Apple 2004 Annual Report Download - page 40

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development of Mac OS X Tiger and $2.3 million related to the development of FileMaker Pro 7 in 2004; $14.7 million related to the
development of Mac OS X Panther in 2003; and 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, Item 8 of this Form 10-K at Note 1 of Notes to Consolidated
Financial Statements.
Selling, General, and Administrative Expense (SG&A)
Expenditures for SG&A increased $209 million or 17% during 2004 compared to 2003. These increases are due primarily to the Company's
continued expansion of its Retail segment in both domestic and international markets, a current year increase in discretionary spending on
marketing and advertising, an increase in amortization costs associated with restricted stock compensation, and higher direct and channel selling
expenses resulting from the increase in net sales and employee salary merit increases. SG&A as a percentage of total net sales in 2004 was 17%,
down from 20% in 2003. This decrease is due to the increase of 33% in total net sales of the Company for fiscal 2004, reflecting leverage on the
Company's fixed costs.
SG&A increased $103 million or 9% during 2003 as compared to 2002 due primarily to the Company's continued expansion of the Retail
segment and increases in headcount. The overall increase was partially offset by a decrease in 2003 discretionary spending on marketing and
advertising and by savings resulting from the 2003 and 2002 restructuring activities described below.
Fiscal 2004 Restructuring Actions
The Company recorded total restructuring charges of approximately $23 million during the year ended September 25, 2004, including
approximately $14 million in severance costs, $5.5 million in asset impairments, and a $3.5 million charge for lease cancellations. Of the
$23 million charge, $14.3 million had been spent by the end of 2004, with the remaining $8.7 million consisting of $5.2 million for employee
severance benefits and $3.5 million for lease cancellations.
During the fourth quarter of 2004, the Company recognized restructuring expense of $5.5 million. In conjunction with the European workforce
reduction during the second quarter of 2004, the Company vacated a leased sales facility during the fourth quarter of 2004 resulting in a charge
of $3.7 million for contract termination and asset impairment costs. The Company also recognized employee termination costs of $1.8 million
related to the elimination of non-essential positions, principally in Europe. In addition, the Company reversed $400,000 of excess restructuring
expense from prior periods related primarily to lower than expected disposal costs on Sacramento manufacturing-related fixed assets. The net
cost of the restructuring plans for the fourth quarter of 2004 was $5.1 million, of which $300,000 had been paid prior to the end of 2004. These
actions will result in the termination of 54 positions, 4 of which had been terminated prior to the end of 2004.
During the third quarter of 2004, the Company finalized restructuring 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 for the third quarter of 2004 was $7.9 million, of which
$7.2 million had been paid prior to the end of 2004. These actions will result in the termination of 83 positions, 77 of which had been terminated
prior to the end of 2004.
The closing of manufacturing operations in Sacramento resulted in the elimination of 67 positions for a severance cost of $1.9 million and write-
off of $5.3 million in manufacturing-related fixed assets whose use ceased during the third quarter of 2004. Termination of sales and marketing
activities, principally in the U.S., resulted in severance of $0.7 million for the elimination of 16 positions.
During the second quarter of 2004, the Company's management approved restructuring plans related to the termination of Company-owned
manufacturing activities in Sacramento and headcount reductions
37