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UVA-F-1573
Exhibit 1
2,016
504
208
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.
This document is used with permission and is available to David Fewings, in the course: Case Course Materials- Fewings (inter Quarter 2010), Western
-9- Exhibit 5
UVA-F-1573
Exhibit 2
Summary of Consolidated Earnings and Dividends for Flinder Valves and Control
(dollars in thousands)
(Unaudited)
2003
2004
2005
2006
Sales
36312
34984
35252
45116
49364
2007
11728
2008
14162
COGS
25924
24200
24300
31580
37044
8730
10190
Gross Profit
10388
10784
10952
13536
12320
2998
3972
2020
2100
2252
2628
2936
668
896
92
572
108
72
228
14
198
8460
9256
8808
10980
9612
2344
3274
Taxes
Net Income
3276
5184
3981
5275
3620
5188
4721
6259
4037
5575
2344
1009
1391
1883
Cash dividends
1680
2008
2016
2304
2304
576
753
784
924
1088
1280
1508
364
394
Capital expenditures
1486
1826
2011
2213
2433
580
640
1899
3492
-1200
4289
4757
1130
1365
SGA
Other Income-net
Depreciation
Common Size
Sales
100
100
100
100
100
100
100
71.4
69.2
68.9
70
75
74.4
72
Gross profit
28.6
30.8
31.1
30
25
25.6
28
5.6
6.4
5.8
5.9
5.7
6.3
administrative
Other income-net
0.3
1.6
0.3
0.2
0.5
0.1
1.4
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
This document is used with permission and is available to David Fewings, in the course: Case Course Materials- Fewings (inter Quarter 2010), Western
-9- Exhibit 5
UVA-F-1573
Exhibit 3
$46,480
117,260
241,760
179,601
2,120
587,221
158,080
104,000
3,920
2,160
671,402
260,001
411,402
22,082
433,484
1,120
$1,289,985
$5,795
90,512
38,399
3,052
32,662
30,900
201,320
119,100
29,668
27,783
125,389
21,904
764,821
939,897
$1,289,985
$150,000,000 note, payable semiannually beginning June 30, 2008; $30,900,000 due within one year, shown in current
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.
2
Issued in January 2007; convertible at rate of 1.24 common share to one preferred share; redeemable beginning in 2012;
sinking fund beginning in 2016.
3
Resulting principally from the excess of par value of 827,800 shares of preferred stock over the pay value of common
share issues in conversion in 2007.
1
This document is used with permission and is available to David Fewings, in the course: Case Course Materials- Fewings (inter Quarter 2010), Western
-9- Exhibit 5
UVA-F-1573
Exhibit 4
2004
$1,477,402
1,180,444
296,958
69,438
2005
$1,498,645
1,140,469
358,176
74,932
2006
$1,980,801
1,642,084
338,717
87,155
2007
$2,187,208
1,793,511
393,697
120,296
293,937
227,520
283,244
251,562
273,401
Tax expense
Net earnings
126,393
167,544
95,558
131,962
116,130
167,114
101,882
149,679
109,360
164,041
19,160
85,754
20,000
77,052
21,480
53,116
24,200
77,340
26,800
92,238
Net sales
Cost of products sold
Gross profit
Selling, general, and administrative
Depreciation
Cash dividends declared
This document is used with permission and is available to David Fewings, in the course: Case Course Materials- Fewings (inter Quarter 2010), Western
-9- Exhibit 5
UVA-F-1573
Exhibit 5
Sales
Cost of goods sold
Gross profit
Selling, general, and admin.
Income before tax
Tax expense
Net income
Cash dividends
Depreciation
Net PPE
Net working capital
Earnings per share1
Divs. per share common
s
stockper
Div.
share preferred
2
stock
Actual
2007
$2,187,208
1,793,510
393,698
120,296
273,402
109,361
164,041
Projected
2008
2009
2010
2011
2012
$2,329,373 $2,480,785 $2,642,037 $2,813,769 $2,996,658
1,920,085 2,064,243 2,216,470 2,367,290 2,537,259
409,288
416,542
425,567
446,479
459,399
129,786
139,481
151,027
161,315
169,826
279,502
277,061
274,540
285,164
289,573
111,801
110,824
109,816
114,066
115,829
167,701
166,237
164,724
171,098
173,744
92,238
102,082
108,714
115,779
125,185
133,313
26,800
389,321
422,597
27,950
426,522
447,956
29,770
459,404
486,428
31,700
498,497
528,407
33,170
541,109
574,238
35,960
587,580
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
1
62,694,361 common shares in 2007. Thereafter, 64,416,919 shares reflecting conversion of the preferred stock.
2
1,389,1 60 preferred shares in 2007. Conversion into 1,722,558 shares of common stock assumed in 2008.
This document is used with permission and is available to David Fewings, in the course: Case Course Materials- Fewings (inter Quarter 2010), Western
-11-
UVA-F-1573
Exhibit 6
FLINDER VALVES AND CONTROLS INC.
Market Prices of Flinder Valves and RSE International Corporation
2003
2004
2005
24.38
22.75
22.75
24.36
20.75
20.38
20.38
20.13
21.50
21.00
21.50
21.00
14.13
13.69
12.83
12.39
12.83
12.04
10.48
11.26
13.95
11.78
11.26
11.87
23.50
23.63
22.75
30.00
20.00
19.88
20.00
22.25
21.75
22.00
22.50
28.50
11.60
11.60
13.61
17.01
10.20
10.90
11.13
13.30
10.67
10.90
13.61
16.78
13.61
13.15
14.22
17.32
12.21
12.04
12.37
13.77
32.13
26.00
31.50
20.73
15.08
20.69
17.32
13.98
$39.75
$38.90
$39.75
$22.58
$18.30
$21.98
$17.63
$15.35
This document is used with permission and is available to David Fewings, in the course: Case Course Materials- Fewings (inter Quarter 2010), Western
-11-
UVA-F-1573
Exhibit 7
FLINDER VALVES AND CONTROLS INC.
Market Information on Finns in the Industrial Machinery Sector
Price/
Earnings
Ratio
Cascade Corp.
Manufactures loading engagement devices
Curtiss-Wright Corporation
Manufactures highly engineered, advanced technologies that
perform critical functions
Flowserve Corp.
Makes, designs, and markets fluid handling equipment
(pumps, valves, and mechanical seals)
Gardner Denver
Manufacturers stationary air compressors, vacuum products,
and blowers
Idex Corp.
Manufactures a wide range of pumps and machinery products
and Blowers
Roper Inds.
Manufacturers energy systems and controls, imaging
equipment, and radio frequency products
Tecumseh Products
Manufactures compressors, condensers, and pumps
Watts Industries
Manufactures and sells and extensive line of valves
for the plumbing and heating and water quality markets
Beta
Expected
Growth
Rate
to 2010
Debt/Capital
1.7%
5.1%
29%
Dividend
Yield
10.5
0.95
17.2
1.0
0.7
12.3
36%
20.8
1.3
1.0
27.0
30%
10.9
1.3
Nil
NMF
19%
16.1
1.05
1.5
10.8
22%
19.7
1.2
0.5
10.8
29%
38.2
1.05
Nil
NMF
8%
1.3
1.5
8.4
32%
15
This document is used with permission and is available to David Fewings, in the course: Case Course Materials- Fewings (inter Quarter 2010), Western
Exhibit 8
Business
Law enforcement equ
Construction
Aircraft
Air conditioning sys
Heavy duty tucks
Investment holding co
Aerospace/defense system
Electronic systems
Private equity firm
Pumpsh aloes
Investment holding co
Industrial machinery/equip
David Fewings, in the course: Case Course Materials- Fewings (inter Quarter 2010), Western
Target
Stewart & Stevenson
Alstom SA
Avian Inc
OYL Industries Bhd
JLG Industries Inc
SIG Holding AG
K&F Industries Holding
Armor Holdings Inc
Sequa Corp
EDO Corp
Stork NV
Trane Inc
Business
Turbine-driven products
Power generation equip
Vehicle parts
Airconditioners
Excavators/telehandlers
Packaging/plastics machinery
Aircraft braking systems
Law enforcement equip
Aircraft engine component
Electn system products
Components
Airconditioners
(Continued/...)
Exhibit 8 (Continued)
Acquirer
Armor Holdings Inc
Bouygues SA
Boeing Co
Daikin Industries Ltd
Oshkosh Truck Corp
Rank Group Ltd
Meggitt PLC
BAE Systems Inc
Carlyle Group LLC
111 Corp
London Acquisition BV
Ingersoll-Rand Co Ltd
Target
Stewart & Stevenson
Al stom SA
Avian Inc
OYL Industries Bhd
JIG Industries Inc
SIG Holding AG
K&F Industries Holdings
Armor Holdings Inc
Sequa Corp
EDO Corp
Stork NV
Trane Inc
Enterprise
Value/Target
Net Sales
1.12
1.48
1.53
1.41
1.30
1.56
4.26
1.71
1.25
1.99
0.02
1.39
Enterprize
Premium 4
Value/Target
Enterprise Weeks Prior to
Net Operating Value/Target Announcement
Income
Cash Flow
Data (%)
33.1
23.7
40.6
77.9
22.5
-1.2
18.7
14.9
27.2
21.5
16.8
19.4
11.9
10.7
52.3
64.8
14.2
19.3
13.1
10.8
13.5
17.1
14.3
29.3
20.6
12.5
63.3
34.0
23.9
40.5
na
na
35.2
14.9
11.6
na
-14-
UVA-F-1573
Exhibit 9
FLINDER VALVES AND CONTROLS INC.
Capital Market Interest Rates and Stock Price Indexes
(averages per year except April 2008, which offers closing values for April 25, 2008)
2006
2007
April-08
4.70%
5.00%
4.40%
4.91%
1.28%
4.52%
5.59%
5.80%
6.06%
6.48%
5.56%
5.90%
6.09%
6.48%
5.58%
5.96%
6.32%
6.98%
1,418
17.7x
1,468
18.3x
1,398
17.4x
13.9x
1.4%
14.0x
1.4%
3-month bills
30-year bonds
Corporate Bond Yields by
Aaa
Aa
A
Baa
Stock Market
Price/earnings ratio
Dividend yield
This document is used with permission and is available to David Fewings, in the course: Case Course Materials- Fewings (Writer Quarter 2010), Western
-2.33%
2.38%
-2.33%
3.57%
1.15%
2.27%
26.67%
10.53%
26.19%
-1.91%
5.17%
6.17%
0.18%
5.81%
1.56%
-3.82%
-9.92%
6.55%
RSE
-15.56%
-4.41%
5.42%
-10.11%
2.16%
24.86%
23.29%
23.30%
6.23%
-15.00%
-15.00%
FVC Beta
30.00%
25.00%
20.00%
15.00%
Series1
y = -0.3828x + 0.0798
10.00%
Linear (Series1)
Linear (Series1)
5.00%
-15.00%
-10.00%
0.00%
-5.00%
0.00%
-5.00%
5.00%
10.00%
30.00%
25.00%
20.00%
y = -0.9993x + 0.0722
15.00%
10.00%
Series1
5.00%
-15.00%
-10.00%
0.00%
-5.00%
0.00%
-5.00%
-10.00%
-15.00%
-20.00%
Linear (Series1)
5.00%
10.00%
-14-
UVA-F-1573
Exhibit 10
FLINDER VALVES AND CONTROLS INC.
Forecast of Financial Statements for Flinders Control and Valve for Years Ended
December 31, 2008-12
(dollars in thousands)
Sales
Cost of goods sold
Gross profit
administrative
Other income, net
Income before taxes
Taxes
Net income
Depreciation
Net PPE
Net Working capital
Actual
2007
$49,364
37,044
12,320
2,936
228
9,612
4,037
$5,575
2008
$59,600
43,816
15,784
3,612
240
12,412
4,965
$7.447
2009
$66,000
48,750
17,250
4,124
264
13,390
5,356
$8.034
Projected
2010
$73,200
54,104
19,096
4,564
288
14,820
5,928
$8.892
$1,508
$1,660
$1,828
$2,012
$18,268
$16,840
$22,056
$20,331
$24,424
$22,515
$27,088
$24,971
This document is used with permission and is available to David Fewings, in the course: Case Course Materials- Fewings (Writer Quarter 2010), Western
-14-
UVA-F-1573
S INC.
Valve for Years Ended
Projected
2011
$81,200
59,958
21,242
5,052
320
16,510
6,604
$9.906
2012
$90,000
66,200
23,800
5,692
352
18,460
7,384
$11.076
$2,212
$2,432
$30,049
$27,700
$33,306
$30,702
This document is used with permission and is available to David Fewings, in the course: Case Course Materials- Fewings (Writer Quarter 2010), Western
Growth rate
-4%
1%
28%
9%
21%
11%
2004
2005
2006
2007
2008
2009
35,252
24,300
10,952
2,252
108
8,808
3,620
5,188
45,116
31,580
13,536
2,628
72
10,980
4,721
6,259
49,364
37,044
12,320
2,936
228
9,612
4,037
5,575
59,600
43,816
15,784
3,612
240
12,412
4,965
7,447
66,000
48,750
17,250
4,124
264
13,390
5,356
8,034
Year
Tax Rate
Depreciation
2003
39%
784
43%
924
41%
1,088
43%
1,280
42%
1,508
40%
1,642
40%
1,819
100%
69%
31%
6%
2%
26%
11%
15%
3%
100%
69%
31%
6%
0%
25%
10%
15%
3%
100%
70%
30%
6%
0%
24%
10%
14%
3%
100%
75%
25%
6%
0%
19%
8%
11%
3%
100%
74%
26%
6%
0%
21%
8%
12%
3%
100%
74%
26%
6%
0%
20%
8%
12%
3%
17,966
5,188
2,016
21,138
39%
21,138
6,259
2,304
25,093
37%
25,093
5,575
2,304
28,364
41%
28,364
7,447
2,792
33,019
37%
33,019
8,034
3,012
38,041
37%
PV(FCF(2011-2020))
PV(CFCF)**
Plus excess assets:
Cash & Equiv.
ST Investments
LT Investments
Enterprize Value
Less liabilities:
VALUATION
27,086
117,464 gp =
$1,884
1,768
148,202
$ 12,412 $ 13,390
4,965
5,356
7,447
8,034
2,792
3,012
3,788
2,368
3,491
2,184
$ 2,960 $ 6,494
0
1
$ 2,960 $ 5,930
4%
WACC CALCULATION
Tmrg
Debt
MktCap
D/E
Rd
mBeta
BBeta
Rf
LTD 2009
Employee Stock Options, est Other LT Liab.
Preferred stock
Common Equity Value
148,202
Shares Outstanding
2,440
Fair value per share
60.74
Last Trade Jan 20, 2012
Difference
Percentage Difference
Implied P/E at horizon date 15.26
MRP
Re
Wd
WACC
$
$
11%
11%
11%
2010
2011
2012
73,200
54,104
19,096
4,564
288
14,820
5,928
8,892
81,200
59,958
21,242
5,052
320
16,510
6,604
9,906
90,000
66,200
23,800
5,692
352
18,460
7,384
11,076
40%
2,017
40%
2,238
40%
2,480
100%
74%
26%
6%
0%
20%
8%
12%
3%
100%
74%
26%
6%
0%
20%
8%
12%
3%
100%
74%
26%
6%
0%
21%
8%
12%
3%
38,041
8,892
3,334
43,599
37%
43,599
9,906
3,714
49,790
37%
49,790
11,076
4,153
56,714
37%
WACC CALCULATION
40%
96,990
6.0%
1.04
1.00
4.5%
74%
26%
6%
0.39%
of Sales
of Sales
of Sales
of Sales
3% of Sales
37% of NI
5.0%
9.5%
9.5%
Net sales
Cost of products sold
Gross profit
Selling, general, and administrative
Earnings before federal income taxes
Tax expense
Net earnings
Depreciation
Cash dividends declared
-9%
1%
32%
10%
2003
2004
2005
2006
2007
$1,623,963 $1,477,402 $1,498,645 $1,980,801 $2,187,208
1,271,563 1,180,444 1,140,469 1,642,084 1,793,511
352,400
296,958
358,176
338,717
393,697
58,463
69,438
74,932
87,155
120,296
293,937
227,520
283,244
251,562
273,401
126,393
95,558
116,130
101,882
109,360
167,544
131,962
167,114
149,679
164,041
19,160
85,754
20,000
77,052
21,480
53,116
24,200
77,340
26,800
92,238
369,981
167,544
85,754
451,771
451,771
131,962
77,052
506,681
506,681
167,114
53,116
620,679
620,679
149,679
77,340
693,018
693,018
164,041
92,238
764821
VALUATION
833,432
1,820,486
4%
PV(FCF(2011-2020))
PV(CFCF)**
Plus excess assets:
Cash & Equiv.
ST Investments
LT Investments
Enterprize Value
Less liabilities:
LTD 2009
Employee Stock Options, est
Other LT Liab.
Preferred stock
Common Equity Value
Shares Outstanding
Fair value per share
46,480
262,080
2,962,478
2,962,478
96,000
30.86
16.32
6%
2008
7%
2009
7%
2010
6%
2011
6%
2012
$2,329,373
1,920,085
409,288
129,786
279,502
111,801
167,701
27,950
102,082
$2,480,785
2,064,243
416,542
139,481
277,061
110,824
166,237
29,770
108,714
$2,642,037
2,216,470
425,567
151,027
274,540
109,816
164,724
31,700
115,779
$2,813,769
2,367,290
446,479
161,315
285,164
114,066
171,098
33,170
125,185
$2,996,658
2,537,259
459,399
169,826
289,573
115,829
173,744
35,960
133,313
764821
830,440
887,963
936,908
982,821
167,701
102,082
166,237
108,714
164,724
115,779
171,098
125,185
173,744
133,313
830,440
887,963
936,908
982,821
1,023,252
279,502
277,061
274,540
285,164
289,573
111800.8
167,701
110824.4
166,237
109816
164,724
114065.6
171,098
115829.2
173,744
102,082
108,714
115,779
125,185
133,313
37,201
25,359
207,223
0
207,223
32,882
38,472
203,597
1
182,238
39,093
41,979
199,431
2
159,783
42,612
45,831
207,840
3
149,052
46,471
50,065
210,521
4
135,136
WACC CALCULATION
Tmrg
40%
Debt
MktCap
96,990
D/E
Rd
6.0%
mBeta
1.04
BBeta
1.00
Rf
4.5%
MRP
7.2%
Re
11.7%
Wd
WACC
11.7%