BASE CASE

COMPASS RECORDS
Discounted Cash Flow Analysis for "License" and "Produce and Own" Alternatives
Using Base-Case Unit Assumptions
ASSUMPTIONS
Sales projections
U.S. sales
U.K., Ireland, Europe sales
Japan, New Zealand, Australia sales
Canada sales
Units sold by artist
Totalprojected sales (units)

Units
5,000
2,000
1,000
500
1,500
10,000

Weighted average cost of capital

Pricing
U.S. wholesale unit price
Less distribution fee
U.K., Ireland, Europe price (euro)
Euro/US$ exchange rate
U.K., Ireland, Europe price (US$)
Japan, NZ, Australia price (US$)
Canada price (US$)
Unit price for artist-sold units
Distribution fee

12%

$11.45
$9.05
EUR 7.00
1.224
$8.57
$6.50
$7.00
$6.00
21%

Marketing and promotion

Print advertising
Posters and photos
E-card mailings
Independent radio promoter
Retail placement
Total marketing & promo cost

$3,000
500
1,000
2,500
5,000
$12,000

CD mail-out units
Cost per mail-out unit per unit
Postage and collateral per unit
Total cost for CD mail-out

2,000
$0.50
$2.00
$5,000

CASH FLOWS
Own

License
Years

Years
0

Annual percentage sold in percent (totals 100%)

U.S. forecasted units sold
U.K., Ireland, Europe forecasted units sold
Japan, New Zealand, Australia forecasted units sol
Canada forecasted units sold
Units sold by artist
Total sales
Cost of goods sold
Mechanical royalties
Recording-artist royalties
Recoupables not recovered
Promotion & marketing not recoupable
Loss on inventory
Upfront fee (advance)
Taxable income
Taxes(put rate in box)
Net operating profit after tax

Per unit
$0.90
$0.85
$1.45

40%

Change in inventory
Change in recoupables
Free cash flow
NPV
IRR

Own

0
0
0
0
0

1
75%
3,750
1,500
750
375
1,125

2
20%
1,000
400
200
100
300

3
5%
250
100
50
25
75

$0

$61,023

$16,273

$4,068

$0
$0
$0

$6,750
$2,709
$9,244

$1,800
$723
$2,465

$11,000

$0

$0

$0
($11,000)
$4,400
($6,600)

$0
$42,320
($16,928)
$25,392

$0
$11,285
($4,514)
$6,771

$450
$181
$616
$13,675
$0
$2,295
$0
($13,149)
$5,259
($7,889)

($8,471)
($26,000)
($41,071)

$4,491
$9,244
$39,126

$1,235
$2,465
$10,471

$450
$616
$9,147

$8,722
28.6%

Per unit
$0.90
$0.85
$1.75

License

0
0%
0
0
0
0
0

1
75%
3,750
1,500
750
375
1,125

2
20%
1,000
400
200
100
300

3
5%
250
100
50
25
75

$0

$61,023

$16,273

$4,068

$0
$0
$0

$6,750
$5,419
$11,156

$1,800
$1,445
$2,975

$11,000

$0

$0

$3,000
($14,000)
$5,600
($8,400)

$0
$37,698
($15,079)
$22,619

$0
$10,053
($4,021)
$6,032

$450
$361
$744
$0
$0
$2,295
$0
$218
($87)
$131

($8,471)
($9,500)
($26,371)

$4,491
$9,500
$36,610

$1,235
$0
$7,267

$450
$0
$2,876

$8,471
9,500

$3,980
0

$2,745
0

$2,295
0
$2,295

$14,156
60.3%

WORKING CAPITAL
Own

License
Years

Years
0

Assets
Inventory, incl. overage @...
Recoupables
Recoupables
Production costs
Marketing & promotion (1/2)
Advance
Total

3
Assets

30%

$8,471
26,000

$20,000
6,000
0
$26,000

$3,980
16,756

$2,745
14,291

$2,295
13,675
$15,970

Recoupables
Production costs
Marketing & promotion (1/2)
Advance
Total

$500
6,000
3,000
$9,500

BASE CASE

COMPASS RECORDS
Discounted Cash Flow Analysis for "License" and "Produce and Own" Alternatives
Using Base-Case Unit Assumptions
ASSUMPTIONS
Sales projections
U.S. sales
U.K., Ireland, Europe sales
Japan, New Zealand, Australia sales
Canada sales
Units sold by artist
Totalprojected sales (units)

Units
10,000
2,000
1,000
500
1,500
15,000

Weighted average cost of capital

Pricing
U.S. wholesale unit price
Less distribution fee
U.K., Ireland, Europe price (euro)
Euro/US$ exchange rate
U.K., Ireland, Europe price (US$ )
Japan, NZ, Australia price (US$)
Canada price (US$)
Unit price for artist-sold units
Distribution fee

12%

$11.45
$9.05
EUR 7.00
1.224
$8.57
$6.50
$7.00
$6.00
21%

Marketing and promotion

Print advertising
Posters and photos
E-card mailings
Independent radio promoter
Retail placement
Total marketing & promo cost

$3,000
500
1,000
2,500
5,000
$12,000

CD mail-out units
Cost per mail-out unit per unit
Postage and collateral per unit
Total cost for CD mail-out

2,000
$0.50
$2.00
$5,000

CASH FLOWS
Own

License
Years

Years
0

Annual percentage sold in percent (totals 100%)

U.S. forecasted units sold
U.K., Ireland, Europe forecasted units sold
Japan, New Zealand, Australia forecasted units sold
Canada forecasted units sold
Units sold by artist
Total sales
Cost of goods sold
Mechanical royalties
Recording-artist royalties
Recoupables not recovered
Promotion & marketing not recoupable
Loss on inventory

Per unit
$0.90
$0.85
$1.45

Upfront fee (advance)

Taxable income
Taxes(put rate in box)
Net operating profit after tax

40%

Change in inventory
Change in recoupables
Free cash flow
NPV
IRR

Own

0
0
0
0
0

1
75%
7,500
1,500
750
375
1,125

2
20%
2,000
400
200
100
300

3
5%
500
100
50
25
75

0
0%
0
0
0
0
0

1
75%
7,500
1,500
750
375
1,125

2
20%
2,000
400
200
100
300

3
5%
500
100
50
25
75

$0

$94,943

$25,318

$6,330

$0
$0
$0

$10,125
$4,303
$14,681

$2,700
$1,148
$3,915

$11,000

$0

$0

$675
$287
$979
$6,425
$0
$3,645

$0

$94,943

$25,318

$6,330

$0
$0
$0

$10,125
$8,606
$17,719

$2,700
$2,295
$4,725

$11,000

$0

$0

$675
$574
$1,181
$0
$0
$3,645

$0
($11,000)
$4,400
($6,600)

$0
$65,834
($26,334)
$39,500

$0
$18,703
($7,481)
$11,222

$0
($5,394)
$2,158
($3,237)

$3,000
($14,000)
$5,600
($8,400)

$0
$58,493
($23,397)
$35,096

$0
$15,598
($6,239)
$9,359

$0
$255
($102)
$153

($12,858)
($26,000)
($45,458)

$6,696
$14,681
$60,878

$1,843
$3,915
$16,980

$675
$979
$8,487

($12,859)
($9,500)
($30,759)

$6,696
$9,500
$51,292

$1,843
$0
$11,202

$675
$0
$4,473

$28,474
63.7%

Per unit
$0.90
$0.85
$1.75

License

$27,151
90.0%

WORKING CAPITAL
Own

License
Years

Assets
Inventory, incl. overage @...
Recoupables
Recoupables
Production costs
Marketing & promotion (1/2)
Advance
Total

Years
0

$12,859
26,000

$6,163
11,319

$4,320
7,404

$3,645
6,425
$10,070

$12,859
9,500

$6,163
0

$4,320
0

$3,645
0
$3,645

Assets
30%

$20,000
6,000
0
$26,000

Recoupables
Production costs
Marketing & promotion (1/2)
Advance
Total

$500
6,000
3,000
$9,500

BASE CASE

COMPASS RECORDS
Discounted Cash Flow Analysis for "License" and "Produce and Own" Alternatives
Using Base-Case Unit Assumptions
ASSUMPTIONS
Sales projections
U.S. sales
U.K., Ireland, Europe sales
Japan, New Zealand, Australia sales
Canada sales
Units sold by artist
Totalprojected sales (units)

Units
2,000
2,000
1,000
500
1,500
7,000

Weighted average cost of capital

Pricing
U.S. wholesale unit price
Less distribution fee
U.K., Ireland, Europe price (euro)
Euro/US$ exchange rate
U.K., Ireland, Europe price (US$ )
Japan, NZ, Australia price (US$)
Canada price (US$)
Unit price for artist-sold units
Distribution fee

12%

$11.45
$9.05
EUR 7.00
1.224
$8.57
$6.50
$7.00
$6.00
21%

Marketing and promotion

Print advertising
Posters and photos
E-card mailings
Independent radio promoter
Retail placement
Total marketing & promo cost

$3,000
500
1,000
2,500
5,000
$12,000

CD mail-out units
Cost per mail-out unit per unit
Postage and collateral per unit
Total cost for CD mail-out

2,000
$0.50
$2.00
$5,000

CASH FLOWS
Own

License
Years

Years
0

Annual percentage sold in percent (totals 100%)

U.S. forecasted units sold
U.K., Ireland, Europe forecasted units sold
Japan, New Zealand, Australia forecasted units sold
Canada forecasted units sold
Units sold by artist
Total sales
Cost of goods sold
Mechanical royalties
Recording-artist royalties
Recoupables not recovered
Promotion & marketing not recoupable
Loss on inventory

Per unit
$0.90
$0.85
$1.45

Upfront fee (advance)

Taxable income
Taxes(put rate in box)
Net operating profit after tax

40%

Change in inventory
Change in recoupables
Free cash flow
NPV
IRR

Own

0
0
0
0
0

1
75%
1,500
1,500
750
375
1,125

2
20%
400
400
200
100
300

3
5%
100
100
50
25
75

0
0%
0
0
0
0
0

1
75%
1,500
1,500
750
375
1,125

2
20%
400
400
200
100
300

3
5%
100
100
50
25
75

$0

$40,670

$10,845

$2,711

$0
$0
$0

$4,725
$1,753
$5,981

$1,260
$468
$1,595

$11,000

$0

$0

$315
$117
$399
$18,025
$0
$1,485

$0

$40,670

$10,845

$2,711

$0
$0
$0

$4,725
$3,506
$7,219

$1,260
$935
$1,925

$11,000

$0

$0

$315
$234
$481
$0
$0
$1,485

$0
($11,000)
$4,400
($6,600)

$0
$28,211
($11,284)
$16,927

$0
$7,523
($3,009)
$4,514

$0
($17,629)
$7,052
($10,578)

$3,000
($14,000)
$5,600
($8,400)

$0
$25,220
($10,088)
$15,132

$0
$6,725
($2,690)
$4,035

$0
$196
($79)
$118

($5,838)
($26,000)
($38,438)

$3,168
$5,981
$26,076

$871
$1,595
$6,979

$315
$399
$9,646

($5,839)
($9,500)
($23,739)

$3,168
$7,219
$25,519

$871
$1,925
$6,831

$315
$356
$2,274

($2,727)
6.8%

Per unit
$0.90
$0.85
$1.75

License

$6,110
34.2%

WORKING CAPITAL
Own

License
Years

Assets
Inventory, incl. overage @...
Recoupables
Recoupables
Production costs
Marketing & promotion (1/2)
Advance
Total

Years
0

$5,839
26,000

$2,671
20,019

$1,800
18,424

$1,485
18,025
$19,510

$5,839
9,500

$2,671
2,281

$1,800
356

$1,485
0
$1,485

Assets
30%

$20,000
6,000
0
$26,000

Recoupables
Production costs
Marketing & promotion (1/2)
Advance
Total

$500
6,000
3,000
$9,500

BEST CASE

COMPASS RECORDS
Discounted Cash Flow Analysis for "License" and "Produce and Own" Alternatives
Using Base-Case Unit Assumptions
ASSUMPTIONS
Sales projections
U.S. sales
U.K., Ireland, Europe sales
Japan, New Zealand, Australia sales
Canada sales
Units sold by artist
Totalprojected sales (units)

Units
5,000
2,000
1,000
500
1,500
10,000

Weighted average cost of capital

Pricing
U.S. wholesale unit price
Less distribution fee
U.K., Ireland, Europe price (euro)
Euro/US$ exchange rate
U.K., Ireland, Europe price (US$ )
Japan, NZ, Australia price (US$)
Canada price (US$)
Unit price for artist-sold units
Distribution fee

12%

$11.45
$9.05
EUR 7.00
1.224
$8.57
$6.50
$7.00
$6.00
21%

Marketing and promotion

Print advertising
Posters and photos
E-card mailings
Independent radio promoter
Retail placement
Total marketing & promo cost

$3,000
500
1,000
2,500
5,000
$12,000

CD mail-out units
Cost per mail-out unit per unit
Postage and collateral per unit
Total cost for CD mail-out

2,000
$0.50
$2.00
$5,000

CASH FLOWS
Own

License
Years

Years
0

Annual percentage sold in percent (totals 100%)

U.S. forecasted units sold
U.K., Ireland, Europe forecasted units sold
Japan, New Zealand, Australia forecasted units sold
Canada forecasted units sold
Units sold by artist
Total sales
Cost of goods sold
Mechanical royalties
Recording-artist royalties
Recoupables not recovered
Promotion & marketing not recoupable
Loss on inventory

Per unit
$0.90
$0.85
$1.45

Upfront fee (advance)

Taxable income
Taxes(put rate in box)
Net operating profit after tax

40%

Change in inventory
Change in recoupables
Free cash flow
NPV
IRR

Own

0
0
0
0
0

1
75%
3,750
1,500
750
375
1,125

2
20%
1,000
400
200
100
300

3
5%
250
100
50
25
75

0
0%
0
0
0
0
0

1
75%
3,750
1,500
750
375
1,125

2
20%
1,000
400
200
100
300

3
5%
250
100
50
25
75

$0

$61,023

$16,273

$4,068

$0
$0
$0

$6,750
$2,709
$9,244

$1,800
$723
$2,465

$11,000

$0

$0

$450
$181
$616
$8,675
$0
$2,295

$0

$61,023

$16,273

$4,068

$0
$0
$0

$6,750
$5,419
$11,156

$1,800
$1,445
$2,975

$11,000

$0

$0

$450
$361
$744
$0
$0
$2,295

$0
($11,000)
$4,400
($6,600)

$0
$42,320
($16,928)
$25,392

$0
$11,285
($4,514)
$6,771

$0
($8,149)
$3,259
($4,889)

$3,000
($14,000)
$5,600
($8,400)

$0
$37,698
($15,079)
$22,619

$0
$10,053
($4,021)
$6,032

$0
$218
($87)
$131

($8,471)
($21,000)
($36,071)

$4,491
$9,244
$39,126

$1,235
$2,465
$10,471

$450
$616
$7,147

($8,471)
($9,500)
($26,371)

$4,491
$9,500
$36,610

$1,235
$0
$7,267

$450
$0
$2,876

$12,298
39.5%

Per unit
$0.90
$0.85
$1.75

License

$14,156
60.3%

WORKING CAPITAL
Own

License
Years

Assets
Inventory, incl. overage @...
Recoupables
Recoupables
Production costs
Marketing & promotion (1/2)
Advance
Total

Years
0

$8,471
21,000

$3,980
11,756

$2,745
9,291

$2,295
8,675
$10,970

$8,471
9,500

$3,980
0

$2,745
0

$2,295
0
$2,295

Assets
30%

$15,000
6,000
0
$21,000

Recoupables
Production costs
Marketing & promotion (1/2)
Advance
Total

$500
6,000
3,000
$9,500

WORST CASE

COMPASS RECORDS
Discounted Cash Flow Analysis for "License" and "Produce and Own" Alternatives
Using Base-Case Unit Assumptions
ASSUMPTIONS
Sales projections
U.S. sales
U.K., Ireland, Europe sales
Japan, New Zealand, Australia sales
Canada sales
Units sold by artist
Totalprojected sales (units)

Units
5,000
2,000
1,000
500
1,500
10,000

Weighted average cost of capital

Pricing
U.S. wholesale unit price
Less distribution fee
U.K., Ireland, Europe price (euro)
Euro/US$ exchange rate
U.K., Ireland, Europe price (US$ )
Japan, NZ, Australia price (US$)
Canada price (US$)
Unit price for artist-sold units
Distribution fee

12%

$11.45
$9.05
EUR 7.00
1.224
$8.57
$6.50
$7.00
$6.00
21%

Marketing and promotion

Print advertising
Posters and photos
E-card mailings
Independent radio promoter
Retail placement
Total marketing & promo cost

$3,000
500
1,000
2,500
5,000
$12,000

CD mail-out units
Cost per mail-out unit per unit
Postage and collateral per unit
Total cost for CD mail-out

2,000
$0.50
$2.00
$5,000

CASH FLOWS
Own

License
Years

Years
0

Annual percentage sold in percent (totals 100%)

U.S. forecasted units sold
U.K., Ireland, Europe forecasted units sold
Japan, New Zealand, Australia forecasted units sold
Canada forecasted units sold
Units sold by artist
Total sales
Cost of goods sold
Mechanical royalties
Recording-artist royalties
Recoupables not recovered
Promotion & marketing not recoupable
Loss on inventory

Per unit
$0.90
$0.85
$1.45

Upfront fee (advance)

Taxable income
Taxes(put rate in box)
Net operating profit after tax

40%

Change in inventory
Change in recoupables
Free cash flow
NPV
IRR

Own

0
0
0
0
0

1
75%
3,750
1,500
750
375
1,125

2
20%
1,000
400
200
100
300

3
5%
250
100
50
25
75

0
0%
0
0
0
0
0

1
75%
3,750
1,500
750
375
1,125

2
20%
1,000
400
200
100
300

3
5%
250
100
50
25
75

$0

$61,023

$16,273

$4,068

$0
$0
$0

$6,750
$2,709
$9,244

$1,800
$723
$2,465

$11,000

$0

$0

$450
$181
$616
$18,675
$0
$2,295

$0

$61,023

$16,273

$4,068

$0
$0
$0

$6,750
$5,419
$11,156

$1,800
$1,445
$2,975

$11,000

$0

$0

$450
$361
$744
$0
$0
$2,295

$0
($11,000)
$4,400
($6,600)

$0
$42,320
($16,928)
$25,392

$0
$11,285
($4,514)
$6,771

$0
($18,149)
$7,259
($10,889)

$3,000
($14,000)
$5,600
($8,400)

$0
$37,698
($15,079)
$22,619

$0
$10,053
($4,021)
$6,032

$0
$218
($87)
$131

($8,471)
($31,000)
($46,071)

$4,491
$9,244
$39,126

$1,235
$2,465
$10,471

$450
$616
$11,147

($8,471)
($9,500)
($26,371)

$4,491
$9,500
$36,610

$1,235
$0
$7,267

$450
$0
$2,876

$5,145
20.5%

Per unit
$0.90
$0.85
$1.75

License

$14,156
60.3%

WORKING CAPITAL
Own

License
Years

Assets
Inventory, incl. overage @...
Recoupables
Recoupables
Production costs
Marketing & promotion (1/2)
Advance
Total

Years
0

$8,471
31,000

$3,980
21,756

$2,745
19,291

$2,295
18,675
$20,970

$8,471
9,500

$3,980
0

$2,745
0

$2,295
0
$2,295

Assets
30%

$25,000
6,000
0
$31,000

Recoupables
Production costs
Marketing & promotion (1/2)
Advance
Total

$500
6,000
3,000
$9,500