<PAGE> 1
CONFIDENTIAL
Presentation to:
PROJECT HARBOR
BOARD DISCUSSION MATERIALS
May 18, 1999
<PAGE> 2
TABLE OF CONTENTS
1 EXECUTIVE SUMMARY
2 SITUATION ANALYSIS
3 PRELIMINARY VALUATION ANALYSIS
4 REVIEW OF STRATEGIC ALTERNATIVES
A. Status Quo
B. Major Acquisition
C. Spin-Off / Split-off
D. Tracking Stock
E. Sale of Segment
F. Morris Trust
G. LBO / Going Private
H. Sale of Harbor
1. M&A Market Overview
2. Selected Potential Buyers
3. Process Overview
APPENDIX
A. Detailed Summary of Alternative Transaction Structures
B. Comparable Companies Analysis
C. Precedent Transaction Analysis
D. Segment DCFs
E. WACC Analysis
F. EVA Analysis
G. Equity Investments
H. Premiums Paid Analysis
<PAGE> 3
1 EXECUTIVE SUMMARY
<PAGE> 4
AGENDA
-> Review of Selected Factors Influencing Current Market Valuation
- Corporate
- Industry
- Market
-> Preliminary Valuation Analysis
- Comparable Company
- Precedent Transactions
- Discounted Cash Flow
- LBO
-> Shareholder Value Alternatives
- Standalone
- Business Separation Techniques
- Partial or Outright Sale
1
<PAGE> 5
HARBOR IS COMPRISED OF A NUMBER OF ATTRACTIVE HIGH MARGIN NICHE BUSINESSES
- 65% of Harbor's sales are from businesses with leading market positions
<TABLE>
<S> <C> <C> <C>
- Net Shaped Gears #1 - Specialty Container Closures #1
- Powdered Forged Connecting Rods #1 - High Pressure Gas Cylinders #1
- Hot Forging (Hatebur) #1 - Specialty Gasket Products #1
- Aerospace Fasteners #1 - Specialty Insulation Products #1
- Towing Systems #1
</TABLE>
- These market positions are reflected in Harbor's margins
<TABLE>
<CAPTION>
---------------------------------- ----------------- -------------------------------- -------------------------------------
HARBOR AUTO COMPARABLES DIVERSIFIED COMPARABLES
---------------------------------- ----------------- -------------------------------- -------------------------------------
<S> <C> <C> <C>
LTM EBIT Margin 13.6% 8.3% 12.3%
Harbor Peer Ranking -- 3rd 3rd
(out of 22 companies) (out of 15 companies)
---------------------------------- ----------------- -------------------------------- -------------------------------------
</TABLE>
2
<PAGE> 6
HOWEVER, HARBOR'S STOCK PRICE HAS BEEN DECLINING ON A RELATIVE BASIS OVER THE
LAST 12 MONTHS . . .
DAILY DATA: 5/13/98 THROUGH 5/13/99
[LINE GRAPH]
Summary Statistics:
High Low Average Latest
------------ Harbor 100% 55% 71% 67%
------------ Diversified Index: (a) 136% 74% 101% 135%
------------ Automotive Index: (b) 100% 68% 87% 94%
------------ S & P 500 Index 122% 85% 104% 122%
(a) Includes: ALD, CBE, CR, DHR, DOV, IR, ITW, PKOH, ROK, TXT, TYC, USI
(b) Includes: AIZ, ALV, ARV, AXL, BWA, CAST, DCN, DRRA, FMO, HAZ, INMT, JCI,
LEA, MGA, MRA, MODI, SMPS, SPD, SUP, TWR, WCSTF
3
<PAGE> 7
. . . AND HARBOR TRADES AT A LOWER RELATIVE MULTIPLE COMPARED TO ITS PEERS(a)
<TABLE>
<CAPTION>
1999 ESTIMATED P/E (b)(c) 2000 ESTIMATED P/E (b)(c)
Harbor Automotive Automotive Diversified Harbor Automotive Automotive Diversified
Street Component Systems Industrials Street Component Systems Industrials
Estimate Suppliers Suppliers Estimate Suppliers Suppliers
-------- ---------- ---------- ----------- -------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
9.5x 9.6x 13.2x 19.8x 8.7x 9.0x 10.5x 18.0x
[BAR GRAPH] [BAR GRAPH]
</TABLE>
--------------------------
(a) Closing stock price as of May 13, 1999
(b) Automotive Component Suppliers include: AIZ, AXL, ARV, BWA, CAST, DRRA,
INMT, MRA, MODI, SMPS, SPD, SUP, TWR, WCSTF
(c) Automotive Systems Suppliers include: ALV, DCN, FMO, HAZ, JCI, LEA, MGA
4
<PAGE> 8
SALOMON SMITH BARNEY BELIEVES A COMBINATION OF CORPORATE, INDUSTRY AND MARKET
FACTORS LEAD TO HARBOR'S RELATIVE UNDERVALUATION
----------- ---------- ---------
|Corporate | + | Industry | + | Market |
| Factors | | Factors | | Factors |
----------- ---------- ---------
Small Size Cyclicality Low Liquidity
High Leverage Consolidation Trend Limited Research
Coverage
Lower Relative Growth Systems vs. Components
Expectations
Complex Corporate
Structure
Mixed Earnings
Predictability
------------------------------------------------------------------------------
|
\ /
LOW HARBOR PUBLIC MARKET VALUE
5
<PAGE> 9
THE WALL STREET COMMUNITY HAS EMPHASIZED THESE FACTORS IN ITS RESEARCH
- "While Harbor's exposure to cyclically sensitive businesses has been
reduced over the years, a cyclical downturn would negatively impact
results."--Salomon Smith Barney (2/23/99)
- "Total debt today equals about 85% of total capital vs. 70% in 1994, and
that may be partially reflected in stock valuation now."--CIBC Oppenheimer
(2/25/99)
- "Harbor's automotive business is performing well... ironically, however,
the non-automotive businesses are having a tougher go at it, because their
end markets include sectors or geographic regions that are experiencing
a slow down."--DLJ (11/18/98)
6
<PAGE> 10
THERE ARE SEVERAL ALTERNATIVES THAT MAY HELP UNLOCK VALUE AT HARBOR
[CHART}
---------------
--| Equity |
| | Carve-Out |
| ---------------
--------------- |
| Status Quo |* | -------------
------| | | | Spin-Off |*
| --------------- -----| |
| | -------------
--------------- | ---------------------- |
| | | | Leveraged | |
--| Stand Alone |--|-| | |--
| | | | | Recapitalization | | |
| --------------- | ---------------------- | | ---------------
| | ---------------- | |--| Split-Off |*
| | | Major |* | | ---------------
| |----| Acquisition | | |
| ---------------- | | -------------
| ---------------- | | | Tracking |*
| | Public | | |--| |
| |-| |------ | Stock |
| | | Distribution | -------------
| | ----------------
---------- | -------------- |
| HARBOR |-----| Separation |----|
---------- | -------------- | -------------------
| | | Private Market |-- -----------------
| |--|------------------ | | Leveraged |
| ----| Partnership |
| ------------------ | -----------------
| | Cash | |
| |----| (Taxable) | |
| | ------------------ | -------------
| --------- | | | Sale of |*
|-------| Sale |----- ----| |
--------- | --------------- | | Segment |
|-----| Stock | | -------------
| | (Tax Free) | |
| --------------- | -----------
| ------------ | | Morris |*
--------| LBO |* ----| |
------------ | Trust |
-----------
7
* Alternatives reviewed in Tab 4
<PAGE> 11
2 SITUATION ANALYSIS
<PAGE> 12
A NUMBER OF SIGNIFICANT CORPORATE FACTORS ADVERSELY IMPACT HARBOR'S MARKET VALUE
Corporate Factors
- Small size
- High leverage
- Lower relative growth expectations
- Complex corporate structure
- Mixed earnings predictability
8
<PAGE> 13
THROUGHOUT OUR ANALYSIS, WE HAVE COMPARED HARBOR TO A DIVERSIFIED INDUSTRIALS
GROUP AND AN AUTOMOTIVE SUPPLIERS GROUP
<TABLE>
<CAPTION>
Diversified Industrials Automotive Suppliers
------------------------------- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
AlliedSignal ALD Amcast AIZ Johnson Controls JCI
Cooper Industries CBE American Axle AXL Lear LEA
Crane CR Arvin ARV Magna MGA
Danaher DHR Autoliv ALV Meritor MRA
Dover DOV Borg-Warner BWA Modine MODI
Harsco HSC Citation CAST Simpson SMPS
Illinois Tool Works ITW Dana DCN Standard Products SPD
Ingersoll-Rand IR Dura DRRA Superior Industries SUP
Park-Ohio PKOH Federal Mogul FMO Tower Automotive TWR
Rockwell ROK Hayes Lemmerz HAZ Wescast WCSTF
SPX SPW Intermet INMT
Textron TXT
Tyco Industries TYC
U.S. Industries USI
</TABLE>
9
<PAGE> 14
HARBOR'S SMALL SIZE IS CONSPICUOUS
ANNUAL REVENUES
-------------------------------- ---------------------------------------
DIVERSIFIED INDUSTRIALS AUTOMOTIVE SUPPLIERS (a)
-------------------------------- ---------------------------------------
[BAR GRAPH] [BAR GRAPH]
---------------
(a) Includes Harbor's automotive revenues only
10
<PAGE> 15
HARBOR IS CONSTRAINED BY HIGH LEVERAGE
TOTAL DEBT / TOTAL CAPITALIZATION
[BAR GRAPH]
GREEN DENOTES AUTOMOTIVE SUPPLIERS, BLUE DENOTES DIVERSIFIED INDUSTRIAL
Note: AXL and HAZ have been recapitalized in leveraged buyouts within the past
5 years
11
<PAGE> 16
THOUGH HARBOR'S HISTORICAL GROWTH RECORD IS IMPRESSIVE . . .
3-YEAR HISTORICAL EPS CAGR (a)
[BAR GRAPH]
GREEN DENOTES AUTOMOTIVE SUPPLIERS, BLUE DENOTES DIVERSIFIED INDUSTRIAL
(a) Excludes non-recurring gains and charges.
12
<PAGE> 17
. . . WALL STREET'S VIEW OF HARBOR'S PROJECTED GROWTH IS LESS APPEALING
5-YEAR CONSENSUS EPS GROWTH ESTIMATE
[BAR GRAPH]
GREEN DENOTES AUTOMOTIVE SUPPLIERS, BLUE DENOTES DIVERSIFIED INDUSTRIAL
13
<PAGE> 18
HARBOR'S RELATIONSHIP WITH AFFILIATED COMPANIES IS DIFFICULT FOR EQUITY ANALYSTS
TO UNDERSTAND
<TABLE>
<CAPTION>
HARBOR OWNERSHIP STRUCTURE
--------------------------
<S> <C>
Fellini(a) 18%
Insiders 17%
Public 65%
</TABLE>
<TABLE>
<CAPTION>
HARBOR AFFILIATES
-----------------
HARBOR
AFFILIATE OWNERSHIP
--------- ---------
<S> <C>
Titan International (Public) 16%
DelcoRemy (Public) 17%
MSX International (Private) 45%
Saturn Electronics (Private) 29%
TWR Warrants
</TABLE>
(a) Fellini has a corporate services agreement with Harbor and 3.5% of Fellini
is owned by Harbor's insiders. Harbor pays Fellini 0.8% of consolidated net
sales in exchange for office space, data processing, R&D services,
administrative and other services.
14
<PAGE> 19
HARBOR HAS MET STREET EXPECTATIONS LESS OFTEN THAN ITS PEERS
% OF LAST 10 QUARTERS COMPANY HAS MET EARNINGS EXPECTATIONS
[BAR GRAPH]
GREEN DENOTES AUTOMOTIVE SUPPLIERS, BLUE DENOTES DIVERSIFIED INDUSTRIAL
15
<PAGE> 20
THESE CORPORATE CONSIDERATIONS HAVE BEEN COMPOUNDED BY A DIFFICULT INDUSTRY
ENVIRONMENT AND SELECTED MARKET FACTORS
Industry Factors Market Factors
-------------------------- -----------------------------
- Cyclicality - Low Liquidity
- Consolidation Trend - Limited Research Coverage
- Systems vs. Components
16
<PAGE> 21
HARBOR'S HISTORY AND BUSINESS MIX SUGGEST SIGNIFICANT VULNERABILITY TO CYCLIC
DOWNTURNS
(US $ in millions)
Historical Financial Results
<TABLE>
<CAPTION>
SLOOP 1989 1990 1991 1992
----- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $1,529 $1,373 $1,266 $1,445
% Growth 4.1% (10.2%) (7.8%) 14.1%
EBIT $130 $71 $44 $112
--------------------------------------------------------------------------------
% Margin 8.5% 5.1% 3.5% 7.7%
--------------------------------------------------------------------------------
Schooner
Revenues $221 $329 $339 $388
% Growth (a) 121% 48.9% 3.0% 14.5%
EBIT $42 $54 $54 $59
--------------------------------------------------------------------------------
% Margin 19.0% 16.4% 15.9% 15.2%
--------------------------------------------------------------------------------
</TABLE>
Customer End Use Market
<TABLE>
[PIE CHART]
<S> <C>
US Auto 40%
Other 5%
Consumer 17%
Aerospace 2%
Foreign Auto 7%
Chemical 15%
Off Road, Truck Etc. 14%
</TABLE>
(a) 1989 Schooner revenue growth of 121% is due to the acquisition of five
businesses (Commonwealth, Eskay, Norris, Rieke and Precision Cutting Tools).
1990 Schooner revenue growth of 49% is due to the acquisition of four businesses
(Compac, Fulton, Reese and Draw Tite).
17
<PAGE> 22
THE AUTO SUPPLY SECTOR HAS BEEN RAPIDLY CONSOLIDATING
TOP 20 INDEPENDENT AUTO SUPPLIERS BY REVENUE
1995 1998
---- ----
[BAR GRAPH] [BAR GRAPH]
Source: 1995 - The Economist Intelligence Unit; 1998 - Company filings and
research reports.
NOTE: Excludes Bosch, Bridgestone, Delphi, Denso, Goodyear, Michelin and
Visteon, which all have sales over $15 billion. Pro forma for recent
acquisitions. Includes automotive operations only for Harbor and other
diversified companies
18
<PAGE> 23
THERE HAS BEEN A BIFURCATION OF VALUATIONS BETWEEN SYSTEMS AND COMPONENT
SUPPLIERS (a)(b)
<TABLE>
<CAPTION>
[BAR GRAPH] [BAR GRAPH]
LTM REVENUES (US$ in millions) (c) NET INCOME PROJECTED 5-YEAR CAGR
---------------------------------- --------------------------------
<S> <C> <C> <C>
Harbor $ 807 Harbor 11.1%
Components Suppliers $1,083 Components Suppliers 12.9%
Systems Suppliers $8,260 Systems Suppliers 14.8%
</TABLE>
<TABLE>
<CAPTION>
[BAR GRAPH] [BAR GRAPH]
TOTAL DEBT / CAPITALIZATION P/E MULTIPLES (d) 1999 2000
--------------------------- ----------------- ------ ------
<S> <C> <C> <C> <C>
Harbor 85.0% Harbor 9.5x 8.7x
Components Suppliers 50.4% Components Suppliers 9.6x 9.0x
Systems Suppliers 54.7% Systems Suppliers 13.2x 10.5x
</TABLE>
(a) Components Suppliers include: AIZ, AXL, ARV, BWA, CAST, DRRA, INMT, MRA,
MODI, SMPS, SPD, SUP, TWR, WCSTF
(b) Systems Suppliers include: ALV, DCN, FMO, HAZ, JCI, LEA, MGA
(c) Includes Harbor's automotive revenues only.
(d) Closing stock price as of May 13, 1999.
19
<PAGE> 24
INSTITUTIONAL INVESTORS HAVE MORE LIQUID INVESTMENT OPPORTUNITIES THAN HARBOR IN
BOTH THE DIVERSIFIED AND AUTOMOTIVE SECTORS(a)
AVERAGE VALUE TRADED DAILY
DIVERSIFIED INDUSTRIALS AUTOMOTIVE SUPPLIERS
----------------------- --------------------
[BAR GRAPH] [BAR GRAPH]
----------------------------------
(a) LTM data - May 13,1998 - May 13,1999.
20
<PAGE> 25
HARBOR'S RESEARCH COVERAGE IS CONCENTRATED AMONG AUTOMOTIVE ANALYSTS
<TABLE>
<CAPTION>
Sector Affiliation
Firm Analyst Diversified Industrials Automotive Suppliers
---- ------- ----------------------- --------------------
<S> <C> <C> <C>
Salomon Smith Barney Donald Zwyer X
BT Alex Brown Harriet Baldwin X
Bear, Stearns Eric Goldstein X
CIBC Oppenheimer Phil Fricke X
DLJ Wendy Beale Needham X
Morgan Stanley Stephen Girsky X
PaineWebber Matthew Stover X
------------------------------------------------------------------------------------------------------------------------
% OF HARBOR'S 1999E 52% 48%
REVENUE
AVERAGE SECTOR 1999E P/E 19.8x 11.8x
(a) (Harbor = 9.5x)
</TABLE>
(a) Diversified Index: ALD, CBE, CR, DHR, DOV, IR, ITW, PKOH, ROK, TXT, TYC, USI
Automotive Index: AIZ, ALV, ARV, AXL, BWA, CAST, DCN, DRRA, FMO, HAZ, INMT,
JCI, LEA, MGA, MRA, MODI, SMPS, SPD, SUP, TWR, WCSTF
21
<PAGE> 26
SALOMON SMITH BARNEY BELIEVES THAT THREE OF HARBOR'S CHALLENGES HAVE A
DISPROPORTIONATELY HIGH IMPACT ON VALUE
<TABLE>
<CAPTION>
Small Size High Leverage Lower Relative Growth Expectations
---------- ------------- ----------------------------------
<S> <C> <C>
- Limited economies of scale - Availability/cost of new capital - Ability to attract equity market focus
- Small customer footprint - Risk of cyclical downturn - Ability to generate growing cash flow to
- Future margin compression - Limited ability to act as support investment and repay debt over
consolidator the near term
</TABLE>
22
<PAGE> 27
A COMBINATION OF SIZE, MARKET LEVERAGE AND GROWTH CAN EXPLAIN OVER 75% OF THE
VARIATION IN OUR BROAD UNIVERSE OF COMPARABLE COMPANY P/E RATIOS (1)
1999E P/E
Predicted P/E
R-Squared=76.8%
[LINE GRAPH]
Source: Salomon Smith Barney 5/13/99
P/E = -7.03+ 5.70 X LOG(FIRM VALUE) - 9.38 X TOTAL DEBT / TOTAL MARKET
CAPITALIZATION + 24.39 X5 YR. PROJECTED CAGR
(1) R-squared calculation does not include Danaher.
23
<PAGE> 28
3 PRELIMINARY VALUATION ANALYSIS
<PAGE> 29
HARBOR'S MANAGEMENT PLAN SUPPORTS STABLE GROWTH
<TABLE>
<CAPTION>
[BAR GRAPH] [BAR GRAPH]
REVENUES EBITDA EBITDA EBITDA MARGIN
-------- ------ ------ -------------
<S> <C> <C> <C> <C>
1998 $1,590 1998 $ 298
1999E $1,610 1999E $ 297
2000E $1,701 2000E $ 317
2001E $1,800 2001E $ 334
2002E $1,907 2002E $ 358
2003E $2,024 2003E $ 384
</TABLE>
CAGR 1999-2003: 5.9% CAGR 1999-2003: 6.6%
<TABLE>
<CAPTION>
NET DEBT/
[BAR GRAPH] [BAR GRAPH] TOTAL BOOK
EPS (a) (b) NET DEBT (b) CAPITALIZATION
----------- ------------ --------------
<S> <C> <C> <C> <C>
1998 $ 1.84 1998 $1,286
1999E $ 1.82 1999E $1,208
2000E $ 2.06 2000E $1,179
2001E $ 2.31 2001E $1,112
2002E $ 2.65 2002E $1,040
2003E $ 3.05 2003E $ 948
</TABLE>
CAGR 1999-2003: 9.8%
(a) Based on Harbor management's net income estimates (excluding non-recurring
items) and 47.2 million fully diluted shares outstanding.
(b) Striped portion of bar for 2003E represents non-conversion of convertible
subordinated debentures ($2.67 EPS, 638 net debt), while solid bar assumes
conversion of $305 million debentures at $31 per share ($3.05 EPS, 948 net
debt).
24
<PAGE> 30
PRELIMINARY VALUATION SUMMARY
<TABLE>
<CAPTION>
[GRAPH BAR]
52 Week Current 52 Week
Low Market Price High
$14.00 $17.13 $25.19
------ ------ ------
<S> <C> <C> <C> <C> <C>
COMPARABLE COMPANY
ANALYSIS
- Auto $ 15 $ 19
- Diversified $ 22 $ 26
- Average $ 19 $ 23
PRECEDENT TRANSACTION
ANALYSIS
- Auto $ 22 $ 27
- Diversified $ 29 $ 35
- Average $ 26 $ 31
DISCOUNTED CASH FLOW
ANALYSIS $ 16 $ 23
LBO $ 15 $ 19
PREMIUMS PAID
ANALYSIS (a) $ 22 $ 23
$5.00 $10.00 $15.00 $20.00 $25.00 $30.00 $35.00 $40.00
Value Per Share
</TABLE>
Source: Salomon Smith Barney 5/14/99
(a) Based on 30-35% premium over current market price.
25
<PAGE> 31
PRELIMINARY VALUATION SUMMARY - COMPARABLE COMPANIES
<TABLE>
<CAPTION>
Comparable Companies
------------------------------------------------------------------------------------------------------------------------
MULTIPLE RANGE (b) EQUITY VALUE PER SHARE (c)
OPERATING ---------------------------- --------------------------------
VALUATION PARAMETERS METRIC (a) LOW HIGH LOW HIGH
------------------------------------------------------------------------------------------------------------------------
Automotive
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998 EBITDA $ 298 5.2x 6.0x $ 8.09 $13.14
1998 EBIT 230 8.8 9.6 18.15 22.05
1999E EPS (d) 1.82 9.0 10.0 16.41 18.24
2000E EPS (d) 2.06 8.0 9.0 16.46 18.51
------------------------------------------------------------------------------
CONSENSUS RANGE $15.00 $19.00
------------------------------------------------------------------------------
Diversified
------------------------------------------------------------------------------------------------------------------------
1998 EBITDA $ 298 7.3x 8.3x $21.36 $27.68
1998 EBIT 230 9.5 10.5 21.56 26.44
1999E EPS (d) 1.82 12.4 13.4 22.61 24.44
2000E EPS (d) 2.06 11.0 12.0 22.63 24.68
------------------------------------------------------------------------------
CONSENSUS RANGE $22.00 $26.00
------------------------------------------------------------------------------
Weighted Average (e)
------------------------------------------------------------------------------------------------------------------------
1998 EBITDA $ 298 6.3x 7.2x $14.72 $20.41
1998 EBIT 230 9.2 10.1 19.85 24.24
1999E EPS (d) 1.82 10.7 11.7 19.51 21.34
2000E EPS (d) 2.06 9.5 10.5 19.54 21.60
------------------------------------------------------------------------------
CONSENSUS RANGE $18.50 $22.50
------------------------------------------------------------------------------
</TABLE>
--------------------------------------------------------------------------------
(a) Based on Harbor management projections.
(b) Multiple ranges based on selected comparable companies plus or minus 10%.
(c) Based on debt of $1,388 million (including convertible subordinated
debentures), cash of $29 million, option proceeds of $7 million, equity
investments at market of $184 million and 47.2 million fully diluted shares
outstanding (out-of-the-money conv. sub. debentures not included).
(d) Based on Harbor management net income estimates and 47.2 million fully
diluted shares outstanding (out-of-the-money conv. sub. debentures not
included).
(e) Weighted average based on 50% Automotive and 50% Diversified. Actual
Automotive and Diversified statistics for 1999E revenue, EBIT and EBITDA are
48%/52%, 44%/56% and 48%/52%, respectively.
26
<PAGE> 32
PRELIMINARY VALUATION SUMMARY - PRECEDENT TRANSACTIONS
<TABLE>
<CAPTION>
Precedent Transactions
------------------------------------------------------------------------------------------------------------------------
MULTIPLE RANGE (b) EQUITY VALUE PER SHARE (c)
OPERATING ---------------------------- --------------------------------
VALUATION PARAMETERS METRIC (a) LOW HIGH LOW HIGH
------------------------------------------------------------------------------------------------------------------------
Automotive
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998 EBITDA 298 7.0x 8.0x $19.46 $25.78
1998 EBIT 230 10.0 11.0 24.00 28.88
------------------------------------------------------------------------------
CONSENSUS RANGE $22.00 $27.00
------------------------------------------------------------------------------
Diversified
------------------------------------------------------------------------------------------------------------------------
1998 EBITDA 298 8.5x 9.5x $28.94 $35.26
1998 EBIT 230 11.0 12.0 28.88 33.75
------------------------------------------------------------------------------
CONSENSUS RANGE $29.00 $35.00
------------------------------------------------------------------------------
Weighted Average (d)
------------------------------------------------------------------------------------------------------------------------
1998 EBITDA 298 7.8x 8.8x $24.20 $30.52
1998 EBIT 230 10.5 11.5 26.44 31.32
------------------------------------------------------------------------------
CONSENSUS RANGE $26.00 $31.00
------------------------------------------------------------------------------
</TABLE>
--------------------------------------------------------------------------------
(a) Based on Harbor management projections.
(b) Multiple ranges based on selected precedent transactions plus or minus 10%.
(c) Based on debt of $1,388 million (including conv. sub. debentures), cash of
$29 million, option proceeds of $7 million, equity investments at market of
$184 million and 47.2 million fully diluted shares outstanding (out-of-the-
money conv. sub. debentures not included).
(d) Weighted average based on 50% Automotive and 50% Diversified. Actual
Automotive and Diversified statistics for 1999E revenue, EBIT and EBITDA are
48%/52%, 44%/56% and 48%/52%, respectively.
27
<PAGE> 33
PRELIMINARY VALUATION SUMMARY - DCF
<TABLE>
<CAPTION>
Exit EBITDA Multiple Firm Value
------------------------------ --------------------------
Segment Discounted Cash Flow Low High Low High
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(Discount rate of 9.5 to 10.5% applies to all segments)
Automotive Segment 5.2x 6.2x $ 750 $ 900
Diversified Segments 7.3x 8.3x $1,220 $1,420
--------------------------
Total Firm Value - Segment DCFs $1,970 $2,320
------------------------------------------------------------------------------------------------------------------------------
EQUITY VALUE PER SHARE - SEGMENT DCFS (a) $13.10 $20.50
------------------------------------------------------------------------------------------------------------------------------
Equity Value Per Share - Equity Investments (b) $ 3.90 $ 3.90
Equity Value Per Share - Corporate (c) ($ 0.66) ($ 1.81)
------------------------------------------------------------------------------------------------------------------------------
EQUITY VALUE PER SHARE - CONSOLIDATED (a) $16.34 $22.59
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
--------------------------------------------------------------------------------
(a) Based on debt of $1,388 million (including convertible subordinated
debentures), cash of $29 million, option proceeds of $7 million and 47.2
million fully diluted shares outstanding (out-of-the-money convertible
subordinated debentures not included).
(b) Based on equity investments valued at market of $184 million.
(c) Corporate expenses include S,G&A, goodwill amortization, elimination of
inter-segment sales and other costs.
28
<PAGE> 34
LEVERAGED BUYOUT ANALYSIS
<TABLE>
<CAPTION>
Purchase Price Per Share
-------------------------------------------------------
Premium to: $17.50 $20.00 $25.00 $30.00
------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Market Price @ 5/13/99 $17.13 2.2% 16.8% 46.0% 75.2%
52 Week High @ 5/14/98 25.19 (30.5%) (20.6%) (0.7%) 19.1%
52 Week Low @ 2/17/99 14.00 25.0% 42.9% 78.6% 114.3%
IRR to Investor Exiting in Year: (1)
Year 4 - 2003 34.9% 30.6% 22.4% 14.4%
Pro Forma 1999 Credit Stats: Current
-------
EBITDA / Total Interest 3.5x 2.5x 2.3x 2.1x 1.9x
Debt / EBITDA 4.8 4.9 5.2 6.0 6.7
% of Total Debt Repaid by 2003 NA 32.0% 28.5% 22.7% 18.2%
--------------------------------------------------------------------------------------------------------------
<CAPTION>
LBO Analysis
------------------------------------------------------------------
Sensitivity
------------------------------------------
Harbor Plan EBITDA (+ 10%) EBITDA (+ 15%)
------------------- ------------------ -------------------
Valuation Parameters: Low High Low High Low High
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Test 1: 4 year IRR = 20% - 40% $14.75 $26.50 $17.25 $30.00 $18.40 $31.75
Test 2: EBITDA/Total Interest > 2.0x -- 27.50 -- 31.00 -- 33.25
Test 3: Debt/EBITDA < 5.0x -- 18.75 -- 22.50 -- 24.00
------------------- ------------------ -------------------
Consensus Range $15.00 $19.00 $17.00 $23.00 $18.00 $24.00
-------------------------------------------------------------------------------------------------------------
</TABLE>
----------------
Note: Assumes LBO is funded with 30% equity consideration, $500 million of
tranche A bank debt at 8.0%, $500 million of tranche B bank debt at 8.5%, and
$200 million of subordinated debt at 10.0%
Credit facility is funded at 7.0% and fluctuates based on acquisition price.
(1) Based on a 8.0 x EBITDA exit multiple.
29
<PAGE> 35
PRELIMINARY EVA SENSITIVITY ANALYSIS
EVA AT VARIOUS WACC AND PRICE PER SHARE
(US $ in millions)
<TABLE>
<CAPTION>
PRICE PER SHARE
----------------------------------------------
$15.00 $17.50 $20.00 $22.50 $25.00
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
WACC 9.00% $353 $193 $ 34 ($126) ($286)
10.00% $ 26 ($127) ($279) ($431) ($584)
11.00% ($220) ($367) ($514) ($661) ($808)
</TABLE>
PRE-TAX SYNERGIES FOR BREAK-EVEN EVA AT VARIOUS WACC AND PRICE PER SHARE
(US $ in millions)
<TABLE>
<CAPTION>
PRICE PER SHARE
-----------------------------------------------------------
$ 15.00 $ 17.50 $ 20.00 $ 22.50 $ 25.00
--------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
WACC 9.00% $ 0.0 $ 0.0 $ 0.0 $ 14.0 $ 31.6
10.00% $ 0.0 $ 16.3 $ 36.0 $ 55.6 $ 75.3
11.00% $ 32.3 $ 53.9 $ 75.5 $ 97.2 $ 118.8
</TABLE>
30
<PAGE> 36
IMPLIED MULTIPLES MATRIX
<TABLE>
<CAPTION>
Public Market Private Market
Sales Price per Share Mean Multiples Mean Multiples
(Dollars in Millions, Operating Market -------------------------- ------------------ -------------------
Except per Share Amounts) Data $17.13 $20.00 $25.00 $30.00 Auto Diversified Auto Diversified
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Value (a) $ 801 $ 965 $1,209 $1,453
Firm Value (b) 1,976 2,140 2,384 2,628
-------------------------------------------------------------------------------
Market Prices Premium/(Discount) to Price
Current 5/13/99 $ 17.13 0.0% 16.8% 46.0% 75.2% -- -- 30% - 35% (d)
-------------------------------------------------------------------------------------------------------------------------------
EBITDA Firm Value/EBITDA
1998A $ 298 6.6x 7.2x 8.0x 8.8x 5.6x 7.8x 7.5x 8.5x
1999E - Harbor 297 6.7 7.2 8.0 8.8 -- -- -- --
-------------------------------------------------------------------------------------------------------------------------------
EBITA Firm Value/EBIT
1998A $ 230 8.6x 9.3x 10.4x 11.4x 9.2x 10.0x 10.5x 11.5x
1999E - Harbor 217 9.1 9.9 11.0 12.1 -- -- -- --
-------------------------------------------------------------------------------------------------------------------------------
Earnings per Share Price/Earnings per Share
1998A $ 1.83 9.4x 10.9x 13.7x 16.4x -- -- -- --
1999E - First Call 1.80 9.5 11.1 13.9 16.7 9.5x 12.9x -- --
2000E - First Call 1.96 8.7 10.2 12.8 15.3 8.5 11.5 -- --
1999E - Harbor (c) 1.82 9.4 11.0 13.7 16.4 9.5x 12.9x -- --
2000E - Harbor (c) 2.06 8.3 9.7 12.2 14.6 8.5 11.5 -- --
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Equity Value is based on the purchase of all fully diluted shares at the
offer price less any option proceeds.
(b) Firm Value equals equity value plus debt, less cash, less equity
investments.
(c) Based on Harbor management net income estimates and 47.2 million fully
diluted shares outstanding (out-of-the-money convertible subordinated debentures
not included).
(d) Private market mean multiples to current stock price based on median
premiums paid (1 week and 4 weeks prior) on all manufacturing transactions of
$1.5-$2.5 billion in size during the last twelve months.
31
<PAGE> 37
4 REVIEW OF STRATEGIC ALTERNATIVES
<PAGE> 38
THERE ARE SEVERAL ALTERNATIVES THAT MAY HELP UNLOCK VALUE AT HARBOR
(CHART}
---------------
--| Equity |
| | Carve-Out |
| ---------------
--------------- |
| Status Quo |* | -------------
------| | | | Spin-Off |*
| --------------- -----| |
| | -------------
--------------- | ---------------------- |
| | | | Leveraged | |
--| Stand Alone |--|-| | |--
| | | | | Recapitalization | | |
| --------------- | ---------------------- | | ---------------
| | ---------------- | |--| Split-Off |*
| | | Major |* | | ---------------
| |----| Acquisition | | |
| ---------------- | | -------------
| ---------------- | | | Tracking |*
| | Public | | |--| |
| |-| |------ | Stock |
| | | Distribution | -------------
| | ----------------
---------- | -------------- |
| HARBOR |-----| Separation |----|
---------- | -------------- | -------------------
| | | Private Market |-- -----------------
| |--|------------------ | | Leveraged |
| ----| Partnership |
| ------------------ | -----------------
| | Cash | |
| |----| (Taxable) | |
| | ------------------ | -------------
| --------- | | | Sale of |*
|-------| Sale |----- ----| |
--------- | --------------- | | Segment |
|-----| Stock | | -------------
| | (Tax Free) | |
| --------------- | -----------
| ------------ | | Morris |*
--------| LBO |* ----| |
------------ | Trust |
-----------
*Alternatives reviewed in Tab 4
32
<PAGE> 39
VIABILITY OF SELECTED TRANSACTION STRUCTURES
<TABLE>
<CAPTION>
CORPORATE FACTORS TRANSACTION FACTORS
----------------------------------------- ----------------------------------------------
TAX CONTROL EXECUTION
TRANSACTION ALTERNATIVE SIZE LEVERAGE GROWTH EFFICIENCY PREMIUM FEASIBILITY
---------------------------------------- ---------- -------------------- --------- --------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
STAND ALONE
Status Quo M L M NA NA NA
Major Acquisition for Stock M M M M L M
-------------------- -------- --------------- -------------- --------------
SEPARATION: PUBLIC DISTRIBUTION
Spin/Split-Off L L L M L M
Tracking Stock L M L H L L
-------------------- -------- --------------- -------------- --------------
SEPARATION: PRIVATE DISTRIBUTION
Sale of Segment L L L L M M
Morris Trust M L M M M L
-------------------- -------- --------------- -------------- --------------
SALE
Strategic NA NA M H H M
LBO/Going Private NA NA L H H M
</TABLE>
L = Low
M = Medium
H = High
33
<PAGE> 40
RELATIVE SHAREHOLDER VALUE CREATION
<TABLE>
<CAPTION>
TRANSACTION ALTERNATIVES
-----------------------------------------------------------------------------
SPIN/ HARBOR SALE
STATUS SPLIT-OFF TRACKING SEGMENT SALE: ---------------------
QUO AUTO STOCK AUTO MORRIS TRUST STRATEGIC LBO(b)
------ --------- -------- ------------- ------------ --------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
52 Week High $28.50
Current Price $17.13 (a) $19.50 $18.90 $20.60 $11.00 $21.50 $21.00
52 Week Low $17.00
</TABLE>
(a) Stock price on May 13, 1999.
(b) $17.00-$17.13 represents midpoint of Harbor Plan. 17.13-$21.00 represents an
EBITDA sensitivity of 15% above Harbor plan.
34
<PAGE> 41
RELATIVE VALUE CREATION RATIONALE
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Transaction Alternatives Valuation Methodology Factors Affecting Value
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
STATUS QUO - Midpoint of discounted cash flow analysis - Depends on execution of Harbor management plan
------------------------------------------------------------------------------------------------------------------------------------
SPIN/SPLIT-OFF AUTO - Pro forma Automotive and Diversified - Multiple pick-up due to separation
2000E P/E multiple analysis - Tax leakage due to gain on debt allocated to
Automotive (in excess of basis)
- Additional interest costs due to loss of
consolidated credit
TRACKING STOCK - Pro forma Automotive and Diversified - Multiple pick-up due to separation
2000E P/E multiple analysis - Avoids tax related to legal separation
- Consolidated credit is maintained
------------------------------------------------------------------------------------------------------------------------------------
SALE OF AUTO SEGMENT - Pro forma Diversified 2000E P/E multiple - Premium value on Auto segment
at various EBITDA sale multiples - Significant tax leakage
MORRIS TRUST - Pro forma Automotive and Diversified - Diversified receives modest M&A premium
2000E P/E multiple analysis - Tax leakage due to gain on debt allocated to
Automotive (in excess of basis)
- Additional interest costs due to loss of
consolidated credit
------------------------------------------------------------------------------------------------------------------------------------
STRATEGIC SALE - HARBOR - Midpoint of precedent transaction analysis - Harbor receives M&A premium
- Proceeds direct to shareholders
LBO/GOING PRIVATE - HARBOR - LBO analysis - Depends on execution of Harbor management plan
and capital availability
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
35
<PAGE> 42
A. STATUS QUO
<PAGE> 43
MEANINGFUL VALUE CREATION SHOULD RESULT FROM THE EXECUTION OF HARBOR
MANAGEMENT'S PLAN
<TABLE>
<CAPTION>
Pros Cons
----------------------------------------------------------- -----------------------------------------------------------
<S> <C>
- Strong operating management team with attractive track - A near-term cyclical downturn could threaten Harbor's
record viability
- Integration of diversified businesses has just begun - Historic bias against integration may hamper efforts
with high probability of stronger results to cross-fertilize technology and customers
- Management's recent initiatives to shed non-core - Continued small market capitalization and related
operations should improve overall results "overhang"
- Maintain flexibility to pursue alternatives in the - Continued high leverage
future
- Corporate structure remains confusing to investor base
- Plan execution would restore shaken investor confidence
- Future strategic initiatives will benefit from
demonstrated financial improvement
</TABLE>
36
<PAGE> 44
HARBOR MANAGEMENT'S PLAN APPEARS TO BE REASONABLE
<TABLE>
<CAPTION>
HISTORIC 5 YR. CAGR
------------------------
1998 1999E 2000E 2001E 2002E 2003E CAGR SLOOP SCHOONER
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $1,590 $1,610 $1,701 $1,800 $1,907 $2,024 4.9% 0.1% 11.5%
EBITDA $298 $297 $317 $334 $358 $384 5.2% 15.4% 13.0%
% Margin 18.7% 18.4% 18.6% 18.6% 18.8% 19.0%
NET INCOME $87 $86 $97 $109 $125 $152 9.9% 14.6% 23.5%
EPS (a)(b) $1.84 $1.82 $2.06 $2.31 $2.65 $2.67 7.7% 15.1% 13.0%
</TABLE>
<TABLE>
<CAPTION>
CURRENT 1999E IMPLIED
1999E P/E EPS (c) SHARE PRICE
-----------------------------------------------------------------------------
<S> <C> <C> <C>
IMPLIED SHARE PRICE
Harbor 9.5x $1.80 $17.13
Auto Index 11.8 1.80 21.20
Diversified Index 19.8 1.80 35.60
-----------------------------------------------------------------------------
</TABLE>
(a) Based on Harbor management's net income estimates (excluding non-recurring
items) and 47.2 million fully diluted shares outstanding.
(b) 2003 EPS assumes conversion of $305 million convertible subordinated
debentures at $31 per share.
(c) Based on First Call Estimates.
37
<PAGE> 45
B. MAJOR ACQUISITION
<PAGE> 46
ANY MAJOR ACQUISITION WILL REQUIRE STOCK CURRENCY DUE TO CURRENT DEBT LEVELS
<TABLE>
<CAPTION>
Pros Cons
----------------------------------------------------------- --------------------------------------------------------
<S> <C>
- Harbor has proven its ability to integrate acquisitions - Current debt levels restrict cash acquisitions to
efficiently and with minimal disruption sizes unlikely to materially increase Harbor's
to operations valuation
- If a less leveraged entity could be acquired at an - Harbor's undervalued public currency limits the
attractive value, Harbor's long term viability candidates that would result in an earnings neutral
would be enhanced transaction
- Additional diversified assets may support Harbor's - In small deals, management distraction may outweigh
effort to reposition its public valuation the value creation benefit
- Wall Street favors "critical mass" and "industry - Further reduces flexibility to fund future growth
consolidators"
- Could reduce attractiveness of Harbor as a takeover
candidate
</TABLE>
38
<PAGE> 47
POTENTIAL TARGETS
(US dollars in millions)
<TABLE>
<CAPTION>
FIRM VALUE MARKET ANNUAL FV / LTM 1999 P/E (b) COMMENT
CAP.(a) SALES EBITDA
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
American Axle $1,498 $ 607 $2,041 12.3x 7.6x - Good product fit; Blackstone's
role may be problematic
Citation 484 237 739 5.6 10.1 - Rumored to be for sale; major
shareholder seeking liquidity;
casting operations may not be
attractive
New Venture Gear NA NA 1,400 NA NA - In search of buyer some time
ago; previously reviewed by
Harbor; potentially negative
response by other customers
Park Ohio 391 155 552 7.4 9.4 - Potential synergies with
automotive and fastener
operations; CEO not likely to
want to cede control
Simpson 273 177 496 4.5 8.7 - Manageable size; potential
synergies with vibration
control; may conflict with net
formed efforts
------------------------------------------------------------------------------------------------------------------------------------
Harbor 2,067 766 1,636 6.8 9.5
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Based on primary shares outstanding.
(b) Based on First Call Estimates.
39
<PAGE> 48
EXAMPLE: AMERICAN AXLE
<TABLE>
<CAPTION>
Business Description Pros
-------------------- ----
<S> <C>
> Manufacturer of driveline systems, including axles, propeller /\ From Harbor's perspective:
shafts and chassis components
- Stock had suffered since IPO and is trading
- Estimated 33% market share of driveline products for light trucks at discount to peers (e.g., 7.6x 1999E P/E)
and SUVs made in North America and sold in the U.S.
- Excellent product fit
> American Axle was created in 1994 via an LBO out of GM, funded by - Provides systems opportunity and critical mass
Blackstone and Richard Dauch
/\ From American Axle's perspective:
> Acquisition of Colfor Manufacturing (February 1999) added a variety - Reduces exposure to GM, currently over 85% of
of forged components and an estimated 20% share of the domestic market sales
for forgings
- Adds much needed critical mass
- Supports strategy to expand product lines (e.g.,
rolling chassis) and focus on forgings
<CAPTION>
Revenue Breakdown - LTM Sales $2.0 billion Cons
------------------------------------------ ----
<S> <C>
PRODUCT GEOGRAPHIC
Other 4% Mexico & S. America 6% \/ American Axle recently acquired Colfor, a
competitor of Harbor's in the U.S. forging market
Forged Products 9% Canada 13%
\/ Already a highly leveraged situation, making all
Chassis Components 9% Europe & Other 1% cash transaction problematic
Propeller Shafts 9% United States 80% - Current debt/EBITDA is 5.7x
Front Axles 16% \/ All stock merger likely to result in large
Blackstone ownership stake
Rear Axles 53%
</TABLE>
40
<PAGE> 49
AMERICAN AXLE: MARKET DATA
Stock Price Performance Since IPO
DAILY DATA: 1/25/99 THROUGH 5/13/99
[BAR GRAPH]
--- American Axle & Manufacturing: Price (left axis)
=== American Axle & Manufacturing: Volume (right axis)
<TABLE>
<CAPTION>
Financial Summary (US$ in millions) Ownership Summary
<S> <C> <C> <C> <C>
LTM Sales $2,041 Shares
LTM EBITDA 122 (millions) %
% Margin 6.0% ---------- ---
LTM EBIT 50 Insiders (a) 31.0 79.5%
% Margin 2.5% Institutional 8.0 20.5%
Equity Market Value $ 803 Retail & Others -- --
Firm Value 1,498 ---- -----
39.0 100.0%
FV / EBITDA 12.3x
FV / EBIT 29.8x
1999 (E) P/E 7.6x
2000 (E) P/E 6.8x
(a) Includes Blackstone and Richard Dauch
</TABLE>
41
<PAGE> 50
AMERICAN AXLE: PRO FORMA COMBINATION ANALYSIS
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
(US$ in millions, except per-share data) (a) ALL STOCK PURCHASE / 50% CASH /
MERGER OF EQUALS 50% STOCK PURCHASE ALL CASH PURCHASE
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Acquisition Price: $15.38 $18.00 $ 18.00
Premium to Market 0% 17.1% 17.1%
Implied FV/EBITDA Multiple 12.3x 13.5x 13.5x
Implied 2000E P/E 6.8 8.0 8.0
-------------------------------------------------------------------------------
ACCRETION/(DILUTION):
2000 E EPS $ 2.57 $ 2.95 $ 4.34
Harbor accretion 30.9% 50.3% 121.4%
Pretax synergies required to break even NM NM NM
OWNERSHIP:
Harbor 49.0% 62.1% 100.0%
American Axle 51.0 37.9 0.0
CREDIT STATISTICS:
Net Debt/EBITDA 4.9x 6.1x 7.2x
EBITDA/Net Interest 4.0 3.1 2.5
--------------------------
</TABLE>
(a) Assumes 6.5% financing cost, 1% deal fees, 40% tax rate and 40 year goodwill
amortization period.
42
<PAGE> 51
C. SPIN-OFF/SPLIT-OFF
<PAGE> 52
SPIN-OFF: TRANSACTION OVERVIEW
- The segment borrows funds and distributes proceeds to Harbor. Harbor may
receive cash proceeds tax-free up to its basis in the Segment
- Harbor distributes subsidiary shares to existing Harbor shareholders on a pro
rata basis in a tax-free transaction
<TABLE>
<CAPTION>
BEFORE TRANSACTION TRANSACTION AFTER TRANSACTION
------------------ ----------- -----------------
<S> <C> <C>
--------------- --------------- ---------------
| Harbor | | Harbor | | Harbor |
| Shareholders| | Shareholders| ----- |Shareholders |
--------------- --------------- | ---------------
| | | Shares / \
| | | / \
--------------- --------------- | / \
| Harbor | | Harbor | | / \
| | | | | / \
--------------- --------------- | / \
| | \ \ | / \
----------------- --------- \ \ Cash | / \
100% | | 100% 100% | Spin \ \ | 100% / \ 100%
--------------- --------------- --------------- off --------------- --------------- ---------------
| Segment 1 | | Segment 2 | | Segment 1 | | Segment 2 | | Segment 2 | | Harbor |
| | | | | | | | | | | |
--------------- --------------- --------------- --------------- --------------- ---------------
Note Payable | | Cash | 100%
--------------- ---------------
| Banks/Bond | | Segment 1 |
| Markets | | |
--------------- ---------------
</TABLE>
43
<PAGE> 53
SPLIT-OFF: TRANSACTION OVERVIEW
- Harbor exchanges parent stock with the stock of a Segment on a pro rata basis
to all subscribing shareholders
- The Segment becomes owned by former Harbor shareholders who choose to be
shareholders of the Segment
<TABLE>
<S><C>
BEFORE TRANSACTION TRANSACTION AFTER TRANSACTION
-----------------------------------------------------------------------------------------------------------------------------------
---------------- ---------------- ------------------- -----------------
| Harbor | | Harbor |----------- | Participating | | Non- |
| Shareholders | | Shareholders | | | Harbor | | Participating |
---------------- ---------------Shares | | Shareholders | | Harbor |
| | | | ------------------- | Shareholders |
| | | | | \ -----------------
---------- ----------- | | \ |
| Harbor | | Harbor | Shares | | \ |
---------- ---------- | --------------- -------------
| | \ | | Segment 1 | | Harbor |
| | \ | | | | |
------------------- ------- \Split-off | --------------- -------------
| | | \ | |
100% | | 100% 100% | \ | | 100%
------------ ------------- ------------- ------------- -------------
| Segment 1 | | Segment 2 | | Segment 1 | | Segment 2 | | Segment 1 |
| | | | | | | | | |
------------- ------------- ------------- ------------- -------------
</TABLE>
44
<PAGE> 54
A SPIN/SPLIT-OFF EXACERBATES HARBOR'S CHALLENGES
<TABLE>
<CAPTION>
Pros Cons
--------------------------------------------------------------------------- ---------------------------------------------------
<S> <C>
/\ Creates two "pure play" companies \/ Generally exacerbates most of Harbor's current
challenges:
/\ Eliminates conglomerate discount in a tax-efficient manner - Smaller capitalization
/\ May still permit either entity to do a tax-free transaction and obtain - Thinner float
M&A premium
- Limited research coverage
/\ Each entity can participate independently in growing consolidation
trend - Greater leverage issues
\/ Creation of new entity requires duplication
/\ Appropriate research coverage may be easier to identify of corporate, board and
other functions/expenses
/\ A split-off allows holders to choose which entity to hold
\/ Reduces critical mass of both entities
necessary to command peer valuation
\/ Lack of initial research coverage and pure-
play investors likely to result in
shareholder churn and short-term depressed
valuations
\/ A split-off requires valuation of both
segments to determine exchange ratio (not
applicable to spin-off)
</TABLE>
45
<PAGE> 55
PRO FORMA VALUE ENHANCEMENT FROM A SPIN/SPLIT-OFF OF AUTOMOTIVE (a)
- Spin/Split-off benefits from multiple pick-up on diversified business
- Tax leakage due to gain on debt allocated to Automotive in excess of basis
- Consolidated credit is foregone resulting in additional interest costs for
both entities
<TABLE>
<CAPTION>
PRO FORMA SPIN-OFF OF AUTOMOTIVE
(US dollars in millions, except per share data) HARBOR AUTOMOTIVE DIVERSIFIED
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
2000E Pro Forma EPS (b)(c)(d) $ 2.06 $0.99 $ 0.91
Median Sector Multiple 8.3x 8.5x 11.5x
Premium/(Discount) -- -- --
Selected Sector Multiple 8.3x 8.5x 11.5x
Implied Equity Value Per Share $17.13 $8.42 $10.47
Pro Forma 1999E Debt / EBITDA (e) 4.1x 4.0x 5.7x
Total Pro Forma Value Per Share $17.13 $18.90
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Based on a 100% spin-off of Automotive with Diversified Industrial and
Corporate as remaining company. (b) Assumes debt of $554 million pushed down
to Automotive based on Automotive debt capacity of 4.0x 1999E EBITDA of $139
million.
(c) Pro forma Diversified and Automotive 2000E EPS adjusted for a 50 basis
point interest rate increase due to loss of consolidated credit.
(d) Assumes Diversified inherits additional debt of $83 million related to
taxes on $218 million tax gain that results from that portion of Automotive
debt pushed down in excess of Automotive's tax basis of $336 million.
(e) Based on debt of $867 million at Diversified and $554 million at Automotive.
46
<PAGE> 56
D. TRACKING STOCK
<PAGE> 57
TRACKING STOCK ALLOWS HARBOR TO SEPARATE THE BUSINESS IN A NON-PERMANENT MANNER
- Tracking stock is a separate class of Harbor stock that reflects the
earnings of a selected group of Harbor's assets, such as a particular
division or subsidiary of Harbor
- Tracking stock does not represent a legal ownership interest in the assets
of the subsidiary; rather, shareholders continue to have claims on all of
the parent's assets as a whole
- Though a shareholder vote is required to amend the corporate charter, there
is no change in legal form, Board of Directors or managerial control
- The corporate credit remains consolidated
- Distribution of tracking stock is tax-free (up to Harbor's basis in the
division or subsidiary) either through an IPO, stock dividend, or exchange
offer. The combined entity continues to tax consolidate.
47
<PAGE> 58
TRACKING STOCK: TRANSACTION OVERVIEW
- Harbor issues a new class of Harbor shares which tracks the performance of the
Segment to new or existing holders
- Harbor remains the legal parent of Segment
<TABLE>
<S><C>
BEFORE TRANSACTION TRANSACTION AFTER TRANSACTION
------------------ -------------------------------------- ---------------------------------------
----------------- ------------------ ------------------- ------------------ ------------------
| Harbor | | Harbor | | Tracking Stock | | Harbor | | Tracking Stock |
| Shareholders | | Shareholders | | Shareholders | | Shareholders | | Shareholders |
----------------- ------------------ ------------------- ------------------ ------------------
| | / | | / |
| | / | | / |
----------------- ----------------- | ----------------- |
| | | | Targeted |Cash | | |
| Harbor | | Harbor | Stock | | Harbor | Reporting |
| | | | | | | |
----------------- ----------------- | ----------------- |
| | | | |
| | | | Legal |
----------------- ----------------------- | ----------------------- |
| | | | | | | |
100% | | 100% 100% | 100% | \/ 100% | 100% | \/
--------------- --------------- ------------------- ------------------- ------------------- -------------------
| | | | | | | | | | | |
| Segment 1 | | Segment 2 | | Segment 1 | | Segment 2 | | Segment 1 | | Segment 2 |
| | | | | | | | | | | |
--------------- --------------- ------------------- ------------------- ------------------- -------------------
</TABLE>
48
<PAGE> 59
TRACKING STOCK OFFERS HARBOR CONSOLIDATED CREDIT AND A TAX-EFFICIENT SEPARATION
OF THE BUSINESS, BUT BRINGS SEVERAL COMPLICATIONS
<TABLE>
<CAPTION>
Pros Cons
----------------------------------------------------------------- -----------------------------------------------------------
<S> <C>
- Harbor retains legal ownership and managerial control of entire - Creates smaller capitalized equities with less critical
company mass to attract research coverage and institutional
following
- May unlock hidden value in a tax-efficient manner - Complicates overall capital structure of Harbor
- Harbor maintains synergies between all segments - Creates complex corporate governance issues and
generates conflicts of interest
- Existing capital structure and consolidated credit maintained - Tracking stock is less attractive as an acquisition
currency and "queers" pooling of the tracking stock
entity
- Harbor can reverse the transaction at a pre-determined premium - Complicates reporting requirements
- Continued consolidation for tax and credit purposes - Effectively eliminates the possibility of a control
premium for the tracked entity
- Timing of 3 - 5 months; special shareholder vote required
to amend charter and authorize shares
</TABLE>
49
<PAGE> 60
WHILE MAINTAINING THE MORE ATTRACTIVE CONSOLIDATED CREDIT, TRACKING STOCK ALSO
AVOIDS OTHER SEPARATION COSTS
- Tracking stock benefits from multiple pick-up on diversified business
- Avoids tax related to separation since allocation of debt between businesses
is not restricted
- Consolidated credit is maintained ensuring no additional interest cost
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
TRACKING STOCK = AUTOMOTIVE
--------------------------------------------------------------------------------------------------------------------
(US dollars in millions, except per share data) HARBOR AUTOMOTIVE DIVERSIFIED
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
2000E Pro Forma EPS (a)(b) $ 2.06 $1.03 $ 1.03
Median Sector Multiple 8.3x 8.5x 11.5x
Premium/(Discount) -- -- --
Selected Sector Multiple 8.3x 8.5x 11.5x
Implied Equity Value Per Share $17.13 $8.76 $11.85
Pro Forma 1999E Debt/EBITDA (c) 4.0x 5.7x
Total Pro Forma Value Per Share $17.13 $20.60
--------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Assumes debt of $554 million pushed down to Automotive based on Automotive
debt capacity of 4.0x 1999E EBITDA of $139 million.
(b) No adjustments to pro forma Diversified and Automotive 2000E EPS since
consolidated credit is maintained.
(c) Based on debt of $784 million at Diversified and $554 million at Automotive.
50
<PAGE> 61
E. SALE OF SEGMENT
<PAGE> 62
SALE OF ONE OR MORE SEGMENTS IS ATTRACTIVE TO THE EXTENT THAT THE SALE PREMIUM
OFFSETS DOUBLE TAXATION AND EARNINGS DILUTION
SALE OF AUTOMOTIVE
- Large pro forma impact on Harbor as a whole
- Considerable tax leakage (approximately $300 million) if sold for cash
- Questionable alternative in light of stated synergies with Schooner
SALE OF SELECTED NON-CORE OPERATIONS
- Minimal pro forma impact on Harbor as a whole
- Consistent with current management initiatives
- Series of transactions with unique buyer audiences
51
<PAGE> 63
ANY SEGMENT SALE WILL REDUCE HARBOR'S CRITICAL MASS
<TABLE>
<CAPTION>
Pros Cons
---------------------------------------------------------------------- ----------------------------------------------------------
<S> <C>
- Harbor receives much needed cash to either reduce leverage or - Minimal impact on value
pursue strategic alternatives, though impact is dependent on cash
flow impact of divestiture (e.g., pro forma fixed charge coverage) - Significantly reduces Harbor's capitalization and
critical mass
- More focused company with stronger balance sheet which may
result in multiple expansion - Tax leakage is considerable
- May create more focused takeover candidate or merger partner - Using proceeds from sale of Automotive segment to
repay debt is dilutive to earnings
</TABLE>
52
<PAGE> 64
WHILE THE SALE OF AUTOMOTIVE CAPTURES A CONTROL PREMIUM, THE TAX LEAKAGE IS TOO
SIGNIFICANT (a)
<TABLE>
<CAPTION>
(US $ in millions, except per-share data) PRIVATE MARKET EBITDA MULTIPLE
------------------------------------------------------ ---------------------------------------------------------------------
<S> <C> <C>
AUTOMOTIVE TRANSACTION MULTIPLE 7.0x 8.0x
Automotive 1998 EBITDA $ 134 $ 134
----- ------
Implied Equity Value $ 938 $1,072
Tax Gain (b) $ 602 $ 736
Cash Taxes (c) $ 229 $ 280
Net Cash Proceeds $ 709 $ 792
Pro Forma 1999E Debt/EBITDA (d) 3.1x 2.2x
Pro Forma 2000E EPS (e) $1.24 $ 1.34
Harbor Current Multiple 8.5x 8.5x
Total Pro Forma Value Per Share $10.50 $11.40
------------------------------------------------------ ---------------------------------------------------------------------
</TABLE>
(a) Based on sale of Automotive in an all equity transaction.
(b) Based on Automotive tax basis of $336 million.
(c) Based on 38.0 tax rate.
(d) Based on pro forma net debt of $463 million.
(e) Net cash proceeds used to pay down debt as of 12/31/99.
53
<PAGE> 65
USING NET SALE PROCEEDS TO REPAY DEBT IS DILUTIVE TO EARNINGS
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
PRIVATE MARKET EBITDA MULTIPLE
------------------------------------------------------------------ --------------------------------------------------------------
7.0x 8.0x
------------------------------------------------------------------ --------------------------------------------------------------
EPS EPS EPS EPS
STATUS QUO PRO FORMA FOR SALE OF AUTOMOTIVE STATUS QUO PRO FORMA FOR SALE OF AUTOMOTIVE
<S> <C> <C> <C> <C>
2000E $2.06 $1.24 $2.06 $1.34
2001E $2.31 $1.52 $2.31 $1.62
[BAR GRAPH] [BAR GRAPH]
</TABLE>
54
<PAGE> 66
F. MORRIS TRUST
<PAGE> 67
MORRIS TRUST INVOLVES A SUBSIDIARY SPIN-OFF AND THE SUBSEQUENT STOCK MERGER OF
EITHER ENTITY
- Morris Trust involves a subsidiary spin-off while simultaneously merging the
remaining entity with a third party in a tax efficient manner
- The Morris Trust transaction provides the separation of a business in a
tax-efficient manner while capturing a private market premium on the
distributing business
- Tax-free status is dependent on Harbor shareholders owning greater than 50%
of the pro forma merged entity, regardless of which party is the "seller"
55
<PAGE> 68
MORRIS TRUST: STEP 1, THE "SPIN"
- Harbor distributes all of the common shares of Segment 2 to its existing
shareholders on a pro-rata basis
- Tax free transaction if in compliance with Section 355
<TABLE>
<CAPTION>
<S><C>
STEP 1:
BEFORE TRANSACTION HARBOR EFFECTS A TAX-FREE SPIN-OFF OF SEGMENT
-------------------------------------------------------------- ---------------------------------------------
------------------ ------------------
| Harbor | | Harbor |<-----|
| Shareholders | | Shareholders | |
------------------ ------------------ |
| | |
------------------ ------------------ |
| Harbor | | Harbor | |Shares
------------------ ------------------ |
| | \ |
|----------------------| |-----------| \ |
100% | | 100% 100% | \Spin-off |
--------------- --------------- --------------- ---------------
| Segment 1 | | Segment 2 | | Segment 1 | | Segment 2 |
--------------- --------------- --------------- ---------------
</TABLE>
56
<PAGE> 69
MORRIS TRUST: STEP 2, THE "MERGER"
- Harbor enters into a merger with a Partner in exchange for Acquiror stock.
Tax-free status of Segment 2 spin-off requires Harbor's shareholders to own
more than 50% of the combined entity
<TABLE>
<CAPTION>
<S><C>
[FLOWCHART] [FLOWCHART]
STEP 2: HARBOR MERGES IN A STOCK-FOR-STOCK
TRANSACTION WITH PARTNER AFTER TRANSACTION
--------------------------------------------------------------------- ------------------------------------------------
----------------- ---------------- ----------------- -----------------
| Harbor | | Acquiror | | Harbor | | Acquiror |
| Shareholders | | Shareholders | | Shareholders | / | Shareholders |
----------------- ---------------- ----------------- / -----------------
| | | | | /
| 100%| | 100% | >50% | /
| | | | | / <50%
| | | | -------------
| | | | | Combined |
| ------------ Merger -------------- | | Harbor/ |
| | Harbor |----------| Acquiror | | | Acquiror |
| ------------ -------------- | -------------
| | | |
| |----------- | |
| 100% | 100% | 100% |
--------------- --------------- ---------------- --------------
| Segment 2 | | Segment 1 | | Segment 2 | | Segment 1 |
--------------- ---------------- ---------------- --------------
</TABLE>
57
<PAGE> 70
A MORRIS TRUST TRANSACTION IS INHIBITED BY THE LIMITED NUMBER OF POSSIBLE
PARTNERS
<TABLE>
<CAPTION>
Pros Cons
--------------------------------------------------------- -----------------------------------------------------------------
<S> <C>
- Potential to separate auto and diversified in a tax - Limited universe of "buyers"/partners that are smaller equity
efficient manner and receive modest M&A premium capitalizations than Harbor Automotive
for merged entity
- Pooling limitations on remaining entities
- Merger partner can control combined entity despite
requirement for less than 50% economic ownership - Public market valuation issues for non-merged entity
- Lack of research
- May unlock hidden value in tax-efficient manner via - Likely shareholder churn
synergies and M&A premium - Lack of critical mass
- Lack of publicly traded peer group
- Requires shareholder vote
</TABLE>
58
<PAGE> 71
PRO FORMA VALUE CREATION FROM A MORRIS TRUST (a)
- Spin-off of Automotive results in tax leakage related to the tax gain on
debt allocated in excess of basis
- Consolidated credit is foregone resulting in higher interest costs for
Automotive only
- Diversified business receives a modest M&A premium from the partner
<TABLE>
<CAPTION>
------------------------------------------------- ------------------------------------------------------
STEP 1: SPIN AUTO STEP 2: MERGE DIVERSIFIED
------------------------------------------------- ------------------------------------------------------
<S> <C> <C> <C>
2000E Pro Forma EPS (b) $ 0.99 1998 EBITDA $ 156
MEDIAN SECTOR MULTIPLE 8.5x PRECEDENT DIVERSIFIED TRANSACTION MULTIPLE 9.5x
Premium/(Discount) -- Transaction Value (c) $1,482
Less Debt (866)
-------
Selected Multiple 8.5x Equity Value $ 616
Equity Value Per Share $ 8.42 Equity Value Per Share (e) $13.05
Pro Forma 1999E Debt/EBITDA (d) 4.0x Pro Forma 1999E Debt/EBITDA 5.7x
------------------------------------------------- ------------------------------------------------------
Total Equity Value Per Share $21.50
Current Share Price (5/13/99) $17.13
Premium 26%
</TABLE>
(a) Based on a 100% spin-off of Automotive and Diversified merging with a
partner.
(b) Assumes debt of $554 million pushed down to Automotive based on Automotive
debt capacity of 4.0x 1999E EBITDA of $139 million.
(c) Consideration will be in the form of common stock.
(d) Assumes Diversified inherits additional debt of $83 million related to taxes
on $218 million tax gain that results from that portion of Automotive debt
push down in excess of Automotive's tax basis of $366 million.
(e) Based on 47.2 million fully diluted shares outstanding (out-of-the-money
convertible subordinated debt not included).
59
<PAGE> 72
G. LBO/GOING PRIVATE
<PAGE> 73
LBO / GOING PRIVATE: TRANSACTION OVERVIEW
- Harbor sells to LBO Sponsor, potentially with Harbor management or insiders
maintaining an equity interest
<TABLE>
<CAPTION>
<S><C>
TRANSACTION AFTER TRANSACTION
--------------------------------------- ---------------------------------------------
[DIAGRAM] [DIAGRAM]
</TABLE>
60
<PAGE> 74
CURRENT LEVERAGE LEVELS MAKE AN LBO CHALLENGING
<TABLE>
<CAPTION>
Pros Cons
------------------------------------------------------------------- ----------------------------------------------------
<S> <C>
- Going private alleviates many of Harbor's challenges as it - The typical magnitude of benefits from a LBO/Going
is no longer susceptible to the equity market and institutional Private transaction do not exist due to current
investors' demands leverage levels
- Allows management the ability to manage the business - Lack of additional opportunities beyond current
plan without any encumbrances initiatives for purposes of reducing debt levels
- Return to markets later as a stronger company - Reduces flexibility to fund future growth
</TABLE>
61
<PAGE> 75
RETURNS FROM A GOING PRIVATE TRANSACTION ARE VERY SENSITIVE TO MANAGEMENT'S PLAN
<TABLE>
<CAPTION>
----------------------------------------------- -----------------------------------------------------------------------------------
PURCHASE PRICE PER SHARE
-----------------------------------------------------------------------------------
$17.50 $20.00 $25.00 $30.00
----------------------------------------------- -------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
(Discount)/Premium to Market (a) 2.2% 16.8% 46.0% 75.2%
BASE CASE
4 Year IRR (b) 34.9% 30.6% 22.4% 14.4%
Debt / EBITDA 4.9x 5.2x 6.0x 6.7x
EBITDA / Total Interest 2.5x 2.3x 2.1x 1.9x
% Debt Repaid in Year 4 32.0% 28.5% 22.7% 18.2%
ASSUMING 15% ANNUAL EBITDA INCREASE
4 Year IRR (b) 41.6% 37.5% 29.7% 22.4%
Debt / EBITDA 4.2x 4.6x 5.2x 5.8x
EBITDA / Total Interest 2.8x 2.7x 2.4x 2.2x
% Debt Repaid in Year 4 39.3% 35.3% 28.7% 23.5%
----------------------------------------------- -------------------- -------------------- -------------------- --------------------
</TABLE>
(a) Based on stock price as of 5/13/99.
(b) Based on 8.0x EBITDA exit multiple.
62
<PAGE> 76
H. SALE OF HARBOR
<PAGE> 77
1. M&A MARKET OVERVIEW
<PAGE> 78
M&A ACTIVITY CONTINUES AT RECORD LEVELS
GLOBAL M&A VOLUME HAS INCREASED STEADILY SINCE 1992, WITH TREMENDOUS GROWTH IN
THE PAST FEW YEARS. 1998 TRANSACTION VOLUME REACHED AN ALL TIME HIGH.
GLOBAL ANNOUNCED TRANSACTION VOLUME
<TABLE>
<CAPTION>
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
DOLLARS IN BILLIONS($)
TOTAL VOLUME
(LEFT AXIS) $ 289 $ 351 $ 533 $ 579 $ 448 $ 376 $ 365 $ 459 $ 563 $ 930 $1,064 $1,603 $2,429 $ 822
ANNUALIZED 1999
VOLUME (LEFT AXIS) $3,288
NUMBER OF
TRANSACTIONS (RIGHT
AXIS)
AVG. ANNOUNCED
TRANSACTION SIZE
($mm) $67.9 $64.1 $66.2 $52.0 $38.4 $23.1 $23.0 $27.1 $29.1 $41.7 $65.5 $45.3 $89.3 $115.2
</TABLE>
[BAR GRAPH]
SOURCE: SDC
63
<PAGE> 79
RECORD VOLUME OF AUTOMOTIVE M&A ACTIVITY
NUMBER OF GLOBAL M&A TRANSACTIONS AND TOTAL TRANSACTION VALUES (a)
<TABLE>
<CAPTION>
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NUMBER OF TRANSACTIONS 227 304 273 400 339 340 418 507 517 529 704 223
TRANSACTION VALUE
($'s IN BILLIONS) $20.0 $24.4 $7.4 $8.9 $4.7 $11.8 $10.7 $14.3 $18.2 $24.1 $77.2 $36.7
</TABLE>
[BAR GRAPH]
M&A activity in the auto sector continues to be strong. Despite the market
correction and a slow-down in M&A activity from August through October, 1998
hit record levels.
Strong M&A activity has continued in 1999 with several large transactions. 1999
volume is on a run-rate to exceed 1998 levels.
-------------
(a) Includes completed transactions in industries with SIC codes 3714, 3711,
3592, 3499, 3493, 3469, 3465, 3463, 3462, 3061, 3052, 3011, 2531, 2396,
2273, 2221, 2211. Excludes stock repurchases. Includes transactions with
undisclosed values.
(b) YTD through May 13, 1999.
64
<PAGE> 80
HEIGHTENED OEM COMPETITION
The DaimlerChrysler deal has begun to reshape the auto industry and accelerate
globalization, as Ford recently agreed to purchase Volvo Automotive and Nissan
and Renault recently agreed to an alliance.
Salomon Smith Barney served as a financial advisor to Daimler in connection with
the DaimlerChrysler merger and as financial advisor to Nissan in connection with
Renault's investment in Nissan.
-> THE AUTOMOTIVE OEMS FACE SEVERAL MAJOR CHALLENGES:
- Profitability as a percent of sales is declining
- Safety, fuel economy and emissions requirements continue to increase
- Pressure from consumers limits ability to increase prices
- Growth in core markets is minimal
- Global economic environments and build rates are uncertain
- By 2001, production capacity could exceed demand by over 30%
-> TO SURVIVE THESE CHALLENGES AND REMAIN PROFITABLE, THE OEMS NEED TO:
- Accelerate their cost reduction efforts
- Source more components as part of complete modules and systems
- Reduce overall vehicle weight
- Receive enhanced innovation from suppliers in technology and vehicle
development
- Increase their presence in the emerging markets
-> CLEARLY, TWO TIERS OF OEMS ARE DEVELOPING:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
Global operators with recognized brands, quality Regional companies with declining market share,
manufacturing and attractive products poor local economies and internal issues
----------------------------------------------------- ---------------------------------------------------
COMPANY PRO FORMA PRODUCTION COMPANY PRO FORMA PRODUCTION
----------------------------------------------------- ---------------------------------------------------
<S> <C> <C> <C>
GM 8.1 million Fiat 2.4 million
Ford/Volvo 8.0 Peugeot 1.6
Toyota 4.7 Mitsubishi 1.4
Volkswagen 4.5 Hyundai 1.3
DaimlerChrysler 4.2 Daewoo 0.9
Renault/Nissan 4.0
Honda 2.3
BMW 1.1
</TABLE>
65
<PAGE> 81
OEM COST SAVINGS INITIATIVES
OEMs continue to look to their supply bases for cost reduction initiatives. For
example, Nissan/Renault expects to achieve $1.4 billion in annual purchasing
cost savings by 2005, representing nearly 50% of the total synergies projected
from the combination.
OEM suppliers will need to act aggressively to maintain margins and market
share.
IN A TRANSACTION DRIVEN BY COST CUTTING, RENAULT ANNOUNCED ON MARCH 27, 1999
THAT IT WILL PURCHASE A 36.8% STAKE IN NISSAN MOTOR COMPANY FOR (Y)585.7 BILLION
($4.9 BILLION).
NISSAN AND RENAULT: POTENTIAL SYNERGIES
[BAR GRAPH]
Estimates Based on Joint Studies
--------------------------------
Years Purchasing Other** Total*
2000E 491 79 570
2001E 607 573 1180
2002E 657 913 1570
----- ---- -----
Estimates Based on
Projections
2005E 1,400 1600 3,000
(*): Based on sales of Renault and calendarized sales of Nissan as of December
31st, 1998. Expressed as a % of sales.
(**): Other includes (i) Profit on additional sales; (ii) R&D; (iii) SG&A; (iv)
Vehicle and engine manufacturing and other production costs; (v) Capital
expenditures savings
Note: Projections based on Nissan/Renault Company estimates.
66
<PAGE> 82
BIFURCATION OF OEM SUPPLIER BASE
The pace of change in the worldwide automotive industry is accelerating.
TODAY'S ENVIRONMENT PROVIDES A NUMBER OF OPPORTUNITIES FOR WELL POSITIONED
SUPPLIERS
<TABLE>
<CAPTION>
CHARACTERISTICS | Well-Positioned Suppliers
<S> | <C>
Ability to protect Tier I status and maintain direct OEM relationship |
| Dana
Proven "systems integrator" capabilities leading to increasing dollar | Delphi
content per vehicle and margin protection | Dura
| Federal-Mogul
Global reach and ability to participate in growing build rates | Hayes Lemmerz
| > Johnson Controls
Technological leadership which protects margins and provides competitive | Lear
advantage in securing new business | Magna
| Tower Automotive
Cost reduction competency and financial controls to price business |
economically |
|
Proven ability to identify and effect acquisitions thereby realizing |
benefits of a "consolidator"` |
</TABLE>
67
<PAGE> 83
PRECEDENT TRANSACTIONS - AUTOMOTIVE SUPPLIERS
<TABLE>
<CAPTION>
(US$ in millions) Multiples of Transaction Value/
-----------------------------------------------------
Date Transaction LTM LTM LTM FTM FTM
of Ann. Target Acquiror Value Revenues EBIT EBITDA EBIT EBITDA
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
03/09/99 United Technologies
Automotive Lear $2,300.0 0.8x 12.6x 7.5x 8.6x 5.9x
02/08/99 Mark IV - Purolater
Filter Unit Arvin 270.0 0.8 NA NA NA NA
01/28/99 LucasVarity TRW 7,348.0 1.1 10.8 7.4 10.1 7.0
01/26/99 Adwest Automotive Dura Automotive 330.0 0.9 10.7 7.6 NA NA
01/19/99 Excel Industries Dura Automotive 475.6 0.4 13.1 5.7 NA NA
10/27/98 Glacier Vandervell Dana Corp. 430.0 1.1 8.3 6.0 NA NA
08/18/98 Cooper Automotive Federal-Mogul 1,900.0 1.0 10.2 6.7 8.3 5.7
07/27/98 ITT - Brake & Chassis Continental AG 1,930.0 0.9 19.6 7.9 NA NA
06/25/98 ITT - Electrical Systems Valeo SA 1,700.0 0.9 12.1 7.6 11.5 7.1
06/22/98 Special Devices, Inc. J.F. Lehman & Company 296.0 1.8 13.2 10.0 12.1 9.1
05/29/98 Meridian Technologies Teksid SpA and Norsk Hydro 368.0 1.0 27.7 11.9 26.1 11.6
05/04/98 Echlin Dana Corp. 4,108.9 1.1 18.7 12.3 16.0 11.1
03/24/98 Steyr-Daimler-Puch AG Magna International Inc. 465.6 0.4 12.8 6.2 NA NA
03/23/98 Schrader-Bridgeport Tompkins plc 256.5 1.5 11.0 NA NA NA
02/25/98 Eagle-Picher Industries Granaria Holdings NV 743.0 0.8 9.4 6.5 NA NA
01/12/98 Fel-Pro Inc. Federal-Mogul 717.0 1.5 15.3 12.3 NA NA
01/04/98 Accuride KKR 534.7 1.9 10.8 7.6 NA NA
10/16/97 T&N Plc Federal-Mogul 3,000.0 1.0 10.4 6.8 NA NA
09/02/97 AlliedSignal -
Safety Restraint Breed Technologies 750.0 0.8 8.9 7.0 9.4 7.2
04/30/97 Sinter Metals GKN Plc 570.0 1.5 19.6 10.7 15.0 9.2
04/09/97 Stant Tomkins 606.0 0.9 10.7 7.2 9.6 6.7
01/27/97 A.O. Smith Tower 625.0 0.7 9.7 5.7 NA NA
------------------------------------------------------------------------------------------------------------------------------------
Mean 1.0x 13.1x 8.0x 12.7x 8.1x
Median 1.0 11.0 7.5 10.8 7.2
High 1.9 27.7 12.3 26.1 11.6
Low 0.4 8.3 5.7 8.3 5.7
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 84
PRECEDENT TRANSACTIONS - DIVERSIFIED INDUSTRIALS
(US $ in millions)
<TABLE>
<CAPTION>
Multiples of Transaction Value/
------------------------------------------
Date Transaction LTM LTM LTM FTM FTM
of Ann. Target Acquiror Value Revenues EBIT EBITDA EBIT EBITDA
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
4/22/99 Sandvik Saws and Tools Snap-On Inc. $ 394.0 1.2x 16.1x NA NA NA
4/19/99 Blount International Lehman Brothers Holdings 1,274.1 1.5 11.2 8.8 11.3 8.9
2/16/99 MVE Holdings, Inc. Chart Industries 248.7 1.2 15.1 9.6 NA NA
2/1/99 Aeroquip-Vickers Eaton Corporation 2,087.6 1.0 11.5 8.1 9.9 8.0
12/27/98 Kaynar Technologies Inc. The Fairchild Corporation 365.0 2.0 12.7 10.2 NA NA
12/15/98 Global Motorsport Stonington Partners 158.0 1.0 9.3 7.2 NA NA
11/23/98 AMP Inc. Tyco International 11,606.0 2.1 19.8 11.5 15.1 9.7
11/23/98 Coltec Industries B.F. Goodrich 2,200.0 1.6 10.7 8.7 NA NA
11/23/98 Thyssen Dover Elevator Business 1,100.0 1.3 11.0 8.1 NA NA
11/23/98 BTR plc Siebe plc 10,313.0 0.8 5.7 4.4 NA NA
9/4/98 David Brown Group plc Textron 430.7 1.4 12.5 9.1 NA NA
8/21/98 Cincinnati Milacron's Machine Tool Unova, Inc. 178.0 0.4 10.7 NA NA NA
8/17/98 ASI Aerospace Group Inc. Pentacon Inc. 112.2 1.7 9.8 10.3 NA NA
7/20/98 SPX Corporation General Signal 2,335.0 1.4 7.8 6.5 6.8 5.6
6/16/98 U.S. Rentals United Rentals 1,338.0 2.9 20.1 8.6 16.3 7.0
6/1/98 Calmar Inc. Saint-Gobain 400.0 1.7 14.8 7.7 NA NA
4/27/98 Fluke Danaher 625.0 1.4 13.4 10.1 10.8 8.1
3/11/98 LICO Columbus McKinnon 155.0 1.1 15.4 14.2 NA NA
3/11/98 Keystone (Bass Group) Grove Worldwide 606.0 0.7 9.1 7.1 NA NA
2/18/98 Zurn Industries U.S. Industries 765.0 1.3 12.9 10.0 9.3 7.6
1/8/98 P&H Material Handling Chartwell Investments 425.0 1.2 11.7 9.4 NA NA
12/16/97 O&K Mining GmbH Terex 169.0 0.6 11.2 8.3 NA NA
12/11/97 TriMas Corporation MascoTech, Inc. 1,371.0 2.1 12.1 9.9 12.3 10.0
12/12/97 Perkins Engines Caterpillar 1,325.0 1.2 13.6 9.0 NA NA
12/4/97 Nelson Industries Cummins Engine 488.0 1.7 14.8 11.9 NA NA
11/11/97 Ransomes plc Textron 290.0 1.0 10.1 7.8 7.4 6.3
10/12/97 Greenfield Industries Kennametal 943.0 1.8 15.6 11.6 12.5 9.8
9/15/97 Thermo King Ingersoll-Rand 2,560.0 2.5 13.5 12.3 NA NA
7/24/97 Astrotech International Corp. ITEQ, Inc. 148.0 1.0 16.5 11.0 NA NA
6/26/97 Arden Industrial Products Park-Ohio Corporation 47.6 0.6 9.4 13.0 NA NA
6/26/97 Imo Industries Constellation Capital Partners 415.0 0.9 16.3 9.1 11.1 7.2
6/24/97 SEDA Specialty Packaging Corp. CCL Industries 176.0 2.9 14.5 10.2 NA NA
6/16/97 Core Industries United Dominion 298.0 1.2 11.5 9.3 NA NA
6/16/97 Raymond BT Industries 440.0 1.3 12.1 10.0 10.5 8.9
6/12/97 Giddings & Lewis Thyssen 705.0 1.0 13.4 9.6 12.5 9.2
3/27/98 Falcon Building Products, Inc. Investcorp 590.0 0.9 9.9 7.8 9.6 7.7
2/27/97 Marathon Electric Regal-Beloit 248.3 1.0 9.1 7.2 NA NA
2/18/97 Invetech Co. Applied Industrial Tech. 130.8 0.4 10.8 15.4 NA NA
------------------------------------------------------------------------------------------------------------------------------------
Mean 1.3x 12.5x 9.5x 11.1x 8.1x
Median 1.2 12.1 9.4 11.0 8.1
High 2.9 20.1 15.4 16.3 10.0
Low 0.4 5.7 4.4 6.8 5.6
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
69
<PAGE> 85
THE OUTRIGHT SALE OF HARBOR WOULD CAPTURE A PREMIUM WHILE INCURRING ONLY
SHAREHOLDER-LEVEL TAXATION
SEVERAL ISSUES SHOULD BE CONSIDERED PRIOR TO EMBARKING ON A SALE PROCESS
Price > - Relative to market value
- Relative to management operating plan
- Relative to shareholder's basis
Timing > - Economic cycle
- Management's expected operating improvements
- Speed of process
Confidentiality > - Of any sale process
- Of corporate information/data
OVERLAYED ON THESE ISSUES IS THE EXPECTED REACTION OF HARBOR'S KEY CONSTITUENTS:
SHAREHOLDERS (INCLUDING INSIDERS), CUSTOMERS AND SUPPLIERS, AND EMPLOYEES
70
<PAGE> 86
2. SELECTED POTENTIAL BUYERS
<PAGE> 87
POTENTIAL BUYERS
<TABLE>
<CAPTION>
"A" LIST "B" LIST
----------------- ----------------------------------------------------------
<S> <C> <C>
Dana American Axle Mark IV
Delphi Barnes Group Mayflower
Federal Mogul Borg Warner New Venture Gear
GKN plc Carlisle Park Ohio
Meritor Automotive Danaher Parker Hannafin
SPX Dover Simpson
Textron Eaton Teksid
Tyco Hayes Lemmerz TI Group
ZF Illinois Tool Works Tomkins
Intermet Tower Automotive
FINANCIAL/HYBRID BUYERS Kolbenschmidt Pierburg TRW
-----------------------
Blackstone Krupp Thyssen US Industries
CVC Linamar Vallourec
Hidden Creek Magna Visteon
Mannesmann
</TABLE>
71
<PAGE> 88
"A" LIST POTENTIAL BUYERS
<TABLE>
<CAPTION>
PROS CONS
------------------------------------------------------- ----------------------------------------------------------
<S> <C> <C>
DANA - Complements product lines and supports "rolling - May question need to own Harbor, rather than
chassis" strategy continue to purchase components
- Significant access to capital (e.g., A- credit - EVA focus provides discipline when evaluating
rating) capital intensive targets
- Strong customer/supplier relationship already - Very "systems" focused
exists - Non-auto business is a potential distraction
- May be focused on Echlin integration
-----------------------------------------------------------------------------------------------------------------------
DELPHI - Access to capital - Questionable willingness to pay competitive value
- Expands non-GM business (e.g., favors "asset purchases")
- Focused on growth following IPO - Non-auto businesses would be viewed as a
- Pursued ITT Chassis distraction
- May not fit Delphi's focus
</TABLE>
72
<PAGE> 89
"A" LIST POTENTIAL BUYERS (CONTINUED)
<TABLE>
<CAPTION>
PROS CONS
--------------------------------------------------------- ------------------------------------------------------
<S> <C> <C>
FEDERAL MOGUL - Aggressive acquiror with proven ability to finance - May be focused on integration of Cooper, T&N and
transactions Fel-Pro acquisitions
- Demonstrated ability to communicate strategy to - Balance sheet is currently levered; equity may
capital markets be required
- Complements existing product lines and supports - Currently very system focused
strategic focus - EVA driven
- Expands products to include more transmission hard - Willingness to diversify into non-automotive or
parts unrelated businesses is questionable
- FMO values advanced metalforming technologies
(e.g., powder/sintered metal)
-----------------------------------------------------------------------------------------------------------------
GKN - Expands highly complementary product lines and - Pro forma concentration in constant velocity
manufacturing processes joints and connecting rods may raise concerns
- Focused on powder metal - Uncertain interest in Harbor's diversified
- History of paying strategic premiums (e.g., Sinter operations
Metals) - Several recent corporate actions, divestitures
- Seeking to expand North American operations and acquisitions have streamlined operations
- Acquired BWA's powder metal forged connecting rod - Recent additions of non-automotive operations
operations have been well received by investors
- Serves automotive, aerospace and industrial markets
- No debt, with higher relative multiples
</TABLE>
73
<PAGE> 90
"A" LIST POTENTIAL BUYERS (CONTINUED)
<TABLE>
<CAPTION>
PROS CONS
------------------------------------------------------ --------------------------------------------------------
<S> <C> <C>
MERITOR - May serve as potential defensive move - Non-transportation operations may not be
AUTOMOTIVE - Strong strategic fit considered highly strategic / attractive
- Supports Meritor's efforts to achieve heavy - Focus may be on integration of recent acquisitions
duty/light duty balance in driveline components - Investment grade credit rating (BBB) would likely
- Provides logical expansion of product lines and be at risk
adds critical mass to Heavy Vehicle Systems - Represents significant transaction, doubling firm
- Adds considerable metal working technology value
- Access to capital - Despite recent surge, stock price and multiples
have suffered
------------------------------------------------------------------------------------------------------------------
SPX - Confident management team attempting to create - May be focused on integrating General Signal
value through EVA disciplines - May require equity financing to avoid too much
- Extremely acquisitive with access to capital leverage
- Diversified manufacturer with several niche
businesses, including high margin metal automotive
components
- Willing to make EVA negative acquisitions if
improvements can be made
</TABLE>
74
<PAGE> 91
"A" LIST POTENTIAL BUYERS (CONTINUED)
<TABLE>
<CAPTION>
PROS CONS
--------------------------------------------------------- ---------------------------------------------------------
<S> <C> <C>
TEXTRON - Diversified company with automotive, aerospace and - Diversification is focused
fastener operations - Automotive business is primarily plastics
- Over $2 billion in cash on balance sheet and (interior and exterior trim and fuel tanks)
significant access to capital markets - Aerospace business includes Bell Helicopters and
- Values high margin businesses with growth potential Cessna Airplanes
---------------------------------------------------------------------------------------------------------------------
TYCO - Aggressive acquiror with access to capital and a - EVA driven
demonstrated ability to consummate transactions - Recent acquisition of AMP may dull near-term
- Many of Harbor's niche businesses would be a good appetite for large transaction
strategic fit (e.g., Reese, Compaq) - Investors have applauded discipline of having
- Not afraid to add a "new leg" "focused" diversity
- Potential synergies in metalworking expertise with - Averse to cyclical businesses
Tyco's Flow Control Operations
---------------------------------------------------------------------------------------------------------------------
ZF - Seeking to expand North American presence - Has not been acquisitive since attempt to acquire
- Complementary product lines (e.g., axle, Allison Transmission
transmission, chassis)
</TABLE>
75
<PAGE> 92
3. PROCESS OVERVIEW
<PAGE> 93
A RANGE OF PROCESS ALTERNATIVES IS AVAILABLE TO HARBOR
<TABLE>
<CAPTION>
NEGOTIATED SALE CONTROLLED PROCESS FULL AUCTION
------------------------------------------------------------ --------------------------------- -----------------------------------
<S> <C> <C> <C>
DESCRIPTION OF PROCESS - Conduct negotiations - Specific list of - Wide range of
with the selected potential buyers potential buyers contacted
party/parties most likely contacted based upon and indications of
to consummate a likelihood of interest elicited from all
transaction on favorable consummating a interested prospective
terms transaction on favorable buyers
terms
LEVEL OF DISCLOSURE - Limited new contacts - Limited disclosure - General public
or disclosure, focus on of existence of sale disclosure through press
only the most likely process release
parties
NUMBER OF POTENTIAL BUYERS - Typically 1 - 3 - Typically 4 - 15 - Typically 15+
APPROXIMATE TIME REQUIRED - 2 months or less - 3 - 4 months - 4 months or more
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
76
<PAGE> 94
APPENDIX
<PAGE> 95
A. DETAILED SUMMARY OF ALTERNATIVE TRANSACTION
STRUCTURES
<PAGE> 96
VIABILITY OF ALTERNATIVE TRANSACTION STRUCTURES
<TABLE>
<CAPTION>
CORPORATE FACTORS TRANSACTION FACTORS
TAX CONTROL EXECUTION
TRANSACTION ALTERNATIVE SIZE LEVERAGE GROWTH EFFICIENCY PREMIUM FEASIBILITY
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
STAND ALONE
Status Quo M L M NA NA NA
Leveraged Recapitalization L L L L L L
Major Acquisition for Stock M M M M L M
---------------------------------------------------------------------------
SEPARATION: PUBLIC DISTRIBUTION
Equity Carve-Out L H L L L L
Spin-Off L L L H L M
Split-Off L L L M L M
Tracking Stock L M L H L L
---------------------------------------------------------------------------
SEPARATION: PRIVATE DISTRIBUTION
Leveraged Partnership L L M H M L
Sale of Segment L L L L M M
Morris Trust M L M M M L
---------------------------------------------------------------------------
SALE
Strategic NA NA M H H M
LBO/Going Private NA NA L H H M
</TABLE>
------------------ ------------------- -------------------
L = Low M = Medium H = High
------------------ ------------------- -------------------
77
<PAGE> 97
STAND ALONE
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
Status Quo Recapitalization Major Acquisition
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DESCRIPTION - Continue with existing plan - Repurchase Harbor stock with - Acquire large company to
existing cash (plus potentially redefine corporate
additional borrowed funds) positioning
---------------------------------------------------------------------------------------------------------------------------------
TAX ISSUES - None; other than sale of - Capital gains for selling - None
non-core operations shareholders
---------------------------------------------------------------------------------------------------------------------------------
HARBOR CONSIDERATIONS - Avoid execution risk of doing - Accretive to earnings - Achieve synergies
any separation transaction - Possibly sends signal to market - Stock market favors
PROS - Maintain flexibility to pursue that stock is "undervalued" "critical mass"
alternatives in the future - Potentially reduces "overhang" - Stock market also likes
- Benefit of strong internal "industry consolidators"
growth - Numerous strategic
opportunities
CONS - Current market dissatisfaction - Not available due to current
remains leverage position - Inability to finance with
- Continued high leverage - Lack of additional cash
- Continued small market opportunities to reduce debt - M&A valuations are at
capitalization and related "overhang" - Impact on pooling historical highs
- Considerable cyclicality remains - Increases net leverage - If stock, potential dilution;
- Corporate structure remains - Reduces flexibility to fund Harbor does not enjoy high
confusing to investor base future growth multiple currency
- Reduces float and liquidity - May require compromises on
- Reduces attractiveness of management and social issues
Harbor as a takeover candidate
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
78
<PAGE> 98
SEPARATION: PUBLIC DISTRIBUTION
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Equity Carve-Out Spin-Off
--------------------------------------------------------------------------------
<S> <C> <C>
DESCRIPTION - Initial Public Offering - Pro rata distribution of
of subsidiary to new shares in subsidiary to
shareholders Harbor's shareholders or
- Need to establish separate subsidiary
independent borrowing - Need to establish separate
relationships independent borrowing
- If Harbor retains more than relationships
50%, financials are - Tax-free spin-off requires
consolidated less minority distribution of 80% control
interest and results in tax and
- No special vote required accounting consolidation
- IPO proceeds can go to - No earnings attributable to
Harbor or subsidiary Harbor
- Cash proceeds limited to
"midnight dividend"
--------------------------------------------------------------------------------
TAX ISSUES - Tax free to subsidiary if - Tax free to both Harbor and
primary issuance its shareholders (80% spin-
- Taxable to Harbor if off required)
proceeds retained by Harbor - Spun-off entity cannot do
- Tax consolidation tax-free transaction within
maintained only if 80% or 9-24 months
more is retained by Harbor - Tax consolidation eliminated
- If IPO less than 20%,
Harbor maintains
flexibility to do follow-on
tax-free spin-off
--------------------------------------------------------------------------------
HARBOR - Creates "pure-play" entity - Creates two "pure-play"
CONSIDERATIONS with new shareholder base companies
- Establishes stable - May unlock hidden value in
PROS valuation through "pure-play" tax-efficient manner
research coverage and - No underwriting fees or
institutional following (prior discount
to ultimate spin-off)
- Avoids initial shareholder
turnover
- Timing of 3 - 5 months; no
shareholder vote
CONS - Less than 20% IPO likely - Likely shareholder turnover
will not be large enough to at spin-off entity
attract research coverage and - Reduces critical mass of
institutional following both entities necessary to
- IPO expenses and "discount" command peer valuation
- "Overhang" issue - Lack of initial research
exacerbated coverage and pure-play
- IPO may not have critical investors likely to result
mass and/or growth prospects in shareholders churn and
to be attractive IPO candidate short-term depressed
- Separate legal entities valuations
and Boards required - No private market premium
- Pooling restriction on both
entities for "2 years"
- Separate legal entities and
Boards required
</TABLE>
79
<PAGE> 99
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Split-Off Tracking Stock
--------------------------------------------------------------------------------
<S> <C> <C>
DESCRIPTION - Exchange offer to - Harbor issues new class of
Harbor's shareholders Harbor common stock which
who receive shares in tracks performance of
subsidiary in exchange subsidiary
for shares in Harbor - Harbor remains legal parent
- Proceeds limited to of tracking stock subsidiary
"midnight dividend" - Accounting consolidation
remains; initial flexibility
in determining allocation of
debt to tracked divisions
- Proceeds can be to Harbor or
tracking stock entity
- Dual EPS presentation
- No impact on consolidated
net income; EPS attributable
to tracking stock is
reported
--------------------------------------------------------------------------------
TAX ISSUES - Tax free to both Harbor - Tax free to both Harbor and
and its shareholders it's shareholders
- Spun-off entity cannot do - Tax consolidation maintained
tax-free transaction
within 9-24 months
- Tax consolidation
eliminated
--------------------------------------------------------------------------------
HARBOR - Creates two "pure-play" - Harbor retains control and
CONSIDERATIONS companies with desired consolidation
mix of shareholders - Does not require separation
PROS - May unlock hidden value of Harbor and subsidiaries
in tax-efficient manner - May unlock hidden value in
- Minimizes turnover in tax-efficient manner
both entities' shares - Reversible at pre-determined
premium
- Existing capital structure
maintained
- No need to establish
separate legal entities and
boards
CONS - Complex transaction - Creates two lower
- Requires a minimum capitalized companies with
subscription level far less critical mass to
- Requires a valuation of attract research coverage
spun-off entity to and institutional following
determine exchange ratio - Complicates overall capital
- Lack of initial research structure of Harbor
coverage - Creates complex corporate
- Reduces critical mass of governance issues and
both entities necessary to fiduciary conflicts of
command peer valuation interest
- No private market premium - Tracking stock is less
- Pooling restriction on attractive as acquisition
both entities for "2 years" currency and "queries"
- Separate legal entities pooling tracking stock
and boards required entity
- Complicates reporting
requirements
- Reduces attractiveness of
Harbor and/or tracking stock
entity as a takeover
candidate
- Timing of 3 - 5 months;
special shareholder vote
required to amend charter
and authorize shares
</TABLE>
80
<PAGE> 100
SEPARATION: PRIVATE MARKET
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
Sale For Acquiror Stock (plus
Sale For Cash 338 (h) (10) Election Monetization)
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DESCRIPTION - Sale of stock in - Election would provide for - Sale of stock in subsidiary for
subsidiary for cash taxable subsidiary sale to be treated stock in Acquiror
as an asset sale for tax purposes - Monetize stock through
exchangeable DECS issuance
-----------------------------------------------------------------------------------------------------------------------------------
TAX ISSUES - Taxable at Harbor - Harbor rationale will depend on - Tax free at Harbor level
level increased price vs. stock basis over - Taxable at shareholder level if
tax basis acquiror stock is distributed to
- Also taxable at - Potential tax recapture to Harbor Harbor's shareholders
shareholder level if
cash proceeds are
distributed to
Harbor's
shareholders
-----------------------------------------------------------------------------------------------------------------------------------
HARBOR - Same as sale for - Same as sale for cash, plus: - Ability to monetize stock
CONSIDERATIONS cash, plus: - Incremental value to buyer as a through exchangeable DECS resulting
- Harbor receives cash result of tax shields; may result in in deferred taxation
PROS needed to increased after-tax proceeds - Cost accounting applied to
grow/invest in interest in acquiror
remaining operations
- Numerous strategic - DRD on any dividends
alternatives for use - Dividends from acquiror stock
of proceeds may offset potential DECS dividend
- More focused company
with stronger
balance sheet which
may result in
multiple expansion
- May create more
focused takeover
candidate or merger
partner
CONS - Reduce Harbor's - Unattractive to Harbor; stock - Defers, does not eliminate, taxes
capitalization and basis is significantly higher than - DECS dividend not tax -
critical mass tax basis for all segments deductible
- Tax leakage - Harbor becomes a holding company
- [No clearly with remaining operations and
identified acquirer stock
subsidiary sale
candidate]
-----------------------------------------------------------------------------------------------------------------------------------
BUYER CONSIDERATIONS - Buyer purchases - Buyer purchases desired business - Buyer purchases desired business
desired business only only
PROS only - Ability to tax depreciate
stepped-up assets and tax amortize
goodwill
CONS - Purchase accounting; subsidiary
cannot pool
- Harbor as significant shareholder
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Leveraged Recap MORRIS TRUST LEVERAGED PARTNERSHIP
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DESCRIPTION - Sale of majority of subsidiary - Tax-free spin-off of subsidiary - Harbor contributes subsidiary
to financial buyer for cash followed by a tax-free merger to joint venture (the "JV")
- Harbor maintains a stake in between Harbor and another Company - The JV receives long-term debt
subsidiary - After the merger, Harbor debt financing which is
shareholders must own over 50% of guaranteed by and distributed
pro forma combined entity to Harbor
------------------------------------------------------------------------------------------------------------------------------------
TAX ISSUES - Taxable at Harbor level - Tax free to Harbor and Harbor - Proceeds of financing are
- Also taxable at shareholder shareholders distributed to Harbor on a
level if cash proceeds are tax-deferred basis
distributed to Harbor's shareholders - Tax deferred until debt is
- Harbor maintains 10-20% interest paid down or guarantee is
in levered entity removed
- After 7 years, possible to
defer taxes to Harbor
indefinitely
------------------------------------------------------------------------------------------------------------------------------------
HARBOR - Same as sale for cash, plus: - Potential to separate auto and - Some continued participation
CONSIDERATIONS - Continued participation in diversified tax efficiently and in upside potential
upside potential receive M&A premium for - Provides virtual exit from
PROS non-distributed entity contributed subsidiary and
creates quasi "pure play"
company
CONS - Not a complete exit - Limits universe of - Not complete exit
- Harbor retains stake in highly "buyers"/partners to companies that - Contingent liability
leveraged entity are smaller than pro forma Harbor associated with debt
- Probably limited universe of - Pooling limitations on guarantee
financial buyers due to capital non-distributed entity for 2 years - Ultimate exit may be taxable
intensity of operations (inflexible) and on distributed event
entity for 1-2 years (flexible) - Requires long-term commitment
- Subsidiary stand alone public - JV corporate governance issues
market valuation issues (see
spin-off)
------------------------------------------------------------------------------------------------------------------------------------
BUYER CONSIDERATIONS - Buyer purchases desired business - Requirement is for >50% economic - Minimizes upfront cash payment
only ownership (vote and value); buyer - JV debt is non-recourse to
PROS - Buyer avoids purchase accounting does not have to give up other buyer
drag on earnings; only if buyer does elements of control (board,
not consolidate (financial buyer) management)
- No tax step-up until taxable
CONS event occurs
- Limitations on debt
amortization to satisfy
Harbor's tax objectives
- JV corporate governance issues
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
81
<PAGE> 101
SALE
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
SALE
---------------------------------------------------------------------------------------------------------
<S> <C>
DESCRIPTION - Sale of Harbor stock to strategic or financial buyer for cash or stock
---------------------------------------------------------------------------------------------------------
TAX ISSUES - Cash transaction taxable to shareholders
- Stock transaction tax-free until Acquiror stock is sold
---------------------------------------------------------------------------------------------------------
HARBOR - Likely to generate highest near-term value
CONSIDERATIONS - Simple and "clean" transaction
- Ability to achieve strategic premium
PROS - Active M&A market with all-time high valuations
- Avoid "go it alone" or "separation" execution and valuation risks
- Stock consideration: Continue to participate in upside potential and potential
synergies
CONS - Execution risk
- Potential for disruption
- Select buyer universe given lack of "pure play"
- Cash consideration: No continued upside potential
- Management and social issues
---------------------------------------------------------------------------------------------------------
BUYER CONSIDERATIONS
CONS - Desire (or lack thereof) to own both automotive and diversified industrial
- Regulatory issues
- Cash consideration: Purchase accounting and leverage issues
- Stock consideration: Ability to do pooling; however, pooling would prevent
sale of "unwanted subsidiary" within two years
---------------------------------------------------------------------------------------------------------
</TABLE>
82
<PAGE> 102
B. COMPARABLE COMPANIES ANALYSIS
<PAGE> 103
BROAD UNIVERSE OF COMPARATIVE COMPANIES
<TABLE>
<CAPTION>
STOCK LTM
VALUATION STATISTICS PRICE MARKET LTM EBIT N.I. PROJ. TOTAL
5-YEAR DEBT/
(Dollars in Millions, Except Stock Price) 5/13/99 CAP. REVENUES MARGIN CAGR(1) CAP.
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
HARBOR $17.13 $ 766.1 $1,647.5 13.2% 11.1% 85.0%
Amcast Industrial Corporation (AIZ) 17.06 157.1 579.5 6.3% 12.7% 55.8%
American Axle (AXL) 15.38 606.6 2,040.6 2.5% 11.4% 94.5%
Arvin Industries Inc. (ARV) 41.88 1,027.3 2,498.7 6.2% 12.0% 55.0%
Autoliv, Inc. (ALV) 33.19 3,385.1 3,488.7 10.1% 22.5% 30.8%
Borg-Warner Automotive (BWA) 59.75 1,397.4 2,598.3 8.9% 12.9% 33.6%
Citation Corp. (CAST) 13.25 237.0 738.7 6.4% 13.7% 57.3%
Dana Corporation (DCN) (3) 52.38 8,762.3 12,523.3 8.4% 12.0% 46.4%
Dura Automotive Systems, Inc. (DRRA) (4) 30.44 375.7 2,319.9 5.4% 23.4% 71.6%
Federal-Mogul Corporation (FMO) (5) 44.00 3,096.0 6,395.2 9.9% 15.5% 56.6%
Hayes Lemmerz International, Inc. (HAZ) (6) 31.75 958.2 2,309.4 10.4% 21.3% 88.6%
Intermet Corporation (INMT) 13.88 356.9 841.6 9.0% 15.0% 43.1%
Johnson Controls, Inc. (JCI) 69.50 5,885.8 13,403.6 5.2% 14.8% 54.7%
Lear Corporation (LEA) 51.50 3,435.5 11,991.3 5.4% 14.1% 74.9%
Magna International, Inc. (MGA) (7) 62.94 4,931.3 8,260.3 8.3% 14.7% 32.0%
Meritor Automotive (MRA) 25.63 1,768.8 4,459.0 7.9% 11.7% 76.4%
Modine Manufacturing Company (MODI) 32.88 973.2 1,085.4 10.5% 20.0% 30.8%
Simpson Industries, Inc. (SMPS) 9.75 177.2 496.4 6.9% 14.3% 45.9%
The Standard Products Company (SPD) 19.94 320.6 1,080.6 6.8% 9.0% 42.0%
Superior Industries International (SUP) 26.00 705.8 539.4 14.9% 11.3% 0.4%
Tower Automotive, Inc. (TWR) 24.00 1,109.7 1,836.5 9.6% 17.9% 57.5%
Wescast Industries Inc. (WCSTF) 34.00 447.3 185.2 24.7%(*) NA 2.7%
------------------------------------------------------------------------------------------------------------------------------------
MEAN $3,793.9 7.9% 15.0% 52.4%
MEDIAN 2,309.4 8.3% 14.2% 54.7%
------------------------------------------------------------------------------------------------------------------------------------
AlliedSignal (ALD) 61.94 34,507.3 15,128.0 13.0% 14.0% 39.7%
Cooper Industries Inc. (CBE) (8) 53.25 5,023.5 3,651.2 14.9% 10.7% 36.5%
Crane Co. (CR) 31.44 2,152.0 2,268.5 10.5% 13.0% 35.9%
Danaher Corp (DHR) (9) 66.56 9,005.9 2,910.0 12.6% 16.7% 25.9%
Dover (DOV) (10) 37.94 8,190.5 3,977.7 13.4% 12.4% 35.3%
Harsco Corporation (HSC) 33.88 1,395.7 1,735.4 10.8% 12.4% 34.7%
Illinois Tool Works Inc. (ITW) (11) 75.25 18,835.6 5,680.9 19.2% 14.6% 28.9%
Ingersoll-Rand Company (IR) 69.00 11,377.4 8,291.5 12.6% 12.5% 44.4%
Park-Ohio Holdings Corp. (PKOH) 13.88 154.7 551.8 7.3% 15.0% 62.9%
Rockwell International (ROK) (12) 61.56 11,682.5 6,872.0 13.2% 11.3% 34.4%
SPX Corporation (SPW) (13) 76.25 2,332.8 2,476.2 8.7% 16.0% 79.5%
Textron, Inc. (TXT) (14) 93.56 14,823.9 9,316.0 8.6% 14.3% 42.9%
Tyco International (TYC) (15) 88.44 57,120.3 19,717.9 12.1% 20.2% 50.3%
U.S. Industries (USI) (16) 17.38 1,712.8 3,362.0 8.5% 14.2% 49.4%
------------------------------------------------------------------------------------------------------------------------------------
MEAN $6,138.5 11.8% 14.1% 42.9%
MEDIAN 3,814.4 12.3% 14.1% 38.1%
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FIRM VALUE/
---------------------------------------------------
VALUATION STATISTICS P/E (1) FIRM LTM 1999(E)
--------------- ---------------------------------------------------
(Dollars in Millions, Except Stock Price) 1999(E) 2000(E) VALUE(2) REVENUES EBITDA EBIT EBITDA EBIT
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
HARBOR 9.5x 8.7x $2,067.4 1.3x 6.8x 9.5x 6.1x 8.7x
Amcast Industrial Corporation (AIZ) 7.2 6.4 351.6 0.6 5.1 9.6 4.6 8.7
American Axle (AXL) 7.6 6.8 1,498.0 0.7(*) 12.3(*) 29.8(*) 5.1 7.1
Arvin Industries Inc. (ARV) 11.8 10.7 1,258.6 0.5 5.1 8.2 4.1 6.3
Autoliv, Inc. (ALV) 15.5 13.6 4,103.9 1.2 7.1 11.6 6.7 10.7
Borg-Warner Automotive (BWA) 11.9 10.5 1,627.2 0.6 4.7 7.1 4.5 6.9
Citation Corp. (CAST) 10.1 8.8 483.8 0.7 5.6 10.2 5.0 8.5
Dana Corporation (DCN) (3) 12.1 10.5 11,268.5 0.9 7.8 10.7 6.4 8.8
Dura Automotive Systems, Inc. (DRRA) (4) 9.1 7.8 1,374.4 0.6 7.5 10.9 6.1 8.2
Federal-Mogul Corporation (FMO) (5) 9.2 7.9 7,659.9 1.2 8.0 12.1 5.8 7.9
Hayes Lemmerz International, Inc. (HAZ) (6) 13.2 10.3 2,598.8 1.1 6.5 10.8 5.6 8.3
Intermet Corporation (INMT) 6.8 6.1 517.7 0.6 4.6 6.8 3.9 5.6
Johnson Controls, Inc. (JCI) 16.5 14.3 7,976.1 0.6 7.2 11.4 6.1 9.6
Lear Corporation (LEA) 13.9 11.5 7,338.1 0.6 7.3 11.4 6.2 9.6
Magna International, Inc. (MGA) (7) 12.2 10.3 5,707.9 0.7 6.4 8.4 5.5 8.0
Meritor Automotive (MRA) 9.0 9.3 2,666.5 0.6 5.7 7.6 5.6 7.4
Modine Manufacturing Company (MODI) 12.3 10.4 1,121.4 1.0 7.2 9.8 6.4 8.7
Simpson Industries, Inc. (SMPS) 8.7 7.7 272.7 0.5 4.5 8.0 4.1 7.2
The Standard Products Company (SPD) 8.9 8.2 524.2 0.5 4.2 7.2 3.4 5.5
Superior Industries International (SUP) 11.0 10.2 624.1 1.2 5.8 7.8 4.8 6.3
Tower Automotive, Inc. (TWR) 12.2 10.8 1,716.2 0.9 6.5 9.8 5.8 8.2
Wescast Industries Inc. (WCSTF) 13.0 12.5 420.3 2.3 7.4 9.2 6.6 8.2
------------------------------------------------------------------------------------------------------------------------------------
MEAN 11.1x 9.7x 0.7x 6.9x 13.3x 5.3x 7.9x
MEDIAN 11.8 10.3 0.7 6.5 9.8 5.6 8.2
------------------------------------------------------------------------------------------------------------------------------------
AlliedSignal (ALD) 23.2 20.4 38,853.8 2.6 15.1 19.8 13.6 17.4
Cooper Industries Inc. (CBE) (8) 15.3 13.8 5,916.4 1.6 8.7 10.9 7.8 9.6
Crane Co. (CR) 13.6 12.4 2,532.1 1.1 8.4 10.6 7.7 9.5
Danaher Corp (DHR) (9) 36.6 32.2 9,940.5 3.4 20.9 27.1 18.3 23.2
Dover (DOV) (10) 23.0 19.3 9,223.7 2.3 13.2 17.3 12.3 16.1
Harsco Corporation (HSC) 14.8 12.5 1,723.2 1.0 5.4 9.2 5.2 8.7
Illinois Tool Works Inc. (ITW) (11) 25.3 22.1 19,156.6 3.4 14.7 17.6 NA 16.4
Ingersoll-Rand Company (IR) 19.5 17.6 14,238.3 1.7 10.7 13.6 9.8 12.1
Park-Ohio Holdings Corp. (PKOH) 9.4 8.5 390.7 0.7 7.4 9.7 5.8 8.0
Rockwell International (ROK) (12) 20.0 18.3 13,067.9 1.9 10.8 14.4 9.4 12.2
SPX Corporation (SPW) (13) 15.4 13.4 3,736.2 1.5 11.6 17.2 8.2 11.0
Textron, Inc. (TXT) (14) 23.4 20.6 19,602.0 2.1 17.1 24.5 13.6 16.6
Tyco International (TYC) (15) 27.7 22.2 65,303.1 3.3 18.4 27.4 13.5 17.9
U.S. Industries (USI) (16) 10.3 8.9 2,632.8 0.8 6.9 9.2 6.1 7.9
------------------------------------------------------------------------------------------------------------------------------------
MEAN 19.8x 17.3x 2.0x 12.1x 16.3x 10.1x 13.3x
MEDIAN 19.8 18.0 1.8 11.2 15.8 9.4 12.2
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note: EBITDA, EBIT, Net Income to Common, and EPS adjusted for unusual and
nonrecurring items.
(*)Denotes outlier excluded from MEAN calculation; LTM: Latest Twelve Months;
NM: Not Meaningful
(1) Source: C.A.G.R. estimates taken from I/B/E/S; Forward estimates taken
from First Call earnings report.
(2) Firm Value equals equity value (all fully diluted shares at the stock
price less any option proceeds) plus straight debt, minority interest,
straight preferred stock, all out-of-the-money converts, less cash and
investments in affiliates.
(3) Pro forma for the acquisition of Echlin and $1 billion notes offering in
March 1999, includes Glacier Vandervell from date of acquisition; includes
Dana Credit Corporation on an equity basis.
(4) Pro forma for the April 1998 acquisition of Trident and January 1999
acquisitions of Excel and Adwest.
(5) Firm value includes NPV of asbestos liability; Pro forma for the
acquisition of Cooper Automotive, T&N and Fel-Pro including 12/98 equity
offering.
(6) Estimated pro forma for acquisition of CMI International and recent $250MM
8 1/4% Sr Sub Notes Offering.
(7) Pro forma for the 6/98 acquisition of Steyr-Daimler Puch AG; balance
sheet items accounted for under U.S. GAAP.
(8) Accounts for Cooper Automotive as discontinued operations.
(9) Pro forma for the acquisition of Fluke Corporation.
(10) Accounts for the Elevator business as discontinued operations.
(11) Pro forma for the acquisition of Trident International on February 17,
1999.
(12) Not pro forma for the January 1, 1999 spin-off of the Semiconductors
Systems business.
(13) Pro forma for the acquisition of General Signal.
(14) Textron Manufacturing is reported on an equity basis; Avon Financial
Services accounted for as discontinued operations.
(15) Pro forma for the April 6, 1999 acquisition of AMP Inc.
(16) Pro forma for the June 11, 1998 acquisition of Zurn Industries.
<PAGE> 104
VALUATION FOCUS GROUP - AUTOMOTIVE OEM SUPPLIERS
<TABLE>
<CAPTION>
STOCK LTM N.I. PROJ. TOTAL
VALUATION STATISTICS PRICE MARKET LTM EBIT 5-YEAR DEBT/ P / E (1)
---------------
(Dollars in Millions, Except Stock Price) 5/13/99 CAP. REVENUES MARGIN CAGR (1) CAP. 1999(E) 2000(E)
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Amcast Industrial Corporation (AIZ) $17.06 $ 157.1 $ 579.5 6.3% 12.7% 55.8% 7.2x 6.4x
American Axle (AXL) 15.38 606.6 2,040.6 2.5% 11.4% 94.5% 7.6 6.8
Borg-Warner Automotive (BWA) 59.75 1,397.4 2,598.3 8.9% 12.9% 33.6% 11.9 10.5
Citation Corp. (CAST) 13.25 237.0 738.7 6.4% 13.7% 57.3% 10.1 8.8
Collins & Aikman Corp (CKC) 6.69 414.2 1,825.5 5.4% 5.5% 110.0% 8.9 7.6
Donnelly Corp. (DON) 15.63 157.7 832.0 2.0% 9.4% 51.3% 13.1 14.0
Dura Automotive Systems, Inc. (DRRA) (3) 30.44 375.7 2,319.9 5.4% 23.4% 71.6% 9.1 7.8
Hayes Lemmerz International, Inc. (HAZ) (4) 31.75 958.2 2,309.4 10.4% 21.3% 88.6% 13.2 10.3
Intermet Corporation (INMT) 13.88 356.9 841.6 9.0% 15.0% 43.1% 6.8 6.1
Modine Manufacturing Company (MODI) 32.88 973.2 1,085.4 10.5% 20.0% 30.8% 12.3 10.4
Simpson Industries, Inc. (SMPS) 9.75 177.2 496.4 6.9% 14.3% 45.9% 8.7 7.7
The Standard Products Company (SPD) 19.94 320.6 1,080.6 6.8% 9.0% 42.0% 8.9 8.2
Superior Industries International (SUP) 26.00 705.8 539.4 14.9% 11.3% 0.4% 11.0 10.2
Tower Automotive, Inc. (TWR) 24.00 1,109.7 1,836.5 9.6% 17.9% 57.5% 12.2 10.8
Wescast Industries Inc. (WCSTF) 34.00 447.3 185.2 24.7%(*) NA 2.7% 13.0 12.5
------------------------------------------------------------------------------------------------------------------------------------
MEAN $1,287.3 7.5% 14.1% 52.3% 10.3x 9.2x
MEDIAN 1,080.6 6.9% 13.3% 51.3% 10.1 8.8
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FIRM VALUE/
VALUATION STATISTICS ---------------------------------------------
FIRM LTM 1999 (E)
---------------------------------------------
(Dollars in Millions, Except Stock Price) VALUE(2) REVENUES EBITDA EBIT EBITDA EBIT
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Amcast Industrial Corporation (AIZ) $ 351.6 0.6x 5.1x 9.6x 4.6x 8.7x
American Axle (AXL) 1,498.0 0.7(*) 12.3(*) 29.8(*) 5.1 7.1
Borg-Warner Automotive (BWA) 1,627.2 0.6 4.7 7.1 4.5 6.9
Citation Corp. (CAST) 483.8 0.7 5.6 10.2 5.0 8.5
Collins & Aikman Corp (CKC) 1,268.9 0.7 7.7 12.9 6.7 11.3
Donnelly Corp. (DON) 224.3 0.3 5.6 13.5 4.9 9.5
Dura Automotive Systems, Inc. (DRRA) (3) 1,374.4 0.6 7.5 10.9 6.1 8.2
Hayes Lemmerz International, Inc. (HAZ) (4) 2,598.8 1.1 6.5 10.8 5.6 8.3
Intermet Corporation (INMT) 517.7 0.6 4.6 6.8 3.9 5.6
Modine Manufacturing Company (MODI) 1,121.4 1.0 7.2 9.8 6.4 8.7
Simpson Industries, Inc. (SMPS) 272.7 0.5 4.5 8.0 4.1 7.2
The Standard Products Company (SPD) 524.2 0.5 4.2 7.2 3.4 5.5
Superior Industries International (SUP) 624.1 1.2 5.8 7.8 4.8 6.3
Tower Automotive, Inc. (TWR) 1,716.2 0.9 6.5 9.8 5.8 8.2
Wescast Industries Inc. (WCSTF) 420.3 2.3 7.4 9.2 6.6 8.2
------------------------------------------------------------------------------------------------------------------------------------
MEAN 0.8x 5.9x 9.5x 5.2x 7.9x
MEDIAN 0.7 5.8 9.8 5.0 8.2
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note: EBITDA, EBIT, Net Income to Common, and EPS adjusted for unusual and
nonrecurring items.
(*) Denotes outlier excluded from MEAN calculation; LTM: Latest Twelve Months;
NM: Not Meaningful
(1) Source: C.A.G.R. estimates taken from I/B/E/S; Forward estimates taken
from First Call earnings report.
(2) Firm Value equals equity value (all fully diluted shares at the stock
price less any option proceeds) plus straight debt, minority interest,
straight preferred stock, all out-of-the-money converts, less cash and
investments in affiliates.
(3) Pro forma for the April 1998 acquisition of Trident and January 1999
acquisitions of Excel and Adwest.
(4) Estimated pro forma for acquisition
of CMI International and recent $250MM 8 1/4% Sr Sub Notes Offering.
<PAGE> 105
VALUATION FOCUS GROUP - DIVERSIFIED INDUSTRIALS
<TABLE>
<CAPTION>
STOCK LTM N.I. PROJ. TOTAL
VALUATION STATISTICS PRICE MARKET LTM EBIT 5-YEAR DEBT/ P / E (1) FIRM
----------------
(Dollars in Millions, Except Stock Price) 5/13/99 CAP. REVENUES MARGIN CAGR (1) CAP. 1999(E) 2000(E) VALUE(2)
--------------------------------------------------================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cooper Industries Inc. (CBE) (3) $53.25 $5,023.5 $ 3,651.2 14.9% 10.7% 36.5% 15.3x 13.8x $5,916.4
Crane Co. (CR) 31.44 2,152.0 2,268.5 10.5% 13.0% 35.9% 13.6 12.4 2,532.1
Park-Ohio Holdings Corp. (PKOH) 13.88 154.7 551.8 7.3% 15.0% 62.9% 9.4 8.5 390.7
SPX Corporation (SPW) (4) 76.25 2,332.8 2,476.2 8.7% 16.0% 79.5% 15.4 13.4 3,736.2
U.S. Industries (USI) (5) 17.38 1,712.8 3,362.0 8.5% 14.2% 49.4% 10.3 8.9 2,632.8
Harsco Corporation (HSC) 33.88 1,395.7 1,735.4 10.8% 12.4% 34.7% 14.8 12.5 1,723.2
----------------------------------------------------------------------------------------------------------------------------------
Mean $2,340.8 10.1% 13.6% 49.8% 13.1x 11.6x
Median 2,372.4 9.6% 13.6% 43.0% 14.2 12.4
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FIRM VALUE/
-------------------------------------
VALUATION STATISTICS LTM 1999 (E)
-------------------------------------
(Dollars in Millions, Except Stock Price) REVENUES EBITDA EBIT EBITDA EBIT
=====================================================================================
<S> <C> <C> <C> <C> <C>
Cooper Industries Inc. (CBE) (3) 1.6x 8.7x 10.9x 7.8x 9.6x
Crane Co. (CR) 1.1 8.4 10.6 7.7 9.5
Park-Ohio Holdings Corp. (PKOH) 0.7 7.4 9.7 5.8 8.0
SPX Corporation (SPW) (4) 1.5 11.6 17.2 8.2 11.0
U.S. Industries (USI) (5) 0.8 6.9 9.2 6.1 7.9
Harsco Corporation (HSC) 1.0 5.4 9.2 5.2 8.7
-------------------------------------------------------------------------------------
Mean 1.1x 8.1x 11.1x 6.8x 9.1x
Median 1.1 7.9 10.2 6.9 9.1
-------------------------------------------------------------------------------------
</TABLE>
Note: EBITDA, EBIT, Net Income to Common, and EPS adjusted for unusual and
nonrecurring items.
(*) Denotes outlier excluded from MEAN calculation; LTM: Latest Twelve Months;
NM: Not Meaningful
(1) Source: C.A.G.R. estimates taken from I/B/E/S; Forward estimates taken
from First Call earnings report.
(2) Firm Value equals equity value (all fully diluted shares at the stock
price less any option proceeds) plus straight debt, minority interest,
straight preferred stock, all out-of-the-money converts, less cash and
investments in affiliates.
(3) Accounts for Cooper Automotive as discontinued operations.
(4) Pro forma for the acquisition of General Signal.
(5) Pro forma for the June 11, 1998 acquisition of Zurn Industries.
<PAGE> 106
Valuation Focus Group - Fasteners
<TABLE>
<CAPTION>
Stock LTM N.I. Proj. Total P / E (1)
VALUATION STATISTICS Price Market LTM EBIT 5-Year Debt / --------------------
(Dollars in Millions, Except Stock Price) 5/13/99 Cap. Revenues Margin CAGR(1) Cap. 1999(E) 2000(E)
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Barnes Group Inc. (B) $ 23.50 $ 465.7 $ 651.2 8.5% NA 23.4% 9.8x NA
Cordant Technologies Inc.(CDD) 47.38 1,732.9 2,426.9 12.7% 15.8% 37.7% 11.8 10.7
Fastenal Company (FAST) 50.25 1,906.4 503.1 17.3% 26.2% 1.8% 28.7 22.8
Park-Ohio Holdings Corp.(PKOH) 13.88 154.7 551.8 7.3% 15.0% 62.9% 9.4 8.5
Pentacon, Inc. (JIT) 5.63 93.8 285.2 11.4% 10.5% 54.3% 11.7 6.9
Precision Castparts (PCP) 42.00 1,023.1 1,415.0 13.0% 14.0% 40.1% 10.4 9.0
-----------------------------------------------------------------------------------------------------------------------------
MEAN $ 972.2 11.7% 16.3% 36.7% 13.6x 11.6x
MEDIAN 601.5 12.1% 15.0% 38.9% 11.0 9.0
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Firm Value /
--------------------------------------------
LTM 1999 (E)
VALUATION STATISTICS Firm --------------------------------------------
(Dollars in Millions, Except Stock Price) Value(2) Revenues EBITDA EBIT EBITDA EBIT
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Barnes Group Inc. (B) $ 482.0 00.7x 5.8x 8.7x NA NA
Cordant Technologies Inc.(CDD) 2,234.2 00.9 5.4 7.2 5.0 6.7
Fastenal Company (FAST) 1,908.4 03.8 19.4 21.9 15.8 18.0
Park-Ohio Holdings Corp.(PKOH) 390.7 00.7 7.4 9.7 5.8 8.0
Pentacon, Inc. (JIT) 231.6 00.8 6.7 7.1 NA NA
Precision Castparts (PCP) 1,449.5 01.0 6.2 7.9 6.0 7.7
----------------------------------------------------------------------------------------------------
MEAN 1.3x 8.5x 10.4x 8.1x 10.1x
MEDIAN 0.9 6.5 8.3 5.9 7.8
----------------------------------------------------------------------------------------------------
</TABLE>
Note: EBITDA, EBIT, Net Income to Common, and EPS adjusted for unusual and
nonrecurring items.
(*)Denotes outlier excluded from MEAN calculation; LTM: Latest Twelve Months;
NM: Not Meaningful
(1) Source: C.A.G.R. estimates taken from I/B/E/S; Forward estimates taken
from First Call earnings report.
(2) Firm Value equals equity value (all fully diluted shares at the stock
price less any option proceeds) plus straight debt, minority interest,
straight preferred stock, all out-of-the-money converts, less cash and
investments in affiliates.
<PAGE> 107
VALUATION FOCUS GROUP - PACKAGING AND SEALING
<TABLE>
<CAPTION>
Stock LTM N.I. Proj. Total P / E (1)
VALUATION STATISTICS Price Market LTM EBIT 5-Year Debt/ --------------------
(Dollars in Millions, Except Stock Price) 5/13/99 Cap. Revenues Margin CAGR(1) Cap. 1999(E) 2000(E)
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AptarGroup Inc. (ATR) $29.25 $1,055.6 $713.5 13.3% 14.7% 22.1% 17.7x 15.7x
Chart Industries (CTI) (3) 9.75 230.1 437.2 14.1% 15.0% 72.7% 17.7 8.5
Chicago Bridge & Iron (CBI) 13.13 148.1 775.7 3.4% 13.3% 7.4% 8.3 7.1
ITEQ, Inc. (ITEC) 2.44 68.7 302.8 7.9% 25.0% 54.3% 8.1 6.4
--------------------------------------------------------------------------------------------------------------------------------
Mean $557.3 9.7% 17.0% 39.1% 13.0x 9.4x
Median 575.3 10.6% 14.9% 38.2% 13.0 7.8
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Firm Value /
------------------------------------------------
LTM 1999 (E)
VALUATION STATISTICS Firm ------------------------------------------------
(Dollars in Millions, Except Stock Price) Value(2) Revenues EBITDA EBIT EBITDA EBIT
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AptarGroup Inc. (ATR) $1,173.9 1.6x 7.8x 12.3x 6.8x 10.8x
Chart Industries (CTI) (3) 479.8 1.1 7.0 7.8 NA NA
Chicago Bridge & Iron (CBI) 155.5 0.2 3.5 5.9 3.5 5.9
ITEQ, Inc. (ITEC) 182.5 0.6 5.7 7.6 6.2 8.8
------------------------------------------------------------------------------------------------------
Mean 0.9x 6.0x 8.4x 5.5x 8.5x
Median 0.9 6.3 7.7 6.2 8.8
------------------------------------------------------------------------------------------------------
</TABLE>
Note: EBITDA, EBIT, Net Income to Common, and EPS adjusted for unusual and
nonrecurring items.
* Denotes outlier excluded from MEAN calculation; LTM: Latest Twelve Months;
NM: Not Meaningful
(1) Source: C.A.G.R. estimates taken from I/B/E/S; Forward estimates taken from
First Call earnings report.
(2) Firm Value equals equity value (all fully diluted shares at the stock price
less any option proceeds) plus straight debt, minority interest, straight
preferred stock, all out-of-the-money converts, less cash and investments in
affiliates.
(3) Pro forma for the April 13, 1999 acquisition of MVE Holdings, Inc.
87
<PAGE> 108
VALUATION FOCUS GROUP - TOWING
<TABLE>
<CAPTION>
Stock LTM N.I. Proj. Total P / E (1)
VALUATION STATISTICS Price Market LTM EBIT 5-Year Debt / --------------------
(Dollars in Millions, Except Stock Price) 5/13/99 Cap. Revenues Margin CAGR(1) Cap. 1999(E) 2000(E)
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Durakon Industries, Inc. (DRKN) $13.38 $81.9 $192.4 6.4% NA 1.5% NA NA
Lund International (LUND) 5.50 42.9 178.8 15.9% NA 54.8% NA NA
Edelbrock (EDEL) 15.50 81.4 100.5 11.1% 15.0% 3.2% 10.8 10.4
-----------------------------------------------------------------------------------------------------------------------------
Mean $157.2 11.2% 15.0% 19.8% 10.8x 10.4x
Median 178.8 11.1% 15.0% 3.2% 10.8 10.4
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Firm Value /
--------------------------------------------
LTM 1999 (E)
VALUATION STATISTICS Firm --------------------------------------------
(Dollars in Millions, Except Stock Price) Value(2) Revenues EBITDA EBIT EBITDA EBIT
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Durakon Industries, Inc. (DRKN) $ 70.1 0.4x 3.9x 5.7x NA NA
Lund International (LUND) 148.3 0.8 5.2 5.2 NA NA
Edelbrock (EDEL) 80.2 0.8 5.1 7.2 5.0 6.9
----------------------------------------------------------------------------------------------------
Mean 0.7x 4.7x 6.0x 5.0x 6.9x
Median 0.8 5.1 5.7 5.0 6.9
----------------------------------------------------------------------------------------------------
</TABLE>
Note: EBITDA, EBIT, Net Income to Common, and EPS adjusted for unusual and
nonrecurring items.
(*) Denotes outlier excluded from MEAN calculation; LTM: Latest Twelve Months;
NM: Not Meaningful
(1) Source: C.A.G.R. estimates taken from I/B/E/S; Forward estimates taken from
First Call earnings report.
(2) Firm Value equals equity value (all fully diluted shares at the stock price
less any option proceeds) plus straight debt, minority interest, straight
preferred stock, all out-of-the-money converts, less cash and investments in
affiliates.
88
<PAGE> 109
VALUATION FOCUS GROUP - SPECIALTY INDUSTRIALS
<TABLE>
<CAPTION>
Stock LTM N.I. Proj. Total P / E (1)
VALUATION STATISTICS Price Market LTM EBIT 5-Year Debt / --------------------
(Dollars in Millions, Except Stock Price) 5/13/99 Cap. Revenues Margin CAGR(1) Cap. 1999(E) 2000(E)
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Kennemetal Inc (KMT) $30.50 $911.7 $1,962.8 10.2% 12.0% 57.6% 14.9 13.3
L.S. Starrett Company (SCX) 30.63 210.6 247.7 10.4% NA 2.1% NA NA
Regal-Beloit Corporation (RBC) 22.88 479.2 543.5 14.9% 12.0% 42.5% 11.3 10.2
Unova, Inc. (UNA) 14.44 793.2 2,024.2 4.8% 17.4% 46.3% 12.6 10.0
------------------------------------------------------------------------------------------------------------------------------
Mean $1,194.6 10.1% 13.8% 37.1% 12.9x 11.1x
Median 1,253.2 10.3% 12.0% 44.4% 12.6 10.2
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Firm Value /
----------------------------------------------
LTM 1999 (E)
VALUATION STATISTICS Firm ----------------------------------------------
(Dollars in Millions, Except Stock Price) Value(2) Revenues EBITDA EBIT EBITDA EBIT
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Kennemetal Inc (KMT) $1,948.8 1.0x 6.7x 9.7x 7.1x 10.6x
L.S. Starrett Company (SCX) 181.2 0.7 4.9 7.1 NA NA
Regal-Beloit Corporation (RBC) 649.2 1.2 6.3 8.0 6.6 8.6
Unova, Inc. (UNA) 1,379.3 0.7 10.4 14.1 5.5 7.7
-------------------------------------------------------------------------------------------------------
Mean 0.9x 7.1x 9.7x 6.4x 9.0x
Median 0.9 6.5 8.9 6.6 8.6
-------------------------------------------------------------------------------------------------------
</TABLE>
Note: EBITDA, EBIT, Net Income to Common, and EPS adjusted for unusual and
nonrecurring items.
(*) Denotes outlier excluded from MEAN calculation; LTM: Latest Twelve Months;
NM: Not Meaningful
(1) Source: C.A.G.R. estimates taken from I/B/E/S; Forward estimates taken from
First Call earnings report.
(2) Firm Value equals equity value (all fully diluted shares at the stock price
less any option proceeds) plus straight debt, minority interest, straight
preferred stock, all out-of-the-money converts, less cash and investments in
affiliates.
89
<PAGE> 110
C. PRECEDENT TRANSACTION ANALYSIS
<PAGE> 111
PRECEDENT TRANSACTIONS - AUTOMOTIVE SUPPLIERS
<TABLE>
<CAPTION>
(US$ in Multiples of Transaction Value/
millions) --------------------------------------------
Date Transaction LTM LTM LTM FTM FTM
of Ann. Target Acquiror Value Revenues EBIT EBITDA EBIT EBITDA
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
03/09/99 United Technologies Automotive Lear $2,300.0 0.8x 12.6x 7.5x 8.6x 5.9x
02/08/99 Mark IV - Purolater Filter Unit Arvin 270.0 0.8 NA NA NA NA
01/28/99 LucasVarity TRW 7,348.0 1.1 10.8 7.4 10.1 7.0
01/26/99 Adwest Automotive Dura Automotive 330.0 0.9 10.7 7.6 NA NA
01/19/99 Excel Industries Dura Automotive 475.6 0.4 13.1 5.7 NA NA
10/27/98 Glacier Vandervell Dana Corp. 430.0 1.1 8.3 6.0 NA NA
08/18/98 Cooper Automotive Federal-Mogul 1,900.0 1.0 10.2 6.7 8.3 5.7
07/27/98 ITT - Brake & Chassis Continental AG 1,930.0 0.9 19.6 7.9 NA NA
06/25/98 ITT - Electrical Systems Valeo SA 1,700.0 0.9 12.1 7.6 11.5 7.1
06/22/98 Special Devices, Inc. J.F. Lehman & Company 296.0 1.8 13.2 10.0 12.1 9.1
05/29/98 Meridian Technologies Teksid SpA and Norsk Hydro 368.0 1.0 27.7 11.9 26.1 11.6
05/04/98 Echlin Dana Corp. 4,108.9 1.1 18.7 12.3 16.0 11.1
03/24/98 Steyr-Daimler-Puch AG Magna International Inc. 465.6 0.4 12.8 6.2 NA NA
03/23/98 Schrader-Bridgeport Tompkins plc 256.5 1.5 11.0 NA NA NA
02/25/98 Eagle-Picher Industries Granaria Holdings NV 743.0 0.8 9.4 6.5 NA NA
01/12/98 Fel-Pro Inc. Federal-Mogul 717.0 1.5 15.3 12.3 NA NA
01/04/98 Accuride KKR 534.7 1.9 10.8 7.6 NA NA
10/16/97 T&N Plc Federal-Mogul 3,000.0 1.0 10.4 6.8 NA NA
09/02/97 AlliedSignal - Safety Restraint Breed Technologies 750.0 0.8 8.9 7.0 9.4 7.2
04/30/97 Sinter Metals GKN Plc 570.0 1.5 19.6 10.7 15.0 9.2
04/09/97 Stant Tomkins 606.0 0.9 10.7 7.2 9.6 6.7
01/27/97 A.O. Smith Tower 625.0 0.7 9.7 5.7 NA NA
-----------------------------------------------------------------------------------------------------------------------------------
Mean 1.0x 13.1x 8.0x 12.7x 8.1x
Median 1.0 11.0 7.5 10.8 7.2
High 1.9 27.7 12.3 26.1 11.6
Low 0.4 8.3 5.7 8.3 5.7
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
90
<PAGE> 112
PRECEDENT TRANSACTIONS - DIVERSIFIED INDUSTRIALS
(US $ in millions)
<TABLE>
<CAPTION>
Multiples of Transaction Value/
--------------------------------------
Date Transaction LTM LTM LTM FTM FTM
of Ann. Target Acquiror Value Revenues EBIT EBITDA EBIT EBITDA
----------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C>
4/22/99 Sandvik Saws and Tools Snap-On Inc. $ 394.0 1.2x 16.1x NA NA NA
4/19/99 Blount International Lehman Brothers Holdings 1,274.1 1.5 11.2 8.8 11.3 8.9
2/16/99 MVE Holdings, Inc. Chart Industries 248.7 1.2 15.1 9.6 NA NA
2/1/99 Aeroquip-Vickers Eaton Corporation 2,087.6 1.0 11.5 8.1 9.9 8.0
12/27/98 Kaynar Technologies Inc. The Fairchild Corporation 365.0 2.0 12.7 10.2 NA NA
12/15/98 Global Motorsport Stonington Partners 158.0 1.0 9.3 7.2 NA NA
11/23/98 AMP Inc. Tyco International 11,606.0 2.1 19.8 11.5 15.1 9.7
11/23/98 Coltec Industries B.F. Goodrich 2,200.0 1.6 10.7 8.7 NA NA
11/23/98 Thyssen Dover Elevator Business 1,100.0 1.3 11.0 8.1 NA NA
11/23/98 BTR plc Siebe plc 10,313.0 0.8 5.7 4.4 NA NA
9/4/98 David Brown Group plc Textron 430.7 1.4 12.5 9.1 NA NA
8/21/98 Cincinnati Milacron's Machine Tool Unova, Inc. 178.0 0.4 10.7 NA NA NA
8/17/98 ASI Aerospace Group Inc. Pentacon Inc. 112.2 1.7 9.8 10.3 NA NA
7/20/98 SPX Corporation General Signal 2,335.0 1.4 7.8 6.5 6.8 5.6
6/16/98 U.S. Rentals United Rentals 1,338.0 2.9 20.1 8.6 16.3 7.0
6/1/98 Calmar Inc. Saint-Gobain 400.0 1.7 14.8 7.7 NA NA
4/27/98 Fluke Danaher 625.0 1.4 13.4 10.1 10.8 8.1
3/11/98 LICO Columbus McKinnon 155.0 1.1 15.4 14.2 NA NA
3/11/98 Keystone (Bass Group) Grove Worldwide 606.0 0.7 9.1 7.1 NA NA
2/18/98 Zurn Industries U.S. Industries 765.0 1.3 12.9 10.0 9.3 7.6
1/8/98 P&H Material Handling Chartwell Investments 425.0 1.2 11.7 9.4 NA NA
12/16/97 O&K Mining GmbH Terex 169.0 0.6 11.2 8.3 NA NA
12/11/97 TriMas Corporation MascoTech, Inc. 1,371.0 2.1 12.1 9.9 12.3 10.0
12/12/97 Perkins Engines Caterpillar 1,325.0 1.2 13.6 9.0 NA NA
12/4/97 Nelson Industries Cummins Engine 488.0 1.7 14.8 11.9 NA NA
11/11/97 Ransomes plc Textron 290.0 1.0 10.1 7.8 7.4 6.3
10/12/97 Greenfield Industries Kennametal 943.0 1.8 15.6 11.6 12.5 9.8
9/15/97 Thermo King Ingersoll-Rand 2,560.0 2.5 13.5 12.3 NA NA
7/24/97 Astrotech International Corp. ITEQ, Inc. 148.0 1.0 16.5 11.0 NA NA
6/26/97 Arden Industrial Products Park-Ohio Corporation 47.6 0.6 9.4 13.0 NA NA
6/26/97 Imo Industries Constellation Capital Partners 415.0 0.9 16.3 9.1 11.1 7.2
6/24/97 SEDA Specialty Packaging Corp. CCL Industries 176.0 2.9 14.5 10.2 NA NA
6/16/97 Core Industries United Dominion 298.0 1.2 11.5 9.3 NA NA
6/16/97 Raymond BT Industries 440.0 1.3 12.1 10.0 10.5 8.9
6/12/97 Giddings & Lewis Thyssen 705.0 1.0 13.4 9.6 12.5 9.2
3/27/98 Falcon Building Products, Inc. Investcorp 590.0 0.9 9.9 7.8 9.6 7.7
2/27/97 Marathon Electric Regal-Beloit 248.3 1.0 9.1 7.2 NA NA
2/18/97 Invetech Co. Applied Industrial Tech. 130.8 0.4 10.8 15.4 NA NA
----------------------------------------------------------------------------------------------------------------------------------
Mean 1.3x 12.5x 9.5x 11.1x 8.1x
Median 1.2 12.1 9.4 11.0 8.1
High 2.9 20.1 15.4 16.3 10.0
Low 0.4 5.7 4.4 6.8 5.6
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
91
<PAGE> 113
D. SEGMENT DCFs
<PAGE> 114
PRELIMINARY VALUATION SUMMARY - DCF - FORMING
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
(Dollars in Millions) 1999 2000 2001 2002 2003
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sales $ 390.3 $ 811.7 $ 852.7 $ 897.7 $ 947.2
EBIT 55.0 114.3 120.4 127.6 136.0
Effective Tax Rate 40.4% 40.4% 40.4% 40.4% 40.4% 40.4%
Tax (22.2) (46.1) (48.6) (51.5) (54.9)
----------------------------------------------------------------
TAX-EFFECTED EBIT 32.8 68.1 71.8 76.1 81.1
D,D&A 17.1 36.4 38.7 40.6 42.6
Amortization of Goodwill 0.0 0.0 0.0 0.0 0.0
Other Non-Cash Charges 0.0 0.0 0.0 0.0 0.0
--------------------------------------------------------------------------------------------------------
CASH FLOW FROM OPERATIONS 49.9 104.6 110.5 116.8 123.7
Change in Net Working Capital (1.1) (5.0) (5.5) (6.1) (6.7)
Capital Expenditures (32.1) (63.8) (58.3) (58.3) (61.0)
Other 0.0 0.0 0.0 0.0 0.0
--------------------------------------------------------------------------------------------------------
UNLEVERED FREE CASH FLOW $ 16.7 $ 35.9 $ 46.7 $ 52.4 $ 56.0
--------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
TERMINAL EBITDA MULTIPLE RANGE
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
4.7x 5.2x 5.7x 6.2x 6.7x
-------------------------------------------------------------------
</TABLE>
<TABLE>
TERMINAL VALUE
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
$840 $929 $1,018 $1,108 $1,197
-------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
WACC PRESENT VALUE OF FIRM @ 6/30/99
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
9.0% 731 792 852 913 974
9.5% 718 777 836 896 955
10.0% 704 762 820 879 937
10.5% 691 748 805 862 919
11.0% 678 734 790 846 902
<CAPTION>
WACC TERMINAL VALUE / PRESENT VALUE
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
9.0% 14.8% 17.3% 19.5% 21.3% 22.9%
9.5% 17.0% 19.6% 21.8% 23.7% 25.3%
10.0% 19.2% 21.9% 24.1% 26.1% 27.8%
10.5% 21.5% 24.2% 26.5% 28.5% 30.2%
11.0% 23.8% 26.5% 28.9% 30.9% 32.7%
<CAPTION>
WACC IMPLIED FIRM VALUE / 1999 EBITDA
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
9.0% 4.1x 4.4x 4.8x 5.1x 5.4x
9.5% 4.0x 4.3x 4.7x 5.0x 5.3x
10.0% 3.9x 4.3x 4.6x 4.9x 5.2x
10.5% 3.9x 4.2x 4.5x 4.8x 5.1x
11.0% 3.8x 4.1x 4.4x 4.7x 5.0x
<CAPTION>
WACC IMPLIED PERPETUITY GROWTH RATE
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
9.0% 2.3% 3.0% 3.5% 3.9% 4.3%
9.5% 2.8% 3.5% 4.0% 4.4% 4.8%
10.0% 3.3% 4.0% 4.5% 4.9% 5.3%
10.5% 3.8% 4.5% 5.0% 5.4% 5.8%
11.0% 4.3% 5.0% 5.5% 5.9% 6.3%
</TABLE>
92
<PAGE> 115
PRELIMINARY VALUATION SUMMARY - DCF - FASTENERS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
(Dollars in Millions) 1999 2000 2001 2002 2003
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sales $ 121.8 $ 258.1 $ 275.7 $ 294.7 $ 314.9
EBIT 17.9 39.0 42.8 47.0 51.6
Effective Tax Rate 40.4% 40.4% 40.4% 40.4% 40.4% 40.4%
Tax (7.2) (15.8) (17.3) (19.0) (20.8)
----------------------------------------------------------------
TAX-EFFECTED EBIT 10.7 23.3 25.5 28.0 30.7
D,D&A 3.7 7.8 8.4 8.9 9.4
Amortization of Goodwill 0.0 0.0 0.0 0.0 0.0
Other Non-Cash Charges 0.0 0.0 0.0 0.0 0.0
------------------------------------------------------------------------------------------------------------------
CASH FLOW FROM OPERATIONS 14.3 31.1 33.9 36.9 40.1
Change in Net Working Capital 1.1 (2.7) (2.9) (3.2) (3.4)
Capital Expenditures (8.2) (16.3) (16.5) (16.5) (17.3)
Other 0.0 0.0 0.0 0.0 0.0
------------------------------------------------------------------------------------------------------------------
UNLEVERED FREE CASH FLOW $ 7.2 $ 12.1 $ 14.5 $ 17.3 $ 19.5
------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
TERMINAL EBITDA MULTIPLE RANGE
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
6.8x 7.3x 7.8x 8.3x 8.8x
--------------------------------------------------------------------
</TABLE>
<TABLE>
TERMINAL VALUE
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
$414 $445 $475 $506 $536
--------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
WACC PRESENT VALUE OF FIRM @ 6/30/99
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
9.0% 336 357 378 398 419
9.5% 330 350 370 391 411
10.0% 324 343 363 383 403
10.5% 317 337 356 376 395
11.0% 311 330 350 369 388
<CAPTION>
WACC TERMINAL VALUE / PRESENT VALUE
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
9.0% 23.3% 24.7% 25.9% 27.0% 28.0%
9.5% 25.7% 27.1% 28.4% 29.5% 30.6%
10.0% 28.1% 29.6% 30.9% 32.1% 33.1%
10.5% 30.6% 32.1% 33.4% 34.7% 35.7%
11.0% 33.1% 34.6% 36.0% 37.3% 38.4%
<CAPTION>
WACC IMPLIED FIRM VALUE / 1999 EBITDA
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
9.0% 5.5x 5.9x 6.2x 6.5x 6.9x
9.5% 5.4x 5.7x 6.1x 6.4x 6.7x
10.0% 5.3x 5.6x 6.0x 6.3x 6.6x
10.5% 5.2x 5.5x 5.8x 6.2x 6.5x
11.0% 5.1x 5.4x 5.7x 6.0x 6.4x
<CAPTION>
WACC IMPLIED PERPETUITY GROWTH RATE
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
9.0% 4.3% 4.6% 4.9% 5.1% 5.4%
9.5% 4.8% 5.1% 5.4% 5.6% 5.9%
10.0% 5.3% 5.6% 5.9% 6.1% 6.4%
10.5% 5.8% 6.1% 6.4% 6.6% 6.9%
11.0% 6.3% 6.6% 6.9% 7.1% 7.4%
</TABLE>
93
<PAGE> 116
PRELIMINARY VALUATION SUMMARY - DCF - TOWING
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
(Dollars in Millions) 1999 2000 2001 2002 2003
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sales $ 138.4 $ 296.8 $ 320.9 $ 346.9 $ 375.0
EBIT 22.6 48.2 51.8 55.6 59.7
Effective Tax Rate 40.4% 40.4% 40.4% 40.4% 40.4% 40.4%
Tax (9.1) (19.5) (20.9) (22.4) (24.1)
----------------------------------------------------------------
TAX-EFFECTED EBIT 13.5 28.7 30.9 33.1 35.6
D,D&A 2.3 5.6 6.3 6.8 7.2
Amortization of Goodwill 0.0 0.0 0.0 0.0 0.0
Other Non-Cash Charges 0.0 0.0 0.0 0.0 0.0
----------------------------------------------------------------------------------------------------------------
CASH FLOW FROM OPERATIONS 15.8 34.4 37.2 39.9 42.8
Change in Net Working Capital (3.1) (4.0) (4.4) (4.8) (5.3)
Capital Expenditures (9.5) (18.8) (11.0) (11.0) (11.5)
Other 0.0 0.0 0.0 0.0 0.0
----------------------------------------------------------------------------------------------------------------
UNLEVERED FREE CASH FLOW $ 3.3 $ 11.6 $ 21.7 $ 24.1 $ 26.0
----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
TERMINAL EBITDA MULTIPLE RANGE
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
6.8x 7.3x 7.8x 8.3x 8.8x
--------------------------------------------------------------------
</TABLE>
<TABLE>
TERMINAL VALUE
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
$455 $488 $522 $555 $588
--------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
WACC PRESENT VALUE OF FIRM @ 6/30/99
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
9.0% 375 397 420 443 465
9.5% 367 390 412 434 456
10.0% 360 382 404 426 447
10.5% 354 375 396 417 439
11.0% 347 368 389 409 430
<CAPTION>
WACC TERMINAL VALUE / PRESENT VALUE
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
9.0% 21.4% 22.9% 24.2% 25.4% 26.4%
9.5% 23.7% 25.3% 26.6% 27.9% 29.0%
10.0% 26.2% 27.7% 29.1% 30.4% 31.5%
10.5% 28.6% 30.2% 31.7% 32.9% 34.1%
11.0% 31.1% 32.7% 34.2% 35.5% 36.7%
<CAPTION>
WACC IMPLIED FIRM VALUE / 1999 EBITDA
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
9.0% 5.6x 5.9x 6.3x 6.6x 7.0x
9.5% 5.5x 5.8x 6.2x 6.5x 6.8x
10.0% 5.4x 5.7x 6.0x 6.4x 6.7x
10.5% 5.3x 5.6x 5.9x 6.2x 6.6x
11.0% 5.2x 5.5x 5.8x 6.1x 6.4x
<CAPTION>
WACC IMPLIED PERPETUITY GROWTH RATE
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
9.0% 3.3% 3.7% 4.0% 4.3% 4.6%
9.5% 3.8% 4.2% 4.5% 4.8% 5.1%
10.0% 4.3% 4.7% 5.0% 5.3% 5.6%
10.5% 4.8% 5.2% 5.5% 5.8% 6.1%
11.0% 5.3% 5.7% 6.0% 6.3% 6.6%
</TABLE>
94
<PAGE> 117
PRELIMINARY VALUATION SUMMARY - DCF - PACKAGING
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
(Dollars in Millions) 1999 2000 2001 2002 2003
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sales $ 115.9 $ 242.3 $ 255.4 $ 269.4 $ 284.3
EBIT 22.0 47.4 51.4 55.7 60.5
Effective Tax Rate 40.4% 40.4% 40.4% 40.4% 40.4% 40.4%
Tax (8.9) (19.1) (20.7) (22.5) (24.4)
------------------------------------------------------------------
TAX-EFFECTED EBIT 13.1 28.2 30.6 33.2 36.0
D,D&A 2.8 6.5 7.4 8.3 9.2
Amortization of Goodwill 0.0 0.0 0.0 0.0 0.0
Other Non-Cash Charges 0.0 0.0 0.0 0.0 0.0
----------------------------------------------------------------------------------------------------------
CASH FLOW FROM OPERATIONS 15.9 34.7 38.1 41.5 45.2
Change in Net Working Capital (0.4) (2.3) (2.4) (2.6) (2.7)
Capital Expenditures (9.5) (18.8) (18.7) (18.7) (19.6)
Other 0.0 0.0 0.0 0.0 0.0
----------------------------------------------------------------------------------------------------------
UNLEVERED FREE CASH FLOW $ 6.0 $ 13.7 $ 16.9 $ 20.2 $ 22.9
----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
TERMINAL EBITDA MULTIPLE RANGE
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
6.8x 7.3x 7.8x 8.3x 8.8x
-------------------------------------------------------------------
</TABLE>
<TABLE>
TERMINAL VALUE
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
$473 $508 $543 $578 $613
-------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
WACC PRESENT VALUE OF FIRM @ 6/30/99
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
9.0% 383 407 430 454 477
9.5% 376 399 422 445 468
10.0% 368 391 414 436 459
10.5% 361 384 406 428 450
11.0% 355 376 398 420 442
<CAPTION>
WACC TERMINAL VALUE / PRESENT VALUE
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
9.0% 23.6% 25.0% 26.2% 27.3% 28.3%
9.5% 26.0% 27.4% 28.7% 29.8% 30.9%
10.0% 28.5% 29.9% 31.2% 32.4% 33.4%
10.5% 31.0% 32.5% 33.8% 35.0% 36.1%
11.0% 33.5% 35.0% 36.4% 37.6% 38.7%
<CAPTION>
WACC IMPLIED FIRM VALUE / 1999 EBITDA
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
9.0% 5.5x 5.8x 6.2x 6.5x 6.9x
9.5% 5.4x 5.7x 6.1x 6.4x 6.7x
10.0% 5.3x 5.6x 5.9x 6.3x 6.6x
10.5% 5.2x 5.5x 5.8x 6.1x 6.5x
11.0% 5.1x 5.4x 5.7x 6.0x 6.3x
<CAPTION>
WACC IMPLIED PERPETUITY GROWTH RATE
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
9.0% 4.2% 4.5% 4.8% 5.0% 5.3%
9.5% 4.7% 5.0% 5.3% 5.5% 5.8%
10.0% 5.2% 5.5% 5.8% 6.0% 6.3%
10.5% 5.7% 6.0% 6.3% 6.5% 6.8%
11.0% 6.2% 6.5% 6.8% 7.0% 7.3%
</TABLE>
95
<PAGE> 118
PRELIMINARY VALUATION SUMMARY - DCF - SPECIALTY INDUSTRIAL
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
(Dollars in Millions) 1999 2000 2001 2002 2003
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sales $ 55.1 $ 113.0 $ 117.2 $ 121.9 $ 127.2
EBIT 8.1 16.8 17.8 18.9 20.1
Effective Tax Rate 40.4% 40.4% 40.4% 40.4% 40.4% 40.4%
Tax (3.3) (6.8) (7.2) (7.6) (8.1)
-----------------------------------------------------------------
TAX-EFFECTED EBIT 4.8 10.0 10.6 11.3 12.0
D,D&A 1.5 3.3 3.6 3.8 4.0
Amortization of Goodwill 0.0 0.0 0.0 0.0 0.0
Other Non-Cash Charges 0.0 0.0 0.0 0.0 0.0
-----------------------------------------------------------------------------------------------------------------
CASH FLOW FROM OPERATIONS 6.3 13.4 14.2 15.0 15.9
Change in Net Working Capital (0.3) (1.6) (1.7) (1.7) (1.7)
Capital Expenditures (3.8) (7.5) (5.5) (5.5) (5.8)
Other 0.0 0.0 0.0 0.0 0.0
-----------------------------------------------------------------------------------------------------------------
UNLEVERED FREE CASH $ 2.3 $ 4.2 $ 7.0 $ 7.8 $ 8.4
-----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
TERMINAL EBITDA MULTIPLE RANGE
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
6.8x 7.3x 7.8x 8.3x 8.8x
-------------------------------------------------------------------
</TABLE>
<TABLE>
TERMINAL VALUE
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
$163 $175 $187 $199 $211
-------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
WACC PRESENT VALUE OF FIRM @ 6/30/99
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
9.0% 134 142 150 158 166
9.5% 131 139 147 155 163
10.0% 129 137 144 152 160
10.5% 126 134 142 149 157
11.0% 124 131 139 146 154
<CAPTION>
WACC TERMINAL VALUE / PRESENT VALUE
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
9.0% 22.1% 23.5% 24.8% 26.0% 27.0%
9.5% 24.5% 26.0% 27.3% 28.5% 29.6%
10.0% 26.9% 28.4% 29.8% 31.0% 32.1%
10.5% 29.3% 30.9% 32.3% 33.6% 34.7%
11.0% 31.8% 33.4% 34.9% 36.2% 37.3%
<CAPTION>
WACC IMPLIED FIRM VALUE / 1999 EBITDA
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
9.0% 5.6x 5.9x 6.2x 6.6x 6.9x
9.5% 5.5x 5.8x 6.1x 6.5x 6.8x
10.0% 5.4x 5.7x 6.0x 6.3x 6.7x
10.5% 5.3x 5.6x 5.9x 6.2x 6.5x
11.0% 5.2x 5.5x 5.8x 6.1x 6.4x
<CAPTION>
WACC IMPLIED PERPETUITY GROWTH RATE
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
9.0% 3.8% 4.2% 4.5% 4.8% 5.0%
9.5% 4.3% 4.7% 5.0% 5.3% 5.5%
10.0% 4.8% 5.2% 5.5% 5.8% 6.0%
10.5% 5.3% 5.7% 6.0% 6.3% 6.5%
11.0% 5.8% 6.2% 6.5% 6.8% 7.0%
</TABLE>
96
<PAGE> 119
E. WACC ANALYSIS
<PAGE> 120
WACC ANALYSIS - AUTOMOTIVE OEM SUPPLIERS
<TABLE>
<CAPTION>
COMPARABLE COMPANIES DEBT EQUITY COST OF MARKET TOTAL PREFERRED DEBT / UNLEVERED
(DOLLARS IN Millions) BETA BETA(a) EQUITY(b) CAP. DEBT STOCK CAP. (MKT) (ASSET) BETA(C)
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Amcast 0.00 0.67 10.7% $ 157.1 $ 218.5 $ 0.0 58.2% 0.36
American Axle 0.00 1.89 19.7% 606.6 699.4 0.0 53.6% 1.11
Borg-Warner 0.00 0.86 12.1% 1,397.4 393.5 0.0 22.0% 0.74
Citation 0.00 1.08 13.7% 237.0 249.1 0.0 51.2% 0.66
Collins & Aikman 0.00 1.01 13.2% 414.2 877.0 0.0 67.9% 0.44
Donnelly 0.00 0.59 10.1% 157.7 112.2 0.0 41.6% 0.41
Dura 0.00 0.93 12.6% 375.7 995.8 0.0 72.6% 0.35
Hayes Lemmerz 0.00 0.93 12.6% 958.2 1,602.2 0.0 62.6% 0.46
Intermet 0.00 1.03 13.3% 356.9 164.1 0.0 31.5% 0.80
Modine 0.00 0.78 11.5% 973.2 200.8 0.0 17.1% 0.69
Simpson 0.00 0.73 11.1% 177.2 105.5 0.0 37.3% 0.54
Standard Products 0.00 0.80 11.6% 320.6 203.6 0.0 38.8% 0.58
Superior 0.00 0.86 12.0% 705.8 1.3 0.0 0.2% 0.86
Tower 0.00 1.01 13.2% 1,109.7 560.5 258.8 29.1% 0.66
Wescast 0.00 0.72 11.1% 447.3 4.2 0.0 0.9% 0.72
--------------------------------------------------------------------------------------------------------------------------------
MEDIAN -- 0.86 12.1% -- -- -- 38.8% 0.66
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ASSUMPTIONS
-----------------------------------
<S> <C>
Tax Rate for Companies 39.0%
Tax Rate for Target 39.0%
Risk-Free Rate
(30-Year TSY) 5.7%
Pretax Cost of Debt (e) 9.0%
Equity Risk Premium (f) 7.4%
Political Risk Premium 0.0%
Debt Beta for Target 0.00
-----------------------------------
</TABLE>
<TABLE>
<CAPTION>
WEIGHTED AVERAGE COST OF CAPITAL (d)
--------------------------------------------------------------
DEBT / CAPITALIZATION (MARKET)
UNLEVERED --------------------------------------------------------------
(ASSET) BETA 40% 45% 50% 55% 60%
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
0.56 9.1% 9.0% 8.9% 8.8% 8.7%
0.61 9.4% 9.3% 9.2% 9.1% 9.0%
0.66 9.7% 9.6% 9.5% 9.4% 9.3%
0.71 10.1% 9.9% 9.8% 9.7% 9.6%
0.76 10.4% 10.2% 10.1% 10.0% 9.9%
-----------------------------------------------------------------------------
</TABLE>
(a) Source: Bloomberg's estimate using Value Line's estimation methodology
using returns vs. the S&P 500 as of 5/13/99.
(b) Cost of Equity = Risk-Free Rate (R(F)) + Equity Beta (B(E)) * Equity
Risk Premium (R(M)) - (R(F)).
(c) % E % D * (1 - T)
B(A) = B(E) *[----------------------- + B(D) * [---------------------]
[% E + % D * (1 - T)] % D * (1 - T) + % E
(d) (WACC = [(R(F)+ B(E) * (R(M)- R(F)) + R(P)) * %E] + [K(D) * (1 - T) * %D].
Assumes pretax cost of debt remains constant.
(e) Any political risk premium (R(P)) is included in the pretax cost of debt
(K(D)).
(f) Source: Ibbotson Associates. Based on data from 1926 - 1995.
97
<PAGE> 121
WACC ANALYSIS - DIVERSIFIED INDUSTRIALS
<TABLE>
<CAPTION>
COMPARABLE COMPANIES DEBT EQUITY COST OF MARKET TOTAL PREFERRED DEBT / UNLEVERED
(Dollars in Millions) BETA BETA(a) EQUITY(b) CAP. DEBT STOCK CAP.(MKT) (ASSET) BETA(c)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cooper Industries 0.00 0.95 12.6% $5,023 $ 899 $ 0 15.2% 0.86
Crane 0.00 0.91 12.3 2,152 360 0 14.3 0.82
Harsco 0.00 0.81 11.6 1,396 364 0 20.7 0.70
Park Ohio 0.00 0.88 12.1 155 240 0 60.8 0.45
SPX 0.00 1.00 13.0 2,333 1,516 0 39.4 0.72
US Industries 0.00 1.01 13.1 1,713 955 0 35.8 0.76
------------------------------------------------------------------------------------------------------------------------------------
MEDIAN -- 0.93 12.4% -- -- -- 28.2% 0.74
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ASSUMPTIONS
-------------------------------------------
<S> <C>
Tax Rate for Companies 39.0%
Tax Rate for Target 39.0%
Risk-Free Rate (30-Year TSY) 5.6%
Pretax Cost of Debt (e) 8.0%
Equity Risk Premium (f) 7.4%
Political Risk Premium 0.0%
Debt Beta for Target 0.00
-------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
WEIGHTED AVERAGE COST OF CAPITAL (d)
------------------------------------------------------------------
DEBT / CAPITALIZATION (MARKET)
UNLEVERED ------------------------------------------------------------------
(ASSET) BETA 40% 45% 50% 55% 60%
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
0.64 9.3% 9.2% 9.0% 8.9% 8.8%
0.69 9.6% 9.5% 9.3% 9.2% 9.1%
0.74 9.9% 9.8% 9.6% 9.5% 9.4%
0.79 10.2% 10.1% 9.9% 9.8% 9.6%
0.84 10.5% 10.4% 10.2% 10.1% 9.9%
----------------------------------------------------------------------------------
</TABLE>
(a) Source: Bloomberg's estimate using Value Line's estimation methodology
using returns vs. the S&P 500 as of 5/13/99.
(b) Cost of Equity = Risk-Free Rate (R(F)) + Equity Beta (B(E)) * Equity
Risk Premium (R(M)) - (R(F)).
(c) % E % D * (1 - T)
B(A) = B(E) *[----------------------- + B(D) * [---------------------]
[% E + % D * (1 - T)] % D * (1 - T) + % E
(d) (WACC = [(R(F)+ B(E) * (R(M)- R(F)) + R(P)) * %E] + [K(D) * (1 - T) * %D].
Assumes pretax cost of debt remains constant.
(e) Any political risk premium (R(P)) is included in the pretax cost of debt
(K(D)).
(f) Source: Ibbotson Associates. Based on data from 1926 - 1995.
98
<PAGE> 122
WACC ANALYSIS - FASTENERS
<TABLE>
<CAPTION>
COMPARABLE COMPANIES DEBT EQUITY COST OF MARKET TOTAL PREFERRED DEBT / UNLEVEREDU
(Dollars in Millions) BETA BETA(a) EQUITY(b) CAP. DEBT STOCK CAP.(MKT) (ASSET) BETA(c)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Barnes Group 0.00 0.74 11.1% $ 466 $ 58 $0 11.0% 0.69
Cordant Technologies 0.00 0.95 12.6 1,733 405 0 18.9 0.83
Fastenal 0.00 1.13 13.9 1,906 4 0 0.2 1.12
Park Ohio 0.00 0.88 12.1 155 240 0 60.8 0.45
Pentacon 0.00 1.17 14.3 94 139 0 59.6 0.62
Precision Castparts 0.00 0.91 12.3 1,023 432 0 29.7 0.73
------------------------------------------------------------------------------------------------------------------------------------
Median -- 0.93 12.5% -- -- -- 24.3% 0.71
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ASSUMPTIONS
-----------------------------------------
<S> <C>
Tax Rate for Companies 39.0%
Tax Rate for Target 39.0%
Risk-Free Rate (30-Year TSY) 5.6%
Pretax Cost of Debt (e) 9.0%
Equity Risk Premium (f) 7.4%
Political Risk Premium 0.0%
Debt Beta for Target 0.00
-----------------------------------------
</TABLE>
<TABLE>
<CAPTION>
WEIGHTED AVERAGE COST OF CAPITAL (d)
---------------------------------------------------------------
DEBT / CAPITALIZATION (MARKET)
UNLEVERED ---------------------------------------------------------------
(ASSET) BETA 40% 45% 50% 55% 60%
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
0.61 9.4% 9.3% 9.2% 9.1% 9.0%
0.66 9.7% 9.6% 9.5% 9.4% 9.3%
0.71 10.0% 9.9% 9.8% 9.7% 9.6%
0.76 10.3% 10.2% 10.1% 9.9% 9.8%
0.81 10.6% 10.5% 10.4% 10.2% 10.1%
-------------------------------------------------------------------------------------
</TABLE>
(a) Source: Bloomberg's estimate using Value Line's estimation methodology
using returns vs. the S&P 500 as of 5/13/99.
(b) Cost of Equity = Risk-Free Rate (R(F)) + Equity Beta (B(E)) * Equity
Risk Premium (R(M)) - (R(F)).
(c) % E % D * (1 - T)
B(A) = B(E) *[----------------------- + B(D) * [---------------------]
[% E + % D * (1 - T)] % D * (1 - T) + % E
(d) WACC = [(R(F)+ B(E) * (R(M)- R(F)) + R(P)) * %E] + [K(D) * (1 - T) * %D].
Assumes pretax cost of debt remains constant.
(e) Any political risk premium (R(P)) is included in the pretax cost of debt
(K(D)).
(f) Source: Ibbotson Associates. Based on data from 1926 - 1995.
99
<PAGE> 123
WACC ANALYSIS - PACKAGING AND SEALING
<TABLE>
<CAPTION>
COMPARABLE COMPANIES DEBT EQUITY COST OF MARKET TOTAL PREFERRED DEBT / UNLEVERED
(Dollars in Millions) BETA BETA(a) EQUITY(b) CAP. DEBT STOCK CAP.(MKT) (ASSET) BETA(c)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AptarGroup 0.00 0.67 10.7% $1,056 $118 $ 0 10.1% 0.62
Chart Industries 0.00 1.05 13.6 230 248 0 51.8 0.63
Chicago Bridge and Iron 0.00 1.00 13.2 148 8 0 5.2 0.96
ITEQ, Inc. 0.00 1.18 14.5 69 120 0 63.5 0.57
------------------------------------------------------------------------------------------------------------------------------------
Median -- 1.02 13.4% -- -- -- 31.0% 0.63
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ASSUMPTIONS
------------------------------------------
<S> <C>
Tax Rate for Companies 39.0%
Tax Rate for Target 39.0%
Risk-Free Rate (30-Year TSY) 5.8%
Pretax Cost of Debt (e) 9.0%
Equity Risk Premium (f) 7.4%
Political Risk Premium 0.0%
Debt Beta for Target 0.00
------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
WEIGHTED AVERAGE COST OF CAPITAL (d)
-------------------------------------------------------------------
UNLEVERED DEBT / CAPITALIZATION (MARKET)
-------------------------------------------------------------------
(ASSET) BETA 40% 45% 50% 55% 60%
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
0.53 9.0% 8.9% 8.8% 8.7% 8.6%
0.58 9.3% 9.2% 9.1% 9.0% 8.9%
0.63 9.6% 9.5% 9.4% 9.3% 9.2%
0.68 9.9% 9.8% 9.7% 9.6% 9.5%
0.73 10.2% 10.1% 10.0% 9.9% 9.8%
-------------------------------------------------------------------------------------
</TABLE>
(a) Source: Bloomberg's estimate using Value Line's estimation methodology
using returns vs. the S&P 500 as of 5/13/99.
(b) Cost of Equity = Risk-Free Rate (R(F)) + Equity Beta (B(E)) * Equity
Risk Premium (R(M)) - (R(F)).
% E % D * (1 - T)
(c) B(A) = B(E) *[----------------------- + B(D) * [---------------------]
[% E + % D * (1 - T)] % D * (1 - T) + % E
(d) WACC = [(R(F)+ B(E) * (R(M)- R(F)) + R(P)) * %E] + [K(D) * (1 - T) * %D].
Assumes pretax cost of debt remains constant.
(e) Any political risk premium (R(P)) is included in the pretax cost of debt
(K(D)).
(f) Source: Ibbotson Associates. Based on data from 1926 - 1995.
100
<PAGE> 124
WACC ANALYSIS - TOWING
<TABLE>
<CAPTION>
COMPARABLE COMPANIES DEBT EQUITY COST OF MARKET TOTAL PREFERRED DEBT/ UNLEVERED
(Dollars in Millions) BETA BETA(a) EQUITY(b) CAP. DEBT STOCK CAP. (MKT) (ASSET) BETA(c)
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Durakon 0.00 0.65 10.6% $ 82 $ 1 $ 0 1.3% 0.64
Lund 0.00 0.73 11.2 43 104 3 69.6 0.29
Edelbrock 0.00 0.74 11.3 81 2 0 2.6 0.73
----------------------------------------------------------------------------------------------------------------------
MEDIAN -- 0.73 11.2% -- -- -- 2.6% 0.64
----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ASSUMPTIONS
-----------------------------------------
<S> <C>
Tax Rate for Companies 39.0%
Tax Rate for Target 39.0%
Risk-Free Rate (30-Year TSY) 5.8%
Pretax Cost of Debt (e) 9.0%
Equity Risk Premium (f) 7.4%
Political Risk Premium 0.0%
Debt Beta for Target 0.00
-----------------------------------------
</TABLE>
<TABLE>
<CAPTION>
WEIGHTED AVERAGE COST OF CAPITAL (d)
------------------------------------------------
DEBT / CAPITALIZATION (MARKET)
UNLEVERED ------------------------------------------------
(ASSET) BETA 40% 45% 50% 55% 60%
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
0.54 9.0% 9.0% 8.9% 8.8% 8.7%
---------------------------
0.59 9.4% 9.3% 9.2% 9.1% 9.0%
0.64 9.7% 9.6% 9.5% 9.3% 9.2%
0.69 10.0% 9.9% 9.8% 9.6% 9.5%
---------------------------
0.74 10.3% 10.2% 10.1% 9.9% 9.8%
---------------------------------------------------------------------
</TABLE>
(a) Source: Bloomberg's estimate using Value Line's estimation methodology
using returns vs. the S&P 500 as of 5/13/99.
(b) Cost of Equity = Risk-Free Rate (R(F)) + Equity Beta (B(E)) * Equity
Risk Premium (R(M)) - (R(F)).
(c) % E % D * (1 - T)
B(A) = B(E) *[----------------------- + B(D) * [---------------------]
[% E + % D * (1 - T)] % D * (1 - T) + % E
(d) WACC = [(R(F)+ B(E) * (R(M)- R(F)) + R(P)) * %E] + [K(D) * (1 - T) * %D].
Assumes pretax cost of debt remains constant.
(e) Any political risk premium (R(P)) is included in the pretax cost of debt
(K(D)).
(f) Source: Ibbotson Associates. Based on data from 1926 - 1995.
101
<PAGE> 125
WACC ANALYSIS - SPECIALTY INDUSTRIALS
<TABLE>
<CAPTION>
COMPARABLE COMPANIES DEBT EQUITY COST OF MARKET TOTAL PREFERRED DEBT / UNLEVERED
(Dollars in Millions) BETA BETA(a) EQUITY(b) CAP. DEBT STOCK CAP. (MKT) (ASSET) BETA(c)
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Kennametal 0.00 1.10 14.0% $ 912 $1,017 $ 0 52.7% 0.66
L.S. Starrett 0.00 0.54 9.8 211 4 0 2.0 0.53
Regal Beloit 0.00 0.80 11.7 479 166 0 25.8 0.66
Unova 0.00 0.98 13.1 793 604 0 43.2 0.67
--------------------------------------------------------------------------------------------------------------------------
MEDIAN -- 0.89 12.4% -- -- -- 34.5% 0.66
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ASSUMPTIONS
------------------------------------------
<S> <C>
Tax Rate for Companies 39.0%
Tax Rate for Target 39.0%
Risk-Free Rate (30-Year TSY) 5.8%
Pretax Cost of Debt (e) 9.0%
Equity Risk Premium (f) 7.4%
Political Risk Premium 0.0%
Debt Beta for Target 0.00
------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
WEIGHTED AVERAGE COST OF CAPITAL (d)
---------------------------------------------
DEBT / CAPITALIZATION (MARKET)
UNLEVERED ----------------------------------------------
(ASSET) BETA 40% 45% 50% 55% 60%
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
0.56 9.2 9.1% 9.0% 8.9% 8.8%
---------------------------
0.61 9.5 9.4% 9.3% 9.2% 9.1%
0.66 9.8 9.7% 9.6% 9.5% 9.4%
0.71 10.1 10.0% 9.9% 9.8% 9.6%
---------------------------
0.76 10.4 10.3% 10.2% 10.0% 9.9%
---------------------------------------------------------------
</TABLE>
(a) Source: Bloomberg's estimate using Value Line's estimation methodology
using returns vs. the S&P 500 as of 5/13/99.
(b) Cost of Equity = Risk-Free Rate (R(F)) + Equity Beta (B(E)) * Equity
Risk Premium (R(M)) - (R(F)).
(c) % E % D * (1 - T)
B(A) = B(E) *[----------------------- + B(D) * [---------------------]
[% E + % D * (1 - T)] % D * (1 - T) + % E
(d) WACC = [(R(F)+ B(E) * (R(M)- R(F)) + R(P)) * %E] + [K(D) * (1 - T) * %D].
Assumes pretax cost of debt remains constant.
(e) Any political risk premium (R(P)) is included in the pretax cost of debt
(K(D)).
(f) Source: Ibbotson Associates. Based on data from 1926 - 1995.
102
<PAGE> 126
F. EVA ANALYSIS
<PAGE> 127
EVA ANALYSIS
<TABLE>
<CAPTION>
Projected Fiscal Year Ending December 31,
--------------------------------------------------------- Terminal
(Dollars in millions) 1999 2000 2001 2002 2003 Value (a)
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Operating Profit After Tax $191.4 $191.1 $199.7 $206.5 $218.7
Less: (Annually Adjusted Capitalization x WACC) (204.7) (211.2) (215.8) (219.9) (224.2)
------------------------------------------------------------------------
Economic Value Added (EVA) ($13.2) ($20.0) ($16.1) ($13.4) ($5.5) ($81.3)
Total EVA ($104)
Current Stock Price (a) $17.125
5/3/1998 Firm Value $ 1,976
WACC 10.0%
Annual Pre-Tax Synergies $ 0.00
NET OPERATING PROFIT AFTER TAXES
------------------------------------------------------------------------------------------------------------------
Net Income $86.0 $97.0 $109.0 $125.0 $152.0
Goodwill Amortization 22.8 22.8 22.9 22.9 23.0
Increase in Deferred Tax Liab. 33.6 24.2 22.7 16.6 15.6
After-Tax Synergies (b) 0.0 0.0 0.0 0.0 0.0
Minority Interest 0.0 0.0 0.0 0.0 0.0
---------------------------------------------------------
Adjusted Income Available to Common $142.4 $144.0 $154.6 $164.5 $190.5
After-tax Interest Expense on Debt 49.1 47.1 45.1 41.9 28.1
NOPAT $191.4 $191.1 $199.7 $206.5 $218.7
ANNUALLY ADJUSTED CAPITALIZATION
------------------------------------------------------------------------------------------------------------------
Capitalization $1,976 $2,047 $2,112 $2,158 $2,199
Plus: Capital Expenditures $125 $125 $110 $110 $115
Less: Depreciation ($54) ($60) ($64) ($68) ($72)
---------------------------------------------------------
Annually Adjusted Capitalization $2,047 $2,112 $2,158 $2,199 $2,242
</TABLE>
(a) Assumes 3% growth in terminal EVA.
(b) Assumes tax rate of 40%.
<TABLE>
<CAPTION>
TERMINAL VALUE CALCULATION
-------------------------------------------------------------
<S> <C>
NOPAT Perpetuity Growth Rate 0.0%
Terminal EVA Growth Rate 3.0%
Est. 2004 EVA ($5.7)
-------------------------------------------------------------
EVA Terminal Value ($81.3)
</TABLE>
103
<PAGE> 128
G. EQUITY INVESTMENTS
<PAGE> 129
PRELIMINARY VALUATION SUMMARY - EQUITY INVESTMENTS
<TABLE>
<CAPTION>
BOOK MARKET
EQUITY INVESTMENTS VALUE VALUE
--------------------------------------------------
<S> <C> <C>
Delco Remy International (a) $ 11 $ 41
Titan International (b) 48 33
MSX International (c) 8 40
Saturn Electronics (d) 27 40
Other (e) 1 30
----- -----
Sub-total 95 184
Equity Value Per Share $2.01 $3.90
----- -----
</TABLE>
Note: Book value based on Harbor management. Following notes apply to market
value column.
(a) Based on 17.0% ownership at a market price of $9.69 as of 5/13/99.
(b) Based on 16.0% ownership at a market price of $9.69 as of 5/13/99.
(c) Based on Harbor management.
(d) Based on Harbor management.
(e) Other investments consist of 15% interest in Advanced Accessories, 20%
interest in Int'l Crane Shaft and Tower Automotive warrants. Based on Harbor
management.
104
<PAGE> 130
H. PREMIUMS PAID ANALYSIS
<PAGE> 131
PREMIUMS PAID ANALYSIS
Manufacturing Industry Premiums Paid of Transactions of $1.5 - $2.5 Billion
(US $ in millions, except per share data)
<TABLE>
<CAPTION>
Stock Price Premium
-----------------------
Enterprise Price 1 day 1 week 4 weeks
Announced Effective Target Acquiror Value Per Share Prior Prior Prior
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
03/24/99 Knoll Inc(Warburg, Pincus) Warburg, Pincus Ventures Inc $1,232.1 $25.00 63.9% 35.6% 30.7%
03/24/99 Strafor-Facom SA Fimalac 1,020.2 87.1 22.51 23.1 23.5
03/02/99 XYLAN Corp Alcatel SA 1,793.4 37.0 37.36 68.2 89.1
03/01/99 04/15/99 Reltec Corp General Electric Co PLC 2,039.1 29.5 35.63 48.0 55.3
02/18/99 Newport News Shipbuilding Inc General Dynamics Corp 2,046.3 38.5 38.43 38.4 36.6
02/08/99 02/08/99 Howmet International Inc Cordant Technologies Inc 2,611.0 17.0 7.09 11.5 13.3
02/01/99 04/09/99 Aeroquip-Vickers Inc Eaton Corp 2,012.2 58.0 64.54 68.1 91.7
01/08/99 Wolverhampton & Dudley Marston Thompson & Evershed 1,053.2 13.8 101.19 101.2 112.1
12/17/98 12/17/98 Dragados y Construcciones SA Banco Central Hispanoamericano 2,137.0 31.7 39.97 36.6 54.9
12/15/98 Coltec Industries Inc Crane Co 2,070.5 22.4 34.23 27.1 36.8
11/23/98 Coltec Industries Inc BF Goodrich Co 1,913.8 20.1 12.20 22.9 26.3
10/22/98 03/31/99 Essex International Superior Telecom Inc 1,299.8 32.0 38.01 106.5 69.5
10/06/98 02/05/99 Australian National Industries Smorgon Steel Group Ltd 1,004.0 0.8 32.29 67.1 84.1
08/27/98 10/13/98 Berg Electronics Corp Framatome Connectors Intl 1,786.0 35.0 62.32 71.3 76.1
08/13/98 Sunbeam Corp MacAndrews & Forbes Holdings 2,212.2 7.0 1.82 0.0 (28.7)
08/05/98 Inspec Group PLC Laporte PLC 1,117.1 5.6 2.26 53.5 31.5
07/20/98 10/06/98 General Signal Corp SPX Corp 2,309.4 45.0 19.60 22.7 19.4
07/06/98 Gemstar International Group United Video Satellite Group 2,353.5 45.0 15.76 21.4 3.2
06/12/98 07/21/98 Triangle Pacific Corp Armstrong World Industries Inc 1,124.6 55.5 26.14 26.5 24.0
05/26/98 AECI Ltd Sasol Ltd 1,086.3 5.9 7.14 9.1 18.3
05/11/98 Delta & Pine Land Co Monsanto Co 1,924.1 46.1 (12.52) (6.4) (1.8)
Mean $1,721.2 $31.3 30.9% 40.6% 41.2%
Median 1,913.8 31.7 32.3 35.6 31.5
High 2,611.0 87.1 101.2 106.5 112.1
Low 1,004.0 0.8 (12.5) (6.4) (28.7)
</TABLE>
105
