Anda di halaman 1dari 11

BLAINE KITCHENWARE

TN Exhbit 1
Effects of the Proposed Repurchase on Blaine's 2006 Balance Sheet ($ in Thousands)
Shares Repurchased
Rearrange 2006 B/S

14,000

Purchase Price
Restate 2006 B/S showing effect of Repo

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
Equity
Total

Note: The post-transaction equity figure should be (488,363 - (18.50*14,000)), which is a reduction equal to $259MM

Exhibit 3 Selected Operating and Financial Data for Public Kitchenware Producers

Revenue

Home & HearthAutoTech


Design Appliances
XQL Corp. Bunkerhill, Inc.
EasyLiving Systems
$589,747 $18,080,000 $4,313,300 $3,671,100
$188,955

BLAINE KITCHENWARE

Pro Forma Results


Harvard Business Publishing

BLAINE KITCHENWARE

Pro Forma Results

TN Exhibit 2: Effect of Repurchase on Blaine's 2006 Income Statement ($ in ThousanTN Exhibit 3: Comparison of 2006 Distributable Funds with and without the Repurchase ($
Restate 2006 I/S to give effect to the repo
2006
Post-Repo
Int. Rate
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%
18,626
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

6.75%

18.9

(5,196)

BLAINE's ACCOUNT
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

2006
w/o Repo
73,860
(9,914)
63,946
13,506
0
77,451
30.8% (23,821)
53,630

36%

2006
with Repo Tax Bill
73,860
(9,914)
63,946
0
(3,375)
60,571
(18,626)
(5,196)
41,945

53,630
0
53,630
(19,307)
34,323

41,945
13,506
55,451
(19,962)
35,489

0
0
0

3,375
(1,038)
2,337

655

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
$
30.75%
79,643
59,052
$
1.35
$ 16.25
$ 17.60
$ 18.50
12,618 Thousand
$ 16.70 752,250

14.98

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)

LENDERS ACCOUNT
Interest earned
Taxes
Net
DISTRIBUTABLE FUNDS
Shareholders after tax
Lenders after tax

1,038

Difference
1,165
2,337
3,502
Total taxes
(43,128)
(39,626)
3,502
Note: for simplicity, shareholders' personal tax rate is assumed to be 36%; lenders' tax rate is assumed
to equal Blaine's 30.8%
34,323
0

35,489
2,337

Harvard Business Publishing

orma Results

ess Publishing

orma Results

out the Repurchase ($ 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

ess Publishing

Harvard Business Publishing

BLAINE KITCHENWARE
Debt
Shares
EV

Weighted Average Cost of Capital

###
###

Tax rate

40%
0.79205143

675

Part of Tn Exhibit 5: Computing Minimum WACC for Blaine over a Range of Capital Structures
Debt
Existing 1 (230,866)
Proposal
50,000
AAA
AAA
BBB+
BB
B+

674,788

84,041

Debt /
Cap.

Debt /
Equity

Unlevered
Beta

Levered
Beta

Cost
of
Equity

Cost
of
Debt

WACC

-31.7%
6.899%

-24.1%
7.4%

0.74
0.74

0.56
0.78

7.82%
8.87%

5.02%
6.75%

9.20%
8.54%

Risk-Free Rate
Market Risk Premium

11.4%
14.2%
20.8%
22.3%
28.3%
30.9%

12.8%
16.6%
26.2%
28.8%
39.5%
44.6%

0.74
0.74
0.74
0.74
0.74
0.74

0.80
0.82
0.87
0.88
0.94
0.97

9.03%
9.13%
9.38%
9.44%
9.72%
9.85%

5.67%
5.82%
5.87%
6.85%
8.00%
9.12%

8.45%
8.40%
8.27%
8.39%
8.53%
8.76%

Debt Beta

Blaine
Proposal
73,860
3,375
21.9x

AAA
73,860
4,765
15.5x

AA73,860
6,423
11.5x

6.75%

5.67%

5.82%

5.87%

50,000

84,041

110,354

157,282

Assumptions
Marginal Tax Rate

30.80%
5.02%
5.00%
0.00

Cash to employ

209,000

Note: Re-levered beta calculation is based on a constant capital structure


1

Un-levered beta is the weighted average of the operating asset beta and the beta of cash, and is
a = Operations(Operating Assets/Enterprise Value) + Cash(Cash/Enterprise Value). This is equivalent to
e(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

Debt Waterfall:
A
BBB+
73,860
73,860
9,232
12,310
8.0x
6.0x

BB
73,860
16,413
4.5x

B+
73,860
19,696
3.8x

6.85%

8.00%

9.12%

179,707

205,166

215,964

Harvard Business Publishing

ess Publishing

st of Capital

ess Publishing

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

3.2%
30.0%
21.4%
23.8%
32.0%
18.2%
35.0%

5.5%
28.5%
19.7%
22.4%
31.7%
17.0%
43.6%

11.1%
27.0%
18.7%
21.6%
30.8%
15.7%
52.9%

Margins:
Revenue Growth
Gross Margin
EBIT Margin
EBITDA Margin
Effective Tax Rate (1)
Net Income Margin
Dividend payout ratio

(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' Equity

Note: Many items in BKI's historical balance sheets, e.g. P


have been affected by the firm's acquisitions.

SIMPLIFIED BALANCE SHEET


Case Exhibit 2
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

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

holders' Equity:

& Shareholders' Equity

in BKI's historical balance sheets, e.g. Property, Plant & Equipment


by the firm's acquisitions.

Note: Many items in BKI's historical balance sheets, e.g. Property, Plant & Equipment
have been affected by the firm's acquisitions.