Annex I: Discounted Cash Flow and WACC calculation DCF Valuation Approach 1 Operating Income after Depreciation 2 Less: Tax 3 NOPAT
1998a 102,688 (45,451) 57,237
Tax Rate 1999 126,032 (54,724) 71,308
2000 171,619 (74,518) 97,101
2001 187,978 (81,621) 106,357
2002 201,604 (87,537) 114,067
4 Depreciation and Amortization 5 Purchase of Property, Plant and Equipment 6 Net Change in Working Capital
56,113 (87,691) (1,435)
87,661 (97,205) (5,762)
91,786 (96,971) (27,705)
94,593 (96,811) (17,702)
97,355 (106,647) (23,145)
7 Free Cash Flow (Firm) 8 PV of Free Cash Flow 9 Terminal Value
24,224 23,449 809,161
56,002 48,491
64,211 50,510
86,437 61,770
81,630 52,995
10 11 12 13 14
15 16 17 18
Total Valuation (DCF) Total Debt Equity Valuation Total Shares Per Share Value (Thousands)
1,046,376 232,444 813,932 7,587.89 107.27
DCF Valuation Approach - Includes Liquidity & Minority Discount 1998a Liquidity Discount 22.50% Per Share Value (Thousands) 83.13 Minority Discount 39.50% Per Share Value (Thousands) - Adjusted 50.29
Exhibit 6b - Calculation 1998a 1999 44.26% 43.42%
Growing Perpetuity - Continuing Value TV Assumption 90,922 Reinvestment Rate 3.00% Rate (WACC) 10.08% Growth Rate 3.00% Continuing Value * $ 1,246,385
2000 43.42%
2001 43.42%
2002 43.42%
WACC Calculation T: 43.4% Rd: 6.60% MRP: 5.00% rf: 5.64% B: 1.03 Re: 10.78%
Assumption Assumption Calculation Assumption
* CVH = E(NOPATH+1) * (1 - b) / r - g
E/V: D/V:
90.00% 10.00%
WACC **
10.08%
given given given Exhibit 8 Calculated Calculated
** WACC = (E/V) x Re + (D/V) x (Rd x (1 - T))
1999
2000
2001
2002
COMPS - BA => BE Calculation American Standard Total Debt 2,404.0 MV of Equity 3,502.2 Debt + Equity 5,906.2 DV EV
American Woodmark 13.4 236.3 249.7
40.70% 59.30%
Masco 1,187.9 9,838.8 11,026.7 10.77% 89.23%
Briggs & Stratton 259.6 1,109.3 1,368.9 18.96% 81.04%
Cummins Engine 1,250.0 2,285.9 3,535.9 35.35% 64.65%
Detroit Diesel 107.4 568.1 675.5 15.90% 84.10%
Average 870.4 2,923.4
24.34% 75.66%
NOTES: 1
Exhibit 6b
2
Operating Income after Depreciation x (1-T)
3
Operating Income after Depreciation - Tax
4
Exhibit 6c
5
Exhibit 6c: Purchase/Sale of PP&E (Net Capex)
6
Exhibit 6c: SUM of Increase/Decrease: AR, Inventory, Future Income Tax Benefits, Prepaid Expenses and other Assets, AP& Accrued Expenses
7
NOPAT + Operating Income after Depreciation - Net Capex - Net Change in Working Capital
8
1998: FCF / ((1 + WACC x 8/12)^0.5) 1999: FCF / ((1 + WACC)^1.5) 2000: FCF / ((1 + WACC)^2.5) 2001: FCF / ((1 + WACC)^3.5) 2002: FCF / ((1 + WACC)^4.5)
9
Continuing Value / ((1 + WACC)^4.5)
10
Continuing Value + SUM PV of FCF
11
Exhibit 3a: 1998 Current Maturities LTD + LTD
12
Total Valuation (DCF) - Total Debt
13
Exhibit 5: Total Shares Outstanding
14
Equity Valuation / Total Shares
15
Note on Valuring Control and Liquidity in Family and Closely Held Firms: Range 20-25% (Value Stated is an Average)
16
Unadjusted Per Share Value x (1 - Liquidity Discount)
17
Note on Valuring Control and Liquidity in Family and Closely Held Firms: Range 36-49% (Value Stated is an Average)
18
Liquidity Discount Per Share Value x (1 - Minority Discount)
B over last 36 months Unlevered B (Asset) Relevered BE
0.82 0.49 1.03
0.76 0.72
1.28 1.14
0.66 0.53
1.09 0.70
1.30 1.09
0.79
