A-2 Appendix A Financial Statement Information APPLE September 24, 2016 Apple Inc. CONSOLIDATED BALANCE SHEETS (In millions, except number of shares which are reflected in thousands and par value) September 30, 2017 ASSETS Current assets Cash and cash equivalents $ 20,289 Short-term marketable securities 53,892 Accounts receivable, less allowances of $58 and $53, respectively 17,874 Inventories 4,855 Vendor non-trade receivables 17.799 Other current assets 13,936 Total current assets 128,645 Long-term marketable securities 194,714 Property, plant and equipment, net 33,783 Goodwill 5,717 Acquired intangible assets, net 2,298 Other non-current assets 10.162 Total assets 375,319 20,484 46,671 15,754 2,132 13,545 8,283 106,869 170,430 27,010 5,414 3,206 8.757 321,686 $ $ S LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable Accrued expenses Deferred revenue Commercial paper Current portion of long-term debt Total current liabilities Deferred revenue, non-current Long-term debt Other non-current liabilities Total liabilities Commitments and contingencies Shareholders' equity Common stock and additional paid-in capital, $0.00001 par value: 12,600,000 shares authorized; 5,126,201 and 5,336,166 shares issued and outstanding, respectively Retained carnings Accumulated other comprehensive income (loss) Total shareholders' equity Total liabilities and shareholders' equity See accompanying Notes to Consolidated Financial Statements. 49,049 25,744 7.548 11,977 6,496 100,814 2,836 97,207 40,415 241,272 37,294 22.027 8.080 8,105 3,500 79,006 2,930 75,427 36,074 193,437 35,867 98,330 (150) 134,047 375,319 31.251 96,364 634 128,249 321.686 $ IddV September 26, 2015 $ 233.715 140,089 93,626 Apple Inc. CONSOLIDATED STATEMENTS OF OPERATIONS (In millions, except number of shares which are reflected in thousands and per share amounts) Years ended September 30, 2017 September 24, 2016 Net sales 229,234 $ 215,639 Cost of sales 141.048 131,376 Gross margin 88,186 84,263 Operating expenses Research and development 11,581 10,045 Selling, general and administrative 15,261 14,194 Total operating expenses 26,842 24,239 Operating income 61,344 60,024 Other income (expense), net 2,745 1,348 Income before provision for income taxes 64,089 61,372 Provision for income taxes 15,738 15,685 Net income 48,351 45,687 8,067 14,329 22,396 71,230 1,285 72,515 19.121 53,394 $ $ $ 9.28 9.22 $ 8.31 $ Earnings per share: Basic 9.27 $ 8.35 Diluted 9.21 Shares used in computing earnings per share: Basic 5,217.242 5,470,820 Diluted 5,251,692 5,500,281 Cash dividends declared per share 2.40 2.18 See accompanying Notes to Consolidated Financial Statements. 5,753,421 5,793,069 1.98 $ Apple Inc. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In millions) Years ended September 30, 2017 September 24, 2016 September 26, 2015 Net income $ 48,351 45,687 $ 53,394 Other comprehensive income (loss): Change in foreign currency translation, net of tax effects of $(77), $8 and $201, respectively 224 75 (411) Change in unrealized gains/losses on derivative instruments: Change in fair value of derivatives, net of tax benefit (expense) of $(478), $(7) and $(441), respectively 1,315 7 2,905 Adjustment for net (gains) losses realized and included in net income, net of tax expense (benefit) of $475, $131 and $630, respectively (1,477) (741) (3.497) Total change in unrealized gains/losses on derivative instruments, net of tax (162) (734) (592) Change in unrealized gains/losses on marketable securities: Change in fair value of marketable securities, net of tax benefit (expense) of $425, $(863) and $264, respectively (782) 1,582 (483) Adjustment for net (gains) losses realized and included in net income, net of tax expense (benefit) of $35, $(31), and $(32), respectively (64) 56 59 Total change in unrealized gains/losses on marketable securities, net of tax (846) 1,638 (424) Total other comprehensive income (loss) (784) (1,427) Total comprehensive income $ 47,567 $ 46,666 $ 51,967 979 See accompanying Notes to Consolidated Financial Statements. 11 Apple Inc. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (In millions, except number of shares which are reflected in thousands) Accumulated Other Common Stock and Comprehensive Total Additional Paid-In Capital Retained Income Shareholders Shares Amount Earnings (Loss) Equity Balances as of September 27, 2014 5,866,161 $ 23,313 $ 87,152 $ 1,082 $ 111,547 Net income 53,394 53,394 Other comprehensive income (Loss) (1,427) (1,427) Dividends and dividend equivalents declared (11,627) (11,627) Repurchase of common stock (325,032) (36,026) (36,026) Share-based compensation 3,586 3,586 Common stock issued, net of shares withheld for employee taxes 37,624 (231) (609) (840) Tax benefit from equity awards, including transfer pricing adjustments 748 748 Balances as of September 26, 2015 5,578,753 $ 27,416 $ 92,284 $ (345) $ 119,355 Net income 45,687 45,687 Other comprehensive income (Loss) 979 979 Dividends and dividend equivalents declared (12,188) (12,188) Repurchase of common stock (279,609) (29,000) (29,000) Share-based compensation 4,262 4,262 Common stock issued, net of shares withheld for employee taxes 37,022 (806) (419) - (1,225) Tax benefit from equity awards, including transfer pricing adjustments 379 379 Balances as of September 24, 2016 5,336,166 $ 31,251 $ 96,364 $ 634 S 128,249 Net income 48,351 48,351 Other comprehensive income (loss) (784) (784) Dividends and dividend equivalents declared (12,803) (12,803) Repurchase of common stock (246,496) (33,001) (33,001) Share-based compensation 4,909 4,909 Common stock issued, net of shares withheld for employee taxes 36,531 (913) (581) (1,494) Tax benefit from equity awards, including transfer pricing adjustments 620 620 Balances as of September 30, 2017 5.126,201$ 35,867 $ 98,330 (150) s 134,047 See accompanying Notes to Consolidated Financial Statements. Ann September 26, 2015 13,844 53,394 11,257 3,586 1,382 385 417 (238) (3,735) (283) 5,001 1,042 9,058 81,266 Apple Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS (In millions) Years ended September 30, 2017 September 24, 2016 Cash and cash equivalents, beginning of the year 20,484 21,120 Operating activities: Net income 48,351 45,687 Adjustments to reconcile net income to cash generated by operating activities: Depreciation and amortization 10,157 10,505 Share-based compensation expense 4,840 4,210 Deferred income tax expense 5,966 4,938 Other (166) 486 Changes in operating assets and liabilities: Accounts receivable, net (2,093) 527 Inventories (2.723) 217 Vendor non-trade receivables (4.254) (51) Other current and non-current assets (5,318) 1,055 Accounts payable 9,618 1,837 Deferred revenue (626) (1,554) Other current and non-current liabilities (154) (2.033) Cash generated by operating activities 63,598 65,824 Investing activities: Purchases of marketable securities (159,486) (142,428) Proceeds from maturities of marketable securities 31.775 21,258 Proceeds from sales of marketable securities 94,564 90,536 Payments made in connection with business acquisitions, net (329) (297) Payments for acquisition of property, plant and equipment (12,451) (12,734) Payments for acquisition of intangible assets (344) (814) Payments for strategic investments, net (395) (1,388) Other 220 (110) Cash used in investing activities (46,446) (45,977) Financing activities: Proceeds from issuance of common stock 555 495 Excess tax benefits from equity awards 627 407 Payments for taxes related to net share settlement of equity awards (1,874) (1.570) Payments for dividends and dividend equivalents (12,769) (12.150) Repurchases of common stock (32,900) (29,722) Proceeds from issuance of term debt, net 28,662 24,954 Repayments of term debt (3,500) (2,500) Change in commercial paper, net 3,852 (397) Cash used in financing activities (17,347) (20,483) Increase (decrease) in cash and cash equivalents (195) (636) Cash and cash equivalents, end of the year 20,289 $ 20,484 (166,402) 14,538 107,447 (343) (11,247) (241) (26) (56,274) 543 749 (1,499) (11,561) (35,253) 27,114 2,191 (17,716) 7,276 21,120 $ Supplemental cash flow disclosure: Cash paid for income taxes, net Cash paid for interest $ $ $ 11,591 2,092 10,444 1,316 13,252 514 $ $ $ See accompanying Notes to Consolidated Financial Statements. Other Income and Expense $ millions Interest and dividend income Interest expense Other expense, net Total other income (expense), net 2017 2016 2015 $5,201 $3,999 $2,921 (2,323) (1,456) (733) (133) (1,195) (903) $ 2,745 $ 1,348 $1,285 Property, Plant and Equipment Property, plant and equipment are stated at cost. Depreciation is computed by use of the straight-line method over the estimated useful lives of the assets, which for buildings is the lesser of 30 years or the remaining life of the underlying building; between one and five years for ma- chinery and equipment, including product tooling and man- ufacturing process equipment; and the shorter of lease term or useful life for leasehold improvements. The Company capitalizes eligible costs to acquire or develop internal use software that are incurred subsequent to the preliminary project stage. Capitalized costs related to internal-use soft- ware are amortized using the straight-line method over the estimated useful lives of the assets, which range from three to five years. Depreciation and amortization expense on property and equipment was $8.2 billion, $8.3 billion and $9.2 billion during 2017, 2016 and 2015, respectively. Property, Plant and Equipment, Net ($ millions) 2017 2016 Land and buildings $ 13,587 $ 10.185 Machinery, equipment and internal-use software 54,210 44,543 Leasehold improvements 7,279 6,517 Gross property, plant and equipment 75,076 61,245 Accumulated depreciation and amortization (41,293) (34,235) Total property, plant and equipment, net S 33.783 $ 27.010 Acquired Intangible Assets The Company's acquired intangible assets with definite useful lives primarily consist of patents and licenses. The following table summarizes the components of acquired intangible asset balances as of September 30, 2017. Amortization expense related to acquired intangible assets was $1.2 billion in 2017. Gross Net Carrying Accumulated Carrying Amount Amortization Amount $ 7,507 $ (5,309) $ 2,198 S millions Definite-lived and amortizable acquired intangible assets Indefinite-lived and non-amortizable acquired intangible assets Total acquired intangible assets 100 $ 7.607 S 100 (5.309) $ 2,298 AL $ which prioritizes the inputs used to measure fair value Dividends into three levels and bases the categorization within the The Company declared and paid cash dividends per share hierarchy upon the lowest level of input that is available and significant to the fair value measurement: during the periods presented as follows: Level 1Quoted prices in active markets for identical assets 2017 2016 or liabilities. Dividends Amount Dividends Amount Level 2Observable inputs other than quoted prices in ac- Per Share (in millions) Per Share (in millions) tive markets for identical assets and liabilities, quoted prices Fourth quarter 0.63 $ 3,252 $ 0.57 $ 3,071 for identical or similar assets or liabilities in inactive mar- Third quarter 0.63 3.281 0.57 3,117 kets, or other inputs that are observable or can be corrobo. Second quarter 0.57 2,988 0.52 2,879 rated by observable market data for substantially the full First quarter 0.57 3,042 0.52 2,898 term of the assets or liabilities. Total cash dividends Level 3Inputs that are generally unobservable and typically declared and paid $ 2.40 $ 12,563 $ 2.18 S 11,965 reflect management's estimate of assumptions that market participants would use in pricing the asset or liability. Segment Information and Geographic Data The Company's valuation techniques used to measure the fair value of money market funds and certain marketable Net sales by product (mil) 2017 2016 2015 equity securities were derived from quoted prices in active iPhone $141,319 $136,700 $155,041 markets for identical assets or liabilities. The valuation iPad 19,222 20,628 23,227 techniques used to measure the fair value of the Company's Mac 25,850 22,831 25,471 debt instruments and all other financial instruments, all of Services 29,980 24,348 19,909 which have counterparties with high credit ratings, were valued based on quoted market prices or model-driven val- Other Products 12,863 11,132 10,067 uations using significant inputs derived from or corrobo Total net sales $229,234 $215,639 $233,715 rated by observable market data. In accordance with the fair value accounting require Reportable segment (mil .) 2017 2016 2015 ments, companies may choose to measure eligible financial Americas: instruments and certain other items at fair value. The Net sales $96,600 $ 86,613 $ 93,864 Company has not elected the fair value option for any eli- Operating income $30,684 $ 28,172 $ 31,186 gible financial instruments. Europe: Accrued Warranty and Indemnification Net sales $54,938 $ 49,952 $ 50,337 The following table shows changes in the Company's ac Operating income $16,514 $ 15,348 $ 16,527 crued warranties and related costs for 2017 and 2016: Greater China: Net sales $44,764 $ 48,492 $ 58,715 $ millions 2017 2016 Operating income $17,032 $ 18,835 $ 23,002 Beginning accrued warranty and related costs $ 3,702 $ 4,780 Japan: Cost of warranty claims (4,322) Net sales $17,733 $ 16,928 $ 15,706 Accruals for product warranty 4.454 3.585 Operating income $ 8,097 $ 7,165 $ 7,617 Ending accrued warranty and related costs $ 3,834 $ 3,702 Rest of Asia Pacific Net sales $15,199 $ 13,654 $ 15,093 Term Debt Operating income $ 5,304 $ 4,781 $ 5,518 As of September 30, 2017, the Company had outstanding floating and fixed-rate notes with varying maturities for an A reconciliation of the Company's segment operating in- aggregate principal amount of $104.0 billion (collectively come to the Consolidated Statements of Operations for the "Notes"). The Notes are senior unsecured obligations, 2017, 2016 and 2015 is as follows: and interest is payable in arrears. $ millions 2017 2016 2015 The Company recognized $2.2 billion, $1.4 billion and $ 77,631 Segment operating income $ 74,301 $83,850 $722 million of interest expense on its term debt for 2017, 2016 and 2015, respectively. Research and development expense (11,581) As of September 30, 2017 and September 24, 2016, the (10,045) (8,067) Other corporate expenses, net (4,706) (4,232) (4,553) fair value of the Company's Notes, based on Level 2 inputs, was $106.1 billion and $81.7 billion, respectively. Total operating income $ 61,344 $ 60,024 $71,230 (4,663) As of December 31, 2016 As of December 31, 2017 12,918 73,415 86,333 14.137 95 268 4.575 105,408 5,878 383 34,234 3,307 16,468 1,819 167,497 10,715 91,156 101,871 18,336 369 749 2,983 124,308 7,813 680 42,383 2,692 16,747 2,672 197,295 $ $ Assets Current assets Cash and cash equivalents Marketable securities Total cash, cash equivalents, and marketable securities Accounts receivable, net of allowance of $467 and $674 Income taxes receivable, net Inventory Other current assets Total current assets Non-marketable investments Deferred income taxes Property and equipment, net Intangible assets, net Goodwill Other non-current assets Total assets Liabilities and Stockholders' Equity Current liabilities Accounts payable Accrued compensation and benefits Accrued expenses and other current liabilities Accrued revenue share Deferred revenue Income taxes payable, net Total current liabilities Long-term debt Deferred revenue, non-current Income taxes payable, non-current Deferred income taxes Other long-term liabilities Total liabilities Commitments and contingencies Stockholders' equity: Convertible preferred stock, $0.001 par value per share, 100,000 shares authorized; no shares issued and outstanding Class A and Class B common stock, and Class C capital stock and additional paid-in capital, $0.001 par value per share: 15,000,000 shares authorized (Class A 9,000,000, Class B 3,000,000, Class C 3,000,000): 691,293 (Class A 296,992, Class B 47,437, Class C 346,864) and 694,783 (Class A 298,470, Class B 46,972, Class C 349,341) shares issued and outstanding Accumulated other comprehensive loss Retained earnings Total stockholders' equity Total liabilities and stockholders' equity 2,041 3,976 6,144 2,942 1,099 554 16,756 3,935 202 4,677 226 2,665 28,461 3,137 4,581 10,177 3,975 1,432 881 24,183 3,969 340 12,812 430 3,059 44,793 0 0 36,307 (2,402) 105,131 139,036 167,497 40,247 (992) 113,247 152,502 197,295 "Google is part of Alphabet, but we loosely refer to Alphabet as "Google" because of its global familiarity and that Google provides 99% of Alphabet's $110,855 billion in revenues. See accompanying notes. Use Apple's financial statements in Appendix A to answer the following. Required: 1. Using fiscal 2015 as the base year, compute trend percents for fiscal years 2015, 2016, and 2017 for net sales, cost of sales, operating income, other income (expense) net, provision for income taxes, and net income. 2. Compute common-size percents for fiscal years 2016 and 2017 for the following categories of assets: (a) total current assets; (b) property, plant and equipment, net; and (c) goodwill plus acquired intangible assets, net. 3. Using current assets as a percent of total assets to measure liquidity, did Apple's asset makeup become more liquid or less liquid in 2017? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Using fiscal 2015 as the base year, compute trend percents for fiscal years 2015, 2016, and 2017 for net sales, cost of sales, operating income, other income (expense) net, provision for income taxes, and net income. (Input all the values as positive numbers. Enter your answers in millions. Round your percentage answers to 1 decimal place.) Fiscal 2015 Fiscal 2016 % Net Sales % Fiscal 2017 % % % % % % Cost of sales Operating income Other income/expense) Income taxes (provision for income taxes) Net income % % % % % % % % % % Required 1 Required 2 Required 3 Compute common-size percents for fiscal years 2016 and 2017 for the following categories of assets: (a) total current assets; (b) property, plant and equipment, net; and (c) goodwill plus acquired intangible assets, net. (Enter your answers in millions. Round your percentage answers to 1 decimal place.) Total current assets Property, plant and equipment, net Goodwill and other intangible assets Sep. 30, 2017 % % % Sep. 24, 2016 % % % Required 1 Required 2 Required 3 Using current assets as a percent of total assets to measure liquidity, did Apple's asset makeup become more liquid or less liquid in 2017? Apple's asset makeup become in 2017