Cooper Industries

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Exhibit 1 Condensed Operating and Stockholder Information, Cooper Industries, Inc., (millions
of dollars except per-share data)

1967 1968 1969 1970 1971

Operations
Net sales $198 $206 $212 $226 $208
Cost of goods sold 141 145 154 165 161
Depreciation 4 5 4 4 4
Selling and administrative expense 23 25 29 29 29
Interest expense 1 2 3 4 3
Income before taxes and extraordinary items 29 29 22 24 11
Income taxes 14 15 11 12 5
Income before extraordinary items 15.2 13.9 10.6 12.4 5.6
Preferred dividend 1.0 0.9 0.9 0.9 0.9
Net income applicable to common stock $14.2 $13.0 $9.7 $11.5 $4.7

Common Stock
Earnings per share before extraordinary items $3.34 $3.07 $2.33 $2.75 $1.12
Dividends per share 1.20 1.25 1.40 1.40 1.40
Book value per share 16.43 17.26 18.28 19.68 18.72
Market price 2359 3657 2250 2235 1838
Price/earnings ratio 718 1219 922 813 1634
Revised Calculation Estimated
1971 1972

237.30 251.54
177.98 188.65
4 4
29 29
3 3
23.33 26.88
12.00 12.00
11.33 14.88
0.9 0.9
10.43 13.98

3.3148908038
Estimated EPS in 1972
This shud be our target EPS even after dilution in 1972
Exhibit 2 Balance Sheet at December 31, 1971, Cooper Industries, Inc.
(millions of dollars)

Assets
Cash $9
Accounts receivable 49
Inventories 57
Other 2
Current assets 117
Net plant and equipment 47
Other 8
Total assets $172

Liabilities and Net Worth

Accounts payable $30
Accrued taxes 3
Long-term debt due 5
Current liabilities 38
Long-term debta 34
Deferred taxes 4
Preferred stock 11
Common equity (4,218,691 shares outstanding) 85
Total liabilities and net worth $172

Maturities of long-term debt were $5.5 million, $6 million, $4 million, $2 million, and $2
a

million in the years 1972 through 1976, respectively.

Exhibit 3 Summary of Cooper Industries itions (millions of dollars)

Year Preceding
Acquisition by Cooper
Net Book Acquisition
Sales Income Value Price Paid Form of Transaction

Lufkin Rule Company $22 $1.4 $15 $20.6 Convertible preferred

Crescent Niagara Corporation 16 (0.04) 4.9 12.5 Cash
Weller Electric Corporation 10 0.9 4.4 14.6 Common stock
Exhibit 4 Condensed Operating and Stockholder Information, Nicholson File Company, 1967
1971 (millions of dollars except per-share data)

1967 1968 1969 1970 1971

Operations
Net sales $48.5 $49.1 $53.7 $54.8 $55.3
Cost of goods sold 32.6 33.1 35.9 37.2 37.9
Selling, general, and administrative expenses 10.7 11.1 11.5 11.9 12.3
Depreciation expense 2.0 2.3 2.4 2.3 2.1
Interest expense 0.4 0.7 0.8 0.8 0.8
Other deductions 0.3 0.1 0.2 0.2 0.2
Income before taxes 2.53 1.85 2.97 2.42 2.02
Taxesa 0.60 0.84 1.31 0.88 0.67
Net income $1.93 $1.01 $1.66 $1.54 $1.35

Percentage of Sales
Cost of goods sold 67% 67% 67% 68% 69%
Selling, general, and administrative expenses 22 23 21 22 22
Income before taxes 5.2 3.8 5.5 4.4 3.7

Stockholder Information
Earnings per share $3.19 $1.65 $2.88 $2.64 $2.32
Dividends per share 1.60 1.60 1.60 1.60 1.60
Book value per share 45.66 48.03 49.31 50.20 51.25
Market price 33-46 35-48 29-41 2533 23-32
Price/earnings ratio 10-14 21-30 10-14 9-13 10-14

a
The ratio of income taxes to income before taxes had been reduced primarily by the investment tax credit and by the inclusion in
income of equity in net income of partially owned foreign companies, the taxes which are provided for in the accounts of such
companies and not in the tax provision of Nicholson. It was estimated that the average tax rate would be 40% in future years.
 forecast
1972 1973 1974 1975 1976

56.959 59.23736 62.19923 65.93118 69.88705

39.30171 40.2814 41.67348 43.51458 45.42658
10.82221 11.2551 11.81785 12.52692 13.27854
2.1 2.1 2.1 2.1 2.1
0.8 0.8 0.8 0.8 0.8
0.2 0.2 0.2 0.2 0.2
3.7 4.6 5.6 6.8 8.1
1.494032 1.840343 2.243157 2.715871 3.232771
2.2 2.8 3.4 4.1 4.8
Exhibit 5 Balance Sheet at December 31, 1971, Nicholson
File Company (millions of dollars)

Assets
Cash $1
Accounts receivable 8
Inventoriesa 18
Other 1
Current assets 28
Investment in subsidiaries 3
Net plant and equipment 16
Total assets $47

Liabilities and Net Worth

Accounts payable $2
Other 2
Current liabilities 4
Long-term debt 12
Common stock 31
Total liabilities and net worth $47

a
Inventories in the amount of $11.8 million were priced at cost on the last-in, first-
out method. The estimated replacement cost exceeds the carrying amounts by
$9.2 million. The remaining inventories are priced at the lower of cost on the first-
in, first-out method or market.
 NWC 24
% of revenue 43%
Exhibit 6 Condensed Operating and Stockholder Information, VLN Corporation, 1967
1971 (millions of dollars except per-share data)

1967 1968 1969 1970 1971

Operations
Net sales $45 $97 $99 $98 $100
Net income 1.97 3.20 3.20 1.13 2.98

Financial Position
Current assets $25 $46 $49 $41 $46
Current liabilities 6 11 15 10 13
Net working capital 19 35 34 31 33
Long-term debt 10 18 16 15 17
Shareholders equity 21 36 40 39 41

Stockholder Information
Earnings per share $0.78 $0.61 $0.53 $0.27 $0.54
Dividends per share -- -- -- 0.20 --
Shareholders equity per share 8.23 9.64 10.00 9.24 9.69
Market price range 6-17 10-18 7-18 4-10 5-8
Price/earnings ratio 8-22 16-30 13-34 15-37 9-15
Exhibit 7 Estimated Distribution of Nicholson File Company Stock

Shares Supporting Cooper

H.K. Porter 177,000
Cooper Industries 29,000
206,000
Shares Supporting VLN
Nicholson family and management 117,000
Owned by VLN 14,000
131,000

Shares owned by speculators 50-100,000

Shares unaccounted for 197-147,000
Total Nicholson shares outstanding 584,000
Exhibit 8 Five-Year Forecast of Cooper Industries Earnings, Excluding Nicholson File Company, 1972
1976

1972 1973 1974 1975 1976

Net income available to common stockholders ($ millions) $11.0 $11.9 $12.8 $13.8 $15.0
Number of shares outstanding (millions) 4.21 4.21 4.21 4.21 4.21
Primary earnings per share $2.61 $2.83 $3.04 $3.27 $3.56

Note: Forecasts are casewriters estimates.

Exhibit 4 Condensed Operating and Stockholder Information, Nicholson File Company, 1967
1971 (millions of dollars except per-share data)

1967 1968 1969 1970 1971

Operations

Net sales $48.5 $49.1 $53.7 $54.8 $55.3

Cost of goods sold 32.6 33.1 35.9 37.2 37.9
Selling, general, and administrative expenses 10.7 11.1 11.5 11.9 12.3
Depreciation expense 2.0 2.3 2.4 2.3 2.1
Interest expense 0.4 0.7 0.8 0.8 0.8
Other deductions 0.3 0.1 0.2 0.2 0.2
Income before taxes 2.53 1.85 2.97 2.42 2.02
Taxesa 0.60 0.84 1.31 0.88 0.67
Net income $1.93 $1.01 $1.66 $1.54 $1.35

Percentage of Sales
Cost of goods sold 67% 67% 67% 68% 69%
Selling, general, and administrative expenses 22 23 21 22 22
Income before taxes 5.2 3.8 5.5 4.4 3.7

Stockholder Information
Earnings per share $3.19 $1.65 $2.88 $2.64 $2.32
Dividends per share 1.60 1.60 1.60 1.60 1.60
Book value per share 45.66 48.03 49.31 50.20 51.25
Market price 33-46 35-48 29-41 2533 23-32
Price/earnings ratio 10-14 21-30 10-14 9-13 10-14

a
The ratio of income taxes to income before taxes had been reduced primarily by the investment tax credit and by the inclusion in
income of equity in net income of partially owned foreign companies, the taxes which are provided for in the accounts of such

Net sales 56.406 58.09818 60.42211 63.44321 67.24981

Cost of goods sold 38.92014 39.50676 40.48281 41.87252 43.71237
Selling, general, and administrative expenses 8.562431 8.395187 8.298976 8.269823 8.305351
2.10 2.10 2.10 2.10 2.10
 1971

FCFF Calculation

Net sales 55.30

Cost of goods sold -37.90
Selling, general, and administrative expenses -12.30
Depreciation expense -2.10
EBIT 3.0
tax 1.2
NOPAT 1.80
Depreciation expense 2.10
Capex
Delta NWC
FCFF

NWC 24.00

WACC Calculation
share price $3.00
outstanding shares 584000.00
total equity 1.75
total debt 12.00
Wd 87%
kd 7%
We 13%
Ke 10.06%
WACC 4.77%
g 4%
EV Calculation

FCFF
Net PV 256.58
number of shares 584000.00
Price per share of nicolson at current valuation 418.81

Projected Net income for cooper for 1972 13.98

projected Net income for nicolson for 1972 1.3
Total net income 15.29
let max share that can be added to equity base of cooper without
diluting EPS be x
current outstanding shares of cooper(in millions) 4.218691
Target EPS 3.3148908038
max shares that can be offered are 0.3939568684
required share for 50.1% majority 292584
currently held shares 29,000
need to acquire 263,584
max share that can be offered for 1 share of nicolson 1.5
max value that can be offered per share of nicolson 35.9
Hence the bid shud be between $37.452to $59.29 per share
 FCFF Calculations
1972 1973 1974 1975 1976 TV

Initial revenue growth

on Initial SAGA

56.406 58.09818 60.42211 63.44321 67.24981 Cooper expects that nicolson revenue growth c
-38.92014 -39.50676 -40.48281 -41.87252 -43.71237 Cooper expects that COGS
-12.40932 -12.7816 -13.29286 -13.95751 -14.79496 Cooper expects that SAGA expens
-2.10 -2.10 -2.10 -2.10 -2.10
2.98 3.71 4.55 5.51 6.64
-1.19 -1.48 -1.82 -2.21 -2.66
1.79 2.23 2.73 3.31 3.99
2.10 2.10 2.10 2.10 2.10
-2.10 -2.10 -2.10 -2.10 -2.10
-0.48 -0.73 -1.01 -1.31 -1.65
1.31 1.49 1.72 2.00 2.33 314.33

24.48 25.21 26.22 27.53 29.19

Ke Calculation
Use Gordon model
share price=D(1+g)/(Ke-g)
Cooper share price=24
Last dividend paid by cooper=1.4
assume perpetual growth at 6%
using these value we get Ke=10.06%

EV Calculations
1972 1973 1974 1975 1976
1.31 1.49 1.72 2.00 316.67

Explanation
3.17=(17.01)/(4.218619+x)
target EPS=total NI/total shares
 Assumptions

2% Yearly reduction 1% initial COGS 69% Yearly reduction 1%

22% Yearly reduction 0.75%

ts that nicolson revenue growth can increse form 2% to 6% gradually. we increse 1% every year
Cooper expects that COGS can be reduced from 69% to 65% gradually.we reduce 1 % each year
ooper expects that SAGA expenses can be reduced from 22% to 19% gradually.we reduce 0.75% each year
Exhibit 4 Condensed Operating and Stockholder Information, Nicholson File Company, 1967
1971 (millions of dollars except per-share data)

1967 1968 1969 1970 1971

Operations

Net sales $48.5 $49.1 $53.7 $54.8 $55.3

Cost of goods sold 32.6 33.1 35.9 37.2 37.9
Selling, general, and administrative expenses 10.7 11.1 11.5 11.9 12.3
Depreciation expense 2.0 2.3 2.4 2.3 2.1
Interest expense 0.4 0.7 0.8 0.8 0.8
Other deductions 0.3 0.1 0.2 0.2 0.2
Income before taxes 2.53 1.85 2.97 2.42 2.02
Taxesa 0.60 0.84 1.31 0.88 0.67
Net income $1.93 $1.01 $1.66 $1.54 $1.35

Percentage of Sales
 ECF Calculations
1971 1972 1973

ECF Calculation
Net sales 55.30 56.406 58.09818
Cost of goods sold -37.90 -38.92014 -39.50676
Selling, general, and administrative expenses -12.30 -8.562431 -8.395187
Depreciation expense -2.10 -2.10 -2.10
Interest expense -0.80 -0.80 -0.80
Other deductions -0.20 -0.20 -0.20
Income before taxes 2.00 5.82 7.10
Taxesa -0.80 -2.33 -2.84
Net income 1.20 3.49 4.26
Depreciation expense 2.1 2.1 2.1
Capex -2.10 -2.10 -2.10
Delta NWC -0.48 -0.73
Debt repayment 0.00 0.00 0.00
New proceeds 0.00 0.00 0.00
ECF 3.01 3.52

NWC 24 24.48 25.2144

Year 1971 1972 1973

Ke 10.06%
ECF 3.01 3.52
Net PV 75.30
Price per share of nicolson at current valuation 128.9335

Projected Net income for cooper for 1972 13.98

projected Net income for nicolson for 1972 1.3
Total net income 15.29
let max share that can be added to equity base of cooper without diluting
EPS be x
current outstanding shares of cooper(in millions) 4.218691
Target EPS 3.314891
max shares that can be offered are 0.393957
required share for 50.1% majority 292584
currently held shares 29000
need to acquire 263584
max share that can be offered for 1 share of nicolson 1.494616
max value that can be offered per share of nicolson 35.87078
Hence the bid shud be between $37.452to $128.9335 per share
ECF Calculations
1974 1975 1976 TV

60.42211 63.44321 67.24981

-40.48281 -41.87252 -43.71237
-8.298976 -8.269823 -8.305351
-2.10 -2.10 -2.10
-0.80 -0.80 -0.80
-0.20 -0.20 -0.20
8.54 10.20 12.13
-3.42 -4.08 -4.85
5.12 6.12 7.28
2.1 2.1 2.1
-2.10 -2.10 -2.10
-1.01 -1.31 -1.65
0.00 0.00 0.00
0.00 0.00 0.00
4.12 4.81 5.63 96.57

26.22298 27.53412 29.18617

1974 1975 1976

4.12 4.81 102.20

 1967 1968 1969

Operations
Net sales $48.50 $49.10 $53.70
Cost of goods sold $32.60 $33.10 $35.90
Selling, general, and administrative expenses $10.70 $11.10 $11.50
EBITDA $5.20 $4.90 $6.30
Depreciation expense $2.00 $2.30 $2.40
EBIT $3.20 $2.60 $3.90
EBIT(1-t)=NOPAT $1.92 $1.56 $2.34
(+)Depreciation $2.00 $2.30 $2.40
(-)Capex
(-)NWC
STEP 1 FCFF
WC
%OF WC
Terminal Value
NPV
No of Shares Nicolson
Price Per share

STEP2 WACC Calculation

Price of Share 44
No of share 584,000
Total equty 25.7
Total Debt 12
Cost of Debt 7%
Cost of Equity 10%
D/V 32%
E/V 68%
WACC 8.14%
g 4%

Projected Net income for cooper for 1972 11.00

projected Net income for nicolson for 1972 2.241048
Total net income 13.24
let max share that can be added to equity base of cooper
without diluting EPS be X
Current outstanding shares of Cooper(in millions) 4.218691
Target EPS 2.61
max shares that can be offered are 0.8545074674 854,507.47
Required share for 50.1% majority 292584
currently held shares 29,000
Need to acquire 263,584
Max share that can be offered for 1 share of nicolson
max value that can be offered per share of nicolson
 1970 1971 1972 1973 1974 1975 1976

$54.80 $55.30 $56.96 $59.24 $62.20 $65.93 $69.89

$37.20 $37.90 $39.30 $40.28 $41.67 $43.51 $45.43
$11.90 $12.30 $12.53 $12.74 $13.06 $13.19 $13.28
$5.70 $5.10 $5.13 $6.22 $7.46 $9.23 $11.18
$2.30 $2.10 $2.10 $2.10 $2.10 $2.10 $2.10
$3.40 $3.00 $3.03 $4.12 $5.36 $7.13 $9.08
$2.04 $1.80 $1.82 $2.47 $3.22 $4.28 $5.45
$2.30 $2.10 $2.10 $2.10 $2.10 $2.10 $2.10
2.1 2.1 2.1 2.1 2.1
0.00 0.7 1.0 1.3 1.6 1.7
3.90 1.10 1.48 1.93 2.66 3.73
$24.00 24.7 25.7 27.0 28.6 30.3
43.4%
93.862522
71.76
584,000
102.33

Using Gordon Model : 10.067%

Share price=Div(1+g)/(Ke-g)
Cooper Share Price=24
Last dividend paid by cooper =1.4
Assume Perpetual growth= 4%
Using value Ke= 10.06%