Develop a market-based valuation for Kohler stock by:

Creating valuation multiples for the comparable companies (Exhibit 7b)

Price to earnings (Net Income or EBITDA, but be consistent)

Price to sales

These P/E and P/S ratios will typically be between 0.25 and 40.

Determine the median P/E and P/S

Apply the median P/S and P/E ratios to Kohler to obtain valuations of a share of Kohler stock.

You should now have three values of a share of Kohler: DCF from last week, P/E and P/S.

Select a value for Kohler from the median of these results.

Write a brief opinion on the value of a privately-held share of Kohler giving:

The date of the valuation.

Your choice of a value.

The basis for your selection. (Your reasons for concluding what you did.)

I need to apply the ratios to Kohler's stock price , and discuss of which valuation (DCF, P/E or P/S). The DCF is on the first tab and what I have done for this assignment is on the "Assignment Ratio" tab.

Step Develop a discounted cash flow analysis of the value of Kohler stock by: 1 Calculate the annual historic and projected net cash from operations and investment. Rely on Exhibits 3c (historic cash flows) and 6c (projected cash flows) Recognize that the cash flow from the business will NOT include the cash from financing. 2 Calculate the Present Value of the cash flows from the date of the valuation until the end of the forecasted cash flows. For this exercise, use an 8% discount rate. 3 Calculate a terminal value to add to the PV from step 2 above by: Recognize that the terminal value is supposed to represent the total value of cash flows from Kohler out past the end of the forecast period. It is calculated as a perpetuity with some given cash flow and growth rate. Compute a compound annual growth rate (CAGR) for: Kohler actual net cash flow Kohler projected net cash flow Kohler total (actual & projected) net cash flow Select a CAGR to use in the terminal value formula. Use the final year's projected cash flow and your CAGR to compute the terminal value using the same 8% discount rate. 4 Discount the terminal value back to the date of the valuation The terminal value will be implicitly discounted back to the end of the forecast period. You need to discount it back a few years to the date of the valuation. 5 Add together your result from 2 and 4 to obtain the total market value of the Kohler Co. 6 Divide by the total number of shares of Kohler to arrive at a valuation for a single share of Kohler. Date of Valuation Share Price on Valutation Diluted Shares Oustanding 4/30/1998 55,400.00 7445 Free Cash Flow (in $ thousands) 1993 for the Years Ended December 31... 1994 1995 1996 1997 1998 a for the Years Ended December 31... 1999 2000 2001 1 2 3 4 Actuals 2002 5 CASH FLOWS FROM OPERATING ACTIVITIES Net Income $ 48,464 $ 66,719 $ 53,400 $ 53,936 $ 87,974 $ 48,590 $ 60,032 $ 86,860 $ 98,314 $ 108,229 Adjustments to Reconcile Net Income to Cash Flow from Operating Activities: Depreciation and Amortization 65,287 70,771 69,977 79,464 86,178 56,113 87,661 91,786 94,593 97,355 Deferred Income Taxes (6,868) (8,709) (605) (3,722) (7,769) 36,816 (1,964) 1,704 (5,075) (2,664) Provision for Loss on Accounts Receivable 4,192 4,921 4,626 4,789 3,673 2,000 2,000 2,000 2,000 Other Non-Cash Items 3,631 2,039 248 (1,146) (23) (2,000) (2,000) (2,000) (2,000) (Increase) Decrease in Accounts Receivable (9,498) (37,321) (4,261) (8,683) (40,937) 9,097 (3,410) (21,803) (17,002) (16,631) (Increase) Decrease in Inventory (7,328) (16,239) (14,433) 3,950 (12,272) 6,644 (2,707) (10,396) (9,485) (12,711) (Increase) Decrease in Future Income Tax Benefits (15,744) (450) (2,570) (966) (1,989) (Incr.) Decr. in Prepaid Expenses and Other Asset (19,513) 4,484 (11,732) 4,525 (49,091) 21,707 1,463 (9,072) (4,201) (3,649) Incr. (Decr.) in Accounts Payable and Accrued Ex 30,932 12,146 (683) 658 63,038 (23,139) (658) 16,136 13,952 11,835 Net Cash Flow from Operating Activities 109,299 98,811 96,537 133,771 130,771 140,084 139,967 152,645 170,130 179,775 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of Property, Plant and Equipment Sales of Property, Plant and Equipment Acquisition of Businesses Other Investments Net Cash Flow from Investing Activities levered Free Cash Flow Discount Rate (WACC) Present Value of Cash Flow Sum of Present values of FCFs (67,155) 3,084 (18,725) (82,796) (64,603) 4,648 (3,141) (63,096) (86,970) 4,685 (84,480) (166,765) (76,348) 6,051 (129,478) (199,775) (90,707) 7,604 ### (83,103) 26,503 8% 35,715 8% (70,228) 8% (66,004) 8% 47,668 8% 233,030.72 Growth in Perpetuity Method CAGR Discount Rate Free Cash Flow (t-1) Terminal Value Present Value of Terminal Value Terminal Value Actuals Projected Actual & Projected 6.90% 12.46% 6.90% 10.68% 8% 78,171.02 7,081,705.35 4,819,689.67 Enterprise Value Less: Net Debt Equity Value Diluted shares outstanding Equity Value per Share 5,052,720.38 670,614.00 4,382,106.38 7445 588.60 Enterprise Value to Equity Value (87,691) (87,691) (105,000) 7,795 (97,205) (105,000) 8,029 (96,971) (105,000) 8,189 (96,811) (115,000) 8,353 (106,647) 52,393 42,762 55,674 73,319 73,128 8% 8% 8% 8% 8% 48,512.04 36,661.52 44,195.82 53,891.65 49,769.69 Develop a market-based valuation for Kohler stock by: Creating valuation multiples for the comparable companies (Exhibit 7b) Price to earnings (Net Income or EBITDA, but be consistent) Price to sales These P/E and P/S ratios will typically be between 0.25 and 40. Determine the median P/E and P/S Apply the median P/S and P/E ratios to Kohler to obtain valuations of a share of Kohler stock. You should now have three values of a share of Kohler: DCF from last week, P/E and P/S. Select a value for Kohler from the median of these results. Write a brief opinion on the value of a privately-held share of Kohler giving: The date of the valuation. Your choice of a value. The basis for your selection. (Your reasons for concluding what you did.) Stock Price EBITDA Shares Outstanding Earnings per share Price to Earnings (EBITDA) Sales Sales per share Price to Sales American Standard 48.7 699,300,000.0 71,929,000.0 9.72 5.01 6,139,500,000.0 85.36 0.57 American Woodmark 30.3 37,600,000.0 7,811,000.0 4.81 6.28 327,000,000.0 41.86 0.72 58.0 838,400,000.0 169,634,000.0 4.94 11.74 3,945,000,000.0 23.26 2.49 Briggs & Stratton 45.3 178,300,000.0 24,514,000.0 7.27 6.22 1,327,200,000.0 54.14 0.84 6.28 36.77 0.72 11.74 20.43 2.49 6.22 47.55 0.84 Masco Question 1 Answer: Cummins Engine Detroit Diesel 54.4 23.0 487,000,000.0 105,500,000.0 42,036,000.0 24,701,000.0 11.59 4.27 4.69 5.39 5,821,000,000.0 2,233,000,000.0 138.48 90.40 0.39 0.25 Valuation of Kholer Shares outstanding Price to Earnings (EBITDA) Valuation: Price to Sales Median of Price to Earnings Median of Price to Shares Number of Shares Price Per share 7587.89 5.01 74.97 0.57 6.55 0.88 7587.89 11.44 4.69 121.63 0.39 5.39 79.40 0.25 These are not valuations. The Valuation would be the median P/S ratio times Kohler's sales/share. Question 2 Answer: The date of the valuation should be the current year's data and tha value should be the current value. The reason for chosing the current year data and value is because this information provides a true trend and nature of the privately held company Kohler. In addition to that, the value gives an overview of the past and present owenrship structure and how much of the share is divded among the shareholders of the company. Currently Kohler is a private held company that is being managed by the family who founded the company, however this is not good for the company's future the company in order for the company to expand and grow in a market that is contiously growing would have to start making their shares public. Exhibit 3a - Kohler Co. Historical Balance Sheets (in $ thousands) 1993 1994 as of December 31... 1995 1996 1997 as of 4/30/1998 ASSETS Cash and Cash Equivalents Accounts Receivable Inventory Future Income Tax Benefits Prepaid Expenses and Deposits Total Current Assets $ Property, Plant & Equipment, Gross Accumulated Depreciation Total PP&E, Net 32,955 $ 280,028 221,791 14,781 33,976 583,531 22,329 $ 298,046 248,777 16,813 40,157 626,122 20,039 $ 322,136 247,820 16,510 44,638 651,143 26,117 $ 339,238 249,957 15,346 56,028 686,686 2,454 360,810 265,606 78,857 707,727 885,493 (520,936) 364,557 1,059,183 (633,419) 425,764 NA NA 437,818 NA NA 447,714 NA NA 444,841 6,308 106,741 13,215 24,035 143,991 (62,441) 169,182 13,778 31,619 214,579 (83,877) 253,059 19,550 21,205 293,814 35,229 217,830 61,273 34,338 313,441 6,504 211,326 95,906 307,232 1,099,991 $ 1,266,465 $ 1,382,775 $ 1,447,841 $ 1,459,800 30,349 $ 159,439 65,165 7,201 262,154 5,861 $ 166,792 72,917 5,903 251,473 19,170 $ 188,258 68,899 5,672 281,999 15,425 $ 198,707 84,825 23,541 322,498 15,099 $ 229,170 97,736 8,824 350,829 209,972 118,800 48,629 377,401 55,607 54,694 140,601 250,902 56,248 58,877 132,209 247,334 56,463 67,584 202,138 326,185 56,462 53,344 251,699 361,505 56,166 58,905 220,116 335,187 111,852 183,815 295,667 513,056 498,807 608,184 684,003 686,016 673,068 32,555 526,437 (15,064) (4,936) 538,992 $ 944,920 (572,451) 372,469 113,049 10,493 23,262 146,804 Other Assets: Intangibles Deferred Income Taxes Other Assets Total Other Assets Total Assets 46,252 $ 244,852 201,208 8,413 39,961 540,686 32,561 586,727 (15,190) (2,914) 601,184 34,171 634,447 (13,266) 2,929 658,281 34,234 682,691 (14,304) (3,846) 698,775 34,235 763,838 (14,007) (22,239) 761,827 34,235 791,109 (14,127) (24,484) 786,733 1,052,048 $ 1,099,991 $ 1,266,465 $ 1,382,778 $ 1,447,843 $ 1,052,047 $ LIABILITIES AND STOCKHOLDERS' EQUITY Short-term Borrowings Acounts Payable Accrued Liabilities Current Maturities of LTD Total Current Liabilities $ Post-retirement Obligations Other Long-term Liabilities Long-term Debt Total Long-term Liabilities Total Liabilities Capital Stock Retained Earnings Treasury Stock, at Cost Foreign Currency Adjustment Total Stockholders' Equity Total Liabilities and Equity $ 1,459,801 Exhibit 3b - Kohler Co. Historical Income Statements (in $ thousands) Net Sales Cost of Sales Gross Profit 1993 1997 1,542,114 $ 1,164,305 377,809 1,771,959 $ 1,333,933 438,026 1,833,902 $ 1,412,155 421,747 2,014,818 $ 1,532,192 482,626 Selling & Administrative Exp Amortization of Intangibles Operating Income after Deprec 267,303 9,448 101,058 292,786 12,079 133,161 302,433 8,564 110,750 342,945 11,332 128,349 380,091 21,618 174,309 Non-operating Income (Expense) Interest Income Interest Expense Pretax Income (10,486) 1,877 12,337 80,112 (9,840) 2,151 11,798 113,674 (8,801) 3,623 10,972 94,600 (10,975) 2,101 18,547 100,928 (5,746) 2,237 14,031 156,769 Income Tax Expense Net Income $ for the Years Ended December 31... 1994 1995 1996 $ 31,648 48,464 $ 46,955 66,719 $ 41,200 53,400 $ 46,992 53,936 $ 2,213,403 1,637,385 576,018 68,796 87,973 Exhibit 3c - Kohler Co. Historical Cash Flow Statements (in $ thousands) 1993 for the Years Ended December 31... 1994 1995 1996 1997 CASH FLOWS FROM OPERATING ACTIVITIES Net Income Adjustments to Reconcile Net Income to Cash Flow from Operating Activities: Depreciation and Amortization Deferred Income Taxes Provision for Loss on Accounts Receivable Other Non-Cash Items (Increase) Decrease in Accounts Receivable (Increase) Decrease in Inventory (Incr.) Decr. in Prepaid Expenses and Other Assets Incr. (Decr.) in Accounts Payable and Accrued Exp. Net Cash Flow from Operating Activities $ 48,464 $ 66,719 $ 53,400 $ 53,936 $ 87,974 65,287 (6,868) 4,192 3,631 (9,498) (7,328) (19,513) 30,932 109,299 70,771 (8,709) 4,921 2,039 (37,321) (16,239) 4,484 12,146 98,811 69,977 (605) 4,626 248 (4,261) (14,433) (11,732) (683) 96,537 79,464 (3,722) 4,789 (1,146) (8,683) 3,950 4,525 658 133,771 86,178 (7,769) 3,673 (23) (40,937) (12,272) (49,091) 63,038 130,771 (67,155) 3,084 (18,725) (82,796) (64,603) 4,648 (3,141) (63,096) (86,970) 4,685 (84,480) (166,765) (76,348) 6,051 (129,478) (199,775) (90,707) 7,604 (83,103) 103,232 (94,447) 202 (246) (4,059) 4,682 5,055 (48,587) 235 (361) (4,539) (48,197) 102,973 (31,067) 176 (727) (6,995) 64,360 78,000 10,567 (21,498) 34 (1,071) (5,697) 60,335 (66,000) 49,245 (26,962) 351 (55) (5,688) (49,109) (817) (13,299) 46,253 32,954 $ (4,758) (10,626) 32,954 22,328 $ CASH FLOWS FROM INVESTING ACTIVITIES Purchase of Property, Plant and Equipment Sales of Property, Plant and Equipment Acquisition of Businesses Other Investments Net Cash Flow from Investing Activities CASH FLOWS FROM FINANCING ACTIVITIES Net Borrowings Under Revolving Credit Other Borrowings Other Principal Payments Sales of Treasury Stock Purchases of Treasury Stock Dividends Paid Net Cash Flow from Financing Activities Effect of Exchange Rate Changes on Cash Increase (Decrease) in Cash and Equivalents Cash and Equivalents, Beginning of Year Cash and Equivalents, End of Year $ (942) 30,243 16,010 46,253 $ 3,380 (2,289) 22,328 20,039 $ 7,519 6,078 20,039 26,117 Exhibit 4 - Kohler Co. Income Statements for 1997 - by Group (in $ thousands) Kitchen & Bath Power Systems Hospitality & R. Elim. & Corp Group Group Interiors Group Estate Group Var. % of Consolidated Net Sales Cost of Sales Gross Profit 67% $ 1,485,831 $ 1,045,038 440,793 24% 540,260 $ 461,140 79,120 7% 145,414 $ 92,564 52,850 2% 50,789 $ 43,041 7,748 0% (8,891) $ (4,398) (4,493) Kohler Co. Consol. 100% 2,213,403 1,637,385 576,018 Selling & Administrative Exp Amortization of Intangibles Operating Income after Deprec 284,097 156,696 44,600 34,520 45,580 7,270 4,872 2,876 942 21,618 (27,053) 380,091 21,618 174,309 Non-operating Income (Expense) Interest Income Interest Expense Pretax Income (6,400) 1,477 10,181 141,592 (269) 180 2,428 32,003 514 142 1,633 6,293 12 1,040 1,848 409 426 (1,251) (24,967) (5,746) 2,237 14,031 156,769 54,179 87,413 $ 11,605 20,398 $ 2,291 4,002 $ 727 1,121 $ (6) (24,961) $ 99% 23% 5% 1% Income Tax Expense Net Income % of Consolidated $ -28% 68,796 87,973 100% Exhibit 5 - Ownership of Kohler Co., April 1998 Number of Shares Name Percentage of Ownership Herbert V. Kohler Trust for the benefit of Herbert V. Kohler Lineal Descendants of Herbert V. Kohler 924 450 50 12.4% 6.0% 0.7% Ruth DeYoung Kohler Trust for the benefit of Ruth DeYoung Kohler 974 450 13.1% 6.0% Estate of Frederic Kohler 975 13.1% John Michael Kohler Trust for the benefit of John Michael Kohler 146 86 2.0% 1.2% 960 1,046 277 12.9% 14.0% 3.7% 780 10.5% Kohler Employee Plan 27 0.4% Outside Shareholders 300 4.0% Kohler Foundation Kohler Trust for the Arts and Education Kohler Trust for Preservation Other Kohler Family Members Total Outstanding Common Shares Restricted Shares Total Shares Outstanding 7,445 142.89 7,587.89 100.0% Exhibit 6a - Kohler Co. Projected Balance Sheets (in $ thousands) 1998 1999 as of December 31... 2000 2001 2002 ASSETS Cash and Cash Equivalents Accounts Receivable Inventory Future Income Tax Benefits Prepaid Expenses and Deposits Total Current Assets $ Total Assets $ 56,838 $ 355,124 261,669 16,194 56,007 745,832 55,621 $ 376,927 272,065 18,764 63,369 786,746 70,976 $ 393,929 281,550 19,730 66,272 832,457 95,207 410,560 294,261 21,719 68,809 890,556 476,419 197,387 21,072 25,414 720,292 Other Assets: Property, Plant & Equipment, Net Intangibles Deferred Income Taxes Other Assets Total Other Assets 63,512 $ 351,713 258,962 15,744 57,150 747,081 498,839 184,511 23,035 25,094 731,479 516,899 171,635 21,331 26,804 736,669 531,993 158,759 26,407 28,102 745,261 554,161 145,883 29,070 29,214 758,328 1,467,373 $ 1,477,311 $ 1,523,415 $ 1,577,718 $ 1,648,884 15,099 $ 225,771 79,862 8,824 329,556 15,099 $ 225,664 77,926 8,824 327,513 15,099 $ 239,481 78,705 8,824 342,109 15,099 $ 251,384 79,492 8,824 354,799 15,099 261,007 80,287 8,824 365,217 56,166 60,201 235,115 351,482 56,166 61,586 195,115 312,867 56,166 63,125 150,115 269,406 56,166 64,388 105,115 225,669 56,166 65,804 70,115 192,085 681,038 640,380 611,515 580,468 557,302 34,234 835,228 (60,888) (22,239) 786,335 34,234 889,857 (64,921) (22,239) 836,931 34,234 968,900 (68,995) (22,239) 911,900 34,234 1,058,364 (73,109) (22,239) 997,250 34,234 1,156,852 (77,265) (22,239) 1,091,582 1,467,373 $ 1,477,311 $ 1,523,415 $ 1,577,718 $ 1,648,884 LIABILITIES AND STOCKHOLDERS' EQUITY Short-term Borrowings Acounts Payable Accrued Liabilities Current Maturities of LTD Total Current Liabilities $ Post-retirement Obligations Other Long-term Liabilities Long-term Debt Total Long-term Liabilities Total Liabilities Capital Stock Retained Earnings Treasury Stock, at Cost Foreign Currency Adjustment Total Stockholders' Equity Total Liabilities and Equity $ Exhibit 6b - Kohler Co. Projected Income Statements (in $ thousands) Net Sales Cost of Sales Gross Profit 1998 $ 268,748 13,680 102,688 411,254 12,876 126,032 428,161 12,876 171,619 446,143 12,876 187,978 460,518 12,876 201,604 (6,299) 2,307 11,521 87,175 (10,173) 4,569 14,325 106,103 (10,783) 5,670 12,987 153,519 (11,430) 7,500 10,286 173,762 (12,116) 9,932 8,134 191,286 $ Eight month period ended December 31, 1998 38,585 48,590 $ 44% 46,071 60,032 $ 43% 2,393,187 $ 1,780,531 612,656 66,659 86,860 $ 43% 2,509,100 $ 1,862,103 646,997 2002 2,240,528 $ 1,690,366 550,162 Non-operating Income (Expense) Interest Income Interest Expense Pretax Income a for the Years Ended December 31... 1999 2000 2001 1,511,000 $ 1,125,884 385,116 Selling & Administrative Exp Amortization of Intangibles Operating Income after Deprec Income Tax Expense Net Income a 75,448 98,314 $ 43% 2,608,385 1,933,387 674,998 83,057 108,229 43% Exhibit 6c - Kohler Co. Projected Cash Flow Statements (in $ thousands) 1998 a for the Years Ended December 31... 1999 2000 2001 2002 CASH FLOWS FROM OPERATING ACTIVITIES Net Income Adjustments to Reconcile Net Income to Cash Flow from Operating Activities: Depreciation and Amortization Deferred Income Taxes Provision for Loss on Accounts Receivable Other Non-Cash Items (Increase) Decrease in Accounts Receivable (Increase) Decrease in Inventory (Increase) Decrease in Future Income Tax Benefits (Incr.) Decr. in Prepaid Expenses and Other Assets Incr. (Decr.) in Accounts Payable and Accrued Exp. Net Cash Flow from Operating Activities $ 48,590 $ 60,032 $ 86,860 $ 98,314 $ 108,229 56,113 36,816 9,097 6,644 (15,744) 21,707 (23,139) 140,084 87,661 (1,964) 2,000 (2,000) (3,410) (2,707) (450) 1,463 (658) 139,967 91,786 1,704 2,000 (2,000) (21,803) (10,396) (2,570) (9,072) 16,136 152,645 94,593 (5,075) 2,000 (2,000) (17,002) (9,485) (966) (4,201) 13,952 170,130 97,355 (2,664) 2,000 (2,000) (16,631) (12,711) (1,989) (3,649) 11,835 179,775 (87,691) (87,691) (105,000) 7,795 (97,205) (105,000) 8,029 (96,971) (105,000) 8,189 (96,811) (115,000) 8,353 (106,647) Net Borrowings Under Revolving Credit Other Principal Payments Sales of Treasury Stock Foreign Currency Adjustment Purchases of Treasury Stock Dividends Paid Net Cash Flow from Financing Activities 26,594 4,033 2,245 (1,765) 31,107 15,000 (55,000) (4,033) (5,403) (49,436) 15,000 (60,000) (4,074) (7,817) (56,891) 15,000 (60,000) (4,114) (8,848) (57,962) 15,000 (50,000) (4,156) (9,741) (48,897) Increase (Decrease) in Cash and Equivalents Cash and Equivalents, Beginning of Year Cash and Equivalents, End of Year 83,500 2,454 85,954 $ CASH FLOWS FROM INVESTING ACTIVITIES Purchase of Property, Plant and Equipment Sales of Property, Plant and Equipment Acquisition of Businesses Other Investments Net Cash Flow from Investing Activities CASH FLOWS FROM FINANCING ACTIVITIES a Eight month period ended December 31, 1998 $ (6,674) 63,512 56,838 $ (1,217) 56,838 55,621 $ 15,357 55,621 70,978 $ 24,231 70,978 95,209 Exhibit 7b - Selected Financial Data about Comparable Companies (in $ millions) Stock Market Data as of 4/30/1998 Ticker Shares Outstanding (thousands) Stock Price ($) Market Value of Equity Market Value of Equity Average of Latest 36 mths Beta over Latest 36 months Std Deviation of Stock Returns Financial Data as of 3/31/1998 Latest Twelve Months: Total Debt Sales EBITDA Cash Flowc EBIAT Average of Latest Three Years: Total Debt Sales EBITDA Cash Flowc EBIAT c American Standard American Woodmark Masco Briggs & Stratton Cummins Engine Detroit Diesel ASD 71,929.0 48.7 3,502.2 AMWD 7,811.0 30.3 236.3 MAS 169,634.0 58.0 9,838.8 BGG 24,514.0 45.3 1,109.3 CUM 42,036.0 54.4 2,285.9 DDC 24,701.0 23.0 568.1 2,762.9 0.8 7.7% 82.0 0.8 14.7% 5,937.3 1.3 6.4% 1,210.0 0.7 5.7% 2,053.6 1.1 8.5% 502.5 1.3 10.4% 2,404.0 6,139.5 699.3 462.5 292.6 13.4 327.0 37.6 27.4 17.1 1,187.9 3,945.0 838.4 553.4 437.3 259.6 1,327.2 178.3 127.2 80.4 1,250.0 5,821.0 487.0 390.2 224.2 107.4 2,233.0 105.5 82.8 41.0 2,216.6 5,767.8 667.0 420.9 263.5 12.3 262.7 30.7 22.1 13.7 1,341.3 3,414.0 721.9 473.6 367.4 155.4 1,282.2 187.0 132.1 87.1 686.7 5,431.0 448.3 377.5 221.0 127.3 2,090.7 100.2 78.2 40.5 Cash Flow is defined as EBIAT plus Depreciation Exhibit 3a - Kohler Co. Historical Balance Sheets [Common Size] (in $ thousands) 1993 1994 as of December 31... 1995 1996 1997 as of 4/30/1998 ASSETS Cash and Cash Equivalents Accounts Receivable Inventory Future Income Tax Benefits Prepaid Expenses and Deposits Total Current Assets 4.4% 23.3% 19.1% 0.8% 3.8% 51.4% 3.0% 25.5% 20.2% 1.3% 3.1% 53.0% 1.8% 23.5% 19.6% 1.3% 3.2% 49.4% 1.4% 23.3% 17.9% 1.2% 3.2% 47.1% 1.8% 23.4% 17.3% 1.1% 3.9% 47.4% 0.2% 24.7% 18.2% 0.0% 5.4% 48.5% 84.2% -49.5% 34.7% 85.9% -52.0% 33.9% 83.6% -50.0% 33.6% NA NA 31.7% NA NA 30.9% NA NA 30.5% 10.7% 1.0% 2.2% 14.0% 9.7% 1.2% 2.2% 13.1% 13.4% 1.1% 2.5% 16.9% 18.3% 1.4% 1.5% 21.2% 15.0% 4.2% 2.4% 21.6% 14.5% 0.0% 6.6% 21.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Short-term Borrowings Acounts Payable Accrued Liabilities Current Maturities of LTD Total Current Liabilities 2.9% 15.2% 6.2% 0.7% 24.9% 0.5% 15.2% 6.6% 0.5% 22.9% 1.5% 14.9% 5.4% 0.4% 22.3% 1.1% 14.4% 6.1% 1.7% 23.3% 1.0% 15.8% 6.8% 0.6% 24.2% 0.0% 14.4% 8.1% 3.3% 25.9% Post-retirement Obligations Other Long-term Liabilities Long-term Debt Total Long-term Liabilities 5.3% 5.2% 13.4% 23.8% 5.1% 5.4% 12.0% 22.5% 4.5% 5.3% 16.0% 25.8% 4.1% 3.9% 18.2% 26.1% 3.9% 4.1% 15.2% 23.2% 0.0% 7.7% 12.6% 20.3% 48.8% 45.3% 48.0% 49.5% 47.4% 46.1% 3.1% 50.0% -1.4% -0.5% 51.2% 3.0% 53.3% -1.4% -0.3% 54.7% 2.7% 50.1% -1.0% 0.2% 52.0% 2.5% 49.4% -1.0% -0.3% 50.5% 2.4% 52.8% -1.0% -1.5% 52.6% 2.3% 54.2% -1.0% -1.7% 53.9% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Property, Plant & Equipment, Gross Accumulated Depreciation Total PP&E, Net Other Assets: Intangibles Deferred Income Taxes Other Assets Total Other Assets Total Assets LIABILITIES AND STOCKHOLDERS' EQUITY Total Liabilities Capital Stock Retained Earnings Treasury Stock, at Cost Foreign Currency Adjustment Total Stockholders' Equity Total Liabilities and Equity Exhibit 3b - Kohler Co. Historical Income Statements [Common Size] (in $ thousands) Net Sales Cost of Sales Gross Profit for the Years Ended December 31... 1994 1995 1996 1993 4 Mths Ended 4/30/1998 1997 100.0% 75.5% 24.5% 100.0% 75.3% 24.7% 100.0% 77.0% 23.0% 100.0% 76.0% 24.0% 100.0% 74.0% 26.0% 100.0% 73.8% 26.2% Selling & Administrative Exp Amortization of Intangibles Operating Income after Deprec 17.3% 0.6% 6.6% 16.5% 0.7% 7.5% 16.5% 0.5% 6.0% 17.0% 0.6% 6.4% 17.2% 1.0% 7.9% 17.7% 0.9% 7.6% Non-operating Income (Expense) Interest Income Interest Expense Pretax Income -0.7% 0.1% 0.8% 5.2% -0.6% 0.1% 0.7% 6.4% -0.5% 0.2% 0.6% 5.2% -0.5% 0.1% 0.9% 5.0% -0.3% 0.1% 0.6% 7.1% -0.3% 0.0% 0.6% 6.6% 2.1% 3.1% 2.6% 3.8% 2.2% 2.9% 2.3% 2.7% 3.1% 4.0% 2.9% 3.8% Income Tax Expense Net Income Exhibit 6a - Kohler Co. Projected Balance Sheets [Common Size] (in $ thousands) 1998 1999 as of December 31... 2000 2001 2002 ASSETS Cash and Cash Equivalents Accounts Receivable Inventory Future Income Tax Benefits Prepaid Expenses and Deposits Total Current Assets 4.3% 24.0% 17.6% 1.1% 3.9% 50.9% 3.8% 24.0% 17.7% 1.1% 3.8% 50.5% 3.7% 24.7% 17.9% 1.2% 4.2% 51.6% 4.5% 25.0% 17.8% 1.3% 4.2% 52.8% 5.8% 24.9% 17.8% 1.3% 4.2% 54.0% Other Assets: Property, Plant & Equipment, Net Intangibles Deferred Income Taxes Other Assets Total Other Assets 32.5% 13.5% 1.4% 1.7% 49.1% 33.8% 12.5% 1.6% 1.7% 49.5% 33.9% 11.3% 1.4% 1.8% 48.4% 33.7% 10.1% 1.7% 1.8% 47.2% 33.6% 8.8% 1.8% 1.8% 46.0% 100.0% 100.0% 100.0% 100.0% 100.0% Short-term Borrowings Acounts Payable Accrued Liabilities Current Maturities of LTD Total Current Liabilities 1.0% 15.4% 5.4% 0.6% 22.5% 1.0% 15.3% 5.3% 0.6% 22.2% 1.0% 15.7% 5.2% 0.6% 22.5% 1.0% 15.9% 5.0% 0.6% 22.5% 0.9% 15.8% 4.9% 0.5% 22.1% Post-retirement Obligations Other Long-term Liabilities Long-term Debt Total Long-term Liabilities 3.8% 4.1% 16.0% 24.0% 3.8% 4.2% 13.2% 21.2% 3.7% 4.1% 9.9% 17.7% 3.6% 4.1% 6.7% 14.3% 3.4% 4.0% 4.3% 11.6% 46.4% 43.3% 40.1% 36.8% 33.8% 2.3% 56.9% -4.1% -1.5% 53.6% 2.3% 60.2% -4.4% -1.5% 56.7% 2.2% 63.6% -4.5% -1.5% 59.9% 2.2% 67.1% -4.6% -1.4% 63.2% 2.1% 70.2% -4.7% -1.3% 66.2% 100.0% 100.0% 100.0% 100.0% 100.0% Total Assets LIABILITIES AND STOCKHOLDERS' EQUITY Total Liabilities Capital Stock Retained Earnings Treasury Stock, at Cost Foreign Currency Adjustment Total Stockholders' Equity Total Liabilities and Equity Exhibit 6b - Kohler Co. Projected Income Statements [Common Size] (in $ thousands) 1998 Net Sales Cost of Sales Gross Profit for the Years Ended December 31... 1999 2000 2001 a 2002 100.0% 74.5% 25.5% 100.0% 75.4% 24.6% 100.0% 74.4% 25.6% 100.0% 74.2% 25.8% 100.0% 74.1% 25.9% Selling & Administrative Exp Amortization of Intangibles Operating Income after Deprec 17.8% 0.9% 6.8% 18.4% 0.6% 5.6% 17.9% 0.5% 7.2% 17.8% 0.5% 7.5% 17.7% 0.5% 7.7% Non-operating Income (Expense) Interest Income Interest Expense Pretax Income -0.4% 0.2% 0.8% 5.8% -0.5% 0.2% 0.6% 4.7% -0.5% 0.2% 0.5% 6.4% -0.5% 0.3% 0.4% 6.9% -0.5% 0.4% 0.3% 7.3% 2.6% 3.2% 2.1% 2.7% 2.8% 3.6% 3.0% 3.9% 3.2% 4.1% Income Tax Expense Net Income a Eight month period ended December 31, 1998 Exhibit 3b - Kohler Co. Historical Income Statements [Trends] (in $ thousands) for the Years Ended December 31... 1994 1995 1996 1993 1997 '93 - '95 CAGR Net Sales Cost of Sales Gross Profit NA NA NA 14.9% 14.6% 15.9% 3.5% 5.9% -3.7% 9.9% 8.5% 14.4% 9.9% 6.9% 19.4% 9.5% 8.9% 11.1% Selling & Administrative Exp Amortization of Intangibles Operating Income after Deprec NA NA NA 9.5% 27.8% 31.8% 3.3% -29.1% -16.8% 13.4% 32.3% 15.9% 10.8% 90.8% 35.8% 9.2% 23.0% 14.6% Non-operating Income (Expense) Interest Income Interest Expense Pretax Income NA NA NA NA -6.2% 14.6% -4.4% 41.9% -10.6% 68.4% -7.0% -16.8% 24.7% -42.0% 69.0% 6.7% -47.6% 6.5% -24.3% 55.3% -14.0% 4.5% 3.3% 18.3% Income Tax Expense Net Income NA NA 48.4% 37.7% -12.3% -20.0% 14.1% 1.0% 46.4% 63.1% 21.4% 16.1% Exhibit 6b - Kohler Co. Projected Income Statements [Trends] (in $ thousands) 1998 Net Sales Cost of Sales Gross Profit for the Years Ended December 31... 1999 2000 2001 2002 '97 - '02 CAGR 2.5% 2.9% 1.3% -1.2% 0.3% -5.7% 6.8% 5.3% 11.4% 4.8% 4.6% 5.6% 4.0% 3.8% 4.3% 3.3% 3.4% 3.2% 6.0% -5.4% -8.1% 2.1% -37.0% -21.3% 4.1% 0.0% 36.2% 4.2% 0.0% 9.5% 3.2% 0.0% 7.2% 3.9% -9.8% 3.0% Non-operating Income (Expense) Interest Income Interest Expense Pretax Income 51.0% 3.1% 16.4% -12.3% 17.2% 98.0% -12.3% -22.8% 6.0% 24.1% -9.3% 44.7% 6.0% 32.3% -20.8% 13.2% 6.0% 32.4% -20.9% 10.1% 16.1% 34.7% -10.3% 4.1% Income Tax Expense Net Income -12.5% -12.3% -23.5% -22.2% 44.7% 44.7% 13.2% 13.2% 10.1% 10.1% 3.8% 4.2% Selling & Administrative Exp Amortization of Intangibles Operating Income after Deprec a Eight month period ended December 31, 1998