What is the value chain in IBPs business (i.e., where is value added in the process)?

2. How large are the cash flows that the firm produces? How stable are they? How much

growth do you expect in the near future?

3. What is the value of the unlevered assets?

4. What is the value of the levered firm?

5. What is the value per share?

6. What exit strategies make sense for a business like this?

You can take the following as given:

Stock Price

$22.25

No. Shares (millions)

105.578

Return on Assets (r_A)

13.10%

Tax Rate

35.00%

Assume that it will be possible to borrow 3.5 times EBITDA for this transaction

and that the debt will be paid down as quickly as possible over the next five years.

The cost of the above financing (r_D) will be 8.68% and will be fixed at that value

by the debt agreement, regardless of how quickly it is paid down.

You can assume that the company will be sold in year five.

IBP Inc.
Summary Financial Information
					Historical			LTM	Projected
					12/31/1997	12/31/1998	12/31/1999	9/30/2000	12/31/2000	12/31/2001	12/31/2002	12/31/2003	12/31/2004	12/31/2005
Operating Performance
Net Sales Total					13,258.8	12,848.6	14,075.2	15,651.1	15,764.2	17,498.3	19,073.1	20,408.3	21,428.7	22,285.8	Calculated
Net Sales Growth Total					NA	(3.09%)	9.55%	NA	12.00%	11.00%	9.00%	7.00%	5.00%	4.00%	Assumptions
EBITDA					336.6	500.0	668.5	664.0	693.6	831.2	906.0	969.4	1,017.9	1,058.6	Calculated
EBITDA Margin					2.54%	3.89%	4.75%	4.24%	4.40%	4.75%	4.75%	4.75%	4.75%	4.75%	Assumptions
EBIT					226.7	373.7	528.5	502.9	545.6	631.3	697.1	752.3	793.3	827.2	Calculated
EBIT Margin					1.71%	2.91%	3.75%		3.46%	3.61%	3.65%	3.69%	3.70%	3.71%	Calculated
Proforma Liquidity & Interest Coverage
EBIT / Cash Interest					5.26x	7.84x	10.36x	3.47x	3.40x
EBITA / Cash Interest					5.67x	8.37x	10.88x	3.68x	3.58x
EBITDA / Cash Interest					7.82x	10.49x	13.11x	4.59x	4.68x
(EBITDA - Capex) / Interest					-2.84x	5.33x	1.51x	-0.52x	1.92x
(EBITDA - Capex - Taxes) / (Interest+Debt Amort+Dividends)					(4.50x)	2.20x	(1.50x)	(1.39x)	1.04x
Proforma Leverage Ratios
Senior Debt / EBITDA					2.26x	1.43x	1.55x	2.20x	2.11x
Funded Debt / EBITDA					2.26x	1.43x	1.55x	2.20x	2.11x
Funded Debt / (EBITDA - Capex)					(6.22x)	2.82x	13.42x	(19.27x)	5.15x
Funded Debt / Capitalization					38.06%	33.84%	37.71%	43.54%	42.55%
Senior Debt Outstanding (% of opening)					51.94%	48.95%	70.67%	100.00%	97.85%
Cash Flow
Proforma Total Cash Interest Expense					43.1	47.7	51.0	144.8	144.8
Total Fixed Debt Amortization					0.0	0.0	0.0	0.0	0.0
Total Capital Expenditures					458.8	245.7	591.5	740.0	400.0	300.0	300.0	300.0	300.0	300.0	Assumptions
Cash Flow Available to Retire Debt									31.5
Net Cash Flow									31.5
Cumulative Cash Flows									31.5
Summary Capitalization
Cash & Marketable Securities					72.1	28.7	32.2	35.2	35.2
Existing Long Term Debt					760.3	716.5	1,034.5	0.0	0.0
Revolver					0.0	0.0	0.0	1,463.8	1,432.3
Term Loan A					0.0	0.0	0.0	0.0	0.0
Term Loan B					0.0	0.0	0.0	0.0	0.0
Term Loan C					0.0	0.0	0.0	0.0	0.0
Other					0.0	0.0	0.0	0.0	0.0
Sr. Subordinated Notes					0.0	0.0	0.0	0.0	0.0
Jr. Subordinated Notes					0.0	0.0	0.0	0.0	0.0
Total Funded Debt					760.3	716.5	1,034.5	1,463.8	1,432.3
Net Worth					1,237.1	1,400.9	1,708.8	1,897.9	1,933.9
Total Capitalization					1,997.4	2,117.4	2,743.3	3,361.7	3,366.2
IBP Inc.
Consolidated Balance Sheet
					Historical
Assets					12/31/1997	12/31/1998	12/31/1999	9/30/2000
Cash					72.1	28.7	32.2	35.2
Accounts Receivable - Trade					564.1	600.0	798.6	795.4
Inventories					389.8	405.4	559.6	730.5
Prepaid Expenses					9.3	11.0	18.3	0.0
Other Current Assets					48.6	51.8	58.3	95.0
Total Current Assets					1,083.9	1,096.8	1,466.9	1,656.1
Gross Property, Plant, and Equipment					1,791.8	1,916.0	2,182.2	2,606.2	3,006.2	3,306.2	3,606.2	3,906.2	4,206.2	4,506.2	Calculated assuming no asset sales
Accumulated Depreciation					774.7	843.9	937.3	1,055.1	1,085.3	1,285.2	1,494.1	1,711.2	1,935.7	2,167.1	Calculated
Net Property, Plant, and Equipment					1,017.1	1,072.1	1,244.9	1,551.1	1,920.9	2,021.0	2,112.1	2,195.0	2,270.5	2,339.1	Calculated
Depreciation/Net PP&E					0.091	0.094	0.091	0.085	0.090	0.090	0.090	0.090	0.090	0.090	Assumption
Other Assets					66.4	115.1	108.3	150.5
Goodwill					671.6	724.1	893.1	1,046.6
Total Assets					2,838.9	3,008.1	3,713.2	4,404.2
Liabilities & Shareholder Equity
Accounts Payable					569.6	565.5	664.0	416.6
Accrued Expenses					0.0	0.0	0.0	0.0
Current Maturities of LTD					192.0	141.0	448.0	0.0
Other Current Liabilities					115.2	159.3	148.7	453.2
Total Current Liabilities					876.8	865.8	1,260.6	869.7
Net Working Capital to Sales					1.56%	1.80%	1.47%	0.1	1.50%	1.50%	1.50%	1.50%	1.50%	1.50%	Assumption
Existing Long Term Debt					568.3	575.5	586.5	0.0
Revolver					0.0	0.0	0.0	1,463.8
Term Loan A					0.0	0.0	0.0	0.0
Term Loan B					0.0	0.0	0.0	0.0
Term Loan C					0.0	0.0	0.0	0.0
Other					0.0	0.0	0.0	0.0
Total Senior Debt					568.3	575.5	586.5	1,463.8
Sr. Subordinated Notes					0.0	0.0	0.0	0.0
Jr. Subordinated Notes					0.0	0.0	0.0	0.0
Total Subordinated Debt					0.0	0.0	0.0	0.0
Total Long Term Debt					568.3	575.5	586.5	1,463.8
Deferred Tax Liability					15.4	17.0	0.0	0.0
Other Long Term Liabilities					141.3	148.8	157.3	172.8
Total Liabilities					1,601.9	1,607.2	2,004.5	2,506.4
Preferred Equity					0.0	0.0	0.0	4.0
Common Stock					4.8	4.8	4.8	5.4
Additional Paid in Capital					407.0	405.3	400.2	442.6
Treasury Stock					(55.5)	(60.4)	(59.3)	(71.1)
Retained Earnings					880.9	1,051.3	1,363.2	1,516.9
Total Shareholders' Equity					1,237.1	1,400.9	1,708.8	1,897.9
Total Liabilities & Owners' Equity					2,838.9	3,008.1	3,713.2	4,404.2
IBP Inc.
Consolidated Income Statement
					Historical			LTM
					12/31/1997	12/31/1998	12/31/1999	9/30/2000
Net Sales					$13,258.8	$12,848.6	$14,075.2	$15,651.1
COGS (Excluding D&A)					12,723.6	12,085.6	13,059.5	14,546.3
Gross Profit					535.2	763.0	1,015.8	1,104.8
SG&A Expense (Excluding D&A)					198.5	263.1	347.2	440.8
Corporate Overhead					0.0	0.0	0.0	0.0
EBITDA (Before Synergies)					336.6	500.0	668.5	664.0
Synergies					0.0	0.0	0.0	0.0
Add back adjustments					0.0	0.0	0.0	0.0
EBITDA					336.6	500.0	668.5	664.0
Reversal of add back adjustments					0.0	0.0	0.0	0.0
Depreciation					92.3	100.8	113.5	131.3	148.0	199.9	208.9	217.1	224.6	231.3	Calculated
Amortization of Goodwill					17.6	25.4	26.5	29.8
Total Depreciation & Amortization					109.9	126.2	140.1	161.1
EBIT					226.7	373.7	528.5	502.9
Existing Interest Expense					43.1	47.7	51.0	0.0
Revolver Interest Expense					0.0	0.0	0.0	144.8
Senior Term Debt Interest Expense					0.0	0.0	0.0	0.0
Subordinated Debt Interest					0.0	0.0	0.0	0.0
Noncash Interest Expense					0.0	0.0	0.0	0.0
Total Interest Expense					43.1	47.7	51.0	144.8
Interest (Income)					(5.1)	(4.5)	(5.6)	0.0
Pretax Income					188.7	330.5	483.1	358.1
Taxes					71.7	125.7	169.8	139.7
Net Income					$117.0	$204.8	$313.3	$218.4
Extraordinary Items					0.0	(14.8)	0.0	0.0
Dividends					0.0	0.0	0.0	2.7
Change in Net Worth					117.0	190.0	313.3	215.7