EXHIBIT P13.1 The Growing Company Financial Forecasts Growing Company Financial Statements and Free Cash Flows ($ in millions) Year - 1 Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Income Statement Revenue.... $776.7 $800.0 $840.0 $1,050.0 $1,155.0 $1,189.7 $1,225.3 $1,262.1 Operating expenses -543.7 -560.0 -588.0 -735.0 -808.5 832.8 -857.7 -883.5 Depreciation expense. -64.7 -66.7 - 70.0 -87.5 -96.3 -99.1 -102.1 -105.2 Interest expense. -17.1 -19.0 -19.5 -21.9 -23.4 -24.2 -24.9 -25.7 Income before taxes. $151.2 $154.4 $162.5 205.6 $ 226.8 $ 233.6 $ 240.6 $ 247.8 Income tax expense. -52.9 -54.0 -56.9 -72.0 -79.4 -81.7 -84.2 -86.7 Net Income $ 98.3 $100.3 $105.6 $ 133.6 $ 147.4 $ 151.8 $ 156.4 $ 161.1 Balance Sheet Net working capital. $ 77.7 $ 80.0 $ 84.0 $ 105.0 $ 115.5 $ 119.0 $ 122.5 $ 126.2 Property, plant, and equipment (net) 472.5 439.2 544.2 544.2 476.8 407.4 335.9 262.3 Total assets... $550.2 $519.2 $628.2 $ 649.2 $ 592.3 $ 526.4 $ 458.4 $ 388.5 Debt Equity Total liabilities and equities.. $189.7 $195.4 $219.2 $ 234.3 $ 241.9 $ 249.2 $ 256.7 $ 264.4 360.4 323.7 408.9 414.9 350.3 277.2 201.8 124.1 $550.2 $519.2 $628.2 $ 649.2 $ 592.3 $ 526.4 $ 458.4 $ 388.5 Free Cash Flows Earnings before interest and taxes (EBIT) - Income taxes paid on EBIT Earnings before interest and after taxes + Depreciation expense.. - Change in net working capital - Capital expenditures Unlevered free cash flow.. - Interest paid.. + Interest tax shield + Change in debt financing. Free cash flow to common equity $173.3 $182.0 $ 227.5 $ 250.3 $ 257.8 $ 265.5 $ 273.5 -60.7 -63.7 -79.6 87.6 -90.2 -92.9 -95.7 $112.7 $118.3 $ 147.9 $ 162.7 $ 167.5 $ 172.6 $ 177.7 66.7 70.0 87.5 96.3 99.1 102.1 105.2 -2.3 -4.0 -21.0 -10.5 -3.5 -3.6 -3.7 -33.3 -175.0 -87.5 -28.9 -29.7 -30.6 -31.6 $143.7 $ 9.3 $ 126.9 $ 219.5 $ 233.5 $ 240.5 $ 247.7 -19.0 -19.5 -21.9 -23.4 -24.2 -24.9 -25.7 6.6 6.8 7.7 8.2 8.5 8.7 9.0 5.7 23.8 15.0 7.7 7.3 7.5 7.7 $137.0 $ 20.4 $ 127.7 $ 212.0 $ 225.0 $ 231.8 $ 238.7 Exhibit may contain small rounding errors EXHIBIT P13.2 The Growing Company Valuation Discounted Cash Flow Valuation Growth rate for continuing value 3.000% Unlevered cost of capital...... 13.000% Debt to value .... 10.000% Equity cost of capital 13.333% Weighted average cost of capital.. 12.650% CV Form ($ in millions) Unlevered free cash flow for continuing value (CV) Discount factor for continuing value End of year value of firm.... Unlevered free cash flow . Year 1 Year 2 Year 3 Year 4 Year 5 Year 5 $ 247.7 10.363 $2,192.2 $2,342.6 $2,419.4 $2,492.0 $2,566.8 9.3 126.9 219.5 233.5 240.5 $2,201.5 $2,469.5 $2,639.0 $2,725.5 $2,807.2 0.888 0.888 0.888 0.888 0.888 $1,954.3 $2,192.2 $2,342.6 $2,419.4 $2,492.0 $2,566.8 195.4 219.2 234.3 241.9 249.2 256.7 $1,758.8 $1,973.0 $2,108.4 $2,177.5 $2,242.8 $2,310.1 Discount factor.... Beginning of year value of firm.. Beginning of year value of debt.. Beginning of year value of equity.... Exhibit may contain small rounding errors P13.2 Measuring the Change in Market Multiples Resulting from a Change in Market Multiple Determinants- The Growing Company: Use the information in Problem 13.1 to examine the change in the firm value market multiples computed in Problem 13.1 resulting from a change in the market multiple determinants described below. For each of the changes in the market multiple determinants, measure the changes in the multiples of firm value to free cash flow, unlevered earnings, EBIT, EBITDA, and revenue. Measure the market multiple using the end of Year O firm value and Year O value driver (denominator). a. The initial valuation of the company used a 3% perpetual growth rate. If the perpetual growth rate decreases to 2%, the company's value decreases by -4.1%. b. The initial valuation of the company used a 13% unlevered cost of capital. If the unlevered cost of capital decreases to 12%, the company's value increases by 12.9%. c. The initial valuation of the company used a 70% operating expense ratio (% of revenue). If the operating expense ratio decreases to 65%, the company's value increases by 18.3%. d. The initial valuation of the company used a 1.2 ratio of revenue to gross property, plant and equipment. If the ratio of revenue to gross property, plant and equipment increases to 1.5, the company's value increases by 1.4%. e. The initial valuation of the company used a 10% net operating working capital ratio (% of revenue). If the net working capital ratio increases to 15%, the company's value decreases by - 1.3%. f. The initial valuation of the company used a 35% income tax rate. If the income tax rate increases to 40%, the company's value decreases by -- 5.6%. EXHIBIT P13.1 The Growing Company Financial Forecasts Growing Company Financial Statements and Free Cash Flows ($ in millions) Year - 1 Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Income Statement Revenue.... $776.7 $800.0 $840.0 $1,050.0 $1,155.0 $1,189.7 $1,225.3 $1,262.1 Operating expenses -543.7 -560.0 -588.0 -735.0 -808.5 832.8 -857.7 -883.5 Depreciation expense. -64.7 -66.7 - 70.0 -87.5 -96.3 -99.1 -102.1 -105.2 Interest expense. -17.1 -19.0 -19.5 -21.9 -23.4 -24.2 -24.9 -25.7 Income before taxes. $151.2 $154.4 $162.5 205.6 $ 226.8 $ 233.6 $ 240.6 $ 247.8 Income tax expense. -52.9 -54.0 -56.9 -72.0 -79.4 -81.7 -84.2 -86.7 Net Income $ 98.3 $100.3 $105.6 $ 133.6 $ 147.4 $ 151.8 $ 156.4 $ 161.1 Balance Sheet Net working capital. $ 77.7 $ 80.0 $ 84.0 $ 105.0 $ 115.5 $ 119.0 $ 122.5 $ 126.2 Property, plant, and equipment (net) 472.5 439.2 544.2 544.2 476.8 407.4 335.9 262.3 Total assets... $550.2 $519.2 $628.2 $ 649.2 $ 592.3 $ 526.4 $ 458.4 $ 388.5 Debt Equity Total liabilities and equities.. $189.7 $195.4 $219.2 $ 234.3 $ 241.9 $ 249.2 $ 256.7 $ 264.4 360.4 323.7 408.9 414.9 350.3 277.2 201.8 124.1 $550.2 $519.2 $628.2 $ 649.2 $ 592.3 $ 526.4 $ 458.4 $ 388.5 Free Cash Flows Earnings before interest and taxes (EBIT) - Income taxes paid on EBIT Earnings before interest and after taxes + Depreciation expense.. - Change in net working capital - Capital expenditures Unlevered free cash flow.. - Interest paid.. + Interest tax shield + Change in debt financing. Free cash flow to common equity $173.3 $182.0 $ 227.5 $ 250.3 $ 257.8 $ 265.5 $ 273.5 -60.7 -63.7 -79.6 87.6 -90.2 -92.9 -95.7 $112.7 $118.3 $ 147.9 $ 162.7 $ 167.5 $ 172.6 $ 177.7 66.7 70.0 87.5 96.3 99.1 102.1 105.2 -2.3 -4.0 -21.0 -10.5 -3.5 -3.6 -3.7 -33.3 -175.0 -87.5 -28.9 -29.7 -30.6 -31.6 $143.7 $ 9.3 $ 126.9 $ 219.5 $ 233.5 $ 240.5 $ 247.7 -19.0 -19.5 -21.9 -23.4 -24.2 -24.9 -25.7 6.6 6.8 7.7 8.2 8.5 8.7 9.0 5.7 23.8 15.0 7.7 7.3 7.5 7.7 $137.0 $ 20.4 $ 127.7 $ 212.0 $ 225.0 $ 231.8 $ 238.7 Exhibit may contain small rounding errors EXHIBIT P13.2 The Growing Company Valuation Discounted Cash Flow Valuation Growth rate for continuing value 3.000% Unlevered cost of capital...... 13.000% Debt to value .... 10.000% Equity cost of capital 13.333% Weighted average cost of capital.. 12.650% CV Form ($ in millions) Unlevered free cash flow for continuing value (CV) Discount factor for continuing value End of year value of firm.... Unlevered free cash flow . Year 1 Year 2 Year 3 Year 4 Year 5 Year 5 $ 247.7 10.363 $2,192.2 $2,342.6 $2,419.4 $2,492.0 $2,566.8 9.3 126.9 219.5 233.5 240.5 $2,201.5 $2,469.5 $2,639.0 $2,725.5 $2,807.2 0.888 0.888 0.888 0.888 0.888 $1,954.3 $2,192.2 $2,342.6 $2,419.4 $2,492.0 $2,566.8 195.4 219.2 234.3 241.9 249.2 256.7 $1,758.8 $1,973.0 $2,108.4 $2,177.5 $2,242.8 $2,310.1 Discount factor.... Beginning of year value of firm.. Beginning of year value of debt.. Beginning of year value of equity.... Exhibit may contain small rounding errors P13.2 Measuring the Change in Market Multiples Resulting from a Change in Market Multiple Determinants- The Growing Company: Use the information in Problem 13.1 to examine the change in the firm value market multiples computed in Problem 13.1 resulting from a change in the market multiple determinants described below. For each of the changes in the market multiple determinants, measure the changes in the multiples of firm value to free cash flow, unlevered earnings, EBIT, EBITDA, and revenue. Measure the market multiple using the end of Year O firm value and Year O value driver (denominator). a. The initial valuation of the company used a 3% perpetual growth rate. If the perpetual growth rate decreases to 2%, the company's value decreases by -4.1%. b. The initial valuation of the company used a 13% unlevered cost of capital. If the unlevered cost of capital decreases to 12%, the company's value increases by 12.9%. c. The initial valuation of the company used a 70% operating expense ratio (% of revenue). If the operating expense ratio decreases to 65%, the company's value increases by 18.3%. d. The initial valuation of the company used a 1.2 ratio of revenue to gross property, plant and equipment. If the ratio of revenue to gross property, plant and equipment increases to 1.5, the company's value increases by 1.4%. e. The initial valuation of the company used a 10% net operating working capital ratio (% of revenue). If the net working capital ratio increases to 15%, the company's value decreases by - 1.3%. f. The initial valuation of the company used a 35% income tax rate. If the income tax rate increases to 40%, the company's value decreases by -- 5.6%