- Published: 19 October 2009
- Written by Editor
Apple Reports Fourth Quarter Results
Most Profitable Quarter Ever; Record Mac and iPhone Sales
Apple® today announced financial results for its fiscal 2009 fourth quarter ended September 26, 2009. The Company posted revenue of $9.87 billion and a net quarterly profit of $1.67 billion, or $1.82 per diluted share. These results compare to revenue of $7.9 billion and net quarterly profit of $1.14 billion, or $1.26 per diluted share, in the year-ago quarter. Gross margin was 36.6 percent, up from 34.7 percent in the year-ago quarter. International sales accounted for 46 percent of the quarter's revenue.
In accordance with the subscription accounting treatment required by GAAP, the Company recognizes revenue and cost of goods sold for iPhone(TM) and Apple TV® over their estimated economic lives. Adjusting GAAP sales and product costs to eliminate the impact of subscription accounting, the corresponding non-GAAP measures* for the quarter are $12.25 billion of "Adjusted Sales" and $2.85 billion of "Adjusted Net Income."
Apple sold 3.05 million Macintosh® computers during the quarter, representing a 17 percent unit increase over the year-ago quarter. The Company sold 10.2 million iPods during the quarter, representing an eight percent unit decline from the year-ago quarter. Apple sold 7.4 million iPhones in the quarter, representing seven percent unit growth over the year-ago quarter.
"We are thrilled to have sold more Macs and iPhones than in any previous quarter," said Steve Jobs, Apple's CEO. "We've got a very strong lineup for the holiday season and some really great new products in the pipeline for 2010."
"We are delighted with our September quarter and fiscal 2009 results," said Peter Oppenheimer, Apple's CFO. "For the full year, we grew revenue by 12 percent and net income by 18 percent in extraordinarily challenging times. Looking ahead to the first fiscal quarter of 2010, we expect revenue in the range of about $11.3 billion to $11.6 billion and we expect diluted earnings per share in the range of about $1.70 to $1.78."
Apple will provide live streaming of its Q4 2009 financial results conference call utilizing QuickTime®, Apple's standards-based technology for live and on-demand audio and video streaming. The live webcast will begin at 2:00 p.m. PDT on October 19, 2009 at www.apple.com/quicktime/qtv/earningsq409/ and will also be available for replay for approximately two weeks thereafter.
*Non-GAAP Financial Measures
During fiscal 2007, the Company began selling iPhone and Apple TV. Because the Company may provide unspecified features and additional software products to iPhone and Apple TV customers in the future free of charge, in accordance with GAAP, specifically FASB ASC 985-605, formerly known as AICPA SOP 97-2, the Company recognizes revenue and cost of goods sold for these products on a straight-line basis over their economic lives, with any loss recognized at the time of sale. Currently, the economic lives of these products are estimated to be 24 months. This accounting treatment, referred to as subscription accounting, results in the deferral of almost all of the revenue and cost of goods sold during the quarter in which the products are sold to the customer. Other costs related to these products, including costs for engineering, sales, marketing and warranty, are expensed as incurred. Further, the costs to develop any future unspecified features and additional software products that may eventually be provided to customers also are expensed as incurred. In contrast, the Company generally recognizes revenue and cost of goods sold for its other products, such as Macs and iPods, at the time of sale, as the Company does not provide future unspecified features or additional software products to those customers free of charge.
In July 2008, the Company began selling iPhone 3G, the second-generation iPhone, and at that time significantly expanded distribution by establishing carrier relationships in over 70 countries. Unit sales of iPhone 3G have been significantly greater than sales of the first-generation iPhone. During the first quarter of iPhone 3G availability ended September 27, 2008, 6.9 million units were sold, exceeding the 6.1 million first-generation iPhone units sold in the prior five quarters combined.
In June 2009, the Company began selling iPhone 3GS, the third-generation iPhone. Unit sales of iPhones continued to be significant in the quarter ended September 26, 2009, with 7.4 million iPhones sold. As a result, the amount of revenue and product cost related to those iPhone sales that the Company deferred for recognition in future periods under subscription accounting was substantial. While the GAAP results provide significant insight into the Company's operations and financial position, management continues to supplement its analysis of the business using financial measures that look at the total sales, related product costs and resulting income for iPhones and Apple TVs sold to customers during the period. The presentation at the end of this press release includes the following non-GAAP measures: "Adjusted Sales," "Adjusted Cost of Sales," "Adjusted Gross Margin," "Adjusted Operating Margin," "Adjusted Net Income" and "Adjusted Diluted Earnings per Share." These financial measures are not consistent with GAAP because they do not reflect the deferral of revenue and product costs for recognition in later periods. The above-mentioned non-GAAP measures are generated by adjusting the related GAAP measures solely to reverse the effect of subscription accounting. The Company uses these financial measures, along with other measures discussed below, to provide additional insight into current operating and business trends not readily apparent from the GAAP results.
Management uses Adjusted Sales to evaluate the Company's growth rate, revenue mix and performance relative to competitors. Given the impact of iPhone unit sales during the quarter ended September 26, 2009, Adjusted Sales provides a meaningful measurement of the Company's growth by reflecting amounts generally due to Apple at the time of sale related to products sold within the period. Further, eliminating the effects of deferred revenue (current sales deferred to future periods and prior sales being recognized currently) provides more transparency into the Company's underlying sales trends. Management uses the non-GAAP measures of "Adjusted Cost of Sales," "Adjusted Gross Margin" and "Adjusted Operating Margin" to measure the Company's operating performance based on current period iPhone and Apple TV sales and to facilitate ongoing operating decisions. Additionally, because the Company recognizes engineering, sales, and marketing expenses as incurred, including expenses related to iPhone and Apple TV, management uses Adjusted Sales to evaluate returns on those costs, to manage year-over-year operating expense growth, and to budget future expenses. Furthermore, because they are considered meaningful indicators of current business performance, the non-GAAP measures "Adjusted Sales" and "Adjusted Operating Margin" are metrics that factor into the determination of management compensation beginning in fiscal year 2009. Finally, management uses the non-GAAP measures of "Adjusted Net Income" and "Adjusted Diluted Earnings per Share" to measure the Company's operating performance based on current period iPhone and Apple TV sales, to facilitate ongoing operating decisions, and compare performance relative to competitors.
Management believes that these non-GAAP financial measures, when taken together with the corresponding consolidated GAAP measures and related segment information, provide incremental insight into the underlying factors and trends affecting both the Company's performance and its cash generating potential. Management believes these non-GAAP measures increase the transparency of the Company's current results and enable investors to more fully understand trends in its current and future performance.
Cautions on Use of Non-GAAP Measures
As noted previously, these non-GAAP financial measures are not consistent with GAAP because they do not reflect the deferral of revenue and product costs for recognition in later periods. These non-GAAP financial measures do not adjust for the costs associated with the Company's intention to provide unspecified new features and software to purchasers of iPhone and Apple TV products. These costs are expensed as incurred under GAAP's subscription accounting model, and are not adjusted in these non-GAAP financial measures. As such, these non-GAAP financial measures are not intended to reflect in a given period all of the costs of sales made in that period. Rather, the non-GAAP financial measures presented below are intended for the limited purpose of presenting performance measures that include the total sales, related product costs, and resulting income for iPhones and Apple TVs in the period those products are sold to customers.
Management believes investors will benefit from greater transparency in referring to these non-GAAP financial measures when assessing the Company's operating results, as well as when forecasting and analyzing future periods. However, management recognizes that:
- these non-GAAP financial measures are limited in their usefulness and should be considered only as a supplement to the Company's GAAP financial measures;
- these non-GAAP financial measures should not be considered in isolation from, or as a substitute for, the Company's GAAP financial measures;
- these non-GAAP financial measures should not be considered to be superior to the Company's GAAP financial measures; and
- these non-GAAP financial measures were not prepared in accordance with GAAP and investors should not assume that the non-GAAP financial measures presented in this earnings release were prepared under a comprehensive set of rules or principles.
Further, these non-GAAP financial measures may be unique to the Company, as they may be different from non-GAAP financial measures used by other companies. As such, this presentation of non-GAAP financial measures may not enhance the comparability of the Company's results to the results of other companies.
A reconciliation of each non-GAAP financial measure to the most directly comparable GAAP financial measure or measures appears at the end of this press release.
This press release contains forward-looking statements including without limitation those about the Company's estimated revenue and earnings per share. These statements involve risks and uncertainties, and actual results may differ. Risks and uncertainties include without limitation the effect of competitive and economic factors, and the Company's reaction to those factors, on consumer and business buying decisions with respect to the Company's products; continued competitive pressures in the marketplace; the ability of the Company to deliver to the marketplace and stimulate customer demand for new programs, products, and technological innovations on a timely basis; the effect that product transitions, changes in product pricing or mix, and/or increases in component costs could have on the Company's gross margin; the inventory risk associated with the Company's need to order or commit to order product components in advance of customer orders; the continued availability on acceptable terms, or at all, of certain components and services essential to the Company's business currently obtained by the Company from sole or limited sources; the effect that the Company's dependency on manufacturing and logistics services provided by third parties may have on the quality, quantity or cost of products manufactured or services rendered; the Company's reliance on the availability of third-party digital content and applications; the potential impact of a finding that the Company has infringed on the intellectual property rights of others; the Company's dependency on the performance of distributors and other resellers of the Company's products; the effect that product and service quality problems could have on the Company's sales and operating profits; the Company's reliance on sole service providers for iPhone in certain countries; the continued service and availability of key executives and employees; war, terrorism, public health issues, and other circumstances that could disrupt supply, delivery, or demand of products; potential litigation from the matters investigated by the special committee of the board of directors and the restatement of the Company's consolidated financial statements; and unfavorable results of other legal proceedings.
More information on potential factors that could affect the Company's financial results is included from time to time in the Company's public reports filed with the SEC, including the Company's Form 10-K for the fiscal year ended September 27, 2008, its Forms 10-Q for the quarters ended December 27, 2008, March 28, 2009 and June 27, 2009, and its Form 10-K for the fiscal year ended September 26, 2009 to be filed with the SEC. The Company assumes no obligation to update any forward-looking statements or information, which speak as of their respective dates.
Apple ignited the personal computer revolution in the 1970s with the Apple II and reinvented the personal computer in the 1980s with the Macintosh. Today, Apple continues to lead the industry in innovation with its award-winning computers, OS X operating system and iLife and professional applications. Apple is also spearheading the digital media revolution with its iPod portable music and video players and iTunes online store, and has entered the mobile phone market with its revolutionary iPhone.
© 2009 Apple Inc. All rights reserved. Apple, the Apple logo, Mac, Mac OS, Macintosh, iPhone, Apple TV and QuickTime are trademarks of Apple. Other company and product names may be trademarks of their respective owners.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except share amounts which are reflected in thousands and
per share amounts)
Three Months Ended Twelve Months Ended
September September September September
26, 27, 26, 27,
2009 2008 2009 2008
Net sales $9,870 $7,895 $36,537 $32,479
Cost of sales (1) 6,256 5,156 23,397 21,334
Gross margin 3,614 2,739 13,140 11,145
Operating expenses:
Research and
development (1) 358 298 1,333 1,109
Selling, general
and administrative (1) 1,063 999 4,149 3,761
Total operating
expenses 1,421 1,297 5,482 4,870
Operating income 2,193 1,442 7,658 6,275
Other income and expense 45 140 326 620
Income before provision
for income taxes 2,238 1,582 7,984 6,895
Provision for income taxes 573 446 2,280 2,061
Net income $1,665 $1,136 $5,704 $4,834
Earnings per common share:
Basic $1.85 $1.28 $6.39 $5.48
Diluted $1.82 $1.26 $6.29 $5.36
Shares used in computing
earnings per share:
Basic 898,032 887,110 893,016 881,592
Diluted 914,374 904,786 907,005 902,139
(1) Includes stock-based
compensation expense
as follows:
Cost of sales $29 $21 $114 $80
Research and
development $66 $52 $258 $185
Selling, general
and administrative $85 $68 $338 $251
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except share amounts)
September 26, September 27,
2009 2008
ASSETS:
Current assets:
Cash and cash equivalents $5,263 $11,875
Short-term marketable securities 18,201 10,236
Accounts receivable, less allowances
of $52 and $47, respectively 3,361 2,422
Inventories 455 509
Deferred tax assets 2,101 1,447
Other current assets 6,884 5,822
Total current assets 36,265 32,311
Long-term marketable securities 10,528 2,379
Property, plant and equipment, net 2,954 2,455
Goodwill 206 207
Acquired intangible assets, net 247 285
Other assets 3,651 1,935
Total assets $53,851 $39,572
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable $5,601 $5,520
Accrued expenses 3,376 3,719
Deferred revenue 10,305 4,853
Total current liabilities 19,282 14,092
Deferred revenue - non-current 4,485 3,029
Other non-current liabilities 2,252 1,421
Total liabilities 26,019 18,542
Commitments and contingencies
Shareholders' equity:
Common stock, no par value; 1,800,000,000
shares authorized; 899,805,500 and
888,325,973 shares issued and
outstanding, respectively 8,210 7,177
Retained earnings 19,538 13,845
Accumulated other comprehensive income 84 8
Total shareholders' equity 27,832 21,030
Total liabilities and
shareholders' equity
$53,851 $39,572
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
Twelve Months Ended
September September
26, 27,
2009 2008
Cash and cash equivalents,
beginning of the year $11,875 $9,352
Operating Activities:
Net income 5,704 4,834
Adjustments to reconcile net income to
cash generated by operating activities:
Depreciation, amortization and accretion 703 473
Stock-based compensation expense 710 516
Deferred income tax benefit (519) (368)
Loss on disposition of property,
plant and equipment 26 22
Changes in operating assets and liabilities:
Accounts receivable, net (939) (785)
Inventories 54 (163)
Other current assets (1,050) (1,958)
Other assets (1,346) (492)
Accounts payable 92 596
Deferred revenue 6,908 5,642
Other liabilities (184) 1,279
Cash generated by operating activities 10,159 9,596
Investing Activities:
Purchases of marketable securities (46,724) (22,965)
Proceeds from maturities of
marketable securities 19,790 11,804
Proceeds from sales of marketable securities 10,888 4,439
Purchases of other long-term investments (101) (38)
Payments made in connection with business
acquisitions, net of cash acquired - (220)
Payment for acquisition of property,
plant and equipment (1,144) (1,091)
Payment for acquisition of intangible assets (69) (108)
Other (74) (10)
Cash used in investing activities (17,434) (8,189)
Financing Activities:
Proceeds from issuance of common stock 475 483
Excess tax benefits from stock-based
compensation 270 757
Cash used to net share settle equity awards (82) (124)
Cash generated by financing activities 663 1,116
(Decrease)/Increase in cash and
cash equivalents (6,612) 2,523
Cash and cash equivalents, end of the year $5,263 $11,875
Supplemental cash flow disclosure:
Cash paid for income taxes, net $2,997 $1,267
UNAUDITED CONSOLIDATED SCHEDULE OF DEFERRED REVENUE
(In millions)
September 26, June 27, September 27,
2009 2009 2008
Deferred revenue - current:
iPhone and Apple TV $8,519 $6,767 $3,518
AppleCare 791 725 599
Other 995 977 736
Total deferred revenue - current 10,305 8,469 4,853
Deferred revenue - non-current:
iPhone and Apple TV 3,618 2,860 2,262
AppleCare 688 653 651
Other 179 154 116
Total deferred revenue -
non-current 4,485 3,667 3,029
Total deferred revenue $14,790 $12,136 $7,882
UNAUDITED RECONCILIATION OF NON-GAAP TO GAAP RESULTS OF OPERATIONS
(In millions, except share amounts which are reflected in thousands and
per share amounts)
Three Months Ended September 26, 2009
As reported
in accordance Non-GAAP
with GAAP Adjustments Non-GAAP
Net sales $9,870 $2,383(a) $12,253
Cost of sales $6,256 $791(b) $7,047
Gross margin $3,614 $1,592(c) $5,206
Operating expenses $1,421 $- $1,421
Operating income $2,193 $1,592(c) $3,785
Net income $1,665 $1,184(d) $2,849
Earnings per diluted common share $1.82 $1.30(e) $3.12
Shares used in computing diluted
earnings per share 914,374 914,374
Three Months Ended September 27, 2008
As reported
in accordance Non-GAAP
with GAAP Adjustments Non-GAAP
Net sales $7,895 $3,787(a) $11,682
Cost of sales $5,156 $1,975(b) $7,131
Gross margin $2,739 $1,812(c) $4,551
Operating expenses $1,297 $- $1,297
Operating income $1,442 $1,812(c) $3,254
Net income $1,136 $1,301(d) $2,437
Earnings per diluted common share $1.26 $1.43(e) $2.69
Shares used in computing diluted
earnings per share 904,786 904,786
Footnotes:
(a) Non-GAAP adjustment to net sales reflect (i) the reversal of the
current period's amortization of deferred revenue derived from
iPhone handsets and Apple TV units shipped in current and prior
periods and (ii) the inclusion of amounts generally due to Apple at
the time of sale related to iPhone handsets and Apple TV units
shipped in the current period.
(b) Non-GAAP adjustment to cost of sales reflect (i) the reversal of the
current period's amortization of deferred cost related to iPhone
handsets and Apple TV units shipped in current and prior periods and
(ii) the inclusion of the total cost of iPhone handsets and Apple TV
units shipped in the current period. In addition, the non-GAAP
adjustment to cost of sales reflects the estimate of the warranty
expense in the period when the related product is sold, rather than
when the expense is incurred. The non-GAAP adjustment to cost of sales
does not reflect the cost of providing unspecified additional software
products and upgrades.
(c) Non-GAAP adjustments to gross margin and operating income are the
difference between non-GAAP adjustments to net sales and non-GAAP
adjustments to cost of sales {(a) - (b)}.
(d) Represents the after-tax effect of the non-GAAP adjustments to gross
margin and operating income. The tax effect on the non-GAAP
adjustments to gross margin and operating income is estimated by
applying the period's effective tax rate to the non-GAAP adjustments.
The tax effect on the non-GAAP adjustments is $408 million and $511
million for the three-month periods ended September 26, 2009 and
September 27, 2008, respectively. The non-GAAP adjustment to net
income does not reflect any changes to the Company's other income and
expense.
(e) Represents the per share impact of the non-GAAP adjustments to net
income.
Apple Inc.
Q4 2009 Unaudited Summary Data
Q3 2009 Q4 2008 Q4 2009
--------- --------- ---------
CPU Revenue CPU Revenue CPU Revenue
Operating Segments Units K $M Units K $M Units K $M
------- ------- ------- ------- ------- -------
Americas 1,147 $3,827 1,121 $3,572 1,252 $4,297
Europe 626 2,006 611 1,723 761 2,491
Japan 108 416 78 320 79 434
Retail 492 1,496 596 1,718 670 1,867
Other Segments (1) 230 592 205 562 291 781
----- ------ ----- ------ ----- ------
Total Operating Segments 2,603 $8,337 2,611 $7,895 3,053 $9,870
===== ====== ===== ====== ===== ======
Revenue Revenue Revenue
Product Summary Units K $M Units K $M Units K $M
------- ------- ------- ------- ------- -------
Desktops (2) 849 $1,129 936 $1,363 787 $1,086
Portables (3) 1,754 2,200 1,675 2,257 2,266 2,866
Subtotal
CPUs 2,603 3,329 2,611 3,620 3,053 3,952
10,215 1,492 11,052 1,660 10,177 1,563
Other Music
Related
Products and
Services (4) 958 832 1,018
iPhone and
Related
Products
and
Services (5) 5,208 1,689 6,892 806 7,367 2,297
Peripherals and
Other Hardware 341 428 393
Software,
Service and
Other Sales iPod 528 549 647
--- --- ---
Total
Apple $8,337 $7,895 $9,870
====== ====== ======
Year/
Sequential Change Year Change
--------------------- -------------
Operating Segments CPU Units Revenue CPU Units Revenue
----------- ------- ----------- -------
Americas 9% 12% 12% 20%
Europe 22% 24% 25% 45%
Japan -27% 4% 1% 36%
Retail 36% 25% 12% 9%
Other Segments (1) 27% 32% 42% 39%
Total Operating Segments 17% 18% 17% 25%
Year/
Sequential Change Year Change
--------------------- -------------
Product Summary Units Revenue Units Revenue
------- ------- ------- -------
Desktops (2) -7% -4% -16% -20%
Portables (3) 29% 30% 35% 27%
Subtotal
CPUs 17% 19% 17% 9%
iPod 0% 5% -8% -6%
Other Music
Related Products
and Services (4) 6% 22%
iPhone and Related
Products and
Services (5) 41% 36% 7% 185%
Peripherals and
Other Hardware 15% -8%
Software, Service
and Other Sales 23% 18%
Total
Apple 18% 25%
(1) Other Segments include Asia Pacific and FileMaker.
(2) Includes iMac, Mac mini, Mac Pro and Xserve product lines.
(3) Includes MacBook, MacBook Air and MacBook Pro product lines.
(4) Consists of iTunes Store sales, iPod services, and Apple-branded
and third-party iPod accessories.
(5) Units consist of iPhone handset sales; Revenue is derived from
handset sales, carrier agreements, and Apple-branded and
third-party iPhone accessories.
K = Units in thousands $M = Amounts in millions
