Value Solutions ® MSFT 2009

INCOME STATEMENT To go to the INCOME STATEMENT WORKSHEET

INCOME
BALANCE
STATEMENT
SHEET To go to the BALANCE SHEET STATEMENT

CASH FLOWS STATEMENT To go to the STATEMENT OF CASH FLOWS

INCOME
NOPAT
STATEMENT To go to the NOPAT CALCULATION WORKSHEET

CAPITAL & EVA To go to the ADJUSTED EVA CALCULATION WORKSHEET

NON ADJUSTED EVA To go to the NON ADJUSTED EVA CALCULATION WORKSHEET

INCOME
WORD
ADJUSTMENTS
DOCUMENT
STATEMENT To go to the ADJUSTMENTS WORKSHEET

INCOME
WORD
DRIVER
DOCUMENT
STATEMENT
TREE To go to the DRIVER TREE
GOINCOME
WORD
TO WORD
DOCUMENT
STATEMENT
DOCUMENT

© Dr. Rob Straw

1
INCOME STATEMENT - MSFT BACK TO MAIN MENU

PERIOD 2009-06 2008-06 2007-06

Milions of USD (except per share amounts)

REVENUE
Product revenue, net 58,437 60,420 51,122
Contract revenue, net - - -
TOTAL REVENUE 58,437 60,420 51,122

COST OF REVENUE
Product revenue, net 12,155 11,598 10,693
Contract revenue, net - - -
TOTAL COST OF REVENUE 12,155 11,598 10,693

GROSS PROFIT 46,281 48,822 40,429

OPERATING EXPENSES
Research and development 9,010 8,164 7,121
Sales, general and administrative 16,909 18,166 14,784
Intangible asset amortization -
In-process R&D, one time charge -
Other expense - - -

OPERATING INCOME 20,362 22,492 18,524

Other non-operating income - 542 1,322 1,577

Interest income, net - - -

EARNINGS BEFORE INCOME TAXES 19,820 23,814 20,101

Income tax expense 5,252 6,133 6,036

NET INCOME 14,568 17,681 14,065

EARNINGS PER SHARE

Basic 1.63 1.90 1.44
Diluted 1.62 1.87 1.42

Shares used in per share calculation

Basic 8,945 9,328 9,742
Diluted 8,996 9,470 9,886

2
BALANCE SHEET - MSFT BACK TO MAIN MENU
PERIOD 2009 2008 2007
Mio of USD

ASSETS
CURRENT ASSETS
Cash and cash equivalents 6,076 10,339 6,111
Short term investments held to maturity 25,371 13,323 17,300
Marketable securities available for sale - - -
Accounts receivable, net 11,192 13,589 11,338
Interest receivable - - -
Inventories 717 985 1,127
Deferred income tax 2,213 2,017 1,899
Prepaid expenses and other current assets 3,711 2,989 2,393
TOTAL CURRENT ASSETS 49,280 43,242 40,168

NON CURRENT ASSETS

Property and equipment 15,082 12,544 9,366

Accumulated Depreciation 7,547 6,302 5,016
Construction in progress - -
PROPERTY, PLANT AND EQUIPMENT, NET 7,535 6,242 4,350

Goodwill & other intangible assets 12,503 12,108 4,760

Long-term investments held to maturity 4,933 - -
Deferred income taxes 279 949 1,389
Patent and license rights, net 1,759 1,973 878
Other assets 1,599 8,279 11,626
TOTAL NON CURRENT ASSETS 28,608 29,551 23,003

TOTAL ASSETS 77,888 72,793 63,171

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
Accounts payable, trade 6,049 4,034 3,247
Other current liabilities 4,826 9,521 7,403
Accrued salaries and wages 3,156 2,934 2,325
Deferred Revenues 13,003 13,397 10,779
TOTAL CURRENT LIABILITIES 27,034 29,886 23,754

LONG TERM LIABILITIES

Deffered Revenues 1,281 - -
Other long term liabilities and debt 10,015 6,621 8,320
TOTAL LONG TERM LIABILITIES 11,296 6,621 8,320

SHAREHOLDERS' EQUITY
Preferred stock - -
Common stock 62,382 62,849 60,577
Additional paid in capital - - -
Deferred compensation expense - - -
Retained earnings - 23,793 - 27,703 - 31,114
Other accumulated comprehensive income, net of tax 969 1,140 1,654
TOTAL SHAREHOLDERS' EQUITY 39,558 36,286 31,097

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 77,888 72,793 63,171

3
Statement of cash flows - MSFT BACK TO MAIN MENU
AS OF DATE: 2009 2008 2007
Mio of USD

OPERATING ACTIVITIES
Net income 14,569 17,681 14,065
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization 2,562 2,056 1,440
Invesment Losses and Gains 683 - -
Deferred income taxes 762 935 421
Stock based compensation 1,708 - -
Accounts Receivable 2,215 - -
Other working Capital - 2,393 - 2,435 - 961
Other non-cash items - 1,069 3,375 2,831

NET CASH PROVIDED BY OPERATING ACTIVITIES 19,037 21,612 17,796

INVESTING ACTIVITIES
Investment in property, plant and equipment - 3,119 - 3,182 - 2,264
Acquisitions, net - 868 - 8,053 - 1,150
Purchases of investments - 37,780 - 20,954 - 36,308
Sales/Maturities of Investments 25,997 27,729 46,187
Proceeds from maturities of securities held to maturity - - -
Others - - 127 376

-
NET CASH USED IN INVESTING ACTIVITIES - 15,770 - 4,587 6,841

FINANCING ACTIVITIES
Debt issued 5,974 -
Debt repayment - 228 - -
Net proceeds from issuancce of common stock 631 3,494 6,782
Common stock repurchase - 9,353 - 12,533 - 27,575
Excess tax benefit and other financing - 19 120 54
Dividends paid - 4,468 - 4,015 - 3,805
NET CASH PROVIDED BY FINANCING ACTIVITIES - 7,463 - 12,934 - 24,544

NET INCREASE IN CASH AND CASH EQUIVALENTS - 4,196 4,091 93

Cash and cash equivalents

Beginning of the year 10,339 6,111 6,714
End of year 6,143 10,202 6,807

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

- -
- - -
NON CASH INVESTING AND FINANCING ACTIVITIES
- - -
- -
- - -

4
NOPAT CALCULATION - CREE Inc.
BACK TO MAIN MENU
Income tax rate 35% 35% 34%
2009 2008 2007
Operating revenues 58,437 60,420 51,122
- Cost of goods sold 12,155 11,598 10,693
- Selling, general and administrative expenses 16,909 18,166 14,784
+ Other income - 542 1,322 1,577
+ Income from investing activities - - -
- Research and development expenses 9,010 8,164 7,121
- Other expenses - - -
+ Capitalized R&D adjustment 1,802 1,633 1,424
+ Capitalized marketing adjustment 1,126 1,210 985
= Net operating profit before tax 22,749 26,657 22,510
- Cash taxes payables on operations 5,252 6,133 6,036

= NOPAT 17,497 20,524 16,474

1. August 2001 Shareholder Solutions Prof. Dr. Rob Straw

EVA CALCULATION - Cree
= NOPAT- Capital Charge
BACK TO MAIN MENU
2009 2008 2007
Net receivables 11,192 13,589 11,338
+ Inventory 717 985 1,127
+ Cash and cash equivalents 6,076 10,339 6,111
+ Interest receivable 0 0 0
+ Prepaid expenses and other current assets 3,711 2,989 2,393
+ Short term investments held to maturity 25,371 13,323 17,300
+ Marketable securities available for sale 0 0 0
- Accounts payables 10,875 13,555 10,650
Salaries
- Accrued expenses 16,159 16,331 13,104
- Income taxes payable 1,281 0 0

= Net working capital 18,752 11,339 14,515

Gross property, plant and equipment 15,082 12,544 9,366

- Accumulated depreciation 7,547 6,302 5,016
+ Construction in progress 0 0 0

= Net property, plant and equipment net 7,535 6,242 4,350

+ Patents and licenses fees 1,759 1,973 878

+ Long term investments 4,933 0 0
+ Deferred income tax 279 949 1,389
+ Other assets 1,599 8,279 11,626
8,570 11,201
= Ending operating capital 16,105 17,443 32,758

BUSINESS ASSETS 34,857 28,782 47,273

The adjustments from the

NOPAT 14,569 17,681 16,474 NOPAT sheet were
substracted here to avoid
the generation of a new
Business Assets 34,857 28,782 47,273 worksheet
% cost of capital 15% 15% 15%
= Capital charge 5,229 4,317 7,091

Unadjusted EVA 9,340 13,364 9,383

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EVA CALCULATION - Cree
=NOPAT-Capital Charge
BACK TO MAIN MENU
2001 2000 1999
Net receivables 11,192 13,589 11,338
+ Inventory 717 985 1,127
+ Cash and cash equivalents 6,076 10,339 6,111
+ Interest receivable 0 0 0
+ Prepaid expenses and other current assets 3,711 2,989 2,393
+ Short term investments held to maturity 25,371 13,323 17,300
+ Marketable securities available for sale 0 0 0
- Accounts payables 10,875 13,555 10,650
- Accrued expenses 16,159 16,331 13,104
- Income taxes payable 1,281 0 0

= Net working capital 18,752 11,339 14,515

Gross property, plant and equipment 15,082 12,544 9,366

- Accumulated depreciation 7,547 6,302 5,016
+ Construction in progress 0 0 0
- Adjustment for Construction in Progress 36,582
= Net property, plant and equipment net 7,535 -30,340 4,350

+ Patents and licenses fees 1,759 1,973 878

+ Capitalized research and development adjustment 1,802 1,633
+ Capitalized marketing adjustment 3,382 1,210
+ Long term investments 0 0 0
+ Deferred income tax 0 949 1,389
+ Other assets 0 8,279 11,626

= Ending operating capital 14,478 -16,296 32,758

BUSINESS ASSETS 33,230 -4,957 47,273

NOPAT 17,497 20,524 16,474

Business Assets 33,230 -4,957 47,273

% cost of capital 15% 15% 15%
= Capital charge 4,984 -744 7,091

ADJUSTED ECONOMIC VALUE ADDED 12,513 21,267 9,383

7
 Used for the
ADJUSTMENTS TO EVA EVA BACK TO MAIN MENU
calculation
of CREE
Potential adjustments EXPLANATION FOR DECISION

The company has 250 thousand USD in allowances for doubtfull accounts, but only 75 thousand were
Bad Debt Expense
added from the previous period. This could be taken into consideration, but the size if ot significative and
1 brings more complexity than benefit.

2 LIFO Reserve The company uses FIFO, therefore this does not apply

3 A/T unusual Loss (Gain) Does not apply

4 Cumulative Loss(Gain) Does not apply

5 Acc. Goodwill Amortization Equals 0 for year 2000, therefore it does not apply

We are assuming that the not finished construction is not usable until finished. This means that it cannot be
used to generate profit. One of the important issues when working with EVA is to foster the productive
Const. In Progress investments. Not adjusting for construction in progress negatively affects this goal, since managers will
✘
avoid such big investments if it will affect their performance measurement. This also is related to
6 motivational reasons.
This must be adjusted to avoid it positively affecting the assets, since it has no direct relation to the
Deferred Tax Assets ✘
7 business' productivity.

Cash Tax Adjustment It is difficult to figure out the origin (operating/non-operating) taxes payables. We do not take it into account
8 for that reason. It should also be evaluated if, in any case, these are relevant to the analysis.

9 Goodwill Amortization (NOPAT) No goodwill for year 2000. Therefore it does not apply
Viewed as investments with long term payoffs, these expenses can be amortized over some defined useful
10 Marketing Expense ✘ life. In this case, we consider 3 years, which means, that 33% of the total expenses will be amortized in the
Years Capitalized 3 year 2000. The expense is taken off and applied to the future periods. SINCE MARKETING EXPENSES
ARE NOT STATED DIRECTLY, WE WILL ASSUME that its value amounts to 20% of the total selling,
Capitalized Marketing
general and administrative expenses.
11 R&D Expense ✘

Years Capitalized 5 Same criteria apply as to marketing expenses.

Capitalized R&D

12 Restructuring Expenses Does not apply

13 Asset write-downs Does not apply

Present Value of Operating Leases Cree has leases of approximately 1.4 M USD. This is about 1% of the net PP&E, which is negligible
14 (materiality concept).

15 Excess in cash adjustment Does not apply

Marginal Tax Rate 35%
Cost of Capital 15%

8
 EVA DRIVER TREE MSFT
UNADJUSTED Sales 58,437
61,359

NOPBT 46,282
49,812

X Costs 12,155
11,547

NOPAT 30,083
33,374
Inc. tax rate 35%
33%

EVA 24331 Fixed Assets 7,535

-19,307 200,000
Net Working
Business Assets 38,351 22,246
Capital
439,005 200,000
Capitalization 8,570
39,005
Capital Charge 5,753 X
52,681

CoC 15%
12% 9

1. August 2001 Shareholder Solutions Prof. Dr. Rob Straw

 EVA DRIVER TREE BACK TO MAIN MENU MSFT
ADJUSTED Sales 58,437

NOPBT 22,749

X Costs 12,155

NOPAT 17,497

Inc. tax rate 35%

EVA 12513 Fixed Assets 7,535

-43,788 200,000
Net Working
Business Assets 260,282 244,177
Capital
408,570 200,000
Capitalization 8,570

Capital Charge 4,984 X

61,286

Cost of Capital 15%

9

1. August 2001 Shareholder Solutions Prof. Dr. Rob Straw