Explain the financial model

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EQUITY VALUE

PALAMON CAPITAL PARTNERS/TEAMSYSTEM S.P.A.
(values in millions of lira)
2000 2001 2002 2003 2004 2005 2006 2007
EBIT 23,863 27,503 31,689 33,614 35,655 37,818 40,111 42,542
Less taxes 10,207 12,240 14,584 15,811 17,322 18,934 20,652 22,584
NOPAT 13,657 15,263 17,105 17,803 18,333 18,884 19,459 19,958
Less incr. in NWC 1,270 1,461 1,680 773 819 868 921 976 14% of sales change
Less capex (1,582) 1,161 1,275 1,148 1,193 1,240 1,291 1,344
Plus deprec. and amort. 835 900 975 1,010 1,046 1,085 1,126 1,170
FCF before terminal value 14,804 13,541 15,125 16,892 17,367 17,861 18,373 18,808
Terminal value 356,014 6% growth
Free cash flow 14,804 13,541 15,125 16,892 17,367 17,861 18,373 374,822
Net Cash (170,003) 191,873
ROI -0.13
IRR 13%
1 Enterprise value 252,891 263,668 277,104 290,844 304,716 320,175 337,383 356,014
2 Debt 46,000 46,000 46,000 34,500 23,000 11,500 - 0 - 0
3 Equity 206,891 217,668 231,104 256,344 281,716 308,675 337,383 356,014
4 D/E 0.222 0.211 0.199 0.135 0.082 0.037 0.000 0.000
5 Tax rate 48.0% 48.0% 48.0% 48.0% 48.0% 48.0% 48.0% 48.0%
6 Unlevered beta 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000
7 Levered beta 1.116 1.110 1.104 1.070 1.042 1.019 1.000 1.000
8 Cost of equity 12.29% 12.26% 12.22% 12.02% 11.85% 11.72% 11.60% 11.60%
9 Cost of debt 6.87% 6.87% 6.87% 6.87% 6.87% 6.87% 6.87% 6.87%
10 WACC 10.71% 10.74% 10.79% 11.02% 11.23% 11.42% 11.60% 11.60%
2007 Data
EBIT 42,542
EBIT Multiple 5.4
Enterprise Value 229,726
Net Debt 37,853
Equity Value 191,873

INCOME STATEMENT

PALAMON CAPITAL PARTNERS/TEAMSYSTEM S.P.A.
TeamSystem, S.p.A. Historical and Pro-Forma Income Statement
(values in millions of lire)
TeamSystem Income Statement
PRO-FORMA
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
15% 15% 15% 6% 6% 6% 6% 6% growth
Total sales 39,665 42,922 50,694 60,499 69,573 80,009 92,011 97,532 103,383 109,586 116,162 123,131
Cost of materials (9,979) (11,430) (12,258) (15,179)
Cost of service (9,380) (8,692) (10,889) (12,389)
Rents and leasing (328) (394) (1,493) (1,553)
Total operating cost (19,687) (20,516) (24,640) (29,121) (31,308) (36,004) (41,405) (43,889) (46,523) (49,314) (52,273) (55,409) 45.00% of sales
Salaries (4,875) (5,382) (6,282) (7,151)
Social contributions (1,855) (2,047) (1,917) (2,011)
Other personnel costs (456) (481) (572) (753)
Total personnel costs (7,186) (7,910) (8,771) (9,915) (10,784) (12,401) (14,262) (15,117) (16,024) (16,986) (18,005) (19,085) 15.50% of sales
Other operating costs (2,793) (3,052) (3,133) (1,339) (2,783) (3,200) (3,680) (3,901) (4,135) (4,383) (4,646) (4,925) 4.00% of sales
EBITDA 9,999 11,444 14,150 20,124 24,699 28,403 32,664 34,624 36,701 38,903 41,237 43,712
Depreciation & amortization (1,052) (1,427) (1,355) (1,636) (835) (900) (975) (1,010) (1,046) (1,085) (1,126) (1,170) 25.00% of PP&E and Intang
EBIT 8,947 10,017 12,795 18,488 23,863 27,503 31,689 33,614 35,655 37,818 40,111 42,542
Interest expense (185) (144) (154) (210) (3,160) (3,160) (3,160) (2,765) (1,975) (1,185) (395) - 0 6.87% interest
Non-op income 1,800 1,305 1,132 1,283 561 1,157 1,855 2,091 2,408 2,813 3,310 4,507 5.00% return on mkt secur
Pretax profit 10,563 11,178 13,773 19,562 21,264 25,500 30,383 32,940 36,088 39,446 43,026 47,049
Taxes (5,870) (6,699) (6,437) (9,525) (10,207) (12,240) (14,584) (15,811) (17,322) (18,934) (20,652) (22,584) 48.00% of pre-tax profit
Earnings before minorities 4,693 4,479 7,336 10,036
Elimination of intercompany invest (30) (13) (139) (287)
Net income 4,663 4,466 7,197 9,749 11,058 13,260 15,799 17,129 18,766 20,512 22,373 24,465
2000 2001 2002 2003 2004 2005 2006 2007
Calculation of Free Cash Flow EBIT 23,863 27,503 31,689 33,614 35,655 37,818 40,111 42,542
Less Taxes 10,207 12,240 14,584 15,811 17,322 18,934 20,652 22,584
NOPAT 13,657 15,263 17,105 17,803 18,333 18,884 19,459 19,958
Less Inc in NWC 1,270 1,461 1,680 773 819 868 921 976 14.00% of increase in sales
Less Capex (1,582) 1,161 1,275 1,148 1,193 1,240 1,291 1,344
Plus Dep&Amort 835 900 975 1,010 1,046 1,085 1,126 1,170
Free Cash Flow 14,803 13,541 15,124 16,892 17,367 17,861 18,374 18,808

&"Arial,Bold"Exhibit 4 TeamSystem Proforma Income Statement&"Arial,Regular" (Values in Lira Millions)

BALANCE SHEET

PALAMON CAPITAL PARTNERS/TEAMSYSTEM S.P.A.
TeamSystem, S.p.A. Historical and Pro-Forma Balance Sheet
(values in millions of lire)
TeamSystem Balance Sheet
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
ASSETS
Cash 13,092 19,134 21,144 28,513 13,500 15,202 17,482 18,531 19,643 20,821 22,071 23,395 19.0% of sales
Marketable securities 11,224 23,143 37,096 41,816 48,165 56,253 66,196 90,144 PLUG
Receivables 13,257 14,957 16,328 19,443 20,872 24,003 27,603 29,259 31,015 32,876 34,848 36,939 30.0% of sales
Inventory 1,333 1,087 1,195 1,235 1,391 1,600 1,840 1,951 2,068 2,192 2,323 2,463 2.0% of sales
Total current assets 27,682 35,178 38,667 49,191 46,988 63,948 84,022 91,557 100,891 112,142 125,438 152,941
Intangible assets 14 22 18 21 20 20 20 20 20 20 20 20
Land, PP&E 4,962 2,080 2,489 3,681 1,581 1,581 1,581 1,581 1,581 1,581 1,581 1,581
Other tangible assets 729 668 1,140 2,055 1,739 2,000 2,300 2,438 2,585 2,740 2,904 3,078 2.5% of sales
Deferred costs 327 1,947 1,738 1,865 2,087 2,400 2,760 2,926 3,102 3,288 3,485 3,694 3.0% of sales
Securities and other 1,434 1,173 1,229 1,226 1,391 1,600 1,840 1,951 2,068 2,192 2,323 2,463 2.0% of sales
Total assets 35,148 41,068 45,281 58,039 53,807 71,550 92,523 100,473 110,245 121,962 135,752 163,777
LIABILITIES
Accounts payable 7,661 8,932 8,969 9,669 11,132 12,802 14,722 15,605 16,541 17,534 18,586 19,701 16.0% of sales
Tax and other payables 6,796 9,827 8,660 9,956 11,132 12,802 14,722 15,605 16,541 17,534 18,586 19,701 16.0% of sales
Deferred income and accruals 1,200 1,127 1,257 4,156 3,479 4,000 4,601 4,877 5,169 5,479 5,808 6,157 5.0% of sales
Long-term liabilities 2,688 2,094 2,235 3,055 46,000 46,000 46,000 34,500 23,000 11,500 - 0 - 0
Total liabilities 18,345 21,980 21,121 26,836 71,742 75,604 80,044 70,587 61,252 52,047 42,980 45,559
SHAREHOLDERS' EQUITY AND MINORITY INTEREST
Capital 4,580 4,580 4,580 4,580 4,580 4,580 4,580 4,580 4,580 4,580 4,580 4,580
Reserves 6,636 9,442 11,662 15,884 25,544 (24,398) (11,138) 4,661 21,789 40,555 61,067 83,440
Operating income 4,584 4,405 7,132 9,660 11,058 13,260 15,799 17,129 18,766 20,512 22,373 24,465
(Less special dividend) (61,000)
Total shareholders' equity 15,800 18,427 23,374 30,124 (19,818) (6,558) 9,241 26,369 45,135 65,647 88,020 112,486
Minority interest 1,003 661 786 1,079 1,883 2,504 3,238 3,517 3,859 4,269 4,751 5,732 3.5% of equity
Total shareholders' equity and
minority interest 16,803 19,088 24,160 31,203 (17,935) (4,054) 12,479 29,886 48,994 69,915 92,772 118,218
Total shareholders' equity and liabilities 35,148 41,068 45,281 58,039 53,807 71,549 92,523 100,473 110,245 121,962 135,751 163,776
Total Assets Total Assets 42,583 48,407 55,427 58,657 62,080 65,709 69,556 73,633
Total Liab Total Liab 53,807 71,549 92,523 100,473 110,245 121,962 135,751 163,776
PLUG PLUG 11,224 23,143 37,096 41,816 48,165 56,253 66,196 90,144
DEBT REPAYMENT
Starting balance 46,000
Principal due 0% 0% 0% 25% 25% 25% 25%
Payment - 0 - 0 - 0 (11,500) (11,500) (11,500) (11,500)

&"Arial,Bold"Exhibit 5 TeamSystem Proforma Balance Sheet&"Arial,Regular" (Values in Lira Millions)