Khakis R UsAcquisition Analysis
Rajesh PudotaMark Webster
Tyler MillerRyan Price
March 26th, 2014
Executive Summary
• Recommendation– Acquire About Boots using $60 million in financing from UAB– Offer package deal to NYC at $405 million– Shareholders receive $27.30 per share
• Benefits To Associated Parties• Industry Analysis• Khakis ‘R Us Valuation• Alternatives For Growth
– Direct acquisition of About Boots– Direct sale to NYC
• Organic Growth Considerations• Potential Risks
2
Recommendation
3
• Acquire About Boots using $60 million in financing from UAB
• Offer package deal to NYC at $405 million– KRU Shareholders receive $27.30
per share– Current share price is $12.00
• Minimum offer of $390 million
$249
$121
$35
KRU AB NYC
See Appendix 7e for details
Enterprise Value $ 405M
Advantages of Offer
4
• Shareholders receive premium on equity― More than double current market price
• Management― Cost-saving synergies between product lines
― Suppliers, distributors, retail outlets, customer base
• NAFTA― Predictable expenses for Canadian acquisition
Industry Analysis
5
• Strong profitability in comparable companies for LTM— Average EBITDA margin: 7.7%— KRU: 5.5%
• Industry expects sales growth to be modestly positive next year
— NFY sales growth: 5.8%— KRU: -3.0%
• Forecasts for next year show continuing profit growth within the industry
— NFY EBITDA margin: 8.1%— KRU: 4.1%
Valuation Models
6
• Comparable Public Companies– Estimated value based on selected companies
• Comparable Transactions – Valuation based on past transactions with control premium applied
• Discounted Free Cash Flows– Valuation derived from forecasted free cash flows
• Residual Earnings– Valuation derived from abnormal earnings
Comparable Companies Valuation Appendix: 2b Comparable Transactions Valuation Appendix: 2e DFCF Valuation Appendix: 3Residual Earnings Valuation Appendix: 4b
Comparable Public Companies
7
EBITDA Margin
D/EP/E
1
1
13
Enterprise Value
$ 197.79M
Appendix 2b shows detailed calculations
Comparable Transactions
8
Enterprise Value
$ 205.43M
Year
EBITDARevenue
3
1
11
Appendix 2e shows detailed calculations
Optimistic(20%)
Expected(40%)
Conservative(40%)
0
50
100
150
200
250
300
350
287
257
222
Discounted Free Cash Flows
9
Enterprise Value
$ 249.35M
Ente
rpris
e Va
lue
($M
)
Appendices 3a,b,c show detailed calculations
Khakis ‘R Us Valuation
10
Comparable Companies
DFCF
Comparable Transactions
Series1
130 150 170 190 210 230 250 270 290 310
222
152
157
Enterprise Value ($M)
Enterprise Value$ 249
Enterprise Value to NYC$ 294
259
217
287
Comparable Companies Valuation Appendix: 2a Comparable Transactions Valuation Appendix: 2e DFCF Valuation Appendix: 3
Khakis ‘R Us (KRU)
KRU Value
Alternatives for Growth
11
KRU + AB Value to NYC
KRU Value to NYC
NYC Synergies
KRU With About Boots (AB)
Acquisition of AB Equity Value
Appendix 7e shows detailed calculations
Organic Growth Considerations
12
• Succession Development― Restructuring of current management
― Offer Albert Foote stock-based compensation plan
― If staying the course, consider Beano Counter as interim CEO
― Pursue key person insurance policy
• Management Buyout
Potential Risks
13
• NYC and/or About Boots rejects the deal― Complicated structure
― Time lag
― Default risk on debt
• Management succession failure
• Continued languishing growth
Summary
• Recommendation– $405 million for package deal to NYC
• Good deal for KRU, AB, and NYC
• Consider other growth opportunities– Acquire About Boots– Sell to NYC – Succession development
14
Appendices
15
Appendix 1 – Pro Forma Financial Statementsa) KRU Optimistic Income Statement (p. 18)b) KRU Expected Income Statement (p. 19)c) KRU Conservative Income Statement (p. 20)d) KRU Balance Sheet (p. 21)e) KRU WACC Calculation (p. 22)
Appendix 2 – KRU Valuation – Comparable Companies & Transactionsa) Comparable Public Companies Selection (p. 23)b) Comparable Public Companies Valuation (p. 24)c) Comparable Public Companies WACC (p. 25)d) Comparable Transactions Metrics (p. 26)e) Comparable Transactions Valuation (p. 27)
Appendices
16
Appendix 3 – KRU Valuation – DFCF Methoda) DFCF – KRU Valuation – Optimistic (p. 28)b) DFCF – KRU Valuation – Expected (p. 29)c) DFCF – KRU Valuation – Conservative (p. 30)d) DFCF – Sensitivity Analysis – Optimistic (p. 31)e) DFCF – Sensitivity Analysis – Expected (p. 32)f) DFCF – Sensitivity Analysis – Conservative (p. 33)
Appendix 4 – KRU Valuation – Residual Earnings Methoda) Residual Earnings Model - Setup (p. 34)b) Residual Earnings Valuation (p. 35)
Appendix 5 – KRU Value to NYCa) DFCF – KRU Value to NYC (p. 36)b) DFCF – KRU Value to NYC – Optimistic (p. 37)c) DFCF – KRU Value to NYC – Expected (p. 38)d) DFCF – KRU Value to NYC – Conservative (p. 39)e) RE – KRU Value to NYC (p. 40)f) RE – KRU To NYC – Optimistic (p. 41)g) RE – KRU To NYC – Expected (p. 42)h) RE – KRU To NYC – Conservative (p. 43)
Appendices
17
Appendix 6 – KRU + AB Valuationa) DFCF – KRU + AB Valuation (p. 44)b) DFCF – KRU + AB – Optimistic (p. 45)c) DFCF – KRU + AB – Expected (p. 46)d) DFCF – KRU + AB – Conservative (p. 47)
Appendix 7 – KRU + AB to NYC Valuationa) DFCF – KRU + AB to NYC Valuation (p. 48)b) DFCF – KRU + AB to NYC – Optimistic (p. 49)c) DFCF – KRU + AB to NYC – Expected (p. 50)d) DFCF – KRU + AB to NYC – Conservative (p. 51)e) Returns to Shareholders (p. 52)
1a) KRU Optimistic P&L Statement
18
$ in Millions, Year Ending Dec 31 Actual Projected 2011 2012 2013 2014 2015 2016 2017 2018 Sales $ 635.8 585.2 557.4 540.6 621.4 658.7 698.3 726.2
% Change -7.9% -4.7% -3.0% 15.0% 6.0% 6.0% 4.0%Cost of Sales $ 501.5 475.0 449.5 442.3 488.7 508.8 540.5 561.9Gross Profit $ 134.3 110.2 108.0 98.344 132.747 149.922 157.712 164.297
% of Sales 21.1% 18.8% 19.4% 18.2% 21.4% 22.8% 22.6% 22.6%Personnel Expenses $ 68.3 59.6 57.8 55.9 61.434 69.1 72.5 72.2Depreciation and Amortization $ 14.6 16.4 15.9 12.3 10.989 8.1 9.1 9.1Other Operating Expenses $ 23.9 23.6 21.2 20.2 26.347 27.4 24.4 30.6Total Operating Expenses $ 106.8 99.7 94.9 88.5 98.770 104.6 106.0 111.9
% of Sales 16.8% 17.0% 17.0% 16.4% 15.9% 15.9% 15.2% 15.4%SG&A % of Sales 14.5% 14.2% 14.2% 14.1% 14.1% 14.7% 13.9% 14.2%
Operating Income $ 27.5 10.6 13.1 9.9 33.977 45.4 51.7 52.4% of Sales 4.3% 1.8% 2.4% 1.8% 5.5% 6.9% 7.4% 7.2%
Interest Expenses (income) $ 3.9 3.7 3.3 3.1 2.5 2.6 2.6 2.5Income before Tax $ 23.6 6.9 9.8 6.8 31.433 42.7 49.1 49.9
% of Sales 3.7% 1.2% 1.8% 1.3% 5.1% 6.5% 7.0% 6.9%Income Tax Expense $ 9.5 2.8 3.9 2.7 12.573 17.1 19.6 20.0
Tax Percent 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0%Net Income $ 14.2 4.1 5.9 4.1 18.9 25.645 29.467 29.941
% of Sales 2.2% 0.7% 1.1% 0.8% 3.0% 3.9% 4.2% 4.1%Capital Expenditures $ 4.2 4.4 4.7 4.9 5.0 5.2 5.3 5.5Stock Based Compensations $ 2.2 2.4 1.9 1.9 2.0 2.1 2.1 2.2
Alternatives AppendixRecommendation
1b) KRU Expected P&L Statement
19
$ in Millions, Year Ending Dec 31 Actual Projected 2011 2012 2013 2014 2015 2016 2017 2018 Sales $ 635.8 585.2 557.4 540.6 551.4 584.5 619.6 644.4
% Change -7.9% -4.7% -3.0% 2.0% 6.0% 6.0% 4.0%Cost of Sales $ 501.5 475.0 449.5 442.3 433.4 451.2 479.5 498.7Gross Profit $ 134.3 110.2 108.0 98.344 118.003 133.266 140.023 145.624
% of Sales 21.1% 18.8% 19.4% 18.2% 21.4% 22.8% 22.6% 22.6%Personnel Expenses $ 68.3 59.6 57.8 55.9 57.000 63.0 66.3 68.1Depreciation and Amortization $ 14.6 16.4 15.9 12.3 10.989 8.1 9.1 9.1Other Operating Expenses $ 23.9 23.6 21.2 20.2 21.000 23.0 20.1 23.5Total Operating Expenses $ 106.8 99.7 94.9 88.5 88.989 94.1 95.5 100.7
% of Sales 16.8% 17.0% 17.0% 16.4% 16.1% 16.1% 15.4% 15.6%SG&A % of Sales 14.5% 14.2% 14.2% 14.1% 14.1% 14.7% 13.9% 14.2%
Operating Income $ 27.5 10.6 13.1 9.9 29.014 39.2 44.6 45.0% of Sales 4.3% 1.8% 2.4% 1.8% 5.3% 6.7% 7.2% 7.0%
Interest Expenses (income) $ 3.9 3.7 3.3 3.1 2.5 2.6 2.6 2.5Income before Tax $ 23.6 6.9 9.8 6.8 26.470 36.6 42.0 42.5
% of Sales 3.7% 1.2% 1.8% 1.3% 4.8% 6.3% 6.8% 6.6%Income Tax Expense $ 9.5 2.8 3.9 2.7 10.588 14.6 16.8 17.0
Tax Percent 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0%Net Income $ 14.2 4.1 5.9 4.1 15.9 21.959 25.208 25.484
% of Sales 2.2% 0.7% 1.1% 0.8% 2.9% 3.8% 4.1% 4.0%Capital Expenditures $ 4.2 4.4 4.7 4.9 5.0 5.2 5.3 5.5Stock Based Compensations $ 2.2 2.4 1.9 1.9 2.0 2.1 2.1 2.2
Alternatives AppendixRecommendation
1c) KRU Conservative P&L Statement
20
$ in Millions, Year Ending Dec 31 Actual Projected 2011 2012 2013 2014 2015 2016 2017 2018 Sales $ 635.8 585.2 557.4 540.6 515.2 510.0 520.2 541.1
% Change -7.9% -4.7% -3.0% -4.7% -1.0% 2.0% 4.0%Cost of Sales $ 501.5 475.0 449.5 442.3 404.9 393.8 402.7 418.8Gross Profit $ 134.3 110.2 108.0 98.344 110.252 116.290 117.575 122.278
% of Sales 21.1% 18.8% 19.4% 18.2% 21.4% 22.8% 22.6% 22.6%Personnel Expenses $ 68.3 59.6 57.8 55.9 53.500 55.3 56.5 58.9Depreciation and Amortization $ 14.6 16.4 15.9 12.3 10.989 8.1 9.1 9.1Other Operating Expenses $ 23.9 23.6 21.2 20.2 19.000 19.8 16.0 18.0Total Operating Expenses $ 106.8 99.7 94.9 88.5 83.489 83.2 81.6 86.0
% of Sales 16.8% 17.0% 17.0% 16.4% 16.2% 16.3% 15.7% 15.9%SG&A % of Sales 14.5% 14.2% 14.2% 14.1% 14.1% 14.7% 13.9% 14.2%
Operating Income $ 27.5 10.6 13.1 9.9 26.763 33.1 36.0 36.3% of Sales 4.3% 1.8% 2.4% 1.8% 5.2% 6.5% 6.9% 6.7%
Interest Expenses (income) $ 3.9 3.7 3.3 3.1 2.5 2.6 2.6 2.5Income before Tax $ 23.6 6.9 9.8 6.8 24.219 30.5 33.5 33.8
% of Sales 3.7% 1.2% 1.8% 1.3% 4.7% 6.0% 6.4% 6.3%Income Tax Expense $ 9.5 2.8 3.9 2.7 9.687 12.2 13.4 13.5
Tax Percent 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0%Net Income $ 14.2 4.1 5.9 4.1 14.5 18.314 20.079 20.296
% of Sales 2.2% 0.7% 1.1% 0.8% 2.8% 3.6% 3.9% 3.8%Capital Expenditures $ 4.2 4.4 4.7 4.9 5.0 5.2 5.3 5.5Stock Based Compensations $ 2.2 2.4 1.9 1.9 2.0 2.1 2.1 2.2
Alternatives AppendixRecommendation
1d) Khakis ‘R Us Balance Sheet
21
$ in Millions, Year Ending Dec 31 Actual Estimated 2011 2012 2013
Assets
Cash and Cash Equivalents $ 5.2 8.5 19.8Accounts Receivables $ 22.2 24.9 28.3Inventories $ 23.0 26.6 32.6Other Current Assets $ 12.4 12.8 13.0
Total Current Assets $ 62.8 72.8 93.6PP&E, Net $ 14.2 14.0 13.4Goodwill $ 11.9 11.9 11.9Other Assets $ 4.0 4.0 4.1
Total long-term Assets $ 30.2 30.0 29.4 Total Assets $ 93.0 102.8 123.1
Liabilities and Stockholders' Equity
Current Maturities $ 10.4 7.4 7.6Accounts Payable and accrued expenses $ 18.9 20.8 26.7Other Current Liabilities $ 2.6 11.1 11.5
Total Current Liabilities $ 32.0 39.2 45.9Long-Term Debt $ 48.5 45.6 42.9Other Long-Term Liabilities $ 3.1 1.2 2.4
Total Long-Term Liabilities $ 83.6 86.0 91.2
Stockholders' Equity $ 9.4 16.8 31.9 Total Liabilities and Stockholders' Equity $ 93.0 102.8 123.1
Alternatives AppendixRecommendation
1e) Weighted Average Cost Of Capital
22
Market risk premium
6.05% 6.20% 6.35% 6.50% 6.65% 6.80%
Beta
1.35 11.24% 11.35% 11.47% 11.58% 11.70% 11.81% 1.40 11.41% 11.53% 11.65% 11.77% 11.89% 12.01% 1.45 11.58% 11.71% 11.83% 11.95% 12.08% 12.20% 1.50 11.75% 11.88% 12.01% 12.14% 12.27% 12.39% 1.55 11.93% 12.06% 12.19% 12.32% 12.45% 12.59% 1.60 12.10% 12.23% 12.37% 12.51% 12.64% 12.78% 1.65 12.27% 12.41% 12.55% 12.69% 12.83% 12.97% 1.70 12.44% 12.59% 12.73% 12.88% 13.02% 13.17% 1.75 12.61% 12.76% 12.91% 13.06% 13.21% 13.36% 1.80 12.79% 12.94% 13.09% 13.25% 13.40% 13.55%
Percentage of capital ($M):
Total debt $91.2 43.18%
Market value of equity 120.0 56.82%
Total capital $211.2 100.00%
Cost of debt:
Cost of debt 6.32%
Marginal tax rate 40.00%
After-tax cost of debt 3.79%
Weighted Cost of Debt 1.64%
Cost of equity:
Risk free rate 2.70%
Beta 1.55
Market risk premium 6.35%
Size Premium 6.03%
Cost of equity 18.57%
Weighted Cost of Equity 10.55%
Weighted average cost of capital: 12.19%
Alternatives AppendixRecommendation
2a) Comparable Companies Selection
23
Company EBITDA/Sales D/E P/E
CC1 6.00% 36.79% 16.54
CC2 4.10% 21.18% 17.26
CC3 6.10% 115.01% -26.40
CC4 6.70% 5.77% 19.09
CC5 6.80% 1.76% 21.97
CC6 14.40% 14.20% 16.96
CC7 10.40% 16.97% 15.51
CC8 6.90% 3.09% 16.31
CC9 8.30% 57.85% 11.66
Khakis 'R Us 5.30% 6.00% 44.10
Alternatives AppendixRecommendation
2b) Comparable Companies Valuation
24
(figures in thousands except per share amount) Comparable Companies Khakis 'R Us
Company Revenue Stock Price
Shares Out standing
LTM Net Income P/E Debt Cash Minority
InterestEnterprise
ValueLTM
Adjusted EBITDA
LTM Adjusted EBITDA Margin
Earnings Multiple
(EV/EBITDA)
2013 Estimated
EBITDAEnterprise
Value
CC1 $ 8,185 $ 33.58 104.50 $ 212 16.54 $ 1,291 $ 628 $ 56.60 $ 4,229 $ 493 6.00% 8.58 $ 22.22 $ 190.57
CC2 6,206 58.40 30.20 102 17.26 374 354 14.70 1,798 254 4.10% 7.07 22.22 $ 157.08
CC3 441 2.79 38.80 (4) -26.40 125 16 13.80 231 27 6.10% 8.56 22.22 $ 190.15
CC4 11,154 58.99 132.40 409 19.09 451 1,166 42.50 7,137 752 6.70% 9.50 22.22 $ 211.01
CC5 7,713 32.08 149.00 218 21.97 84 800 0.20 4,064 528 6.80% 7.70 22.22 $ 171.03
CC6 1,566 44.12 46.50 121 16.96 291 25 0.10 2,318 225 14.40% 10.31 22.22 $ 229.13
CC7 2,071 23.80 65.80 101 15.51 266 160 0.90 1,673 216 10.40% 7.76 22.22 $ 172.52
CC8 313 8.51 29.70 16 16.31 8 10 0.30 251 22 6.90% 11.67 22.22 $ 259.25
CC9 11,414 47.18 76.40 309 11.66 2,085 249 140.20 5,581 952 8.30% 5.87 22.22 $ 130.34
Weighted Average Value Minimum Value Maximum Value
$197.79 $157.08 $259.25
Alternatives AppendixRecommendation
2c) Comparable Companies WACC
25
Company Revenue Levered Beta Unlevered Beta
Equity Risk Premium
Size Premium
Risk Free Rate
Cost of Equity
Cost of Debt
Preferred Stock WACC
CC1 $ 8,185 1.37 1.12 5.75% 1.14% 3.3% 12.3% 2.5% 0.0% 9.40%
CC2 6,206 1.58 1.21 5.75% 1.72% 3.3% 14.1% 1.9% 0.0% 11.80%
CC3 441 2.20 1.29 5.75% 6.03% 3.3% 22.0% 7.5% 0.0% 12.70%
CC4 11,154 1.38 1.33 5.75% 0.76% 3.3% 12.0% 1.2% 0.0% 11.40%
CC5 7,713 1.79 1.77 5.75% 0.92% 3.3% 14.5% 4.1% 0.0% 14.30%
CC6 1,566 1.00 0.92 5.75% 1.70% 3.3% 10.7% 3.4% 0.0% 9.70%
CC7 2,071 1.17 1.06 5.75% 1.72% 3.3% 11.8% 2.0% 0.0% 10.20%
CC8 313 2.27 2.22 5.75% 6.03% 3.3% 22.4% 3.8% 0.0% 21.80%
CC9 11,414 1.36 1.01 5.75% 1.14% 3.3% 12.3% 3.8% 0.0% 8.60%
Derived values for Khakis 'R Us
Risk Free Rate = 2.7%
Market Risk Premium = 6.35%
Size Premium = 6.03%
Unlevered Beta = 1.23
Levered Beta = 1.55
Alternatives AppendixRecommendation
2d) Comparable Transactions Metrics
26
Ranges
Year 2011 - 2013
EBITDA $10 - $35
Revenue $400 - $700
Transaction Announced Transaction Value Revenue Multiple EBITDA Multiple Transaction Value
w/o Ctrl Prem Comp's True EBITDA Comp's Revenue
1 2013 $ 150.00 0.65 6.3 $ 109.65 $ 17.40 $ 168.69 2 2012 70.00 0.97 7.1 51.17 7.21 52.75 3 2012 555.00 0.5 8.1 405.71 50.09 811.41 4 2012 290.00 0.52 5.4 211.99 39.26 407.67 5 2012 106.00 0.81 6.6 77.49 11.74 95.66 6 2011 61.40 0.59 9.3 44.88 4.83 76.07 7 2011 262.90 0.37 7.7 192.18 24.96 519.41 8 2011 280.00 0.68 7.2 204.68 28.43 301.00 9 2011 28.50 0.57 8.4 20.83 2.48 36.55
10 2010 324.00 0.75 5.4 236.84 43.86 315.79 11 2010 355.00 1.45 7.2 259.51 36.04 178.97 12 2010 294.90 0.41 12.9 215.57 16.71 525.79 13 2010 335.40 0.68 6.5 245.18 37.72 360.56 14 2010 62.70 0.66 6 45.83 7.64 69.45 15 2010 746.20 1.25 4.2 545.47 129.87 436.38 16 2009 47.90 0.22 11.8 35.01 2.97 159.16 17 2009 155.00 1.41 7.9 113.31 14.34 80.36 18 2009 220.00 0.75 6.4 160.82 25.13 214.43 19 2009 118.70 0.99 8.2 86.77 10.58 87.65
$ Millions
Alternatives AppendixRecommendation
2e) Comparable Transaction Valuation
27
$ in Millions
Transaction Value
Weighted Value $ 204.79
Minimum Value $ 152.26
Maximum Value $ 217.12
Transaction EBITDA EBITDA Multiple Control Premium Value Weightage Enterprise Value
7 $ 22.22 7.7 27.30% $ 217.80 0.67
$ 205.43
1 $ 22.22 6.3 27.30% $ 178.20
0.334 $ 22.22 5.4 27.30% $ 152.74
5 $ 22.22 6.6 27.30% $ 186.69
8 $ 22.22 7.2 27.30% $ 203.66
Alternatives AppendixRecommendation
3a) DFCF – KRU Valuation – Optimistic
28
$ in Millions, Year Ending Dec 31 Actual Estimated Projected 2011 2012 2013 2014 2015 2016 2017 2018
Sales $ 635.8 585.2 557.4 540.7 621.8 659.1 698.7 726.6
Cost of Sales $ 501.5 475.0 449.4 442.3 488.7 508.8 540.8 562.4
Gross Profit $ 134.3 110.2 108.0 98.4 133.1 150.3 157.9 164.2
SG&A $ 92.2 83.3 80.0 76.2 87.8 96.6 97.0 102.9
EBITDA $ 42.1 27.0 28.0 22.2 45.2 53.7 60.9 61.3
Less: Depreciation and Amortization $ (14.6) (16.4) (15.9) (12.3) (11.0) (8.1) (9.1) (9.1)
EBIT $ 27.6 10.6 12.2 9.9 34.3 45.7 51.9 52.3
Less: Taxes @ 40.0% $ (11.0) (4.3) (4.9) (4.0) (13.7) (18.3) (20.8) (20.9)
Tax-effected EBIT $ 16.5 6.4 7.3 5.9 20.6 27.4 31.1 31.4
Plus: Depreciation and amortization 16.4 15.9 12.3 11.0 8.1 9.1 9.1
Less: Capital expenditures (4.4) (4.7) (4.9) (5.0) (5.2) (5.3) (5.5)
(Increase)/decrease in working capital 3.6 (3.2) 1.0 (4.9) (2.3) (2.5) (1.8)
Unlevered Free Cash Flow 22.0 15.4 14.4 21.6 28.1 32.3 33.2
Weighted Average Cost Of Capital 12.2% 12.2% 12.2% 12.2% 12.2% 12.2% 12.2%
Present Value of Free Cash Flows 15.4 12.8 17.2 19.9 20.4 18.7
WACC 12.2%
Terminal growth rate 2.5%
Enterprise value $286.3
Alternatives AppendixRecommendation
3b) DFCF – KRU Valuation – Expected
29
$ in Millions, Year Ending Dec 31 Actual Estimated Projected 2011 2012 2013 2014 2015 2016 2017 2018
Sales $ 635.8 585.2 557.4 540.7 551.5 584.6 619.7 644.5
Cost of Sales $ 501.5 475.0 449.4 442.3 433.5 451.3 479.6 498.8
Gross Profit $ 134.3 110.2 108.0 98.4 118.0 133.3 140.0 145.7
SG&A $ 92.2 83.3 80.0 76.2 77.9 85.7 86.1 91.3
EBITDA $ 42.1 27.0 28.0 22.2 40.1 47.6 54.0 54.4
Less: Depreciation and Amortization $ (14.6) (16.4) (15.9) (12.3) (11.0) (8.1) (9.1) (9.1)
EBIT $ 27.6 10.6 12.2 9.9 29.2 39.7 45.0 45.4
Less: Taxes @ 40.0% $ (11.0) (4.3) (4.9) (4.0) (11.7) (15.9) (18.0) (18.2)
Tax-effected EBIT $ 16.5 6.4 7.3 5.9 17.5 23.8 27.0 27.2
Plus: Depreciation and amortization 16.4 15.9 12.3 11.0 8.1 9.1 9.1
Less: Capital expenditures (4.4) (4.7) (4.9) (5.0) (5.2) (5.3) (5.5)
(Increase)/decrease in working capital 3.6 (3.2) 1.0 (0.5) (2.0) (2.2) (1.6)
Unlevered Free Cash Flow 22.0 15.4 14.4 23.0 24.7 28.5 29.2
Weighted Average Cost Of Capital 12.2% 12.2% 12.2% 12.2% 12.2% 12.2% 12.2%
Present Value of Free Cash Flows 15.4 12.8 18.3 17.5 18.0 16.4
WACC 12.2%
Terminal growth rate 2.5%
Enterprise value $256.8
Alternatives AppendixRecommendation
3c) DFCF – KRU Valuation – Conservative
30
$ in Millions, Year Ending Dec 31 Actual Estimated Projected 2011 2012 2013 2014 2015 2016 2017 2018
Sales $ 635.8 585.2 557.4 540.7 515.3 510.1 520.3 541.2
Cost of Sales $ 501.5 475.0 449.4 442.3 405.0 393.8 402.7 418.9
Gross Profit $ 134.3 110.2 108.0 98.4 110.3 116.3 117.6 122.3
SG&A $ 92.2 83.3 80.0 76.2 72.8 74.7 72.3 76.6
EBITDA $ 42.1 27.0 28.0 22.2 37.5 41.6 45.3 45.7
Less: Depreciation and Amortization $ (14.6) (16.4) (15.9) (12.3) (11.0) (8.1) (9.1) (9.1)
EBIT $ 27.6 10.6 12.2 9.9 26.6 33.6 36.4 36.7
Less: Taxes @ 40.0% $ (11.0) (4.3) (4.9) (4.0) (10.6) (13.4) (14.5) (14.7)
Tax-effected EBIT $ 16.5 6.4 7.3 5.9 15.9 20.2 21.8 22.0
Plus: Depreciation and amortization 16.4 15.9 12.3 11.0 8.1 9.1 9.1
Less: Capital expenditures (4.4) (4.7) (4.9) (5.0) (5.2) (5.3) (5.5)
(Increase)/decrease in working capital 3.6 (3.2) 1.0 1.8 0.4 (0.7) (1.3)
Unlevered Free Cash Flow 22.0 15.4 14.4 23.7 23.4 24.9 24.2
Weighted Average Cost Of Capital 12.2% 12.2% 12.2% 12.2% 12.2% 12.2% 12.2%
Present Value of Free Cash Flows 15.4 12.8 18.9 16.6 15.7 13.6
WACC 12.2%
Terminal growth rate 2.5%
Enterprise value $221.8
Alternatives AppendixRecommendation
Beta1.35 - 1.75
Terminal Growth Rate2% - 3%
Risk Premium5.85% - 6.85%
Size Premium2.2% - 3.2%
240
250
260
270
280
290
300
310
320
255
276273
286
Sensitivity Analysis on Enterprise Value
3d) DFCF – Sensitivity Analysis – Optimistic
31
311
298 301296
Ente
rpris
e Va
lue
($M
)
Average Max Value Average Min Value$301 $273
Enterprise Value$287
All $ in millions
Alternatives AppendixRecommendation
Beta1.35 - 1.75
Terminal Growth Rate2% - 3%
Risk Premium5.85% - 6.85%
Size Premium2.2% - 3.2%
230
240
250
260
270
280
290
238
248245
249
Sensitivity Analysis on Enterprise Value
3e) DFCF – Sensitivity Analysis – Expected
32
279
267270
265
Average Max Value Average Min Value$301 $273
Enterprise Value$257
All $ in millions
Ente
rpris
e Va
lue
($M
)
Alternatives AppendixRecommendation
Beta1.35 - 1.75
Terminal Growth Rate2% - 3%
Risk Premium5.85% - 6.85%
Size Premium2.2% - 3.2%
200
205
210
215
220
225
230
235
240
245
206
214212
215
Sensitivity Analysis on Enterprise Value
3f) DFCF – Sensitivity Analysis – Conservative
33
240
230233
229
Average Max Value Average Min Value$301 $273
Enterprise Value$222
All $ in millions
Ente
rpris
e Va
lue
($M
)
Alternatives AppendixRecommendation
4a) Residual Earnings Model - Setup
34
($ in Millions except per share amounts) 2011 2012 2013
Total Book Value of Equity $ 9.42 16.75 31.86
Net (comprehensive) Income $ 14.19 4.14 6.18
# of shares outstanding (in millions) 10 10 10
Comprehensive Earnings Per Share $ 1.42 0.41 0.62
Dividends Declared Per Common Share $ 0.00 0.00 0.12
Book value per share $ 0.94 1.68 3.19
Basic Assumptions:
1) The comprehensive income will grow at differing rates for the next five years
2) The Residual Earnings will grow at a constant rate after this five year horizon
3) The dividends will grow by 5% each year
4) The long-term required rate is 12.2%
Alternatives AppendixRecommendation
4b) Residual Earnings Valuation
35
($ in Millions except per share values)
2013 2014 2015 2016 2017 2018
Earnings Growth Rate -1.0% 0.0% 1.0% 2.0% 3.0%
EPS $ 0.59 0.58 0.58 0.59 0.60 0.62
DPS $ 0.12 0.13 0.13 0.14 0.15 0.15
BPS $ 3.19 3.64 4.09 4.53 4.98 5.45
Residual Earnings $ 0.19 0.14 0.09 0.04 0.01
Period 1 2 3 4 5
Discount Factor 1.12 1.26 1.41 1.58 1.78
PV of Residual Earnings $ 0.17 0.11 0.06 0.03 0.004
Total PV of RE $ 0.04
Continuing value $ 0.08
PV of CV $ 0.04
VPS $ 0.41
# shares outstanding (millions) 10
BV at t=0 $ 31.86
Net Debt $ 33.13
Enterprise Value $ 69.13
Alternatives AppendixRecommendation
Optimistic(20%)
Expected(40%)
Conservative(40%)
0
50
100
150
200
250
300
350320
309
266
5a) DFCF – KRU Value to NYC
36
Enterprise Value
$ 294M
Ente
rpris
e Va
lue
($M
)
Alternatives AppendixRecommendation
5b) DFCF – KRU TO NYC – Optimistic
37
$ in Millions, Year Ending Dec 31 Actual Estimated Projected 2011 2012 2013 2014 2015 2016 2017 2018
Sales $ 635.8 585.2 557.4 657.8 697.2 739.1 783.4 814.7
Cost of Sales $ 501.5 475.0 449.4 538.1 548.0 570.6 606.4 630.6
Gross Profit $ 134.3 110.2 108.0 119.7 149.2 168.5 177.1 184.1
SG&A $ 92.2 83.3 80.0 92.7 98.5 108.3 108.8 115.4
EBITDA $ 42.1 27.0 28.0 27.0 50.7 60.2 68.2 68.7
Less: Depreciation and Amortization $ (14.6) (16.4) (15.9) (12.3) (11.0) (8.1) (9.1) (9.1)
EBIT $ 27.6 10.6 12.2 14.7 39.8 52.3 59.3 59.8
Less: Taxes @ 40.0% $ (11.0) (4.3) (4.9) (5.9) (15.9) (20.9) (23.7) (23.9)
Tax-effected EBIT $ 16.5 6.4 7.3 8.8 23.9 31.4 35.6 35.9
Plus: Depreciation and amortization 16.4 15.9 12.3 11.0 8.1 9.1 9.1
Less: Capital expenditures (4.4) (4.7) (4.9) (5.0) (5.2) (5.3) (5.5)
(Increase)/decrease in working capital 3.6 (3.2) (6.5) (2.2) (2.5) (2.8) (2.0)
Unlevered Free Cash Flow 22.0 15.4 9.7 27.6 31.7 36.4 37.4
Weighted Average Cost Of Capital 12.2% 12.2% 12.2% 12.2% 12.2% 12.2% 12.2%
Present Value of Free Cash Flows 15.4 8.7 21.9 22.4 23.0 21.1
WACC 12.2%
Terminal growth rate 2.5%
Enterprise value $319.8
Alternatives AppendixRecommendation
5c) DFCF – KRU TO NYC – Expected
38
$ in Millions, Year Ending Dec 31 Actual Estimated Projected 2011 2012 2013 2014 2015 2016 2017 2018
Sales $ 635.8 585.2 557.4 657.8 670.9 711.2 753.8 784.0
Cost of Sales $ 501.5 475.0 449.4 538.1 527.3 549.0 583.5 606.8
Gross Profit $ 134.3 110.2 108.0 119.7 143.6 162.1 170.4 177.2
SG&A $ 92.2 83.3 80.0 92.7 94.8 104.2 104.7 111.0
EBITDA $ 42.1 27.0 28.0 27.0 48.8 58.0 65.7 66.2
Less: Depreciation and Amortization $ (14.6) (16.4) (15.9) (12.3) (11.0) (8.1) (9.1) (9.1)
EBIT $ 27.6 10.6 12.2 14.7 37.9 50.0 56.7 57.2
Less: Taxes @ 40.0% $ (11.0) (4.3) (4.9) (5.9) (15.2) (20.0) (22.7) (22.9)
Tax-effected EBIT $ 16.5 6.4 7.3 8.8 22.7 30.0 34.0 34.3
Plus: Depreciation and amortization 16.4 15.9 12.3 11.0 8.1 9.1 9.1
Less: Capital expenditures (4.4) (4.7) (4.9) (5.0) (5.2) (5.3) (5.5)
(Increase)/decrease in working capital 3.6 (3.2) (6.5) (0.6) (2.4) (2.7) (1.9)
Unlevered Free Cash Flow 22.0 15.4 9.7 28.1 30.4 35.0 35.9
Weighted Average Cost Of Capital 12.2% 12.2% 12.2% 12.2% 12.2% 12.2% 12.2%
Present Value of Free Cash Flows 15.4 8.7 22.3 21.5 22.1 20.2
WACC 12.2%
Terminal growth rate 2.5%
Enterprise value $308.8
Alternatives AppendixRecommendation
5d) DFCF – KRU TO NYC – Conservative
39
$ in Millions, Year Ending Dec 31 Actual Estimated Projected 2011 2012 2013 2014 2015 2016 2017 2018
Sales $ 635.8 585.2 557.4 657.8 626.9 620.6 633.0 658.3
Cost of Sales $ 501.5 475.0 449.4 538.1 492.7 479.1 489.9 509.5
Gross Profit $ 134.3 110.2 108.0 119.7 134.1 141.5 143.1 148.8
SG&A $ 92.2 83.3 80.0 92.7 88.5 90.9 87.9 93.2
EBITDA $ 42.1 27.0 28.0 27.0 45.6 50.6 55.1 55.5
Less: Depreciation and Amortization $ (14.6) (16.4) (15.9) (12.3) (11.0) (8.1) (9.1) (9.1)
EBIT $ 27.6 10.6 12.2 14.7 34.7 42.6 46.2 46.6
Less: Taxes @ 40.0% $ (11.0) (4.3) (4.9) (5.9) (13.9) (17.0) (18.5) (18.6)
Tax-effected EBIT $ 16.5 6.4 7.3 8.8 20.8 25.6 27.7 27.9
Plus: Depreciation and amortization 16.4 15.9 12.3 11.0 8.1 9.1 9.1
Less: Capital expenditures (4.4) (4.7) (4.9) (5.0) (5.2) (5.3) (5.5)
(Increase)/decrease in working capital 3.6 (3.2) (6.5) 2.2 0.5 (0.8) (1.6)
Unlevered Free Cash Flow 22.0 15.4 9.7 29.0 28.9 30.6 29.9
Weighted Average Cost Of Capital 12.2% 12.2% 12.2% 12.2% 12.2% 12.2% 12.2%
Present Value of Free Cash Flows 15.4 8.7 23.0 20.5 19.3 16.8
WACC 12.2%
Terminal growth rate 2.5%
Enterprise value $266.2
Alternatives AppendixRecommendation
5e) RE – KRU Value to NYC
40
$ in Millions Conservative Expected Optimistic
Long-term R/E growth rate
2% $126 $172 $201
3% $131 $181 $213
4% $137 $193 $228
Alternatives AppendixRecommendation
5f) RE – KRU to NYC – Optimistic
41
($ in Millions except per share values)
2013 2014 2015 2016 2017 2018
Earnings Growth Rate 45.0% 40.0% 35.0% 35.0% 30.0%
EPS $ 0.59 0.85 1.19 1.60 2.17 2.82
DPS $ 0.12 0.13 0.13 0.14 0.15 0.15
BPS $ 3.19 3.91 4.96 6.43 8.45 11.11
Residual Earnings $ 0.46 0.71 1.00 1.38 1.78
Period 1 2 3 4 5
Discount Factor 1.12 1.26 1.41 1.58 1.78
PV of Residual Earnings $ 0.41 0.57 0.71 0.87 1.00
Total PV of RE $ 3.56
Continuing value $ 22.63
PV of CV $ 12.73
VPS $ 16.28
# shares outstanding (millions) 10
BV at t=0 $ 31.86
Net Debt $ 33.13
Enterprise Value $ 227.82
Alternatives AppendixRecommendation
5g) RE – KRU to NYC – Expected
42
($ in Millions except per share values)
2013 2014 2015 2016 2017 2018
Earnings Growth Rate 40.0% 35.0% 30.0% 30.0% 25.0%
EPS $ 0.59 0.82 1.11 1.44 1.87 2.34
DPS $ 0.12 0.13 0.13 0.14 0.15 0.15
BPS $ 3.19 3.88 4.85 6.15 7.88 10.06
Residual Earnings $ 0.43 0.63 0.85 1.12 1.38
Period 1 2 3 4 5
Discount Factor 1.12 1.26 1.41 1.58 1.78
PV of Residual Earnings $ 0.38 0.50 0.60 0.71 0.77
Total PV of RE $ 2.97
Continuing value $ 15.41
PV of CV $ 8.66
VPS $ 11.63
# shares outstanding (millions) 10
BV at t=0 $ 31.86
Net Debt $ 33.13
Enterprise Value $ 181.28
Alternatives AppendixRecommendation
5h) RE – KRU to NYC – Conservative
43
($ in Millions except per share values)
2013 2014 2015 2016 2017 2018
Earnings Growth Rate 30.0% 25.0% 20.0% 20.0% 15.0%
EPS $ 0.59 0.76 0.95 1.14 1.37 1.58
DPS $ 0.12 0.13 0.13 0.14 0.15 0.15
BPS $ 3.19 3.82 4.64 5.64 6.87 8.29
Residual Earnings $ 0.37 0.48 0.58 0.68 0.74
Period 1 2 3 4 5
Discount Factor 1.12 1.26 1.41 1.58 1.78
PV of Residual Earnings $ 0.33 0.39 0.41 0.43 0.41
Total PV of RE $ 1.97
Continuing value $ 7.37
PV of CV $ 4.15
VPS $ 6.12
# shares outstanding (millions) 10
BV at t=0 $ 31.86
Net Debt $ 33.13
Enterprise Value $ 126.15
Alternatives AppendixRecommendation
Optimistic(20%)
Expected(40%)
Conservative(40%)
0
50
100
150
200
250
300
350
400
450409
388
332
6a) DFCF – KRU + AB Valuation
44
Enterprise Value
$ 370M
Enterprise Value
in Millions
Alternatives AppendixRecommendation
6b) DFCF – KRU + AB – Optimistic
45
$ in Millions, Year Ending Dec 31 Actual Estimated Projected 2011 2012 2013 2014 2015 2016 2017 2018
Sales $ 635.8 585.2 557.4 668.9 709.0 751.6 796.7 828.6
Cost of Sales $ 501.5 475.0 449.4 547.2 557.3 580.2 616.6 641.3
Gross Profit $ 134.3 110.2 108.0 121.7 151.7 171.4 180.1 187.3
SG&A $ 92.2 83.3 80.0 94.3 100.2 110.1 110.7 117.3
EBITDA $ 42.1 27.0 28.0 27.4 51.6 61.2 69.4 69.9
Less: Depreciation and Amortization $ (14.6) (16.4) (15.9) (12.3) (11.0) (8.1) (9.1) (9.1)
EBIT $ 27.6 10.6 12.2 15.1 40.7 53.3 60.4 60.9
Less: Taxes @ 40.0% $ (11.0) (4.3) (4.9) (6.1) (16.3) (21.3) (24.2) (24.4)
Tax-effected EBIT $ 16.5 6.4 7.3 9.1 24.4 32.0 36.3 36.6
Plus: Depreciation and amortization 16.4 15.9 12.3 11.0 8.1 9.1 9.1
Less: Capital expenditures (4.4) (4.7) (4.9) (5.0) (5.2) (5.3) (5.5)
(Increase)/decrease in working capital 3.6 (3.2) (7.2) (2.3) (2.6) (2.9) (2.0)
Unlevered Free Cash Flow 22.0 15.4 9.3 28.1 32.3 37.1 38.1
Weighted Average Cost Of Capital 10.3% 10.3% 10.3% 10.3% 10.3% 10.3% 10.3%
Present Value of Free Cash Flows 15.4 8.4 23.1 24.0 25.0 23.3
WACC 10.3%
Terminal growth rate 2.5%
Enterprise value $408.7
Alternatives AppendixRecommendation
6c) DFCF – KRU + AB – Expected
46
$ in Millions, Year Ending Dec 31 Actual Estimated Projected 2011 2012 2013 2014 2015 2016 2017 2018
Sales $ 635.8 585.2 557.4 657.8 670.9 711.2 753.8 784.0
Cost of Sales $ 501.5 475.0 449.4 538.1 527.3 549.0 583.5 606.8
Gross Profit $ 134.3 110.2 108.0 119.7 143.6 162.1 170.4 177.2
SG&A $ 92.2 83.3 80.0 92.7 94.8 104.2 104.7 111.0
EBITDA $ 42.1 27.0 28.0 27.0 48.8 58.0 65.7 66.2
Less: Depreciation and Amortization $ (14.6) (16.4) (15.9) (12.3) (11.0) (8.1) (9.1) (9.1)
EBIT $ 27.6 10.6 12.2 14.7 37.9 50.0 56.7 57.2
Less: Taxes @ 40.0% $ (11.0) (4.3) (4.9) (5.9) (15.2) (20.0) (22.7) (22.9)
Tax-effected EBIT $ 16.5 6.4 7.3 8.8 22.7 30.0 34.0 34.3
Plus: Depreciation and amortization 16.4 15.9 12.3 11.0 8.1 9.1 9.1
Less: Capital expenditures (4.4) (4.7) (4.9) (5.0) (5.2) (5.3) (5.5)
(Increase)/decrease in working capital 3.6 (3.2) (6.5) (0.6) (2.4) (2.7) (1.9)
Unlevered Free Cash Flow 22.0 15.4 9.7 28.1 30.4 35.0 35.9
Weighted Average Cost Of Capital 10.3% 10.3% 10.3% 10.3% 10.3% 10.3% 10.3%
Present Value of Free Cash Flows 15.4 8.8 23.1 22.7 23.6 22.0
WACC 10.3%
Terminal growth rate 2.5%
Enterprise value $387.8
Alternatives AppendixRecommendation
6d) DFCF – KRU + AB – Conservative
47
$ in Millions, Year Ending Dec 31 Actual Estimated Projected 2011 2012 2013 2014 2015 2016 2017 2018
Sales $ 635.8 585.2 557.4 657.8 626.9 620.6 633.0 658.3
Cost of Sales $ 501.5 475.0 449.4 538.1 492.7 479.1 489.9 509.5
Gross Profit $ 134.3 110.2 108.0 119.7 134.1 141.5 143.1 148.8
SG&A $ 92.2 83.3 80.0 92.7 88.5 90.9 87.9 93.2
EBITDA $ 42.1 27.0 28.0 27.0 45.6 50.6 55.1 55.5
Less: Depreciation and Amortization $ (14.6) (16.4) (15.9) (12.3) (11.0) (8.1) (9.1) (9.1)
EBIT $ 27.6 10.6 12.2 14.7 34.7 42.6 46.2 46.6
Less: Taxes @ 40.0% $ (11.0) (4.3) (4.9) (5.9) (13.9) (17.0) (18.5) (18.6)
Tax-effected EBIT $ 16.5 6.4 7.3 8.8 20.8 25.6 27.7 27.9
Plus: Depreciation and amortization 16.4 15.9 12.3 11.0 8.1 9.1 9.1
Less: Capital expenditures (4.4) (4.7) (4.9) (5.0) (5.2) (5.3) (5.5)
(Increase)/decrease in working capital 3.6 (3.2) (6.5) 2.2 0.5 (0.8) (1.6)
Unlevered Free Cash Flow 22.0 15.4 9.7 29.0 28.9 30.6 29.9
Weighted Average Cost Of Capital 10.3% 10.3% 10.3% 10.3% 10.3% 10.3% 10.3%
Present Value of Free Cash Flows 15.4 8.8 23.8 21.5 20.7 18.3
WACC 10.3%
Terminal growth rate 2.5%
Enterprise value $332.3
Alternatives AppendixRecommendation
Optimistic(20%)
Expected(40%)
Pessimistic(40%)
0
50
100
150
200
250
300
350
400
450
500 475
430
345
7a) DFCF – KRU + AB to NYC Valuation
48
Enterprise Value
$ 405M
Enterprise Value
in Millions
Alternatives AppendixRecommendation
7b) DFCF – KRU + AB to NYC – Optimistic
49
$ in Millions, Year Ending Dec 31 Actual Estimated Projected 2011 2012 2013 2014 2015 2016 2017 2018
Sales $ 635.8 585.2 557.4 780.5 827.3 877.0 929.6 966.8
Cost of Sales $ 501.5 475.0 449.4 638.4 650.3 677.0 719.5 748.3
Gross Profit $ 134.3 110.2 108.0 142.0 177.0 199.9 210.1 218.5
SG&A $ 92.2 83.3 80.0 110.0 116.9 128.5 129.1 136.9
EBITDA $ 42.1 27.0 28.0 32.0 60.2 71.5 81.0 81.6
Less: Depreciation and Amortization $ (14.6) (16.4) (15.9) (12.3) (11.0) (8.1) (9.1) (9.1)
EBIT $ 27.6 10.6 12.2 19.7 49.3 63.5 72.0 72.6
Less: Taxes @ 40.0% $ (11.0) (4.3) (4.9) (7.9) (19.7) (25.4) (28.8) (29.0)
Tax-effected EBIT $ 16.5 6.4 7.3 11.8 29.6 38.1 43.2 43.6
Plus: Depreciation and amortization 16.4 15.9 12.3 11.0 8.1 9.1 9.1
Less: Capital expenditures (4.4) (4.7) (4.9) (5.0) (5.2) (5.3) (5.5)
(Increase)/decrease in working capital 3.6 (3.2) (14.4) (2.7) (3.0) (3.4) (2.4)
Unlevered Free Cash Flow 22.0 15.4 4.9 32.9 38.0 43.5 44.7
Weighted Average Cost Of Capital 10.3% 10.3% 10.3% 10.3% 10.3% 10.3% 10.3%
Present Value of Free Cash Flows 15.4 4.5 27.0 28.3 29.4 27.4
WACC 10.3%
Terminal growth rate 2.5%
Enterprise value $474.6
Alternatives AppendixRecommendation
7c) DFCF – KRU + AB to NYC – Expected
50
$ in Millions, Year Ending Dec 31 Actual Estimated Projected 2011 2012 2013 2014 2015 2016 2017 2018
Sales $ 635.8 585.2 557.4 731.7 746.3 791.1 838.6 872.1
Cost of Sales $ 501.5 475.0 449.4 598.5 586.6 610.7 649.1 675.0
Gross Profit $ 134.3 110.2 108.0 133.2 159.7 180.4 189.5 197.1
SG&A $ 92.2 83.3 80.0 103.2 105.4 115.9 116.5 123.5
EBITDA $ 42.1 27.0 28.0 30.0 54.3 64.5 73.0 73.6
Less: Depreciation and Amortization $ (14.6) (16.4) (15.9) (12.3) (11.0) (8.1) (9.1) (9.1)
EBIT $ 27.6 10.6 12.2 17.7 43.4 56.5 64.1 64.6
Less: Taxes @ 40.0% $ (11.0) (4.3) (4.9) (7.1) (17.4) (22.6) (25.6) (25.8)
Tax-effected EBIT $ 16.5 6.4 7.3 10.6 26.0 33.9 38.4 38.8
Plus: Depreciation and amortization 16.4 15.9 12.3 11.0 8.1 9.1 9.1
Less: Capital expenditures (4.4) (4.7) (4.9) (5.0) (5.2) (5.3) (5.5)
(Increase)/decrease in working capital 3.6 (3.2) (11.2) (0.6) (2.7) (3.0) (2.1)
Unlevered Free Cash Flow 22.0 15.4 6.8 31.3 34.1 39.1 40.2
Weighted Average Cost Of Capital 10.3% 10.3% 10.3% 10.3% 10.3% 10.3% 10.3%
Present Value of Free Cash Flows 15.4 6.2 25.7 25.4 26.4 24.6
WACC 10.3%
Terminal growth rate 2.5%
Enterprise value $429.9
Alternatives AppendixRecommendation
7d) DFCF – KRU + AB to NYC – Conservative
51
$ in Millions, Year Ending Dec 31 Actual Estimated Projected 2011 2012 2013 2014 2015 2016 2017 2018
Sales $ 635.8 585.2 557.4 682.9 650.8 644.3 657.2 683.5
Cost of Sales $ 501.5 475.0 449.4 558.6 511.6 497.4 508.7 529.0
Gross Profit $ 134.3 110.2 108.0 124.3 139.3 146.9 148.5 154.5
SG&A $ 92.2 83.3 80.0 96.3 91.9 94.4 91.3 96.8
EBITDA $ 42.1 27.0 28.0 28.0 47.3 52.5 57.2 57.7
Less: Depreciation and Amortization $ (14.6) (16.4) (15.9) (12.3) (11.0) (8.1) (9.1) (9.1)
EBIT $ 27.6 10.6 12.2 15.7 36.4 44.5 48.3 48.7
Less: Taxes @ 40.0% $ (11.0) (4.3) (4.9) (6.3) (14.6) (17.8) (19.3) (19.5)
Tax-effected EBIT $ 16.5 6.4 7.3 9.4 21.9 26.7 29.0 29.2
Plus: Depreciation and amortization 16.4 15.9 12.3 11.0 8.1 9.1 9.1
Less: Capital expenditures (4.4) (4.7) (4.9) (5.0) (5.2) (5.3) (5.5)
(Increase)/decrease in working capital 3.6 (3.2) (8.1) 2.3 0.5 (0.8) (1.7)
Unlevered Free Cash Flow 22.0 15.4 8.8 30.1 30.1 31.8 31.1
Weighted Average Cost Of Capital 10.3% 10.3% 10.3% 10.3% 10.3% 10.3% 10.3%
Present Value of Free Cash Flows 15.4 7.9 24.7 22.4 21.5 19.0
WACC 10.3%
Terminal growth rate 2.5%
Enterprise value $344.5
Alternatives AppendixRecommendation
7e) Return to Shareholders for Alternatives for Growth
52
($ in millions) KRU KRU to NYC KRU + AB KRU + AB to NYC
Enterprise Value 249 294 370 405
Total Debt 91 91 151 151
Cash & Cash Eqv. 20 20 20 20
Net Equity $178 $223 $238 $273
Alternatives AppendixRecommendation