updated 12:35 pm EST, Thu December 1, 2005
Apple SEC filing
Apple's total Mac sales increased $1.4 billion or 27 percent during 2005 compared to 2004, according to the company's most recent SEC filing. Meanwhile, net sales of iPods rose $3.2 billion or 248 percent during 2005 compared to 2004. Apple's total R&D expenditures in 2005 totaled $534 million in 2005, an increase of more than 9 percent from 2004. The Retail segment's net sales doubled to $2.4 billion during 2005 compared to 2004. According to the report, Apple's total capital expenditures were $260 million during 2005 and Apple currently anticipates it will utilize approximately $390 million for capital expenditures during 2006. Apple's filing also revealed new lawsuits: a class action regarding Apple wireless products, and a patent infringement case. Other highlights from the annual report include:
- Top 5 share holders: Fidelity (7 percent), Barclays Global (6.5 percent), AXA (5.7 percent), Steve Jobs (1.2 percent), and Ron Johnson (2.1 million options) are in the top 5 list for Apple stock ownership. Fidelity has over 58.5 million shares of common stock, according to the filing, while Jobs has just over 10.1 million and Johnson has just over 2.1 million, including his options. As a group, the executives and directors have nearly 2 percent of Apple stock with a little more than 16.3 million shares.
- Jobs still has options: Steve Jobs has 120,000 excercisable options worth nearly $5.7 million that were given to him as part of the 1997 Director Stock option plan. Since accepting the position of CEO, Jobs is no longer eligible to receive option grants under the Director Plan and in March 2003, Jobs voluntarily cancelled all of his outstanding options, excluding those granted to him in his capacity as a director.
- Execs get cash, but not stock: In 2005, Apple paid cash--but not stock--bonuses to COO Timothy Cook, Retail VP Ronald Johnson, CFO Peter Oppenheimer, and iPod VP Jonathan Rubinstein. The cash bonuses were nearly equivalent to their salary, virtually doubling their overall compensation package. Each received approximately $602,000, $553,000, $552,000, and $553,000 (respectively) in both salary and bonus for 2005. In 2004, Apple offered large stock grants to Cook ($7.7M), Johnson ($6.4M), Oppenheimer ($6.4M), and Rubinstein ($6.4) as part of its executive compensation.
- Education sales grow: Apple's U.S. education channel experienced year-over-year growth in both net sales and unit sales of approximately 21 percent for 2005. The increase in U.S. education net sales for 2005 relates primarily to a 32 percent year-over-year increase in higher education net sales due to increased iMac shipments, portable system shipments, and online sales. Apple also experienced 11 percent growth in K-12 net sales due to increased iBook sales and education one-to-one initiative sales.
- Mac unit sales grow: Total Macintosh net sales increased $1.4 billion or 27 percent during 2005 compared to 2004. Unit sales of Macintosh systems increased 1.2 million units during the same period. Apple says it believes that the success of the iPod is having a positive impact on Macintosh net sales by introducing new customers to the its other (Mac) products. Desktop demand was stimulated in 2005 due to the new iMac G5 and the introduction of the Mac mini in January 2005. Net sales and unit sales of desktop products increased 45 percent and 55 percent, respectively, during 2005.
- 28 million iPods sold: Net sales of iPods rose $3.2 billion or 248 percent during 2005 compared to 2004. Unit sales of iPods totaled 22.5 million in 2005, which represents an increase of 409 percent from the 4.4 million iPod units sold in 2004. Sales were driven by strong demand for the iPod shuffle introduced in January 2005, the release of an updated version of the iPod mini in February 2005, the release of the iPod nano in September 2005, and expansion of the iPod's distribution network. Net sales per iPod unit sold decreased 32 percent primarily due to the introduction of the lower priced iPod. Since 2002, Apple has sold approximately 28 million iPods.
- Average Mac price falls: Net sales per Macintosh unit sold decreased 7 percent on a year-over-year basis. The decrease was the result of changes in the overall unit mix towards relatively lower-priced consumer products, specifically the impact of the Mac mini product, and desktop and portable price reductions. This decrease was partially offset by an increase in the proportion of direct sales.
- iPod drives Music revenues: Other music related products and services consists of sales associated with the iTunes Music Store and iPod services and accessories. Net sales of other music related products and services increased $621 million or 223 percent during 2005 compared to 2004. The increased sales from the iTunes Music Store is primarily due to substantial growth of net sales in the U.S. and expansion in Europe, Canada, and Japan.
- Retail sales double to $2.4B: The Retail segment's net sales grew 98 percent to $2.4 billion during 2005 compared to 2004. This increase is largely attributable to the increase in total stores from 86 at the end of 2004 to 124 at the end of 2005, as well as 44 percent year-over-year increase in average revenue per store. While the Company's customers in areas where the Retail segment has opened stores may elect to purchase from the Retail segment stores rather than the Company's preexisting sales channels in the U.S., Canada, Japan, and the U.K., Apple said it believes that a substantial portion of the Retail segment's net sales is incremental to its total net sales.
- $22.4M in revene per Apple store: Apple opened 38 new retail stores during 2005, including 6 international stores in the U.K, Japan, and Canada, bringing the total number of open stores to 124 as of September 24, 2005. This compares to 86 open stores as of September 25, 2004 and 65 open stores as of September 27, 2003. With an average of 105 stores open during 2005, the Retail segment achieved annualized revenue per store of approximately $22.4 million, as compared to $15.6 million in 2004 with a 76 store average, and $11.5 million in 2003 with a 54 store average. The Retail segment reported operating income of $151 million during 2005 as compared to operating income of $39 million during 2004.
- Displays drive more sales: Net sales of peripherals and other hardware rose by 18 percent during 2005 compared to 2004 primarily due to an increase in net sales of displays and other computer accessories. Net sales of other hardware include AirPort cards and base stations, Xserve RAID storage, iSight digital video cameras, and third-party hardware products.
- Gross margin to decline: Gross margin increased in 2005 to 29 percent of net sales from 27.3 percent of net sales in 2004. Apple's gross margin during 2005 increased due to more favorable pricing on certain commodity components including LCD flat-panel displays and DRAM memory; an increase in higher margin software sales; a favorable shift in direct sales related primarily to the Company's Retail and online stores; and higher overall revenue that provided for more leverage on fixed production costs. These increases to gross margin were partially offset by an increase in lower margin iPod sales. Apple expects gross margin percentage to decline in the first quarter of 2006 primarily as a result of a shift in the mix of revenue toward lower margin products such as the iPod and content from the iTunes Music Store.
- Apple pays $1M for Jobs' jet: During 2005, Apple paid a total of $1,075,545 in expenses related to the use of Steve Jobs' private plane. (In March 2002, Apple entered into a Reimbursement Agreement with Jobs for the reimbursement of expenses incurred for the operation of his private plane when used for Apple business.)
- R&D increases by $45M: Apple's research and development expenditures totaled $534 million in 2005, an increase of more than 9 percent from 2004 ($489 million). R&D expense amounted to approximately 4 percent of total net sales during 2005 down from 6 percent of total net sales in 2004. This decrease is due to the significant increase of 68 percent in total net sales for 2005. Although R&D expense decreased as a percentage of total net sales in 2005, actual expense for R&D in 2005 increased $45 million from 2004. R&D expense does not include capitalized software development costs of approximately $29.7 million related to the development of Mac OS X Tiger during 2005 (and $4.5 million in 2004).
- Expenses jump 31 percent: Expenditures for SG&A increased $438 million or 31 percent during 2005 compared to 2004. These increases are due primarily to the continued expansion of the Retail segment in both domestic and international markets, a current year increase in discretionary spending on marketing and advertising, and higher direct and channel selling expenses resulting from the increase in net sales and employee salary merit increases. SG&A as a percentage of total net sales in 2005 was 13 percent, down from 17 percent in 2004, which is due to the increase in total net sales of 68 percent during 2005.
- Other income increases: Total interest and other income, net increased $112 million or 211 percent to $165 million during 2005 compared to $53 million in 2004. These increases are attributable primarily to increasing investment yields of cash and short-term investments and higher invested balances. The weighted average interest rate earned by the Company on its cash, cash equivalents, and short-term investments increased to 2.7 percent in 2005 compared to the 1.38 percent rate earned during 2004. In addition, Apple recognized a net loss of $137,000 in 2005 and a net gain of $1 million during 2004.
- Capital expenditures grow: Apple's total capital expenditures were $260 million during 2005, $132 million of which were for retail store facilities and equipment related to the Retail segment and $128 million of which were primarily for corporate infrastructure, including information systems enhancements and operating facilities enhancements and expansions. Apple currently anticipates it will utilize approximately $390 million for capital expenditures during 2006, approximately $210 million of which is expected to be utilized for further expansion of the Retail segment.
- Lease, purchasing commitments: As of September 24, 2005, Apple had total outstanding commitments on noncancelable operating leases of approximately $865 million, $606 million of which related to the lease of retail space and related facilities. As of September 24, 2005, the Company had outstanding third-party manufacturing commitments and component purchase commitments of approximately $2.0 billion. In addition, Apple entered into long-term supply agreements with Hynix, Intel, Micron, Samsung, and Toshiba to secure supply of NAND flash memory through calendar year 2010. As part of these agreements, Apple will prepay a total of $1.25 billion for flash memory components by the end of the second quarter of 2006.
- Wireless product lawsuit: Apple's filing reveals a class-action lawsuit filed on October 31, 2005 in Lost Angeles Superior Court. The complaint is made on behalf of a purported nationwide class of all purchasers of all Apple wireless products (router, modem, or adaptor) sold at any time and alleges that Apple misrepresented the transmission rates of these products. The complaint alleges causes of action for breach of express warranty and for violations of the Consumer Legal Remedies Act, California Business & Professions Code §17200 (unfair competition) and California Business & Professions Code §17500 (false advertising). The complaint seeks damages and equitable remedies.
- KPMG fees nearly double: Apple paid nearly $8 million in 2005 for audit fees to the public accounting firm KPMG, a substantial increase from $4.2 million paid in 2004. Tax fees include $690,000 for professional services rendered in connection with tax compliance and preparation relating to Apple's expatriate program, tax audits and international tax compliance; and $233,000 for international tax consulting and planning services; Apple said it does not engage KPMG to perform personal tax services for its executive officers.
- Advertising spending soars: Apple spent $287 million in 2005, almost 40 percent more than the $206 million it spent in 2004.