64926842-Airthread-Connections-Case-Work-Sheet.xlsx
75
AIRTHREAD ACQUISITION Equity Net Debt/ Debt/ Comparable Companies: Market Value Debt Value Equity Universal Mobile 65,173 60,160 48.0% 92.3% Neuberger Wireless 94,735 27,757 22.7% 29.3% Agile Connections 37,942 9,144 19.4% 24.1% Big Country Communications 47,314 15,003 24.1% 31.7% Rocky Mountain Wireless 5,299 2,353 30.8% 44.4% Average 50,093 22,883 29.0% 40.8%
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Transcript of 64926842-Airthread-Connections-Case-Work-Sheet.xlsx
AIRTHREAD ACQUISITION
Equity Net Debt/ Debt/ Equity AssetComparable Companies: Market Value Debt Value Equity Beta BetaUniversal Mobile 65,173 60,160 48.0% 92.3% 0.86 0.55 Neuberger Wireless 94,735 27,757 22.7% 29.3% 0.89 0.76 Agile Connections 37,942 9,144 19.4% 24.1% 1.17 1.02 Big Country Communications 47,314 15,003 24.1% 31.7% 0.97 0.81 Rocky Mountain Wireless 5,299 2,353 30.8% 44.4% 1.13 0.89 Average 50,093 22,883 29.0% 40.8% 1.00 0.81
H60
R K Jain: unlevered asset beta Ba= Be/1+(D/E)(1-t)
H61
R K Jain: unlevered asset beta Ba= Be/1+(D/E)(1-t)
H62
R K Jain: unlevered asset beta Ba= Be/1+(D/E)(1-t)
H63
R K Jain: unlevered asset beta Ba= Be/1+(D/E)(1-t)
H64
R K Jain: unlevered asset beta Ba= Be/1+(D/E)(1-t)
Debt/ Debt/ Asset Equity Cost of Cost ofValue Equity Beta Beta Equity Debt WACC0.0% 0.0% 0.81 0.81 8.29% 5.50% 8.29%5.0% 5.3% 0.81 0.85 8.50% 5.50% 8.24%
10.0% 11.1% 0.81 0.90 8.74% 5.50% 8.19%15.0% 17.6% 0.81 0.95 9.00% 5.50% 8.15%20.0% 25.0% 0.81 1.01 9.30% 5.50% 8.10%25.0% 33.3% 0.81 1.08 9.64% 5.50% 8.05%29.0% 40.8% 0.81 1.14 9.94% 5.50% 8.01%35.0% 53.8% 0.81 1.24 10.47% 5.50% 7.96%40.0% 66.7% 0.81 1.35 10.98% 5.50% 7.91%45.0% 81.8% 0.81 1.47 11.60% 5.50% 7.86%47.0% 88.7% 0.81 1.52 11.87% 5.50% 7.84%50.0% 100.0% 0.81 1.62 12.33% 5.50% 7.81%
H69
R K Jain: WACC = Ke(E/V)+Kd(D/V)(1-t)
E70
R K Jain: Equity Beta = Asset Beta (V/E) => Be = Ba (1/1-(D/V))
E71
R K Jain: Equity Beta = Asset Beta (V/E) => Be = Ba (1/1-(D/V))
E72
R K Jain: Equity Beta = Asset Beta (V/E) => Be = Ba (1/1-(D/V))
E73
R K Jain: Equity Beta = Asset Beta (V/E) => Be = Ba (1/1-(D/V))
E74
R K Jain: Equity Beta = Asset Beta (V/E) => Be = Ba (1/1-(D/V))
E75
R K Jain: Equity Beta = Asset Beta (V/E) => Be = Ba (1/1-(D/V))
E76
R K Jain: Equity Beta = Asset Beta (V/E) => Be = Ba (1/1-(D/V))
E77
R K Jain: Equity Beta = Asset Beta (V/E) => Be = Ba (1/1-(D/V))
E78
R K Jain: Equity Beta = Asset Beta (V/E) => Be = Ba (1/1-(D/V))
E79
R K Jain: Equity Beta = Asset Beta (V/E) => Be = Ba (1/1-(D/V))
E80
R K Jain: Equity Beta = Asset Beta (V/E) => Be = Ba (1/1-(D/V))
E81
R K Jain: Equity Beta = Asset Beta (V/E) => Be = Ba (1/1-(D/V))
Assumptions:Marginal Tax Rate 40.0%Debt Beta 0.00
Market Risk Premium 5.00%Risk-Free Rate 4.25%
Average industry EBIT 5,532 Cost of Debt 5.50% Average Industry P/E 13.19
Re-levering the asset beta on the constant capital structure assumption, Equity Beta = Asset Beta (V/E) i.e.,
Be = Ba*(1/1-(D/V))
Cost of Capital
AIRTHREAD ACQUISITION
Operating Results: 2008 2009 2010 2011 Service Revenue 4,194.3 4,781.5 5,379.2 5,917.2 Plus: Equipment Sales 314.8 358.8 403.7 444.1 Plus: Synergy Related Business Revenue 0.0 0.0 0.0 0.0 Total Revenue 4,509.1 5,140.4 5,782.9 6,361.2 Less: System Operating Expenses 838.9 956.3 1,075.8 1,183.4 Plus: Backhaul Synergy Savings 0.0 0.0 0.0 0.0 Less: Cost of Equipment Sold 755.5 861.2 968.9 1,065.8 Less: Selling, General & Administrative 1,803.6 2,056.2 2,313.2 2,544.5 EBITDA 1,111.1 1,266.7 1,425.0 1,567.5 Less: Depreciation & Amortization 705.2 804.0 867.4 922.4
EBIT 405.9 462.7 557.6 645.2 Tax @40% 162.4 185.1 223.0 258.1 Un-Levered Free Cash Flow:NOPAT 243.5 277.6 334.6 387.1 Plus: Depreciation & Amortization 705.2 804.0 867.4 922.4 Less: Changes in Working Capital 25.9 19.7 20.0 18.0 Less: Capital Expenditures 631.3 719.7 867.4 970.1 Un-Levered Free Cash Flow 291.6 342.3 314.5 321.4
PV Intermediate FCF 8.29% 1,256.6 269.3 291.9 247.7 233.7
Operating Margins:
Service Revenue Growth 14.0% 14.0% 12.5% 10.0%Equipment Sales/Service Revenue 7.5% 7.5% 7.5% 7.5%Total Revenue Growth 14.3% 14.0% 12.5% 10.0%Wireless Service Gross Profit Margin 80.0% 80.0% 80.0% 80.0%Equipment Sales Gross Profit -140.0% -140.0% -140.0% -140.0%Selling, General & Administrative 40.0% 40.0% 40.0% 40.0%EBITDA 24.6% 24.6% 24.6% 24.6%Depreciation & Amortization 15.6% 15.6% 15.0% 14.5%EBIT 9.0% 9.0% 9.6% 10.1%Effective Tax Rate 40.0% 40.0% 40.0% 40.0%Cap-x/Revenue 14.0% 14.0% 15.0% 15.3%
E82
R K Jain: given in case Exhibit 1
F82
R K Jain: given in case Exhibit 1
G82
R K Jain: given in case Exhibit 1
H82
R K Jain: given in case Exhibit 1
E83
R K Jain: Given in case exhibit 1
F83
R K Jain: Given in case exhibit 1
G83
R K Jain: Given in case exhibit 1
H83
R K Jain: Given in case exhibit 1
E84
R K Jain: Calcluated upon 2007 revenue
F84
R K Jain: Calcluated upon year-on-year
G84
R K Jain: Calcluated upon year-on-year
H84
R K Jain: Calcluated upon year-on-year
E85
R K Jain: GP margin = (Services rev - Service Op. exp) Services revenue
F85
R K Jain: GP margin = (Services rev - Service Op. exp) Services revenue
G85
R K Jain: GP margin = (Services rev - Service Op. exp) Services revenue
H85
R K Jain: GP margin = (Services rev - Service Op. exp) Services revenue
E86
R K Jain: GP on Equip sale = (Equip sale rev - Equip cost) Equip sale rev
F86
R K Jain: GP on Equip sale = (Equip sale rev - Equip cost) Equip sale rev
G86
R K Jain: GP on Equip sale = (Equip sale rev - Equip cost) Equip sale rev
H86
R K Jain: GP on Equip sale = (Equip sale rev - Equip cost) Equip sale rev
E87
R K Jain: Upon total revenue (Given in case Exhibit 1)
F87
R K Jain: Upon total revenue (Given in case Exhibit 1)
G87
R K Jain: Upon total revenue (Given in case Exhibit 1)
H87
R K Jain: Upon total revenue (Given in case Exhibit 1)
E88
R K Jain: Upon total revenue
F88
R K Jain: Upon total revenue
G88
R K Jain: Upon total revenue
H88
R K Jain: Upon total revenue
E89
R K Jain: Upon total revenue
F89
R K Jain: Upon total revenue
G89
R K Jain: Upon total revenue
H89
R K Jain: Upon total revenue
E90
R K Jain: Upon total revenue
F90
R K Jain: Upon total revenue
G90
R K Jain: Upon total revenue
H90
R K Jain: Upon total revenue
E91
R K Jain: given
F91
R K Jain: given
G91
R K Jain: given
H91
R K Jain: given
E92
R K Jain: Upon total revenue (given in case exhibit 1)
F92
R K Jain: Upon total revenue (given in case exhibit 1)
G92
R K Jain: Upon total revenue (given in case exhibit 1)
H92
R K Jain: Upon total revenue (given in case exhibit 1)
Intermediate Operating Cash Flows
2012 6,331.4
475.2 0.0
6,806.5 1,266.3
0.0 1,140.4 2,722.6 1,677.3
952.9
724.4 289.7
434.6 952.9
13.9 1,055.0
318.6
214.0
Operating Margins: Based on projected cashflows excluding the benefits of Synergy 7.0% Changes in Working Capital:7.5% Accounts Receivable7.0% Plus: Inventory
80.0% Plus: Prepaid Expenses-140.0% Less: Deferred Revenue
40.0% Less: Accounts Payable24.6% Less: Accrued Liabilities14.0% Net Working Capital10.6% Increase in NWC40.0%15.5%
I82
R K Jain: given in case Exhibit 1
I83
R K Jain: Given in case exhibit 1
I84
R K Jain: Calcluated upon year-on-year
I85
R K Jain: GP margin = (Services rev - Service Op. exp) Services revenue
I86
R K Jain: GP on Equip sale = (Equip sale rev - Equip cost) Equip sale rev
I87
R K Jain: Upon total revenue (Given in case Exhibit 1)
I88
R K Jain: Upon total revenue
I89
R K Jain: Upon total revenue
I90
R K Jain: Upon total revenue
I91
R K Jain: given
I92
R K Jain: Upon total revenue (given in case exhibit 1)
Intermediate Operating Cash Flows
Based on projected cashflows excluding the benefits of Synergy
2007 2008 2009 2010 2011 2012
435.5 521.9 595.0 669.4 736.3 787.9 101.0 135.0 153.9 173.1 190.4 203.7
41.6 46.9 53.5 60.1 66.2 70.8 143.4 163.2 186.1 209.3 230.3 246.4 260.8 335.5 382.4 430.2 473.2 506.4
59.2 64.7 73.7 82.9 91.2 97.6 114.6 140.4 160.1 180.1 198.1 212.0
0 25.8 19.7 20.0 18.0 13.9
R83
R K Jain: based on total revenue
S83
R K Jain: based on total revenue
T83
R K Jain: based on total revenue
U83
R K Jain: based on total revenue
V83
R K Jain: based on total revenue
R84
R K Jain: based on equipment revenue and not Cost of goods sold
S84
R K Jain: based on equipment revenue and not Cost of goods sold
T84
R K Jain: based on equipment revenue and not Cost of goods sold
U84
R K Jain: based on equipment revenue and not Cost of goods sold
V84
R K Jain: based on equipment revenue and not Cost of goods sold
R85
R K Jain: is based on total cash operating expenses
S85
R K Jain: is based on total cash operating expenses
T85
R K Jain: is based on total cash operating expenses
U85
R K Jain: is based on total cash operating expenses
V85
R K Jain: is based on total cash operating expenses
R86
R K Jain: is based on service revenue and not on total cash operating expenses
S86
R K Jain: is based on service revenue and not on total cash operating expenses
T86
R K Jain: is based on service revenue and not on total cash operating expenses
U86
R K Jain: is based on service revenue and not on total cash operating expenses
V86
R K Jain: is based on service revenue and not on total cash operating expenses
R87
R K Jain: is based on total cash operating expenses
S87
R K Jain: is based on total cash operating expenses
T87
R K Jain: is based on total cash operating expenses
U87
R K Jain: is based on total cash operating expenses
V87
R K Jain: is based on total cash operating expenses
R88
R K Jain: is based on total cash operating expenses
S88
R K Jain: is based on total cash operating expenses
T88
R K Jain: is based on total cash operating expenses
U88
R K Jain: is based on total cash operating expenses
V88
R K Jain: is based on total cash operating expenses
AIRTHREAD ACQUISITION
AirThread Debt Capacity:Pre-Synergy Est. 2007 EBITDA 1,033 Total BorrowingInterest Coverage Ratio 5.00x Amortization PeriodMaximum Interest Expense 207 Payments Per YearInterest Rate 5.50% Monthly PaymentEst. Debt Capacity 3,758
Excludes Synergies:Excess Cash: 2008 2009 2010 2011 2012 Un-Levered Free Cash Flow 291.6 342.3 314.5 321.4 318.6 Less: After-Tax Interest Expenses 119.7 109.8 99.5 88.5 77.0 Less: Scheduled Principal Paymen 289.9 306.3 323.6 341.8 2,496.0
Excess Cash (118.0) (73.8) (108.5) (109.0) (2,254.3)
Cash on Balance Sheet 86.58 12.7 (95.8) (204.7) (2,459.0)
Includes Synergies:Excess Cash: 2008 2009 2010 2011 2012 Un-Levered Free Cash Flow 324.3 416.5 424.5 487.9 535.7 Less: After-Tax Interest Expsnse 119.7 109.8 99.5 88.5 77.0 Less: Scheduled Principal Paymen 289.9 306.3 323.6 341.8 2,496.0 Excess Cash (85.3) 0.4 1.5 57.6 (2,037.3)
Cash on Balance Sheet 119.2 119.6 121.1 178.7 (1,858.6)
Cash Reconciliation: 2008 Beginning Cash Balance 204.5 Plus: Cash From Operations 291.6 Less: Aft-Tax Interest Exp. 119.7 Less: Principal Payments 289.9 Ending Cash Balance 86.58
Cash Reconciliation: 2008 Beginning Cash Balance 204.5 Plus: Cash From Operations 324.3 Less: Aft-Tax Interest Exp. 119.7 Less: Principal Payments 289.9 Ending Cash Balance 119.2
AirThread Debt Capacity:3,758
10 Years12 41
Debt Capacity
AIRTHREAD ACQUISITION
Interest Tax Shields: 2008 2009 2010 2011 2012 Interest Expense 199.4 183.1 165.8 147.5 128.3 Tax Rate 40.0% 40.0% 40.0% 40.0% 40.0%
Tax Shield 79.8 73.2 66.3 59.0 51.3 Interest Rate 5.50%PV of Intermediate Tax Shields 284.8 75.6 65.8 56.5 47.6 39.3
Intermediate Tax Shields
AIRTHREAD ACQUISITION
Terminal Value With Lon-Term D/V of 29%
Un-Levered Free Cash Flows: 2008 2009 2010 2011 NOPAT 243.5 277.6 334.6 387.1 Plus: Depreciation & Amortization 705.2 804.0 867.4 922.4 Less: Changes in Working Capital 25.9 19.7 20.0 18.0 Less: Capital Expenditures 631.3 719.7 867.4 970.1 Un-Levered Free Cash Flow 291.6 342.3 314.5 321.4
PV of FCF 8.29% 1,256.6 269.3 291.9 247.7 233.7
Interest Tax Shields 79.8 73.2 66.3 59.0 PV of Interest Tax Shields 284.8 75.6 65.8 56.5 47.6
Total Intermediate Term Value 1,541.3
TV Growth Rate 2.9%TV WACC Cash Flow 4,334.3
Value of Operating Assets 5,875.7 Value of Non-Operating Assets 1,187.3 Total Enterprise Value 7,063.0
D75
R K Jain: Use market multiple method. Industry average P/E using data from exhibit 7, is 13.19 (ref. sheet 'Cost of capital' for calc cell p65). Taking 'equity in earnings of affiliates' for the year 2007 (exhibit:4) as proxy the value of non-operating asset is arrived at. 90*13.19
Adjusted Present Value
Excludes Synergy
2012 434.6 952.9
13.9 1,055.0
318.6
214.0
51.3 39.3
6,372.8
Adjusted Present Value
Excludes Synergy
AIRTHREAD CONNECTION ACQUISITION
Project: AIRTHREAD CONNECTION ACQUISITIONAnalysis: Projected Cash Flows
AIRTHREAD CONNECTION ACQUISITION
Projected Income Statements
Operating Results: 2008 2009 2010 2011 2012 Service Revenue 4,194.3 4,781.5 5,379.2 5,917.2 6,331.4 Plus: Equipment Sales 314.8 358.8 403.7 444.1 475.2 Plus: Synergy Related Business Revenue 156.5 268.6 387.3 569.9 704.5 Total Revenue 4,665.6 5,409.0 6,170.3 6,931.2 7,511.0 Less: System Operating Expenses 838.9 956.3 1,075.8 1,183.4 1,266.3 Plus: Backhaul Synergy Savings 0.0 (13.4) (25.8) (52.5) (76.0)Less: Cost of Equipment Sold 755.5 861.2 968.9 1,065.8 1,140.4 Less: Selling, General & Administrative 1,866.2 2,163.6 2,468.1 2,772.5 3,004.4 EBITDA 1,205.0 1,441.3 1,683.3 1,962.1 2,175.9 Less: Depreciation & Amortization 729.7 846.0 925.5 1,005.0 1,051.5 EBIT 475.3 595.3 757.7 957.0 1,124.4 Less: Interest Expense 199.4 183.1 165.8 147.5 128.3 EBT 275.9 412.2 591.9 809.5 996.1 Less: Taxes @ 40% 110.4 164.9 236.8 323.8 398.4 Net Income 165.5 247.3 355.2 485.7 597.7
Un-Levered Free Cash Flow:NOPAT 285.2 357.2 454.6 574.2 674.6 Plus: Depreciation & Amortization 729.7 846.0 925.5 1,005.0 1,051.5 Less: Changes in Working Capital 37.4 29.4 30.1 34.3 26.3 Less: Capital Expenditures 653.2 757.3 925.5 1,057.0 1,164.2 Un-Levered Free Cash Flow 324.3 416.5 424.5 487.9 535.7
Operating Margins:Service Revenue Growth 14.0% 14.0% 12.5% 10.0% 7.0%Equipment Sales/Service Revenue 7.5% 7.5% 7.5% 7.5% 7.5%Total Revenue Growth 18.2% 15.9% 14.1% 12.3% 8.4%Wireless Service Gross Profit Margin 80.0% 80.0% 80.0% 80.0% 80.0%Equipment Sales Gross Profit -140.0% -140.0% -140.0% -140.0% -140.0%Selling, General & Administrative 40.0% 40.0% 40.0% 40.0% 40.0%EBITDA 25.8% 26.6% 27.3% 28.3% 29.0%Depreciation & Amortization 15.6% 15.6% 15.0% 14.5% 14.0%
E61
R K Jain: Ref table5 in case
F61
R K Jain: Ref table5 in case
G61
R K Jain: Ref table5 in case
H61
R K Jain: Ref table5 in case
I61
R K Jain: Ref table5 in case
E64
R K Jain: Ref. table 4 in case
F64
R K Jain: Ref. table 4 in case
G64
R K Jain: Ref. table 4 in case
H64
R K Jain: Ref. table 4 in case
I64
R K Jain: Ref. table 4 in case
E66
R K Jain: 40% of total revenue. Ref. operating margins table below
F66
R K Jain: 40% of total revenue. Ref. operating margins table below
G66
R K Jain: 40% of total revenue. Ref. operating margins table below
H66
R K Jain: 40% of total revenue. Ref. operating margins table below
I66
R K Jain: 40% of total revenue. Ref. operating margins table below
E68
R K Jain: 15.6% of total revenue. Ref. operating margins table below
F68
R K Jain: 15.6% of total revenue. Ref. operating margins table below
G68
R K Jain: 15% of total revenue. Ref. operating margins table below
H68
R K Jain: 14.5% of total revenue. Ref. operating margins table below
I68
R K Jain: 14% of total revenue. Ref. operating margins table below
E79
R K Jain: 14% of total revenue. Ref.Operating margin table below
F79
R K Jain: 14% of total revenue. Ref.Operating margin table below
G79
R K Jain: 15% of total revenue. Ref.Operating margin table below
H79
R K Jain: 15.3% of total revenue. Ref.Operating margin table below
I79
R K Jain: 15.5% of total revenue. Ref.Operating margin table below
E88
R K Jain: Upon total revenue
F88
R K Jain: Upon total revenue
G88
R K Jain: Upon total revenue
H88
R K Jain: Upon total revenue
I88
R K Jain: Upon total revenue
E90
R K Jain: Upon total revenue
F90
R K Jain: Upon total revenue
G90
R K Jain: Upon total revenue
H90
R K Jain: Upon total revenue
I90
R K Jain: Upon total revenue
EBIT 10.2% 11.0% 12.3% 13.8% 15.0%Effective Tax Rate 40.0% 40.0% 40.0% 40.0% 40.0%Cap-x/Revenue 14.0% 14.0% 15.0% 15.3% 15.5%
AIRTHREAD CONNECTION ACQUISITIONProjected Balance Sheets
Assets: 2007 2008 2009 2010 2011 2012 Cash & Cash Equivalents 204.5 119.2 119.6 121.1 178.7 0.0 Marketable Securities 16.4 16.4 16.4 16.4 16.4 16.4 Accounts Receivable 435.5 540.0 626.1 714.2 802.3 869.4 Inventory 101.0 135.0 153.9 173.1 190.4 203.7 Prepaid Expenses 41.6 47.8 54.8 61.9 68.6 73.6 Deferred Taxes 18.6 18.6 18.6 18.6 18.6 18.6 Other Current Assets 16.2 16.2 16.2 16.2 16.2 16.2 Total Current Assets 833.8 893.1 1,005.5 1,121.5 1,291.1 1,197.9
Property, Plan & Equipment 2,595.1 2,518.6 2,429.9 2,429.9 2,481.8 2,594.5 Licenses 1,482.4 1,482.4 1,482.4 1,482.4 1,482.4 1,482.4 Customer Lists 15.4 15.4 15.4 15.4 15.4 15.4 Investments in Affiliated Entities 157.7 157.7 157.7 157.7 157.7 157.7 Long Term Note Receivable 4.4 4.4 4.4 4.4 4.4 4.4 Goodwill 491.3 491.3 491.3 491.3 491.3 491.3 Other Long Term Assets 31.8 31.8 31.8 31.8 31.8 31.8 Total Assets 5,611.9 5,594.7 5,618.4 5,734.4 5,956.0 5,975.4
Liabilities & Owners' Equity:Accounts Payable 260.8 341.6 391.7 443.0 490.6 526.7 Deferred Revenue & Deposits 143.4 163.2 186.1 209.3 230.3 246.4 Accrued Liabilities 59.2 65.8 75.5 85.4 94.6 101.5 Taxes Payable 43.1 43.1 43.1 43.1 43.1 43.1 Other Current Liabilities 97.7 97.7 97.7 97.7 97.7 97.7 Total Current Liabilities 604.2 711.5 794.1 878.5 956.2 1,015.4
Long Term Debt 1,002.3 3,467.6 3,161 2,838 2,496 1,859
E109
R K Jain: figures for 2007 are given in case. Ref. Exhibit 5
Deferred Tax Liability 554.4 554.4 554.4 554.4 554.4 554.4 Asset Retirement Obligation 126.8 126.8 126.8 126.8 126.8 126.8 Other Deferred Liabilities 84.5 84.5 84.5 84.5 84.5 84.5
Minority Interest 43.4 43.4 43.4 43.4 43.4 43.4
Total Equity 3,196.2 606.4 853.8 1,208.9 1,694.6 2,292.3 Total Liabilities & Owners' Equity 5,611.9 5,594.7 5,618.4 5,734.4 5,956.0 5,975.4 Cash BalanceBeginning Cash 204.5 119.2 119.6 121.1 178.7 Plus: Un-Levered Free Cash Flow 324.3 416.5 424.5 487.9 535.7 Less: After-Tax Interest Expense 119.7 109.8 99.5 88.5 77.0 Less: Principal Payments 289.9 306.3 323.6 341.8 2,496.0 Ending Cash 119.2 119.6 121.1 178.7 (1,858.6)
Projected Cash Flows
Projected Cash Flows
Synergy Switches:
Bus. Revenue Synergy: 1
Include Synergy 1 Exclude Synergy 2
Reduction in Backhaul: 1
Include Synergy 1 Exclude Synergy 2
Projected Cash Flows
Based on projected cashflows including the benefits of Synergy Changes in Working Capital:Accounts ReceivablePlus: InventoryPlus: Prepaid ExpensesLess: Deferred RevenueLess: Accounts PayableLess: Accrued LiabilitiesNet Working CapitalIncrease in NWC
Based on projected cashflows including the benefits of Synergy Changes in Working Capital: 2007 2008 2009 2010 2011 2012
Accounts Receivable 435.5 540.0 626.1 714.2 802.3 869.4 Plus: Inventory 101.0 135.0 153.9 173.1 190.4 203.7 Plus: Prepaid Expenses 41.6 47.8 54.8 61.9 68.6 73.6 Less: Deferred Revenue 143.4 163.2 186.1 209.3 230.3 246.4 Less: Accounts Payable 260.8 341.6 391.7 443.0 490.6 526.7 Less: Accrued Liabilities 59.2 65.8 75.5 85.4 94.6 101.5 Net Working Capital 114.6 152.1 181.4 211.5 245.9 272.2 Increase in NWC 0 37.4 29.4 30.1 34.3 26.3
X110
R K Jain: based on total revenue
Y110
R K Jain: based on total revenue
Z110
R K Jain: based on total revenue
AA110
R K Jain: based on total revenue
AB110
R K Jain: based on total revenue
X111
R K Jain: based on equipment revenue and not Cost of goods sold
Y111
R K Jain: based on equipment revenue and not Cost of goods sold
Z111
R K Jain: based on equipment revenue and not Cost of goods sold
AA111
R K Jain: based on equipment revenue and not Cost of goods sold
AB111
R K Jain: based on equipment revenue and not Cost of goods sold
X112
R K Jain: is based on total cash operating expenses
Y112
R K Jain: is based on total cash operating expenses
Z112
R K Jain: is based on total cash operating expenses
AA112
R K Jain: is based on total cash operating expenses
AB112
R K Jain: is based on total cash operating expenses
X113
R K Jain: is based on service revenue and not on total cash operating expenses
Y113
R K Jain: is based on service revenue and not on total cash operating expenses
Z113
R K Jain: is based on service revenue and not on total cash operating expenses
AA113
R K Jain: is based on service revenue and not on total cash operating expenses
AB113
R K Jain: is based on service revenue and not on total cash operating expenses
X114
R K Jain: is based on total cash operating expenses
Y114
R K Jain: is based on total cash operating expenses
Z114
R K Jain: is based on total cash operating expenses
AA114
R K Jain: is based on total cash operating expenses
AB114
R K Jain: is based on total cash operating expenses
X115
R K Jain: is based on total cash operating expenses
Y115
R K Jain: is based on total cash operating expenses
Z115
R K Jain: is based on total cash operating expenses
AA115
R K Jain: is based on total cash operating expenses
AB115
R K Jain: is based on total cash operating expenses
AIRTHREAD ACQUISITIONTerminal Value With Lon-Term D/V of 29%
Un-Levered Free Cash Flows: 2008 2009 2010 2011 2012 NOPAT 285.2 357.2 454.6 574.2 674.6 Plus: Depreciation & Amortization 729.7 846.0 925.5 1,005.0 1,051.5 Less: Changes in Working Capital 37.4 29.4 30.1 34.3 26.3 Less: Capital Expenditures 653.2 757.3 925.5 1,057.0 1,164.2 Un-Levered Free Cash Flow 324.3 416.5 424.5 487.9 535.7
PV of FCF 8.29% 1,703.5 299.5 355.2 334.3 354.8 359.7
Interest Tax Shields 79.8 73.2 66.3 59.0 51.3
PV of Interest Tax Shields 284.8 75.6 65.8 56.5 47.6 39.3 Total Intermediate Term Value 1,988.2 Discount rate 8.01%TV Growth Rate 3.4%TV WACC Cash Flow 8,132.1 11,956.8
Value of Operating Assets 10,120.4 Value of Non-Operating Assets 1,187.3 Total Enterprise Value 11,307.7
D75
R K Jain: Use market multiple method. Industry average P/E using data from exhibit 7, is 13.19 (ref. sheet 'Cost of capital' for calc cell p65). Taking 'equity in earnings of affiliates' for the year 2007 (exhibit:4) as proxy the value of non-operating asset is arrived at. 90*13.19
Adjusted Present ValueSynergies Included
AIRTHREAD CONNECTIONS ACQUISITION
Project: AIRTHREAD CONNECTIONS ACQUISITIONAnalysis: Synergies
AIRTHREAD CONNECTIONS ACQUISITION
Wireless Business Subscribers: 2008 2009 2010 2011 2012 Average Monthly Subscribers (in MM's) 0.30 0.50 0.70 1.00 1.20 Average Monthly Minutes 859 885 911 939 967 Total Monthly Minutes 258 442 638 939 1,160 Revenue Per Minute 0.0506 0.0506 0.0506 0.0506 0.0506 Annual Business Revenue Increase 156.5 268.6 387.3 569.9 704.5
Backhaul Savings: 2008 2009 2010 2011 2012 System Operating Expenses 838.9 956.3 1,075.8 1,183.4 1,266.3
Backhaul Percentage 20.0% 20.0% 20.0% 20.0% 20.0%
Estimated Backhaul Costs 167.8 191.3 215.2 236.7 253.3
Reduction in Backhaul Costs 0.0% 7.0% 12.0% 22.2% 30.0%
Backhaul Savings 0.0 13.4 25.8 52.5 76.0
Synergies
Synergies
AIRTHREAD ACQUISITION
Annual AmortizationPayment Interest Principal Balance Period
Date: 41 5.5% 3,758 120 1/31/2008 40.78 17.22 23.56 3,733.99 1 2/28/2008 40.78 17.11 23.67 3,710.32 2 3/31/2008 40.78 17.01 23.77 3,686.55 3 4/30/2008 40.78 16.90 23.88 3,662.67 4 5/31/2008 40.78 16.79 23.99 3,638.67 5 6/30/2008 40.78 16.68 24.10 3,614.57 6
7/31/2008 40.78 16.57 24.21 3,590.36 7 8/31/2008 40.78 16.46 24.32 3,566.04 8 9/30/2008 40.78 16.34 24.43 3,541.60 9
10/31/2008 40.78 16.23 24.55 3,517.06 10 11/30/2008 40.78 16.12 24.66 3,492.40 11 12/31/2008 40.78 16.01 24.77 3,467.62 12
1/31/2009 40.78 15.89 24.89 3,442.74 13 2/28/2009 40.78 15.78 25.00 3,417.74 14 3/31/2009 40.78 15.66 25.11 3,392.62 15 4/30/2009 40.78 15.55 25.23 3,367.39 16 5/31/2009 40.78 15.43 25.35 3,342.05 17 6/30/2009 40.78 15.32 25.46 3,316.59 18 7/31/2009 40.78 15.20 25.58 3,291.01 19 8/31/2009 40.78 15.08 25.70 3,265.31 20 9/30/2009 40.78 14.97 25.81 3,239.50 21
10/31/2009 40.78 14.85 25.93 3,213.57 22 11/30/2009 40.78 14.73 26.05 3,187.52 23 12/31/2009 40.78 14.61 26.17 3,161.35 24
1/31/2010 40.78 14.49 26.29 3,135.06 25 2/28/2010 40.78 14.37 26.41 3,108.65 26 3/31/2010 40.78 14.25 26.53 3,082.12 27 4/30/2010 40.78 14.13 26.65 3,055.46 28 5/31/2010 40.78 14.00 26.78 3,028.69 29 6/30/2010 40.78 13.88 26.90 3,001.79 30 7/31/2010 40.78 13.76 27.02 2,974.77 31 8/31/2010 40.78 13.63 27.14 2,947.62 32 9/30/2010 40.78 13.51 27.27 2,920.36 33
10/31/2010 40.78 13.38 27.39 2,892.96 34 11/30/2010 40.78 13.26 27.52 2,865.44 35 12/31/2010 40.78 13.13 27.65 2,837.80 36
1/31/2011 40.78 13.01 27.77 2,810.02 37 2/28/2011 40.78 12.88 27.90 2,782.12 38 3/31/2011 40.78 12.75 28.03 2,754.09 39 4/30/2011 40.78 12.62 28.16 2,725.94 40 5/31/2011 40.78 12.49 28.29 2,697.65 41
AnnualPayment Interest Principal Balance
Date: 41 5.50% 2,698 6/30/2011 40.78 12.36 28.41 2,669.24 7/31/2011 40.78 12.23 28.55 2,640.69 8/31/2011 40.78 12.10 28.68 2,612.02 9/30/2011 40.78 11.97 28.81 2,583.21
10/31/2011 40.78 11.84 28.94 2,554.27 11/30/2011 40.78 11.71 29.07 2,525.20
12/31/2011 40.78 11.57 29.21 2,495.99 1/31/2012 40.78 11.44 29.34 2,466.65 2/28/2012 40.78 11.31 29.47 2,437.18 3/31/2012 40.78 11.17 29.61 2,407.57 4/30/2012 40.78 11.03 29.74 2,377.83 5/31/2012 40.78 10.90 29.88 2,347.95 6/30/2012 40.78 10.76 30.02 2,317.93 7/31/2012 40.78 10.62 30.16 2,287.77 8/31/2012 40.78 10.49 30.29 2,257.48 9/30/2012 40.78 10.35 30.43 2,227.05
10/31/2012 40.78 10.21 30.57 2,196.47 11/30/2012 40.78 10.07 30.71 2,165.76 12/31/2012 2,175.69 9.93 2,165.76 0.00
Amortization Schedule
AmortizationPeriod Interest Expense per Annum ($mn)
84 2008 2009 2010 2011 201242 199.43 183.08 165.80 147.55 128.27 43 44 Principal payment per Annum45 289.92 306.28 323.55 341.80 2,495.99 46 After-Tax Interest Expense per Annum47 119.7 109.8 99.5 88.5 77.0
48 49 50 51 52 53 54 55 56 57 58 59 60
Amortization Schedule
AIRTHREAD ACQUISITION
estmd from with synergy CF estmd from without synergy CFLong-Term Growth Rate: 2012 2012 NOPAT 674.6 434.6 Invested Capital 4,107.5 4,039.5 ROC 16.4% 10.8%
Net Reinvestment 138.9 116.0 NOPAT 674.6 434.6 Reinvestment Rate 20.6% 26.7%
Est. EBIT Growth Rate 3.4% 2.9%
G60
R K Jain: This value should be based on projected balance sheet without synergy (not presented here) ROC = NOPAT/(E+D)
Growth Rate
