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BLAINE KITCHENWARE
Project:
Analysis:
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Historical Income Statement
BLAINE KITCHENWARE
Historical Income Statement
Y
Harvard Business School Publishing
Harvard Business School Publishing
BLAINE KITCHENWARE
Historical Income Statement
Case Exhibit 1
Operating Results:
Revenue
Less: Cost of Goods Sold
Gross Profit
Less: Selling, General & Administrative
Operating Income
Plus: Depreciation & Amortization
EBITDA
EBIT
Plus: Other Income (expense)
Earnings Before Tax
Less: Taxes
Net Income
Dividends
2004
291,940
204,265
87,676
25,293
62,383
6,987
69,370
2005
307,964
220,234
87,731
27,049
60,682
8,213
68,895
2006
342,251
249,794
92,458
28,512
63,946
9,914
73,860
62,383
15,719
78,101
24,989
53,112
18,589
60,682
16,057
76,738
24,303
52,435
22,871
63,946
13,506
77,451
23,821
53,630
28,345
Margins:
Revenue Growth
Gross Margin
EBIT Margin
EBITDA Margin
Effective Tax Rate (1)
Net Income Margin
Dividend payout ratio
3.2%
30.0%
21.4%
23.8%
32.0%
18.2%
35.0%
5.5%
28.5%
19.7%
22.4%
31.7%
17.0%
43.6%
11.1%
27.0%
18.7%
21.6%
30.8%
15.7%
52.9%
(1) Blaine's future tax rate is assumed to revert to the statutory rate of 40%.
Harvard Business School Publishing
BLAINE KITCHENWARE
Project:
Analysis:
Draft:
Footer:
Historical Balance Sheet
BLAINE KITCHENWARE
Historical Balance Sheet
Y
Harvard Business School Publishing
Harvard Business School Publishing
BLAINE KITCHENWARE
Draft
Historical Balance Sheet
Case Exhibit 2
Assets:
Cash & Cash Equivalents
Marketable Securities
Accounts Receivable
Inventory
Other Current Assets
Total Current Assets
2004
67,391
218,403
40,709
47,262
2,586
376,351
2005
70,853
196,763
43,235
49,728
3,871
364,449
2006
66,557
164,309
48,780
54,874
5,157
339,678
Property, Plant & Equipment
Goodwill
Other Assets
Total Assets
99,402
8,134
13,331
497,217
138,546
20,439
27,394
550,829
174,321
38,281
39,973
592,253
Liabilities & Shareholders' Equity:
Accounts Payable
Accrued Liabilities
Taxes Payable
Total Current Liabilities
Other liabilities
Deferred Taxes
Total Liabilities
Shareholders' Equity
Total Liabilities & Shareholders' Equity
26,106
22,605
14,225
62,935
1,794
15,111
79,840
417,377
497,217
28,589
24,921
17,196
70,705
3,151
18,434
92,290
458,538
550,829
31,936
27,761
16,884
76,581
4,814
22,495
103,890
488,363
592,253
Note: Many items in BKI's historical balance sheets, e.g. Property, Plant & Equipment
have been affected by the firm's acquisitions.
Harvard Business School Publishing
Exhibit 3
Selected Operating and Financial Data for Public Kitchenware Producers
Revenue
EBIT
EBITDA
Net income
Cash & securities
Net working capital*
Net fixed assets
Total assets
Net debt (1)
Total debt
Book equity
Market capitalization
Enterprise value (MVIC)
Equity beta
Home & Hearth Design AutoTech Appliances
$589,747
$18,080,000
106,763
2,505,200
119,190
3,055,200
$53,698
$1,416,012
$21,495
54,316
900,803
$976,613
$536,099
1,247,520
7,463,564
$9,247,183
XQL Corp.
$4,313,300
721,297
796,497
$412,307
Bunkerhill, Inc.
$3,671,100
566,099
610,399
$335,073
EasyLiving Systems
$188,955
19,613
23,356
$13,173
$21,425
353,691
3,322,837
$3,697,952
$153,680
334,804
815,304
$1,303,788
$242,102
21,220
68,788
$332,110
($64,800)
177,302
$94,919
$350,798
372,293
$475,377
$4,437,314
4,973,413
$3,283,000
$950,802
972,227
$2,109,400
$238,056
391,736
$804,400
776,427
$1,127,226
13,978,375
$18,415,689
5,290,145
$6,240,947
3,962,780
$4,200,836
418,749
$353,949
1.03
1.24
0.96
0.92
0.67
LTM Trading Multiples
MVIC/Revenue
MVIC/EBIT
MVIC/EBITDA
Market/Book equity
1.91x
10.56x
9.46x
1.63x
1.02x
7.35x
6.03x
4.26x
1.45x
8.65x
7.84x
2.51x
1.14x
7.42x
6.88x
4.93x
1.87x
18.05x
15.15x
4.41x
Net Debt/Equity
Net Debt/Enterprise Value
45.18%
31.12%
31.74%
24.10%
17.97%
15.23%
6.01%
5.67%
-15.47%
-18.31%
* Net working capital excludes cash and securities
(1) Net debt is total long term and short term debt less excess cash.
Blaine Kitchenware
$342,251
63,946
73,860
$53,630
$230,866
32,231
174,321
$592,253
($230,866)
$488,363
959,596
$728,730
0.56
2.13x
11.40x
9.87x
1.96x
-24.06%
-31.68%
Exhibit 4
Contemporaneous Capital Market Data: April 21, 2007
Yields on US Treasury Securities
Maturity
30 days
4.55%
60 days
4.73%
90 days
4.91%
1 year
4.90%
5 years
4.91%
10 years
5.02%
20 years
5.26%
30 years
5.10%
Seasoned corporate bond yields
Moody's Aaa
5.88%
Aa
6.04%
A
6.35%
Baa
6.72%
Ba
7.88%
B
8.94%
Default spread
0.86%
1.02%
1.33%
1.70%
2.86%
3.92%
Case #1: Blaine Kitchenware, Inc.
This case has an associated excel sheet which can be found in my dropbox folder, the case may
be downloaded here: http://cb.hbsp.harvard.edu/cbmp/access/79367962
There will be a fee for downloading this material.
Questions:
1. Do you believe Blaine's current capital structure and payout policies are appropriate?
Why or why not?
2. Should Dubinski recommend a large share repurchase to Blaine's board? What are the
primary advantages and disadvantages of such a move?
3. Consider the following share repurchase proposal: Blaine will use $209 million of cash
from its balance sheet and $50 million in new debt-bearing interest at the rate of 6.75%
to repurchase 14 million shares at a price of $18.50 per share. How would such a
buyback affect Blaine? Consider the impact on, among other things, BKI's earnings per
share and ROE, its interest coverage and debt ratios, the family's ownership interest and
the company's cost of capital.
4. As a member of Blaine's controlling family, would you be in favor of this proposal?
Would you be in favor of it as a non-family shareholder?
5. How does the proposal sketched above differ from a special dividend of $4.39 per
share?