Excerpts from McDonald's Corporation's · Excerpts from McDonald's Corporation's 2009 ... The...

Barry M Frohlinger, Inc. 1981 – 2012 All content herein is copyright protected 1

CASE 1: MCDONALD'S CORPORATION

Excerpts from McDonald's Corporation's 2009 financial statements are attached. Also, excerpts from Wendy’s International, YUM and Burger King financial statements are attached for peer comparison. [Burker King completed its IPO in May 2006]. Other possible comparable companies [comps] for McDonald's are Applebee's International [casual dining], Brinker International [casual dining including Chili's and Macaroni Grill], Outback Steakhouse, Papa John's International, Darden Restaurants [Red Lobster], Ruby Tuesday, CKE Restaurants [Hardee's], Cheesecake Factory, CBRL [Cracker Barrel and Jack in the Box] and Starbucks. McDonald's has a Debt Rating of A [S&P] and A3 [Moody's] and a CP rating of A-1/P-2. McDonald’s McDonald's develops, operates, franchises and services a worldwide system of restaurants which prepare, assemble, package and sell a limited menu of value-priced foods. These restaurants are operated by the Company or by franchisees who are independent third parties. The Company's franchising program is designed to assure consistency and quality. The Company is selective in granting franchises and is not in the practice of franchising to investor groups or passive investors. Franchisees supply capital--initially, by purchasing equipment, signs, seating and decor, and over the long term, by reinvesting in the business. The Company shares the investment by owning or leasing the land and building. Franchisees contribute to the Company's revenues through payment of rent and service fees or royalties based upon a percent of sales, with specified minimum payments. This percentage is generally 8 - 10% of sales. The conventional franchise arrangement typically lasts 20 years and franchising practices are generally consistent throughout the world. Training begins at the restaurant with one-on-one instruction and videotapes. Aspiring restaurant managers progress through a development program of classes in management and operations, as well as learning computer skills. Managers are eligible to attend the advanced operations and management class at one of the six Hamburger University (H.U.) campuses in the U.S., Germany, England, Japan, Brazil or Australia. The curriculum at H.U. concentrates on skills and practices essential to driving the Company's strategies of delivering customer satisfaction and increasing market share. The Company's global brand is well-known. Marketing and promotional activities are designed to nurture this brand image and differentiate the Company from competitors by focusing on value, taste and customer satisfaction.


Products McDonald's restaurants offer a substantially uniform menu consisting of hamburgers and cheeseburgers, including the Big Mac and Quarter Pounder with Cheese, the Filet-O-Fish, several chicken sandwiches, french fries, Chicken McNuggets, salads, milk shakes, McFlurries, sundaes and cones, pies, cookies and soft drinks and other beverages. The Company tests new products on an ongoing basis. The Company, its franchisees and affiliates purchase food products and packaging from numerous independent suppliers. Quality specifications for food products are established and strictly enforced. Alternative sources of these items are generally available. Quality assurance labs work to ensure that the Company's high standards are consistently met. The quality assurance process involves ongoing testing and on-site inspections of suppliers' facilities. Independently owned and operated distribution centers distribute products and supplies to most McDonald's restaurants. The restaurants then prepare, assemble and package these products using specially designed production techniques and equipment to obtain uniform standards of quality. Competition McDonald's restaurants compete with international, national, regional, and local retailers of food products. The Company competes on the basis of price, convenience and service and by offering quality food products. The Company's competition in the broadest perspective includes restaurants, quick-service eating establishments, pizza parlors, coffee shops, street vendors, convenience food stores, delicatessens, and supermarkets. In the U.S., there are approximately 600,000 restaurants that generated about $400 billion in annual sales in 2009. McDonald’s restaurant business accounts for 2.4% of those restaurants and 7.3% of the sales. The average American consumes about 150 restaurant meals per year. PROPERTIES The Company identifies and develops sites that offer convenience to customers and provide for long-term sales and profit potential. To assess potential, the Company analyzes traffic and walking patterns, census data, school enrollments and other relevant data. The Company's experience and access to advanced technology aids in evaluating this information. The company continues to be one of the world's leading purchaser of commercial satellite photography. McDonald's generally owns or secures long-term land and building leases for restaurant sites, which ensures long-term tenure and helps control related costs. Restaurant profitability for both the Company and franchisees is important; therefore, ongoing efforts are made to control average development costs through construction and design efficiencies, standardization and by leveraging the Company's global sourcing system. The firm is the world's largest owner of retail property, owning more than 30,000 outlets worldwide. Data for McDonald's: Systemwide restaurants by type Operated by franchisees 26,209 Operated by the Company 6,257 Number of countries at year end 114 Total systemwide sales [including company operated restaurants] totaled $70 billion in 2009.


Suppliers The Company and its affiliates and subsidiaries do not supply, food, paper, or related items to any McDonald's restaurants. The Company relies upon independent suppliers that are required to meet and maintain the Company's standards and specifications. Food Product Beef Potatoes Apples U.S. Production 27 billion pounds 49 billion pounds 11 billion pounds McDonald’s Purchases 1 billion pound 1 billion pounds 50 million pounds McDonald’s Share 4% 2% .5%

Financial Services Provided to McDonald's

McDonald's uses a full range of banking products, including:

1. Term Loan for equipment finance and Real Estate Loans 2. Cash Management, including Disbursements and Collections 3. Corporate Finance 4. Import Financing 5. Leasing Financing 6. Trade Services 7. Foreign Exchange 8. Interest Rate and Equity Derivatives 9. Franchisee Financing 10. Supplier Financing 11. Advisory Services


DISCUSSION QUESTIONS [review solution notes at the end of the McDonald’s case1]: A. Describe the business[es] of McDonald’s.

A2. Who are McDonald’s peers? A3. Are McDonald’s peers in similar businesses? A4. List the key differences between McDonald’s and its peers

B. What do you believe is the nature of each of the following accounts and does the

balance of each at yearend 2009 seem reasonable for McDonald's business2? [Note; calculate the days outstanding of each of the four; and make a comment about the reasonableness of the amounts from your calculations, and compare the amounts to peers. Note: YUM does not list accounts payable and accruals separately but aggregates the amounts].

1. Accounts receivable. [calculated as receivables/revenue * 360] 2. Inventories. [calculated as inventory/cost of sales * 360] 3. Accounts payable. [calculated as paybles/cost of sales * 360] 4. Other accrued liabilities. [calculated as accruals/operating expenses *360]

C. What do you believe is the nature of McDonald’s property and does the balance at

yearend 2009 seem reasonable for McDonald's business?

1 See solution notes on pages 23 - 25 2 For this question, consider what you believe to be the size of the average balance of each account in days, the impact of each account on the firm's liquidity and what opportunity exists to increase or decrease each account.


D. Check the computation of each of the following amounts: 2009 20008 Change Trading Assets [accounts receivable +

inventories + prepaids] 1,620.3 1454.2 166.1 [dr]

Spontaneous Financing

[accounts payable + all accrued liabilities, excluding notes payable and cmltd and dividends payables]

2,970.6 2506.1 464.5 [cr]

Operating Working Capital

Working Capital Requirement[trading assets less spontaneous financing]

-1,350.3 -1,051.9 298.4 [cr]

Working Capital [current assets less current liabilities]

427.6 979.7 -552.1

Current Ratio [current assets/current liabilities]

1.14 1.39

E. Does McDonald's have a large amount of trading assets? F. How is the Company's investment in trading assets financed? G. From the Company's perspective, is its way of financing trading assets favorable? H. Do you consider McDonald's spontaneous financing to be permanent? I. During 2009 & 2008, McDonald's operating working capital was negative, while the

working capital was positive amounts. Discuss the implications to an analyst.


J. Many analysts believe that the current ratio should be at least 2 to 1. McDonald's is

less that this. Comment. K. The Company's inventory decreased slightly during 2009. Is this decrease during 2009

consistent with your expectations based on a review of the income statement [hint: look at cost of good sold in 2008 and 2009]? [see solution notes on page 10]

L. Comment on the 2009 cash provided by operations compared to the: • 2009 net income • 2009 Funds Flow from Operations [net income before depreciation & amortization,

sometimes also called traditional cash flow or potential cash flow or expected cash flow or long run cash flow]

M. Compare the 2009 Funds Flow with the 2009 EBITDA. Reconcile the two amounts.

end of discussion questions [review the solution notes at the end of the case]


McDonald’s Consolidated statement of income

Years ended December 31,

IN MILLIONS

2009

2008

2007

REVENUES Sales by Company-‐operated restaurants 15,458.5 16,560.9 16,611.0 Revenues from franchised and affiliated restaurants 7,286.2 6,961.5 6,175.6

Total revenues 22,744.7 23,522.4 22,786.6 OPERATING COSTS AND EXPENSES Company-‐operated restaurant expenses

Food & paper 5,178.0 5,586.1 5,487.4 Payroll & employee benefits 3,965.6 4,300.1 4,331.6 Occupancy & other operating expenses 3,507.6 3,766.7 3,922.7

Franchised restaurants–occupancy expenses 1,301.7 1,230.3 1,139.7 Selling, general & administrative expenses 2,234.2 2,355.5 2,367.0 Impairment and other charges (credits), net (61.1 ) 6.0 1,670.3 Other operating expense, net (222.3) (165.2) (11.1)

Total operating costs and expenses 15,903.7 17,079.5 18,907.6 Operating income 6,841.0 6,442.9 3,879.0 Interest expense-‐net of capitalized interest of $11.7, $12.3 and $6.9 473.2 522.6 410.1 Nonoperating (income) expense, net (24.3 ) (77.6 ) (103.2 (94.9 (160.1 Income before provision for income taxes and cumulative effect of

accounting change 6,487.0 6,158.0 3,572.1 Provision for income taxes 1,936.0 1,844.8 1,237.1 Income before cumulative effect of accounting change 4,551.0 4,313.2 2,335.0 Income from discontinued operations (net of taxes of $34.5) 60.1 Net income $ 4,551.0 4,313.2 2,395.1


McDonald’s Consolidated balance sheet

IN MILLIONS

2009

2008

ASSETS Current assets Cash and equivalents $ 1,796.0 2,063.4 Accounts and notes receivable 1,060.4 931.2 Inventories, at cost, not in excess of market 106.2 111.5 Prepaid expenses and other current assets 453.7 411.5

Total current assets 3,416.3 3,517.6 Other assets Investments in and advances to affiliates 1,212.7 1,222.3 Goodwill, net 2,425.2 2,237.4 Miscellaneous 1,639.2 1,229.7

Total other assets 5,277.1 4,689.4 Property and equipment Property and equipment, at cost 33,440.5 31,152.4 Accumulated depreciation and amortization (11,909.0) (10,897.9)

Net property and equipment 21,531.5 20,254.5 Total assets $ $ 30,224.9 $ 28,461.5 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities Notes payable $ 0 $ — Accounts payable $ 636.0 $ 620.4 Income taxes 202.4 Other taxes 277.4 252.7 Accrued interest 195.8 173.8 Accrued payroll and other liabilities 1,659.0 1,459.2 Current maturities of long-term debt 18.1 31.8

Total current liabilities 2,988.7 2,537.9 Long-term debt 10,560.3 10,186.0 Other long-term liabilities 1,363.1 1,410.1 Deferred income taxes 1,278.9 944.9 Shareholders’ equity 14,033.9 13,382.6 Total liabilities and shareholders’ equity $ 30,224.9 $ 28,461.5


McDonald’s Consolidated statement of cash flows

In millions FYE Dec 31,

2009 2008 2007 Operating activities Net income $ 4,551.0 $ 4,313.2 $ 2,395.1 Adjustments to reconcile to cash provided by operations

Charges and credits: Depreciation and amortization 1,216.2 1,207.8 1,214.1 Deferred income taxes 203.0 101.5 (39.1 ) Income taxes audit benefit (316.4 ) Impairment and other charges (credits), net (61.1 ) 6.0 1,670.3 Gain on sale of investment (94.9 ) (160.1 ) Gains on dispositions of discontinued operations (68.6 ) Share-based compensation 112.9 112.5 142.4 Other (347.1 ) 90.5 (85.3 )

Changes in working capital items: Accounts receivable (42.0 ) 16.1 (100.2 ) Inventories, prepaid expenses and other current assets 1.0 (11.0 ) (29.6 ) Accounts payable (2.2 ) (40.1 ) (36.7 ) Income taxes 212.1 195.7 71.8 Other accrued liabilities 2.1 85.1 58.5

Cash provided by operations 5,751.0 5,917.2 4,876.3 Investing activities Property and equipment expenditures (1,952.1 ) (2,135.7 ) (1,946.6 ) Purchases of restaurant businesses (145.7 ) (147.0 ) (228.8 ) Sales of restaurant businesses and property 406.0 478.8 364.7 Latam transaction, net 647.5 Proceeds on sale of investment 144.9 229.4 Proceeds from disposals of discontinued operations, net 194.1 Other (108.4 ) (50.2 ) (181.0 )

Cash used for investing activities (1,655.3 ) (1,624.7 ) (1,150.1 ) Financing activities Net short-term borrowings (285.4 ) 266.7 101.3 Long-term financing issuances 1,169.3 3,477.5 2,116.8 Long-term financing repayments (664.6 ) (2,698.5 ) (1,645.5 ) Treasury stock purchases (2,797.4 ) (3,919.3 ) (3,943.0 ) Common stock dividends (2,235.5 ) (1,823.4 ) (1,765.6 ) Proceeds from stock option exercises 332.1 548.2 1,137.6 Excess tax benefit on share-based compensation 73.6 124.1 203.8 Other (13.1 ) (89.8 ) (201.7 )

Cash used for financing activities (4,421.0 ) (4,114.5 ) (3,996.3 ) Effect of exchange rates on cash and

equivalents 57.9 (95.9 ) 123.3 Cash and equivalents increase (decrease) (267.4 ) 82.1 (146.8 ) Cash and equivalents at beginning of year 2,063.4 1,981.3 2,128.1 Cash and equivalents at end of year $ 1,796.0 $ 2,063.4 $ 1,981.3 Supplemental cash flow disclosures Interest paid $ 468.7 $ 507.8 $ 392.7 Income taxes paid 1,683.5 1,294.7 1,436.2

See Notes to consolidated financial statements.


Solutions McDonald’s [Questions K & L & M] Year 2009 Revenue 15,458.50 Net Income 4,551.00 Cost of Good Sold -5,178.00 DA 1,216.20

Payroll -3,965.60 Share-based compensation 112.9

Occupancy -3,507.60 Funds Flow 5,880.10 Franchise Revenue 7,286.20 Franchise Occupancy -1,301.70 EBITDA 8,289.30 SGA -2,234.20 Charges 61.1 Interest -473.2 Other 222.3 Tax -1,936.00 Operating Profit 6,841.00 Nonoperating Income 119.2 Funds Flow 5,880.10 EBIT 6,960.20 Interest -473.2 EBT 6,487.00 Tax -1,936.00 Net Income 4,551.00

Revenue 15,458.50 16,560.90 -6.7% CGS 5,178.00 5586.1 -7.3% Inventory 106.2 111.5 -4.8% Revenue 15,458.50 16,560.90 -6.7%

Net Income 4,551.00 EBITDA 8,289.30 Fund flow 5,880.10 Cash Flow from Operations 5,751.00


WENDY'S INTERNATIONAL, INC.

Wendy’s International, Inc. was incorporated in 1969. The Company is primarily engaged in the business of operating, developing and franchising a system of distinctive quick-service and fast-casual restaurants serving high quality food. At January 3, 2010, there were 6,650 restaurants in operation; 1,529 were operated by the Company and 5,121 by the Company’s franchisees. In 2008, the company mergered Arby’s following the 2006 spin off its interest in Hortons and Baja Fresh restaurants.

Each Wendy’s restaurant offers a relatively standard menu featuring hamburgers and filet of chicken breast sandwiches, which are prepared to order with the customer’s choice of condiments. The Company does not sell food or supplies to its franchisees. However, the Company has arranged for volume purchases of its products.


Wendy’s/Arby’s Group, Inc. and Subsidiaries Consolidated Balance Sheet (In Thousands) Jan 3, Dec 28, 2010 2008 ASSETS Current assets:

Cash and cash equivalents $ 591,719 $ 90,090 Restricted cash equivalents 1,114 20,792 Accounts and notes receivable 88,004 97,258 Inventories 23,024 24,646 Prepaid expenses and other current assets 28,098 28,990 Deferred income tax benefit 66,557 37,923 Advertising funds restricted assets 80,476 81,139

Total current assets 878,992 380,838 Restricted cash equivalents 6,242 34,032 Notes receivable 39,295 34,608 Investments 107,020 133,052 Properties 1,619,248 1,770,372 Goodwill 881,019 853,775 Other intangible assets 1,392,883 1,411,473 Deferred costs and other assets 50,717 27,470 Total assets $ 4,975,416 $ 4,645,620 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities:

Current portion of long-term debt $ 22,127 $ 30,426 Accounts payable 103,454 139,340 Accrued expenses and other current liabilities 269,090 251,584 Advertising funds 80,476 81,139

Total current liabilities 475,147 502,489 Long-term debt 1,500,784 1,081,151 Deferred income 13,195 16,859 Deferred income taxes 475,538 475,243 Other liabilities 174,413 186,433 Commitments and contingencies Stockholders’ equity:

Total stockholders’ equity 2,336,339 2,383,445 Total liabilities and stockholders’ equity $ 4,975,416 $ 4,645,620


WENDY’S/ARBY’S GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (In Thousands Except Per Share Amounts)

Year Ended

January 3, December

28, December

30, 2010 2008 2007 Revenues:

Sales $ 3,198,348 $ 1,662,291 $ 1,113,436 Franchise revenues 382,487 160,470 150,281

3,580,835 1,822,761 1,263,717 Costs and expenses:

Cost of sales 2,728,484 1,415,534 919,633 General and administrative 452,713 248,718 205,375 Depreciation and amortization 190,251 88,315 66,277 Goodwill impairment - 460,075 - Impairment of other long-lived assets 82,132 19,203 7,045 Facilities relocation and corporate restructuring 11,024 3,913 85,417 Gain on sale of consolidated business - - (40,193 ) Other operating expense, net 4,255 653 263

3,468,859 2,236,411 1,243,817

Operating profit (loss) 111,976 (413,650 ) 19,900 Interest expense (126,708 ) (67,009 ) (61,331 ) Investment (expense) income, net (3,008 ) 9,438 62,110 Other than temporary losses on investments (3,916 ) (112,741 ) (9,909 ) Other income (expense), net 1,523 2,710 (4,038 ) (Loss) income from continuing operations before income taxes (20,133 ) (581,252 ) 6,732 Benefit from income taxes 23,649 99,294 8,354 Income (loss) from continuing operations 3,516 (481,958 ) 15,086 Income from discontinued operations, net of income taxes 1,546 2,217 995

Net income (loss) $ 5,062 $ (479,741 ) $ 16,081


WENDY’S/ARBY’S GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands) January 3, Dec 28, Dec 30, 2010 2008 2007 Cash flows from continuing operating activities:

Net income (loss) $ 5,062 $ (479,741 ) $ 16,081 Adjustments to net income (loss)

Depreciation and amortization 190,251 88,315 66,277 Impairment of other long-lived assets 82,132 19,203 7,045 Write-off and amortization of deferred financing costs 15,820 8,885 2,038 Share-based compensation provision 15,294 9,129 9,990 Distributions received from joint venture 14,583 2,864 - Non-cash rent expense 12,618 3,103 1,528 Accretion of long-term debt 10,400 2,452 179 Provision for doubtful accounts 8,169 670 631 Operating investment adjustments, net (see below) 2,484 105,357 (33,525 ) Deferred income tax benefit, net (40,127 ) (105,276 ) (10,777 ) Equity in earnings in joint venture (8,499 ) (1,974 ) - Income from discontinued operations (1,546 ) (2,217 ) (995 ) Net receipt (recognition) of vendor incentive (791 ) (6,459 ) (990 ) Goodwill impairment - 460,075 - Gain on sale of consolidated business - - (40,193 ) Other, net (4,317 ) (3,886 ) 47 Changes in operating assets and liabilities:

Accounts and notes receivable (6,074 ) (4,187 ) 15,022 Inventories 1,879 (140 ) (987 ) Prepaid expenses and other current assets 3,987 8,808 (3,123 ) Accounts payable, accrued expenses, and other current liabilities (2,527 ) (31,376 ) (7,444 )

Net cash provided by continuing operating activities 298,798 73,605 20,804 Cash flows from continuing investing activities:

Capital expenditures (101,914 ) (106,989 ) (72,990 ) Investment activities, net 38,141 51,066 51,531 Proceeds from dispositions 10,882 1,322 2,734 Cost of acquisitions, less cash acquired (2,357 ) (9,622 ) (4,094 ) Increase in cash from merger with Wendy’s - 199,785 - Cost of merger with Wendy’s (608 ) (18,403 ) (17,121 ) Other, net 237 (228 ) 16

Net cash (used in) provided by continuing investing activities (55,619 ) 116,931 (39,924 ) Cash flows from continuing financing activities:

Proceeds from long-term debt 607,507 37,753 23,060 Repayments of notes payable and long-term debt (210,371 ) (177,883 ) (24,505 ) Repurchases of common stock (72,927 ) - - Deferred financing costs (38,399 ) - - Dividends paid (27,976 ) (30,538 ) (32,117 ) Distributions to non-controlling interests (156 ) (1,144 ) (13,494 ) Other, net 1,715 (1,113 ) (3,147 )

Net cash provided by (used in) continuing financing activities 259,393 (172,925 ) (50,203 ) Net cash provided by (used in) before effect of exchange rate changes on cash 502,572 17,611 (69,323 ) Effect of exchange rate changes on cash 2,725 (4,123 ) - Net cash provided by (used in) continuing operations 505,297 13,488 (69,323 ) Net cash used in operating activities of discontinued operations (3,668 ) (1,514 ) (713 ) Net increase (decrease) in cash and cash equivalents 501,629 11,974 (70,036 )


Burger King is the world’s second largest fast food hamburger restaurant, or FFHR, chain as measured by the number of restaurants and system-wide sales. Burger King Corporation was founded in 1954 in Miami, Florida, by James McLamore and David Edgerton.

In its Florida beginnings 50 years ago, a BURGER KING® hamburger cost 18¢ and an Original WHOPPER® Sandwich cost 37¢. By 1967, when the Company was acquired by the Minneapolis-based Pillsbury, 8,000 employees were working in 274 different restaurant locations. In 1988, Grand Metropolitan, plc acquired Pillsbury. In 1997, Grand Metropolitan merged with Guinness to create Diageo, plc. In December 2002, Diageo sold Burger King Corporation to an equity sponsor group comprised of Texas Pacific Group, Bain Capital, and Goldman Sachs Capital Partners. This marked the first time in more than 35 years that Burger King Corporation was a privately-held company.

BK has 1,187 company-owned restaurants and 9,917 were owned by franchisees. Of these restaurants, 65% were located in the United States and 35% were located in international markets. Restaurants feature flame-broiled hamburgers, chicken and other specialty sandwiches, french fries, soft drinks and other reasonably-priced food items. During our more than 50 years of operating history, we have developed a scalable and cost-efficient quick service hamburger restaurant model that offers customers fast food at modest prices.

We believe that the Burger King and Whopper brands are two of the world’s most widely-recognized consumer brands.

We generate revenues from three sources: sales at our company restaurants; royalties and franchise fees paid to us by our franchisees; and property income from certain franchise restaurants that lease or sublease property from us. Approximately 90% of our restaurants are franchised and we have a higher percentage of franchise restaurants to company restaurants than our major competitors in the fast food hamburger category.


BURGER KING HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Balance Sheets (In millions, except share data)

As of June 30, 2010 2009

ASSETS

Current assets: Cash and cash equivalents $ 187.6 $ 121.7 Trade and notes receivable, net 142.9 130.0 Inventory 13.3 13.1 Prepaids and other current assets, net 75.1 73.3 Deferred income taxes, net 15.1 32.5

Total current assets 434.0 370.6

Property and equipment, net 1,014.1 1,013.2 Intangible assets, net 1,025.4 1,062.7 Goodwill 31.0 26.4 Net investment in property leased to franchisees 138.5 135.3 Other assets, net 104.2 98.9

Total assets $ 2,747.2 $ 2,707.1

LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities:

Accounts payable $ 106.9 $ 127.0 Accrued advertising 71.9 67.8 Other accrued liabilities 200.9 220.0 Current portion of long term debt and capital leases 93.3 67.5

Total current liabilities 473.0 482.3

Term debt, net of current portion 667.7 755.6 Capital leases, net of current portion 65.3 65.8 Other liabilities, net 344.6 354.5 Deferred income taxes, net 68.2 74.1

Total liabilities 1,618.8 1,732.3 Commitments and Contingencies Stockholders’ equity:

Total stockholders’ equity 1,128.4 974.8

Total liabilities and stockholders’ equity $ 2,747.2 $ 2,707.1



Consolidated Statements of Income (In millions, except

per share data)

Years Ended June 30, 2010 2009 2008

Revenues:

Company restaurant revenues $ 1,839.3 $ 1,880.5 $ 1,795.9 Franchise revenues 662.9 656.9 658.8

Total revenues 2,502.2 2,537.4 2,454.7 Company restaurant expenses:

Food, paper and product costs 585.0 603.7 564.3 Payroll and employee benefits 568.7 582.2 534.7 Occupancy and other operating costs 461.1 457.8 439.0

Total Company restaurant expenses 1,614.8 1,643.7 1,538.0

Selling, general and administrative expenses 495.8 494.3 501.0 Property expenses 59.4 58.1 62.1 Other operating (income) expenses, net (0.7 ) 1.9 (0.6 )

Total operating costs and expenses 2,169.3 2,198.0 2,100.5 Income from operations 332.9 339.4 354.2

Interest expense 49.6 57.3 67.1 Interest income (1.0 ) (2.7 ) (5.9 )

Total interest expense, net 48.6 54.6 61.2

Income before income taxes 284.3 284.8 293.0

Income tax expense 97.5 84.7 103.4 Net income $ 186.8 $ 200.1 $ 189.6



Consolidated Statements of Cash Flows

Years Ended June 30, 2010 2009 2008 (In millions)

Cash flows from operating activities:

Net income $ 186.8 $ 200.1 $ 189.6 Adjustments to reconcile net income to net cash provided by operating

activities: Depreciation and amortization 111.7 98.1 95.6 Impairment of long-lived assets — 0.5 — Impairment on non-restaurant properties 2.9 — — Gain on hedging activities (1.6 ) (1.3 ) (2.0 ) Loss (gain) on remeasurement of foreign denominated transactions 40.9 50.1 (55.6 ) Gain on refranchisings and dispositions of assets (9.5 ) (11.0 ) (16.8 ) Bad debt expense (recoveries), net 0.8 0.7 (2.7 ) Stock-based compensation 17.0 16.2 11.4 Deferred income taxes 16.9 12.1 20.3

Changes in current assets and liabilities, excluding acquisitions and dispositions: Trade and notes receivable (15.9 ) 2.1 (8.6 ) Prepaids and other current assets (1.4 ) (35.4 ) 14.9 Accounts and drafts payable (20.8 ) 3.3 20.8 Accrued advertising 6.4 (7.7 ) 11.1 Other accrued liabilities (22.3 ) (20.8 ) (6.2 )

Other long-term assets and liabilities, net (1.5 ) 3.8 (28.4 )

Net cash provided by operating activities 310.4 310.8 243.4 Cash flows from investing activities:

Payments for property and equipment (150.3 ) (204.0 ) (178.2 ) Proceeds from refranchisings, disposition of asset and restaurant closures 21.5 26.4 27.0 Payments for acquired franchisee operations, net of cash acquired (14.0 ) (67.9 ) (54.2 ) Other investing activities 7.9 3.5 6.1

Net cash used for investing activities (134.9 ) (242.0 ) (199.3 )

Cash flows from financing activities:

Repayments of term debt and capital leases (67.7 ) (7.4 ) (55.5 ) Borrowings under revolving credit facility and other 38.5 94.3 50.0 Repayments of revolving credit facility (38.5 ) (144.3 ) — Proceeds from stock option exercises 4.2 3.0 3.8 Dividends paid on common stock (34.2 ) (34.1 ) (34.2 ) Excess tax benefits from stock-based compensation 3.5 3.3 9.3 Repurchases of common stock (2.7 ) (20.3 ) (35.4 )

Net cash used for financing activities (96.9 ) (105.5 ) (62.0 )

Effect of exchange rates on cash and cash equivalents (12.7 ) (7.6 ) 14.4 Increase (decrease) in cash and cash equivalents 65.9 (44.3 ) (3.5 )


YUM In 1997, PepsiCo announced its decision to spin-off its restaurant businesses to shareholders as an independent public company. In 2002, YUM completed the acquisition of Long John Silver’s (“LJS”) and A&W All-American Food Restaurants (“A&W”).

YUM is the world’s largest quick service restaurant (“QSR”) company based on number of system units, with over 37,000 units in more than 100 countries. There are 7,416 company operated units and 29,311 franchised units worldwide. Through the five concepts of KFC, Pizza Hut, Taco Bell, LJS, and A&W, the Company develops, operates, franchises and licenses a worldwide system of restaurants which prepare, package and sell a menu of competitively priced food items. In all five of its Concepts, the Company either operates units or they are operated by independent franchisees or licensees under the terms of franchise or license agreements. KFC was founded in Kentucky, by Colonel Harland D. Sanders, an early developer of the quick service food business and a pioneer of the restaurant franchise concept. The Colonel perfected his secret blend of 11 herbs and spices for Kentucky Fried Chicken in 1939 and signed up his first franchisee in 1952. KFC has more than 12,000 units throughout the world. Pizza Hut operates throughout the world. The first Pizza Hut restaurant was opened in 1958. Today, Pizza Hut is the largest restaurant chain in the world specializing in the sale of ready-to-eat pizza products, with more than 15,000 units. Taco Bell specializes in Mexican style food products, including various types of tacos and burritos, salads, nachos and other related items. The first Taco Bell restaurant was opened in 1962 by Glen Bell in California. There are more than 8,000 Taco Bell units throughout the world. LJS was opened in 1969. LJS features a variety of seafood items, including meals featuring batter-dipped fish, chicken, shrimp, hushpuppies and portable snack items. LJS units typically feature a distinctive seaside/nautical theme. There are more than 1,000 units worldwide. A&W was founded in Lodi, California by Roy Allen in 1919 and the first A&W franchise unit opened in 1925. A&W serves A&W draft Root Beer and a signature A&W Root Beer float, as well as hot dogs and all-American pure-beef hamburgers A&W operates 700 units worldwide.


Consolidated Statements of Income YUM! Brands, Inc. and Subsidiaries Fiscal years ended December 26, 2009, December 27, 2008 and December 29, 2007 (in millions, except per share data) 2009 2008 2007 Revenues Company sales $ 9,413 $ 9,843 $ 9,100 Franchise and license fees and income 1,423 1,461 1,335 Total revenues 10,836 11,304 10,435 Costs and Expenses, Net Company restaurants

Food and paper 3,003 3,239 2,824 Payroll and employee benefits 2,154 2,370 2,305 Occupancy and other operating expenses 2,777 2,856 2,644

Company restaurant expenses 7,934 8,465 7,773 General and administrative expenses 1,221 1,342 1,293 Franchise and license expenses 118 99 59 Closures and impairment (income) expenses 103 43 35 Refranchising (gain) loss (26 ) (5 ) (11 ) Other (income) expense (104 ) (157 ) (71 ) Total costs and expenses, net 9,246 9,787 9,078 Operating Profit 1,590 1,517 1,357 Interest expense, net 194 226 166 Income Before Income Taxes 1,396 1,291 1,191 Income tax provision 313 319 282 Net Income – including noncontrolling interest 1,083 972 909 Net Income – noncontrolling interest 12 8 — Net Income – YUM! Brands, Inc. $ 1,071 $ 964 $ 909


Consolidated Statements of Cash Flows YUM! Brands, Inc. and Subsidiaries Fiscal years ended December 26, 2009, December 27, 2008 and December 29, 2007 (in millions) 2009 2008 2007 Cash Flows – Operating Activities Net Income – including noncontrolling interest $ 1,083 $ 972 $ 909 Depreciation and amortization 580 556 542 Closures and impairment (income) expenses 103 43 35 Refranchising (gain) loss (26 ) (5 ) (11 ) Contributions to defined benefit pension plans (280 ) (66 ) (8 ) Gain upon consolidation of a former unconsolidated affiliate in China (68 ) — — Gain on sale of interest in Japan unconsolidated affiliate — (100 ) — Deferred income taxes 72 1 (41 ) Equity income from investments in unconsolidated affiliates (36 ) (41 ) (51 ) Distributions of income received from unconsolidated affiliates 31 41 40 Excess tax benefit from share-based compensation (59 ) (44 ) (74 ) Share-based compensation expense 56 59 61 Changes in accounts and notes receivable 3 (6 ) (4 ) Changes in inventories 27 (8 ) (31 ) Changes in prepaid expenses and other current assets (7 ) 4 (6 ) Changes in accounts payable and other current liabilities (62 ) 18 102 Changes in income taxes payable (95 ) 39 70 Other non-cash charges and credits, net 82 58 18 Net Cash Provided by Operating Activities 1,404 1,521 1,551 Cash Flows – Investing Activities Capital spending (797 ) (935 ) (726 ) Proceeds from refranchising of restaurants 194 266 117 Acquisition of restaurants from franchisees (24 ) (35 ) (4 ) Acquisitions and disposals of investments (115 ) — 128 Sales of property, plant and equipment 34 72 56 Other, net (19 ) (9 ) 13 Net Cash Used in Investing Activities (727 ) (641 ) (416 ) Cash Flows – Financing Activities Proceeds from long-term debt 499 375 1,195 Repayments of long-term debt (528 ) (268 ) (24 ) Revolving credit facilities, three months or less, net (295 ) 279 (149 ) Short-term borrowings by original maturity

More than three months – proceeds — — 1 More than three months – payments — — (184 ) Three months or less, net (8 ) (11 ) (8 )

Repurchase shares of Common Stock — (1,628 ) (1,410 ) Excess tax benefit from share-based compensation 59 44 74 Employee stock option proceeds 113 72 112 Dividends paid on Common Stock (362 ) (322 ) (273 ) Other, net (20 ) — (12 ) Net Cash Used in Financing Activities (542 ) (1,459 ) (678 ) Effect of Exchange Rates on Cash and Cash Equivalents (15 ) (11 ) 13 Net Increase (Decrease) in Cash and Cash Equivalents 120 (590 ) 470 Change in Cash and Cash Equivalents due to consolidation of entities in China 17 17 — Cash and Cash Equivalents – Beginning of Year 216 789 319 Cash and Cash Equivalents – End of Year $ 353 $ 216 $ 789


Consolidated Balance Sheets YUM! Brands, Inc. and Subsidiaries December 26, 2009 and December 27, 2008 (in millions) 2009 2008 ASSETS Current Assets Cash and cash equivalents $ 353 $ 216 Accounts and notes receivable, net 239 229 Inventories 122 143 Prepaid expenses and other current assets 314 172 Deferred income taxes 81 81 Advertising cooperative assets, restricted 99 110

Total Current Assets 1,208 951 Property, plant and equipment, net 3,899 3,710 Goodwill 640 605 Intangible assets, net 462 335 Investments in unconsolidated affiliates 144 65 Other assets 544 561 Deferred income taxes 251 300

Total Assets $ 7,148 $ 6,527 LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT) Current Liabilities Accounts payable and other current liabilities $ 1,413 $ 1,473 Income taxes payable 82 114 Short-term borrowings 59 25 Advertising cooperative liabilities 99 110

Total Current Liabilities 1,653 1,722 Long-term debt 3,207 3,564 Other liabilities and deferred credits 1,174 1,335

Total Liabilities 6,034 6,621 Shareholders’ Equity (Deficit)

Total Shareholders’ Equity (Deficit) – YUM! Brands, Inc. 1,025 (108 ) Noncontrolling interest 89 14

Total Shareholders’ Equity (Deficit) 1,114 (94 ) Total Liabilities and Shareholders’ Equity (Deficit) $ 7,148 $ 6,527


CASE 1: MCDONALD'S CORPORATION SOLUTIONS


ROW # 2009 2008 2009 2008 2009 2008 2009 2008 Mc Donald's Wendy's YUM Burger King

1 Company revenues 15458.5 16560.9

Company revenues 3198.3 1662.2

Company revenues 9413 9843

Company revenues 1839.3 1880.5

2 Franchised revenues 7286.2 6961.5

Franchised revenues 382.5 160.5

Franchised revenues 1423 1461

Franchised revenues 662.9 656.9

3 Cost of Sales 5178 5586.1 Cost of Sales 2728.5 1415.5 Cost of Sales 3003 3239 Cost of Sales 585 603.7

4 Selling General Admin 11009.1 11652.6

Selling General Admin 452.7 283.7

Selling General Admin 6270 6667

Selling General Admin 1585 1592.4

5 Payroll 3965.6 4300.1 Payroll 452.7 283.7 Payroll 2154 2370 Payroll 568.7 582.2 6 Occupancy 3507.6 3766.7 Occupancy 0 0 Occupancy 2777 2856 Occupancy 461.1 457.8

7 Franchised - Occupancy 1301.7 1230.3

Franchised - Occupancy 0 0

Franchised - Occupancy 118 99

Franchised - Occupancy 59.4 58.1

8 S, G, Admin 2234.2 2355.5 S, G, Admin 0 0 S, G, Admin 1221 1342 S, G, Admin 495.8 494.3

9 Accounts Receivable 1060.4 931.2

Accounts Receivable 88 97.3

Accounts Receivable 239 229

Accounts Receivable 142.9 130

10 Inventory 106.2 111.5 Inventory 23 24.6 Inventory 122 143 Inventory 13.3 13.1

11 Accounts Payable 636 620.4

Accounts Payable 103.5 139.4

Accounts Payable 1413 1473

Accounts Payable 106.9 127

12 Accruals 1936.4 1711.9 Accruals 349.5 332.9 Accruals 181 224 Accruals 272.8 287.8 13 Other taxes 277.4 252.7 Other 80.5 81.1 Other taxes 82 114 Other taxes 71.9 67.8

14 Other accruals 1659 1459.2

Other accruals 269 251.8

Other accruals 99 110

Other accruals 200.9 220

15 AR Days 52 48 AR Days 83 218 AR Days 60 56 AR Days 78 71 16 INV days 7 7 INV days 3 6 INV days 15 16 INV days 8 8 17 AP days 44 40 AP days 14 35 AP days 169 164 AP days 66 76

18 Accruals in days 63 53 Accruals in days 278 422 Accruals in days 10 12 Accruals in days 62 65

19 Cash Cycle in days 16 15

Cash Cycle in days 72 189

Cash Cycle in days -94 -91

Cash Cycle in days 20 3

20 Total Costs 16187.1 17238.7 Total Costs 3181.2 1699.2 Total Costs 9273 9906 Total Costs 2170 2196.1

21 Total AP + Accruals 2572.4 2332.3

Total AP + Accruals 453 472.3

Total AP + Accruals 1594 1697

Total AP + Accruals 379.7 414.8

22 Total AP + Accruals in days 57 49

Total AP + Accruals in days 51 100

Total AP + Accruals in days 62 62

Total AP + Accruals days 63 68

23 Op WC -1406 -1290 Op WC -342 -350 Op WC -1233 -1325 Op WC -224 -272


McDonald’s Wendy’s YUM Burger King

24 Company owned stores 6,257

Company owned stores 1529

Company owned stores 7416 Company owned stores 1187

25 Franchised 26,209 Franchised 5121 Franchised 29311 Franchised 9917

26 Revenue/company owned stores 2,471

Revenue/company owned stores 2,092

Revenue/company owned stores 1269

Revenue/company owned stores 1550

27 Revenue/franchised stores 278

Revenue/franchised stores 75



28 Total Property 21532 Total Property 1619 Total Property 3899 Total Property 1014

29 Total Number of Stores 32466

Total Number of Stores 6650

Total Number of Stores 36727 Total Number of Stores 11104

Notes: a. Row 4 = sum of rows 5,6,7,8 b. Row 12 = Row 13 + 14 c. Row 15 = row 9/row2*360 d. Row 16 = row 10/row 3*360 e. Row 17 = row 11/row 3*360 f. Row 18 = rwo 12/row 4*360 g. Row 19 = row 15+16-17 h. Row 20 = row 3+4 i. Row 21 = row 11 + 12

Note that YUM has no accruals, only an accounts called payables. Row 22 is an attempt to make all four firms comparable by adding all accounts payable and accruals together.


CASE 2: PAR PHARMACEUTICAL

Par Pharmaceutical's 2009 financial statements are attached (footnotes have been omitted). Par and its subsidiary, Quad, market a comprehensive line of generic tablets, capsules and injectables and will introduce liquids, ointments, creams & lotions during fiscal 2010. DISCUSSION QUESTIONS: [*]

1. In its Annual Report, Par states "the financial condition of the Company continued to strengthen

in 2009 as working capital increased by almost $5,000 or 14% to $38,465 at October 1, 2009."

Comment on the amount of working capital, the increase in working capital and the

connection to liquidity. Complete this table to help answer this question.

PAR 2009 2008

1 Accounts Receivable Days 2 Inventory Days 3 Accounts Payables Days 4 Net Trade Cycle 5 Net Cash Cycle 6 Working Assets 7 Working Liabilities 8 Operating Working Capital 9 Change in Operating Working Capitala

10 Operating Working Capital/Sales 11 Working Capital


2. Par's 2009 cash provided by operating activities is much less than its 2009 net

income. Explain each significant reason for this difference and comment from the

viewpoint of a financial analyst (who is interested in all aspects of cash flow and liquidity).

[First, complete the following table, calculate "Funds Flow” also referred to as “potential

cash flow from operating activities" for 2009]. After calculating Funds Flow, reconcile the

Funds Flow with the Cash Flow from Operations and compare the difference between

Operating Cash Flow and Funds Flow with the Change in Operating Working Capital from

the Balance Sheet. Then compare the cash flow with the claims on the cash flow from

operations.

PAR 2009 2008 Net Income Depreciation & Amortization Other Non Operating Adjustments Funds Flow Reported Cash From Operations Balance Sheet Management [= difference between FF and CFO]

Capital Expenditures Dividends Mandatory Capital Spending Cash Flow after Cap X and Dividends Free Cash Flow in the Long Run [FF less Mandatory CAPX and dividends] Borrowings Equity [issuances or purchases] Other Investing Change in Cash

3. Comment on the adequacy of Par's cash flows from operating activities for the one year

2009.

[*] Par has a "provision for equity interest in subsidiary at issue in certain litigation" in 2009 and 2008. These provisions are based upon a share of the profits of a subsidiary and have been added to other 1ong-terrn liabilities. This can be considered non-recurring, not operating and unrelated to the current year.


Consolidated Statements of Income and Retained Earnings

Year Ended

October 1. October 3. September 27. 2009 2008 2007

Net sales $ 99,548 $78,684 $39,357 Dividend, interest and other income 1,043 1,091 528 Total revenues 100,591 79,775 39,885 Costs and expenses: Cost of goods sold 48,593 38,599 20,223 Product development 6,546 4,065 2,828 Selling, general and administrative 21,102 15,633 7,812 Interest Expense 1,392 820 668 Provision for litigation 3,183 846____________ 80,816 59,963 31,531 Income before provision for income taxes 19,775 19,812 8,354 Provision for income taxes:

State 1,281 557 375 Federal 7,384 8,341 3,337 8,665 8,898 3,712

Net income 11,110 10,914 4,642 Cash dividend (221)


Consolidated Balance Sheets

October 1, October 3,

2009 2008 ASSETS

Current Assets Cash and cash equivalents $ 5,903 $ 3,190 Marketable Securities 4,556 17,454 Accounts receivable, net 20,399 13,130 Inventories 18,666 13,805 Deferred tax benefit 2,424 1,244 Prepaid expenses and other current assets 798 1,053 Total current assets 52,746 49,876 Property, plant and equipment, net 30,255 21,606 Restricted cash and investments 3,111 4,543 Deferred charges and other assets 3,842 2,122

$89,954 $78,147 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Current portion of long-term debt $ 833 $ 686 Accounts payable 5,132 5,457 Salaries and employee benefits 4,774 3,063 Accrued expenses and other current liabilities 3,277 5,868 Income taxes 265 1,167 Total current liabilities 14,281 16,241 Long-term debt, less current portion 15,021 15,232 Deferred income taxes 1,606 1,161 Other 5,220 1,603 Shareholders' equity: Common Stock 110 110 Additional paid-in capital 19,146 20,119 Retained earnings 34,570 23,681 Total shareholders' equity 53,826 43,910

$89,954 $78,147


Consolidated Statements of Cash Flows

Year Ended Oct 1. Oct 3. Sept 27. 2009 2008 2007

Cash flows from operating activities: Net income $11,110 $ 10,914 $ 4,642 Adjustments to reconcile net income to Net cash provided by operating activities Depreciation and amortization 2,260 1,348 1,125 Deferred taxes (735) (1,959) 814 Other 3,135 784 (145) Changes in assets and liabilities: Increase in accounts receivable (7,269) (3,557) (4,764) Increase in inventory (4,861) (5,405) (3,984) (Increase) decrease in prepaid expenses and other current assets 97 (335) (494) Increase (decrease) in accounts payable (478) 1,252 2,250 Increase (decrease) in accrued expenses and other current liabilities (916) 4,745 2,560 Increase (decrease) in income taxes payable (902) 1,039 557 Net cash provided by operating activities 1,441 8,826 2,561 Cash flows from investing activities: Capital expenditures (10,961) (7,916) (4,321) (Increase) decrease in restricted cash 1,469 (1,762) (2,576) (Increase) decrease in securities 12,898 (14,489) 635 Purchase of minority interest in sub (570) Purchase of other investments (650) Other (226) 175 (696) Net cash provided (used) by investing activities 2,530 (24,562) (6,958) Cash flows from financing activities: Sale of stock in public offering 12,313 Borrowings under long-term debt 6,734 9,010 7,227 Proceeds from issuance of note payable 2,100 Proceeds from issuance of capital stock 907 1,382 172 Payments of long-term debt (6,798) (4,463) (3,397) Payment of note payable (2,100) Purchase of capital stock (1,880) Cash dividend (221)_______________________ Net cash provided (used) by financing activities (1,258) 5,929 16,315 Net increase (decrease) in cash 2,713 (9,807) 11,918 Cash at beginning of year 3,190 12,997 1,079 Cash and cash equivalents at end of year $ 5,903 $ 3,190 $12,997


STATIC LIQUIDITY PAR 2009 2008

1 Accounts Receivable Days 74 60 2 Inventory Days 138 129 3 Accounts Payables Days 38 51 4 Net Trade Cycle 212 189 5 Net Cash Cycle 174 138 6 Working Assets 42,287 29,232 7 Working Liabilities 13,448 15,555 8 Operating Working Capital 28,839 13,677 9 Change in Operating Working Capitala -15,162

10 Operating Working Capital/Sales 29.0% 17.4% 11 Cash Cycle Very Long Moderate 12 Working Capital 38,465 33,635

Dynamic Liquidity

PAR 2009 2008 Total Average Net Income 11,110 10,914 22,024 11,012 Depreciation & Amortization 2,260 1,348 3,608 1,804 Other Non Operating Adjustments 3,135 784 3,919 1,960 Funds Flow 16,505 13,046 29,551 14,776 Reported Cash From Operations 1,441 8,826 10,267 5,134

Balance Sheet Management -15,064 -4,220 -1,9284 (9,642) Capital Expenditures -10,961 -7,916 -18,877 (9,439) Dividends -221 0 -221 (111) Mandatory Capital Spending -2,260 -1,348 -3,608 -1,804 Free Cash Flow to Lenders -9,741 910 -8,831 (4,416) Free Cash Flow Before Dividends Paid [private company] -9,520 910 -8,610 (4,305) Free Cash Flow in the Long Run 14,024 11,698 25,722 12,861 Borrowings -64 4,547 4,483 2,242 Equity [issuances or purchases] -973 1,382 409 205 Other Investing 13,491 -16,646 -3,155 -1,578 Change in Cash 2,713 -9,807 -7,094 -3,547 Note: Mandatory Capital Spending is an estimate based upon depreciation expense

[a] the change in Operating Working Capital is shown as a negative number [dr] as this is the presentation for the Statement of Cash Flow


CASE 3: Carnival

Required:

1. Calculate Operating Working Capital for Carnival at the end of fiscal 2009.

2. Calculate the Capital Investment of the Firm [Investment in all of the NonCurrent Assets -- Property, Plant Equipment and Intangible and any other NonCurrent Assets] at year end 2009.

3. Calculate the Funds Flow [called the potential operating cash flow] for fiscal 2009.

4. Calculate these four amounts ratios: Operating Working Capital Non Current Assets/Total Assets PPE/Non Current Assets PPE/Sales


Carnival’s mission is to deliver exceptional vacation experiences through some of the world's best-known cruise brands that cater to a variety of different geographic regions and lifestyles, all at an outstanding value unrivalled on land or at sea. The multi-night cruise industry has grown significantly over the past decade, but still remains a relatively small part of the wider global vacation market in which cruise companies compete for the discretionary income spent by vacationers. The global cruise industry carried 17.2 million passengers in 2009. The principal regions from which cruise passengers are sourced are North America, which has increased by an estimated compound annual growth rate of 4.6% between 2001 and 2009, and Western Europe where cruise passengers have increased by a compound annual growth rate of approximately 10.5%. In Europe, cruising represents a smaller proportion of the overall vacation market than it does in North America.

Carnival Cruise Lines began operations in 1972 is a leader in offering fun, memorable vacations at an affordable price. This brand is widely recognized as the "Fun Ships," with 22 contemporary ships operating voyages generally from three to eight days. Princess, whose brand name was made famous by the Love Boat television show, has been providing cruises since 1965. Princess, the world's third largest cruise line, operates a fleet of 17 modern ships. Holland America Line, with 136 years of cruising experience, operates a premium fleet of 14 ships. Seabourn provides ultra-luxury cruising vacations in a unique, small-yacht style that focuses on personalized services, all-suite accommodations, superb cuisine and unique experiences. Cruising offers a broad range of products to suit vacationing guests of many ages, backgrounds and interests. Cruise brands can be broadly classified as offering contemporary, premium and luxury cruise experiences. The contemporary experience typically includes cruises on larger ships that last seven days or less, have a more casual ambiance and are less expensive than premium or luxury cruises. The premium experience typically includes cruises on more intermediate-sized ships that last from seven to 14 days and appeal to the more experienced cruise guest who is usually more affluent and older. The luxury experience is usually characterized by small vessel size, very high standards of accommodation and service, higher prices and exotic itineraries to ports which are inaccessible to larger ships. Carnival is the leading provider of cruise vacations in all the largest vacation markets in the world, which are comprised of North America, Europe, Australia and New Zealand, Asia and South America, with product offerings in each of the three classifications noted above.

As of January 28, 2010, the summary by brand of our passenger capacity, the number of cruise ships we operate, and the primary areas in which they are marketed is as follows:

Cruise Brands

Passenger Capacity

Number of Cruise Ships Primary Market

Carnival Cruise Lines 54,480 22 North America Princess Cruises 37,588 17 North America Costa Cruises 28,426 14 Europe Holland America Line 21,378 14 North America P&O Cruises 11,998 6 United Kingdom AIDA Cruises 9,862 6 Germany Ibero Cruises 5,010 4 Spain and Brazil P&O Cruises Australia 4,744 3 Australia and New Zealand Cunard Line 4,608 2 UK and North America Ocean Village 1,578 1 UK The Yachts of Seabourn 1,074 4 North America

180,746* 93

*Approximately 45% of global passenger capacity


CARNIVAL CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions)

2009 2008 2007 2006 2005 2004 2003 2002

Revenues Cruise

Passenger tickets $ 9,985 11,210 $ 9,792 8,903 8,399 7,357 5,039 3,346 Onboard and other 2,885 3,044 2,846 2,514 2,338 2.070 1,420 898

Other 287 392 395 422 357 300 259 139 13,157 14,646 13,033 11,839 11,094 9,727 6,718 4,383

Costs and Expenses Operating

Cruise Commissions, transportation and other 1,917 2,232 1,941 1,749 1,645 1,572 1,021 658 Onboard and other 461 501 495 453 412 359 229 116 Payroll and related 1,498 1,470 1,336 1,158 1,122 1,003 744 458 Fuel 1,156 1,774 1,096 935 707 493 201 120 Food 839 856 747 644 613 550 393 256 Other ship operating 1,997 1,913 1,717 1,538 1,465 1,315 1,036 614

Other 236 293 296 314 254 210 194 108

Total 8,104 9,039 7,628 6,791 6,218 5,502 3,818 2,300

Selling and administrative 1,590 1,629 1,579 1,447 1,335 1,285 932 609 Depreciation and amortization 1,309 1,249 1,101 988 902 812 585 382

11,003 11,917 10,308 9,226 8,445 7,599 5,335 3,321

Operating Income 2,154 2,729 2,725 2,613 2,639 2,128 1,383 1,062

Nonoperating (Expense) Income Interest income 32 62 68 17 16 12 35 8 Interest expense, net of capitalized interest (380 (414 (367) (312) (330) (284) (195) (111)

(348 (352 (301) (295) (314) (272) (160) (103)

Income Before Income Taxes 1,806 2,377 2,424 2,318 2,325 1,856 1,223 959 Income Tax Expense, Net (16 (47 (16) (39) (72) (47) (29) 57 Net Income $ 1,790 $ 2,330 $ 2,408 2,279 2,253 1,809 1,194 1,016


CARNIVAL CORPORATION

CONSOLIDATED BALANCE SHEETS (in millions)

November 30, 2009 2008

ASSETS Current Assets

Cash and cash equivalents $ 538 $ 650 Trade and other receivables, net 362 418 Inventories 320 315 Prepaid expenses and other 298 267

Total current assets 1,518 1,650

Property and Equipment, Net 29,870 26,457 Goodwill 3,451 3,266 Trademarks 1,346 1,294 Other Assets 650 733

$ 36,835 $ 33,400

LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities

Short-term borrowings $ 135 $ 256 Current portion of long-term debt 815 1,081 Convertible debt subject to current put option 271 Accounts payable 568 512 Accrued liabilities and other 874 1,142 Customer deposits 2,575 2,519

Total current liabilities 4,967 5,781

Long-Term Debt 9,097 7,735 Other Long-Term Liabilities and Deferred Income 736 786 Shareholders' Equity

Total shareholders' equity 22,035 19,098

$ 36,835 $ 33,400


CARNIVAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (in millions)

Years Ended November 30, 2009 2008 2007

OPERATING ACTIVITIES Net income $ 1,790 $ 2,330 $ 2,408 Adjustments to reconcile net income to net cash provided by operating activities

Depreciation and amortization 1,309 1,249 1,101 Share-based compensation 50 50 64 Other 37 (37 ) 26

Changes in operating assets and liabilities, excluding businesses acquired and sold Receivables 81 (70 ) (119 ) Inventories 10 (8 ) (57 ) Prepaid expenses and other 7 (18 ) (56 ) Accounts payable 74 (66 ) 109 Accrued and other liabilities 29 37 163 Customer deposits (45 ) (76 ) 430

Net cash provided by operating activities 3,342 3,391 4,069

INVESTING ACTIVITIES Additions to property and equipment (3,380 ) (3,353 ) (3,312 ) Other, net (4) 98 (434 )

Net cash used in investing activities (3,384 ) (3,255 ) (3,746 )

FINANCING ACTIVITIES Dividends paid (314 ) (1,261 ) (990 ) Other 221 945 386

Net cash used in financing activities (93 ) (315 ) (604 )

Effect of exchange rate changes on cash and cash equivalents 23 (114 ) 61

Net decrease in cash and cash equivalents (112 ) (293 ) (220 ) Cash and cash equivalents at beginning of year 650 943 1,163

Cash and cash equivalents at end of year $ 538 $ 650 $ 943


CARNIVAL 2009 2008 Cash 538 650 Acc Receivables 362 418 Inventory 320 315 Prepaids 298 267 Funds Flow 3149 Total Current Assets 1,518 1,650 Total Debt 10,047 PPE, net 29,870 26,457

Goodwill 3,451 3,266 FF/Total Debt 31%

Trademarks 1,346 1,294 Other Assets 650 733 Total Assets 36,835 33,400 Total Debt 10,047 Equity 22,035 ST Debt 135 256 NCI - CPLTD 815 1,081 Total Cap 32,082 Conv Debt put 271

Acc Payables 568 512 Total Debt/Cap 31%

Accruals 874 1,142 Deposits 2,575 2,519 Debt 10,047 Current Liabilities 4,967 5,781 EBITDA 3,463 LT Debt 9,097 7,735 Debt/EBITDA 2.90 Other LT Liabilities 736 786 Equity 22,035 19,098 FF/Debt D/Cap D/Ebitda

AAA 60% 25% 1.0

NI 1,790 AA 45% 35% 1.5

DA 1,309 A 30% 45% 1.9

Share 50 BBB 15% 55% 2.7

Funds Flow 3,149 BB less 15% more 55% more 3.5

Cash Flow from Ops 3,342

Working Assets 980 1,000 Working Liabilities 4,017 4,173 OPWC -3,037 -3,173 NCA 35,317 Revenue 13,157 NCA/Total Assets 96% Expenses -8,104 PPE/NCA 85% SG&A -1,590 PPE/Sales 227% EBITDA 3,463 LT, Op Liabilities 736 DA -1,309 NCA, net 34,581 Op Profit 2,154 Need for Capital 31,544 Assets 36297 Capital 31,544 ROA 5.93% Market Cap 31,000

CASE 4: MICROSOFT


We develop and market software, services, and solutions that we believe deliver new opportunity, convenience, and value to people’s lives. We do business throughout the world and have offices in more than 100 countries. We generate revenue by developing, manufacturing, licensing, and supporting a wide range of software products for many computing devices. Our software products include operating systems for servers, personal computers, and intelligent devices; server applications for distributed computing environments; information worker productivity applications; business solution applications; high-performance computing applications, and software development tools. We also research and develop advanced technologies for future software products. Our research and development facilities are located primarily in Redmond, Washington. We also have smaller research facilities in other parts of the United States and around the world, including, but not limited to, China, Denmark, England, India, Ireland, and Israel.

Required [at year ends 2005 and 2006]:

Calculate Accounts Receivable in days, Inventory in days, Accounts Payables in days Calculate the Cash Cycle Comment on the Cash Cycle Determine the total need for capital for Microsoft

Calculate the Amount of Working Capital Comment on the Balance Sheet liquidity of Microsoft


STATIC LIQUIDITY Microsoft 2006 2005

1 Accounts Receivable Days 2 Inventory Days 3 Accounts Payables Days 4 Trade Cycle 5 Cash Cycle 6 Working Assets 7 Working Liabilities 8 Operating Working Capital 9 Change in Operating Working Capital

10 Operating Working Capital/Sales 11 Cash Cycle 12 Working Capital 13 Non Current Assets 14 Total Need for Capital 15 Non Current Assets/Total Assets


INCOME STATEMENTS

(In millions)

Year Ended June 30 2006 2005 2004 Revenue $ 44,282 $ 39,788 $ 36,835 Operating expenses:

Cost of revenue 7,650 6,031 6,596 Research and development 6,584 6,097 7,735 Sales and marketing 9,818 8,563 8,195 General and administrative 3,758 4,536 5,275

Total operating expenses 27,810 25,227 27,801

Operating income 16,472 14,561 9,034 Investment income and other 1,790 2,067 3,162 Income before income taxes 18,262 16,628 12,196 Provision for income taxes 5,663 4,374 4,028 Net income $ 12,599 $ 12,254 $ 8,168


BALANCE SHEETS

(In millions)

June 30 2006 2005 Assets Current assets:

Cash and equivalents $ 6,714 $ 4,851 Short-term investments 27,447 32,900

Total cash and short-term investments 34,161 37,751

Accounts receivable 9,316 7,180 Inventories 1,478 491 Deferred income taxes 1,940 1,701 Other 2,115 1,614

Total current assets 49,010 48,737

Property and equipment, net 3,044 2,346 Equity and other investments 9,232 11,004 Goodwill 3,866 3,309 Intangible assets 539 499 Deferred income taxes 2,611 3,621 Other long-term assets 1,295 1,299

Total assets $ 69,597 $ 70,815

Liabilities and stockholders’ equity Current liabilities:

Accounts payable $ 2,909 $ 2,086 Accrued compensation 1,938 1,662 Income taxes 1,557 2,020 Short-term unearned revenue 9,138 7,502 Securities lending payable 3,117 — Other 3,783 3,607


Long-term unearned revenue 1,764 1,665 Other long-term liabilities 5,287 4,158 Stockholders’ equity:

Common stock and paid-in capital 59,005 60,413 Retained earnings (deficit) (18,901 ) (12,298 )

Total stockholders’ equity 40,104 48,115

Total liabilities and stockholders’ equity $ 69,597 $ 70,815


CASH FLOWS STATEMENTS

(In millions) Year Ended June 30 2006 2005 2004 Operations

Net income $ 12,599 $ 12,254 $ 8,168 Depreciation and amortization 903 855 1,186 Stock-based compensation 1,715 2,448 5,734 Net recognized gains on investments (270 ) (527 ) (1,296 ) Stock option income tax benefits – 668 1,100 Tax benefits from stock payment arrangements (89 ) – – Deferred income taxes 219 (179 ) (1,479 ) Unearned revenue 16,453 13,831 11,777 Recognition of unearned revenue (14,729 ) (12,919 ) (12,527 ) Accounts receivable (2,071 ) (1,243 ) (687 ) Other current assets (1,405 ) (245 ) 478 Other long-term assets (49 ) 21 34 Other current liabilities (145 ) 396 1,529 Other long-term liabilities 1,273 1,245 609

Net cash from operations 14,404 16,605 14,626

Financing

Common stock issued 2,101 3,109 2,748 Common stock repurchased (19,207 ) (8,057 ) (3,383 ) Common stock cash dividends (3,545 ) (36,112 ) (1,729 ) Excess tax benefits from stock-based payment

arrangements 89 – – Other – (18 ) –

Net cash used in financing (20,562 ) (41,078 ) (2,364 )

Investing

Additions to property and equipment (1,578 ) (812 ) (1,109 ) Acquisition of companies, net of cash acquired (649 ) (207 ) (4 ) Purchases of investments (51,117 ) (68,045 ) (95,005 ) Maturities of investments 3,877 29,153 5,561 Sales of investments 54,353 54,938 87,215 Net proceeds from securities lending 3,117 – –

Net cash from (used in) investing 8,003 15,027 (3,342 )

Net change in cash and equivalents 1,845 (9,446 ) 8,920 Effect of exchange rates on cash and equivalents 18 (7 ) 27 Cash and equivalents, beginning of period 4,851 14,304 5,357 Cash and equivalents, end of period $ 6,714 $ 4,851 $ 14,304

Microsoft Solution Notes


2006 2005 AR days 76 65 Inv days 70 29 AP days 137 125 Trade Cycle 145 94 Cash Cycle 8 -30 Working Assets 14,849 10,986 Working Liabilities 19,325 16,877 OPWC -4,476 -5,891 ^ IN OPWC -1,415 OPWC/Sales -0.10 -0.15 WC 26,568 31,860 Non Current Assets 11,355 11,074 Total Need for Capital 6,879 5,183 Non Current Assets/Total Assets 30% 31% PPE/Sales 6.7% 5.9%


CASE 5: RUSSELL CORPORATION

Russell Corporation is a leading authentic athletic and sporting goods company with over a century of success. Russell sells athletic uniforms, apparel, athletic footwear, sporting goods, athletic equipment, and accessories for a wide variety of sports, outdoor and fitness activities under well-known brands such as Russell Athletic, JERZEES, Spalding, and Brooks. Russell is the largest provider of basketball equipment in the world. This position was solidified by the recently signed eight-year agreement with the National Basketball Association that allows Russell to continue its involvement with one of the fastest growing sports in the world. Russell offers a diversified portfolio of brands and products across multiple distribution channels and its products are marketed and sold throughout North America and approximately 100 other countries. Russell markets and distributes its products through mass merchandisers, sporting goods dealers, specialty running stores, department and sports specialty stores, college stores, online retailers, and mail order houses. Russell sells its products primarily through a combination of salaried, Company-employed sales persons and commission agents. Russell operates in two segments: Domestic and the international. Domestic segment sales represented approximately 90% of total 2011 sales. For the apparel business, they produce or source products utilizing a combination of company owned facilities primarily in the United States, Honduras and Mexico, as well as contractors and other suppliers around the world. Approximately 99% of the apparel sewing and assembly operations are conducted offshore for products sold by the Domestic segment. The yarn spinning joint venture supplies the majority of the yarn requirements. For the sporting goods and athletic equipment businesses, the products offered by Spalding, Brooks and Bike are generally sourced from third-party contractors outside the United States, primarily in Asia. American Athletic and Huffy Sports produce the majority of basketball backboard and gymnastics equipment in Company-operated facilities. Steel and other raw materials used in this production are sourced from a variety of suppliers and countries. Russell's dependence on third parties for manufacturing and raw materials production could subject it to difficulties in obtaining timely delivery of products and materials that meet its quality standards. Russell does not have long-term supply contracts for any of raw materials other than yarn, but they believe there are readily available alternative sources of supply. In addition, the raw materials used to manufacture our products are subject to price volatility caused by weather, supply conditions, government regulations, economic climate, and other unpredictable factors. To reduce the risk caused by market fluctuations, Russell has in the past entered into futures contracts to hedge commodity prices, principally cotton, on portions of anticipated purchases. In October 2010, Russell announced an Operational Improvement Program ("OIP") targeting $50 million in cost reductions to offset anticipated selling price decreases, higher fiber costs and other cost increases for fiscal 2011. Russell's results are affected by numerous factors, including seasonal variations. Typically, demand for apparel products is higher during the third and fourth quarters of each fiscal year. Weather conditions also affect demand for apparel products, particularly for fleece (sweatshirts and sweatpants) products. Demand in the basketball and basketball equipment business is typically higher in the second and fourth quarters, but is not as pronounced as the seasonality of the fleece business. Generally, Russell produces and stores finished goods inventory, particularly fleece, to


meet the expected demand for delivery in the upcoming season. If, after producing and storing inventory in anticipation of seasonal deliveries, demand is significantly less than expected, they may hold inventory for extended periods of time or sell excess inventory at reduced prices. Either scenario could adversely affect operations. Reduced demand could also result in lower plant and equipment utilization, which would have a negative impact on business. In addition, due to the time that may lapse between production and shipment of goods, prices may not immediately reflect changes in cost of raw materials and other costs. Some of Russell's customers are material to its business and operations. For fiscal 2011, Wal-Mart, the largest customer, represented approximately 20% of consolidated sales. The percentage of sales to Wal-Mart may increase as Russell pursues opportunities for new business with Wal-Mart. The top ten customers accounted for approximately 44% of 2011 sales. Russell believes that consolidation in the retail industry, particularly in the sporting goods retail industry and the strength of its customers have given certain customers the ability to make greater demands and Russell expects this trend to continue. However, Russell also believe that this consolidation may afford them greater cost savings potential as a result of more advantageous economies of scale, as Russell has such a broad array of products and brands focused on the sporting goods market. If consolidation continues, Russell's sales may be increasingly sensitive to deterioration in the financial condition of, or other adverse developments with, one or more of its customers. Although Russell believes that its relationships with its major customers are good, they do not have long-term contracts with any of them, which is typical of the industry. As a result, although their customers provide indications of their product needs and purchases on a season by season basis, they generally purchase products on an order-by-order basis and the relationship, as well as particular orders, can be terminated at any time. The loss of, or significant decrease in, business from any of their major customers could have a material adverse effect on business. Note: Potential competitors for Russell are: Oakley, VF, Nike, and Fruit of the Loom [LBO completed by Warren Buffet in 2002]. Discussion Question

• Does Russell have a large amount of trading assets?

• Comment on Russell’s Balance Sheet Management at FYE 2011


R u s s e l l [ 0 0 0 ’ s ]

2010 2011 Cash 20,116 29,816 Acc Receivables 175,514 212,063 Inventory 346,946 411,701 Other Current Assets 30,523 23,838 Total Current Assets 573,099 677,418 PPE, net 303,234 322,890 Other Noncurrent Assets 144,777 253,801 Total Assets 1,021,110 1,254,109 Short Term Debt 4,088 18,190 CPLTD 5,000. 6,938 Acc Payables 78,368 94,642 Accruals 76,993 95,780 Tax Payables 5,165 4,054 Total Current Liabilities 169,614 219,604

Non Current Liabilities 336,632 471,654 Equity 514,864 562,851

Revenue 1,186,263 1,298,252 Cost of Sales 842,217 934,372 AR days [DSO] 53 59 Inventory Days [DIO] 148 159 Days Payable Outstanding [DPO] 33 36 Trading Assets 552,983 647,602 Spontaneous Financing 160,526 194,476 Operating Working Capital 392,457 453,126 OWC/Sales 33.1% 34.9% Working Capital 403,485 457,814

Oakley [000,000] Nike [000,000] 2010 2011 2010 2011 Days Sales Outstanding 53 63 70 62 Inventory Days 149 156 86 84 DPO 41 45 33 39 Trading Assets [$ millions] 198 241 4,153 4,283 Spontaneous Financing [$ millions] 77 78 1,740 1,856 Operating Working Capital [$ millions] 121 163 2,414 2,427 OWC/Sales 23.0% 27.9% 22.6% 19.8% Working Capital [$ millions] 155 195 2,767 3,503


CASE 6: MAYTAG

Maytag is a leading manufacturer and distributor of home and commercial appliances. The Hoover brand is a leader in North American floor care products. Maytag operates in two business segments: Home Appliances and Commercial Products. During 2006, two customers, Sears, Roebuck and Co. and Kmart merged to form Sears Holdings Company. Sales to Sears Holdings in 2006 represented 10% of consolidated net sales. Sales to Sears, excluding Kmart, represented 13% and 15% of consolidated net sales in 2005 and 2004, respectively. Sales to Home Depot represented 14% and 10% of consolidated net sales in 2006 and 2005, respectively.

Discussion Questions

• For Maytag, calculate the following at FYE 2006 and 2005: a. Accounts Receivables in Days b. Inventory in Days c. Acc Payables in Days d. Trading Assets e. Spontaneous Financing f. Operating Working Capital g. Operating Working Capital/Sales

• Complete the same calculations for Whirlpool • Comment on Maytag’s Balance Sheet Management at FYE 2006

STATIC LIQUIDITY

Maytag 2006 2005


10 Operating Working Capital/Sales 11 Cash Cycle 12 Working Capital


CONSOLIDATED STATEMENTS OF OPERATIONS

2006 2005 2004 Net sales $ 4,901,115 $ 4,721,538 $ 4,791,866 Cost of sales 4,413,458 4,061,319 3,932,335 Gross profit 487,657 660,219 859,531 Selling, general and administrative expenses 453,654 507,013 555,092 Restructuring and related charges 52,779 69,758 64,929 Asset impairment 13,800 — 11,217 Goodwill impairment—Commercial Products 4,525 9,600 — Front-load washer litigation — 33,500 — Operating income (loss) (37,101 ) 40,348 228,293 Interest expense (65,811 ) (56,274 ) (52,763 ) Loss on investments — — (7,185 ) Adverse judgment on pre-acquisition distributor lawsuit — (10,505 ) — Merger-related expense (19,695 ) — — Other income 2,346 5,113 4,415 Income (loss) from continuing operations before income taxes

(120,261 ) (21,318 ) 172,760

Income tax expense (benefit) (38,314 ) (11,973 ) 58,382 Income (loss) from continuing operations (81,947 ) (9,345 ) 114,378 Discontinued operations, net of tax: Income (loss) from discontinued operations — — (659 ) Provision for impairment of China joint venture — 339 (3,313 ) Gain on sale of Blodgett — — 9,727 Gain from discontinued operations — 339 5,755 Net income (loss) $ (81,947 ) $ (9,006 ) $ 120,133


CONSOLIDATED BALANCE SHEETS

ASSETS 2006 2005 Current assets Cash and cash equivalents $ 72,339 $ 164,276 Accounts receivable 672,734 629,901 Inventories 633,657 515,321 Deferred income taxes 73,031 55,862 Prepaids and other current assets 44,775 80,137 Total current assets 1,496,536 1,445,497 Noncurrent assets Deferred income taxes 290,913 253,428 Prepaid pension cost 1,226 1,492 Intangible pension asset 38,165 49,051 Goodwill 254,888 259,413 Other intangibles 33,673 36,016 Other noncurrent assets 40,268 53,965 Total noncurrent assets 659,133 653,365 Property, plant and equipment, net 797,902 921,162 Total assets $ 2,953,571 $ 3,020,024

LIABILITIES AND SHAREOWNERS’ DEFICIT 2006 2005 Current liabilities Accounts payable $ 550,986 $ 545,901 Compensation to employees 46,994 50,195 Accrued liabilities 340,142 307,924 Current portion of long-term debt 408,277 6,043 Total current liabilities 1,346,399 910,063 Noncurrent liabilities Long-term debt, less current portion 563,368 972,568 Postretirement benefit liability 522,367 531,995 Accrued pension cost 526,864 496,480 Other noncurrent liabilities 181,895 183,942 Total noncurrent liabilities 1,794,494 2,184,985 Shareowners’ deficit Total shareowners’ deficit (187,322 ) (75,024 ) Total liabilities and shareowners’ deficit $ 2,953,571 $ 3,020,024


CONSOLIDATED STATEMENTS OF CASH FLOWS

Operating activities 2006 2005 2004 Net income (loss) $ (81,947) $ (9,006 ) $ 120,133 Adjustments Net income from discontinued operations — (339 ) (5,755 )

Depreciation 165,332 168,205 164,680 Amortization 2,215 1,577 1,105 Deferred income taxes (56,054 2,636 56,660 Restructuring and related charges, net of cash paid 27,285 36,859 45,939 Asset impairment 13,800 — 18,402 Goodwill impairment-Commercial Products 4,525 9,600 — Front-load washer litigation, net of cash paid (12,003 23,092 — (Gain)/loss on fixed asset disposals 4,174 (7,945 ) 9,183 Adverse judgment on pre-acquisition distributor lawsuit (12,250 10,505 — Changes in working capital items Accounts receivable (41,864 (29,207 ) 1,403 Inventories (118,518 (46,836 ) 5,801 Other current assets 36,781 14,444 27,422 Trade payables 4,353 75,095 103,095 Other current liabilities 63,634 15,711 (10,804 )

Pension expense 71,948 63,024 64,779 Pension contributions (52,715 (94,324 ) (268,119 )

Postretirement benefit liability (9,628 (6,110 ) 20,595 Other liabilities 11,650 32,952 12,817 Other assets 3,205 5,439 (11,654 )

Other (3,107 (3,643 ) (1,300 )

Net cash provided by continuing operating activities $ 20,816 $ 261,729 $ 354,382 Investing activities Capital expenditures-continuing operations $ (93,406 $ (94,420 ) $ (199,300 )

Proceeds from property disposition, net of transaction costs 15,839 34,725 28,107 Investing activities-continuing operations $ (77,567 $ (59,695 ) $ (171,193 )

Financing activities Repayment of long-term debt (3,055 (127,592 )

Stock options and employee stock 4,927 12,466 579 Dividends on common stock (35,921 (56,899 ) (56,524 )

Other (1,024 (280 ) (1,122 )

Financing activities-continuing operations $ (35,073 $ (44,713 ) $ (184,659 )

Effect of exchange rates on cash (113 199 120 Increase (decrease) in cash and cash equivalents (91,937 157,520 (1,350 )


WHIRLPOOL CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS

Year Ended December 31 (Millions of dollars)

2006

2005

2004

Net sales $ 14,317 $ 13,220 $ 12,176 Expenses

Cost of products sold 11,269 10,358 9,423 Selling, general and administrative 2,199 2,089 1,920 Restructuring costs 57 15 3

Operating profit 792 758 830 Other income (expense)

Interest and sundry income (expense) (65 ) (14 ) (41 ) Interest expense (130 ) (128 ) (137 )

Earnings before income taxes and other items 597 616 652 Income taxes 171 209 228

Earnings before equity earnings and minority interests 426 407 424 Equity in income (loss) of affiliated companies 1 (1 ) — Minority interests (5 ) — (10 )

Net earnings $ 422 $ 406 $ 414


WHIRLPOOL CORPORATION

CONSOLIDATED BALANCE SHEETS (Millions of dollars)

December 31

2006

2005

ASSETS Current Assets Cash and equivalents $ 524 $ 243 Trade receivables 2,081 2,032 Inventories 1,591 1,701 Prepaid expenses 95 74 Deferred income taxes 134 189 Other current assets 285 275

Total Current Assets 4,710 4,514

Other Assets Investment in affiliated companies 28 16 Goodwill 169 168 Other intangibles, net 115 108 Deferred income taxes 472 323 Other assets 243 469

Property, Plant and Equipment 2,511 2,583

Total Assets $ 8,248 $ 8,181

LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Notes payable $ 131 $ 244 Accounts payable 2,330 2,297 Employee compensation 352 300 Deferred income taxes 61 57 Accrued expenses 880 811 Restructuring costs 19 13 Income taxes 18 110 Other current liabilities 145 146 Current maturities of long-term debt 365 7

Total Current Liabilities 4,301 3,985

Other Liabilities Deferred income taxes 167 240 Pension benefits 467 367 Postemployment benefits 511 499 Other liabilities 220 256 Long-term debt 745 1,160 Minority Interests 92 68 Stockholders' Equity

1,745

1,606

Total Liabilities and Stockholders' Equity $ 8,248 $ 8,181


WHIRLPOOL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS Year ended December 31

(Millions of dollars)

2006

2005

2004

Operating Activities Net earnings $ 422 $ 406 $ 414 Adjustments Equity in (earnings) losses of affiliated companies (1 ) 1 — (Gain) loss on disposition of assets (39 ) (7 ) 6 Gain on disposition of business (9 ) — — Depreciation and amortization 442 445 427 Changes in assets and liabilities, net of business acquisitions: Trade receivables (173 ) (16 ) 4 Inventories 37 (266 ) (127 ) Accounts payable 87 253 163 Restructuring charges, net of cash paid 8 (33 ) (89 ) Taxes deferred and payable, net (105 ) (18 ) 55 Accrued pension 47 6 (109 ) Accrued payroll and other compensation 79 (23 ) 24 Other—net 86 46 (24 ) Cash Provided By Operating Activities $ 881 $ 794 $ 744

Investing Activities

Capital expenditures $ (494 ) $ (511 ) $ (423 ) Proceeds from sale of assets 93 74 75 Proceeds from sale of business 48 — — Acquisitions of businesses, less cash acquired (77 ) (2 ) (4 )

Cash Used For Investing Activities $ (430 ) $ (439 ) $ (352 )

Financing Activities

Net (repayments) proceeds of short-term borrowings $ (124 ) $ (37 ) $ 7 Repayments of long-term debt (7 ) (21 ) (215 ) Dividends paid (116 ) (116 ) (94 ) Purchase of treasury stock (34 ) (251 ) (65 ) Common stock issued under stock plans 102 64 32 Other 12 3 (10 )

Cash Used For Financing Activities $ (167 ) $ (358 ) $ (345 )

Effect of Exchange Rate Changes on Cash and Equivalents $ (3 ) $ (3 ) $ 10 Increase (Decrease) in Cash and Equivalents $ 281 $ (6 ) $ 57 Cash and Equivalents at Beginning of Year 243 249 192

Cash and Equivalents at End of Year $ 524 $ 243 $ 249


Maytag [000] Whirlpool [000,000] 2006 2005 2006 2005 Cash 72,339 164,276 524 243 Acc Rec 672,734 629,901 2,081 2,032 Inventory 633,657 515,321 1,591 1,701 Other Current Assets 117,806 135,999 514 538 Total Current Assets 1,496,536 1,445,497 4,710 4,514 PPE,net 797,902 921,162 2,511 2,583 Other NonCurrent Assets 659,133 653,365 1,027 1,084 Total Assets 2,953,571 3,020,024 8,248 8,181 Short Term Debt 131 244 CPLTD 408,277 6,043 365 7 Acc Payables 550,986 545,901 2,330 2,297 Accruals 46,994 50,195 880 811 Tax Payables 0 0 18 110 Other Current Liabilities 340,142 307,924 577 516 Total Current Liabilities 1,346,399 910,063 4,301 3,985 Non Current Liablities 1,794,494 2,184,985 2,202 2,590 Equity (187,322) (75,024) 1,745 1,606 Revenue 4,901,115 4,721,538 14,317 13,220 Cost of Good Sold 4,413,458 4,061,319 11,269 10,358 Trading Assets 1,424,197 1,281,221 4,186 4,271 Spontaneous Financing 938,122 904,020 3,805 3,734 Operating Working Capital 486,075 377,201 381 537 OWC/Sales 9.9% 8.0% 2.7% 4.1% Working Capital 150,137 535,434 409 529 Equity (187,322) (75,024) 1,745 1,606 Non Current Assets 1,457,035 1,574,527 3,538 3,667 PPE/Non Current Assets 54.8% 58.5% 71.0% 70.4% Sales/PPE Net 6.1 5.1 5.7 5.1 NCA/Total Assets 49.3% 52.1% 42.9% 44.8% Acc Rec in days 49 48 52 55 Inventory in days 52 46 51 59 Acc Payable in days 45 48 74 80


CASE 7: COMPANHIA SIDERÚRGICA NACIONAL, NATIONAL STEEL COMPANY

History

Companhia Siderúrgica Nacional is a Brazilian corporation ( sociedade por ações ) incorporated in 1941 pursuant to a decree of the Brazilian President at the time, Getúlio Vargas. The Presidente Vargas Steelworks, located in the city of Volta Redonda, in the State of Rio de Janeiro, started the production of coke, pig iron and steel products in 1946. Three major expansions were undertaken at the Presidente Vargas Steelworks during the 1970s and 1980s. These were completed in 1974, 1977 and 1989 and increased installed annual production capacity to 1.6 million tons, 2.4 million and 4.5 million tons of crude steel, respectively. The Company was privatized through a series of auctions held in 1993 and early 1994, through which the Brazilian government sold its 91% ownership interest.

General

We are one of the largest fully integrated steel producers in Brazil and Latin America in terms of crude steel production. Our current annual crude steel capacity and rolled product capacity is 5.6 million and 5.1 million tons, respectively. In 2011, production of crude steel and rolled steel products amounted to 4.9 million tons and 4.7 million tons respectively, both stable when compared to 2010. We also operate in the mining, cement, logistics and energy businesses, which have become increasingly important to our operations and growth.

Discussion Questions

• For CSN, calculate the following at FYE 2011 and 2010: a. Accounts Receivables in Days b. Inventory in Days c. Acc Payables in Days d. Trading Assets e. Spontaneous Financing f. Operating Working Capital g. Operating Working Capital/Sales

STATIC LIQUIDITY

CSN 2011 2010


10 Operating Working Capital/Sales 11 Cash Cycle 12 Working Capital


Companhia Siderúrgica Nacional and Subsidiaries Consolidated Balance Sheet Thousands of Brazilian reais Assets 2011 2010 CURRENT ASSETS Cash and cash equivalents 15,417,393 10,239,278 Trade receivables 1,616,206 1,367,759 Inventories 3,734,984 3,355,786 Recoverable taxes 584,273 473,787 Other current assets 591,450 357,078 Total current assets 21,944,306 15,793,688

NON-CURRENT ASSETS Long-term receivables Short-term investments measured at fair value 139,679 112,484 Trade receivables 10,043 58,485 Deferred income taxes 1,840,773 1,592,941 Receivables from related parties 0 479,120 Other non-current assets 2,866,226 3,676,080

4,856,721 5,919,110 Investments 2,088,225 2,103,624 Property, plant and equipment 17,377,076 13,776,567 Intangible assets 603,374 462,456 Total non-current assets 24,925,396 22,261,757

TOTAL ASSETS 46,869,702 38,055,445 Liabilities and shareholders´ equity 2011 2010 SHAREHOLDERS' EQUITY AND LIABILITIES CURRENT LIABILITIES Payroll and related taxes 202,469 164,799 Trade payables 1,232,075 623,233 Taxes payable 325,132 275,991 Borrowings and financing 2,702,083 1,308,632 Other payables 1,728,445 1,854,952 Provisions for tax, social security, labor and civil risks 292,178 222,461 Other provisions 14,565 5,887 Total current liabilities 6,496,947 4,455,955 NON-CURRENT LIABILITIES Borrowings and financing 25,186,505 18,780,815 Other payables 5,593,520 4,321,666 Deferred income taxes 37,851 Provisions for tax, social security, labor and civil risks 346,285 2,016,842 Employee Benefits 469,050 367,839 Other provisions 322,374 289,640 Total non-current liabilities 31,955,585 25,776,802 Equity Issued capital 1,680,947 1,680,947 Capital reserves 30 30 Earnings reserves 7,671,620 6,119,798 Other comprehensive income/(loss) -1,366,776 -168,015 Total equity attributable to owners of the Company 7,985,821 7,632,760 Non-controlling interests 431,349 189,928 Total equity 8,417,170 7,822,688 TOTAL EQUITY AND LIABILITIES 46,869,702 38,055,445


Companhia Siderúrgica Nacional and Subsidiaries Consolidated Statements of Income Thousands of Brazilian reais 2011 2010 2009 Net Revenue from sales and/or services 16.519.584 14.450.510 10.978.364 Cost of sales and/or services -9.800.844 -7.882.726 -7.210.774 Gross profit 6.718.740 6.567.784 3.767.590 Operating expenses -961.818 -1.569.438 -206.358 Selling expenses -604.108 -481.978 -447.129 General and administrative expenses -575.585 -536.857 -480.072 Other operating income 719.177 48.821 1.368.594 Other operating expenses -501.302 -599.424 -647.764 Share of profits of subsidiaries 13 Profit before finance income (costs) and taxes 5.756.922 4.998.346 3.561.232 Finance income 717.450 643.140 586.025 Finance costs -2.723.253 -2.554.598 -832.460 Profit before income taxes 3.751.119 3.086.888 3.314.797 Income tax and social contribution -83.885 -570.697 -699.616 Profit from continuing operations 3.667.234 2.516.191 2.615.181 Profit for the year attributed to: Companhia Siderúrgica Nacional 3.706.033 2.516.376 2.618.934 Non-controlling interests -38.799 -185 -3.753 The accompanying notes are an integral part of these consolidated financial statements.


Companhia Siderúrgica Nacional and Subsidiaries Consolidated Statement of Cash Flow Thousands of Brazilian reais 2011 2010 2009 Profit for the year 3,667,234 2,516,191 2,615,181 Accrued charges on borrowings and financing 2,650,622 1,489,191 1,130,089 Depreciation/ depletion / amortization 948,251 814,034 797,341 Proceeds from write-off and disposal of assets 54,727 5,827 70,494 Realization of available-for-sale investments -698,164 Deferred income tax and social contribution -52,542 207,268 122,152 Provision of swaps/forwards transactions 110,009 126,492 -88,986 Gain/(loss) on change in percentage equity interest -835,115 Provision for actuarial liabilities -11,412 2,393 -47,622 Provision for tax, social security, labor and civil risks 62,746 199,558 99,157 Inflation adjustment and exchange differences -250,083 57,119 -2,024,573 Allowance for doubtful debts 189 -46,675 1,527 Other provisions -19,651 -80,570 399,076 Cash generated from operations 6,461,926 5,290,828 2,238,721 Trade receivables -339,427 143,250 -51,082 Inventories -410,264 -794,331 926,260 Receivables from related parties 471,666 Recoverable taxes 16,700 297,424 -317,968 Trade payables 544,300 11,964 -1,137,203 Payroll and related taxes -47,072 -36,757 15,257 Taxes payable 135,765 -101,723 263,734 Taxes in installments - REFIS -296,304 -414,473 -103,775 Judicial deposits -20,253 -33,822 -737,041 Contingent liabilities 120,951 16,868 -422,375 Interest paid -2,145,400 -1,190,423 -992,280 Interest paid on swap transactions -360,976 -676,163 -742,700 Other 70,168 4,662 376,306 Increase (decrease) in assets and liabilities -2,260,146 -2,773,524 -2,922,867 Net cash generated by (used in) operating activities 4,201,780 2,517,304 -684,146 Receipt/payment in derivative transactions -57,157 395,346 248,966 Disposal of investments 1,310,171 Net effects of equity swap 1,420,322 Investments -2,126,493 -1,370,016 -284,232 Property, plant and equipment -4,400,825 -3,635,911 -1,996,759 Intangible assets -707 -25,216 -5,628 Net cash used in investing activities -5,275,011 -4,635,797 -617,331 Borrowings and financing 7,824,012 8,754,779 7,582,823 Repayments to financial institutions - principal -1,469,206 -2,706,982 -2,783,313 Dividends and interest on capital -1,856,381 -1,560,795 -2,027,600 Treasury shares -1,350,307 Capital contribution by non-controlling shareholders 242,290 128,811 Net cash generated by financing activities 4,740,715 4,615,813 1,421,603 Exchange rate changes on cash and cash equivalents 1,510,631 -228,833 -1,300,744 Increase (decrease) in cash and cash equivalents 5,178,115 2,268,487 -1,180,618


Companhia Siderúrgica Nacional and Subsidiaries Consolidated Statement of Changes in Shareholders' Equity Thousands of Brazilian reais

Paid-in

Capital Capital Reserve

Earnings Reserve

Retained earnings

Other comprehensive

income Equity

Non-Controling

interests Consolidated

Equity At December 31, 2008 as reported 1,680,947 30 3,768,756 1,012,732 200,124 6,662,589 6,662,589 Impact of restated of prior years (176,185) (176,185) (176,185) At December 31, 2008 1,680,947 30 3,768,756 836,547 200,124 6,486,404 6,486,404 Unrealized Gain/Loss - Investiments (602) (602) (602) IFRS adjustments 485,816 175,257 (200,124) 460,949 460,949 Opening balance at January 1, 2009 1,680,947 30 4,254,572 1,011,804 (602) 6,946,751 6,946,751 Approval of prior year’s proposed dividends (485,816) (485,816) (485,816) Profit for the year 2,618,934 2,618,934 (3,753) 2,615,181 Alocation of profit for the year Declared dividends (R$1,028.82 per thousand shares) (1,500,000) (1,500,000) (1,500,000) Interest on capital (R$219.46 per thousand shares) (319,965) (319,965) (319,965)

Reserves 1,847,522 (1,847,522) Proposal to the General Meeting 1,178,635 1,178,635 1,178,635 Comprehensive income (585,113) (585,113) (585,113) Repurchase of treasury shares as per EGM 8/13/2009 (1,350,308) (1,350,308) (1,350,308) Cancelation of treasury shares as per EGM 8/21 and 9/14/2009 Non-controlling interests 86,813 86,813 Other 3,332 3,332 3,332 Balances at December 31, 2009 1,680,947 30 5,444,605 (33,417) (585,715) 6,506,450 83,060 6,589,510 Approval of prior year’s proposed dividends (1,178,635) (1,178,635) (1,178,635) Profit for the year 2,516,376 2,516,376 (185) 2,516,191 Allocation of profit for the year (272,297) (272,297) (272,297) Declared dividends (R$186.76 per thousand shares) (356,800) (356,800) (356,800) Interest on capital (R$244.72 per thousand shares) (1,227,703) (1,227,703) (1,227,703) Additional dividends proposed (R$842.06 per thousand shares) 1,227,703 1,227,703 1,227,703 Investment reserve 626,159 (626,159) Cancelation of treasury shares (34) (34) (34) Comprehensive income 417,700 417,700 417,700 Non-controlling interests 107,053 107,053 Balances at December 31, 2010 1,680,947 30 6,119,798 (168,015) 7,632,760 189,928 7,822,688 Approval of prior year’s (1,227,703) (1,227,703) (1,227,703)


proposed dividends Profit for the year 3,706,033 3,706,033 (38,799) 3,667,234 Allocation of profit for the year Declared dividends (R$635.48 per thousand shared) (926,508) (926,508) (926,508) Additional dividends proposed (R$599.12 per thousand shares) 273,492 (273,492) Other comprehensive income (1,198,761) (1,198,761) (1,198,761) Recognition of reserves 2,506,033 (2,506,033) Non-controlling interests 280,220 280,220 Balances at December 31, 2011 1,680,947 30 7,671,620 (1,366,776) 7,985,821 431,349 8,417,170

The accompanying notes are an integral part of these consolidated financial statements. Companhia Siderúrgica Nacional and Subsidiaries Consolidated Statements of Comprehensive Income Thousands of Brazilian reais 2011 2010 2009 Profit for the year 3,667,234 2,516,191 2,615,181 Other comprehensive income -1,198,761 417,700 -585,113 Exchange differences arising on translation of foreign operations, net of taxes 195,046 -69,270 -618,723 Actuarial gains/(losses) on defined benefit plan, net of taxes -74,331 -28,603 -3,275 Net change in fair value of available-for-sale financial assets, net of taxes -621,312 515,573 36,885 Net change in fair value of available-for-sale financial assets transferred to profit or loss -698,164 0 0 Comprehensive income for the year 2,468,473 2,933,891 2,030,068 Attributable to: Companhia Siderúrgica Nacional 2,507,272 2,934,076 2,033,821 Non-controlling interests -38,799 -185 -3,753

The accompanying notes are an integral part of these consolidated financial statements.


CASE 8: ACCO BRANDS CORPORATION

Consolidated Balance Sheets

(in millions of dollars, except share data) December 31, 2010 December 31, 2009 Assets

Current assets: Cash and cash equivalents $ 83.2 $ 43.6 Accounts receivable less allowances for discounts, doubtful accounts and

returns of $16.1 and $18.3, respectively 283.2 259.9 Inventories 216.1 202.4 Deferred income taxes 12.9 9.8 Other current assets 25.3 21.4

Total current assets 620.7 537.1

Property, plant and equipment, net 163.5 181.1 Deferred income taxes 10.6 31.5 Goodwill 144.4 143.4 Identifiable intangibles 138.2 145.8 Other assets 72.2 67.9

Total assets $ 1,149.6 $ 1,106.8

Liabilities and Stockholders’ Equity (Deficit)

Current liabilities: Notes payable to banks $ — $ 0.5 Current portion of long-term debt 0.2 0.2 Accounts payable 114.8 101.0 Accrued compensation 26.1 18.9 Accrued customer program liabilities 72.8 74.6 Accrued interest 22.0 20.0 Other current liabilities 90.5 78.1 Liabilities of discontinued operations held for sale 1.5 5.6

Total current liabilities 327.9 298.9

Long-term debt 727.4 725.1 Deferred income taxes 81.5 86.6 Pension and post retirement benefit obligations 74.9 94.6 Other non-current liabilities 17.7 18.8

Total liabilities 1,229.4 1,224.0 Stockholders’ equity (deficit): Common stock 0.6 0.5 Treasury stock, 157,680 and 147,105 shares, respectively (1.5 ) (1.4 ) Paid-in capital 1,401.1 1,397.0 Accumulated other comprehensive loss (86.1 ) (107.0 ) Accumulated deficit (1,393.9 ) (1,406.3 ) Total stockholders’ equity (deficit) (79.8 ) (117.2 ) Total liabilities and stockholders’ equity (deficit) $ 1,149.6 $ 1,106.8

See notes to consolidated financial statements.


ACCO Brands Corporation and Subsidiaries Consolidated Statements of Operations

Year Ended December 31, (in millions of dollars, except per share data) 2010 2009 2008 Net sales $ 1,330.5 $ 1,272.5 $ 1,578.2 Cost of products sold 915.1 893.2 1,094.4 Gross profit 415.4 379.3 483.8 Operating costs and expenses: Advertising, selling, general and administrative expenses 294.0 273.1 379.0 Amortization of intangibles 6.9 7.2 7.7 Restructuring (income) charges (0.5 ) 17.4 28.8 Goodwill and asset impairment charges — 1.8 274.4 Total operating costs and expenses 300.4 299.5 689.9 Operating income (loss) 115.0 79.8 (206.1 ) Non-operating expense (income): Interest expense, net 78.2 67.0 63.7 Equity in earnings of joint ventures (8.3 ) (4.4 ) (6.5 ) Other (income) expense, net 1.4 5.1 (17.2 ) Income (loss) from continuing operations before income taxes 43.7 12.1 (246.1 ) Income tax expense 32.2 127.9 16.9 Income (loss) from continuing operations 11.5 (115.8 ) (263.0 ) Income (loss) from discontinued operations, net of income taxes 0.9 (10.3 ) (76.2 ) Net income (loss) $ 12.4 $ (126.1 ) $ (339.2 ) Per share: Basic earnings (loss) per share:

Income (loss) from continuing operations $ 0.21 $ (2.13 ) $ (4.85 ) Income (loss) from discontinued operations 0.02 (0.19 ) (1.41 )

Basic earnings (loss) per share $ 0.23 $ (2.32 ) $ (6.26 )

Diluted earnings (loss) per share:

Income (loss) from continuing operations $ 0.20 $ (2.13 ) $ (4.85 ) Income (loss) from discontinued operations 0.02 (0.19 ) (1.41 )

Diluted earnings (loss) per share $ 0.22 $ (2.32 ) $ (6.26 )

Weighted average number of shares outstanding: Basic 54.8 54.5 54.2 Diluted 57.2 54.5 54.2


ACCO Brands Corporation and Subsidiaries Consolidated Statements of Cash Flows

Year Ended December 31, (in millions of dollars) 2010 2009 2008 Operating activities Net income (loss) from continuing operations $ 11.5 $ (115.8 ) $ (263.0 ) Net income (loss) from discontinued operations 0.9 (10.3 ) (76.2 ) Deferred income tax (benefit) provision 12.3 112.7 (26.9 ) (Gain) loss on sale of assets (1.5 ) 0.8 (6.0 ) Depreciation 29.6 32.1 33.9 Goodwill and asset impairment charges and other non-cash charges 0.7 6.3 361.5 Amortization of debt issuance costs/bond discount 6.3 6.5 5.9 Amortization of intangibles 6.9 7.2 8.9 Stock based compensation 4.2 3.0 5.5 (Gain) loss on retirement of bank debt — 4.0 (19.0 ) Changes in balance sheet items:

Accounts receivable (18.5 ) 41.5 80.8 Inventories (9.8 ) 78.7 (8.4 ) Other assets (5.1 ) 10.2 1.5 Accounts payable 14.8 (54.9 ) (36.9 ) Accrued expenses and other liabilities (2.2 ) (37.5 ) (36.8 ) Accrued taxes 7.7 (8.8 ) 9.5

Other operating activities, net (2.9 ) (4.2 ) 2.9

Net cash provided by operating activities 54.9 71.5 37.2 Investing activities Additions to property, plant and equipment (12.6 ) (10.3 ) (43.5 ) Assets acquired (1.1 ) (3.4 ) — (Payments) proceeds from sale of discontinued operations (3.7 ) 9.2 — Proceeds from the disposition of assets 2.5 0.6 24.8

Net cash used by investing activities (14.9 ) (3.9 ) (18.7 ) Financing activities Proceeds from long-term borrowings 1.5 469.3 — Repayments of long-term debt (0.2 ) (397.9 ) (63.1 ) Borrowings (repayments) of short-term debt, net (0.5 ) (54.2 ) 32.0 Payment of Euro debt hedge — (40.8 ) — Cost of debt issuance (0.8 ) (20.6 ) — Cost of debt amendments — — (6.9 ) Exercise of stock options and other (0.1 ) (0.3 ) 0.3

Net cash used by financing activities (0.1 ) (44.5 ) (37.7 ) Effect of foreign exchange rate changes on cash (0.3 ) 2.4 (5.0 )

Net increase (decrease) in cash and cash equivalents 39.6 25.5 (24.2 ) Cash and cash equivalents Beginning of year 43.6 18.1 42.3 End of period $ 83.2 $ 43.6 $ 18.1 Cash paid during the year for: Interest $ 70.6 $ 54.4 $ 58.9 Income taxes $ 13.9 $ 19.7 $ 22.2


CASE 9: EXPEDIA


CONSOLIDATED STATEMENTS OF OPERATIONS

Year ended December 31, 2010 2009 2008 (In thousands, except per share data) Revenue $ 3,348,109 $ 2,955,426 $ 2,937,013 Costs and expenses:

Cost of revenue(1) 692,832 607,251 638,709 Selling and marketing(1) 1,204,141 1,027,062 1,105,337 Technology and content(1) 362,447 319,708 287,763 General and administrative(1) 314,109 290,484 268,721 Amortization of intangible assets 37,123 37,681 69,436 Occupancy tax assessments and legal reserves 5,542 67,658 — Restructuring charges — 34,168 — Impairment of goodwill — — 2,762,100 Impairment of intangible and other long-lived assets — — 233,900

Operating income (loss) 731,915 571,414 (2,428,953 ) Other income (expense):

Interest income 7,160 6,206 30,411 Interest expense (101,291 ) (84,233 ) (71,984 ) Other, net (17,216 ) (35,364 ) (44,178 )

Total other expense, net (111,347 ) (113,391 ) (85,751 ) Income (loss) before income taxes 620,568 458,023 (2,514,704 ) Provision for income taxes (195,008 ) (154,400 ) (5,966 ) Net income (loss) 425,560 303,623 (2,520,670 ) Net (income) loss attributable to noncontrolling interests (4,060 ) (4,097 ) 2,907 Net income (loss) attributable to Expedia, Inc. $ 421,500 $ 299,526 $ (2,517,763 ) (1) Includes stock-based compensation as follows: Cost of revenue $ 2,401 $ 2,285 $ 2,252 Selling and marketing 13,867 12,440 10,198 Technology and content 14,326 15,700 15,111 General and administrative 29,096 31,236 33,730

Total stock-based compensation $ 59,690 $ 61,661 $ 61,291



EXPEDIA, INC. CONSOLIDATED BALANCE SHEETS

December 31, 2010 2009

(In thousands, except

per share data) ASSETS

Current assets: Cash and cash equivalents $ 714,332 $ 642,544 Restricted cash and cash equivalents 14,215 14,072 Short-term investments 515,627 45,849 Accounts receivable, net of allowance of $12,114 and $14,562 328,468 307,817 Prepaid expenses, prepaid merchant bookings and other current assets 128,985 214,767

Total current assets 1,701,627 1,225,049 Property and equipment, net 277,061 236,820 Long-term investments and other assets 232,239 48,262 Intangible assets, net 797,707 823,031 Goodwill 3,642,360 3,603,994 TOTAL ASSETS $ 6,650,994 $ 5,937,156

LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities:

Accounts payable, merchant $ 700,730 $ 652,893 Accounts payable, other 181,765 160,471 Deferred merchant bookings 654,632 679,305 Deferred revenue 29,466 17,204 Accrued expenses and other current liabilities 322,827 325,184

Total current liabilities 1,889,420 1,835,057 Long-term debt 1,644,894 895,086 Deferred income taxes, net 248,461 223,959 Other long-term liabilities 131,516 233,328 Commitments and contingencies Stockholders’ equity:

Common stock $.001 par value 348 343 Authorized shares: 1,600,000 Shares issued: 348,416 and 342,812 Shares outstanding: 248,347 and 263,929

Class B common stock $.001 par value 26 26 Authorized shares: 400,000 Shares issued and outstanding: 25,600 and 25,600

Additional paid-in capital 6,116,697 6,034,164 Treasury stock — Common stock, at cost (2,241,191 ) (1,739,198 ) Retained earnings (deficit) (1,194,533 ) (1,616,033 ) Accumulated other comprehensive income (loss) (8,803 ) 3,379

Total Expedia, Inc. stockholders’ equity 2,672,544 2,682,681

Noncontrolling interest 64,159 67,045 Total stockholders’ equity 2,736,703 2,749,726 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 6,650,994 $ 5,937,156


EXPEDIA, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS


Year ended December 31, 2010 2009 2008 (In thousands) Operating activities: Net income (loss) $ 425,560 $ 303,623 $ (2,520,670 ) Adjustments to reconcile net income (loss) to net cash provided by

operating activities: Depreciation of property and equipment 118,402 102,782 76,800 Amortization of stock-based compensation 59,690 61,661 61,291 Amortization of intangible assets 37,123 37,681 69,436 Deferred income taxes 23,581 (12,620 ) (209,042 ) Impairment of goodwill — — 2,762,100 Impairment of intangible and other long-lived assets — — 233,900 Foreign exchange (gain) loss on cash and cash equivalents, net 20,447 (4,679 ) 77,958 Realized (gain) loss on foreign currency forwards (8,822 ) (29,982 ) 55,175 Other 499 10,268 (654 ) Changes in operating assets and liabilities:

Accounts receivable (35,382 ) (36,360 ) 32,208 Prepaid expenses, prepaid merchant bookings and other current assets 82,405 (19,477 ) (15,072 ) Accounts payable, merchant 49,648 26,466 (75,443 ) Accounts payable, other, accrued expenses and other current liabilities 18,282 79,552 54,400 Deferred merchant bookings (24,679 ) 155,665 (85,443 ) Deferred revenue 10,729 1,424 3,744

Net cash provided by operating activities 777,483 676,004 520,688 Investing activities:

Capital expenditures, including internal-use software and website development (155,189 ) (92,017 ) (159,827 )

Purchases of investments (990,429 ) (45,903 ) (92,923 ) Sales and maturities of investments 366,036 93,092 — Acquisitions, net of cash acquired (50,465 ) (45,007 ) (538,439 ) Net settlement of foreign currency forwards 8,822 29,982 (55,175 ) Reclassification of Reserve Primary Fund holdings — — (80,360 ) Distributions from Reserve Primary Fund 5,482 10,677 64,387 Other, net (1,953 ) 1,357 2,779

Net cash used in investing activities (817,696 ) (47,819 ) (859,558 ) Financing activities:

Proceeds from issuance of long-term debt, net of issuance costs 742,470 — 392,348 Credit facility borrowings — — 740,000 Credit facility repayments — (650,000 ) (675,000 ) Payment of dividends to stockholders (79,076 ) — — Purchase of additional interests in controlled subsidiaries (77,929 ) — — Treasury stock activity (501,993 ) (7,963 ) (12,865 ) Proceeds from exercise of equity awards 50,615 15,794 6,353 Excess tax benefit on equity awards 8,753 1,544 3,191 Changes in restricted cash and cash equivalents 164 (10,716 ) 11,753 Other, net (11,123 ) (8,991 ) (979 )

Net cash provided by (used in) financing activities 131,881 (660,332 ) 464,801

Effect of exchange rate changes on cash and cash equivalents (19,880 ) 9,279 (77,905 ) Net increase (decrease) in cash and cash equivalents 71,788 (22,868 ) 48,026


CASE 10: JOY GLOBAL

Joy Global Inc. is a worldwide leader in high-productivity mining solutions

Consolidated Statement of Income (In thousands)

Fiscal Years Ended October 28, October 29, October 30, 2011 2010 2009 Net sales $ 4,403,906 $ 3,524,334 $ 3,598,314 Cost of sales 2,897,605 2,350,708 2,445,514 Product development, selling and administrative expenses 602,010 480,636 454,522 Other income (15,888 ) (4,113 ) (4,034 ) Operating income 920,179 697,103 702,312 Interest income 13,869 13,195 7,485 Interest expense (38,180 ) (29,964 ) (32,217 ) Reorganization items (35 ) (1,310 ) 5,060 Income from continuing operations before income taxes 895,833 679,024 682,640 Provision for income taxes 264,831 217,525 227,990 Income from continuing operations 631,002 461,499 454,650 Loss from discontinued operations, net of income taxes (21,346 ) - - Net income $ 609,656 $ 461,499 $ 454,650

See Notes to Consolidated Financial Statements


Joy Global Inc.

Consolidated Balance Sheet (In thousands, except share data)

October 28, October 29, 2011 2010 ASSETS Current Assets:

Cash and cash equivalents $ 288,321 $ 815,581 Cash held in escrow 866,000 - Accounts receivable, net 884,696 674,135 Inventories 1,334,134 764,945 Other current assets 190,568 107,266 Current assets of discontinued operations 288 -

Total Current Assets 3,564,007 2,361,927 Property, Plant and Equipment:

Land and improvements 39,588 23,478 Buildings 196,714 141,671 Machinery and equipment 705,831 521,366

942,133 686,515 Accumulated depreciation (402,562 ) (308,491 )

Total Property, Plant and Equipment 539,571 378,024 Other Assets:

Investment in unconsolidated affiliate 380,114 - Other intangible assets, net 385,441 178,831 Goodwill 428,478 125,686 Deferred income taxes 73,123 149,654 Other non-current assets 55,448 76,891 Non-current assets of discontinued operations 172 -

Total Other Assets 1,322,776 531,062 Total Assets $ 5,426,354 $ 3,271,013



October 28, October 29, 2011 2010 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities:

Short-term notes payable, including current portion of long-term obligations $ 35,895 $ 1,550 Trade accounts payable 452,519 291,742 Employee compensation and benefits 147,664 128,132 Advance payments and progress billings 771,841 376,300 Accrued warranties 82,737 62,351 Other accrued liabilities 206,588 163,249 Current liabilities of discontinued operations 27,327 -

Total Current Liabilities 1,724,571 1,023,324 Long-term Obligations 1,356,412 396,326 Other Non-current Liabilities:

Liabilities for postretirement benefits 24,055 26,536 Accrued pension costs 332,452 428,348 Other 37,069 54,113

Total Other Non-current Liabilities 393,576 508,997 Commitments and Contingencies - - Shareholders' Equity:

Common stock, $1 par value (authorized 150,000,000 shares; 128,986,923 and 127,402,894 shares issued at October 28, 2011 and October 29, 2010, respectively) 128,987 127,403

Capital in excess of par value 1,090,774 1,002,169 Retained earnings 2,244,740 1,709,059 Treasury stock (23,873,159 shares) (1,116,623 ) (1,116,623 ) Accumulated other comprehensive loss (396,083 ) (379,642 )

Total Shareholders' Equity 1,951,795 1,342,366 Total Liabilities and Shareholders' Equity $ 5,426,354 $ 3,271,013



Jo y Global Inc.

Consolidated Statement of Cash Flows (In thousands)

Fiscal Years Ended October 28, October 29, October 30, Operating Activities: 2011 2010 2009

Income from continuing operations $ 631,002 $ 461,499 $ 454,650 Loss from discontinued operations (21,346 ) - -

Adjustments to Continuing Operations: Depreciation and amortization 79,110 59,749 58,570 Change in deferred income taxes, net of change in valuation allowance 76,784 8,262 (2,144 ) Contributions to retiree benefit plans (184,268 ) (117,361 ) (30,774 ) Retiree benefit plan expense 51,244 52,749 16,659 Other, net 2,922 1,808 6,609

Changes in Working Capital Items Attributed to Continuing Operations: Accounts receivable, net (112,910 ) (66,247 ) 108,859 Inventories (391,129 ) (6,059 ) 77,872 Other current assets (42,798 ) (16,044 ) 20,005 Trade accounts payable 120,745 83,368 (101,455 ) Employee compensation and benefits 7,608 10,270 1,033 Advance payments and progress billings 301,818 46,530 (210,276 ) Other accrued liabilities (40,402 ) 64,965 52,353

Net cash provided by operating activities - continuing operations 499,726 583,489 451,961 Net cash provided by operating activities - discontinued operations 4,967 - - Net cash provided by operating activities 504,693 583,489 451,961

Investing Activities: Acquisition of businesses, net of cash acquired (1,048,908 ) - (11,184 ) Property, plant and equipment acquired (110,523 ) (73,474 ) (94,128 ) Proceeds from sale of property, plant and equipment 6,160 418 1,779 Proceeds from sale of LeTourneau Technologies Drilling Systems, Inc. 375,000 - - Investment in International Mining Machinery shares (376,724 ) - - Deposits of cash into escrow (866,000 ) - - Other, net (882 ) (1,859 ) (481 )

Net cash used by investing activities (2,021,877 ) (74,915 ) (104,014 ) Financing Activities:

Share-based payment awards 68,323 36,419 3,953 Dividends paid (73,262 ) (72,088 ) (71,596 ) Issuance of senior notes 495,755 - - Borrowings under term loan 500,000 - - Change in short and long-term obligations, net (1,040 ) (146,176 ) (26,212 ) Financing fees (13,060 ) (3,211 ) - Purchase of treasury stock - - (13,706 )

Net cash provided (used) by financing activities - continuing operations 976,716 (185,056 ) (107,561 ) Net cash provided by financing activities - discontinued operations - - - Net cash provided (used) by financing activities 976,716 (185,056 ) (107,561 )

Effect of Exchange Rate Changes on Cash and Cash Equivalents 13,208 20,378 29,724 Increase (Decrease) in Cash and Cash Equivalents (527,260 ) 343,896 270,110 Cash and Cash Equivalents at Beginning of Year 815,581 471,685 201,575 Cash and Cash Equivalents at End of Year $ 288,321 $ 815,581 $ 471,685



CASE 11: DIAGEO

Consolidated income statement

Year ended 30 June

2009

Year ended 30 June

2008

Year ended 30 June

2007 £ million £ million £ million Sales 12,283 10,643 9,917 Excise duties (2,972 ) (2,553 ) (2,436 ) Net sales 9,311 8,090 7,481 Cost of sales (3,883 ) (3,245 ) (3,003 ) Gross profit 5,428 4,845 4,478 Marketing expenses (1,312 ) (1,239 ) (1,162 ) Other operating expenses (1,673 ) (1,380 ) (1,157 ) Operating profit 2,443 2,226 2,159 Sale of businesses — 9 (1 ) Interest receivable 252 153 111 Interest payable (768 ) (494 ) (362 ) Other finance income 2 51 55 Other finance charges (78 ) (29 ) (16 ) Share of associates' profits after tax 164 177 149 Profit before taxation 2,015 2,093 2,095 Taxation (292 ) (522 ) (678 ) Profit from continuing operations 1,723 1,571 1,417 Discontinued operations 2 26 139 Profit for the year 1,725 1,597 1,556 Attributable to: Equity shareholders of the parent company 1,621 1,521 1,489 Minority interests 104 76 67

1,725 1,597 1,556



Consolidated balance sheet

30 June 2009 30 June 2008 £ million £ million £ million £ million Non-current assets Intangible assets 6,215 5,530 Property, plant and equipment 2,268 2,122 Biological assets 37 31 Investments in associates 2,045 1,809 Other investments 231 168 Other receivables 18 11 Other financial assets 364 111 Deferred tax assets 672 590 Post employment benefit assets 41 47 11,891 10,419 Current assets Inventories 3,162 2,739 Trade and other receivables 2,031 2,051 Cash and cash equivalents 1012 818 6,205 5,608 Total assets 18,096 16,027 Current liabilities Borrowings and bank overdrafts (890 ) (1,663 ) Other financial liabilities (220 ) (126 ) Trade and other payables (2,173 ) (2,143 ) Corporate tax payable (532 ) (685 ) Provisions (172 ) (72 ) (3,987 ) (4,689 ) Non-current liabilities Borrowings (7,685 ) (5,545 ) Other financial liabilities (99 ) (124 ) Other payables (30 ) (34 ) Provisions (314 ) (329 ) Deferred tax liabilities (621 ) (676 ) Post employment benefit liabilities (1,424 ) (455 ) (10,173 ) (7,163 ) Total liabilities (14,160 ) (11,852 ) Net assets 3,936 4,175 Equity Called up share capital 797 816 Share premium 1,342 1,342 Other reserves 3,282 3,163 Retained deficit (2,200 ) (1,823 ) Equity attributable to equity shareholders

of the parent company 3,221 3,498 Minority interests 715 677 Total equity 3,936 4,175



Consolidated cash flow statement

Notes Year ended

30 June 2009 Year ended

30 June 2008 Year ended

30 June 2007 £ million £ million £ million £ million £ million £ million Cash flows from operating activities Profit for the year 1,725 1,597 1,556 Discontinued operations (2 ) (26 ) (139 ) Taxation 292 522 678 Share of associates' profits after tax (164 ) (177 ) (149 ) Net interest and net other finance charges/income 592 319 212 (Gains)/losses on disposal of businesses — (9 ) 1 Depreciation and amortisation 276 233 210 Movements in working capital (282 ) (282 ) (180 ) Dividend income 179 143 119 Other items 10 (15 ) (36 ) Cash generated from operations 27 2,626 2,305 2,272 Interest received 63 67 42 Interest paid (478 ) (387 ) (279 ) Dividends paid to equity minority interests (98 ) (56 ) (41 ) Taxation paid (522 ) (369 ) (368 ) Net cash from operating activities 1,591 1,560 1,626 Cash flows from investing activities Disposal of property, plant and equipment and

computer software 14 66 69 Purchase of property, plant and equipment and

computer software (327 ) (328 ) (274 ) Net (purchase)/disposal of other investments (24 ) 4 (6 ) Payment into escrow in respect of the UK pension

fund (50 ) (50 ) (50 ) Disposal of businesses 1 4 4 Purchase of businesses 28 (102 ) (575 ) (70 ) Net cash outflow from investing activities (488 ) (879 ) (327 ) Cash flows from financing activities Proceeds from issue of share capital — 1 1 Net purchase of own shares for share schemes (38 ) (78 ) (25 ) Own shares repurchased (354 ) (1,008 ) (1,405 ) Net increase in loans 256 1,094 1,226 Equity dividends paid (870 ) (857 ) (858 ) Net cash used in financing activities (1,006 ) (848 ) (1,061 ) Net increase/(decrease) in net cash and cash

equivalents 97 (167 ) 238



CASE 12: FREESCALE

Freescale Semiconductor was incorporated in Delaware in 2003. In the second quarter of 2004, Motorola transferred substantially all of its semiconductor business to Freescale Inc. in anticipation of its July 21, 2004 IPO. On December 1, 2006, Freescale Inc. was acquired by a consortium of private equity funds.

Freescale Semiconductor Holdings I, Ltd. Consolidated Statements of Operations

(in millions)

Year ended December 31,

2010


2009


2008 Net sales $ 4,458 $ 3,508 $ 5,226 Cost of sales 2,768 2,563 3,154 Gross margin 1,690 945 2,072 Selling, general and administrative 502 499 673 Research and development 782 833 1,140 Amortization expense for acquired intangible assets 467 486 1,042 Reorganization of business, contract settlement, and other — 345 53 Impairment of goodwill and intangible assets — — 6,981 Merger expenses — — 11 Operating loss (61 ) (1,218 ) (7,828 ) (Loss) gain on extinguishment or modification of long-term debt, net (417 ) 2,296 79 Other expense, net (600 ) (576 ) (733 ) (Loss) earnings before income taxes (1,078 ) 502 (8,482 ) Income tax benefit (25 ) (246 ) (543 ) Net (loss) earnings $ (1,053 ) $ 748 $ (7,939 )

See accompanying notes.


Freescale Semiconductor Holdings I, Ltd. Consolidated Balance Sheets

(in millions, except per share amount)

December 31, 2010

December 31, 2009

ASSETS Cash and cash equivalents $ 1,043 $ 1,363 Accounts receivable, net 457 379 Inventory, net 732 606 Other current assets 260 335

Total current assets 2,492 2,683 Property, plant and equipment, net 1,111 1,315 Intangible assets, net 309 780 Other assets, net 357 315

Total assets $ 4,269 $ 5,093 LIABILITIES AND STOCKHOLDERS’ DEFICIT Notes payable and current portion of long-term debt and capital lease obligations $ 34 $ 114 Accounts payable 431 300 Accrued liabilities and other 554 481

Total current liabilities 1,019 895 Long-term debt 7,582 7,430 Other liabilities 602 662

Total liabilities 9,203 8,987 Stockholders’ deficit:

Common shares (1) , par value $0.01 per share; 900 shares authorized, 196 and 196 issued and outstanding at December 31, 2010 and 2009, respectively 2 2

Treasury shares at cost (1 ) (1 ) Additional paid-in capital (1) 7,287 7,258 Accumulated other comprehensive earnings 27 43 Accumulated deficit (12,249 ) (11,196 )

Total stockholders’ deficit (4,934 ) (3,894 )

Total liabilities and stockholders’ deficit $ 4,269 $ 5,093


Freescale Semiconductor Holdings I, Ltd. Consolidated Statements of Cash Flows

(in millions)


2010


2009


2008 Cash flows from operating activities:

Net (loss) earnings $ (1,053 ) $ 748 $ (7,939 ) Depreciation and amortization 1,041 1,219 1,855 Impairment charges and reorganization of business, contract

settlement, and other — 355 7,034 Stock-based compensation 28 38 56 Deferred incomes taxes (47 ) (300 ) (583 ) Loss (gain) on extinguishment or modification of debt, net 417 (2,296 ) (83 ) In-process research and development and other non-cash items 34 128 93 Change in operating assets and liabilities, net of effects of

acquisitions, dispositions: Accounts receivable, net (96 ) 37 193 Inventory (67 ) 126 (83 ) Accounts payable and accrued liabilities 157 (196 ) (263 ) Other operating assets and liabilities (20 ) 217 125

Net cash provided by operating activities 394 76 405 Cash flows from investing activities:

Capital expenditures, net (281 ) (85 ) (239 ) Acquisitions and strategic investments, net of cash acquired — — (121 ) Proceeds from sale of businesses and investments — 8 26 Sales and purchases of short-term and other investments, net 35 488 51 Proceeds from sale of property, plant and equipment 22 16 288 Payments for purchase licenses and other assets (96 ) (53 ) (64 )

Net cash (used for) provided by investing activities (320 ) 374 (59 ) Cash flows from financing activities (1) :

Retirement of and payments for long-term debt, capital lease obligations and notes payable (3,181 ) (176 ) (150 )

Debt issuance proceeds 2,880 184 497 Debt issuance costs and other (82 ) 1 (5 )

Net cash (used for) provided by financing activities (383 ) 9 342 Effect of exchange rate changes on cash and cash equivalents (11 ) 4 6 Net (decrease) increase in cash and cash equivalents (320 ) 463 694 Cash and cash equivalents, beginning of period 1,363 900 206 Cash and cash equivalents, end of period $ 1,043 $ 1,363 $ 900


CASE 13: NUTRISYSTEM

Nutrisystem, Inc. is a provider of weight management products and services, offers nutritionally balanced weight loss programs based on over 35 years of nutrition research. The Company’s pre-packaged foods are sold directly to weight loss program participants primarily through the Internet and telephone and through QVC, a television shopping network.

NUTRISYSTEM, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

December 31, 2010 2009 ASSETS CURRENT ASSETS:

Cash and cash equivalents $ 20,376 $ 32,198 Receivables 30,099 43,381 Inventories, net 28,747 52,012 Prepaid income taxes 5,513 2,420 Deferred income taxes 1,854 2,756 Supplier advances 27,095 10,848

Total current assets 113,684 143,615 FIXED ASSETS, net 34,324 21,164 IDENTIFIABLE INTANGIBLE ASSETS, net 1,945 6,008

$ 149,953 $ 170,787 LIABILITIES AND STOCKHOLDERS’ EQUITY CURRENT LIABILITIES:

Accounts payable $ 26,435 $ 32,488 Accrued payroll and related benefits 4,874 1,097 Deferred revenue 4,488 3,853 Other accrued expenses and current liabilities 3,867 2,836


BORROWINGS UNDER CREDIT FACILITY 30,000 — NON-CURRENT LIABILITIES 5,313 1,550

Total liabilities 74,977 41,824 COMMITMENTS AND CONTINGENCIES (Note 9) STOCKHOLDERS’ EQUITY:

Common stock, $.001 par value (100,000,000 shares authorized; shares issued – 28,099,812 at December 31, 2010 and 30,949,784 at December 31, 2009) 26 29

Additional paid-in capital 3,088 6,515 Retained earnings 71,990 122,503 Accumulated other comprehensive loss (128 ) (84 )

Total stockholders’ equity 74,976 128,963

$ 149,953 $ 170,787


NUTRISYSTEM, INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts)

Year Ended December 31, 2010 2009 2008 REVENUE $ 509,515 $ 524,618 $ 686,181 COSTS AND EXPENSES:

Cost of revenue 224,806 241,163 325,172 Marketing 145,868 146,426 174,862 General and administrative 73,853 76,418 86,701 Depreciation and amortization 11,773 11,177 8,093

Total costs and expenses 456,300 475,184 594,828

Operating income from continuing operations 53,215 49,434 91,353

OTHER (EXPENSE) INCOME (32 ) 407 (1,145 ) EQUITY AND IMPAIRMENT LOSS (NOTE 7) — (4,000 ) (9,458 ) INTEREST INCOME, net 5 104 454

Income from continuing operations before income taxes 53,188 45,945 81,204 INCOME TAXES 19,309 13,072 34,018

Income from continuing operations 33,879 32,873 47,186 DISCONTINUED OPERATIONS (NOTE 12):

Loss on discontinued operations, net of income tax benefit of $566 in 2010, $2,398 in 2009 and $548 in 2008 (242 ) (4,083 ) (933 )

Net income $ 33,637 $ 28,790 $ 46,253

BASIC INCOME PER COMMON SHARE:

Income from continuing operations $ 1.14 $ 1.07 $ 1.50 Loss on discontinued operations (0.01 ) (0.14 ) (0.03 )

Net income $ 1.13 $ 0.93 $ 1.47

DILUTED INCOME PER COMMON SHARE:

Income from continuing operations $ 1.13 $ 1.06 $ 1.48 Loss on discontinued operations (0.01 ) (0.14 ) (0.03 )

Net income $ 1.12 $ 0.92 $ 1.45

WEIGHTED AVERAGE SHARES OUTSTANDING:

Basic 28,312 29,458 30,684 Diluted 28,686 29,769 31,172

Dividends declared per common share $ 0.70 $ 0.70 $ 0.53


NUTRISYSTEM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

Year Ended December 31, 2010 2009 2008 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 33,637 $ 28,790 $ 46,253 Adjustments to reconcile net income to net cash provided by operating activities:

Loss on discontinued operations 242 4,083 933 Depreciation and amortization 11,773 11,177 8,093 Loss (gain) on disposal of fixed assets 120 113 (71 ) Share–based expense 10,951 9,382 7,978 Deferred income tax expense (benefit) 4,118 (2,531 ) 493 Equity and impairment loss — 4,000 9,458

Changes in operating assets and liabilities: Accrued interest — — 19 Receivables 3,682 4,308 1,856 Inventories, net 23,265 (929 ) 31,237 Supplier advances (15,240 ) — — Other assets (1,086 ) (2,499 ) 3,338 Accounts payable (6,766 ) 1,221 (14,484 ) Accrued payroll and related benefits 3,784 (1,029 ) 211 Deferred revenue 778 (1,125 ) 4,836 Income taxes (2,525 ) 2,475 (6,664 ) Other accrued expenses and liabilities 200 (824 ) (1,231 )

Net cash provided by operating activities of continuing operations 66,933 56,612 92,255 Net cash (used in) provided by operating activities of discontinued operations (316 ) 852 34

Net cash provided by operating activities 66,617 57,464 92,289

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of marketable securities (540 ) (30,344 ) — Sales of marketable securities 10,000 — 1,750 Capital additions (19,594 ) (8,184 ) (11,548 ) Proceeds from the sale of fixed assets 22 125 1,120

Net cash used in investing activities of continuing operations (10,112 ) (38,403 ) (8,678 ) Net cash provided by (used in) investing activities of discontinued operations 112 (168 ) (5,793 )

Net cash used in investing activities (10,000 ) (38,571 ) (14,471 )

CASH FLOWS FROM FINANCING ACTIVITIES:

Borrowings under credit facility 30,000 — 35,000 Repayments of borrowings under credit facility — — (35,000 ) Exercise of stock options 124 563 1,022 Equity compensation awards, net (3,079 ) (2,170 ) 2,184 Repurchase and retirement of common stock (74,997 ) (1,939 ) (67,085 ) Payment of dividends (20,662 ) (21,421 ) (16,251 )

Net cash used in financing activities (68,614 ) (24,967 ) (80,130 )

Effect of exchange rate changes on cash and cash equivalents 9 (193 ) (247 )

NET DECREASE IN CASH AND CASH EQUIVALENTS (11,988 ) (6,267 ) (2,559 ) CASH AND CASH EQUIVALENTS, beginning of year 32,364 38,631 41,190 CASH AND CASH EQUIVALENTS, end of year 20,376 32,364 38,631 LESS CASH AND CASH EQUIVALENTS OF DISCONTINUED OPERATIONS, end of year — 166 322 CASH AND CASH EQUIVALENTS OF CONTINUING OPERATIONS, end of year $ 20,376 $ 32,198 $ 38,309


CASE 14: DECKER

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(amounts in thousands, except par value) December 31, 2010 2009

ASSETS Current assets: Cash and cash equivalents $ 445,226 $ 315,862 Short-term investments — 26,120 Trade accounts receivable 116,663 76,427 Inventories 124,995 85,356 Prepaid expenses and other current assets 16,846 7,510 Deferred tax assets 12,002 9,712 Total current assets 715,732 520,987 Property and equipment, at cost, net 47,737 35,442 Goodwill 6,507 6,507 Other intangible assets, net 18,411 17,433 Deferred tax assets 15,121 16,704 Other assets 5,486 1,970 Total assets $ 808,994 $ 599,043

LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Trade accounts payable $ 67,073 $ 47,331 Accrued payroll 35,109 20,869 Other accrued expenses 17,515 12,985 Income taxes payable 25,166 19,685 Total current liabilities 144,863 100,870 Long-term liabilities 8,456 6,269 Commitments and contingencies (note 8) Stockholders' equity: Deckers Outdoor Corporation stockholders' equity:

Common stock, $0.01 par value; authorized 125,000 and 50,000 shares; issued and outstanding 38,581 and 38,604 shares for 2010 and 2009, respectively 386 387

Additional paid-in capital 137,989 125,173 Retained earnings 513,459 365,304 Accumulated other comprehensive income 1,153 494 Total Deckers Outdoor Corporation stockholders' equity 652,987 491,358 Noncontrolling interest 2,688 546 Total equity 655,675 491,904 Total liabilities and equity $ 808,994 $ 599,043

See accompanying notes to consolidated financial statements.



CONSOLIDATED STATEMENTS OF INCOME

(amounts in thousands, except per share data)

Years Ended December 31, 2010 2009 2008 Net sales $ 1,000,989 $ 813,177 $ 689,445 Cost of sales 498,051 442,087 384,127 Gross profit 502,938 371,090 305,318 Selling, general and administrative expenses 253,850 188,843 152,574 Impairment loss on intangible assets — 1,000 35,825 Income from operations 249,088 181,247 116,919 Other (income) expense, net: Interest income (234 ) (1,010 ) (3,190 ) Interest expense 566 (875 ) (142 ) Other, net (1,353 ) (91 ) (251 ) (1,021 ) (1,976 ) (3,583 ) Income before income taxes 250,109 183,223 120,502 Income taxes 89,732 66,304 46,631 Net income 160,377 116,919 73,871 Net (income) loss attributable to noncontrolling

interest (2,142 ) (133 ) 77

Net income attributable to Deckers Outdoor

Corporation $ 158,235 $ 116,786 $ 73,948 Net income per share attributable to Deckers Outdoor

Corporation common stockholders: Basic $ 4.10 $ 2.99 $ 1.89 Diluted $ 4.03 $ 2.96 $ 1.87 Weighted-average common shares outstanding: Basic 38,615 39,024 39,126 Diluted 39,292 39,393 39,585

See accompanying notes to consolidated financial statements.



CONSOLIDATED STATEMENTS OF CASH FLOWS

(amounts in thousands)

Years Ended December 31, 2010 2009 2008 Cash flows from operating activities: Net income $ 160,377 $ 116,919 $ 73,871

Adjustments to reconcile net income to net cash provided

by operating activities: Depreciation, amortization and accretion 12,283 10,194 6,008 (Recovery of) provision for doubtful accounts, net (786 ) 399 2,233 Write-down of inventory 2,465 3,955 4,785 Impairment loss on intangible assets — 1,000 35,825 Deferred tax provision (1,712 ) 5,308 (22,125 ) Stock compensation 12,782 13,016 10,193 Other (391 ) 60 (17 )

Changes in operating assets and liabilities, net of assets

and liabilities acquired in the acquisition of businesses: Trade accounts receivable (39,449 ) 31,527 (38,153 ) Inventories (41,107 ) 5,247 (45,749 ) Prepaid expenses and other current assets (6,766 ) (3,408 ) (465 ) Other assets (1,651 ) (1,012 ) 115 Trade accounts payable 19,742 3,790 6,739 Accrued expenses 16,468 2,583 9,049 Income taxes payable 5,480 (6,525 ) 7,120 Long-term liabilities 2,187 2,421 3,847 Net cash provided by operating activities 139,922 185,474 53,276 Cash flows from investing activities: Purchases of short-term investments — (66,900 ) (204,179 ) Proceeds from sales of short-term investments 26,080 57,078 299,049 Purchases of property and equipment (22,489 ) (13,699 ) (22,218 ) Acquisitions of businesses (5,191 ) (1,877 ) (5,936 ) Net cash (used in) provided by investing activities (1,600 ) (25,398 ) 66,716 Cash flows from financing activities: Cash paid for shares withheld for taxes (2,584 ) (1,982 ) (1,527 ) Excess tax benefits from stock compensation 3,525 810 2,900 Cash received from issuances of common stock 89 107 404 Cash paid for repurchases of common stock (10,082 ) (20,000 ) —

Contribution from minority interest holder of

consolidated entity — — 490 Net cash (used in) provided by financing activities (9,052 ) (21,065 ) 2,267 Effect of exchange rates on cash 94 47 20 Net change in cash and cash equivalents 129,364 139,058 122,279 Cash and cash equivalents at beginning of year 315,862 176,804 54,525


Quarterly Summary of Information (Unaudited)

Summarized unaudited quarterly financial data are as follows: 2010 March 31 June 30 September 30 December 31 Net sales $ 155,927 $ 137,059 $ 277,879 $ 430,124 Gross profit 77,907 60,743 130,953 233,335 Net income attributable to

Deckers Outdoor Corporation 17,895 8,966 42,143 89,231

2009 March 31 June 30 September 30 December 31 Net sales $ 134,226 $ 102,548 $ 228,414 $ 347,989 Gross profit 58,913 40,785 97,951 173,441 Net income attributable to

Deckers Outdoor Corporation* 12,340 2,879 33,825 67,742



Condensed Consolidated Balance Sheets (Unaudited)

(amounts in thousands, except par value)

September 30, December 31, 2011 2010

Assets

Current assets: Cash and cash equivalents $ 20,425 $ 445,226 Trade accounts receivable 297,675 116,663 Inventories 356,873 124,995 Prepaid expenses and other current assets 62,391 16,846 Deferred tax assets 12,002 12,002

Total current assets 749,366 715,732 Property and equipment, at cost, net 59,066 47,737 Goodwill 115,271 6,507 Other intangible assets, net 96,650 18,411 Deferred tax assets 16,356 15,121 Other assets 8,970 5,486

Total assets $ 1,045,679 $ 808,994

Liabilities and Stockholders’ Equity

Current liabilities: Short-term borrowings $ 115,000 $ — Trade accounts payable 132,193 67,073 Accrued payroll 21,808 35,109 Other accrued expenses 35,944 17,515 Income taxes payable 5,819 25,166

Total current liabilities 310,764 144,863 Long-term liabilities 16,600 8,456 Commitments and contingencies (notes 9 and 10) Stockholders’ equity:

Deckers Outdoor Corporation stockholders’ equity: Common stock 386 386 Additional paid-in capital 147,601 137,989 Retained earnings 567,866 513,459 Accumulated other comprehensive (loss) income (553 ) 1,153

Total Deckers Outdoor Corporation stockholders’ equity 715,300 652,987 Noncontrolling interest 3,015 2,688

Total equity 718,315 655,675 Total liabilities and equity $ 1,045,679 $ 808,994


Find the information for each row labeled with a number [1- 21] and calculate each row labeled with a letter [A – T] McDonald’s Carnival Russell CSN 1 Working [Trading] Assets 2 Working Liabilities 3 Tangible Fixed Assets, net 4 Intangibles 5 Other Non Current Operating Assets 6 Non Operating Non Current Assets 7 Total Non Current Assets A Non Current Assets/Total Assets B Tangible Fixed Assets, net /NCA C Operating Working Capital D PPE/Sales E OPWC/Sales F Capital Needed G Capital Need/Sales H Amount of Capital 8 Long Term Debt I LTD/Total Capital J Working Capital 9 Revenue 10 Operating Profit K Operating Profit Margin L Operating Assets M Return on Operating Assets 11 Current Assets 12 Cash and Mkt Securities 13 Current Liabilities 14 ST Debt and CMLTD 15 Total Assets 16 Net Income 17 Depreciation 18 Other Non Operating Adjustments N Funds Flow 19 Cash Flow from operations 20 Capital Spending 21 Dividends O Growth rate [CAPX/Depreciation] P Payout Rate [Dividends/Net Income] Q Free Residual Cash Flow [CFO - CapX - Dividends] R Total Debt/Funds Flow S Total Debt/[Funds Flow -MandatoryCapX-Dividend] T Revenue/Operating Assets


Find the information for each row labeled with a number [1- 21] and calculate each row labeled with a letter [A – T] ACCO Expedia Joy Freescale 1 Working [Trading] Assets 2 Working Liabilities 3 Tangible Fixed Assets, net 4 Intangibles 5 Other Non Current Operating Assets 6 Non Operating Non Current Assets 7 Total Non Current Assets A Non Current Assets/Total Assets B Tangible Fixed Assets, net /NCA C Operating Working Capital D PPE/Sales E OPWC/Sales F Capital Needed G Capital Need/Sales H Amount of Capital 8 Long Term Debt I LTD/Total Capital J Working Capital 9 Revenue 10 Operating Profit K Operating Profit Margin L Operating Assets M Return on Operating Assets 11 Current Assets 12 Cash and Mkt Securities 13 Current Liabilities 14 ST Debt and CMLTD 15 Total Assets 16 Net Income 17 Depreciation 18 Other Non Operating Adjustments N Funds Flow 19 Cash Flow from operations 20 Capital Spending 21 Dividends O Growth rate [CAPX/Depreciation] P Payout Rate [Dividends/Net Income] Q Free Residual Cash Flow [CFO - CapX - Dividends] R Total Debt/Funds Flow S Total Debt/[Funds Flow -MandatoryCapX-Dividend] T Revenue/Operating Assets

Mc Donald's Carnival Acco Expedia Joy Diageo Russell FreescaleTrading Assets 1,620 980 538 973 2,410 5,193 648 1,449 Working Liabilities 2,971 4,017 328 1,889 1,689 2,877 194 985 PPE, net 21,532 29,870 164 277 540 2,268 323 1,111 Intangibles 2,425 4,797 293 4,440 887 6,887 188 309 Other Non Current Operating Assets 1,639 650 72 - 55 55 66 357 Non Operating NCA 1,213 - - 232 380 2,640 Total Non Current Assets 26,809 35,317 529 4,949 1,862 11,891 577 1,777

Non Current Assets/Total Assets 88.7% 95.9% 46.0% 74.4% 34.3% 65.7% 46.0% 41.6%PPE, net/ NCA 80.3% 84.6% 30.9% 5.6% 29.0% 19.1% 56.0% 62.5%Operating Working Capital (1,350) (3,037) 210 (916) 721 2,316 453 464PPE/Sales 94.7% 227.0% 12.3% 8.3% 12.3% 24.4% 24.9% 24.9%OPWC/Sales -5.9% -23.1% 15.8% -27.4% 16.4% 24.9% 34.9% 10.4%Need Capital 24,246 32,280 739 3,801 2,203 11,526 1,030 2,241 Capital Requirement/Sales 106.6% 245.3% 55.5% 113.5% 50.0% 123.8% 79.3% 50.3%Amount of Capital 27,254 32,818 822 4,762 3,738 15,219 1,060 3,284 Long Term Debt 10,560 9,097 727 1,645 1,356 7,685 373 7,582 LTD/Total Capital 39% 28% 89% 35% 36% 50% 35% 231%Working Capital 428 (3,449) 293 (188) 1,839 2,218 458 1,473

Revenue 22,745 13,157 1,331 3,348 4,404 9,311 1,298 4,458 Operating Profit 6,780 2,154 115 732 920 2,443 101 (61) Operating Profit Margin 29.8% 16.4% 8.6% 21.9% 20.9% 26.2% 7.8% -1.4%Operating Assets 27,216 36,297 1,066 5,690 3,891 14,403 1,224 3,226 Return on Operating Assets 24.9% 5.9% 10.7% 12.9% 23.6% 17.0% 8.2% -1.9%

Current Assets 3,416 1,518 621 1,702 3,564 6,205 677 2,492 Cash and Mkt Securities 1,796 538 83 728 1,154 1,012 30 1,043 Current Liabilities 2,989 4,967 328 1,889 1,725 3,987 220 1,019 ST Debt and CMLTD 18 950 0 - 36 1,110 25 34 Total Assets 30,225 36,835 1,150 6,651 5,426 18,096 1,254 4,269

Net Income 4,551 1,790 12 426 631 1,725 48 (1,053) Depreciation 1,216 1,309 30 118 79 276 47 488 Other Non Operating Adjustments 18 87 18 97 30 - 3 1,032 Funds Flow 5,785 3,186 59 641 740 2,001 98 467 Cash Flow from operations 5,751 3,342 55 777 500 1,591 81 394 Capital Spending (1,952) (3,380) (13) (155) (111) (327) (35) (281) Dividends (2,236) (314) - (79) (73) (870) (5) - Growth rate [CAPX/Depreciation] 161% 258% 43% 131% 140% 118% 76% 58%Payout Rate [Dividends/Net Income] 49% 18% 0% 19% 12% 50% 10% 0%Free Residual Cash Flow [CFO - CapX - Dividends]1,563 (352) 42 543 316 394 41 113 Total Debt/Funds Flow 1.83 3.15 12.42 2.57 1.88 4.40 4.07 16.31 Total Debt/[Funds Flow -Mand Capx-Dividends]4.53 6.43 25.09 3.71 2.37 10.29 8.62 (362.67) Revenue/Operating Assets 0.84 0.36 1.25 0.59 1.13 0.65 1.06 1.38

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