PWC Case Competition 2016

Current Greenlight Tires Situation

Initially, we evaluated the overall company outlook and forthcoming difficulties.

Situation

Challenge

Greenlight Tires is a large growing tire company

Greenlight has developed a negative public image due to tire pollution in the protected wetlands of Louisiana

Improve Greenlight’s Company Image

Embed Commitment to Environment into Culture

Determine Best Strategic Alternative to Greenlight

Our Solution

We recommend that Greenlight purchase RubberUp’s assets to create an immediate

revenue-producing subsidiary to use as an internal tire disposal resource.

We also recommend the acquisition payment be divided up into even annual payouts over four years to RubberUp.

Our Team

Our team comes from diverse backgrounds, from California to Italy.

Tyler NevinsFinance

SophomoreTulsa, OK

Natalie KaisermanAccountingSophomore

South Jordan, UT

Andy RebarchikAccountingSophomore

Milwaukee, WI

Roberto MongiaAccountingSophomore

Verona, Italy

Grant HiltbrandAccountingFreshman

Mission Viejo, CA

Our Process

We created a four-step process to present our solution.

Market Research

Strategic Alternatives

Implementation Process

Company Impact

Competitive Landscape

We performed market research as an attempt to laser in on the possible solutions.

Market Research

Strategic

Alternatives

Implementation

Process

Company Impact

● Crumb Rubber○ Weightlifting Plates○ Portable Speed Bumps○ Anti-Fatigue Mats○ Sports fields

● TDF - Tire Derived Fuels○ More Energy than Coal○ Cleaner than Fossil Fuels

● Asphalt○ 15-22% of the Mix for Rubberized Asphalt○ Can be Installed with the Same Equipment○ Reduces Tire Noise

● Rubber Mulch○ 12 Year vs. Annual○ Added Safety

● Aggregate○ 10x Drainage of Soil○ 8x Insulation of Stone

● Retreading

More Than 2500 Companies make up the tire recycling industry

Competitive Landscape

The biggest potential lies within playground surfaces, the most profitable sector, but the market is changing.

Market Research

Strategic

Alternatives

Implementation

Process

Company Impact

Today2013

Expected Annual Revenue Growth3.6%

Problem Structure

How can Greenlight Tires restore public image and embed environmental concern into the company culture?

Purchase a recycling company

Build infrastructure for internal recycling company

Other Options

Purchase RubberUp, Inc.

Purchase different company

Create an internal process for recycling

Create an internal recycling revenue

stream

One-time charitable act

Use recycling company as a

vendor

In order to reach our recommendation, we explored all possible solutions to the problem.

Market Research

Strategic

Alternatives

Implementation

Process

Company Impact

Key Considerations

In our research, we identified key factors of success for Greenlight Tires going forward

Market Research

Strategic

Alternatives

Implementation

Process

Company Impact

Considerations for Potential Solutions

Will our solution solve the current image issue the company faces?

Does our solution fit with the company mission statement?

What are the associated opportunities and threats for our proposed solutions?

Will Greenlight have sufficient assets to perform this solution? Will it have a positive, long-term benefit?

A Four-Year Asset AcquisitionMarket Research

Strategic

Alternatives

Implementation

Process

Company Impact

We propose purchasing the assets of RubberUp, paying over a four year period, for a total of $2,800,000 (or four payments of $700,000)

Through a marketing campaign, Greenlight can rebrand themselves as a green company through “GreenUp with Greenlight”

The RubberUp employees should be brought on as contractors during a four year period to transition to management

Vertical Integration

Results of Acquisition

Acquiring RubberUp, a profitable recycling company, has myriad benefits.

Market Research

Strategic

Alternatives

Implementation

Process

Company Impact

Improved Company Reputation

Environmental Culture Change

Position Company for Growth

Short & Long-Term Financial Benefits

Provides Employment Advancement

Vertical Integration of RubberUp

Greenlight and RubberUp will both lower their operational costs through this acquisition.

Market Research

Strategic

Alternatives

Implementation

Process

Company Impact

RubberUp Factory

Greenlight supplies used tires, lowering operational costs

RubberUp’s processes continue to produce and sell recycled rubber for

playgrounds

Through Vertical Integration, RubberUp’s operating costs will decline, driving up profits. Greenlight will also be able to turn a cost (tire disposal) into a revenue stream (recycled rubber)

Timeline of Conversion Process

A four-year buyout model will mutually benefit both companies’ bottom lines.

Market Research

Strategic

Alternatives

Implementation

Process

Company Impact

2017

$700,000

2018

$700,000

2020$700,000

2019$700,000

The four-year Return on Investment model projects a stronger, more positive return compared to an initial

payment model due to the Time Value of Money.

Paying over a four-year period will result in a

significant decrease in the payback period (4.5

years to .875 years) based on our earnings

model of $800,000 annually.

Tax Implications

PWC would be able to assist Greenlight in this transaction due to the many different tax benefits available.

Market Research

Strategic

Alternatives

Implementation

Process

Company Impact

DepreciationIncentive Programs

Tax Credits

Purchasing RubberUp’s assets allows Greenlight to

immediately begin depreciation on these

assets

Mississippi Tax law contains a 5% discount on any $1,000,000 investment on buildings or equipment

used for manufacturing

There are many different business incentive

programs through the Department of Energy for

green investments

Pro Forma Impact

We estimated a one-year impact on the Financial Statements to map the change in the company going forward.

Market Research

Strategic

Alternatives

Implementation

Process

Company Impact

2017 (First Full Year)2015 (Last Year) Percent Change

Net Sales 28,865.60

Net Income 4,023.30

Total Assets 17,624.30

Tot. Liabilities 11,553.70

Total Equity 6,070.60

ROE .66

Current Ratio 2.66

ROA 0.23

Net Sales 36,582.91

Net Income 6,125.55

Total Assets 20,684.28

Tot. Liabilities 13,113.68

Total Equity 7,570.60

ROE 0.81

Current Ratio 2.66

ROA 0.23

Net Sales 126.74%

Net Income 152.25%

Total Assets 117.36%

Tot. Liabilities 113.50%

Total Equity 124.71%

ROE 122.09%

Current Ratio 83.11%

ROA 129.73%

Risk Mitigation

We evaluated potential risks and ramifications to our solution, and proactive resolutions.

Risks

Entity/RubberUp may have potential legal/image

issues

Greenlight may face hefty fines, and if they contest the charges, may

face backlash

Greenlight’s public image will not have any effect.

Ramifications

The negative image of RubberUp becomes a

Greenlight liability

The positive image effects of the acquisition will be confounded, and

the company will have a large payout

Greenlight will have taken an unnecessary risk

SolutionsAsset Purchase instead of

Entity Purchase

Partnership with Louisiana public officials to dispose of their tires free of charge, and use rubber in public

areas throughout state

Rebranding: GreenUp with Greenlight

We would be happy to answer any questions that you may have at this time.

Thanks!

Appendix: State Department

The State of Louisiana may still fine Greenlight a large amount. We recommend a quick court settlement and an act of good faith in free tire disposal for all state officials in the state of Louisiana. All of the rubber from these tireswill be used in public parks around the State of Louisiana. This will have a lasting positive effect on the communities in Louisiana.

Appendix: Vertical Integration

Rubber Recycling Market

Recycled Product Consumer

(Playground Suppliers)

Recycling Company (RubberUp)

Rubber Producer (Greenlight)

Vertical Integration applies to Greenlight as it integrates the assets of RubberUp

into their corporate structure. Greenlight acquires an internal customer for their

defected and recycled tires, and RubberUp acquires an internal tire supplier for their

recycling business. Vertical Integration allows Greenlight to obtain a profitability

advantage in the rubber recycling industry

Appendix: Rebranding Greenlight

Because of the drastic image change Greenlight Tires is pursuing,

developing a communications strategy involving a rebrand would be

beneficial. We recommend “GreenUp with Greenlight” to drive home

the idea that Greenlight Tires is an eco-friendly company.

The BYU football team,

desperate for a rebrand

from the gold-lined BYU

jerseys that made just one

bowl appearance, has

appeared in a bowl game

ever since their revert to the

traditional colors.This change is to be seen as a

communications/marketing

change rather than a structural

corporate change.

Appendix: RubberUp Financial Ratios

Appendix: Discounted Cash Flow Valuation

Appendix: Discounted Cash Flow Values

Appendix: DCF Assumptions

● WACC based on the five year average the S&P Index● Cash flows will grow at an estimated 2.4% each year with the market growth of the rubber

industry

Appendix: Payout over a one-time purchase

Payback as a one-time, 2.8m hit

Appendix: Payout over a 4-year model

Appendix: Rubber Recycling Industry Stats

Appendix: Rubber Recycling Industry Stats

Appendix: Rubber Recycling Industry Stats

Appendix: How Can PWC Help?

● Tax Planning

● Audit and Assurance

● Advisory

● RubberUp may have a different internal structure. PWC can help there, implementing the same information system for the two companies.

● What should the company do with the legal battle (Developing a 4 year model that can bear the punishment and support the RubberUp investment)

● Transaction evaluation groups that can help determine more proper and beneficial values during the acquisition and integration.

Appendix: Details of Acquisition Proposal

We recommend a four-year asset acquisition deal with four payments of $700,000, paid annually from 01/2017 until 01/2020. The total payout will be $2.8 million Part of the deal should include a four year contract with all RubberUp employees to bring all employees into Greenlight as contractors. The management of RubberUp should be phased out over the four-year period. This will allow time to incorporate, operate and train key employees as the obligations transfer to Greenlight management. After those four years, we recommend a non-compete clause lasting from 2021-2024, prohibiting the owners of RubberUp to open a competing business. Doing this will protect Greenlight from the risk of losing all RubberUp customers after the merger’s completion.

Appendix: Timeline and Tax Benefits

Greenlight will benefit from a lower initial bottom-line hit, while adding a new revenue stream. They will also benefit from the gradual integration and transition to internal management. From a tax perspective, Greenlight benefits by immediate depreciation of RubberUp’s assets.

RubberUp owners can easily transition into retirement over the four years through working as contractors for Greenlight until the transition completes, while receiving four annual lump sums.

- Federal depreciation allowance: a 50% depreciation allowance may be taken for equipment and machinery used for recycling, during the first year in which the property is in service.

- Manufacturing Investment Tax Credit (An income tax credit is available equal to five percent (5%) of the eligible investment made by manufacturers that have been in business in Mississippi for more than two (2) years. An eligible investment means an investment greater than one million dollars ($1,000,000) in buildings and/or equipment used in the manufacturing operation)

- Incentives from department of energy: There are business incentive programs, and they are listed on www.energy.gov

Appendix: Pro Forma Financial Statements

% Change 31-Dec-2017 31-Dec-2015Net Sales 126.74% 36,582.91 28,865.60COGS 120.58% (21,949.75) (18,204.00)SG&A 105.00% (3,553.73) (3,384.50)R&D 150.00% (1,400.70) (933.80)Other I/E 0.00% 0.00 1.60Operating Income 152.54% 9,678.74 6,344.90Interest Expense 100.00% (32.20) (32.20)Earnings B4 Tax 152.81% 9,646.54 6,312.70Income Tax 153.80% (3,520.99) (2,289.40)Net Income 152.25% 6,125.55 4,023.30

Appendix: Pro Forma Financial Statements

Ratios Change 2017 2015ROE 122.09% 0.81 0.66Return on Sales 120.13% 0.17 0.14Asset Turnover 107.99% 1.77 1.64Leverage Ratio 94.11% 2.73 2.90Current Ratio 83.11% 2.21 2.66Debt Ratio 96.71% 0.63 0.66Debt to Equity 91.01% 1.73 1.90Return on Assets 129.73% 0.30 0.23

Appendix: Source List

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○○ www.recycledrubber.biz○ http://www.rubber.com/rubber/trade/cm194373.html○ http://www.groundrubbersolutions.com/○

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