flinder valves and controls inc. - worksheets

-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

2,440,000 shares) 1,220Capital surplus 7,180Earned surplus 28,364Total equity 36,764Total liabilities and stockholders' equity 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.

U.S. Treasury tax notes and other Treasury obligations

Common stock at par (shares authorized and outstanding



Exhibit 2

Summary of Consolidated Earnings and Dividends for Flinder Valves and Control

(dollars in thousands)

(Unaudited)

2003 2004 2005 2006 2007 Three months ended 3/30

2007 2008

Sales 36312 34984 35252 45116 49364 11728 14162

COGS 25924 24200 24300 31580 37044 8730 10190

Gross Profit 10388 10784 10952 13536 12320 2998 3972

SGA 2020 2100 2252 2628 2936 668 896

Other Income-net 92 572 108 72 228 14 198

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



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



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

Gross profit 352,400 296,958 358,176 338,717 393,697

Selling, general, and administrative 58,463 69,438 74,932 87,155 120,296

Earnings before federal income taxes 293,937 227,520 283,244 251,562 273,401

Tax expense 126,393 95,558 116,130 101,882 109,360

Net earnings 167,544 131,962 167,114 149,679 164,041

Depreciation 19,160 20,000 21,480 24,200 26,800

Cash dividends declared 85,754 77,052 53,116 77,340 92,238



Exhibit 5


Forecast Financial Statements for RSE International for the Years EndedDecember 31, 2007-12

(dollars in thousands except per-share figures)

Actual Projected2007 2008 2009 2010 2011 2012

Sales $2,187,208 $2,329,373 $2,480,785 $2,642,037 $2,813,769 $2,996,658Cost of goods sold 1,793,510 1,920,085 2,064,243 2,216,470 2,367,290 2,537,259Gross profit 393,698 409,288 416,542 425,567 446,479 459,399Selling, general, and admin. 120,296 129,786 139,481 151,027 161,315 169,826Income before tax 273,402 279,502 277,061 274,540 285,164 289,573Tax expense 109,361 111,801 110,824 109,816 114,066 115,829Net income 164,041 167,701 166,237 164,724 171,098 173,744

Cash dividends 92,238 102,082 108,714 115,779 125,185 133,313

Depreciation 26,800 27,950 29,770 31,700 33,170 35,960

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



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

2006 Quarter Ended:

March-31 24.38 20.75 21.50 14.13 12.83 13.95June-30 22.75 20.38 21.00 13.69 12.04 11.78September-30 22.75 20.38 21.50 12.83 10.48 11.26December-31 24.36 20.13 21.00 12.39 11.26 11.87

2007 Quarter Ended:

March-31 23.50 20.00 21.75 11.60 10.20 10.67 13.61 12.21June-30 23.63 19.88 22.00 11.60 10.90 10.90 13.15 12.04September-30 22.75 20.00 22.50 13.61 11.13 13.61 14.22 12.37December-31 30.00 22.25 28.50 17.01 13.30 16.78 17.32 13.77

2008 Quarter Ended:

March-31 32.13 26.00 31.50 20.73 15.08 20.69 17.32 13.98

May 1, 2008 $39.75 $38.90 $39.75 $22.58 $18.30 $21.98 $17.63 $15.35

High

-11- UVA-F-1573



Market Information on Finns in the Industrial Machinery Sector

Beta Debt/CapitalCascade Corp.

Manufactures loading engagement devices 10.5 0.95 1.7% 5.1% 29%Curtiss-Wright Corporation

17.2 1.0 0.7 12.3 36%Flowserve Corp.

20.8 1.3 1.0 27.0 30%Gardner Denver

10.9 1.3 Nil NMF 19%Idex Corp.

16.1 1.05 1.5 10.8 22%Roper Inds.

19.7 1.2 0.5 10.8 29%Tecumseh Products

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.



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

Transaction Size ($mm)

Target Net Sales Last 12 Months

($mm)

Equity Value/Target Net Income

1.12 33.1 23.7 40.61.48 77.9 22.5 -1.21.53 18.7 14.9 27.21.41 21.5 16.8 19.41.30 11.9 10.7 52.31.56 64.8 14.2 19.34.26 13.1 10.8 13.51.71 17.1 14.3 29.31.25 20.6 12.5 63.31.99 34.0 23.9 40.50.02 na na 35.21.39 14.9 11.6 na

Enterprise Value/Target

Net Sales

Enterprize Value/Target

Net Operating Income

Enterprise Value/Target

Cash Flow

Premium 4 Weeks Prior to Announcement

Data (%)

-14- UVA-F-1573

This document is used with permission and is available to David Fewings, in the course: Case Course Materials- Fewings (Writer Quarter 2010), Western

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

U.S. Treasury Yields

3-month bills 4.70% 4.40% 1.28%30-year bonds 5.00% 4.91% 4.52%

Corporate Bond Yields by

Aaa 5.59% 5.56% 5.58%Aa 5.80% 5.90% 5.96%A 6.06% 6.09% 6.32%Baa 6.48% 6.48% 6.98%

Stock Market

S&P 500 Index 1,418 1,468 1,398Price/earnings ratio 17.7x 18.3x 17.4x

Industrial Machinery Stocks

Price/earnings ratio 13.9x 14.0xDividend yield 1.4% 1.4%

Historical return premium of equity over government debt (1926-2007)Geometric average 5.5%Arithmetic average 7.2%

Data Source: Value Line Investment Survey, 25 April 2008; Federal Reserve Bulletin; Compustat.

Stock and Index Price Stock Index and ReturnsDate S&P 500 FVC RSE S&P 500 FVC RSE RSE

Mar-06 1,294.87 21.50 13.95 Jun-06 1,270.20 21.00 11.78 -1.91% -2.33% -1.91% -15.56%Sep-06 1,335.85 21.50 11.26 5.17% 2.38% 5.17% -4.41%Dec-06 1,418.30 21.00 11.87 6.17% -2.33% 6.17% 5.42%Mar-07 1,420.86 21.75 10.67 0.18% 3.57% 0.18% -10.11%Jun-07 1,503.35 22.00 10.90 5.81% 1.15% 5.81% 2.16%Sep-07 1,526.75 22.50 13.61 1.56% 2.27% 1.56% 24.86%Dec-07 1,468.36 28.50 16.78 -3.82% 26.67% -3.82% 23.29%Mar-08 1,322.70 31.50 20.69 -9.92% 10.53% -9.92% 23.30%May-08 1,409.34 39.75 21.98 6.55% 26.19% 6.55% 6.23%

-15.00% -10.00% -5.00% 0.00% 5.00% 10.00%-5.00%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

f(x) = − 0.382764512690275 x + 0.0798352841098977

FVC Beta

Column GLinear (Column G)Linear (Column G)

-15.00% -10.00% -5.00% 0.00% 5.00% 10.00%

-20.00%

-15.00%

-10.00%

-5.00%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

f(x) = − 0.99932701330362 x + 0.0721794235522928

Column ILinear (Column I)

-15.00% -10.00% -5.00% 0.00% 5.00% 10.00%-5.00%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

f(x) = − 0.382764512690275 x + 0.0798352841098977

FVC Beta

Column GLinear (Column G)Linear (Column G)

-15.00% -10.00% -5.00% 0.00% 5.00% 10.00%

-20.00%

-15.00%

-10.00%

-5.00%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

f(x) = − 0.99932701330362 x + 0.0721794235522928

Column ILinear (Column I)

-14- UVA-F-1573


Exhibit 10


Forecast of Financial Statements for Flinders Control and Valve for Years EndedDecember 31, 2008-12(dollars in thousands)

Actual Projected2007 2008 2009 2010

Sales $49,364 ### $66,000 $73,200Cost of goods sold 37,044 43,816 48,750 54,104Gross profit 12,320 15,784 17,250 19,096administrative 2,936 3,612 4,124 4,564Other income, net 228 240 264 288Income before taxes 9,612 12,412 13,390 14,820Taxes 4,037 4,965 5,356 5,928Net income $5,575 $7.447 $8.034 $8.892

Depreciation $1,508 $1,660 $1,828 $2,012

Net PPE $18,268 ### $24,424 $27,088Net Working capital $16,840 ### $22,515 $24,971

Source: FVC Analysis.

-14- UVA-F-1573


Exhibit 10


Forecast of Financial Statements for Flinders Control and Valve for Years Ended

Projected### 2012

### ###59,958 66,20021,242 23,8005,052 5,692

320 35216,510 18,4606,604 7,384

$9.906 ###

$2,212 $2,432

### ###### ###

Growth rate -4% 1% 28% 9% 21% 11%

Year 2003 2004 2005 2006 2007 2008 2009

INCOME STATEMENT PROJECTIONSales 36,312 34,984 35,252 45,116 49,364 59,600 66,000 COGS 25,924 24,200 24,300 31,580 37,044 43,816 48,750 Gross Profit 10,388 10,784 10,952 13,536 12,320 15,784 17,250 SGA 2,020 2,100 2,252 2,628 2,936 3,612 4,124 Other Income-net 92 572 108 72 228 240 264 Income before Taxes 8,460 9,256 8,808 10,980 9,612 12,412 13,390 Taxes 3,276 3,981 3,620 4,721 4,037 4,965 5,356 Net Income 5,184 5,275 5,188 6,259 5,575 7,447 8,034 Tax Rate 39% 43% 41% 43% 42% 40% 40%Depreciation 784 924 1,088 1,280 1,508 1,642 1,819

COMMON SIZE ANALYSISSales 100% 100% 100% 100% 100% 100% 100%COGS 71% 69% 69% 70% 75% 74% 74%Gross Profit 29% 31% 31% 30% 25% 26% 26%SGA 6% 6% 6% 6% 6% 6% 6%Other Income-net 0% 2% 0% 0% 0% 0% 0%Income before Taxes 23% 26% 25% 24% 19% 21% 20%Taxes 9% 11% 10% 10% 8% 8% 8%Net Income 14% 15% 15% 14% 11% 12% 12%Depreciation 2% 3% 3% 3% 3% 3% 3%

RETAINED EARNINGS PROJECTIONBeginning Balance 11,195 14,699 17,966 21,138 25,093 28,364 33,019 Net Income 5,184 5,275 5,188 6,259 5,575 7,447 8,034 Dividends 1,680 2,008 2,016 2,304 2,304 2,792 3,012 Ending Balance 14,699 17,966 21,138 25,093 28,364 33,019 38,041 Dividend Payout Ratio 32% 38% 39% 37% 41% 37% 37%

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

37% 37% 37%

$ 14,820 $ 16,510 $ 18,460 5,928 6,604 7,384 8,892 9,906 11,076 3,334 3,714 4,153 2,664 2,961 3,257 2,456 2,729 3,002 $ 7,106 $ 7,930 $ 8,970

2 3 4 $ 5,924 $ 6,037 $ 6,235

WACC CALCULATION40%

- 96,990 -

6.0% 1.04 1.00

4.5%5.0%9.5%

- 9.5%

-9% 1% 32% 10%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

Gross profit 352,400 296,958 358,176 338,717 393,697

Selling, general, and administrative 58,463 69,438 74,932 87,155 120,296

Earnings before federal income taxes 293,937 227,520 283,244 251,562 273,401

Tax expense 126,393 95,558 116,130 101,882 109,360

Net earnings 167,544 131,962 167,114 149,679 164,041

Depreciation 19,160 20,000 21,480 24,200 26,800

Cash dividends declared 85,754 77,052 53,116 77,340 92,238

RETAINED EARNINGS PROJECTIONBeginning Balance 369,981 451,771 506,681 620,679 693,018

Net Income 167,544 131,962 167,114 149,679 164,041

Dividends 85,754 77,052 53,116 77,340 92,238Ending Balance 451,771 506,681 620,679 693,018 764821

FREE CASH FLOW

EBITTaxNOPAT

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

6% 7% 7% 6% 6%2008 2009 2010 2011 2012

$2,329,373 $2,480,785 $2,642,037 $2,813,769 $2,996,6581,920,085 2,064,243 2,216,470 2,367,290 2,537,259

409,288 416,542 425,567 446,479 459,399129,786 139,481 151,027 161,315 169,826279,502 277,061 274,540 285,164 289,573111,801 110,824 109,816 114,066 115,829167,701 166,237 164,724 171,098 173,744

27,950 29,770 31,700 33,170 35,960102,082 108,714 115,779 125,185 133,313

764821 830,440 887,963 936,908 982,821167,701 166,237 164,724 171,098 173,744102,082 108,714 115,779 125,185 133,313830,440 887,963 936,908 982,821 1,023,252

279,502 277,061 274,540 285,164 289,573111800.8 110824.4 109816 114065.6 115829.2

167,701 166,237 164,724 171,098 173,744102,082 108,714 115,779 125,185 133,31337,201 32,882 39,093 42,612 46,47125,359 38,472 41,979 45,831 50,065

207,223 203,597 199,431 207,840 210,5210 1 2 3 4

207,223 182,238 159,783 149,052 135,136

WACC CALCULATIONTmrg 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%

flinder valves and controls inc. - worksheets

Documents

sig holding

line investment

consolidated

target stewart

net sales

consolidated

preferred

lt liab