Apple has published its annual report for its 2007 financial year to the end of September.

The report into the company's operations in the record-breaking business year, includes a warning that Apple CEO Steve Jobs may see his annual compensation rise.

"Because Mr Jobs's continued leadership is critical to Apple, the Compensation Committee is considering additional compensation arrangements for him," the filing says.

Jobs is the company's second-biggest shareholder, with 5.5 million shares, none of which he has ever sold.

Jobs presently earns one dollar per year for his work at Apple, and the company also pays for the maintenance and use of his private Gulfstream jet.

Apple paid out $776,000 in maintenance on the jet in the financial year, up from $202,000 in 2006 and down on the $1.1 million spent in 2005. However, the jet is also frequently used to shuttle Apple's senior management around the world.

Apple retail now costs $1.1 billion each year in leasing expenses, the report explains, informing that an additional $400,000 will be spent on opening new retail outlets in the coming year.

Retail stores

At the end of fiscal 2007, Apple had opened a total of 197 of its own retail stores, including 174 stores in the US and 23 in Canada, Japan, UK and Italy.

The number of full-time workers shot up by almost 4,000 people, from 17,787 to 21,600, most of the new hires in the retail operation.

The company's hold on the flash memory market remains strong, the report reveals. Apple paid its flash suppliers a $1.25bn advance in 2006, but as of 29 September 2007, just $208m of the advance had been spent - despite the growing demand for flash.

Apple management also warn that competitors may steepen their moves against the Apple iPod/iTunes ecosystem. "The company expects competition in this space to intensify as competitors attempt to imitate the company's approach to tightly integrating these elements within their own offerings or, alternatively, collaborate with each other to offer solutions that are more integrated than those they currently offer.

"Some of these current and potential competitors have substantial resources and may be able to provide such products and services at little or no profit or even at a loss to compete with the company's offerings," the report warns.

Regulatory moves

The report also reveals Apple management to be considering the impact of regulatory moves demanding it open up iTunes' DRM system, FairPlay.

"Many third-party content providers require that the company provide certain digital rights management ("DRM") and other security solutions. If these requirements change, the company may have to develop or license new technology to provide these solutions. There is no assurance the company will be able to develop or license such solutions at a reasonable cost and in a timely manner.

"In addition, certain countries have passed or may propose legislation that would force the company to license its DRM, which could lessen the protection of content and subject it to piracy and could also affect arrangements with the company's content providers," the report warns.

The report also confirms that "substantially all" of its mobile products, including the MacBook Pro, MacBook, iPod, and iPhone, are manufactured in China.

Apple generated $24b in revenue for 2007, returning $3.5bn in net profit. It generated $19.3bn in revenue and $2bn in profit in 2006.

The report also confirms the company invested $782m in research and development during the 2007 financial year.

Apple's Form 10Q annual report/regulatory filing is available to view here.