Valuation Handbook U.S. Guide to Cost of Capital

2010 U.S. Essentials Edition Data through December 31, 2009

Duff & Phelps

Cover image: Duff & Phelps

Cover design: James Harrington

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.

Copyright © 2017 by John Wiley & Sons, Inc. All rights reserved. Published simultaneously in Canada.

No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 646-8600, or on the Web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748-6011, fax (201) 748-6008, or online at http://www.wiley.com/go/permissions.

The forgoing does not preclude End-users from using the Valuation Handbook – 2010 U.S. Essentials Edition and data published therein in connection with their internal business operations.

Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.

For general information on our other products and services or for technical support, please contact our Customer Care Department within the United States at (800) 762-2974, outside the United States at (317) 572-3993 or fax (317) 572-4002.

Wiley publishes in a variety of print and electronic formats and by print-on-demand. Some material included with standard print versions of this book may not be included in e-books or in print-on-demand. If this book refers to media such as a CD or DVD that is not included in the version you purchased, you may download this material at http://booksupport.wiley.com. For more information about Wiley products, visit www.wiley.com. For more information about Duff & Phelps valuation data resources published by John Wiley & Sons, please go to: www.wiley.com/go/ValuationHandbooks.

ISBN 978-1-119-39843-1 (print on demand) 978-1-119-39844-8 (ePub) 978-1-119-44611-8 (ePDF)

Printed in the United States of America 10 9 8 7 6 5 4 3 2 1

About The Data

The information and data presented in the Valuation Handbook U.S. Guide to Cost of Capital and the associated Valuation Handbook – U.S. Essentials Editions and associated intra-year quarterly updates and the online Risk Premium Toolkit and the online Cost of Capital Analyzer has been obtained with the greatest of care from sources believed to be reliable, but is not guaranteed to be complete, accurate or timely. Duff & Phelps, LLC (www.duffandphelps.com) and/or its data providers expressly disclaim any liability, including incidental or consequential damages, arising from the use of the Valuation Handbook U.S. Guide to Cost of Capital and the associated Valuation Handbook – U.S. Essentials Editions and associated intra-year quarterly updates and the online Risk Premium Toolkit and the online Cost of Capital Analyzer or any errors or omissions that may be contained in the Valuation Handbook U.S. Guide to Cost of Capital and the associated Valuation Handbook – U.S. Essentials Editions and associated intra-year quarterly updates and the online Risk Premium Toolkit and the online Cost of Capital Analyzer, or any other product (existing or to be developed) based upon the methodology and/or data published herein/therein. One of the sources of raw data used to produce the derived data and information in the Valuation Handbook U.S. Guide to Cost of Capital and the associated Valuation Handbook – U.S. Essentials Editions and associated intra-year quarterly updates and the online Risk Premium Toolkit and the online Cost of Capital Analyzer is Morningstar, Inc. Use of raw data from Morningstar to produce the derived data and information herein does not necessarily constitute agreement by Morningstar, Inc. of any investment philosophy or strategy presented in this publication.

Valuation Handbook – 2010 U.S. Essentials Edition (data through December 31, 2009) 1

About Duff & Phelps

Duff & Phelps is the premier global valuation and corporate finance advisor with expertise in complex valuation, disputes and investigations, M&A, real estate, restructuring, and compliance and regulatory consulting. The firm’s more than 2,000 employees serve a diverse range of clients from offices around the world. For more information, visit www.duffandphelps.com.

M&A advisory, capital raising, and secondary market advisory services in the United States are provided by Duff & Phelps Securities, LLC. Member FINRA/SIPC. Pagemill Partners is a Division of Duff & Phelps Securities, LLC. M&A advisory and capital raising advisory services are provided in a number of European countries through Duff & Phelps Securities Ltd, UK, which includes branches in Ireland and Germany. Duff & Phelps Securities Ltd, UK, is regulated by the Financial Conduct Authority.

Valuation Handbook – 2010 U.S. Essentials Edition (data through December 31, 2009) 2

About the 2010 U.S. Essentials Edition

The Valuation Handbook 2010 U.S. Essentials Edition (this document) includes two sets of valuation data:

Data previously published in the 2010 Duff & Phelps Risk Premium Report, and

Data previously published in the Morningstar/Ibbotson® 2010 Stocks, Bonds, Bills, andInflation® (SBBI®) Valuation Yearbook1, 2

“Data Through” Date

The Valuation Handbook – 2010 U.S. Essentials Edition (this document) includes data through December 31, 2009, and is intended to be used for 2010 valuation dates.

NOTE 1: The Valuation Handbook – U.S. Essentials Editions are primarily designed to be archives of the historical data provided by previous editions of the Risk Premium Report, the SBBI Valuation Yearbook (in 1999 to 2013 editions), and the Valuation Handbook – U.S. Guide to Cost of Capital (in 2014 and subsequent years’ editions). As such, the Valuation Handbook – U.S. Essentials Editions consist largely of tables of historical valuation data from these two valuation data sets, and do not include detailed methodology discussions or examples. 3

NOTE 2: Through the 2016 editions, the four books comprising the Valuation Handbook series were named as follows: Valuation Handbook – Guide to Cost of Capital, Valuation Handbook – Industry Cost of Capital, International Valuation Handbook – Guide to Cost of Capital, and International Valuation Handbook – Industry Cost of Capital. Starting with the 2017 editions, the names of the four books were changed to Valuation Handbook – U.S. Guide to Cost of Capital, Valuation Handbook – U.S. Industry Cost of Capital, Valuation Handbook – International Guide to Cost of Capital, and Valuation Handbook – International Industry Cost of Capital, respectively. For simplicity, in all “Essentials” version years, the latter forms of the names are used.

1 “Ibbotson” is a registered trademark of Morningstar, Inc. All rights reserved. 2 “Stocks, Bonds, Bills, and Inflation” and “SBBI” are registered trademarks of Morningstar, Inc. All rights reserved. Used with permission. 3 For detailed information about methodology, and for detailed examples for using the data presented herein, please consult your

hardcover copy of the Valuation Handbook – U.S. Guide to Cost of Capital. To learn more about the latest theory and practice in cost of capital estimation and other valuation issues, please consult your copy of Cost of Capital: Applications and Examples 5th edition. To purchase copies of the Cost of Capital: Applications and Examples 5th edition, the Valuation Handbook – U.S. Guide to Cost of Capital, or other Duff & Phelps valuation data resources published by John Wiley & Sons, please go to: www.wiley.com/go/ValuationHandbooks.

Valuation Handbook – 2010 U.S. Essentials Edition (data through December 31, 2009) 3

Additional Resources There are Five Duff & Phelps “Valuation” Books, and One Duff & Phelps “Historical Returns” Book Duff & Phelps authors five “valuation” books. These resources focus on U.S. and international valuation theory, data, and risk premia (e.g., equity risk premia, risk-free rates, size premia, industry risk premia, betas, industry multiples and other statistics, etc.) for use in valuation models. Duff & Phelps produces one “historical returns” book. This resource, the Stocks, Bonds, Bills, and Inflation (SBBI) Yearbook, focuses on (i) the history of returns of the capital markets in the U.S. from 1926 to the present, and (ii) an analysis of the relative performance of U.S. asset classes.4 The SBBI Yearbook has been published for over 30 years. The SBBI Yearbook does not provide extensive valuation data or methodology. All six Duff & Phelps books are published by John Wiley & Sons (Hoboken, NJ).

The five Duff & Phelps books focused on valuation theory and data inputs are summarized in Figure 1 (next page). To learn more about cost of capital issues, and to ensure that you are using the most recent Duff & Phelps Recommended ERP, visit www.duffandphelps.com/CostofCapital. To learn more about/purchase Duff & Phelps valuation data resources published by John Wiley & Sons, visit: www.wiley.com/go/ValuationHandbooks. The Duff & Phelps book focused on the historical returns of U.S. capital markets is the Stocks, Bonds, Bills, and Inflation (SBBI) Yearbook. This book is summarized in Figure 2 (two pages ahead). To learn more about/purchase the Duff & Phelps SBBI Yearbook, visit www.wiley.com/go/sbbiyearbook.

4 Morningstar previously published two “SBBI” yearbooks: (i) The SBBI “Classic” Yearbook, which is now produced by Duff & Phelps and published by John Wiley & Sons as the “SBBI Yearbook” starting in 2016 (the word “Classic” was dropped from the title), and (ii) the SBBI “Valuation” Yearbook, which was discontinued by Morningstar in 2013. The former SBBI Valuation Yearbook was replaced by the Valuation Handbook – U.S. Guide to Cost of Capital, also produced by Duff & Phelps and published by John Wiley & Sons, starting in 2014.

Valuation Handbook – 2010 U.S. Essentials Edition (data through December 31, 2009) 4

Figure 1: The Five Duff & Phelps Books Focused on Valuation Theory and Data Inputs5

5 To learn more about/purchase Duff & Phelps valuation data resources published by John Wiley & Sons, visit: www.wiley.com/go/ValuationHandbooks.

Valuation Handbook –U.S. Guide to Cost of Capital

Cost of Capital: Applications and Examples (5th edition)

Valuation Handbook –International Industry Cost of Capital

Valuation Handbook –International Guide to Cost of Capital

Includes: (i) international equity risk premia (ERPs) for16 countries; (ii) country risk premia (CRPs) developedusing the “Country Yield Spread Model” and the “Erb-Harvey Viskanta Country Credit Rating Model”;(iiii) relative volatility (RV) factors developed using the“Relative Volatility Model”.

Can be used to develop country-level cost of equity''''capital estimates globally, for up to 188 countries,''''from the perspective of investors based in any one of''''up to 56 countries (depending on data availability).

Includes the same type of rigorous industry-levelanalysis published in the U.S.-centric ValuationHandbook – Industry Cost of Capital, on a globalscale.

Provides industry-level cost of equity capital''''estimates; cost of debt capital and weighted''''average cost of capital (WACC) estimates, plus''''capital structure, valuation multiples, industry betas,''''etc. (depending on data availability).

Four global economic areas covered (the “World”,''''the European Union, the Eurozone, and the United''''Kingdom), in three currencies (the € Euro, the £''''British pound, and the $ U.S. dollar).

Organized by global industry classification''''standard (GICS) code.

Includes U.S. cost of capital data inputs (equity riskpremia, size premia, industry risk premia, risk-freerates) that were previously published in:

The Morningstar/Ibbotson Stocks, Bonds, Bills, and''''Inflation (SBBI) Valuation Yearbook.

The Duff & Phelps Risk Premium Report.

Valuation Handbook –U.S. Industry Cost of Capital

Includes U.S. industry-level data. Provides eightindustry-level cost of equity capital estimates; cost ofdebt capital and weighted average cost of capital(WACC) estimates (depending on data availability),plus capital structure, valuation multiples, industrybetas, etc. (depending on data availability).

Approximately 180 U.S. industries analyzed.

Organized by standard industrial'classification (SIC)''''code.

The authoritative, comprehensive overview of valuation theory, best practices, and proper use of data.

This book puts an emphasis on practical application.

International Valuation Data*

U.S. and International Valuation Theory, Best Practices, Practical Application, and Case Studies

U.S. Valuation Data*

* Through the 2016 editions, the four books comprising the Valuation Handbook series were named as follows: Valuation Handbook – Guide to Cost ofCapital, Valuation Handbook – Industry Cost of Capital, International Valuation Handbook – Guide to Cost of Capital, and International Valuation Handbook –Industry Cost of Capital. Starting with the 2017 editions, the names of the four books were changed to Valuation Handbook – U.S. Guide to Cost of Capital,Valuation Handbook – U.S. Industry Cost of Capital, Valuation Handbook – International Guide to Cost of Capital, and Valuation Handbook – InternationalIndustry Cost of Capital, respectively. For simplicity, in all “Essentials” version years, the latter formsof the namesare used.

Valuation Handbook – 2010 U.S. Essentials Edition (data through December 31, 2009) 5

Figure 2: The Duff & Phelps Book Focused on the Historical Performance of U.S. Capital Markets6

6 To learn more about/purchase the Duff & Phelps SBBI Yearbook, visit www.wiley.com/go/sbbiyearbook.

Stocks, Bonds, Bills, and Inflation (SBBI) Yearbbook

The definitive annual resource for historical U.S. capital markets data for over 30 years.

Starting with the 2016 edition, the Stocks, Bonds, Bills, and Inflation (SBBI) Yearbook is now produced byDuff & Phelps and published by John Wiley & Sons. The SBBI Yearbook was previously published byMorningstar, Inc. under the name “Ibbotson Stocks, Bonds, Bills, and Inflation (SBBI) Classic Yearbook”.

Includes returns, index values, and statistical analyses of U.S. large company stocks, small companystocks, long-term corporate bonds, long-term government bonds, intermediate-term government bonds,U.S. Treasury bills, and inflation from January 1926 to present (monthly).

U.S. Capital Markets Data

Valuation Handbook – 2010 U.S. Essentials Edition (data through December 31, 2009) 6

Table of Contents

Introduction

CRSP Deciles Size Premia Study Data Exhibits Data Exhibit 1: Summary Statistics of Annual Returns Data Exhibit 2: Sum Beta Size Premia Data Exhibit 3: Industry Risk Premia Data Exhibit 4: Industry Risk Premia Company List Data Exhibit 5: CRSP Deciles Size Premia Study: Key Variables Data Exhibit 6: Long-Horizon Equity Risk Premia “Over Time” Data Exhibit 7: Mid-Cap Size Premia “Over Time” Data Exhibit 8: Low-Cap Size Premia “Over Time” Data Exhibit 9: Micro-Cap Size Premia “Over Time” Data Exhibit 10: CRSP Portfolios of the NYSE/AMEX/NASDAQ (largest and smallest company by size group) Data Exhibit 11: Long-term U.S. Government Bond Yields (in percent)

Risk Premium Report Study Data Exhibits Data Exhibit 12: Exhibits A-1 through A-8, Premia Over the Risk-Free Rate (RPm+s) Data Exhibit 13: Exhibits B-1 through B-8, Premia Over CAPM (RPs) 5Data Exhibit 14: Exhibits C-1 through C-8, Comparative Risk Statistics Data Exhibit 15: Size Characteristics of Portfolio 25 in Data Exhibits A, B, and C, by Percentile Data Exhibit 16: Exhibits D-1 through D-3 Data Exhibit 17: Exhibits H-A, H-B, H-C

Valuation Handbook – 2010 U.S. Essentials Edition (data through December 31, 2009) 7

Introduction The Valuation Handbook – U.S. Guide to Cost of Capital, U.S. Essentials Editions, heretofore referred to collectively as simply “Valuation Handbook U.S. Essentials Editions”, or, when referring to a single year’s edition as “Valuation Handbook XXXX U.S. Essentials Edition” (e.g., Valuation Handbook 1999 U.S. Essentials Edition; Valuation Handbook 2000 U.S. Essentials Edition, etc.) are designed to function as historical archives of the two sets of valuation data previously published annually in:

The Morningstar/Ibbotson Stocks, Bonds, Bills, and Inflation (SBBI) Valuation Yearbook in the years 1999 2013 The Duff & Phelps Risk Premium Report in the years 1999 2013, and Published annually in the Duff & Phelps Valuation Handbook – U.S. Guide to Cost of Capital in the years 2014 and forward.7,8

The CRSP Deciles Size Premia Studies and the Risk Premium Report Studies – A Comparison The CRSP Deciles Size Premia Study had been published in the Morningstar/Ibbotson SBBI Valuation Yearbook since 1999; the Risk Premium Report’s Size Study was first published in 1996. Since 2014, both studies have been published in the Valuation Handbook – U.S. Guide to Cost of Capital.9 The CRSP Deciles Size Premia Study and the Risk Premium Report’s Size Study examine the relationship between size and return, and both find that size and return are negatively correlated (as size decreases, returns tend to increase, and vice versa). Both (i) the Risk Premium Report, and (ii) the former SBBI Valuation Yearbook provide data and methodology to assist financial professionals in estimating the cost of equity capital for a subject company using various build-up models and the capital asset pricing model (CAPM). Cost of equity capital is the return necessary to attract funds to an equity investment. However, there are significant differences between the two data sets. Figure 3 summarizes the similarities and differences between the Risk Premium Report Study and the CRSP Deciles Size Premia Study.

7 The Risk Premium Report was published annually as a standalone publication from 1996–2013. The Risk Premium Report was first published as the PricewaterhouseCoopers and Price Waterhouse Risk Premium Report (years 1996–2001), and then as the Standard & Poor’s Corporate Value Consulting Risk Premium Report (years 2002–2004), and then as the Duff & Phelps Risk Premium Report (years 2005–2013). The Risk Premium Report is no longer published as a stand-alone publication; starting in 2014, the data previously published in the Risk Premium Report has been updated annually in the Valuation Handbook – U.S. Guide to Cost of Capital.

8 The Ibbotson SBBI Valuation Yearbook was first published by Ibbotson Associates (years 1999–2006), and then by Morningstar Inc. (years 2007–2013). In 2013, Morningstar discontinued the SBBI Valuation Yearbook (and other “Ibbotson” valuation products); Morningstar no longer publishes or supports the SBBI Valuation Yearbook and related “Ibbotson” valuation data resources. Starting in 2014, the data previously published in the former SBBI Valuation Handbook has been updated annually in the Valuation Handbook – U.S. Guide to Cost of Capital.

9 To learn more about/purchase Duff & Phelps valuation data resources published by John Wiley & Sons, visit: www.wiley.com/go/ValuationHandbooks.

Valuation Handbook – 2010 U.S. Essentials Edition (data through December 31, 2009) 8

Figure 3: Risk Premium Report Study and the CRSP Deciles Size Premia Study Comparison Table

CRSP Deciles Size Premia Study

Risk Premium Report Study

Time horizon over which data is analyzed 1926–present year 1963–present year

Size study included Yes Yes

Size measures used Market Cap

Market Cap + 7 alternative size

measures

Premia over CAPM (i.e., size premia) Yes Yes

"Risk premia over the risk-free rate" No Yes

Unlevered premia (in addition to levered premia) No Yes

Risk Study (in addition to Size Study) No Yes

Risk measures used NA

Operating Margin, CV Operating Margin,

CV ROE

Can be used to estimate COE using build-up method Yes Yes

Can be used to estimate COE using CAPM model Yes Yes

Number of portfolios10 Deciles +

10w, 10x, 10y, 10z 25

Regression formulas available for estimating "exact" interpolated premia "in between" portfolios, or for estimating premia for very small companies No Yes

Portfolio overlap* Yes No

Exclusion of financial companies No Yes

Exclusion of high-financial-risk companies No Yes

Analysis of high-financial-risk companies NA Yes

Specific information about the companies that comprise the portfolios Yes Yes

Mechanism to further refine cost of equity estimates by gauging how “alike or different” the subject company is when compared to the companies that make up the portfolios No Yes

Online applications included Yes Yes

* Portfolio overlap refers to whether a subject company can be be properly placed in multiple size groupings.

Source: 2016 Valuation Handbook – Guide to Cost of Capital

Valuation Handbook – 2010 U.S. Essentials Edition (data through December 31, 2009) 9

Please note that Figure 3 is an excerpt from the 2016 Valuation Handbook – U.S. Guide to Cost of Capital, Chapter 7, “The CRSP Deciles Size Premia Studies and the Risk Premium Report Studies – A Comparison”, and as such represents a side-by-side comparison of the two studies as of the “data through” date of the 2016 edition of that book. Both the former SBBI Valuation Yearbook and the Risk Premium Report have adjusted their methodologies (and the data presented) from time to time over the course of their years of publication.

Because the Risk Premium Report Study excludes financial companies, the Risk Premium Report Study data should not be used by an analyst estimating the cost of equity capital for a financial services company or other company in SIC code 6 (those companies in finance, insurance, or real estate).

Why did the Authors Create the Valuation Handbook – U.S. Essentials Editions?

Since first publishing the Duff & Phelps Valuation Handbook Guide to Cost of Capital in 2014, the authors have received many requests for historical (2013 and earlier) Risk Premium Report and Morningstar/Ibbotson SBBI Valuation Yearbook valuation data. These requests are typically from individual valuation analysts or firms who wish to build a complete, multi-year library of valuation data, or individual valuation analysts or firms involved in a retrospective valuation.

Fulfilling requests for historical Risk Premium Report valuation data was always possible (the Risk Premium Report data is proprietary to Duff & Phelps).

Fulfilling requests for historical SBBI Valuation Yearbook valuation data became possible in 2015, when Duff & Phelps acquired the rights from Morningstar to re-publish the historical equity risk premia data, size premia data, industry risk premia data, risk-free rate data, and other essential valuation data from the 1999 2013 SBBI Valuation Yearbooks.

Who Should Use

There are a number of reasons that valuation analysts might need “historical” valuation data (this is not an exhaustive list):

For use in the preparation of carve-out historical financial statements, in cases wherehistorical goodwill impairment testing is necessary (“carve-out” financial statements are oftenneeded when a company intends to dispose of a portion of it business)

For use in valuing legal entities as of vintage date for tax litigation related to a prior corporaterestructuring, and

Tax litigation related to historical transfer pricing policies, etc.

Valuation Handbook – 2010 U.S. Essentials Edition (data through December 31, 2009) 10

In addition to the traditional professional valuation analyst, the Valuation Handbook – U.S. Guide to Cost of Capital and its associated Valuation Handbook U.S. Essentials Editions are designed to serve the needs of:

Corporate finance officers for pricing or evaluating mergers and acquisitions, raising privateor public equity, property taxation, and stakeholder disputes.

Corporate officers for the evaluation of investments for capital budgeting decisions.

Investment bankers for pricing public offerings, mergers and acquisitions, and private equityfinancing.

CPAs who deal with either valuation for financial reporting or client valuations issues.

Judges and attorneys who deal with valuation issues in mergers and acquisitions (M&A),shareholder and partner disputes, damage cases, solvency cases, bankruptcy reorganizations,property taxes, rate setting, transfer pricing, and financial reporting

Historical Publication Timeline

A historical publication timeline of the former SBBI Valuation Yearbook, the Risk Premium Report, and the Valuation Handbook – U.S. Guide to Cost of Capital in (i) 2013 and prior years, and (ii) 2014 and subsequent years is illustrated in Figure 4.

Figure 4: The Relationship Between the SBBI Valuation Yearbook and the Risk Premium Report, and the Valuation Handbook – U.S. Guide to Cost of Capital in (i) 2013 and Prior Years, and (ii) 2014 and Subsequent Years

Morningstar/IbbotsonSBBI Valuation Yearbook

Published as a PDF report (1996–2013 )

Published as a harcover book 1999–2013

Published as a harcover book 2014 +

Duff & PhelpsValuation Handbook – Guide to Cost of Capital

Risk Premium Report

Includes all of the critical valuation data previously published in:

The Risk Premium ReportThe SBBI Valuation Yearbook

Updated annually, with data through December 31 of the previous year.

X

X

Discontinued by Morningstar in 2013

No longer published as a standalone report

2013 and prior years 2014 and subsequent years

Valuation Handbook – 2010 U.S. Essentials Edition (data through December 31, 2009) 11

“Essentials” Years Available

The Valuation Handbook – U.S. Essentials Editions are available for publication years common to both the CRSP Deciles Size Study and the Risk Premium Report (specifically, from 1999 and forward, annually). U.S. Essentials Editions are made available for all but the most recent two years, on a rolling basis.

For example, the most recent hardcover Valuation Handbook – U.S. Guide to Cost of Capital available at the time of the authors created the initial set of Valuation Handbook – U.S. Essentials Editions was the 2016 Valuation Handbook – U.S. Guide to Cost of Capital, and so the “most recent two years” at that time were 2015 and 2016. The initial set of Valuation Handbook – U.S. Essentials Editions made available was therefore years 1999–2014:

2016 Valuation Handbook – U.S. Guide to Cost of Capital (hardcover) 2015 Valuation Handbook – U.S. Guide to Cost of Capital (hardcover)

1999–2014 U.S. Essentials Editions (PDF)

In subsequent years, the same pattern is followed. For example, if the most recent hardcover Valuation Handbook – U.S. Guide to Cost of Capital available were the 2017 Valuation Handbook – U.S. Guide to Cost of Capital, the “most recent two years” at that time would be 2016 and 2017, and the set of U.S. Essentials Editions available would be for years 1999–2015:

2017 Valuation Handbook – U.S. Guide to Cost of Capital (hardcover) 2016 Valuation Handbook – U.S. Guide to Cost of Capital (hardcover)

1999–2015 U.S. Essentials Editions (PDF) Etc.

Valuation Handbook – 2010 U.S. Essentials Edition (data through December 31, 2009) 12

The Data Collection Process

The historical equity risk premia, size premia, industry risk premia, and other essential valuation data that are provided in the Valuation Handbook – U.S. Essentials Editions were assembled as follows:

1999–2013:

Morningstar/Ibbotson SBBI Valuation Yearbook data: All valuation data was collected fromeach of the 1999–2013 “SBBI Valuation Essentials” reports, as they appeared on the formerMorningstar “Cost of Capital Resources Center” website.10,11

Risk Premium Report Study data: All valuation data was collected from original copies of eachof the 1999–2013 Risk Premium Reports.12,13

2014 and forward:

CRSP Deciles Size Premia Study data, and Risk Premium Report Study data: Both the CRSPDeciles Size Premia Study data and Risk Premium Report Study data are from each of theannual 2014 (and subsequent years) Valuation Handbook – U.S. Guide to Cost of Capitaleditions.

Note: The size premia, equity risk premia, industry risk premia, and other valuation data previously published in the SBBI Valuation Yearbook is collectively referred to as the “CRSP Deciles Size Premia Study” exhibits in the Valuation Handbook – U.S. Guide to Cost of Capital (and in its associated

).

The size premia, “risk premia over the risk-free rate”, equity risk premia, and other valuation data previously published in the Duff & Phelps Risk Premium Report is collectively referred to as the “Risk Premium Report Study” exhibits in the Valuation Handbook – U.S. Guide to Cost of Capital (and in its associated U.S. Essentials Editions).

10 The Morningstar/Ibbotson “Cost of Capital Resources Center” website (http://ccrc.morningstar.com) was taken offline on December 31, 2013, and is no longer available. According to Morningstar, the “SBBI Valuation Essentials Module [which housed the 1999–2013 ‘SBBI Essentials’ documents] contains the essential valuation data and analysis from each of Ibbotson Associates Stocks, Bonds, Bills, and Inflation (SBBI) Valuation Yearbooks (1999–present)” (with “present” meaning 2013, the last year of the website’s existence).

11 © 201 Morningstar. All rights reserved. Used with permission. 12 A revision to all previous studies of the Risk Premium Report was published in 2006 to include (i) additional data that was not published

in the 1996–2005 Risk Premium Reports (e.g., unlevered risk premiums and unlevered betas) and (ii) changes to the data selection criteria. The 1999–2005 Risk Premium Report data reported in the Valuation Handbook – U.S. Essentials Editions are from the revised Risk Premium Reports published in 2006. For a detailed record of the changes to the Risk Premium Report over its entire 1996–2015 history, see the 2016 Valuation Handbook – U.S. Guide to Cost of Capital, Appendix 2, “Changes to the Risk Premium Report Over Time”.

13 © Duff & Phelps. All rights reserved. Used with permission.

Valuation Handbook – 2010 U.S. Essentials Edition (data through December 31, 2009) 13

The Data Presented is “As Published”

The equity risk premia, size premia, industry risk premia, and other essential valuation data in the Valuation Handbook U.S. Essentials Editions is “as published”. This means that the data presented is as this data appeared in the source publications at the time they were published. This is important because valuation is a forward-looking process that must be based on facts available (or reasonably foreseeable) as of the valuation date.

For example, the Valuation Handbook – 2010 U.S. Essentials Edition (this document) is a historical archive of the two sets of valuation data previously published in (i) the 2010 SBBI Valuation Yearbook, and (ii) the 2010 Duff & Phelps Risk Premium Report, as this data appeared in those publications at the time they were published in 2010.14

14 Both the former SBBI Valuation Yearbook and the Risk Premium Report have adjusted their methodologies (and the data presented) from time to time over the course of their years of publication. When a known change to methodology is made as of a specific year, or when the data presented is known to have changed as of a specific year, we report those changes in the text or in footnotes.

Valuation Handbook – 2010 U.S. Essentials Edition (data through December 31, 2009) 14

Data and Information Available by Year

CRSP Deciles Size Study

Figure 5 provides a summary of the data and information available for the CRSP Deciles Size Premia Study (the data previously published in the former SBBI Valuation Yearbook) and the years for which this data and information is available.

Figure 5: Data and Information Available for the CRSP Deciles Size Premia Study and the Years for Which Each is Available.

CRSP Deciles Size Study Data Exhibits Years AvailableSummary Statistics of Annual Returns 1999 and subsequent years

Sum Beta Size Premia 1999 and subsequent years

Industry Risk Premia 2000 and subsequent years

Industry Risk Premia Company List 2003 and subsequent years

CRSP Deciles Size Premia Study: Key Variables * 1999 and subsequent years

• 10a, 10b Split 2001 and subsequent years

• 10a split into 10w and 10x; 10z split into 10y and 10z 2010 and subsequent years

• Supply-Side Equity Risk Premium 2004 and subsequent years

CRSP Deciles Size Study Data "Over Time" Exhibits Years Available

Long-Horizon Historical Equity Risk Premia 1999 and subsequent years

Mid-Cap Size Premia (all historical time periods) 1999 and subsequent years

Low-Cap Size Premia (all historical time periods) 1999 and subsequent years

Micro-Cap Size Premia (all historical time periods) 1999 and subsequent yearsCRSP Portfolios of the NYSE/AMEX/NASDAQ (largest and smallest company by size group)

1999 and subsequent years

* This table was called "Key Variables in Estimating the Cost of Capital" in the formerSBBI Valuation Yearbook .

Valuation Handbook – 2010 U.S. Essentials Edition (data through December 31, 2009) 15

Risk Premium Report Study

Figure 6 provides a summary of the data and information available for the Risk Premium Report Study (the data previously published in the Risk Premium Report) and the years for which this data and information is available.

Figure 6: Data and Information Available for the Risk Premium Report Study and the Years for Which Each is Available.

Risk Premium Report Study Data Exhibits Years AvailableData Exhibits A-1 through A-8 1999 and subsequent years

Data Exhibits B-1 through B-8 1999 and subsequent years

Data Exhibits C-1 through C-8 1999 and subsequent yearsSize Characteristics of Portfolio 25 in Data Exhibits A, B, and C, by Percentile

2009 and subsequent years

Data Exhibits D-1, D-2, and D-3 1999 and subsequent years

Data Exhibits H-A, H-B, H-C * 2010 and subsequent years

* In the 1999–2009 Risk Premium Report , high-financial-risk company statistics werereported as a single line within each of the respective size exhibits. The analysis of high-financial-risk companies was expanded in 2010, necessitating the creation of a new,separate set of exhibits.

Valuation Handbook – 2010 U.S. Essentials Edition (data through December 31, 2009) 16

Sources of Underlying Data15

CRSP Deciles Size Study

The underlying data and information in the CRSP Deciles Size Premia Study (the data previously published in the former SBBI Valuation Yearbook) comes primarily from these sources:

CRSP standard market-cap-weighted NYSE/NYSE MKT/NASDAQ deciles 1–10, and sizegroupings id- ap stocks 16,17

A split of CRSP decile 10 into its top half (10a) and its bottom half (10b) was added in the2001 SBBI Valuation Yearbook.18 In the 2010 Valuation Yearbook, 10a was further split intoits top half (10w) and its bottom half (10x), and 10b was split into its top half (10y) and itsbottom half (10z).19

Ibbotson Stocks, Bonds, Bills, and Inflation (SBBI) return series.20,21

Standard & Poor’s Research Insight database.

15 For detailed methodology, please refer to your hardcover copy of the Valuation Handbook – U.S. Guide to Cost of Capital. 16 In the 1999 and 2000 Ibbotson SBBI Valuation Yearbooks the CRSP size grouping and decile portfolios were composed of NYSE stocks

only. Since 2001, the decile portfolios have been composed of deciles of the New York Stock Exchange, plus similar sized AMEX and NASDAQ companies. On October 1, 2008, NYSE Euronext acquired the American Stock Exchange (AMEX). Post-merger, the AMEX equities business was branded “NYSE Alternext US.” NYSE Alternext US was subsequently rebranded “NYSE Amex Equities.” On May 10, 2012, NYSE Euronext (NYX) announced that NYSE Amex LLC would be renamed NYSE MKT LLC effective May 14, 2012. However, CRSP continued to refer to the components of its standard market-cap-weighted deciles as “NYSE/AMEX/NASDAQ”, as did Morningstar in the 2013 SBBI Yearbook (the 2013 edition was the final edition published), and as did Duff & Phelps in the 2014 Valuation Handbook – U.S. Guide to Cost of Capital (the Valuation Handbook – U.S. Guide to Cost of Capital replaced the SBBI Valuation Handbook starting in 2014). Starting with the 2015 Valuation Handbook – U.S. Guide to Cost of Capital, the components of the CRSP deciles have beenreferred in that book as “NYSE/NYSE MKT/NASDAQ”.

17 CRSP U.S. Stock Database and CRSP U.S. Indices Database © 201 Center for Research in Security Prices (CRSP®), University of Chicago Booth School of Business. All rights reserved. Used with permission.

18 This is equivalent to breaking the universe of stocks down into 20 size groupings, with portfolios 19 and 20 representing 10a and 10b, respectively.

19 This is equivalent to breaking the universe of stocks down into 40 size groupings, with portfolios 37, 38, 39, and 40 representing 10w, 10x, 10y, and 10z, respectively.

20 “Ibbotson”, “Stocks, Bonds, Bills, and Inflation”, and “SBBI” are registered trademarks of Morningstar, Inc. All rights reserved. 21 During the period in which the 1999 through 2006 SBBI Valuation Yearbooks were produced, these series were owned by Ibbotson

Associates. During the period in which the 2007 through 2013 SBBI Valuation Yearbooks were produced, these series were owned by Morningstar, Inc. (in spring 2006, Morningstar purchased Ibbotson Associates). During the period in which the 2014 (and subsequent years) Valuation Handbook – U.S. Guide to Cost of Capital has been produced, the SBBI series are owned by Morningstar, Inc., and are used by Duff & Phelps with Morningstar’s permission.

Valuation Handbook – 2010 U.S. Essentials Edition (data through December 31, 2009) 17

Risk Premium Report Study

The underlying data and information in the Risk Premium Report Study comes primarily from these sources:

The universe of companies used to perform the analyses presented in the Risk PremiumReport Study is comprised of those companies that are found in both (i) the Center forResearch in Securities Prices (CRSP) equities database at the University of Chicago BoothSchool of Business, and (ii) Standard & Poor’s Compustat database.22

To learn more about CRSP, visit www.crsp.com. To learn more about Morningstar visit www.corporate.morningstar.com. To learn more about Standard & Poor’s, visit www.standardandpoors.com.

Citation

Each of the exhibits in the Valuation Handbook – U.S. Essentials Editions lists (i) the original source (either the SBBI Valuation Handbook or the Risk Premium Report for years 1999–2013, or the Valuation Handbook – U.S. Guide to Cost of Capital for years 2014 and forward), and (ii) the original exhibit name from the original source. Users can cite either the original source or cite the appropriate Valuation Handbook – U.S. Essentials Edition.

22 Ibbotson Stocks, Bonds, Bills, and Inflation (SBBI) return series are also used to produce in the Risk Premium Report Study data exhibits . The SBBI series are owned by Morningstar, Inc. All rights reserved. Used with permission.

Valuation Handbook – 2010 U.S. Essentials Edition (data through December 31, 2009) 18

CRSP Deciles Size Premia Study Data Exhibits23,24

Data Exhibit 1: Summary Statistics of Annual Returns

Data Exhibit 2: Sum Beta Size Premia

Data Exhibit 3: Industry Risk Premia

Data Exhibit 4: Industry Risk Premia Company List

Data Exhibit 5: CRSP Deciles Size Premia Study: Key Variables

Data Exhibit 6: Long-Horizon Equity Risk Premia “Over Time”

Data Exhibit 7: Mid-Cap Size Premia “Over Time”

Data Exhibit 8: Low-Cap Size Premia “Over Time”

Data Exhibit 9: Micro-Cap Size Premia “Over Time”

Data Exhibit 10: CRSP Portfolios of the NYSE/AMEX/NASDAQ (largest and smallest company by size group)

Data Exhibit 11: Long-term U.S. Government Bond Yields (in percent)

23 The Valuation Handbook – U.S. Essentials Editions are primarily designed to be archives of the historical data provided by previous editions of the Risk Premium Report, the SBBI Valuation Yearbook (in 1999 to 2013 editions), and the Valuation Handbook – U.S. Guide to Cost of Capital (in 2014 and subsequent years’ editions). As such, the Valuation Handbook – U.S. Essentials Editions consist largely of tables of historical valuation data from these two valuation data sets, and do not include detailed methodology discussions or examples. For examples for using the data presented herein, please consult your hardcover copy of the Valuation Handbook – U.S. Guide to Cost of Capital. To purchase copies of the hardcover Valuation Handbook – U.S. Guide to Cost of Capital, or other Duff & Phelps valuation data resources published by John Wiley & Sons, please go to: www.wiley.com/go/ValuationHandbooks.

24 Through the 2016 editions, the four books comprising the Valuation Handbook series were named as follows: Valuation Handbook – Guide to Cost of Capital, Valuation Handbook – Industry Cost of Capital, International Valuation Handbook – Guide to Cost of Capital, and International Valuation Handbook – Industry Cost of Capital. Starting with the 2017 editions, the names of the four books were changed to Valuation Handbook – U.S. Guide to Cost of Capital, Valuation Handbook – U.S. Industry Cost of Capital, Valuation Handbook – International Guide to Cost of Capital, and Valuation Handbook – International Industry Cost of Capital, respectively. For simplicity, in all “Essentials” version years, the latter forms of the names are used.

Valuation Handbook – 2010 U.S. Essentials Edition (data through December 31, 2009) 19