LLC Advisors, Pacific FPA Capital Fund, Inc. - FPPTX€¦ · Total Enterprise Value (TEV) is a...

Fourth Quarter 2013

Webcast Presentation

January 28, 2014

Presented by:

Dennis Bryan, CFA, Partner

Arik Ahitov, Managing Director

FPA Capital Fund, Inc. - FPPTX

First Pacific Advisors, LLC

Agenda

I. Performance

II. Portfolio

III. Market Overview

IV. Question and Answer

V. Appendix


Performance

Section I


Performance (%)

3

Returns for Period Ended December 31, 2013

Performance shown is net of fees and annualized for periods exceeding 1 year. * Inception for FPA Management was July 11, 1984. Return information for period July 1-July 10, 1984 reflects performance by a manager other than FPA. A benchmark comparison is not available based on the Fund’s inception date therefore a comparison using July 1, 1984 is used. A redemption fee of 2% will be imposed on redemptions within 90 days. Expense Ratio as of most recent prospectus: 0.83%

Calculated using Morningstar Direct

Past performance is no guarantee of future results and current performance may be higher or lower than the performance shown. This data represents past performance and investors should understand that investment returns and principal values fluctuate, so that when you redeem your investment it may be worth more or less than its original cost. Current month-end performance data may be obtained via http://www.fpafunds.com/capital or by calling toll-free, 1-800-982-4372.

2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999

FPA Capital 22.85 9.69 0.90 24.25 53.78 -34.79 -0.39 5.42 16.53 12.62 38.54 -3.86 38.13 -3.08 14.24

Russell 2500 36.80 17.88 -2.51 26.71 34.39 -36.79 1.38 16.17 8.11 18.29 45.51 -17.80 1.22 4.27 24.14

1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984*

FPA Capital -0.42 17.70 37.76 38.39 10.37 16.74 21.57 64.51 -13.80 24.30 18.11 10.75 12.57 28.95 7.00

Russell 2500 0.38 24.36 19.03 31.70 -1.05 16.55 16.09 46.89 -14.88 19.43 22.73 -4.68 11.98 31.93 6.94

As of Date: 12/31/13 QTD YTD 1 Year 3 Years 5 Years 10 Years 15 Years 20 Years Since 7/1/84*

FPA Capital 5.25 22.85 22.85 10.78 21.04 8.85 10.96 13.10 14.90

Russell 2500 8.66 36.80 36.80 16.28 21.77 9.81 9.67 10.77 12.08


http://www.fpafunds.com/capital

Performance attribution – FPA Capital vs. Russell 2500

4

LTM: From December 31, 2012 to December 31, 2013

Benchmark Cash* All Else* FPA Capital*

36.8%

-13.1%

0.02%

23.9%

LTM = Last Twelve Months *Performance attribution shown is gross of fees. Past performance is no guarantee of future results and current performance may be higher or lower than the performance shown. This data represents past performance and investors should understand that investment returns and principal values fluctuate, so that when you redeem your investment it may be worth more or less than its original cost. Current month-end performance data may be obtained via http://www.fpafunds.com/capital or by calling toll free, 1-800-982-4372.



Equity summary data – as of December 31, 2013

5 5

P/E (Price/Earnings) is the price of a stock divided by its earnings per share. P/BV (Price/Book Value is the market price of a stock divided by the book value per share.

Past performance is no guarantee of future results and current performance may be higher or lower than the performance shown. The S&P 500 is presented for illustrative

purposes and should not be considered the primary benchmark comparison to the Fund.

Capital Russell 2500 S&P 500

Average P/E Ratio 14.8x 27.8x 19.2x

Average P/BV Ratio 1.7x 2.4x 2.7x

Median Market Cap (billions) $4.3 $1.0 $16.5

Weighted Average Market Cap (billions) $6.4 $3.8 $122.1

Weighted Average Market Cap (billions)

without the Two Largest Companies$4.4 N/A N/A

Weighted Return on Average Equity (ROAE) 13.0% 11.5% 17.5%

Weighted Total Debt to Total Capital 30.3% 44.6% 49.4%


Portfolio Composition

Cash value

■ A prospective portfolio holding must meet

buy criteria to justify cash deployment

■ Cash has high value in periods of

– Low liquidity

– High volatility

– Equity market duress

• Cash discipline allows capital to be deployed to investments we believe have the most upside potential

6

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Technology Financial Consumer

Retail Other Industrials

Energy Cash & Fixed Income

For illustrative purposes only and reflects FPA Capital Fund.

The power of “No”


Recent additions

7

1 P/E before extraordinary items (trailing) 2 0% if company was in net cash position 3 Purchased in Q3 2013 4 Acquired by WellPoint in 2013 5 Sold in Q3 2013 6 Purchased in Q4 2013

Past performance is not indicative of future results

Total Enterprise Value (TEV) is a valuation measurement used to compare companies with varying levels of debt. TEV/EBITDA (Total Enterprise Value/Earnings Before Interest,

Taxes, Depreciation and Amortization) is a valuation multiple to measure the value of a company. Price-to-Sales (P/S) is a ratio valuing a stock relative to its own past performance.

Price to sales is calculated by dividing a stock's current price by its revenue per share in most recent year. Return on equity(ROE) measures a corporation's profitability by revealing how

much profit a company generates with the money shareholders have invested.

Portfolio composition will change due to ongoing management of the Fund. References to individual securities are for informational purposes only and should not be construed as

recommendations by the Funds, Advisor or Distributor.

As of initial purchase

Market Cap

(MM) TEV TEV/EBITDA P/E1 P/BV P/S ROE Net Debt/Capital2

Aaron's3$2,097 $1,984 6.6x 14.9x 1.7x 0.9x 12% 0%

Amerigroup4 $2,204 $1,873 3.9x 8.2x 1.7x 0.4x 24% 0%

Apollo $2,231 $1,553 1.8x 6.2x 2.2x 0.6x 32% 0%

Arris $1,224 $788 3.9x 14.8x 1.2x 1.1x 9% 0%

Alliant Tech5 $1,437 $2,180 3.6x 5.5x 1.2x 0.3x 21% 42%

Centene $2,356 $2,051 22.4x NM 2.5x 0.3x -1% 0%

DeVry $2,230 $1,911 3.6x 7.4x 1.6x 1.1x 24% 0%

Federated $2,037 $2,141 7.5x 12.2x 3.7x 2.1x 36% 11%

Helmerich & Payne $4,004 $4,066 4.4x 10.2x 1.2x 1.7x 14% 0%

InterDigital $1,588 $1,061 4.8x 12.3x 4.2x 4.4x 42% 0%

Oshkosh $2,742 $3,470 3.4x 5.5x 1.8x 0.3x 39% 27%

Titan International6 $859 $1,176 6.5x 18.9x 1.2x 0.4x 7% 20%

Veeco $1,108 $533 1.5x 4.5x 1.3x 1.0x 47% 0%

Average $2,009 $1,907 5.7x 10.1x 2.0x 1.1x 24% 8%

Median $2,097 $1,911 3.9x 9.2x 1.7x 0.9x 24% 0%


Hypothetical growth of $10,000 since inception A record of attractive long-term returns

8

Time Period: July 1, 1984 – December 31, 2013 Source: Morningstar Direct.

Performance shown is net of fees. Past performance is no guarantee of future results and current performance may be higher or lower than the performance shown.

The chart illustrates the performance of a hypothetical $10,000 investment made in the fund since inception. Figures include reinvestment of capital gains and dividends, but do not

reflect the effect of any applicable redemption fees, which would lower these figures. An investor cannot invest in an index. This chart is not intended to imply any future performance of

the fund. The S&P 500 is presented for illustrative purposes and should not be considered the primary benchmark comparison to the Fund.

$0

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

$700,000

Russell 2500

$288,836

FPA Capital

$596,234

S&P 500

$246,717


Performance

Attractive upside/downside capture

9

January 1985 – December 2013 Source: Morningstar Direct.

22.29%

-5.07%

20.69%

-12.95%

Up Markets Down Markets

FPA Capital Russell 2500 FPA Capital Russell 2500

Past performance is no guarantee of future results and current performance may be higher or lower than the performance shown.


Individual stock performance

10

as of December 31, 2013 and inclusive of dividends. 1 Sold in Q3 2013 and represents return based on average sell price. 2 Purchased in Q1 2013 and represents return from its cost basis. 3 Purchased in Q3 2013 and represents return from its cost basis. 4 Purchased in Q4 2013 and represents return from its cost basis.

Company LTMPerformance

ContributionCompany LTM

Performance

Contribution

Western Digital 100.83% 4.29% Patterson-Uti Energy 37.14% 0.49%

Cimarex Energy 82.99% 0.81% Baker Hughes 36.98% 0.59%

Oshkosh 70.41% 2.15% Foot Locker 32.01% 0.59%

Arris Group 62.92% 1.05% Centene2 31.17% 0.19%

SM Energy 59.41% 0.99% Reliance Steel & Aluminium 24.36% 0.35%

Alliant Techsystems1 59.12% 0.17% Atwood Oceanics 16.60% 0.18%

Cabot Oil & Gas 56.09% 0.35% Rowan Companies 13.08% 1.15%

Trinity Industries 54.14% 0.84% Veeco Instruments 11.60% 0.21%

Helmerich & Payne Inc. 52.95% 0.51% Aaron's Inc3 7.73% 0.06%

DeVry 51.17% 1.10% Titan International4 7.60% 0.04%

Signet Jewelers 48.60% 0.62% Rosetta Resources 6.00% 0.86%

Federated Investors 47.95% 0.49% Ensco 0.27% 0.12%

Apollo2 46.57% 1.30% Newfield Exploration -8.03% -0.04%

Avnet 45.20% 2.66% InterDigital -27.69% -0.86%

Arrow Electronics 42.46% 2.59%

LTM = Last Twelve Months

Portfolio composition will change due to ongoing management of the Fund. References to individual securities are for informational purposes only and should not be construed as

recommendations by the Funds, Advisor or Distributor.


Portfolio

Section II


Security changes in portfolio - QTR

From September 30, 2013 to December 31, 2013

12 12

New Securities Added to Exisiting Securities Reduced Securities Eliminated Securities

Titan International, Inc. Aarons, Inc. Cimarex Energy Company None

Arris Group, Inc. Ensco PLC

Atwood Oceanics, Inc. Foot Locker, Inc.

Interdigital, Inc. Newfield Exploration Company

Rosetta Resources, Inc. Oshkosh Corporation

Veeco Instruments, Inc. Rosetta Resources, Inc.

SM Energy Company

Trinity Industries, Inc.

Western Digital Corporation

Portfolio composition will change due to ongoing management of the Fund. References to individual securities are for

informational purposes only and should not be construed as recommendations by the Funds, Advisor or Distributor.


Security changes in portfolio - YTD

From December 31, 2012 to December 31, 2013

13 13

New Securities Added to Exisiting Securities Reduced Securities Eliminated Securities

Aarons, Inc. Arris Group, Inc. Arrow Electronics, Inc. Alliant Techsystems Inc.

Apollo Group Inc. Atwood Oceanics, Inc. Avnet, Inc.

Centene Coporation Devry, Inc. Cabot Oil & Gas Corporation

Titan International, Inc. Helmerich & Payne, Inc. Cimarex Energy Company

Interdigital, Inc. Ensco PLC

Rosetta Resources, Inc. Foot Locker, Inc.

Veeco Instruments, Inc. Helmerich & Payne, Inc.

Newfield Exploration Company

Oshkosh Corporation

Patterson - Uti Energy, Inc.

Reliance Steel & Aluminum

Rosetta Resources, Inc.

Rowan Companies, Inc.

SM Energy Company

Signet Jewelers Ltd

Trinity Industries, Inc.

Veeco Instruments, Inc.

Western Digital Corporation




$0

$10

$20

$30

$40

$50

$60

Apollo Group Inc. (APOL)

14

Initial purchase at 2x EBITDA

and 16% FCF yield but

revenues under pressure

Investment Rationale:

Largest company in the for profit education industry.

Hard to serve unconventional students (older, employed, etc.)

Scrutinizing costs for the first time in Company’s history.

Pristine balance sheet.

Weakness in Bachelor's and Associate’s Degree programs enrollment

First Purchase 01/30/2013

Increased

position

Increased

position

Past performance is not indicative of future results.


As of 12/31/13, Apollo Group Inc. represented 3.87% of FPA Capital Fund's total net assets. Portfolio composition will change to ongoing management of the Fund. References to

specific securities or sectors should not be construed as recommendations by the Fund, its Advisor or Distributor.

EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) is an indicator of a company's financial performance.

FCF (free cash flow) yield is an overall return evaluation ratio of a stock, calculated by taking the free cash flow per share divided by the share price.

Source: Yahoo Finance, FPA


$0

$10

$20

$30

$40

$50

$60

$70

$80

Built less than 10%

of position Increased

position slowly

Stepped up

purchases

* Special

Dividend:$ 1.60

*

InterDigital, Inc. (IDCC)

15

Investment Rationale:

Tremendous growth in handsets/tablets is expected.

IDCC has technology used in 2G, 3G, and 4G/LTE technologies.

Pristine balance sheet.

Bargain valuation during accumulation.

First Purchase 06/16/2011

Increased

position

Past performance is not indicative of future results.


As of 12/31/13, InterDigital Inc. represented 2.48% of FPA Capital Fund's total net assets. Portfolio composition will change to ongoing management of the Fund. References to

specific securities or sectors should not be construed as recommendations by the Fund, its Advisor or Distributor.

Source: Yahoo Finance, FPA


Sector components – as of December 31, 2013

16 16

TECHNOLOGY 23.12% EDUCATION 6.93%

Arrow Electronics 6.52% Apollo Group 3.86%

Avnet 6.20% DeVry 3.07%

Western Digital 4.31% INDUSTRIALS 4.60%

Arris Group 2.79% Oshkosh 2.78%

InterDigital 2.48% Trinity Industries 1.24%

Veeco Instruments 0.83% Titan International 0.58%

OIL FIELD SERVICES 16.96% RETAILING 4.19%

Rowan Companies plc 5.79% Foot Locker 2.13%

Ensco plc 3.31% Aaron's 1.04%

Atwood Oceanics 3.05% Signet Jewelers 1.02%

Baker Hughes 1.88% FINANCIAL SERVICES 1.27%

Patterson-UTI Energy 1.61% Federated Investors 1.27%

Helmerich & Payne 1.32% BASIC MATERIALS 1.26%

OIL & GAS EXPLORATION & PRODUCTION 9.30% Reliance Steel & Aluminum 1.26%

Rosetta Resources 4.03% HEALTHCARE 0.65%

SM Energy 2.01% Centene 0.65%

Cimarex Energy 1.53% CASH 31.77%

Newfield Exploration 1.48%

Cabot Oil & Gas 0.25%




Market Overview

Section III


Margin debt


S&P 500 price-to-sales


Stock market valuation to GDP

Source: MacroMavens – January, 2014 First Pacific Advisors, LLC

Profit margins


Wage Growth

Source: MacroMavens – January, 2014


Labor force participation rate


Long-term unemployment


Labor force dropouts


Sluggish growth


Real GDP growth expectation


Consumer discretionary spending


The age of the US capital stock is at a record level


Question and Answer

Section IV


Disclosure

31

These slides are intended as supplemental material to the 4th Quarter 2013 FPA Capital audio presentation that is posted on our website fpafunds.com.

We do want to make sure you understand that the views expressed on these slides and in the accompanying audio presentation are as of today, January 28, 2014,

and are subject to change based on market and other conditions. These views may differ from other portfolio managers and analysts of the firm as a whole, and are

not intended to be a forecast of future events, a guarantee of future results or investment advice. Any mention of individual securities or sectors should not be

construed as a recommendation to purchase or sell such securities, and any information provided is not a sufficient basis upon which to make an investment

decision. The information provided does not constitute, and should not be construed as, an offer or solicitation with respect to any securities, products or services

discussed.

Past performance is no guarantee of future results and current performance may be higher or lower than the performance shown. This data represents

past performance and investors should understand that investment returns and principal values fluctuate, so that when you redeem your investment it

may be worth more or less than its original cost. Current month-end performance data may be obtained by calling toll-free, 1-800-982-4372.

You should consider the Fund’s investment objectives, risks, and charges and expenses carefully before you invest. The Prospectus details the Fund's

objective and policies, charges, and other matters of interest to the prospective investor. Please read this Prospectus carefully before investing. The

Prospectus may be obtained by visiting the website at www.fpafunds.com, by email at [email protected], toll-free by calling 1-800-982-4372 or by

contacting the Fund in writing.

Statistics have been obtained from sources believed to be reliable, but the accuracy and completeness cannot be guaranteed and is not a complete summary or

statement of all available data. The Russell 2500 Index consist of the 2,500 smallest companies in the Russell 3000 total capitalization universe offers investors

access to the small to mid-cap segment of the U.S. equity universe, commonly referred to as "smid" cap. Past results are not necessarily indicative of future results.

Investments in mutual funds carry risks and investors may lose principal value. Stock markets are volatile and can decline significantly in response to adverse

issuer, political, regulatory, market, or economic developments. The Fund may purchase foreign securities, including American Depository Receipts (ADRs) and

other depository receipts, which are subject to interest rate, currency exchange rate, economic and political risks; this may be enhanced when investing in emerging

markets. Small and mid cap stocks involve greater risks and they can fluctuate in price more than larger company stocks. Groups of stocks, such as value and

growth, go in and out of favor which may cause certain funds to underperform other equity funds.

The portfolio holdings as the most recent quarter end may be obtained at http://www.fpafunds.com.

The FPA Funds are distributed by UMB Distribution Services, LLC. 803 W. Michigan Street, Milwaukee, WI 53233.


http://www.fpafunds.com/

Appendix

Section V


Performance (%)

33

Returns for Period Ended December 31, 2013

Performance shown is net of fees and annualized for periods exceeding 1 year. * Inception for FPA Management was July 11, 1984. Return information for period July 1-July 10, 1984 reflects performance by a manager other than FPA. A benchmark comparison is not available based on the Fund’s inception date therefore a comparison using July 1, 1984 is used. A redemption fee of 2% will be imposed on redemptions within 90 days. Expense Ratio as of most recent prospectus: 0.83%

Calculated using Morningstar Direct The S&P 500 is presented for illustrative purposes and should not be considered the primary benchmark comparison to the Fund.

Past performance is no guarantee of future results and current performance may be higher or lower than the performance shown. This data represents past performance and investors should understand that investment returns and principal values fluctuate, so that when you redeem your investment it may be worth more or less than its original cost. Current month-end performance data may be obtained via http://www.fpafunds.com/capital or by calling toll-free, 1-800-982-4372.

As of Date: 12/31/13 QTD YTD 1 Year 3 Years 5 Years 10 Years 15 Years 20 Years Since 7/1/84*

FPA Capital 5.25 22.85 22.85 10.78 21.04 8.85 10.96 13.10 14.90

Russell 2500 8.66 36.80 36.80 16.28 21.77 9.81 9.67 10.77 12.08

S&P 500 10.51 32.39 32.39 16.18 17.94 7.41 4.68 9.22 11.48

2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999

FPA Capital 22.85 9.69 0.90 24.25 53.78 -34.79 -0.39 5.42 16.53 12.62 38.54 -3.86 38.13 -3.08 14.24

Russell 2500 36.80 17.88 -2.51 26.71 34.39 -36.79 1.38 16.17 8.11 18.29 45.51 -17.80 1.22 4.27 24.14

S&P 500 32.39 16.00 2.11 15.06 26.46 -37.00 5.49 15.79 4.91 10.88 28.68 -22.10 -11.89 -9.10 21.04

1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984*

FPA Capital -0.42 17.70 37.76 38.39 10.37 16.74 21.57 64.51 -13.80 24.30 18.11 10.75 12.57 28.95 7.00

Russell 2500 0.38 24.36 19.03 31.70 -1.05 16.55 16.09 46.89 -14.88 19.43 22.73 -4.68 11.98 31.93 6.94

S&P 500 28.58 33.36 22.96 37.58 1.32 10.08 7.62 30.47 -3.10 31.69 16.61 5.25 18.67 31.73 11.75



$0

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

$700,000

Russell 2500

$288,836

FPA Capital

$596,234

Capital: 2.4%R 2500:14.9%

Capital: 18.3%R 2500: 15.9%

Capital: 20.9%R 2500: 16.0%

Capital: 13.9%R 2500: 7.9%

Capital: 6.3%R 2500:11.9%

Capital: 16.8%R 2500: 6.5%

Capital: 8.5%R 2500: 16.2%

Capital: 7.2%R 2500: 2.9%

Capital: 7.7%R 2500: 8.0%

Market cycle performance

34

Time Period: July 1, 1984 – December 31, 2013

Source: Morningstar Direct.

Performance shown is net of fees. Past performance is no guarantee of future results and current performance may be higher or lower than the performance shown. Time periods indicate P/E peaks of R2500. Source: Morningstar Direct. The chart illustrates the performance of a hypothetical $10,000 investment made in the fund since inception. Figures include reinvestment of capital gains and dividends, but do not reflect the effect of any applicable redemption fees, which would lower these figures. An investor cannot invest in an index. This chart is not intended to imply any future performance of the fund.

7/1/1984 - 2/29/2000

7/1/1984 - 2/28/1998 3/1/1998 - 2/29/2000

10/1/2005 - 9/30/2007 3/1/2000 - 9/30/2005

3/1/2000 - 9/30/2007

10/1/2007 – 12/31/2013

10/1/2007 - 6/30/2011 7/1/2011 – 12/31/2013


Portfolio companies

35

Aaron's Apollo Arris Arrow Atwood Avnet Baker Hughes Cabot Centene Cimarex

Market

leading

company

With its largest

competitor, they control

2/3 of the market.

Largest for-profit

education company in

the US.

Clients and industry

experts view them as

the “gold standard”.

Global Distributor with

over $20B sales of

electronic products.

Highest utilization rates

and margins in the

industry.

Global distributor with

$25B sales of

electronic products.

Market leading

company: One of the

“Big 3” service

companies.

Among the largest E&P

companies with assets

in the prolific marcellus

shale.

One of the leaders in

pure play Medicaid

managed care

companies. 34%

revenue 10-year CAGR.

Independent E&P

producer with

resources in Oklahoma

and Texas.

With a history

of profitability

The company has

never lost money, grew

its revenues through

the recession, and has

improved its margins

steadily.

Profitable for 20+ years.

28%+ 10-year average

EBITDA margin.

Positive free cash flow

generation since 1995.

Generated substantial

profits over the last two

decades.

Profitable in 18 of the

last 20 years.

Generated substantial

operating profits over

the past two decades.

Profitable 22 of last 23

years.

Among the highest

ROIC of any E&P

company with reserves

in marcellus shale.

EBIT excluding unusual

items positive every

year since 2000.

Very high ROIC in

multiple shale reserves

in the U.S.

Pristine

balance sheet

~$3.75 net cash. 35% of market cap in

net cash.

Solid capital allocation

throughout history.

Currently, high debt

load due to large

acquisition.

Net debt/EBITDA is

~2x.

Modest net

debt/EBITDA.

Net debt/EBITDA is

less than 1.2x, and net

debt/total capital is less

than 20%.

1.0x net debt/EBITDA. Net debt/EBITDA is

~1x.

Large net cash position. Net debt/EBITDA is

~0.6x.

Good

management

teams

New CEO, previously

CEO & Chairman of

Delta Airlines.

The Founder retired

and the Company

moved from co-CEO to

single CEO model.

Disciplined

management team with

deep bench.

Focus on having the

highest margins in the

business.

Long history of offshore

experience; solid board.

Focus on EVA and

recently instituted a

dividend.

New CEO with strong

operational background;

streamlining business

units.

Focus on being low

cost. Producer of

natural gas.

Good incentive

programs that focus on

long-term performance.

Long history of

successfully deploying

capital into high return

oil and gas reserves.

Cheap

Trading at 6x EV/NTM

EBITDA.

Trading at 3.1x NTM

EBITDA.

Initial investment at

12% free cash flow

yield and under four

times total enterprise

value to EBITDA.

Purchased initial

position at ~9x earnings

and at 1x BV.

Trading at 9.6x LTM

EPS of $5.32; earnings

power rising to >$8 by

FY16

Purchased initial

position at 1x BV and

10x earnings.

5.7x forward

EV/EBITDA.

Purchased initial

position at less than

heavily risked net asset

value.

9%+ current FCF yield

for a company that is

growing revenues

double-digit in a

profitable fashion.

Purchased initial


heavily risked net asset

value.


Portfolio companies

36

DeVry Ensco Federated Investors Foot Locker Helmerich & Payne InterDigital Newfield Exploration Oshkosh Patterson-UTIReliance Steel &

Aluminum

Market

leading

company

Most respected US for

profit education

company with diverse

source of revenues.

Leader in customer

satisfaction, safety, and

financial performance.

$375B AUM

One of the largest

money market funds.

Largest athletic

footwear retailer in the

U.S.

Most efficient and

technologically

advanced onshore rig

fleet in U.S.

Have been working on

new inventions since

early 70s. To date, they

have obtained or

applied for ~20k

patents.

Independent oil and gas

producer.

One of the largest

specialty vehicle

manufacturers that has

been around since for

almost a hundred

years.

Largest fleet of U.S.

land rigs.

Largest North American

distributor of steel and

aluminum.

With a history

of profitability

Never lost money.

19%+ 10-year average

EBITDA margin.

Averaged 41.9%

operating margins last

5 years.

Generated profits every

year since 1995.

ROIC averaged low

double digits at the time

of purchase. Today

~16% ROIC.

Profitable every year

since 1984.

22% revenue and 38%

EBITDA 10-year CAGR.

EBIT ex. unusual items

positive since 1993.

EBIT excluding unusual

items positive every

year since 1992.

Profitable 18 of the last

22 years.

Has been profitable

every year since going

public more than two

decades ago.

Pristine

balance sheet

10% of market cap in

net cash.

1.9x net debt/EBITDA. Almost no net debt. Net cash on the

balance sheet at time of

purchase. Today net

cash ~$4.70.

No net debt. 36% of market cap in

net cash.

Net debt/EBITDA at

2.4x but selling assets

that will decrease

leverage further.

Decreased net debt

from $3b in 2007 to

$350mm.

0.6x net debt/EBITDA. Less than 40% net debt

to total capital and net

debt to EBITDA is less

than 2.8x.

Good

management

teams

Strong Board; aligned

incentives.

Arguably the best

operators in the

industry.

Family involved since

1955. Great capital

return history.

Solid retail executives

with good track record

over many years.

Best CEO in the

industry + outstanding

succession planning.

Prudent capital

allocation and

disciplined litigation

strategy.

Added new board

member with deep

experience in

unconventional plays.

Current CEO has been

with the Company

since 1996 and served

as both CFO and COO.

New CEO – highly

respected

Schlumberger veteran.

Focus on profit margins

and inventory returns.

The 10-year average

ROE is ~16%.

Cheap

SOTP analysis shows

that the main business

(60% of revenue) can

be purchased for free.

7.9x forward P/E, 6.5x

forward EV/EBITDA.

Bought at ~$18.

Collected ~$3.50 of

dividends. Still 20%

ROC and 10% FCF

yield.

Bought initial position at

less than 10x earnings.

6.0x forward

EV/EBITDA.

Backdoor way to

participate in the growth

of mobile

communications.

Initially bought the stock

at 1x BV and sold most

of the stock at $75.

Bought some back at

$20.

3.4x EV/EBITDA, 5.5x

P/E at the time of initial

purchase.

1.4x tangible book

value, 4.5x forward

EV/EBITDA.

Initially bought stock at

less than 5x normalized

EPS and 50% of BV.


Portfolio companies

37

Rosetta Resources Rowan Companies Signet SM Energy Titan International Trinity Veeco Western Digital

Market

leading

company

Some of the lowest

finding costs and

highest recycle ratios in

the industry.

Leading high-spec,

harsh weather global

jack-up rig operator.

Largest independent

jewerly retailer in the

U.S.

Top quartile finding

costs with conservative

reserve bookings.

Leader in North

American agricultural

tires

Largest railcar

manufacturer in the

U.S. Strong barge

position as well.

Number one player in

the MOCVD tool

market.

Largest worldwide

manufacturer of hard-

disk drives.

With a history

of profitability

Acq’d. Eagle Ford

acreage in 2008; wells

capable of 10% IRR at

$45 oil prices.

Since 1999, only lost

money once ($3mm in

2003).

Long history of

generating profits and

mid-to-high ROE.

Profitable 19 of the last

23 years.

Positive EBIT 18 of last

23 years

Strong earnings and

positive cash flow

generator in a highly

cyclical business.

Outsourced most

production, which

decreased the fixed

cost structure.

Average ROIC over the

past decade is roughly

19%.

Pristine

balance sheet

Net debt/EBITDA 2.0x

and falling

1.7x net debt/ EBITDA. Net debt/Capital at initial

purchase ~10%.

1.1x net debt/EBITDA. 1.6x net debt/EBITDA Less than 2x Debt-to-

EBITDA at puchase.

40% of market cap in

net cash.

Nearly $2.5 billion of net

cash, or roughly $10

per share.

Good

management

teams

Run by Burlington

Resources alumni;

among the best

operators in the

industry.

First outside team to

run the company.

Rationalizing costs and

assets.

Strong management

teams focused on

profitable growth.

Deep operating

experience,

conservative approach

to the business.

History of being price

sensitive with plant

acquisitions

Long history of running

profitable but cyclical

business.

The management team

is highly respected.

Long track record of

operating profitable

businesses in a very

competitive industry.

Cheap

Trading at significant

discount to NAV; further

upside from horizontal

drilling in Permian +

Eagle Ford

downspacing.

Trading at 15.1x

depressed LTM EPS of

$2.20, rising to >$5 by

2016

Purchased stock at

~10x earnings.

May have substantial

upside from Eagle Ford

downspacing and

Permian asset

development

5.8x forward

EV/EBITDA

Purchased initial


10x normalized

earnings.

1.5x EV/EBITDA, 4.5x

P/E at the time of initial

purchase.

Initial purchase was at

less than 6x EPS, 60%

of sales, and 1.7x BV.


Portfolio sector allocation - YTD

38

12/31/2012 12/31/2013 % Change

Technology 24.74% 23.12% -1.62%

Oil Field Services 17.38% 16.96% -0.42%

Oil & Gas Exploration & Production 11.41% 9.30% -2.11%

Education 1.95% 6.93% 4.98%

Industrials 7.62% 4.60% -3.02%

Retailing 3.64% 4.19% 0.54%

Financial Services 1.42% 1.27% 0.33%

Basic Materials 0.94% 1.26% -0.16%

Healthcare 0.00% 0.65% 0.65%

Cash 30.90% 31.77% 0.88%

Total 100.00% 100.00%




Top ten holdings – as of December 31, 2013

39

* For Financial Companies, Leverage = Equity/Total Assets

Notes:

P/BV = Price/Book Value

P/CF = Price/Trailing 12 months Cash Flow Per Share

P/E = Price/Trailing 12 Months Earnings

ROAA = Return On Average Assets

ROAE = Return On Average Equity

TD/TC = Total Debt/Total Capitalization

M/R = Market Capitalization/Revenue

NM = Not Meaningful

N/A = Not Available

USD Cost

5-Yr. 5-Yr.

Security Shares Price Total Price Total P/BV P/E P/CF M/R Yield(%) ROAA ROAA ROAE ROAE TD/TC

Arrow Electronics 1,515,500 $15.32 $23,211,110.00 $54.25 $82,215,875.00 1.36 13.02 9.64 0.27 0.00 4.30 1.97 11.17 6.11 32.53

Avnet 1,772,400 $7.85 $13,912,925.00 $44.11 $78,180,564.00 1.35 13.08 10.25 0.23 1.36 4.55 1.45 11.08 5.08 31.62

Rowan Companies plc 2,065,700 $34.03 $70,295,771.00 $35.36 $73,043,152.00 0.92 16.08 8.16 2.85 0.00 3.66 4.32 5.88 7.21 29.65

Western Digital 647,600 $12.46 $8,067,807.00 $83.90 $54,333,640.00 2.40 11.50 9.07 1.31 1.43 6.60 12.39 11.65 20.27 22.51

Rosetta Resources 1,058,702 $17.25 $18,262,039.00 $48.04 $50,860,044.08 2.24 12.84 7.14 3.78 0.00 10.12 10.81 20.02 18.92 47.18

Apollo Group 1,780,700 $18.64 $33,190,901.00 $27.32 $48,648,724.00 2.77 12.47 7.55 0.84 0.00 8.85 15.91 19.11 35.81 5.89

Ensco plc 730,600 $42.18 $30,813,055.00 $57.18 $41,775,708.00 1.06 10.28 7.10 2.81 5.25 6.88 7.76 10.54 10.66 27.55

DeVry 1,090,508 $27.39 $29,874,012.00 $35.50 $38,713,034.00 1.62 23.37 11.67 1.16 0.96 4.83 11.60 6.94 17.92 0.00

Atwood Oceanics 719,606 $40.66 $29,259,778.00 $53.39 $38,419,764.34 1.55 10.04 7.31 3.36 0.00 10.61 13.85 16.62 19.32 36.57

Arris Enterprises 1,444,000 $13.50 $19,497,915.00 $24.36 $35,175,840.00 2.60 27.20 21.76 1.22 0.00 3.73 4.56 9.74 8.05 62.02

Market Valuation Profitability (%) * Leverage (%)




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