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Apple Inc. Annual Report, Year Ended Sep 25, 2004

Filing Date
Filed December 3, 2004
Period End
September 25, 2004
Security
AAPL
In the record · 2016–202610-K1010-Q338-K99

AAPL filed 10 annual reports (10-K), 33 quarterly reports (10-Q) and 99 current reports (8-K) between 2016 and 2026.

  1. Leadership change8-K · Sep ’19Sep ’19
  2. Leadership change8-K · Nov ’21Nov ’21
  3. FY2025 annual report10-K · Oct ’25Oct ’25

01—Abstract

Summary

Summary of the 10-K filed December 3, 2004. Cited figures are marked; the original filing is the authoritative source.

Apple Computer, Inc. (Nasdaq: AAPL) reported fiscal 2004 (ended September 25, 2004) as a year of strong top-line growth and a meaningful improvement in profitability.

Net sales rose 33% to $8.279 billiona from $6.207 billion, and net income increased to $276 million, or $0.71 per diluted share, versus $69 million ($0.19) in fiscal 2003. Growth was driven overwhelmingly by the iPod, whose net sales jumped 279% to $1.306 billion on 4.4 million units sold, and by the Retail segment, which grew 91% to $1.185 billion as the company expanded to 86 stores. Macintosh unit sales rose 9% to 3.29 million, with portables (PowerBook and iBook) representing 51% of Mac units.

Operating income swung to $326 millionb from a loss of $1 million a year earlier. The company's financial position strengthened considerably. Cash, cash equivalents and short-term investments reached $5.464 billion, up $898 million, and the company retired its $300 million 6.5% unsecured notes, leaving it with no long-term debt.

Operating cash flow was $934 millionc, versus $289 million in the prior year. Shareholders' equity grew to $5.076 billion. Gross margin, however, edged down to 27.3% from 27.5%, and management explicitly expects continued pricing pressure in personal computers and especially in the iPod line during fiscal 2005.

Investors should weigh several risks alongside the growth story. Management flagged dependence on IBM as the sole supplier of the PowerPC G5 processor, which constrained Power Mac shipments in the second half of 2004, and on Freescale for the G4. The company also faces significant litigation, including patent suits, the Apple Corps trademark dispute in the UK, and consumer class actions over iPod battery life.

Accounting rules for stock-based compensation were under review and could materially increase future expense, and the U.S. education channel and Japan segment remained weak. The company also noted roughly $3.2 billiond of cash held overseas that would be subject to U.S. tax on repatriation.

02—Key points

Key Highlights

  1. Net sales increased 33% to $8.28 billion in fiscal 2004, with net income rising to $276 million ($0.71 diluted EPS) from $69 million a year earlier.
  2. iPod net sales surged 279% to $1.31 billion on 4.4 million units sold, making iPod-related products 19% of total net sales (including other music products).
  3. The Retail segment grew 91% to $1.19 billion, with 86 stores open at year-end and about 100 planned by the end of calendar 2004.
  4. Operating income improved to $326 million from a $1 million operating loss in fiscal 2003, and operating cash flow increased to $934 million.
  5. The balance sheet strengthened: cash and short-term investments reached $5.46 billion, the $300 million notes were repaid, and the company has no long-term debt.
  6. Gross margin slipped to 27.3% from 27.5%, and management expects continued margin pressure from price competition, especially in iPods.
  7. Key supply risks include sole-source dependence on IBM for the PowerPC G5 processor, which constrained Power Mac shipments in the second half of 2004.

03—Questions

Frequently Asked Questions

  1. What drove Apple's revenue growth in fiscal 2004?

    The largest driver was the iPod, whose net sales rose $961 million to $1.31 billion. Retail store expansion contributed $564 million of growth, and Macintosh net sales rose 10%, led by portable systems. Software, peripherals, and services also grew strongly.

  2. Is Apple's profitability sustainable given margin pressure?

    Operating margin improved to about 3.9% from near zero, largely through operating leverage on SG&A, which fell to 17% of sales from 20%. However, management expects gross margins to remain under pressure in fiscal 2005 due to PC and consumer electronics price competition, and iPod mix shifts toward lower-margin products.

  3. What are the main risks to the company's supply chain?

    Apple relies on IBM as the sole supplier of the PowerPC G5 processor and on Freescale for the G4. IBM's manufacturing problems delayed and constrained shipments of Power Mac and iMac products in the second half of 2004, and similar disruptions could recur.

  4. What legal exposures should investors be aware of?

    Apple faces multiple patent infringement suits, including Antor Media (trial set for March 2005) and Compression Labs (JPEG patent, trial expected October 2005). It is also defending the Apple Corps trademark dispute in the UK, consumer class actions over iPod battery life, and a shareholder suit on appeal. Management believes none is likely to have a material adverse effect, but outcomes cannot be predicted with certainty.

  5. What is the outlook for the Retail segment?

    Retail reached profitability with a $39 million operating profit in fiscal 2004, compared with losses in prior years, as revenue per store rose. The company plans to open about 14 more stores in the first quarter of fiscal 2005 and expects to end the calendar year with about 100 stores, though expansion requires substantial capital and carries lease commitments of about $436 million.

04—Continue

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