# 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 

## Manufacturer Impact Analysis Draft Methodology Overview March 11, 1997 U.S. Departmentof Energy Office of Energy Efficiency and Renewable Energy 1000 IndependenceAvenue, 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 

### Manufacturer Impact Analysis Draft Methodology



# 1 . Analytical 

# FrameWork .

• < • 

# Ptiasel: Indu

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 

### 1. Analytical Framework Legis/ative Requirements 

# In determining whether a standard is economicallyjustified, 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 impactof 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 ? 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 quantitative

March 11, 1997 .4 

### 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 addressed



# . ./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 

### 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 

### 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 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 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 

### 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 

### 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 

## 1. Analytical Framework Screening Analysis



# --

ANOPR

Indirect Employment Impacts 

### Flow Diagram ofStandards 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 

### 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 

### 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 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: 

# '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 

### 2. Phase 1: Industry Profile Issues Identification Workshop 

# Before beginning detailed impact analyses, DOE 

# will hold aworkshop 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 

### 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 

### 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 

### 3. Phase 2: Industry Cash Flow Relationship to otherAnalysis 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 

### 3. Phase 2: Industry Cash Flow 

# In estimating cash flow, DOE will be relying on externally supplied price and quantityforecasts. [" 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 

### Manufacturer Impact Analysis Draft Methodology



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

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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 

### 4. Phase 3: Sub-Group Impact Analysis 

# Phase 3 ofthe 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 

### 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 Task4: 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 

### 4. Phase 3: Sub-Group Impact Analysis Task

### 4: Estimate Competitive Impacts 

# DOE will solicit early involvement ofthe Department ofJustice (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

mpact Analysis Phase 3: Sub-Group Workshop Agenda

March 11, 1997 21 

### 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 

### 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 ofthe GRIM Model (I;>avid Arnold, Arthur D. Little)

- Role and applicability ofthe GRIM

- Overview of 1997 update

- Discounted cash flow analysis . - Walk-through ofthe 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 offorecasting 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 

### 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 Inputto 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) 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 

### 5. Workshop Agenda 

# Day 2, March 12, 1997: 12:30 - 1:30

1:30
- 2:30

2:30
- 2:45 Manufacturing Price forecasts for Inputto 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 

### 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 25I. L66t ' t t 4DJEW

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 

### 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 movementaround spreadsheet versus macrodriven methodology. Streamlined Input - Simple analyses with single assumptions page

® 

# Graphs - On-screen viewing.

March 11, 1997 3 

### 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 

### 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 

### 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 businesses tend to shrink working capital (generating cash).

March 11, 1997 

# - 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?**

# '" CurrentAssets 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 

### 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 

### GRIM MODEL Discounted Cash Flow 

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

## inflation is 

## 5% peryear:. 

## A dollar earned one year from today is equivalentto: $1 $1

- $0.95 1 

# + Inflation Rate 1.05 Ifinflation is 20% peryear: 

## A dollar earned one year from today is equivalent to: 

# $1 $1

- $Q.83 1 

# + Inflation 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 

### 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% peryear:

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 

### GRIM Model Discount Rate 

# A discount rate is comprised oftwo elements: I······· .............................. 

# : : : : 

# : Rd = R f 

# + Rp :

. . ...................................... 

## • Rf

# =Risk-free rate (this accounts for the pure time element)**~** 

## Rule ofthumb: The risk-free rate is approximatelyequal to the long-term Treasurybill rate 

# A dollarreceived todayis worth more than 

# a dollarreceived 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 discount 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 

### 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

# ~ 

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# ........**~** 4% 8% 15% 25%+ Treasury Regulated Average for Venture Bills Utilities StockMarket 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 

### GRIM Model Terminal Value 

# Terminal value is the value of an asset beyond the horizon ofyour detailed valuation. In the GRIM Model, it is calculated as a discounted perpetuity based upon the cash flows in the final year ofthe 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

### 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 Appendix A GRIM Operating Principles & Instructions
Introduction and Purpose Thepurpose ofthe Government Regulatory ImpactModel (GRIM) is to help identify the effects ofvarious efficiency and otherregulations onmanufacturers. The basic mode of analysis is to determine the change in value ofthe manufacturer(s) following a regulation. The model is expressly designed to allow an analysis ofthe effects ofa singleregulation upon a single product. By combining multiple iterations ofthis model, itis also possible to analyze multiple products withregulations taking effect over a period oftime, and/or multipleregulations onthe same product. Industiy valueis defined for the purposes ofthis analysis, as the present value ofcash flows for the manufacturer, ormanufacturers, in question. Cashflow is calculatedby the user entering shipment volumes and manufacturerprices (i.e., prices from manufacturers to the first customer, such as a wholesaler), as well as selected assumptions regarding otherelements ofthe relevant cost structures. The model calculates the actual cash flows, by year and then determines the present value ofthose cash flows both without regulations (the pre-regulationbase case) and with regulations (the post-regulation standards case). The GRIM model, originally createdin Lotus 1-2-3, has beenreprogramm:ed as an Excel (Version 5.0) workbook, with multiple worksheets. The useris allowed to input assumptions into a single worksheet, which then generates complete cash flow and net present value calculations for both abase case (withoutregulation) and a standard case (with regulation). Output comes from the model in terms ofaccess to the complete cash flow calculations, summary statistics, and graphs ofmajorvariables, all ofwhich appear on individual worksheets within the workbook. Input of Major Assumptions The MajorAssumptions worksheet allows user input ofthe following key information: (1) ScenarioDescription: (2) Base Year Name ofGRIM scenario. This description appears as a reference on all printed output ofthe 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%. 

### (3) Announcement Year (4) Standard Year (5) TaxRate (6) DiscountRate forNPV (7) Inflation Rate (8) Working Capital (9) Base Year UnitPrice (10) Base Year Unit Sales (11) Unit Sales Growth Rate (12) StandardSG&A Yearin whichregulation is announced. Inthis year, manufacturersbeginningpreparing for the change, thus experiencing conversion costs. Year in whichregulation takes effect. Effectivetotal tax rate ofmanufacturer(s). Default input is 46%. To beusedfor discounted cash flow analysis. Default inputis 12%. Assumed annual increase in prices and costs as a function ofinflation. Defaultinput is 4%. Estimate ofworking capital requirement as a percent ofrevenues. Unit Price in initial year ofanalysis. Unit Sales in initial year ofanalysis, expressed in millions. Assumed annual %increase in unit sales. Default input is 2%. Total Sales, General, and Administrative costs, expressedin 

### $ millions. Excludes R&D and any conversion expenses. 

### (13) Research andDevelopment Annual R&D costs, expressed as % ofrevenues. 

### (14) OrdinaryDepreciation Assumed depreciation in steady state, excluding the effects ofcapital expenditures associated with conversions to accommodate new regulations. Expressed as % ofrevenues, with default of3.3%. 

### (15) Ordinary Cap. Expenditures Assumed capital expenditures in steady state, excludingthe effects ofcapital 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 ofNetIncome 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 (16) Variable Overhead % (17) Manufacturing Costs

(18) Conversion Costs Percentageportion ofmanufacturing overheadthat varies with the volume ofunits produced. Remainder is assumed to befixed. In this section, the useris asked to input assumed perunit $ costs for Materials, Labor, and Overhead in the initialbase year ofthe analysis, and the incremental effect which will occurinthe yearthe regulatory change is implemented. In this section, the userinputs estimates oftwo types ofconversion costs: (1) those which involve investments in fixed assets, which will be capitalized (Capital Expenditures), and (2) Design and Marketing.Expenses, which,willbeexpensed 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 Forboth the base case (without regulation) and the standard case (withregulation), the core output ofthe GRIM is a standard annual cash flow analysis whichuses price and volume information as an input, builds on fundamental basecostinformation and accepts a set ofregulatory conditions as changes in costs and investments. -The cash flow analysis is separated into two majorblocks: income and cash flow. The income calculation determines theprofit aftertaxes butbefore financial charges. The cashflow calculation converts profit after taxes into an annual cash flow by including investment and non-cash items. Below are definitions oflisted items on the printout ofthe output sheets forboth scenarios. (1) Income Statement:
(2) Price/Unit: (3) Unit Sales: Overall calculation ofNetIncomeBefore Financing (17) using revenue and costitems subject to income tax effects as describedin (2) through (17) Actual manufacturer unit price chargedto the first level ofdistribution (distributor, etc.); entered as an input variableby userin MajorAssumptions. Annual shipments; entered as an input variable by user in MajorAssumptions. 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 yearRevenues (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 ofRevenues (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 

### (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; computedby multiplying 

### Price/Unit (2) by 

### Unit Sales (3).
Factory direct labor and fringe benefitcosts; calculation done for and basedonassumptions for Manufacturing Costs, inflation, and Unit Sales (3). Purchased materials and components; calculation done for, andbased on, assumptions for Manufacturing Costs, inflation, and Unit Sales (3). Factory overheadexcluding depreciation; calculation done for, andbasedon, assumptions for Manufacturing Costs, inflation, andUnit Sales (3). Overhead is treated as both fixed and variable, with the percentage ofoverhead (excluding**de~reciation)** that is variable setunderthe Major Assumptions. Annual depreciation on pre-regulation assets; computed as apercentage ofbase year

### Revenues (4). Annual depreciation on post-regulation assets is computedby dividing 

### CapitalExp'enditures (24) by auseful life from MajorAssumptions. For post-regulation years,

### Depreciation is the sumof depreciation on pre- andpost-regulation assets. Total cost ofsales, computedby 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 productredesign costs and expensab1e factory conversion expenses. Also includes costs incurred for new productliterature and catalogs, product obsolescence, andvarious related marketing expenses. These costs are allocated overthe timeframe from the
A-4Announcement Year to the Standard Year via a formula in the model. (14) Standard SG&A: (15) ProfitBefore Tax: (16) Taxes: (17) NetIncome: (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) fromRevenues (4). Taxes on Profits Before Tax; computed by multiplying the tax rate contained in Major Assumptions by ProfitBefore 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) NetIncome: Net income; identical to NetIncome (17). (21) Depreciation: Depreciation is a non-cash cost and is added back intoNet Income (20) as part of the cash flow calculation; identical toDepreciation (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 yearRevenues (4) using a percentage contained in Major Assumptions. Post-regulation

A-5 (14) StandardSG&A: (15) ProfitBefore Tax: (16) Taxes: (17) NetIncome: (18) Cash Flow Statement: (19) Cash Flow: Announcement Year to the Standard Yearvia a formula in the model. Selling, general and administrative costs including all non-factory costs, butexcludingR&D (12) and Product Conversion Costs (13). Profitbefore taxes and any financing costs; computedby subtracting the Costof Sales (11) and all SG&A costs (12-14) fromRevenues (4). Taxes onProfits BeforeTax; computedby mUltiplying the tax rate contained in Major Assumptions byProfitBefore Tax (15). Profits after taxes; computedby subtracting Taxes (16) from Profitbefore Tax (15). Overall assessment including net income, other cashrelated items and adjustments and investments. Determination ofcash flow generated from operations. (20) NetIncome: Net income; identical to NetIncome (17). (21) Depreciation: Depreciation is a non-cash cost and is addedback intoNetIncome (20) as part ofthe cashflow calculation; identical toDepreciation (10). (22) Change in Working Capital: Additional accounts receivable, inventory, and othercash investments necessary to support increased revenues; computedby multiplying a percentage from Major Assumptions by the change inRevenues (4). (23) Cash Flowfrom Operations: The cashflow from operating activities; computed by addingNetIncome (20),Depreciation (21) and subtracting Change ofWorking Capital (22). (24) CapitalExpenditures: Investment to maintain andreplace existing production assets; computed as a percentage of base yearRevenues (4) using a percentage contained in Major Assumptions. Post-regulation
A-5capital 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 Usedin 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 (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 includingplant, equipment, tooling and the like. These costs are allocated overthe timeframe from the Announcement Yearto the Standard Year via a formula inthe modeL Cashrequired for assets; computedby adding 

### CapitalExpenditures (24) and 

### Conversion Expenditures (25). Annual cash flow from operations and investments; computedby subtracting 

### Cash Used in Investments (26) from 

### Cash Flowfrom Operations (23). The estimatedresidual value ofthe industry, valued as a perpetuity ofthe cashflow in the last year ofthe analysis (year 15). Basedupon the discount rate in the Major Assumptions, represents the factor to be applied to the cash flows ofeach future year to express them in NPV terms. Equals sumofNet Cash Flow (27) andTerminal Value (28), times the PresentValueFactor (29) for eachyear. Sumofall annual discounted cash flows. Represents total net presentvalue of manufacturer(s) anticipated cash flows.

Theremaining worksheets ofthe GRIM model offer summary and graphical presentations ofkey elements ofthe cash flow analyses for the base and standard cases. Each sheet can be analyzed and/orprinted individually. The entire workbookcan also beprinted using the "EntireWorkbook" option which appears as a part oftheExcel "Print" portion ofthe "File"pull-down menu.
A-6Government Regulatory Impact Model

(1) Scenario Description Assumptions Page for Example: Refrigerator, Reg 1997-12C Example: Refrigerator, Reg 1997-12C

Beginningyear for analyticalpurposes Yearin 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 Major Assumptions GRIM6.XLS 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 % ofTotal (i

### 1- Manufacturing Costs Materials / Unit Labor/ Unit Overhead / Unit Conversion Costs Capital Expenditures Useful Life ofConversion Capital Design & Marketing Expenses Government Regulatory ImpactModel

... . AssumptiortsPagdor Exa.mple: Refrigerator;Ret(1997.i2C . 1998 Beginni1lgyear for analyticalpurposes I-------i 1999 Year ill which the regulatio1l a1l1l0U1lcement is made**I------~** 2005 Year in which the regulation takes effect 1...-_____ -' 46.0% 12.0% 4.0% perannum 1-----'-'--, 18.0% of Revenue 

### '-------'---.... 200.0 ($)

5.61 (000,000) 1------:-, 2.0% perannum 1..-___ --=:.:.::...:..:..1 1- __ 2_3_3 .-:-69-:-i/($000,000)**~====2=.~0=%~_**of Revenue 1-----3 ;;.;.;.;;.3":";%41of 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.xLSGovernment 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 6 2- Price/Unit ( 0) 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 Terminal Value 965.9 29 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 Base Case GRIM6.XLS 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/,dAdmillistrative 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 Changein 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.XLSGovernment 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 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 Costof 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. GeneralandAdminisrfath'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 {I4.4) 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) {I22.2) (122.8) NctIncome 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) {I50.0) (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.XLSGovernment 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 3110/97 GovernmentRegulatory ImpactModel

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) MAJORASSUMPTIONS 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) 20056.44 $ 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.xLSGovernment 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 Vl 

## = 0 

### == 

# ·s V7

3/10197 ISO
100
50

0 (50)
(100) (150) Government Regulatory ImpactModel 

## 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

GRIM7XLSGovernment 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 19 

## :$ 

# 's Y7

3110197 600
400
200 

## o (200) (400) (600) (800) (1,000) Government Regulatory ImpactModel 

## INDUSTRY VALUE (NPV) Example: Refrigerator, Reg 1997·J2C

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

GRIM7.XLSGovernment 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 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.XLSGovernment 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 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.xLSGovernment 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 350
300
250
200
150
100
50



### o

3110/97 Government Regulatory ImpactModel 

## 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.xLSGovernment 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 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.xLSGovernment 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 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.XLSGovernment Regulatory Impact Model

data for graphsyear 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 data for graphsyear 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 Cashflow 6.3 (13.6) (61.1) standard Revenues 1,122.0 1,190.2 1,262.6 standard Income AfterTux 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