The Acme Asia Regional Treasurer seeks to address the companys liquidity struggles, contribute to improving the companys financial position, save costs, and make better use of the companys resources.

Identify and validate key challenges, i.e., what are the key areas for Acme Asia to focus on and why?

Despite the drama at headquarters, Acmes fundamental business remained strong with its businesses generating positive net cash flows of $776.3 million and its financial leverage (assets/equity) seemingly healthy at 2.7 at the end of 2006. However, rating agencies, concerned about how the Acme management was managing its debt maturity commitments, had continuously downgraded its bond rating throughout the year. For example, S&P had rated Acmes bonds A in January 2006 but by June 2006, the rating had plummeted to BBB-. Moodys and Fitch went a step further and rated Acmes bonds BB/Ba2, which were considered non-investment grades. Exhibit B shows Acmes credit rating and default spreads throughout 2006.

Acmes 40 legal entities in China were wholly owned by Acme China; these entities covered all major business segments and had collectively opened 170 accounts across 17 banks. This, coupled with Acmes significant and diverse operations throughout the country, made the tracking of commercial and treasury flows difficult, to say the least. Consequently, some entities had idle and excessive funds, while unexpected funding shortfalls gave rise to unnecessary borrowings by other entities. As inefficient use of company resources had resulted in higher banking fees and interest costs, Acmes Regional Treasury turned to banks for solutions by issuingcash management RFP. Acme envisaged setting up a three-tiered

Treasury Advisory Group, Citibank N.A.Page 9liquidity structure involving 1) a header (or concentration) account held by Acme China and managed by Regional Treasury, 2) 5 sub-accounts representing each of Acmes 5 business segments in China, and 3) various operating accounts. Cash from operating accounts within each business segment wouldbe swept daily to their corresponding sub-accounts before further aggregation at the header level. Acmes China management and Regional Treasury teams were to jointly evaluate each banks proposal on 5 major criteria:Global and local relationshipElectronic banking capabilitiesIn-country banking networkExperience in cash managementPricingIn addition to having a cash pool within China, establishing a liquidity structure for Asia would enable Acme to gain further visibility and control on its cash. Given a recent third-party study which showed that in-country cash pooling could reduce operating cash by 30% on average, Acmes Treasury team asked banks to help develop a business case to set up the liquidity structures so the team can convince internal stakeholders in business to co-operate in their implementation. Exhibit I and Appendix 1 detail interest rates and balances with respect to the two cash pools.

Company History and the 2006 Liquidity Crisis Over the past decade, Acme had grown rapidly through acquisition, snapping up more than 200 firms and creating a highly complex conglomerate in the process. By 2006, Acme had become one of the world's largest and most diverse companies, producing a wide variety of products. As illustrated in Exhibit A, Acme was structured into five business segments, each of which was bigger than most of their competitors' entire companies. Exhibit A Acme's Sales by Geography and Divisions (2006) Geographic Sales Segment Sales ($ Billion) ($ Billion) Plastics Asia Pacific 1.9 5.3 Industrial Pipes 4.7 10.6 Security Europe, Middle East 8.9 & Africa 19.5 Healthcare 7.9 1.8 North America 10.5 South America Electronics Exhibit B Acme Credit Rating and Default Spreads in 2006 1200 1000 800 BEVE? Spread (opo) 600 phen Credit Rating Investment Grade 006- 400 w BE 200 BB.16) Non-Invest Grade 0 F M J D A Defaut spread Acme 6.375X11 A S&P S 0 N Moody's - Fitch Acme in Asia - Business Overview In 2006, Acme's Asia Pacific operations accounted for approximately 15% of Acme International's annual revenue (Exhibit D highlights revenue breakdown by country). This figure had steadily risen in the past few years, notably due to expansion in three business segments - Electronics, Healthcare, and Security. Exhibit D Acme International - Asia Revenue Breakdown, FY 2006 150 Country Revenue (s Million) Australia 1,200 China 1,000 Japan 1,500 Korea 500 Hong Kong 200 Singapore India 150 Taiwan 150 Malaysia 150 New Zealand 150 Thailand 50 Indonesia 50 Philippines 50 Vietnam 40 Asia Total 5,340 *80% of Acme International's revenue in China is attributable to Acme Electronics (China) Exhibit I Selected Interest Rates RMB Cash Pool Overnight Deposit Rate 0.72% 1-Month Time Deposit 1.90% Cost of Short Term Debt 5.60%? 1. Regional average rates 2. PBOC Benchmark Lending Rate Asia-wide Cash Pool 3.50% 4.00% 4.75% Company History and the 2006 Liquidity Crisis Over the past decade, Acme had grown rapidly through acquisition, snapping up more than 200 firms and creating a highly complex conglomerate in the process. By 2006, Acme had become one of the world's largest and most diverse companies, producing a wide variety of products. As illustrated in Exhibit A, Acme was structured into five business segments, each of which was bigger than most of their competitors' entire companies. Exhibit A Acme's Sales by Geography and Divisions (2006) Geographic Sales Segment Sales ($ Billion) ($ Billion) Plastics Asia Pacific 1.9 5.3 Industrial Pipes 4.7 10.6 Security Europe, Middle East 8.9 & Africa 19.5 Healthcare 7.9 1.8 North America 10.5 South America Electronics Exhibit B Acme Credit Rating and Default Spreads in 2006 1200 1000 800 BEVE? Spread (opo) 600 phen Credit Rating Investment Grade 006- 400 w BE 200 BB.16) Non-Invest Grade 0 F M J D A Defaut spread Acme 6.375X11 A S&P S 0 N Moody's - Fitch Acme in Asia - Business Overview In 2006, Acme's Asia Pacific operations accounted for approximately 15% of Acme International's annual revenue (Exhibit D highlights revenue breakdown by country). This figure had steadily risen in the past few years, notably due to expansion in three business segments - Electronics, Healthcare, and Security. Exhibit D Acme International - Asia Revenue Breakdown, FY 2006 150 Country Revenue (s Million) Australia 1,200 China 1,000 Japan 1,500 Korea 500 Hong Kong 200 Singapore India 150 Taiwan 150 Malaysia 150 New Zealand 150 Thailand 50 Indonesia 50 Philippines 50 Vietnam 40 Asia Total 5,340 *80% of Acme International's revenue in China is attributable to Acme Electronics (China) Exhibit I Selected Interest Rates RMB Cash Pool Overnight Deposit Rate 0.72% 1-Month Time Deposit 1.90% Cost of Short Term Debt 5.60%? 1. Regional average rates 2. PBOC Benchmark Lending Rate Asia-wide Cash Pool 3.50% 4.00% 4.75%