Apple, Inc. (“Apple”) is in the Consumer Goods sector of the Electronic Equipment industry. Founded in 1977, the company “designs, manufactures, and markets mobile communication and media devices, personal computing products, and portable digital music players worldwide” (Yahoo Finance, 2013, para. 1). Apple’s products are available for consumers through its website, third-party cellular network carriers, direct sales, and through retailers such as Best Buy, Walmart, and similar stores. The company’s annual financial statements and reports are not produced on a normal calendar, but the finances are released annually in the month of September.
Main Sections of Annual Report
A review of Apple’s 2012 annual report indicates that its annual financial information is provided in four main sections or parts. Part I contains four main items, which includes information about the business as a whole; properties; legal proceedings; and mine safety disclosures. Of the four items included in Part I, the business section is the most informative and essential for stakeholders and stockholders because it discusses Apple’s background, products, employees, research and development; competition, supplies and components used for its products; markets, distribution channels; intangible assets; business strategy; and risk factors (Apple, 2012). Item two provides information about the company’s properties located in the United States and abroad, including information about approximate square footage, land ownership, demolition plans, and plans for building additional campuses. Item three discusses current, pending, or contingent legal proceedings. As of September 2012, Apple was involved in various legal proceedings associated with intellectual property litigation and a claim that was settled in fourth quarter of the 2012; however, management did not anticipate that the legal proceedings impacted the company’s material losses (Apple, 2012).
Part II of the annual report provides an overview of Apple’s common equity; stock holder matters; and equity securities. This section is useful for all stakeholders, but investment savvy individuals and shareholders may find it more useful because it includes a comparison of the highest and lowest stock prices for the current year and previous year by quarters. For example, it shows that the stock price range for the third quarter of 2012 was between $522.18 and $644 versus $310.50 and $355.13 in the third quarter of 2011 (Apple, 2012). Additionally, this section provides a comparison of selected financial data for the most recent five years; management’s discussion and analysis, which discuss multiple factors such as performance predictions, critical accounting policies, and estimates; financial statements and related notes; and the independent auditor’s report.
Part III includes information about Apple’s directors, officers, and corporate governance. It provides stakeholders with information about the location of detailed information about executives’ salary and compensation; security ownership; related transactions; and accounting fees and services (Apple, 2012). Part IV includes an indexed listing of exhibits of the company’s subsidiaries, consent of the independent accounting firm; and certifications for the information provided in the report from the Timothy Cook, the CEO, and Peter Oppenheimer, the CFO (Apple, 2012).
Factors Influencing Financial Performance & Primary Assets
Information about the factors that influenced Apple’s financial performance and its primary assets in 2012 is available in Part II under Item 8 – Financial Statements and Supplementary Data. This section provides essential information about the company’s annual sales, costs, and operating and other expenses for the past three years (2010 through 2012); a comparison of the assets for the most recent two years (2011 and 2012); and notes associated with relevant information about all items. A review of the financial statements and the notes to the financial statements reveal that the primary factors that affected the company’s income in 2012 was a significant increase in sales for the iPhone and related products; and the iPad and related products and sales.
Apple saw a 71 percent increase in iPhone sales and a 59 percent increase in iPad sales between 2011 and 2012 (Apple, 2012). Additionally, the iPhone represented 51 percent of total sales and the iPad represented 21 percent of total sales. The increase in sales for both product lines was essential to sales growth for 2012 because the company saw a significant decrease in sales for the iPod with a 25 percent decrease in sales between 2011 and 2012. The company’s primary assets for 2012 was its long-term marketable securities and its property, plant, and equipment because they represented 52 percent and 8.77 percent of the total assets, respectively.
Internal Control Environment
A company’s internal control is a representation of the “effectiveness and efficiency of operations; reliability of financial reporting; and compliance with applicable laws and regulations” (COSO, n.d.). Information about Apple’s internal control environment is disclosed in Part IV under Item 9A – Controls and Procedures. According to the information provided in this section of the report, management concluded that the company had effective internal control over the financial reporting for 2012 (Apple, 2012). Management claims that their assessment of the internal controls in consistent with the assessment provided by Ernst & Young, the company’s independent auditor. To provide additional assurance about their assessment of the adequacy of internal controls, the CEO and CFO provided signed certifications at the end of the annual report. The CEO and CFO certifications are required in all “publicly traded companies to certify the appropriateness of their financial statements and disclosures” under Section 302 of the Sarbanes-Oxley Act of 2002 (Marden et al, 2003, p. 36).
- Apple, Inc. (2012). 2012 Annual Report. [online] Retrieved from: http://files.shareholder.com/
- Committee of Sponsoring Organizations (COSO) (2013). Internal Control. [online] Retrieved from: http://www.coso.org/
- Marden, R., Edwards, R., & Stout, W. D. . The CEO CFO Certification Requirement. The CPA
Journal, 73 (7): 36-44. (–2003). Retrieved from: http://www.nysscpa.org/
- Yahoo Finance (2013). Apple Inc.. [online] Retrieved from: http://finance.yahoo.com/