The Impact of Technology on Secular Trends. Examining the impact of technology on secular industries including media, publishing, retail and consumer products. Business model pitfalls

1. 21st Annual
Leveraged Finance Conference
September 30 – October 2 | The Phoenician Scottsdale

2. The Technology Fallout
The Impact of Secular Change on Industries
Oct 2013
2013 Leveraged Finance Conference

3. The Technology Fallout
Participants:
Moderator:
Mark B. Cohen
Managing Director, Head of
Restructurings
Deutsche Bank
David Groban
Head of Research
MatlinPatterson Global Advisers
Durc Savini
Managing Director, Head of
Restructuring and Recapitalization
Peter J. Solomon & Co
Chris Wilson
Managing Director, Head of Media &
Telecom
Houlihan Lokey
Sandy Qusba
Partner
Simpson Thacher
The Impact of Secular Change on Industries
Shawn Faurot
Managing Director, Head of US Distressed
Products Group
Deutsche Bank
Flip Huffard
Senior Managing Director
Blackstone Group LP
Ted Stenger
Managing Director
AlixPartners

4. Consumer behavior has shifted…
Borders, Circuit City,
RadioShack, Sears
Amazon, eBay, Rent the Runway,
Shopify, Walmart
Retail
Blockbuster, [Dex One], Local
Insight, Supermedia, Truvo
Apple, Craigslist, Facebook,
Google, Netflix, Pandora, Spotify,
Twitter, Yelp
Media
[Cengage], McGraw-Hill Amazon, Apple, Kahn Academy,
Pearson, Wikipedia
Education
Blackberry, Kodak, Motorola,
Nokia
Apple, Google, Instagram,
Samsung
Tech
Catalyst Paper, Newark,
NewPage, Vertis, White Birch
Apple, Google, TwitterPaper
Freedom, Tribune Apple, Facebook, Google,
Reuters, Twitter
Newspapers
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5. …old line businesses challenged by digital models that
empower the consumer…
Newspapers
– free online sources
– blog content
– live-streaming
– social media
Books
– eBooks
– rental
– used textbooks
Directories
– online search
– user-commented sites
Retail
– online shopping
– one-stop low-cost
(Walmart)
Education publishing
– digital content
– digital homework
– free content
– full digitally-integrated
courses
Movie rental
– mail rental
– video-on-demand
Music
– downloadable music
– smartphone accessibility
Radio
– smartphone apps
– internet radio
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6. …resulting in a number of secular bankruptcies
Since 2010, there
have been
numerous
bankruptcy filings
related to a
secular
technological
shift as retailers,
print media
companies, and
newspapers have
fallen victim
Secular Filings Subindustry Filing
Secular bkcys
assets at filing
Morris Publishing New spapers 1/19/2010 $175.5
Penton Media Trade publications 2/10/2010 $813.8
White Birch Paper Paper 2/24/2010 $500.0
Xerium Technologies Paper 3/30/2010 $693.0
New ark Group Paper 6/9/2010 $369.0
Truvo Directories 7/1/2010 $1,277.9
Blockbuster Retail 9/23/2010 $1,020.0
Local Insight Media Directories 11/17/2010 $796.7
American Media Publications 11/17/2010 $668.1
Vertis Printing 11/17/2010 $1,490.0
Borders Group Retail 2/16/2011 $1,357.0
Nebraska Book Retail 6/27/2011 $657.2
New Page Corp Paper 9/7/2011 $3,363.0
Lee Enterprises New spapers 12/12/2011 $1,150.0
Catalyst Paper Paper 1/18/2012 $1,450.2
Eastman Kodak Electronics 1/19/2012 $5,102.0
Reader's Digest (Ch 22) Publications 2/19/2013 $1,100.0
Dex One Directories 3/18/2013 $2,835.0
SuperMedia Directories 3/18/2013 $1,400.0
Cengage Education publishing 7/2/2013 $4,678.9
Total 2010-2013 YTD $30,897.2
Source: Bankruptcy filings. Assets for banks measured upon filing (assets seized by FDIC excluded)
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7. What is shifting? [TBU]
Internet and digital purchasing
 Americans spending 23 hours per week (14% of the week) Online(a)
 78% of the US population Online as of 2012(b)
 June 2013 LTM US Online retail sales up 16.9% YoY, to $243bn(c)
 Most popular Online shopping item is books(d)
Internet and digital advertising
 2012 US digital ad revenues up 15.2% YoY to $36.6bn(e)
 2003-2012 US digital ad revenue CAGR at 19.7%, significantly outpacing total ad revenue 2003-
2012 CAGR at [ ]%(e)(f)
 Internet/ digital advertising second-largest at 21% of total ad spend(e)
 Search led digital ad spend at 46%, while mobile has grown the fastest(e)
Social media
 $4.7bn of US social media spend in 2012(13% of digital spend), $11bn of US social media
advertising expected by 2017(f)
 Mobile driving much of the social media growth
iPad/ eBooks
 iPad/ Android Atlas usage outpacing Nook, Kindle, and other e-Readers by [ ]
(a) BusinessNewsDaily
(b) NewMedia TrendWatch
(c) US Census Bureau
(d) Nielsen 2010 Global Consumer Report “Global Trends in Online Shopping”
(e) Interactive Advertising Bureau
(f) BIA/ Kelsey
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8. The statistics [TBU]
Search
46%
Display/ banner
21%
Mobile
9%
Classifieds
7%
Digital video
6%
Lead generation
5%
Other
6% Broadcast TV, $39.6
, 23%
Internet/ digital,
$36.6 , 21%
Cable TV, $32.5 ,
18%
Magazines, $22.8 ,
13%
Newspaper, $19.4 ,
11%
Radio, $16.1 , 9%
Other, $9.0 , 5%
2012 digital ad revenue by format 2012 general ad revenue by format
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9. Investment thesis for secular situations
CONTENT OWNERSHIP
– Does the company own its content?
– Publishers (own content) vs. yellow pages (media delivery vehicle)
– Strong content can preserve subscriber base
ABILITY TO EXECUTE TRANSITION TO THE NEW MODEL
– Key variables are a strong management team, speed of execution (or whether
transition has already begun), and how flexibile company systems (ie, salesforce
incentives, IT, etc) are
TRADING LEVELS VS. CASH FLOWS IN A WIND-DOWN
– Opportunities created due to lack of buyers and confluence of sellers
– Values often depressed below the PV of cash flows from a wind-down
ENVIRONMENTAL DYNAMICS
– Demographics of consumers (ie, company customers primarily being young, urban
customers vs. older, rural population)
– Internet/ digital penetration of the markets the company operates in
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10. Types of secular philosophies
Description Elements of success
Full
transition
– Fully transition to new
business model
– A strong management team and Board with a unified vision (often a new team)
– Speed
– A gameplan on developing the right incentives/ systems
– Cash for transition CAPEX
– Equity-heavy capital structure
Light
transition
– Transition with gradual
sacrifice to existing business
– Management team and Board with expertise in new business model
– Speed
– Some cash for transition CAPEX
– Preferable to have equity-heavy capital structure
Slow
harvest
– Status quo
– Focus on scaling back costs
– Existing management team and Board can stay, but focus should shift to costs/
cash flow
– Debt-heavy capital structure to encourage paydown
Full
harvest
– Full wind-down of existing
business, with focus on
maximizing cash flow
– Management team and Board focused on cash flow (may require talent turnover
as folks depart to new opportunities)
– Internal communication/ employee management essential as to not cause a flood
of employees jumping ship
– Incentives driven by maximizing cash flow
– Debt-heavy capital structure to encourage paydown 7

11. Pitfalls in secular situations
Entrenched management team/ Board set on old way of thinking
– Leadership failing to recognize secular change
– Resistance to change
– Failure to act quickly or delay in changing leadership can have long-term
consequences
Speed of execution
– Delays in product launches and implementation can have a “domino effect”  being
just one year behind on a digital product launch could result in permanent loss of
market share and in some cases, irrelevancy
Getting incentives wrong
– New incentive structures must encourage transition; but must also make sense
o ie, pushing profitable/ strategic digital products vs. pushing all digital at expense
of margins
– Over-incentivizing for transition when old business still generates good cash flow
o ie, aligning incentives away from Print business when Print still generating 20%
higher margins than digital
o balance needed between incentivizing for transition vs. negative incentives for
generating profit
o incentive mix may need to change every year depending on strategic importance
of transitioning vs. profitability on old business 8

12. Pitfalls in secular situations (continued)
Talent retention
– Key for employees to “believe” in transition
– Particularly difficult for an old-line company with employees having an old-line mindset
– May need to overpay for new talent (ie, why should a top performer join a struggling
company in transition when they can work for Apple or Google?)
Outsourcing
– Talent gap may exist in developing new products/ systems needed for transition
– Outsourcing development may be answer, but both IP and negotiating leverage would
remain with third-party and knowledge gap not solved
Management compensation
– Pay to deliver on transition
o Options and short-term incentives tied to performance metrics (ie, digital EBITDA,
digital EBITDA margins, etc) are key
– Ability to meet timetables
o Pay/ options increase for meeting transition phases on time (or conversely, pay
reduction for missing milestones)
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13. Pitfalls in secular situations (continued)
Corporate identity/ stakeholder communication
– Are employees rowing in same direction?
– Does the market understand and believe the transition story?
– Communication with customers and suppliers?
Creditors and shareholder alignment
– Has a clear, unwavering vision been communicated?
o important to have a unified base
o an unwavering vision by the Company leadership can cause dissenting
constituents to sell, thus aligning the constituent base
– Do creditors and shareholders share vision and are they prepared to agree to right
incentives?
– Though healthy debate is important, vital also for Board to also be unified on transition
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14. Biographies – Mark B. Cohen & Shawn Faurot
 Mark B. Cohen, Managing Director with Deutsche Bank since September 2000, serves as Group Head of
Restructuring & Workout within the Corporate and Investment Bank. Mr. Cohen’s principal business initiatives
include advising companies on balance sheet restructurings, providing DIP and Exit Financings, and
structuring asset sales whether out-of-court M&A or in-court 363 auctions
 Before joining Deutsche Bank in 2000, Mark Cohen worked for the Swiss Bank Corporation/ UBS Warburg for
10 years as Executive Vice President in Global Loan Workout where he managed a multi-billion portfolio of
large commercial real estate restructurings. Mark Cohen graduated with a B.A. degree in Economics from the
University of Virginia
 During Mr. Cohen’s 25+ year career, he has managed turnarounds across an array of industries including.
Among the cases in which he has played a role are: American Airlines, Cengage, Excel Shipping, Tribune,
General Growth Properties, Lee Enterprises, Spyglass/ MGM Studios, Station Casinos, Smurfit Stone, Six
Flags, LyondellBasell, Aleris, Dex One/ RH Donnelley, Cooper-Standard, Hayes Lemmerz, Accuride, Enron,
WorldCom (MCI), Global Crossing, Loews Cineplex, Dade Behring, Calpine Corp, Northwest Airlines, Mirant
Corp, Reliant Resources, Tucson Electric, Horizon Coal, Huntsman, Polaroid Corp., Conseco, Superior
Telecom, NationsRent, Covanta, JA Jones, Loewen, Delphi, Collins & Aikman, and Owens Corning
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 Shawn Faurot

15. Biographies – David Groban & Flip Huffard
 David Groban is the Head of Research of MatlinPatterson Global Advisers. Prior to joining MatlinPatterson in
May 2009, Mr. Groban was an associate in the Recapitalization and Restructuring group of Moelis & Company
(2008-2009). Prior to Moelis, Mr. Groban was an Associate and Analyst in the Recapitalization and
Restructuring group of Jefferies & Company, Inc (2004-2008). Mr. Groban began his career at Key Bank
working in its Investment Banking division (2003-2004). Mr. Groban holds a BS in Business with a
concentration in Finance from Wake Forest University (2003).
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 Flip Huffard is a Senior Managing Director in the Restructuring & Reorganization Group.
 Since joining Blackstone in 1995, Mr. Huffard has worked on a variety of restructuring and reorganization
assignments for companies, creditor groups, corporate parents of troubled companies, and acquirers of
distressed assets. These assignments include Patriot Coal, LA Dodgers, Lee Enterprises, Houghton Mifflin
Harcourt, Excel Maritime, Princeton Review, Homer City, Tribune Companies, Flying J, Minneapolis Star
Tribune, Winn-Dixie Stores, Fleming Companies, New World Pasta, Adelphia, Dade Behring, The LTV
Corporation, and Harnischfeger Industries.
 Mr. Huffard has provided expert witness testimony in numerous bankruptcy cases on valuation and capital
structure issues and is a frequent public speaker on restructuring topics.
 Before joining Blackstone, Mr. Huffard worked at Hellmold Associates, Inc., and Smith Barney, Harris Upham
& Co., Inc.
 Mr. Huffard received a B.A. from Harvard College and an M.B.A. from the Kellogg Graduate School of
Management at Northwestern University.

16. Biographies – Durc Savini & Ted Stenger
 Durc Savini is a Managing Director and head of the Restructuring and Recapitalization Group.
 A veteran banker in the restructuring advisory business, Durc A. Savini joined PJSC in 2010. During the course
of his distinguished 20-year career at Miller Buckfire, Dresdner Kleinwort Wasserstein, its predecessor
Wasserstein Perrella, Bear Stearns and CIBC Wood Gundy Securities, Inc., Mr. Savini led restructurings,
mergers, acquisitions and debt and equity raising transactions on behalf of a wide variety of clients. At Miller
Buckfire, he led that firm’s industry-leading auto supplier advisory effort and chaired the firm’s Valuation and
Commitment Committees.
 Mr. Savini’s restructuring clients have included Lear Corporation, Sunbeam Corporation, Dana Corporation,
Polaroid, Burlington Industries, Dura Automotive Systems, Clayton Dubilier & Rice, JL French Automotive
Castings, Meridian Technologies, Oxford Automotive, Avado Brands, Cambridge Industries, Allied Holdings,
CenterPoint Energy, IMPATH, Inc., and Favorite Brands International, among others.
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 Ted Stenger is an AlixPartners Managing Director with expertise in developing solutions to complex corporate
restructurings and reorganizations for troubled companies. He has served as advisor to senior management
and boards of directors, guiding them through workout negotiations and developing comprehensive turnaround
strategies, including organizational change, capacity rationalization, and divestitures. Ted provides interim
management for companies that require experience in defining and implementing turnaround programs. He
joined the firm’s New York office in 1992.
 Prior to joining AlixPartners, Ted was in the corporate finance group of Ernst & Young.
 Ted’s recent experience includes: Motors Liquidation Company (formerly General Motors), BHM Technologies,
Dana Corp, Fleming Companies, Kmart, Fruit of the Loom, FINOVA, American Rice, Maidenform Worldwide
 In the formal reorganization process, Ted has represented Chapter 11 debtors as well as creditors’ committees
and equity holders. He provides expert testimony on matters related to lost profits, solvency, and fraudulent
conveyances.
 Ted has a bachelor’s in business administration from the University of Notre Dame. He is a certified insolvency
and restructuring accountant and a certified public accountant. He has presented professional papers and
published articles about restructuring and the financial and accounting aspects of successful reorganizations.
And he is a coauthor of the Financial Handbook for Bankruptcy Professionals, Second Edition, West Publishing
Co. (1996).

17. Biographies – Chris Wilson & Sandy Qusba
 Mr. Wilson is a Managing Director and head of the Media & Telecom Group at Houlihan Lokey and is based in the firm’s Los Angeles
office. He joined the firm in 2001. In aggregate since commencing his investment banking career, Mr. Wilson has completed M&A
transactions with an aggregate consideration of approximately $30 billion, debt financings totaling approximately $20 billion and equity
financings totaling approx $6 billion.
 Mr. Wilson has led a series of sale transactions, including the sale of TelCove to Level 3 Communications, OnFiber Communications to
Qwest, Verizon’s Department of Corrections business to Global Tel*Link, Dobson Communications to AT&T, Genesys SA to West
Corporation and Startec Global Communications to Platinum Equity. On the buy side, he has worked with Platinum Equity on their
acquisition of Covad Communications, NTT Communications on Integralis AG, Atlas Internet Solutions SA and Pacific Cross Limited,
Earthlink on Covad and Dubai International Capital on Saudi Oger. In addition, he has arranged a number of financings, including capital
raises for Hostway, Purple Communications and Matrix Communications, among others.
 Mr. Wilson was previously in Houlihan Lokey’s Financial Restructuring Group, where he focused on telecommunications services
providers and played a key role in the restructurings of WorldCom, ICG Communications, Asia Global Crossing, Williams
Communications Group, Covad Communications, Adelphia Business Solutions, 360 Americas and Horizon PCS. The Media & Telecom
Group and Mr. Wilson have recently been active in various media related restructurings including those of Charter Communications, RH
Donnelley, Houghton Mifflin Harcourt and Metro-Goldwyn-Mayer.
 Before joining Houlihan Lokey, Mr. Wilson was with Montgomery Securities (now Banc of America Securities), specializing in media and
telecommunications M&A and corporate finance. He was also a member of the Consumer Group of EVEREN Securities and in
corporate finance with the Media and Telecommunications Group of Union Bank. He also managed proprietary trading in foreign
exchange and derivatives at Drexel Burnham Lambert from 1986 until 1990.
 Mr. Wilson holds a degree in engineering sciences from Harvard University and an M.B.A., with honors, from the Anderson Graduate
School of Management at UCLA. He is registered with FINRA as a General Securities Representative (Series 7 and 63) and a Limited
Representative – Investment Banking (Series 79).
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 Sandeep “Sandy” Qusba is a Partner at Simpson Thacher & Bartlett LLP in the Bankruptcy and Restructuring practice
group of the Firm’s Corporate Department. His practice focuses primarily on restructurings, bankruptcies, acquisition of
distressed companies and bank financings. He has represented agent banks, private equity sponsors and creditors in
some of the largest Chapter 11 proceedings and out of court restructurings in recent years across a wide range of sectors,
among them real estate, healthcare, energy, automotive, manufacturing and telecommunications.
 Recent representations have included: representation of private equity sponsor in connection with the discounted
purchase of loans and the enforcement thereof, resulting in the ultimate ownership of a hotel chain; representation of
JPMorgan and Deutsche Bank as agents under four credit facilities in connection with the proposed merger of Dex One
and SuperMedia; representation of Deutsche Bank as agent in the Chapter 11 restructuring of Station Casinos and its
affiliates; and representation of the lead arrangers in Calpine Corp.’s $8 billion exit financing.
 Sandy received his B.A. from Tufts University in 1991 and his J.D., cum laude, from Syracuse University in 1994. He
served as a Law Clerk for Chief Judge Stephen D. Gerling in the U.S. Bankruptcy Court of the Northern District of New
York. Sandy has been named by Chambers USA as one of the leading lawyers for bankruptcy/restructuring.