Question

Gulf Aviation generates $800 million per year, with no material growth. The consolidated revenues for DefenseCo are $1.5 billion in Year 1, $1.8 billion in Year 2 (the year of the acquisition), and $2.5 billion in Year 3. If DefenseCo closed the acquisition of Gulf Aviation on October 1 of Year 2, what is the “apples-to-apples” organic growth for Defense Co in Year 2 and Year 3? How does this differ from reported revenues? Assume Gulf Aviation revenues are consolidated into DefenseCo only after the acquisition close and that the fiscal year closes for both companies on December 31 of each year.

Answer 1

	Acquisition close	1-Oct
	Fiscal Year	31-Dec
	Pro-Rata calculation	Year 1	Year 2	Year 3
	No. of months after closing	0	3	12
	Pro-Rata	0%	25%	100%
	DefenseCo
	In $ Millions	Year 1	Year 2	Year 3
1	DefenseCo Consolidated Revenues	1500	1800	2500
2	Gulf Aviation Standalone Revenues	800	800	800
3	Pro-rata % (See calculation above)	0	25%	100%
4	Gulf Aviation Contribution to DefenseCo Revenues (2 *3)	0	200	800
5	DefenseCo Standalone Revenues (1-4)	1500	1600	1700
	% organic growth		7%	6%