• Respiratory protection products are used to protect against the harmful effects of contamination caused by dust, gases, fumes, volatile chemicals, sprays, micro-organisms, fibers, and other contaminants. It offers a range of respiratory protection products. Self Contained Breathing Apparatus (SCBAs) are used by first responders, petrochemical plant workers, and anyone entering an environment deemed immediately dangerous to life and health. SCBAs are also used by first responders to protect against exposure to chemical, biological, radiological, and nuclear, or CBRN, agents. The Personal Alert Safety System (PASS) device is an SCBA component that sounds a loud, piercing alarm when a firefighter becomes disabled or lies motionless for 30 seconds. Air-purifying respirators range from the simple, filtering types to powered full-facepiece versions for many hazardous applications, including full-face gas masks for military personnel and first responders exposed to known and unknown concentrations of hazardous gases, chemicals, vapors, and particulates; half-mask respirators for industrial workers, painters, and construction workers exposed to known concentrations of gases, vapors, and particulates; powered-air purifying respirators for industrial, hazmat, and remediation workers who have longer term exposures to hazards in their work environment, and dust and pollen masks for maintenance workers, contractors, and at-home consumers exposed to nuisance dusts, allergens, and other particulates.
• The Company supplies gas masks to the United States military. These masks are in use by the United States military in Iraq, Afghanistan, and other parts of the world. Its commercial version of this gas mask, the Millennium, was developed based on the MCU-2/P, the gas mask is used by the U.S. Air Force and U.S. Navy. The Response Escape Hood is used by law enforcement personnel, government workers, chemical and pharmaceutical workers, and anyone needing to escape from unknown concentrations of a chemical, biological or radiological release of toxic gases and vapors. The hood gives users head and upper neck coverage and respiratory protection to help them escape from threatening situations quickly and easily.

• The portable and permanent instruments are used to detect the presence or absence of various gases in the air. These instruments can be either hand-held or permanently installed. Typical applications of these instruments include the detection of the lack of oxygen in confined spaces or the presence of combustible or toxic gases.
• The Single- and multi-gas hand-held detectors provide portable solutions for detecting the presence of oxygen, combustible gases and various toxic gases, including hydrogen sulfide, carbon monoxide, ammonia and chlorine, either singularly or up to six gases at once. Its hand-held portable instruments are used by chemical workers, oil and gas workers, utility workers entering confined spaces, or anywhere a user needs to continuously monitor the quality of the atmosphere they are working in and around. Its ALTAIR $X multi-gas detector with xcell sensor technology provides response times and unsurpassed durability in a tough, easy to operate package.
• The line of gas detection systems is used to continuously monitor for combustible and toxic gases and oxygen deficiency in virtually any application where continuous monitoring is required. Its systems are used for gas detection in pulp and paper, refrigerant monitoring, petrochemical, and general industrial applications. The SafeSite Multi-Threat Wireless Detection System, designed and developed for homeland security applications, combines the technologies and features from its line of permanent and portable gas detection offerings. The SafeSite System detects and communicates the presence of toxic industrial chemicals and chemical warfare agents. With up to 16 monitoring stations, wirelessly connected to a base station, the SafeSite System allows law enforcement officials to deploy and set up perimeter gas sensing sentinels that continuously monitor the air for toxic gases at large public events, in subways or at federal facilities, and continuously report their status to incident command.
• The flame and combustible gas detectors are used for plant-wide monitoring of toxic gases and for detecting the presence of flames. These systems use infrared optics to detect potentially hazardous conditions across distances as far as 120 meters, making them suitable for use in such places as offshore oil rigs, storage vessels, refineries, pipelines, and ventilation ducts. First used in the oil and gas industry, its systems have applications in petrochemical facilities, the transportation industry, and in pharmaceutical production.

• The Company’s hand-held infrared thermal imaging cameras (TICs) are used in the global fire service market. TICs detect sources of heat in order to locate downed firefighters and other people trapped inside burning or smoke-filled structures. TICs can also be used to identify hot spots. Its Evolution 5000 series TICs are unmatched for ease of use and durability. Its Evolution 5800 TIC, offers imagery in a high resolution format. The Evolution 5600 Thermal Imaging Camera provides high resolution and a high sensitivity operating range in a rugged, user-friendly and affordable design.

• Head, eye, face, and hearing protection is used in work environments where hazards present dangers, such as , flying particles, metal fragments, chemicals, extreme glare, optical radiation, and items dropped from above. The Company’s line of hard hats includes full-brim hats and traditional hard hats, available in custom colors and with custom logos. These hard hats are used by plant, steel and construction workers, miners and welders. Its fire service products include leather, traditional, modern, and specialty helmets designed to satisfy the preferences of firefighters across geographic regions. Its Advanced Combat Helmet (ACH) is used by the military for ballistic head protection. The ACH was originally designed for the Special Forces of the United States military and has been designated as the basis of issue by the United States Army. MICH is a light weight and comfortable communication system that provides superior hearing protection as well as clear radio/intercom communications. The line of hearing protection products, non-prescription protective eyewear, and face shields is used by workers in a variety of industries.
• The Company’s line of fall protection equipment includes confined space equipment, harnesses/fall arrest equipment, lanyards, and lifelines. The MSA Paraclete Releasable Assault Vest and Releasable Modular Vest are used primarily by the United States military, including Special Forces Units. Its ForceField Body Armor line features concealable ballistic vests and over-the-uniform tactical vests designed primarily for law enforcement applications.

MSA has performed fairly well over the past five years. The Company’s revenue expanded in 2007 and 2008 before contracting with the recessionary pressures in 2009. The Company expanded revenue in 2010, but is still below the revenue levels reached in 2007 and 2008. The Company’s gross margins have been relatively stable over the past five years expanding slightly from 37.8% in 2006 to 38.2% in 2010. On the other hand, EBITDA margins have contracted from 13.8% in 2006 to 11.5% in 2010 resulting in EBITDA compression from $126MM in 2006 to $113MM in 2010 (10% contraction) over the five year period.

On a Per Share Basis, there isn’t much additional to identify. The Company has had relatively flat weighted average shares outstanding, only slightly decreasing from 36.9MM to 36.4MM over the period (a 1.4% decrease). EBITDA per share has contracted from $3.41 to $3.09 (a 9% decrease as compared to a 10% decrease at the company level). The Company’s dividends per share have been growing, more slowly recently, increasing from $0.68 per share in 2006 to $0.99 in 2010 (a 46% increase) with a major increase in the payout ratio from 39% to 95%.

The consensus estimates for MSA are aggressive projecting a cyclical rebound with the growth rate between 46% and 14% annually through 2013 at the EBITDA line (projections unavailable in 2014 and 2015). Under the consensus case the Company is projected to have significant additional free cash flow available to reinvest in the business, repurchase shares (always assumed for ease in modeling), or increase their dividend.

The share redemptions are assumed to be at a 15% annually compounded price. I believe that this is structured very conservatively. If the weighted average redemption price exceeded this threshold, the investor would have ample opportunity and time to re-evaluate their position and consider selling off their position for a gain from today’s price. The Company’s share redemptions would allow for an increase of 3%-4% annually in the dividend by the share redemptions alone. Additionally, the Company’s payout ratio would decline as the dollar amount of dividends paid would not be increasing while the Company earnings (using EBITDA as a proxy) would be increasing.

If the Company performs inline with the consensus estimates and pays dividends / redeems shares as outlined above, the Company would achieve the IRR / Cash on Cash returns below based on the outlined Terminal EBITDA Multiples.

The flat case for the Company assumes that there is no growth in EBITDA over the next five years. Under this case the Company is projected to have a flat $14MM of additional free cash flow available to reinvest in the business, repurchase shares (always assumed for ease in modeling), or increase their dividend.

The share redemptions are assumed to be at a 15% increased price to the Company’s current price. I believe that this is fairly conservative given that if there is no growth in the business, it is unlikely that the stock price would appreciate and if it did, an investor would have ample opportunity and time to re-evaluate their position and consider selling off their position for a gain from today’s price. The Company’s share redemptions would allow for an increase of approximately 3%-4% annually in the dividend by the share redemptions alone. Additionally, the Company’s payout ratio would not be increasing as the dollar amount of dividends and the Company earnings (using EBITDA as a proxy) would be flat.

If the Company performs flat to their current levels as outlined above, the Company would be able to achieve the IRR / Cash on Cash returns below based on the outlined Terminal EBITDA Multiples./p>

The downside case for the Company assumes that there is a 3% annual decrease in EBITDA through 2015. Under this case the Company is projected to have $6MM of additional free cash flow available to reinvest in the business, repurchase shares (always assumed for ease in modeling), or increase their dividend at the end of 2015.

The share redemptions are assumed to be at a 15% increased price to the Company’s current price. I believe that this is fairly conservative given that if there is a contraction in the business, it is unlikely that the stock price would appreciate and if it did an investor would have ample opportunity and time to re-evaluate their position and consider selling off their position for a gain from today’s price. The Company’s share redemptions would allow for an increase of < 1% annually in the dividend by the share redemptions alone.

If the Company performs to their downside case as outlined above, the Company would be able to achieve the IRR / Cash on Cash returns below based on the outlined Terminal EBITDA Multiples.

• S&P is the provider of credit ratings. The key constituents S&P serves are investors; corporations, governments, and municipalities; commercial and investment banks; insurance companies; asset managers, and other debt issuers. S&P differentiates its revenue between transaction and non-transaction, where transaction revenue includes new issuance of corporate, public finance, structured finance debt instruments, bank loans and corporate credit estimates, and non-transaction revenue includes annual fees for customer relationship-based pricing programs, surveillance fees and ratings fees earned relating to cancelled transactions (breakage fees).

• MH Financial is a global provider of digital and traditional research and analytical tools for investment advisors, wealth managers and institutional investors. It deploys the technology strategies to deliver to customers an integrated portfolio of cross-asset analytics, desktop services, valuation and index benchmarks and investment recommendations in the financial information, data and analytics market. The key constituents MH Financial serves are asset managers; investment banks; investors; brokers; financial advisors; investment sponsors, and companies’ back-office functions, including compliance, operations, risk, clearance and settlement. MH Financial differentiates its revenue between subscription and non-subscription, where subscription revenue includes credit ratings-related information products, the Capital IQ platform, investment research products and other data subscriptions, and non-subscription revenue includes fees based on assets underlying exchange-traded funds, as well as certain advisory, pricing and analytical services.

• MHE is a global educational publishers and consists of two operating groups: the School Education Group (SEG), which is serving the elementary and high school (el-hi) markets, and the Higher Education, Professional and International Group (HPI), which is serving the college and university, professional, international and adult education markets. SEG sells textbooks (print and digital versions), digital and hybrid supplemental materials and provides online and traditional assessment and reporting services. The key markets are pre-kindergarten, elementary, secondary, testing, supplemental, vocational and post-secondary fields in the United States. In the college and university market, and the international market, the Company sells integrated digital e-Learning platforms, textbooks and other resources to higher education institutions.

• I&M consists of two operating groups: the Business-to-Business Group (B2B), including such brands as Platts, J.D. Power and Associates, McGraw-Hill Construction and Aviation Week; and the Broadcasting Group, which operates nine television stations, four ABC affiliated stations located in Denver (KMGH-TV), Indianapolis (WRTV), San Diego (KGTV), and Bakersfield, California (KERO-TV), and five Azteca America affiliated stations in Denver (KZCO-TV), Fort Collins (KZFC-TV), Colorado Springs (KZCS-TV), San Diego (KZSD-TV) and Bakersfield, California (KZKC-TV). Key markets served by B2B include professionals and corporate executives in automotive, aerospace and defense, construction, and energy, and global business and financial professionals, traders, investors, marketers, advertisers, and consumers worldwide.

Historically, McGraw-Hill has performed well right up until the financial meltdown starting in 2008 and continuing through 2009. The Company cycled fairly moderately in 2008 and 2009 with top line performance decreasing a little over 6% in each year. In 2010, MHP saw the beginning of a financial recovery with revenues expanding over 3%. The Company’s profitability (gross margin) has remained relatively constant expanding slightly from 61.8% in 2006 to 62.0% in 2010. EBITDA performance is a similar story with margins contracting slightly from 25.8% in 2006 to 25.6% in 2010 resulting in EBITDA compression from $1.612B to $1.581B (2% contraction).

McGraw-Hill has also been pursuing a share redemption program to offset the dilution caused by stock grants/awards to management. In excess of the shares awarded, the Company has redeemed shares sufficient to reduce the number of share outstanding from 367MM to 312MM in the past five years (a 15% reduction). Performance on a per share basis has swung from a slight contraction in EBITDA to a reasonable expansion due to the reduced number shares outstanding. EBITDA per share has grown from $4.39 to $5.06 (a 15% increase as compared to a 2% contraction at the company level). The Company’s dividends per share have been growing as well from $0.73 per share in 2006 to $0.94 in 2010 (29% increase) with a modest increase in the payout ratio from 30% to 35%.

The consensus estimates for MHP are moderate/aggressive and achievable projecting the growth rate between 5% and 15% annually through 2015 at the EBITDA line. Under the consensus case the Company is projected to have significant additional free cash flow available to reinvest in the business, repurchase shares (always assumed for ease in modeling), or increase their dividend.

The share redemptions are assumed to be at a 15% annually compounded price. I believe that this is structured very conservatively. If the weighted average redemption price exceeded this threshold, the investor would have ample opportunity and time to re-evaluate their position and consider selling off their position for a gain from today’s price. The Company’s share redemptions would allow for an increase of approximately 5% annually in the dividend by the share redemptions alone. Additionally, the Company’s payout ratio would decline as the dollar amount of dividends paid would not be increasing while the Company earnings (using EBITDA as a proxy) would be increasing.

If the Company performs inline with the consensus estimates and pays dividends / redeems shares as outlined above, the Company would achieve the IRR / Cash on Cash returns below based on the outlined Terminal EBITDA Multiples.

The flat case for the Company assumes that there is no growth in EBITDA over the next five years. Under this case the Company is projected to have a flat $602MM of additional free cash flow available to reinvest in the business, repurchase shares (always assumed for ease in modeling), or increase their dividend.

The share redemptions are assumed to be at a 15% increased price to the Company’s current price. I believe that this is fairly conservative given that if there is no growth in the business, it is unlikely that the stock price would appreciate and if it did, an investor would have ample opportunity and time to re-evaluate their position and consider selling off their position for a gain from today’s price. The Company’s share redemptions would allow for an increase of approximately 4%-5% annually in the dividend by the share redemptions alone. Additionally, the Company’s payout ratio would not be increasing as the dollar amount of dividends and the Company earnings (using EBITDA as a proxy) would be flat.

If the Company performs flat to their current levels as outlined above, the Company would be able to achieve the IRR / Cash on Cash returns below based on the outlined Terminal EBITDA Multiples.

The downside case for the Company assumes that there is a 3% annual decrease in EBITDA through 2015. Under this case the Company is projected to have $467MM of additional free cash flow available to reinvest in the business, repurchase shares (always assumed for ease in modeling), or increase their dividend at the end of 2015.

The share redemptions are assumed to be at a 15% increased price to the Company’s current price. I believe that this is fairly conservative given that if there is a contraction in the business, it is unlikely that the stock price would appreciate and if it did an investor would have ample opportunity and time to re-evaluate their position and consider selling off their position for a gain from today’s price. The Company’s share redemptions would allow for an increase of approximately 4% annually in the dividend by the share redemptions alone.

If the Company performs to their downside case as outlined above, the Company would be able to achieve the IRR / Cash on Cash returns below based on the outlined Terminal EBITDA Multiples.

• The Industrial Products segment provides material handling products and services, as well as products used in various mobile equipment applications in the transportation equipment, vehicle service and solid waste management markets. The segment manages and sells its products and services through two business platforms Material Handling and Mobile Equipment.
• The Material Handling platform serves two global markets comprising infrastructure and industrial automation. The companies in this platform develop and manufacture customer productivity enhancing systems. The products are produced in the United States, Mexico, Germany, Belgium, Thailand, India, China, Brazil and France and are marketed globally on a direct basis to original equipment manufacturers (OEMs) and through a global dealer and distribution network to industrial end users.
• The Material Handling platform companies in the infrastructure market sell to segments of the construction, utility, demolition, recycling, scrap processing, material handling, forestry, energy, military, marine, towing/recovery, refuse and automotive OEM markets. The products include mobile shears, concrete demolition tools, buckets, backhoes, trenchers, augers, worm gear and planetary winches, and hydraulic lift and electronic control/monitoring systems for mobile and structural cranes, four-wheel drive (4WD) and all wheel drive (AWD) powertrain systems, and other accessories for off-road vehicles and operator cabs and rollover structures. The Material Handling platform companies in the industrial automation market provide a range of modular automation components, including manual clamps, power clamps, rotary and linear mechanical indexers, conveyors, pick and place units, as well as end-of-arm robotic grippers, slides and end effectors.
• The Mobile Equipment platform serves three markets, such as transportation equipment, solid waste management and vehicle service. The companies in this platform manufacture tank trailers, specialty trailers, refuse collection bodies (garbage trucks), container lifts, onsite waste management and recycling systems, vehicle service lifts, touch-free and friction vehicle wash systems, vehicle collision measuring and repair systems, aerospace and submarine-related fluid control assemblies, fasteners and bearings, internal engine components and other engine accessories. The businesses also provide components for off-road sports vehicles and autos. The platform has manufacturing operations in North and South America, Asia and Europe.
• The businesses in the transportation equipment markets, manufactures and sells aluminum, stainless steel and steel tank trailers that carry petroleum products, chemical, edible and dry bulk products, as well as specialty trailers focused on the heavy haul, oil field and recovery markets. Trailers are marketed both directly and indirectly through distributors to customers in the construction, trucking, railroad, oilfield and heavy haul industries.
• The businesses in the solid waste management market provide products and services for the refuse collection industry and for onsite processing and compaction of trash and recyclable materials. Products are sold to municipal customers, national accounts and independent waste haulers through a network of distributors and directly in certain geographic areas. The onsite waste management and recycling systems include a range of stationery compactors, wire processing and separation machines, and balers that are manufactured and sold in the United States to distribution centers, malls, stadiums, arenas, office complexes, retail stores and recycling centers.
• The businesses in the vehicle service market provide a range of products and services that are utilized in vehicle services, maintenance, repair and modification. Vehicle lifts and collision equipment are sold through equipment distribution and directly to a range of markets, including independent service and repair shops, collision repair shops, national chains and franchised service facilities, new vehicle dealers, and governments and directly to consumers through the Internet. Car wash sustems are sold in the United States and Canada to oil companies, convenience store chains and individual investors. The products are sold through a distribution network that installs the equipment and provides after sale service and support. The internal combustion engine components, including pistons, connecting rods and accessories, and fuel and combustion management devices are designed to meet customer specifications for the racing and enthusiast markets in both the motor sports and automotive market segments. These products are sold directly and through distribution networks on a global basis.

• The Engineered Systems segment provides products and services for the refrigeration, storage, packaging and preparation of food products, as well as industrial marking and coding systems for various markets. The segment serves its markets by managing these products and services through two business platforms comprising Product Identification (PI) platform and Engineered Products.
• The PI platform is a global supplier of industrial marking and coding systems that serves the food, beverage, cosmetic, pharmaceutical, electronic, automotive and other markets where variable marking is required. Its printing products are used for marking variable information, such as date codes or serial numbers on consumer products. PI provides solutions for product marking on primary packaging, secondary packaging, such as cartons and pallet marking for use in warehouse logistics operations. PI also manufactures bar code printers and portable printers used where on demand labels/receipts are required. The PI manufacturing facilities are in the United States, France and China with sales operations globally.
• The Engineered Products platform manufactures refrigeration systems, refrigeration display cases, walk-in coolers and freezers, electrical distribution products and engineering services, commercial foodservice equipment, cook-chill production systems, custom food storage and preparation products, kitchen ventilation systems, conveyer systems, beverage can-making machinery, and packaging machines used for meat, poultry and other food products. The platform also manufactures copper-brazed compact heat exchangers, designs software for heating and cooling substations. The platform’s manufacturing facilities and distributing operations are in North America and Europe with additional distribution facilities in South America and Asia.

• The Fluid Management segment provides products and services for end-to-end stewardship of its customers’ fluids, including liquids, gases, powders and other solutions that are hazardous, valuable or process-critical. The segment provides technologies that help contain, control, move, measure and monitor the fluids. The products and services are channeled through two business platforms, including Energy and Fluid Solutions.
• The Energy platform serves the oil, gas and power generation industries. The products manufactured by companies within this platform include polycrystalline diamond cutters (PDCs) used in drill bits for oil and gas wells, steel sucker rods and accessories used in onshore oil and gas production, pressure, temperature and flow monitoring equipment used in oil and gas exploration and production applications, and control valves and instrumentation for oil and gas production. The Company also manufactures various compressor parts used in the natural gas production, distribution and oil refining markets, as well as bearings and remote condition monitoring systems that are used for rotating machinery applications, such as turbo machinery, motors, generators and compressors used in energy, utility, marine and other industries.
• The Fluid Solutions platform manufactures pumps, compressors, vehicle fuel dispensing products, and products for the transfer, monitoring, measuring and protection of hazardous, liquid and dry bulk commodities. The Company also manufactures quick disconnect couplings and chemical proportioning and dispensing products. The products are manufactured in the United States, South America, Asia and Europe and marketed globally through a network of distributors or via direct channels.
• Vehicle fuel dispensing products include conventional, vapor recovery, clean energy nozzles, swivels and breakaways, as well as tank pressure management systems. Products manufactured for the transportation, storage and processing of hazardous liquid and dry-bulk commodities include relief valves, loading/unloading angle valves, rupture disc devices, actuator systems, level measurement gauges, swivel joints, butterfly valves, lined ball valves, actuators, aeration systems, industrial access ports, manholes, hatches, coamings, collars, weld rings and fill covers.
• The platform’s pumps and compressors are used to transfer liquid and bulk products and are sold to a range of markets, including the refined fuels, liquefied petroleum gas (LPG), pulp and paper, wastewater, food/sanitary, military, transportation and chemical process industries. The quick disconnect couplings provide fluid control solutions to the industrial, food handling, life sciences and chemical handling markets.

• The Electronic Technologies segment designs and manufactures electronic test, material deposition and manual soldering equipment, micro-acoustic components, and specialty electronic components. The products are manufactured in North America, Europe and Asia and are sold globally through a network of distributors.
• The test equipment products include machines, test fixtures and related products used in testing bare and loaded electronic circuit boards, and semiconductors. The segment also manufactures precision material deposition machines and other related tools used in the assembly process for printed circuit boards and other specialty applications, as well as precision manual soldering, de-soldering, and other hand tools.
• The micro-acoustic components manufactured include audio communications components, primarily miniaturized microphones, receivers and electromechanical components for use in hearing aids, as well as transducers for use in pro-audio devices, high-end headsets, medical devices, military headsets and far field arrays. The platform also designs, manufactures and assembles microphones for use in the personal mobile device and communications markets, including mobile phones, personal digital assistant (PDAs), Bluetooth headsets and laptop computers.
• The specialty electronic components include frequency control/select components and modules employing quartz technologies, microwave electro-mechanical switches, radio frequency and microwave filters, and integrated assemblies, multi-layer ceramic capacitors and high frequency capacitors. The components are sold to communication, medical, defense, aerospace and automotive manufacturers worldwide.

DOV, similar to BRC, performed well when the economy was expanding growing revenue in 2007 and 2008. The Company cycled hard in 2009 with the great recession; revenue declined over 20% from the 2008 levels. 2010 saw a significant pick up with revenue expanding over 20%, but not quite to the 2008 levels. The Company’s Gross and EBITDA margins have been trending higher over the past five years. DOV has increased EBITDA from $1.1B in 2006 to $1.3B in 2010 (19% increase) over the five year period.

DOV, dissimilar to BRC, has decreased the number of shares outstanding from 206MM to 189MM in the past five years (an 8% decrease). Performance on a per share basis gives a better insight into how the Company has been performing; EBITDA per share has expanded from $5.35 to $6.92 (a 29% expansion as compared to a 19% increase at the company level). The Company’s dividends per share have been growing briskly from $0.71 per share in 2006 to $1.07 in 2010 (51% increase) while the payout ratio has only expanded modestly from 26% to 29%.

The consensus estimates for Dover Corp are aggressive projecting the growth rate between 24% and 9% annually through 2013 at the EBITDA line (projections unavailable in 2014 and 2015). Given the Company’s cyclical exposure (and growth in 2007 and 2008), I don’t think that they will have much trouble achieving these numbers if the economy doesn’t further contract. Under the consensus case the Company is projected to have significant additional free cash flow available to reinvest in the business, repurchase shares (always assumed for ease in modeling), or increase their dividend.

The share redemptions are assumed to be at a 15% annually compounded price. I believe that this is structured very conservatively. If the weighted average redemption price exceeded this threshold, the investor would have ample opportunity and time to re-evaluate their position and consider selling off their position for a gain from today’s price. The Company’s share redemptions would allow for an increase of approximately 6%-7% annually in the dividend by the share redemptions alone. Additionally, the Company’s payout ratio would decline as the dollar amount of dividends paid would not be increasing while the Company earnings (using EBITDA as a proxy) would be increasing.

If the Company performs inline with the consensus estimates and pays dividends / redeems shares as outlined above, the Company would achieve the IRR / Cash on Cash returns below based on the outlined Terminal EBITDA Multiples.

The flat case for the Company assumes that there is no growth in EBITDA over the next five years. Under this case the Company is projected to have a flat $599MM of additional free cash flow available to reinvest in the business, repurchase shares (always assumed for ease in modeling), or increase their dividend.

The share redemptions are assumed to be at a 15% increased price to the Company’s current price. I believe that this is fairly conservative given that if there is no growth in the business, it is unlikely that the stock price would appreciate and if it did, an investor would have ample opportunity and time to re-evaluate their position and consider selling off their position for a gain from today’s price. The Company’s share redemptions would allow for an increase of approximately 5%-6% annually in the dividend by the share redemptions alone. Additionally, the Company’s payout ratio would not be increasing as the dollar amount of dividends and the Company earnings (using EBITDA as a proxy) would be flat.

If the Company performs flat to their current levels as outlined above, the Company would be able to achieve the IRR / Cash on Cash returns below based on the outlined Terminal EBITDA Multiples.

The downside case for the Company assumes that there is a 3% annual decrease in EBITDA through 2015. Under this case the Company is projected to have $472MM of additional free cash flow available to reinvest in the business, repurchase shares (always assumed for ease in modeling), or increase their dividend at the end of 2015.

The share redemptions are assumed to be at a 15% increased price to the Company’s current price. I believe that this is fairly conservative given that if there is a contraction in the business, it is unlikely that the stock price would appreciate and if it did an investor would have ample opportunity and time to re-evaluate their position and consider selling off their position for a gain from today’s price. The Company’s share redemptions would allow for an increase of approximately 4%-5% annually in the dividend by the share redemptions alone.

If the Company performs to their downside case as outlined above, the Company would be able to achieve the IRR / Cash on Cash returns below based on the outlined Terminal EBITDA Multiples.

In March 2010, the Company acquired Securimed SAS (Securimed), a supplier and distributor of customized first-aid kits and supplies, and related healthcare products including personal protection, disinfection and hygiene products, diagnosis materials, and products for emergency response. In December 2009, the Company acquired Stickolor Industria e Comercio de Auto Adesivos Ltda. (Stickolor). In October 2009, the Company acquired certain assets of the Welco division of Welconstruct Group Limited.

As of July 31, 2009, Brady operated 56 manufacturing or distribution facilities. Sixteen are located in the United States; three in Brazil, two in Mexico, and one in Canada. Four each located in the United Kingdom and Germany; three each located in Belgium and France; two in Italy: and one each in the Netherlands, Norway, Poland, and Sweden. Six are located in China; two in Australia, and one each in Japan, Thailand, Singapore, India, South Korea, and Malaysia.

The Company markets and sells its products domestically and internationally through multiple channels including distributors, direct sales, mail-order-catalog marketing, retail, and electronic access through the Internet. The Company also direct markets certain products and those of other manufacturers by catalog sales, outbound telemarketing, and electronic access via the Internet in both domestic and international markets. Such products include industrial and facility identification products, safety and regulatory-compliance products and original equipment manufacturer component products, among others. Catalogs are distributed in the United States, Australia, Austria, Belgium, Brazil, Canada, China, France, Germany, Italy, the Netherlands, Portugal, Slovakia, Spain, Switzerland and the United Kingdom, and include foreign language catalogs.

The Brady brand includes high-performance labels, wire identification products, printers, software, safety and facility identification products, lock-out/tag-out products, people identification products, precision die-cut parts and specialty materials. Other die-cut materials are marketed as Balkhausen products. Safety and facility identification products are also marketed under the Safety Signs Service brand, with some lockout/tagout products offered under the Prinzing and Scafftag brands. In addition, identification products for the utility industry are marketed under the Electromark brand and spill-control products are marketed under the Sorbent Products Company and D.A.W.G. brands; poster printers and cutting systems for education and government markets are offered under the Varitronics brand; wire identification products are marketed under the Modernotecnica brand and the Carroll brand, and custom labels and nameplates under the Stickolor brand. Direct marketing safety and facility identification products are offered under the Seton, Emedco, Signals, Safetyshop, Clement and Personnel Concepts names; direct supplies under the Accidental Health and Safety, Trafalgar, and Securimed brands. Security and identification badges and systems are included in the Temtec, B.I.G., Identicard/Identicam, STOPware, J.A.M. Plastics, PromoVision, and Quo-Luck brands; hand-held regulatory documentation systems are available under the Tiscor name; automatic identification and bar-code software is offered under the Teklynx name.

• The Company’s informational signs, tags and labels, and do-it-yourself printers for use in a range of industrial, utility, commercial, governmental and institutional applications. These products are either self-adhesive or mechanically mounted, designed for both indoor and outdoor use and are manufactured to meet standards issued by the National Safety Council, OSHA and a variety of industry associations in the United States and abroad. The Company’s sign products include admittance, directional and exit signs; electrical hazard warnings; energy conservation messages; fire protection and fire equipment signs; hazardous waste labels; hazardous and toxic material warning signs; transformers and power pole markers; personal hazard warnings; housekeeping and operational warnings; pictograms; radiation and laser signs; safety practices signs and regulatory markings; employment law posters, and photo luminescent (glow-in-the-dark) products.
• Brady’s Warehouse identification products includes labels, tags, and printing systems used to locate and identify inventory in storage facilities, such as warehouses, factories, stockrooms and other industrial facilities. Pipe markers and valve tags include plastic or metal, self-adhesive or mechanically applied stock or custom-designed pieces for the identification of pipes and control valves in the mechanical contractor and process industry markets. Asset-identification products include self-adhesive or mechanically mounted labels or tags made of aluminum, brass, stainless steel, polycarbonate, vinyl, polyester, mylar and paper.
• Brady offers lockout/tagout products. Under OSHA regulations, all energy sources must be locked out, while machines are being serviced or maintained to prevent accidental engagement and injury. The Company’s Security and traffic control products include a variety of security seals, parking permits and wristbands designed for visitor control in financial, governmental, educational and commercial facilities, including meeting and convention sites. The Company also offers a variety of traffic control devices, including traffic signs, directional and warning signs, parking tags and permits, barriers, cones and other products, including barricading, visual warning systems, floor-marking products, safety badges, and first aid cabinets/kits, among others. The Company’s Spill control and clean-up products include synthetic sorbent materials in a variety of shapes, sizes and configurations; spill kits, containment booms, industrial rugs, absorbing pillows and pads, barrier spill matting and granular absorbents, and other products for absorbing and controlling chemical, oil-based and water-based spills.

• Brady manufactures a range of wire and cable-marking products, including labels, sleeves, printers and software that allow customers to create their own labels, and printers to print and apply them. These products mark and identify wires, cables and their termination points to facilitate manufacturing, construction, repair or maintenance of equipment, and data communication and electrical wiring systems used in virtually every industrial, power and communication market.

• Brady produces a line of label materials and printing systems to meet customers’ needs for identification requirements for product identification, brand protection labeling, tamper-evident labeling, work in process labeling, finished product identification and bar coding that perform under harsh or demanding conditions. Brady prints stock and custom labels and also sells unprinted materials to enable customers to print their own labels.

• The Company manufactures customized precision die-cut products that are used to seal, insulate, protect, shield or provide other mechanical performance properties in the assembly of electronic, telecommunications and other equipment, including mobile phones, personal data assistants, computer hard disk drives, computers and other devices. Solutions not only include the materials and converting, but also automatic placement and other value-added services. The Company also provides converting services to the medical market for materials used in in-vitro diagnostic kits, patient monitoring, and bandaging applications.

• The Company offers identification systems and products including photo ID card systems that combine biometrics, digital imaging and other technologies to positively identify people; self-expiring name tags that make use of migratory ink technology which, upon activation, starts a timed process resulting in an altered message, color or design to indicate expiration; software for visitor and employee identification, and identification accessories including lanyards, badge holders, badge reels and attachments, as well as photo identification kits.

• The Company also designs and produces software for bar-coding and inspection automation, industrial thermal-transfer printers and other electromechanical devices to serve the growing and specialized needs of customers in a wide variety of markets. Industrial labeling systems, software, tapes, ribbons and label stocks provide customers with the resources and flexibility to produce signs and labels on demand at their site. The Company also offers poster printers, cutting systems, laminators and supplies to education and training markets.

BRC performed well when the economy was expanding growing revenue double digits in 2007 and 2008. The Company cycled hard in 2009 with the great recession; revenue declined over 20% from the 2008 levels. 2010 saw a moderate pick up with revenue expanding in the low single digits. The Company’s Gross and EBITDA margins have been fairly volatile and bouncing around quite a bit. Over the period, both Gross margins and EBITDA margins contracted. BCR has increased EBITDA from $192MM in 2006 to $198MM in 2010 (3% increase) over the five year period.

BRC is another case where it is important to evaluate the Company on a per share basis. The Company’s shares outstanding increased from 50.4MM to 52.9MM in the past five years (a 5% expansion). Performance on a per share basis gives a better insight into how the Company has been performing; EBITDA per share has shrunk from $3.80 to $3.74 (a 2% contraction as compared to a 5% increase at the company level). The Company’s dividends per share have been growing briskly from $0.52 per share in 2006 to $0.70 in 2010 (35% increase) almost exclusively from an increasing payout ratio from 25% to 45%.

The consensus estimates for Brady are moderately aggressive projecting the growth rate between 15% and 10% annually through 2013 at the EBITDA line (projections unavailable in 2014 and 2015). Given the Company’s cyclical exposure (and growth in 2007 and 2008), I don’t think that they will have much trouble achieving these numbers if the economy doesn’t further contract. Under the consensus case the Company is projected to have significant additional free cash flow available to reinvest in the business, repurchase shares (always assumed for ease in modeling), or increase their dividend.

The share redemptions are assumed to be at a 15% annually compounded price. I believe that this is structured very conservatively. If the weighted average redemption price exceeded this threshold, the investor would have ample opportunity and time to re-evaluate their position and consider selling off their position for a gain from today’s price. The Company’s share redemptions would allow for an increase of approximately 6%-7% annually in the dividend by the share redemptions alone. Additionally, the Company’s payout ratio would decline as the dollar amount of dividends paid would not be increasing while the Company earnings (using EBITDA as a proxy) would be increasing.

If the Company performs inline with the consensus estimates and pays dividends / redeems shares as outlined above, the Company would achieve the IRR / Cash on Cash returns below based on the outlined Terminal EBITDA Multiples.

The flat case for the Company assumes that there is no growth in EBITDA over the next five years. Under this case the Company is projected to have a flat $88MM of additional free cash flow available to reinvest in the business, repurchase shares (always assumed for ease in modeling), or increase their dividend.

The share redemptions are assumed to be at a 15% increased price to the Company’s current price. I believe that this is fairly conservative given that if there is no growth in the business, it is unlikely that the stock price would appreciate and if it did, an investor would have ample opportunity and time to re-evaluate their position and consider selling off their position for a gain from today’s price. The Company’s share redemptions would allow for an increase of approximately 5%-6% annually in the dividend by the share redemptions alone. Additionally, the Company’s payout ratio would not be increasing as the dollar amount of dividends and the Company earnings (using EBITDA as a proxy) would be flat.

If the Company performs flat to their current levels as outlined above, the Company would be able to achieve the IRR / Cash on Cash returns below based on the outlined Terminal EBITDA Multiples.

The downside case for the Company assumes that there is a 3% annual decrease in EBITDA through 2015. Under this case the Company is projected to have $68MM of additional free cash flow available to reinvest in the business, repurchase shares (always assumed for ease in modeling), or increase their dividend at the end of 2015.

The share redemptions are assumed to be at a 15% increased price to the Company’s current price. I believe that this is fairly conservative given that if there is a contraction in the business, it is unlikely that the stock price would appreciate and if it did an investor would have ample opportunity and time to re-evaluate their position and consider selling off their position for a gain from today’s price. The Company’s share redemptions would allow for an increase of approximately 5% annually in the dividend by the share redemptions alone.

If the Company performs to their downside case as outlined above, the Company would be able to achieve the IRR / Cash on Cash returns below based on the outlined Terminal EBITDA Multiples.

Colgate has performed well expanding revenue more than 27% since 2006 and even managed to mitigate a contracting market through the recession in 2009. The Company’s gross and EBITDA margins have been strong and expanding over the period as well. Gross margins expanded from 56.4% in 2006 to 59.1% in 2010. Similarly, EBITDA margins expanded from 23.1% in 2006 to 26.7% in 2010 resulting in EBITDA growth from $2.8B to $4.2B (47% expansion).

Colgate has also been pursuing a share redemption program to offset the dilution caused by stock grants/awards to management. Over the past five years, the Company has redeemed shares sufficient to reduce the number of share outstanding from 551MM to 511MM (7.3% reduction). Performance on a per share basis has the compounding effect of improved company performance and reduced shares outstanding resulting in an EBITDA per share growth from $5.14 to $8.15 (a 59% increase as compared to a 47% increase at the company level). The Company’s dividends per share have been growing rapidly as well from $1.25 per share in 2006 to $2.03 in 2010 (62% increase) with an slight decline in the payout ratio from 51% to 47%.

The consensus estimates for Colgate are projecting light-to-moderate growth through 2013 at the EBITDA line (projections for 2014 and 2015 are not available). Under the consensus case the Company is projected to have significant additional free cash flow available to reinvest in the business, repurchase shares (always assumed for ease in modeling), or increase their dividend.

The share redemptions are assumed to be at a 15% annually compounded price. I believe that this is structured very conservatively. If the weighted average redemption price exceeded this threshold, the investor would have ample opportunity and time to re-evaluate their position and consider selling off their position for a gain from today’s price. The Company’s share redemptions would allow for an increase of approximately 2%-3% annually in the dividend by the share redemptions alone. Additionally, the Company’s payout ratio would decline as the dollar amount of dividends paid would not be increasing while the Company earnings (using EBITDA as a proxy) would be increasing.

If the Company performs inline with the consensus estimates and pays dividends / redeems shares as outlined above, the Company would achieve the IRR / Cash on Cash returns below based on the outlined Terminal EBITDA Multiples.

The flat case for the Company assumes that there is no growth in EBITDA over the next five years. Under this case the Company is projected to have a flat $1.3B of additional free cash flow available to reinvest in the business, repurchase shares (always assumed for ease in modeling), or increase their dividend.

The share redemptions are assumed to be at a 15% increased price to the Company’s current price. I believe that this is fairly conservative given that if there is no growth in the business, it is unlikely that the stock price would appreciate and if it did, an investor would have ample opportunity and time to re-evaluate their position and consider selling off their position for a gain from today’s price. The Company’s share redemptions would allow for an increase of approximately 2%-3% annually in the dividend by the share redemptions alone. Additionally, the Company’s payout ratio would not be increasing as the dollar amount of dividends and the Company earnings (using EBITDA as a proxy) would be flat.

If the Company performs flat to their current levels as outlined above, the Company would be able to achieve the IRR / Cash on Cash returns below based on the outlined Terminal EBITDA Multiples.

The downside case for the Company assumes that there is a 3% annual decrease in EBITDA through 2015. Under this case the Company is projected to have $923MM of additional free cash flow available to reinvest in the business, repurchase shares (always assumed for ease in modeling), or increase their dividend at the end of 2015.

The share redemptions are assumed to be at a 15% increased price to the Company’s current price. I believe that this is fairly conservative given that if there is a contraction in the business, it is unlikely that the stock price would appreciate and if it did an investor would have ample opportunity and time to re-evaluate their position and consider selling off their position for a gain from today’s price. The Company’s share redemptions would allow for an increase of approximately 2% annually in the dividend by the share redemptions alone.

If the Company performs to their downside case as outlined above, the Company would be able to achieve the IRR / Cash on Cash returns below based on the outlined Terminal EBITDA Multiples.

• The Oilseeds Processing segment includes activities related to the origination, merchandising, crushing, and further processing of oilseeds, such as soybeans, cottonseed, sunflower seeds, canola, rapeseed, peanuts, flaxseed, and palm into vegetable oils and protein meals. The Oilseeds Processing segment principally produces and markets processed oilseed products as ingredients for the food, feed, energy, and other industrial products industries. Crude vegetable oil is sold as is or is further processed by refining, blending, bleaching, and deodorizing into salad oils. Salad oils are sold as is or are further processed by hydrogenating and/or interesterifying into margarine, shortening, and other food products. Partially refined oil is used to produce biodiesel or is sold to other manufacturers for use in chemicals, paints, and other industrial products. Oilseed protein meals are principally sold to third parties to be used as ingredients in commercial livestock and poultry feeds. The Oilseeds Processing segment also produces natural health and nutrition products and other specialty food and feed ingredients. In North America, cottonseed flour is produced and sold primarily to the pharmaceutical industry and cotton cellulose pulp is manufactured and sold to the chemical, paper, and filter markets. In South America, the Oilseeds Processing segment utilizes a network of grain elevators, port facilities and transportation assets to buy, store, clean, and transport agricultural commodities and operates fertilizer blending facilities.
• The Company produces a range of edible soy protein products including soy flour, soy grits, soy protein concentrates and soy isolates that are used in processed meats, baked foods, nutritional products, snacks, and dairy and meat analogs. From co-products of oilseeds, the Company produces natural source vitamin E, tocopherol antioxidants and phytosterols, which are marketed to the dietary supplement and food industry. The Company produces soy isoflavones, a dietary supplement, from a co-product of edible soy processing. Golden Peanut Company LLC, a joint venture between the Company and Alimenta (U.S.A.), Inc., is a supplier of peanuts and peanut derived ingredients to both the domestic and export markets. The Company has a 50% ownership interest in this joint venture. The Company has a 50% interest in Edible Oils Limited, a joint venture between the Company and Princes Foods to procure, package, and sell edible oils in the United Kingdom. The Company recently announced the formation of a new edible oils joint venture with Princes Foods in Poland.
• Stratas Foods LLC, a joint venture between the Company and ACH Jupiter, LLC, a subsidiary of Associated British Foods, procures, packages, and sells edible oils in North America. The Company has a 50% ownership interest in this joint venture. The Company has a 16.4% ownership interest in Wilmar International Limited (Wilmar), a Singapore publicly listed company. Wilmar is a processor and merchandiser of palm and lauric oils, and a major oil palm plantation owner. The Company is a supplier of agricultural commodity raw materials to Edible Oils Limited, Stratas Foods LLC, and Wilmar.

• The Company’s Corn Processing segment is engaged in corn wet milling and dry milling activities, primarily in the United States, related to its production of ingredients used in the food and beverage industry including syrup, starch, glucose, dextrose, and sweeteners. Dextrose is also used by the Company as a feedstock for its bioproducts operations. Corn gluten feed and meal, as well as distillers grains, is produced for use as animal feed ingredients. Corn germ, a by-product of the wet milling process, is further processed as an oilseed into vegetable oil and protein meal. The Company’s Corn Processing segment is engaged in corn wet milling and dry milling activities, primarily in the United States, related to its production of ingredients used in the food and beverage industry including syrup, starch, glucose, dextrose, and sweeteners. Dextrose is also used by the Company as a feedstock for its bioproducts operations. Corn gluten feed and meal, as well as distillers grains, is produced for use as animal feed ingredients. Corn germ, a by-product of the wet milling process, is further processed as an oilseed into vegetable oil and protein meal.
• Almidones Mexicanos S.A., in which the Company has a 50% interest, operates a wet corn milling plant in Mexico. Eaststarch C.V. (Netherlands), in which the Company has a 50% interest, owns interests in companies that operate wet corn milling plants in Bulgaria, Hungary, Slovakia, and Turkey. The Company has a 50% interest in Telles, LLC (Telles), a joint venture between the Company and Metabolix to market and sell PHA, which is being produced in a facility owned by the Company. Red Star Yeast Company, LLC produces and sells fresh and dry yeast in the United States and Canada. The Company has a 40% ownership interest in this joint venture.

• The Agricultural Services segment utilizes the Company’s extensive grain elevator and transportation network to buy, store, clean, and transport agricultural commodities, such as oilseeds, corn, wheat, milo, oats, rice, and barley, and resells these commodities primarily as food and feed ingredients and as raw materials for the agricultural processing industry. The Company processes and distributes edible beans in the United States for use as a food ingredient. The Company produces and distributes formula feeds and animal health and nutrition products to the livestock, dairy, poultry, and pet food industries. Alfred C. Toepfer International (Toepfer), in which the Company has an 80% interest, is a global merchandiser of agricultural commodities and processed products. Toepfer has 36 sales offices worldwide and operates inland, river, and export facilities in Argentina, Romania, Ukraine, and the United States. The Company has a 45% interest in Kalama Export Company, a grain export elevator in Washington.

• The Company is engaged in milling wheat, corn, and milo into flour in the United States, Canada, the Caribbean, and the United Kingdom. The Company produces bakery products and mixes, wheat starch, and gluten, which are sold to the baking industry. The Company also mills milo to produce industrial flour used in the manufacturing of wallboard for the building industry. Gruma S.A.B. de C.V. (Gruma), in which the Company has a 23.2% interest, is a producer and marketer of corn flour and tortillas with operations in Mexico, the United States, Central America, South America, and Europe. Additionally, the Company has a 20% share, through a joint venture with Gruma, in six United States corn flour mills and one in Italy. The Company also has a 40% share, through a joint venture with Gruma, in nine Mexican wheat flour mills. Hickory Point Bank and Trust Company, fsb, a wholly owned subsidiary of the Company, furnishes public banking and trust services, as well as cash management, transfer agency, and securities safekeeping services, for the Company.

ADM’s revenue has been volatile over the past five years with the top line being significantly impacted by commodity prices. For example, 85% of the 2008 increase in revenue is attributable to commodity costs increases. When it is impossible to carve out passthroughs, you must be cognizant of drawing the wrong conclusions (we will ignore the revenue trends in this case). The Company’s gross profit showed a strong trend through 2009 before contracting in 2010. EBITDA is a similar story expanding from $2.5B in 2006 to $3.4B in 2010 (34% expansion).

ADM has slightly reduced the number of shares outstanding from 656MM to 644MM in the past five years (a 1.8% reduction). Performance on a per share basis has the slight compounding effect of improved company performance and reduced shares outstanding resulting in an EBITDA per share growth from $3.84 to $5.23 (a 36% increase as compared to a 34% increase at the company level). The Company’s dividends per share have been growing rapidly as well from $0.37 per share in 2006 to $0.58 in 2010 (57% increase) with a virtually unchanged payout ratio around 20% of earnings.

The consensus estimates for ADM are moderate and very achievable projecting the growth rate between 17% and 2% annually through 2013 at the EBITDA line (no estimates are available for 2014 and 2015 resulting in a 21% EBITDA expansion over 5 years). Under the consensus case the Company is projected to have significant additional free cash flow available to reinvest in the business, repurchase shares (always assumed for ease in modeling), or increase their dividend.

The share redemptions are assumed to be at a 15% annually compounded price. I believe that this is structured very conservatively. If the weighted average redemption price exceeded this threshold, the investor would have ample opportunity and time to re-evaluate their position and consider selling off their position for a gain from today’s price. The Company’s share redemptions would allow for an increase of approximately 3%-4% annually in the dividend by the share redemptions alone. Additionally, the Company’s payout ratio would decline as the dollar amount of dividends paid would not be increasing while the Company earnings (using EBITDA as a proxy) would be increasing.

If the Company performs inline with the consensus estimates and pays dividends / redeems shares as outlined above, the Company would achieve the IRR / Cash on Cash returns below based on the outlined Terminal EBITDA Multiples.

The flat case for the Company assumes that there is no growth in EBITDA over the next five years. Under this case the Company is projected to have a flat $734MM of additional free cash flow available to reinvest in the business, repurchase shares (always assumed for ease in modeling), or increase their dividend.

The share redemptions are assumed to be at a 15% increased price to the Company’s current price. I believe that this is fairly conservative given that if there is no growth in the business, it is unlikely that the stock price would appreciate and if it did, an investor would have ample opportunity and time to re-evaluate their position and consider selling off their position for a gain from today’s price. The Company’s share redemptions would allow for an increase of approximately 3%-4% annually in the dividend by the share redemptions alone. Additionally, the Company’s payout ratio would not be increasing as the dollar amount of dividends and the Company earnings (using EBITDA as a proxy) would be flat.

If the Company performs flat to their current levels as outlined above, the Company would be able to achieve the IRR / Cash on Cash returns below based on the outlined Terminal EBITDA Multiples.

The downside case for the Company assumes that there is a 3% annual decrease in EBITDA through 2015. Under this case the Company is projected to have $523MM of additional free cash flow available to reinvest in the business, repurchase shares (always assumed for ease in modeling), or increase their dividend at the end of 2015.

The share redemptions are assumed to be at a 15% increased price to the Company’s current price. I believe that this is fairly conservative given that if there is a contraction in the business, it is unlikely that the stock price would appreciate and if it did an investor would have ample opportunity and time to re-evaluate their position and consider selling off their position for a gain from today’s price. The Company’s share redemptions would allow for an increase of approximately 2%-3% annually in the dividend by the share redemptions alone.

If the Company performs to their downside case as outlined above, the Company would be able to achieve the IRR / Cash on Cash returns below based on the outlined Terminal EBITDA Multiples.

Colorx has performed well expanding revenue every year in the past four at a strong rate of 2%-9%, even through the recession in 2009. The Company’s gross and EBITDA margins have been expanding over the period as well. Gross margins expanded from 42.2% in 2006 to 44.8% in 2010. Similarly, EBITDA margins expanded from 21.1% in 2006 to 23.1% in 2010 resulting in EBITDA growth from $1.0B to $1.3B (31% expansion).

Clorox has also been pursuing a share redemption program to offset the dilution caused by stock grants/awards to management. The Company had a big redemption in 2008 reducing shares outstanding by over 8%. Over the past five years, the Company has redeemed shares sufficient to reduce the number of share outstanding from 153MM to 142MM (7.5% reduction). Performance on a per share basis has the compounding effect of improved company performance and reduced shares outstanding resulting in an EBITDA per share growth from $6.39 to $9.03 (a 41% increase as compared to a 31% increase at the company level). The Company’s dividends per share have been growing rapidly as well from $1.15 per share in 2006 to $2.05 in 2010 (78% increase) with an increase in the payout ratio from ~40% to ~50%.

The consensus estimates for Clorox are projecting a near term contraction in EBITDA (nearly 17%) before growing on a path that is similar to it’s historical growth. This material contraction does raise some concerns about the business, but long term I believe the Company has a lot of staying power. Under the consensus case the Company is projected to have significant additional free cash flow available to reinvest in the business, repurchase shares (always assumed for ease in modeling), or increase their dividend.

The share redemptions are assumed to be at a 15% annually compounded price. I believe that this is structured very conservatively. If the weighted average redemption price exceeded this threshold, the investor would have ample opportunity and time to re-evaluate their position and consider selling off their position for a gain from today’s price. The Company’s share redemptions would allow for an increase of approximately 1% annually in the dividend by the share redemptions alone. Additionally, the Company’s payout ratio would decline as the dollar amount of dividends paid would not be increasing while the Company earnings (using EBITDA as a proxy) would be increasing.

If the Company performs inline with the consensus estimates and pays dividends / redeems shares as outlined above, the Company would achieve the IRR / Cash on Cash returns below based on the outlined Terminal EBITDA Multiples.

The flat case for the Company assumes that there is no growth in EBITDA over the next five years. Under this case the Company is projected to have a flat $96MM of additional free cash flow available to reinvest in the business, repurchase shares (always assumed for ease in modeling), or increase their dividend.

The share redemptions are assumed to be at a 15% increased price to the Company’s current price. I believe that this is fairly conservative given that if there is no growth in the business, it is unlikely that the stock price would appreciate and if it did, an investor would have ample opportunity and time to re-evaluate their position and consider selling off their position for a gain from today’s price. The Company’s share redemptions would allow for an increase of approximately 1% annually in the dividend by the share redemptions alone. Additionally, the Company’s payout ratio would not be increasing as the dollar amount of dividends and the Company earnings (using EBITDA as a proxy) would be flat.

If the Company performs flat to their current levels as outlined above, the Company would be able to achieve the IRR / Cash on Cash returns below based on the outlined Terminal EBITDA Multiples.

The downside case for the Company assumes that there is a 3% annual decrease in EBITDA through 2015. Under this case the Company is projected to have $28MM of additional free cash flow available to reinvest in the business, repurchase shares (always assumed for ease in modeling), or increase their dividend at the end of 2015.

The share redemptions are assumed to be at a 15% increased price to the Company’s current price. I believe that this is fairly conservative given that if there is a contraction in the business, it is unlikely that the stock price would appreciate and if it did an investor would have ample opportunity and time to re-evaluate their position and consider selling off their position for a gain from today’s price. The Company’s share redemptions would allow for an increase of approximately 1% annually in the dividend by the share redemptions alone.

If the Company performs to their downside case as outlined above, the Company would be able to achieve the IRR / Cash on Cash returns below based on the outlined Terminal EBITDA Multiples.

• Wireless consists of the Company’s subsidiary, AT&T Mobility, which operates as a wireless provider to both business and consumer customers. The Wireless segment provided approximately 47% of the segment operating revenues during the year ended December 31, 2010. At December 31, 2010, the Company had more than 95 million wireless subscribers. It classifies its customers as either postpaid, prepaid, connected device or reseller. It offers a range of wireless voice and data communications services, including postpaid and prepaid service plans. Its voice service is offered on a contract basis for one- or two-year periods, referred to as postpaid. Service is billed and provided on a monthly basis according to the applicable rate plan chosen. The wireless services include basic local wireless communications service, long-distance service and roaming services. Roaming services enable subscribers to utilize other carriers’ networks when they are roaming outside network footprint.
• The Company sells a variety of handsets, wirelessly enabled computers (such as notebooks and tablets) and personal computer wireless data cards manufactured by various suppliers for use with its voice and data services. It sells through its company owned or through agents or third-party retail stores. It also sells accessories, such as carrying cases, hands-free devices, batteries, battery chargers and other items, to consumers, as well as to agents and other third-party distributors for resale.

• The Wireline subsidiaries provide both retail and wholesale communication services domestically and internationally. The Wireline segment provided approximately 49% of the segment operating revenues during 2010. The Company divides its wireline services into three product-based categories: voice, data and other. Voice includes traditional local and long-distance service provided to retail customers and wholesale. At December 31, 2010, the wireline subsidiaries served approximately 23 million retail consumer access lines, 19 million retail business access lines and two million wholesale access lines. It has a of integrated voice and data services, such as integrated network connections, that provide customers the ability to integrate access for their voice and data services, the data component of which is included in the data category.
• Long distance also includes services provided by calling card, 1-800 services and conference calling. These services are used in a variety of business applications, including sales, reservation centers or customer service centers. It also provides wholesale switched access service to other service providers. Voice also includes calling features, fees to maintain wire located inside customer premises and other miscellaneous voice products. The Company provides data services that rely on Internet Protocol (IP)-based technology and data services that rely on circuit-based technology. The circuit-based, traditional data products include switched and dedicated transport that allow business customers to transport data at high speeds, as well as DSL and dial-up Internet access. Network integration services include installation of business data systems, local area networking and other data networking offerings. Internet access services include a range of products for residences and businesses, including basic dial-up access service, dedicated access, Web hosting, managed services, e-mail and high-speed access services. The managed Web-hosting services for businesses provide network, server and security infrastructure, as well as built-in data storage and include application performance management, database management, hardware and operating system management. The hosting services also provide customers with secure access to detailed reporting information about their infrastructure and applications.
• Packet services consist of data networks using packet switching and transmission technologies, including traditional circuit-based, and IP connectivity services. Packet services enable customers to transmit large volumes of data securely and are used for local area network interconnection, remote site, point of sale and branch office communications. High-speed packet services are used by enterprise (large business) customers. Enterprise networking services provide support from network design, implementation and installation to ongoing network operations and management for networks of varying scales, including local area networks, wide area networks, and virtual private networks. These services include applications, such as e-mail, order entry systems, employee directories, human resource transactions and other database applications. It also offers Wi-Fi services. Other includes application management, security service, integration services, customer premises equipment, outsourcing, government-related services, and satellite video services. Security services include business continuity and disaster recovery services, as well as premise and network based security products.

• Advertising Solutions includes directory operations, which publish Yellow and White Pages directories and sell directory advertising and Internet-based advertising and local search. The Advertising Solutions segment provided approximately 3% of total segment operating revenues during 2010. This segment sells advertising services throughout the United States, with print directory operations primarily covering its 22-state area.

• The Other segment includes customer information services (such as operator services) and corporate and other operations. The Other segment provided approximately 1% of total segment operating revenues during 2010. The Company also includes in this segment the equity income (loss) from its investments in Telmex and America Movil. In August 2010, it sold Sterling Commerce Inc. (Sterling).

AT&T’s top line performance has been very stable since 2007 (after the acquisition of BellSouth – Cingular Wireless) staying in the low single digits. While the top line growth may not be fast, it’s been fairly stable (the only notable exception was the recession in 2009 where revenue contracted at <1%). The Company’s Gross and EBITDA margins have been fairly volatile and bouncing around quite a bit. The two most notable events are the acquisition in 2007 and restructuring in 2008. AT&T has increased EBITDA from $20.2B in 2006 to $39.0B in 2010 (93% increase).

It’s really important to decipher AT&T’s performance on a per share basis given the massive dilution with the acquisition in 2007 and subsequent stock redemptions that followed in 2008 and 2009. The Company’s shares outstanding increased from 3,902MM to 5,938MM in the past five years (a 52% expansion). Performance on a per share basis gives a better insight into how the Company has been performing; EBITDA per share has grown from $5.18 to $6.56 (a 27% increase as compared to a 93% increase at the company level). The Company’s dividends per share have been growing rapidly as well from $1.35 per share in 2006 to $1.69 in 2010 (25% increase) with a material decrease in the payout ratio from 72% to 51%.

The consensus estimates for AT&T are moderate and very achievable projecting the growth rate between 1% and 10% annually through 2015 at the EBITDA line. I don’t expect AT&T to have much trouble achieving this plan as consumers tend to be consuming more, both through their phones and wirelessly in general. Under the consensus case the Company is projected to have significant additional free cash flow available to reinvest in the business, repurchase shares (always assumed for ease in modeling), or increase their dividend.

The share redemptions are assumed to be at a 15% annually compounded price. I believe that this is structured very conservatively. If the weighted average redemption price exceeded this threshold, the investor would have ample opportunity and time to re-evaluate their position and consider selling off their position for a gain from today’s price. The Company’s share redemptions would allow for an increase of approximately 3%-4% annually in the dividend by the share redemptions alone. Additionally, the Company’s payout ratio would decline as the dollar amount of dividends paid would not be increasing while the Company earnings (using EBITDA as a proxy) would be increasing.

If the Company performs inline with the consensus estimates and pays dividends / redeems shares as outlined above, the Company would achieve the IRR / Cash on Cash returns below based on the outlined Terminal EBITDA Multiples.

The flat case for the Company assumes that there is no growth in EBITDA over the next five years. Under this case the Company is projected to have a flat $6.1B of additional free cash flow available to reinvest in the business, repurchase shares (always assumed for ease in modeling), or increase their dividend.