BLAINE KITCHENWARE TN Exhbit 1 Effects of the Proposed Repurchase on Blaine's 2006 Balance Sheet ($ in
Shares Repurchased
14,000
Rearrange 2006 B/S
Purchase Price Restate 2006 B/S showing effec
Cash NWC NFA Other, net Total
2006 230,866 32,231 174,321 50,945 488,363
Cash NWC NFA Other, net Total
Debt Equity Total
0 488,363 488,363
Debt E q u it y Total
Note: The post-transaction equity figure should b e (488,363 - (18.50*14 ,000)), which is a reduction eq
Exhibit 3
Selected Selected Operating Operating and Financial Financial Data for for Public Kitchenw Kitchenware are Producers Producers
Revenue
Home Home & Hea Heart rth h D oTec oTech h Appl Applia ia XQL XQL Cor Corp. p. unker unkerhil hill, l, Inc Inc asyLi asyLivin ving g Sys Syste tem m $589,747 $18,080,000 $4,313,300 $3,671,100 $188,955
BLAINE KITCHENWARE
Pro Forma Harvard Business Publ
BLAINE KITCHENWARE
Pro Forma
TN Exhibit 2: Effect of Repurchase on Blaine's 2006 Income Statement ($ in Thousan TN Exhibit 3: Comparison of 2006 Distributable Funds with and without the Re Restate 2006 I/S to give effect to the repo 2006
Int. Rate Post-Repo 63,946 0 3,375 EBIT/Int 60,571 Coverage 18,629 41,942 Post-Repo Pre-Repo 41,942 53,630 45,052 59,052 $ 0.93 $ 0.91 229,363 488,363 18.3% 11.0% 18,656 23,821 taxes delta
EBIT Plus: Other Income Less: Interest expense Earnings Before Tax Less: Taxes Net Income
Net Income Shares EPS Book Equity ROE 2006 taxes
2006 w/o Repo
BLAI NE's ACCOUNT
6.75%
18.9
(5,165)
EBITDA less depreciation EBIT Plus: Other Income Less: Interest expense Earnings Before Tax Less: Taxes Net Income SHAREHOLDERS' ACCOUNT Dividends @ 100% payout Earnings on excess cash Pre-tax income Taxes @ 36% Net
31%
36%
2006 with Repo Tax Bill
73,860 (9,914) 63,946 13,506 0 77,451 (23,821) 53,630
73,860 (9,914) 63,946 0 (3,375) 60,571 (18,656) 41,915
53,630 0 53,630 (19,307) 34,323
41,915 13,506 55,421 (19,951) 35,469
(5,165)
644
Value Creation
Tax Shield ('thousands) Change in debt Tax Rate Value created Shares
259,000 30.80% 79,772 59 052
$
14.98
LENDERS ACCOUNT Interest earned Taxes Net D I S T RI B U T A B L E F U N D S
0 0 0
3,375 (1,038) 2,337
1,038
Difference
BLAINE KITCHENWARE
Pro Forma Harvard Business Publ
BLAINE KITCHENWARE
Pro Forma
TN Exhibit 2: Effect of Repurchase on Blaine's 2006 Income Statement ($ in Thousan TN Exhibit 3: Comparison of 2006 Distributable Funds with and without the Re Restate 2006 I/S to give effect to the repo 2006
Int. Rate Post-Repo 63,946 0 3,375 EBIT/Int 60,571 Coverage 18,629 41,942 Post-Repo Pre-Repo 41,942 53,630 45,052 59,052 $ 0.93 $ 0.91 229,363 488,363 18.3% 11.0% 18,656 23,821 taxes delta
EBIT Plus: Other Income Less: Interest expense Earnings Before Tax Less: Taxes Net Income
Net Income Shares EPS Book Equity ROE 2006 taxes
2006 w/o Repo
BLAI NE's ACCOUNT
6.75%
18.9
(5,165)
EBITDA less depreciation EBIT Plus: Other Income Less: Interest expense Earnings Before Tax Less: Taxes Net Income SHAREHOLDERS' ACCOUNT Dividends @ 100% payout Earnings on excess cash Pre-tax income Taxes @ 36% Net
31%
36%
2006 with Repo Tax Bill
73,860 (9,914) 63,946 13,506 0 77,451 (23,821) 53,630
73,860 (9,914) 63,946 0 (3,375) 60,571 (18,656) 41,915
53,630 0 53,630 (19,307) 34,323
41,915 13,506 55,421 (19,951) 35,469
(5,165)
644
Value Creation
Tax Shield ('thousands) Change in debt Tax Rate Value created Shares Tax shield gain/sh Share price before repo Share price + gain Purchase price Premium paid Final share price PROS
CONS
259,000 30.80% 79,772 59,052 $ 1.35 $ 16.25 $ 17.60 $ 18.50 12,588 Thousand $ 16.70 752,447
$
14.98
LENDERS ACCOUNT Interest earned Taxes Net
0 0 0
3,375 (1,038) 2,337
1,038
Difference 1,146 2,337 3,483 Total taxes (43,128) (39,645) 3,483 Note: for simplicity, shareholders' personal tax rate is assumed to be 36%; lenders' tax rate is assumed to equal Blaine's 30.8%
D I S T RI B U T A B L E F U N D S
Shareholders after tax Lenders after tax
34,323 0
35,469 2,337
Better EPS Better ROE Family Control Tax Shields Jeopardizes acquisitions program Vulnerable to product setbacks Increased expected costs of financial distress E(CFD) = Prob(financial distress)x(Cost of financial distress|distress)
Harvard Business Publ
Harvard Business Publ
esults
ishing
esults
urchase ($ in Thousands)
8.220% Return on Excess Marketable Securities 50MM x 6.75% Tax rate from case document
Assumes shareholders can invest at the same rate as Blaine
Assuming 30.8% Tax Rate
esults
ishing
esults
urchase ($ in Thousands)
8.220% Return on Excess Marketable Securities 50MM x 6.75% Tax rate from case document
Assumes shareholders can invest at the same rate as Blaine
Assuming 30.8% Tax Rate
ishing
ishing
Harvard Business Publ
BLAINE KITCHENWARE
Weighted Average Cost of C
Debt ##### Shares ##### EV
Tax rat
40% #########
675
Part of Tn Exhibit 5: Computing Minimum WACC for Blaine over a Range of Capital Structures
Debt Existing (230,866) Proposal 50,000 AAA AA-
84,041
Debt / Cap.
-31.7% 674,788
6.899%
11.4% 14.2%
A
20.8%
BBB+ BB B+
22.3% 28.3% 30.9%
Debt / Equity
-24.1% 7.4% 12.8% 16.6% 26.2% 28.8% 39.5% 44.6%
Cost of Equity
Cost of Debt WACC
Assumptions
Unlevered Beta
Levered Beta
0.74
0.56
7.82%
5.02%
9.20%
0.74
0.78
8.87%
6.75%
8.54%
0.74 0.74
0.80 0.82 0.87 0.88 0.94 0.97
9.03% 9.13%
5.67% 5.82%
8.45% 8.40%
Debt Beta
9.38%
5.87%
8.27%
Cash to employ
9.44% 9.72% 9.85%
6.85% 8.00% 9.12%
8.39% 8.53% 8.76%
0.74
0.74 0.74 0.74
Marginal Tax Rate Risk-Free Rate Market Risk Premium
Note: Re-levered beta calculation is based on a constant capital structure Un-levered beta is the weighted average of the operating asset beta and the beta of cash, and is βa = βOperations(Operating Assets/Enterprise Value) + β Cash(Cash/Enterprise Value). This is equivalent to βe(Equity Value/Enterprise Value). ($ in Thousands.)
Part of TN Exhibit 5 Blaine
Debt Waterfall:
30.80% 5.02% 5.00% 0.00 209,000
Harvard Business Publ
BLAINE KITCHENWARE
Weighted Average Cost of C
Debt ##### Shares ##### EV
Tax rat
40% #########
675
Part of Tn Exhibit 5: Computing Minimum WACC for Blaine over a Range of Capital Structures
Debt Existing (230,866) Proposal 50,000 AAA AA-
Debt / Cap.
-31.7% 674,788
84,041
6.899%
11.4% 14.2%
A
20.8%
BBB+ BB B+
22.3% 28.3% 30.9%
Debt / Equity
Cost of Equity
Cost of Debt WACC
Assumptions
Unlevered Beta
Levered Beta
0.74
0.56
7.82%
5.02%
9.20%
0.74
0.78
8.87%
6.75%
8.54%
0.74 0.74
0.80 0.82 0.87 0.88 0.94 0.97
9.03% 9.13%
5.67% 5.82%
8.45% 8.40%
Debt Beta
9.38%
5.87%
8.27%
Cash to employ
9.44% 9.72% 9.85%
6.85% 8.00% 9.12%
8.39% 8.53% 8.76%
AAA
AA-
-24.1% 7.4% 12.8% 16.6% 26.2% 28.8% 39.5% 44.6%
0.74
0.74 0.74 0.74
Marginal Tax Rate Risk-Free Rate Market Risk Premium
30.80% 5.02% 5.00% 0.00 209,000
Note: Re-levered beta calculation is based on a constant capital structure Un-levered beta is the weighted average of the operating asset beta and the beta of cash, and is βa = βOperations(Operating Assets/Enterprise Value) + β Cash(Cash/Enterprise Value). This is equivalent to βe(Equity Value/Enterprise Value). ($ in Thousands.)
Part of TN Exhibit 5 10-year Treasury Interest Coverage Debt Ratio Rating >13.0 AAA 9.5 - 12.0 AA7.0 - 9.5 A 5.0 - 7.00 BBB+ 4.0 - 5.0 BB 2.50 - 4.0 B+
5.02% Default Spread 0.65% 0.80% 0.85% 1.83% 2.98% 4.10%
Debt Relationships: FY 2006 EBIT Interest Expense Coverage Ratio
Estimated Cost of Debt Implied Debt
Blaine Proposal
73,860 3,375
73,860 4,765
73,860 6,423
Debt Waterfall: A BBB+
73,860 9,232
73,860 12,310
BB
73,860 16,413
B+
73,860 19,696
21.9x
15.5x
11.5x
8.0x
6.0x
4.5x
3.8x
6.75%
5.67%
5.82%
5.87%
6.85%
8.00%
9.12%
157,282
179,707
205,166
215,964
50,000
84,041
110,354
Harvard Business Publ
Harvard Business Publ
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apital
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apital
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INC
INCOME STATEMENT
BALANCE SHEET
Case Exhibit 1
Case Exhibit 2
Operating Results: Revenue Less: Cost of Goods Sold Gross Profit Less: Selling, General & Administrative Operating Income Plus: Depreciation & Amortization EBITDA EBIT Plus: Other Income (expense) Earnings Before Tax Less: Taxes Net Income Dividends
2004 291,940 204,265 87,676 25,293 62,383 6,987 69,370
2005 307,964 220,234 87,731 27,049 60,682 8,213 68,895
2006 342,251 249,794 92,458 28,512 63,946 9,914 73,860
62,383 15,719 78,101 24,989 53,112 18,589
60,682 16,057 76,738 24,303 52,435 22,871
63,946 13,506 77,451 23,821 53,630 28,345
5.5%
11.1%
Margins:
Revenue Growth
3.2%
Assets: Cash & Cash Equivalents Marketable Securities Accounts Receivable Inventory Other Current Assets Total Current Assets
Property, Plant & Equipment Goodwill Other Assets Total Assets Liabilities & Shareholders' Equity: Accounts Payable Accrued Liabilities Taxes Payable Total Current Liabilities Other liabilities
INC
INCOME STATEMENT
BALANCE SHEET
Case Exhibit 1
Case Exhibit 2
Operating Results: Revenue Less: Cost of Goods Sold Gross Profit Less: Selling, General & Administrative Operating Income Plus: Depreciation & Amortization EBITDA EBIT Plus: Other Income (expense) Earnings Before Tax Less: Taxes Net Income Dividends
2004 291,940 204,265 87,676 25,293 62,383 6,987 69,370
2005 307,964 220,234 87,731 27,049 60,682 8,213 68,895
2006 342,251 249,794 92,458 28,512 63,946 9,914 73,860
62,383 15,719 78,101 24,989 53,112 18,589
60,682 16,057 76,738 24,303 52,435 22,871
63,946 13,506 77,451 23,821 53,630 28,345
Margins:
Revenue Growth Gross Margin EBIT Margin EBITDA Margin Effective Tax Rate (1) Net Income Margin
3.2% 30.0% 21.4% 23.8% 32.0% 18.2%
5.5% 28.5% 19.7% 22.4% 31.7% 17.0%
11.1% 27.0% 18.7% 21.6% 30.8% 15.7%
Dividend payout ratio
35.0%
43.6%
52.9%
(1) Blaine's future tax rate is assumed to revert to the statutory rate of 40%.
Assets: Cash & Cash Equivalents Marketable Securities Accounts Receivable Inventory Other Current Assets Total Current Assets
Property, Plant & Equipment Goodwill Other Assets Total Assets Liabilities & Shareholders' Equity: Accounts Payable Accrued Liabilities Taxes Payable Total Current Liabilities Other liabilities Deferred Taxes Total Liabilities Shareholders' Equity Total Liabilities & Shareholders'
Note: Many items in BKI's historic have been affected by the firm's ac
SIMPLIFIED BALANCE SHEET Case Exhibit 2
Equity
2004 67,391 218,403 40,709 47,262 2,586 376,351
2005 70,853 196,763 43,235 49,728 3,871 364,449
2006 66,557 164,309 48,780 54,874 5,157 339,678
99,402 8,134 13,331 497,217
138,546 20,439 27,394 550,829
174,321 38,281 39,973 592,253
26,106 22,605 14,225 62,935 1,794 15,111 79,840 417,377 497,217
28,589 24,921 17,196 70,705 3,151 18,434 92,290 458,538 550,829
31,936 27,761 16,884 76,581 4,814 22,495 103,890 488,363 592,253
al balance sheets, e.g. Property, Plant & Equipment uisitions.
Assets: Cash & Marketable Securities Net Working Capital Net Fixed Assets Other, net Total Assets
2004 67,391 218,403 40,709 47,262 373,765
2005 70,853 196,763 43,235 49,728 360,578
2006 230,866 32,231 174,321 50,945 488,363
Debt Equity Total Liabilities & Shareholders' Equity
0 417,377 417,377
0 458,538 458,538
0 488,363 488,363
Note: Many items in BKI's historical balance sheets, e.g. Property, Plant & Equipment have been affected by the firm's acquisitions.
