restructuring \ litigation \ valuation
Fair Market Value of the ABC Company at 30 June 2013
July 8, 2013
Confidential
CAPSTONE VALUATION SERVICES, LLC
capstoneag.com
Our Engagement
Capstone Valuation Services, LLC (“CVS”) has prepared the attached report pursuant to our engagement by ABC Company
(“ABC” or “the Company”) to provide a fair market value of the Company as of June 30, 2013 (the “Valuation Date”). CVS
understands that our opinion is to be used for tax planning purposes with the contemplated restructuring.
CVS performed this valuation analysis with subject company data, as well as information obtained from other sources including
Capital IQ, the internet and other public and private sources. CVS has not performed any audit or other verification work on this
data. The procedures CVS performed are substantially less in scope than an examination, the objective of which is the
expression of an opinion on financial information. Accordingly, CVS does not express such an opinion on the Company’s
operating results, projections or any of the information provided to us. Further, our valuation opinion expressed herein is
contingent upon the conditions set forth in the “Statement of Assumptions and Limiting Conditions” included herein on the
following page of this report. Had CVS performed additional procedures, other matters might have come to our attention that
would have been reported to you and that may otherwise have altered our valuation analysis.
This report was prepared under the supervision of Bruce B. Bingham, FASA, and it is for the purpose of tax planning for ABC
Company and its owners. It should not be used for any other purpose. This report contains confidential information and may
not be distributed or disclosed to any other party.
Capstone Valuation Services, LLC
July 8, 2013
Confidential
2
Statement of Assumptions and Limiting Conditions
The general assumptions and limiting conditions pertaining to the valuation analysis are summarized below.
1.
To the best of our knowledge and belief, the statements of facts contained in this document, upon which the analysis and opinions expressed are based, are true
and correct. Information, estimates and opinions furnished to us and contained in this document or utilized in the formation of the value conclusions were obtained
from sources considered reliable and believed to be true and correct. However, no representation, liability or warranty for the accuracy of such items is assumed by
or imposed on us, and is subject to corrections, errors, omissions and withdrawal without notice.
2.
This valuation opinion may not be used in conjunction with any other appraisal or study not so specified in this report. The value conclusions stated in this document
are based on the assumptions described in this document. The valuation was prepared solely for the purpose, function and party identified in this report. This report
may not be reproduced, in whole or in part, and the findings of this document may not be utilized by any third party for any purpose, without the express written
consent of Capstone Valuation Services, LLC (“CVS”).
3.
No change of any item in any part of this document may be made by anyone other than a CVS executive director, and CVS shall have no responsibility for any such
unauthorized change.
4.
The work papers for this engagement are being retained in our files and are available for your reference. CVS would be available to support our valuation
conclusions should this be required. Those services would be performed for an additional fee.
5.
Neither all nor any part of the contents of this document shall be disseminated or referred to the public through advertising, public relations, news or sales media, or
any other public means of communication or referenced in any publication, including any private or public offerings including but not limited to those filed with
Securities and Exchange Commission or other governmental agency, without the prior written consent and approval of and review by CVS.
6.
Good and marketable title to the business interests and assets being appraised is assumed. CVS is not qualified to render an “opinion of title,” and no responsibility
is assumed or accepted for matters of a legal nature affecting the business being appraised. No formal investigation of legal title to or liabilities against the business
valued was made, and CVS renders no opinion as to ownership of the business or condition of its title.
7.
CVS takes no responsibility for any events, conditions or circumstances affecting our opinion of value that take place subsequent to the valuation date.
8.
This valuation analysis is based on historical and prospective financial statements. Some assumptions or projections inevitably will not materialize and
unanticipated events and circumstances may occur during the forecast period. These could include changes in the economic conditions; significant increases or
decreases in current interest rates and/or terms or availability of financing altogether; and/or major revisions in current state and/or federal tax or regulatory laws.
Therefore, the actual results achieved during the projection period could vary from the projection. Such variations could be material and have an impact on the
opinion stated herein.
9.
Our work with respect to prospective financial information did not constitute an audit or an examination, compilation, or agreed upon procedures engagement of a
financial forecast in accordance with standards established by the American Institute of Certified Public Accountants, and CVS does not express assurance of any
kind thereon.
Confidential
3
Table of Contents
Executive Summary
5
Economic, Industry & Company Profile
7
Market Approach
12
Guideline Public Company Method
14
Guideline Transaction Method
19
Income Approach
21
WACC
26
Discounted Cash Flow
31
Calculated FMV of TIC
32
Appendix
35
Confidential
4
Executive Summary
Confidential
5
Executive Summary



Capstone Valuation Services, LLC performed a valuation analysis of the Total Invested Capital (“TIC”) of ABC Company as of
June 30, 2013.
– CVS valued ABC Company as a going-concern.
– CVS relied on the projections from ABC Company’s business plan dated June 3, 2013.
– CVS relied on market information as of June 22, 2013 (the “Market Data Date”).
For the purpose of CVS’s opinion, Fair Market Value is defined in accordance with Revenue Ruling 59-60, as follows:
The price at which the property would change hands between a willing buyer and a willing seller when the former is not
under any compulsion to buy and the latter is not under any compulsion to sell, both parties having reasonable knowledge
of relevant facts.
CVS’s calculation of FMV of TIC at June 30, 2013 is as follows:
E stimate d Valu e
o f T o tal
(U S D in m illions )
In v e ste d C ap ital
In d icate d
We ig h t
Valu e
Inc om e Approac h - D C F
$
124.0
60% $
74.0
Market Approac h - Guideline C om panies
$
127.0
40% $
51.0
$
125.0
C alcu late d F air M arke t Valu e o f T o tal In v e ste d C ap ital (ro u n d e d )
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6
Economic, Industry &
Company Profile
Confidential
7
Economic, Industry & Company Profile
Economic Overview

General economic outlook per The World Bank.
– US Economony
■ Real Gross Domestic Product increased at an annualized rate of 2.5% during the first quarter of 2013.
■ GDP grew 2.2% for all of 2012, versus growth of 2.4% in 2010 and 1.8% in 2011.
■ The Conference Board (“TCB”) reported that the Composite Index of Leading Economic Indicators
(“LEI”), the government’s primary forecasting gauge, declined 0.1% in March 2013 to 94.7 after
increases of 0.5% in both January and February.
■ According to the Bureau of Labor Statistics, the Consumer Price Index (“CPI”) decreased 0.2% in
March 2013 (on a seasonally adjusted basis), following no change in January and a 0.7% increase in
February.
■ The Producer Price Index (“PPI”), which is generally recognized as predictive of near-term consumer
inflation, declined 0.6% in March 2013 (PPI for finished goods, seasonally adjusted), after increases
of 0.2% and 0.7% in January and February, respectively.
[Source: National Economic Review First Quarter of 2013]
Confidential
8
Economic, Industry & Company Profile
Industry Overview

Current State of the Outdoor Advertising Market
– Over the five years to 2013, the industry has seen revenue fall at an average annual rate of 2.1% to $8.9 billion.
– This is largely the result of budget reductions in marketing departments across client industries, particularly companies
that make consumer goods.
– Over 80% of outdoor advertising expenditure is related to consumer and retail trade; therefore, the industry is sensitive to
fluctuations in disposable income and retail sales.
– The largest participants in this industry with respect to 2013 revenue include CC Media Holdings at 13.9% market share,
Lamar Advertising with 13.6% market share and CBS Corporation at 13.2% market share.
– In 2013, the top three players in the industry are expected to account for 40.7% of industry revenue, suggesting
substantial industry concentration.

Projected Outlook of Outdoor Advertising Market
– In the five years to 2015, industry revenue is expected to increase at an annualized rate of 3.1%.
– Operators will enjoy a rise in demand as businesses increase their advertising efforts.
– Profits will also improve as players increase their rates and reap the benefits of a larger number of high-margin digital
displays.
[Source: “Billboard & Outdoor Display Advertising in the US”; May 2013; IBISWorld]
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9
Economic, Industry & Company Profile
Industry Overview (cont.)
Advertiser Breakdown (by 2013 Revenue)
Product Breakdown (by 2013 Revenue)
[Source: “Billboard & Outdoor Display Advertising in the US”; May 2013; IBISWorld]
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10
Economic, Industry & Company Profile
Company Overview




ABC Company Worldwide is a full service media company specializing in Out-of-Home advertising,
Founded in 2001 by advertising industry veterans, ABC Company is one of the premier advertising sales organizations in the
business with more than 500 employees (see Appendix C & D for historic operating results for the US and Canadian
operations of ABC Company).
– ABC Company provides sales, marketing, creative research and maintenance of bus, rail, bulletin, roadside billboard,
telephone kiosk, street banner, shopping mall, supermarket and construction bridge advertising. In addition, ABC
Company leads the way in the development and implementation of market leading digital platforms.
– ABC Company’s highly experienced team of specialists furnish national and local advertisers with an exclusive and
diverse selection of creative and cost-effective digital and traditional media solutions in several of the world’s largest and
most demographically attractive transit markets.
– XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
Recent Transactions
– XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
2013 Financial Performance
– ABC Company generated revenue of $331.5 million for the fiscal year ended December 31, 2012. Projected pro forma
2013 revenues are significantly lower primarily due to the disposition of XXXXX operations discussed above. Earnings
before interest, taxes, depreciation and amortization (“EBITDA”) in 2012 was negative $31.3 million on a GAAP basis.
Confidential
11
Market Approach
Confidential
12
Market Approach
Market Approach - Key Definitions and Valuation Factors

The market approach provides an indication of value through analysis of recent share prices of comparable publicly-traded
companies. This approach relates various price/performance ratios of companies in a similar line of business to the
performance of the subject company. In selecting the comparable companies, consideration is given to comparability from an
investors perspective of financial condition, operating performance, and other factors. Market value of total enterprise value
to performance measures (“multiples”) such as earnings, cash flows and revenues are then developed. These multiples are
then applied to the same measures of the subject company’s performance to provide indications of value.

Total Enterprise Value (“TEV”) represents the market value of common equity (computed as the average of the high and low
closing stock price for the 30-day period prior to and including the Market Data Date multiplied by the common shares
outstanding as of the Market Data Date) plus preferred equity and minority interest, plus total debt (including capital leases),
minus cash and short-term investments.

Total Invested Capital (“TIC”) is TEV, as defined above, plus cash and short term investments.

CVS’ valuation is based upon ABC Company as a going-concern.
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13
Guideline Public Company
Method
Confidential
14
Market Approach
Guideline Company Selection

CVS established a universe of potential guideline companies through the following process:
– Step1: Identified the guideline public companies listed in:
■ XXXXXXX Valuation Report, dated April 28, 2012.
■ Information Memorandum for Senior Secured US Term Loan, December 2011.
– For each company identified in Step 1, CVS used Capital IQ’s comparable ‘lists’ function to determine:
■ All Competitors (competitors named by Company, Competitor and Third Party)
■ Quick Comps as determined by Capital IQ
– Step 2: CVS ran a screen in Capital IQ based on the following criteria:
■ Publicly traded, operating or operating subsidiary with the latest day close price above USD$0.00
■ Key word of outdoor advertising in the business description (used “outdoor advertising” in Capital IQ search)
– Step 3: Of the 55 companies identified by the Step 1 and Step 2, we determined those that:
■ Were publicly traded, had actively traded equity, had adequate financial information available in Capital IQ and were
primarily involved in the outdoor advertising business (based on the business description provided by Capital IQ)
■ See Appendix A for the companies that met the aforementioned criteria.
– Step 4: Reviewed the business segments and financial information of the group of companies identified from Step 3,
above, for comparability based on:
■ Segment business descriptions and primary industries served, segment LTM revenue as a percentage of total
revenue, geographic breakdown of revenue, size by LTM revenue, projected EBITDA growth, analyst coverage
■ See Appendix B for details of this analysis.
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15
Market Approach
Guideline Company Selection

After applying the selection process, the following companies were selected
■ APG|SGA SA
■ Clear Channel Outdoor Holdings
■ JCDecaux SA
■ Lamar Advertising Co
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16
Market Approach
Guideline Company – Multiples
G u id e lin e C o m p a n ie s
C lear C hannel
Lam ar
O utdoor
A dvertis ing
A P G |S G A S A
H oldings Inc .
JC D ec aux S A
C o.
TE V to E s tim ated E B ITD A (F Y 2013)
7.6
10.5
7.9
11.9
TE V to E s tim ated E B ITD A (F Y 2014)
7.6
9.9
7.3
11.3
T o ta l En te rp rise V a lu e (T EV ) to EB IT D A

See Appendix E for the calculations of TEV for the Guideline Companies.

See Appendix F for Guideline Company comparative analysis.
Source: Capital IQ
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17
Market Approach
Guideline Company – Selection & Application of Multiples

CVS weighted FY 2013E at 70% and FY 2014E at 30% in determining the weighted value of TEV

CVS then added back the expected ending cash balance to determine TIC
W e ig h te d
(U S D in m illions )
T ita n
S e le cte d
In d ica te d
EB IT D A
M u ltip le
V a lu e
In d ica te d
W e ig h tin g
V a lu e o f T EV
T o ta l En te rp rise V a lu e (T EV ) to EB IT D A
F Y 2013E
12.5
9.2 $
114.9
70%
$
F Y 2014E
12.6
8.8 $
110.7
30%
$
33.0
100%
$
113.0
$
113.0
Indic ated E nterpris e V alue
P lus : E nding C as h B alanc e after R es truc turing C harges
In d ica te d T o ta l In ve ste d C a p ita l (ro u n d e d )
Source: Earnings and post restructuring cash balances from
ABC Company Business Plan 06/03/13. Cash balance of
$14.5mm adjusted downward by $0.9mm estimated
restructuring expenses.
Confidential
18
80.0
13.6
$
127.0
Guideline Transaction
Method
Confidential
19
Market Approach
Guideline Transaction – Universe of Potential Transactions

CVS applied the following process in determining the universe of guideline transactions:
– Step1: Ran a Capital IQ screen based on the following criteria:
■ Merger/Acquisition type transaction
■ Closed between 6/23/2010 - 6/23/2013 (three year look-back period)
■ Key phrases of outdoor advertising or poster advertising in the business description
■ Adequate financial information available in Capital IQ (implied enterprise value greater than zero)
■ Identified eleven possible relevant transactions
– Step 2: Reviewed the business segments and financial information of the target companies identified from Step 2, above,
for comparability based on:
■ Segment business descriptions and primary industries served, segment LTM revenue as a percentage of total
revenue, geographic breakdown of revenue, size by LTM revenue, projected EBITDA growth, analyst coverage
■ No comparable transactions were identified from the Step 1 group.
– Step 3: CVS also reviewed ABC Company’s sale of its XXXXX operations to XXXXXXXXXX for possible relevance in the
valuation process.
■ Due to the negative LTM EBITDA of ABC Company’s XXXXX operations, there were not meaningful multiples
associated with the transaction.
■ Projections for the XXXXXXXX business at the time of the transaction were influenced by marketing efforts and did not
represent actual operating conditions of that business.
■ The purchase price of the transaction was influenced by the distressed nature of the sale and buyer specific synergies.
■ Ultimately these issues precluded us from relying on this transaction as a relevant indication of value for ABC
Company’s US operations.
Confidential
20
Income Approach
Confidential
21
Income Approach
Income Approach - Key Definitions and Valuation Factors

Discounted Cash Flow Method (“DCF”)
– This methodology estimates the value of a business by discounting the entity’s free cash flow and continuing (“terminal”)
value at the business’s weighted average cost of capital (“WACC”), a risk-adjusted discount rate.
WACC = (D/V)*((1-t)*Kd) + (E/V)*Ke
where t= tax rate, D= value of debt, E= value of equity, V= total value, Kd= cost of debt, Ke= cost of equity

Free cash flow is defined as debt-free net income, plus depreciation, amortization, and restructuring and non-recurring
expenses, less capital expenditures, stock based compensation and changes in other assets, and adjusted for changes in
working capital.

CVS utilized the projections as presented in the Company business plan dated June 3, 2013.
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22
Income Approach
Income Approach – Financial Projections Summary





The Projections (“Projections”) were updated by the Company in June, 2013 to incorporate actual performance through April
2013 with pro forma adjustments to reflect the renegotiated contract terms.
Management of the Company prepares a set of 5-year projections annually and updates the projections for actual results on
a monthly basis.
The Projections reflect a bottoms-up approach on a contract-by-contract basis, with input from field personnel, and are
reviewed and approved by the CFO, CEO and Chairman of the Board.
The Projections were recently updated to reflect the renegotiated contract terms with all of the transit authorities, and the loss
of the XXXXX contract in XXXXXXXXXXX.
The Projections incorporate the following assumptions:
– Revenue growth of 5% from 2014 through the end of the forecast period, which Management views as conservative.
– Direct costs are specific to each contract and to a large extent are driven by revenue.
■ The majority of the direct costs incurred are the greater of (i) the contract provision for the minimum annual guarantee
(“MAG”), which represents the minimum dollar amount of advertising revenue to be paid to the transit authority; or (ii)
the revenue sharing agreement, which represents potential upside to XXXX XXXXX XXXXX should ABC Company
exceed the MAG.
– General and administrative expenses are assumed to grow at 3% per year.
– Days sales outstanding (“DSO”) of 80 days through Q1 2014, then 75 days thereafter; and days payable outstanding
(“DPO”) of 40 days.
– Capex is generally specific to each contract and largely represents the cost to set up and maintain the outdoor signage.
– The Company assumes it will win the bid to renew the XXXX XXXX XXXXX XXXXXX XXXXXX (“XXXX”) contract at the
end of 2013.
■ Management indicated that they have received positive signals from XXXX that the Company should win the bid for
renewal of the contract.
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23
Income Approach
Income Approach – Financial Projections Summary

The Projections do not include the projected cash flow from the potential winning bid for the renewal of the XXXX contract,
which represents potential upside to the total indicated value.
–
Management acknowledged that they have received no feedback whether or not they will receive the winning bid for the
renewal of the XXXXX contract.
–
XXXXX is the XXXXXXX XXXXX XXXXXXX of XXXXXX XXXXXX XXXXXX XXXXX (“XXX”), and the XXX is a financial
review, oversight and planning agency for XXXX, XXXXX, and XXXXXX XXXXXX XXXXXX (“XXX”).
■ The Company already has a contract with the XXX, and the infrastructure in place to sell the advertising for XXXX.
■ It would not be unreasonable to assume that the Company can win the renewal of the XXXX contract, which is
projected to generate annual cash flow of $1.1 million in 2013 and $1.2, $1.3, $1.3 and $1.4 million in 2014 through
2017.

The Company has not included the projected acquisition of XXXXXX XXXXXX in the Projections.
– Management anticipated a November 2013 acquisition of certain identified XXXXXX XXXXX in XXXXXXX with an
estimated purchase price of $10.5 million, based on the purchase price per XXXXXX from a similar acquisition they made
two and a half years ago.
– Management is projecting cash flows of $0.6 million for the two months ended December 2013, and $5.6, $6.1, $6.4, and
$6.7 million for the fiscal years 2014 through 2017.
– Management acknowledged that they most likely would be bidding against one of their competitors for the XXXX XXXXX
portfolio, which could drive the purchase price higher than the $10.5 million they are projecting.
– Capstone has qualitatively, but not quantitatively considered this project due to implied above market rates of return
embedded in managements projections.
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24
Income Approach
Income Approach – Financial Projections Summary
$ in 000's
2H 2013
2014
2015
2016
2017
Gros s R evenue
83,864
164,235
172,323
180,827
189,743
D irec t C os t of S ales
67,388
134,579
139,634
146,761
152,951
G ro ss P ro fit
16,475
29,656
32,689
34,065
36,793
19.6%
18.1%
19.0%
18.8%
19.4%
O perating E xpens es
8,420
17,008
17,518
17,543
18,070
O p e ratin g P ro fit
8,056
12,649
15,171
16,522
18,723
9.6%
7.7%
8.8%
9.1%
9.9%
% m argin
% m argin
Non-R ec urring R es truc turing E xpens es
P ro F o rma E B IT D A
% m argin
Source: ABC Company Business Plan 06/03/10.
910
-
-
-
-
7,146
12,649
15,171
16,522
18,723
8.5%
7.7%
8.8%
9.1%
9.9%
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Income Approach
WACC - Information Sources

The estimated WACC for ABC Company was determined based on information collected from the following sources:
– Capitalization ratios for the previously identified guideline companies based on their most recently issued balance sheets
and market quotations for the publicly traded equity instruments for the guideline companies as of the Valuation Date.
– Effective tax rates for the comparable companies based on their most recently issued income statements, if meaningful.
– Five years of weekly historic equity prices for each of the guideline companies, where available.
– Yields on U.S. Government securities as reported by the Federal Reserve Bank as of the Valuation Date.
– Historical required rates of return for equity investments as calculated and presented in the 2013 Ibbotson Stocks, Bonds,
Bills, and Inflation Valuation Yearbook as published by Morningstar.
– Yields on Moody’s corporate bond indices as reported by the Federal Reserve Bank as of the Valuation Date.
– Estimated future effective tax rates as projected by management.

The five year weekly historic beta for all comparable companies was calculated against the S&P 500 index.
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26
Income Approach
WACC – Estimation of Beta

To account for the effects of leverage on the volatility of equity returns, CVS unlevered and relevered the guideline company
betas using the following estimates:
– Total debt as a % of TIC shown for each of the comparable companies is the same data included in the calculation of the
market approach multiples.
– The effective tax rate for the latest fiscal year was used in cases where it was available and meaningful:
■ Clear Channel Outdoor Holdings Inc. - had a non-meaningful effective tax rate for the latest fiscal year. The effective
U.S. federal rate of 35% was used.
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27
Income Approach
WACC – Relevered Beta
5 Ye a r
5 Ye a r
W e e kly
5 Ye a r
W e e kly
Book De bt
De bt /
T a x R a te
O b se rve d
U n le ve re d
R e le ve re d
T icke r S ym b o l
/ T IC
Eq u ity
L a st F Y
B e ta
B e ta
B e ta
A P G |S G A S A
S W X:A P G N
0.0%
0.0%
31.5%
0.36
0.36
0.42
C lear C hannel O utdoor H oldings Inc .
N Y S E :C C O
61.6%
160.3%
35.0%
2.09
1.02
1.22
E N XTP A :D E C
14.6%
17.2%
35.7%
0.96
0.87
1.03
N as daqG S :LA M R
33.4%
50.0%
49.1%
1.89
1.51
1.79
A verage for G uideline C om panies
27.4%
56.9%
37.8%
1.32
0.94
1.12
M edian for G uideline C om panies
24.0%
33.6%
35.3%
1.43
0.94
1.12
24.0%
33.6%
40.0%
1.43
0.94
1.12
G u id e lin e C o m p a n ie s
JC D ec aux S A
Lam ar A dvertis ing C o.
D a ta S e le cte d
Source: Capital IQ
Confidential
28
Income Approach
WACC – Cost of Equity

The current yield on the 20-year U.S. Treasury bond was applied as the risk-free rate consistent with the methodology
underlying the equity risk premium study.

The market risk premium used in this analysis is the long-horizon expected equity risk premium (historical) sourced from the
2013 Ibbotson Yearbook.

The size premium of 6.03% was sourced from the 2013 Ibbotson Yearbook under the assumption that the concluded value of
equity for ABC Company would be between $1.1 million and $253.8 million (falls in the 10th decile).

CVS applied a -1% unsystematic risk premium to account for the conservative nature of the projections with respect to the
assumptions for successful rebidding of contracts.
A fte r-T a x C o st o f Eq u ity
R elevered B eta U s ing S elec ted D ata for S ubjec t C om pany
3.26%
M ark et R is k P rem ium
6.70%
S ubtotal
10.8%
S iz e P rem ium
6.03%
U ns y s tem atic R is k F ac tor
-1.00%
A fte r-T a x C o st o f Eq u ity
Source: Capital IQ
1.12
R is k F ree R ate: Long Term Treas ury B onds
15.8%
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29
Income Approach
WACC - Conclusion


We applied the Moody’s Baa corporate credit yield of 5.4% given the low leverage indicated by the guideline companies for
the industry optimal capital structure.
The pre-tax cost of debt was tax affected using the Company’s estimated effective tax rate of 40%.
A fte r-T a x C o st o f D e b t
P re-tax C os t of D ebt (f)

5.4%
E s tim ated F uture E ffec tive Tax R ate (g)
40%
A fte r-T a x C o st o f D e b t
3.2%
Weighting the previously derived after-tax cost of equity and after-tax cost of debt at the assumed capital structure of 24%
debt and 76% equity arrives at a concluded WACC of 13.0%.
W e ig h te d A ve ra g e C o st o f C a p ita l:
Ty pe of
% of
A fter-Tax
W eighted
C apital
Total
R eturn
R eturn
E quity
76.0%
15.8%
D ebt
24.0%
3.2%
100.0%
12.0%
0.8%
12.80%
W A C C (R o u n d e d ):
Confidential
30
13.0%
Income Approach
Income Approach – DCF
T e rmin al
$ in 000's
2H 2013
2014
2015
2016
2017
0.25
1.00
2.00
3.00
4.00
G ros s R evenue
Les s : C os t of G oods S old
83,864
67,388
164,235
134,579
172,323
139,634
180,827
146,761
189,743
152,951
G ros s P rofit
D is c ount P eriod
%
Valu e
4.00
100.0%
80.6%
196,384
158,304
16,475
29,656
32,689
34,065
36,793
19.4%
38,080
O perating E xpens e
8,420
17,008
17,518
17,543
18,070
9.5%
18,702
D eprec iation
3,377
6,472
6,655
6,140
3,466
1.8%
3,588
Am ortiz ation
3,114
3,955
3,955
3,955
3,955
14,911
27,435
28,128
27,638
25,491
1,565
2,221
4,561
6,427
11,302
910
788
2,043
2,206
2,319
2,396
2,354
1.4%
4,108
2.3%
8,906
4.7%
T otal
Inc om e B efore Inc om e T axes
Non-R ec urring R es truc turing C harges
P rojec ted C as h T axes
D ebt F ree Net Inc om e
(133)
-0.2%
178
0.1%
11.4%
22,290
15,791
1.3%
2,095
4.7%
13,696
7.0%
D e b t-F re e C ash F lo w
Add: D eprec iation E xpens e
3,377
6,472
6,655
6,140
3,466
3,466
Add: Am ortiz ation E xpens e
3,114
3,955
3,955
3,955
3,955
-
-
-
-
-
5.0%
1,853
2,247
5,420
836
2,907
1,453
2,978
2,062
3,060
2,407
13.0%
3,168
0.970
4,350
0.885
8,605
0.783
9,163
0.693
10,860
0.613
3,072
3,850
6,739
6,351
6,661
Add: R es truc turing C harges
Les s : C apital E xpenditures
Les s : C hange in W orking C apital R equirem ent
D ebt-F ree C as h F low
P res ent Value F ac tor
P res ent Value
T erm inal Year G row th R ate
T erm inal Year C as h F low
C apitaliz ation R ate
T otal T erm inal Value
P res ent Value F ac tor
P res ent Value of T erm inal Value
Add: P res ent Value of Interim C as hflow
T otal Indic ated Value of O perating As s ets
E xc es s C as h
T o tal In d icate d Valu e (ro u n d e d )
910
3.5%
13,364
9.5%
140,673
0.613
86,277
26,673

3,466
332
13,364
Excess cash of $11.1 mm calculated based on postrestructuring cash balance less estimated restructuring
expenses less normalized operating cash of $2.5 mm
estimated by management. Normalized operating cash is
consistent with historic requirements as well as covenant
levels in restructured term loan.
112,950
11,077
1.6%
Confidential
124,000
31
Calculated FMV of TIC of ABC
Company
Confidential
32
Calculated Value
Calculated FMV of TIC of ABC Company

CVS’ calculation of FMV of TIC at June 30, 2013 is as follows:
E stimate d Valu e
o f T o tal
(U S D in m illions )
In v e ste d C ap ital
In d icate d
We ig h t
Valu e
Inc om e Approac h - D C F
$
124.0
60% $
74.0
Market Approac h - Guideline C om panies
$
127.0
40% $
51.0
$
125.0
C alcu late d F air M arke t Valu e o f T o tal In v e ste d C ap ital (ro u n d e d )
Confidential
33
Certification of Value
−
−
−
−
−
−
−
−
−
I certify that, to the best of my knowledge and belief:
the statements of fact contained in this report are true and correct;
the reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions, and
are my personal, impartial, and unbiased professional analyses, opinion, and conclusions;
neither Capstone Valuation Services, LLC nor I have any present or prospective interest in the property that is the subject of
this report, and have no personal interest with respect to the parties involved;
I have no bias with respect to the property that is the subject of this report or to the parties involved with this assignment.
my engagement in this assignment was not contingent upon developing or reporting predetermined results.
my compensation for completing this assignment is not contingent upon the development or reporting of a predetermined
value or direction in value that favors the cause of the client, the amount of the value opinion, the attainment of a stipulated
result, or the occurrence of a subsequent event directly related to the intended use of this appraisal.
my analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with generally
accepted valuation standards.
the following professionals provided significant professional assistance to the person signing this report: Jeffrey Dunn,
Emma Bienias, Joseph Woodmansee, and Peter Krause
Bruce B. Bingham, FASA
Confidential
34
Appendix
Confidential
35
Appendix A – Selected Guideline Company Business Descriptions
Company
APG|SGA SA
Business Description
APG|SGA SA, a media company, engages in the provision of out of home advertising services in Switzerland, Romania, Serbia, and Montenegro. It
transports advertising messages into the public and private areas with posters and related media that generated in streets, city centers, pedestrian
zones, railway stations, shopping centers, airports, and tourism resorts, as well as on the outside and inside of public transport vehicles. The
company provides its services directly to consumers, and advertising and media agencies. The company was formerly known as Affichage Holding
SA and changed its name to APG|SGA SA in July 2012. APG|SGA SA was founded in 1900 and is headquartered in Geneva, Switzerland.
Clear Channel
Clear Channel Outdoor Holdings, Inc., an outdoor advertising company, owns or operates advertising display faces worldwide. The company offers
Outdoor Holdings, advertising services through billboards comprising bulletins and posters; street furniture displays; transit displays; and other out-of-home advertising
Inc.
displays, such as wallscapes, spectaculars, and mall displays. As of February 19, 2013, it owned or operated approximately 650,000 advertising
displays. The company also operates Smartbike bicycle rental program, which provides bicycles for rent to the general public in various
municipalities; and sells street furniture equipment, as well as provides cleaning and maintenance services. It serves various customers in retail,
business services, media, banking and financial services, healthcare, food and food products, telecommunications, and automotive industries. The
company was formerly known as Eller Media Company and changed its name to Clear Channel Outdoor Holdings, Inc. in August 2005. The
company is headquartered in San Antonio, Texas. Clear Channel Outdoor Holdings, Inc. is a subsidiary of Clear Channel Communications, Inc.
JCDecaux SA
JCDecaux SA engages in outdoor advertising activities worldwide. The company operates in three segments: Street Furniture, Transport, and
Billboard. The Street Furniture segment engages in advertising in shopping centers; renting street furniture; the sale and rental of equipment; and
the provision of cleaning, maintenance, and other services. This segment provides various products, including automatic outdoor toilets, multiservice columns, newspaper kiosks, citylight panels, free-standing panels, combined public rubbish bins and recycling systems, public benches,
streetlights, recycling bins for glass or batteries, etc. The Transport segment provides advertising services in public transport systems, including
airports, subways, buses, tramways, trains, and metros. This segment holds 175 airport concessions, as well as advertising concessions in
approximately 280 railway transit systems. The Billboard segment is involved in advertising on private property, including traditional large format or
back-light billboards. It also provides neon-light billboards. The company was founded in 1964 and is headquartered in Neuilly-sur-Seine, France.
JCDecaux SA is a subsidiary of JCDecaux Holding.
Lamar Advertising Lamar Advertising Company operates as an outdoor advertising company in the United States. It sells advertising space on billboards, including
Co.
bulletins and posters; logo signs located near highway exits; and exterior and interior of public transportation vehicles, transit shelters, and benches
in 60 markets. As of December 31, 2012, the company owned and operated 144,000 billboard advertising displays in 44 states, Canada, and Puerto
Rico; 115,000 logo advertising displays in 22 states and the province of Ontario, Canada; and operated over 34,000 transit advertising displays in 15
states, Canada, and Puerto Rico. Lamar Advertising Company was founded in 1902 and is headquartered in Baton Rouge, Louisiana.
Source: Capital IQ
Confidential
36
Appendix A – Guideline Company Business Descriptions – Not Selected
Company
Business Description
China New Media China New Media Corp., an outdoor advertising company, operates outdoor advertising networks in northeast China. The company provides clients
Corp.
with advertising opportunities through its various media platforms, which include street fixture and display network comprising bus and taxi shelters;
mobile advertisement displayed on mass city transit systems, which consist of displays on city buses and metro-trains; and billboard displays along
the city’s streets and highways. As of December 10, 2013, it owned and operated outdoor media network, which includes 579 bus shelters furnished
with billboards and displays; 132 taxi stops with displays and 13 large billboards, including 3 mega-size LED displays; approximately 337 wrapped city
buses; and advertising coverage through Dalian's metro transit systems, which comprise 28 trains and 18 train stations. The company markets its
advertising services directly to advertisers and to advertising agencies. It serves banks, utility companies, and consumer product companies. The
company has a strategic alliance agreement with Liaoning Daily Press Group. China New Media Corp. was formerly known as Dalian Vastitude
Media Group Co., Ltd. and changed its name to China New Media Corp. in December 2013. The company was founded in 2000 and is based in
Dalian, China.
Clear Media Ltd.
Clear Media Limited, an investment holding company, operates as an outdoor media company in the People’s Republic of China. Its activities include
display of advertisements on bus shelters, unipoles, and bus bodies; and billboard advertising. The company operates a network of approximately
37,000 display panels in 30 cities. It serves beverage, telecommunication, food, entertainment, IT, realty, business/consumer services, fashion and
ornaments, health products, finance, and other industries. The company was founded in 1986 and is headquartered in Causeway Bay, Hong Kong.
Clear Media Limited is a subsidiary of Clear Channel KNR Neth Antilles NV.
Dahe Media Co.,
Ltd.
Dahe Media Co., Ltd. engages in the design, printing, and production of outdoor advertising products and the dissemination of outdoor advertisement
by leasing outdoor advertising spaces in the People’s Republic of China. The company operates in three segments: Media Dissemination, Media
Production, and Terminal Dissemination. It also provides terminal dissemination, advertising agency, and training services; franchise of Ankang
Advertising Board; production of printed posters, terminal, and signage products; and sale of electronic media products and lamps. The company is
based in Nanjing, the People’s Republic of China.
Source: Capital IQ
Confidential
37
Appendix B – Guideline Company Grouping Matrix
S W X:A P G N
A P G |S G A S A
O p e ra tio n a l
N Y S E :C C O
C le a r C h a n n e l
O u td o o r H o ld in g s
E N XTP A :D E C
JC D e ca u x S A
N as daqG S :LA M R
O TC B B :C M D I
L a m a r A d ve rtisin g
C h in a N e w M e d ia
Co.
C o rp .
S E H K :100
S E H K :8243
C le a r M e d ia L td .
D a h e M e d ia C o . L td .
C o m p a ra b le
C om parable
C om parable
C om parable
C om parable
C om parable
C om parable
C om parable
b u sin e ss lin e s
O perations - O utdoor
O perations - O utdoor
O perations - O utdoor
O perations - O utdoor
O perations - O utdoor
O perations - O utdoor
O perations - O utdoor
A dvertis ing 100% of
A dvertis ing 100% of
A dvertis ing 100% of
A dvertis ing 100% of
A dvertis ing 100% of
A dvertis ing 100% of
A dvertis ing 100% of
LTM 12/31/2012
LTM 12/31/2012
LTM 12/31/2012
LTM 12/31/2012
LTM 12/31/2012
LTM 12/31/2012
LTM 12/31/2012
revenue
revenue
revenue
revenue
revenue
revenue
revenue
74% F Y 12/31/12
46% F Y 12/31/12
29% F Y 12/31/12
100% LTM 12/31/12
N ot D ivers ified- 100%
N ot D ivers ified- 100%
N ot D ivers ified- 100%
revenues from
revenues from
revenues from F ranc e, revenues from N orth
LTM 12/31/12
LTM 12/31/12
LTM 12/31/12
S w itz erland, 15%
A m eric as , 54%
10% E ngland, 34%
A m eric a
revenues from C hina
revenues from C hina
revenues from C hina
G reec e, 11% other
international
other E urope, 7%
G e o g ra p h ic
international
N orth A m eric a and
16% A s ia-P ac ific
F in a n cia l
S iz e b y L T M
S im ilar (~ 300 m m in
M uc h Larger (~ 2,500
M uc h Larger (~ 2,700
Larger (~ 1,100 m m in
M uc h S m aller (~ 9 m m S im ilar (~ 140 m m in
S m aller (~ 55 m m in
R e ve n u e s
F Y 12/31/12)
m m in F Y 12/31/12)
m m in F Y 12/31/12)
F Y 12/31/12)
in F Y 12/31/12)
F Y 12/31/12)
F Y 12/31/12)
P ro je cte d
(2.7% ) dec line in
9.3% grow th in 2013,
22.0% grow th in 2013, 3.1% grow th in 2013,
N ot A vailable
18.5% grow th in 2013, N ot A vailable
EB IT D A
2013, 7.8% grow th in
8.8% grow th in 2014
14.9% grow th in 2014
9.3% grow th in 2014
G ro w th
2014
A n a lyst
Lim ited A naly s t
S ubs tantial A naly s t
S ubs tantial A naly s t
S ubs tantial A naly s t
N o A naly s t C overage
Inadequate A naly s t
N o A naly s t C overage
C o ve ra g e
C overage
C overage
C overage
C overage
A vailable
C overage A vailable
A vailable
S IX S w is s E x c hange
N ew Y ork S toc k
E uronex t E x c hange
N as daq S toc k
O ver the C ounter
The S toc k E x c hange
The S toc k E x c hange
E x c hange
(B ulletin B oard)
of H ong K ong Ltd.
of H ong K ong Ltd.
S to ck
E x c hange
Ex ch a n g e
S e le cte d b y C V S ?
Source: Capital IQ
Ye s
Ye s
Ye s
Ye s
Confidential
38
0.2% grow th in 2014
No
No
No
Appendix C – ABC Company’s Historical Income Statements
Note: The historical pro forma income statements above include only the operating results from the XXXX and XXXXX and have been
adjusted to reflect the cost of sales for the year ended December 31, 2012 and for the four months ended April 30, 2013 on a cash basis.
Results from the XXXX contract in 2013 have also been excluded.
(1) – Presented on a cash basis
Confidential
39
Appendix D – ABC Company’s Historical Balance Sheets
Note: The historical balance sheets presented above and on the following page include year end balances from the XXXX and
XXXXXX operations only.
Confidential
40
Appendix D – ABC Company’s Historical Balance Sheets (cont)
Confidential
41
Appendix E – Guideline Company – Calculation of TIC and TEV
C le a r
R eported C urrenc y
Cha nne l
La m a r
O u td o o r
A d ve rtisin g
A P G |S G A S A
H o ld in g s In c.
JC D e ca u x S A
Co.
CHF
US D
E UR
US D
A ve ra g e o f h ig h /lo w p rice o f 30 d a ys p rio r to va lu a tio n d a te (u se d in
co m p u ta tio n o f T IC a n d T EV , se e se p a ra te ta b )
229.4
x S hares O uts tanding as of V aluation D ate (m illions )
= M ark et V alue of E quity (m illions ) or M V E q (bas ed on avg high/low 30 day s prior)
7.9
20.4
45.7
2.9
357.3
222.2
94.3
675.3
2,838.5
4,528.2
4,306.4
4,940.6
770.0
2,154.9
+ S hort & Long-Term D ebt (Total D ebt)
-
+ P referred S toc k
-
+ M inority Interes t
2.3
244.2
677.6
8,023.3
5,258.5
55.9
547.3
674.0
75.5
621.6
7,476.1
4,584.5
6,385.8
= T o ta l In ve ste d C a p ita l (m illio n s)
- C as h & S hort-term inves tm ents
= En te rp rise V a lu e (m illio n s)
Note: Values above are in millions of local currency
Source: Capital IQ
Confidential
42
-
(39.7)
6,461.2
Appendix F – Guideline Company – Comparative Analysis
(a) Ratios for ABC Company are for FY 2013E. Ratios involving
balance sheet line items based on ABC Company's balance sheet as
of 6/30/2013.
Sources:
Capital IQ
ABC Company’s business plan dated 06/03/10
Confidential
43