Credit Risk

Analysis:
Case I
 Consolidated Statements of Operations (USD $) 12 Months Ended
In Millions Feb. 01, 2014 Feb. 02, 2013 Jan. 28, 2012 Jan. 29, 2011

Sales 72,596 71,960 68,466 65,786

2014 2013 2012 2011
Credit card revenues 0 1,341 1,399 1,604
Total revenues 72,596 73,301 69,865 67,390 Op Income 4,229 5,371 5,322 5,252

Cost of sales 51,160 50,568 47,860 45,725 Tax Expense 1,132 1,610 1,527 1,575
Selling, general and administrative expenses 15,375 14,914 14,106 13,469 Tax Shield 417 282 320 280
Credit card expenses 0 467 446 860 Tax on Op Inc 1,549 1,892 1,847 1,855
Depreciation and amortization 2,223 2,142 2,131 2,084
Gain on receivables transaction -391 -161 0 0
NOPAT 2,680 3,479 3,475 3,397
Earnings before interest expense and income taxes 4,229 5,371 5,322 5,252

Net interest expense 1,126 762 866 757

Earnings before income taxes 3,103 4,609 4,456 4,495

Provision for income taxes 1,132 1,610 1,527 1,575

Net earnings 1,971 2,999 2,929 2,920
 Consolidated Statements of Financial Position (USD $)
Feb. 01, 2014 Feb. 02, 2013 Jan. 28, 2012 Jan. 29, 2011
In Millions

Assets
Cash and cash equivalents 695 784 794 1,712
Credit card receivables 0 5,841 5,927 6,153
Inventory 8,766 7,903 7,918 7,596
Other current assets 2,112 1,860 1,810 1,752
Total current assets 11,573 16,388 16,449 17,213 2014 2013 2012 2011
OA 43,858 47,379 45,836 41,993
Property and equipment
Land 6,234 6,206 6,122 5,928
OL 14,540 13,957 13,326 12,492
Buildings and improvements 30,356 28,653 26,837 23,081 NOA 29,318 33,422 32,510 29,501
Fixtures and equipment 5,583 5,362 5,141 4,939
Avg NOA 31,370 32,966 31,006
Computer hardware and software 2,764 2,567 2,468 2,533
Construction-in-progress 843 1,176 963 567
Accumulated depreciation -14,402 -13,311 -12,382 -11,555 Non Op L 13,782 17,648 17,483 15,726
Property and equipment, net 31,378 30,653 29,149 25,493
Non Op A 695 784 794 1,712
Other noncurrent assets 1,602 1,122 1,032 999 NNO 13,087 16,864 16,689 14,014
Total assets 44,553 48,163 46,630 43,705
Avg NNO 14,976 16,777 15,352

Liabilities and shareholders' investment SE 16,231 16,558 15,821 15,487

Accounts payable 7,683 7,056 6,857 6,625
Avg SE 16,395 16,190 15,654
Accrued and other current liabilities 3,934 3,981 3,644 3,326
Current portion of long-term debt and other borrowings 1,160 2,994 3,786 119
Total current liabilities 12,777 14,031 14,287 10,070 Check - - - -
Long-term debt and other borrowings 12,622 14,654 13,697 15,607
Deferred income taxes 1,433 1,311 1,191 934
Other noncurrent liabilities 1,490 1,609 1,634 1,607
Total noncurrent liabilities 15,545 17,574 16,522 18,148

Shareholders' investment
Common stock 53 54 56 59
Additional paid-in capital 4,470 3,925 3,487 3,311
Retained earnings 12,599 13,155 12,959 12,698
Accumulated other comprehensive loss -891 -576 -681 -581
Total shareholders' investment 16,231 16,558 15,821 15,487

Total liabilities and shareholders' investment 44,553 48,163 46,630 43,705

 2014 2013 2012
Sales 72,596 73,301 69,865
NI 1,971 2,999 2,929
Avg SE 16394.5 16189.5 15654
Avg NOA 31370 32966 31005.5
Avg NNO 14975.5 16776.5 15351.5

ROE 12.02% 18.52% 18.71%

NOPAT 2,680 3,479 3,475
NOA 29318 33422 32510
NNO 13087 16864 16689
RNOA 8.54% 10.55% 11.21%
NOPM 3.69% 4.75% 4.97%
NOAT 2.31 2.22 2.25
FLEV 0.91 1.04 0.98
SPREAD 3.81% 7.69% 7.65%
NNEP 4.74% 2.86% 3.55%
2011-2014
Operating Performance
20.00%
18.00%
16.00%
14.00%
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
2014 2013 2012

ROE RNOA NOPM

2011-2014
Non-Operating Performance
9.00%
8.00%
7.00%
6.00%
5.00%
4.00%
3.00%
2.00%
1.00%
0.00%
2014 2013 2012

SPREAD COD
2011-2014
Coverage
12.00

10.00

8.00

6.00

4.00

2.00

-
2014 2013 2012 2011

TIE EBITDA Coverage

2011-2014
Coverage
0.50
0.45
0.40
0.35
0.30
0.25
0.20
0.15
0.10
0.05
-
2014 2013 2012 2011

CFO/TD FCF/TD
2011-2014
Liquidity
1.80
1.60
1.40
1.20
1.00
0.80
0.60
0.40
0.20
-
2014 2013 2012 2011

CR QR
2011-2014
Solvency
2.50

2.00

1.50

1.00

0.50

-
2014 2013 2012 2011

TL/SE TD/SE
Credit Risk
Analysis:
Case II
KMART – 2001 3Q
KMART – Third Quarter – 2001
Credit Risk
Analysis:
Case III
Apple (of the 1990s)
 Apple’s Stock Price Over Time
**split adjusted**

12

10

8
Problems at Apple
6

0
-90 -90 c -90 -91 c -91 -92 c -92 -93 c -93 -94 c -94 -95 c -95 -96 -96 -97 -97 -98 -98 -99 -99
Jan Ju
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De Ju
n
De Ju
n
De Ju
n
De Ju
n
De Ju
n
De M
ay No
v
M
ay No
v
M
ay No
v
M
ay No
v
 Problems at Apple
• Dramatic  in sales and market share in ‘96 and ‘97:

APPLE SALES
‘92 ‘93 ‘94 ‘95 ‘96 ‘97
Sales
$ Million - Domestic 3,885 4,388 4,988 5,793 4,734 3,507
$ Million - Intl 3,201 3,589 4,201 5,269 5,099 3,574
$ Million - Total 7,087 7,977 9,189 11,062 9,833 7,081
Annual Growth -Domestic 11% 13% 14% 16% (18%) (26%)
Annual Growth - Intl 13% 12% 17% 25% (3%) (30%)
Annual Growth - Total 12% 13% 15% 20% (11%) (28%)
Market Share

Worldwide 5.7% 3.6%

US 7.4% 4.6%
 SHORT-TERM LIQUIDITY ANALYSIS - SOME HIGHLIGHTS

‘92 ‘93 ‘94 ‘95 ‘96 ‘97

CURRENT RATIO 2.5 1.7 2.3 2.3 2.3 1.9
Industry - 1 yr 1.7
QUICK RATIO 1.8 0.9 1.5 1.2 1.6 1.4
Industry - 1 yr 1.1
A/P TURN 10.0 10.6 7.9 8.7 7.9 7.4
 LONG-TERM SOLVENCY ANALYSIS - SOME HIGHLIGHTS

‘92 ‘93 ‘94 ‘95 ‘96 ‘97

TOTAL DEBT/ .04 .16 .11 .12 .21 .23
TA
LTD / TA .00 .00 .06 .05 .18 .22
TOTAL DEBT/ SE .08 .41 .25 .26 .55 .81
Industry - 1 yr .27*
LTD / SE .00 .00 .13 .10 .46 .79
TimesIntEarned NM 49.8 17.3 16.9 -20.5 -13.4
Industry - 1 yr 13.2
CFO / AVE TL .47 -.25 .24 -0.08 .16** .06**
(FCF + INT) / INT NM -71.0 15.4 -7.3 8.5 2.9

21
 LONG-TERM SOLVENCY ANALYSIS - SOME HIGHLIGHTS

‘92 ‘93 ‘94 ‘95 ‘96 ‘97

TOTAL DEBT/ .04 .16 .11 .12 .21 .23
TA
LTD / TA .00 .00 .06 .05 .18 .22
TOTAL DEBT/ SE .08 .41 .25 .26 .55 .81
Industry - 1 yr .27*
LTD / SE .00 .00 .13 .10 .46 .79
TimesIntEarned NM 49.8 17.3 16.9 -20.5 -13.4
Industry - 1 yr 13.2
CFO / AVE TL .47 -.25 .24 -0.08 .16** .06**
(FCF + INT) / INT NM -71.0 15.4 -7.3 8.5 2.9

22
 Altman Z-Score for Apple

Altman Z Score 1995 1996 1997

Working capital / Total assets 0.465 0.468 0.379 X 1.2

Retained earnings / Total assets 0.395 0.305 0.139 X 1.4
EBIT / Total Assets 0.110 -0.258 -0.253 X 3.3

Mkt Val of stock / BV liabilities 1.561 0.772 0.896 X 0.6

shares outstanding 122921601 124496972 127949220
stock price 4th qtr high 49.88 25 29.75
stock price 4th qtr low 34.69 16 12.75
stock price ave 4th qtr hi & low 42.285 20.5 21.25
Mkt val of equity in 000's 5197739.9 2552187.9 2718920.9

Sales / Total Assets 1.775 1.833 1.673 X 1.0

Z-Score 4.186 2.434 2.027 1.81 if use 4th qtr low

Stock price

23