Apple's board defends Jobs amid hefty profits

Board issues statement supporting Apple CEO just before company reports solid increases in revenue, profit, and shipments of Macs and iPods.
Written by Tom Krazit, Contributor
Apple reported financial results far ahead of Wall Street's expectations Wednesday, and the company's board of directors defended CEO Steve Jobs' role in Apple's stock options backdating scandal.

Revenue for Apple's second quarter, which ended March 31, was $5.26 billion, up 21 percent compared with revenue of $4.36 billion in the same quarter last year. Profit was up nearly 88 percent at $770 million, or 87 cents per share, compared with profit of $410 million, or 47 cents per share, last year.

Wall Street analysts surveyed by Thomson First Call had been expecting revenue of $5.17 billion and earnings per share of 64 cents.

"We are pleased to report strong financial results and the best March quarter in Apple's history," Peter Oppenheimer, Apple's chief financial officer, said during a conference call following the release of the numbers.

Before revealing its financial performance, Apple's board of directors issued a statement confirming its support for Jobs in the wake of allegations made Tuesday by Fred Anderson, the former chief financial officer at Apple.

Anderson issued a press release saying he warned Jobs that selecting options grant dates other than the actual date the board of directors approved the grant could force Apple to record an expense. Federal authorities and the company have conducted investigations into Apple's stock options practices and the SEC on Tuesday filed suit against Anderson and former general counsel Nancy Heinen for their roles in the options scandal.

"We are not going to enter into a public debate with Fred Anderson or his lawyer," the statement began.

Anderson has already settled with the SEC and admitted no wrongdoing, but took a parting shot at Jobs by stating that he informed Jobs of Apple's accounting duties regarding an early 2001 stock option grant that was not properly recorded. Apple restated earnings in December to correct this particular issue--which arose when Apple assigned a January 17, 2001, grant date to options awards that weren't formally approved until February--as well as other problems with options reporting.

"We are not going to enter into a public debate with Fred Anderson or his lawyer."
--Apple statement

"Steve Jobs cooperated fully with Apple's independent investigation and with the government's investigation of stock options grants at Apple. The SEC investigated the matter thoroughly and its complaint speaks for itself, in terms of what it says, what it does not say, who it charges, and who it does not charge. We have complete confidence in the conclusions of Apple's independent investigation, and in Steve's integrity and his ability to lead Apple," the rest of the statement read. It was attributed to Bill Campbell, Millard Drexler, Albert Gore Jr., Arthur Levinson, Eric Schmidt and Jerry York, Apple's directors other than Jobs, who is the chairman of the board.

As was expected, Oppenheimer steered clear of questions about Jobs, the board's statement and the stock options mess during the conference call, preferring to focus on sales of Macs and iPods during the quarter. Mac shipments were up 36 percent to 1.5 million units, and iPod sales rose 24 percent to 10.5 million compared with the previous year.

The sharp rise in profits was attributed to great deals during the quarter on commodities such as memory and chips, Oppenheimer said. Apple doesn't expect the favorable pricing environment to last the whole year, however.

MacBook and MacBook Pro shipments were the primary engine behind Mac sales, with unit shipments up 79 percent compared with last year, and revenue up 83 percent. Last year's second fiscal quarter saw the introduction of the MacBook Pro, but the computer didn't actually ship until later in the quarter. And new MacBooks based on Intel's chips didn't arrive until the following quarter in 2006.

More than 50 percent of people who bought a Mac in Apple's retail stores were new Mac buyers, Oppenheimer said. The stores themselves continued to help Apple's overall sales, with revenue through the stores up 34 percent. During the call, Apple announced plans for its third Manhattan store; this one will be located in the trendy Meatpacking District.

Shipments of iPods were down from the fourth quarter, as was expected, but still grew sharply compared with last year driven by demand for the new color versions of the iPod Shuffle, Oppenheimer said. Still, revenue from iPod sales actually fell 1 percent compared with last year as it's been a while since Apple launched a major new category of iPods.

The iTunes juggernaut continued to stay ahead of the pack, accounting for 85 percent of the U.S. market for songs purchased and downloaded over the Internet. The store now has more than 5 million songs, over 350 television shows and more than 500 movies available for download, which helped revenue from the "other music" category--mainly sales through iTunes and iPod accessories--grow 35 percent.

Apple predicted that its third-quarter revenue would be $5.1 billion, lower than Wall Street forecasts for the next quarter. The company does tend to subscribe to the "under-promise, over-deliver" school of guidance theory, however. And investors seemed unconcerned about the lower-than-expected outlook, driving the company's stock up 6.45 percent, or $6.15, to $101.54 in after-hours trading on the profit news.

The current quarter will also see the launch of the iPhone, which remains on track to appear in both Apple and AT&T stores in late June, said Tim Cook, Apple's chief operating officer. He declined to comment on when the company would start taking preorders for the product, or whether it could support the reported 1 million inquires that AT&T Chief Operating Officer Randall Stephenson said the carrier had received for the iPhone.

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