h AnnualValueInvestingCongress 6th

TheAtlanticApproach: ClearValueToday
Title

AlexanderJ.Roepers October13,2010
Date

Introduction
Overview: $1.5 billion valueoriented equity investment firm Founded in 1988 by Alexander Roepers SEC registered since 2005 New York and Tokyo offices with 27 employees; 13 senior equity analysts

Approach Concentrated on highest conviction ideas Bottomup, hands h d on due d diligence dl Focus on predictability of cashflows Funds U.S. Funds $1.0 billion International Funds $ $0.5 billion

Cambrian Fund Performance (US Long Only)

Note:FiguresarethroughSeptember30,2010.CambrianFundreturnsarenetofallfeesandrepresentclassASeries1shares of theoffshorefunds.S&P500Indexincludesthereinvestmentof dividends.InceptionofCambrianFundisOctober1992.PriortoJune1,1996,performanceisbasedontheauditedrecordofamanagedaccountwithasimilarstrategyandfeestructureas CambrianFund.Informationhasbeenpreparedsolelyforinformationalpurposesanddoesnotconstituteanofferorsolicitation. AnysuchofferwillbemadeonlybymeansofPrivatePlacement Memorandum.Pastperformancemaynotbeindicativeoffutureresults. 3

Agenda

Atlantics Atlantic sApproachtoStockSelection ClearValueToday y CaseStudy:OwensIllinois Q&A

5 9 10

Atlantics Investment Universe

AsofApril30,2010
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Additional Selection Criteria

I Investment t t grade d balance b l sheet h t Interestexpenselessthan25%ofgrosscashflows (EBITDA) Avoidcommoditypricingdependentfirms AlwaysEBITprofitablecompaniesthrougheconomiccycles pcyclical y firms Avoiddeep Recurringandpredictablerevenuesandcashflows Functionofnatureofbusiness, business diversityofcustomers, customers suppliers, suppliers products, products andregionsserved Highbarrierstoentry Preferconsumableandmaintenance/repair/overhaul(MRO)businesses overcapitalspendingrelatedbusinesses Lowinsiderownership Needvulnerabilitytotakeoverbids
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Long Buy/Sell Discipline

Constructive Shareholder Engagement

Obj ti Objectives CreateuniqueduediligenceopportunitiesattheCEO/CFOlevelaswellasthe operationallevelthroughconstructiveengagement Enhanceandacceleratetheprocessofshareholdervaluecreation Maintainliquidityaswellasabilitytocontinuedialoguewithtopmanagement (i.e.avoidproxybattlesandboardseats) Process Buildstrong grapport pp withCEO/CFO / through g multiple p onsiteandfacetoface meetings Craftanddiscusswinwinproposals formanagementandshareholders,including corporatedevelopment,corporategovernance,operationalrestructuringsanduse offreecash Submittheseproposalsinwriting toCEOand,asneeded,totheBoardofDirectors sapp appropriate, op ate,b broaden oade d discussion scuss o o ofp proposals oposa stoinclude c udeot other e large a ge As shareholders,financialmediaandprivateequitygroups
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Clear Value Today

Company Ticker Business Market Cap ($mln) $4,701 EV/EBIT P/E Catalysts Volumerecoveryand acquisitions,emerging marketgrowth Continuedstrongearningsgrowth, share repurchasesearlierthanexpected Acquisitionsandreorganizationbuildafourth legintheITTportfolio leg portfolio,reducingexposureto defense, takeovercandidate,sharerepurchases Defenseorders,marginleverageinautobusiness, groupsplitup Restructuring,growthinepayments, Restructuring payments GDP, GDP reboundinITspending,increasedcorporatecost awarenesstodriveoutsourcing,possibleIPOof HTTS/Worldline division,takeovercandidate Globalexpansionvia acquisitions,margin progress p g by ybettermix,continuedEPSg growth, internationalgrowthbothorganicandviaM&A, dividendincrease/sharerepurchases Global expansion,growthofhighmargin chemicalconsumablesandmaintenancework, stronggrowthinChina,takeovercandidate,share repurchases

OWENS ILLINOIS

OI

GlassContainers

8.8x

8.4x

XEROX

XRX

ITServices

$14,202

8.7x

10.0x

ITT

ITT

Defense/FlowControl

$8 650 $8,650

7 0x 7.0x

10 5x 10.5x

RHEINMETALL

RHMGY

Auto/Defense

$2,528

9.1x

9.9x

ATOSORIGIN

ATOFP

ITServices

$3,129

8.6x

11.7x

MIRACA

4544JT

Clinical Reagents g / TestingServices

$2 061 $2,061

6 4x 6.4x

12 4x 12.4x

KURITAWATER

6370JT

WaterTreatment Systems/ Consumables

$3,571

7.2x

14.8x

Note:DataasofSeptember30,2010.Allearningsestimatesarebasedonfollowingfiscalyear.
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Case Study: Owens Illinois (OI)

Valueas Clearas Glass l

Case Study: Owens Illinois (OI)

Sh price Share i $26 $26.80*, 80* Market M k Cap C $4.4 $4 4billion* billi *
Worlds largest maker of glass bottles, the preferred packaging of consumers globally $7.0 $7 0 billion in sales with 81 plants in 22 countries Founded 1903 in Toledo, Ohio OI is a fortress with a massive moat: High barriers to entry o Typically a local monopoly o Global scale and scope o Long L t term customer t relationships l ti hi o Prohibitive costs to enter market due to capital expense, environmental permits and development of engineering expertise Stable end markets Proven sustainability of profit No bad debt issues No technological obsolescence risk Rapidly p yg growing g emerging g g markets exposure, p , already y a third of total revenues
*AsofOct8,2010
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Case Study: Owens Illinois (OI)

OIssharesarecompellingasthemarketappearstomisperceiveorignoreseveral keyattributes: Glasspackagingisagrowing notshrinking marketglobally Globalglasscontainershipmentsgrew3.1%annuallyfrom1999to2009 Glass,notothermaterials,isthepreferredpackagingofconsumers Theglassindustryhasconsolidated,favoringstrongpricingandreturns f the for th largest l tplayers l
ConsumerPreferenceforFoodandBeveragePackaging

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*Source:Euromonitor(unitsofproductsoldinglasscontainers),ChinaDailyGlassAssociation,OI

Case Study: Owens Illinois (OI)

Glasspackagingservesconsumableendmarketsoflimitedcyclicality

Gl Global b lGl GlassC Container t i U Usageb byE End dU UseM Market k t

Wine Spirits 6% 8% Food,etc. 13%

Beer 49%

NonAlcoholic Beverage 24%

Source:Euromonitor(unitsofproductsoldinglasscontainers),ChinaDailyGlassAssociation,OI
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Case Study: Owens Illinois (OI)

Afteryearsofconsolidating,localmarketsaregenerallyduopoliesormonopolies Consolidationhasbenefittedpricing,returnsandmargins

No.ofUSGlassContainerManufacturers

USMarketShares2009

30 25 20 15 10 5 0

Others 8% Anchor Glass 18%

Owens Illinois 43%

Saint Gobain 31%

1980

2010

Sources:OI,Jefferies&Co.
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Case Study: Owens Illinois (OI)

S l and Scale dscopearecompetitive titi advantages d t and dbarriers b i to t entry t In mature markets, shipping glass containers more than 300 miles is generally not profitable Prohibitive costs to enter markets due to capital expense and development of engineering expertise Environmental permits for new plants are difficult to obtain Global beverage makers prefer global suppliers who provide consistent, high quality service OIs OI sNorthAmericanManufacturingFootprint

Source:OI
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Case Study: Owens Illinois (OI)

OIisdominantinmostregionsoftheworld OIhasa30%globalmarketshare InColombia,Ecuador,PeruandNewZealand,OIisthesolemanufacturer OIisthetechnologyandinnovationleader,withmorethan1,900patentsglobally OI2009GlobalGlassProfile

Source:OI
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Case Study: Owens Illinois (OI)

OIi ispositioned iti dt toexpand di inemerging i markets, k t where h glass l packaging k i growth th ratesaremuchhigher By year end, OI will have a third of pro forma sales and about half of profits coming from AsiaPacific and Latin America OI has made three acquisitions this year, which added capacity in Argentina, Vietnam, Malaysia, Thailand, China and Brazil The recent Brazilian acquisition gives OI a 50% market share in that country
ForecastedGrowth(2013vs.2008)

Source:Euromonitor,ChinaDailyGlassAssociation,OI
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Case Study: Owens Illinois (OI)

OIhassustainableprofitabilityinalleconomicenvironments

Glass Manufacturing EBIT and Margin

$1,400 , $1,200 $1,000 $800 $600 $400 $200 $0 2004 2005 2006 2007* 2008 2009 2010Est. 2011Est. EBITMargin GlassManufacturingEBIT 18.0% 16.0% 14.0% 12.0% 10.0% 8 0% 8.0% 6.0% 4.0% 2.0% 0.0%

Sources:Companyreports,Atlantic Investmentestimates *OIdivestedthelastofitsplasticpackagingbusinessesin2007

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Case Study: Owens Illinois (OI)

Whathashappenedpost2008crisis A10%declineinOIvolumesdueto: Adeclineintotalalcoholsales, sales particularlyin restaurants,amajorglasspackagingchannel Temporarytradedownfrombottlestocans Aglobalinventorydestocking OIgivingupunprofitablebusiness Maturemarketbeervolumeshavebeensofterthan expectedin2010 Earningshavebeenhurtbyexpensesfromrationalizing manufacturinginLatinAmericaandtheUS AstrongUSDandtheVenezuelancurrencydevaluation havealsohurtprofits
Shipments of U.S. Glass Beer Bottles

Sources:U.S.CensusBureau,GPI,CMI Euromonitor
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Case Study: Owens Illinois (OI)

OIalsohasreduceddebt

OINetDebt* Debt andNetDebt Debt*/EBITDA /EBITDA

6.0 $8 $7 5.0 NetDebt/EBITDA $6 $5 4.0 $4 $3 3.0 $2 $1 2.0 2004 2005 2006 2007 2008 2009 Netdebt 2010Est Est. 2011Est Est. $0 NetDebtinBillions N

Netdebt/EBITDA

*Netdebtincludes bookdebt,preferredshares,aftertaxpensionliabilitiesandasbestosliabilities 20

Case Study: Owens Illinois (OI)

andimproveditsfreecashflow

OIFreeCashFlow
$500 $400 $300 $200 $100 $0 2004 $100 $200 2005 2006 2007 2008 2009 2010Est. 2011Est.

Sources: Companyreports,AtlanticInvestmentestimates Freecashflow=cashfromoperationslesscapitalexpenditures

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Case Study: Owens Illinois (OI)

FiveYearPriceChartandEPS
$60

$50

12monthtarget of$45/shareat 12x2011eEBIT

$40

$30

$20

$10

2005
$0 Mar-05

2006* $0.83
Sep-06 Mar-07

2007 $2.92
Sep-07 Mar-08

2008 $3.76
Sep-08 Mar-09

2009 $2.93
Sep-09 Mar-10

2010E $2.75
Sep-10 Mar-11

2011E $3.10
Sep-11 Dec-11

$1.27

Sep-05 Mar-06

Sources:Bloomberg,OI,AtlanticInvestmentestimates *2006EPShurtbydivestedplasticsbusinessandunfavorableglasscontracts,whichhavesincebeenrenegotiated.
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Case Study: Owens Illinois (OI)

Our12monthpricetargetof$45/shareisbasedon12xest.2011EBIT Stockiscurrentlytradingat9xEst.2011EBIT EPSpowerof$5in2013basedonareboundinmaturemarketvolumes volumes,recent acquisitionsandemergingmarketgrowth
16.0 15.0 14.0 13.0 12 0 12.0 EV/EBIT 11.0 10.0 9.0 8.0 7.0 6.0 5.0 2003 2004 2005 2006 2007 2008 2009 2010Est. 2011Est. 8.0 6.6 6.3 12.5 11.0 10.8 10.2 9.0 13.3 12.3 11.9 9 14.1 13.8 13.5 13.5 12.7 12 0 12.0 12 0 12.0

OIHistoricalHighandLowEV/EBITMultiples
Implied2011 SharePrice Range

$45

$27

Sources:OI,Bloomberg,AtlanticInvestmentestimates EVincludesequitymarketcap,netdebt,preferredshares,aftertaxunderfundedpensionliabilities,andasbestosliabilities
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