SIRE LINE CAPITAL MANAGEMENT, LLC

Investment Managers for the

NEARCO VALUE FUND, LP

February 2013
Sire Line Capital Management
159 Madison Avenue, Suite 10i
New York, NY 10016

Phone: 646.526.8403
www.sirelinecapital.com
info@sirelinecapital.com
Disclaimer

THIS IS NOT AN OFFERING OR THE SOLICITATION OF AN OFFER TO PURCHASE AN INTEREST IN THE

NEARCO VALUE FUND, LP (THE “FUND”). ANY SUCH OFFER OR SOLICITATION WILL ONLY BE MADE TO
QUALIFIED INVESTORS BY MEANS OF A CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM AND ONLY
IN THOSE JURISDICTIONS WHERE PERMITTED BY LAW.

AN INVESTMENT IN THE FUND IS SPECULATIVE AND INVOLVES A HIGH DEGREE OF RISK. OPPORTUNITIES
FOR WITHDRAWAL, REDEMPTIONS AND TRANSFERABILITY OF INTERESTS ARE RESTRICTED, SO
INVESTORS MAY NOT HAVE ACCESS TO CAPITAL WHEN IT IS NEEDED. THERE IS NO SECONDARY MARKET
FOR THE INTERESTS AND NONE IS EXPECTED TO DEVELOP.

THE FEES AND EXPENSES CHARGED IN CONNECTION WITH THE INVESTMENT MAY BE HIGHER THAN THE
FEES AND EXPENSES OF OTHER INVESTMENT ALTERNATIVES AND MAY OFFSET PROFITS. NO ASSURANCE
CAN BE GIVEN THAT THE INVESTMENT OBJECTIVE WILL BE ACHIEVED OR THAT AN INVESTOR WILL
RECEIVE A RETURN OF ALL OR PART OF HIS OR HER INVESTMENT. INVESTMENT RESULTS MAY VARY
SUBSTANTIALLY OVER ANY GIVEN TIME PERIOD.

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Nearco Value Fund Overview
A Delaware Limited Partnership
 One general partner ― Sire Line Capital
 Multiple limited partners ― Investors
NEARCO VALUE FUND, LP
 The managing partner is also a limited partner

A Private Investment Fund General Partner:

 Modeled after the Buffett Partnerships, Ltd. Sire Line Capital
 Long/short fund (long bias)
 Long-term, equity focused Limited Partner: Sire Line Capital
Limited Limited
 No complex derivatives Daren Taylor, CFA Partner Partner
 No significant use of leverage
 Will occasionally short a broad market index to protect the portfolio during heightened market risk

Primary Objectives:
 Achieve a mid-teens average annual return on investment by investing principally in publicly traded,
marketable securities of U.S. and non-U.S. companies
 Outperform in years when general equity markets are weak

Investment Strategy:
 A disciplined value-oriented investment process, utilizing both qualitative and quantitative
techniques, to build a focused portfolio of 20-30 high-quality companies
 Buy marketable stocks based on the criteria we would apply in the purchase of an entire business

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Our Investment Approach

The Nearco Value Fund will only invest in high-quality businesses that…
1. Are simple to understand
2. Have a consistent operating history and favorable long-term prospects
3. Are managed by competent and honest managers whose interests are aligned with ours
4. Can be purchased at a significant discount to intrinsic value (Margin of Safety)

We seek “Good-Will Giants” that…

 Have strong balance sheets
 Generate high returns on invested capital
 Generate significant free cash, not consume it
 Possess some sort of sustainable competitive advantage
 Are growing their underlying per share business value at an above-average rate
 Have experienced better business economic performance than stock price performance

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Our Investment Approach
Value comes from three main sources: assets, earnings power and growth
 Rule #1, #2 & #3: DO NOT OVERPAY FOR GROWTH!
 Start with the most reliable information (asset value & current earnings power)
 Buy when market value ≤ Current Earnings Power Value, getting all/most of growth for free

Sell here
Margin of Safety
Buy here

(Reliability Dimension): Asset Value Earnings Power Value Growth Value

(Reproduction Value) (EPV) (EPV with Growth)
Tangible Current Earnings Includes Growth
Balance Sheet Extrapolation Extrapolation
No Extrapolation No Forecast Forecast

MOST RELIABLE LESS RELIABLE LEAST RELIABLE

*Adapted from Bruce Greenwald’s Value Investing class at Columbia Business School.

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Our Investment Approach

Calculate Reproduction Value – Need to make adjustments to balance sheet:

 Use current market prices for marketable securities, land, debt, etc.
 Add back allowance for doubtful accounts, LIFO Reserve, etc.
 Calculate present value of deferred taxes
 Replace goodwill/intangibles account with value of “hidden assets” not reflected on the balance sheet (i.e.
R&D strength, patents, licenses/franchises, brands, customer relationships, sales force, internal systems,
distribution systems, etc.)
Calculate Earnings Power Value (EPV) — The value of distributable cash flow assuming no growth
 Calculate and use “normalized” op. margin and tax rate
 Take out growth-related expenses
 Take out one-time charges; add back an implied multi-year “average charge”
 Add back depreciation expense above maintenance capital expenditure
 Add back goodwill amortization charge
 Capitalize distributable cash flow calculation by the firm’s cost of capital, with growth = 0
Calculate Earnings Power Value with growth
 First confirm that growth actually adds value (EPV > Reproduction Value; incremental returns exceed cost of
capital)
 Calculate “normalized” earnings power
 Capitalize earnings power using 1) firm’s cost of capital and 2) growth = LT expected GDP growth
 Confirm results with private market values if available

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An Example —

H.J. HEINZ COMPANY (ticker: HNZ)

Nearco Value Fund — original investment on January 4, 2010

Year
1888

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An Example ―

1. Simple to understand?
 Generates revenue by manufacturing and selling a global portfolio of leading food brands focused
in three core categories: Ketchup and Sauces, Meals and Snacks, and Infant/Nutrition.
 Long history: Founded in 1869
 World-Class Iconic Brands, including Heinz, Ore-Ida, Weight Watchers, Smart Ones, Classico, TGI
Friday’s, Watties, Plasmon and Honig.
 Stable market shares within core food categories
 Over 70% of total sales are international; HNZ’s products are sold in over 200 countries
 The company’s top 15 brands account for nearly 70% of its sales
 Sells over 650 million bottles and over 11 billion single-serve packets of ketchup every year

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An Example ―

2. Consistent operating history and favorable long-term prospects

 Has been selling Ketchup for over 140 years
 6-year CAGR: organic sales = 4%, EPS = 9%
 30 consecutive quarters of organic sales growth, despite challenging economic environment
 Low private label penetration in HNZ’s core food categories
 #1 or #2 market share in more than 50 countries
 #1 market share in 7 of top 10 global markets for ketchup
 Emerging Markets account for 25% of total sales today vs. only 9% in 2005
 5-year avg. Tangible ROIC = 43%

Net Sales Adjusted EPS Tangible Returns on Capital

$12,000 $4.00 90%
$3.50 80%
$11,500
$3.00 70%
$11,000
$2.50 60%
$10,500 $2.00 50%
$1.50 40%
$10,000
$1.00 30%
$9,500
$0.50 20%
$9,000 $0.00 10%
FY2008

FY2009

FY2010

FY2011

FY2012

FY2008

FY2009

FY2010

FY2011

FY2012

0%
ROIC ROE

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An Example ―

3. Managed by competent and honest managers?

 William Johnson, Chairman & CEO, has been with Heinz since 1982
 Activist Nelson Peltz (Trian Fund) has been on the Board since 2006
 Executive Officers and Directors own 2% of the company
 Excellent brand portfolio management over the last 10 years has improved growth profile
 Consistent operating margins
 Strong balance sheet Historical Cash Flows
 Returning value to shareholders. (in millions)
Cumulative Cash Flows: FY2008-FY2012 Total Line
Cash flows from operations $6,694 1
- Capital expenditures 1,626 2
= Free cash flow (FCF) 5,068 3
- Additions to other assets - 4
- Acquisitions 857 5
= FCF before financing activities 4,211 6
+ Net Issuance (reduction) of debt (133) 7
= FCF available for div. & repurchases 4,078 8
Returned Value:
Cash dividends paid 2,743 9
+ Stock repurchases 384 10
= Total Returned to Shareholders $2,359 11

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An Example ―

4. Valuation on January 4, 2010 (the date of our original investment)

 Traditional measures of value suggest the stock may be attractive…
Traditional Valuations As of
(in millions, except per share) 1/4/2010
stock price $43.00
x shares outstanding 318
= equity value $13,674
+ total debt $4,618
- cash $483
= Enterprise Value (EV) $17,809
Financials:
FY2010 Cash EPS $3.10
FY2010 EBITDA $1,862
FY2010 SALES $10,500
Valuation Multiples:
P/E 13.9 x
EV/SALES 1.7 x
EV/EBITDA 9.6 x

“The stock market is filled with individuals who know the price of everything,
but the value of nothing.” -Philip Fisher
What is the VALUE of H.J. Heinz?

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 An Example —
4. Valuation - Our calculation of intrinsic value for Heinz (on January 4, 2010)
 Reproduction Value = ~$4.6 billion
 Earnings Power Value = ~$13.9 billion
 Earnings Power Value with Growth = ~$19.2 billion
$25,000

$20,000 19,177

13,873
$15,000 Margin of Safety!
Our purchase price on
1/4/2010 = $13,674
$10,000

4,596
$5,000

$0
Asset Value Earnings Power Value Growth Value
(Reliability Spectrum):
(Reproduction Value) (EPV) (EPV with Growth)
Tangible Current Earnings Includes Growth
Balance Sheet Extrapolation Extrapolation
No Extrapolation No Forecast Forecast

MOST RELIABLE LESS RELIABLE LEAST RELIABLE

*Adapted from Bruce Greenwald’s Value Investing class at Columbia Business School.

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An Example ―
4. Valuation – Asset Value, EPV and EPV-with growth: 2009 - 2012
 In FY2009, the stock traded close to fair value.
 FY2010: Nearco Value Fund buys HNZ stock trading for less than its EPV-no growth
 In FY2013, Buffett and G3 offer full equity value of $23.4 billion for entire company!
 Nearco Value Fund realized an 82% total return on original investment; 22% compounded
annual return over 3 years.

H.J. Heinz
$30,000
Equity Valuation 2009 - 2012

$25,000
Buffett buys Co.
for $23.4 billion
in millions

$20,000

Nearco’s $15,000
Original
Purchase Current Market Value
Price $10,000
Market Value-HIGH
Market Value-LOW
$5,000 Earnings Power Value - With Growth
Earnings Power Value - No Growth
Replacement Value
$0
FY2009 FY2010 FY2011 FY2012 FY2013

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An Example ―

4. Valuation – Confirm the investment has implied double-digit forward rate of return
 Calculate normalized FCF Yield
 Add a conservative amount of volume growth and inflation
 On 1/4/2010, HNZ’s implied forward rate of return >11%

Expected Forward Rate of Return

($ in millions) FY2010
HNZ Free Cash Flow Margin:
FY2009 8.6%
3-yr avg. 9.0%
*5-yr avg. 9.4%

FY2010 Normalized FCF (using 5-yr avg. margin) $987

Market Value of equity $13,674

Results:
Implied FCF Yield 7.2%
+ Volume Growth 2.0%
+ LT Inflation 2.0% Observations:
= Implied Forward Rate of Return 11.2%  Steady, bond-like cash flows…
 Attractive, equity-like returns!
HNZ dividend yield 4.1%
10-year Treasury bond yield 3.9%

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Another Example ―
A recent investment for the Nearco Value Fund, LP
 A difficult-to-replicate, high-quality consumer brand with a strong history
 Good management, no debt, attractive growth opportunities, 5-year avg. Tangible ROIC = 60%
 Returning significant value to shareholders…shares outstanding have declined 25% over the last 6 years
 International accounts for one-third of sales and is growing double-digits
 Company’s growth decelerating to more sustainable rate; Momentum investors have lost confidence in
the stock
COACH INC.
Equity Valuation 2000 - 2013
$30,000
Current Market Value
Market Value-HIGH
Market Value-LOW
$25,000 Earnings Power Value-with growth
Earnings Power Value-no growth
Replacement Value
Current Market Value =
$20,000
 90% of EPV-no growth
$ in millions

 70% of EPV-with growth

$15,000
 Not paying for growth
 FCF yield = 8%
$10,000
 Implied Forward return = 12%

$5,000

$0
2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013
CONFIDENTIAL SIRE LINE CAPITAL MANAGEMENT, LLC 2013 15
 Cash Management: Driven by Implied Market Risk

U.S. Equity Markets: Cheap or Expensive?

We focus on three broad measurements:

1. Implied forward rate of return for the S&P 500 Index
2. Total equity market value as a % of GDP
3. Relationship between the earnings yield on equities and the yield on
investment grade U.S. corporate bonds

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 Cash Management: Driven by Implied Market Risk
Forward rate of return for the broad equity market?
Assumptions:
 4% avg. earnings growth for the S&P 500 Index
 A range of P/E multiples (10x, 15x, 20x, 25x) for the S&P 500 ten years out (smaller colored lines)
Results:
 The thick black line is the actual 10-year average forward return for the S&P 500
 In 1999, the actual average forward 10-year return for the market was negative (model predicted)
 The forward rate of return for the S&P 500 Index over the next 10 years is likely to be 6%—9%
(assuming an end P/E multiple of 15x-20x)
S&P 500 Index
Expected 10-year forward rate of return
25.0%

20.0%
10-year avg. returns

15.0%

10.0% 10-year forward

rate of return will
5.0% likely be 6%-9%
from here
0.0%
1950
1952
1954
1956
1958
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
-5.0%
10x 15x 20x 25x ACTUAL RETURN

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 Cash Management: Driven by Implied Market Risk

The value of the total equity market relative to Gross Domestic Product (GDP)?
 The Wilshire 5000 Index is currently 95% of GDP.
 Long-term average is around 73%.
 Implies the overall equity market is slightly overvalued

Wilshire Total Market Value vs. GDP Wilshire Total Market Value as a % of GDP
$18,000 160%

$16,000 140%
$14,000
120%
$12,000
100%
$10,000
80%
in billions

$8,000
60%
$6,000

$4,000 40%

$2,000 20%

$0 0%
4Q70
4Q72
4Q74
4Q76
4Q78
4Q80
4Q82
4Q84
4Q86
4Q88
4Q90
4Q92
4Q94
4Q96
4Q98
4Q00
4Q02
4Q04
4Q06
4Q08
4Q10
4Q12

4Q70
4Q72
4Q74
4Q76
4Q78
4Q80
4Q82
4Q84
4Q86
4Q88
4Q90
4Q92
4Q94
4Q96
4Q98
4Q00
4Q02
4Q04
4Q06
4Q08
4Q10
4Q12
Wilshire Total Market GDP Wilshire 5000 as a % of GDP Long-Term Avg.

CONFIDENTIAL SIRE LINE CAPITAL MANAGEMENT, LLC 2013 18

 Cash Management: Driven by Implied Market Risk
P/E of U.S. stocks vs. P/E of U.S. investment grade (Baa) corporate bonds (inverted yield)?
 Hold no/negative cash levels when stock P/E ≤ 11% discount Baa corporate bond P/E
 Hold low cash levels when stock P/E = Baa corporate bond P/E
 Hold medium cash levels when stock P/E ≥ 25% premium to Baa corporate bond P/E
 Hold high cash levels when stock P/E ≥ 40% premium to Baa corporate bond P/E

Bonds vs. Stocks:

Implied Forward Returns for Equity Markets
60.0%

50.0%

40.0%

30.0% Why this Relationship?

20.0% Bonds and stocks are
10.0%
always in competition
for investors’ dollars
0.0%

-10.0%

-20.0%
Hold high cash levels Hold low cash levels
-30.0%
9/8/10

9/5/12
3/17/10
5/19/10
7/14/10

11/3/10
12/29/10
2/23/11
4/20/11
6/15/11
8/10/11
10/5/11
11/30/11
1/25/12
3/21/12
5/16/12
7/11/12

10/31/12
12/26/12
2/20/13
3/13/20009

Potential Upside Potential Downside

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Risk Management

Our value strategy is designed to limit downside exposure

 Invest only when there is a significant “margin of safety” between our purchase price and
the underlying intrinsic value of the business
 Never overpay for unpredictable growth
 Invest only in high-quality companies with low debt levels, high cash generation and
consistent operating performance
 Invest only in proven management teams whose interests are aligned with ours
 Holding a relatively small portfolio of 20-30 companies means we know them extremely well
 No significant use of leverage
 No use of complex derivatives
 Adjust cash levels based on available investment opportunities and implied market risk

All interests are aligned

 General partner receives no compensation until limited partners earn 5% annualized
 High-water marks are designed to give the general partner an incentive to protect against
significant losses in any one year
 General partner is also a limited partner (investor) with the exact same rules and restrictions
as other limited partners

CONFIDENTIAL SIRE LINE CAPITAL MANAGEMENT, LLC 2013 20

Nearco Value Fund — Performance

TOTAL RETURN (1)

Overall Results Partnership Limited Partners'
Annual: From S&P (2) Results (3) Results (4)
2010 13.2% 11.7% 8.8%
2011 2.1% 11.5% 9.3% Observations:
2012 16.0% 12.5% 10.0%  Strategy outperformed in 2011
Cumulative: (flat-to-down equity markets)
2010 13.2% 11.7% 8.8%  Strategy shows consistent
2010-2011 15.6% 24.5% 18.9%
double-digit gross performance
2010-2012 34.1% 40.1% 30.8%
 Net returns penalized by Fund’s small size
Annual
Compounded Rate: 10.3% 11.9% 9.4%
(Footnotes to table above)
(1) All performance figures begin as of the close on January 4, 2010.
(2) Based on changes in the value of the S&P 500 plus dividends
(reinvested) that would have been received through ownership of
the Index during that period.
(3) Represents the gross trading rate of return before operating
expenses and incentive allocation.
(4) Represents the total net return to Limited Partners after all
operating expenses and allowing for the general partner's
incentive allocation.

CONFIDENTIAL SIRE LINE CAPITAL MANAGEMENT, LLC 2013 21

Nearco Value Fund — Performance

Net returns penalized by the Fund’s small size at startup:

 Gross portfolio returns comfortably above average
 Operating expenses virtually fixed until the Fund reaches $25 million AUM
 As assets grow larger, op. expense ratio becomes de minimis

Nearco Value Fund

Gross Trading Rate of Return vs. S&P 500
50%

40%
Nearco Value Fund Expense Ratio
30%
Partners' Op. Exp. /
20% Date Capital Average Assets
12/31/2010 $1,313,889 1.86%
10% 12/31/2011 $1,666,934 1.02%
12/31/2012 $3,005,018 0.95%
0%
2/19/2012 (today) $3,257,896 0.61%

-10%
???????? $10,000,000 0.20%
Mar-10
Jun-10

Mar-11
Jun-11

Mar-12
Jun-12
Sep-10

Sep-11

Sep-12
Dec-10
Dec-09

Dec-11

Dec-12

Nearco S&P 500

CONFIDENTIAL SIRE LINE CAPITAL MANAGEMENT, LLC 2013 22

The General Partner

Sire Line Capital Management, LLC

 Founded in 2009
 Value-oriented, independently owned and operated investment management boutique
based in New York City
 A New York Registered Investment Advisor

Daren Taylor, CFA ― Managing Partner

 2010—Present: Managing Partner of the Nearco Value Fund, LP
 2000—2008: Vice President and Senior Equity Analyst at Oppenheimer Capital ($20+
billion in AUM) in New York. Oppenheimer Capital was a subsidiary of Allianz Global
Investors ($1.3+ trillion in AUM)
 2006: CFA (Chartered Financial Analyst) Charterholder
 2003: M.B.A. from Columbia Business School (studied in Bruce Greenwald’s Value Investing
Program)
 2000: B.S. in Finance and Economics from the Leonard N. Stern School of Business at NYU
 Member: CFA Institute, New York Society of Security Analysts
 20 years studying and implementing the principles of value investing

CONFIDENTIAL SIRE LINE CAPITAL MANAGEMENT, LLC 2013 23

Nearco Value Fund Overview

Terms and Fund Information

Management Fee None Minimum Investment $250,000
Incentive Allocation 20% Additions Monthly
Hurdle Rate 5% Redemptions Annually
High-water Mark Yes NAV Reporting Quarterly

Independent Service Providers

Custodian/Broker UBS Financial Services Auditor Patke & Associates, Ltd.

Law Offices of
Administrator Michael J. Liccar & Co. Legal
Andrew E. Goldstein

For more information, contact: Sire Line Capital Management, LLC

Daren Taylor, CFA 159 Madison Avenue, Suite 10i
Phone: 646.526.8403 New York, NY 10016
Fax: 646.502.4195 www.sirelinecapital.com
Email: dtaylor@sirelinecapital.com info@sirelinecapital.com

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