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Optimum
Exhibit 3a Five-year Forecast of Landmark's Income and Cash Flow, XXXXXXXXXXU.S. $ millions)* Grow 4% (text) Exhibit 3b Five-year Forecast of Broadway's Income and Cash Flow, XXXXXXXXXXU.S. $ millions)*
2015 2016 2017 2018 2019 2015 2016 2017 2018 2019 Grow 4.5% (text)
Net sales 362.8 380.9 400.0 420.0 441.0 Net sales 168.4 175.1 182.1 189.4 197.0
Operating profit 5.4 5.7 6.0 6.3 6.6 Operating profit 6.7 7.0 7.3 7.6 7.9
Net income 3.5 3.7 3.9 4.1 4.3 Interest expense 0.4 0.4 0.4 0.4 0.4
Depreciation and amortization 2.1 2.4 2.7 3.0 3.3 Net income 4.1 4.3 4.5 4.7 4.9
Change in net working capital 1.3 1.3 1.4 1.5 1.6 Depreciation and amortization 3.1 3.3 3.5 3.7 3.9
Capital expenditure 3.6 3.8 4.0 4.2 4.4 Change in net working capital 0.4 0.4 0.4 0.4 0.4
Total FCF 0.7 1.0 1.2 1.4 1.6 Capital expenditure 4.2 4.4 4.6 4.7 4.9
PV XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX Total FCF 2.8 3.1 3.3 3.5 3.7
PV XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX
Landmark Standalone Broadway Standalone
Data from 2014 Data from 2014
Cost of debt (Aaa) 4.16% Cost of debt (Aaa) 4.16%
Risk free rate (10 year treasury) 2.56% Risk free rate (10 year treasury) 2.56%
Market risk premium 5.90% Market risk premium 5.90%
Beta (average of 3 companies) 1.50 Beta (average of 3 companies) 1.50
Debt 43.8 Debt 40.1
Equity 50.84 Equity 44.1
Cost of equity 11.4100% Cost of equity 11.4100%
WACC XXXXXXXXXX WACC XXXXXXXXXX
Terminal Value 41.96 Terminal Value XXXXXXXXXX
EV XXXXXXXXXX EV XXXXXXXXXX
Landmark under Broadways management
Revenue growth Operating margin Changes in NWC Capital Exp Dep increases 0.3 per year FCFF
XXXXXXXXXX 5% 2015 1.50% 2015 7% Every year 1% of sale after 2019 4%
Years after 4% 2016 2% 2016 6.50%
2017 2.50% 2017 6.30%
Years after 3% 2018 6%
Years after 5.50%
2015 2016 2017 2018 2019 2015 2016 2017 2018 2019
Net sales 362.8 380.9 400.0 420.0 441.0 Net sales 362.8 380.9 400.0 420.0 441.0
Operating margin 1.50% 2.00% 2.50% 3.00% 3.00% Operating margin 1.50% 2.00% 2.50% 3.00% 3.00%
Operating profit 5.4 7.6 10.0 12.6 13.2 Operating profit 5.4 7.6 10.0 12.6 13.2
Net income 3.5 5.0 6.5 8.2 8.6 Net income 3.5 5.0 6.5 8.2 8.6
Depreciation and amortization 2.1 2.4 2.7 3.0 3.3 Depreciation and amortization 2.1 2.4 2.7 3.0 3.3
Change in net working capital -0.1 -0.6 0.4 0.0 -0.9 Change in net working capital -0.1 -0.6 0.4 0.0 -0.9
Capital expenditure 3.6 3.8 4.0 4.2 4.4 Capital expenditure 3.6 3.8 4.0 4.2 4.4
Total FCF 2.1 4.2 4.8 7.0 8.4 4 percent growth Total FCF 2.1 4.2 4.8 7.0 8.4 4 percent growth
PV XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX PV XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX
100% debt financing 40% Equity
Cost of debt (Text) 5.50% Cost of debt 5.00%
WACC 5.50% Risk free rate (10 year treasury) 2.56%
Terminal Value XXXXXXXXXX Market risk premium 5.90%
EV XXXXXXXXXX Beta (average of 3 companies) 1.50
Cost of equity 11.4100%
WACC 0.07564
Terminal Value XXXXXXXXXX
EV XXXXXXXXXX
Broadway under Landmark management
Revenue Growth Gross Margin Operating exp Cap exp Dep 0.2
XXXXXXXXXX -10% XXXXXXXXXX 8.50% 2% of sale 2.1% of sale
XXXXXXXXXX 9% XXXXXXXXXX 9%
Years after 4.50% Years after 9.50%
2015 2016 2017 2018 2019 Terminal Year 2015 2016 2017 2018 2019 Terminal Yea
Net sales 145.7 131.1 142.9 155.8 169.8 XXXXXXXXXX Net sales 145.7 131.1 142.9 155.8 169.8 XXXXXXXXXX
Operating margin 8.50% 8.50% 9.00% 9.00% 9.50% 9.50% Operating margin 8.50% 8.50% 9.00% 9.00% 9.50% 9.50%
Operating profit 12.4 11.1 12.9 14.0 16.1 16.9 Operating profit 12.4 11.1 12.9 14.0 16.1 16.9
Net income 8.1 7.2 8.4 9.1 10.5 11.0 Net income 8.1 7.2 8.4 9.1 10.5 11.0
Depreciation and amortization 3.1 3.3 3.5 3.7 3.9 4.1 Depreciation and amortization 3.1 3.3 3.5 3.7 3.9 4.1
Change in net working capital -5.6 -0.3 0.2 0.3 0.3 0.2 Change in net working capital -5.6 -0.3 0.2 0.3 0.3 0.2
Capital expenditure 3.1 2.8 3.0 3.3 3.6 3.7 Capital expenditure 3.1 2.8 3.0 3.3 3.6 3.7
Total FCF 13.7 8.1 8.6 9.3 10.5 11.2 Total FCF 13.7 8.1 8.6 9.3 10.5 11.2
PV 13.0 8.1 8.6 9.3 10.5 PV 13.0 8.1 8.6 9.3 10.5
100% debt financing 40% Equity
Cost of debt (Text) 5.50% Cost of debt 5.00%
WACC 5.50% Risk free rate (10 year treasury) 2.56%
Terminal Value XXXXXXXXXX Market risk premium 5.90%
EV XXXXXXXXXX Beta (average of 3 companies) 1.50
Cost of equity 11.41%
WACC 0.07564
Terminal Value XXXXXXXXXX
EV XXXXXXXXXX
Pessimistic
Landmark
NWC Operating Margin
XXXXXXXXXX 0.07 By 2017 0.025
Years after 0.065
2015 2016 2017 2018 2019 2015 2016 2017 2018 2019
Net sales 362.8 380.9 400.0 420.0 441.0 Net sales 362.8 380.9 400.0 420.0 441.0
Operating margin 1.50% 2.00% 2.50% 2.50% 2.50% Operating margin 1.50% 2.00% 2.50% 2.50% 2.50%
Operating profit 5.4 7.6 10.0 10.5 11.0 Operating profit 5.4 7.6 10.0 10.5 11.0
Net income 3.5 5.0 6.5 6.8 7.2 Net income 3.5 5.0 6.5 6.8 7.2
Depreciation and amortization 2.1 2.4 2.7 3.0 3.3 Depreciation and amortization 2.1 2.4 2.7 3.0 3.3
Change in net working capital -0.1 1.3 1.3 -0.7 1.4 Change in net working capital 25.4 1.3 1.3 27.3 0.0
Capital expenditure 3.6 3.8 4.0 4.2 4.4 Capital expenditure 3.6 3.8 4.0 4.2 4.4
Total FCF 2.1 2.3 3.9 6.3 4.7 4 percent growth Total FCF -23.4 2.3 3.9 -21.7 6.1 4 percent growth
PV XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX PV XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX
100% debt financing 40% Equity
Cost of debt (Text) 5.50% Cost of debt 5.00%
WACC 5.50% Risk free rate (10 year treasury) 2.56%
Terminal Value XXXXXXXXXX Market risk premium 5.90%
EV XXXXXXXXXX Beta (average of 3 companies) 1.50
Cost of equity 11.4100%
WACC 0.07564
Terminal Value XXXXXXXXXX
EV XXXXXXXXXX
Broadway
Revenue growth Growth Margin Operating exp
XXXXXXXXXX -0.15 XXXXXXXXXX 0.085 By 2015 0.024
XXXXXXXXXX 0.08 Years after 0.09
Years after 0.035
2015 2016 2017 2018 2019 Terminal Year 2015 2016 2017 2018 2019 Terminal Yea
Net sales 137.6 117.0 126.3 136.4 147.4 XXXXXXXXXX Net sales 137.6 117.0 126.3 136.4 147.4 XXXXXXXXXX
Operating margin 8.50% 8.50% 9.00% 9.00% 9.00% 9.00% Operating margin 8.50% 8.50% 9.00% 9.00% 9.00% 9.00%
Operating profit 11.7 9.9 11.4 12.3 13.3 13.7 Operating profit 11.7 9.9 11.4 12.3 13.3 13.7
Net income 7.6 6.5 7.4 8.0 8.6 8.9 Net income 7.6 6.5 7.4 8.0 8.6 8.9
Depreciation and amortization 0.0 0.0 0.0 0.0 0.0 0.0 Depreciation and amortization 0.0 0.0 0.0 0.0 0.0 0.0
Change in net working capital -5.2 -0.5 -2.8 -3.0 -3.3 -3.5 Change in net working capital -5.2 -0.5 -2.8 -3.0 -3.3 -3.5
Capital expenditure 2.9 2.5 2.7 2.9 3.1 3.2 Capital expenditure 2.9 2.5 2.7 2.9 3.1 3.2
Total FCF 9.9 4.5 7.5 8.1 8.8 9.3 Total FCF 9.9 4.5 7.5 8.1 8.8 9.3
PV 9.4 4.5 7.5 8.1 8.8 PV 9.4 4.5 7.5 8.1 8.8
100% debt financing 40% Equity
Cost of debt (Text) 5.50% Cost of debt 5.00%
WACC 5.50% Risk free rate (10 year treasury) 2.56%
Terminal Value XXXXXXXXXX Market risk premium 5.90%
EV XXXXXXXXXX Beta (average of 3 companies) 1.50
Cost of equity 11.41%
WACC 0.07564
Terminal Value XXXXXXXXXX
EV XXXXXXXXXX
Exhibit 1
Exhibit 1 Landmark's Simplified Financial Statements, XXXXXXXXXXU.S. $ millions)
2010 2011 2012 2013 2014 [E]
Income statement
Net sales 289.9 304.1 316.4 329.0 345.5
COGS 259.4 273.1 284.1 295.3 310.4
Gross profit 30.5 31.0 32.3 33.7 35.1
Operating expenses 20.9 21.6 26.7 28.6 30.3
Depreciation and amortization 1.6 1.6 1.7 1.7 1.8
Operating profit 8.0 7.8 3.9 3.4 3.0
Interest expense 0.0 0.0 0.3 0.2 0.0
Income taxes 2.8 2.7 1.3 1.1 1.1
Net income 5.2 5.1 2.3 2.1 2.0
EPS $1.30 $1.27 $0.58 $0.52 $0.49
Dividend $0.20 $0.20 $0.20 $0.20 $0.20
Balance sheet
Cash 3.6 4.2 3.3 1.5 0.4
Accounts receivable 20.7 22.0 29.3 30.4 31.0
Other cu
ent assets 6.3 5.1 4.9 5.0 4.9
Cu
ent assets 30.6 31.3 37.5 36.9 36.3
Net PP&E 3.1 5.1 7.2 9.2 11.2
Investments and other assets 45.0 47.1 47.3 47.6 47.2
Total assets 78.7 83.6 92.0 93.7 94.6
Accounts payable 5.6 5.3 7.6 8.9 10.4
Bank bo
owing 0.0 0.0 4.0 2.5 0.0
Cu
ent Liabilities 5.6 5.3 11.6 11.4 10.4
Accrued expenses and defe
ed taxes 13.9 13.9 15.0 15.3 15.5
Other non-cu
ent liabilities 16.6 17.5 17.0 17.3 17.9
Total liabilities 36.1 36.7 43.6 44.0 43.8
Shareholders' equity 42.6 46.9 48.4 49.7 50.8
Total liabilities and equity 78.7 83.6 92.0 93.7 94.6
Exhibit 2
Exhibit 2 Broadway's Simplified Financial Statements, XXXXXXXXXXU.S. $ millions)
2010 2011 2012 2013 2014 [E]
Income statement
Net sales 137.8 143.5 149.5 155.3 161.9
COGS 126.1 131.5 137.1 142.5 148.6
Gross profit 11.7 12.0 12.4 12.8 13.3
Operating expenses 2.9 2.9 2.9 3.0 3.0
Depreciation and amortization 1.8 2.2 2.5 2.8 2.9
Operating profit 7.0 6.9 7.0 7.0 7.4
Interest expensea 0.4 0.4 0.4 0.4 0.4
Income taxes 2.3 2.3 2.3 2.3 2.5
Net income 4.3 4.2 4.3 4.3 4.6
EPS $1.23 $1.21 $1.22 $1.23 $1.30
Dividends $0.24 $0.24 $0.24 $0.24 $0.24
Balance sheet
Cash 1.8 1.0 1.9 1.5 2.1
Accounts receivable 13.1 13.5 14.6 15.2 16.2
Other cu
ent assets 2.8 4.0 4.1 4.2 4.2
Cu
ent assets 17.7 18.5 20.6 20.9 22.5
Net PP&E 16.0 17.4 18.6 19.7 20.9
Investments and other assets 35.9 38.6 41.8 43.2 43.5
Total assets 69.6 74.5 81.1 83.8 86.8
Accounts payable 9.3 9.9 10.4 11.0 11.5
Long-term debt, cu
ent portionb 0.4 0.4 0.4 0.4 0.4
Cu
ent Liabilities 9.7 10.3 10.8 11.4 11.9
Long-term debt 8.2 7.7 8.7 8.3 7.9
Accrued expenses and defe
ed taxes 11.6 12.8 13.1 13.3 13.0
Other non-cu
ent liabilities 11.0 11.2 12.5 11.4 10.9
Total liabilities 40.5 42.0 45.1 44.4 43.7
Shareholders 'equity 29.1 32.5 36.0 39.4 43.1
Total liabilities and equity 69.6 74.5 81.1 83.8 86.8
a Interest rate on long-term debt outstanding is at 4.5% per year.
b Principal amount of long-term debt is amortized at $0.4m per year.
Exhibit 3
Exhibit 3a Five-year Forecast of Landmark's Income and Cash Flow, XXXXXXXXXXU.S. $ millions)*
2015 2016 2017 2018 2019
Net sales 362.8 380.9 400.0 420.0 441.0
Operating profit 5.4 5.7 6.0 6.3 6.6
Net income 3.5 3.7 3.9 4.1 4.3
Depreciation and amortization 2.1 2.4 2.7 3.0 3.3
Change in net working capital 1.3 1.3 1.4 1.5 1.6
Capital expenditure 3.6 3.8 4.0 4.2 4.4
Total FCF 0.7 1.0 1.2 1.4 1.6
Exhibit 3b Five-year Forecast of Broadway's Income and Cash Flow, XXXXXXXXXXU.S. $ millions)*
2015 2016 2017 2018 2019
Net sales 168.4 175.1 182.1 189.4 197.0
Operating profit 6.7 7.0 7.3 7.6 7.9
Interest expense 0.4 0.4 0.4 0.4 0.4
Net income 4.1 4.3 4.5 4.7 4.9
Depreciation and amortization 3.1 3.3 3.5 3.7 3.9
Change in net working capital 0.4 0.4 0.4 0.4 0.4
Capital expenditure 4.2 4.4 4.6 4.7 4.9
Total FCF 2.8 3.1 3.3 3.5 3.7
*Numbers in the exhibits are based on the assumption Broadway does not acquire Landmark.
Exhibit 4
Exhibit 4 Financial Data of Publically Traded Competitors, 2014 (U.S. $ millions)
Comparable Company 1 Comparable Company 2 Comparable Company 3
Sales $13,945.7 $6,417.2 $836.9
Net income $219.4 $123.8 $12.1
EPS $0.95 $1.84 $0.55
Share price $26.76 $46.83 $22.73
Number of shares outstanding 231.2 67.3 22.0
Market capitalization $6,186.9 $3,151.7 $500.1
Debt $5,887.0 $355.0 $289.0
Assets $10,267.1 $3,465.9 $862.4
Equity beta 1.69 1.25 1.56
Exhibit 5
Exhibit 5 Selected Capital Markets Information as of September 1, 2014
Treasury:
3-month Treasury bill rate 0.04%
1-year Treasury bond rate 0.10%
10-year Treasury bond rate 2.56%
Corporate bond yield:
Aaa 4.16%
Aa 4.34%
A 4.52%
Baa 4.70%
Market risk premium 5.90%