Upload
verbingnouns
View
11
Download
2
Embed Size (px)
Citation preview
Exhibit 1 Consolidated Income Statements, 1980 - 1984 ($ 000s)
1980 1981 1982 1983 1984
Net sales 9,740 10,044 11,948 13,970 15,260
Cost of sales 5,836 5,648 6,994 8,304 9,298
Gross profit on sales 3,904 4,396 4,954 5,666 5,962
Selling and admin. expenses 2,216 2,072 2,470 3,022 3,274
Other income and (expense), net 40 108 70 128 120
Profit before income taxes 1,728 2,432 2,554 2,772 2,808
Federal income taxes 816 972 920 942 842
Net profit 912 1,460 1,634 1,830 1,966
Profit Margin 9.4% 14.5% 13.7% 13.1% 12.9%Tax Rate 47.2% 40.0% 36.0% 34.0% 30.0%
Exhibit 1 Consolidated Income Statements, 1980 - 1984 ($ 000s)
Exhibit 1 Consolidated Income Statements, 1980 - 1984 ($ 000s)
CAGR
12%
12%
11%
10%
32%
13%
1%
21%
ASSETS LIABILITIES & SHAREHOLDERS EQUITY
Current assets: Current liabilities
Cash and marketable securities 5,762 Accounts payable 654
Accounts receivable 2,540 Accrued expenses 366
Inventories at lower cost or market 588 Accrued income taxes 246
Prepaid expenses 108 Total current liabilities 1,266
Total current assets 8,998 Common stock ($1.00 par value) 200
Property,plant, & equipment, net 2,110 Retained profits 9,716
Miscellaneous assets 74 Shareholders' equity 9,916
Total liability and
Total assets: 11,182 shareholders' equity 11,182
1984 Ratios:Working Capital 7,732Current Ratio 7.11Debt to Equity Ratio 0.13A/R Turnover 6.01Inventory Turnover 15.81
Exhibit 2 Consolidated Balance Sheet as of December 31, 1984
1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 CAGR
Net sales 7,688 8,356 8,526 8,790 9,350 9,740 10,044 11,948 13,970 15,260 8%
Net profit 638 668 742 748 758 912 1,460 1,634 1,830 1,966 13%
Dividends 600 200 280 280 440 440 480 1,220 1,374 1,480 11%
Earnings per share ($) 3.19 3.34 3.71 3.74 3.79 4.56 7.3 8.17 9.15 9.83 13%
Net profit margin 8.30% 8.00% 8.70% 8.50% 8.10% 9.40% 14.50% 13.70% 13.10% 12.9 75%
94% 30% 38% 37% 58% 48% 33% 75% 75% 75% p.4, paragraph 2
Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. Nov. Dec.
Cash 5,536 5,714 5,396 4,784 4,328 4,098 2,354 766 2,050 3,830 5,734 5,762
Accounts Receivable 1,480 760 734 804 718 604 3,432 6,104 6,164 4,322 2,398 2,540
Inventories 1,124 1,666 2,210 2,752 3,294 3,838 2,754 1,670 526 588 608 588
Current Liabilities 1,186 1,220 1,242 1,146 1,422 1,344 1,072 1,216 1,174 1,384 1,340 1,266 Average Working Capital
Net Working Capital 6,954 6,920 7,098 7,194 6,918 7,196 7,468 7,324 7,566 7,356 7,400 7,624 7,252
Exhibit 3 Ten-Year Summary of Operations, 1975 - 1984 ($ 000, except per share data)
Dividends as % of Net Profit
Exhibit 4 Monthly Working Capital Balances, 1984 ($ 000s)
Average Working Capital
DeLuther, Inc.* Wakefield Co.** Officomp, Inc.***
Trading market OTC OTC OTC ---
Current market price $22.25 $14.75 $29.25 ---
Indicated dividend yield 5.50% 8.70% 3.70% ---
Price-earning ratio
1984 9.9 14.6 8.7 7.2 10.5 ---
1983 11.8 19.6 6.4 5 10.2 ---
1982 10.4 14.4 10.8 11.9 13.8 ---
Price range
1984 $24.625-16.25 $14.125-8.125 $33.125-26.5
1983 $18.5-12.125 $11.5-5.125 $19.75-12.875
Earnings per share (E)($) and Index(I) (E) (I) (E) (I) (E) (I) (E) (I)
1984 $2.48 110 $1.62 82 $2.98 177 $9.83 216
1980 $2.26 100 $1.97 100 $1.68 100 $4.56 100
Sales (S)($000s) and Index (I) (S) (I) (S) (I) (S) (I) (S) (I)
1984 $16,427 142 $12,223 108 $18,608 160 $15,260 157
1980 $11,568 100 $11,317 100 $11,630 100 $9,740 100
Net earnings (N)($000s) and Index (I) (N) (I) (N) (I) (N) (I) (N) (I)
1984 $1,051 117 $501 84 $1,656 178 $1,966 216
1980 $902 100 $600 100 $930 100 $912 100
Net profit margins
1984 6.40% 4.10% 8.90% 12.90%
1980 7.80% 5.30% 8.00% 9.40%
Profit/Net worth
1984 16.60% 6.00% 16.90% 19.80%
1983 14.20% 5.70% 15.00% 19.00%
1982 15.40% 8.80% 14.70% 19.20%
Book capitalization ($000s)****
Long-term debt $3,995 ### $1,822 18% $4,173 29.90% --- ---
Common stock and surplus $6,318 ### $8,298 82% $9,783 70.10% $9,916 100%
Total $10,313 ### $10,120 100% $13,956 100.00% $9,916 100%
Total market value $9,456 $4,573 $16,234 ---
Shares outstanding 425 310 555 200
* Producer of desk-top accessories, advertising specialty calendars, office stationery.
** Producer of advertising specialty calendars
*** Producer of broad line of office paper products and desk accessories
**** All companies, December 31, 1984
Exhibit 5 Comparative Data on Selected Companies in Related Lines of Business
Standard & Poor's 425 Industrial Stocks
Standard & Poor's Publishing Averages
John M. Case Company
E7-Cash Flows
Page 7
1985 1986 1987 1988
Net sales 16,024 $16,844 $17,686 $18,570 Earnings before interest and taxes* 3,433 3,640 3,757 3,608Interest expense** 1,675 1,538 1,369 908Profit before tax 1,758 2,102 2,388 2,700Taxes 274 364 440 556Profit after tax 1,484 1,738 1,948 2,144Add back: noncash charges 240 260 284 300Cash flow from operations 1,724 1,998 2,232 2,444Less: increase in working capital 156 162 170 180Less: capital expenditures 120 134 142 150Available for debt retirement 1,448 1,702 1,920 2,114
Planned debt retirement: Bank loan 1,448 1,702 1,920 930 Mr. Case's loan 0 0 0 1,184 Subordinated loan 0 0 0 0Debt as % of total capital 89% 80% 70% 58%
* Reflects elimination of Mr. Case's salary.
** 9% coupon on subordinated loan of $6 million; 4% coupon on sellers note of $6 million; 12%
rate on bank term loan; 10% rate on seasonal loan.
*** Mr. Case's note is retired from cash flow and a $2.8 million new bank term loan in 1989.
Profit Margin 9% 10% 11% 12%Tax Rate 16% 17% 18% 21%
Financing ('000)Equity $ 500 Junior Subordinated Nonamortizing Loans (noncash) 4% $ 4,000 6000 (4M Mkt, 6M Face)Bank Term Loan 12% $ 6,000 Coupon on subordinated Loan 9% ???Seasonal Loan 10%
Total Financing Raised $ 10,500 Total Financing Needed $ 20,000 Total Financing Remaining $ 9,500
Venture Capital SourcesVC Targeted Return 20-25%-Debt securities vs. common stock-Coupon Rate 8-9%- Warrants to buy shares in corporation
Exhibit 7 Cash Flow Forecasts 1985-1990 ($000s)
E7-Cash Flows
Page 8
1989 1990 CAGR$19,498 $20,472 5% pg. 5 - growth rate average 5-6%
3,788 3,976800 800
2,988 3,176660 714
2,328 2,462310 340
2,638 2,802190 200466 600 pg. 3 - no need for substantial capex for 5-6 years
1,982 2,002
0 2,0024766*** 0
0 047% 35%
12% 12%22% 22% - pg. 3 - unusually low tax rate
19% Average Tax Rate
(4M Mkt, 6M Face)
APV Valuation
Page 9
A. Current Business
Assumptions:Cost of Unlevered Equity 15%Tax Rate (based on 5 year average) 19% *unusually low tax rate, maybe increase post 1992??Growth Rate 5%
1985 1986 1987 1988 1989
Net sales 16,024 $16,844 $17,686 $18,570 $19,498 Profit before tax 3,433 3,640 3,757 3,608 3,788Taxes 667 707 729 700 735Profit after tax 2,766 2,933 3,028 2,908 3,053Add back: noncash charges 240 260 284 300 310Cash flow from Operations 3,006 3,193 3,312 3,208 3,363Less: increase in working capital 156 162 170 180 190Less: capital expenditures 120 134 142 150 466Free Cash Flows 2,730 2,897 3,000 2,878 2,707Residual Value [FCFt+1 / r - g]:Total Free Cash Flows 2,730 2,897 3,000 2,878 2,707
NPV of Current Operations $23,200
B. Diversification Strategy
Assumptions:Cost of Unlevered Equity 15%Tax Rate (based on 5 year average) 19%Initial Growth Rate (Y2-Y4) 40%Subsequent Growth Rate (Y5 +) 12% (12-15% range)Profit Margin 6%
1 2 3 4 5
1985 1986 1987 1988 1989
Net sales 0 1,000 1,400 1,960 2,195Profit before tax 0 60 84 118 132Taxes 0 12 16 23 26Profit after tax 0 48 68 95 106Less: increase in working capital 0 198 81 114 48Less: capital expenditures 650 450 0 0 0Free Cash Flows -650 -599 -13 -19 58Residual Value [FCFt+1 / r - g]:Total Free Cash Flows -650 -599 -13 -19 58
NPV of Diversification Strategy $65
Step 2: Adjustment for Value Created by Financing
Assumptions:12% (rate on bank term loan???)
Tax Rate (based on 5 year average) 19%
Step 1: NPV of Cash from Operations Discounted at rEU (value under all-equity financing)
Cost of Levered Equity
APV Valuation
Page 10
1 2 3 4 5
1985 1986 1987 1988 1989
Interest expense 1,675 1,538 1,369 908 800Tax Shield 325 299 266 176 155
NPV of Tax Shield $996
** 9% coupon on subordinated loan of $6 million; 4% coupon on sellers note of $6 million; 12%
rate on bank term loan; 10% rate on seasonal loan.
NPV of Unlevered Firm + Tax Shield $24,261
APV Valuation
Page 11
*unusually low tax rate, maybe increase post 1992??
1990
$20,472 3,976
7723,204
3403,544
200600 pg. 3 - no need for substantial capex for 5-6 years
2,74428,88031,624
6
1990
2,459 *1M in first full year of operations (currently in March 1985)148
29119
54 Assume same proportion as current business increase in working capital p.6 "substantial investment in working capital"0
652,4192,483
*didn't know how to tackle this - refer to Susan's…
APV Valuation
Page 12
6
1990
800155
APV Valuation
Page 13
Assume same proportion as current business increase in working capital p.6 "substantial investment in working capital"