RF Industries2.pptx

RF INDUSTRIESManagement Presentation

1

Prepared by

Disclaimer: This is a purely hypothetical situation created by AG Consulting for marketing purposes only.

Sources of Data: All data is publicly available mainly from Bishop & Associates & 10-K filings, websites of respective companies. PE data is from company websites.

2

Corporate Profile, History & Selected Financial Information


Corporate Profile & Transaction

RF Industries

3

Founding Est. 1979 by current CEO Howard Hill

Headquarters San Diego, CA with facilities in NV & NY

Products Connectors & Cable Assemblies

Clients Wireless Carriers (AT&T, Verizon), healthcare, military & aerospace

Key Events• In 2011 acquired Cables Unlimited, a large NY company, and significantly expanded its capabilities • Over past two years, sold off poorly performing wireless division

Employees 178 people (Admin/sales-57, Operations-116, Engineers-5)

Awards Forbes Best 200 Small Companies & Forbes Best 100

Transaction RFIL is looking to sell itself completely to company or investor

4

Management

•Successfully competed for 30yrs against ultra-low cost Asian manufacturers as well as domestic conglomerates with billion dollar budgets•Very experienced and stable management in place since company’s founding in 1979•Consistently created value via organic growth and acquisitions

Operations

•Off shored manufacturing to Asia and concentrated on competitive advantages in designing, development and marketing•Strategically acquired specializations to gain access to sensitive, specialized and high margin clients•Developed the blockbuster product Optiflex that has proven to be a runaway hit with clients

Financial Performance

•Remained profitable for 20 straight years even through tough times•Acquired Cables Unlimited for only $5.6mn which has already paid itself off•Has remained debt free•Produced industry leading profitability

Key Highlights

A Story of Success

5

Sales

11

,20

0

13

,10

0

15

,20

0

14

,80

0

17

,69

5

14

,21

3

16

,32

2

19

,43

4 30

,23

3

2004 2005 2006 2007 2008 2009 2010 2011 2012

EBITDA

2,2

17

96

2

2,7

00

1,9

70 2,7

25

1,1

46

2,2

18

1,5

28

4,6

75

2004 2005 2006 2007 2008 2009 2010 2011 2012

Geographical Sales Industry Sales (Est.)

Key Financial Information

USA94%

Canada

1%

Mexico3%

Israel2%

Communication

88%

Medical11%

Military1%

Company Products

• Cables are wires that transfer data, power etc. from one point to another (e.g.- internet cable)

• They consist of thin wire that actually transmits the signal surrounded by layers

• The inner wire can be either copper (older) or fiber (newer)

• Connectors are plugs that connect cables to end points and enable transfer of signal

• End points are computers, servers or telephone sets etc.

Cables

Connectors

Description

6

Cable

Assemblies

• When connectors and cables are put together, it is called a cable assembly

• It’s generally made according to client’s requirements

• The company offers more than 100,000 combinations of cable assemblies

• This is the company’s best selling product branded “Optiflex”

Company Divisions

• Deals in copper connectors and cable assemblies for wireless firms

• Outsources manufacturing of products to Asia & US firms

• Design and final assembly done in San Diego

• Specializes in cables for aerospace and military

• Designs & manufactures all products internally in Las Vegas

Traditional

Cables &

Connectors

Aviel

Electronics

Activity

7

Bioconnect• Specializes in products for healthcare industry

• Like Aviel does everything in-house

Cables

Unlimited

• Newest & fastest growing division of the company

• Makes fiber optic cables for wireless carriers

• Procures inputs from 3rd parties but assembles itself

• Makes the ‘Optiflex’ blockbuster product

Oddcables

.com

• Sells cables etc. from store front in San Diego & website

• Serves individuals and local companies mostly

Key Personnel

• Founder & CEO since 1979

• Has over 58 years experience in electronics industry

• Joined ‘06; President in ‘11

• Experienced in finance/acct.

• CFO since ‘13

• 35 yrs. Experience in finance & accounting

• More than 20yrs. Experience in

banking at Union Bank

• Head of business banking, VP

• CEO, Cables Unlimited for 20y

• Key manager of company

Howard Hill

CEO

James Doss

President

Experience

8

Mark Turfler

CFO

Joseph Benoit

Board of

Directors

Darren Clark

Board of

Directors

ExpertiseEducation

None

Mentioned

Business

Operations

BS Finance

San Diego St.

Finance

Accounting

BS, CPA

Syracuse

Finance

Accounting

BS. SDSU

MBA, Nat Uni.

Finance

Accounting

None

Mentioned

Business

Operations

9

Industry Overview


Industry Overview

• Both cables and connectors are a critical part of any technological infrastructure

• Virtually every industry uses these in one way or another

• Industry cyclical due to nature of customer industries

• Experienced major declines during dot-com bust and the recent recession

• Communications firms lumpy due to massive once-in-decade rollouts for 3G, 4G etc.

• Clients are highly susceptible to sudden, disruptive changes in technologies (iPhones)

• However, industry itself is much more stable as cables/connectors are only changed slowly over time

Net Profit Margin Sales Growth ROE & ROA

9%

-17

%

13

%

13

%

12

%

13

%

2008 2009 2010 2011 2012 2013

11

.0% 18

.0%

7.5

% 13

.0%

7.6

%

2.7

%

-22

.0%

28

.0%

6.5

%

-3.0

%

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

15

%

-20

%

12

%

13

%

11

%

8%

-10%

7% 7% 6%

2008 2009 2010 2011 2012

ROE ROA10

Industry Overview

• Global market size for connectors is about $45-46bn (management estimates)

• Since 2002 global connector sales have increased at a 6% CAGR, cables at 6.8%

• By 2017, projected global cable spending $8bn, connectors $60bn

• US biggest consumer of cable assemblies, China for connectors

• China biggest driver of growth, US share fell 12% points in past decade

• Major customers include auto, telecom, healthcare, tech

Sales by Country Sales by Industry World Sales ($bn)

$1

0 $1

0

$6

$1

1

$8

$3

North America

Europe Japan China Rest of Asia

ROW

4.5

0%

3.1

0%

3.3

0%

3.2

0%

6.4

0%

5.0

0%

1.5

0%

3.2

0%

$9

$17

$34

$46 $47

1980 1990 2000 2010 2012

11

Industry Overview

• Market fragmented with 1000s of manufacturers

• China alone has 500-600 suppliers, most of them homegrown

• Below, number of Top 10 companies by various classifications

Fragmentation

• Only 1 company has >15% share

• But smaller players can establish niches

• Below, global market share of Top 5 companies

• Top 10 companies fairly strong and consolidating more

• >300 M&As since 1980

• Graph: Combined market share of Top 10

Market Power Top 10 Players

29

38

34

Geography Industry Product4

0%

43

%

51

%

53

% 60

%

1980 1990 2000 2010 2012

18

%

9%

7%

5%

5%

TE Conn. Amphenol Molex Foxconn Delphi 12

Industry Overview

• We’ve already seen competitors are consolidating

• Customers are too:

– Wireless carriers shrink from 7 major players to 4 in the last 10 years

– Further consolidation underway

• So, both competitors and clients are becoming stronger, more coordinated and with more bargaining power

Consolidation Trend

• Meanwhile the industry is also facing falling connector prices

• $1 in 2005 only worth $0.89 in 2012

• This plus rising commodities & wages

Pricing Pressure

ATT14%

Verizon24%

TMobile13%

Sprint10%

Nextel8%

Cingular15%

Alltel8%

Others8%

ATT30%

Verizon32%

TMobile12%

Sprint18%

Others8%

2002 2012

13-4

%

-3%

-2%

0%

-2%

-3%

3%

0%

2005 2006 2007 2008 2009 2010 2011 2012

Price Erosion

Three Industries in Focus

• Most important client, by far, for RFIL

• Record spending driven by LTE/4G expansion

• By 2017, projected to spend:

– $37bn in capex

– $56bn in opex

• Key driver of growth

• Outlook: Very Positive

• Ageing population and threat of product liability lawsuits driving demand

• Obamacare expected to provide a boost

• Hospitals, equipment companies prime spenders

• Projected to spend $4.0tr by 2017

• Outlook: Positive

• Primary customers, directly or indirectly is the government

• But declining due to sharp budget cuts and winding down of wars

• Defense spending expected to fall by $280bn over next 5 yrs.

• Outlook: Negative

Wireless Telecom Healthcare Mil/Aerospace

14

Industry Overview

15

Company Financial Highlights


• Since 2002, EBITDA has grown at a CAGR of 8.6%, Sales at 11%

• Company has been on an impressive 19 year profit streak

• Remained profitable even during the Great Recession and dot-com bust

• Gross margins consistent at 50% and considerably better than industry

• Management strives to keep SG&A costs low especially during the current period of very high growth

Gross Margin EBIT Margin

12

%

12

%

-13

%

12

%

13

%14

%

6%

12

%

6%

13

%

2008 2009 2010 2011 2012

Industry Firm

27%31% 30% 30%

32%

52% 50% 51% 50%46%

2008 2009 2010 2011 2012

Industry Firm16

Income Statement

17

Receivables, Days Inventory, Days

Payables, Days • Cash flows little constrained

• Expenses, payables have very low time delay before payments

• Customers however have 30 day payment terms

• Inventories kept high to maintain shorter delivery times

43

58 57

49

62

2008 2009 2010 2011 2012

1412

25

20

32

2008 2009 2010 2011 2012

253 257

212233

155

2008 2009 2010 2011 2012

Cash Flow

Book Value

Assets Breakdown

• Healthy balance sheet, no debt

• Strong growth in book value, limited intangibles

• Gives flexibility for large acquisitions or capex

• Financing substantial dividends, including a special dividend

16,122 15,25316,914

19,464 20,230

2008 2009 2010 2011 201218

0 5,000 10,000 15,000 20,000 25,000

Cash

Receivables

Inventories

Other current assets

PPE, net

Goodwill

Intangible assets

Other long-term assets

Total assets

Balance Sheet

19

Division Contribution to Revenue95% 93% 79%

9%

86%

9%

86%

10%

72%

11% 14%

47%

9%

36%

Trad C&C Trad C&C Trad C&C Medical Trad C&C Medical Trad C&C Medical Trad C&C Medical Fiber Op. Trad C&C Medical Fiber Op.

2006 2007 2008 2009 2010 2011 2012

Division Pretax Income Margins

16%

10%

15%17%

13%9%

20%17%

10%

20%

0%

12%

25%

16%


2006 2007 2008 2009 2010 2011 2012

Division Profitability: Asset Turnover

2.4x 2.7x 2.6x

4.0x

2.7x

4.3x

3.3x

5.7x

2.7x 3.5x

0.3x

2.6x

4.3x

1.6x


2006 2007 2008 2009 2010 2011 2012

Divisional Breakdown

Comparative Financial Performance

• RFIL has consistently been more profitable more often than larger, more resourceful competitors

• Industry leading ROE is much higher than peers despite zero debt

• This understates the outperformance of RFIL as its best division hasn’t been fully integrated yet

• This also highlights the superior management of RFIL and the value of product specialization versus plain economics of scale

Performance Analysis of RFIL Competitors

Company EBITDA Operating Net Income Assets Equity

Alliance Fiber Op. Prod. 16.0% 20.0% 26.0% 0.0 21.0% 26.0%

Amphenol Corp 22.0% 19.0% 13.0% 70.1 10.0% 24.0%

Belden Inc 11.0% 3.0% 2.0% 160.0 5.0% 6.0%

Bel Fuse 7.0% 3.8% 2.2% 5.6 2.6% 3.3%

Molex Inc 17.0% 6.0% 9.0% 14.0 6.0% 10.0%

Optical Cable Corp. 8.0% 5.0% 3.0% 39.0 1.4% 1.4%

Average 13.5% 9.5% 9.2% 48.1 7.7% 11.8%

Median 13.5% 5.5% 6.0% 26.5 5.5% 8.0%

RF Industries 15.0% 13.0% 9.0% 0.0 17.0% 23.0%

LTM MarginsDebt/Equity

Return on

20

21

Strengths• Experienced managers have proven skill with consistent growth & profitability

• Financial stability due to no debt gives room for risk-taking and expansion

• Optiflex has gained enormous traction quickly highlighting an underserved need

Weakness• Geographical reach is limited to only North America which limits future growth

• Industry concentration in wireless telecom will pinch as LTE spending moderates

• No vertical integration forces high inventory and bottleneck cash flow

Opportunities• Repeat Optiflex’s success in foreign markets ala Xerox

• Expanding in newer markets such as healthcare when 4G party is over

• New products like low PIM connectors might have potential

Threats• Rip-off Optiflex substitutes from China can cut into sales

• Boom decade ending- the last 15 years was especially profitable starting with dot com boom->3G expansion->smartphone revolution->4G expansion

SWOT Analysis

22

Valuation


Valuation: DCF

• Sales driven primarily by wireless industry expansion on 4G/LTE

• In past, revenues have strongly correlated with wireless industry capex

• Gross margins historically at 50%; but will fall as margins at Cables Unlimited in the 30-40% range

• Inventories will continue to be high to maintain quick turnaround times

• Depreciation assumed equal to capex

Assumptions

RFIL Sales - Wireless CapexWACC

2008 2009 2010 2011 2012

Sales Wireless Capex 23

• Beta=1.0

• Risk Premium=6%

• Risk-free=0%

• D/E=0

• WACC=6%

Valuation: DCF & Perpetuity Growth

2013 2014 2015 2016 2017

Sales $34,767,551 $39,982,684 $45,980,086 $52,877,099 $60,808,664

EBITDA 4,772,334 5,488,184 6,311,412 7,258,124 8,346,842

Less: D & A -839,698 -932,653 -1,039,551 -1,162,483 -1,303,856

EBIT 3,932,636 4,555,532 5,271,861 6,095,641 7,042,987

Less: Taxes 1,376,423 1,594,436 1,845,152 2,133,474 2,465,045

Post-Tax EBIT 2,556,214 2,961,096 3,426,710 3,962,166 4,577,941

Plus: D & A 839,698 932,653 1,039,551 1,162,483 1,303,856

Less: Capex -619,698 -712,653 -819,551 -942,483 -1,083,856

Change in Working Cap -4,519,363 -2,089,705 -2,403,160 -2,763,634 -3,178,180

Unlevered FCF -1,743,149 1,091,391 1,243,550 1,418,532 1,619,762

Projected

Discounted Cash Flow Model

• Using the perpetuity growth formula and a 6% WACC– Present Value of Cash flows= $2.7mn

– Present Value of Terminal Value= $41.5mn

– Enterprise Value= $45mn (approx.)

– Equity Value=$50mn (approx.)24

Valuation: Exit Multiple

Precedent Transactions in Industry

• As is evident from above table, a multiple of sales is very stable across many deals

• Using a 2.0x sales multiple, we get a Equity Value of about $100mn

Exit Multiple: Sales

Molex/Koch Ind. 2013 $3,600.0 $7,200.0 2.0x

Affinity/Molex 2012 29.0 55.0 1.9x

PPC/Belden 2012 240.0 510.0 2.1x

Thermax/Carlisle 2012 112.0 265.0 2.4x

Cinch/Bel Fuse 2010 60.0 40.0 0.7x

FCT/Molex 2013

Array/Bel Fuse 2013

Average 1.8x

Median 2.0x

SalesTransaction

ValueDescription of Target Company

Details not announced

TV/SalesYear

AnnouncedTarget/ Acquirer

Electronic products like cables/connectors

Interconnect products for healthcare

Connectors for broadband industry

Cables for military/aerospace

Interconnect products for military/aerospace

Connectors & cable assemblies

Interconnect products for military/aerospace

WACC 6.00%

NPV of FCF 2,704,952

Exit Multiple 2.0

Terminal Value 121,617,328

PV of TV 90,879,542

EV 93,584,494

Less: Net Debt (5,491,768)

Equity Value $99,076,262 25

Valuation: Exit Multiple

Market Multiple Analysis of Public Comparables

• Using the median EBITDA multiple of 12x , we get an equity value =$83mn

• Using a value of equity/earnings multiple of 26.5x, we get an equity value= $93mn

• Overall, value of company falls between $50-100mn

Company Market Cap Sales EBITDA Sales Net Income

Alliance Fiber Op. Prod. $275.0 $268.0 4.0x 17.5x 4.0x 16.0x

Amphenol Corp 12,000.0 13,300.0 3.0x 13.0x 3.0x 21.0x

Belden Inc 3,000.0 3,400.0 2.0x 13.5x 1.6x 26.0x

Bel Fuse 243.0 253.0 0.8x 11.0x 0.7x 33.0x

Molex Inc 7,000.0 6,500.0 2.0x 10.0x 2.0x 27.0x

Optical Cable Corp. 25.0 37.0 0.5x 11.0x 0.3x 56.0x

Average 2.0x 12.7x 1.9x 29.8x

Median 2.0x 12.0x 1.8x 26.5x

RF Industries 71.0 56.0 2.6x 2.3x 15.0x

Enterprise Value / Price /Enterprise

Value

26

27

Buyers List


28

Molex Corp Amphenol Bel Fuse All. Fib Op.

Revenue $3.6bn $4.3bn $300mn $47mn

Mkt. Cap. $7bn $13bn $300mn $275mn

Description

One of world’s largest

connector companies

One of world’s largest

connector companies

Makes connectors,

magnetic products

Makes only optic fiber

connectors, cables

SynergiesStrong

geographic & customer base

Stronggeographic &

customer base

Goodgeographic &

customer base

Only Strong geographic

Product Fit High High Low High

Fit Very Good Very Good Good Excellent

Strategic Buyers

• Strategic Buyers are firms who would benefit directly by acquiring RFIL

• Generally competitors who might want to augment existing operations

• Other strategic buyers include verticals like wireless carrier clients

In Focus: Alliance Fiber Optics

• Deals exclusively in fiber optic cables, connectors and other items

– Products are very complementary to RFIL’s coaxial products

– Also supplementary to new optic fiber division of RFIL

• AFOP only caters to the wireless carrier industry

– RFIL can deepen access to carriers

• Very strong geographical synergies

– 60% of AFOP’s revenues from outside North America

– Basically it’s a Chinese company based in California

• As can be seen from the table, both companies are very similar

• AFOP can be a strong contender as a potential acquirer29

RevenueGross

MarginEBIT

Margin10Y

GrowthDebt PEG P/E P/B P/S

AFOP $47mn 35% 10% 13.5% 0 17.5 18.5 1.4 1.9

RFIL $30mn 50% 13% 13% 0 13.1 20 1.2 1.2

Key Metrics Comparison

30

Focus Investment Size Synergies Fit Location

AltaComm.

MediaTelecom

$10-30mn Strong Excellent MA

ThermoComp.

TelecomTechnology

$5-100mn Strong Excellent CO

Clarity Partners

MediaTelecom

Not Mentioned Low Low CA

Spire Capital

Biz ServicesTelecom

$15-40mn Good Good NY

• These are private equity firms focused on telecommunications

• PE firms look for companies with low existing debt and stable EBITDA

• Synergies refer to synergies with other portfolio companies

• All provide management expertise to portfolio companies

Financial Sponsors

31

Final Thoughts


Final Points

• Company is seeking a buyer for 100% of the equity

• Managers are willing to stay on in their current roles if favorable terms are provided

• Strong fundamentals standalone and versus competitors makes for a strong valuation

32

Created by:

[email protected]: This is a purely hypothetical situation created by AG Consulting for marketing purposes only.


33

Appendix: Excel Models


34

Income Statement for RFIl

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Sales 17,695,146 14,213,045 16,322,178 19,433,503 30,232,653 34,767,551 39,982,684 45,980,086 52,877,099 60,808,664

Cost of Sales (excl. D&A) 8,578,215 7,068,702 7,944,532 9,705,497 16,399,009 17,458,158 20,076,882 23,088,414 26,551,677 30,534,428

Gross profit 9,116,931 7,144,343 8,377,646 9,728,006 13,833,644 17,309,393 19,905,802 22,891,672 26,325,423 30,274,236

SG&A Expense 5,341,576 5,788,663 6,021,832 8,200,268 9,158,580 12,537,058 14,417,617 16,580,260 19,067,299 21,927,394

Other operating expenses 1,050,574 209,763 137,328 0 0

EBITDA 2,724,781 1,145,917 2,218,486 1,527,738 4,675,064 4,772,334 5,488,184 6,311,412 7,258,124 8,346,842

Depreciation & Amortization 211,389.0 239,777.0 214,266.0 391,633.0 599,824.0 839,697.9 932,652.6 1,039,550.5 1,162,483.1 1,303,855.6

EBIT 2,513,392 906,140 2,004,220 1,136,105 4,075,240 3,932,636 4,555,532 5,271,861 6,095,641 7,042,987

Interest Expense 0 0 0 28,804 0

Interest Income 0 0 0 0 0

Other Income/Expenses 258,381 193,429 86,614 44,542 37,669

Income before taxes 2,771,773 1,099,569 2,090,834 1,151,843 4,112,909 3,932,636 4,555,532 5,271,861 6,095,641 7,042,987

Provision for income taxes 1,212,540 443,602 870,587 378,832 1,500,487 1,376,423 1,594,436 1,845,152 2,133,474 2,465,045

Minnority Interest 0 0 0 2,727 -1,848

Net income 1,559,233 655,967 1,220,247 775,738 2,610,574 2,556,214 2,961,096 3,426,710 3,962,166 4,577,941

Diluted Weighted Shares Outstanding 7,424,919 6,497,808 6,485,610 7,291,848 7,680,743 7,680,743 7,680,743 7,680,743 7,680,743 7,680,743

EPS $0.21 $0.10 $0.19 $0.11 $0.34 $0.33 $0.39 $0.45 $0.52 $0.60

Ratios & Assumptions

Sales Growth Rate -20% 15% 19% 56% 15% 15% 15% 15% 15%

Gross Margin 52% 50% 51% 50% 46% 50% 50% 50% 50% 50%

SG&A expenses (as % of sales) 30% 41% 37% 42% 30% 36% 36% 36% 36% 36%

Other operating income (expense) 1,050,574 209,763 137,328 0 0 0 0 0 0 0

Effective tax rate 44% 40% 42% 33% 36% 35% 35% 35% 35% 35%

Historical Year Ending Sept 30th, Projected Year Ending Sept 30th,

35

Balance Sheet for RFIl

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Cash 7,924,549 7,702,908 9,306,454 1,760,816 5,491,768 2,361,868 2,066,508 1,923,306 1,955,087 2,188,098

Receivables 2,071,349 2,263,265 2,557,822 2,605,965 5,167,012 5,131,755 5,901,518 6,786,746 7,804,758 8,975,471

Inventories 5,949,708 4,984,921 4,607,843 6,189,601 6,984,546 10,623,115 12,216,582 14,049,069 16,156,430 18,579,894

Other current assets 759,543 818,562 1,061,287 5,856,824 1,400,920 1,738,378 1,999,134 2,299,004 2,643,855 3,040,433

Total current assets 16,705,149 15,769,656 17,533,406 16,413,206 19,044,246 19,855,115 22,183,742 25,058,126 28,560,129 32,783,896

PPE, net 565,860 565,804 530,327 2,442,738 1,204,298 1,204,298 1,204,298 1,204,298 1,204,298 1,204,298

Equity and other investments 0 0 946,491 0 0 0 0 0 0 0

Goodwill 347,091 137,328 0 3,076,023 3,076,023 3,076,023 3,076,023 3,076,023 3,076,023 3,076,023

Intangible assets 0 27,156 0 2,276,171 2,037,213 1,817,213 1,597,213 1,377,213 1,157,213 937,213

Other long-term assets 149,673 98,256 99,139 169,808 101,638 101,638 101,638 101,638 101,638 101,638

Total assets 17,767,773 16,598,200 19,109,363 24,377,946 25,463,418 26,054,287 28,162,914 30,817,298 34,099,301 38,103,068

Accounts payable 329,509 224,974 537,850 521,174 1,429,076 973,406 1,119,417 1,287,330 1,480,429 1,702,494

Accrued liabilities 760,762 673,080 1,217,454 1,489,076 2,101,691 2,160,395 2,484,454 2,857,122 3,285,691 3,778,544

Other current liabilities 232,927 75,134 123,909 1,484,599 609,709 428,081 492,293 566,138 651,058 748,717

Total current liabilities 1,323,198 973,188 1,879,213 3,494,849 4,140,476 3,561,882 4,096,165 4,710,589 5,417,178 6,229,755

Deferred taxes liabilities 105,700 50,500 18,800 1,072,202 1,077,157 1,077,157 1,077,157 1,077,157 1,077,157 1,077,157

Minority interest 0 0 0 213,617 0 0 0 0 0 0

Other long-term liabilities 217,185 321,030 297,390 132,867 15,480 15,480 15,480 15,480 15,480 15,480

Total liabilities 1,646,083 1,344,718 2,195,403 4,913,535 5,233,113 4,654,519 5,188,802 5,803,226 6,509,815 7,322,392

Common stock 32,263 28,483 29,309 71,105 69,783 69,783 69,783 69,783 69,783 69,783

Additional paid-in capital 6,411,810 6,502,447 7,025,965 11,382,605 12,007,523 12,007,523 12,007,523 12,007,523 12,007,523 12,007,523

Retained earnings 9,677,617 8,722,552 9,858,686 8,010,701 8,152,999 9,322,462 10,896,806 12,936,765 15,512,180 18,703,371

Total stockholders' equity 16,121,690 15,253,482 16,913,960 19,464,411 20,230,305 21,399,768 22,974,112 25,014,071 27,589,486 30,780,677

Total liabilities and stockholders' equity$17,767,773 $16,598,200 $19,109,363 $24,377,946 $25,463,418 $26,054,287 $28,162,914 $30,817,298 $34,099,301 $38,103,068

Check 0 0 0 0 0 0 0 0 0 0


36

Cash Flow Statement for RFIl

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Cash Flows From Operating Activities

Net income 1,559,233 655,967 1,220,247 775,738 2,610,574 2,556,214 2,961,096 3,426,710 3,962,166 4,577,941

Depreciation & amortization 211,389 239,777 214,266 391,633 599,824 839,698 932,653 1,039,551 1,162,483 1,303,856

Investment/asset impairment charges 0 209,763 137,328 0 0

Deferred income taxes -184,700 8,700 -166,600 16,940 -145,311

Stock based compensation 0 153,197 231,000 312,311 263,935

Accounts receivable 0 -200,026 -309,835 750,531 -2,584,752

Inventory -994,406 964,787 129,539 -1,228,728 -794,945

Accounts payable 0 -104,535 312,876 -302,843 907,902

Accrued liabilities 0 -57,682 554,590 210,645 536,265

Income taxes payable 0 -157,793 0 -384,226 1,269,439

Other working capital 92,374 -21,968 -5,338 -212,406 -266,453

Other non-cash items 460,304 12,936 184,583 -204,024 -63,383 -4,519,362.7 -2,089,704.7 -2,403,160.4 -2,763,634.5 -3,178,179.6

Net cash provided by operating activities1,144,194 1,703,123 2,502,656 125,571 2,333,095 -1,123,451 1,804,044 2,063,100 2,361,015 2,703,617

Cash Flows From Investing Activities

Investments in property, plant, and equipment-461,066 -217,392 -151,850 -368,205 -590,100 -619,698 -712,653 -819,551 -942,483 -1,083,856

Acquisitions, net 0 0 0 -2,800,000 0

Purchases of investments -11,779,828 -7,015,184 -5,014,406 -4,647,540 0

Sales/Maturities of investments 9,447,797 7,401,914 5,967,327 6,076,877 4,094,724

Other investing activities 0 0 0 0 0

Net cash used for investing activities-2,793,097 169,338 801,071 -1,738,868 3,504,624 -619,698 -712,653 -819,551 -942,483 -1,083,856

Cash Flows From Financing Activities

Common stock issued 190,246 0 0 0 0

Common stock repurchased -532,769 -1,612,592 0 -102,705 -1,143,243

Excess tax benefit from stock based compensation0 0 78,235 312,325 87,088

Dividend paid -394,343 -94,780 -84,113 -2,528,971 -1,386,751 -1,386,751 -1,386,751 -1,386,751 -1,386,751 -1,386,751

Proceeds Stock Options 46,041 0 205,108 981,753 353,791

Net cash provided by (used for) financing activities-690,825 -1,707,372 199,230 -1,337,598 -2,089,115 -1,386,751 -1,386,751 -1,386,751 -1,386,751 -1,386,751

Net change in cash -2,339,728 165,089 3,502,957 -2,968,068 3,730,952 -3,129,900 -295,360 -143,201 31,781 233,011

Cash at beginning of period 3,400,566 1,060,838 1,225,927 4,728,884 1,760,816 5,491,768 2,361,868 2,066,508 1,923,306 1,955,087

Cash at end of period 1,060,838 1,225,927 4,728,884 1,760,816 5,491,768 2,361,868 2,066,508 1,923,306 1,955,087 2,188,098


37

Working Capital Schedule for RFIL

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Sales 17,695,146 14,213,045 16,322,178 19,433,503 30,232,653 34,767,551 39,982,684 45,980,086 52,877,099 60,808,664

Cost of Sales 8,578,215 7,068,702 7,944,532 9,705,497 16,399,009 17,458,158 20,076,882 23,088,414 26,551,677 30,534,428

Working Capital Balances

Accounts Receivable 2,071,349 2,263,265 2,557,822 2,605,965 5,167,012 5,131,755 5,901,518 6,786,746 7,804,758 8,975,471

Inventory 5,949,708 4,984,921 4,607,843 6,189,601 6,984,546 10,623,115 12,216,582 14,049,069 16,156,430 18,579,894

Other current assets 759,543 818,562 1,061,287 5,856,824 1,400,920 1,738,378 1,999,134 2,299,004 2,643,855 3,040,433

Total non-cash current assets 8,780,600 8,066,748 8,226,952 14,652,390 13,552,478 17,493,247 20,117,234 23,134,819 26,605,042 30,595,799

Account payable 329,509 224,974 537,850 521,174 1,429,076 973,406 1,119,417 1,287,330 1,480,429 1,702,494

Accrued liabilities 760,762 673,080 1,217,454 1,489,076 2,101,691 2,160,395 2,484,454 2,857,122 3,285,691 3,778,544

Other current liabilities 232,927 75,134 123,909 1,484,599 609,709 428,081 492,293 566,138 651,058 748,717

Total non-debt current assets 1,323,198 973,188 1,879,213 3,494,849 4,140,476 3,561,882 4,096,165 4,710,589 5,417,178 6,229,755

NET WORKING CAPITAL (DEFICIT) 7,457,402 7,093,560 6,347,739 11,157,541 9,412,002 13,931,365 16,021,069 18,424,230 21,187,864 24,366,044

(Increase)/Decrease in Net Working Capital 363,842 745,821 -4,809,802 1,745,539 -4,519,363 -2,089,705 -2,403,160 -2,763,634 -3,178,180

Ratios & Assumptions

Number of days in year

Accounts Receivables, net (collection period, days) 43 58 57 49 62 54 54 54 54 54

Inventories (days outstanding) 253 257 212 233 155 222 222 222 222 222

Other current assets (as % of sales) 4.3% 5.8% 6.5% 30.1% 4.6% 5.0% 5.0% 5.0% 5.0% 5.0%

Accounts payable (days outstanding) 14 12 25 20 32 20 20 20 20 20

Accrued Liabilities (as % of cost of sales) 8.9% 9.5% 15.3% 15.3% 12.8% 0.1 0.1 0.1 0.1 0.1

Other current liabilities (as % of cost of sales) 1.3% 0.5% 0.8% 7.6% 2.0% 2.5% 2.5% 2.5% 2.5% 2.5%


38

Depreciation & Amortization Schedule

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Sales 17,695,146 14,213,045 16,322,178 19,433,503 30,232,653 34,767,551 39,982,684 45,980,086 52,877,099 60,808,664

Capital expenditures -461,066 -217,392 -151,850 -368,205 -590,100 -619,698 -712,653 -819,551 -942,483 -1,083,856

Capital expenditures as % of sales -2.6% -1.5% -0.9% -1.9% -2.0% -1.8% -1.8% -1.8% -1.8% -1.8%

Depreciation expense 211,389 239,777 214,266 391,633 599,824 -619,698 -712,653 -819,551 -942,483 -1,083,856

Depreciation as % of CapEx -45.85% -110.30% -141.10% -106.36% -101.65% 100% 100% 100% 100% 100%

Depreciation as % of PP&E, net 37.4% 42.4% 40.4% 16.0% 49.8% -51.5% -59.2% -68.1% -78.3% -90.0%

Beginning Net PP&E 1,204,298 1,204,298 1,204,298 1,204,298 1,204,298

Capital expenditures 619,698 712,653 819,551 942,483 1,083,856

(Depreciation expense) -619,698 -712,653 -819,551 -942,483 -1,083,856

Ending Net PP&E 565,860 565,804 530,327 2,442,738 1,204,298 1,204,298 1,204,298 1,204,298 1,204,298 1,204,298

Beginning Net Amortizable Intangibles 2,037,213 1,817,213 1,597,213 1,377,213 1,157,213

Amortization 220,000 220,000 220,000 220,000 220,000

Ending Net Amortizable Intangibles 1,817,213 1,597,213 1,377,213 1,157,213 937,213


39

2010 2011 2012 2013 2014 2015 2016 2017

Sales $16,322,178 $19,433,503 $30,232,653 $34,767,551 $39,982,684 $45,980,086 $52,877,099 $60,808,664

EBITDA 2,218,486 1,527,738 4,675,064 4,772,334 5,488,184 6,311,412 7,258,124 8,346,842

Less: D & A -214,266 -391,633 -599,824 -839,698 -932,653 -1,039,551 -1,162,483 -1,303,856

EBIT 2,004,220 1,136,105 4,075,240 3,932,636 4,555,532 5,271,861 6,095,641 7,042,987

Less: Taxes 870,587 378,832 1,500,487 1,376,423 1,594,436 1,845,152 2,133,474 2,465,045

Post-Tax EBIT 1,133,633 757,273 2,574,753 2,556,214 2,961,096 3,426,710 3,962,166 4,577,941

Plus: D & A 214,266 391,633 599,824 839,698 932,653 1,039,551 1,162,483 1,303,856

Less: Capex -151,850 -368,205 -590,100 -619,698 -712,653 -819,551 -942,483 -1,083,856

Change in Working Cap 745,821 -4,809,802 1,745,539 -4,519,363 -2,089,705 -2,403,160 -2,763,634 -3,178,180

Unlevered FCF 1,941,870 -4,029,101 4,330,016 -1,743,149 1,091,391 1,243,550 1,418,532 1,619,762

WACC Calculation

Risk-Free 0.0% Cost of Debt 0.0%

Risk Premium 6.0% Tax Rate 34.0%

Beta 1.00 % Debt in Capital 0.0%

Cost of Equity 6.00% WACC 6.00%

Historical Projected

Discounted Cash Flow Analysis for RFIL

40

WACC 6.00% WACC 6.00%

NPV of FCF 2,704,952 NPV of FCF 2,704,952

Terminal Growth Rate 3.00% Exit Multiple 26.5

Terminal Value 55,611,820 Terminal Value 121,315,447

PV of TV 41,556,387 PV of TV 90,653,959

EV 44,261,339 EV 93,358,911

Less: Net Debt (5,491,768) Less: Net Debt (5,491,768)

Equity Value $49,753,107 Equity Value $98,850,679

49,753,107 2.50% 3.00% 3.50% 98,850,679 25.5 26.5 27.5

5.00% 60,366,084 60,366,084 73,691,904 5.00% 99,663,610 99,663,610 103,250,547

5.50% 75,015,825 75,015,825 97,653,651 5.50% 97,516,596 97,516,596 101,019,336

6.00% 75,015,825 75,015,825 97,653,651 6.00% 95,429,775 95,429,775 98,850,679

6.50% 60,366,084 60,366,084 73,691,904 6.50% 93,401,188 93,401,188 96,742,540

7.00% 43,643,569 43,643,569 49,753,107 7.00% 91,428,948 91,428,948 94,692,957

WACC WACC

Perpetuity Growth Sales Multiple

Discounted Cash Flow Analysis for RFIL

Perpetuity Growth Model Exit Multiple

Sensitivity AnalysisPerpetuity Growth Model Exit Multiple Approach

41

Created by:

[email protected]: This is a purely hypothetical situation created by AG Consulting for marketing purposes only.


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