Acme Manufacturing

Assumptions

Inputs Purchase Summary
Name Acme Manufacturing Management Ownership % 16.67%
Management Case 2 Financial Sponsor Ownership % 83.33%
Transaction Year 2010 Purchase Price Multiple 6.14x
Sales Growth Rate 10.0% Senior Debt (Senior + Revolver)/EBITDA 2.28x
Conservative Case 5.0% Subordinated Debt/EBITDA 1.36x
Management Case 10.0% Total Leverage 3.65x
Tax Rate 40.0%

Sources of Funds Return Analysis
Spread to Libor Uses Limit
Existing Cash 0 Exit Year 1 2 3 4 5
Revolver 8.0% 40 4,000 Trailing EBITDA 4,840 5,324 5,856 6,442 7,086
Senior - Term Loan 8.0% 10,000 EBITDA Multiple 6.14x 6.14x 6.14x 6.14x 6.14x
Sub Debt 12.0% 6,000 Enterprise Value 29,700 32,670 35,937 39,531 43,484
PIK 2.0%
Management Stock Roll-Over 2,000 Plus: Cash 50 50 50 50 50
Financial Sponsor Equity 10,000 Less: Debt 15,259 14,063 12,459 10,398 7,788
Total Sources 28,040 Total Equity Value 14,491 18,657 23,528 29,183 35,745

Uses of Funds Less Management Equity 2,415 3,109 3,921 4,864 5,958
Cash Proceeds to Seller 25,000 Equity to LBO Sponsors 12,076 15,547 19,607 24,319 29,788
Common Stock Seller 2,000
Transaction Fees 1,040
Total Uses 28,040 Sponsor IRR 20.8% 24.7% 25.2% 24.9% 24.4%
Multiple of Sponsor's Original Investment 1.2x
Purchase Price 27,000

Fees and Expenses
Advisory 340
Legal 250
Other Expenses - Accounting, Etc. 250
Term Loan 2.0% 200
Total 1,040

070 2.268 40.600 16.664 EBITDA Opearting Profit 3.328 22.376 Operating Profit Margin 13.094 Growth Rate 4.150 4.386 1.450 3.597 27.3% 24.398 18.0% 40.250 6.245 2.9% SG&A as a % of Sales 24.0% 24.447 1.360 1.0% COGS 15.480 20.0% 15.400 3.3% 24.7% 15.336 1.929 4.9% 12.880 37.0% 24.000 30.660 1.213 4.000 26.7% 15.320 13.447 1.3% 12.7% 15.776 Net Income 2.200 12.0% 40.2% 12.525 1.376 Depreciation 500 600 700 786 986 1.480 8.800 33.400 4.0% 40.546 4.3% Interest Expense/Income Interest Expense 0 0 0 1.926 2.336 1.497 1.186 1.400 3.442 1.3% 24.190 936 Interest Income 0 0 0 0 0 0 0 0 Total Interest Income (Expense) 0 0 0 1.0% 40.6% 13.386 1.956 10.907 16.4% 12.000 28.7% 15.995 45.190 936 Taxes 40.0% 10.361 24.3% 24.932 5.546 4.0% 10.324 5.0% 40.525 1.7% 15.400 11.086 EBITDA Margin 16.552 14.856 6.450 3.951 Depreciation 500 600 700 786 986 1.7% .0% 40.040 2.440 962 1.800 7.000 10.3% 24.7% 10.600 3.057 Gross Profit 10.000 15.0% 7.Acme Manufacturing Income Statement ($ in 000's) Historical 12/31/xx Projected 12/31/xx 2008 2009 2010 2011 2012 2013 2014 2015 Sales 25.586 Amortization 100 100 100 125 125 125 125 125 EBITDA 4.000 4.0% 10.0% 11.0% 10.600 3.213 4.800 18.929 4.442 7.284 1.0% SG&A 6.380 1.038 Gross Profit Margin 40.186 1.160 1.8% 12.228 9.0% 16.840 5.000 6.932 5.586 Amortization 100 100 100 125 125 125 125 125 Operating Profit 3.0% 1.107 1.0% 40.051 9.

200 1.150 1.000 Equity Common and add'l paid in capital 1.000 3.543 31.20 Other current assets as % of Sales 4.000 3.2% 0.200 6.3% 0.300 13.718 Other Long Term Assets 50 60 70 70 Total Assets 11.500 8.000 0 Retained earnings 100 1.300 3.200 Accrued Expenses 1. Net 200 100 0 18.543 31.80 46.0% 4.920 12.000 Subordinated Debt 6.88 48.228 5.3% .000 0.050 1.400 3.000 4.000 Total Liabilities & Owners Equity 11.000 0.200 11.000 0.300 0 Accounts Receivable 3.300 13.000 6.2% 0.000 3.323 1.000 4.610 15.400 6.073 Plant Property & Equipment.7% Other Long Term Assets as % of Sales 0.135 935 650 10.000 Prepaids and Other 1.480 2.4% 4.323 Current Assets 6.750 3.250 4.960 Liabilities & Owners Equity Current Liabilities Accounts Payable 1.20 4.373 9.7% 4.845 3.100 4.100 Goodwill and Intangibles.Acme Manufacturing Balance Sheet ($ in 000's) Pro forma 2008 2009 2010 Opening Assets Current Assets Cash 500 750 2.050 5.984 1.725 1.984 Other Current Liabilities 500 575 661 661 Current Assets 3.000 Working Capital Ratios Working Capital 3.88 Inventory Turnover 7.000 1.960 Check 0.000 4.33 48.610 15.178 AR Days 43.228 Change in WC 1.100 1.20 4.000 1.500 1.000 1.750 Inventory 2. Net 4.550 5.000 1.845 Other Long Term Liabilities 65 70 75 75 Revoliving Line of Credit 0 525 653 40 Senior Loan 1.50 5.

0% 11.4% .8% Other Current Liabilities as a % of COGS 3.4% 0.4% 0.9% 3.3% 3.A/P Days Outstanding 24.07 Accrued Expenses as a % of COGS 10.7% 3.33 25.07 26.4% 0.9% Other Long Term Liabilities as a % of COGS 0.1% 11.74 26.8% 11.

654 8.000 0.125 13.705 35.329 4.000 0.624 0 0 0 0 0 13.933 2.442 15.419 523 575 633 696 765 48.028 19.485 2.705 35.936 2.909 34.053 2.7% 4.030 11.442 1.452 1.856 6.039 1.750 6.039 0. 2011 2012 2013 2014 2015 50 50 50 50 50 4.398 0 6.937 33.014 33.640 2.411 36.143 3.028 12.242 6.320 1.20 4.20 4.3% 0.88 48.094 77 85 93 102 113 33.171 18.490 6.3% .118 5.7% 4.506 1.014 33.958 7.324 5.629 6.218 18.182 2.336 4.88 48.039 1.400 2.88 4.192 83 91 100 110 121 815 1.991 5.909 34.88 48.495 6.000 0.20 4.195 727 800 880 968 1.20 4.904 3.593 18.661 4.324 6.400 4.065 4.125 4.757 3.325 6.039 4.274 21.7% 4.000 0.411 36.120 6.3% 0.230 4.314 4.164 8.7% 4.468 18.102 17.130 10.760 1.840 5.88 48.757 1.343 18.600 1.20 4.333 14.538 4.597 1.3% 0.7% 0.455 1.367 6.652 5.000 5.3% 0.

9% 3.9% 3.07 26.9% 3.8% 3.07 11.8% 11.07 26.8% 11.07 26.26.9% 3.8% 11.4% 0.8% 11.07 26.4% 0.4% 0.4% 0.9% 0.4% .

750 3.200 1.000 Total Liabilities & Owners Equity 15. Net 4.400 (6.000 Equity Common and add'l paid in capital 1.323 Current Assets 11.100 4.000 .000) 0 Retained earnings 2.000 10.984 Other Current Liabilities 661 661 Current Assets 3.984 1. Net 0 18.300) 0 Accounts Receivable 3.323 1.000 4.960 Check 0.750 Inventory 4.100 Goodwill and Intangibles.300 (2.000 Subordinated Debt 6.000 0.373 9.200 Accrued Expenses 1.845 3.718 Other Long Term Assets 70 70 Total Assets 15.Acme Manufacturing Transactional Balance Sheet ($ in 000's) Transaction Financing Pro forma 2010 Adustments Adjustments Opening Assets Current Assets Cash 2.000 Prepaids and Other 1.543 31.920 (2.400) 6.543 31.073 Plant Property & Equipment.000 (1.960 Liabilities & Owners Equity Current Liabilities Accounts Payable 1.845 Other Long Term Liabilities 75 75 Revoliving Line of Credit 653 (653) 40 40 Senior Loan 650 (650) 10.718 18.920) 12.000 6.000 12.

323 Cash 0 Fair market value adjustment to assets 0 Accounts Receivable 3.243 Assets less: liabilities assumed (3.100 Other Long Term Assets 70 Liabilities Current Liabilities Accounts Payable 1.073 New Goodwill 17.323 Inventory 4. Term 5 Fees 1.323 Cost of purchase 27.750 Adjusted net assets 9. Goodwill 0 0 0 0 0 Fees 125 125 125 125 125 New Goodwill 0 0 0 0 0 Existing Goodwill 0 0 0 0 0 Total Amort.040 (% of Fees Tax Deductible? ) 60% 624 Term 15 New Goodwill 17.678 (% of Goodwill Tax Deductible? ) 0% 0 Term 15 Existing Goodwill 0 (% of Goodwill Tax Deductible? ) 0% 0 Balance 1 2 3 4 5 Transaction Fees 499 374 250 125 0 Goodwill 0 0 0 0 0 Acq. Net 4.678 Plant Property & Equipment.000 Current Assets 9. 125 125 125 125 125 Cummulative Amort.200 Accrued Expenses 1.Acme Manufacturing Goodwill ($ in 000's) Pro forma Calculation of Goodwill Opening Book value of assets 13.920) Current Assets 9.845 Other Long Term Liabilities 75 Calculation: Tax Purposes Goodwill Amort.000 Prepaids and Other 1. 125 250 374 499 624 .984 Other Current Liabilities 661 Current Assets 3.

245 2.297) (2.730) (2.398) Subordinated Debt Amortization 0 0 0 0 0 Total Cash Flow After Financing (901) (1.000) Total Cash Flow After Investing (1.641) (1.000) (1.926 2.000) (1.740 Cash Flow Investing Capital Expenditures (1.188) (2.000) (1.000) (1.000) (1.951 2.186 1.586 Amortization 125 125 125 125 125 PIK Interest 120 122 125 127 130 Uses Change in Working Capital 523 575 633 696 765 Change in Other (0) (1) (1) (1) (1) Total Cash Flow After Operations 1.Acme Manufacturing Cash Flow Statement ($ in 000's) 2010 2011 2012 2013 2014 2015 Cash Flow from Operations Sources Net Income 1.660 1.342) Senior Term A Debt Amortization (1.730 3.676) (1.000) (1.000) (1.740) Net Change in Cash Beginning Cash Balance 0 50 50 50 50 Change in Cash Flow 50 0 0 0 0 Ending Cash Balance 0 50 50 50 50 50 .664 Depreciation 786 986 1.989) (2.318) (1.318 2.000) Cash Flow Financing Draw (Amort) Revolver 775 670 568 453 (1.386 1.188 3.000) (1.442 1.

143 3.586 Plant Property & Equipment.Year 3 1.314 4.000 1.143 3.186 1.171 .Year 5 1.386 1.186 1.000 1.000 Total Depreciation 786 986 1.Year 2 1.000 1.100 4.550 5.000 200 200 200 200 200 Capital Expenditures .314 4.386 1.000 200 200 200 200 Capital Expenditures .100 4.New Expenditures 5 2008 2009 2010 2011 2012 2013 2014 2015 Beginning Depreciable Assets .000 1.Year 1 1.757 Capex 1.000 200 Total Depreciation on New Capex 200 400 600 800 1.329 4.Existing Assets 7 Years Average Life of Depreciation . Net 4.Net 4.757 3.000 Depreciation 786 986 1.000 200 200 Capital Expenditures .Acme Manufacturing Depreciation and Amortization ($ in 000's) Years Average Life of Depreciation .250 4.329 4.100 Depreciation of Existing Assets 586 586 586 586 586 Capital Expenditures .Year 4 1.586 Plant Property & Equipment Gross Plant Property & Equipment 4.000 200 200 200 Capital Expenditures .

61x 1.41x 47.04x 0.47x 1.120 6.000 8.61x 0.856 6. Balance 6.740 Plus: Beginning Cash Balance 0 50 50 50 50 Less: Minimum Cash Balance (50) (50) (50) (50) (50) Cash Available for Debt Repayment 901 1. Balance 10.42x 7.063 12.000) (1.485 2.000) (1.053 2.495 6.55x 10.324 5.0% Interest Expense 727 742 757 772 787 Revolver Cash Available to Sweep to Revolver (775) (670) (568) (453) 1.442 7.641) (398) Amortization (years) 10 Ending Balance 10.624 Bullet Payment (?) Y Bullet Payment YR 2020 PIK Interest Rate 2.297) (1. Acme Manufacturing Debt ($ in 000's) 2010 2011 2012 2013 2014 2015 Cash Flow Available for Financing Activities 951 1.730 2.17x 3.367 6.730 2. Balance 40 815 1.188 2.336 4.242 6.342) Ending Balance 40 815 1.324 6.0% Cash Interest Rate 12.053 2.139 7.039 1.11x 15.039 1.485 2.000 6.525 1.13x 1.342 Beg.06x 7.16x Total Debt / EBITDA 3.164 Total Debt 15.821 6.15x 2.64x 2.000) Maturity (years) 7 Additional Amortization (676) (989) (1.38x 5.000) (1.318 1.336 1.242 6.89x 1.398 Scheduled Amortization (1.55x EBITDA / Total Cash Interest 3.259 14.740 Senior Term A Beg.0% 65 119 164 200 93 Credit Statistics Total Senior Debt 9.788 Total Senior Cash Interest 798 705 579 418 149 Total Cash Interest 1.000 8.318 1.120 6.336 4.506 Draw/(Repayments) 775 670 568 453 (1.0% Interest Rate 8.000 6.398 7.367 6.10x EBITDA / Senior Cash Interest 6.0% Interest Expense 733 586 415 217 56 Subordinated Debt Beg.398 0 Cash Flow Sweep Avail 75.086 Senior Debt / EBITDA 1.68x 4.190 936 EBITDA 4.188 2.000) (1.459 10.091 3.57x .164 Interest Expense 8.324 6.840 5.495 PIK Interest 120 122 125 127 130 Maturity (years) 7 Amortization 0 0 0 0 0 Amortization (years) 10 Ending Balance 6.904 1.506 1.447 1.

064 2.827 Total Present Value of Interim Cash Flows 8.376 less: Taxes (40. Avg.655 1.745 2.225 3.00% (1.14x Terminal Net Debt Free Cash F 2.586 = capex add: Amortization 125 125 125 125 125 125 less: Capital Expenditures (1. Avg.6% Present Value 1.213 4.00% 12. (Pre-tax) (After-tax) WACC Senior Debt Rate 50.4% 57.171 2.728 1.973) (2.785 1.00% 25.2% 71.000) (1.00% 25.386 1.00% 8.559 Present Value Factor for Terminal Value 57.358 2.959 3.80% 2.086 Terminal Growth Rate 3.000) (1.0% Terminal EBITDA Multiple 6.293 Discounted Terminal Enterprise Value 25.25% 100.00% 6.484 Residual TIC Value 32.65% Present Value of Cash Flows Present Value Factor 89.8% 64.572) (1.712 Residual Enterprise Value 43.00% 3.528 2.00% Common Stock 25.00% 4.563 1.063 Discounted Terminal Enterpris 18.225 add: Depreciation 786 986 1.622 Based on Gordon Growth Model 27.774 3. % of Cost Cost Capital Structure .Acme Manufacturing DCF ($ in 000's) 1 2 3 4 5 2011 2012 2013 2014 2015 Terminal EBIT 3.6% Terminal Value Calculated using: Terminal EBIDA Multiple: Gordon Growth Model: Terminal EBITDA 7.00% 12.000) (1.376 5.613 Enterprise Value Conclusion : Based on Terminal EBITDA Multiple 33.150) (2.685) (1.929 4.000) = deprec less: Working Capital Requirements (523) (575) (633) (696) (765) (638) Cash Flow 1.00% Ind.186 1.818) (1.Industry: Total Cap Struct.712 Weighted Average Cost of Capital: Ind. WACC = 11.932 5.150) Not Operating Profit After Tax (NOPAT) 2.406 2.000) (1.40% Subordinated Debt 25.0%) 40.728 2.546 4.6% 80.172 .