Apple Inc 8-K 2009-01-21
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Exhibit 99.1
Apple Reports First Quarter Results
Best Quarterly Revenue and Earnings in Apple History
iPod Sales Set New Record
CUPERTINO, CaliforniaJanuary 21, 2009Apple® today announced financial results for its fiscal 2009 first quarter ended December 27, 2008. The Company posted record revenue of $10.17 billion and record net quarterly profit of $1.61 billion, or $1.78 per diluted share. These results compare to revenue of $9.6 billion and net quarterly profit of $1.58 billion, or $1.76 per diluted share, in the year-ago quarter. Gross margin was 34.7 percent, equal to the year-ago quarter. International sales accounted for 46 percent of the quarters revenue.
In accordance with the subscription accounting treatment required by GAAP, the Company recognizes revenue and cost of goods sold for iPhone and Apple TV® over their economic lives. Adjusting GAAP sales and product costs to eliminate the impact of subscription accounting, the corresponding non-GAAP measures* for the quarter are $11.8 billion of Adjusted Sales and $2.3 billion of Adjusted Net Income.
Apple sold 2,524,000 Macintosh® computers during the quarter, representing nine percent unit growth over the year-ago quarter. The Company sold a record 22,727,000 iPods during the quarter, representing three percent unit growth over the year-ago quarter. Quarterly iPhone units sold were 4,363,000, representing 88 percent unit growth over the year-ago quarter.
Even in these economically challenging times, we are incredibly pleased to report our best quarterly revenue and earnings in Apple historysurpassing $10 billion in quarterly revenue for the first time ever, said Steve Jobs, Apples CEO.
Our outstanding results generated over $3.6 billion in cash during the quarter, said Peter Oppenheimer, Apples CFO. Looking ahead to the second fiscal quarter of 2009, we expect revenue in the range of about $7.6 billion to $8 billion and we expect diluted earnings per share in the range of about $.90 to $1.00.
Apple will provide live streaming of its Q1 2009 financial results conference call utilizing QuickTime®, Apples standards-based technology for live and on-demand audio and video streaming. The live webcast will begin at 2:00 p.m. PST on January 21, 2009 at www.apple.com/quicktime/qtv/earningsq109/ and will also be available for replay for approximately two weeks thereafter.
*Non-GAAP Financial Measures
During fiscal 2007, the Company began selling the 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 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 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 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.
Unit sales of iPhone 3G continued to be significant in the quarter ended December 27, 2008, with 4.4 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 Companys 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 Income before Provision for Income Taxes, Adjusted Provision for Income Taxes, 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 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 Companys growth rate, revenue mix and performance relative to competitors. Given the impact of iPhone unit sales during the quarter ended December 27, 2008, Adjusted Sales provides a meaningful measurement of the Companys 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 Companys underlying sales trends. Management uses the non-GAAP measures of Adjusted Cost of Sales, Adjusted Gross Margin and Adjusted Operating Margin to measure the Companys operating performance based on current period iPhone and Apple TV sales and to facilitate on-going 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 will factor into the determination of management compensation beginning in fiscal year 2009. Finally, management uses the non-GAAP measures of Adjusted Income before Provision for Income Taxes, Adjusted Provision for Income Taxes, Adjusted Net Income and Adjusted Diluted Earnings per Share to measure the Companys 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 Companys performance and its cash generating potential. Management believes these non-GAAP measures increase the transparency of the Companys 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 Companys intention to provide unspecified new features and software to purchasers of iPhone and Apple TV products. These costs are expensed as incurred under GAAPs 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 Companys 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 Companys GAAP financial measures; |
| | these non-GAAP financial measures should not be considered in isolation from, or as a substitute for, the Companys GAAP financial measures; |
| | these non-GAAP financial measures should not be considered to be superior to the Companys GAAP financial measures; |
| | 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; |
| | these non-GAAP financial measures are not presented with comparable non-GAAP financial measures for prior periods, although management intends to continue to track and present these non-GAAP financial measures for future periods; and |
| | until management presents comparable non-GAAP financial measures for additional periods, these non-GAAP financial measures do not provide any information regarding trends in the Companys performance and, as such, investors should not assume that the presentation of these non-GAAP financial measures reflects any positive or negative trends in the Companys performance. |
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 Companys 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 Companys 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 Companys reaction to those factors, on consumer and business buying decisions with respect to the Companys products; potential litigation from the matters investigated by the special committee of the board of directors and the restatement of the Companys consolidated financial statements; 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 Companys gross margin; the inventory risk associated with the Companys 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 Companys business currently obtained by the Company from sole or limited sources; the effect that the Companys 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 Companys reliance on the availability of third-party digital content; the potential impact of a finding that the Company has infringed on the intellectual property rights of others; the effect that product and service quality problems could have on the Companys sales and operating profits; the Companys reliance on sole service providers for iPhone in certain countries; war, terrorism, public health issues, and other circumstances that could disrupt supply, delivery, or demand of products; the continued service and availability of key executives and employees; unfavorable results of other legal proceedings; and the Companys dependency on the performance of distributors and other resellers of the Companys products. More information on potential factors that could affect the Companys financial results is included from time to time in the Companys public reports filed with the SEC, including the Companys Form 10-K for the fiscal year ended September 27, 2008 and its Form 10-Q for the quarter ended December 27, 2008, 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.
Press Contact:
Steve Dowling
Apple
dowling@apple.com
(408) 974-1896
Investor Relations Contacts:
Nancy Paxton
Apple
paxton1@apple.com
(408) 974-5420
Joan Hoover
Apple
hoover1@apple.com
(408) 974-4570
NOTE TO EDITORS: For additional information visit Apples PR website (www.apple.com/pr/), or call Apples Media Helpline at (408) 974-2042.
© 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 | ||||||
| December 27, 2008 |
December 29, 2007 |
|||||
| Net sales |
$ | 10,167 | $ | 9,608 | ||
| Cost of sales (1) |
6,635 | 6,276 | ||||
| Gross margin |
3,532 | 3,332 | ||||
| Operating expenses: |
||||||
| Research and development (1) |
315 | 246 | ||||
| Selling, general, and administrative (1) |
1,091 | 960 | ||||
| Total operating expenses |
1,406 | 1,206 | ||||
| Operating income |
2,126 | 2,126 | ||||
| Other income and expense |
158 | 200 | ||||
| Income before provision for income taxes |
2,284 | 2,326 | ||||
| Provision for income taxes |
679 | 745 | ||||
| Net income |
$ | 1,605 | $ | 1,581 | ||
| Earnings per common share: |
||||||
| Basic |
$ | 1.81 | $ | 1.81 | ||
| Diluted |
$ | 1.78 | $ | 1.76 | ||
| Shares used in computing earnings per share: |
||||||
| Basic |
889,142 | 875,860 | ||||
| Diluted |
901,494 | 900,054 | ||||
| (1) Includes stock-based compensation expense as follows: |
||||||
| Cost of sales |
$ | 28 | $ | 18 | ||
| Research and development |
$ | 60 | $ | 39 | ||
| Selling, general, and administrative |
$ | 82 | $ | 53 | ||
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except share amounts)
| December 27, 2008 |
September 27, 2008 |
|||||
| ASSETS: |
||||||
| Current assets: |
||||||
| Cash and cash equivalents |
$ | 7,236 | $ | 11,875 | ||
| Short-term marketable securities |
18,411 | 10,236 | ||||
| Accounts receivable, less allowances of $54 and $47, respectively |
2,196 | 2,422 | ||||
| Inventories |
396 | 509 | ||||
| Deferred tax assets |
1,613 | 1,447 | ||||
| Other current assets |
5,311 | 5,822 | ||||
| Total current assets |
35,163 | 32,311 | ||||
| Long-term marketable securities |
2,498 | 2,379 | ||||
| Property, plant and equipment, net |
2,580 | 2,455 | ||||
| Goodwill |
207 | 207 | ||||
| Acquired intangible assets, net |
277 | 285 | ||||
| Other assets |
2,062 | 1,935 | ||||
| Total assets |
$ | 42,787 | $ | 39,572 | ||
| LIABILITIES AND SHAREHOLDERS EQUITY: |
||||||
| Current liabilities: |
||||||
| Accounts payable |
$ | 4,715 | $ | 5,520 | ||
| Accrued expenses |
3,807 | 3,719 | ||||
| Deferred revenue |
6,235 | 4,853 | ||||
| Total current liabilities |
14,757 | 14,092 | ||||
| Deferred revenue non-current |
3,440 | 3,029 | ||||
| Other non-current liabilities |
1,681 | 1,421 | ||||
| Total liabilities |
19,878 | 18,542 | ||||
| Commitments and contingencies |
||||||
| Shareholders equity: |
||||||
| Common stock, no par value; 1,800,000,000 shares authorized; 890,414,924 and 888,325,973 shares issued and outstanding, respectively |
7,392 | 7,177 | ||||
| Retained earnings |
15,448 | 13,845 | ||||
| Accumulated other comprehensive income |
69 | 8 | ||||
| Total shareholders equity |
22,909 | 21,030 | ||||
| Total liabilities and shareholders equity |
$ | 42,787 | $ | 39,572 | ||
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
| Three Months Ended | ||||||||
|
December 27, 2008 |
December 29, 2007 |
|||||||
| Cash and cash equivalents, beginning of the period |
$ | 11,875 | $ | 9,352 | ||||
| Operating Activities: |
||||||||
| Net income |
1,605 | 1,581 | ||||||
| Adjustments to reconcile net income to cash generated by operating activities: |
||||||||
| Depreciation, amortization, and accretion |
158 | 106 | ||||||
| Stock-based compensation expense |
170 | 110 | ||||||
| Provision for deferred income taxes |
(27 | ) | 22 | |||||
| Loss on disposition of property, plant, and equipment |
7 | 14 | ||||||
| Changes in operating assets and liabilities: |
||||||||
| Accounts receivable, net |
226 | (302 | ) | |||||
| Inventories |
113 | (113 | ) | |||||
| Other current assets |
660 | (550 | ) | |||||
| Other assets |
(116 | ) | (253 | ) | ||||
| Accounts payable |
(767 | ) | 484 | |||||
| Deferred revenue |
1,793 | 1,048 | ||||||
| Other liabilities |
116 | 640 | ||||||
| Cash generated by operating activities |
3,938 | 2,787 | ||||||
| Investing Activities: |
||||||||
| Purchases of marketable securities |
(13,082 | ) | (6,127 | ) | ||||
| Proceeds from maturities of marketable securities |
2,226 | 2,129 | ||||||
| Proceeds from sales of marketable securities |
2,668 | 758 | ||||||
| Purchases of other long-term investments |
(38 | ) | (9 | ) | ||||
| Payment for acquisition of property, plant, and equipment |
(339 | ) | (224 | ) | ||||
| Payment for acquisition of intangible assets |
(14 | ) | (8 | ) | ||||
| Other |
(60 | ) | 19 | |||||
| Cash used in investing activities |
(8,639 | ) | (3,462 | ) | ||||
| Financing Activities: |
||||||||
| Proceeds from issuance of common stock |
77 | 179 | ||||||
| Excess tax benefits from stock-based compensation |
19 | 315 | ||||||
| Cash used to net share settle equity awards |
(34 | ) | (9 | ) | ||||
| Cash generated by financing activities |
62 | 485 | ||||||
| Decrease in cash and cash equivalents |
(4,639 | ) | (190 | ) | ||||
| Cash and cash equivalents, end of the period |
$ | 7,236 | $ | 9,162 | ||||
| Supplemental cash flow disclosure: |
||||||||
| Cash paid for income taxes, net |
$ | 550 | $ | 251 | ||||
UNAUDITED CONSOLIDATED SCHEDULE OF DEFERRED REVENUE
(In millions)
| December 27, 2008 |
September 27, 2008 |
|||||
| Deferred revenue-current: |
||||||
| iPhone and Apple TV |
$ | 4,666 | $ | 3,518 | ||
| AppleCare |
602 | 599 | ||||
| Other |
967 | 736 | ||||
| Total deferred revenue-current |
6,235 | 4,853 | ||||
| Deferred revenue-non-current: |
||||||
| iPhone and Apple TV |
2,627 | 2,262 | ||||
| AppleCare |
683 | 651 | ||||
| Other |
130 | 116 | ||||
| Total deferred revenue-non-current |
3,440 | 3,029 | ||||
| Total deferred revenue |
$ | 9,675 | $ | 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 December 27, 2008 | ||||||||||
|
As Reported |
Non-GAAP Adjustments |
Non-GAAP | ||||||||
| Net sales |
$ | 10,167 | $ | 1,632 | (a) | $ | 11,799 | |||
| Cost of sales |
6,635 | 637 | (b) | 7,272 | ||||||
| Gross margin |
3,532 | 995 | (c) | 4,527 | ||||||
| Operating expenses |
1,406 | | 1,406 | |||||||
| Operating income |
2,126 | 995 | (c) | 3,121 | ||||||
| Other income and expense |
158 | | 158 | |||||||
| Income before provision for income taxes |
2,284 | 995 | (c) | 3,279 | ||||||
| Provision for income taxes |
679 | 296 | (d) | 975 | ||||||
| Net income |
$ | 1,605 | $ | 699 | (e) | $ | 2,304 | |||
| Earnings per diluted common share |
$ | 1.78 | $ | .78 | (f) | $ | 2.56 | |||
| Shares used in computing diluted earnings per share |
901,494 | 901,494 | ||||||||
Footnotes:
| (a) | Non-GAAP adjustment to net sales reflect (i) the reversal of the current periods 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 periods 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, operating income and income before provision for income taxes are the difference between non-GAAP adjustments to net sales and non-GAAP adjustments to cost of sales [(a) (b)]. |
| (d) | Represents the application of the periods effective tax rate to the non-GAAP adjustments to income before provision for income taxes. |
| (e) | Represents the after-tax effect of the non-GAAP adjustments to gross margin, operating income and income before provision for income taxes. |
| (f) | Represents the per share impact of the non-GAAP adjustments to net income. |
