For the Years Ended December 31,

2002
2003
Net sales
Cost of sales
Gross profit
Research & development
Selling, general, & administrative
Restructuring costs
Operating profit (loss)
Other income (expense)
Income (loss) before taxes
Income taxes (benefit)
Net income (loss)

Earnings (loss) per share

Dividends per share

2004

858,263 $
540,747
317,516

815,979 $
501,458
314,522

756,638
498,879
257,759

77,678
229,971
0
9,867

70,545
223,634
0
20,343

75,417
231,008
0
(48,666)

(4,500)
5,367
1,241

1,065
21,408
8,415

(3,458)
(52,124)
(750)

$4,127

$12,993

($51,374)

($3.25)
$0.77

$0.69
$0.25

($7.57)
$0.25

-5%

-7%

Projected
2005
$

870,000
549,750
320,250

63.00%
37.00%

61.45%

65.93%

63.19%

77,250
211,500
0
31,500

9.05%
26.79%

8.65%
27.41%

9.97%
30.53%

8.88%
24.31%

(4,200)
27,300
9,282

-0.52%
0.63%
0.14%

0.13%
2.62%
1.03%

-0.46%
-6.89%
-0.10%

-0.48%
3.14%
1.07%

$18,018

0.48%

1.59%

-6.79%

2.07%

39.31%

1.44%

34.00%

$0.98
$0.39

15%

27.26%

2003
Cash & equivalents
Accounts receivable
Inventories
Prepaid expenses
Other
Total current assets

2004

13,917 $
208,541
230,342
14,259
22,184
489,242

22,230
187,235
203,888
13,016
20,714
447,082

327,603
167,414
160,190
9,429
15,723

358,841
183,486
175,355
2,099
17,688

674,583 $

642,223

34,196 $
36,449
300
129,374
200,318

71,345
34,239
150
161,633
267,367

Deferred taxes
Long-term debt
Deferred pension costs
Other liabilities
Total liabilities

16,986
9,000
44,790
2,318
273,411

13,769
8,775
64,329
5,444
359,683

Common stock, $1 par value

Capital in excess of par
Cumulative translation adjustment
Retained earnings
Less treasury stock at cost:
1990--256,151; 1991--255,506
Total shareholders' equity

18,855
107,874
(6,566)
291,498

18,855
107,907
20,208
146,065

(10,490)
401,172

(10,494)
282,541

674,583 $

642,223

43,496 $

80,270

Property, plant, & equipment

Less depreciation
Net property, plant, & equipment
Intangible assets
Other assets
Total assets
Bank loans
Accounts payable
Current portion of long-term debt
Accruals and other
Total current liabilities

Total liabilities & equity

Debt
other
equity

401,172

282,541

d/e

11%

28%

2005
$

25,665
217,510
217,221
15,011
21,000
496,407

1.62%
24.30%
26.84%
1.66%

2.72%
22.95%
24.99%
1.60%

3.39%
28.75%
28.71%
1.98%

2.58%
25.33%
26.84%
1.75%

2.58%
57.00%

2.54%
54.79%

2.78%
65.61%

2.63%

410,988
205,530
205,458
1,515
17,969

38.17%
51.10%
18.66%
1.10%
1.83%

43.98%
51.13%
21.49%
0.26%
2.17%

54.32%
50.01%
27.15%
0.20%
2.37%

45.49%
50.75%
22.44%
0.20%
2.12%

721,350

74,981
37,527
1,515
183,014
297,037

3.98%
4.25%
0.03%
15.07%
23.34%

8.74%
4.20%
0.02%
19.81%
32.77%

9.91%
4.96%
0.20%
24.19%
39.26%

9.33%
4.47%
0.08%
19.69%
31.79%

16,526
30,021
70,134
7,505
421,224

1.98%
1.05%
5.22%
0.27%
31.86%

1.69%
1.08%
7.88%
0.67%
44.08%

2.18%
3.97%
9.27%
0.99%
55.67%

1.95%
2.03%
7.46%
0.64%
43.87%

18,835
107,889
26,990
156,875

18,835
107,889

18,835
107,889

18,835
107,889

#DIV/0!

(10,464)
300,126

#DIV/0!
#DIV/0!
#DIV/0!
#DIV/0!
#DIV/0!

721,350

#DIV/0!

106,518
300,126

35%

GAINESBORO MACHINE TOOLS CORP.

Projections, Assumptions, tec

Assumptions:

2005

2006

2007

1. Sales Growth Rate:

2. Net Income as % of Sales
3. Dividend Payout Ratio

15%
2.1%
0.0%

15%
4.0%
0.0%

15%
5.0%
0.0%

2005

2006

2007

Modified Projections

Sales

870.1 $

1,000.7 $

1,150.8

Sources:
Net income
Depreciation
Total

$
$
$

18.1 $
22.5 $
40.6 $

40.0 $
25.5 $
65.5 $

57.5
30.0
87.5

Uses:
Capital expend.
Change in Working capital
Total

$
$
$

43.8 $
19.5 $
63.3 $

50.4 $
22.4 $
72.8 $

57.5
25.8
83.3

Excess cash/(Borrowing needs)

Dividend

$
$

(22.7) $
$

(7.3) $
$

4.2
-

After dividend
Excess cash/(Borrowing needs)

(22.7) $

(7.3) $

4.2

INCOME
For the Years Ended December 31,
2002
2003
Net sales
Cost of sales
Gross profit
Research & development
Selling, general, & administrative
Restructuring costs
Operating profit (loss)

858,263 $
540,747
317,516

815,979 $
501,458
314,522

77,678
229,971
65,448
(55,581)

70,545
223,634
0
20,343

2004

756,638
498,879
257,759
75,417
231,008
89,411
(138,077)

Other income (expense)

Income (loss) before taxes
Income taxes (benefit)
Net income (loss)

Earnings (loss) per share

Dividends per share

(4,500)
(60,081)
1,241

1,065
21,408
8,415

(3,458)
(141,534)
(750)

($61,322)

$12,993

($140,784)

($3.25)
$0.77

$0.69
$0.25

($7.57)
$0.25

BALANCE
2003
Cash & equivalents
Accounts receivable
Inventories
Prepaid expenses
Other
Total current assets

Property, plant, & equipment

Less depreciation
Net property, plant, & equipment
Intangible assets
Other assets
Total assets
Bank loans
Accounts payable
Current portion of long-term debt
Accruals and other
Total current liabilities

$
$

2004

13,917 $
208,541
230,342
14,259
22,184
489,242

22,230
187,235
203,888
13,016
20,714
447,082

327,603
167,414
160,190
9,429
15,723

358,841
183,486
175,355
2,099
17,688

674,583

642,223

34,196 $
36,449
300
129,374
200,318

71,345
34,239
150
161,633
267,367

Deferred taxes
Long-term debt
Deferred pension costs
Other liabilities
Total liabilities

16,986
9,000
44,790
2,318
273,411

13,769
8,775
64,329
5,444
359,683

Common stock, $1 par value

Capital in excess of par
Cumulative translation adjustment
Retained earnings
Less treasury stock at cost:
1990--256,151; 1991--255,506

18,855
107,874
(6,566)
291,498

18,855
107,907
20,208
146,065

(10,490)

(10,494)

Total shareholders' equity

Total liabilities & equity

Debt
Equity
D/E
Excess Debt Capacity

401,172
$

674,583

282,541
$

2003
43,496 $
401,172
11%
116,973 $
0.2915789238

642,223
2004
80,270
282,541
28%
32,747

2008

2009

2010

2011

15%
5.5%
0.0%

15%
6.0%
0.0%

15%
5.6%
0.0%

15%
8.0%
0.0%

2008

2009

2010

Total
2011 2005-11

1,323.4 $

1,521.9 $

1,750.1 $

2,012.7 $

9,629.6

$
$
$

72.8 $
34.5 $
107.3 $

91.3 $
40.5 $
131.8 $

98.0 $
46.5 $
144.5 $

160.0 $
52.5 $
212.5 $

537.8
252.0
789.8

$
$
$

66.2 $
29.6 $
95.8 $

68.5 $
34.0 $
102.4 $

78.8 $
38.5 $
117.3 $

90.6 $
44.3 $
134.9 $

455.7
214.1
669.8

$
$

11.5 $
$

29.4 $
$

27.2 $
$

77.6 $
$

120.0
-

11.5 $

29.4 $

27.2 $

77.6 $

120.0

2006

2007

2008

Projected
2005
$

870,133 $
549,834
320,299
77,250
211,500
0
31,549

1,000,653 $
603,394
397,259
90,565
243,262
63,432

1,150,751 $
676,642
474,109
104,149
279,752
90,209

1,323,364 $
767,551
555,813
119,772
321,714
114,327

2009
1,521,868
872,031
649,838
137,737
369,971
142,129

(4,200)
27,349
9,299

63,432
21,567

90,209
30,671

114,327
38,871

142,129
48,324

$18,050

$41,865

$59,538

$75,456

$93,805

$0.96
$0.00

$2.22
$0.00

$3.16
$0.00

$4.01
$0.00

$4.98
$0.00

2005
$

2006

2007

2008

2009

25,665 $
217,510
217,221
15,011
21,000
496,407

25,810 $
253,469
268,621
17,479
26,346
591,725

29,681 $
291,489
308,914
20,101
30,298
680,483

34,133 $
335,212
355,251
23,116
34,843
782,556

39,253
385,494
408,539
26,584
40,069
899,939

410,988
205,530
205,458
1,515 $
17,969 $

437,990
225,000
212,990
2,001.31 $
20,013.06 $

503,689
255,000
248,689
2,301.50 $
23,015.02 $

575,376
300,000
275,376
2,646.73 $
26,467.27 $

661,682
345,000
316,682
3,043.74
30,437.37

721,350

826,729

954,489

1,087,045

1,250,102

74,981
37,527
1,515
183,014
297,037

16,526
30,021
70,134
7,505
421,224

18,835
107,889
26,990
156,875

26,990
156,875

26,990
156,875

26,990
156,875

26,990
156,875

(10,464)

(10,464)

(10,464)

(10,464)

(10,464)

300,126
$

173,402

173,402

173,402

173,402

2006
106,586 $
300,126 $
36%
13,465 $

2007
106,586 $
342,238 $
31%
30,310 $

2008
106,586 $
457,544 $
23%
76,432 $

2009
106,586
751,291
14%
193,931

721,350
2005
99,318 $
300,126 $
33%
20,732 $

Cost of Capital
WACC
Debt
Equity
Debt COC
Equity COC
Tax rate
Risk free rate

Assume:
Sales Growth Rate:
D/E Maximum
Dividend Payout Ratio

*Ignoring the effects of borrowings on inter

2010
$

1,750,149 $
1,013,336
736,813
158,398
425,467
152,947

2011
2,012,671
1,092,880
919,791
182,158
489,287
248,346

Income Statement Assumptions

Sales Growth
Cost of sales
Gross Profit
Research & development
Selling, general, & administ

152,947
52,002

248,346
84,437

$100,945

$163,908

$5.36
$0.00

$8.70
$0.00

2010
$

$
$
$

2011

45,141 $
443,318
469,820
30,571
46,080
1,034,930

51,912
509,816
540,293
35,157
52,991
1,190,169

684,841
405,000
279,841
3,500.30 $
35,002.97 $

787,567
465,000
322,567
4,025.34
40,253.42

1,353,274

Other Income %
Tax rate

Balance Sheet
Cash & equivalents
Accounts receivable
Inventories
Prepaid expenses
Other

Depreciation
Intangible Assets
Other assets

1,557,015

Accounts payable
Accruals and other
Deferred taxes
Deferred pension costs
Other liabilities

26,990
156,875

26,990
156,875

(10,464)

(10,464)

Common stock, $1 par valu

Capital in excess of par
Cumulative translation adj
Treasury stock at cost

173,402

$
$
$

2010
106,586 $
1,023,618 $
10%
302,862 $

173,402

2011
106,586
1,800,045
6%
613,432

8.844%
28%
72%
5%
11%
34%
4.30%

Goals:
40% max CAD/CAM bu
75%
Int'l busine
50%
Acquisitions: .5 new prods
SG of
15%

15%
40%
0%

cts of borrowings on interest and amortization.

ent Assumptions
15%
63%
37%
9%
24%

34%

%Sales
2.58%
25.33%
26.84%
1.75%
2.63%

51.10%
0.20%
2%

4.3%
21.0%
1.9%
8.1%
0.9%
18,835
107,889
26,990
(10,464)

GAINESBORO MACHINE TOOLS CORP.

Projections, Assumptions, tec

Assumptions:

2005

2006

2007

1. Sales Growth Rate:

2. Net Income as % of Sales
3. Dividend Payout Ratio

15%
2.1%
0.0%

15%
4.0%
0.0%

15%
5.0%
0.0%

2005

2006

2007

Modified Projections

Sales

870.1

1,000.7

1,150.8

Sources:
Net income
Depreciation
Total

$
$
$

18.1
22.5
40.6

$
$
$

40.0
25.5
65.5

$
$
$

57.5
30.0
87.5

Uses:
Capital expend.
Change in Working capital
Total

$
$
$

43.8
19.5
63.3

$
$
$

50.4
22.4
72.8

$
$
$

57.5
25.8
83.3

Excess cash/(Borrowing needs)

Dividend

$
$

(22.7) $
$

(7.3) $
$

4.2
-

After dividend
Excess cash/(Borrowing needs)

(22.7) $

(7.3) $

4.2

2008

2009

2010

2011

15%
5.5%
0.0%

15%
6.0%
0.0%

15%
5.6%
0.0%

15%
8.0%
0.0%

2008

2009

2010

Total
2011 2005-11

1,323.4

1,521.9

1,750.1

2,012.7

9,629.6

$
$
$

72.8
34.5
107.3

$
$
$

91.3
40.5
131.8

$
$
$

98.0
46.5
144.5

$
$
$

160.0
52.5
212.5

$
$
$

537.8
252.0
789.8

$
$
$

66.2
29.6
95.8

$
$
$

68.5
34.0
102.4

$
$
$

78.8
38.5
117.3

$
$
$

90.6
44.3
134.9

$
$
$

455.7
214.1
669.8

$
$

11.5 $
$

29.4 $
$

27.2 $
$

77.6 $
$

120.0
-

11.5

29.4

27.2

77.6

120.0

Cost of Capital
WACC
Debt
Equity
Debt COC
Equity COC
Tax rate
Risk free rate

Assume:
Sales Growth Rate:
Dividend Payout Ratio

9.320%
28%
72%
5%
11%
0%
4.30%

15%
0%

*Ignoring the effects of borrowings on interest and amortization.

Debt
Equity
D/E

2003
2004
2005
2006
2007
43,496 $ 80,270 $ 108,367 $ 135,648 $ 160,206
401,172
282,541
300,126 $ 300,126 $ 300,126
11%
28%
36%
45%
53%

D/E Requirements vs Payout: Optimistic conditions

2005
2006
2007
2008
2009
Err:509
Err:509
Err:509
Err:509
Err:509
0%
33%
36%
31%
23%
14%
10%
34%
37%
38%
33%
21%
20%
34%
39%
42%
43%
31%
30%
35%
41%
46%
49%
46%
40%
36%
43%
50%
55%
58%
50%
36%
45%
53%
62%
67%
2005
Err:509
0%
10%
20%
30%
40%
50%

2006
Err:509

33%
34%
34%
35%
36%
36%

2007
Err:509

36%
37%
39%
41%
43%
45%

2008
Err:509

31%
38%
42%
46%
50%
53%

2009
Err:509

23%
33%
43%
49%
55%
62%

14%
21%
31%
46%
58%
67%

40% Payout
2008
2009
2010
2011
$ 185,068 $ 201,349 $ 223,120 $ 225,481
$ 300,126 $ 300,126 $ 300,126 $ 300,126
62%
67%
74%
75%

Debt
Equity
D/E
Excess Debt Capacity
0% Payout

2010
Err:509

2011
Err:509

10%
16%
26%
47%
62%
74%

6%
9%
14%
24%
42%
75%

2010

2011

Err:509

Err:509
10%
16%
26%
47%
62%
74%

6%
9%
14%
24%
42%
75%

Debt
Equity
D/E
Excess Debt Capacity

2003
2004
2005
2006
2007
2008
2009
2010
$ 43,496 $ 80,270
###
###
###
###
###
###
401,172 282,541 300,126
###
###
###
###
###
11%
28%
36%
43%
50%
55%
58%
62%
### $ 32,747 $ 13,493 $ (9,785) $(28,589) $(46,173) $(53,323) $(65,293)

2003
2004
2005
2006
2007
2008
$ 43,496 $ 80,270 $ 99,318
###
###
###
401,172 282,541 300,126
###
###
###
11%
28%
33%
36%
31%
23%
### $ 32,747 $ 20,732 $ 13,465 $ 30,310 $ 76,432

2009
###
###
14%
###

2010
###
###
10%
###

2011
###
###
42%
$(10,734)

2011
###
###
6%
###

Low
Sales Growth Rate*
Dividend Payout Ratio
D/E

Projection Assumptions
Medium
High
*
3%
7.80%
15%
0%
20%
0%
0%
20.00%
40%

* Low projections assume industry decline

Medium projections based industry performance averages, weighted by Gainesboro's goal production mix (See
Exhibit 6)
High projections based on Swenson's growth estimates (See Exhibit 8)

Dividend Payout %

Dividend Payout %

Dividend Payout %

Annual Cash Requirement After Dividends: Best-Case Scenario

2005
2006
2007
2008
2009
0%
4.2
11.5
29.4
10%
(1.5)
4.3
20.2
20%
(7.3)
(3.0)
11.1
30%
(13.1)
(10.3)
2.0
40%
(18.8)
(17.6)
(7.2)
50%
(24.6)
(24.9)
(16.3)
Dividend Cash Flows 2005-2011 vs Projected Sales Growth
120.024
3%
7.5%
12%
15%
0%
10%
20%
30%
40%
50%
2011 Excess Cash
77.6427
3%
0%
10%
20%
30%
40%
50%

7.5%

12%

15%

2010
27.2
17.4
7.6
(2.2)
(12.0)
(21.8)

20%

25%

20%

25%

2011
77.6
61.6
45.6
29.6
13.6
(2.4)

30%

30%

D/E Requirements vs Payout: Optimistic conditions

2005
2006
2007
2008
0%
31%
23%
10%
38%
33%
20%
42%
43%
30%
46%
49%
40%
50%
55%
50%
53%
62%

2009
14%
21%
31%
46%
58%
67%

2010
10%
16%
26%
47%
62%
74%

2011
6%
9%
14%
24%
42%
75%