This summary is based on the fourth quarter fiscal 2006 earnings call conducted by Apple Inc. (AAPL: chart) on October 18, 2006.

Management:

- CFO: Peter Oppenheimer
- COO: Tim Cook
- Treasurer: Gary Wipfler
- IR and Corporate Finance: Nancy Paxton

Key Investors Issues

- Revenue was $4.84 billion, up 32% from $3.68 billion in 2005.
- Net income was $546 million, or 62 cents a share, up 27% from $430 million or 52 cents a share in the prior year.
- Apple shipped 1,610,000 Macintosh® computers and 8,729,000 iPods, up 30% and 35%, respectively.

Full Year Highlights:

- Sales were up 38.8% from $13.9 billion in 2005 to $19.3 billion.
- Net income rose 49.6% to $1.99 billion or $2.36 a share, from $1.33 billion in the prior year.

Fourth Quarter Highlights

Revenue was $4.84 billion, up 32% from $3.68 billion in the prior year fueled by robust sales of the Mac portable products, a successful back-to-school season, and the continued popularity of music products.

- Net income was $546 million, or 62 cents a share, up 27% from $430 million or 52 cents a share in the prior year driven by sales volume.
- Mac products represented 58% of total quarterly revenue as the firm shipped a total of 1.61 million Macs, significantly greater than the previous quarterly record of 1.38 million Macs sold in 2000.
- Mac shipments grew 30% over the prior year, which is more than three times IBC''s latest published market growth projections largely due to unprecedented demand for portable products, with sales of nearly 1 million units, representing 61% of all Macs sold during the quarter.
- Ending channel inventory of Macs was below the target range of four to five weeks.

With the Mac Pro launch in August, the firm has transitioned all of the Macs to the Intel architecture in nine months.

- There are over 4,000 universal applications available today and the firm estimates that by the end of December, 80% of the 500 Mac applications considered most important to customers will be available in universal versions.
- Music products generated another quarter of strong results, representing 42% of total company revenue and increasing 36% year over year.
- iPod shipments grew 35% year over year, to $8.73 million, bolstered by the announcement of new iPods on September 12th, and the very popular back-to-school promotion.
- Reviews of the new iPods have been very positive, and the firm is very confident in the new line-up, despite increased competition this holiday season.
- Channel inventory of iPods was within the target range of four to six weeks on a look-back basis.

The iTunes store continues to be the world''s leading online music store, and now offers movies in addition to over 3.5 million songs, 220 television programs, 9,000 music videos, and 20,000 audiobooks.

- Based on the latest data available from Nielsen SoundScan, iTunes accounts for 85% of songs purchased and downloaded in the U.S.
- The iPod ecosystem continues to thrive, with over 3,000 accessory products currently available and the firm estimates that over 70% of the 2007 model year cars sold in the U.S. will offer direct iPod integration as an option.
- The Apple retail stores revenue for the quarter was $936 million, up 41% year over year, and segment operating profit was $50 million.
- Apple opened 10 new stores, ending with 165 and with an average of 158 stores open during the quarter, average revenue per store was $5.9 million.
- The stores sold a record 323,000 Macs, representing 60% year-over-year growth.

Over 20 million people visited the stores during the quarter, and customers attended over 125,000 personal training sessions.

- The education channel sold a record number of Macs, driving 20% year-over-year growth, which is greater than IDC''s most recently published forecast for the U.S. education market for the quarter.
- It was the most successful back-to-school quarter ever for the higher ed business, where shipments of Mac portables increased 49% year over year due in large part to the popularity of the MacBook in higher ed, as well as the successful back-to-school promotion.
- Gross margin was 29.2%, about 80 basis points higher than guidance, primarily due to product mix.

Operating expenses were $803 million, including $34 million in expense related to stock-based compensation, about $17 million higher than guidance, primarily due to higher-than-expected revenue.

- OI&E was $113 million, about $13 million higher than guidance, largely due to higher-than-expected cash balances and higher-than-expected yields on cash investments.
- The firm had strong cash generation, increasing the cash balance by $934 million, to end with over $10.1 billion as a function of strong earnings and working capital management.

Results Subject to Significant Adjustment:

- An independent committee investigating Apple’s stock option practices has reported its findings, which are under review by the Company and its independent auditors.
- The investigation determined, among other things, that stock option grants made on 15 dates between 1997 and 2002 appear to have grant dates that precede the approval of those grants for accounting purposes.
- As a result, management continues to believe, and the audit committee agrees, that Apple will likely 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.

Fiscal 2007 Outlook:

- For the quarter, the firm is targeting revenue between $6 billion and $6.2 billion.
- Gross margin is expected to be about 28.25%, reflecting approximately $6 million related to stock-based compensation expense.
- EPS of about 70 cents to 73 cents is expected.
Key questions and answers from the fourth quarter earnings call conducted by Apple Computers Inc. (AAPL: chart) on October 18, 2006.
David Bailey (Goldman Sachs): What is the impact of the lower price points associated with the new iPods going to have on your blended ASP and gross margin for the December quarter?