Financial Modeling - Module II - FINAL

Advanced Financial Modeling January 2010
Center for Executive Education
Leadership and Ideas for Tomorrow
Confidential not for third party distribution The Kadmos Initiative (Pvt) Ltd. 2009
About The Kadmos Initiative Pvt Ltd.

Founded in 2009 by Isfandiyar Shaheen, The Kadmos Initiative (Pvt) Ltd. is a hybrid financial advisory and learning company which provides financial modeling and valuation training courses. Serving financial institutions, corporations entrepreneurs and students, TKIs goal is to demonstrate the application of finance theory by combining hands-on instruction with practical examples and live deal simulations. TKIs extensive list of career partners provide networking opportunities to job seekers, existing finance professionals and potential MBA candidates. Entrepreneurs are provided with a platform through which they can turn an idea into a venture; by teaming with TKI, entrepreneurs can learn the tools required to prepare a marketable business plan. TKI also offers exciting career opportunities, and will give preference to applicants who have successfully completed our training modules. For more information, please visit our website at www.kadmosinitiative.com Isfandiyar Shaheen (Asfi) Instructor Isfandiyar Shaheen (Asfi) is the founder and Chief Executive Officer of The Kadmos Initiative Pvt Ltd. Prior to establishing TKI, Asfi was an investment banker at Seabury Aviation & Aerospace. At Seabury, Asfi has participated in M&A advisory, financial restructuring and privatization assignments. Asfi has extensive experience with financial modeling, valuation and business plan implementation. Prior to joining Seabury, Asfi was an Analyst at Analysis Group, where his primary responsibilities included developing valuation models for commercial litigation cases. Asfi graduated from Franklin and Marshall College (cum laude) with degrees in Economics (Honors) and Mathematics and is Series 7 & 63 qualified. Seabury Aviation & Aerospace is the leading independent transportation-focused investment banking and advisory firm serving aviation, aerospace, cargo and maritime on a global basis. The company's professionals have advised over 225 clients worldwide in the airline, aerospace, cargo/logistics and maritime sectors.
Table of Contents
1. Overview of Advanced Financial Modeling 2. Kadmos Modeling Framework 3. Thebes Airport: Situation Overview 4. Income Statement Projections 5. Tax Depreciation and Deferred Tax Liability 6. Revolving Credit Agreements and Debt Schedule 7. Sale Leasebacks 8. Options and Treasury Stock 9. Trouble Shooting and Jump Starting Financial Models 10. Data Tables 11. Utilizing Text Functions 12. Building Scenarios
Pre-requisites and Assumptions

Basic knowledge of financial modeling, and an ability to modify existing models
Knowledge of financial accounting and familiarity with financial statements
Strong MS Excel skills and familiarity with Excel Best Practices
Ability to set up financial models and modify architecture

Completion of Financial Modeling Module I offered by The Kadmos Initiative (Recommended, but not required)
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Module Overview
Introduction to advanced modeling concepts:
Revolving credit agreements Deferred taxation Sale Leasebacks Share issuances / (buy-backs) Dilution by options and impact on capital structure
No detailed overview of the operating model and architecture
Introduction to Data Tables and TEXT functions
Trouble shooting and jump starting busted models
Table of Contents
1. Overview of Advanced Financial Modeling 2. Kadmos Modeling Framework 3. Thebes Airport: Situation Overview 4. Income Statement Projections 5. Tax Depreciation and Deferred Tax Liability 6. Sale Leasebacks 7. Revolving Credit Agreements and Debt Schedule 8. Trouble Shooting and Jump Starting Financial Models 9. Data Tables 10. Utilizing Text Functions 11. Building Scenarios
Core Statements Income Statement

A basic financial model requires the construction of 3 core statements; Income Statement, Balance Sheet and Cash Flow Statement Always begin work on a financial model with the Income Statement, and think clearly about drivers required to complete Income Statement projections Income Statement items above EBITDA are projected using various methodologies, details of which will be discussed further in the next section
Income Statement
(Pak Rupees in 000s, except per share amounts) Revenue Cost of Goods Sold Gross Profit SG&A Expense EBITDA Depreciation & Amortization EBIT Interest Expense Interest Income EBT Taxes @ 35.0% Net Income Historical Financials Projected Financials 2006 2007 2008 2009 2010 2011 Projections may be developed using historical figures and research reports Management typically provides guidance on expected COGS (Revenue - Cost of Goods Sold) Management typically has a budget which details SG&A Expenses (Gross Profit - SG&A Expenses) Requires Cap Ex and D&A Schedule (EBITDA - Depreciation & Amortization) Requires Debt & Interest Schedule Calculated based on prevailing interest rates and average cash balances (EBIT - Interest Expense + Interest Income) Tax Schedule depending on jurisdiction and Company situation required (Pre-tax Income - Taxes) 2012
Core Statements Balance Sheet

Once the Income Statement is developed, next steps are projecting the Balance Sheet and preparing a corresponding Cash Flow Statement
It is advisable to project the Balance Sheet first, however some practitioners prefer projecting the Cash Flow Statement and then preparing the corresponding BS
2006 Historical Financials 2007 2008 2009 Projected Financials 2010 2011 2012
Balance Sheet
(Pak Rupees in 000s, except per share amounts) Assets Cash and Equivalents Accounts Receivable Inventory Other Current Assets Total Current Assets Gross PP&E Other Non Current Assets Accumulated Depreciation Total Assets Liabilities and Shareholders' Equity Accounts Payable Accrued Expenses and Other Current Liabilities Total Current Liabilities Secured Debt Unsecured Debt Total Debt Other Non Current Liabilities Total Liabilities Shareholders' Equity Authorized Capital of XXX,XXX,XXX common shares of Rs. XX each Common stock issued at par Additional paid-in capital Accumulated earnings (deficit) Total Shareholders Equity Total Liabilities & Shareholders Equity
Previous year's cash balance + change in cash, which comes from CF Statement Requires Working Capital Schedule Requires Working Capital Schedule Requires Working Capital Schedule (Cash and Equivalents + Accounts Receivable + Inventory + Other Current Assets) Existing PP&E + related capital expenditures; Requires CapEx and D&A Schedule Existing Other Non Current Assets + related capital expenditures; Requires CapEx and D&A Schedule Existing Accumulated Depreciation + book depreciation; Requires CapEx and D&A Schedule (Total Current Assets + Gross PP&E + Other Non Current Assets - Accumulate Depreciation)
Requires Working Capital Schedule Requires Working Capital Schedule (Accounts Payable + Accrued Expenses and Other Current Liabilities) Requires Debt and Interest Schedule Requires Debt and Interest Schedule (Secured Debt + Unsecured Debt) Requires schedules detailing unwinding of liabilities OR line item may be projected within the Working Capital Schedule (Total Current Liabilities + Total Debt + Other Non Current Liabilities)
Note: Authorized Capital is not added in the Shareholder's Equity section of the balance sheet Par value of issued shares Capital paid by investors in excess of par value of common stock Previous year's balance + Net Income - Dividends Paid (Common stock + APIC + Accumulated Earnings) (Total Liabilities + Total Shareholder's Equity)
Core Statements Cash Flow Statement

The Balance Sheet requires a resulting component for it to balance Cash! The Cash Flow statement is thus projected using the Balance Sheet, with cash being the variable that balances a Balance Sheet
Cash Flow Statement
(Pak Rupees in 000s, except per share amounts) Cash Flow from Operations Net Income (+) Depreciation & Amortization (Increase)/Decrease in Accounts Receivable (Increase)/Decrease in Inventory (Increase)/Decrease in Other Current Assets Increase/(Decrease) in Accounts Payable Increase/(Decrease) in Accr. Exp and Other CL Increase/(Decrease) in Accrued Exp. And Other Non CL Total Cash Flow from Operating Activities Cash Flow from Investing Activities (-) Capital Expenditures (+) Asset Sales (-) Acquisition of Assets / Other Securities Total Cash Flow from Investing Activities Cash Flow from Financing (+) Issuance of Common Stock (+) Proceeds from Secured Debt (+) Proceeds from Unsecured Debt (+) Proceeds from Equity Raise from Foreign Investor (-) Dividends Paid (-) Payment of Secured Debt (-) Payment of Unsecured Debt Total Cash Flow from Investing Activities Change in Cash Balance 2006 Historical Financials 2007 2008 2009 Projected Financials 2010 2011 2012
From Income Statement From Income Statement (D&A is a non cash item) For 2009: AR in 2008 - AR in 2009 For 2009: Inventory in 2008 - Inventory in 2009 For 2009: Other Current Assets in 2008 - Other Current Assets in 2009 For 2009: AP in 2009 - AP in 2008 For 2009: Accr. Exp & Other CL in 2009 - Accr. Exp & Other CL in 2008 For 2009: Accr. Exp & Other Non CL in 2009 - Accr. Exp & Other Non CL in 2008 (SUM all items above); Be careful with signs for working capital changes
Management typically provides guidance on CapEx; often CapEx = D&A is assumed Management typically provides guidance on Asset Sales Management typically provides guidance on Acquisition of Assets (Asset Sales - CapEx - Acquisition of Assets)
Management typically provides guidance Requires Debt & Interest Schedule Requires Debt & Interest Schedule Requires Shareholder's Equity Schedule Requires Shareholder's Equity Schedule Requires Debt & Interest Schedule Requires Debt & Interest Schedule (SUM all items above); Be careful with signs for debt payments and debt proceeds (Cash flow from Operation + Investing + Financing) Change in cash is linked back to the balance sheet, and that is how a balance sheet is balanced!
Kadmos Modeling Framework

1.Construct the Income Statement, all items above EBITDA are projected using various methods which will be discussed further in the next section 2.The following schedules are required to complete the Income Statement
Cap Ex and D&A Schedule Debt and Interest Schedule Tax Schedule
3.Upon completion of Income Statement, prepare the following schedules to project the Balance Sheet, in the following order:
Working Capital Schedule Shareholders Equity Schedule
4.After Step 3 only Cash and Equivalents on the Balance Sheet will remain unfilled, use the Cash Flow Statement to populate projected Cash and Equivalents, and simultaneously complete both Balance Sheet and Cash Flow Statement 5.Incorporate a circular reference to calculate Interest Income in the Income Statement based on Cash and Equivalents on Balance Sheet
Table of Contents
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Thebes Airport: Overview

Thebes Airport (Company or Thebes) is located in Asia and is majority owned by Frontier Capital Corporation The Company has a market capitalization of Rs. 261 MM as of 05/04/2009 and revenue of approximately Rs. 75 MM Due to an Open Skies treaty between Thebes and neighboring countries, the airport is poised to grow significantly over the next 5 years To facilitate expansion, the airports management is expecting a significant increase in Capital Expenditures which can not be financed by existing cash balances Management has circulated a Request for Proposal to potential investors for an equity investment
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Thebes Airport: Financial Statements

Thebes Airport was established in 1995, presented below are its Income Statement and Balance Sheet
Income Statement
(Pak Rupees in 000s, except per share amounts) Revenue Landing Fees Handling Fees Embarkation Fees Total Operating Revenue Non Operating Revenue Airport Development Fund Flying Club Rental Income Total Revenue Operating Costs Staff salaries Maintenance Marketing & Advertising Other Operating Costs EBITDA 2006 4,188 21,670 14,910 40,769
Historical Financials 2007 4,603 25,179 17,003 46,785
Balance Sheet
2008 4,990 28,318 18,663 51,971
(Pak Rupees in 000s, except per share amounts) Assets Cash and Equivalents Accounts Receivable Inventory Other Current Assets Total Current Assets Gross PP&E Other Non Current Assets Accumulated Depreciation Total Assets Liabilities and Shareholders' Equity Accounts Payable Accrued Expenses and Other Current Liabilities Total Current Liabilities Secured Debt Unsecured Debt Total Debt Other Non Current Liabilities Total Liabilities Shareholders' Equity Authorized Capital of 200,000,000 common shares of Rs. 1 each Common stock issued at par Additional paid-in capital Common stock issued at par to SAS Additional paid-in capital by SAS Accumulated earnings (deficit) Total Shareholders Equity Total Liabilities & Shareholders Equity 2006 10,430 13,000 5,000 9,105 37,535 500,000 25,889 (167,654) Rs.395,770
Historical Financials 2007 14,028 13,910 5,400 10,016 43,353 520,000 26,666 (190,054) Rs.399,965
2008 19,970 14,884 5,500 11,017 51,370 540,800 27,466 (213,406) Rs.406,230
9,564 2,000 5,600 Rs.57,933
11,478 2,000 6,735 Rs.66,998
12,389 2,000 8,353 Rs.74,713
(9,044) (8,403) (8,843) (1,200) 30,442
(9,768) (8,874) (9,506) (1,380) 37,470
(10,549) (9,282) (10,267) (1,587) 43,028
2,476 2,467 4,943 24,000 10,000 34,000 10,123 49,066
2,426 2,418 4,844 22,000 9,000 31,000 9,921 45,765
2,378 2,369 4,747 20,000 8,000 28,000 9,722 42,469
Depreciation & Amortization EBIT
(21,400) 9,042
(22,400) 15,070
(23,352) 19,676
Interest Expense Interest Income EBT
(3,190) 939 6,791
(3,085) 939 12,924
(3,020) 939 17,595
100,000 234,987
100,300 235,692
100,601 236,399
Taxes @ 35% Net Income Net Income Margin
(2,377) Rs.4,414 7.6%
(4,523) Rs.8,400 12.5%
(6,158) Rs.11,437 15.3%
11,717 346,704 Rs.395,770
18,208 354,200 Rs.399,965
26,761 363,761 Rs.406,230
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Thebes Airport: Capital Structure

Thebes Airport is a publicly listed company and is majority owned by Frontier Capital Corporation
Valuation as of 05/04/2009
Common shares Outstanding as of 12/31/2008 Stock Price as of 05/04/2009 Market Capitalization (+) Total Debt (-) Cash and Equivalents Enterprise Value FY 2008 Revenue FY 2008 EBITDA FY 2008 Net Income Enterprise Value / Revenue Enterprise Value / EBITDA Price / Earnings 100,601 Rs. 2.6 Rs. 261,562 28,000 19,970 Rs. 269,593 Rs. 74,713 43,028 11,437 3.6x 6.3x 22.9x Market Capitalization = Stock Price X Common Shares Outstanding
Enterprise Value = Market Capitalization + Total Debt - Cash
Capital Structure as of 05/04/2009

Shareholders Frontier Capital Corporation Shareef Brothers Limited Establishment Foundation Publicly Traded Total Common Shares Outstanding % of Total 55% 17% 15% 13% 100% Common shares held 55,345 16,893 15,456 12,907 100,601
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SAS Capital Partners: Situation Overview

SAS Capital Partners is a Rs. 500 Mn investment fund and has retained us as Buy-Side advisor to make an investment in Thebes Airport SAS typically makes minority investments in infrastructure assets in the MENASA region and has a target IRR of 20% Investment holding period for SAS is 4-6 years Due to the credit crises, SAS Capital is able to offer only Rs. 10 Mn, which is not enough for Thebes Airport to finance Capital Expenditures and fulfill working capital requirements Thebes management decides to stop all dividend payments, but they will still run out of cash in 2010 As a result, Thebes Management has hired us to prepare a new financial model and help them raise alternate means of financing
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SAS Capital Partners: Situation Overview

Income Statement
(Pak Rupees in 000s, except per share amounts) Total Revenue EBITDA EBIT Net Income 2009 82,742 46,801 21,591 12,530 2010 94,488 53,959 24,913 14,450 2011 104,695 60,049 27,162 15,849 Projected Financials 2012 141,359 85,497 52,484 34,029 Projected Financials 2012 32,702 56,296 88,998 405,640 494,638 2013 176,227 109,698 76,561 51,798 2014 194,407 122,317 89,054 62,428 2015 214,443 136,224 102,836 74,205
Balance Sheet
(Pak Rupees in MM, except per share amounts) Assets Cash and Equivalents Other Current Assets Total Current Assets Non Current Assets Total Assets Liabilities and Shareholders' Equity Total Current Liabilities Total Debt Other Non Current Liabilities Total Liabilities Total Shareholder's Equity Total Liabilities & Shareholder's Equity 2009 7,533 36,384 43,917 385,402 429,318 2010 (10,574) 40,346 29,772 413,298 443,069 2011 (22,849) 43,430 20,581 437,402 457,983
2013 107,331 67,702 175,033 373,753 548,786
2014 196,961 72,302 269,263 341,741 611,003
2015 298,514 77,165 375,680 309,603 685,283
5,915 25,000 12,113 43,027 386,291 429,318
6,670 22,000 13,659 42,328 400,741 443,069
7,347 19,000 15,046 41,394 416,589 457,983
9,193 16,000 18,826 44,019 450,619 494,638
10,948 13,000 22,421 46,369 502,417 548,786
11,863 10,000 24,296 46,159 564,844 611,003
12,872 7,000 26,361 46,233 639,050 685,283
Even though profitability is improving, there is a Rs 16.7 Mn short-fall in cash in 2010 due to Capital Expenditures of approx. Rs. 55 Mn / year in 2009-2011
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Table of Contents
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What is an Operating Model?

Development of core revenue and cost drivers which describe a business
A due diligence tool for investors seeking to establish viability of a business
The building blocks of Income Statement items above the EBITDA line
A good operating model is one which can explain very clearly how and why a business generates revenue
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Revenue Projections
At the most basic level Revenue = Price X Volume, which can be further broken down into components Assuming an arbitrary growth rate for revenue based on historical growth and other economic indicators results in projections which are not defensible To understand how and why a business will generate revenue, it is essential to ask the right questions, the following are a few examples:
What were the Companys revenues for the past 3-5 years? What is the growth rate for the industry or major competitors? What is the competitive positioning of the Company? Is it poised to steal market share and outpace industry due to differentiating factors that are sustainable? What are the pricing trends in the industry? When evaluating pricing trends it is critical to identify the customers in the relevant market segment. E.g. Swatch and Rolex are both watch makers, but fall in entirely different market segments
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Airport Economics: Revenue

What happens at an airport and how do airports generate revenue?
Aircraft lands or takes off, passengers board an airplane or disembark, thus at a basic level, airports charge landing fees, embarkation fees and handling fees Landing fees should typically depend on aircraft size or weight Thus, for a given aircraft type (e.g. B737-300 which has a Maximum Takeoff Weight of approx 61 tons), multiply number of aircraft movements by aircraft weight by landing charge per ton to arrive at revenue from landing fees Airport operators charge a fee for passenger luggage and cargo handling, which is typically done on a per flight basis, different business models exist in this case, but for now assume airport operator is charging a fee per aircraft movement Thus, revenue from handling fees is total aircraft movements in a given period multiplied by handling charges / AC movement For every embarking passenger, airport operators charge a fee. To determine passenger movements, a load factor or occupancy rate assumption is required Once passenger forecast is determined, multiply total passengers in a given period by embarkation fee / passenger to arrive at revenue from embarkation fees
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What are landing fees and how can they be projected?

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What are handling fees and how can they be projected?

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What are embarkation fees and can they be projected?

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Airport Economics: Revenue Forecasting

Assembling a revenue forecast requires researching appropriate drivers, business model under consideration and additional relevant factors A revenue forecast developed using a bottom-up approach is more useful as compared with making high level and relatively arbitrary assumptions However, it is essential to pick a starting point when developing projections otherwise one can easily get lost in the details:
To project revenue for an airport one requires a traffic forecast Traffic forecast is dependent on the number of aircraft orders placed with OEMs and also regulatory issues Aircraft orders are dependent on the global economy, health of financial markets and the airline industry
Forecasting aircraft orders would typically be beyond the scope of a financial modeling exercise in an M&A transaction or even for business planning purposes There is no correct starting point when using a bottom-up approach, and is usually a judgment call
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Airport Economics: Operating Costs

What are the major operating costs for an airport?
Typically, Staff Salaries, Maintenance and Marketing are the major costs for an airport Management often provides guidelines on cost projections, however operating cost drivers can be developed using historical ratios Some suggested cost drivers are as follows:

How are operating costs projected?

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Staff Salaries as a % of Operating Revenue Maintenance as a % of Property Plant & Equipment Marketing as a % of Revenue Other Operating Costs as a % of Total Operating Costs (Excl. Other Operating Costs)
In the above example, to project Maintenance expense, we require constructing a Cap Ex and D&A schedule to complete the Income Statement
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Airport Economics: Operating Model Set Up

It is advisable to brain storm the operating model set up on a piece of paper before beginning the exercise in MS Excel In the airport example, we have identified the following as required drivers to project landing, handling and embarkation fees:
Aircraft Weight
Thus, we further require no. of seats in an aircraft and its maximum take off weight (MTOW) An Aircraft Movement is defined as an aircraft landing or aircraft take-off. One arrival and one departure are counted as two aircraft movements Projecting aircraft movements is beyond the scope of this exercise, thus we will have to resort to a forecast prepared by an industry consultant For simplicity all rates are stated on an Aircraft Movement basis We can make assumptions on the average occupancy or load factor to determine passenger movements
Aircraft Movements
Passengers
For Non Operating Revenue and Operating Costs we can make assumptions based on historical ratios
Thus, we need to list out the above information in a neat, presentable format which will become the basis of our operating model
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Operating Model
Aircraft Specifications B-737-300 A-320 A310 B747 # of Seats LF Assump. MTOW (Tons) Revenue Driver Inflation Assumptions Operating Revenue: Assumption: Landing Charges / Ton Handling Charges / AC Movement Emarkation Fees / Passenger Non Operating Revenue: Assumption: Airport Development Fund Flying Club Rental Income Projected 2008 2009 2010 2011 2012 Rate:
Rate:
Step 1: Set up the operating model as shown

Revenue Driver Rates 2006 Landing Fees / Ton (PKR) Handling Charges / AC Movement (PKR) Embarkation Fees / Passenger (PKR) Aircraft Traffic Forecast Aircraft Movements B-737-300 A-320 A310 B747 Historical Load Factor B-737-300 A-320 A310 B747 Passenger Forecast B-737-300 A-320 A310 B747 Operating Cost Rates 2006 Staff salaries as a % of Operating Revenue Maintenance as a % of PP&E Marketing & Advertising as a % of Revenue Other Operating Costs as a % of Total Op Costs (ex-OOC) 2006 2007 2008 Historical 2007
2009
2010
2011
2012
Input the required historical drivers Note: Inputs are always BLUE
2006
2007
2008
2009
2010
2011
2012
Historical 2007
Projected 2008 2009 2010 2011 2012
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Operating Model
Aircraft Specifications B-737-300 A-320 A310 B747 # of Seats 118 140 184 398 LF Assump. MTOW (Tons) 0.5% Annually 61 0.8% Annually 73 0.0% Annually 160 -0.3% Annually 350 Revenue Driver Inflation Assumptions Operating Revenue: Assumption: Landing Charges / Ton Annually - Fixed Handling Charges / AC MovementAnnually - Fixed Emarkation Fees / Passenger Annually - Fixed Non Operating Revenue: Assumption: as a % of Op Rev Airport Development Fund Flying Club as a % of Op Rev Rental Income as a % of Op Rev Projected 2008 Rs.99 60,638 331 2008 176 160 94 37 76% 82% 76% 62% 2008 15,783.7 18,368.0 13,145.0 9,130.1 2009 2010 2011 2012 Rate: 7% 9% 9% Rate: 24% 4% 15%
Step 2: Input required historical figures, rates and drivers to prepare projections
Revenue Driver Rates Landing Fees / Ton (PKR) Handling Charges / AC Movement (PKR) Embarkation Fees / Passenger (PKR) Aircraft Traffic Forecast Aircraft Movements B-737-300 A-320 A310 B747 Historical Load Factor B-737-300 A-320 A310 B747 Passenger Forecast B-737-300 A-320 A310 B747 Operating Cost Rates Staff salaries as a % of Operating Revenue Maintenance as a % of PP&E Marketing & Advertising as a % of Revenue Other Operating Costs as a % of Total Op Costs (ex-OOC) 2006 22.2% 1.7% 15.3% 4.6% 2006 Rs.93 55,000 300 2006 154 130 65 45 74% 83% 72% 70% 2006 13,447.3 15,106.0 8,611.2 12,537.0 Historical 2007 Rs.96 57,750 315 2007 160 156 80 40 77% 84% 73% 65% 2007 14,537.6 18,345.6 10,745.6 10,348.0 Historical 2007 20.9% 1.7% 14.2% 4.9%
Calculated based on Revenue Driver Inflation Assumptions

2009 2010 2011 2012
Air Traffic forecast taken from an Industry Consultants report
Calculated based on LF assumption by aircraft type
2009
2010
2011
2012
Calculated as: # of Seats X Aircraft Movements X Load Factor

Projected
2008 20.3% 1.7% 13.7% 5.3%
2009
2010
2011
2012
Calculations based on average historical ratios
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Operating Model
Aircraft Specifications B-737-300 A-320 A310 B747 # of Seats 118 140 184 398 LF Assump. MTOW (Tons) 0.5% Annually 61 0.8% Annually 73 0.0% Annually 160 -0.3% Annually 350 Revenue Driver Inflation Assumptions Operating Revenue: Assumption: Landing Charges / Ton Annually - Fixed Handling Charges / AC MovementAnnually - Fixed Emarkation Fees / Passenger Annually - Fixed Non Operating Revenue: Assumption: as a % of Op Rev Airport Development Fund Flying Club as a % of Op Rev Rental Income as a % of Op Rev Projected 2010 2011 Rs. 113 Rs. 121 72,043 78,527 393 428 2010 188 174 105 35 77% 84% 76% 61% 2010 17,081.7 20,340.6 14,683.2 8,553.0 2011 213 197 135 35 78% 84% 76% 61% 2011 19,478.9 23,236.2 18,878.4 8,511.2 Rate: 7% 9% 9% Rate: 24% 4% 15%
Step 3: Calculate projected drivers based on available data

Revenue Driver Rates Landing Fees / Ton (PKR) Handling Charges / AC Movement (PKR) Embarkation Fees / Passenger (PKR) Aircraft Traffic Forecast Aircraft Movements B-737-300 A-320 Forecast taken from Industry A310 Consultants Report B747 Historical Load Factor B-737-300 A-320 Projected LF calculated based A310 on LF Assumption B747 Passenger Forecast B-737-300 A-320 A310 B747 Operating Cost Rates Staff salaries as a % of Operating Revenue Maintenance as a % of PP&E Marketing & Advertising as a % of Revenue Other Operating Costs as a % of Total Op Costs (ex-OOC) 2006 22.2% 1.7% 15.3% 4.6% 2006 Rs.93 55,000 300 2006 154 130 65 45 74% 83% 72% 70% 2006 13,447.3 15,106.0 8,611.2 12,537.0 Historical 2007 Rs.96 57,750 315 2007 160 156 80 40 77% 84% 73% 65% 2007 14,537.6 18,345.6 10,745.6 10,348.0 Historical 2007 20.9% 1.7% 14.2% 4.9%
2008 Rs.99 60,638 331 2008 176 160 94 37 76% 82% 76% 62% 2008 15,783.7 18,368.0 13,145.0 9,130.1
2009 Rs. 106 66,095 361 2009 179 164 100 35 77% 83% 76% 62% 2009 16,158.3 18,999.4 13,984.0 8,594.8
2012 Rs. 130 85,595 467 2012 243 213 156 35 78% 85% 76% 61% 2012 22,365.7 25,347.0 21,815.0 8,469.4
Projected 2008 20.3% 1.7% 13.7% 5.3% 2009 21.1% 1.7% 14.4% 4.9% 2010 21.1% 1.7% 14.4% 4.9% 2011 21.1% 1.7% 14.4% 4.9% 2012 21.1% 1.7% 14.4% 4.9%
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Airport Economics: Income Statement

Once the operating model drivers are laid out as discussed in the previous slide, set up the Income Statement
Step 4: Set up and link historical Income Statement and identify fields which can be projected based on data gathered thus far
Income Statement 2006 Revenue Landing Fees Links must be in GREEN Handling Fees Embarkation Fees Total Operating Revenue ` Non Operating Revenue Airport Development Fund Flying Club Rental Income Total Revenue Operating Costs Staff salaries Maintenance Marketing & Advertising Other Operating Costs EBITDA 4,188 21,670 14,910 40,769 Historical Financials 2007 4,603 25,179 17,003 46,785 2008 4,990 28,318 18,663 51,971 2009 Projected Financials 2010 2011 2012
(Aircraft Movements X Aircraft MTOW X Landing Fees / Ton) (Aircraft Movements X Handling Charges / Aircraft Movement) (Number of Passengers X Embarkation Fee / Passenger)
9,564 2,000 5,600 Rs.57,933
11,478 2,000 6,735 Rs.66,998
12,389 2,000 8,353 Rs.74,713
(% of Total Operating Revenue based on Historical Ratios) (% of Total Operating Revenue based on Historical Ratios) (% of Total Operating Revenue based on Historical Ratios)
Calculations in BLACK
(9,044) (8,403) (8,843) (1,200) 30,442 (21,400) 9,042 (3,190) 939 6,791 (2,377) 4,414 7.6%
(9,768) (8,874) (9,506) (1,380) 37,470 (22,400) 15,070 (3,085) 939 12,924 (4,523) 8,400 12.5%
(10,549) (9,282) (10,267) (1,587) 43,028 (23,352) 19,676 (3,020) 939 17,595 (6,158) 11,437 15.3%
(% of (% of (% of (% of
Total Operating Revenue based on Historical Ratios) PP&E ); Requires Cap Ex and D&A Schedule Total Revenue based on Historical Ratios) Total Operating Costs (excl. OOC))
Depreciation & Amortization EBIT Interest Expense Interest Income EBT Taxes @ 37.5% Net Income Net Income Margin
Requires Cap Ex and D&A Schedule
Requires Debt and Interest Schedule Requires Cash Balance - Hold Constant at 1,000 for now
Requires Tax Schedule
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Airport Economics: Projected Income Statement

Once the operating model set up, revenue and certain costs can be projected, additional schedules will be required to complete the Income Statement
Step 5: Populate fields which can be projected and identify schedules required to complete Income Statement
Income Statement 2006 Revenue Landing Fees Handling Fees Embarkation Fees Total Operating Revenue ` Non Operating Revenue Airport Development Fund Flying Club Rental Income Total Revenue Operating Costs Staff salaries Maintenance Marketing & Advertising Other Operating Costs EBITDA Depreciation & Amortization EBIT Interest Expense Interest Income EBT Taxes @ 37.5% Net Income Net Income Margin 4,188 21,670 14,910 40,768.6 Historical Financials 2007 4,603 25,179 17,003 46,784.7 2008 4,990 28,318 18,663 51,971.1 2009 5,417 31,593 20,815 57,825.7 Projected Financials 2010 2011 6,032 36,166 23,837 66,034.6 7,425 45,546 30,028 82,999.0 2012 8,770 55,380 36,415 100,565.2
9,564 2,000 5,600 Rs.57,932.6
11,478 2,000 6,735 Rs.66,997.7
12,389 2,000 8,353 Rs.74,713.1
13,855 2,487 8,574 Rs.82,742.0
15,822 2,840 9,791 Rs.94,488.0
19,887 3,569 12,307 Rs.118,762.1
24,096 4,325 14,911 Rs.143,897.3
(9,044) (8,403) (8,843) (1,200) 30,442 (21,400) 9,042 (3,190) 939 6,791 (2,377) 4,414 7.6%
(9,768) (8,874) (9,506) (1,380) 37,470 (22,400) 15,070 (3,085) 939 12,924 (4,523) 8,400 12.5%
(10,549) (9,282) (10,267) (1,587) 43,028 (23,352) 19,676 (3,020) 939 17,595 (6,158) 11,437 15.3%
(12,213) (13,947) (17,530) Requires Cap Ex and D&A Schedule (11,913) (13,605) (17,100) Requires Cap Ex and D&A Schedule
(21,240) (20,719)
Requires Cap Ex and D&A Schedule
Alerts in RED
Requires Debt and Interest Schedule Requires Cash Balance - Hold Constant at 1,000 for now
Requires Tax Schedule
27
Table of Contents
28
Accelerated Depreciation Overview

As advisors to Thebes, the first liquidity initiative identified is utilizing accelerated depreciation
Accelerated depreciation allows a company to shield taxes in the near term
Over a cumulative period, total taxes payable on a nominal basis are the same
For companies facing near-term liquidity crunch, utilizing accelerated depreciation can prove helpful in addressing liquidity issues
As a result, we have advised Thebes management to utilize a 3-Year Property MACRS schedule for incremental Capital Expenditures on PP&E
29
Book versus Accelerated Depreciation

Book depreciation is typically recorded using one of the following methods:
Straight line Sum of year digits Double declining balances
For taxation purposes, accelerated depreciation can be recorded using MACRS (Modified Accelerated Cost Recovery System) Accelerated depreciation reduces taxes payable in the short-term by increasing depreciation expense resulting in a deferred tax liability Corporations facing liquidity short falls in the near term can benefit from utilizing accelerated depreciation
30
MACRS
The Modified Accelerated Cost Recovery System (MACRS) is the current method of accelerated asset depreciation required by the United States income tax code and is also used under IFRS Under MACRS, all assets are divided into classes which dictate the number of years over which an asset's cost will be recovered
Property Class
3-year property
Personal Property (all property except real-estate)

Special handling devices for food and beverage manufacture Special tools for the manufacture of finished plastic products, fabricated metal products, and motor vehicles Property with ADR class life of 4 years or less Information Systems; Computers / Peripherals Aircraft (of non-air-transport companies) Computers Petroleum drilling equipment Property with ADR class life of more than 4 years and less than 10 years Certain geothermal, solar, and wind energy properties. All other property not assigned to another class Office furniture, fixtures, and equipment Property with ADR class life of more than 10 years and less than 16 years Assets used in petroleum refining and certain food products Vessels and water transportation equipment Property with ADR class life of 16 years or more and less than 20 years
5-year property
7-year property
10-year property
31
MACRS
The Modified Accelerated Cost Recovery System (MACRS) is the current method of accelerated asset depreciation required by the United States income tax code and is also used under IFRS Under MACRS, all assets are divided into classes which dictate the number of years over which an asset's cost will be recovered
Recovery Year 1 2 3 4 5 6 7
3-Year Property 33.33 44.45 14.81 * 7.41
5-Year Property 20.00 32.00 19.20 11.52 * 11.52 5.76
7-Year Property 14.29 24.49 17.49 12.49 8.93 * 8.92 8.93
10-Year Property 10.00 18.00 14.40 11.52 9.22 7.37 6.55 *
15-Year Property 5.00 9.50 8.55 7.70 6.93 6.23 5.90 *
20-Year Property 3.750 7.219 6.677 6.177 5.713 5.285 4.888
32
Schedule Set Up Book Depreciation

Reference and link historical PP&E, Other Non Current Assets, Accumulated Depreciation and related Cap Ex from historical financials
The airport example assumes management has provided guidance on Cap Ex, otherwise the following assumptions are also reasonable:
Cap Ex can be projected as a % of Sales Cap Ex can be projected assuming it remains equal to depreciation
Create a schedule which ensures that subsequent Cap Ex is depreciated separately and not lumped in with existing balances Identify and state depreciation assumption on the schedule
33
Schedule Set Up Tax Depreciation

Create a copy of the schedule already prepared for Book Depreciation and rename the tab to identify it as Tax Depreciation For incremental Capital Expenditures utilize a 3-year property MACRS schedule per which Capital Expenditures will be depreciated using the following schedule
Year 1 33.33% Year 2 44.45% Year 3 14.81% Year 4 7.41%
34
Cap Ex and D&A Schedule - Tax

Step 6: Create a Copy of Cap Ex and D&A Book, and recalculate depreciation using 3-yrs MACRS for Incremental Cap Ex on PP&E
Cap Ex and D&A Schedule

2006 500,000 25,889 (167,654) Historical Financials 2007 520,000 26,666 (190,054) 20,000 777 22,400 2008 540,800 27,466 (213,406) 20,800 800 23,352 2009 595,552 28,466 (253,215) 54,752 1,000 39,809 2010 651,294 29,666 (317,811) 55,742 1,200 64,596 2011 707,036 30,916 (391,081) 55,742 1,250 73,270 Projected Financials 2012 2013 707,036 707,036 32,166 33,416 (450,100) (484,541) 1,250 59,020 1,250 34,441 2014 707,036 34,666 (510,851) 1,250 26,310 2015 707,036 35,916 (533,156) 1,250 22,305
Property Plant & Equipment Other Non Current Assets Accumulated Depreciation Capital Exependitures - PP&E Capital Exependitures - Other Non Current Assets Depreciation Expense (A + B + C + D) D&A Method: Straight Line assuming no residual value
21,400
(A)---->
Depreciation on Existing Gross PP&E

Useful Life (in years) Remaining of Existing Net PP&E Year CapEx Useful Life
18,027 30 33.33%
2009
18,027 44.45%
2010
18,027 14.81%
2011
18,027 7.41%
2012
18,027
18,027
18,027
2013
2014
2015
2009 2010 2011 2012 2013 2014 2015
54,752 55,742 55,742 0 0 0 0
15 15 15 15 15 15 15
Years Years Years Years Years Years Years
18,249
24,337 18,579
8,109 24,777 18,579
4,057 8,255 24,777 0
0 4,130 8,255 0 0
0 0 4,130 0 0 0 4,130 3,433
0 0 0 0 0 0 0 0 3,433
(B)----> (C)---->
Depreciation on Cap Ex
18,249
42,916 3,433
51,465 3,433
37,090 3,433
12,386 3,433
Depreciation on Other Non Current Assets 3,433 Useful Life (in years) Remaining of Existing Net PP&E 8
Year CapEx Useful Life 2009
2010
2011
2012
2013
2014
2015
2009 2010 2011 2012 2013 2014 2015
1,000 1,200 1,250 1,250 1,250 1,250 1,250
10 10 10 10 10 10 10
Years Years Years Years Years Years Years
100
100 120
100 120 125
100 120 125 125
100 120 125 125 125
100 120 125 125 125 125 720
100 120 125 125 125 125 125 845
(D)---->
Depreciation on Cap Ex
100
220
345
470
595
35
Tax Schedule
Step 7: Calculate taxes payable based on accelerated depreciation and also calculate difference between book versus cash tax payable
Tax Schedule
2009 EBT Tax Rate Taxes Payable EBITDA D&A - Tax Net Interest Expense EBT - Tax Taxes - Cash -------- (A) Taxes - Book -------- (B) Deferred Taxes (B) - (A) Deferred Taxes - Balance Sheet View Rs. 19,277.7 35.0% ($6,747.2) Rs. 46,801.4 (39,809) (2,314) Rs. 4,679.0 1,637.6 6,747.2 5,109.5 5,109.5 2010 Rs. 22,230.2 35.0% ($7,780.6) 2011 Rs. 24,382.6 35.0% ($8,533.9) Projected 2012 Rs. 52,352.5 35.0% ($18,323.4) 2013 Rs. 79,689.2 35.0% ($27,891.2) 2014 Rs. 96,042.9 35.0% ($33,615.0) 2015 Rs. 114,161.8 35.0% ($39,956.6)
Rs. 53,959.3 Rs. 60,048.9 Rs. 85,496.7 Rs. 109,698.2 Rs. 122,316.7 Rs. 136,223.5 (64,596) (73,270) (59,020) (34,441) (26,310) (22,305) (2,683) (2,779) (132) 3,128 6,988 11,326 ($13,319.6) ($15,999.9) Rs. 26,345.1 Rs. 78,385.7 Rs. 102,994.8 Rs. 125,244.2 0.0 7,780.6 7,780.6 12,890.1 0.0 8,533.9 8,533.9 21,424.0 9,220.8 18,323.4 9,102.6 30,526.7 27,435.0 27,891.2 456.2 30,982.9 36,048.2 33,615.0 (2,433.2) 28,549.7 43,835.5 39,956.6 (3,878.8) 24,670.9
36
Impact on Financial Statements

Add a line item in Balance Sheet of Projected Financials for Deferred Tax Liability DTL under the Non-Current Liabilities Section
DTL balance will increase and then unwind

Now the Balance Sheet will no longer balance
To balance the Balance Sheet add a corresponding line item on the Cash Flow statement under Cash Flows from Operations to indicate cash flows from DTL
These cash flows arise due to fewer taxes paid in the initial years
37
Financial Statements After DTL

Income Statement
Balance Sheet
(Pak Rupees in MM, except per share amounts) Assets Cash and Equivalents Other Current Assets Total Current Assets Non Current Assets Total Assets Liabilities and Shareholders' Equity Total Current Liabilities Total Debt Other Non Current Liabilities Total Liabilities Total Shareholder's Equity Total Liabilities & Shareholder's Equity 2009 12,779 36,384 49,163 385,402 434,564 2010 2,995 40,346 43,341 413,298 456,639 2011 175 43,430 43,605 437,402 481,007
2013 141,665 67,702 209,366 373,753 583,119
2014 229,712 72,302 302,015 341,741 643,755
2015 328,158 77,165 405,323 309,603 714,926
5,915 25,000 12,113 43,027 386,428 434,564
6,670 22,000 13,659 42,328 401,230 456,639
7,347 19,000 15,046 41,394 417,677 481,007
9,193 16,000 18,826 44,019 452,564 527,622
10,948 13,000 22,421 46,369 505,255 583,119
11,863 10,000 24,296 46,159 568,534 643,755
12,872 7,000 26,361 46,233 643,510 714,926
After incorporating, deferred tax liability and accelerated D&A, the short-fall disappears, but cash balances are still very low
38
Table of Contents
39
Revolving Credit Agreements Overview

We have identified that Thebes does not currently have a Revolving Credit Facility (also known as Running Finance) currently Revolving Credit Facilities allows corporations to draw down and pay off cash amounts depending on liquidity needs In order to determine the size of facility required we will construct a schedule which maintains a minimum cash balance, draws down on the facility when there is a cash short-fall and makes payments when there is a cash surplus Thebes management has indicated that the cash balance should never fall below Rs. 5 Mn
40
Modeling of Revolving Credit Agreement

1. Specify the minimum cash balance of Rs. 5 Mn on the Control Page 2. Input pricing information for the Revolver
Typically Revolvers pay interest on cash amount outstanding and there is usually a commitment fee component however, we are assuming no commitment fee
3. Revolving Credit Facilities allows corporations to draw down and pay off cash amounts depending on liquidity needs 4. In order to determine the size of facility required we will construct a schedule which maintains a minimum cash balance, draws down on the facility when there is a cash short-fall and makes payments when there is a cash surplus
The logic should be such that the facility draws down enough cash to always maintain a minimum cash balance but the draw down should never exceed facility size
5. Finally, add line items for Revolver in Balance Sheet and Cash Flow, and corresponding Interest Expense in the Income Statement
41
Revolver Schedule Set Up

Step 8: Set up the Revolver schedule as shown below
Debt & Interest

Debt Obligations Secured Debt Unsecured Debt Revolver Face Value 24,000 10,000 10,000 Term 12 Years 10 Years Variable Type Fixed Floating Variable Base Rate 8.5% KIBOR KIBOR Projected 2012 8.0% 12,000 4,000 Spread N/A 2.5% 3.5%
2009 KIBOR - Historical and Forward Curve Secured Debt - Principal Amount Outstanding Unsecured Debt - Principal Amount Outstanding Revolver - Principal Amount Outstanding Secured Debt - Interest Expense Unsecured Debt - Interest Expense Revolver - Interest Expense Total Interest Expense Revolver Cash flow avaialable for financing activities Proceeds from / (repurchase of) equity Dividends (+) Beginning Cash Balance (-) Minimum Cash Balance Cash Available for Debt Payment Long term debt issuance Long term debt (payments) Cash Available for Revolver Revolving Credit Facility Beginning Balance Discretionary (Paydown) / Borrowings Ending balance
2010
2011 11.0% 14,000 5,000
2013 8.0% 10,000 3,000
2014 8.0% 8,000 2,000
2015 8.0% 6,000 1,000
13.0% 12.5% 18,000 16,000 7,000 6,000 Link to Revolver Schedule Below
1,530 1,360 1,190 1,085 900 675 (Existing Balance X (Base Rate + Spread) Sum up Interest Expense 2009 2010 2011
1,020 420
850 315
680 210
510 105
2012
2013
2014
2015
Cash flow from Operations + Cash flow from Investing Link to Cash Flow Statement Link to Cash Flow Statement Link to Balance Sheet Link to Control Page or where Minimum Cash Balance is Specified Sum up all items above Link to Cash Flow Statement Link to Cash Flow Statement Sum Cash Available for Debt Payments and Proceeds from / (Payments of) Debt Obligations
Link to BS Link to Ending Balance Below =IF(-MIN(I39,I42)+I42<$I$12,-MIN(I39,I42),$I$12-I42) Sum Above Items
42
Revolver Schedule Set Up

Step 9: Complete the schedule and link revolver balances to Balance Sheet
Debt & Interest

Debt Obligations Secured Debt Unsecured Debt Face Value 24,000 10,000 10,000 Term 12 Years 10 Years Variable Type Fixed Floating Variable Base Rate 8.5% KIBOR KIBOR Projected 2012 8.0% 12,000 4,000 0 1,020 420 0 1,440 2012 68,487 0 0 5,000 (5,000) 68,487 (2,000) (1,000) 65,487 Spread N/A 2.5% 3.5%
2009 KIBOR - Historical and Forward Curve Secured Debt - Principal Amount Outstanding Unsecured Debt - Principal Amount Outstanding Revolver - Principal Amount Outstanding Secured Debt - Interest Expense Unsecured Debt - Interest Expense Revolver - Interest Expense Total Interest Expense Revolver Cash flow available for financing activities Proceeds from / (repurchase of) equity Dividends (+) Beginning Cash Balance (-) Minimum Cash Balance Cash Available for Debt Payment Long term debt issuance Long term debt (payments) Cash Available for Revolver Revolving Credit Facility Beginning Balance Discretionary (Paydown) / Borrowings Ending balance 13.0% 18,000 7,000 0 1,530 1,085 0 2,615 2009 (14,191) 10,000 0 19,970 (5,000) 10,779 (2,000) (1,000) 7,779
2010 12.5% 16,000 6,000 2,291 1,360 900 367 2,627 2010 (7,070) 0 0 12,779 (5,000) 709 (2,000) (1,000) (2,291)
2011 11.0% 14,000 5,000 5,753 1,190 675 834 2,699 2011 (462) 0 0 5,000 (5,000) (462) (2,000) (1,000) (3,462)
2013 8.0% 10,000 3,000 0 850 315 0 1,165 2013 78,952 0 0 64,734 (5,000) 138,687 (2,000) (1,000) 135,687
2014 8.0% 8,000 2,000 0 680 210 0 890 2014 91,022 0 0 140,687 (5,000) 226,709 (2,000) (1,000) 223,709
2015 8.0% 6,000 1,000 0 510 105 0 615 2015 101,419 0 0 228,709 (5,000) 325,127 (2,000) (1,000) 322,127
0 0 0
0 2,291 2,291
2,291 3,462 5,753
5,753 (5,753) 0
0 0 0
0 0 0
0 0 0
43
Revised Financial Statements After Revolver
Income Statement
Balance Sheet
(Pak Rupees in MM, except per share amounts) Assets Cash and Equivalents Other Current Assets Total Current Assets Non Current Assets Total Assets Liabilities and Shareholders' Equity Total Current Liabilities Total Debt Other Non Current Liabilities Total Liabilities Total Shareholder's Equity Total Liabilities & Shareholder's Equity 2009 12,779 36,384 49,163 385,402 434,564 2010 5,000 40,346 45,346 413,298 458,643 2011 5,000 43,430 48,430 437,402 485,832
2013 140,687 67,702 208,389 373,753 582,142
2014 228,709 72,302 301,011 341,741 642,751
2015 327,127 77,165 404,293 309,603 713,896
5,915 25,000 12,113 43,027 386,428 434,564
6,670 24,291 13,659 44,619 401,044 458,643
7,347 24,753 15,046 47,146 417,074 485,832
9,193 16,000 18,826 44,019 451,936 526,670
10,948 13,000 22,421 46,369 504,602 582,142
11,863 10,000 24,296 46,159 567,855 642,751
12,872 7,000 26,361 46,233 642,804 713,896
After incorporating a Revolver, cash short fall gets fully addressed
44
Revised Financial Statements After Dividends

Can Thebes afford to pay dividends at 18% of Net Income?
Income Statement
Balance Sheet
(Pak Rupees in MM, except per share amounts) Assets Cash and Equivalents Other Current Assets Total Current Assets Non Current Assets Total Assets Liabilities and Shareholders' Equity Total Current Liabilities Total Debt Other Non Current Liabilities Total Liabilities Total Shareholder's Equity Total Liabilities & Shareholder's Equity 2009 10,449 36,384 46,833 385,402 432,235 2010 5,000 40,346 45,346 413,298 458,643 2011 (140) 43,430 43,290 437,402 480,692
2013 114,648 67,702 182,350 373,753 556,103
2014 190,469 72,302 262,771 341,741 604,511
2015 274,270 77,165 351,435 309,603 661,038
5,915 25,000 12,113 43,027 384,098 432,235
6,670 30,068 13,659 50,396 395,591 458,643
7,347 29,000 15,046 51,394 408,298 480,692
9,193 16,000 18,826 44,019 436,543 510,666
10,948 13,000 22,421 46,369 479,174 556,103
11,863 10,000 24,296 46,159 530,226 604,511
12,872 7,000 26,361 46,233 590,558 661,038
Can Thebes raise more cash to honor Dividend Policy per agreement with SAS?
45
Table of Contents
46
Sale Lease Back Overview

Sale lease back is a common liquidity initiative taken up by management teams when near term liquidity becomes a potential threat The transaction involves selling an existing owned asset for cash and leasing it back
Commonly used by airlines Cash increases as a result of sale which is recorded in Cash Flow Statement Assets acquisition cost and accumulated depreciation are removed from BS A gain or loss is recorded on the Income Statement Rental expense increases on Income Statement Security deposits increase on Balance Sheet
To record a sale lease back transaction
47
Modeling of Sale Lease-back

1.Determine the PP&E break-down of asset to be sold and leased back: Acquisition cost and accumulated depreciation 2.Calculate Gain / (Loss) as a result of Sale Leaseback (Selling Price Net Book Value) 3.Model out the Rental Agreement which should compute rental expense and a security deposit resulting from a Sale leaseback 4.Modify the logic in the Cap Ex and D&A schedule for PP&E balance and accumulated D&A in a manner such that PP&E balances are automatically reduced when a Sale leaseback happens 5.Modify the logic in existing D&A expense to ensure that sold assets are no longer depreciated 6.Add a row for Gain / (Loss) in both Income Statement and Cash Flow statement to account for non-cash gain / (loss) resulting from SLB transaction 7.Add a row in Cash Flow Statement to show cash inflow due to asset sales 8.Add a row in Income Statement for rental expense 9.Add a row for Security Deposit on Balance Sheet along with corresponding row on cash flow statement to indicate a cash out-flow
48
Sale Lease Back Schedule

Thebes Management decides to sell and lease-back its Ground Handling Equipment, we have been asked to model this situation First step is to identify the PP&E breakdown, for this management has provided the following guidance
As of December 31 2008, approx. 25% of PP&E was Ground Handling Equipment with Accum. D&A spread proportionally across asset classes
Set up the Sale Lease Back Schedule on the same tab as the Cap Ex and D&A Schedule and determine PP&E break-down
This can be prepared on a separate tab as well
Step 10: Determine PP&E break-down and prepare SLB schedule

PP&E Breakdown 2009 PP&E Breakdown Ground Handling Equipment - Book Value Other PP&E - Book Value PP&E Related to Int'l Terminal - BV Total Book Value 135,200 405,600 54,752 595,552.0 2010 135,200 405,600 110,494 651,294.1 2011 Projected Financials 2012 135,200 405,600 166,236 707,036.2 2013 135,200 405,600 166,236 707,036.2 2014 135,200 405,600 166,236 707,036.2 2015 135,200 405,600 166,236 707,036.2
135,200 405,600 166,236 707,036.2
Ground Handling Equipment - Accum. D&A Other PP&E - Accum. D&A PP&E Related to Int'l Terminal - Accum. D&A Total Accum. D&A
(57,858) (173,575) (3,650) (235,083)
(62,365) (187,095) (11,016) (260,476)
(66,872) (200,615) (22,099) (289,585)
(71,378) (214,135) (33,181) (318,694)
(75,885) (227,655) (44,264) (347,803)
(80,392) (241,175) (55,346) (376,912)
(84,898) (254,695) (66,428) (406,021)
49

Lease expense is modeled in a manner which should automatically update depending on sale year
The logic used to calculate Lease Expense combines IF, OR and MAX functions Using the IF function alone does not result in desired flow PP&E balances should reduce depending on SLB year, a gain or loss should be recorded and rental expense should get incorporated
Logic on the Cap Ex and D&A schedule has to be modified accordingly
Step 11: Set up Gain / (Loss) Calculations and Rental Agreement

PP&E Breakdown 2006 PP&E Breakdown Ground Handling Equipment - Book Value Other PP&E - Book Value PP&E Related to Int'l Terminal - BV Total Book Value Historical Financials 2007 130,000 390,000 2008 135,200 405,600 2009 135,200 405,600 54,752 595,552.0 2010 135,200 405,600 110,494 651,294.1 2011 Projected Financials 2012 135,200 405,600 166,236 707,036.2 2013 135,200 405,600 166,236 707,036.2 2014 135,200 405,600 166,236 707,036.2 2015 135,200 405,600 166,236 707,036.2
125,000 375,000
135,200 405,600 166,236 707,036.2
Ground Handling Equipment - Accum. D&A Other PP&E - Accum. D&A PP&E Related to Int'l Terminal - Accum. D&A Total Accum. D&A Gain / Loss Calculations Selling Price of Ground Handling Equipment NBV of Ground Handling Equipment Gain / (Loss) Rental Agreement Lease Factor Lease Expense Security Deposit
(41,914) (125,741)
(47,514) (142,541)
(53,352) (160,055)
(57,858) (173,575) (3,650) (235,083)
(62,365) (187,095) (11,016) (260,476)
(66,872) (200,615) (22,099) (289,585)
(71,378) (214,135) (33,181) (318,694)
(75,885) (227,655) (44,264) (347,803)
(80,392) (241,175) (55,346) (376,912)
(84,898) (254,695) (66,428) (406,021)
83,087 0.0
82,487 0.0
81,849 0.0
77,342 0.0
35,000.0 72,835 (37,835.2)
68,329 0.0
63,822 0.0
59,315 0.0
54,809 0.0
50,302 0.0
0.085x 3.0x 0 0 2975 8925 2975 8925 2975 8925 2975 8925 2975 8925 2975 8925
50
Revised Financial Statements After SLB

Income Statement
(Pak Rupees in 000s, except per share amounts) Total Revenue EBITDA EBIT Net Income 2009 82,742 46,801 21,591 12,606 2010 94,488 53,959 24,913 14,015 2011 104,695 59,487 31,106 (3,238) Projected Financials 2012 141,359 84,935 56,429 37,822 Projected Financials 2012 79,954 65,308 145,262 346,325 491,587 2013 176,227 109,136 80,505 55,360 2014 194,407 121,755 92,999 65,626 2015 214,443 135,661 106,781 76,938
Balance Sheet
2013 145,712 76,709 222,421 318,944 541,366
2014 221,370 81,305 302,674 291,439 594,113
2015 305,004 86,163 391,167 263,808 654,975
5,915 25,000 12,113 43,027 384,098 432,235
6,670 30,068 13,659 50,396 395,591 458,643
7,440 19,000 15,236 41,675 392,936 447,267
9,285 16,000 19,016 44,301 423,949 491,587
11,041 13,000 22,611 46,651 469,344 541,366
11,956 10,000 24,485 46,441 523,158 594,113
12,965 7,000 26,551 46,515 586,247 654,975
After incorporating a SLB in 2011, Thebes is no longer faced with a liquidity crisis and has now asked us to model share buy-backs and options
51
Table of Contents
52
Options and Treasury Stock Overview

After incorporating all liquidity initiatives, Thebes management is observing surplus cash in outer years and has therefore asked us to model in Treasury Stock and Options assumptions Treasury stock represents shares re-purchased by the company from an open market and can be accounted as a negative account on the Balance Sheet
Alternatively, the shares outstanding can also be reduced instead to account for the same effect Thebes has issued stock options which has a strike price of Rs. 3
An option is a right but not the obligation to purchase a security

-
53
Modeling of Options and Treasury Stock

1.In the Shareholders Equity schedule set up share re-purchase and Option exercise schedules 2.To compute cash flows related to share re-purchases, calculate projected EPS based on current number of shares outstanding 3.Assume a price / earnings multiple and calculate projected share price 4.Assume total number of common shares to be re-purchased and multiply the result by projected share price 5.To calculate new shares from options exercised and related proceeds input average strike price 6.Using IF logic compute cash flows from option exercise along with increase in common shares outstanding for in the money options 7.IMPORTANT: Modify Revolving Credit Facility schedule to account for new cash flows
54
Modified Shareholders Equity Schedule

Step 12: Modify Shareholders Equity schedule by adding share re-purchase and options assumptions
Shareholders' Equity Schedule

Projected Financials 2012 2013 390,923 421,936 37,822 55,360 0.0 0.0 (6,807.9) 421,936 (9,964.8) 467,332
Beginning Equity Balance Net Income Additional shares issued to investor at par Additional paid in capital by investor Dividends Paid Ending Equity Balance
2009 361,748 12,606 3,571 6,429 (2,269.1) 382,085
2010 382,085 14,015
2011 393,578 (3,238)
2014 467,332 65,626 0.0 (11,812.8) 521,145
2015 521,145 76,938 0.0 (13,848.8) 584,234
(2,522.8) 393,578
582.8 390,923
Dividend Assumptions Total Dividends Paid Net Income Divident Payout Ratio Share Re-Purchase Assumptions Current Year EPS (Excluding Gains on Sale) Price / Earnings Multiple Projected Share Price Shares Repurchased Rs. Amount Repurchased
2,269.1 12,606 18%
2,522.8 14,015 18%
(582.8) (3,238) 18%
6,807.9 37,822 18%
9,964.8 55,360 18%
11,812.8 65,626 18%
13,848.8 76,938 18%
Net Income (excl gains on sale) / Shares Outstanding Assume a multiple of 25x P / E Multipe X EPS Assumption Based Projected share price X Shares Repurchased
New Shares from Exercised Options Number of Shares Backed by Options (contracts issued which will vest yoy) New Shares From Exercised Options Average Strike Price Option Proceeds
Assumption Based =IF(K27>K34,K32,0) Assume Rs. 3 New Shares * Avg Strike Price
55
Modified Shareholders Equity Schedule

Step 13: Complete the Shareholders Equity Schedule
Shareholder's Equity Schedule

Projected Financials 2012 2013 390,923 421,936 37,822 55,360 0.0 0.0 (6,807.9) 421,936 (9,964.8) 467,332
Beginning Equity Balance Net Income Additional shares issued to investor at par Additional paid in capital by investor Dividends Paid Ending Equity Balance
2009 361,748 12,606 3,571 6,429 (2,269.1) 382,085
2010 382,085 14,015
2011 393,578 (3,238)
2014 467,332 65,626 0.0 (11,812.8) 521,145
2015 521,145 76,938 0.0 (13,848.8) 584,234
(2,522.8) 393,578
582.8 390,923
Dividend Assumptions Total Dividends Paid Net Income Divident Payout Ratio Share Re-Purchase Assumptions Current Year EPS (Excluding Gains on Sale) Price / Earnings Multiple Projected Share Price Shares Repurchased Rs. Amount Repurchased
2,269.1 12,606 18%
2,522.8 14,015 18%
(582.8) (3,238) 18%
6,807.9 37,822 18%
9,964.8 55,360 18%
11,812.8 65,626 18%
13,848.8 76,938 18%
0.12 25.0x Rs. 3.0 0.0
0.13 25.0x Rs. 3.4 0.0
0.19 25.0x Rs. 4.7 1,000 4,693.9
0.36 25.0x Rs. 9.1 1,000 9,076.7
0.53 25.0x Rs. 13.3 1,000 13,285.6
0.63 25.0x Rs. 15.7 1,000 15,749.5
0.74 25.0x Rs. 18.5 1,000 18,464.1
New Shares from Exercised Options Number of Shares Backed by Options (contracts issued which will vest yoy) New Shares From Exercised Options Average Strike Price Option Proceeds
1000 1000 Rs. 3.0 Rs. 3,000
1000 1000 Rs. 3.0 Rs. 3,000
1000 1000 Rs. 3.0 Rs. 3,000
1000 1000 Rs. 3.0 Rs. 3,000
1000 1000 Rs. 3.0 Rs. 3,000
After Step 12, incorporate Options and Treasury Stock cash flows in the revolver schedule
56
Summary Financial Statements
Income Statement
(Pak Rupees in 000s, except per share amounts) Total Revenue EBITDA EBIT Net Income 2009 82,742 46,801 21,591 12,606 2010 94,488 53,959 24,913 14,015 2011 104,695 59,487 31,106 (3,307) Projected Financials 2012 141,359 84,935 56,429 37,615 Projected Financials 2012 72,018 65,308 137,325 346,325 483,650 2013 176,227 109,136 80,505 54,879 2014 194,407 121,755 92,999 64,802 2015 214,443 135,661 106,781 75,692
Balance Sheet
2013 127,211 76,709 203,920 318,944 522,865
2014 189,640 81,305 270,945 291,439 562,384
2015 257,088 86,163 343,251 263,808 607,059
5,915 25,000 12,113 43,027 384,098 432,235
6,670 30,068 13,659 50,396 395,591 458,643
7,440 19,000 15,236 41,675 391,196 445,527
9,285 16,000 19,016 44,301 416,013 483,650
11,041 13,000 22,611 46,651 450,843 522,865
11,956 10,000 24,485 46,441 491,429 562,384
12,965 7,000 26,551 46,515 538,331 607,059
57
Table of Contents
1. Overview of Advanced Financial Modeling 2. Kadmos Modeling Framework 3. Thebes Airport: Situation Overview 4. Income Statement Projections 5. Tax Depreciation and Deferred Tax Liability 6. Revolving Credit Agreements and Debt Schedule 7. Sale Lease Backs 8. Options and Treasury Stock 9. Trouble Shooting and Jump Starting Financial Models 10. Data Tables 11. Utilizing Text Functions 12. Building Scenarios
58
Dealing With Circular Models

Income Statement
(Pak Rupees in 000s, except per share amounts) Total Revenue EBITDA EBIT Net Income 2009 82,742 46,801 21,591 #REF! 2010 94,488 53,959 24,913 #REF! 2011 104,695 59,487 31,106 #REF! Projected Financials 2012 2013 141,359 176,227 84,935 109,136 56,429 80,505 #REF! #REF! Projected Financials 2012 #REF! 65,308 #REF! 346,325 #REF! 2014 194,407 121,755 92,999 #REF! 2015 214,443 135,661 106,781 #REF!
Balance Sheet
(Pak Rupees in MM, except per share amounts) Assets Cash and Equivalents Other Current Assets Total Current Assets Non Current Assets Total Assets Liabilities and Shareholders' Equity Total Current Liabilities Total Debt Other Non Current Liabilities Total Liabilities Total Shareholder's Equity Total Liabilities & Shareholder's Equity 2009 #REF! 36,384 #REF! 385,402 #REF! 2010 #REF! 40,346 #REF! 413,298 #REF! 2011 #REF! 52,447 #REF! 373,581 #REF!
2013 #REF! 76,709 #REF! 318,944 #REF!
2014 #REF! 81,305 #REF! 291,439 #REF!
2015 #REF! 86,163 #REF! 263,808 #REF!
5,915 #REF! 12,113 #REF! #REF! #REF!
6,670 #REF! 13,659 #REF! #REF! #REF!
7,440 #REF! 15,236 #REF! #REF! #REF!
9,285 #REF! 19,016 #REF! #REF! #REF!
11,041 #REF! 22,611 #REF! #REF! #REF!
11,956 #REF! 24,485 #REF! #REF! #REF!
12,965 #REF! 26,551 #REF! #REF! #REF!
Embedded errors Blow Up Models

#VALUE: a cell reference to a letter rather than a number #RED: a reference to a cell that no longer exists #DIV: an equation divided by zero or blank cell #NAME: a reference to a name that does not exist
59
Understanding Circularity
Interest Expense & Interest Income
Net Income
Revolver Balance & Cash Balance
Free Cash Flow
Calculating a Circular Model

Excel cannot automatically calculate when a model contains a circular reference Solution: turn iterations ON
Tools, Options (Alt T O); Calculation tab
Iterations create embedded errors

Potentially destructive problem
61
How to Jump Start a Model
1. Copy interest expense / income formulas on the Income Statement
2. Paste the formulas off to the right, beyond the last column
3. Delete the original interest expense / income formulas Hard Code zeros, and break the Circ
4.Copy interest expense / income formulas back into the Income Statement
62
Breaking the CIRC via Jump Start

Most common method for fixing a model Effective when source of error is known Concept:
- Stop the error from flowing though the Income Statement
IS
NI
BS
CF
63
Breaking the CIRC via CIRC Buster

A more sophisticated approach
Excellent for finding your error(s) Solves the problem of embedded errors USES IF statement logic* to turn circularity on and off Stop the error from flowing through the Income Statement and the Cash Flow Statement
Concept:
IS
NI
BS
CF
64
How the CIRC Buster Works

Step 14: Incorporate a circ breaker
An ON / OFF switch that automates jumpstarting the model

Circular Reference ON Switch Circ OFF and then back ON if model blows up and errors appear
With the switch OFF, zeros are placed in the Income Statement
- Interest Income row is made zero - Interest Expense row is made zero
The formula written is an IF statement which picks up a 0 when CIRC Breaker is OFF, and picks up a link or formula when CIRC Breaker is ON
=IF('Control Page'!$I$10="ON",-'Debt and Interest'!I25,0)
65
What is a Balanced Model

Balance Sheet and Cash Flow harmony
Reconcile the change in each Balance Sheet line item with flows of funds on the Cash Flow
Ending Balance on Balance Sheet Year 0
Ending Balance on Balance Sheet Year 1
Cash Flow Year 1
Financial Statements
Balance Sheet 2002 2003 Cash Accounts Receivable, net Inventory Other Current Assets PP&E, net Goodwill Deferred Income Taxes Other Long-Term Assets 28,642.0 472,979.0 383,753.0 83,488.0 965,594.0 424,312.0 120,273.0 108,622.0 25,000.0 505,707.0 411,429.0 92,291.0 1,017,763.0 454,346.0 120,273.0 108,622.0 Difference (3,642.0) (32,728.0) (27,676.0) (8,803.0) (52,169.0) (30,034.0) 0.0 0.0 Cash Flow 2003 (3,642.0) (32,728.0) (27,676.0) (8,803.0) (52,169.0) (30,034.0) 0.0 0.0
66
A Few Balancing Pointers

Quick sanity check on BS and CF
Wrong signs: CapEx on Cash Flow statement, etc. Unreasonable changes on Balance Sheet
Divide error by two

Usually a sign error
Print your model and do a Pen, paper and calculator check

Check by hand Only spend 2-3 minutes hunting the screen
Correctly linked to/ from other schedules? Check total formulas and other calculations
67
Dealing with Negative Zeros

When Parity check has phantom brackets
Total Liabilities Total Equity Total Liabilites and Equity check 1,686.0 644.0 2,330.0 0.00 1,724.6 789.5 2,514.1 0.00 1,906.0 681.6 2,587.6 0.00 1,890.9 844.5 2,735.4 0.00 1,860.6 1,020.1 2,880.7 (0.00) 1,836.0 1,208.6 3,044.6 (0.00) 1,816.6 1,410.5 3,227.1 (0.00) 1,803.3 1,625.6 3,428.9 0.00
Solution: = IF(ABS(H18-H33),0.001,0,H18-H33)
68
Table of Contents
69
Data Tables and Sensitivity Analysis

Control Page
Aircraft Specifications B-737-300 A-320 A310 B747 Aircraft Traffic Forecast Aircraft Movements B-737-300 A-320 A310 B747 Key Financials Revenue EBITDA Net Income Cash and Equivalents Minimum Cash Balance Investment Amount offered by SAS Capital Offer price / share Current Stock Price Premium Paid by SAS Capital Partners 10,000 Rs. 2.8 Rs. 2.6 7.7% Exit EBITDA Multiple Sponsor's Ownership a % IRR 12.9% 14.4% 14.7% 24.0% 26.3% 25.0% 23.9% Initial Inv (10,000.0) (10,000.0) (10,000.0) (10,000.0) (10,000.0) (10,000.0) (10,000.0) 2006 57,932.6 30,442 4,414 10,430 # of Seats 118 140 184 398 2006 154 130 65 45 LF Assump. MTOW (Tons) 0.5% Annually 61 0.8% Annually 73 0.0% Annually 160 -0.3% Annually 350 2007 160 156 80 40 Historical Financials 2007 66,997.7 37,470 8,400 14,028 2008 176 160 94 37 CIRC Breaker Revenue Driver Inflation Assumptions Operating Revenue: ON Switch CIRC OFF and then back Landing Charges / Ton ON if model blows up Handling Charges / AC Movement Emarkation Fees / Passenger 2009 179 164 100 35 2010 188 174 105 35 2011 200 180 105 30 2012 230 213 156 35 2013 250 255 186 35 Assumption:
Annually - Fixed Annually - Fixed Annually - Fixed
Rate: 7% 9% 9% 2015 270 255 186 35
2014 260 255 186 35
2008 74,713.1 43,028 11,437 19,970
2009 82,742.0 46,801 12,606 10,449 5,000 7.3 3.4% 2009 11,292.0 77.8 77.8 77.8 77.8 77.8 77.8
2010 94,488.0 53,959 14,015 5,000 5,000 7.3
2011 104,694.8 59,487 (3,307) 19,500 5,000 7.3
Projected Financials 2012 2013 141,358.5 176,226.6 84,935 109,136 37,615 54,879 72,018 127,211 5,000 7.3 5,000 7.3
2014 194,406.6 121,755 64,802 189,640 5,000 7.3
2015 214,442.7 135,661 75,692 257,088 5,000 7.3
2010 13,008.2 86.5 86.5 86.5 86.5 86.5
2011
2012
2012
2012
2012
Additional Shares Issued Current Shares Outstanding Common shares outstanding post investment
3,571 100,601 104,172
14,884.6 (20.4) (20.4) (20.4) (20.4)
23,409.4 232.1 232.1 232.1
31,568.0 338.7 338.7
37,030.5 399.9
42,993.3
Pick an output that you want to analyze Select one or two variables that you want to change to analyze the impact on your output data TIP: Data Table must be on the SAME sheet as the input cells / formula that drive the model
70
Data Tables and Sensitivity Analysis

Enter Range for Input Variable
For a two-way data table, the vertical range is started below the column of the reference cell and the horizontal range is started one cell to the right of the column of the reference cell
IRR Sensitivity Table
9.0% 10.0% Landing Charges / Ton 11.0% 12.0% 13.0% 14.0% 15.0% 26.2% Rs. 2.0 Rs. 2.2 Rs. 2.4 Rs. 2.6 Rs. 2.8 Rs. 3.0 Rs. 3.2 Rs. 3.4 Rs. 3.6
Reference Cell
Purchase Price per Share
Horizontal Inputs: Purchase Price / Share Vertical Inputs: Purchase Price / Share
Note: Input range CANNOT be links to or from the model inputs To populate data table, select the entire table shown above and under the Data menu, chose Table (Alt D T for Excel 2003)
Chose the row input Chose the column input Hit OK
71
Data Table Example

Set up a Data Table which shows IRRs for a 2012 exit and sensitizes Landing Fees / Ton growth rate against share purchase price
For a two-way data table, the vertical range is started below the column of the reference cell and the horizontal range is started one cell to the right of the column of the reference cell
24.0% Rs. 2.0 Rs. 2.2 Rs. 2.4 Rs. 2.6 Rs. 2.8 Rs. 3.0 Rs. 3.2 Rs. 3.4 Rs. 3.6 3.0% 29.7% 27.9% 26.4% 25.0% 23.7% 22.5% 21.4% 20.3% 19.3% Landing Charges / Ton: (Model Currently Assumed 7.0% Inflation) 4.0% 5.0% 6.0% 7.0% 8.0% 29.8% 29.8% 29.9% 30.0% 30.1% 28.0% 28.1% 28.2% 28.3% 28.4% 26.5% 26.6% 26.7% 26.8% 26.9% 25.1% 25.1% 25.2% 25.3% 25.4% 23.7% 23.8% 23.9% 24.0% 24.1% 22.5% 22.6% 22.7% 22.8% 22.9% 21.4% 21.5% 21.6% 21.7% 21.8% 20.4% 20.5% 20.6% 20.7% 20.8% 19.4% 19.5% 19.6% 19.7% 19.8% 9.0% 30.3% 28.5% 27.0% 25.5% 24.2% 23.0% 21.9% 20.9% 19.9%
Step 15: Prepare a data table
72
Common Errors with Data Tables
1.Flipping row and column input cell in dialog box
2. Not linking referenced output cell
3. Input variable cell is linked to model
73
Common Uses of Data Tables
1. Sensitivity to an operating statistic variable

Revenue growth rate, gross margin etc
2. Accretion / (Dilution) analysis in M&A deals

Offer price per share versus synergies
3. Credit statistics to various capital structures

Debt / EBITDA to different debt levels
4. DCF Valuation sensitivity

Discount rate, Terminal multiple
74
Table of Contents
75
Uses of TEXT Functions

Place numeric value into a phrase or sentence
Thebes Airport
Illustrative Discounted Cash Flow Analysis
2009 EBIT Less: Taxes @ Tax-eff ected EBITDA Plus: D&A Less: Capital Expenditures Less: Changes in Working Capital Unlevered Free Cash Flow Unlevered Free Cash Flow Growth Rate A Discounted (a) Cash Flow s (2010-2014) 20.0% 22.0% 24.0% Discount Rate 20.0% 22.0% 24.0% (a) Present values calculated as of 12/31/09 P. "(b) Discounted 5 years; based on projected 2012 EBITDA 75,856.3 70,017.5 64,677.6 D Net Debt 12/31/09 P 14,551.1 14,551.1 14,551.1 = 21,591.4 (7,557.0) 14,034.4 25,210.0 (54,752.0) (3,816.0) ($19,323.6) 2010 24,913.1 (8,719.6) 16,193.5 29,046.1 (55,742.1) (3,206.5) ($13,708.9) -29.1% Projected Fiscal Year Ended Decem ber 31, 2011 2012 2013 31,106.2 (10,887.2) 20,219.0 28,380.6 (55,742.1) (11,331.0) ($18,473.4) 34.8% 56,429.0 (19,750.2) 36,678.9 28,505.6 0.0 (11,015.2) $54,169.3 -393.2% 80,505.5 (28,176.9) 52,328.6 28,630.6 0.0 (9,646.4) $71,312.7 31.6% = 2014 92,999.0 (32,549.7) 60,449.4 28,755.6 0.0 (3,680.3) $85,524.6 19.9% C Firm Value 6.5x 318,788.8 293,679.7 270,875.1 CAGR 106,780.8
35.0%
Discount Rate
B PV of Term inal Value as a Multiple of 2014 EBITDA (a) 6.0x 6.5x 224,245.4 206,457.4 190,336.1 242,932.5 223,662.2 206,197.5
7.0x
6.0x 300,101.7 276,475.0 255,013.7
7.0x 337,475.9 310,884.5 286,736.4
261,619.6 240,867.0 222,058.8
E Total Equity Value 6.0x 6.5x 285,550.6 261,923.9 240,462.6 304,237.7 279,128.7 256,324.0
7.0x 322,924.8 296,333.4 272,185.3
E Price / Share 6.0x 6.5x 2.7 2.5 2.3 2.9 2.7 2.5
7.0x 3.1 2.8 2.6
76
Table of Contents
77
Scenario Tab
Typically deal makers identify a base case, an upside case and a downside case It is desirable to lay out inputs or assumptions of three distinct scenarios on a different tab and link them to the Control Page using embedded IF statements On the Control Page utilize the List function under Data and Validation Link Control Page inputs to Scenario Tab
78
Revised Control Page

Control Page
Aircraft Specifications B-737-300 A-320 A310 B747 Aircraft Traffic Forecast Aircraft Movements B-737-300 A-320 A310 B747 Key Financials Revenue EBITDA Net Income Cash and Equivalents Minimum Cash Balance Investment Amount offered by SAS Capital Offer price / share Current Stock Price Premium Paid by SAS Capital Partners 10,000 Rs. 2.8 Rs. 2.6 7.7% Exit EBITDA Multiple Sponsor's Ownership a % IRR 12.9% 14.4% 14.7% 24.0% 26.3% 25.0% 23.9% Initial Inv (10,000.0) (10,000.0) (10,000.0) (10,000.0) (10,000.0) (10,000.0) (10,000.0) 2006 57,932.6 30,442 4,414 10,430 # of Seats 118 140 184 398 2006 154 130 65 45 LF Assump. MTOW (Tons) 0.5% Annually 61 0.8% Annually 73 0.0% Annually 160 -0.3% Annually 350 2007 160 156 80 40 Historical Financials 2007 66,997.7 37,470 8,400 14,028 2008 176 160 94 37 CIRC Breaker Scenario Revenue Driver Inflation Assumptions Base Operating Revenue: ON Switch CIRC OFF and then back Landing Charges / Ton ON if model blows up Handling Charges / AC Movement Emarkation Fees / Passenger 2009 179 164 100 35 2010 188 174 105 35 2011 200 180 105 30 2012 230 213 156 35 2013 250 255 186 35 Assumption:
Annually - Fixed Annually - Fixed Annually - Fixed
Rate: 7% 9% 9% 2015 270 255 186 35
2014 260 255 186 35
2008 74,713.1 43,028 11,437 19,970
2009 82,742.0 46,801 12,606 10,449 5,000 7.3 3.4% 2009 11,292.0 77.8 77.8 77.8 77.8 77.8 77.8
2010 94,488.0 53,959 14,015 5,000 5,000 7.3
2011 104,694.8 59,487 (3,307) 19,500 5,000 7.3
Projected Financials 2012 2013 141,358.5 176,226.6 84,935 109,136 37,615 54,879 72,018 127,211 5,000 7.3 5,000 7.3
2014 194,406.6 121,755 64,802 189,640 5,000 7.3
2015 214,442.7 135,661 75,692 257,088 5,000 7.3
2010 13,008.2 86.5 86.5 86.5 86.5 86.5
2011
2012
2012
2012
2012
Additional Shares Issued Current Shares Outstanding Common shares outstanding post investment
3,571 100,601 104,172
14,884.6 (20.4) (20.4) (20.4) (20.4)
23,409.4 232.1 232.1 232.1
31,568.0 338.7 338.7
37,030.5 399.9
42,993.3

23.9% Rs. 2.0 Rs. 2.2 Rs. 2.4 Rs. 2.6 Rs. 2.8 Rs. 3.0 Rs. 3.2 Rs. 3.4 Rs. 3.6 5.0% 29.7% 28.0% 26.5% 25.1% 23.8% 22.6% 21.4% 20.4% 19.4% 6.0% 29.8% 28.1% 26.6% 25.1% 23.8% 22.7% 21.5% 20.5% 19.5% Landing Charges / Ton 7.0% 8.0% 9.0% 29.9% 30.0% 30.1% 28.2% 28.3% 28.4% 26.7% 26.8% 26.9% 25.2% 25.3% 25.5% 23.9% 24.0% 24.2% 22.7% 22.8% 23.0% 21.6% 21.7% 21.8% 20.6% 20.7% 20.8% 19.6% 19.7% 19.8% 10.0% 30.3% 28.5% 27.0% 25.6% 24.3% 23.1% 21.9% 20.9% 19.9% 11.0% 30.4% 28.7% 27.1% 25.7% 24.4% 23.2% 22.1% 21.0% 20.0%
79

Financial Modeling - Module II - FINAL

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Financial Modeling - Module II - FINAL

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Advanced Financial Modeling January 2010

Center for Executive Education

Leadership and Ideas for Tomorrow

About The Kadmos Initiative Pvt Ltd.

Pre-requisites and Assumptions

Knowledge of financial accounting and familiarity with financial statements

Strong MS Excel skills and familiarity with Excel Best Practices

Ability to set up financial models and modify architecture

No detailed overview of the operating model and architecture

Introduction to Data Tables and TEXT functions

Trouble shooting and jump starting busted models

Core Statements Income Statement

Core Statements Balance Sheet

Core Statements Cash Flow Statement

Kadmos Modeling Framework

Thebes Airport: Overview

Thebes Airport: Financial Statements

Historical Financials 2007 4,603 25,179 17,003 46,785

9,564 2,000 5,600 Rs.57,933

11,478 2,000 6,735 Rs.66,998

12,389 2,000 8,353 Rs.74,713

(9,044) (8,403) (8,843) (1,200) 30,442

(9,768) (8,874) (9,506) (1,380) 37,470

(10,549) (9,282) (10,267) (1,587) 43,028

2,476 2,467 4,943 24,000 10,000 34,000 10,123 49,066

2,426 2,418 4,844 22,000 9,000 31,000 9,921 45,765

2,378 2,369 4,747 20,000 8,000 28,000 9,722 42,469

Depreciation & Amortization EBIT

Interest Expense Interest Income EBT

(3,190) 939 6,791

(3,085) 939 12,924

(3,020) 939 17,595

Taxes @ 35% Net Income Net Income Margin

(2,377) Rs.4,414 7.6%

(4,523) Rs.8,400 12.5%

(6,158) Rs.11,437 15.3%

11,717 346,704 Rs.395,770

18,208 354,200 Rs.399,965

26,761 363,761 Rs.406,230

Thebes Airport: Capital Structure

Enterprise Value = Market Capitalization + Total Debt - Cash

Capital Structure as of 05/04/2009

SAS Capital Partners: Situation Overview

SAS Capital Partners: Situation Overview

2013 107,331 67,702 175,033 373,753 548,786

2014 196,961 72,302 269,263 341,741 611,003

2015 298,514 77,165 375,680 309,603 685,283

5,915 25,000 12,113 43,027 386,291 429,318

6,670 22,000 13,659 42,328 400,741 443,069

7,347 19,000 15,046 41,394 416,589 457,983

9,193 16,000 18,826 44,019 450,619 494,638

10,948 13,000 22,421 46,369 502,417 548,786

11,863 10,000 24,296 46,159 564,844 611,003

12,872 7,000 26,361 46,233 639,050 685,283

What is an Operating Model?

A due diligence tool for investors seeking to establish viability of a business

Airport Economics: Revenue

What are landing fees and how can they be projected?

What are handling fees and how can they be projected?

What are embarkation fees and can they be projected?

Airport Economics: Revenue Forecasting

Airport Economics: Operating Costs

How are operating costs projected?