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Letter to the Editor

Boyd's Big Box Is Big News

Twenty-four industry stocks are followed by INSIGHT and twenty-one are down year to date. A few such as Akzo Nobel, ADP, Copart, Insurance Auto Auctions, and Snap On Tools are down in the low to medium two-digit numbers.

Both Copart and Insurance Auto Auctions have surprised me with the large drop in their stock prices. With the number of "totals" up, according to insurers, coupled with most insurers demanding more and more use of salvage, it would seem reasonable that sales and earnings for the two companies should be up.

In the case of both companies that was true, with reported 2002 sales and earnings up over 2001. Insurance Auto Auctions stock sells today at about half of what it did in May of 2002 and the same is true for Copart.

As you will note, the Boyd Group stock has morphed into a Canadian-based mutual fund "unit." After carefully reading the 123-page prospectus for this new entity, which is called Trust Unit 5 by the Boyd Group Income Fund, I believe I only partially understand which walnut shell the pea is under.

It would appear that the Canadian lawyers and investment advisors concluded that, both for the purpose of raising new money and to pay out a dividend, they would turn to the concept of a closely focused mutual fund format, only the shares would be called units instead of shares. What this would allow them to do, though, I am not sure.

Bottom line, if you look at the numbers, Boyd is doing pretty well as the company continues to make acquisitions drawing down the $25 million (Cdn.) commitment for forgivable funding provided by BASF in 1999, as reported in INSIGHT in late 1999, in return for up to a six-year contract to buy materials exclusively from BASF.

Boyd indicated in the prospectus that, subject to certain obligations and performance criteria, Boyd will not be required to repay this capital funding.

Boyd also reported that, for the last fiscal year, its overall gross profit was running at the 45 percent level, and that the EBITDA was right around nine percent - pretty darn good numbers.

The most interesting item in the prospectus, however, is the section covering Boyd's plans for an industrialized, or "big box" shop, a concept that we have covered in detail in INSIGHT in the past year or so.

We are reprinting from the prospectus that section, as I feel it will be of significant interest to our readers. Please turn to page 17 for the Big Box Initiative.

The Boyd Group’s Big Box Initiative

The following is reprinted from the Boyd Group Income Fund Prospectus, dated February 14, 2003:

Since becoming a public company in 1998, Boyd's growth has come primarily by way of acquisitions. Although this has been, and can continue to be, a viable and successful strategy, Boyd has long believed that there is a better business model available for collision repair; one that could truly realize on the advantages and efficiency of size and scale.

During 2001, the company determined that it was at a size and stage in its development that allowed it to pursue the development and testing of this type of model.

It therefore engaged a multi-disciplined industrial engineering firm to assist in formalizing its plan to develop a ""Big Box'' production model. The Company took its first step in executing this plan when it acquired AWC Collision Centers in Tacoma, Washington, an operation which was well suited for transitioning to this ""Big Box model.''

Boyd's Big Box model contemplates the development of a replicable facility that would, among other things:

• be managed by specialists, including professional engineers with experience and training in sophisticated manufacturing techniques and environments
• utilize large area, lower cost production space in a multiple shift environment
• utilize a team approach to the repair process
• provide staff with a high level of training and cross-training
• integrate supplier support services into the production process in order to achieve the following outcomes:
  • achieve annual revenues of $50 million or more per facility
  • achieve higher gross margins and higher EBITDA margins than are achieved with in the industry today
  • dramatically reduce repair cycle times
  • achieve enhanced levels of customer satisfaction through higher volumes, economies of scale and process efficiencies, reduce the overall cost of collision repair
  • represent a completely new production and service delivery model for gaining competitive advantage and market share in the collision repair industry.

-Charles Baker-

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