Best Non-Holiday Quarter Revenue and Earnings in Apple History
CUPERTINO, Calif., July 21 /PRNewswire-FirstCall/ -- Apple today
announced financial results for its fiscal 2009 third quarter ended
June 27, 2009. The Company posted revenue of $8.34 billion and a
net quarterly profit of $1.23 billion, or $1.35 per diluted share.
These results compare to revenue of $7.46 billion and net quarterly
profit of $1.07 billion, or $1.19 per diluted share, in the
year-ago quarter. Gross margin was 36.3 percent, up from 34.8
percent in the year-ago quarter. International sales accounted for
44 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 $9.74
billion of "Adjusted Sales" and $1.94 billion of "Adjusted Net
Income." Apple sold 2.6 million Macintosh computers during the
quarter, representing a four percent unit increase over the
year-ago quarter. The Company sold 10.2 million iPods during the
quarter, representing a seven percent unit decline from the
year-ago quarter. Quarterly iPhones sold were 5.2 million,
representing 626 percent unit growth over the year-ago quarter.
"We're making our most innovative products ever and our customers
are responding," said Steve Jobs, Apple's CEO. "We're thrilled to
have sold over 5.2 million iPhones during the quarter and users
have downloaded more than 1.5 billion applications from our App
Store in its first year." "We're extremely pleased to report record
non-holiday quarter revenue and earnings and quarterly cash flow
from operations of $2.3 billion," said Peter Oppenheimer, Apple's
CFO. "Looking ahead to the fourth fiscal quarter of 2009, we expect
revenue in the range of about $8.7 billion to $8.9 billion and we
expect diluted earnings per share in the range of about $1.18 to
$1.23." Apple will provide live streaming of its Q3 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 July 21,
2009 at http://www.apple.com/quicktime/qtv/earningsq309/ 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 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
June 27, 2009, with 5.2 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 June 27, 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; -- 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 Company's 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 Company's
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 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; 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; 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 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; 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 Company's dependency on the performance of
distributors and other resellers of the Company's products. 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 Form 10-Q
for the quarter ended December 27, 2008, its Form 10-Q for the
quarter ended March 28, 2009, and its Form 10-Q for the quarter
ended June 27, 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 Nine Months Ended June 27,
June 28, June 27, June 28, 2009 2008 2009 2008 Net sales $8,337
$7,464 $26,667 $24,584 Cost of sales (1) 5,314 4,864 17,141 16,178
Gross margin 3,023 2,600 9,526 8,406 Operating expenses: Research
and development (1) 341 292 975 811 Selling, general, and
administrative (1) 1,010 916 3,086 2,762 Total operating expenses
1,351 1,208 4,061 3,573 Operating income 1,672 1,392 5,465 4,833
Other income and expense 60 118 281 480 Income before provision for
income taxes 1,732 1,510 5,746 5,313 Provision for income taxes 503
438 1,707 1,615 Net income $1,229 $1,072 $4,039 $3,698 Earnings per
common share: Basic $1.38 $1.21 $4.53 $4.20 Diluted $1.35 $1.19
$4.47 $4.10 Shares used in computing earnings per share: Basic
893,712 883,738 891,345 879,753 Diluted 909,160 903,167 904,549
901,028 (1) Includes stock-based compensation expense as follows:
Cost of sales $28 $21 $85 $59 Research and development $65 $47 $192
$133 Selling, general, and administrative $86 $65 $253 $183
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (In millions,
except share amounts) June 27, September 27, 2009 2008 ASSETS:
Current assets: Cash and cash equivalents $5,605 $11,875 Short-term
marketable securities 18,617 10,236 Accounts receivable, less
allowances of $58 and $47, respectively 2,686 2,422 Inventories 380
509 Deferred tax assets 1,731 1,447 Other current assets 6,151
5,822 Total current assets 35,170 32,311 Long-term marketable
securities 6,899 2,379 Property, plant and equipment, net 2,653
2,455 Goodwill 207 207 Acquired intangible assets, net 259 285
Other assets 2,952 1,935 Total assets $48,140 $39,572 LIABILITIES
AND SHAREHOLDERS' EQUITY: Current liabilities: Accounts payable
$4,854 $5,520 Accrued expenses 3,338 3,719 Deferred revenue 8,469
4,853 Total current liabilities 16,661 14,092 Deferred revenue -
non-current 3,667 3,029 Other non-current liabilities 1,924 1,421
Total liabilities 22,252 18,542 Commitments and contingencies
Shareholders' equity: Common stock, no par value; 1,800,000,000
shares authorized; 895,735,210 and 888,325,973 shares issued and
outstanding, respectively 7,957 7,177 Retained earnings 17,878
13,845 Accumulated other comprehensive income 53 8 Total
shareholders' equity 25,888 21,030 Total liabilities and
shareholders' equity $48,140 $39,572 UNAUDITED CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (In millions) Nine Months
Ended June 27, June 28, 2009 2008 Cash and cash equivalents,
beginning of the period $11,875 $9,352 Operating Activities: Net
income 4,039 3,698 Adjustments to reconcile net income to cash
generated by operating activities: Depreciation, amortization, and
accretion 506 339 Stock-based compensation expense 530 375 Deferred
income tax (benefit)/expense (201) 41 Loss on disposition of
property, plant and equipment 18 15 Changes in operating assets and
liabilities: Accounts receivable, net (264) 34 Inventories 129
(199) Other current assets (298) (100) Other assets (816) 101
Accounts payable (648) (1,226) Deferred revenue 4,254 1,823 Other
liabilities (200) 400 Cash generated by operating activities 7,049
5,301 Investing Activities: Purchases of marketable securities
(34,696) (17,153) Proceeds from maturities of marketable securities
12,780 9,378 Proceeds from sales of marketable securities 9,117
2,367 Purchases of other long-term investments (61) (31) Payment
for acquisition of property, plant and equipment (685) (688)
Payment for acquisition of intangible assets (56) (89) Other (62)
20 Cash used in investing activities (13,663) (6,196) Financing
Activities: Proceeds from issuance of common stock 288 411 Excess
tax benefits from stock-based compensation 124 621 Cash used to net
share settle equity awards (68) (116) Cash generated by financing
activities 344 916 (Decrease)/Increase in cash and cash equivalents
(6,270) 21 Cash and cash equivalents, end of the period $5,605
$9,373 Supplemental cash flow disclosure: Cash paid for income
taxes, net $2,490 $1,022 UNAUDITED CONSOLIDATED SCHEDULE OF
DEFERRED REVENUE (In millions) June 27, March 28, September 27,
2009 2009 2008 Deferred revenue - current: iPhone and Apple TV
$6,767 $5,467 $3,518 AppleCare 725 659 599 Other 977 888 736 Total
deferred revenue - current 8,469 7,014 4,853 Deferred revenue -
non-current: iPhone and Apple TV 2,860 2,676 2,262 AppleCare 653
638 651 Other 154 146 116 Total deferred revenue - non-current
3,667 3,460 3,029 Total deferred revenue $12,136 $10,474 $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 June 27, 2009 As Reported
in accordance Non-GAAP with GAAP Adjustments Non-GAAP Net sales
$8,337 $1,405(a) $9,742 Cost of sales 5,314 400(b) 5,714 Gross
margin 3,023 1,005(c) 4,028 Operating expenses 1,351 - 1,351
Operating income 1,672 1,005(c) 2,677 Net income $1,229 $713(d)
$1,942 Earnings per diluted common share $1.35 $0.79(e) $2.14
Shares used in computing diluted earnings per share 909,160 909,160
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 $292
million for the three months ended June 27, 2009. 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. Q3
2009 Unaudited Summary Data Q2 2009 Q3 2008 Q3 2009 ---------
--------- --------- Operating CPU Revenue CPU Revenue CPU Revenue
Segments Units K $M Units K $M Units K $M ------- ------- -------
------- ------- ------- Americas 809 $3,517 1,134 $3,435 1,147
$3,827 Europe 658 2,097 576 1,648 626 2,006 Japan 109 500 102 365
108 416 Retail 438 1,471 476 1,445 492 1,496 Other Segments(1) 202
578 208 571 230 592 --- --- --- --- --- --- Total Operating
Segments 2,216 $8,163 2,496 $7,464 2,603 $8,337 ===== ====== =====
====== ===== ====== Product Revenue Revenue Revenue Summary Units K
$M Units K $M Units K $M ------- ------- ------- ------- -------
------- Desktops (2) 818 $1,050 943 $1,373 849 $1,129 Portables (3)
1,398 1,895 1,553 2,237 1,754 2,200 ----- ----- ----- ----- -----
----- Subtotal CPUs 2,216 2,945 2,496 3,610 2,603 3,329 iPod 11,013
1,665 11,011 1,678 10,215 1,492 Other Music Related Products and
Services (4) 1,049 819 958 iPhone and Related Products and Services
(5) 3,793 1,521 717 419 5,208 1,689 Peripherals and Other Hardware
358 437 341 Software, Service and Other Sales 625 501 528 --- ---
--- Total Apple $8,163 $7,464 $8,337 ====== ====== ======
Sequential Year/Year Change Change ------------ ------------
Operating Segments CPU Units Revenue CPU Units Revenue ---------
------- --------- ------- Americas 42% 9% 1% 11% Europe -5% -4% 9%
22% Japan -1% -17% 6% 14% Retail 12% 2% 3% 4% Other Segments (1)
14% 2% 11% 4% Total Operating Segments 17% 2% 4% 12% Sequential
Year/Year Change Change ------------ ------------ Product Summary
Units Revenue Units Revenue ------- ------- ------- -------
Desktops (2) 4% 8% -10% -18% Portables (3) 25% 16% 13% -2% Subtotal
CPUs 17% 13% 4% -8% iPod -7% -10% -7% -11% Other Music Related
Products and Services (4) -9% 17% iPhone and Related Products and
Services (5) 37% 11% 626% 303% Peripherals and Other Hardware -5%
-22% Software, Service and Other Sales -16% 5% Total Apple 2% 12%
(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 DATASOURCE: Apple CONTACT:
Press, Steve Dowling, +1-408-974-1896, , or Investor Relations,
Nancy Paxton, +1-408-974-5420, , or Joan Hoover, +1-408-974-4570, ,
all of Apple Web Site: http://www.apple.com/
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