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Valuing ESOP Shares

D UFF & P HELPS, LLC. Valuing ESOP Shares . Presented by Lee Bloom. 18 th Annual Ohio Employee Ownership Conference. Akron, OH April 16, 2004. Overview of Valuation Components. Enterprise Value. Add: Cash and Non-Operating Assets. Less: Debt and Contingent Liabilities.

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Valuing ESOP Shares

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  1. DUFF&PHELPS, LLC Valuing ESOP Shares Presented by Lee Bloom 18th Annual Ohio Employee Ownership Conference Akron, OH April 16, 2004

  2. Overview of Valuation Components Enterprise Value Add: Cash and Non-Operating Assets Less: Debt and Contingent Liabilities Aggregate Equity Value Divide by Shares -> Price per Share

  3. Enterprise Value Company Value Total Value Value Components Debt Equity

  4. Valuation Basis 130 Control Value 100 Marketable Minority Interest Value 65 Non-Marketable Minority Interest Value

  5. Determining the Value Valuation Conclusion 6 Assess Valuation Methods Apply Valuation Methods 5 4 Analyze Historical Performance 1 2 3 Project Future Performance Analyze the Industry

  6. Valuation Methodologies • Comparable Companies • Discounted Cash Flow • Comparable Transactions • Asset Values • Liquidation • Final Analysis - Judgment

  7. Comparable Company Analysis • Valuation based on comparison to publicly traded companies • Analysis of financial performance and qualitative characteristics • Selection of trading multiples • No company will be exactly similar

  8. Typical Valuation Multiples • Equity Multiples • Price / Earnings (P/E) • Price / Book Value • Enterprise Multiples • Enterprise Value / EBITDA • Enterprise Value / EBIT • Enterprise Value / Revenues

  9. Risk Factors • Relative Size • Breadth of Customer Base • Diversity of Product Offering • Diversity of Geographic Footprint • Leverage

  10. Growth Factors • Industry Outlook • Reinvestment Requirements • Acquisition Strategy • New Products • Leverage

  11. Discounted Cash Flow Analysis • Project future cash flow generated by the company • Discount cash flows to the present at an appropriate discount rate • DCF analysis captures company specific assumptions, making it a very robust analysis

  12. Project Future Performance • Revenue growth • Operating margins • Working capital needs • Capital assets needs • Risk adjusted discount factor

  13. Information request • Due diligence meetings • Analysis • Presentation of preliminary conclusions • Final conclusions • Final documentation Typical Valuation Timetable Week Valuation Activity 0 to 1 1 to 3 3 to 4

  14. DUFF&PHELPS, LLC Lee S. Bloom Managing Director DUFF&PHELPS, LLC 311 S. Wacker Drive, Suite 4200 Chicago, IL 60606 (312) 697-4680 Lee.Bloom@duffllc.com www.duffllc.com

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