Confidential Draft PROJECT BUFFALO Materials Prepared for Discussion July 6, 1995 ================================================================================ [LOGO] Table of Contents ================================================================================ Page ---- Overview 1 Summary Financial Data 2 Historical Stock Price Performance 5 Preliminary Reference Range Analysis 9 Premia at Various per Share Prices 10 Analysis at Various per Share Prices 11 Analysis of Selected Comparable Public Companies 12 Discounted Cash Flow Analysis 15 Analysis of Selected "Squeeze-Out" Transactions 19 Ownership Profile 22 Preliminary Timetable 23 ================================================================================ [LOGO] Overview ================================================================================ . In the context of a potential going-private proposal in which COBE would offer to acquire the outstanding public shares of BUFFALO (the "Proposal"), UBS has evaluated the per share cash consideration that might be offered to BUFFALO shareholders . In connection with such evaluation, UBS has: . Reviewed the historical financial statements of BUFFALO; . Reviewed the price and trading histories of the common stock of BUFFALO and publicly traded companies UBS considered relevant; . Reviewed certain other publicly available information regarding BUFFALO; . Analyzed certain financial forecasts provided by the management of BUFFALO and performed discounted cash flow analyses based on such forecasts; . Reviewed the current operating statistics, financial results, financial position and common stock market prices of BUFFALO and publicly traded companies in lines of business UBS considers generally comparable to BUFFALO; . Reviewed certain business combinations UBS considered relevant; . Reviewed certain "squeeze-out" transactions UBS considered relevant; and . Conducted such other financial studies, analyses, examinations and inquiries as UBS deemed appropriate ================================================================================ [LOGO] -1- Summary Financial Data ==================================================================================================================================== ($ in millions, except per share data) Historical Projected(a) ------------------------------------------------ -------------------------------------- LTM Ended Years Ended December 31, 1992 1993 1994 May 31, 1995(a) 1995 1996 1997 1998 ---- ---- ---- --------------- ---- ---- ---- ---- Revenues $80.8 $105.2 $131.8 $147.7 $167.3 $199.9 $239.4 $287.6 % Growth - 30.2% 25.3% - 26.9% 19.5% 19.7% 20.2% EBITDA(b) $17.8 $13.4 $26.4 $31.4 $35.9 $45.5 $55.7 $66.4 % of Revenues 22.1% 12.7% 20.0% 21.2% 21.5% 22.8% 23.3% 23.1% EBITA(c) $14.2 $8.3 $20.3 $25.2 $28.7 $37.3 $46.2 $55.4 % of Revenues 17.6% 7.9% 15.4% 17.1% 17.2% 18.7% 19.3% 19.3% Operating Income (EBIT) $10.5 $3.2 $15.3 $19.6 $24.1 $32.4 $40.7 $49.3 % of Revenues 13.0% 3.0% 11.6% 13.3% 14.4% 16.2% 17.0% 17.1% Net Income(d) $5.7 $1.2 $8.6 $10.9 $13.8 $19.2 $25.2 $31.2 % of Revenues 7.0% 1.2% 6.5% 7.4% 8.3% 9.6% 10.5% 10.9% Earnings per Share(d)(e) $0.39 $0.07 $0.45 $0.58 $0.72 $1.00 $1.31 $1.63 % Growth - (83.3%) 592.9% - 59.4% 38.0% 31.1% 24.1% Capital Expenditures(f) $11.8 $14.6 $19.6 $17.5 $13.0 $13.6 $22.7 $27.5 % of Revenues 14.6% 13.9% 14.9% 11.8% 7.8% 6.8% 9.5% 9.6% (a) Based on interim period and projected financial data provided by BUFFALO management on June 28, 1995. (b) Depreciation and amortization for 1992 - 1994 includes amortization of unearned stock grant compensation. (c) Represents earnings before interest, taxes and amortization of intangibles. LTM amortization based on 1994 percentage of net sales. (d) Net income and earnings per share for historical years adjusted to exclude certain non-recurring charges, net of tax effects assuming a 40.0% tax rate. (e) LTM earnings per share calculated using weighted average shares outstanding as per three months ended March 31, 1995 and 1994. Projected earnings per share calculated as projected net income divided by average shares outstanding for 1995 and 1996 as estimated by UBS Securities Inc. equity research report dated May 11, 1995. (f) Capital expenditures for historical periods stated exclusive of acquisitions. ==================================================================================================================================== [LOGO] -2- Summary Financial Data ================================================================================ ($ in millions, except per share data) Market Statistics Closing Market Price (6/30/95) $15.88 Discount to 52-Week High ($16.75) (5.2%) Premium to 52-Week Low ($8.25) 92.4% Premium to One Month Prior ($14.13) 12.4% Options & Warrants Adjusted Shares Outstanding (in thousands)(a) 19,443 Market Value of Equity $308.7 Plus: Total Debt & Minority Interest(b) 12.4 Less: Cash & Equivalents(b)(c) (10.0) ------ Total Enterprise Value $311.0 ====== (a) Based on 18.921 million common shares outstanding as of May 8, 1995 as per March 31, 1995 Form 10-Q, and 0.522 million in-the-money options and warrants outstanding as of March 31, 1995 as per schedule provided by BUFFALO management on June 30, 1995. Assumes all in-the-money options and warrants accelerate upon a change of control. (b) Based on balance sheet as of May 31, 1995 as provided by BUFFALO management on June 28, 1995. (c) Includes notes receivable and aggregate proceeds from the exercise of in-the-money options and warrants as per schedule provided by BUFFALO management on June 30, 1995. ================================================================================ [LOGO] -3- Summary Financial Data =============================================================================== Implied Trading Multiples(a) Total Enterprise Value as a Multiple of: 1995E EBITDA 8.7x 1996P EBITDA 6.8 1995E EBITA 10.8x 1996P EBITA 8.3 1995E Patients(b) $49,112 1996P Patients(b) 42,317 Market Price as a Multiple of: 1995E Earnings per Share 21.9x 1996P Earnings per Share 15.9 -------------------- (a) Based on projected financial data provided by BUFFALO management on June 28, 1995. (b) Based on projected end of period patients. ================================================================================ [LOGO] -4- Historical Stock Price Performance ================================================================================ Latest Twelve Months 6/30/94 8/22/94 10/12/94 12/02/94 1/25/95 3/17/95 5/09/95 Price Daily Volume [need plot points] ================================================================================ [LOGO] -5- Historical Stock Price Performance ================================================================================ Last Three Years 6/26/92 12/24/92 6/25/93 12/23/93 6/24/94 12/23/94 Price Weekly Volume [need plot points] ================================================================================ [LOGO] -6- Historical Stock Price Performance ================================================================================ BUFFALO versus Selected Indices Latest Twelve Months 6/30/94 8/26/94 10/24/94 12/20/94 2/16/95 4/17/95 6/13/95 BUFFALO Dialysis Index(a) [need plot points] S&P 500 (a) Dialysis Index is market capitalization weighted and consists of the following companies: Renal Treatment Centers,Inc. and Vivra Incorporated. ================================================================================ [LOGO] -7- Historical Stock Price Performance ================================================================================ BUFFALO versus Selected Indices Last Three Years 6/26/92 1/29/93 9/3/93 4/8/94 11/11/94 6/16/95 BUFFALO Dialysis Index(a) [need plot points] S&P 500 (a) Dialysis Index is market capitalization weighted and consists of the following companies: Renal Treatment Centers, Inc. and Vivra Incorporated. ================================================================================ [LOGO] -8- Preliminary Reference Range Analysis ================================================================================ Reference Range --------------------- Low High ------ ------ Analysis of Selected Comparable Companies $13.50 - $14.50 Analysis of Selected Comparable Transactions(a) NM - NM Discounted Cash Flow Analysis 18.50 - 20.50 Analysis of Selected "Squeeze-Out" Transactions 18.50 - 20.50 Summary Reference Range $18.50 - $20.00 Premium to Current Price ($15.88) 16.5% - 26.0% Premium to One Month Prior ($14.13)(b) 31.0% - 41.6% -------------------- (a) UBS reviewed certain business combinations it considered relevant and determined that, given the nature and scope of BUFFALO's business and operations, such business combinations were not directly comparable to BUFFALO and accordingly the analysis of selected comparable transactions did not constitute an appropriate methodology for the analysis of BUFFALO. (b) For purposes of analysis, one month represents four calendar weeks. ================================================================================ [LOGO] -9- Premia at Various per Share Prices ==================================================================================================================================== BUFFALO Price per Share $18.00 $18.50 $19.00 $19.50 $20.00 ------ ------ ------ ------ ------ Premium to Current Price ($15.88) 13.4% 16.5% 19.7% 22.8% 26.0% Premium to 52-Week High ($16.75) 7.5% 10.4% 13.4% 16.4% 19.4% Premium to 52-Week Low ($8.25) 118.2% 124.2% 130.3% 136.4% 142.4% Premium to One Month Prior ($14.13)(a) 27.4% 31.0% 34.5% 38.1% 41.6% Premium to One Month Average ($15.46)(a) 16.4% 19.7% 22.9% 26.1% 29.4% Premium to Two Month Average ($15.00)(a) 20.0% 23.3% 26.7% 30.0% 33.4% Premium to Three Month Average ($15.15)(a) 18.8% 22.1% 25.4% 28.7% 32.0% Premium to Six Month Average ($15.10)(a) 19.2% 22.6% 25.9% 29.2% 32.5% --------------------- (a) For purposes of analysis, one month represents four calendar weeks. ==================================================================================================================================== [LOGO] -10- Analysis at Various per Share Prices ==================================================================================================================================== (in millions, except per share data) BUFFALO Price per Share $18.00 $18.50 $19.00 $19.50 $20.00 ------- ------- ------- ------- ------- Options & Warrants Adjusted Shares Outstanding(a) 19.493 19.493 19.493 19.493 19.493 Implied Value of Equity $350.9 $360.6 $370.4 $380.1 $389.9 Plus: Total Debt & Minority Interest(b) 12.4 12.4 12.4 12.4 12.4 Less: Cash & Equivalents(b)(c) (10.8) (10.8) (10.8) (10.8) (10.8) ------- ------- ------- ------- ------- Total Enterprise Value $352.4 $362.2 $371.9 $381.7 $391.4 ======= ======= ======= ======= ======= Value of Shares Not Owned by COBE Laboratories, Inc.(d) $170.2 $175.0 $179.7 $184.4 $189.1 Total Enterprise Value as a Multiple of: Revenues LTM 2.39x 2.45x 2.52x 2.58x 2.65x 1995E 2.11 2.17 2.22 2.28 2.34 1996P 1.76 1.81 1.86 1.91 1.96 EBITDA LTM 11.2x 11.6x 11.9x 12.2x 12.5x 1995E 9.8 10.1 10.4 10.6 10.9 1996P 7.7 8.0 8.2 8.4 8.6 EBITA LTM 14.0x 14.4x 14.7x 15.1x 15.5x 1995E 12.3 12.6 12.9 13.3 13.6 1996P 9.4 9.7 10.0 10.2 10.5 Operating Income (EBIT) LTM 18.0x 18.5x 19.0x 19.5x 20.0x 1995E 14.6 15.0 15.4 15.8 16.2 1996P 10.9 11.2 11.5 11.8 12.1 Patients(e) LTM $61,833 $63,542 $65,252 $66,962 $68,672 1995E 55,652 57,191 58,730 60,269 61,808 1996P 47,952 49,278 50,604 51,930 53,256 BUFFALO Price as a Multiple of: Earnings per Share LTM 31.2x 32.1x 33.0x 33.8x 34.7x 1995E 24.9 25.5 26.2 26.9 27.6 1996P 18.0 18.5 19.0 19.5 20.0 -------------------- (a) Based on 18.921 million common shares outstanding as of May 8, 1995 as per March 31, 1995 Form 10-Q, and 0.572 million in- the-money options and warrants outstanding as of March 31, 1995 as per schedule provided by BUFFALO management on June 30, 1995. Assumes all in-the-money options and warrants accelerate upon a change of control. (b) Based on balance sheet as of May 31, 1995 as provided by BUFFALO management on June 28, 1995. (c) Includes notes receivable and aggregate proceeds from the exercise of in-the-money options and warrants as per schedule provided by BUFFALO management on June 30, 1995. (d) Based on 10.036 million shares owned by COBE Laboratories, Inc. as per Proxy Statement dated April 28, 1995. (e) Based on end of period patients. ==================================================================================================================================== [LOGO] -11- Analysis of Selected Comparable Public Companies ==================================================================================================================================== ($ in millions) Selected Operating Statistics Renal Treatment Vivra BUFFALO Average Centers, Inc. Incorporated ------- ------- ------------- ------------ Market Value of Equity(a) $300.4 $241.5 $632.6 Dialysis Centers(b) 67 72 174 Patients(b) 5,700 5,070 8,900 Latest Twelve Months Margins EBITDA 21.2% 21.3% 22.8% 19.8% EBITA 17.1% 18.8% 20.9% 16.7% EBIT 13.3% 15.4% 14.7% 16.0% Net Income 7.4% 9.7% 9.0% 10.5% Historical Three-Year CAGR(c) Revenues 27.7% 49.1% 65.8% 32.5% EBITDA 21.7% 49.3% 71.5% 27.0% EBITA 19.4% 49.1% 73.2% 24.9% Net Income 22.8% 113.9% 202.7% 25.2% Projected Five-Year EPS Growth Rate(d) 23.8% 21.5% 25.0% 18.0% Capitalization Ratios Total Debt & Pfd./Total Capitalization 9.0% 14.9% 27.8% 2.0% Total Debt & Pfd./Total Market Capitalization(e) 3.8% 6.8% 12.7% 0.9% -------------------- (a) Stock prices as of June 30, 1995. (b) Approximations based on recent news releases, equity research reports and public documents. (c) Compound annual growth rate for latest three fiscal years. (d) As per Bloomberg as of June 30, 1995. Figure for Renal Treatment Centers, Inc. as per UBS Securities Inc. equity research report dated May 11, 1995. (e) Market capitalization defined as market value of equity as of June 30, 1995 plus book value of total debt and preferred stock at liquidation. =================================================================================================================================== [LOGO] -12- Analysis of Selected Comparable Public Companies ==================================================================================================================================== Selected Trading Multiples(a) Renal Treatment Vivra BUFFALO Average Centers, Inc. Incorporated ------- ------- ------------ ----------- Total Enterprise Value as a Multiple of:(b) LTM Revenues 2.08x 2.14x 2.70x 1.57x F95 Revenues 1.84 1.61 1.77 1.45 F96 Revenues 1.54 1.34 1.41 1.27 LTM EBITDA 9.8x 9.9x 11.9x 8.0x F95 EBITDA 8.6 7.2 7.3 7.0 F96 EBITDA 6.8 5.8 5.7 5.8 LTM EBITA 12.2x 11.2x 12.9x 9.4x F95 EBITA 10.7 8.1 8.0 8.3 F96 EBITA 8.2 6.5 6.2 6.8 LTM EBIT 15.7x 14.1x 18.4x 9.8x F95 EBIT 12.8 9.9 11.1 8.6 F96 EBIT 9.5 7.8 8.5 7.0 Market Price as a Multiple of:(c) LTM Earnings per Share 27.5x 20.7x 24.2x 17.3x F95 Earnings per Share 21.9 18.0 20.0 16.0 F96 Earnings per Share 15.9 14.5 15.6 13.5 -------------------- (a) Stock prices as of June 30, 1995. (b) Projected operating data for Renal Treatment Centers, Inc. and Vivra Incorporated as per UBS Securities Inc. equity research reports dated June 10, 1995 and May 11, 1995, respectively. (c) Projected earnings per share for selected comparable companies as per First Call as of June 29, 1995. ==================================================================================================================================== [LOGO] -13- Analysis of Selected Comparable Public Companies ==================================================================================================================================== ($ in millions, except per share data) Implied BUFFALO per Share Price Revenues EBITDA EBITA --------------------------- ------------------------- ------------------------- LTM 1995E 1996P LTM 1995E 1996P LTM 1995E 1996P --- ----- ----- --- ----- ----- --- ----- ----- BUFFALO Operating Statistics(a) $147.7 $167.3 $199.9 $31.4 $35.9 $45.5 $25.2 $28.7 $37.3 Summary Trading Multiples High 2.70x 1.77x 1.41x 11.9x 7.3x 5.8X 12.9X 8.3X 6.8x Average 2.14 1.61 1.34 9.9 7.2 5.8 11.2 8.1 6.5 Low 1.57 1.45 1.27 8.0 7.0 5.7 9.4 8.0 6.2 Implied Total Enterprise Value of BUFFALO High $399.3 $296.5 $282.3 $371.7 $261.1 $265.1 $326.7 $237.7 $253.1 Average 315.8 269.8 267.7 310.7 257.1 262.2 282.1 233.8 241.9 Low 232.4 243.1 253.1 249.6 253.1 259.3 237.5 229.9 230.6 Implied BUFFALO per Share Price(b) High $20.70 $15.27 $14.52 $19.24 $13.40 $13.61 $16.87 $ 12.16 $12.98 Average 16.29 13.86 13.75 16.02 13.19 13.46 14.51 11.96 12.38 Low 11.88 12.45 12.98 12.79 12.98 13.31 12.15 11.75 11.79 Analysis of Selected Comparable Public Companies ==================================================================================================================================== ($ in millions, except per share data) Implied BUFFALO per Share Price EBIT Earnings per Share ----------------------------- -------------------------- LTM 1995E 1996P LTM 1995E 1996P --- ----- ----- --- ----- ----- BUFFALO Operating Statistics(a) $19.6 $24.1 $32.4 $0.58 $0.72 $1.00 Summary Trading Multiples High 18.4x 11.1x 8.5x 24.2x 20.0x 15.6x Average 14.1 9.9 7.8 20.7 18.0 14.5 Low 9.8 8.6 7.0 17.3 16.0 13.5 Implied Total Enterprise Value of BUFFALO High $361.0 $267.5 $274.6 -- -- -- Average 276.7 237.4 251.3 -- -- -- Low 192.4 207.3 228.1 -- -- -- Implied BUFFALO per Share Price(b) High $18.68 $13.74 $14.11 $13.93 $14.50 $15.57 Average 14.22 12.15 12.88 11.95 13.02 14.53 Low 9.77 10.55 11.65 9.97 11.55 13.49 -------------------- (a) Based on interim period and projected financial data provided by BUFFALO management on June 30, 1995. (b) After deducting $12.4 million of total debt and minority interest and adding $4.8 million of cash and equivalents. Based on 18.921 million common shares outstanding as of May 8, 1995 as per March 31, 1995 Form 10-Q. ==================================================================================================================================== [LOGO] -14- Caption> Discounted Cash Flow Analysis ==================================================================================================================================== ($ in thousands) Historical(a) 1992-1994 Projected(b) ------------------------------ ----------------------------- 1992 1993 1994 CAGR 1995 1996 -------- -------- ------- ------------ ---------- --------- Beginning Patients 4,700 6,333 Total Patients Added 1,633 1,017 ------- ------- Ending Patients 6,333 7,350 Dialysis Revenue per Patient $25.0 Lab Revenue per Patient 2.2 ------- Total Revenue per Patient $27.2 Total Revenues $80,814 $105,188 $131,815 27.7% $167,271 $199,920 Prime Labor (40,984) Prime Supplies (57,777) Direct Sales Commission (200) Other Variable Costs (2,999) ------- ------- Total Contribution Expenses (87,394) (101,959) Contribution Margin 79,877 97,961 Depreciation & Amortization(c) (7,354) (10,210) (11,101) (11,810) (13,060) Bad Debt Expense (3,958) Other Operating Expenses (320) Profit Sharing Expenses (460) ------- ------- Total Other Expenses (3,967) (4,738) Corporate General & Administrative Expenses (13,754) In-center Capacity Costs (33,986) ------- ------- Total Capacity Costs (40,008) (47,741) Operating Income (EBIT) $10,481 $3,200 $15,311 20.9% $24,092 $32,422 ======= ======= ======= ======= ======= ======= Memo: EBITDA $17,836 $13,410 $26,412 21.7% $35,902 $45,482 Capital Expenditures $11,831 $14,574 $19,635 $13,000 $13,555 Discounted Cash Flow Analysis ==================================================================================================================================== ($ in thousands) Projected(b) 1994-1999 ----------------------------------- 1997 1998 1999 CAGR ------------ ---------- -------- ---------- Beginning Patients 7,350 8,800 10,575 Total Patients Added 1,450 1,775 2,115 ------- ------- ------- Ending Patients 8,800 10,575 12,690 Dialysis Revenue per Patient $25.0 $25.0 $25.0 Lab Revenue per Patient 2.2 2.2 2.2 ------- ------- ------- Total Revenue per Patient $27.2 $27.2 $27.2 Total Revenues $239,360 287,640 $345,168 21.2% Prime Labor (47,872) (57,528) (69,034) Prime Supplies (69,175) (81,977) (98,373) Direct Sales Commission (239) (144) (173) Other Variable Costs (3,590) (4,315) (5,178) ------- ------- ------- Total Contribution Expenses (120,877) (143,964) (172,757) Contribution Margin 118,483 143,676 172,411 Depreciation & Amortization(c) (14,913) (17,096) (20,515) Bad Debt Expense (4,739) (5,695) (6,834) Other Operating Expenses (383) (460) (552) Profit Sharing Expenses (551) (662) (794) ------- ------- ------- Total Other Expenses (5,673) (6,817) (8,180) Corporate General & Administrative Expenses (16,468) (21,573) (25,888) In-center Capacity Costs (40,691) (48,899) (58,679) ------- ------- ------- Total Capacity Costs (57,159) (70,472) (84,566) Operating Income (EBIT) $40,738 $49,291 $59,150 31.0% ======= ======= ======= Memo: EBITDA $55,651 $66,387 $79,665 24.7% Capital Expenditures $22,701 $27,514 $33,017 (a) Historical data as per From 10-K dated December 31, 1994. Presentation of financial results for historical years does not conform with projected data on an item-by-item basis. (b) Based on projected data for 1995-1998 provided by BUFFALO management on June 28, 1995. Data for 1999 based on extrapolation of 1998 data. (c) For historical years, includes amortization of unearned stock compensation based on cash flow statement on Form 10-K dated December 31, 1994. For projected years, assumed to be included in depreciation & amortization. ==================================================================================================================================== [LOGO] -15- Discounted Cash Flow Analysis ============================================================================================================================== Historical Projected --------------------------- ---------------------------------------------- 1992 1993 1994 1995 1996 1997 1998 1999 -------- -------- -------- ------- --------- -------- -------- -------- Ending Patients Growth - 16.1% 19.7% 20.2% 20.0% Total Revenue Growth - 30.2% 25.3% 26.9% 19.5% 19.7% 20.2% 20.0% Prime Labor (20.5%) (20.0%) (20.0%) (20.0%) Prime Supplies (28.9%) (28.9%) (28.5%) (28.5%) Direct Sales Commission (0.1%) (0.1%) (0.1%) (0.1%) Other Variable Costs (1.5%) (1.5%) (1.5%) (1.5%) ------- --------- -------- -------- -------- Total Contribution Expenses (52.2%) (51.0%) (50.5%) (50.1%) (50.1%) Contribution Margin 47.8% 49.0% 49.5% 50.0% 50.0% Deprecation & Amortization (9.1%) (9.7%) (8.4%) (7.1%) (6.5%) (6.2%) (5.9%) (5.9%) Bad Debt Expense (2.0%) (2.0%) (2.0%) (2.0%) Other Operating Expenses (0.2%) (0.2%) (0.2%) (0.2%) Profit Sharing Expenses (0.2%) (0.2%) (0.2%) (0.2%) ------- --------- -------- -------- -------- Total Other Expenses (2.4%) (2.4%) (2.4%) (2.4%) (2.4%) Corporate General & Administrative Expenses (6.9%) (6.9%) (7.5%) (7.5%) In-center Capacity Costs (17.0%) (17.0%) (17.0%) (17.0%) ------- --------- -------- -------- -------- Total Capacity Costs (23.9%) (23.9%) (23.9%) (24.5%) (24.5%) ------- --------- -------- -------- -------- Operating Income (EBIT) 13.0% 3.0% 11.6% 14.4% 16.2% 17.0% 17.1% 17.1% ======== ======= ======= ======= ========= ======== ======== ======== Memo: EBITDA 22.1% 12.7% 20.0% 21.5% 22.8% 23.3% 23.1% 23.1% Capital Expenditures 14.6% 13.9% 14.9% 7.8% 6.8% 9.5% 9.6% 9.6% ============================================================================================================================== [LOGO] - 16 - Discounted Cash Flow Analysis ========================================================================================================================== ($ in thousands) Historical(a) Projected(b) -------------------------- ---------------------------------------------- 1992 1993 1994 1995 1996 1997 1998 1999 -------------------------- ---------------------------------------------- Sources of Cash: Operating Income(EBIT) $10,481 $3,200 $15,311 $24,092 $32,422 $40,738 $49,291 $59,150 Less: Taxes @ 41.0%(c) (4,297) (1,312) (6,278) (9,878) (13,293) (16,703) (20,209) (24,251) -------- -------- ------- ------- ------- ------- ------- ------- EBIAT(d) 6,184 1,888 9,034 14,214 19,129 24,036 29,082 34,898 Depreciation & Amortization 7,354 10,210 11,101 11,810 13,060 14,913 17,096 20,515 -------- -------- ------- ------- ------- ------- ------- ------- Total Sources $13,538 $12,098 $20,135 $26,024 $32,189 $38,949 $46,178 $55,413 Uses of Cash: Working Capital Requirements $12,440 $9,541 ($7,338) $6,671 $2,978 $3,076 $3,765 $4,486 Capital Expenditures(e) 11,831 14,574 19,635 13,000 13,555 22,701 27,514 33,017 -------- -------- ------- ------- ------- ------- ------- ------- Total Uses $24,270 $24,115 $12,296 $19,671 $16,533 $25,777 $31,279 $37,503 -------- -------- ------- ------- ------- ------- ------- ------- Free Cash Flow ($10,732) ($12,017) $7,838 $6,353 $15,656 $13,172 $14,899 $17,910 ======== ======== ======= ======= ======= ======= ======= ======= Memo: EBITDA $17,836 $13,410 $26,412 $35,902 $45,482 $55,651 $66,387 $79,665 Work. Cap. Req. as % of Inc. in Sales 46.2% 39.1% (27.6%) 18.8% 9.1% 7.8% 7.8% 7.8% ----------------------------------- (a) Historical data as per Form 10-K dated December 31, 1994. (b) Based on projected data for 1995-1998 provided by BUFFALO management on June 28, 1995. Data for 1999 based on extrapolation of 1998 data. (c) Effective tax rate as per BUFFALO projected financial data. (d) Represents earnings before interest and after taxes. (e) Capital expenditures for historical periods stated exclusive of acquisitions. ======================================================================================================================== [LOGO] - 17 - Discounted Cash Flow Analysis ============================================================================================================ ($ in thousands, except per share data) Discount Rate (a) 10.0% 12.0% ----------------------------------- ------------------------------------ Terminal EBITDA Multiple 6.5x 7.0x 7.5x 6.5x 7.0x 7.5x --------- ---------- ---------- ---------- ---------- --------- 1999 EBITDA $79,665 $79,665 $79,665 $79,665 $79,665 $79,665 Terminal Multiple 6.5x 7.0x 7.5x 6.5x 7.0x 7.5x -------- -------- -------- -------- -------- -------- Terminal Value $517,821 $557,653 $597,486 $517,821 $557,653 $597,486 Implied Terminal EBIT Multiple 8.8x 9.4x 10.1x 8.8x 9.4x 10.1x Present Value of Terminal Value (b) 337,219 363,159 389,099 310,956 334,875 358,795 Present Value of Free Cash Flow Stream (b) 49,314 49,314 49,314 46,908 46,908 46,908 -------- -------- -------- -------- -------- -------- Implied Total Enterprise Value of BUFFALO 386,534 412,474 438,414 357,863 381,783 405,703 Plus: Cash and Equivalents (c) 2,138 2,138 2,138 2,138 2,138 2,138 Plus: Notes Receivable (c) 2,673 2,673 2,673 2,673 2,673 2,673 Plus: Proceeds From Options & Warrants (d) 6,407 6,407 6,407 6,407 6,407 6,407 Less: Total Debt (c) (11,894) (11,894) (11,894) (11,894) (11,894) (11,894) Less: Minority Interest (c) (492) (492) (492) (492) (492) (492) -------- -------- -------- -------- -------- -------- Total Non-operating Adjustments (1,168) (1,168) (1,168) (1,168) (1,168) (1,168) -------- -------- -------- -------- -------- -------- Implied BUFFALO Equity $385,366 $411,306 $437,246 $356,695 $380,615 $404,535 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Implied BUFFALO Price per Share (e) $19.75 $21.08 $22.41 $18.28 $19.51 $20.73 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Implied Multiple of: 1995E EBITDA 10.8x 11.5x 12.2x 10.0x 10.6x 11.3x 1995E EBITA 13.5 14.4 15.3 12.5 13.3 14.1 1995E EBIT 16.0 17.1 18.2 14.9 15.8 16.8 1995E Earnings per Share 27.3 29.1 30.9 25.2 26.9 28.6 Discounted Cash Flow Analysis ================================================================== ($ in thousands, except per share data) Discount Rate (a) 14.0% ------------------------------------ Terminal EBITDA Multiple 6.5x 7.0x 7.5x --------- --------- ---------- 1999 EBITDA $79,665 $79,665 $79,665 Terminal Multiple 6.5x 7.0x 7.5x -------- -------- -------- Terminal Value $517,821 $557,653 $597,486 Implied Terminal EBIT Multiple 8.8x 9.4x 10.1x Present Value of Terminal Value (b) 287,149 309,238 331,326 Present Value of Free Cash Flow Stream (b) 44,680 44,680 44,680 -------- -------- -------- Implied Total Enterprise Value of BUFFALO 331,830 353,918 376,006 Plus: Cash and Equivalents (c) 2,138 2,138 2,138 Plus: Notes Receivable (c) 2,673 2,673 2,673 Plus: Proceeds From Options & Warrants (d) 6,407 6,407 6,407 Less: Total Debt (c) (11,894) (11,894) (11,894) Less: Minority Interest (c) (492) (492) (492) -------- -------- -------- Total Non-operating Adjustments (1,168) (1,168) (1,168) -------- -------- -------- Implied BUFFALO Equity $330,662 $352,750 $374,839 -------- -------- -------- -------- -------- -------- Implied BUFFALO Price per Share (e) $16.95 $18.08 $19.21 -------- -------- -------- -------- -------- -------- Implied Multiple of: 1995E EBITDA 9.2x 9.9x 10.5x 1995E EBITA 11.5 12.3 13.1 1995E EBIT 13.8 14.7 15.6 1995E Earnings per Share 23.4 25.0 26.5 ---------------------- (a) Discount rates based on weighted average cost of capital (WACC) analysis for BUFFALO which implies a theoretical WACC of 12.4%. (b) Discounted to June 30, 1995. (c) Based on balance sheet as of May 31, 1995 as provided by BUFFALO management on June 28, 1995. (d) Includes aggregate proceeds from the exercise of options and warrants as per schedule as provided by BUFFALO management on June 30, 1995. (e) Based on 18.921 million common shares outstanding as of May 8, 1995 as per Form 10-Q dated March 31, 1995, and 0.592 million options and warrants outstanding as of March 31, 1995 as per schedule provided by BUFFALO management on June 30, 1995. Assumes all options and warrants accelerate upon a change of control. ================================================================================ [LOGO] - 18 - Analysis of Selected "Squeeze-Out" Transactions (a) ================================================================================================================================ Pre-Transaction Transaction Premium Over Market Acquiror Acquiror Value Final per Share Prior to Announcement ---------------------- Announcement Date Target Ownership (b) ($ in mm)(c) Purchase Price One Month (d) One Day ----------------- --------------------------------- --------------- ------------ --------------- ------------ -------- 15-Mar-95 Linpac Mouldings Ltd. 57.2% $23.3 $11.00 4.8% 7.3% Ropak Corporation 27-Jul-94 The Parkway Company 52.4% 11.9 $17.25 43.8% 21.1% EB, Inc. 5-May-94 Wassall PLC 53.7% 35.9 $6.00 11.6% 17.1% General Cable Corporation 13-Oct-93 Medco Containment Services, Inc. 64.8% 120.3 $27.25 -7.6%(e) -19.3%(e) Medical Marketing Group, Inc. 17-Jun-93 Apache Corporation 66.5% 31.9 $15.00 25.0% 26.3% Hadson Energy Resources Corporation 4-Jan-93 John Aglialoro and Joan Carter 52.0% 11.8 $9.50 49.0% 49.0% United Medical Corporation 13-Nov-92 Rust International Inc. 55.8% 186.4 $18.75 10.3% 4.9% The Brand Cos. Inc. 17-Aug-92 Leucadia National Corp. 63.1% 174.1 0.41 shares 60.4% 39.5% PHLCORP Inc. 20-Mar-92 Christiania General Insurance 54.8% 16.9 $6.30 52.7% 44.0% Corporation Belvedere Corporation 2-Aug-91 EnviroSource Inc. 62.5% 19.8 5.0 shares 19.6% 57.1% Envirosafe Services Inc. 26-Jul-91 Land O'Lakes Inc. 67.7% 21.9 $15.30 61.1% 39.1% Country Lake Foods Inc. -------------------- (a) Based on acquisitions of U.S. targets announced since 1990 with pre-transaction acquiror ownership of 50% - 70% and transaction value greater than $10.0 million. (b) Pre-transaction acquiror ownership based on acquiror Form 13D filing. (c) Defined as final per share purchase price multiplied by shares not owned by acquiror prior to transaction. (d) For purposes of analysis, one month represents four calendar weeks. (e) Statistic excluded from summary calculation. ==================================================================================================================================== [LOGO] - 19 - Analysis of Selected "Squeeze-Out" Transactions (a) ==================================================================================================================================== Pre-Transaction Transaction Premium Over Market Acquiror Acquiror Value Final per Share Prior to Announcement Announcement ------------------------ Date Target Ownership (b) ($ in mm)(c) Purchase Price One Month (d) One Day ------------ --------------------------------- --------------- ------------ --------------- ------------ -------- 1-May-91 Tele-Communications Inc. 57.2% $1,045.0 1.02 shares 28.7% 22.8% United Artists Entertainment Co. (e) 6-Feb-91 Broken Hill Proprietary Company Ltd. 50.0% 527.9 $40.00 31.1% 18.5% Hamilton Oil Corporation 3-Jan-91 Murphy Oil Corporation 61.1% 386.0 0.55 shares 8.5% 13.2% Ocean Drilling & Exploration 23-Oct-90 Ogden Corporation 61.2% 33.6 $15.13 44.1% 37.5% ERC Environmental & Energy Services 26-Sep-90 Pier I Imports, Inc. 50.4% 22.3 $12.00 37.1% 37.1% Sunbelt Nursery Group, Inc. 6-Jul-90 Renault Vehicules Industriels S.A. 61.0% 103.1 $6.25 22.0% 19.0% Mack Trucks, Inc. 8-May-90 International Service System A/S 66.5% 15.4 $12.00 60.0% 54.8% International Service System, Inc. 5-Mar-90 American Express Company 68.4% 356.7 0.48 shares 8.8% 2.2% Shearson Lehman Brothers 24-Feb-90 Heritage Media Corporation 69.4% 23.0 $20.50 41.4% 20.6% Pop Radio Corporation 16-Feb-90 Anderson Group PLC 51.2% 21.1 $8.88 9.2% 20.3% National Mine Service Company 24-Jan-90 Imetal S.A. 55.6% 78.0 $17.00 33.3% 47.8% Copperweld Steel Corporation High 69.4% 61.1% 57.1% Median 59.1% 31.1% 22.8% Average 59.2% 31.5% 28.5% Low 50.0% 4.8% 2.2% --------------------- (a) Based on acquisitions of U.S. targets announced since 1990 with pre-transaction acquiror ownership of 50% - 70% and transaction value greater than $10.0 million. (b) Pre-transaction acquiror ownership based on acquiror Form 13D filing. (c) Defined as final per share purchase price multiplied by shares not owned by acquiror prior to transaction. (d) For purposes of analysis, one month represents four calendar weeks. (e) Based on United Artists Entertainment Co. Class A shares. ==================================================================================================================================== [LOGO] - 20 - Analysis of Selected "Squeeze-Out" Transactions (a) ================================================================================ One Month Closing Prior (b) (6/30/95) --------- --------- BUFFALO Stock Price $14.13 $15.88 Summary Premia 61.1% 57.1% High Median 31.1% 22.8% Average 31.5% 28.5% Low 4.8% 2.2% Implied BUFFALO per Share Price High $22.75 $24.95 Median 18.52 19.49 Average 18.58 20.41 Low 14.80 16.23 ----------------- (a) Based on acquisitions of U.S. targets since 1990 with pre-transaction acquiror ownership of 50% - 70% and transaction value greater than $10.0 million. (b) For purposes of analysis, one month represents four calendar weeks. ================================================================================ [LOGO] - 21 - Ownership Profile ================================================================================ (shares in thousands) Ownership of Common Stock -------------------------- Shares % of Total ------ ---------- COBE Laboratories, Inc. (a) 10,036.2 51.6% Officers & Directors (a)(b) 99.2 0.5 Institutional Ownership (c) Putnam Investment Management 846.5 4.4 Wasatch Advisors Inc. 695.3 3.6 Nicholas-Applegate Capital 326.6 1.7 Travelers Inc. 173.7 0.9 Wells Fargo Institutional Trust N.A. 170.0 0.9 College Retirement Equities 168.9 0.9 Van Kampen American Capital 132.8 0.7 New USA Research & Management 115.0 0.6 Other Institutions 972.4 5.0 -------- ------- Total 3,601.1 18.5 Other Holders 5,706.6 29.4 -------- ------- Total Options & Warrants Adjusted Shares Outstanding (d) 19,443.2 100.0% ======== ====== ----------------- (a) As per Proxy Statement dated April 28, 1995. (b) Includes 4,000 shares held by Herbert S. Lawson and Mats Wahlstrom, employees of COBE Laboratories, Inc. (c) As per Spectrum as of June 30, 1995. (d) Based on 18.921 million common shares outstanding as of May 8, 1995 as per Form 10-Q dated March 31, 1995, and 0.522 million in-the-money options and warrants outstanding as of March 31, 1995 as per schedule provided by BUFFALO management on June 30, 1995. Assumes all in-the-money options and warrants accelerate upon a change of control. ================================================================================ [LOGO] - 22 - Preliminary Timetable ========================================================================================================== Approximate Timing Activity ----------- ---------------------------------------------------------------------------------------- Week 0 - COBE Board authorizes Proposal - Proposal made to BUFFALO Board - BUFFALO Board forms Special Committee to evaluate Proposal - Public announcement of Proposal Week 1 - Special Committe retains independent financial and legal advisors Week 2 - Independent financial and legal advisors conduct due diligence Week 3 - BUFFALO Special Committee negotiates with COBE Week 4 - Execution of definitive purchase agreement - Public announcement of agreement - Finalize Offer to Purchase and Schedules 14D-1, 14D-9 and 13E-3 Week 5 - File Schedules 14D-1, 14D-9 and 13E-3 with SEC - Place notification advertisements and distribute materials to shareholders - Begin tender offer Week 8 - Close tender offer and take up tendered shares Week 9 - Assuming short-form merger is permitted, complete merger and purchase remaining shares ========================================================================================================== [LOGO] - 23 -