You are on page 1of 16

HANSSON PRIVATE LABEL Income Statement

Operating Results: 2003 2004 2005 2006 2007


Revenue $503.4 $543.7 $587.2 $636.1 $680.7
Less: Cost of Goods Sold 405.2 432.3 496.2 513.4 558.2
Gross Profit 98.2 111.4 91.0 122.7 122.5
Less: Selling, General & Administrative 37.8 44.6 45.8 51.5 49.0
EBITDA 60.4 66.8 45.2 71.2 73.5
Less: Depreciation 6.8 6.2 6.0 5.9 6.1
EBIT 53.6 60.6 39.2 65.3 67.4
Less: Interest Expense 5.5 5.8 5.9 5.3 3.3
EBT 48.1 54.8 33.3 60.0 64.1
Less: Taxes 19.2 22.0 13.3 24.0 25.6
Net Income $28.9 $32.8 $20.0 $36.0 $38.5

Margins:
Revenue Growth NA 8.0% 8.0% 8.3% 7.0%
Gross Margin 19.5% 20.5% 15.5% 19.3% 18.0%
Selling, General & Administrative/Revenue 7.5% 8.2% 7.8% 8.1% 7.2%
EBITDA Margin 12.0% 12.3% 7.7% 11.2% 10.8%
EBIT Margin 10.6% 11.1% 6.7% 10.3% 9.9%
Net Income Margin 5.7% 6.0% 3.4% 5.7% 5.7%
Effective Tax Rate 39.9% 40.1% 39.9% 40.0% 39.9%
Harvard Business Publishing
HANSSON PRIVATE LABEL Balance Sheet

Assets: 2003 2004 2005 2006 2007


Cash & Cash Equivalents $4.3 $5.1 $4.8 $7.8 $5.0
Accounts Receivable 62.1 70.1 78.8 87.1 93.3
Inventory 57.7 58.0 61.2 61.9 67.3
Total Current Assets 124.1 133.2 144.8 156.8 165.6

Property, Plant & Equipment 201.4 202.9 203.1 202.3 204.4


Other Non-Current Assets 12.3 12.1 11.8 12.5 10.8
Total Assets $337.8 $348.2 $359.7 $371.6 $380.8

Liabilities & Owners' Equity:


Accounts Payable & Accrued Liabilities $42.2 $45.0 $51.6 $53.4 $58.1

Long-Term Debt 91.6 82.8 73.8 65.8 54.8

Owners' Equity 204.0 220.4 234.3 252.4 267.9


Total Liabilities & Owners' Equity $337.8 $348.2 $359.7 $371.6 $380.8

Net Working Capital:


Accounts Receivable 62.1 70.1 78.8 87.1 93.3
Plus: Inventory 57.7 58.0 61.2 61.9 67.3
Less: Accounts Payable & Accrued Expenses 42.2 45.0 51.6 53.4 58.1
Net Working Capital 77.6 83.1 88.4 95.6 102.5

Net Working Capital/Revenue 15.4% 15.3% 15.1% 15.0% 15.1%

Days Sales Outstanding 44.4x 46.4x 48.3x 49.3x 49.3x


Days Sales Inventory 41.3x 38.4x 37.5x 35.0x 35.6x
Days Payable Outstanding (1) 34.3x 34.0x 34.3x 34.0x 34.4x
Cash-to-Cash 51.4x 50.8x 51.6x 50.3x 50.5x

(1) Based on total operating expenses excluding depreciation.


Harvard Business Publishing
HANSSON PRIVATE LABEL Cash Flow

Cash From Operations: 2003 2004 2005 2006 2007


Net Income $28.9 $32.8 $20.0 $36.0 $38.5
Plus: Depreciation 6.8 6.2 6.0 5.9 6.1
Less: Increase in Accounts Receivable 3.1 8.0 8.7 8.3 6.2
Less: Increase in Inventory 0.5 0.3 3.2 0.7 5.4
Plus: Increase in Accounts Payable 0.3 2.8 6.6 1.8 4.7
Total Cash From Operations $32.4 $33.5 $20.7 $34.7 $37.7

Cash From Investing:


Capital Expenditures $7.3 $7.7 $6.2 $5.1 $8.2
Plus: Increases in Other Non-Current Assets 0.5 (0.2) (0.3) 0.7 (1.7)
Total Cash Used in Investing $7.8 $7.5 $5.9 $5.8 $6.5

Cash From Financing:


Repayment of Debt $8.0 $8.8 $9.0 $8.0 $11.0
Plus: Dividend Payments 14.4 16.4 6.1 17.9 23.0
Cash Used in Financing $22.4 $25.2 $15.1 $25.9 $34.0

Total Cash Generated $2.2 $0.8 ($0.3) $3.0 ($2.8)


Harvard Business Publishing
HANSSON
ho PRIVATE LABEL Comparable Companies

Market NetEnterprise Equity Net Book


Company: Value Debt Value Beta Revenue EBITDA EBIT Income Value
Cathleen Sinclair 298.9 1,329.6 1,628.5 2.22 1,346.8 255.3 163.4 21.5 (1,112.8)
General Health & Beau 319.3 63.1 382.4 1.95 446.1 61.9 51.9 23.8 204.2
Women's Care Compa 498.6 55.3 553.9 1.14 397.3 52.7 49.3 77.0 43.7
Skin Care Enterprises 1,204.2 371.9 1,576.1 1.35 1,247.6 155.8 125.4 65.3 316.2

Company: EBITDA EBIT Earnings Revenue EBITDA EBIT P/E P/B


Cathleen Sinclair 19.0% 12.1% 1.6% 1.2x 6.4x 10.0x 13.9x NM
General Health & Beauty 13.9% 11.6% 5.3% 0.9x 6.2x 7.4x 13.4x 1.6x
Women's Care Company 13.3% 12.4% 19.4% 1.4x 10.5x 11.2x 6.5x 11.4x
Skin Care Enterprises 12.5% 10.1% 5.2% 1.3x 10.1x 12.6x 18.4x 3.8x
Average 14.6% 11.6% 7.9% 1.2x 8.3x 10.3x 13.1x 5.6x
Harvard Business Publishing
HANSSON PRIVATE LABEL Weighted Average Cost of Capital

Debt/ Debt/ Equity Debt Asset


Company: Value Equity Beta Beta Beta
Cathleen Sinclair 81.6% 444.9% 2.22 0.25 0.79
General Health & Beauty 16.5% 19.8% 1.95 0.00 1.74
Women's Care Company 10.0% 11.1% 1.14 0.00 1.07
Skin Care Enterprises 23.6% 30.9% 1.35 0.00 1.14
Average 32.9% 49.1% 1.67 0.06 1.18

Dbet/ Debt/ Asset Equity Cost of Cost of Assumptions:


Value Equity Beta Beta Equity Debt WACC 10-Year Treasury 3.75%
0.0% 0.0% 1.18 1.18 9.67% 7.75% 9.67% Market Risk Premium 5.00%
5.0% 5.3% 1.18 1.22 9.86% 7.75% 9.60%
10.0% 11.1% 1.18 1.26 10.07% 7.75% 9.53% Tax Rate 40.0%
15.0% 17.6% 1.18 1.31 10.30% 7.75% 9.45%
20.0% 25.0% 1.18 1.36 10.56% 7.75% 9.38% Est. Hansson EBITDA Multiple 7.0x
25.0% 33.3% 1.18 1.42 10.86% 7.75% 9.31% Est. Hansson Enterprise Value 514.5

Existing Net Debt 49.8


Plus: New Expansion Debt 57.8
Total Estimated Debt 107.6

Existing D/V 9.7%


Estimated New D/V 20.9%

Assumed Debt Beta 0.00


Estimated Cost of Debt 7.75%
Harvard Business Publishing
HANSSON PRIVATE LABEL Investment

Percent Cost of
Cost Components: Amount Est. Life Depr' Maintenance Maintenance
Facility Expansion $10,000 20yrs. 500 5.0% 500
Manufacturing Equipment 20,000 10yrs. 2,000 5.0% 1,000
Packaging Equipment 15,000 10yrs. 1,500 5.0% 750
Working Capital (1) 12,817 0 0.0% 0
Total Investment 57,817 4,000 2,250

(1) The increase in working capital is not expected to ocurr upfront


at the time of the initial investment. It is assumed to take place
throughout the year, and should be considered as part of the
2009 cash flows.
Note: working capital is defined as accounts receivable plus inventory
less accounts payable and accrued expenses. At the end of the
project, working capital will be returned in an amount equal to
accounts receivable less accounts payable.
Harvard Business Publishing
HANSSON PRIVATE LABEL
Operating Assumptions

Revenue Projection: 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Total Capacity (000's) 80,000 80,000 80,000 80,000 80,000 80,000 80,000 80,000 80,000 80,000
Capacity Utilization 60.0% 65.0% 70.0% 75.0% 80.0% 85.0% 85.0% 85.0% 85.0% 85.0%
Unit Volume 48,000 52,000 56,000 60,000 64,000 68,000 68,000 68,000 68,000 68,000
Selling Price Per Unit - Growing at 2.0% 1.77 1.81 1.84 1.88 1.92 1.95 1.99 2.03 2.07 2.12
Revenue 84,960 93,881 103,124 112,700 122,618 132,887 135,545 138,256 141,021 143,841

Production Costs:
Raw Materials Per Unit Growing at 1.0% 0.94 0.95 0.96 0.97 0.98 0.99 1.00 1.01 1.02 1.03
RM Cost 45,120 49,369 53,698 58,109 62,603 67,181 67,852 68,531 69,216 69,908
Manufacturing Overhead Growing at 3.0% 3,600 3,708 3,819 3,934 4,052 4,173 4,299 4,428 4,560 4,697
Maintenance Expense Growing at 3.0% 2,250 2,318 2,387 2,459 2,532 2,608 2,687 2,767 2,850 2,936
Total Production Cost 50,970 55,394 59,904 64,501 69,187 73,962 74,838 75,726 76,627 77,541

Salaried Labor Cost:


Managers 4 4 6 6 8 8 8 8 8 8
Average Annual Fully Loaded Cost 3.5% 160.0 165.6 171.4 177.4 183.6 190.0 196.7 203.6 210.7 218.1
Total Salaried Labor Cost 640.0 662.4 1,028.4 1,064.4 1,468.8 1,520.2 1,573.4 1,628.5 1,685.5 1,744.5

Hourly Labor Cost:


Average Fully Loaded Hourly Cost 3.5% 20.00 20.70 21.42 22.17 22.95 23.75 24.59 25.45 26.34 27.26
Hours Per Year 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000
Cost Per Hourly Employee 40,000 41,400 42,849 44,349 45,901 47,507 49,170 50,891 52,672 54,516
Number of Hourly Workers 450 473 509 545 582 618 618 618 618 618
Total Hourly Labor Cost (000's) 18,000.0 19,570.9 21,814.0 24,190.2 26,706.0 29,368.2 30,396.1 31,460.0 32,561.1 33,700.7

Total Labor Cost 18,640.0 20,233.3 22,842.4 25,254.6 28,174.8 30,888.5 31,969.6 33,088.5 34,246.6 35,445.2
COGS 69,610 75,628 82,747 89,756 97,362 104,851 106,807 108,814 110,873 112,987
Gross Profit 15,350 18,253 20,378 22,944 25,256 28,036 28,738 29,442 30,148 30,855

Selling, General & Administrative/Revenue 7.8% 7.8% 7.8% 7.8% 7.8% 7.8% 7.8% 7.8% 7.8% 7.8%
Selling, General & Administrative/Revenue 6,594 7,286 8,004 8,747 9,517 10,314 10,520 10,730 10,945 11,164
EBITDA 8,756 10,967 12,374 14,197 15,739 17,723 18,218 18,711 19,202 19,691
EBIT 4,756 6,967 8,374 10,197 11,739 13,723 14,218 14,711 15,202 15,691
Operating Profit After Tax 2,854 4,180 5,024 6,118 7,044 8,234 8,531 8,827 9,121 9,415
Add Depreciation 4,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000
Less: Increase in WC (12,817) (111) (1,270) (1,312) (1,362) (1,407) (364) (372) (379) (387)
Future Cash Flows (45,000) (5,963) 8,070 7,755 8,806 9,682 10,827 12,166 12,455 12,742 21,181
Terminal cashflow 8,153
IRR without Terminal 12.058%
WACC 9.38%
NPV with terminal
IRR with terminal

Working Capital Assumptions (1):


Days Sales Outstanding 47.6x 47.6x 47.6x 47.6x 47.6x 47.6x 47.6x 47.6x 47.6x 47.6x
Days Sales Inventory 37.6x 37.6x 37.6x 37.6x 37.6x 37.6x 37.6x 37.6x 37.6x 37.6x
Days Payable Outstanding 34.2x 34.2x 34.2x 34.2x 34.2x 34.2x 34.2x 34.2x 34.2x 34.2x

(1) Based on historical averages.

Hourly Labor Cost Per Unit 0.38 0.38 0.39 0.40 0.42 0.43 0.45 0.46 0.48 0.50

Units Per Total Labor Hours 0.05 0.06 0.06 0.06 0.06 0.06 0.06 0.06 0.06 0.06

A/R Percentage 13% 13% 13% 13% 13% 13% 13% 13% 13% 13%
A/R 11,223 12,231 13,436 14,683 15,975 17,313 17,660 18,013 18,373 18,741
Inventory 7,263 7,783 8,516 9,237 10,020 10,790 10,992 11,198 11,410 11,628
A/P 6,613 7,087 7,754 8,411 9,123 9,825 10,008 10,197 10,389 10,588
Accured Expenses
Operating Assumptions
13%

Harvard Business Publishing