Apple 2001 Annual Report Download

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APPLE INC
FORM 10-K405
(Annual Report (Regulation S-K, item 405))
Filed 12/21/01 for the Period Ending 09/29/01
Address ONE INFINITE LOOP
CUPERTINO, CA 95014
Telephone (408) 996-1010
CIK 0000320193
Symbol AAPL
SIC Code 3571 - Electronic Computers
Industry Computer Hardware
Sector Technology
Fiscal Year 09/30
http://www.edgar-online.com
© Copyright 2011, EDGAR Online, Inc. All Rights Reserved.
Distribution and use of this document restricted under EDGAR Online, Inc. Terms of Use.

Table of contents

  • Page 1
    ... INC FORM 10-K405 (Annual Report (Regulation S-K, item 405)) Filed 12/21/01 for the Period Ending 09/29/01 Address Telephone CIK Symbol SIC Code Industry Sector Fiscal Year ONE INFINITE LOOP CUPERTINO, CA 95014 (408) 996-1010 0000320193 AAPL 3571 - Electronic Computers Computer Hardware Technology...

  • Page 2
    ...pursuant to Section 12(g) of the Act: Common Stock, no par value Common Share Purchase Rights (Titles of classes) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months...

  • Page 3
    ...and markets personal computers and related personal computing and communicating solutions for sale primarily to education, creative, consumer, and business customers. Substantially all of the Company's net sales over the last five years have been derived from the sale of its Apple® Macintosh® line...

  • Page 4
    ...The Company also sells a variety of third-party Macintosh-compatible hardware 3 products directly to end users through both its retail and online stores, including computer printers and printing supplies, storage devices, computer memory, digital video and still cameras, personal digital assistants...

  • Page 5
    ... Mac OS X. The Company also develops and distributes extensions to the Macintosh system software including utilities, languages, and developer tools. Mac OS X Server delivers high-performance services for Internet and web serving, filing, printing, and networking services needed to manage a network...

  • Page 6
    ...privately held provider of web-based student information systems for K-12 schools and school districts. PowerSchool ® software products give school administrators and teachers the ability to easily and cost-effectively manage student records and give parents real-time access to track their children...

  • Page 7
    ... information relating to the competitive conditions of the personal computing industry and the Company's competitive position in that market place may be found in Part II, Item 7 of this Form 10-K under the heading "Factors That May Affect Future Results and Financial Condition," which information...

  • Page 8
    ... net sales or financial performance. Warranty The Company offers a limited parts and labor warranty on its hardware products. The warranty period is typically one year from the date of purchase by the end user. The Company also offers a 90-day warranty for Apple software and for Apple service parts...

  • Page 9
    ..., in the opinion of management, the Company does not have a potential liability related to any current legal proceedings and claims that would have a material adverse effect on its financial condition, liquidity or results of operations. Articulate Systems, Inc. v. Apple Computer, Inc. Plaintiff...

  • Page 10
    ...Apple Computer, Inc. (and related actions) In October 1997, Apple began charging all U.S. non-education customers for live telephone technical support beyond 90 days after purchase of Apple products. In late 1997, the Federal Trade Commission (FTC) commenced an investigation into customer complaints...

  • Page 11
    ... factors that may affect the comparability of the information presented below. Five fiscal years ended September 29, 2001 (In millions, except share and per share amounts) 2001 2000 1999 1998 1997 Net sales Net income (loss) Earnings (loss) per common share: Basic Diluted Cash dividends...

  • Page 12
    ... use. 13 Net charges related to Company restructuring actions of $8 million, $27 million and $217 million were recognized in 2000, 1999, and 1997, respectively. During 2000, the Company recognized the cost of a special executive bonus for the Company's Chief Executive Officer for past services...

  • Page 13
    ...-process research and development Restructuring costs Special charges Operating income (loss) Gains on non-current investments, net Unrealized loss on convertible securities Interest and other income, net Provision for (benefit from) income taxes Net income (loss) before accounting change Effect of...

  • Page 14
    ... of 2001. Third, U.S. education unit sales rose 7% during 2001 compared to 2000 reflecting the Company's renewed focus on this core market within its America's operating segment. First quarter 2001 net sales decreased 57% to $1.007 billion compared to the same quarter in 2000 and decreased 46% from...

  • Page 15
    ... economic conditions. Outside of the U.S. education channel, unit sales of the Company's consumer oriented iMac fell 64% in 2001. The effect of falling consumer demand in the Americas segment was partially offset by strong U.S. education sales. The Company's unit sales in U.S. education markets rose...

  • Page 16
    ...could also be affected by the Company's ability to effectively manage quality problems and warranty costs and to stimulate demand for certain of its products. The Company's operating strategy and pricing take into account anticipated changes in foreign currency exchange rates over time; however, the...

  • Page 17
    .... Special Charges Purchased In-Process Research and Development (IPR&D) In May 2001, the Company acquired PowerSchool, Inc. (PowerSchool), a provider of web-based student information systems for K-12 schools and districts that enables schools to record, access, report, and manage their student data...

  • Page 18
    ... non-current debt and equity investments may be found in Part II, Item 8 of this Form 10-K at Note 2 of Notes to Consolidated Financial Statements, which information is hereby incorporated by reference. 21 Accounting for Derivatives and Cumulative Effect of Accounting Change On October 1, 2000, the...

  • Page 19
    ... for fiscal years beginning after December 15, 2001. However, early adoption by the Company is allowable effective in the first quarter of its fiscal 2002. Prior to adoption of SFAS No. 142, any goodwill and any intangible asset determined to have an indefinite useful life acquired in a purchase...

  • Page 20
    ... value of these investments in the future. Further information related to the Company's non-current debt and equity investments may be found in Part II, Item 8 of this Form 10-K at Note 2 of Notes to Consolidated Financial Statements, which information is hereby incorporated by reference. Factors...

  • Page 21
    .... The Company is currently the only maker of hardware using the Mac OS. The Mac OS has a minority market share in the personal computer market, which is dominated by makers of computers utilizing Microsoft Windows operating systems. The Company's future operating results and financial condition are...

  • Page 22
    ...the Company with a sufficient supply of microprocessors with price/performance features that compare favorably to those supplied to the Company's competitors by Intel Corporation, and other developers and producers of microprocessors used by personal computers 27 using the Windows operating systems...

  • Page 23
    ... in managing retail operations; costs associated with unanticipated fluctuations in the value of Apple-branded and third-party retail inventory; and inability to obtain quality retail locations at reasonable cost. The Company faces increasing competition in the U.S. education market. Sales in...

  • Page 24
    ... and technology agreements. In addition, for a period of five years from August 1997, and subject to certain limitations related to the number of Macintosh computers sold by the Company, Microsoft will make future versions of its Microsoft Office and Internet Explorer products for the Mac OS...

  • Page 25
    ... of financial institution vendors to support Euro transactions, and examine current marketing and pricing policies and strategies in light of the Euro conversion. The Company believes it has identified and addressed all significant issues related to its internal systems and processes to accommodate...

  • Page 26
    ...short-term investments as well as costs associated with foreign currency hedges. The Company's exposure to market risk for changes in interest rates relates primarily to the Company's investment portfolio and long-term debt obligations and related derivative financial instruments. The Company places...

  • Page 27
    ... to reduce the cost of the interest rate risk management program. The Company does not hold or transact in such financial instruments for purposes other than risk management. The Company's asset swaps did not qualify for hedge accounting treatment and were recorded at fair value on the balance...

  • Page 28
    ... 29, 2001 and September 30, 2000. The information is provided in U.S. dollar amounts, as presented in the Company's consolidated financial statements. For foreign currency contracts, the table presents the notional amount (at contract exchange rates) and the weightedaverage contractual foreign...

  • Page 29
    ... consolidated financial statements, the Company changed its method of accounting for derivative instruments and hedging activities in 2001. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Apple Computer, Inc...

  • Page 30
    ... current liabilities Long-term debt Deferred tax liabilities Total liabilities Commitments and contingencies Shareholders' equity: Series A nonvoting convertible preferred stock, no par value; 150,000 shares authorized, none and 75,750 issued and outstanding, respectively Common stock, no par value...

  • Page 31
    ...2000 1999 Net sales Cost of sales Gross margin Operating expenses: Research and development Selling, general, and administrative Special charges: Executive bonus Restructuring costs In-process research and development Total operating expenses Operating income (loss) Gains on non-current investment...

  • Page 32
    ...-for-sale securities, net of tax Total comprehensive income Common stock issued under stock option and purchase plans Common stock issued in connection with the Company's redemption of long term debt Common stock repurchased Tax benefit related to disqualifying dispositions of stock options Balances...

  • Page 33
    ... deferred income taxes Loss on disposition of property, plant, and equipment Gains on non-current investments, net Unrealized loss on convertible securities Purchased in-process research and development Changes in operating assets and liabilities: Accounts receivable Inventories Other current assets...

  • Page 34
    ...at fair value, with the unrealized gains and losses, net of taxes, reported as a component of shareholders' equity. The cost of securities sold is based upon the specific identification method. Derivative Financial Instruments On October 1, 2000, the Company adopted Statement of Financial Accounting...

  • Page 35
    ...to 5 years. Prior to the fourth quarter of 2001, the Company had classified capitalized costs related to internal-use software on the balance sheet in other assets. Effective as of September 29, 2001, and for all other periods presented, the Company has reclassified internal-use software to property...

  • Page 36
    ...of the final product version. As a result, the Company capitalized approximately $5.4 million of development costs during 2001 associated with final development of Mac OS X. Related amortization is computed by use of the straight-line method over the estimated useful life of the asset of 8 years and...

  • Page 37
    ... distributes its products through third-party computer resellers and directly to certain education and consumer customers. The Company generally does not require collateral from its customers. However, when possible the Company does attempt to limit credit risk on trade receivables through the use...

  • Page 38
    ... vary over time as a function of interest rates and currency exchange rates. 48 The estimates of fair value are based on applicable and commonly used pricing models using prevailing financial market information as of September 29, 2001 and September 30, 2000. In certain instances where judgment is...

  • Page 39
    ...During fiscal 2001, the Company closed out all of its existing debt interest rate swap positions due to prevailing market interest rates realizing a gain of $17 million. This gain was deferred, recognized in long-term debt and is being amortized to other income and expense over the remaining life of...

  • Page 40
    ...fair value of these investments in the future. 51 Occasionally, the Company uses short-term equity derivatives to manage potential dispositions of non-current debt and equity investments. Any gains or losses associated with such derivatives are recognized currently in interest and other income. ARM...

  • Page 41
    ... Samsung's TFT-LCD flat-panel display production capacity. The investment was in the form of three year unsecured bonds which were convertible into approximately 550,000 shares of Samsung common stock beginning in July 2000. The bonds carried an annual coupon rate of 2% and pay a total 52 yield to...

  • Page 42
    ... depreciation and amortization Net property, plant, and equipment $ (360) 564 $ 419 Accrued Expenses (in millions) 2001 2000 Accrued compensation and employee benefits Accrued marketing and distribution Deferred revenue Accrued warranty and related costs Other current liabilities Total accrued...

  • Page 43
    ...student information systems for K-12 schools and districts that enables schools to record, access, report, and manage their student data and performance in real-time, and gives parents realtime web access to track their children's progress. The consolidated financial statements include the operating...

  • Page 44
    ...Executive Bonus During the first quarter of 2000, the Company's Board of Directors approved a special executive bonus for the Company's Chief Executive Officer for past services in the form of an aircraft with a total cost to the company of approximately $90 million, the majority of which is not tax...

  • Page 45
    ..., and the future income tax effects of temporary differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases and are measured using enacted tax rates that apply to taxable income in the years in which those temporary...

  • Page 46
    ...): 2001 2000 1999 Computed expected tax (benefit) State taxes, net of federal effect Indefinitely invested earnings of foreign subsidiaries Nondeductible executive compensation Purchase accounting and asset acquisitions Change in valuation allowance Research & development credit, net Other items...

  • Page 47
    ...Long Term Stock Option Plan terminated in July 1995. Options granted before these plans' termination dates remain outstanding in accordance with their terms. Options may be granted under the 1998 Plan to the Chairman of the Board of Directors, executive officers of the Company at the level of Senior...

  • Page 48
    ... arrangement under Section 401(k) of the Internal Revenue Code. Under the Savings Plan, participating U.S. employees may defer a portion of their pre-tax earnings, up to the Internal Revenue Service annual contribution limit ($10,500 for calendar year 2001). The Company matches 50% to 100% of each...

  • Page 49
    ... accounting provided for under SFAS No. 123 requires use of option valuation models that were not developed for use in valuing employee stock options and employee stock purchase plan shares. Under APB Opinion No. 25, when the exercise price of the Company's employee stock options equals the market...

  • Page 50
    ... Australia and Asia except for Japan, the Company's subsidiary, Filemaker, Inc., and the Company's recently formed Retail segment which operates Apple-owned retail stores in the United States. Each reportable operating segment provides similar products and services, and the accounting policies...

  • Page 51
    ... long-term investments, manufacturing facilities, miscellaneous corporate infrastructure, and intangible assets. Capital expenditures for long-lived assets are not reported to management by segment. Summary information by operating segment follows (in millions): 2001 2000 1999 Americas: Net sales...

  • Page 52
    ... instability, labor problems, trade restrictions, and changes in tariff and freight charges. During 2000, a single distributor, Ingram Micro Inc. accounted for approximately 11.5% of the Company's net sales. Net sales during 2000 to Ingram Micro Inc. in the Americas and Europe segments were $651...

  • Page 53
    ...Chief Executive Officer. MicroWarehouse is a multi-billion dollar specialty catalog and online retailer and direct marketer of computer products, including products made by the 70 Company, through its MacWarehouse catalogue. MicroWarehouse accounted for 2.89% and 3.26% of the Company's net sales in...

  • Page 54
    ... Accountants on Accounting and Financial Disclosure Not applicable. 71 PART III Item 10. Directors and Executive Officers of the Registrant Directors Listed below are the Company's directors whose terms expire at the next annual meeting of shareholders. Name Position With the Company Age Director...

  • Page 55
    ...Chief Financial Officer of Automatic Data Processing, Inc. (" ADP "), a position he held from August 1992 to March 1996. Mr. Anderson also serves as a director of 3Com Corporation. Timothy D. Cook , Senior Vice President, Worldwide Operations, Sales, Service & Support (age 41), joined the Company in...

  • Page 56
    ... Financial Officer Timothy D. Cook Senior Vice President, Worldwide Operations, Sales, Service & Support Jonathan Rubinstein Senior Vice President, Hardware Engineering Avadis Tevanian, Jr. Ph.D Senior Vice President, Software Engineering (1) In December 1999, Mr. Jobs was given a special executive...

  • Page 57
    ... in Last Fiscal Year The following table provides information about option grants to the Named Executive Officers during fiscal year 2001. OPTION GRANTS IN LAST FISCAL YEAR Individual Grants Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation for Option Term(3) Number of...

  • Page 58
    Director Compensation In 1997, the Company ended its practice of paying cash retainers and fees to directors, and approved the Apple Computer, Inc. 1997 Director Stock Option Plan (the " Director Plan "). The Director Plan was approved by the shareholders in April 1998 and 800,000 shares have been ...

  • Page 59
    ... with Named Executive Officers Change In Control Arrangements-Stock Options In the event of a "change in control" of the Company, all outstanding options under the Company's stock option plans, except the Director Plan, will, unless otherwise determined by the plan administrator, become exercisable...

  • Page 60
    ... online retailer and direct marketer of computer products, including products made by the Company, through its MacWarehouse catalogue. During fiscal year 2001, MicroWarehouse accounted for 2.89% of the Company's net sales. The following report of the Compensation Committee of the Board of Directors...

  • Page 61
    ...stock option plans be deductible by the Company under Section 162(m) of the Internal Revenue Code of 1986, as amended. Members of the Compensation Committee William V. Campbell Arthur D. Levinson 79 Jerome B. York PART IV Item 14. Exhibits (a) Items Filed as Part of Report: 1. Financial Statements...

  • Page 62
    ... May 3, 2000. Form of Indemnification Agreement between the Registrant and each officer of the Registrant. NeXT Computer, Inc. 1990 Stock Option Plan, as amended. 1997 Employee Stock Option Plan, as amended through June 13, 2001. 1997 Director Stock Option Plan 1998 Executive Officer Stock Plan, as...

  • Page 63
    ... and Exchange Commission on May 26, 1989. Incorporated by reference to Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 30, 1990. Incorporated by reference to the exhibit of that number in the Company's Annual Report on Form 10-K for the fiscal year ended...

  • Page 64
    ... the exhibit of that number in the Company's Annual Report on Form 10-K for the fiscal year ended September 26, 1997 (the "1997 Form 10-K"). Incorporated by reference to the exhibit of that number in the Company's Quarterly Report on Form 10-Q for the quarter ended December 26, 1997. Incorporated by...

  • Page 65
    ... Security Ownership of Directors, Nominees and Executive Officers Item 13. Arrangements with Named Executive Officers CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION Members of the Compensation Committee PART IV

  • Page 66
    ...' equity, and cash flows for each of the years ended September 29, 2001, September 30, 2000, and September 25, 1999, respectively, and the related schedule, which report appears in the September 29, 2001 annual report on Form 10-K of Apple Computer, Inc. KPMG LLP Mountain View, California December...

  • Page 67
    QuickLinks Exhibit 23.1 CONSENT OF KPMG LLP