Posted: June 29th, 2024

MGMT 1A ACCOUNTING M110 Case APPLE, INC. Introduction to Financial Statements

ACCOUNTING M110CaseAPPLE, INC.Introduction to Financial StatementsCompany BackgroundThe Company designs, manufactures, and markets mobilecommunication and media devices, personal computers, and portabledigital music players, and sells a variety of related software, services,peripherals, networking solutions, and third-party digital content andapplications. The Company’s products and services include iPhone ® ,iPad ® , Mac ® , iPod ® , Apple TV ® , a portfolio of consumer andprofessional software applications, the iOS and OS X ® operatingsystems, iCloud ® , and a variety of accessory, service and supportofferings. The Company also sells and delivers digital content andapplications through the iTunes Store ® , App Store™, iBooks Store™,and Mac App Store. The Company sells its products worldwide throughits retail stores, online stores, and direct sales force, as well as throughthird-party cellular network carriers, wholesalers, retailers, and valueadded resellers. In addition, the Company sells a variety of third-partyiPhone, iPad, Mac and iPod compatible products, including applicationsoftware, and various accessories, through its online and retail stores.The Company sells to consumers; small and mid-sized businesses(“SMB”); and education, enterprise and government customers. TheCompany’s fiscal year is the 52 or 53-week period that ends on the lastSaturday of September. Unless otherwise stated, all informationpresented in this Form 10-K is based on the Company’s fiscal calendar.The Company is a California corporation established in 1977.Business StrategyThe Company is committed to bringing the best user experience to itscustomers through its innovative hardware, software and services. TheCompany’s business strategy leverages its unique ability to design anddevelop its own operating systems, hardware, application software, andservices to provide its customers new products and solutions withsuperior ease-of-use, seamless integration, and innovative design. TheCompany believes continual investment in research and development,marketing and advertising is critical to the development and sale ofinnovative products and technologies. As part of its strategy, thePage | 1Company continues to expand its platform for the discovery anddelivery of third-party digital content and applications through theiTunes Store. As part of the iTunes Store, the Company’s App Store andiBooks Store allow customers to discover and download applicationsand books through either a Mac or Windows-based computer or through“iOS devices,” namely iPhone, iPad and iPod touch ® . The Company’sMac App Store allows customers to easily discover, download andinstall Mac applications. The Company also supports a community forthe development of third-party software and hardware products anddigital content that complement the Company’s offerings. The Companybelieves a high-quality buying experience with knowledgeablesalespersons who can convey the value of the Company’s products andservices greatly enhances its ability to attract and retain customers.Therefore, the Company’s strategy also includes enhancing andexpanding its own retail and online stores and its third-party distributionnetwork to effectively reach more customers and provide them with ahigh-quality sales and post-sales support experience.Business OrganizationThe Company manages its business primarily on a geographic basis.Accordingly, the Company determined its reportable operatingsegments, which are generally based on the nature and location of itscustomers, to be the Americas, Europe, Japan, Greater China, Rest ofAsia Pacific and Retail. The Americas segment includes both North andSouth America. The Europe segment includes European countries, aswell as India, the Middle East and Africa. The Greater China segmentincludes China, Hong Kong and Taiwan. The Rest of Asia Pacificsegment includes Australia and Asian countries, other than thosecountries included in the Company’s other operating segments. TheRetail segment operates Apple retail stores in 13 countries, including theU.S. Each operating segment provides similar hardware and softwareproducts and similar services. The results of the Company’s geographicsegments do not include results of the Retail segment. Furtherinformation regarding the Company’s operating segments may be foundin Part II, Item 7 of this Form 10-K under the subheading “SegmentOperating Performance,” and in Part II, Item 8 of this Form 10-K in theNotes to Consolidated Financial Statements in Note 11, “SegmentInformation and Geographic Data.”Page | 2ProductsiPhoneiPhone is the Company’s line of smartphonesthat combines a phone, music player, andinternet device in one product, and is based onApple’s iOS Multi-Touch™ operating system.iPhone has an integrated photo and videocamera and photo library app, and on qualifyingdevices, also includes Siri ® , a voice activated intelligent assistant.iPhone works with the iTunes Store, the App Store and iBooks Store forpurchasing, organizing and playing music, movies, TV shows, podcasts,books, and apps. In addition to apps delivered with iOS, beginning inSeptember 2013, free downloads of iPhoto ® , iMovie ® and iWork ®apps for iOS became available with all new iPhones. iPhone iscompatible with both Mac and Windows personal computers andApple’s iCloud services which provide synchronization of mail,contacts, calendars, apps, music, photos, documents, and more acrossusers’ devices. The latest versions, introduced in September 2013, areiPhone 5c and iPhone 5s.iPadiPad and iPad mini™ are the Company’s line of multi-purpose tabletsbased on Apple’s iOS Multi-Touch operating system. iPad has anintegrated photo and video camera and photo library app, and onqualifying devices, also includes Siri. iPad works with the iTunes Store,the iBooks Store, and the App Store for purchasing and playing music,movies, TV shows, podcasts, books, and apps. In addition to appsdelivered with iOS for qualifying devices, beginning in September 2013,iPhoto, iMovie and iWork apps for iOS became available as freedownloads with all new iPads. iPad is compatible with both Mac andWindows personal computers and Apple’s iCloud services. In October2013, the Company announced iPad Air™, its fifth generation iPad, andiPad mini with Retina ® display.MacMac is the Company’s line of desktop andportable personal computers. Macs feature Intelmicroprocessors, the OS X operating systemand include Mail, Safari web browser,Messages, Calendars, Reminders, Contacts andPage | 3the iLife ® suite of software apps. The Company’s desktop computersinclude iMac ® , Mac Pro ® and Mac mini. The Company’s portablecomputers include MacBook Pro ® and MacBook Air ® . Beginning inOctober 2013, the Company’s iWork productivity suite of apps for OS Xbecame available as free downloads with all new Macs.iPodThe Company’s iPod line of portable digitalmusic and media players includes iPod touch,iPod nano ® , iPod shuffle ® and iPod classic ® .All iPods work with iTunes to purchase andsynchronize content. iPod touch, based on theCompany’s iOS Multi-Touch operating system,is a flash-memory-based iPod with an integrated photo and video cameraand photo library app, and also includes Siri. iPod touch works with theiTunes Store, the App Store, and the iBooks Store for purchasing andplaying music, movies, TV shows, podcasts, books, and apps. Inaddition to apps delivered with iOS, beginning in September 2013,iPhoto, iMovie and iWork apps for iOS became available as freedownloads for all new iPod touches. iPod touch is compatible with bothMac and Windows personal computers and Apple’s iCloud services.iTunes and the iTunes StoreApple’s iTunes app, available for both Mac and Windows personalcomputers, keeps users’ music, movies, and TV shows organized in oneplace. iTunes is integrated with the iTunes Store, the App Store and theiBooks Store. The iTunes Store allows users to purchase and downloadmusic and TV shows and to rent or purchase movies. The iTunes Storealso includes hundreds of thousands of free Podcasts on a multitude ofsubjects. The App Store allows customers to discover and downloadapps and purchase in-app content. The iBooks Store features e-booksfrom major and independent publishers. iTunes U ® allows users todownload free lectures, videos, and more from top universities,museums, and other institutions. iTunes also features Genius mixes tofind songs that go together and organize them into genre-based mixesand Home Sharing to allow users to stream content from one computerto another computer as well as to iOS devices and newer versions of theCompany’s Apple TV. In September 2013, Apple introduced iTunesRadio™, a free Internet streaming service that allows users of iOSPage | 4devices, Mac and Windows personal computers and Apple TV topersonalize radio stations featuring music from the iTunes Store.Mac App StoreThe Mac App Store allows customers to discover, download and installMac apps. The Mac App Store offers applications in education, games,graphics and design, lifestyle, productivity, utilities and other categories.The Company’s OS X operating system software and its iLife, iWorkand other application software titles are also available on the Mac AppStore.iCloudiCloud is the Company’s cloud service, which stores music, photos,applications, contacts, calendars, documents and more, keeping them upto-date and available to multiple iOS devices and Mac and Windowspersonal computers. iCloud’s features include iTunes in the Cloud;Photo Stream; Documents in the Cloud; Contacts; Calendar;Mail; automatic downloads and purchase history for content,applications and books; and iCloud Backup for iOS devices. Users cansign up for free access to iCloud using a device running qualifyingversions of iOS or OS X.Operating System SoftwareiOSiOS is the Company’s Multi-Touch operating system that serves as thefoundation for iOS devices. iOS 7 is the current version and wasreleased in September 2013. Apps delivered with iOS for qualifyingdevices include Safari web browser, FaceTime video calling, Maps withturn-by-turn directions, Mail, Contacts, Calendar, Clock, Weather,Calculator, Notes, Reminders, Stocks, Compass, and Messages. Devicesrunning iOS are compatible with both Mac and Windows personalcomputers and Apple’s iCloud services.OS XOS X, the Company’s Mac operating system, is built on an open-sourceUNIX-based foundation and provides an intuitive and integratedcomputer experience. OS X Mavericks, released in October 2013, is thetenth major release of OS X. Support for iCloud is built into OS X sousers can access content and information from their other Macs, theiriOS devices and other supported devices and access downloaded contentand apps from the iTunes Store. In addition to Mail, Safari web browser,Page | 5Messages, Calendars, Reminders, Contacts and the iLife ® suite ofsoftware apps, Mavericks also includes a new Maps app and a newiBooks app that both work with their iOS counterparts.Application SoftwareiLifeiLife for Mac is the Company’s consumer-oriented digital lifestylesoftware application suite included with all Mac computers. iLifefeatures iPhoto, a digital photo application for storing, viewing, editingand sharing photos; iMovie, a digital video editing application; andGarageBand ® , a music creation application that allows customers toplay, record and create music. The Company also has Multi-Touchversions of these iLife applications designed specifically for use oniPhone and iPad, and beginning in September 2013, both iPhoto andiMovie for iOS became available as free downloads with all new iOSdevices.iWorkiWork for Mac is the Company’s integrated productivity suite designedto help users create, present, and publish documents, presentations, andspreadsheets. iWork includes Pages ® for word processing and pagelayout, Keynote ® for presentations, and Numbers ® for spreadsheets.Beginning in October 2013, the iWork suite of apps for OS X will beavailable as free downloads with all new Macs. The Company also hasiOS Multi-Touch versions of each iWork application designedspecifically for use on iOS devices and, beginning in September 2013,they all became available as free downloads with all new iOS devices.Other Application SoftwareThe Company also sells various other application software, including itsprofessional line of applications, Final Cut Pro ® , Logic ® Pro X, and itsFileMaker ® Pro database software.Displays & Peripheral ProductsThe Company manufactures the Apple LED Cinema Display™ andThunderbolt Display. The Company also sells a variety of Applebranded and third-party Mac-compatible and iOS-compatible peripheralproducts, including printers, storage devices, computer memory, digitalvideo and still cameras, pointing devices, and various other computingproducts and supplies.Apple TVPage | 6Apple TV connects to consumers’ high definition TVs and enables themto access iTunes content directly for streaming HD video, playing musicand viewing photos. Content from Netflix, YouTube, Flickr, MLB, HuluPlus, iTunes Radio and other media services is also available. Apple TVallows streaming iTunes content from Macs and Windows personalcomputers through Home Share and through AirPlay ® from compatibleMac and iOS devices. Compatible Mac and iOS devices can also mirrortheir device screens as well as stream and play games on Apple TV.iOS and Mac Developer ProgramsThe Company’s iOS and Mac Developer Programs support appdevelopers with the development, testing and distribution of iOS andMac apps through the App Store and the Mac App Store. Developmenttools included with the Company’s Developer Programs include Xcode®, the Company’s integrated development environment for creating appsfor iOS devices, including iPhone and iPad, and Mac. Xcode includesproject management tools; analysis tools to collect, display and compareapp performance data; simulation tools to locally run, test, and debugapps; tools to simplify the design and development of user interfaces;and the latest software development kits for iOS and OS X. TheCompany’s Developer Programs also provide access to multipledevelopment resources including the Company’s Developer Forums,extensive technical documentation, and sample code. The Company’sDeveloper Programs also provide developers with access tools andinformation for submitting their apps to the App Store and the Mac AppStore.Product Support and ServicesAppleCare ® offers a range of support options for the Company’scustomers. These include assistance that is built into software products,printed and electronic product manuals, online support includingcomprehensive product information as well as technical assistance, theAppleCare Protection Plan (“APP”) and the AppleCare+ Protection Plan(“AC+”). APP is a fee-based service that typically includes two to threeyears of phone support, hardware repairs and dedicated web-basedsupport resources. AC+ is a fee-based service available in certaincountries for iPhone and iPad. AC+ offers additional coverage undersome circumstances for instances of accidental damage in addition to theservices offered by APP.Page | 7Markets and DistributionThe Company’s customers are primarily in the consumer, SMB,education, enterprise and government markets. The Company sells itsproducts and resells third-party products in most of its major marketsdirectly to consumers and SMBs through its retail and online stores andits direct sales force. The Company also employs a variety of indirectdistribution channels, such as third-party cellular network carriers,wholesalers, retailers, and value-added resellers. During 2013, theCompany’s net sales through its direct and indirect distribution channelsaccounted for 30% and 70%, respectively, of total net sales.The Company believes that sales of its innovative and differentiatedproducts are enhanced by knowledgeable salespersons who can conveythe value of the hardware and software integration, and demonstrate theunique solutions that are available on its products. The Company furtherbelieves providing direct contact with its targeted customers is aneffective way to demonstrate the advantages of its products over those ofits competitors and providing a high-quality sales and after-sales supportexperience is critical to attracting new and retaining existing customers.To ensure a high-quality buying experience for its products in whichservice and education are emphasized, the Company continues to expandand improve its distribution capabilities by expanding the number of itsown retail stores worldwide. The Company’s retail stores are typicallylocated at high-traffic locations in quality shopping malls and urbanshopping districts. By operating its own stores and locating them indesirable high-traffic locations the Company is better positioned toensure a high quality customer buying experience and attract newcustomers. The stores are designed to simplify and enhance thepresentation and marketing of the Company’s products and relatedsolutions. The retail stores employ experienced and knowledgeablepersonnel who provide product advice, service and training and offer awide selection of third-party hardware, software, and other accessoriesand peripherals that complement the Company’s products.The Company has also invested in programs to enhance reseller sales byplacing high quality Apple fixtures, merchandising materials and otherresources within selected third-party reseller locations. Through theApple Premium Reseller Program, certain third-party resellers focus onthe Apple platform by providing a high level of product expertise,integration and support services.Page | 8The Company is committed to delivering solutions to help educatorsteach and students learn. The Company believes effective integration oftechnology into classroom instruction can result in higher levels ofstudent achievement and has designed a range of products, services andprograms to address the needs of education customers. The Companyalso supports mobile learning and real-time distribution of, and accessto, education related materials through iTunes U ® , a platform thatallows students and teachers to share and distribute educational mediaonline. The Company sells its products to the education market throughits direct sales force, select third-party resellers and its online and retailstores.Page | 9CONSOLIDATED STATEMENTS OF OPERATIONS(In millions, except number of shares which are reflected in thousands and per share amounts)Net salesCost of salesSeptember 27,2014Years endedSeptember 28,2013September 29,2012$$$Gross margin182,795112,258170,910106,606156,50887,84670,53764,30468,6626,0414,4753,38111,99310,83010,04018,03415,30513,421Operating incomeOther income/(expense), net52,50398048,9991,15655,241522Income before provision for incometaxesProvision for income taxes53,48313,97350,15513,11855,76314,030Operating expenses:Research and developmentSelling, general andadministrativeTotal operating expensesNet income$39,510$37,037$41,733Earnings per share:BasicDiluted$$6.496.45$$5.725.68$$6.386.31Shares used in computing earningsper share:BasicDiluted6,085,5726,122,663Cash dividends declared per commonshare$1.826,477,3206,521,634$1.646,543,7266,617,483$0.38See accompanying Notes to Consolidated Financial Statements.Apple Inc. | 2014 Form 10-K | 45Page | 10CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(In millions)Years endedSeptember 27, September 28, September 29,201420132012Net income$Other comprehensive income/(loss):Change in foreign currency translation,net of tax effects of $50, $35 and $13,respectivelyChange in unrecognized gains/losses onderivative instruments:Change in fair value of derivatives, net oftax benefit/(expense) of $(297), $(351)and $73, respectivelyAdjustment for net losses/(gains) realizedand included in net income, net of taxexpense/(benefit) of $(36), $255 and$220, respectively37,037 $(137)(112)(15)522(131)(458)(399)64(530)285(791)715(134)(131)(114)151(922)6011,553(970)561,390149Total change in unrecognizedgains/losses on derivativeinstruments, net of tax1,539Change in unrealized gains/losses onmarketable securities:Change in fair value of marketablesecurities, net of tax benefit/(expense)of $(153), $458 and $(421),respectivelyAdjustment for net losses/(gains) realizedand included in net income, net of taxexpense/(benefit) of $71, $82 and $68,respectivelyTotal change in unrealizedgains/losses on marketablesecurities, net of taxTotal other comprehensive income/(loss)Total comprehensive income39,510 $$41,063 $36,067 $41,73341,789See accompanying Notes to Consolidated Financial Statements.Apple Inc. | 2014 Form 10-K | 46Page | 11CONSOLIDATED BALANCE SHEETS(In millions, except number of shares which are reflected in thousands and par value)September 27,2014September 28,2013$$ASSETS:Current assets:Cash and cash equivalentsShort-term marketable securitiesAccounts receivable, less allowances of $86 and $99,respectivelyInventoriesDeferred tax assetsVendor non-trade receivablesOther current assetsTotal current assetsLong-term marketable securitiesProperty, plant and equipment, netGoodwillAcquired intangible assets, netOther assetsTotal assets$13,84411,23314,25926,28717,4602,1114,3189,7599,80613,1021,7643,4537,5396,88268,531130,16220,6244,6164,1423,76473,286106,21516,5971,5774,1795,146231,839$207,000LIABILITIES AND SHAREHOLDERS’ EQUITY:Current liabilities:Accounts payable$30,196Accrued expenses18,453Deferred revenue8,491Commercial paper6,308$22,36713,8567,4350Total current liabilitiesDeferred revenue – non-currentLong-term debtOther non-current liabilitiesTotal liabilitiesCommitments and contingenciesShareholders’ equity:Common stock and additional paid-in capital, $0.00001par value; 12,600,000 shares authorized; 5,866,161and 6,294,494 shares issued and outstanding,respectivelyRetained earningsAccumulated other comprehensive income/(loss)Total shareholders’ equityTotal liabilities and shareholders’ equity$63,4483,03128,98724,82643,6582,62516,96020,208120,29283,45123,31387,1521,08219,764104,256(471)111,547123,549231,839$207,000See accompanying Notes to Consolidated Financial Statements.Apple Inc. | 2014 Form 10-K | 47Page | 12CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY(In millions, except number of shares which are reflected in thousands)Common Stock andAdditional Paid-In CapitalSharesAmountBalances as ofSeptember 24, 2011Net incomeOther comprehensiveincome/(loss)Dividends anddividend equivalentsdeclaredShare-basedcompensationCommon stock issued,net of shareswithheld foremployee taxesTax benefit from equityawards, includingtransfer pricingadjustmentsBalances as ofSeptember 29, 2012Net incomeOther comprehensiveincome/(loss)Dividends anddividend equivalentsdeclaredRepurchase ofcommon stockShare-basedcompensationCommon stock issued,net of shareswithheld foremployee taxesTax benefit from equityawards, includingtransfer pricingadjustmentsBalances as ofSeptember 28, 2013Net incomeOther comprehensiveincome/(loss)Dividends anddividend equivalentsdeclaredRepurchase ofcommon stockShare-based6,504,937 $13,331 $AccumulatedOtherTotalComprehensive Shareholders’Income/(Loss)EquityRetainedEarnings62,841 $443 $76,6150041,733041,73300056560001,74069,52120001,151001,1516,574,45816,422101,289499118,2100037,037037,03700000(10,676)0(10,676)0(22,950)0(22,950)02,253(328,837)048,8732,253(143)(2,523)0(762)0(444)0(2,523)01,7400(970)0(970)(587)01,23206,294,49419,764104,2560039,510039,5100001,5531,55300(11,215)0(11,215)02,863(45,000)000(45,000)2,863(488,677)00(562)(471)1,232123,549Page | 13compensationCommon stock issued,net of shareswithheld foremployee taxesTax benefit from equityawards, includingtransfer pricingadjustmentsBalances as ofSeptember 27, 201460,34405,866,161 $(49)(399)73523,313 $087,152 $0(448)07351,082 $111,547See accompanying Notes to Consolidated Financial Statements.Apple Inc. | 2014 Form 10-K | 48Page | 14CONSOLIDATED STATEMENTS OF CASH FLO…

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