Assumption

2011 financial statement is available current year’s statements.

All targets related to sales and earnings are just met in 2014 and 2015.
Cash flow in 2015 is stable and grow at 5% to perpetuity.
Cost of capital is 8%.
All debt paid in 2013.
No change in Net working Capital after 2015.
Zero Net Capex after 2015. (neglected before)
Earn Pay-outs
  Sales Goals Bonus   Earnings Goals Bonus
$20
2013 results $82 million $20 million $11 million
million
$25
2014 results $148 million $25 million $34 million
million
$30
2015 results $215 million $30 million  $47 million
million
 Financial statement (All figures are in ‘000’ $)

  2007 2008 2009 2010 2011 2012 2013

(in thousands, except headcount)              
Net sales 9 354 1,684 5,377 12,641 23,349 95,831
COGS 284 1,042 2,832 5,039 13,415 20,061 37,935
Gross margin -275 -688 -1,148 338 -774 3,288 57,896
COGS/Revenue 3156% 294% 168% 94% 106% 86% 40%
Marketing and sales 38 386 1,595 2,965 5,404 12,666 21,308)
Research and development 1,009 1,716 2,827 4,284 8,299 13,342 10,474
Net income (loss) -1,561 -4,000 -7,057 -8,829 -18,114 -30,525 13,813
Income % -17344% -1130% -419% -164% -143% -131% 14%
Cash and short-term investments 1,300 7,643 10,560 2,341 -545 546 -1,778
Other current assets 167 839 1,570 2,280 9,123 11,291 26,107)
Net fixed assets 613 1,698 2,149 2,523 7,576 13,030 10,568
Total assets 2,425 10,557 14,839 7,755 16,509 25,236 35,048
Asset Turnover 0.37% 3.35% 11.35% 69.34% 76.57% 92.52% 273.43%
Long-term debt - - - - 24,046 61,758 52,744)
Common stock 4,745 16,081 26,493 26,493 26,493 26,493 26,493)
Retained earnings -2,570 -6,570 -13,627 -22,456 -40,570 -71,096 -57,283
Net Capex 613 1,085 451 374 5,053 5,454 -2,462
Headcount (year-end) 17 41 65 95 221 252 356
Initial Payments 120million Paid
If New product approved
by FDA 35million Paid
If ATH technology
superiority proven 45million Not made

assumed
Targeted sales and growth completely
based (2013-2015) 150million Paid

(All figures are in ‘000’ $)

2011 2012 2013 2014 2015

120000 35000 40000 50000 60000

$
PV of payments 2,70,494.36
 (All figures are in ‘000’ $)

  2007 2008 2009 2010 2011 2012 2013 2014 2015

Sales 9 354 1,684 5,377 12,641 23,349 95,831 1,48,000 2,15,000

Earnings -1,561 -4,000 -7,057 -8,829 -18,114 -30,525 13,813 34,000 47,000

Debt         24,046 61,758 52,744    

                   
        Terminal Value (no debt)     430711   
        Cash flow with TV -18,114 -30,525 4,44,524   
        PV of Future cash flow 3,34,729.79       

growth 5%
Cost of capital 8%
Based on our assumption, Present value of Total payment made by Scepter is
The total price, if all earn-out conditions are met, is around $270 million in 2011.
The Value of the firm ATH based on projected Income of 2013 is around $380 million in 2011.

There may have been non-financial considerations such as

access to new technologies and markets,
expansion of product portfolio, and
first mover advantages.
However, the laissez-faire approach of Scepter after the purchase does not suggest the presence of
operating synergies between Scepter and ATH.