Pacific FPA Capital Fund, Inc. · 2016-02-14 · Sanders Farms Inc AGCO Corporation Arrow Electronics Inc. Federated Investors, Inc. Atwood Oceanics Inc 6.50% 02/01/20 Apollo Group,

FPA Capital Fund, Inc. FPPTX

February 2, 2016

Fourth Quarter 2015

Webcast Presentation

Presented by: Arik Ahitov, Partner

Dennis Bryan, CFA, Partner First

Pacific A

dvisors,

LLC

FPA Capital highlights

■ Absolute value – Seek genuine bargains among smaller companies and hold cash when opportunities are

scarce.

■ Benchmark agnostic – Go wherever the opportunities are.

■ Bottom-up – Select and value companies based on fundamentals. Buy market leading companies with a

history of profitability and pristine balance sheets.

■ Downside focused – Avoid low quality and high leverage. Buy only when there is a compelling risk/reward.

■ Research-based – We perform deep due diligence and we do that not only prior to purchase but throughout

the life of the investment.

■ Concentrated – Focus on best ideas - typically 20-40 holdings. Average holding period of 7+ years.

■ Shareholder aligned approach – Fund has been closed for 17 of past 31 years. Significant manager co-

investment.

1 First

Pacific A

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LLC

Performance Section I

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3

Performance (%) as of December 31, 2015

* Inception for FPA Management was July 11, 1984. A benchmark comparison is not available based on the Fund’s inception date therefore a comparison using August 1, 1984 is used. A redemption fee of 2% will be imposed on redemptions within 90 days. Expense Ratio as of most recent prospectus:0.83% Calculated using Morningstar Direct. The chart illustrates the performance of a hypothetical $10,000 investment made in the fund since inception. Figures include

reinvestment of capital gains and dividends, but do not reflect the effect of any applicable redemption fees, which would lower these figures. An investor cannot invest in

an index. This chart is not intended to imply any future performance of the fund.

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

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

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

$0

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

$700,000

Russell 2500 $300,284

FPA Capital$487,419

S&P 500$284,371

As of Date: 12/31/2015 QTD YTD 1 Year 3 Years 5 Years 10 Years 15 Years 20 Years Since

8/1//84*

FPA Capital -3.37 -17.16 -17.16 0.14 2.14 3.82 8.73 9.62 13.31 Russell 2500 3.28 -2.90 -2.90 12.46 10.32 7.56 8.08 9.53 11.42

First Pacifi

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Outlook

■ This is not the first time the strategy has underperformed to this extent. The two prior market cycles were followed by robust performance for the Strategy.

■ We do not see any reason why this time should be different:

■ We have ample liquidity

■ Our portfolio is defensively positioned

■ Most portfolio companies are doing well operationally

■ Our holdings are cheap and carry strong balance sheets

■ Our process remains the same as we deployed over the past three decades

■ Cash level is lowest since December 2003

■ Our stocks have already taken substantial hits:

■ Energy underperformed Russell 2500 by 30% in 2014 and by 20% in 2015

■ Education underperformed Russell 2500 by 13% in 2014 and by 19% in 2015

4

-20.00

-10.00

0.00

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20.00

30.00

40.00

FPA Capital minus Russell 2500

FPPTX - R2500

4

Source: Capital IQ, Mellon, and Morningstar Direct. Past performance is no guarantee of future results and current performance may be higher or lower than the

performance shown.

FPA Capital Outperforms

FPA Capital Underperforms

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Portfolio Section II

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Equity summary data – as of December 31, 2015

6 6

P/E (Price/Earnings) is the price of a stock divided by its earnings per share. P/BV (Price/Book Value is the market price of a stock divided by the book value per share. Past performance is no guarantee of future results and current performance may be higher or lower than the performance shown. The S&P 500 is presented for illustrative purposes and should not be considered the primary benchmark comparison to the Fund.

FPA Capital Russell 2500 S&P 500

Average P/E Ratio 15.9x 27.7x 20.5x

Average P/BV Ratio 1.4x 2.3x 2.8x

Median Market Cap (billions) $2.2 $1.0 $18.1

Weighted Average Market Cap (billions) $4.5 $4.1 $140.4

Weighted Average Market Cap (billions) without the Two Largest Companies

$2.9 N/A N/A

0.538Weighted Return on Average Equity (ROAE) 12.4% 10.7% 17.7%

Weighted Total Debt to Total Capital 28.4% 47.8% 53.8%

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Sector components – as of December 31, 2015

7 7

Portfolio composition will change due to ongoing management of the Fund. References to individual securities are for informational purposes only and should not be construed as recommendations by the Funds, Advisor or Distributor.

TECHNOLOGY 27.45% EDUCATION 10.66%

Arris Group 6.78% DeVry 5.12%InterDigital 5.01% Apollo Group 4.95%Western Digital 4.59% Houghton Mifflin Harcourt 0.59%Avnet 3.80%Arrow Electronics 3.32% RETAILING 4.73%

Veeco Instruments 2.21% Aaron's 2.70%Cubic 1.75% Undisclosed 1.06%

Foot Locker 0.98%

OIL FIELD SERVICES 13.24%

Helmerich & Payne 5.07% AGRICULTURE 3.58%

Rowan Companies 4.26% AGCO Corporation 3.40%Patterson-UTI Energy 3.91% Sanderson Farms 0.18%

OIL & GAS EXPLORATION & PRODUCTION 11.50% BASIC MATERIALS 1.09%

Noble Energy 4.79% Reliance Steel & Aluminum 1.09%Cimarex Energy 4.62%SM Energy 2.09%

BONDS 0.97%

INDUSTRIALS 7.80%

Dana Holdings 3.31% CASH 18.98%

Babcock & Wilcox 2.28%Oshkosh 2.21%

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Security changes in portfolio (net) – QTD

From September 30, 2015 to December 31, 2015

8 8

New Securities Added to Exisiting Securities Reduced Securities Eliminated Securities

Houghton Mifflin Harcourt Co Aarons, Inc. Arris Group BWX Technologies (formerly Babcock & Wilcox, Inc)

Sanders Farms Inc AGCO Corporation Arrow Electronics Inc. Federated Investors, Inc.Atwood Oceanics Inc 6.50%

02/01/20Apollo Group, Inc. Avnet, Inc.

Babcock & Wilcox, Enterprises Cimarex Energy Co.Undisclosed Foot Locker, Inc.

Dana Holdings Corporation Helmerich & Payne, Inc.DeVry Inc. Interdigital, Inc.

Noble Energy, Inc. Reliance Steel & AluminumPatterson - UTI Energy, Inc. Rowan Companies plc

SM Energy CompanyVeeco Instruments, Inc.

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Apollo Education Group (APOL)

FPA Analysis:

■ Largest for-profit education company in the U.S. with a small but growing global business

■ One of the cheapest stocks in our universe even assuming very draconian outcomes for their core business

■ Clean balance sheet with almost no debt and a net cash position of $7/shr

■ Relatively variable cost structure provides flexibility

■ Global business improving and nearing profitability

9

Apollo

Source: Yahoo.

The holding above does not represent all securities purchased or sold. Past performance is not indicative of future results.

APOL

SOTP

Analysis

Down-

Side

Up-

Side

Commentary

UoP $1 $13 DOWN: Enrollment shrinks to 65k, pricing cut 20%, margins fall to MSD, 6x multiple on OE. UP: Enrollment shrinks to 110k, pricing cut 5%, margin stabilizes at 15%, 9x multiple on OE.

Global $2 $17 DOWN: Despite growth & improvement in profitability, assume profitability stuck at 5% mgn, 8x multiple on OE UP: 15% top-line growth for 3yrs, 15% margins, 14x multiple on OE

Net Cash $7 $10 DOWN/UP: Existing net cash on B/S but different share counts

Buyback

+ Acq

-$1 -$4 DOWN: $1/shr for CPG acq UP: $2/shr for CPG acq and $4/shr of buybacks

Total

Value

$9 $36 DOWN: 10% below the current mkt px. UP: 395% above the current mkt px.

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FPA Analysis:

■ Leading data storage company competing in both Hard Drives (HDDs) and Solid State Drives (SSDs)

■ Consolidated industry with WDC controlling 44% market share and the top 3 players virtually 100%

■ Net cash balance sheet and a history of returning capital to shareholders via both buybacks and dividends

■ Transforming the business via its acquisition of SanDisk and its partnership with Unisplendour

Western Digital

Western Digital Corporation (WDC)

10

$5$15$25$35$45$55$65$75$85$95

$105$115

Source: Yahoo.

Proforma Downside Upside

Revenue $20,234 $19,222 $20,234EBITDA $5,062 $4,809 $5,262CapEx $1,110 $1,110 $1,012Tax expense $651 $740 $850OE 3,302 2,959 3,401 OE/shr $10.51 $12.07Multiple 8.0x 14.0xEV $23,676 $47,608Net debt $10,406 $9,700 $9,700Market cap $13,976 $37,908Wtd Avg Diluted 282 282 282

Value $50 $135

The holding above does not represent all securities purchased or sold. Past performance is not indicative of future results. First Pacifi

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Market Overview Section III

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Saudi Arabia oil production

12 First

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Global spare capacity is low

13

Source: Raymond James – January, 2016

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Global oil demand forecast

14

Source: IEA 01/19/16

93.6 93.9

95.4 95.1 94.7 95.1

96.4 96.5

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Oil supply response

15

E&P capex cuts: • 2015 E&P capex budgets were down 35-40% on average; further significant cuts expected in 2016 • The oil-directed land rig count has dropped by ~1,000 from a peak of >1,500 in Oct-2014

Onshore rig cuts:

Reduced well completions:

Source: Baker Hughes, Simmons & Co., KLR Group First Pacifi

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Estimated change in regional E&P spending 2015 (%)

16

Source: JP Morgan – 09/21/15

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17

Source: EIA 12/31/15; FPA Analysis

-2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

8,800

8,900

9,000

9,100

9,200

9,300

9,400

9,500

9,600

9,700

01/02/15 02/13/15 03/27/15 05/08/15 06/19/15 07/31/15 09/11/15 10/23/15 12/04/15

Blue: U.S. Crude Oil Production; Red: YoY Production Change (%); Green: YTD Change (%)

Total U.S. crude production

First Pacifi

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Global oil inventories will go lower

18

Source: Cornerstone Analytics – January 14, 2016 First Pacifi

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Portfolio energy company debt levels are in good shape

19

Note: PTEN also has debt but no quote is available as it is either bank debt or private placement .

Ticker Earliest maturity YTW (12/31/15)

RDC 9/1/2017 5.94%

NBL 3/1/2019 4.12%

SM 11/15/2021 12.83%

XEC 5/1/2022 6.55%

Source: Capital IQ, Jan-08-2016 First Pacifi

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Energy investments

FPA Analysis:

■ Rig fleet is young and high-spec with significant contracted revenue backlog

■ Newbuild program is funded and complete

■ Company is in a positive FCF position

■ Significant self-help opportunities; LTM EBITDA margins +950 bps in last year; more to come

■ Investment grade balance sheet and unsecured/undrawn revolver

FPA Analysis:

■ Deep inventory of some of the lowest cost assets in the entire industry

■ Best process for valuation creation we have found amongst all E&P companies

■ Very strong balance sheet; upgraded to investment grade in spite of the downturn

■ Unsecured/undrawn revolver

■ History of paying a dividend and raising it consistently is an outlier in the industry

20

Cimarex Energy

Source: Yahoo. Source: Yahoo.

The two holdings above do not represent all securities purchased or sold. Past performance is not indicative of future results.

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Rowan Companies

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Energy investments – cont’d

FPA Analysis:

■ Biggest and best run land drilling company in the U.S.

■ Superior organizational performance

■ Significant take or pay revenue backlog

■ Net cash balance sheet

■ ~5% dividend yield is sustainable

FPA Analysis: ■ Seven major areas of operation; assets are Tier 1 and have

solid growth potential ■ More capable than most E&Ps of avoiding significant

production declines in a low oil price environment ■ Significant upside potential from Israeli gas projects not

priced into the stock ■ Legacy NBL shareholders likely do not appreciate how

material the assets acquired from Rosetta Resources can become

■ Investment grade balance sheet and unsecured/undrawn revolver

21

Noble Energy



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Helmerich & Payne

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Q & A

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Disclosure

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These slides are intended as supplemental material to the 4th Quarter FPA Capital audio presentation that is posted on our website fpafunds.com. We do want to make sure you understand that the views expressed on these slides and in the accompanying audio presentation are as of today, February 2 2016, and are subject to change based on market and other conditions. These views may differ from other portfolio managers and analysts of the firm as a whole, and are not intended to be a forecast of future events, a guarantee of future results or investment advice. Any mention of individual securities or sectors should not be construed as a recommendation to purchase or sell such securities, and any information provided is not a suffic ient basis upon which to make an investment decision. The information provided does not constitute, and should not be construed as, an offer or solicitation with respect to any securities, products or services discussed. Past performance is no guarantee of future results and current performance may be higher or lower than the performance shown. This data

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

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

4372.

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

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

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

982-4372 or by contacting the Fund in writing.

Statistics have been obtained from sources believed to be reliable, but the accuracy and completeness cannot be guaranteed and is not a complete summary or statement of all available data. The Russell 2500 Index consist of the 2,500 smallest companies in the Russell 3000 total capitalization universe offers investors access to the small to mid-cap segment of the U.S. equity universe, commonly referred to as "smid" cap. Past results are not necessarily indicative of future results. Investments in mutual funds carry risks and investors may lose principal value. Stock markets are volatile and can decline significantly in response to adverse issuer, political, regulatory, market, or economic developments. The Fund may purchase foreign securities, including American Depository Receipts (ADRs) and other depository receipts, which are subject to interest rate, currency exchange rate, economic and political risks; this may be enhanced when investing in emerging markets. Small and mid cap stocks involve greater risks and they can fluctuate in price more than larger company stocks. Groups of stocks, such as value and growth, go in and out of favor which may cause certain funds to underperform other equity funds. The portfolio holdings as the most recent quarter end may be obtained at http://www.fpafunds.com.

The FPA Funds are distributed by UMB Distribution Services, LLC. 235 W Galena Avenue, Milwaukee, WI 53212. First

Pacific A

dvisors,

LLC

http://www.fpafunds.com/

Arris

24

Best 2 performers (QTD)

FPA Analysis:

■ Biggest and best run land drilling company in the U.S.

■ Superior organizational performance

■ Significant take or pay revenue backlog

■ Net cash balance sheet

■ ~5% dividend yield is sustainable

FPA Analysis:

■ “Gold standard” provider of communication systems to

cable operators allowing them to offer ever increasing bandwidth to customers

■ Has generated consistent positive free cash flow since 1995

■ Believe a major replacement cycle is around the corner for their products

■ Management has a solid track record of acquiring and integrating companies and recently closed on another large acquisition (Pace)

24



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FPA Capital Russell 2500 S&P 500

Best 332.92 238.64 251.12Worst -26.28 -26.59 -29.05Average 102.62 74.28 72.33

How do you look at performance internally?

Rolling 5-year period returns (Cumulative) 08-01-1984* to 12-31-2015

Attractive upside/downside performance

25

* Inception for FPA Management was July 11, 1984. Past performance is no guarantee of future results January 1985 – December 2015. Source: Morningstar Direct.

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

20.13%

-11.51%

33.18%

21.31%

-6.80%

37.17%

Up Calendar Years Down Calendar Years Year Following Down Market

Russell 2500 FPA Capital



First Pacifi

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Represents all new equity positions added to portfolio during last 3 years (December 31, 2012 – December 31, 2015) as of initial purchase. 1 P/E before extraordinary items (trailing) 2 0% if company was in net cash position 3 Split in Q3 2015 4 Sold in Q2 2015

5 Sold in Q3 2015

6 Sold in Q1 2015

*NM is not meaningful due to negative earnings

Market Cap

(MM) TEV

TEV/

EBITDA P/E1

P/BV P/S ROE

Net Debt/

Capital2

Aaron's $2,097 $1,984 5.5x 14.9x 1.7x 0.9x 12% 0%AGCO Corporation $5,086 $5,324 4.4x 8.7x 1.3x 0.5x 16% 4%

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

Undisclosed $1,608 $1,477 4.3x NM 1.3x 0.2x 3% 0%

Babcock & Wilcox Common3 $3,213 $3,277 5.7x 11.2x 2.9x 1.1x 26% 6%

Centene4 $2,356 $2,051 22.4x NM 2.5x 0.3x 8% 0%

Cubic $1,230 $1,237 12.7x 21.0x 1.6x 0.9x 1% 1%

Dana Holdings $3,475 $3,916 5.4x 13.7x 2.9x 0.5x 20% 11%

Helmerich & Payne $2,650 $2,925 12.2x NM 1.8x 2.0x -7% 12%

Houghton Mifflin Harcourt $6,604 $6,323 4.1x 9.4x 1.3x 1.8x 16% 0%

Magellan5 $1,661 $1,552 7.3x 22.1x 1.5x 0.4x 6% 0%

Patterson-UTI Energy $2,008 $2,804 3.1x 31.8x 0.7x 0.7x 2% 21%

Sanderson Farms $1,457 $1,286 5.7x 5.3x 1.4x 0.5x 31% 0%

TWI6 $859 $1,176 6.5x 18.9x 1.2x 0.4x 9% 20%Average $2,507 $2,515 7.2x 14.8x 1.7x 0.8x 12% 5%Median $2,097 $1,984 5.7x 13.7x 1.6x 0.6x 9% 0%

Recent additions (past three years: 12/31/12 – 12/31/15)

26 First

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Is this the first time the strategy underperformed to this extent?

27

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FPA Capital Russell 2500 TR USD

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3/9/2000 – 10/9/2004 Cumulative Return

FPA Capital 94.06% Russell 2500 13.61%

3/9/1998 - 3/9/2000 Cumulative Return


Market peak in 2000 was March 9, 2000 and trough was October 9, 2002 for the Russell 2500. Performance shown in A reflects 2 years leading up to the market peak. Performance in B reflects 2 years following the trough.

Past performance is no guarantee of future results.



First Pacifi

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Market peak in 2007 was July 14, 2007 and trough was March 9, 2009 for the Russell 2500. Performance shown in A reflects 2 years leading up to the market peak. Performance in B reflects 2 years following the trough.

Is this the first time the strategy underperformed to this extent?

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7/14/2007- 3/9/2011 Cumulative Return






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Past performance is no guarantee of future results.

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Non-OPEC supply will be down in 2016

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Source: Cornerstone Analytics – January 14, 2016 First Pacifi

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Portfolio composition will change due to ongoing management of the Fund. References to individual securities are for informational purposes only and should not be construed as recommendations by the Funds, Advisor or Distributor.

Security changes in portfolio (net) - QTD

From September 30, 2015 to December 31, 2015

30 30

9/30/2015 12/31/2015 % Change

Technology 28.91% 27.45% -1.46%

Oil & Gas Exploration & Production 11.29% 11.50% 0.21%

Industrials 8.19% 7.80% -0.39%

Oil Field Services 10.68% 13.24% 2.56%

Education 9.06% 10.66% 1.60%

Retailing 5.29% 4.73% -0.56%

Agriculture 3.03% 3.58% 0.55%

Basic Materials 0.98% 1.09% 0.11%

Financial Services 0.86% 0.00% -0.86%

Bonds 0.00% 0.97% 0.97%

Cash 21.71% 18.98% -2.73%

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Portfolio companies: FPA’s Analysis

As of December 31, 2015

Aaron's AGCO Apollo Arris Arrow Atwood Bond AvnetBabcock &

WilcoxCubic

Market

leading

company

With its largest competitor, they control 2/3 of the market

Top 3 player in all major agriculture markets

Largest for-profit education company in the US

Clients and industry experts view them as the “gold standard”

Global Distributor with $23B sales of electronic products

Long-term track record of industry leading margins and utilization rates.

Global distributor with over $28B sales of electronic products

Market leader in power generation systems & equipment supplying 300 GW to 800+ utilities in 90+ countries

Market leading technology company in the transportation and defense markets

With a history

of profitability

The company has never lost money over past 20 years, grew its revenues through the recession, and has improved its margins steadily

Generated positive EBIT for over 20 consecutive years

Profitable for 20+ years. 25% 10-year average EBITDA margin

Positive free cash flow generation since 1995

Generated substantial profits over the last two decades

Profitable 19 of the last 20 years

Generated substantial operating profits over the past two decades

Profitable every year since its spinoff from McDermott International

Since at least 1990, the company has never lost money

Pristine

balance sheet

<1.0x net debt/EBITDA 1.6x net debt/EBITDA ~$7/share of net cash Solid capital allocation throughout history. Currently, high debt load due to large acquisition, but debt load coming down

2.4x net debt/EBITDA N/A 1.2x net debt/EBITDA Net cash balance sheet Only been in a net debt position four times in its history (last time was in 2005)

Good

management

teams

New CEO, previously CEO of Progressive Leasing a rapidly growing Aaron's subsidiary

CEO has been in place for over a decade and focused on improving margins

The Founder retired and the Company moved from co-CEO to single CEO model

Disciplined management team with deep bench

Focus on having the highest margins in the business

Flag org chart, family culture, history of industry leading operational performance

Focus on EVA, recently instituted a dividend, and have articulated a clear value-oriented capital allocation plan

CEO was formerly with Westinghouse and the chairman, who is very involved, has a great reputation

Management has a history of identifying acquisition targets that sell at low prices

Cheap

Trading at 8.7x P/E (FY16)

Trades at <8x peak earnings

Trading near net cash Initial investment at 12% free cash flow yield and under four times total enterprise value to EBITDA

Purchased initial position at ~9x earnings and at 1x BV

Purchased at valuation equivalent to 7.5x EBITDA assuming 75% utilization and trough dayrates held flat forever

Purchased initial position at 1x BV and 10x earnings

Trading at 5.1x 2016 EV/EBITDA

Trading at 9.1x FY16 EV/EBITDA

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Cimarex Dana DeVry Foot LockerHelmerich &

Payne

Houghton Mifflin

HarcourtInterDigital Noble Energy

Market

leading

company

Independent E&P producer with resources in Oklahoma and Texas

A leader in the production of driveline components for light, commercial, and off-highway vehicles

Most respected US for profit education company with diverse source of revenues

Conceptually equivalent to a Nike distribution franchise

Biggest and most profitable land driller in the U.S.

Over 40% market share in market for K-12 educational materials

Have been working on new inventions since early 70s. To date, they have obtained or applied for ~20k patents

Leading positions in the Delaware Basin, Eagle Ford, DJ Basin, and offshore Gulf of Mexico

With a history

of profitability

Profitable 11 of 13 years since formation

Transforming the business to focus on profitability, not market share

Never lost money. 18%+ 10-year average EBITDA margin

ROIC averaged low double digits at the time of purchase. Today 21% ROIC

Made money every year since at least 1971

Positive unlevered FCF margin 8 of past 9 years

15% revenue and ~60% EBITDA 10-year CAGR


Pristine

balance sheet

1.0x net debt/EBITDA 1.0x net debt/EBITDA 1/3rd of market cap in net cash

Net cash on the balance sheet at time of purchase. Today net cash over $5/sh

Net cash balance sheet 0.7x net debt/EBITDA ~1/4 of market cap in net cash

35% total debt/capital

Good

management

teams

Long history of successfully deploying capital into high return oil and gas reserves

New CEO has a reputation for being a disciplined acquirer and a good integrator

Strong Board; aligned incentives

Solid retail executives with good track record over many years

Owner/operator dynamic, significant tenures with the company

New management team with strong resumes brought in to lead the company's return to the public markets

Prudent capital allocation and disciplined litigation strategy

New CEO was previously COO for 8 years as the company built a highly respected track record

Cheap

All sources NAV is $129/165/202 per share at $50/60/70 oil

Stock trades at 3.9x EV/EBITDA (FY16)

At time of initial purchase, SOTP analysis showed that the main business (60% of revenue) can be purchased for free

Bought initial position at less than 10x earnings

Repurchased the position at ~1.3x tangible book value and >4% dividend yield

Purchased at 12x Base Case free cash flow

Backdoor way to participate in the growth of mobile communications

Trading at a significant discount to NAV, assuming $50 WTI oil held flat forever, and assuming their Israeli projects move forward

First Pacifi

c Advis

ors, LLC

33



OshkoshPatterson-UTI

Energy

Reliance Steel &

Aluminum

Rowan

Companies

Sanderson

FarmsSM Energy Veeco Western Digital

Market

leading

company

One of the largest specialty vehicle manufacturers that has been around for almost a hundred years.

Second largest fleet of Tier 1 land drilling rigs in the Lower 48. Pressure pumping business is a leader in its two focus basins

Largest North American distributor of steel and aluminum

Founded in 1923. Owns one of the youngest and highest spec fleets of offshore drilling rigs

Third largest chicken processor in the United States.

Top quartile finding costs with conservative reserve bookings

Number one player in the MOCVD tool market

Largest worldwide manufacturer of hard-disk drives

With a history

of profitability

EBIT excluding unusual items positive every year since 1992


Has been profitable every year since going public more than two decades ago

Profitable every year since 2004

Profitable 21 of last 26 years; highest margins in the industry


Outsourced most production, which decreased the fixed cost structure

Average ROIC over the past decade is roughly 16%

Pristine

balance sheet

Decreased net debt from $3b in 2007 to ~$0.9b

1.0x net debt/EBITDA 35% debt/capital and 2.4x debt/EBITDA

2.4x net debt/ EBITDA Net cash equal to >10% of market cap at time of purchase

1.8x total debt/EBITDAX Over 1/2 of market cap in cash

$2.7 billion of net cash, or roughly $12 per share

Good

management

teams

Current CEO has been with the Company since 1996 and served as both CFO and COO

Well respected CEO with >20 years at Schlumberger

Focus on profit margins and inventory turns. The 10-year average ROE is ~13%

First outside team to run the company. Rationalizing costs and assets. New CFO is highly regarded

Best management team in the industry; strong owner/operator culture.

Deep operating experience, conservative approach to the business

The management team is highly respected

Long track record of operating profitable businesses in a very competitive industry

Cheap

3.4x EV/EBITDA, 5.5x P/E at the time of initial purchase

Trading at 72% of tangible book value

Initially bought stock at less than 5x normalized EPS and 50% of BV

Trading at <40% of tangible book value

Under 9x normalized EPS at time of purchase

Trading at 3.8x 2016 EV/EBITDA

1.5x EV/EBITDA, 4.5x P/E at the time of initial purchase

Initial purchase was at less than 6x EPS, 60% of sales, and 1.7x BV

First Pacifi

c Advis

ors, LLC

Documents

Pacific FPA Capital Fund, Inc. · 2016-02-14 · Sanders Farms Inc AGCO Corporation Arrow Electronics Inc. Federated Investors, Inc. Atwood Oceanics Inc 6.50% 02/01/20 Apollo Group,