Cost Savings Through Innovative Liability Management

1. Cost Savings Through Innovative Liability Management Bob Brunner CEO RBH Financial Group, Inc.

2. Liability Management Options • Status Quo • IPO • Derecognition

3. Status Quo • Significant Liability on Balance Sheet • Deferred Revenue • Negative Cash Flow • But it works

4. IPO • Brings in Significant New Cash • Loss of total control of program • Loss of ‘free’ cash • Can lead to labor issues • Shareholder expectations

5. Derecognition of Financial Liabilities: • Definition “A financial liability is removed from the balance sheet when it is extinguished, that is, when the debt is discharged, cancelled or expired. The condition is met when the liability is settled by paying the creditor or when the debtor is released from primary responsibility for the liability, either by process of law or by the creditor” Definitions Quoted from PWC.com IFRS: Classification, Measurement and Derecognition of Financial Liabilities Patent Pending: US11/625,940

6. Derecognition of Liabilities • The Question is: • Why am I interested in removing the liability for our companies loyalty program from its balance sheet?

7. Because • Improve Balance Sheet • Improve Operating Cash Flow • Improve Operating Results • Maintain Full Control of Program

8. But its not all good! - Significant cash outlay - Loss of interest on cash (non-operating income) - Possible tax implications Patent Pending: US11/625,940

9. How does this work? Cash from company Finance Company Liability from Company Accounts Receivable To Company Finance Company Patent Pending: US11/625,940

10. Finance Company . . .A. Invests cash long term for better returns, orB. Matches investments to redemption cycle to address interest rate fluctuations Finance company invests long term Finance company receives cash and liability Finance company matches investment to redemption cycle Patent Pending: US11/625,940

11. Redemptions Company bills FC for redemptions FC receives invoice FC redeems bonds if matched FC borrows funds if invested long term FC reduces amount of liability held and payable due company Company receives payment and reduces A/R FC pays company Patent Pending: US11/625,940

12. Ongoing ProcessNew liability transferred to finance company, along with new cash Company transfer new liability Finance company retires loan Finance company receives new funds and liability Company transfers new cash Finance company invests remaining funds Company books new account receivable Patent Pending: US11/625,940

13. Impact on Cash Flow Redeemed tickets Liability debited Revenue credited Marginal cost handled as current expense Redeemed tickets Cost incurred for marginal costs Revenue received to cover marginal costs A/R reduced Top example is cash flow negative while bottom example is cash flow neutral therefore a positive impact on cash flow

14. Stage 2 - Investing company borrows funds equal to cash provided by company at/near LIBOR - Investing company loans money to company at LIBOR, plus. • Company uses loan to pay off another higher priced secured loan - Savings on debt service Improves cash flow and earnings Patent Pending: US11/625,940

15. Stage 3 - Investing company provides secure line of credit using newly unencumbered asset as collateral - Rate for line of credit same as previous loan secured by same asset - Company now has same (or improved) liquidity as before transaction with improved balance sheet Patent Pending: US11/625,940

16. Positive (Millions) Liability -1,500 Operating Cash +62 Operating Profit +432 Account Rec.+1,978 Liquidity - neutral Negative Cash Holdings -1,500 Non Op. Profit -30 Results

17. Thank youand Questions