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Table TN-A Operating Cash Flows of Nicholson If Acquired by Cooper (millions of $) Actual 1971 Net sales (6% per year growth Cost of goods sold (69%, 67%, 65%) Selling, general, administrative expenses (22%, 21%, 20%, 19%) Depreciation Other deductions Profit before taxesa Taxes (at 40%) Profit after taxes Add back: Depreciation Cash flow from operationsa
a
_____Projected______ 1972 1973 1976 $58.6 39.3 12.3 2.1 .2 $ 4.7 1.9 $ 2.8 2.1 $ 4.9 $62.1 40.4 12.4 2.1 .2 $ 7.0 2.8 $ 4.2 2.1 $ 6.3 $74.0 48.1 14.1 2.1 .2 $ 9.5 3.8 $ 5.7 2.1 $ 7.8
No interest charges are reflected in these figures, since these cash flows will be discounted in Exhibit TN-1 at an appropriate cost of capital or arrive at a value for the total cash flows projected from the Nicholson operations. The actual 1971 data for Nicholson are adjusted to remove interest expense in 1971.
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In this rough calculation, market weights are used for the capital structure, with the market value of Nicholson stock at $44.
1973
1.34 .584
1974
1.45 .584
1975
1.5 .584
1976
1.46 .584
1.64
2.29
2.48
2.58
2.50
Exhibit TN-1 Calculation of Value of Nicholson to Cooper Based on Discounted Cash Flow Analysis (millions of dollars except per share data)
1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 _________________________________________________________________________________________________________________________________
4.9 77.0
Projected cash flow from operations a Terminal value at end of 10 years b Deduct: Increase in net working capital c Assumed capital expenditures Cash flows to Cooper Present value factor Present value of cash flows Total present value of cash flows Less: Long-term debt Maximum value for all outstanding Nicholson stock Maximum value per share of Nicholson stock
d
(1.5)
(2.1)
.909
.826
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a
Computed as in Table TN-A through 1976. Increased at 6% per year after 1976. Arbitrarily assigned at 10 times projected profits after taxes in 1981 (=Projected cash flow minus Capital Expenditures/Depreciation)
Estimated at 44% of increase in sales. Based on 1971 data. Inventories are assumed to increase at 33% of increase in sales; accounts receivable at 15% of sales increase; and accounts payable at 4% of sales increase.
d
Arbitrarily estimated (2.1 for 1972-1976; 2.2 in 1977, 2.4 in 1978, 2.5 in 1979, 2.7 in 1980, and 2.8 in 1981.
Exhibit TN-2 Calculation of Maximum of Cooper Shares That Could Be Exchanged for All Outstanding Nicholson Shares without Diluting Coopers Future Earnings per Share (millions except per share data) _____________________________________________________________________________ _ 1972 1976 1. Projected Cooper net income available to Common stockholders without Nicholson a 2. Projected Nicholson net income after taxes if Nicholson is acquired by Cooper b 3. Projected Cooper net income available to common Stockholders after acquisition (line 1 + line 2) 4. Projected Cooper earning per share without Nicholson a 5. Maximum number of Cooper shares after acquisition without reducing Cooper earnings per share without acquisition (line 3 / line 4) 6. Number of Cooper shares currently outstanding a 7. Maximum number of Cooper shares that could be issued for Nicholson shares without causing dilution in Coopers projected earnings per share (line 5 line 6) $11.0 2.5 $13.5 2.61 3.8 4.4 4.9 5.2 1973 1974 1975
5.17
4.21
.96
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a b
From Exhibit 8. Based on calculations underlying Exhibit TN-1 except that profit figures are adjusted to reflect interest deduction of $800,000 on account of outstanding Nicholson debt.