10-QPeriod: Q3 FY2006

Apple Inc. Quarterly Report for Q3 Ended Apr 1, 2006

Filed May 5, 2006For Securities:AAPL

Summary

Apple Computer, Inc. reported strong financial results for the quarter ending April 1, 2006, showcasing significant year-over-year growth across key metrics. Net sales surged by 34% to $4.36 billion, and net income rose to $410 million, or $0.47 per diluted share. This robust performance was primarily driven by exceptional demand for the iPod and related music products, which saw sales increase by 69% in the quarter, indicating continued dominance in the digital music player market. The Macintosh line also demonstrated resilience, with net sales up 5%, despite the ongoing transition to Intel processors which management noted may be causing some customers to delay purchases. The company's strategic investments in Research and Development (R&D) and Selling, General, and Administrative (SG&A) expenses increased to support innovation and market expansion. Notably, Apple adopted SFAS No. 123R, leading to higher stock-based compensation expenses, which are detailed within the filing. Apple also maintained a strong liquidity position with $8.2 billion in cash, cash equivalents, and short-term investments, underscoring its financial health and capacity for future investments and operations.

Key Highlights

  • 1Net sales increased 34% year-over-year to $4.36 billion for the quarter ended April 1, 2006.
  • 2Net income grew to $410 million ($0.47 per diluted share), up from $290 million ($0.34 per diluted share) in the prior year's quarter.
  • 3iPod sales saw a substantial 69% increase year-over-year, driven by new product introductions and expanded distribution.
  • 4Macintosh net sales grew 5% year-over-year, with portable Mac sales showing significant strength.
  • 5Research and Development (R&D) expenses increased by 48% to $176 million, reflecting continued investment in innovation.
  • 6The company maintained a strong liquidity position with $8.2 billion in cash, cash equivalents, and short-term investments.
  • 7Apple adopted SFAS No. 123R (Share-Based Payment), resulting in increased stock-based compensation expenses starting this fiscal year.

Frequently Asked Questions

For the quarter ended April 1, 2006, Apple reported net sales of $4.36 billion, a 34% increase compared to $3.24 billion in the same period of the prior year. Net income rose to $410 million, or $0.47 per diluted share, up from $290 million, or $0.34 per diluted share, in the prior year's quarter.

The primary growth driver was the exceptional performance of the iPod and related music products, which saw a 69% increase in net sales. While the Macintosh line also grew by 5%, the transition to Intel processors was noted as a potential factor influencing customer purchasing decisions.

Apple maintained a strong liquidity position with $8.2 billion in cash, cash equivalents, and short-term investments as of April 1, 2006. The company's investment portfolio primarily consists of high credit quality, liquid investments. Approximately $5 billion of this cash was held by foreign subsidiaries.

Apple is transitioning its Macintosh computers to Intel microprocessors. While new Intel-based models like the iMac and MacBook Pro have been introduced, the company noted that some customers might be delaying purchases until the complete line of Intel-based Macintosh computers is available or related software is fully developed to run natively on these new processors. This transition is a key strategic initiative for Apple.