Apple Q3 2013 Earnings

It hasn't been a particularly quiet quarter for Apple, at least in the announcement department. But, as far actually shipping new products, Q3 of 2013 has been relatively uneventful. Perhaps that's why the company's revenues are down to $35.3 billion, from $43.6 billion in Q2. Still, while its revenues are down significantly from the last two quarters, things are pretty stable year-over-year. In fact, it's enjoyed a small increase over the $35 billion it raked in during Q3 of 2012. Still, while revenues are up, profits are down. $6.9 billion in net income is hardly anything to snub your nose at, but it does represent a notable drop from the $8.8 billion Apple pocketed in the same quarter last year. That's at least partially attributable to a year-over-year drop in both iPad and Mac sales, though the 31.2 million iPhones sold is a record for the June quarter -- up 20 percent from last year. The decline in iPad sales is particularly notable. After selling 17 million iOS tablets in Q3 of 2012 and 19.5 million just last quarter, Apple only managed to sell 14.6 million slates in the three month period ending June 30th. Mac sales were down less dramatically, from 4 million to 3.8 million, year-over-year, though those numbers are roughly flat sequentially.

The iPod line continued its rather swift decline in Q3, with sales dropping 19 percent sequentially and 32 percent year-over-year. The impressive uptick in iPhone sales does help balance out the drop, but it appears the writing is on the wall for the product family that helped kick start the digital music revolution. All the blame for Apple's declining profits can not be blamed on the iPod, however. Sales are down pretty much across the board, both sequentially and year-over-year, with the exception of the iPhone. All the while, Cupertino's expenses keep increasing.

You'll find updates and more numbers after the break from Apple's earnings call.

5:04 PM CFO Peter Oppenheimer is bragging about the iPhone's international growth, particularly singling out Japan, where sales are up 60 percent, year-over-year.

5:08 PM Peter says that the year-over-year drop in iPad sales is at least partially attributable to Q3 2012 being the first full quarter that the third-generation iPad was available. With no comparable update made available in 2013, sales predictably dropped off.

5:10 PM While Mac sales were down seven percent year-over-year, Peter says that the line still exceeded expectations. Since IDC suggests that the PC market contracted by about 11 percent, the Apple CFO says this indicates that Mac has actually gained market share.

5:15 PM Peter cited a study showing that the iPad still holds a commanding lead over its Android and Windows 8 competitors in the enterprise market, representing 88 percent of the commercial market.

5:16 PM Apple plans to open nine new stores in the next quarter, bringing its grand total of new openings to 27 for the year.

5:17 PM Peter says Apple now has a war chest of $146.6 billion on hand.

5:20 PM Not that it should come as a surprise, but Peter confirmed that Apple has some new products in the works for 2013. Of course, he wouldn't get any more specific than that. Such a tease.

5:23 PM In response to a question about smartphones approaching saturation, Tim Cook says that there is plenty of room for growth in markets outside the US and, contrary to some perceptions, he believes there is still plenty of room for growth even at the premium end of the spectrum

5:27 PM Despite sales shrinking overall, Tim Cook is optimistic about the iPad's future. Especially since sales grew by double digits in China, Japan, Canada and a handful of other nations.

5:35 PM Tim Cook was pressed about a rumored trade in program, but he wouldn't give up the goods. That said, he seemed pretty fond of the concept from both a business and environmental standpoint.

Show full PR text

Apple Reports Third Quarter Results
Sales of 31 Million iPhones Set New June Quarter Record

CUPERTINO, Calif., Jul 23, 2013 (BUSINESS WIRE) -- Apple(R) today announced financial results for its fiscal 2013 third quarter ended June 29, 2013. The Company posted quarterly revenue of $35.3 billion and quarterly net profit of $6.9 billion, or $7.47 per diluted share. These results compare to revenue of $35 billion and net profit of $8.8 billion, or $9.32 per diluted share, in the year-ago quarter. Gross margin was 36.9 percent compared to 42.8 percent in the year-ago quarter. International sales accounted for 57 percent of the quarter's revenue.

The Company sold 31.2 million iPhones, a record for the June quarter, compared to 26 million in the year-ago quarter. Apple also sold 14.6 million iPads during the quarter, compared to 17 million in the year-ago quarter. The Company sold 3.8 million Macs, compared to 4 million in the year-ago quarter.

Apple's Board of Directors has declared a cash dividend of $3.05 per share of the Company's common stock. The dividend is payable on August 15, 2013, to shareholders of record as of the close of business on August 12, 2013.

"We are especially proud of our record June quarter iPhone sales of over 31 million and the strong growth in revenue from iTunes, Software and Services," said Tim Cook, Apple's CEO. "We are really excited about the upcoming releases of iOS 7 and OS X Mavericks, and we are laser-focused and working hard on some amazing new products that we will introduce in the fall and across 2014."

"We generated $7.8 billion in cash flow from operations during the quarter and are pleased to have returned $18.8 billion in cash to shareholders through dividends and share repurchases," said Peter Oppenheimer, Apple's CFO.

Apple is providing the following guidance for its fiscal 2013 fourth quarter:

* revenue between $34 billion and $37 billion

* gross margin between 36 percent and 37 percent

* operating expenses between $3.9 billion and $3.95 billion

* other income/(expense) of $200 million

* tax rate of 26.5%

Apple will provide live streaming of its Q3 2013 financial results conference call beginning at 2:00 p.m. PDT on July 23, 2013 at www.apple.com/quicktime/qtv/earningsq313. This webcast will also be available for replay for approximately two weeks thereafter.

This press release contains forward-looking statements including without limitation those about the Company's estimated revenue, gross margin, operating expenses, other income/(expense), and tax rate. 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; 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 introductions and 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; risks associated with the Company's international operations; the Company's reliance on third-party intellectual property and digital content; the potential impact of a finding that the Company has infringed on the intellectual property rights of others; the Company's dependency on the performance of distributors, carriers and other resellers of the Company's products; the effect that product and service quality problems could have on the Company's sales and operating profits; the continued service and availability of key executives and employees; war, terrorism, public health issues, natural disasters, and other circumstances that could disrupt supply, delivery, or demand of products; and unfavorable results of other legal proceedings. More information on potential factors that could affect the Company's financial results is included from time to time in the "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" sections of the Company's public reports filed with the SEC, including the Company's Form 10-K for the fiscal year ended September 29, 2012, its Form 10-Q for the quarter ended December 29, 2012, its Form 10-Q for the quarter ended March 30, 2013, and its Form 10-Q for the quarter ended June 29, 2013 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 designs Macs, the best personal computers in the world, along with OS X, iLife, iWork and professional software. Apple leads the digital music revolution with its iPods and iTunes online store. Apple has reinvented the mobile phone with its revolutionary iPhone and App Store, and is defining the future of mobile media and computing devices with iPad.

NOTE TO EDITORS: For additional information visit Apple's PR website (www.apple.com/pr), or call Apple's Media Helpline at (408) 974-2042.

(C) 2013 Apple Inc. All rights reserved. Apple, the Apple logo, Mac, Mac OS and Macintosh are trademarks of Apple. Other company and product names may be trademarks of their respective owners.

Apple Inc.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except number of shares which are reflected in
thousands and per share amounts)

Three Months Ended Nine Months Ended
-------------------------------------------------------------------------- ---------------------------------------------------------------------------------------
June 29, June 30, June 29, June 30,
2013 2012 2013 2012
--------------------------- --------------------------- --------------------------- ----------------------------------------

Net sales $ 35,323 $ 35,023 $ 133,438 $ 120,542
Cost of sales (1) 22,299 20,029 83,005 66,281
-------------------- ------- -------------------- ------- -------------------- ------- -------------------- --------------------

Gross margin 13,024 14,994 50,433 54,261
-------------------- ------- -------------------- ------- -------------------- ------- -------------------- --------------------

Operating expenses:
Research and development (1) 1,178 876 3,307 2,475
Selling, general and administrative (1) 2,645 2,545 8,157 7,489
-------------------- ------- -------------------- ------- -------------------- ------- -------------------- --------------------

Total operating expenses 3,823 3,421 11,464 9,964
-------------------- ------- -------------------- ------- -------------------- ------- -------------------- --------------------

Operating income 9,201 11,573 38,969 44,297

Other income/(expense), net 234 288 1,043 573
-------------------- ------- -------------------- ------- -------------------- ------- -------------------- --------------------

Income before provision for income taxes 9,435 11,861 40,012 44,870

Provision for income taxes 2,535 3,037 10,487 11,360
-------------------- ------- -------------------- ------- -------------------- ------- -------------------- --------------------

Net income $ 6,900 $ 8,824 $ 29,525 $ 33,510
==================== ======= ==================== ======= ==================== ======= ==================== ====================

Earnings per share:
Basic $ 7.51 $ 9.42 $ 31.67 $ 35.89
Diluted $ 7.47 $ 9.32 $ 31.44 $ 35.48

Shares used in computing earnings per share:
Basic 918,618 936,596 932,388 933,672
Diluted 924,265 947,059 939,172 944,440

Cash dividends declared per common share $ 3.05 $ 0 $ 8.35 $ 0

(1) Includes share-based compensation expense as follows:
Cost of sales $ 90 $ 70 $ 262 $ 196
Research and development $ 245 $ 172 $ 708 $ 500
Selling, general and administrative $ 243 $ 206 $ 728 $ 596

Apple Inc.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except number of shares which are reflected in
thousands)

June 29, September 29,
2013 2012
----------------------------- ----------------------------------------

ASSETS:

Current assets:
Cash and cash equivalents $ 11,248 $ 10,746
Short-term marketable securities 31,358 18,383
Accounts receivable, less allowances of $104 and $98, respectively 8,839 10,930
Inventories 1,697 791
Deferred tax assets 3,193 2,583
Vendor non-trade receivables 4,614 7,762
Other current assets 7,270 6,458
-------------------- --------- -------------------- --------------------
Total current assets 68,219 57,653

Long-term marketable securities 104,014 92,122
Property, plant and equipment, net 16,327 15,452
Goodwill 1,522 1,135
Acquired intangible assets, net 4,353 4,224
Other assets 5,421 5,478
-------------------- --------- -------------------- --------------------
Total assets $ 199,856 $ 176,064
==================== ========= ==================== ====================


LIABILITIES AND SHAREHOLDERS' EQUITY:

Current liabilities:
Accounts payable $ 15,516 $ 21,175
Accrued expenses 13,470 11,414
Deferred revenue 7,333 5,953
-------------------- --------- -------------------- --------------------
Total current liabilities 36,319 38,542

Deferred revenue - non-current 2,672 2,648
Long-term debt 16,958 0
Other non-current liabilities 20,553 16,664
-------------------- --------- -------------------- --------------------
Total liabilities 76,502 57,854
-------------------- --------- -------------------- --------------------

Commitments and contingencies

Shareholders' equity:
Common stock, no par value; 1,800,000 shares authorized; 908,442 and 19,024 16,422
939,208 shares issued and outstanding, respectively
Retained earnings 104,564 101,289
Accumulated other comprehensive (loss)/income (234) 499
-------------------- --------- -------------------- --------------------
Total shareholders' equity 123,354 118,210
-------------------- --------- -------------------- --------------------
Total liabilities and shareholders' equity $ 199,856 $ 176,064
==================== ========= ==================== ====================

Apple Inc.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)

Nine Months Ended
---------------------------------------------------------------------------------
June 29, 2013 June 30, 2012
------------------ ------------------------------------------

Cash and cash equivalents, beginning of the period $ 10,746 $ 9,815
-------- -------- -------------------- --------------------

Operating activities:
Net income 29,525 33,510
Adjustments to reconcile net income to cash generated by operating
activities:
Depreciation and amortization 4,974 2,296
Share-based compensation expense 1,698 1,292
Deferred income tax expense 2,524 4,066
Changes in operating assets and liabilities:
Accounts receivable, net 2,091 (2,278)
Inventories (906) (346)
Vendor non-trade receivables 3,148 (293)
Other current and non-current assets 484 (3,238)
Accounts payable (4,740) 2,450
Deferred revenue 1,404 2,575
Other current and non-current liabilities 3,556 1,686
------------------ -------------------- --------------------

Cash generated by operating activities 43,758 41,720
------------------ -------------------- --------------------

Investing activities:
Purchases of marketable securities (122,681) (121,091)
Proceeds from maturities of marketable securities 13,963 10,344
Proceeds from sales of marketable securities 81,734 73,140
Payments made in connection with business acquisitions, net (443) (350)
Payments for acquisition of property, plant and equipment (6,210) (4,834)
Payments for acquisition of intangible assets (560) (1,067)
Other (188) (56)
------------------ -------------------- --------------------

Cash used in investing activities (34,385) (43,914)
------------------ -------------------- --------------------

Financing activities:
Proceeds from issuance of common stock 335 433
Excess tax benefits from equity awards 644 1,036
Taxes paid related to net share settlement of equity awards (1,001) (1,145)
Dividends and dividend equivalent rights paid (7,795) 0
Repurchase of common stock (17,950) 0
Proceeds from issuance of long-term debt, net 16,896 0
------------------ -------------------- --------------------

Cash (used in)/generated by financing activities (8,871) 324
------------------ -------------------- --------------------
Increase/(decrease) in cash and cash equivalents 502 (1,870)
------------------ -------------------- --------------------

Cash and cash equivalents, end of the period $ 11,248 $ 7,945
======== ======== ==================== ====================
Supplemental cash flow disclosure:
Cash paid for income taxes, net $ 7,188 $ 5,901

Apple Inc.
Q3 2013 Unaudited Summary Data
(Units in thousands, Revenue in millions)


-------------------- -------------------- --------------------------------
Q3'13 Q2'13 Q3'12 Sequential Change Year/Year Change
-------------------------------------------------------------------------- -------------------------------------------------------- -------------------------------------------------------- ----------------------------------- ------------------------------------------------

Operating Segments Revenue Revenue Revenue Revenue Revenue
-------------------------------- ---------------------------- ---------------------------- ------- --------------------
Americas $ 14,405 $ 14,052 $ 12,806 3% 12%
Europe 7,614 9,800 8,237 - 22% - 8%
Greater China (a) 4,641 8,213 5,389 - 43% - 14%
Japan 2,543 3,135 2,009 - 19% 27%
Rest of Asia Pacific 2,046 3,162 2,498 - 35% - 18%
Retail 4,074 5,241 4,084 - 22% 0%
-------------------- ---------- -------------------- ------ -------------------- ------ ------- --------------------
Total Apple $ 35,323 $ 43,603 $ 35,023 - 19% 1%
-------------------- -------------------- -------------------- ----------


-------------------- -------------------- --------------------------------
Q3'13 Q2'13 Q3'12 Sequential Change Year/Year Change
-------------------------------------------------------------------------- -------------------------------------------------------- -------------------------------------------------------- ----------------------------------- ------------------------------------------------

Product Summary Units Revenue Units Revenue Units Revenue Units Revenue Units Revenue
-------------------- -------------------------------- ------ ---------------------------- ------ ---------------------------- ----- ------- ----- --------------------
iPhone (b) 31,241 $ 18,154 37,430 $ 22,955 26,028 $ 15,821 - 17% - 21% 20% 15%
iPad (b) 14,617 6,374 19,477 8,746 17,042 8,779 - 25% - 27% - 14% - 27%
Mac (b) 3,754 4,893 3,952 5,447 4,020 4,933 - 5% - 10% - 7% - 1%
iPod (b) 4,569 733 5,633 962 6,751 1,060 - 19% - 24% - 32% - 31%
iTunes/Software/Services (c) 3,990 4,114 3,203 - 3% 25%
Accessories (d) 1,179 1,379 1,227 - 15% - 4%
-------------------- ---------- -------------------- ------ -------------------- ------ ------- --------------------
Total Apple $ 35,323 $ 43,603 $ 35,023 - 19% 1%
-------------------- -------------------- -------------------- ----------

(a) Greater China includes China, Hong Kong and Taiwan.
(b) Includes deferrals and amortization of related non-software
services and software upgrade rights.
(c) Includes revenue from sales on the iTunes Store, the App Store,
the Mac App Store, and the iBookstore, and revenue from sales of
AppleCare, licensing and other services.
(d) Includes sales of hardware peripherals and Apple-branded and
third-party accessories for iPhone, iPad, Mac and iPod.