What are the amounts and timing of the follow-up expansion investment opportunity's free cash flow from 2013 through 2022? What is the terminal value of the follow-up acquisition, as of 2022? What is the net present value of this follow-up investment and the combined base and expansion investments?

Sterling Household Products Company Exhibit 1 Income Statement for Sterling Household Products Company ($ in millions except per share amounts) Net sales Cost of goods sold Gross profit 2010 2011 2012 $3,140 $1,742 $1,398 $3,138 $1,751 $1,387 $3,281 $1,860 $1,421 General, selling & administrative expenses Research & development expenses Income before interest and income taxes $726 $67 $605 $740 $72 $575 $769 $78 $574 Interest expenses Income before income taxes $83 $522 $70 $505 $76 $498 Income taxes expenses Net income $178 $344 $171 $334 $175 $323 Weighted number of shares outstanding (in thousands) Earnings per share Dividends per share 84,160 $4.09 $2.44 81,520 $4.10 $2.44 79,508 $4.06 $2.44 Stock price at end of year Price/Earnings ratio Equity beta coefficient $58.79 14.4 $63.78 15.6 $65.46 16.1 0.40 Sterling Household Products Company Exhibit 2 Balance Sheet for Sterling Household Products Company ($ in millions except per share amounts) Assets Current assets Cash and cash equivalents Accounts receivable, net Inventories, net Other current assets Total current assets Property, plant & equipment, net Goodwill & trademarks Other assets Total assets Liabilities & Shareholder's Equity Current liabilities Accounts payable Short-term bank notes payable Accrued liabilities Total current liabilities Long-term debt Other long-term liabilities Total liabilities Shareholders' equity Contributed capital Retained earnings Treasury stock Stockholders' equity Total liabilities & shareholders' equity 2010 2011 2012 $202 $324 $199 $318 $1,043 $305 $315 $229 $91 $940 $346 $346 $231 $96 $1,019 $580 $1,019 $86 $2,728 $653 $903 $91 $2,587 $669 $912 $86 $2,686 $245 $222 $339 $806 $254 $275 $290 $819 $243 $181 $299 $723 $1,274 $418 $2,498 $1,106 $455 $2,380 $1,257 $497 $2,477 $466 $2,552 -$2,788 $230 $474 $2,687 -$2,954 $207 $478 $2,816 -$3,085 $209 $2,728 $2,587 $2,686 Sterling Household Products Company Exhibit 3 Income Statement for Montagne Medical Instruments Company ($ in millions except per share amounts) Net sales Cost of goods sold Gross profit 2010 2011 2012 $1,396 $408 $988 $1,622 $481 $1,141 $1,756 $581 $1,175 General, selling & administrative expenses Research & development expenses Income before interest and income taxes $534 $127 $327 $630 $144 $367 $671 $154 $350 Interest expenses Income before income taxes $0 $327 $0 $367 $0 $350 Income tax expenses Net income $91 $236 $101 $266 $93 $257 113,607 $2.08 117,538 $2.26 118,618 $2.17 $31.37 15.1 $36.48 16.1 $35.24 16.3 0.97 Weighted number of shares outstanding (in thousands Earnings per share Stock price at end of year Price/Earnings ratio Equity beta coefficient Sterling Household Products Company Exhibit 4 Balance Sheet for Montagne Medical Instruments Company ($ in millions except per share amounts) Assets Current assets Cash and cash equivalents Accounts receivable, net Inventories, net Other current assets Total current assets 2010 2011 2012 $109 $202 $126 $73 $510 $306 $247 $180 $86 $819 $541 $256 $184 $93 $1,074 Property, plant & equipment, net Intangible assets, net Other assets Total assets $101 $41 $66 $718 $187 $44 $71 $1,121 $216 $53 $97 $1,440 Liabilities & Shareholders' Equity Current liabilities Accounts payable Accrued liabilities Total current liabilities $67 $112 $179 $89 $137 $226 $113 $148 $261 Long-term debt Other long-term liabilities Total liabilities $1 $27 $207 $1 $40 $267 $0 $46 $307 Shareholders' Equity Contributed capital Retained earnings Treasury stock Shareholders' equity $347 $249 -$85 $511 $424 $515 -$85 $854 $446 $772 -$85 $1,133 $718 $1,121 $1,440 Total liabilities & shareholders' equity Sterling Household Products Company Exhibit 5 Financial Information for Montagne Medical Instruments Company's germicidal, sanitation and antiseptic products unit Income Statement ($ in thousands) 2010 2011 2012 Net sales $128,462 $135,496 $142,528 Manufacturing expenses Selling & administrative expenses Research & development expenses Depreciation expenses Total costs $71,399 $27,285 $3,314 $2,216 $104,215 $75,512 $28,712 $3,618 $2,329 $110,170 $79,231 $30,301 $3,606 $2,438 $115,577 $24,247 $25,326 $26,951 Operating income Balance sheet ($ in thousands) 2010 2011 2012 Operating assets: Accounts receivable Inventory Property, plant & equipment, at cost - Accumulated depreciation Property, plant & equipment, net Total operating assets $16,533 $21,059 $43,840 $16,366 $27,474 $65,066 $17,217 $22,772 $46,172 $18,695 $27,477 $67,466 $17,675 $23,802 $48,454 $21,133 $27,321 $68,798 Operating liabilities: Accounts payable $10,573 $11,143 $11,689 Net operating assets $54,493 $56,323 $57,109 2010 55.6% 21.2% 2.6% 12.9% 16.4% 21.4% 8.2% 2011 55.7% 21.2% 2.7% 12.7% 16.8% 20.3% 8.2% 2012 55.6% 21.3% 2.5% 12.4% 16.7% 19.2% 8.2% Percent of sales ratios: Manufacturing expenses Selling & administrative expenses Research & development expenses Accounts receivable Inventory Property, plant & equipment, net Accounts payable Sterling Household Products Company Exhibit 6 Pro Forma Financial Information for Montagne Medical Instruments Company's germicidal, sanitation and antiseptic products unit Income Statement ($ in thousands) 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Net sales $149,369 $152,954 $156,625 $160,384 $164,233 $168,175 $172,211 $176,344 $180,576 $184,910 Manufacturing expenses Selling & administrative expenses Research & development expenses Depreciation expenses Total costs $83,049 $31,666 $3,734 $2,525 $120,975 $84,890 $32,120 $3,824 $2,600 $123,434 $86,927 $32,891 $3,916 $2,675 $126,409 $89,013 $33,681 $4,010 $2,750 $129,453 $91,149 $34,489 $4,106 $2,825 $132,569 $93,337 $35,317 $4,204 $2,900 $135,758 $95,577 $36,164 $4,305 $2,975 $139,022 $97,871 $37,032 $4,409 $3,050 $142,362 $100,220 $37,921 $4,514 $3,125 $145,780 $102,625 $38,831 $4,623 $3,200 $149,279 Operating income $28,394 $29,520 $30,216 $30,931 $31,664 $32,417 $33,189 $33,982 $34,796 $35,631 Balance sheet ($ in thousands) 2013 2014 2015 2016 Operating assets: Accounts receivable Inventory Property, plant & equipment, at cost - Accumulated depreciation Property, plant & equipment, net Total operating assets $18,522 $24,945 $50,192 $23,658 $26,534 $70,000 $18,966 $25,543 $51,692 $26,258 $25,434 $69,944 $19,422 $26,156 $53,192 $28,933 $24,259 $69,837 $19,888 $26,784 $54,692 $31,683 $23,009 $69,681 $20,365 $27,427 $56,192 $34,508 $21,684 $69,476 $20,854 $28,085 $57,692 $37,408 $20,284 $69,223 $21,354 $28,759 $59,192 $40,383 $18,809 $68,922 $21,867 $29,449 $60,692 $43,433 $17,259 $68,575 $22,391 $30,156 $62,192 $46,558 $15,634 $68,182 $22,929 $30,880 $63,692 $49,758 $13,934 $67,743 Operating liabilities: Accounts payable $12,248 $12,542 $12,843 $13,151 $13,467 $13,790 $14,121 $14,460 $14,807 $15,163 Net operating assets $57,752 $57,401 $56,994 $56,529 $56,009 $55,433 $54,801 $54,115 $53,374 $52,580 Percent of sales ratios: Manufacturing expenses Selling & administrative expenses Research & development expenses Accounts receivable Inventory Property, plant & equipment, net Accounts payable 2013 55.6% 21.2% 2.5% 12.4% 16.7% 17.8% 8.2% 2014 55.5% 21.0% 2.5% 12.4% 16.7% 16.6% 8.2% 2015 55.5% 21.0% 2.5% 12.4% 16.7% 15.5% 8.2% 2016 55.5% 21.0% 2.5% 12.4% 16.7% 14.3% 8.2% 2017 55.5% 21.0% 2.5% 12.4% 16.7% 13.2% 8.2% 2018 55.5% 21.0% 2.5% 12.4% 16.7% 12.1% 8.2% 2019 55.5% 21.0% 2.5% 12.4% 16.7% 10.9% 8.2% 2020 55.5% 21.0% 2.5% 12.4% 16.7% 9.8% 8.2% 2021 55.5% 21.0% 2.5% 12.4% 16.7% 8.7% 8.2% 2022 55.5% 21.0% 2.5% 12.4% 16.7% 7.5% 8.2% 2017 2018 2019 2020 2021 2022 Sterling Household Products Company Exhibit 7 Financial information for selected companies in S.I.C. 3841 (surgical and medical instruments & apparatus) with significant shares of the germicidal, sanitation, and antiseptic products market Teleological Labyrinth Stratus 2010 2011 2012 2010 2011 2012 2010 2011 2012 Sales revenue ($ in millions) $683 $682 $728 $455 $488 $520 $224 $306 $338 Net income ($ in millions) $144 $96 $154 $34 $44 $19 $23 $42 $58 Earnings per share $7.63 $5.04 $7.98 $1.74 $2.17 $0.95 $0.50 $0.92 $1.21 Dividends per share $1.36 $1.36 $1.36 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 Year-end price/earnings ratio 6.97 Year-end common stock price $53.15 Market value of equity ($ in millions ### 10.77 $54.30 ### 7.56 $60.36 ### 19.28 $33.55 $655.6 18.78 $40.75 $826.3 46.52 $44.19 $883.8 53.12 $26.56 ### 33.70 $31.00 ### 24.93 $30.16 ### Balance sheet capitalization % debt % common stock $1,320 43% 57% $1,271 33% 67% $1,398 32% 68% $503 41% 59% $530 37% 63% $683 52% 48% $526 20% 80% $608 18% 82% $467 0% 100% --2.8 --2.9 1.02 3.3 --4.2 --5.4 1.04 2.0 --4.1 --8.2 0.86 24.5 2010 $200 $20 $2.18 $0.44 Chiron 2011 $192 $8 $0.86 $0.56 2012 $223 $22 $2.33 $0.66 2010 $144 -$18 -$0.60 $0.00 Vortex 2011 $186 $6 $0.20 $0.00 2012 $218 $24 $0.73 $0.00 2010 $152 $11 $0.79 $0.07 Year-end price/earnings ratio 13.83 Year-end common stock price $30.14 Market value of equity ($ in millions $276.5 36.70 $31.56 $293.6 13.23 $30.83 $291.1 n/a $16.24 $487.2 126.70 $25.34 $760.2 34.48 $25.17 $827.5 22.67 $17.91 $249.4 21.18 $16.94 $232.9 21.19 $24.79 $360.2 $153 22% 78% $158 21% 79% $164 20% 80% $136 0% 100% $232 25% 75% $275 22% 78% $122 5% 95% $143 9% 91% $201 25% 75% --15.5 --7.1 0.85 18.4 --n/a --4.5 0.53 3.6 --27.9 --32.6 0.90 14.0 Equity beta coefficient Interest coverage Sales revenue ($ in millions) Net income ($ in millions) Earnings per share Dividends per share Balance sheet capitalization % debt % common stock Equity beta coefficient Interest coverage Pathogen 2011 2012 $179 $215 $11 $17 $0.80 $1.17 $0.08 $0.09 Forecast 2013 ForecastForecastForecast 2014 2015 2016 Beginning P, P & E at cost + Capital expenditures = Ending P. P & E at cost (Depreciation expense) - Accumulated depreciation = Ending P, P & E, net $48,692 $50,192 $51,692 $53,192 $1,500 $1,500 $1,500 $1,500 $50,192 $51,692 $53,192 $54,692 Accounts receivable Inventory Accounts payable Net working capital Increase in NWC investment $18,522 $18,966 $19,422 $19,888 $24,945 $25,543 $26,156 $26,784 $12,248 $12,542 $12,843 $13,151 $31,218 $31,967 $32,735 $33,520 $0 $749 $767 $786 $23,658 $26,258 $28,933 $31,683 $26,534 $25,434 $24,259 $23,009 Net sales - Manufacturing expenses - Selling & administrative exp - Research & development exp - Depreciation expenses = Operating income - Income taxes at 35% = After-tax income + Depreciation expense = Operating cash flow $149,369 ### ### ### $83,049 $84,890 $86,927 $89,013 $31,666 $32,120 $32,891 $33,681 $3,734 $3,824 $3,916 $4,010 $2,525 $2,600 $2,675 $2,750 $28,394 $29,520 $30,216 $30,931 $9,938 $10,332 $10,576 $10,826 $18,456 $19,188 $19,641 $20,105 $2,525 $2,600 $2,675 $2,750 $20,981 $21,788 $22,316 $22,855 Terminal value (Horizon Value) Free cash flow TOTAL $19,481 $19,539 $20,048 $20,569 $19,481 $19,539 $20,048 $20,569 Find NPV of line 30 items $294,437 ' ---> =NPV(5.1%, C30:L30) ForecastForecastForecastForecastForecast 2017 2018 2019 2020 2021 Forecast 2022 $54,692 $56,192 $57,692 $59,192 $60,692 $1,500 $1,500 $1,500 $1,500 $1,500 $56,192 $57,692 $59,192 $60,692 $62,192 $62,192 $1,500 $63,692 $34,508 $37,408 $40,383 $43,433 $46,558 $21,684 $20,284 $18,809 $17,259 $15,634 $49,758 $13,934 $20,365 $20,854 $21,354 $21,867 $22,391 $27,427 $28,085 $28,759 $29,449 $30,156 $13,467 $13,790 $14,121 $14,460 $14,807 $34,325 $35,149 $35,992 $36,856 $37,740 $804 $824 $844 $864 $885 $22,929 $30,880 $15,163 $38,646 $906 ### ### ### ### ### $91,149 $93,337 $95,577 $97,871 ### $34,489 $35,317 $36,164 $37,032 $37,921 $4,106 $4,204 $4,305 $4,409 $4,514 $2,825 $2,900 $2,975 $3,050 $3,125 $31,664 $32,417 $33,189 $33,982 $34,796 $11,082 $11,346 $11,616 $11,894 $12,179 $20,582 $21,071 $21,573 $22,088 $22,617 $2,825 $2,900 $2,975 $3,050 $3,125 $23,407 $23,971 $24,548 $25,138 $25,742 $184,910 $102,625 $38,831 $4,623 $3,200 $35,631 $12,471 $23,160 $3,200 $26,360 $215,590.35 $21,102 $21,647 $22,205 $22,775 $23,358 $23,954 $21,102 $21,647 $22,205 $22,775 $23,358 $239,545 1%, C30:L30) \fSterling Household Products Company Exhibit 1 Income Statement for Sterling Household Products Company ($ in millions except per share amounts) Net sales Cost of goods sold Gross profit 2010 2011 2012 $3,140 $1,742 $1,398 $3,138 $1,751 $1,387 $3,281 $1,860 $1,421 General, selling & administrative expenses Research & development expenses Income before interest and income taxes $726 $67 $605 $740 $72 $575 $769 $78 $574 Interest expenses Income before income taxes $83 $522 $70 $505 $76 $498 Income taxes expenses Net income $178 $344 $171 $334 $175 $323 Weighted number of shares outstanding (in thousands) Earnings per share Dividends per share 84,160 $4.09 $2.44 81,520 $4.10 $2.44 79,508 $4.06 $2.44 Stock price at end of year Price/Earnings ratio Equity beta coefficient $58.79 14.4 $63.78 15.6 $65.46 16.1 0.40 Sterling Household Products Company Exhibit 2 Balance Sheet for Sterling Household Products Company ($ in millions except per share amounts) Assets Current assets Cash and cash equivalents Accounts receivable, net 2010 2011 2012 $202 $324 $305 $315 $346 $346 Inventories, net Other current assets Total current assets $199 $318 $1,043 $229 $91 $940 $231 $96 $1,019 Property, plant & equipment, net Goodwill & trademarks Other assets $580 $1,019 $86 $653 $903 $91 $669 $912 $86 $2,728 $2,587 $2,686 $245 $222 $339 $254 $275 $290 $243 $181 $299 $806 $819 $723 $1,274 $418 $1,106 $455 $1,257 $497 $2,498 $2,380 $2,477 $466 $2,552 -$2,788 $230 $474 $2,687 -$2,954 $207 $478 $2,816 -$3,085 $209 $2,728 $2,587 $2,686 Total assets Liabilities & Shareholder's Equity Current liabilities Accounts payable Short-term bank notes payable Accrued liabilities Total current liabilities Long-term debt Other long-term liabilities Total liabilities Shareholders' equity Contributed capital Retained earnings Treasury stock Stockholders' equity Total liabilities & shareholders' equity Sterling Household Products Company Exhibit 3 Income Statement for Montagne Medical Instruments Company ($ in millions except per share amounts) Net sales Cost of goods sold 2010 2011 2012 $1,396 $408 $1,622 $481 $1,756 $581 $988 $1,141 $1,175 General, selling & administrative expenses $534 $630 $671 Research & development expenses $127 $144 $154 $327 $367 $350 $0 $0 $0 $327 $367 $350 $91 $101 $93 $236 $266 $257 113,607 $2.08 117,538 $2.26 118,618 $2.17 $31.37 15.1 $36.48 16.1 $35.24 16.3 0.97 Gross profit Income before interest and income taxes Interest expenses Income before income taxes Income tax expenses Net income Weighted number of shares outstanding (in thousands Earnings per share Stock price at end of year Price/Earnings ratio Equity beta coefficient Sterling Household Products Company Exhibit 4 Balance Sheet for Montagne Medical Instruments Company ($ in millions except per share amounts) 2010 2011 2012 Assets Current assets Cash and cash equivalents $109 $306 $541 Accounts receivable, net $202 $247 $256 Inventories, net $126 $180 $184 Other current assets $73 $86 $93 Total current assets $510 $819 $1,074 Property, plant & equipment, net $101 $187 $216 Intangible assets, net $41 $44 $53 Other assets $66 $71 $97 Total assets $718 $1,121 $1,440 Liabilities & Shareholders' Equity Current liabilities Accounts payable $67 $89 $113 Accrued liabilities $112 $137 $148 $179 $226 $261 Total current liabilities Long-term debt $1 $1 $0 $27 $40 $46 $207 $267 $307 Contributed capital $347 $424 $446 Retained earnings $249 $515 $772 -$85 -$85 -$85 Shareholders' equity $511 $854 $1,133 Total liabilities & shareholders' equity $718 $1,121 $1,440 Other long-term liabilities Total liabilities Shareholders' Equity Treasury stock Sterling Household Products Company Exhibit 5 Financial Information for Montagne Medical Instruments Company's germicidal, sanitation and antiseptic products unit Income Statement ($ in thousands) 2010 2011 2012 Net sales $128,462 $135,496 $142,528 $71,399 $27,285 $75,512 $28,712 $79,231 $30,301 $3,314 $2,216 $3,618 $2,329 $3,606 $2,438 $104,215 $110,170 $115,577 $24,247 $25,326 $26,951 Manufacturing expenses Selling & administrative expenses Research & development expenses Depreciation expenses Total costs Operating income Balance sheet ($ in thousands) 2010 2011 2012 Operating assets: Accounts receivable Inventory $16,533 $21,059 $17,217 $22,772 $17,675 $23,802 $43,840 $16,366 $46,172 $18,695 $48,454 $21,133 Property, plant & equipment, net Total operating assets $27,474 $65,066 $27,477 $67,466 $27,321 $68,798 Operating liabilities: Accounts payable $10,573 $11,143 $11,689 Net operating assets $54,493 $56,323 $57,109 2010 55.6% 2011 55.7% 2012 55.6% Selling & administrative expenses Research & development expenses 21.2% 2.6% 21.2% 2.7% 21.3% 2.5% Accounts receivable Inventory 12.9% 16.4% 12.7% 16.8% 12.4% 16.7% Property, plant & equipment, net Accounts payable 21.4% 8.2% 20.3% 8.2% 19.2% 8.2% Property, plant & equipment, at cost - Accumulated depreciation Percent of sales ratios: Manufacturing expenses Sterling Household Products Company Exhibit 6 Pro Forma Financial Information for Montagne Medical Instruments Company's germicidal, sanitation and antiseptic products unit Income Statement ($ in thousands) Net sales 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 $149,369 $152,954 $156,625 $160,384 $164,233 $168,175 $172,211 $176,344 $180,576 $184,910 $83,049 $31,666 $84,890 $32,120 $86,927 $32,891 $89,013 $33,681 $91,149 $34,489 $93,337 $35,317 $95,577 $36,164 $97,871 $37,032 $100,220 $37,921 $102,625 $38,831 $3,734 $2,525 $3,824 $2,600 $3,916 $2,675 $4,010 $2,750 $4,106 $2,825 $4,204 $2,900 $4,305 $2,975 $4,409 $3,050 $4,514 $3,125 $4,623 $3,200 $120,975 $123,434 $126,409 $129,453 $132,569 $135,758 $139,022 $142,362 $145,780 $149,279 $28,394 $29,520 $30,216 $30,931 $31,664 $32,417 $33,189 $33,982 $34,796 $35,631 2013 2014 2015 2016 $18,522 $24,945 $18,966 $25,543 $19,422 $26,156 $19,888 $26,784 $20,365 $27,427 $20,854 $28,085 $21,354 $28,759 $21,867 $29,449 $22,391 $30,156 $22,929 $30,880 $50,192 $23,658 $51,692 $26,258 $53,192 $28,933 $54,692 $31,683 $56,192 $34,508 $57,692 $37,408 $59,192 $40,383 $60,692 $43,433 $62,192 $46,558 $63,692 $49,758 Property, plant & equipment, net Total operating assets $26,534 $70,000 $25,434 $69,944 $24,259 $69,837 $23,009 $69,681 $21,684 $69,476 $20,284 $69,223 $18,809 $68,922 $17,259 $68,575 $15,634 $68,182 $13,934 $67,743 Operating liabilities: Accounts payable $12,248 $12,542 $12,843 $13,151 $13,467 $13,790 $14,121 $14,460 $14,807 $15,163 Net operating assets $57,752 $57,401 $56,994 $56,529 $56,009 $55,433 $54,801 $54,115 $53,374 $52,580 Percent of sales ratios: Manufacturing expenses 2013 55.6% 2014 55.5% 2015 55.5% 2016 55.5% 2017 55.5% 2018 55.5% 2019 55.5% 2020 55.5% 2021 55.5% 2022 55.5% Selling & administrative expenses Research & development expenses 21.2% 2.5% 21.0% 2.5% 21.0% 2.5% 21.0% 2.5% 21.0% 2.5% 21.0% 2.5% 21.0% 2.5% 21.0% 2.5% 21.0% 2.5% 21.0% 2.5% Accounts receivable Inventory 12.4% 16.7% 12.4% 16.7% 12.4% 16.7% 12.4% 16.7% 12.4% 16.7% 12.4% 16.7% 12.4% 16.7% 12.4% 16.7% 12.4% 16.7% 12.4% 16.7% Property, plant & equipment, net Accounts payable 17.8% 8.2% 16.6% 8.2% 15.5% 8.2% 14.3% 8.2% 13.2% 8.2% 12.1% 8.2% 10.9% 8.2% 9.8% 8.2% 8.7% 8.2% 7.5% 8.2% Manufacturing expenses Selling & administrative expenses Research & development expenses Depreciation expenses Total costs Operating income Balance sheet ($ in thousands) 2017 2018 2019 2020 2021 2022 Operating assets: Accounts receivable Inventory Property, plant & equipment, at cost - Accumulated depreciation Sterling Household Products Company Exhibit 7 Financial information for selected companies in S.I.C. 3841 (surgical and medical instruments & apparatus) with significant shares of the germicidal, sanitation, and antiseptic products market Teleological 2010 2011 2012 Sales revenue ($ in millions) Labyrinth 2010 2011 2012 2010 Stratus 2011 2012 $683 $682 $728 $455 $488 $520 $224 $306 $338 Net income ($ in millions) Earnings per share $144 $7.63 $96 $5.04 $154 $7.98 $34 $1.74 $44 $2.17 $19 $0.95 $23 $0.50 $42 $0.92 $58 $1.21 Dividends per share $1.36 $1.36 $1.36 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 Year-end price/earnings ratio 6.97 10.77 7.56 19.28 18.78 46.52 53.12 33.70 24.93 Year-end common stock price $53.15 Market value of equity ($ in millions) ### $54.30 ### $60.36 ### $33.55 $655.6 $40.75 $826.3 $44.19 $883.8 $26.56 ### $31.00 ### $30.16 ### Balance sheet capitalization % debt $1,320 43% $1,271 33% $1,398 32% $503 41% $530 37% $683 52% $526 20% $608 18% $467 0% 57% 67% 68% 59% 63% 48% 80% 82% 100% --- --- 1.02 --- --- 1.04 --- --- 0.86 2.8 2.9 3.3 4.2 5.4 2.0 4.1 8.2 24.5 2012 $223 2010 $144 2012 $218 2010 $152 % common stock Equity beta coefficient Interest coverage Chiron Sales revenue ($ in millions) Net income ($ in millions) 2010 $200 2011 $192 Vortex 2011 $186 Pathogen 2011 $179 2012 $215 $20 $8 $22 -$18 $6 $24 $11 $11 $17 $2.18 $0.44 $0.86 $0.56 $2.33 $0.66 -$0.60 $0.00 $0.20 $0.00 $0.73 $0.00 $0.79 $0.07 $0.80 $0.08 $1.17 $0.09 13.83 $30.14 36.70 $31.56 13.23 $30.83 n/a $16.24 126.70 $25.34 34.48 $25.17 22.67 $17.91 21.18 $16.94 21.19 $24.79 Market value of equity ($ in millions) $276.5 $293.6 $291.1 $487.2 $760.2 $827.5 $249.4 $232.9 $360.2 $153 $158 $164 $136 $232 $275 $122 $143 $201 22% 78% 21% 79% 20% 80% 0% 100% 25% 75% 22% 78% 5% 95% 9% 91% 25% 75% --15.5 --7.1 0.85 18.4 --n/a --4.5 0.53 3.6 --27.9 --32.6 0.90 14.0 Earnings per share Dividends per share Year-end price/earnings ratio Year-end common stock price Balance sheet capitalization % debt % common stock Equity beta coefficient Interest coverage Forecast 2013 Forecast Forecast Forecast 2014 2015 2016 Beginning P, P & E at cost + Capital expenditures $48,692 $50,192 $51,692 $53,192 $1,500 $1,500 $1,500 $1,500 = Ending P. P & E at cost $50,192 $51,692 $53,192 $54,692 (Depreciation expense) - Accumulated depreciation $23,658 $26,258 $28,933 $31,683 = Ending P, P & E, net $26,534 $25,434 $24,259 $23,009 Accounts receivable Inventory Accounts payable Net working capital Increase in NWC investment $18,522 $24,945 $12,248 $31,218 $0 $18,966 $25,543 $12,542 $31,967 $749 $19,422 $26,156 $12,843 $32,735 $767 $19,888 $26,784 $13,151 $33,520 $786 $149,369 ### ### ### Net sales - Manufacturing expenses $83,049 $84,890 $86,927 $89,013 - Selling & administrative exp $31,666 $32,120 $32,891 $33,681 - Research & development exp $3,734 $3,824 $3,916 $4,010 - Depreciation expenses $2,525 $2,600 $2,675 $2,750 = Operating income - Income taxes at 35% = After-tax income + Depreciation expense $28,394 $29,520 $30,216 $30,931 $9,938 $10,332 $10,576 $10,826 $18,456 $19,188 $19,641 $20,105 $2,525 $2,600 $2,675 $2,750 = Operating cash flow $20,981 $21,788 $22,316 $22,855 Terminal value (Horizon Value) Free cash flow TOTAL $19,481 $19,539 $20,048 $20,569 $19,481 $19,539 $20,048 $20,569 Find NPV of line 30 items 1) $294,437 ' 2013 ---> =NPV(5.1%, C30:L30) 2014 2015 2016 $3,521 $3,661 $3,747 $3,835 $4,742 $4,930 $5,046 $5,165 $50,192 $51,692 $53,192 $54,692 $23,658 $23,658 $23,658 $23,658 $26,534 $28,034 $29,534 $31,034 $34,797 $36,624 $38,327 $40,035 2) $683 $144 $7.63 $1.36 $682 $96 $5.04 $1.36 $728 $154 $7.98 $1.36 6.97 $53.15 $1,003.1 10.77 $54.30 ### 7.56 $60.36 ### $202 $324 $199 $305 $315 $229 3) Net present value combined base expansion investm $346 $346 $231 Forecast Forecast Forecast Forecast Forecast 2017 2018 2019 2020 2021 Forecast 2022 $54,692 $56,192 $57,692 $59,192 $60,692 $1,500 $1,500 $1,500 $1,500 $1,500 $62,192 $1,500 $56,192 $57,692 $59,192 $60,692 $62,192 $63,692 $34,508 $37,408 $40,383 $43,433 $46,558 $49,758 $21,684 $20,284 $18,809 $17,259 $15,634 $13,934 $20,365 $27,427 $13,467 $34,325 $804 $20,854 $28,085 $13,790 $35,149 $824 $21,354 $28,759 $14,121 $35,992 $844 $21,867 $29,449 $14,460 $36,856 $864 $22,391 $30,156 $14,807 $37,740 $885 $22,929 $30,880 $15,163 $38,646 $906 ### ### ### ### ### $184,910 $91,149 $93,337 $95,577 $97,871 ### $102,625 $34,489 $35,317 $36,164 $37,032 $37,921 $38,831 $4,106 $4,204 $4,305 $4,409 $4,514 $4,623 $2,825 $2,900 $2,975 $3,050 $3,125 $3,200 $31,664 $32,417 $33,189 $33,982 $34,796 $35,631 $11,082 $11,346 $11,616 $11,894 $12,179 $12,471 $20,582 $21,071 $21,573 $22,088 $22,617 $23,160 $2,825 $2,900 $2,975 $3,050 $3,125 $3,200 $23,407 $23,971 $24,548 $25,138 $25,742 $26,360 $215,590.35 $21,102 $21,647 $22,205 $22,775 $23,358 $23,954 $21,102 $21,647 $22,205 $22,775 $23,358 $239,545 %, C30:L30) 2017 2018 2019 2020 2021 2022 $3,926 $4,020 $4,115 $4,214 $4,315 $5,288 $5,414 $5,543 $5,675 $5,811 $56,192 $57,692 $59,192 $60,692 $62,192 $4,418 $5,950 $63,692 $23,658 $23,658 $23,658 $23,658 $23,658 $32,534 $34,034 $35,534 $37,034 $38,534 $41,748 $43,467 $45,192 $46,923 $48,660 $23,658 $40,034 $50,403 $455 $34 $1.74 $0.00 $488 $44 $2.17 $0.00 $520 $19 $0.95 $0.00 $224 $23 $0.50 $0.00 $306 $42 $0.92 $0.00 $338 $58 $1.21 $0.00 19.28 $33.55 $655.6 18.78 $40.75 $826.3 46.52 $44.19 $883.8 53.12 $26.56 ### 33.70 $31.00 $1,415.2 24.93 $30.16 ### \fSterling Household Products Company Exhibit 1 Income Statement for Sterling Household Products Company ($ in millions except per share amounts) Net sales Cost of goods sold Gross profit 2010 2011 2012 $3,140 $1,742 $1,398 $3,138 $1,751 $1,387 $3,281 $1,860 $1,421 General, selling & administrative expenses Research & development expenses Income before interest and income taxes $726 $67 $605 $740 $72 $575 $769 $78 $574 Interest expenses Income before income taxes $83 $522 $70 $505 $76 $498 Income taxes expenses Net income $178 $344 $171 $334 $175 $323 Weighted number of shares outstanding (in thousands) Earnings per share Dividends per share 84,160 $4.09 $2.44 81,520 $4.10 $2.44 79,508 $4.06 $2.44 Stock price at end of year Price/Earnings ratio Equity beta coefficient $58.79 14.4 $63.78 15.6 $65.46 16.1 0.40 Sterling Household Products Company Exhibit 2 Balance Sheet for Sterling Household Products Company ($ in millions except per share amounts) Assets Current assets Cash and cash equivalents Accounts receivable, net 2010 2011 2012 $202 $324 $305 $315 $346 $346 Inventories, net Other current assets Total current assets $199 $318 $1,043 $229 $91 $940 $231 $96 $1,019 Property, plant & equipment, net Goodwill & trademarks Other assets $580 $1,019 $86 $653 $903 $91 $669 $912 $86 $2,728 $2,587 $2,686 $245 $222 $339 $254 $275 $290 $243 $181 $299 $806 $819 $723 $1,274 $418 $1,106 $455 $1,257 $497 $2,498 $2,380 $2,477 $466 $2,552 -$2,788 $230 $474 $2,687 -$2,954 $207 $478 $2,816 -$3,085 $209 $2,728 $2,587 $2,686 Total assets Liabilities & Shareholder's Equity Current liabilities Accounts payable Short-term bank notes payable Accrued liabilities Total current liabilities Long-term debt Other long-term liabilities Total liabilities Shareholders' equity Contributed capital Retained earnings Treasury stock Stockholders' equity Total liabilities & shareholders' equity Sterling Household Products Company Exhibit 3 Income Statement for Montagne Medical Instruments Company ($ in millions except per share amounts) Net sales Cost of goods sold 2010 2011 2012 $1,396 $408 $1,622 $481 $1,756 $581 $988 $1,141 $1,175 General, selling & administrative expenses $534 $630 $671 Research & development expenses $127 $144 $154 $327 $367 $350 $0 $0 $0 $327 $367 $350 $91 $101 $93 $236 $266 $257 113,607 $2.08 117,538 $2.26 118,618 $2.17 $31.37 15.1 $36.48 16.1 $35.24 16.3 0.97 Gross profit Income before interest and income taxes Interest expenses Income before income taxes Income tax expenses Net income Weighted number of shares outstanding (in thousands Earnings per share Stock price at end of year Price/Earnings ratio Equity beta coefficient Sterling Household Products Company Exhibit 4 Balance Sheet for Montagne Medical Instruments Company ($ in millions except per share amounts) 2010 2011 2012 Assets Current assets Cash and cash equivalents $109 $306 $541 Accounts receivable, net $202 $247 $256 Inventories, net $126 $180 $184 Other current assets $73 $86 $93 Total current assets $510 $819 $1,074 Property, plant & equipment, net $101 $187 $216 Intangible assets, net $41 $44 $53 Other assets $66 $71 $97 Total assets $718 $1,121 $1,440 Liabilities & Shareholders' Equity Current liabilities Accounts payable $67 $89 $113 Accrued liabilities $112 $137 $148 $179 $226 $261 Total current liabilities Long-term debt $1 $1 $0 $27 $40 $46 $207 $267 $307 Contributed capital $347 $424 $446 Retained earnings $249 $515 $772 -$85 -$85 -$85 Shareholders' equity $511 $854 $1,133 Total liabilities & shareholders' equity $718 $1,121 $1,440 Other long-term liabilities Total liabilities Shareholders' Equity Treasury stock Sterling Household Products Company Exhibit 5 Financial Information for Montagne Medical Instruments Company's germicidal, sanitation and antiseptic products unit Income Statement ($ in thousands) 2010 2011 2012 Net sales $128,462 $135,496 $142,528 $71,399 $27,285 $75,512 $28,712 $79,231 $30,301 $3,314 $2,216 $3,618 $2,329 $3,606 $2,438 $104,215 $110,170 $115,577 $24,247 $25,326 $26,951 Manufacturing expenses Selling & administrative expenses Research & development expenses Depreciation expenses Total costs Operating income Balance sheet ($ in thousands) 2010 2011 2012 Operating assets: Accounts receivable Inventory $16,533 $21,059 $17,217 $22,772 $17,675 $23,802 $43,840 $16,366 $46,172 $18,695 $48,454 $21,133 Property, plant & equipment, net Total operating assets $27,474 $65,066 $27,477 $67,466 $27,321 $68,798 Operating liabilities: Accounts payable $10,573 $11,143 $11,689 Net operating assets $54,493 $56,323 $57,109 2010 55.6% 2011 55.7% 2012 55.6% Selling & administrative expenses Research & development expenses 21.2% 2.6% 21.2% 2.7% 21.3% 2.5% Accounts receivable Inventory 12.9% 16.4% 12.7% 16.8% 12.4% 16.7% Property, plant & equipment, net Accounts payable 21.4% 8.2% 20.3% 8.2% 19.2% 8.2% Property, plant & equipment, at cost - Accumulated depreciation Percent of sales ratios: Manufacturing expenses Sterling Household Products Company Exhibit 6 Pro Forma Financial Information for Montagne Medical Instruments Company's germicidal, sanitation and antiseptic products unit Income Statement ($ in thousands) Net sales 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 $149,369 $152,954 $156,625 $160,384 $164,233 $168,175 $172,211 $176,344 $180,576 $184,910 $83,049 $31,666 $84,890 $32,120 $86,927 $32,891 $89,013 $33,681 $91,149 $34,489 $93,337 $35,317 $95,577 $36,164 $97,871 $37,032 $100,220 $37,921 $102,625 $38,831 $3,734 $2,525 $3,824 $2,600 $3,916 $2,675 $4,010 $2,750 $4,106 $2,825 $4,204 $2,900 $4,305 $2,975 $4,409 $3,050 $4,514 $3,125 $4,623 $3,200 $120,975 $123,434 $126,409 $129,453 $132,569 $135,758 $139,022 $142,362 $145,780 $149,279 $28,394 $29,520 $30,216 $30,931 $31,664 $32,417 $33,189 $33,982 $34,796 $35,631 2013 2014 2015 2016 $18,522 $24,945 $18,966 $25,543 $19,422 $26,156 $19,888 $26,784 $20,365 $27,427 $20,854 $28,085 $21,354 $28,759 $21,867 $29,449 $22,391 $30,156 $22,929 $30,880 $50,192 $23,658 $51,692 $26,258 $53,192 $28,933 $54,692 $31,683 $56,192 $34,508 $57,692 $37,408 $59,192 $40,383 $60,692 $43,433 $62,192 $46,558 $63,692 $49,758 Property, plant & equipment, net Total operating assets $26,534 $70,000 $25,434 $69,944 $24,259 $69,837 $23,009 $69,681 $21,684 $69,476 $20,284 $69,223 $18,809 $68,922 $17,259 $68,575 $15,634 $68,182 $13,934 $67,743 Operating liabilities: Accounts payable $12,248 $12,542 $12,843 $13,151 $13,467 $13,790 $14,121 $14,460 $14,807 $15,163 Net operating assets $57,752 $57,401 $56,994 $56,529 $56,009 $55,433 $54,801 $54,115 $53,374 $52,580 Percent of sales ratios: Manufacturing expenses 2013 55.6% 2014 55.5% 2015 55.5% 2016 55.5% 2017 55.5% 2018 55.5% 2019 55.5% 2020 55.5% 2021 55.5% 2022 55.5% Selling & administrative expenses Research & development expenses 21.2% 2.5% 21.0% 2.5% 21.0% 2.5% 21.0% 2.5% 21.0% 2.5% 21.0% 2.5% 21.0% 2.5% 21.0% 2.5% 21.0% 2.5% 21.0% 2.5% Accounts receivable Inventory 12.4% 16.7% 12.4% 16.7% 12.4% 16.7% 12.4% 16.7% 12.4% 16.7% 12.4% 16.7% 12.4% 16.7% 12.4% 16.7% 12.4% 16.7% 12.4% 16.7% Property, plant & equipment, net Accounts payable 17.8% 8.2% 16.6% 8.2% 15.5% 8.2% 14.3% 8.2% 13.2% 8.2% 12.1% 8.2% 10.9% 8.2% 9.8% 8.2% 8.7% 8.2% 7.5% 8.2% Manufacturing expenses Selling & administrative expenses Research & development expenses Depreciation expenses Total costs Operating income Balance sheet ($ in thousands) 2017 2018 2019 2020 2021 2022 Operating assets: Accounts receivable Inventory Property, plant & equipment, at cost - Accumulated depreciation Sterling Household Products Company Exhibit 7 Financial information for selected companies in S.I.C. 3841 (surgical and medical instruments & apparatus) with significant shares of the germicidal, sanitation, and antiseptic products market Teleological 2010 2011 2012 Sales revenue ($ in millions) Labyrinth 2010 2011 2012 2010 Stratus 2011 2012 $683 $682 $728 $455 $488 $520 $224 $306 $338 Net income ($ in millions) Earnings per share $144 $7.63 $96 $5.04 $154 $7.98 $34 $1.74 $44 $2.17 $19 $0.95 $23 $0.50 $42 $0.92 $58 $1.21 Dividends per share $1.36 $1.36 $1.36 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 Year-end price/earnings ratio 6.97 10.77 7.56 19.28 18.78 46.52 53.12 33.70 24.93 Year-end common stock price $53.15 Market value of equity ($ in millions) ### $54.30 ### $60.36 ### $33.55 $655.6 $40.75 $826.3 $44.19 $883.8 $26.56 ### $31.00 ### $30.16 ### Balance sheet capitalization % debt $1,320 43% $1,271 33% $1,398 32% $503 41% $530 37% $683 52% $526 20% $608 18% $467 0% 57% 67% 68% 59% 63% 48% 80% 82% 100% --- --- 1.02 --- --- 1.04 --- --- 0.86 2.8 2.9 3.3 4.2 5.4 2.0 4.1 8.2 24.5 2012 $223 2010 $144 2012 $218 2010 $152 % common stock Equity beta coefficient Interest coverage Chiron Sales revenue ($ in millions) Net income ($ in millions) 2010 $200 2011 $192 Vortex 2011 $186 Pathogen 2011 $179 2012 $215 $20 $8 $22 -$18 $6 $24 $11 $11 $17 $2.18 $0.44 $0.86 $0.56 $2.33 $0.66 -$0.60 $0.00 $0.20 $0.00 $0.73 $0.00 $0.79 $0.07 $0.80 $0.08 $1.17 $0.09 13.83 $30.14 36.70 $31.56 13.23 $30.83 n/a $16.24 126.70 $25.34 34.48 $25.17 22.67 $17.91 21.18 $16.94 21.19 $24.79 Market value of equity ($ in millions) $276.5 $293.6 $291.1 $487.2 $760.2 $827.5 $249.4 $232.9 $360.2 $153 $158 $164 $136 $232 $275 $122 $143 $201 22% 78% 21% 79% 20% 80% 0% 100% 25% 75% 22% 78% 5% 95% 9% 91% 25% 75% --15.5 --7.1 0.85 18.4 --n/a --4.5 0.53 3.6 --27.9 --32.6 0.90 14.0 Earnings per share Dividends per share Year-end price/earnings ratio Year-end common stock price Balance sheet capitalization % debt % common stock Equity beta coefficient Interest coverage Forecast 2013 Forecast Forecast Forecast 2014 2015 2016 Beginning P, P & E at cost + Capital expenditures $48,692 $50,192 $51,692 $53,192 $1,500 $1,500 $1,500 $1,500 = Ending P. P & E at cost $50,192 $51,692 $53,192 $54,692 (Depreciation expense) - Accumulated depreciation $23,658 $26,258 $28,933 $31,683 = Ending P, P & E, net $26,534 $25,434 $24,259 $23,009 Accounts receivable Inventory Accounts payable Net working capital Increase in NWC investment $18,522 $24,945 $12,248 $31,218 $0 $18,966 $25,543 $12,542 $31,967 $749 $19,422 $26,156 $12,843 $32,735 $767 $19,888 $26,784 $13,151 $33,520 $786 $149,369 ### ### ### Net sales - Manufacturing expenses $83,049 $84,890 $86,927 $89,013 - Selling & administrative exp $31,666 $32,120 $32,891 $33,681 - Research & development exp $3,734 $3,824 $3,916 $4,010 - Depreciation expenses $2,525 $2,600 $2,675 $2,750 = Operating income - Income taxes at 35% = After-tax income + Depreciation expense $28,394 $29,520 $30,216 $30,931 $9,938 $10,332 $10,576 $10,826 $18,456 $19,188 $19,641 $20,105 $2,525 $2,600 $2,675 $2,750 = Operating cash flow $20,981 $21,788 $22,316 $22,855 Terminal value (Horizon Value) Free cash flow TOTAL $19,481 $19,539 $20,048 $20,569 $19,481 $19,539 $20,048 $20,569 Find NPV of line 30 items 1) $294,437 ' 2013 ---> =NPV(5.1%, C30:L30) 2014 2015 2016 $3,521 $3,661 $3,747 $3,835 $4,742 $4,930 $5,046 $5,165 $50,192 $51,692 $53,192 $54,692 $23,658 $23,658 $23,658 $23,658 $26,534 $28,034 $29,534 $31,034 $34,797 $36,624 $38,327 $40,035 2) $683 $144 $7.63 $1.36 $682 $96 $5.04 $1.36 $728 $154 $7.98 $1.36 6.97 $53.15 $1,003.1 10.77 $54.30 ### 7.56 $60.36 ### $202 $324 $199 $305 $315 $229 3) Net present value combined base expansion investm $346 $346 $231 Forecast Forecast Forecast Forecast Forecast 2017 2018 2019 2020 2021 Forecast 2022 $54,692 $56,192 $57,692 $59,192 $60,692 $1,500 $1,500 $1,500 $1,500 $1,500 $62,192 $1,500 $56,192 $57,692 $59,192 $60,692 $62,192 $63,692 $34,508 $37,408 $40,383 $43,433 $46,558 $49,758 $21,684 $20,284 $18,809 $17,259 $15,634 $13,934 $20,365 $27,427 $13,467 $34,325 $804 $20,854 $28,085 $13,790 $35,149 $824 $21,354 $28,759 $14,121 $35,992 $844 $21,867 $29,449 $14,460 $36,856 $864 $22,391 $30,156 $14,807 $37,740 $885 $22,929 $30,880 $15,163 $38,646 $906 ### ### ### ### ### $184,910 $91,149 $93,337 $95,577 $97,871 ### $102,625 $34,489 $35,317 $36,164 $37,032 $37,921 $38,831 $4,106 $4,204 $4,305 $4,409 $4,514 $4,623 $2,825 $2,900 $2,975 $3,050 $3,125 $3,200 $31,664 $32,417 $33,189 $33,982 $34,796 $35,631 $11,082 $11,346 $11,616 $11,894 $12,179 $12,471 $20,582 $21,071 $21,573 $22,088 $22,617 $23,160 $2,825 $2,900 $2,975 $3,050 $3,125 $3,200 $23,407 $23,971 $24,548 $25,138 $25,742 $26,360 $215,590.35 $21,102 $21,647 $22,205 $22,775 $23,358 $23,954 $21,102 $21,647 $22,205 $22,775 $23,358 $239,545 %, C30:L30) 2017 2018 2019 2020 2021 2022 $3,926 $4,020 $4,115 $4,214 $4,315 $5,288 $5,414 $5,543 $5,675 $5,811 $56,192 $57,692 $59,192 $60,692 $62,192 $4,418 $5,950 $63,692 $23,658 $23,658 $23,658 $23,658 $23,658 $32,534 $34,034 $35,534 $37,034 $38,534 $41,748 $43,467 $45,192 $46,923 $48,660 $23,658 $40,034 $50,403 $455 $34 $1.74 $0.00 $488 $44 $2.17 $0.00 $520 $19 $0.95 $0.00 $224 $23 $0.50 $0.00 $306 $42 $0.92 $0.00 $338 $58 $1.21 $0.00 19.28 $33.55 $655.6 18.78 $40.75 $826.3 46.52 $44.19 $883.8 53.12 $26.56 ### 33.70 $31.00 $1,415.2 24.93 $30.16 ###