Apple Reports Second Quarter Results
Apple today announced financial results for its fiscal 2009 second quarter
ended March 28, 2009. The Company posted revenue of $8.16 billion and a net
quarterly profit of $1.21 billion, or $1.33 per diluted share. These
results compare to revenue of $7.51 billion and net quarterly profit of
$1.05 billion, or $1.16 per diluted share, in the year-ago quarter. Gross
margin was 36.4 percent, up from 32.9 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 and Apple
TV over their estimated economic lives. Adjusting GAAP sales and product
costs to eliminate the impact of sub scription accounting, the
corresponding non-GAAP measures* for the quarter are $9.06 billion of
“Adjusted Sales” and $1.66 billion of “Adjusted Net Income.”
Apple sold 2.22 million Macintosh computers during the quarter,
representing a three percent unit decline from the year-ago quarter. The
Company sold 11.01 million iPods during the quarter, representing three
percent unit growth over the year-ago quarter. Quarterly iPhone units sold
were 3.79 million representing 123 percent unit growth over the year-ago
quarter.
“We are extremely pleased to report the best non-holiday quarter revenue
and earn ings in our history,” said Peter Oppenheimer, Apple’s CFO.
“Apple’s financial condition remains very robust, with almost $29 billion
in cash and marketable securities on our balance sheet. Looking ahead to
the third fiscal quarter of 2009, we expect revenue in the range of about
$7.7 billion to $7.9 billion and we expect diluted earnings per share in
the range of about $.95 to $1.00.”
Apple will provide live streaming of its Q2 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 April 22, 2009 at
www.apple.com/quicktime/qtv/earningsq209/ 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 reve nue 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.
Unit sales of iPhone 3G continued to be significant in the quarter ended
March 28, 2009, with 3.79 million iPhones sold. As a result, the amount of
revenue and product cost related to those iPhone sales that the Company
deferred for recognit ion 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 financ ial
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 March 28, 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 m easures 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 p eriod 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 lim ited 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 pe riods, 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 hav e 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, and its Form 10-Q for the quarter ended
March 28, 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 respe ctive 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.