Net sales $ 1,987.27 $ 2,329.19 $ 2,799.87 $ 3,126.00 $ 3,393.90 $ 3,969.40 12% $ 4,445.73 $ 4,979.22 $ 5,576.72 $ 6,245.93 $ 6,995.44 $ 7,834.89 $ 8,775.08 $ 9,828.09 $ 11,007.46 $ 12,328.35 Cost of sales 1,271.31 1,477.21 1,781.46 2,013.50 2,221.50 2,612.20 2,934.18 3,286.28 3,680.64 4,122.31 4,616.99 5,171.03 5,791.55 6,486.54 7,264.92 8,136.71
Gross profit 715.96 851.97 1,018.41 1,112.50 1,172.40 1,357.20 34% 1511.55 1692.93 1896.09 2123.62 2378.45 2663.86 2983.53 3341.55 3742.54 4191.64
Selling, general and administrative
expenses 512.09 598.05 724.82 819.00 888.50 1,046.40 26% $ 1,155.89 $ 1,294.60 $ 1,449.95 $ 1,623.94 $ 1,818.81 $ 2,037.07 $ 2,281.52 $ 2,555.30 $ 2,861.94 $ 3,205.37 Adding Back Operating Lease Expense 101.80 126.20 149.80 186.90 216.90 243.20 284.20 246.00 207.20 161.50 110.60 66.80 40.35 24.37 14.72 8.89 Less Capital Lease Depreciation Expense Adjustment 25.63 33.95 33.96 41.81 47.68 53.23 61.85 61.85 61.85 61.85 61.85 61.85 61.85 61.85 61.85 61.85
Operating income 280.04 346.17 409.44 438.59 453.12 500.77 8% $ 578.01 $ 582.49 $ 591.49 $ 599.32 $ 608.39 $ 631.74 $ 680.51 $ 748.77 $ 833.47 $ 933.31
Capital Lease Interest Expense 30.76 40.74 40.75 50.17 57.21 63.87 $ 74.22 $ 57.42 $ 42.33 $ 29.15 $ 18.56 $ 11.19 $ 6.74 $ 4.06 $ 2.43 $ 1.45
Interest income 3.57 3.53 2.65 3.90 6.80 8.60
Interest expense (7.19) (5.99) (7.49) (9.20) (15.50) (16.50)
Net Interest Income (Expense) - Working Below $ 7.11 $ 7.97 $ 8.92 $ 9.99 $ 11.19 $ 12.54 $ 14.04 $ 15.72 $ 17.61 $ 19.73
Income before income taxes 245.66 302.97 363.84 383.12 387.21 429.00 7.84% $ 496.68 $ 517.10 $ 540.23 $ 560.18 $ 578.63 $ 608.02 $ 659.73 $ 728.98 $ 813.42 $ 912.13
Provision for income taxes 77.17 96.81 111.17 107.90 101.30 110.90
Net income With Leases Capitalized $ 168.49 $ 206.16 $ 252.67 $ 275.22 $ 285.91 $ 318.10 5.50% $ 362.88348.54 $ 379.11$ 393.11$ 406.06$ 426.68$ 462.97$ 511.57$ 570.82$ 640.09$ Net Income Under Operating Lease Treatment $ 123.08 $ 154.65 $ 177.58 $ 180.30 $ 173.90 $ 192.00 $ 273.86244.52 $ 306.72$ 343.53$ 384.75$ 430.92$ 482.63$ 540.54$ 605.41$ 678.06$ Difference in Net Income due to Capitalization $ (45.41)$ (51.51) $ (75.09) $ (94.92) $ (112.01) $ (126.10) $ (104.03)$ (89.02)$ (72.39) $ (49.58) $ (21.31) $ 4.24 $ 19.66 $ 28.98 $ 34.59 $ 37.97
Income Statement (Common Size)
Sales Growth Percentage 17.21% 20.21% 11.65% 8.57% 16.96%
Net sales 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales 64.0% 63.4% 63.6% 64.4% 65.5% 65.8%
Gross profit 36.0% 36.6% 36.4% 35.6% 34.5% 34.2%
Selling, general and administrative
expenses 25.8% 25.7% 25.9% 26.2% 26.2% 26.4%
Operating income 10.3% 10.9% 10.5% 9.4% 8.4% 7.8%
Interest income 0.2% 0.2% 0.1% 0.1% 0.2% 0.2%
Interest expense -0.4% -0.3% -0.3% -0.3% -0.5% -0.4%
Income before income taxes 10.1% 10.8% 10.3% 9.2% 8.1% 7.6%
Provision for income taxes 3.9% 4.2% 4.0% 3.5% 3.0% 2.8%
Forecasted Statement of Cash Flows Dollar Tree Stores Inc.
Forcasted Cash Flow Statement 2001 2002 2003 2004 2005 2006 Average Assume 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 (In millions)
Net income (loss) 123.08 154.65 177.58 180.25 173.92 192.00 53% $ 244.52 $ 273.86 $ 306.72 $ 343.53 $ 384.75 $ 430.92 $ 482.63 $ 540.54 $ 605.41 $ 678.06
Depreciation & amortization 53.76 71.62 101.50 129.29 140.72 159.00 (Gain) loss on disposal of property & equip 1.73 1.60 4.02 2.80 3.32 - Cumulative effect of change in acctg princ - - - - Change in lease loss - - - - Chng in fair val of non-hedging int rate swap 1.72 1.47 (0.89) (1.06) (0.76) - Extraord (gain) loss early extinguish of debt - - - - Provision of deferred income taxes (6.22) 16.44 21.06 15.58 (21.50) (21.90) Tax benefit of stock option exercises 2.35 10.70 5.62 2.14 1.18 - Stock based compensation expense - - - - - 6.70 Other non-cash adjustments to net income 1.32 0.31 0.59 2.11 5.53 5.10 Merchandise inventories (37.79) (61.19) (61.17) (89.84) 38.94 (6.20) Prepaid expenses & other current assets 10.59 6.71 (0.43) (0.40) - - Other assets (0.94) (1.00) (1.42) 0.93 (5.56) (19.80)
Accounts payable (17.31) 1.36 (29.14) 9.22 11.36 53.70 $ 55.41 $ 247.25 $ 249.96 $ 8.91 $ 9.98 $ 11.18 $ 12.52 $ 14.03 $ 15.71 $ 17.60 Income taxes payable 15.40 (10.81) 16.91 (3.37) 8.03 1.60
Other current liabilities 28.31 13.02 0.80 15.32 (6.41) 31.80 Other liabilities 2.72 2.01 (0.75) 13.50 16.39 10.80 Total adjustments - - - -
Net cash flows from operating activities $ 178.73 $ 206.88 $ 234.29 $ 276.49 $ 365.15 $ 412.80 $ 461.35 $ 516.71 $ 578.72 $ 648.16 $ 725.94 $ 813.05 $ 910.62 $ 1,019.90 $ 1,142.28 $ 1,279.36
Capital expenditures (121.57) (136.13) (227.32) (181.78) (139.25) (175.30) -41.00%$ (189.15) $ (211.85) $ (237.27) $ (265.75) $ (297.64)$ (333.35)$ (373.35)$ (418.16) $ (468.34) $ (524.54) Acquisition, net of cash acquired - - - -
Purchase of Greenbacks, Inc. net - - (100.52) - - - Investment in Ollie's Holdings, Inc. - - (4.00) - - - Purchase of short-term investments - (60.28) (30.36) (465.82) (885.48) (1,044.40) Proceeds from sales of short-term investments - 16.50 93.89 339.04 822.81 1,096.60 Purchase of Deal$ assets, net - - - - - (54.10) Acquisition of favorable lease rights - (0.81) (0.11) (6.85) (3.65) (4.20) Purchase of restricted investments - - - - (29.94) (9.30) Proceeds from sale of property & equipment 0.10 0.22 0.04 - - - Settlement of merger-related contingencies - 6.69 1.02 - - -
Net cash flows from investing activities $ (121.47) $ (173.82) $ (267.36) $ (315.41) $ (235.51) $ (190.70) 83.00% $ (227.90) $ (255.24) $ (285.87) $ (320.18) $ (358.60) $ (401.63) $ (449.83) $ (503.80) $ (564.26) $ (631.97)
Forecasted Statement of Cash Flows with Capital Lease Corrections Dollar Tree Stores Inc.
Cash Flow Statement with Capital Lease 2001 2002 2003 2004 2005 2006 Average Assume 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 (In millions)
Net income (loss) 123.08 154.65 177.58 180.25 173.92 192.00 53%$ 348.54 $ 362.88 $ 379.11 $ 393.11 $ 406.06 $ 426.68 $ 462.97 $ 511.57 $ 570.82 $ 640.09
Depreciation & amortization 53.76 71.62 101.50 129.29 140.72 159.00 (Gain) loss on disposal of property & equip 1.73 1.60 4.02 2.80 3.32 - Cumulative effect of change in acctg princ - - - - Change in lease loss - - - - Chng in fair val of non-hedging int rate swap 1.72 1.47 (0.89) (1.06) (0.76) - Extraord (gain) loss early extinguish of debt - - - - Provision of deferred income taxes (6.22) 16.44 21.06 15.58 (21.50) (21.90) Tax benefit of stock option exercises 2.35 10.70 5.62 2.14 1.18 - Stock based compensation expense - - - - - 6.70 Other non-cash adjustments to net income 1.32 0.31 0.59 2.11 5.53 5.10 Merchandise inventories (37.79) (61.19) (61.17) (89.84) 38.94 (6.20) Prepaid expenses & other current assets 10.59 6.71 (0.43) (0.40) - - Other assets (0.94) (1.00) (1.42) 0.93 (5.56) (19.80)
Accounts payable (17.31) 1.36 (29.14) 9.22 11.36 53.70 $ 55.14 $ (23.91)$ (19.75)$ (15.13)$ (8.89) $ (1.22)$ 5.78 $ 10.26 $ 13.26 $ 15.39 Income taxes payable 15.40 (10.81) 16.91 (3.37) 8.03 1.60
Other current liabilities 28.31 13.02 0.80 15.32 (6.41) 31.80 Other liabilities 2.72 2.01 (0.75) 13.50 16.39 10.80 Total adjustments - - - -
Net cash flows from operating activities $ 178.73 $ 206.88 $ 234.29 $ 276.49 $ 365.15 $ 412.80 $ 657.63 $ 684.67 $ 715.31 $ 741.72 $ 766.15 $ 805.05 $ 873.52 $ 965.22 $ 1,077.03 $ 1,207.72
Capital expenditures (121.57) (136.13) (227.32) (181.78) (139.25) (175.30) -41.00%$ (269.63)$ (280.72)$ (293.28)$ (304.10)$ (314.12)$ (330.07)$ (358.14)$ (395.74)$ (441.58)$ (495.17) Acquisition, net of cash acquired - - - -
Purchase of Greenbacks, Inc. net - - (100.52) - - - Investment in Ollie's Holdings, Inc. - - (4.00) - - - Purchase of short-term investments - (60.28) (30.36) (465.82) (885.48) (1,044.40) Proceeds from sales of short-term investments - 16.50 93.89 339.04 822.81 1,096.60 Purchase of Deal$ assets, net - - - - - (54.10) Acquisition of favorable lease rights - (0.81) (0.11) (6.85) (3.65) (4.20) Purchase of restricted investments - - - - (29.94) (9.30) Proceeds from sale of property & equipment 0.10 0.22 0.04 - - - Settlement of merger-related contingencies - 6.69 1.02 - - -
Net cash flows from investing activities $ (121.47) $ (173.82) $ (267.36) $ (315.41) $ (235.51) $ (190.70) 83.00%$ (324.85) $ (338.21) $ (353.34) $ (366.39) $ (378.46) $ (397.68) $ (431.50) $ (476.80)$ (532.03) $ (596.59)
Distributions paid - - - - Proceeds from long-term debt - - - 248.91 - - Principal payments under long-term debt & cap - - - - - (0.60) Proceeds from revolving credit facilities 82.00 - 39.70 - - - Repayment of long-term debt - - - (148.57) - - Net change in notes payable to bank - - - - Repayments of revolving credit facilities (82.00) - (39.70) - - - Repayment of long-term debt & facility fees (6.24) (6.03) (11.67) - - - Principal payments under capital lease obligs (3.56) (3.97) (7.99) (5.57) (0.60) - Principal payments on shareholder loans - - - (48.61) - - Payments for share repurchases (3.78) - (38.05) - (180.40) (248.20) Proceeds from senior notes - - - - Repayment of credit facility fees - - - - Proceeds from sale-leaseback transaction - - - - Proceeds from stock issued pursuant to stock- 11.81 32.48 22.18 15.11 10.67 40.30 Tax benefit of stock options exercised - - - - - 5.60
Net cash flows from financing activities $ (1.77) $ 22.48 $ (35.54) $ 61.26 $ (170.33) $ (202.90)
Net incr (decr) in cash & cash equivalents 55.49 55.54 (68.62) 22.34 (40.70) 19.20
Cash & cash equivs at beginning of year $ 181.17 $ 236.65 $ 237.30 $ 84.19 $ 106.53 $ 65.80 Cash & cash equivalents at end of year $ 236.65 $ 292.19 $ 168.69 $ 106.53 $ 65.83 $ 85.00
Cash paid for interest, net of amount capital 5.14 3.69 7.25 8.12 11.82 14.90 Cash paid for income taxes 65.69 82.42 70.17 93.40 113.86 125.50
Statement of Cash Flows Dollar Tree Stores Inc.
Cash Flow Statement with Capital Lease 2001 2002 2003 2004 2005 2006 (In millions)
123.08
154.65 177.58 180.25 173.92 192.00
Net income (loss) 168.49 206.16 252.67 275.22 285.91 318.10
Depreciation & amortization 53.76 71.62 101.50 129.29 140.72 159.00 (Gain) loss on disposal of property & equip 1.73 1.60 4.02 2.80 3.32 - Cumulative effect of change in acctg princ - - - - Change in lease loss - - - - Chng in fair val of non-hedging int rate swap 1.72 1.47 (0.89) (1.06) (0.76) - Extraord (gain) loss early extinguish of debt - - - - Provision of deferred income taxes (6.22) 16.44 21.06 15.58 (21.50) (21.90) Tax benefit of stock option exercises 2.35 10.70 5.62 2.14 1.18 - Stock based compensation expense - - - - - 6.70 Other non-cash adjustments to net income 1.32 0.31 0.59 2.11 5.53 5.10 Merchandise inventories (37.79) (61.19) (61.17) (89.84) 38.94 (6.20) Prepaid expenses & other current assets 10.59 6.71 (0.43) (0.40) - - Other assets (0.94) (1.00) (1.42) 0.93 (5.56) (19.80) Accounts payable (17.31) 1.36 (29.14) 9.22 11.36 53.70 Income taxes payable 15.40 (10.81) 16.91 (3.37) 8.03 1.60 Other current liabilities 28.31 13.02 0.80 15.32 (6.41) 31.80 Other liabilities 2.72 2.01 (0.75) 13.50 16.39 10.80 Total adjustments - - - -
Net cash flows from operating activities $ 224.14 $ 258.39 $ 309.38 $ 371.46 $ 477.14 $ 538.90
Capital expenditures (121.57) (136.13) (227.32) (181.78) (139.25) (175.30) Acquisition, net of cash acquired - - - - Purchase of Greenbacks, Inc. net - - (100.52) - - - Investment in Ollie's Holdings, Inc. - - (4.00) - - - Purchase of short-term investments - (60.28) (30.36) (465.82) (885.48) (1,044.40) Proceeds from sales of short-term investments - 16.50 93.89 339.04 822.81 1,096.60 Purchase of Deal$ assets, net - - - - - (54.10) Acquisition of favorable lease rights - (0.81) (0.11) (6.85) (3.65) (4.20) Purchase of restricted investments - - - - (29.94) (9.30) Proceeds from sale of property & equipment 0.10 0.22 0.04 - - - Settlement of merger-related contingencies - 6.69 1.02 - - -
Net cash flows from investing activities $ (121.47) $ (173.82) $ (267.36) $ (315.41) $ (235.51) $ (190.70)
Distributions paid - - - - Proceeds from long-term debt - - - 248.91 - - Principal payments under long-term debt & cap - - - - - (0.60) Proceeds from revolving credit facilities 82.00 - 39.70 - - - Repayment of long-term debt - - - (148.57) - - Net change in notes payable to bank - - - - Repayments of revolving credit facilities (82.00) - (39.70) - - - Repayment of long-term debt & facility fees (6.24) (6.03) (11.67) - - - Principal payments under capital lease obligs (3.56) (3.97) (7.99) (5.57) (0.60) - Principal payments on shareholder loans - - - (48.61) - - Payments for share repurchases (3.78) - (38.05) - (180.40) (248.20) Proceeds from senior notes - - - - Repayment of credit facility fees - - - - Proceeds from sale-leaseback transaction - - - - Proceeds from stock issued pursuant to stock- 11.81 32.48 22.18 15.11 10.67 40.30 Tax benefit of stock options exercised - - - - - 5.60
Net cash flows from financing activities $ (1.77) $ 22.48 $ (35.54) $ 61.26 $ (170.33) $ (202.90)
Net incr (decr) in cash & cash equivalents 55.49 55.54 (68.62) 22.34 (40.70) 19.20
Cash & cash equivs at beginning of year $ 181.17 $ 236.65 $ 237.30 $ 84.19 $ 106.53 $ 65.80 Cash & cash equivalents at end of year $ 236.65 $ 292.19 $ 168.69 $ 106.53 $ 65.83 $ 85.00
Cash paid for interest, net of amount capital 5.14 3.69 7.25 8.12 11.82 14.90 Cash paid for income taxes 65.69 82.42 70.17 93.40 113.86 125.50
Dollar Tree Cash Flows (Common Size)
Net income (loss) 68.87% 75% 76% 65% 48% 47%
Depreciation & amortization 30.08% 35% 43% 47% 39% 39% (Gain) loss on disposal of property & equip 0.97% 1% 2% 1% 1% 0% Cumulative effect of change in acctg princ 0.00% 0% 0% 0% 0% 0% Change in lease loss 0.00% 0% 0% 0% 0% 0% Chng in fair val of non-hedging int rate swap 0.96% 1% 0% 0% 0% 0% Extraord (gain) loss early extinguish of debt 0.00% 0% 0% 0% 0% 0% Provision of deferred income taxes -3.48% 8% 9% 6% -6% -5% Tax benefit of stock option exercises 1.31% 5% 2% 1% 0% 0% Stock based compensation expense 0.00% 0% 0% 0% 0% 1623% Other non-cash adjustments to net income 0.74% 0% 0% 1% 2% 1% Merchandise inventories -21.14% -30% -26% -32% 11% -2% Prepaid expenses & other current assets 5.93% 3% 0% 0% 0% 0% Other assets -0.52% 0% -1% 0% -2% -5% Accounts payable -9.69% 1% -12% 3% 3% 13% Income taxes payable 8.62% -5% 7% -1% 2% 0% Other current liabilities 15.84% 6% 0% 6% -2% 8% Other liabilities 1.52% 1% 0% 5% 4% 3% Total adjustments 0.00% 0% 0% 0% 0% 0%
Net cash flows from operating activities 100.00% 100% 100% 100% 100% 100%
Capital expenditures 100.08% 78.32% 85.02% 57.63% 59.13% 91.92% Acquisition, net of cash acquired 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Purchase of Greenbacks, Inc. net 0.00% 0.00% 37.60% 0.00% 0.00% 0.00% Investment in Ollie's Holdings, Inc. 0.00% 0.00% 1.50% 0.00% 0.00% 0.00% Purchase of short-term investments 0.00% 34.68% 11.36% 147.69% 375.98% 547.67% Proceeds from sales of short-term investments 0.00% -9.49% -35.12% -107.49% -349.37% -575.04% Purchase of Deal$ assets, net 0.00% 0.00% 0.00% 0.00% 0.00% 28.37% Acquisition of favorable lease rights 0.00% 0.47% 0.04% 2.17% 1.55% 2.20% Purchase of restricted investments 0.00% 0.00% 0.00% 0.00% 12.71% 4.88% Proceeds from sale of property & equipment -0.08% -0.12% -0.01% 0.00% 0.00% 0.00% Settlement of merger-related contingencies 0.00% -3.85% -0.38% 0.00% 0.00% 0.00%
Net cash flows from investing activities 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
Distributions paid - - - -
Proceeds from long-term debt - - - 248.91 - -
Principal payments under long-term debt & cap - - - - - (0.60) Proceeds from revolving credit facilities 82.00 - 39.70 - - -
Repayment of long-term debt - - - (148.57) - -
Net change in notes payable to bank - - - -
Repayments of revolving credit facilities (82.00) - (39.70) - - -
Repayment of long-term debt & facility fees (6.24) (6.03) (11.67) - - -
Principal payments under capital lease obligs (3.56) (3.97) (7.99) (5.57) (0.60) -
Principal payments on shareholder loans - - - (48.61) - -
Payments for share repurchases (3.78) - (38.05) - (180.40) (248.20) Proceeds from senior notes - - - -
Repayment of credit facility fees - - - -
Proceeds from sale-leaseback transaction - - - - Proceeds from stock issued pursuant to stock- 11.81 32.48 22.18 15.11 10.67 40.30 Tax benefit of stock options exercised - - - - - 5.60
Net cash flows from financing activities $ (1.77) $ 22.48 $ (35.54) $ 61.26 $ (170.33) $ (202.90)
Net incr (decr) in cash & cash equivalents 55.49 55.54 (68.62) 22.34 (40.70) 19.20
Cash & cash equivs at beginning of year $ 181.17 $ 236.65 $ 237.30 $ 84.19 $ 106.53 $ 65.80 Cash & cash equivalents at end of year $ 236.65 $ 292.19 $ 168.69 $ 106.53 $ 65.83 $ 85.00
Cash paid for interest, net of amount capital 5.14 3.69 7.25 8.12 11.82 14.90 Cash paid for income taxes 65.69 82.42 70.17 93.40 113.86 125.50
Method of Comparables
Remark P/E (Trailing) P/E (Forecast) P/B D/P P.E.G. P/EDITDA P/(FCF per share)
(Enterprise value) /(EBITDA) Price/Earning Price/Earning Price/Bookvalue Divident/Price (P/E)/(1-Year Growth Rate) Price/EDITBA Price/Free Cash Flows
Dollar Tree (DLTR)
Dollar General (DG) 54.5400 25.3000 3.8200 0.0046 1.9500 0.0496 0.1753 15.8280
Family Dollar (FDO) 22.4600 18.7300 3.9500 0.0034 1.5900 0.0625 0.0603 9.4610
99 Cent Only (NDN) (Outlier) 95.7600 43.5900 1.6800 - 2.4100 (4.5338) (4.5338) 18.2550
Industry Average without DLTR n NDN 38.5000 22.0150 3.8850 0.0040 1.7700 0.0560 0.1178 12.6445
Dollar Tree
Current Selling Price (Jun 1, 2007) 42.4100
P/E (Traling) 71.2250 P/E (Forecast) 40.7278 P/B 42.5756 D/P N/A P.E.G. 18.0098 P/EDITDA 17.4192 P/FCF 47.1954 Enterprise Value/EBITDA 33.1491 99 Cents Only
Free Cash Flow 2006 82508-85640 -3.132 (million) FCF = CFFO+(-)CFFI
Close Price (Jun 1, 2007) 14.2
EBITDA 4.1 (million)
Dollar General
Free Cash Flow 2006 405357-281964 123.393 (million)
Close Price (Jun 1, 2007) 21.63
EBITDA 435.75(million)
Divident (2006) $0.10
Family Dollar
Free Cash Flow 2006 450993-293348 561.248 (million)
Close Price (Jun 1, 2007) 33.86
EBITDA 542.16(million)
Divident (2006) $0.115
Intrinsic Valuation – Free Cash Flows WACC(BT) 0.1594 Kd 0.05475 Ke 0.1679 0 1 2 3 4 5 6 7 8 9 10 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Earnings 244.52 273.86 306.72 343.53 384.75 430.92 482.63 540.54 605.41 678.0594633 Dividends Book Value 1167.7
Cash From Operations 461.35 516.71 578.72 648.16 725.94 813.05 910.62 1019.90 1142.28 1279.36
Cash Outflows from Investing Activities 227.90 255.24 285.87 320.18 358.60 401.63 449.83 503.80 564.26 631.97
Book Value of Debt and Preferred Stock 705.60
0.12 0.12 0.12 0.12 0.12 0.12 0.12 0.12 0.12
Annual Free Cash Flow 233.45 261.47 292.84 327.99 367.34 411.43 460.80 516.09 578.02 647.39
PV Factor 0.8772 0.7695 0.6750 0.5921 0.5194 0.4556 0.3996 0.3506 0.3075 0.2697
PV of Free Cash Flows 204.78 201.19 197.66 194.19 190.79 187.44 184.15 180.92 177.75 174.63
Total PV of Annual Free Cash Flows 1893.50475 0.1000
Continuing (Terminal) Value Perpetuity 63197.17662
PV of Terminal Value Perpetuity 17047.04717 0.9000 0.08 0.1 0.12 0.13 0.14
Value of Firm $ 18,940.55 1.0000 0.2 16.19 17.92 20.5 22.35 24.81
Book Value of Liabilities 705.60 0.18 20.95 2.99 29.05 33.09 39.17
Estimated Market Value of Equity $18,234.95 0.1594 28.35 34.44 46.73 59.13 84.34
Number of Shares 106.552 0.14 39.94 54.02 96.26 180.71 -
Estimated Price per Share (End of Fiscal Year) $171.14 0.12 63.62 113.67 - - - Estimated Price per Share (June 1, 2007) 180.74
Observed Share Price $42.41 $48.77 $36.05 Undervalued
Initial WACC 0.14 Fairly-Valued
Perpetuity Growth Rate (g) 0.13 Overvalued
Sensitivity Analysis
Intrinsic Valuation – Residual Income WACC(BT) 0.1594 Kd 0.05475 Ke 0.1679 0 1 2 3 4 5 6 7 8 9 10 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Earnings 244.52 273.86 306.72 343.53 384.75 430.92 482.63 540.54 605.41 678.06 Dividends 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Book Value 192 436.52 710.37 1017.09 1360.62 1745.37 2176.29 2658.92 3199.46 3804.87 4482.93 Actual EPS 244.52 273.86 306.72 343.53 384.75 430.92 482.63 540.54 605.41 678.06 "Normal" (Benchmark) Earnings 24.96 56.75 92.35 132.22 176.88 226.90 282.92 345.66 415.93 494.63
Residual Income (Annual) 219.56 217.11 214.37 211.30 207.87 204.02 199.71 194.89 189.48 183.43 10.00 PV Factor 0.8850 0.7831 0.6931 0.6133 0.5428 0.4803 0.4251 0.3762 0.3329 0.2946
PV of Annual Residual Income 194.30 170.03 148.57 129.60 112.82 98.00 84.89 73.31 63.08 54.04 Total PV of Annual Residual Income 1128.62 84.81%
Continuing (Terminal) Value Perpetuity 30.30
PV of Terminal Value Perpetuity 10.09 0.76% 0 -0.05 -0.1 -0.15 -0.2 Initial Book Value of Equity 192.00 14.43% 0.21 7.70 7.68 7.67 7.66 7.66 Estimated Price per Share (end of 2006) 1330.71 100.00% 0.19 8.98 8.96 8.94 8.93 8.92 Implied Share Price at June 1, 2007 14.41 0.1679 10.69 10.65 10.63 10.61 10.6 Observed Share Price 42.41 Undervalued 0.15 12.35 12.3 12.27 12.25 12.23 Initial Cost of Equity (You Derive) 0.13 Fairly-Valued 0.13 14.57 14.5 14.45 14.43 14.41 Perpetuity Growth Rate (g) -0.2 Overvalued
Intrinsic Valuation – Residual Income Perpetuity
Book Value of Equity 192
Long Run Return on Equity 0.17 0.17
Long Run Growth Rate in Equity 0.16 0.16
Cost of Equity 0.1679 0.1679
Estimated Price per Share (end of Fiscal Year) 4 Estimated Price per Share (June 1, 2007) 4.36
Observed Share Price $42.41
WACC(BT) 0.1594 Kd 0.05475 Ke 0.1679 0 1 2 3 4 5 6 7 8 9 10 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Earnings 244.52 273.86 306.72 343.53 384.75 430.92 482.63 540.54 605.41 678.06 Dividends 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Book Value 192 436.52 710.37 1017.09 1360.62 1745.37 2176.29 2658.92 3199.46 3804.87 4482.93 ROE 127% 63% 43% 34% 28% 25% 22% 20% 19% 18% BE % G 127% 63% 43% 34% 28% 25% 22% 20% 19% 18% Average ROE 40%
Average Growth in BVE 40%
Growth ROE 0.12 0.14 0.16 0.18 0.2 0.12 0.14 0.16 0.18 0.2 Ke 0.21 3.03 2.79 2.34 1.3 -3.9 Ke 0.21 0.39 1.17 1.95 2.73 3.51 0.19 3.32 3.1 2.58 4.68 7.75 0.19 -0.65 0.65 1.94 3.23 4.52 0.1679 3.93 3.99 4.36 3.51 3.72 0.1679 -7.81 -2.94 1.92 6.79 1.66 0.15 5.09 7.64 0 2.55 3.06 0.15 9.55 5.73 1.91 -1.91 -5.73 0.13 11.38 -3.79 1.26 2.28 2.71 0.13 4.42 3.16 1.9 0.63 -0.63 ROE 0.12 0.14 0.16 0.18 0.2 Growth 0.12 0 2.72 3.53 4.33 5.13 0.14 0.54 1.92 3.3 2.76 6.06 Overvalued 0.16 -7.81 -2.94 1.92 6.79 11.966 Fairly-Valued 0.18 11.45 8.28 5.1 1.92 -1.26 Undervalued 0.2 6.71 5.52 4.32 3.12 1.92
AEG Valuation WACC(AT) 0.1594 Kd 0.05475 Ke 0.1679 0 1 2 3 4 5 6 7 8 9 10 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Earnings 244.52 273.86 306.72 343.53 384.75 430.92 482.63 540.54 605.41 678.06 Dividends 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Book Value 1167
Cash From Operations 461.35 516.71 578.72 648.16 725.94 813.05 910.62 1019.90 1142.28 1279.36
Cash Investments 227.90 255.24 285.87 320.18 358.60 401.63 449.83 503.80 564.26 631.97
Core Perpetuity Component 244.52
Forecast EPS 273.86 306.72 343.53 384.75 430.92 482.63 540.54 605.41 678.06
DRIP income 0 0 0 0 0 0 0 0 0
Cumulative Dividend Income 273.86 306.72 343.53 384.75 430.92 482.63 540.54 605.41 678.06 "Normal" Annual Income (Benchmark) 285.5691 319.8374 358.2179 401.204 449.3485 503.2704 563.6628 631.3023 707.0586
Annual AEG adjustment -11.71 -13.12 -14.69 -16.45 -18.43 -20.64 -23.12 -25.89 -29.00 -32.91
PV Factor 0.856238 0.733143 0.627745 0.537499 0.460227 0.394063 0.337412 0.288905 0.247371 PV of YBY AEG -10.02849 -9.617181 -9.222744 -8.844485 -8.481739 -8.13387 -7.80027 -7.480351 -7.173554
Total PV YBY of AEG -76.7827
Value of AEG PER -196.0095
Present value of AEG perp added to core -48.4871 Ke
Total adjusted t+1 Perp 119.2453 g 0.21 0.19 0.1679 0.15 0.13
Capitalization Rate (Ke) 0.1679 0 4.54 5.60 7.11 8.65 10.74 Value of Equity 710.22 -0.05 4.80 6.00 7.77 9.68 12.53 Estimated Value at 31 Jan. 2007 $ 6.67 -0.1 4.98 6.27 8.19 10.30 13.53 Growth 0% -0.15 5.11 6.45 8.48 10.71 14.17 Obeserved Share Price at June 1, 2007 $42.41 7.11 -0.2 5.20 6.59 8.68 11.01 14.62
Overvalued Fairly-Valued Undervalued Annual AEG -11.71 -13.12 -14.69 -16.45 -18.43 -20.64 -23.12 -25.89 -29.00 Change in RI -11.71 -13.12 -14.69 -16.45 -18.43 -20.64 -23.12 -25.89 -29.00 Annual RI 212.27824 200.566 187.4482 172.7564 156.3015 137.872 117.231 94.11301 68.22091 39.22176
Free Cash Flows (Revised) WACC(BT) 0.1594 Kd 0.05475 Ke 0 1 2 3 4 5 6 7 2006 2007 2008 2009 2010 2011 2012 2013 Earnings 348.54 362.88 379.11 393.11 406.06 426.68 462.97 Dividends Book Value 1167
Cash From Operations 657.63 684.67 715.31 741.72 766.15 805.05 873.52
Cash Outflows from Investing Activities 324.85 338.21 353.34 366.39 378.46 397.68 431.50
Book Value of Debt and Preferred Stock 705.60
0.04 0.04 0.04 0.03 0.05 0.09
Annual Free Cash Flow 332.78 346.46 361.96 375.33 387.69 407.38 442.02
PV Factor 0.8625 0.7439 0.6417 0.5534 0.4773 0.4117 0.3551
PV of Free Cash Flows 287.02 257.74 232.25 207.72 185.06 167.72 156.97
Total PV of Annual Free Cash Flows 1927.327478 0.3584 Continuing (Terminal) Value Perpetuity
PV of Terminal Value Perpetuity 3450.201551 0.6416 0.08 0.1 0.12 0.13 0.14
Value of Firm $ 5,377.53 1.0000 0.2 17.61 19.24 21.68 23.42 25.74
Book Value of Liabilities 705.60 0.18 22.2 25.06 29.84 33.66 39.39
Estimated Market Value of Equity $4,671.93 0.1594 29.28 35.04 46.63 58.35 82.14
Number of Shares 106.552 0.14 40.33 53.62 93.5 173.25 -
Estimated Price per Share (End of Fiscal Year) $43.85 0.12 62.8 110.05 - - -
Estimated Price per Share (June 1, 2007) 46.63
Observed Share Price $42.41 $48.77 $36.05 Undervalued
Initial WACC 0.1594 Fairly-Valued
Perpetuity Growth Rate (g) 0.12 Overvalued
Residual Income (Revised) WACC(BT) 0.1594 Kd 0.05475 Ke 0.1679 0 1 2 3 4 5 6 7 8 9 10 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Earnings 348.54 362.88 379.11 393.11 406.06 426.68 462.97 511.57 570.82 640.094 Dividends 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Book Value 1167 1515.54 1878.42 2257.53 2650.64 3056.70 3483.38 3946.34 4457.91 5028.73 5668.83 Actual EPS 348.54 362.88 379.11 393.11 406.06 426.68 462.97 511.57 570.82 640.09
"Normal" (Benchmark) Earnings 195.94 254.46 315.39 379.04 445.04 513.22 584.86 662.59 748.48 844.32
Residual Income (Annual) 152.60 108.42 63.73 14.07 -38.99 -86.54 -121.89 -151.02 -177.66 -204.23 -230.00
PV Factor 0.8562 0.7331 0.6277 0.5375 0.4602 0.3941 0.3374 0.2889 0.2474 0.2118
PV of Annual Residual Income 130.67 79.49 40.00 7.56 -17.94 -34.10 -41.13 -43.63 -43.95 -43.26 Total PV of Annual Residual Income 33.71 416.72%
Continuing (Terminal) Value Perpetuity -1369.86
PV of Terminal Value Perpetuity -338.86 -4189.48% 0 -0.05 -0.1 -0.15 -0.2
Initial Book Value of Equity 1167.00 14427.96% 0.21 7.37 7.8 8.09 8.31 8.47
Estimated Price per Share (end of 2006) 8.09 100.00% 0.19 8.35 8.95 9.34 9.61 9.81
Implied Share Price at June 1, 2007 9.55 0.1679 9.55 10.41 10.96 11.33 11.59
Observed Share Price 42.41 Undervalued 0.15 10.58 11.77 12.49 12.97 13.31
Initial Cost of Equity (You Derive) 0.1679 Fairly-Valued 0.13 11.7 13.47 14.48 15.12 15.57
Long Run ROE (Revised)
Book Value of Equity 1167
Long Run Return on Equity 0.17 0.17
Long Run Growth Rate in Equity 0.2 0.16
Cost of Equity 0.13 0.1679
Estimated Price per Share (end of Fiscal Year) 16 Estimated Price per Share (June 1, 2007) 16.46
Observed Share Price $42.41
WACC(BT) 0.1594 Kd 0.05475 Ke 0.1679 0 1 2 3 4 5 6 7 8 9 10 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Earnings 348.54 362.88 379.11 393.11 406.06 426.68 462.97 511.57 570.82 640.0939958 Dividends 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Book Value 1167 1515.54 1878.42 2257.53 2650.64 3056.70 3483.38 3946.34 4457.91 5028.73 5668.83 ROE 30% 24% 20% 17% 15% 14% 13% 13% 13% 13% BE % G 30% 24% 20% 17% 15% 14% 13% 13% 13% 13% Average ROE 17%
Average Growth in BVE 17%
Growth ROE Ke 0.12 0.14 0.16 0.18 0.2 Ke 0.12 0.14 0.16 0.17 0.2 0.21 18.45 16.94 14.23 7.91 - 0.21 2.37 7.11 11.86 - 21.34 0.19 20.19 18.84 15.7 - 47.1 0.19 - 3.93 11.78 47.1 27.48 0.1679 23.88 24.25 26.47 21.34 22.6 0.1679 - - 11.68 22.6 70.84 0.15 30.96 46.44 - 15.48 18.57 0.15 58.05 34.83 11.61 18.57 - 0.13 69.15 - 7.68 13.83 16.46 0.13 26.89 34.7 11.52 16.46 - ROE Growth 0.12 0.14 0.16 0.17 0.2 0.12 11.68 16.56 21.44 26.21 31.2 0.14 3.31 11.68 20.06 29.13 36.81 Overvalued 0.16 - - 11.68 - 70.84 Fairly-Valued 0.18 69.62 50.31 31 17.48 - Undervalued 0.2 40.8 33.52 26.24 20.39 11.68
AEG (REVISED)