Apple Delivers Record Revenue & Earnings

by Hadley Stern Jan 18, 2006

CUPERTINO, Calif., Jan. 18 /PRNewswire-FirstCall/—Apple(R) today announced financial results for its fiscal 2006 first quarter ended December 31, 2005, reporting the highest revenue and earnings in the Company’s history. Apple posted revenue of $5.75 billion and a net quarterly profit of $565 million, or $.65 per diluted share, in this 14-week quarter. These results compare to revenue of $3.49 billion and a net profit of $295 million, or $.35 per diluted share, in the year-ago quarter. Gross margin was 27.2 percent, down from 28.5 percent in the year-ago quarter. International sales accounted for 40 percent of the quarter’s revenue.

  Apple shipped 1,254,000 Macintosh(R) computers and 14,043,000 iPods during the quarter, representing 20 percent growth in Macs and 207 percent growth in iPods over the year-ago quarter.

  “We are thrilled to report the best quarter in Apple’s history,” said Steve Jobs, Apple’s CEO. “Two highlights of an incredible quarter were selling 14 million iPods and getting ready to launch our new Macs with Intel processors five to six months ahead of expectations. We are working on more wonderful products for 2006, and I can’t wait to see what our customers think of them.”

  “We’re very pleased to report year-over-year revenue growth of 65 percent and net income that was nearly twice the year-ago level,” said Peter Oppenheimer, Apple’s CFO. “Looking ahead to the second quarter of fiscal 2006, we expect revenue of about $4.3 billion. We expect GAAP earnings per diluted share of about $.38, including an estimated $.04 per share expense impact from non-cash stock-based compensation, translating to non-GAAP EPS of about $.42.”

  Apple will provide live streaming of its Q1 2006 financial results conference call utilizing QuickTime(R), Apple’s standards-based technology for live and on-demand audio and video streaming. The live webcast will begin at 2:00 p.m. PST on Wednesday January 18, 2006 at http://www.apple.com/quicktime/qtv/earningsq106/ and will also be available for replay. The QuickTime player is available free for Macintosh and Windows users at http://www.apple.com/quicktime.


  This press release contains forward-looking statements about the Company’s estimated revenue and earnings as well as the estimated expense impact of non-cash stock-based compensation for the second quarter of fiscal 2006. These statements involve risks and uncertainties and actual results may differ. Potential risks and uncertainties include continued competitive pressures in the marketplace; the effect competitive and economic factors and the Company’s reaction to them may have on consumer and business buying decisions with respect to the Company’s products; the ability of the Company to make timely delivery of new programs, products and successful technological innovations to the marketplace; the continued availability on acceptable terms of certain components and services essential to the Company’s business currently obtained by the Company from sole or limited sources including G4 and G5 microprocessors; possible disruption in commercial activities caused by terrorist activity and armed conflict, such as changes in logistics and security arrangements, and reduced end-user purchases relative to expectations; possible disruption in commercial activity as a result of natural disasters or major health concerns including epidemics; risks associated with the Company’s retail initiative including significant investment cost, uncertain consumer acceptance and potential impact on existing reseller relationships; 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; the Company’s reliance on the availability of third-party digital content; the ability of the Company to successfully evolve its operating system; the ability of the Company to make timely delivery of new products with Intel microprocessors and related hardware and software technological changes and innovations to support Intel microprocessors; the development and availability on acceptable terms of components and services essential to enable the Company to deliver products based on Intel microprocessors in a timely manner; the Company’s dependency on third-party software developers to timely develop future applications that support Intel microprocessors and Power PC microprocessors; and the potential negative ramifications of the transition of all Macs to Intel microprocessors by the end of calendar 2006, or the announcement of such planned transition, for sales of current or future Mac products with Power PC processors as well as for the Company’s obligations under component purchase agreements. More information on potential factors that could affect the Company’s financial results is included from time to time in the Company’s public reports filed with the SEC, including the Company’s Form 10-K for the fiscal year ended September 24, 2005, and the Company’s Form 10-Q for the quarter ended December 31, 2005 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 ignited the personal computer revolution in the 1970s with the Apple II and reinvented the personal computer in the 1980s with the Macintosh. Today, Apple continues to lead the industry in innovation with its award-winning desktop and notebook computers, OS X operating system, and iLife and professional applications. Apple is also spearheading the digital music revolution with its iPod portable music players and iTunes online music store.

  NOTE:  Apple, the Apple logo, Mac, Mac OS, Macintosh, Power Mac and QuickTime are trademarks of Apple. Other company and product names may be trademarks of their respective owners.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions, except share amounts)

                    ASSETS:

                                    Dec. 31,    Sept. 24,

                                      2005       2005

  Current assets:                           

    Cash and cash equivalents                 $4,150     $3,491

    Short-term investments                   4,557       4,770

    Accounts receivable, less allowances of $50 and

    $46, respectively                       1,331       895

    Inventories                             244       165

    Deferred tax assets                       471       331

    Other current assets                     1,409       648

      Total current assets                   12,162     10,300

                                       

    Property, plant, and equipment, net             855       817

    Goodwill                               69         69

    Acquired intangible assets                   24         27

    Other assets                           1,071       338

      Total assets                       $14,181     $11,551

 

          LIABILITIES AND SHAREHOLDERS’ EQUITY:

  Current liabilities:                       

    Accounts payable                       $2,896     $1,779

    Accrued expenses                       2,164       1,705

      Total current liabilities                 5,060       3,484

  Non-current liabilities                     741       601

      Total liabilities                     5,801       4,085

 

  Commitments and contingencies                  

 

  Shareholders’ equity:                       

    Common stock, no par value; 1,800,000,000 shares

    authorized; 845,617,174 and 835,019,364 shares

    issued and outstanding, respectively         3,815       3,521

    Deferred stock compensation                 —      (60)

    Retained earnings                       4,570       4,005

    Accumulated other comprehensive income (loss)      (5)      —

      Total shareholders’ equity               8,380       7,466

      Total liabilities and shareholders’ equity   $14,181     $11,551

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except share and per share amounts)

                                      THREE MONTHS ENDED

                                    Dec. 31,    Dec. 25,

                                      2005       2004

  Net sales                             $5,749     $3,490

  Cost of sales (including stock-based compensation

    expense of $5 and $0, respectively)            4,185       2,494

    Gross margin                           1,564       996

 

  Operating expenses:                       

    Research and development (including stock-based

    compensation expense of $15 and $2, respectively)  182       123

    Selling, general, and administrative (including

    stock-based compensation expense of $24 and $8,

    respectively)                          632       470

    Total operating expenses                   814       593

  Operating income                           750       403

 

  Other income and expense                     81         26

 

  Income before provision for income taxes           831       429

  Provision for income taxes                   266       134

 

  Net income                             $565       $295

 

  Earnings per common share:                   

    Basic                               $0.68       $0.37

    Diluted                             $0.65       $0.35

 

  Shares used in computing earnings per share

    (in thousands):       

    Basic                             830,781     789,032

    Diluted                             874,207     838,174

RECONCILIATION OF NON-GAAP TO GAAP RESULTS OF OPERATIONS

(in millions, except share and per share amounts)

                Three Months Ended       Three Months Ended

                December 31, 2005         December 25, 2004

                  Non-GAAP                 Non-GAAP

              As   Adjust-      Non-    As   Adjust-    Non-

            Reported ments   (a)  GAAP   Reported ments (a)  GAAP

  Gross Margin   $1,564   $5     (b)  $1,569   $996   $—    $996

 

  Operating

    expenses       814 (39)    (b)    775     593   (10) (c)  583

 

  Operating income   750   44     (b)    794     403     10 (c)  413

 

  Provision for

    income taxes     266   14     (d)    280     134     1 (d)  135

 

  Net income     $565 $30         $595   $295     $9     $304

 

  Earnings per common

    share:     

    Basic       $0.68           $0.72   $0.37         $0.39

    Diluted     $0.65           $0.68   $0.35         $0.36

 

  Shares used in

    computing earnings

    per share

    (in thousands): 

    Basic     830,781           830,781 789,032       789,032

    Diluted     874,207           874,207 838,174       838,174

  (a) These adjustments reconcile the Company’s GAAP results of operations

      to its non-GAAP results of operations. The Company believes that

      presentation of results excluding items such as non-cash stock-based

      compensation, restructuring costs, and investment gains provides

      meaningful supplemental information to both management and investors

      that is indicative of the Company’s core operating results and

      facilitates comparison of operating results across reporting periods.

      The Company uses these non-GAAP measures when evaluating its financial

      results as well as for internal planning and forecasting purposes.

      These non-GAAP measures should not be viewed as a substitute for the

      Company’s GAAP results. The Company adopted the fair-value recognition

      provisions of SFAS No. 123 revised (123R) to expense stock-based

      compensation in its fiscal quarter ended December 31, 2005.  Prior to

      the adoption of SFAS No. 123R, the Company accounted for employee

      stock-based compensation using the intrinsic value method prescribed

      by APB No. 25.

  (b) These adjustments reflect the non-cash stock-based compensation

      expense as measured under SFAS No. 123R related to unvested stock

      awards, including stock options, restricted stock, restricted stock

      units, and employee stock purchase plan shares.  The fair-value

      calculated expense as determined on the awards’ grant date is

      recognized as the requisite service is rendered.

  (c) These adjustments reflect the non-cash compensation expense as

      measured under APB No. 25 related primarily to restricted stock

      awarded to the Company’s CEO in fiscal 2003 and restricted stock units

      awarded to selected members of the Company’s senior management team in

      fiscal 2004 and 2005. Note that neither the Company’s GAAP nor non-

      GAAP results of operations in fiscal year 2005 included the accounting

      impact had the Company chosen to apply the fair-value recognition

      provisions of SFAS No. 123R.

  (d) Amount reflects the expected tax impact on the above noted non-GAAP

      adjustments.

RECONCILIATION OF NON-GAAP TO GAAP FINANCIAL GUIDANCE SUMMARY

(in millions, except per share amounts)

  The financial guidance provided below is an estimate based on information available as of January 18, 2006. The Company’s future performance and financial results are subject to risks and uncertainties, and actual results could differ materially from the guidance set forth below. Some of the factors that could affect the Company’s financial results are stated above in this press release. More information on potential factors that could affect the Company’s financial results is included from time to time in the Company’s public reports filed with the SEC, including the Company’s Form 10-K for the fiscal year ended September 24, 2005, and the Company’s Form 10-Q for the quarter ended December 31, 2005 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.

                          Q2 2006 Financial Guidance Summary

                                Non-GAAP

                            GAAP Adjustments (a)  Non-GAAP

  Gross margin                 27.8%    0.1%  (b)  27.9%

  Operating expenses             $774     (44)  (b)  $730

  Provision for income taxes         $158     15   (c)  $173

  Diluted earnings per common share   $0.38   $0.04   (d)  $0.42

  (a) These adjustments reconcile the Company’s GAAP to its non-GAAP

      financial guidance for the second quarter of fiscal 2006. The Company

      believes that excluding items such as non-cash stock-based

      compensation provides meaningful supplemental information to both

      management and investors that is indicative of the Company’s core

      operating results and facilitates comparison of operating results

      across reporting periods. The Company uses these non-GAAP measures

      when evaluating its financial results as well as for internal planning

      and forecasting purposes.  These non-GAAP measures should not be

      viewed as a substitute for the Company’s GAAP results.

  (b) Reflects the expected non-cash compensation expense attributable to

      stock-based compensation awards including stock options, restricted

      stock, restricted stock units, and employee stock purchase plan

      shares. This amount reflects the total estimated expense from the

      application of SFAS No. 123R, which the Company adopted in the first

      quarter of fiscal 2006.

  (c) Amount reflects the expected tax impact on the above noted non-GAAP

      adjustments.

  (d) This adjustment represents the expected net of tax impact on earnings

      per share from the non-GAAP adjustments related to stock-based

      compensation expense.

Apple Computer, Inc.

Q1 2006 Unaudited Summary Data

                            Q4 2005 Actual   Q1 2005 Actual

 

                                          CPU

  Operating Segments           CPU Units k   Rev $m Units k   Rev $m

      Americas                   636   $1,771   476   $1,637

      Europe                     259     779   320     847

      Japan                       71     224     64     185

      Retail                     202     663   119     561

      Other Segments (1)              68     241     67     260

 

  Total Operating Segments           1,236   $3,678   1,046   $3,490

                            Units k   Rev $m Units k   Rev $m

  Product Summary

      Desktops (2)                602   $787   623   $1,001

      Portables (3)                634     824   423     604

  Subtotal CPUs                 1,236   1,611   1,046   1,605

      iPod                     6,451   1,212   4,580   1,211

      Other Music Related Products and

      Services (4)                NM     265     NM     177

      Peripherals and Other Hardware     NM     296     NM     284

      Software, Service and Other Sales   NM     294     NM     213

 

  Total Apple                         $3,678       $3,490

                                      Q1 2006 Actual

  Operating Segments                 CPU Units k         Rev $m

      Americas                         515         $2,700

      Europe                           387         1,242

      Japan                             81           355

      Retail                           193         1,072

      Other Segments (1)                    78           380

 

  Total Operating Segments                 1,254         $5,749

                                  Units k         Rev $m

  Product Summary

      Desktops (2)                      667         $912

      Portables (3)                      587           812

  Subtotal CPUs                         1,254         1,724

      iPod                           14,043         2,906

      Other Music Related Products and

      Services (4)                      NM           491

      Peripherals and Other Hardware           NM           303

      Software, Service and Other Sales         NM           325

 

  Total Apple                                     $5,749

                            Sequential Change Year/Year Change

  Operating Segments               Units Revenue   Units Revenue

      Americas                   -19%    52%    8%    65%

      Europe                     49%    59%    21%    47%

      Japan                     14%    58%    27%    92%

      Retail                     -4%    62%    62%    91%

      Other Segments (1)            15%    58%    16%    46%

 

  Total Operating Segments             1%    56%    20%    65%

 

                            Sequential Change Year/Year Change

  Product Summary                 Units   Revenue   Units   Revenue

      Desktops (2)                11%    16%    7%    -9%

      Portables (3)                -7%    -1%    39%    34%

  Subtotal CPUs                     1%    7%    20%    7%

      iPod                     118%    140%    207%    140%

      Other Music Related Products and

      Services (4)                NM     85%    NM   177%

      Peripherals and Other Hardware     NM     2%    NM     7%

      Software, Service and Other Sales   NM     11%    NM     53%

 

  Total Apple                           56%          65%

 

  (1) Other Segments include Asia Pacific and FileMaker.

  (2) Includes iMac, eMac, Mac mini, Power Mac and Xserve product lines.

  (3) Includes iBook and PowerBook product lines.

  (4) Consists of iTunes Music Store sales, iPod services, and Apple-branded

      and third-party iPod accessories.

  NM:  Not Meaningful

SOURCE Apple Computer, Inc.

  -0-                    01/18/2006

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

  /CONTACT:  media, Steve Dowling, +1-408-974-1896, or .(JavaScript must be enabled to view this email address), or investors, Nancy Paxton, +1-408-974-5420, or .(JavaScript must be enabled to view this email address), or Joan Hoover, +1-408-974-4570, or .(JavaScript must be enabled to view this email address), all of Apple Computer, Inc./

  /First Call Analyst: /

  /FCMN Contact: .(JavaScript must be enabled to view this email address) /

  /Web site:  http://www.apple.com /

  (AAPL)


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