Apple Inc. Form 10-K Summary: Fiscal Year Ended September 28, 2013
Business Context and Reporting Period
This filing is the Annual Report on Form 10-K for Apple Inc. for the fiscal year ended September 28, 2013. Apple designs, manufactures, and markets mobile communication and media devices (iPhone, iPad, iPod), personal computers (Mac), and related software and services (iTunes, iCloud, App Store). The company operates through geographic segments (Americas, Europe, Greater China, Japan, Rest of Asia Pacific) and a Retail segment. The fiscal year consisted of 52 weeks.
Key Financial Metrics
| Metric | 2013 | 2012 |
|---|---|---|
| Net Sales | $170.9 billion | $156.5 billion |
| Gross Margin | $64.3 billion (37.6%) | $68.7 billion (43.9%) |
| Operating Income | $49.0 billion | $55.2 billion |
| Net Income | $37.0 billion | $41.7 billion |
| Diluted EPS | $39.75 | $44.15 |
| Cash, Cash Equivalents & Marketable Securities | $146.8 billion | $121.3 billion |
| Long-Term Debt | $17.0 billion | $0 |
| Operating Cash Flow | $53.7 billion | $50.9 billion |
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 9% year-over-year, driven by growth in iPhone, iPad, and iTunes/services. This growth was partially offset by declines in Mac and iPod sales.
- Profitability Decline: Net income decreased 11% to $37.0 billion. Gross margin percentage dropped significantly from 43.9% to 37.6% due to the introduction of lower-margin products (iPad mini), price reductions on existing products, and unfavorable foreign exchange impacts.
- Debt Issuance: In May 2013, Apple issued $17.0 billion in long-term debt to fund its capital return program, marking the first time the company carried long-term debt on its balance sheet.
- Capital Return: The company utilized $23.0 billion for share repurchases and paid $10.5 billion in dividends during 2013. The quarterly dividend was raised to $3.05 per share.
- Product Mix: iPhone unit sales grew 20% to 150.3 million units, while Mac unit sales declined 10% to 16.3 million units.
Guidance, Outlook, and Risks
- Guidance: Management anticipates gross margin for the first quarter of 2014 to be between 36.5% and 37.5%. The company expects to utilize approximately $100 billion for dividends and share repurchases through December 2015.
- Outlook: The company plans to open approximately 30 new retail stores in 2014 and expects capital expenditures of approximately $11.0 billion for the year.
- Risks: Key risks include intense global competition, supply chain constraints (reliance on single-source suppliers), foreign currency exchange rate fluctuations (strengthening U.S. dollar), and legal proceedings regarding intellectual property and antitrust (specifically the Apple eBooks Antitrust Litigation).
- Unusual Items: The company recorded a $1.05 billion jury award against Samsung in a patent infringement case, though this has not been recognized in results of operations pending appeal. The company also settled certain matters in Q4 2013 with no material impact.
Investor Verification Checklist
- Verify the sustainability of gross margins given the shift to lower-priced products (iPhone 5c, iPad mini) and the impact of a strengthening U.S. dollar.
- Confirm the status of the $17.0 billion debt issuance and the company's strategy for utilizing foreign cash reserves versus repatriation.
- Monitor the outcome of the Apple eBooks Antitrust Litigation and potential damages.
- Assess the growth trajectory of the Greater China segment, which saw sales growth slow in the second half of 2013.
- Review the company's ability to maintain supply chain stability given reliance on a small number of outsourcing partners in Asia.