Apple 2003 Annual Report Download - page 28

During the second quarter of 2003, the Company's management approved and initiated restructuring actions that resulted in recognition of a
total restructuring charge of $2.8 million. The primary focus of actions taken in the second quarter were for the most part supplemental to
actions initiated in the prior two quarters and focused on further headcount reductions in various sales and marketing functions in the
Company's Americas and Europe operating segments and further reductions associated with PowerSchool related activities in the Americas
operating segment. The second quarter actions resulted in recognition of severance costs of $2.4 million for termination of 93 employees, 92 of
whom were terminated prior to the end of 2003 at a cost of $2.2 million. During the second quarter of 2003, an additional $400,000 was
accrued for asset write-offs and lease payments on an abandoned facility in the Americas operating segment. The Company estimates these
restructuring actions will reduce quarterly operating expenses by $1.5 million.
During the first quarter of 2003, the Company's management approved and initiated restructuring actions with a total cost of $24 million that
resulted in the termination of manufacturing operations at the Company-owned facility in Singapore, further reductions in headcount resulting
from the shift in PowerSchool product strategy that took place at the end of fiscal 2002, and termination of various sales and marketing
activities in the United States and Europe. These restructuring actions will ultimately result in the elimination of 260 positions worldwide, all
but one was eliminated by the end of 2003. The Company estimates these restructuring actions will reduce quarterly operating expenses by
$6 million.
During fiscal 2002, the Company recorded total restructuring charges of $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. The Company estimates these
restructuring actions will result in reduced quarterly operating expenses of approximately $10 million.
Of the $30 million restructuring charge for fiscal 2002, $6 million was incurred in the fourth quarter of 2002 related to actions designed to
reduce headcount costs in corporate operations and sales and to adjust its PowerSchool product strategy. Headcount actions, primarily in
corporate operations, sales, and PowerSchool related research and development, resulted in the elimination of approximately 180 positions
worldwide at a cost of $1.8 million. The shift in product strategy at PowerSchool included discontinuing development and marketing of a
PowerSchool product that resulted in the impairment of previously capitalized development costs associated with the product in the amount of
$4.5 million. The remaining charge in 2002 of $24 million was incurred in the first quarter of 2002 and resulted in the elimination of
approximately 425 positions worldwide, at a cost of $8 million. Positions were eliminated primarily in the Company's operations, information
systems, and administrative functions. In addition, these restructuring actions also included significant changes in the Company's information
systems strategy resulting in termination of equipment leases and cancellation of existing projects and activities. Related lease and contract
cancellation charges totaled $12 million, and charges for asset impairments totaled $4 million. During the first quarter of 2003, the Company
reversed the remaining unused accrual of $600,000.
Purchased In
-Process Research and Development (IPR&D)
During the fourth quarter of 2002, the Company acquired Emagic GmbH, a provider of professional software solutions for computer based
music production, for approximately $30 million in cash; $551,000 of which was allocated to IPR&D. 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 primarily to Emagic's Logic series technology and extensions. At the date
of the acquisition, the products under development were between 43%-83% complete, and it was expected that the remaining work would be
completed during the Company's fiscal 2003 at a cost of approximately $415,000. The remaining efforts, which were completed in 2003,
included finalizing user interface design and development, and testing. The fair value of the IPR&D was determined
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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%.
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 performance in real-time, and gives parents real-time web
access to track their children's progress. Of total purchase consideration of $66.1 million, $10.8 million was allocated to IPR&D and 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 PowerSchool 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 during 2002, included completion of coding,
finalizing user interface design and development, and testing. The fair value of the IPR&D was determined 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%.
Other Income and Expense
Other income and expense for the three fiscal years ended September 27, 2003 are as follows (in millions):