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Free Cash Flow Calculation for Vitex Corp.

Millions of Dollars

Net Income
Interest Expense after Taxes
Increase/(Decrease) in Deferred Income taxes
Net Operating Profit after Taxes (NOPAT)

Historical Period
2000
2001
$121.8
$132.7
$9.8
$13.3
($2.7)
($4.6)
$128.9
$141.4

2002
$132.8
$15.4
($2.3)
$145.9

Depreciation Expense
Gross Cash Flow

$52.0
$180.9

$55.9
$197.3

$75.2
$221.1

(Increase)/Decrease in Working Capital


(Additions to) Property, Plant & Equipment
Increase/(Decrease) in Other Non-Current Liabilities
(Investment) in Other Non-Current Assets
Free Cash Flow

($27.9)
($53.4)
($20.5)
($1.9)
$77.2

$10.3
($86.5)
$34.9
($201.9)
($45.9)

($56.9)
($92.3)
($20.5)
($49.3)
$2.1

Uses of Free Cash Flow


Net Interest Expense after Taxes
Issuance/(Repayment) of Short-Term Debt
From Issuance/(Repayment) of Long-Term Debt
From Sale/(Repurchase) of Equity
Cash Dividends Paid to Shareholders
Total Uses of Free Cash Flow

($9.8)
($9.4)
($18.5)
($0.8)
($38.7)
($77.2)

($13.3)
$50.1
$56.8
($7.9)
($39.8)
$45.9

($15.4)
$30.5
$16.3
$6.6
($40.1)
($2.1)

2003
$134.4
$13.1
$6.9
$154.4

Forecast Period
2004
2005
$140.7
$146.1
$12.6
$13.2
$1.0
$1.0
$154.3
$160.3

2006
$151.6
$13.9
$1.1
$166.6

$78.9
$233.3

$85.2
$239.5

$92.0
$252.4

$99.4
$265.9

($4.1)
($73.0)
$12.0
($36.5)
$131.6

($8.8)
($78.9)
$5.3
($39.4)
$117.7

($9.2)
($85.2)
$5.6
($42.6)
$121.0

($9.7)
($92.0)
$5.9
($46.0)
$124.2

($13.1)
$12.2
($34.3)
($53.4)
($43.1)
($131.6)

($12.6)
$4.3
$6.4
($69.8)
($46.0)
($117.7)

($13.2)
$4.6
$6.9
($69.9)
($49.3)
($121.0)

($13.9)
$5.0
$7.4
($69.6)
($53.1)
($124.2)

35%

Assumptions for Forecasting Model

Income Statement
Sales
Cost of Sales
Selling, General & Admn. Expenses
Depreciation
Other Net (Income)/Expenses
Interest Income
Interest Expense
Income Taxes
Balance Sheet
Assets
Cash and Marketable Securities
Accounts Receivable
Inventories
Other Current Assets
Property, Plant and Equipment, Gross
Accumulated Depreciation
Property, Plant and Equipment, Net
Other Non-Current Assets
Liabilities and Shareholders' Equity
Accounts Payable
Short-Term Debt
Other Current Liabilities
Long-Term Debt
Deferred Income Taxes
Other Non-Current Liabilities
Paid-In Capital
Retained Earnings
Other Assumptions
Dividend policy
Interest on short-term debt
Interest on long-term debt
Interest on cash & marketable securities
Number of shares outstanding
P/E ratio

Stock price
Capital structure

Assumption
Will grow at 5%, based on input from management
50% of sales, specified by management
29% of sales, based on expected worsening
8% of Gross PP&E, based on analysis of depreciation schedules
-0.7% of sales, based on historical average
Calculate based on average balance and interest rate specified later
For STD calculate based on average balance and interest rate
For LTD $13.5 million on year-end 2002 balance. Add/ repay at marginal rate below
35% of pre-tax income

2.1% sales based on historical average


8.4% of sales, based on historical average
8.8% of sales, based on historical average
7.6% of sales, based on historical average
Will grow at 8% per year, specified by management
Calculated from other items
Calculated from other items
Will grow at 8% per year, specified by management

6.1% of sales, same as historical average


40% of debt, debt to total capitalization 30%
8.3% of sales, same as 2002
60% of debt, debt to total capitalization 30%
1.4% of sales, based on historical average
7.6% of sales, based on historical average
Will remain unchanged
Adjusted to maintain debt to total capitalization of 30%

Payout target is 40%, but div./share cannot grow more than 10% in any year
7%, based on economic forecast
Marginal rate for repayments or issuances will be 9%
6%, based on economic forecast
Shares will be issued and bought back at average price for the eyar
Will decline to 16 in 2003 and then improve to 18, 20, and 22 in the following years

Year-end price based on P/E ratio and EPS for past year
Maintain 30% debt to total capitalization. Within debt 40% short-term.

Income Statement and Balance Sheet for Vitex Corp.


Income Statement ($ Million)
Sales
Cost of Sales
Gross Operating Income

1999
$1,234.9
$679.1
$555.8

Historical period
2000
2001
$1,251.7
$1,300.4
$659.0
$681.3
$592.7
$619.1

Selling, General & Admn. Expenses


Depreciation
Other Net (Income)/Expenses
EBIT

$339.7
$47.5
($11.8)
$180.4

$348.6
$52.0
($7.6)
$199.7

$351.2
$55.9
($7.0)
$219.0

Interest (Income)
Interest Expense
Pre-Tax Income

($1.3)
$16.2
$165.5

($1.4)
$15.1
$186.0

($1.7)
$20.5
$200.2

Income Taxes
Net Income

$56.8
$108.7

$64.2
$121.8

$67.5
$132.7

$38.3
$70.4

$38.7
$83.1

$39.8
$92.9

Assets
Cash and Marketable Securities
Accounts Receivable
Inventories
Other Current Assets
Total Current Assets

$25.6
$99.4
$109.6
$96.7
$331.3

$23.0
$102.9
$108.0
$91.4
$325.3

$32.1
$107.3
$114.9
$103.7
$358.0

Property, Plant and Equipment, Gross


Accumulated Depreciation
Property, Plant and Equipment, Net

$680.9
$244.8
$436.1

$734.3
$296.8
$437.5

$820.8
$352.7
$468.1

Other Non-Current Assets


Total Non-Current Assets

$203.2
$639.3

$205.1
$642.6

$407.0
$875.1

$970.6

$967.9

$1,233.1

Liabilities and Shareholders' Equity


Accounts Payable
Short-Term Debt
Other Current Liabilities
Total Current Liabilities

$82.8
$39.1
$152.0
$273.9

$77.1
$29.7
$123.8
$230.6

$71.8
$79.8
$172.1
$323.7

Long-Term Debt
Deferred Income Taxes
Other Non-Current Liabilities
Total Liabilities

$163.5
$22.3
$100.6
$560.3

$145.0
$19.6
$80.1
$475.3

$201.8
$15.0
$115.0
$655.5

Dividends
Addition to Retained Earnings

Balance Sheet ($ Million)

Total Assets

Paid-In Capital
Retained Earnings
Total Shareholders' Equity
Total Liabilities and Shareholders' Equity

$46.9
$363.4
$410.3

$46.1
$446.5
$492.6

$38.2
$539.4
$577.6

$970.6

$967.9

$1,233.1

Stock Issuance/ (Buyback) (in dollars)


Stock Issuance/(Buyback) (in millions of shares)

Other Data
Stock Price (year-end)
Average Number of Shares Outstanding (millions)

$55.50
48.0

$65.30
47.3

$55.70
46.8

Valuation Ratios
EPS
Dividend per Share
P/E Ratio
P/B (price to book) Ratio
Dividend Payout Ratio

$2.26
$0.80
24.5
6.5
35%

$2.58
$0.82
25.3
6.3
32%

$2.83
$0.85
19.6
4.5
30%

Profitability Ratios
Return on Equity (ROE)
Return on Sales (ROS)

14.6%

27.0%
16.0%

24.8%
16.8%

13.7%
2.6%
1.4%
10.7%
12.1%

10.0%
3.9%
3.9%
9.7%
8.9%

Financial Indicators

Growth Rates
EPS Growth Rate
Dividend Growth Rate
Sales Growth Rate
EBIT Growth Rate
Net Income Growth Rate
Liquidity Ratios
Current Ratio
Quick Ratio

1.21
0.46

1.41
0.55

1.11
0.43

Operating Efficiency Ratios


Inventory Turnover Ratio
Receivable Turnover Ratio

6.2
12.4

6.1
12.2

5.9
12.1

33.1%
26.7%
49.4%

26.2%
21.7%
35.5%

32.8%
23.5%
48.8%

11.1
14.1

13.2
16.7

10.7
13.4

Leverage Ratios
Total Debt to Total Capitalization
Long-Term Debt to Total Capitalization
Total Debt to Equity
Coverage Ratios
Times Interest Earned (TIE)
Cash Coverage Ratio

eriod

Forecast Period
2004
2005
$1,471.2
$1,544.7
$735.6
$772.4
$735.6
$772.4

2006
$1,622.0
$811.0
$811.0

Forecasting
Factor
5.0%
50.0%

2002
$1,334.4
$667.0
$667.4

2003
$1,401.1
$700.6
$700.6

$373.3
$75.2
($8.2)
$227.1

$406.3
$78.9
($9.8)
$225.2

$426.6
$85.2
($10.3)
$234.0

$448.0
$92.0
($10.8)
$243.2

$470.4
$99.4
($11.4)
$252.6

29.0%
8.0%
-0.7%

($2.0)
$23.7
$205.4

($1.7)
$20.1
$206.8

($1.8)
$19.4
$216.4

($1.9)
$20.3
$224.7

($2.0)
$21.3
$233.3

6.0%
7.0%
9.0%

$72.6
$132.8

$72.4
$134.4

$75.7
$140.7

$78.7
$146.1

$81.6
$151.6

35.0%

$40.1
$92.7

$43.1
$91.3

$46.0
$94.7

$49.3
$96.8

$53.1
$98.6

$28.4
$120.1
$116.8
$97.5
$362.8

$29.4
$117.7
$123.3
$106.5
$376.9

$30.9
$123.6
$129.5
$111.8
$395.7

$32.4
$129.8
$135.9
$117.4
$415.5

$34.1
$136.2
$142.7
$123.3
$436.3

2.1%
8.4%
8.8%
7.6%

$913.1
$427.9
$485.2

$986.1
$506.8
$479.4

$1,065.0
$592.0
$473.0

$1,150.2
$684.0
$466.2

$1,242.3
$783.4
$458.9

8.0%

$456.3
$941.5

$492.8
$972.2

$532.2
$1,005.3

$574.8
$1,041.0

$620.8
$1,079.7

8.0%

$1,304.3

$1,349.1

$1,401.0

$1,456.6

$1,516.0

$80.5
$110.3
$111.3
$302.1

$85.5
$122.5
$116.3
$324.3

$89.7
$126.8
$122.1
$338.7

$94.2
$131.4
$128.2
$353.9

$98.9
$136.4
$134.6
$369.9

6.1%
12.0%
8.3%

$218.1
$12.7
$94.5
$627.4

$183.8
$19.6
$106.5
$634.2

$190.2
$20.6
$111.8
$661.3

$197.1
$21.6
$117.4
$690.0

$204.6
$22.7
$123.3
$720.5

18.0%
1.4%
7.6%

10%
40.0%

$44.8
$632.1
$676.9

$44.8
$670.0
$714.8

$44.8
$694.9
$739.7

$44.8
$721.8
$766.6

$44.8
$750.7
$795.5

$1,304.3

$1,349.1

$1,401.0

$1,456.6

$1,516.0

$51.40
46.2

($53.4)
(1.1)

($69.8)
(1.3)

($69.9)
(1.1)

($69.6)
(0.9)

$47.67
45.1

$57.82
43.8

$68.45
42.7

$79.90
41.7

$2.87
$0.87
17.9
3.5
30%

$2.98
$0.95
16.0
3.0
32%

$3.21
$1.05
18.0
3.4
33%

$3.42
$1.16
20.0
3.8
34%

$3.63
$1.27
22.0
4.2
35%

21.2%
17.0%

19.3%
16.1%

19.3%
15.9%

19.4%
15.7%

19.4%
15.6%

1.4%
2.1%
2.6%
3.7%
0.1%

3.6%
10.0%
5.0%
-0.9%
1.2%

7.8%
10.0%
5.0%
3.9%
4.7%

6.5%
10.0%
5.0%
3.9%
3.8%

6.1%
10.0%
5.0%
3.9%
3.8%

1.20
0.49

1.16
0.45

1.17
0.46

1.17
0.46

1.18
0.46

5.7
11.1

5.7
11.9

5.7
11.9

5.7
11.9

5.7
11.9

32.7%
21.7%
48.5%

30.0%
18.0%
42.9%

30.0%
18.0%
42.9%

30.0%
18.0%
42.9%

30.0%
18.0%
42.9%

9.6
12.8

11.2
15.1

12.0
16.4

12.0
16.5

11.8
16.5

Statement of Cash Flows for Vitex Corp.


Millions of Dollars

1999

Historical Period
2000
2001

Cash Flows from Operations


Net Income
Depreciation Expense
Decrease/(Increase) in Accounts Receivable
Decrease/(Increase) in Inventories
Decrease/(Increase) in Other Current Assets
Increase/(Decrease) in Accounts Payable
Increase/(Decrease) in Other Current Liabilities
Increase/(Decrease) in Deferred Income Taxes
Increase/(Decrease) in Other Non-Current Liabilities
Total Cash Flows from Operations

$121.8
$52.0
($3.5)
$1.6
$5.3
($5.7)
($28.2)
($2.7)
($20.5)
$120.1

$132.7
$55.9
($4.4)
($6.9)
($12.3)
($5.3)
$48.3
($4.6)
$34.9
$238.3

Cash Flows from Investing


(Additions to) Property, Plant & Equipment
(investment) in Other Non-Current Assets
Total Cash Flows from Investing

($53.4)
($1.9)
($55.3)

($86.5)
($201.9)
($288.4)

Cash Flows from Financing


From Issuance/ (Repayment) of Short-Term Debt
From Issuance/ (Repayment) of Long-Term Debt
From Sale/(Repurchase) of Equity
Cash Dividends Paid to Shareholders
Total Cash Flows from Financing

($9.4)
($18.5)
($0.8)
($38.7)
($67.4)

$50.1
$56.8
($7.9)
($39.8)
$59.2

Net Change in Cash & Marketable Securities

($2.6)

$9.1

Beginning Cash & Marketable Securities


Ending Cash & Marketable Securities
Net Change in Cash & Marketable Securities

$25.6
$23.0
($2.6)

$23.0
$32.1
$9.1

eriod

Forecast Period
2004
2005

2002

2003

2006

$132.8
$75.2
($12.8)
($1.9)
$6.2
$8.7
($60.8)
($2.3)
($20.5)
$124.6

$134.4
$78.9
$2.4
($6.5)
($9.0)
$5.0
$5.0
$6.9
$12.0
$229.1

$140.7
$85.2
($5.9)
($6.2)
($5.3)
$4.3
$5.8
$1.0
$5.3
$224.9

$146.1
$92.0
($6.2)
($6.5)
($5.6)
$4.5
$6.1
$1.0
$5.6
$237.1

$151.6
$99.4
($6.5)
($6.8)
($5.9)
$4.7
$6.4
$1.1
$5.9
$249.9

($92.3)
($49.3)
($141.6)

($73.0)
($36.5)
($109.6)

($78.9)
($39.4)
($118.3)

($85.2)
($42.6)
($127.8)

($92.0)
($46.0)
($138.0)

$30.5
$16.3
$6.6
($40.1)
$13.3

$12.2
($34.3)
($53.4)
($43.1)
($118.5)

$4.3
$6.4
($69.8)
($46.0)
($105.1)

$4.6
$6.9
($69.9)
($49.3)
($107.8)

$5.0
$7.4
($69.6) See note
($53.1)
($110.3)

($3.7)

$1.0

$1.5

$1.5

$1.6

$32.1
$28.4
($3.7)

$28.4
$29.4
$1.0

$29.4
$30.9
$1.5

$30.9
$32.4
$1.5

$32.4
$34.1
$1.6