DCF(2)
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Transcript of DCF(2)
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8/8/2019 DCF(2)
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in millions except per share amounts
2008E 2009E 2010E 2011E 2012E Terminal Year
EBIT 141.40 181.03 233.59 274.87 295.02
NOPLAT 91.91 117.67 151.83 178.67 191.76
D&A 223.2 242.4 265.43 286.66 303.86
Change in NWC -109.95 -118.57 -139.19 -163.22 -191.2
CapEx 500 465 509 549 582FCF -74.94 14.04 47.72 79.12 104.42 106.51
Assumptions
Long term growth rate 2%
Tax Rate 35%
WACC Worksheet
Market Price as of 24Mar08 $37.89 Cost of Debt
Shares Outstanding 77.1 Long Term Debt 14.00%
Market Cap 2,921
Long Term Debt 1,105 Cost of Equity
Risk Free Rate 2.43%
Beta 1.2
Total Debt 1,105 Market Return 11.62%
Cash 55.5 MRP 9.19%
Net Debt 1,050 CAPM result 13.46%
Total Enterprise Value 3,971
Components of WACC
Equity 9.77%
LTD 2.50%
Percent of Capital Structure WACC 12.26%
Debt + Equity 4,026.32
Equity/D+E 73%
LTD/D+E 27%
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Intrinsic ("Fair") Value Calculation
Terminal Value 1,038
PV of TV 582
PV of FCF 86
Equity Value 668
Net Debt 1,050
TEV* 1,718
Shares Outstanding 77
P* $22.28
Sensitivity Analysis
WACC P*
$22.28
15% $19.86
13% $21.50
10% $25.61
8% $30.71
7% $34.82
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millions 2005 2006 2007 2008E 2009E
Revenues 1,352 1,660 1,743 1,860 2,020
Operating expenses:
Compensation and benefits 381.5 393.6 394.1 405.92 418.1
Purchased services 195.1 204.7 184.7 279 303
Fuel 206.9 253.6 270.8 297.88 327.67Equipment costs 149.8 179.7 182.4 241.8 262.6
Depreciation and amortization 127.7 155 160.2 223.2 242.4
Casualties and insurance 103.4 53.4 71 103.4 103.4
Materials and other 125.3 115.4 117.2 167.4 181.8
Total operating expenses 1,289.70 1,355.40 1,380.40 1,718.60 1,838.97
EBIT 62.30 304.30 362.40 141.40 181.03
Equity in net earnings of unconsolidated affiliates 2.9 7.3 11.4
Interest expense 133.5 167.2 156.7
Debt retirement costs 4.4 4.8 6.9
Foreign exchange gain (loss) 3.5 -3.7 -0.9VAT/put settlement gain, net 131.9 0 0
Other income 13.3 18.7 12
Income before income taxes and minority interest 76.00 154.6 221.3
Income tax expense (benefit) -7.1 45.4 67.1
Income before minority interest 83.10 109.20 154.20
Minority interest -17.8 0.3 0.4
Net income 100.90 108.90 153.80
Preferred stock dividends 9.5 19.5 19.8
Net income available to common shareholders 91.40 89.40 134.00
Earnings per share:
Basic earnings per share 1.21 1.20 1.77
Basic 75,527 74,593 75,832
Margins
COGS 95.39% 81.67% 79.21% 92.40% 91.04%
Gross Profit 4.61% 18.33% 20.79% 7.60% 8.96%
EBITDA 14.05% 27.67% 29.99% 19.60% 20.96%
Net Income 7.46% 6.56% 8.82%
Tax Rate -9.34% 29.37% 30.32%
Growth Rates
Average shares outstanding (in thousands):
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Sales 22.76% 5.01% 6.72% 8.60%
EBITDA 141.74% 13.78% -30.23% 16.14%
Interest Expense 25.24% -6.28%
Net Income 7.93% 41.23%
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2010E 2011E 2012E
2212 2389 2532
430.64 443.56 456.87
331.79 358.33 379.83
360.43 396.48 436.13287.55 310.55 329.18
265.43 286.66 303.86
103.4 103.4 103.4
199.07 215 227.9
1,978.31 2,113.98 2,237.17
233.59 274.87 295.02
89.44% 88.49% 88.35%
10.56% 11.51% 11.65%
22.56% 23.51% 23.65%
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9.50% 8.00% 6.00%
17.85% 12.53% 6.65%
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2005 2006 2007 2008E 2009E 2010E
Current Assets 466.8 606 645.7 716.73 795.57 883.08
Less Cash and Cash equivs 31.1 79 55.5 71.67 79.56 88.31
Total 435.7 527 590.2 645.05 716.01 794.77
Current Liabilities 573.7 637.4 1,098.70 1263.51 1453.03 1670.99
Less Current Portion of long term 38 41.9 650.9 650.9 650.9 650.9Total 535.7 595.5 447.8 612.61 802.13 1020.09
NWC -100 -68.5 142.4 32.45 -86.12 -225.31
Change in NWC 31.5 210.9 -109.95 -118.57 -139.19
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2011E 2012E
980.22 1088.04
98.02 108.8
882.2 979.24
1921.63 2209.88
650.9 650.91270.73 1558.98
-388.54 -579.74
-163.22 -191.2
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2005 2006 2007
Operating activities:
Net income 100.9 108.9 153.8
Depreciation and amortization 127.7 155 160.2
Deferred income taxes -17.3 41 66.3
Equity in undistributed earnings of unconsolidated affiliates -2.9 -7.3 -11.4
Share-based and other deferred compensation 42.6 10.2 9
VAT/Put settlement gain -131.9 0 0
Minority interest -17.8 0.3 0.4
Distributions from unconsolidated affiliates 8.3 4.5 4
Loss (gain) on sale of assets 1 -7.8 -5.7
Excess tax benefit from share-based compensation 0 -0.2 -2.4
Debt retirement costs 4.4 4.8 6.9
Changes in working capital items:
Accounts receivable 5.8 -18.6 90.9
Inventories -0.8 0.4 -17.8Other current assets 15.7 -50.9 34.2
Accounts payable and accrued liabilities 25.2 44.6 -99.3
Other, net 17.9 -17.4 -7.6
Net cash provided by operating activities 178.8 267.5 381.5
Investing activities:
Capital expenditures -275.7 -241.8 -410.5
Proceeds from disposal of property 6.3 30 16.6
0 76.5 129.1
Property investments in MSLLC 0 -37.8 -118
Proceeds and repayments from loans to equity affiliates -10.5 -1.1 14.4
Other, net -9.6 8.2 -12.1
Net cash used for investing activities -289.5 -166 -380.5
Financing activities:
Proceeds from issuance of long-term debt 635 460.4 326.6
Repayment of long-term debt -511.8 -502.6 -311.3
Net proceeds from issuance of preferred stock 203.9 0 0
Debt costs -16.5 -15.9 -19.6
Proceeds from stock plans 1.7 8.6 0.7Repurchase of common stock -200.4 0 0
Excess tax benefit from share-based compensation 0 0.2 2.4
Dividends paid -8.7 -4.3 -23.3
Net cash used for financing activities 103.2 -53.6 -24.5
Cash and cash equivalents:
Net increase (decrease) during each year -7.5 47.9 -23.5
Adjustments to reconcile net income to net cash provided byoperating activities:
Contribution from NS for MSLLC (net of change in restrictedcontribution)
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At beginning of year 38.6 31.1 79
At end of year 31.1 79 55.5
Supplemental cash flow information:
Cash payments (refunds):
Interest 132.8 163.5 141.5
Income tax payments (refunds) -1.6 -0.4 0.7
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2005 2006
Current assets:
Cash and cash equivalents 31.1 79
315.7 334.3
0 26.5
Inventories 73.9 72.5
Deferred income taxes 0 7.646.1 86.1
Total current assets 466.8 606
60.3 64.9
2,298.30 2,452.20
Concession assets, net 1,360.40 1,303.30
152.2 128.7
Other assets 85.6 82.2
Total assets $4,423.60 4,637.30
Current liabilities:
38 41.9
Accounts and wages payable 124.3 189.9
Current liabiltiy related to KCSM acquisition 78.3 50.9
333.1 354.7
Total current liabilities 573.7 637.4
Other liabilities
1,663.90 1,631.80
Long-term liability related to KCSM acquisition 80.4 32.4409.2 417.3
Other noncurrent liabilities and deferred credits 270.2 235.7
Total other liabilities 2,423.70 2,317.20
Minority interest 0 100.3
0 0
6.1 6.1
0.4 0.4
0.2 0.2
Accounts receivable, net (Note 2)
Restricted funds (Note 2)
Other current assets (Note 5)
Investments (Note 3)
Property and equipment, net of accumulated depreciation of $871.9and $897.0 at December 31, 2007 and 2006, respectively
Deferred tax asset (Note 7)
Debt due within one year (Note 6)
Accrued liabilities (Note 5)
Long-term debt (Note 6)
Deferred income taxes (Note 7)
Commitments and contingencies (Note 11)
Stockholders equity (Notes 2,8):
$25 par, 4% noncumulative, preferred stock, 840,000 shares
authorized, 649,736 shares issued, 242,170 shares outstandingSeries C 0 redeemable cumulative convertible perpetual preferredstock, $1 par, 4.25%, 400,000 shares authorized, issued andoutstanding
Series D 0 cumulative convertible perpetual preferred stock, $1 par,5.125%, 210,000 shares authorized, issued and outstanding
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0.7 0.7
Paid in capital 473.1 523
Retained earnings 946.1 1,050.70
Accumulated other comprehensive income -0.4 1.3
Total stockholders equity 1,426.20 1,582.40
Total liabilities and stockholders equity 4,423.60 4,637.30
$.01 par, common stock, 400,000,000 shares authorized;92,863,585 shares issued at December 31, 2007 and 2006,respectively; 76,975,507 and 75,920,333 shares outstanding atDecember 31, 2007 and 2006, respectively
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2007
55.5
243.4
11.5
90.3
177.867.2
645.7
79.3
2,917.80
1,215.50
0
69.9
4,928.20
650.9
121.1
0
326.7
1,098.70
1,105.00
0499.1
256.1
1,860.20
243
0
6.1
0.4
0.2
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0.8
549.5
1,168.90
0.4
1,726.30
4,928.20
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end begin cagr
573.7 1,098.70 24.2%
Revenues 1,352 1,660 1,743
Operating expenses:
Compensation and benefits 381.5 393.6 394.1
Purchased services 195.1 204.7 184.7
Fuel 206.9 253.6 270.8
Equipment costs 149.8 179.7 182.4Depreciation and amortization 127.7 155 160.2
Casualties and insurance 103.4 53.4 71
Materials and other 125.3 115.4 117.2
Compensation and benefits
Purchased services
Fuel
Equipment costs 11.08% 13.29% 13.49% 6.8%
Depreciation and amortization 9.45% 11.46% 11.85% 7.9%
Casualties and insurance 7.65% 3.95% 5.25% -11.8%
Materials and other 9.27% 8.54% 8.67% -2.2%
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KSU
Current Price 37.89
as of 24Mar08
52 Week Range 27.66 - 43.00
PE 24.26x
EPS 1.56
Market Cap 3BBeta 1.2
KSU BNI UNP
P/E 24.26x 17.95x 17.63x
Profit Margin 8.85% 11.57% 11.39%
Quick Ratio .51x .50x .70x
D/E 1.02x .73x .49x
ROE 8.13% 16.88% 12.01%
Effective Tax Rate 30.32% 38.15% 38.35%