In early 2015, Integrated Communiciations, Ltd. was interested in acquiring Frac
ID: 2723127 • Letter: I
Question
In early 2015, Integrated Communiciations, Ltd. was interested in acquiring Fractal Antenna Systems, Inc., a privately-held company producing compact antennae. As a first step in deciding what price to bid for Fractal, Integrated's finance department has prepared a five-year financial projection for the company assuming an acquisition. Use this projection and Fractal's 2014 actual financial figures to answer the questions below. Fractal Antenna Systems, Inc. 5-year Financial Projection ($ millions) Actual 2014 2015 2016 2017 2018 2019 Income statement Net sales $ 1,996 $ 2,267 $ 2,508 $ 2,827 $ 3,138 $ 3,571 Cost of sales 644 742 830 959 1,087 1,241 Gross income 1,352 1,525 1,678 1,868 2,051 2,330 Depreciation 492 785 1,061 1,301 1,009 917 Interest expense 171 178 191 175 142 110 Operating expenses 212 239 270 306 334 374 Net income before tax 477 323 156 86 566 929 Provision for taxes 186 126 61 34 221 363 Net income after tax $ 291 $ 197 $ 95 $ 52 $ 345 $ 566 Balance sheet Cash and securities 358 $ 413 $ 462 $ 545 $ 618 $ 704 Accounts receivable 208 236 267 309 354 405 Inventory 399 463 541 629 739 864 Other current assets 156 122 142 167 212 206 Total current assets 1,121 1,234 1,412 1,650 1,923 2,179 Gross property and equipment 4,180 5,149 6,410 7,449 8,200 9,016 Accumulated depreciation 868 1,654 2,714 4,015 5,024 5,941 Net property and equipment 3,312 3,495 3,696 3,434 3,176 3,075 Goodwill 1,069 1,069 1,069 1,069 1,069 1,069 Total assets 5,502 5,798 6,177 6,153 6,168 6,323 Accounts payable 104 77 91 110 117 135 Short-term debt 335 482 842 814 585 393 Current portion long-term debt 41 140 165 200 223 267 Accrued expenses 86 97 120 134 174 168 Total current liabilities 566 796 1,218 1,258 1,099 963 Long-term debt 1,694 1,554 1,389 1,189 966 699 Deferred taxes 335 344 370 454 505 496 Shareholders' equity 2,907 3,104 3,200 3,252 3,598 4,165 Total liabilities and equity $ 5,502 $ 5,798 $ 6,177 $ 6,153 $ 6,168 $ 6,323 a. Estimate Fractal's free cash flow from 2015 through 2019. In early 2015, Integrated Communiciations, Ltd. was interested in acquiring Fractal Antenna Systems, Inc., a privately-held company producing compact antennae. As a first step in deciding what price to bid for Fractal, Integrated's finance department has prepared a five-year financial projection for the company assuming an acquisition. Use this projection and Fractal's 2014 actual financial figures to answer the questions below. Fractal Antenna Systems, Inc. 5-year Financial Projection ($ millions) Actual 2014 2015 2016 2017 2018 2019 Income statement Net sales $ 1,996 $ 2,267 $ 2,508 $ 2,827 $ 3,138 $ 3,571 Cost of sales 644 742 830 959 1,087 1,241 Gross income 1,352 1,525 1,678 1,868 2,051 2,330 Depreciation 492 785 1,061 1,301 1,009 917 Interest expense 171 178 191 175 142 110 Operating expenses 212 239 270 306 334 374 Net income before tax 477 323 156 86 566 929 Provision for taxes 186 126 61 34 221 363 Net income after tax $ 291 $ 197 $ 95 $ 52 $ 345 $ 566 Balance sheet Cash and securities 358 $ 413 $ 462 $ 545 $ 618 $ 704 Accounts receivable 208 236 267 309 354 405 Inventory 399 463 541 629 739 864 Other current assets 156 122 142 167 212 206 Total current assets 1,121 1,234 1,412 1,650 1,923 2,179 Gross property and equipment 4,180 5,149 6,410 7,449 8,200 9,016 Accumulated depreciation 868 1,654 2,714 4,015 5,024 5,941 Net property and equipment 3,312 3,495 3,696 3,434 3,176 3,075 Goodwill 1,069 1,069 1,069 1,069 1,069 1,069 Total assets 5,502 5,798 6,177 6,153 6,168 6,323 Accounts payable 104 77 91 110 117 135 Short-term debt 335 482 842 814 585 393 Current portion long-term debt 41 140 165 200 223 267 Accrued expenses 86 97 120 134 174 168 Total current liabilities 566 796 1,218 1,258 1,099 963 Long-term debt 1,694 1,554 1,389 1,189 966 699 Deferred taxes 335 344 370 454 505 496 Shareholders' equity 2,907 3,104 3,200 3,252 3,598 4,165 Total liabilities and equity $ 5,502 $ 5,798 $ 6,177 $ 6,153 $ 6,168 $ 6,323 a. Estimate Fractal's free cash flow from 2015 through 2019.Explanation / Answer
Fractal Antenna Systems Inc. All Amounts in millions of $ Free Cash Flow from 2015 to 2019 Free Cash Flow = Operating Cash Flow - Capital Expenditure Operating Cash Flow 2015 2016 2017 2018 2019 Net Income After Tax 197 95 52 345 566 Add : Depreciation 785 1061 1301 1009 917 Add : Interest Expense 178 191 175 142 110 Add : Provision for Income Taxes 126 61 34 221 363 Cash Flows before Working Capital changes 1286 1408 1562 1717 1956 Less : Increase in Accounts Receivable -28 -31 -42 -45 -51 Less : Increase in Inventory -64 -78 -88 -110 -125 Add : Decrease in Other Current Assets 34 6 Less : Increase in Other Current Assets -20 -25 -45 Less : Decrease in Accounts Payable -27 Add : Increase in Accounts Payable 14 19 7 18 Less : Decrease in Short-Term Debt -28 -229 -192 Add : Increase in Short-Term Debt 147 360 Add : Increase in Current Portion of Long-Term Debt 99 25 35 23 44 Add : Increase in Accrued Expenses 11 23 14 40 Less : Decrease in Accrued Expenses -6 Cash Inflows from Operating Activities 1458 1701 1447 1358 1650 Less : Capital Expenditures -969 -1261 -1039 -751 -816 Free Cash Flow 489 440 408 607 834