Introduction

Copyright © 2005 by the Trustees of the University of Virginia Darden School Foundation.

Page 1
 Introduction

This spreadsheet supports STUDENT analysis of the case, "Gainesboro Machine Tools
Corp." (Case 29).

Please note:

1) This is a working model. Assumptions / Inputs presented can be changed to vary the
results.

2) As long as default spreadsheet calculation is "automatic" the impact of changing

assumptions will be computed in real time. If calculation is set as "manual" you
should press the F9 function key to recalculate results. To set numerical calculation
settings to automatic look under tools, options, calculations menu.

Copyright © 2005 by the Trustees of the University of Virginia Darden School Foundation.

Page 2
Exhibit 1
GAINESBORO MACHINE TOOLS CORP.
Consolidated Income Statements (in thousands of dollars, except per-share data)

For the Years Ended December 31,

2002

Net sales $ 858,263

Cost of sales 540,747
Gross profit 317,516

Research & development 77,678

Selling, general, & administrative 229,971
Restructuring costs 65,448
Operating profit (loss) (55,581)

Other income (expense) (4,500)

Income (loss) before taxes (60,081)
Income taxes (benefit) 1,241

Net income (loss) ($61,322)

Earnings (loss) per share ($3.25)

Dividends per share $0.77
pt per-share data)

For the Years Ended December 31, Projected

2003 2004 2005

$ 815,979 $ 756,638 $ 870,000

501,458 498,879 549,750
314,522 257,759 320,250

70,545 75,417 77,250

223,634 231,008 211,500
0 89,411 0
20,343 (138,077) 31,500

1,065 (3,458) (4,200)

21,408 (141,534) 27,300
8,415 (750) 9,282

$12,993 ($140,784) $18,018

$0.69 ($7.57) $0.98

$0.25 $0.25 $0.39
Exhibit 2
GAINESBORO MACHINE TOOLS CORP.
Consolidated Balance Sheets (in thousands of dollars)

For the years ended December

31st
2003 2004

Cash & equivalents $ 13,917 $ 22,230

Accounts receivable 208,541 187,235
Inventories 230,342 203,888
Prepaid expenses 14,259 13,016
Other 22,184 20,714
Total current assets 489,242 447,082
Property, plant, & equipment 327,603 358,841
Less depreciation 167,414 183,486
Net property, plant, & equipment 160,190 175,355
Intangible assets 9,429 2,099
Other assets 15,723 17,688

Total assets $ 674,583 $ 642,223

Bank loans $ 34,196 $ 71,345

Accounts payable 36,449 34,239
Current portion of long-term debt 300 150
Accruals and other 129,374 161,633
Total current liabilities 200,318 267,367

Deferred taxes 16,986 13,769

Long-term debt 9,000 8,775
Deferred pension costs 44,790 64,329
Other liabilities 2,318 5,444
Total liabilities 273,411 359,683
Common stock, $1 par value 18,855 18,855
Capital in excess of par 107,874 107,907
Cumulative translation adjustment (6,566) 20,208
Retained earnings 291,498 146,065
Less treasury stock at cost:
1990--256,151; 1991--255,506 (10,490) (10,494)
Total shareholders' equity 401,172 282,541
Total liabilities & equity $ 674,583 $ 642,223
 Projected
2005

$ 25,665
217,510
217,221
15,011
21,000
496,407
410,988
205,530
205,458
1,515
17,969

$ 721,350

$ 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

(10,464)
300,126
$ 721,350
Exhibit 3
GAINESBORO MACHINE TOOLS CORP.
Economic Indicators and Projections
(all figures are percentages)

2001 2002 2003

Three-month Treasury bill rate (at auction) 3.4 1.6 1.0
Ten-year Treasury note yield 5.0 4.6 4.0
AAA corporate bond rate 7.1 6.5 5.7

Percent change in:

Real gross domestic product 0.8 1.9 3.0
Producer prices, finished goods 2.0 (1.3) 3.2
Industrial production (3.4) (0.6) 0.3
Consumption of durable goods 4.3 6.5 7.4
Consumer spending 2.5 3.1 3.3
GDP deflator 2.4 1.7 1.8

Sources of data: Value Line Investment Survey, August 26, 2005; U.S. Economic Outlook, Global Insight, September 200
 Projected
2004 2005 2006 2007
1.4 3.2 4.2 4.7
4.3 4.3 4.8 5.7
5.6 5.3 5.9 6.8

4.3 3.3 2.9 3.2

3.5 1.2 (0.2) 0.1
4.5 3.7 3.4 4.8
6.0 2.4 4.2 4.5
3.5 2.9 2.9 2.8
2.1 1.9 1.7 1.9

k, Global Insight, September 2004.

Exhibit 4
GAINESBORO MACHINE TOOLS CORP.
Stockholder Comparative Data, 1994 and 2004
(thousands of shares)

1994 2004
Shares Percentage Shares

Founders' families 2,390 13% 2,421

Employees and families 3,677 20% 3,155
Institutional investors
Growth-oriented 2,390 13% 1,138
Value-oriented 1,471 8% 2,421
Individual investors
Long-term; retirement 6,803 37% 4,806
Short-term; trading-oriented 919 5% 2,421
Other; unknown 735 4% 2,239

Total 18,385 100% 18,600

2004
Percentage

13%
17%

6%
13%

26%
13%
12%

100%
Exhibit 5
GAINESBORO MACHINE TOOLS CORP.
Per Share Financial & Stock Data*

Sales/
Year share EPS~ DPS~ CPS~

1989 $ 14.52 $ 0.45 $ 0.18 $ 0.97

1990 16.00 0.74 0.22 1.29
1991 22.25 0.89 0.27 1.43
1992 25.64 1.59 0.31 2.05
1993 27.19 2.29 0.40 2.83
1994 30.06 2.59 0.57 3.25
1995 31.66 2.61 0.72 3.34
1996 37.71 2.69 0.81 3.60
1997 40.69 2.56 0.86 3.62
1998 48.23 3.58 0.92 4.81
1999 43.59 2.79 1.03 4.25
2000 42.87 0.65 1.03 2.23
2001 41.48 0.35 1.03 2.00
2002 45.52 (3.25) 0.77 2.86
2003 43.28 0.69 0.25 1.99
2004 40.68 (7.57) 0.25 (0.97)

*
Adjusted for 3-for-2 stock split in January 1995 and 50 percent stock dividend in June 1997.
~ EPS: Earnings Per Share;CPS: Cash earnings per Share; DPS: Dividend per Share
nmf = not a meaningful figure
 Shares
Stock price Avg. Payout Avg. outstanding
High Low Avg. P/E ratio yield (millions)

$ 20.37 $ 9.69 $ 14.48 32.4 40% 1.2% 15.49

21.11 10.18 14.85 20.2 30% 1.5% 15.58
21.23 8.20 13.50 15.1 30% 2.0% 16.04
18.50 10.18 13.35 8.4 19% 2.3% 17.87
22.48 12.17 18.36 8.0 17% 2.2% 18.08
23.84 18.01 21.00 8.1 22% 2.7% 18.39
26.70 18.25 22.73 8.7 27% 3.1% 18.76
29.43 19.50 24.23 9.0 30% 3.4% 18.76
39.74 20.12 29.48 11.5 34% 2.9% 18.78
40.98 27.32 33.98 9.5 26% 2.7% 18.88
38.74 21.36 31.82 11.4 37% 3.2% 18.66
47.19 29.55 36.81 57.0 160% 2.8% 18.66
40.23 26.82 31.26 89.9 297% 3.3% 18.66
30.75 22.13 26.45 nmf nmf 2.9% 18.85
71.88 50.74 61.33 88.2 35% 0.4% 18.85
39.88 18.38 29.15 nmf nmf 0.9% 18.60

end in June 1997.

Exhibit 6
GAINESBORO MACHINE TOOLS CORP.
Comparative Industry Data
(complied from data available as of August 2005)

Annual growth rate of

cash flow (%)

Last 5
Sales ($mm) years

Gainesboro Machine Tools Corp. 504 (1.5)

CAD/CAM companies (software and hardware)

Autodesk, Inc. 1,234 4.5
Ansys, Inc. 135 16.5
Cadence Design 1,198 (1.5)
Intergraph Corp. 551 (8.0)
Mentor Graphics 711 4.5
Moldflow Corp. 49 nmf
Parametric Technology Corp. 660 (6.5)
Synopsys, Inc. 1,092 6.5

Electrical-industrial equipment manufacturers

Cooper Industries, Inc. 4,463 1.5
Emerson Electric Company 15,615 2.5
Hubbell Inc. 1,993 5.0
Thomas & Betts Corp. 1,516 (10.0)

Machine tool manufacturers

Actuant Corp. 976 (21.5)
Lincoln Eletric Holdings, Inc. 1,334 2.5
Milacron, Inc. 774 (15.5)
Snap-On Inc. 2,407 5.0

nmf = not a meaningful figure

1
Based on book values.
Source of data: Value Line Investment Survey, August 2005.
Annual growth rate of
cash flow (%)

Current Current Insider

Next 3-5 payout dividend Debt/ owner- P/E ratio
years ratio (%) yield (%) equity (%)1 ship (%) (x)

15.0 0.0 0.0 28.0 30.0 nmf

10.5 6.0 0.3 0.0 3.2 25.3

13.0 0.0 0.0 0.0 4.4 23.3
6.0 0.0 0.0 24.7 3.5 21.4
12.0 0.0 0.0 0.2 3.1 25.7
2.0 0.0 0.0 65.5 5.9 21.9
11.5 0.0 0.0 0.0 15.4 36.2
6.0 0.0 0.0 0.0 5.4 33.4
6.0 0.0 0.0 0.0 5.6 26.5

3.0 39.0 2.4 30.6 1.0 16.4

3.5 54.0 2.6 43.3 0.8 20.5
6.0 52.0 3.0 21.1 2.9 17.6
5.0 0.0 0.0 60.2 2.4 17.7

12.5 0.0 0.0 180.8 5.9 19.1

10.0 32.0 2.2 28.4 5.2 15.0
(2.5) 0.0 0.0 468.1 4.6 nmf
3.5 71.0 3.1 18.3 3.0 22.9
Exhibit 7
GAINESBORO MACHINE TOOLS CORP.
Selected Healthy Companies witth High- and Zero-Dividend Payouts
(complied from data available as of August 2005)

Industry
High-Payout Companies

Crescent Real Estate Equities Co. Real estate investment trust

Equity Office Properties Trust Real estate investment trust
Frontline, Ltd. Oil transport
Scudder High Income Trust Investment manmfgement
TEPPCO Partners, L.P. Pipeline operatons
UIL Holdings Electric utility

Zero-Payout Companies
Amgen Inc. Biotechnology
Cisco Systems, Inc. Network systems
Coach, Inc. Luxury retail
eBay Inc. Internet auction
Oracle Corporation Software
Research in Motion Limited Telecommunications
Yahoo! Inc. Internet/media

Source: Value Line Investment Survey, 2005.

Expected return Expected growth Current Current Expected growth Current
on total capital rate of dividends dividend dividend rate of sales P/E
(next 3-5 years) (next 3-5 years) payout yield (next 3-5 years) ratio

5.0 nmf 123.0 8.9 nmf 12.4

5.5 nmf 96.6 7.2 nmf nmf
20.0 9.0 115.0 35.3 (5.0) 3.2
nmf nmf 96.4 9.2 nmf nmf
12.0 3.5 104.0 6.7 5.0 24.3
4.5 0.0 112.0 6.0 5.5 18.7

17.5 0.0 0.0 0.0 18.5 26.5

49.0 0.0 0.0 0.0 16.0 21.6
22.5 0.0 0.0 0.0 20.5 25.8
26.0 0.0 0.0 0.0 32.0 74.7
31.0 0.0 0.0 0.0 14.5 17.9
13.5 0.0 0.0 0.0 30.0 nmf
14.5 0.0 0.0 0.0 31.0 nmf
Exhibit 8
GAINESBORO MACHINE TOOLS CORP.
Projected Sources and Uses Statement (in millions of dollars)

Assumptions: 2005 2006 2007

1. Sales Growth Rate: 15% 12% 12%

2. Net Income as % of Sales 1.1% 3.0% 4.0%
3. Dividend Payout Ratio 21.3% 21.3% 21.3%

Projections
2005 2006 2007

Sales $ 870.1 $ 974.5 $ 1,091.5

Sources:
Net income $ 9.6 $ 29.2 $ 43.7
Depreciation $ 22.5 $ 25.5 $ 30.0
Total $ 32.1 $ 54.7 $ 73.7

Uses:
Capital expend. $ 43.8 $ 50.4 $ 57.5
Change in Working capital $ 19.5 $ 22.4 $ 25.8
Total $ 63.3 $ 72.8 $ 83.3

Excess cash/(Borrowing needs) $ (31.2) $ (18.1) $ (9.7)

Dividend $ 2.0 $ 6.2 $ 9.3

After dividend
Excess cash/(Borrowing needs) $ (33.3) $ (24.3) $ (19.0)
Cumulative source (need) $ (33.3) $ (57.6) $ (76.5)
Interest cost - New debt $ (1.3) $ (2.2) $ (2.9)
Net source (need) $ (34.5) $ (59.8) $ (79.5)
Debt (excess) $ 114.8 $ 141.3 $ 163.3
Equity $ 288.8 $ 309.5 $ 341.0
Debt/equity 40% 46% 48%
Maximum debt $ 115.5 $ 123.8 $ 136.4
Unused debt capacity $ 0.7 $ (17.5) $ (26.9)
 2008 2009 2010 2011

12% 12% 12% 12%

4.5% 5.0% 4.6% 7.0%
21.3% 21.3% 21.3% 21.3%

2008 2009 2010 2011

$ 1,222.5 $ 1,369.2 $ 1,533.5 $ 1,717.5

$ 55.0 $ 68.5 $ 70.5 $ 119.4

$ 34.5 $ 40.5 $ 46.5 $ 52.5
$ 89.5 $ 109.0 $ 117.0 $ 171.9

$ 66.2 $ 68.5 $ 78.8 $ 90.6

$ 29.6 $ 34.0 $ 38.5 $ 44.3
$ 95.8 $ 102.4 $ 117.3 $ 134.9

$ (6.2) $ 6.5 $ (0.2) $ 37.0

$ 11.7 $ 14.6 $ 15.0 $ 25.4

$ (18.0) $ (8.1) $ (15.3) $ 11.6

$ (94.5) $ (102.5) $ (117.8) $ (106.2)
$ (3.6) $ (3.9) $ (4.5) $ (4.1) $ (1.3) $ (2.2) $ (2.9)
$ (98.1) $ (106.5) $ (122.3) $ (110.3)
$ 184.9 $ 196.9 $ 216.7 $ 209.2
$ 380.6 $ 430.5 $ 481.5 $ 571.4
49% 46% 45% 37%
$ 152.2 $ 172.2 $ 192.6 $ 228.6
$ (32.6) $ (24.6) $ (24.1) $ 19.4
$ (3.6) $ (3.9) $ (4.5) $ (4.1)
Exhibit 8
GAINESBORO MACHINE TOOLS CORP.
Projected Sources and Uses Statement (in millions of dollars)

Assumptions: 2005 2006 2007

1. Sales Growth Rate: 15% 15% 15%

2. Net Income as % of Sales 2.1% 4.0% 5.0%
3. Dividend Payout Ratio 20.0% 20.0% 20.0%

Projections
2005 2006 2007

Sales $ 870.1 $ 1,000.7 $ 1,150.8

Sources:
Net income $ 18.1 $ 40.0 $ 57.5
Depreciation $ 22.5 $ 25.5 $ 30.0
Total $ 40.6 $ 65.5 $ 87.5

Uses:
Capital expend. $ 43.8 $ 50.4 $ 57.5
Change in Working capital $ 19.5 $ 22.4 $ 25.8
Total $ 63.3 $ 72.8 $ 83.3

Excess cash/(Borrowing needs) $ (22.7) $ (7.3) $ 4.2

Dividend $ 3.6 $ 8.0 $ 11.5

After dividend
Excess cash/(Borrowing needs) $ (26.3) $ (15.3) $ (7.3)
Cumulative source (need) $ (26.3) $ (41.6) $ (48.89)
Interest cost - New debt $ (1.01) $ (1.60) $ (1.88)
Net source (need) $ (27.33) $ (43.19) $ (50.77)
Debt (excess) $ 107.63 $ 124.51 $ 133.69
Equity $ 295.97 $ 326.39 $ 370.53
Debt/equity 36% 38% 36%
Maximum debt $ 118.39 $ 130.55 $ 148.21
Unused debt capacity $ 10.75 $ 6.05 $ 14.53
 2008 2009 2010 2011

15% 15% 15% 15%

5.5% 6.0% 5.6% 8.0%
20.0% 20.0% 20.0% 20.0%

2008 2009 2010 2011

$ 1,323.4 $ 1,521.9 $ 1,750.1 $ 2,012.7

$ 72.8 $ 91.3 $ 98.0 $ 160.0

$ 34.5 $ 40.5 $ 46.5 $ 52.5
$ 107.3 $ 131.8 $ 144.5 $ 212.5

$ 66.2 $ 68.5 $ 78.8 $ 90.6

$ 29.6 $ 34.0 $ 38.5 $ 44.3
$ 95.8 $ 102.4 $ 117.3 $ 134.9

$ 11.5 $ 29.4 $ 27.2 $ 77.6

$ 14.6 $ 18.3 $ 19.6 $ 32.0

$ (3.0) $ 11.1 $ 7.6 $ 45.6

$ (51.92) $ (40.80) $ (33.17) $ 12.47
$ (2.00) $ (1.57) $ (1.28) $ 0.48
$ (53.91) $ (42.37) $ (34.45) $ 12.95
$ 138.71 $ 129.17 $ 122.82 $ 76.69
$ 426.76 $ 498.24 $ 575.37 $ 703.86
33% 26% 21% 11%
$ 170.70 $ 199.30 $ 230.15 $ 281.54
$ 31.99 $ 70.13 $ 107.33 $ 204.85
Exhibit 8
GAINESBORO MACHINE TOOLS CORP.
Projected Sources and Uses Statement (in millions of dollars)

Assumptions: 2005 2006 2007

1. Sales Growth Rate: 15% 15% 15%

2. Net Income as % of Sales 2.1% 4.0% 5.0%
3. Dividend Payout Ratio 0.0% 0.0% 0.0%

Projections
2005 2006 2007

Sales $ 870.1 $ 1,000.7 $ 1,150.8

Sources:
Net income $ 18.1 $ 40.0 $ 57.5
Depreciation $ 22.5 $ 25.5 $ 30.0
Total $ 40.6 $ 65.5 $ 87.5

Uses:
Capital expend. $ 43.8 $ 50.4 $ 57.5
Change in Working capital $ 19.5 $ 22.4 $ 25.8
Total $ 63.3 $ 72.8 $ 83.3

Excess cash/(Borrowing needs) $ (22.7) $ (7.3) $ 4.2

Dividend $ - $ - $ -

After dividend
Excess cash/(Borrowing needs) $ (22.7) $ (7.3) $ 4.2
Cumulative source (need) $ (22.7) $ (30.0) $ (25.76)
Interest cost - New debt $ (0.87) $ (1.15) $ (0.99)
Net source (need) $ (23.57) $ (31.12) $ (26.75)
Debt (excess) $ 103.87 $ 112.30 $ 109.08
Equity $ 299.72 $ 338.60 $ 395.14
Debt/equity 35% 33% 28%
Maximum debt $ 119.89 $ 135.44 $ 158.06
Unused debt capacity $ 16.02 $ 23.14 $ 48.98
 2008 2009 2010 2011

15% 15% 15% 15%

5.5% 6.0% 5.6% 8.0%
0.0% 0.0% 0.0% 0.0%

2008 2009 2010 2011

$ 1,323.4 $ 1,521.9 $ 1,750.1 $ 2,012.7

$ 72.8 $ 91.3 $ 98.0 $ 160.0

$ 34.5 $ 40.5 $ 46.5 $ 52.5
$ 107.3 $ 131.8 $ 144.5 $ 212.5

$ 66.2 $ 68.5 $ 78.8 $ 90.6

$ 29.6 $ 34.0 $ 38.5 $ 44.3
$ 95.8 $ 102.4 $ 117.3 $ 134.9

$ 11.5 $ 29.4 $ 27.2 $ 77.6

$ - $ - $ - $ -

$ 11.5 $ 29.4 $ 27.2 $ 77.6

$ (14.23) $ 15.15 $ 42.38 $ 120.02
$ (0.55) $ 0.58 $ 1.63 $ 4.62
$ (14.77) $ 15.73 $ 44.01 $ 124.64
$ 98.09 $ 68.14 $ 39.27 $ (42.99)
$ 467.38 $ 559.28 $ 658.92 $ 823.54
21% 12% 6% -5%
$ 186.95 $ 223.71 $ 263.57 $ 329.42
$ 88.86 $ 155.57 $ 224.30 $ 372.41
Exhibit 8
GAINESBORO MACHINE TOOLS CORP.
Projected Sources and Uses Statement (in millions of dollars)

Assumptions: 2005 2006 2007

1. Sales Growth Rate: 15% 15% 15%

2. Net Income as % of Sales 2.1% 4.0% 5.0%
3. Dividend Payout Ratio

Projections
2005 2006 2007

Sales $ 870.1 $ 1,000.7 $ 1,150.8

Sources:
Net income $ 18.3 $ 40.0 $ 57.5
Depreciation $ 22.5 $ 25.5 $ 30.0
Total $ 40.8 $ 65.5 $ 87.5

Uses:
Capital expend. $ 43.8 $ 50.4 $ 57.5
Change in Working capital $ 19.5 $ 22.4 $ 25.8
Total $ 63.3 $ 72.8 $ 83.3

Excess cash/(Borrowing needs) $ (22.5) $ (7.3) $ 4.2

Dividend $ - $ - $ 4.2

After dividend
Excess cash/(Borrowing needs) $ (22.5) $ (7.3) $ (0.0)
Cumulative source (need) $ (22.5) $ (29.8) $ (29.82)
Debt (excess) $ 102.83 $ 110.09 $ 110.12
Equity 300.77279563 340.79891938 394.09647227
Debt/equity 0.3418734236 0.3230467278 0.2794308843
Maximum debt 120.30911825 136.31956775 157.63858891
Unused debt capacity 17.482892895 26.225592018 47.515863174
 2008 2009 2010 2011

15% 15% 15% 15%

5.5% 6.0% 5.6% 8.0%

2008 2009 2010 2011

$ 1,323.4 $ 1,521.9 $ 1,750.1 $ 2,012.7

$ 72.8 $ 91.3 $ 98.0 $ 161.0

$ 34.5 $ 40.5 $ 46.5 $ 52.5
$ 107.3 $ 131.8 $ 144.5 $ 213.5

$ 66.2 $ 68.5 $ 78.8 $ 90.6

$ 29.6 $ 34.0 $ 38.5 $ 44.3
$ 95.8 $ 102.4 $ 117.3 $ 134.9

$ 11.5 $ 29.4 $ 27.2 $ 78.6

$ 11.5 $ 29.4 $ 27.2 $ 78.6

$ 0.0 $ - $ - $ -
$ (29.78) $ (29.78) $ (29.78) $ (29.78)
$ 110.08 $ 110.08 $ 110.08 $ 110.08
455.39147667 517.32887776 588.10449451 670.46910384
0.2417307773 0.212789466 0.1871812521 0.1641867388
182.15659067 206.9315511 235.2417978 268.18764154
72.074455029 96.849415462 125.15966216 158.1055059