BYP18-1 Your parents are considering investing in Apple Inc. common stock. They ask you, as an accounting expert, to make an analysis of the company for them. Apple's financial statements are presented in Appendix A. Instructions for accessing and using the company's complete annual report, including the notes to the financial statements, are also provided in Appendix A. Instructions (Follow the approach in the chapter for rounding numbers.) (a) Make a 3-year trend analysis, using 2011 as the base year, of (1) net sales and (2) net income. Comment on the significance of the trend results. (b) Compute for 2013 and 2012 the (1) profit margin, (2) asset turnover, (3) return on assets, and (4) return on common stockholders' equity. How would you evaluate Apple's profitability? Total assets at September 24, 2011, were $116,371 and total stockholders' equity at September 24, 2011, was $76,615. (c) Compute for 2013 and 2012 the (1) debt to assets ratio and (2) times interest earned. How would you evaluate Apple's long-term solvency? (d) What information outside the annual report may also be useful to your parents in making a deci- sion about Apple? A-2 Appemda A Specimen Financial Statements: Apple Inc. CONSOLIDATED STATEMENTS OF OPERATIONS (In millions, except mumber of shares which are reflected in thousands and per share amounts) 14, 2011 108,249 64,431 43,818 Year er 21, 2013 ber 29, 2012 Net sales 170,910 156,508 Cost of sales 106,606 87,846 Gross margin 64,304 68,662 Operating expenses: Research and development 4,475 3,381 Selling, general and administrative 10,830 10,040 Total operating expenses 15,305 13,421 Operating income 48,999 55,241 Other income (expense), net 1,156 522 Income before provision for income taxes 50,155 55,763 Provision for income taxes 13,118 14,030 Net income 37,037 41.733 Earnings per share: Basic 40.03 44.64 Diluted 39.75 44.15 Shares used in computing camnings per share: Basic 934,818 Diluted 931,662 945,355 Cash dividends declared per common share 11.40 $ 2.65 See accompanying Notes to Consolidated Financial Statements. 2,429 7,599 10,028 33,790 415 34,205 8,283 25,922 28.05 27.68 computing camnings per 9 25.331 924,258 936,645 0.00 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In millions) Year ended September 21, September 29, September 24, $37037 S41,733 $25.922 (112) (15) (131) Net income Other comprehensive income/loss): Change in foreign currency translation, net of tax effects of $35, 513 and $18, respectively..... . Change in unrecognized gains/losses on derivative Instruments: Change in fair value of derivatives, net of tax benefit (expense) of S(351), S73 and 5(50), respectively...... Adjustment for net losses/gains) realized and included in net income, net of tax expense/benefit of $255. S220 and S(250), respectively Total change in unrecognized gains/losses on derivative instruments, net of tax.. Change in unrealized gains/losses on marketable securities: Change in fair value of marketable securities, net of tax benefit/expense) of $458. 5(421) and $17, respectively... Adjustment for net losses(gains) realized and included in net income, net of tax expense/benefit of 582 568 and 5(40), respectively Total change in unrealized gains/losses on marketable securities, net of tax Total other comprehensive income/loss) Total comprehensive income ........... 970 36,067 541759 See accompanying Notes to Consolidated Financial Statements. CONSOLIDATED BALANCE SHEETS (In millions, except number of shares which are reflected in thousanda) September 21, 2013 2017 14,259 26,287 10,746 18,383 13,102 1,764 3,453 7,539 6,882 73.286 106,215 16,597 1,577 4.179 5.146 207.000 10,930 791 2,583 7,762 6,458 57,653 92,122 15,452 1,135 4.224 5.478 176,064 ASSETS: Current assets: Cash and cash equivalents Short-term marketable securities Accounts receivable, less allowances of $99 and 598, respectively Inventories Deferred tax assets Vendor non-trade receivables Other current assets Total current assets Long-term marketable securities Property, plant and equipment, net Goodwill Acquired intangible assets, net Other assets Total assets LIABILITIES AND SHAREHOLDERS' EQUITY: Current liabilities: Accounts payable Accrued expenses Deferred revenue Total current liabilities Deferred revenue -non-current Long-term debt Other non-current liabilities Total liabilities Commitments and contingencies Shareholders' equity Common stock, no par value; 1,800,000 shares authorized 899.213 and 939,208 shares issued and outstanding, respectively Retained earnings Accumulated other comprehensive income/loss) Total shareholders' equity Total liabilities and shareholders' equity 22,367 13,856 7.435 21.175 11,414 5,953 38,542 2,648 43,658 2,625 16,960 20.208 83.451 16,664 57,854 19,764 104.256 47 123.549 207.000 16,422 101.289 499 118.210 176,064 See accompanying Notes to Consolidated Financial Statements A4 Appendix A Specimen Financial Statements: Apple Inc. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (In millions, except number of shares which are reflected in thousands) Rated 915,970 Am $10.668 $ 37,169 25,922 Equity $ 47,791 25.922 489 1,168 07 11.0 **** 929,277 934 76,615 41.733 56 (2.523) 1,740 Balances as of September 25, 2010 Net income Other comprehensive income/(los) Share-based compensation Common stock issued under stock plans, net of shares withheld for employee taxes Tux benefit from equity awards, including transfer pricing adjustments Balances as of September 24, 2011 Net income Other comprehensive income (loss) Dividends and dividend equivalent rights declared Share-based compensation Common stock issued under stock plans, net of shares withheld for employee taxes Tax benefit from equity awards, including transfer pricing adjustments Balances as of September 29, 2012 Net income Other comprehensive income (los) Dividends and dividend equivalent rights declared Repurchase of common stock Share-based compensation Common stock issued under stock plans, net of shares withheld for employee taxes Tax benefit from equity awards, including transfer pricing adjustments Balances as of September 28, 2013 (562) 319.2018 0101208 101.289 37,037 (970 1.151 118.210 37,037 (970) (10.676) (22.950) 2.253 (10.676) 22.950 (46.976) 6.981 (587) 899.213 s123.339 99.213 $19,1645108,256 svaz SIS See accompanying Notes to Consolidated Financial Statements Appendix A Specimen Financial Statements: Apple Inc. A-5 CONSOLIDATED STATEMENTS OF CASH FLOWS (In millions) Vene $ 10,746 $ 11,261 9,815 $ 41,733 37,037 25,922 6,757 2.253 1,141 3,277 1.740 4405 (2,172) (973) 223 1,080 2.340 1.459 4.521 53.666 (5,551) (15) (1414) (3.162) 4.467 2824 2552 50.856 1,814 1,168 2,868 143 275 (1.934) (1.391) 2,515 1.654 4,495 37.529 Cash and cash equivalents, beginning of the year Operating activities: Net income Adjustments to reconcile net income to cash generated by operating activities Depreciation and amortization Share-based compensation expense Deferred income tax expense Changes in operating assets and liabilities: Accounts receivable, met 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 Proceeds from maturities of marketable securities Proceeds from sales of marketable securities Payments made in connection with business acquisitions, net Payments for acquisition of property, plant and equipment Payments for acquisition of intangible assets Other Cash used in investing activities Financing activities Proceeds from issuance of common stock Excess tax benefits from equity awards Taxes paid related to net share settlement of equity awards Dividends and dividend equivalent nights paid Repurchase of common stock Proceeds from issuance of long-term debt net Cash generated by 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, et (1 48,489) 20.317 104,130 (496) (8,165) (911) (160) 33.774) (151,232) 13.035 99,770 (350) (8.295) (1.107) (48) (48.227) (102,317) 20.437 49.416 (244) (4,260) (3.192) (259) (40,419) 665 1,351 (1 226) (520 (2.488) 530 201 (1.082) (10.564) (22.860) 16 896 (16,379 3.513 14.259 110 1.698) 011 (1146 9815 16 s 9,128 S 7,682 S 3138 See accompanying Notes to Consolidated Financial Statements