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University of Oregon Investment Group
May 4th
2012
Technology
Covering Analysts: Lei Liu
Investment Thesis
WDC’s market share is expected to rise from 30% to 47% after
acquiring Hitachi Global Storage Technology
WDC have already recovered to pre-flood capacity level currently
EBITDA will be steady after acquisition according to my projection,
and strong cash flow from operating will provide sufficient money for
them to do further investing and expansion
Better earning quality compared to their competitors in the industry
using EV/Revenue, EV/Gross Profit, and EV/EBITDA multiples
Although increasing demand trend of total Computer Peripheral
Manufacturing Industry will be offset by the lower price in the later
year, the demand growth from services conducted online and the
increasing in the number of data processing companies will potentially
increase the demand for HDDs more than its falling price
Western Digital Corporation
Western Digital Price (5- Year)
Ticker: WDC
Current Price: $37.57
Recommendation: Hold
Implied Price: $58.74
Key Statistics
Trading Statistics
Margins and Ratios
52 Week Price Range
Average Volume
3-Year Revenue CAGR
Market Capitalization
Dividend Yield
Diluted Shares Outstanding
Institutional Ownership
Estimated Beta
50-Day Moving Average
Net Margin
Debt to Enterprise Value
EBITDA Margin
Gross Margin
EV/EBITDA
Insider Ownership
Leverage Ratio
269
12.23%
4.66x
$9325.78 million
N/A
19%
1.39
$41.64
$22.64 - $44.44
$XX$XX.XX
85%
1 %
4,021,674 million
22.15%
1.25x
26%
10%
0
10,000,000
20,000,000
30,000,000
40,000,000
50,000,000
60,000,000
$0.00
$5.00
$10.00
$15.00
$20.00
$25.00
$30.00
$35.00
$40.00
$45.00
$50.00
Apr-07 Oct-07 Apr-08 Oct-08 Apr-09 Oct-09 Apr-10 Oct-10 Apr-11 Oct-11
Volume Price 50-Day Avg 200-Day Avg
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Business Overview
Western Digital Corporation is a supplier of digital content storage, collection
and protection. WDC was founded in 1970, and their current executive office is
in Irvine, California. WDC operates globally in the United States, Asia, Europe,
Middle East and Africa.
WDC’s data storage products have three different categories: the hard disc
drives, the solid stated storage drives, and the home entertainments. However,
their main products are hard disk drives, so they report only on one business
segment, the hard drive business.
Hard disk drives (HDDs) are made of rigid magnetic rotating discs (or platters),
and with magnetic heads to write data on the magnetic surfaces, and also read
data from surfaces when needed later. HDDs have characteristics of non-volatile
memory (contain information even without power), random access (access at
any time without a sequence of action), low cost, small size, and high capacities
and speed. So as a result, HDDs are the most popular and primary data storage
medium so far.
Solid-state drives (SSDs) are made of integrated circuits as memory to retain
digital contents. The major difference compared to HDDs is that SSDs do not
have moving mechanical components. SSDs have significant advantages over
HDDs, but their major disadvantage is the high production costs. This is the
reason why HDDs dominant the data storage market currently. Here is my
research on how SSDs differ from HDDs.
WDC offers various HDDs and SSDs for different purposes and uses. Generally,
for HDDs, they provide products in size of 3.5 inch, and 2.5 inch form factors.
Capacities are from 80 GB to 3 TB. Rotation speed is up to 10,000 RPM
(revolutions per minute). For SSDs, they produce 2.5 inch compact flash form
factors mainly range from 1GB to 256 GB. Although they have 2TB for
enterprise uses, it is too expansive, so that it is not a popular product.
WDC’s storage products are classified as three major categories in terms of
using purposes.
Client compute storage products are mainly used in desktops and laptops. WDC
sold 151 million products for the purpose of clients compute storage in 2011,
147 million in 2010, and 109 million in 2009. Their main product series are WD
Caviar (use in desktop, high performance, high capacities, and low cost per
gigabytes), WD Scorpio (mobile PCs, high Performance, high capacities, low
power consumption, low heat, and low noise), WD Silicon Edge (SSDs, read
intensive client, high performance, high price).
Client non-compute products are made for various end user devices such as
digital video recorders (DVRs), personal data backup systems, portable external
storage systems and digital media systems. WDC sold 46 million products for
the purpose of client non-compute storage in 2011, 38 million in 2010, and 33
million in 2009. Their main product series are My Book and WD Elements
(external capacity for desktop, simplify storage), My Passport (portable external
device, light), and WD TV, (digital media players)
Enterprise storage products are designed for enterprise servers, mainframes and
workstations. WDC sold 10 million products for the purpose of enterprise
storage in 2011, 9 million in 2010, and 4 million in 2009. WD S25 (enterprise
SSDs HDDs
Spin-up Time Instantaneous 1-5 seconds
Random Access 0.1 ms 5-10 ms
Data Transfer 100MB/S - 500MB/S Highest 100MB/S
Fragmentation No Yes
Noise Silent Can be Significant
Environment Resistant to shock Susceptible to shock
Weight and Size Small and light Large and heavy
Storage Capacity Up to 2TB Up to 4 TB
Cost per capacity $0.9-2 per GB $0.05-0.1 per GB
(HDD structure)
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server), WD VelociRaptor (High performance enterprise server), WD RE (high
performance enterprise server), WD Silicon Drive (SSDs)
Sales Regions
WDC has sale departments all around the world including some major places in
Americas, Asia Pacific, Europe, and the Middle East. They do most of their
marketing and advertising by themselves, and they closely manage their
customer relationship.
Product Distribution
Sell to original equipment manufacturers (OEMs). OEMs typically purchase
directly from WDC, but sometimes they also buy from other distributors. OEMs
always pick two or three other companies for their production inputs. They
always use this strategy to negotiate prices and manage qualities. OEMs
purchasing behaviors normally are waiting until they get orders from their
consumers, they will then placing orders from WDC. So for WDC, inventory
management is crucial as well. WDC usually hold finished goods in their
inventory houses, which are near major OEM’s factories to satisfy their just in
time orders.
Sell to distributors. WDC has numerous distributors to sell their products to
some other smaller firms. They usually contract with these distributors, and they
arrange a specific sales territory for them in order to protect sales.
Sell to retailers: WDC also sells directly to some selected big retailers. The
purpose according to managers is that this strategy is the most efficient way to
build their brand awareness among all customers.
In addition, WDC also have own web sales. Everyone can easily purchase their
products online.
Materials and Supplies
The inputs of making hard drives are Magnetic heads, Magnetic media, and
spindle motors, circuit boards, and so on. For the parts of hard drives that have
to be specifically designed, WDC designs and produces in house. They usually
do this for large customers. Otherwise, the rests such as semiconductor media
are purchased from other companies. This strategy allows them to select the
qualities and quantities they want, and reduces their fixed costs.
Vertical Integrate Acquisition Growth Strategies
WDC’s main business growth strategy is vertical integrate acquisition. They
constantly acquire companies along their supply chain to achieve reducing
production and supply costs in order to increase margin. They made acquisitions
every year in the past four years.
On March 8, 2012, WDC announced that their acquisition of Hitachi Global
Storage Technologies was completely finished. They paid 3.9 billion dollars in
cash, and issued another 25 million shares to pay for this acquisition. These 25
million shares are estimated to worth 0.9 billion dollars. The 2.3 billion dollars
cash came from 5 years term loan from bank of America, and 500 million
dollars from revolving credit, and the rest from company’s cash balance. This
acquisition activity is the biggest in their 42 years history, and because of the
advantages from acquisition, they expected to be the new world leading storage
(SSD structure)
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company. The managers are extremely confident, and they are expecting higher
market shares, revenue, and gross profit than before.
In 2010, WDC paid 253 million dollars to acquire Hoya Magnetics, which is a
Magnetic manufacturing company. Magnetic media is the core inputs for HDDs.
This vertical acquisition along their supply chain allows WDC to reduce the
input costs of core components, and make higher margins.
In 2009, WDC paid 63 million dollars to acquire Silicon System. After realizing
the potential of SSDs, WDC acquired Silicon System, a SSDs manufacturing
company. This acquisition allows them have the technology to enter into SSDs
market. I personally believe this acquisition is a really important strategic long
term plan.
In 2008, WDC paid 927 million dollars to acquire Komag Inc. This is another
vertical integrate acquisition. Komag Inc. is a supplier of magnetic thin-film
disks, which is another crucial component for HDDs. The purpose acquisition is
also to reduce input costs, and achieve higher margin.
Industry Analysis
Computer Peripheral Manufacturing Industry
In computer peripheral manufacturing industry, there are five main products and
services segments. Computer monitors (25%), hard drives (25%), printers,
scanners and supplies (25%), webcams and digital cameras (15%), and mice and
keyboards (10%).
There are several factors determine the demand in this industry. Increasing
digital information and content will affect demand, data storage needs from
people will strongly affect demand, and emerging markets need should be also
considered.
The estimation of average revenue growth from 2012 in this industry will be
steadily around 1.69%. The revenue growth in 2012 and 2013 will
approximately be 6.52% and 5.2%, and then trend down towards average of
1.69%.
The reason for the growth is that this industry has trend of increasing demand
due to the reason I explained before, which is represented by increasing unit
sales. However, the reason it trends down in later years is mainly due to reduce
in costs and selling prices when technology is mature. So as a result, the
decrease in price will offset the increasing in units of sales.
In order to prove the industry growing trends, I did additional research on PC
unit sales, and average industry selling price index. The worldwide PC unit sales
have been growing at an average steady rate about 8.47% over past five years,
which is a huge growth number. At the same time, the price index has been
decrease about 30%, and will continuously decrease to 50% in 2017 compare to
the 2006 base. This forecast matches the industry growing trend, and illustrate
why it trends down in the later years.
So how does it affect WDC? According to my research and WDC’s
management guide, for WDC, they have seen the trend of peripheral equipment
outsell the entire PC units almost about 87% more. Managers believe that
outperformance of hard drives sales will continue going on, because of the
increase of personal uses of data storage devices for gaming, the increase
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demand of the external storage devices such as portable and easy storage
devices. So to conservatively conclude, WDC still have great potential even
though the entire industry revenue trends down toward 2017. In addition, hard
drive market only represent 25% of the industry.
The barriers to enter this industry are medium high, and this industry is in a
mature stage currently. The main reason is because the technology innovation is
extremely fast, and it requires a lot of capital investments. Most manufactures
use automated assembly processes to reduce their price in order to compete with
others. So as a result, the competition is also high, and tough for new companies
to survive in the long run. Major companies in term of market shares: Western
Digital Corporation (8.2%), Seagate technology (14.1%), Dell Inc (11%), HP
(30.8%), others 35%
Data Processing and Hosting Services Industry
The second industry that I looked into is Data Processing and Hosting Services
Industry. These data processing and hosting firms generally need equipment
such as hard drives. They will affect the demand for peripheral manufacturing
industry.
In Data Processing and Hosting Services Industry, there are seven main
segments. Business process management and data processing (23.8%),
application service provisioning (18.3%), data storage and management services
(12.4%), IT technical support services (7.6%), IT computer network and
network management services (7.4%), website hosting services (5.2%), and
others (25.3%). WDC’s products go into all these segments.
The barriers to enter this industry are medium, which means not too hard to
enter this industry. The cost of starting a new operation company in this industry
is estimated to be 500,000 dollars, which is not too expensive either. The low
initial costs to enter this industry is a good sign for WDC, because any firm can
easily get into this industry, and as a result, it will potentially increase the
demand for HDDs from WDC.
Services Conducted Online
Besides all that, I looked into percentage of services conducted online as well,
which might also affect the demands for data storage companies.
The percentage of services conducted online has been growing extremely fast
over last 10 years. It starts off at 2002 with only 3.3% yearly growth to 2012 of
9.4% of yearly growth. It is estimated to be over 10% yearly growth in the next
few years. Since every data processing service will need HDDs, it will drag up
the demand for WDC potentially.
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Managements
John F. Coyne
President and Chief Executive Officer
John Coyne is the CEO of WDC, and is one of board of directors. He served a
long time for WDC since 1983, and he has been in many different executive
positions. He became president in 2006, and became CEO since 2007. In
addition, he is in a position of director of Jacobs Engineering Group Inc. as well.
Timothy M. Leyden
Chief Operating Officer
Tim Leyden became vice president of finance in 2007 first, and then became
chief financial officer. He worked for WDC from 1983 to 2000, and then he
joined Sage Software Inc. as a senior vice president. Prior to the COO, he has
been in many different positions in WDC such as finance, manufacturing, and
information technology and so on. He has ACMA certification, and he has a
master degree from University of California, Irvine.
Wolfgang U. Nickl
Senior Vice President and Chief Financial Officer
Wolfgang Nickl joined the WDC since 1995, and is the current CFO at WDC.
He is in charge of financial planning, accounting, credit, tax, and any other thing
related to finance. Before that he was also in various position related in finance,
such as supply chain management and IT positions. He has a master’s degree
from the University of Southern California.
Recent News
“WD® Gives Mac® Users the First 2 TB Portable Hard Drives for All
Their Digital Content” April 3rd, 2012
WDC introduced new My Passport for Mac users. It is easy and quick for Mac
users to automatically back up their data. It has metal surface, and both design
and color match the Mac Pro and Air. My Passport Studio 2TB’s price is $299.
“Western Digital Corp: HGST Ships the World's First 4TB Enterprise
Hard Drive” April 3rd, 2012
HGST introduced the new world’s first 4TB enterprise hard drive family. “The
Ultrastar 7K4000 family provides space-efficient, high-performance, low-power
storage for traditional enterprises as well as for the explosive big data and
cloud/Internet markets where storage density, watt-per-gigabyte and cost-per-
GB are critical parameters.”
“WD® Completes Acquisition of Hitachi Global Storage Technologies”
March 8th, 2012
WDC announced that their acquisition of Hitachi Global Storage Technologies
was completely finished on March 8, 2012. They paid 3.9 billion dollars in cash,
and issued another 25 million shares to pay for this acquisition. These 25 million
shares are estimated to worth 0.9 billion dollars. The 2.3 billion dollars cash
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came from 5 years term loan from bank of America, and 500 million dollars
from revolving credit, and the rest from company’s cash balance. This
acquisition activity is the biggest in their 42 years history, and because of the
advantages from acquisition, they expected to be the new world leading storage
company. The managers are extremely confident, and they are expecting higher
market shares, revenue, and gross profit than before.
Thailand flood Oct 2011
There was a huge flood in Thailand in October, 2011, which destroyed WDC’s
magnetic head slider fabrication facilities, hard drives, and other manufacturing
facilities. Due to this flood, WDC shut down their manufacturing facilities, and
they record 199 million dollars loss in their income statement. The 109 million
dollars from asset impairments, 39 million from recovery charges, and 28
million from write down in inventory, and other expenses. Their managements
are working on increasing their capacities to the pre flood level, and they
estimated that until September 2012, they will have as much as capacities
before.
Catalysts
Upside
Successfully acquired HGST through one year pending
Increasing market share through consolidation
Recovering from Thailand flood
Downside
Threats from SSDs competitors
Lower pricing pressure
Risk Analysis
Volatile demand: the uncertainty of demand will result many risks, which will
significantly affect their financial statements. If demand of hard drives
fluctuates, and not predictable, WDC will have to incur restructuring cost due to
the fluctuation, which is not favorable. In addition, this industry is highly
competitive, so if the demand is decreasing, this will result more severe price
competition, which will result in low margin, and less market shares for WDC.
Customer risks: In 2011, 49% of WDC’s revenues come from ten large
customer orders. All of these customers have not only one supplier. So if they
lose some of their orders due to any reasons, WDC’s revenues will decline
sharply. Moreover, even if these customers still keep their orders, and at the
same time, their business is suffering as well. As a result, so they will probably
put price pressure on WDC, and transfer risks to WDC. So WDC has the
possibility of suffering from customer risks.
Research and development risk: WDC spent a lot of money in research and
development, and they are trying to be new technology leader. So WDC is
exposed to the risk of investment failure. If they are not able to innovate
successfully, and if they cannot turn new technologies into profits, their
investment will be wasted.
Competitor risk: Some of WDC’s competitors not only operate in hard drive
business, but also in other businesses. These competitors not only replying on
Terminal Growth Rate Terminal Growth Rate
60 2.0% 2.5% 3.0% 3.5% 4.0%
1.19 61.61 64.22 67.19 70.60 74.58
1.29 58.53 60.78 63.31 66.20 69.53
1.39 55.83 57.78 59.96 62.43 65.24
1.49 53.44 55.14 57.04 59.17 61.57
1.59 51.32 52.81 54.47 56.32 58.39
Beta Sensitivity Analysis
Ad
just
ed
Beta
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the revenues from this business, so they may sell hard drive products at low
prices, and push them out of businesses slowly.
Industry risk: this industry has consolidation trend over last several years. This
trend may result in potential risks for WDC. Such as their competitors may
potentially growth stronger, and have more capacities than WDC.
Comparable Analysis (35%)
Four comparables that I am using to value WDC is based on their product
market shares and threats in the future.
First, I find the comparable’s overall market shares in HDDs market. Then I
allocate the weighting according to their market shares. So the market shares
graph listed on the left is pre acquisition market share, and Samsung is acquired
by Seagate at the end of last year.
Seagate Technology PLC
Seagate Technology Public Limited Company is the world largest hard disk
drive (HDD) manufacturing company in terms of total revenues. They were
founded in 1979 in Dublin, Ireland, and its operational headquarters are in Scotts
Valley, CA. Their products are mainly used to provide solutions for enterprise
applications, client compute applications and client non-compute applications.
On December 11, 2011, they acquired Samsung Electronics Co., Ltd’s
(“Samsung”) hard disk drive (“HDD”) business, so they this this acquisition will
help them improve on 2.5 inch products. They paid total 1.1 billion dollars for
this transaction with consists of 571 million of cash and additional 45.2 million
shares of common stocks.
STX is the biggest competitor to WDC, and they are very similar grow strategy.
Their products are sold to OEMs, distributions, and retailers. Most of STX’s
sales go to OEMs as well, and they are trying to sign long term contracts with
their customers. STX’s managements view WDC as primary competitor as well,
because they share similar risks in HDDs industry in terms of supply and
demand. In regarding to Thai flood in 2011, because STX’s operations widely
spread around the world, their Thailand facilities did not affect too much by
flood, but the impacts of flood on their supply chains are similar to WDC. So
that’s why their multiples and stock performance looks better than WDC.
SanDisk Corporation
SanDisk Corporation is a global flash memory storage solution provider. Their
mission is to provide various devices with simple, reliable, and affordable
products. Their product categories are removable cards, embedded products,
USB, drives, digital media players, and so on. They have a main supplier,
Toshiba Corporation, which they also have venture relationship with. They
purchase most of their NAND flash memory from Toshiba. They usually design
their products in house, and outsourcing their manufacturing to third parties.
Their products mainly go into smartphones, tablets, ultra books, eReaders,
cameras, camcorders, media players, USB drives and computing devices.
I pick SanDisk as a comparable mainly because they a threat to WDC. Although
their distribution channel are similar, which is OEMs and retailer, their product
mix are totally different, As I talked before, SSD (flash memory based storage)
have major advantages over HDDs. Valuing WDC based on compare how
SNDK is growing and operating is very important. In addition, WDC has
already realized that SDD is definitely future product for data storage, they also
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manufacture SSDs, but they are not their main focus right now. I think SanDisk
will be a main competitor for WDC not right now, but maybe 4 or 5 years later.
So I believe SanDisk is a valuable comparable.
Micron Technology Inc.
Micron Technology is a manufacture of memory technologies. They mainly
provide solutions of DRAM, NAND Flash, NOR Flash memory, and packaging
for electronic devices, industrial products, and networks. They sell their
products to OEMs, and retailers all around world. Micron Technology has three
ways to manufacture their products: from their own facilities, from joint venture
factories, and from third parties.
Micron is similar to SanDisk in terms of product mix, and they are also similar
to WDC in terms of business strategies. They are constantly increasing and
expanding their production capacities. They used strategic acquisition and joint
venture to reduce cost and increase efficiency, and they also invest money in
R&D. The rest of the reason I pick Micron as comparable are similar to
SanDisk.
Toshiba Corporation
Toshiba is traded on Tokyo exchange, and it is not a U.S public traded company.
Toshiba’s segments including Digital Products, Electronic Devices, Social
Infrastructure, Home Appliances, and Others. They make advanced electronic
and electrical products, spanning information and communications equipment
and systems, internet-based solutions and services, electronic components and
materials, power systems, industrial and social infrastructure systems, and
household appliances.
Since Toshiba plays an extremely important role in HDDs market, and they are a
direct competitor to WDC, so choose it as a comparable to value WDC is
essential. So I convert all the Japanese currency Yen to U.S dollar at 1U.S dollar
to 80.8 Yen in order to compare it with my other comparable.
Discounted Cash Flow Analysis (40%)
Beta: I ran various betas to see what the real systematic risk is for WDC. I first
ran 5 and 3 year monthly and weekly, and 1 year weekly. Then I picked the one
with the lowest standard deviation for both 3 and 5 year, and then run Vesicek
beta for 3 and 5 year monthly. In addition, I also ran 3 and 5 year Hamada Beta.
After all that I decided not to use Hamada beta, because the tax rate and the debt
for these companies various too much, which means when I leverage my
unlevered beta back to leveraged beta, the industry percentage that I used is not
accurate. As a result, I get beta of 1.39 for WDC.
Revenue: WDC only has one operating segment, so I project revenue only
based on their HDD segment. I use quantities time price method to figure out
how much revenue they will make in the future. I also follow management
guidance closely plus my estimation about industry average selling price.
First part is WDC’s revenue. So after Thailand flood, their capacity was 10-20%
down from pre flood level. So managers are expecting their capacity to go back
up to pre flood level at the end of the fourth quarter. In third quarter, they will
reach 80% of pre flood capacity, and in fourth quarter, they go will back to
100% of pre flood capacity. In addition, the management predicts that the
demand will be stronger in the next half of 2012, because of holiday season.
Beta SD Weighting
5 Year Monthly 1.35 0.27 0.00%
5 Year Weekly 1.34 0.10 25.00%
3 Year Monthly 1.38 0.32 0.00%
3 Year Weekly 1.36 0.14 25.00%
1 Year Weekly 1.54 0.22 0.00%
5 Year Weekly Vesicek 1.44 0.12 25.00%
3 Year Weekly Vesicek 1.41 0.16 25.00%
5 Year Weekly Hamada 1.12 - 0.00%
3 Year Weekly Hamada 1.14 - 0.00%
Western Digital Corporation Beta1.39
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The unit sales this quarter is 44.2 million. Overall, I project 36.5 million in next
quarter, and 169 million for the year 2012.
ASP is high due to flood this quarter. ASP is $68/units in 3rd
quarter. It will start
dropping for next 2 quarters. In addition, for the future ASP, I use both the
management forecasts plus other analysts’ estimation to project my future ASP.
Second part is Hitachi’s revenue projection. Since Hitachi Global Storage
Technology is privately held companies, their information is hard to find.
However, since WDC acquired them, they provided last two years data and
some estimation. Besides that they report them together.
So, all together, I think the revenue for WDC after acquisition in 2012 will be
11,713 million dollars, and 18,733.6 for 2013.
R&D: One of WDC’s business strategies is to lead HDD industry through faster
innovation and provide better technology. So, they will further spend money on
their R&D to innovate faster. The R&D cost for third quarter is 265 million.
Since they will keep spending more money in R&D, I project 8.5% of revenues
over years.
Capital Expenditure: WDC has to recover from the flood, so the capital
expenditure for the third quarter is 139 million dollars. They also estimated that
capital expenditure will still be high until the end of the fourth quarter. In
addition, the total capital spending will be around 750-800 million for fiscal year
2012 according to management.
Acquisition: Since this industry has vertical consolidation trend, so I project
they will spend about 3% of their total revenue to acquire other companies along
their supply chain to further lower their production costs.
Inventory: Inventory level will be steady and constantly up because of the
recovery of capacity. For the fourth quarter, I project 460 million dollar
inventory, and I project the inventory to be 6.5% of revenue over years.
Flood Expense: the management estimated that the charge for flood is 50
million more due to flood in the third quarter, and offset 21 million by insurance
company.
Tax rate: I project tax rate will be 8% over year. The reason why tax rate is so
low is that they have foreign tax holidays and incentives. The low tax rate will
be expired after 2023. So the average tax rate should be around 8%.
WACC: As I mentioned above, WDC borrowed almost 2.5 billion debts to
acquire HGST, and they will pay it back in 5 years. So the year over year capital
structure will change significantly when they pay off debt each year. So when
they have significant amount of debt this period, the WACC of current period
should be lower. And then when they pay off current large portion of debt next
year, the WACC will increase. So I choose to compute WACC for each different
period, and use these to discount my future free cash flow. The graph is my
WACC table, and WACC sensitivity analysis.
18.18%
14.84%
20.66%
14.52%
20.18%20.99% 20.52%
21.58% 21.20%20.08%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
$4,500
$5,000
2008A 2009A 2010A 2011A 2012E 2013E 2014E 2015E 2016E 2017E
EBITDA
EBITDA EBITDA Margin
Discount Rate Discount Rate
60 2.0% 2.5% 3.0% 3.5% 4.0%
9.14% 68.6 72.1 76.2 81.0 86.8
10.14% 61.4 64.0 67.0 70.3 74.3
11.14% 55.9 57.9 60.1 62.6 65.4
12.14% 51.6 53.1 54.8 56.7 58.8
13.14% 48.1 49.3 50.6 52.1 53.7
WACC Sensitivity Analysis
WA
CC
2012E 2013E 2014E 2015E 2016E 2017E
Equity % 59.67% 61.94% 66.41% 68.48% 71.93% 74.95%
Debt % 40.33% 38.06% 33.59% 31.52% 28.07% 25.05%
CAPM 12.82% 12.82% 12.82% 12.82% 12.82% 12.82%
WACC 10.11% 10.26% 10.56% 10.70% 10.93% 11.14%
Weighted Average WACC 10.62%
Cost of Debt 6.63%
Tax Rate 8%
WACC Over Periods
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Exit Multiple Approach of DFC Analysis (25%)
In order to get exit multiple, I first get EV/EBITDA of 2 year average, 3 year
average, and 4 year average of every my comparable companies.
Then I take the total weighted average of these comparable’s EV/EBITDA for
each 2, 3, 4 years, and then weight them again with LTM, 2012E, and 2013E. I
believe the more data I used; the more accurate my terminal value will be, when
I multiplied them back to my terminal EBITDA. The graph is listed on the left.
Leveraged Buyout Analysis (0%)
I did LBO Analysis to see how much premium other company is willing to pay
when they leverage to acquire WDC, and then retire all their debt and common
stock to keep it private. In order to get 20% IRR, the purchase premium should
be 52% more than its current price.
Although as I said before, this industry is experience huge consolidation, it is
still not realistic in reality that WDC will be acquired by other company. So I
did not put any weighting on LBO analysis.
Portfolio History
DADCO portfolio purchased 100 shares at 29.08 per share on 10/14/2010.
Holding return is 29.2%.
Tall Firs portfolio purchased 575 shares at 29.57 per share on 10/19/2010.
Holding return is 427.05%.
Svigals portfolio purchased 73 shares at 28.91 per share on 10/8/2010. Holding
return is 29.96%.
Recommendation
Overall, I think the acquisition will help WDC increase their market share
significantly up to around 47%. As a result, the cash flow from operation is
expected to be high in the future, and will generate sufficient cash for WDC’s
future expansion.
Comparing to their competitors, WDC’s earning is steadier, and have better
earning quality than other companies in the industry. EV/EBITDA is a good
indicator for the earning quality.
More importantly, the demand in this industry will still keep rising because of
the increasing trend in number of data service companies over years. After they
recover from Thailand flood, they will have enough capacities to satisfy every
order they received.
According to all my projection and analysis, WDC is still undervalued, and I
recommend a hold for all the portfolios.
Years EV/EBITDA Weighting
2013E 2.4x 20%
2012E 3.9x 20%
LTM Average 4.6x 20%
2 Year Industry Average 4.2x 20%
3 Year Industry Average 5.1x 20%
4 Year Industry Average 6.1x 0%
Exit Multiple 4.0x
Exit Multiple
52 - Week High $44.44
52 - Week Low $22.64
Current Price $37.57
Premium 52%
Purchase Price Premium $57.11
Shares Outstanding 269.0
Market Capitalization $15,361.62
Transaction Date 6/30/2012
LBO Transaction
DADCO Tall Firs Svigals
Date 10/24/2010 10/19/2010 10/8/2010
Price 29.08 29.57 28.91
Shares 100 575 73
Current Price 37.57 37.57 37.57
Holding Return 29.20% 27.05% 29.96%
Comparabal Analysis 35.00% 57.22
DCF Analysis 40.00% 59.34
Exit Muliple 25.00% 59.92
LBO Analysis 0.00% 57.11
Current Price 37.57
Implied Price 58.74
Undervalued 56.35%
Recommendation
UOIG 12
May 4th
2012
University of Oregon Investment Group
Appendix 1 – Comparables Analysis
Comparables Analysis WDC STX SNDK MU
(In U.S Dollar)
TOKYO 6502-JP In Yen
($ in millions)
Western Digital
Corporation
Seagate
Technology PLC
SanDisk
Corporation
Micron
Technology Inc. Toshiba Corp Toshiba Corp
Stock Characteristics Max Min Weight Avg. Median 60.00% 10.00% 10.00% 20.00%
Current Price $37.57 $6.55 $22.06 $29.42 $37.57 $29.42 $37.49 $6.55 $4.08 ¥330.00
Size
Short-Term Debt $928.00 $0.00 $107.80 $150.00 $500.00 $0.00 $928.00 $150.00 $8,831.21 713,562.00
Long-Term Debt 2,925.00 1,000.00 2,071.50 2,165.00 2,013.00 2,925.00 1,000.00 2,165.00 10,375.59 838,348.00
Cash and Cash Equivalent 3,377.00 2,094.00 1,833.40 2,232.00 3,377.00 2,232.00 2,848.00 2,094.00 2,888.63 233,401.00
Non-Controlling Interest 3.00 0.00 0.30 0.00 0.00 0.00 3.00 0.00 0.00 0.00
Preferred Stock 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Diluted Basic Shares 990.00 242.00 392.60 449.00 269.00 449.00 242.00 990.00 1,333.00 1,333.00
Market Capitalization 13,209.58 6,484.50 9,481.46 9,072.58 10,106.33 13,209.58 9,072.58 6,484.50 5,444.18 439,890.00
Enterprise Value 13,902.58 6,705.50 9,827.66 8,155.58 9,242.33 13,902.58 8,155.58 6,705.50 21,762.36 1,758,399.00
Profitability Margins
Gross Margin 41.50% 15.68% 22.62% 28.17% 26.02% 28.17% 41.50% 15.68% 22.10% 22.10%
EBIT Margin 24.90% (2.26%) 12.49% 17.04% 13.32% 17.04% 24.90% -2.26% 0.73% 0.73%
EBITDA Margin 30.14% 17.63% 18.53% 22.93% 19.60% 22.93% 30.14% 17.63% 5.08% 5.08%
Net Margin 15.73% (6.55%) 9.79% 14.78% 10.12% 14.78% 15.73% -6.55% -0.71% -0.71%
Credit Metrics
Interest Expense $249.00 $18.00 $177.10 $142.00 $18.00 $249.00 $135.00 $142.00 $375.10 $30,308.00
Debt/EV 34.52% 21.04% 18.44% 23.64% 27.19% 21.04% 23.64% 34.52% 88.26% 88.26%
Leverage Ratio 1.57 0.96 0.85 1.15 1.27 0.96 1.15 1.57 21.21 21.21
Interest Coverage Ratio 110.28 10.40 9.64 12.26 110.28 12.26 12.44 10.40 2.41 2.41
Operating Results
Revenue $13,316.00 $5,574.00 $9,384.80 $8,378.00 $10,127.00 $13,316.00 $5,574.00 $8,378.00 $17,838.94 $1,441,386.00
Gross Profit 3,751.00 1,314.00 2,613.30 2,313.00 2,635.00 3,751.00 2,313.00 1,314.00 3,942.65 318,566.00
EBIT 2,269.00 (189.00) 1,481.30 1,388.00 1,349.00 2,269.00 1,388.00 (189.00) 130.33 10,531.00
EBITDA 3,053.00 1,477.00 2,147.50 1,680.00 1,985.00 3,053.00 1,680.00 1,477.00 905.62 73,174.00
Net Income 1,968.00 (549.00) 1,213.60 877.00 1,025.00 1,968.00 877.00 (549.00) (127.39) (10,293.00)
Valuation
EV/Revenue 1.46x 0.80x 1.10x 1.13x 0.91x 1.04x 1.46x 0.80x 1.22x
EV/Gross Profit 5.52x 3.51x 4.19x 4.40x 3.51x 3.71x 3.53x 5.10x 5.52x
EV/EBIT 166.97x (35.48x) 34.11x 6.00x 6.85x 6.13x 5.88x (35.48x) 166.97x
EV/EBITDA 24.03x 4.54x 8.48x 4.70x 4.66x 4.55x 4.85x 4.54x 24.03x
EV/Net Income 9.30x (170.83x) (30.22x) (2.57x) 9.02x 7.06x 9.30x (12.21x) (170.83x)
Multiple Implied Price Weight
EV/Revenue $44.50 20.00%
EV/Gross Profit $44.26 20.00%
EV/EBIT $174.27 0.00%
EV/EBITDA $65.77 60.00%
EV/Net Income $0.00 0.00%
Price Target $57.22
Current Price 37.57
Undervalued 52.29%
UOIG 13
May 4th
2012
University of Oregon Investment Group
Appendix 2 – Discounted Cash Flows Analysis
Discounted Cash Flow Analysis Q1 Q2 Q3 Q4
($ in millions) 2008A 2009A 2010A 2011A 09/30/2011A 12/31/2011A 03/31/2012A 06/30/2012E 2012E 2013E 2014E 2015E 2016E 2017E
Total Revenue 8,074.00 7,453.00 9,850.00 9,526.00 2,694.00 1,995.00 3,035.00 3,989.00 11,713.00 18,733.00 19,690.50 20,452.05 21,277.15 21,889.50
% YoY Growth N/A -7.69% 32.16% -3.29% 22.96% 59.93% 5.11% 3.87% 4.03% 2.88%
Cost of Goods Sold 6,335.00 6,116.00 7,449.00 7,735.00 2,153.00 1,347.00 2,058.00 3,031.64 8,589.64 14,237.08 14,767.88 15,134.51 15,532.32 15,979.33
% Revenue 78.46% 82.06% 75.62% 81.20% 79.92% 67.52% 67.81% 76.00% N/A 76.00% 75.00% 74.00% 73.00% 73.00%
Gross Profit $1,739.00 $1,337.00 $2,401.00 $1,791.00 $541.00 $648.00 $977.00 $957.36 $3,123.36 $4,495.92 $4,922.63 $5,317.53 $5,744.83 $5,910.16
Gross Margin 21.54% 17.94% 24.38% 18.80% 20.08% 32.48% 32.19% 24.00% 26.67% 24.00% 25.00% 26.00% 27.00% 27.00%
Research and Development 464.00 509.00 611.00 703.00 193.00 191.00 265.00 355.00 1,004.00 1,420.00 1,532.00 1,636.16 1,808.56 1,970.05
% Revenue 5.75% 6.83% 6.20% 7.38% 7.16% 9.57% 8.73% 8.90% 8.57% 7.58% 7.78% 8.00% 8.50% 9.00%
Selling General and Administrative Expense 220.00 201.00 265.00 307.00 89.00 96.00 155.00 198.00 538.00 612.00 632.00 613.56 851.09 1,094.47
% Revenue 2.72% 2.70% 2.69% 3.22% 3.30% 4.81% 5.11% 4.96% 4.59% 3.27% 3.21% 3.00% 4.00% 5.00%
Depreciation and Amortization 413.00 479.00 510.00 602.00 158.00 140.00 188.00 296.53 782.53 1,467.38 1,281.71 1,345.28 1,425.32 1,550.66
% Revenue 5.12% 6.43% 5.18% 6.32% 5.86% 7.02% 6.19% 7.43% 6.68% 7.83% 6.51% 6.58% 6.70% 7.08%
Other expense 49.00 108.00 0.00 0.00 0.00 199.00 15.00 27.92 241.92 281.00 295.36 306.78 425.54 514.40
% Revenue 0.61% 1.45% 0.00% 0.00% 0.00% 9.97% 0.49% 0.70% 2.07% 1.50% 1.50% 1.50% 2.00% 2.35%
Earnings Before Interest & Taxes $1,006.00 $519.00 $1,525.00 $781.00 $259.00 $162.00 $542.00 $376.44 $1,339.44 $2,182.93 $2,463.27 $2,761.03 $2,659.64 $2,331.23
% Revenue 12.46% 6.96% 15.48% 8.20% 9.61% 8.12% 17.86% 9.44% 11.44% 11.65% 12.51% 13.50% 12.50% 10.65%
Interest Expense 52.00 27.00 9.00 10.00 4.00 5.00 4.00 15.00 28.00 121.75 97.75 73.75 49.75 25.75
% Revenue 0.64% 0.36% 0.09% 0.10% 0.15% 0.25% 0.13% 0.38% 0.24% 0.65% 0.50% 0.36% 0.23% 0.12%
Net Interest (Income) (27.00) (9.00) (4.00) (9.00) (3.00) (3.00) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
% Revenue
Earnings Before Taxes 981.00 501.00 1,520.00 780.00 258.00 160.00 538.00 361.44 1,311.44 2,061.18 2,365.52 2,687.28 2,609.89 2,305.48
% Revenue 12.15% 6.72% 15.43% 8.19% 9.58% 8.02% 17.73% 9.06% 11.20% 11.00% 12.01% 13.14% 12.27% 10.53%
Less Taxes (Benefits) 114.00 31.00 138.00 54.00 19.00 15.00 55.00 32.53 104.91 164.89 189.24 214.98 208.79 184.44
Tax Rate 11.62% 6.19% 9.08% 6.92% 7.36% 9.38% 10.22% 9.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00%
Net Income $867.00 $470.00 $1,382.00 $726.00 $239.00 $145.00 $483.00 $328.91 $1,206.52 $1,896.28 $2,176.28 $2,472.29 $2,401.10 $2,121.04
Net Margin 10.74% 6.31% 14.03% 7.62% 8.87% 7.27% 15.91% 8.25% 10.30% 10.12% 11.05% 12.09% 11.28% 9.69%
Add Back: Depreciation and Amortization 413.00 479.00 510.00 602.00 158.00 140.00 188.00 296.53 782.53 1,467.38 1,281.71 1,345.28 1,425.32 1,550.66
Add Back: Interest Expense*(1-Tax Rate) 45.96 25.33 8.18 9.31 3.71 4.53 3.59 13.65 25.76 112.01 89.93 67.85 45.77 23.69
Operating Cash Flow $1,325.96 $974.33 $1,900.18 $1,337.31 $400.71 $289.53 $674.59 $639.09 $2,014.81 $3,475.67 $3,547.92 $3,885.43 $3,872.20 $3,695.39
% Revenue 16.42% 13.07% 19.29% 14.04% 14.87% 14.51% 22.23% 16.02% 17.20% 18.55% 18.02% 19.00% 18.20% 16.88%
Current Assets 2,692.00 1,436.00 1,986.00 1,997.00 2,251.00 1,474.00 4,068.00 2,310.00 2,310.00 2,887.00 3,315.88 3,668.90 4,361.82 4,815.69
% Revenue 33.34% 19.27% 20.16% 20.96% 19.72% 15.41% 16.84% 17.94% 20.50% 22.00%
Current Liabilities 1,564.00 1,525.00 2,023.00 2,170.00 2,354.00 1,552.00 4,035.00 3,340.34 3,340.34 4,309.05 4,751.89 5,513.01 5,485.24 5,500.25
% Revenue 19.37% 20.46% 20.54% 22.78% 28.52% 23.00% 24.13% 26.96% 25.78% 25.13%
Net Working Capital $1,128.00 ($89.00) ($37.00) ($173.00) ($103.00) ($78.00) $33.00 ($1,030.34) ($1,030.34) ($1,422.05) ($1,436.01) ($1,844.11) ($1,123.42) ($684.56)
% Revenue 13.97% -1.19% -0.38% -1.82% -8.80% -7.59% -7.29% -9.02% -5.28% -3.13%
Change in Working Capital (1,217.00) 52.00 (136.00) 70.00 25.00 111.00 (1,063.34) (857.34) (391.71) (13.96) (408.10) 720.68 438.86
Capital Expenditures 615.00 519.00 737.00 778.00 134.00 119.00 139.00 358.00 750.00 1,125.00 1,186.00 1,215.00 1,254.00 1,298.00
% Revenue 7.62% 6.96% 7.48% 8.17% 4.97% 5.96% 4.58% 8.97% 6.40% 6.01% 6.02% 5.94% 5.89% 5.93%
Acquisitions 927.00 63.00 253.00 15.00 0.00 0.00 3,541.00 0.00 3,541.00 0.00 590.72 613.56 638.31 656.68
% Revenue 11.48% 0.85% 2.57% 0.16% 0.00% 0.00% 116.67% 0.00% 30.23% 0.00% 3.00% 3.00% 3.00% 3.00%
Unlevered Free Cash Flow ($216.04) $1,609.33 $858.18 $680.31 $196.71 $145.53 ($3,116.41) $1,344.43 ($1,418.85) $2,742.38 $1,785.16 $2,464.96 $1,259.20 $1,301.85
Discounted Free Cash Flow $1,312.45 $2,427.14 $1,424.19 $1,771.42 $810.21 $747.89
UOIG 14
May 4th
2012
University of Oregon Investment Group
Appendix 3 – Discounted Cash Flows Analysis Assumptions
Appendix 4 – Discounted Cash Flows Exit Multiple Analysis
Tax Rate 8.00% Terminal Growth Rate 3.00%
Risk Free Rate 3.12% Terminal Value 16,482
Beta 1.39 PV of Terminal Value 9,469
Market Risk Premium 7.00% Sum of PV Free Cash Flows 8,493
% Equity 51.11% Firm Value 17,962
% Debt 48.89% Total Debt 2,000
Cost of Debt 6.63% Cash & Cash Equivalents 3,377
CAPM 12.82% Market Capitalization 15,962
Terminal WACC 11.14% Fully Diluted Shares 269
Implied Price 59.34
Current Price 37.57
Undervalued 57.94%
Discounted Free Cash Flow Assumptions
Terminal Year EBITDA $4,396.3 PV of FCF $8,493.3
Exit Multiple 4.0x Enterprise Value 18,630.2
Terminal Value $17,645.3 Less: Debt (2,513.0)
Discount Period 5.3 Equity Value $16,117.2
Discount Factor (@ WACC of 11.1%) 57.4% Diluted Shares Outstanding 269.0
Discounted Terminal Value $10,136.9
Implied Share Price $59.92
Current Share Price $37.57
Undervalued 59.48%
DCF Exit Multiple Valuation
Years EV/EBITDA Weighting
2013E 2.4x 20%
2012E 3.9x 20%
LTM Average 4.6x 20%
2 Year Industry Average 4.2x 20%
3 Year Industry Average 5.1x 20%
4 Year Industry Average 6.1x 0%
Exit Multiple 4.0x
Exit Multiple
UOIG 15
May 4th
2012
University of Oregon Investment Group
Appendix 5 – Leveraged Buyout Analysis
52 - Week High $44.44
52 - Week Low $22.64
Current Price $37.57
Premium 52%
Purchase Price Premium $57.11
Shares Outstanding 269.0
Market Capitalization $15,361.62
Transaction Date 6/30/2012
LBO TransactionNew $2 B Revolver
Total Available $1,500.0
Maturity 12/31/2017
Interest Rate L + 3.00%
Commitment Fee 0.35%
New $3 B U.S. Term Loan $3,000.0
Maturity 12/31/2017
Interest Rate L + 4.50%
Amortization Rate 1.50%
New $1M 8.5% High Yield Notes $1,000.0
Maturity Date 12/31/2017
Interest Rate 8.50%
Advisory Fees 1.25%
Financing Fees 2.50%
New Debt Assumption
Fees
Exit Date: 12/31/2017
EBITDA at Exit Date $4,396
Illustrative Exit Multiple 4.0x
Illustrative Exit Proceeds $17,645.30
Less: Exit Date Net Debt (Net Cash) -3652.262359
Proceeds Available for Equity $21,298
2012 2013 2014 2015 2016
Initial Investment ($10,434.7)
Exit Proceeds $21,297.6
Total ($10,434.7) $0.0 $0.0 $0.0 $21,297.6
IRR 20%
MOIC 2.0x
Exit Analysis
Exit Analysis
Sources
Cash from Balance Sheet 12/31/2011 $3,003.00
Acquisition Revolver $1,500.00
Acquisition Term Loans $3,000.00
Acquisition High Yiled Notes $1,000.00
Sponsorship Equity $10,434.68
Total Sources $18,937.68
Cash to Balance Sheet $500.00
Total Debt Obligations $2,500.00
Common Shareholders Consideration $15,361.62
Advisory Fees $192.02
Financing Fees $384.04
Total Uses $18,937.68
Uses
2012 EBITDA 2,363.9
12/31/2011 12/31/2012 12/31/2013 12/31/2014 12/31/2015 12/31/2016 12/31/2017
LIBOR Curve 1.50% 2.40% 3.15% 4.02% 4.45% 4.45% 4.45%
LIBOR Floor 1.50%
Current Debt Summary Stated Rate LIBOR Rate Interest Rate
$500 Million Revolver Credit Facility L + 4.50% 1.50% 6.00%
$ 2000 Million 5 Year Term Loan 7.50% 6.50%
LBO Debt Summary
Acquisition Revolver L + 3.00% 1.50% 4.500%
Acqusition Term Loans L + 4.50% 1.50% 6.00%
Acquisition High Yield Notes 8.50% 8.50%
UOIG 16
May 4th
2012
University of Oregon Investment Group
Appendix 6 – Revenue Model
Appendix 7 – Consolidated Statements of Income
Revenue Model Q1 Q2 Q3 Q4
($ in millions) 2008A 2009A 2010A 2011A 09/30/2011A 12/31/2011A 03/31/2012A 06/30/2012E 2012E 2013E 2014E 2015E 2016E 2017E
Western Digital Corporation
Units of Sale 136.85 146.14 197.00 211.69 58.57 28.91 44.20 36.50 168.18 221.00 245.31 269.84 294.13 317.66
% Growth 6.79% 34.80% 7.46% -20.55% 31.41% 11.00% 10.00% 9.00% 8.00%
ASPs $59.00 $51.00 $50.00 $45.00 $46.00 $69.00 $68.00 $64.00 $59.86 $53.00 $50.00 $47.00 $45.00 $43.00
% Growth
Total Revenue $8,074.00 $7,453.00 $9,850.00 $9,526.00 $2,694.00 $1,995.00 $3,005.60 $2,336.00 $10,066.73 $11,713.00 $12,265.50 $12,682.53 $13,235.70 $13,659.24
-7.69% 32.16% -3.29% 5.68% 16.35% 4.72% 3.40% 4.36% 3.20%
Hitachi Global Storage Technology
Units of Sale 0.00 91.11 112.96 104.96 30.00 35.00 31.00 29.00 125.00 135.00 148.50 161.87 174.81 187.05
% Growth 0 N/A 23.98% -7.08% 19.09% 12.00% 10.00% 9.00% 8.00% 7.00%
ASPs $0.00 $53.00 $53.00 $55.00 $53.00 $58.00 $60.00 $57.00 $57.00 $52.00 $50.00 $48.00 $46.00 $44.00
% Growth 0
Total Revenue $0.00 $4,829.00 $5,987.00 $5,773.00 $1,590.00 $2,030.00 $1,860.00 $1,653.00 $7,125.00 $7,020.00 $7,425.00 $7,769.52 $8,041.45 $8,230.25
% Growth 23.98% -3.57% 23.42% -1.47% 5.77% 4.64% 3.50% 2.35%
Total Revenue after Acquisition $8,074.00 $7,453.00 $9,850.00 $9,526.00 $2,694.00 $1,995.00 $3,035.00 $3,989.00 $11,713.00 $18,733.00 $19,690.50 $20,452.05 $21,277.15 $21,889.50
% Growth -7.69% 32.16% -3.29% 22.96% 59.93% 5.11% 3.87% 4.03% 2.88%
Consolidated Statements of Income Q1 Q2 Q3 Q4
($ in millions) 2008A 2009A 2010A 2011A 09/30/2011A 12/31/2011A 03/31/2012A 06/30/2012E 2012E 2013E 2014E 2015E 2016E 2017E
Revenue 8,074.00 7,453.00 9,850.00 9,526.00 2,694.00 1,995.00 3,035.00 3,989.00 11,713.00 18,733.00 19,690.50 20,452.05 21,277.15 21,889.50
COGS 6,335.00 6,116.00 7,449.00 7,735.00 2,153.00 1,347.00 2,058.00 3,031.64 8,589.64 14,237.08 14,767.88 15,134.51 15,532.32 15,979.33
Gross Profit $1,739.00 $1,337.00 $2,401.00 $1,791.00 $541.00 $648.00 $977.00 $957.36 $3,123.36 $4,495.92 $4,922.63 $5,317.53 $5,744.83 $5,910.16
Gross Margin 21.54% 17.94% 24.38% 18.80% 20.08% 32.48% 32.19% 24.00% 26.67% 24.00% 25.00% 26.00% 27.00% 27.00%
R&D 464.00 509.00 611.00 703.00 193.00 191.00 265.00 355.00 1,004.00 1,420.00 1,532.00 1,636.16 1,808.56 1,970.05
Depreciation and Amortization 413.00 479.00 510.00 602.00 158.00 140.00 188.00 296.53 782.53 1,467.38 1,281.71 1,345.28 1,425.32 1,550.66
SG&A 220.00 201.00 265.00 307.00 89.00 96.00 155.00 198.00 538.00 612.00 632.00 613.56 851.09 1,094.47
Restructuring and Other 49.00 108.00 0.00 0.00 0.00 199.00 15.00 27.92 241.92 281.00 295.36 306.78 425.54 514.40
Operating income $1,006.00 $519.00 $1,525.00 $781.00 $259.00 $162.00 $542.00 $376.44 $1,339.44 $2,182.93 $2,463.27 $2,761.03 $2,659.64 $2,331.23
Interest Income (27.00) (9.00) (4.00) (9.00) (3.00) (3.00) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Interest and other Expense 52.00 27.00 9.00 10.00 4.00 5.00 4.00 15.00 28.00 121.75 97.75 73.75 49.75 25.75
Income before Income Taxes 981.00 501.00 1,520.00 780.00 258.00 160.00 538.00 361.44 1,311.44 2,061.18 2,365.52 2,687.28 2,609.89 2,305.48
Income Tax Provision 114.00 31.00 138.00 54.00 19.00 15.00 55.00 32.53 104.91 164.89 189.24 214.98 208.79 184.44
Net income $867.00 $470.00 $1,382.00 $726.00 $239.00 $145.00 $483.00 $328.91 $1,206.52 $1,896.28 $2,176.28 $2,472.29 $2,401.10 $2,121.04
Net Margin 10.74% 6.31% 14.03% 7.62% 8.87% 7.27% 15.91% 8.25% 10.30% 10.12% 11.05% 12.09% 11.28% 9.69%
UOIG 17
May 4th
2012
University of Oregon Investment Group
Appendix 8 – Consolidated Statements of Cash Flow
Consolidated Statements of Cash Flows Q1 Q2 Q3 Q4
($ in millions) 2008 2009 2010 2011 09/30/2011A 12/31/2011A 03/31/2012A 06/30/2012E 2012 2013 2014 2015 2016 2017
Net income 867.00 470.00 1,382.00 726.00 239.00 145.00 483.00 328.91 1,206.52 1,896.28 2,176.28 2,472.29 2,401.10 2,121.04
Adjustments to Net Cash Provided by Operations:
Depreciation and Amortization 413.00 479.00 510.00 602.00 158.00 140.00 188.00 296.53 782.53 1,467.38 1,281.71 1,345.28 1,425.32 1,550.66
Stock-Based Compensation 37.00 47.00 60.00 69.00 17.00 24.00 20.00 0.00 61.00 0.00 0.00 0.00 0.00 0.00
Deferred Income Taxes (2.00) 24.00 27.00 20.00 9.00 9.00 24.00 0.00 42.00 0.00 0.00 0.00 0.00 0.00
Loss on Investments 13.00 10.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Acquired in-process Research and Development 49.00 14.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Non-Cash Portion of Restructuring and Other, net 0.00 63.00 0.00 0.00 0.00 109.00 10.00 0.00 119.00 0.00 0.00 0.00 0.00 0.00
Changes in:
Accounts Receivable, net (194.00) 92.00 (330.00) 50.00 (150.00) 609.00 (1,630.00) 847.00 (324.00) (456.00) (50.00) (99.00) (418.26) (182.93)
Inventories 8.00 88.00 (148.00) (17.00) (68.00) 179.00 (816.00) 822.00 117.00 (160.00) (364.53) (140.34) (151.77) (146.19)
Accounts Payable 114.00 (33.00) 270.00 178.00 157.00 (832.00) 1,891.00 (574.00) 655.00 660.00 340.00 685.89 (56.00) 0.77
Accrued Expenses 38.00 23.00 67.00 71.00 (17.00) 15.00 473.00 (336.00) 152.00 173.39 34.47 6.96 7.60 (1.07)
Other Assets and Liabilities 56.00 28.00 104.00 (44.00) 7.00 (20.00) 565.00 (129.66) (44.66) 231.78 65.69 (37.07) (92.46) (202.97)
Net Cash Provided by Operating Activities $1,399.00 $1,305.00 $1,942.00 $1,655.00 $352.00 $378.00 $1,208.00 $1,254.78 $2,766.39 $3,812.82 $3,483.63 $4,234.02 $3,115.54 $3,139.32
Cash Flows from Investing Activities
Purchases of Property, Plant and Equipment (615.00) (519.00) (737.00) (778.00) (134.00) (119.00) (139.00) (358.00) (750.00) (1,125.00) (1,186.00) (1,215.00) (1,254.00) (1,298.00)
Proceeds from the sale of PP&E 0.00 29.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Acquisitions, Net of Cash Acquired (927.00) (63.00) (253.00) (15.00) 0.00 0.00 (3,541.00) 0.00 (3,541.00) 0.00 (590.72) (613.56) (638.31) (656.68)
Sales and Maturities of Investments 326.00 2.00 4.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Purchase of Investment (105.00) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Net Cash used in Investing Activities ($1,321.00) ($551.00) ($986.00) ($793.00) ($134.00) ($119.00) ($3,680.00) ($358.00) ($4,291.00) ($1,125.00) ($1,776.72) ($1,828.56) ($1,892.31) ($1,954.68)
Cash Flows from Financing Activities
Issuance of Stock under Employee Stock Plans 65.00 28.00 79.00 58.00 2.00 21.00 29.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Taxes Paid on Vested Stock Awards under Employee Stock Plans (5.00) (5.00) (17.00) (8.00) (5.00) 0.00 0.00 0.00 (5.00) 0.00 0.00 0.00 0.00 0.00
Increase (decrease) in excess Tax Benefits from Employee Stock Plans 89.00 (24.00) 4.00 0.00 1.00 1.00 0.00 0.00 2.00 0.00 0.00 0.00 0.00 0.00
Repurchases of Common Stock/Dividend (60.00) (36.00) 0.00 (50.00) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 (500.00) (1,000.00) (1,000.00)
Repayment of Debt (1,023.00) (27.00) (82.00) (106.00) (31.00) (32.00) (879.00) (730.00) (1,672.00) (413.00) (475.00) (475.00) (475.00) (475.00)
Repayment of Acquired Convertible Debentures (250.00) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Proceeds from Debt 1,510.00 0.00 0.00 0.00 0.00 0.00 2,775.00 0.00 2,775.00 75.00 75.00 75.00 75.00 75.00
Net Cash used in Financing Activities $326.00 ($64.00) ($16.00) ($106.00) ($33.00) ($10.00) $1,925.00 ($730.00) $1,100.00 ($338.00) ($400.00) ($900.00) ($1,400.00) ($1,400.00)
Net Increase in Cash and Cash Equivalents $404.00 $690.00 $940.00 $756.00 $185.00 $249.00 ($547.00) $166.78 ($424.61) $2,349.82 $1,306.91 $1,505.46 ($176.78) ($215.37)
UOIG 18
May 4th
2012
University of Oregon Investment Group
Appendix 9 – Consolidated Statements of Balance Sheet
Consolidated Balance Sheets Q1 Q2 Q3 Q4
($ in millions) 2008 2009 2010 2011 09/30/2011A 12/31/2011A 03/31/2012A 06/30/2012E 2012 2013 2014 2015 2016 2017
ASSETS
Current Assets:
Cash and Cash Equivalents 1,104.00 1,794.00 2,734.00 3,490.00 3,675.00 3,924.00 3,377.00 3,543.78 3,543.78 5,893.60 7,200.51 8,705.97 8,529.20 8,313.83
Short Term Investment 3.00 0.00
Advances to Suppliers 36.00 0.00
Accounts Receivable, net 1,010.00 926.00 1,256.00 1,206.00 1,356.00 747.00 2,377.00 1,530.00 1,530.00 1,986.00 2,036.00 2,135.00 2,553.26 2,736.19
Inventories 456.00 376.00 560.00 577.00 645.00 466.00 1,282.00 460.00 460.00 620.00 984.53 1,124.86 1,276.63 1,422.82
Other Current Assets 122.00 134.00 170.00 214.00 250.00 261.00 409.00 320.00 320.00 281.00 295.36 409.04 531.93 656.68
Total Current Assets $2,731.00 $3,230.00 $4,720.00 $5,487.00 $5,926.00 $5,398.00 $7,445.00 $5,853.78 $5,853.78 $8,780.59 $10,516.39 $12,374.88 $12,891.01 $13,129.52
Property, Plant and Equipment, net 1,668.00 1,584.00 2,159.00 2,224.00 2,209.00 2,091.00 4,171.00 4,232.47 4,232.47 3,890.09 4,385.09 4,868.37 5,335.36 5,739.39
Goodwill 116.00 139.00 146.00 151.00 151.00 151.00 1,851.00 1,851.00 1,851.00 1,851.00 1,851.00 1,851.00 1,851.00 1,851.00
Other Intangible Assets, net 81.00 89.00 88.00 71.00 67.00 63.00 840.00 840.00 840.00 840.00 840.00 840.00 840.00 840.00
Other Non-Current Assets 279.00 249.00 215.00 185.00 114.00 104.00 203.00 203.00 203.00 203.00 203.00 203.00 203.00 203.00
Total Assets $4,875.00 $5,291.00 $7,328.00 $8,118.00 $8,467.00 $7,807.00 $14,510.00 $12,980.25 $12,980.25 $15,564.69 $17,795.49 $20,137.25 $21,120.38 $21,762.91
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts Payable 1,181.00 1,101.00 1,507.00 1,545.00 1,708.00 883.00 2,774.00 2,200.00 2,200.00 2,860.00 3,200.00 3,885.89 3,829.89 3,830.66
Accrued Expenses 266.00 247.00 281.00 349.00 348.00 364.00 837.00 501.00 501.00 674.39 708.86 715.82 723.42 722.35
Accrued Warranty 90.00 95.00 129.00 132.00 135.00 124.00 194.00 239.34 239.34 374.66 443.04 511.30 531.93 547.24
Current Portion of Long-term Debt 27.00 82.00 106.00 144.00 163.00 181.00 730.00 400.00 400.00 475.00 475.00 475.00 475.00 75.00
Total Current Liabilities $1,564.00 $1,525.00 $2,023.00 $2,170.00 $2,354.00 $1,552.00 $4,535.00 $3,340.34 $3,340.34 $4,384.05 $4,826.89 $5,588.01 $5,560.24 $5,175.25
Long-Term Debt 482.00 400.00 294.00 150.00 100.00 50.00 2,013.00 1,613.00 1,613.00 1,200.00 800.00 400.00 0.00 0.00
Other Liabilities 133.00 174.00 302.00 310.00 290.00 282.00 546.00 282.00 282.00 339.45 351.13 359.48 369.27 275.75
Total Liabilities $2,179.00 $2,099.00 $2,619.00 $2,630.00 $2,744.00 $1,884.00 $7,094.00 $5,235.34 $5,235.34 $5,923.50 $5,978.02 $6,347.49 $5,929.51 $5,451.00
Shareholders’ Equity:
Common Stock 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00
Additional Paid-in Capital 906.00 896.00 1,022.00 1,091.00 1,106.00 1,151.00 2,161.00 2,161.00 2,161.00 2,161.00 2,161.00 2,161.00 2,161.00 2,161.00
Accumulated Other Comprehensive Income (loss) (12.00) 2.00 11.00 (5.00) (24.00) (14.00) (14.00) (14.00) (14.00) (14.00) (14.00) (14.00) (14.00) (14.00)
Retained Earnings 1,822.00 2,292.00 3,674.00 4,400.00 4,639.00 4,784.00 5,267.00 5,595.91 5,595.91 7,492.19 9,668.46 11,640.76 13,041.86 14,162.90
Treasure Stock -22 0 0 0 0 0 0 0 0 0 0 0 0 0
Total Shareholders’ Equity $2,696.00 $3,192.00 $4,709.00 $5,488.00 $5,723.00 $5,923.00 $7,416.00 $7,744.91 $7,744.91 $9,641.19 $11,817.46 $13,789.76 $15,190.86 $16,311.90
Total Liabilities and Shareholders’ Equity $4,875.00 $5,291.00 $7,328.00 $8,118.00 $8,467.00 $7,807.00 $14,510.00 $12,980.25 $12,980.25 $15,564.69 $17,795.49 $20,137.25 $21,120.38 $21,762.91
UOIG 19
May 4th
2012
University of Oregon Investment Group
Appendix 10 – Working Capital Model
Working Capital Model Q1 Q2 Q3 Q4
($ in millions) 2008A 2009A 2010A 2011A 09/30/2011A 12/31/2011A 03/31/2012A 06/30/2012E 2012E 2013E 2014E 2015E 2016E 2017E
Total Revenue $8,074.00 $7,453.00 $9,850.00 $9,526.00 $2,694.00 $1,995.00 $3,035.00 $3,989.00 $11,713.00 $18,733.00 $19,690.50 $20,452.05 $21,277.15 $21,889.50
Current Assets
Accounts Receivable 1,010.00 926.00 1,256.00 1,206.00 1,356.00 747.00 2,377.00 1,530.00 1,530.00 1,986.00 2,036.00 2,135.00 2,553.26 2,736.19
% of Revenue 12.51% 12.42% 12.75% 12.66% 13.06% 10.60% 10.34% 10.44% 12.00% 12.50%
Inventory 456.00 376.00 560.00 577.00 645.00 466.00 1,282.00 460.00 460.00 620.00 984.53 1,124.86 1,276.63 1,422.82
% of Revenue 5.65% 5.04% 5.69% 6.06% 3.93% 3.31% 5.00% 5.50% 6.00% 6.50%
Other Current Assets 122.00 134.00 170.00 214.00 250.00 261.00 409.00 320.00 320.00 281.00 295.36 409.04 531.93 656.68
% of Revenue 1.51% 1.80% 1.73% 2.25% 2.73% 1.50% 1.50% 2.00% 2.50% 3.00%
Total Current Assets $2,692.00 $1,436.00 $1,986.00 $1,997.00 $2,251.00 $1,474.00 $4,068.00 $2,310.00 $2,310.00 $2,887.00 $3,315.88 $3,668.90 $4,361.82 $4,815.69
% of Revenue 33.34% 19.27% 20.16% 20.96% 83.56% 73.88% 134.04% 57.91% 19.72% 15.41% 16.84% 17.94% 20.50% 22.00%
Long Term Assets
Net PP&E Beginning 741.00 1,668.00 1,584.00 2,159.00 2,224.00 2,209.00 2,091.00 4,171.00 4,232.47 4,232.47 3,890.09 4,385.09 4,868.37 5,335.36
Capital Expenditures 615.00 519.00 737.00 778.00 134.00 119.00 139.00 358.00 0.00 1,125.00 1,186.00 1,215.00 1,254.00 1,298.00
Acquisition 927.00 63.00 253.00 15.00 0.00 0.00 3,541.00 0.00 0.00 0.00 590.72 613.56 638.31 656.68
Goodwill of Acquisition 1,412.00
Depreciation and Amortization 413.00 479.00 510.00 602.00 158.00 140.00 188.00 296.53 0.00 1,467.38 1,281.71 1,345.28 1,425.32 1,550.66
Net PP&E Ending 1,668.00 1,584.00 2,159.00 2,224.00 2,209.00 2,091.00 4,171.00 4,232.47 4,232.47 3,890.09 4,385.09 4,868.37 5,335.36 5,739.39
Total Current Assets & Net PP&E $4,360.00 $3,020.00 $4,145.00 $4,221.00 $4,460.00 $3,565.00 $8,239.00 $6,542.47 $6,542.47 $6,777.09 $7,700.98 $8,537.27 $9,697.18 $10,555.08
% of Revenue 54.00% 40.52% 42.08% 44.31% 165.55% 178.70% 271.47% 164.01% 55.86% 36.18% 39.11% 41.74% 45.58% 48.22%
Current Liabilities
Accounts Payable 1,181.00 1,101.00 1,507.00 1,545.00 1,708.00 883.00 2,774.00 2,200.00 2,200.00 2,860.00 3,200.00 3,885.89 3,829.89 3,830.66
% of Revenue 14.63% 14.77% 15.30% 16.22% 63.40% 44.26% 91.40% 55.15% 18.78% 15.27% 16.25% 19.00% 18.00% 17.50%
Accrued Expense 266.00 247.00 281.00 349.00 348.00 364.00 837.00 501.00 501.00 674.39 708.86 715.82 723.42 722.35
% of Revenue 3.29% 3.31% 2.85% 3.66% 12.92% 18.25% 27.58% 12.56% 4.28% 3.60% 3.60% 3.50% 3.40% 3.30%
Accrued Warranty 90.00 95.00 129.00 132.00 135.00 124.00 194.00 239.34 239.34 374.66 443.04 511.30 531.93 547.24
% of Revenue 1.11% 1.27% 1.31% 1.39% 5.01% 6.22% 6.39% 6.00% 2.04% 2.00% 2.25% 2.50% 2.50% 2.50%
Current Portion of Long Term Debt 27.00 82.00 106.00 144.00 163.00 181.00 230.00 400.00 400.00 400.00 400.00 400.00 400.00 400.00
% of Revenue 0.33% 1.10% 1.08% 1.51% 6.05% 9.07% 7.58% 10.03% 3.42% 2.14% 2.03% 1.96% 1.88% 1.83%
Total Current Liabilities $1,564.00 $1,525.00 $2,023.00 $2,170.00 $2,354.00 $1,552.00 $4,035.00 $3,340.34 $3,340.34 $4,309.05 $4,751.89 $5,513.01 $5,485.24 $5,500.25
% of Revenue 19.37% 20.46% 20.54% 22.78% 87.38% 77.79% 132.95% 83.74% 28.52% 23.00% 24.13% 26.96% 25.78% 25.13%
UOIG 20
May 4th
2012
University of Oregon Investment Group
Appendix 11 – LBO Debt Schedule
Appendix 12 – LBO Consolidated Statements of Income
Outstanding Amount Interest Rate 2012 2013 2014 2015 2016 2017 2018
Acquisition Revolver (7 Years) $1,000.00 4.50%
Interest Expense $22.50 $41.79 $35.36 $28.93 $22.50 $16.07 $9.64
Current Portion $71.43 $142.86 $142.86 $142.86 $142.86 $142.86 $142.86
Principle $928.57 $785.71 $642.86 $500.00 $357.14 $214.29 $71.43
Amorzation -$71.43 -$214.29 -$357.14 -$500.00 -$642.86 -$785.71 -$928.57
Out Standing Amount Interest Rate 2012 2013 2014 2015 2016 2017 2018
Acquisition Term Loan (5 Years) $3,000.00 6.00%
Interest Expense $90.00 $162.00 $126.00 $90.00 $54.00 $18.00 $0.00
Current Portion $300.00 $600.00 $600.00 $600.00 $600.00 $400.00 $0.00
Principle $2,700.00 $2,100.00 $1,500.00 $900.00 $300.00 $0.00 $0.00
Amorzation -$300.00 -$900.00 -$1,500.00 -$2,100.00 -$2,700.00 -$3,000.00 $0.00
Out Standing Amount Interest Rate 2012 2013 2014 2015 2016 2017 2018
Acquistion High Yield Notes (4 Years) $1,000.00 8.50%
Interest Expense $42.50 $74.38 $53.13 $31.88 $10.63 $0.00 $0.00
Current Portion $125.00 $250.00 $250.00 $250.00 $125.00 $0.00 $0.00
Principle $875.00 $625.00 $375.00 $125.00 $0.00 $0.00 $0.00
Amorzation -$125.00 -$375.00 -$625.00 -$875.00 -$1,000.00 $0.00 $0.00
LBO Debt Schedule
Consolidated Statements of Income Q1 Q2 Q3 Q4
($ in millions) 2008A 2009A 2010A 2011A 09/30/2011A 12/31/2011A 03/31/2012E 06/30/2012E 2012E 2013E 2014E 2015E 2016E 2017E
Revenue 8,074.00 7,453.00 9,850.00 9,526.00 2,694.00 1,995.00 3,035.00 3,989.00 11,713.00 18,733.00 19,690.50 20,452.05 21,277.15 21,889.50
COGS 6,335.00 6,116.00 7,449.00 7,735.00 2,153.00 1,347.00 2,058.00 3,031.64 8,589.64 14,237.08 14,767.88 15,134.51 15,532.32 15,979.33
Gross Profit $1,739.00 $1,337.00 $2,401.00 $1,791.00 $541.00 $648.00 $977.00 $957.36 $3,123.36 $4,495.92 $4,922.63 $5,317.53 $5,744.83 $5,910.16
Gross Margin 21.54% 17.94% 24.38% 18.80% 20.08% 32.48% 32.19% 24.00% 26.67% 24.00% 25.00% 26.00% 27.00% 27.00%
R&D 464.00 509.00 611.00 703.00 193.00 191.00 265.00 355.00 1,004.00 1,420.00 1,532.00 1,636.16 1,808.56 1,970.05
Depreciation and Amortization 413.00 479.00 510.00 602.00 158.00 140.00 188.00 296.53 782.53 1,467.38 1,281.71 1,345.28 1,425.32 1,550.66
SG&A 220.00 201.00 265.00 307.00 89.00 96.00 155.00 198.00 538.00 612.00 632.00 613.56 851.09 1,094.47
Restructuring and Other 49.00 108.00 0.00 0.00 0.00 199.00 15.00 27.92 241.92 281.00 295.36 306.78 425.54 514.40
Operating income $1,006.00 $519.00 $1,525.00 $781.00 $259.00 $162.00 $542.00 $376.44 $1,339.44 $2,182.93 $2,463.27 $2,761.03 $2,659.64 $2,331.23
Interest Income (27.00) (9.00) (4.00) (9.00) (3.00) (3.00) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Interest and other Expense 52.00 27.00 9.00 10.00 4.00 5.00 4.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
LBO Acquisition Interest Payment 155.00 155.00 278.16 214.48 150.80 87.13 34.07
Income before Income Taxes 981.00 501.00 1,520.00 780.00 258.00 160.00 538.00 221.44 1,184.44 1,904.76 2,248.79 2,610.22 2,572.52 2,297.16
Income Tax Provision 114.00 31.00 138.00 54.00 19.00 15.00 55.00 32.53 104.91 164.89 189.24 214.98 208.79 184.44
Net income $867.00 $470.00 $1,382.00 $726.00 $239.00 $145.00 $483.00 $188.91 $1,079.52 $1,739.87 $2,059.54 $2,395.24 $2,363.73 $2,112.72
Net Margin 10.74% 6.31% 14.03% 7.62% 8.87% 7.27% 15.91% 4.74% 9.22% 9.29% 10.46% 11.71% 11.11% 9.65%
UOIG 21
May 4th
2012
University of Oregon Investment Group
Appendix 12 – LBO Consolidated Statements of Cash Flow
Consolidated Statements of Cash Flows Q1 Q2 Q3 Q4
($ in millions) 2008 2009 2010 2011 09/30/2011A 12/31/2011A 03/31/2012E 06/30/2012E 2012 2013 2014 2015 2016 2017
Net income 867.00 470.00 1,382.00 726.00 239.00 145.00 483.00 188.91 1,079.52 1,739.87 2,059.54 2,395.24 2,363.73 2,112.72
Adjustments to Net Cash Provided by Operations:
Depreciation and Amortization 413.00 479.00 510.00 602.00 158.00 140.00 188.00 296.53 782.53 1,467.38 1,281.71 1,345.28 1,425.32 1,550.66
Stock-Based Compensation 37.00 47.00 60.00 69.00 17.00 24.00 0.00 0.00 41.00 0.00 0.00 0.00 0.00 0.00
Deferred Income Taxes (2.00) 24.00 27.00 20.00 9.00 9.00 0.00 0.00 18.00 0.00 0.00 0.00 0.00 0.00
Loss on Investments 13.00 10.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Acquired in-process Research and Development 49.00 14.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Non-Cash Portion of Restructuring and Other, net 0.00 63.00 0.00 0.00 0.00 109.00 0.00 0.00 109.00 0.00 0.00 0.00 0.00 0.00
Changes in:
Accounts Receivable, net (194.00) 92.00 (330.00) 50.00 (150.00) 609.00 (405.00) (378.00) (324.00) (290.00) (72.00) (243.00) (454.00) (185.29)
Inventories 8.00 88.00 (148.00) (17.00) (68.00) 179.00 263.00 (257.00) 117.00 (160.00) (364.53) (140.34) (151.77) (146.19)
Accounts Payable 114.00 (33.00) 270.00 178.00 157.00 (832.00) 388.00 929.00 655.00 660.00 340.00 685.89 (56.00) 0.77
Accrued Expenses 38.00 23.00 67.00 71.00 (17.00) 15.00 16.00 121.00 152.00 173.39 34.47 6.96 7.60 (1.07)
Other Assets and Liabilities 56.00 28.00 104.00 (44.00) 7.00 (20.00) 7.00 (96.66) (91.66) 142.33 7.14 (95.07) (321.46) (406.97)
Net Cash Provided by Operating Activities $1,399.00 $1,305.00 $1,942.00 $1,655.00 $352.00 $378.00 $940.00 $803.78 $2,538.39 $3,732.96 $3,286.35 $3,954.97 $2,813.42 $2,924.63
Cash Flows from Investing Activities
Purchases of Property, Plant and Equipment (615.00) (519.00) (737.00) (778.00) (134.00) (119.00) (139.00) (358.00) (750.00) (1,125.00) (1,186.00) (1,215.00) (1,254.00) (1,298.00)
Proceeds from the sale of PP&E 0.00 29.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Acquisitions, Net of Cash Acquired (927.00) (63.00) (253.00) (15.00) 0.00 0.00 (3,541.00) 0.00 (3,541.00) 0.00 (590.72) (613.56) (638.31) (656.68)
Sales and Maturities of Investments 326.00 2.00 4.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Purchase of Investment (105.00) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Net Cash used in Investing Activities ($1,321.00) ($551.00) ($986.00) ($793.00) ($134.00) ($119.00) ($3,680.00) ($358.00) ($4,291.00) ($1,125.00) ($1,776.72) ($1,828.56) ($1,892.31) ($1,954.68)
Cash Flows from Financing Activities
Issuance of Stock under Employee Stock Plans 65.00 28.00 79.00 58.00 2.00 21.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Taxes Paid on Vested Stock Awards under Employee Stock Plans (5.00) (5.00) (17.00) (8.00) (5.00) 0.00 0.00 0.00 (5.00) 0.00 0.00 0.00 0.00 0.00
Increase (decrease) in excess Tax Benefits from Employee Stock Plans 89.00 (24.00) 4.00 0.00 1.00 1.00 0.00 0.00 2.00 0.00 0.00 0.00 0.00 0.00
Repurchases of Common Stock (60.00) (36.00) 0.00 (50.00) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Repayment of Debt (1,023.00) (27.00) (82.00) (106.00) (31.00) (32.00) (181.00) 0.00 0.00 0.00 0.00 0.00 0.00 0.00
LBO Retire of Debt (2,000.00) (2,000.00) 0.00 0.00 0.00 0.00 0.00
LBO Acuiqistion Debt Payment (496.43) (496.43) (992.86) (992.86) (992.86) (867.86) (542.86)
Repayment of Acquired Convertible Debentures (250.00) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Proceeds from Debt 1,510.00 0.00 0.00 0.00 0.00 0.00 2,000.00 5,000.00 7,000.00 0.00 0.00 0.00 0.00 0.00
Related Fees (576.06) (576.06) 0.00 0.00 0.00 0.00 0.00
From Sponsership Equity 10,434.68 10,434.68 0.00 0.00 0.00 0.00 0.00
Payment to Retire Common Stock (15,361.62) (15,361.62) 0.00 0.00 0.00 0.00 0.00
Net Cash used in Financing Activities $326.00 ($64.00) ($16.00) ($106.00) ($33.00) ($10.00) $1,819.00 ($2,999.43) ($1,002.43) ($992.86) ($992.86) ($992.86) ($867.86) ($542.86)
Net Increase in Cash and Cash Equivalents $404.00 $690.00 $940.00 $756.00 $185.00 $249.00 ($921.00) ($2,553.65) ($2,755.04) $1,615.10 $516.77 $1,133.55 $53.25 $427.09
UOIG 22
May 4th
2012
University of Oregon Investment Group
Appendix 12 – LBO Consolidated Statements of Balance Sheet
Consolidated Balance Sheets Q1 Q2 Q3 Q4
($ in millions) 2008 2009 2010 2011 09/30/2011A 12/31/2011A 03/31/2012E 06/30/2012E 2012 2013 2014 2015 2016 2017
ASSETS
Current Assets:
Cash and Cash Equivalents 1,104.00 1,794.00 2,734.00 3,490.00 3,675.00 3,924.00 3,003.00 449.35 449.35 2,064.45 2,581.22 3,714.78 3,768.03 4,195.12
Short Term Investment 3.00 0.00
Advances to Suppliers 36.00 0.00
Accounts Receivable, net 1,010.00 926.00 1,256.00 1,206.00 1,356.00 747.00 1,152.00 1,530.00 1,530.00 1,820.00 1,892.00 2,135.00 2,589.00 2,774.29
Inventories 456.00 376.00 560.00 577.00 645.00 466.00 203.00 460.00 460.00 620.00 984.53 1,124.86 1,276.63 1,422.82
Other Current Assets 122.00 134.00 170.00 214.00 250.00 261.00 266.00 320.00 320.00 281.00 295.36 409.04 531.93 656.68
Total Current Assets $2,731.00 $3,230.00 $4,720.00 $5,487.00 $5,926.00 $5,398.00 $4,624.00 $2,759.35 $2,759.35 $4,785.45 $5,753.11 $7,383.68 $8,165.59 $9,048.91
Property, Plant and Equipment, net 1,668.00 1,584.00 2,159.00 2,224.00 2,209.00 2,091.00 5,583.00 5,644.47 5,644.47 5,302.09 5,797.09 6,280.37 6,747.36 7,151.39
Goodwill 116.00 139.00 146.00 151.00 151.00 151.00 151.00 151.00 151.00 535.11 535.11 535.11 410.11 185.11
Other Intangible Assets, net 81.00 89.00 88.00 71.00 67.00 63.00 63.00 63.00 63.00 63.00 63.00 63.00 63.00 63.00
Other Non-Current Assets 279.00 249.00 215.00 185.00 114.00 104.00 200.00 250.00 250.00 339.45 398.00 456.00 685.00 889.00
Total Assets $4,875.00 $5,291.00 $7,328.00 $8,118.00 $8,467.00 $7,807.00 $10,621.00 $8,867.82 $8,867.82 $11,025.10 $12,546.31 $14,718.16 $16,071.06 $17,337.41
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts Payable 1,181.00 1,101.00 1,507.00 1,545.00 1,708.00 883.00 1,271.00 2,200.00 2,200.00 2,860.00 3,200.00 3,885.89 3,829.89 3,830.66
Accrued Expenses 266.00 247.00 281.00 349.00 348.00 364.00 380.00 501.00 501.00 674.39 708.86 715.82 723.42 722.35
Accrued Warranty 90.00 95.00 129.00 132.00 135.00 124.00 130.00 239.34 239.34 374.66 443.04 511.30 531.93 547.24
Current Portion of Long-term Debt 27.00 82.00 106.00 144.00 163.00 181.00 50.00 496.43 496.43 992.86 992.86 992.86 867.86 542.86
Total Current Liabilities $1,564.00 $1,525.00 $2,023.00 $2,170.00 $2,354.00 $1,552.00 $1,831.00 $3,436.77 $3,436.77 $4,901.91 $5,344.75 $6,105.87 $5,953.10 $5,643.11
Long-Term Debt 482.00 400.00 294.00 150.00 100.00 50.00 2,000.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
LBO Acquisition Long Term Debt 4,503.57 4,503.57 3,510.71 2,517.86 1,525.00 657.14 214.29
Other Liabilities 133.00 174.00 302.00 310.00 290.00 282.00 384.00 282.00 282.00 339.45 351.13 359.48 369.27 275.75
Total Liabilities $2,179.00 $2,099.00 $2,619.00 $2,630.00 $2,744.00 $1,884.00 $4,215.00 $8,222.34 $8,222.34 $8,752.07 $8,213.74 $7,990.35 $6,979.51 $6,133.14
Shareholders’ Equity:
Common Stock 2.00 2.00 2.00 2.00 2.00 2.00 2.00 (4,926.94) (4,926.94) (4,926.94) (4,926.94) (4,926.94) (4,926.94) (4,926.94)
Additional Paid-in Capital 906.00 896.00 1,022.00 1,091.00 1,106.00 1,151.00 1,151.00 112.32 112.32 0.00 0.00 0.00 0.00 0.00
Accumulated Other Comprehensive Income (loss) (12.00) 2.00 11.00 (5.00) (24.00) (14.00) (14.00) (14.00) (14.00) (14.00) (14.00) (14.00) (14.00) (14.00)
Retained Earnings 1,822.00 2,292.00 3,674.00 4,400.00 4,639.00 4,784.00 5,267.00 5,455.91 5,455.91 7,195.78 9,255.32 11,650.56 14,014.29 16,127.01
Total Shareholders’ Equity $2,696.00 $3,192.00 $4,709.00 $5,488.00 $5,723.00 $5,923.00 $6,406.00 $627.29 $627.29 $2,254.84 $4,314.38 $6,709.62 $9,073.35 $11,186.07
Total Liabilities and Shareholders’ Equity $4,875.00 $5,291.00 $7,328.00 $8,118.00 $8,467.00 $7,807.00 $10,621.00 $8,849.63 $8,849.63 $11,006.91 $12,528.12 $14,699.97 $16,052.87 $17,319.22