CALAVFCF.
XLS
This spreadsheet supports STUDENT analysis of the case, "Calaveras
Vineyards" (UVA -F-1094, v. 2.1 )--It contains Exhibit TN1, Anne
Clemens' forecast of Free Cash Flows.
Please note:
This is a working model. Assumptions / Inputs presented can be
changed to vary the results. The model intentionally incorporates a
circular reference. To solve this circularity, please set "iteration" to 50
or so times (See Tools/Options/Calculation).
Revised: 6/98.
Copyright (C) 1998, by the University of Virginia Darden School Foundation.
chool Foundation.
Exhibit 7
Forecasted Income Statement
1994 1995
Sales Revenue $3,704 $4,193
Cost of Goods Sold
Estates 422 560
Selected 259 310
Chardonnay 412 509
California 177 120
Generic 215 224
Special Accts. 625 650
Winery 85 88
TOTAL (2,196) (2,461)
Gross Profit 1,508 1,731
Selling, General and Admin. (519) (587)
Amortization of Organizational Costs (60) (60)
Depreciation (116) (166)
EBIT 813 918
Interest Expense (avg. balance) (310) (320)
Profit Before Taxes 504 598
Tax Expense 186 221
Net Income $317 $377
Dividends to Common Shareholders $0 $0
Retentions to Equity $317 $377
ement
1996 1997 1998
$4,681 $4,967 $5,348
638 664 781
365 380 395
613 696 724
124 129 135
233 242 252
677 704 732
92 96 100
(2,742) (2,911) (3,119)
1,939 2,056 2,229
(655) (695) (749)
(60) (60) (60)
(216) (286) (356)
1,007 1,014 1,064
(310) (291) (260)
697 723 804
258 268 298
$439 $456 $507
$0 $0 $0
$439 $456 $507
Exhibit 8
Forecasted Balance Sheets
(At Closing) 1994 1995
Cash $50 $50 $50
Accounts Receivable 0 370 419
Inventory 2,196 2,461 2,742
Organization Costs-Current 60 60 60
Total Current Assets 2,306 2,942 3,272
Land 1,124 1,124 1,124
Plant and Equipment 582 832 1,082
Gross PP&E 1,706 1,956 2,206
Accum. Depreciation 0 116 283
Net PP&E 1,706 1,840 1,923
Organization Costs-Noncurrent 240 180 120
Total Assets $4,252 $4,961 $5,315
Payables & Accruals $130 $246 $274
Debt-Current Portion LTD 400 400 400
Revolving Line of Credit 1,122 1,798 2,147
Total Current Liabs. 1,652 2,444 2,821
Debt, non-current 1,600 1,200 800
Total Liabilities 3,252 3,644 3,621
Common Stock 1,000 1,000 1,000
Retained Earnings 0 317 694
Total Equity 1,000 1,317 1,694
Total Liabilities & Equity $4,252 $4,961 $5,315
Memorandum:
Borrowing base (85% AR, 75%Inv) $1,647 $2,161 $2,413
Revolver $1,122 $1,798 $2,147
TOTAL DEBT $3,122 $3,398 $3,347
ets
1996 1997 1998
$50 $50 $50
468 497 535
2,911 3,119 3,245
60 60 0
3,489 3,726 3,830
1,124 1,124 1,124
1,432 1,782 2,132 Corrected CapEx
2,556 2,906 3,256
499 786 1,142 Corrected Depreciation
2,057 2,120 2,114
60 0 0
$5,606 $5,846 $5,944
$291 $312 $324
400 400 0
2,382 2,546 2,524
3,073 3,257 2,848
400 0 0
3,473 3,257 2,848
1,000 1,000 1,000
1,133 1,589 2,095
2,133 2,589 3,095
$5,606 $5,846 $5,944
$2,581 $2,761 $2,888
$2,382 $2,546 $2,524
$3,182 $2,946 $2,524
Exhibit 9
Forecast Assumptions
Key Assumptions:
Case Sales Exhibit 11 Cash Minimum (m)
$/Case Exhibit 11 AR/Sales
Gross Margins INV(T)/COGS(T+1)
Estates 50.0% CL(T)/COGS(T+1)
Select-other 38.0% SGA/Sales
Chardonnay 40.0% Depreciation
California 36.0% Capital Expenditures
Generic 29.0% Interest Rate
Special Accts 38.0% Tax Rate
Winery 49.0% Inflation Rate
Dividend Payout: Real Price Growth
Now-1996 0% Amortiz. Organization Costs: 5 years.
1997&After 0%
$50
0.10
1.00
0.10
0.14
5-yr, S-L
250
9.50%
37.00%
2.00%
2.00%
zation Costs: 5 years.
Exhibit 10
Historical Case Sales and Prices by Variety
1991 1991
Cases $/Case
Estates
Sauvignon Blanc 4,436 $46.85
Cabernet Sauvignon 3,258 45.56
Petite Sirah 2,547 46.42
Select Vineyards
Chardonnay 8,633 38.88
Savignon/Fume Blanc 11,794 37.85
White/Rose Zinfandel 5,835 38.03
California
Petite Sirah 9,472 32.52
Chenin Blanc 5,393 33.13
Other 7,299 30.73
Generic
White Table Wine 17,685 22.42
Red Table Wine 4,657 20.09
TOTAL WHOLESALE 81,009
Special Accounts
Hotels 0 37.61
Gigantic Airlines 11,320 37.42
Altar Wines 2,388 41.59
Winery 3,633 54.15
TOTAL NON WHOLESALE 17,341
TOTAL CASE SALES 98,350
10
d Prices by Variety
1992 1992 1993 1993
Cases $/Case Cases $/Case
2,924 $48.25 6,133 $49.70
2,887 46.92 2,993 48.33
1,574 47.82 1,599 49.25
16,537 40.05 11,569 41.25
9,750 38.98 3,444 40.15
4,482 39.17 2,112 40.35
7,666 33.50 5,864 34.50
5,210 34.13 1,353 35.15
1,350 31.65 322 32.60
13,301 23.10 7,716 23.79
2,976 20.69 2,337 21.31
68,657 45,442
0 38.74 2,090 39.90
23,465 38.54 12,715 39.70
2,157 42.83 3,155 44.12
2,957 55.78 2,188 57.45
28,579 20,148
97,236 65,590
Exhibit 11
Forecast Case Sales and Pr
1994 1994
Cases $/Case
Estates
Sauvignon Blanc 9,000 $51.71
Cabernet Sauvignon 5,000 $50.28
Petite Sirah 2,500 $51.24
Select Vineyards
Chardonnay 16,000 $42.92
Savignon/Fume Blanc 8,000 $41.77
White/Rose Zinfandel 2,000 $41.98
California
Petite Sirah 5,000 $35.89
Chenin Blanc 1,728 $36.57
Other 1,000 $33.92
Generic
White Table Wine 10,000 $24.75
Red Table Wine 2,500 $22.17
TOTAL WHOLESALE 62,728
Special Accounts
Hotels 4,000 $41.51
Gigantic Airlines 16,500 $41.30
Altar Wines 3,500 $45.90
Winery 2,790 $59.77
TOTAL NON WHOLESALE 26,790
TOTAL CASE SALES 89,518
Exhibit 11
Forecast Case Sales and Prices by Variety
1995 1995 1996 1996 1997 1997 1998
Cases $/Case Cases $/Case Cases $/Case Cases
12,000 $53.80 14,000 $55.97 14,000 $58.23 16,000
6,000 $52.31 6,000 $54.43 6,000 $56.63 7,000
3,000 $53.31 3,000 $55.46 3,000 $57.70 3,000
19,000 $44.65 22,000 $46.45 24,000 $48.33 24,000
8,000 $43.46 8,000 $45.22 8,000 $47.04 8,000
3,500 $43.68 5,000 $45.44 5,000 $47.28 5,000
5,000 $37.34 5,000 $38.85 5,000 $40.42 5,000
0 $38.05 0 $39.58 0 $41.18 0
0 $35.29 0 $36.71 0 $38.20 0
10,000 $25.75 10,000 $26.79 10,000 $27.87 10,000
2,500 $23.07 2,500 $24.00 2,500 $24.97 2,500
69,000 75,500 77,500 80,500
4,000 $43.19 4,000 $44.93 4,000 $46.75 4,000
16,500 $42.97 16,500 $44.71 16,500 $46.51 16,500
3,500 $47.76 3,500 $49.69 3,500 $51.69 3,500
2,790 $62.19 2,790 $64.70 2,790 $67.31 2,790
26,790 26,790 26,790 26,790
95,790 102,290 104,290 107,290
1998
$/Case
$60.58
$58.91
$60.04
$50.28
$48.94
$49.19
$42.06
$42.85
$39.74
$29.00
$25.98
$48.64
$48.39
$53.78
$70.03
Exhibit TN1 - (000s)
Anne Clemens' Ratio Analysis and Forecast of Free C
Ratio Analysis
EBIT/(Interest and Principal)
Current Ratio
Debt/Assets
DuPont System of Ratios:
Profit/Sales
Sales/Assets
Assets/Equity
Return on Equity
Total Debt $3,121.93
EBITDA
Total Debt/EBITDA
Forecast of Free Cash Flows
(In thousands of dollars) 0
At Closing
EBIT
EBIAT (T=37%)
+Depreciation
-Capital Expenditures** ($4,122.00)
+Amort. of Organize. Costs
-Additions to Net Wkg. Cap.
FREE CASH FLOW ($4,122.00)
Discount Factor 1.000
WACC 13.27%
PV FCF $942.42 ($4,122.00)
* In computing the EBIT coverage ratio, interest expense includes interest on both the revolving lo
scheduled annual payments necessary to amortize the
** The forecast of capital expenditures reflects Anne Clemens' belief that they would amount to $350
EV SENSITIVITY ANALYSIS
$4,461.83 3.50%
11.27%
12.27%
WACC 13.27%
14.27%
15.27%
VALUATIONS SUMMARY
Method I
DCF $4.462m *Should be the value of the firm at close
Method II
Liquidation $3.250m *Being liquidation, assuming discounted value fro
Method III
Book Value $7.000m
Method IV (Least Reliable)
Gross Profit Multiple $12.965m *Assuming 3.5x multiple and 1994 GP
P/E Multiple $4.442m *14x DOW P/E multiple and 1994 NI
Purchase Price $4.122m Calaveras is long-term debt-free at the
time of purchase, meaning that the
purchase price (equity value) of
DEAL - PROPOSED FACILITIES $4.122m less cash ($50,000) represents
the entire value of the firm
Term Loan $2.000m
Revolver $2.500m
Equity Contribution $2.250m
*Might have to adjust this as expected target capi
Total $6.750m
Exhibit TN1 - (000s)
Analysis and Forecast of Free Cash Flows
1994 1995 1996 1997 1998
1.15 1.27 1.42 1.47 1.61
1.20 1.16 1.14 1.14 1.34
0.68 0.63 0.57 0.50 0.42
9% 9% 9% 9% 9%
0.75 0.79 0.84 0.85 0.90
3.77 3.14 2.63 2.26 1.92
24% 22% 21% 18% 16%
$3,397.79 $3,346.81 $3,182.03 $2,945.50 $2,523.91
1 2 3 4 5
1994 1995 1996 1997 1998
$813.27 $918.11 $1,007.24 $1,014.23 $1,064.03
$512.36 $578.41 $634.56 $638.96 $670.34
$116.40 $166.40 $216.40 $286.40 $356.40
($250.00) ($250.00) ($350.00) ($350.00) ($350.00)
$60.00 $60.00 $60.00 $60.00 $60.00
($519.53) ($301.99) ($200.80) ($215.47) ($151.48)
($80.77) $252.81 $360.16 $419.89 $585.26
0.883 0.779 0.688 0.607 0.536
($71.30) $197.03 $247.80 $255.05 $313.83
nterest on both the revolving loan and term loan; principal payments include only the
ments necessary to amortize the term loan.
hat they would amount to $350,000 (not $250,000) in the years 1996-1998.
Growth Rate
3.75% 4.00% 4.25% 4.50%
ue of the firm at close
assuming discounted value from $5-7m by 50-60%
ltiple and 1994 GP
tiple and 1994 NI
erm debt-free at the
meaning that the
uity value) of
($50,000) represents
the firm
ust this as expected target capital structure but im not 100% sure, in the presentation he did mention using the average D/E of
QUESTIONS
Is Goldengate comfortable underwriting all o
Why did Winston-Fendall lose its flagship acc
NOTES
2/3 of sales through wholesale distribution, 1
NOTES Distributors sold 60% to restaurants, 40% to
Debt Coverage NINE DISTRIBUTORS HANDLED 80% OF VOLU
Liquidity Special commercial accounts represent volum
Collateral Coverage PUBLIC COMPS - Clos du Val, Cakebread, Aca
Free Cash Flow 1992 growth of wine sales 7.4%
Customer Concentration Long term supply contracts with Stout but va
65,000 cases capacity for estate and selected
Martinez VP and GM of property for Stout 85
ASSUME VALUATION AT END OF DEC 1993 1. Sales organization huge factor in sales volu
Make sure to cover in writeup why chose
to weigh each comp’s asset beta based on
relevance to core revenue streams of
Calavera - share GPT notes
Terminal Value
Year N FCF $585
Growth 4.00% *Nominal + real growth
“Because Calaveras is a private firm withou
comparable publicly traded wine companie
TV $6,563 yielded a relevered beta of 0.944, which I u
PV TV $3,519
EV $4,462 “Because Calaveras is a private company wi
its cost of equity using the CAPM. I derived
average of the unlevered betas from three p
Sawyer, and Frogg’s Jump — assigning weig
operations matched Calaveras’s business m
relevered this using the average market valu
37% tax rate, resulting in a relevered beta o
PER CASE PRESENTATION
Look at assumptions underlying the FCF fore
Weight comparables asset betas using inform
Calculate terminal values using different assu
Simplification of a target D/E moving towards
VALUATIONS
On Stout's Books
Fair MV Assets
Purchase Price
DCF EV
mention using the average D/E of the comp set would be "oversimplifcation"
omfortable underwriting all of this or would it syndicate?
n-Fendall lose its flagship account? Also, why is a marketing company factoring receivables?
ugh wholesale distribution, 1/3 directly to special commercial accounts including airlines and hotels
60% to restaurants, 40% to high-end retail outlets
ORS HANDLED 80% OF VOLUME, TWO DISTRIBUTORS IN CALIFORNIA HANDLING 50% OF TOTAL VOLUME
cial accounts represent volume of 15,000-25,000 cases a year
Clos du Val, Cakebread, Acacia, Sonoma-Cutrer, and Jordan
wine sales 7.4%
y contracts with Stout but variable with the market
pacity for estate and selected-vineyards production
GM of property for Stout 85% equity Newsome OM 15% equity
tion huge factor in sales volume 2. Price increases
over in writeup why chose
REMOVE THESE TEXT BOXES WHEN DONE
omp’s asset beta based on V
re revenue streams of
e GPT notes
veras is a private firm without a market beta, I estimated its equity beta by averaging the unlevered betas of three
ublicly traded wine companies and relevering using the average market value D/E ratio across the group. This
ered beta of 0.944, which I used in the CAPM to estimate cost of equity.”
veras is a private company without a directly observable equity beta, I estimated
ty using the CAPM. I derived an equity beta by first calculating a weighted
unlevered betas from three publicly traded comparables — Canandaigua, Finn &
ogg’s Jump — assigning weights based on how closely each company’s
tched Calaveras’s business mix. This yielded an unlevered beta of 0.901. I then
using the average market value debt-to-equity ratio of the comps (0.1843) and a
esulting in a relevered beta of 1.006.”
tions underlying the FCF forecasts
bles asset betas using information about the Calavera's business segment
al values using different assumptions (so sensitivity analysis)
a target D/E moving towards industry average
$7m
$5-7m
$4.122m
$4.46m
WHEN DONE
d betas of three
roup. This
WACC - Calaveras COMPARABLES
CoD 9.5% Levered Beta
Tax Rate 37.0% MV D/E
ATCoD 5.99% Tax Rate
Debt Beta
Risk Free 5.85% (30-year T-bonds) Unlevered Beta
Beta 1.19
MRP 7.2% (Arithmetic mean) Weights
CoE 14.44% Weighted
D% 13.82% Tax Rate
E% 86.18% Industry Avg MV D/E
Debt Beta
WACC 13.27%
Calaveras Equity Beta
Finn & Sawyer Canandaigua Frogg's Jump Weights
1.35 0.59 0.95 Special Accounts
0.048 0.277 0.156 0.160 Generic
40.0% 38.0% 39.0% California
0 0 0 Estates/Selected Vineyard
1.312 0.504 0.867
0.643 0.191 0.166
0.844 0.096 0.144 1.084
37.0%
0.160
0
1.193 *Equity beta calculated correctly
*Equity beta in solutions (1.207) uses 0.54 incorrect unlevered beta from Canandaigua
% 1993 Revenues Comparable
16.6% Frogg's Jump
9.0% Canandaigua
10.1% Canandaigua
64.3% Finn & Sawyer
Canandaigua
