The Knee Depot Ratio Analysis ? The Knee Depot Case

Knee Depot, a building supplies company, has been lagging the rest of the industry in its performance. So the board has brought in a new CEO, Milo T. Barnsworth to fix things. Since he had a strong financial background, the first item on his todo list was to develop a financial planning section to an overall strategic plan.

Barnsworth began by comparing KD?s financial ratios to the rest of the industry. Whenever he encountered a substandard ratio, he would meet with the manager responsible to develop a plan to fix it. You have been hired to help Barnsworth finish his analysis of the company so that he can start implementing solutions. To do so, you must answer the following questions based on the financial data provided:

***Please answer question 5 & 6 only.

The Knee Depot Ratio Analysis - The Knee Depot Case Knee Depot, a building supplies company, has been lagging the rest of the industry in its performance. So the board has brought in a new CEO, Milo T. Barnsworth to fix things. Since he had a strong financial background, the first item on his todo list was to develop a financial planning section to an overall strategic plan. Barnsworth began by comparing KD's financial ratios to the rest of the industry. Whenever he encountered a substandard ratio, he would meet with the manager responsible to develop a plan to fix it. You have been hired to help Barnsworth finish his analysis of the company so that he can start implementing solutions. To do so, you must answer the following questions based on the financial data provided: 1. Given the data provided in Exhibit 1, how well run is KD compared to it industry peers? What are its primary strengths and weaknesses? Be specific, using ratios in your answer. Be sure to also use the DuPont equation in your analysis. 2. Use the AFN equation to estimate KD's required external capital for 2013 if the expected 15% growth rate takes place. Assume the 2012 ratios will stay the same. 3. How would the following items impact AFN, holding everything else constant: capital intensity, growth rate, increase in A/P, profit margin, payout ratio. 4. What is KD's self-supporting growth rate? How would be it affected by changes in the items listed in question 3? 5. Forecast the Balance Sheet and Income Statement for 2013. In this scenario (call it the Steady Scenario) operations are not changed in any way. What is the AFN? Calculate the following items: FCF, ROIC, EPS, DPS and ROE. Use the following assumptions: a. Operating ratios stay the same b. No additional long-term debt or equity is issued c. Interest rate on all debt is 10% d. Any additional funding will be acquired through a line of credit on the last day of the year (thus no interest for 2013) e. Dividends will grow by 15% f. Sales will grow by 15% 6. Repeat the analysis in question 5, but this time call it the Improved Scenario and assume that KD changes its operations such that it achieves industry averages for the following items: a. Operating costs / Sales b. Receivables / Sales c. Fixes Assets / Sales BALANCE SHEET Assets Current assets Cash Cash and cash equivalents Short-term investments Total cash Receivables Inventories Deferred income taxes Other current assets Total current assets Non-current assets Property, plant and equipment Gross property, plant and equipment Accumulated Depreciation Net property, plant and equipment Equity and other investments Goodwill Intangible assets Other long-term assets Total non-current assets Total assets Liabilities and stockholders' equity Liabilities Current liabilities Short-term debt Accounts payable Taxes payable Accrued liabilities Deferred revenues Other current liabilities Total current liabilities Non-current liabilities Long-term debt Deferred taxes liabilities Deferred revenues Other long-term liabilities Total non-current liabilities Total liabilities Stockholders' equity Common stock Additional paid-in capital Retained earnings Accumulated other comprehensive income Fiscal year ends in September. USD in millions except per share data. Sep-11 Sep-12 Sep-13 Sep-14 9,815.00 16,137.00 25,952.00 5,369.00 776.00 2,014.00 10,877.00 44,988.00 10,746.00 18,383.00 29,129.00 10,930.00 791.00 2,583.00 14,220.00 57,653.00 14,259.00 26,287.00 40,546.00 13,102.00 1,764.00 3,453.00 14,421.00 73,286.00 13,844.00 11,233.00 25,077.00 17,460.00 2,111.00 4,318.00 19,565.00 68,531.00 11,768.00 21,887.00 28,519.00 39,015.00 (3,991.00) (6,435.00) (11,922.00) (18,391.00) 7,777.00 15,452.00 16,597.00 20,624.00 55,618.00 92,122.00 106,215.00 130,162.00 896.00 1,135.00 1,577.00 4,616.00 3,536.00 4,224.00 4,179.00 4,142.00 3,556.00 5,478.00 5,146.00 3,764.00 71,383.00 118,411.00 133,714.00 163,308.00 116,371.00 176,064.00 207,000.00 231,839.00 14,632.00 1,140.00 8,107.00 4,091.00 27,970.00 21,175.00 1,535.00 8,387.00 5,953.00 1,492.00 38,542.00 22,367.00 1,200.00 5,217.00 7,435.00 7,439.00 43,658.00 6,308.00 30,196.00 1,209.00 7,689.00 9,548.00 8,498.00 63,448.00 1,686.00 10,100.00 11,786.00 39,756.00 2,648.00 16,664.00 19,312.00 57,854.00 16,960.00 16,489.00 2,625.00 3,719.00 39,793.00 83,451.00 28,987.00 20,259.00 3,031.00 4,567.00 56,844.00 120,292.00 13,331.00 62,841.00 443.00 16,422.00 101,289.00 499.00 19,764.00 104,256.00 (471.00) 23,313.00 87,152.00 1,082.00 Total stockholders' equity Total liabilities and stockholders' equity 76,615.00 116,371.00 118,210.00 176,064.00 123,549.00 207,000.00 111,547.00 231,839.00 ns except per share data. Sep-15 21,120.00 20,481.00 41,601.00 16,849.00 2,349.00 5,546.00 23,033.00 89,378.00 49,257.00 (26,786.00) 22,471.00 164,065.00 5,116.00 3,893.00 5,556.00 201,101.00 290,479.00 10,999.00 35,490.00 25,181.00 8,940.00 80,610.00 53,463.00 24,062.00 3,624.00 9,365.00 90,514.00 171,124.00 27,416.00 92,284.00 (345.00) 119,355.00 290,479.00 INCOME STATEMENT Revenue Cost of revenue Gross profit Operating expenses Research and development Sales, General and administrative Total operating expenses Operating income Interest Expense Other income (expense) Income before taxes Provision for income taxes Net income from continuing operations Net income Net income available to common shareholders Earnings per share Basic Diluted Weighted average shares outstanding Basic Diluted EBITDA Fiscal year ends in September. USD in millions except per sh Sep-11 Sep-12 Sep-13 108,249.00 64,431.00 43,818.00 156,508.00 87,846.00 68,662.00 170,910.00 106,606.00 64,304.00 2,429.00 7,599.00 10,028.00 33,790.00 415.00 34,205.00 8,283.00 25,922.00 25,922.00 25,922.00 3,381.00 10,040.00 13,421.00 55,241.00 522.00 55,763.00 14,030.00 41,733.00 41,733.00 41,733.00 4,475.00 10,830.00 15,305.00 48,999.00 136.00 1,292.00 50,155.00 13,118.00 37,037.00 37,037.00 37,037.00 4.01 3.95 6.38 6.31 5.72 5.68 6,470.00 6,557.00 35,604.00 6,544.00 6,617.00 58,518.00 6,477.00 6,522.00 57,048.00 tember. USD in millions except per share data. Sep-14 Sep-15 TTM 182,795.00 112,258.00 70,537.00 233,715.00 140,089.00 93,626.00 220,288.00 133,290.00 86,998.00 6,041.00 11,993.00 18,034.00 52,503.00 384.00 1,364.00 53,483.00 13,973.00 39,510.00 39,510.00 39,510.00 8,067.00 14,329.00 22,396.00 71,230.00 733.00 2,018.00 72,515.00 19,121.00 53,394.00 53,394.00 53,394.00 9,695.00 14,417.00 24,112.00 62,886.00 1,244.00 2,604.00 64,246.00 16,449.00 47,797.00 47,797.00 47,797.00 6.49 6.45 9.28 9.22 8.63 8.58 6,086.00 6,123.00 61,813.00 5,753.00 5,793.00 84,505.00 5,541.00 5,573.00 76,566.00 Statement of CASH FLOW Sep-11 Cash Flows From Operating Activities Net income Depreciation & amortization Deferred income taxes Stock based compensation Accounts receivable Inventory Accounts payable Other working capital Net cash provided by operating activities Cash Flows From Investing Activities Investments in property, plant, and equipment Acquisitions, net Purchases of investments Sales/Maturities of investments Purchases of intangibles Other investing activities Net cash used for investing activities Cash Flows From Financing Activities Debt issued Common stock issued Common stock repurchased Dividend paid Other financing activities Net cash provided by (used for) financing activities Net change in cash Cash at beginning of period Cash at end of period Free Cash Flow Operating cash flow Capital expenditure Free cash flow Fiscal year ends in September. USD in millions excep Sep-12 Sep-13 25,922.00 1,814.00 2,868.00 1,168.00 143.00 275.00 2,515.00 2,824.00 37,529.00 41,733.00 3,277.00 4,405.00 1,740.00 (5,551.00) (15.00) 4,467.00 800.00 50,856.00 37,037.00 6,757.00 1,141.00 2,253.00 (2,172.00) (973.00) 2,340.00 7,283.00 53,666.00 (4,260.00) (244.00) (102,317.00) 69,853.00 (3,192.00) (259.00) (40,419.00) (8,295.00) (350.00) (151,232.00) 112,805.00 (1,107.00) (48.00) (48,227.00) (8,165.00) (496.00) (148,489.00) 124,447.00 (911.00) (160.00) (33,774.00) 831.00 613.00 1,444.00 (1,446.00) 11,261.00 9,815.00 665.00 (2,488.00) 125.00 (1,698.00) 931.00 9,815.00 10,746.00 16,896.00 530.00 (22,860.00) (10,564.00) (381.00) (16,379.00) 3,513.00 10,746.00 14,259.00 37,529.00 (7,452.00) 30,077.00 50,856.00 (9,402.00) 41,454.00 53,666.00 (9,076.00) 44,590.00 tember. USD in millions except per share data. Sep-14 Sep-15 TTM 39,510.00 7,946.00 2,347.00 2,863.00 (4,232.00) (76.00) 5,938.00 5,417.00 59,713.00 53,394.00 11,257.00 1,382.00 3,586.00 611.00 (238.00) 5,400.00 5,874.00 81,266.00 47,797.00 11,076.00 3,753.00 4,095.00 (1,344.00) 211.00 (959.00) (1,456.00) 63,173.00 (9,571.00) (3,765.00) (217,128.00) 208,111.00 (242.00) 16.00 (22,579.00) (11,247.00) (343.00) (166,402.00) 121,985.00 (241.00) (26.00) (56,274.00) (12,375.00) (259.00) (142,322.00) 116,275.00 (793.00) (481.00) (39,955.00) 18,266.00 730.00 (45,000.00) (11,126.00) (419.00) (37,549.00) (415.00) 14,259.00 13,844.00 543.00 (35,253.00) (11,561.00) 28,555.00 (17,716.00) 7,276.00 13,844.00 21,120.00 466.00 (36,949.00) (12,022.00) 28,205.00 (20,300.00) 2,918.00 15,319.00 18,237.00 59,713.00 (9,813.00) 49,900.00 81,266.00 (11,488.00) 69,778.00 63,173.00 (13,168.00) 50,005.00 Free Cash Flow Statement EBIT Tax Rate NOPAT Sep-11 34,205.00 24% 25,922.00 Sep-12 55,763.00 25% 41,733.00 Sep-13 50,019.00 26% 36,936.57 Net Operating Working Capital Net Fixed Assets Total Operating Capital 4,098.00 7,777.00 11,875.00 5,633.00 15,452.00 21,085.00 3,341.00 16,597.00 19,938.00 NOPAT Net Investment in Operating Capital Free Cash Flows 25,922.00 41,733.00 9,210.00 32,523.00 36,936.57 (1,147.00) 38,083.57 FCF = NOPAT-Net Investment in Operating Capital NOPAT = EBIT (1-Tax Rate) Assumption Free Cash flow will grow at constant rate of 5% after 2015 WACC for the firm is 10% Value of Operations is equal to the present value of the future free cash flow of the firm Value of operation at the end of 2014 Add: Value of Non-Operating Assets Terminal Value 1,037,585.60 19,991.00 1,057,576.60 Less: Value of the Interest-Bearing Debt Intrinsic Value of the Firm's Equity 28,987.00 1,028,589.60 Sep-14 53,099.00 26% 39,226.32 Sep-15 71,782.00 26% 52,854.28 158.00 20,624.00 20,782.00 (714.00) 22,471.00 21,757.00 39,226.32 844.00 38,382.32 52,854.28 975.00 51,879.28 BALANCE SHEET Assets Current assets Cash Cash and cash equivalents Short-term investments Total cash Receivables Inventories Deferred income taxes Other current assets Total current assets Non-current assets Property, plant and equipment Gross property, plant and equipment Accumulated Depreciation Net property, plant and equipment Equity and other investments Goodwill Intangible assets Other long-term assets Total non-current assets Total assets Liabilities and stockholders' equity Liabilities Current liabilities Short-term debt Accounts payable Taxes payable Accrued liabilities Deferred revenues Other current liabilities Total current liabilities Non-current liabilities Long-term debt Deferred taxes liabilities Deferred revenues Other long-term liabilities Total non-current liabilities Total liabilities Stockholders' equity Common stock Additional paid-in capital Retained earnings Accumulated other comprehensive income Fiscal year ends in September. USD in millions except per share data. Sep-11 Sep-12 Sep-13 Sep-14 9,815.00 16,137.00 25,952.00 5,369.00 776.00 2,014.00 10,877.00 44,988.00 10,746.00 18,383.00 29,129.00 10,930.00 791.00 2,583.00 14,220.00 57,653.00 14,259.00 26,287.00 40,546.00 13,102.00 1,764.00 3,453.00 14,421.00 73,286.00 13,844.00 11,233.00 25,077.00 17,460.00 2,111.00 4,318.00 19,565.00 68,531.00 11,768.00 21,887.00 28,519.00 39,015.00 (3,991.00) (6,435.00) (11,922.00) (18,391.00) 7,777.00 15,452.00 16,597.00 20,624.00 55,618.00 92,122.00 106,215.00 130,162.00 896.00 1,135.00 1,577.00 4,616.00 3,536.00 4,224.00 4,179.00 4,142.00 3,556.00 5,478.00 5,146.00 3,764.00 71,383.00 118,411.00 133,714.00 163,308.00 116,371.00 176,064.00 207,000.00 231,839.00 14,632.00 1,140.00 8,107.00 4,091.00 27,970.00 21,175.00 1,535.00 8,387.00 5,953.00 1,492.00 38,542.00 22,367.00 1,200.00 5,217.00 7,435.00 7,439.00 43,658.00 6,308.00 30,196.00 1,209.00 7,689.00 9,548.00 8,498.00 63,448.00 1,686.00 10,100.00 11,786.00 39,756.00 2,648.00 16,664.00 19,312.00 57,854.00 16,960.00 16,489.00 2,625.00 3,719.00 39,793.00 83,451.00 28,987.00 20,259.00 3,031.00 4,567.00 56,844.00 120,292.00 13,331.00 62,841.00 443.00 16,422.00 101,289.00 499.00 19,764.00 104,256.00 (471.00) 23,313.00 87,152.00 1,082.00 Total stockholders' equity Total liabilities and stockholders' equity 76,615.00 116,371.00 118,210.00 176,064.00 123,549.00 207,000.00 111,547.00 231,839.00 ns except per share data. Sep-15 21,120.00 20,481.00 41,601.00 16,849.00 2,349.00 5,546.00 23,033.00 89,378.00 49,257.00 (26,786.00) 22,471.00 164,065.00 5,116.00 3,893.00 5,556.00 201,101.00 290,479.00 10,999.00 35,490.00 25,181.00 8,940.00 80,610.00 53,463.00 24,062.00 3,624.00 9,365.00 90,514.00 171,124.00 27,416.00 92,284.00 (345.00) 119,355.00 290,479.00 INCOME STATEMENT Revenue Cost of revenue Gross profit Operating expenses Research and development Sales, General and administrative Total operating expenses Operating income Interest Expense Other income (expense) Income before taxes Provision for income taxes Net income from continuing operations Net income Net income available to common shareholders Earnings per share Basic Diluted Weighted average shares outstanding Basic Diluted EBITDA Fiscal year ends in September. USD in millions except per sh Sep-11 Sep-12 Sep-13 108,249.00 64,431.00 43,818.00 156,508.00 87,846.00 68,662.00 170,910.00 106,606.00 64,304.00 2,429.00 7,599.00 10,028.00 33,790.00 415.00 34,205.00 8,283.00 25,922.00 25,922.00 25,922.00 3,381.00 10,040.00 13,421.00 55,241.00 522.00 55,763.00 14,030.00 41,733.00 41,733.00 41,733.00 4,475.00 10,830.00 15,305.00 48,999.00 136.00 1,292.00 50,155.00 13,118.00 37,037.00 37,037.00 37,037.00 4.01 3.95 6.38 6.31 5.72 5.68 6,470.00 6,557.00 35,604.00 6,544.00 6,617.00 58,518.00 6,477.00 6,522.00 57,048.00 tember. USD in millions except per share data. Sep-14 Sep-15 TTM 182,795.00 112,258.00 70,537.00 233,715.00 140,089.00 93,626.00 220,288.00 133,290.00 86,998.00 6,041.00 11,993.00 18,034.00 52,503.00 384.00 1,364.00 53,483.00 13,973.00 39,510.00 39,510.00 39,510.00 8,067.00 14,329.00 22,396.00 71,230.00 733.00 2,018.00 72,515.00 19,121.00 53,394.00 53,394.00 53,394.00 9,695.00 14,417.00 24,112.00 62,886.00 1,244.00 2,604.00 64,246.00 16,449.00 47,797.00 47,797.00 47,797.00 6.49 6.45 9.28 9.22 8.63 8.58 6,086.00 6,123.00 61,813.00 5,753.00 5,793.00 84,505.00 5,541.00 5,573.00 76,566.00 Statement of CASH FLOW Sep-11 Cash Flows From Operating Activities Net income Depreciation & amortization Deferred income taxes Stock based compensation Accounts receivable Inventory Accounts payable Other working capital Net cash provided by operating activities Cash Flows From Investing Activities Investments in property, plant, and equipment Acquisitions, net Purchases of investments Sales/Maturities of investments Purchases of intangibles Other investing activities Net cash used for investing activities Cash Flows From Financing Activities Debt issued Common stock issued Common stock repurchased Dividend paid Other financing activities Net cash provided by (used for) financing activities Net change in cash Cash at beginning of period Cash at end of period Free Cash Flow Operating cash flow Capital expenditure Free cash flow Fiscal year ends in September. USD in millions excep Sep-12 Sep-13 25,922.00 1,814.00 2,868.00 1,168.00 143.00 275.00 2,515.00 2,824.00 37,529.00 41,733.00 3,277.00 4,405.00 1,740.00 (5,551.00) (15.00) 4,467.00 800.00 50,856.00 37,037.00 6,757.00 1,141.00 2,253.00 (2,172.00) (973.00) 2,340.00 7,283.00 53,666.00 (4,260.00) (244.00) (102,317.00) 69,853.00 (3,192.00) (259.00) (40,419.00) (8,295.00) (350.00) (151,232.00) 112,805.00 (1,107.00) (48.00) (48,227.00) (8,165.00) (496.00) (148,489.00) 124,447.00 (911.00) (160.00) (33,774.00) 831.00 613.00 1,444.00 (1,446.00) 11,261.00 9,815.00 665.00 (2,488.00) 125.00 (1,698.00) 931.00 9,815.00 10,746.00 16,896.00 530.00 (22,860.00) (10,564.00) (381.00) (16,379.00) 3,513.00 10,746.00 14,259.00 37,529.00 (7,452.00) 30,077.00 50,856.00 (9,402.00) 41,454.00 53,666.00 (9,076.00) 44,590.00 tember. USD in millions except per share data. Sep-14 Sep-15 TTM 39,510.00 7,946.00 2,347.00 2,863.00 (4,232.00) (76.00) 5,938.00 5,417.00 59,713.00 53,394.00 11,257.00 1,382.00 3,586.00 611.00 (238.00) 5,400.00 5,874.00 81,266.00 47,797.00 11,076.00 3,753.00 4,095.00 (1,344.00) 211.00 (959.00) (1,456.00) 63,173.00 (9,571.00) (3,765.00) (217,128.00) 208,111.00 (242.00) 16.00 (22,579.00) (11,247.00) (343.00) (166,402.00) 121,985.00 (241.00) (26.00) (56,274.00) (12,375.00) (259.00) (142,322.00) 116,275.00 (793.00) (481.00) (39,955.00) 18,266.00 730.00 (45,000.00) (11,126.00) (419.00) (37,549.00) (415.00) 14,259.00 13,844.00 543.00 (35,253.00) (11,561.00) 28,555.00 (17,716.00) 7,276.00 13,844.00 21,120.00 466.00 (36,949.00) (12,022.00) 28,205.00 (20,300.00) 2,918.00 15,319.00 18,237.00 59,713.00 (9,813.00) 49,900.00 81,266.00 (11,488.00) 69,778.00 63,173.00 (13,168.00) 50,005.00 Free Cash Flow Statement EBIT Tax Rate NOPAT Sep-11 34,205.00 24% 25,922.00 Sep-12 55,763.00 25% 41,733.00 Sep-13 50,019.00 26% 36,936.57 Net Operating Working Capital Net Fixed Assets Total Operating Capital 4,098.00 7,777.00 11,875.00 5,633.00 15,452.00 21,085.00 3,341.00 16,597.00 19,938.00 NOPAT Net Investment in Operating Capital Free Cash Flows 25,922.00 41,733.00 9,210.00 32,523.00 36,936.57 (1,147.00) 38,083.57 FCF = NOPAT-Net Investment in Operating Capital NOPAT = EBIT (1-Tax Rate) Assumption Free Cash flow will grow at constant rate of 5% after 2015 WACC for the firm is 10% Value of Operations is equal to the present value of the future free cash flow of the firm Value of operation at the end of 2014 Add: Value of Non-Operating Assets Terminal Value 1,037,585.60 19,991.00 1,057,576.60 Less: Value of the Interest-Bearing Debt Intrinsic Value of the Firm's Equity 28,987.00 1,028,589.60 Sep-14 53,099.00 26% 39,226.32 Sep-15 71,782.00 26% 52,854.28 158.00 20,624.00 20,782.00 (714.00) 22,471.00 21,757.00 39,226.32 844.00 38,382.32 52,854.28 975.00 51,879.28 BALANCE SHEET Assets Current assets Cash Cash and cash equivalents Short-term investments Total cash Receivables Inventories Deferred income taxes Other current assets Total current assets Non-current assets Property, plant and equipment Gross property, plant and equipment Accumulated Depreciation Net property, plant and equipment Equity and other investments Goodwill Intangible assets Other long-term assets Total non-current assets Total assets Liabilities and stockholders' equity Liabilities Current liabilities Short-term debt Accounts payable Taxes payable Accrued liabilities Deferred revenues Other current liabilities Total current liabilities Non-current liabilities Long-term debt Deferred taxes liabilities Deferred revenues Other long-term liabilities Total non-current liabilities Total liabilities Stockholders' equity Common stock Additional paid-in capital Retained earnings Accumulated other comprehensive income Fiscal year ends in September. USD in millions except per share data. Sep-11 Sep-12 Sep-13 Sep-14 9,815.00 16,137.00 25,952.00 5,369.00 776.00 2,014.00 10,877.00 44,988.00 10,746.00 18,383.00 29,129.00 10,930.00 791.00 2,583.00 14,220.00 57,653.00 14,259.00 26,287.00 40,546.00 13,102.00 1,764.00 3,453.00 14,421.00 73,286.00 13,844.00 11,233.00 25,077.00 17,460.00 2,111.00 4,318.00 19,565.00 68,531.00 11,768.00 21,887.00 28,519.00 39,015.00 (3,991.00) (6,435.00) (11,922.00) (18,391.00) 7,777.00 15,452.00 16,597.00 20,624.00 55,618.00 92,122.00 106,215.00 130,162.00 896.00 1,135.00 1,577.00 4,616.00 3,536.00 4,224.00 4,179.00 4,142.00 3,556.00 5,478.00 5,146.00 3,764.00 71,383.00 118,411.00 133,714.00 163,308.00 116,371.00 176,064.00 207,000.00 231,839.00 14,632.00 1,140.00 8,107.00 4,091.00 27,970.00 21,175.00 1,535.00 8,387.00 5,953.00 1,492.00 38,542.00 22,367.00 1,200.00 5,217.00 7,435.00 7,439.00 43,658.00 6,308.00 30,196.00 1,209.00 7,689.00 9,548.00 8,498.00 63,448.00 1,686.00 10,100.00 11,786.00 39,756.00 2,648.00 16,664.00 19,312.00 57,854.00 16,960.00 16,489.00 2,625.00 3,719.00 39,793.00 83,451.00 28,987.00 20,259.00 3,031.00 4,567.00 56,844.00 120,292.00 13,331.00 62,841.00 443.00 16,422.00 101,289.00 499.00 19,764.00 104,256.00 (471.00) 23,313.00 87,152.00 1,082.00 Total stockholders' equity Total liabilities and stockholders' equity 76,615.00 116,371.00 118,210.00 176,064.00 123,549.00 207,000.00 111,547.00 231,839.00 ns except per share data. Sep-15 21,120.00 20,481.00 41,601.00 16,849.00 2,349.00 5,546.00 23,033.00 89,378.00 49,257.00 (26,786.00) 22,471.00 164,065.00 5,116.00 3,893.00 5,556.00 201,101.00 290,479.00 10,999.00 35,490.00 25,181.00 8,940.00 80,610.00 53,463.00 24,062.00 3,624.00 9,365.00 90,514.00 171,124.00 27,416.00 92,284.00 (345.00) 119,355.00 290,479.00 INCOME STATEMENT Revenue Cost of revenue Gross profit Operating expenses Research and development Sales, General and administrative Total operating expenses Operating income Interest Expense Other income (expense) Income before taxes Provision for income taxes Net income from continuing operations Net income Net income available to common shareholders Earnings per share Basic Diluted Weighted average shares outstanding Basic Diluted EBITDA Fiscal year ends in September. USD in millions except per sh Sep-11 Sep-12 Sep-13 108,249.00 64,431.00 43,818.00 156,508.00 87,846.00 68,662.00 170,910.00 106,606.00 64,304.00 2,429.00 7,599.00 10,028.00 33,790.00 415.00 34,205.00 8,283.00 25,922.00 25,922.00 25,922.00 3,381.00 10,040.00 13,421.00 55,241.00 522.00 55,763.00 14,030.00 41,733.00 41,733.00 41,733.00 4,475.00 10,830.00 15,305.00 48,999.00 136.00 1,292.00 50,155.00 13,118.00 37,037.00 37,037.00 37,037.00 4.01 3.95 6.38 6.31 5.72 5.68 6,470.00 6,557.00 35,604.00 6,544.00 6,617.00 58,518.00 6,477.00 6,522.00 57,048.00 tember. USD in millions except per share data. Sep-14 Sep-15 TTM 182,795.00 112,258.00 70,537.00 233,715.00 140,089.00 93,626.00 220,288.00 133,290.00 86,998.00 6,041.00 11,993.00 18,034.00 52,503.00 384.00 1,364.00 53,483.00 13,973.00 39,510.00 39,510.00 39,510.00 8,067.00 14,329.00 22,396.00 71,230.00 733.00 2,018.00 72,515.00 19,121.00 53,394.00 53,394.00 53,394.00 9,695.00 14,417.00 24,112.00 62,886.00 1,244.00 2,604.00 64,246.00 16,449.00 47,797.00 47,797.00 47,797.00 6.49 6.45 9.28 9.22 8.63 8.58 6,086.00 6,123.00 61,813.00 5,753.00 5,793.00 84,505.00 5,541.00 5,573.00 76,566.00 Statement of CASH FLOW Sep-11 Cash Flows From Operating Activities Net income Depreciation & amortization Deferred income taxes Stock based compensation Accounts receivable Inventory Accounts payable Other working capital Net cash provided by operating activities Cash Flows From Investing Activities Investments in property, plant, and equipment Acquisitions, net Purchases of investments Sales/Maturities of investments Purchases of intangibles Other investing activities Net cash used for investing activities Cash Flows From Financing Activities Debt issued Common stock issued Common stock repurchased Dividend paid Other financing activities Net cash provided by (used for) financing activities Net change in cash Cash at beginning of period Cash at end of period Free Cash Flow Operating cash flow Capital expenditure Free cash flow Fiscal year ends in September. USD in millions excep Sep-12 Sep-13 25,922.00 1,814.00 2,868.00 1,168.00 143.00 275.00 2,515.00 2,824.00 37,529.00 41,733.00 3,277.00 4,405.00 1,740.00 (5,551.00) (15.00) 4,467.00 800.00 50,856.00 37,037.00 6,757.00 1,141.00 2,253.00 (2,172.00) (973.00) 2,340.00 7,283.00 53,666.00 (4,260.00) (244.00) (102,317.00) 69,853.00 (3,192.00) (259.00) (40,419.00) (8,295.00) (350.00) (151,232.00) 112,805.00 (1,107.00) (48.00) (48,227.00) (8,165.00) (496.00) (148,489.00) 124,447.00 (911.00) (160.00) (33,774.00) 831.00 613.00 1,444.00 (1,446.00) 11,261.00 9,815.00 665.00 (2,488.00) 125.00 (1,698.00) 931.00 9,815.00 10,746.00 16,896.00 530.00 (22,860.00) (10,564.00) (381.00) (16,379.00) 3,513.00 10,746.00 14,259.00 37,529.00 (7,452.00) 30,077.00 50,856.00 (9,402.00) 41,454.00 53,666.00 (9,076.00) 44,590.00 tember. USD in millions except per share data. Sep-14 Sep-15 TTM 39,510.00 7,946.00 2,347.00 2,863.00 (4,232.00) (76.00) 5,938.00 5,417.00 59,713.00 53,394.00 11,257.00 1,382.00 3,586.00 611.00 (238.00) 5,400.00 5,874.00 81,266.00 47,797.00 11,076.00 3,753.00 4,095.00 (1,344.00) 211.00 (959.00) (1,456.00) 63,173.00 (9,571.00) (3,765.00) (217,128.00) 208,111.00 (242.00) 16.00 (22,579.00) (11,247.00) (343.00) (166,402.00) 121,985.00 (241.00) (26.00) (56,274.00) (12,375.00) (259.00) (142,322.00) 116,275.00 (793.00) (481.00) (39,955.00) 18,266.00 730.00 (45,000.00) (11,126.00) (419.00) (37,549.00) (415.00) 14,259.00 13,844.00 543.00 (35,253.00) (11,561.00) 28,555.00 (17,716.00) 7,276.00 13,844.00 21,120.00 466.00 (36,949.00) (12,022.00) 28,205.00 (20,300.00) 2,918.00 15,319.00 18,237.00 59,713.00 (9,813.00) 49,900.00 81,266.00 (11,488.00) 69,778.00 63,173.00 (13,168.00) 50,005.00 Free Cash Flow Statement EBIT Tax Rate NOPAT Sep-11 34,205.00 24% 25,922.00 Sep-12 55,763.00 25% 41,733.00 Sep-13 50,019.00 26% 36,936.57 Net Operating Working Capital Net Fixed Assets Total Operating Capital 4,098.00 7,777.00 11,875.00 5,633.00 15,452.00 21,085.00 3,341.00 16,597.00 19,938.00 NOPAT Net Investment in Operating Capital Free Cash Flows 25,922.00 41,733.00 9,210.00 32,523.00 36,936.57 (1,147.00) 38,083.57 FCF = NOPAT-Net Investment in Operating Capital NOPAT = EBIT (1-Tax Rate) Assumption Free Cash flow will grow at constant rate of 5% after 2015 WACC for the firm is 10% Value of Operations is equal to the present value of the future free cash flow of the firm Value of operation at the end of 2014 Add: Value of Non-Operating Assets Terminal Value 1,037,585.60 19,991.00 1,057,576.60 Less: Value of the Interest-Bearing Debt Intrinsic Value of the Firm's Equity 28,987.00 1,028,589.60 Sep-14 53,099.00 26% 39,226.32 Sep-15 71,782.00 26% 52,854.28 158.00 20,624.00 20,782.00 (714.00) 22,471.00 21,757.00 39,226.32 844.00 38,382.32 52,854.28 975.00 51,879.28 BALANCE SHEET Assets Current assets Cash Cash and cash equivalents Short-term investments Total cash Receivables Inventories Deferred income taxes Other current assets Total current assets Non-current assets Property, plant and equipment Gross property, plant and equipment Accumulated Depreciation Net property, plant and equipment Equity and other investments Goodwill Intangible assets Other long-term assets Total non-current assets Total assets Liabilities and stockholders' equity Liabilities Current liabilities Short-term debt Accounts payable Taxes payable Accrued liabilities Deferred revenues Other current liabilities Total current liabilities Non-current liabilities Long-term debt Deferred taxes liabilities Deferred revenues Other long-term liabilities Total non-current liabilities Total liabilities Stockholders' equity Common stock Additional paid-in capital Retained earnings Accumulated other comprehensive income Fiscal year ends in September. USD in millions except per share data. Sep-11 Sep-12 Sep-13 Sep-14 9,815.00 16,137.00 25,952.00 5,369.00 776.00 2,014.00 10,877.00 44,988.00 10,746.00 18,383.00 29,129.00 10,930.00 791.00 2,583.00 14,220.00 57,653.00 14,259.00 26,287.00 40,546.00 13,102.00 1,764.00 3,453.00 14,421.00 73,286.00 13,844.00 11,233.00 25,077.00 17,460.00 2,111.00 4,318.00 19,565.00 68,531.00 11,768.00 21,887.00 28,519.00 39,015.00 (3,991.00) (6,435.00) (11,922.00) (18,391.00) 7,777.00 15,452.00 16,597.00 20,624.00 55,618.00 92,122.00 106,215.00 130,162.00 896.00 1,135.00 1,577.00 4,616.00 3,536.00 4,224.00 4,179.00 4,142.00 3,556.00 5,478.00 5,146.00 3,764.00 71,383.00 118,411.00 133,714.00 163,308.00 116,371.00 176,064.00 207,000.00 231,839.00 14,632.00 1,140.00 8,107.00 4,091.00 27,970.00 21,175.00 1,535.00 8,387.00 5,953.00 1,492.00 38,542.00 22,367.00 1,200.00 5,217.00 7,435.00 7,439.00 43,658.00 6,308.00 30,196.00 1,209.00 7,689.00 9,548.00 8,498.00 63,448.00 1,686.00 10,100.00 11,786.00 39,756.00 2,648.00 16,664.00 19,312.00 57,854.00 16,960.00 16,489.00 2,625.00 3,719.00 39,793.00 83,451.00 28,987.00 20,259.00 3,031.00 4,567.00 56,844.00 120,292.00 13,331.00 62,841.00 443.00 16,422.00 101,289.00 499.00 19,764.00 104,256.00 (471.00) 23,313.00 87,152.00 1,082.00 Total stockholders' equity Total liabilities and stockholders' equity 76,615.00 116,371.00 118,210.00 176,064.00 123,549.00 207,000.00 111,547.00 231,839.00 ns except per share data. Sep-15 21,120.00 20,481.00 41,601.00 16,849.00 2,349.00 5,546.00 23,033.00 89,378.00 49,257.00 (26,786.00) 22,471.00 164,065.00 5,116.00 3,893.00 5,556.00 201,101.00 290,479.00 10,999.00 35,490.00 25,181.00 8,940.00 80,610.00 53,463.00 24,062.00 3,624.00 9,365.00 90,514.00 171,124.00 27,416.00 92,284.00 (345.00) 119,355.00 290,479.00 INCOME STATEMENT Revenue Cost of revenue Gross profit Operating expenses Research and development Sales, General and administrative Total operating expenses Operating income Interest Expense Other income (expense) Income before taxes Provision for income taxes Net income from continuing operations Net income Net income available to common shareholders Earnings per share Basic Diluted Weighted average shares outstanding Basic Diluted EBITDA Fiscal year ends in September. USD in millions except per sh Sep-11 Sep-12 Sep-13 108,249.00 64,431.00 43,818.00 156,508.00 87,846.00 68,662.00 170,910.00 106,606.00 64,304.00 2,429.00 7,599.00 10,028.00 33,790.00 415.00 34,205.00 8,283.00 25,922.00 25,922.00 25,922.00 3,381.00 10,040.00 13,421.00 55,241.00 522.00 55,763.00 14,030.00 41,733.00 41,733.00 41,733.00 4,475.00 10,830.00 15,305.00 48,999.00 136.00 1,292.00 50,155.00 13,118.00 37,037.00 37,037.00 37,037.00 4.01 3.95 6.38 6.31 5.72 5.68 6,470.00 6,557.00 35,604.00 6,544.00 6,617.00 58,518.00 6,477.00 6,522.00 57,048.00 tember. USD in millions except per share data. Sep-14 Sep-15 TTM 182,795.00 112,258.00 70,537.00 233,715.00 140,089.00 93,626.00 220,288.00 133,290.00 86,998.00 6,041.00 11,993.00 18,034.00 52,503.00 384.00 1,364.00 53,483.00 13,973.00 39,510.00 39,510.00 39,510.00 8,067.00 14,329.00 22,396.00 71,230.00 733.00 2,018.00 72,515.00 19,121.00 53,394.00 53,394.00 53,394.00 9,695.00 14,417.00 24,112.00 62,886.00 1,244.00 2,604.00 64,246.00 16,449.00 47,797.00 47,797.00 47,797.00 6.49 6.45 9.28 9.22 8.63 8.58 6,086.00 6,123.00 61,813.00 5,753.00 5,793.00 84,505.00 5,541.00 5,573.00 76,566.00 Statement of CASH FLOW Sep-11 Cash Flows From Operating Activities Net income Depreciation & amortization Deferred income taxes Stock based compensation Accounts receivable Inventory Accounts payable Other working capital Net cash provided by operating activities Cash Flows From Investing Activities Investments in property, plant, and equipment Acquisitions, net Purchases of investments Sales/Maturities of investments Purchases of intangibles Other investing activities Net cash used for investing activities Cash Flows From Financing Activities Debt issued Common stock issued Common stock repurchased Dividend paid Other financing activities Net cash provided by (used for) financing activities Net change in cash Cash at beginning of period Cash at end of period Free Cash Flow Operating cash flow Capital expenditure Free cash flow Fiscal year ends in September. USD in millions excep Sep-12 Sep-13 25,922.00 1,814.00 2,868.00 1,168.00 143.00 275.00 2,515.00 2,824.00 37,529.00 41,733.00 3,277.00 4,405.00 1,740.00 (5,551.00) (15.00) 4,467.00 800.00 50,856.00 37,037.00 6,757.00 1,141.00 2,253.00 (2,172.00) (973.00) 2,340.00 7,283.00 53,666.00 (4,260.00) (244.00) (102,317.00) 69,853.00 (3,192.00) (259.00) (40,419.00) (8,295.00) (350.00) (151,232.00) 112,805.00 (1,107.00) (48.00) (48,227.00) (8,165.00) (496.00) (148,489.00) 124,447.00 (911.00) (160.00) (33,774.00) 831.00 613.00 1,444.00 (1,446.00) 11,261.00 9,815.00 665.00 (2,488.00) 125.00 (1,698.00) 931.00 9,815.00 10,746.00 16,896.00 530.00 (22,860.00) (10,564.00) (381.00) (16,379.00) 3,513.00 10,746.00 14,259.00 37,529.00 (7,452.00) 30,077.00 50,856.00 (9,402.00) 41,454.00 53,666.00 (9,076.00) 44,590.00 tember. USD in millions except per share data. Sep-14 Sep-15 TTM 39,510.00 7,946.00 2,347.00 2,863.00 (4,232.00) (76.00) 5,938.00 5,417.00 59,713.00 53,394.00 11,257.00 1,382.00 3,586.00 611.00 (238.00) 5,400.00 5,874.00 81,266.00 47,797.00 11,076.00 3,753.00 4,095.00 (1,344.00) 211.00 (959.00) (1,456.00) 63,173.00 (9,571.00) (3,765.00) (217,128.00) 208,111.00 (242.00) 16.00 (22,579.00) (11,247.00) (343.00) (166,402.00) 121,985.00 (241.00) (26.00) (56,274.00) (12,375.00) (259.00) (142,322.00) 116,275.00 (793.00) (481.00) (39,955.00) 18,266.00 730.00 (45,000.00) (11,126.00) (419.00) (37,549.00) (415.00) 14,259.00 13,844.00 543.00 (35,253.00) (11,561.00) 28,555.00 (17,716.00) 7,276.00 13,844.00 21,120.00 466.00 (36,949.00) (12,022.00) 28,205.00 (20,300.00) 2,918.00 15,319.00 18,237.00 59,713.00 (9,813.00) 49,900.00 81,266.00 (11,488.00) 69,778.00 63,173.00 (13,168.00) 50,005.00 Free Cash Flow Statement EBIT Tax Rate NOPAT Sep-11 34,205.00 24% 25,922.00 Sep-12 55,763.00 25% 41,733.00 Sep-13 50,019.00 26% 36,936.57 Net Operating Working Capital Net Fixed Assets Total Operating Capital 4,098.00 7,777.00 11,875.00 5,633.00 15,452.00 21,085.00 3,341.00 16,597.00 19,938.00 NOPAT Net Investment in Operating Capital Free Cash Flows 25,922.00 41,733.00 9,210.00 32,523.00 36,936.57 (1,147.00) 38,083.57 FCF = NOPAT-Net Investment in Operating Capital NOPAT = EBIT (1-Tax Rate) Assumption Free Cash flow will grow at constant rate of 5% after 2015 WACC for the firm is 10% Value of Operations is equal to the present value of the future free cash flow of the firm Value of operation at the end of 2014 Add: Value of Non-Operating Assets Terminal Value 1,037,585.60 19,991.00 1,057,576.60 Less: Value of the Interest-Bearing Debt Intrinsic Value of the Firm's Equity 28,987.00 1,028,589.60 Sep-14 53,099.00 26% 39,226.32 Sep-15 71,782.00 26% 52,854.28 158.00 20,624.00 20,782.00 (714.00) 22,471.00 21,757.00 39,226.32 844.00 38,382.32 52,854.28 975.00 51,879.28