Appendix A Specimen Financial Statements: Apple Inc. Once each year, a corporation communicates to its stockholders and other interested parties by issuing a complete set of audited financial statements. The annual report, as this communication is called, summarizes the financial results of the company's operations for the year and its plans for the future. Many annual reports are attractive, multicolored, glossy public relations pieces, containing pictures of corporate officers and directors as well as photos and descriptions of new products and new buildings. Yet the basic function of every annual report is to report financial information, almost all of which is a product of the corporation's accounting system. The content and organization of corporate annual reports have become fairly standardized. Excluding the public relations part of the report (pictures, products, etc.), the following are the traditional financial portions of the annual report: Financial Highlights Letter to the Stockholders Management's Discussion and Analysis Financial Statements Notes to the Financial Statements Management's Responsibility for Financial Reporting Management's Report on Internal Control over Financial Reporting Report of Independent Registered Public Accounting Firm Selected Financial Data The official SEC filing of the annual report is called a Form 10-K, which often omits the public relations pieces found in most standard annual reports. The following are Apple Inc.'s financial statements taken from the company's 2018 Form 10-K. The complete Form 10-K, including notes to the financial statements, is available at the company's website. Net sales Cost of sales Gross margin Apple Inc. CONSOLIDATED STATEMENTS OF OPERATIONS (In millions, except number of shares which are reflected in thousands and per share amounts) September 29, 2018 $ 205.595 163.756 101,839 Years ended September 30, 2017 $229.234 September 24, 2016 88,186 $215.639 131376 84.363 141,048 ne Show All x Net sales Apple Inc. CONSOLIDATED STATEMENTS OF OPERATIONS (In millions, except number of shares which are reflected in thousands and per share amounts) September 29, 2018 $ 265.595 Years ended September 30, 2017 $ 229,234 September 24. 2016 $ 215,639 Cost of sales 163.756 Gross margin 101,839 141,048 88,186 131.370 84.263 Operating expenses: Research and development 11,236 10,045 Selling, general and administrative 16,705 15,261 14,194 Total operating expenses 30.941 26,842 24,239 Operating income 70,898 61,344 60,0241 Other income/(expense), net 2,005 2.745 1,348 Income before provision for income taxes Provision for income taxes 72,903 64.089 61.372 13.372 15.738 15.685 $ 59.531 $ 48.351 $45.687 Net income Earnings per share: Basic Diluted Shares used in computing earnings per share: Basic Diluted $ 12.01 $ 9.27 $ 835 $ 11.91 $ 9.211 $ 8.311 4.955-377 5,000,109 5,217,242 5.251,692 5470,8201 5.500,281. Apple Inc. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In millions) Net income: Other comprehensive income/(loss): Change in foreign currency translation, net of tax effects of $(1), 8(77) and $8, respectively Change in unrealized gains/losses on derivative instruments: Change in fair value of derivatives, net of tax benefit/(expense) of $(149), $(478) and $(7), respectively Adjustment for net (gains)/losses realized and included in net income, net of tax expense/(benefit) of $(104), $475 and $131, respectively September 29, Years ended September 30, September 24. 2018 $59.531 2017 $48,351 2016 $45,587 (525) 224 75 Total change in unrealized gains/losses on derivative instruments, net of tax 523 1315 7 382 (1477) (241) 905 (162) (234) Change in unrealized gains/losses on marketable securities: Change in fair value of marketable securities, net of tax benefit/(expense) of $1,156, $425 and $(863), respectively (3.407) (782) 1,582 Adjustment for net (gains)/losses realized and included in net income, net of tax expense/(benefit) of $21, $35 and $(31), respectively (64) 56 Total change in unrealized gains/losses on marketable securities, net of tax (3.406) (846) 1638 Total other comprehensive income/(loss) Total comprehensive income (3,026) (784) 979 $56,505 $47.562 $40,000 Current assets: Cash and cash equivalents Marketable securities Accounts receivable, net Inventories Vendor non-trade receivables Other current assets Total current assets Non-current assets: Marketable securities Property, plant and equipment, net Other non-current assets Total non-current assets Total assets Current liabilities: Accounts payable Other current liabilities Deferred revenue Commercial paper Term debt Total current liabilities Non-current liabilities: Apple Inc. CONSOLIDATED BALANCE SHEETS (In millions, except number of shares which are reflected in thousands and par value) ASSETS: September 29. 2018 September 30, 2017 $25.913 $20,289 40,388 53.892 23.186 17,874 3.956 4.855 25,809 17,799 12,087 13.936 131.339 128,645 170,799 194.714 41.304 33.783 22,283 18,177 234.386 246,674 $365-725 $375-319 LIABILITIES AND SHAREHOLDERS' EQUITY: $55.888 $ 44.242 32,687 7543 30,551 7548 11,964 11,977 8,784 6,496 116,866 100,814 Current liabilities: Accounts payable Other current liabilities Deferred revenue Commercial paper Term debt Total current liabilities Non-current liabilities: Deferred revenue Term debt Other non-current liabilities Total non-current liabilities Total liabilities Commitments and contingencies ANDYLO LIABILITIES AND SHAREHOLDERS' EQUITY: $55.888 32.687 $44.343 30.551 7.543 7548 11,964 11.977 8284 6,496 116,866 100,814 2,797 3,836 93.735 97,207 45.180) 40415 141,712 140.458 258,578 241,272 Shareholders' equity Common stock and additional paid-in capital, $0.00001 par value: 12,600,000 shares authorized; 4.754,986 and 5,126,201 shares issued and outstanding, respectively 40,201 35.867 Retained earnings 70,400 98.330 Accumulated other comprehensive income/(loss) (3.454) (150) Total shareholders' equity 107342 134.047 Total liabilities and shareholders' equity $365735 $375.319 See accompanying Notes to Consolidated Financial Statements. Apple Inc. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (In millions, except mumber of shares which are reflected in thousands and per share amounts) Common Stock and Additional Paid-In Capital Balances as of September 26, 2015 Net income Other comprehensive income/(loss) Dividends and dividend equivalents declared at $2.18 per share or RSU Repurchase of common stock Shares 5.578.753 Amount $27,416 Retained Earnings Accumulated Other Comprehensive Income/(Loss) $92,284 45,687 (345) Total Shareholders' Equity $119.355 979 (12,188) 45.687 979 (12,188) (279,609) (29,000) Share-based compensation 4,262 (29,000) 4.262 Common stock issued, net of shares withheld for employee taxes 37,022 (806) (419) (1,295) Tax benefit from equity awards, including transfer pricing adjustments 379 329 Balances as of September 24, 2016 5.336,166 31.351 96,364 634 128,249 Net income 48.351 48,351 Other comprehensive income/(loss) (784) (784) Dividends and dividend equivalents declared at $2.40 per share or RSU Repurchase of common stock (246,496) (12,803) (33.001) (12,803) (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 620 630 Balances as of September 30, 2017 5,126,201 35,867 98,330 (150) 134/M7 Cumulative effect of change in accounting principle Net income 278 (278) 59.831 59.5 Retained Earnings Balances as of September 26, 2015 Net income Other comprehensive income/(loss) Dividends and dividend equivalents declared at $2.18 per share or RSU Repurchase of common stock Apple Inc. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (In millions, except number of shares which are reflected in thousands and per share amounts) Common Stock and Additional Paid-In Capital Shares 5.578.753 Amount $27.416 Accumulated Other Comprehensive Income/(Loss) $ (345) Total Shareholders' Equity $119.355 $92,284 45.687 (279,609) (12,188) (29,000) 45,689 979 (12,188) Share-based compensation 4,262 (29,000) 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 5336,166 31.251 96,364 634 Net income. 48.351 128,249 48.351 Other comprehensive income/(loss) (784) (784) Dividends and dividend equivalents declared at $2.40 per share or RSU (12,803) Repurchase of common stock (246,496) (33.001) (12,803) (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 Balances as of September 30, 2017 5.126,201 35,8671 Cumulative effect of change in accounting principle 98,330 278 (150) 620 134-047 (278) Net income 59.531 59.3 Retained Earnings Balances as of September 26, 2015 Net income Other comprehensive income/(loss) Dividends and dividend equivalents declared at $2.18 per share or RSU Repurchase of common stock Apple Inc. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (In millions, except number of shares which are reflected in thousands and per share amounts) Common Stock and Additional Paid-In Capital Shares 5.578.753 Amount $27.416 Accumulated Other Comprehensive Income/(Loss) $ (345) Total Shareholders' Equity $119.355 $92,284 45.687 (279,609) (12,188) (29,000) 45,689 979 (12,188) Share-based compensation 4,262 (29,000) 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 5336,166 31.251 96,364 634 Net income. 48.351 128,249 48.351 Other comprehensive income/(loss) (784) (784) Dividends and dividend equivalents declared at $2.40 per share or RSU (12,803) Repurchase of common stock (246,496) (33.001) (12,803) (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 Balances as of September 30, 2017 5.126,201 35,8671 Cumulative effect of change in accounting principle 98,330 278 (150) 620 134-047 (278) Net income 59.531 59.3 (279,609) 37,022 -SAIT education.wiley.com/player/index.html/reshttps%2F%2Feducation.wiley.com%2Fcontent%2FKimmel Survey Of Accounting 2%2febon G Socrative we Repurchase of common stock Share-based compensation Common stock issued, net of shares withheld for employee taxes (29,000) 4.262 (29,000) 4.200 (806) (419) (1,225) Tax benefit from equity awards, including transfer pricing adjustments 379 329 Balances as of September 24, 2016 5.336,166 31.251 96,364 634 128,249 Net income 48.351 48.351 Other comprehensive income/(loss) (784) (784) Dividends and dividend equivalents declared at $2.40 per share or RSU Repurchase of common stock (246,496) (12,803) (33.001) (12,803) (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) 134.047 Cumulative effect of change in accounting principle Net income 278 (278) 59.531 59.531 Other comprehensive income/(loss) (3,026) (3.026) Dividends and dividend equivalents declared at $2.72 per share or RSU (13.735) (13.735) Repurchase of common stock (405.549) (73.056) (73.056) Share-based compensation 5.443 5.443 Common stock issued, net of shares withheld for employee taxes 34.334 (1,109) (948) (2,057) Balances as of September 29, 2018 4.254.986 $40,201 $70,400 $(3.454) $107,147 Apple Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS (In millions) September 29, 2018 Cash and cash equivalents, beginning of the year $20,289 Years ended September 30, 2017 $20,484 September 24. 2016 $21,120 Operating activities: Net income 59.531 48,351 45.687 Adjustments to reconcile net income to cash generated by operating activities: Depreciation and amortization 10,903 10,157 10,505 Share-based compensation expense 5.340 4.840 4,210 Deferred income tax expense/(benefit) (62.590) 5.966 4.938 Other Changes in operating assets and liabilities: Accounts receivable, net Inventories Vendor non-trade receivables Other current and non-current assets Accounts payable Deferred revenue Other current and non-current liabilities. Cash generated by operating activities. Investing activities: Purchases of marketable securities (444) (166) 486 (5.322) (2,093) 537 828 (2.723) 217 (8,010) (4.254) (51) (423) (5.318) 1,055 9.175 8,966 2.117 (44) (626) (1,554) 38.490 1,125 (1906) 77-434 64.225 66,231 (71.356) (159.486) (142.428) Proceeds from maturities of marketable securities. 55.881 31.775 21,258 Proceeds from sales of marketable securities 47,838 94.564 90,536 Payments for acquisition of property, plant and equipment (13.313) (12,451) (12,734) Payments made in connection with business acquisitions, net Purchases of non-marketable securities. (721) (329) (297) (1.871) (521) (R) Show A Other current and non-current assets Accounts payable Deferred revenue Other current and non-current liabilities Cash generated by operating activities Investing activities: Purchases of marketable securities (423) (5.318) 1,055 9.175 8,966 3,117 (44) (626) (1.554) 38.490 1,125 (1906) 77.434 64225 66,231 (71.356) (159.486) (142,428) Proceeds from maturities of marketable securities 55.881 31.775 21,258 Proceeds from sales of marketable securities 47.838 94.564 Payments for acquisition of property, plant and equipment (13.313) (12.451) 90536 (12.734) Payments made in connection with business acquisitions, net Purchases of non-marketable securities (721) (329) (297) (1,871) (521) (1388) Proceeds from non-marketable securities Other Financing activities: 353 126 (745) (124) Cash generated by/(used in) investing activities 16,066 (40.446) (924) 345-977) Proceeds from issuance of common stock 669 565 495 Payments for taxes related to net share settlement of equity awards (2.527) (1.874) (1.570) Payments for dividends and dividend equivalents (13.712) (12,769) (12,150) Repurchases of common stock (71.738) (32,900) (29.722) Proceeds from issuance of term debt, net 6,969 28,662 24.954 Repayments of term debt (6,500) (3.500) (2,500) Change in commercial paper, net Cash used in financing activities Increase/(Decrease) in cash and cash equivalents. Cash and cash equivalents, end of the year Supplemental cash flow disclosure: Cash paid for income taxes, net Cash paid for interest (37) 3.862 (397) (87.876) (17.974) (20,890) 5,604 (195) (636) $25.913 $20,389 $20,484 $10.417 $11,591 $10,444 $3,022 $2,092 $1,3161 Make a 5-year trend analysis, using 2014 as the base year, of (1) net sales and (2) net income. (This information is provided in the financial statements of Apple presented in Appendix A along with the complete annual reports available on the company's website.) (Round percentages to O decimal places, e.g. 15% and enter amounts in millions.) (1) Net sales Trend (2) Net income Trend $ 2018 2017 APPLE INC. Trend Analysis of Net Sales and Net Income For the Five Years Ended 2018 % 2016 $ % % % %