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

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.

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.

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

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/Web site: http://www.apple.com /

(AAPL)

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