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Financial Policy at Apple, 2013 Student Supplement Harvard Business School Case 9-214-085 Course Software 9-214-714 This course software was prepared solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 2014 President and Fellows of Harvard College. No part of this product may be reproduced, stored in a retrieval system, used in a spreadsheet or transmitted in any form or by any means—electronic, mechanical, photocopying, recording or otherwise—without the permission of Harvard Business School.

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Balance Sheet as of:

Sept. 25, 2010

Sept. 24, 2011

Sept. 29, 2012

11,261.0 14,359.0 25,620.0

9,815.0 16,137.0 25,952.0

10,746.0 18,383.0 29,129.0

5,510.0 4,414.0 9,924.0

5,369.0 6,348.0 11,717.0

10,930.0 7,762.0 18,692.0

1,051.0 1,636.0 445.0 3,002.0 41,678.0

776.0 2,014.0 4,529.0 44,988.0

791.0 2,583.0 278.0 6,180.0 57,653.0

4,768.0

7,777.0

15,452.0

Long-term Investments Goodwill Other Intangibles Other Long-Term Assets Total Assets

25,391.0 741.0 342.0 2,263.0 75,183.0

55,618.0 896.0 3,536.0 3,556.0 116,371.0

92,122.0 1,135.0 4,224.0 5,478.0 176,064.0

LIABILITIES Accounts Payable Accrued Expenses Currrent Income Taxes Payable Unearned Revenue, Current Other Current Liabilities Total Current Liabilities

12,015.0 3,641.0 658.0 3,647.0 761.0 20,722.0

14,632.0 4,829.0 1,140.0 6,129.0 1,240.0 27,970.0

21,175.0 6,749.0 1,535.0 7,445.0 1,638.0 38,542.0

Long-Term Debt Unearned Revenue, Non-Current Deferred Tax Liability, Non-Current Other Non-Current Liabilities Total Liabilities

1,139.0 4,300.0 1,231.0 27,392.0

1,686.0 8,159.0 1,941.0 39,756.0

2,648.0 13,847.0 2,817.0 57,854.0

Common Stock Retained Earnings Comprehensive Income and Other Total Shareholders' Equity

10,668.0 37,169.0 (46.0) 47,791.0

13,331.0 62,841.0 443.0 76,615.0

16,422.0 101,289.0 499.0 118,210.0

Total Liabilities And Shareholders' Equity

75,183.0

116,371.0

176,064.0

ASSETS Cash And Equivalents Short Term Investments Trading Asset Securities Total Cash & ST Investments Accounts Receivable Other Receivables Total Receivables Inventory Deferred Tax Assets, Curr. Restricted Cash Other Current Assets Total Current Assets Net Property, Plant & Equipment

Source: Capital IQ In millions of USD

Income Statement For the Fiscal Year Ending Revenue Cost of Goods Sold Gross Profit Sales, General, and Administration Expenses Research and Development Expenses Total Operating Expenses Operating Income Interest Expense Interest and Investment Income Net Interest Expense Income Tax Expense Earnings from Cont. Ops. Net Income to Company Minority Interest in Earnings Net Income Net income available to Common Shareholders Earnings per Share Basic Diluted Weighted Average Shares Outstanding Basic Diluted Dividends per Share Payout Ratio % EBITDA

Source: Capital IQ In millions of USD, except per share items.

Sept. 25, 2010 65,225.0 39,541.0 25,684.0 5,517.0 1,782.0 7,299.0 18,385.0 311.0 311.0 4,527.0 14,013.0 14,013.0 14,013.0 14,013.0

Sept. 24, 2011 108,249.0 64,431.0 43,818.0 7,599.0 2,429.0 10,028.0 33,790.0 519.0 519.0 8,283.0 25,922.0 25,922.0 25,922.0 25,922.0

Sept. 29, 2012 156,508.0 87,846.0 68,662.0 10,040.0 3,381.0 13,421.0 55,241.0 1,088.0 1,088.0 14,030.0 41,733.0 41,733.0 41,733.0 41,733.0

15.41 15.15

28.05 27.68

44.64 44.15

909.5 924.7 19,412.0

924.3 936.6 35,604.0

934.8 945.4 $2.65 6.0% 58,518.0

Cash Flow For the Fiscal Year Ending Net Income Depreciation & Amortization Amortization of Goodwill and Intangibles Total Depreciation & Amortization Stock-Based Compensation Other Operating Activities Change in Accounts Receivable Change In Inventories Change in Accounts Payable Change in Unearned Revenue Change in Other Net Operating Assets Cash from Operations Capital Expenditure Cash Acquisitions Divestitures Sale (Purchase) of Intangible assets Investment in Marketable & Equity Securt. Net (Inc.) Dec. in Loans Originated/Sold Other Investing Activities Cash from Investing 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 Repurchase of Common Stock Dividends Paid Other Financing Activities Cash from Financing Net Change in Cash Cash Interest Paid Cash Taxes Paid Levered Free Cash Flow Unlevered Free Cash Flow Change in Net Working Capital Net Debt Issued

Source: Capital IQ In millions of USD

Sept. 25, 2010 14,013.0 958.0 69.0 1,027.0 879.0 1,440.0 (2,142.0) (596.0) 6,307.0 1,217.0 (3,550.0) 18,595.0 (2,005.0) (638.0) (116.0) (11,075.0) (20.0) (13,854.0) 912.0 345.0 1,257.0 5,998.0 NA 2,697.0 12,524.6 12,524.6 (1,249.0) NA

Sept. 24, 2011 25,922.0 1,622.0 192.0 1,814.0 1,168.0 2,868.0 143.0 275.0 2,515.0 1,654.0 1,170.0 37,529.0 (4,260.0) (244.0) (3,192.0) (32,464.0) (259.0) (40,419.0) 831.0 613.0 1,444.0 (1,446.0) NA 3,338.0 20,918.8 20,918.8 (4,270.0) NA

Sept. 29, 2012 41,733.0 2,672.0 605.0 3,277.0 1,740.0 4,405.0 (5,551.0) (15.0) 4,467.0 2,824.0 (2,024.0) 50,856.0 (8,295.0) (350.0) (1,107.0) (38,427.0) (48.0) (48,227.0) 665.0 (2,488.0) 125.0 (1,698.0) 931.0 NA 7,682.0 31,224.6 31,224.6 (1,084.0) NA

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

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

953

466

565

766

774

895

1,252

1,637

2,422

3,361

5,510

5,369

10,930

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

300

317

316

0

0

0

0

0

0

0

0

0

0

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

Cash and Marketable Securities Accounts Receivable Inventory

Long-term Debt Total Shareholders' Equity

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

6,102

5,369

8,930

7,042

7,657

10,930

11,598

889

776

1,236

1,102

1,122

791

1,455

106,758

116,371

138,681

150,934

162,896

176,064

196,088

15,270

14,632

18,221

17,011

16,808

21,175

26,398

0

0

0

0

0

0

0

69,343

76,615

90,054

102,498

111,746

118,210

127,346

Accounts Receivable Inventory Total Assets Accounts Payable Long-term Debt Total Shareholders' Equity

Source: Capital IQ In millions of USD

Key assumptions in Apple Forecast Annual growth rate of sales:

10%

2012 Actual 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 Cost of goods Research & development

$156,508 $87,846 $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 Inventories Other Current Assets (10.3% of COGS)

$18,692 $791 $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) Accrued expenses (7.7% of COGS)

$21,175 $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 Net income/Revenue

148.9% 26.7%

Interest Rate:

2012*

2013

5.6%

2014

2015

2016

2017

*All excess cash paid out