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As Of Filer Filing For·On·As Docs:Size Issuer Agent 3/27/08 Getty Images Inc SC 13E3 10:59M Getty Images Inc Donnelley … Solutions/FA Abe Acquisition Corp. Abe Investment, L.P. Getty Investments L.L.C. Hellman & Friedman Capital Partners VI, L.P. Jonathan Klein Mark Getty |
Document/Exhibit Description Pages Size
1: SC 13E3 Tender-Offer Statement - Going-Private Transaction HTML 140K
2: EX-99.(B)(1) Senior Secured Credit Facilities Commitment HTML 177K
Letter
3: EX-99.(C)(2) Presentation of Goldman Sachs to the Board of HTML 178K
Directors, Dated February 24, 2008
4: EX-99.(C)(3) Draft Presentation of Goldman Sachs, Dated HTML 189K
February 18, 2008
5: EX-99.(C)(4) Draft Presentation of Goldman Sachs, Dated HTML 200K
February 7, 2008
6: EX-99.(C)(5) Draft Presentation of Goldman Sachs, Dated HTML 104K
December 2007
7: EX-99.(C)(6) Draft Presentation of Goldman Sachs, Dated HTML 71K
November 28, 2007
8: EX-99.(C)(7) Draft Presentation of Goldman Sachs, Dated HTML 33K
November 6, 2007
9: EX-99.(C)(8) Draft Presentation of Goldman Sachs, Dated HTML 112K
October 10, 2007
10: EX-99.(C)(9) Draft Presentation of Goldman Sachs, Dated HTML 222K
September 19, 2007
| Draft Presentation of Goldman Sachs, dated February 7, 2008 |
Exhibit (c)(4)
Goldman Sachs
Project Closeup: Board Update
Goldman, Sachs & Co.
7-Feb-2008
Goldman Sachs
I. Process Update
II. Public Market Trading Analysis
III. Financial Analysis IV. LBO Analysis
Appendix A: Comparison of Selected Companies
Appendix B: Additional Exhibits
Appendix C: Leveraged Recapitalization / Stock Buyback Analysis
Goldman Sachs does not provide accounting, tax, or legal advice. Notwithstanding anything in this document to the contrary, and except as required to enable compliance with applicable securities law, you (and each of your employees, representatives, and other agents) may disclose to any and all persons the US federal income and state tax treatment and tax structure of the transaction and all materials of any kind (including tax opinions and other tax analyses) that are provided to you relating to such tax treatment and tax structure, without Goldman Sachs imposing any limitation of any kind.
Goldman Sachs
I. Process Update
Process Update 3
Goldman Sachs
Process Update
Process launched on October 23, 2007
5 sponsors invited to participate in phase 1. All submitted indications of interest. Sponsor D was eliminated from the process.
Based on inbound interest, three additional sponsors were invited to participate in the process and evaluated phase 1 diligence information. All three submitted indications of interest. Sponsor G was eliminated from the process.
Over the last few weeks, 2 sponsors indicated a potential inability to get to a final bid at reasonably attractive values and were removed from the process.
Getty Investments and its advisor, Allen & Co. were allowed access to data room information and management to evaluate their view on their potential participation in a potential transaction. They have not been allowed access to any of the bidders.
Private equity bidders have been prohibited from discussing rollover, incentive and employment opportunities with management and Getty Investments.
Strategic buyers were contacted during the week of January 14th (Strategic Party A and Strategic Party B). Additional strategic buyers have made inbound inquiries after the leak of the transaction in NY Times on January 21 (Reuters, Strategic Party C, Discovery Communications, Thomson, NBC)
— All have declined to participate in the process after initial discussions except for Strategic Party C. An NDA has been executed.
— One additional strategic party indicated an interest in partnering with potential buyer(s).
Since the press leak on January 21, GS has taken a number of inbound calls from other private equity firms, none of which, after careful consideration, have been added to the process.
H&F and Sponsor C submitted bids on Feb 4
— H&F: $32.75, with committed financing
— Sponsor C: $30.00, without financing
Process Update 4
Goldman Sachs
Overview of Proposals
Premium and Multiples Analysis
($ in millions, except per share amounts)
Current Market (1): H&F Sponsor C
Price Per Share (2) $ 26.72 $ 32.75 $ 30.00
Premium Analysis
Current ($ 26.72) 0.0% 22.6% 12.3%
10 Day Average ($ 25.49) 4.8% 28.5% 17.7%
Undisturbed Price 18-Jan-08 ($ 21.94) 21.8% 49.3% 36.7%
30 Day Average ($ 25.08) 6.6% 30.6% 19.6%
90 Day Average ($ 28.14) (5.0)% 16.4% 6.6%
180 Day Average ( $ 28.76) (7.1)% 13.9% 4.3%
1 Year Average ($ 39.26) (31.9)% (16.6)% (23.6)%
FD Share Count (2) 60.9 61.0 60.9
Equity Value $ 1,628 $ 1,999 $ 1,828
Net Debt - Current (3) (19) (19) (19)
Enterprise Value 1,608 1,979 1,809
Multiples Analysis
EBITDA Metric (4)
CY2007A (Adj) $ 314 5.1x 6.3x 5.8x
CY2008E:
Mgmt Plan $ 343 4.7x 5.8x 5.3x
IBES $ 324 5.0x 6.1x 5.6x
EPS
CY2007A $ 2.22 12.0 x 14.8 x 13.5 x
CY2008E:
Mgmt Plan $ 2.25 11.9 x 14.6 x 13.3 x
IBES $ 2.06 13.0 x 15.9 x 14.6 x
Note: GYI management and IBES EBITDA add back ESO expense of $14.3mm and $19.8mm for 2007 and 2008, respectively, per GYI management. GYI management and IBES EPS estimates include ESO expense.
1 As of 4-Feb-2008
2 Share count and options per GYI management as of 1-Feb-2008
3 Cash and debt as of 31-Dec-2007 per GYI management
4 Source: Management plan per GYI management. IBES median estimates
Process Update 5
Goldman Sachs
Overview of Proposals
Ability to Pay Analysis
($ in millions, except per share amounts)
Current Market (1):
H&F
Price Per Share $ 26.72 $ 32.75
Premium to Market 0.0% 22.6%
Equity Value (2) $ 1,628 $ 1,999
Net Debt - Current (3) (19) (19)
Enterprise Value (2) Metric 1,608 1,979
Multiple 2007A EBITDA - LTM December $ 314 5.1x 6.3x
Total Uses
Equity + Total Debt $2,344
Expenses 50
Pro Forma Cash 50
Total Uses $ 2,444
Total Sources
Cash $364
Total Cash $364
New Debt 960
New Equity Required 1,119
Equity as % of Total Cap (3) 53.8%
Total Sources $2,444
Note: Cash and debt as of 31-Dec-07. Sponsor C did not submit committed financing with their proposal.
1 As of 04-Feb-2008
2 All capitalization information per GYI management. Share count includes RSUs and options (TSM) as of 1-Feb-2008 per GYI management
3 Defined as equity required as a percentage of total sources - cash
Process Update 6
Goldman Sachs
Market Developments Since Phase 1 Proposals
Phase 1 Proposals Received on November 26, 2007
Absolute Stock Price Performance
$30
$28
$26
$24
$22
$20
Closing Price (USD)
(7.3%) Change Over Period
Average = $27.17
$26.72
26-Nov- 10-Dec- 24-Dec- 7-Jan- 21-Jan- 4-Feb-
2007 2007 2007 2008 2008 2008
Daily from 26-Nov-2007 to 04-Feb-2008
Relative Stock Price Performance
110%
100%
90%
80%
70%
Indexed Price
(0.8%)
(1.9%)
(7.3%)
26-Nov- 10-Dec- 24-Dec- 7-Jan- 21-Jan- 4-Feb-
2007 2007 2007 2008 2008 2008
Daily from 26-Nov-2007 to 04-Feb-2008
Getty Images Inc Dow Jones Indus. Avg S&P 500 Index
Source: FactSet
Process Update 7
Goldman Sachs
Market Developments Since Phase 1 Proposals
Phase 1 Proposals Received on November 26, 2007
LCDX
Last 6 Months
480
440 66.2% Change Over Period 444
400
360
320
280
240 Average = 286 bps
200
160
Spread (bps)
Aug- Sep- Oct- Nov- Dec- Jan- Feb-
2007 2007 2007 2007 2007 2008 2008
Daily from 06-Aug-2007 to 04-Feb-2008
Since Phase 1 Proposals
450 26.9% Change Over Period 444
420
390
360
330 Average = 340 bps
300
270
Spread (bps)
26-Nov- 13-Dec- 30-Dec- 16-Jan- 2-Feb-
2007 2007 2007 2008 2008
Daily from 26-Nov-2007 to 04-Feb-2008
Source: FactSet (GS Trader Marks)
Note: North American Loan Credit Default Swap Index (LCDX) covers 100 individual companies with unsecured debt trading in broad secondary markets
Process Update 8
Goldman Sachs
Market Developments Since Phase 1 Proposals
Phase 1 Proposals Received on November 26, 2007
NTM P/E
14x
13x Average = 12.7x 13.0x
12x
11x
10x
NTM-Next 4 Quarters P/E Multiple
26-Nov- 10-Dec- 24-Dec- 7-Jan- 21-Jan- 4-Feb-
2007 2007 2007 2008 2008 2008
Daily from 26-Nov-2007 to 04-Feb-2008
LTM EBITDA
6.2x
5.9x
5.5x Average = 5.3x
5.2x
4.9x 5.1x
4.6x
4.3x
LTM EBITDA Multiple
26-Nov- 10-Dec- 24-Dec- 7-Jan- 21-Jan- 4-Feb-
2007 2007 2007 2008 2008 2008
Daily from 26-Nov-2007 to 04-Feb-2008
Source: FactSet
Note: EBITDA adjusted to add back ESO expenses of $15.3mm (2006) and $14.3mm (2007). After Jan 1, 2008, LTM EBITDA based on 2007 actual EBITDA adjusted for $14.3mm ESO expense and $6.0mm in non-recurring items.
Process Update 9
Goldman Sachs
Market Developments Since Phase I Proposals
Then vs. Now Multiples Analysis
26-Nov-2007 4-Feb-2008
Stock Price EV/EBITDA PE EV/EBITDA PE Stock Price IBES LT ‘08 PEG
2007 2008 2007 % Change 2008 % Change % Change Growth Rate Ratio
Getty Images Inc. $28.81 5.8x 12.8x 5.5x (5.0%) 13.0x 1.3% $26.72 (7.3%) 10.0% 1.3x
Jupitermedia Corp. $3.59 7.7x 29.9x 7.4x (4.5%) 28.9x (3.5%) $3.32 (7.5%) 10.0% 2.9x
Related Companies
Adobe Systems Inc. $40.90 16.0x 22.2x 11.9x (25.3%) 19.0x (14.6%) $35.21 (13.9%) 15.0% 1.3x
Avid Technology Inc. 25.33 11.6 16.3 11.1x (4.4%) 25.1 53.3% 20.04 (20.9%) 12.0% 2.1
Harte Hanks 16.00 6.6 11.9 6.9x 5.6% 12.8 7.6% 16.45 2.8% 10.5% 1.2
Interpublic Group of Companies Inc. 9.00 9.9 17.6 10.3x 4.0% 17.9 1.7% 8.97 (0.3%) 10.0% 1.8
Omnicom Group Inc. 46.10 9.6 14.0 9.8x 1.7% 14.2 1.5% 47.01 2.0% 12.0% 1.2
WPP Group plc 12.19 8.6 11.6 9.1x 6.4% 12.6 8.4% 12.56 3.0% 11.0% 1.1
Mean 10.4x 15.6x 9.9x (2.0%) 16.9x 9.7% (4.6%) 11.7% 1.4x
Median 9.8 15.2 10.0 2.9% 16.1 4.6% 0.8% 11.5% 1.2x
Overall Comparative Metrics
Mean 10.0x 17.7x 9.5x (2.4%) 18.6x 7.8% (5.0%) 11.5% 1.7x
Median 9.6 16.3 9.8 1.7% 17.9 1.7% (0.3%) 11.0% 1.3x
Source: Latest publicly available financial statements. Enterprise Value based on diluted shares outstanding. EBITDA and EPS are based on IBES median estimates and/or other Wall Street research. All research estimates have been calendarized to December.
Note: EBITDA is not adjusted for ESO expense or one-time items.
Process Update 10
Goldman Sachs
Recent Leveraged Loan Market Conditions
As of February 4, 2008
5 deals launched for $2.8 billion in the past week, up in number and volume from the 3 deals that launched for $564 million in the previous week
Blackstone announced that it was doubtful that regulators would approve Alliance Data’s $7.8 billion LBO financing. The removal of Alliance Data dropped the forward calendar to $153 billion
Single-B spreads widened by 11 bps to L+460, while Double-B spreads remained unchanged at L+298
Bleak economic tone continued to strain the secondary market:
— LCDX9: Despite a modest mid-week recovery from a record low of 92.5, the index ended this past week at 93.09
— Cash: Average secondary bids took a turn for the worse this past week, plunging to 88.98, marking the first time that secondary bids have traded in the optically significant sub-90’s context
— Alltel, First Data and TXU: The cash bellwethers all traded below 90.0, showing investor’s lack of confidence in even the largest LBO’s
Monthly New-Issue Volume
$90 bn Institutional Pro Rata
$80 bn
$70 bn
$60 bn
$50 bn
$40 bn
$30 bn $23
$20 bn
$10 bn
$0 bn
Jan-06 May-06 Sep-06 Jan-07 May-07 Sep-07 Jan-08
2007 Forward Calendar
$250 bn
$200 bn
$153
$150 bn
$100 bn
$50 bn
$ bn
Jan- Feb- Mar- Apr- May- Jun- Jul-07 Aug- Sep- Oct- Nov- Dec- Jan- Feb-
07 07 07 07 07 07 07 07 07 07 07 08 08
Source: Standard and Poor’s Leveraged Commentary & Data, Markit, Bloomberg, GS Internal
Process Update 11
Goldman Sachs
Recent Leveraged Loan Market Conditions
Market Technicals
Average Secondary Pricing
101.0
99.0
97.0
ASK 89.83
95.0
93.0
91.0
BID 88.98
89.0
87.0
Sep-06 Nov-06 Dec-06 Feb-07 Mar-07 May-07 Jun-07 Jul-07 Sep-07 Oct-07 Dec-07 Jan-08
LCDX9 Spread vs. Price
101.0 449 bps 475 bps
Series 9 Price Series 9 Spread
100.0
425 bps
99.0
98.0 375 bps
97.0
325 bps
96.0
275 bps
95.0
94.0 225 bps
93.0
175 bps
92.0 93.09
91.0 125 bps
3- 10- 17- 24- 31- 7- 14- 21- 28- 5- 12- 19- 26- 2- 9- 16- 23- 30-
Oct Oct Oct Oct Oct Nov Nov Nov Nov Dec Dec Dec Dec Jan Jan Jan Jan Jan
Average New Issue Spreads
All-in BB Pricing All-in B Pricing
500 bps
460 bps
450 bps
400 bps
350 bps
298 bps
300 bps
250 bps
200 bps
150 bps
100 bps
Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08
3-Month LIBOR
5.00%
4.50%
4.00%
3.50%
3.09%
3.00%
1/2 1/4 1/6 1/8 1/10 1/12 1/14 1/16 1/18 1/20 1/22 1/24 1/26 1/28 1/30 2/1
Source: Standard and Poor’s Leveraged Commentary & Data, Markit, Bloomberg, GS Internal
Process Update 12
Goldman Sachs
High Yield Market Update
Recent New Issue Market and Backlog
The high yield primary market had 2 deals pricing for $6.5 billion, the vast majority of which backed the financing for Harrah’s jumbo LBO
After funding $6.3 billion Harrah’s bonds, the underwriters sold roughly $1.2 billion bonds in a large block trade to a single buy-and-hold account
Amid the turbulent market conditions this year, accounts continue to require considerable new issue premiums to insulate themselves from further volatility
Investors remain focused on the considerable LBO forward calendar that tops $60 billion of financing expected to come to market in the next few months
Economic worries, pending US recession, and bank loan market weakness continue to drive high yield market sentiment
Investors are still focused on the considerable overhang that remains in the forward calendar ($225bn+ between bank and bond)
Market Conditions Strengthen, Spreads Mixed
Equity markets rallied considerably last week as the central bank cut both the Fed Funds rate and discount rate by 50 bps to 3.0% and 3.5%, respectively
Economic data was mixed with home sales unexpectedly falling to a 12-year low and anemic fourth quarter GDP growth elevating recessionary concerns
The high yield market has witnessed perpetual mutual fund outflows in 2008 after continued outflows in the later half of 2007
Default rates for high yield issuers ended at 0.86%, the lowest level since 1981
High Yield Market Statistics
Volume of Issuance: $7.4 bn YTD in 2008 vs. $13.4 bn YTD in 2007
Average Deal Size: $1,846 mm YTD in 2008 vs. $436 mm YTD in 2007
Average Yield: 10.400% YTD in 2008 vs. 8.445% YTD in 2007
Market Indicators
Treasuries slumped modestly this week, with the yield on the 10-year benchmark Treasury weakening 4 bps from 3.59% to 3.55%
The yield on the 30-year Treasury weakened 5 bps, ending at 4.31%
Single-B and Double-B Indices
600
500
400
300
200
100
0
2/1/05 8/1/05 2/1/06 8/1/06 2/1/07 8/1/07 2/1/08
CDX BB Index CDX B Index
High Yield Market Volume
$174
$165
160 $153
120 $111
80
40
$13
$7
0
($ billions)
2004 2005 2006 2007 YTD 2007 YTD 2008
Process Update 13
Goldman Sachs
II. Public Market Trading Analysis
Public Market Trading Analysis 14
Goldman Sachs
Historical Events & Performance
($ in millions)
Analog Era
Period of Transformation
Digital Era
Apr 2007:
Acquisition of WireImage
Apr 2005:
May 1999: Mar 2000: Acquisition of Digital Vision to expand
Acquisition of Art.com Feb 2006:
Acquisition of Visual royalty-free offering, at a higher margin due
Acquisition of iStock
Jul 1996: Communications Group to large proportion of wholly-owned content
IPO at $10/share $858
$807
Feb 1998: Oct 2001:
Nov 1999:
With acquisition of Photo disc Launch of gettyimages.com $733
Acquisition of
enters into royalty – free provides meaningful enhancement
Image Bank
market. First meaningful of e-commerce capabilities
digital (CD) offering $622
38.9% 38.9%
$523 36.4% 36.6%
Feb 1998:
NYSE IPO at $485
$463 31.5%
$21/share $451
27.1% $314
19.5%
$314
18.4% 19.2% 20.8% $286
19.1%
$248 $27
$227
$185 $165
14.1% $125
$101 $94 $94
$85
$35 $35
$16 $19
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Revenue EBITDA EBITDA Margin Stock Price
Note: 2006 EBITDA excludes restructuring costs
Public Market Trading Analysis 15
Goldman Sachs
EBITDA and P/E Multiples – Past 10 Years
LTM EBITDA
90.0x
80.0x
70.0x
60.0x
50.0x
40.0x
30.0x
20.0x
10.0x
0.0x 5.5x
EV/LTM EBITDA (x)
Feb- Feb- Feb- Jan-2004 Jan-2006 Jan-2008
1998 2000 2002
Daily From 11-Feb-1998 to 04-Feb-2008
NTM P/E1
80.0x
70.0x
60.0x
50.0x
40.0x
30.0x
20.0x
13.0x
10.0x
0.0x
NTM PE Ratio (x)
Feb- Feb- Feb- Jan- Jan- Jan-
1998 2000 2002 2004 2006 2008
Daily From 11-Feb-1998 to 04-Feb-2008
Source: FactSet
Note: LTM EBITDA is not adjusted for ESO or one-time items
1 Breaks in data represent negative or not meaningful P/E multiples.
Public Market Trading Analysis 16
Goldman Sachs
Historical Stock Price Performance
Averages: Last Month Three Months Six Months One Year Three Year
Getty $25.08 $28.14 $28.76 $39.26 $58.60
3 Year
$100
$90
$80
$70
Average = $58.60
$60
$50
$40
$30
$26.72
$20
Closing Price (USD)
Feb- Jul- Dec- Apr- Sep- Feb- Jul- Dec-
2005 2005 2005 2006 2006 2007 2007 2007
Daily from 04-Feb-2005 to 04-Feb-2008
1 Year
$60
$50
Average = $39.26
$40
$30
$26.72
$20
Closing Price (USD)
Feb- Mar- May- Jul- Aug- Oct- Nov- Jan-
2007 2007 2007 2007 2007 2007 2007 2008
Daily from 02-Feb-2007 to 04-Feb-2008
Source: FactSet
Public Market Trading Analysis 17
Goldman Sachs
Relative Stock Price Performance
Phase 1 Proposals to Undisturbed
120%
110%
100%
(1.8%)
(5.1%)
(5.8%)
(7.9%)
90% (9.8%)
(13.4%)
80% (20.5%)
(23.8%)
70% (26.0%)
Indexed Price
26-Nov-2007 13-Dec-2007 30-Dec-2007 16-Jan-2008
Daily from 26-Nov-2007 to 18-Jan-2008
3 Months
110%
100%
(8.8%)
90% (7.5%)
(9.2%)
(13.9%)
(17.5%)
(14.0%)
80%
(15.7%)
70%
(27.3%)
(30.7%)
60%
50%
Indexed Price
6-Nov-2007 6-Dec-2007 5-Jan-2008 4-Feb-2008
Daily from 06-Nov-2007 to 04-Feb-2008
Getty Images Inc Related Companies Newspaper Companies Radio Companies Music Companies Television Stations S&P 500 Index Nasdaq Composite Index Dow Jones Indus. Avg
Source: FactSet
Note: Related companies include: Adobe, Avid Technology, Jupitermedia, Omnicom, Interpublic, WPP, Harte Hanks; Newspaper Companies include: Gannett, McClatchy, The New York Times, EW Scripps, Washington Post, Belo, GateHouse Media, Lee Enterprises, Media General; Radio Companies include: Citadel, Cox Radio, Cumulus Media, Entercom Communications; Music Companies include: Live Nation, Warner Music Group; Television Stations include: Entravision, Hearst-Argyle, LIN Television, Sinclair Broadcast Group
Public Market Trading Analysis 18
Goldman Sachs
Relative Stock Price Performance
Continued
1 Year
140%
120%
100% (0.2%)
(3.6%)
(4.6%)
(10.6%)
80%
(28.3%)
(37.4%)
60%
(47.3%)
(51.2%)
40% (56.7%)
20%
Indexed Price
Feb-2007 May-2007 Aug-2007 Nov-2007 Feb-2008
Daily from 06-Feb-2007 to 04-Feb-2008
3 Year
220%
190%
160%
130%
17.9%
14.8%
14.2%
100%
(12.1%)
(17.3%)
70% (27.7%)
(51.3%)
(55.7%)
40%
(62.7%)
10%
Indexed Price
Feb-2005 Nov-2005 Aug-2006 May-2007
Daily from 04-Feb-2005 to 04-Feb-2008
Getty Images Inc Related Companies Newspaper Companies Radio Companies Music Companies Television Stations S&P 500 Index Nasdaq Composite Index Dow Jones Indus. Avg
Source: FactSet
Note: Related companies include: Adobe, Avid Technology, Jupitermedia, Omnicom, Interpublic, WPP, Harte Hanks; Newspaper Companies include: Gannett, McClatchy, The New York Times, EW Scripps, Washington Post, Belo, GateHouse Media, Lee Enterprises, Media General; Radio Companies include: Citadel, Cox Radio, Cumulus Media, Entercom Communications; Music Companies include: Live Nation, Warner Music Group; Television Stations include: Entravision, Hearst-Argyle, LIN Television, Sinclair Broadcast Group
Public Market Trading Analysis 19
Goldman Sachs
Historical LTM EBITDA Multiples
Average
Last 3 years 12.2 x
Last 1 year 7.5 x
Last 6 months 5.7 x
3 Year
22x
20x
18x
16x
14x
Average = 12.2x
12x
10x
8x
6x
5.1x
4x
2x
LTM EBITDA Multiple
Feb-2005 Nov-2005 Aug-2006 May-2007 Feb-2008
Daily from 04-Feb-2005 to 04-Feb-2008
1 Year
12x
11x
10x
9x
8x Average = 7.5X
7x
6x
5x 5.1x
4x
LTM EBITDA Multiple
Feb-2007 May-2007 Aug-2007 Nov-2007 Feb-2008
Daily from 02-Feb-2007 to 04-Feb-2008
Source: FactSet per latest publicly available financials
Note: EBITDA adjusted to add back $15.3mm (2006) and $14.3mm (2007). After Jan 1, 2008, LTM EBITDA based on 2007 actual EBITDA adjusted for $14.3mm ESO expense and $6.0mm in non-recurring items.
Public Market Trading Analysis 20
Goldman
Sachs
Historical LTM EBITDA Multiples
Average for: 5 years 1 year 6 months
Getty 13.3 x 7.6 x 5.8 x
Related Companies 12.6 x 10.4 x 9.8 x
Newspaper Companies 10.0 x 8.4 x 7.8 x
Radio Companies 14.0 x 10.7 x 9.6 x
Music Companies 10.0 x 9.0 x 7.9 x
Television Stations 10.4 x 9.4 x 8.9 x
5Year
EV/ LTM Ebitda (x)
24x
21x
18x
15x
12x
9x
6x
3x
9.2x
8.8x
8.8x
7.5x
7.3x
5.5x
Feb-2003 May-2004 Aug-2005 Nov-2006 Feb-2008
Daily from 04-Feb-2003 to 04-Feb-2008
1 Year
EV/ LTM Ebitda (x)
15x
13x
11x
9x
7x
5x
3x
9.2x
8.8x
8.8x
7.5x
7.3x
5.5x
Feb-2007 May-2007 Aug-2007 Nov-2007 Feb-2008
Daily from 04-Feb-2007 to 04-Feb-2008
Getty Images Inc Related Companies Newspaper Companies Radio Companies Music Companies Television Stations
Source: FactSet.
Note: Related companies include: Adobe, Avid Technology, Jupitermedia, Omnicom, Interpublic, WPP, Harte Hanks; Newspaper Companies include: Gannett, McClatchy, The New York Times, EW Scripps, Washington Post, Belo, GateHouse Media, Lee Enterprises, Media General; Radio Companies include: Citadel, Cox Radio, Cumulus Media, Entercom Communications; Music Companies include: Live Nation, Warner Music Group; Television Stations include: Entravision, Hearst-Argyle, LIN Television, Sinclair Broadcast Group
Public Market Trading Analysis 21
Goldman
Sachs
Historical Next Twelve Months (NTM) P/E Multiples
Average for: 5 years 1 year 6 months
Getty 28.3 x 16.2 x 13.2 x
Related Companies 23.1 x 21.4 x 20.8 x
Newspaper Companies 18.9 x 17.7 x 16.4 x
Radio Companies 22.9 x 16.6 x 14.2 x
Television Stations 28.8 x 30.3 x 26.4 x
5Year
NTM-Next 4 Quarters P/E Multiple
50x
40x
30x
20x
10x
0x
26.4x
16.8x
15.9x
13.0x
10.6x
Feb-2003 May-2004 Aug-2005 Nov-2006 Feb-2008
Daily from 20-Feb-2003 to 04-Feb-2008
1 Year
NTM-Next 4 Quarters P/E Multiple
50x
40x
30x
20x
10x
0x
26.4x
16.8x
15.9x
13.0x
10.6x
Feb-2007 May-2007 Aug-2007 Nov-2007 Feb-2008
Daily from 15-Feb-2007 to 04-Feb-2008
Getty Images Inc Related Companies Newspaper Companies Radio Companies Television Stations
Source: FactSet.
Note: Related companies include: Adobe, Avid Technology, Jupitermedia, Omnicom, Interpublic, Harte Hanks; Newspaper Companies include: Gannett, McClatchy, The New York Times, EW Scripps, Washington Post, Belo, GateHouse Media, Lee Enterprises, Media General; Radio Companies include: Citadel, Cox Radio, Cumulus Media, Entercom Communications; Television Stations include: Entravision, Hearst-Argyle, LIN Television, Sinclair Broadcast Group
1 Breaks in data represent negative or not meaningful P/E multiples. Music Companies not shown because of lack of meaningful data.
Public Market Trading Analysis 22
Goldman
Sachs
Research Analysts’ Views
GYI EPS Estimates & Recommendations
GYI EPS Estimates & Recommendations
Broker Date Rating FY 2008E EPS FY 2009E EPS
Argus Research Corp 30-Jan-2008 Hold $ 2.36 2.46
Canaccord Adams 4-Feb-2008 Hold $ 2.05 -
Citigroup 20-Nov-2007 Hold $ 2.32 2.45
Deutsche Bank 1-Feb-2008 Hold $ 2.05 -
Global Crown Capital 20-Nov-2007 Hold 2.33 -
Goldman Sachs 1-Feb-2008 - 2.00 2.19
JPMorgan 1-Feb-2008 Hold 2.08 -
Kaufman Brothers 1-Feb-2008 Hold 1.76 1.69
Lehman Brothers 1-Feb-2008 Hold 2.00 2.10
Natixis Bleichroeder 1-Feb-2008 Hold 1.92 1.73
Oppenheimer & Co. 1-Feb-2008 Hold 2.07 2.25
Pacific Crest Securities 5-Nov-2007 - 2.25 -
Piper Jaffray 1-Feb-2008 Hold 2.15 2.27
Robert W. Baird & Co. 4-Feb-2008 Hold 2.04 2.25
Thomas Weisel Partners 1-Feb-2008 Hold 1.94 2.10
William Blair & Co. 1-Feb-2008 Strong Buy 2.07 -
Mean $ 2.09 $2.15
Median 2.06 2.22
04-Feb-2008: $26.72 Median: $29.00
Citigroup (20-Nov-2007) Canaccord Adams (04-Feb-2008) Thomas Weisel Partners (1-Feb-2008) Lehman Brothers (1-Feb-2008) Global Crown Capital (20-Nov-2007) Robert W. Baird & Co.
(4-Feb-2008) Goldman Sachs (01-Feb-2008) Piper Jaffray (1-Feb-2008) Natixis Bleichroeder (1-Feb-2008) Deutsche Bank (1-Feb-2008) Kaufman Brothers (1-Feb-2008)
$37
$35
$32
$31
$30
$29
$29
$27
$26
$25
$24
Avg. $26.02
Present Value1
$32.64
$30.87
$28.23
$27.35
$26.46
$25.58
$25.58
$23.82
$22.49
$22.05
$21.17
$22 $24 $26 $28 $30 $32 $34 $36 $38
Evolution of Research Analysts Recommendation for GYI
September 2006
Strong Buy 22%
Hold 61%
Buy 17%
December 2006
Strong Buy 20%
Hold 80%
September 2007
Underperform 6%
Strong Buy 6%
Buy 6%
Hold 83%
4-Feb-2008
Strong Buy 7%
Hold 93%
Source: FactSet, Wall Street research and Bloomberg.
1 Present value of target price calculated assuming a 12 month price target discounted back to today (4-Feb-08) at illustrative GYI cost of equity of 13.4%.
Public Market Trading Analysis 23
Goldman
Sachs
Research Analysts’ Views
Comments
Opportunities
“We do believe iStockPhoto continues to be undervalued by investors. In 2008 we estimate iStock could contribute $95.1mm in revenue.” (Thomas Weisel, 1-Feb-2008)
“Getty has been investing aggressively in an effort to build out additional revenue streams through internal investment and acquisitions. As a result of this focus, the company is much better diversified than several years back and now boasts operations in areas outside of creative still single imagery…” (William Blair, 1-Feb-2008)
“While we believe it is too early to declare that the company’s core CSSI business has found a bottom, the fourth quarter offered up some encouraging signs of hope that a bottom may be near.”
(William Blair, 1-Feb-2008)
“Despite the challenges at Getty, its business model remains compelling and capable of generating significant amounts of free cash flow (FCF).” (William Blair, 1-Feb-2008)
“Film in particular could become an important driver in the future as technology on the internet and handheld devices makes film a more and more viable alternative to stills in Getty’s traditional end markets.” (Robert W. Baird, 1-Feb-2008)
“The Editorial segment showed 50% year-over-year growth. We expect that 2008 being an election and Olympic year that the Editorial area will continue to be a highlight for the company.” (Kaufman, 1-Feb-2008)
“Getty remains by far the leader of the stock photography industry, with revenues three times greater than its biggest competitor, Corbis.” (Robert W. Baird, 1-Feb-2008)
Risks
“The broader issues around the use of imagery within the advertising and media environment remain largely unchanged since last year as we continue to see pressure related to micro-payment substitution, competition and changes in purchasing patterns.” (Thomas Weisel, 1-Feb-2008)
“We believe the steps management has taken to improve the business have helped to offset a further acceleration of declines. While we view this as a positive, we believe it too early to call stabilization in the core business.” (Lehman Brothers, 1-Feb-2008)
“iStock is growing rapidly (84% yr-yr increase in downloads in the recent 3Q07) and Getty is well positioned to benefit from this trend. The unknown, however, is the extent to which micropayments will cannibalize traditional RF.” (Robert W. Baird, 1-Feb-2008)
“A downturn in the advertising market could negatively affect demand for the company’s photographic images, which are used primarily in marketing and advertising campaigns. Specifically, the stock photography market saw decreased demand during the 2001–2003 advertising market slump. Similarly, a failure of the Internet to develop as an advertising medium may result in our revenue estimates and 12-month target price not being achieved.” (Natixis Bleichroeder, 1-Feb-2008)
“Competition from existing firms or new entrants may affect the pricing structure of the industry or result in a loss of market share for Getty.” (Natixis Bleichroeder, 1-Feb-2008)
“With over half of Getty’s revenue non-U.S. dollar-denominated, currency fluctuations may negatively affect our financial forecasts.” (Natixis Bleichroeder, 1-Feb-2008)
Public Market Trading Analysis 24
Goldman
Sachs
III. Financial Analysis
Financial Analysis 25
Goldman
Sachs
Comparison of Historical Performance & Mgmt Estimates
Annual Revenue Growth %1,2
26.0%
12.3%
8.4%
7.9%
20.6%
18.9%
13.8%
17.8%
16.4%
15.0%
10.3%
10.0%
6.5%
6.3%
1.8%
1.6%
| 9.6% |
|
7.2% 7.9% 7.9% 7.0% |
1997-2006 CAGR 2001-2006 CAGR 2007-2009E CAGR 2007-2012E CAGR 2004A 2005A 2006A 2007A 2008E 2009E 2010E 2011E 2012E
EBITDA Margin %
26.5%
32.3%
36.6%
37.3%
36.4%
38.9%
38.9%
36.6%
36.5%
36.8%
37.2%
37.8%
38.9%
1997-2006 Average Margin 2001-2006 Average Margin 2007-2009E Average Margin 2007-2012E Average Margin 2004A 2005A 2006A 2007A 2008E 2009E 2010E 2011E 2012E
Historical Management Plan Currency Neutral Growth Organic Growth
Source: GYI filings, Capital IQ, pre-audit 2007 actuals for historical per GYI management and GYI management for GYI estimates; GYI estimates for EBITDA exclude one-time items as well as ESO expenses added back in the amount of $0.6mm, $1.3mm, $15.3mm, $14.3mm, $19.8mm, $20.2mm, $20.7mm, $21.3mm and $21.8mm for 2004-2012, respectively. Currency neutral and organic growth per GYI management.
1 Currency neutral revenues based on the currency rates of their preceding year.
2 For years involving acquisition, organic revenue adds back estimated revenue tied to “stub period” prior to acquisition. For years prior to period acquired, “non-Getty” revenue is added based on available info per due diligence materials, historical revenue, etc.
Financial Analysis 26
Goldman
Sachs
IBES EPS Estimates Over Time vs. Stock Performance
EPS Estimate
$4.50
$4.00
$3.50
$3.00
$2.50
$2.00
$1.50
$1.00
$0.50
$0.00
$2.28 2005A
$2.46 2006A
$2.22 2007A
$2.22 2009E
$2.06 2008E
$100.00
$90.00
$80.00
$70.00
$60.00
$50.00
$40.00
$30.00
$26.72
$20.00
$10.00
$00.00
Closing Stock Price
Feb-2005 Feb-2006 Feb-2007 Feb-2008
Monthly from 28-Feb-2005 to 04-Feb-2008
2005 2006 2007 2008 2009 Stock Price
Source: FactSet
Note: 2006-2007A EPS estimates exclude certain one-time costs (stock option review expenses, JUPM aborted transaction fees and professional fees related to a potential transaction) and a loss in short term investments in 2006. 2008-2009E EPS estimates based on IBES median estimates.
Financial Analysis 27
Goldman
Sachs
2007 Quarterly Results and Guidance Update
($ in millions except per share data)
Q1 Q2 Q3 Q4
Guidance for Next Quarter
Revenue – new $218 $210 $210 $220
Revenue – previous Street $210 $221 $213 $217
EPS – new $0.58 $0.47 $0.48 $0.45
EPS – previous Street $0.65 $0.61 $0.54 $0.54
Results
Revenue - actual $213 $218 $209 $218
Revenue - Street $210 $219 $210 $210
Reported YoY growth 5.8% 6.5% 5.5% 7.1%
Currency neutral YoY growth 1.6% 2.4% 2.1% 1.0%
EPS – actual $0.68 $0.57 $0.47 $0.49
EPS – Street $0.61 $0.58 $0.47 $0.48
EPS – actual YoY growth 11.5% (3.4)% (24.2)% (22.2)%
Company estimate is that CY2007 revenue declined ~3% on an organic and currency neutral basis
CY2008 guidance
— CY2008 revenue of $900mm vs. previous street expectations of $884mm
— CY2008 EPS of $2.00 to $2.10 vs. previous street expectations of $2.16
Source: GYI press releases and IBES
Note: EPS is pro forma EPS excluding one-time items. Summing quarterly EPS does not total to CY2007 EPS of $2.22 because of rounding.
Financial Analysis 28
Goldman
Sachs
Projections Summary
Management Plan
2006A 2007A 2008E 2009E 2010E 2011E 2012E ‘07E -‘12E CAGR
Revenue $806.6 $857.6 $940.0 $1,008.0 $1,087.7 $1,163.6 $1,255.7 7.9%
Growth % 10.0% 6.3% 9.6% 7.2% 7.9% 7.0% 7.9%
Organic Growth 6.5% 1.6%
EBITDA - Adjusted $314.0 $313.8 $343.0 $371.3 $405.1 $440.1 $488.1 9.2%
Margin % 38.9% 36.6% 36.5% 36.8% 37.2% 37.8% 38.9%
Growth % 10.0% (0.1%) 9.3% 8.3% 9.1% 8.6% 10.9%
EBIT - Adjusted $226.0 $207.6 $221.8 $255.1 $301.4 $337.9 $389.7 13.4%
Margin % 28.0% 24.2% 23.6% 25.3% 27.7% 29.0% 31.0%
Growth % 0.3% (8.1%) 6.8% 15.0% 18.2% 12.1% 15.3%
Unlevered free cash flow $135.1 $176.4 $196.0 $213.4 $235.0 $256.7 $285.4 10.1%
Margin % 16.8% 20.6% 20.8% 21.2% 21.6% 22.1% 22.7%
Growth % (14.5%) 30.5% 11.1% 8.9% 10.1% 9.2% 11.2%
Proforma EPS $2.46 $2.22 $2.25 $2.55 $3.15 $3.60 $4.22 13.7%
Growth % 7.9% (9.8%) 1.6% 13.0% 23.6% 14.3% 17.2%
Source: GYI management
Note: EBITDA adjusted and Proforma EPS are adjusted for restructuring costs, ESO expenses and one-time adjustments related to JUPM aborted acquisition, stock option review expenses and fees related to potential transaction. EBIT adjusted excludes restructuring costs and one-time items related to stock option review and fees related to potential transaction. 2007A pro forma revenue growth adjusts 2006 and 2007 revenue to account for full year effects of acquisitions: 2006 adds revenue of $2.0mm, $2.7mm, $11.4mm, $39.1mm, $3.4mm for Stockbyte, iStockphoto, Punchstock, Wireimage and Pump acquisitions respectively; 2007 adds $5.0mm, $14.2mm and $2.6mm for Punchstock, Wireimage and Pump respectively (Source: GYI management).
Financial Analysis 29
Goldman
Sachs
Premia and Multiples at Various Share Prices
Management Plan
4-Feb-08
Getty
Trading Premium
23% 31% 40% 50% 59%
Implied Purchase Price Per Share $ 26.72 $ 32.75 $ 35.00 $ 37.50 $ 40.00 $ 42.50
Equity Consideration - Diluted $ 1,628 $ 1,999 $ 2,138 $ 2,294 $ 2,450 $ 2,606
Levered Consideration - Diluted 1,608 1,979 2,119 2,275 2,431 2,587
Premia Over Various Trading Periods
Averages
Current (4-Feb-08) $ 26.72 0.0 % 22.6 % 31.0 % 40.3 % 49.7 % 59.1 %
Last 10 Days 25.49 4.8 % 28.5 % 37.3 % 47.1 % 56.9 % 66.7 %
Undisturbed Price (18-Jan-08) 21.94 21.8 % 49.3 % 59.5 % 70.9 % 82.3 % 93.7 %
30 Day 25.08 6.6 % 30.6 % 39.6 % 49.5 % 59.5 % 69.5 %
90 Day 28.14 (5.0)% 16.4 % 24.4 % 33.3 % 42.2 % 51.0 %
180 Day 28.76 (7.1)% 13.9 % 21.7 % 30.4 % 39.1 % 47.8 %
1 Year 39.26 (31.9)% (16.6)% (10.8)% (4.5)% 1.9 % 8.3 %
Implied Multiples
Management Plan
Revenue CY2007A $ 858 1.9 x 2.3 x 2.5 x 2.7 x 2.8 x 3.0 x
CY2008E 940 1.7 2.1 2.3 2.4 2.6 2.8
EBITDA (adj.) CY2007A $ 314 5.1 x 6.3 x 6.8 x 7.2 x 7.7 x 8.2 x
CY2008E 343 4.7 5.8 6.2 6.6 7.1 7.5
EBITDA (adj.) - Capex¹ CY2007A $ 251 6.4 x 7.9 x 8.4 x 9.1 x 9.7 x 10.3 x
CY2008E 280 5.7 7.1 7.6 8.1 8.7 9.2
Cash EPS CY2007A $ 2.22 12.0 x 14.8 x 15.8 x 16.9 x 18.0 x 19.1 x
CY2008E 2.25 11.9 14.6 15.6 16.7 17.8 18.9
Street Estimates
Revenue CY2008E $ 895 1.8 x 2.2 x 2.4 x 2.5 x 2.7 x 2.9 x
Cash EBITDA CY2008E 324 5.0 6.1 6.5 7.0 7.5 8.0
EBITDA (adj.) - Capex¹ CY2008E 261 6.2 7.6 8.1 8.7 9.3 9.9
Cash EPS CY2008E 2.06 13.0 15.9 17.0 18.2 19.4 20.6
Source: FactSet, GYI management for 2007 pre-audit actuals, GYI management for management plan estimates. Street estimates per IBES median estimates.
Note: GYI management EBITDA adds back ESO expense of $14.3mm and $19.8mm for 2007 and 2008 respectively. 2007A EBITDA (adj) adds back $6.0mm for non-recurring items. GYI management and IBES EPS estimates include ESO expense
1 2007 Capex per GYI management (8k filed as of 31-Jan-2008); 2008E Capex per GYI management projections
Financial Analysis 30
Goldman
Sachs
Illustrative Present Value of Future Stock Prices
($ per share)
Street Estimates
1 Year Forward P/E Multiple
Today PV of ‘09E Share Price
FY ‘08 EPS FY ‘09 EPS
$ 2.06 $ 2.22
10.0 x $20.60 $19.58
11.0 x $22.66 $21.54
12.0 x $24.72 $23.50
13.0 x $26.78 $25.46
14.0 x $28.84 $27.42
15.0 x $30.90 $29.38
16.0 x $32.96 $31.33
Management Plan
1 Year Forward P/E Multiple
Today PV of ‘09E Share Price PV of ‘10E Share Price PV of ‘11E Share Price PV of ‘12E Share Price
FY ‘08 EPS FY ‘09 EPS FY ‘10 EPS FY ‘11 EPS FY ‘12 EPS
$ 2.25 $ 2.55 $ 3.15 $ 3.60 $ 4.22
10.0 x $22.54 $22.46 $24.49 $24.70 $25.52
11.0 x 24.80 24.71 26.94 27.17 28.08
12.0 x 27.05 26.96 29.39 29.64 30.63
13.0 x 29.31 29.20 31.84 32.11 33.18
14.0 x 31.56 31.45 34.29 34.58 35.73
15.0 x 33.82 33.70 36.74 37.05 38.29
16.0 x 36.07 35.94 39.19 39.52 40.84
Source: 2008E and 2009E EPS estimates for Street based on the median of IBES estimates. Management plan estimates per GYI management
Note: Assumes illustrative cost of equity discount rate of 13.36% based on risk free rate of 4.83% (10 year average of 10 year Treasury as of 04-Feb-2008), risk premium of 5.16% (Ibbotson) and beta of 1.65 (Barra historical beta)
Financial Analysis 31
Goldman Sachs
Illustrative 5-Year Discounted Cash Flow Analysis
Management Plan – Perpetuity Growth Method
($ per share)
Implied Share Price
WACC
Terminal Growth Rate
1.0% 1.5% 2.0% 2.5% 3.0%
10.0% $ 47.64 $ 49.68 $ 51.96 $ 54.56 $ 57.52
11.0% 43.00 44.59 46.35 48.32 50.53
12.0% 39.20 40.47 41.86 43.39 45.10
13.0% 36.04 37.07 38.19 39.41 40.76
14.0% 33.35 34.20 35.12 36.12 37.21
Implied Share Price1
Incremental FY08E - FY12E Operating Margin
Incremental FY08E-FY12E Annual Revenue Growth
(5.0%) (2.5%) 0.0% 2.5% 5.0%
(5.0%) $ 29.40 $ 31.90 $ 34.60 $ 37.53 $ 40.70
(2.5%) 31.83 34.57 37.54 40.76 44.26
0.0% 34.24 37.23 40.47 43.99 47.82
2.5% 36.65 39.88 43.40 47.22 51.38
5.0% 39.05 42.53 46.32 50.45 54.93
Implied FY08E-FY12E Revenue CAGR
2.9% 5.4% 7.9% 10.4% 12.9%
Source: Management plan estimates per GYI management
Note: Assumes mid-year convention discounting. WACC analysis suggests 11.93% based on risk free rate of 4.83% (10 year average of 10 year U.S. Treasury as of 4-Feb-2008), risk premium of 5.16% (Ibbotson) and GYI beta of 1.65 (Barra historical beta), cost of debt of 8.5% and current capitalization. Capex for FCF in terminal value calculation in perpetuity growth method is calculated as the sum of depreciation and amortization in 2012;
1 Assumes discount rate of 12.0% and 1.5% perpetuity growth. Incremental revenue growth and operating margin sensitivities show increase or decrease for each year of the GYI management plan. For example if management plan revenue growth in a given year is 10% and operating margin is 30%, in the (5.0%) case revenue growth and (5.0%) operating margin case, the sensitivity revenue growth is 5% and operating margin is 25%. The change applies to every year of the projected period CY2008-CY2012. Gross margins, D&A, capex, eso, and tax rates are constant with GYI management plan estimates for ‘08-’12.
Financial Analysis 32
Goldman Sachs
Illustrative 5-Year Discounted Cash Flow Analysis
Management Plan – Terminal Value Multiple Method ($ per share)
Implied Share Price
WACC
Terminal Multiple of 2012E EBITDA
4.5x 5.5x 6.5x 7.5x
10.0% $ 37.75 $ 42.61 $ 47.46 $ 52.32
11.0% 36.46 41.10 45.74 50.38
12.0% 35.22 39.66 44.10 48.53
13.0% 34.04 38.29 42.54 46.78
14.0% 32.91 36.99 41.05 45.11
Implied Share Price1
Incr. FY08E - FY12E
Operating Margin
Incremental FY08E-FY12E Annual Revenue Growth
(5.0%) (2.5%) 0.0% 2.5% 5.0%
(5.0%) $ 29.76 $ 31.99 $ 34.42 $ 37.05 $ 39.90
(2.5%) 31.93 34.38 37.04 39.93 43.07
0.0% 34.10 36.76 39.66 42.81 46.24
2.5% 36.26 39.14 42.28 45.69 49.40
5.0% 38.41 41.51 44.89 48.57 52.57
Implied ‘07-’12 Revenue CAGR
2.9% 5.4% 7.9% 10.4% 12.9%
Source: Management plan estimates per GYI management
Note: Assumes mid-year convention discounting for cash flows in CY2008-CY2012. Terminal value based on LTM EBITDA in year 5 is discounted 5 years. WACC analysis suggests 11.93% based on risk free rate of 4.83% (10 year average of 10 year U.S. Treasury as of 4-Feb-2008), risk premium of 5.16% (Ibbotson) and GYI beta of 1.65 (Barra historical beta), cost of debt of 8.5% and current capitalization.
1 Assumes discount rate of 12.0% and exit EBITDA multiple of 5.5x. Incremental revenue growth and operating margin sensitivities show increase or decrease for each year of the GYI management plan.
For example if management plan revenue growth in a given year is 10% and operating margin is 30%, in the (5.0%) case revenue growth and (5.0%) operating margin case, the sensitivity revenue growth is 5% and operating margin is 25%. The change applies to every year of the projected period CY2008-CY2012. Gross margins, D&A, capex, eso, and tax rates are constant with GYI management plan estimates for ‘08-’12.
Financial Analysis 33
Goldman Sachs
Illustrative 5-Year Discounted Cash Flow Analysis
2008 Sensitivity Analyses – Terminal Value Multiple Method1 ($ per share)
Implied Share Price
2008E SG&A
2008E Revenue
$ 800 $ 850 $ 900 $ 940 $ 970
$ 354 $ 28.55 $ 32.54 $ 36.51 $ 39.66 $ 42.02
$ 344 29.60 33.58 37.54 40.69 43.05
$ 334 31.68 35.65 39.59 42.75 45.11
$ 324 34.79 38.74 42.68 45.83 48.20
Implied 2008 Revenue Growth
(6.7%) (0.9%) 4.9% 9.6% 13.1%
2008 EBITDA Margins
2008E SG&A
2008E Revenue
$ 800 $ 850 $ 900 $ 940 $ 970
$ 354 30.3% 32.7% 34.9% 36.5% 37.6%
$ 344 31.5% 33.9% 36.0% 37.6% 38.6%
$ 334 32.8% 35.1% 37.1% 38.6% 39.6%
$ 324 34.0% 36.3% 38.2% 39.7% 40.7%
Management Plan
2008E
‘08E -’12E CAGR
Revenue $ 940.0 7.5%
SG&A, incl. eso $ 353.7 4.8%
EBITDA - Adjusted $ 343.0 9.2%
EBIT - Adjusted $ 221.8 15.1%
Source: Assumptions for 2008E Revenue and SG&A scenarios are per GYI management. Assumes growth rates for ‘09-’12 for revenue and SG&A are per GYI management plan estimates For example, if 2008E revenue and SG&A are $800mm and $354mm, respectively, the 2009-2012 revenue and SG&A would grow at the same rates of the management plan case off of 2008E revenue and SG&A of $800mm and $354mm, respectively. Gross margins, D&A, capex, eso, and tax rates are constant with GYI management plan estimates for ‘08-’12.
1 Assumes discount rate of 12.0%; Terminal value multiple method using 5.5x EBITDA exit multiple (LTM EBITDA (adj) multiple is 5.1 as of 04-Feb-2008)
Financial Analysis 34
Goldman Sachs
Illustrative 5-Year Discounted Cash Flow Analysis
10% Currency Affected Revenue Scenario – Terminal Value Multiple Method ($ per share)
Implied Share Price
WACC
Terminal Multiple of 2012E EBITDA
4.5x 5.5x 6.5x 7.5x
10.0% $ 34.65 $ 39.18 $ 43.71 $ 48.23
11.0% 33.45 37.79 42.11 46.44
12.0% 32.30 36.46 40.60 44.74
13.0% 31.22 35.20 39.16 43.12
14.0% 30.18 34.00 37.79 41.58
Implied Share Price1
Incr. FY08E - FY12E
Operating Margin
Incremental FY08E-FY12E Annual Revenue Growth
(5.0%) (2.5%) 0.0% 2.5% 5.0%
(5.0%) $ 27.19 $ 29.26 $ 31.50 $ 33.93 $ 36.57
(2.5%) 29.25 31.52 33.99 36.66 39.57
0.0% 31.30 33.77 36.46 39.38 42.56
2.5% 33.34 36.02 38.93 42.10 45.55
5.0% 35.37 38.25 41.40 44.82 48.55
Source: Projections per GYI management
Note: Assumes mid-year convention discounting for cash flows in CY2008-CY2012. Terminal value based on LTM EBITDA in year 5 is discounted 5 years. WACC analysis suggests 11.93% based on risk free rate of 4.83% (10 year average of 10 year U.S. Treasury as of 4-Feb-2008), risk premium of 5.16% (Ibbotson) and GYI beta of 1.65 (Barra historical beta), cost of debt of 8.5% and current capitalization.
1 Assumes discount rate of 12.0% and exit EBITDA multiple of 5.5x. Incremental revenue growth and operating margin sensitivities show increase or decrease for each year of the GYI management 10% currency affected plan. For example if management plan revenue growth in a given year is 10% and operating margin is 30%, in the (5.0%) case revenue growth and (5.0%) operating margin case, the sensitivity revenue growth is 5% and operating margin is 25%. The change applies to every year of the projected period CY2008-CY2012. D&A, capex, eso, and tax rates are constant with GYI management plan estimates for ‘08-’12.
Financial Analysis 35
Goldman Sachs
Illustrative 5-Year Discounted Cash Flow Analysis
20% Currency Affected Revenue Scenario – Terminal Value Multiple Method ($ per share)
Implied Share Price
WACC
Terminal Multiple of 2012E EBITDA
4.5x 5.5x 6.5x 7.5x
10.0% $ 31.63 $ 35.80 $ 39.95 $ 44.09
11.0% 30.54 34.52 38.49 42.45
12.0% 29.49 33.31 37.11 40.90
13.0% 28.48 32.15 35.80 39.42
14.0% 27.53 31.05 34.54 38.01
Implied Share Price1
Incr. FY08E - FY12E
Operating Margin
Incremental FY08E-FY12E Annual Revenue Growth
(5.0%) (2.5%) 0.0% 2.5% 5.0%
(5.0%) $ 24.76 $ 26.60 $ 28.62 $ 30.81 $ 33.18
(2.5%) 26.69 28.74 30.97 33.39 36.01
0.0% 28.62 30.87 33.31 35.96 38.83
2.5% 30.55 32.98 35.64 38.52 41.66
5.0% 32.46 35.10 37.96 41.08 44.48
Source: Projections per GYI management
Note: Assumes mid-year convention discounting for cash flows in CY2008-CY2012. Terminal value based on LTM EBITDA in year 5 is discounted 5 years. WACC analysis suggests 11.93% based on risk free rate of 4.83% (10 year average of 10 year U.S. Treasury as of 4-Feb-2008), risk premium of 5.16% (Ibbotson) and GYI beta of 1.65 (Barra historical beta), cost of debt of 8.5% and current capitalization.
1 Assumes discount rate of 12.0% and exit EBITDA multiple of 5.5x. Incremental revenue growth and operating margin sensitivities show increase or decrease for each year of the GYI management 20% currency affected plan. For example if management plan revenue growth in a given year is 10% and operating margin is 30%, in the (5.0%) case revenue growth and (5.0%) operating margin case, the sensitivity revenue growth is 5% and operating margin is 25%. The change applies to every year of the projected period CY2008-CY2012. D&A, capex, eso, and tax rates are constant with GYI management plan estimates for ‘08-’12.
Financial Analysis 36
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Illustrative 5-Year Discounted Cash Flow Analysis
30% Currency Affected Revenue Scenario – Terminal Value Multiple Method ($ per share)
Implied Share Price
WACC
Terminal Multiple of 2012E EBITDA
4.5x 5.5x 6.5x 7.5x
10.0% $ 28.59 $ 32.40 $ 36.18 $ 39.94
11.0% 27.59 31.25 34.86 38.46
12.0% 26.64 30.14 33.60 37.05
13.0% 25.73 29.08 32.41 35.72
14.0% 24.87 28.08 31.27 34.44
Implied Share Price1
Incr. FY08E-FY12E
Operating Margin
Incremental FY08E-FY12E Annual Revenue Growth
(5.0%) (2.5%) 0.0% 2.5% 5.0%
(5.0%) $22.33 $23.95 $25.72 $27.65 $29.75
(2.5%) 24.14 25.95 27.93 30.09 32.43
0.0% 25.94 27.95 30.14 32.51 35.09
2.5% 27.74 29.95 32.33 34.93 37.74
5.0% 29.55 31.92 34.51 37.33 40.39
Source: Projections per GYI management
Note: Assumes mid-year convention discounting for cash flows in CY2008-CY2012. Terminal value based on LTM EBITDA in year 5 is discounted 5 years. WACC analysis suggests 11.93% based on risk free rate of 4.83% (10 year average of 10 year U.S. Treasury as of 4-Feb-2008), risk premium of 5.16% (Ibbotson) and GYI beta of 1.65 (Barra historical beta), cost of debt of 8.5% and current capitalization.
1 Assumes discount rate of 12.0% and exit EBITDA multiple of 5.5x. Incremental revenue growth and operating margin sensitivities show increase or decrease for each year of the GYI management 30% currency affected plan. For example if management plan revenue growth in a given year is 10% and operating margin is 30%, in the (5.0%) case revenue growth and (5.0%) operating margin case, the sensitivity revenue growth is 5% and operating margin is 25%. The change applies to every year of the projected period CY2008-CY2012. D&A, capex, eso, and tax rates are constant with GYI management plan estimates for ‘08-’12.
Financial Analysis 37
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IV. LBO Analysis
LBO Analysis 38
Goldman Sachs
Illustrative LBO Credit Statistics
Management Plan - 3.0x Total Leverage ($ in millions)
2004 2005 2006 2007A 2008E 2009E 2010E 2011E 2012E
Total Revenue $622.3 $733.2 $806.6 $857.6 $940.0 $1,008.0 $1,087.7 $1,163.6 $1,255.7
Revenue growth 17.8% 10.0% 6.3% 9.6% 7.2% 7.9% 7.0% 7.9%
GAAP EBITDA $224.4 $284.2 $297.1 $293.5 $323.2 $351.1 $384.3 $418.8 $466.3
Non-Cash Compensation $0.6 $1.3 $15.3 $14.3 $19.8 $20.2 $20.7 $21.3 $21.8
One-Time Items1 $1.5 $0.0 $1.6 $6.0
Pro Forma Adjusted EBITDA $226.5 $285.5 $314.0 $313.8 $343.0 $371.3 $405.1 $440.1 $488.1
EBITDA margin 36.4% 38.9% 38.9% 36.6% 36.5% 36.8% 37.2% 37.8% 38.9%
Free Cash Flow: Pro Forma
PF Adj. EBITDA $313.8 $343.0 $371.3 $405.1 $440.1 $488.1
Interest Expense 77.7 71.7 58.1 42.1 24.2 7.5
Interest Income 1.8 1.8 1.8 1.8 1.8 4.0
Cash Interest Expense, net 75.9 70.0 56.3 40.3 22.5 3.5
Cash Taxes 49.5 55.9 72.3 92.2 111.6 136.6
Capex 62.9 62.6 62.5 60.8 61.2 61.9
Increase in Working Capital 8.2 1.7 1.8 2.1 2.0 2.4
Free Cash Flow for Debt Service $117.3 $152.7 $178.4 $209.7 $242.8 $283.7
Cumulative Free Cash Flow for Debt Service $152.7 $331.2 $540.9 $783.7 $1,067.4
Capitalization and Credit Statistics:
Revolver $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
First Lien Term Loan 941.4 788.6 610.2 400.5 157.7 0.0
First Lien Secured Debt $941.4 $788.6 $610.2 $400.5 $157.7 $0.0
Second Lien Secured Debt $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Total Secured Debt $941.4 $788.6 $610.2 $400.5 $157.7 $0.0
Senior Notes $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Total Senior Debt $941.4 $788.6 $610.2 $400.5 $157.7 $0.0
Total Debt 941.4 788.6 610.2 400.5 157.7 0.0
PF Adj. EBITDA / Interest Expense 4.0x 4.8x 6.4x 9.6x 18.2x 65.3x
(PF Adj. EBITDA - Capex) / Interest Expense 3.2x 3.9x 5.3x 8.2x 15.6x 57.1x
First Lien Senior Secured Debt / PF Adj. EBITDA 3.0x 2.3x 1.6x 1.0x 0.4x 0.0x
Senior Secured Debt / PF Adj. EBITDA 3.0x 2.3x 1.6x 1.0x 0.4x 0.0x
Total Senior Debt / PF Adj. EBITDA 3.0x 2.3x 1.6x 1.0x 0.4x 0.0x
Total Debt / PF Adj. EBITDA 3.0x 2.3x 1.6x 1.0x 0.4x 0.0x
Total Debt / (PF Adj. EBITDA - Capex) 3.8x 2.8x 2.0x 1.2x 0.4x 0.0x
Total Net Debt / PF Adj. EBITDA 2.8x 2.2x 1.5x 0.9x 0.2x -0.4x
Source: Management plan estimates per GYI management
Note: 2004-2006 figures reflect restated numbers; 2007 actuals are preliminary pre-audit figures per GYI management
1 Includes expenses due to exchange fees related to the exchange of debentures (2004), stock option expense review (2006-2007), deal costs relating to aborted acquisition of Jupiter Media (2007) and fees related to potential transaction (2007).
LBO Analysis 39
Goldman Sachs
Illustrative LBO Credit Statistics
Management Plan - 4.0x Total Leverage ($ in millions)
2004 2005 2006 2007A 2008E 2009E 2010E 2011E 2012E
Total Revenue $622.3 $733.2 $806.6 $857.6 $940.0 $1,008.0 $1,087.7 $1,163.6 $1,255.7
Revenue growth 17.8% 10.0% 6.3% 9.6% 7.2% 7.9% 7.0% 7.9%
GAAP EBITDA $224.4 $284.2 $297.1 $293.5 $323.2 $351.1 $384.3 $418.8 $466.3
Non-Cash Compensation $0.6 $1.3 $15.3 $14.3 $19.8 $20.2 $20.7 $21.3 $21.8
One-Time Items1 $1.5 $0.0 $1.6 $6.0
Pro Forma Adjusted EBITDA $226.5 $285.5 $314.0 $313.8 $343.0 $371.3 $405.1 $440.1 $488.1
EBITDA margin 36.4% 38.9% 38.9% 36.6% 36.5% 36.8% 37.2% 37.8% 38.9%
Free Cash Flow: Pro Forma
PF Adj. EBITDA $313.8 $343.0 $371.3 $405.1 $440.1 $488.1
Interest Expense 118.5 113.6 102.1 88.5 73.5 54.3
Interest Income 1.8 1.8 1.8 1.8 1.8 1.8
Cash Interest Expense, net 116.7 111.8 100.4 86.7 71.7 52.6
Cash Taxes 34.1 40.0 55.8 75.4 93.8 118.9
Capex 62.9 62.6 62.5 60.8 61.2 61.9
Increase in Working Capital 8.2 1.7 1.8 2.1 2.0 2.4
Free Cash Flow for Debt Service $91.9 $126.8 $150.8 $180.0 $211.4 $252.4
Cumulative Free Cash Flow for Debt Service $126.8 $277.6 $457.6 $669.0 $921.4
Capitalization and Credit Statistics:
Revolver $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
First Lien Term Loan 941.4 814.6 663.7 483.7 272.3 20.0
First Lien Secured Debt $941.4 $814.6 $663.7 $483.7 $272.3 $20.0
Second Lien Secured Debt $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Total Secured Debt $941.4 $814.6 $663.7 $483.7 $272.3 $20.0
Senior Notes $313.8 $313.8 $313.8 $313.8 $313.8 $313.8
Total Senior Debt $1,255.1 $1,128.4 $977.5 $797.5 $586.1 $333.7
Total Debt 1,255.1 1,128.4 977.5 797.5 586.1 333.7
PF Adj. EBITDA / Interest Expense 2.6x 3.0x 3.6x 4.6x 6.0x 9.0x
(PF Adj. EBITDA - Capex) / Interest Expense 2.1x 2.5x 3.0x 3.9x 5.2x 7.8x
First Lien Senior Secured Debt / PF Adj. EBITDA 3.0x 2.4x 1.8x 1.2x 0.6x 0.0x
Senior Secured Debt / PF Adj. EBITDA 3.0x 2.4x 1.8x 1.2x 0.6x 0.0x
Total Senior Debt / PF Adj. EBITDA 4.0x 3.3x 2.6x 2.0x 1.3x 0.7x
Total Debt / PF Adj. EBITDA 4.0x 3.3x 2.6x 2.0x 1.3x 0.7x
Total Debt / (PF Adj. EBITDA - Capex) 5.0x 4.0x 3.2x 2.3x 1.5x 0.8x
Total Net Debt / PF Adj. EBITDA 3.8x 3.1x 2.5x 1.8x 1.2x 0.6x
Source: Management plan estimates per GYI management
Note: 2004-2006 figures reflect restated numbers; 2007 actuals are preliminary pre-audit figures per GYI management
1 Includes expenses due to exchange fees related to the exchange of debentures (2004), stock option expense review (2006-2007), deal costs relating to aborted acquisition of Jupiter Media (2007) and fees related to potential transaction (2007).
LBO Analysis 40
Goldman Sachs
Preliminary LBO Returns Analysis
IRR Sensitivity to Offer Price and LTM Exit Multiple Management Plan – 5% Equity Allocation to Employees
Total Leverage at 3x LTM EBITDA Multiple
LTM EBITDA Mult.
% Premium
Exit LTM
EBITDA Multiple
Offer Price
6.3 x 6.8 x 7.2 x 7.7 x 8.2 x
22.6 % 31.0 % 40.3 % 49.7 % 59.1 %
$32.75 $35.00 $37.50 $40.00 $42.50
4.5x 14.2% 11.6% 9.1% 6.9% 4.9%
5.5x 18.5% 15.8% 13.2% 10.9% 8.9%
6.5x 22.3% 19.5% 16.9% 14.5% 12.4%
7.5x 25.7% 22.8% 20.1% 17.6% 15.5%
Total Leverage at 4x LTM EBITDA Multiple
LTM EBITDA Mult.
% Premium
Exit LTM
EBITDA Multiple
Offer Price
6.3 x 6.8 x 7.2 x 7.7 x 8.2 x
22.6 % 31.0 % 40.3 % 49.7 % 59.1 %
$32.75 $35.00 $37.50 $40.00 $42.50
4.5x 16.2% 12.7% 9.5% 6.7% 4.3%
5.5x 21.6% 18.0% 14.6% 11.7% 9.2%
6.5x 26.2% 22.4% 18.9% 15.9% 13.3%
7.5x 30.2% 26.3% 22.7% 19.6% 16.9%
Source: Management plan estimates per GYI management
Note: Assumes LIBOR floor of 3.50%, $50mm minimum cash balance, and exit in year five. All total leverage scenarios assume 3.00x LTM EBITDA (Dec-2007) Bank Debt at L+475bps, with remaining leverage assumed to be subordinated notes at 13%.
LBO Analysis 41
Goldman Sachs
Preliminary LBO Returns Analysis
IRR Sensitivity to Offer Price and LTM Exit Multiple Management Plan – 10% Equity Allocation to Employees
Total Leverage at 3x LTM EBITDA Multiple
LTM EBITDA Mult.
% Premium
Exit LTM
EBITDA Multiple
Offer Price
6.3 x 6.8 x 7.2 x 7.7 x 8.2 x
22.6 % 31.0 % 40.3 % 49.7 % 59.1 %
$ 32.75 $ 35.00 $ 37.50 $ 40.00 $ 42.50
4.5x 12.9% 10.4% 7.9% 5.7% 3.8%
5.5x 17.2% 14.6% 12.0% 9.7% 7.7%
6.5x 21.0% 18.3% 15.6% 13.3% 11.2%
7.5x 24.3% 21.5% 18.8% 16.4% 14.2%
Total Leverage at 4x LTM EBITDA Multiple
LTM EBITDA Mult.
% Premium
Exit LTM
EBITDA Multiple
Offer Price
6.3 x 6.8 x 7.2 x 7.7 x 8.2 x
22.6 % 31.0 % 40.3 % 49.7 % 59.1 %
$ 32.75 $ 35.00 $ 37.50 $ 40.00 $ 42.50
4.5x 15.0% 11.5% 8.3% 5.6% 3.2%
5.5x 20.3% 16.7% 13.4% 10.5% 8.0%
6.5x 24.9% 21.1% 17.6% 14.7% 12.1%
7.5x 28.8% 25.0% 21.4% 18.3% 15.7%
Source: Management plan estimates per GYI management
Note: Assumes LIBOR floor of 3.50%, $50mm minimum cash balance, and exit in year five. All total leverage scenarios assume 3.00x LTM EBITDA (Dec-2007) Bank Debt at L+475bps, with remaining leverage assumed to be subordinated notes at 13%.
LBO Analysis 42
Goldman Sachs
Preliminary LBO Returns Analysis
IRR Sensitivity to Offer Price and LTM Exit Multiple Management Plan – 15% Equity Allocation to Employees
Total Leverage at 3x LTM EBITDA Multiple
LTM EBITDA Mult.
% Premium
Exit LTM
EBITDA Multiple
Offer Price
6.3 x 6.8 x 7.2 x 7.7 x 8.2 x
22.6 % 31.0 % 40.3 % 49.7 % 59.1 %
$ 32.75 $ 35.00 $ 37.50 $ 40.00 $ 42.50
4.5x 11.6% 9.1% 6.7% 4.5% 2.6%
5.5x 15.9% 13.3% 10.7% 8.5% 6.5%
6.5x 19.6% 16.9% 14.3% 12.0% 9.9%
7.5x 22.9% 20.1% 17.4% 15.1% 12.9%
Total Leverage at 4x LTM EBITDA Multiple
LTM EBITDA Mult.
% Premium
Exit LTM
EBITDA Multiple
Offer Price
6.3 x 6.8 x 7.2 x 7.7 x 8.2 x
22.6 % 31.0 % 40.3 % 49.7 % 59.1 %
$ 32.75 $ 35.00 $ 37.50 $ 40.00 $ 42.50
4.5x 13.7% 10.3% 7.1% 4.4% 2.1%
5.5x 19.0% 15.4% 12.1% 9.2% 6.8%
6.5x 23.4% 19.7% 16.3% 13.4% 10.8%
7.5x 27.4% 23.5% 20.0% 17.0% 14.3%
Source: Management plan estimates per GYI management
Note: Assumes LIBOR floor of 3.50%, $50mm minimum cash balance; and exit in year five. All total leverage scenarios assume 3.00x LTM EBITDA (Dec-2007) Bank Debt at L+475bps, with remaining leverage assumed to be subordinated notes at 13%.
LBO Analysis 43
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Appendix A: Comparison of Selected Companies
Comparison of Selected Companies 44
Goldman Sachs
Comparison of Selected Companies
($ in millions, except per share data)
Closing % of 52 Equity Enterprise Value / Calendarized 5-Year 2008
Price Week Market Enterprise EBITDA P/E Multiples EPS PE/5-Year
Company 4-Feb-2008 High Cap Value 2007 2008 2009 2007 2008 2009 CAGR EPS CAGR
Getty Images Inc. $ 26.72 48 % $ 1,628 $ 1,608 5.5 x 5.3 x 5.1 x 12.0 x 13.0 x 12.0 x 10.0 % 1.3 x
Jupitermedia Corp. $ 3.32 33 % $ 120 $ 201 7.4 x 6.4 x 6.6 x 66.4 x 28.9 x 14.4 x 10.0 % 2.9 x
Related Companies
Adobe Systems Inc. $ 35.21 73 % $ 20,355 $ 18,361 11.9 x 10.8 x 10.0 x 21.6 x 19.0 x 16.5 x 15.0 % 1.3 x
Avid Technology Inc. 20.04 52 830 606 11.1 11.0 8.0 16.3 25.1 20.4 12.0 2.1
Harte Hanks 16.45 58 1,160 1,396 6.9 7.3 6.7 13.1 12.8 11.8 10.5 1.2
Interpublic Group of Companies Inc. 8.97 68 4,228 5,863 10.3 7.2 6.6 47.2 17.9 13.7 10.0 1.8
Omnicom Group Inc. 47.01 86 15,375 18,166 9.8 9.0 8.6 15.9 14.2 12.7 12.0 1.2
WPP Group plc 12.56 81 15,442 18,498 9.1 8.3 7.8 14.3 12.6 11.5 11.0 1.1
Mean 70 % 9.9 x 8.9 x 7.9 x 21.4 x 16.9 x 14.4 x 11.7 % 1.4 x
Median 71 10.0 8.7 7.9 16.1 16.1 13.2 11.5 1.2
Overall Comparative Metrics
Mean 64 % 9.5 x 8.6 x 7.7 x 27.8 x 18.6 x 14.4 x 11.5 % 1.7 x
Median 68 9.8 8.3 7.8 16.3 17.9 13.7 11.0 1.3
Source: Latest publicly available financial statements. Enterprise Value based on diluted shares outstanding. EBITDA and EPS are based on IBES median estimates and/or other Wall Street research. All research estimates have been calendarized to December.
Comparison of Selected Companies 45
Goldman Sachs
Appendix B: Additional Exhibits
Additional Exhibits 46
Goldman Sachs
Weighted Average Cost of Capital
Methodology
Unlevered Beta Calculation
Market Values
Equity (1) Debt
Omnicom Group Inc. $ 15,375 $ 3,207
Interpublic Group of Companies Inc 4,228 2,606
Adobe Systems Inc. 20,355 0
Avid Technology Inc. 830 0
(Levered Beta)
Levered Tax Net Debt(1-t) Net Debt(1-t) Net Debt(1-t)
1+ 1+
Beta (2) Rate Equity Equity Equity
1.23 35% 0.11 1.11 1.11
1.55 35% 0.16 1.16 1.33
1.68 35%(0.06) 0.94 1.79
1.24 35%(0.15) 0.85 1.46
Median Asset Beta: 1.40
Implied WACC using Median Asset Beta
Risk Free Risk Levered Cost of Cost of Debt Equity
Rate (3) Premium (4) Beta Debt Equity Capitalization Capitalization WACC
Getty Images 4.83% 5.16% 1.41 8.50% 12.10% 18.30% 81.70% 10.89%
Implied WACC using Getty Historical Beta
Risk Free Risk Levered Cost of Cost of Debt Equity
Rate (3) Premium (4) Beta Debt Equity Capitalization Capitalization WACC
Getty Images 4.83% 5.16% 1.65 8.50% 13.36% 18.30% 81.70% 11.93%
1 Market Values as of 04-Feb-2008.
2 Historical Barra levered Beta.
3 Risk Free Rate calculated as 10 year average of 10 year Treasury as of 04-Feb-2008.
4 Equity Risk Premium per Ibbotson Long Horizon Equity Risk Premium.
Note: All market values in U.S. dollars; Harte Hanks not included in the WACC analysis because their beta is an outlier with the peer group. WPP not included in the WACC analysis because their levered beta was not available.
Additional Exhibits 47
Goldman Sachs
Historical Revenue Trends and 2008 Management Projections
($ in millions)
2005 2006 2007 2008
Total Revenue Q1 Q2 Q3 Q4 FYE Q1 Q2 Q3 Q4 FYE Q1 Q2 Q3 Q4 FYE Q1 Q2 Q3 Q4 FYE
Rights Managed / Rights Ready $ 80.0 $ 78.8 $ 78.1 $ 79.0 $ 315.9 $ 85.1 $ 82.2 $ 76.0 $ 75.3 $ 318.6 $ 78.8 $ 76.2 $ 68.2 $ 68.2 $ 291.3 $ 65.5 $ 68.0 $ 65.0 $ 68.1 $ 266.7
Royalty Free 62.4 70.6 70.8 69.1 272.9 70.9 73.2 71.5 71.3 286.8 70.2 66.1 60.5 58.9 255.8 56.6 58.4 56.2 56.8 228.1
Service Fees 0.9 1.1 1.1 1.5 4.6 0.9 1.3 1.7 2.1 6.0 1.6 1.7 2.2 2.2 7.7 2.0 2.2 2.5 2.3 9.0
Total Creative Stills 143.3 150.5 150.0 149.6 593.4 156.9 156.8 149.2 148.7 611.5 150.6 144.0 130.9 129.3 554.8 125.3 129.9 125.1 128.6 508.9
YoY Growth - Creative Stills 9.6% 22.4% 21.4% 15.6% 17.1% 9.5% 4.2% -0.6% -0.3% 3.1% -7.4% -7.3% -10.3% -9.5% -8.6% -16.8% -9.7% -4.4% -0.5% -8.3%
Total Footage $ 10.1 $ 10.0 $ 8.5 $ 9.5 $ 38.1 $ 11.6 $ 10.8 $ 9.9 $ 10.7 $ 43.1 $ 11.3 $ 10.7 $ 10.0 $ 10.8 $ 42.9 $ 12.8 $ 13.6 $ 13.3 $ 14.4 $ 54.1
Total NSEA 20.7 20.9 21.5 22.0 85.1 22.9 25.1 25.3 26.6 99.9 26.6 36.0 36.5 38.3 137.5 41.3 44.6 46.3 44.5 176.7
YoY Growth - NSEA 28.2% 18.7% 13.3% 14.5% 18.3% 10.1% 20.2% 17.4% 20.5% 17.1% 16.3% 43.5% 44.4% 44.1% 37.7% 55.2% 23.6% 26.8% 16.2% 28.5%
New Products & Services 3.8 3.6 4.1 4.3 15.9 5.1 5.2 5.5 6.6 22.4 8.1 7.4 8.0 8.5 32.0 9.1 9.5 10.5 11.1 40.1
iStockphoto 2.7 5.0 5.7 8.0 21.5 12.7 15.6 18.8 24.8 71.9 34.9 40.2 43.0 45.9 164.0
YoY Growth - iStockphoto 366.5% 213.7% 228.0% 208.7% 235.1% 174.9% 158.1% 128.5% 85.0% 128.1%
Other 0.2 0.3 0.4 0.4 1.3 1.2 1.8 2.3 3.0 8.3 3.2 4.2 4.1 4.7 16.2 3.8 4.3 4.0 4.0 16.1
Contingency(7.5)(7.5)(7.5)(7.5)(30.1)
Total Revenue (Adj.) $ 178.1 $ 185.3 $ 184.5 $ 185.8 $ 733.7 $ 200.4 $ 204.6 $ 197.9 $ 203.6 $ 806.6 $ 212.6 $ 218.0 $ 208.9 $ 218.1 $ 857.6 $ 221.3 $ 236.9 $ 237.4 $ 244.4 $ 940.0
YoY Growth - Total Revenue 13.8% 23.3% 20.2% 14.6% 17.9% 12.8% 10.5% 7.4% 9.5% 10.0% 6.1% 6.5% 5.5% 7.1% 6.3% 4.1% 8.7% 13.6% 12.0% 9.6%
Source: GYI management
Note: 2005 revenue numbers do not reflect restated numbers
Additional Exhibits 48
Goldman Sachs
Historical EBITDA and EBIT
Quarterly by Segment ($ in millions)
2006 2007
Q1 Q2 Q3 Q4 FYE Q1 Q2 Q3 Q4 FYE
EBITDA (Adj.) $ 77.2 $ 80.0 $ 78.2 $ 78.6 $ 314.0 $ 83.5 $ 80.8 $ 71.7 $ 77.7 $ 313.8
Margin 38.5% 39.1% 39.5% 38.6% 38.9% 39.3% 37.1% 34.4% 35.6% 36.6%
EBIT (Adj.) $ 58.6 $ 57.7 $ 54.2 $ 55.6 $ 226.0 $ 59.9 $ 54.8 $ 43.9 $ 49.0 $ 207.6
Margin 29.2% 28.2% 27.4% 27.3% 28.0% 28.2% 25.1% 21.0% 22.5% 24.2% .
Source: GYI management financial statements and public filings
Additional Exhibits 49
Goldman Sachs
Selected Newspaper and Music Transactions1
2003 - Present
Trailing EBITDA Multiple
10.5x
GateHouse Media / Gannett (4 dailies)
10.7x
GateHouse Media / Copley Press (7 dailies, 2 weeklies)
9.6x
McClatchy / Avista (Minneapolis Star Tribune)
11.3x
DJ (Local Papers) / Community
10.0x
Local Investor Group / Philadelphia Inquirer and Daily News (McClatchy)
11.5x
MediaNews Group / McClatchy
(4 Newspapers)
10.3x
The McClatchy Company / Knight Ridder
10.3x
Fortress Capital / Liberty Group Publishing
13.1x
Lee Enterprises / Pulitzer
11.5x
Journal Register / 21st Century Newspapers
11.5x
Providence-Blackstone / Freedom Communications
Median = 10.7x
11.6x
Terra Firma Capital Partners / EMI Group
8.3x
Edgar Bronfman, THLee Partners, Bain Capital, Providence Equity / Warner Music Group (Time Warner)
Ann. Date Apr- 2007 Mar- 2007 Dec- 2006 Oct- 2006 May- 2006 May- 2006 Mar- 2006 May- 2005 Jan- 2005 Jul- 2004 Sep- 2003 Aug- 2007 Nov- 2003
Newspaper Music
Source: Public Filings
Additional Exhibits 50
Goldman Sachs
Appendix C: Leveraged Recapitalization / Stock Buyback Analysis
Leveraged Recapitalization / Stock Buyback Analysis 51
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Levered Recap Alternatives
GYI’s Range of Alternatives ($ in millions)
Increasing Leverage
Status Quo Case 1 Case 2
$385mm total debt
Refinance extant $630mm total debt $940mm total debt
convert and line of 2x LTM EBITDA 3x LTM EBITDA
Description credit Leverage Leverage
Illustrative Cost of L+325bps L+325bps, 96 OID L+475bps, 96 OID
Debt
Repurchases $0 $220 $517
One Time Repurchase NA 13.4% 31.7%
as % of Market Cap
PF Cash Balance $365 $365 $365
Total Gross Debt $385 $630 $940
Pro Forma Debt / LTM 1.2x 2.0x 3.0x
EBITDA (2007E)
Illustrative Premia N/A 15% 20%
Paid
EPS Impact
CY‘08 /‘12 Acc /(Dil) 3.8% / 8.2% 7.7% / 20.5%
‘08-‘12 EPS CAGR 16.5% 17.7% 19.8%
Note: Repurchase as % of market cap as of 04-Feb-08. Assumes LIBOR floor of 3.25% and 3.5% interest generated on cash. Status quo scenario assumes refinancing takes place at the end of Q12008. $385mm debt financing to refinance extant convertible, related taxes and line of credit. Case 1 and Case 2 assumed to take place at the end of Q1 2008
Leveraged Recapitalization / Stock Buyback Analysis 52
Goldman Sachs
Illustrative EPS Impact of Recapitalization
Summary EPS Accretion Analysis
FY2008E FY2009E FY2010E FY2011E FY2012E ‘08-‘12 EPS CAGR
Status Quo EPS $ 2.31 $ 2.61 $ 3.20 $ 3.65 $ 4.25 16.5%
YoY Growth 4.0% 13.0% 22.8% 13.8% 16.7%
2x LTM EBITDA Leverage
Pro Forma EPS $ 2.40 $ 2.77 $ 3.43 $ 3.92 $ 4.60 17.7%
YoY Growth 15.4% 24.0% 14.4% 17.3%
Accretion/Dilution 3.8% 6.0% 7.1% 7.6% 8.2%
3x LTM EBITDA Leverage
Pro Forma EPS $ 2.49 $ 2.96 $ 3.74 $ 4.32 $ 5.13 19.8%
YoY Growth 19.1% 26.4% 15.5% 18.5%
Accretion/Dilution 7.7% 13.5% 16.9% 18.6% 20.5%
Source: Status Quo EPS based on EBIT, tax rate and WASO per GYI management plan per GYI management, and calculated interest income and expense based on status quo financing assumptions. Status Quo interest expense calculated assuming $385mm debt financing at 6.5% at the end of Q1 2008 (refinance extant convertible, related tax costs and existing line of credit). 2x LTM EBITDA Leverage and 3x LTM EBITDA Leverage cases are per their assumptions on p53. All cases assume interest income on cash at 3.5%
Leveraged Recapitalization / Stock Buyback Analysis 53
Goldman Sachs
Illustrative Value Impact of Recapitalization
EPS Impact: 2008E-2012E
$ 5.13
$ 5.30
$ 4.80 $ 4.32 $ 4.60
$ 4.30 $ 3.74 $ 3.92 $ 4.25
$ 3.80 $ 3.43
$ 2.96
$ 3.30 $ 3.65
$ 2.49
$ 2.80 $ 3.20
$ 2.77
$ 2.30 $ 2.40 $ 2.61
$ 2.31
$ 1.80
FY2008E FY2009E FY2010E FY2011E FY2012E
2x LTM EBITDA Leverage 3x LTM EBITDA Leverage Status Quo EPS
Stock Price Sensitivity – Present Value
Stock Price Sensitivity
P/E
‘08 EPS 10.0 x 12.0 x 14.0 x 16.0 x
Status Quo $ 2.31 $ 23.10 $ 27.72 $ 32.33 $ 36.95
2x LTM EBITDA Leverage $ 2.40 23.98 28.77 33.57 $ 38.36
3x LTM EBITDA Leverage $ 2.49 24.88 29.86 34.83 $ 39.81
Stock Price Sensitivity
P/E1
‘10 EPS 10.0 x 12.0 x 14.0 x 16.0 x
Status Quo $ 3.20 $ 24.93 $ 29.92 $ 34.90 $ 39.89
2x LTM EBITDA Leverage $ 3.43 $ 26.69 $ 32.03 $ 37.36 $ 42.70
3x LTM EBITDA Leverage $ 3.74 $ 29.13 $ 34.96 $ 40.79 $ 46.61
Note: Present value of 2010 share price based on discount rate of 13.4% (risk free rate of 4.83% (10 year Treasury as of 04-Feb-2008), risk premium of 5.16% (Ibbotson) and beta of 1.65 (Barra historical beta))
Leveraged Recapitalization / Stock Buyback Analysis 54
| This ‘SC 13E3’ Filing | Date | Other Filings | ||
|---|---|---|---|---|
 | ||||
| Filed on: | 3/27/08 | PREM14A | ||
| 2/4/08 | 4 | |||
| 11/26/07 | ||||
| 10/23/07 | ||||
| List all Filings | ||||