Summary
Apple Inc. (AAPL) filed its Form 10-Q for the quarterly period ended July 1, 2006, on December 28, 2006. A significant aspect of this filing is the "Explanatory Note" detailing the restatement of previously issued financial statements due to irregularities discovered in the issuance of certain stock option grants between 1997 and 2001. While an internal review and independent investigation found no misconduct by current management, it identified instances where grant dates were intentionally selected for favorable exercise prices, and procedures lacked sufficient safeguards. This led to the recognition of additional non-cash stock-based compensation expense. Operationally, the report shows strong financial performance for the period. Net sales increased by 24% year-over-year for the third quarter of 2006, reaching $4.37 billion, and grew 41% to $14.48 billion for the first nine months. This growth was primarily driven by robust sales of iPods and continued strength in Macintosh computer sales, particularly portable models. The company ended the quarter with a healthy cash position of $8.01 billion.
Key Highlights
- 1Restatement of prior financial statements due to stock option grant irregularities discovered during an internal review and independent investigation.
- 2Recognition of $105 million in pre-tax stock-based compensation expense related to past stock option grants.
- 3Net sales for the nine months ended July 1, 2006, increased by 41% to $14.48 billion.
- 4iPod sales showed significant growth, with net sales up 36% year-over-year in the third quarter and 84% for the nine-month period.
- 5Macintosh net sales increased 19% year-over-year in the third quarter, driven by strong demand for Intel-based portable systems.
- 6Cash, cash equivalents, and short-term investments increased to $9.18 billion as of July 1, 2006.
- 7The company completed its transition to Intel microprocessors for Macintosh computers in November 2006.