-9- Exhibit 5 UVA-F-1573 This document is used with permission and is available to David Fewings, in the course: Case Course Materials- Fewings (inter Quarter 2010), Western Exhibit 1 FLINDER VALVES AND CONTROLS INC. Consolidated Balance Sheet as of December 31, 2007 for Flinder Valves and Controls (dollars in thousands) Ass ets Cash $1,884 9,328 868 2,316 6,888 116 ### 1,768 Land 92 Buildings 6,240 Equipment 18,904 7,056 18,180 88 18,268 156 376 156 42,121 2,016 504 208 Tax accrued 72 560 1,200 4,560 800 1,220 7,180 28,364 36,764 42,124 * Equivalent land in the area had a market value of $320,000, and the building had an estimated market worth of $16,800,000. Equipment had a replacement cost of approximately $24,000,000 but a market value of about $16,000,000 in an orderly liquidation. tax notes and other U.S. receivable , at lower of cost or current curren t Invest ments for ty, and n in ty, and Patent s of life ed Total assets Stockholders' Equity Accounts payable salaries pension cost Dividends payable for federal t federa l par (shares authorized 2,440,000 shares) Capital surplus Earned surplus Total equity and
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-9- Exhibit 5 UVA-F-1573
This document is used with permission and is available to David Fewings, in the course: Case Course Materials- Fewings (inter Quarter 2010), Western
Exhibit 1FLINDER VALVES AND CONTROLS INC.
Consolidated Balance Sheet as of December 31, 2007 for Flinder Valves and Controls(dollars in thousands)
Ass etsCash $1,884
9,328Due from U.S. government 868Accounts receivable net 2,316Inventories, at lower of cost or market 6,888Other current assets 116
Total current assets $21,400Investments 1,768
Land 92Buildings 6,240Equipment 18,904Less: allowance for depreciation 7,056
Total plant, property, and equipment—gross 18,180Construction in process 88
Total plant, property, and equipment—net* 18,268Patents 156Cash value of life insurance 376Deferred assets 156Total assets 42,121
Liabilities and Stockholders' EquityAccounts payable 2,016Wages and salaries accrued 504Employees' pension cost accrued 208Tax accrued 72Dividends payable 560Provision for federal income tax 1,200
Total current liabilities 4,560Deferred federal income tax 800
* Equivalent land in the area had a market value of $320,000, and the building had an estimated market worth of $16,800,000. Equipment had a replacement cost of approximately $24,000,000 but a market value of about $16,000,000 in an orderly liquidation.
U.S. Treasury tax notes and other Treasury obligations
Common stock at par (shares authorized and outstanding
-9- Exhibit 5 UVA-F-1573
This document is used with permission and is available to David Fewings, in the course: Case Course Materials- Fewings (inter Quarter 2010), Western
Exhibit 2
Summary of Consolidated Earnings and Dividends for Flinder Valves and Control
Income before Taxes 8460 9256 8808 10980 9612 2344 3274
Taxes 3276 3981 3620 4721 4037 2344 1391
Net Income 5184 5275 5188 6259 5575 1009 1883
Cash dividends 1680 2008 2016 2304 2304 576 753
Depreciation 784 924 1088 1280 1508 364 394
Capital expenditures 1486 1826 2011 2213 2433 580 640
Working capital needs 1899 3492 -1200 4289 4757 1130 1365
Common Size
Sales 100 100 100 100 100 100 100
Cost of goods sold 71.4 69.2 68.9 70 75 74.4 72
Gross profit 28.6 30.8 31.1 30 25 25.6 28
administrative 5.6 6 6.4 5.8 5.9 5.7 6.3
Other income-net 0.3 1.6 0.3 0.2 0.5 0.1 1.4
Income before federal taxes 23.3 26.5 25 24.3 19.5 20 23.1
Net income 14.3 15.1 14.7 13.9 11.3 11.4 13.3
-9- Exhibit 5 UVA-F-1573
This document is used with permission and is available to David Fewings, in the course: Case Course Materials- Fewings (inter Quarter 2010), Western
Exhibit 3
FLINDER VALVES AND CONTROLS INC.
Consolidated Balance Sheet for RSE International as of December 31, 2007(dollar figures in thousands)
AssetsCash $46,480
U.S. government securities, at cost 117,260Trade accounts receivable 241,760Inventories, at lower of cost or market 179,601Prepaid taxes and insurance 2,120
Total current assets 587,221Investment in wholly-owned Canadian subsidiary 158,080Investment in supplier corporation 104,000
Cash value of life insurance 3,920Miscellaneous assets 2,160Property, plant, and equipment, at cost:
Buildings, machinery, equipment 671,402Less: allowances for depreciation and amortization 260,001Property, plant, and equipment-net 411,402
Land 22,082Property, plant, equipment, and land-net 433,484
Patents, at cost, less amortization 1,120Total assets $1,289,985
Liabilities and Stockholders' EquityNotes payable to bank(1) $5,795Accounts payable and accrued expenses 90,512Payrolls and other compensation 38,399Taxes other than taxes on income 3,052Provision for federal taxes on income refund, estimated 32,662
Current maturities of long-term debt 30,900Total current liabilities 201,320
119,100
Deferred federal income taxes 29,6682 % cumulative convertible preferred stock, $20 par, 27,783
Common stock, $2 par; 96,000,000 shares authorized; 125,38962,694,361 shares issued
21,904
Retained earnings 764,821Total equity 939,897Total liabilities and stockholders' equity $1,289,985
liabilities. One covenant required the company not to pay cash dividends, except on preferred stock, or to make other distribution on its shares or acquire any stock, after December 31, 1999, in excess of net earnings after that date.
sinking fund beginning in 2016.
share issues in conversion in 2007.
Note payable to banks
1,389,160 shares outstanding2
Capital smplu s3
1 $150,000,000 note, payable semiannually beginning June 30, 2008; $30,900,000 due within one year, shown in current
2 Issued in January 2007; convertible at rate of 1.24 common share to one preferred share; redeemable beginning in 2012;
3 Resulting principally from the excess of par value of 827,800 shares of preferred stock over the pay value of common
-9- Exhibit 5 UVA-F-1573
This document is used with permission and is available to David Fewings, in the course: Case Course Materials- Fewings (inter Quarter 2010), Western
Exhibit 4
Summary of Consolidated Earnings and Dividends for RSE International(dollars in thousands)
2003 2004 2005 2006 2007
Net sales $1,623,963 $1,477,402 $1,498,645 $1,980,801 $2,187,208
Cost of products sold 1,271,563 1,180,444 1,140,469 1,642,084 1,793,511
Net PPE 389,321 426,522 459,404 498,497 541,109 587,580Net working capital 422,597 447,956 486,428 528,407 574,238 624,303
$2.62 $2.60 $2.58 $2.56 $2.66 $2.70
$1.42 $1.58 $1.69 $1.80 $1.94 $2.07
$0.40
162,694,361 common shares in 2007. Thereafter, 64,416,919 shares reflecting conversion of the preferred stock.21,389,1 60 preferred shares in 2007. Conversion into 1,722,558 shares of common stock assumed in 2008.
Earnings per share1
Divs. per share common stocks
Div. per share preferred stock2
-11- UVA-F-1573
This document is used with permission and is available to David Fewings, in the course: Case Course Materials- Fewings (inter Quarter 2010), Western
Exhibit 6FLINDER VALVES AND CONTROLS INC.
Market Prices of Flinder Valves and RSE International Corporation
Flnder Valves and Controls RSE International CorporationCommon Stock Common Stock Preferred Stock
Low Close High Low Close High Low2003 $16.25 $8.75 $15.00 $12.31 $10.05 $11.882004 24.75 14.00 22.63 14.36 11.77 13.162005 25.00 20.00 22.25 12.81 9.27 11.13
Manufactures compressors, condensers, and pumps 38.2 1.05 Nil NMF 8%
Watts Industries
15 1.3 1.5 8.4 32%
NMF = not meaningful figure.
Price/ Earnings
RatioDividend
Yield
ExpectedGrowth
Rateto 2010
Manufactures highly engineered, advanced technologies that perform critical functions
Makes, designs, and markets fluid handling equipment (pumps, valves, and mechanical seals)
Manufacturers stationary air compressors, vacuum products, and blowers
Manufactures a wide range of pumps and machinery products and Blowers
Manufacturers energy systems and controls, imaging equipment, and radio frequency products
Manufactures and sells and extensive line of valvesfor the plumbing and heating and water quality markets
Source: Value Line Investment Survey, April 25, 2008.
This document is used with permission and is available to David Fewings, in the course: Case Course Materials- Fewings (inter Quarter 2010), Western
Exhibit 8FLINDER VALVES AND CONTROLS INC.
Information on Selected Recent Mergers
Acquirer Business Target Business5/25/2006 Armor Holdings Inc Law enforcement equ Stewart & Stevenson Turbine-driven products6/26/2006 Bouygues SA Construction Alstom SA Power generation equip9/20/2006 Boeing Co Aircraft Avian Inc Vehicle parts
11/10/2006 Daikin Industries Ltd Air conditioning sys OYL Industries Bhd Airconditioners12/8/2006 Oshkosh Truck Corp Heavy duty tucks JLG Industries Inc Excavators/telehandlers4/11/2007 Rank Group Ltd Investment holding co SIG Holding AG Packaging/plastics machinery6/22/2007 Meg gitt PLC Aerospace/defense system K&F Industries Holding Aircraft braking systems7/31/2007 BAE Systems Inc Electronic systems Armor Holdings Inc Law enforcement equip12/3/2007 Carlyle Group LLC Private equity firm Sequa Corp Aircraft engine component
12/20/2007 ITT Corp Pumpsh aloes EDO Corp Electn system products2/6/2008 London Acquisition BV Investment holding co Stork NV Components6/5/2008 Ingersoll-Rand Co Ltd Industrial machinery/equip Trane Inc Airconditioners
(Continued/...)
Effective Date
Exhibit 8 (Continued)
Acquirer TargetArmor Holdings Inc Stewart & Stevenson 1,123 726 65.3Bouygues SA Al stom SA 2,467 17,679 nmfBoeing Co Avian Inc 2,057 1,371 28.9Daikin Industries Ltd OYL Industries Bhd 1,152 1,581 27.6Oshkosh Truck Corp JIG Industries Inc 3,252 2,289 20.5Rank Group Ltd SIG Holding AG 2,314 1,418 38.6Meggitt PLC K&F Industries Holdings 1,802 424 20.3BAE Systems Inc Armor Holdings Inc 4,328 2,805 30.5Carlyle Group LLC Sequa Corp 2,007 2,181 34.4111 Corp EDO Corp 1,678 945 86.8London Acquisition BV Stork NV 2,347 2,153 17.1Ingersoll-Rand Co Ltd Trane Inc 9,751 8,328 21.2
FREE CASH FLOWEBIT $ 12,412 $ 13,390 Tax 4,965 5,356 NOPAT 7,447 8,034 Dividends 2,792 3,012 Net PPE = Depr. + Capital Expenditure 3,788 2,368 NWC 3,491 2,184 NPV $ 2,960 $ 6,494 Year to FCF 0 1NPV $ 2,960 $ 5,930
VALUATION WACC CALCULATIONPV(FCF(2011-2020)) 27,086 TmrgPV(CFCF)** 117,464 gp = 4% Debt Plus excess assets: MktCap Cash & Equiv. $1,884 D/E ST Investments 1,768 Rd LT Investments - mBeta Enterprize Value 148,202 BBeta Less liabilities: Rf LTD 2009 - MRP Employee Stock Optio - Re
Other LT Liab. - Wd Preferred stock - WACC Common Equity Value 148,202 Shares Outstanding 2,440 Fair value per share 60.74 Last Trade Jan 20, 2012DifferencePercentage DifferenceImplied P/E at horizon d 15.26
11% 11% 11%
2010 2011 2012
73,200 81,200 90,000 54,104 59,958 66,200 74% of Sales 19,096 21,242 23,800 26% of Sales 4,564 5,052 5,692 6% of Sales 288 320 352 0.39% of Sales 14,820 16,510 18,460 5,928 6,604 7,384 40% tax rate 8,892 9,906 11,076
40% 40% 40% 2,017 2,238 2,480 3% of Sales
100% 100% 100%74% 74% 74%26% 26% 26%
6% 6% 6%0% 0% 0%
20% 20% 21%8% 8% 8%
12% 12% 12%3% 3% 3%
38,041 43,599 49,790 8,892 9,906 11,076 3,334 3,714 4,153 37% of NI 43,599 49,790 56,714
DividendsNet PPE = Depr. + Capital ExpenditureNWCNPVYear to FCFNPV
VALUATIONPV(FCF(2011-2020)) 833,432 PV(CFCF)** 1,820,486 4%Plus excess assets: Cash & Equiv. 46,480 ST Investments LT Investments 262,080 Enterprize Value 2,962,478 Less liabilities: LTD 2009 - Employee Stock Options, est - Other LT Liab. - Preferred stock - Common Equity Value 2,962,478 Shares Outstanding 96,000 Fair value per share 30.86 Last Trade Jan 20, 2012Difference
Percentage DifferenceImplied P/E at horizon date 16.32