Apple Has Strong Q4 But May Have to Restate

Strong sales of its iPod music players and Macintosh computers helped Apple Computer earn net income of US$546 million in its fiscal 2006 fourth quarter, but the company warned it could restate its financial results at a later time as it continues an investigation of stock-option practices.

For the quarter that ended Sept. 30, Apple reported revenue of $4.84 billion, a 24 percent increase over the previous year’s quarter, when the company reported $3.68 billion in revenue, Apple said Wednesday. Net income also was up year over year, an increase of 27 percent compared with the same period last year, when Apple reported net income of $430 million.

Earnings per share (EPS) for the quarter were $0.62. Both EPS and revenue numbers solidly beat estimates by analysts polled by Thomson Financial, which predicted Apple would earn $0.51 per share for the quarter on revenue of $4.62 billion.

The company said it sold more than 1.6 million Macintosh computers in the quarter and shipped 8.7 million iPods, the latter figure slightly higher than the 8.5 million iPod shipments Wall Street analysts were predicting. Both numbers represented growth over the same quarter last year, with Mac shipments up 35 percent and iPod shipments up 30 percent.

Although the iPod is known as Apple’s best-selling product and the main reason for the company’s strong financials, Tim Cook, Apple’s chief operating officer, highlighted the sales of Macs in the fourth quarter. Both iPods and Macs are "flying off the shelves," but Macs are especially increasing in popularity. More than half of the people who purchased Macs this quarter are first-time owners, Cook said.

New PC shipment market-share numbers from Gartner released Wednesday show that Apple has increased its market share in the past year. According to Gartner, Apple had 6.1 percent market share of shipments in the PC market in the third quarter of 2006, compared to 4.1 percent in the same time period in 2005.

Cook added that the recent revamp of iPod Nanos also has accelerated the popularity of the music players. Apple will soon face increased competition in the media-player market, as Microsoft plans to ship its first product in this space, the Zune player, in November.

Still, the strong quarter was shadowed by a stock-option investigation that may require the company to restate its financial results for the fourth quarter if historical results have to be restated, which the company said is likely. In a press statement, Apple predicted it may have to make a "significant adjustment" to its financials after an independent investigation determined on Oct. 4 that stock option grants made on 15 dates between 1997 and 2002 appear to have grant dates that precede the approval of those grants.

Apple continues to investigate these findings, but said it likely will need to restate its historical financial statements to record non-cash charges for compensation expense and related cash and non-cash tax adjustments relating to past stock option grants.

-Elizabeth Montalbano, IDG News Service (New York Bureau)

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