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Accounting Pronouncements

The purpose of this mini case is to provide you with a deeper understanding of stockholders’ equity. You will continue using the company you selected for mini case 1. Please submit your mini case on Canvas and include your company’s name on the document that you submit.

Required:

  1. Briefly discuss the impact of any accounting recent accounting pronouncements related to stockholders’ equity accounts. You can find this information in the footnotes (e.g., Recent Accounting Pronouncements).

None noted.

  1. Review the Management Discussion and Analysis (MD&A) section and briefly note any discussion related to stockholders’ equity accounts.

The Apple Company has announced an increase to its current share repurchase program authorization from $100 billion to $175 billion in April, 2019. It has raised its quarterly dividend from $0.73 to $0.77 per share beginning in May 2019. In 2019, the company repurchased $67.1 billion of its common stock and paid dividends and dividend equivalents of $14.1 billion.

In 2018, the company spent $73.1 billion to repurchase shares of its common stock and paid dividends and dividend equivalents of $13.7 billion.

In 2017, it spent $33 billion to repurchase shares and paid dividends and dividend equivalents of $12.8 billion.

  1. List each account and amount in stockholders’ equity for the past three years and briefly comment on any unusual items or balances.

Consolidated Balance Sheet in millions

2019

2018

2017

Shareholders' equity:

     

Common stock and additional paid-in capital, $0.00001 par value: 12600000 shares authorized; 4443236 and 4754986 shares issued and outstanding, respectively in 2019.

Common stock and additional paid-in capital, $0.00001 par value: 12,600,000 shares authorized; 4,754,986 and 5,126,201 shares issued and outstanding, respectively in 2018.

Common stock and additional paid-in capital, $0.00001 par value: 12,600,000 shares authorized; 5,126,201 and 5,336,166 shares issued and outstanding, respectively in 2017.

45174

40201

35867

Retained earnings

45898

70400

98330

Accumulated other comprehensive income/(loss)

-584

-3454

-150

Total shareholders' equity

90488

107147

134047

  1. Did your company issue stock during the past three years?

a. If so, how many shares were issued and how much cash was received?

Apple issued common shares (net) in all the three years 2019, 2018 and 2017, as reflected in the changes in the number of shares outstanding and Additional paid-in capital account. However, since the dollar value of common stock did not change, Apple did not issue shares for cash. Instead, Apple issued shares as compensation to directors and employees.

AOCI increased slightly in 2019, but decreased in 2018, reflecting unrealized losses from foreign currency translation losses - see Other Comprehensive Income.

b. Did the company explain how it would use the cash from the stock offering?

NA

c. Comment on the stock price reaction around the offering.

NA

  1. Did your company repurchase common stock during the past three years?

a. If yes, did the company provide an explanation for doing so, including how they financed it?

Yes, for compensation plans, as discussed in (2) above.

b. How much did the shares cost the company?

Discussed in (2) above.

c. Provide the number of shares repurchased and indicate if they are held as treasury shares or were retired.

Since there is difference between issued and outstanding shares, all repurchased shares must held as treasury shares.

The company repurchased 345.2 million and 405.5 million shares of its common stock in 2019 and 2018 respectively.

  1. Did your company pay cash dividends over the past three years?

a. If so, how much was paid?

(in $million)

2019

2018

2017

Total Cash dividends (from Statement of Cash Flows)

$14119

$13712

$12769

Wtd Avg #shares (from income statement)

4618

4955

5217

Dividends per share (from section 5 of 10-K

$3.00

$2.72

$2.40

b. What can you conclude about your company’s growth prospects from the trend in dividends?

Apple has increased dividends in each of the last three years, suggesting that it is optimistic that its future growth will be such that it can sustain dividend increases.

c. Calculate the dividend yield over the past three years and comment on any changes.

 

2019

2018

2017

Cash Dividends per share (from Part II, Item 5 of SWM’s 10-K)

$3.00

$2.72

$2.40

Stock Price per share (at December 31 per Yahoo Finance)

$292.16

$154.62

$163.43

Dividend Yield =

Cash Div. per share / Stock Price per Share

1.02%

1.76%

1.47%

For simplicity, we calculate dividend yield using the fiscal year-end stock price. Note, however, that since companies typically declare and pay dividends quarterly, a more precise calculation of dividend yield would use an average of the quarterly dividend yield.

Apple’s dividend yield has been decreased from 2018 to 2019. The changes in dividend yield were mainly driven by the sharp changes in Apple’s stock price. The dividend yield in 2019 has declined as compared to 2018 because of the increased in the stock price. Stock price appreciation since 2017 has been very small, especially compared to the dividend yield. This highlights the importance of capital appreciation when considering the total return on your investment in a stock. For a company with growth aspirations, Apple’s stock price acts more like that of a company in steady state.

  1. Did your company have a stock split over the past three years?

If so, did the company provide an explanation for it?

No splits (Yahoo Finance)

  1. Calculate operating income / weighted #shares outstanding and compare it to basic EPS for the past three years.

Which measure is more useful for predicting future performance? Why?

(in $million)

2019

2018

2017

Operating Income

$63930

$70898

$61344

Wtd Avg #shares

(in millions, from income statement)

4618

4955

5217

Operating Income/Share

$13.84

$14.31

$11.76

       

Basic EPS (from Income Statement)

$11.97

$12.01

$9.27

Operating income/share increased by 21.68% from 2017 to 2018, but decreased by 3.4% from 2018 to 2019. Basic EPS increased by 29.56% from 2017 to 2018, but decreased by 0.3% from 2018 to 2019. The 2017 numbers were depressed due to a one-time increase in income tax due to a tax law change related to repatriated earnings.

Operating income reflects a company’s core earnings (which are more persistent) and is therefore an important value driver. Apple’s operating income/share is not only larger than its Basic EPS, but the volatility (variance) of its operating income/share is much lower than that of its Basic EPS. Lower volatility enables better predictions of future operating income/share. However, it is not a good sign that operating income/share declined in the most recent fiscal year.

Remember, at the center of any academic work, lies clarity and evidence. Should you need further assistance, do look up to our Accounting and Finance Assignment Help

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