Exhibit 1 Condensed Operating and Stockholder Information, Robertson Tool Company

(millions of dollars except per-share data)

1998

1999

2000

2001

2002

$ 48.5

$ 49.1

$ 53.7

$ 54.8

$ 55.3

32.6

33.1

35.9

37.2

37.9

10.7

11.1

11.5

11.9

12.3

2.0

2.3

2.4

2.3

2.1

Operations
Sales
Cost of Goods
Selling, General and
Administrative Costs
Depreciation Expense
Interest Expense
Income Before Taxes

.4

.7

.8

.8

.8

2.8

1.9

3.1

2.6

2.2

1.1

.8

1.2

1.0

.9

$1.7

$1.1

$1.9

$1.6

$1.3

Cost of Goods

67%

67%

67%

68%

69%

Sell, Genl, Admin.

22%

23%

21%

22%

22%

Operating Income

6.6%

5.3%

7.3%

6.2%

5.4%

$ 2.91

$ 1.88

$ 3.25

$ 2.74

$ 2.23

1.60

1.60

1.60

1.60

1.60

Taxes
Net Income
Percentage of Sales

Stockholder Information
Earnings Per Share
Dividends Per Share
Book Value Per Share

49.40

49.68

51.33

52.47

53.10

Market Price

33-46

35-48

29-41

25-33

23-32

Price/Earnings Ratio

11-16

10-26

9-13

9-12

10-14

Shares Outstanding

584,000

584,000

584,000

584,000

584,000

Exhibit 2 Balance Sheet at December 31, 2002, Robertson Tool Company

(millions of dollars)
Assets

Liabilities and Net Worth

$ 1

Cash
Accounts Receivable
Inventories

Current Assets
Net Plant and Equipment
Total Assets

Other

18
1

Other

Accounts Payable
Current Liabilities

$ 2
2
4

Long-term Debt

12

Net Worth

31

28
19
$ 47

Collection Period (days)

53

Days of Inventory (days)

173

Sales/Total Assets

1.18

Total

$ 47

Debt as % Capital

28%

Total Assets/Net Worth

1.52

WCR

24

0.387097

Exhibit 3 Condensed Operating and Stockholder Information, NDP Corporation

(millions of dollars except per-share data)
1998

1999

2000

2001

2002

Sales

$ 45

$ 97

$ 99

$ 98

$ 100

Net Income

1.97

3.20

3.20

1.13

2.98

$ 25

$ 46

$ 49

$ 41

$ 46

11

15

10

13

Net Working Capital

19

35

34

31

33

Long-term Debt

10

18

16

15

17

Shareholders Equity

21

36

40

41

41

$ .78

$ .61

$ .59

$ .21

$ .54

0.20

0
7.45

Operations

Financial Position
Current Assets
Current Liabilities

Stockholders Information
Earnings Per Share
Dividends Per Share
Book Value Per Share

8.31

6.86

7.37

7.38

Market Price

6-17

10-18

7-18

4-10

5-8

Price/Earnings Ratio

8-22

16-30

12-31

19-48

9-15

Shares Outstanding

2,525,600

5,245,900

5,430,100

5,510,000

5,501,000

Exhibit 4 ProFormas for Robertson Tool (millions of dollars)

Actual
2002

Forecasts
2003

2004

2005

2006

2007 to Infinity

$ 55.3

$ 58.6

$ 62.1

$ 65.9

$ 69.8

$ 69.8

Cost of Goods

37.9

39.8

41.6

43.5

45.4

45.4

Gross Profit

17.4

18.8

20.5

22.4

24.4

24.4

Sell & Admin

12.3

12.3

12.4

12.5

13.3

13.3

Depreciation

2.1

2.3

2.5

2.7

2.9

2.9

EBIT

3.0

4.2

5.6

7.2

8.2

8.2

Tax @ 40%

1.2

1.7

2.2

2.9

3.3

3.3

EBIAT

$ 1.8

$ 2.5

$ 3.4

$ 4.3

$ 4.9

$ 4.9

CoGS % Sales

69%

68%

67%

66%

65%

65%

Sell & Admin % Sales

22%

21%

20%

19%

19%

19%

$ 19.0

$ 20.7

$ 21.7

$ 22.6

$ 23.5

(4.0)

(3.5)

(3.6)

(3.8)

(2.9)

2.3

2.5

2.7

2.9

2.9

$ 20.7

$ 21.7

$ 22.6

$ 23.5

$ 23.5

Sales

Net Plant & Equip @

Beginning of Year
Capital Expenditures
Depreciation Expense
Net Plant & Equip @
End of Year

Exhibit 4 ProFormas for Robertson Tool (millions of dollars)

Actual
2002

Forecasts
2003

2004

2005

2006

2007 to Infinity

Sales

55.3

58.6

62.1

65.9

69.8

69.8

Cost of Goods

37.9

39.8

41.6

43.5

45.4

45.4

Gross Profit

17.4

18.8

20.5

22.4

24.4

24.4

Sell & Admin

12.3

12.3

12.4

12.5

13.3

13.3

Depreciation

2.1

2.3

2.5

2.7

2.9

2.9

EBIT

3.0

4.2

5.6

7.2

8.2

8.2

Tax @ 40%

1.2

1.7

2.2

2.9

3.3

3.3

EBIAT

1.8

2.5

3.4

4.3

4.9

4.9

CoGS % Sales

69%

68%

67%

66%

65%

65%

Sell & Admin % Sales

22%

21%

20%

19%

19%

19%

$ 19.0

$ 20.7

$ 21.7

$ 22.6

$ 23.5

(4.0)

(3.5)

(3.6)

(3.8)

(2.9)

2.3

2.5

2.7

2.9

2.9

$ 20.7

$ 21.7

$ 22.6

$ 23.5

$ 23.5

Net Plant & Equip @

Beginning of Year
Capital Expenditures
Depreciation Expense
Net Plant & Equip @
End of Year

% of sales
2007 to Infinity

2002

1.00
0.685353
0.314647
0.222423
0.037975
0.05425
0.0217
0.03255
0
0
0.012477
0.003978
0
0
0
0
0
0
0
0
0

2003

1.00
0.68
0.32
0.21
0.04
0.07
0.03
0.04
0.00
0.00
0.01
0.00
0.00
0.00
0.00
0.32
-0.07
0.04
0.00
0.35
0.00

2004

1.00
0.67
0.33
0.20
0.04
0.09
0.04
0.05
0.00
0.00
0.01
0.00
0.00
0.00
0.00
0.33
-0.06
0.04
0.00
0.35
0.00

2005

1.00
0.66
0.34
0.19
0.04
0.11
0.04
0.07
0.00
0.00
0.01
0.00
0.00
0.00
0.00
0.33
-0.05
0.04
0.00
0.34
0.00

2006

1.00
0.65
0.35
0.19
0.04
0.12
0.05
0.07
0.00
0.00
0.01
0.00
0.00
0.00
0.00
0.32
-0.05
0.04
0.00
0.34
0.00

2007 to Infinity

1.00
0.65
0.35
0.19
0.04
0.12
0.05
0.07
0.00
0.00
0.01
0.00
0.00
0.00
0.00
0.34
-0.04
0.04
0.00
0.34
0.00

Exhibit 5 Five-Year Forecast of Monmouth, Inc. Earnings, Excluding Robertson Tool

(millions of dollars except per-share data)

Net Income
Shares Outstanding (mil)
Earnings Per Share

2003

2004

2005

2006

2007

$ 11.0

$ 11.9

$ 12.8

$ 13.8

$ 15.0

4.21

4.21

4.21

4.21

4.21

$ 2.61

$ 2.83

$ 3.04

$ 3.27

$ 3.56

Exhibit 6 Selected Financial Information on Quasi-Comparable Firms, 2002

Actuant Corp.

Collection Period (days)

Briggs &
Stratton

Idex Corp.

Lincoln Electric

Snap On Inc.

Stanley Works

Robertson Tool
Co.

55

77

47

61

96

77

53

Inventory % Sales

12%

18%

13%

17%

18%

16%

33%

Operating Margin % Sales

17%

13%

20%

15%

10%

15%

5%

Return on Capital

21%

9%

10%

12%

11%

14%

4%

3.8

3.2

7.1

11.5

7.8

9.3

3.5

Times Interest Earned

Debt % Capital

balance sheet values

98%

52%

30%

27%

29%

40%

28%

market values

29%

37%

20%

17%

19%

24%

37%

BB-

BB+

BBB

A+

$ 712

$ 1,443

$ 1,191

$ 1,145

$ 1,861

$ 3,014

$ 29

55

119

98

90

129

234

1.80

EBIAT Multiple

12.8

12.1

12.2

12.7

14.4

12.9

16.1

Share Price

$ 42

$ 42

$ 29

$ 22

$ 26

$ 27

$ 30

Earnings Per Share

2.80

3.20

2.00

1.78

1.80

2.32

2.32

Price/Earnings

15.0

13.1

14.5

12.4

14.4

11.6

13.5

Equity Beta

1.00

1.00

1.00

.75

1.05

.95

.71

.63

.80

.63

.85

.73

Bond Rating
Value of Firm ($ mil)
EBIAT ($ mil)

Asset Beta

avg equity beta

avg asset
beta

=
=

B levered =

1.05
.73

Exhibit 7 Information on United States Capital Markets

I. Interest Rates in May 2003
30-Year U.S.
Treasury Bonds

U.S. Corporate Bonds Rated

A
BBB

AA
4.10%

4.52%

5.07%

BB

6.07%

II. Estimated Market Risk Premium = 5.5% over 30-Year U.S. Treasury Bonds

III. Median Values of Key Ratios by Standard & Poors Rating Category
AAA
AA
A

BBB

BB

Times Interest Earned (X)

EBITDA / Interest (X)
Pre-tax Return on Capital (%)
Debt as % Capital (%)
Number of companies

5.9
7.6
15.1
43.7
213

3.4
4.6
12.5
51.9
297

1.5
2.3
8.8
74.9
345

27.3
31.0
25.2
12.6
6

18.0
21.4
25.4
36.1
15

10.4
12.8
19.7
38.4
118

IV. Debt and Times Interest Earned Ratios for Selected Industries
AAA
AA
A
Food Processing
Debt % Capital
Times Interest Earned
Electrical Equipment
Debt % Capital
Times Interest Earned
Electric Utilities
Debt % Capital
Times Interest Earned

BBB

BB

44%
7.9

51%
6.7

54%
4.3

53%
2.9

36%
7.3

48%
3.2

72%
1.6

46%
4.0

54%
3.4

57%
2.7

73%
2.0

7.96%

Guide Questions:
1
2
3

4
5
6

Question 1

If you were Mr Vincent, EVP of Monmouth Inc, would you try to gain control of Robertson Tool in May 2003?
Why is Simmons eager to sell its Robertson position to Monmouth for $50 per share? What are the concerns of and alternatives
for each of the other groups of Robertson shareholders?
What is WACC of Robertson Tool using CAPM? Carefully consider which equity value you will use:
- Current
- Prospective with synergy values
- Required value to get transaction done (see question 7)
What is maximum price Monmouth can afford to pay using DCF? Use company forecast on Exhhibit 4. Run the valuation
as of the start of 2003. Is this a reasonable forecast? Why or why not? If not, what changes would you make?
For comparison, run a DCF of Robertson using sales growth on Exhibit 4 but without synergies/margin improvements.
Compare this value to #3 above.
What is maximum price Monmouth should pay based on market multiples of EBIAT? Use 2002 numbers for
Robertson. Would your answers change if you modify the 2002 Robertson EBIAT based on margin improvements
anticipated by Monmouth?
What offer would you make to gain the support of the Robertson family and the great majority of the stockholders?
Will you offer to give away all the expected synergy values/margin improvements, why or why not?

Yes, due to extensive distribution and the ability to be the market leader by generating 6 - 7% sales growth per year.

question 2
Question 3

Current WACC
B un =
D/E =
BL=
Ke
Kd=
WACC =

II

Question 4, 5,6

0.73
0.56
0.8964
9.0302
7.96
7.839024

Prospective with synergy values

Sheet DCF

next sheet.

for Robertson
Actual
2002
Sales

COGS
Gross Profit
SG and A
Depreciation
EBIT
Tax @ 40%
EAT
Dep
WCR
change in WCR

Forecasts
2003

2004

2005

2006

2007 to Infinity

55.3

58.6

62.1

65.9

69.8

69.8

37.90

39.80

41.60

43.50

45.40

45.40

17.4

18.8

20.5

22.4

24.4

24.4

12.3

12.3

12.4

12.5

13.3

13.3

2.10

2.30

2.50

2.70

2.90

2.90

3
1.2
1.8

4.2
1.68
2.52

5.6
2.24
3.36

7.2
2.88
4.32

8.2
3.28
4.92

8.2
3.28
4.92

2.10

2.30

2.50

2.70

2.90

2.90

24

25.44
1.44

26.97
1.53

28.58
1.62

30.30
1.72

30.30
0.00

(4.0)

(3.5)

(3.6)

(3.8)

(2.9)

-0.620

0.834

1.802

2.305

Capital Expenditures

Cash Flow
Terminal Value
Free Cash Flow
DCF

4.920
85.94587
-0.620
0.834
1.802
2.305
90.866
-0.57498 0.716933 1.437275 1.704907 62.33081

SUM DCF
Less : Debt
DCF Equity
Number of shares
Share Price

65.61494
12
53.61494
0.584
91.80641

without synergies

on the basis of 2002 forecast

Actual

Forecasts

Without synergy
2002
Sales
COGS
Gross Profit
SG&A
Depreciation
EBIT
Tax @ 40%
EBIAT

Add depreciation
WCR
Less change in WCR
Less Net Capex
Cash flow from assets

2003

2004

2005

2006

2007 to Infinity

55.30

58.60

62.10

65.90

69.80

69.80

38.16
17.14
0.00
2.10
15.04
6.02
9.03
2.10
24.00

40.43
18.17
12.89
2.30
2.97
1.19
1.78
2.30
25.43
1.43
4.00
-1.35

42.85
19.25
13.66
2.50
3.09
1.24
1.85
2.50
26.95
1.52
3.50
-0.67

45.47
20.43
14.50
2.70
3.23
1.29
1.94
2.70
28.60
1.65
3.60
-0.61

48.16
21.64
15.36
2.90
3.38
1.35
2.03
2.90
30.29
1.69
3.80
-0.56

48.16
21.64
15.36
2.90
3.38
1.35
2.03
2.90
30.29
0.00
2.90
2.03

0.69
0.22

0.43

Terminal Value
Free cash flow
DCF

-1.35
-1.24911

SUM DCF
Less debt
Equity
Share Price

16.22763
12
4.227626
7.239085

-0.67
-0.57169

-0.61
-0.48605

25.68608
-0.56
27.72
-0.41564 18.95012

WACC =

7.839024