Condensed Operating and Stockholder Information, Robertson Tool Company

(millions of dollars except per-share data)

1998 1999 2000 2001

Operations
Sales $ 48.5 $ 49.1 $ 53.7 $ 54.8
Cost of Goods 32.6 33.1 35.9 37.2
Selling, General and
Administrative Costs 10.7 11.1 11.5 11.9
Depreciation Expense 2.0 2.3 2.4 2.3
Interest Expense 0.4 0.7 0.8 0.8
Income Before Taxes 2.8 1.9 3.1 2.6
Taxes 1.1 0.8 1.2 1.0
Net Income $ 1.7 $ 1.1 $ 1.9 $ 1.6

Percentage of Sales
Cost of Goods 67% 67% 67% 68%
Sell,Gen’l,Admin. 22% 23% 21% 22%
Operating Income 6.6% 5.3% 7.3% 6.2%

Stockholder Information
Earnings per Share $ 2.91 $ 1.88 $ 3.25 $ 2.74
Dividends per Share 1.60 1.60 1.60 1.60
Book Value per Share 49.40 49.68 51.33 52.47
Market Price 33-46 35-48 29-41 25-33
Price/Earnings Ratio 11-16 10-26 9-13 9-12
Shares Outstanding 584,000 584,000 584,000 584,000
n Tool Company

2002

$ 55.3
37.9

12.3
2.1
0.8
2.2
0.9
$ 1.3

69%
22%
5.4%

$ 2.23
1.60
53.10
23-32
10-14
584,000
 Balance Sheet at December 31, 2002, Robertson Tool Company (millions o

Assets

Cash $1
Accounts Receivables 8
Inventories 18
Other 1
Current Assets 28
Net Plant and Equipment 19
Total Assets $ 47

Collectin Period 53 days

Days of Inventories 173 days
Sales/Total Assets 1.18
r 31, 2002, Robertson Tool Company (millions of dollars)

Liabilities and Net Worth

Accounts Payables $2
Other 2
Current Liabilities 4
Long-term Debt 12

Net Worth 31
Total $ 47

Debt as % Capital 28%

Total Assets/Net Worth 1.52
 Condensed Operating and Stockholder Information, NDP Corporation (millions of
dollars except per-share data)

1998 1999 2000 2001

Operations
Sales $ 45 $ 97 $ 99 $ 98
Net Income 1.97 3.20 3.20 1.13

Financial Position
Current Assets $ 25 $ 46 $ 49 $ 41
Current Liabilities 6 11 15 10
Net Working Capital 19 35 34 31
Long-Term Debt 10 18 16 15
Shareholders' Equity 21 36 40 41

Stockholder Information
Earnings per Share $ 0.78 $ 0.61 $ 0.59 $ 0.21
Dividends per Share 0 0 0 0
Book Value per Share 8.31 6.86 7.37 7.38
Market Price 6-17 10-18 7-18 4-10
Price/Earnings Ratio 8-22 16-10 12-31 19-48
Shares Outstanding 2,525,600 5,245,900 5,430,100 5,510,000
oration (millions of

2002

$ 100
2.98

$ 46
13
33
17
41

$ 0.54
0
7.45
5-8
9-15
5,501,000
 Pro-Formas for Robertson Tool; Prepared by Messrs. Vincent and Rudd (millions of dol

Actual Forecasts
2002 2003 2004 2005
Operations
Sales $ 55.3 $ 58.6 $ 62.1 $ 65.9
Cost of Goods 37.9 39.8 41.6 43.5
Gross Profit 17.4 18.8 20.5 22.4
Sell & Admin 12.3 12.3 12.4 12.5
Depreciation 2.1 2.3 2.5 2.7
EBIT 3.0 4.2 5.6 7.2
Tax @ 40% 1.2 1.7 2.2 2.9
EBIAT $ 1.8 $ 2.5 $ 3.4 $ 4.3

CoGS % Sales 69% 68% 67% 66%

Sell & Admin % Sales 22% 21% 20% 19%

Net Plant & Equip @

Beginning of Year $ 19.0 $ 20.7 $ 21.7
Capital Expenditures (4.0) (3.5) (3.6)
Depreciation Expense 2.3 2.5 2.7
Net Plant & Equip @
End of Year $ 20.7 $ 21.7 $ 22.6
ent and Rudd (millions of dollars)

Forecasts
2006 2007 to Infinity

$ 69.8 $ 69.8
45.4 45.4
24.4 24.4
13.3 13.3
2.9 2.9
8.2 8.2
3.3 3.3
$ 4.9 $ 4.9

65% 65%
19% 19%

$ 22.6 $ 23.5
(3.8) (2.9)
2.9 2.9

$ 23.5 $ 23.5
Five-Year Forecast of Monmouth, Inc., Earnings, Excluding Robertson Tool (millions
of dollars except per-share data)

Forecasts
2003 2004 2005 2006
Operations
Net Income $ 11.0 $ 11.9 $ 12.8 $ 13.8
Shares Outstanding (mil) 4.21 4.21 4.21 4.21
Earnings per Share $ 2.61 $ 2.83 $ 3.04 $ 3.27
ertson Tool (millions

2007

$ 15.0
4.21
$ 3.56
 Selected Financial Information on Quasi-Comparabl

Briggs &
Actuant Corp. Idex Corp.
Stratton

Collection Period 55 77 47
Inventory %Sales 12% 18% 13%

Operating Margin &sSales 17% 13% 20%

Return on Capital 21% 9% 10%

Times Interest Earned1) 3.8 3.2 7.1

Debt%Capital
balance sheet values 98% 52% 30%
market values 29% 37% 20%
Bond Rating BB- BB+ BBB

Value of Firm ($mil) $ 0,712 $ 1,443 $ 1,191

EBIAT ($ mil) 55 119 98
EBIAT Multiple 12.8 12.1 12.2

Share price $ 42 $ 42 $ 29
Earnings per share 2.80 3.20 2.00
Price/Earnings 15.0 13.1 14.5
Equity Beta 1.00 1.00 1.00
Asset Beta 0.71 0.63 0.80

Company Descriptions:
Actuant Corp. makes industrial and electrical tools for a diversified set of industries.
Briggs & Stratton is the world’s largest manufacturer of air-cooled gasoline engines from
Idex Corp. designs, manufactures and markets industrial pumps, low horsepower comp
Lincoln Electric produces a comprehensive line of welding and cutting products.
Snap-On, Inc. manufactures and distributes mechanics hand tools.
Stanley Works makes tools (carpenter, mechanic, and hydraulic tools and tool sets) and d

1) Times Interest Earned (TIE) measures a company's ability to meet its debt obligations. It is calculated by ta
and dividing it by the total interest payable on bonds and other contractual debt. It is usually quoted as a rat
interest charges on a pretax basis
on Quasi-Comparable Firms, 2002

Lincoln Robertson
Snap On Inc. Stanley Works
Electric Tool Co.

61 96 77 53
17% 18% 16% 33%

15% 10% 15% 5%

12% 11% 14% 4%

11.5 7.8 9.3 3.8

27% 29% 40% 28%

17% 19% 24% 37%
- A+ A -

$ 1,145 $ 1,861 $ 3,014 $ 29

90 129 234 1.8
12.7 14.4 12.9 16.1

$ 22 $ 26 $ 27 $ 30
1.78 1.80 2.32 2.23
12.4 14.4 11.6 13.5
0.75 1.05 0.95
0.63 0.85 0.73

set of industries.
gasoline engines from 3.5 to 25.0 horsepower.
ow horsepower compressors, and a wide range of industrial products.
ing products.

ls and tool sets) and door

ions. It is calculated by taking a company's earnings before interest and taxes (EBIT)
is usually quoted as a ratio and indicates how many times a company can cover its
Information on United States Capital Markets

I. Interest Rates in May 2003

30-Year U.S. U.S. Corporate Bonds Ra

Treasury Bonds AA A
4.10% 4.52% 5.07%

II. Estimated Market Risk Premium = 6% over 30-Year U.S. Treasury Bonds

III. Median Values of Key Ratios by Standard & Poors’ Rating Category

AAA AA
Times Interest Earned (X) 27.3 18.0
EBITDA / Interest (X) 31.0 21.4
Pre-tax Return on Capital (%) 25.2 25.4
Debt as % Capital (%) 12.6 36.1
Number of companies 6 15

IV. Debt and Times Interest Earned Ratios for Selected Industries

AAA AA
Food Processing
Debt % Capital 44% -
Times Interest Earned 7.9 -
Electrical Equipment
Debt % Capital - -
Times Interest Earned - -
Electric Utilities
Debt % Capital - 46%
Times Interest Earned - 4.0
U.S. Corporate Bonds Rated
BBB BB
6.07% 7.96%

ury Bonds

A BBB BB B
10.4 5.9 3.4 1.5
12.8 7.6 4.6 2.3
19.7 15.1 12.5 8.8
38.4 43.7 51.9 74.9
118 213 297 345

A BBB BB

51% 54% 53%

6.7 4.3 2.9

36% 48% 72%

7.3 3.2 1.6

54% 57% 73%

3.4 2.7 2.0
1. If you were Mr. Vincent, executive vice president of Monmouth, Inc., would you try to
Robertson Toll would fit into Monmouth’s long-range plans? How Monmouth’s manage
acquisition, i.e. how they think they can add value to both companies (or the merge com

If I were Mr. Vincent I would try to gain control of Robertson Toll in May 2003. Robertson
which contributed to a not efficient enough investments and tehrefore
uth, Inc., would you try to gain control of Robertson Toll in May 2003? Do you believe
How Monmouth’s management thinks they can make this acquisition a value increasing
panies (or the merge company) after the acquisition?

l in May 2003. Robertson has been struggling in the past mainly because of its poor management
efore
 Pro-Formas for Robertson Tool; Prepared by Messrs. Vincent and Rudd (m

Actual
2002 2003
Operations
Sales $ 55.3 $ 58.6
Cost of Goods 37.9 39.8
Gross Profit 17.4 18.8
Sell & Admin 12.3 12.3
Depreciation 2.1 2.3
EBIT 3.0 4.2
Tax @ 40% 1.2 1.7
EBIAT $ 1.8 $ 2.5

Inventories 18 19
Accounts Receivable + Others 9 10
Accounts Payables + Others 4 4

Net Plant & Equip @

Beginning of Year $ 19.0
Capital Expenditures (4.0)
Depreciation Expense 2.3
Net Plant & Equip @
End of Year $ 20.7

Inventories%Sales 32.5% 32.5%

Accounts Receivable + Others%Sales 16.3% 16.3%
Accounts Payables + Others%Sales 7.2% 7.2%

1.00

2003
Cash-Flow Statement 1
EBIT $ 4.2
Taxes o/EBIT 1.7
EBIAT 2.5
(+) Depreciation 2.3
(-) CAPEX -4.0
(-) DWC 1.4
FCFF -$ 0.6

kwacc 7.79% (next worksheet)

PV factor
PV (FCFF) -0.51
TV2006
PV (TV2006)
Enterprise Value (million) $ 50.3
Debt (million) $ 11.0
Equity Value = Enterprise Value - Debt (million) $ 39.3
Shares Outstanding 584,000
Share value $ 67.3
Vincent and Rudd (millions of dollars)

Forecasts
2004 2005 2006 2007 to Infinity

$ 62.1 $ 65.9 $ 69.8 $ 69.8

41.6 43.5 45.4 45.4
20.5 22.4 24.4 24.4
12.4 12.5 13.3 13.3
2.5 2.7 2.9 2.9
5.6 7.2 8.2 8.2
2.2 2.9 3.3 3.3
$ 3.4 $ 4.3 $ 4.9 $ 4.9

20 21 23 23
10 11 11 11 2002
Working Capital
4 5 5 5 23

$ 20.7 $ 21.7 $ 22.6 $ 23.5

(3.5) (3.6) (3.8) (2.9)
2.5 2.7 2.9 2.9

$ 21.7 $ 22.6 $ 23.5 $ 23.5

32.5% 32.5% 32.5% 32.5%

16.3% 16.3% 16.3% 16.3% (Assuming that the percentages will not change)
7.2% 7.2% 7.2% 7.2%

2.00 3.00 4.00 5.00

Forecasts
2004 2005 2006 2007 to Infinity
2 3 4 5
$ 5.6 $ 7.2 $ 8.2 $ 8.2
2.2 2.9 3.3 3.3
3.4 4.3 4.9 4.9
2.5 2.7 2.9 2.9
-3.5 -3.6 -3.8 -2.9
1.5 1.6 1.6 0.0
$ 0.9 $ 1.8 $ 2.4 $ 4.9

(next worksheet)
0.78 1.47 1.78
63.15 (next worksheet)
46.78
 2003 2004 2005 2006 2007 to Infinity
24 26 27 29 29

ges will not change)

Market Price 44.00
Shares Outstanding 584,000
Market Cap ($mil) 25.70
Debt 11.00
D/E 42.8%
Asset beta 0.73
T 40% D/(D+E)
Leverage beta 0.91 E/(D+E)
rf 4.100%
MRP 6.00%
Cost of equity (CAPM) 9.57%
Times Interest Earned (X)
rd 6.07%
kwacc 7.79%
29.98%
70.02%
 2002 2003 2004 2005 2006
EBIAT 1.8 2.5 3.4 4.3 4.9
Net Fixed Assets 19.0 20.7 21.7 22.6 23.5
WC 23.0 24.4 25.8 27.4 29.0
NFA + WC = E+D 42.0 45.1 47.5 50.0 52.5

D Net Fixed Assets 1.7 1.0 0.9 0.9

D WC 1.4 1.5 1.6 1.6
D Net Fixed Assets + D WC 3.1 2.5 2.5 2.5

ROC 5.6% 7.1% 8.6% 9.4%

EBIT Reinvestment rate 121.9% 73.1% 57.4% 51.3%

ROC (average) 7.7%

EBIT Reinvestment rate (average) 75.9%
estimated g 0.00%
kwacc 7.79%
FCFF2007 4.9
TV2006 63.1
 Actuant Briggs &
Corp. Stratton
EBIAT Multiple 12.8 12.1

EBIAT 2003 $ 2.5

EBIAT Multiple $ 12.9
Enterprise Value (million) $ 32.4
Debt (million) $ 11.0
Equity Value = Enterprise Value - Debt (million) $ 21.4
Shares Outstanding 584,000
Share value $ 36.6
 Lincoln Snap On Stanley
Idex Corp.
Electric Inc. Works
12.2 12.7 14.4 12.9
3. Which are the main assumptions in Monmouth’s management projections? Are they r
nt projections? Are they reasonable?