Apple Inc.

- Financial Statements
($ in Millions, Except Per Share Amounts in Dollars and Share Counts in Thousands)
Assumptions & Valuation Overview
Valuation Date:
Company Name:
Share Price:

1/29/2010
Apple Inc.
$192.06

Last Historical Year:

Debt Issue Date:
Share Units:

Basic Shares Outstanding:

Basic Equity Value:
Diluted Shares Outstanding:
Diluted Equity Value:
Less: Cash & Investments
Plus: Debt
Plus: Minority Interest
Plus: Preferred Stock
Plus: Other Liabilities
Enterprise Value:

900,678
$172,984
920,526
$176,796
$35,395
$0
$0
$0
$0
$141,401

Options Calculations (in Thousands Except Exercise Price):

Name
Tranche A
Tranche B
Tranche C
Tranche D
Tranche E
Total

FY 2007

Number
34,375

2009
2010
1000

Exercise
Price
$81.17

Dilution
19,847

19,847

Historical
FY 2008
FY 2009

Projection
FY 2010E

FY 2011E

EV / Revenue:
EV / EBIT:
EV / EBITDA:

5.8 x
30.4 x
28.4 x

3.8 x
16.0 x
15.1 x

3.3 x
11.4 x
10.7 x

2.6 x
9.1 x
8.6 x

2.3 x
7.8 x
7.3 x

Equity Value / FCF:

P / E:
P / BV:

37.3 x
48.9 x

20.8 x
28.3 x
7.9 x

17.1 x
21.2 x
5.6 x

Err:522
Err:522
Err:522

Err:522
Err:522
Err:522

Operating Assumptions

FY 2007

Historical
FY 2008
FY 2009

Projection
FY 2010E

FY 2011E

Revenue Growth %:
COGS % Revenue:
R&D % Revenue:
SG&A % Revenue:

27.2%
66.2%
2.4%
11.1%

52.5%
64.1%
2.0%
8.9%

14.4%
59.0%
1.9%
8.3%

25.0%
59.0%
1.9%
8.3%

17.0%
59.0%
1.9%
8.3%

Stock-Based Compensation % Revenue:

Depreciation & Amortization % Revenue:
Effective Cash Interest Rate:
Debt Interest Rate:
Effective Tax Rate:

1.0%
1.3%
5.3%
0.0%
30.2%

1.4%
1.3%
3.4%
0.0%
31.6%

1.7%
1.7%
1.4%
0.0%
31.8%

1.7%
1.7%
1.0%
9.0%
30.0%

1.7%
1.7%
1.0%
9.0%
30.0%

6.5%
23.3
2.1%

7.8%
28.2
1.8%

7.8%
28.2
1.8%
$40

7.8%
28.2
1.8%
$37

23.0%
82.6
102.9%
4.3%
2.0%

22.1%
79.6
87.6%
4.8%
2.0%

22.1%
79.6
87.6%
4.8%
2.0%

22.1%
79.6
87.6%
4.8%
2.0%

2.9%

2.7%

2.7%

2.7%

Accounts Receivable % Revenue:

Accounts Receivable Days:
Inventory % COGS:
Amortization of Intangibles:
Accounts Payable % COGS:
Accounts Payable Days:
Accrued Expenses % Operating Expenses:
Short-Term Deferred Revenue % Revenue:
Long-Term Deferred Revenue % Revenue:
CapEx % Revenue:

3.0%

Income Statement

Revenue:
Cost of Goods Sold:

FY 2007

FY 2008

$24,578
$16,282

$37,491
$24,049

FY 2009
$42,905
$25,324

FY 2010E
$53,631
$31,655

FY 2011E
$62,749
$37,037

Gross Profit:
Operating Expenses:
Research & Development:
Selling, General & Administrative:
Total Operating Expenses:
Depreciation & Amortization of PP&E:
Amortization of Intangibles:
Stock-Based Compensation:

$8,296

$13,442

$17,581

$21,976

$25,712

$596
$2,724
$3,320

$759
$3,345
$4,103

$830
$3,566
$4,397

$1,038
$4,458
$5,496

$1,214
$5,216
$6,430

$327
$0
$242

$496
$0
$516

$734
$0
$710

$918
$40
$888

$1,073
$37
$1,038

Operating Income:
Interest Income:
Interest Expense:
Other Income & Expense:
Pre-Tax Income:
Income Tax Provision:

$4,407
$647
$0
($48)
$5,006
$1,511

$8,327
$653
$0
($33)
$8,947
$2,828

$11,740
$407
$0
($81)
$12,066
$3,831

Net Income:

$3,495

$6,119

Earnings Per Share (EPS):

Diluted Shares Outstanding:

$3.93
889,292

$6.78
902,139

$4,649
$4,976
$4,735

$8,843
$9,339
$8,505
$24.17

EBIT:
EBITDA:
Levered Free Cash Flow:
Book Value Per Share (BV):

$14,635
Err:522
($45)
$0
Err:522
Err:522

$17,133
Err:522
($90)
$0
Err:522
Err:522

$8,235

Err:522

Err:522

$9.08
907,005

Err:522
907,005

Err:522
907,005

$15,523
$16,480
Err:522
Err:522

$18,171
$19,282
Err:522
Err:522

$12,450
$13,184
$10,311
$34.56

Balance Sheet
FY 2008
Assets:
Current Assets:
Cash & Cash-Equivalents:
Short-Term Securities:

$11,875
$10,236

FY 2009

$6,559
$26,282

FY 2010E

Err:522
$26,282

FY 2011E

Err:522
$26,282

Accounts Receivable:
Inventory:
Deferred Tax Assets:
Other Current Assets:
Total Current Assets:

$2,422
$509
$1,044
$3,920
$30,006

$3,361
$455
$4
$3,140
$39,801

$4,201
$569
$4
$3,140
Err:522

$4,915
$665
$4
$3,140
Err:522

Long-Term Assets:
Long-Term Securities:
Plants, Property & Equipment:
Goodwill:
Other Intangible Assets:
Other Assets:
Total Assets:

$2,379
$2,455
$207
$285
$839
$36,171

$2,554
$2,839
$207
$354
$2,011
$47,766

$2,554
$3,352
$207
$314
$2,011
Err:522

$2,554
$3,951
$207
$277
$2,011
Err:522

Liabilities & Shareholders' Equity:

Current Liabilities:
Accounts Payable:
Accrued Expenses:
Deferred Revenue:
Total Current Liabilities:

$5,520
$4,224
$1,617
$11,361

$5,601
$3,852
$2,053
$11,506

$7,001
$4,815
$2,566
$14,383

$8,191
$5,634
$3,003
$16,828

Long-Term Liabilities:
Deferred Revenue:
Long-Term Debt:
Other Long-Term Liabilities:
Total Liabilities:

$768
$0
$1,745
$13,874

$853
$0
$3,502
$15,861

$1,066
$1,000
$3,502
$19,951

$1,248
$1,000
$3,502
$22,577

Shareholders' Equity:
Common Stock:
Additional Paid-In Capital:
Treasury Stock:
Retained Earnings:
Accumulated Other Comprehensive Income:

$7,177
$0
$0
$15,129
($9)

$7,177
$1,185
$0
$23,364
$179

$7,177
$2,073
$0
Err:522
$179

$7,177
$3,111
$0
Err:522
$179

Total Shareholders' Equity:

$22,297

$31,905

Err:522

Err:522

Total Liabilities & SE:

$36,171

$47,766

Err:522

Err:522

$0.000

$0.000

Err:522

Err:522

BALANCE CHECK:
Cash Flow Statement
Operating Activities:
Net Income:
Depreciation & Amortization of PP&E:
Amortization of Intangibles:
Stock-Based Compensation:
Deferred Income Tax Expense:
Loss on PP&E:
Changes in Operating Assets & Liabilities:
Accounts Receivable:
Inventory:
Other Current Assets:
Other Assets:
Accounts Payable:
Deferred Revenue:
Other Liabilities:
Cash Flow from Operations:
Investing Activities:
Purchases of Securities:
Proceeds from Maturities & Sales:
Purchases of LT Investments:
Capital Expenditures:
Acquisition of Intangibles:
Other:
Cash Flow from Investing:

FY 2007

FY 2008

FY 2009

FY 2010E

FY 2011E

$3,495
$327
$0
$242
$73
$12

$6,119
$496
$0
$516
$398
$22

$8,235
$734
$0
$710
$1,040
$26

Err:522
$918
$40
$888
$0
$0

Err:522
$1,073
$37
$1,038
$0
$0

($385)
($76)
($1,279)
$285
$1,494
$566
$716
$5,470

($785)
($163)
($274)
$289
$596
$718
$1,664
$9,596

($939)
$54
$780
($1,172)
$81
$521
$1,385
$11,455

($840)
($114)
$0
$0
$1,400
$727
$963
Err:522

($714)
($97)
$0
$0
$1,190
$618
$819
Err:522

($11,719) ($22,965)
$9,424
$16,243
($17)
($38)
($735)
($1,091)
($251)
($108)
$49
($230)
($3,249) ($8,189)

($46,724)
$30,678
($101)
($1,144)
($69)
($74)
($17,434)

$0
$0
$0
($1,430)
$0
$0
($1,430)

$0
$0
$0
($1,673)
$0
$0
($1,673)

Financing Activities:
Proceeds from Common Stock:
Common Stock Repurchased:
Dividends Issued:
Tax Benefits from Stock-Based Comp:
Raise / (Pay Off) Long-Term Debt
Cash Used for Equity Awards:
Cash Flow from Financing:
Increase / Decrease in Cash:
Cash & Cash Equivalents:

$365
$0
$0
$377
$0
($3)
$739
$2,960
$9,352

$483
$0
$0
$757
$0
($124)
$1,116
$2,523
$11,875

$475
$0
$0
$270
$0
($82)
$663
($5,316)
$6,559

$0
$0
$0
$0
$1,000
$0
$1,000
Err:522
Err:522

$0
$0
$0
$0
$0
$0
$0
Err:522
Err:522

Days in Year:
Debt Amount:
Tax Rate:

360
$1,000
30%

pt Exercise Price):

Projections
FY 2012E

FY 2013E

FY 2014E

2.0 x
7.0 x
6.6 x

1.9 x
6.4 x
6.1 x

1.7 x
6.0 x
5.7 x

Err:522
Err:522
Err:522

Err:522
Err:522
Err:522

Err:522
Err:522
Err:522

Projections
FY 2012E

FY 2013E

FY 2014E

11.0%
59.0%
1.9%
8.3%

9.0%
59.0%
1.9%
8.3%

7.0%
59.0%
1.9%
8.3%

1.7%
1.7%
2.0%
9.0%
30.0%

1.7%
1.7%
2.0%
9.0%
30.0%

1.7%
1.7%
3.0%
9.0%
30.0%

7.8%
28.2
1.8%
$28

7.8%
28.2
1.8%
$13

7.8%
28.2
1.8%
$10

22.1%
79.6
87.6%
4.8%
2.0%

22.1%
79.6
87.6%
4.8%
2.0%

22.1%
79.6
87.6%
4.8%
2.0%

2.7%

2.7%

2.7%

FY 2012E
$69,651
$41,111

FY 2013E
$75,919
$44,811

FY 2014E
$81,234
$47,948

$28,540

$31,109

$33,286

$1,348
$5,789
$7,137

$1,469
$6,311
$7,780

$1,572
$6,752
$8,324

$1,192
$28
$1,153

$1,299
$13
$1,256

$1,390
$10
$1,344

$19,030
Err:522
($90)
$0
Err:522
Err:522

$20,761
Err:522
($90)
$0
Err:522
Err:522

$22,218
Err:522
($90)
$0
Err:522
Err:522

Err:522

Err:522

Err:522

Err:522
907,005

Err:522
907,005

Err:522
907,005

$20,183
$21,403
Err:522
Err:522

$22,017
$23,329
Err:522
Err:522

$23,562
$24,962
Err:522
Err:522

FY 2012E

Err:522
$26,282

FY 2013E

Err:522
$26,282

FY 2014E

Err:522
$26,282

$5,456
$739
$4
$3,140
Err:522

$5,947
$805
$4
$3,140
Err:522

$6,364
$861
$4
$3,140
Err:522

$2,554
$4,617
$207
$249
$2,011
Err:522

$2,554
$5,342
$207
$236
$2,011
Err:522

$2,554
$6,118
$207
$226
$2,011
Err:522

$9,093
$6,253
$3,333
$18,679

$9,911
$6,816
$3,633
$20,360

$10,605
$7,293
$3,887
$21,785

$1,385
$1,000
$3,502
$24,565

$1,509
$1,000
$3,502
$26,371

$1,615
$1,000
$3,502
$27,902

$7,177
$4,263
$0
Err:522
$179

$7,177
$5,520
$0
Err:522
$179

$7,177
$6,864
$0
Err:522
$179

Err:522

Err:522

Err:522

Err:522

Err:522

Err:522

Err:522

Err:522

Err:522

FY 2012E

FY 2013E

FY 2014E

Err:522
$1,192
$28
$1,153
$0
$0

Err:522
$1,299
$13
$1,256
$0
$0

Err:522
$1,390
$10
$1,344
$0
$0

($541)
($73)
$0
$0
$901
$468
$620
Err:522

($491)
($66)
$0
$0
$818
$425
$563
Err:522

($416)
($56)
$0
$0
$694
$360
$477
Err:522

$0
$0
$0
($1,857)
$0
$0
($1,857)

$0
$0
$0
($2,024)
$0
$0
($2,024)

$0
$0
$0
($2,166)
$0
$0
($2,166)

$0
$0
$0
$0
$0
$0
$0
Err:522
Err:522

$0
$0
$0
$0
$0
$0
$0
Err:522
Err:522

$0
$0
$0
$0
$0
$0
$0
Err:522
Err:522

Err:502
($ in Millions, Except Per Share Amounts in Dollars and Share Counts in Thousands)
Err:502

Methodology Name
Public Company Comparables:
2009 EV / Revenue:
2010E EV / Revenue:
2009 EV / EBITDA:
2010E EV / EBITDA:
2009 P / E:
2010E P / E:
Precedent Transactions:
Trailing EV / Revenue:
Forward EV / Revenue:
Trailing EV / EBITDA:
Forward EV / EBITDA:
Discounted Cash Flow Analysis:
11-15% Discount Rate, 5-9x Terminal Multiple:

Err:502
25th
Pecentile
Multiple

Minimum
Multiple

0.3
0.3
4.4
3.7
15.0
10.9

x
x
x
x
x
x

0.5
0.5
7.3
5.1
16.1
12.2

x
x
x
x
x
x

0.4
0.4
8.7
9.6

x
x
x
x

1.9
2.1
11.5
13.4

x
x
x
x

Thousands)
Err:502

Err:502

75th
Pecentile
Multiple

Median
Multiple

Maximum
Multiple

Applicable
Err:502
Figure

Minimum
Multiple

25th
Pecentile
Multiple

1.1
1.0
7.6
5.5
19.7
16.3

x
x
x
x
x
x

2.8
2.3
10.6
6.8
29.1
16.6

x
x
x
x
x
x

3.1
2.6
11.5
8.4
47.2
44.6

x
x
x
x
x
x

$42,905 $
$53,631
$13,184
$16,480
$9.08
Err:522

52.12 $
54.32
101.49
103.84
136.10
Err:522

59.64
66.62
143.02
129.06
145.77
Err:522

2.7
2.7
14.4
19.1

x
x
x
x

6.0
5.0
17.3
23.9

x
x
x
x

8.3
7.5
39.7
32.8

x
x
x
x

$42,905
$53,631
$13,184
$16,480

57.41
63.66
162.40
211.19

129.08
163.31
202.99
277.70

163.88

182.19

Err:502

Median
Multiple

75th
Pecentile
Multiple

Maximum
Multiple

89.08 $
96.83
146.90
137.54
179.19
Err:522

170.37 $
173.80
190.08
160.94
264.11
Err:522

181.29
189.43
203.41
187.95
428.24
Err:522

165.82
198.04
244.29
379.76

319.62
328.66
285.53
465.76

424.32
472.85
606.40
625.62

201.98

223.36

246.46

Balance Sheet Adjustment:

$35,395

Public Company Comparables

2009 EV / Revenue:
2010E EV / Revenue:
2009 EV / EBITDA:
2010E EV / EBITDA:
2009 P / E:
2010E P / E:

Precedent Transactions
Trailing EV / Revenue:
Forward EV / Revenue:
Trailing EV / EBITDA:
Forward EV / EBITDA:

Discounted Cash Flow Analysis

11-15% Discount Rate, 5-9x Terminal Multiple:
$-

11-15% Discount Rate, 5-9x Terminal Multiple:

$100.00

$200.00

Min.
$
163.88

Forward EV / EBITDA:
Trailing EV / EBITDA:
Forward EV / Revenue:
Trailing EV / Revenue:

$
$
$
$

211.19
162.40
63.66
57.41

2010E P / E:
2009 P / E:
2010E EV / EBITDA:
2009 EV / EBITDA:
2010E EV / Revenue:
2009 EV / Revenue:

$
$
$
$
$

Err:522
136.10
103.84
101.49
54.32
52.12

$300.00

75th to Max
Median to
75th
25th to
Median
Min to 25th

.00

$300.00

$400.00

$500.00

25th
Median
75th
Max
$
182.19 $
201.98 $
223.36 $

$600.00

246.46

$700.00

Min Point
25 Point
$
163.88 $
18.31

$
$
$
$

277.70
202.99
163.31
129.08

$
$
$
$

379.76
244.29
198.04
165.82

$
$
$
$

465.76
285.53
328.66
319.62

$
$
$
$

625.62
606.40
472.85
424.32

$
$
$
$

211.19
162.40
63.66
57.41

$
$
$
$

66.51
40.59
99.65
71.67

$
$
$
$
$

Err:522
145.77
129.06
143.02
66.62
59.64

$
$
$
$
$

Err:522
179.19
137.54
146.90
96.83
89.08

$
$
$
$
$

Err:522
264.11
160.94
190.08
173.80
170.37

$
$
$
$
$

Err:522
428.24
187.95
203.41
189.43
181.29

$
$
$
$
$

Err:522
136.10
103.84
101.49
54.32
52.12

$
$
$
$
$

Err:522
9.67
25.23
41.53
12.31
7.53

75th to Max
Median to
75th
25th to
Median
Min to 25th

0.00

Med Point
75 Point
Max Point
$
19.79 $
21.38 $
23.10
$
$
$
$

102.06
41.30
34.73
36.74

$
$
$
$

86.00
41.24
130.62
153.80

$
$
$
$

159.85
320.86
144.19
104.70

$
$
$
$
$

Err:522
33.43
8.47
3.87
30.21
29.44

$
$
$
$
$

Err:522
84.92
23.41
43.18
76.97
81.29

$
$
$
$
$

Err:522
164.13
27.01
13.33
15.63
10.93

Comparable Companies - US-Based Hardware & Networking Companies with Over $20
($ in Millions, Except Per Share Amounts in Dollars and Share Counts in Thousands)
Operating Statistics
Company Name
Hewlett-Packard Company
Dell Inc.
Cisco Systems, Inc.
Intel Corporation
Motorola, Inc.

Share
Price
$ 47.07
12.90
22.47
19.40
6.15

Capitalization
Equity
Enterprise
Revenue
Value
Value
2009
$ 114,779 $ 124,430 $ 114,552
25,241
15,080
51,430
131,739
106,671
34,807
107,224
92,786
32,784
14,239
10,665
23,457

Maximum
75th Percentile
Median
25th Percentile
Minimum

$ 47.07
22.47
$ 19.40
12.90
6.15

$ 131,739
114,779
$107,224
25,241
14,239

$ 124,430
106,671
$ 92,786
15,080
10,665

$ 114,552
51,430
$ 34,807
32,784
23,457

Apple Inc.

$192.06

$176,796

$141,401

$42,905

Company Name
Hewlett-Packard Company
Dell Inc.
Cisco Systems, Inc.
Intel Corporation
Motorola, Inc.

Share
Price
$ 47.07
12.90
22.47
19.40
6.15

Capitalization
Equity
Enterprise
Value
Value
$ 114,779 $ 124,430
25,241
15,080
131,739
106,671
107,224
92,786
14,239
10,665

Maximum
75th Percentile
Median
25th Percentile
Minimum

$ 47.07
22.47
$ 19.40
12.90
6.15

$ 131,739
114,779
$107,224
25,241
14,239

$ 124,430
106,671
$ 92,786
15,080
10,665

3.1 x
2.8 x
1.1 x
0.5 x
0.3 x

Apple Inc.

$192.06

$176,796

$141,401

3.3 x

Valuation Statistics

Enterprise Value /
Revenue
2009
1.1 x
0.3 x
3.1 x
2.8 x
0.5 x

mpanies with Over $20 Billion Revenue

Thousands)

Revenue
2010E
$ 124,179
55,380
41,163
39,941
22,056
$ 124,179
55,380
$ 41,163
39,941
22,056
$ 53,631

Enterprise Value /
Revenue
2010E
1.0
0.3
2.6
2.3
0.5

x
x
x
x
x

EBITDA
2009
2010E
$ 16,433 $ 18,186
3,426
4,129
10,076
12,774
12,708
18,332
926
1,927

2009
2010E
$
3.14 $
3.87
0.79
1.18
0.97
1.38
0.41
1.17
(1.70)
0.14

16,433
12,708
$ 10,076
3,426
926
$13,184

18,332
18,186
$ 12,774
4,129
1,927
$16,480

Enterprise Value /
EBITDA
2009
2010E
7.6 x
6.8
4.4 x
3.7
10.6 x
8.4
7.3 x
5.1
11.5 x
5.5

x
x
x
x
x

EPS

3.14 $
0.97
0.79 $
0.41
(1.70)
$9.08

3.87
1.38
1.18
1.17
0.14
Err:522

P / E Multiple
2009
2010E
15.0 x
12.2
16.4 x
10.9
23.1 x
16.3
47.2 x
16.6
NM
44.6

x
x
x
x
x

2.6 x
2.3 x
1.0 x
0.5 x
0.3 x

11.5 x
10.6 x
7.6 x
7.3 x
4.4 x

8.4 x
6.8 x
5.5 x
5.1 x
3.7 x

47.2 x
29.1 x
19.7 x
16.1 x
15.0 x

44.6 x
16.6 x
16.3 x
12.2 x
10.9 x

2.6 x

10.7 x

8.6 x

21.2 x

Err:522

Projected
Revenue
Growth
8.4%
7.7%
18.3%
21.8%
(6.0%)

EBITDA Margin
2009
14.3%
6.7%
28.9%
38.8%
3.9%

21.8%
18.3%
8.4%
7.7%
(6.0%)

38.8%
28.9%
14.3%
6.7%
3.9%

25.0%

30.7%

EBITDA Margin
2010E
14.6%
7.5%
31.0%
45.9%
8.7%
45.9%
31.0%
14.6%
8.7%
7.5%
30.7%

Networking & Hardware M&A Transactions Over $1 Billion with US-Based Sellers Since
($ in Millions, Except Per Share Amounts in Dollars and Share Counts in Thousands)
Err:502

Acquirer Name
Hewlett-Packard Company
Cisco Systems, Inc.
Emerson Electric Co.
EMC Corporation
Oracle Corporation
Brocade Communication Systems, Inc.

Target Name
3Com
Starent Networks
Avocent
Data Domain
Sun Microsystems
Foundry Networks
Maximum
75th Percentile
Median
25th Percentile
Minimum

Date
11/11/2009
10/13/2009
10/6/2009
7/8/2009
4/20/2009
7/21/2008

h US-Based Sellers Since 1/1/2008

n Thousands)
Operating Metrics

Valuatio

Equity
Enterprise Trailing
Value
Value
Revenue
$
3,180 $
2,714 $
1,265
2,777
2,386
288
1,114
1,147
611
2,362
2,085
301
7,075
5,392
13,256
2,899
2,063
621

Forward
Revenue
$
1,223
320
542
375
12,462
633

Trailing
EBITDA
$
152
154
105
53
623
156

Forward
EBITDA
$
110
110
93
64
559
125

7,075
3,110
2,838
2,466
1,114

$
$

5,392
2,632
2,235
2,068
1,147

$
$

13,256
1,104
616
378
288

12,462
1,075
587
417
320

623
155
153
117
53

559
121
110
97
64

EV /
Trailing
Revenue
2.1 x
8.3 x
1.9 x
6.9 x
0.4 x
3.3 x
8.3 x
6.0 x
2.7 x
1.9 x
0.4 x

Valuation Multiples
EV /
EV /
Forward
Trailing
Revenue
EBITDA
2.2 x
17.8 x
7.5 x
15.5 x
2.1 x
10.9 x
5.6 x
39.7 x
0.4 x
8.7 x
3.3 x
13.2 x
7.5 x
5.0 x
2.7 x
2.1 x
0.4 x

39.7 x
17.3 x
14.4 x
11.5 x
8.7 x

EV /
Forward
EBITDA
24.6 x
21.6 x
12.3 x
32.8 x
9.6 x
16.5 x
32.8 x
23.9 x
19.1 x
13.4 x
9.6 x

Err:502
($ in Millions, Except Per Share Amounts in Dollars and Share Counts in Thousands)
Err:502
FY 2010E FY 2011E FY 2012E
Revenue:
EBITDA:
Operating Income:

$53,631
$16,480
$14,635

Less: Taxes

($4,391)

Plus: Depreciation
Plus: Amortization
Plus: Stock-Based Compensation
Less: Increase in Working Capital:
Less: Capital Expenditures
Unlevered Free Cash Flow
Present Value of Free Cash Flow
Normal Discount Period:
Mid-Year Discount:

$918
$40
$888
$2,136
($1,430)
$12,795
$12,064
1.000
0.500

Free Cash Flow Growth Rate:

$62,749
$ 19,282
$ 17,133

$69,651
$ 21,403
$ 19,030

($5,140)

($5,709)

$1,073
$37
$1,038

$1,192
$28
$1,153

$1,815
($1,673)

$1,374
($1,857)

$14,284
$11,971

$15,211
$11,332

2.000
1.500

3.000
2.500

11.6%

6.5%

Terminal
Growth Rate

Err:502
10.0%
$ 220.90
$ 220.90
$ 220.90
$220.90
$ 220.90
$ 220.90

11.0%
$ 214.27
$ 214.27
$ 214.27
$214.27
$ 214.27
$ 214.27

Discount Rate
12.0%
13.0%
14.0%
$ 207.97 $201.98 $ 196.28
$ 207.97 $201.98 $ 196.28
$ 207.97 $201.98 $ 196.28
$207.97 $201.98 $196.28
$ 207.97 $201.98 $ 196.28
$ 207.97 $201.98 $ 196.28

$ 204.96
10.0%
4.0 x $ 170.39
5.0 x $ 187.23

11.0%
$ 165.99
$ 182.09

Discount Rate
12.0%
13.0%
14.0%
$ 161.81 $157.83 $ 154.03
$ 177.20 $172.54 $ 168.11

$ 204.96
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%

Terminal
EBITDA
Multiple

Err:502

Terminal
EBITDA
Multiple

6.0 x
7.0 x
8.0 x
9.0 x

$ 204.06
$220.90
$ 237.74
$ 254.58

$ 198.18
$214.27
$ 230.37
$ 246.46

$ 192.59
$207.97
$ 223.36
$ 238.75

$187.26
$201.98
$216.70
$231.42

$ 182.19
$196.28
$ 210.36
$ 224.44

n Thousands)
Err:502
FY 2013E FY 2014E
$75,919
$ 23,329
$ 20,761

$81,234
$ 24,962
$ 22,218

($6,228)

($6,665)

$1,299
$13
$1,256

$1,390
$10
$1,344

$1,248
($2,024)

$1,058
($2,166)

$16,324
$10,811

$17,189
$10,119

4.000
3.500

5.000
4.500

7.3%

5.3%

e
15.0%
$ 190.85
$ 190.85
$ 190.85
$190.85
$ 190.85
$ 190.85

16.0%
$ 185.68
$ 185.68
$ 185.68
$185.68
$ 185.68
$ 185.68

15.0%
$ 150.40
$ 163.88

16.0%
$ 146.95
$ 159.86

Use Multiples Method?

Discount Rate:

Yes
12.5%

Terminal EBITDA Multiple:

Terminal Growth Rate:
Terminal Value:

7.0 x
3.0%
$ 174,733

PV of Terminal Value:
Sum of PV of Cash Flows:
Enterprise Value:

$96,980
$56,296
$153,276

Terminal Value % EV:

63.3%

Enterprise Value:
Balance Sheet Adjustment:
Implied Equity Value:

$153,276
$35,395
$188,671

Implied Price Per Share:

$ 204.96

$ 177.37
$190.85
$ 204.33
$ 217.81

$ 172.77
$185.68
$ 198.59
$ 211.50

Err:502
($ in Millions, Except Per Share Amounts in Dollars and Share Counts in Thousands)
Discount Rate Calculation - Assumptions
Risk-Free Rate:
Equity Risk Premium:
Interest Rate on Debt:

4.38%
7.00%
9.00%

Comparable Companies - Unlevered Beta Calculation

Levered
Equity
Name
Beta
Debt
Value
Hewlett-Packard Company
1.04 $ 15,830 $ 114,779
Dell Inc.
1.31
3,793
25,241
Cisco Systems, Inc.
1.23
10,273
131,739
Intel Corporation
1.17
2,224
107,224
Motorola, Inc.
1.87
3,925
14,239
Median

1.23

Apple Inc.

1.57

Tax Rate
20.0%
27.0%
22.0%
33.0%
34.0%

Err:502
Unlevered
Beta
Apple Inc.

1.16

Debt
$0

Equity
Value
$176,796

Tax Rate
30%

Cost of Equity Based on Comparables:

Cost of Equity Based on Historical Beta:

WACC = Cost of Equity * % Equity + Cost of Debt * % Debt * (1 - Tax Rate) + Cost of Preferred Sto
WACC

Unlevered
Beta
0.94
1.18
1.16
1.15
1.58
1.16

Levered
Beta
1.16
12.50%
15.37%

+ Cost of Preferred Stock * % Preferred Stock

12.50%

Err:502
($ in Millions, Except Per Share Amounts in Dollars and Share Counts in Thousands)
Transaction Assumptions
Per Share Purchase Price:
% Cash:
% Debt:
% Stock:
Foregone Cash Interest Rate:

$75.00
33.3%
33.3%
33.3%
1.0%

Revenue Synergy %:
Cost Synergies % OpEx:

10.0%
10.0%

Goodwill Creation & Balance Sheet Adjustments

Goodwill Calculation:
Equity Purchase Price:
Less: Seller Book Value:
Plus: Write-Off of Existing Goodwill:
Total Allocable Purchase Premium:

$43,049
($6,987)
$147
$36,209

Less: Write-Up of PP&E:

Less: Write-Up of Intangibles:
Less: Write-Down of DTL:
Plus: New Deferred Tax Liability:
Total Goodwill Created:

($174)
($7,242)
($43)
$2,225
$30,975

Buyer - Financial Profile

Buyer Name:
Share Price:
Diluted Shares Outstanding:
Diluted Equity Value:
Enterprise Value:
Tax Rate:

Apple Inc.
$192.06
920,526
$176,796
$141,401
30%

Buyer - Income Statement

Revenue:
Cost of Goods Sold:
Gross Profit:

FY 2010E FY 2011E
$53,631 $62,749
$31,655
$37,037
$21,976 $25,712

Operating Expenses:
Depreciation of PP&E:
Amortization of Intangibles:
Stock-Based Compensation:
Operating Income:
Interest Income / (Expense):
Pre-Tax Income:
Income Tax Provision:

$5,496

$6,430

$918
$40
$888

$1,073
$37
$1,038

$14,635 $17,133
Err:522
Err:522
Err:522
Err:522
Err:522
Err:522

Net Income:

Err:522

Err:522

Earnings Per Share (EPS):

Diluted Shares Outstanding:

Err:522
907,005

Err:522
907,005

Combined Income Statement

Combined Revenue:
Revenue Synergies:
Cost of Goods Sold:
Revenue Synergy COGS:
Gross Profit:
Operating Expenses:
OpEx Synergies:
Depreciation of PP&E:
Depr. of PP&E Write-Up:
Amortization of Intangibles:
Amort. of New Intangibles:
Stock-Based Compensation:
Operating Income:
Interest Income / (Expense):
Foregone Interest on Cash:
Interest Paid on New Debt:
Pre-Tax Income:
Income Tax Provision:

FY 2010E FY 2011E
$70,862 $83,617
$1,723
$2,087
$41,410
$48,905
$862
$1,043
$30,313 $35,755
$8,193
$270

$9,689
$326

$1,348
$22
$399
$1,448
$939

$1,637
$22
$470
$1,448
$1,101

$18,233 $21,713
Err:522
Err:522
($143)
($143)
($1,291)
($1,291)
Err:522
Err:522
Err:522
Err:522

Net Income:

Err:522

Err:522

Earnings Per Share (EPS):

Err:522

Err:522

Diluted Shares Outstanding:

981,719

981,719

Accretion / Dilution:
Accretion / Dilution %:

Err:522
Err:522

Err:522
Err:522

Sensitivity Analysis - Year 1 EPS Accretion/Dilution and Purchase Price vs. Operating Ex

Per Share Purchase

Price

Expense Synergies % S

Sensitivity Analysis - Year 1 EPS Accretion/Dilution and Purchase Price vs. Revenue Syn

Per Share Purchase

Price

Revenue Synergies % Se

Equity Purchase Price:

Cash Used:
Debt Issued:
New Shares Issued:
Debt Interest Rate:

$43,049
$14,350
$14,350
74,714
9.0%

Revenue Synergy COGS %:

50.0%

Fixed Asset Write-Up:

PP&E Write-Up %:
PP&E Write-Up Amount:
Depreciation Period (Years):

10.0%
$174
8

Intangible Asset Write-Up:

Purchase Price to Allocate:
% Allocated to Intangibles:
Intangibles Write-Up Amount:
Amortization Period (Years):

$36,209
20.0%
$7,242
5

New Deferred Tax Liability:

$2,225

Seller - Financial Profile

Seller Name:
Share Price:
Diluted Shares Outstanding:
Diluted Equity Value:
Enterprise Value:
Tax Rate:

Research in Motion Limited

$62.91
572,951
$36,044
$33,547
28%

Seller - Income Statement

Revenue:
Cost of Goods Sold:
Gross Profit:

FY 2010E
$17,231
$9,755
$7,476

FY 2011E
$20,868
$11,869
$9,000

Operating Expenses:

$2,698

$3,259

Depreciation of PP&E:
Amortization of Intangibles:
Stock-Based Compensation:

$431
$359
$52

$563
$433
$63

Operating Income:
Interest Income / (Expense):
Pre-Tax Income:
Income Tax Provision:

$3,937
$25
$3,962
$1,148

$4,682
$33
$4,714
$1,343

Net Income:

$2,814

$3,371

Earnings Per Share (EPS):

Diluted Shares Outstanding:

$5.03
560,000

$6.02
560,000

Price vs. Operating Expense Synergies:

xpense Synergies % Seller OpEx:

Price vs. Revenue Synergies:

venue Synergies % Seller Revenue:

Merger Model - Seller Diluted Share Count & Combined Balance Sheets
($ in Millions, Except Per Share Amounts in Dollars and Share Counts in Thousands)
Diluted Share & Enterprise Value Calculations - Seller
Company Name:
Share Price:
Offer Price Per Share:
Current Share Price:
Basic Shares Outstanding:
Basic Equity Value:
Diluted Shares Outstanding:
Diluted Equity Value:
Less: Cash & Investments
Plus: Debt
Plus: Minority Interest
Plus: Preferred Stock
Plus: Other Liabilities
Enterprise Value:

Research in Motion Limited

$62.91
$75.00
Tax Rate:

568,900
$35,789
572,951
$36,044
$2,498
$0
$0
$0
$0
$33,547

Purchase Price:
Basic Shares Outstanding:
Basic Equity Value:
Diluted Shares Outstanding:
Diluted Equity Value:
Less: Cash & Investments
Plus: Debt
Plus: Minority Interest
Plus: Preferred Stock
Plus: Other Liabilities
Enterprise Value:

Balance Sheets - Buyer, Seller & Combined

Assets:
Current Assets:
Cash & Short-Term Securities:
Accounts Receivable:
Inventory:
Deferred Tax Assets:
Other Current Assets:
Total Current Assets:

Buyer
$32,841
$3,361
$455
$4
$3,140
$39,801

Long-Term Assets:
Long-Term Securities:
Plants, Property & Equipment:
Goodwill:
Other Intangible Assets:
Other Assets:
Total Assets:

$2,554
$2,839
$207
$354
$2,011
$47,766

Liabilities & Shareholders' Equity:

Current Liabilities:
Accounts Payable:
Accrued Expenses:
Deferred Revenue:
Total Current Liabilities:

$5,601
$3,852
$2,053
$11,506

Long-Term Liabilities:
Deferred Revenue:
Long-Term Debt:
Deferred Income Tax Liability:
Other Long-Term Liabilities:
Total Liabilities:

$853
$0
$0
$3,502
$15,861

Shareholders' Equity:
Common Stock:
Additional Paid-In Capital:
Treasury Stock:
Retained Earnings:
Accumulated Other Comprehensive Income:
Total Shareholders' Equity:

$7,177
$1,185
$0
$23,364
$179
$31,905

Total Liabilities & SE:

$47,766

Options Calculations - Current Price:

28%

ice:
568,900
$42,668
573,986
$43,049
$2,498
$0
$0
$0
$0
$40,551

Seller
$1,664
$2,613
$573
$176
$190
$5,215

Name
Tranche A
Tranche B
Total

Number
10,470

Exercise
Price
$38.57

Dilution
4,051
4,051

Options Calculations - Purchase Price:

Name
Tranche A
Tranche B
Total

Adjustments
($14,350)
$0
$0
$0
$0
###

Number
10,470

Exercise
Price
$38.57

Dilution
5,086
5,086

Combined
$20,156
$5,974
$1,028
$180
$3,330
$30,667

$834
$1,737
$147
$1,291
$0
$9,224

$0
$174
$30,828
$7,242
$0
$23,894

$3,388
$4,750
$31,182
$8,887
$2,011
$80,884

$496
$1,604
$67
$2,167

$0
$0
$0
$0

$6,097
$5,456
$2,120
$13,673

$0
$0
$43
$28
$2,238

$0
$14,350
$2,181
$0
$16,531

$853
$14,350
$2,225
$3,530
$34,630

$2,236
$139
($45)
$4,664
($8)
$6,987
$9,224

($2,236)
$14,211
$45
($4,664)
$8
$7,363
$23,894

$7,177
$15,535
$0
$23,364
$179
$46,255
$80,884