1
EXHIBIT (b)(3)
DISCLAIMER REGARDING FINANCIAL PRESENTATION
CONTAINED IN EXHIBIT (b)(3)
THE FINANCIAL PRESENTATION OF STEPHENS INC. AS PROVIDED IN THIS EXHIBIT
(b)(3) IS PROVIDED PURSUANT TO THE RULES AND REGULATIONS OF THE SECURITIES AND
EXCHANGE COMMISSION. THE PRESENTATION CONTAINS DETAILED INFORMATION REGARDING
THE HISTORICAL FINANCIAL PERFORMANCE OF TREADCO, INC AND CERTAIN COMPARABLE
COMPANIES AND TRANSACTIONS. STEPHENS OBTAINED THE HISTORICAL INFORMATION
REGARDING TREADCO FROM TREADCO MANAGEMENT AND THE HISTORICAL INFORMATION
REGARDING COMPARABLE COMPANIES AND TRANSACTIONS FROM INDUSTRY PUBLICATIONS AND
OTHER SOURCES. STEPHENS HAS NOT INDEPENDENTLY VERIFIED ANY OF SUCH HISTORICAL
INFORMATION.
THE PRESENTATION ALSO CONTAINS DETAILED PROJECTIONS AND OTHER INFORMATION
REGARDING THE FUTURE FINANCIAL PERFORMANCE OF TREADCO. SUCH PROJECTIONS WERE
BASED ON ESTIMATES AND ASSUMPTIONS THAT ARE INHERENTLY SUBJECT TO SIGNIFICANT
ECONOMIC AND COMPETITIVE UNCERTAINTIES, ALL OF WHICH ARE DIFFICULT TO PREDICT
AND MANY OF WHICH ARE BEYOND THE CONTROL OF TREADCO. ACCORDINGLY, THERE CAN BE
NO ASSURANCE THAT THE PROJECTED RESULTS CAN BE REALIZED OR THAT ACTUAL RESULTS
WILL NOT BE MATERIALLY HIGHER OR LOWER THAN THOSE PROJECTED. THE PROJECTIONS
WERE NOT PREPARED WITH A VIEW TO PUBLIC DISCLOSURE OR COMPLIANCE WITH THE
PUBLISHED GUIDELINES OF THE COMMISSION OR THE GUIDELINES ESTABLISHED BY THE
AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS REGARDING PROJECTIONS OR
FORECASTS. THE INCLUSION OF THE PROJECTIONS IN THIS EXHIBIT SHOULD NOT BE
REGARDED AS AN INDICATION THAT STEPHENS, TREADCO, ARKANSAS BEST CORPORATION OR
ANY OTHER PERSON WHO RECEIVED SUCH INFORMATION CONSIDERS IT AN ACCURATE
PREDICTION OF FUTURE EVENTS. NEITHER STEPHENS, TREADCO, NOR ARKANSAS BEST
CORPORATION INTENDS TO UPDATE, REVISE OR CORRECT SUCH PROJECTIONS IF THEY BECOME
INACCURATE (EVEN IN THE SHORT TERM).
A NUMBER OF FACTORS COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
THE PROJECTIONS, INCLUDING GENERAL ECONOMIC CONDITIONS; COMPETITIVE INITIATIVES
AND PRICING PRESSURES; AVAILABILITY AND COST OF CAPITAL; SHIFTS IN MARKET
DEMAND; THE AVAILABILITY OF ALTERNATIVE PRODUCTS TO TREADCO CUSTOMERS AND
PROSPECTIVE CUSTOMERS; WEATHER CONDITIONS; GOVERNMENT REGULATIONS; THE
PERFORMANCE AND NEEDS OF INDUSTRIES SERVED BY TREADCO; ACTUAL FUTURE COSTS OF
OPERATING EXPENSES SUCH AS THE PRICE OF OIL; SELF-INSURANCE CLAIMS AND EMPLOYEE
WAGES AND BENEFITS; AND THE TIMING AND AMOUNT OF CAPITAL EXPENDITURES.
2
A PRESENTATION TO
================================================================================
THE SPECIAL COMMITTEE OF THE BOARD OF DIRECTORS OF
TREADCO, INC.
REGARDING
THE ABC PROPOSAL
MARCH 15, 1999
STEPHENS INC.
INVESTMENT BANKERS
================================================================================
3
DISCLAIMER
================================================================================
The historical financial information contained in this presentation
has been obtained from Treadco but has not been independently verified. The
projections contained in this presentation regarding the future financial
performance of Treadco have been developed by Treadco management. Stephens Inc.
has relied upon the accuracy of such historical financial information and
projected financial results in preparing this presentation. Any inaccuracies in
such historical financial information or projected financial results may change
the conclusions expressed in this presentation. Stephens Inc. assumes no
responsibility for any such inaccuracies in the historical financial information
or projected financial results used in this presentation. This memorandum has
been prepared as of March 15, 1998, and reflects information made available to
us prior to such date. It does not include information regarding all of the
assessments made by Stephens Inc. in arriving at its conclusions. This
memorandum has been prepared solely for the use of the Special Committee of the
Board of Directors. It is confidential and may not be disclosed or provided to
any third parties without the written permission of Stephens Inc.
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4
================================================================================
TABLE OF CONTENTS
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5
TABLE OF CONTENTS
================================================================================
I. Overview of ABC Proposal
II. Historical Trading Analysis
III. Key Valuation Analysis
Appendix
A. Financial Projections
B. Comparable Publicly Traded Companies
C. Comparable Acquisitions
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STEPHENS INC.
INVESTMENT BANKERS
6
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OVERVIEW OF ABC PROPOSAL
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7
NEGOTIATIONS TIMETABLE
================================================================================
January 22nd Announcement by ABC to acquire all
outstanding shares of Treadco not owned by
ABC at $9.00 per share.
January 29th Special Committee retains Stephens to
provide an opinion on the fairness of the
offer price.
February 1Oth Special Committee meets with its advisors,
Stephens and Kutak Rock, to discuss
preliminary analysis by Stephens of the
offer by ABC and the proposed transaction
structure. At the request of the Special
Committee, Stephens attempts to negotiate a
higher price and, with Kutak Rock, changes
in the transaction structure.
February 16th Special Committee meets telephonically with
its advisors to discuss negotiations. At the
request of the Special Committee, Stephens
again attempts to negotiate with ABC a
higher price and, with Kutak Rock, changes
in the transaction structure.
February 25th Stephens meets telephonically with ABC to
discuss the transaction. Stephens attempts
to negotiate a higher price.
February 26th Stephens and Kutak Rock meet telephonically
with ABC to discuss the negotiations of the
transaction. Stephens attempts to negotiate
a higher price.
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STEPHENS INC.
INVESTMENT BANKERS
8
NEGOTIATIONS TIMETABLE
================================================================================
March 5th Special Committee meets telephonically with
its advisors to discuss the negotiations.
Based on ABC's repeated refusals to increase
the offer price, the Special Committee makes
final comments to the transaction documents.
March 9th Special Committee and its advisors meet
telephonically. Stephens and Kutak Rock
advise the Special Committee that the final
comments were acceptable to ABC.
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STEPHENS INC.
INVESTMENT BANKERS
9
OVERVIEW OF FAIRNESS OPINION
================================================================================
Stephens Inc., in its role as financial advisor to the Special
Committee of the Board of Directors of Treadco, concludes that the
current proposal from ABC of $9.00 per share is fair from a financial
point of view to the stockholders of Treadco. Several factors were
taken into account to reach this determination:
o Analysis of publicly available financial statements and
reports
o Analysis of internal financial and operating data including
financial projections
o Review of historical trading activity of Treadco stock
o Review of the financial performance and trading activity of
the common stock of comparable publicly traded companies
o Review of the financial terms of comparable transactions
o Review of the definitive merger agreement and related
documents
o Discussions with management about the future business
prospects and potential strategic alternatives of the Company
Stephens also notes that with the proxy from Shapiro Capital
Management, ABC has voting control of approximately 71.1% of the
outstanding shares.
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1 STEPHENS INC.
INVESTMENT BANKERS
10
OVERVIEW OF ABC PROPOSAL
================================================================================
Initial Proposal
ABC initially proposed a two step transaction:
Step 1: Treadco would self tender for all
"The Tender" outstanding common shares not currently
owned by ABC. Funding for this step would
have come from Treadco's current credit
facility and a loan of up to $12 million
from ABC.
Step 2: A merger between Treadco and ABC with all
"The Merger" non-tendered shares receiving the right to
$9.00 in cash per share. A Proxy statement
would have been required in conjunction with
the merger.
Consummation of the Tender and the Merger could have occurred
independently or the Tender could have been consummated while ABC,
under certain circumstances, may not have been obligated to close
the Merger.
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2 STEPHENS INC.
INVESTMENT BANKERS
11
OVERVIEW OF ABC PROPOSAL
================================================================================
Current Proposal
ABC's current proposal includes the following:
Step 1: A tender offer by ABC for any and all
"The Tender" outstanding common shares of Treadco not
currently owned by ABC at $9.00 per share.
Funding for this step will come from ABC's
credit facility.
Step 1 A second step merger in which all remaining
"The Merger" shares are effectively cashed out at the
offer price. ABC has a proxy from Shapiro
Capital Management, Treadco's second largest
shareholder at 21.5% of outstanding common,
to vote for this merger.
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3 STEPHENS INC.
INVESTMENT BANKERS
12
KEY FINANCIAL TERMS OF PROPOSAL
================================================================================
Proposed consideration in the ABC proposal consists of $9.00 per share in cash
for the 2,575,055 shares outstanding not already owned by ABC for an aggregate
value of $23.2 million. This is a premium of 33.3% over the closing price on
December 23, 1998, 30 days prior to announcement. In addition, all debt
outstanding will be assumed. Options and Performance Award Units will be cashed
out in the transaction.
Implied Transaction Value
5.072 million shares @ $9.00 per share $ 45.7
Equity Value of Stock Options and PAUs 0.6
Pro Forma Debt Assumed 11.7
One-time Expenses 0.1
--------
Total Transaction Value $ 58.1
Total Transaction Value/ 1998 1999E
-------- ---------
Revenue 0.3x 0.3x
EBITDA 5.9 4.8
EBITA 15.9 10.7
Transaction Value/
Net Income 47.3x 17.1x
Book Value 0.7 0.7
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4 STEPHENS INC.
INVESTMENT BANKERS
13
ACQUISITION MATRIX
================================================================================
Dollars in Thousands 30 Days
Before
Announcement Offer Value Per Share
------------ --------------------------------------------
Per Share Price $ 6.75 $ 8.00 $ 9.00 $ 10.00
------------ ------------ ------------ ------------
Premium to Market 18.5% 33.3% 48.1%
Value of Common Equity $ 34,238 $ 40,578 $ 45,650 $ 50,723
Fully Diluted Equity Transaction Value 34,863 41,203 46,275 51,347
Aggregate Equity + Net Debt Value (a) 46,703 53,044 58,116 63,188
Total Transaction Value/
1998 Revenue 0.3x 0.3x 0.3x 0.3x
Estimated 1999 Revenue 0.2 0.3 0.3 0.3
1998 EBITDA 4.7x 5.4x 5.9x 6.4x
Estimated 1999 EBITDA 3.9 4.4 4.8 5.2
1998 EBITDA 12.7x 14.5x 15.9x 17.2x
Estimated 1999 EBITDA 8.6 9.7 10.7 11.6
- ------------------------
(a) Total transaction includes net value of options and severance expenses.
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5 STEPHENS INC.
INVESTMENT BANKERS
14
TREADCO HISTORICAL AND MANAGEMENT'S PROJECTED FINANCIAL RESULTS
================================================================================
Dollars in Thousands
For the Years Ended Dec. 31, For the Projected Years Ended December 31,
----------------------------- ---------------------------------------------------------------------
1997 1998 1999 2000 2001 2002 2003
------------ ----------- ------------ ----------- ---------- ---------- ----------
Revenue $ 161,276 $ 181,293 191,935 $ 202,987 $ 214,714 $ 227,162 $ 240,378
Gross Profit 35,581 44,580 47,814 51,424 54,846 58,396 61,936
EBITDA 3,485 9,850(a) 12,072 13,602 14,796 16,034 17,141
EBITA (2,092) 3,666(a) 5,442 7,129 8,449 10,147 11,593
Net Income (2,504) 978 2,704 3,703 4,534 5,599 6,508
EPS $ (0.49) $ 0.19 $ 0.53 $ 0.73 $ 0.89 $ 1.10 $ 1.28
Revenue Growth(b) 12.4% 5.9% 5.8% 5.8% 5.8% 5.8%
EPS Growth NM 176.6% 37.0% 22.4% 23.5% 16.2%
Gross Margin(b) 22.1% 24.6% 24.9% 25.3% 25.5% 25.7% 25.8%
EBITDA Margin 2.2% 5.4% 6.3% 6.7% 6.9% 7.1% 7.1%
EBITA Margin (1.3)% 2.0% 2.8% 3.5% 3.9% 4.5% 4.8%
Net Income Margin (1.6)% 0.5% 1.4% 1.8% 2.1% 2.5% 2.7%
- ---------------------------------------------------------------------------------------------------------------------------------
Net Working Capital 29,702 29,254 30,972 32,755 34,647 36,656 38,789
Net PP&E 31,329 34,313 33,929 35,956 38,609 42,222 46,675
Total Debt 15,314 11,741 11,741 11,741 11,741 11,741 11,741
Total Debt/Total Capital 20.7% 15.3% 15.1% 14.5% 13.8% 13.0% 12.2%
Capital Expenditures 2,015 7,517 6,246 8,500 9,000 9,500 10,000
(a) Restated for add-back of $1,174 of legal expense associated with
Bandag Settlement.
(b) Revenue growth and gross margins are based on assumptions provided
by management.
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6 STEPHENS INC.
INVESTMENT BANKERS
15
TREADCO OWNERSHIP PROFILE
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As a % of
Dollars in Thousands Shares Fully-Diluted
Owned Shares Out
--------- -------------
Institutional Holdings(a)
Shapiro Capital Management Co., Inc. 1,130,880 21.1%
Franklin Resources, Inc. 329,000 6.1%
Dimensional Fund Advisors, Inc. 309,092 5.8%
Clover Capital Management, Inc. 75,000 1.4%
Royce & Associates, Inc. 67,100 1.3%
Barclays Global Investors, N.A. 59,666 1.1%
Mellon Private Asset Management 16,100 0.3%
Williams Jones & Associates Inc. 10,000 0.2%
All Others as a Group 5,200 0.1%
--------- -----
Total Institutional Ownership 2,002,038 37.3%
Estimated Individual Float 741,814 13.8%
--------- -----
Public Float 2,743,852 51.2%
Corporate Insiders(b)
Arkansas Best Corporation 2,497,200 46.6%
Daniel V. Evans 24,579 0.5%
William A. Marquard 24,000 0.4%
Nicholas M. Georgitsis 18,000 0.3%
John R. Meyers 16,624 0.3%
John H. Morris 14,000 0.3%
Robert B. Gilbert 14,000 0.3%
Robert A. Young III(c) 10,000 0.2%
--------- -----
Total Corporate Insiders 2,618,403 48.8%
Total Shares Outstanding(d) 5,072,255 94.6%
Options Outstanding 290,000 5.4%
--------- -----
Total Fully-Diluted Shares Outstanding 5,362,255 100.0%
========= =====
- ------------
(a) Source: Technimetrics, March 11, 1999.
(b) Includes options owned. Source: Company proxy dated May 6, 1998.
(c) Does not include beneficial shares owned by Mr. Young in Arkansas Best
Corporation.
(d) Source: Company 10-Q dated September 30, 1998.
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7 STEPHENS INC.
INVESTMENT BANKERS
16
================================================================================
HISTORICAL TRADING ANALYSIS
================================================================================
17
PRICE AND VOLUME GRAPH
================================================================================
March 10, 1997 to March 10, 1999
[Graph depicting Share Price and Trading Volume for Treadco Common
Stock during referenced period]
VOLUME IN THOUSANDS
-----------------------------
52 Week High $10.13
52 Week Low $ 4.75
360 Day Avg. (a) $ 7.59
90 Day Avg. (a) $ 6.34
30 Day Avg. (a) $ 6.63
-----------------------------
(a) Prior to announcement of transaction
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8 STEPHENS INC.
INVESTMENT BANKERS
18
TREADCO TRADING VOLUME ANALYSIS
================================================================================
March 10, 1997 to March 10, 1999
# OF DAYS AVERAGE TOTAL
PRICE RANGE TRADED VOLUME VOLUME
- ---------------- --------- --------- -----------
$13.01 - $14.00 2 4,850 9,700
$12.01 - $13.00 25 6,420 160,500
$11.01 - $12.00 6 23,583 141,500
$10.01 - $11.00 47 7,681 361,000
$ 9.01 - $10.00 128 7,755 992,700
$ 8.01 - $ 9.00 157 3,609 566,600
$ 7.01 - $ 8.00 49 6,018 294,900
$ 6.01 - $ 7.00 79 8,320 657,300
$ 5.01 - $ 6.00 13 19,677 255,800
----- -------- -----------
TOTAL 506 6,798 3,440,000
===== ======== ===========
DISTRIBUTION OF TOTAL VOLUME TRADED
$13.01 - $14.00 0.3%
$12.01 - $13.00 4.7%
$11.01 - $12.00 4.1%
$10.01 - $11.00 10.5%
$ 9.01 - $10.00 28.9%
$ 8.01 - $ 9.00 16.5%
$ 7.01 - $ 8.00 8.6%
$ 6.01 - $ 7.00 19.1%
$ 5.01 - $ 6.00 7.4%
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9 STEPHENS INC.
INVESTMENT BANKERS
19
INDEXED PRICE COMPARISON
================================================================================
March 10, 1997 to March 10, 1999
[Graph depicting price comparison of S&P 500 Stock Index, Treadco Common
Stock and Peer Group Index]
Peer Group Includes: TBCCC, BDG, SPD, CTB, GT
Indexed prices are market cap weighted
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10 STEPHENS INC.
INVESTMENT BANKERS
20
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KEY VALUATION ANALYSIS
================================================================================
21
OVERVIEW OF VALUATION METHODS
================================================================================
Key valuation methods used to determine the fairness from a financial point
of view of the consideration to be received in the ABC proposal include:
---------------------------------------------------------------------------
Comparable Company Analysis Examined the trading multiples of
comparable publicly traded companies.
Focused on multiples of EBITDA, EBITA and
Net Income.
---------------------------------------------------------------------------
Comparable Transaction Analysis Analyzed change of control transactions of
comparable companies, focusing on EBITDA,
EBITA and Net Income multiples.
---------------------------------------------------------------------------
Discounted Cash Flow Analysis Utilized management projections to develop
a current valuation by discounting the
cash flows and a terminal valuation.
---------------------------------------------------------------------------
Premium Paid Analysis Compared the 30 day premium offered in the
ABC proposal to that of several other
transactions where large shareholders
acquired the remaining equity interest in
similar going private transactions.
---------------------------------------------------------------------------
Historical Trading Prices Compared the offer price to the range of
prices the Company's common stock had
traded at during the past year.
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11 STEPHENS INC.
INVESTMENT BANKERS
22
VALUATION SUMMARY
================================================================================
[Chart depicting implied valuation ranges derived from each valuation
method in relation to $9.00 price]
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12 STEPHENS INC.
INVESTMENT BANKERS
23
FOOTNOTES TO VALUATION SUMMARY
================================================================================
(a) Assumes EBITDA multiples of 4.0x to 6.0x based on comparable publicly
traded company multiples.
(b) Assumes EBITA multiples of 6.0x to 9.0x based on comparable publicly
traded company multiples.
(c) Assumes P/E multiples of 10.0x to 16.0x based on comparable publicly
traded company multiples.
(d) Assumes P/E multiples of 8.0x to 14.0x based on comparable publicly
traded company multiples.
(e) Assumes EBITDA multiples of 6.0x to 10.0x based on comparable publicly
traded company multiples.
(f) Assumes EBITA multiples of 10.0x to 20.0x based on comparable
transaction multiples.
(g) Assumes EPS multiples of 20.0x to 40.0x based on comparable
transaction multiples.
(h) Assumes DCF with exit EBITDA multiples of 5.0x to 7.0x and a discount
rate of 11.0% to 13.0%.
(i) Assumes a premium on the market price 30 days and 1 day prior to
announcement of 10% to 50% based upon comparable going private
transactions.
(j) Reflects the high and low market prices of Treadco stock over the
last 52 week period.
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13 STEPHENS INC.
INVESTMENT BANKERS
24
SUMMARY OF COMPARABLE COMPANIES
================================================================================
Dollars In Millions
TOTAL
MARKET CAPITALIZATION (a)/ MARKET CAPITALIZATION (b)/
-------------------------- --------------------------
3/10/99 TOTAL LTM CFY
MARKET MARKET MARKET NET I/B/E/S LTM LTM
COMPANY PRICE CAP. (a) CAP. (b) INCOME ESTIMATE (c) EBITDA (d) EBITA (e)
- ---------------------------- ------- ----------- --------- -------- ------------ ---------- ---------
TBC, Corp. $ 5.69 $ 120.4 $ 241.9 7.1x 6.3x 5.9x 7.0x
Bandag, Inc. 31.25 703.5 644.1 12.1 11.4 4.7 5.9
Standard Products Co. 15.63 251.2 454.9 6.8 7.8 4.0 7.0
Cooper Tire & Rubber Co. 20.13 1,562.8 1,734.5 12.3 11.3 5.6 8.1
Goodyear Tire & Rubber Co. 50.69 7,933.2 9,944.0 10.1 11.7 5.8 8.1
SUMMARY OF MARKET MULTIPLES
Maximum 12.3x 11.7x 5.9x 8.1x
Minimum 6.8 6.3 4.0 5.9
Average 9.7 9.7 5.2 7.2
Median 10.1 11.3 5.6 7.0
- -------------------
(a) Market capitalization is equal to common shares outstanding multiplied by
the current market price.
(b) Market capitalization plus total debt less cash and cash equivalents.
(c) Defined as current market price divided by the current fiscal year I/B/E/S
estimate.
(d) For comparative purposes, defined as earnings before interest and taxes plus
depreciation and amortization.
(e) Earnings before interest, taxes, and amortization of selected intangibles.
Selected intangible assets consist of goodwill, trademarks and non-compete
agreements.
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14 STEPHENS INC.
INVESTMENT BANKERS
25
SUMMARY OF COMPARABLE TRANSACTIONS
================================================================================
Dollars in Millions
Transaction Total
Total Value/ Transaction Value/
Closing Transaction Transaction ----------- --------------------------
Date Acquiror Target Value Value Net Income EBITDA EBITA
- --------- ----------------------- --------------- ----------- ----------- ----------- ----------- ------------
12/24/98 Goodyear Tire & Rubber Brad Ragan, Inc. $ 81.6 $121.3 46.4x 14.1x 20.1x
03/01/97 Cooper Tire & Rubber Avon Tyres plc 110.4 135.5 22.5 6.2 10.5
07/15/96 TBC Corporation Big O Tires 56.0 69.8 29.6 7.9 9.2
-----------------------------------------------------------------------------------------------------------------------
ABC Treadco, Inc 45.7 58.1 47.3x 5.9x 15.9
-----------------------------------------------------------------------------------------------------------------------
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15 STEPHENS INC.
INVESTMENT BANKERS
26
SUMMARY OF DISCOUNTED CASH FLOW ANALYSIS
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Dollars in Thousands
Assumes a Discount Rate of:
------------------------------------------------------------
ENTERPRISE VALUE 11.0% 11.5% 12.0% 12.5% 13.0%
-------- -------- -------- -------- --------
5.0x $ 53,671 $ 52,519 $ 51,397 $ 50,305 $ 49,241
5.5 58,757 57,492 56,260 55,061 53,893
Terminal Value Multiple 6.0 63,843 62,465 61,123 59,817 58,544
2003 EBITDA = $ 17,141 6.5 68,929 67,438 65,986 64,573 63,196
7.0 74,015 72,411 70,849 69,329 67,848
Plus: Cash & Cash Equivalents $ -- $ -- $ -- $ -- $ --
Less: Total Debt 11,741 11,741 11,741 11,741 11,741
EQUITY VALUE Assumes a Discounted Rate of:
------------------------------------------------------------
11.0% 11.5% 12.0% 12.5% 13.0%
-------- -------- -------- -------- --------
5.0x $ 41,930 $ 40,778 $ 39,656 $ 38,564 $ 37,500
5.5 47,016 45,751 44,519 42,320 42,152
6.0 52,102 50,724 49,383 48,076 46,804
6.5 57,188 55,697 54,246 52,832 51,455
7.0 62,275 60,670 59,109 57,588 56,107
Assumes a Discounted Rate of:
EQUITY VALUE PER SHARE ------------------------------------------------------------
1998 Shares Outstanding (in Thousands)= 5,072 11.0% 11.5% 12.0% 12.5% 13.0%
-------- -------- -------- -------- --------
5.0x $ 8.27 $ 8.04 $ 7.82 $ 7.60 $ 7.39
5.5 9.27 9.02 8.78 8.54 8.31
6.0 10.27 10.00 9.74 9.48 9.23
6.5 11.27 10.98 10.69 10.42 10.14
7.0 12.28 11.96 11.65 11.35 11.06
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16 STEPHENS INC.
INVESTMENT BANKERS
27
SUMMARY OF PREMIUM ANALYSIS
===============================================================================
Dollars in Millions
Value of Initial %
Date Date Transaction of Shares
Announced Effective Target Name Acquiror Name ($mil) Owned
- --------- --------- --------------------------------- ------------------------------ ----------- ---------
01/28/97 05/21/97 Calgene Inc (Monsanto Co) Monsanto Co $ 242.6 56.3%
02/13/97 05/20/97 Reflectone Inc British Aerospace Holdings 41.1 43.4
06/03/97 01/15/98 Faulding Inc (FH Faulding & Co) FH Faulding & Co Ltd 77.3 62.0
06/20/97 03/30/98 Wheelabrator Technologies Inc Waste Management Inc 869.7 67.0
06/26/97 11/26/97 Rhone-Poulene Roner Inc Rhone-Poulene SA 4,831.6 65.0
07/30/97 09/18/97 Amdahl Corp Fujitsu Ltd 924.8 42.0
07/30/97 02/02/98 Plasti-Line Inc PL Holdings Corp 30.7 47.0
08/04/97 12/23/97 Perkins Family Restaurant LP Restaurant Co 76.3 48.0
09/04/97 12/30/97 Cinergi Pictures Entertainment Investor Group 16.3 51.8
10/23/97 01/08/99 Brad Ragan Inc (Goodyear Tire) Goodyear Tire & Rubber Co 20.7 75.0
12/23/97 03/20/98 American Paging Inc Telephone and Data Systems Inc 9.1 73.9
01/08/98 01/30/98 Rayonier Timberlands LP Rayonier Inc 65.8 74.7
01/22/98 09/29/98 BT Office Products Intl Inc Buhrmann NV 138.1 70.0
03/05/98 05/20/98 XLConnect Solutions Inc Xerox Corp 93.0 80.0
04/30/98 11/02/98 Mycogen Corp (Dow AgroSciences) Dow AgroSciences (Dow Chemical) 355.2 69.0
05/11/98 12/07/98 DeKalb Genetics Corp Monsanto Co 2,262.7 40.0
09/23/98 12/17/98 J&L Specialty Steel Inc Usinor SA 115.0 53.5
- -------- -------- --------------------------------- ------------------------------ --------- -------
01/22/99 Treadco, Inc Arkansas Best Corporation $ 55.1 49.0
- -------- -------- --------------------------------- ------------------------------ --------- -------
Target Stock Price
-----------------------------------------------------
% of Price 30 Days 1 Day
Shares Per Before Before 30 Day 1 Day
Acq. Share Announ. Announ Premium Premium
------ -------- ----------- ---------- ------- -------
43.7% $ 8.00 $ 5.06 $ 4.94 58.0% 62.0%
56.6 24.00 19.25 20.00 24.7% 20.0%
38.0 13.50 9.25 10.75 45.9% 25.6%
33.0 16.50 12.38 13.00 33.3% 26.9%
35.0 97.00 75.50 79.44 28.5% 22.1%
58.0 12.40 8.81 11.81 40.7% 5.0%
53.0 14.50 11.13 10.63 30.3% 36.5%
52.0 14.00 10.75 10.88 30.2% 28.7%
48.2 2.52 1.50 1.81 68.0% 39.0%
25.0 37.25 29.00 30.00 28.4% 24.2%
26.1 2.50 2.06 2.13 21.2% 17.6%
25.3 13.00 12.00 11.69 8.3% 11.2%
30.0 13.75 7.75 10.38 77.4% 32.5%
20.0 20.00 17.13 22.50 16.8% -11.1%
31.0 28.00 18.19 19.75 54.0% 41.8%
60.0 100.00 70.81 77.00 41.2% 29.9%
46.5 6.38 5.06 3.19 26.0% 100.2%
------------------------------------------
Maximum 77.4% 100.2%
Minimum 8.3% -11.1%
Mean 37.2% 30.1%
Median 10.3% 26.9%
------------------------------------------
----- ------- ---------- ---------- ----- ------
50.0% $ 9.00 $ 6.75 $ 6.50 33.3% 38.5%
----- ------- ---------- ---------- ----- ------
================================================================================
17 STEPHENS INC.
INVESTMENT BANKERS
28
================================================================================
APPENDIX A
FINANCIAL PROJECTIONS
================================================================================
29
PROJECT TREADCO
TREADCO Revised Projections - Consolidated Income Statement
================================================================================
(Dollars in Thousands, Except Per Share)
FYE December 31, Projected FY Ended December 31,
--------------------------------------------------------------------------------------------------
1997 1998(a) 1999 2000 2001 2002 2003
---------- ----------- ---------- ---------- ---------- ---------- ----------
Total Sales 161,276 181,293 191,935 202,987 214,714 227,162 240,378
Cost of Sales 125,695 136,713 144,121 151,563 159,868 168,766 178,442
---------- ----------- ---------- ---------- ---------- ---------- ----------
Gross Profit 35,581 44,580 47,814 51,424 54,846 58,396 61,936
Total SG&A and Bonus 32,096 34,730 35,742 37,822 40,050 42,362 44,796
EBITDA 3,485 9,850 12,072 13,602 14,796 16,034 17,141
Depreciation 5,576 6,184 6,630 6,473 6,347 5,887 5,547
---------- ----------- ---------- ---------- ---------- ---------- ----------
EBITA (2,092) 3,666 5,442 7,129 8,449 10,147 11,593
Total Other Expense (Income) 1,786 1,100 1,080 (a) 1,155 1,135 1,116 1,097
Income (Loss) Before Taxes (3,878) 1,392 4,361 5,973 7,313 9,031 10,497
Income Tax Expense (Benefit) (1,374) 414 1,657 2,270 2,779 3,432 3,989
---------- ----------- ---------- ---------- ---------- ---------- ----------
Net Income (Loss) $ (2,504) $ 978 $ 2,704 $ 3,703 $ 4,534 $ 5,599 $ 6,508
========== ========== ========== ========== ========== ========== ==========
Earnings Per Share $ (0.49) $ 0.19 $ 0.53 $ 0.73 $ 0.89 $ 1.10 $ 1.28
========== ========== ========== ========== ========== ========== ==========
Weighted Average Common Shares
(In Thousands) 5,072.255 5,072.255 5,072.255 5,072.255 5,072.255 5,072.255 5,072.255
MARGINS
- ------------------------------------------------------------------------------------------------------------------------------------
EBITDA 2.2% 5.4% 6.3% 6.7% 6.9% 7.1% 7.1%
EBITA (1.3)% 2.0% 2.8% 3.5% 3.9% 4.5% 4.8%
Net Income (Loss) (1.6)% 0.5% 1.4% 1.8% 2.1% 2.5% 2.7%
====================================================================================================================================
GROWTH RATES
- ------------------------------------------------------------------------------------------------------------------------------------
Total Sales 12.4% 5.9% 5.8% 5.8% 5.8% 5.8%
EBITDA 182.7% 22.6% 12.7% 8.8% 8.4% 6.9%
EBITA NM 48.5% 31.0% 18.5% 20.1% 14.3%
Net Income (Loss) NM 176.6% 37.0% 22.4% 23.5% 16.2%
Earnings Per Share NM 176.6% 37.0% 22.4% 23.5% 16.2%
====================================================================================================================================
(a) Excludes one time gain from sales of asset.
30
PROJECT TREADCO
TREADCO Revised Projections - Consolidated Balance Sheet
================================================================================
(Dollars in Thousands, Except Per Share)
FYE December 31, Projected FY Ended December 31,
-------------------- --------------------------------------------------------
ASSETS: 1997 1998 1999 2000 2001 2002 2003
-------- -------- -------- -------- -------- -------- --------
Current Assets
Cash & Equivalents $ -- $ -- $ 1,830 $ 2,183 $ 2,631 $ 3,067 $ 3,449
Accounts Receivable 25,537 27,170 28,765 30,422 32,179 34,045 36,025
Inventories 27,326 30,670 32,471 34,340 36,324 38,430 40,666
Other Current Assets 2,782 1,725 1,826 1,932 2,043 2,162 2,287
-------- -------- -------- -------- -------- -------- --------
Total Current Assets 55,645 59,566 64,893 68,876 73,178 77,704 82,428
Property & Equipment, Net 31,329 34,313 33,929 35,956 38,609 42,222 46,675
Goodwill, Less Amortization 12,694 12,232 11,770 11,308 10,846 10,384 9,922
Noncompete Agreements, Less Amortization 174 -- -- -- -- -- --
Deferred Income Taxes Receivable -- 146 154 163 172 182 193
Other Assets 616 1,113 1,113 1,113 1,113 1,113 1,113
-------- -------- -------- -------- -------- -------- --------
Total Assets $100,458 $107,370 $111,860 $117,417 $123,919 $131,606 $140,332
======== ======== ======== ======== ======== ======== ========
LIABILITIES & SHAREHOLDERS' EQUITY
Current Liabilities
Short Term Debt $ 125 $ 3,037 $ 3,037 $ 3,037 $ 3,037 $ 3,037 $ 3,037
Accounts Payable 17,144 17,905 18,956 20,048 21,206 22,436 23,741
Accrued Liabilities 8,067 8,563 9,065 9,587 10,141 10,729 11,354
Current Portion of LT Debt 2,305 2,545 2,545 2,545 2,545 2,545 2,545
Other Current Liabilities 732 3,843 4,069 4,303 4,552 4,816 5,096
-------- -------- -------- -------- -------- -------- --------
Total Current Liabilities 28,372 35,893 37,672 39,520 41,481 43,562 45,772
Long Term Debt 12,884 6,159 6,159 6,159 6,159 6,159 6,159
Other Liabilities 90 102 108 115 121 128 136
Deferred Income Taxes Payable 278 -- -- -- -- -- --
Revolver -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Total Liabilities 41,624 42,155 43,940 45,794 47,761 49,850 52,067
Total Shareholders' Equity 58,835 65,216 67,920 71,623 76,158 81,757 88,265
-------- -------- -------- -------- -------- -------- --------
Total Liabilities & Shareholder's Equity $100,458 $107,370 $111,860 $117,417 $123,919 $131,606 $140,332
======== ======== ======== ======== ======== ======== ========
CALCULATIONS
- ----------------------------------------------------------------------------------------------------------------------------
Net Working Capital 29,702 29,254 30,972 32,755 34,647 36,656 38,789
Capital Expenditures 6,246 8,500 9,000 9,500 10,000
- ----------------------------------------------------------------------------------------------------------------------------
31
PROJECT TREADCO
TREADCO-Statement of Cash Flow
================================================================================
(Dollars in Thousands, Except Per Share)
FYE Dec. 31, Projected FY Ended December 31,
----------- --------------------------------------------------------
1998 1999 2000 2001 2002 2003
-------- -------- -------- -------- -------- --------
Net Income (Loss) $ 978 $ 2,704 $ 3,703 $ 4,534 $ 5,599 $ 6,508
Depreciation & Amortization 6,184 7,092 6,935 6,809 6,349 6,009
Change in Current Assets (3,921) (3,496) (3,631) (3,853) (4,090) (4,342)
Change in Accounts Payable 761 1,051 1,092 1,158 1,229 1,305
Change in Accrued Liabilities 496 503 522 554 588 624
Change in Other Current Liabilities 3,112 226 234 249 264 280
Change Other Assets (497) -- -- -- -- --
Change Other Liabilities 13 6 6 7 7 7
Change in Deferred Income Taxes Receivable (146) (9) (9) (9) (10) (11)
Change in Deferred Income Taxes Payable (278) -- -- -- -- --
-------- -------- -------- -------- -------- --------
Total Operating Changes 6,702 8,077 8,852 9,448 9,936 10,382
Capital Expenditures (7,517) (6,246) (8,500) (9,000) (9,500) (10,000)
Fixed Asset Adjustment (1,189) -- -- -- -- 0
Net Change in Noncompete Assets 174 -- -- -- -- --
-------- -------- -------- -------- -------- --------
Total Investing Changes (1,831) 1,830 352 448 436 382
Net Change in Short Term Debt 2,912 -- -- -- -- --
Net Change in Current Portion of LT Debt 240 -- -- -- -- --
Net Change in Long Term Debt (6,724) -- -- -- -- --
Net change in Revolver (a) -- -- -- -- -- --
Net Change in Shareholder's Equity 5,404 -- (0) -- -- --
-------- -------- -------- -------- -------- --------
Total Financing Changes -- 1,830 352 448 436 382
Beginning Cash Balance -- -- 1,830 2,183 2,631 3,067
-------- -------- -------- -------- -------- --------
Ending Cash Balance $ -- $ 1,830 $ 2,183 $ 2,631 $ 3,067 $ 3,449
======== ======== ======== ======== ======== ========
(a) Revolver assumes a minimum cash balance of $0 Million.
32
PROJECT TREADCO
TREADCO Revised Projections-Historical and Projected Income Statement Detail
- -----------------------------------------------------------------------------
(Dollars in Thousands, Except Per Share)
FYE Dec. 31, Projected FY Ended December 31,
-------------------------- --------------------------------------------------------------------
1997 1998(a) 1999 2000 2001 2002 2003
---------- ---------- ---------- ---------- ---------- ---------- ----------
SALES
Recaps-Treadco Castings $ 26,309 $ 28,360 $ 30,710 $ 32,552 $ 34,505 $ 36,576 $ 38,770
Recaps-Customer 35,954 39,475 41,266 43,742 46,366 49,148 52,097
Used Tires 3,063 2,998 3,071 3,194 3,322 3,454 3,593
New Tires 77,815 87,820 92,129 96,735 101,572 106,651 111,983
Service 12,214 15,063 16,890 18,579 20,437 22,481 24,729
Accessories 2,352 3,405 3,455 3,593 3,737 3,886 4,042
Wheel Refurbishing 376 433 384 399 415 432 449
National Sales 3,194 3,740 4,031 4,192 4,360 4,534 4,715
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total Sales 161,276 181,293 191,935 202,987 214,714 227,162 240,378
COST OF SALES
Recaps 46,270 48,415 52,038 54,932 58,228 61,293 64,970
Recapping Efficiency 1,452 991 (1,224) (1,538) (1,686) (1,501) (1,472)
Used Tires 2,417 2,106 2,202 2,284 2,375 2,470 2,569
New Tires 68,065 75,869 80,152 84,160 88,368 92,786 97,425
New Tire Volume Bonus (3,877) (5,541) (5,067) (5,320) (5,586) (5,866) (6,159)
New Tire Shrinkage (417) 262 369 387 406 427 448
Service 9,833 12,078 13,174 14,120 15,124 16,411 17,805
Accessories 1,740 2,272 2,246 2,300 2,392 2,487 2,587
Wheel Refurbishing 212 260 231 240 249 259 269
National Account Costs -- -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
TOTAL COST OF SALES 125,695 136,713 144,121 151,563 159,868 168,766 178,442
GROSS PROFIT 35,581 44,580 47,814 51,424 54,846 58,396 61,936
SELLING GENERAL & ADMINISTRATIVE
General Office Charges 6,238 7,660 7,294 7,825 8,293 8,750 9,241
Advertising 63 78 68 61 64 68 72
Manager & Office Salaries 5,335 5,668 5,923 6,219 6,530 6,856 7,199
Salesman Salaries 5,909 7,288 7,732 8,691 9,269 9,869 10,467
Warehouse & Delivery Labor 1,807 2,260 2,207 2,295 2,387 2,482 2,581
Insurance 1,231 1,610 1,586 1,421 1,503 1,590 1,683
Health & Welfare 1,584 1,568 1,602 1,491 1,580 1,673 1,767
Legal 9 5 9 8 9 9 10
Collection Expense 44 47 52 51 54 57 60
Audit 97 95 74 51 54 57 60
Office Expense 562 672 768 812 859 909 962
Stationary 192 71 68 61 64 68 72
Payroll Taxes 1,052 1,271 1,282 1,193 1,264 1,338 1,413
Tax & License 1,051 1,079 1,173 1,218 1,288 1,363 1,442
Telephone 521 485 498 609 644 681 721
Travel & Entertainment 258 314 328 406 429 454 481
Truck Expense 3,048 3,158 3,097 3,248 3,435 3,635 3,846
Bad Debt 2,341 1,450 1,133 1,218 1,288 1,363 1,442
Interest -- -- -- -- -- -- --
Miscellaneous Income (425) (152) (138) (122) (129) (136) (144)
Miscellaneous Expense 264 316 384 406 429 454 481
---------- ---------- ---------- ---------- ---------- ---------- ----------
TOTAL SG&A 31,181 34,944 35,137 37,160 39,315 41,540 43,856
OPERATING CASH FLOW 4,400 9,637 12,677 14,264 15,530 16,856 18,081
Bonus 915 961 605 662 735 823 940
---------- ---------- ---------- ---------- ---------- ---------- ----------
EBITDA 3,485 9,850 12,072 13,602 14,796 16,034 17,141
Depreciation 5,576 6,184 6,630 6,473 6,347 5,887 5,547
---------- ---------- ---------- ---------- ---------- ---------- ----------
EBITA (2,092) 3,666 5,442 7,129 8,449 10,147 11,593
OTHER
Goodwill-Amortization 462 462 462 462 462 462 462
Interest Expense 1,256 1,125 947 920 893 867 842
Interest Income (44) (40) (33) (32) (31) (30) (29)
Miscellaneous 396 (9,082) -- -- -- -- --
(Gain) Loss on sale of
assets (284) (448) (296)(b) (194) (189) (183) (178)
---------- ---------- ---------- ---------- ---------- ---------- ----------
TOTAL OTHER 1,786 (7,982) 1,080 1,155 1,135 1,116 1,097
INCOME BEFORE TAXES (3,878) 1,392 4,361 5,973 7,313 9,031 10,497
Provision for Income Taxes (1,897) 958 1,657 2,270 2,779 3,432 3,989
Deferred Taxes 524 (544) -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
NET INCOME (LOSS) $ (2,504) $ 978 $ 2,704 $ 3,703 $ 4,534 $ 5,599 $6,508
========== ========== ========== ========== ========== ========== ==========
Earnings Per Share (0.49) 0.19 0.53 0.73 0.89 1.10 1.28
Weighed Average Common Shares
(In Thousands) 5,072.255 5,072.255 5,072.255 5,072.255 5,072.255 5,072.255 5,072.255
General Office Charges
Salary $ 2,071 $ 2,195 $ 2,327 $ 2,467 $ 2,615
Payroll Taxes 170 176 186 197 209
Insurance 150 304 322 341 361
Health & Welfare 248 220 233 247 261
Office Expenses 769 812 859 909 962
Travel 498 507 537 568 601
Telephone 91 81 86 91 96
Contribution -- -- -- -- --
Directors Fee 103 103 108 108 108
Directors Expenses 24 25 25 26 27
Service Fee 1,291 1,291 1,330 1,330 1,330
Programming & Processing 1,491 1,640 1,804 1,984 2,183
Depreciation 129 132 134 137 140
Legal 180 180 180 180 180
Fees 156 159 162 166 169
---------- ---------- ---------- ---------- ----------
Total $ 7,371 $ 7,825 $ 8,293 $ 8,750 $ 9,241
Growth Rates
- ------------------------------------------------------------------------------------------------------------------------------------
Sales 12.4% 5.9% 5.8% 5.8% 5.8% 5.8%
EBITDA 182.7% 22.6% 12.7% 8.8% 8.4% 6.9%
EBITA NM 48.3% 31.0% 18.5% 20.1% 14.3%
Net Income NM 176.6% 37.0% 22.4% 22.3% 16.2%
- ------------------------------------------------------------------------------------------------------------------------------------
(a) Excludes impact of the settlement of the Bandag Lawsuit.
(b) Excludes one-time extraordinary gain from sale of Springdale property.
33
PROJECT TREADCO
TREADCO Revised Projections - Historical and Projected Income Statement Detail
================================================================================
Conservative Assumptions
Projected FY Ended December 31,
------------------------------------
1999 2000 2001 2002 2003
------ ------ ------ ------ ------
SALES
Recaps- Treadco Casings 8.3% 6.0% 6.0% 6.0% 6.0% Annual Revenue Growth
Recaps - Customer 4.5% 6.0% 6.0% 6.0% 6.0% Annual Revenue Growth
Used Tires 2.4% 4.0% 4.0% 4.0% 4.0% Annual Revenue Growth
New Tires 4.9% 5.0% 5.0% 5.0% 5.0% Annual Revenue Growth
Service 12.1% 10.0% 10.0% 10.0% 10.0% Annual Revenue Growth
Accessories 1.5% 4.0% 4.0% 4.0% 4.0% Annual Revenue Growth
Wheel Refurbishing (11.3)% 4.0% 4.0% 4.0% 4.0% Annual Revenue Growth
National Sales 7.8% 4.0% 4.0% 4.0% 4.0% Annual Revenue Growth
COST OF SALES
Recaps 72.3% 72.0% 72.0% 71.5% 71.5% % of Recaps Sales
Recapping Efficiency 3.2% 2.4% 2.0% 1.6% 1.2% % of Recaps Sales Minus Depreciation
Used Tires 71.7% 71.5% 71.5% 71.5% 71.5% % of Used Tires Sales
New Tires 87.0% 87.0% 87.0% 87.0% 87.0% % of New Tire Sales
New Tire Volume Bonus (5.5)% (5.5)% (5.5)% (5.5)% (5.5)% % of New Tire Sales
New Tire Shrinkage 0.4% 0.4% 0.4% 0.4% 0.4% % of New Tire Sales
Service 78.0% 76.0% 74.0% 73.0% 72.0% % of Service
Accessories 65.0% 64.0% 64.0% 64.0% 64.0% % of Accessories
Wheel Refurbishing 60.1% 60.0% 60.0% 60.0% 60.0% % of Wheel Refurbishing
National Account Costs 0.0% 0.0% 0.0% 0.0% 0.0% Added Back to Sales
SELLING GENERAL & ADMINISTRATIVE
General Office Charges 3.8% 3.9% 3.9% 3.9% 3.8% Per Schedule Below (% of Total Sales)
Advertising 0.0% 0.0% 0.0% 0.0% 0.0% As a % of Total Sales
Manager & Office Salaries 4.5% 5.0% 5.0% 5.0% 5.0% Grows 5% per year
Salesmen Salaries 16.2% 16.9% 16.9% 16.9% 16.9% As a % of Gross Profit
Warehouse & Delivery Labor (2.4)% 4.0% 4.0% 4.0% 4.0% Grows 4% per year
Insurance 0.8% 0.7% 0.7% 0.7% 0.7% As a % of Total Sales
Health & Welfare 11.7% 10.0% 10.0% 10.0% 10.0% As a % of Payroll
Legal 0.0% 0.0% 0.0% 0.0% 0.0% As a % of Total Sales
Collection Expense 0.0% 0.0% 0.0% 0.0% 0.0% As a % of Total Sales
Audit 0.0% 0.0% 0.0% 0.0% 0.0% As a % of Total Sales
Office Expense 0.4% 0.4% 0.4% 0.4% 0.4% As a % of Total Sales
Stationery 0.0% 0.0% 0.0% 0.0% 0.0% As a % of Total Sales
Payroll Taxes 9.4% 8.0% 8.0% 8.0% 8.0% As a % of Payroll
Tax & Licenses 0.6% 0.6% 0.6% 0.6% 0.6% As a % of Total Sales
Telephone 0.3% 0.3% 0.3% 0.3% 0.3% As a % of Total Sales
Travel & Entertainment 0.2% 0.2% 0.2% 0.2% 0.2% As a % of Total Sales
Truck Expenses 1.6% 1.6% 1.6% 1.6% 1.6% As a % of Total Sales
Bad Debt 0.6% 0.6% 0.6% 0.6% 0.6% As a % of Total Sales
Interest 0.0% 0.0% 0.0% 0.0% 0.0% As a % of Total Sales
Miscellaneous Income (0.1)% (0.1)% (0.1)% (0.1)% (0.1)% As a % of Total Sales
Miscellaneous Expense 0.2% 0.2% 0.2% 0.2% 0.2% As a % of Total Sales
Bonus 10.0% 8.5% 8.0% 7.5% 7.5% Aa a % of operating income
Depreciation 1.6% 1.5% 1.4% 1.3% 1.2% As a % of Total Sales
OTHER
Interest Expense 0.5% 0.5% 0.4% 0.4% 0.4% As a % of Total Sales
Interest Income 0.0% 0.0% 0.0% 0.0% 0.0% As a % of Total Sales
Miscellaneous 0.0% 0.0% 0.0% 0.0% 0.0% As a % of Total Sales
(Gain) Loss on sale of assets (0.2)% (0.1)% (0.1)% (0.1)% (0.1)% As a % of Total Sales
Provision for Income Taxes 38.0% 38.0% 38.0% 38.0% 38.0% % of Pretax Income
Deferred Taxes 0.0% 0.0% 0.0% 0.0% 0.0%
General Office Charges
Salary 6.0% 6.0% 6.0% 6.0% % Increase
Payroll Taxes 8.0% 8.0% 8.0% 8.0% As a % of Payroll
Insurance 0.2% 0.2% 0.2% 0.2% As a % of Sales
Health & Welfare 10.0% 10.0% 10.0% 10.0% As a % of Payroll
Office Expense 0.4% 0.4% 0.4% 0.4% As a % of Sales
Travel 0.3% 0.3% 0.3% 0.3% As a % of Sales
Telephone 0.0% 0.0% 0.0% 0.0% As a % of Sales
Contribution 0.0% 0.0% 0.0% 0.0% As a % of Sales
Directors Fee 0.0% 5.0% 0.0% 0.0% % Increase
Directors Expenses 3.0% 3.0% 3.0% 3.0% % Increase
Service Fee 0.0% 3.0% 0.0% 0.0% % Increase
Programming & Processing 10.0% 10.0% 10.0% 10.0% % Increase
Depreciation 2.0% 2.0% 2.0% 2.0% % Increase
Legal 0.0% 0.0% 0.0% 0.0% % Increase
Fees 2.0% 2.0% 2.0% 2.0% % Increase
34
================================================================================
APPENDIX B
COMPARABLE PUBLICLY TRADED COMPANIES
================================================================================
35
PAGE 1 OF 2
TREADCO
COMPARISON OF SELECTED PUBLICLY-TRADED COMPARABLE COMPANIES
- --------------------------------------------------------------------------------
(Dollars in Millions, Except Per Share)
Ticker TBCC
Company Name TBC CORP TBC Corp distributes tires for the
automotive replacement market through
Latest Market Price as of 3/10/99 $ 5.69 wholesale and retail customers in the
52 Week High 4/1/98 10.25 U.S., Canada and Mexico; and franchises
52 Week Low 9/1/98 4.25 and/or operates 415 retail tire and TWO-YEAR HISTORICAL
automotive service stores located mainly STOCK PRICE PERFORMANCE
Shares Outstanding 21.2 in the Midwest and Western U.S.
Options Outstanding 1.1 [CHART]
Weighted Average Exercise Price $ 8.84 Market Capitalization/
LTM Net Income 7.1 x
Market Capitalization $ 120.4 I/B/E/S Projected Current EPS 6.3
Total Market Capitalization (a) 241.9 I/B/E/S Projected Next Fiscal EPS 5.7
LTM Common Equity 0.9
Latest Twelve Months Ended 12/98 LTM Cash Flow (b) 5.0
Latest Fiscal Year Ended 12/98
I P O Date 11/5/84 Total Market Capitalization (a)/
LTM EBITA (c) 7.0 x
I/B/E/S Projected Current EPS (c)(d) $ 0.91 LTM EBITDA (f) 5.9
I/B/E/S Projected Next Fiscal EPS (c)(d) $ 1.00 LTM Revenue 0.4
Gross Net Other Deprec. Net Interest
Revenue Profit Income EBITA (e) & Amort (g) EBITDA (f) Expense (h)
------- ------ --------- --------- ----------- ---------- ------------
LTM $ 646.1 $ 102.9 $ 1.5 $ 34.6 $ 7.2 $ 40.9 $ 5.9
LFY 646.1 102.9 1.5 34.6 7.2 40.9 5.9
LFY-1 642.9 98.7 3.3 37.8 7.7 45.1 5.8
LFY-2 604.6 76.0 2.8 29.5 6.3 35.8 4.1
LFY-3 (q) 547.8 59.1 2.3 27.9 4.6 32.5 3.1
LFY-4 (q) 563.7 63.6 2.9 29.9 4.1 34.0 1.4
4 Year Compound Growth 3.5 % 12.8 % (15.0) % 3.7 % 15.0 % 4.7 % 44.0 %
Net Cash Earnings
Income Flow (b) Per Share (c)
------ -------- -------------
LTM $ 16.9 $ 24.1 $ 0.75
LFY 16.9 24.1 0.75
LFY-1 19.7 27.4 0.84
LFY-2 15.5 21.8 0.65
LFY-3 (q) 15.2 19.9 0.62
LFY-4 (q) 19.5 23.6 0.71
4 Year Compound Growth (3.6) % 0.4 % 1.4 %
Total Net
Common Preferred Long-Term Short-Term Long-Term Total Working
Equity Equity Debt (l) Debt Capital (j) Capital (k) Capital (l)
------- --------- -------- ---------- ----------- ----------- -----------
LTM $ 138.4 $ -- $ 59.7 $ 63.5 $ 198.1 $ 261.6 $ 167.6
LTM - Previous Year (o) $ 134.2 $ -- $ 67.6 $ 26.4 $ 201.8 $ 228.3 $ 155.9
LFY 138.4 -- 59.7 63.5 198.1 261.6 167.6
LFY-1 134.2 -- 67.6 26.4 201.8 228.3 155.9
LFY-2 (q) 119.8 -- 69.6 23.2 189.4 212.5 141.2
LFY-3 (q) 104.8 -- 0.6 50.9 105.4 156.3 127.5
LFY-4 (q) 114.0 -- -- 25.8 114.0 139.8 117.1
LFY-5 (o,q) 116.6 -- -- 26.1 116.6 142.6 121.2
4 Year Compound Growth (p) 5.0 % N/A % N/A % 25.3 % 14.8 % 17.0 % 9.4 %
Cash and
Cash Net Total
Equiv. (m) P, P & E Assets (m)
---------- -------- ----------
LTM $ 1.7 $ 44.1 $ 332.1
LTM - Previous Year (o) $ 0.9 $ 36.3 $ 264.0
LFY 1.7 44.1 332.1
LFY-1 0.9 36.3 264.0
LFY-2 (q) -- 35.1 253.9
LFY-3 (q) -- 19.1 180.0
LFY-4 (q) -- 14.6 169.7
LFY-5 (o,q) -- 15.4 166.7
4 Year Compound Growth (p) N/A % 31.8 % 18.3 %
- -------------------------
(a) Market capitalization plus total debt and preferred stock less cash and
cash equivalents
(b) For comparative purposes, defined as net income plus depreciation and
amortization.
(c) Primary EPS.
(d) Source: Institutional Brokers Estimate Survey mean estimate.
(e) Earnings before interest, taxes, and amortization of selected intangibles.
Selected intangible assets consist of goodwill, trademarks and non-compete
agreements.
(f) For comparative purposes, defined as earnings before interest and taxes
plus depreciation and amortization.
(g) Depreciation and amortization as shown on the cash flow statement.
(h) Defined as total interest expense less interest income.
Continued on Next page
36
Page 2 of 2
TREADCO
COMPARISON OF SELECTED PUBLICLY-TRADED COMPARABLE COMPANIES
================================================================================
Company Name: TBC CORP
As a Percentage of Revenue
----------------------------------------------------------
Gross Deprec. Cash Net
Profit EBITA(a) & Amort. EBITDA(b) Flow(c) Income
------ -------- -------- --------- ------- ------
LTM 15.9 % 5.4 % 1.1 % 6.3 % 3.7 % 2.6 %
LFY 15.9 5.4 1.1 6.3 3.7 2.6
LFY-1 15.4 5.9 1.2 7.0 4.3 3.1
LFY-2 12.6 4.9 1.0 5.9 3.6 2.6
LFY-3 10.8 5.1 0.8 5.9 3.6 2.8
LFY-4 11.3 5.3 0.7 6.0 4.2 3.5
5 Year Average 13.2 % 5.3 % 1.0 % 6.2 % 3.9 % 2.9 %
Returns on Average Percent of Long Term Capitalization(d)
------------------------------------------- --------------------------------------
Total EBITDA/ Total Debt/
Common Long-Term Total Net Common Preferred Long-Term Total
Equity Assets Capital(d) Capital(e) Interest Equity Equity Debt(f) Capitalization
------ ------ ---------- ---------- -------- ------ ------ ------- --------------
LTM 12.4 % 5.7 % 8.4 % 6.9 % 6.9 x 69.9 % -- % 30.1 % 47.1 %
LFY 12.4 5.7 8.4 6.9 6.9 69.9 -- 30.1 47.1
LFY-1 15.5 7.6 10.1 8.9 7.8 66.5 -- 33.5 41.2
LFY-2 13.8 7.1 10.5 8.4 8.7 63.3 -- 36.7 43.6
LFY-3 13.9 8.7 13.9 10.3 10.5 99.5 -- 0.5 32.9
LFY-4 17.0 11.6 17.0 13.8 24.6 100.0 -- -- 18.4
5 Year Average 14.5 % 8.2 % 12.0 % 9.7 % 11.7 x 79.8 % -- % 20.2 % 36.7 %
- ------------------------------------
(a) Earnings before interest, taxes, and amortization of selected intangibles.
Selected intangible assets consist of goodwill, trademarks and non-compete
agreements.
(b) For comparative purposes, defined as earnings before interest and taxes
plus depreciation and amortization
(c) For comparative purposes, defined as net income plus depreciation and
amortization.
(d) Does not include short-term debt.
(e) Includes short-term debt.
(f) Includes capitalized leases and redeemable preferred stock.
Continued From Previous Page
- ------------------------------------
(i) Includes capitalized leases and redeemable preferred stock.
(j) Does not include short-term debt.
(k) Includes short-term debt.
(l) Defined as total current assets less cash and cash equivalents minus
current liabilities less short-term debt.
(m) Includes short-term, marketable securities.
(n) Excludes cash and cash equivalents
(o) Used to calculate average return figures and LTM return figures.
(p) Growth calculated for same period, LFY-4 through LFY, as income statement
growth calculations.
(q) Numbers were restated with no subsequent financials to confirm Factset data
in designated historical years.
37
Page 1 of 2
TREADCO
COMPARISON OF SELECTED PUBLICLY-TRADED COMPARABLE COMPANIES
================================================================================
(Dollars in Millions, Except Per Share)
Ticker BDG
Company Name BANDAG,INC Bandaq, Inc. makes retreading materials
and equipment for its worldwide network of
Latest Market Price as of 3/10/99 $ 31.25 apx. 1,300 franchised dealerships that
52 Week High 4/3/98 59.75 produce and market retread tires and
52 Week Low 10/13/98 28.31 provide tire management services; and sells TWO-YEAR HISTORICAL
and services new and retread tires STOCK PRICE PERFORMANCE
Shares Outstanding 22.5
Options Outstanding 0.2 [CHART]
Weighted Average Exercise Price $ 23.13 Market Capitalization/
LTM Net Income 12.1 x
Market Capitalization $ 703.5 I/B/E/S Projected Current EPS 11.4
Total Market Capitalization (a) 644.1 I/B/E/S Projected Next Fiscal EPS 10.6
LTM Common Equity 1.5
Latest Twelve Months Ended 12/98 LTM Cash Flow (b) 7.4
Latest Fiscal Year Ended 12/98
I P O Date 11/5/84 Total Market Capitalization (a)/
LTM EBITA (e) 5.9 x
I/B/E/S Projected Current EPS (c)(d) $ 2.75 LTM EBITDA (f) 4.7
I/B/E/S Projected Next Fiscal EPS (c)(d) $ 2.95 LTM Revenue 0.6
Gross Net Other Deprec. Net Interest
Revenue Profit Income EBITA (e) & Amort (g) EBITDA (f) Expense (h)
------- ------ --------- --------- ----------- ---------- ------------
LTM $1,087.0 $ 419.2 $ 11.1 $ 110.0 $ 36.9 $ 137.3 $ 2.5
LFY 1,087.0 419.2 11.1 110.0 36.9 137.3 2.5
LFY-1 822.5 340.1 14.1 129.9 36.9 164.5 3.3
LFY-2 756.9 314.8 12.1 133.0 34.6 166.6 1.2
LFY-3 740.4 297.5 14.9 158.1 34.6 191.7 2.0
LFY-4 650.6 273.2 15.1 152.0 35.3 187.3 2.1
4 Year Compound Growth 13.7 % 11.3 % (7.4) % (7.8) % 1.1 % (7.5) % 4.1 %
Net Cash Earnings
Income Flow (b) Per Share (c)
------ -------- -------------
LTM $ 58.0 $ 94.9 $ 2.58
LFY 58.0 94.9 2.58
LFY-1 74.8 (q) 111.7 3.27 (q)
LFY-2 81.6 116.2 3.44
LFY-3 97.0 131.6 3.82
LFY-4 94.0 129.3 3.51
4 Year Compound Growth (11.4) % (7.5) % (7.4) %
Total Net
Common Preferred Long-Term Short-Term Long-Term Total Working
Equity Equity Debt (i) Debt Capital (j) Capital (k) Capital (l)
------- --------- -------- ---------- ----------- ----------- -----------
LTM (r) $ 457.0 $ -- $ -- $ 5.8 $ 457.0 $ 462.8 $ 222.5
LTM - Previous Year (o) 463.4 -- 123.2 $ 99.7 $ 586.6 $ 686.3 $ 194.2
LFY (r) 457.0 -- -- 5.8 457.0 462.8 222.5
LFY-1 463.4 -- 123.2 99.7 586.6 686.3 194.2
LFY-2 410.9 -- 10.1 2.0 421.0 423.0 91.9
LFY-3 400.0 -- 11.9 3.0 411.8 414.9 113.0
LFY-4 434.0 -- 12.3 8.3 446.3 454.6 92.4
LFY-5 413.1 -- 11.0 12.2 424.1 436.3 73.3
4 Year Compound Growth (p) 1.3 % N/A % (100.0) % (8.5) % 0.6 % 0.4 % 24.6 %
Cash and
Cash Net Total
Equiv. (m) P, P & E Assets (n)
---------- -------- ----------
LTM (r) $ 65.2 $ 201.2 $ 693.0
LTM - Previous Year (o) $ 198.0 $ 197.6 $ 701.9
LFY (r) 65.2 201.2 693.0
LFY-1 198.0 197.6 701.9
LFY-2 112.6 145.1 475.8
LFY-3 96.5 144.9 457.7
LFY-4 147.4 151.8 434.7
LFY-5 152.5 146.6 398.2
4 Year Compound Growth (p) (18.5) % 7.3 % 12.4 %
- -------------------------
(a) Market capitalization plus total debt and preferred stock less cash and
cash equivalents.
(b) For comparative purposes, defined as net income plus depreciation and
amortization.
(c) Primary EPS.
(d) Source: Institutional Brokers Estimate Survey mean estimate.
(e) Earnings before interest, taxes, and amortization of selected intangibles.
Selected intangible assets consist of goodwill, trademarks and non-compete
agreements.
(f) For comparative purposes, defined as earnings before interest and taxes
plus depreciation and amortization.
(g) Depreciation and amortization as shown on the cash flow statement.
(h) Defined as total interest expense less interest income.
Continued on Next page
38
Page 2 of 2
TREADCO
COMPARISON OF SELECTED PUBLICLY-TRADED COMPARABLE COMPANIES
================================================================================
Company Name: BANDAG INC
As a Percentage of Revenue
----------------------------------------------------------
Gross Deprec. Cash Net
Profit EBITA(a) & Amort. EBITDA(b) Flow(c) Income
------ -------- -------- --------- ------- ------
LTM 38.6 % 10.1 % 3.4 % 12.6 % 8.7 % 5.3 %
LFY 38.6 10.1 3.4 12.6 8.7 5.3
LFY-1 41.4 15.8 4.5 20.0 13.6 9.1
LFY-2 41.6 17.6 4.6 22.0 15.4 10.8
LFY-3 40.2 21.4 4.7 25.9 17.8 13.1
LFY-4 42.0 23.4 5.4 28.8 19.9 14.4
5 Year Average 40.7 % 17.6 % 4.5 % 21.9 % 15.1 % 10.6 %
Return on Average Percent of Long-Term Capitalization(d)
------------------------------------------- --------------------------------------
Total EBITDA/ Total Debt/
Common Long-Term Total Net Common Preferred Long-Term Total
Equity Assets Capital(d) Capital(e) Interest Equity Equity Debt(f) Capitalization
------ ------ ---------- ---------- -------- ------ ------ ------- --------------
LTM 12.6 % 8.3 % 11.1 % 10.1 % 54.9 x 100.0 % -- % -- % 1.3 %
LFY 12.6 8.3 11.1 10.1 54.9 100.0 -- -- 1.3
LFY-1 17.1 12.7 14.9 13.5 49.3 79.0 -- 21.0 32.5
LFY-2 20.1 17.5 19.6 19.5 134.8 97.6 -- 2.4 2.9
LFY-3 23.3 21.7 22.6 22.3 97.8 97.1 -- 2.9 3.6
LFY-4 22.2 22.6 21.6 21.1 88.1 97.3 -- 2.7 4.5
5 Year Average 19.1 % 16.6 % 18.0 % 17.3 % 85.0 x 94.2 % -- % 5.8 % 8.9 %
- ------------------------------------
(a) Earnings before interest, taxes, and amortization of selected intangibles.
Selected intangible assets consist of goodwill, trademarks and non-compete
agreements.
(b) For comparative purposes, defined as earnings before interest and taxes
plus depreciation and amortization
(c) For comparative purposes, defined as net income plus depreciation and
amortization.
(d) Does not include short-term debt.
(e) Includes short-term debt.
(f) Includes capitalized leases and redeemable preferred stock.
Continued From Previous Page
- ------------------------------------
(i) Includes capitalized leases and redeemable preferred stock.
(j) Does not include short-term debt.
(k) Includes short-term debt.
(l) Defined as total current assets less cash and cash equivalents minus
current liabilities less short-term debt.
(m) Includes short-term, marketable securities.
(n) Excludes cash and cash equivalents
(o) Used to calculate average return figures and LTM return figures.
(p) Growth calculated for same period, LFY-4 through LFY, as income statement
growth calculations.
(q) Excludes gain on sale of marketable securities of $95.1 million and a
non-recurring charge of $16.5 million tax effected at 40%.
(r) Third quarter data used since 12/31/98 balance sheet not available.
39
Page 1 of 2
TREADCO
COMPARISON OF SELECTED PUBLICLY-TRADED COMPARABLE COMPANIES
================================================================================
(Dollars in Millions, Except Per Share)
Ticker SPD
Company Name STANDARD PRODUCTS CO The Standard Products Co. makes rubber and
plastic engineering and high-volume production
Latest Market Price as of 3/10/99 $ 15.63 processes for automotive original equipment
52 Week High 4/21/98 35.88 manufacturers, and the appliance, construction
52 Week Low 10/21/98 14.25 and marine industries; and makes precure and TWO-YEAR HISTORICAL
old cure tread rubber for the truck tire STOCK PRICE PERFORMANCE
Shares Outstanding 16.1 retreading industry.
Options Outstanding 0.8 [CHART]
Weighted Average Exercise Price $ 27.44 Market Capitalization/
LTM Net Income 6.8 x
Market Capitalization $ 251.2 I/B/E/S Projected Current EPS 7.8
Total Market Capitalization (a) 454.9 I/B/E/S Projected Next Fiscal EPS 6.3
LTM Common Equity 0.9
Latest Twelve Months Ended 12/98 LTM Cash Flow (b) 2.8
Latest Fiscal Year Ended 6/98
I P O Date 11/5/84 Total Market Capitalization (a)/
LTM EBITA (e) 7.0 x
I/B/E/S Projected Current EPS (c)(d) $ 2.00 LTM EBITDA (f) 4.0
I/B/E/S Projected Next Fiscal EPS (c)(d) $ 2.48 LTM Revenue 0.4
Gross Net Other Deprec. Net Interest
Revenue Profit Income EBITA (e) & Amort (g) EBITDA (f) Expense (h)
------- ------ --------- --------- ----------- ---------- ------------
LTM $1,080.6 $ 152.2 $ (3.4) $ 64.6 $52.6 $114.7 $12.8
LFY 1,101.3 166.0 (7.0) 83.0 55.1 135.6 12.4
LFY-1 1,108.3 145.5 0.1 81.9 (r) 53.1 (r) 129.5 12.9
LFY-2 1,083.9 108.5 4.6 46.9 52.5 95.3 14.9
LFY-3 995.9 99.5 (0.2) 34.6 (s) 46.8 77.3 13.0
LFY-4 872.4 119.4 2.1 61.3 (s) 40.5 97.7 9.1
4 Year Compound Growth 6.0 % 8.6 % N/A % 7.9 % 8.0 % 8.5 % 8.0 %
Net Cash Earnings
Income Flow (b) Per Share (c)
------ -------- -------------
LTM $ 37.2 $ 89.8 $ 2.31
LFY 43.4 98.6 2.58
LFY-1 38.1 (q) 91.3 2.27
LFY-2 14.6 67.1 0.87
LFY-3 20.1 66.9 1.20
LFY-4 33.0 73.5 1.99
4 Year Compound Growth 7.1 % 7.6 % 6.7 %
Total Net
Common Preferred Long-Term Short-Term Long-Term Total Working
Equity Equity Debt (i) Debt Capital (j) Capital (k) Capital (l)
------- --------- -------- ---------- ----------- ----------- -----------
LTM $ 280.8 $ -- $ 142.9 $ 60.7 $ 423.8 $ 484.5 $ 79.9
LTM - Previous Year (o) $ 269.0 $ -- $ 121.7 $ 19.5 $ 390.8 $ 410.2 $ 60.7
LFY 300.2 -- 92.5 29.0 392.6 421.7 51.5
LFY-1 268.4 -- 121.8 20.9 390.2 411.1 60.5
LFY-2 258.8 -- 143.0 3.6 401.8 405.5 57.7
LFY-3 260.5 -- 190.5 6.8 451.0 457.8 104.2
LFY-4 242.7 -- 135.4 12.1 378.1 390.1 100.0
LFY-5 224.4 -- 115.6 13.7 340.0 353.7 87.5
4 Year Compound Growth (p) 5.5 % N/A % (9.1) % 24.5 % 0.9 % 2.0 % (15.3) %
Cash and
Cash Net Total
Equiv. (m) P, P & E Assets (n)
---------- -------- ----------
LTM $ -- $ 349.8 $ 723.4
LTM - Previous Year (o) $ 5.4 $ 303.9 $ 665.2
LFY 1.6 330.4 682.6
LFY-1 7.0 303.0 684.9
LFY-2 -- 298.5 684.7
LFY-3 19.5 269.4 682.3
LFY-4 -- 242.0 624.3
LFY-5 5.5 224.4 559.3
4 Year Compound Growth (p) N/A % 8.1 % 2.3 %
- -------------------------
(a) Market capitalization plus total debt and preferred stock less cash and
cash equivalents
(b) For comparative purposes, defined as net income plus depreciation and
amortization.
(c) Primary EPS.
(d) Source: Institutional Brokers Estimate Survey mean estimate.
(e) Earnings before interest, taxes, and amortization of selected intangibles.
Selected intangible assets consist of goodwill, trademarks and non-compete
agreements.
(f) For comparative purposes, defined as earnings before interest and taxes
plus depreciation and amortization.
(g) Depreciation and amortization as shown on the cash flow statement.
(h) Defined as total interest expense less interest income.
Continued on Next page
40
Page 2 of 2
TREADCO
COMPARISON OF SELECTED PUBLICLY-TRADED COMPARABLE COMPANIES
================================================================================
Company Name: STANDARD PRODUCTS CO
As a Percentage of Revenue
----------------------------------------------------------
Gross Deprec. Cash Net
Profit EBITA(a) & Amort. EBITDA(b) Flow(c) Income
------ -------- -------- --------- ------- ------
LTM 14.1 % 6.0 % 4.9 % 10.6 % 8.3 % 3.4 %
LFY 15.1 7.5 5.0 12.3 9.0 3.9
LFY-1 13.1 7.4 4.8 11.7 8.2 3.4
LFY-2 10.0 4.3 4.8 8.8 6.2 1.3
LFY-3 10.0 3.5 4.7 7.8 6.7 2.0
LFY-4 13.7 7.0 4.6 11.2 8.4 3.8
5 Year Average 12.4 % 6.0 % 4.8 % 10.4 % 7.7 % 2.9 %
Returns on Average Percent of Long Term Capitalization(d)
------------------------------------------- --------------------------------------
Total EBITDA/ Total Debt/
Common Long-Term Total Net Common Preferred Long-Term Total
Equity Assets Capital(d) Capital(e) Interest Equity Equity Debt(f) Capitalization
------ ------ ---------- ---------- -------- ------ ------ ------- --------------
LTM 13.5 % 5.4 % 9.1 % 8.3 % 9.0 x 66.3 % -- % 33.7 % 42.0 %
LFY 15.3 6.4 11.1 10.4 10.9 76.5 -- 23.5 28.8
LFY-1 14.5 5.6 9.6 9.3 10.0 68.8 -- 31.2 34.7
LFY-2 5.6 2.1 3.4 3.4 6.4 64.4 -- 35.6 36.2
LFY-3 8.0 3.1 4.8 4.7 5.9 57.8 -- 42.2 43.1
LFY-4 14.1 5.6 9.2 8.9 10.7 64.2 -- 35.8 37.8
5 Year Average 11.5 % 4.5 % 7.6 % 7.4 % 8.8 x 66.3 % -- % 33.7 % 36.1 %
- ------------------------------------
(a) Earnings before interest, taxes, and amortization of selected intangibles.
Selected intangible assets consist of goodwill, trademarks and non-compete
agreements.
(b) For comparative purposes, defined as earnings before interest and taxes
plus depreciation and amortization.
(c) For comparative purposes, defined as net income plus depreciation and
amortization.
(d) Does not include short-term debt.
(e) Includes short-term debt.
(f) Includes capitalized leases and redeemable preferred stock.
Continued From Previous Page
- ------------------------------------
(i) Includes capitalized leases and redeemable preferred stock.
(j) Does not include short-term debt.
(k) Includes short-term debt.
(l) Defined as total current assets less cash and cash equivalents minus
current liabilities less short-term debt.
(m) Includes short-term, marketable securities.
(n) Excludes cash and cash equivalents.
(o) Used to calculate average return figures and LTM return figures.
(p) Growth calculated for same period, LFY-4 through LFY, as income statement
growth calculations.
(q) Goodwill amortization was calculated from the differences in balance sheet
totals less any additional goodwill acquired that year.
(r) Excludes non-recurring charge of $17.7 million.
(s) Goodwill amortization totals were taken from 1996 due to inadequate
disclosure to determine the annual figures.
41
Page 1 of 2
TREADCO
COMPARISON OF SELECTED PUBLICLY-TRADED COMPARABLE COMPANIES
================================================================================
(Dollars in Millions, Except Per Share)
Ticker CTR
Company Name COOPER TIRE & RUBBER COOPER TIRE & RUBBER CO. makes and
sells automobile, truck and motorcycle
Latest Market Price as of 3/10/99 $ 20.13 tires, inner tubes, vibration control
52 Week High 3/20/98 25.31 systems, hose and hose assemblies, and
52 Week Low 10/13/98 15.44 automotive sealing for the transportation TWO-YEAR HISTORICAL
industry. STOCK PRICE PERFORMANCE
Shares Outstanding 77.7
Options Outstanding 0.8 [CHART]
Weighted Average Exercise Price $ 21.59 Market Capitalization/
LTM Net Income 12.3 x
Market Capitalization $1,562.8 I/B/E/S Projected Current EPS 11.3
Total Market Capitalization (a) 1,734.5 I/B/E/S Projected Next Fiscal EPS 10.9
LTM Common Equity 1.8
Latest Twelve Months Ended 12/98 LTM Cash Flow (b) 7.1
Latest Fiscal Year Ended 12/98
I P O Date 11/5/84 Total Market Capitalization (a)/
LTM EBITA (e) 8.1 x
I/B/E/S Projected Current EPS (c)(d) $ 1.78 LTM EBITDA (f) 5.6
I/B/E/S Projected Next Fiscal EPS (c)(d) $ 1.85 LTM Revenue 0.9
Gross Net Other Deprec. Net Interest
Revenue Profit Income EBITA (e) & Amort (g) EBITDA (f) Expense (h)
------- ------ --------- --------- ----------- ---------- ------------
LTM $ 1,876.1 $ 330.6 $ 3.6 $ 213.4 $ 94.5 $ 307.9 $ 15.2
LFY 1,876.1 330.6 3.6 213.4 94.5 307.9 15.2
LFY-1 1,813.0 314.6 3.9 212.9 94.5 307.4 15.7
LFY-2 1,619.3 252.8 0.8 173.7 76.8 250.6 1.7
LFY-3 1,493.6 250.7 3.8 180.8 63.3 244.1 0.7
LFY-4 1,403.2 277.3 2.3 210.8 55.6 266.4 2.7
4 Year Compound Growth 7.5 % 4.5 % 12.3 % 0.3 % 14.2 % 3.7 % 54.4 %
Net Cash Earnings
Income Flow (b) Per Share (c)
------ -------- -------------
LTM $ 127.0 $ 221.4 $ 1.64
LFY 127.0 221.4 1.64
LFY-1 124.9 219.3 1.55
LFY-2 107.9 184.7 1.30
LFY-3 112.8 176.1 1.35
LFY-4 128.5 184.1 1.54
4 Year Compound Growth (0.3) % 4.7 % 1.6 %
Total Net
Common Preferred Long-Term Short-Term Long-Term Total Working
Equity Equity Debt (i) Debt Capital (j) Capital (k) Capital (l)
------- --------- -------- ---------- ----------- ----------- -----------
LTM $ 867.9 $ -- $ 205.3 $ 8.4 $ 1,073.2 $ 1,081.6 $ 342.9
LTM - Previous Year (o) 833.6 -- 205.5 11.3 1,039.1 1,050.4 312.6
LFY 867.9 -- 205.3 8.4 1,073.2 1,081.6 342.9
LFY-1 833.6 -- 205.5 11.3 1,039.1 1,050.4 312.6
LFY-2 786.6 -- 69.5 37.1 856.1 893.2 273.8
LFY-3 748.8 -- 28.6 5.0 777.4 782.4 254.1
LFY-4 662.1 -- 33.6 5.1 695.7 700.8 204.9
LFY-5 (o) 550.2 -- 38.7 5.3 588.9 594.3 184.4
4 Year Compound Growth (p) 7.0 % N/A % 57.2 % 13.1 % 11.4 % 11.5 % 13.7 %
Cash and
Cash Net Total
Equiv. (m) P, P & E Assets (n)
---------- -------- ----------
LTM $ 42.0 $ 885.3 $ 1,499.3
LTM - Previous Year (o) 52.9 860.4 1,443.0
LFY 42.0 885.3 1,499.3
LFY-1 52.9 860.4 1,443.0
LFY-2 19.5 792.4 1,253.6
LFY-3 23.2 678.9 1,120.5
LFY-4 103.3 549.6 936.4
LFY-5 (o) 25.8 527.9 863.8
4 Year Compound Growth (p) (20.2) % 12.7 % 12.5 %
- -------------------------
(a) Market capitalization plus total debt and preferred stock less cash and
cash equivalents
(b) For comparative purposes, defined as net income plus depreciation and
amortization.
(c) Primary EPS.
(d) Source: Institutional Brokers Estimate Survey mean estimate.
(e) Earnings before interest, taxes, and amortization of selected intangibles.
Selected intangible assets consist of goodwill, trademarks and non-compete
agreements.
(f) For comparative purposes, defined as earnings before interest and taxes
plus depreciation and amortization.
(g) Depreciation and amortization as shown on the cash flow statement.
(h) Defined as total interest expense less interest income.
Continued on Next page
42
Page 2 of 2
TREADCO
COMPARISON OF SELECTED PUBLICLY-TRADED COMPARABLE COMPANIES
================================================================================
Company Name: COOPER TIRE & RUBBER
As a Percentage of Revenue
----------------------------------------------------------
Gross Deprec. Cash Net
Profit EBITA(a) & Amort. EBITDA(b) Flow(c) Income
------ -------- -------- --------- ------- ------
LTM 17.6 % 11.4 % 5.0 % 16.4 % 11.8 % 6.8 %
LFY 17.6 11.4 5.0 16.4 11.8 6.8
LFY-1 17.4 11.7 5.2 17.0 12.1 6.9
LFY-2 15.6 10.7 4.7 15.5 11.4 6.7
LFY-3 16.8 12.1 4.2 16.3 11.8 7.6
LFY-4 19.8 15.0 4.0 19.0 13.1 9.2
5 Year Average 17.4 % 12.2 % 4.6 % 16.8 % 12.0 % 7.4 %
Returns on Average Percent of Long Term Capitalization(d)
------------------------------------------- --------------------------------------
Total EBITDA/ Total Debt/
Common Long-Term Total Net Common Preferred Long-Term Total
Equity Assets Capital(d) Capital(e) Interest Equity Equity Debt(f) Capitalization
------ ------ ---------- ---------- -------- ------ ------ ------- --------------
LTM 14.9 % 8.6 % 12.0 % 11.9 % 20.2 x 80.9 % -- % 19.1 % 19.8 %
LFY 14.9 8.6 12.0 11.9 20.2 80.9 -- 19.1 19.8
LFY-1 15.4 9.3 13.2 12.8 19.6 80.2 -- 19.8 20.6
LFY-2 14.1 9.1 13.2 12.9 151.5 91.9 -- 8.1 11.9
LFY-3 16.0 11.0 15.3 15.2 350.2 96.3 -- 3.7 4.3
LFY-4 21.2 14.3 20.0 19.8 99.4 95.2 -- 4.8 5.5
5 Year Average 16.3 % 10.4 % 14.7 % 14.5 % 128.2 x 88.9 % -- % 11.1 % 12.4 %
- ------------------------------------
(a) Earnings before interest, taxes, and amortization of selected intangibles.
Selected intangible assets consist of goodwill, trademarks and non-compete
agreements.
(b) For comparative purposes, defined as earnings before interest and taxes
plus depreciation and amortization.
(c) For comparative purposes, defined as net income plus depreciation and
amortization.
(d) Does not include short-term debt.
(e) Includes short-term debt.
(f) Includes capitalized leases and redeemable preferred stock.
Continued From Previous Page
- ------------------------------------
(i) Includes capitalized leases and redeemable preferred stock.
(j) Does not include short-term debt.
(k) Includes short-term debt.
(l) Defined as total current assets less cash and cash equivalents minus
current liabilities less short-term debt.
(m) Includes short-term, marketable securities.
(n) Excludes cash and cash equivalents
(o) Used to calculate average return figures and LTM return figures.
(p) Growth calculated for same period, LFY-4 through LFY, as income statement
growth calculations.
43
Page 1 of 2
TREADCO
COMPARISON OF SELECTED PUBLICLY-TRADED COMPARABLE COMPANIES
================================================================================
(Dollars in Millions, Except Per Share)
Ticker GT
Company Name GOODYEAR TIRE AND RUBBER CO Goodyear Tire & Rubber Co develops,
makes and sells tires and related
Latest Market Price as of 3/10/99 $ 50.69 transportation products; participates
52 Week High 3/31/98 76.75 in various crude oil transportation
52 Week Low 2/26/99 45.44 and gathering activities, and makes TWO-YEAR HISTORICAL
various industrial rubber and chemical STOCK PRICE PERFORMANCE
Shares Outstanding 155.9 products.
Options Outstanding 8.2 [CHART]
Weighted Average Exercise Price $ 46.86 Market Capitalization/
LTM Net Income 10.1 x
Market Capitalization $7,933.2 I/B/E/S Projected Current EPS 11.7
Total Market Capitalization (a) 9,944.0 I/B/E/S Projected Next Fiscal EPS 10.2
LTM Common Equity 2.2
Latest Twelve Months Ended 9/98 LTM Cash Flow (b) 6.3
Latest Fiscal Year Ended 12/97
I P O Date 11/5/84 Total Market Capitalization (a)/
LTM EBITA (e) 8.1 x
I/B/E/S Projected Current EPS (c)(d) $ 4.35 LTM EBITDA (f) 5.8
I/B/E/S Projected Next Fiscal EPS (c)(d) $ 5.00 LTM Revenue 0.8
Gross Net Other Deprec. Net Interest
Revenue Profit Income EBITA (e) & Amort (g) EBITDA (f) Expense (h)
--------- -------- --------- --------- ----------- ---------- ------------
LTM $12,781.0 $3,055.4 $ 63.7 $1,229.6 (q) $ 477.5 $1,707.1 $ 133.3
LFY 13,155.1 3,109.2 (35.0) 1,184.7 (q) 469.3 1,654.0 119.5
LFY-1 13,112.8 3,086.1 (73.1) 1,122.9 (q) 460.8 1,583.7 128.6
LFY-2 13,165.9 3,072.3 (74.6) 1,060.8 434.9 1,495.7 135.0
LFY-3 12,288.2 3,016.8 (63.5) 995.1 410.3 1,405.4 129.4
LFY-4 11,643.4 2,930.4 (61.0) 947.3 392.9 1,340.2 162.4
4 Year Compound Growth 3.1 % 1.5 % (13.0) % 5.7 % 4.5 % 5.4 % (7.4) %
Net Cash Earnings
Income Flow (b) Per Share (c)
-------- -------- -------------
LTM $ 786.6 (q) $1,264.1 $ 5.05
LFY 717.8 (q) 1,187.1 3.58
LFY-1 624.9 (q) 1,085.7 0.66
LFY-2 611.0 1,045.9 4.02
LFY-3 567.0 977.3 3.75
LFY-4 488.7 881.6 3.33
4 Year Compound Growth 10.1 % 7.7 % 1.8 %
Total Net
Common Preferred Long-Term Short-Term Long-Term Total Working
Equity Equity Debt (i) Debt Capital (j) Capital (k) Capital (l)
--------- --------- --------- ---------- ----------- ----------- -----------
LTM $3,669.3 $ -- $1,279.6 $ 889.5 $ 4,948.9 $ 5,838.4 $ 2,242.5
LTM - Previous Year (o) 3,540.7 -- 927.4 529.8 4,468.1 4,997.9 $ 1,539.3
LFY 3,395.5 -- 844.5 506.7 4,240.0 4,746.7 1,161.0
LFY-1 3,279.1 -- 1,132.2 244.5 4,411.3 4,655.8 1,264.8
LFY-2 3,281.7 -- 1,320.0 226.7 4,601.7 4,828.4 1,063.7
LFY-3 2,803.2 -- 1,108.7 226.9 3,911.9 4,138.8 771.5
LFY-4 2,300.8 -- 1,065.9 354.1 3,366.7 3,720.8 865.3
LFY-5 (o) 1,930.3 -- 1,471.1 473.6 3,401.4 3,875.0 833.1
4 Year Compound Growth (p) 10.2 % N/A % (5.7) % 9.4 % 5.9 % 6.3 % 7.6 %
Cash and
Cash Net Total
Equiv. (m) P, P & E Assets (n)
---------- -------- ----------
LTM $ 158.3 $4,058.2 $10,520.9
LTM - Previous Year (o) 226.7 4,011.0 9,824.5
LFY 258.6 4,149.7 9,658.8
LFY-1 238.5 4,067.9 9,433.3
LFY-2 268.3 4,561.2 9,521.3
LFY-3 250.9 4,382.8 8,872.4
LFY-4 227.7 4,287.9 8,208.4
LFY-5 (o) 304.0 4,363.6 8,259.7
4 Year Compound Growth (p) 3.2 % (0.8) % 4.2 %
- -------------------------
(a) Market capitalization plus total debt and preferred stock less cash and
cash equivalents.
(b) For comparative purposes, defined as net income plus depreciation and
amortization.
(c) Primary EPS.
(d) Source: Institutional Brokers Estimate Survey mean estimate.
(e) Earnings before interest, taxes, and amortization of selected intangibles.
Selected intangible assets consist of goodwill, trademarks and non-compete
agreements.
(f) For comparative purposes, defined as earnings before interest and taxes
plus depreciation and amortization.
(g) Depreciation and amortization as shown on the cash flow statement.
(h) Defined as total interest expense less interest income.
Continued on Next page
44
Page 2 of 2
TREADCO
COMPARISON OF SELECTED PUBLICLY-TRADED COMPARABLE COMPANIES
================================================================================
Company Name: GOODYEAR TIRE & RUBBER CO
As a Percentage of Revenue
----------------------------------------------------------
Gross Deprec. Cash Net
Profit EBITA(a) & Amort. EBITDA(b) Flow(c) Income
------ -------- -------- --------- ------- ------
LTM 23.9 % 9.6 % 3.7 % 13.4 % 9.9 % 6.2 %
LFY 23.6 9.0 3.6 12.6 9.0 5.5
LFY-1 23.5 8.6 3.5 12.1 8.3 4.8
LFY-2 23.3 8.1 3.3 11.4 7.9 4.6
LFY-3 24.6 8.1 3.3 11.4 8.0 4.6
LFY-4 25.2 8.1 3.4 11.5 7.6 4.2
5 Year Average 24.0 % 8.4 % 3.4 % 11.8 % 8.2 % 4.7 %
Returns on Average Percent of Long Term Capitalization(d)
------------------------------------------- --------------------------------------
Total EBITDA/ Total Debt/
Common Long-Term Total Net Common Preferred Long-Term Total
Equity Assets Capital(d) Capital(e) Interest Equity Equity Debt(f) Capitalization
------ ------ ---------- ---------- -------- ------ ------ ------- --------------
LTM 21.8 % 7.7 % 16.7 % 14.5 % 12.8 x 74.1 % -- % 25.9 % 37.2 %
LFY 21.5 7.5 16.6 15.3 13.8 80.1 -- 19.9 28.5
LFY-1 19.0 6.6 13.9 13.2 12.3 74.3 -- 28.7 29.6
LFY-2 20.1 6.6 14.4 13.6 11.1 71.3 -- 28.7 32.0
LFY-3 22.2 6.6 15.6 14.4 10.9 71.7 -- 28.3 32.3
LFY-4 23.1 5.9 14.4 12.9 8.3 68.3 -- 31.7 38.2
5 Year Average 21.2 % 6.7 % 15.0 % 13.9 % 11.3 x 73.1 % -- % 26.9 % 32.1 %
- ------------------------------------
(a) Earnings before interest, taxes, and amortization of selected intangibles.
Selected intangible assets consist of goodwill, trademarks and non-compete
agreements.
(b) For comparative purposes, defined as earnings before interest and taxes
plus depreciation and amortization.
(c) For comparative purposes, defined as net income plus depreciation and
amortization.
(d) Does not include short-term debt.
(e) Includes short-term debt.
(f) Includes capitalized leases and redeemable preferred stock.
Continued From Previous Page
- ------------------------------------
(i) Includes capitalized leases and redeemable preferred stock.
(j) Does not include short-term debt.
(k) Includes short-term debt.
(l) Defined as total current assets less cash and cash equivalents minus
current liabilities less short-term debt.
(m) Includes short-term, marketable securities.
(n) Excludes cash and cash equivalents.
(o) Used to calculate average return figures and LTM return figures.
(p) Growth calculated for same period, LFY-4 through LFY, as income statement
growth calculations.
(q) Excludes one time charges of $265.2 million and $872.0 million in 1997 and
1996.
45
================================================================================
APPENDIX C
COMPARABLE ACQUISITIONS
================================================================================
46
Stephens Inc.
TREADCO
Analysis of Selected Comparable Acquisitions
Acquiror: Goodyear Tire & Rubber
Target: Brad Ragan, Inc. Announcement Date: 10/23/97
Target's Location: Charlotte, North Carolina Closing Date: 12/24/98
Date Stock Price Premium
Transaction Value(a): $ 81.6 ---- ----------- -------
Total Transaction Value: $121.3 Offer Price $37.25
1 Day Prior 30.00 24.2%
30 Days Prior 29.00 28.4%
TARGET SUMMARY
Brad Ragan, Inc. distributes new and retreaded off-the-road and trucktires
through a network of 53 commercial outlets in 19 states. The company
operates a chain of 116 retail stores in the southeast, featuring products
and services for auto and home use.
TRANSACTION SUMMARY
Goodyear acquired the remaining 556,924 shares of Brad Ragan, Inc. common
stock it previously did not own for a cash purchase price of $37.25 per
share. Shareholders of Brad Ragan, Inc. approved the sale per an agreement
and Plan of Share Exchange between the companies.
TRANSACTION MULTIPLES
Latest Twelve Months Ended September 30, 1998,
(Dollars in Millions) Transaction Value(a)
---------------------------------------------- --------------------------------- -------
Net Stockholders' Cash Net Stockholders' Cash
Income Equity Flow(c) Income Equity Flow(c)
------ ------------- ------- ------ ------------- -------
LTM $ 1.8 $49.4 $4.3 46.4 x 1.7 x 19.0 x
LFY 1.4 48.2 3.7
Total Transaction Value(b)
-------------------------------------- -------
Total Total
Revenues EBITA EBITDA Revenues EBITA EBITDA
-------- ------------- ------- -------- ------------- -------
LTM $267.7 $ 6.0 $8.6 0.5 x 20.1 x 14.1 x
LFY 259.6 5.3 7.5
- ---------------
(a) As discussed in a Bloomberg acquisition detail.
(b) Defined as transaction value plus net debt assumed of $39.7.
(c) Defined as net income plus depreciation and amortization.
47
Stephens Inc.
TREADCO
Analysis of Selected Comparable Acquisitions
Acquiror: TBC Corporation
Target: Big O Tires Announcement Date: 05/02/96
Target's Location: Englewood, Colorado Closing Date: 07/15/96
Date Stock Price Premium
Transaction Value(a): $56.0 ---- ----------- -------
Total Transaction Value(b): $69.8 Offer Price $16.47
1 Day Prior 15.31 7.6%
30 Days Prior 14.50 13.6%
TARGET SUMMARY
Big O Tires franchises Big O Tire retail stores and supplies them with
tires, wheels and related replacement automotive parts. The Company is
active in promoting certain programs and sales techniques to its
franchises.
TRANSACTION SUMMARY
Under the terms of the agreement, Big O stockholders received $16.47 in
cash for each share. Big O had 3.4 million shares outstanding, and the
total value of the transaction including assumptions of certain long-term
liabilities is approximately $56 million. TBC Corporation acquired all
outstanding shares of Big O Tires.
TRANSACTION MULTIPLES
Latest Twelve Months Ended March 31, 1996
(Dollars in Millions) Transaction Value(a)
---------------------------------------------- ---------------------------------- -------
Net Stockholders' Cash Net Stockholders' Cash
Income Equity Flow(c) Income Equity Flow(c)
------ ------------- ------- ------ ------------- -------
LTM $ 1.9 $38.3 $3.1 29.6 x 1.5 x 17.8 x
LFY 1.5 37.4 2.8
Transaction Value(b)
---------------------------------- -------
Total Total
Revenues EBITA EBITDA Revenues EBITA EBITDA
-------- ------------- ------- -------- ------------- -------
LTM $146.1 $ 7.6 $8.8 0.5 x 9.2 x 7.9 x
LFY 142.1 7.2 8.5
- ---------------
(a) As discussed in a Business Editors press release dated 07/10/96.
(b) Defined as transaction value plus net debt assumed of $13.8.
(c) Defined as net income plus depreciation and amortization.
48
Stephens Inc.
TREADCO
Analysis of Selected Comparable Acquisitions
Acquiror: Cooper Tire & Rubber
Target: Avon Tyres plc Announcement Date: 02/18/97
Target's Location: United Kingdom Closing Date: 03/01/97
Date Stock Price Premium
Transaction Value(a): $110.4 ---- ----------- -------
Total Transaction Value(b): $135.5 Offer Price
1 Day Prior N/A N/A
30 Days Prior N/A N/A
TARGET SUMMARY
Avon Tyres products include passenger, light and medium truck tires, high
performance and racing tires, motorcycle tires, industrial tires, tire
retreading and remoulding supplies.
TRANSACTION SUMMARY
Cooper, through a wholly-owned UK subsidiary, acquired the tire operations
of Avon Rubber plc of the United Kingdom. They bought the complete tire
business, which includes the land and plants in England, distribution
companies in France, Germany and Switzerland and the right to use the Avon
name for $110.4 million.
TRANSACTION MULTIPLES
Latest Twelve Months Ended September 28, 1996
(Dollars in Millions)(c) Transaction Value(a)
---------------------------------------------- --------------------------------- -------
Net Stockholders' Cash Net Stockholders' Cash
Income Equity Flow(d) Income Equity Flow(d)
------ ------------- ------- ------ ------------- -------
LTM $ 4.9 $70.9 $14.0 22.5 x 1.6 x 7.9 x
LFY 4.9 70.9 14.0
Transaction Value(b)
--------------------------------- -------
Total Total
Revenues EBITA EBITDA Revenues EBITA EBITDA
-------- ------------- ------- -------- ------------- -------
LTM $173.5 $12.9 $21.9 0.8 x 10.5 x 6.2 x
LFY 173.5 12.9 21.9
- ---------------
(a) As disclosed in a Business Editors press release dated 07/10/96.
(b) Defined as transaction value plus net debt assumed of $25.1.
(c) Exchange rate of 1.5655 Dollars per British Pound assumed as of 09/28/96.
(d) Defined as net income plus depreciation and amortization.