Financial Policy at Apple, 2013 Student Supplement

Harvard Business School Case 9-214-085

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Balance Sheet as of:
Sept. 25, 2010 Sept. 24, 2011 Sept. 29, 2012
ASSETS
Cash And Equivalents 11,261.0 9,815.0 10,746.0
Short Term Investments 14,359.0 16,137.0 18,383.0
Trading Asset Securities - - -
Total Cash & ST Investments 25,620.0 25,952.0 29,129.0

Accounts Receivable 5,510.0 5,369.0 10,930.0

Other Receivables 4,414.0 6,348.0 7,762.0
Total Receivables 9,924.0 11,717.0 18,692.0

Inventory 1,051.0 776.0 791.0

Deferred Tax Assets, Curr. 1,636.0 2,014.0 2,583.0
Restricted Cash 445.0 - 278.0
Other Current Assets 3,002.0 4,529.0 6,180.0
Total Current Assets 41,678.0 44,988.0 57,653.0

Net Property, Plant & Equipment 4,768.0 7,777.0 15,452.0

Long-term Investments 25,391.0 55,618.0 92,122.0

Goodwill 741.0 896.0 1,135.0
Other Intangibles 342.0 3,536.0 4,224.0
Other Long-Term Assets 2,263.0 3,556.0 5,478.0
Total Assets 75,183.0 116,371.0 176,064.0

LIABILITIES
Accounts Payable 12,015.0 14,632.0 21,175.0
Accrued Expenses 3,641.0 4,829.0 6,749.0
Currrent Income Taxes Payable 658.0 1,140.0 1,535.0
Unearned Revenue, Current 3,647.0 6,129.0 7,445.0
Other Current Liabilities 761.0 1,240.0 1,638.0
Total Current Liabilities 20,722.0 27,970.0 38,542.0

Long-Term Debt - - -
Unearned Revenue, Non-Current 1,139.0 1,686.0 2,648.0
Deferred Tax Liability, Non-Current 4,300.0 8,159.0 13,847.0
Other Non-Current Liabilities 1,231.0 1,941.0 2,817.0
Total Liabilities 27,392.0 39,756.0 57,854.0

Common Stock 10,668.0 13,331.0 16,422.0

Retained Earnings 37,169.0 62,841.0 101,289.0
Comprehensive Income and Other (46.0) 443.0 499.0
Total Shareholders' Equity 47,791.0 76,615.0 118,210.0

Total Liabilities And Shareholders' Equity 75,183.0 116,371.0 176,064.0

Source: Capital IQ
In millions of USD
Income Statement
For the Fiscal Year Ending
Sept. 25, 2010 Sept. 24, 2011 Sept. 29, 2012
Revenue 65,225.0 108,249.0 156,508.0
Cost of Goods Sold 39,541.0 64,431.0 87,846.0
Gross Profit 25,684.0 43,818.0 68,662.0
Sales, General, and Administration Expenses 5,517.0 7,599.0 10,040.0
Research and Development Expenses 1,782.0 2,429.0 3,381.0
Total Operating Expenses 7,299.0 10,028.0 13,421.0
Operating Income 18,385.0 33,790.0 55,241.0
Interest Expense - - -
Interest and Investment Income 311.0 519.0 1,088.0
Net Interest Expense 311.0 519.0 1,088.0
Income Tax Expense 4,527.0 8,283.0 14,030.0
Earnings from Cont. Ops. 14,013.0 25,922.0 41,733.0
Net Income to Company 14,013.0 25,922.0 41,733.0
Minority Interest in Earnings - - -
Net Income 14,013.0 25,922.0 41,733.0
Net income available to Common Shareholders 14,013.0 25,922.0 41,733.0
Earnings per Share
Basic 15.41 28.05 44.64
Diluted 15.15 27.68 44.15
Weighted Average Shares Outstanding
Basic 909.5 924.3 934.8
Diluted 924.7 936.6 945.4
Dividends per Share - - $2.65
Payout Ratio % - - 6.0%
EBITDA 19,412.0 35,604.0 58,518.0

Source: Capital IQ
In millions of USD, except per share items.
Cash Flow
For the Fiscal Year Ending
Sept. 25, 2010 Sept. 24, 2011 Sept. 29, 2012
Net Income 14,013.0 25,922.0 41,733.0
Depreciation & Amortization 958.0 1,622.0 2,672.0
Amortization of Goodwill and Intangibles 69.0 192.0 605.0
Total Depreciation & Amortization 1,027.0 1,814.0 3,277.0
Stock-Based Compensation 879.0 1,168.0 1,740.0
Other Operating Activities 1,440.0 2,868.0 4,405.0
Change in Accounts Receivable (2,142.0) 143.0 (5,551.0)
Change In Inventories (596.0) 275.0 (15.0)
Change in Accounts Payable 6,307.0 2,515.0 4,467.0
Change in Unearned Revenue 1,217.0 1,654.0 2,824.0
Change in Other Net Operating Assets (3,550.0) 1,170.0 (2,024.0)
Cash from Operations 18,595.0 37,529.0 50,856.0
Capital Expenditure (2,005.0) (4,260.0) (8,295.0)
Cash Acquisitions (638.0) (244.0) (350.0)
Divestitures - - -
Sale (Purchase) of Intangible assets (116.0) (3,192.0) (1,107.0)
Investment in Marketable & Equity Securt. (11,075.0) (32,464.0) (38,427.0)
Net (Inc.) Dec. in Loans Originated/Sold - - -
Other Investing Activities (20.0) (259.0) (48.0)
Cash from Investing (13,854.0) (40,419.0) (48,227.0)
Short Term Debt Issued - - -
Long-Term Debt Issued - - -
Total Debt Issued - - -
Short Term Debt Repaid - - -
Long-Term Debt Repaid - - -
Total Debt Repaid - - -
Issuance of Common Stock 912.0 831.0 665.0
Repurchase of Common Stock - - -
Dividends Paid - - (2,488.0)
Other Financing Activities 345.0 613.0 125.0
Cash from Financing 1,257.0 1,444.0 (1,698.0)
Net Change in Cash 5,998.0 (1,446.0) 931.0
Cash Interest Paid NA NA NA
Cash Taxes Paid 2,697.0 3,338.0 7,682.0
Levered Free Cash Flow 12,524.6 20,918.8 31,224.6
Unlevered Free Cash Flow 12,524.6 20,918.8 31,224.6
Change in Net Working Capital (1,249.0) (4,270.0) (1,084.0)
Net Debt Issued NA NA NA

Source: Capital IQ
In millions of USD
Annual Summary
For the Fiscal Year Ending 9/30/2000 9/29/2001 9/28/2002 9/27/2003 9/25/2004 9/24/2005 9/30/2006 9/29/2007 9/27/2008 9/26/2009 9/25/2010 9/24/2011 9/29/2012

Total Revenue 7,983 5,363 5,742 6,207 8,279 13,931 19,315 24,578 37,491 42,905 65,225 108,249 156,508

Cost of Goods Sold 5,817 4,128 4,139 4,499 6,022 9,889 13,717 16,426 24,294 25,683 39,541 64,431 87,846

Sales, General, and Admin. 1,256 1,138 1,109 1,212 1,430 1,864 2,433 2,963 3,761 4,149 5,517 7,599 10,040

Gross Profit 2,166 1,235 1,603 1,708 2,257 4,042 5,598 8,152 13,197 17,222 25,684 43,818 68,662

EBIT 530 -333 48 25 336 1,643 2,453 4,407 8,327 11,740 18,385 33,790 55,241

Net Income 786 -25 65 69 266 1,328 1,989 3,495 6,119 8,235 14,013 25,922 41,733

Cash Flow 868 185 89 289 934 2,535 2,220 5,470 9,596 10,159 18,595 37,529 50,856

Cash and Marketable Securities 4,027 4,336 4,337 4,566 5,464 8,261 10,110 15,386 24,490 33,992 51,011 81,570 121,251

Accounts Receivable 953 466 565 766 774 895 1,252 1,637 2,422 3,361 5,510 5,369 10,930

Inventory 33 11 45 56 101 165 270 346 509 455 1,051 776 791

Total Assets 6,803 6,021 6,298 6,815 8,050 11,516 17,205 25,347 36,171 47,501 75,183 116,371 176,064

Accounts Payable 1,157 801 911 1,154 1,451 1,779 3,390 4,970 5,520 5,601 12,015 14,632 21,175

Long-term Debt 300 317 316 0 0 0 0 0 0 0 0 0 0

Total Shareholders' Equity 4,107 3,920 4,095 4,223 5,076 7,428 9,984 14,532 22,297 31,640 47,791 76,615 118,210

Source: Capital IQ
In millions of USD
Quarterly Summary
For the Fiscal Quarter Ending 6/25/2011 9/24/2011 12/31/2011 3/31/2012 6/30/2012 9/29/2012 12/29/2012

Total Revenue 28,571 28,270 46,333 39,186 35,023 35,966 54,512

Cost of Goods Sold 16,649 16,890 25,630 20,622 20,029 21,565 33,452

Gross Profit 11,922 11,380 20,703 18,564 14,994 14,401 21,060

Sales, General, and Admin. 1,915 2,025 2,605 2,339 2,545 2,551 2,840

EBIT 9,379 8,710 17,340 15,384 11,573 10,944 17,210

Net Income 7,308 6,623 13,064 11,622 8,824 8,223 13,078

Cash Flow 11,108 10,429 17,554 13,977 10,189 9,136 23,426

Cash and Marketable Securitiesa 76,156 81,570 97,601 110,176 117,221 121,251 137,112

Accounts Receivable 6,102 5,369 8,930 7,042 7,657 10,930 11,598

Inventory 889 776 1,236 1,102 1,122 791 1,455

Total Assets 106,758 116,371 138,681 150,934 162,896 176,064 196,088

Accounts Payable 15,270 14,632 18,221 17,011 16,808 21,175 26,398

Long-term Debt 0 0 0 0 0 0 0

Total Shareholders' Equity 69,343 76,615 90,054 102,498 111,746 118,210 127,346

Source: Capital IQ
In millions of USD
Key assumptions in Apple Forecast
Annual growth rate of sales: 10% Interest Rate: 5.6%

2012 Actual 2012* 2013 2014 2015 2016 2017

Accounts receivable as % of sales: 11.9%
Inventory as % cost of goods: 0.9%
Cost of goods as % of sales: 56.1%
R&D as % of sales: 2.2%
Sell, gen'l, admin as% of sales: 6.4%
Effective Tax Rate 22.9%
Net PPEN as % of COG 17.6%

Income Statement
Net sales $156,508
Cost of goods $87,846
Research & development $3,381
Sell, gen'l, admin $10,040
EBIT $55,241
Interest expense $1,088
Profit before tax $54,153
Tax at Effective Rate of 23% $12,420
Net income $41,733

Times interest earned 50.8

Balance Sheet
Total Cash $121,251
Required Cash
Excess Cash (plug)
Accounts receivable $18,692
Inventories $791
Other Current Assets (10.3% of COGS) $9,041
Net PPEN $15,452
Other (12.3% of COGS) $10,837
Total assets $176,064

Liabilities and Net Worth

Accounts payable (24.1% of COGS) $21,175
Accrued expenses (7.7% of COGS) $6,749
Other current liabilities (12.1% of COGS) $10,618
Other non-current liabilities (22% of COGS) $19,312
Total liabilities $57,854
Equity $118,210
Total $176,064

Selected Ratios:
Return on equity 35.3%
Sales/total assets 88.9%
Assets/Equity 148.9%
Net income/Revenue 26.7%
*All excess cash paid out