HPL (NPV Analysis with Constant Growth)

Operating Results: 2009 2010

Total Capacity (000's) 80,000 80,000
Capacity Utilization 60.0% 65.0%
Unit Volume 48,000 52,000
Selling Price Per Unit - Growing at 3.0% 1.77 1.82
Revenue 84,960 94,801

Production Costs:
Raw Materials Per Unit Growing at 3.0% 0.94 0.97
Manufacturing Overhead Growing at 3.0% 3,920 4,038
Maintenance Expense Growing at 3.0% 2,250 2,318

Salaried Labor Cost:

Managers 4 4
Average Annual Fully Loaded Cost 3.0% 160.0 164.8
Total Salaried Labor Cost 640.0 659.2

Hourly Labor Cost:

Average Fully Loaded Hourly Cost 3.0% 20.00 20.60
Hours Per Year 2,000 2,000
Cost Per Hourly Employee 40,000 41,200
Number of Hourly Workers 450 473
Total Hourly Labor Cost (000's) 18,000.0 19,476.4

Selling, General & Administrative/Revenue 7.8% 7.8%

Total Labor Cost 18,640.0 20,135.6

Less: Raw Materials Costs 45,120 50,346

Less: Labor Cost 18,640 20,136
Less: Manufacturing Overhead 3,920 4,038
Less: Maintenance Expense 2,250 2,318
Less: Selling, General & Administrative 6,594 7,358

EBITDA 8,436 10,606

Less: Depreciation 4,000 4,000
EBIT 4,436 6,606
Less: Taxes 40% 1,774 2,643
NOPAT 2,662 3,964

Un-levered Free Cash Flow:

 NOPAT 2,662 3,964
Plus: Depreciation (Less: Change in Net Fixed Assets) 4,000 4,000
Less: Change in Net Working Capital 12,817 1,598

Un-levered Free Cash Flow (6,156) 6,366

Cost of Capital 9.38%

Present Value of Un-levered FCF 45,893 45,893 (5,628) 5,321
Present Value of Return of Working Capital 3,147
Investment 45,000
NPV (Net Present Value) 4,040

Working Capital Assumptions (1):

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

Balance Sheet Data: 2009 2010

Accounts Receivable 11,223 12,523
Inventory 8,865 9,892
Accounts Payable & Accrued Liabilities 7,270 7,999
Net Working Capital 12,817 12,817 14,415

Property, Plant & Equipment 45,000 41,000 37,000

Total Invested Capital 57,817 53,817 51,415

Asset Efficiency:
RNOA 4.9% 7.7%
ATO 1.6x 1.8x

HPL (EVA Analysis with Constant Growth)

Invested Capital: 2009 2010

Beginning Balance 45,000 53,817
Plus: Change in Working Capital 12,817 1,598
Less: Depreciation 4,000 4,000
Ending Balance 53,817 51,415

EVA Analysis:
 NOPAT 2,662 3,964
Less: Capital Charge 4,220 5,047
EVA (1,559) (1,084)

Cost of Capital 9.38%

Present Value of EVA 12,766 12,766 (1,425) (906)
Present Value of Return of Working Capital 3,147
Less: PV of 2018 Capital 11,873
NPV (Net Present Value) 4,040

HPL (NPV Analysis Using Gates´ Assumptions)

Operating Results: 2009 2010

Total Capacity (000's) 80,000 80,000
Capacity Utilization 60.0% 65.0%
Unit Volume 48,000 52,000
Selling Price Per Unit - Growing at 2.0% 1.77 1.81
Revenue 84,960 93,881

Production Costs:
Raw Materials Per Unit Growing at 1.0% 0.94 0.95
Manufacturing Overhead Growing at 3.0% 3,920 4,038
Maintenance Expense Growing at 3.0% 2,250 2,318

Salaried Labor Cost:

Managers 4 4
Average Annual Fully Loaded Cost 3.5% 160.0 165.6
Total Salaried Labor Cost 640.0 662.4

Hourly Labor Cost:

Average Fully Loaded Hourly Cost 3.5% 20.00 20.70
Hours Per Year 2,000 2,000
Cost Per Hourly Employee 40,000 41,400
Number of Hourly Workers 450 473
Total Hourly Labor Cost (000's) 18,000.0 19,570.9

Selling, General & Administrative/Revenue 7.8% 7.8%

Total Labor Cost 18,640.0 20,233.3

Less: Raw Materials Costs 45,120 49,369

Less: Labor Cost 18,640 20,233
Less: Manufacturing Overhead 3,920 4,038
Less: Maintenance Expense 2,250 2,318
Less: Selling, General & Administrative 6,594 7,286

EBITDA 8,436 10,637

Less: Depreciation 4,000 4,000
EBIT 4,436 6,637
Less: Taxes 40% 1,774 2,655
NOPAT 2,662 3,982

Un-levered Free Cash Flow:

NOPAT 2,662 3,982
Plus: Depreciation (Less: Change in Net Fixed Assets) 4,000 4,000
Less: Change in Net Working Capital 12,817 1,471

Un-levered Free Cash Flow (6,156) 6,512

Cost of Capital 9.38%

Present Value of Un-levered FCF 47,030 47,030 (5,628) 5,443
Present Value of Return of Working Capital 2,941
Investment 45,000
NPV (Net Present Value) 4,971

Working Capital Assumptions (1):

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

Balance Sheet Data: 2009 2010

Accounts Receivable 11,223 12,401
Inventory 8,865 9,796
Accounts Payable & Accrued Liabilities 7,270 7,909
Net Working Capital 12,817 12,817 14,288

Property, Plant & Equipment 45,000 41,000 37,000

Total Invested Capital 57,817 53,817 51,288

Asset Efficiency:
RNOA 4.9% 7.8%
ATO 1.6x 1.8x
HPL (EVA Analysis Using Gates´ Assumptions)

Invested Capital: 2009 2010

Beginning Balance 45,000 53,817
Plus: Change in Working Capital 12,817 1,471
Less: Depreciation 4,000 4,000
Ending Balance 53,817 51,288

EVA Analysis:
NOPAT 2,662 3,982
Less: Capital Charge 4,220 5,047
EVA (1,559) (1,065)

Cost of Capital 9.38%

Present Value of EVA 13,134 13,134 (1,425) (890)
Present Value of Return of Working Capital 2,941
Less: PV of 2018 Capital 11,104
NPV (Net Present Value) 4,971
 2011 2012 2013 2014 2015 2016 2017 2018
80,000 80,000 80,000 80,000 80,000 80,000 80,000 80,000
70.0% 75.0% 80.0% 85.0% 85.0% 85.0% 85.0% 85.0%
56,000 60,000 64,000 68,000 68,000 68,000 68,000 68,000
1.88 1.93 1.99 2.05 2.11 2.18 2.24 2.31
105,156 116,048 127,498 139,530 143,716 148,028 152,468 157,043

1.00 1.03 1.06 1.09 1.12 1.16 1.19 1.23

4,159 4,283 4,412 4,544 4,681 4,821 4,966 5,115
2,387 2,459 2,532 2,608 2,687 2,767 2,850 2,936

6 6 6 6 6 6 6 6
169.7 174.8 180.1 185.5 191.0 196.8 202.7 208.8
1,018.5 1,049.0 1,080.5 1,112.9 1,146.3 1,180.7 1,216.1 1,252.6

21.22 21.85 22.51 23.19 23.88 24.60 25.34 26.10

2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000
42,436 43,709 45,020 46,371 47,762 49,195 50,671 52,191
509 545 582 618 618 618 618 618
21,603.8 23,841.3 26,193.7 28,665.7 29,525.7 30,411.4 31,323.8 32,263.5

7.8% 7.8% 7.8% 7.8% 7.8% 7.8% 7.8% 7.8%

22,622.2 24,890.3 27,274.1 29,778.6 30,671.9 31,592.1 32,539.9 33,516.1

55,846 61,630 67,711 74,101 76,324 78,614 80,972 83,401

22,622 24,890 27,274 29,779 30,672 31,592 32,540 33,516
4,159 4,283 4,412 4,544 4,681 4,821 4,966 5,115
2,387 2,459 2,532 2,608 2,687 2,767 2,850 2,936
8,161 9,007 9,895 10,829 11,154 11,489 11,834 12,189

11,981 13,779 15,673 17,669 18,199 18,745 19,307 19,886

4,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000
7,981 9,779 11,673 13,669 14,199 14,745 15,307 15,886
3,192 3,911 4,669 5,468 5,680 5,898 6,123 6,355
4,789 5,867 7,004 8,201 8,519 8,847 9,184 9,532
 4,789 5,867 7,004 8,201 8,519 8,847 9,184 9,532
4,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000
1,595 1,711 1,799 1,891 642 662 681 702

7,194 8,156 9,204 10,310 11,877 12,185 12,503 12,830

5,497 5,698 5,879 6,021 6,341 5,948 5,580 5,235

7,714

47.6x 47.6x 47.6x 47.6x 47.6x 47.6x 47.6x 47.6x

37.6x 37.6x 37.6x 37.6x 37.6x 37.6x 37.6x 37.6x
34.2x 34.2x 34.2x 34.2x 34.2x 34.2x 34.2x 34.2x

2011 2012 2013 2014 2015 2016 2017 2018

13,891 15,329 16,842 18,431 18,984 19,554 20,141 20,745
10,972 12,108 13,303 14,559 14,995 15,445 15,909 16,386
8,852 9,716 10,624 11,578 11,925 12,283 12,651 13,031
16,010 17,722 19,521 21,412 22,055 22,716 23,398 24,100

33,000 29,000 25,000 21,000 17,000 13,000 9,000 5,000

49,010 46,722 44,521 42,412 39,055 35,716 32,398 29,100

9.8% 12.6% 15.7% 19.3% 21.8% 24.8% 28.3% 32.8%

2.1x 2.5x 2.9x 3.3x 3.7x 4.1x 4.7x 5.4x

2011 2012 2013 2014 2015 2016 2017 2018

51,415 49,010 46,722 44,521 42,412 39,055 35,716 32,398
1,595 1,711 1,799 1,891 642 662 681 702
4,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000
49,010 46,722 44,521 42,412 39,055 35,716 32,398 29,100
 4,789 5,867 7,004 8,201 8,519 8,847 9,184 9,532
4,822 4,597 4,382 4,175 3,978 3,663 3,350 3,038
(33) 1,271 2,622 4,026 4,542 5,184 5,835 6,493

(26) 888 1,675 2,351 2,425 2,531 2,604 2,649

7,714
29,100

2011 2012 2013 2014 2015 2016 2017 2018

80,000 80,000 80,000 80,000 80,000 80,000 80,000 80,000
70.0% 75.0% 80.0% 85.0% 85.0% 85.0% 85.0% 85.0%
56,000 60,000 64,000 68,000 68,000 68,000 68,000 68,000
1.84 1.88 1.92 1.95 1.99 2.03 2.07 2.12
103,124 112,700 122,618 132,887 135,545 138,256 141,021 143,841

0.96 0.97 0.98 0.99 1.00 1.01 1.02 1.03

4,159 4,283 4,412 4,544 4,681 4,821 4,966 5,115
2,387 2,459 2,532 2,608 2,687 2,767 2,850 2,936

6 6 6 6 6 6 6 6
171.4 177.4 183.6 190.0 196.7 203.6 210.7 218.1
1,028.4 1,064.4 1,101.6 1,140.2 1,180.1 1,221.4 1,264.1 1,308.4

21.42 22.17 22.95 23.75 24.59 25.45 26.34 27.26

2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000
42,849 44,349 45,901 47,507 49,170 50,891 52,672 54,516
509 545 582 618 618 618 618 618
21,814.0 24,190.2 26,706.0 29,368.2 30,396.1 31,460.0 32,561.1 33,700.7

7.8% 7.8% 7.8% 7.8% 7.8% 7.8% 7.8% 7.8%

22,842.4 25,254.6 27,807.6 30,508.4 31,576.2 32,681.4 33,825.2 35,009.1

53,698 58,109 62,603 67,181 67,852 68,531 69,216 69,908

22,842 25,255 27,808 30,508 31,576 32,681 33,825 35,009
4,159 4,283 4,412 4,544 4,681 4,821 4,966 5,115
2,387 2,459 2,532 2,608 2,687 2,767 2,850 2,936
 8,004 8,747 9,517 10,314 10,520 10,730 10,945 11,164

12,034 13,848 15,746 17,732 18,229 18,725 19,218 19,709

4,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000
8,034 9,848 11,746 13,732 14,229 14,725 15,218 15,709
3,214 3,939 4,699 5,493 5,692 5,890 6,087 6,284
4,821 5,909 7,048 8,239 8,537 8,835 9,131 9,426

4,821 5,909 7,048 8,239 8,537 8,835 9,131 9,426

4,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000
1,440 1,527 1,583 1,641 423 431 438 446

7,381 8,382 9,465 10,598 12,114 12,404 12,693 12,980

5,640 5,856 6,046 6,189 6,468 6,055 5,665 5,296

7,207

47.6x 47.6x 47.6x 47.6x 47.6x 47.6x 47.6x 47.6x

37.6x 37.6x 37.6x 37.6x 37.6x 37.6x 37.6x 37.6x
34.2x 34.2x 34.2x 34.2x 34.2x 34.2x 34.2x 34.2x

2011 2012 2013 2014 2015 2016 2017 2018

13,622 14,887 16,197 17,554 17,905 18,263 18,628 19,001
10,760 11,759 12,794 13,865 14,143 14,426 14,714 15,008
8,654 9,392 10,154 10,941 11,146 11,356 11,572 11,793
15,728 17,255 18,838 20,479 20,902 21,332 21,770 22,216

33,000 29,000 25,000 21,000 17,000 13,000 9,000 5,000

48,728 46,255 43,838 41,479 37,902 34,332 30,770 27,216

9.9% 12.8% 16.1% 19.9% 22.5% 25.7% 29.7% 34.6%

2.1x 2.4x 2.8x 3.2x 3.6x 4.0x 4.6x 5.3x
 2011 2012 2013 2014 2015 2016 2017 2018
51,288 48,728 46,255 43,838 41,479 37,902 34,332 30,770
1,440 1,527 1,583 1,641 423 431 438 446
4,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000
48,728 46,255 43,838 41,479 37,902 34,332 30,770 27,216

4,821 5,909 7,048 8,239 8,537 8,835 9,131 9,426

4,810 4,570 4,338 4,111 3,890 3,555 3,220 2,886
11 1,339 2,710 4,128 4,647 5,280 5,911 6,540

8 935 1,731 2,410 2,481 2,577 2,638 2,668

7,207
27,216