EXHIBIT 10.14 DefenseCo: ROIC Decomposition Year 2 Year 2 Year 4 Year 5 Operating metrics ROC, After-tax operating margin, Capital tuma, times 18.5 7.1 252 182 69 265 18.4 70 2.53 18.3 6.9 264 Cost of sale/sales, SGRA/sales, Operating working capital/sales, % PP&E/sales, 730 144 3.1 35.1 73.1 146 29 34.9 728 14,7 3.1 34.9 729 147 3.1 34.8 7.1 Asset management, days Operating cash Accounts receivable Inventory Operating current assets 7.1 418 91.6 140.5 7.1 42.7 91.8 1416 523 141.5 7.1 425 926 1422 Accounts payable Accrued expenses Operating current abilities 70.2 600 1302 201 600 1301 704 59.8 71.1 598 1309 1302 Operating working capital 11.3 10.4 11.3 4. You are an equity analyst and have computed the following figures for two manufacturers of paper products. The first, PaperPro, has NOPLAT of $325 million, invested capital without goodwill of $2,500 million, and goodwill of $950 million. The second, ExpertPaper, has NOPLAT of $750 million, invested capital without goodwill of $6,000 million, and no goodwill. If the cost of capital for both firms is 10 percent, are the firms creating value in this year? Which company has the better financial performance? 5. PaperPro had previously acquired Paper Expo, which independently gener- ates $800 million per year in revenues, with no material growth. The con- solidated revenues for PaperPro (post-acquisition) are $1.5 billion in year 1, $1.8 billion in year 2 (the year of the acquisition), and $2.5 billion in year 3. If PaperPro closed the acquisition of PaperExpo on October 1 of year 2, what is the apples-to-apples organic growth for PaperPro in year 2 and year 3? How does this differ from reported revenue growth? Assume PaperExpo's revenues are consolidated into PaperPro's revenues only after the acquisi- tion close and that the fiscal year closes for both companies on December 31 6. Which interest coverage ratio, earnings before interest, taxes, depreciation, and amortization (EBITDA) to interest or EBITA to interest, will lead to a higher number? When is the EBITDA interest coverage ratio more appropri- ate than the EBITA ratio? When is the EBITA interest coverage ratio more appropriate than the EBITDA ratio? of each year. EXHIBIT 10.14 DefenseCo: ROIC Decomposition Year 2 Year 2 Year 4 Year 5 Operating metrics ROC, After-tax operating margin, Capital tuma, times 18.5 7.1 252 182 69 265 18.4 70 2.53 18.3 6.9 264 Cost of sale/sales, SGRA/sales, Operating working capital/sales, % PP&E/sales, 730 144 3.1 35.1 73.1 146 29 34.9 728 14,7 3.1 34.9 729 147 3.1 34.8 7.1 Asset management, days Operating cash Accounts receivable Inventory Operating current assets 7.1 418 91.6 140.5 7.1 42.7 91.8 1416 523 141.5 7.1 425 926 1422 Accounts payable Accrued expenses Operating current abilities 70.2 600 1302 201 600 1301 704 59.8 71.1 598 1309 1302 Operating working capital 11.3 10.4 11.3 4. You are an equity analyst and have computed the following figures for two manufacturers of paper products. The first, PaperPro, has NOPLAT of $325 million, invested capital without goodwill of $2,500 million, and goodwill of $950 million. The second, ExpertPaper, has NOPLAT of $750 million, invested capital without goodwill of $6,000 million, and no goodwill. If the cost of capital for both firms is 10 percent, are the firms creating value in this year? Which company has the better financial performance? 5. PaperPro had previously acquired Paper Expo, which independently gener- ates $800 million per year in revenues, with no material growth. The con- solidated revenues for PaperPro (post-acquisition) are $1.5 billion in year 1, $1.8 billion in year 2 (the year of the acquisition), and $2.5 billion in year 3. If PaperPro closed the acquisition of PaperExpo on October 1 of year 2, what is the apples-to-apples organic growth for PaperPro in year 2 and year 3? How does this differ from reported revenue growth? Assume PaperExpo's revenues are consolidated into PaperPro's revenues only after the acquisi- tion close and that the fiscal year closes for both companies on December 31 6. Which interest coverage ratio, earnings before interest, taxes, depreciation, and amortization (EBITDA) to interest or EBITA to interest, will lead to a higher number? When is the EBITDA interest coverage ratio more appropri- ate than the EBITA ratio? When is the EBITA interest coverage ratio more appropriate than the EBITDA ratio? of each year