STRATEGIC PLAN: Year 3 Forecasts
Prepared for:
Merrick Maxfield, Chairman of the Board
Matthew S Wright, Board Member
Christopher Graham, Board Member
Executive Management:
Scott Hannay, President and CEO
Jon Seiler, VP Finance
Schaffer Sunderland, VP Finance
Sam Callaway, VP Marketing
Jerok Giauque, VP Operation
CONFIDENTIAL – Not for Distribution
Page | 1
TABLE OF CONTENTS
OVERVIEW...................................................................................................... Error! Bookmark not defined.
MARKETING STRATEGY ................................................................................................................................. 4
OPERATIONS STRATEGY ................................................................................................................................ 5
FINANCIAL STRATEGY.................................................................................................................................. 10
APPENDIX ..................................................................................................... Error! Bookmark not defined.4
BUBBLE CHARTS ...................................................................................................................................... 14
YEAR 2 FINANCIALS ................................................................................................................................. 20
3 YEAR PRO-FORMAS .............................................................................................................................. 23
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OVERVIEW
Tiempo & Co. is now #1 in market share and market revenue for Alegria in two of the six
markets, including the high value market the United States. Our increase in quality and green
variables for Alegria and targeted marketing project has provided superior ROIC for Alegria.
Tiempo & Co. will continue targeted marketing expenditures, product improvement and
efficiency spend through the near-term or as market conditions dictate. We will maintain
current green and quality spending levels as we have assumed dominant position with our
current middle ground approach to the aforementioned measures. We will maintain current
marketing expenditures in the United States, United Kingdom and Japan. There is little need to
increase further at this juncture. We will maintain marketing expenditure in Germany, Mexico
and China as we see little need to increase expenditures in those markets
Tiempo & Co. was eleventh in profits and twelfth in revenue across worlds (40 companies). We
built tremendous amount of momentum going into year 4. Additionally, we were the market
leader in the largest market the United States. During our time as senior management, we
created $21mm of long-term value when compared to steady-state. In year 3, we were outbid
for the acquisition of Company 5. We believe it took about a year to find the right strategy mix.
We were fourth in revenues and profits across 5 main competitors. Our marketing dollars
appear to have decreasing impact. We had a loss of Green value for Dumas stunted positive
trends.
We believe the other teams in the world began to game-out by reducing Green and Quality
expenditures. We continued to execute our strategy, maintaining our Green and Quality
expenditures notwithstanding the actions of the other teams in the world. If the game were
continued at current steady state, we believe that our current pricing structure and marketing
expenditures fit market conditions perfectly and would deliver superior results in steady state.
We will continue to attempt to Differentiate Products. We would like to move Product 1
Factories to Germany and focus our execution on inventory and capacity. We also would like to
CONFIDENTIAL – Not for Distribution
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focus on Return on Invested Capital (ROIC). We will continue to monitor our customers and
competition closely.
MARKETING STRATEGY
We maintained higher than mean Prices, Relative Quality and Green on Alegria. We also
maintained average Prices, Relative Quality and below average Green on Dumas. We had the
biggest change in year 3 was the decreasing impact of marketing expenditure as the markets
became mature. We also saw in Year 3 saw an increased focus on differentiation by Quality
and Green measures. We chose not to differentiate by quality on both Dumas and Alegria,
focused our attention on targeted prices and marketing spend. Strong Green and Quality
performance in Alegria buoyed our performance and provided superior ROI.
Based on the below market share graph, we maintained superior market share relative to our
competitors. For Dumas, we had higher market share in 2 of the 6 markets and above 20%
market share in 5 of the 6 markets. For Alegria, we had higher market share in 3 of the 6
markets and above 20% market share in 4 of the 6 markets.
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We feel that based on our
current market positions, we are
well positioned to continue a
strategy in both markets, though
we may not be the most
profitable firm with this strategy.
As indicated in the graphs to the
left, we are positioned as second
highest market share for both
the Alegria and Dumas products
worldwide.
Though we may be positioned
well in both markets, in this
oligopic environment we do not
feel continued focus in both markets will be feasible. As such, we recommend that we
gradually decrease our position in the Dumas market to focus our efforts on the Alegria market.
In the future we can look into the possible acquisition of another company to carry our Dumas
product.
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OPERATIONS STRATEGY
To help reduce costs, we scaled back investment in operations consulting which caused our
variable and fixed costs to increase for Dumas. The remaining consulting was allocated to
Alegria where we were better positioned. This change helped decrease fixed and variable
costs. Overall, the Dumas total costs increased by 11.66% while Alegria total costs decreased
by 3.55%.
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Of Tiempo’s Contribution Margin for each product, 64% comes from Alegria while 36% comes
from Dumas. Dumas has a 56% profit margin, whereas, Alegria has a 60% profit margin. In the
next year, Tiempo should focus consulting spend on Alegria given Alegira has the highest
contribution margin, yet has the lowest profit margin. This will help our team capture greater
value from every additional product we sale.
Contribution vs Profit Margin
14,000,000
70%
12,000,000
60%
10,000,000
50%
8,000,000
40%
6,000,000
30%
4,000,000
20%
2,000,000
10%
-
Dumas Contribution Margin
Alegria Contribution Margin
Dumas Profit Margin
Alegria Profit Margin
0%
61 62 63 64 65 66 67 68 69 70 71 72
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In the first two quarters of year 3, Tiempo had to purchase over 47,000 units of the Premium
product due to stocking out. Tiempo has stocked out on many occasions over the past 3 years
and must better manage its production levels in order to avoid unnecessary spending. To avoid
stocking out in the future, Tiempo must increase capacity significantly.
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FINANCIAL STRATEGY
The charts to the left show Year 3 Net Income to be
$15,167 and Total Sales to be $188,622. We increased
our sales above our competitors significantly which
makes us well positioned for the future periods.
Sales and Net Income grew consistently as we targeted
specific markets and increased spending efficiencies.
Reduction in total costs to create both the Dumas and
Alegria products also contributed to higher net
income.
The below charts show that both net income and sales trended upward throughout the last
year. It is noted that in order to obtain the higher levels of income and sales, our overall costs
had to increase. This can be seen as the net income grew at lower levels than total sales.
Year 3 Economic Income was bolstered by two Special Dividend payments. Tiempo & Co.
maintained steady state operations and continued to capture additional value during Year 3.
Tiempo & Co. was unable to secure agreement to purchase Company 5, thus the decision to
CONFIDENTIAL – Not for Distribution
Page | 9
return value to shareholders via Special Dividend. During our time as managers, we increased
total Economic Profit to $28,383. We were fourth in our World.
RETURN ON EQUITY
In year 3 ROE was bolstered by two
Special Dividend payments. Tiempo &
Co. maintained steady state operations
and continued to capture additional
value during Year 3. We were unable to
secure agreement to purchase Company
5, thus the decision to return value to
shareholders via Special Dividend.
DIVIDEND POLICY
Tiempo & Co. suspended payment of dividend upon implementation of the aggressive
development and cost cutting program. We propose to the board that we would like to
reinstate the dividend to $3mm every quarter.
CONFIDENTIAL – Not for Distribution
Page | 10
NEXT STEPS
Global demand expected to increase by 3-5%. The US, UK, and Germany expected to grow by
1-3% ; Japan and China expected to grow by 5-10%; and Mexico expected to grow more than
8%. The US interest rates expected to drop which will help financing our operational activities.
In addition, we expect lower transportation costs expected as a result of lower gas prices.
We propose a more focused effort on the Alegria market. As part of this revamped strategy,
we would like to move our Alegria production to Germany. This will allow us to and focus our
resources on green expenditures and marketing. We also would like to focus on Return on
Invested Capital (ROIC). We will continue to monitor our customers and competition closely.
We can achieve a steady growth in market share if continue with this strategy. Also, we will
continue to maintain operational cost control over our products to help our contribution
margin.
CONFIDENTIAL – Not for Distribution
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APPENDIX
MARKET ENVIRONMENT
0
Relative Quality %
60
61
170 DUMAS
175 ALEGRIA
0
42
1
63
2
84
3
4
Company 1
1.1075
Company 2
1.1171
Company 3
0.9208
TIEMPO&CO
1.1363
Company 5
0.7183
1.0810
0.9322
1.1233
1.1136
0.7499
Absolute Prices (USD)
0
Company 1
40.66
30.77
48.41
41.04
53.42
41.50
7
14
21
28
Company 2
42.73
32.69
50.48
42.16
53.16
42.50
Company 3
39.58
30.77
45.50
35.24
44.13
35.33
TIEMPO&CO
42.86
30.77
50.00
43.28
53.16
43.50
Company 5
38.46
28.38
45.40
42.16
53.16
42.50
71 ALEGRIA
Company 1
Company 2
224 Japan
71.20
69.78
225 Mexico
39.23
37.79
226 China
74.92
72.94
227 UK
59.70
58.21
228 Germany
71.52
70.89
229 US
56.40
55.25
78
Company Absolute and World Average Green %
182 Green - DUMAS
0.8941
183 Green - ALEGRIA
0.9777
Company 3
75.49
48.38
82.38
63.61
75.15
59.33
TIEMPO&CO
74.18
42.31
76.98
62.69
72.15
58.50
Company 5
69.73
37.79
72.94
58.21
70.89
55.25
188
189
190
191
192
193
DUMAS
Japan
Mexico
China
UK
Germany
US
21
Market Share (% Units)
0
2
Green - DUMAS (AVE)
Green - ALEGRIA (AVE)
7
14
0.7775
0.8546
21
28
DUMAS
Japan
Mexico
China
UK
Germany
US
Company 1
22.90%
24.28%
19.08%
21.98%
20.84%
23.82%
Company 2
21.08%
17.98%
17.77%
28.93%
28.57%
23.54%
Company 3
16.81%
11.98%
24.02%
19.82%
23.95%
19.90%
TIEMPO&CO
22.89%
34.66%
21.32%
23.28%
18.56%
24.73%
Company 5
18.12%
14.64%
21.52%
5.65%
7.94%
8.29%
71 ALEGRIA
224 Japan
225 Mexico
226 China
227 UK
228 Germany
229 US
Company 1
20.77%
24.61%
20.41%
21.97%
22.32%
24.16%
Company 2
16.66%
17.68%
23.16%
22.71%
23.82%
17.16%
Company 3
26.75%
15.08%
24.53%
24.18%
25.35%
22.24%
TIEMPO&CO
19.08%
30.52%
21.03%
24.72%
19.42%
26.92%
Company 5
16.01%
13.30%
10.13%
5.95%
8.67%
9.91%
188
189
190
191
192
193
© TIEMPO & CO.
Proprietary and Confidential
December 1, 2012
Quarterly Flash Report
Page 3 of 3
CONFIDENTIAL – Not for Distribution
Page | 12
FINANCIAL DATA
YEAR 3 INCOME STATEMENT
Sales Revenues
Interest Income
Currency Trading Income
TOTAL REVENUES
Q1
$ 42,643,466.56
$ 183,000.00
$
$ 42,826,466.56
Q2
$ 47,071,409.27
$ 161,640.00
$
$ 47,233,049.27
Q3
$ 49,183,075.29
$ 204,240.00
$
$ 49,387,315.29
Cost of goods sold
Gross Margin
OPERATING EXPENSES
Transportation Expenses
Marketing Expenses
Warehousing Expenses
Research & Development
Interest Expense
Factory Depreciation
Factory Sale Loss
Inventory Write Down
Consultants
Insurance
Admin and Misc Expenses
Bad Debt Expenses
Import Tariffs
TOTAL OPERATING EXP
$ 15,990,484.00 $ 17,795,776.00 $ 18,396,897.00 $ 18,745,173.00 $ 70,928,330.00
$ 26,835,982.56 $ 29,437,273.27 $ 30,990,418.29 $ 31,099,933.49 $ 118,363,607.62
$
$ 1,134,178.80 $ 1,248,543.50 $ 1,275,536.50 $ 1,271,717.50 $ 4,929,976.30
$ 6,241,080.00 $ 6,253,478.00 $ 6,164,671.00 $ 5,891,701.00 $ 24,550,930.00
$ 431,380.00 $ 467,234.00 $ 435,979.00 $ 283,105.00 $ 1,617,698.00
$ 6,850,000.00 $ 6,850,000.00 $ 6,825,000.00 $ 6,700,000.00 $ 27,225,000.00
$
53,688.00 $
54,493.00 $
55,311.00 $
56,140.00 $
219,632.00
$ 189,151.00 $ 201,787.00 $ 203,014.00 $ 205,477.00 $
799,429.00
$
$
$
$
$
$
$
$
$
$
$ 5,450,000.00 $ 5,800,000.00 $ 5,350,000.00 $ 5,150,000.00 $ 21,750,000.00
$
50,000.00 $
50,000.00 $
50,000.00 $
50,000.00 $
200,000.00
$
$
$ 210,000.00 $
$
210,000.00
$ 301,646.00 $ 312,806.00 $ 298,505.00 $ 329,500.00 $ 1,242,457.00
$ 2,872,996.51 $ 3,171,384.88 $ 3,292,981.75 $ 3,300,852.14 $ 12,638,215.29
$ 39,564,604.31 $ 42,205,502.38 $ 42,557,895.25 $ 41,983,665.64 $ 166,311,667.59
PRETAX INCOME
TAXES
NET INCOME
$ 3,261,862.25 $ 5,027,546.89 $ 6,829,420.04 $ 7,861,440.85 $ 22,980,270.02
$ 1,109,033.00 $ 1,709,366.00 $ 2,322,003.00 $ 2,672,890.00 $ 7,813,292.00
$ 2,152,829.25 $ 3,318,180.89 $ 4,507,417.04 $ 5,188,550.85 $ 15,166,978.02
CONFIDENTIAL – Not for Distribution
Q4
$ 49,724,386.49
$ 120,720.00
$
$ 49,845,106.49
YEAR 3
$ 188,622,337.62
$
669,600.00
$
$ 189,291,937.62
Page | 13
YEAR 3 STATEMENT OF CASH FLOWS
Q1
Q2
Q3
Q4
YEAR 3
CASH FLOWS FROM OPERATING ACTIVITIES
Net profits
$ 2,152,829.25 $ 3,318,180.89 $ 4,507,417.04 $ 5,188,550.85 $ 15,166,978.02
Add back non-cash expenses
Depreciation part of transportation expense
Interest expense
Factory Depreciation
Plant Sale loss
Inventory writedowns
Change in Accounts Receivables
Changes in Inventory net of any writedowns
Changes in Trade payables
Changes in Taxes payable
$
130,565.00 $ 131,537.00
$
53,688.00 $
54,493.00
$
189,151.00 $ 201,787.00
$
$
$
$
$
205,847.00 $ (3,938,823.00)
$ (1,525,423.00) $ (392,779.00)
$
210,172.08 $ 725,760.63
$ 1,109,033.00 $ (1,670,394.00)
$ 135,460.00 $
138,587.00
$
55,311.00 $
56,140.00
$ 203,014.00 $
205,477.00
$
$
$
$
$ 2,231,637.00 $ (409,309.00)
$
81,857.00 $
75,134.00
$ 175,459.23 $
177,499.29
$ 2,322,003.00 $ (1,358,479.00)
$
536,149.00
$
219,632.00
$
799,429.00
$
$
$ (1,910,648.00)
$ (1,761,211.00)
$ 1,288,891.23
$
402,163.00
Net cash from operations $ 2,525,862.32 $ (1,570,237.48) $ 9,712,158.27 $ 4,073,600.14 $ 14,741,383.25
(Note: Changes in assets are subtracted while changes in liabilities are added)
CASH FLOW FROM INVESTING ACTIVITIES
Cash Flow From Purchases of Shipping Containers
Net Cash Flow From Changes In Plant and Equipment
$ (149,999.00) $
$ (1,200,000.00) $
(149,999.00) $
(300,000.00) $
(209,999.00) $
(400,000.00) $
(198,001.00) $ (707,998.00)
$ (1,900,000.00)
Net cash flow from investing activities $ (1,349,999.00) $ (449,999.00) $ (609,999.00) $
(198,001.00) $ (2,607,998.00)
CASH FLOW FROM FINANCING ACTIVITIES
Debt Payments (negative), or New Borrowing (positive)
Commons Stock Purchases(negative) or Sales (positive)
$
$
-
$
$
-
$
$
$ (10,000,000.00) $
-
$
-
$ (15,000,000.00) $ (25,000,000.00)
Net Cash from Financing Activities $ (10,000,000.00) $
-
$
-
$ (15,000,000.00) $ (25,000,000.00)
Dividend payment
NET CHANGE IN CASH
BEGINNING CASH BALANCE
ENDING CASH BALANCE
$
$
-
-
$
$
-
$ (8,824,136.68) $ (2,020,236.48) $ 9,102,159.27 $ (11,124,400.86) $ (12,866,614.75)
$ 14,063,905.85 $ 5,239,769.18 $ 3,219,532.69 $ 12,321,691.97 $ 14,063,905.85
$ 5,239,769.18 $ 3,219,532.69 $ 12,321,691.97 $ 1,197,291.11 $ 1,197,291.11
CONFIDENTIAL – Not for Distribution
Page | 14
BALANCE SHEET
YEAR 1
ASSETS
Cash and Securities
Receivables
Inventories
Shipping Cont (Net)
Plant and Equip (Net)
TOTAL ASSETS
LIABILITIES
Trade Payables
Taxes Payable
Loans and Interest
STOCKHOLDERS' EQUITY
Common Stock
Retained Earnings
TOTAL LIAB & EQUITY
$ 13,484,285
$ 17,099,549
$ 3,218,888
$ 2,951,850
$ 13,322,387
$ 50,076,959
YEAR 2
YEAR 3
$ 14,063,906 1197291.106
$ 15,417,104
17327752
$ 1,938,485
3699696
$ 2,461,300
2633149
$ 15,132,084
16232655
$ 49,012,879 $ 41,090,543
$ 8,393,457 $ 8,046,128
$ 1,158,582 $ 2,270,727
$ 18,026,774 $ 3,579,192
9335019.323
2672890
3798824
$ 1,000,000 $ 1,000,000
1000000
$ 21,498,145 $ 34,116,832 24283809.78
$ 50,076,959 $ 49,012,879 $ 41,090,543
CONFIDENTIAL – Not for Distribution
Page | 15
PRO-FORMA FINANCIAL STATEMENTS
PRO-FORMA INCOME STATEMENT
YEAR 4
Q2
Q3
$ 50,078,608.93 $ 50,415,707.84
$ 152,965.47 $ 146,525.56
$
$
$ 50,231,574.40 $ 50,562,233.40
Q4
$ 50,501,318.96
$ 129,438.19
$
$ 50,630,757.15
YEAR 4
YEAR 5
YEAR 6
$ 200,714,952.43
$
591,453.49
$
$ 201,306,405.93
$ 203,678,170.93
$
444,336.80
$
$ 204,122,507.73
$ 206,217,621.55
$
280,982.70
$
$ 206,498,604.25
Sales Revenues
Interest Income
Currency Trading Income
TOTAL REVENUES
Q1
$ 49,719,316.70
$ 162,524.27
$
$ 49,881,840.98
Cost of goods sold
Gross Margin
OPERATING EXPENSES
Transportation Expenses
Marketing Expenses
Warehousing Expenses
Research & Development
Interest Expense
Factory Depreciation
Factory Sale Loss
Inventory Write Down
Consultants
Insurance
Admin and Misc Expenses
Bad Debt Expenses
Import Tariffs
TOTAL OPERATING EXP
$ 19,191,898.27 $ 19,315,060.13 $ 19,470,597.37 $ 19,603,421.11 $ 77,580,976.88
$ 30,689,942.71 $ 30,916,514.27 $ 31,091,636.03 $ 31,027,336.04 $ 123,725,429.05
$
$ 1,173,123.66 $ 1,172,381.75 $ 1,169,430.31 $ 1,169,069.65 $ 4,684,005.37
$ 6,137,732.50 $ 6,111,895.63 $ 6,076,500.03 $ 6,054,457.29 $ 24,380,585.45
$ 395,439.33 $ 371,507.78 $ 350,017.37 $ 372,321.49 $ 1,489,285.98
$ 6,700,000.00 $ 6,700,000.00 $ 6,700,000.00 $ 6,700,000.00 $ 26,800,000.00
$
56,140.00 $
56,140.00 $
56,140.00 $
56,140.00 $
224,560.00
$ 199,857.25 $ 202,533.81 $ 202,720.52 $ 202,647.14 $
807,758.72
$
$
$
$
$
$
$
$
$
$
$ 5,150,000.00 $ 5,150,000.00 $ 5,150,000.00 $ 5,150,000.00 $ 20,600,000.00
$
50,000.00 $
50,000.00 $
50,000.00 $
50,000.00 $
200,000.00
$
$
$
$
$
$ 310,614.25 $ 312,856.31 $ 312,868.89 $ 316,459.86 $ 1,252,799.32
$ 3,377,701.40 $ 3,456,319.45 $ 3,528,702.47 $ 3,579,718.81 $ 13,942,442.12
$ 42,742,506.66 $ 42,898,694.86 $ 43,066,976.95 $ 43,254,235.36 $ 171,962,413.83
PRETAX INCOME
TAXES
NET INCOME
$ 7,139,334.32 $ 7,332,879.54 $ 7,495,256.45 $ 7,376,521.79 $ 29,343,992.10 $ 29,241,948.19 $ 28,909,537.66
$ 2,498,767.01 $ 2,566,507.84 $ 2,623,339.76 $ 2,581,782.63 $ 10,270,397.23 $ 10,234,681.87 $ 10,118,338.18
$ 4,640,567.31 $ 4,766,371.70 $ 4,871,916.69 $ 4,794,739.17 $ 19,073,594.86 $ 19,007,266.32 $ 18,791,199.48
CONFIDENTIAL – Not for Distribution
$ 79,691,574.41 $ 81,661,629.38
$ 124,430,933.32 $ 124,836,974.87
$ 4,668,981.46
$ 24,335,235.65
$ 1,457,802.77
$ 26,800,000.00
$
224,560.00
$
809,214.13
$
$
$ 20,600,000.00
$
200,000.00
$
$ 1,255,539.66
$ 14,837,651.46
$ 174,880,559.54
$ 4,679,913.54
$ 24,325,580.52
$ 1,458,838.56
$ 26,800,000.00
$
224,560.00
$
809,438.16
$
$
$ 20,600,000.00
$
200,000.00
$
$ 1,256,162.20
$ 15,572,944.24
$ 177,589,066.59
Page | 16
PRO-FORMA STATEMENT OF CASH FLOWS
YEAR 4
Q1
Q2
Q3
YEAR 4
Q4
YEAR 5
YEAR 6
CASH FLOWS FROM OPERATING ACTIVITIES
Net profits
$ 4,640,567.31 $ 4,766,371.70 $ 4,871,916.69 $ 4,794,739.17 $ 19,073,594.86 $ 19,007,266.32 $ 18,791,199.48
Add back non-cash expenses
Depreciation part of transportation expense
Interest expense
Factory Depreciation
Plant Sale loss
Inventory writedowns
Change in Accounts Receivables
Changes in Inventory net of any writedowns
Changes in Trade payables
Changes in Taxes payable
$
$
$
$
$
$
$
$
$
99,000.00
56,140.00
199,857.25
74,008.85
(888,961.51)
608,844.02
(174,122.99)
$
$
$
$
$
$
$
$
$
96,000.00
56,140.00
202,533.81
125,752.28
(18,058.07)
71,858.44
67,740.83
$
$
$
$
$
$
$
$
$
90,000.00
56,140.00
202,720.52
117,984.62
13,093.09
67,419.78
56,831.92
$
$
$
$
$
$
$
$
$
87,000.00
56,140.00
202,647.14
29,963.89
13,406.09
17,122.22
(41,557.13)
$
$
$
$
$
$
$
$
$
372,000.00
224,560.00
807,758.72
347,709.64
(880,520.41)
765,244.47
(91,107.37)
$
$
$
$
$
$
$
$
$
303,000.00
224,560.00
809,214.13
233,425.58
47,326.95
133,386.05
(32,999.91)
$
$
$
$
$
$
$
$
$
246,000.00
224,560.00
809,438.16
217,529.54
41,265.31
124,302.60
(27,032.21)
Net cash from operations $ 4,615,332.92 $ 5,368,338.99 $ 5,476,106.62 $ 5,159,461.38 $ 20,619,239.91 $ 20,725,179.12 $ 20,427,262.87
(Note: Changes in assets are subtracted while changes in liabilities are added)
CASH FLOW FROM INVESTING ACTIVITIES
Cash Flow From Purchases of Shipping Containers
Net Cash Flow From Changes In Plant and Equipment
$
$
(500,000.00)
$
-
$
-
$
-
$
$
(500,000.00) $
$
-
$
$
-
Net cash flow from investing activities $ (500,000.00) $
-
$
-
$
-
$
(500,000.00) $
-
$
-
-
$
$
-
$
$
-
$
$
-
$
$
-
CASH FLOW FROM FINANCING ACTIVITIES
Debt Payments (negative), or New Borrowing (positive)
Commons Stock Purchases(negative) or Sales (positive)
Dividend payment
$
$
-
$
$
-
$
$
$ (3,000,000.00) $ (3,000,000.00) $ (3,000,000.00) $ (3,000,000.00) $ (12,000,000.00) $ (12,000,000.00) $ (12,000,000.00)
Net Cash from Financing Activities $ (3,000,000.00) $ (3,000,000.00) $ (3,000,000.00) $ (3,000,000.00) $ (12,000,000.00) $ (12,000,000.00) $ (12,000,000.00)
NET CHANGE IN CASH
BEGINNING CASH BALANCE
ENDING CASH BALANCE
$ 1,197,291.11 $ 2,312,624.02 $ 4,680,963.01 $ 7,157,069.63 $ 1,197,291.11 $ 9,316,531.01 $ 18,041,710.13
$ 2,312,624.02 $ 4,680,963.01 $ 7,157,069.63 $ 9,316,531.01 $ 9,316,531.01 $ 18,041,710.13 $ 26,468,973.01
CONFIDENTIAL – Not for Distribution
Page | 17
PRO-FORMA BALANCE SHEET
YEAR 4
ASSETS
Cash and Securities
Receivables
Inventories
Shipping Cont (Net)
Plant and Equip (Net)
TOTAL ASSETS
LIABILITIES
Trade Payables
Taxes Payable
Loans and Interest
STOCKHOLDERS' EQUITY
Common Stock
Retained Earnings
TOTAL LIAB & EQUITY
Debt/Equity Ratio
DIVIDENDS PAID
Q1
Q2
Q3
Q4
$ 2,312,624
$ 17,401,761
$ 2,049,582
$ 2,798,729
$ 16,220,722
$ 40,783,418
$ 4,680,963
$ 17,527,513
$ 2,045,827
$ 2,837,886
$ 16,017,963
$ 43,110,152
$ 7,157,070
$ 17,645,498
$ 2,073,366
$ 2,876,864
$ 15,817,739
$ 45,570,537
$ 9,316,531
$ 17,675,462
$ 2,100,561
$ 2,913,472
$ 15,620,017
$ 47,626,043
YEAR 5
$
$
$
$
$
$
18,041,710
17,908,887
2,204,055
3,057,450
14,853,538
56,065,641
YEAR 6
$
$
$
$
$
$
26,468,973
18,126,417
2,204,178
3,190,516
14,124,671
64,114,754
$ 9,943,863 $ 10,015,722 $ 10,083,142 $ 10,100,264 $ 10,233,650 $ 10,357,952
$ 2,498,767 $ 2,566,508 $ 2,623,340 $ 2,581,783 $ 10,234,682 $ 10,118,338
$ 3,579,192 $ 3,579,192 $ 3,579,192 $ 3,579,192 $ 3,579,192 $ 3,579,192
$ 1,000,000
$ 23,761,595
$ 40,783,418
14%
$ (3,000,000)
$ 1,000,000
$ 25,948,731
$ 43,110,152
13%
$ (3,000,000)
$ 1,000,000
$ 28,284,863
$ 45,570,537
12%
$ (3,000,000)
$ 1,000,000
$ 30,364,804
$ 47,626,043
11%
$ (3,000,000)
CONFIDENTIAL – Not for Distribution
$ 1,000,000 $ 1,000,000
$ 31,018,117 $ 39,059,271
$ 56,065,641 $ 64,114,754
11%
9%
$ (12,000,000) $ (12,000,000)
Page | 18
Discounted Cash Flow Analysis
Tiempo & Co.
Discounted Cash Flow Analysis
($ in millions, fiscal year ending December 31)
Operating Scenario
1
Mid-Year Convention
Y
Operating Scenario
Historical Period
2005
2006
CAGR
2007
('05 - '07)
Sales
% growth
COGS
$42.643
NA
15.990
$47.071
10.4%
17.795
$49.183
4.5%
18.396
7.4%
Gross Profit
$26.653
$29.276
$30.787
7.5%
% margin
SG&A
62.5%
23.331
62.2%
24.153
62.6%
23.902
EBITDA
% margin
Depreciation & Amortization
$3.32
7.8%
0.166
$5.12
10.9%
0.164
$6.89
14.0%
0.279
EBIT
% margin
Taxes
$3.2
7.4%
1.1
$5.0
10.5%
1.7
$2.1
0.2
-
EBIAT
Plus: Depreciation & Amortization
Less: Capital Expenditures
Less: Increase in Net Working Capital
Unlevered Free Cash Flow
WACC
Discount Period
Discount Factor
2008
2009
$49.724
1.1%
18.745
2010
$51.713
4.0%
31.0
2011
$53.781
4.0%
32.3
2012
$55.933
4.0%
33.6
('08 - '13)
$59.339
3.0%
35.6
3.6%
-5.2%
$31.0
$20.7
$21.5
$22.4
$23.0
$23.7
40.0%
12.9
40.0%
13.4
40.0%
14.0
40.0%
14.4
40.0%
14.8
44.0%
$8.00
16.1%
1.0
$7.8
15.0%
1.0
$8.1
15.0%
1.1
$8.4
15.0%
1.1
$8.6
15.0%
1.2
$8.9
15.0%
1.2
2.1%
$6.6
13.4%
2.3
44.7%
$7.0
14.1%
2.5
$6.7
13.0%
2.4
$7.0
13.0%
2.4
$7.3
13.0%
2.5
$7.5
13.0%
2.6
$7.7
13.0%
2.7
1.9%
$3.2
$4.3
44.7%
$4.6
$4.4
$4.5
$4.7
$4.9
$5.0
1.9%
0.2
-
0.279
-
1.0
-
1.0
(1.0)
3.5
1.1
(1.1)
(0.2)
1.1
(1.1)
(0.2)
1.2
(1.2)
(0.1)
1.2
(1.2)
(0.1)
$7.8
$4.4
$4.5
$4.7
$4.9
0.25
0.98
0.5
0.96
0.75
0.93
1.0
0.91
1.25
0.89
$7.7
$4.2
$4.2
$4.3
$4.4
Enterprise Value
Implied Equity Value and Share Price
$24.8
Terminal Value
Terminal Year EBITDA (2013E)
Exit Multiple
$8.9
7.0x
Terminal Value
Discount Factor
$62.3
0.64
Present Value of Terminal Value
% of Enterprise Value
$39.8
61.6%
Enterprise Value
$64.5
Implied Perpetuity Growth Rate
Enterprise Value
Less: Total Debt
Less: Preferred Securities
$64.5
14.96
-
Terminal Year Free Cash Flow (2013E)
WACC
Terminal Value
Less: Noncontrolling Interest
Plus: Cash and Cash Equivalents
2.766
Implied Perpetuity Growth Rate
Implied Equity Value
$82.3
Implied Share Price
100.0
Enterprise Value
LTM 9/30/2008 EBITDA
Implied Share Price
$0.82
Implied EV/EBITDA
7.0x
67
66
$65
64
63
NA
62.5%
54.7%
0.4%
-%
35.0%
$64.5
146.7
0.4x
10.4%
62.2%
51.3%
0.3%
-%
35.0%
Exit Multiple
7.5x
70
68
67
66
65
4.5%
62.6%
48.6%
0.6%
-%
35.0%
8.0x
73
71
70
69
68
WACC
6.5x
64
63
62
61
60
1.1%
Implied Perpetuity Growth Rate
Exit Multiple
6.0x
61
60
59
58
57
$4.9
9.40%
$62.3
Implied EV/EBITDA
Enterprise Value
WACC
2013
$57.611
3.0%
34.6
9.40%
Cumulative Present Value of FCF
Assumptions
Sales (% growth)
COGS (% sales)
SG&A (% sales)
Depreciation & Amortization (% sales)
Capital Expenditures (% sales)
Tax Rate
Working Capital (% sales)
CAGR
62.3%
22.976
Present Value of Free Cash Flow
64.5
8.4%
8.9%
9.40%
9.9%
10.4%
Base
Projection Period
1.1%
62.3%
46.2%
2.0%
-%
35.0%
0.0
8.4%
8.9%
9.40%
9.9%
10.4%
4.0%
60.0%
25.0%
2.0%
2.0%
35.0%
8.5%
CONFIDENTIAL – Not for Distribution
6.0x
-1.0%
-0.6%
-0.1%
0.3%
0.8%
4.0%
60.0%
25.0%
2.0%
2.0%
35.0%
8.5%
6.5x
-0.3%
0.1%
0.6%
1.0%
1.4%
4.0%
60.0%
25.0%
2.0%
2.0%
35.0%
8.5%
7.0x
0.2%
0.7%
1.1%
1.6%
2.0%
3.0%
60.0%
25.0%
2.0%
2.0%
35.0%
8.5%
7.5x
0.8%
1.2%
1.6%
2.1%
2.5%
8.0x
1.2%
1.6%
2.1%
2.6%
3.0%
3.0%
60.0%
25.0%
2.0%
2.0%
35.0%
8.5%
Page | 19
Sensitivity Analysis
Tiempo & Co.
Sensitivity Analysis
($ in millions)
Enterprise Value
Implied Equity Value
6.0x
0.82
0.82
0.82
0.82
0.82
7.0x
67
66
$65
64
63
Exit Multiple
7.5x
70
68
67
66
65
8.0x
73
71
70
69
68
7.5x
0.82
0.82
0.82
0.82
0.82
8.0x
0.82
0.82
0.82
0.82
0.82
WACC
0.8
8.4%
8.9%
9.40%
9.9%
10.4%
6.5x
64
63
62
61
60
82.3
8.4%
8.9%
9.40%
9.9%
10.4%
6.0x
78
77
77
76
75
WACC
WACC
6.0x
61
60
59
58
57
WACC
Exit Multiple
64.5
8.4%
8.9%
9.40%
9.9%
10.4%
0.6
8.4%
8.9%
9.40%
9.9%
10.4%
6.0x
58.9%
58.4%
57.9%
57.4%
57.0%
Implied Share Price
6.5x
81
80
79
79
78
7.0x
0.82
0.82
$0.82
0.82
0.82
6.5x
60.8%
60.3%
59.8%
59.4%
58.9%
7.0x
0.2%
0.7%
1.1%
1.6%
2.0%
7.5x
64.1%
63.7%
63.2%
62.8%
62.3%
8.0x
65.6%
65.2%
64.7%
64.3%
63.8%
7.5x
0.5x
0.5x
0.5x
0.5x
0.4x
8.0x
0.5x
0.5x
0.5x
0.5x
0.5x
Exit Multiple
7.5x
0.8%
1.2%
1.6%
2.1%
2.5%
8.0x
1.2%
1.6%
2.1%
2.6%
3.0%
WACC
WACC
6.5x
-0.3%
0.1%
0.6%
1.0%
1.4%
7.0x
62.5%
62.1%
61.6%
61.1%
60.7%
Implied Enterprise Value / LTM EBITDA
Exit Multiple
6.0x
-1.0%
-0.6%
-0.1%
0.3%
0.8%
8.0x
90
89
88
87
86
Exit Multiple
Implied Perpetuity Growth Rate
0.0
8.4%
8.9%
9.40%
9.9%
10.4%
7.5x
87
86
85
84
83
PV of Terminal Value as % of Enterprise Value
Exit Multiple
6.5x
0.82
0.82
0.82
0.82
0.82
7.0x
84
83
$82
81
80
0.4
8.4%
8.9%
9.40%
9.9%
10.4%
6.0x
0.4x
0.4x
0.4x
0.4x
0.4x
6.5x
0.4x
0.4x
0.4x
0.4x
0.4x
7.0x
0.5x
0.4x
0.4x
0.4x
0.4x
Calculation of Implied Share Price
Enterprise Value
Less: Total Debt
Less: Preferred Securities
Less: Noncontrolling Interest
Plus: Cash and Cash Equivalents
$64.5
14.960
2.766
Implied Equity Value
$82.3
Options/Warrants
Tranche
Options
Options
Options
Options
Options
Number of
Shares
1
2
3
4
5
Total
Exercise
Price
-
Basic Shares Outstanding
Plus: Shares from In-the-Money Options
Less: Shares Repurchased
Net New Shares from Options
Plus: Shares from Convertible Securities
Fully Diluted Shares Outstanding
Implied Share Price
In-the-Money
Shares
-
-
Proceeds
100.000
100.000
$0.82
CONFIDENTIAL – Not for Distribution
Page | 20
Working Capital Projections
Tiempo & Co.
Working Capital Projections
($ in millions)
Historical Period
2005
Sales
Cost of Goods Sold
2006
Projection Period
2007
2008
2009
2010
2011
2012
2013
$42.643
16.0
$47.071
17.8
$49.183
18.4
$49.724
18.7
$51.7
31.0
$53.8
32.3
$55.9
33.6
$57.6
34.6
$59.3
35.6
15.211
3.463
2.480
19.150
3.856
2.499
16.918
3.774
2.573
17.327
3.699
2.633
18.4
6.5
2.6
19.2
6.7
2.7
19.9
7.0
2.8
20.5
7.2
2.9
21.1
7.4
3.0
$21.2
$25.5
$23.3
$23.7
$27.5
$28.6
$29.7
$30.6
$31.5
8.256
3.632
3.379
8.982
3.687
1.709
9.157
3.742
4.031
9.335
3.798
2.672
15.4
4.1
3.6
16.0
4.2
3.8
16.6
4.4
3.9
17.1
4.6
4.0
17.7
4.7
4.2
$15.3
$14.4
$16.9
$15.8
$23.1
$24.0
$25.0
$25.7
$26.5
$5.9
13.8%
$11.1
23.6%
$6.3
12.9%
$7.9
15.8%
$4.4
8.5%
$4.6
8.5%
$4.7
8.5%
$4.9
8.5%
$5.0
8.5%
Current Assets
Accounts Receivable
Inventories
Prepaid Expenses and Other
Total Current Assets
Current Liabilities
Accounts Payable
Accrued Liabilities
Other Current Liabilities
Total Current Liabilities
Net Working Capital
% sales
(Increase) / Decrease in NWC
($5.2)
$4.8
($1.5)
$3.5
($0.2)
($0.2)
($0.1)
($0.1)
Assumptions
Days Sales Outstanding
Days Inventory Held
Prepaids and Other CA (% of sales)
130.2
79.0
5.8%
148.5
79.1
5.3%
125.6
74.9
5.2%
125.6
74.9
5.2%
130.0
76.0
5.0%
130.0
76.0
5.0%
130.0
76.0
5.0%
130.0
76.0
5.0%
130.0
76.0
5.0%
Days Payable Outstanding
Accrued Liabilities (% of sales)
Other Current Liabilities (% of sales)
188.5
8.5%
7.9%
184.2
7.8%
3.6%
181.7
7.6%
8.2%
181.7
7.6%
8.2%
181.0
7.9%
7.0%
181.0
7.9%
7.0%
181.0
7.9%
7.0%
181.0
7.9%
7.0%
181.0
7.9%
7.0%
CONFIDENTIAL – Not for Distribution
Page | 21
Weighted Average Cost of Capital Analysis
Tiempo & Co.
Weighted Average Cost of Capital Analysis
($ in millions)
WACC Calculation
Comparable Companies Unlevered Beta
Capital Structure
Debt-to-Total Capitalization
30.0%
Equity-to-Total Capitalization
70.0%
Cost of Debt
Cost of Debt
Tax Rate
After-tax Cost of Debt
6.0%
35.0%
3.9%
Cost of Equity
Risk-free Rate(1)
Market Risk Premium(2)
Levered Beta
Size Premium(3)
Cost of Equity
Predicted
Levered Beta (4)
Company
1.11
1.08
1.35
1.25
1.19
Mean
Median
Market
Value of Debt
$575.0
515.0
715.0
550.0
250.0
Market
Value of Equity
$2,600.0
1,750.0
1,050.0
1,000.0
630.0
Debt/
Equity
22.1%
29.4%
68.1%
55.0%
39.7%
1.20
1.19
Marginal
Tax Rate
Unlevered
Beta
35.0%
35.0%
35.0%
35.0%
35.0%
0.97
0.91
0.94
0.92
0.95
42.9%
39.7%
0.94
0.94
ValueCo Relevered Beta
1.5%
7.1%
1.20
1.65%
11.6%
Mean
Unlevered
Beta
Relevered Beta
Target
Debt/
Equity
0.94
42.9%
Target
Marginal
Tax Rate
Relevered
Beta
35.0%
1.20
WACC Sensitivity Analysis
9.3%
Debt-to-Total
Capitalization
Pre-tax Cost of Debt
WACC
0.1
10.0%
20.0%
30.0%
40.0%
50.0%
5.0%
9.5%
9.3%
9.1%
8.9%
8.7%
5.5%
9.6%
9.4%
9.2%
9.0%
8.8%
6.0%
9.6%
9.4%
9.3%
9.1%
9.0%
6.5%
9.6%
9.5%
9.4%
9.3%
9.1%
7.0%
9.7%
9.6%
9.5%
9.4%
9.3%
(1) Interpolated yield on 20-year U.S. Treasury
(2) Obtained from Ibbotson SBBI Valuation Yearbook
(3) Low-Cap Decile size premium based on market capitalization, per Ibbotson
(4) Sourced from Barra
CONFIDENTIAL – Not for Distribution
Page | 22