Manufacturer Impact Analysis

Draft Methodology

Overview

U.S. Department of Energy

Office of Energy Efficiency

March 11 , 1997 and Renewable Energy

1000 Independence Avenue, SW

Washington, DC 20585

EE-PI-96-001 COMMENT 82

Manufacturer Impact Analysis 

Draft Methodology 

Overview 

March 11, 1997 

U.S. Department of Energy 

Office of Energy Efficiency 

and Renewable Energy 

1000 Independence Avenue, SW 

Washington, DC 20585 
Manufacturer Impact Analysis Draft Methodology

Analytical Framework

Phase -1: Industry Profile

V

Phase 2: Industry Cash Flow

Phase 3: SUb-G1'OL1jD Impact Analysis

Workshop Agenda

March 11, 1997

1

EE-PI-96-001 COMMENT 82

Manufacturer Impact Analysis Draft Methodology 

1 . Analytical FrameWork . 

• < • 

Ptiasel: I ndu 

March 11,1997 
1. Analytical Framework Legislative Requirements

In determining whether a standard is economically justified, DOE is

required to consider :

"The economic impact of the standard on manufacturers and on the

consumers of the products subject to such a standard"

"The impact of any lessening of competition, as determined in writing

by Attorney General, that is likely to result from the imposition of the

standard"

March 11, 1997

2

EE-PI-96-001 COMMENT 82

1. Analytical Framework Legis/ative Requirements 

In determining whether a standard is economically justified, DOE is 

required to consider: 

:./ "The economic impact of the standard on manufacturers and on the 

consumers of the products subject to such a standard" 

'./ "The impact of any lessening of competition, as determined in writing 

by Attorney General, that is likely to result from the imposition of the 

standard" 

March 11, 1997 

2 
1. Analytical Framework Process Improvements

The process improvement effort needed to address three fundamental

questions.

Which "Impacts" should be considered ?

How can "Manufacturers" be described ?

By what process should the impacts be evaluated ?

EE-PI-96-001 COMMENT 82

1. Analytical Framework Process Improvements 

The process improvement effort needed to address three fundamental 

questions. 

;./J Which "Impacts" should be considered? 

~./J How can "Manufacturers" be described? 

.. 1: By what process should the impacts be evaluated? 

March 11,1997 

3. 
1. Analytical Framework

The past analyses framework was found to be too confining.

Past manufacturer analyses focused primarily on long-term financial

impacts

• Intra-industry effects, employment dislocation, plant closures,

etc., were not directly addressed

Past analyses modeled a hypothetical "prototypical" firm using

industry average financial. values and average manufacturing

cost data

• The differential impacts on sub-groups of manufacturers were

not addressed

Past analyses were model-based and very quan titative

March 11, 1997

.4

EE-PI-96-001 COMMENT 82

1. Analytical Framework 

The past analyses framework was found to be too confining. 

:./J Past manufacturer analyses focused primarily on long-term financial 

impacts 

• Intra-industry effects, employment dislocation, plant closures, 

etc., were not directly addressed 

'./J Past analyses modeled a hypothetical "prototypical" firm using 

industry average financial values and average manufacturing 

cost data 

• The differential impacts on sub-groups of manufacturers were 

not add ressed 

. ./J Past analyses were model-based and very quantitative 

March 11, 1997 
1. Analytical Framework

The new manufacturing impact assessment framework expands the

scope of impacts considered and of firms.analyzed.

1

Sub-group

#1

Sub-group

#2

Sub-group

#3

Prototypical

Firm

Financial

Impacts

Employment

Impacts

Competitive

Impacts

Capacity

Impacts

IMPACTS

March it, 1997

5

EE-PI-96-001 COMMENT 82

1. Analytical Framework 

The new manufacturing impact assessment framework expands the 

scope of impacts considered and of firms.analyzed. 

Sub-group 

#1 

Sub-group 

en #2 ::: 

0: 

i! 

Sub-group 

#3 

Prototypical 

Firm 

Financial 

Impacts· 

Employment 

Impacts 

IMPACTS 

Competitive 

Impacts 

Capacity 

Impacts 

... 

March 11,1997 

5 
1. Analytical Framework

In the new framework qualitative assessments will precede

quantitative analysis. -

Qualitative

Assessments

Quantitative

Assessments

Inputs Information Data

Who?

What?

When?

Outputs How Much?

Where

How?

Why?

March 11, 1997

6

EE-PI-96-001 COMMENT 82

1. Analytical Framework 

In the new framework qualitative assessments will precede 

quantitative analysis. 

'>Qual itative;t~:Si. . 

.' ~·Assess' . 

Information 

Who? 

What? 

When? 

Where 

How? 

Why? 

'Data 

How Much? 

March 11,1997 

6 
1. Analytical Framework

The Department intends to use fully documented qualitative and

quantitative analytical methods.

,V1 Qualitative assessments of impacts will draw on multiple types of

stakehol der inputs:

- Voluntary manufacturer interviews and facilities visits

- Stakeholders will be consulted though interviews, workshops,

surveys and other means to develop estimates of critical variables

and identify possible impacts

A central core of analytical tools will be developed, maintained and

made available to all parties

- Primary focus on the Government Regulatory Impact Model

(GRIM) and possible enhancements

- Possible development of a spreadsheet tool, based on economic

principles, as one of several price forecasting techniques

March 11, 1997

7

EE-PI-96-001 COMMENT 82

1. Analytical Framework 

The Department intends to use fully documented qualitative and 

quantitative analytical methods. 

\./J Qualitative assessments of impacts will draw on multiple types of 

stakeholder inputs: 

Voluntary manufacturer interviews and facilities visits 

- Stakeholders will be consulted though interviews, workshops, 

surveys and other means to develop estimates of critical variables 

and identify possible impacts 

'./J A central core of analytical tools will be developed, maintained and 

made available to all parties 

- Primary focus on the Government Regulatory Impact Model 

(GRIM) and possible enhancements 

- Possible development bf a spreadsheet tool, based on economic 

principles, as one of several price forecasting techniques 

March 11. 1997 

7 
1. Analytical Framework

Manufacturer impact analyses will be conducted in three phases.

March 11, 1997

8

EE-PI-96-001 COMMENT 82

1. Analytical Framework 

Manufacturer impact analyses will be conducted in three phases. 

E'hase 1 

Industry Profile 

Phase 2 

Industry Cash Flow Analysis 

Phase 3 . 

Sub-Group Impact Analysis 

March 11. 1997 

8 
1. Analytical Framework

ANOPR

Screening Analysis

Engineering Analysis

Life-Cycle Cost Analysis

Trial Efficiency Levels

mpactson Consumers'

Indirect Employment Impacts

Impacts on Utilities

Impacts on the Environment

and Energy Security

Flow Diagram of Standards Analysis

Manufacturer Impact Analyses

PHASE 1: Industry Profile

Industry Characterization

Issue Identification

PHASE 2: Industry Cash Flow

Manufacturing Costs

Price Forecasts

Shipment Forecasts

Estimate Industry Cash Flow

PHASE 3: Subgroup Analysis

Estimate Manufacturer Costs

Estimate Prices and Shipments

Cash Flow Analysis

Impacts on Competition

Impacts on Employment

Impacts on Manufacturing

Capacity

March 11, 1997

9

EE-PI-96-001 COMMENT 82

1. Analytical Framework 

Screening Analysis 

--

ANOPR 

Indirect Employment Impacts 

Flow Diagram of Standards Analysis 

Manufacturer Impact Analyses 

PHJ\~E1 :;ifn~ll~!Ey;p~E(:)fn~' "", .. ,., , . >~'i"> 

Industry Characterization ,," 

Issue Identification I ,/,' "', .~/; 

Estimate Industry Cash Flow 

Estimate Manufacturer Costs 

Estimate Prices and Shipments .' •• 

Cash Flow Analysis ?~< 

J-----------f';;; 

March 11, 1997 

9 
Manufacturer Impact Analysis Draft Methodology

Analytical Framework

Phase 1: Industry Profile

Phase 2: Industry Cash Flow

Phase 3: Saab-Grroup Impact Analysis

Workshop Agenda

March 11, 1997

10

EE-PI-96-001 COMMENT 82

Manufacturer Impact Analysis Draft Methodology 

1 Analytical Framework 

2 ··Phase l:lnd 

5 Workshop Agenda 

March 11,1997 

10 
2. Phase 1: Industry Profile Industry Characterization

To serve as a common source of information for participants in the

rulemaking, DOE will assemble a databook profiling the industry.

V Identify producers and other key market participants influencing

products , prices , and sales

Identify manufacturer characteristics (i.e. niche Vs. full line)

Show time-series on shipments, prices, features, energy efficiency

Show time -series on productivity of labor, capital and materials

List firms and their historical market shares

March 11, 1997

11

EE-PI-96-001 COMMENT 82

2. Phase 1: Industry Profile Industry Characterization 

To serve as a common source of information for participants in the 

rulemaking, DOE will assemble a databook profiling the industry. 

,./ Identify producers and other key market participants influencing 

products, prices, and sales 

,./1 Identify manufacturer characteristics (i.e. niche Vs. full line) 

:t/J Show time-series ~n shipments, prices, features, energy efficiency 

:t/J Show time-series on productivity of labor, capital and materials 

,./1. List firms and their "historical market shares 

March 11. 1997 

11 
2. Phase 1: Industry Profile Issues Identification Workshop

Before beginn ing detailed impact analyses, DOE will hold a workshop

to review the industry databook and identify manufacturer impact

issues. Workshop participants will be invited to:

'Vi Identify sub-groups of manufacturers so that the analysis may be

structured to capture distributions of impacts

Identify issues of access to technolo gy

Review information requirements and information gathering methods

Identify any special analytical tools needed to perform the analysis

Adapt the generic methodology

Establish a timeline for conducting the analysis

Identify individuals to establish a working group for ongoing

consultation

March 11, 1997

12

EE-PI-96-001 COMMENT 82

2. Phase 1: Industry Profile Issues Identification Workshop 

Before beginning detailed impact analyses, DOE will hold a workshop 

to review the industry databook and identify manufacturer impact 

issues. Workshop participants will be invited to: 

,./I Identify sub-groups of manufacturers so that the analysis may be 

structured to captur~ distributions of impacts 

:./! Identify issues of access to technology 

:./1 Review information requirements and information gathering methods 

,./I Identify any special analytical tools needed to perform the analysis 

'./I Adapt the generic methodology 

'J; Establish a timeline for conducting the analysis 

:./ Identify individuals to establish a working group for ongoing 

consultation 

March 11, 1997 

12 
Manufacturer Impact Analysis Draft Methodology

Analytical Framework

Phase 1: Industry Profile

Phase 2: Industry Cash Flow

Phase 3: Sub-croup Impact Analysis

WorkshopA naa

March 11, 1997

13

EE-PI-96-001 COMMENT 82

Manufacturer Impact Analysis Draft Methodology 

Ana:lyticEti Fram' 

Indllstry CaS 

/.Rhase 3: . SQb~Gfdl.1p·lm~aGtl·IAnC;\l¥§l§i:r·, . .' ., ., . .. . ~ " ;>".: ... ', 

March 11, 1997 

13 
3. Phase 2 : Industry Cash Flow GRIM Model

In Phase 2, the Industry Cash Flow will be estimated using the GRIM

model.

V",

Standard financial model based on a pro-forma income statement

Requires externally supplied price and quantity forecasts

Requires externally derived manufacturing cost data

Requires financial data to describe the starting financial position of

the industry

March 11, 1997

14

EE-PI-96-001 COMMENT 82

3. Phase 2: Industry Cash Flow GRIM Model 

In Phase 2, the Industry Cash Flow will be estimated using the GRIM 

model. 

r./l Standard financial model based on a pro-forma income statement 

[J 

;J 

iV1 

rJ 

Requires externally supplied price and quantity forecasts 

Requires externally derived manufacturing cost data 

Requires financial data to describe the starting financial position of 

the industry 

March 11, 1997 

14 
3. Phase 2: Industry Cash Flow Relationship to other Analysis Sections

Price, quantity, and manufacturing costs will be developed in other

analysis sections.

Price

Life-Cycle Analysis

Quantity

National Forecasts

Cash Flow

Financial Information

Manufacturer Analysis

Financial information will be developed in the manufacturer analysis.

Manufacturing Costs

Engineering Analysis

March 11, 1997

15

EE-PI-96-001 COMMENT 82

3. Phase 2: Industry Cash Flow Relationship to other Analysis Sections 

Price, quantity, and manufacturing costs will be developed in other 

analysis sections. 

Price .... Life-Cycle Analysis 

Quantity .... 

National Forecasts 

" " ~" 

',:' ,,', 

GRIM=== ,., ,'-------

.... Manufacturing Costs 

Engineering Analysis 

Financial Information -,,",·,,--_··,,-··_--·{··_ .. · __ ··_ .... ·_-t,_·_-,·,------·m ........ ---------

Manufacturer Analysis 

" 

Cash Flow 

Financial information will be developed in the manufacturer analysis. 

March 11, 1997 

15 
3. Phase 2 : Industry Cash Flow

In estimating cash flow, DOE will be relying on externally supplied

price and quantity forecasts.

How should DOE forecast shipments ?

What methodology should be used to forecast retail prices ?

These issues will be addressed during tommorow's discussion

panels.

March 11, 1997

16

EE-PI-96-001 COMMENT 82

3. Phase 2: Industry Cash Flow 

In estimating cash flow, DOE will be relying on externally supplied 

price and quantity forecasts. 

[" How should DOE forecast shipments? 

i~ What methodology should be used to forecast retail prices? 

These issues will be addressed during tommorow's discussion 

panels. 

March 11, 1997 

16 
Manufacturer Impact Analysis Draft Methodology

Analytical Framework

hase 1 : Industry Profile

Phase 2: Industry Cash Flow

Phase 3: Sub-Group Impact Ana

Workshop Agenda

ysis

March 11, 1997

17

EE-PI-96-001 COMMENT 82

Manufacturer Impact Analysis Draft Methodology 

'3 . Rhase2:lndustryGash FI 

~3:~:~~~j~r!r~:·:~1K~]~~:&;:f,,\l:~~~:~;~ra!~{J~:~;Sr~~gi~)i~;~f}a~~~~1bi~~?1l1l~!1'i~il'~~ 

Pha~e3: ·sub~GtQup·.]mp~,9f:~~~IY;~~#"~ 

·WOtRsh 

March 11, 1997 

17 
4. Phase 3: Sub-Group Impact Analysis

Phase 3 of the manufacturer impact analysis consists of 7 tasks:

(Each task is described in some detail in the strawman methodology)

1. Estimate Manufacturing Costs

2. Estimate Prices and Quantities

3. Cash-Flow Analysis

4. Estimate Competitive Impacts

5. Estimate Employment Impacts

6. Estimate Impact on Manufacturing Capacity

7. Summarize Quantitative and Qualitative Findings

Tasks 1 and 4 are outlined in the following slides

March 11, 1997

18

EE-PI-96-001 COMMENT 82

4. Phase 3: Sub-Group Impact Analysis 

Phase 3 of the manufacturer impact analysis consists of 7 tasks: 

(Each task is described in some detail in the strawman methodology) 

I 1. Estimate Manufacturing Costs II l" ;;;~";'<";;V;",'i:fr,";R~i'\c~lL,, ,"~Yl;";Z4"ki.lS~i;l!£~ (.;.,d;,:'J~~~it»,.~,', ',.if, .. : ;,;C"i,>,C,,; ,"c,; ',C,L::;"':~;:.lt,,",;;:',;:~"u;;.;!::"d;'';~''2,;4Ji;l}!~~",';itlilJf~~Jl 

2. Estimate Prices and Quantities 

3. Cash-Flow Analysis 

4. Estimate Competitive Il)1pacts 

5. Estimate Employment Impacts 

6. Estimate Impact on Manufacturing Capacity 

7. Summarize Quantitative and Qualitative Findings 

Tasks 1 and 4 are outlined in the following slides March 11, 1997 

18 
4. Phase 3 : Sub-Group Impact Analysis Task 1: Estimate Manufacturing Costs

Average industry manufacturing costs will not be used to assess the

impacts for subgroups of manufacturers.

The Department will use the results of the industry characterization

to group manufacturers exhibiting similar cost structures

Manufacturing costs from the engineering analysis will be used only if

data is sufficiently detailed to capture differences between firms

V In all instances, the Department will seek new or supplemental

information to perform the cash-flow analysis

- Efficiency level information instead of design component level

- Identification of atypical costs or burdens

- Identification of cumulative burden

March 11, 1997

19

EE-PI-96-001 COMMENT 82

4. Phase 3: Sub-Group Impact Analysis Task 1: Estimate Manufacturing Costs 

Average industry manufacturing costs will not be used to assess the 

impacts for subgroups of manufacturers. 

[.j; The Department will use the results of the industry characterization 

to group manufacturers exhibiting similar cost structures 

~.j; Manufacturing costs from the engineering analysis will be used only if 

data is sufficiently detailed to capture differences between firms 

'.,j In all instances, the Department will seek new or supplemental 

information to perform the cash-flow analysis 

- Efficiency level information instead of design component level 

- Identification of atypical costs or burdens 

- Identification of cumulative burden 

March 11, 1997 

19 
4. Phase 3: Sub-Group Impact Analysis Task 4: Estimate Competitive Impacts

DOE will solicit early involvement of the Department of Justice (DOJ)

in structuring the manufacturer impact analysis.

Competitive Analysis will focus on assessing the impacts to smaller,

significant manufacturers

DOJ has offered to participate in drafting questions to be used in

manufacturer interviews

Questions will pertain to an assessment of the likeliness of increased

concentration levels and other market conditions that could lead to

uncompetitive pricing behavior

- Asymmetrical cost increases to some manufacturers

Increased proportion of fixed costs potentially increasing

business risk

- Barriers to market entry (proprietary technologies, etc.)

March 11, 1997

20

EE-PI-96-001 COMMENT 82

4. Phase 3: Sub-Group Impact Analysis Task 4: Estimate Competitive Impacts 

DOE will solicit early involvement of the Department of Justice (DOJ) 

in structuring the manufacturer impact analysis. 

/ VJ 

'./:' , j I , ; 

Competitive Analysis will focus on assessing the impacts to smaller, 

significant manufacturers 

DOJ has offered to participate in drafting questions to be used in 

manufacturer interviews 

Questions' will pertain to an assessment of the likeliness of increased 

concentration levels and other market conditions that could lead to 

uncompetitive pricing behavior 

- Asymmetrical cost increases to some manufacturers 

- Increased proportion of fixed costs potentially increasing 

business risk 

- Barriers to market enfry (proprietary technologies, etc.) 

March 11. 1997 20 
Manufacturer Impact Analysis Draft Methodology

1 i

Analytical l rameworlk

Phase, 1 : Industry I Pwfilc

Phase 2: Industry Cash Flow

Phase 3: Sub-Group mpact Analysis

Workshop Agenda

March 11, 1997

21

EE-PI-96-001 COMMENT 82

Manufacturer Impact Analysis Draft Methodology 

2 Phase 1 : I ndustryProfile . 

3 . Phase 2: 

4:,i?nase3: ;Sl.JbiG~~l..I 

··5 ,·Workshop 

March 11, 1997 

21 
5. Workshop Agenda

Day 1 , March 11, 1997:

10:45 - 12: 00 Description of the GRIM Model (David Arnold. Arthur D. Little)

- Role and applicability of the GRIM

- Overview of 1997 update

- Discounted cash flow analysis

- Walk-through of the GRIM Model

- Questions / Discussion

12:00 - 1:00 Lunch

1:00 - 2: 00 Preparing the Industry Profiles (Steve Shankle. PNNL)

- Role of industry characterization

- Industry data book

- Approach to characterization

- Initial Review

- Quantitative Analysis

- Qualitative Analysis

- Stakeholder Review

2:00 - 3 : 30 Issues on Shipment Forecasts (Jim McMahon, LBNL)

- Role of forecasting models

What determines shipments

- Alternative forecasting models

- Track record

- Operating characteristics

- Ideas for eliminating "black boxes"

- Uncertainty analysis

3:30 - 5: 00 Optional hands-on computer training on the models

22

EE-PI-96-001 COMMENT 82

5. Workshop Agenda 

Day 1, March 11, 1997: 

10:45 - 12:00 

12:00 - 1 :00 

1 :00 - 2:00 

2:00 - 3:30 

3:30 - 5:00 

Description of the GRIM Model (I;>avid Arnold, Arthur D. Little) 

- Role and applicability of the GRIM 

- Overview of 1997 update 

- Discounted cash flow analysis 

. - Walk-through of the GRIM Model 

- Questions I Discussion 

Lunch 

Preparing the Industry Profiles (Steve Shankle. PNNL) 

- Role of industry characterization 

- Industry data book 

- Approach to characterization 

-Initial Review 

- Quantitative Analysis 

- Qualitative Analysis 

- Stakeholder Review 

Issues on Shipment Forecasts (Jim McMahon, LBNL) 

- Role of forecasting models 

- What determines shipments 

- Alternative forecasting models 

- Track record 

- Operating characteristics 

- Ideas for eliminating "black boxes" 

- Uncertainty analysis 

Optional hands-on computer training on the models 

22 
5. Workshop Agenda

Day 2, March 12, 1997:

9:00 - 9: 15 Opening Remarks, Agenda Review

- Objectives

9:15 - 9:45 Review of Day One Outcomes

- Key Issues

- DOE perspective

- Stakeholder comments

9:45 - 10:00 Break

10:00 - 11:30 Estimating Manufacturing Costs for Input to GRIM

- Introduction

- Objectives

- Alternative approaches

- Evaluation criteria

- Survey approach (Issac Turiel, LBNL)

- Cost Assessment approach (Steve Mariano , Arthur D. Little)

- ASHRAE approach (Ronald E. Jarnagin. PNNL: Larry Wethje. ARI)

11:30 - 12:30 Lunch

Contd.......

March 11, 1997

23

EE-PI-96-001 COMMENT 82

5. Workshop Agenda 

Day 2, March 12, 1997: 

9:00 - 9:15 

9:15 - 9:45 

9:45 - 10:00 

10:00 - 11:30 

11:30 - 12:30 

Opening Remarks, Agenda Review 

- Objectives 

Review of Day One Outcomes 

- Key Issues 

- DOE perspective 

- Stakeholder comments 

Break 

Estimating Manufacturing Costs for Input to GRIM 

- Introduction 

- Objectives 

- Alternative approaches 

- Evaluation criteria 

- Survey approach (Issac Turiel, LBNL) . 

- Cost Assessment approach (Steve Mariano, Arthur D. Little) 

- ASH RAE approach (Ronald E. Jarnagin, PNNL: Larry Wethje, ARI) 

Lunch 

Contd ...... . 

March 11, 1997 

23 
5. Workshop Agenda

Day 2, March 12, 1997:

12:30 - 1:30 Manufacturing Price forecasts for Input to GRIM

Introduction

- Objectives

- Alternative approaches

- Survey data approach

- DOT methodology.

- Economic markup approach

- Scenario analysis

- Open discussion

1:30 - 2:30 Shipments forecasts for Input to GRIM

- Introduction

- Objectives

- Alternative approaches

- Expert forecasts

- Energy forecasting models

- Scenario analysis

- Open discussion

2:30 - 2:45 Break

Contd....

March 11, 1997

24

EE-PI-96-001 COMMENT 82

5. Workshop Agenda 

Day 2, March 12, 1997: 

12:30 - 1 :30 

1 :30 - 2:30 

2:30 - 2:45 

Manufacturing Price forecasts for Input to GRIM 

- Introduction 

- Objectives 

- Alternative approaches 

- Survey data approach 

- DOT methodology 

- Economic markup approach 

- Scenario analysis 

- Open discussion 

Shipments forecasts for Input to GRIM 

- Introduction 

- Objectives 

- Alternative approaches 

- Expert forecasts 

- Energy forecasting models 

- Scenario analysis 

- Open discussion 

Break 

Contd .... 

March 11, 1997 

24 
5. Workshop Agenda

Day 2, March 12, 1997:

2:45 - 4:15 Non-Model Impact Evaluation

- Information gathering

- Competitive Impacts

- Manufacturing capacity, lost investment

- Employment Impacts

- Cumulative impacts

4:15 - 4:45 Other Issues/Alternative methods/Stakeholder Comments

4:45 - 5:00 Discussion of Future Steps, Working Group Composition

ADJOURN

March 11, 1997

25

EE-PI-96-001 COMMENT 82

5. Workshop Agenda 

Day 2, March 12, 1997: 

2:45 - 4:15 

4:15 - 4:45· 

4:45 - 5:00 

Non-Model Impact Evaluation 

- Information gathering 

- Competitive Impacts 

- Manufacturing capacity, lost investment 

- Employment Impacts 

- Cumulative impacts 

Other Issues/Alternative methods/Stakeholder Comments 

Discussion of Future Steps, Working Group Composition 

ADJOURN 

March 11, 1997 

25 
I.

t t 4DJEW ' L66t

EE-PI-96-001 COMMENT 82

GRIM MODEL 

Overvievv oJ '1997 Update 

Discounted Cash Flow A.nalysis 

\fVaH<-ThroUfJh of (3HHVI ~,Aodel 

March 11. 1997 
GRIM Model Role & Applicability

The Government Regulatory Impact Model is a tool which helps

identify the financial effects of efficiency and other regulations on

appliance manufacturers.

Based upon conventional analysis

of discounted cash flows

Creates full computations of cash

flow for both base case (as is) and

standard case (with regulation)

Computes Industry Values (NPV)

for both scenarios

Offers numerical and graphical

comparisons

March 11, 1997

2

EE-PI-96-001 COMMENT 82

GRIM Model Role & Applicability 

The Government Regulatory Impact Model is a tool which helps 

identify the financial effects of efficiency and other regulations on 

appliance manufacturers. 

• Based upon conventional analysis 

of discounted cash flows 

• Creates full computations of cash 

flow for both base case (as is) and 

standard case (with regulation) 

• Computes Industry Values (NPV) 

for both scenarios 

• Offers numerical and graphical .. compansons 

March 11, 1997 
GRIM Model 1997 Update

The 1997 Updated GRIM provides an number of improvements over

the original model from 1993 , yet retains the same basic analytical

structure.

Modern,Platform - Excel Version 5

(Windows) versus Lotus Version 2

(DOS)

User-Friendliness - Free movement

around spreadsheet versus macrodriven methodology.

Streamlined Input - Simple analyses

with single assumptions page

® Graphs - On-screen viewing.

March 11, 1997

3

EE-PI-96-001 COMMENT 82

GRIM Model 1997 Update 

The 1997 Updated GRIM provides an number of improvements oyer 

the original model from 1993, yet retains th~ same basic analytical 

structure. 

• Modern,Platform - Excel Version 5 

(Windows) versus Lotus Version 2 

(~OS) 

• User-Friendliness - Free movement 

around spreadsheet versus macrodriven methodology. 

• Streamlined Input - Simple analyses 

with single assumptions page 

• Graphs - On-screen viewing. 

March 11, 1997 

3 
GRIM MODEL Overview of Discounted Cash Flow

Discounted cash flow remains the most widely accepted and

commonly used valuation technique.

® Theoretically sound methodology

® Results are only as good as assumptions used to develop cash flow

projections

® Terminal value can account for a substantial portion of the total value

March 11, 1997

4

EE-PI-96-001 COMMENT 82

GRIM MODEL Overview of Discounted Cash Flow 

Discounted cash flow remains the most widely accepted and 

commonly used valuation technique. 

• Theoretically sound methodology 

• Results are only as good as assumptions used to develop cash flow 

projections 

• Terminal value can account for a substantial portion of the total value 

2+7=_ 

March 11, 1997 

4 
GRIM MODEL Overview of Discounted Cash Flow

Discounted cash flow models value the stream of net cash flows

generated by a company or industry.

Net Income Before Financing

+ Changes in Working Capital

+ Depreciation Addback

Cash Flow from Operations

Capital Expenditures

+/- Other Investments

Net Cash Flow

March 11, 1997

YJ

EE-PI-96-001 COMMENT 82

GRIM MODEL Overview of Discoul1ted Cash Flow 

Discounted cash flow models value the stream of net cash flows 

generated by a company or industry. 

Net Income Before Financing. .' .1 

-/+ Changes in Working Capital 

+ Depreciation Addback 

Cash Flow from Operations 

Capital Expenditures 

+/- Other Investments 

=11 ~ _______ N_e_tC_a_S_h~FI_ow_··~ ___ ~1 

March 11, 1997 

5 
GRIM MODEL Changes in Working Capital

Working capital can be either a source or use of cash flow.

Working Capital Equals Netbf-.T If increase ? If Decrease?

Current Assets

Cash for Operation Use Source

Inventory Use Source

Accounts Receivable Use Source

Current Liabilities

Accounts Payable Source Use

® Young, high growth businesses tend to grow working capital

(requiring cash).

® Mature, low growth busine sses tend to shrink working capital

(generating cash).

March 11, 1997

- EE-PI-96-001 COMMENT 82

GRIM MODEL Changes in Working Capital 

Working capital can be either a source or use of cash flow. 

Working Capital Equals Net Of: If Increase? I·f D.~.cre~se? '" 

Current Assets 

Cash for Operation Use Source 

Inventory Use - Source 

Accounts Receivable Use Source 

Current Liabilities 

Accounts Payable Source Use 

Ii':> ",,",C,' 

• Young, high growth businesses tend to grow working capital 

(requiring cash). 

• Mature, low growth businesses tend to shrink working capital 

(generating cash). 

March 11. 1997 

6 
GRIM Model Discounted Cash Flow

The concept of discounted cash flows is based on the Time Value of

Money.

A dollar received today is worth more

than a dollar received tomorrow

(positive time preference)

A risky dollar is worth less than a safe

one (risk aversion)

March 11, 1997

7

EE-PI-96-001 COMMENT 82

GRIM Model Discounted Cash Flow 

The concept of discounted cash flows is based on the Time Value- of 

Money. 

~ A dollar received today is worth more L!,/ than a dollar received tomorrow 

(positive time preference) 

~ A risky dollar is worth less than a safe 

L/ one (risk aversion) 

March 11, 1997 

7 
GRIM MODEL Discounted Cash Flow

The Time Value of Money has a powerful effect on real returns.

If inflation is 5% per year:.

A dollar earned one year from today is equivalent to:

= $0.95

1 + Inflation Rate 1.05

If inflation is 20% per year.

A dollar earned one year from today is equivalent to:

= $0.83

1 + Inflation Rate 1.20

March 11, 1997

8

EE-PI-96-001 COMMENT 82

GRIM MODEL Discounted Cash Flow 

The Time Value of Money has a powerful effect on real returns. 

If inflation is 5% per year:. 

A dollar earned one year from today is equivalent to: 

$1 $1 

- $0.95 

1 + I nflation Rate 1.05 

If inflation is 20% per year: 

A dollar earned one year from today is equivalent to: 

$1 $1 - $Q.83 

1 + I nflation Rate 1.20 

March 11, 1997 

8 
GRIM Discounted Cash Flow

Discounting implies that revenues realized in the future are less

valuable than revenues realized/spent today.

Assuming interest (discount) rate of 10% per year:

500 500 500 500

Discounted 500 455 413 376 Values

March 11, 1997

9

EE-PI-96-001 COMMENT 82

GRIM Discounted Cash Flow 

Discounting implies that revenues realized in the future are less 

valuable than revenues realized/spent today. 

Assuming interest (discount) rate of 10% per year: 

Discounted 

Values 500 455 413 376 

March 11, 1997 

9 
GRIM Model Discount Rate

A discount rate is comprised of two elements:

Rd=Rf+Rp

® Rf = Risk-free rate (this accounts for the pure time element)

Rule of thumb: The risk-free rate is approximately equal to the

long-term Treasury bill rate

A dollar received today is worth more than a

dollar received tomorrow

® RP = Risk premium (this accounts for the uncertainty of receiving the

money)

A risky dollar is worth less than a safe one.

March 11, 1997

10

EE-PI-96-001 COMMENT 82

GRIM Model Discount Rate 

A discount rate is comprised of two elements: 

I······· ............................. . : : 

: : 

: Rd = Rf + Rp : . . ...................................... 

• Rf = Risk-free rate (this accounts for the pure time element) 

~ Rule of thumb: The risk-free rate is approximately equal to the 

long-term Treasury bill rate 

A dollar received today is worth more than a 

dollar received tomorrow 

• Rp = Risk premium (this accounts for the uncertainty of receiving the 

money) " 

A risky dollar is worth less than a safe one. 

March 11, 1997 

10 
GRIM Model Discount Rate

The d iscount rate is a function of investment risk, and can fall within a

wide spectrum.

Rule-of-thumb examples:

5% 10% 15% 20% 25%

4% 8% 15%

Treasury Regulated Average for

Bills Utilities Stock Market

March 11, 1997

11

EE-PI-96-001 COMMENT 82

GRIM Model Discount Rate 

The discount rate is a function of investment risk, and can fall within a 

wide spectrum. 

~ Rule-ot-thumb examples: 

00/0 5% 10% 15% 20% 25% 

I I I I I I I I I I I I I I I I I I I I I I I I I ~ 

... ... ... ' ........ ~ 

4% 8% 15% 25%+ 

Treasury Regulated Average for Venture 

Bills Utilities Stock Market Capital 

March 11, 1997 

11 
GRIM Model Terminal Value

Terminal value is the value of an asset beyond the horizon of your

detailed valuation . In the GRIM Model ,. it is calculated as a discounted

perpetuity based upon the cash flows in the final year of the analysis.

Discounted perpetuity

(CF/r)

March 11, 1997

12

EE-PI-96-001 COMMENT 82

GRIM Model Terminal Value 

Terminal value is the value of an asset beyond the horizon of your 

detailed valuation. In the GRIM Model, it is calculated as a discounted 

perpetuity based upon the cash flows in the final year of the analysis. 

Discounted perpetuity 

(CF/r) 

March 11, 1997 

12 
ARTHUR D. LITTLE, INC.

Acorn Park

Cambridge, Massachusetts

02140-2390

Because software is inherently complex and may not

be completely free of errors, you arc' advised to verify

your work. In no event will Arthur D. Little be liable

for direct, indirect, special, incidental, or

11

consequential damages arising out of the use of

or inability to use the software or documentation,

even if advised of the possibility of such damages.

Government

Regulatory Impact

Model

Association of Home

Appliance Manufacturers

EE-PI-96-001 COMMENT 82
Appendix A

GRIM Operating Principles & Instructions

Introduction and Purpose

The purpose of the Government Regulatory Impact Model (GRIM) is to help identify the

effects of various efficiency and other regulations on manufacturers. The basic mode of

analysis is to determine the change in value of the manufacturer(s) following a

regulation. The model is expressly designed to allow an analysis of the effects of a

single regulation upon a single product. By combining multiple iterations of this model,

it is also possible to analyze multiple products with regulations taking effect over a

period of time, and/or multiple regulations on the same product.

Industry value is defined for the purposes of this analysis, as the present value of cash

flows for the manufacturer, or manufacturers, in question. Cash flow is calculated by

the user entering shipment volumes and manufacturer prices (i.e., prices from

manufacturers to the first customer, such as a wholesaler), as well as selected

assumptions regarding other elements of the relevant cost structures. The model

calculates the actual cash flows, by year and then determines the present value of those

cash flows both without regulations (the pre-regulation base case) and with regulations

(the post-regulation standards case).

The GRIM model, originally created in Lotus 1-2-3, has been reprogrammed as an Excel

(Version 5.0) workbook, with multiple worksheets. The user is allowed to input

assumptions into a single worksheet, which then generates complete cash flow and net

present value calculations for both a base case (without regulation) and a standard case

(with regulation). Output comes from the model in terms of access to the complete cash

flow calculations, summary statistics, and graphs of major variables, all of which appear

on individual worksheets within the workbook.

Input of Major Assumptions

The Major Assumptions worksheet allows user input of the following key information:

(1) Scenario Description: Name of GRIM scenario. This description appears

as a reference on all printed output of the model.

(2) Base Year Beginning year for financial analysis. Normally,

this will be the current year.

A-1

EE-PI-96-001 COMMENT 82

Appendix A 

GRIM Operating Principles & Instructions 

Introduction and Purpose 

The purpose of the Government Regulatory Impact Model (GRIM) is to help identify the 

effects of various efficiency and other regulations on manufacturers. The basic mode of 

analysis is to determine the change in value of the manufacturer( s) following a 

regulation. The model is expressly designed to allow an analysis of the effects of a 

single regulation upon a single product. By combining multiple iterations of this model, 

it is also possible to analyze multiple products with regulations taking effect over a 

period of time, and/or multiple regulations on the same product. 

Industiy value is defined for the purposes of this analysis, as the present value of cash 

flows for the manufacturer, or manufacturers, in question. Cash flow is calculated by 

the user entering shipment volumes and manufacturer prices (i.e., prices from 

manufacturers to the first customer, such as a wholesaler), as well as selected 

assumptions regarding other elements of the relevant cost structures. The model 

calculates the actual cash flows, by year and then determines the present value of those 

cash flows both without regulations (the pre-regulation base case) and with regulations 

(the post-regulation standards case). 

The GRIM model, originally created in Lotus 1-2-3, has been reprogramm:ed as an Excel 

(Version 5.0) workbook, with multiple worksheets. The user is allowed to input 

assumptions into a single worksheet, which then generates complete cash flow and net 

present value calculations for both a base case (without regulation) and a standard case 

(with regulation). Output comes from the model in terms of access to the complete cash 

flow calculations, summary statistics, and graphs of major variables, all of which appear 

on individual worksheets within the workbook. 

Input of Major Assumptions 

The Major Assumptions worksheet allows user input of the following key information: 

(1) Scenario Description: 

(2) Base Year 

Name of GRIM scenario. This description appears 

as a reference on all printed output of the model. 

Beginning year for financial analysis. Normally, 

this will be the current year. 

A-1 
(3) Announcement Year

(4) Standard Year

(5) Tax Rate

(6) Discount Rate for NPV

(7) Inflation Rate

(8) Working Capital

(9) Base Year Unit Price

(10) Base Year Unit Sales

(11) Unit Sales Growth Rate

(12) Standard SG&A

(13) Research and Development

(14) Ordinary Depreciation

(15) Ordinary Cap. Expenditures

Year in which regulation is announced. In this

year, manufacturers beginning preparing for the

change, thus experiencing conversion costs.

Year in which regulation takes effect.

Effective total tax rate of manufacturer(s). Default

input is 46%.

To be used for discounted cash flow analysis.

Default input is 12%.

Assumed annual increase in prices and costs as a

function of inflation. Default input is 4%.

Estimate of working capital requirement as a

percent of revenues.

Unit Price in initial year of analysis.

Unit Sales in initial year of analysis, expressed in

millions.

Assumed annual % increase in unit sales. Default

input is 2%.

Total Sales, General, and Administrative costs,

expressed in $ millions. Excludes R&D and any

conversion expenses.

Annual R&D costs, expressed as % of revenues.

Assumed depreciation in steady state, excluding

the effects of capital expenditures associated with

conversions to accommodate new regulations.

Expressed as % of revenues, with default of 3.3%.

Assumed capital expenditures in steady state,

excluding the effects of capital expenditures

associated with conversions to accommodate new

regulations. Expressed as a negative % of

revenues, with default of -4.0%.

EE-PI-96-001 COMMENT 82

(3) Announcement Year 

(4) Standard Year 

(5) Tax Rate 

(6) Discount Rate for NPV 

(7) Inflation Rate 

(8) Working Capital 

(9) Base Year Unit Price 

(10) Base Year Unit Sales 

(11) Unit Sales Growth Rate 

(12) Standard SG&A 

Year in which regulation is announced. In this 

year, manufacturers beginning preparing for the 

change, thus experiencing conversion costs. 

Year in which regulation takes effect. 

Effective total tax rate of manufacturer(s). Default 

input is 46%. 

To be used for discounted cash flow analysis. 

Default input is 12%. 

Assumed annual increase in prices and costs as a 

function of inflation. Default input is 4%. 

Estimate of working capital requirement as a 

percent of revenues. 

Unit Price in initial year of analysis. 

Unit Sales in initial year of analysis, expressed in 

millions. 

Assumed annual % increase in unit sales. Default 

input is 2%. 

Total Sales, General, and Administrative costs, 

expressed in $ millions. Excludes R&D and any 

conversion expenses. 

(13) Research and Development Annual R&D costs, expressed as % of revenues. 

(14) Ordinary Depreciation Assumed depreciation in steady state, excluding 

the effects of capital expenditures associated with 

conversions to accommodate new regulations. 

Expressed as % of revenues, with default of 3.3%. 

(15) Ordinary Cap. Expenditures Assumed capital expenditures in steady state, 

excluding the effects of capital expenditures 

associated with conversions to accommodate new 

regulations. Expressed as a negative % of 

revenues, with default of -4.0%. 

A-2 
(16) Variable Overhead % Percentage portion of manufacturing overhead that

varies with the volume of units produced.

Remainder is assumed to be fixed.

(17) Manufacturing Costs In this section, the user is asked to input assumed

per unit $ costs for Materials, Labor, and Overhead

in the initial base year of the analysis, and the

incremental effect which will occur in the year the

regulatory change is implemented.

(18) Conversion Costs In this section, the user inputs estimates of two

types of conversion costs: (1) those which involve

investments in fixed assets, which will be

capitalized (Capital Expenditures), and (2) Design

and Marketing.Expenses, which! will be expensed

as incurred. Both costs are estimated in $ millions.

Also, for capital expenditures, the users inputs the

useful life for depreciation purposes.

Cash Flow Analyses - Base Case & Standard Case

For both the base case (without regulation) and the standard case (with regulation), the

core output of the GRIM is a standard annual cash flow analysis which uses price and

volume information as an input, builds on fundamental base cost information and

accepts a set of regulatory conditions as changes in costs and investments. • The cash

flow analysis is separated into two major blocks: income and cash flow. The income

calculation determines the profit after taxes but before financial charges. The cash flow

calculation converts profit after taxes into an annual cash flow by including investment

and non-cash items.

Below are definitions of listed items on the printout of the output sheets for both

scenarios.

(1) Income Statement: Overall calculation of Net Income Before

Financing (17) using revenue and cost items

subject to income tax effects as described in (2)

through (17)

(2) Price/Unit: Actual manufacturer unit price charged to the first

level of distribution (distributor, etc.); entered as

an input variable by user in Major Assumptions.

(3) Unit Sales: Annual shipments; entered as an input variable by

user in Major Assumptions.

A-3

EE-PI-96-001 COMMENT 82

(16) Variable Overhead % 

(17) Manufacturing Costs 

(18) Conversion Costs 

Percentage portion of manufacturing overhead that 

varies with the volume of units produced. 

Remainder is assumed to be fixed. 

In this section, the user is asked to input assumed 

per unit $ costs for Materials, Labor, and Overhead 

in the initial base year of the analysis, and the 

incremental effect which will occur in the year the 

regulatory change is implemented. 

In this section, the user inputs estimates of two 

types of conversion costs: (1) those which involve 

investments in fixed assets, which will be 

capitalized (Capital Expenditures), and (2) Design 

and Marketing.Expenses, which,will be expensed 

as incurred. Both costs are estimated in $ millions. 

Also, for capital expenditures, the users inputs the 

useful life for depreciation purposes. 

Cash Flow Analyses - Base Case & Standard Case 

For both the base case (without regulation) and the standard case (with regulation), the 

core output of the GRIM is a standard annual cash flow analysis which uses price and 

volume information as an input, builds on fundamental base cost information and 

accepts a set of regulatory conditions as changes in costs and investments. -The cash 

flow analysis is separated into two major blocks: income and cash flow. The income 

calculation determines the profit after taxes but before financial charges. The cash flow 

calculation converts profit after taxes into an annual cash flow by including investment 

and non-cash items. 

Below are definitions of listed items on the printout of the output sheets for both 

scenarios. 

(1) Income Statement: 

(2) Price/Unit: 

(3) Unit Sales: 

Overall calculation of Net Income Before 

Financing (17) using revenue and cost items 

subject to income tax effects as described in (2) 

through (17) 

Actual manufacturer unit price charged to the first 

level of distribution (distributor, etc.); entered as 

an input variable by user in Major Assumptions. 

Annual shipments; entered as an input variable by 

user in Major Assumptions. 

A-3 
(4) Revenues:

(5) Not Used.

(6) Not Used

(7) Labor:

(8) Material:

(9) Overhead:

(10) Depreciation:

(11) Cost of Sales:

(12) R&D:

(13) Product Conversion:

Annual revenues; computed by multiplying

Price/Unit (2) by Unit Sales (3).

Factory direct labor and fringe benefit costs;

calculation done for and based on, assumptions for

Manufacturing Costs, inflation, and Unit Sales (3).

Purchased materials and components ; calculation

done for, and based on, assumptions for

Manufacturing Costs, inflation, and Unit Sales (3).

Factory overhead excluding depreciation;

calculation done for, and based on, assumptions

for Manufacturing Costs, inflation, and Unit Sales

(3). Overhead is treated as both fixed and variable,

with the percentage of overhead (excluding

depreciation) that is variable set under the Mai or

Assumptions.

Annual depreciation on pre-regulation assets;

computed as a percentage of base year Revenues

(4). Annual depreciation on post-regulation assets

is computed by dividing Capital Expenditures

(24) by a useful life from Major Assumptions. For

post-regulation years, Depreciation is the sum of

depreciation on pre- and post-regulation assets.

Total cost of sales, computed by adding Labor (7),

Material (8), Overhead (9) and Depreciation (10).

Research and development costs unrelated to

regulations; computed as a percentage of Revenues

(4). From Major Assumptions.

Expensable costs related to meeting a regulation,

often including product redesign costs and

expensable factory conversion expenses. Also

includes costs incurred for new product literature

and catalogs, product obsolescence , and various

related marketing expenses. These costs are

allocated over the timeframe from the

A-4

EE-PI-96-001 COMMENT 82

(4) Revenues: 

(5) Not Used. 

(6) Not Used 

(7) Labor: 

(8) Material: 

(9) Overhead: 

(10) Depreciation: 

(11) Cost of Sales: 

(12) R&D: 

(13) Product Conversion: 

Annual revenues; computed by multiplying 

Price/Unit (2) by Unit Sales (3). 

Factory direct labor and fringe benefit costs; 

calculation done for and based on assumptions for 

Manufacturing Costs, inflation, and Unit Sales (3). 

Purchased materials and components; calculation 

done for, and based on, assumptions for 

Manufacturing Costs, inflation, and Unit Sales (3). 

Factory overhead excluding depreciation; 

calculation done for, and based on, assumptions 

for Manufacturing Costs, inflation, and Unit Sales 

(3). Overhead is treated as both fixed and variable, 

with the percentage of overhead (excluding 

de~reciation) that is variable set under the Major 

Assumptions. 

Annual depreciation on pre-regulation assets; 

computed as a percentage of base year Revenues 

(4). Annual depreciation on post-regulation assets 

is computed by dividing Capital Exp'enditures 

(24) by a useful life from Major Assumptions. For 

post-regulation years, Depreciation is the sum of 

depreciation on pre- and post-regulation assets. 

Total cost of sales, computed by adding Labor (7), 

Material (8), Overhead (9) and Depreciation (10). 

Research and development costs unrelated to 

regulations; computed as a percentage of Revenues 

(4). From Major Assumptions. 

Expensable costs related to meeting a regulation, 

often including product redesign costs and 

expensab1e factory conversion expenses. Also 

includes costs incurred for new product literature 

and catalogs, product obsolescence, and various 

related marketing expenses. These costs are 

allocated over the timeframe from the 

A-4 
Announcement Year to the Standard Year via a

formula in the model.

(14) Standard SG&A:

(15) Profit Before Tax:

(16) Taxes:

(17) Net Income:

(18) Cash Flow Statement:

Selling, general and administrative costs including

all non-factory costs, but excluding R&D (12) and

Product Conversion Costs (13).

Profit before taxes and any financing costs;

computed by subtracting the Cost of Sales (11) and

all SG&A costs ( 12-14) from Revenues (4).

Taxes on Profits Before Tax; computed by

multiplying the tax rate contained in Major

Assumptions by Profit Before Tax (15).

Profits after taxes; computed by subtracting Taxes

(16) from Profit before Tax (15).

Overall assessment including net income, other

cash related items and adjustments and

investments.

(19) Cash Flow: Determination of cash flow generated from

operations.

(20) Net Income: Net income; identical to Net Income (17).

(21) Depreciation: Depreciation is a non-cash cost and is added back

into Net Income (20) as part of the cash flow

calculation; identical to Depreciation (10).

(22) Change in Working Capital: Additional accounts receivable , inventory, and

other cash investments necessary to support

increased revenues; computed by multiplying a

percentage from Major Assumptions by the change

in Revenues (4).

(23) Cash Flowfrom Operations: The cash flow from operating activities; computed

by adding Net Income (20), Depreciation (21) and

subtracting Change of Working Capital (22).

(24) Capital Expenditures: Investment to maintain and replace existing

production assets; computed as a percentage of

base year Revenues (4) using a percentage

contained in Major Assumptions. Post-regulation

A-5

EE-PI-96-001 COMMENT 82

(14) Standard SG&A: 

(15) Profit Before Tax: 

(16) Taxes: 

(17) Net Income: 

(18) Cash Flow Statement: 

(19) Cash Flow: 

Announcement Year to the Standard Year via a 

formula in the model. 

Selling, general and administrative costs including 

all non-factory costs, but excluding R&D (12) and 

Product Conversion Costs (13). 

Profit before taxes and any financing costs; 

computed by subtracting the Cost of Sales (11) and 

all SG&A costs (12-14) from Revenues (4). 

Taxes on Profits Before Tax; computed by 

mUltiplying the tax rate contained in Major 

Assumptions by Profit Before Tax (15). 

Profits after taxes; computed by subtracting Taxes 

(16) from Profit before Tax (15). 

Overall assessment including net income, other 

cash related items and adjustments and 

investments. 

Determination of cash flow generated from 

operations. 

(20) Net Income: Net income; identical to Net Income (17). 

(21) Depreciation: Depreciation is a non-cash cost and is added back 

into Net Income (20) as part of the cash flow 

calculation; identical to Depreciation (10). 

(22) Change in Working Capital: Additional accounts receivable, inventory, and 

other cash investments necessary to support 

increased revenues; computed by multiplying a 

percentage from Major Assumptions by the change 

in Revenues (4). 

(23) Cash Flow from Operations: The cash flow from operating activities; computed 

by adding Net Income (20), Depreciation (21) and 

subtracting Change of Working Capital (22). 

(24) Capital Expenditures: Investment to maintain and replace existing 

production assets; computed as a percentage of 

base year Revenues (4) using a percentage 

contained in Major Assumptions. Post-regulation 

A-5 
capital expenditures equal pre-regulation

expenditures plus depreciation on Conversion

Expenditures (25).

(25) Conversion Cap. Expend.: Depreciation costs for meeting regulations,

typically including plant, equipment, tooling and

the like. These costs are allocated over the

timeframe from the Announcement Year to the

Standard Year via a formula in the model.

(26) Cash Used in Investments: Cash required for assets; computed by adding

Capital Expenditures (24) and Conversion

Expenditures (25).

(27) Net Cash Flow:

(28) Terminal Value:

(29) Present Value Factor:

(30) Discounted Cash Flow:

Annual cash flow from operations and

investments; computed by subtracting Cash Used

in Investments (26) from Cash Flow from

Operations (23).

The estimated residual value of the industry,

valued as a perpetuity of the cash flow in the last

year of the analysis (year 15).

Based upon the discount rate in the Major

Assumptions, represents the factor to be applied to

the cash flows of each future year to express them

in NPV terms.

Equals sum of Net Cash Flow (27) and Terminal

Value (28), times the Present Value Factor (29) for

each year.

(31) Industry Value: Sum of all annual discounted cash flows.

Represents total net present value of

manufacturer(s) anticipated cash flows.

Remainder of GRIM Output

The remaining worksheets of the GRIM model offer summary and graphical

presentations of key elements of the cash flow analyses for the base and standard cases.

Each sheet can be analyzed and/or printed individually. The entire workbook can also

be printed using the "Entire Workbook" option which appears as a part of the Excel

"Print" portion of the "File" pull-down menu.

A-6

EE-PI-96-001 COMMENT 82

(25) Conversion Cap. Expend.: 

(26) Cash Used in Investments: 

(27) Net Cash Flow: 

(28) Terminal Value: 

(29) Present Value Factor: 

(30) Discounted Cash Flow: 

, (31) Industry Value: 

Remainder of GRIM Output 

capital expenditures equal pre-regulation 

expenditures plus depreciation on Conversion 

Expenditures (25). 

Depreciation costs for meeting regulations, 

typically including plant, equipment, tooling and 

the like. These costs are allocated over the 

timeframe from the Announcement Year to the 

Standard Year via a formula in the modeL 

Cash required for assets; computed by adding 

Capital Expenditures (24) and Conversion 

Expenditures (25). 

Annual cash flow from operations and 

investments; computed by subtracting Cash Used 

in Investments (26) from Cash Flow from 

Operations (23). 

The estimated residual value of the industry, 

valued as a perpetuity of the cash flow in the last 

year of the analysis (year 15). 

Based upon the discount rate in the Major 

Assumptions, represents the factor to be applied to 

the cash flows of each future year to express them 

in NPV terms. 

Equals sum of Net Cash Flow (27) and Terminal 

Value (28), times the Present Value Factor (29) for 

each year. 

Sum of all annual discounted cash flows. 

Represents total net present value of 

manufacturer(s) anticipated cash flows. 

The remaining worksheets of the GRIM model offer summary and graphical 

presentations of key elements of the cash flow analyses for the base and standard cases. 

Each sheet can be analyzed and/or printed individually. The entire workbook can also 

be printed using the "Entire Workbook" option which appears as a part of the Excel 

"Print" portion of the "File" pull-down menu. 

A-6 
Government Regulatory

Impact Model

(1) Scenario Description

Assumptions Page for

Example: Refrigerator, Reg 1997-12C

Example: Refrigerator, Reg 1997-12C

Beginning year for analytical purposes

Year in which the regulation announcement is made

Year in which the regulation takes effect

G6')

(/8)

Base Year

Announcement Year

Standard Year

Tax Rate

Discount Rate for NPV

Inflation Rate

Working Capital

Base Year Unit price

Base Year Unit Sales

Unit Sales Growth Rate

Standard SG&A

Research and Development

Ordinary Depreciation

Ordinary Capital Expenditures

Variable Overhead as % of Total

(1Z Manufacturing Costs

Materials / Unit

Labor / Unit

Overhead / Unit

Conversion Costs

Capital Expenditures

Useful Life of Conversion Capital

Design & Marketing Expenses

1998

1999

2005

46.0%

12.0%

4.0%

18.0%

200.0

5.61

2.0%

233.69

2.0%

per annum

of Revenue

($)

(000,000)

per annum

($000,000)

of Revenue

of Revenue

of Revenue

3.3I

-4.0%

Base

Year

60%

Incremental Due to

Standard

80.00 20.00

30.00 10.00

33.00 10.00

500

<15

300

($000,000)

years

($000,000)

3/9/97 MajorAssumptions GRIM6.XLS

EE-PI-96-001 COMMENT 82

3/9/97 

(~ Scenario Description 

(2) Base Year 

(3) Announcement Year 

C+) Standard Year 

(5) Tax Rate 

(6) Discount Rate for NPV 

(1) Inflation Rate 

19) Working Capital 

('I) Base Year Unit price 

(10) Base Year Unit Sales 

(II) Unit Sales Growth Rate 

(I)) Standard SG&A 

UJ,} Research and Development 

CIt) Ordinary Depreciation 

(j£,) Ordinary Capital Expenditures 

~b) Variable Overhead as % of Total 

(i 1- Manufacturing Costs 

Materials / Unit 

Labor / Unit 

Overhead / Unit 

Conversion Costs 

Capital Expenditures 

Useful Life of Conversion Capital 

Design & Marketing Expenses 

Government Regulatory 

Impact Model 

... . Assumptiorts Pagdor 

Exa.mple: Refrigerator; Ret(1997.i2C . 

1998 Beginni1lg year for analytical purposes I-------i 

1999 Year ill which the regulatio1l a1l1l0U1lcement is made I------~ 

1...-_____ 2005 -' Year in which the regulation takes effect 

46.0% 

12.0% 

4.0% per annum 1-----'-'--, 18.0% of Revenue '-------'---.... 

200.0 ($) 

5.61 (000,000) 1------:-, 2.0% per annum 1..-___ --=:.:.::...:..:..1 

1-__ 2_3_3 .-:-69-:-i/ ($000,000) 

~====2=.~0=%~_ of Revenue 

1-----3;;.;.;.;;.3":";%41 of Revenue 

-4.0% of Revenue '-------.... 

Base 

Year 

Incremental Due to 

Standard 

80.00 

30.00 

33.00 

20.00 

10.00 

10.00 

a oo ($000,000) 

15 years 

300 ($000,000) 

Major Assumptions GRIM6.xLS 
Government Regulatory

Impact Model

Example: Retcigerator Reg1997.12C

Base Year

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

86corm Statement

2- Price/Unit (60) 200.0 208.0 216.3 225.0 234.0 243.3 253.1 263.2 273.7 284.7 296.0 307.9 320.2 333.0. 346.3 3 UnitSales ( 000,000

'

5.61 5.72 5.84 5.95 6.07 6.19 6.32 6.44 6.57 6.70 6.84 6.98 7.11 7.26 7.40

Revenues ( OOOl01) 0 `3r 1,122.0 1,190.2 1,262.6 1,339.3 1,420.8 1,507.2 1,598.8 1,696.0 1,799.1 1,908.5 2,024.5 2,147.6 2,278.2 2,416.7 2,563.7

I/ Cost of Sales (bOO, OOo $)

7 Labor 168.3 178.5 189.4 , 200.9 213.1 226.1 239.8 254.4 269.9 286.3 303.7 322.1 341.7 362.5 384.6

g Material 448.8 476.1 505.0 535.7 568.3 602.9 639.5 678.4 719.6 763.4 809.8 859.1 911.3 966.7 1,025.5

^j Overhead - Fixed 74.1 77.0 80.1 83.3 86.6 90.1 93.7 97.4 101.3 105.4 109.6 114.0 118.6 123.3 128.2

Overhead - Variable 111.1 117.8 125.0 132.6 140.7 149.2 158.3 167.9 178.1 188.9 200.4 212.6 225.5 239.3 253.8

/0 Depreciation 36.5 36.5 36.5 36.5 36.5 36.5 36.5 36.5 36.5 36.5 36.5 36.5 36.5 36.5 36.5

Selling, General and Administrative ( 090, 000

/'+ Standard SG&A 233.7 243.0 252.8 262.9 273.4 284.3 295.7 307.5 319.8 332.6 345.9 359.8 374.1 389.1 404.7

12 R&D 22.4 23.8 25.3 26.8 28.4 30.1 32.0 33.9 36.0 38.2 40.5 43.0 45.6 48.3 51.3

13 Product Conversion Expense - - - - - - - - - - - - - -

/5 Profit Before Tax (000,000P") 27.2 37.4 48.6 60.7 73.8 88.0 103.3 119.9 137.9 157.2 178.1 200.6 224.9 251.1 279.2

/6 Taxes (000,coo ^1 12.5 17.2 22.4 27.9 33.9 40.5 47.5 55.2 63.4 72.3 81.9 92.3 103.5 115.5 128.4

/ Net Income Before Financing (006,000#) 14.7 20.2 26.2 32.8 39.9 47.5 55.8 64.8 74.5 84.9 96.2 108.4 121.5 135.6 150.8

/6 Casli> Ioiv Statement

Zo Net Income 14.7 20.2 26,2 32.8 39.9 47.5 55.8 64.8 74.5 84.9 96.2 108.4 121.5 135.6 150.8

Z/ Depreciation 36.5 36.5 36.5 36.5 365 36.5 36.5 36.5 36.5 36.5 36.5 36.5 36.5 36.5 36.5

22 Change in Working Capital - (12.3) (13.0) (13.8) (14.7) (15,5) (16.5) (17.5) - (18.6) (19.7) (20.9) (22.2) (23.5) (24.9) (26.4)

23 Cash Flows from Operations 51.1 44.4 49.7 55.4 61.7 68.4 75.8 83.7 92.4 101.7 111.8 122.7 134.4 147.1 160.8

l-4' Ordinary Capital Expenditures (44.9) (44.9) (44.9) (44.9) (44.9) (44,9) (44,9) (44.9) (44.9) (44.9) (44.9) (44.9) (44.9) (44.9) (44.9)

ZS Conversion Capital Expenditures - - - - - - - - - - -

26 Cash Used In Investment (44.9) (44.9) (44.9) (44.9) (44.9) (44.9) (44.9) (44.9) (44.9) (44.9) (44.9) (44.9) (44.9) (44.9) (44.9)

2.1 Net Cash Flow 6.3 (0.5) 4.8 10.5 16.8 23.6 30.9 38.9 47.5 56.8 66.9 77.8 89.5 102.2 115.9

2-e

29

Terminal Value 965.9

Present Value Factor 1.0000 0.8929 0.7972 0.7118 0.6355 0.5674 0.5066 0.4523 0.4039 0.3606 0.3220 0.2875 0.2567 0.2292 0.2046

30 Discounted Cash Flow 6.3 (0.4) 3.8 7.5 10.7 13.4 15.7 17.6 19.2 20.5 21.5 22.4 23.0 23.4 221.4

31 Industry Value (Net Present Value) $ 425.7

3/9/97 BaseCase GRIM6.XLS

EE-PI-96-001 COMMENT 82

Government Regulatory 

Impact Model 

I Example: Retrigerator,Re§ 1997,12G.· .> ./4.; l Base Year 

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 

I . '''',' ,-':' /,<:';~{<' ":1l1comeSllItement .f' • '<: n~u~;~:;' I 

2- PricelUnit (I\>') 

3 Unit Sales ( 000,00 0 5') 

4- Revenues (000)000 ~) 

1/ Cost of Sales (1:)00,0005) 

1 Labor 1683 1785 189,4 200.9 213.1 226.1 239.8 254,4 269.9 2863 303.7 322.1 341.7 3625 384.6 

e Material 448.8 476.1 505.0 535.7 5683 602.9 6395 678,4 719.6 763,4 809.8 859.1 911.3 966.7 1,025.5 

9 Overhead - Fixed 74.1 no 80.1 833 86.6 90.1 93.7 97,4 101.3 105,4 109.6 114.0 118.6 123.3 128.2 

Overhead - Variable liLt 117.8 125.0 132.6 140.7 149.2 1583 167.9 178.1 188.9 200,4 212.6 225.5 239.3 253.8 

10 Depreciation 365 36.5 365 36.5 36.5 365 36.5 36.5 365 36.5 365 365 36.5 36.5 365 

Sellillg, Gelleral a/,d Admillistrative 1 C()o, 000 $.') '1- Standard SG&A 233.7 243.0 252.8 262.9 273,4 284.3 295.7 307.5 319.8 332.6 345.9 359.8 374.1 389.1 404.7 

1'2.. R&D 22,4 23.8 25.3 26.8 28,4 30.1 32.0 33.9 36.0 38.2 40.5 43.0 45.6 483 51.3 

IB Product Conversion Expense 

/5 Profit Before Tax (000,000$) 27.2 31.4 48.6 60.7 73.8 88.0 103.3 119.9 137.9 157.2 178.1 200.6 224.9 251.1 279.2 

16 Taxes (000,000 ~\ 12.5 17.2 22,4 27.9 33.9 40.5 47.5 55.2 63,4 72.3 81.9 92.3 103.5 115.5 128,4 

11- Net Income Before Financing {()oO,OOOJj; ') 14.7 20.2 26.2 32.8 39.9 47.5 55.8 64.8 74.5 84.9 96.2 108.4 121.5 135.6 ·150.8 

18 I ~>:'7'\?~" i':,:i'··' CnsJi FlowStatement· "', },i,,{'\" I 

Zo Net Income 14.7 20.2 26.2 32.8 39.9 47.5 55.8 64.8 74.5 84.9 96.2 108.4 121.5 135.6 150.8 

2.1 Depreciation 365 36.5 36.5 365 36.5 36.5 365 36.5 36.5 36.5 36.5 365 36.5 36.5 36.5 

22 Change in Working Capilal (123) (13.0) (13.8) (14.7) (15.5) (16.5) (17.5) _ (18.6) (19.7) (20.9) (22.2) (23.5) (24.9) (26,4) 

2.3 Cash Flows from Operations 51.1 44,4 49.7 55.4 61.7 68,4 75.8 83.7 92,4 101.7 111.8 122.7 134.4 147.1 160.8 

2.04- Ordinary Capilal Expenditures (44.9) (44.9) (44.9) (44.9) (44.9) (44.9) (44.9) (44.9) (44.9) (44.9) (44.9) (44.9) (44.9) (44.9) (44.9) 

z.E: Conversion Capital Expenditures . U, Cash Used In Investment (44.9) (44.9) (44.9) (44.9) (44.9) (44.9) (44.9) (44.9) (44.9) (44.9) (44.9) (44.9) (44.9) (44.9) (44.9) 

2:1 Net Cash Flow 63 (0.5) 4.8 10.5 16.8 23.6 30.9 38.9 47.5 56.8 66.9 77.8 89.5 102.2 115.9 

'2..~ Terminal Value 965.9 

2.q Present Value Factor 1.0000 0.8929 0.7972 0.7118 0.6355 0.5674 0.5066 0.4523 0.4039 0.3606 0.3220 0.2875 0.2567 0.2292 0.2046 

30 Discounted Cash Flow 63 (0,4) 3.8 7.5 10.7 13.4 15.7 17.6 19.2 205 21.5 22.4 23.0 23,4 221.4 

31 Industry Value (Net Present Value) $ 425.7 

3/9/97 Base Case GRIM6.XLS 
Government Regulatory

Impact Model

Example., Ref igeratoki Reg 1997.120

STANDARD CASE SCENARIO Base Year

1998

lncomeStat9uletat

Price/Unit 200.00

Unit Sales 5.61

Revenues 1,122.0

Cost of Sales

Labor 168.3

Material 448.8

Overhead - Fixed 74.1

Overhead - Variable 111.1

Depreciation 36.5

Selling, General and Administrarive

Standard SG&A 233.7

R&D 22.4

Product Conversion Expense -

Profit Before Tax 27.2

Taxes 12.5

Net Income Before Financing 14.7

Cad) Flow Statement

Net Income 14.7

Depreciation 36.5

Change in Working Capital -

Cash Flows from Operations 51.1

Ordinary Capital Expenditures (44.9)

Conversion Capital Expenditures

Cash Used In Investment (44.9)

Net Cash Flow 6.3

Terminal Value

Present Value Factor 1.0000

Discounted Cash Flow 6.3

Industry Value (Net Present Value) $ (1,095.9)

Announce

Year Standard Year

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

208.00 216.32 224.97 233.97 243.33 253.06 263.19 273.71 284,66 296.05 307.89 320,21 333A1 346.34

5.72 5.84 5.95 6.07 6.19 6.32 6.44 6.57 6.70 6.84 6.98 7.11 7.26 7.40

1,190.2 1,262.6 1,339.3 1,420.8 1,507.2 1,598.8 1,696.0 1,799.1 1,908.5 2,024.5 2,147.6 2,278.2 2,416.7 2,563.7

178.5 189.4 200.9 213.1 226.1 239.8 339.2 359.8 381.7 404.9 429.5 455.6 483.3 512.7

476.1 505.0 535.7 568.3 602.9 639.5 848.0 899.6 954.3 1,012.3 1,073.8 1,139.1 1,208A 1,281.8

77.0 80.1 ' 83.3 86.6 90.1 93.7 97.4 101.3 105.4 109.6 114.0 118.6 123.3 128.2

117.8 125.0 132.6 140.7 149.2 158.3 252.7 268.1 284.4 301.7 320.0 339.5 360.1 382.0

36.5 36.5 36.5 36.5 36.5 36.5 69.8 69.8 69.8 69.8 69.8 69.8 69.8 69.8

243.0 252.8 262.9 273.4 284,3 295.7 307.5 319.8 ' 332.6 345.9 359.8 374.1 389,1 404.7

23.8 25.3 26.8 28.4 30.1 32.0 33.9 36.0 38.2 40.5 43.0 45.6 48.3 51.3

5.9 29.4 58.8 88.2 67.6 44.1 6.0 - - - •

31.6 19.2 1.9 (14.4) 20.4 59.2 (258.6) (255.3) (257.8) (260.1) (262.2) (264.1) (265.6) (266.9)

14.5 8.8 0.9 (6.6) 9.4 27.3 (119.0) (117.4) (118.6) (119.7) (120.6) (121.5) (122.2) • (122.8)

17.0 10.4 1.0 (7.8) 11.0 32.0 (139.6) (137.9) (139.2) (140.5) (141.6) (142.6) (143.4) (144.1)

17.0 10.4 1.0 (7.8) 11.0 32.0 (139.6) (137.9) (139.2) (140.5) (141.6) (142.6) (143.4) (144.1)

36.5 36.5 36.5 36.5 36.5 36.5 69.8 69.8 69.8 69.8 69.8 69.8 69.8 69.8

(12.3) (13.0) (13.8) (14.7) (15.5) (16.5) (17.5) (18.6) (19.7) (20.9) (22.2) (23.5) (24.9) (26.4)

41.2 33.8 23.7 14.0 31.9 52.0 (87.3) (86.6) (89.1) (91.6) (94.0) (96.3) (98.6) (100.8)

(44.9) (44.9) (44.9) (44.9) (44.9) (44.9) (78.2) (78.2) (78.2) (78.2) (78.2) (78.2) (78.2) (78.2)

(10.0) (50.0) (100.0) (150.0) (115.0) (75.0) - - -

(54.9) (94.9) (144.9) (194.9) (159.9) (119.9) (78.2) (78.2) (78.2) (78.2) (78.2) (78.2) (78.2) (78.2)

(13.6) (61.1) (121.2) (180.8) (128.0) (67.9) (165.6) (164.8) (167.3) (169.8) (172.2) (174.5) (176.8) (179.0)

(1,491.4)

0.8929 0.7972 0.7118 0.6355 0.5674 0.5066 0,4523 0.4039 0.3606 0.3220 0.2875 0.2567 0.2292 0.2046

(12.2) (48.7) (86.3) (114.9) (72.6) (34.4) (74.9) (66.6) (60.3) (54.7) (49.5) (44.8) (40.5) (341.8)

3/10/97 Standard Case GRIM7.XLS

EE-PI-96-001 COMMENT 82

Government Regulatory 

!mpact Model 

I . Ex.rnple~ Ref'rlgcratotyRcg 1997·12C . .~ 

Announce 

STANDARD CASE SCENARtO Base Year Year Standard Year 

1998 1999 '2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 

1";<";""-;"';;"1'; •• Jneome ~taten\Mt·;:;· " ~; 'f'-

Price/Unit 

Unit Sales 

Revenues 

Cost of Sales 

Labor 168.3 178.5 189.4 200.9 213.1 226.1 239.8 339.2 359.8 381.7 404.9 429.5 455.6 483.3 512.7 

Material 448.8 476.1 505.0 535.7 568.3 602.9 639.5 848.0 899.6 954.3 1,012.3 1,073.8 1,139.1 1,208.4 1,281.8 

Overhead· Fixed 74.1 77.0 80.1 83.3 86.6 90.1 93.7 97.4 101.3 105.4 109.6 114.0 118.6 123.3 128.2 

Overhead· Variable 111.1 117.8 125.0 132.6 140.7 149.2 158.3 252.7 268.1 284.4 301.7 320.0 339.5 360.1 382.0 

Deprecialion 36.5 36.5 36.5 36.5 36.5 36.5 36.5 69.8 69.8 69.8 69.8 69.8 69.8 69.8 69.8 

Selling. General and Adminisrfath'e 

Standard SO&A 233.7 243.0 252.8 262.9 273.4 284.3 295.7 307.5 319.8 332.6 345.9 359.8 374.1 389.1 404.7 

R&D 22.4 23.8 25.3 26.8 28.4 30.1 32.0 33.9 36.0 38.2 40.5 43.0 45.6 48.3 51.3 

Product Conversion Ex~nsc 5.9 29.4 58.8 88.2 67.6 44.1 6.0 

Profit Before Tax 27.2 31.6 19.2 1.9 {I 4.4) 20.4 59.2 (258.6) (255.3) (257.8) (260.1) (262.2) (264.1) (265.6) (266.9) 

Taxes 12.5 14.5 8.8 0.9 (6.6) 9.4 27.3 (119.0) {I 17.4) (118.6) (119.7) (120.6) (I21.5) {I 22.2) (122.8) 

Nct Income Defore Financing 14.7 17.0 10.4 1.0 (7.&) 11.0 32.0 (139.6) (137.9) (139.2) (140.5) (141.6) (142.6) (143.4) (144.1) 

I:·" ,/t;;'~;~ ·,·,CWI FlowStattrnenl'.'. ' ~"'L';:;'\:' ·,1 Net Income 14.7 17.0 10.4 1.0 (7.8) 11.0 32.0 (139.6) (137.9) (I39.2) (140.5) (I41.6) (142.6) (I43.4) (144.1) 

Deprecialion 36.5 36.5 36.5 36.5 36.5 36.5 36.5 69.8 69.& 69.8 69.8 69.8 69.8 69.& 69.8 

Change in Working Capital (12.3) (13.0) (13.8) (14.7) (15.5) (16.5) (17.5) (18.6) (19.7) (20.9) (22.2) (23.5) (24.9) (26.4) 

Cash Flows from Operations 51.1 41.2 33.8 23.7 14.0 31.9 52.0 (87.3) (86.6) (89.1) (91.6) (94.0) (96.3) (98.6) (100.8) 

Ordinary Capital Expenditures (44.9) (44.9) (44.9) (44.9) (44.9) (44.9) (44.9) (78.2) (18.2) (78.2) (78.2) (78.2) (78.2) (78.2) (78.2) 

Conversion Capital Expenditures (I0.0) (50.0) (100.0) {I 50.0) (115.0) (75.0) 

Cash Used In Investment (44.9) (54.9) (94.9) (144.9) (194.9) (159.9) (119.9) (78.2) (78.2) (78.2) (78.2) (78.2) (78.2) (78.2) (78.2) 

Net Cash Aow 6.3 (13.6) (61.1) (121.2) (180.8) (128.0) (67.9) (165.6) (164.8) (167.3) (169.8) (172.2) (174.5) (I76.8) (179.0) 

Terminal Value (1,491.4) 

Present Value FaClor 1.0000 0.8929 0.7972 0.7118 0.6355 0.5674 0.5066 0.4523 0.4039 0.3606 0.3220 0.2875 0.2567 0.2292 0.2046 

DisCQllnlcd Cash Flow 6.3 (12.2) (48.7) (86.3) (114.9) (72.6) (34.4) (74.9) (66.6) (60.3) (54.7) (49.5) (44.8) (40.5) (341.8) 

Industry Value (Net Present Value) $ (1,095.9) 

3/10/97 Standard Case ORIM7.XLS 
Government Regulatory

Impact Model

PreRegulation

(Base)

1998

PostRegulation

(Standard)

2005

Unit Shipments (000,000) 5.61 6.44

Price per unit $ 200.00 $ 263.19

Total Revenues ($000,000) $ 1,122.00 $ 1,696.01

Profit After Tax ($000,000) $ 14.67 $ (139.64)

Net Cash Flow ($000,000) $ 6.26 $ (165.55)

Industry Value (Net Present value) ($000,000) $ 425.74 $ (1,095.89)

MAJOR ASSUMPTIONS

Manufacturing Costs

Materials per Unit $ 80.00 $ 100.00

Labor per Unit $ 30.00 $ 40.00

Overhead per Unit $ 33.00 $ 43.00

Depreciation per unit $ 6.50 $ 10.83

Conversion Cost

Capital Expenditures ($000,000) $ 500.00

Design & Marketing Expenses ($000,000) $ 300.00

3/10/97 Summary Report GRIM7.XLS

EE-PI-96-001 COMMENT 82

3110/97 

Government Regulatory 

Impact Model 

Summary Reportfor 

Ex~rilple: Refrigerator,Regi997~i2(J' 

Unit Shipments (000,000) 

Price per unit 

Total Revenues ($000,000) 

Profit After Tax ($000,000) 

Net Cash Flow ($000,000) 

Industry Value (Net Present Value) ($000,000) 

MAJOR ASSUMPTIONS 

Manufacturing Costs 

Conversion Cost 

Materials per Unit 

Labor per Unit 

Overhead per Unit 

Depreciation per Unit 

Capital Expenditures ($000,000) 

Design & Marketing Expenses ($000,000) 

Summary Report 

PreRegulation 

(Base) 

1998 

$ 

$ 

$ 

$ 

$ 

$ 

$ 

$ 

$ 

5.61 

200.00 

1,122.00 

14.67 

6.26 

425.74 

80.00 

30.00 

33.00 

6.50 

Regulation 

(Standard) 

2005 

6.44 

$ 263.19 

$ 1,696.01 

$ (139.64) 

$ (165.55) 

$ (1,095.89) 

$ 100.00 

$ 40.00 

$ 43.00 

$ 10.83 

$ 500.00 

$ 300.00 

GRIM7.xLS 
Government Regulatory

Impact Model

CASH FLOW TOTALS

Example: Refrigerator, Reg 1997-12C

150

0

E

(200)

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

-•-- Base

Standard

3/10/97 GRIM7.XLS

EE-PI-96-001 COMMENT 82

Vl 

0 = 

== ·s 

V7 

3/10197 

ISO 

100 

50 

0 

(50) 

(100) 

(150) 

Government Regulatory 

Impact Model 

CASH FLOW TOTALS 

Example: Refrigerator, Reg 1997-12C 

(200)~----------------------------------·----------------------------------------~ 

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 

-+-Base 

_Standard 

GRIM7XLS 
Government Regulatory

Impact Model

INDUSTRY VALUE (NPV)

Example: Refrigerator, Reg 1997-12C

600

400

200

(200)

(400) -{

(600) ^

(800) ^

(1,000) -{

(1,200)

Standard

D base

3/10/97 GRIM7.XLS

EE-PI-96-001 COMMENT 82

19 

:$ 's 

Y7 

3110197 

600 

400 

200 

o 

(200) 

(400) 

(600) 

(800) 

(1,000) 

Government Regulatory 

Impact Model 

INDUSTRY VALUE (NPV) 

Example: Refrigerator, Reg 1997·J2C 

(1,200) -'----------------------.--------------------------' 

Iillbase 

III Standard 

GRIM7.XLS 
Government Regulatory

Impact Model

REVENUE BY YEAR

Example: Refrigerator, Reg 1997-12C

3,000

2,500 -{

2,000

--$ Base Standard

1,000

500 -I

0

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

3/10/97 GRIM7.XLS

EE-PI-96-001 COMMENT 82

3,000 

2,500 

Government Regulatory 

Impact Model 

REVENUE BY YEAR 

Example: Refrigerator, Reg 1997-12C 

2,000 -

til 

.~ = 

] 1,500 

fh 

1,000 

500 

o 

3/10/97 

-+- Base -II-Standard 

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 

GRIM7.XLS 
Government Regulatory

Impact Model

INCOME AFTER TAX

Example: Refrigerator, Reg 1997-12C

-♦- Base

Standard

(150)a

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

3/10/97 GRIM7.XLS

EE-PI-96-001 COMMENT 82

til 

c: 

,~ 

= '9 

fh 

3/10/97 

200 

150 

100 

50 

0 

(50) 

(100) 

-

Government Regulatory 

Impact Model 

INCOME AFTER TAX 

Example: Refrigerator, Reg 1997·12C· 

(150) -1 ________________ ,_. _______ • _______ _ 

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 

-+-Base 

-II- Standard 

GRIM7.xLS 
Government Regulatory

Impact Model

PRICE PER YEAR

Example: Refrigerator, Reg 1997-12C

a

a

E

a

350

300

250

200

-6 -Base Standard

150 -I

100 -I

50

0

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

3/10/97 GRIM7.XLS

EE-PI-96-001 COMMENT 82

350 

300 

250 

200 

150 

100 

50 

o 

3110/97 

Government Regulatory 

Impact Model 

PRICE PER YEAR 

Example: Refrigerator, Reg 1997-12C 

-.-Base ___ Standard 

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 

GRIM7.xLS 
Government Regulatory

Impact Model

SHIPMENTS PER YEAR

Example: Refrigerator, Reg 1997-12C

8.0

7.0

6.0

5.0

--* Base Standard

3.0

2.0

1.0

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

3/10/97 GRIM7.XLS

EE-PI-96-001 COMMENT 82

Government Regulatory . 

Impact Model 

SHIPMENTS PER YEAR 

Example: Refrigerator, Reg 1997-12C 

8.0 

7.0 

6.0 

5.0 

-

~ 4.0 's -+-Base -III-- Standard 

3.0 

2.0 

1.0 

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 

3110/97 GRIM7.xLS 
Government Regulatory

Impact Model

CASH USED IN INVESTMENTS

Example: Refrigerator, Reg 1997-12C

200

180

160

140

120

80

60

40

20 -I

0

1998 1999 2000 2001 2002 2003 2004 2005 2006. 2007 2008 2009 2010 2011 2012

3/10/97 GRIM7.XLS

EE-PI-96-001 COMMENT 82

200 

180 

160 

140 

120 

til 

= 

~ 100 i 

fh 

80 

60 

40 

20 

o 

3/10/97 

Government Regulatory 

Impact Model 

CASH USED IN INVESTMENTS 

Example: Refrigerator, Reg 1997-12C 

~----------------------------------------------------------------------~ 

-+-Base -II- Standard 

1998 1999 2000 2001 2002 2003 2004 2005 2006, 2007 2008 2009 2010 2011 2012 

GRIM7.XLS 
Government Regulatory

Impact Model

data for graphs

year 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

year 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

base Cashflow 6.3 (0.5) 4.8 10.5 16.8 23.6 30.9 38.9 47.5 56.8 66.9 77.8 89.5 102.2 115.9

base Revenues 1,122.0 1,190.2 1,262.6 1,339.3 1,420.8 1,507.2 1,598.8 1,696.0 1,799.1 1,908.5 2,024.5 2,147.6 2,278.2 2,416.7 2,563.7

base Income After Tax 14.7 20.2 26.2 32.8 39.9 47.5 55.8 64.8 74.5 84.9 96.2 108.4 121.5 135.6 150.8

base Shipments 5.6 5.7 5.8 6.0 6.1 6.2 6.3 6.4 6.6 6.7 6.8 7.0 7.1 7.3 7.4

base Price 200.0 208.0 216.3 225.0 234.0 243.3 253.1 263.2 273.7 .284.7 296.0 307.9 320.2 333.0 346.3

base Industry Value $ 425.74

base Investments 44.9 44.9 44.9 44.9 44.9 44.9 44.9 44.9 44.9 44.9 44.9 44.9 44.9 44.9 44.9

standard Cashflow 6.3 (13.6) (61.1) (121.2) (180.8) (128.0) (67.9) (165.6) (164.8) (167.3) (169.8) (172.2) (174.5) (176.8) (179.0)

standard Revenues 1,122.0 1,190.2 1,262.6 1,339.3 1,420.8 1,507.2 1,598.8 1,696.0 1,799.1 1,908.5 2,024.5 2,147.6 2,278.2 2,416.7 2,563.7

standard Income After Tax 14.7 17.0 10.4 1.0 (7.8) 11.0 32.0 (139.6) (137.9) (139.2) (140.5) (141.6) (142.6) (143.4) (144.1)

standard Shipments 5.6 5.7 5.8 6.0 6.1 6.2 6.3 6.4 6.6 6.7 6.8 7.0 7.1 7.3 7.4

standard Price 200.0 208.0 216.3 225.0 234.0 243.3 253.1 263.2 273.7 284.7 296.0 307.9 320.2 333.0 346.3

standard Industry Value $ (1,095.89)

standard Investments 44.9 54.9 94.9 144.9 194.9 159.9 119.9 78.2 78.2 78.2 78.2 78.2 78.2 78.2 78.2

3/10/97 Data for Graphs _ GRIM7.XLS

EE-PI-96-001 COMMENT 82

data for graphs 

year 1998 1999 2000 

year 1998 1999 2000 

base Cashflow 6.3 (0.5) 4.8 

base Revenues 1,122.0 \,190.2 1,262.6 

base Income After Tux 14.7 20.2 26.2 

base Shipments 5.6 5.7 5.8 

base Price 200.0 208.0 216.3 

base Industry Value $ 425.74 

base Investments 44.9 44.9 44.9 

standard Cash flow 6.3 (13.6) (61.1) 

standard Revenues 1,122.0 1,190.2 1,262.6 

standard Income After Tux 14.7 17.0 \0.4 

standard Shipments 5.6 5.7 5.8 

standard Price 200.0 208.0 216.3 

standard lndustry Value $ (1,095.89) 

standard Investments 44.9 54.9 94.9 

3110/97 

2001 

2001 

10.5 

1,339.3 

32.8 

6.0 

225.0 

44.9 

(121.2) 

1,339.3 

1.0 

6.0 

225.0 

144.9 

Government Regulatory 

Impact Model 

2002 2003 2004 

2002 2003 2004 

16.8 23.6 30.9 

1,420.8 1,507.2 1,598.8 

39.9 47.5 55.8 

6.1 6.2 6.3 

234.0 243.3 253.1 

44.9 44.9 44.9 

(180.8) (128.0) (67.9) 

1,420.8 1,507.2 1,598.8 

(7.8) 11.0 32.0 

6.1 6.2 6.3 

234.0 243.3 253.1 

194.9 159.9 119.9-

Data for Graphs 

2005 2006 2007 2008 2009 2010 2011 2012 

2005 2006 2007 2008 2009 2010 2011 2012 

38.9 47.5 56.8 66.9 77.8 89.5 102.2 115.9 

1,696.0 1,799.1 1,908.5 2,024.5 2,147.6 2,278.2 2,416.7 2,563.7 

64.8 74.5 84.9 96.2 108.4 121.5 135.6 150.8 

6.4 6.6 6.7 6.8 7.0 7.1 7.3 7.4 

263.2 273.7 .284.7 296.0 307.9 320.2 333.0 346.3 

44.9 44.9 44.9 44.9 44.9 44.9 44.9 44.9 

(165.6) (164.8) (167.3) (169.8) (172.2) (174.5) (176.8) (179.0) 

1,696.0 1,799.1 1,908.5 2,024.5 2,147.6 2,278.2 2,416.7 2,563.7 

(139.6) (137.9) (139.2) (140.5) (141.6) (142.6) (143.4) (144.1) 

6.4 6.6 6.7 6.8 7.0 7.1 7.3 7.4 

263.2 273.7 284.7 296.0 307.9 320.2 333.0 346.3 

78.2 78.2 78.2 78.2 78.2 78.2 78.2 78.2 

GRIM7XLS