November 20 th & 21 st , 2014 Students: Priyanshu Bakshi, CFA Tyler Burkett Nick Demko, CFA
November 20th & 21st, 2014
Students: Priyanshu Bakshi, CFA Tyler Burkett Nick Demko, CFA
Recommendations
Buy POOL; Sell RLGY
Sell RLGY Buy POOL
Current Price: $59.46 Target Price: $79.54 (33% upside) Long-term thesis 1. Underappreciated revenue
growth prospects 2. Very high operating leverage 3. Macro tailwinds from improving
new home sales and pent-up maintenance demand
Shorter-term catalysts 1. Share repurchase program in Q1-
Q2 2015 2. Accretive acquisitions, particularly
internationally 3. Q1 2015 positive earnings surprise
due to weather effects
Current Price:$42.97 Target Price: $29.60 (31% downside) Long-term thesis 1. Commoditized business with
unjustified price premium 2. Substantial Balance Sheet Risk 3. Weak Moat
Shorter-term catalysts 1. FY 2015 Earnings 2. ‘Bararsani vs. Coldwell Banker’, court
case against RLGY 3. $1.3B of debt due in first half of 2016
(33% of total debt) 4. Online brokerage competition 5. Hedge fund selling
Note: Closing prices as of EOD 11/14/2014 2
Pool: Company Overview
2,200 Industry Vendors (Suppliers)
80,000 Dealers
• Major Influence on customer product solution
• Product Training • Local Service
• Product Promotions • Supply Chain Management • Inventory Management • EPA Certification
• Product Availability • Credit • Sales/Marketing Programs • Business Training
• Technical Support • Warranty Service • Specialty Tools • Value Oriented O/S Sales Force
Value Chain POOL’s Value Add
1. Center of Fragmented Supply Chain
2. Price 3. Convenience 4. Distribution Value 5. Service
Source: Company Presentation 3
11%
13%
17%
18%
23%
11%
7%
Parts
Maintenance & Equipment
Pool Construction Materials
Chemicals
Heaters, Pumps, Filters,
Accessories
Lighting, Electrical & Plumbing
Other
6%
11%
83%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Sales
US Pool Products
International Pool Products
Landscape/Irrigation
US Pool Sales Breakdown
Pool: Company Overview
POOL distributes a wide array of pool related products
Pool’s Business Segments
Source: Company Presentation 4
POOL: Company Overview
Most of POOL’s sales are non-discretionary
13%
28%
29%
30%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Sales
Sales Breakdown
Minor Service and Repair
Replacement And Refurbishment
Pool Construction
Specialty Retail
Non-Discretionary Parts, Pumps, Filters,
Heaters, Lights
Non-Discretionary Pool Equipment and
Components
Some Discretion Cleaners, Chemicals and
other Maintenance items
Discretionary
Pool Equipment and Components; Concrete,
Plumbing & Electrical Components
Expense Type Types of Products Sold
Source: Company Presentation 5
POOL: Company Overview
Most of POOL’s sales are non-discretionary
While Pool Construction is only 13% of sales, growth in construction will grow non-discretionary cash flows as the installed pool base increases
13%
28%
29%
30%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Sales
Sales Breakdown
Minor Service and Repair
Replacement And Refurbishment
Pool Construction
Specialty Retail
Expense Type Types of Products Sold
Source: Company Presentation
Non-Discretionary Parts, Pumps, Filters,
Heaters, Lights
Non-Discretionary Pool Equipment and
Components
Some Discretion Cleaners, Chemicals and
other Maintenance items
Discretionary
Pool Equipment and Components; Concrete,
Plumbing & Electrical Components
6
0
50
100
150
200
250
Pool Corp Top 52 Competitors
Distributors 1-5Centers
Distributors 6-10Centers
Distributors with 10+Centers
# of Sales Centers
Pool: Industry Overview
POOL is larger than the top 52 competitors combined
Van Nuys, CA Distribution Center
Miami, FL Distribution Center
Top 52 Competitors Combined
Source: Company Presentation 7
Long Thesis: Pent-Up Demand
…and starts are far below historical norms due to economy and turnover
30 yr. Average
65% upside
Source: St. Louis Fed 8
Long Thesis: Pent-Up Demand
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10,000
15,000
20,000
25,000
30,000
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Housing Starts vs. In-ground Pool Construction
Inground Pool Sales (right axis)
Housing Starts (left axis)
Rebounding housing starts will provide a tailwind for Pool Construction
Pool Construction ties closely to housing starts and is in cyclical lows
Source: St. Louis Fed, PK Data
(000s) (000s)
9
Northwest Nevada
Rocky Mountain
Non-Seasonal Markets -California -Florida -Texas -The South -Southwest
Seasonal Markets -Mid Atlantic -Mid West -Northeast -Northwest
Diversified Market
Diversified Geographic Markets insulate POOL from regional downturns
Long Thesis: Migration Trends
POOL’s sales are focused in California, Florida, Texas and the South
CA
FL
South Texas
Midwest
Mid Atlantic
Source: POOL 10K 10
Long Thesis: Pent-Up Demand
…and the South, Florida and Texas contain the fastest growing markets
Source: Citylab.com 11
Statewide Temperature Ranks Impacts to Pool Corp
• Weather has a large impact on pool use and to a lesser extent, pool construction, in Seasonal areas
• Over the last two years, the temperature has been below historical norms in many states.
Long Thesis: Weather
The weather has negatively impacted industry growth the last two years
A reversion to normalized weather will provide a tailwind for growth, particularly in seasonal markets
Source: NOAA 12
Statewide Temperature Ranks Impacts to Pool Corp
• Weather has a large impact on pool use and to a lesser extent, pool construction, in Seasonal areas
• Over the last two years, the temperature has been below historical norms in many states.
Long Thesis: Weather
The weather has negatively impacted industry growth the last two years
“We love when the weather doesn’t cooperate briefly…as long term investors, it’s a great buying
opportunity for us“
Lamar Villere, Portfolio Manager at Villere & Co. Source: NOAA
A reversion to normalized weather will provide a tailwind for growth, particularly in seasonal markets
13
Long Thesis: Advantages Over Comparables
POOL has had higher profitability ratios and margins
17.4%
12.2% 10.3% 9.5%
5.9% 5.9% 5.1% 3.3%
0.0%
5.0%
10.0%
15.0%
20.0%12.4%
9.1% 7.7%
6.4% 4.7%
3.9% 2.8% 2.7%
0.0%
5.0%
10.0%
15.0%
36.7%
15.4% 15.0% 14.9% 14.7% 13.3%
7.5% 5.1%
0.0%
10.0%
20.0%
30.0%
40.0%
14.6% 12.8%
9.4% 8.9% 8.5% 8.2% 7.0%
5.4%
0.0%
5.0%
10.0%
15.0%
20.0%
Return on Invested Capital Return on Assets
Return on Equity EBITDA Margins
Source: Factset 14
Long Thesis: Advantages Over Comparables
… and more importantly POOL has been on a better trajectory
Return on Invested Capital Return on Assets
Return on Equity EBITDA Margins
-5%
0%
5%
10%
15%
20%
25%
30%
35%
40%
Jan-10 Jan-11 Jan-12 Jan-13 Jan-14
POOL
Comp Avg
0%
2%
4%
6%
8%
10%
12%
14%
Jan-10 Jan-11 Jan-12 Jan-13 Jan-14
POOL
Comp Avg
-5%
0%
5%
10%
15%
20%
Jan-10 Jan-11 Jan-12 Jan-13 Jan-14
POOL
Comp Avg
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
Jan-10 Jan-11 Jan-12 Jan-13 Jan-14
POOL
Comp Avg
Source: Factset 15
Long Thesis: Advantages Over Comparables
Yet POOL’s stock price has not incorporated these advantages
Five Year Total Shareholder Return Index
0.0
50.0
100.0
150.0
200.0
250.0
300.0
350.0
Oct-09 Oct-10 Oct-11 Oct-12 Oct-13 Oct-14
POOL Comp Avg
… Which should make POOL’s stock price relatively attractive In line In line
Name Market Cap EV Div Yield 1yr Sales Gr ROA ROE ROIC P/E EV/EBITDA
Pool 2,582.1 2,964.5 1.26% 8.1% 12.4% 36.7% 17.4% 24.98x 14.93x
Comp Average 3,842.4 5,348.9 0.59% 13.7% 5.3% 12.3% 7.4% 24.15x 18.07x
Comp Median 2,020.3 3,812.8 0.45% 6.7% 4.7% 14.7% 5.9% 23.56x 13.72x
Beacon Roofing Supply 1,408.4 1,697.4 0.00% 6.0% 3.9% 7.5% 5.9% 25.04x 12.58x
LKQ 8,782.0 10,435.4 0.00% 32.4% 7.7% 15.4% 9.5% 23.56x 13.58x
Watsco 3,555.7 4,179.3 1.20% 6.1% 6.4% 14.9% 10.3% 26.09x 13.72x
KB Home 1,563.5 3,812.8 0.57% 8.1% 2.7% 15.0% 3.3% 17.03x 27.52x
MarineMax 478.2 567.4 0.00% 6.7% 2.8% 5.1% 5.1% 40.94x 31.96x
Lennar A 9,089.1 14,457.8 0.45% 32.3% 4.7% 13.3% 5.9% 18.55x 15.91xApplied Industrial Techs 2,020.3 2,292.5 1.89% 4.1% 9.1% 14.7% 12.2% 17.86x 11.21x
Source: Factset 16
Long Thesis: Advantages Over Comparables
Based on street estimates alone POOL seems to be fairly valued
TotalCylical/Pool
Construction
Annuity/Pool
Maintenance
2015E EBITDA ($MM) 225.60$ 90.24$ 135.36$
EV/EBITDA 16.00x 13.00x
EV $3,203.52 $1,443.84 $1,759.68
Less: Debt -391.10
Plus: Cash 14.46
Equity Value 2826.88
Diluted Sh. Out. 47.53
Implied P/sh 59.48
Current Price 59.46
Implied upside $0.02 (3bps!)
So, what’s the street missing and why is our view differentiated?
17
Long Thesis: What’s the “street” missing?
… Growth and operating leverage
Over the last four years consensus estimates have underestimated revenue by an average of 3% Their models also inadequately account for operating leverage with resect to PP&E and SG&A expenses
Firm Sales 2011E (bn) Firm Sales 2011E (bn)William Blair 1.63 William Blair 1.69Wedbush 1.63 Wedbush 1.70SunTrust 1.56 SunTrust 1.67Hilliard Lyons 1.56 Hilliard Lyons 1.63Piper Jaffray 1.60 Piper Jaffray 1.69Morgan Keegan 1.64 Morgan Keegan 1.72Concensus 1.60 Concensus 1.68Actual 1.61 Actual 1.79Consensus underestimation -0.7% Consensus underestimation -6.3%
Firm Sales 2011E (bn) Firm Sales 2011E (bn)William Blair 1.90 William Blair 2.04Wedbush 1.90 Wedbush 2.06SunTrust 1.83 SunTrust 2.06Hilliard Lyons 1.84 KeyBanc* 2.03Piper Jaffray 1.92Morgan Keegan 1.91Concensus 1.88 Concensus 2.05Actual 1.95 Actual 2.08Consensus underestimation -3.8% Consensus underestimation -1.6%
Sales Estimates Consensus For 2010 Sales Estimates Consensus For 2011
Sales Estimates Consensus For 2012 Sales Estimates Consensus For 2013
*Piper Jaffray, Hilliard Lyons and Morgan Keegan suspended
coverage and Keybanc initiated
18
Long Thesis: Our revenue model
Regression Model Set Up
• POOL does not break out their sales by segment
• To estimate segment specific growth, we created a regression model with two industry variables:
1. Industry Pool Construction 2. Installed Pool Base
• This model fits well and was intuitive,
which gave us confidence in modeling these segments going forward
0
500
1000
1500
2000
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2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Estimated
Actual
Estimated Revenue
Estimated Segment
0%
20%
40%
60%
80%
100%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Revenue from Installed Base
New Construction
Using the model with a variety of pool growth forecasts, we created bull and bear cases for POOL
19
Scenario Key Assumptions
All Scenarios • Gross margin of 28%, inline with recent cycle averages • Improvement to seasonal markets growth in 2015 due to weather (assumed average)
Baseline • Housing Starts and resulting pool growth on a conservative trend • Installed pools grow at 2% after starts hit 30 year average in 2023
Bull • Pent up demand causes acceleration of housing rebound • Starts grows at 15% until hitting 30 year average in 2016 • Installed pools grow at 4% thereafter
Bear • Housing starts and resulting pool growth flat • Assumed margins fall to 10 year low
Housing Start Projections
Bull
Base
Bear
MM Installed Pool Base Market
3000
3500
4000
4500
5000
5500
6000
6500
7000
7500
8000
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Bull
Bear
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000s
Long Thesis: Our revenue model
Base 30 yr average
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Long Thesis: Our revenue model
Growth Expected Growth
per Year Impact to POOLs
Revenue
Improved Pool Construction 8% +3.2%
Growth in Seasonal Growth (due to weather)
3% +1.3%
Pool Maintenance 4.5% +2.7%
Acquisition Growth 1.5% +1.5%
Total Revenue Growth +8.8%
Implied Earnings Growth +16.3%
Building block approach to 2015E sales growth
21
Long Thesis: Our revenue model
Based on proprietary research, industry reports and management estimates
2007 2008 2009 2010 2011 2012 2013 2014 (Q1-Q3)
Seasonal market sales growth: 1.5% Base business (organic) sales growth rates: -1.0% -9.0% -15.0% 2.0% 10.0% 7.0% 6.0% 5.1%
Year-round market sales growth: 10.7% Total sales growth: 1.0% -7.5% -13.7% 4.8% 11.1% 9.0% 6.4% 6.5%
2012 Revenue 1,954 Implied acquired sales growth: 2.0% 1.5% 1.3% 2.8% 1.1% 2.0% 0.4% 1.4%
2013 Revenue 2,080 Average acquired annual sales growth: 1.6% <-- Management has not indicated any change in acquisition strategy
Source: Company Fil ings
Revenue from seasonal markets: 903 <-- Solve: 1.02x + 1.11(1954-x) = 2080
Revenue from year-round markets 1,051 (approximately 43%/57%) Survey Data % responseBucket LB Bucket UB Avg Sales growth: Above Gd Below Gd
4.50% 10% inf 12% 2006 -5.1% 1.4%
2014 Seasonal market growth 5.0% 22.70% 5% 10% 8% 2007 -12.0% -8.1%
2014 Year-round market growth 8.0% 22.70% 1% 4% 3% 2008 12.2% -11.8%
2014E Revenue 2,236 31.80% 0% 0% 0% 2009 -58.1% -27.8%
2014 weather impact -29 13.60% -4% -1% -3% 2010 5.6% 9.2%
2014 weather normalized sales 2,266 Total: 95.30% 2011 -3.5% 9.2%
Source: Company Fil ings Non-disc impl grw: 2.59% 2012 -3.5% 10.3%
Source: PK data report Source: PK data report
Non-discretionary business 60.0% Management growth guidance: 4-7% growth for 4-7 years before decreasing to 3-4% per year
Our assumption: Trend growth closer to 4% now, we assume increase to 5% in 2 yrs, before declining 0.5% after 5 years to 3% steady state
Discretionary business 40.0% Growth assumption: industry data suggests 9-10% growth for 4-7 years
Our assumption: Growth to 10% for 4 years, l inear decline by 1.5% thereafter pre-crises steady state of 2% per year
Source: 2013 10K
2011A 2012A 2013A 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E
Discretionary business growth rate 6.0% 6.8% 7.0% 7.5% 8.0% 8.5% 9.0% 9.5% 8.0% 6.5% 5.0% 3.5% 2.0% 2.0%
Non discretionary business growth rate 3.0% 2.6% 3.5% 4.0% 4.5% 5.0% 5.0% 5.0% 4.5% 4.0% 3.5% 3.0% 3.0% 3.0%
Base business growth rate 10.0% 7.0% 6.5% 5.5% 5.9% 6.4% 6.6% 6.8% 5.9% 5.0% 4.1% 3.2% 2.6% 2.6%
Acquisition growth impact 1.0% 2.0% 0.0% 2.0% 1.6% 1.6% 1.6% 1.6% 1.6% 1.6% 1.6% 1.6% 1.6% 1.6%
Weather Adjustment: 1.3%
Total sales growth 11.0% 9.0% 6.5% 7.5% 8.8% 8.0% 8.2% 8.4% 7.5% 6.6% 5.7% 4.8% 4.2% 4.2%
Sales 1,793 1,954 2,080 2,236 2,465 2,662 2,880 3,122 3,357 3,578 3,782 3,964 4,130 4,304
Consens: 2,389
% Diff: 3.2%
Weather Adjustments
Product Mix
Acquisition strategy growth impact assumptions
Growth assumptions
Non discretionary business growth estimates Disretionary business growth estimates
22
Long Thesis: Our revenue model
Proprietary research and industry data confirm secular growth trends
73.6%
26.4%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
Yes No
Does a swimming pool add value to a residence in your area?
56.6%
43.4%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
Yes No
Would you like a swimming pool at your next home?
Source: PK Data (industry research report)
Source: PK Data (industry research report)
Source: Proprietary survey (200 respondents)
Source: Proprietary survey (200 respondents) 23
Long Thesis: Our revenue model
Proprietary research and industry data confirm secular growth trends
“Pool has everything we look for in terms of sustainable competitive advantage: good core business, management
team and financials ”
Tim Holland, portfolio manager at Astron/Tamron Funds
“There’s no question I have had increased requests for homes with in-ground pools”
- Prominent real estate broker, Washington DC
“Favorable demographic and socioeconomic trends have positively impacted our industry and we believe these
trends will continue in the long term” – POOL 2013 10K
“52% of pool builders, retailers and service firms expect industry improvement vs. only 13% expecting declines”
- PK Data (industry report)
“Swimming pools certainly enhance the vale of land, a swimming pool at my first home will be a must-have”
- Survey respondent, 28 year old Illinois resident
Source: Conducted Interviews, Barron’s for Tim Holland Interview, 10k, PK Data
24
Long Thesis: Our free cash flow model summary
Substantial upside with limited downside
Historic POOL TTM EV/EBITDA Multiple
0.0
5.0
10.0
15.0
20.0
25.0
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96
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LT avg: 12.4x (12x baseline used as terminal multiple)
Baseline: $79.54 = 19.3x TTM EV/EBITDA
Bull case: $95.97 = 22.9x TTM EV/EBITDA
Bear case: $54.13 = 13.8x TTM EV/EBITDA
Scenario Price Target Implied Upside
Implied EV/EBITDA
Baseline $79.54 +34% 19.3x
Bull $95.97 +61% 22.9x
Bear $54.13 -9% 13.8x
• Baseline scenario results in implied EV/EBITDA near high end of historic range which we believe is justified given where we are in the current pool cycle
• The bull case results in an EV/EBITDA well above historic highs, but could be justified if housing starts return to historic average levels
• The bear case is a very conservative estimate where sales, margins and operating leverage suffer but POOL’s share decline is only a modest -9%
25
Dec '15 Dec '16 Dec '17 Dec '18 Dec '19 Dec '20 Dec '21 Dec '22 Dec '23 Dec '24
Cash flow from operations 127.3 144.3 162.1 189.8 224.5 253.9 280.5 305.7 327.9 347.1
(+) Interest expense after tax 4.7 4.8 4.8 4.9 5.0 5.1 5.2 5.4 5.5 5.6
(-) Cash flow from Investing in PPE -32.0 -35.4 -40.9 -47.2 -53.2 -59.7 -66.6 -74.0 -74.3 -80.7
(-) Acquisitions, net of cash acquired -4.8 -8.4 -8.4 -9.9 -12.6 -15.2 -16.8 -17.8 -18.4 -19.7
Free Cash Flow 95.1 105.3 117.7 137.6 163.7 184.2 202.3 219.2 240.7 252.3
Present Value of FCF 87.8 89.7 92.5 99.8 109.6 113.8 115.4 115.4 116.9 113.1
Total PV FCF (years 1-10): 1,054
Terminal Value (12x EV/EBITDA 2024E) 3,103 79.5 10.0x 11.0x 12.0x 13.0x 14.0x
Implied Enterprise Value 4,157 6.85% $78.67 $84.93 $91.18 $97.44 $103.69
Less: current debt -391 7.35% $75.17 $81.14 $87.11 $93.08 $99.05
Plus: Cash 14.5 7.85% $71.83 $77.53 $83.23 $88.93 $94.63
Implied Equity value 3,780 8.35% $68.66 $74.10 $79.54 $84.98 $90.42
Fully diluted shares outstanding 47.5 8.85% $65.63 $70.82 $76.02 $81.21 $86.41
Implied price per share $79.54 9.35% $62.74 $67.70 $72.67 $77.63 $82.59
Implied upside (current price = 59.46) 33.8% 9.85% $59.99 $64.73 $69.47 $74.21 $78.96
WACC = [WD * RD * (1-t)] + [WE * RE] 8.35% Terminal EV/EBITDA multiple 12.0x
WD 12.9% Current MV debt/(MV debt + MV equity)
WE 87.1% Current MV equity/(MV debt + MV equity)
tax rate t 39.4% 5 year historical average
RD 3.00% <-- 3 year average interest expense / LT debt
(RM - Rf) 7.00% Conservative historical estimate
B=1 1.0 3 yr beta to S&P 500 as of 11/14/14
Rf 2.32% 10yr treasury as of 11/14/14
RE = RF + B*(RM-Rf) 9.32%
WACC
Terminal EV/EBITDA multiplePrice Target
Cost of Capital Terminal value assumptions
Long Thesis: Our free cash flow model
Base Case: Incorporates revenue estimates and operating leverage
Key operating leverage assumptions:
• SG&A expense growth 50% of sales growth (benefit decays over time by factor of .90)
• PP&E turnover decays over time from 40x to 25x (using a factor of .95)
26
Dec '15 Dec '16 Dec '17 Dec '18 Dec '19 Dec '20 Dec '21 Dec '22 Dec '23 Dec '24
Cash flow from operations 115.9 151.8 208.0 246.4 271.9 298.4 325.7 353.0 379.4 405.6
(+) Interest expense after tax 4.7 4.8 4.8 4.9 5.0 5.1 5.2 5.4 5.5 5.6
(-) Cash flow from Investing in PPE -37.5 -41.6 -41.7 -47.1 -54.5 -61.8 -69.9 -79.0 -80.3 -87.3
(-) Acquisitions, net of cash acquired -4.8 -11.8 -13.6 -14.4 -17.8 -20.5 -22.2 -23.8 -25.3 -27.6
Free Cash Flow 78.3 103.1 157.6 189.8 204.6 221.3 238.9 255.5 279.2 296.3
Present Value of FCF 72.2 87.8 123.9 137.7 137.0 136.8 136.3 134.5 135.6 132.8
Total PV FCF (years 1-10): 1,235
Terminal Value (12x EV/EBITDA 2024E) 3,703 96.0 10.0x 11.0x 12.0x 13.0x 14.0x
Implied Enterprise Value 4,938 6.85% $94.94 $102.40 $109.86 $117.33 $124.79
Less: current debt -391 7.35% $90.76 $97.88 $105.00 $112.13 $119.25
Plus: Cash 14.5 7.85% $86.78 $93.58 $100.38 $107.18 $113.98
Implied Equity value 4,562 8.35% $82.98 $89.48 $95.97 $102.46 $108.96
Fully diluted shares outstanding 47.5 8.85% $79.37 $85.57 $91.77 $97.97 $104.18
Implied price per share $95.97 9.35% $75.93 $81.85 $87.77 $93.70 $99.62
Implied upside (current price = 59.46) 61.4% 9.85% $72.64 $78.30 $83.96 $89.62 $95.28
WACC = [WD * RD * (1-t)] + [WE * RE] 8.35% Terminal EV/EBITDA multiple 12.0x
WD 12.9% Current MV debt/(MV debt + MV equity)
WE 87.1% Current MV equity/(MV debt + MV equity)
tax rate t 39.4% 5 year historical average
RD 3.00% <-- 3 year average interest expense / LT debt
(RM - Rf) 7.00% Conservative historical estimate
B=1 1.0 3 yr beta to S&P 500 as of 11/14/14
Rf 2.32% 10yr treasury as of 11/14/14
RE = RF + B*(RM-Rf) 9.32%
WACC
Terminal EV/EBITDA multiplePrice Target
Cost of Capital Terminal value assumptions
Long Thesis: Our free cash flow model
Bull Case: Incorporates housing start normalization, gross margin expansion
Key assumptions:
• Gross margins increase toward top end of historic range at 29.4%
27
Dec '15 Dec '16 Dec '17 Dec '18 Dec '19 Dec '20 Dec '21 Dec '22 Dec '23 Dec '24
Cash flow from operations 127.8 132.5 141.8 150.5 163.6 177.8 191.8 205.5 219.2 232.8
(+) Interest expense after tax 4.7 4.8 4.8 4.9 5.0 5.1 5.2 5.4 5.5 5.6
(-) Cash flow from Investing in PPE -24.5 -27.7 -30.6 -33.7 -37.2 -41.0 -45.3 -49.9 -55.0 -60.6
(-) Acquisitions, net of cash acquired -5.2 -6.1 -6.3 -6.5 -6.4 -6.8 -7.3 -7.6 -7.8 -7.9
Free Cash Flow 102.7 103.4 109.7 115.2 125.0 135.1 144.5 153.4 161.8 169.9
Present Value of FCF 94.8 88.1 86.2 83.6 83.7 83.5 82.4 80.7 78.6 76.2
Total PV FCF (years 1-10): 838
Terminal Value (12x EV/EBITDA 2024E) 2,112 54.1 10.0x 11.0x 12.0x 13.0x 14.0x
Implied Enterprise Value 2,949 6.85% $53.64 $57.90 $62.15 $66.41 $70.66
Less: current debt -391 7.35% $51.22 $55.29 $59.35 $63.41 $67.47
Plus: Cash 14.5 7.85% $48.92 $52.80 $56.67 $60.55 $64.43
Implied Equity value 2,573 8.35% $46.72 $50.43 $54.13 $57.83 $61.53
Fully diluted shares outstanding 47.5 8.85% $44.63 $48.17 $51.70 $55.24 $58.77
Implied price per share $54.13 9.35% $42.64 $46.01 $49.39 $52.77 $56.15
Implied upside (current price = 59.46) -9.0% 9.85% $40.73 $43.96 $47.19 $50.41 $53.64
WACC = [WD * RD * (1-t)] + [WE * RE] 8.35% Terminal EV/EBITDA multiple 12.0x
WD 12.9% Current MV debt/(MV debt + MV equity)
WE 87.1% Current MV equity/(MV debt + MV equity)
tax rate t 39.4% 5 year historical average
RD 3.00% <-- 3 year average interest expense / LT debt
(RM - Rf) 7.00% Conservative historical estimate
B=1 1.0 3 yr beta to S&P 500 as of 11/14/14
Rf 2.32% 10yr treasury as of 11/14/14
RE = RF + B*(RM-Rf) 9.32%
WACC
Terminal EV/EBITDA multiplePrice Target
Cost of Capital Terminal value assumptions
Long Thesis: Our free cash flow model
Bear Case: Housing starts flat, margin and operating leverage deterioration
Key assumptions:
• SG&A expense growth 85% of sales growth (benefit decays over time by factor of .90)
• PP&E turnover remains at 40x (i.e. no operating leverage)
• Gross margins decline to 27.4%, near lows 28
Long Thesis: Catalysts
In addition to long term undiscovered business value there are a number of shorter term potential catalysts that could benefit the share price: 1. Announcement of share repurchase program
• Current share repurchase program includes authorization to purchase only $64MM of shares while the firm has been purchasing on average $40MM per quarter
• With strong operating cash flow and debt levels at the low end of targets look for board approval of new repurchase program in Q1 or Q2 of 2015
2. Expansion Internationally
• In Q3 2014 POOL acquired a controlling interest in Australian pool distributor Pool Systems • With managements impressive acquisition history (see management slide) expect this to
add value to the bottom line in 2015 • Also look for additional acquisitions in 2015 as the CEO hinted at further expansion in areas
with “no presence, or a very limited presence”
3. Q1 2015 positive earnings surprise • Sell side estimates seem to underestimate negative weather impact on 2014 revenue • Should we see a normalization in weather patterns look for season market sales growth to
push Q1 2015 earning higher
Shorter term catalysts also provide an upside
29
Risk Mitigant
Mass Retailer increases focus on Pool Products; taking market share away from Specialty Shops
POOL carries 160,000 products, which decreases the attractiveness for a retailer to try to carry a much broader range of SKUs. Only 15% of small retailers viewed Mass Retailers as a top risk to their business.1
Pool construction may continue to lag We are currently at cycle lows for in-ground pool construction.
Regional distributor expansion
POOL has a history of nationwide distribution; a competitor will be reluctant to potentially engage in a pricing war with POOL.
Long Thesis: Risks and Mitigants
There are risks to the business that could impact value
1FROM PK DATA 30
53% 40%
15%
21%
15% 21%
15% 15%
President and CEO Other NEOS
Long Term Equity Incentive
Strategic Performance Incentive Package
Salary
Annual Bonus
Other
Executive Compensation Breakdown
Pool: Executive Compensation
Item Description
Annual Bonus Annual Bonus Determined Year End
Salary Base Salary (42% lower than peer group)
Long Term Equity Incentive
Annual Award that can be in the form of restricted stock or options (vest in 3 to 5 years)
Strategic Plan Incentive Program
Medium Term Cash Opportunity based on EPS growth over 3 year timeframe
60-70% of executive’s compensation is driven by long term growth
Longer Term Incentives
Source: SEC Filings
31
Pool: Management Discussion
POOL has a strong management with impressive history
Strong acquisition history over time
EPS growth has outpaces sales growth Margins have trended upward
0
5
10
15
20
25
30
35
40
45
50
0
50
100
150
200
250
300
350
400
450
1995 1998 2001 2004 2007 2010 2013
Cumulative value ofacquisitions ($MM, LHS)
Cumulative goodwillimpairment ($MM, LHS)
Cumulative acquisitions(quantity, RHS)
-80.00
-60.00
-40.00
-20.00
0.00
20.00
40.00
60.00
80.00
100.00
19
96
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
11
20
12
20
13
20
14
YoY sales growth (%)
YoY EPS growth (%)
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
9.00
10.00
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
Operating Margin (%)
Net Margin (%)
• Pool has made 44 acquisitions since going public in 1995 for a total of $405MM, accounting for a major portion of sales growth
• Goodwill has only been impaired significantly once in 2012
• EPS growth has trended above sales growth indicating quality acquisitions
• Margins have trended higher indicating margins have not been sacrificed for sales growth
Source: 10Ks & 10Qs
32
Recommendations
Buy POOL; Sell RLGY
Sell RLGY Buy POOL
Current Price: $59.46 Target Price: $79.54 (33% upside) Long-term thesis 1. Underappreciated revenue
growth prospects 2. Very high operating leverage 3. Macro tailwinds from improving
new home sales and pent-up maintenance demand
Shorter-term catalysts 1. Share repurchase program in Q1-
Q2 2015 2. Accretive acquisitions, particularly
internationally 3. Q1 2015 positive earnings surprise
due to weather effects
Current Price:$42.97 Target Price: $29.60 (31% downside) Long-term thesis 1. Commoditized business with
unjustified price premium 2. Substantial Balance Sheet Risk 3. Weak Moat
Shorter-term catalysts 1. FY 2015 Earnings 2. ‘Bararsani vs. Coldwell Banker’, court
case against RLGY 3. $1.3B of debt due in first half of 2016
(33% of total debt) 4. Online brokerage competition 5. Hedge fund selling
Note: Closing prices as of EOD 11/14/2014 33
Short Thesis: Company Overview
Realogy is organized into multiple business lines
RFG
NRT
Realogy Group is primarily a real estate brokerage business, with owned and franchised brokerages
• Largest US Residential Real Estate Franchisor
• Owned Brokerage Network
Relocation Services
Title Services
Business Units
• Provides Relocation Services
• Provides Title Services
Description
Sunnyvale, CA Franchise
Ottawa, IL Franchise
34
Owned Residential Brokerage
58%
Franchised Residential Brokerage
23%
Relocation Services
13%
Title & Settlement
Services6%
Short Thesis: Company Overview
Revenue Contribution by Segment EBITDA* Contribution by Segment
Brokerage contributes 84% of the revenue and 81% of the EBITDA, so we focused our attention on the brokerage business
Real estate brokerage is RLGY’s primary revenue and EBITDA contributor
*EBITDA adjusted for intra-company transactions to better reflect true business value added of each segment
Source: SEC Filings 35
Short Thesis: Company Overview
• Largest Residential Real Estate Franchisor
• Operate under all the brands shown above
• Operate in 103 countries with 13,738 offices worldwide
Overview How they make money
Homeowner sides (1.08M)
Average Home Sale Price (233K)
Average Broker Commission Rate (2.54%)
Net Effective Royalty Rate (4.49%)
Revenue ($299 MM)
x
x
=
x
RFG Business Line Overview
36
Short Thesis: Low Structural Growth
The volume of average monthly sales of existing homes has grown at a CAGR of only 1% over the last 25 years
Long term, existing home sale brokerage is not an attractive growth business
US Existing Home Sales Thousands Seasonally Adjusted Annual Rate
37 Source: National Association of Realtors; Trading Economics
Source: National Association of Realtors; Trading Economics
RGLY is focused on brokering existing homes sales and does not benefit from a resurgence in new home sales (while our long position POOL would benefit from growth in new home sales)
Monthly seasonally adjusted (annualized rate) existing home sales in thousands from 2007 to 2014
Short Thesis: housing opportunity is not in new home sales
Existing home sales have already rebounded; new home sales have not
38
Realogy: Leverage and bankruptcy
RLGY shows warning signs of bankruptcy in a housing slowdown
• High leverage and deteriorating working capital dynamics indicate a poor business model that may result in bankruptcy based on two bankruptcy models
• Altman Z-score of 1.75 is the average for CCC- rated firms, Realogy is even lower than that
• Ohlson bankruptcy probability above 3.8% correctly identified 88% of bankrupt firms, Realogy is well above this
Source: Factset for model variables
0.029 = 1.2 x Working Capital / Total assets 0.053 = 1.2 x Working Capital / Total assets
-0.638 = 1.4 x Retained earnings / total assets -1.166 = 1.4 x Retained earnings / total assets
0.227 = 3.3 x EBIT / total assets 0.416 = 3.3 x EBIT / total assets
0.688 = 0.6 x mkt value of equity / book value of total l iabilities 0.688 = 0.6 x mkt value of equity / book value of total l iabilities
0.693 = 1.0 x sales / total assets 1.266 = 1.0 x sales / total assets
1.00 <-- Altman's Z-score implies bankruptcy possibility 1.26 <-- Altman's Z-score implies bankruptcy possibility
Y = -1.3 + Y = -1.3 +
-6.710 = -0.4 x LN(total assets/price deflator) -6.465 = -0.4 x LN(total assets/price deflator)
4.373 = 6.03 x Total l iabilities / total assets 8.293 = 6.03 x Total l iabilities / total assets
-0.035 = -1.4 x Working capital / total assets -0.064 = -1.4 x Working capital / total assets
0.063 = 0.08 x Current l iabilities / current assets -0.031 = 0.08 x Current l iabilities / current assets
-0.137 = -2.4 x Net income / total assets -0.250 = -2.4 x Net income / total assets
0.033 = -1.8 x Working capital flow from operations / total l iabilities 0.033 = -1.8 x Working capital flow from operations / total l iabilities
0.000 = 0.29 x 1 if net income negative for last two years, 0 otherwise 0.000 = 0.29 x 1 if net income negative for last two years, 0 otherwise
0.000 = -1.7 x 1 if total l iabilities exceeds total assets, 0 otherwise 0.000 = -1.7 x 1 if total l iabilities exceeds total assets, 0 otherwise
-1.198 = -0.5 x Change in NI / sum of abs val current & prior yr NI -1.198 = -0.5 x Change in NI / sum of abs val current & prior yr NI
-4.93 0.7% <-- Low probability of bankruptcy -1.00 27% <-- Substantial bankruptcy possibility
Realogy Altman's Z - score Realogy Altman's Z - score - Excluding goodwill
Ohlson Bankruptcy prediction model Ohlson Bankruptcy prediction model - Excluding Goodwill
39
Realogy: Low margin, high leverage business
RLGY business model will collapse in a challenging environment
Low margins Highly levered
0.0
5.0
10.0
15.0
20.0
25.0
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
2008 2009 2010 2011 2012 2013 2014
Total Debt / Total Capital (LHS)Net Debt / EBITDA (RHS)
Comp average TD/TC = 24% vs. RLGY at 66%
Comp average ND/EBITDA = .91 vs. RLGY at 5.6
• High leverage will keep fixed costs of RLGY relatively high
• Low margins imply no room for top line misses
• As misses accumulate and fixed costs continue to rise RLGY will be forced to reduce commissions paid to brokers
• But in a commoditized industry where the brokers have the power they will leave to go to a competitor and RLGY will be left with no income and a load of debt
Commoditized brokerage industry with declining bargaining power of employers
Source: Factset
-60.0
-50.0
-40.0
-30.0
-20.0
-10.0
0.0
10.0
20.0
30.0
2008 2009 2010 2011 2012 2013 2014
Gross Margin (%)
Net Margin (%)
Operating Margin (%)
40
Short Thesis: Significant Financial Leverage
Historically there has been a 23.1% movement into default by securities rates Caa-C within one year! Is the market correctly pricing in RLGY’s risk?
RLGYs debt is Caa-C, highlighting capital markets disregard for fundamentals
Source: Moody’s 41
Realogy: Underperformance relative to peers
RLGY has had lower profitability ratios and margins
Return on Invested Capital Return on Assets
Return on Equity EBITDA Margins
44.6%
22.7% 17.9%
11.8% 10.0% 7.6% 3.1%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%19.5% 19.1%
12.6%
7.3% 6.0% 5.7%
1.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
50.5% 49.1%
36.7%
23.1% 20.1% 15.6%
5.9%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%40.1%
22.0%
13.5% 11.8% 10.2% 8.9%
1.8%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
Avg = 16.8% Avg = 10.2%
Avg = 15.5% Avg = 28.7%
Source: Factset
42
Realogy: Has consistently underperformed peers
Sales growth has lagged peers
Sales growth index (2006 = 100)
0
50
100
150
200
250
300
2006 2007 2008 2009 2010 2011 2012 2013 2014
RLGY RMAX* JLL BGCP
CBG MMI* HF
* RMAX and MMI data begins in 2010 at which point their sales index is set equal to RLGY at 63
Yet, RLGY is overpriced relative to its peers!
Source: Factset 43
Realogy: Has had weaker and more volatile EBITDA margins
RLGY EBITDA margins have been more volatile than closest peers
EBITDA Margins (2006-2013)
Yet, RLGY is overpriced relative to its peers!
Source: Factset
-40%
-30%
-20%
-10%
0%
10%
20%
30%
2006 2007 2008 2009 2010 2011 2012 2013
RLGY
JLL
CBG
44
Short Thesis: Comp Based Valuation
RLGY is at a trading at a significant premium to peers
LTM
TEV/EBITDA LTM
TEV/REV Forward
TEV/EBITDA
High 19.9x 3.2x 10.95x
Low 3.7x 1.3x 2.88x
Mean 12.3x 1.9x 9.07x
Median 11.9x 1.5x 10.54x
RLGY 14.2x 1.9x 12.24x
Median Implied Price Per Share for RLGY
30.8 27.0 33.2
% Downside 28% 37% 22%
Peers include: BGC Partners (BGCP), Jones Lang Lasalle Inc (JLL), CBRE Group (CBG), Marcus and Millichap (MMI), HFF (HF), RE/MAX (RMAX)
Based on comparables, RLGY is overvalued by 22%-37%
Source: Capital IQ, FactSet 11/17
Methodology
• We calculated what RLGYs enterprise value would be based on peer valuations (used median to reduce effect of outliers)
• Calculated implied equity value by adjusting for minority interest, cash, and debt
• Then we calculated Price Per Share
45
Company Price Mkt Cap EV FY 14E FY 15E FY 14E FY 15E FY 14E FY 15E FY 14E FY 15E
$ $M $M $M $M $ $ x x x x
RLGY 42.97 6,284 10,264 5,356 5,788 1.03 1.79 1.92 1.77 41.7 24.0
JLL 140.17 6,283 7,020 5,389 5,777 8.04 8.79 1.30 1.22 17.4 15.9
CBG 32.40 10,785 13,016 8,829 9,712 1.69 1.93 1.47 1.34 19.2 16.8
Sales EPS EV/Sales P/E
Short Thesis: History of surprising on the negative side
Source: Bloomberg
Revisions in consensus Adjusted EPS expectations for FY 14 & FY 15
Revisions in consensus Sales expectations for FY 14 & FY 15
As RLGY has consistently missed sales and earnings expectations. There have been significant revisions by research analysts on the downside: • Expected EPS for FY 14 has
been downgraded from $2.60 in Nov 2013 to $1.03 in Nov 2014
• Expected EPS for FY 15 has been downgraded from $3.50 in Nov 2013 to $1.80 in Nov 2014
• Expected Sales for FY 14 have been downgraded from $5,700M and to $5,350M and FY 15 expected Sales have been downgraded from $6,325M to $5,780M over the past one year
RLGY has consistently missed; our estimates are more conservative
46
Source: Credit Suisse
There has been recent weakness in demand in California (28% of owned brokerage revenue) and North-East (34% of owned brokerage revenue)
Short Thesis: Weakness in key markets will impact revenue
We expect declines in key markets to continue, reducing future revenue
47
Short Thesis: Sales agents drive business, not the company
Source: Company presentation, National Association of Realtors 2013 Profile of Home Buyers and Sellers
Referrals46%
Past Client12%
Open House or Prospecting
9%
Yard Signs6%
Internet9%
Walk-ins7%
Offline Ads1%
Other10%
FACTORS DRIVING BUYERS CHOICE OF SALES AGENT
Referrals42%
Past Client24%
Open House or Prospecting
8%
Yard Signs3%
Internet4%
Walk-ins5%
Offline Ads4%
Other10%
FACTORS DRIVING SELLERS CHOICE OF SALES AGENT
Firm specific factors account for only 17% of Buyer choice of sales agents
Firm specific factors account for only 13% of Seller choice of sales agents
We predict sales agent bargaining power will reduce RLGY’s margins
This gives bargaining power to sales agents,
who can drive up commissions,
reducing RLGY’s margins
48
Short Thesis: Margins will remain under pressure
Source: [ Company Filings ]
We expect commissions paid to sales agents to continue rising
• Rising contribution by top 250 franchises brokerages has increased franchisee bargaining power which has resulted in decreasing royalty rates and revenue to RFG segment
• NRT segment has been paying higher coming to sales agents which has been putting pressure on margins
5.0
3% 5.1
2%
5.1
0%
5.0
0%
4.8
4%
4.6
3%
4.4
9%
2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 2 0 1 3
NET EFFECTIVE ROYALTY RATE TO RFG
45
% 47
% 48
% 50
%
54
%
57
%
60
%
2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 2 0 1 3
REVENUE CONTRIBUTION TO RFG SEGMENT BY TOP 250 FRANCHISEES
69
.8%
69
.6%
68
.9%
70
.1%
71
.3%
72
.4%
72
.2%
2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 2 0 1 3
NRT'S COMMISION TO SALES AGENTS
49
0.0
5.0
10.0
15.0
20.0
25.0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Comp Group Average
RLGY EV/EBITDA
Short Thesis: Our free cash flow model summary
Substantial downside with limited upside potential
Historic RLGY TTM EV/EBITDA Multiple
LT avg: 12.2x
Baseline: $29.60 = 11.7x TTM EV/EBITDA
Bull case: $45.77= 15.4x TTM EV/EBITDA
Bear case: $17.79 = 9.3x TTM EV/EBITDA
Scenario Price Target Implied
Downside Implied
EV/EBITDA
Baseline $29.60 -31% 11.7x
Bull $45.77 +7% 15.4x
Bear $17.79 -59% 9.3x
• Baseline scenario results in implied EV/EBITDA near average of historic EV/EBITDA multiples for comparable companies
• The bull case results in an EV/EBITDA near high end of comparables history, a higher multiple would likely be unjustified by the historic range
• The bear case is a very conservative estimate of revenues and margins but would still put RLGY at an EV/EBITDA multiple within the historic range of comparables
50
Dec '15 Dec '16 Dec '17 Dec '18 Dec '19 Dec '20
Cash flow from operations 358.8 409.7 445.3 484.7 527.2 572.8
(+) Interest expense after tax 128.8 132.7 124.7 115.4 105.4 94.7
(-) Cash flow from Investing in PPE -99.7 -110.7 -122.9 -136.4 -151.4 -168.0
Free Cash Flow 387.9 431.8 447.1 463.7 481.3 499.4
Present Value of FCF 358.1 367.9 351.7 336.7 322.6 308.9
Total PV FCF (years 1-5): 1,737
Terminal Value (10.5x 2020E EBITDA) 6,634 29.6 8.50 9.50 10.50 11.50 12.50
Implied Enterprise Value 8,371 6.83% $24.13 $28.74 $33.35 $37.96 $42.57
Less: current debt & minority interest (4,289) 7.33% $23.06 $27.56 $32.07 $36.57 $41.07
Plus: Cash 268.0 7.83% $22.02 $26.41 $30.81 $35.21 $39.61
Implied Equity value 4350.5 8.33% $21.00 $25.30 $29.60 $33.89 $38.19
Fully diluted shares outstanding 147.0 8.83% $20.01 $24.21 $28.41 $32.61 $36.81
Implied price per share $29.60 9.33% $19.04 $23.15 $27.25 $31.36 $35.47
Implied downside (current price = 42.97) -31.1% 9.83% $18.10 $22.12 $26.13 $30.14 $34.16
WACC = [WD * RD * (1-t)] + [WE * RE] 8.33% Terminal growth rate 10.50
WD 39.1% Current net debt/total capital
WE 60.9% Current equity/total capital
tax rate t 41.0% Management Guidance
RD 5.25% Latest offering of unsecured debt - Nov 14
(RM - Rf) 7.00% Conservative historical estimate
B 1.3 beta to S&P 500 as of 11/14/14
Rf 2.32% 10yr treasury as of 11/14/14
RE = RF + B*(RM-Rf) 11.70%
Price Target Terminal Growth Rate
WACC
Cost of Capital Terminal EV/EBITDA (fwd) multiple
Short Thesis: Our free cash flow model
Base Case: Incorporates revenue and margin estimates
Key assumptions:
• Transaction volume and pricing projected to grow at 3%, per Freddie Mac estimates
• Revenue roughly 2.3% below street estimates for 2015
• Gross margin improvement less optimistic than the street
51
Dec '15 Dec '16 Dec '17 Dec '18 Dec '19 Dec '20
Cash flow from operations 342.2 350.7 368.6 388.5 409.7 431.8
(+) Interest expense after tax 128.8 132.7 125.2 117.5 109.1 100.5
(-) Cash flow from Investing in PPE -99.7 -100.6 -99.6 -108.6 -118.3 -129.0
Free Cash Flow 371.3 382.8 394.2 397.4 400.5 403.3
Present Value of FCF 342.7 326.2 310.1 288.5 268.4 249.5
Total PV FCF (years 1-5): 1,536
Terminal Value (10.5x 2020E EBITDA) 5,100 17.8 8.50 9.50 10.50 11.50 12.50
Implied Enterprise Value 6,635 6.83% $13.64 $17.18 $20.72 $24.26 $27.81
Less: current debt & minority interest (4,289) 7.33% $12.80 $16.26 $19.72 $23.18 $26.64
Plus: Cash 268.0 7.83% $11.98 $15.36 $18.74 $22.12 $25.50
Implied Equity value 2614.7 8.33% $11.18 $14.48 $17.79 $21.09 $24.39
Fully diluted shares outstanding 147.0 8.83% $10.40 $13.63 $16.86 $20.09 $23.32
Implied price per share $17.79 9.33% $9.65 $12.80 $15.96 $19.11 $22.27
Implied downside (current price = 42.97) -58.6% 9.83% $8.91 $11.99 $15.08 $18.16 $21.25
WACC = [WD * RD * (1-t)] + [WE * RE] 8.33% Terminal growth rate 10.50
WD 39.1% Current net debt/total capital
WE 60.9% Current equity/total capital
tax rate t 41.0% Management Guidance
RD 5.25% Latest offering of unsecured debt - Nov 14
(RM - Rf) 7.00% Conservative historical estimate
B 1.3 beta to S&P 500 as of 11/14/14
Rf 2.32% 10yr treasury as of 11/14/14
RE = RF + B*(RM-Rf) 11.70%
Price Target Terminal Growth Rate
WACC
Cost of Capital Terminal EV/EBITDA (fwd) multiple
Short Thesis: Our free cash flow model
Bear Case: Less optimistic revenue assumptions, margins reduced
Key assumptions:
• Sales increases and revenue increases move from 3% to 1% over 3 years resulting in ~2% revenue growth over time
• COGS margin increases to 78.5%, which is close to historic average
52
Dec '15 Dec '16 Dec '17 Dec '18 Dec '19 Dec '20
Cash flow from operations 361.1 421.7 495.6 568.4 674.7 770.7
(+) Interest expense after tax 128.8 132.7 124.6 115.3 104.5 92.0
(-) Cash flow from Investing in PPE -99.7 -120.7 -146.5 -165.5 -187.1 -211.4
Free Cash Flow 390.2 433.6 473.7 518.2 592.1 651.3
Present Value of FCF 360.2 369.5 372.6 376.2 396.8 402.9
Total PV FCF (years 1-5): 1,875
Terminal Value (10.5x 2020E EBITDA) 8,874 45.8 8.50 9.50 10.50 11.50 12.50
Implied Enterprise Value 10,749 6.83% $38.35 $44.52 $50.68 $56.85 $63.01
Less: current debt & minority interest (4,289) 7.33% $36.96 $42.98 $49.00 $55.02 $61.04
Plus: Cash 268.0 7.83% $35.60 $41.48 $47.36 $53.25 $59.13
Implied Equity value 6728.0 8.33% $34.27 $40.02 $45.77 $51.52 $57.27
Fully diluted shares outstanding 147.0 8.83% $32.98 $38.60 $44.22 $49.84 $55.45
Implied price per share $45.77 9.33% $31.73 $37.22 $42.71 $48.20 $53.69
Implied upside (current price = 42.97) 6.5% 9.83% $30.50 $35.87 $41.24 $46.60 $51.97
WACC = [WD * RD * (1-t)] + [WE * RE] 8.33% Terminal growth rate 10.50
WD 39.1% Current net debt/total capital
WE 60.9% Current equity/total capital
tax rate t 41.0% Management Guidance
RD 5.25% Latest offering of unsecured debt - Nov 14
(RM - Rf) 7.00% Conservative historical estimate
B 1.3 beta to S&P 500 as of 11/14/14
Rf 2.32% 10yr treasury as of 11/14/14
RE = RF + B*(RM-Rf) 11.70%
Price Target Terminal Growth Rate
WACC
Cost of Capital Terminal EV/EBITDA (fwd) multiple
Short Thesis: Our free cash flow model
Bull Case: Aggressive revenue increases
Key assumptions:
• Sales increases and revenue increases move from 3% to 6% over 3 years resulting in ~11% revenue growth over time
• COGS margin decrease to 76.0%, which is a little below the historic average
53
Short Thesis: Catalysts
In addition to long term undiscovered business value there are a number of shorter term potential catalysts that could hurt the share price: FY 2015 Earnings Miss • We believe that RLGY will miss earnings in 2015, which will negatively impact the stock price • We think that RLGY will miss due to slowing top line growth; sell side predicts 8% revenue growth, we predict
5.7% revenue growth. Additionally, we project net income margins of 3.1% ($173MM net income) compared to the streets 4.5% ($260MM net income).
Bararsani vs. Coldwell Banker Real Estate Brokerage • Class action suit underway debating whether employees are classified as employees or as independent
contractors (typically agents choose to be classified as contractors) • Bararsani claims that Realogy has falsely been labeling agents as contractors, when they should count as
employees according to California State Law • If ruled in Bararsani’s favor, the suit will have a material effect on Realogy business in California that could
potentially extend to other states. Any settlement could materially hurt Realogy’s delicate financial situation.
Debt Structure • Realogy has a significant debt load, with debt that needs to be refinanced in 2015. • Given that Realogy is rated Junk, any increasing of spreads for Junk bonds today could materially increase
Realogy’s interest expense
Increase in online brokerage business • Zillow and other online services have been gaining market share, putting pressure on RLGY RLGY has significant ownership by Hedge funds • The top five hedge fund holders own an aggregate 27% of RLGY’s float, any selling would put
pressure on the share price and benefit a short position
Shorter term catalysts also provide an upside
54
Risk Mitigant
Stronger than forecast growth in volume existing home sales and/or higher home prices (which results in higher commission revenue to RLGY)
We believe Freddie Mac’s estimates of 3% growth in transaction volume and home prices is reasonable, which results in a revenue CAGR of 5.3% for RLGY which is in line with it’s best 3 year period of sales growth from 2003-2005 when sales increased at 5.5% annually.
Resurgence in RLGY’s bargaining power versus franchisees resulting in a halt in trend of decreasing royalty rates to RLGY
Based on primary research we believe the decline in franchisee revenue will continue as franchisee’s can always go off on their own
Decrease in commissions rate paid to sales agents resulting in higher margins
We believe the decline in commission revenue is a structural trend as sales agents have the mentality of “working for the highest bidder”, RLGY loses 6% of its top talent every year.
Long Thesis: Risks and Mitigants
There are risks to the upside that could negatively impact a short position
Including all the above risks in our “Bull” scenario gives a price target of $45.77 or only 6.5% above the current price. We believe this is due to overly optimistic assumptions already baked
into RLGY’s price.
55
85% 84%
4% 7% 11% 9%
President and CEO Other NEOS
Long Term 'Phantom'Incentive Plan
Salary
Annual Bonus
Executive Compensation Breakdown
RLGY: Executive Compensation
Item Description
Annual Incentive
Based on EBITDA Target Levels (varies from 25% to 150% of base) weighted across business units
Salary Salary is reviewed with consideration of peers1 and incentive based pay
Long Term Incentives Phantom Plan
Plan created in 2011 when controlled by Apollo, a Private Equity Firm, based on successful management of debts, successful IPO, and other incentives over multiple years. Largely paid in stock.
60-70% of executive’s compensation is driven by long term growth
Source: SEC Filings
1International, Inc., Iron Mountain Incorporated, Burger King Worldwide, Inc., Jones Lang LaSalle Incorporated, CBRE Group, Inc., Marriott International, Inc., Darden Restaurants, Inc., Starwood Hotels & Resorts Worldwide, Inc., Dunkin' Brands Group, Inc., The Western Union Company, H&R Block, Inc., Wyndham Worldwide Corporation, Hertz Global Holdings, Inc. 56
Long POOL: Appendix
57
Long POOL: Appendix – Key Financials
Cash Flow Priorities
1. Fund operations (trucks, equipment, etc.)
2. Acquisitions, particularly where there is limited to no presence
3. Dividends
4. Share repurchases, particularly in this environment
5. Debt repurchases, particularly if net debt/TTM EBITDA exceeds 2-2.5
- POOL Corp President & CEO Manuel Perez de la Mesa, Q3 2014 Earnings Call
Source: Company Presentation
58
Long POOL: Appendix – Key Financials
Source: Company Presentation
59
Long POOL: Appendix – Comparables Summary
Comparable Description Rationale
Beacon Roofing Supply (BECN)
Beacon Roofing Supply, Inc., is a distributor of residential and non-residential roofing materials in the United States and Canada. The Company also distributes other complementary building materials, including siding, windows, specialty lumber products and waterproofing systems for residential and nonresidential building exteriors.
Recurring distribution business that has a slightly cyclical component, similar to the pool maintenance market
LKQ Corporation (LKQ)
LKQ Corporation (LKQ) provides replacement parts, components and systems needed to repair vehicles (cars and trucks). The Company operates in four segments: Wholesale-North America, Wholesale-Europe, Self Service and Heavy-Duty Truck.
Recurring distribution business that has a slightly cyclical component, similar to the pool maintenance market
Watsco (WSO) Watsco, Inc.( Watsco) is the distributor of air conditioning, heating and refrigeration equipment and related parts and supplies (HVAC/R) in the HVAC/R distribution industry.
Recurring distribution business, POOL CEO was VP distribution at Watsco prior to joining POOL
KB Home (KBH)
KB Home is a builder of single-family residential homes, townhomes and condominiums. It constructs and sells homes through its operating divisions under the name KB Home. It operates homebuilding and financial services business serving homebuyers in various markets across the United States.
Highly cyclical business that is highly correlated to new pool construction, particularly in the warmer states
MarineMax (HZO)
MarineMax, Inc. is a recreational boat dealer in the United States. The Company sells new and used recreational boats, including pleasure and fishing boats. It also sells related marine products, including engines, trailers, parts, and accessories. In addition, the Company provides repair, maintenance, and slip and storage services.
Cyclical business that operating in a discretionary the leisure and luxury boat market which is similar to the new pool market
Lennar (LEN)
Lennar Corporation is a homebuilder and a provider of financial services and through its Rialto Investments (Rialto) segment. The Company's homebuilding operations include the construction and sale of single-family attached and detached homes, as well as the purchase, development and sale of residential land directly and through unconsolidated entities in which it has investments.
Highly cyclical business that is highly correlated to new pool construction, particularly in the states POOL operates in
Applied Industrial Technologies (AIT)
Applied Industrial Technologies, Inc. (Applied) is an industrial distributor in North America, supplying customers in a range of industries with products, including bearings, power transmission components, fluid power components and systems, industrial rubber products, linear motion components, tools, safety products, and general maintenance and mill supply products.
Recurring distribution business that has a slightly cyclical component, similar to the pool maintenance market
Source: SEC Filings
60
Long POOL: Appendix – US Swimming Pool Market Research
Total Contract Value – New Pools Service Firms – Change In Business Conditions (Survey)
Installed In-Ground Pool Base Pool Retailers view of Top Threats
Source: PK Data
61
Long POOL: Appendix – US Swimming Pool Market Research
Installed In-Ground Pool Installed Based Installed In-Ground Sales by State
Source: PK Data
62
200+ participants
Do you own an in-ground pool? Thought about refurbishing pool in last year?
Have you though about adding pool in last year? More likely to move to place with pool this year?
63
Long POOL: Appendix – Proprietary Survey Selected Results
25.0%
75.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
Yes No
25.0%
75.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
Yes No
25.0%
75.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
Yes No
25.0%
75.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
Yes No
Long POOL: Appendix – Pro Forma Income Statement
Assumptions Rationale
Sales: See revenue model page in the presentation
Gross Margins:
Depreciation (as % of prior year gross PPE): 13% Historical average
Amortization: 0.00 Negligable intangbile assets
SG&A growth as a % of sales growth 60.0%
SG&A initial as % of sales 20.0% Most recent
SG&A annual % improvemetn 1.00% Results in SG&A growth ~50% of sales growth in 2015, which is managements target
SG&A annual % improvement decay rate 0.90 We believe SG&A growth that is 50% of sales growth is unsustainable, thus decay the ratio so long term SG&A and sales have equal growth rates
Interest expense as % of LT debt 3.0% 3 year historical average
Income tax rate 39.4% 5yr average
<-- Historical Projected -->
Dec '11 Dec '12 Dec '13 Dec '14 Dec '15 Dec '16 Dec '17 Dec '18 Dec '19 Dec '20 Dec '21 Dec '22 Dec '23 Dec '24
Income Statement
Sales 1,793.32 1,953.97 2,079.70 2,236.48 2,435.53 2,630.37 2,846.06 3,085.13 3,316.52 3,535.41 3,736.92 3,916.30 4,080.78 4,252.17
Cost of Goods Sold (COGS) incl. D&A 1,261.73 1,386.57 1,488.42 1,598.34 1,748.71 1,899.13 2,066.24 2,227.46 2,381.26 2,538.42 2,683.11 2,811.90 2,930.00 3,053.06
COGS excluding D&A 1,250.42 1,373.69 1,473.83 1,581.65 1,726.21 1,873.18 2,036.31 2,192.94 2,341.57 2,492.98 2,631.27 2,752.99 2,864.17 2,979.75
Depreciation & Amortization Expense 11.31 12.88 14.60 16.68 22.50 25.95 29.93 34.53 39.69 45.45 51.84 58.92 65.83 73.31
Depreciation 9.75 11.59 13.36 15.61 22.50 25.95 29.93 34.53 39.69 45.45 51.84 58.92 65.83 73.31
Amortization of Intangibles 1.56 1.28 1.24 1.08 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Gross Income 531.59 567.41 591.28 638.1 686.8 731.2 779.8 857.7 935.3 997.0 1,053.8 1,104.4 1,150.8 1,199.1
SG&A Expense 404.92 415.59 425.79 446.74 465.19 483.46 506.97 536.06 565.38 594.35 622.27 648.39 673.87 702.17
EBIT (Operating Income) 126.67 151.82 165.49 191.4 221.6 247.8 272.9 321.6 369.9 402.6 431.5 456.0 476.9 496.9
Nonoperating Income - Net 0.00 0.00 -0.20 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Interest Expense 7.96 6.47 6.55 7.59 7.69 7.85 8.00 8.16 8.33 8.49 8.66 8.83 9.01 9.19
Unusual Expense - Net 1.60 6.95 -- 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Pretax Income 117.10 138.40 158.74 183.8 213.9 239.9 264.9 313.4 361.5 394.1 422.9 447.2 467.9 487.8
Income Taxes 45.32 56.74 61.59 71.07 84.29 94.53 104.35 123.50 142.45 155.29 166.62 176.18 184.35 192.17
Equity in Earnings of Affil iates 0.21 0.32 0.18 0.21 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Consolidated Net Income 71.99 81.97 97.33 112.95 129.65 145.40 160.50 189.95 219.10 238.85 256.27 270.98 283.55 295.58
Minority Interest 0.00 0.00 0.00 0.12 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Net Income 71.99 81.97 97.33 112.83 129.65 145.40 160.50 189.95 219.10 238.85 256.27 270.98 283.55 295.58
EBIT 126.67 151.82 165.49 191.40 221.63 247.78 272.85 321.61 369.87 402.63 431.54 456.00 476.91 496.94
Depreciation & Amortization Expense 11.31 12.88 14.60 16.68 22.50 25.95 29.93 34.53 39.69 45.45 51.84 58.92 65.83 73.31
EBITDA 137.97 164.69 180.08 208.09 244.14 273.73 302.79 356.13 409.56 448.08 483.39 514.92 542.74 570.25
Contract by 40bps/year for 4 years as product mix switches to lower margin products after which margins expand to average of 28% pre-crisis as consumers spend less on
discretionary (and/or POOL gets favorable distribution pricing on the discretionary products)
64
Long POOL: Appendix – Pro Forma Balance Sheet
Assumptions Rationale
Initial fixed asset turnover 40.00 Most recent value
Fixed asset turnover decay rate 0.95 Historical average decline rate (operating leverage)
Terminal fixed asset turnover 25.00 Estimated minimum
Increase in accum dep as % of prior year gross PPE 10% Historical average
A/R turnover 16.00 5yr historical average
Inventory turnover 5.25 Pre-crisis average (assumes immediate change from 4.85)
Change in other current, prepaid exp, misc current, other curr l iab, def tax l iab 0.0% No assumed change from 2013 (volatile numbers that are relatively small)
Goodwill growth rate (acquisition) 1.0% 5 yr historical average (excl 2012 writedown)
other intangible & tangible asset growth rate, LT debt level, other l iab 2.0% Estimate (inflation)
Deferred Tax asset, ST debt level, inc tax payable 0.00 current value
Accounts Payable Turnover 7.00 4 year historical avg (which has been stable)
<-- Historical Projected -->
Dec '11 Dec '12 Dec '13 Dec '14 Dec '15 Dec '16 Dec '17 Dec '18 Dec '19 Dec '20 Dec '21 Dec '22 Dec '23 Dec '24
Assets
Cash 17.49 12.46 8.01 30.24 34.32 42.90 55.98 81.64 126.91 186.55 257.57 338.19 431.28 527.83
Accounts Receivables, Net 110.56 113.86 125.29 139.78 152.22 164.40 177.88 192.82 207.28 220.96 233.56 244.77 255.05 265.76
Inventories 386.92 400.31 429.20 426.00 463.91 501.02 542.11 587.64 631.72 673.41 711.80 745.96 777.29 809.94
Other Current Assets 23.04 16.47 15.26 15.26 15.26 15.26 15.26 15.26 15.26 15.26 15.26 15.26 15.26 15.26
Total Current Assets 538.00 543.10 577.75 611.28 665.71 723.58 791.23 877.36 981.16 1,096.18 1,218.18 1,344.18 1,478.88 1,618.79
Net Property, Plant & Equipment 41.39 46.57 52.33 58.85 67.47 76.70 87.36 99.68 112.79 126.57 140.82 155.35 163.23 170.09
Property, Plant & Equipment - Gross 101.28 114.82 130.00 149.53 173.09 199.63 230.26 265.60 305.28 349.58 398.79 453.20 506.40 563.90
Accumulated Depreciation 59.88 68.26 77.67 90.67 105.63 122.94 142.90 165.93 192.49 223.01 257.97 297.85 343.17 393.81
Total Investments and Advances 0.98 1.16 1.24 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Intangible Assets 188.84 181.04 182.17 184.09 186.02 186.23 186.45 186.67 186.90 187.13 187.36 187.60 187.84 188.09
Net Goodwill 177.10 169.98 171.97 173.69 175.41 175.41 175.41 175.41 175.41 175.41 175.41 175.41 175.41 175.41
Net Other Intangibles 11.74 11.05 10.20 10.40 10.61 10.82 11.04 11.26 11.48 11.71 11.95 12.19 12.43 12.68
Deferred Tax assets 22.46 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Other Assets 6.95 8.72 10.27 10.48 10.69 10.90 11.12 11.34 11.57 11.80 12.03 12.27 12.52 12.77
Total Assets 798.62 780.58 823.76 864.7 929.9 997.4 1,076.2 1,175.0 1,292.4 1,421.7 1,558.4 1,699.4 1,842.5 1,989.7
Liabilities & Shareholders' Equity
ST Debt & Curr. Portion LT Debt 0.02 0.02 0.01 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Accounts Payable 177.44 199.79 214.60 227.88 255.23 276.61 301.05 324.71 346.48 368.59 388.79 406.58 423.05 440.82
Income Tax Payable 2.98 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Other Current Liabilities 50.42 48.19 49.30 49.30 49.30 49.30 49.30 49.30 49.30 49.30 49.30 49.30 49.30 49.30
Total Current Liabilities 230.86 248.00 263.91 277.18 304.53 325.91 350.35 374.02 395.78 417.89 438.09 455.88 472.35 490.12
Long-Term Debt 247.30 230.88 246.42 251.35 256.37 261.50 266.73 272.07 277.51 283.06 288.72 294.49 300.38 306.39
Deferred Tax Liabilities 32.99 13.45 19.11 19.11 19.11 19.11 19.11 19.11 19.11 19.11 19.11 19.11 19.11 19.11
Other Liabilities 7.73 6.62 8.15 8.31 8.48 8.65 8.82 8.99 9.17 9.36 9.55 9.74 9.93 10.13
Total Liabilities 518.88 498.95 537.58 555.94 588.49 615.16 645.00 674.18 701.57 729.41 755.46 779.22 801.77 825.74
Total Shareholders' Equity 279.75 281.62 286.18 308.76 341.40 382.25 431.15 500.86 590.85 692.26 802.93 920.18 1,040.71 1,163.99
Total Liabilities & Shareholders' Equity 798.62 780.58 823.76 864.7 929.9 997.4 1,076.2 1,175.0 1,292.4 1,421.7 1,558.4 1,699.4 1,842.5 1,989.7
65
Long POOL: Appendix – Pro Forma Cash Flow Statement
Assumptions Rationale
Deferred Taxes, other funds, other accuals 0.00 Small amounts and volatile
Acquisitions as percent of increase in assets 14.3% Over last 4 years acquisitions accounted for about 14% of sales growth, we assume 14% of the working capital growth is also due to acquisition
Cash dividend payment growth rate 7.0% 10 year compound annual average
2015 Cash used for share repurchases -50.00 10 year average
Share repurchase growth rate 5.0% Conservative estimate based on management desire to buyback more shares
<-- Historical Projected -->
Dec '11 Dec '12 Dec '13 Dec '14 Dec '15 Dec '16 Dec '17 Dec '18 Dec '19 Dec '20 Dec '21 Dec '22 Dec '23 Dec '24
Operating Activities
Net Income / Starting Line 71.99 81.97 97.33 112.83 123.01 132.49 141.64 165.41 189.43 204.69 218.36 230.12 240.43 250.65
Depreciation, Depletion & Amortization 11.31 12.88 14.60 16.68 22.50 25.95 29.93 34.53 39.69 45.45 51.84 58.92 65.83 73.31
Depreciation and Depletion 9.75 11.59 13.36 15.61 22.50 25.95 29.93 34.53 39.69 45.45 51.84 58.92 65.83 73.31
Amortization of Intangible Assets 1.56 1.28 1.24 1.08 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Deferred Taxes & Investment Tax Credit 2.61 3.17 0.71 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Other Funds 6.29 10.70 2.44 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Funds from Operations 92.20 108.72 115.07 129.51 145.51 158.44 171.57 199.94 229.11 250.14 270.20 289.04 306.27 323.96
Changes in Working Capital -17.09 10.36 -9.98 1.98 -23.00 -27.92 -30.12 -36.81 -36.77 -33.26 -30.78 -27.58 -25.14 -25.59
Receivables -5.89 -3.40 -10.09 -14.49 -12.44 -12.18 -13.48 -14.94 -14.46 -13.68 -12.59 -11.21 -10.28 -10.71
Inventories -35.34 -9.23 -27.29 3.20 -37.91 -37.11 -41.08 -45.54 -44.07 -41.69 -38.38 -34.17 -31.33 -32.65
Accounts Payable 6.40 20.25 14.01 13.28 27.36 21.37 24.44 23.67 21.76 22.11 20.20 17.80 16.47 17.77
Other Accruals 20.68 3.89 12.88 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Other Assets/Liabilities -2.95 -1.16 0.50 -0.01 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Net Operating Cash Flow 75.10 119.08 105.09 131.49 122.51 130.53 141.45 163.13 192.34 216.88 239.42 261.45 281.12 298.37
Investing Activities
Capital Expenditures (PP&E) -19.45 -16.27 -18.74 -23.21 -31.11 -35.18 -40.59 -46.85 -52.80 -59.22 -66.10 -73.44 -73.72 -80.16
Net Assets from Acquisitions -5.93 -4.70 -1.24 -4.79 -6.95 -6.65 -7.31 -9.24 -11.12 -12.16 -12.69 -12.89 -13.85 -14.37
Sale of Fixed Assets & Businesses 0.00 -- -- 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Purchase/Sale of Investments 0.00 -0.24 0.13 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Sale/Maturity of Investments 0.00 0.00 0.13 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Other Funds -0.19 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Net Investing Cash Flow -25.58 -21.21 -19.86 -28.00 -38.06 -41.84 -47.90 -56.09 -63.92 -71.38 -78.79 -86.33 -87.57 -94.53
Financing Activities
Cash Dividends Paid -26.47 -29.14 -33.81 -36.17 -38.71 -41.42 -44.32 -47.42 -50.74 -54.29 -58.09 -62.15 -66.51 -71.16
Repurchase of Common & Preferred Stk. -76.56 -81.76 -96.18 -50.00 -52.50 -55.13 -57.88 -60.78 -63.81 -67.00 -70.36 -73.87 -77.57 -81.44
Sale of Common & Preferred Stock 13.09 20.21 21.41 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Proceeds from Sale of Stock 0.00 20.21 21.41 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Proceeds from Stock Options 13.09 -- -- 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Issuance/Reduction of Debt, Net 46.78 -16.44 -36.47 4.92 5.03 5.13 5.23 5.33 5.44 5.55 5.66 5.77 5.89 6.01
Change in Current Debt 46.93 0.00 0.00 -0.01 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Change in Long-Term Debt -0.15 -16.44 -36.47 4.93 5.03 5.13 5.23 5.33 5.44 5.55 5.66 5.77 5.89 6.01
Other Funds 2.62 4.49 55.57 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Other Uses -0.50 0.00 -19.04 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Other Sources 3.12 4.49 74.61 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Net Financing Cash Flow -40.55 -102.64 -89.49 -81.26 -86.18 -91.41 -96.97 -102.86 -109.11 -115.74 -122.78 -130.25 -138.18 -146.60
Exchange Rate Effect -1.21 -0.25 -0.20 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Miscellaneous Funds 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Total Net Cash Flow 7.77 -5.02 -4.46 22.24 -1.73 -2.73 -3.42 4.19 19.31 29.75 37.85 44.87 55.37 57.24
Beginning Cash 9.72 17.49 12.46 8.01 30.24 28.51 25.79 22.37 26.56 45.87 75.62 113.47 158.34 213.71
Ending Cash 17.49 12.46 8.01 30.24 28.51 25.79 22.37 26.56 45.87 75.62 113.47 158.34 213.71 270.94
Net Change in Cash 7.77 -5.02 -4.46 22.24 -1.73 -2.73 -3.42 4.19 19.31 29.75 37.85 44.87 55.37 57.24
Free Cash Flow 55.65 102.81 86.35 111.60 91.27 93.15 99.06 113.92 135.35 151.68 166.41 180.68 199.98 209.92
66
Short Thesis: Appendix
67
RE/MAX
Holdings, Inc.
RE/MAX Holdings, Inc. operates as a franchisor for residential and commercial real estate brokerage
services in the United States and internationally. It operates in two segments, Real Estate Franchise
Services, and Brokerage..
BGC Partners,
Inc.
BGC Partners, Inc. operates as a brokerage company, primarily servicing the wholesale financial and
commercial real estate markets.
Jones Lang
LaSalle
Incorporated
Jones Lang LaSalle Incorporated, a financial and professional services company, provides
commercial real estate and investment management services worldwide.
CBRE Group,
Inc.
CBRE Group, Inc. operates as a commercial real estate services and investment company worldwide.
The company operates through Americas; Europe, Middle East and Africa; Asia Pacific; Global
Investment Management; and Development Services segments.
Marcus &
Millichap, Inc.
Marcus & Millichap, Inc., a brokerage firm, provides investment brokerage and financing services to
sellers and buyers of various types and sizes of commercial real estate assets in the United States
and Canada.
HFF, Inc. HFF, Inc. provides commercial real estate and capital market services to users and providers of
capital in the commercial real estate industry in the United States.
Short Thesis Appendix: Comp Based Valuation
We used a range of real estate companies for comparables
68
Short Thesis Appendix: Ownership by hedge funds
Source: [FactSet ]
Hedge Funds54%Mutual Funds
34%
Passive Funds12%
CATEGORIZATION OF TOP 10 HOLDERS BY STYLE
RLGY owned by shorter term hedge funds, selling would benefit a short
• Of the top 10 holders of RLGY, 54% are hedge funds which in aggregate own 27% of RLGY’s float
• Since hedge funds are shorter term in nature, selling would put pressure on the stock price and benefit a short position
69
Short RLGY: Appendix – Pro Forma Income Statement
<-- Historical Projected -->
Dec '06 Dec '07 Dec '08 Dec '09 Dec '10 Dec '11 Dec '12 Dec '13 Dec '14 Dec '15 Dec '16 Dec '17 Dec '18 Dec '19 Dec '20 CAGR
Income Statement
Sales 6,492 5,964 4,725 3,932 4,090 4,093 4,672 5,289 5,329 5,633 5,922 6,227 6,550 6,891 7,252 5.3%
Sales Growth % -8.1% -20.8% -16.8% 4.0% 0.1% 14.1% 13.2% 0.8% 5.7% 5.1% 5.2% 5.2% 5.2% 5.2%
Cost of Goods Sold (COGS) incl. D&A 5,217 5,343 4,085 3,293 3,356 3,388 3,804 4,238 4,333 4,551 4,756 4,998 5,257 5,534 5,827 5.1%
Gross Profit 1,275 621 640 639 734 705 868 1,051 996 1,082 1,166 1,230 1,293 1,357 1,425 6.1%
Gross Margin % 19.6% 10.4% 13.5% 16.3% 17.9% 17.2% 18.6% 19.9% 18.7% 19.2% 19.7% 19.7% 19.7% 19.7% 19.7%
SG&A Expense 625 569 443 411 417 439 517 526 533 563 592 623 655 689 725
EBIT (Operating Income) 650 52 197 228 317 266 351 524 464 519 574 607 638 668 700 7.1%
EBIT Margin % 10.0% 0.9% 4.2% 5.8% 7.8% 6.5% 7.5% 9.9% 8.7% 9.2% 9.7% 9.7% 9.7% 9.7% 9.7%
Nonoperating Income - Net 85 18 13 (3) (9) (2) 12 4 - - - - - - -
Interest Expense 57 538 627 560 585 635 512 283 218 225 211 196 179 160 141
Unusual Expense - Net 74 833 1,846 (1) (283) 62 414 70
Pretax Income 604 (1,301) (2,263) (334) 6 (433) (563) 175 245 294 363 411 459 508 559
Income Taxes 237 (462) (380) (50) 133 32 39 (242) 101 120 149 169 188 208 229
Tax Rate % 39.2% 35.5% 16.8% 15.0% 0.0% -7.4% -6.9% -138.3% 41.0% 41.0% 41.0% 41.0% 41.0% 41.0% 41.0%
Equity in Earnings of Affil iates - - (28) 24 30 26 62 26 7
Consolidated Net Income 367 (839) (1,911) (260) (97) (439) (540) 443 152 173 214 243 271 300 330
Minority Interest 2 2 1 2 2 2 3 5 3
Net Income 365 (841) (1,912) (262) (99) (441) (543) 438 149 173 214 243 271 300 330 14.2%
Net Income available to Common 365 (841) (1,912) (262) (99) (441) (543) 438 149 173 214 243 271 300 330
Net Income Margin % 5.6% -14.1% -40.5% -6.7% -2.4% -10.8% -11.6% 8.3% 2.8% 3.1% 3.6% 3.9% 4.1% 4.3% 4.6%
EPS (diluted, 147MM shares outstanding) n/a n/a n/a n/a n/a (2.20) (14.41) 2.99 1.01 1.18 1.46 1.65 1.84 2.04 2.25 14.2%
EBIT 650 52 197 228 317 266 351 524 464 519 574 607 638 668 700
Depreciation & Amortization Expense 142 539 219 194 197 186 173 176 176 186 196 203 214 228 243
EBITDA 792 591 416 422 514 452 524 700 640 704 770 810 851 896 943 6.7%
EBITDA Margin % 12.2% 9.9% 8.8% 10.7% 12.6% 11.0% 11.2% 13.2% 12.0% 12.5% 13.0% 13.0% 13.0% 13.0% 13.0%
70
Short RLGY: Appendix – Revenue model
<-- Historical Projected -->
Sales by Segment SummaryRE Franchise Services (RFG) 879 818 642 538 560 557 604 690 714 755 796 840 886 934 985 Owned RE Brokerage (NRT) 5,017 4,571 3,561 2,959 3,016 2,970 3,469 3,990 4,077 4,347 4,600 4,869 5,154 5,456 5,777 Relocation Services 509 522 451 320 405 423 423 419 423 427 432 436 440 445 449 Title & Settlement Services 405 372 322 328 325 359 421 467 402 410 418 426 435 443 452 Corporate & Other (318) (319) (251) (213) (216) (216) (245) (277) (286) (306) (324) (344) (365) (387) (411) Total Revenue 6,492 5,964 4,725 3,932 4,090 4,093 4,672 5,289 5,329 5,633 5,922 6,227 6,550 6,891 7,252 Growth % -8.1% -20.8% -16.8% 4.0% 0.1% 14.1% 13.2% 0.8% 5.7% 5.1% 5.2% 5.2% 5.2% 5.2%RE Franchise Services (RFG)Closed homesale sides - RFG 1,515,542 1,221,206 995,622 983,516 922,341 909,610 988,624 1,083,424 1,067,173 1,099,188 1,132,163 1,166,128 1,201,112 1,237,146 1,274,260 Average Homesale Price 231,664 230,346 214,271 190,406 198,076 198,268 213,575 233,011 246,992 254,401 262,033 269,894 277,991 286,331 294,921 Average Homesale Commission Rate 2.47% 2.49% 2.52% 2.55% 2.54% 2.55% 2.54% 2.54% 2.53% 2.53% 2.53% 2.53% 2.53% 2.53% 2.53%Franchise Royalty Rate 4.87% 5.03% 5.12% 5.10% 5.00% 4.84% 4.63% 4.49% 4.49% 4.45% 4.40% 4.36% 4.31% 4.27% 4.23%RFG Domestic Net Royalty Revenue 422 352 275 244 232 223 248 288 299 314 330 347 364 383 402 Royalty from Owned RE Brokerage / NRT 358 322 245 201 207 203 240 280 286 306 324 344 365 387 411 Effective Royalty Rate from NRT 7.50% 7.50% 7.50% 7.50% 7.50% 7.50% 7.50% 7.5% 7.50% 7.50% 7.50% 7.50% 7.50% 7.50% 7.50%RFG Other Revenue 99 143 122 93 121 131 115 122 128 135 142 149 156 164 172 Total RFG Revenue 879 818 642 538 560 557 604 690 714 755 796 840 886 934 985 Y/Y GrowthClosed homesale sides - RFG -19.4% -18.5% -1.2% -6.2% -1.4% 8.7% 9.6% -1.5% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%Average homesale price - RFG -0.6% -7.0% -11.1% 4.0% 0.1% 7.7% 9.1% 6.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%RFG Domestic Net Royalty Revenue 0.8% 1.2% 1.2% -0.4% 0.4% -0.4% 0.0% 4.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0%NRT Domestic Royalty Revenue 3.3% 1.8% -0.4% -2.0% -3.2% -4.3% -3.0% 2.2% 6.9% 6.1% 6.1% 6.1% 6.1% 6.1%RFG Other Revenue 44.8% -15.3% -23.4% 30.2% 8.3% -12.1% 6.1% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0%Total Real Estate Franchise Services Revenues -6.9% -21.5% -16.2% 4.1% -0.5% 8.4% 14.2% 3.4% 5.8% 5.5% 5.5% 5.5% 5.5% 5.5%Owned RE Brokerage (NRT)Closed homesale sides - NRT 390,222 325,719 275,090 273,817 255,287 254,522 289,409 316,640 311,890 321,247 330,885 340,811 351,035 361,566 372,413 Average homesale price - NRT 492,669 534,056 479,301 390,688 435,500 426,402 444,638 471,144 494,701 509,542 524,829 540,573 556,791 573,494 590,699 Average homesale broker commission rate - NRT 2.48% 2.47% 2.48% 2.51% 2.48% 2.50% 2.49% 2.50% 2.47% 2.49% 2.49% 2.49% 2.49% 2.49% 2.49%Side Related Gross Commission Income 4,768 4,297 3,270 2,685 2,757 2,709 3,204 3,730 3,811 4,076 4,324 4,587 4,867 5,163 5,478 NRT Other Revenue 249 274 291 274 259 261 265 260 266 271 276 282 288 293 299 Total Co, Owned RE Brokerage Services Revs 5,017 4,571 3,561 2,959 3,016 2,970 3,469 3,990 4,077 4,347 4,600 4,869 5,154 5,456 5,777 Y/Y GrowthClosed homesale sides - NRT -16.5% -15.5% -0.5% -6.8% -0.3% 13.7% 9.4% -1.5% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%Average homesale price - NRT 8.4% -10.3% -18.5% 11.5% -2.1% 4.3% 6.0% 5.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%Average homesale broker commission rate - NRT -0.4% 0.4% 1.2% -1.2% 0.7% -0.3% 0.4% 2.2% 0.8% 0.0% 0.0% 0.0% 0.0% 0.0%Side Related Gross Commission Income -9.9% -23.9% -17.9% 2.7% -1.7% 18.3% 16.4% 2.0% 6.9% 6.1% 6.1% 6.1% 6.1% 6.1%NRT Other Revenue 10.1% 6.1% -5.9% -5.5% 0.7% 1.6% -1.7% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0%Total Co, Owned RE Brokerage Services Revs -8.9% -22.1% -16.9% 1.9% -1.5% 16.8% 15.0% 2.2% 6.6% 5.8% 5.8% 5.9% 5.9% 5.9%Cartus / Relocation ServicesRelocation Revenue 509 522 451 320 405 423 423 419 423 427 432 436 440 445 449Y/Y Growth % 2.6% -13.6% -29.0% 26.6% 4.4% 0.0% -0.9% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0%Title & Settlement ServicesTRS Revenue 405 372 322 328 325 359 421 467 402 410 418 426 435 443 452Y/Y Growth % -8.1% -13.4% 1.9% -0.9% 10.5% 17.3% 10.9% -14.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0%COGS DriversCOGA (excl D&A) 5,075 4,804 3,866 3,099 3,159 3,202 3,631 4,062 4,157 4,366 4,560 4,795 5,043 5,306 5,584 COGS Margin % 78.2% 80.5% 81.8% 78.8% 77.2% 78.2% 77.7% 76.8% 78.0% 77.5% 77.0% 77.0% 77.0% 77.0% 77.0%
Commission on NRT 3,509 3,189 2,478 2,039 2,113 2,118 2,511 2,879 2,874 3,130 3,312 3,506 3,711 3,929 4,159 as % of NRT Gross Commision Income 69.9% 69.8% 69.6% 68.9% 70.1% 71.3% 72.4% 72.2% 70.5% 72.0% 72.0% 72.0% 72.0% 72.0% 72.0%
Other COGS 1,566 1,615 1,388 1,060 1,046 1,084 1,120 1,183 1,283 1,236 1,248 1,289 1,332 1,378 1,425 Other COGS Margin % 24.1% 27.1% 29.4% 27.0% 25.6% 26.5% 24.0% 22.4% 24.1% 21.9% 21.1% 20.7% 20.3% 20.0% 19.6%
SG&A Expense 625 569 443 411 417 439 517 526 533 563 592 623 655 689 725 SG&A Margin % 9.6% 9.5% 9.4% 10.5% 10.2% 10.7% 11.1% 9.9% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0%
71
<-- Historical Projected -->
Dec '06 Dec '07 Dec '08 Dec '09 Dec '10 Dec '11 Dec '12 Dec '13 Dec '14 Dec '15 Dec '16 Dec '17 Dec '18 Dec '19 Dec '20
AssetsCash & Short-Term Investments 399 173 448 268 205 150 385 250 268 268 268 268 268 268 268 Short-Term Receivables 1,240 1,258 987 517 585 498 446 391 530 530 530 530 530 530 530 Inventories 197 183 22 - 21 -- - - Other Current Assets -- -- -- -- -- 158 147 276 330 330 330 330 330 330 330 Total Current Assets -- -- -- -- -- 806 978 917 1,128 1,128 1,128 1,128 1,128 1,128 1,128 Net Property, Plant & Equipment 342 381 276 211 186 165 188 205 326 336 346 357 369 383 398 Total Investments and Advances - 122 30 45 48 54 73 57 Intangible Assets 3,748 8,673 6,827 6,738 6,730 6,627 6,064 5,994 6,045 5,950 5,855 5,764 5,674 5,584 5,494 Deferred Tax Assets 250 260 510 616 670 653 650 - Other Assets 2,328 565 344 262 275 158 142 153 231 231 231 231 231 231 231 Total Assets 6,668 11,432 9,422 8,657 8,699 8,463 8,095 7,326 7,730 7,645 7,560 7,480 7,402 7,326 7,251 Liabilities & Shareholders' EquityST Debt & Curr. Portion LT Debt 893 1,046 1,250 337 541 652 371 271 300 300 300 300 300 300 300 Accounts Payable -- -- -- -- -- 184 148 123 171 171 171 171 171 171 171 Other Current Liabilities -- -- -- -- -- 600 496 517 471 471 471 471 471 471 471 Total Current Liabilities -- -- -- -- -- 1,436 1,015 911 942 942 942 942 942 942 942 Long-Term Debt 1,800 6,207 6,213 6,674 6,698 6,825 4,256 3,886 3,985 3,726 3,427 3,104 2,756 2,380 1,975 Provision for Risks & Charges - 17 46 49 101 70 70 42 Deferred Tax Liabilities -- 1,509 1,336 1,376 1,553 1,543 1,094 337 405 405 405 405 405 405 405 Other Liabilities 2,385 2,499 2,569 1,539 1,419 97 141 137 207 207 207 207 207 207 207 Total Liabilities 4,185 10,232 10,164 9,638 9,771 9,971 6,576 5,313 5,539 5,280 4,981 4,658 4,310 3,934 3,529 Total Shareholders' Equity 2,483 1,200 (742) (983) (1,074) (1,510) 1,516 2,010 2,188 2,361 2,575 2,818 3,088 3,388 3,718 Accumulated Minority Interest - - - 2 2 2 3 3 4 4 4 4 4 4 4 Total Equity 2,483 1,200 (742) (981) (1,072) (1,508) 1,519 2,013 2,192 2,365 2,579 2,822 3,092 3,392 3,722 Total Liabilities & Shareholders' Equity 6,668 11,432 9,422 8,657 8,699 8,463 8,095 7,326 7,730 7,645 7,560 7,480 7,402 7,326 7,251
Depreciation WorkingGross PP&E 763 463 463 466 500 535 592 627 906 1,006 1,117 1,240 1,376 1,527 1,695 Depreciation 105 118 122 99 86 74 65 67 69 91 101 112 124 138 153 Rate % 15.5% 26.3% 21.4% 18.5% 14.8% 12.1% 11.3% 11.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0%Amortization WorkingAmortization 599 -35 -205 -160 254 -160 -30 472 107 95 95 91 90 90 90 Capex WorkingGross PP&E 763 463 463 466 500 535 592 627 906 1,006 1,117 1,240 1,376 1,527 1,695 Capex (300) 0 3 34 35 57 35 330 100 111 123 136 151 168 Rate % -39.3% 0.0% 0.6% 7.3% 7.0% 10.7% 5.9% 52.7% 11.0% 11.0% 11.0% 11.0% 11.0% 11.0%InterestDebt (short term + long term) 2,693 7,253 7,463 7,011 7,239 7,477 4,627 4,157 4,285 4,026 3,727 3,404 3,056 2,680 2,275 Interest 57 538 627 560 585 635 512 283 218 225 211 196 179 160 141 Interest Rate % 8.6% 7.5% 8.3% 8.8% 6.8% 6.1% 5.3% 5.3% 5.3% 5.3% 5.3% 5.3% 5.3%
Short RLGY: Appendix – Pro Forma Balance Sheet
72
Short RLGY: Appendix – Pro Forma Cash Flow Statement
<-- Historical Projected -->
Dec '06 Dec '07 Dec '08 Dec '09 Dec '10 Dec '11 Dec '12 Dec '13 Dec '14 Dec '15 Dec '16 Dec '17 Dec '18 Dec '19 Dec '20
Operating Activities
Net Income / Starting Line 365.0 (841.0) (1,912.0) (260.0) (97.0) (439.0) (540.0) 443.0 148.7 173.2 214.1 242.6 270.7 299.6 330.0
Depreciation, Depletion & Amortization 142.0 539.0 219.0 194.0 197.0 186.0 173.0 176.0 176.0 185.6 195.6 202.7 214.0 227.6 242.7
Deferred Taxes & Investment Tax Credit 102.0 (475.0) (380.0) (59.0) 131.0 18.0 36.0 (249.0) 11.0 - - - - - -
Other Funds (10.0) 742.0 1,868.0 (35.0) 23.0 75.0 301.0 102.0 72.0 - - - - - -
Changes in Working Capital (354.0) 251.0 314.0 501.0 (372.0) (32.0) (73.0) 20.0 (191.0) - - - - - -
Net Operating Cash Flow 245.0 216.0 109.0 341.0 (118.0) (192.0) (103.0) 492.0 216.7 358.8 409.7 445.3 484.7 527.2 572.8
Investing Activities
Capital Expenditures & Acquisitions (298.0) (6,919.0) (64.0) (45.0) (66.0) (55.0) (57.0) (94.0) (330.4) (99.7) (110.7) (122.9) (136.4) (151.4) (168.0)
Purchase/Sale of Investments - (14.0) 8.0 - - 5.0 (7.0) - -
Other Uses (12.0) (11.0) - (2.0) (9.0) (5.0) (2.0) (8.0) (8.0) - - - - - -
Other Sources - 51.0 26.0 - - 6.0 - - -
Net Investing Cash Flow (310.0) (6,893.0) (30.0) (47.0) (75.0) (49.0) (66.0) (102.0) (338.4) (99.7) (110.7) (122.9) (136.4) (151.4) (168.0)
Financing Activities
Change in Capital Stock (838.0) 35.0 - - - - 1,176.0 5.0 283.5
Issuance/Reduction of Debt, Net 1,921.0 4,402.0 225.0 (468.0) 137.0 198.0 (759.0) (504.0) (127.7) (259.1) (299.0) (322.4) (348.3) (375.9) (404.8)
Other Funds (656.0) 1,993.0 (26.0) (11.0) (13.0) (6.0) (16.0) (31.0) (16.0)
Net Financing Cash Flow 427.0 6,430.0 199.0 (479.0) 124.0 192.0 401.0 (530.0) 139.8 (259.1) (299.0) (322.4) (348.3) (375.9) (404.8)
Exchange Rate Effect 1.0 1.0 (1.0) 3.0 1.0 - 1.0 -
Net Change in Cash 363.0 (246.0) 277.0 (182.0) (68.0) (49.0) 233.0 (140.0) 18.0 - - (0.0) 0.0 - -
73