MIDLAND ENERGY RESOURCES

Project:
Analysis:
Draft:
Footer:

MIDLAND ENERGY RESOURCES

Income Statement
N
Harvard Business Publishing

Income Statement

Harvard Business Publishing

MIDLAND ENERGY RESOURCES

Income Statement

Operating Results
Operating Results:
Operating Revenues
Plus: Other Income
Total Revenue & Other Income
Less: Crude Oil & Product Purchases
Less: Production & Manufacturing
Less: Selling, General & Administrative
Less: Depreciation & Depletion
Less: Exploration Expense
Less: Sales Based Taxes
Less: Other Taxes & Duties
Operating Income
Less: Interest Expense
Less: Other Non-Operating Expenses
Income Before Taxes
Less: Taxes
Net Income

2004
201,425
1,239
202,664
94,672
15,793
9,417
6,642
747
18,539
27,849
29,005
10,568
528
17,910
7,414
10,496

2005
249,246
2,817
252,062
125,949
18,237
9,793
6,972
656
20,905
28,257
41,294
8,028
543
32,723
12,830
19,893

2006
248,518
3,524
252,042
124,131
20,079
9,706
7,763
803
20,659
26,658
42,243
11,081
715
30,447
11,747
18,701

NOPAT

25,945

Tax Rate
41.40%

39.21%

38.58%

Harvard Business Publishing

MIDLAND ENERGY RESOURCES

Project:
Analysis:
Draft:
Footer:

MIDLAND ENERGY RESOURCES

Balance Sheet
N
Harvard Business Publishing

Balance Sheet

Harvard Business Publishing

MIDLAND ENERGY RESOURCES

Assets:
Cash & Cash equivalents
Restricted Cash
Notes Receivable
Inventory
Prepaid Expenses
Total Current Assets

2005
16,707
3,131
18,689
6,338
2,218
47,083

2006
19,206
3,131
19,681
7,286
2,226
51,528

30,140
156,630
10,818
244,671

34,205
167,350
9,294
262,378

Liabilities & Owners' Equity:

Accounts Payable & Accrued Liabilities
Current Portion of Long Term Debt
Taxes Payable
Total Current Liabilities

24,562
26,534
5,723
56,819

26,576
20,767
5,462
52,805

Long Term Debt

Post Retirement Benefit Obligations
Accrued Liabilities
Deferred Taxes
Other Long Term Liabilities

82,414
6,950
4,375
14,197
2,423

81,078
9,473
4,839
14,179
2,725

Total Shareholders' Equity

Total Liabilities & Owners' Equity

77,493
244,671

97,280
262,378

Investments & Advances

Net Property, Plant & Equipment
Other Assets
Total Assets

Balance Sheet

Debt
D/V
79,508
STICK TO EXHIBIT 5
Equity
97,280

Net Dbet
79,508
Alternativ 57,687
Cash
EV
176,788
EV
The amount of money you will pay to acquire the company
D/V
E/V

0.4497
0.55026

Harvard Business Publishing

MIDLAND ENERGY RESOURCES

Project:
Analysis:
Draft:
Footer:

MIDLAND ENERGY RESOURCES

Business Segments
N
Harvard Business Publishing

Business Segments

Harvard Business Publishing

MIDLAND ENERGY RESOURCES

Business Segments

Exploration & Production:

Operating Revenue
After-Tax Earnings

2004
15,931
6,781

2005
20,870
13,349

2006
22,357
12,556

Capital Expenditures
Depreciation
Total Assets

6,000
4,444
76,866

7,180
4,790
125,042

7,940
5,525
140,100

2004
166,280
2,320

2005
206,719
4,382

2006
202,971
4,047

Capital Expenditures
Depreciation
Total Assets

1,455
1,620
60,688

1,550
1,591
91,629

1,683
1,596
93,829

Petrochemicals:
Operating Revenue
After-Tax Earnings

2004
19,215
1,394

2005
21,657
2,162

2006
23,189
2,097

Capital Expenditures
Depreciation
Total Assets

305
578
19,943

330
591
28,000

436
642
28,450

Refining & Marketing:

Operating Revenue
After-Tax Earnings

Harvard Business Publishing

MIDLAND ENERGY RESOURCES

Project:
Analysis:
Draft:
Footer:

MIDLAND ENERGY RESOURCES

Stock & Dividend Data
N
Harvard Business Publishing

Stock & Divide

Harvard Business P

MIDLAND ENERGY RESOURCES

Stock Prices:
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
Dividends Per Share:
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
Annual Dividend
Selected Financial Data:
Net Income
Shares Outstanding
EPS
Payout Ratio
DPS

2001
$27.16
$27.90
$28.33
$24.13

2002
$31.29
$30.41
$27.80
$26.85

2003
$32.59
$29.42
$32.45
$31.57

Stock & Divide

2004
$34.37
$35.78
$36.98
$31.28

2005
$38.32
$40.29
$37.52
$34.58

2006
$44.11
$39.75
$46.32
$38.81

$0.28
$0.28
$0.28
$0.28
$1.11

$0.29
$0.29
$0.29
$0.29
$1.14

$0.30
$0.29
$0.29
$0.29
$1.17

$0.31
$0.31
$0.31
$0.31
$1.24

$0.34
$0.34
$0.34
$0.34
$1.35

$0.36
$0.36
$0.36
$0.36
$1.46

15,303
2,049
7.47
14.8%
1.11

11,448
2,025
5.65
20.2%
1.14

11,848
2,035
5.82
19.9%
1.16

10,496
2,055
5.11
24.2%
1.24

19,893
2,945
6.75
20.0%
1.35

18,701
2,951
6.34
23.0%
1.46

Note: Results have not been adjusted for a divestiture at the end of 2001 and an acquisition at the beginning of 2005.

6-Year compound growth in Stock Price

5-Year Compound growth in Dividends
Average Payout Ratio
5-year compound growth in Net Income

10.58%
5.69%
20.35%
4.1%

Net Income
Current Stock Price
44.11 Average Payout Ratio
Implied 2007 Dividend
1.54
Gordon Growth Model Implied cost of equity

19,466
3,961
1.34

7.13%

Harvard Business P

Stock & Dividend Data

Harvard Business Publishing

Stock & Dividend Data

Assuming they stic to number of shares outstanding

Harvard Business Publishing

MIDLAND ENERGY RESOURCES

Project:
Analysis:
Draft:
Footer:

MIDLAND ENERGY RESOURCES

Comparable Companies
N
Harvard Business Publishing

Comparable Companies

Harvard Business Publishing

MIDLAND ENERGY RESOURCES

Exploration & Production:

Jackson Energy, Inc.
Wide Palin Petroleum
Corsicana Energy Corp.
Worthington Petroleum
Average
Refining & Marketing:
Bexar Energy, Inc.
Kirk Corp.
White Point Energy
Petrarch Fuel Services
Arkana Petroleum Corp.
Beaumont Energy, Inc.
Dameron Fuel Services
Average
Midland Energy Resources

Equity
Market Value
57,931
46,089
42,263
27,591

Net
Debt
6,480
39,375
6,442
13,098

60,356
15,567
9,204
2,460
18,363
32,662
48,796

134,114

Comparable Companies

D/E
11.2%
85.4%
15.2%
47.5%
39.8%

Equity
Beta
0.89
1.21
1.11
1.39
1.15

LTM
LTM
Revenue Earnings
18,512
4,981
17,827
8,495
14,505
4,467
12,820
3,506

6,200
3,017
1,925
(296)
5,931
6,743
24,525

10.3%
19.4%
20.9%
-12.0%
32.3%
20.6%
50.3%
20.3%

1.70
0.94
1.78
0.24
1.25
1.04
1.42
1.20

160,708
67,751
31,682
18,874
49,117
59,989
58,750

9,560
1,713
1,402
112
3,353
1,467
4,646

79,508

59.3%

1.25

251,003

18,888

Harvard Business Publishing

Table 1
Credit
Business Segment:

Debt/

Spread to

Rating

Value

Treasury

Consolidated

A+

42.2%

1.62%

Exploration & Production

A+

46.0%

1.60%

Refining & Marketing

BBB

31.0%

1.80%

Petrochemicals

AA-

40.0%

1.35%

Target

Note: Debt/Value is based on market values.

Table 2

Tax
Maturity:

Rate:

1-Year

4.54%

10-Year

4.66%

30-Year

4.98%

Beta
1.25
Re = Rf + B(EMRP)
11.230%
Rd
6.60%

In 2006 Midland used an equity market risk premium of 5.0%,

EMRP Past

EMRP Pr

6.00%

5%

38.58%

D/V
E/V

42.20%
57.80%

D/E
D/V
E/V

WACC Firm Level

Debt Value

0.592842
37.22%
62.78%
Given in the case

8.56%

EVA = NOPAT - (rwacc)(Invested Capital)

NOPAT
25,945
rwacc
8.56%
Equity
134,114
Debt
79,508