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Combined Income Statement: (+) Company Store Revenue: Units: FY16 Projected - Combined Period: FY17 FY18 FY19 FY20 $ M $ 20,010.1 $ 21,798.0 $ 23,527.0 $ 25,158.2 (+) Franchise / License Revenue: $ M 2,415.2 2,607.8 2,763.9 2,901.6 (+) Supply Chain / Other Revenue: $M 2,722.3 2,880.9 3,021.3 3,139.4 (+) Revenue Synergies: $M 19.8 34.0 52.3 67.4 Total Revenue: $ M 25,167.4 27,320.7 29,364.5 31,266.6 Segment Operating Income: $ M 7,963.0 8,778.0 9,490.3 10,196.1 (-) General & Administrative: $ M (1,653.5) (1,794.4) (1,899.2) (2,021.6) (-) Corporate D&A: $ M (1,205.6) (1,335.8) (1,464.6) (1,590.4) (-) Other Operating Expense/(Income) $M (515.8) (560.1) (602.1) (641.3) (-) Impairment Charges & Other: $ M (-) Pre-Opening Costs: $ M (2.6) (2.8) (2.4) (2.6) (+) OpEx Synergies: $ M 5.0 10.0 25.0 50.0 (-) Amortization of New Intangibles: $M (10.9) (10.9) (10.9) (10.9) (-) Depreciation of PP&E Write-Up: $ M (1.8) (1.8) (1.8) Consolidated Operating Income: $M 4,577.6 5,082.2 5,534.4 (1.8) 5,977.5 (+) Interest Income: $ M 29.5 41.8 55.0 71.4 (+) Interest Expense: SM (70.2) (57.1) (48.0) (36.6) (+) Other Income / (-) Expense: $M (-) Foregone Interest on Cash: $ M (6.8) (6.8) (6.8) (6.8) (-) Amortization of Financing Fees: $M (2.9) (2.9) (2.9) (2.9) (-) Interest Paid on New Debt Issued: $M (19.5) (19.5) (19.5) (19.5) Net Interest Income / (Expense): $M (69.9) (44.5) (22.3) 5.6 Pre-Tax Income: $ M 4,507.7 5,037.7 5,512.1 5,983.0 (-) Income Tax Provision: $ M (1,126.9) (1,259.4) (1,378.0) (1,495.8) Net Income: $ M 3,380.8 3,778.3 4,134.1 4,487.3 (+) Acquirer - Diluted Shares: M Shares (+) Shares Issued in Transaction: Total Diluted Shares: M Shares M Shares 1,510.0 0.0 1,510.0 1,510.0 0.0 1,510.0 1,510.0 0.0 1,510.0 1,510.0 0.0 1,510.0 Acquirer - Standalone EPS: $/Share $ 2.23 $ 2.48 $ 2.71 $ 2.93 Earnings Per Share (EPS): $/Share Accretion/ (Dilution) - $: $/Share es is $ 2.24 $ 2.50 $ 2.74 $ 2.97 $ 0.01 $ 0.02 $ 0.03 $ 0.04 Accretion/ (Dilution) - %: % 0.6% 0.8% 1.1% 1.5% Pro-Forma Earnings Per Share (EPS): Pro-Forma Accretion/ (Dilution) - $: Pro-Forma Accretion / (Dilution) - %: $/Share $ $/Share $ es es 2.25 $ 2.51 $ 2.74 $ 2.98 0.02 $ 0.03 $ 0.03 $ 0.05 % 10 0.9% 1.0% 1.3% 1.7%

Combined Income Statement: (+) Company Store Revenue: Units: FY16 Projected - Combined Period: FY17 FY18 FY19 FY20 $ M $ 20,010.1 $ 21,798.0 $ 23,527.0 $ 25,158.2 (+) Franchise / License Revenue: $ M 2,415.2 2,607.8 2,763.9 2,901.6 (+) Supply Chain / Other Revenue: $M 2,722.3 2,880.9 3,021.3 3,139.4 (+) Revenue Synergies: $M 19.8 34.0 52.3 67.4 Total Revenue: $ M 25,167.4 27,320.7 29,364.5 31,266.6 Segment Operating Income: $ M 7,963.0 8,778.0 9,490.3 10,196.1 (-) General & Administrative: $ M (1,653.5) (1,794.4) (1,899.2) (2,021.6) (-) Corporate D&A: $ M (1,205.6) (1,335.8) (1,464.6) (1,590.4) (-) Other Operating Expense/(Income) $M (515.8) (560.1) (602.1) (641.3) (-) Impairment Charges & Other: $ M (-) Pre-Opening Costs: $ M (2.6) (2.8) (2.4) (2.6) (+) OpEx Synergies: $ M 5.0 10.0 25.0 50.0 (-) Amortization of New Intangibles: $M (10.9) (10.9) (10.9) (10.9) (-) Depreciation of PP&E Write-Up: $ M (1.8) (1.8) (1.8) Consolidated Operating Income: $M 4,577.6 5,082.2 5,534.4 (1.8) 5,977.5 (+) Interest Income: $ M 29.5 41.8 55.0 71.4 (+) Interest Expense: SM (70.2) (57.1) (48.0) (36.6) (+) Other Income / (-) Expense: $M (-) Foregone Interest on Cash: $ M (6.8) (6.8) (6.8) (6.8) (-) Amortization of Financing Fees: $M (2.9) (2.9) (2.9) (2.9) (-) Interest Paid on New Debt Issued: $M (19.5) (19.5) (19.5) (19.5) Net Interest Income / (Expense): $M (69.9) (44.5) (22.3) 5.6 Pre-Tax Income: $ M 4,507.7 5,037.7 5,512.1 5,983.0 (-) Income Tax Provision: $ M (1,126.9) (1,259.4) (1,378.0) (1,495.8) Net Income: $ M 3,380.8 3,778.3 4,134.1 4,487.3 (+) Acquirer - Diluted Shares: M Shares (+) Shares Issued in Transaction: Total Diluted Shares: M Shares M Shares 1,510.0 0.0 1,510.0 1,510.0 0.0 1,510.0 1,510.0 0.0 1,510.0 1,510.0 0.0 1,510.0 Acquirer - Standalone EPS: $/Share $ 2.23 $ 2.48 $ 2.71 $ 2.93 Earnings Per Share (EPS): $/Share Accretion/ (Dilution) - $: $/Share es is $ 2.24 $ 2.50 $ 2.74 $ 2.97 $ 0.01 $ 0.02 $ 0.03 $ 0.04 Accretion/ (Dilution) - %: % 0.6% 0.8% 1.1% 1.5% Pro-Forma Earnings Per Share (EPS): Pro-Forma Accretion/ (Dilution) - $: Pro-Forma Accretion / (Dilution) - %: $/Share $ $/Share $ es es 2.25 $ 2.51 $ 2.74 $ 2.98 0.02 $ 0.03 $ 0.03 $ 0.05 % 10 0.9% 1.0% 1.3% 1.7%

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question

6. Consider the Combined Income Statement shown below, for an M&A deal between two 
restaurant/retail companies:

The Definite-Lived Intangibles created in this deal are approximately $55 million, with a 5-
year useful life, and the PP&E Write-Up is approximately $14 million, with an 8-year 
depreciation period.
The deal is financed with approximately 65% Cash and 35% Debt, and the Debt allows for 
optional repayments if the company has excess cash flow.
Based on this information and the screenshot above, which of the following answer choices 
represent LIKELY PROBLEMS with this Combined Income Statement?
a. The Revenue Synergies and OpEx Synergies grow at very high rates, at over 3x and 
~10x, respectively, over 4 years; these assumptions are too aggressive.
b. There’s no additional OpEx or COGS associated with the Revenue Synergies.
c. The Integration Costs and Restructuring Costs do not appear on the Income 
Statement.
d. The Interest Paid on New Debt stays the same each year, even though the company 
is likely repaying some amount of this New Debt over time.
e. The Amortization of Intangibles and Depreciation of the PP&E Write-Up both seem 
too large, based on the assumptions above.
f. All of the above.
g. Answer choices 1, 2, and 3.
h. Answer choices 1, 3, 4, and 5.
i. Answer choices 2 and 4.
j. Answer choices 1, 2, and 4.

Combined Income Statement: (+) Company Store Revenue: Units: FY16 Projected - Combined Period: FY17 FY18 FY19 FY20 $ M $ 20,010.1 $ 21,798.0 $ 23,527.0 $ 25,158.2 (+) Franchise / License Revenue: $ M 2,415.2 2,607.8 2,763.9 2,901.6 (+) Supply Chain / Other Revenue: $M 2,722.3 2,880.9 3,021.3 3,139.4 (+) Revenue Synergies: $M 19.8 34.0 52.3 67.4 Total Revenue: $ M 25,167.4 27,320.7 29,364.5 31,266.6 Segment Operating Income: $ M 7,963.0 8,778.0 9,490.3 10,196.1 (-) General & Administrative: $ M (1,653.5) (1,794.4) (1,899.2) (2,021.6) (-) Corporate D&A: $ M (1,205.6) (1,335.8) (1,464.6) (1,590.4) (-) Other Operating Expense/(Income) $M (515.8) (560.1) (602.1) (641.3) (-) Impairment Charges & Other: $ M (-) Pre-Opening Costs: $ M (2.6) (2.8) (2.4) (2.6) (+) OpEx Synergies: $ M 5.0 10.0 25.0 50.0 (-) Amortization of New Intangibles: $M (10.9) (10.9) (10.9) (10.9) (-) Depreciation of PP&E Write-Up: $ M (1.8) (1.8) (1.8) Consolidated Operating Income: $M 4,577.6 5,082.2 5,534.4 (1.8) 5,977.5 (+) Interest Income: $ M 29.5 41.8 55.0 71.4 (+) Interest Expense: SM (70.2) (57.1) (48.0) (36.6) (+) Other Income / (-) Expense: $M (-) Foregone Interest on Cash: $ M (6.8) (6.8) (6.8) (6.8) (-) Amortization of Financing Fees: $M (2.9) (2.9) (2.9) (2.9) (-) Interest Paid on New Debt Issued: $M (19.5) (19.5) (19.5) (19.5) Net Interest Income / (Expense): $M (69.9) (44.5) (22.3) 5.6 Pre-Tax Income: $ M 4,507.7 5,037.7 5,512.1 5,983.0 (-) Income Tax Provision: $ M (1,126.9) (1,259.4) (1,378.0) (1,495.8) Net Income: $ M 3,380.8 3,778.3 4,134.1 4,487.3 (+) Acquirer - Diluted Shares: M Shares (+) Shares Issued in Transaction: Total Diluted Shares: M Shares M Shares 1,510.0 0.0 1,510.0 1,510.0 0.0 1,510.0 1,510.0 0.0 1,510.0 1,510.0 0.0 1,510.0 Acquirer - Standalone EPS: $/Share $ 2.23 $ 2.48 $ 2.71 $ 2.93 Earnings Per Share (EPS): $/Share Accretion/ (Dilution) - $: $/Share es is $ 2.24 $ 2.50 $ 2.74 $ 2.97 $ 0.01 $ 0.02 $ 0.03 $ 0.04 Accretion/ (Dilution) - %: % 0.6% 0.8% 1.1% 1.5% Pro-Forma Earnings Per Share (EPS): Pro-Forma Accretion/ (Dilution) - $: Pro-Forma Accretion / (Dilution) - %: $/Share $ $/Share $ es es 2.25 $ 2.51 $ 2.74 $ 2.98 0.02 $ 0.03 $ 0.03 $ 0.05 % 10 0.9% 1.0% 1.3% 1.7%
Transcribed Image Text:Combined Income Statement: (+) Company Store Revenue: Units: FY16 Projected - Combined Period: FY17 FY18 FY19 FY20 $ M $ 20,010.1 $ 21,798.0 $ 23,527.0 $ 25,158.2 (+) Franchise / License Revenue: $ M 2,415.2 2,607.8 2,763.9 2,901.6 (+) Supply Chain / Other Revenue: $M 2,722.3 2,880.9 3,021.3 3,139.4 (+) Revenue Synergies: $M 19.8 34.0 52.3 67.4 Total Revenue: $ M 25,167.4 27,320.7 29,364.5 31,266.6 Segment Operating Income: $ M 7,963.0 8,778.0 9,490.3 10,196.1 (-) General & Administrative: $ M (1,653.5) (1,794.4) (1,899.2) (2,021.6) (-) Corporate D&A: $ M (1,205.6) (1,335.8) (1,464.6) (1,590.4) (-) Other Operating Expense/(Income) $M (515.8) (560.1) (602.1) (641.3) (-) Impairment Charges & Other: $ M (-) Pre-Opening Costs: $ M (2.6) (2.8) (2.4) (2.6) (+) OpEx Synergies: $ M 5.0 10.0 25.0 50.0 (-) Amortization of New Intangibles: $M (10.9) (10.9) (10.9) (10.9) (-) Depreciation of PP&E Write-Up: $ M (1.8) (1.8) (1.8) Consolidated Operating Income: $M 4,577.6 5,082.2 5,534.4 (1.8) 5,977.5 (+) Interest Income: $ M 29.5 41.8 55.0 71.4 (+) Interest Expense: SM (70.2) (57.1) (48.0) (36.6) (+) Other Income / (-) Expense: $M (-) Foregone Interest on Cash: $ M (6.8) (6.8) (6.8) (6.8) (-) Amortization of Financing Fees: $M (2.9) (2.9) (2.9) (2.9) (-) Interest Paid on New Debt Issued: $M (19.5) (19.5) (19.5) (19.5) Net Interest Income / (Expense): $M (69.9) (44.5) (22.3) 5.6 Pre-Tax Income: $ M 4,507.7 5,037.7 5,512.1 5,983.0 (-) Income Tax Provision: $ M (1,126.9) (1,259.4) (1,378.0) (1,495.8) Net Income: $ M 3,380.8 3,778.3 4,134.1 4,487.3 (+) Acquirer - Diluted Shares: M Shares (+) Shares Issued in Transaction: Total Diluted Shares: M Shares M Shares 1,510.0 0.0 1,510.0 1,510.0 0.0 1,510.0 1,510.0 0.0 1,510.0 1,510.0 0.0 1,510.0 Acquirer - Standalone EPS: $/Share $ 2.23 $ 2.48 $ 2.71 $ 2.93 Earnings Per Share (EPS): $/Share Accretion/ (Dilution) - $: $/Share es is $ 2.24 $ 2.50 $ 2.74 $ 2.97 $ 0.01 $ 0.02 $ 0.03 $ 0.04 Accretion/ (Dilution) - %: % 0.6% 0.8% 1.1% 1.5% Pro-Forma Earnings Per Share (EPS): Pro-Forma Accretion/ (Dilution) - $: Pro-Forma Accretion / (Dilution) - %: $/Share $ $/Share $ es es 2.25 $ 2.51 $ 2.74 $ 2.98 0.02 $ 0.03 $ 0.03 $ 0.05 % 10 0.9% 1.0% 1.3% 1.7%
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