Apple 2003 Annual Report Download - page 52

Shipping Costs
The Company's shipping and handling costs are included in cost of sales for all periods presented.
Warranty Expense
The Company provides currently for the estimated cost for product warranties at the time the related revenue is recognized.
Research and Development
Research and development costs are expensed as incurred. Development costs of computer software to be sold, leased or otherwise marketed
are subject to capitalization beginning when a product's technological feasibility has been established and ending when a product is available
for general release to customers pursuant to SFAS No. 86, Computer Software to be Sold, Leased, or Otherwise Marketed . In most instances,
the Company's products are released soon after technological feasibility has been established. Therefore, costs incurred subsequent to
achievement of technological feasibility 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 and functionality of the previous version of Mac OS X, subsequent to
achievement of technological feasibility as evidenced by public demonstration and release of a developer beta in June 2003, and prior to release
of the final version of the product in the first quarter of 2004. Therefore, during 2003 the Company capitalized approximately $14.7 million of
development costs associated with the development of Panther. Amortization of this asset began in the first quarter of 2004 when Panther was
shipped and is being recognized on a straight-line basis in accordance with SFAS No. 86 over a 3 year estimated useful life.
During the third and fourth quarters of 2002, the Company incurred substantial development costs associated with the development of Mac OS
X version 10.2 (code-
named "Jaguar") subsequent to achievement of technological feasibility as evidenced by public demonstration and release
of a developer beta in May 2002, and prior to release of the final version of the product in the fourth quarter of 2002. As such, the Company
capitalized approximately $13.3 million of development costs associated with development of Jaguar. Amortization of this asset began in the
fourth quarter of 2002 when Jaguar was shipped and is being recognized on a straight-line basis in accordance with SFAS No. 86 over a 3 year
estimated useful life. In addition, during 2002, the Company also began capitalizing certain costs related to development of its new
PowerSchool enterprise student information system. Capitalization of approximately $6 million began upon achievement of technological
feasibility in the first quarter of 2002. The final version of the enterprise student information system was released in July 2002.
During 2001 the Company incurred substantial development costs associated with the development of the original version of Mac OS X,
subsequent to release of a public beta version of the product and prior to release of the final product version. As a result, the Company
capitalized approximately $5.4 million of development costs during 2001 associated with development of Mac OS X. Related amortization is
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computed by use of the straight-line method in accordance with SFAS No. 86 over a 8 year estimated useful life.
Total amortization related to capitalized software development costs was $5.8 million, $1.2 million and $350,000 in 2003, 2002 and 2001,
respectively.
Advertising Costs
Advertising costs are expensed as incurred. Advertising expense was $193 million, $209 million, and $261 million for 2003, 2002, and 2001,
respectively.
Restructuring Charges
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities . SFAS No. 146 supersedes
Emerging Issues Task Force (EITF) Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs To Exit
an Activity (Including Certain Costs Associated with a Restructuring) and requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred, as opposed to when management commits to an exit plan. SFAS No. 146 also establishes
that the liability should initially be measured and recorded at fair value. This Statement was effective for exit or disposal activities initiated
after December 31, 2002. The provisions of SFAS No. 146 were required to be applied prospectively after the adoption date to newly initiated
exit activities.
Stock-Based Compensation
The Company measures compensation expense for its employee stock
-
based compensation plans using the intrinsic value method prescribed by