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APPLE INC
FORM 10-K
(Annual Report)
Filed 12/19/03 for the Period Ending 09/27/03
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
    ...FORM 10-K (Annual Report) Filed 12/19/03 for the Period Ending 09/27/03 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 09/30 http://www.edgar-online.com...

  • Page 2
    ... the fiscal year ended September 27, 2003 OR 32 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 0-10030 APPLE COMPUTER, INC. (Exact name of registrant as specified in its charter) CALIFORNIA (State...

  • Page 3
    ... 5, 2003 PART I The Business section and other parts of this Annual Report on Form 10-K ("Form 10-K") contain forward-looking statements that involve risks and uncertainties. Many of the forward-looking statements are located in "Management's Discussion and Analysis of Financial Condition and...

  • Page 4
    ... and software solutions. Creative customers utilize the Company's products for a variety of creative activities including digital video and film production and editing; digital video and film special effects, compositing, and titling; digital still photography; graphic design, publishing, and print...

  • Page 5
    ... RAID Storage System Xserve, the Company's first ever rack-mount server product, was designed for simple setup and remote management of intensive input/output (I/O) applications such as digital video, high-resolution digital imagery, and large databases. In February 2003, the Company upgraded its...

  • Page 6
    ... application software. Operating System Software During 2001, the Company introduced the first customer release of its new client operating system, Mac OS X, and its first significant upgrade, Mac OS X version 10.1. At its introduction, Mac OS X offered advanced functionality built on an open-source...

  • Page 7
    ...OS X server software was initially introduced in May 2001, followed by Mac OS X Server version 10.2 (code named "Jaguar Server") that was released in August 2002. Jaguar Server delivers high-performance services for Internet and web serving, filing, printing, and networking services needed to manage...

  • Page 8
    ... photo books online. Prints, enlargements, and hardbound book production are currently only available to U.S. and Canadian customers. The Company's iChat AV software application and the iSight digital video camera together enable high-quality audio and video conferences between two Macintosh systems...

  • Page 9
    ... titles and solutions are available for the Macintosh platform. The Company sells a variety of these thirdparty software products directly to end users through both its retail and online stores. Internet Software, Integration, and Services Apple's Internet strategy is focused on delivering seamless...

  • Page 10
    ... Rendezvous source code includes software to support UNIX, Linux, and Windowsbased systems and devices. Rendezvous support is built into Mac OS X. The Company developed FireWire ® technology, also referred to as IEEE 1394, which is a high-speed serial I/O technology for connecting digital devices...

  • Page 11
    ... education customers. In 2001, Apple acquired PowerSchool Inc., a 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...

  • Page 12
    ... products in the areas of hardware and peripherals, system software, applications software, networking and communications software and solutions, and the Internet. The Company's research and development expenditures, before any charges for purchased in-process research and development, totaled...

  • Page 13
    ... by the end-user. The Company also offers a 90-day basic warranty for Apple software and for Apple service parts used to repair Apple hardware products. In addition, consumers may purchase extended service coverage on most Apple hardware products in all of the Company's major markets. Backlog In the...

  • Page 14
    ...of patent 5,754,961 relating to a "Method and Apparatus for Transmitting Information Recorded on Information Storage Means from a Central Server to Subscribers via a High Data Rate Digital Telecommunications Network." Plaintiff seeks unspecified damages and other relief. The Company has answered the...

  • Page 15
    ... of printer speed. Plaintiff asserts causes of action for violation of California Business and Professions Code §17200 and §17500. Plaintiff requests an injunction, restitution and other unspecified damages and relief. The Company was served on February 10, 2003. Apple filed a response on...

  • Page 16
    ... Chief Executive Officer. These lawsuits are substantially identical, and purport to bring suit on behalf of persons who purchased the Company's publicly traded common stock between July 19, 2000, and September 28, 2000. The complaints allege violations of the 1934 Securities Exchange Act and seek...

  • Page 17
    ...Stock Exchange under the symbol APCD. As of December 5, 2003, there were 29,015 shareholders of record. On June 21, 2000, the Company effected a two-for-one stock split in the form of a Common Stock dividend to shareholders of record as of May 19, 2000. All share price and per share data and numbers...

  • Page 18
    ... law. Critical Accounting Policies The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles and the Company's discussion and analysis of its financial condition and results of operations requires the Company's management to make...

  • Page 19
    ...product lifecycle status, product development plans, current sales levels, and component cost trends. The personal computer industry is subject to a rapid and unpredictable pace of product and component obsolescence and demand changes. If future demand or market conditions for the Company's products...

  • Page 20
    ... application of complex tax laws. Resolution of these uncertainties in a manner inconsistent with management's expectations could have a material impact on the Company's results of operations and financial position. 23 Net Sales Net sales and Macintosh unit sales by operating segment and net sales...

  • Page 21
    ... of Asia Pacific and FileMaker. Certain net sales in 2002 and 2001 related to recent acquisitions and Internet services have been reclassified from Other segments net sales to Americas segment net sales to conform to the 2003 presentation. 24 (b) Power Macintosh figures include server sales.

  • Page 22
    ... Protection Plan (APP) extended maintenance and support services, as well as the Company's Internet related services. Increased net sales associated with APP are primarily the result of increasing attach rates over the last several years. Increased net sales associated with Internet services are...

  • Page 23
    ... of total unit sales in the education channel during 2003, as compared to approximately 34% in 2002. 26 • • The Company's one-to-one (1:1) learning solutions are a complete solution consisting of an iBook portable system for every student and teacher along with a wireless network connected to...

  • Page 24
    ... delayed upgrading until after the availability of other professionally oriented software applications for Mac OS X such as QuarkXPress. Second, despite the overall increase in net sales during 2002 in the Americas, the Company continued to see weakness in its U.S. education channel. Total net sales...

  • Page 25
    ..., and the Company in total, also reflect substantially higher sales of peripherals, software, and services during 2003 compared to 2002 due primarily to higher sales of iPods and Internet services. The Americas segment has been negatively affected by weakness in its U.S. education channel. As noted...

  • Page 26
    ... products. Gross margins could also be affected by the Company's ability to effectively manage product quality 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...

  • Page 27
    ... 5% of total net sales in fiscal year 2000 and recent earlier periods. The Company's management believes that maintaining or increasing the pace of innovation and product development is the best way to respond to current economic and market conditions and will continue to position the Company for...

  • Page 28
    ...projected net cash flows back to their present value using a discount rate of 25%. In May 2001, the Company acquired PowerSchool, Inc., 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 and...

  • Page 29
    ... in private companies. These investments have been reflected in the consolidated balance sheets as long term assets within other assets and have been categorized as available-for-sale requiring that they be carried at fair value with unrealized gains and losses, net of taxes, reported in equity...

  • Page 30
    ...29, 2002, the Company adopted SFAS No. 143, Accounting for Asset Retirement Obligations , which addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. Net of the related income tax effect of...

  • Page 31
    ... to Consolidated Financial Statements, the alternative fair value accounting provided for under SFAS No. 123, Accounting for Stock-Based Compensation , requires use of option valuation models that were not developed for use in valuing employee stock options and employee stock purchase plan shares...

  • Page 32
    ... 2003. The Company currently anticipates utilizing its existing cash balances to settle these notes when due. Capital Expenditures The Company's total capital expenditures were $164 million during fiscal 2003, $92 million of which were for retail store facilities and equipment related to the Company...

  • Page 33
    ... common stock had a fair value of $22.81. Other than this forward purchase transaction, the Company has not engaged in any transactions to repurchase its common stock since fiscal 2000. Since inception of the stock repurchase plan, the Company had repurchased a total of 6.55 million shares at a cost...

  • Page 34
    .... 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's Windows operating systems. The Company's future operating results and financial condition 41...

  • Page 35
    ... of new product introductions is dependent on a number of factors, including market acceptance; the Company's ability to manage the risks associated with product transitions, including production ramp issues; the availability of application software for new products; the effective management of...

  • Page 36
    ... disk drives), while currently available to the Company from multiple sources, are at times subject to industry-wide availability and pricing pressures. In addition, new products introduced by the Company often initially utilize custom components obtained from only one source until the Company has...

  • Page 37
    ... to manage costs associated with store construction and operation; lack of consumer acceptance of the Company's retail approach; failure to attract new users to the Macintosh platform; inability to sell third-party hardware and software products at adequate margins; failure to manage relationships...

  • Page 38
    ... and financial results could be adversely affected if expansion of its direct sales to end-users causes some or all of its resellers to cease or limit distribution of the Company's products. Further information regarding risks associated with Marketing and Distribution may be found in Part I, Item...

  • Page 39
    ... that may be generated, acceptance by customers of Mac OS X, and the costs of developing such software products. To the extent the Company's financial losses in prior years and the minority market share held by the Company in the personal computer market, as well as the Company's decision to end its...

  • Page 40
    ... of the Company depends on the continued service and availability of skilled personnel, including its Chief Executive Officer, members of its executive team, and those in technical, marketing and staff positions. Experienced personnel in the information technology industry are in high demand and...

  • Page 41
    ...of positive performance in the Company's stock price, as well as general economic and political conditions and investors' concerns regarding the credibility of corporate financial reporting and integrity of financial markets, may materially adversely affect the market price of the Company's stock in...

  • Page 42
    ... to market risk for changes in interest rates relates primarily to the Company's investment portfolio and debt obligations and related derivative financial instruments. The Company places its short-term investments in highly liquid securities issued by high credit quality issuers and, by policy...

  • Page 43
    ...away from fluctuations in short-term U.S. interest rates. The Company may also enter into interest rate contracts that are intended to reduce the cost of the interest rate risk management program. The Company entered into no interest rate asset swaps during 2003 or 2002 and had no open interest rate...

  • Page 44
    ... the information required is included in the Consolidated Financial Statements and Notes thereto. 55 CONSOLIDATED BALANCE SHEETS (In millions, except share amounts) September 27, 2003 September 28, 2002 ASSETS: Current assets: Cash and cash equivalents Short-term investments Accounts receivable...

  • Page 45
    ...56 CONSOLIDATED STATEMENTS OF OPERATIONS (In millions, except share and per share amounts) Three fiscal years ended September 27, 2003 2003 2002 2001 Net sales Cost of sales Gross margin Operating expenses: Research and development Selling, general, and administrative Restructuring costs Purchased...

  • Page 46
    ...in unrealized gain on availablefor-sale securities, net of tax Change in unrealized gain on derivative investments, net of tax Total comprehensive income Amortization of deferred stock compensation Common stock issued under stock plans Tax benefit related to stock options Balances as of September 28...

  • Page 47
    Common stock issued under stock plans Settlement of forward purchase agreement Tax benefit related to stock options Balances as of September 27, 2003 - - - - $ - - - - 9,299 (1,531) - 366,727 $ 128 (35) 7 1,926 $ - - - 2,394 $ (75) - - (62) $ - - - (35 See accompanying notes to consolidated ...

  • Page 48
    ... and notebook computers, the Mac OS X operating system, the iPod digital music player, and a portfolio of software products and peripherals for education, creative, consumer and business customers. The Company sells its products through its online stores, direct sales force, third-party wholesalers...

  • Page 49
    ... of its common stock at an average price of $16.64 per share for a total cost of $25.5 million. The Company settled this forward purchase agreement in August 2003, which resulted in an additional gain of approximately $6 million representing the increase in fair value of the agreement from June 29...

  • Page 50
    ...Company's leased properties to original condition. The difference between the gross expected future cash flow of $9.5 million and its present value of $6 million at September 29, 2002, is being accreted over the life of the related leases as an operating expense. Net of the related income tax effect...

  • Page 51
    ... the sale of extended warranty and support contracts. However, a limited number of the Company's software products are available with maintenance agreements that grant customers rights to unspecified future upgrades over the maintenance term on a when and if available basis. Revenue associated with...

  • Page 52
    ... are usually not significant, and generally all software development costs have been expensed. During the third and fourth quarters of 2003, the Company incurred substantial development costs associated with the development of Mac OS X version 10.3 (code-named "Panther"), which enhances the features...

  • Page 53
    ...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 price of the underlying stock on the date...

  • Page 54
    ... accounted for as cash flow hedges. Segment Information The Company reports segment information based on the "management" approach. The management approach designates the internal reporting used by management for making decisions and assessing performance as the source of the Company's reportable...

  • Page 55
    ...years. The remaining short-term investments as of September 28, 2002 had maturities of 3 to 12 months. Accounts Receivable Trade Receivables The Company distributes its products through third-party resellers and directly to certain education, consumer, and commercial customers. The Company generally...

  • Page 56
    ... or assemble final products for the Company. The Company purchases these raw material components directly from suppliers. These non-trade receivables, which are included in the consolidated balance sheets in other current assets, totaled $184 million and $142 million as of September 27, 2003, and...

  • Page 57
    ... the terms of the contract, based on then-current currency exchange rates at each respective date. The Company's exposure to credit loss and market risk will vary over time as a function of currency exchange rates. The estimates of fair value are based on applicable and commonly used pricing models...

  • Page 58
    ... related to the loss of hedge designation on discontinued cash flow hedges due to changes in the Company's forecast of future net sales and cost of sales. No net gains, or losses, of a similar nature were recorded in 2003. Interest Rate Risk Management The Company sometimes enters into interest rate...

  • Page 59
    ... 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...

  • Page 60
    ... and September 28, 2002, the Company had no private debt or equity investments reflected in its consolidated balance sheets. Note 3-Consolidated Financial Statement Details (in millions) Inventories 2003 2002 Purchased parts Work in process Finished goods Total inventories $ 2 4 50 56 $ 9 - 36...

  • Page 61
    ... software development costs, net Other assets Total other assets $ 60 5 28 57 150 $ 70 39 19 42 170 $ $ Accrued Expenses 2003 2002 Deferred revenue Accrued marketing and distribution Accrued compensation and employee benefits Accrued warranty and related costs Other current liabilities Total...

  • Page 62
    ... gross and net intangible asset balances (in millions): September 27, 2003 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization September 28, 2002 Net Carrying Amount Goodwill (a) Other acquired intangible assets Acquired technology Total...

  • Page 63
    ... Real), a privately-held company that develops and markets high performance tools designed for the digital image creation market. Of the $15 million purchase price, the Company has allocated $7 million to acquired technology, which will be amortized over its estimated life of 5 years. The remaining...

  • Page 64
    ...and $300,000 of direct transaction costs. The fair value of the common stock options issued was determined using a Black-Scholes option pricing model with the following assumptions: volatility of 67%, expected life of 4 years, dividend rate of 0%, and risk-free rate of 4.73%. Total consideration was...

  • Page 65
    ... costs related to the closure of the Company's Singapore manufacturing operations. These adjustments had no net effect on reported operating expense. During the second quarter of 2003, the Company's management approved and initiated restructuring actions that resulted in recognition of a total...

  • Page 66
    ...eliminated by September 27, 2003. Eliminated positions were primarily in corporate operations, sales, and PowerSchool related research and development in the Americas operating segment. The shift in product strategy at PowerSchool included discontinuing development and marketing of PowerSchool's PSE...

  • Page 67
    ... of subsidiaries Available-for-sale securities Total deferred tax liabilities Net deferred tax asset $ 35 155 47 204 11 452 30 422 398 - 398 $ 32 126 34 125 11 328 30 298 293 1 294 $ 24 $ 4 As of September 27, 2003, the Company had operating loss carryforwards for federal tax purposes of...

  • Page 68
    ... Mr. Jobs in 2000 and 2001. Mr. Jobs retained options to purchase 60,000 shares of the Company's common stock granted in August of 1997 in his capacity as a member of the Company's Board of Directors, prior to becoming the Company's CEO. The Agreement replaced the cancelled options with a restricted...

  • Page 69
    ... common stock had a fair value of $22.81. Other than this forward purchase transaction, the Company has not engaged in any transactions to repurchase its common stock since fiscal 2000. Since inception of the stock repurchase plan, the Company had repurchased a total of 6.55 million shares at a cost...

  • Page 70
    ... officers and members of the Board of Directors, had an opportunity to exchange outstanding options with exercise prices at or above $25.00 per share for a predetermined smaller number of new stock options issued with exercise prices equal to the fair market value of one share of the Company...

  • Page 71
    ... 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 ($12,000 for calendar year 2003). The Company matches 50% to 100% of each...

  • Page 72
    ... Notes to Consolidated Financial Statements of the effect on net income (loss) and earnings (loss) per share as if the fair value method of accounting for stock compensation had been used for its employee stock option grants and employee stock purchase plan purchases. These pro forma effects have...

  • Page 73
    ... purchase by the end-user. The Company also offers a 90-day basic warranty for Apple software and for Apple service parts used to repair Apple hardware products. The Company provides currently for the estimated cost that may be incurred under its basic limited product warranties at the time related...

  • Page 74
    ... of components customized to meet the Company's requirements. Finally, significant portions of the Company's CPUs, logic boards, and assembled products are now manufactured by outsourcing partners, the majority of which occurs in various parts of Asia. Although the Company works closely with its...

  • Page 75
    ...vehicles for general corporate marketing, corporate sales and marketing events, and brand awareness. Allocated operating costs are those in excess of operating costs incurred by one of the Company's more typical retail locations. Stores were open in three such high profile locations in New York, Los...

  • Page 76
    ...2003 presentation. 97 A reconciliation of the Company's segment operating income and assets to the consolidated financial statements follows (in millions): 2003 2002 2001 Segment operating income Corporate expenses, net Purchased in-process research and development Restructuring costs Consolidated...

  • Page 77
    ... system and application software and sales of third-party software. Note 12-Related Party Transactions and Certain Other Transactions 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...

  • Page 78
    .... Mr. Jerome York, a member of the Board of Directors of the Company, is a member of an investment group that purchased MicroWarehouse, Inc. (MicroWarehouse) in January 2000. Until September 7, 2003, he also served as its Chairman, President and Chief Executive Officer. MicroWarehouse is a reseller...

  • Page 79
    ... their operations and their cash flows for each of the years in the three-year period ended September 27, 2003, in conformity with accounting principles generally accepted in the United States of America. As discussed in Note 1 to the consolidated financial statements, the Company changed its method...

  • Page 80
    ... the Company's internal control over financial reporting. 103 PART III Item 10. Directors and Executive Officers of the Registrant Directors Listed below are the Company's six directors whose terms expire at the next annual meeting of shareholders. Name Position With the Company Age Director Since...

  • Page 81
    ...'s employees, including its principal executive officer, principal financial officer and principal accounting officer. A copy of this code, "Ethics: The Way We Do Business Worldwide" is available on the Company's website at www.apple.com/investor and is filed as an exhibit to this annual report on...

  • Page 82
    ... December 1995 to March 1997 and was Director of Product Marketing at FirePower Systems, Inc. from 1993 to December 1995. Prior to that, Mr. Schiller spent six years at the Company in various marketing positions. Bertrand Serlet, Ph.D., Senior Vice President, Software Engineering (age 42), joined...

  • Page 83
    ... Software Technology Officer (1) In March 2003, Mr. Jobs voluntarily cancelled all of his outstanding options, excluding those granted to him in his capacity as a director. In March 2003, the Board awarded Mr. Jobs five million restricted shares of the Company's Common Stock which generally...

  • Page 84
    ... year 2003 (based on $20.69 per share, the closing price of Common Stock on the Nasdaq National Market on September 27, 2003), minus the exercise price. Includes 60,000 options granted to Mr. Jobs in his capacity as a director pursuant to the 1997 Director Stock Option Plan. In March 2003, Mr. Jobs...

  • Page 85
    ... of stock options. Represents less than 1% of the issued and outstanding shares of Common Stock on the Table Date. Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company's officers and directors, and persons who...

  • Page 86
    ... the 1990 Stock Option Plan. On October 22, 2003, the Company granted 6,697,368 shares under the 1997 Employee Stock Option Plan (the "1997 Plan") pursuant to the stock option exchange program (see Part II, Item 8 of this 110 (2) Form 10-K in the Notes to Consolidated Financial Statements at Note...

  • Page 87
    ... financial statements, consultation on accounting standards or transactions, and audits of employee benefit plans. Tax fees include $901,500 for professional services rendered in connection with tax compliance and preparation relating to the Company's expatriate program, tax audits and international...

  • Page 88
    ...Purchase Plan, as amended through April 24, 2003. 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 October 19, 2001. 1997 Director Stock Option Plan...

  • Page 89
    ... Employee Stock Option Plan, as amended through April 24, 2003. Reimbursement Agreement. Option Cancellation and Restricted Stock Award Agreement Custom Sales Agreement effective October 21, 2002 between the Registrant and International Business Machines Corporation. Code of Ethics of the Company...

  • Page 90
    ... 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Item 7A. Quantitative and Qualitative Disclosures About Market Risk Item 8. Financial Statements and Supplementary Data CONSOLIDATED BALANCE SHEETS (In millions, except share amounts) CONSOLIDATED STATEMENTS OF...

  • Page 91
    ... Owners and Management Security Ownership of Directors, Nominees and Executive Officers Item 13. Certain Relationships and Related Transactions Item 14. Principal Accountant Fees and Services Audit and Non-Audit Fees PART IV Item 15. Exhibits, Financial Statement Schedules, and Reports on Form...

  • Page 92

  • Page 93
    ... Order for particular Products or Services, provided such entity is (i) Apple, (ii) any of Apple's wholly-owned Subsidiaries, including Apple Computer International and Apple Computer Limited, or (iii) another Apple-Related Company authorized to place Purchase Orders under this Agreement as set...

  • Page 94
    ... (in writing) specifications (in ASIC Products, such specifications will be set forth in the RTM as that term is defined in the ASIC Development Agreement, Agreement No. 000798) and [**] and which reasonably could not have been detected by Apple through system, subsystem, and part testing activities...

  • Page 95
    ... for internal use and testing and not for resale, and is not suitable for production in commercial quantities. The terms and conditions relating to Prototypes are set forth in the ASIC Development Agreement, Agreement No. 000798, signed by the parties on September 26, 2001. 1.16 "Purchase Order...

  • Page 96
    ... by Apple to issue Purchase Orders for Products with Apple part numbers, receive, reschedule or cancel deliveries of such Products ordered pursuant to such Purchase Orders, process warranty claims related to such Products and pay for such Products and any associated freight costs ("Designees...

  • Page 97
    ... subject to the terms and conditions of this Agreement. Purchase Orders will be accepted by the Plant when it issues the Sales Acknowledgment accepting the Purchase Order, thereby creating the contract of sale for the Products. Apple reserves the right to [**] = information redacted pursuant to...

  • Page 98
    ... to and governed by the terms and conditions of this Agreement, unless: (i) there is another signed, written agreement in place between IBM and Apple with respect to the subject matter of such purchase order; or (ii) the product or service was ordered by a Designee for use in or in connection with...

  • Page 99
    ... terms and conditions of this Agreement; the Purchase Order exceeds Apple's current credit-limit established pursuant to Section 6.3, below; [**]; IBM has provided notice to Apple pursuant to Section 3.5 that it no longer intends to manufacture such Product or Service and the Purchase Order requests...

  • Page 100
    ...of Product utilizing hub locations, such agreement will be set forth in a separate written agreement as an attachment to this Agreement and signed by each party. 4.3 If IBM or its Plant foresees any supply constraint with respect to an accepted Purchase Order, IBM will provide prompt notice to Apple...

  • Page 101
    ... or Designee provides IBM written notice canceling a Purchase Order for any other Product, the party canceling the Purchase [**] = information redacted pursuant to a confidential treatment request. Such omitted information has been filed separately with the Securities and Exchange Commission.

  • Page 102
    ...forth in the applicable Attachment, IBM may invoice the Authorized Purchaser or Designee the quoted price for any Products 5.3.2 [**] = information redacted pursuant to a confidential treatment request. Such omitted information has been filed separately with the Securities and Exchange Commission.

  • Page 103
    .... Products that utilize the same design revision, materials and manufacturing process from wafer start to module final test are within the same Product-family; (iii) the total number of units ordered remains the same; (iv) the change will not have any significant negative manufacturing or financial...

  • Page 104
    ... discretion, all previously accepted Purchase Orders may be canceled and Apple shall pay (i) for any Products delivered or ready for shipment when the Agreement terminated, the full price determined in accordance with Section 6.1 or 6.2, as applicable; (ii) for any Products not delivered or ready...

  • Page 105
    ...), or (iv), above, exceed the full price for such Product or Service determined in accordance with Section 6.1 or 6.2, as applicable, and any applicable Attachment. 7.3 If Apple terminates pursuant to Section 7.1, at Apple's discretion all previously accepted Purchase Orders may be canceled and no...

  • Page 106
    ... Products and/or Services hereunder, such information shall be disclosed only pursuant to the terms and conditions of the Apple Computer, Inc. Confidentiality Agreement (Mutual), Agreement No. X1329, as amended, signed by IBM and Apple with an effective date of April 1, 1999, the current version...

  • Page 107
    ...(b) if option (a) is not reasonably available, returns the Product for a credit equal to the purchase price of such Product. Such indemnification does not apply to the extent that the claim of infringement arises from (i) modifications to any Product or Service by Apple unless directed in writing by...

  • Page 108
    ... Agreement or in writing by Apple, which written agreement would be evidenced by Apple's execution of the related RTM (as that term is defined in the ASIC Development Agreement, Agreement No. 000798) . 11.4 Reference that Product Sales and Manufacturing Services Agreement, Base Agreement, Agreement...

  • Page 109
    ... other direct life support applications where malfunction may result in injury, harm or death to persons, or used in any other ultrahazardous applications [**] = information redacted pursuant to a confidential treatment request. Such omitted information has been filed separately with the Securities...

  • Page 110
    ... in an Attachment applicable to such custom Products. Apple acknowledges that the functionality of such other custom Products may be contingent on Apple's designs and, therefore, Apple agrees that such warranty does not apply to the functionality of Products designed by Apple and manufactured by IBM...

  • Page 111
    ... except that Product Failures which exceed the applicable Failure Threshold shall be governed by Section 14 below. [**] = information redacted pursuant to a confidential treatment request. Such omitted information has been filed separately with the Securities and Exchange Commission. 14.0 FREQUENT...

  • Page 112
    ... Failed Units; or (ii) design defects in the PowerPC Failed Units, IBM and Apple shall promptly meet to devise a mutually acceptable and timely plan to: (a) at Apple's option, either replace the Failed Units (if a replacement is available), or credit the full purchase price of returned Failed Units...

  • Page 113
    ... for other Products, such agreement would be set forth in the applicable Product Attachment. 15.0 TAXES 15.1 IBM shall bill Apple for all taxes related to any Product or Services arising from the sale of such Product or Services to Apple pursuant to this Agreement except for taxes based on...

  • Page 114
    ... into agreements with other parties for same or similar work, or to make, have made, use, sell, buy, develop, market or otherwise transfer or deal in any products or services, now or in the future, so long as confidential information is not disclosed contrary to the terms and conditions applicable...

  • Page 115
    ... and approvals. In addition, Apple warrants that custom Products are not for space or missile use, do not contain encryption of a type that would violate applicable laws if exported without approval, and do not relate to radiation-hardened design, circuitry, manufacturing or testing. 20.2 Each...

  • Page 116
    ... including as applicable the Export Classification Control Number (ECCN) and subheadings, and (iii) agrees to assist with obtaining any required licenses and authorizations for export and import of Products and technical data and with making any required filings. Apple shall be fully responsible for...

  • Page 117
    ...contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement. [**] = information redacted pursuant to a confidential treatment request. Such omitted information has been filed separately with the Securities and Exchange Commission.

  • Page 118
    ... IBM Product is manufactured from new, or new and used parts. In some cases, the Product may not be new and may have been previously installed. Regardless of the Product's production status, IBM's warranty terms and conditions apply. Where a type of service involves the exchange of a Product or part...

  • Page 119
    ... entered into between International Business Machines Corporation ("IBM"), {Related Company Full Name} ("{Related Company}") and Apple Computer, Inc. ("Apple"). This RCA shall be effective as of _____ (the "Effective Date"). WHEREAS IBM and Apple are parties to Custom Sales Agreement No. 000451 and...

  • Page 120
    ... Effective Date. Apple Computer, Inc. By: Name: Title: Date: {Related Company name} By: Name: Title: Date: [**] = information redacted pursuant to a confidential treatment request. Such omitted information has been filed separately with the Securities and Exchange Commission. International Business...

  • Page 121
    ... Term Sheet for Designees This Term Sheet for Designees sets forth the terms and conditions under which a Designee may purchase certain microelectronic products on behalf of Apple Computer, Inc. under the Custom Sales Agreement between Apple Computer, Inc. ("Apple") and International Business...

  • Page 122
    ... Purchase Order Lead Time applicable to the Product Designee is authorized to purchase either in an Attachment to this Term Sheet or in a written notice. 1.11 "Sales Acknowledgment" means a written sales acknowledgment or other acceptance document issued by IBM or its Plant in response to a Purchase...

  • Page 123
    ... Agreement, the Agreement will govern. 2.2 Apple may add Attachments to this Term Sheet to communicate Product-specific terms and conditions, such as Product descriptions, IBM part numbers, Apple part numbers, minimum order quantities, shipment pack quantities, Purchase Order Lead Times and prices...

  • Page 124
    .... 3.2 IBM will accept Purchase Orders for Products or Services placed by a Designee in accordance with the terms and conditions of the Agreement. Purchase Orders will specify (i) the Purchase Order number, (ii) the Designee's tax status (exempt or non-exempt), (iii) the shipto location, (iv) the...

  • Page 125
    ...Apple enter into an agreement to provide just-in-time delivery of Product utilizing hub locations, Designee will be provided with written notice of the applicable terms and conditions of such agreement. 4.3 If IBM or its Plant foresees any supply constraint with respect to an accepted Purchase Order...

  • Page 126
    .... 5.3 Rescheduling. The Designee may reschedule accepted Purchase Orders for Products in accordance with this Section 5.3. [**] = information redacted pursuant to a confidential treatment request. Such omitted information has been filed separately with the Securities and Exchange Commission.

  • Page 127
    .... Products that utilize the same design revision, materials and manufacturing process from wafer start to module final test are within the same Product-family; (iii) the total number of units ordered remains the same; (iv) the change will not have any significant negative manufacturing or financial...

  • Page 128
    ...or ship on a prepaid basis until the account is compliant. 7.0 CONFIDENTIAL INFORMATION 7.1 The terms and conditions and the existence of this Term Sheet are "Confidential Information" subject to the terms and conditions of the confidentiality agreement signed by the Designee and Apple. Designees...

  • Page 129
    ... be free from defects in material and workmanship for the notice period of [**] from date of shipment unless otherwise stated in an Attachment to the Agreement applicable to such custom Products. Such warranty does not apply to the functionality of custom Products designed by Apple and manufactured...

  • Page 130
    ...UTILIZATION OF PRODUCTS 11.1 All Products purchased under the Agreement will be: (i) incorporated into and made a part of Apple products; or (ii) combined with Apple products for sale or lease as an Apple system; or (iii) sold or leased in incidental additional quantities for sale or lease directly...

  • Page 131
    ... name of or to bind any party to the Agreement. [**] = information redacted pursuant to a confidential treatment request. Such omitted information has been filed separately with the Securities and Exchange Commission. Exhibit 3: Apple Forecast Template Oct-02 Pro-Desktop PN1 (part # or description...

  • Page 132
    Server PN1 (part # or description) PN2 (part # or description) PN3 (part # or description) PN4 (part # or description) PN5 (part # or description) PN6 (part # or description) 0 Pro-Portable PN1 (part # or description) PN2 (part # or description) PN3 (part # or description) PN4 (part # or description...

  • Page 133
    ... description) PN2 (part # or description) PN3 (part # or description) PN4 (part # or description) PN5 (part # or description) PN6 (part # or description) Server PN1 (part # or description) PN2 (part # or description) PN3 (part # or description) PN4 (part # or description) PN5 (part # or description...

  • Page 134
    description) PN5 (part # or description) PN6 (part # or description) U3 * Demand U3 Lite * Demand 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

  • Page 135
    ... (part # or description) PN2 (part # or description) PN3 (part # or description) PN4 (part # or description) PN5 (part # or description) PN6 (part # or description) 0 Server PN1 (part # or description) PN2 (part # or description) PN3 (part # or description) PN4 (part # or description) PN5 (part # or...

  • Page 136
    description) PN5 (part # or description) PN6 (part # or description) 0 U3 * Demand U3 Lite * Demand 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

  • Page 137
    ... (part # or description) PN2 (part # or description) PN3 (part # or description) PN4 (part # or description) PN5 (part # or description) PN6 (part # or description) 0 Server PN1 (part # or description) PN2 (part # or description) PN3 (part # or description) PN4 (part # or description) PN5 (part # or...

  • Page 138
    description) PN5 (part # or description) PN6 (part # or description) 0 U3 * Demand U3 Lite * Demand 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

  • Page 139
    ... a confidential treatment request. Such omitted information has been filed separately with the Securities and Exchange Commission. [**] = information redacted pursuant to a confidential treatment request. Such omitted information has been filed separately with the Securities and Exchange Commission.

  • Page 140
    ... Purchasers or Designees beginning October 21, 2002 and throughout the period covered by this Agreement will be as follows: [**] = information redacted pursuant to a confidential treatment request. Such omitted information has been filed separately with the Securities and Exchange Commission...

  • Page 141
    2.1.1 2.1.2 2.2 3. 3.1 NORTHBRIDGE PRICING [**] 3.1.1 3.1.2 [**] [**] 4. 4.1 SOUTHBRIDGE PRICING [**] [**] = information redacted pursuant to a confidential treatment request. Such omitted information has been filed separately with the Securities and Exchange Commission.

  • Page 142
    ... by the parties to become effective. 1.0 Term The term of this Attachment is coextensive with the term of the Base Agreement. [**] = information redacted pursuant to a confidential treatment request. Such omitted information has been filed separately with the Securities and Exchange Commission.

  • Page 143
    ...No. 1 To Agreement No. 000451 Current IBM's Part Numbers, Apple's Part Numbers, Minimum Order Quantities ("MOQ"), Shipment Pack Quantities ("SPQ"), minimum amounts of time between receipt of Purchase Order and Scheduled Shipment Dates ("Purchase Order Lead Time"). Prices for Product are set forth in...

  • Page 144
    ... to become effective. The parties recognize and agree that the development of the ASIC Products set forth in Product Exhibits to this Attachment is governed and controlled by the ASIC Development Agreement, Agreement No. 000798, last signed by the parties on September 26, 2001. 1.0 Term The term of...

  • Page 145
    ... Name: Process Technology: Chip Image Description: Package Description: ASIC The Product set forth in this Product Exhibit 1 to ASIC Product Attachment No. 2 is a custom Product. 2.0 Purchase Order Lead Times: (includes purchase order approval and manufacturing lead time): Production: 3.0 Pricing...

  • Page 146
    ... in all we do Using Apple and third-party copyrighted material Environmental health and safety 4. Responsibilities to the Public A. B. C. D. E. Buying and selling Apple stock Meeting export requirements Dealing with government contracts and other government requirements Political contributions and...

  • Page 147
    ..., is prohibited. Apple employees are expected to refer to Apple's internal Web site for specific internal policies and procedures for implementing the general principles set forth below. The way Apple does business centers on six simple general standards Apple expects its employees, including those...

  • Page 148
    ... witnessed such action, is strongly encouraged to report the incident to any member of the Human Resources Department or to any manager. B. Confidential information Apple's success is a direct result of its technologically innovative products. The company's continued success and growth depends on...

  • Page 149
    ...as Internet access, voicemail, e-mail, instant messaging and AppleWeb) are provided to help employees perform their duties while supporting Apple's business needs, and are for Apple business use. Apple equipment, networks and electronic systems should be used only for Apple business-related purposes...

  • Page 150
    ... never accept or use information otherwise presented. Apple employees may not contact competitors for market intelligence. Family. Apple employees should avoid conducting Apple business with members of their families (and others with whom they have significant relationships) in another company or...

  • Page 151
    ... determined to be in Apple's best interests, is considered part of an employee's normal job responsibilities. Because employees will be compensated by Apple for most or all of their time spent preparing for, attending, and delivering presentations approved by management, employees should not request...

  • Page 152
    ...in cash, except petty cash reimbursements. 3. A. Responsibilities to Others Putting the customer first Apple creates, manufactures, and markets computing products so people can use them to make their lives better. Apple strives to understand our customers' needs, to provide customers with the tools...

  • Page 153
    ... of copyrighted works. This policy applies whether the copies are intended for personal use, internal use at Apple, or public distribution. D. Environmental health and safety At Apple, meeting the challenges of rapidly expanding and changing technology means more than making the finest products. We...

  • Page 154
    ...material information about Apple that has not been publicly disclosed. United States securities laws dictate this policy, and it applies to all executive officers, members of the Board of Directors, employees, consultants and contractors, including members of their immediate families, and members of...

  • Page 155
    ... to comply with all applicable Apple policies and laws relating to our dealings with governmental bodies. Disclosure and certification requirements. In addition to Apple's own general high standards imposed on all Apple employees, government agencies often place special disclosure and certification...

  • Page 156
    ... and work permits; or receiving customs, police, mail, and inspection services-are not prohibited by the U.S. Foreign Corrupt Practices Act. In the United States, facilitating payments are neither customary nor legal, and are not allowed by Apple's policy. Further, it is not generally Apple's policy...

  • Page 157
    ...about where market prices are generally, but Apple may not require, coerce or threaten a reseller, directly or indirectly, in order to get the reseller to sell Apple products at any particular price. Because of the sensitivity of this topic, Apple employees must not discuss a reseller's pricing with...

  • Page 158
    .... For example, agreements with competitors that affect product or service pricing or output, or allocate customers or sales territories, are prohibited, because they are counter to the principle of free competition, and often illegal under applicable law. Apple employees must not discuss these...

  • Page 159
    ... Director and officer payments B. Questionable payments to agents, consultants, or professionals whose backgrounds have not been adequately investigated, who do not have signed contracts or letters of engagement, or whose association with Apple would be embarrassing if exposed. Payroll-related...

  • Page 160
    ... matters to the attention of Apple management, the Human Resources Department, the Apple Law Department or to members of the Audit & Finance Committee of the Board of Directors. Apple employees should refer to Apple's internal Web site for procedures for reporting inappropriate behavior. Page 16

  • Page 161
    ... information on specific Apple policies for implementing the above practices is available to Apple employees on the internal Apple web site. Revised April 2003. Page 17 QuickLinks -- Click here to rapidly navigate through this document Exhibit 21 SUBSIDIARIES OF APPLE COMPUTER, INC* Name...

  • Page 162
    ... statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; The registrant's other certifying officers...

  • Page 163
    ... statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; The registrant's other certifying officers...

  • Page 164
    ... 15(d) of the Securities Exchange Act of 1934 and that information contained in such Form 10-K fairly presents in all material respects the financial condition and results of operations of Apple Computer, Inc. By: /s/ STEVEN P. JOBS Steven P. Jobs Chief Executive Officer I, Fred D. Anderson, certify...