FINAN4263 Lockheed Martin’s Acquisition of NationScape Inc Case Study Paper case study in management class with these docs Exhibit 7 NSI Income Statement (

FINAN4263 Lockheed Martin’s Acquisition of NationScape Inc Case Study Paper case study in management class with these docs Exhibit 7
NSI Income Statement
(in thousands)
Contracts, other revenues, and earned fees
Direct contract costs and indirect expenses of field offices
Gross profit
Gross profit margin
Coporate, general, and administrative expenses
Equity (income) received from joint ventures
Operating income
Total interest and other expenses (income)
Pretax income
Provisions for income taxes
Minority interests in net income paid from joint ventures
Non-operating, extraordinary items
Net income
Net income margin
2001
2002
2003
123,567
110,805
12,762
6,264
(52)
6,550
749
5,801
2,321
940
2,540
0.021
167,426
150,031
17,395
7,243
(11)
10,163
108
10,055
3,393
1,238
(3,141)
8,565
0.051
218,369
195,135
23,234
8,180
(332)
15,386
233
15,153
4,230
152
(1,125)
11,896
0.054
8,565
598
2,106
3,393
14,662
0.088
11,896
582
1,793
4,230
18,501
0.085
Calculation of EBITDA
Net income
Interest expense and financing costs
Depreciation and amortization
Provision for income taxes
Tokyo residence sale gain adjustment
Other
EBITDA
EBITDA Margin
EBIT
EBIT Margin
2,540
641
1,402
2,321
6,904
0.056
2004
2005
2006
315,423
283,122
32,301
8,594
(1,142)
24,849
461
24,388
9,238
1,722
(1,059)
14,487
0.046
535,348
455,523
79,825
10,995
(1,997)
70,827
(3,219)
74,046
28,754
3,676
41,616
0.078
624,773
531,614
14,487
788
1,778
9,238
26,291
0.083
41,616
2,367
2,345
29,833
(3,823)
108
72,446
0.135
2007
2008
EBITDA = Est. Cash Flow
**
EBIT = Est. Cash Flows
EBITDA = Est. Cash Flows
EBIT = Est. Cash Flows
Exhibit 8
NSI Balance Sheet
(in thousands)
Assets
Current Assets
Cash and equivalents, restricted foreign cash balances
Contract receivables
Billed including retentions net
Unbilled
Other receivables
Prepaid expenses
Receivables from affiliates
Deferred income taxes
Receivables from associated companies
Total current assets
2001
2002
2003
5,207
11,086
6,932
15,716
8,422
1,242
1,254
88
88
32,017
18,934
17,774
3,770
2,985
54
100
54,703
44,518
20,667
3,222
3,172
2,432
730
44
81,717
Plant and equipment, net
Receivables from affiliates, net
Investments in real estate properties, net
Investment in and advances to affiliates, net
Other assets
Total assets
Liabilities
Current liabilities
Bank notes payable
Notes payable, current portion
Accounts payable, current portion
Accrued payroll and related taxes
Customer deposits
Customers’ advances
Pension obligation, current portion
Capital lease obligation, current
Income taxes payable
Total current liabilities
3,842
93
2,945
918
39,815
3,790
94
1,373
1,126
61,086
3,242
310
1,632
1,104
88,005
5,506
8,448
7,646
97
45
2,780
24,522
7,687
17,016
8,716
332
49
3,905
37,705
21,470
15,533
9,591
971
54
3,401
51,020
Notes payable, net of current portion
Long-term pension obligation
Long-term accrued liabilities
Capital lease obligation, non-current
Minority interest and other
Total liabilities
1,019
320
148
971
26,980
981
364
99
894
40,043
1,144
173
44
977
53,358
Stakeholders’ equity
Common stock
Additional paid-in capital
Retained earnings
Treasury stock
993
3
11,162
–
993
3
18,205
–
1,011
425
30,087
–
Note receivable from related party
Accumulated other comprehensive income
Total shareholders’ equity
Total liabilities and equity
677
12,835
39,815
1,842
21,043
61,086
3,124
34,647
88,005
2004
2005
15,682
18,326
53,856
41,044
2,425
7,693
2,525
802
94
124,121
109,674
39,548
2,426
5,165
3,831
1,826
41
180,837
6,045
334
2,800
1,738
135,038
6,132
5,176
203
192,348
46,192
366
29,669
11,452
1,814
44
5,912
95,449
55,212
326
43,436
11,194
18
10,339
120,525
957
1,159
457
1,674
99,714
559
724
1,295
123,103
1,011
425
44,910
(15,991)
1,011
425
91,041
(15,991)
4,969
35,324
135,038
(10,100)
2,859
69,245
192,348
Exhibit 10
Aerospace Company Information
Numbers in millions, except per share data.
Lockheed Martin
2005
2004
2003
Revenues
37,213.00 35,526.00 31,824.00
Depreciation
705.00
656.00
609.00
EBIT
2,878.00
2,022.00
1,950.00
Net Income
1,825.00
1,122.00
1,053.00
Price – December
63.63
55.55
51.40
Number of Shares
436.91
441.14
446.50
Book Value Equity
7,867.00
7,021.00
6,756.00
Long-Term Debt
4,784.00
5,104.00
6,072.00
Current Assets
10,529.00
8,953.00
9,401.00
Accounts Receivable 4,579.00
4,094.00
4,039.00
Current Liabilities
9,428.00
8,566.00
8,893.00
Net Fixed Assets
3,924.00
3,599.00
3,489.00
Dividend
1.050
0.910
0.580
Beta
1.07
Bond Rating
Baa1/A-
General Dynamics
2005
2004
2003
Revenues
21,244.00 19,178.00 16,617.00
Depreciation
342.00
326.00
277.00
EBIT
2,254.00
1,942.00
1,480.00
Net Income
1,468.00
1,203.00
997.00
Price – December
57.02
52.30
45.20
Number of Shares
800.73
804.13
791.86
Book Value Equity
8,145.00
7,189.00
5,921.00
Long-Term Debt
2,781.00
3,291.00
3,296.00
Current Assets
9,173.00
7,287.00
6,394.00
Accounts Receivable 2,034.00
1,459.00
1,378.00
Current Liabilities
6,907.00
5,374.00
5,616.00
Net Fixed Assets
2,125.00
2,169.00
2,085.00
Dividend
0.40
0.36
0.32
Beta
1.24
Bond Rating
A2/A
Level 3 Communications
Revenues
Depreciation
EBIT
Net Income
Price – December
Number of Shares
Book Value Equity
Long-Term Debt
Current Assets
Accounts Receivable
Current Liabilities
Net Fixed Assets
Dividend
Beta
Bond Rating
Northrup Grumman
Revenues
Depreciation
EBIT
Net Income
Price – December
Number of Shares
Book Value Equity
Long-Term Debt
Current Assets
Accounts Receivable
Current Liabilities
Net Fixed Assets
Dividend
Beta
Bond Rating
Level 3 Communications
2005
3,613.00
657.00
(149.00)
(687.00)
2.87
817.77
(476.00)
6,023.00
1,677.00
830.00
1,435.00
5,638.00
0
1.440
Baa2/BBB+
2004
3,712.00
695.00
33.00
(458.00)
3.39
686.50
(157.00)
5,067.00
1,402.00
545.00
1,273.00
5,408.00
0
2003
4,026.00
827.00
(207.00)
(721.00)
5.70
677.83
181.00
525.00
1,946.00
561.00
1,431.00
5,727.00
0
Northrup Grumman
2005
2004
2003
30,721.00 29,853.00 26,206.00
773.00
734.00
682.00
2,432.00
2,046.00
1,628.00
1,383.00
774.00
831.00
60.11
54.36
47.80
347.36
364.43
724.43
16,828.00 16,700.00 15,785.00
4,231.00
5,466.00
5,760.00
7,549.00
6,907.00
5,745.00
3,679.00
3,546.00
3,198.00
7,974.00
6,223.00
6,361.00
4,404.00
4,210.00
4,036.00
1.01
0.89
0.40
1.05
Baa2/BBB-
Exhibit 11
NSI Comparable Companies
Numbers in millions, except per share data.
Halliburton
Jacobs
2005
2004
2003
Revenues
21,007.00 20,464.00 16,246.00
EBIT
2,712.00
878.00
726.00
Net Income
2,358.00
(979.00)
(820.00)
Price – December
30.98
19.62
13.00
Depreciaton
504.00
509.00
518.00
Number of Shares
2,056.00
1,768.00
1,756.00
Book Value Equity
6,372.00
3,932.00
2,547.00
Long-Term Debt
2,813.00
3,593.00
3,415.00
Current Assets
9,327.00
9,962.00
7,919.00
Accounts Receivable 4,801.00
5,751.00
4,765.00
Current Liabilities
4,437.00
7,064.00
6,542.00
Net Fixed Assets
2,648.00
2,553.00
2,526.00
Dividend
0.125
0.125
0.125
Beta
1.45
2005
Revenues
5,635.00
EBIT
242.53
Net Income
151.02
Price – December
33.94
Depreciaton
46.357
Number of Shares
232.52
Book Value Equity
1,140.64
Long-Term Debt
89.632
Current Assets
1,337.43
Accounts Receivable 1,029.92
Current Liabilities
785.095
Net Fixed Assets
154.971
Dividend
0
Beta
1.34
KBR
2005
Revenues
10,206.00
EBIT
517.00
Net Income
240.00
Price – December
Depreciaton
56.00
Number of Shares
167.643
Book Value Equity
1,256.00
Long-Term Debt
18.00
Current Assets
3,510.00
Accounts Receivable 1,239.00
Current Liabilities
2,566.00
Net Fixed Assets
444.00
Dividend
0
Beta
1.19
ESSI
2004
2003
Revenues
EBIT
Net Income
Price – December
Depreciaton
Number of Shares
Book Value Equity
Long-Term Debt
Current Assets
Accounts Receivable
Current Liabilities
Net Fixed Assets
Dividend
Beta
Fluor
Revenues
EBIT
Net Income
Price – December
Depreciaton
Number of Shares
Book Value Equity
Long-Term Debt
2005
2004
2003
13,161.051 9,380.277 8,805.703
315.871
296.604
278.090
227.273
186.695
179.455
38.63
27.26
19.82
104.124
91.888
79.676
348.353
338.152
328.408
1,630.558 1,335.792 1,081.534
92.023
347.649
44.652
2005
0.416
(4.14)
(4.799)
0.10
0.151
72.763
(16.917)
0.416
0.111
0.065
17.584
0.972
0
14.56
Shaw
Revenues
EBIT
Net Income
Price – December
Depreciaton
Number of Shares
Book Value Equity
Long-Term Debt
2005
3,265.916
67.756
17.815
29.09
31.183
78.957
1,144.553
65.541
Current Assets
3,108.222
Accounts Receivable
850.203
Current Liabilities
2,339.335
Net Fixed Assets
581.538
Dividend
0.160
Beta
1.280
2,723.314
761.179
1,763.981
527.808
0.160
2,213.644
636.162
1,829.138
569.480
0.160
URS
Revenues
EBIT
Net Income
Price – December
Depreciaton
Number of Shares
Book Value Equity
Long-Term Debt
Current Assets
Accounts Receivable
Current Liabilities
Net Fixed Assets
Dividend
Beta
2005
3,917.57
174.422
82.475
37.61
38.548
50.38
1,344.50
297.913
1,273.06
1,099.99
698.621
146.47
0
1.38
Current Assets
1,254.820
Accounts Receivable 418.035
Current Liabilities
781.161
Net Fixed Assets
157.536
Dividend
0
Beta
1.370
DynCorp
2004
3,381.96
161.077
61.704
32.10
41.407
43.542
1,067.22
502.118
1,021.99
952.038
535.421
143.212
0
2003
3,186.71
180.405
58.104
25.01
42.349
33.612
765.073
788.708
939.665
888.601
492.035
150.553
0
2005
Revenues
1,920.91
EBIT
101.881
Net Income
56.629
Price – December
Depreciaton
12.724
Number of Shares
57.0
Book Value Equity
96.918
Long-Term Debt
662.412
Current Assets
462.236
Accounts Receivable 422.772
Current Liabilities
261.869
Net Fixed Assets
10.657
Dividend
0
Beta
0.92
Jacobs
2004
4,594.24
201.989
128.975
23.90
34.154
226.794
1,005.03
78.758
1,083.51
902.444
685.914
151.182
0
2003
4,615.60
200.191
128.01
24.00
35.35
223.345
842.083
17.806
970.097
778.056
611.414
142.103
0
2004
0.516
(3.454)
(3.861)
2.20
0.369
0.001
(18.69)
1.543
0.197
0.109
15.638
1.037
0
2003
0.786
(4.863)
(5.354)
ESSI
0.595
0.001
(14.879)
2.067
0.553
0.169
14.022
3.539
0
Shaw
2004
2003
3,076.945 3,306.762
3.205
67.633
(26.306)
20.866
17.85
13.62
60.767
44.805
63.770
37.790
884.771
662.290
261.173
251.745
1,137.783
842.854
853.737
169.488
0
1,113.561
669.660
1,028.115
185.132
0
DynCorp
2004
1,214.29
2003
918.352
31.36
20.095
8.788
0.5
396.573
0
268.249
238.187
163.914
3.522
0
1.243
0.5
0
Project Requirements
Spring 2019
Finan4263
(100 Points)
I.
Case analysis
A.
You will work together with your team to analyze a case and prepare and
submit your team analysis.
II.
Requirements
A.
B.
Number of reports
1.
Reports are due on Tuesday, April, 23rd via Canvas by 11:59pm.
2.
If the report is late, that report will receive a zero grade.
Parts of your report
1.
2.
Cover page. Each report should have a cover page.
a)
The title of report.
b)
Printed team member names
Executive Summary
a)
One page, single spaced, 12 point, Times New Roman or Ariel font.
Standard Word margins of 1 inch.
b)
Parts
(1)
Problem – Two to three lines.
(2)
Summarize key findings. Maximum of 6.
(3) Recommendations in narrative, no bullet format. State your
recommended course of action and defend this statement This
section should be about half of the page.
3.
Case Report (See Case Format and Guidelines)
Honor Code
It is not a violation of the honor code to talk over this case with any of your fellow classmates. Talking
does not mean copying or paraphrasing another student’s reports either partially or in total. Any
plagiarism or academic integrity violation as detailed in the agreement signed by you at the beginning
of the course will result in a 0 grade on this assignment and a possible F in the course.
CASE FORMAT AND GUIDELINES
I. Required
A. PROBLEM IDENTIFICATION:
1. State the problems facing the firm at the time the case was written. Weak problem definitions will lead to poor alternatives and inadequate recommendations. Address the key issues:
a. A laundry list of problems will not suffice.
b. Make sure that you have actually defined the problem(s) and not merely identified
symptoms.
c. Discriminate between more and less urgent issues.
B. INDUSTRY, COMPETITIVE AND ENVIRONMENTAL ASSESSMENT:
1. Every problem or challenge must be considered in the context of its environment. Identify
the driving forces for the company and the industry. While the firm may not be in a position to change environmental factors, it should be sufficiently resourceful in working around
these issues. Environmental factors are both:
a. External, the economy, international and domestic competition, government rules and
regulations, etc.
b. Internal, union contracts, company traditions, technology requirements, etc.
2. Do not simply reiterate the facts presented in the case. An analysis of the facts must be included in your report. An example of facts vs. analysis is found below.
a. Facts: There are four major companies in the industry. All of them have about the same
market share. There are relatively low variable costs per unit.
b. Analysis: There are four major companies in the industry. All of them have about the
same market share therefore this most likely will be a very price competitive industry.
Most likely one or two companies will try and gain market share and since there are few
new customers they will have to “steal” customers from another company. They can
heavily discount prices since variable costs makeup a small percentage of total unit
costs.
C. QUANTITATIVE ANALYSIS:
1. Quantitative analysis should be performed whenever numerical data are present.
2. Examine and compute financial ratios to determine whether NationScape Inc. is an attractive acquisition for Lockheed Martin compared to their competitors.
3. Calculate the appropriate Weighted Average Cost of Capital Lockheed Martin should use
when valuing NSI.
4. Using the above calculated WACC use the discounted cash flow (DCF) valuation method
determine the appropriate valuation (NPV) for NSI.
5. Using the value that you calculated under DCF, calculate the acquisitions internal rate of return (IRR)
6. Using the value that you calculated under DCF calculate the discounted payback (DPB) for
the project.
7. Using the scenario manager, create a model that allows you to adjust the WACC for a worst
case, base case, and best case (base case should be the values found in questions 4). This
should result in three possible values.
8. Using the scenario manager, create a model that allows you to adjust the estimated future
cash flows for a worst case, base case, and best case (base case should be the values found
in questions 4). This should result in three possible values.
9. Using what you know about estimating risk under a subjective distribution calculate the expected net present value and standard deviation of the net present value using the values
found in question 7 and 8.
10. Evaluate the recent firm acquisitions found in your case and determine if your valuation is
supported by the current market acquisition prices. Explain why or why not.
11. What would your final offer price be for NSI?
12. Using your final offer price what is the NPV, IRR, and DPB for NSI
D. RECOMMENDATIONS:
1. Indicate specifically what you recommend. You should not recommend the use of consultants or additional research – you are the consultant and researcher. Recommendations
should relate directly to the problem or problems identified and the chosen course of action.
Do not combine the recommendations and defense sections of your case analysis.
E. DEFENSE OF POSITION:
1. The defense should include a well-reasoned, factually based set of arguments supporting
your recommendations. A numerical listing of points may be helpful. Be persuasive. You
must convince your reader that your assessment of the problem(s) is correct and that your
recommended course of action offers the most promise of success. Use sound logic based
on your prior analysis.
II. WRITING QUALITY
A. Overview
1. Although this is not a composition class, business does demand quality writing, not so much
in the sense of literary style, but in terms of clarity, understanding, and conciseness. Be
careful of the following:
a. Use side and paragraph headings to introduce new sections.
b. Each paragraph should develop a point.
c.
Be concise in your writing.
d. Use complete sentences, with exceptions for bullets or lists.
e. Avoid indefinite references.
f. Do not use the first person, singular or plural.
g. The firm is singular. Avoid references to “they”. A company is called “it”.
h. Do not begin sentences with Arabic numbers.
i. The titles of corporate officers are not capitalized.
j. Proofread carefully, with special attention to spelling.
k. Exhibits, like formulas, graphs, and charts, may be incorporated into the text. Otherwise, include them in a separate page following where you discuss them in the text.
Exhibit 7
NSI Income Statement
(in thousands)
Contracts, other revenues, and earned fees
Direct contract costs and indirect expenses of field offices
Gross profit
Gross profit margin
Coporate, general, and administrative expenses
Equity (income) received from joint ventures
Operating income
Total interest and other expenses (income)
Pretax income
Provisions for income taxes
Minority interests in net income paid from joint ventures
Non-operating, extraordinary items
Net income
Net income margin
2001
2002
2003
123,567
110,805
12,762
6,264
(52)
6,550
749
5,801
2,321
940
2,540
0.021
167,426
150,031
17,395
7,243
(11)
10,163
108
10,055
3,393
1,238
(3,141)
8,565
0.051
218,369
195,135
23,234
8,180
(332)
15,386
233
15,153
4,230
152
(1,125)
11,896
0.054
8,565
598
2,106
3,393
14,662
0.088
11,896
582
1,793
4,230
18,501
0.085
Calculation of EBITDA
Net income
Interest expense and financing costs
Depreciation and amortization
Provision for income taxes
Tokyo residence sale gain adjustment
Other
EBITDA
EBITDA Margin
EBIT
EBIT Margin
2,540
641
1,402
2,321
6,904
0.056
2004
2005
2006
315,423
283,122
32,301
8,594
(1,142)
24,849
461
24,388
9,238
1,722
(1,059)
14,487
0.046
535,348
455,523
79,825
10,995
(1,997)
70,827
(3,219)
74,046
28,754
3,676
41,616
0.078
624,773
531,614
14,487
788
1,778
9,238
26,291
0.083
41,616
2,367
2,345
29,833
(3,823)
108
72,446
0.135
2007
2008
EBITDA = Est. Cash Flow
**
EBIT = Est. Cash Flows
EBITDA = Est. Cash Flows
EBIT = Est. Cash Flows
Exhibit 8
NSI Balance Sheet
(in thousands)
Assets
Current Assets
Cash and equivalents, restricted foreign cash balances
Contract receivables
Billed including retentions net
Unbilled
Other receivables
Prepaid expenses
Receivables from affiliates
Deferred income taxes
Receivables from associated companies
Total current assets
2001
2002
2003
5,207
11,086
6,932
15,716
8,422
1,242
1,254
88
88
32,017
18,934
17,774
3,770
2,985
54
100
54,703
44,518
20,667
3,222
3,172
2,432
730
44
81,717
Plant and equipment, net
Receivables from affiliates, net
Investments in real estate properties, net
Investment in and advances to affiliates, net
Other assets
Total assets
Liabilities
Current liabilities
Bank notes payable
Notes payable, current portion
Accounts payable, current portion
Accrued payroll and related taxes
Customer deposits
Customers’ advances
Pension obligation, current portion
Capital lease obligation, current
Income taxes payable
Total current liabilities
3,842
93
2,945
918
39,815
3,790
94
1,373
1,126
61,086
3,242
310
1,632
1,104
88,005
5,506
8,448
7,646
97
45
2,780
24,522
7,687
17,016
8,716
332
49
3,905
37,705
21,470
15,533
9,591
971
54
3,401
51,020
Notes payable, net of current portion
Long-term pension obligation
Long-term accrued liabilities
Capital lease obligation, non-current
Minority interest and other
Total liabilities
1,019
320
148
971
26,980
981
364
99
894
40,043
1,144
173
44
977
53,358
Stakeholders’ equity
Common stock
Additional paid-in capital
Retained earnings
Treasury stock
993
3
11,162
–
993
3
18,205
–
1,011
425
30,087
–
Note receivable from related party
Accumulated other comprehensive income
Total shareholders’ equity
Total liabilities and equity
677
12,835
39,815
1,842
21,043
61,086
3,124
34,647
88,005
2004
2005
15,682
18,326
53,856
41,044
2,425
7,693
2,525
802
94
124,121
109,674
39,548
2,426
5,165
3,831
1,826
41
180,837
6,045
334
2,800
1,738
135,038
6,132
5,176
203…
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