Apple Reports Fourth Quarter Results

Apple(R) today
announced financial results for its fiscal 2005 fourth quarter ended September
24, 2005, reporting the highest revenue and earnings in the Company's history.
Apple posted revenue of $3.68 billion and a net quarterly profit of $430
million, or $.50 per diluted share. These results compare to revenue of $2.35
billion and a net profit of $106 million, or $.13 per diluted share, in the
year-ago quarter. Gross margin was 28.1 percent, up from 27.0 percent in the
year-ago quarter. International sales accounted for 40 percent of the
quarter's revenue.
Earnings per share benefited by $.12 from several tax items related to net
deferred tax assets, tax reserves, and a revision to the full year tax rate
estimated in prior quarters.
Apple shipped 1,236,000 Macintosh(R) units and 6,451,000 iPods during the
quarter, representing 48 percent growth in Macs and 220 percent growth in
iPods over the year-ago quarter.
For fiscal 2005, the Company generated revenue of $13.93 billion and a net
profit of $1.335 billion, reflecting annual growth of 68 percent and 384
percent, respectively, and representing the highest annual revenue and net
profit in the Company's history.
"We're thrilled to have concluded the best year in Apple's history, with
68 percent year-over-year revenue growth and 384 percent net profit growth,"
said Steve Jobs, Apple's CEO. "This is the direct result of our focus on
innovation and the immense talent and creativity at Apple. We could not be
more excited about the new products we're working on for 2006."
"We're very pleased to report 48 percent year-over-year growth in Mac
shipments in Q4, as well as our 10th consecutive quarter of record iPod
sales," said Peter Oppenheimer, Apple's CFO. "Looking ahead to the first
quarter of fiscal 2006 which will span 14 weeks, we expect revenue of about
$4.7 billion. We expect GAAP earnings per diluted share of about $.46,
including an estimated $.03 per share expense impact from non-cash share-based
compensation, translating to non-GAAP EPS of about $.49."
Apple will provide live streaming of its Q4 2005 financial results
conference call utilizing QuickTime(TM), Apple's standards-based technology
for live and on-demand audio and video streaming. The live webcast will begin
at 2:00 p.m. PDT on Tuesday, October 11, 2005 at
http://www.apple.com/quicktime/qtv/earningsq405/ 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
adoption of SFAS 123R for the first 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 music 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 impact the transition of all Macs
to Intel microprocessors by the end of 2007, or the announcement of such
transition, might have on sales of current or future Mac products with Power
PC processors. 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 25, 2004, the Company's Form 10-Q for the quarter
ended December 25, 2004, the Company's Form 10-Q for the quarter ended March
26, 2005, and the Company's Form 10-Q for the quarter ended June 25, 2005. 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:
September 24, September 25,
2005 2004
Current assets:
Cash and cash equivalents $3,491 $2,969
Short-term investments 4,770 2,495
Accounts receivable, less allowances of
$46 and $47, respectively 895 774
Inventories 165 101
Deferred tax assets 331 231
Other current assets 648 485
Total current assets 10,300 7,055
Property, plant, and equipment, net 817 707
Goodwill 69 80
Acquired intangible assets 27 17
Other assets 338 191
Total assets $11,551 $8,050


LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable $1,779 $1,451
Accrued expenses 1,705 1,200
Total current liabilities 3,484 2,651
Non-current liabilities 601 323
Total liabilities 4,085 2,974

Commitments and contingencies

Shareholders' equity:
Common stock, no par value; 1,800,000,000 shares
authorized; 835,019,364 and 782,887,234 shares
issued and outstanding, respectively 3,521 2,514
Deferred stock compensation (60) (93)
Retained earnings 4,005 2,670
Accumulated other comprehensive income (loss) -- (15)
Total shareholders' equity 7,466 5,076
Total liabilities and shareholders' equity $11,551 $8,050


UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except share and per share amounts)

Three Months Ended Twelve Months Ended

Sept. 24, Sept. 25, Sept. 24, Sept. 25,
2005 2004 2005 2004

Net sales $3,678 $2,350 $13,931 $8,279
Cost of sales 2,643 1,716 9,888 6,020
Gross margin 1,035 634 4,043 2,259

Operating expenses:
Research and
development 147 122 534 489
Selling, general, and
administrative 470 379 1,859 1,421
Restructuring costs -- 5 -- 23
Total operating
expenses 617 506 2,393 1,933
Operating income 418 128 1,650 326

Other income and expense:
Gains on non-current
investments -- -- -- 4
Interest and other
income, net 60 19 165 53
Total other income
and expense 60 19 165 57

Income before provision
for income taxes 478 147 1,815 383
Provision for income
taxes 48 41 480 107

Net income $430 $106 $1,335 $276

Earnings per common share:
Basic $0.52 $0.14 $1.65 $0.37
Diluted $0.50 $0.13 $1.56 $0.36

Shares used in computing
earnings per share
(in thousands):
Basic 821,420 766,926 808,439 743,180
Diluted 866,404 805,812 856,780 774,622


RECONCILIATION OF NON-GAAP TO GAAP RESULTS OF OPERATIONS

(in millions, except share and per share amounts)


Three Months Ended Three Months Ended
September 24, 2005 September 25, 2004

Non-GAAP Non-GAAP
As Adjust- Non- As Adjust- Non-
Reported ments (a) GAAP Reported ments (a) GAAP


Operating income $418 $11(b) $429 $128 $16(c) $144

Total other income
and expense 60 -- 60 19 -- 19

Provision for
income taxes 48 1(d) 49 41 3(d) 44

Net income $430 $10 $440 $106 $13 $119

Earnings per common
share:
Basic $0.52 $0.54 $0.14 $0.16
Diluted $0.50 $0.51 $0.13 $0.15

Shares used in
computing earnings
per share (in thousands):
Basic 821,420 821,420 766,926 766,926
Diluted 866,404 866,404 805,812 805,812

(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 share-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. Neither the
Company's GAAP nor non-GAAP results of operations include the
accounting impact had the Company chosen to apply the fair-value
recognition provisions of SFAS No. 123 or SFAS No. 123 revised
(123R) to expense share-based compensation, the impact of which is
disclosed in the Company's Forms 10-Q and 10-K as filed with the
SEC. The Company will adopt SFAS No. 123R in its first fiscal
quarter ending December 31, 2005.
(b) This adjustment reflects the non-cash compensation expense related
primarily to restricted stock awarded to the Company's CEO in fiscal
2003 and restricted stock units awarded to members of the Company's
senior management team in fiscal 2004 and 2005. Of the total non-
cash compensation expense of $11 million, $1 million is included in
cost of sales; $2 million is included in research and development
expense; and $8 million is included in selling, general and
administrative expense. Note that neither the Company's GAAP nor
non-GAAP results of operations includes the accounting impact had
the Company chosen to apply the fair-value recognition provisions of
SFAS No. 123R.
(c) This adjustment includes $5 million related to restructuring actions
initiated during the fourth quarter of fiscal 2004 as well as $11
million related to non-cash compensation expense primarily
attributable to restricted stock awarded to the Company's CEO and
restricted stock units awarded to members of the Company's senior
management team. Of the total non-cash compensation expense of $11
million, $1 million is included in cost of sales; $2 million is
included in research and development expense; and $8 million is
included in selling, general and administrative expense.
(d) Amount reflects the expected tax impact on the above noted non-GAAP
adjustments.


RECONCILIATION OF NON-GAAP TO GAAP RESULTS OF OPERATIONS

(in millions, except share and per share amounts)

Twelve Months Ended Twelve Months Ended
September 24, 2005 September 25, 2004

Non-GAAP Non-GAAP
As Adjust- Non- As Adjust- Non-
Reported ments(a) GAAP Reported ments(a) GAAP

Operating income $1,650 $42(b) $1,692 $326 $57(c) $383

Total other income
and expense 165 -- 165 57 (4)(d) 53

Provision for
income taxes 480 4(e) 484 107 10(e) 117

Net income $1,335 $38 $1,373 $276 $43 $319

Earnings per common share:
Basic $1.65 $1.70 $0.37 $0.43
Diluted $1.56 $1.60 $0.36 $0.41

Shares used in
computing earnings
per share (in thousands):
Basic 808,439 808,439 743,180 743,180
Diluted 856,780 856,780 774,622 774,622

(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 share-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. Neither the
Company's GAAP nor non-GAAP results of operations include the
accounting impact had the Company chosen to apply the fair-value
recognition provisions of SFAS No. 123 or SFAS No. 123 revised
(123R) to expense share-based compensation, the impact of which is
disclosed in the Company's Forms 10-Q and 10-K as filed with the
SEC. The Company will adopt SFAS No. 123R in its first fiscal
quarter ending December 31, 2005.
(b) This adjustment reflects the non-cash compensation expense related
primarily to restricted stock awarded to the Company's CEO in fiscal
2003 and restricted stock units awarded to members of the Company's
senior management team in fiscal 2004 and 2005. Of the total non-
cash compensation expense of $42 million, $2 million is included in
cost of sales; $6 million is included in research and development
expense; and $34 million is included in selling, general and
administrative expense. Note that neither the Company's GAAP nor
non-GAAP results of operations includes the accounting impact had
the Company chosen to apply the fair-value recognition provisions of
SFAS No. 123R.
(c) This adjustment includes $23 million related to restructuring
actions initiated during fiscal 2004 as well as $34 million related
to non-cash compensation expense primarily attributable to
restricted stock awarded to the Company's CEO and restricted stock
units awarded to members of the Company's senior management team. Of
the total non-cash compensation expense of $34 million, $1 million
is included in cost of sales; $4 million is included in research and
development expense; and $29 million is included in selling, general
and administrative expense.
(d) This adjustment represents gain on sales of non-current investments.
(e) 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 October 11, 2005. 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 25, 2004, the Company's Form 10-Q for the quarter
ended December 25, 2004, the Company's Form 10-Q for the quarter ended March
26, 2005, and the Company's Form 10-Q for the quarter ended June 25, 2005. The
Company assumes no obligation to update any forward-looking statements or
information, which speak as of their respective dates.

Q1 2006 Financial Guidance Summary

Non-GAAP
GAAP Adjustments (a) Non-GAAP

Gross margin 27.3% 0.1% (b) 27.4%

Operating expenses $760 (40) (b) $720

Provision for income
taxes $188 14 (c) $202

Diluted earnings per
common share $0.46 $0.03 (d) $0.49


(a) These adjustments reconcile the Company's GAAP to its non-GAAP
financial guidance for the first quarter of fiscal 2006. The
Company believes that excluding items such as non-cash share-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) This adjustment reflects the expected non-cash compensation expense
attributable to share-based compensation awards including restricted
stock and restricted stock units, employee stock options and shares
issued under the employee stock purchase plan. This amount reflects
the total estimated expense of non-cash share-based compensation
subsequent to the application of SFAS 123 revised (123R), which the
Company will adopt 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 share-
based compensation expense.


Apple Computer, Inc.
Q4 2005 Unaudited Summary Data

Q3 2005 Actual Q4 2004 Actual Q4 2005 Actual

CPU CPU
Operating Segments CPU Units k Rev $m Units k Rev $m Units k Rev $m
Americas 595 $1,739 471 $1,196 636 $1,771
Europe 283 742 155 423 259 779
Japan 76 227 56 175 71 224
Retail 144 555 98 376 202 663
Other Segments (1) 84 257 56 180 68 241
Total Operating Segments 1,182 $3,520 836 $2,350 1,236 $3,678


Units k Rev $m Units k Rev $m Units k Rev $m
Product Summary
Desktops (2) 687 $845 385 $556 602 $787
Portables (3) 495 720 451 675 634 824
Subtotal CPUs 1,182 1,565 836 1,231 1,236 1,611
iPod 6,155 1,103 2,016 537 6,451 1,212
Other Music Products (4) NM 241 NM 98 NM 265
Peripherals & Other HW NM 266 NM 271 NM 296
Software & Other NM 345 NM 213 NM 294
Total Apple $3,520 $2,350 $3,678


Sequential Change Year/Year Change
Operating Segments Units Revenue Units Revenue
Americas 7% 2% 35% 48%
Europe -8% 5% 67% 84%
Japan -7% -1% 27% 28%
Retail 40% 19% 106% 76%
Other Segments (1) -19% -6% 21% 34%
Total Operating Segments 5% 4% 48% 57%


Sequential Change Year/Year Change
Units Revenue Units Revenue
Product Summary
Desktops (2) -12% -7% 56% 42%
Portables (3) 28% 14% 41% 22%
Subtotal CPUs 5% 3% 48% 31%
iPod 5% 10% 220% 126%
Other Music Products (4) NM 10% NM 170%
Peripherals & Other HW NM 11% NM 9%
Software & Other NM -15% NM 38%
Total Apple 4% 57%

(1) Other Segments include Asia Pacific and FileMaker.
(2) Includes iMac, eMac, Mac mini, PowerMac and Xserve product lines.
(3) Includes iBook and PowerBook product lines.
(4) Other Music Products consists of iTunes Music Store sales and iPod
related services and accessories.

NM: Not Meaningful

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