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Sheet1 Skills Assessment: Answer Template INSERT/REMOVE ANY ROWS OR COLUMNS AS NECESSESARY TO COMPLETE CASE. XYZ Manufacturing Pro-Forma Income Statement ($ in Millions)Projections 201720182019202020212022202320242025 Revenues$29,000,000$26,000,000$25,000,000$27,000,000$28,350,000$29,767,500$31,255,875$32,818,669$34,459,6021.05 COGS18,850,00016,900,00016,250,00017,550,00018,427,50019,348,87520,316,31921,332,13522,398,74165.00% Gross Profit10,150,0009,100,0008,750,0009,450,0009,922,50010,418,62510,939,55611,486,53412,060,861 Gross Margin35.00%35.00%35.00%35.00%35.00%35.00%35.00%35.00%35.00% Operating Expenses EBITDA7,000,0005,000,0005,000,0005,500,000 EBITDA Margin Depreciation and Amort. Operating Income Management Fee Interest Expense Taxes0.43 Net Income Credit Statistics Total Debt (Amount) Leverage (Senior) Leverage (Total) Interest Coverage Fixed Charge Coverage Please provide any assumptions or notes, as needed: PowerPoint Presentation Financial Performance 2019 and 2020 revenues and EBITDA of $25MM/$5MM and $27MM/$5.5MM, respectively. 2017 and 2018 audited results of $29MM/$7MM and $26MM/$5MM, respectively. 2019 EBITDA reflects a $2MM add-back for inventory revaluation per management estimates. US GDP Growth was 2% in 2018, 1.5% in 2019 and 3.5% in 2020. Management conservatively estimates 5% annual growth going forward, 35% gross margins and flat EBITDA margins. XYZ was fined $200k by the EPA in 2019 for presence of hazardous materials at one of its manufacturing sites. The Jones family received a $2MM special dividend in 2020. Current management has had tax payment issues with the IRS in the past, although they claim to be current now. Company Background Company Overview XYZ Manufacturing, Inc. (“XYZ”) is a LA-based designer, manufacturer and marketer of home construction products (doorknobs, doorbells, handrails, etc.). The Company is a leading provider of home construction products in the southern California market. XYZ was established by the Jones family in 2007. The Company operates through 3 manufacturing locations. All locations are owned by the Jones family. All 3 locations have a combined assessed value of $5MM. Customer Overview The Company has well established relationships in the southern California market. 10% of revenue is based on long-term contracts with various local hardware stores in the LA area. Average payment terms are 60 days, with the exception of Home Depot and Ace Hardware of 90 days. 50% of XYZ accounts receivable is greater than 60 days outstanding. Acquisition Overview XYZ has identified several accretive add-on acquisitions that it would like to pursue post-acquisition. The Company is in various phases with the identified targets and would expect to close on at least 2-3 acquisitions in the next two years. ‹#› Situation and Sponsor Overview Situation Overview XYZ Manufacturing, Inc. (“XYZ”), a LA-based designer, manufacturer and marketer of home construction products (doorknobs, doorbells, handrails, etc.), is seeking $10MM of senior debt to support a leveraged buyout of the Jones family interest by ABC Capital Partners LLC (“ABC”), a Dallas-based newly formed private equity firm. Sources and uses of the transaction are as follows: Sources $10MM senior debt $5MM subordinated debt $10MM equity Uses $19MM purchase price ($11MM to retire existing debt, $8MM payment to existing management) $5MM working capital for potential acquisitions $1MM fees and expenses Balance Sheet Post-acquisition, the $15MM of senior and subordinate debt would be the only debt in the cap structure. Fixed assets at XYZ have been appraised at a liquidation value of $7MM. XYZ’s manufacturing process involves patented machinery it owns with complicated intellectual property. Depreciation of fixed assets is expected to be $750k per year going forward with no associated amortization. Cash Flow Statement The Company’s effective tax rate is 43%. Annual maintenance CapEx is estimated at $1.5MM. Debt Assumptions 6% cash interest on senior debt / 5% annual amortization on senior debt 8% cash interest on subordinated debt / No amortization on subordinated debt The senior acquisition financing will be in the form of $10MM of amortizing senior secured debt with a five year term. The capital structure will also include $5MM of subordinated debt with a seven year term. ABC will take a $250k annual cash management fee. For simplicity, assume the transaction closed on 12/31/20. Sponsor Overview ABC is private equity firm located in Dallas, TX with $200MM of assets under management formed by previous partners of a larger firm with two decades of experience in the manufacturing space. ABC’s fund will be nearly fully invested after this acquisition. ABC’s principals are attempting to raise additional capital but are having a difficult time given the market environment. XYZ’s management is willing to personally guarantee $3MM of the senior debt and has a net worth of $2MM prior to the transaction. ‹#›