Apple LBO Model

Apple (AAPL)LBO Model

($ millions, Except Per Share Amounts in $s and Share Counts in $000s)

x Transaction Assumptions

Current Share Price $266.70 Equity Purchase Price

Offer Premium 20.0% Enterprise Value

Offer Price Per Share $266.70 EBITDA Purchase Multiple

Leverage Ratio 6.0 x Debt Required

Equity Used

EBITDA Exit Multiple

Purchase Price Calculations

Basic Shares Outstanding 909,938 Advisory Fee %

Basic Equity Value $242,681 Financing Fee %

Diluted Shares Outstanding 928,043 Legal & Misc. Fees

Diluted Equity Value $247,509

Less: Cash & Investments $41,704 Options Calculations - Purchase Price

Plus: Debt $0

Plus: Minority Interest $0 Name

Plus: Preferred Stock $0 Tranche A 26,675 $85.69

Plus: Other Liabilities $0 Tranche B

Enterprise Value $205,805 Total

x Debt Assumptions

Leverage Ratio 6.0 x Debt Required

Units for LIBOR 10,000 Revolver

Term Loan A % 40.0% Term Loan A

Term Loan B % 30.0% Term Loan B

Subordinated Note % 20.0% Subordinated Note

PIK Loan % 10.0% PIK Loan

Interest Rates Principal Repayment %

Revolver L + 250 Revolver

Term Loan A L + 350 Term Loan A

Term Loan B L + 500 Term Loan B

Subordinated Note 11.00% Subordinated Note

PIK Loan 13.00% PIK Loan

x Sources & Uses

Sources Uses

Excess Cash $1,559

Term Loan A $52,736

Term Loan B $39,552 Equity Value of Company

Subordinated Note $26,368 Advisory Fees

PIK Loan $13,184 Capitalized Financing Fees

Investor Equity $114,250 Legal & Misc. Fees

Total Sources $247,649 Total Uses

x Goodwill Creation & Balance Sheet Adjustments

Goodwill Calculation Fixed Asset Write-Up

Equity Purchase Price $247,509 PP&E Write-Up %

Less: Seller Book Value ($31,905) PP&E Write-Up Amount

Plus: Write-Off of Existing Goodwill $207 Depreciation Period (Years)

Jake Dalpiaz | [email protected]

mailto:[email protected]

Total Allocable Purchase Premium $215,811

Intangible Asset Write-Up

Less: Write-Up of PP&E ($284) Purchase Price to Allocate

Less: Write-Up of Intangibles ($53,154) % Allocated to Intangibles

Less: Write-Down of DTL $0 Intangibles Write-Up Amount

Plus: New Deferred Tax Liability $16,031 Amortization Period (Years)

Total Goodwill Created $228,363

Financing Fees Amortization Period 5 New Deferred Tax Liability

x Operating Assumptions

Initial Cash Balance $6,559

Minimum Cash Balance $5,000

Historical Transaction Adjustments

FY 2007 FY 2008 FY 2009 Debit Credit

Revenue Growth % 27.2% 52.5% 14.4%

COGS % Revenue 66.2% 64.1% 59.0%

R&D % Revenue 2.4% 2.0% 1.9%

SG&A % Revenue 11.1% 8.9% 8.3%

Stock-Based Compensation % Revenue 1.0% 1.4% 1.7%

Depreciation & Amortization % Revenue 1.3% 1.3% 1.7%

Effective Cash Interest Rate 5.3% 3.4% 1.4%

Effective Tax Rate 0.0% 0.0% 0.0%

Accounts Receivable % Revenue 6.5% 7.8%

Accounts Receivable Days 23.3 28.2

Inventory % COGS 2.1% 1.8%

Amortization of Intangibles

Accounts Payable % COGS 23.0% 22.1%

Accounts Payable Days 82.6 79.6

Accrued Expenses % Operating Expenses 102.9% 87.6%

Short-Term Deferred Revenue % Revenue 4.3% 4.8%

Long-Term Deferred Revenue % Revenue 2.0% 2.0%

CapEx % Revenue 3.0% 2.9% 2.7%

x Income Statement



Revenue $24,578 $37,491 $42,905

Cost of Goods Sold $16,282 $24,049 $25,324

Gross Profit $8,296 $13,442 $17,581

Operating Expenses

Research & Development $596 $759 $830

Selling, General & Administrative $2,724 $3,345 $3,566

Total Operating Expenses $3,320 $4,103 $4,397

Depreciation & Amortization of PP&E $327 $496 $734

Depreciation of PP&E Write-Up

New Intangibles Amortization

Amortization of Financing Fees

Amortization of Intangibles $0 $0 $0

Stock-Based Compensation $242 $516 $710

Operating Income $4,407 $8,327 $11,740

Interest Income / (Expense) $599 $620 $326

Pre-Tax Income $5,006 $8,947 $12,066

Income Tax Provision $1,511 $2,828 $3,831

Net Income $3,495 $6,119 $8,235

EBITDA $4,976 $9,339 $13,184

x Balance Sheet


FY 2008 FY 2009 Debit Credit

Assets:

Current Assets

Cash & Cash-Equivalents $11,875 $6,559 $0 $1,559

Short-Term Securities $10,236 $26,282 $0 $0

Accounts Receivable $2,422 $3,361 $0 $0

Inventory $509 $455 $0 $0

Deferred Tax Assets $1,044 $4 $0 $0

Other Current Assets $3,920 $3,140 $0 $0

Total Current Assets $30,006 $39,801

Long-Term Assets

Long-Term Securities $2,379 $2,554 $0 $0

Plants, Property & Equipment $2,455 $2,839 $284 $0

Goodwill $207 $207 $228,363 $207

Other Intangible Assets $285 $354 $53,154 $0

Capitalized Financing Fees $0 $0 $49 $0

Other Assets $839 $2,011 $0 $0

Total Assets $36,171 $47,766

Liabilities & Shareholders' Equity

Current Liabilities

Revolver $0 $0 $0 $0

Accounts Payable $5,520 $5,601 $0 $0

Accrued Expenses $4,224 $3,852 $0 $0

Deferred Revenue $1,617 $2,053 $0 $0

Total Current Liabilities $11,361 $11,506

Long-Term Liabilities

Deferred Revenue $768 $853 $0 $0

Existing Long-Term Debt $0 $0 $0 $0

Term Loan A $0 $0 $0 $52,736

Term Loan B $0 $0 $0 $39,552

Subordinated Note $0 $0 $0 $26,368

PIK Loan: $0 $0 $0 $13,184

Deferred Tax Liability $0 $0 $0 $16,031

Other Long-Term Liabilities $1,745 $3,502 $0 $0

Total Liabilities $13,874 $15,861

Shareholders' Equity

Common Stock $7,177 $7,177 $7,177 $0

Additional Paid-In Capital $0 $1,185 $1,185 $0

Treasury Stock $0 $0 $0 $0

Sponsor Common Equity $0 $0 $0 $216,923

Retained Earnings $15,129 $23,364 $23,433 $0

Accumulated Other Comprehensive Income ($9) $179 $179 $0

Total Shareholders' Equity $22,297 $31,905

Total Liabilities & SE $36,171 $47,766

Balance Check Balanced! Balanced!

x Cash Flow Statement



Net Income:

Depreciation & Amortization of PP&E:

Depreciation of PP&E Write-Up:

New Intangibles Amortization:

Amortization of Financing Fees:

Accrual of PIK Note:

Amortization of Intangibles:

Stock-Based Compensation:

Changes in Operating Assets & Liabilities:

Accounts Receivable:

Inventory:

Other Current Assets:

Other Assets:

Accounts Payable:

Deferred Revenue:

Other Liabilities:

Cash Flow from Operations:

Capital Expenditures:

Cash Flow Available for Debt Repayment:

Revolver:

Term Loan A:

Term Loan B:

Subordinated Note:

PIK Loan:

Total Cash Flow Used to Repay Debt:

Net Change in Cash & Cash Equivalents:

Beginning Cash Balance:

Ending Cash Balance:

x Debt & Interest Schedules

LIBOR Curve

Fixed

Interest Rate Assumptions LIBOR + Interest

Revolver 2.50%

Term Loan A 3.50%

Term Loan B 5.00%

Subordinated Note 11.00%

PIK Loan 13.00%

Interest Income / (Expense) Calculations

Revolver

Term Loan A

Term Loan B

Subordinated Note

PIK Loan

Cash

Net Interest Income / (Expense)

Sources of Funds

Beginning Cash Balance

Less: Minimum Cash Balance

Plus: Cash Flow Available for Debt Repayment

Subtotal Before Revolver

Revolver Borrowing Required

Total Sources of Funds

Uses of Funds

Mandatory Debt Repayment

Term Loan A

Term Loan B

Subordinated Note

PIK Loan

Mandatory Repayment Total

Optional Debt Repayment

Revolver

Term Loan A

Term Loan B

Subordinated Note

PIK Loan

Optional Repayment Total

Cash Generated on Balance Sheet

Total Uses of Funds

x Investor Returns

EBITDA

EBITDA Multiple

Enterprise Value

Investor Equity

IRR

Sensitivity Analysis - 5-Year IRR and Purchase Premium vs. Exit Multiple

x Exit Multiple

12.1% 6.0 x 7.0 x 8.0 x 9.0 x 10.0 x 11.0 x

$ 386.72 45.0% 12.1% 12.1% 12.1% 12.1% 12.1% 12.1%

$ 373.38 40.0% 12.1% 12.1% 12.1% 12.1% 12.1% 12.1%

Pu

rch

ase

Pre

miu

m /

Per

-S

har

e P

rice

$ 360.05 35.0% 12.1% 12.1% 12.1% 12.1% 12.1% 12.1%

$ 346.71 30.0% 12.1% 12.1% 12.1% 12.1% 12.1% 12.1%

$ 333.38 25.0% 12.1% 12.1% 12.1% 12.1% 12.1% 12.1%

$ 320.04 20.0% 12.1% 12.1% 12.1% 12.1% 12.1% 12.1%

$ 306.71 15.0% 12.1% 12.1% 12.1% 12.1% 12.1% 12.1%

$ 293.37 10.0% 12.1% 12.1% 12.1% 12.1% 12.1% 12.1%

$ 280.04 5.0% 12.1% 12.1% 12.1% 12.1% 12.1% 12.1%

$ 266.70 0.0% 12.1% 12.1% 12.1% 12.1% 12.1% 12.1%

Sensitivity Analysis - 5-Year IRR and Purchase Premium vs. Leverage Ratio:

x Leverage Ratio

12.1% 2.0 x 3.0 x 4.0 x 5.0 x 6.0 x 7.0 x

$ 386.72 45.0% 12.1% 12.1% 12.1% 12.1% 12.1% 12.1%

$ 373.38 40.0% 12.1% 12.1% 12.1% 12.1% 12.1% 12.1%

$ 360.05 35.0% 12.1% 12.1% 12.1% 12.1% 12.1% 12.1%

$ 346.71 30.0% 12.1% 12.1% 12.1% 12.1% 12.1% 12.1%

$ 333.38 25.0% 12.1% 12.1% 12.1% 12.1% 12.1% 12.1%

$ 320.04 20.0% 12.1% 12.1% 12.1% 12.1% 12.1% 12.1%

$ 306.71 15.0% 12.1% 12.1% 12.1% 12.1% 12.1% 12.1%

$ 293.37 10.0% 12.1% 12.1% 12.1% 12.1% 12.1% 12.1%

$ 280.04 5.0% 12.1% 12.1% 12.1% 12.1% 12.1% 12.1%

$ 266.70 0.0% 12.1% 12.1% 12.1% 12.1% 12.1% 12.1%

Pu

rch

ase

Pre

miu

m /

Per

-S

har

e P

rice

Pu

rch

ase

Pre

miu

m /

Per

-S

har

e P

rice

$247,509

$205,805

15.6 x

$92,288

$115,669

10.0 x

0.02%

0.06%

$10

Options Calculations - Purchase Price

18,104

18,104

$92,288

$2,000

$36,915

$27,686

$18,458

$9,229

Principal Repayment %

NA

10.0%

5.0%

0.0%

0.0%

Uses

$247,509

$50

$57

$10

$247,625

10.0%

$284

8


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$215,811

20.0%

$43,162

5

$16,031

Transaction Adjustments Projections

FY 2009 FY 2010E FY 2011E FY 2012E FY 2013E FY 2014E

45.0% 30.0% 15.0% 10.0% 7.5%

57.5% 56.0% 54.5% 53.0% 51.5%

1.9% 1.9% 1.9% 1.9% 1.9%

8.3% 8.3% 8.3% 8.3% 8.3%

1.7% 1.7% 1.7% 1.7% 1.7%

1.7% 1.7% 1.7% 1.7% 1.7%

1.0% 1.0% 2.0% 2.0% 3.0%

30.0% 30.0% 30.0% 30.0% 30.0%

7.8% 7.8% 7.8% 7.8% 7.8%

28.2 28.2 28.2 28.2 28.2

1.8% 1.8% 1.8% 1.8% 1.8%

$40 $37 $28 $13 $10

22.1% 22.1% 22.1% 22.1% 22.1%

79.6 79.6 79.6 79.6 79.6

87.6% 87.6% 87.6% 87.6% 87.6%

4.8% 4.8% 4.8% 4.8% 4.8%

2.0% 2.0% 2.0% 2.0% 2.0%

2.7% 2.7% 2.7% 2.7% 2.7%



$62,212 $80,876 $93,007 $102,308 $109,981

$35,787 $45,310 $50,711 $54,248 $56,667

$26,425 $35,566 $42,296 $48,060 $53,314

$1,204 $1,565 $1,800 $1,980 $2,128

$5,171 $6,723 $7,731 $8,504 $9,142

$6,375 $8,288 $9,531 $10,484 $11,270

$1,064 $1,384 $1,591 $1,750 $1,882

$35 $35 $35 $35 $35

$8,632 $10,631 $10,631 $10,631 $10,631

$11 $10 $10 $10 $10

$40 $37 $28 $13 $10

$1,030 $1,338 $1,539 $1,693 $1,820

$9,237 $13,843 $18,931 $23,444 $27,656

($6,650) ($5,277) ($3,254) ($2,222) ($939)

$591 $8,566 $15,677 $21,222 $26,718

$177 $2,570 $4,703 $6,367 $8,015

$413 $5,996 $10,974 $14,856 $18,702

$20,050 $27,278 $32,765 $37,576 $42,044



$5,000 $5,000 $5,000 $13,699 $43,040 $76,147

$26,282 $26,282 $26,282 $26,282 $26,282 $26,282

$3,361 $4,873 $6,335 $7,286 $8,014 $8,615

$455 $643 $814 $911 $975 $1,018

$4 $4 $4 $4 $4 $4

$3,140 $3,140 $3,140 $3,140 $3,140 $3,140

$38,242 $39,942 $41,576 $51,322 $81,455 $115,207

$2,554 $2,554 $2,554 $2,554 $2,554 $2,554

$3,123 $3,682 $4,419 $5,273 $6,215 $7,230

$228,363 $228,363 $228,363 $228,363 $228,363 $228,363

$53,508 $42,837 $32,169 $21,511 $10,867 $226

$49 $39 $29 $19 $10 $0

$2,011 $2,011 $2,011 $2,011 $2,011 $2,011

$327,850 $319,429 $311,122 $311,053 $331,474 $355,592

$0 $0 $0 $0 $0 $0

$5,601 $7,915 $10,021 $11,216 $11,998 $12,533

$3,852 $5,585 $7,261 $8,350 $9,185 $9,874

$2,053 $2,977 $3,870 $4,450 $4,895 $5,263

$11,506 $16,477 $21,152 $24,016 $26,079 $27,670

$853 $1,237 $1,608 $1,849 $2,034 $2,187

$0 $0 $0 $0 $0 $0

$36,915 $16,509 $0 $0 $0 $0

$27,686 $22,545 $17,114 $0 $0 $0

$18,458 $15,821 $15,821 $15,821 $15,821 $15,821

$9,229 $9,010 $10,263 $11,690 $13,315 $15,167

$16,031 $16,031 $16,031 $16,031 $16,031 $16,031

$3,502 $3,502 $3,502 $3,502 $3,502 $3,502

$163,732 $101,132 $85,491 $72,910 $76,782 $80,377

$0 $0 $0 $0 $0 $0

$0 $1,030 $2,368 $3,907 $5,600 $7,420

$0 $0 $0 $0 $0 $0

$216,923 $216,923 $216,923 $216,923 $216,923 $216,923

($69) $344 $6,340 $17,314 $32,169 $50,872

$0 $0 $0 $0 $0 $0

$216,854 $218,297 $225,631 $238,144 $254,692 $275,215

$380,586 $319,429 $311,122 $311,053 $331,474 $355,592

-52,736 Balanced! Balanced! Balanced! Balanced! Balanced!



$413 $5,996 $10,974 $14,856 $18,702

$1,064 $1,384 $1,591 $1,750 $1,882

$35 $35 $35 $35 $35

$10,631 $10,631 $10,631 $10,631 $10,631

$10 $10 $10 $10 $10

$1,100 $1,253 $1,427 $1,625 $1,851

$40 $37 $28 $13 $10

$1,030 $1,338 $1,539 $1,693 $1,820

($1,512) ($1,462) ($950) ($729) ($601)

($188) ($171) ($97) ($64) ($43)

$0 $0 $0 $0 $0

$0 $0 $0 $0 $0

$2,314 $2,106 $1,195 $782 $535

$1,308 $1,264 $822 $630 $520

$1,733 $1,676 $1,089 $835 $689

$17,978 $24,097 $28,293 $32,068 $36,040

($1,659) ($2,156) ($2,480) ($2,728) ($2,932)

$16,319 $21,940 $25,813 $29,340 $33,108

$0 $0 $0 $0 $0

($15,132) ($16,509) $0 $0 $0

($1,187) ($5,431) ($17,114) $0 $0

$0 $0 $0 $0 $0

$0 $0 $0 $0 $0

($16,319) ($21,940) ($17,114) $0 $0

$0 $0 $8,699 $29,340 $33,108

$5,000 $5,000 $5,000 $13,699 $43,040

$5,000 $5,000 $13,699 $43,040 $76,147

Projections

FY 2010E FY 2011E FY 2012E FY 2013E FY 2014E

4.55% 4.78% 4.94% 4.75% 4.40%

7.05% 7.28% 7.44% 7.25% 6.90%

8.05% 8.28% 8.44% 8.25% 7.90%

9.55% 9.78% 9.94% 9.75% 9.40%

11.00% 11.00% 11.00% 11.00% 11.00%

13.00% 13.00% 13.00% 13.00% 13.00%

$0 $0 $0 $0 $0

($1,938) ($683) $0 $0 $0

($2,210) ($1,939) ($851) $0 $0

($1,740) ($1,740) ($1,740) ($1,740) ($1,740)

($1,100) ($1,253) ($1,427) ($1,625) ($1,851)

$338 $338 $764 $1,144 $2,653

($6,650) ($5,277) ($3,254) ($2,222) ($939)

$5,000 $5,000 $5,000 $13,699 $43,040

($5,000) ($5,000) ($5,000) ($5,000) ($5,000)

$16,319 $21,940 $25,813 $29,340 $33,108

$16,319 $21,940 $25,813 $38,040 $71,147

$0 $0 $0 $0 $0

$16,319 $21,940 $25,813 $38,040 $71,147

$3,692 $3,164 $0 $0 $0

$1,384 $1,187 $1,187 $0 $0

$0 $0 $0 $0 $0

$0 $0 $0 $0 $0

$5,076 $4,351 $1,187 $0 $0

$0 $0 $0 $0 $0

$11,243 $13,345 $0 $0 $0

$0 $4,244 $15,927 $0 $0

$0 $0 $0 $0 $0

$0 $0 $0 $0 $0

$9,068 $17,589 $15,927 $0 $0

$0 $0 $8,699 $38,040 $71,147

$16,319 $21,940 $25,813 $38,040 $71,147


$13,184 $42,044

15.6 x 10.0 x

$205,805 $420,440

($253,716) $0 $0 $0 $0 $494,436

12.1%

Exit Multiple

12.0 x 13.0 x 14.0 x

12.1% 12.1% 12.1%

12.1% 12.1% 12.1%

12.1% 12.1% 12.1%

12.1% 12.1% 12.1%

12.1% 12.1% 12.1%

12.1% 12.1% 12.1%

12.1% 12.1% 12.1%

12.1% 12.1% 12.1%

12.1% 12.1% 12.1%

12.1% 12.1% 12.1%

Leverage Ratio

8.0 x 9.0 x 10.0 x

12.1% 12.1% 12.1%

12.1% 12.1% 12.1%

12.1% 12.1% 12.1%

12.1% 12.1% 12.1%

12.1% 12.1% 12.1%

12.1% 12.1% 12.1%

12.1% 12.1% 12.1%

12.1% 12.1% 12.1%

12.1% 12.1% 12.1%

12.1% 12.1% 12.1%

Apple (AAPL)Summary Model


Share Prices Circular Reference Note Model Inputs and Assumptions

Current Share Price (As of 6/25/2010) $266.70 Selected Return Scenario Base Case

Price Target $323.90

Implied Growth 21.4%

Multiples and Valuations

FY 2008 FY 2009 FY 2010E FY 2011E FY 2012E FY 2013E

Revenue 37,491 42,905 62,212 80,876 93,007 102,308

y-o-y growth% 52.5% 14.4% 45.0% 30.0% 15.0% 10.0%

EBIT 8,843 12,450 18,946 25,858 31,146 35,813

y-o-y growth% 90.2% 40.8% 52.2% 36.5% 20.5% 15.0%

EBITDA 9,339 13,184 20,050 27,278 32,765 37,576

y-o-y growth% 87.7% 41.2% 52.1% 36.1% 20.1% 14.7%

Net Income 6,119 8,235 12,849 17,606 21,933 25,459

y-o-y growth% 75.1% 34.6% 56.0% 37.0% 24.6% 16.1%

EPS (Diluted) $6.78 $9.08 $14.17 $19.41 $24.18 $28.07

y-o-y growth% 72.6% 33.9% 56.0% 37.0% 24.6% 16.1%

For DCF:

P / E: 39.3 x 29.4 x 18.8 x 13.7 x 11.0 x 9.5 x Terminal Value Valuation Method Multiple Method

P / BV: NA 11.0 x 7.7 x 5.3 x 3.8 x 2.8 x For WACC:

Eq. Value / Levered FCF: 29.1 x 24.0 x 14.6 x 11.4 x 10.0 x 9.0 x Cost of Equity Methodology Historical Beta

EV / Revenue: 5.5 x 4.8 x 3.3 x 2.5 x 2.2 x 2.0 x

EV / EBIT: 23.3 x 16.5 x 10.9 x 8.0 x 6.6 x 5.7 x

EV / EBITDA: 22.0 x 15.6 x 10.3 x 7.5 x 6.3 x 5.5 x

Enterprise Value Options Calculations Go To…

Basic Shares Outstanding: 909,938 Exercise

Basic Equity Value: 242,681 Name Number Price Dilution

Diluted Shares Outstanding: 928,043 Tranche A 26,675 $ 85.69 18,104

Diluted Equity Value: 247,509 Tranche B

Less: Cash & Investments 41,704 Tranche C

Plus: Debt --- Tranche D

Plus: Minority Interest --- Tranche E

Plus: Preferred Stock --- Total 18,104

Plus: Other Liabilities ---

Enterprise Value: 205,805


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This model contains circular references. To ensure accurate calculation, click Tools>Options>Calculations>Iterations.

Assumes: Strong demand for iPad and iPhone 4, no effect on costs due to refunds and free cases, falling costs starting in 2H 2010, iPhone will be offered on Verizon network starting in 2011 with heavy demand, and continued market penetration and high growth in China.

Assumes: Moderate demand for iPad and iPhone 4, Neglible effect on costs in 2010 due to refund policy and free cases, falling costs starting in 2011, and iPhone will be offered on Verizon network starting in 2011 with moderate demand.

Assumes: Less than expected demand for iPad, low demand for iPhone 4 given antenna problems, increased costs due to free cases and refund policy, no Verizon contract, and smaller costs reductions.

change

change

Valuation Summary Cash Flows

Public Comps Disclosures

M&A Comps

Discounted Cash Flow

WACC

Income Statement

Balance Sheet

Upside:

Base Case:

Downside:


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D35

jdalpiaz: 4.9.2010 from 10Q front cover

Apple (AAPL)Valuation Summary($ millions, Except Per Share Amounts in $s and Share Counts in $000s)

Valuation Statistics

Range of Valuation Multiples / Premiums Implied Per Share Value Range

25th 75th Applicable 25th 75thMinimum Pecentile Median Pecentile Maximum Apple Inc. Minimum Pecentile Median Pecentile Maximum

Methodology Name Multiple Multiple Multiple Multiple Multiple Figure Multiple Multiple Multiple Multiple Multiple

Public Company Comparables2009 EV / Revenue 0.4 x 0.5 x 1.1 x 3.1 x 3.1 x 42,905 62.28 68.96 93.90 186.18 187.66 2010E EV / Revenue 0.3 x 0.6 x 1.0 x 2.3 x 2.7 x 62,212 65.87 82.15 110.24 202.47 222.88 2009 EV / EBITDA 5.6 x 7.4 x 8.0 x 10.6 x 13.2 x 13,184 124.92 149.82 158.08 194.86 231.95 2010E EV / EBITDA 4.5 x 5.1 x 6.4 x 6.6 x 8.4 x 20,050 141.76 155.09 183.38 186.93 227.22 2009 P / E 14.6 x 16.0 x 19.6 x 29.2 x 48.7 x 9.08 132.78 145.20 178.02 265.56 442.15 2010E P / E 10.7 x 11.3 x 12.0 x 16.6 x 27.7 x 14.17 151.73 160.06 170.07 234.65 392.76

Precedent TransactionsTrailing EV / Revenue 0.4 x 1.9 x 2.7 x 6.0 x 8.3 x 42,905 63.74 134.83 171.27 323.83 427.68 Forward EV / Revenue 0.4 x 2.1 x 2.7 x 5.0 x 7.5 x 62,212 73.94 188.60 228.56 378.86 544.76 Trailing EV / EBITDA 8.7 x 11.5 x 14.4 x 17.3 x 39.7 x 13,184 167.88 208.15 249.11 290.02 608.28 Forward EV / EBITDA 9.6 x 13.4 x 19.1 x 23.9 x 32.8 x 20,050 253.39 333.66 456.82 560.60 753.51

Discounted Cash Flow Analysis11-15% Discount Rate, 5-9x Terminal Multiple 244.36 274.82 307.75 343.33 381.78

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

Forward EV / EBITDA:

Trailing EV / EBITDA:

Forward EV / Revenue:

Trailing EV / Revenue:

2010E P / E:

2009 P / E:

2010E EV / EBITDA:

2009 EV / EBITDA:

2010E EV / Revenue:

2009 EV / Revenue:

$0 $100 $200 $300 $400 $500 $600 $700 $800

Implied Per Share Values

Min to 25th

25th to Median

Median to 75th

75th to Max

Public Company Comparables

Precedent Transactions

Discounted Cash Flow Analysis

Apple (AAPL)Public Comparables


Share Price Data as of 6/25/2010

US-Based Hardware & Networking Companies with Over $20 Billion Revenue

Operating Statistics

Capitalization

Share Equity Enterprise Revenue EBITDA

Company Name Price Value Value 2009 2010E 2009

Hewlett-Packard Company 45.92 110,484 121,320 114,552 124,533 16,433

Dell Inc. 12.93 25,511 19,290 51,430 61,781 3,426

Cisco Systems, Inc. 22.18 130,174 106,336 34,807 40,059 10,076

Intel Corporation 20.03 113,790 101,207 32,784 43,069 12,708

Motorola, Inc. 7.07 16,553 12,190 23,457 21,961 926

Maximum 45.92 130,174 121,320 114,552 124,533 16,433

75th Percentile 22.18 113,790 106,336 51,430 61,781 12,708

Median 20.03 110,484 101,207 34,807 43,069 10,076

25th Percentile 12.93 25,511 19,290 32,784 40,059 3,426

Minimum 7.07 16,553 12,190 23,457 21,961 926

Apple, Inc 266.70 247,509 205,805 42,905 62,212 13,184

US-Based Hardware & Networking Companies with Over $20 Billion Revenue

Valuation Statistics

Capitalization Enterprise Value / Enterprise Value /

Share Equity Enterprise Revenue EBITDA

Company Name Price Value Value 2009 2010E 2009

Hewlett-Packard Company 45.92 110,484 121,320 1.1 x 1.0 x 7.4 x

Dell Inc. 12.93 25,511 19,290 0.4 x 0.3 x 5.6 x

Cisco Systems, Inc. 22.18 130,174 106,336 3.1 x 2.7 x 10.6 x

Intel Corporation 20.03 113,790 101,207 3.1 x 2.3 x 8.0 x

Motorola, Inc. 7.07 16,553 12,190 0.5 x 0.6 x 13.2 x

Maximum 45.92 130,174 121,320 3.1 x 2.7 x 13.2 x

75th Percentile 22.18 113,790 106,336 3.1 x 2.3 x 10.6 x

Median 20.03 110,484 101,207 1.1 x 1.0 x 8.0 x

25th Percentile 12.93 25,511 19,290 0.5 x 0.6 x 7.4 x

Minimum 7.07 16,553 12,190 0.4 x 0.3 x 5.6 x

Apple, Inc 266.70 247,509 205,805 4.8 x 3.3 x 15.6 x

6782

Projected

EBITDA EPS Revenue EBITDA Margin

2010E 2009 2010E Growth 2009 2010E

18,460 3.14 4.06 8.7% 14.3% 14.8%

4,304 0.79 1.08 20.1% 6.7% 7.0%

12,603 0.97 1.34 15.1% 28.9% 31.5%

19,849 0.41 1.87 31.4% 38.8% 46.1%

1,902 (1.70) 0.26 (6.4%) 3.9% 8.7%

19,849 3.14 4.06 31.4% 38.8% 46.1%

18,460 0.97 1.87 20.1% 28.9% 31.5%

12,603 0.79 1.34 15.1% 14.3% 14.8%

4,304 0.41 1.08 8.7% 6.7% 8.7%

1,902 (1.70) 0.26 (6.4%) 3.9% 7.0%

20,050 9.08 14.17 45.0% 30.7% 32.2%

Enterprise Value /

EBITDA P / E Multiple

2010E 2009 2010E

6.6 x 14.6 x 11.3 x

4.5 x 16.4 x 12.0 x

8.4 x 22.8 x 16.6 x

5.1 x 48.7 x 10.7 x

6.4 x NM 27.7 x

8.4 x 48.7 x 27.7 x

6.6 x 29.2 x 16.6 x

6.4 x 19.6 x 12.0 x

5.1 x 16.0 x 11.3 x

4.5 x 14.6 x 10.7 x

10.3 x 29.4 x 18.8 x

Apple (AAPL)Comparable M&A Transactions


Networking & Hardware M&A Transactions Over $1 Billion with US-Based Sellers Since 1/1/2008

Equity Enterprise

Acquirer Name Target Name Date Value Value

Hewlett-Packard Company 3Com 11/11/2009 3,180 2,714

Cisco Systems, Inc. Starent Networks 10/13/2009 2,777 2,386

Emerson Electric Co. Avocent 10/6/2009 1,114 1,147

EMC Corporation Data Domain 7/8/2009 2,362 2,085

Oracle Corporation Sun Microsystems 4/20/2009 7,075 5,392

Brocade Communication Systems, Inc. Foundry Networks 7/21/2008 2,899 2,063

Maximum 7,075 5,392

75th Percentile 3,110 2,632

Median 2,838 2,235

25th Percentile 2,466 2,068

Minimum 1,114 1,147

Operating Metrics Valuation Multiples

EV / EV / EV / EV /

Trailing Forward Trailing Forward Trailing Forward Trailing Forward

Revenue Revenue EBITDA EBITDA Revenue Revenue EBITDA EBITDA

1,265 1,223 152 110 2.1 x 2.2 x 17.8 x 24.6 x

288 320 154 110 8.3 x 7.5 x 15.5 x 21.6 x

611 542 105 93 1.9 x 2.1 x 10.9 x 12.3 x

301 375 53 64 6.9 x 5.6 x 39.7 x 32.8 x

13,256 12,462 623 559 0.4 x 0.4 x 8.7 x 9.6 x

621 633 156 125 3.3 x 3.3 x 13.2 x 16.5 x

13,256 12,462 623 559 8.3 x 7.5 x 39.7 x 32.8 x

1,104 1,075 155 121 6.0 x 5.0 x 17.3 x 23.9 x

616 587 153 110 2.7 x 2.7 x 14.4 x 19.1 x

378 417 117 97 1.9 x 2.1 x 11.5 x 13.4 x

288 320 53 64 0.4 x 0.4 x 8.7 x 9.6 x

Apple (AAPL)Discounted Cash Flow Analysis


Cash Flow Projections FY 2010E FY 2011E FY 2012E FY 2013E FY 2014E DCF Assumptions & Output

Revenue 62,212 80,876 93,007 102,308 109,981 Choose TV Valuation Method:

EBITDA 20,050 27,278 32,765 37,576 42,044 Discount Rate:

Operating Income 17,916 24,519 29,607 34,120 38,332

Terminal EBITDA Multiple:

Less: Taxes (5,375) (7,356) (8,882) (10,236) (11,500) Terminal Growth Rate:

Terminal Value:

Plus: Depreciation 1,064 1,384 1,591 1,750 1,882

Plus: Amortization 40 37 28 13 10 PV of Terminal Value:

Plus: Stock-Based Compensation 1,030 1,338 1,539 1,693 1,820 Sum of PV of Cash Flows:

Enterprise Value:

Less: Increase in Working Capital 3,655 3,413 2,058 1,455 1,099

Less: Capital Expenditures (1,659) (2,156) (2,480) (2,728) (2,932) Terminal Value % EV:

Unlevered Free Cash Flow 16,671 21,179 23,461 26,067 28,711 Enterprise Value:

Present Value of Free Cash Flow 15,796 18,015 17,916 17,870 17,670 Balance Sheet Adjustment:

Implied Equity Value:

Normal Discount Period: 1.000 2.000 3.000 4.000 5.000

Mid-Year Discount: 0.500 1.500 2.500 3.500 4.500 Implied Price Per Share:

Free Cash Flow Growth Rate: 27.0% 10.8% 11.1% 10.1% Implied Growth

Net Present Value Sensitivity - Terminal Growth Rates

Discount Rate

$ 323.90 10.0% 11.0% 12.0% 13.0% 14.0% 15.0% 16.0%

0.0% 338.95 328.01 317.62 307.75 298.35 289.40 280.89

1.0% 338.95 328.01 317.62 307.75 298.35 289.40 280.89

2.0% 338.95 328.01 317.62 307.75 298.35 289.40 280.89

3.0% 338.95 328.01 317.62 307.75 298.35 289.40 280.89

4.0% 338.95 328.01 317.62 307.75 298.35 289.40 280.89

5.0% 338.95 328.01 317.62 307.75 298.35 289.40 280.89

Net Present Value Sensitivity - Terminal EBITDA Multiples

Discount Rate

$ 323.90 10.0% 11.0% 12.0% 13.0% 14.0% 15.0% 16.0%

4.0 x 254.56 247.36 240.50 233.98 227.76 221.83 216.18

5.0 x 282.69 274.24 266.21 258.57 251.29 244.36 237.75

6.0 x 310.82 301.13 291.92 283.16 274.82 266.88 259.32

7.0 x 338.95 328.01 317.62 307.75 298.35 289.40 280.89

8.0 x 367.08 354.90 343.33 332.33 321.88 311.93 302.46

9.0 x 395.21 381.78 369.04 356.92 345.41 334.45 324.03

Ter

min

al G

row

th

Rat

eT

erm

inal

EB

ITD

A

Mu

ltip

le

Multiple Method

11.4%

7.0 x

3.0%

294,308

171,621

87,267

258,888

66.3%

258,888

41,704

300,592

$323.90

21.4%

Apple (AAPL)WACC Analysis


Beta and Risk Free Data as of 6/25/2010

Discount Rate Calculation - Assumptions

Risk-Free Rate: 3.89%

Equity Risk Premium: 5.00%

Interest Rate on Debt: 0.00%

Comparable Companies - Unlevered Beta Calculation

Levered Equity Unlevered

Name Beta Debt Value Tax Rate Beta

1.04 17,662 110,484 20.0% 0.92

1.34 4,661 25,511 27.0% 1.18

Company Name 1.24 15,246 130,174 22.0% 1.14

Hewlett-Packard Company 1.13 2,382 113,790 33.0% 1.11

Dell Inc. 1.76 3,904 16,553 34.0% 1.52

Median 1.24 1.14

Apple Inc. 1.50

Levered Beta & WACC Calculation

Unlevered Equity Levered

Beta Debt Value Tax Rate Beta

Apple Inc. 1.14 --- 247,509 30% 1.14

Cost of Equity Based on Comparables: 9.57%

Cost of Equity Based on Historical Beta: 11.39%

Choose Cost of Equity Methodology: Historical Beta

WACC 11.39%

C7

jdalpiaz: Daily 20-year Treasury rate from http://www.ustreas.gov/offices/domestic-finance/debt-management/interest-rate/ltcompositeindex_historical.shtml

Apple (AAPL)Income Statement

($ millions, except per share data in $000s)

Fiscal Years

2006A 2007A 2008A 2009A 2010E

x Revenue 24,578 37,491 42,905 62,212

Cost of Goods Sold 16,282 24,049 25,324 35,787

Gross Profit 8,296 13,442 17,581 26,425

Operating Expenses

Research & Development 596 759 830 1,204

Selling, General & Administrative 2,724 3,345 3,566 5,171

Total Operating Expenses 3,320 4,103 4,397 6,375

Depreciation & Amortization of PP&E 327 496 734 1,064

Amortization of Intangibles --- --- --- 40

Stock-Based Compensation 242 516 710 1,030

Operating Income 4,407 8,327 11,740 17,916

Interest Income 647 653 407 439

Interest Expense --- --- --- ---

Other Income & Expense (48) (33) (81) ---

Pre-Tax Income 5,006 8,947 12,066 18,355

Income Tax Provision 1,511 2,828 3,831 5,507

Net Income 3,495 6,119 8,235 12,849

Diluted Earnings Per Share $3.93 $6.78 $9.08 $14.17

Diluted Shares Outstanding 889,292 902,139 907,005 907,005

EBIT 4,649 8,843 12,450 18,946

EBITDA 4,976 9,339 13,184 20,050

Levered Free Cash Flow 4,735 8,505 10,311 16,978

Book Value Per Share (BV) $ 24.17 $ 34.56 $ 49.90

x Drivers & Growth Assumptions

Revenue Growth % 27.2% 52.5% 14.4% 45.0%

COGS % Revenue 66.2% 64.1% 59.0% 57.5%

R&D % Revenue 2.4% 2.0% 1.9% 1.9%

SG&A % Revenue 11.1% 8.9% 8.3% 8.3%

Stock-Based Compensation % Revenue 1.0% 1.4% 1.7% 1.7%

Depreciation & Amortization % Revenue 1.3% 1.3% 1.7% 1.7%

Effective Cash Interest Rate 5.3% 3.4% 1.4% 1.0%

Debt Interest Rate --- --- --- 0.0%

Effective Tax Rate 30.2% 31.6% 31.8% 30.0%

x Scenarios

Revenues

1 Upside 50.0%

2 Base Case 45.0%

3 Downside 27.5%

2 45.0%

Costs

1 Upside 57.5%

2 Base Case 59.0%

3 Downside 62.5%

2 59.0%

x

Fiscal Years

2011E 2012E 2013E 2014E

80,876 93,007 102,308 109,981

45,310 50,711 54,248 56,667

35,566 42,296 48,060 53,314

1,565 1,800 1,980 2,128

6,723 7,731 8,504 9,142

8,288 9,531 10,484 11,270

1,384 1,591 1,750 1,882

37 28 13 10

1,338 1,539 1,693 1,820

24,519 29,607 34,120 38,332

632 1,727 2,250 4,265

--- --- --- ---

--- --- --- ---

25,151 31,333 36,370 42,597

7,545 9,400 10,911 12,779

17,606 21,933 25,459 29,818

$19.41 $24.18 $28.07 $32.88

907,005 907,005 907,005 907,005

25,858 31,146 35,813 40,152

27,278 32,765 37,576 42,044

21,621 24,670 27,642 31,696

$ 70.83 $ 96.74 $ 126.69 $ 161.58

30.0% 15.0% 10.0% 7.5%

56.0% 54.5% 53.0% 51.5%

1.9% 1.9% 1.9% 1.9%

8.3% 8.3% 8.3% 8.3%

1.7% 1.7% 1.7% 1.7%

1.7% 1.7% 1.7% 1.7%

1.0% 2.0% 2.0% 3.0%

0.0% 0.0% 0.0% 0.0%

30.0% 30.0% 30.0% 30.0%

35.0% 25.0% 17.5% 10.0%

30.0% 15.0% 10.0% 7.5%

18.0% 12.0% 8.0% 5.0%

30.0% 15.0% 10.0% 7.5%

56.0% 54.5% 53.0% 51.5%

57.5% 56.0% 54.5% 53.0%

58.0% 58.0% 57.0% 57.0%

57.5% 56.0% 54.5% 53.0%

Apple (AAPL)Balance Sheet


Balance Sheet Check Balanced! Balanced! Balanced! Balanced! Balanced!

Fiscal Years

2006A 2007A 2008A 2009A 2010E

x Assets

Current Assets

Cash & Cash-Equivalents 11,875 6,559 23,537

Short-Term Securities 10,236 26,282 26,282

Accounts Receivable 2,422 3,361 4,873

Inventory 509 455 643

Deferred Tax Assets 1,044 4 4

Other Current Assets 3,920 3,140 3,140

Total Current Assets 30,006 39,801 58,480

Long-Term Assets

Long-Term Securities 2,379 2,554 2,554

Plants, Property & Equipment 2,455 2,839 3,434

Goodwill 207 207 207

Other Intangible Assets 285 354 314

Other Assets 839 2,011 2,011

Total Assets: 36,171 47,766 66,999

Liabilities & Shareholders' Equity

Current Liabilities

Accounts Payable 5,520 5,601 7,915

Accrued Expenses 4,224 3,852 5,585

Deferred Revenue 1,617 2,053 2,977

Total Current Liabilities 11,361 11,506 16,477

Long-Term Liabilities

Deferred Revenue 768 853 1,237

Long-Term Debt --- --- ---

Other Long-Term Liabilities 1,745 3,502 3,502

Total Liabilities 13,874 15,861 21,216

Shareholders' Equity

Common Stock 7,177 7,177 7,177

Additional Paid-In Capital --- 1,185 2,215

Treasury Stock --- --- ---

Retained Earnings 15,129 23,364 36,213

Accumulated Other Comprehensive Income (9) 179 179

Total Shareholders' Equity 22,297 31,905 45,783

Total Liabilities & SE 36,171 47,766 66,999

Days per Year 360

x Accounts Receivable % Revenue 6.5% 7.8% 7.8%

Accounts Receivable Days 23.3 28.2 28.2

Inventory % COGS 2.1% 1.8% 1.8%

Amortization of Intangibles

Accounts Payable % COGS 23.0% 22.1% 22.1%

Accounts Payable Days 82.6 79.6 79.6

Accrued Expenses % Operating Expenses 102.9% 87.6% 87.6%

Short-Term Deferred Revenue % Revenue 4.3% 4.8% 4.8%

Long-Term Deferred Revenue % Revenue 2.0% 2.0% 2.0%

x

Balanced! Balanced! Balanced! Balanced!

Fiscal Years

2011E 2012E 2013E 2014E

45,158 69,828 97,470 129,166

26,282 26,282 26,282 26,282

6,335 7,286 8,014 8,615

814 911 975 1,018

4 4 4 4

3,140 3,140 3,140 3,140

81,734 107,451 135,885 168,226

2,554 2,554 2,554 2,554

4,206 5,095 6,073 7,124

207 207 207 207

277 249 236 226

2,011 2,011 2,011 2,011

90,989 117,567 146,966 180,347

10,021 11,216 11,998 12,533

7,261 8,350 9,185 9,874

3,870 4,450 4,895 5,263

21,152 24,016 26,079 27,670

1,608 1,849 2,034 2,187

--- --- --- ---

3,502 3,502 3,502 3,502

26,262 29,368 31,615 33,358

7,177 7,177 7,177 7,177

3,553 5,092 6,785 8,605

--- --- --- ---

53,818 75,752 101,210 131,028

179 179 179 179

64,727 88,199 115,351 146,989

90,989 117,567 146,966 180,347

7.8% 7.8% 7.8% 7.8%

28.2 28.2 28.2 28.2

1.8% 1.8% 1.8% 1.8%

22.1% 22.1% 22.1% 22.1%

79.6 79.6 79.6 79.6

87.6% 87.6% 87.6% 87.6%

4.8% 4.8% 4.8% 4.8%

2.0% 2.0% 2.0% 2.0%

Apple (AAPL)Cash Flows


Fiscal Years

2006A 2007A 2008A 2009A 2010E

x Operating Activities

Net Income 3,495 6,119 8,235 12,849

Depreciation & Amortization of PP&E 327 496 734 1,064

Amortization of Intangibles --- --- --- 40

Stock-Based Compensation 242 516 710 1,030

Deferred Income Tax Expense 73 398 1,040 ---

Loss on PP&E 12 22 26 ---

Changes in Operating Assets & Liabilities

Accounts Receivable (385) (785) (939) (1,512)

Inventory (76) (163) 54 (188)

Other Current Assets (1,279) (274) 780 ---

Other Assets 285 289 (1,172) ---

Accounts Payable 1,494 596 81 2,314

Deferred Revenue 566 718 521 1,308

Other Liabilities 716 1,664 1,385 1,733

Cash Flow from Operations 5,470 9,596 11,455 18,637

Investing Activities

Purchases of Securities (11,719) (22,965) (46,724) ---

Proceeds from Maturities & Sales 9,424 16,243 30,678 ---

Purchases of LT Investments (17) (38) (101) ---

Capital Expenditures (735) (1,091) (1,144) (1,659)

Acquisition of Intangibles (251) (108) (69) ---

Other 49 (230) (74) ---

Cash Flow from Investing (3,249) (8,189) (17,434) (1,659)

Financing Activities

Proceeds from Common Stock 365 483 475 ---

Common Stock Repurchased --- --- --- ---

Dividends Issued --- --- --- ---

Tax Benefits from Stock-Based Comp 377 757 270 ---

Raise / (Pay Off) Long-Term Debt --- --- --- ---

Cash Used for Equity Awards (3) (124) (82) ---

Cash Flow from Financing 739 1,116 663 ---

Increase / Decrease in Cash 2,960 2,523 (5,316) 16,978

Beginning Cash 6,392 9,352 11,875 6,559

x Ending Cash 9,352 11,875 6,559 23,537

x CapEx % Revenue 3.0% 2.9% 2.7% 2.7%

Fiscal Years

2011E 2012E 2013E 2014E

17,606 21,933 25,459 29,818

1,384 1,591 1,750 1,882

37 28 13 10

1,338 1,539 1,693 1,820

--- --- --- ---

--- --- --- ---

(1,462) (950) (729) (601)

(171) (97) (64) (43)

--- --- --- ---

--- --- --- ---

2,106 1,195 782 535

1,264 822 630 520

1,676 1,089 835 689

23,777 27,150 30,370 34,629

--- --- --- ---

--- --- --- ---

--- --- --- ---

(2,156) (2,480) (2,728) (2,932)

--- --- --- ---

--- --- --- ---

(2,156) (2,480) (2,728) (2,932)

--- --- --- ---

--- --- --- ---

--- --- --- ---

--- --- --- ---

--- --- --- ---

--- --- --- ---

--- --- --- ---

21,621 24,670 27,642 31,696

23,537 45,158 69,828 97,470

45,158 69,828 97,470 129,166

2.7% 2.7% 2.7% 2.7%

Apple (AAPL)Disclosures

The author of www.stayingsharpe.com ("the site") is not a registered investment advisor.

The material in this model should not be viewed as an offer to sell or buy securities. Investments in the securities mentioned in this model may lose value. The author of the site is not liable for any losses or entitled to any gains incurred on securities discussed in this model.

The author of this site does not receive compensation for any of the research in this model.

The author is not an investor in any of the securities named in this model.

The author of www.stayingsharpe.com ("the site") is not a registered investment advisor.

The material in this model should not be viewed as an offer to sell or buy securities. Investments in the securities mentioned in this model may lose value. The author of the site is not liable for any losses or entitled to any gains incurred on securities discussed in this model.

The author of this site does not receive compensation for any of the research in this model.

The author is not an investor in any of the securities named in this model.

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Apple LBO Model