Apple 2002 Annual Report Download - page 51

EarthLink
In January 2000, the Company invested $200 million in EarthLink, an Internet service provider (ISP). The investment is in EarthLink's
Series C Convertible Preferred Stock, which is convertible by the Company after January 4, 2001, into approximately 7.1 million shares of
EarthLink common stock. Concurrent with this investment, EarthLink and the Company entered into a multi-year agreement to deliver ISP
service to Macintosh users in the United States. Under the terms of the agreement, the Company profits from each new Mac customer that
subscribes to EarthLink's ISP service for a specified period of time, and EarthLink is the default ISP in the Company's Internet Setup Software
included with all Macintosh computers sold in the United States.
During the second quarter of 2001, the Company determined that the then current decline in the fair value of its investment in EarthLink was
other-than-temporary requiring that its cost basis be written down to fair value as a new cost basis and the amount of the write-down be
included in earnings. As a result, the Company recognized a $114 million charge to earnings to write-down the basis of its investment in
EarthLink to $86 million. This charge was included in gains (losses) on non-current investments, net. During the fourth quarter of 2001, the
Company sold a total of approximately 425,000 shares of EarthLink stock for net proceeds of approximately $6 million and recorded a gain
before taxes of approximately $800,000. As of September 29, 2001, the Company held 6.7 million shares of EarthLink stock with a fair value
of approximately $102 million.
During the first quarter of 2002, the Company sold 117,000 shares of EarthLink stock for net proceeds of $2 million and a gain before taxes of
$223,000. No sales of EarthLink were made in any of the subsequent quarters of fiscal 2002. However, during the fourth quarter of 2002, the
Company determined that the then current decline in the fair value of its investment in EarthLink was other-than-temporary. As a result, the
Company recognized a $44 million charge to earnings to write-down the basis of its investment in
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EarthLink to $35 million. This charge was included in gains (losses) on non-current investments, net. As of September 28, 2002, the Company
holds 6.5 million shares of EarthLink stock valued at $35 million.
Akamai
In June 1999, the Company invested $12.5 million in Akamai, a global Internet content delivery service. The investment was in the form of
convertible preferred stock that converted into 4.1 million shares of Akamai common stock (adjusted for subsequent stock splits) at the time of
Akamai's initial public offering in October 1999. Beginning in the first quarter of 2000, the Company categorized its shares in Akamai as
available-for-sale. The fair value of the Company's investment in Akamai was approximately $216 million as of September 30, 2000. During
2001, the Company sold a total of approximately 1 million shares of Akamai stock for net proceeds of approximately $39 million and recorded
a gain before taxes of approximately $36 million. As of September 29, 2001, the Company held 3.1 million shares of Akamai stock valued at
$9 million.
During the first quarter of 2002, the Company sold 250,000 shares of Akamai stock for net proceeds of $2 million and a gain before taxes of
$710,000. No sales of Akamai were made in any of the subsequent quarters of fiscal 2002. However, during the fourth quarter of 2002, the
Company determined that the decline in the fair value of its investment in Akamai was other-than-temporary. As a result, the Company
recognized a $6 million charge to earnings to write-
down the basis of its investment in Akamai to $3 million. This charge was included in gains
(losses) on non-current investments, net. As of September 28, 2002, the Company holds 2.9 million shares of Akamai stock valued at
$3 million.
ARM Holdings
ARM is a publicly held company in the United Kingdom involved in the design and licensing of high performance microprocessors and related
technology. During the first quarter of 2002, the Company sold 4.7 million shares of ARM stock for both net proceeds and a gain before taxes
of $21 million. No sales of ARM were made in any of the subsequent quarters of fiscal 2002. As of September 28, 2002, the Company holds
278,000 shares of ARM stock valued at $578,000.
During 2001, the Company sold a total of approximately 29.8 million shares of ARM stock for net proceeds of approximately $176 million and
recorded a gain before taxes of approximately $174 million. As of September 29, 2001, the Company held 5 million shares of ARM stock
valued at $17 million. During 2000, the Company sold a total of approximately 45.2 million shares of ARM stock for net proceeds of
approximately $372 million and recorded a gain before taxes of approximately $367 million.
Samsung
During the fourth quarter of 1999, the Company invested $100 million in Samsung to assist in the further expansion of 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 yield to maturity of 5% if redeemed at their maturity. The fair value of the Company's investment in Samsung was approximately