Discounted Cash Flow Analysis. Lehmxx Xxxthers performed a discounted cash flow analysis on the projected financial information of the Company for the fiscal years 2000 through 2004, based upon operating and financial assumptions, forecasts and other information provided to Lehmxx Xxxthers by the management of the Company. Using this information, Lehmxx Xxxthers discounted to present value the projected stream of unleveraged net income (earnings before interest and after taxes) for the fiscal years 2000 through 2004 as adjusted for: certain projected non-cash items (such as depreciation and amortization); forecasted capital expenditures (including discretionary capital expenditures); and forecasted changes in non-cash working capital (in aggregate, "Free Cash Flow"). To estimate the residual value of the Company at the end of the forecast (the "Terminal Value"), Lehmxx Xxxthers utilized two approaches, applying a range of 5.5x-6.5x multiples to projected fiscal 2004 EBITDA and applying terminal period growth rates of 4.0%-5.0% to projected fiscal 2004 Free Cash Flow, and discounted these Terminal Values to present value. Lehmxx Xxxthers applied a range of discount rates that varied from 11.5% to 12.5%, based on a weighted average cost of capital analysis of the Comparable Public Companies derived from the Capital Asset Pricing Model. To calculate the aggregate net present value of the equity of the Company, Lehmxx Xxxthers subtracted total debt less cash and cash equivalents of the Company as of December 31, 1999, from the sum of the present value of the projected Free Cash Flow and the present value of the Terminal Value. This analysis resulted in a range of equity values of approximately $10.14 to $14.19 per share. LEVERAGED BUYOUT ANALYSIS. Lehmxx Xxxthers performed a leveraged buyout analysis to determine the potential implied equity value per share of Common Stock that might be achieved in an acquisition of the Company in a leveraged buyout transaction based on current market conditions. In conducting this analysis, Lehmxx Xxxthers utilized projected financial information of the Company, based upon operating and financial assumptions, forecasts and other information provided to Lehmxx Xxxthers by the management of the Company for the fiscal years 2000 through 2004, and based upon Lehmxx Xxxthers' estimates for the fiscal years 2005 through 2009, and assumed that merger financing could be obtained in the high yield market and bank finance markets in an amount not in excess of 4.8x 1999 estimated EBITDA. Lehmxx Xxxthers assumed that a minimum internal rate of return ranging from 20% to 30% on equity invested during a five-year period would be required by an acquiror. This analysis resulted in a range of equity values of the Company of $10.00 to $11.50 per share. PRESENT VALUE OF FUTURE STOCK PRICE ANALYSIS. Lehmxx Xxxthers examined the present value to shareholders of holding the Common Stock for two years and four years. Specifically, Lehmxx Xxxthers assumed that the hypothetical future stock price in two and four years was estimated based on multiplying projected EPS (based on management projections) by a range of P/E multiples from 10.0x to 13.0x (assuming the Company continues not to pay a dividend to common shareholders). Lehmxx Xxxthers then discounted these hypothetical future stock prices per share, applying a range of discount rates from 13% to 15%. The discount rates were based on the estimated cost of equity capital for the Company. This analysis resulted in a range of equity values of the Company of $9.11 to $13.20 per share. BREAK-UP ANALYSIS. The Special Committee did not request Lehmxx Xxxthers to solicit indications of interest to purchase the entire Company or any of the divisions or assets of the Company in connection with advising the Special Committee on the Merger. However, Lehmxx Xxxthers analyzed the hypothetical value of the Company assuming that it could be separated and sold as two distinct, stand-alone businesses, automotive products and industrial consumable products. The enterprise values of the separate businesses were determined based on an analysis of the 1999 management projections for each business. A range of multiples of enterprise value to EBITDA, derived from the Precedent Transactions Analysis, was then applied to 1999 estimated EBITDA to determine a pretax enterprise value for each business. The aggregate value of the two businesses was then adjusted to reflect total debt minus cash and non-operating assets and liabilities to arrive at equity value per share of the Company. Based upon advice of the Company, Lehmxx Xxxthers then took into account the fact that the Company would likely incur a significant tax liability upon the sale of its assets, resulting in an after-tax break-up value of the Company of $9.52 to $11.16 per share. COMMON STOCK PRICE ANALYSIS. Lehmxx Xxxthers compared the Common Stock price performance from January 31, 1995 until January 28, 2000, one day before the initial announcement of the Merger. Using January 31, 1995 as the base of 100%, on January 28, 2000, the Common Stock price was 79.2% of the base value, as compared to the S&P 400 Index value of 262.1%. Lehmxx Xxxthers also compared the Common Stock price performance from January 31, 1995 until January 28, 2000 with an index of the Comparable Automotive Suppliers, an index of the Comparable Industrial Consumables Producers and an index of the Comparable Small-Cap Diversified Manufacturers. Using January 31, 1995 as the base of 100%, on January 28, 2000, the Common Stock price was 79.2% of the base value, as compared to an index of the Comparable Automotive Suppliers, the Comparable Industrial Consumables Producers and the Comparable Small-Cap Diversified Manufacturers values of 140.3%, 129.2% and 135.5% of their base value, respectively. Lehmxx Xxxthers noted that the Merger price of $11.25 per share was 57.9% above the $7.13 per share closing price of the Common Stock one day prior to the Merger, 45.2% above the $7.75 per share closing price one week prior to the Merger, 80.0% above the $6.25 per share closing price one month prior to the Merger and 21.6% above the Common Stock's 52-week high through January 28, 2000 of $9.25 per share. Within the Comparable Public Companies, as of January 28, 2000, the Comparable Automotive Suppliers were down on average 28.7% from their 52-week highs, the Comparable Industrial Consumables Producers were down on average 26.2% from their 52-week highs and the Comparable Small-Cap Diversified Manufacturers were down on average 29.9% from their 52-week highs. Overall, the Comparable Public Companies were down on average 28.2% from their 52-week highs. Lehmxx Xxxthers is an internationally recognized investment banking firm and, as part of its investment banking activities, is regularly engaged in the evaluation of businesses and their securities in connection with 32 38 mergers and acquisitions, negotiated underwritings, competitive bids, secondary distributions of listed and unlisted securities, private placements and valuations for corporate and other purposes. The Special Committee selected Lehmxx Xxxthers because of its expertise, reputation and familiarity with the Company and because its investment banking professionals have substantial experience in transactions similar to the Merger.
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Discounted Cash Flow Analysis. Lehmxx Xxxthers Bear Xxxxxxx performed a discounted cash flow analysis based on an analysis of the present value of future cash flows potentially realizable from the continuing operation of the Mainland Residential segment. This analysis was based on estimates and guidance provided by the Company's management for estimated Mainland Residential segment operating results through the end of fiscal year 2004. Bear Xxxxxxx computed the present value of the free cash flows of the Company's Mainland Residential segment for the five fiscal years from 2000 through 2004 by applying a range of discount rates of 12% to 14% per year. These discount rates were based on the projected financial information weighted average cost of capital ("WACC") for homebuilders using the Capital Asset Pricing Model ("CAPM"). However, Bear Xxxxxxx noted that over the past several years, homebuilders have significantly underperformed the market and have very low betas. Therefore, Bear Xxxxxxx calculated the Mainland Residential segment's WACC, assuming a market beta. Bear Xxxxxxx also computed the present value of the terminal value of the Mainland Residential segment at the end of fiscal year 2004 by applying a range of EBITDA multiples of 5 times to 7 times the Mainland Residential segment's estimated fiscal year 2004 EBITDA and applying these terminal values to a range of discount rates of 12% to 14% per year. The range of terminal EBITDA multiples was determined by analyzing the current and historical EBITDA multiples of the Company for and comparable companies and transactions and factoring in the fiscal years 2000 through 2004, based upon operating and financial assumptions, forecasts and other information provided to Lehmxx Xxxthers by the management of the Company. Using this information, Lehmxx Xxxthers discounted to present value the projected stream of unleveraged net income (earnings before interest and after taxes) for the fiscal years 2000 through 2004 as adjusted for: certain projected non-cash items (such as depreciation and amortization); forecasted capital expenditures (including discretionary capital expenditures); and forecasted changes in non-cash working capital (in aggregate, "Free Cash Flow"). To estimate the residual value expected growth prospects of the Company at the end of fiscal 2004. Because the forecast Mainland Residential segment shows no EBITDA growth from 2002 to 2004, the terminal value multiple was in line with comparable homebuilder average EBITDA multiples. SUMMARY OF ANALYSES REGARDING MAINLAND RESIDENTIAL SEGMENT The table below displays the enterprise value ranges for each of the analyses performed: ENTERPRISE VALUE ------------------- LOW HIGH -------- -------- ($ IN MILLIONS) Discounted Cash Flow Analysis............................... $106 $137 Comparable Companies Analysis............................... $ 72 $183 M&A Comparable Transactions Analysis........................ $ 70 $121 In examining each of the "Terminal Value")comparable companies, Lehmxx Xxxthers utilized two approachesmerger and acquisition comparable transactions and discounted cash flow analyses, applying Bear Xxxxxxx noted that the mainland homebuilding segment was expecting moderate growth over the next several years and therefore weighted the discounted cash flow analysis more heavily, as it takes into account higher expected future earnings. However, as stated above, the comparable companies and transactions analysis was relied on to determine the terminal value of the Mainland Residential segment. As a result, this analysis implied a range of 5.5x-6.5x multiples enterprise values for the Mainland Residential segment from $100 million to projected fiscal 2004 EBITDA $130 million. HAWAII RESIDENTIAL SEGMENT As the Hawaii Residential segment includes a considerable amount of unentitled and applying terminal period growth rates of 4.0%-5.0% to projected fiscal 2004 Free Cash Flowunzoned land on Oahu, Bear Xxxxxxx analyzed the current development projects separately from this unentitled and unzoned land. To analyze the current development projects, Bear Xxxxxxx used comparable companies, mergers and acquisition comparable transactions and discounted these Terminal Values to present value. Lehmxx Xxxthers applied a range of discount rates that varied from 11.5% to 12.5%, based on a weighted average cost of capital analysis of the Comparable Public Companies derived from the Capital Asset Pricing Modelcash flow analyses. To calculate assist in analyzing the aggregate net present value of the equity of the Companyunentitled and unzoned land, Lehmxx Xxxthers subtracted total debt less cash and cash equivalents of the Company as of December 31Bear Xxxxxxx obtained a limited real estate appraisal from The Xxxxxxxxx Group Inc., 1999Honolulu, from the sum of the present value of the projected Free Cash Flow and the present value of the Terminal Value. This analysis resulted in a range of equity values of approximately $10.14 to $14.19 per share. LEVERAGED BUYOUT ANALYSIS. Lehmxx Xxxthers performed a leveraged buyout analysis to determine the potential implied equity value per share of Common Stock that might be achieved in an acquisition of the Company in a leveraged buyout transaction based on current market conditions. In conducting this analysis, Lehmxx Xxxthers utilized projected financial information of the Company, based upon operating and financial assumptions, forecasts and other information provided to Lehmxx Xxxthers by the management of the Company for the fiscal years 2000 through 2004, and based upon Lehmxx Xxxthers' estimates for the fiscal years 2005 through 2009, and assumed that merger financing could be obtained in the high yield market and bank finance markets in an amount not in excess of 4.8x 1999 estimated EBITDA. Lehmxx Xxxthers assumed that a minimum internal rate of return ranging from 20% to 30% on equity invested during a five-year period would be required by an acquiror. This analysis resulted in a range of equity values of the Company of $10.00 to $11.50 per share. PRESENT VALUE OF FUTURE STOCK PRICE ANALYSIS. Lehmxx Xxxthers examined the present value to shareholders of holding the Common Stock for two years and four years. Specifically, Lehmxx Xxxthers assumed that the hypothetical future stock price in two and four years was estimated based on multiplying projected EPS (based on management projections) by a range of P/E multiples from 10.0x to 13.0x (assuming the Company continues not to pay a dividend to common shareholders). Lehmxx Xxxthers then discounted these hypothetical future stock prices per share, applying a range of discount rates from 13% to 15%. The discount rates were based on the estimated cost of equity capital for the Company. This analysis resulted in a range of equity values of the Company of $9.11 to $13.20 per share. BREAK-UP ANALYSIS. The Special Committee did not request Lehmxx Xxxthers to solicit indications of interest to purchase the entire Company or any of the divisions or assets of the Company in connection with advising the Special Committee on the Merger. However, Lehmxx Xxxthers analyzed the hypothetical value of the Company assuming that it could be separated and sold as two distinct, stand-alone businesses, automotive products and industrial consumable products. The enterprise values of the separate businesses were determined based on an analysis of the 1999 management projections for each business. A range of multiples of enterprise value to EBITDA, derived from the Precedent Transactions Analysis, was then applied to 1999 estimated EBITDA to determine a pretax enterprise value for each business. The aggregate value of the two businesses was then adjusted to reflect total debt minus cash and non-operating assets and liabilities to arrive at equity value per share of the Company. Based upon advice of the Company, Lehmxx Xxxthers then took into account the fact that the Company would likely incur a significant tax liability upon the sale of its assets, resulting in an after-tax break-up value of the Company of $9.52 to $11.16 per share. COMMON STOCK PRICE ANALYSIS. Lehmxx Xxxthers compared the Common Stock price performance from January 31, 1995 until January 28, 2000, one day before the initial announcement of the Merger. Using January 31, 1995 as the base of 100%, on January 28, 2000, the Common Stock price was 79.2% of the base value, as compared to the S&P 400 Index value of 262.1%. Lehmxx Xxxthers also compared the Common Stock price performance from January 31, 1995 until January 28, 2000 with an index of the Comparable Automotive Suppliers, an index of the Comparable Industrial Consumables Producers and an index of the Comparable Small-Cap Diversified Manufacturers. Using January 31, 1995 as the base of 100%, on January 28, 2000, the Common Stock price was 79.2% of the base value, as compared to an index of the Comparable Automotive Suppliers, the Comparable Industrial Consumables Producers and the Comparable Small-Cap Diversified Manufacturers values of 140.3%, 129.2% and 135.5% of their base value, respectively. Lehmxx Xxxthers noted that the Merger price of $11.25 per share was 57.9% above the $7.13 per share closing price of the Common Stock one day prior to the Merger, 45.2% above the $7.75 per share closing price one week prior to the Merger, 80.0% above the $6.25 per share closing price one month prior to the Merger and 21.6% above the Common Stock's 52-week high through January 28, 2000 of $9.25 per share. Within the Comparable Public Companies, as of January 28, 2000, the Comparable Automotive Suppliers were down on average 28.7% from their 52-week highs, the Comparable Industrial Consumables Producers were down on average 26.2% from their 52-week highs and the Comparable Small-Cap Diversified Manufacturers were down on average 29.9% from their 52-week highs. Overall, the Comparable Public Companies were down on average 28.2% from their 52-week highs. Lehmxx Xxxthers is an internationally recognized investment banking firm and, as part of its investment banking activities, is regularly engaged in the evaluation of businesses and their securities in connection with 32 38 mergers and acquisitions, negotiated underwritings, competitive bids, secondary distributions of listed and unlisted securities, private placements and valuations for corporate and other purposes. The Special Committee selected Lehmxx Xxxthers because of its expertise, reputation and familiarity with the Company and because its investment banking professionals have substantial experience in transactions similar to the MergerHawaii.
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Discounted Cash Flow Analysis. Lehmxx Xxxthers performed a discounted cash flow analysis on the projected financial information of the Company for the fiscal years 2000 through 2004, based upon operating and financial assumptions, forecasts and other information provided to Lehmxx Xxxthers by the management of the Company. Using this information, Lehmxx Xxxthers discounted to present value the projected stream of unleveraged net income (earnings before interest and after taxes) for the fiscal years 2000 through 2004 as adjusted for: certain projected non-cash items (such as depreciation and amortization); forecasted capital expenditures (including discretionary capital expenditures); and forecasted changes in non-cash working capital (in aggregate, "Free Cash Flow"). To estimate the residual value of the Company at the end of the forecast (the "Terminal Value"), Lehmxx Xxxthers utilized two approaches, applying a range of 5.5x-6.5x multiples to projected fiscal 2004 EBITDA and applying terminal period growth rates of 4.0%-5.0% to projected fiscal 2004 Free Cash Flow, and discounted these Terminal Values to present value. Lehmxx Xxxthers applied a range of discount rates that varied from 11.5% to 12.5%, based on a weighted average cost of capital analysis of the Comparable Public Companies derived from the Capital Asset Pricing Model. To calculate the aggregate net present value of the equity of the Company, Lehmxx Xxxthers subtracted total debt less cash and cash equivalents of the Company as of December 31, 1999, from the sum of the present value of the projected Free Cash Flow and the present value of the Terminal Value. This analysis resulted in a range of equity values of approximately $10.14 to $14.19 per share. LEVERAGED BUYOUT ANALYSIS. Lehmxx Xxxthers performed a leveraged buyout analysis to determine the potential implied equity value per share of Common Stock that might be achieved in an acquisition of the Company in a leveraged buyout transaction based on current market conditions. In conducting this analysis, Lehmxx Xxxthers utilized projected financial information of the Company, based upon operating and financial assumptions, forecasts and other information provided to Lehmxx Xxxthers by the management of the Company for the fiscal years 2000 through 2004, and based upon Lehmxx Xxxthers' estimates for the fiscal years 2005 through 2009, and assumed that merger financing could be obtained in the high yield market and bank finance markets in an amount not in excess of 4.8x 1999 estimated EBITDA. Lehmxx Xxxthers assumed that a minimum internal rate of return ranging from 20% to 30% on equity invested during a five-year period would be required by an acquiror. This analysis resulted in a range of equity values of the Company of $10.00 to $11.50 per share. PRESENT VALUE OF FUTURE STOCK PRICE ANALYSIS. Lehmxx Xxxthers examined the present value to shareholders of holding the Common Stock for two years and four years. Specifically, Lehmxx Xxxthers assumed that the hypothetical future stock price in two and four years was estimated based on multiplying projected EPS (based on management projections) by a range of P/E multiples from 10.0x to 13.0x (assuming the Company continues not to pay a dividend to common shareholders). Lehmxx Xxxthers then discounted these hypothetical future stock prices per share, applying a range of discount rates from 13% to 15%. The discount rates were based on the estimated cost of equity capital for the Company. This analysis resulted in a range of equity values of the Company of $9.11 to $13.20 per share. BREAK-UP ANALYSIS. The Special Committee did not request Lehmxx Xxxthers to solicit indications of interest to purchase the entire Company or any of the divisions or assets of the Company in connection with advising the Special Committee on the Merger. However, Lehmxx Xxxthers analyzed the hypothetical value of the Company assuming that it could be separated and sold as two distinct, stand-alone businesses, automotive products and industrial consumable products. The enterprise values of the separate businesses were determined based on an analysis of the 1999 management projections for each business. A range of multiples of enterprise value to EBITDA, derived from the Precedent Transactions Analysis, was then applied to 1999 estimated EBITDA to determine a pretax enterprise value for each business. The aggregate value of the two businesses was then adjusted to reflect total debt minus cash and non-operating assets and liabilities to arrive at equity value per share of the Company. Based upon advice of the Company, Lehmxx Xxxthers then took into account the fact that the Company would likely incur a significant tax liability upon the sale of its assets, resulting in an after-tax break-up value of the Company of $9.52 to $11.16 per share. COMMON STOCK PRICE ANALYSIS. Lehmxx Xxxthers compared the Common Stock price performance from January 31, 1995 until January 28, 2000, one day before the initial announcement of the Merger. Using January 31, 1995 as the base of 100%, on January 28, 2000, the Common Stock price was 79.2% of the base value, as compared to the S&P 400 Index value of 262.1%. Lehmxx Xxxthers also compared the Common Stock price performance from January 31, 1995 until January 28, 2000 with an index of the Comparable Automotive Suppliers, an index of the Comparable Industrial Consumables Producers and an index of the Comparable Small-Cap Diversified Manufacturers. Using January 31, 1995 as the base of 100%, on January 28, 2000, the Common Stock price was 79.2% of the base value, as compared to an index of the Comparable Automotive Suppliers, the Comparable Industrial Consumables Producers and the Comparable Small-Cap Diversified Manufacturers values of 140.3%, 129.2% and 135.5% of their base value, respectively. Lehmxx Xxxthers noted that the Merger price of $11.25 per share was 57.9% above the $7.13 per share closing price of the Common Stock one day prior to the Merger, 45.2% above the $7.75 per share closing price one week prior to the Merger, 80.0% above the $6.25 per share closing price one month prior to the Merger and 21.6% above the Common Stock's 52-week high through January 28, 2000 of $9.25 per share. Within the Comparable Public Companies, as of January 28, 2000, the Comparable Automotive Suppliers were down on average 28.7% from their 52-week highs, the Comparable Industrial Consumables Producers were down on average 26.2% from their 52-week highs and the Comparable Small-Cap Diversified Manufacturers were down on average 29.9% from their 52-week highs. Overall, the Comparable Public Companies were down on average 28.2% from their 52-week highs. Lehmxx Xxxthers is an internationally recognized investment banking firm and, as part of its investment banking activities, is regularly engaged in the evaluation of businesses and their securities in connection with 32 38 mergers and acquisitions, negotiated underwritings, competitive bids, secondary distributions of listed and unlisted securities, private placements and valuations for corporate and other purposes. The Special Committee selected Lehmxx Xxxthers because of its expertise, reputation and familiarity with the Company and because its investment banking professionals have substantial experience in transactions similar to the Merger.tax
Appears in 1 contract
Discounted Cash Flow Analysis. Lehmxx Xxxthers performed a discounted cash flow analysis on the projected financial information of the Company for the fiscal years 2000 through 2004, based upon operating and financial assumptions, forecasts and other information provided to Lehmxx Xxxthers by the management of the Company. Using this information, Lehmxx Xxxthers discounted to present value the projected stream of unleveraged net income (earnings before interest and after taxes) for the fiscal years 2000 through 2004 as adjusted for: certain projected non-cash items (such as depreciation and amortization); forecasted capital expenditures (including discretionary capital expenditures); and forecasted changes in non-cash working capital (in aggregate, "Free Cash Flow"). To estimate the residual value of the Company at the end of the forecast (the "Terminal Value"), Lehmxx Xxxthers utilized two approaches, applying a range of 5.5x-6.5x multiples to projected fiscal 2004 EBITDA and applying terminal period growth rates of 4.0%-5.0% to projected fiscal 2004 Free Cash Flow, and discounted these Terminal Values to present value. Lehmxx Xxxthers applied a range of discount rates that varied from 11.5% to 12.5%, based on a weighted average cost of capital analysis of the Comparable Public Companies derived from the Capital Asset Pricing Model. To calculate the aggregate net present value of the equity of the Company, Lehmxx Xxxthers subtracted total debt less cash and cash equivalents of the Company as of December 31, 1999, from the sum of the present value of the projected Free Cash Flow and the present value of the Terminal Value. This analysis resulted in a range of equity values of approximately $10.14 to $14.19 per share. LEVERAGED BUYOUT ANALYSIS. Lehmxx Xxxthers performed a leveraged buyout analysis to determine the potential implied equity value per share of Common Stock that might be achieved in an acquisition of the Company in a leveraged buyout transaction based on current market conditions. In conducting this analysis, Lehmxx Xxxthers utilized projected financial information of the Company, based upon operating and financial assumptions, forecasts and other information provided to Lehmxx Xxxthers by the management of the Company for the fiscal years 2000 through 2004, and based upon Lehmxx Xxxthers' estimates for the fiscal years 2005 through 2009, and assumed that merger financing could be obtained in the high yield market and bank finance markets in an amount not in excess of 4.8x 1999 estimated EBITDA. Lehmxx Xxxthers assumed that a minimum internal rate of return ranging from 20% to 30% on equity invested during a five-year period would be required by an acquiror. This analysis resulted in a range of equity values of the Company of $10.00 to $11.50 per share. PRESENT VALUE OF FUTURE STOCK PRICE ANALYSIS. Lehmxx Xxxthers examined the present value to shareholders of holding the Common Stock for two years and four years. Specifically, Lehmxx Xxxthers assumed that the hypothetical future stock price in two and four years was estimated based on multiplying projected EPS (based on management projections) by a range of P/E multiples from 10.0x to 13.0x (assuming the Company continues not to pay a dividend to common shareholders). Lehmxx Xxxthers then discounted these hypothetical future stock prices per share, applying a range of discount rates from 13% to 15%. The discount rates were based on the estimated cost of equity capital for the Company. This analysis resulted in a range of equity values of the Company of $9.11 to $13.20 per share. BREAK-UP ANALYSIS. The Special Committee did not request Lehmxx Xxxthers to solicit indications of interest to purchase the entire Company or any of the divisions or assets of the Company in connection with advising the Special Committee on the Merger. However, Lehmxx Xxxthers analyzed the hypothetical value of the Company assuming that it could be separated and sold as two distinct, stand-alone businesses, automotive products and industrial consumable products. The enterprise values of the separate businesses were determined based on an analysis of the 1999 management projections for each business. A range of multiples of enterprise value to EBITDA, derived from the Precedent Transactions Analysis, was then applied to 1999 estimated EBITDA to determine a pretax enterprise value for each business. The aggregate value of the two businesses was then adjusted to reflect total debt minus cash and non-operating assets and liabilities to arrive at equity value per share of the Company. Based upon advice of the Company, Lehmxx Xxxthers then took into account the fact that the Company would likely incur a significant tax liability upon the sale of its assets, resulting in an after-tax break-up value of the Company of $9.52 to $11.16 per share. COMMON STOCK PRICE ANALYSIS. Lehmxx Xxxthers compared the Common Stock price performance from January 31, 1995 until January 28, 2000, one day before the initial announcement of the Merger. Using January 31, 1995 as the base of 100%, on January 28, 2000, the Common Stock price was 79.2% of the base value, as compared to the S&P 400 Index value of 262.1%. Lehmxx Xxxthers also compared the Common Stock price performance from January 31, 1995 until January 28, 2000 with an index of the Comparable Automotive Suppliers, an index of the Comparable Industrial Consumables Producers and an index of the Comparable Small-Cap Diversified Manufacturers. Using January 31, 1995 as the base of 100%, on January 28, 2000, the Common Stock price was 79.2% of the base value, as compared to an index of the Comparable Automotive Suppliers, the Comparable Industrial Consumables Producers and the Comparable Small-Cap Diversified Manufacturers values of 140.3%, 129.2% and 135.5% of their base value, respectively. Lehmxx Xxxthers noted that the Merger price of $11.25 per share was 57.9% above the $7.13 per share closing price of the Common Stock one day prior to the Merger, 45.2% above the $7.75 per share closing price one week prior to the Merger, 80.0% above the $6.25 per share closing price one month prior to the Merger and 21.6% above the Common Stock's 52-week high through January 28, 2000 of $9.25 per share. Within the Comparable Public Companies, as of January 28, 2000, the Comparable Automotive Suppliers were down on average 28.7% from their 52-week highs, the Comparable Industrial Consumables Producers were down on average 26.2% from their 52-week highs and the Comparable Small-Cap Diversified Manufacturers were down on average 29.9% from their 52-week highs. Overall, the Comparable Public Companies were down on average 28.2% from their 52-week highs. Lehmxx Xxxthers is an internationally recognized investment banking firm and, as part of its investment banking activities, is regularly engaged in the evaluation of businesses and their securities in connection with 32 38 mergers and acquisitions, negotiated underwritings, competitive bids, secondary distributions of listed and unlisted securities, private placements and valuations for corporate and other purposes. The Special 32 38 Committee selected Lehmxx Xxxthers because of its expertise, reputation and familiarity with the Company and because its investment banking professionals have substantial experience in transactions similar to the Merger.
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Discounted Cash Flow Analysis. Lehmxx Xxxthers Bear Xxxxxxx performed a discounted cash flow analysis based on an analysis of the present value of future cash flows potentially realizable from the continuing operation of the Hawaii Residential segment. This analysis was based on estimates and guidance provided by the Company's management for estimating the Hawaii Residential segment operating results through the end of fiscal year 2004. Bear Xxxxxxx computed the present value of the free cash flows of the Company's Hawaii Residential segment for the five fiscal years from 2000 through 2004 by applying a range of discount rates of 12% to 14% per year. These discount rates were based on the projected financial information WACC for homebuilders using the CAPM. However, Bear Xxxxxxx noted that over the past several years, homebuilders have significantly underperformed the market and have very low betas. Therefore, Bear Xxxxxxx calculated the Hawaii Residential segment's WACC, assuming a market beta. Bear Xxxxxxx also computed the present value of the terminal value of the Hawaii Residential segment at the end of fiscal year 2004 by applying a range of EBITDA multiples of 5 times to 7 times the Hawaii Residential segment's estimated fiscal year 2004 EBITDA and applying these terminal values to a range of discount rates of 12% to 14% per year. The range of terminal EBITDA multiples was determined by analyzing the current and historical EBITDA multiples of the Company for and comparable companies and transactions and factoring in the fiscal years 2000 through 2004, based upon operating and financial assumptions, forecasts and other information provided to Lehmxx Xxxthers by the management of the Company. Using this information, Lehmxx Xxxthers discounted to present value the projected stream of unleveraged net income (earnings before interest and after taxes) for the fiscal years 2000 through 2004 as adjusted for: certain projected non-cash items (such as depreciation and amortization); forecasted capital expenditures (including discretionary capital expenditures); and forecasted changes in non-cash working capital (in aggregate, "Free Cash Flow"). To estimate the residual value expected growth prospects of the Company at the end of fiscal 2004. SUMMARY OF ANALYSES REGARDING CURRENT DEVELOPMENT PROJECTS OF HAWAII RESIDENTIAL SEGMENT The table below sets forth the enterprise value ranges for each of the analyses performed on the current development projects of the Hawaii Residential segment: ENTERPRISE VALUE ------------------- LOW HIGH -------- -------- ($ IN MILLIONS) Discounted Cash Flow Analysis............................... $155 $194 Comparable Companies Analysis............................... $ 51 $130 M&A Comparable Transactions Analysis........................ $ 64 $109 In examining each of the comparable company, merger and acquisition transactions and discounted cash flow analyses, Bear Xxxxxxx noted the very high level of growth in management's forecasts and therefore weighted the discounted cash flow more heavily. As stated above, the comparable companies and transactions analysis was relied on to determine the terminal value of the Hawaii Residential segment. However, Xxxx Xxxxxxx noted that an investor may view achieving all of the growth projected in the forecast (period as unlikely and would therefore be unwilling to value this segment at such a high value relative to near term earnings potential. As a result, Bear Xxxxxxx discounted the "Terminal Value"), Lehmxx Xxxthers utilized two approaches, applying results of the discounted cash flow analysis and valued the current operations of the Hawaii Residential segment at a range of 5.5x-6.5x multiples to projected fiscal 2004 EBITDA and applying terminal period growth rates of 4.0%-5.0% to projected fiscal 2004 Free Cash Flow, and discounted these Terminal Values to present value. Lehmxx Xxxthers applied a range of discount rates that varied enterprise values from 11.5% to 12.5%, based on a weighted average cost of capital analysis of the Comparable Public Companies derived from the Capital Asset Pricing Model. To calculate the aggregate net present value of the equity of the Company, Lehmxx Xxxthers subtracted total debt less cash and cash equivalents of the Company as of December 31, 1999, from the sum of the present value of the projected Free Cash Flow and the present value of the Terminal Value. This analysis resulted in a range of equity values of approximately $10.14 135 million to $14.19 per share. LEVERAGED BUYOUT ANALYSIS. Lehmxx Xxxthers performed a leveraged buyout analysis to determine the potential implied equity value per share of Common Stock that might be achieved in an acquisition of the Company in a leveraged buyout transaction based on current market conditions. In conducting this analysis, Lehmxx Xxxthers utilized projected financial information of the Company, based upon operating and financial assumptions, forecasts and other information provided to Lehmxx Xxxthers by the management of the Company for the fiscal years 2000 through 2004, and based upon Lehmxx Xxxthers' estimates for the fiscal years 2005 through 2009, and assumed that merger financing could be obtained in the high yield market and bank finance markets in an amount not in excess of 4.8x 1999 estimated EBITDA. Lehmxx Xxxthers assumed that a minimum internal rate of return ranging from 20% to 30% on equity invested during a five-year period would be required by an acquiror. This analysis resulted in a range of equity values of the Company of $10.00 to $11.50 per share. PRESENT VALUE OF FUTURE STOCK PRICE ANALYSIS. Lehmxx Xxxthers examined the present value to shareholders of holding the Common Stock for two years and four years. Specifically, Lehmxx Xxxthers assumed that the hypothetical future stock price in two and four years was estimated based on multiplying projected EPS (based on management projections) by a range of P/E multiples from 10.0x to 13.0x (assuming the Company continues not to pay a dividend to common shareholders). Lehmxx Xxxthers then discounted these hypothetical future stock prices per share, applying a range of discount rates from 13% to 15%. The discount rates were based on the estimated cost of equity capital for the Company. This analysis resulted in a range of equity values of the Company of $9.11 to $13.20 per share. BREAK-UP ANALYSIS. The Special Committee did not request Lehmxx Xxxthers to solicit indications of interest to purchase the entire Company or any of the divisions or assets of the Company in connection with advising the Special Committee on the Merger. However, Lehmxx Xxxthers analyzed the hypothetical value of the Company assuming that it could be separated and sold as two distinct, stand-alone businesses, automotive products and industrial consumable products. The enterprise values of the separate businesses were determined based on an analysis of the 1999 management projections for each business. A range of multiples of enterprise value to EBITDA, derived from the Precedent Transactions Analysis, was then applied to 1999 estimated EBITDA to determine a pretax enterprise value for each business. The aggregate value of the two businesses was then adjusted to reflect total debt minus cash and non-operating assets and liabilities to arrive at equity value per share of the Company. Based upon advice of the Company, Lehmxx Xxxthers then took into account the fact that the Company would likely incur a significant tax liability upon the sale of its assets, resulting in an after-tax break-up value of the Company of $9.52 to $11.16 per share. COMMON STOCK PRICE ANALYSIS. Lehmxx Xxxthers compared the Common Stock price performance from January 31, 1995 until January 28, 2000, one day before the initial announcement of the Merger. Using January 31, 1995 as the base of 100%, on January 28, 2000, the Common Stock price was 79.2% of the base value, as compared to the S&P 400 Index value of 262.1%. Lehmxx Xxxthers also compared the Common Stock price performance from January 31, 1995 until January 28, 2000 with an index of the Comparable Automotive Suppliers, an index of the Comparable Industrial Consumables Producers and an index of the Comparable Small-Cap Diversified Manufacturers. Using January 31, 1995 as the base of 100%, on January 28, 2000, the Common Stock price was 79.2% of the base value, as compared to an index of the Comparable Automotive Suppliers, the Comparable Industrial Consumables Producers and the Comparable Small-Cap Diversified Manufacturers values of 140.3%, 129.2% and 135.5% of their base value, respectively. Lehmxx Xxxthers noted that the Merger price of $11.25 per share was 57.9% above the $7.13 per share closing price of the Common Stock one day prior to the Merger, 45.2% above the $7.75 per share closing price one week prior to the Merger, 80.0% above the $6.25 per share closing price one month prior to the Merger and 21.6% above the Common Stock's 52-week high through January 28, 2000 of $9.25 per share. Within the Comparable Public Companies, as of January 28, 2000, the Comparable Automotive Suppliers were down on average 28.7% from their 52-week highs, the Comparable Industrial Consumables Producers were down on average 26.2% from their 52-week highs and the Comparable Small-Cap Diversified Manufacturers were down on average 29.9% from their 52-week highs. Overall, the Comparable Public Companies were down on average 28.2% from their 52-week highs. Lehmxx Xxxthers is an internationally recognized investment banking firm and, as part of its investment banking activities, is regularly engaged in the evaluation of businesses and their securities in connection with 32 38 mergers and acquisitions, negotiated underwritings, competitive bids, secondary distributions of listed and unlisted securities, private placements and valuations for corporate and other purposes. The Special Committee selected Lehmxx Xxxthers because of its expertise, reputation and familiarity with the Company and because its investment banking professionals have substantial experience in transactions similar to the Merger160 million.
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