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CONFIDENTIAL VALUATION PROJECT WORKBOOK SUMMER ANALYST PROGRAM – 2007 PRELIMINARY | SUBJECT TO FURTHER REVIEW

CONFIDENTIAL

VALUATION PROJECT WORKBOOK

SUMMER ANALYST PROGRAM – 2007

PRELIMINARY | SUBJECT TO FURTHER REVIEW AND EVALUATION

THESE MATERIALS MAY NOT BE USED OR RELIED UPON FOR ANY PURPOSE OTHER THAN AS SPECIFICALLY CONTEMPLATED BY A WRITTEN AGREEMENT WITH CREDIT SUISSE.

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Table of Contents

1 Overview of Valuation Project

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2 Sample Project

3 Weekly Assignments and Resources

A Public Information Book (PIB)

B Company Profile

C Equity Comps / M&A Comps

D DCF and WACC Analysis

E Merger Consequences Analysis

If you have any questions regarding materials in this book, or the valuation project in general, don’t hesitate to call us:

Anna Golynskaya Training Leader anna.golynskaya@credit-suisse.com (212) 538-5442

Miriam Roshan Training Leader (212) 325-1822 miriam.roshan@credit-suisse.com

Phil Kohn Training Leader phil.kohn@credit-suisse.com (212) 538-0558

Jeff Volling Training Leader (212) 325-5529 jeffrey.volling@credit-suisse.com

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Leader (212) 325-5529 jeffrey.volling@credit-suisse.com F T PRELIMINARY | SUBJECT TO FURTHER REVIEW AND EVALUATION 1

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1. Overview of Valuation Project

Analyst Valuation Book.ppt /2 1. Overview of Valuation Project 2 PRELIMINARY | SUBJECT TO FURTHER REVIEW

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Overview of Valuation Project

Welcome to Credit Suisse! In addition to meeting a ton of new people and having fun for the next 10 weeks, we figured it would be helpful for you to return to college your senior year having learned something about what Investment Bankers do

Several analysts, associates, and Vice Presidents from across the division have worked hard to put the following materials together as your “one-stop shop” for banking how to’s

In addition to your group staffing assignments over the next two months, you will also be asked to complete a group valuation project to be submitted by Week 9 of your program. The submission will include the following:

A company profile

Equity comps and M&A comps

DCF valuation

Merger consequences analysis

At the end of the summer, August 2 nd , your team will be asked to present, in a short session, your analyses and conclusions to a team of bankers

This project will be completed gradually over the course of the summer and we will be holding 4 sessions (1 every week) to cover each of the topics or analysis we will be asking you to do

You will be required to turn in you work for the topic covered each week at the following weeks session (i.e., you will go over profiles in first session and turn them in at the second session)

We plan to return your assignment within one week so you can see if you are on the right track and where you may need to improve

if you are on the right track and where you may need to improve 3 PRELIMINARY

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Project Schedule and Key Dates

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Date

Session Details

Next Steps

Session 1

June 29

Finding public information and creating a PIB

Create Knight Ridder PIB

 

10

am & 2 pm

Creating a company profile

Create Knight Ridder profile

Session 2

July 6

Equity Comps and Acquisition Comp Analysis

Find Knight Ridder trading comparables

 

Find important average trading stats

 

10

am & 2 pm

For given comparable acquisitions, find key multiples

Session 3

July 13

Discounted Cash Flow

Create projected Knight Ridder income statement

 

10

am & 2 pm

Determine WACC based on comps

 

Project free cash flows and discount at WACC

Session 4

July 27

Merger Consequences

Evaluate transaction consequences including EPS accretion/dilution, pro forma credit stats, pro forma ownership

 

10

am & 2 pm

Create premiums paid and synergies sensitivity tables

PRESENTATION

August 6

Present final projects

Good Luck!!

Note: Due to the fact that the deal was announced on 3/13/06, for all valuations, please use all public information available as of then (latest filing would be the 12/25/05 10-K) and stock prices and research as of 3/10/06.

This schedule provides a set of guidelines to help you plan your final project.
This schedule provides a set of guidelines to help you plan your final project.

This schedule provides a set of guidelines to help you plan your final project.

provides a set of guidelines to help you plan your final project. PRELIMINARY | SUBJECT TO
provides a set of guidelines to help you plan your final project. PRELIMINARY | SUBJECT TO

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2. Sample Project

Summer Analyst Valuation Book.ppt /5 2. Sample Project 5 PRELIMINARY | SUBJECT TO FURTHER REVIEW AND

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USF Corporation – Company Profile

Status: Public (Nasdaq: USFC) Headquarters: Chicago, IL Website: www.usfc.com Employees: 21,000

Status: Public (Nasdaq: USFC)

Headquarters:

Chicago, IL

Website: www.usfc.com

Employees:

21,000

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Company Overview

Provides comprehensive supply chain management services in four business segments:

“Less-than-truckload” segment, carriers provide regional and inter- regional delivery throughout the United States

“Truckload” segment offers premium regional and national truckload services

“Logistics” segment provides dedicated fleet, cross-dock operations, supply chain management, contractual warehousing, domestic ocean freight forwarding and reverse logistics services

“Information Technology” segment provides support activities including corporate sales and various financial management functions

USF provide services to a wide variety of customers, with no single customer accounting for more than 3.3% of revenue

Source: Company filings and Capital IQ.

Management and Board of Directors

Name

Position and Affiliation

Thomas E. Bergmann Steven Caddy Edward R. Fitzgerald Douglas R. Waggoner Paul J. Liska

Interim CEO, CFO President and CEO, USF Holland President and CEO, USF Reddaway President and CEO, USF Bestway

Chairman of the Board

Morley Koffman Stephen W. Lilienthal Anthony J. Paoni Glenn R. Richter Neil A. Springer Michael L. Thompson

Director

Director

Director

Director

Director

Director

Source: Company filings and FactSet.

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Recent News

1/28/2005: USF Corporation reported fourth quarter and full year 2004 results, missed Wall Street earnings

12/13/2004: Announced opening of two new terminals serving the Southern Minnesota and Decatur, Alabama areas

11/2/2004: Richard P. DiStasio stepped down as CEO, Paul Liska was named interim CEO

10/22/2004: Reported third quarter 2004 results, missed Wall Street earnings

9/9/2004: USF Holland announced the opening of eight (8) Northeast terminals, service city includes: Baltimore, MD Albany, NY, Allentown, PA, Harrisburg, PA, Philadelphia, PA, Wilkes Barre, PA, Syracuse, NY, and Richmond, VA

Source: Company filings, and website.

NY, and Richmond, VA Source: Company filings, and website.     Ownership   HOLDERS SHARES %
   

Ownership

 

HOLDERS

SHARES

% OF TOTAL

Citigroup Inc. Fidelity Management & Research Dimensional Fd Advisors, Inc. Barclays Bank Allianz Dresdner Asset Mgmt.

2,595,871

9.9%

2,410,515

9.2%

1,831,607

7.0%

1,567,377

6.0%

1,234,140

4.7%

Top 5 Institutions Other Institutions

9,639,510

36.8%

15,892,218

60.7%

Total Institutions

25,531,728

97.4%

Insiders

473,040

1.8%

Other

196,072

0.7%

Total

26,200,840

100.0%

Source: Company filings and ShareWorld.

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USF Corporation (Cont’d)

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Stock Price Performance $40 2,000 $37 1,500 $34 1,000 $31 Volume in Thousands 500 $28
Stock Price Performance
$40
2,000
$37
1,500
$34
1,000
$31
Volume in Thousands
500
$28
$25
0
2/4/04
4/5/04
6/5/04
8/5/04
10/5/04
12/5/04
2/4/05
USF Corp. Volume
USF Corp. Stock Price
Stock Price

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Financial Overview

 

($ in millions)

 

December 31,

 

2004A

2005E

2006E

Revenues

$2,394.6

$2,516.9

$2,658.8

% Growth

4.5%

5.1%

5.6%

EBIT

$112.1

$130.0

$150.1

% Margin

4.7%

5.2%

5.6%

EBITDA

$169.2

$253.7

$273.1

% Margin

7.1%

10.1%

10.3%

Net Income

$55.8

$66.5

$78.8

% Margin

2.3%

2.6%

3.0%

EPS

$0.85

$2.48

$2.82

Capex

145.0

185.0

190.0

Source: Company filings and Wall Street equity research.

Source: Company filings and Wall Street equity research.   Market and Trading Data   Stock Price
Source: Company filings and Wall Street equity research.   Market and Trading Data   Stock Price
 

Market and Trading Data

 

Stock Price (2/4/05) % of 52-Week High 52-Week High / Low Diluted Shares

 

$32.44

83.6%

$38.80 /

$27.51

28.2

Equity Market Value

916.0

(+) Debt (–) Cash & Equivalents Enterprise Value Enterprise Value to:

250.1

150.8

$1,015.3

2004E

Revenue

$2,516.9 /

0.4x

2005E

Revenue

$2,658.8 /

0.4x

2004E

EBITDA

$169.2 /

6.0x

2005E

EBITDA

$253.7 /

4.0x

EPS Estimates / P/E Ratio

 

2004E

EPS

$0.85 /

38.2x

2005E

EPS

$2.48 /

13.1x

Source: Company filings and Wall Street equity research.

Note:

EPS projections based on I/B/E/S consensus.

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Comparable Company Analysis

($ in millions)

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SHARE

% OF

ENTERPRISE VALUE AS A

 

LONG-TERM

LTM

PRICE

52-WEEK

EQUITY

ENTERPRISE

MULTIPLE OF SALES

MULTIPLE OF EBITDA

P/E

EPS

OPERATING

COMPANY

02/04/05

HIGH

VALUE

VALUE

2004E

2005E

2004E

2005E

2004E

2005E

GROWTH

RATIO

Truck Load

JB Hunt Transportation

$45.00

97.7%

$3,682

$3,697

1.3x

1.2x

8.2x

7.2x

17.5x

15.5x

15.8%

92.9%

Swift Transportation (1)

22.61

99.4%

1,671

2,265

0.8x

0.7x

6.2x

5.9x

14.8x

12.6x

12.6%

93.6%

Werner Enterprises (1)

20.94

90.1%

1,679

1,570

0.9x

0.9x

5.5x

4.9x

19.6x

16.1x

15.3%

91.6%

Heartland Express (1)

20.93

90.2%

1,570

1,311

2.9x

2.6x

10.8x

9.7x

25.2x

22.0x

13.8%

79.6%

Knight Transportation (1)

25.71

99.3%

1,460

1,434

3.5x

2.9x

11.9x

10.1x

29.4x

23.1x

16.6%

80.7%

Covenant Transportation

20.86

97.8%

312

372

0.6x

0.6x

4.8x

4.1x

18.9x

15.8x

12.0%

94.0%

 

Mean

1.7x

1.5x

7.9x

7.0x

20.9x

17.5x

14.4%

88.7%

Median

1.1x

1.0x

7.2x

6.5x

19.3x

16.0x

14.6%

92.3%

Less Than Truckload

CNF Inc (1)

$46.49

91.2%

$2,457

$2,400

0.6x

0.6x

6.2x

5.3x

17.8x

14.3x

14.1%

92.3%

Overnite Corp (1)

30.35

78.5%

850

925

0.6x

0.5x

5.3x

4.6x

13.2x

11.0x

15.5%

82.8%

Arkansas Best Corp (1)

41.77

89.5%

1,069

1,000

0.6x

0.5x

4.9x

4.7x

13.0x

11.2x

12.5%

92.8%

Old Dominion Freight (1)

35.60

97.5%

885

961

1.2x

0.9x

7.9x

6.6x

21.6x

16.9x

17.5%

91.4%

SCS Transportation (1)

22.55

81.6%

354

470

0.5x

0.4x

5.2x

4.6x

17.8x

13.0x

15.0%

95.6%

Yellow Roadway Corp (1)

56.31

97.8%

2,769

3,320

0.5x

0.5x

6.3x

5.0x

14.2x

10.9x

10.5%

94.6%

 

Mean

0.7x

0.6x

6.0x

5.2x

16.3x

12.9x

14.2%

91.6%

Median

0.6x

0.5x

5.8x

4.9x

16.0x

12.1x

14.5%

92.6%

Logistics C.H. Robinson Worldwide UTi Worldwide Inc Sirva Inc EGL Inc Landstar System Inc (1)

$51.38

91.1%

$4,435

$4,201

1.0x

0.9x

18.5x

16.1x

32.9x

28.4x

14.5%

94.9%

71.88

98.5%

2,307

2,297

1.5x

1.1x

30.8x

13.0x

27.9x

21.6x

20.0%

94.0%

9.40

36.2%

693

1,165

1.1x

1.0x

6.9x

5.2x

11.1x

7.4x

20.0%

94.6%

31.18

89.1%

1,461

1,475

0.5x

0.5x

19.1x

14.7x

27.7x

23.1x

17.4%

97.2%

35.25

91.4%

1,083

1,113

0.6x

0.5x

8.3x

7.2x

29.0x

23.8x

17.0%

94.1%

Pacer International Forward Air Corp Hub Group Quality Distribution Inc

22.19

91.0%

837

1,007

2.6x

2.4x

11.2x

9.8x

16.2x

13.7x

14.6%

94.8%

43.33

91.7%

944

840

3.0x

2.6x

13.9x

11.5x

27.7x

23.1x

14.5%

81.1%

56.46

96.6%

529

529

0.4x

0.4x

10.2x

8.9x

25.3x

22.6x

25.0%

96.6%

8.62

53.4%

164

436

0.7x

0.6x

6.6x

5.5x

12.3x

8.5x

NA

93.9%

 

Mean

1.3x

1.1x

14.0x

10.2x

23.3x

19.1x

17.9%

93.5%

Median

1.0x

0.9x

11.2x

9.8x

27.7x

22.6x

17.2%

94.6%

USF Corp (1)

$32.44

83.6%

$916

$1,015

0.4x

0.4x

6.0x

4.0x

38.2x

13.1x

10.2%

97.3%

Source: Public filings and Wall Street research reports.

(1) Based on 4Q '04 earnings releases.
(1)
Based on 4Q '04 earnings releases.

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Selected Precedent Transactions

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($ in millions)

 

ENTERPRISE

 

EQUITY

ENTERPRISE

VALUE/

TARGET

DATE

TARGET

TARGET DESCRIPTION

ACQUIROR

VALUE

VALUE (1)

EBITDA (2)

UNIONIZED

Jul-03

Roadway Corporation

LTL carrier providing freight services on major city-to-city routes in North America

Yellow Corporation

$966

$1231

6.7x

NA

(US)

 

Nov-01

Motor Cargo Industries

Provides regional less-than truckload services in the western U.S.

Union Pacific Corp.

83

78

4.0

No

Nov-01

Arnold Industries

Provides regional less-than-truckload services in northeastern states and also provides truckload and logistics services

Roadway Corp.

558

510

5.7

Yes

Aug-01

Arnold Industries (US)

N/A

Roadway Corporation

539

510

5.4

No

Aug-01

G.I. Trucking Company Provides regional less-than-truckload services in western and southwestern states

Investor Group (Estes)

40

40

5.0

No

Nov-00

American Freightways

Operates as a scheduled common and contract carrier transporting primarily less - than-truckload shipments of general commodities.

FedEx Corp.

934

1,196

6.3

No

Corporation

 

Jun-99

Jevic Transportation

Provides regional and interregional transportation of general commodity freight

Yellow Corp.

158

197

5.9

No

Inc.

 

Jun-98

Preston Trucking

Provides les-than-truckload transportation of general commodity freight

Management Group

NM

NA

NA

Yes

Oct-97

Caliber

Provides transportation, logistics and related information services through its five subsidiaries

FedEx Corp.

2,489

2,681

10.3

No

System, Inc.

 

Jul-95

Worldway Corp.

Transporter of freight throughout United States; also provides truckload services and driver leasing services through its subsidiaries

Arkansas Best Corp.

82

153

9.0

Yes

Nov-92

Central Freight Lines Inc.

Carrier of intrastate and foreign commerce within Texas, Arizona, and New Mexico

Roadway Services Inc.

102

148

6.8

No

Nov-92

Preston Trucking

Provides less-than-truckload transportation of general commodity freight

Yellow Freight Systems

24

146

5.8

Yes

Jul-88

Viking Freight Inc.

Provides regional carrier services in California and 9 other Western States

Roadway Services Inc.

135

172

7.8

No

Jun-88

Arkansas Best Corp.

LTL and TL carriage, furniture manufacturing and tire retreading

Kelso & Co.

317

472

6.2

Yes

 

Median

6.1x

Average

6.5x

High

10.3x

Low

4.0x

Source: Securities Data Corporation, public filings and news reports.

(1)

(2)

Enterprise Value = Value of Common + Total Debt – Cash. EBITDA, EBIT and Net Income exclude extraordinary items and accounting changes.

= Value of Common + Total Debt – Cash. EBITDA, EBIT and Net Income exclude extraordinary
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WACC Schedule

Industry Statistics

(in millions)

 

Total

Mkt

Debt /

Tax

Levering

Unlevered

Company

Beta (1)

Debt

Equity

Mkt Equity

Rate (2)

Factor (3)

Beta (4)

Assumptions

 

Arkansas Best Corp Cnf Inc Old Dominion Freight Overnite Corp Scs Transportation Inc Yellow Roadway Corp

 

0.83

15

1,069

1.4%

40.1%

1.01

0.82

Target Marginal Tax Rate Risk Free Rate (5) Equity Risk Premium (6) Size Premia ("Sp") (7)

38.0%

0.89

714

2,457

29.1%

41.0%

1.17

0.76

4.330%

0.62

81

885

9.2%

39.1%

1.06

0.59

7.20%

0.95

127

850

14.9%

40.0%

1.09

0.87

1.59%

0.63

123

354

34.7%

37.6%

1.22

0.52

1.00

728

2,769

26.3%

39.1%

1.16

0.86

 

Mean

0.82

19.3%

39.5%

1.12

0.74

 

Median

0.86

20.6%

39.6%

1.12

0.79

Schedule A (Sensitivity of Capital Structure)

 

Weighted Average Cost of Capital (10)

 

Debt /

Debt /

Average

Levering

Levered

Cost of

Pre-tax Cost of Debt

 

Capital

Mkt Equity

Unlev'd Beta

Factor

Beta (8)

Equity (9)

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

0.0%

0.0%

0.74

1.00

0.74

11%

11.2%

11.2%

11.2%

11.2%

11.2%

11.2%

10.0%

11.1%

0.74

1.07

0.79

12%

10.7%

10.8%

10.9%

10.9%

11.0%

11.1%

20.0%

25.0%

0.74

1.16

0.85

12%

10.3%

10.4%

10.5%

10.6%

10.8%

10.9%

30.0%

42.9%

0.74

1.27

0.93

13%

9.8%

10.0%

10.1%

10.3%

10.5%

10.7%

40.0%

66.7%

0.74

1.41

1.04

13%

9.3%

9.5%

9.8%

10.0%

10.3%

10.5%

50.0%

100.0%

0.74

1.62

1.19

15%

8.8%

9.1%

9.4%

9.7%

10.0%

10.4%

Schedule B (Sensitivity of Unlevered Beta)

 

Weighted Average Cost of Capital (10)

 
 

Debt /

Debt /

Levering

Unlevered

Pre-tax Cost of Debt

 

Capital

Mkt Equity

Factor

Beta

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

 

0.0%

0.0%

1.00

0.65

10.6%

10.6%

10.6%

10.6%

10.6%

10.6%

10.0%

11.1%

1.07

0.70

10.5%

10.5%

10.6%

10.7%

10.7%

10.8%

20.0%

25.0%

1.16

0.75

10.3%

10.5%

10.6%

10.7%

10.8%

11.0%

30.0%

42.9%

1.27

0.80

10.2%

10.4%

10.5%

10.7%

10.9%

11.1%

40.0%

66.7%

1.41

0.85

10.0%

10.2%

10.5%

10.7%

11.0%

11.2%

50.0%

100.0%

1.62

0.90

9.8%

10.1%

10.4%

10.7%

11.0%

11.3%

(1)

Barra US equity Book predictions

 

(7) Cost of equity premia based on equity market capitalization.

(2)

Based on marginal tax rate

low-cap ($797mm - $1,167mm) = 1.59%. Amounts per 2004 Ibbotson.

(3)

Levering Factor:

1

+

[ ( 1 - Tax Rate )

*

( Debt / Equity ratio ) ]

(8) Levered Beta: (Beta * Levering Factor)

(4)

Unlevered Beta:

( Beta / Levering Factor )

(9)

Cost of Equity:

Rf

+

B * ( Rm

-

Rf ) + Sp, or the risk-free rate plus the beta * the eq

(5) Yield on Interpolated 20-Year US treasury Bonds which corresponds to Ibbotson's long-term equity risk premium (as of 2/04/05). Source: Bloomberg. (6) The average historic period between the return on stocks and L-T bonds (2004 Ibbotson Associates).

(10) WACC: Rd = Return on Debt; Re = Return on Equity [ Rd * (1 - tax rate) * (D / (D + E) ) ] + [ Re * (E / (D + E) ) ]

Rd * (1 - tax rate) * (D / (D + E) ) ] + [

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Discounted Cash Flow Analysis

($ in millions)

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/11 Discounted Cash Flow Analysis ($ in millions) D R A F T   2005E 2006E
 

2005E

2006E

2007E

2008E

2009E

EBITDA

$250.7

$278.5

$307.2

$317.6

$328.2

Less: D&A

(113.6)

(121.6)

(130.3)

(134.2)

(138.2)

EBIT Less: Tax Effect

 

$137.1

$156.9

$176.9

$183.4

$190.0

(52.1)

(59.6)

(67.2)

(69.7)

(72.2)

Unlevered Net Income Plus: D&A Less: Capex Plus: Changes in WC

$85.0

$97.3

$109.7

$113.7

$117.8

113.6

121.6

130.3

134.2

138.2

(103.2)

(110.5)

(118.4)

(122.0)

(125.7)

(13.7)

(7.2)

(7.7)

(3.2)

(3.2)

Unlevered Free Cash Flow

$81.7

$101.1

$113.9

$122.7

$127.1

Source: Wall Street research projections and Credit Suisse estimates.

 

($ in millions, except per share data)

 

Terminal Value EBITDA Multiple

 

Discount Rate

4.50x

5.00x

5.50x

6.00x

9.0%

$417.5

$417.5

$417.5

$417.5

Present Value of Free Cash Flows Present Value of Terminal Value

 

960.0

1,066.7

1,173.3

1,280.0

$1,377.5

$1,484.2

$1,590.9

$1,697.5

Enterprise Value Less: Net Debt

 

(99.3)

(99.3)

(99.3)

(99.3)

$1,278.2

$1,384.9

$1,491.6

$1,598.2

Equity Value Equity Value per Share Implied Premium / (Discount) to Current (1) Implied Perpetuity Growth Rate

$44.42

$47.92

$51.42

$54.92

36.9%

47.7%

58.5%

69.3%

0.4%

1.2%

1.8%

2.4%

10.0%

$406.1

$406.1

$406.1

$406.1

Present Value of Free Cash Flows Present Value of Terminal Value

 

917.1

1,019.1

1,121.0

1,222.9

$1,323.3

$1,425.2

$1,527.1

$1,629.0

Enterprise Value Less: Net Debt

 

(99.3)

(99.3)

(99.3)

(99.3)

$1,224.0

$1,325.9

$1,427.8

$1,529.7

Equity Value Equity Value per Share Implied Premium / (Discount) to Current (1) Implied Perpetuity Growth Rate

$42.64

$45.98

$49.33

$52.67

31.4%

41.8%

52.1%

62.4%

1.3%

2.1%

2.8%

3.3%

11.0%

$395.2

$395.2

$395.2

$395.2

Present Value of Free Cash Flows Present Value of Terminal Value

 

876.6

974.0

1,071.4

1,168.8

$1,271.8

$1,369.2

$1,466.6

$1,564.0

Enterprise Value Less: Net Debt

 

(99.3)

(99.3)

(99.3)

(99.3)

 

$1,172.5

$1,269.9

$1,367.3

$1,464.7

Equity Value Equity Value per Share Implied Premium / (Discount) to Current (1) Implied Perpetuity Growth Rate

$40.95

$44.15

$47.34

$50.54

2 6 . 2 % 2.2%

26.2%

2.2%

36.1%

45.9%

55.8%

3.0%

3.7%

4.3%

(1) Based on share price of $32.44 as of 02/04/05.
(1) Based on share price of $32.44 as of 02/04/05.
(1) Based on share price of $32.44 as of 02/04/05.
(1) Based on share price of $32.44 as of 02/04/05.
(1) Based on share price of $32.44 as of 02/04/05.
(1) Based on share price of $32.44 as of 02/04/05.
(1) Based on share price of $32.44 as of 02/04/05.
(1) Based on share price of $32.44 as of 02/04/05.

(1) Based on share price of $32.44 as of 02/04/05.

 

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Potential Merger Assumptions

Key Assumptions

Projections

USF Corporation and Yellow Roadway projections based on Wall Street equity research; estimated marginal tax rate of 38%

Prospective acquiror net income based on Wall Street equity research

Financing

50% Stock – 50% Cash Consideration assumed; financed by 100% bank debt at 3-Months LIBOR plus 100 basis points

Purchase Price

Range of $1,015 – $1,410 mm, corresponding to 4.0x – 5.6x 2005E EBITDA

FMV Adjustments

Fair market value adjustment estimated at 12% of book value; depreciated over 20 years

Goodwill

Goodwill not amortized

Timing

Assumed to gain full 2005 earnings

Fees

M&A Fees of 0.5% of transaction value Financing fees of 2.5% of debt raised

Synergies

None assumed; pre-tax synergies required to achieve acquiror break-even EPS inferred

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Merger Consequences Analysis

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Yellow Roadway Acquisition of USF Corporation

($ in millions)

   

50% Cash / 50% Stock Consideration

 

Premium to Share Price

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

Price Per Share

$32.44

$34.06

$35.68

$37.31

$38.93

$40.55

$42.17

$43.79

$45.42

Equity Value Net Debt (1)

$918

$966

$1,014

$1,062

$1,111

$1,160

$1,210

$1,259

$1,309

99

99

99

99

99

99

99

99

99

Enterprise Value

1,017

1,065

1,114

1,162

1,210

1,259

1,309

1,358

1,408

Enterprise Value / 2005E EBITDA Enterprise Value / 2006E EBITDA

4.1x

4.2x

4.4x

4.6x

4.8x

5.0x

5.2x

5.4x

5.6x

3.7x

3.8x

4.0x

4.2x

4.3x

4.5x

4.7x

4.9x

5.1x

Equity Value / 2005E Net Income Equity Value / 2006E Net Income

13.3x

14.0x

14.7x

15.4x

16.1x

16.9x

17.6x

18.3x

19.0x

11.4x

12.0x

12.6x

13.2x

13.8x

14.4x

15.0x

15.6x

16.2x

2005E Stand Alone Diluted EPS 2005E Pro Forma Diluted EPS

2005E Accretion / (Dilution) Acc / (Dil) – $ Acc / (Dil) – % Pre-Tax Breakeven Synergies

$5.25

$5.25

$5.25

$5.25

$5.25

$5.25

$5.25

$5.25

$5.25

5.59

5.53

5.48

5.43

5.38

5.33

5.28

5.24

5.19

$0.34

$0.28

$0.23

$0.18

$0.13

$0.08

$0.03

($0.01)

($0.06)

6.4%

5.4%

4.4%

3.5%

2.6%

1.6%

0.7%

(0.3%)

(1.2%)

$1.3

$6.1

Pro-Forma Debt / LTM EBITDA (2) Debt-to-Capitalization (at closing)

1.6x

1.7x

1.7x

1.7x

1.8x

1.8x

1.8x

1.9x

1.9x

45.28%

45.36%

45.45%

45.53%

45.61%

45.69%

45.76%

45.83%

45.91%

% Shares issued as currency ProForma Ownership%

14.2%

14.9%

15.5%

16.1%

16.7%

17.3%

17.9%

18.5%

19.1%

85.8%

85.1%

84.5%

83.9%

83.3%

82.7%

82.1%

81.5%

80.9%

Source: Wall Street Projections, Credit Suisse Estimates.

(1) (2) Net Debt numbers as of 12/31/04. Based on LTM EBITDA of $697mm.
(1)
(2)
Net Debt numbers as of 12/31/04.
Based on LTM EBITDA of $697mm.

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LEADERS)\2007 Summer Analyst Valuation Book.ppt /14 3. Weekly Assignments and Resources A. Public Information

3. Weekly Assignments and Resources

A. Public Information Book (PIB)

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Summer Assignment – PIB

Assignment

Prior to the June 30th training session, please assemble a PIB on Knight Ridder

Make sure that your PIB has all the sections outlined on the next page

Insert numbered tabs between each section “blue sheets” between each item in the same tab, if multiple items exist. For example, put a blue sheet between each research report

Have the Copy Center make a double-sided bound copy of your PIB

Key Takeaways

After completing this section, you should be familiar with most of the tools that are available to access public information

Research reports are expensive!!! Purchase only those that are appropriate

Be prepared to answer questions like:

1. Where do I go to get the latest SEC filing?

2. Where do I go to get an ownership run?

3. Have any major events occurred at the Company in the recent quarter?

any major events occurred at the Company in the recent quarter? 15 PRELIMINARY | SUBJECT TO

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Public Information Book Resources

Sample Table of Contents

Where to Get the Material

1. General Public Information

Where to Get the Material 1. General Public Information – S&P Stock Report D – Bloomberg
– S&P Stock Report D – Bloomberg Data – Price/Volume Company Website – Web Site
S&P Stock Report
D
Bloomberg Data
Price/Volume
Company Website
Web Site
R 2.
Prospectus
Usually follows a major event (M&A, Equity offering, Debt offering)

3. Annual Report

Company Website

A Form 10-K

4.

3. Annual Report Company Website A Form 10-K 4. – Annual filing with the SEC, similar
3. Annual Report Company Website A Form 10-K 4. – Annual filing with the SEC, similar

Annual filing with the SEC, similar to an annual report

5. Form 10-Q

with the SEC, similar to an annual report 5. Form 10-Q F 6. – Quarterly filing
with the SEC, similar to an annual report 5. Form 10-Q F 6. – Quarterly filing

F

6.

Quarterly filing with the SEC

report 5. Form 10-Q F 6. – Quarterly filing with the SEC Proxy Statement – Covers
report 5. Form 10-Q F 6. – Quarterly filing with the SEC Proxy Statement – Covers

Proxy Statement

Covers information about company shares and shareholders

T Research Report

7.

8. News Run

CS Research & Analytics

Report 7. – – 8. News Run CS Research & Analytics Include CS if available Look

Include CS if available

Look for longer, more recent research

CS if available Look for longer, more recent research Company Website – Back two – six
CS if available Look for longer, more recent research Company Website – Back two – six
CS if available Look for longer, more recent research Company Website – Back two – six

Company Website

Look for longer, more recent research Company Website – Back two – six months is standard

Back two – six months is standard

9. Ownership Run

Tracks ownership structure of company

9. Ownership Run – Tracks ownership structure of company PRELIMINARY | SUBJECT TO FURTHER REVIEW AND
9. Ownership Run – Tracks ownership structure of company PRELIMINARY | SUBJECT TO FURTHER REVIEW AND
9. Ownership Run – Tracks ownership structure of company PRELIMINARY | SUBJECT TO FURTHER REVIEW AND

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LEADERS)\2007 Summer Analyst Valuation Book.ppt /17 3. Weekly Assignments and Resources B. Company Profile 17

3. Weekly Assignments and Resources

B. Company Profile

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Summer Assignment – Company Profile

Assignment

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In the format shown on the sample pages, create a two page company profile for Knight Ridder Corporation

Make sure you include:

Company Overview

Market Statistics (download from FactSet)

Financial Overview

Stock Price Performance

Directors and Officers

Products

Current Ownership

Helpful Hint: The financial overview summary sheet in your Abacus shell (see Tab C) is a good template from which to copy and paste market stats and financial overviews Key Takeaways

At the end of this section, you should be able to answer the following:

1. What are Knight Ridder Corporation’s primary business segments?

2. How has Knight Ridder Corporation performed in the last year with respect to:

Earnings?

Stock price?

Any relationship between the two?

3. Any important events occur at the Company over the past year?

3. Any important events occur at the Company over the past year? 18 PRELIMINARY | SUBJECT

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Creating a general two page company profile

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Keys to a successful acquisition ideas presentation

R A F T  Keys to a successful acquisition ideas presentation 19 PRELIMINARY | SUBJECT

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Keys to a Successful Acquisition Ideas Presentation

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Know Your Audience

Use a Systematic Approach

Remember the Formula: Strategic Fit + Availability = A Good Idea