RE: 10 Unanswered complex LBO questions
1) Why would new debt be labeled as next year's existing debt? It would also be labeled as such if it was short term. It would most likely be another completely new tranche of debt like the Sr Notes or something. Term Loan is a specific type of bank debt. 2) Correct, for credit ratings, you not o... 1) Why would new debt be labeled as next year's existing debt? It would also be labeled as such if it was short term. It would most likely be another completely new tranche of debt like the Sr Notes or something. Term Loan is a specific type of bank debt.

2) Correct, for credit ratings, you not only include capital leases, but also operating leases as a form of debt. We didn't bother including that and footnoted as such. You should. The reason we didn't is b/c the actual calculation goes beyond just adding Capital Leases and PVOL (PV of Operating Leases) but involves more intricacies such as imputed interest, etc and so since it wasn't a credit class, we didn't include it.

3) Preferreds many times receive partial equity treatment if they are very subordinated in the capital structure, or the covenants restrict payment, or has equity-linked features, like converts, PIKS, warrants, etc. And thus the best practice is to calculate both and negotiate/discuss with the rating agencies.

4) Correct, use book value not market value of equity. However, it's not necessarily b/c of liquidation. Mainly b/c market value of equity fluctuates and doesn't represent the actual dollars the company received in raising capital. You could spin it and say it's the Net $$ available after Assets - Liabilities, however, then there's the whole mark to market, etc so yes and no. While there are plenty problems with book value in our opinion, that's what's used.

5) This flows to the bottom of the Debt Sweep summaries and ultimately back into the Balance Sheet. See our Debt Sweep construction video in Complex LBO class.

6) We have to ask you to review the videos again - You are trying to isolate Long Term Debt b/c the Balance Sheet requires a breakdown of the Debt into Current and Long.

7) Please refer to a specific course, specific video and specific time.

8) Dividends are paid on actual basic shares outstanding, not the option-adjusted diluted shares. However, since we used PE ratios to gues-timate our stock price that we buyback shares at, PE x EPS is Price. And EPS is always quoted as Diluted EPS, so it is correct to do so. You aren't mixing and matching - these are two separate calculations altogether.

9) To be absolutely precise, yes, you should normalize the BS, although it is not best practice to do so. If you wanted to, the hit would be to Equity. It's immaterial b/c The BS gets blown out in an LBO anyway.

10) Estimated years are never provided on the 10K! 10K only has actuals. You may be referring to our Quick & Dirty LBO Modeling class in which we converted the Actual to Pro Forma. Thus, Estimated is your first year of projections and includes some actuals (say a day, a week, a month or a quarter, etc) whereas Projected is all future, not even one day of actuals. Read More

RE: How do you treat NOLs in a M&A deal?
This is perhaps best illustrated through an example – Company ABC is acquiring Company XYZ. Company XYZ has $50 million of NOL carryforwards. The calculation for the annual NOL allowance that Company ABC will be able to reduce Pre-Tax Income by following any 'change of ownership' of Company XYZ (p... This is perhaps best illustrated through an example – Company ABC is acquiring Company XYZ. Company XYZ has $50 million of NOL carryforwards. The calculation for the annual NOL allowance that Company ABC will be able to reduce Pre-Tax Income by following any 'change of ownership' of Company XYZ (per Section 382 of IRS tax code) is as follows: Fair market value of target equity value multiplied by the 'tax-exempt rate' (a rate published monthly by the IRS and is also known as long term tax-exempt rate). The advantage for Company ABC to acquire Company XYZ with an NOL carryforward is that the NOL will shelter a greater percentage of ABC’s Pre-Tax Income and lower the effective tax rate of NewCo in the future. If the NOL is significant however, the present value of the NOL will errode some of the tax savings.

FMV of Target Equity is Purchase Price (including premium) since that is the new value of the target once acquired. However, for LBOs, is the amount of Net Equity, thus, it is private equity sponsor equity contribution. Read More

Re: Balancing my M&A Model
We would recommend you delete all your transaction adjustments and add them back one at a time to see what the specific issue is. Chances are, its an offsetting entry you forgot or a simple switching of signs. We would also direct you back to our videos that build out the adjustments.

Re: How to set grey background in Windows 8?
You'll have to head to the system settings (either through the Charms bar, or the keyboard shortcut WINDOWS + I). Click/tap Personalization, and select one of the High Contrast Themes (High Contrast White, for example). Save Changes, then return to this screen and click on the second button from t... You'll have to head to the system settings (either through the Charms bar, or the keyboard shortcut WINDOWS + I).

Click/tap Personalization, and select one of the High Contrast Themes (High Contrast White, for example).

Save Changes, then return to this screen and click on the second button from the left on the very bottom of the Personalization window. This will allow you to change not only the colors of window borders and the taskbar, but also the actual window background (first option). You may now change this to a gray.

However, we are not presently sure if there is a way to revert the other settings besides the gray window background to any of the nicer looking Windows Default themes. For example, some users complain that the taskbar is very aesthetically displeasing with the High Contrast Themes. For this reason, among others, we currently do not fully support Windows 8 in our training. Read More

RE: SHLD Inputs on complex tr comps
3) Net Sales is what is reported on the financials. Net Sales has been already reduced by Allowance for Bad Debt/Uncollectibles; as a result, normally, you wouldn't see that expense AT ALL anywhere! It's definitely NOT in the expense line (whether COGS or SG&A). Plus, Sears didn't have it in pr... 3) Net Sales is what is reported on the financials. Net Sales has been already reduced by Allowance for Bad Debt/Uncollectibles; as a result, normally, you wouldn't see that expense AT ALL anywhere! It's definitely NOT in the expense line (whether COGS or SG&A). Plus, Sears didn't have it in previous years, prior to the merger with K-Mart. Hence, we treat it as one time b/c the proper placement is in revenue.

4) Next year, there will only be a "regular" minority interest expense that would not contain the $317MM. Think of double-entry accounting. The gain on sale above is offset by MI adjustment, so no BS impact. How, next year, you won't have another gain on sale of business (you already sold it once) and so there won't be a corresponding impact to MI expense. In other words, that second $317MM impact (to MI) won't happen again next year either! Read More