ValueCo Corporation

Discounted Cash Flow Analysis

($ in millions, fiscal year ending December 31) Operating Scenario Downside 1
Operating Scenario 4
Mid-Year Convention Y Historical Period CAGR Projection Period CAGR
2016 2017 2018 ('16 - '18) 2019 2020 2021 2022 2023 2024 ('19 - '24)
Sales $2,600.0 $2,900.0 $3,200.0 10.9% $3,450.0 $3,622.5 $3,767.4 $3,880.4 $3,996.8 $4,116.7 3.6%
% growth NA 11.5% 10.3% 7.8% 5.0% 4.0% 3.0% 3.0% 3.0%
Cost of Goods Sold 1,612.0 1,769.0 1,920.0 2,070.0 2,209.7 2,298.1 2,367.1 2,438.1 2,511.2
Gross Profit $988.0 $1,131.0 $1,280.0 13.8% $1,380.0 $1,412.8 $1,469.3 $1,513.4 $1,558.8 $1,605.5 3.1%
% margin 38.0% 39.0% 40.0% 40.0% 39.0% 39.0% 39.0% 39.0% 39.0%
Selling, General & Administrative 496.6 551.0 608.0 655.0 905.6 941.9 970.1 999.2 1,029.2
EBITDA $491.4 $580.0 $672.0 16.9% $725.0 $507.2 $527.4 $543.3 $559.6 $576.3 -4.5%
% margin 18.9% 20.0% 21.0% 21.0% 14.0% 14.0% 14.0% 14.0% 14.0%
Depreciation & Amortization 155.0 165.0 193.0 207.0 72.5 75.3 77.6 79.9 82.3
EBIT $336.4 $415.0 $479.0 19.3% $518.0 $434.7 $452.1 $465.7 $479.6 $494.0 -0.9%
% margin 12.9% 14.3% 15.0% 15.0% 12.0% 12.0% 12.0% 12.0% 12.0%
Taxes 84.1 103.8 119.8 129.5 108.7 113.0 116.4 119.9 123.5
EBIAT $252.3 $311.3 $359.3 19.3% $388.5 $326.0 $339.1 $349.2 $359.7 $370.5 -0.9%
Plus: Depreciation & Amortization 155.0 165.0 193.0 207.0 72.5 75.3 77.6 79.9 82.3
Less: Capital Expenditures (114.4) (116.0) (144.0) (155.3) (90.6) (94.2) (97.0) (99.9) (102.9)
Less: Inc./(Dec.) in Net Working Capital 239.0 (15.8) (12.4) (12.7) (13.1)
Unlevered Free Cash Flow $546.9 $304.4 $317.5 $327.0 $336.8
WACC 11.0%
Discount Period 0.5 1.5 2.5 3.5 4.5
Discount Factor 0.95 0.86 0.77 0.69 0.63
Present Value of Free Cash Flow $519.1 $260.3 $244.6 $226.9 $210.6

Enterprise Value Implied Equity Value and Share Price Implied Perpetuity Growth Rate
Cumulative Present Value of FCF $1,461.5 Enterprise Value $4,026.7 Terminal Year Free Cash Flow (2024E) $336.8
Less: Total Debt (1,500.0) WACC 11.0%
Terminal Value Less: Preferred Stock - Terminal Value $4,322.6
Terminal Year EBITDA (2024E) $576.3 Less: Noncontrolling Interest -
Exit Multiple 7.5x Plus: Cash and Cash Equivalents 250.0 Implied Perpetuity Growth Rate 2.6%
Terminal Value $4,322.6
Discount Factor 0.59 Implied Equity Value $2,776.7 Implied EV/EBITDA
Present Value of Terminal Value $2,565.2 Enterprise Value $4,026.7
% of Enterprise Value 63.7% Fully Diluted Shares Outstanding 79.2 LTM 9/30/2012 EBITDA 700.0

Enterprise Value $4,026.7 Implied Share Price $35.05 Implied EV/EBITDA 5.8x

Enterprise Value Implied Perpetuity Growth Rate

Exit Multiple Exit Multiple
4,026.7 6.5x 7.0x 7.5x 8.0x 8.5x 0.0 6.5x 7.0x 7.5x 8.0x 8.5x
10.0% 3,815 3,994 4,173 4,352 4,531 10.0% 0.5% 1.1% 1.7% 2.2% 2.6%
10.5% 3,749 3,924 4,099 4,274 4,449 10.5% 1.0% 1.6% 2.1% 2.6% 3.1%
WACC

WACC

11.0% 3,685 3,856 $4,027 4,198 4,369 11.0% 1.4% 2.0% 2.6% 3.1% 3.5%
11.5% 3,622 3,789 3,956 4,124 4,291 11.5% 1.8% 2.5% 3.0% 3.5% 4.0%
12.0% 3,561 3,724 3,888 4,051 4,215 12.0% 2.3% 2.9% 3.5% 4.0% 4.4%
ValueCo Corporation
Sensitivity Analysis
($ in millions, fiscal year ending December 31)

Enterprise Value Implied Equity Value

Exit Multiple Exit Multiple
4,026.7 6.5x 7.0x 7.5x 8.0x 8.5x 2,776.7 6.5x 7.0x 7.5x 8.0x 8.5x
10.0% 3,815 3,994 4,173 4,352 4,531 10.0% 2,565 2,744 2,923 3,102 3,281
10.5% 3,749 3,924 4,099 4,274 4,449 10.5% 2,499 2,674 2,849 3,024 3,199
WACC

WACC
11.0% 3,685 3,856 $4,027 4,198 4,369 11.0% 2,435 2,606 $2,777 2,948 3,119
11.5% 3,622 3,789 3,956 4,124 4,291 11.5% 2,372 2,539 2,706 2,874 3,041
12.0% 3,561 3,724 3,888 4,051 4,215 12.0% 2,311 2,474 2,638 2,801 2,965

Implied Perpetuity Growth Rate Implied Enterprise Value / LTM EBITDA

Exit Multiple Exit Multiple
0.0 6.5x 7.0x 7.5x 8.0x 8.5x 5.8 6.5x 7.0x 7.5x 8.0x 8.5x
10.0% 0.5% 1.1% 1.7% 2.2% 2.6% 10.0% 5.5x 5.7x 6.0x 6.2x 6.5x
10.5% 1.0% 1.6% 2.1% 2.6% 3.1% 10.5% 5.4x 5.6x 5.9x 6.1x 6.4x
WACC

WACC
11.0% 1.4% 2.0% 2.6% 3.1% 3.5% 11.0% 5.3x 5.5x 5.8x 6.0x 6.2x
11.5% 1.8% 2.5% 3.0% 3.5% 4.0% 11.5% 5.2x 5.4x 5.7x 5.9x 6.1x
12.0% 2.3% 2.9% 3.5% 4.0% 4.4% 12.0% 5.1x 5.3x 5.6x 5.8x 6.0x

PV of Terminal Value % of Enterprise Value

Exit Multiple
0.6 6.5x 7.0x 7.5x 8.0x 8.5x
10.0% 61.0% 62.7% 64.3% 65.8% 67.1%
10.5% 60.7% 62.4% 64.0% 65.5% 66.8%
WACC

11.0% 60.3% 62.1% 63.7% 65.2% 66.5%

11.5% 60.0% 61.8% 63.4% 64.9% 66.3%
12.0% 59.7% 61.5% 63.1% 64.6% 66.0%
ValueCo Corporation
Working Capital Projections
($ in millions, fiscal year ending December 31)

Historical Period Projection Period

2016 2017 2018 2019 2020 2021 2022 2023 2024
Sales $2,600.0 $2,900.0 $3,200.0 $3,450.0 $3,622.5 $3,767.4 $3,880.4 $3,996.8 $4,116.7
Cost of Goods Sold 1,612.0 1,769.0 1,920.0 2,070.0 2,209.7 2,298.1 2,367.1 2,438.1 2,511.2

Current Assets
Accounts Receivable 317.0 365.5 417.4 450.0 585.6 609.0 627.2 646.1 665.4
Inventories 441.6 496.8 556.5 600.0 484.3 503.7 518.8 534.4 550.4
Prepaid Expenses and Other 117.0 142.1 162.3 175.0 36.2 37.7 38.8 40.0 41.2
Total Current Assets $875.6 $1,004.4 $1,136.2 $1,225.0 $1,106.1 $1,150.3 $1,184.9 $1,220.4 $1,257.0

Current Liabilities
Accounts Payable 189.9 189.0 199.4 215.0 257.3 267.6 275.6 283.9 292.4
Accrued Liabilities 221.0 237.8 255.1 275.0 362.3 376.7 388.0 399.7 411.7
Other Current Liabilities 75.4 84.1 92.8 100.0 90.6 94.2 97.0 99.9 102.9
Total Current Liabilities $486.3 $510.9 $547.2 $590.0 $710.1 $738.5 $760.7 $783.5 $807.0

Net Working Capital $389.4 $493.5 $589.0 $635.0 $396.0 $411.8 $424.2 $436.9 $450.0
% sales 15.0% 17.0% 18.4% 18.4% 10.9% 10.9% 10.9% 10.9% 10.9%

(Increase) / Decrease in NWC ($104.1) ($95.5) ($46.0) $239.0 ($15.8) ($12.4) ($12.7) ($13.1)

Assumptions
Current Assets
Days Sales Outstanding 44.5 46.0 47.6 47.6 59.0 59.0 59.0 59.0 59.0
Days Inventory Held 100.0 102.5 105.8 105.8 80.0 80.0 80.0 80.0 80.0
Prepaids and Other CA (% of sales) 4.5% 4.9% 5.1% 5.1% 1.0% 1.0% 1.0% 1.0% 1.0%

Current Liabilities
Days Payable Outstanding 43.0 39.0 37.9 37.9 42.5 42.5 42.5 42.5 42.5
Accrued Liabilities (% of sales) 8.5% 8.2% 8.0% 8.0% 10.0% 10.0% 10.0% 10.0% 10.0%
Other Current Liabilities (% of sales) 2.9% 2.9% 2.9% 2.9% 2.5% 2.5% 2.5% 2.5% 2.5%
ValueCo Corporation
Weighted Average Cost of Capital Analysis
($ in millions)

WACC Calculation Comparable Companies Unlevered Beta

Target Capital Structure Predicted Market Market Debt/ Marginal Unlevered
Debt-to-Total Capitalization 30.0% Company Levered Beta Value of Debt Value of Equity Equity Tax Rate Beta
Equity-to-Total Capitalization 70.0% BuyerCo 1.35 $2,200 $9,800 22.4% 25% 1.16
Sherman Co. 1.46 3,150 5,600 56.3% 25% 1.03
Gasparro Corp. 1.30 1,850 5,000 37.0% 25% 1.02
Cost of Debt Goodson Corp 1.53 2,250 4,160 54.1% 25% 1.09
Cost-of-Debt 6.5% S. Momper & Co. 1.50 1,000 2,240 44.6% 25% 1.12
Tax Rate 25.0%
After-tax Cost of Debt 4.9% Mean 1.43 42.9% 1.08
Median 1.46 44.6% 1.09

Cost of Equity ValueCo Relevered Beta

Risk-free Rate (1) 2.5% Mean Target Target
Market Risk Premium (2) 7.0% Unlevered Debt/ Marginal Relevered
Levered Beta 1.43 Beta Equity Tax Rate Beta
Size Premium (3) 1.1% Relevered Beta 1.08 42.9% 25.0% 1.43
Cost of Equity 13.6%
WACC Sensitivity Analysis
Pre-tax Cost of Debt
WACC 11.0% 0.1 5.5% 6.0% 6.5% 7.0% 7.5%

Capitalization
Debt-to-Total
10.0% 12.7% 12.7% 12.7% 12.8% 12.8%
20.0% 11.7% 11.8% 11.9% 11.9% 12.0%
30.0% 10.8% 10.9% 11.0% 11.1% 11.2%
40.0% 9.8% 10.0% 10.1% 10.3% 10.4%
50.0% 8.9% 9.1% 9.2% 9.4% 9.6%

(1) Interpolated yield on 20-year U.S. Treasury, sourced from Treasury.gov

(2) Obtained from Duff & Phelps SBBI Valuation Yearbook
(3) Blend of Duff & Phelps Market Capitalization Deciles 4 and 5
Assumptions Page 1 - Income Statement and Cash Flow Statement
Projection Period
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
2020 2021 2022 2023 2024 2025 2026 2027 2028 2029

Income Statement Assumptions

Sales (% growth) 5.0% 4.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%
Base 1 7.5% 6.0% 5.0% 4.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%
Upside 2 10.0% 8.0% 6.0% 4.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%
Management 3 12.0% 10.0% 8.0% 6.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%
Downside 1 4 5.0% 4.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%
Downside 2 5 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0%

Cost of Goods Sold (% sales) 61.0% 61.0% 61.0% 61.0% 61.0% 61.0% 61.0% 61.0% 61.0% 61.0%
Upside 1 60.0% 60.0% 60.0% 60.0% 60.0% 60.0% 60.0% 60.0% 60.0% 60.0%
Management 2 60.0% 60.0% 60.0% 60.0% 60.0% 60.0% 60.0% 60.0% 60.0% 60.0%
Base 3 59.0% 59.0% 59.0% 59.0% 59.0% 59.0% 59.0% 59.0% 59.0% 59.0%
Downside 1 4 61.0% 61.0% 61.0% 61.0% 61.0% 61.0% 61.0% 61.0% 61.0% 61.0%
Downside 2 5 62.0% 62.0% 62.0% 62.0% 62.0% 62.0% 62.0% 62.0% 62.0% 62.0%

SG&A (% sales) 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0%
Base 1 19.0% 19.0% 19.0% 19.0% 19.0% 19.0% 19.0% 19.0% 19.0% 19.0%
Upside 2 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0%
Management 3 24.0% 24.0% 24.0% 24.0% 24.0% 24.0% 24.0% 24.0% 24.0% 24.0%
Downside 1 4 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0%
Downside 2 5 26.0% 26.0% 26.0% 26.0% 26.0% 26.0% 26.0% 26.0% 26.0% 26.0%

Depreciation & Amortization (% sales) 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0%
Base 1 6.0% 6.0% 6.0% 6.0% 6.0% 6.0% 6.0% 6.0% 6.0% 6.0%
Upside 2 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0%
Management 3 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0%
Downside 1 4 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0%
Downside 2 5 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0%

Cash Flow Statement Assumptions

Capital Expenditures (% of sales) 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5%
Base 1 4.5% 4.5% 4.5% 4.5% 4.5% 4.5% 4.5% 4.5% 4.5% 4.5%
Upside 2 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0%
Management 3 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0%
Downside 1 4 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5%
Downside 2 5 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5%
Assumptions Page 2 - Balance Sheet
Projection Period
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
2020 2021 2022 2023 2024 2025 2026 2027 2028 2029

Current Assets
Days Sales Outstanding (DSO) 59.0 59.0 59.0 59.0 59.0 59.0 59.0 59.0 59.0 59.0
Base 1 47.6 47.6 47.6 47.6 47.6 47.6 47.6 47.6 47.6 47.6
Upside 2 60.2 60.2 60.2 60.2 60.2 60.2 60.2 60.2 60.2 60.2
Management 3 65.0 65.0 65.0 65.0 65.0 65.0 65.0 65.0 65.0 65.0
Downside 1 4 59.0 59.0 59.0 59.0 59.0 59.0 59.0 59.0 59.0 59.0
Downside 2 5 57.7 57.7 57.7 57.7 57.7 57.7 57.7 57.7 57.7 57.7

Days Inventory Held (DIH) 80.0 80.0 80.0 80.0 80.0 80.0 80.0 80.0 80.0 80.0
Base 1 105.8 105.8 105.8 105.8 105.8 105.8 105.8 105.8 105.8 105.8
Upside 2 76.0 76.0 76.0 76.0 76.0 76.0 76.0 76.0 76.0 76.0
Management 3 76.0 76.0 76.0 76.0 76.0 76.0 76.0 76.0 76.0 76.0
Downside 1 4 80.0 80.0 80.0 80.0 80.0 80.0 80.0 80.0 80.0 80.0
Downside 2 5 82.0 82.0 82.0 82.0 82.0 82.0 82.0 82.0 82.0 82.0

Prepaid and Other Current Assets (% of sales) 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0%
Base 1 5.1% 5.1% 5.1% 5.1% 5.1% 5.1% 5.1% 5.1% 5.1% 5.1%
Upside 2 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0%
Management 3 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0%
Downside 1 4 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0%
Downside 2 5 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0%

Current Liabilities
Days Payable Outstanding (DPO) 42.5 42.5 42.5 42.5 42.5 42.5 42.5 42.5 42.5 42.5
Base 1 37.9 37.9 37.9 37.9 37.9 37.9 37.9 37.9 37.9 37.9
Upside 2 45.6 45.6 45.6 45.6 45.6 45.6 45.6 45.6 45.6 45.6
Management 3 47.0 47.0 47.0 47.0 47.0 47.0 47.0 47.0 47.0 47.0
Downside 1 4 42.5 42.5 42.5 42.5 42.5 42.5 42.5 42.5 42.5 42.5
Downside 2 5 40.0 40.0 40.0 40.0 40.0 40.0 40.0 40.0 40.0 40.0

Accrued Liabilities (% of sales) 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0%
Base 1 8.0% 8.0% 8.0% 8.0% 8.0% 8.0% 8.0% 8.0% 8.0% 8.0%
Upside 2 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0%
Management 3 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0%
Downside 1 4 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0%
Downside 2 5 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0%

Other Current Liabilities (% of sales) 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5%
Base 1 2.9% 2.9% 2.9% 2.9% 2.9% 2.9% 2.9% 2.9% 2.9% 2.9%
Upside 2 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5%
Management 3 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5%
Downside 1 4 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5%
Downside 2 5 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5%