1. Background Analysis

   Hardware products offered by the Company include Power MacG4, PowerBook, iMac
   Apple Computer...
products directly to end users through both its retail and online stores.

   During 2001, Apple introduced the first cust...
a single application.

   The Company's Internet products and technologies include QuickTime, QuickTime

Streaming Server,...
include assistance that is built into software products, printed and electronic product

manuals, online support (includin...
Financial data in U.S. dollars.


  Price Ratios                         Company   Industry   S&P 500

 Current P/E Ratio ...
Investment Returns %                                          Company        Industry        S&P 500

Return On Equity    ...
pay more for cash flow, which indicates stock price is as high as can be expected. On
the other hand it can be interpreted...
however, may indicate a weakness, as it is well above the Industry average. This is an
    indicator that Apple may have t...
Tevanian, Avadis        41     Senior VP 97’            87,920        $24.05-24.10

Avadis Tevanian, Jr., Ph.D., Senior Vi...
Heinen, Nancy           46    Sr. Exec. VP 97’      125,000            $24.04-$24.17
                              General...
11
M arket Cap. % in Computer Hardware Industry




                 OTHERS
                  13%
             AAPL
         ...
Percentage of Revenue from Net
                        Sales


      Software,                       Power
    Service, Ot...
This chart shows how the stock price dropped on July 10, 1997 due to the announcement
the company made regarding that thei...
A tricky game: the Apple CEO search July 10, 1997, 6:10 p.m. PT Gilbert Amelio's successor at
Apple (AAPL) will likely be ...
chief financial officer Fred Anderson would be responsible for daily operations until a
CEO successor is named.

"I think ...
Sales of Apple products has been dropping for the majority of resellers in the country,
according to the resellers themsel...
Undaunted Apple offers new lines July 14, 1997, 1:30 p.m. PT Upheaval
                                                    ...
series. The 6400/200 Video Editing Edition is now $1,800, down from $2,100. This
model includes a 200-MHz 603e processor, ...
20
AAPL (Apple Computer, Inc.)

                                                                                             ...
∆ in long-term debt =LTD02-LTD01                                      -1             17               0
                  ...
Wd=Debt/(Equity+Debt+Preferred Stock)             0.34979359     0.348945358     0.396295752
Wp=Preferrd stock/(Equity+Deb...
COV(Raapl,Rs&p500   VAR(Rs&p
Date   AAPL   Date   S&P 500   HPR(AAPL)   HPR(S&P 500)   )                   500)       Beta...
27-May-03   18.88   27-May-03   951.48   0.030567686    0.019566662    0.00090047   0.000849171   1.060411401
19-May-03   ...
7-Oct-02    14.51    7-Oct-02     835.32   0.034212402     0.04339354
30-Sep-02    14.03   30-Sep-02     800.58      -0.04...
19-Feb-02    22.74   19-Feb-02    1089.84   -0.048535565   -0.012987013
11-Feb-02     23.9   11-Feb-02    1104.18   -0.005...
25-Jun-01   23.25   25-Jun-01   1224.38   0.044474394    -0.000791611
18-Jun-01   22.26   18-Jun-01   1225.35   0.08904109...
WACC
                         0.078                                           .35 (Yr. 2001)
                             ...
Apple Computer Inc. Income Statement

Annual Income Statement (Values in Millions)   9/2002    9/2001    9/2000    9/1999 ...
Diluted EPS from Discont. Operations              0.00      0.00         0.00       0.00      0.00
Diluted EPS from Total ...
Total Common Shares Outstanding    359.0 Mil 350.9 Mil 335.7 Mil 321.6 Mil 270.4 Mil
Preferred Shares                     ...
Annual Cash Flow (in Millions)           9/2002     9/2001     9/2000     9/1999     9/1998
Cash Flow from Operating Activ...
Sales        EBIT     Depreciation        Total Net Income    EPS         Tax Rate (%)
09/02     5742.0        87.0       ...
In conclusion of our findings during the process of the report, we have found

more weaknesses of Apple Computer Inc. than...
year 2002 is higher than 2001, it’s EPS, total net income, and EBIT is a lot lower than

other years within the 10 year pe...
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Apple

  1. 1. 1. Background Analysis Hardware products offered by the Company include Power MacG4, PowerBook, iMac Apple Computer, Inc., incorporated in January 1977, designs, manufactures and and iBook. The Power Mac line of desktop PCs features dual PowerPC G4 processors in markets personal computers (PCs) and related personal-computing solutions for sale all models, a new high-performance architecture, and, on certain models, Apple's primarily to education, creative, consumer and business customers. The Company's SuperDrive, a combination CD-RW/DVD-R (compact disk-rewritable/digital versatile personal-computing products include desktop and notebook PCs, related devices and disk-recordable) drive that can burn DVDs that can be played in most consumer DVD peripherals, networking and connectivity products, as well as various third-party hardware players. The PowerBook family of portable computers is designed to meet the mobile products. Apple software products and computer technologies include operating systems; computing needs of professionals and advanced consumer users. The iMac line of desktop professional application software; consumer, education and business-oriented application computers feature industrial design with a built-in, 15-inch, shadow-mask, cathode-ray software; Internet products and technologies, and wireless connectivity and networking tube (CRT) display, Internet access, fan-less operation and a PowerPC G3 processor. The products. The Company also has its own retail stores. As of September 28, 2002, Apple Company's iBook models feature 12.1-inch or 14.1-inch TFT active-matrix displays, opened 51 retail stores in the United States. In addition to its own hardware and software include integrated wireless capabilities, utilize PowerPC G3 processors and offer a choice products, its retail stores carry in inventory a variety of third-party hardware and software of optical drive configurations. products. The Company also offers a range of support options for its customers through During the fiscal year ended September 28, 2002 (fiscal 2002), the Company AppleCare, Apple Training and Apple Professional Services. In April 2002, Apple introduced and shipped Xserve, a 1U rack-mount server designed for simple set up and acquired Zayante, a provider of IEEE 1394 (FireWire) technology. remote management. It also launched the eMac, a new Macintosh desktop system designed for the Company's education customers. In March 2002, Apple added a 10- gigabyte (GB) model to its iPod line, and, in July 2002, added a 20-GB model and announced that all iPod models would be made available in Windows-compatible versions. The Company sells certain associated Apple-branded computer hardware peripherals, including a range of flat panel, thin film transistor (TFT), active-matrix digital color displays. Apple also sells a variety of third-party, Macintosh-compatible hardware 1
  2. 2. products directly to end users through both its retail and online stores. During 2001, Apple introduced the first customer release of its new client operating system, Mac OS X, and its first significant upgrade, Mac OS X version 10.1. At its introduction, Mac OS X offered advanced functionality built on an open-source, UNIX- based foundation and incorporated fundamental changes in both core technology and user interface design made by the Company to the Mac OS in a single upgrade since the original introduction of the Macintosh in 1984. In August 2002, Apple released Mac OS X version 10.2. The Company's line of professional application software includes Final Cut Pro 3, Shake and DVD Studio Pro 1.5. Final Cut Pro 3 is a video authoring application designed to meet the demanding needs of the professional video editing environment. Shake is Apple's compositing and visual effects software designed for large format film and video productions. DVD Studio Pro 1.5 lets professional users encode video, conduct complex authoring tasks and preview finished product in real-time. Consumer-, education- and business-oriented application software products offered by Apple include iMovie 2, iPhoto, iTunes and AppleWorks 6.2. iMovie 2 is the Company's easy-to-use consumer digital video editing software for creation of home and classroom movies. IPhoto, which was designed exclusively for Mac OS X, makes it easy to import, edit, save, share and print digital photos, as well as organize and manage an entire digital photo collection containing thousands of photos. iTunes is a digital music application for the Macintosh that lets users create and manage their own digital music library. AppleWorks 6.2 is an integrated productivity application that incorporates word processing, page layout, image manipulation, spreadsheets, databases and presentations in 2
  3. 3. a single application. The Company's Internet products and technologies include QuickTime, QuickTime Streaming Server, QuickTime Broadcaster, WebObjects and Sherlock 3. QuickTime is Apple's multimedia software for Macintosh and Windows platforms. QuickTime Streaming Server software is the underlying server technology that powers QuickTime's ability to stream live and stored video and audio over the Internet. QuickTime Broadcaster is the Company's live encoding software that allows users to quickly and easily produce professional-quality live events for online delivery. WebObjects is its Java-based application server for Web publishing and enterprise application development. Sherlock 3 is its advanced Internet search engine. Apple's wireless connectivity and networking products are AirPort, Bluetooth technology for Mac OS X, Rendezvous networking technology and FireWire technology. AirPort is the Company's wireless networking technology that allows users to create a computer network and connect to the Internet without cables, additional phone lines or complicated networking hardware. Apple's Bluetooth technology for Mac OS X lets customers wirelessly share files between Macintosh systems, synchronize and share contact information with Palm-OS based personal digital assistants (PDAs) and access the Internet through Bluetooth-enabled cell phones. The Rendezvous networking technology is based on open Internet Engineering Task Force (IETF) Standard Protocols such as Internet protocol (IP), address resolution protocol (ARP) and domain name server (DNS). FireWire technology is a high-speed serial input/output technology for connecting digital devices, such as digital camcorders and cameras, to desktop and portable computers. AppleCare offers a range of support options for Apple customers. These options 3
  4. 4. include assistance that is built into software products, printed and electronic product manuals, online support (including comprehensive product information, as well as technical assistance) and the AppleCare Protection Plan. The AppleCare Protection Plan is a fee-based service that typically includes three years of phone support and hardware repairs, dedicated Web-based support resources and user diagnostic tools. Apple Training offers comprehensive system administration and development training on Apple technologies, together with certification programs that test customers' skills and verify their technical proficiency. Apple Professional Services offers a range of custom, personalized technical services, including Internet consulting and setup, installation and integration services. The Company also offers specialized loan programs including loans for consumers, students and educators. The Company also provides leasing solutions for its education institution customers and its business and professional customers. In addition, it offers a variety of services and products to its education customers, including a separate online store for education customers, offering special education price lists and promotions, as well as special financing programs for kindergarten through twelfth (K-12) grade and higher education students, faculty and staff. Note: Background info. cited from Multexinvestor.com, full company description. 2. Apple Computer Financial Ratio Analysis Growth Rates % Company Industry S&P 500 Sales (Qtr vs year ago qtr) -1.30 12.00 4.40 EPS (YTD vs YTD) -89.70 -6.60 30.30 EPS (Qtr vs year ago qtr) -65.00 -6.60 30.30 Sales (5-Year Annual Avg.) -1.72 -6.96 6.09 EPS (5-Year Annual Avg.) NA NA -5.77 Dividends (5-Year Annual Avg.) NA NA -1.38 4
  5. 5. Financial data in U.S. dollars. Price Ratios Company Industry S&P 500 Current P/E Ratio NA 56.6 37.5 P/E Ratio 5-Year High NA NA 64.2 P/E Ratio 5-Year Low NA NA 25.7 Price/Sales Ratio 1.21 1.93 1.48 Price/Book Value 1.70 8.95 2.98 Price/Cash Flow Ratio 60.00 41.30 16.60 Profit Margins % Company Industry S&P 500 Gross Margin 29.5 20.1 48.1 Pre-Tax Margin -0.2 5.5 7.7 Net Profit Margin -0.1 3.6 4.1 5Yr Gross Margin (5-Year Avg.) 27.9 22.6 47.5 5Yr PreTax Margin (5-Year Avg.) 6.8 4.2 9.0 5Yr Net Profit Margin (5-Year Avg.) 5.5 2.5 5.5 Financial data in U.S. dollars Financial Condition Company Industry S&P 500 Debt/Equity Ratio 0.00 0.06 1.27 Current Ratio 2.7 1.4 1.5 Quick Ratio 2.5 1.2 1.1 Interest Coverage -4.0 157.2 2.4 Leverage Ratio 1.5 2.4 6.3 Book Value/Share 11.32 2.91 10.69 Financial data in U.S. dollars 5
  6. 6. Investment Returns % Company Industry S&P 500 Return On Equity NA 16.5 8.2 Return On Assets -0.1 6.9 1.3 Return On Capital NA 15.3 3.6 Return On Equity (5-Year Avg.) 10.5 9.3 12.1 Return On Assets (5-Year Avg.) 6.0 4.4 2.0 Return On Capital (5-Year Avg.) 9.0 8.7 5.8 Financial data in U.S. dollars Management Efficiency Company Industry S&P 500 Income/Employee 0 27,000 12,000 Revenue/Employee 570,000 763,000 289,000 Receivable Turnover 10.2 14.5 5.8 Inventory Turnover 122.4 90.9 7.6 Asset Turnover 0.9 2.0 0.3 Note: Apple ratio information received from MSN.com and provided by Media General Financial Svc. I. Growth Ratios Apple Industry S&P 500 Sales Ratio(Qtr vs year ago qtr): -1.30 12.00 4.40 EPS (YTD vs YTD) -89.70 -6.60 30.30 These ratios show a weakness in Apple’s growth rates. Sales ratio is significantly well below Industry average, and somewhat below S&P. The negative EPS ratio denotes a loss in company earnings per share, and therefore is also a sign of negative growth. In addition, Apple’s loss per share is almost 14x greater than that of the Industry average, and 3x greater compared to S&P 500. II. Price Ratios Apple Industry S&P 500 Price/Sales 1.21 1.93 1.48 Price/Cash Flow Ratio 60.00 41.30 16.60 Apple’s Price/Sales ratio is lower than industry and S&P, yet only by a small margin. Such a small marginal difference does not indicate a weakness, only a slight shortfall. Apple’s Price/Cash Flow Ratio, however, exceeds that of Industry and S&P which on one hand can be interpreted as a strength because it shows investors are willing to 6
  7. 7. pay more for cash flow, which indicates stock price is as high as can be expected. On the other hand it can be interpreted as a weakness as it may indicate that Apple’s stock is overpriced. III. Profit Margin Ratios Apple Industry S&P 500 Gross Margin 29.5 20.1 48.1 Net Profit Margin -0.1 3.6 4.1 At first glance, Apple’s Gross Margin is higher than Industry, which may indicate a strength, yet further analysis of their Net Profit Margin would suggest otherwise. Apple’s net margin is so low it is negative, well below that of Industry and S&P. This not only an indicator of non-profitability, but it may also be an indicator that Apple has high operating costs, excessive debt leverage, or both. IV. Financial Condition Apple Industry S&P 500 Current Ratio 2.7 1.4 1.5 Quick Ratio 2.5 1.2 1.1 These two ratios show a good financial standing for Apple. These ratios demonstrate a stronger short-term solvency position for Apple compared to Industry and S&P 500. V. Investment Return Ratios Apple Industry S&P 500 Return on Assets -0.1 6.9 1.3 Return on Equity (5 yr Avg.) 10.5 9.3 12.1 Apple’s Return on Assets is well below Industry average, and somewhat below S&P. This is a sign of weakness, as it may indicate that 1) Apple’s basic earning power is low, or 2) that Apple incurs high interest costs due to excessive debt, or both. Apple’s 5-yr average Return on Equity ratio may be considered strength since it generates higher-than-industry average returns. However this somewhat better result (i.e., compared to ROA) is due to the company’s greater debt usage. VI. Management Efficiency Ratios Apple Industry S&P 500 Receivable Turnover 10.2 14.5 5.8 Inventory Turnover 122.4 90.9 7.6 Apple’s Receivable Turnover is a strength because it demonstrates Apple’s abilities to collect receivables at quicker rate than Industry Average. It shows Apple’s receivables are in a relatively strong liquidity position. Apple’s Inventory Turnover 7
  8. 8. however, may indicate a weakness, as it is well above the Industry average. This is an indicator that Apple may have to re-stock its inventory too often, perhaps due to inventory shortages. This in turn leads to higher costs. Additional Financial Ratio Information: Net sales in the Americas segment during the second quarter of 2003 decreased $52 million or 7% compared to the same quarter in 2002, and declined $17 million or 1% for the six months of 2003 compared to the same period in 2002. Both the quarterly and year to date results of the America’s segment are similar to the overall results of the Company as they reflect lower unit sales and net sales of Power Macintosh systems and IMac systems partially offset by significant increases in unit sales and net sales of Power Books and by net sales of peripherals and software. The Americas segment results were also negatively affected by the 8% decline in quarterly net sales in the U.S. education channel. The Company believes the cause for this decline is that U.S. educational institutions appear to have reduced or postponed capital spending due to federal and state funding concern and tax revenue shortfalls resulting from the weak economy and that competition in this market is increasing. Additionally, some of the decline in 2003 net sales in the Americas segment may be the result of the operation of the Company’s Retail segment whose net sales, all of which occur within the U.S., increased significantly in the first half of 2003. Chairman of the Board, President and Chief Executive Officers Name Age Position/Year Shares Own Price per Share Levinston, Arthur 52 Director 00’ 50,000 $14.87-$14.90 Arthur D. Levinson, Ph.D. has been President, Chief Executive Officer and a director of Genentech Inc. (Genentech) since July 1995. Dr. Levinson has been Chairman of the Board of Directors of Genentech since September 1999. He joined Genentech in 1980 and served in a number of executive positions, including Senior Vice President of R&D from 1993 to 1995. 8
  9. 9. Tevanian, Avadis 41 Senior VP 97’ 87,920 $24.05-24.10 Avadis Tevanian, Jr., Ph.D., Senior Vice President, Software Engineering (age 41), joined the Company in February 1997 upon the Company's acquisition of NeXT. With NeXT, Dr. Tevanian held several positions, including Vice President, Engineering, from April 1995 to February 1997. Prior to April 1995, Dr. Tevanian worked as an engineer with NeXT and held several management positions. Anderson, Fred 58 CFO, Exec. VP 98’ 150,000 $6.63 Fred D. Anderson, Executive Vice President and Chief Financial Officer (age 58), joined the Company in April 1996. Prior to joining the Company, Mr. Anderson was Corporate Vice President and Chief Financial Officer of Automatic Data Processing, Inc., a position he held from August 1992 to March 1996. Mr. Anderson also serves as a director of 3Com Corporation. Campbell, William 62 Director 97’ N/A N/A William V. Campbell has been Chairman of the Board of Directors of Intuit, Inc. (Intuit) since August 1998. From September 1999 to January 2000, Mr. Campbell acted as Chief Executive Officer of Intuit. From April 1994 to August 1998, Mr. Campbell was President and Chief Executive Officer and a director of Intuit. From January 1991 to December 1993, Mr. Campbell was President and Chief Executive Officer of GO Corporation. Mr. Campbell also serves on the board of directors of SanDisk Corporation and Loudcloud, Inc. Cook, Timothy 42 Exec. VP Worldwide 572,500 $23.90-$24.80 Sales/Operations Timothy D. Cook, Executive Vice President, Worldwide Sales and Operations (age 42), joined the Company in February 1998. Prior to joining the Company, Mr. Cook held the position of Vice President, Corporate Materials for Compaq Computer Corporation (Compaq). Previous to his work at Compaq, Mr. Cook was the Chief Operating Officer of the Reseller Division at Intelligent Electronics. Mr. Cook also spent 12 years with IBM, most recently as Director of North American Fulfillment. Drexler, Millard 58 Director 99’ N/A N/A Millard S. Drexler was Chief Executive Officer of Gap Inc. from 1995 and President from 1987 until September 2002. Mr. Drexler was also a member of the Board of Directors of Gap Inc. from November 1983 until October 2002. He also served as the President of the Gap Division from 1983 to 1987. Gore, Jr. Albert N/A Director 03’ N/A N/A Mr. Gore was inaugurated as the 45th Vice President of the United States on January 20, 1993. He was re-elected in 1996, and helped lead the U.S. into the longest period of sustained economic growth in American history. He served for a total of eight years as President of the Senate, a member of the cabinet and the National Security Council, and as the leader of a wide range of Administration initiatives including environmental policy, technology, science, communications and government cost reduction. Mr. Gore serves as a Senior Advisor to Google, Inc. He is also a visiting professor at the University of California Los Angeles, Fisk University and Middle Tennessee State University. Mr. Gore received his B.A. in Government with honors from Harvard University in 1969, and attended the Vanderbilt University School of Religion and the Vanderbilt University School of Law. 9
  10. 10. Heinen, Nancy 46 Sr. Exec. VP 97’ 125,000 $24.04-$24.17 General Counsel and Secretary Nancy R. Heinen, Senior Vice President, General Counsel and Secretary (age 46), joined the Company in September 1997. Prior to joining the Company, Ms. Heinen held the position of Vice President, General Counsel and Secretary of the Board of Directors at NeXT from February 1994 until the acquisition of NeXT by the Company in February 1997. Jobs, Steven 47 Chief Executive N/A N/A Officer/Director Steven P. Jobs is one of the Company's co-founders and currently serves as its Chief Executive Officer. Mr. Jobs is also the Chairman and Chief Executive Officer of Pixar Animation Studios. In addition, Mr. Jobs co-founded NeXT Software, Inc. (NeXT) and served as the Chairman and Chief Executive Officer of NeXT from 1985 until 1997 when NeXT was acquired by the Company. Johnson, Ronald 44 Sr. VP, Retail 00’ N/A N/A Ronald B. Johnson, Senior Vice President, Retail (age 44), joined the Company in January 2000. Prior to joining the Company, Mr. Johnson spent 10 years with Target Stores, most recently as Senior Merchandising Executive. Oppenheimer, Peter 40 Sr. VP. Finance 227,500 $24.05-$24 Peter Oppenheimer, Senior Vice President of Finance and Corporate Controller (age 40), joined the Company in July 1996. Mr. Oppenheimer also served with the Company in the position of Vice President and Corporate Controller and as Senior Director of Finance for the Americas. Prior to joining the Company, Mr. Oppenheimer was CFO of one of the four business units for Automatic Data Processing (ADP). Prior to joining ADP, Mr. Oppenheimer spent six years in the Information Technology Consulting Practice with Coopers and Lybrand. Chang, Gareth N/A Director 01’ 60,000 $18.62-$18.92 (No Bio Available) Note: No apparent relationships exist between any of the Board members or Executives 2. Free Cash Flow and Cost of Equity: Although the discount rate may seem realistic since the required return on equity only increased 3%, it is in all probability unrealistic. This is due to the fact that the FCFE is based on year 2002, and growth rate is based on 2003. By using different year’s information to calculate the return on equity the rate may be unrealistic. (Look at page 21-22 for better understanding) 10
  11. 11. 11
  12. 12. M arket Cap. % in Computer Hardware Industry OTHERS 13% AAPL 1% IBM IBM 25% CSCO CAJ 12% DELL HPQ HPQ CAJ 12% CSCO AAPL DELL 22% 15% OTHERS Pie Chart Description: This chart shows the percentage of market capitalization for the leading companies in the computer hardware industry in comparison to Apple Computer, Inc. Total market capitalization for the Computer Hardware Industry currently totals 654 billon dollars. As of present, Apple Computer, Inc. trails behind with a market capitalization of a mere 1%. Dominating the industry is IBM, who enjoys a 25% market share, and Cisco Systems who is currently holding 22% of the market. Dell ranks third, at 15%, with Hewlett Packard, and Cannon following at a 12% market cap each. Note: Information received from Yahoo.com/Finance 12
  13. 13. Percentage of Revenue from Net Sales Software, Power Service, Other Macintosh Power Macintosh 21% 24% PowerBook iMac iBook PowerBook 15% iBook iMac 14% Software, Service, Other 26% Pie Chart Description: This chart shows the percentage of revenue generated by net sales per each line of Apple’s product orientation. Apple’s iMac generates the most revenue at 26%, while the Power Macintosh generates a slightly lower percentage of revenue at 24%. Additional revenue is gained from the PowerBook and iBook at 14% and 15%, respectively. The remainder of revenue is generated from software, service, and other sales at 21%. Total revenue from net sales totals 5,752 million. Note: Information received from Apple Computer Inc., SEC Filings, 10K File #3. Market Efficiency Announcement: Chief Executive resigned Change in July 10, 1997 13
  14. 14. This chart shows how the stock price dropped on July 10, 1997 due to the announcement the company made regarding that their chief executive, Gilbert Amelio, had resigned. Due to this announcement the stock price fell. We can see how on July 7, 1997 the price was higher then it slowly began to fell due to speculations in the news about Amelio’s resignation. But not until that day of the announcement did the change in stock price become noticeable. On that day of the announcement we see that the there is a significant, noticeable change. After Amelio’s resignation from the company, we see that there is a significant and noticeable change. This change is not negative; it’s a positive change causing the stock price to go up. The reason for this is that Apple made a change on July 14, 1997. Apple made it noticeable that it "plans to stay competitive with new products and reduced prices". By this announcement from CNET’s NEWS.COM, Apple*s stock price increased for a good change. The Market Efficiency in this graph, according to the announcement of the resignation of Amelio, is Weak-Form Market Efficiency. The reason for this is that as soon as there was rumors about his resignation, the stock price slowly decreased, then as soon as the announcement came to be true the stock price decreased deliberately. The following is a series of statements in the news that talked about the resignation of Gilbert Amelio. After the story of Amelio’s resignation more stories related to him came upon. Then, at the end is the news made by CNET’s NEWS.COM stating that Apple plans to stay on top of things. “Apple stock falls amid rumors” July 10, 1997, 2:50 p.m. PT The price of Apple Computer (AAPL) stock ended the day slightly lower, following the departure of its embattled CEO and concerns that the troubled computer maker may miss earnings estimates. Board members inside story on Amelio July 10, 1997, 5:05 p.m. PT Gilbert Amelio's time at Apple (AAPL) began running out back in April, an Apple board member told CNET's NEWS.COM today. 14
  15. 15. A tricky game: the Apple CEO search July 10, 1997, 6:10 p.m. PT Gilbert Amelio's successor at Apple (AAPL) will likely be a hardware industry expert drawn to the intellectual stimulation of turning a troubled American icon around. Letter from executive management July 10, 1997, 11:30 a.m. PT The following is a letter from Apple's new executive management team announcing the resignations of CEO Gil Amelio and executive vice president of technology Ellen Hancock and describing the new corporate structure at the company Letter from Amelio to the rank and file July 10, 1997, 11:30 a.m. PT The following is a letter from Gil Amelio regarding his resignation at Apple, which outlines the achievements under his tenure at the struggling company Amelio exit may not help stock July 9, 1997, 8:45 p.m. PT The departure of embattled Apple Computer (AAPL) CEO Gilbert Amelio may not help Apple's stock, analysts said today. Amelio's golden handshake July 9, 1997, 9 p.m. PT If you're feeling sorry for Gil Amelio, consider his severance package: The chief executive is leaving Apple Computer (AAPL) with close to $3.5 million Amelio: No hugs, just hisses July 9, 1997, 9 p.m. PT Last year, as Apple (AAPL) was hemorrhaging red ink and facing a cash shortage, Gilbert Amelio stepped into the hot seat as chief executive. Has Jobs seized the day? July 9, 1997, 9:15 p.m. PT The dust hasn't even settled after Gil Amelio's unceremonious departure, and already there's speculation that Steve Jobs is consummating his return to the company he confounded. Amelio's departure is an opportunity July 9, 1997, 8 p.m. PT Apple's woes would surely be compounded if the developer community gave up on the beleaguered company. But early returns indicate that although many are willing to dismiss Gil Amelio, they are not yet ready to abandon Apple. The history of Apple July 9, 1997, 4 p.m. PT More upheaval hits Apple as CEO Gil Amelio and Executive Vice President of Technology Ellen Hancock quit the company and original founder Steve Jobs plans to take "an expanded role." As the latest drama unfolds, CNET's NEWS.COM takes a look back through the last two decades to trace the twists and turns of Apple's fate. Apple resellers: Change is gonna do no good July 9, 1997, 6:15 p.m. PT Gil Amelio didn't deliver. http://news.com News 1. “Apple Stock Falls Amid Rumors” By Dawn Kawamoto , Michael Kanellos and Suzanne Galante Staff Writer, CNET News.comJuly 10, 1997, 3:50 PM PT Update The price of Apple Computer (AAPL) stock ended the day slightly lower, following the departure of its embattled CEO and concerns that the troubled computer maker may miss earnings estimates. Apple shares fell as low as 12-3/4 in morning trading, down from its close of 13-11/16 yesterday. The stock finished the day at 13-1/4. The company announced yesterday that Gilbert Amelio, chief executive, had resigned. Apple also announced its cofounder Steve Jobs would take an expanded role, while its 15
  16. 16. chief financial officer Fred Anderson would be responsible for daily operations until a CEO successor is named. "I think the rational investor will look at [Amelio's departure] indifferently. His departure is not a big surprise. It's the result of a bad situation that everyone already knew about," said Daniel Kunstler, an analyst with J.P. Morgan Securities. There is no "silver bullet" to fix Apple's financial woes and that it will take a new CEO time to establish goals and an action plan, Kunstler said. He is also worried about Apple's current situation: "With the timing of Amelio's departure, just before the earnings release, the thought has crossed my mind that something is seriously amiss in the quarter," he said. Rick Berry, an analyst with Murphey, Marseilles, Smith, also said that Amelio's resignation is not much of a surprise. "Everyone has been disappointed*17 months on the job was long enough to turn the company around," he said. Berry says that a buyout of Apple at this point is much more likely than a turnaround. "At some point the stock becomes of value. They only have 3.5 percent market share, but they still do $7 billion in revenue, so at some point the price may actually warrant someone buying the company," he said. Apple's Anderson said in a conference call that the company is not interested in selling. Apple, which released its news after the market's close, saw its stock yesterday dip to 13-11/16, down 1/16 over the previous day. Over the course of the past few weeks, Apple's share price has dipped to new 12-year lows on news that an investor unloaded 1.5 million shares and a Macintosh clone vendor Power Computing would also carry the Windows-Intel platform on its computers. Amelio's departure comes just a week before the company reports its third-quarter results on July 16. Apple, which reported a whopping second-quarter net loss of $708 million, is expected to shrink its loss to $68.2 million for the third quarter, according to a consensus of analysts by First Call. But analysts estimates vary widely, from $121 million to as low as $11.3 million. Analysts' recommendations on the stock were less diverse. Of the 23 analysts that follow Apple, 19 vote for a "hold" on the stock, according to First Call. Of the 4 remaining, one rated the stock "unattractive," another recommended a "strong sell," and two analysts have rated the stock as a "buy." But at least one analyst was skeptical of the ratings. "We do have an upward bias on the ratings. Not a lot of analysts will cover stocks that they don't like," said Rob Gowen, a spokesman for First Call. J.P. Morgan's Kunstler had expected the company to post a loss of $80 million on revenues of $1.9 billion for the quarter. He added that third-quarter revenues are expected to fall 13 percent below levels achieved last year at the same time. The acid test will come when the company releases its unit shipments for the quarter. Kunstler said that Apple needs to ship at least 800,000, a benchmark set last quarter. The number of Apple PCs shipped and sold during the second quarter dropped 15 percent from last year, according to Matt Sargent, an analyst at Computer Intelligence. Apple was No. 6 among vendors for units shipped and sold this quarter. 16
  17. 17. Sales of Apple products has been dropping for the majority of resellers in the country, according to the resellers themselves. Even sales partners with strong Apple bases barely have been able to maintain sales. Chris Ferry, senior vice president of Graham MicroAge, a large Apple dealer in the midwest and one of Apple's largest education dealers, said that although Apple sales have stayed relatively even, it was only because of a few exceptional PowerBooks deals. Without those projects, sales would have dropped. Meanwhile, institutional investors were pleased with the news. CalPERS, an investor and shareholder activist, described the management change as "long overdue." "It's gratifying to see Apple's board took this independent step that's necessary for the future success of the company* and shareholders as well," said Brad Pacheco, a CalPERS spokesman. The pension fund giant holds 709,565 shares and had placed Apple on its target list of top-ten underperforming companies. CalPERS had a meeting with Apple's board members and management scheduled for yesterday to discuss the computer maker's plans to restore profitability, but the company last week asked to postpone the meeting. "We still plan to meet with the board, and in particular with the executive search team," Pacheco said. "CalPERS wants to know the skills they are seeking in a new CEO and discuss the strategic direction that this team has planned for the company." No date has been set yet for that meeting. One stock fund, which sold its 340,000 share stake in April when Apple's stock got a sudden jolt on talk of a buyout by an investment group headed by Oracle CEO Larry Ellison, said pulling out was a "no brainer." Parnassus Fund head of research David Pogran, said, "We did the right thing. We don't see the catalyst. We look for undervalued companies with a catalyst over the next 12 months and we have not identified what that would be for Apple." But, if a chance of a turn around becomes a possibility, Pogran said it would consider buying back in. "A successor could be the catalyst we are looking for. We are not religiously opposed to investing in Apple, but it would have to be a show-me type situation. There is some X factor out there that prevents this company from turning around," he said. Pogran said he has mixed feeling about the passing of the torch because the new blood could fuel growth or just create more turmoil. "Will this change result in delays of new products, like Rhapsody?" he asked. News 2. “Three Months of Turmoil” By Stephanie Miles and Dawn Kawamoto Staff Writer, CNET News.comJuly 16, 1997, 4:00 PM PT Timeline In the quarter leading up to its management shakeup, Apple has revamped its computers, upgraded its operating system, and even spun off its Newton division in an effort to turn itself around. 17
  18. 18. Undaunted Apple offers new lines July 14, 1997, 1:30 p.m. PT Upheaval in Apple Computer's (AAPL) top ranks notwithstanding, the company continues to show that it intends to stay competitive with new products and reduced prices. On Saturday, CNET's NEWS.COM reported a surprising round of Apple price cuts. That was followed today by a critical update to its midrange notebook computer line. The PowerBook 1400 notebook now has a 166-MHz model, while prices on the 133- MHz computers are reduced--the first significant change to the line since it was introduced late last year. "These are the kind of speed bumps they need to be making as a regular course of the upgrade cycle. In that sense, it’s a job well done for getting on to a standard practice in the industry," says Mike McGuire, an analyst with market research firm Dataquest. The real significance, however, may lie in the fact that Apple was issuing this kind of business-as-usual product announcement so quickly after the stunning resignation of CEO Gilbert Amelio last week. The new PowerBook 1400c/166 will come with a 166-MHz 603e PowerPC processor, serving as Apple's midrange offering for basic office applications, as first reported in April by NEWS.COM. Apple's sub-$2000 PowerBook 1400cs/117 models will be dropped, while remaining 1400s will also get larger hard drives and faster CD-ROM drives. The newest model will bridge the gap between the older 1400s and high- performance PowerBook 3400 line, which offers the most powerful systems. Apple will add a 2GB hard disk drive and an 8X CD-ROM drive to the 1400c/166 model, which is expected to retail for $3,500. Apple says the 1400c/166 model is expected to retail for $3,500. The other models will range in price from $2,500 to $3,000. All models will be available later this July. Also, in the first concrete product move since its management upheaval last week, Apple on Saturday reduced prices up to $300 on select Power Macintosh 6500 and Macintosh Performa 6400 series computers. The Power Macintosh 6500 line, introduced in April 1997, offers performance ranging from 225 to 300 MHz, using a 603e PowerPC processor. It features an advanced graphics chip from ATI Technologies, built-in Internet access capabilities, and video capture, edit, and publishing options. The 6500 comes standard with a minimum of 32MB of memory, a 3GB or 4GB hard drive. Systems also feature built-in 12X-speed CD-ROM drives and modems. A 6500 model with a 300-MHz 603e processor, 64MB of memory, and a 4GB hard drive will fall in price from $3,000 to $2,800. This compares favorably with fastest multimedia systems from Intel-processor-based vendors such as Compaq Computer and IBM. Systems with speedy Intel processors and large memory and hard drive configurations are typically well over $3,000. At the lower end of the spectrum, a Power Macintosh 6500 with a 225-MHz processor will fall from $2,000 to $1,800. This includes the standard features and a 3GB hard drive. Prices were also slashed $300 on the Performa 6400 18
  19. 19. series. The 6400/200 Video Editing Edition is now $1,800, down from $2,100. This model includes a 200-MHz 603e processor, 32MB of memory, a 2.4GB hard drive, an 8X CD-ROM drive, and a 28.8-kbps modem. The 6400/200 Video Editing Edition adds multimedia features such as video capture and creation and publishing using Avid Cinema video-editing technology. A standard Performa 6400 (not a Video Editing Edition) with a 200-MHz processor, 32MB of memory, a 2.4GB hard drive, an 8X CD- ROM drive, and a 28.8-kbps modem is now $1,400, down from $1,700. News 3. “The Effects of September 11, 2001” The chart above shows us the price history of Apple from September 3, 2001 to September 30, 2001. Here we see how the events of September 11, 2001 affected the prices of Apple’s stock. We notice that from September 10 until about September 16 the price of the stock remained the same. Therefore we cannot determine whether the market efficiency is weak, semi-strong, or strong form. The next graph shows one month before and after September 11 on the price of IBM being compared to Apple. As we analyze the two company, we indicate the reason for t his being is, because IBM is the leading computer company in the industry. So, as their stick changes, it caused other smaller company (Apple) to change also. Therefore, we indicate that it is hard to tell whether it is weak, semi-strong, or strong form 19
  20. 20. 20
  21. 21. AAPL (Apple Computer, Inc.) 2003 2002 2001 2000 1.Background Analysis: . HPR = Ending Price – Beginning Price + Distributions HRP=Ending Price - Beginning Price + Distributions 0.2791346828 -0.3456621 0.471774194 -0.85165985 Beginning Price Dividend 0 0 0 0 Price 18.33 14.33 21.9 14.88 HPR 0.2791346828 -0.3456621 0.471774194 -0.85165985 (expected) 2.Free Cash Flow and Cost of Equity: .FCFE 2002 2001 2000 NI 65 -25 786 (+)Deprecitaion 118 102 84 (-)Capital Expenditures 28 -97 -377 (-)∆ in working capital 105 131 668 (+) ∆ in long-term debt -1 17 0 FCFE 49 60 579 (Mil) Note: Capital Expenditures 28 -97 -377 Additions to property, plant, and equipment 35 -88 -367 (-) Disposition of property and equipment 7 9 10 ∆ in working capital = [(CA 02)-(CA01)]-[(CL02)-(CL01)] 105 131 668 CA 5,388 5143 5427 CL 1,658 1,518 1933 21
  22. 22. ∆ in long-term debt =LTD02-LTD01 -1 17 0 LTD 316 317 300 .K (Discounted cash flow (DCF) model) P=(FCFE/Shares)/K-G FCFE 49000000 60000000 579000000 k=(FCFE/shares)/P +G shares outstanding 900,000,000 900000000 900000000 G -0.5085 -0.5085 -0.5085 P 18.33 14.33 21.9 K(required return on equity) -0.5055298 -0.50384776 -0.47912405 2002 2001 2000 4. Risk Analysis: Beta IBM 1.06 1.06 1.06 Beta= COV(RIBM, RS&P500)/VAR(RS&P500) Unlevered Beta 0.75610606 0.767369581 0.719861403 [Equity/(Equity +((1-T)Debt))]* BetaEquity=Beta_unlevered Equity 4,095 3,920 4,107 Debt 2,203 2,101 2,696 Tax rate =22/87=0.25287 0.2529 0.2885 0.2802 Income form continuing operations before income taxes 87 Provision for income tax 22 .K (CAPM) K= Rf + Beta(Rm-Rf) K(required return on equity) 0.1086 0.1086 0.1086 we assume Rf=4.5% and Rm-Rf=6%, and use Beta=1.06 The company is currently overpriced because K(CAPM)> K( DCF model) 5. Cost of Capital and Optimal Capital Structure: 2002 2001 2000 .WACC=We*Ke + Wd*kd*(1-T)+ Wp* Kp We= Equity/(Equity+Debt+Preferred Stock) 0.65020641 0.651054642 0.603704248 22
  23. 23. Wd=Debt/(Equity+Debt+Preferred Stock) 0.34979359 0.348945358 0.396295752 Wp=Preferrd stock/(Equity+Debt+Preferred Stock) 0 0 0 Ke 0.1 0.1 0.1 Kd 0.049459 0.051234 0.051895 Kp 0 0 0 WACC 0.0779458 0.077825566 0.075173665 23
  24. 24. COV(Raapl,Rs&p500 VAR(Rs&p Date AAPL Date S&P 500 HPR(AAPL) HPR(S&P 500) ) 500) Beta AAPL 24
  25. 25. 27-May-03 18.88 27-May-03 951.48 0.030567686 0.019566662 0.00090047 0.000849171 1.060411401 19-May-03 18.32 19-May-03 933.22 -0.025531915 -0.011733559 12-May-03 18.8 12-May-03 944.3 0.027322404 0.011666899 5-May-03 18.3 5-May-03 933.41 0.266435986 0.003580337 28-Apr-03 14.45 28-Apr-03 930.08 0.082397004 0.034790445 21-Apr-03 13.35 21-Apr-03 898.81 0.017530488 0.005852862 14-Apr-03 13.12 14-Apr-03 893.58 -0.006060606 0.029114361 7-Apr-03 13.2 7-Apr-03 868.3 -0.083969466 -0.012004324 31-Mar-03 14.41 31-Mar-03 878.85 -0.010981469 0.017776491 24-Mar-03 14.57 24-Mar-03 863.5 -0.028666667 -0.036046395 17-Mar-03 15 17-Mar-03 895.79 0.01488498 0.075029702 10-Mar-03 14.78 10-Mar-03 833.27 0.017205781 0.005284175 3-Mar-03 14.53 3-Mar-03 828.89 -0.031978681 -0.014575284 24-Feb-03 15.01 24-Feb-03 841.15 0.000666667 -0.008276643 18-Feb-03 15 18-Feb-03 848.17 0.022494888 0.015906287 10-Feb-03 14.67 10-Feb-03 834.89 0.036749117 0.006267401 3-Feb-03 14.15 3-Feb-03 829.69 -0.014623955 -0.030396167 27-Jan-03 14.36 27-Jan-03 855.7 0.04057971 -0.006617135 21-Jan-03 13.8 21-Jan-03 861.4 -0.021276596 -0.044778106 13-Jan-03 14.1 13-Jan-03 901.78 -0.042119565 -0.027803832 6-Jan-03 14.72 6-Jan-03 927.57 -0.012080537 0.02088951 30-Dec-02 14.9 30-Dec-02 908.59 0.059743954 0.037914096 23-Dec-02 14.06 23-Dec-02 875.4 -0.005657709 -0.022729302 16-Dec-02 14.14 16-Dec-02 895.76 -0.043948614 0.007060305 9-Dec-02 14.79 9-Dec-02 889.48 -0.010702341 -0.024938886 2-Dec-02 14.95 2-Dec-02 912.23 -0.035483871 -0.025717978 25-Nov-02 15.5 25-Nov-02 936.31 -0.031855091 0.006189888 18-Nov-02 16.01 18-Nov-02 930.55 0.003761755 0.022773485 11-Nov-02 15.95 11-Nov-02 909.83 0.006944444 0.016865235 4-Nov-02 15.84 4-Nov-02 894.74 -0.031784841 -0.006903747 28-Oct-02 16.36 28-Oct-02 900.96 0.060959792 0.003687406 21-Oct-02 15.42 21-Oct-02 897.65 0.075313808 0.014993385 14-Oct-02 14.34 14-Oct-02 884.39 -0.011716058 0.058743954 25
  26. 26. 7-Oct-02 14.51 7-Oct-02 835.32 0.034212402 0.04339354 30-Sep-02 14.03 30-Sep-02 800.58 -0.046875 -0.032379709 23-Sep-02 14.72 23-Sep-02 827.37 -0.010087424 -0.021315606 16-Sep-02 14.87 16-Sep-02 845.39 0.049400141 -0.04992077 9-Sep-02 14.17 9-Sep-02 889.81 -0.014603616 -0.004597727 3-Sep-02 14.38 3-Sep-02 893.92 -0.025084746 -0.024179375 26-Aug-02 14.75 26-Aug-02 916.07 -0.062301335 -0.026348235 19-Aug-02 15.73 19-Aug-02 940.86 -0.005060089 0.013017216 12-Aug-02 15.81 12-Aug-02 928.77 0.054 0.022153988 5-Aug-02 15 5-Aug-02 908.64 0.038062284 0.051374618 29-Jul-02 14.45 29-Jul-02 864.24 0.007670851 0.013367103 22-Jul-02 14.34 22-Jul-02 852.84 -0.04144385 0.006004129 15-Jul-02 14.96 15-Jul-02 847.75 -0.145631068 -0.079922725 8-Jul-02 17.51 8-Jul-02 921.39 -0.065635005 -0.068390241 1-Jul-02 18.74 1-Jul-02 989.03 0.057562077 -0.000798125 24-Jun-02 17.72 24-Jun-02 989.82 0.051632047 0.000687466 17-Jun-02 16.85 17-Jun-02 989.14 -0.161691542 -0.017999146 10-Jun-02 20.1 10-Jun-02 1007.27 -0.060747664 -0.019717186 3-Jun-02 21.4 3-Jun-02 1027.53 -0.081545064 -0.037117904 28-May-02 23.3 28-May-02 1067.14 -0.035196687 -0.015390009 20-May-02 24.15 20-May-02 1083.82 -0.034386246 -0.020576727 13-May-02 25.01 13-May-02 1106.59 0.072469983 0.048910416 6-May-02 23.32 6-May-02 1054.99 -0.008081667 -0.017178577 29-Apr-02 23.51 29-Apr-02 1073.43 0.021729683 -0.002685075 22-Apr-02 23.01 22-Apr-02 1076.32 -0.07886309 -0.043415662 15-Apr-02 24.98 15-Apr-02 1125.17 -0.003192338 0.01274516 8-Apr-02 25.06 8-Apr-02 1111.01 0.012934519 -0.010438841 1-Apr-02 24.74 1-Apr-02 1122.73 0.045204901 -0.021492256 25-Mar-02 23.67 25-Mar-02 1147.39 -0.01743462 -0.00114042 18-Mar-02 24.09 18-Mar-02 1148.7 -0.034468938 -0.014972217 11-Mar-02 24.95 11-Mar-02 1166.16 0.011759935 0.001588924 4-Mar-02 24.66 4-Mar-02 1164.31 0.051599147 0.028742335 25-Feb-02 23.45 25-Feb-02 1131.78 0.031222515 0.038482713 26
  27. 27. 19-Feb-02 22.74 19-Feb-02 1089.84 -0.048535565 -0.012987013 11-Feb-02 23.9 11-Feb-02 1104.18 -0.005409904 0.007261316 4-Feb-02 24.03 4-Feb-02 1096.22 -0.027912621 -0.023150953 28-Jan-02 24.72 28-Jan-02 1122.2 0.063225806 -0.009776931 22-Jan-02 23.25 22-Jan-02 1133.28 0.048714479 0.005055074 14-Jan-02 22.17 14-Jan-02 1127.58 0.053206651 -0.015729749 7-Jan-02 21.05 7-Jan-02 1145.6 -0.111439426 -0.022950764 31-Dec-01 23.69 31-Dec-01 1172.51 0.056174766 0.00989647 24-Dec-01 22.43 24-Dec-01 1161.02 0.068095238 0.01408869 17-Dec-01 21 17-Dec-01 1144.89 0.029916626 0.019410733 10-Dec-01 20.39 10-Dec-01 1123.09 -0.09538598 -0.030406368 3-Dec-01 22.54 3-Dec-01 1158.31 0.058215962 0.016551845 26-Nov-01 21.3 26-Nov-01 1139.45 0.07358871 -0.009466766 19-Nov-01 19.84 19-Nov-01 1150.34 0.045861887 0.010266544 12-Nov-01 18.97 12-Nov-01 1138.65 0.013896312 0.016370469 5-Nov-01 18.71 5-Nov-01 1120.31 0.007539041 0.030454378 29-Oct-01 18.57 29-Oct-01 1087.2 -0.005356186 -0.015761219 22-Oct-01 18.67 22-Oct-01 1104.61 0.020218579 0.028999143 15-Oct-01 18.3 15-Oct-01 1073.48 0.016102165 -0.016644529 8-Oct-01 18.01 8-Oct-01 1091.65 0.115861214 0.018919524 1-Oct-01 16.14 1-Oct-01 1071.38 0.040618956 0.0292428 24-Sep-01 15.51 24-Sep-01 1040.94 -0.013986014 0.077800787 10-Sep-01 15.73 10-Sep-01 965.8 -0.089699074 -0.110501207 4-Sep-01 17.28 4-Sep-01 1085.78 -0.068463612 -0.042167293 27-Aug-01 18.55 27-Aug-01 1133.58 -0.001077006 -0.043335893 20-Aug-01 18.57 20-Aug-01 1184.93 0.027670172 0.019759546 13-Aug-01 18.07 13-Aug-01 1161.97 -0.049947424 -0.023685891 6-Aug-01 19.02 6-Aug-01 1190.16 -0.024615385 -0.019920122 30-Jul-01 19.5 30-Jul-01 1214.35 0.028481013 0.007074024 23-Jul-01 18.96 23-Jul-01 1205.82 -0.051051051 -0.004154107 16-Jul-01 19.98 16-Jul-01 1210.85 -0.195975855 -0.003973085 9-Jul-01 24.85 9-Jul-01 1215.68 0.128007263 0.021073585 2-Jul-01 22.03 2-Jul-01 1190.59 -0.052473118 -0.027597641 27
  28. 28. 25-Jun-01 23.25 25-Jun-01 1224.38 0.044474394 -0.000791611 18-Jun-01 22.26 18-Jun-01 1225.35 0.089041096 0.009050035 11-Jun-01 20.44 11-Jun-01 1214.36 -0.041275797 -0.040001265 4-Jun-01 21.32 4-Jun-01 1264.96 0.020584011 0.003402952 29-May-01 20.89 29-May-01 1260.67 -0.082161687 -0.013475338 21-May-01 22.76 21-May-01 1277.89 -0.032724182 -0.01089043 14-May-01 23.53 14-May-01 1291.96 0.0297593 0.037160725 7-May-01 22.85 7-May-01 1245.67 -0.112621359 -0.016532319 30-Apr-01 25.75 30-Apr-01 1266.61 -0.017175573 0.010821595 23-Apr-01 26.2 23-Apr-01 1253.05 0.046325879 0.008101498 16-Apr-01 25.04 16-Apr-01 1242.98 0.116859946 0.05025771 9-Apr-01 22.42 9-Apr-01 1183.5 0.088878096 0.048802318 2-Apr-01 20.59 2-Apr-01 1128.43 -0.067059357 -0.027492179 26-Mar-01 22.07 26-Mar-01 1160.33 -0.040434783 0.017985138 19-Mar-01 23 19-Mar-01 1139.83 0.172273191 -0.009300062 12-Mar-01 19.62 12-Mar-01 1150.53 -0.031111111 -0.067203386 5-Mar-01 20.25 5-Mar-01 1233.42 0.051948052 -0.000615793 26-Feb-01 19.25 26-Feb-01 1234.18 0.023391813 -0.00937505 20-Feb-01 18.81 20-Feb-01 1245.86 -0.01 -0.042772737 12-Feb-01 19 12-Feb-01 1301.53 -0.006276151 -0.010062673 5-Feb-01 19.12 5-Feb-01 1314.76 -0.072744908 -0.025721209 29-Jan-01 20.62 29-Jan-01 1349.47 0.054192229 -0.00404443 22-Jan-01 19.56 22-Jan-01 1354.95 0.003076923 0.009243672 16-Jan-01 19.5 16-Jan-01 1342.54 0.134380454 0.018194229 8-Jan-01 17.19 8-Jan-01 1318.55 0.049450549 0.015558208 2-Jan-01 16.38 2-Jan-01 1298.35 #DIV/0! #DIV/0! 28
  29. 29. WACC 0.078 .35 (Yr. 2001) .35 (Yr. 2002) 0.0775 0.077 0.0765 0.076 0.0755 0.075 0.0745 .4 (Yr. 2000) 0.074 0.0735 S1 D/TA According to the debt ratios of our company Apple, the capital structure has not had much of a change. If you compare the last three years of data you will see that there was a slight decrease but not enough that it effected anything. The ratios were as follows; 2000 40%, 2001 35%, and in 2002 35%. (Debt÷ debt + equity) From the Capital Structure diagram, it indicates that it is an optimal structure of Model 2. Meaning it contains all debt. Although Model 2 contains all debt, no company want to have all debt because it indicates that the company may go bankrupt. (Look at page 22-23) 29
  30. 30. Apple Computer Inc. Income Statement Annual Income Statement (Values in Millions) 9/2002 9/2001 9/2000 9/1999 9/1998 Sales 5,742.0 5,363.0 7,983.0 6,134.0 5,941.0 Cost of Sales 4,021.0 4,026.0 5,733.0 4,353.0 4,351.0 Gross Operating Profit 1,721.0 1,337.0 2,250.0 1,781.0 1,590.0 Selling, General & Admin. Expense 1,557.0 1,568.0 1,546.0 1,310.0 1,211.0 Other Taxes 0.0 0.0 0.0 0.0 0.0 EBITDA 164.0 -231.0 704.0 471.0 379.0 Depreciation & Amortization 118.0 102.0 84.0 85.0 111.0 EBIT 46.0 -333.0 620.0 386.0 268.0 Other Income, Net 70.0 308.0 570.0 317.0 68.0 Total Income Avail for Interest Exp. 87.0 -36.0 1,092.0 676.0 329.0 Interest Expense 0.0 16.0 0.0 0.0 0.0 Minority Interest 0.0 0.0 0.0 0.0 0.0 Pre-tax Income 87.0 -52.0 1,092.0 676.0 329.0 Income Taxes 22.0 -15.0 306.0 75.0 20.0 Special Income/Charges -29.0 -11.0 -98.0 -27.0 -7.0 Net Income from Cont. Operations 65.0 -37.0 786.0 601.0 309.0 Net Income from Discont. Opers. 0.0 0.0 0.0 0.0 0.0 Net Income from Total Operations 65.0 -37.0 786.0 601.0 309.0 Normalized Income 94.0 -26.0 884.0 628.0 316.0 Extraordinary Income 0.0 0.0 0.0 0.0 0.0 Income from Cum. Eff. of Acct. Chg. 0.0 12.0 0.0 0.0 0.0 Income from Tax Loss Carryforward 0.0 0.0 0.0 0.0 0.0 Other Gains (Losses) 0.0 0.0 0.0 0.0 0.0 Total Net Income 65.0 -25.0 786.0 601.0 309.0 Dividends Paid per Share 0.00 0.00 0.00 0.00 0.00 Preferred Dividends 0.00 0.00 0.00 0.00 0.00 Basic EPS from Cont. Operations 0.18 -0.11 2.42 2.10 1.17 Basic EPS from Discont. Operations 0.00 0.00 0.00 0.00 0.00 Basic EPS from Total Operations 0.18 -0.11 2.42 2.10 1.17 Diluted EPS from Cont. Operations 0.18 -0.11 2.18 1.81 1.05 30
  31. 31. Diluted EPS from Discont. Operations 0.00 0.00 0.00 0.00 0.00 Diluted EPS from Total Operations 0.18 -0.11 2.18 1.81 1.05 Apple Computer Inc. Balance Sheet Annual Balance Sheet (Values in Millions) 9/2002 9/2001 9/2000 9/1999 9/1998 Assets Current Assets Cash and Equivalents 2,252.0 2,310.0 1,191.0 1,326.0 1,481.0 Receivables 565.0 466.0 953.0 681.0 955.0 Inventories 45.0 11.0 33.0 20.0 78.0 Other Current Assets 2,526.0 2,356.0 3,250.0 2,258.0 1,184.0 Total Current Assets 5,388.0 5,143.0 5,427.0 4,285.0 3,698.0 Non-Current Assets Property, Plant & Equipment, Gross 1,057.0 924.0 700.0 729.0 824.0 Accum. Depreciation & Depletion 436.0 360.0 387.0 411.0 476.0 Property, Plant & Equipment, Net 621.0 564.0 313.0 318.0 348.0 Intangibles 119.0 0.0 0.0 0.0 0.0 Other Non-Current Assets 170.0 314.0 1,063.0 558.0 243.0 Total Non-Current Assets 910.0 878.0 1,376.0 876.0 591.0 Total Assets 6,298.0 6,021.0 6,803.0 5,161.0 4,289.0 Liabilities & Shareholder's Equity Current Liabilities Accounts Payable 911.0 801.0 1,157.0 812.0 719.0 Short Term Debt 0.0 0.0 0.0 0.0 0.0 Other Current Liabilities 747.0 717.0 776.0 737.0 801.0 Total Current Liabilities 1,658.0 1,518.0 1,933.0 1,549.0 1,520.0 Non-Current liabilites Long Term Debt 316.0 317.0 300.0 300.0 954.0 Deferred Income Taxes 229.0 266.0 463.0 208.0 173.0 Other Non-Current Liabilities 0.0 0.0 0.0 0.0 0.0 Minority Interest 0.0 0.0 0.0 0.0 0.0 Total Non-Current Liabilities 545.0 583.0 763.0 508.0 1,127.0 Total Liabilities 2,203.0 2,101.0 2,696.0 2,057.0 2,647.0 Shareholder's Equity Preferred Stock Equity 0.0 0.0 76.0 150.0 150.0 Common Stock Equity 4,095.0 3,920.0 4,031.0 2,954.0 1,492.0 Total Equity 4,095.0 3,920.0 4,107.0 3,104.0 1,642.0 Total Liabilities & Stock Equity 6,298.0 6,021.0 6,803.0 5,161.0 4,289.0 31
  32. 32. Total Common Shares Outstanding 359.0 Mil 350.9 Mil 335.7 Mil 321.6 Mil 270.4 Mil Preferred Shares 0.0 0.0 76,000.0 150,000.0 150,000.0 Treasury Shares 0.0 0.0 0.0 0.0 0.0 Apple Computer Inc. Cashflow Statement 32
  33. 33. Annual Cash Flow (in Millions) 9/2002 9/2001 9/2000 9/1999 9/1998 Cash Flow from Operating Activities Net Income (Loss) 65.0 -25.0 786.0 601.0 309.0 Depreciation and Amortization 118.0 102.0 84.0 85.0 111.0 Deferred Income Taxes -34.0 0.0 163.0 -35.0 1.0 Operating (Gains) Losses 43.0 -103.0 -364.0 -230.0 -33.0 Extraordinary (Gains) Losses 0.0 0.0 0.0 0.0 0.0 Change in Working Capital (Increase) Decr. in Receivables -99.0 487.0 -272.0 274.0 72.0 (Increase) Decr. in Inventories -34.0 22.0 -13.0 58.0 359.0 (Increase) Decr. in Other Curr. Assets -125.0 118.0 -52.0 -35.0 114.0 (Decrease) Incr. in Payables 110.0 -356.0 345.0 93.0 34.0 (Decrease) Incr. in Other Curr. Liabs. 45.0 -60.0 149.0 -13.0 -192.0 Other Non-Cash Items 0.0 0.0 0.0 0.0 0.0 Net Cash from Cont. Operations 89.0 185.0 826.0 798.0 775.0 Net Cash from Discont. Operations 0.0 0.0 0.0 0.0 0.0 Net Cash from Operating Activities 89.0 185.0 826.0 798.0 775.0 Cash Flow from Investing Activities Cash Flow Provided by: Sale of Property, Plant, Equipment 0.0 0.0 11.0 23.0 89.0 Sale of Short Term Investments 4,125.0 5,429.0 3,703.0 3,400.0 1,747.0 Cash Used by: Purchase of Property, Plant, Equipmt. -226.0 -232.0 -107.0 -47.0 -56.0 Purchase of Short Term Investments -4,144.0 -4,269.0 -4,499.0 -4,348.0 -2,313.0 Other Investing Changes Net -7.0 -36.0 -38.0 8.0 -10.0 Net Cash from Investing Activities -252.0 892.0 -930.0 -964.0 -543.0 Cash Flow from Financing Activities Cash Flow Provided by: Issuance of Debt 0.0 0.0 0.0 0.0 3.0 Issuance of Capital Stock 105.0 42.0 85.0 86.0 41.0 Cash Used for: Repayment of Debt 0.0 0.0 0.0 0.0 -25.0 Repurchase of Capital Stock 0.0 0.0 -116.0 -75.0 0.0 Payment of Cash Dividends 0.0 0.0 0.0 0.0 0.0 Other Financing Charges, Net 0.0 0.0 0.0 0.0 0.0 Net Cash from Financing Activities 105.0 42.0 -31.0 11.0 19.0 Effect of Exchange Rate Changes 0.0 0.0 0.0 0.0 0.0 Net Change in Cash & Cash Equivalents -58.0 1,119.0 -135.0 -155.0 251.0 Cash at Beginning of Period 2,310.0 1,191.0 1,326.0 1,481.0 1,230.0 Free Cash Flow -137.0 -47.0 719.0 751.0 719.0 Apple Computer Inc. Ten Year Summary Income Statement - 10 Year Summary (in Millions) 33
  34. 34. Sales EBIT Depreciation Total Net Income EPS Tax Rate (%) 09/02 5742.0 87.0 118.0 65.0 0.18 25.30 09/01 5363.0 -36.0 102.0 -37.0 -0.11 NA 09/00 7983.0 1092.0 84.0 786.0 2.18 28.00 09/99 6134.0 676.0 85.0 601.0 1.81 11.10 09/98 5941.0 329.0 111.0 309.0 1.05 6.10 09/97 7081.0 -1045.0 118.0 -1045.0 -4.15 0.00 09/96 9833.0 -1295.0 156.0 -816.0 -3.30 NA 09/95 11062.0 674.0 127.0 424.0 1.73 37.10 09/94 9188.7 500.3 168.0 310.2 1.31 38.00 09/93 7977.0 139.7 166.1 86.6 0.37 38.00 Balance Sheet - 10 Year Summary (in Millions) Current Assets Current Liabilities Long Term Debt Shares Outstanding 09/02 5388.0 1658.0 316.0 359.0 Mil 09/01 5143.0 1518.0 317.0 350.9 Mil 09/00 5427.0 1933.0 300.0 335.7 Mil 09/99 4285.0 1549.0 300.0 321.6 Mil 09/98 3698.0 1520.0 954.0 270.4 Mil 09/97 3424.0 1818.0 951.0 255.9 Mil 09/96 4515.0 2003.0 949.0 249.0 Mil 09/95 5224.0 2325.0 303.0 245.8 Mil 09/94 4476.5 1944.3 304.5 239.1 Mil 09/93 4338.4 2515.2 NA 232.3 Mil #6. Conclusions: 34
  35. 35. In conclusion of our findings during the process of the report, we have found more weaknesses of Apple Computer Inc. than strengths. The growth of the company is not as strong as other computer company in the world. It has a negative EPS ratio, which means that there is a loss in company’s earnings per share. The EPS ratio is so low that it underperformed the Industry average by 14 times and 3 times underperformed compared to S&P. As to the profit of the company, Apple is actually not profiting in any ways. The company is not making profit may due to high operating costs, excessive debt leverage, or both. Therefore, Apple needs to reduce its operating costs and debt leverage. On the investment return, the company has a high potential of weakness. The reason for this being may be due to high interest rates. But if you were to analyze the company’s 5- yr average in Return on Equity Ratio, the company has a higher-than-industry returns. Although the Apple Computer is seen to have more weakness than strength, some of the strengths they have help the company stay in business. The financial condition of the company is indeed in good financial standing. For this reason, it demonstrates a stronger short-term position. The company also have good receivable turnover compare to industry and S&P, which indicates that Apple have the abilities to collect receivables at a quicker rate. Based on the 10 Year Summary (Balance Sheet), the current assets for 2002 is at its highest compare to its performance over the 20 year period. While long-term debt for 2002 is low compare to 1993-1997 and 2000. As of total liabilities, it is also low compare to other years in the past. Therefore, Apple has its strength in 2002 compare to most if its year throughout the 10 year period. As of the 10 Year (Income Statements), Apple’s sales, EPS, total net income, and EBIT of 2002 is higher than 2001. Although 35
  36. 36. year 2002 is higher than 2001, it’s EPS, total net income, and EBIT is a lot lower than other years within the 10 year period. (Look at page 33) In the company’s rating of their computers, signs show that the company has an A in technician, but an overall C in fundamental, valuation, and ownership. The expected return is above average with average risk if investors are expected to invest in Apple Computer Inc. As for majority of the suggestions given by Brokers, they recommend holding of the stocks rather than buying and selling at this current time. As a group, we saw that Apple’s ke is higher than CAPM’S ke. Meaning, Apple is currently overpriced and buyers should not invest in Apple currently. But as a group, we recommend holding of the stock like majority of the Broker’s suggestions. 36

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