JJOONN ZZ.. GGRREEGGOORRYY,, MMBBAA

Portfolio of Accomplishments in Market

Research & Financial Analysis

University of Kansas

Texas A&M University

Contents:

3…………………………………………………………….………………Resume

Applied Coursework & Writing Examples:

4……………............................Corporate Project Allocation & Market Analysis

5……….……………..………………………EnCana-hurdle rate for new projects

6….………………...……………Mercury Athletic Footwear-acquisition analysis

7....….………………………Google-pro forma financials for acquisition of Sprint

9……………Business Valuation & Industry Competitive Analysis: Apple, Inc.

10……………………………………………………DCF & EVA valuation results

12………………………………………………………………Continuation Value

14…………………………………………………………Alternative Investments

15………………………Merger Arbitrage Memo- AirProducts, Inc. & Airgas, Inc.

18……..………………………………………………………… Security Analysis

19……………………………………………………………CPO Buy/Sell Memo

21………………………………………………………Risk Modeling & Analysis

22…….……………………………………Portfolio Construction Relative to Risk

23…………………………………………………………Real Estate Risk Analysis

24………………………………………………Financial Statement Risk Analysis

3

“Over the course of the

summer, it became readily apparent to me

that Zack’s MBA experience at the

University of Kansas has prepared him not only analytically, but also with an excellent

understanding of applicable business principles that will

allow him to thrive in whatever career path he elects to pursue” ~ Scott Bouska,

CFO,XSF Venture; Former Associate,

Deutsche Bank

JJOONN ZZ.. GGRREEGGOORRYY,, MMBBAA

PPRROOFFIILLEE Recent MBA-Finance graduate and offering over 4 years’ progressive experience in

technical sales/account management, business development, and financial analysis for

corporations. ~ Possess an established track record of revenue growth, developing

organizational models for use by management based on market and competitive analysis.

~ Desire an account manager, executive, or consultant position.

CCAARREEEERR PPUURRPPOOSSEE

I am seeking an opportunity that will allow me to serve as a natural catalyst and inspire

the company’s clients to view our organization as the most elite and innovative in the

industry. By fully utilizing my progressive sales experience and competitive analysis

skills derived from my excellent MBA education, I have no doubt that I am well

equipped for ultimate success.

SSPPEECCIIAALL SSKKIILLLLSS Segmentation of Consumer Markets - including top-down/bottom-up, positioning, and

price discrimination

Advanced User of Excel and Spreadsheet Modeling- very efficient in industry and

financial statement analysis

Capital Project Allocation-including calculating present values, formulating cash flows,

cost of equity (CAPM), market risk, cost of debt, project risk, WACC, business

investment and strategy

Business/Project Valuation utilizing various DCF, Asset, Capitalized Earnings and

Industry Multiples models

Complete Industry Competitive Analysis including past, present, and comparative

analysis

Real Option Valuation/Decision Tree Analysis- what is the value of having an option

to delay a project?

Strategic Positioning including competitive advantage analysis, NPV analysis, and

brand awareness motives

Product Life Cycle/Strategic Direction-including market entry timing, 5 Forces, and

competitive sustainability

EEMMPPLLOOYYMMEENNTT HHIISSTTOORRYY Domann & Pittman (NFL Agency), Colorado Springs, CO Summer 2009

Marketing Analyst Intern

Wealth Design Group, Houston, TX 2007-2008

Financial Services Sales Representative

Sea Gull Lighting, Houston, TX 2006-2007

Account Manager-Technical Sales

EEDDUUCCAATTIIOONN

Master of Business Administration-Finance

The University of Kansas, 2010

Bachelor of Science in Agricultural Business & Communication

Texas A&M University, 2006

4

.

Financial Project Allocation & Market

Analysis

5

To: Jide Wintoki

From: Richard Smith, Scott Mitchell, Zack Gregory

Re: Mercury Athletic Acquisition Based on our analysis of Mr. Liedtke’s base case projections for a potential acquisition of Mercury Athletic, we have concluded

that this is a positive net present value project, and that AGI should proceed with the acquisition. Under Mr. Liedtke’s operating

assumptions, we calculate the value of Mercury’s discounted cash flows to be $624.446 million, and the acquisition price to be

$156.643 million, yielding a net present value of $467,804 for AGI.

Our calculations indicate that this project becomes even more attractive financially when potential favorable synergies between

AGI and Mercury are taken into account. A real options valuation (details below) involving inventory management and the

women’s casual line indicates that an additional $22.365 million of value would be created by the successful implementation of

fairly simple operating synergies in those two areas alone. Considering that far more possible synergies and savings are a

possibility for AGI and Mercury post-acquisition, we believe this acquisition would be an appropriate strategic move for AGI to

improve its own performance and to compete on a more level playing field with the larger companies in the industry.

Methodology/Supporting Assumptions

To estimate the price of acquiring Mercury, we averaged the P/E multiples of comparable companies in the industry and applied

that multiple to Mercury’s 2006 net income to arrive at a likely purchase price. P/E was used because we believe it is the most

accurate reflection of the market’s view of Mercury’s recent performance and value. Kinsley Coulter and Templeton Athletic were

used as the two comparable companies because, along with AGI and Mercury, they are the only other companies in the industry

with annual revenue of less than $1 billion (Marina Wilderness also has revenue less than $1 billion, but because it is the fastest-

growing company in the industry it commands a multiple dramatically different from what Mercury could expect, therefore we

excluded it).

To discount the cash flows, we first had to estimate Mercury’s WACC. We did this by calculating the average asset beta for

companies in this industry, and then applied it to Mercury’s assumed leverage ratio to find the cost of equity. Combining that

information with the cost of debt and tax rate assumptions provided by Mr. Liedtke, we arrived at a WACC of 10.9%. To calculate

the terminal value of the project, we assumed a growth rate roughly equal to historical inflation in the U.S., which is 3%. Though

Mr. Liedtke’s projections have Mercury’s cash flows growing much more rapidly (8.5%) in the near term, we didn’t believe that

figure was sustainable in the long run, and thus used that more conservative inflation figure.

Valuation of Potential Synergies

To analyze the potential value that would be added by cooperation between AGI and Mercury, we conducted a real options

valuation involving some of the operating synergies that Mr. Liedtke thought could be realized post-acquisition. The two scenarios

we analyzed were:

Optimistic Scenario – All synergy benefits realized (50% probability):

Mercury women’s casual line turns around; 3% revenue growth, 9% EBIT margin

Adoption of AGI inventory system reduces Mercury’s DSI to

Discounted present value under this scenario: $685.479 million Pessimistic Scenario – No synergy benefits realized (50% probability):

Women’s casual line maintained, but continues losing money (-2.3% EBIT) indefinitely

Adoption of AGI inventory system has no effect on Mercury’s inventory levels

Discounted present value under this scenario: $608.143 million

Sensitivity Analysis

A sensitivity analysis of our results indicates that this project would remain a positive NPV project for AGI, even given

dramatically different assumptions regarding Mercury’s debt level and future revenue growth. Even using 100% debt or 0% debt

in its capital structure, Mercury’s NPV would remain positive. Additionally, discounted cash flows over the first five years (2007-

2011) are sufficient to cover our estimated purchase price, so changes in our terminal value revenue growth figure make no

difference in whether this is a positive- or negative-NPV project.

6

To: Jide Wintoki

From: Richard Smith, Scott Mitchell, Zack Gregory

Re: EnCana’s hurdle rate for new projects

We have calculated EnCana’s current weighted average cost of capital as being 9.29%. This is based on

EnCana’s current capital structure and existing costs of equity and debt. We believe this is the hurdle rate the

company should employ for deciding whether to undertake average-sized projects with risk levels

commensurate to the company’s existing projects.

However, additional costs (underwriting costs, new equity flotation costs) would be associated with raising

new capital to fund a major project, which would make new capital more costly than old. So we believe that

the “hurdle rate” that should be used for projects that are of greater-than-average risk or would require a

significant infusion of new capital should be 10.36%, reflecting those increased costs.

In both cases, we arrived at these figures by utilizing the capital asset pricing model to calculate the

EnCana’s cost of common equity, and using a weighted average of EnCana’s various debt issues to arrive at

the overall cost of debt. Key assumptions employed in the calculations of these figures are as follows:

Assumption Source/Rationale Risk-Free Rate: 4.20% - Current government long-term bond yield

Market Risk Premium: 4.74% - Arithmetic average of the differences between

CDA 1-year gov’t. bonds and the S&P TSX index

(1990-2005)

Canadian Corporate Tax Rate: 36.1% - 2006 Canadian tax rate from KPMG.com article

EnCana Total Equity: $48.515 B - Current market cap

EnCana Equity Beta: 1.27 - Noted in the case

Cost of Existing Equity: 10.22% - Calculated using CAPM and assumptions above

Cost of New Equity: 15.22% - Above, plus 5% for added flotation costs

EnCana Total Debt: $8.054 B - Total of ST- and LT-debt from debt schedule

Cost of Existing Long-Term Debt: 5.81% - Current yield of publicly-traded ENC bonds

Cost of New Long-Term Debt: 6.31% - Above, plus 50 basis points for underwriting costs

Cost of Short-Term Debt: 3.52% - Average, noted in the financial statements

7

Figure 1: Pro Forma Financials for Google after the Acquisition of Sprint & NPV Analysis

The data set below is a simulated version similar to a statement of cash flows derived to quantify the effects

of a Google-Sprint merger. The logic behind the model begins with projected revenue as a function of

market share growth. The projected cash flows are then backed out of revenue using typical accounting and

capital budgeting principles. The model is calculated based on the following assumptions: *(all data

necessary for calculations have been drawn from YahooFinance, Reuters, and ValueLine)

For every 1% increase in market share growth, revenue increased by 2%

Google would be able to decrease cost of sales to roughly 36% of revenues down from Sprint’s

current 52%

o This would largely be due to Google providing better management efficiency and is in a much

better financial position than Sprint

Google’s cost of capital is 5.70% and has zero cost of debt (Google is financed solely by equity)

o The asset beta of 0.40 for the wireless carrier industry’s dominant players was calculated and

then re-levered to Google’s cost of capital for expanding into the wireless carrier business

o Market-risk premium = 5%

o Risk-free rate = 3.69% (going rate for 10-year T bills)

*Please see Figure 2 below for further detail

The acquisition price of Sprint would be approximately $50 billion. This number is far higher than

what would be actually offered when compared to Sprint’s current Enterprise Value/EBITDA ratio,

which is meant to represent a worst-case scenario. Even under this case, the NPV of the project is

still positive.

The time period of 8 years was chosen because of the valuation complexity of this merger. It is rather

difficult to correctly quantify the exact effect that Google’s acquisition of Sprint would have due to the lack

of historical comparison of these two industries merging. Five years would essentially be too few years to

determine any real meaning and 10 to 15 years would be an inaccurate measure of what the future holds.

As indicated by the positive NPV of $120.5 billion, the acquisition seems to make sense for Google. With a

quick glance, one can see that this model is largely dependent on the market share growth that Google could

obtain in the wireless provider market. Though, at first glance, the rapid capture of such significant market

share seems unlikely. However, please note this logic is under the assumption that Google will be providing

wireless data and voice service at never-before-seen prices to consumers. Such an industry shock could

trigger such rapid market share growth for Google in the wireless industry. The revenue-growth multiplier of

“2” indicates that, because of Google’s lucrative online advertising business model, revenue will grow at a

quicker pace for every percentage increase in market share. Or, the revenue to market share elasticity is 2.

The logic here is that online advertising is a more lucrative business than providing wireless service, due

largely to the fact that profit and operating margins are much larger in online advertising. The wireless

service industry is very capital intensive, which shrinks margins for the current players. However, Google’s

outstanding advertising margins will actually increase at a greater rate with the aid of being able to offer

wireless service for cheap due to the fact that more users will be online more frequently and using Google’s

web-based services, such as Google Search, Gmail, and the myriad of Google-owned sites that generate

incredible advertising profits.

8

Figure 1: Capital Budgeting Projection-Google Acquisition of Sprint

Figure 2: Google’s Cost of Capital Relative to Entry into Wireless Industry

The table below displays the derivation of Google’s cost of capital for diversifying into the wireless services

industry. The average asset beta for the wireless services industry was found and then re-levered to Google’s

equity beta in order to find the new Google Wireless cost of capital via the capital asset pricing model.

Because Google is a debt-free company, the cost of equity is the cost of capital. Please note that this is the

cost of capital for Google relative to its risk in the wireless industry, not Google as a whole. Normally,

investors would require a larger return from Google given its enormous earnings success in recent years.

However, the cost of capital displayed below shows the effects of Google’s positive reputation when it

brings it to another industry, such as wireless services.

SPRINT/GWireless

Pro Forma Financials

Sprint-Projected Revenue Growth -1.00%

Revenue -Growth Multiplier 2 Year 0 1 2 3 4 5 6 7 8

Cost of Revenue/Revenue Ratio 36%

Depreciation Growth 3% Revenue 32,260,000 31,937,400 31,618,026 31,301,846 30,988,827 30,678,939 30,372,150 30,068,428 29,767,744

Tax Rate 34% Market Share Growth 4.0% 10.0% 10.0% 15.0% 1.5% 1.5% 1.5% 1.5%

Capital Expenditure for Sprint 50,000,000 Market Share 10.4% 14.4% 24.4% 34.4% 49.4% 50.9% 52.4% 53.9% 55.4%

Cost of Capital 5.70% Revnue Growth-Post 8% 20% 20% 30% 3% 3% 3% 3%

Revenue-Post Merger 32,260,000 34,840,800 41,808,960 50,170,752 65,221,978 67,178,637 69,193,996 71,269,816 73,407,910

Cost of Revenue 16,435,000 12,542,688 15,051,226 18,061,471 23,479,912 24,184,309 24,909,839 25,657,134 26,426,848

EBTD 22,298,112 26,757,734 32,109,281 41,742,066 42,994,328 44,284,157 45,612,682 46,981,063

Depreciation (-) 7,416,000 7,638,480 7,867,634 8,103,663 8,346,773 8,597,177 8,855,092 9,120,745 9,394,367

EBT 14,659,632 18,890,100 24,005,618 33,395,292 34,397,151 35,429,066 36,491,938 37,586,696

Taxes (-) 4,984,275 6,422,634 8,161,910 11,354,399 11,695,031 12,045,882 12,407,259 12,779,477

Net Income 9,675,357 12,467,466 15,843,708 22,040,893 22,702,120 23,383,183 24,084,679 24,807,219

Depreciation (+) 7,638,480 7,867,634 8,103,663 8,346,773 8,597,177 8,855,092 9,120,745 9,394,367

Capital Expenditure (-) 50,000,000

Total Net Cash Flow -50,000,000 17,313,837 20,335,100 23,947,371 30,387,666 31,299,296 32,238,275 33,205,423 34,201,586

PV of Cash Flows -50,000,000 16,380,055 18,200,796 20,277,946 24,343,639 23,721,642 23,115,538 22,524,921 21,949,394

NPV $120,513,932

IRR 44%

(in thousands)

Sprint Verizon AT&T

Stock beta 1.19 0.63 0.69

D/E 1.16 1.5 0.71

Asset Beta 0.55 0.25 0.40

Asset Beta Average 0.40

Google Wireless Beta 0.40

Market Risk Prem 5.00%

Risk-free Rate 3.69%

Cost of Equity 5.70%

9

Business Valuation & Industry Competitive

Analysis

10

Executive Summary

Based upon the results of our analysis of Apple, we arrive at a valuation per share of approximately $366, a premium of

approximately $161 over today’s stock price of $205.91. This difference may be due to the fact that consensus Wall Street

valuations are underestimating the revenue and profitability of the iPhone and other potential future product offerings, or are

underestimating Apple’s future “staying power” as a force in the computer and home electronics industry.

Relative valuation methods for Apple yield an expected per-share price in the $90-$100 range based on competitors’

multiples, barely half of what the stock is currently trading for. We believe that this is based on the fact have higher expectations

for Apple’s future growth rates, and thus it trades at multiples significantly larger than those of its competitors.

Results

Our discounted cash flow/EVA valuation analysis of Apple yields a per-share price of $366.23. This figure is based on

explicitly forecasted discounted free cash flows of approximately $99 billion, and a discounted continuation value of just over

$197 billion. After accounting for Apple’s (sizable) excess cash holdings and other non-operating factors, we arrive at a total

valuation of equity of just over $330 billion for Apple, which is then divided by 901.4 million shares outstanding (including

restricted stock units).

That $366.23 represents a premium of 78% over the stock’s actual price today, which is $205.91. There are several

possible explanations for that sizable discrepancy. The first is that investors and analysts are undervaluing Apple’s current revenue

and profitability due to the effects of subscription accounting rules on the iPhone, which we project to be a large and growing

component of Apple’s revenues going forward.

Another possible reason is that investors are taking a more pessimistic view than we are of Apple’s ability to continue to

grow and remain highly profitable without CEO Steve Jobs at the helm. There is considerable uncertainty regarding Jobs’ long-

term status after bouts with cancer and a recent liver transplant, and fears regarding his future health (and that of his company)

may be priced into the company’s stock today.

A final possibility is that we have simply overestimated Apple’s future revenue (and cash flow) growth performance in

our forecasts. Thanks to the iPod, iPhone, etc., Apple is coming off a five-year stretch of revenue and cash flow growth that is

nearly unparalleled in its industry. While we believe Apple will be able to continue to prosper through continued innovation for

some time to come, we also have to concede the possibility that we have allowed the company’s atypical string of recent “hits” to

skew our forecasts in an unrealistically positive direction.

Given the uncertainties surrounding Jobs’ future, and the general difficulty of predicting the future innovation and growth

of this rapidly-evolving company, it is tough to settle on one “bulletproof” valuation method for Apple’s stock. Our estimates

varied widely, as shown in the table below:

Valuation Method Per-share Price

Actual Stock Price (11/17/09) $205.91

Discounted FCFs/EVAs $366.23

Competitors’ P/E Ratios $111.37

Competitors’ TEV/EBIT Ratios $95.30

Relative to other companies, Apple has quite an impressive TEV/EBIT ratio at 20.8. The average TEV/EBIT ratio for

Apple’s twins is 11.2. One thing to note about Apple’s higher ratio is that they appear to have far fewer shares outstanding than

their peers, such as Microsoft and HP, which ultimately results in Apple’s share price trading at a significantly higher price than its

competitors. Using the TEV/EBIT pricing method, we arrived at a price of $95.30, which is significantly below the market price

Apple is trading at currently. The most logical explanation of its lower price is because it’s based on industry data, which is much

different from the uniqueness of Apple’s data.

Also, when we calculated Apple’s P/E multiple, it naturally came out to be much higher than their competitors as well.

Apple’s P/E ratio was 32.32 relative to the competitor average of 17.71. Again, the P/E ratio is likely higher than Apple’s peers

due to the fewer number of shares outstanding. When using the P/E multiple pricing method, we arrived at a price of $111.37.

Again, this is far below the current trading price of $205.91 but higher than the $95.30 that was found with the TEV/EBIT method.

A likely reason the P/E pricing method gives a lower price is again due to the fact that Apple’s price is driven upward by the fewer

shares of common stock outstanding.

Gregory & Smith Capital, LLC

“Better than trusting your money to a chimp… but only slightly.”

Part 7 – Results Submitted 11.17.09

11

Summary

Our objective in this project has been to objectively (without reliance on “expert” estimates or current market prices)

determine the value of Apple, Inc. This involves less a look at where it has been than where it is going—how much cash flow can

we expect Apple to accrue in the years and decades to come? That future focus makes Apple both an intriguing and somewhat

challenging company to value, because the nature of its business has changed quite dramatically over the past five years—it has

gone from being a run-of-the-mill computer company to being a broad-based, innovative consumer electronics company. Its

financial performance has undergone a similarly dramatic makeover in the process, as shown in the graph below:

Once financially struggling, Apple is now generating cash at an eye-popping rate, producing massive revenue growth

rates and healthy operating profit margins while employing low levels of invested capital—a display of extreme financial

efficiency. The extremes between the Apple of just five years ago and the Apple of today are so stark that it makes it difficult to

gauge what the future Apple will look like—will it be the struggling also-ran (the first, flat, part of the curve above), the bold,

innovative, efficient financial titan (the second part of the curve), or something in between?

For all its success, there are many questions about Apple’s trajectory going forward—CEO/visionary Steve Jobs’ health

and continued involvement are in question after he underwent a liver transplant earlier this year. Some of the product lines that

have fueled Apple’s massive growth are already showing their age (the iPod), while others (the iPhone, the MacBook laptop) have

dozens of formidable competitors aiming to overtake them. And there’s also the fundamental question of whether any company

can continue cranking out “hit” products at the rate Apple has during its renaissance.

For these reasons, our financial forecasts attempted to split the middle between the two extreme outcomes of Apple

immediately falling back to the pack or continuing to grow at astronomical rates forever and ever. Generally speaking, our forecast

calls for Apple to continue to grow at a significant rate for the next five-plus years, before beginning to gradually and inevitably

fall back to the pack as some products age and others are overtaken by the competition, a trajectory illustrated by the five-year

forecast below:

Apple Sales Forecast 2009 2010 2011 2012 2013 5-yr. CAGR

Total Revenue (millions) $36,574 $46,460 $56,101 $69,172 $81,261 20.1%

A) Mac Desktops $4,635 $5,098 $5,864 $6,861 $7,752 6.7%

B) Mac Laptops $9,271 $11,302 $12,997 $14,557 $16,012 13.0%

C) Mac Tablet/Other innovations -- $750 $1,875 $5,675 $7,875 1293.3%

D) iPod $8,069 $8,311 $7,896 $7,343 $6,609 -6.3%

E) Other music (iTunes Store) $4,008 $5,210 $7,295 $10,577 $14,808 34.7%

F) iPhone/related services $6,925 $11,080 $14,404 $17,284 $19,013 59.5%

G) Peripherals/Hardware $1,327 $1,433 $1,677 $2,013 $2,314 6.9%

H) Software/Services $2,339 $3,275 $4,094 $4,913 $6,878 25.5%

After this five-year horizon we project Apple regressing to the mean somewhat in terms of its growth and profitability.

However, assuming Apple continues to manage its business and its finances with a level of skill and efficiency similar to what it

has shown over the past five years, we expect that it will continue to be a profitable and viable company into the indefinite future.

Our projections show it producing free cash flow of more than $25 billion per year a decade from now, with operating profit

margins of nearly 18%. Given its current financial fundamentals, our projections for future growth, and the relatively number of

shares (i.e. claimants) on its massive cash reserves and growth potential, we estimate Apple’s value at $366 per share, some $161

higher than it is currently trading for.

Apple Revenues

0.0

5,000.0

10,000.0

15,000.0

20,000.0

25,000.0

30,000.0

35,000.0

99 00 01 02 03 04 05 06 07 08

Year

Reven

ues (

Millio

ns)

Revenue

s X

iPhone IntroducedItunes Music

Store Opens

iPod debuts

12

Executive Summary

Our calculations indicate that Apple’s continuation value is $1,061,885 million, a figure we arrived at by using the cash-

flow value driver formula. We rejected an alternative figure computed using EVA due to concerns over the rate of implied EVA

growth, and the proportion of value created by RONIC relative to ROIC. We computed a liquidation value of approximately

$23,434 million for Apple, but we don’t foresee many realistic scenarios in which management will be compelled to liquidate the

company. We computed a relative valuation (using TEV/EBIT) of $182,068 million, but rejected that figure as being too low

relative to the other values we had considered.

Continuing Value Computations Underlying Assumptions

Our starting invested capital figure for these computations is -$19,039 million, which is derived from the final year of our

medium term forecast for Apple. This number is negative because Apple has employed a strategy of using low-to-negative levels

of invested capital, and we expect that to be their operating model going forward as well—many of the figures related to the

negative figure are related to particular accounting methods for the iPhone, and those don’t figure to be going away anytime soon.

Our g is 6.5%, which we believe will be the equilibrium Revenue/EBIT/NOPLAT growth rate for Apple in the continuation

period.

The big challenge for Apple is determining continuation ROIC and RONIC values, as Apple’s projected use of negative

invested capital skews those two numbers in unexpected ways. We projected our ROIC and RONIC for the continuation period for

Apple to be -170% and -100%, respectively—these represent approximately a 40% decrease from the (more-negative) ROIC and

RONIC employed during the forecast period.

Under typical conditions RONIC should converge toward WACC, but since Apple has several sustainable competitive

advantages (its operating systems, products and brand) plus its extremely efficient use of capital, we believe that qualifies it as an

exception to that convergence-to-WACC rule. Finally, our WACC is 11.87%, a factor that carries over from our medium-term

forecast, as we do not predict any major changes in Apple’s capital structure.

Continuation Value (Cash Flows)

Using the convergence formula (which nulls out future value creation through investment), we arrived at a continuation

value of $447,839 million for Apple. This figure represents the continuing value of the capital Apple will have invested by the end

of the explicit forecast period, without taking into account the effects of any future investment. This is a reasonable estimate for

what it forecasts (which is the continued value generated only by Apple’s existing invested capital base), but is not a reasonable

estimate for the continuation value of Apple as a whole—clearly the company will continue to grow and create value through its

growth for the foreseeable future.

The Value Driver Cash Flow formula yields a continuation value of $1,061,885 million for Apple. Embedded in this

figure are implicit estimates of investment rate, initial NOPLAT, and initial FCF. These numbers, frankly, are a bit odd—the year

T+1 NOPLAT represents a 76% year-over-year increase in NOPLAT, and an 89% year-over-year increase in FCF. Both are far

higher, percentage-wise, than at any other year-over-year point in our forecast period and lead us to question the validity of this

result. It is possible that we made an error in our forecasting that causes this portion of the forecast to produce unsustainably high

growth rates.

We have some question also about our implied investment rate of -6.5%, but believe that it is not a completely unrealistic

figure. As a tech company, Apple has much less need for PP&E and other investments in fixed assets than a manufacturing or

retail firm would. And at the rate technology is advancing, for all we know Apple employees will be doing their work on tiny

computers implanted in their brains by 2023, eliminating the need for new investments in computers, printers, desks, buildings,

etc. The example is somewhat facetious, but it illustrates the point that while you would think Apple would need a positive net

investment rate to replenish its resources, it seems theoretically possible the company could allow its capital base to decline over

time without compromising its productivity.

We did not recalculate the continuation value using the unlevered cost of capital—since Apple does not employ debt the

levered and unlevered costs are the same, and debt tax shields would have no effect on Apple’s continuing value.

Continuation Value (EVA)

Gregory & Smith Capital, LLC

“Better than trusting your money to a chimp… but only slightly.”

Part 6 – Continuation Value Submitted 11.10.09

13

Using the EVA continuation value formulas, we arrive at $466,879 million as the value of Apple derived from its existing

invested capital at the end of the explicit forecast period. As above, the implied EVA at time T+1 seems a bit high given historical

trends in Apple’s EVA figures. At $55,091 million, the 2024 EVA represents a 71% increase from the year prior.

The value added by additional invested capital is $614,046 million. This figure seems unrealistically high given that our

forecast calls for Apple to make very little investment in additional capital in the continuation period (a -6.5% net investment rate).

We’ve also assumed a different (lower, at -100%) investment rate for additional capital, on the premise that Apple’s best

investments and blockbuster ideas will have been largely exhausted by 15 years from now, yet this formula still predicts greater

value from future ideas and investments than Apple’s existing slate of cash cows. This result really doesn’t pass the logic test, in

our opinion.

This results in a total continuation value of $1,080,925.4 million, roughly the same as we arrived at using the cash flows

methodology. However, this figure is made up of approximately 40% value created by existing capital and 60% value to be created

by future capital; a proportion that, again, seems out of whack given Apple’s projected minimal investment in new capital, and the

fact that their “well” of ideas has to run dry at some point between now and 2023. The proportion isn’t so vastly off-kilter that we

believe we have to reject it entirely, but it does provide a basis to wonder about its validity.

The difference between the two continuation values amounts to $19,039 million, which is the invested capital figure for

the last year of the explicit forecast period, and amounts to only a 1.7% difference between the two continuing value figures.

Because of the problems noted above with the odd proportion of existing to additional value in the EVA formula, we favor the

$1,061,885 figure computed using cash flows. Particularly given the quirkiness of Apple’s invested capital numbers and the fact

that its WACC could change at some point, going with the relatively stable and reliable NOPLAT-and-cash flow-derived figure

seems like the better option to us.

\

Liquidation Value

We came out with a total liquidation value of $23,434,700. This was calculated using the following weights: 20% of PP&E, 50%

of inventory, 50% of accounts receivable. We then added intangibles and subtracted total liabilities. It is very difficult to discern

what assets and intangibles make up the value of a company like Apple and it’s even harder to place a number on the value that is

created from such a strong brand name.

Relative Valuation

The TEV/EBIT multiple came out to about 4.57 currently. This is a bit lower than the price to book value of 6.51, but still a pretty

accurate estimate. Currently, the industry’s P/E ratio is around 32. In 15 years, we would expect the ratio to decline to around 25

or even less due to the attracted competition of high returns that will soon erupt in the telecommunications/personal electronic

device sector. The current price to sales ratio for Apple is 4.97. We would expect this number to increase in the immediate future,

but start to decline for the reasons mentioned above.

14

Alternative Investments

15

APD’s financial condition

is superior relative to its

competition, ARG’s is not.

On February 11, 2010 Air Products and Chemicals, Inc. (APD) confirmed its attempt at a hostile takeover of Airgas, Inc. (ARG). The bid

is an all-cash offer valued at $60 per share or $5.1 billion of Airgas stock. Currently, the Airgas board of directors is against the merger and is

pleading with shareholders not to accept the offer claiming that Air Products has “grossly undervalued” Airgas Inc.i

It will be revealed from our research that undervalued bid for ARG has taken place as signaled by instant adjustment by the market on the bid

announcement date. With near certainty that the deal was unlikely to go through under the existing bid price, risk arbitrage spread was eliminated

immediately at market open on announcement day.

Buyer is an Industry Leader: Air Products (NYSE:APD)

Attempting a hostile takeover is Air Products and Chemicals, Inc. (APD), a Delaware-based industrial gas company.

APD is a global supplier of atmospheric gases to energy, industrial, technology, and health care clientele. They also

embrace the title of the world’s largest supplier of hydrogen and helium. Air Products currently employs

approximately 19,000 workers and operates in more than 40 countries.

ii

APD’s financial condition is superior relative to the rest of the industry. Worth noting is APD’s modest debt-to-equity ratio of 0.88 compared

with the industry 1.25. Also likely contributing is its Standard & Poor’s AAA credit rating. APD boasts the ability to cover interest expense 449x

relative to the industry average of just 59.7x or the market average of only 24.6x. Air Products seems to be utilizing their assets more efficiently

than their counterparts boasting a return on assets figure of 6.4 compared to the industry 2.4. iii

While Air Products and Airgas are not in identical businesses, they are in similar businesses that will not alter Air Products’ strategy should they

acquire Airgas. In fact, the acquisition of Airgas would allow Air Products to achieve their strategy of becoming the biggest player in the North

American industrial gas market as well as one of the leading integrated gas companies in the world.

Target is financially Subpar: Airgas, Inc. (NYSE:ARG)

Airgas, Inc (ARG) is an industrial gas distribution and production company that operates on a massive scale in the

United States. Currently, Airgas is the largest distributor of industrial, medical and specialty gases in the United States

as well as the largest producer of nitrous oxide and dry ice. They are the largest liquid carbon dioxide producer in the

Southeast and the fifth largest producer of atmospheric gases in the U.S. Moreover, Airgas is one of the largest U.S.

suppliers of safety equipment. The paramount advantage of Airgas is their enormous supply chain and distribution

network across the United States.

Though Airgas is a leader in the industrial equipment wholesale industry in terms of scale magnitude, their financial condition appears to be

inferior to their peers. Airgas falls short in two major areas: amount of debt and interest coverage. Airgas has roughly twice the debt-to-equity

ratio of the industry at 1.07 (vs. 0.56).

iv

The firm is only able to cover their interest expense 6x over compared to an industry average of 17.0x! This is likely a factor contributing to

Airgas’s S&P credit rating of BBB. Also, Airgas is only able to cover their short-term obligations 1.6 times versus the industry standard of 2.3 as

noted by their current ratio. Finally, Airgas seems to be earning a smaller return than their counterparts with an ROA of 4.8 (vs. 6.3-industry) and

a return on invested capital of just 5.3 compared to their peer average of 7.8.

Airgas’s strategy does not seem to be in tune with their potential buyer, Air Products. The most obvious sign is that this situation is now a hostile

bid on the part of Air Products, ignoring the wishes of Airgas management. Air Products is likely focusing on taking advantage of Airgas’s

enormous distribution network in order to become the largest industrial gas company in the United States. According to Airgas’s annual

statements, their strategy seems to be one of conservative diversification, which hedges against volatile economic and business cycles. This

would account for the very diverse product and services portfolio of Airgas. Air Products seems to be clearly focusing only on the industrial gas

segment, which could put the combined company in a riskier state relative to economic cycles.

A major factor in this hostile bid is the pending litigation involving the New York-based law firm, Cravath, Swaine & Moore, LLP. Since 2001,

the law firm represented Airgas until suddenly dropping them to represent Air Products in 2009. After Airgas rejected Air Products tender offer,

Air Products sued Airgas with CS&M as their legal counsel claiming that Airgas was failing to consider its offers. To counter, Airgas quickly

sued Cravith, Swaine, & Moore claiming that they breached conflict of interest laws and should not be allowed to represent Air Products in the

case since the law firm used to represent Airgas. Air Products is claiming that CS&M has represented them since the 1960’s, well before Airgas

even existed. Also, CS&M is claiming that they only provided minor financial work for Airgas. According to Reuter’s, analysts believe that Air

Products’ long history and the lack of pertinent services that CS&M provided for Airgas will help the judge to rule in favor of Air Products.

Should this be the case, this hostile bid is ultimately left up to the shareholders of Airgas.

Financial Strength

APD Industry Sector S&P 500

Quick Ratio (MRQ) 0.99 0.39 0.62 0.83

Current Ratio (MRQ) 1.3 0.52 0.87 0.97

LT Debt to Equity (MRQ) 73.6 7.31 25.16 121.6

Total Debt to Equity (MRQ) 87.78 12.56 38.92 176.66

Interest Coverage (TTM) 91.07 0.06 0.11 10.45

Financial Strength

ARG Industry Sector S&P 500

Quick Ratio (MRQ) 0.78 0.39 0.62 0.83

Current Ratio (MRQ) 1.63 0.52 0.87 0.97

LT Debt to Equity (MRQ) 92.26 7.31 25.16 121.6

Total Debt to Equity (MRQ) 106.51 12.56 38.92 176.66

Interest Coverage (TTM) 6.29 0.06 0.11 10.45

16

The absence of risk arbitrage

spread suggest an undervalued

bid price or unlikely merger

On Monday, February 22, 2010, the board of directors of Airgas, the largest shareholders of the company, unanimously rejected Air Products’

bid for Airgas claiming that Air Products “significantly undervalues” Airgas and its potential for future growth. The shareholders rejected this bid

when the price of Airgas stock closed at $43.53 or 38% below the premium offered.v

The Combined Company

The popular opinion among analysts is that the merger would add approximately $250 million worth of synergies to the pro-forma statements.

Many of the synergies would arise from cost savings and increased profitability as the economy continues to improve. The merger is said to be

immediately accretive to earnings per share as well as GAAP earnings. The two companies bring different strengths to the table in order to

achieve these synergies. Air Products brings their engineering technology expertise as well as industry leadership in tonnage. Airgas would offer

their robust distribution network and leadership in packaged gases. The combined company would create one of the largest integrated industrial

gas companies in the world and the largest in the United States. vi

Financing Secured by J.P. Morgan Chase Bank N.A.

In order to successfully acquire a majority stake in ARG, APD will need $7 billion to purchase all outstanding shares.vii As of December, 2009

APD had cash and marketable securities that totaled $323 million. To make up for the difference, JP Morgan Chase Bank NA has committed

$6.724 billion through a term loan credit facility.

Furthermore there will be certain debt covenants APD will have to adhere to regarding debt

relative to firm EBITDA but our confidence of such covenants is high given APD’s current

financial strength. As long as the integrity and general premise of this deal remains the same, JP

Morgan is prepared to move forward.

With regard to repaying these sizeable loans, APD will combine the opportunity to refinance with

payments from internally generated revenues. Despite many pending conditions necessary for

this deal to go through, Air Products obtaining financing is not among them. Those conditions necessary for deal success include:

I. Share tendered at expiration date once combined with the current stake represent at least a majority stake of outstanding diluted shares.

II. Airgas Board of Directors give up preferred stock purchase rights that would otherwise enabled them to interfere with this merger

III. Cooperation from Airgas Board of Directors

IV. Successful early compliance with Hart-Scott Rodino Antitrust Improvements Act of 1976 premerger notification and waiting period

V. No other parties come into agreement with ARG that prevents APD from acquisition or disables the opportunities for synergies and value

creation

The investment bank acting as deal maker for this deal is J.P. Morgan. McKenzie Partners Inc is the information agent.

APD seeking share of U.S. Packaged Air Market through ARG

The development of APD’s offer into hostile takeover came from numerous declines by the ARG board of directors. On October 15, 2009, the

CEO’s of the two companies met to discuss the potential of a merger but with little success. ARG CEO McCausland expressed the likely

disinterest of the ARG board of directors.

Following multiple attempts and lower-than-expected ARG earnings reports on October 29, 2009 and January 28, 2010, APD’s current all-cash

offering was in fact a revision of two other prior offers.

The first offer was an all-stock deal that valued ARG stock at 0.7296 of APD but constituted a 27% premium of the current market price. This

discount of ARG stock by APD was immediately shot down and expressed disinterest to move forward with revisions followed. The second offer

was a cash and stock blend that raised the market price premium to 33% and an offer tender at $62 per share. The current offer is an all-cash bid

at $60 per share and reflects APD’s final attempt of acquisition. This final attempt has become a hostile takeover whereby APD has decided to

offer this tender publicly to ARG shareholders.

Risk Arbitrage Spread

In accordance with L’Habitant, risk arbitrage spread opportunities exist between the initial bid price and the closing market price one day after

the announcement. It is in that spread that arbitrageurs seek to achieve their returns. The inherent bet on a merger deal going through closes the

spread until bid price and market price converges to zero. Therefore the rate in which that spread closes is a viable proxy signaling likelihood of a

successful deal when the bid price is a reasonable premium of the market price. In this case, we are leaning more on the belief that the $60 per

share bid is an undervaluation of ARG stock.

17

Figure 1: Instant market price jumps grossly shorten risk arbitrage windows as seen on February 5th, 2010 for Airgas Inc.

Any opportunity window for arbitrage was kept extremely short. The $60.00 per share bid price was made on the morning of February 5 th, 2010

and the opening price that very same day was $62.65, eliminating the entire spread instantly as trading opened. The only other risk arbitrage

opportunities that seem possible would come from renegotiation of a bid price that better reflects a premium of ARG’s value or an extension

beyond the current April deadline.

i Airgas Board of Directors statement <www.finance.yahoo.com> ii Air Products Inc. (NYSE:APD), <http://www.reuters.com/finance/stocks/financialHighlights?symbol=APD.N> iii Airgas Inc (NYSE:ARG) <www.moneycentral.msn.com> iv Airgas Inc., Financial Strength <www.reuters.com> v Airgas Inc. <www.finance.yahoo.com> vi Information regarding the combined company <www.cnbc.com> vii ARG SEC filings, exhibit (A)(1)(i), Offer to Purchase for Cash All Outstanding Shares from APD. Offer expire April 9, 2010 at 24:00

18

Security Analysis

19

In the high-tech, flashy world of Google, Microsoft and Apple, it

can become effortless to forget about the quiet and subtle giants of

the domestic and global economy. While Apple has delivered an

unbelievable iPhone and Google is taking over the internet in a

trendy and stylish way, certain companies, such as Corn Products

International (CPO), are quietly supplying the entire economy

with products or raw materials that are creating lasting

dependencies with their customers, such as Coca-Cola. Do you

think corn is just what’s for dinner? Think again! From

pharmaceutical to the automobile to the food industry, Corn

Products International is quietly rumbling along behind the scenes

making unbelievable headway in establishing itself as one of the

biggest backbones to America’s economy. Corn Products is a

strong buy and hold for the following reasons:

A very attractive PEG ratio of 0.46 (I can hear value

investors Googling CPO as I type!)

An unbelievable Return on Equity of 17.68%, relative to

its industry average of 3.13%1

5-year projected earnings growth of at least 15% and 10

year historical earnings growth of 29%!

A safe company! It currently has a debt-to-equity ratio of

0.62, relative to an industry average of 1.27 and an S&P

average of 1.06. 1

Artificial Sweetener, Artificial Price

In the Summer of 2008, the agricultural giant, Bunge, tried to take

over Corn Products International in order to gain more market

share in the industry. Before the deal was fully realized the

takeover was sacked due to a severe down tick in commodities,

which caused Bunge’s stock to collapse. Bunge took Corn

Products along for the ride and caused its stock price to plummet

by association. With the market being an efficient mechanism,

investors are starting to understand that Corn Products is a shining

star beneath the former merger controversy and is likely to see a

large increase in share price

1 www.msn.com

over the next one to two years. This, along with the current

recession, presents an attractive opportunity for investors to hop

into this rollercoaster slowly rounding the turn and is about to

have its price buggy pulled rapidly upward

Corn, Who Cares?

Corn is just a simple product produced by simple farmers that has

no real impact on the world except as a food source and a couple

of minor alternative uses, right? One might be a fool to make such

a grand and false assumption! Corn Products International is an

indispensable part of everyday life of the American and global

citizen. The company boasted net sales of $3.94 billion in 2008

and operates in over 15 countries world-wide. For those who are

keen on the term “diversification”CPO supplies more than 60

industries and sectors across the globe with its products and

services. Its staple product is high-fructose corn syrup in which it

supplies global giants Coca-Cola and Pepsi among others2. Corn

products international simply cannot be escaped by the global

citizen. Much like Google is to the internet, CPO is a part of the

lives of most everyone on earth!

Corn-fed: Fundementals of a Solid Company

Upon an initial viewing of CPO’s fundamentals, a notable figure

that leaps up and slaps you in the face is its uncanny ROE of

17.68%. CPO is in a league of its own relative to the rest of the

industry, which only boasts an industry average ROE of 3.13%.

CPO has an incredible 5-year expected EPS growth rate of 15%!

This dwarfs the industry rate of 5.87.. Just as impressive, CPO

has a 10-year historical earnings growth of roughly 27%. To

paint this hidden gem’s picture relative to value, we stack its

current P/E on top of the growth, which spits out a beautiful PEG

ratio of 0.46 (Peter Lynch may even applaud this discovery).

Finally, if one likes to heed the advice of Warren Buffett (and one

might consider doing so), CPO would fit nicely with Buffett’s

criteria of a “safe company” with its phenomenal debt ratio of

0.62. In such a high and fixed cost industry, CPO is floating

peacefully compared with the S&P 500 average of 1.06.1

Figure 1

2 www.cornproducts.com

05

1015202530

ROE (5 year avg.)

EPS (5 year. avg)

Debt Ratio

Pe

rce

nt

CP

O is

D

om

ina

tin

g B

y

CPO, Quietly Amassing Fortunes

Got Corn?

CPO

Industry

S&P

Zack Gregory Ticker: CPO

May 13, 2009 Rating: Buy

Share Price: $21.13 Industry: Food Processing

Not Everyone is Perfect…But Some Are Close!

20

Though Corn Products has achieved almost double the growth of the S&P 500 over the past 10 years that is not to say there are not potential

hindrances to owning the stock. However, it must be noted that the risks do not appear to be firm-specific. Because of slower economic times,

earnings in the short-run have fallen short of estimates due to such occurrences as Coca-Cola’s and Pepsi’s aggregate decrease in demand of their

carbonated beverages. Also, harder economic times have resulted in increased input costs for the short term for Corn Products due to the lack of

demand for some of the “corn co-products” that CPO normally utilizes to hedge against the cost of inputs. Also, political problems in South

Korea have resulted in much higher corn and distributions costs in the short-term Like most companies, CPO is expected to pick up momentum

somewhere in 2010, which is when we should start to see CPO stride ahead of the pack. Its immense product diversification and continual

innovation are expected to reward patient investors nicely.vii

Valuation: Where the Diamond is Lifted From the Rough The figure below is a simple Discounted Present Value analysis of this stock over the next 5 years relative to earnings growth. To show the

impressive nature of this stock I have made very conservative estimates that will still show impressive returns and intrinsic value. We will

assume: 1) a modest earnings growth rate of only 12%, 2) a risk-adjusted discount rate of just 12%, and finally 3) security pricing grounded in a

forward P/E ratio of roughly 14%. The forward P/E is based on the assumption that Corn Products International is an excellent business with

high earnings and is operating in a recession-like atmosphere currently. 1

CPO is a Steal for only $20.36!

Expected EPS

Growth

EPS in 5 Years Stock Price in

5 Years

Intrinsic

Economic

Value 10.0% 5.67 79.37 47.78

11.0% 5.93 83.04 50.00

12.0% 6.20 86.85 52.29

13.0% 6.49 90.80 54.67

14.0% 6.78 94.88 57.13

Figure 2

Immaculate Management: Separating the Chaff from the Crop Corn Products International is currently headed by the talented Samuel C. Scott III who has been at the top since 2001and president since 1997.

He is also a director of Motorola and Abbott Laboratories. Scott has been with the company since 1997 and excelled in the corn industry for over

20 years. Since Scott has been at the helm (or near it), CPO has enjoyed roughly 10 years of unprecedented earnings growth in excess of 25%!5

Scott owns 253,960 shares of stock in the company worth $5.1 million. Roughly 83% of CPO’s stock is owned by institutional investors,

including Axa, Vanguard Group, and Prudential. It seems that due to the uncertainty of the current recession, insiders have sold a few shares

lightly (0.8%), but nothing indicates that it is due to any negative inside information and is solely due to uncertain economic conditions.

Beta Analysis and Safety

5 Year Avg.

Beta Estimate

R-Squared P-Value

0.86 0.22 0.33

Figure 3

Risk-averse investors will smile at the above 5-year average beta of 0.86, which indicates that it is 14% less volatile than the overall market. This

beta of 0.86 was derived using the weekly returns of CPO and the S&P and running a regression analysis. Also, found in the regression is the

tell-tale sign of a 0.22 R-squared figure that suggests CPO’s stock precariousness is not greatly affected by the overall market. In fact, 72% of

Corn Product’s volatility cannot be explained by fluctuations in the market and are more likely attributed to firm-specific risks, which in this

company’s case, is a great thing. 6

Also, Graham and Dodd investors will salivate at the company’s safety net in which it boasts a current debt-to-equity ratio of just 0.62! This

itself is an exciting figure. However, when compared to the industry and S&P averages of 1.27 and 1.06, respectively, it leaves quite an imprint

on the mind. By leveraging the company just above the half-way mark, CPO has been able to enjoy 21% dividend growth rates and achieve net

income growth rates of roughly 30% in the past 5 years . 2

Recommendation: Is There Any Doubt? Corn Product’s stock price has appeared to be pushed artificially low due to current economic conditions and a failed attempt at a merger with

Bunge. Because of CPO’s talented management, especially when it comes to cost containing and hedging input costs, the company should be

able to produce above average earnings growth in the long haul and its stock price will likely double (maybe even triple) in the next 3 to 5 years.

For those smart investors seeking long-term capital appreciation I strongly recommend Corn Products International as a BUY.

21

Risk Modeling & Analysis

22

Optimal Bond Portfolio Construction

Exp Ret

Worst Ret Duration

Amounts

Bond 1 0.13 0.06 3

$400,000 <= $400,000

Bond 2 0.08 0.08 4

$0 <= $400,000

Bond 3 0.12 0.1 7

$300,000 <= $400,000

Bond 4 0.14 0.09 9

$300,000 <= $400,000

81,000 6,000,000

1,000,000

>= <=

=

80,000 6,000,000

$1,000,000

13.00% $130,000

6

23

Real Estate Analysis and Forecast Simulation

rate payment (annual) (annual) (annual) (annual)

AN

NU

AL N

ET

10.00% $

(200,000) maintenance renter property homeowner

costs payments tax insurance

preliminary (lognormal) custom start value start value

maintenance mean, std dev 3000 1500

(normal) 400 $0, 20% (normal) (normal)

mean, std dev 400 $2000, 16% (0.80*0.20) mean, std dev mean, std dev

$ (50,000)

$2200, 60% (0.80*0.75) 50 50

$ 10,000

$2500, 4% (0.80*0.05) 50 50

$ (250,000)

year 1 400 2000

3000 1500

$ 19,100

year 2 400 2000

3050 1550

$ 19,000

year 3 400 2000

3100 1600

$ 18,900

year 4 400 2000

3150 1650

$ 18,800

year 5 400 2000

3200 1700

$ 18,700

year 6 400 2000

3250 1750

$ 18,600

year 7 400 2000

3300 1800

$ 18,500

year 8 400 2000

3350 1850

$ 18,400

year 9 400 2000

3400 1900

$ 18,300

year 10 400 2000

3450 1950

$ 18,200

year 11 400 2000

3500 2000

$ 18,100

year 12 400 2000

3550 2050

$ 18,000

year 13 400 2000

3600 2100

$ 17,900

year 14 400 2000

3650 2150

$ 17,800

year 15 400 2000

3700 2200

$ 17,700

Residual Value of Home: Optional

$ 200,000

NPV $

(65,213)

IRR 6.37%

24

Financial Statement Risk SimulationCompuCredit

Modified EBIT -1 MRY - 1 MRY - 2 MRY - 3 MRY - 4 MRY - 5 MRY - 6 MRY - 7 MRY - 8 MRY - 9

Final Final Final Final Final Final Final Final Final Final

Excise Taxes (non-balancing) 0 0 0 0 0 0 0 0 0 0 Year Sales

Sales 1 1228.952 902.958 573.665 432.677 141.789 154.218 242.06 148.777 58.572 4.669 10 1228.952

Cost of Goods Sold 1 1052.346 609.429 374.236 212.245 156.094 139.687 113.632 54.024 16.683 4.954 9 902.958

------------------------------------------------------------------------- --------------- --------------- --------------- --------------- --------------- --------------- 8 573.665

Gross Profit 176.606 293.529 199.429 220.432 -14.305 14.531 128.428 94.753 41.889 -0.285 7 432.677

6 141.789

Research & Development Expense 0 0 0 0 0 0 0 0 0 0 5 154.218

Advertising Expense 0 0 0 0 0 0 0 0 0 0 4 242.06

Foreign Currency Adjustment 0 0 0 0 0 0 0 0 0 0 3 148.777

Rental Expense 21.1 18.9 10.6 5.5 5.148 3.858 1.138 0.713 0.186 0.035 2 58.572

Pension Expense 0.5 0.4 0.4 0.4 0.276 0.136 0.07 0 0 0 1 4.669

Selling, General, & Administrative Expense @NA @NA @NA @NA @NA @NA @NA @NA @NA @NA

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

Operating Income Before Depreciation 176.606 293.529 199.429 220.432 -14.305 14.531 128.428 94.753 41.889 -0.285

Amort of Intangibles 5 3.4 1.3 0 0 0 0 0 0 0

Depr, Depl & Amort Excl Amort of Intan 32.843 34.443 36.543 37.843 37.843 37.843 37.843 37.843 37.843 37.843 Year Sales

Depreciation, Depletion & Amortization 37.843 21.993 17.273 15.631 14.801 9.802 4.273 1.475 0.444 0.079 1 4.669

----------------- ----------------- ----------------- ----------------- ----------------- ----------------- ----------------- ----------------- ----------------- ----------------- 2 58.572

Operating Profit 138.763 271.536 182.156 204.801 -29.106 4.729 124.155 93.278 41.445 -0.364 3 148.777

4 242.06

Interest on LT Debt (Non-Balancing) 0 0 0 0 0 0 0 0 0 0 5 154.218

Interest Capitalized (Non-Balancing) 0 0 0 0 0 0 0 0 0 0 6 141.789

Interest Expense 52.472 22.971 4.729 6.534 7.579 0.317 0 0 0.536 0.361 7 432.677

(Non Balancing Items) 8 573.665

Interest Income 0 0 0 0 0 0 0 0 0 0 9 902.958

Rental Income 0 0 0 1.3 0 0 0 0 0 0 10 1228.952

Equity in Earnings - Unconsol Sub 106.883 45.627 1.987 27.676 45.717 0 0 0 0 0 11 1042.604

Capitalized Interest 0 0 0 0 0 0 0 0 0 0 beta 1 = -264.9367

Non-Operating Income/Expense 1 106.883 45.627 1.987 27.676 45.717 0 0 0 0 0 beta 2 = 118.8673

Acquisitions/Mergers 0 0 0 0 0 0 0 0 0 0

Gains and Losses 0 0 0 0 0 0 0 0 0 0 Std Error 191.19

Impairment of Goodwill -10.546 0 0 0 0 0 0 0 0 0

In Process R&D 0 0 0 0 0 0 0 0 0 0

Restructuring 0 0 0 0 0 0 0 0 0 0

Settlements/Litigation/Insurance -1.8 -11 0 0 0 0 0 0 0 0

Writedowns 0 0 0 0 0 0 0 0 0 0

Other Special Items 0 0 0 0 0 0 0 0 0 0

Special Items -12.346 -11 0 0 0 0 0 0 0 0

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

Pretax Income 180.828 283.192 179.414 225.943 9.032 4.412 124.155 93.278 40.909 -0.725

Income Taxes - Deferred

Deferred Taxes - Federal 32.881 -0.866 -5.133 54.863 -21.133 -13.885 10.489 21.569 5.419 0

Deferred Taxes - State 0.181 0.478 -0.056 0.414 0 0 0 0 0.659 0

Deferred Taxes - Foreign 0 0 0 0 0 0 0 0 0 0

Income Taxes - Current

Income Taxes - Federal 27.241 97.835 60.875 11.187 24.294 15.43 31.292 12.698 8.436 0

Income Taxes - State 0.152 1.046 0.664 0.528 0 0 0 0 0.965 0

Income Taxes - Foreign 0 0 0 0 0 0 0 0 0 0

Income Taxes - Other 0 0 0 0 0 0 0 0 0 0

(Non Balancing Item)

Non-recurring Income Taxes After-Tax @NA @NA @NA @NA @NA @NA @NA @NA @NA @NA

Total Income Taxes 60.455 98.493 56.35 66.992 3.161 1.545 41.781 34.267 15.479 0

Minority Interest 12.898 13.349 22.345 37.233 0 0 0 0 0 0

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

Income Before Extraordinary

Items & Discontinued Operations 107.475 171.35 100.719 121.718 5.871 2.867 82.374 59.011 25.43 -0.725

Preferred Dividends 0 0 4.404 4.284 4.168 0.144 0 0.582 1.8 0.616

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

Available for Common 107.475 171.35 96.315 117.434 1.703 2.723 82.374 58.429 23.63 -1.341

Savings Due to Common Stock Equiv. 0 0 4.404 4.284 0 0 0 0 0 0

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

Adjusted Available for Common 107.475 171.35 100.719 121.718 1.703 2.723 82.374 58.429 23.63 -1.341

Extraordinary Items 0 0 0 0 0 0 0 0 0 0

Discontinued Operations 0 0 0 0 0 0 0 0 0 0

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

Adjusted Net Income 107.475 171.35 100.719 121.718 1.703 2.723 82.374 58.429 23.63 -1.341

Earnings Per Share Basic -

Excluding Extra Items & Disc Operations 2.21 3.46 1.97 2.38 0.04 0.06 1.8 1.55 11.32 -0.65

Earnings Per Share Basic -

Including Extra Items & Disc Operations 2.21 3.46 1.97 2.38 0.04 0.06 1.8 1.55 11.32 -0.65

Earnings Per Share Diluted -

Excluding Extra Items & Disc Operations 2.14 3.34 1.93 2.34 0.04 0.06 1.79 1.55 11.32 -0.65

Earnings Per Share Diluted -

Including Extra Items & Disc Operations 2.14 3.34 1.93 2.34 0.04 0.06 1.79 1.55 11.32 -0.65

EPS Basic from Operations 2.39 3.6 1.97 2.38 0.04 0.06 1.8 1.55 11.32 -0.65

Dividends Per Share 0 0 0 0 0 0 0 0 @NA @NA

Com Shares for Basic EPS 48.734 49.574 51.23 51.212 46.384 46.542 45.886 37.58 2.087 2.062

Com Shares for Diluted EPS 50.338 51.228 52.099 51.914 46.412 46.621 46.07 37.656 2.087 2.062

Copyright: Standard & Poor's, a division of the McGraw-Hill Companies, Inc. All rights reserved.

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