Financial Statement for APPLE

Introduction

Apple Inc. is an American multinational company, headquartered in Cupertino, California, that designs, produce, and sells consumer electronics, computer software and personal computers. Apple was founded by Steve Jobs, Steve Wozniak, and Ronald Wayne on April 1, 1976 and was incorporated as Apple Computer, Inc. on January 3, 1977 (Apple, Inc., 2014). The company was renamed as Apple Inc. on January 9, 2007 (2014). Apple’s best-known hardware products are the Mac line of computers, the iPod media player, the iPhone smartphone, and the iPad tablet computer (Apple, Inc., 2014). Its consumer software includes the OS X and iOS operating systems, the iTunes media browser, the Safari web browser, and the iLife and iWork creativity and productivity suites (Apple, Inc., 2014). The prominence of Apple brands in the consumer market is attributed to the company’s success.

Apple is especially known for its line of innovative electronic consumer goods. To date, Apple places second after Samsung Electronics in information technology revenue and the world’s third world's third-largest mobile phone maker after Samsung and Nokia (Gartner, 2012). In 2008, Apple was named the most admired company in the United States by Fortune magazine and in the world from 2008 to 2012 (Fisher, 2008, p. 65). The high brand recognition that Apple enjoys is a critical ingredient to its competitive advantage in the consumer electronics and computer industries alike.

Investment

Innovation is central to the investment decisions of Apple, Inc. Apple believes that continual investment in research and development and marketing and advertising is critical to the development of innovative products and technologies (Form 10-K, 2013, p. 1). The company distinguishes itself from its competitors by designing and developing nearly the entire solution for its products, including the hardware, operating system, numerous software applications, and related services (Form 10-K, 2013, p. 1). Thus, Apple must make significant investments in research and development. Demonstrating its increased prioritization of research and development, Apple’s total research and development expenditures increased from $2.4 billion in 2011 to $4.5 billion in 2013, more than doubling in just a two-year period (Form 10-K, 2013, p. 7). Because of its emphasis on research and innovation, the company currently holds a significant number of patents and copyrights that further enhance entrance barriers for prospective competitors.

Increasing sales is also a critical component of Apple’s competitive strategy. The company focuses on improving the experience of the consumer by making the shopping experience convenient. Apple has invested in and will continue to invest in programs to enhance reseller sales (Form 10-K, 2013, p.1). Methods of achieving this objective include staffing selected resellers’ stores with Apple employees and improving product placement displays (Form 10-K, 2013, p. 5). Further, certain stores have been designed and built to serve as high-profile venues to promote brand awareness (Form 10-K, 2013, p. 6). An advantage of this strategy is that it promotes high visibility of the Apple brand. Yet, a main drawback of this strategy is that these programs could require a substantial investment while providing no assurance of return or incremental revenue. Apple’s retail stores have required substantial fixed investment in equipment and leasehold improvements, information systems, inventory and personnel (Form 10-K, 2013, p. 6). The Company also has entered into substantial operating lease commitments for retail space (Form 10-K, 2013, p. 6). The high cost of its retail operations poses a considerable risk. Additionally, it underscores the necessity of offering continual innovations that will sustain the desirability of Apple products and enable the company to remain profitable.

In addition to its strategy of innovation, Apple seeks to maintain its competitive advantage through acquisition. By acquiring complementary brands and products, Apple is able to increase the value of its brand and expand its market share. Yet, while the company has a successful history of growth through acquisition, such endeavors may involve significant risks. Possible uncertainties include the distraction of management from current operations and the potential for receiving insufficient revenue to offset liabilities assumed and expenses associated with the strategy (Form 10-K, 2013, p. 16). Expansion of the retail segment has required and will continue to require a substantial investment in fixed assets and related infrastructure, operating lease commitments, personnel, and other operating expenses (Form 10-K, 2013, p. 16). Thus, expansion can potentially increase the firm’s operating costs at the expense of profits.

Apple has a relatively conservative investment policy. Apple’s investment policy requires investments to generally be investment grade with the objective of minimizing the potential risk of principal loss. As of September 24, 2011 and September 25, 2010, “$54.3 billion and $30.8 billion, respectively, of cash, cash equivalents and marketable securities were held by foreign subsidiaries and are generally based in U.S. dollar-denominated holdings” (Form 10-K, 2013, p. 35). Further, Apple typically invests in high-rated securities, and its policy generally limits the amount of credit exposure to any one issuer (Form 10-K, 2013, p. 35). Apple’s investment policy requires investments to generally be investment grade, with the primary objective of minimizing the potential risk of principal loss (Form 10-K, 2013, p. 35). Further, “fair values were determined for each individual security in the investment portfolio. When evaluating the investments for other-than-temporary impairment, Apple reviews factors such as the length of time and extent to which fair value has been below cost basis, the financial condition of the issuer and any changes thereto, and the Company’s intent to sell, or whether it is more likely than not it will be required to sell, the investment before recovery of the investment’s amortized cost basis” (Form 10-K, 2013, p. 35). Overall, the company the company seeks to minimize its risk at the expense of high growth through cautious investments.

Financial Ratio

(Table 1 omitted for preview. Available via download)

Cash Flow Statement

(Table 2 omitted for preview. Available via download)

Income Statement

The performance of the retail segment is documented in the 2013 Annual Report for Apple Inc. The retail segment reported operating income of $3.3 billion during 2011 compared to $2.4 billion during 2010 (Form 10-K, 2013, p. 75). Further, the year-over-year increase in retail operating income was primarily attributable to higher overall net sales that resulted in significantly higher average revenue per store during 2011 compared to 2010 (Form 10-K, 2013, p. 75). The Retail segment reported operating income of $1.7 billion during 2009 (Form 10-K, 2013, p. 75). The increase in retail operating income during 2010 compared to 2009 was attributable to higher overall net sales.

(Table 3 omitted for preview. Available via download)

As Table 3 illustrates, income and expense has increased considerably for the company. According to the figures documented in the table, total other income and expense increased $260 million or 168% to $415 million during 2011 compared to $155 million and $326 million in 2010 and 2009, respectively. The year-over-year increase in other income and expense during 2011 was due primarily to higher interest income and net realized gains on sales of marketable securities. The overall decrease in other income and expense in 2010 compared to 2009 was attributable to the significant declines in interest rates on a year-over-year basis, partially offset by the Company’s higher cash, cash equivalents and marketable securities balances (Form 10-K, 2013, p. 34). Additionally the Company incurred higher premium expenses on its foreign exchange option contracts, which further reduced the total other income and expense. The weighted average interest rate earned by the Company on its cash, cash equivalents and marketable securities was 0.77%, 0.75% and 1.43% during 2011, 2010 and 2009, respectively (Form 10-K, 2013, p. 34). During 2011, 2010 and 2009, the Company had no debt outstanding and accordingly did not incur any related interest expense (Form 10-K, 2013, p. 34). Thus, the company is effective in meeting its fiduciary duties to shareholders.

Balance Sheet

(Table 4 omitted for preview. Available via download)

Summary

Apple Inc. is one of the leading brands in the technology market, not only by revenue but by its investment policy also. Every investment made had the highest impact and maximum revenue as it can be seen from the numbers displayed in the previous chapters. The company is aware that only by constant investment, be that in technology or market retail, can it stay in the top and keep the constant sales at the present rate or better.

In the time covered by this report Apple Inc. maintained, in all material respects, effective internal control over financial reporting as of September 29, 2012, based on the COSO criteria. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Apple Inc. at September 29, 2012 and September 24, 2011. It also presents the consolidated results of its operations and its cash flows for each of the three years in the period ended September 29, 2012 in conformity with U.S. generally accepted accounting principles.

References

Apple, Inc. (2014, February 12). Wikimedia Foundation, Inc. Retrieved from http://en.wikipedia.org/wiki/Apple_Inc.#Finance

Fisher, A. (2008, March 17). America’s most admired companies. Fortune, 157(5), 65-67.

Form 10-K. (2013). Retrieved from http://files.shareholder.com/downloads/AAPL/2979793497x0xS1193125-13-416534/320193/filing.pdf

Gartner. (2012). Gartner says worldwide sales of mobile phones declined 2 percent in first quarter of 2012; Previous year-over-year decline occurred in second quarter of 2009. Retrieved from http://www.gartner.com/newsroom/id/2017015