Complex Deals: Class 4

The Guts of Acquisition Accounting

• Comprehensive acquisition accounting example

¨ Non-controlling interests
¨ Full fair value method vs. IFRS’s optional proportionate share method
¨ Contrasting consolidated financial statements with the equity method

Class 4 1
 PPA: The Overall Fair Value of the Acquired Entity May be Comprised of
a Number of Distinct Pieces

Fair
Fair value
value of
of consideration
consideration issued
issued by
by acquirer
acquirer to
to
outside
outside shareholders
shareholders of
of target
target

Direct
Direct consideration
consideration
+
paid
paid by
by acquirer
acquirer to
to the
the Contingent
Contingent Consideration
Consideration (contingent
(contingent options
options given
given to
to target
target
Target’s
Target’s shareholder’s
shareholder’s shareholders
shareholders as
as insurance)
insurance)
or
or its
its Employees
Employees
+
Equity-based
Equity-based compensation
compensation // golden
golden parachutes
parachutes given
given
to
to target’s
target’s employees
employees for
for past
past services
services
If acquirer buys < 100%
of target, must add value +
of non-controlling stake
to get fair value of target
Fair
Fair Value
Value of
of non-controlling
non-controlling interests
interests (if
(if any)
any)

If acquirer has pre-

existing non-controlling +
stake in target, this stake
must be re-valued to fair Fair
Fair Value
Value of
of pre-existing
pre-existing equity
equity interests
interests (if
(if any)
any)
value
Class 4 2
 Target Reflected at its Total Fair Value =
Fair Value of Controlling + Fair Value Non-Controlling Interests

• Parent controls the subsidiary Parent

(X > 50%) and must consolidate.

X % > 50% Non-Controlling Interests

• Parent adds 100% of Subsidiary’s
Outside
assets and liabilities to the Subsidiary (100 – X) % Shareholders
balance sheet line-by-line even of Subsidiary
though Parent owns < 100% of
Subsidiary.
Requires a separate owners’
equity account to reflect
consolidated net assets not
owned by parent’s shareholders

Consolidated
Consolidated Assets
Assets == AAparent
parent
++ AAsub
sub

Consolidated
Consolidated Liabilities
Liabilities == LLparent
parent
++ LLsub
sub

Consolidated
Consolidated Owners’
Owners’ Equity
Equity == OE
OEparent
parent
++ NCI
NCI in
in Sub’s
Sub’s Net
Net Assets
Assets
Class 4 3
 Acquisition Accounting with NCI: Example
Deal Structure: A acquires 90% (45M / 50M shares) of T ’s outstanding voting
common stock for a cash offer price of $17 /shr on 12/31/20

Pre-deal Balance Sheets (in millions (M)):

AA TT
Cash
Cash $$ 700
700 $$ 200
200
Intangibles
Intangibles 500
500 ––
Goodwill
Goodwill –– 30
30
PP&E,
PP&E, net
net 200
200 150
150
Total
Total Assets
Assets $$ 1,400
1,400 $$ 380
380

Long-term
Long-term debt
debt 300
300 80
80
Equity
Equity 1,100
1,100 300
300
Total
Total Liabilities
Liabilities &
& Equity
Equity $$ 1,400
1,400 $$ 380
380

Class 4 4
 Additional Deal Information and Assumptions

• A issues debt in the amount of $765M to finance the stock acquisition. The
financing fee for issuing the acquisition debt is 2% ($765*.02 = $15.3M)

• $17/share used to value the non-controlling interests ($17 * 5M shares = $85M)

• Fair value of T ’s separable intangibles is $300M. These intangibles are carried at

zero on T’s per-deal balance sheet.

• Fair value of T ’s PP&E is $300M, but carried at $150M on T’s pre-deal balance
sheet.

• T ’s long term debt is fairly valued at $80M.

• Transaction fees (including advisory fees, accountant and lawyer fees) of $25M
are paid in cash on the deal closing date.

• Ignore all tax implications for this deal.

Class 4 5
 Sources and Uses of Funds Statement

Uses of Funds:
Cash Paid for 90% of T’s Equity $ 765.0 = $17/shr × 45M shares
Transaction Fees 25.0 (given)
Financing Fees on new debt 15.3 = 2% × $765
Total Uses of Funds $ 805.3

Sources of Funds:
Balance Sheet Cash $ 40.3 = $25 + $15.3
Stock Issuance 0.0 (given)
Acquisition Debt 765.0 (given)
Total Sources of Funds $ 805.3

Class 4 6
 Purchase Price Allocation:
NCI at Full Fair Value (required under U.S. GAAP; optional under IFRS)

Fair Value of 100% of T: $ 765+$85 = $850 = Controlling + NCI

– 100% of BVNAT: (300)

= Unamortized Differential: $ 550
(1) Write-up PP&E to fair value: $ 150 =Revalue PP&E to $300
(2) Write-up Intangibles to Fair Value:300 =Value intangibles @ $300
(3) Write-off of T ’s “Old” Goodwill: (30)

– Net Asset Write-ups: (420)

= Total Goodwill: $ 130

FVINAT = BVNAT + Net Asset Write-up = $300 + $420 = $720

Fair Value of 100% of T = FVINAT + Goodwill = $720 + 130 = $850

Class 4 7
 Digression:
Proportionate Share Method (U.S. GAAP not allowed; IFRS optional)

Under IFRS, firms have the option of

1. Measuring NCI and Goodwill at full fair value (as in U.S. GAAP), or
2. Measuring NCI at its proportionate share of FVINA => Deal measured at:
100 % FVINA + the Controlling Interest’s share of goodwill

Difference between 1 & 2 is that Goodwill is not recognized for the NCI under 2!

From the previous slide under full fair value: NCI = $85 and GW = $130

Under proportionate share method:

NCIproportionate =FVINAT * NCI% or $720*.10 = $72.

GWproportionate = (1- NCI% ) * GWfull fair value = .90 * $130 = $117

Fair value of 90% of T: $ 765 = $17/shr × 45M shares

90% of FVINA of T ’s : (648) = 90% × $720

= Goodwill (Controlling Interest) 117 = $765 – $648

Class 4 8
 Purchase Price Allocation:
Proportionate Share Method (U.S. GAAP not allowed; IFRS optional)

Fair Value of 100% of T: $ 765+$72 = $837 = Controlling + NCI

– 100% of BVNAT: (300)

= Unamortized Differential: $ 537
(1) Write-up PP&E to fair value: $ 150 =Revalue PP&E to $300
(2) Write-up Intangibles to Fair Value:300 =Value intangibles @ $300
(3) Write-off of T ’s “Old” Goodwill: (30)

– Net Asset Write-ups: (420)

= Total Goodwill: $ 117

FVINAT = BVNAT + Net Asset Write-up = $300 + $420 = $720

Fair Value of 100% of T = FVINAT + Goodwill = $720 + 117 = $837

Class 4 9
 Deal Closing Journal Entries (using Full Fair Value Method)
• Record the fair value of 100% of T, the issuance of acquisition debt
plus financing fees and non-controlling interest (NCI) at fair value:

Investment in T (temporary account) $ 850.0

Transaction Fees (Expense) 25.0
Capitalized Financing Fees 15.3

Acquisition Debt $ 765.0

Cash 40.3
Non-controlling Interest (NCI) (Equity) 85.0

Note:
1) Debt issuance fees are capitalized under and amortized to interest expense over the duration of the debt.
2) Any costs associated with equity issuance are treated as a reduction of APIC

Class 4 10
 Deal Closing Journal Entries (using Full Fair Value Method)

Remove ‘Investment in T’ and replace it with T’s revalued balance sheet from PPA:

(1) T ’s book value of assets and liabilities

(2) The write-ups to bring T’s assets and liabilities to fair value
(3) Goodwill of $130

Cash – T (1) $ 200

PP&E – T (1) 150
PP&E – T (2) $ 150
Intangible – T (2) 300
Goodwill (3) 130
LT-Debt – T(1) $80 Investment in T (temporary account) $
850

Note: all we have done is replaced the value of T, $850, with the detailed fair values of the
underlying assets and liabilities that comprise T.
Class 4 11
 Acquisition Method: A’s Post-Deal Balance Sheet
A T Adj. Consolidated
Cash $ 700 $ 200 (40.3) $ 859.7
PP&E, net 200 150 150.0 500.0
Intangibles 500 0 300.0 800.0
Capitalized Financing – – 15.3 15.3
Old Goodwill 30 (30.0) 0
Goodwill (CI + NCI) – - 130.0 130.0
Total Assets $ 1,400 $380 525.0 $2,305.0
Long-term Debt $ 300 $ 80 $ 380.0
Senior Acquisition Debt – – 765.0 765.0
Equity (CI) 1,100 300 (325.0)* 1,075.0
Equity (NCI) – – 85.0 85.0
Total Liabilities & Equity $ 1,400 $ 380 525.0 $2,305.0

* Eliminate T’s equity ($300) and reflect $25 transactions cost expense as reduction of A’s Retained Earnings
Class 4 12
 Recall Structure of the Equity Method

Parent x% Subsidiary

Parent’s Balance Sheet Subsidiary’s Balance Sheet

Assets = A Parent + x% ×  A*Sub - L*Sub  Assets = A Sub
Liabilities = L Parent Liabilities = L Sub

Although the accounting for A’s acquisition of T requires consolidation due to control,
we next consider what this deal looks like under the equity method for comparison
purposes.

Class 4 13
 Equity Method PPA: Focuses only on A’s slice of T

Consideration for 90% of T’s Equity: $ 765 = $17/shr × 45M shares

– 90% of BVNAT: (270) = 90% × $300

= Unamortized Differential: $ 495

(1) PP&E Step-up: $ 135 = 90% × ($300 – $150)

(2) Unrecognized Intangibles: 270 = 90% × ($300 – $0)

(3) Write-off of T ’s Goodwill: (27) = 90% × ($0 – $30)

– Net Asset Step-ups: (378) = 90% × (FV – BV)

= Total (Implied) Goodwill: $ 117

Class 4 14
 Equity Method: Deal Journal Entries

• Record the acquisition of 90% of T, the issuance of acquisition debt along

with the associated financing fees, transaction fees:

Investment in T $ 765.0
Transaction Fees (Expense) 25.0
Capitalized Financing Fees 15.3
Acquisition Debt $ 765.0
Cash 40.3

Class 4 15
 (2) Equity Method: A’s Balance Sheet on 12/31/20

Cash
Cash $$ 659.7
659.7 == $$700
700 –– $$40.3
40.3

Identifiable
Identifiable Intangibles
Intangibles 500.0
500.0
PP&E,
PP&E, net
net 200.0
200.0
Investment
Investment in
in TT 765.0
765.0 == $$765
765 (buried
(buried GW
GW == $117)
$117)

Capitalized
Capitalized Financing
Financing Costs
Costs 15.3
15.3 == $$765
765 ×× 2%
2%

Total
Total Assets
Assets $$ 2,140.0
2,140.0

Long-term
Long-term Debt
Debt 300.0
300.0
Senior
Senior Acquisition
Acquisition Debt
Debt 765.0
765.0 (Acquisition
(Acquisition Debt)
Debt)

Equity
Equity 1,075.0
1,075.0 == $$1,100
1,100 –– $$25
25 transaction
transaction fees
fees

Total
Total Liabilities
Liabilities &
& Equity
Equity $$ 2,140.0
2,140.0

Class 4 16
 Balance Sheet Comparison on 12/31/20
A’s Post-Deal Balance Sheet
Pre-Deal Standalone
Balance Sheets
(1)
(1) (2)
(2)
Consolidation
Consolidation Equity
Equity
AA TT Method
Method
Cash
Cash $$ 700
700 $$ 200
200 $$ 859.7
859.7 $$ 659.7
659.7
PP&E,
PP&E, net
net 200
200 150
150 500
500 200
200
Intangibles
Intangibles 500
500 00 800
800 500
500
Capitalized
Capitalized Financing
Financing –– –– 15.3
15.3 15.3
15.3
Investment
Investment inin TT –– –– –– 765
765
Goodwill
Goodwill (CI
(CI ++ NCI)
NCI) –– 30
30 130
130 ––
Total
Total Assets
Assets $$ 1,400
1,400 $$ 380
380 $$ 2,305
2,305 $$ 2,140
2,140

Long-term
Long-term Debt
Debt $$ 300
300 $$ 80
80 $$ 380
380 $$ 300
300
Senior
Senior Acquisition
Acquisition Debt
Debt –– –– 765
765 765
765
Total
Total Liabilities
Liabilities 300
300 80
80 1,145
1,145 1,035
1,035
Equity
Equity (NCI)
(NCI) –– –– 85
85 ––
Equity
Equity (CI)
(CI) 1,100
1,100 300
300 1,075
1,075 1,075
1,075
Total
Total Equity
Equity 1,100
1,100 300
300 1,150
1,150 1,075
1,075
Total
Total Liabilities
Liabilities &
& Equity
Equity $$ 1,400
1,400 $$ 380
380 $$ 2,305
2,305 $$ 2,140
2,140

Class 4 17
 Acquisition Accounting Post-acquisition
Stand-alone income statements for 2021 before acquisition accounting considerations

AA TT
Sales
Sales $$ 200
200 $$ 150
150
Cost
Cost of
of Goods
Goods Sold
Sold (100)
(100) (50)
(50)
Gross
Gross Profit
Profit $$ 100
100 $100
$100
SG&A
SG&A Expense
Expense (25)
(25) (30)
(30)
Amortization
Amortization Expense
Expense (10)
(10) ––
Depreciation
Depreciation Expense
Expense (5)
(5) (10)
(10)
Net
Net Income
Income $$ 60
60 $$ 60
60

Objective of example:
Construct A’s “pro-forma” post-acquisition Income Statement for 2021 assuming A prepares:
(1) Consolidated financial statements.
(2) “Parent-only” financial statements using the equity method.
Reconcile differences between the two accounting treatments.
18
 Additional Information and Assumptions
• A issues 5-year senior notes in the amount of $765 to finance the stock acquisition.
– The interest rate on this debt is 5% and
– Financing fee for issuing this debt is 2% and amortized straight-line over 5 years.

• $300 fair value write-up established for T’s identifiable definite-lived intangible assets. The average
useful life for these finite-lived intangibles is 20 years.
• The fair value of T ’s PP&E is $300 with an average useful life of 15 years.
• T declares and pays dividends of $10 during 2011.

• $17 per share used for valuing the stake of the non-controlling interests ($17 * 5 M shares = $85)
• T ’s long term debt is fairly valued at $80.
• Transaction fees (including advisory fees, etc.) of $25 are paid in cash on the deal closing date.
• Ignore all tax implications for this deal.

19
 Acquisition Accounting Entries in 2021:
Note: T’s Standalone financial statements do not reflect Acquisition Accounting adjustments
Depreciation Expense $ 10
PP&E, net $ 10
(100% of Step-up in T ’s PP&E / Useful Life = $150 / 15 years = $10)
Record deprecation
Amortization Expense 15
and amortization of
Identifiable Intangibles 15
asset write-ups
(100% of T ’s Unrecognized Intangibles /Useful Life = $300 / 20 years = $15)

Interest Expense $ 3.1

Capitalized Financing Costs $ 3.1
Amortize capitalized
financing costs on
(Capitalized Financing Costs/ Amortized Life = $15.3 / 5 years = $3.1)
A’s books

Interest Expense 38.3

Cash 38.3 Record A’s interest
(5% Interest on A’s Acquisition Debt = $765 × 0.05 = $38.3)
expense on
acquisition debt

20
 Acquisition Method:
Pro Forma Combined Statement of Income for 2021

2021
2021 Stand-Alone
Stand-Alone
AA TT Adj.
Adj. Consolidated
Consolidated
Sales
Sales $$ 200
200 $$ 150
150 –– $$ 350.0
350.0
COGS
COGS (100)
(100) (50)
(50) –– (150.0)
(150.0)
Gross
Gross Profit
Profit 100
100 100
100 –– 200.0
200.0
SG&A
SG&A &
& Interest
Interest Expense
Expense (25)
(25) (30)
(30) (41.4)
(41.4) (96.4)
(96.4)
Amortization
Amortization Expense
Expense (10)
(10) –– (15.0)
(15.0) (25.0)
(25.0)
Depreciation
Depreciation Expense
Expense (5)
(5) (10)
(10) (10.0)
(10.0) (25.0)
(25.0)
Total
Total Net
Net Income
Income $$ 60
60 $$ 60
60 (66.4)
(66.4) 53.6
53.6
Income
Income Attributable
Attributable to
to NCI
NCI –– –– (3.5)
(3.5) (3.5)
(3.5)
Net
Net Income
Income Attributable
Attributable to
to AA $$ 60
60 $$ 60
60 $$ (69.9)
(69.9) $$ 50.1
50.1

21
 Computation of Net Income Attributable to NCI in 2021

TT ’s’s Stand-alone
Stand-alone Net
Net Income
Income $$ 60.0
60.0
Incremental
Incremental Expenses
Expenses from
from Fair
Fair Value
Value Adjustments:
Adjustments:
Incremental
Incremental Depreciation
Depreciation (10.0)
(10.0)
Incremental
Incremental Amortization
Amortization (15.0)
(15.0)
TT ’s’s Net
Net Income
Income (After
(After Merger
Merger Adjustments)
Adjustments) 35.0
35.0
Non-controlling
Non-controlling Interest
Interest Ownership
Ownership 10.0
10.0 %
%
Net
Net Income
Income Attributable
Attributable to
to NCI
NCI $$ 3.5
3.5

22
 Acquisition Method:
Consolidated Balance Sheet on 12/31/21

Cash $ 965.4 (from Statement of Cash Flows)

Intangibles 775.0 = $800 – ($15 + $10)

PP&E, net 475.0 = $500 – ($5 + $10 + $10)

Capitalized Financing Costs 12.2 = $15.3 – $3.1

Goodwill 130.0 (not amortized)

Total Assets $ 2,357.6

Long-term Debt $ 380.0

Senior Acquisition Debt 765.0
Total Liabilities $ 1,145.0
Equity (CI) $ 1,125.1 = $1,075 + $50.1

Equity (NCI) 87.5 = $85 + $3.5 – $1

Total Equity $ 1,212.6

Total Liabilities & Equity $ 2,357.6
23
 Acquisition Method:
Controlling Interest’s (CI) Equity on 12/31/21

Post-Deal Equity (CI) Balance (12/31/20) $ 1,075

+ A’s Consolidated Net Income 50.1

– Dividends Paid to A’s Shareholders (0)

Equity (CI) End Balance (12/31/21) $ 1,125.1

24
 Acquisition Method:
Non-controlling Interest (NCI) on 12/31/21

Equity (NCI) Beg. Balance (12/31/20) $ 85.0

+ T ’s Net Income Attributable to NCI 3.5

– Dividends Paid to NCI (10% of T’s $10 dividend) (1.0)

Equity (NCI) End Balance (12/31/21) $ 87.5

25
 Acquisition Method:
Pro Forma Combined SCF for Year Ended 2021

Total
Total Net
Net Income
Income $$ 53.6
53.6
++ Amortization
Amortization Expense:
Expense: 25.0
25.0
++ Depreciation
Depreciation Expense:
Expense: 25.0
25.0
++ Amortization
Amortization of
of Capitalized
Capitalized Financing
Financing Costs
Costs 3.1
3.1

Cash
Cash Flows
Flows from
from Operating
Operating Activities
Activities $$ 106.7
106.7
Cash
Cash Flows
Flows from
from Investing
Investing Activities
Activities 0.0
0.0
–– 10%
10% of
of T’s
T’s $10
$10 Dividend
Dividend paid
paid to
to NCI
NCI (1.0)
(1.0)
Cash
Cash Flows
Flows from
from Financing
Financing Activities
Activities (1.0)
(1.0)
Net
Net Increase
Increase (Decrease)
(Decrease) in
in Cash
Cash $$ 105.7
105.7
Beginning
Beginning Cash
Cash (01/01/21)
(01/01/21) 859.7
859.7
Ending
Ending Cash
Cash (12/31/21)
(12/31/21) $$ 965.4
965.4

26
 “Parent Only” financial statements using the equity method:
Deal related journal entries in 2021

i. Record A’s share of T ’s income for 2021

Investment in T $ 54
Equity income in T $ 54
(NOTE: 90% of T ’s Net Income = $60 × 0.90 = $54)

ii. Record receipt of dividend from T in 2021

Cash9
Investment in T 9
(NOTE: 90% of Dividend Paid by T = $10 × 0.90 = $9)

Investment in T
20
12/31/10 765

54 (i) 9 (ii)

21
12/31/11
27
 Equity Method: Other Deal Adjustments in 2021

((iii) Depreciation Expense $ 9 Record 90% of deprecation and

amortization of asset write-ups
Investment in T $9 (and reflect in Investment in T
90% of Step-up in T ’s PP&E /Useful Life= [ $150 / 15 years] × 0.90 = $9

(IV) Amortization Expense 13.5 20

Investment in T 13.5
90% of T ’s Unrecognized Intangibles / Intangible Useful Life =
[ $300 / 20 years] × 0.90 = $13.5
21

Interest Expense (SG&A) $ 3.1

Amortize capitalized
Capitalized Financing Costs $ 3.1 financing costs on A’s
(Capitalized Financing Costs/ Amortized Life = $15.3 / 5 years = $3.1) books

Interest Expense (SG&A) 38.3

Cash 38.3 Record A’s interest
(5% Interest on A’s Acquisition Debt = $765 × 0.05 = $38.3) expense on acquisition
debt

Class 4 28
 Equity Method: A’s Income Statement for 2021

Income
Income Statement
Statement (2021)
(2021) AA

Sales
Sales $$ 200.0
200.0 ((A’s
A’s standalone
standalone revenue)
revenue)

COGS
COGS (100.0)
(100.0) ((A’s
A’s standalone
standalone COGS)
COGS)

Gross
Gross Profit
Profit $$ 100.0
100.0 (A’s
(A’s standalone
standalone gross
gross profit)
profit)

Equity
Equity Income
Income in
in TT 31.5
31.5 == $$54
54 –– $$99 –– $$13.5
13.5

SG&A
SG&A &
& Interest
Interest Expense
Expense (66.4)
(66.4) == $$25
25 ++ $$3.1
3.1 ++ $$38.3
38.3

Amortization
Amortization Expense
Expense (10.0)
(10.0) (A’s
(A’s standalone
standalone amortization)
amortization)

Depreciation
Depreciation Expense
Expense (5.0)
(5.0) (A’s
(A’s standalone
standalone depreciation)
depreciation)

Net
Net Income
Income $$ 50.1
50.1

29
 Equity Method: A’s Balance Sheet on 12/31/21

A’s Balance Sheet (12/31/21)

Cash $ 705.4 (from Statement of Cash Flows)

Intangibles 490.0 = $500 – $10

PP&E, net 195.0 = $200 – $5

Investment in T 787.5 = $765 + ($31.5 – $9)

Capitalized Financing Costs 12.2 = $15.3 - $3.1

Total Assets $ 2,190.1

Long-term Debt 300.0

Senior Acquisition Debt 765.0 (Acquisition Debt)

Equity 1,125.1 = $1,075 + $50.1

Total Liabilities & Equity $ 2,190.1

30
 Equity Method: A’s Cash Flow Statement (2021)

A’s
A’s Net
Net Income
Income $$ 50.1
50.1
–– Equity
Equity Income
Income in
in TT (31.5)
(31.5)
++ Dividends
Dividends from
from TT (90%*$10)
(90%*$10) 9.0
9.0
++ Amortization
Amortization Expense:
Expense: 10.0
10.0
++ Depreciation
Depreciation Expense:
Expense: 5.0
5.0
++ Amortization
Amortization of
of Capitalized
Capitalized Financing
Financing Costs
Costs 3.1
3.1
Cash
Cash Flows
Flows from
from Operating
Operating Activities
Activities $$ 45.7
45.7
Cash
Cash Flows
Flows from
from Investing
Investing Activities
Activities 0.0
0.0
Cash
Cash Flows
Flows from
from Financing
Financing Activities
Activities 0.0
0.0
Net
Net Increase
Increase (Decrease)
(Decrease) in
in Cash
Cash $$ 45.7
45.7
Beginning
Beginning Cash
Cash (01/01/21)
(01/01/21) 659.7
659.7
Ending
Ending Cash
Cash (12/31/21)
(12/31/21) $$ 705.4
705.4

31
 2021 Income Statements: Consolidation versus Parent Only (equity method)

A’s Post-Deal 2021 Statement of Income

2021 Stand-Alone
Income Statements (1)
(1) (2)
(2)
Consolidation
Consolidation Equity
Equity
AA TT Method
Method
Sales
Sales $$ 200
200 $$ 150
150 $$ 350.0
350.0 $$ 200.0
200.0
Cost
Cost of
of Goods
Goods Sold
Sold (COGS)
(COGS) (100)
(100) (50)
(50) (150.0)
(150.0) (100.0)
(100.0)
Gross
Gross Profit
Profit $$ 100
100 $$ 100
100 $$ 200.0
200.0 $$ 100.0
100.0
Equity
Equity Income
Income in
in TT –– –– –– 31.5
31.5
SG&A
SG&A Expense
Expense (25)
(25) (35)
(35) (96.4)
(96.4) (66.4)
(66.4)
Amortization
Amortization Expense
Expense (10)
(10) –– (25.0)
(25.0) (10.0)
(10.0)
Depreciation
Depreciation Expense
Expense (5)
(5) (10)
(10) (25.0)
(25.0) (5.0)
(5.0)
Net
Net Income
Income Attributable
Attributable to
to NCI
NCI –– –– (3.5)
(3.5) ––
Net
Net Income
Income $$ 60
60 $$ 60
60 $$ 50.1
50.1 $$ 50.1
50.1

32
12/31/21 Balance Sheets: Consolidation versus Parent Only (equity method)

A’s 12/31/21 Balance Sheets

(1) (2)
Consolidation Equity
Method
Cash $ 965.4 $ 705.4
PP&E, net 475.0 195.0
Intangibles 775.0 490.0
Capitalized Financing 12.2 12.2
Investment in T – 787.5
Goodwill (CI + NCI) 130.0 –
Total Assets $ 2,357.6 $ 2,190.1

Long-term Debt $ 380.0 $ 300.0

Senior Acquisition Debt 765.0 765.0
Total Liabilities $1,145.0 $ 1,065.0
Equity (NCI) 87.5 –
Equity (CI) 1,125.1 1,125.1
Total Equity $ 1,212.6 $ 1,123.9

Total Liabilities & Equity $ 2,357.6 $ 2,190.1

33