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Tax Rate 48.

69%
Cost of Capital 14.06%
Growth Rate 8.00%

Year 1979 1980 1981 1982


Period 0 1 2 3
Sales 13,280 16,800 19,760
COGS 10,824 12,869 14,919
Gross Profit 2,456 3,931 4,841
Selling 112 125 138
R&D 451 478 508
EBITDA 1,893 3,328 4,195
Depreciation 1,060 1,110 1,160
EBIT 833 2,218 3,035
Plus: Depreciation 1,060 1,110 1,160
Less: NWC -204 316 266
Less: Capex 485 525 560
Less: EBIT * Tax Rate 406 1,080 1,478
Cashflow 1,206 1,407 1,891
Discount Factor 1 0.877 0.769 0.674
PV of Cash Flows 9,945 1,058 1,082 1,275
NOTE: Terminal Value based on growing annuity, g=8%, r=14.06%, n=5

Debt 12,000
Bond Rate 10.75%
Risk Free Rate 9.50%
PV of Tax Shield 3,943
NPV 13,888

Scenario 2: Graphite Laminate Technology, Terminal Value Based on 8% Growth for 5 Years

Tax Rate 48.69%


Cost of Capital 14.06%
Growth Rate 8.00%

Year 1979 1980 1981 1982


Period 0 1 2 3
Sales 13,280 16,800 19,760
COGS 9,721 11,515 13,276
Gross Profit 3,559 5,285 6,484
Selling 112 125 138
R&D 451 478 508
EBITDA 2,996 4,682 5,838
Depreciation 1,285 1,335 1,385
EBIT 1,711 3,347 4,453
Plus: Depreciation 1,285 1,335 1,385
Less: NWC -204 316 266
Less: Capex 485 525 560
Less: EBIT * Tax Rate 833 1,629 2,168
Cashflow 1,882 2,211 2,844
Discount Factor 1 0.877 0.769 0.674
PV of Cash Flows 15,409 1,650 1,700 1,916
NOTE: Terminal Value based on growing annuity, g=8%, r=14.06%, n=5

Debt 12,000
Bond Rate 10.75%
Risk Free Rate 9.50%
PV of Tax Shield 3,943
NPV 19,352
1983 1984 TV
4 5 5
21,356 23,028
16,317 17,973
5,039 5,055
152 168
543 591
4,344 4,296
1,210 1,270
3,134 3,026
1,210 1,270
144 150
600 600
1,526 1,473
2,074 2,073 8,170
0.591 0.518 0.518
1,225 1,074 4,232

1983 1984 TV
4 5 5
21,356 23,028
14,475 15,912
6,881 7,117
152 168
543 591
6,186 6,358
1,435 1,495
4,751 4,863
1,435 1,495
144 150
600 600
2,313 2,368
3,129 3,240 12,772
0.591 0.518 0.518
1,849 1,678 6,616
Exhibit 8

EXHIBIT 8 Pro Forma Financial Statements for the Collinsville Plant (a) (000s)

Option 1 - with unlaminated graphite electrodes:

For years ended December 31

1980 1981 1982 1983 1984


REVENUES
Sales - tons 32,000 35,000 38,000 38,000 38,000
Average price/ton $415 $480 $520 $562 $606
Sales - $000 $13,280 $16,800 $19,760 $21,356 $23,028

MANUFACTURING COSTS

VARIABLE
Power $6,304 $7,735 $9,386 $10,526 $11,780
Graphite 645 791 875 940 992
Salt & other 1,285 1,621 1,753 1,836 1,956
Total variable $8,234 $10,147 $12,014 $13,302 $14,728

FIXED
Labor $1,180 $1,297 $1,427 $1,580 $1,738
Maintenance 256 277 299 322 354
Other 1,154 1,148 1,179 1,113 1,153
Total fixed $2,590 $2,722 $2,905 $3,015 $3,245

Total Manufacturing Costs $10,824 $12,869 $14,919 $16,317 $17,973

OTHER CHARGES
Selling $112 $125 $138 $152 $168
R&D 451 478 508 543 591
Depreciation $1,060 $1,110 $1,160 $1,210 $1,270
TOTAL $1,623 $1,713 $1,806 $1,905 $2,029

OPERATING PROFIT $833 $2,218 $3,035 $3,134 $3,026

Page 5
Exhibit 8

Tax at 48.7% 406 1,080 1,478 1,526 1,474

EBIT 833 2,218 3,035 3,134 3,026


less taxes (406) (1,080) (1,478) (1,526) (1,474)
less capex (538) (538) (538) (538) (538)
add depreciation 1,060 1,110 1,160 1,210 1,270
NWC 204 (316) (266) (144) (150)
Cash Flow 1,154 1,394 1,913 2,136 2,135

EXHIBIT 8
(cont.)
Expected
December
31 For years ended December 31
1979 1980 1981 1982 1983 1984
ASSETS
Accts. receivable $1,622 $1,328 $1,680 $1,976 $2,136 $2,303
Inventories 651 598 756 889 961 1,036
Net property,
plant & equipmen 10,600 10,025 9,440 8,840 8,230 7,560

Total $12,873 $11,951 $11,876 $11,705 $11,327 $10,899

LIABILITIES
Accts. payable 873 730 924 1,087 1,175 1,267

NET ASSETS $12,000 $11,221 $10,952 $10,618 $10,152 $9,632

NWC $1,400 $1,196 $1,512 $1,778 $1,922 $2,072


Change in NWC $204 ($316) ($266) ($144) ($150)

Percent of Sales Ratios


1980 1981 1982 1983 1984

Power costs 47.5% 46.0% 47.5% 49.3% 51.2%


Variable costs 62.0% 60.4% 60.8% 62.3% 64.0%
Fixed costs 19.5% 16.2% 14.7% 14.1% 14.1%
Manufacturing costs 81.5% 76.6% 75.5% 76.4% 78.0%
Operating profit 6.3% 13.2% 15.4% 14.7% 13.1%

Accounts receivable 10.0% 10.0% 10.0% 10.0% 10.0%


Inventories 4.5% 4.5% 4.5% 4.5% 4.5%
Accounts payable 5.5% 5.5% 5.5% 5.5% 5.5%
Net assets 84.5% 65.2% 53.7% 47.5% 41.8%

Operating profit/
net assets 7.4% 20.3% 28.6% 30.9% 31.4%

Page 6
Exhibit 8

(a) These pro forma financial statements were based on the following assumptions:
(1) Continued use of unlaminated graphite electrodes.
(2) Though excess industry capacity would hold price increases to less than an 8% annual rate in 1980, by
1984 the average annual price increase over the period 1979-1984 was assumed to equal 8%.
(3) Power costs per KWH would increase 12% per year.
(4) Depreciation would increase because Dixon would have written-up the value of the Collinsville plant
to $10.6 million.

Debt 7,442
Interest "A" 10.75%
Amount 800

Page 7
Exhibit 8

Option 2 - with laminated graphite electrodes:

For years ended December 31

1980 1981 1982 1983


REVENUES
Sales - tons 32,000 35,000 38,000 38,000
Average price/ton $415 $480 $520 $562
Sales - $000 $13,280 $16,800 $19,760 $21,356

MANUFACTURING COSTS

VARIABLE
Power 5,201 6,381 7,743 8,684
Graphite 645 791 875 940
Salt & other 1,285 1,621 1,753 1,836
Total variable $7,131 $8,793 $10,371 $11,460

FIXED
Labor $1,180 $1,297 $1,427 $1,580
Maintenance 256 277 299 322
Other 1,154 1,148 1,179 1,113
Total fixed $2,590 $2,722 $2,905 $3,015

Total Manufacturing Costs $9,721 $11,515 $13,276 $14,475

OTHER CHARGES
Selling $112 $125 $138 $152
R&D 451 478 508 543
Depreciation $1,285 $1,335 $1,385 $1,435
TOTAL $1,848 $1,938 $2,031 $2,130

OPERATING PROFIT $1,711 $3,347 $4,453 $4,751

Page 8
Exhibit 8

Tax at 48.7% 833 1,630 2,168 2,314

EBIT 1,711 3,347 4,453 4,751


less taxes (833) (1,630) (2,168) (2,314)
less capex (538) (538) (538) (538)
add depreciation 1,285 1,335 1,385 1,435
NWC 204 (316) (266) (144)
Cash Flow 1,829 2,198 2,866 3,191

EXHIBIT 8
(cont.)
Expected
December
31 For years ended December 31
1979 1980 1981 1982 1983
ASSETS
Accts. receiva $1,622 $1,328 $1,680 $1,976 $2,136
Inventories 651 598 756 889 961
Net property,
plant & equip 10,600 10,025 9,440 8,840 8,230

Total $12,873 $11,951 $11,876 $11,705 $11,327

LIABILITIES
Accts. payable 873 730 924 1,087 1,175

NET ASSETS $12,000 $11,221 $10,952 $10,618 $10,152

NWC $1,400 $1,196 $1,512 $1,778 $1,922


Change in NWC $204 ($316) ($266) ($144)

Percent of Sales Ratios


1980 1981 1982 1983

Power costs 47.5% 46.0% 47.5% 49.3%


Variable costs 62.0% 60.4% 60.8% 62.3%
Fixed costs 19.5% 16.2% 14.7% 14.1%
Manufacturing costs 81.5% 76.6% 75.5% 76.4%
Operating profit 6.3% 13.2% 15.4% 14.7%

Accounts receivable 10.0% 10.0% 10.0% 10.0%


Inventories 4.5% 4.5% 4.5% 4.5%
Accounts payable 5.5% 5.5% 5.5% 5.5%
Net assets 84.5% 65.2% 53.7% 47.5%

Operating profit/
net assets 7.4% 20.3% 28.6% 30.9%

Page 9
Exhibit 8

% annual rate in 1980, by


to equal 8%.

f the Collinsville plant

Page 10
Exhibit 8

er 31

1984

38,000
$606
$23,028

9,719
992
1,956
$12,667

$1,738
354
1,153
$3,245

$15,912

$168
591
$1,495
$2,254

$4,863

Page 11
Exhibit 8

2,368

4,863
(2,368)
(538)
1,495
(150)
3,302

ber 31
1984

$2,303
1,036

7,560

$10,899

1,267

$9,632

$2,072
($150)

1984

51.2%
64.0%
14.1%
78.0%
13.1%

10.0%
4.5%
5.5%
41.8%

31.4%

Page 12
EARNINGS MULTIPLES METHOD:

Financial Statements for the Collinsville Plant (000s)

For years ended December 31


1974 1975 1976

OPER. PROFIT (Exhibit 6) ($ thousand): 1,096 817 2,326


Tax @ 48.7% 534 398 1,133
Net Income 562 419 1,193

Closing P/E comparables (Exhibit 5):


PENNWALT 6.0 8.6 9.3
KERR-MCGEE 15.5 13.6 13.1
INTERNATIONAL MINERALS AND CHEMICALS 10.9 3.8 5.3
GEORGIA-PACIFIC 8.6 16.9 17.4
BRUNSWICK CHEMICAL
SOUTHERN CHEMICALS
Average (b) 10.3 10.7 11.3

Valuation estimate 5,763 4,495 13,453

Assumptions:
(a) Expected (Exhibit 6)
(b) Average Closing P/E of selected sodium chlorate producers
(c) Price based on last 2 years' multiples average
DCF METHOD:

Asset Beta Derivation (Exhibit 5) ($ million):

PENNWALT
Debt 104 150 155
Market Value of Equity 162 284 326
D/EV 0.39 0.35 0.32

KERR-MCGEE
Debt 162 218 318
Market Value of Equity 1798 1782 1755
D/EV 0.08 0.11 0.15

INTERNATIONAL MINERALS AND CHEMICALS


Debt 242 297 366
Market Value of Equity 763 631 716
D/EV 0.24 0.32 0.34

GEORGIA-PACIFIC
Debt 871 903 450
Market Value of Equity 1410 2501 3741
D/EV 0.38 0.27 0.11

BRUNSWICK CHEMICAL
Debt 0.59 0.57 0.53
Market Value of Equity
D/EV

SOUTHERN CHEMICALS
Debt 0.80 0.75 0.74
Market Value of Equity
D/EV

Industry equity beta (Exhibit 5): e D/EV E/EV


PENNWALT 1.33 0.34 0.66
KERR-MCGEE 1.06 0.14 0.86
INTERNATIONAL MINERALS AND CHEMICALS 0.81 0.32 0.68
GEORGIA-PACIFIC 1.5 0.24 0.76
BRUNSWICK CHEMICAL 1 0.08 0.92
SOUTHERN CHEMICALS 1.2 0.12 0.88
Average Asset Beta

Long-term Treasury bonds 10.25%


Market Risk Premium 5%
CAPM Discount Rate 14.79%
Option 1 - with unlaminated graphite electrodes (Exhibit 8):

For years ended December 31


1980 1981 1982
1 2 3
EBIT 833 2,218 3,035
less taxes (283) (754) (1,032)
less capex (538) (538) (538)
add depreciation 1,060 1,110 1,160
NWC 204 (316) (266)
Cash Flow 1,276 1,720 2,360
Discount @ 14.79% 0.87 0.76 0.66
PV of Cash Flow 1,112 1,306 1,560
Valuation estimate 15,514

Option 2 - with laminated graphite electrodes (modified Exhibit 8):

For years ended December 31


1980 1981 1982
1 2 3
EBIT 1,711 3,347 4,453
less taxes (582) (1,138) (1,514)
less capex (538) (538) (538)
add depreciation 1,285 1,335 1,385
NWC 204 (316) (266)
Cash Flow 2,081 2,690 3,520
Discount @ 14.79% 0.87 0.76 0.66
PV of Cash Flow 1,813 2,042 2,327
Laminate installation cost (2,250)
Valuation estimate 21,807
Collinsville Plant (000s)

ars ended December 31


1977 1978 1979 (a)

4,357 4,845 3,597


2,122 2,359 1,752
2,235 2,485 1,845

9.2 7.3
10.2 10.5
6.7 5.3
11.0 8.2
8.5 7.3
6.7 6.4
8.7 7.5 7.5

19,482 18,640 13,841


Average
170 162
386 329
0.31 0.33 0.34

301 261
1214 1239
0.20 0.17 0.14

390 372
724 636
0.35 0.37 0.32

737 835
2882 2476
0.20 0.25 0.24

0.49 0.48
6.04 5.77
0.08 0.08 0.08

0.67 0.63
4.96 4.67
0.12 0.12 0.12

d a
0 0.88
0 0.91
0 0.55
0 1.14
0 0.92
0 1.06
0.91
nded December 31 TV at
1983 1984 14.32% growth = 8%
4 5 5
3,134 3,026
(1,066) (1,029)
(538) (538)
1,210 1,270
(144) (150)
2,597 2,580 17,437 41008
0.58 0.50 0.50 3887832
1,496 1,294 8,748

nded December 31 TV at
1983 1984 14.32%
4 5 5
4,751 4,863
(1,615) (1,653)
(538) (538)
1,435 1,495
(144) (150)
3,889 4,017 27,151
0.58 0.50 0.50
2,240 2,015 13,621
EARNINGS MULTIPLES METHOD:

Financial Statements for the Collinsville Plant (000s)

For years ended December 31


1974 1975 1976

OPER. PROFIT (Exhibit 6) ($ thousand): 1,096 817 2,326


Tax @ 48.7% 534 398 1,133
Net Income 562 419 1,193

Closing P/E comparables (Exhibit 5):


PENNWALT 6.0 8.6 9.3
KERR-MCGEE 15.5 13.6 13.1
INTERNATIONAL MINERALS AND CHEMICALS 10.9 3.8 5.3
GEORGIA-PACIFIC 8.6 16.9 17.4
BRUNSWICK CHEMICAL
SOUTHERN CHEMICALS
Average (b) 10.3 10.7 11.3

Valuation estimate 5,763 4,495 13,453

Assumptions:
(a) Expected (Exhibit 6)
(b) Average Closing P/E of selected sodium chlorate producers
(c) Price based on last 2 years' multiples average
DCF METHOD:

Asset Beta Derivation (Exhibit 5) ($ million):

PENNWALT
Debt 104 150 155
Market Value of Equity 162 284 326
D/EV 0.39 0.35 0.32

KERR-MCGEE
Debt 162 218 318
Market Value of Equity 1798 1782 1755
D/EV 0.08 0.11 0.15

INTERNATIONAL MINERALS AND CHEMICALS


Debt 242 297 366
Market Value of Equity 763 631 716
D/EV 0.24 0.32 0.34

GEORGIA-PACIFIC
Debt 871 903 450
Market Value of Equity 1410 2501 3741
D/EV 0.38 0.27 0.11

BRUNSWICK CHEMICAL
Debt 0.59 0.57 0.53
Market Value of Equity
D/EV

SOUTHERN CHEMICALS
Debt 0.80 0.75 0.74
Market Value of Equity
D/EV

Industry equity beta (Exhibit 5): e D/EV E/EV


PENNWALT 1.33 0.34 0.66
KERR-MCGEE 1.06 0.14 0.86
INTERNATIONAL MINERALS AND CHEMICALS 0.81 0.32 0.68
GEORGIA-PACIFIC 1.5 0.24 0.76
BRUNSWICK CHEMICAL 1 0.08 0.92
SOUTHERN CHEMICALS 1.2 0.12 0.88
Average Asset Beta

Long-term Treasury bonds 10.25%


Market Risk Premium 5%
CAPM Discount Rate 14.79%
Option 1 - with unlaminated graphite electrodes (Exhibit 8):

For years ended December 31


1980 1981 1982
1 2 3
EBIT 833 2,218 3,035
less taxes (283) (754) (1,032)
less capex (538) (538) (538)
add depreciation 1,060 1,110 1,160
NWC 204 (316) (266)
Cash Flow 1,276 1,720 2,360
Discount @ 14.79% 0.87 0.76 0.66
PV of Cash Flow 1,112 1,306 1,560
Valuation estimate 15,514

Option 2 - with laminated graphite electrodes (modified Exhibit 8):

For years ended December 31


1980 1981 1982
1 2 3
EBIT 1,711 3,347 4,453
less taxes (582) (1,138) (1,514)
less capex (538) (538) (538)
add depreciation 1,285 1,335 1,385
NWC 204 (316) (266)
Cash Flow 2,081 2,690 3,520
Discount @ 14.79% 0.87 0.76 0.66
PV of Cash Flow 1,813 2,042 2,327
Laminate installation cost (2,250)
Valuation estimate 21,807
Collinsville Plant (000s)

ars ended December 31


1977 1978 1979 (a)

4,357 4,845 3,597


2,122 2,359 1,752
2,235 2,485 1,845

9.2 7.3
10.2 10.5
6.7 5.3
11.0 8.2
8.5 7.3
6.7 6.4
8.7 7.5 7.5

19,482 18,640 13,841


Average
170 162
386 329
0.31 0.33 0.34

301 261
1214 1239
0.20 0.17 0.14

390 372
724 636
0.35 0.37 0.32

737 835
2882 2476
0.20 0.25 0.24

0.49 0.48
6.04 5.77
0.08 0.08 0.08

0.67 0.63
4.96 4.67
0.12 0.12 0.12

d a
0 0.88
0 0.91
0 0.55
0 1.14
0 0.92
0 1.06
0.91
nded December 31 TV at
1983 1984 14.32% growth = 8%
4 5 5
3,134 3,026
(1,066) (1,029)
(538) (538)
1,210 1,270
(144) (150)
2,597 2,580 17,437 41008
0.58 0.50 0.50 3887832
1,496 1,294 8,748

nded December 31 TV at
1983 1984 14.32%
4 5 5
4,751 4,863
(1,615) (1,653)
(538) (538)
1,435 1,495
(144) (150)
3,889 4,017 27,151
0.58 0.50 0.50
2,240 2,015 13,621
Copyright

DIXON CORPORATION: THE COLLINSVILLE PLANT


Harvard Business School
Case Software 2-298-741

Copyright (c) 1998 by the President and Fellows of Harvard College.

This case was prepared as the basis for class discussion rather than to illustrate either
effective or ineffective handling of an administrative situation. It is a rewritten version
of an earlier case entitled, "American Chemical Corporation," HBS no. 280-102.

Page 25
Exhibit 1

EXHIBIT 1 Financial Statements for American Chemical and Other Selected


Large Chemical Companies

Financial Statements of AMERICAN CHEMICAL

1974 1975 1976 1977


Sales ($ millions) $4,828 $4,671 $4,805 $5,235
Net income ($ millions) 323 198 212 251
Earnings per share ($) $7.60 $4.66 $4.98 $5.91
Dividends per share ($) $1.00 $1.25 $1.50 $1.65
Dividend yield (%) 5.3% 5.7% 4.3% 5.0%
Common stock - high ($) $23 $30 $36 $46
Common stock - low ($) 10 17 21 30
Common stock - close ($) 19 22 35 33
Closing P/E 2.5 4.7 7.0 5.6
Total capitalization (Book values) 2,014 2,109 2,198 2,465
% debt 44% 37% 37% 29%
% preferred stock 0% 0% 0% 0%
% common stock 56% 63% 63% 71%
Beta 1.20 1.20 1.20 1.20
Interest coverage (a) 6.3 3.9 4.1 4.3
Bond rating (b) BBB/A BBB/A BBB/A BBB/A

Financial Statements of ALLIED CHEMICAL

1974 1975 1976 1977


Sales ($ millions) $2,216 $2,333 $2,630 $2,923
Net income ($ millions) 151 116 117 135
Earnings per share ($) $5.43 $4.17 $4.52 $4.93
Dividends per share ($) $1.53 $1.80 $1.80 $1.85
Dividend yield (%) 6.3% 5.4% 4.5% 4.5%
Common stock - high ($) $54 $42 $45 $51
Common stock - low ($) 23 27 33 39
Common stock - close ($) 28 33 40 44
Closing P/E 5.2 7.9 8.8 8.9
Total capitalization 1,550 1,839 1,959 2,279
% debt 28% 34% 33% 36%
% preferred stock 0% 0% 0% 0%
% common stock 72% 66% 67% 64%
Beta 1.43 1.43 1.43 1.43
Interest coverage (a) 9.2 5.7 5.2 5.4
Bond rating (b) A/A A/A A/A A/A

Page 26
Exhibit 1

EXHIBIT 1 (cont.) Financial Statements of DOW CHEMICAL

1974 1975 1976 1977


Sales ($ millions) $4,938 $4,888 $5,652 $6,234
Net income ($ millions) 558 616 613 566
Earnings per share ($) $3.18 $3.33 $3.30 $3.01
Dividends per share ($) $0.60 $0.75 $0.95 $1.15
Dividend yield (%) 2.5% 1.7% 2.3% 4.5%
Common stock - high ($) $35 $48 $57 $44
Common stock - low ($) 25 27 38 25
Common stock - close ($) 28 46 43 27
Closing P/E 8.8 13.8 13.0 9.0
Total capitalization 3,498 4,316 5,118 5,889
% debt 37% 36% 37% 40%
% preferred stock 0% 0% 0% 0%
% common stock 63% 64% 63% 60%
Beta 1.25 1.25 1.25 1.25
Interest coverage (a) 10.6 8.2 6.5 4.9
Bond rating (b) A/Aa A/Aa A/Aa A/Aa

Financial Statements of DU PONT

1974 1975 1976 1977


Sales ($ millions) $6,910 $7,221 $8,361 $9,435
Net income ($ millions) 404 272 459 545
Earnings per share ($) $2.74 $1.81 $3.10 $3.69
Dividends per share ($) $1.83 $1.42 $1.75 $1.92
Dividend yield (%) 6.0% 3.2% 3.7% 4.8%
Common stock - high ($) $60 $45 $54 $45
Common stock - low ($) 28 29 39 35
Common stock - close ($) 31 42 45 40
Closing P/E 11.3 23.2 14.5 10.8
Total capitalization 4,874 5,085 5,772 6,127
% debt 16% 17% 22% 21%
% preferred stock 5% 5% 4% 4%
% common stock 79% 78% 74% 75%
Beta 1.22 1.22 1.22 1.22
Interest coverage (a) 9.5 4.1 6.0 6.1
Bond rating (b) AAA/Aaa AAA/Aaa AAA/Aaa AAA/Aaa

Page 27
Exhibit 1

EXHIBIT 1 (cont.) Financial Statements of MONSANTO

1974 1975 1976 1977


Sales ($ millions) $3,498 $3,625 $4,270 $4,595
Net income ($ millions) 323 306 366 276
Earnings per share ($) $9.35 $8.63 $10.05 $7.46
Dividends per share ($) $2.30 $2.55 $2.75 $3.03
Dividend yield (%) 5.9% 3.4% 3.2% 5.4%
Common stock - high ($) $70 $81 $100 $89
Common stock - low ($) 39 41 76 52
Common stock - close ($) 41 76 88 58
Closing P/E 4.4 8.8 8.8 7.8
Total capitalization 2,396 2,942 3,349 3,668
% debt 25% 29% 27% 28%
% preferred stock 0% 0% 0% 0%
% common stock 75% 71% 73% 72%
Beta 1.43 1.43 1.43 1.43
Interest coverage (a) 11.4 9.1 8.4 7.0
Bond rating (b) AA/Aa AA/Aa AA/Aa AA/Aa

Financial Statements of UNION CARBIDE

1974 1975 1976 1977


Sales ($ millions) $5,320 $5,665 $6,346 $7,036
Net income ($ millions) 530 382 441 385
Earnings per share ($) $8.69 $6.23 $7.15 $6.05
Dividends per share ($) $2.18 $2.40 $2.50 $2.80
Dividend yield (%) 5.3% 3.9% 4.0% 6.8%
Common stock - high ($) $46 $67 $77 $62
Common stock - low ($) 32 40 56 40
Common stock - close ($) 41 61 62 41
Closing P/E 4.7 9.8 8.7 6.8
Total capitalization 3,752 4,485 5,212 5,750
% debt 26% 30% 32% 30%
% preferred stock 0% 0% 0% 0%
% common stock 74% 70% 68% 70%
Beta 1.05 1.05 1.05 1.05
Interest coverage (a) 14.0 8.4 7.0 5.0
Bond rating (b) A/Aa A/Aa A/Aa A/Aa

(a) Equal to earnings before interest and taxes divided by interest expenses.
(b) Standard & Poor's rating/Moody's rating.

Page 28
Exhibit 1

1978
$5,490
349
$8.20
$1.80
4.1%
$48
32
44
5.4
2,527
39%
20%
41%
1.20
6.7
BBB/A

1978
$3,268
120
$4.25
$2.00
7.1%
$45
28
28
6.6
2,467
38%
0%
62%
1.43
4.9
A/A

Page 29
Exhibit 1

1978
$6,888
575
$3.16
$1.30
5.6%
$31
22
25
7.9
6,793
43%
0%
57%
1.25
4.4
A/Aa

1978
$10,584
787
$5.39
$2.42
5.8%
$46
33
42
7.8
6,394
17%
4%
79%
1.22
9.5
AAA/Aaa

Page 30
Exhibit 1

1978
$5,019
303
$8.29
$3.18
6.8%
$60
44
47
5.7
4,115
30%
0%
70%
1.43
6.5
AA/Aa

1978
$7,870
394
$6.09
$2.80
8.2%
$43
34
34
5.6
5,997
28%
0%
72%
1.05
4.9
A/Aa

Page 31
Exhibit 2

EXHIBIT 2 Financial Statements for Universal Paper and Other Selected


Large Chemical Companies

Financial Statements of UNIVERSAL PAPER

1974 1975 1976 1977


Sales ($ millions) $1,867 $1,902 $2,136 $2,248
Net income ($ millions) 149 109 154 168
Earnings per share ($) $3.60 $2.63 $3.72 $4.06
Dividends per share ($) $0.75 $0.75 $0.75 $0.85
Dividend yield (%) 6.3% 3.9% 2.5% 2.8%
Common stock - high ($) $17 $21 $34 $36
Common stock - low ($) 10 12 18 24
Common stock - close ($) 12 19 30 30
Closing P/E 3.4 7.1 8.1 7.4
Total capitalization (Book values) 1,349 1,620 1,787 1,938
% debt 30% 29% 32% 32%
% preferred stock 0% 0% 0% 0%
% common stock 70% 71% 68% 68%
Beta 1.52 1.52 1.52 1.52
Interest coverage (a) 6.8 5.0 6.8 7.4
Bond rating (b) A/Aa A/Aa A/Aa A/Aa

Financial Statements of CROWN ZELLERBACH

1974 1975 1976 1977


Sales ($ millions) $1,172 $1,767 $2,136 $2,318
Net income ($ millions) 125 75 98 109
Earnings per share ($) $5.06 $3.01 $3.88 $4.34
Dividends per share ($) $1.75 $1.80 $1.80 $1.83
Dividend yield (%) 7.5% 5.1% 4.0% 5.6%
Common stock - high ($) $40 $41 $49 $45
Common stock - low ($) 20 24 36 32
Common stock - close ($) 24 36 43 34
Closing P/E 4.7 12.0 11.6 7.8
Total capitalization 1,220 1,290 1,345 1,446
% debt 33% 33% 31% 30%
% preferred stock 1% 1% 1% 1%
% common stock 66% 66% 68% 69%
Beta 1.03 1.03 1.03 1.03
Interest coverage (a) 8.1 4.5 5.3 5.7
Bond rating (b) A/A A/A A/A A/A

Page 32
Exhibit 2

EXHIBIT 2 (cont.) Financial Statements of INTERNATIONAL PAPER

1974 1975 1976 1977


Sales ($ millions) $3,042 $3,081 $3,541 $3,669
Net income ($ millions) 263 218 254 234
Earnings per share ($) $5.95 $4.93 $5.60 $4.98
Dividends per share ($) $1.75 $2.00 $2.00 $2.00
Dividend yield (%) 5.6% 3.5% 2.9% 4.6%
Common stock - high ($) $56 $62 $80 $70
Common stock - low ($) 32 35 58 39
Common stock - close ($) 36 58 69 44
Closing P/E 6.1 11.8 12.3 8.8
Total capitalization 2,207 2,801 3,093 3,303
% debt 33% 41% 34% 32%
% preferred stock 0% 0% 0% 0%
% common stock 67% 59% 66% 68%
Beta 1.43 1.43 1.43 1.43
Interest coverage (a) 11.1 5.4 5.1 4.7
Bond rating (b) AA/Aa AA/Aa AA/Aa AA/Aa

Financial Statements of MEAD CORPORATION

1974 1975 1976 1977


Sales ($ millions) $1,526 $1,245 $1,599 $1,822
Net income ($ millions) 82 53 89 98
Earnings per share ($) $3.27 $2.05 $3.61 $4.10
Dividends per share ($) $0.60 $0.80 $0.89 $0.98
Dividend yield (%) 9.2% 6.6% 4.4% 4.7%
Common stock - high ($) $13 $13 $23 $24
Common stock - low ($) 8 9 12 18
Common stock - close ($) 9 12 21 22
Closing P/E 2.8 5.9 5.8 5.4
Total capitalization 826 880 965 1,071
% debt 34% 35% 33% 38%
% preferred stock 6% 6% 5% 4%
% common stock 60% 59% 62% 58%
Beta 2.16 2.16 2.16 2.16
Interest coverage (a) 4.6 2.9 4.5 4.7
Bond rating (b) A/A A/A A/A A/A

Page 33
Exhibit 2

EXHIBIT 2 (cont.) Financial Statements of KIMBERLY-CLARK

1974 1975 1976 1977


Sales ($ millions) $1,439 $1,484 $1,585 $1,726
Net income ($ millions) 95 103 121 131
Earnings per share ($) $4.10 $4.41 $5.21 $5.60
Dividends per share ($) $1.48 $1.60 $1.80 $2.20
Dividend yield (%) 6.5% 4.4% 4.1% 5.1%
Common stock - high ($) $35 $37 $47 $48
Common stock - low ($) 19 24 36 37
Common stock - close ($) 25 37 44 43
Closing P/E 6.1 8.4 8.4 7.7
Total capitalization 1,030 1,086 1,196 1,347
% debt 24% 21% 20% 20%
% preferred stock 0% 0% 0% 0%
% common stock 76% 79% 80% 80%
Beta 0.99 0.99 0.99 0.99
Interest coverage (a) 9.1 8.3 10.0 10.1
Bond rating (b) AA/Aa AA/Aa AA/Aa AA/Aa

Financial Statements of ST. REGIS PAPER

1974 1975 1976 1977


Sales ($ millions) $1,471 $1,395 $1,642 $1,996
Net income ($ millions) 105 96 91 107
Earnings per share ($) $4.76 $4.27 $3.82 $3.36
Dividends per share ($) $1.25 $1.43 $1.55 $1.66
Dividend yield (%) 7.3% 4.5% 4.2% 5.6%
Common stock - high ($) $37 $35 $31 $39
Common stock - low ($) 18 20 34 29
Common stock - close ($) 19 34 39 31
Closing P/E 4.0 8.0 10.2 9.2
Total capitalization 1,127 1,189 1,296 1,694
% debt 33% 29% 26% 31%
% preferred stock 0% 0% 0% 0%
% common stock 67% 71% 74% 69%
Beta 1.14 1.14 1.14 1.14
Interest coverage (a) 7.6 7.2 6.1 5.6
Bond rating (b) NR/NR NR/NR NR/NR NR/NR

(a) Equal to earnings before interest and taxes divided by interest expenses.
(b) Standard & Poor's rating/Moody's rating.

Page 34
Exhibit 2

nd Other Selected

1978
$2,525
191
$4.61
$1.00
3.6%
$38
26
28
6.0
2,018
33%
0%
67%
1.52
8.2
A/Aa

1978
$2,467
112
$4.39
$1.90
6.2%
$38
29
31
7.1
1,647
34%
1%
65%
1.03
4.7
A/A

Page 35
Exhibit 2

1978
$4,150
234
$4.94
$2.00
5.5%
$49
35
37
7.5
3,407
28%
0%
72%
1.43
5.3
AA/Aa

1978
$2,322
121
$5.12
$1.21
6.8%
$34
17
23
4.5
1,171
36%
1%
63%
2.16
5.3
A/A

Page 36
Exhibit 2

1978
$1,911
149
$6.36
$2.60
6.4%
$50
39
41
6.4
1,435
19%
0%
81%
0.99
10.5
AA/Aa

1978
$2,300
127
$3.94
$1.74
6.4%
$35
26
28
7.1
1,791
30%
0%
70%
1.14
5.9
NR/NR

Page 37
Exhibit 5

EXHIBIT 5 Financial Statements of Selected Sodium Chlorate Producers

Financial Statements of PENNWALT

1974 1975 1976 1977


Sales ($ millions) $641 $714 $777 $835
Net income ($ millions) 27 33 35 42
Earnings per share ($) $2.81 $3.25 $3.56 $4.23
Dividends per share ($) $1.24 $1.36 $1.54 $2.25
Dividend yield (%) 7.4% 4.6% 4.9% 5.2%
Common stock - high ($) $26 $30 $38 $39
Common stock - low ($) 15 17 27 32
Common stock - close ($) 17 28 33 39
Closing P/E 6.0 8.6 9.3 9.2
Total capitalization(Book values) 371 441 469 500
Debt 104 150 155 170
Preferred stock 0 0 0 0
Common stock 267.12 291.06 314.23 330.00
Number of shares (million) 9.61 10.15 9.83 9.93
Market value of equity ($ million) 162.00 283.80 325.50 386.40
Beta 1.33 1.33 1.33 1.33
Interest coverage (a) 2.9 3.3 3.8 4.1
Bond rating (b) A/A A/A A/A A/A

Financial Statements of KERR-MCGEE

1974 1975 1976 1977


Sales ($ millions) $1,550 $1,799 $1,955 $2,165
Net income ($ millions) 116 131 134 119
Earnings per share ($) $4.64 $5.15 $5.19 $4.61
Dividends per share ($) $0.85 $1.00 $1.19 $1.25
Dividend yield (%) 1.4% 1.4% 1.8% 2.7%
Common stock - high ($) $93 $95 $83 $75
Common stock - low ($) 47 60 61 45
Common stock - close ($) 72 70 68 47
Closing P/E 15.5 13.6 13.1 10.2
Total capitalization(Book values) 851 1,091 1,325 1,433
Debt 162 218 318 301
Preferred stock 0 0 0 0
Common stock 689.31 872.80 1007.00 1132.07
Number of shares (million) 25.00 25.44 25.82 25.81
Market value of equity ($ million) 1798.00 1781.60 1755.40 1213.80

Page 38
Exhibit 5

Beta 1.06 1.06 1.06 1.06


Interest coverage (a) 19.4 17.1 10.8 8.4
Bond rating (b) AA/Aa AA/Aa AA/Aa AA/Aa

EXHIBIT 5 (cont.) Financial Statements of INTERNATIONAL MINERALS AND CHEMICALS

1974 1975 1976 1977


Sales ($ millions) $859 $1,303 $1,260 $1,280
Net income ($ millions) 70 166 135 108
Earnings per share ($) $3.59 $9.91 $7.73 $6.09
Dividends per share ($) $0.57 $1.38 $2.10 $2.45
Dividend yield (%) 1.9% 5.3% 5.9% 6.4%
Common stock - high ($) $41 $49 $42 $44
Common stock - low ($) 21 31 33 35
Common stock - close ($) 39 38 41 41
Closing P/E 10.9 3.8 5.3 6.7
Total capitalization(Book values) 577.00 781.00 990.00 1083.00
Debt 242.34 296.78 366.30 389.88
Preferred stock 57.70 31.24 19.80 10.83
Common stock 276.96 452.98 603.90 682.29
Number of shares (million) 19.50 16.75 17.46 17.73
Market value of equity ($ million) 763.00 630.80 715.50 723.60
Beta 0.81 0.81 0.81 0.81
Interest coverage (a) 5.5 11.6 8.4 5.5
Bond rating (b) NR/A NR/A NR/A NR/A

Financial Statements of GEORGIA-PACIFIC

1974 1975 1976 1977


Sales ($ millions) $2,432 $2,359 $3,038 $3,675
Net income ($ millions) 164 148 215 262
Earnings per share ($) $1.74 $1.54 $2.12 $2.54
Dividends per share ($) $0.47 $0.49 $0.70 $0.83
Dividend yield (%) 3.1% 1.9% 2.1% 3.5%
Common stock - high ($) $27 $30 $37 $37
Common stock - low ($) 13 16 26 25
Common stock - close ($) 15 26 37 28
Closing P/E 8.6 16.9 17.4 11.0
Total capitalization(Book values) 1935.00 2150.00 2045.00 2541.00
Debt 870.75 903.00 449.90 736.89
Preferred stock 0.00 0.00 0.00 0.00
Common stock 1064.25 1247.00 1595.10 1804.11
Number of shares (million) 94.25 96.10 101.42 103.15
Market value of equity ($ million) 1410.40 2501.20 3741.00 2882.00
Beta 1.50 1.50 1.50 1.50
Interest coverage (a) 4.3 4.4 8.1 9.9
Bond rating (b) AA/Aa AA/Aa AA/Aa AA/Aa

EXHIBIT 5 (cont.) Financial Statements of BRUNSWICK CHEMICAL

Page 39
Exhibit 5

1974 1975 1976 1977


Sales ($ millions) $1.9 $2.1 $3.0 $4.0
Net income ($ millions) 0.20 0.15 0.37 0.71
Earnings per share ($) $0.40 $0.30 $0.74 $1.42
Dividends per share ($) $0.10 $0.10 $0.15 $0.35
Dividend yield (c) c c c 2.9%
Common stock - high (c) c c c 13
Common stock - low (c) c c c 7.50
Common stock - close (c) c c c 12
Closing P/E c c c 8.5
Total capitalization(Book values) 1.80 1.90 2.10 2.60
Debt 0.59 0.57 0.53 0.49
Preferred stock 0.00 0.00 0.00 0.00
Common stock 1.21 1.33 1.58 2.11
Number of shares (million) 0.50 0.50 0.50 0.50
Market value of equity ($ million) c c c 6.04
Beta (c) c c c 1.10
Interest coverage (a) 6.7 5.0 12.3 47.0
Bond rating (b) N/R N/R N/R N/R

Financial Statements of SOUTHERN CHEMICALS

1974 1975 1976 1977


Sales ($ millions) $1.7 $2.0 $2.7 $3.6
Net income ($ millions) 0.10 (0.05) 0.28 0.74
Earnings per share ($) $0.61 ($0.24) $1.38 $3.69
Dividends per share ($) $0.00 $0.00 $0.00 $0.30
Dividend yield (c) c c c 1.2%
Common stock - high (c) c c c 28
Common stock - low (c) c c c 11
Common stock - close (c) c c c 25
Closing P/E c c c 6.7
Total capitalization(Book values) 1.60 1.50 1.80 2.40
Debt 0.80 0.75 0.74 0.67
Preferred stock 0.00 0.00 0.00 0.00
Common stock 0.80 0.75 1.06 1.73
Number of shares (million) 0.16 0.21 0.20 0.20
Market value of equity ($ million) c c c 4.96
Beta (c) c c c 1.2
Interest coverage (a) 3.5 0.4 9.0 22.0
Bond rating (b) N/R N/R N/R N/R

(a) Equal to earnings before interest and taxes divided by interest expenses.
(b) Standard & Poor's rating/Moody's rating.
(c) Stock not publicly traded.

Page 40
Exhibit 5

orate Producers

1978
$921
45
$4.54
$2.05
6.7%
$43
32
33
7.3
524
162
0
361.56
9.91
328.50
1.33
4.2
A/A

1978
$2,072
118
$4.57
$1.25
2.6%
$53
40
48
10.5
1,533
261
0
1272.39
25.82
1239.00

Page 41
Exhibit 5

1.06
6.4
AA/Aa

RALS AND CHEMICALS

1978
$1,364
120
$6.61
$2.60
7.4%
$44
34
35
5.3
1161.00
371.52
11.61
777.87
18.15
636.00
0.81
6.3
NR/A

1978
$4,403
302
$2.93
$1.03
4.5%
$33
24
24
8.2
2878.00
834.62
0.00
2043.38
103.07
2476.40
1.50
9.3
AA/Aa

Page 42
Exhibit 5

1978
$4.3
0.79
$1.58
$0.40
3.5%
14.25
9
11.50
7.3
3.20
0.48
0.00
2.72
0.50
5.77
1.10
53.0
N/R

1978
$3.9
0.73
$3.66
$0.30
1.3%
31
20
23
6.4
3.00
0.63
0.00
2.37
0.20
4.67
1.2
24.0
N/R

Page 43
Exhibit 6

EXHIBIT 6 Financial Statements for the Collinsville Plant (000s)

For years ended December 31


1974 1975 1976 1977 1978
REVENUES
Sales - tons 36,899 30,819 37,464 40,076 39,790
Avg. price/ton $188 $243 $295 $367 $392
Sales - $000 $6,937 $7,489 $11,052 $14,708 $15,598

MANUFACTURING COSTS

VARIABLE
Power $2,935 $3,395 $4,631 $5,530 $6,173
Graphite 354 369 545 653 689
Salt & other 693 800 1,047 1,274 1,307
Total variable $3,982 $4,564 $6,223 $7,457 $8,169

FIXED
Labor $590 $608 $646 $739 $924
Maintenance 143 201 220 272 235
Other 474 659 902 1,063 509
Total fixed $1,207 $1,468 $1,768 $2,074 $1,668
Total Manufacturing
costs $5,189 $6,032 $7,991 $9,531 $9,837

OTHER CHARGES
Depreciation $433 $394 $402 $391 $384
Selling 114 92 126 155 181
R&D 105 154 207 274 351
Total $652 $640 $735 $820 $916

OPER. PROFIT $1,096 $817 $2,326 $4,357 $4,845

(a) Expected

Page 44
Exhibit 6

EXHIBIT 6
(cont.)
For years ended December 31
1974 1975 1976 1977 1978
ASSETS
Accounts receivable $701 $779 $1,128 $1,456 $1,575
Inventories 254 544 681 647 639
Net property, plant
& equipment 4,066 3,978 4,003 3,853 3,964
Total $5,021 $5,301 $5,812 $5,956 $6,178

LIABILITIES
Accounts payable 402 472 619 780 795

NET ASSETS $4,619 $4,829 $5,193 $5,176 $5,383

Percent of Sales Ratios


1974 1975 1976 1977 1978
Power costs 42.3% 45.3% 41.9% 37.6% 39.6%
Variable costs 57.4% 60.9% 56.3% 50.7% 52.4%
Fixed costs 17.4% 19.6% 16.0% 14.1% 10.7%
Mfg. costs 74.8% 80.5% 72.3% 64.8% 63.1%
Operating profit 15.8% 10.9% 21.0% 29.6% 31.1%

Accounts receivable 10.1% 10.4% 10.2% 9.9% 10.1%


Inventories 3.7% 7.3% 6.2% 4.4% 4.1%
Accounts payable 5.8% 6.3% 5.6% 5.3% 5.1%
Net assets 66.6% 64.5% 47.0% 35.2% 34.5%

Operating profit/
net assets 23.7% 16.9% 44.8% 84.2% 90.0%

(a) Expected

Page 45
Exhibit 6

1979 (a)

38,507
$413
$15,903

$6,759
714
1,385
$8,858

$1,072
237
1,107
$2,416

$11,274

$399
204
429
$1,032

$3,597

Page 46
Exhibit 6

1979 (a)

$1,622
651

4,014
$6,287

873

$5,414

1979 (a)
42.5%
55.7%
15.2%
70.9%
22.6%

10.2%
4.1%
5.5%
34.0%

66.4%

Page 47
Exhibit 7

EXHIBIT 7 Financial Statements of Dixon Corporation (000s)

For years ended December 31


1975 1976 1977 1978
Sales $19,128 $23,830 $28,348 $34,770
Cost of goods sold 14,085 16,889 19,950 24,467
Selling and admin. 1,952 2,308 2,824 3,291
Research 325 388 593 682
Interest 400 320 240 160
Taxes 1,125 1,878 2,285 2,932
PROFIT AFTER TAXES $1,241 $2,047 $2,456 $3,238

Earnings per share $1.13 $1.86 $2.23 $2.94


Dividends per share $0.20 $0.30 $0.40 $0.40

Cash & marketable sec. $385 $357 $556 $1,273


Other current assets 4,208 5,016 5,939 7,267
Property, plant
& equipment 7,436 7,895 8,354 8,842
TOTAL ASSETS $12,029 $13,268 $14,849 $17,382

Current liabilities $2,314 $2,836 $3,402 $4,138


Debt (incl. curr. matu.) 5,000 4,000 3,000 2,000
Stockholders' equity 4,715 6,432 8,447 11,244
TOTAL LIABILITIES $12,029 $13,268 $14,849 $17,382

Stock price range $714 $822 $1930 $2540


Closing stock price $9 $20 $27 $38
Beta 1.06
Bond rating Not Rated

(a) Expected.
(b) 1979 value as of 10/30/79

1975 1976 1977 1978


EV (Profit after tax * P/E) 9,884 22,011 29,736 41,852
D 5,000 4,000 3,000 2,000
Market value of E 4,884 18,011 26,736 39,852
D/E 1.02 0.22 0.11 0.05

EBIT

Page 48
Exhibit 7

ber 31
1979 (a)
$42,259
29,185
4,436
716
80
3,818
$4,024

$3.66
$0.50

$4,824
8,029

8,918
$21,771

$6,053
1,000
14,718
$21,771

$3545
$40 (b)

1979 (a)
43,978
1,000
42,978
0.02

Page 49