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 2017 Fiscal 2016 Fiscal 2015 Net Sales % % % % Cost of sales Operating income Other income (expense) Income taxes (provision for income taxes) Net income % % Required 1 Required 2 > 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.) Sep. 30, 2017 Sep. 24, 2016 Total current assets Property, plant and equipment, net Goodwill and other intangible assets Required 1 Required 3 > 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. September 24, 2016 $ 20,484 46,671 15.754 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 $S3, respectively 17,874 Inventories 4,855 Vender 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, met 33,783 Goodwill 5,717 Acquired intangible assets, net 2,298 Other non-current assets 10,162 Total assets 375.319 2,132 13.545 8,283 106,869 170,430 27,010 5,414 3,206 8,757 321,686 LIABILITIES AND SHAREHOLDERS' EQUITY $ 37,294 22.027 8,080 Current liabilities Accounts payable Accrued expenses Deferred revenue Commercial paper Current portion of long-term debt Tocal current liabilities Deferred revenue, non-current Long-term debt Other non-current liabilities Total liabilities Commitments and contingencies 49,049 25,744 7,548 11.977 6,496 100,814 2.836 97.207 40, 415 8,105 3,500 29,006 2,930 75,427 36,074 193,437 241,272 31,251 96,364 Shareholders' equity Common stock and additional paid in capital, $0.00001 par value 12.600.000 shares authorized: 5,126,201 and 5,536,166 shares issued and outstanding, respectively Retained earnings Accumulated other comprehensive income (los) Total shareholders' equity Total liabilities and shareholders' equity See accompanying Notes to Consolidated Financial Statements. 35,867 98.330 (150) 134,047 375,319 128,249 $21,686 $ pl A1 A1 in 2 98 123 FINAL PAGES apta Appendix A Financial Statement information APPLF September 26, 2015 233,715 140,089 93,626 Apple Inc. CONSOLIDATED STATEMENTS OF OPERATIONS In millions, crcpl 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 24.239 Operating income 61.344 60,024 Other income (expense), nel 2,745 1,348 Income before provision for income taxes 64,089 61,372 Provision for income taxes 15.685 Nel income 48,351 45.667 14 329 71.230 1,285 72.515 53,394 9.28 Earnings per share Basic 9.275 8.355 Diluted 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 2.18 See accompanying Notes to Consolidated Financial Statements 5,753,421 5.793,069 1.98 $ September 26, 2015 $ 53,394 (411) 2,905 Apple Inc. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME In millions) Years ended September 30, 2017 September 24, 2016 Net income 48.351 $ 45,687 Other comprehensive income (loss): Change in foreign currency translation, net of tax effects of $4771, $ d $201. respectively Change in realized and losses on derivative instruments: Chanes in fair value of derivatives, net of tax benefit (expense) of S/478), S(T) and $(441), respectively 1,315 Adjustment for net (cains) losses realized and included in net income net of tax expense benefit of $475, S131 and 5630, respectively (1,477) Total change in unrealized pains/losses an derivative instruments, nel ofta (162) Change in unrealized gins/losses on marketable securities: Change in fair value of marketable securities, net of tax benefit (expense of $425, 5(863) and $264, respectively (782) 1,582 Adjustment for net gains) losses realized and included in net income, net of tax expense benefit of $35, S(31), and S(32), respectively 56 Total change in unrealized gains/losses on marketable securities, nel of lax (846) 1,638 Total other comprehensive income (loss) Total comprehensive income 47,567 46.666 (3,497) (592) 59 (784) (1.427) $ 51.967 Apple Inc. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY In millions, creopl number of shares which are reflected in thousands) Accumulated Common Stock and Comprehensive Total Additional Pald-In Capital Retained Income Shareholders Amount Farnings (10) Equity Balances as of September 27, 2014 5.866,161 $ 23,313 $ 87.1525 1025 111 547 Net income 53,394 58 104 Other comprehensive income (loss) (1.427) (1.427) Dividends and dividend equivalents declared (11.627) (11.627) Repurchase of common stock (325,032) (36,036) (36,026) Share-based compensation 3,586 3.586 Common stock issued, net of shares withheld for employee axes 37.624 (609) (840) Tax benefit from equily awards, including transfer pricing adjustments Balances as of September 26, 2015 5.578.753 $ 27.416 5 9 2.784 5 119.355 Net income 45.687 45,687 Other comprehensive income (loss) 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 Common stock issued, net of shares withheld for employee axes 37,022 1806) (419) (1.225) Tax benefit from equily awards, including transfer pricing adjustments Balances as of Seplember 24, 2016 5.336.166 $ 31.251 $ 96.364 $ 634 $ 128 249 Net income 48.351 48,351 Other comprehensive income (loss) 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 1913) (1.494) Tasbenefit from equily awards, including transfer pricing adjustments Balances as of September 30, 2017 5.126,201 $ 35.867 $ 8.330 $ (150) $ 134.047 See accompanying Notes to Consolidated Financial Statements 379 an FINAL PAGES a Appendix A Financial Statement information September 26, 2015 $ 13,844 53,394 11.257 3.586 1.382 385 486 417 (3.735) (283) 5.001 1,042 9,058 81.266 63 598 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 lo 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 Other (166) 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-currenlasses (5,318) 1,055 Accounts payable 9,618 1.837 Deferred revenu (1,554) Other current and non-current liabilities (154) (2,033) Cash generated by operating activities 65,824 Investing activities: Purchases of marketable securities (159,486) (142428) 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, mel (395) (1,388) Other (110) Cash used in investing activities (46,446) (45,977) Financing activities: Proceeds from issuance of common stock Excess tax benefits from equity awards Payments for lases 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, nel 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 Cash and cash equivalents, end of the year 20,289 20,484 (166,402) 14,538 107,447 (343) (11.247) (56,274) 495 (1.499) (11.561) (35,253) 27.114 2.191 (17,716) 7.276 (195) 21.120 Supplemental cash flow disclosure Cash paid for income taxes, nel Cash paid for interest $ 11,591 2,092 10,444 1,316 13.252 514 S See accompanying Notes to Consolidated Financial Statements HISTOnical experience, ale i the Louis TeLUlvole - ances, credit quality of the Company's customers, current economic conditions and other factors that may affect the customers' abilities to pay Inventories Inventories are stated at the lower of cost, computed using the first-in. first-out method, and net realizable value. Any adjustments to reduce the cost of inventories to their net real- izable value are recognized in earnings in the current period. 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. The Lumpally Re HDL Dorze podwill an ihanyi- ble assets with indefinite useful lives, rather, such assets are required to be tested for impairment at least annually or sooner if events or changes in circumstances indicate that the assets may be impaired. The Company performs its goodwill and intangible asset impairment tests in the fourth quarter of each year. The Company did not recognize any impairment charges related to goodwill or indefinite lived intangible assets during 2017, 2016 and 2015. For purposes of testing goodwill for impairment, the Company estab- lished reporting units based on its current reporting struc- ture. Goodwill has been allocated to these reporting units to the extent it relates to each reporting unit. In 2017 and 2016, the Company's goodwill was primarily allocated to the Americas and Europe reporting units. The Company amortizes its intangible assets with defi- nite useful lives over their estimated useful lives and re- views these assets for impairment. The Company typically amortizes its acquired intangible assets with definite useful lives over periods from three to seven years. 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 Nel Property, Plant and Equipment, Net (5 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 properly, plant and equipment 75,076 61.245 Accumulated depreciation and amortization (41.293) (34,235) Total property, plant and equipment, net $33.783 $ 27,010 Carrying Accumulated Carrying millions Amount Amortization Amount Definite-lived and amortizable acquired intangible assets $ 7,507 S (5,309) $ 2,198 Indefinite lived and ne-amortizable acquired intangible assets 100 Total acquired intangible assets 7.002S 5_209) $ 2298 100 Long-Lived Assets Including Goodwill and Other Acquired Intangible Assets The Company reviews property, plant and equipment, in- ventory component prepayments and identifiable intangi- bles, excluding goodwill and intangible assets with indefinite useful lives, for impairment. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of these assets is mea- sured by comparison of their carrying amounts to future undiscounted cash flows the assets are expected to gener ate. If property, plant and equipment, inventory component prepayments and certain identifiable intangibles are consid- ered to be impaired, the impairment to be recognized equals the amount by which the carrying value of the asset exceeds its fair value. Fair Value Measurements The Company applies fair value accounting for all finan- cial assets and liabilities and non-financial assets and li- abilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. The Company defines fair value as the price that would be re- ceived from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities that are required to be recorded at fair value, the Company considers the principal or most advantageous market in which the Company would transact and the market-based risk mea- surements or assumptions that market participants would use to price the asset or liability, such as risks inherent in valuation techniques, transfer restrictions and credit risk. Fair value is estimated by applying the following hierarchy, PAAN A1 indd 9/1916 12:58 PM FINAL PAGES aptara Appendix A Financial Statement Information Apple Inc. Notes-continued APPLE which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement: Dividends The Company declared and paid cash dividends per share during the periods presented as follows: 2017 2016 Dividends Amount Dividends Amount Per Share (in millions) Per Share (in millions) Fourth quarter 0.63 $ 3.252 $ 0.57 $ 3.071 Third quarter 0.61 3 281 0.57 3.117 0.57 2988 0.52 2.879 First quarter 0.573042052 2898 Total cash dividends declared and paid $ 2.40 $ 12.561 $ 2.18 S 11.965 Segment Information and Geographic Data Level Quoted prices in active markets for identical assets or liabilities. Level 2-Observable inputs other than quoted prices in ac- tive markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive mar- kets, or other inputs that are observable or can be corrobo- rated by observable market data for substantially the full term of the assets or liabilities. Level 3-Inputs that are generally unobservable and typically reflect management's estimate of assumptions that market participants would use in pricing the asset or liability The Company's valuation techniques used to measure the fair value of money market funds and certain marketable equity Securities were derived from quoted prices in active markets for identical assets or liabilities. The valuation techniques used to measure the fair value of the Company's debt instruments and all other financial instruments, all of which have counterparties with high credit ratings, were valued based on quoted market prices or model-driven val- uations using significant inputs derived from or corrobo- rated by observable market data In accordance with the fair value accounting require- ments, companies may choose to measure eligible financial instruments and certain other items at fair value. The Company has not elected the fair value option for any eli- gible financial instruments. S Net sales by productie Phone iPad Mac Services Other Products Total net sales 2017 $141319 19.772 25 850 2016 S136.700 20.678 22.831 74348 2015 155.041 23.777 25471 19.909 10.067 $221.715 12.863 $229,234 $215.639 2017 2016 2015 $96.600 S10,684 86,613 $28,172 $93.864 $ 31,186 Accrued Warranty and Indemnification The following table shows changes in the Company's ac- crued warranties and related costs for 2017 and 2016 $54,918 S16 514 S49,952 $15,348 $50,137 $ 16,527 Rupertalen t (mil) Americas: Net sales Operating income Europe: Net sales Operating income Greater China: Net sales Operating income Japan: Net sales Operating income Rest of Asia Pacific: Net sales Operating income $44,764 $17.032 $48,492 S18,835 $ 58,715 $ 21.002 S millions 2017 Beginning accrued warranty and related costs $ 3.702 Cost of warranty claims (4.322) Accruals for product warranty 4.454 Ending accrued warranty and related costs $ 3.834 2016 54.780 (4,663) 3.585 $ 3,702 $17,733 $ 8,097 $ 16,928 $ 7,165 $ 15,706 $ 7.617 $15,199 $ 5,304 $13,654 4,781 $ 15,093 $ 5518 A reconciliation of the Company's segment operating in- come to the Consolidated Statements of Operations for 2017, 2016 and 2015 is as follows: Term Debt As of September 30, 2017, the Company had outstanding floating- and fixed-rate notes with varying maturities for an aggregate principal amount of $104.0 billion (collectively the "Notes"). The Notes are senior unsecured obligations, and interest is payable in arrears. The Company recognized $2.2 billion, $1.4 billion and $722 million of interest expense on its term debt for 2017, 2016 and 2015, respectively. As of September 30, 2017 and September 24, 2016, the fair value of the Company's Notes, based on Level 2 inputs, was $106.1 billion and $81.7 billion, respectively. 2017 $ 77,631 2016 $74,301 2015 $83,850 $ millions Segment operating income Research and development expense Other corporate expenses, net Total operating income (11,581) (4,706) $ 61,344 (10,045) (4,232) $ 60,024 (8,067) (4,553) $71,230