Apple 2002 Annual Report Download - page 56

The amount of the purchase price allocated to IPR&D was expensed upon acquisition, because the technological feasibility of products under
development had not been established and no alternative future uses existed. The IPR&D relates to technologies representing processes and
expertise employed to design, develop, and deploy a functioning, scalable web-based student information system for use by K-12 schools. At
the date of the acquisition, the product under development was approximately 50% complete, and it was expected that the remaining 50%
would be completed during the Company's fiscal 2002 at a cost of approximately $9.25 million. The remaining efforts, which were completed
in 2002, included completion of coding, finalizing user interface design and development, and testing. The fair value of the IPR&D was
determined by an independent third-party valuation using the income approach, which reflects the projected free cash flows that will be
generated by the IPR&D projects and that are attributable to the acquired technology, and discounting the projected net cash flows back to their
present value using a discount rate of 25%. The acquired intangibles are being amortized over their estimated useful lives of three years,
respectively. Deferred stock compensation associated with restricted stock and options is being amortized over the required future vesting
period of three years.
70
In the fourth quarter of 2001, an adjustment was made to increase goodwill associated with the acquisition of PowerSchool by $5.9 million due
to the identification of previously unidentified loss contingencies that were in existence prior to consummation of the acquisition.
Acquisition-Related Deferred Stock Compensation
The Company allocated $12.8 million of its purchase consideration for PowerSchool to acquisition-related deferred stock compensation within
shareholders' equity. This amount represents the intrinsic value of stock options assumed that vest as future services are provided by employees
and related to 445,000 common shares issued contingent on continued employment of certain PowerSchool employee stockholders.
Pro Forma Financial Information
The unaudited pro forma financial information below presents the condensed consolidated financial results of the Company assuming that
PowerSchool and Spruce, acquired in 2001, had been acquired at the beginning of 2000 and includes the effect of amortization of goodwill and
other acquired identifiable intangible assets from that date. The impact of the charge for IPR&D associated with the acquisition of
PowerSchool has been excluded. This pro forma financial information is presented for informational purposes only and is not necessarily
indicative of the results of future operations that would have been achieved had the acquisitions taken place at the beginning of 2000. Pro forma
information follows (in millions, except per share amounts):
Note 5—Special Charges
Restructuring Actions
2002 Restructuring Actions
During fiscal 2002, the Company recorded total restructuring charges of approximately $30 million related to actions intended to eliminate
certain activities and better align the Company's operating expenses with existing general economic conditions and to partially offset the cost of
continuing investments in new product development and investments in the Company's Retail operating segment.
During the fourth quarter of 2002, the Company's management approved and initiated restructuring actions with a total cost of approximately
$6 million designed to reduce headcount costs in Corporate operations and sales and to adjust its PowerSchool product strategy. These
restructuring actions resulted in the elimination of approximately 180 positions worldwide at a cost of $1.8 million, 161 of which were
eliminated by September 28, 2002. Eliminated positions were primarily in Corporate operations, sales, and PowerSchool related research and
development. The shift in product strategy at PowerSchool included discontinuing development and marketing of PowerSchool's PSE product.
This shift resulted in the impairment of previously capitalized development costs associated with the PSE product in the amount of
$4.5 million. As of September 28, 2002, substantially all of the $6 million accrual had been utilized, except for insignificant severance and
Goodwill
39.7
Total consideration $
66.1
2001 2000
Net sales
$
5,370
$
7,994
Net income (loss)
$
(44
)
$
767
Basic earnings (loss) per common share
$
(0.13
)
$
2.35
Diluted earnings (loss) per common share
$
(0.13
)
$
2.11