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APPLE INC
FORM 10-K
(Annual Report)
Filed 12/03/04 for the Period Ending 09/25/04
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
    ... Report) Filed 12/03/04 for the Period Ending 09/25/04 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 © Copyright...

  • Page 2
    ... from to Commission file number 0-10030 APPLE COMPUTER, INC. (Exact name of registrant as specified in its charter) CALIFORNIA (State or other jurisdiction of incorporation or organization) 1 Infinite Loop Cupertino, California (Address of principal executive offices) 942404110 (I.R.S. Employer...

  • Page 3
    ...proxy or information statements incorporated ...closing price reported for such date on the NASDAQ National Market. For purposes of this disclosure, shares of Common Stock held by persons who hold more than 5% of the outstanding shares of Common Stock and shares held by executive officers and directors...

  • Page 4
    ...line of desktop and notebook computers, the iPod digital music player, the Xserve server and Xserve RAID storage products, a portfolio of consumer and professional software applications, the Mac OS X operating system, the online iTunes Music Store, a portfolio of peripherals that support and enhance...

  • Page 5
    ... distribution strategy to include its own retail locations, Apple online stores worldwide, and the Apple Sales Consultant Program. The Company sells many of its products and resells certain third-party products in most of its major markets directly to consumers, education customers, and businesses...

  • Page 6
    ... help schools maximize their investments in technology. This is manifested in many of the Company's products and services that are designed to meet the needs of education customers, including the eMac™ and the iBook®, video editing solutions, wireless networking capabilities, student information...

  • Page 7
    ... ports, optical digital audio input and output, built-in support for 54 Mbps AirPort® Extreme wireless networking, and optional Bluetooth connectivity. Xserve ® and Xserve RAID Storage System Xserve, the Company's first rack-mount server product, was designed for simple setup and remote management...

  • Page 8
    ... and photo downloading directly from certain digital cameras. Along with the iPod, the Company has developed a seamless end-to-end music solution with the Company's iTunes software and the iTunes Music Store ® , a service that consumers may use to purchase third-party music and audio books over...

  • Page 9
    ... an iTunes Music Store in Canada during fiscal 2005. The iTunes Music Store is fully integrated directly into the latest version of the iTunes software, allowing customers to preview, purchase, download, organize, share, and transfer their digital music to an iPod using a single software application...

  • Page 10
    .... The Company also sells a variety of third-party Macintosh compatible hardware products directly to end users through both its retail and online stores, including computer printers and printing supplies, storage devices, computer memory, digital video and still cameras, personal digital assistants...

  • Page 11
    ... tools to make it easy to upgrade from legacy Windows servers to Mac OS X Server. In June 2004, the Company introduced Apple Remote Desktopâ„¢ 2, the second generation of the Company's asset management, software distribution and help desk support software. Along with improvements in screen sharing...

  • Page 12
    ... iLife applications come preinstalled on the Company's Macintosh systems, excluding servers and storage systems. Burning DVDs with iDVD requires a Macintosh system configured with a SuperDrive. iTunes® software, available for both Macintosh and Windows-based computers, lets users create and manage...

  • Page 13
    ... a basic set of professional tools to compose and produce music for students, educators and advanced hobbyists. Logic Express 7 comes with support for projects from GarageBand offering users a smooth migration path to high-end audio production. Keynoteâ„¢ is the Company's presentation software that...

  • Page 14
    ... developers to embed the Safari HTML rendering engine directly into their applications. Quicktime ® QuickTime, the Company's multimedia software for either a Macintosh or Windows-based computer, features streaming of live and stored video and audio over the Internet and playback of high-quality...

  • Page 15
    ... and share contact information with Palm-OS based PDAs, and access the Internet through Bluetooth-enabled cell phones. A Bluetooth USB adaptor can Bluetooth-enable any USB-based Macintosh computer running in Mac OS X version 10.1.4 or higher. The Company's zero configuration networking technology is...

  • Page 16
    ... a wireless network connected to a central server. The Company's PowerSchool ® software product is a web-based student information system for K-12 schools and school districts. PowerSchool software products give school administrators and teachers the ability to easily and cost-effectively manage...

  • Page 17
    ... the development of an end-to-end music offering, which includes the iTunes software, iTunes Music Store and iPod digital music player, has already encouraged significant competition in this area from other companies, many of whom have greater financial, marketing, and manufacturing resources than...

  • Page 18
    ..., networking and communications software and solutions, and the Internet. The Company may expand the range of its product offerings and intellectual property through licensing and/or acquisition of third-party business and technology. The Company's research and development expenditures totaled...

  • Page 19
    ... the date of purchase by the end-user. The Company also offers a 90-day basic warranty 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 20
    ... 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." The complaint seeks unspecified damages and other relief. The Company has answered the...

  • Page 21
    ... for January 29, 2005. The Company also has obtained an opinion on the tax issue from the State Board of Equalization. Compression Labs, Inc. v. Apple Computer, Inc., et al.; Apple v. Compression Labs, Inc., et al. Plaintiff Compression Labs, Inc. filed this patent infringement action on April...

  • Page 22
    ... decided. Davis v. Apple Computer, Inc. Plaintiff filed this purported class action in San Francisco County Superior Court on December 5, 2002, alleging that the Company engaged in unfair and deceptive business practices relating to its AppleCare Extended Service and Warranty Plan. Plaintiff asserts...

  • Page 23
    ... were filed in the United States District Court for the Northern District of California against the Company and its 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...

  • Page 24
    ... Council issued a decision denying VirginMega's request for interim measures and rejecting VirginMega's complaint. Item 4. Submission of Matters to a Vote of Security Holders No matters were submitted to a vote of security holders during the fourth quarter of the Company's fiscal year ended...

  • Page 25
    ... Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities (a) Stock Market Information The Company's common stock is traded on the over-the-counter market and is quoted on the NASDAQ National Market under the symbol AAPL, on the Tokyo Stock Exchange (TSE) under the symbol APPLE...

  • Page 26
    ...forward-looking statements for any reason, except as required by law. Executive Overview Apple designs, manufactures and markets personal computers and related software, services, peripherals and networking solutions. The Company also designs, develops and markets a line of portable digital music 23

  • Page 27
    ...line of desktop and notebook computers, the iPod digital music player, the Xserve server and Xserve RAID storage products, a portfolio of consumer and professional software applications, the Mac OS X operating system, the online iTunes Music Store, a portfolio of peripherals that support and enhance...

  • Page 28
    ... to revenue recognition, allowance for doubtful accounts, inventory valuation and exposures related to inventory purchase commitments, valuation of long-lived assets including acquired intangibles, warranty costs, and income taxes. Management believes these policies to be critical because they are...

  • Page 29
    ... cycle 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 are less...

  • Page 30
    ...units in a manner similar to a purchase price allocation for an acquired business. This requires independent valuation of certain internally developed and unrecognized assets including in-process research and development and developed technology. Once this process is complete, the amount of goodwill...

  • Page 31
    ... 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. Net Sales Net sales and Macintosh unit sales by operating segment and net sales and unit sales by product...

  • Page 32
    ...line. Other Music Products consists of iTunes Music Store sales, iPod-related services, and Apple-branded and third-party iPod-related accessories. Net sales of Peripherals and Other Hardware include sales of Apple-branded and third-party displays, wireless connectivity and networking solutions, and...

  • Page 33
    ... of new and updated peripheral products and was experienced predominantly by the Company's Americas, Europe, and Retail segments. Other music products consists of sales associated with the iTunes Music Store and iPod related services and accessories. Net sales of other music products increased...

  • Page 34
    ... including AirPort cards and base stations, which facilitate wireless connectivity; third party digital cameras and printers; and a number of portable computer related accessories. Net sales of other music products, including sales associated with the iTunes Music Store and iPod related services and...

  • Page 35
    ... with Internet services were due to increased net sales of the Company's .Mac Internet service. • • • Offsetting the favorable factors discussed above, the Company's net sales during 2003 were negatively impacted by the following factors: • Total unit sales of desktop systems fell 15...

  • Page 36
    ... Company's Retail segment. The Retail segment operated Apple-owned retail stores in the U.S. and Japan during fiscal 2004. Each reportable geographic operating segment provides similar hardware and software products and similar services. Further information regarding the Company's operating segments...

  • Page 37
    ... will be in the new "mini" store design, which is the Company's smallest store format to date; allowing it to be placed in a variety of new locations to introduce the Company's innovative products to even more customers. The Company also opened its third international store in London, England during...

  • Page 38
    .... The Company's gross margin during fiscal 2004 declined due to an increase in mix towards lower margin iPod and iBook sales, pricing actions on certain Power Macintosh G5 models that were transitioned during the beginning of 2004, higher warranty costs on certain portable Macintosh products, and...

  • Page 39
    ... position in the marketplace and are directly related to timely development of new and enhanced products that are central to the Company's core business strategy. The Company has historically relied upon innovation to remain competitive. R&D expense amounted to approximately 6% of total net sales...

  • Page 40
    ...approximately $13.3 million associated with the development of Mac OS X Jaguar and approximately $6 million associated with the PowerSchool enterprise student information system in 2002. Further information related to the Company's capitalization of software development costs may be found in Part II...

  • Page 41
    ... and marketing activities in the U.S. and Europe. These restructuring actions resulted in the elimination of 260 positions worldwide. Closure of the Company's Singapore manufacturing operations resulted in severance costs of $1.8 million and costs of $6.7 million to write-off manufacturing related...

  • Page 42
    ... 180 positions worldwide at a cost of $1.8 million, all of which were 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...

  • Page 43
    ... lower market interest and a shortening of the average maturity of the Company's investment portfolio, as well as lower gains on sales of short-term investments in fiscal 2004. The weighted average interest rate earned by the Company on its cash, cash equivalents and short-term investments fell to...

  • Page 44
    ...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 45
    ...123, Accounting for StockBased Compensation , 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...

  • Page 46
    ... the issuance of common stock under stock plans, partially offset by cash used to repay the Company's outstanding debt of $300 million and purchases of property, plant, and equipment of $176 million. The Company's short-term investment portfolio is primarily invested in high credit quality, liquid...

  • Page 47
    ... million of which related to the lease of retail space and related facilities. Remaining terms on the Company's existing operating leases range from 2 to 16 years. Purchase Obligations The Company utilizes several contract manufacturers to manufacture sub-assemblies for the Company's products and to...

  • Page 48
    ... of approximately $24 million are primarily related to telecommunications services. Indemnifications The Company generally does not indemnify end-users of its operating system and application software against legal claims that the software infringes third-party intellectual property rights...

  • Page 49
    ... competitors in the Company's markets. 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 other competing operating systems, including Windows and Linux. The...

  • Page 50
    ... learning solutions in education. The Company's 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 a central server. These 1:1 learning solutions and other strategic sales are generally priced...

  • Page 51
    ... may have, a material effect on the Company's financial position and results of operations. The Company must order components for its products and build inventory in advance of product shipments. Because the Company's markets are volatile and subject to rapid technology and price changes, there is...

  • Page 52
    ... resells certain third-party products in most of its major markets directly to end users, certain education customers, and certain resellers through its online stores around the world and its retail stores. Many of the Company's significant resellers operate on narrow product margins and have been...

  • Page 53
    ... buy the Company's products. The Company believes that decisions by customers to purchase the Company's personal computers, as opposed to Windows-based systems, are often based on the availability of third-party software for particular applications such as Microsoft Office. The Company also believes...

  • Page 54
    ... vendor of the Windows operating system and competing digital media applications, including music distribution service and technology. In June of 2003, Microsoft stated that it would no longer develop new versions of Internet Explorer for the Mac OS, subsequent to the Company's introduction during...

  • Page 55
    ... general retail activity; inability 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...

  • Page 56
    in managing retail operations outside the U.S.; costs associated with unanticipated fluctuations in the value of Apple-branded and third-party retail inventory; and inability to obtain quality retail locations at reasonable cost. Investment in new business strategies and initiatives could disrupt ...

  • Page 57
    ... executive team, and those in technical, marketing and staff positions. Experienced personnel in the information technology industry are in high demand and competition for their talents is intense, especially in the Silicon Valley, where the majority of the Company's key employees are located. The...

  • Page 58
    ... by international trade regulations, including tariffs and antidumping penalties. Derivative instruments, such as foreign exchange forward and option positions have been utilized by the Company to hedge exposures to fluctuations in foreign currency exchange rates. The use of such hedging activities...

  • Page 59
    ... affected the market price of many technology companies in ways that have been unrelated to the operating performance of these companies. These factors, including lack of positive performance in the Company's stock price, as well as general economic and political conditions and investors' concerns...

  • Page 60
    ...supplements internal research used to make credit decisions in the investment process. The Company's exposure to market risk for changes in interest rates relates primarily to the Company's investment portfolio. The Company places its short-term investments in highly liquid securities issued by high...

  • Page 61
    ..., to the Company's foreign exchange portfolio due to adverse movements in rates. The VAR model is not intended to represent actual losses but is used as a risk estimation and management tool. The model assumes normal market conditions. Forecasted transactions, firm commitments, and assets and...

  • Page 62
    ...Equity for the three fiscal years ended September 25, 2004 Consolidated Statements of Cash Flows for the three fiscal years ended September 25, 2004 Notes to Consolidated Financial Statements Selected Quarterly Financial Information (Unaudited) Report of Independent Registered Public Accounting Firm...

  • Page 63
    ... authorized; 391,443,617 and 366,726,584 shares issued and outstanding, respectively Deferred stock compensation Retained earnings Accumulated other comprehensive income (loss) Total shareholders' equity Total liabilities and shareholders' equity $ $ 1,451 1,229 - 2,680 294 2,974 $ 1,154 899 304...

  • Page 64
    ... share and per share amounts) Three fiscal years ended September 25, 2004 2004 2003 2002 Net sales Cost of sales Gross margin Operating expenses: Research and development Selling, general, and administrative Restructuring costs Purchased in-process research and development Total operating expenses...

  • Page 65
    ...available-for-sale securities, net of tax Change in unrealized gain on derivative investments, net of tax Total comprehensive income Amortization of deferred stock compensation Write-off of deferred stock compensation Common stock issued under stock plans Settlement of forward purchase agreement Tax...

  • Page 66

  • Page 67
    ... purchase agreement Purchased in-process research and development Changes in operating assets and liabilities: Accounts receivable Inventories Other current assets Other assets Accounts payable Other liabilities Cash generated by operating activities Investing Activities: Purchases of short-term...

  • Page 68
    ...Significant Accounting Policies Apple Computer, Inc. and subsidiaries (the Company) designs, manufactures and markets personal computers and related software, services, peripherals and networking solutions. The Company also designs, develops and markets a line of portable digital music players along...

  • Page 69
    ... hedge accounting treatment, cash flow hedges must be highly effective in achieving offsetting changes to expected future cash flows on hedged transactions. For derivative instruments that hedge the exposure to changes in the fair value of an asset or a liability and that are designated as fair...

  • Page 70
    ... shorter of lease terms or 10 years for leasehold improvements. The Company capitalizes eligible costs to acquire or develop internal-use software that are incurred subsequent to the preliminary project stage. Capitalized costs related to internal-use software are amortized using the straight-line...

  • Page 71
    ...)" in shareholders' equity. The Company's foreign manufacturing subsidiaries and certain other international subsidiaries that use the U.S. dollar as their functional currency remeasure monetary assets and liabilities at exchange rates in effect at the end of each period, and inventories, property...

  • Page 72
    ... support, certain repairs, web-based support resources, diagnostic tools, and extend the Company's one-year basic limited parts and labor warranty. The Company sells software and peripheral products obtained from other companies. The Company establishes its own pricing and retains related inventory...

  • Page 73
    ... 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...

  • Page 74
    ... accounting provided for under SFAS No. 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...

  • Page 75
    ...input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not provide a reliable measure of the fair value of the Company's employee stock options and employee stock purchase plan shares. For purposes of pro forma disclosures, the estimated fair...

  • Page 76
    ... 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 segments. Information about the Company's products, major...

  • Page 77
    ...of $1 million on its investment portfolio, primarily related to investments with stated maturities greater than 1 year, as of September 27, 2003. The Company occasionally sells short-term investments prior to their stated maturities. As a result of such sales, the Company recognized net gains before...

  • Page 78
    ... financing arrangements are directly between the third-party financing company and the end customer. As such, the Company generally does not assume any recourse or credit risk sharing related to any of these arrangements. However, considerable trade receivables that are not covered by collateral...

  • Page 79
    .... Derivative Financial Instruments The Company uses derivatives to partially offset its business exposure to foreign exchange and interest rate risk. Foreign currency forward and option contracts are used to offset the foreign exchange risk on certain existing assets and liabilities and to hedge...

  • Page 80
    ... 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 using prevailing financial market information as...

  • Page 81
    ... Debt and Equity Investments and Related Gains and Losses The Company has held significant investments in ARM Holdings plc (ARM), Akamai Technologies, Inc. (Akamai) and EarthLink Network, Inc. (EarthLink). These investments have been reflected in the consolidated balance sheets as long term assets...

  • Page 82
    ... 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 U.S. During the first quarter of 2003, the Company sold 2,580,000 shares of EarthLink stock for net proceeds of...

  • Page 83
    ...no private debt or equity investments reflected in its consolidated balance sheet. Note 3-Consolidated Financial Statement Details (in millions) Inventories 2004 2003 Purchased parts Work in process Finished goods Total inventories $ 1 - 100 101 $ 2 4 50 56 $ $ Other Current Assets 2004 2003...

  • Page 84
    ...deferred tax assets Capitalized software development costs, net Other assets Total other assets $ 86 25 80 191 $ 60 28 62 150 $ $ Accrued Expenses 2004 2003 Deferred revenue Accrued marketing and distribution Accrued compensation and employee benefits Accrued warranty and related costs Other...

  • Page 85
    ... to goodwill related to the acquisition of PowerSchool, Inc (PowerSchool) in fiscal 2001. This reduction of goodwill included the cancellation of 79,167 shares of Apple common stock, valued at approximately $2 million, that were previously held in escrow and were refunded upon resolution of certain...

  • Page 86
    ... Nothing Real, LLC (Nothing 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...

  • Page 87
    ... plans related to closing Company-owned manufacturing activities in Sacramento. In addition, the Company's management approved restructuring plans related to certain headcount reductions primarily for various sales and marketing activities principally in the U.S. Total cost of the restructuring plan...

  • Page 88
    ... and marketing activities in the U.S. and Europe. These restructuring actions resulted in the elimination of 260 positions worldwide. Closure of the Company's Singapore manufacturing operations resulted in severance costs of $1.8 million and costs of $6.7 million to write-off manufacturing related...

  • Page 89
    ... 180 positions worldwide at a cost of $1.8 million, all of which were 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...

  • Page 90
    ... of tax losses, credits, and the future income tax effects of temporary differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases and are measured using enacted tax rates that apply to taxable income in the years in...

  • Page 91
    ... of the Company's deferred tax assets and liabilities were (in millions): 2004 2003 Deferred tax assets: Accounts receivable and inventory reserves Accrued liabilities and other reserves Basis of capital assets and investments Tax losses and credits Other Total deferred tax assets Less valuation...

  • Page 92
    ...): 2004 2003 2002 Computed expected tax State taxes, net of federal effect Indefinitely invested earnings of foreign subsidiaries Nondeductible executive compensation Stock repurchase Purchase accounting and asset acquisitions Change in valuation allowance Research and development credit, net...

  • Page 93
    ... shares of the Company's common stock previously granted to 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...

  • Page 94
    ... employees in addition to executive officers and other key employees and to prohibit future "repricings" of employee stock options, including 6-months-plus1-day option exchange programs, without shareholder approval. Based on the terms of individual option grants, options granted under the 2003 Plan...

  • Page 95
    ... eligible employees, other than executive 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...

  • Page 96
    ... of the employee's earnings. The Company's matching contributions to the Savings Plan were approximately $24 million, $21 million, and $19 million in 2004, 2003, and 2002, respectively. Stock Option Activity A summary of the Company's stock option activity and related information for the years ended...

  • Page 97
    ... 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 been estimated at the date of grant and beginning of the period, respectively, using the Black-Scholes option pricing model. For...

  • Page 98
    ... approach to consider other relevant factors including implied volatility in market traded options on the Company's common stock and the impact of unusual fluctuations not reasonably expected to recur on the historical volatility of the Company's common stock. The Company will continue to monitor...

  • Page 99
    ... the date of purchase by the end-user. The Company also offers a 90-day basic warranty 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 revenue is...

  • Page 100
    ... shareholder class action lawsuits were filed in the U.S. District Court for the Northern District of California against the Company and its Chief Executive Officer. These lawsuits are substantially identical, and purport to bring suit on behalf of persons who purchased the Company's publicly traded...

  • Page 101
    ... 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 segments. The Company manages its business...

  • Page 102
    ..., which is expected to open by the end of calendar year 2004. These high profile stores are larger than the Company's typical retail stores and were designed to further promote brand awareness and provide a venue for certain corporate sales and marketing activities, including corporate briefings. As...

  • Page 103
    ... to the Americas segment and are included in the corporate assets figures below. Retail segment depreciation and asset figures reflect the cost and related depreciation of its retail stores and related infrastructure. Retail store construction-in-progress, which is not subject to depreciation, is...

  • Page 104
    A reconciliation of the Company's segment operating income and assets to the consolidated financial statements follows (in millions): 2004 2003 2002 Segment operating income Corporate expenses, net Purchased in-process research and development Restructuring costs Consolidated operating income (loss...

  • Page 105
    ... line. Other Music Products includes iTunes Music Store sales and iPod related services, and Apple-branded and third-party iPodrelated accessories. Net sales of peripherals and other hardware include sales of Apple-branded and third-party displays, wireless connectivity and networking solutions, and...

  • Page 106
    ... interest position in selected MicroWarehouse assets and the expected payments to unsecured creditors. Sales to MicroWarehouse and related trade receivables were generally subject to the same terms and conditions as those with the Company's other resellers. In addition, the Company has purchased...

  • Page 107
    ... REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and Shareholders Apple Computer, Inc.: We have audited the accompanying consolidated balance sheets of Apple Computer, Inc. and subsidiaries (the Company) as of September 25, 2004 and September 27, 2003, and the related consolidated...

  • Page 108
    ... Company's principal executive officer and principal financial officer have concluded that the Company's disclosure controls and procedures (as defined under the Securities Exchange Act of 1934, as amended ( Exchange Act )) were effective as of September 25, 2004 to ensure that information required...

  • Page 109
    ...Steven P. Jobs Arthur D. Levinson Jerome B. York Director Director Director Director Director and Chief Executive Officer Director Director 60 64 60 57 49 54 66 2004 1997 1999 2003 1997 2000 1997 Fred D. Anderson has been a founding partner of Elevation Partners, a private equity firm focused on...

  • Page 110
    ... Company's employees, including its principal executive officer, principal financial officer, principal accounting officer and its Board of Directors. A copy of this code, "Ethics: The Way We Do Business Worldwide" is available on the Company's website at www.apple.com/investor. The Company intends...

  • Page 111
    ... a research engineer at Xerox PARC. Sina Tamaddon , Senior Vice President, Applications (age 47), joined the Company in September 1997. Mr. Tamaddon has also served with the Company in the position of Senior Vice President Worldwide Service and Support, and Vice President and General Manager, Newton...

  • Page 112
    ... paid by the Company towards the purchase of the plane and approximately $1.3 million in related tax assistance was reported as income to Mr. Jobs. Market value of restricted stock units granted on March 24, 2004 (based on $25.50 per share, the closing price of the Company's common stock on the...

  • Page 113

  • Page 114
    ...-money options at the end of fiscal year 2004 (based on $37.29 per share, the closing price of Common Stock on the NASDAQ National Market on September 24, 2004), minus the exercise price. Consists of 60,000 options granted to Mr. Jobs in his capacity as a director pursuant to the 1997 Director Stock...

  • Page 115
    ... Named Executive Officer listed in the Summary Compensation Table under the heading " Executive Compensation; " and (iv) all directors and executive officers as a group. On the Table Date, 401,476,094 shares of Common Stock were issued and outstanding. Unless otherwise indicated, all persons named...

  • Page 116
    ... equity compensation plans(2) 21,992,912 $ 33,286,253 $ 55,279,165 $ 22.32 20.25 21.07 14,072,423(1) - 14,072,423 (1) This number includes 2,047,911 shares of common stock reserved for issuance under the Employee Stock Purchase Plan, 240,000 shares available for issuance under the 1997 Director...

  • Page 117
    ... Company entered into a Reimbursement Agreement with its Chief Executive Officer, Mr. Steven P. Jobs, for the reimbursement of expenses incurred by Mr. Jobs in the operation of his private plane when used for Apple business. The Reimbursement Agreement is effective for expenses incurred by Mr. Jobs...

  • Page 118
    ...tax compliance; and $116,900 for tax consulting and planning services relating to interest computations and international tax changes. The Company does not engage KPMG to perform personal tax services for its executive officers. (2) (3) Policy on Audit Committee Pre-Approval of Audit and Non-Audit...

  • Page 119
    ... effective as of October 1, 1990. Amendment of Apple Computer, Inc. Savings and Investment Plan dated March 1, 1992. Amendment No. 2 to the Apple Computer, Inc. Savings and Investment Plan. 1990 Stock Option Plan, as amended through November 5, 1997. Apple Computer, Inc. Employee Stock Purchase Plan...

  • Page 120
    ...P. Jobs. Form of Restricted Stock Unit Award Agreement Custom Sales Agreement effective October 21, 2002 between the Registrant and International Business Machines Corporation. Code of Ethics of the Company Subsidiaries of Apple Computer, Inc. Consent of Independent Registered Public Accounting Firm...

  • Page 121
    ... Date /s/ STEVEN P. JOBS STEVEN P. JOBS /s/ PETER OPPENHEIMER PETER OPPENHEIMER /s/ FRED ANDERSON Chief Executive Officer and Director (Principal Executive Officer) Senior Vice President and Chief Financial Officer (Principal Financial and Principal Accounting Officer) Director November 30, 2004...

  • Page 122
    ... PUBLIC ACCOUNTING FIRM Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Item 9A. Controls and Procedures PART III Item 10. Directors and Executive Officers of the Registrant Item 11. Executive Compensation SUMMARY COMPENSATION TABLE AGGREGATED OPTION...

  • Page 123
    ... Computer International Apple Japan Inc. Ireland Ireland Ireland Japan * Pursuant to Item 601(b)(21)(ii) of Regulation S-K, the names of other subsidiaries of Apple Computer, Inc. are omitted because, considered in the aggregate, they would not constitute a significant subsidiary as of the end...

  • Page 124
    QuickLinks Exhibit 21 SUBSIDIARIES OF APPLE COMPUTER, INC

  • Page 125
    ... of operations, shareholders' equity, and cash flows for each of the years in the three-year period ended September 25, 2004, which report appears in the September 25, 2004 annual report on Form 10-K of Apple Computer, Inc. Our report refers to changes in accounting for asset retirement obligations...

  • Page 126
    QuickLinks Exhibit 23.1 Consent of Independent Registered Public Accounting Firm

  • Page 127
    ..., process, summarize and report financial information; and Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. (b) Date: November 30, 2004 By: /s/ STEVEN P. JOBS Steven P. Jobs...

  • Page 128
    QuickLinks Exhibit 31.1 CERTIFICATIONS

  • Page 129
    ... in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and Any fraud, whether or not material, that involves management or other employees who...

  • Page 130
    QuickLinks Exhibit 31.2 CERTIFICATIONS

  • Page 131
    ...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, Peter Oppenheimer, certify...

  • Page 132
    QuickLinks Exhibit 32.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002