Apple Inc. Date of Presentation Technology Sector Ticker: AAPL Current Price: $434.58 Recommendation: Hold Implied Price: $657.15 Key Statistics 52 Week Price Range 50-Day Moving Average Estimated Beta Dividend Yield Market Capitalization 3-Year Revenue CAGR Trading Statistics Diluted Shares Outstanding Average Volume (3-Month) $385.10 - $705.07 $432.68 0.919 2.60% 425.18 B 22.67% $943 B $16.77 B Investment Thesis Apple has an extremely loyal customer base and is looking to expand its brand name and popularity while tapping in to the growing Chinese market. Apple already has a solid product pipeline with iphone and ipad being very popular. Additionally, Apple has a history of innovation, and has hinted at new products in the works that could potentially shake up the technology industry. Apple plans to release a new and less expensive iphone in the next quarter along with new products to diversify their product offerings. The company is attempting to sign an agreement with China Mobile, the largest Telecommunications provider in Greater China. This would vastly stimulate Apple s revenues. Apple recently announced a $100 billion stock repurchase program. High dividend offers a strong return of investment. $800.00 Five-Year Stock Chart 400,000,000 Institutional Ownership 64.10% Insider Ownership 0.03% EV/EBITDA (LTM) 9.27X Margins and Ratios Gross Margin (LTM) 42.52% EBITDA Margin (LTM) 35.74% Net Margin (LTM) 23.46% Debt to Enterprise Value 0.15 $700.00 $600.00 $500.00 $400.00 $300.00 $200.00 $100.00 350,000,000 300,000,000 250,000,000 200,000,000 150,000,000 100,000,000 50,000,000 John Roskos jroskos@uoregon.edu $0.00 0 Sep-05 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Volume Adjusted Close 50-Day Avg 200-Day Avg 1 University of Oregon Investment Group
Business Overview Apple Inc. is an American Multinational Corporation based in Cupertino, California that designs, sells, and produces consumer electronics and computer software. The company s most notable products are iphone, ipad, ipod, Mac computers, OS X and ios operating systems. On April 1 st, 1976, Steve Jobs, Steve Wozniak and Ronald Wayne founded Apple. Apple became incorporated on January 3, 1977 without Wayne who incidentally sold his share of the company back to Jobs and Wozniak. The company s first product was a personal computer kit called the Apple 1, built by Wozniak himself. After Apple 1, the company released Apple II on April 16, 1977 and then Apple III in May of 1980 to limited success. In 1984, the company debuted their newest computer, the Macintosh, which is regarded as one of the most influential pieces to Apple s rise. However, in 1985, recently hired CEO John Sculley and Steve Jobs engaged in a power struggle that ultimately lead Sculley to attempt to contain Jobs. The restrictions placed on Jobs were enough to make him resign and found the company NeXT Inc. in the same year. During Job s absence, Apple enjoyed major growth due to the successful PowerBook, but achieved moderate sales with the majority of other products released. The company chose to purchase NeXT and NeXTSTEP operating systems, which lead to Jobs returning in 1997 as an interim CEO and began to reconfigure the company s product line. Entering into the 2000 s, Apple released several influential and revolutionary products and systems that would cement the company as the leader in innovation. With the ipod s release in 2001, the itunes store in 2003, the MacBook Pro in 2006, the iphone in 2007, and the ipad in 2010, the company enjoyed tremendous success. Apple has relied heavily on sales from iphone and ipad refreshes, and continues to see success in their itunes store. When Steve Jobs took medical leave in August of 2011, Tim Cook, former COO of Apple was named CEO of the company to wide speculation of his ability to create innovative products like Jobs could. On October 4 th, 2011, Jobs passed away due to complications with pancreatic cancer. Business Segments Apple offers products categorized in mobile communication and media devices, personal computers, portable digital music players, and software and service, peripherals, and software products. Apple s mobile communication product is the iphone, which utilizes characteristics of the ipod, and allows the owner to access Internet connections and use apps purchased through the itunes store. iphone was first released on June 29, 2007 and has undergone 6 updates and refreshes. During 2012, 1.25 billion units of the iphone were sold, creating $80 billion in revenue, which resulted in 73% growth from the previous year. iphone remains at around 50% of Apple s current revenue, and new releases are met with great anticipation. The ipad is a multi-purpose tablet that holds many of the same functions of a desktop computer. There are four generations of ipad, with the company releasing the ipad Mini on November 2, 2012. Since its release, ipad owners have downloaded over three billion apps, which are over an eighth of total App UOIG 2
Store downloads. Last year, Apple sold 58 billion ipads resulting in $32.4 billion dollars in revenue. The ipad segment holds 21% of 2012 total revenue. The desktop and portables segment combine to make Apple s Mac segment. Apple offers the imac, Mac Pro, and Mac mini as their desktop section with Macbook Pro and MacBook Pro Air making up their portable computer section. These computers together make up 15% of total revenue, and add up to 18.16 billion unit sales generating $23.2 billion in revenue. The ipod consists of Apple s line of portable digital and media players. The company offers multiple versions of the ipod in the ipod touch, ipod nano, ipod shuffle, and the ipod classic. However, since 2011 the ipod has seen negative growth rates due to cannibalization caused by products offering similar music playing features like iphone and ipad. In 2012, 25.2 billion ipods were sold which created $5.6 in revenue. The remaining segments contain itunes and the App Store which is categorized under Other music related products and services. The itunes and App Store combined generated $8.5 billion and saw sizeable growth. The Peripherals and other hardware section is made up of display, wireless connectivity, and Cloud Networking initiatives generating $2.8 billion in revenue. Finally, the Software, service, and other sales is Apple s branded and third party software which created $3.5 in revenue for 2012. Strategic Positioning With Steve Job s innovation and product design creativity gone, Tim Cook is faced with large shoes to fill. However, where he lacks in creativity, he gains in business savvy and marketing creativity. Additionally, Apple has been adopted by certain business customers in various industries that provide the company with creative ways to supply to the aforementioned businesses. Apple has demonstrated the ability to stay ahead of the competition by utilizing their large amounts of free cash to control almost every aspect of the supply chain. For example, when the iphone 4 and ipad 2 was launched, Apple purchased the necessary machines and suppliers needed for assembly and essentially boxed out the competition that needed the same resources for production. Apple under Tim Cook s leadership is able to utilize the resources at their disposal to intelligently control supply chains and gain price advantages in vital areas. Apple has become an important part of business operations around the world. For example, according to a conference call, Apple reported that Doctors at the Columbia Cardiovascular Foundation in South America are using an in-house app to perform remote diagnostics for patients in inaccessible parts of the country. Apple excels at utilizing these creative opportunities for growth, and has become an important and integral provider for companies seeking their specific products throughout the world. Business Growth Strategies Apple places an emphasis on providing customers with products that are designed to improve the individual s quality of life. The company sees the product as more than a product, but an aspect of customer s everyday lives. This unique mindset propels Apple to create the highest quality products and provide the best customer service available. UOIG 3
Apple views their Retail Stores as an important factor in the growth of the company, realizing that customer accessibility is important to gaining market share in goldmine markets like China and Japan. Apple Retail Stores have seen significant growth of 19% compared to the previous year s quarterly sales. The company currently has 402 stores open throughout the world, with 151 residing outside of the U.S. To gain a foothold in foreign countries, Apple plans to open at least 30-55 new Retail Stores in foreign countries, with the average store observing 17,500 visitors per week. With these initiatives, Apple is seeking to make their products more available to individuals in foreign markets who currently have limited access to the company s products. The firm targets foreign growth as an area of key emphasis. In addition to the opening of new retail stores, Apple has focused their interests on growth in the important growing market in China. Currently, Apple has partnerships with Chinese telephone supplier China Unicom and China Telecom. With the potential release of a new iphone in China, Apple should see significant growth and an increased market share in that sector. However, Apple s largest target remains China Mobile which is the largest supplier of communication services in China. Landing a deal with China Mobile could significantly boost revenue. Recently, there has been widespread speculation on whether or not Apple has the potential to release any innovative products like those of the past that spurred the company s growth. However, with an increased spending in R&D and rumors of an iwatch, a wearable computing device that utilizes Apple s ios technology and the smaller and cheaper iphone to be released in the fall, Apple has shown that they intend to remain a leader in innovation and product excellence. Along with potential iphone and iwatch releases, Apple is expected to introduce a newer version of Apple TV. Although thus-far, the company has seen limited success with only 5 million units sold, rumors have created speculation that Apple TV will be upgraded to a fully integrated monitor rather than the receiver box that it currently is. Additionally, a rumored iring will serve as the remote to the Apple TV and is designed to replace the currently used remote. With the launch of the new Apple TV, revenues could jump and with potential success Apple TV could become a staple product for consumers just like the iphone and ipad currently is. Industry Overview Apple lies in the technology industry, in which similar companies are involved in production of technological goods like computing software, communication systems and chip production. The computer manufacturing segment however is expecting an annual decline of 5.1% according to IBIS World, with Apple holding the third largest market share of 21.3% behind Dell and Hewlett- Packard Company at number one with 27.3%. With portable computers including tablets consisting of 49% of all product sales, Apple remains a major player with the current success of the ipad. However, with ipad s continued success, tablet computers pose a threat to cannibalize laptop and desktop sales. However, fierce competition has led to falling prices and declining profit margins in companies that compete in this industry. In the technology sector, innovation and a commitment to research and development are key drivers in a company s success. Companies must stay current with trends to stand out in such a saturated market in which the four UOIG 4
largest companies control 88.6% of industry revenue. With all-in-one computing devices on the rise, companies in this sector remain competitive to gain advantage with highly publicized product releases. There is much technical similarity between most of the computer makers in the industry, so effective advertising can help companies stand out from their rivals. 40000 35000 Per Capita Disposable Income Macro factors Important factors in the computer manufacturing and operating system markets are disposable income of customers, advances in manufacturing, and customer preferences in product technology 30000 25000 20000 15000 10000 5000 0 Years 2009-2018 With rebounding amounts of disposable income domestically, computer manufacturing companies could potentially see higher sales should they price their products intelligently. According to IBIS World, as computer prices fall, the share of consumers who will potentially own computers is expected to increase to 81.4% looking forward to 2017. Additionally, consumer preferences are expected to shift from portable computers to the emerging tablet market. Consumer preference and expectations plays a large part in the innovation of the industry, with higher expectations in the technology and speed of computing devices driving competition. Competition Apple s direct competitors are Google, Microsoft, Hewlett-Packard, and Samsung who recently has been their number one competitor. Market Share for Smartphones Android Apple Blackberry Amicrosoft Symbian 3% 0% 6% 38% 53% With the recent release of Samsung s Galaxy S4, Apple has seen decreased market share in the smartphone sector. Samsung holds competitive advantages with the cheaper prices of their phones compared to those Apple offers. Ironically, Apple uses many components in the iphone that Samsung makes. Apple purchases their flash memory components that hold the iphone s app, music, and operating software memory from Samsung, making Apple one of Samsung s largest customers. Google Inc. also competes with Apple with the operating system, hardware, and music service markets. Google Play is Google s version of itunes, allowing users to purchase and store music online, letting customers access the content anywhere with an internet connection. Google Play saw a revenue growth of 90% in their first quarter of 2013; however itunes still saw 2.6 times more total sales. Computer Manufacturing Industry Total Revenue 50000 45000 Computer 40000 Manufacturing Industry Revenue 35000 30000 25000 Years 20000 $ Millions 15000 Hewlett-Packard competes with Apple in the computer manufacturing market. Hewlett-Packard relies heavily on their server system segment and personal computer system group to generate revenues, as these segments accounted for 48.6% of revenue in 2012 according to IBIS World. In July of 2011, HP attempted to gain a foothold in the tablet computing market and released their first tablet called the TouchPad. However, sales were dismal and HP plans to decrease their production of the product. Microsoft Inc. and Apple have a long lasting rivalry that has continued on with Microsoft s recent release of their smartphone and Microsoft Surface Tablet. Microsoft gets most of their revenue from their Windows system, with their Xbox gaming system seeing declining profitability. Microsoft also has an 10000 5000 0 2009 2010 2011 2012 UOIG 5
established cloud platform, but is trying to break into the smartphone market and directly compete with Apple. In the technology industry, advertising and ground-breaking products are keys to success for a company. With a highly diluted product pool, companies must differentiate themselves from the pack with sleek new products and intelligent product release times. Pricing is important to a products success, with higher priced products tending to see limited success in foreign markets. Management and Employee Relations Tim Cook CEO Peter Oppenheimer - CFO Phillip Schiller SVP, Worldwide Marketing Tim Cook- CEO Tim Cook was named CEO on August 24, 2011 after previous CEO Steve Jobs passed away. Prior to being named CEO, Mr. Cook served as Senior Vice President of Worldwide Operations and Executive Vice President of Worldwide Sales and Operations. Mr. Cook is credited with streamlining Apple s supply chain and even headed Apple s Macintosh division early in his career. He earned his M.B.A. from Duke University. Peter Oppenheimer CFO Mr. Oppenheimer has been Apple s CFO since June 2004 and oversees the controller, treasury, and investor relations. Mr. Oppenheimer joined Apple in 1996 as controller for the Americas and a year later was promoted to Vice President of Worldwide Sales Controller. Mr. Oppenheimer spent six years in the Information and Technology Consulting Practice with Coopers and Lybrand, and holds a bachelor s degree from California Polytechnic University, San Luis Obispo and an M.B.A. from the University of Santa Clara. Phillip W Schiller Senior Vice President, Worldwide Marketing Mr. Schiller has been the Senior Vice President of Worldwide Marketing since he rejoined the company in April 1997. Mr. Schiller helped to create the Mac and helped with the creation of ipod, itunes, iphone, and the App Store. From December 1993 through December 1997, Mr. Schiller served as Director of Product Marketing at FirePower Systems Inc. Mr. Schiller possesses over twenty five years of marketing and management experience, eleven of them with apple. He graduated with a Bachelor of Science in Biology from Boston College in 1982. Jonathan Ive- SVP, Industrial Design Jonathan Ive Senior Vice President, Industrial Design Mr. Ive is a London- born designer who has worked for Apple since 1996. Mr. Ive is regarded as one of the world s best product designers, winning numerous design awards and is responsible for products that are featured in collections of museums worldwide. He was named Designer of the Year by the Design Museum London and was given the title Royal Designer for Industry by The Royal Society of Arts. Mr. Ive holds a Bachelor of Arts and honorary doctorate from Newcastle Polytechnic. Craig Federighi- Senior VP, Head: ios & OS X Mr. Federighi is tasked with overseeing the development of ios and Mac OS X along with Apple s common operating system engineering teams. Mr. Federighi returned to Apple in 2009 and lead with the engineering of Mac s OS X. Mr. Federighi also engineered Mountain Lion software, which was the most Craig Federighi SVP, Head: Ios & OS X UOIG 6
successful OS X release in Apple s history. Mr. Federighi studied at the University of California, Berkley where he earned a Master of Science degree in Computer Science and a Bachelor of Science in Electrical Engineering and Computer Science. Management Guidance Looking forward into the third quarter, Apple announced that they would be initiating a $100 billion capital return program, distributing approximately $30 billion dollars per year to investors. However, to fund this return program, Apple will be taking on a debt total of around $50 billion which is the first time the company has taken on debt in company history. UOIG Projections 2013E 12/31/2013E 03/31/2014E 06/30/2014E 09/30/2014E 2014E Net Sales ($M) $185,811.0 $59,550.3 $48,845.0 $44,698.9 $59,664.0 $212,758.2 EBITDA ($M) $56,332.3 $18,544.0 $14,536.3 $14,384.1 $16,873.0 $64,337.3 Basic EPS ($) $33.4 $13.28 $9.98 $9.74 $4.70 $37.69 Consensus Estimates Net Sales ($M) $171,451.0 $56,224.0 $45,301.0 $40,956.0 $44,466.0 $187,574.0 EBTIDA ($M) $55,084.0 $19,611.0 $15,538.0 $12,605.0 $13,676.0 $58,488.0 Basic EPS ($) $39.8 $13.9 $10.7 $9.1 $10.2 $44.1 Apple typically gives conservative guidance looking forward, and only provides guidance for one quarter. The company expects revenues to be between $33 and $33.5 billion dollars with a gross margin to be between 36% and 37%. The company is also working on exploiting the large Chinese market, and has already signed with three of China s biggest telecommunication companies and is looking forward to signing on with China Mobile, China s top telecommunications provider. Management stated they expected their tax rate to be 25%. Due to Apple s performance in the past, the guidance they gave seems beatable, as the company is optimistic about their product pipeline and future in the Chinese market. Portfolio History Apple stocks are currently held in the Tall Firs and Svigals portfolios. Tall Firs Shares Cost Basis Market Value Return on Portfolio Weight Investment 50 $30,840.17 $22,131.50-28.20% 2.78% Tall Firs originally purchased 75 stocks on August 3 rd, 2012 for $616.80 per share at a cost basis of $45,260.25. On September 28 th, 2012, 25 shares were sold for $679.58 at a market value of $16,989.61. Tall Firs currently holds 50 shares at a cost basis of $30,840.17 and market value of $22,131.50. Apple currently sits at 2.78% of the portfolio s weight. I believe Apple is a valuable stock to hold because of the high dividend it offers and history of explosive growth. Svigals Shares Cost Basis Market Value Return on Portfolio Weight Investment 6 $2,256.65 $2,655.96 15.00% 2.02% Svigals purchased nine shares of Apple on February 3 rd, 2011 for $459.85 per share. Three shares were then sold on April 9 th, 2012 fir $627.57. Svigals currently holds six shares of Apple with a cost basis of $2,256.65 and has seen a return on investment of 15%. The six shares of Apple currently hold 2.02% of the total portfolio s weight. I believe that Apple is a good for Svigals because of its potential for growth and high dividend offered. Recent News Katy Huberty is Back from China with Apple News- Fortune UOIG 7
FORTUNE -- In a note to clients Wednesday, Morgan Stanley's Katy Huberty, just back from China, reports on "feedback" from Asian carriers and suppliers that she views as positive for Apple (AAPL). She makes several points: (I quote) After a slow start, iphone 5 is now on track to meet carrier volume expectations. iphone 4 price cuts could stimulate incremental demand near-term. Carriers see the opportunity for Apple to expand market coverage with 5-inch and lower-priced iphones over time. TD-LTE licenses, and related phone launches, are expected by year-end. That last point may be particularly significant as it suggests that a contract with the last major Chinese iphone holdout -- China Mobile (CHL), the world's largest carrier with more than 700 million subscribers -- could be signed before the end of the year. Separately, Taiwan's DigiTimes reported Tuesday that China Mobile was expected to start an open-bid competition process as early as mid-may to procure equipment for 200,000 TD-LTE base stations for installation in 100 Chinese cities. This article demonstrates Apple s push to capitalize growth in China in the coming year. Apple Seeks to Add Samsung Galaxy S4 to Infringement List- Bloomberg Apple Inc. (AAPL) told a U.S. judge it will seek permission to add Samsung Electronics Co. s Galaxy S4 smartphone to a list of 22 accused products Apple alleges infringes its patents. The disclosure came in a footnote to a filing yesterday with U.S. District Judge Lucy H. Koh in San Jose, California, responding to her April 24 directive that each side submit a limited list of the other s allegedly infringing products. This is the second infringement lawsuit between the companies in the same court. Apple filed the case last year to address technology in newer smartphones made by the companies. Apple has identified (and separately counted) specific Samsung products -- not product lines, the Cupertino, California-based company told Koh in its six-page submission. Included on its 22-item list are Samsung s Galaxy SII and SIII phones, Galaxy Note, Galaxy Note 10.1 and Galaxy Note II hybrid phonetablets and three Galaxy series tablet computers. Should Apple win permission to add the Galaxy S4 smartphone that Samsung released last month, it will drop one of the other devices from the list, according to the filing. Samsung, too, submitted a 22-product list to Koh, identifying as alleged infringers five models of Apple s iphone, five versions of the ipad tablet computer, three types of ipod digital-music players and the MacBook Pro and MacBook Air computers. Apple and Samsung both offer similar products so lawsuits are common. However, in the previous lawsuit between the two companies, Apple won $1 from Samsung in a patent lawsuit. Apple s Upcoming Ios7 Said to Have New Look- abc NEWS UOIG 8
Speculation is rampant about what visual changes Apple may be working into the latest version of its mobile device software, ios 7, set to be announced at Apple s Worldwide Developers Conference, June 10-14. Sources familiar with these alleged changes in the software that powers the iphone, ipad, and ipod Touch have said Apple is moving away from a realism look the way elements and apps have been built to replicate real life with three-dimensional layering and faux texturing and introducing a simpler, flatter design, according to Bloomberg. A report by 9to5Mac corroborates this report, citing sources that said the new elements in ios 7 will be moving in the direction of Microsoft s Windows Phone Metro UI. The event invitation for WWDC is even being sniffed for clues. Apple s WWDC 2013 logo, the art for the conference in which ios 7 will be announced, has sparked speculation about flat interface design with its modern, lightweight text and other elements, 9to5Mac posted. Daring Fireball s John Gruber, a known Apple speculator, has also commented on an apparently rather significant system-wide UI overhaul for the newest version of Apple s mobile OS. He posted that Apple employees have been asked to use polarizing filters on their iphone displays, making it difficult for observers see the design changes ahead of the ios 7 announcement. These purported software changes are attributed to the new oversight of software design by Jon Ives, Apple s senior vice president of industrial design. Ives, head of the team responsible for the lauded iphone and ipod hardware, has been given extended influence over mobile software design after the Apple Maps blunder and exit of former senior vice president of ios software Scott Forstall, Bloomberg reported. The general look and style of Apple s ios has remained the same since being introduced in 2007. Since then, Google s Android has been visually revamped a number of times, most recently under the supervision of Palm WebOS convert Matias Duarte. New designs have also been brought to market by Microsoft with Windows Phone offerings and by Blackberry with the latest line of Blackberry 10 devices. Apple is attempting to make their ios system the leading system in innovation. Jonathan Ive is the leading developer and designer, and his history of highly acclaimed products speaks to the future success this next ios7 system could achieve. 3% 3% Chinese Smartphone Market Share 2% 1% 0% 0% 0% Others 5% Samsung Nokia ZTE 16% Apple 53% Huawei HTC 17% LG Sony Catalysts Upside New release of improved ipad Mini could boost sales. Upcoming release of new and cheaper iphone could boost sales. New retail stores in China introduce new and first time smartphone buyers to Apple products. UOIG 9
Deals with Chinese telecommunication companies along with singing on with China Mobile could grab Apple a large market share in China. Up-coming release of ios7 on a lower cost iphone could significantly increase revenues. Downside Increasing competition with lower priced Samsung products. Large gaps in time between product refreshes could create investor uncertainty in if Tim Cook can lead Apple to be as innovative as it was under Steve Jobs. Comparable Analysis Comparable companies were chosen from Apple s leading competitors in the technology sector. Since Apple is such a large company in terms of market capitalization, I chose to look for companies with a similarly sized market capitalization. Along with size, I searched for companies with similar growth rates, risks, and products produced. Given that this is the first time in company history Apple is taking on debt and the amount of debt is so large, it was difficult to find companies with such large debt offerings. Google (35%) Google is a technology company that offers an online search engine, advertising, cloud computing, and telephone operating software. Google generates most of its revenue through advertising used on its search engine. Google has made numerous acquisitions that have resulted in it becoming one of Apple s main competitors. In May of 2012, the company acquired Motorola Mobility Holdings, Inc. and integrated their Android operating system into the phones. Google also engineered the Nexus phones and tablets, which compete directly with Apple s iphone and ipad. Google also offers their Google Play system which is an itunes Store clone. Google play offers video, music, and other entertainment downloads at a price just like itunes and comes with all Android phones. However, as Google has a commanding lead in market share with 64% compared to Apple s ios at 19%, Apple s App Store generates over four times more revenue than Google Play. I chose to weight Google 35% because of their similar market capitalization and growth rates. However, Google generates most of their revenue through advertising where as Apple generates the majority of their revenue through product sales. With this being the case, I consider Google to be less of a competitor compared to Samsung who directly compete with Apple on numerous product sectors. Samsung Electronics Co. Ltd. (45%) Samsung Electronics is a South Korean based electronic company that offers a multitude of consumer electronic products. Samsung s Galaxy phones, tablets, and personal computer systems. UOIG 10
Samsung has cemented itself as one of Apple s top rivals in the smartphone market with the greatly anticipated release of the Galaxy s4. Gartner research agency reported that the Android phone accounted for 74% of smartphones sold in the first quarter of 2013. Phone shipments reached around 426 million units with a marginal increase year over year of 0.7%. Samsung also offers nonsmartphones which are offered at much lower prices. These non-smartphone sales combined with smartphone sales combine to create a 23.6% market share for Samsung compared to a 9% market share for Apple in the first quarter of 2013. I chose to weight Samsung at 45% because of their similar earnings, market share, and rivalry in product offerings. Samsung is weighed higher than the rest of the comparable firms because of how directly they are predicted to compete with Apple in this coming year. Microsoft Corporation (20%) Microsoft develops and licenses computer software, personal computers, and created the Xbox gaming device. The company is the leader in the PC market and their Windows operating system holds a 91.6% market share over all other operating systems including Apple s OS X at 6.42%. Additionally Microsoft s phones and tablets directly compete with Apple s iphone and ipad and include Microsoft s Office Suite which is more popular than the ios system. I chose to weight Microsoft at 20% because of similar market capitalization and multiples. However, Microsoft was weighed higher than desired due to more similar comparable companies. Discounted Cash Flow Analysis I primarily relied on percent of sales a percent of total revenue to project the discounted cash flow analysis. Revenue Model The revenue model section was broken down into two sections; geographic and product type. In the geographic segment, the America has held above 30% of total revenue maintaining Apple s highest revenue generator. Apple generally sees their highest growth during the holiday and back to school seasons, which are reflected in the company s Q1 and Q4 respectively. Apple just began recording Greater China in their SEC filings, which added a complication to projecting revenue into the future. The Greater China section previously was recorded in Asia Pacific Net Sales. Looking forward, I expect revenue growth rates to reduce significantly going into perpetuity. From years 2014 to 2018, revenue growth is projected to decline from 14.50% to 2.00% respectively. This is justified due to an increasingly saturated market and intensified competition from other tech companies. UOIG 11
Geographic Segment Regional Revenue Mix Retail 11% Asia Pacific 15% Greater China 13% Japan 6% Europe 21% Americas 34% Americas Historically the America s have held the largest percent of total revenue. This segment consists of all countries in North and South America. With Apple being an American based firm, products and company focus have historically been focused towards this geographic segment. However, with the company looking to expand into foreign markets I predict that the percent of total revenue for the Americas will decrease slightly year to year. Looking into my terminal year of 2018, the Americas should account for 28.32% of total revenue. Europe Europe s sales have seen declining growth and percent of total revenue in recent years. These drops in sales could be attributed to the European financial crisis and lower amounts of disposable income available to citizens of European countries. That being said, I projected European sales to decline going into 2014 and then trusting that the country will recover, sales to gradually increase going from year 2015 into perpetuity. Japan Historically, Japan has accounted for between 5% and 6% of total revenue. In a recent conference call, management stated that IDC announced that iphone gained the number one position for the 2012 calendar year. This is remarkable because this is the first time a non-japanese company achieved the number one spot for a whole year. Although sales were strong in Japan, due to the countries relatively small and declining population of 127.515 million I don t project Japan s percent of revenue to grow beyond 6.95% in the terminal year. Asia Pacific Up until Apple s latest Q1, the Asia Pacific section included China. The segment saw tremendous growth the past two years and as a result China was taken out and given its own category in the revenue model. Taking China out of the Asia Pacific segment accounts for the (48.12%) in Q1. Looking forward past 2013, I predicted Asia Pacific to see declining growth rates due to China not being included in the Asia Pacific section. Greater China As stated above, China saw explosive growth in the last quarter and is now included as its own section in the revenue model. Apple reported stunning growth in China with $8.8 billion in revenue including retail stores located in the country accounting for 11% growth year over year. Additionally, ipad s grew 138% year over year and sales records were set for both iphone and ipad during UOIG 12
Global Retail Stores Open the quarter. Apple plans to open 11 new stores in China and in two years management expects to double that total amount. Success in Greater China is a very important factor for Apple looking forward, as it offers a large number of potential first-time smartphone customers. Should the pending deal with China Mobile which is the largest telecommunications provider in China fall through, Apple should see tremendous revenue growth. However, I decided to keep revenue growth in China going into the future somewhat modest due to the uncertainty of the deal with China Mobile. However, should the deal land, growth rates could rapidly grow. Retail Stores Apple currently has 402 total stores with 151 lying outside of the United States and expects to open 30 new stores in 2013. Revenue for Q2 was 5.2 billion and saw a 28.33% increase in year over year growth. Looking forward, I kept retail stores between 11% and 10% of revenue and kept that consistent. I expect the company to continue to open new stores focusing in Greater China which could potentially result in higher growth rates Source: appleappraisal.wordpress.com Product Segment In previous years, Desktops, Portables, and Other Music Related Services were recorded in Apple s SEC filings. However, in the company s latest Q1, these segments did not have their own line items and were combined into other sections listed below. Total Mac Net Sales Up until Apple s latest Q, the company recorded Desktops and Portables as individual line items. With shrinking Desktop sales, the company combined the segments into the Total Mac Net Sales segment. Recently, desktop computers have been less desirable due to a higher demand for portable computers and tablets primarily. To project Total Mac Net Sales, I took into account the popularity of Apple s laptop computers and the varying growth rates historically. There was not consistent and steady growth, so I projected off of percent of revenue, keeping it around 12% into the terminal year. ipod ipod sales saw their peak in the year 2008, and since then have seen dramatic declines in growth. This decline can be attributed to the popularity of the iphone and ipad products which include music players built in. These products have cannibalized the demand for ipod s, which I predict will see continual declines in sales going forward. ipod s percent of total revenue has stepped down consistently in the past three years, so I projected steady declines nominally from 2.73% in year 2013 to 1.44% in year 2018. UOIG 13
iphone and Related Products 7% itunes Value Structure 22% 21% 8% 16% 8% 18% Book Publisher Payments App Agency Fee Developer Payments Media Transaction Fee itunes Music Label Payments itunes Video Publisher Payments Apple Software iphone has been a large part of Apple s product revenue, holding 51.42% of total revenue for 2012. The newest model is the iphone 5 which has a larger screen and 4G LTE wireless capabilities. Apple holds 15% of the global market for smartphones compared to Android phones at 75%. Apple is rumored to release a new cheaper iphone boasting a smaller screen, a new operating system called ios7 along with a fingerprint scanner. With the release of a new iphone, I projected revenues to rise considerably in Q4 of 2013. Going into years 2013 through 2018 I kept the percent of revenue for iphones between 53% and 54% which resulted in gradually declining growth rates and keeps outlooks conservative. ipad and Related Products Apple s most recently released ipad is the 5 th generation ipad and ipad Mini, with the first ipad being released on April 3 rd, 2010. These tablets operate using Apple s ios operating system, and feature the same music playing capabilities found in ipod and iphone along with similar computing capabilities that Apple laptop computers offer. Apple reported selling around 19.5 million ipad s during their Q2 which saw an increase of 65% year over year. The company saw very strong sales in Greater China and Japan in which sales doubled year over year. The global market for tablets is beginning to cannibalize some of the market for portable computers and desktops, with tablet computing devices like the ipad and ipad mini controlling 39.6% of the global market share. Going forward I projected revenue for ipad as a growing percent of revenue, starting at 19.78% of total revenue in year 2013 and slowly trending upwards to 21.12% in the year 2018. itunes, Software, Other Services This section includes sales from Apple s itunes product downloads and software sales derived from the ios and OS X operating systems along with icloud system revenues. Apple s latest Q2 itunes sales of $4.1 billion boasted a year over year growth of 29.47%. These strong sales come from increased sales from ipad which come with the capability to access itunes and download ipad specific apps. Apple s itunes offer 35 million songs for purchase, 60 thousand movie titles, 1.75 million ibooks, and 850 thousand Apps specific to Apple devices. The company s ios system will be seeing an update to ios7 later in the year with the release of the company s latest iphone. This new system is being engineered by Apple s Jonathan Ive who engineered the previous operating systems. UOIG 14
$ In Millions University of Oregon Investment Group Going forward I projected sales in this segment to become an increasing percent of revenue due to the growing size of the App Store and itunes catalog of content. Accessories The Accessories segment was recorded as a separate line item for the first time in Q1 of the 2013 fiscal year. Sales from this segment are derived from thirdparty iphone, ipad, Mac, and ipod compatible products. Looking forward, I projected Accessories as a consistent percent of revenue, keeping it around a modest 4.5% throughout. Major Line Items Beta Final Beta Beta SD Weighting 3 Year Daily 0.91 0.05 33.33% 3 Year Weekly 1.07 0.12 0.00% 1 Year Daily 1.20 0.14 0.00% Hamada Beta 1.13 33.33% Vasicek Beta 1.02 33.33% Analysis Company Beta 1.02 0.1 To achieve a beta of 1.02, I regressed 3 year daily, 3 year weekly, and 1 year daily against the S&P 500 along with calculating a Hamada Beta. I chose to weight the 3 year daily at 33.33% because I believe that due to Apple s recent fall in stock price, this three year time period gives a more even spread and reading of volatility. I chose to weight a Hamada Beta 33.33% because of the low Debt to Equity Value of Google and Microsoft. I also chose to weight the Vasicek Beta 33.33% to get an idea of the average of comparable company s beta s and compare my Apple s against theirs. Capital Expenditure Apple s capital expenditures are spent building new retail stores and on manufacturing new equipment to create new products. Management gave guidance stating that they planned on spending $10 billion on capital expenditures in the year 2013. Acknowledging that the company plans to continue opening new retail stores in foreign countries, I kept the company s capital expenditures between 5% and 6% of revenue into my terminal year. COGS When projecting Cost of Goods Sold, I factored in management guidance that gross margin would be between 36%-37% for the year 2013. However, management generally gives guidance that can be beat. COGS is traditionally higher in quarters that the company sees higher product sales, so my Q4 in 2013 and Q1 in 2014 saw higher COGS due to the release of a new iphone and the holiday season. Looking forward, I projected Apple to have higher Cost of Goods Sold due to a pressure placed on the company by the industry to release new products at a faster rate decreasing the factor of economies of scale. 8000 7000 6000 5000 4000 3000 Research and Development Research and Development R&D Research and Development is important to Apple s growth strategy, as the company seeks to create the most innovative products available. In a highly saturated tech market, companies must stream more money into research and development to stay modern and innovative. Going into my terminal year, I 2000 1000 0 2013 2014 2015 2016 2017 2018 UOIG 15
raised R&D as a percent of revenue to 3% at its highest in years 2015 and 2016, and then slowly decreased it to 2.75% in year 2018. SG&A Selling, general, and administrative costs are dependent on Apple s expansion of their retail segments and advertising. I expect advertising to be highest during quarters that new products are set to be released. Looking at Q4 of 2013, SG&A is at a high of 6.22% due to the potential release of the new iphone. In years 2014 through 2018 I kept SG&A at the higher end of 5% and slowly decreased it. Depreciation & Amortization To calculate Depreciation & Amortization, I used the depreciation table to create a smooth depreciation schedule. Depreciation and Amortization come from Apple s property and equipment. Net Working Capital To project net working capital, I decreased it as a percent of revenue steadily to the terminal year. Apple recently announced they will increase their dividend by 15% to appeal to new investors. This increase along with a $100 billion stock repurchasing plan will account for a decrease in available capital. Tax Rate Apple consistently has a tax rate between 24-25%, and management stated that the company expects their tax rate to remain at 24%. In the upcoming years, I kept the tax rate at a steady 24% to remain consistent. Type Implied Price Weighting Current Price 452.97 Implied Price DCF 662.13 70.00% Implied Price Forward Comps 645.51 30.00% Implied Price LTM 666.32 0.00% Current Price 434.58 Target Price 657.15 Undervalued 52.36% Recommendation After analysis of the Apple and factoring in the company s potential for growth in foreign markets, I recommend a hold for both Svigals and Tall Firs portfolios. When considering the intrinsic value of the company, Apple stood undervalued by 52.36% ending in an implied price of $657.15. I weighed this DCF analysis at 70%, and the forward comparable companies only 30% due to the uneven growth rates Apple is predicted to have in the year 2013. I believe the company will continue to release innovative products and be a leader in the smartphone and tablet industry. However I do predict growth rates will shrink considerably in years 2015 and onward due to an increasingly saturated technology market and the generally higher price of Apple products. UOIG 16
Appendix 1 Forward Comparable Analysis Comparables Analysis AAPL GOOG005930-KR Electronic Co. Ltd.MSFT ($ in millions) Analysis Company Comparable Company 1 Comparable Company 2 Comparable Company 3 Stock Characteristics Max Min Median Weight Avg. 35.00% 45.00% 20.00% Current Price $1,326.72 $34.08 $903.87 $920.19 $434.58 $903.87 $1,326.72 $34.08 Beta 1.18 0.20 0.94 0.66 1.09 0.94 0.20 1.18 Size Short-Term Debt 8,857.0 0.0 215.0 4,060.9 0.0 215.0 8,857.0 0.0 Long-Term Debt 50,000.0 2,988.0 5,274.0 5,808.9 50,000.0 2,988.0 5,274.0 11,949.0 Cash and Cash Equivalent 34,489.0 5,240.0 14,778.0 21,740.4 12,053.0 14,778.0 34,489.0 5,240.0 Non-Controlling Interest 135,490.0 4,039.0 71,715.0 42,255.4 135,490.0 71,715.0 4,039.0 76,688.0 Preferred Stock 119.0 0.0 0.0 53.6 0.0 0.0 119.0 0.0 Diluted Basic Shares 8,351.0 170.0 341.7 1,866.3 943.2 341.7 170.0 8,351.0 Market Capitalization 428,219.9 201,801.0 284,602.1 273,266.3 428,219.9 358,672.6 201,801.0 284,602.1 Enterprise Value 601,656.9 203,771.0 367,999.1 311,881.2 601,656.9 418,812.6 203,771.0 367,999.1 Growth Expectations % Revenue Growth 2013E 20.6% 6.9% 19.6% 17.4% 18.7% 20.6% 19.6% 6.9% % Revenue Growth 2014E 14.6% 7.7% 8.5% 10.5% 14.5% 14.6% 8.5% 7.7% % EBITDA Growth 2013E 31.9% 2.0% 15.6% 20.4% 2.0% 15.6% 31.9% 3.0% % EBITDA Growth 2014E 17.0% 9.1% 9.4% 11.9% 14.2% 17.0% 9.1% 9.4% % EPS Growth 2013E 37.4% -9.9% 18.1% 21.4% -9.9% 18.1% 37.4% -9.0% % EPS Growth 2014E 15.2% 10.6% 11.6% 12.4% 10.9% 15.2% 10.6% 11.6% Profitability Margins Gross Margin 79.95% 39.14% 64.59% 56.21% 42.52% 64.59% 39.14% 79.95% EBIT Margin 37.60% 17.22% 31.39% 26.25% 32.73% 31.39% 17.22% 37.60% EBITDA Margin 42.29% 24.50% 37.65% 32.66% 35.74% 37.65% 24.50% 42.29% Net Margin 23.46% 15.55% 20.92% 18.64% 23.46% 20.92% 15.55% 21.58% Credit Metrics Interest Expense $502.00 $0.00 $0.00 $175.70 $23.00 $502.00 $0.00 $0.00 Debt/EV 0.08 0.01 0.03 0.04 0.08 0.01 0.07 0.03 Leverage Ratio 0.83 0.16 0.24 0.24 0.83 0.16 0.24 0.37 Interest Coverage Ratio 2,627.96 0.00 0.00 14.04 2,627.96 40.12 0.00 0.00 Operating Results Revenue $240,462.00 $53,499.00 $76,012.00 $142,134.95 $169,104.00 $53,499.00 $240,462.00 $76,012.00 Gross Profit $94,108.00 $34,556.00 $60,771.00 $66,597.40 $71,900.00 $34,556.00 $94,108.00 $60,771.00 EBIT $55,347.00 $16,792.00 $28,578.00 $30,225.50 $55,347.00 $16,792.00 $41,406.00 $28,578.00 EBITDA $60,443.00 $20,142.00 $32,147.00 $39,986.80 $60,443.00 $20,142.00 $58,906.00 $32,147.00 Net Income $39,672.00 $11,193.00 $16,406.00 $24,022.90 $39,672.00 $11,193.00 $37,387.00 $16,406.00 Capital Expenditures $22,260.00 $3,376.00 $4,157.00 $12,147.15 $9,592.00 $4,157.00 $22,260.00 $3,376.00 Multiples EV/Revenue 7.83x 0.85x 4.84x 4.09x 3.56x 7.83x 0.85x 4.84x EV/Gross Profit 12.12x 2.17x 6.06x 6.43x 8.37x 12.12x 2.17x 6.06x EV/EBIT 24.94x 4.92x 12.88x 13.52x 10.87x 24.94x 4.92x 12.88x EV/EBITDA 20.79x 3.46x 11.45x 11.12x 9.95x 20.79x 3.46x 11.45x EV/(EBITDA-Capex) 26.20x 5.56x 12.79x 14.23x 11.83x 26.20x 5.56x 12.79x Market Cap/Net Income = P/E 32.04x 5.40x 17.35x 17.11x 10.79x 32.04x 5.40x 17.35x Multiple Implied Price Weight EV/Revenue 692.96 Weighting % EV/Gross Profit 449.72 20.00% EV/EBIT 753.07 10.00% EV/EBITDA 672.60 50.00% EV/(EBITDA-Capex) 726.97 0.00% Market Cap/Net Income = P/E 719.82 20.00% Price Target $645.51 Current Price 434.58 Undervalued 48.54% UOIG 17
Appendix 2 Discounted Cash Flows Analysis Discounted Cash Flow Analysis Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 ($ in millions) 2009A 2010A 2011A 2012A 12/31/2012A 03/31/2013A 06/30/2013E 09/30/2013E 2013E 12/31/2013E 03/31/2014E 06/30/2014E 09/30/2014E 2014E 2015E 2016E 2017E 2018E Total Revenue 42,905.00 65225.00 108249.00 156508.00 54512.00 43603.00 39312.00 48384.00 185811 59550.30 48845.00 44698.95 59664.00 212758.25 230842.70 247001.69 261821.79 267058.22 % YoY Growth -23.00% 52.02% 65.96% 44.58% 17.65% 11.27% 12.25% 35.03% 18.72% 9.24% 12.02% 13.70% 23.31% 14.50% 8.50% 7.00% 6.00% 2.00% Cost of Goods Sold 25683.00 39541.00 64431.00 87846.00 33452.00 27254.00 23068.28 29717.45 113491.73 36575.79 30171.56 26573.52 37301.93 130622.81 140929.47 150671.03 163114.97 162237.87 % Revenue 59.86% 60.62% 59.52% 56.13% 61.37% 62.50% 58.68% 61.42% 61.08% 61.42% 61.77% 59.45% 62.52% 61.39% 61.05% 61.00% 62.30% 60.75% Gross Profit $17,222.00 $25,684.00 $43,818.00 $68,662.00 $21,060.00 $16,349.00 $16,243.72 $18,666.55 $72,319.27 $22,974.51 $18,673.44 $18,125.42 $22,362.07 $82,135.44 $89,913.23 $96,330.66 $98,706.81 $104,820.35 Gross Margin 40.14% 39.38% 40.48% 43.87% 38.63% 37.50% 41.32% 38.58% 38.92% 38.58% 38.23% 40.55% 37.48% 38.61% 38.95% 39.00% 37.70% 39.25% Selling General and Administrative Expense 4149.00 5517.00 7599.00 10040.00 2840.00 2672.00 2295.82 3009.48 10817.31 3,138.30 2,940.47 2,413.74 3,717.07 12209.58 13,619.72 14,449.60 15,447.49 14,821.73 % Revenue 9.67% 8.46% 7.02% 6.42% 5.21% 6.13% 5.84% 6.22% 6.00% 5.27% 6.02% 5.40% 6.23% 5.95% 5.90% 5.85% 5.90% 5.55% Depreciation and Amortization 734.00 1027.00 1814.00 3277.00 1588.00 3280.00 1002.55 6142.80 12013.35 1839.63 1989.75 2138.60 10965.96 16933.93 13446.74 13262.67 14836.68 1985.15 % Revenue 1.71% 1.57% 1.68% 2.09% 2.91% 7.52% 2.55% 12.70% 6.47% 3.09% 4.07% 4.78% 18.38% 7.96% 5.83% 5.37% 5.67%.74% Research and Development 1333.00 1782.00 2429.00 3381.00 1010.00 1119.00 1584.27 1456.36 5169.63 1,292.24 1,196.70 1,327.56 1,772.02 5588.52 6,925.28 7,410.05 7,461.92 7,344.10 % Revenue 3.11% 2.73% 2.24% 2.16% 1.85% 2.57% 4.03% 3.01% 2.78% 2.17% 2.45% 2.97% 2.97% 2.97% 3.00% 3.00% 2.85% 2.75% Earnings Before Interest & Taxes $11,006.00 $17,358.00 $31,976.00 $51,964.00 $15,622.00 $9,278.00 $11,361.07 $8,057.90 $44,318.98 $16,704.34 $12,546.52 $12,245.53 $5,907.02 $47,403.40 $55,921.49 $61,208.34 $60,960.73 $80,669.37 % Revenue 25.65% 26.61% 29.54% 33.20% 28.66% 21.28% 28.90% 16.65% 23.85% 28.05% 25.69% 27.40% 9.90% 22.28% 24.22% 24.78% 23.28% 30.21% Interest Expense 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 0.00 0.00 0.00 0.00 0.00 % Revenue 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% 0.00% 0.00% 0.00% 0.00% 0.00% Other Income/(Expense) 326.00 155.00 415.00 522.00 0.00 0.00 0.00 % Revenue.76%.24%.38%.33% 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% 0.00% Earnings Before Taxes 10,680.00 17,203.00 31,561.00 51,442.00 15,622.00 9,278.00 11,361.07 8,057.90 44,318.98 16,704.34 12,546.52 12,245.53 5,907.02 47,403.40 55,921.49 61,208.34 60,960.73 80,669.37 % Revenue 24.89% 26.37% 29.16% 32.87% 28.66% 21.28% 28.90% 16.65% 23.85% 28.05% 25.69% 27.40% 9.90% 22.28% 24.22% 24.78% 23.28% 30.21% Less Taxes (Benefits) 3831.00 4527.00 8283.00 14030.00 4594.00 3,358.00 2,840.27 2,014.48 12806.74 4,176.08 3,136.63 3,061.38 1,476.75 11850.85 13,980.37 15,302.08 15,240.18 20,167.34 Tax Rate 34.81% 26.08% 25.90% 27.00% 25.00% 25.00% 25.00% 25.00% 25.00% 25.00% 25.00% 25.00% 25.00% 25.00% 25.00% 25.00% 25.00% 25.00% Net Income $6,849.00 $12,676.00 $23,278.00 $37,412.00 $11,028.00 $5,920.00 $8,520.81 $6,043.43 $31,512.23 $12,528.25 $9,409.89 $9,184.14 $4,430.26 $35,552.55 $41,941.12 $45,906.25 $45,720.55 $60,502.03 Net Margin 15.96% 19.43% 21.50% 23.90% 20.23% 13.58% 21.67% 12.49% 16.96% 21.04% 19.26% 20.55% 7.43% 16.71% 18.17% 18.59% 17.46% 22.65% Add Back: Depreciation and Amortization 734.00 1,027.00 1,814.00 3,277.00 1,588.00 3,280.00 1,002.55 6,142.80 12,013.35 1,839.63 1,989.75 2,138.60 10,965.96 16,933.93 13,446.74 13,262.67 14,836.68 1,985.15 Add Back: Interest Expense*(1-Tax Rate) 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 0.00 0.00 0.00 0.00 0.00 Operating Cash Flow 7583 13703 25092 40689 $12,616.00 9200 9523.3555 $12,186.23 $43,525.58 $14,367.88 11399.64188 11322.73951 $15,396.22 52486.4846 55387.85871 59168.92351 60557.22466 62487.17691 % Revenue 17.67% 21.01% 23.18% 26.00% 23.14% 21.10% 24.23% 25.19% 23.42% 24.67% 23.99% 23.95% 23.13% 23.40% Current Assets 6,647.00 12,611.00 14,507.00 22,066.00 32,010.61 20,200.00 23,722.90 35,712.87 35,712.87 40,326.70 33,077.21 30,269.56 40,403.70 40,403.70 43,883.20 49,301.54 50,741.06 49,886.48 % Revenue 15.49% 19.33% 13.40% 14.10% 58.72% 46.33% 60.35% 73.81% 19.22% 67.72% 67.72% 67.72% 67.72% 18.99% 19.01% 19.96% 19.38% 18.68% Current Liabilities 11,506.00 20,722.00 27,970.00 38,542.00 46,879.00 44,223.30 37,864.13 46,602.00 46,602.00 54,180.55 44,440.57 40,668.37 54,284.00 54,284.00 56,164.03 58,934.60 60,952.11 58,485.75 % Revenue 26.82% 31.77% 25.84% 24.63% 86.00% 101.42% 96.32% 96.32% 25.08% 90.98% 90.98% 90.98% 90.98% 25.51% 24.33% 23.86% 23.28% 21.90% Net Working Capital (4,859.00) (8,111.00) (13,463.00) (16,476.00) ($14,868.39) ($24,023.30) ($14,141.23) ($10,889.13) ($10,889.13) ($13,853.85) ($11,363.36) ($10,398.81) ($13,880.30) ($13,880.30) ($12,280.83) ($9,633.07) ($10,211.05) ($8,599.27) % Revenue -11.33% -12.44% -12.44% -10.53% -27.28% -55.10% -35.97% -22.51% -5.86% -23.26% -23.26% -23.26% -23.26% -6.52% -5.32% -3.90% -3.90% -3.22% Change in Working Capital (3,252.00) (5,352.00) (3,013.00) $1,607.61 ($9,154.91) $9,882.07 $3,252.10 $5,586.87 ($2,964.72) $2,490.49 $964.54 ($3,481.49) ($2,991.17) $1,599.47 $2,647.77 ($577.98) $1,611.77 Capital Expenditures 1144.00 2005.00 8295.00 8295.00 2455.00 2299.00 2746.00 2500.00 10000.00 2,915.25 2,915.25 2,915.25 2,915.25 12,446.36 12,234.66 12,350.08 16,232.95 14,955.26 % Revenue 2.67% 3.07% 7.66% 5.30% 4.50% 5.27% 6.99% 5.17% 5.38% 4.90% 5.97% 6.52% 4.89% 5.85% 5.30% 5.00% 6.20% 5.60% Acquisitions 0.00 638.00 244.00 350.00 284.00 299.00 42.00 38.00 663.00 201.00 47.00 87.28 61.62 396.90 430.64 460.78 488.43 498.20 % Revenue 0.00%.98%.23%.22%.52%.69%.11%.08%.36%.34%.10%.20%.10%.19%.19%.19%.19%.19% Unlevered Free Cash Flow 6439.00 14312.00 21905.00 35057.00 8269.39 15756.91-3146.72 6396.12 27275.71 14216.35 5946.90 7355.67 15900.84 42634.40 41123.09 43710.29 44413.83 45421.94 Discounted Free Cash Flow -3095.19 6188.35 13529.31 5566.82 6772.79 14401.07 34863.98 34688.97 32994.57 31586.86 UOIG 18