FINANCIAL MODELING INSTRUCTIONS

Please go to "Tools", "Options", "Calculation". In the "Calculation" tab, please set it to "manual" calculation and "iteration" of 500.

Assumptions
Income Statement
Revenue - Assume 5% growth rate in each year of the forecast period.
COGS as % of Sales - Assume 40% for each year of the forecast period.
Depreciation % as of Gross P,P&E - Assume 2% for each year of the forecast period. NOTE that Gross PP&E will
initially be $0, but Depreciation will automatically calculate once Gross PP&E is filled in later.
Amortization - No Amortization (enter $0 for each year).
SG&A as % of Sales - Assume 30% for each year of the forecast period.
Other Income (Expenses) - Assume $0 million for each year of the forecast period.
Tax Rate - Assume 40% for each year of the forecast period.

Balance Sheet
Days Accounts Receivable - Assume 30 days for each year of the forecast period.
Days Inventory - Assume 45 days for each year of the forecast period.
Other Current Assets - Assume $1.0 million for each year of the forecast period.
Amortization of Goodwill - Assume $0 million for each year of the forecast period.
Capex as % of Sales - Assume 5% for each year of the forecast period.
Asset Disposition - Assume $0 for each year of the forecast period.
Days Payable - Assume 50 Days for each year of the forecast period.
Accrued Liabilities as % of COGS - Assume 3% for each year of the forecast period.
Other Current Liabilities as a % of COGS - Assume 2% for each year of the forecast period.
Other Liabilities - Assume $2 million for each year of the forecast period.

Common Stock - Assume $10 million for each year of the forecast period.

LIBOR % (London InterBank Offered Rate) - It will increase 25 basis points (0.25%) every year after 2008.
Interest Earned on Cash - It will increase 25 basis points every year after 2008.

Revolver Interest Rate - Assume Libor + 2.0%

Term Loan Interest Rate - Assume Libor + 2.5%
Unsecured Debt Interest Rate - Assume 12.0% Interest Rate

Term Loan Amortization - Assume $20 million principal paydown (amortization) per year during the forecast period.
Unsecured Debt Amortization - Assume no paydown in principal during any year of the forecast period.

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FINANCIAL MODELING INSTRUCTIONS
Integrated Financial Projections (Follow the Assumptions Page to Determine How to Calculate These Figures)
Income Statement
Calculate the relevant data and margins for each line item, using the relevant assumptions from the Assumptions page.
Link the Interest Expense and Interest Income line items to the corresponding line items at the bottom of the debt schedule.
NOTE: Until the entire model is complete, the values in these cells will be incorrect, but the links will be correct (we need to
calculate the debt amounts and create a "circular" model).

Balance Sheet
Link Cash to the 'Ending Cash' line item at the bottom of the Cash Flow Statement. As with the Interest Expense and Interest Income line items,
the value in the Cash cell will be incorrect until the model is complete, but the link will be correct.
For AR, Inventory, and AP, you'll need to use the respective turnover days assumptions and formulas to back in to each figure.
For example, the formula for AR days = AR/Sales * 360, If you have values only for sales and AR days, you can use algebra to calculate what AR
would be [AR = (AR Days * Sales)/360].
For Other Current Assets, Other Current Liabilities, and Other Liabilities, simply link back to the corresponding assumptions on the Assumptions page.
Gross PP&E is calculated by adding this year's Capex (from the Cash Flow Statement) to the prior year's Gross PP&E figure, and deducting asset dispositions.
As with Interest Expense, Interest Income, and Cash, the value in the Gross PP&E cell will be incorrect until capex is calculated in the CF statement,
but the link will be correct.
Accumulated Depreciation is calculated by adding the current year's depreciation expense to the prior year's Accumulated Depreciation figure.
Goodwill will remain unchanged throughout the forecast period (there will be no deductions or additions to goodwill in any year), per the Assumptions page.
Link all the debt balances to the respecting ending balances on the Debt and Interest Schedule (e.g. for Revolving Credit Facility, you'll link to the 'Ending Revolver
Balance' line in the Debt Schedule). These cell values will be incorrect until the Debt Schedule has been completed, but the links will be correct.
Retained Earnings is calculated by adding this year's Net Income to the prior year's Retained Earnings ending balance, and subtracting any dividends (none in this mod
Common Stock will remain unchanged throughout the forecast period.

Cash Flow
Net Income and Depreciation Expense should be sourced from the Income Statement.
Working Capital - Remember that year-over-year increases in asset accounts (i.e. AR, Inventory) are represented as uses (i.e. negative values) of cash on the cash flo
statement, and vice versa for liabilities.
Capex and Asset Dispositions calculated using the appropriate assumption per the Assumptions page.
For changes in items listed in the Financing section (Revolver, Term Loan, etc.), link to changes in these accounts on the Balance Sheet.
Change in Cash is equal to the sum of Cash from Operations, Cash from Investing, and Cash from Financing.
Beginning Cash Position is equal to the prior year's Ending Cash Position.
Change in Cash Position is equal to the Total Cash Flow line, above.

Debt and Interest Schedule

Revolver
Beginning Revolver Balance is equal to the prior year's Ending Revolver Balance.

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FINANCIAL MODELING INSTRUCTIONS
Fill in all the sections except for "(Paydown) / Drawdown." We will do this line together (refer to lecture slides for more details on how this is done).
Interest Rates should be linked to the Assumptions page (not hard-coded).
Interest Expense should be based on the average balance method (i.e. =average(beginning balance cell,ending balance cell)*interest rate).

Term Loan
Beginning Term Loan Balance is equal to the prior year's Ending Term Loan Balance.
Paydown will be based on (i.e. linked to) the amortization assumption from the Assumptions page.
Interest Rates should be linked to the Assumptions page (not hard-coded).
Interest Expense should be based on the average balance method (i.e. =average(beginning balance cell,ending balance cell)*interest rate).

Unsecured Debt
Beginning Unsecured Debt Balance is equal to the prior year's Ending Unsecured Debt Balance.
Paydown will be based on (i.e. linked to) the amortization assumption from the Assumptions page.
Interest Rates should be linked to the Assumptions page (not hard-coded).
Interest Expense should be based on the average balance method (i.e. =average(beginning balance cell,ending balance cell)*interest rate).

Interest Expense is the sum of interest on all pieces of debt (revolver, term loan, unsecured debt).
Interest Income on Cash is calculated using the average balance method (i.e. =average(beginning balance cell,ending balance cell)*interest rate).

If your model has been constructed properly, it should "balance" - the check figures in each year at the bottom of your balance sheet should be "0".

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ement) to the prior year's Gross PP&E figure, and deducting asset dispositions.

erest Schedule (e.g. for Revolving Credit Facility, you'll link to the 'Ending Revolver

ar's Retained Earnings ending balance, and subtracting any dividends (none in this model).

e. AR, Inventory) are represented as uses (i.e. negative values) of cash on the cash flow

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COMPANY A FINANCIAL MODEL - WORKING VERSION
HISTORIC VARIABLES AND ASSUMPTIONS FOR PROJECTIONS

HISTORICAL VARIABLES AND DRIVERS ASSUMPTIONS FOR PROJECTIONS

Fiscal Year Ending December 31, Fiscal Year Ending December 31,
2008A 2009A 2010A 2011A 2012A 2013P 2014P 2015P 2016P
Income Statement Drivers / Assumptions
Revenue Growth Rate na 6.3% 5.9% 5.6% 5.3% 5.7% 5.6% 5.5% 5.5%

COGS as % of Revenue 42.0% 41.5% 41.0% 41.0% 40.0% 41.1% 40.9% 40.8% 40.8%

Depreciation as % of Gross PP&E 1.8% 1.7% 1.7% 1.6% 1.5% 1.7% 1.7% 1.6% 1.6%
Amortization $0.0 $0.0 $0.0 $0.0 $0.0 £0.00 £0.00 £0.00 £0.00

SG&A as % of Sales 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0%

Other Income / (Expense) $2.0 $0.0 ($2.0) $1.0 $0.0 £0.20 -£0.16 -£0.19 £0.17

Tax Rate 40.0% Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522

Balance Sheet Drivers / Assumptions

Days Accounts Receivable 28 28 28 29 28 28 28 28
Days Inventory 43 44 44 45 44 44 44 44
Other Current Assets $1.0 $1.0 $1.0 $1.0 $1.0 $1.0 $1.0 $1.0 $1.0
Other Assets $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0

Capex as % of Sales na 5.9% 6.1% 6.3% 6.5% 6.2% 6.3% 6.3% 6.3%
Asset Disposition na $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Days Payable 46 46 46 50 47 47 47 48
Accrued Liabilities as % of COGS 3.0% 3.0% 3.0% 3.0% 3.0% 3% 3% 3% 3%
Other Current Liabilities as % of COGS 1.5% 0.0% 2.7% 1.3% 0.0% 1% 1% 1% 1%
Other Liabilities $1.0 $2.0 $1.0 $0.0 $2.0 £1.25 £1.06 £1.08 £1.35

Common Stock $10.0 $10.0 $10.0 $10.0 $10.0 £10.00 £10.00 £10.00 £10.00

Interest Rate Assumptions

LIBOR 4.00% 4.00% 4.00% 4.00% 4.00% 4% 4% 4% 4%
Interest earned on cash 2.00% 2.00% 2.00% 2.00% 2.00% 2% 2% 2% 2%

Revolver 2.0%+li 6.00% 6.00% 6.00% 6.00% 6.00% 6% 6% 6% 6%

Term Loan 2.5%+li 6.50% 6.50% 6.50% 6.50% 6.50% 7% 7% 7% 7%
Unsecured Debt 12.00% 12.00% 12.00% 12.00% 12.00% 12.00% 12% 12% 12% 12%

Term Loan Amortization $20.0 $20.0 $20.0 $20.0 $20.0 £20.00 £20.00 £20.00 £20.00
Unsecured Debt Amortization - - - - -

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 OR PROJECTIONS
ding December 31,
2017P

5.6%

40.7%

1.6%
£0.00

30.0%

£0.00

Err:522

28
44
$1.0
$0.0

6.3%
$0.0
47
3%
1%
£1.18

£10.00

4%
2%

6%
7%
12%

£20.00

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COMPANY A FINANCIAL MODEL - WORKING VERSION

HISTORICAL FINANCIAL STATEMENTS PROJECTED FINANCIAL STATEMENTS

($ in millions) Fiscal Year Ending December 31, Fiscal Year Ending December 31,
2008A 2009A 2010A 2011A 2012A 2013P 2014P 2015P 2016P 2017P
Income Statement
Revenue $160.0 $170.0 $180.0 $190.0 $200.0 $211.5 $223.3 $235.7 $248.8 $262.7
% Growth na 6.3% 5.9% 5.6% 5.3%

Cost of Goods Sold (1) $67.2 $70.6 $73.8 $77.9 $80.0 $86.9 $91.4 $96.2 $101.4 $107.0
COGS as % of Revenue 42.0% 41.5% 41.0% 41.0% 40.0%

Gross Profit $92.8 $99.5 $106.2 $112.1 $120.0 $124.6 $131.9 $139.5 $147.4 $155.7
Gross Profit Margin % 58.0% 58.5% 59.0% 59.0% 60.0%

Depreciation $5.0 $5.0 $5.0 $5.0 $5.0 $5.2 $4.9 $4.6 $4.3 $4.0
Amortization $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0

SG&A Expenses $48.0 $51.0 $54.0 $57.0 $60.0 $63.4 $67.0 $70.7 $74.6 $78.8
SG&A as % of Revenue 30.0% 30.0% 30.0% 30.0% 30.0%

Operating Income / EBIT $39.8 $43.5 $47.2 $50.1 $55.0 $55.9 $60.1 $64.2 $68.4 $72.9
Operating Income / EBIT Margin % 24.9% 25.6% 26.2% 26.4% 27.5%

EBITDA $44.8 $48.5 $52.2 $55.1 $60.0 $61.1 $64.9 $68.8 $72.7 $76.9
EBITDA Margin % 28.0% 28.5% 29.0% 29.0% 30.0%
EBITDA Growth na 8.1% 7.7% 5.6% 8.9%

Interest Expense $13.0 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522
Interest Income $0.2 $0.1 $0.0 $0.0 $0.0 Err:522 $0.0 $0.0 $0.0 $0.0
Net Interest Expense $12.8 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522

Other Income / (Expense) $2.0 $0.0 ($2.0) $1.0 $0.0 $0.2 ($0.2) ($0.2) $0.2 $0.0

Pretax Income $29.0 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522

Taxes $11.6 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522
Tax Rate 40.0% Err:522 Err:522 Err:522 Err:522

Net Income $17.4 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522
Net Margin % 10.9% Err:522 Err:522 Err:522 Err:522
Net Income Growth na Err:522 Err:522 Err:522 Err:522
(1) Excludes depreciation and amortization

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COMPANY A FINANCIAL MODEL - WORKING VERSION

HISTORICAL FINANCIAL STATEMENTS PROJECTED FINANCIAL STATEMENTS

($ in millions) Fiscal Year Ending December 31, Fiscal Year Ending December 31,
2008A 2009A 2010A 2011A 2012A 2013P 2014P 2015P 2016P 2017P

Balance Sheet
Assets
Cash $5.0 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522
Accounts Receivable $12.0 $13.0 $14.0 $15.0 $16.0 $16.6 $17.6 $18.6 $19.7 $20.7
Inventory $8.0 $8.5 $9.0 $9.5 $10.0 $10.6 $11.2 $11.8 $12.5 $13.1
Other Current Assets $1.0 $1.0 $1.0 $1.0 $1.0 $1.0 $1.0 $1.0 $1.0 $1.0
Total Current Assets $26.0 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522

Gross PP&E $277.2 $287.2 $298.2 $310.2 $323.2 $310.1 $296.1 $281.1 $265.4 $248.9
Accumulated Depreciation $25.0 $30.0 $35.0 $40.0 $45.0 $50.2 $55.1 $59.7 $64.0 $68.0
Net PP&E $252.2 $257.2 $263.2 $270.2 $278.2 $259.9 $241.0 $221.5 $201.4 $180.9

Other Assets $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Goodwill $5.0 $5.0 $5.0 $5.0 $5.0 $5.0 $5.0 $5.0 $5.0 $5.0
Total Assets $283.2 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522

Liabilities
Accounts Payable $8.5 $9.0 $9.5 $10.0 $11.0 $11.3 $12.0 $12.7 $13.5 $14.1
Accrued Liabilities $2.0 $2.1 $2.2 $2.3 $2.4 $2.6 $2.7 $2.9 $3.0 $3.2
Other Current Liabilities $1.0 $0.0 $2.0 $1.0 $0.0 $0.9 $1.1 $0.8 $0.8 $1.0
Total Current Liabilities $11.5 $11.1 $13.7 $13.3 $13.4 $14.8 $15.9 $16.4 $17.3 $18.3

Revolving Credit Facility $13.3 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522
Term Loan $180.0 $160.0 $140.0 $120.0 $100.0 $100.0 $100.0 $100.0 $100.0 $100.0
Unsecured Debt $50.0 $50.0 $50.0 $50.0 $50.0 $50.0 $50.0 $50.0 $50.0 $50.0
Other Liabilities $1.0 $2.0 $1.0 $0.0 $2.0 $1.3 $1.1 $1.1 $1.3 $1.2
Total Liabilities $255.8 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522

Shareholders Equity
Retained Earnings $17.4 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522
Common Stock $10.0 $10.0 $10.0 $10.0 $10.0 $10.0 $10.0 $10.0 $10.0 $10.0
Total Shareholders Equity $27.4 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522

Total Liabilities and Equity $283.2 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522
Check $0.0 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522

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COMPANY A FINANCIAL MODEL - WORKING VERSION

HISTORICAL FINANCIAL STATEMENTS PROJECTED FINANCIAL STATEMENTS

($ in millions) Fiscal Year Ending December 31, Fiscal Year Ending December 31,
2008A 2009A 2010A 2011A 2012A 2013P 2014P 2015P 2016P 2017P

Cash Flow
Net Income na Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522
Plus / (minus):
Depreciation and Amortization na $5.0 $5.0 $5.0 $5.0 $5.2 $4.9 $4.6 $4.3 $4.0
Changes in Working Capital:
Accounts Receivable na ($1.0) ($1.0) ($1.0) ($1.0) ($0.6) ($1.0) ($1.0) ($1.0) ($1.0)
Inventory na ($0.5) ($0.5) ($0.5) ($0.5) ($0.6) ($0.6) ($0.6) ($0.7) ($0.6)
Other Current Assets na $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Accounts Payable na $0.5 $0.5 $0.5 $1.0 $0.3 $0.7 $0.7 $0.8 $0.6
Accrued Liabilities na $0.1 $0.1 $0.1 $0.1 $0.2 $0.1 $0.1 $0.2 $0.2
Other Current Liabilities na ($1.0) $2.0 ($1.0) ($1.0) $0.9 $0.3 ($0.3) ($0.1) $0.3
Change in Other Liabilities na $1.0 ($1.0) ($1.0) $2.0 ($0.8) ($0.2) $0.0 $0.3 ($0.2)
Cash Flow from Operations na Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522

Cash Flow from Investing

Capital Expenditures na ($10.0) ($11.0) ($12.0) ($13.0) $13.1 $14.0 $14.9 $15.7 $16.5
Asset Dispositions na $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Cash Flow from Investing na ($10.0) ($11.0) ($12.0) ($13.0) $13.1 $14.0 $14.9 $15.7 $16.5

Cash Flow from Financing

Change in Revolver na Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522
Change in Term Loan na ($20.0) ($20.0) ($20.0) ($20.0) $0.0 $0.0 $0.0 $0.0 $0.0
Change in Unsecured Debt na $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Cash Flow from Financing na Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522

Net Cash Flow na Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522

Beginning Cash Position na $5.0 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522
Change in Cash Position na Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522
Ending Cash Position na Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522

Cash flow before revolver Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522
Debt and Interest Schedule
Revolver
Beginning Revolver Balance $13.3 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522
(Paydown) / Drawdown Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522
Ending Revolver Balance Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522
Interest Rate 6.0% 6.0% 6.0% 6.0% 6.0% 6.0% 6.0% 6.0% 6.0%
Interest Expense Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522

Term Loan
Term Loan Beginning Balance $180.0 $160.0 $140.0 $120.0 $100.0 $80.0 $61.0 $43.0 $26.0
(Paydown) / Drawdown ($20.0) ($20.0) ($20.0) ($20.0) ($20.0) ($19.0) ($18.0) ($17.0) ($16.0)
Term Loan Ending Balance $160.0 $140.0 $120.0 $100.0 $80.0 $61.0 $43.0 $26.0 $10.0
Interest Rate 6.50% 6.50% 6.50% 6.50% 6.50% 6.50% 6.50% 6.50% 6.50%
Interest Expense $11.1 $9.8 $8.5 $7.2 $5.9 $4.6 $3.4 $2.2 $1.2

Unsecured Debt
Unsecured Debt Beginning Balance $50.0 $50.0 $50.0 $50.0 $50.0 $50.0 $51.0 $53.0 $56.0
(Paydown) / Drawdown $0.0 $0.0 $0.0 $0.0 $0.0 $1.0 $2.0 $3.0 $4.0
Unsecured Debt Ending Balance $50.0 $50.0 $50.0 $50.0 $50.0 $51.0 $53.0 $56.0 $60.0
Interest Rate 12% 12% 12% 12% 12% 112% 212% 312% 412%
Interest Expense $6.0 $6.0 $6.0 $6.0 $6.0 $56.6 $110.2 $170.0 $239.0

Total Interest Expense Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522

Interest Earned on Cash $0.1 $0.0 $0.0 $0.0 Err:522 $0.0 $0.0 $0.0 $0.0

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