Apple on Thursday offered its quarterly 10-Q report to the United States Securities and Exchange Commission (SEC). The 10-Q provides a comprehensive overview of how Apple’s doing financially, from sales to executive compensation programs, plant closings and other issues that affect the company’s financial condition.
Apple exited the quarter ending March 27, 2004 with US$4.594 billion in cash and equivalents, up $28 million year-over-year. Of that, about $810 million was locked in short-term investments with maturities ranging from 1 to 5 years; the rest was put into investments with underlying maturities between 3 and 12 months.
$9.6 million in restructuring costs
More details were provided about Apple’s recently announced
closure of a manufacturing facility
in Sacramento, Calif. Severance charges related to the termination of 200 jobs at that facility will cost Apple $1.9 million, which will be paid during its third fiscal quarter. At its
annual shareholder meeting, Apple noted that the Sacramento facility’s closure will save $3 million per quarter going forward.
Apple also said that it’s eliminating 148 sales and marketing positions in the United States and Europe before the end of 2004, resulting in further severance costs of $7.7 million. The company did not offer further details about the cuts.
Net sales buoyed by iPod, retail stores
A comparison of Apple’s net sales for the same fiscal quarters in 2003 and 2004 (both ending in March) reveal a downward trend in the company’s sales in Japan: Quarterly net sales are off 21 percent year-over-year, down to $173 million. That trend concerns Apple Vice President of Worldwide Sales and Operations Tim Cook; during a recent
call with financial analysts, Cook said that Apple’s taking immediate action to boost sagging sales in that region.
As an operating segment, Apple’s retail stores showed the biggest year-over-year growth: 97 percent, up to $266 million from $135 million a year ago. Part of that income is attributed to the expanded number of stores that have been opened since the March 2003 quarter — 78 stores compared to 53 a year ago. Apple Stores also recognized a 35 percent year-over-year increase in average revenue per store — evidence that customers are spending more when they walk in the door.
Net sales in the Americas and Europe both showed significant growth year-over-year, rising 29 percent to $881 million and 33 percent to $449 million, respectively. Apple said it’s partly because iPod distribution and sales increased dramatically — the company moved 807,000 units during the quarter. Apple also saw a 47 percent rise in accessory and peripheral sales — including sales of its iSight Webcam, AirPort cards and third-party peripherals carried in its online stores and retail stores.
Net sales numbers also show a downward trend in iMac sales. Worldwide, iMac worldwide net sales are off 17 percent year-over-year to $252 million. Apple attributes these weak numbers to several factors, including the iMac’s price — $1,299 to start — as well as its now more than two-year-old design. Apple is hoping that a recent refresh to the $799 eMac will help boost revenue in the consumer space.
Predicating potential pitfalls
In stating factors that might affect Apple’s future financial condition, the company noted that demand for Power Macs has declined for several years. Although Apple’s seen strong recent sales for its Power Mac G5 systems, the company readily acknowledges that Power Mac sales have fallen as a percentage of total sales from 30 percent in 2001 to 22 percent in 2003 and 24 percent in the first half of its fiscal 2004. Apple attributes this drop in a shift to portable systems like its PowerBook line, as well as the Power Mac’s lower clock speed compared to PC equivalents. Because of the Power Mac’s higher gross margins than other Mac systems, Apple said, “If future unit sales of Power Macintosh systems fail to partially or fully recover, it could be difficult for the Company to improve its overall profitability.”
Apple also noted its involvement as a defendant in almost two dozen pending legal cases, ranging from
a case involving
Beatles management company Apple Corps to several class-action suits pertaining to the iPod’s battery life, patent infringement cases involving FireWire,
JPEG image compression, iBook logic board problems, technology that appears in Mac OS 9 and Mac OS X, and five suits filed by independent Mac resellers alleging, among other things, breach of contract, fraud and unfair competition.