98 $3.00
Selected Companies Analysis Selected Companies Analysis Selected Companies Analysis Discounted Cash Flow Analysis Selected Transactions Analysis¹ (Sum-of-the-Parts) (Sum-of-the-Parts) (Sum-of-the-Parts) (Consolidated) (Sum-of-the-Parts)
Pow ertrain Pow ertrain Pow ertrain Perpetuity Grow th Pow ertrain 4.75x—5.75x 4.50x—5.50x 4.00x—5.00x Rate Range: 6.00x—7.00x LTM ended 6/30/2016 CY 2016E CY 2017E 1.75%—2.25% LTM ended 6/30/2016 Adjusted EBITDA Adjusted EBITDA Adjusted EBITDA Adjusted EBITDAP
Motorparts Motorparts Motorparts Discount Motorparts 8.25x—9.25x 8.25x—9.25x 7.25x—8.25x Rate Range: 8.50x—9.50x LTM ended 6/30/2016 CY 2016E CY 2017E 10.00%—11.00% LTM ended 6/30/2016 Adjusted EBITDA Adjusted EBITDA Adjusted EBITDA Adjusted EBITDAP
Note: No particular w eight w as attributed to any analysis. Based on 169,040,651 outstanding basic shares and no dilutive shares as of August 12, 2016, per Piston public filings and Company management. The Company has stock appreciation rights outstanding that trigger a payment obligation in the event value exceeds ~$19 / share, per Company management.
1. Financial analyses have not been adjusted for pension w ith exception of illustrative selected transactions analysis, w hich is show n for informational purposes given insufficient information on underfunded pension (and OPEB) liabilities and EBITDAP for selected transactions. Selected multiples range show n above for illustrative purposes based on reported enterprise value to EBITDA information for selected transactions.
Adjusted EBITDA refers to Earnings Before Interest, Taxes, Depreciation & Amortization, adjusted for certain non-recurring items.
Adjusted EBITDAP refers to Earnings Before Interest, Taxes, Depreciation, Amortization and Pension (and OPEB) Expense, adjusted for certain non-recurring items. CY refers to Calendar Year.
LTM refers to Latest 12 Months.
Source: Piston financial projections prepared by Piston management.
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Illustrative Preliminary Financial Analyses Summary (Not Pension-Adjusted, Except as Noted) – Informational (cont.)
(shares outstanding and dollars in millions, except per share values) Illustrative Pension-Adjusted / Hybrid Approach Selected Selected Selected Discounted Selected Companies Companies Companies Cash Flow Transactions Analysis Analysis Analysis Analysis Analysis
LTM ended 6/30/2016 CY 2016E CY 2017E LTM ended 6/30/2016 Adjusted EBITDA Adjusted EBITDA Adjusted EBITDA Perpetuity Grow th Adjusted EBITDAP
Powertrain Discount Rate Range:
Corresponding Pow ertrain Base Amount $425 $434 $497 Perpetuity $478
Selected Multiple Range 4.75 x — 5.75 x 4.50 x — 5.50 x 4.00 x — 5.00 x Grow th Rate Range: 6.00 x — 7.00 x Implied Pow ertrain Enterprise Value from Operations Reference Range $2,020 — $2,445 $1,954 — $2,388 $1,989 — $2,486 1.75% — 2.25% $2,869 — $3,348
Motorparts Discount Rate Range:
Corresponding Motorparts Base Amount $243 $250 $299 10.00% — 11.00% $252
Selected Multiple Range 8.25 x — 9.25 x 8.25 x — 9.25 x 7.25 x — 8.25 x 8.50 x — 9.50 x Implied Motorparts Enterprise Value from Operations Reference Range $2,007 — $2,250 $2,061 — $2,311 $2,170 — $2,470 $2,144 — $2,397
Consolidated Enterprise Value from Operations Range
Corresponding Base Amount $669 $684 $798 $731 Implied Consolidated Multiple Range 6.0 x — 7.0 x 5.9 x — 6.9 x 5.2 x — 6.2 x 6.9 x — 7.9 x Consolidated Enterprise Value from Operations Reference Range¹ $4,027 — $4,695 $4,015 — $4,699 $4,159 — $4,956 $4,065 — $4,840 $5,014 — $5,744 Add: Cash and Cash Equivalents Attributable to the Company² $273 — $273 $273 — $273 $273 — $273 $273 — $273 $273 — $273 Add: Investments in Non-consolidated Affiliates (Cost Method)³ $8 — $8 $8 — $8 $8 — $8 $8 — $8 $8 — $8 Add: Real Estate Assets Held for Sale $45 — $45 $45 — $45 $45 — $45 $45 — $45 $45 — $45 Add: Value of NOLs and Tax Credits $79 — $79 $79 — $79 $79 — $79 $0 — $0 $79 — $79 Implied Total Enterprise Value Reference Range $4,432 — $5,101 $4,421 — $5,105 $4,565 — $5,361 $4,392 — $5,167 $5,419 — $6,150 Less: Debt Attributable to the Company $3,096 — $3,096 $3,096 — $3,096 $3,096 — $3,096 $3,096 — $3,096 $3,096 — $3,096 Less: Adjusted Underfunded Pension (and OPEB) Liability as of 6/30/2016 $0 — $0 $0 — $0 $0 — $0 $0 — $0 $1,036 — $921 Less: Net Environmental Liabilities $13 — $13 $13 — $13 $13 — $13 $13 — $13 $13 — $13 Less: Net Asset Retirement Obligations $5 — $5 $5 — $5 $5 — $5 $5 — $5 $5 — $5 Implied Total Equity Value Reference Range $1,318 — $1,987 $1,307 — $1,991 $1,451 — $2,247 $1,278 — $2,053 $1,269 — $2,115 Shares Outstanding10 169.0 — 169.0 169.0 — 169.0 169.0 — 169.0 169.0 — 169.0 169.0 — 169.0 Implied Per Share Equity Value Reference Range $7.80 — $11.75 $7.73 — $11.78 $8.58 — $13.29 $7.56 — $12.14 $7.51 — $12.51
Source: Piston financial projections prepared by Piston management. Refer to next page for additional notes.
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Illustrative Preliminary Financial Analyses Summary (Not Pension-Adjusted, Except as Noted) – Informational (cont.)—Footnotes
1. Represents sum of implied enterprise value from operations reference ranges for Pow ertrain and Motorparts.
2. Reflects the Company’s cash balance of $290 million (including $95 million of offshore cash subject to repatriation tax as of December 31, 2015), net of $17 million of pro rata cash attributable to non-controlling interests as of June 30, 2016, per Company management. Assumes no cash from non-consolidated JVs attributable to the Company, per Company management.
3. Represents book value of investments in non-consolidated affiliates accounted for using cost method as of December 31, 2015 (no information available as of June 30, 2016), for w hich earnings are not captured in the Company’s adjusted EBITDA (given insufficient available information), per Company management. Does not include book value of investments in non-consolidated affiliates accounted for using equity method of approximately $258 million (as of June 30, 2016), for w hich earnings are captured in the Company’s adjusted EBITDA, per Company management.
4. Represents estimated value of non-core real estate assets held or available for sale, net of associated sales costs, environmental liabilities and asset retirement obligations, per the Company’s real estate brokers and Company management.
5. Based on $79 million of $1,059 million of asset value of Company NOLs and tax credits not offset by valuation allow ance as of June 30, 2016, per Company management. NOLs and tax credits are incorporated in discounted cash flow analysis through assumed 20.0% tax rate, per Company management. The Company also has a Tax Allocation Agreement (“TAA”) w ith American Entertainment Properties Corp. (“AEP”) pursuant to w hich the Company has contractual rights to 20% of economics of savings generated by AEP’s NOL usage. How ever, per Company management, no NOLs have been used by AEP since inception of the TAA in July 2013 and Company management is unaw are of AEP plans to utilize of NOLs going forw ard.
6. Reflects total debt outstanding of $3,109 million, net of $13 million of debt attributable to non-controlling interests as of June 30, 2016, per Company management. Assumes no debt from non-consolidated JVs attributable to the Company, per Company management.
7. Range reflects discount of 10% to 20% relative to the Company’s underfunded pension and post-retirement liabilities of $1,151 million as of June 30, 2016 based on, among other considerations, the follow ing factors, per Company management: (i) approximately 90% of the Company’s obligations reside in the U.S. and Germany, (ii) the Company is not a taxpayer in the U.S. and is not projected to generate income in the U.S. and (iii) the Company pays corporate taxes in Germany based on a corporate rate of 30%.
8. Reflects estimated cost of remediating hazardous substances at third-party sites pursuant to certain national, state and provincial environmental law s and is based on accruals per the Company’s Form 10-Q as of June 30, 2016 and Company management; does not include $44 million of “reasonably possible” exposure based on ongoing assessments, per Company management; figure net of environmental liabilities associated w ith real estate assets held for sale.
9. Reflects estimated remediation costs associated w ith removing hazardous building materials from the Company’s facilities, per Company management; figure net of asset retirement obligations associated w ith real estate assets held for sale.
10. Based on 169,040,651 outstanding basic shares and no dilutive shares as of August 12, 2016, per Piston public filings and Company management. The Company has stock appreciation rights outstanding that trigger a payment obligation in the event value exceeds ~$19 / share, per Company management.
Adjusted EBITDA refers to Earnings Before Interest, Taxes, Depreciation & Amortization, adjusted for certain non-recurring items.
Adjusted EBITDAP refers to Earnings Before Interest, Taxes, Depreciation, Amortization and Pension (and OPEB) Expense, adjusted for certain non-recurring items. E refers to Estimated.
CY refers to Calendar Year. LTM refers to Latest 12 Months.
Source: Piston financial projections prepared by Piston management.
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Illustrative Preliminary Selected Companies Analysis (EBITDA) – Informational
(dollars in millions, except per share values)
Closing Enterprise Value1 Stock Equity Market Enterprise to Adjusted EBITDA
Selected Company Price2 Value2,3 Value2,3 LTM CY 2016E4 CY 2017E4
Powertrain
BorgWarner Inc. $33.81 $7,275.7 $9,489.9 6.4x 6.3x 6.0x 6 9 Carraro SpA $1.37 $59.4 $283.0 6.0x NA NA N NA Cummins Inc. $126.73 $21,397.2 $22,322.2 8.1x 9.0x 9.2x 9 # Dana Incorporated $13.83 $1,993.4 $2,847.4 5.1x 4.4x 4.3x 4 8 DENSO Corporation $40.14 $31,819.9 $30,015.1 5.1x 5.4x 5.2x 5 # ElringKlinger AG $18.42 $1,166.8 $1,798.7 7.2x 6.9x 6.1x 6 # Linamar Corp. $42.89 $2,819.7 $3,858.7 5.0x 4.7x 4.5x 4 9 Metaldyne Performance Group Inc. $15.93 $1,104.8 $2,803.7 5.8x 5.5x 5.2x 5 9 Modine Manufacturing Company $10.12 $486.6 $600.5 5.2x 5.0x 4.4x 4 9 Schaeffler AG $15.69 $10,452.5 $15,999.9 6.0x 5.9x 5.6x 6 # Low 5.0x 4.4x 4.3x High 8.1x 9.0x 9.2x Median 5.9x 5.5x 5.2x Mean 6.0x 5.9x 5.6x
Motorparts
Dorman Products, Inc. $61.72 $2,142.1 $2,054.2 11.9x 11.3x 10.6x # # Genuine Parts Company $101.50 $15,194.7 $15,748.7 12.6x 11.8x 11.1x # # Motorcar Parts of America, Inc. $29.78 $582.8 $604.4 12.1x 8.0x 6.4x 6 7 Standard Motor Products Inc. $42.78 $985.2 $1,073.0 9.4x 8.9x 8.7x 9 NA
Low 9.4x 8.0x 6.4x High 12.6x 11.8x 11.1x Median 12.0x 10.1x 9.6x Mean 11.5x 10.0x 9.2x
Note: No company used for comparative purposes is identical to Pow ertrain, Motorparts or the Company.
1. Enterprise Value equals equity market value + minority interest + debt outstanding + preferred stock – cash and cash equivalents.
2. Based on closing prices as of August 12, 2016.
3. Based on reported fully-diluted shares.
4. Multiples based on forw ard-looking financial information for DENSO Corporation, Motorcar Parts of America, Inc. and Modine Manufacturing Company have been calendarized to the Company’s fiscal year-end of December 31. All other companies show n have December 31 fiscal year-ends.
Adjusted EBITDA refers to Earnings Before Interest, Taxes, Depreciation & Amortization, adjusted for certain non-recurring items. CY refers to Calendar Year.
E refers to Estimated.
LTM refers to Latest 12 Months. NA refers to Not Available.
Source: Bloomberg, Capital IQ, public filings.
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Illustrative Preliminary Consolidated Discounted Cash Flow Analysis (Not Pension-Adjusted) – Informational
Perpetuity Growth Rate
(dollars in millions) Terminal Fiscal Year Ending December 31, Value
2016E¹ 2017E 2018E 2019E 2020E Assumptions Implied 2020E Adjusted Revenue $3,681 $7,914 $8,297 $8,593 $8,973 $8,973 EBITDA Terminal Multiple
Revenue Growth % 1.1% 5.5% 4.8% 3.6% 4.4% — Discount Rate 1.75% 2.00% 2.25%
Less: Cost of Goods Sold 3,087 6,596 6,866 7,131 7,434 7,434 10.00% 5.2x 5.4x 5.6x Less: Selling, General and Administrative Expenses 414 866 886 901 913 918 10.50% 4.9x 5.1x 5.3x Less: Restructuring Expense 14 36 15 18 25 15 11.00% 4.7x 4.8x 5.0x Less: Other Operating Expense 41 65 72 73 72 72 Add: Depreciation & Amortization Expense 193 384 404 426 425 430 Add: Earnings in Non-consolidated JVs Attributable to Piston 24 60 67 68 70 70 Less: EBITDA in Consolidated JVs Attributable to Minority Interests 11 26 29 32 34 34 Add: Pension (and OPEB) Expense 37 71 71 65 61 61
EBITDAP $368 $840 $971 $997 $1,052 $1,061
Less: Pension (and OPEB) Contributions 54 112 104 97 98 61
Less: Depreciation and Amortization Expense 193 384 404 426 425 430 PV of Terminal Value EBITP less Pension (and OPEB) Contributions $120 $344 $463 $474 $529 $570 as a % of Enterprise Value Less: Taxes² 24 69 93 95 106 114 Discount Rate 1.75% 2.00% 2.25% Unlevered Earnings $96 $275 $371 $380 $423 $456 10.00% 78.8% 79.3% 79.9% Add: Depreciation and Amortization Expense 193 384 404 426 425 430 10.50% 77.6% 78.2% 78.7% Add: Non-cash Restructuring Expense 14 36 15 18 25 15 11.00% 76.5% 77.1% 77.6% Less: Restructuring Payments 57 53 21 25 25 15 Less: Capital Expenditures 239 419 409 430 430 430 Less: Change in Net Working Capital (63) 17 34 7 60 32 Add: Cash Flow from Non-consolidated JVs³ (24) (14) (17) (18) (19) 0
Unlevered Free Cash Flows $46 $192 $308 $343 $339 $424
PV of PV of Terminal Value
Cash Flows Based on Perpetual Growth Rate for Implied Enterprise Value 2016E—2020E 2020E Unlevered Free Cash Flow Discount Rate 1.75% 2.00% 2.25% 1.75% 2.00% 2.25%
10.00% 0.100 $974 $3,614 $3,736 $3,866 $4,588 $4,710 $4,840 10.50% 0.105 $964 + $3,348 $3,455 $3,568 = $4,312 $4,418 $4,532 11.00% 0.110 $953 $3,112 $3,206 $3,306 $4,065 $4,160 $4,259
Note: Present values as of August 12, 2016; mid-year convention applied. Refer to WACC calculation in Appendix for derivation of discount rate. Implied Enterprise Value reference ranges may be overstated as pension contributions are likely to remain closer to existing levels than pension expense levels immediately follow ing the projection period.
1. Represents 6.0-month stub period. Calculated as FY 2016 estimated figures, per Company management, less 1H 2016 actual figures, per Company public filings.
2. Tax at 20.0%, per Company management.
3. Represents difference betw een earnings in non-consolidated JVs and dividends received from non-consolidated JVs.
4. Terminal value assumptions include: (i) depreciation and amortization expense equal to capital expenditures, (ii) normalized w orking capital levels for Pow ertrain and Motorparts based on approximately 20% of change in revenue, per Company management, (iii) non-consolidated JV earnings equal to dividends, per Company management, (iv) normalized restructuring expense at $15 million, per Company management, and (v) pension (and OPEB) contributions equal to pension (and OPEB) expense.
5. Implied from corresponding discount rate and perpetual grow th rate applied to 2020E unlevered free cash flow . Show n for informational purposes.
EBITDAP refers to Earnings Before Interest, Taxes, Depreciation, Amortization and Pension (and OPEB) Expense. EBITP refers to Earnings Before Interest, Taxes and Pension (and OPEB) Expense.
Sources: Piston management, including projections prepared by Piston management.
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Illustrative Preliminary Selected Transactions Analysis –Informational
(dollars in millions) Transaction
Value / LTM Transaction LTM Adjusted EBITDA
Announced Effective Target Acquiror Value¹ EBITDA Margin % Powertrain
10/15/2015 01/21/2016 Montupet SA Linamar Corp. $954.8 9.1x 18.7% 08/10/2015 10/27/2015 Stackpole International Inc. Johnson Electric Holdings Limited $663.8 10.6x 16.8% 07/31/2015 10/16/2015 Motovario S.p.A. TECO Electric & Machinery Co. Ltd. $204.6 9.8x 16.8% 07/14/2015 12/02/2015 Miba Aktiengesellschaft Mitterbauer Beteiligungs AG $765.7 5.0x 19.0% 07/13/2015 11/10/2015 Remy International, Inc. BorgWarner Inc. $1,185.1 9.0x 11.8% 02/19/2015 07/01/2015 Delphi Automotive PLC, Thermal Business MAHLE Industrial Thermal Systems GmbH & Co. KG $727.0 9.5x 4.9% 07/10/2014 05/15/2015 ZF TRW Automotive Holdings Corp. ZF Friedrichshafen AG $13,029.9 7.0x 10.9% 06/23/2014 09/19/2014 Letrika d.d. MAHLE Holding Austria GmbH $214.3 7.0x 9.1% 10/11/2013 10/11/2013 Stackpole International Inc. CITIC Capital Partners; Crestview Partners L.P. $512.0 5.4x ² NA N
Low $204.6 5.0x 4.9% High $13,029.9 10.6x 19.0% Median $727.0 9.0x 14.3% Mean $2,028.6 8.0x 13.5%
Motorparts
08/03/2015 08/03/2015 The Carlstar Group LLC, Belts Business The Timken Company $220.0 10.0x 15.7% 08/15/2014 08/15/2014 Schrader International, Inc. Sensata Technologies B.V. $1,004.7 12.6x 16.2% 04/28/2014 05/01/2014 Stanadyne Corporation, Filtration business CLARCOR Inc. $325.0 8.2x 36.6% 04/04/2014 04/04/2014 Pinafore Holdings B.V. / Gates The Blackstone Group $7,070.7 12.4x 19.3% 02/10/2014 02/10/2014 Veyance Technologies, Inc. ContiTech AG $1,900.0 7.3x 13.2% 07/18/2013 09/27/2013 Johnson Controls Inc., HomeLink Product Line Gentex Corp. $700.0 9.2x 51.9% 04/23/2013 04/23/2013 Sator Holding B.V. LKQ Corp. $272.8 8.8x 8.4%
Low $220.0 7.3x 8.4% High $7,070.7 12.6x 51.9% Median $700.0 9.2x 16.2% Mean $1,641.9 9.8x 23.0%
Note: No target show n for comparative purposes is identical to Pow ertrain, Motorparts or the Company. No transaction show n for comparative purposes is identical to a transaction involving the Company. Note: No data available relating to pension obligations or EBITDAP.
1. Transaction Value refers to implied enterprise value of target company based on announced transaction equity price and other public information available at time of announcement.
2. Per Amherst Partners “Summary of Automotive M&A and Capital Markets Activity” report dated Q4 2013.
Adjusted EBITDA refers to Earnings Before Interest, Taxes, Depreciation & Amortization, adjusted for certain non-recurring items. LTM refers to most recently completed 12-month period for w hich financial information has been made public.
NA refers to Not Available. Source: Capital IQ, public filings.
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Illustrative Weighted Average Cost of Capital Calculation Summary (Not Pension-Adjusted) – Informational
Powertrain
Computed Weighted Average Cost of Capital 10.2%
Motorparts
Computed Weighted Average Cost of Capital 10.8%
Weighted Average Cost of Capital 10.5%
Selected Weighted Average Cost of Capital Range 10.00% — 11.00%
Source: Refer to the four following pages for details.
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Illustrative Weighted Average Cost of Capital Calculation –Powertrain (Not Pension-Adjusted) – Informational
(dollars in millions)
Debt to Debt Preferred Preferred Equity Market Preferred Equity Market Total Equity Market to Total Stock to Equity Stock to Total Value to Total Selected Company Debt1 Stock2 Value3 Capitalization4 Value Capitalization Market Value Capitalization Capitalization
BorgWarner Inc. 2,634.8 # 0.0 # 7,275.7 # 9,910.5 # 36.2% # 26.6% # 0.0% # 0.0% # 73.4% # Carraro SpA 312.8 # 0.0 # 59.4 # 372.2 # 526.9% # 84.0% # 0.0% # 0.0% # 16.0% # Cummins Inc. 1,871.0 # 0.0 # 21,397.2 # 23,268.2 # 8.7% # 8.0% # 0.0% # 0.0% # 92.0% # Dana Incorporated 1,668.0 # 0.0 # 1,993.4 # 3,661.4 # 83.7% # 45.6% # 0.0% # 0.0% # 54.4% # DENSO Corporation 3,032.0 # 0.0 # 31,819.9 # 34,851.9 # 9.5% # 8.7% # 0.0% # 0.0% # 91.3% # ElringKlinger AG 676.8 # 0.0 # 1,166.8 # 1,843.6 # 58.0% # 36.7% # 0.0% # 0.0% # 63.3% # Linamar Corp. 1,359.8 # 0.0 # 2,819.7 # 4,179.4 # 48.2% # 32.5% # 0.0% # 0.0% # 67.5% # Metaldyne Performance Group Inc. 1,864.2 # 0.0 # 1,104.8 # 2,969.0 # 168.7% # 62.8% # 0.0% # 0.0% # 37.2% # Modine Manufacturing Company 171.3 # 0.0 # 486.6 # 657.9 # 35.2% # 26.0% # 0.0% # 0.0% # 74.0% # Schaeffler AG 6,087.3 # 0.0 # 10,452.5 # 16,539.8 # 58.2% # 36.8% # 0.0% # 0.0% # 63.2% # Median $1,766.1 $0.0 $2,406.5 $3,920.4 53.1% 34.6% 0.0% 0.0% 65.4% Mean $1,967.8 $0.0 $7,857.6 $9,825.4 103.3% 36.8% 0.0% 0.0% 63.2%
Cost of Levered Unlevered Equity Risk Size Cost of Cost of Preferred
Selected Company Beta5 Beta6 Premium7 Premium8 Equity9 Debt10 Stock11 WACC12
BorgWarner Inc. 1.57 # 1.21 # 6.50% 0.86% 12.9% # 3.6% # NA # 10.2% 0 Carraro SpA 0.92 # 0.18 # 6.50% 5.60% 13.4% # 4.3% # NA # 5.0% 0 Cummins Inc. 1.49 # 1.40 # 6.50% 0.57% 12.1% # 3.9% # NA # 11.4% 0 Dana Incorporated 1.88 # 1.13 # 6.50% 1.63% 15.7% # 5.8% # NA # 10.7% 0 DENSO Corporation 1.22 # 1.13 # 6.50% -0.36% 9.4% # 1.0% # NA # 8.7% 0 ElringKlinger AG 1.18 # 0.81 # 6.50% 1.62% 11.1% # 2.1% # NA # 7.7% 0 Linamar Corp. 1.24 # 0.90 # 6.50% 1.49% 11.4% # 5.1% # NA # 9.0% 0 Metaldyne Performance Group Inc. 1.16 * 0.49 * 6.50% 1.62% 11.0% # 2.5% # NA # 5.4% 0 Modine Manufacturing Company 1.75 # 1.37 # 6.50% 2.04% 15.3% # 6.8% # NA # 12.7% 0 Schaeffler AG 1.17 * 0.80 * 6.50% 0.57% 10.0% # 3.9% # NA # 7.5% 0 Median 1.37 1.13 11.8% 3.9% NA 8.8% Mean 1.41 1.01 12.2% 3.9% NA 8.8%
Note: No company used for comparative purposes is identical to Pow ertrain, Motorparts or the Company.
1. Debt amount based on most recent public filing as of August 12, 2016.
2. Preferred stock amount as stated in most recent public filing as of August 12, 2016.
3. Equity market value based on closing price on August 12, 2016 and on reported fully-diluted shares as stated in most recent public filing as of August 12, 2016.
4. Total capitalization equal to equity market value + debt outstanding + preferred stock.
5. Based on actual five-year w eekly beta per Bloomberg, as of August 12, 2016.
6. Unlevered Beta = Levered Beta / (1 + ((1 – Tax Rate) * (Debt to Equity Market Value)) + (Preferred Stock to Equity Market Value)).
7. Based on review of studies measuring the historical returns betw een stocks and bonds, theoretical models such as supply side and demand side models and other materials.
8. 2016 Duff & Phelps Valuation Handbook (“Handbook”).
9. Cost of Equity = Risk-Free Rate of Return + (Levered Beta * Equity Risk Premium) + Size Premium. Risk-Free Rate of Return as of August 12, 2016, based on 20-year U.S. Treasury Bond Yield.
10. Based on selected company w eighted average interest rate per most recent public filings as of August 12, 2016. 11. Based on selected company w eighted average preferred dividend per most recent public filings as of August 12, 2016.
12. Weighted Average Cost of Capital (WACC) = (Cost of Debt * (1 – Tax Rate) * Debt to Total Capitalization) + (Cost of Equity * Equity Market Value to Total Capitalization) + (Cost of Preferred * Preferred Stock to Total Capitalization).
See next page for tax rate assumption. NA refers to Not Available.
*Not reflected in median and mean data given insufficient trading history.
Sources: Capital IQ and Bloomberg. 50
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Illustrative Weighted Average Cost of Capital Calculation –Powertrain (Not Pension-Adjusted) – Informational (cont.)
Market Assumptions Capital Structure Assumptions Cost of Equity for Computed WACC
Risk-Free Rate of Return¹ 1.85% Debt to Total Capitalization 34.6% Selected Unlevered Beta 1.13 Equity Risk Premium² 6.50% Preferred Stock to Total Capitalization 0.0% Computed Levered Beta 1.61 Size Premium³ 1.63% Equity Market Value to Total Capitalization 65.4% Cost of Equity 13.9% Tax Rate 20.00% Debt to Equity Market Value 53.0% Preferred Stock to Equity Market Value 0.0% Cost of Debt 3.9% Cost of Preferred Stock NA
Computed Weighted Average Cost of Capital 10.2%
1. Risk-Free Rate of Return as of August 12, 2016, based on 20-year U.S. Treasury Bond Yield.
2. Based on review of studies measuring historical returns betw een stocks and bonds, theoretical models such as supply side and demand side models and other materials.
3. Handbook.
4. Per Company management.
5. Based on review of corresponding metrics of selected companies listed on previous page.
6. Based on review of selected companies’ unlevered betas listed on previous page.
7. Computed Levered Beta = Selected Unlevered Beta * (1 + ((Debt to Equity Market Value) * (1 – Tax Rate)) + (Preferred Stock to Equity Market Value)). Based on Market and Capital Structure Assumptions.
8. Cost of Equity = Risk-Free Rate of Return + (Computed Levered Beta * Equity Risk Premium) + Size Premium. Based on Market Assumptions.
9. Weighted Average Cost of Capital (WACC) = (Cost of Debt * (1 – Tax Rate) * Debt to Total Capitalization) + (Cost of Equity * Equity Market Value to Total Capitalization) + (Cost of Preferred Stock * Preferred Stock to Total Capitalization). Based on “Cost of Equity for Computed WACC” and Market and Capital Structure Assumptions.
NA refers to Not Available. Source: Capital IQ and Bloomberg.
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Illustrative Weighted Average Cost of Capital Calculation –Motorparts (Not Pension-Adjusted) – Informational
(dollars in millions)
Debt to Debt Preferred Preferred Equity Market Preferred Equity Market Total Equity Market to Total Stock to Equity Stock to Total Value to Total Selected Company Debt1 Stock2 Value3 Capitalization4 Value Capitalization Market Value Capitalization Capitalization
Dorman Products, Inc. $0.0 # $0.0 # $2,142.1 # $2,142.1 # 0.0% # 0.0% # 0.0% # 0.0% # 100.0% # Genuine Parts Company 775.0 # 0.0 # 15,194.7 # 15,969.7 # 5.1% # 4.9% # 0.0% # 0.0% # 95.1% # Motorcar Parts of America, Inc. 43.3 # 0.0 # 582.8 # 626.1 # 7.4% # 6.9% # 0.0% # 0.0% # 93.1% # Standard Motor Products Inc. 100.2 # 0.0 # 985.2 # 1,085.4 # 10.2% # 9.2% # 0.0% # 0.0% # 90.8% # Median $71.7 $0.0 $1,563.6 $1,613.7 6.3% 5.9% 0.0% 0.0% 94.1% Mean $229.6 $0.0 $4,726.2 $4,955.8 5.7% 5.2% 0.0% 0.0% 94.8%
Cost of Levered Unlevered Equity Risk Size Cost of Cost of Preferred
Selected Company Beta5 Beta6 Premium7 Premium8 Equity9 Debt10 Stock11 WACC12
Dorman Products, Inc. 1.21 # 1.21 # 6.50% 1.49% 11.2% # NA * NA # 11.2% 0 Genuine Parts Company 1.02 # 0.98 # 6.50% 0.57% 9.0% # 2.8% # NA # 8.7% 0 Motorcar Parts of America, Inc. 1.16 # 1.10 # 6.50% 2.04% 11.4% # 3.1% # NA # 10.8% 0 Standard Motor Products Inc. 1.45 # 1.34 # 6.50% 1.62% 12.9% # 2.3% # NA # 11.9% 0 Median 1.19 1.15 11.3% 2.8% NA 11.0% Mean 1.21 1.16 11.2% 2.7% NA 10.7%
Note: No company used for comparative purposes is identical to Pow ertrain, Motorparts or the Company.
1. Debt amount based on most recent public filing as of August 12, 2016.
2. Preferred stock amount as stated in most recent public filing as of August 12, 2016.
3. Equity market value based on closing price on August 12, 2016 and on reported fully-diluted shares as stated in most recent public filing as of August 12, 2016.
4. Total capitalization equal to equity market value + debt outstanding + preferred stock.
5. Based on actual five-year w eekly beta per Bloomberg, as of August 12, 2016.
6. Unlevered Beta = Levered Beta / (1 + ((1 – Tax Rate) * (Debt to Equity Market Value)) + (Preferred Stock to Equity Market Value)).
7. Based on review of studies measuring the historical returns betw een stocks and bonds, theoretical models such as supply side and demand side models and other materials.
8. 2016 Duff & Phelps Valuation Handbook (“Handbook”).
9. Cost of Equity = Risk-Free Rate of Return + (Levered Beta * Equity Risk Premium) + Size Premium. Risk-Free Rate of Return as of August 12, 2016, based on 20-year U.S. Treasury Bond Yield.
10. Based on selected company w eighted average interest rate per most recent public filings as of August 12, 2016. 11. Based on selected company w eighted average preferred dividend per most recent public filings as of August 12, 2016.
12. Weighted Average Cost of Capital (WACC) = (Cost of Debt * (1 – Tax Rate) * Debt to Total Capitalization) + (Cost of Equity * Equity Market Value to Total Capitalization)
+ (Cost of Preferred * Preferred Stock to Total Capitalization).
See next page for tax rate assumption. NA refers to Not Available.
*Not reflected in median and mean data given insufficient trading history. Sources: Capital IQ and Bloomberg.
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Illustrative Weighted Average Cost of Capital Calculation –Motorparts (Not Pension-Adjusted) – Informational (cont.)
Market Assumptions Capital Structure Assumptions Cost of Equity for Computed WACC
Risk-Free Rate of Return¹ 1.85% Debt to Total Capitalization 5.9% Selected Unlevered Beta 1.15 Equity Risk Premium² 6.50% Preferred Stock to Total Capitalization 0.0% Computed Levered Beta 1.21 Size Premium³ 1.63% Equity Market Value to Total Capitalization 94.1% Cost of Equity 11.4% Tax Rate 20.00% Debt to Equity Market Value 6.2% Preferred Stock to Equity Market Value 0.0% Cost of Debt 2.8% Cost of Preferred Stock NA
Computed Weighted Average Cost of Capital 10.8%
1. Risk-Free Rate of Return as of August 12, 2016, based on 20-year U.S. Treasury Bond Yield.
2. Based on review of studies measuring historical returns betw een stocks and bonds, theoretical models such as supply side and demand side models and other materials.
3. Handbook.
4. Per Company management.
5. Based on review of corresponding metrics of selected companies listed on previous page.
6. Based on review of selected companies’ unlevered betas listed on previous page.
7. Computed Levered Beta = Selected Unlevered Beta * (1 + ((Debt to Equity Market Value) * (1 – Tax Rate)) + (Preferred Stock to Equity Market Value)). Based on Market and Capital Structure Assumptions.
8. Cost of Equity = Risk-Free Rate of Return + (Computed Levered Beta * Equity Risk Premium) + Size Premium. Based on Market Assumptions.
9. Weighted Average Cost of Capital (WACC) = (Cost of Debt * (1 – Tax Rate) * Debt to Total Capitalization) + (Cost of Equity * Equity Market Value to Total Capitalization) + (Cost of Preferred Stock * Preferred Stock to Total Capitalization). Based on “Cost of Equity for Computed WACC” and Market and Capital Structure Assumptions.
NA refers to Not Available. Source: Capital IQ and Bloomberg.
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Page
1. Executive Summary 3
2. Preliminary Financial Analyses 11
3. Selected Public Market Observations 21
4. Appendix 26
5. Disclaimer 56
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Disclaimer
This presentation, and any supplemental information (written or oral) or other documents provided in connection therewith (collectively, the “materials”), are provided solely for the information of the Special Committee (the “Committee”) of the Board of Directors (the “Board”) of Federal-Mogul Holdings Corporation (“Piston” or the “Company”) by Houlihan Lokey in connection with the Committee’s consideration of a potential transaction (the “Transaction”) involving the Company. This presentation is incomplete without reference to, and should be considered in conjunction with, any supplemental information provided by and discussions with Houlihan Lokey in connection therewith. Any defined terms used herein shall have the meanings set forth herein, even if such defined terms have been given different meanings elsewhere in the materials.
The materials are for discussion purposes only. Houlihan Lokey expressly disclaims any and all liability which may be based on the materials and any errors therein or omissions therefrom. The materials were prepared for specific persons familiar with the business and affairs of the Company for use in a specific context and were not prepared with a view to public disclosure or to conform with any disclosure standards under any state, federal or international securities laws or other laws, rules or regulations, and none of the Committee, the Company or Houlihan Lokey takes any responsibility for the use of the materials by persons other than the Committee. The materials are provided on a confidential basis solely for the information of the Committee and may not be disclosed, summarized, reproduced, disseminated or quoted or otherwise referred to, in whole or in part, without Houlihan Lokey’s express prior written consent.
Notwithstanding any other provision herein, the Company (and each employee, representative or other agent of the Company) may disclose to any and all persons without limitation of any kind, the tax treatment and tax structure of any transaction and all materials of any kind (including opinions or other tax analyses, if any) that are provided to the Company relating to such tax treatment and structure. However, any information relating to the tax treatment and tax structure shall remain confidential (and the foregoing sentence shall not apply) to the extent necessary to enable any person to comply with securities laws. For this purpose, the tax treatment of a transaction is the purported or claimed U.S. income or franchise tax treatment of the transaction and the tax structure of a transaction is any fact that may be relevant to understanding the purported or claimed U.S. income or franchise tax treatment of the transaction. If the Company plans to disclose information pursuant to the first sentence of this paragraph, the Company shall inform those to whom it discloses any such information that they may not rely upon such information for any purpose without Houlihan Lokey’s prior written consent. Houlihan Lokey is not an expert on, and nothing contained in the materials should be construed as advice with regard to, legal, accounting, regulatory, insurance, tax or other specialist matters. Houlihan Lokey’s role in reviewing any information is limited solely to performing such a review as it shall deem necessary to support its own advice and analysis and shall not be on behalf of the Committee.
The materials necessarily are based on financial, economic, market and other conditions as in effect on, and the information available to Houlihan Lokey as of, the date of the materials. Although subsequent developments may affect the contents of the materials, Houlihan Lokey has not undertaken, and is under no obligation, to update, revise or reaffirm the materials, except as may be expressly contemplated by Houlihan Lokey’s engagement letter. The materials are not intended to provide the sole basis for evaluation of the Transaction and do not purport to contain all information that may be required. The materials do not address the underlying business decision of the Company or any other party to proceed with or effect the Transaction. The materials do not constitute any opinion, nor do the materials constitute a recommendation to the Board, the Committee, the Company, any security holder of the Company or any other party as to how to vote or act with respect to any matter relating to the Transaction or otherwise or whether to buy or sell any assets or securities of any company. Houlihan Lokey’s only opinion is the opinion, if any, that is actually delivered to the Committee. The materials may not reflect information known to other professionals in other business areas of Houlihan Lokey and its affiliates.
The preparation of the materials was a complex process involving quantitative and qualitative judgments and determinations with respect to the financial, comparative and other analytic methods employed and the adaption and application of these methods to the unique facts and circumstances presented and, therefore, is not readily susceptible to partial analysis or summary description. Furthermore, Houlihan Lokey did not attribute any particular weight to any analysis or factor considered by it, but rather made qualitative judgments as to the significance and relevance of each analysis and factor. Each analytical technique has inherent strengths and weaknesses, and the nature of the available information may further affect the value of particular techniques. Accordingly, the analyses contained in the materials must be considered as a whole. Selecting portions of the analyses, analytic methods and factors without considering all analyses and factors could create a misleading or incomplete view. The materials reflect judgments and assumptions with regard to industry performance, general business, economic, regulatory, market and financial conditions and other matters, many of which are beyond the control of the participants in the Transaction. Any estimates of value contained in the materials are not necessarily indicative of actual value or predictive of future results or values, which may be significantly more or less favorable. Any analyses relating to the value of assets, businesses or securities do not purport to be appraisals or to reflect the prices at which any assets, businesses or securities may actually be sold. The materials do not constitute a valuation opinion or credit rating. In preparing the materials, Houlihan Lokey has not conducted any physical inspection or independent appraisal or evaluation of any of the assets, properties or liabilities (contingent or otherwise) of the Company or any other party and has no obligation to evaluate the solvency of the Company or any other party under any law.
All budgets, projections, estimates, financial analyses, reports and other information with respect to operations (including estimates of potential cost savings and expenses) reflected in the materials have been prepared by management of the relevant party or are derived from such budgets, projections, estimates, financial analyses, reports and other information or from other sources, which involve numerous and significant subjective determinations made by management of the relevant party and/or which such management has reviewed and found reasonable. The budgets, projections and estimates contained in the materials may or may not be achieved and differences between projected results and those actually achieved may be material. Houlihan Lokey has relied upon representations made by management of the Company that such budgets, projections and estimates have been reasonably prepared in good faith on bases reflecting the best currently available estimates and judgments of such management (or, with respect to information obtained from public sources, represent reasonable estimates), and Houlihan Lokey expresses no opinion with respect to such budgets, projections or estimates or the assumptions on which they are based. The scope of the financial analysis contained herein is based on discussions with the Company (including, without limitation, regarding the methodologies to be utilized), and Houlihan Lokey does not make any representation, express or implied, as to the sufficiency or adequacy of such financial analysis or the scope thereof for any particular purpose.
Houlihan Lokey has assumed and relied upon the accuracy and completeness of the financial and other information provided to, discussed with or reviewed by it without (and without assuming responsibility for) independent verification of such information, makes no representation or warranty (express or implied) in respect of the accuracy or completeness of such information and has further relied upon the assurances of the Company that it is not aware of any facts or circumstances that would make such information inaccurate or misleading. In addition, Houlihan Lokey has relied upon and assumed, without independent verification, that there has been no change in the business, assets, liabilities, financial condition, results of operations, cash flows or prospects of the Company or any other participant in the Transaction since the respective dates of the most recent financial statements and other information, financial or otherwise, provided to Houlihan Lokey that would be material to its analyses , and that the final forms of any draft documents reviewed by Houlihan Lokey will not differ in any material respect from such draft documents.
The materials are not an offer to sell or a solicitation of an indication of interest to purchase any security, option, commodity, future, loan or currency. The materials do not constitute a commitment by Houlihan Lokey or any of its affiliates to underwrite, subscribe for or place any securities, to extend or arrange credit, or to provide any other services. In the ordinary course of business, certain of Houlihan Lokey’s affiliates and employees, as well as investment funds in which they may have financial interests or with which they may co-invest, may acquire, hold or sell, long or short positions, or trade or otherwise effect transactions, in debt, equity, and other securities and financial instruments (including loans and other obligations) of, or investments in, one or more parties that may be involved in the Transaction and their respective affiliates or any currency or commodity that may be involved in the Transaction. Houlihan Lokey provides mergers and acquisitions, restructuring and other advisory and consulting services to clients. Houlihan Lokey’s personnel may make statements or provide advice that is contrary to information contained in the materials. Houlihan Lokey’s or its affiliates’ proprietary interests may conflict with the Company’s interests. Houlihan Lokey may have advised, may seek to advise and may in the future advise one or more participants in the Transaction and/or other companies mentioned in the materials.
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