Apple 2007 Annual Report Download

Download and view the complete annual report

Please find the complete 2007 Apple annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 168

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148
  • 149
  • 150
  • 151
  • 152
  • 153
  • 154
  • 155
  • 156
  • 157
  • 158
  • 159
  • 160
  • 161
  • 162
  • 163
  • 164
  • 165
  • 166
  • 167
  • 168

APPLE INC
FORM 10-K
(Annual Report)
Filed 11/15/07 for the Period Ending 09/29/07
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 11/15/07 for the Period Ending 09/29/07 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
    ... California (Address of principal executive offices) 942404110 (I.R.S. Employer Identification No.) 95014 (Zip Code) Registrant's telephone number, including area code: (408) 996-1010 Securities registered pursuant to Section 12(b) of the Act: Common Stock, no par value (Title of class) The NASDAQ...

  • Page 3
    ...,000 based upon the closing price reported for such date on the NASDAQ Global Select 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 of the registrant...

  • Page 4
    ...through its innovative hardware, software, peripherals, services, and Internet offerings. The Company's business strategy leverages its unique ability to design and develop its own operating system, hardware, application software, and services to provide its customers new products and solutions with...

  • Page 5
    ..., information access, and the expression and representation of student thoughts and ideas. The Company has designed a range of products and services to address the needs of education customers. These products and services include the Company's Mac computers, iPods, iTunes, and Apple TV, in...

  • Page 6
    ..., education and business oriented application software. The Company also designs, develops and markets to Mac and Windows users its family of iPod® digital music players and its iPhone™ mobile communication device, along with related accessories and services including the online distribution of...

  • Page 7
    ... built-in iSight video camera and the MagSafe magnetic power adapter. In May 2007, the Company updated its MacBook models with faster Intel Core 2 Duo processors running at up to 2.16GHz, Intel integrated graphics, support for up to 4GB of 667MHz DDR2 main memory, a Serial ATA hard drive, and a slot...

  • Page 8
    ... and video files. iTunes is available for both Mac and Windows-based computers. Within iTunes, the user can connect to the iTunes Storeâ„¢, a service that allows customers to find, purchase, and download third-party digital music, audio books, music videos, short films, television shows and movies...

  • Page 9
    ... and docks, power supplies, and carrying cases. Peripheral Products The Company sells a variety of Apple-branded and third-party Mac-compatible peripheral products directly to end-users through its retail and online stores, including printers, storage devices, computer memory, digital video and...

  • Page 10
    ..., allowing .Mac users to share photos and movies over the web. iPhoto '08 features print, photo book, greeting card, and calendar layout tools and integrated online ordering services. iMovie® '08 is a new version of the Company's consumer-oriented digital video editing software application. iMovie...

  • Page 11
    ... favorites and gives them access to the new videos in the FileMaker Learning Center; Conditional Formatting, which highlights data based on parameters the user sets; and the ability to email a link to other FileMaker users to instantly access a database. Internet Software and Services The Company is...

  • Page 12
    ...editing video. .Mac® The Company's .Mac offering is a suite of Internet services that for an annual fee provides Mac users with a powerful set of Internet tools. .Mac services include: internet message access protocol ("IMAP") mail, an ad-free email service; website hosting for publishing web sites...

  • Page 13
    Protection Plan. The AppleCare Protection Plan is a fee-based service that typically includes three years of phone support and hardware repairs, dedicated web-based support resources, and user diagnostic tools. Markets and Distribution The Company's customers are primarily in the education, creative...

  • Page 14
    ... customized to meet the Company's requirements. The Company attempts to mitigate these potential risks by working closely with these and other key suppliers on product introduction plans, strategic inventories, coordinated product introductions, and internal and external manufacturing schedules...

  • Page 15
    ... the Company's future net sales or financial performance. Warranty The Company offers a basic limited parts and labor warranty on most of its hardware products, including Mac computers, iPods and iPhones. The basic warranty period is typically one year from the date of purchase by the end-user. The...

  • Page 16
    ... adverse effect on the Company's financial condition or operating results. Employees As of September 29, 2007, the Company had approximately 21,600 full-time equivalent employees and an additional 2,100 temporary equivalent employees and contractors. Available Information The Company's Annual Report...

  • Page 17
    ..., education, professional and consumer digital video editing, and design and publishing. An increasing number of Internet devices that include software applications and are smaller and simpler than traditional personal computers compete for market share with the Company's existing products. 14

  • Page 18
    ... number of factors, including timely and successful completion of development efforts, market acceptance, the Company's ability to manage the risks associated with new products and production ramp issues, the availability of application software for new products, the effective management of purchase...

  • Page 19
    ... to current and expected future price increases for certain components. See "Management's Discussion and Analysis of Financial Condition and Results of Operations-Gross Margin." The Company's new products often use custom components from only one source until the Company has evaluated whether there...

  • Page 20
    ..., MacBooks, iPods and iPhones. If manufacturing or logistics in these locations is disrupted for any reason, including natural disasters, information technology system failures, military actions or economic, business, labor, environmental, public health, or political issues, the Company's financial...

  • Page 21
    ...financial condition and operating results. The Company expects its quarterly revenue and operating results to fluctuate for a variety of reasons. The Company's profit margins vary among its products and its distribution channels. The Company's software, accessories, and service and support contracts...

  • Page 22
    ... effect on the Company's financial condition and operating results. Mobile communication devices, such as iPhone, are subject to certification and regulation by governmental and standardization bodies, as well as by cellular network carriers for use on their networks. These certification processes...

  • Page 23
    ...in production ramps of new products, and disruptions in the operations of the Company's manufacturing vendors and component suppliers. The majority of the Company's research and development activities, its corporate headquarters, information technology systems, and other critical business operations...

  • Page 24
    ... Windows-based products. This analysis may be based on factors such as the perceived strength of the Company and its products, the anticipated revenue that may be generated, continued acceptance by customers of Mac OS X, and the costs of developing such applications. If the Company's minority share...

  • Page 25
    ...upgrade similar or competitive software for the Company's products. Mac OS X Leopard, which became available in October 2007, includes a new feature that enables Intel-based Mac systems to run Windows XP and Windows Vista. This feature may deter developers from creating software applications for Mac...

  • Page 26
    ... risks associated with laws and regulations related to health, safety and environmental protection. The Company's products and services, and the production and distribution of those goods and services, are subject to a variety of laws and regulations. These may require the Company to offer customers...

  • Page 27
    ... the .Mac service and Apple computers sold with or running iTunes or iLife. The Burst patents allegedly relate to methods and devices used for faster-than-real-time transmission of compressed audio and/or video files. The court issued its claim construction ruling on May 8, 2007. The Company filed...

  • Page 28
    ... the Company's motion to transfer the case to Santa Clara County Superior Court. On May 2, 2005, plaintiffs filed an amended complaint adding two new named plaintiffs and three new causes of action including a claim for treble damages under the Cartwright Act (California Business & Professions Code...

  • Page 29
    ...Commission issued Statements of Objections to the major record labels, Apple Inc. and iTunes S.Ã .r.l. In the Statements of Objections, the Commission challenges provisions in the agreements pursuant to which each major record company authorizes iTunes S.Ã .r.l. to distribute digital music downloads...

  • Page 30
    ... current and former executive officers and members of the Board of Directors alleging improper backdating of stock option grants to maximize certain defendants' profits, failing to properly account for and take tax deductions for those grants, insider trading, and issuing false financial statements...

  • Page 31
    ...false financial statements. The Company is named as a nominal defendant. A consolidated complaint was filed on October 5, 2006, alleging a variety of causes of action under California law, including claims for unjust enrichment, breach of fiduciary duty, violation of the California Corporations Code...

  • Page 32
    ...,516, entitled "Method and System for Providing a Customized Media List." Plaintiff alleges certain features of the iTunes store infringe the patent. The complaint seeks unspecified damages and other relief. The Company filed an answer on July 2, 2007, denying all material allegations and asserting...

  • Page 33
    ... ruling on May 23, 2007. Trial was scheduled for December 3, 2007. The parties have reached a settlement and the matter is concluded. Settlement of this matter did not have a material effect on the Company's financial condition or operating results. Quantum Technology Management, Ltd. v. Apple...

  • Page 34
    ... Plaintiff Saito filed a petition in the Japan Customs Office in Tokyo on January 23, 2007 alleging infringement by the Company of Japanese Patent No. 3852854, entitled "Touch Operation Input Device and Electronic Parts Thereof." The petition sought an order barring the importation into Japan...

  • Page 35
    ..., Black v. Apple Inc ., was filed on August 27, 2007 in the Circuit Court in Broward County, Florida, alleging that the Company is attempting to maintain a monopoly by precluding customers from using non-iTunes downloads on iPods and from using iTunes music on non-iPod MP3 players. Plaintiff alleges...

  • Page 36
    ...current and former officers and directors alleging improper backdating of stock option grants to maximize certain defendants' profits, failing to properly account for those grants and issuing false financial statements. On January 19, 2007, the Court appointed the New York City Employees' Retirement...

  • Page 37
    ... were 30,336 shareholders of record. Dividends The Company did not declare or pay cash dividends in either fiscal 2007 or 2006. The Company anticipates that, for the foreseeable future, it will retain any earnings for use in the operation of its business. Purchases of Equity Securities by the Issuer...

  • Page 38
    ... Selected Financial Data The information set forth below is not necessarily indicative of results of future operations, and should be read in conjunction with Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and...

  • Page 39
    ... players, iPhone, Apple TV, Xserve®, and Xserve RAID, a portfolio of consumer and professional software applications, the Mac OS® X operating system, third-party digital content through the iTunes Store™, and a variety of accessory, service and support offerings. The Company sells its products...

  • Page 40
    ... line of personal computers, operating systems, application software, and portable digital music players; developing new digital lifestyle consumer and professional software applications; and investing in new product areas such as iPhone and wireless technologies. The Company also believes increased...

  • Page 41
    ...'s Board of Directors. Revenue Recognition Net sales consist primarily of revenue from the sale of hardware, software, music products, digital content, peripherals, and service and support contracts. The Company recognizes revenue for software products (operating system software and applications...

  • Page 42
    ..., product development plans, current sales levels, and component cost trends. The personal computer, consumer electronics and mobile communications industries are subject to a rapid and unpredictable pace of product and component obsolescence and demand changes. If future demand or market conditions...

  • Page 43
    ... the historical cost and estimated future cost of the resources necessary to develop these updates. Stock-Based Compensation The Company accounts for stock-based compensation in accordance with Statement of Financial Accounting Standards ("SFAS") No. 123 (revised 2004) ("SFAS No. 123R"), Share-Based...

  • Page 44
    ... course of business. The Company records a contingent liability...management's opinion, the Company does not have a potential liability related to any current legal proceedings and claims that would individually or in the aggregate have a material adverse effect on its financial condition or operating...

  • Page 45
    ... the Company's operating segments may be found in Notes to Consolidated Financial Statements at Note 9, "Segment Information and Geographic Data." Other Segments include Asia Pacific and FileMaker. Includes iMac, eMac, Mac mini, Mac Pro, Power Mac, and Xserve product lines. Includes MacBook, iBook...

  • Page 46
    ...-party displays, wireless connectivity and networking solutions, and other hardware accessories. Includes sales of Apple-branded operating system, application software, third-party software, AppleCare, and Internet services. Derived by dividing total Mac net sales by total Mac unit sales. Derived...

  • Page 47
    ... of iPhone accessory products and revenue from carrier agreements. iPhone unit sales were 1.39 million in 2007. Net sales of other music related products and services increased $611 million or 32% during 2007 compared to 2006 due to increased net sales from the iTunes Store. The Company believes...

  • Page 48
    ... the Company's professional-oriented desktop products was due to customers delaying purchases of such products in anticipation of the release of the Intel-based Mac Pro, which did not begin shipping until August 2006, and updated software applications capable of running on Intel-based Mac computers...

  • Page 49
    ... expansion of third-party audio and video content available for sale via the iTunes Store. During 2007, the Americas segment represented 48% of the Company's total net sales as compared to 49% in the same period of 2006. During 2007, U.S. education channel net sales and Mac unit sales increased by...

  • Page 50
    ... a new version of Mac OS X since Tiger began shipping in April 2005. Total Mac unit sales during 2006 remained relatively flat compared to 2005. Retail The Company opened 32 new retail stores during 2007, including a total of 5 international stores in the U.K. and Italy, bringing the total number of...

  • Page 51
    ... total capital asset purchases since inception of the Retail segment to $1.0 billion. As of September 29, 2007, the Retail segment had approximately 7,900 employees and had outstanding operating lease commitments associated with retail store space and related facilities of $1.1 billion. The Company...

  • Page 52
    ... of 2007 and the capitalized software development costs mentioned above. The Company continues to believe that focused investments in R&D are critical to its future growth and competitive position in the marketplace and are directly related to timely development of new and enhanced products that...

  • Page 53
    ... management's expectations, the Company could be required to adjust its provision for income tax in the period such resolution occurs. Recent Accounting Pronouncements In February 2007, the Financial Accounting Standards Board ("FASB") issued SFAS No. 159, The Fair Value Option for Financial Assets...

  • Page 54
    ... the Company will continue to evaluate the application of FIN 48, management does not currently believe adoption will have a material impact on the Company's financial condition or operating results. Liquidity and Capital Resources The following table presents selected financial information and...

  • Page 55
    ... store facilities and $528 million for real estate acquisitions and corporate infrastructure including information systems enhancements. Of the $822 million in total capital asset purchases during 2007, $87 million were not yet paid for as of September 29, 2007. The Company currently anticipates...

  • Page 56
    ... services and the estimated cost related to the $100 store credit the Company offered to customers who purchased an iPhone prior to the Company's September 2007 price reduction. Indemnifications The Company generally does not indemnify end-users of its operating system and application software...

  • Page 57
    ...random market price paths. The VAR is the maximum expected loss in fair value, for a given confidence interval, 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...

  • Page 58
    ... Shareholders' Equity for the three fiscal years ended September 29, 2007 Consolidated Statements of Cash Flows for the three fiscal years ended September 29, 2007 Notes to Consolidated Financial Statements Selected Quarterly Financial Information (Unaudited) Reports of Independent Registered Public...

  • Page 59
    CONSOLIDATED BALANCE SHEETS (In millions, except share amounts) September 29, 2007 September 30, 2006 ASSETS: Current assets: Cash and cash equivalents Short-term investments Accounts receivable, less allowances of $47 and $52, respectively Inventories Deferred tax assets Other current assets Total...

  • Page 60
    CONSOLIDATED STATEMENTS OF OPERATIONS (In millions, except share and per share amounts) Three fiscal years ended September 29, 2007 2007 2006 2005 Net sales Cost of sales (1) Gross margin Operating expenses: Research and development (1) Selling, general, and administrative (1) Total operating ...

  • Page 61
    ... for employee taxes Tax benefit from employee stock plan awards Balances as of September 29, 2007 782,887 $ - - - Amount 2,582 $ - - - Deferred Stock Compensation (101) $ - - - Retained Earnings 2,597 $ 1,328 - - Accumulated Other Comprehensive Income (Loss) (15) $ - 7 8 Total Shareholders' Equity...

  • Page 62
    ... for deferred income taxes Excess tax benefits from stock options Gain on sale of PowerSchool net assets Loss on disposition of property, plant, and equipment Changes in operating assets and liabilities: Accounts receivable, net Inventories Other current assets Other assets Accounts payable Other...

  • Page 63
    ... FINANCIAL STATEMENTS Note 1-Summary of Significant Accounting Policies Apple Inc. and its wholly-owned subsidiaries (collectively "Apple" or the "Company") design, manufacture, and market personal computers, portable digital music players, and mobile communication devices and sells a variety...

  • Page 64
    ... $249 million, $180 million, and $141 million during 2007, 2006, and 2005, respectively. Asset Retirement Obligations The Company records obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs in accordance with SFAS No. 143, Accounting for...

  • Page 65
    ... software, music products, digital content, peripherals, and service and support contracts. For any product within these groups that either is software, or is considered software-related in accordance with the guidance in Emerging Issues Task Force ("EITF") No. 03-5, Applicability of AICPA Statement...

  • Page 66
    ...extended phone support, repair services, web-based support resources, diagnostic tools, and extend the service coverage offered under the Company's one-year limited warranty. The Company sells software and peripheral products obtained from other companies. The Company establishes its own pricing and...

  • Page 67
    .... During 2007, the Company capitalized $75 million of costs associated with the development of Leopard and iPhone. In accordance with SFAS No. 86, the capitalized costs related to Mac OS X Leopard and iPhone are amortized to cost of sales commencing when each respective product begins shipping and...

  • Page 68
    ... indirect effects of stock-based compensation on the research tax credit, the foreign tax credit, and the domestic manufacturing deduction through the income statement. Prior to the adoption of SFAS No. 123R, the Company measured compensation expense for its employee stock-based compensation plans...

  • Page 69
    ... if the dilutive potential shares of common stock had been issued. The dilutive effect of outstanding options, shares to be purchased under the employee stock purchase plan, unvested restricted stock and restricted stock units ("RSUs") is reflected in diluted earnings per share by application of the...

  • Page 70
    ... 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 customers...

  • Page 71
    ...the fair value of the Company's cash and available-for-sale securities held in its short-term investment portfolio, recorded as cash and cash equivalents or short-term investments (in millions): September 29, 2007 September 30, 2006 Cash U.S. Treasury and Agency securities U.S. Corporate securities...

  • Page 72
    ... declines to be temporary in nature. During 2007, the Company did not record any material impairment on outstanding securities. As of September 29, 2007, the Company does not consider the investments to be other-than-temporarily impaired. Market values were determined for each individual security in...

  • Page 73
    ... the products are sold through to the end customer at which time the profit is recognized as a reduction of cost of sales. Derivative Financial Instruments The Company uses derivatives to partially offset its business exposure to foreign exchange risk. Foreign currency forward and option contracts...

  • Page 74
    ... 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 and prevailing financial market information as of September 29, 2007 and September 30...

  • Page 75
    ... market movements, changes in option time value can lead to increased volatility in other income and expense. Note 3-Consolidated Financial Statement Details (in millions) Other Current Assets 2007 2006 Vendor non-trade receivables NAND flash memory prepayments Other current assets Total other...

  • Page 76
    ... Net property, plant, and equipment $ (1,009) 1,832 $ 1,281 Other Assets 2007 2006 Long-term NAND flash memory prepayments Non-current deferred tax assets Capitalized software development costs, net Other assets Total other assets $ 625 88 83 426 1,222 $ 1,042 - 21 175 1,238 $ $ Accrued...

  • Page 77
    ... years and 8.5 years, respectively. During 2006, the Company sold certain assets related to its PowerSchool web-based student information system operations. In connection with this sale, the Company reduced goodwill by $31 million for the outstanding balance from the acquisition of PowerSchool, Inc...

  • Page 78
    ... were to be distributed. Deferred tax assets and liabilities reflect the effects 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...

  • Page 79
    ... and the option price, tax effected. The net tax benefits from employee stock option transactions were $398 million, $419 million, and $428 million in 2007, 2006, and 2005, respectively, and were reflected as an increase to common stock in the Consolidated Statements of Shareholders' Equity. 75

  • Page 80
    ...had the effect of share repurchases by the Company as they reduced and retired the number of shares that would have otherwise been issued as a result of the vesting and did not represent an expense to the Company. CEO Restricted Stock Award On March 19, 2003, the Company's Board of Directors granted...

  • Page 81
    ...within the Consolidated Statements of Cash Flows. The net-share settlement had the effect of share repurchases by the Company as it reduced and retired the number of shares outstanding and did not represent an expense to the Company. The Company's CEO has no remaining shares of restricted stock. For...

  • Page 82
    ... stock purchase rights and performance-based awards. During 2007, the Company's shareholders approved an amendment to the 2003 Plan to increase the number of shares authorized for issuance by 28 million shares. 1997 Employee Stock Option Plan In August 1997, the Company's Board of Directors approved...

  • Page 83
    ...at a price equal to 85% of the lower of the fair market values as of the beginning and end of six-month offering periods. Stock purchases under the Purchase Plan are limited to 10% of an employee's compensation, up to a maximum of $25,000 in any calendar year. During 2007, the Company's shareholders...

  • Page 84
    ... of the Company's closing stock price on the last trading day of the fiscal period in excess of the exercise price multiplied by the number of options outstanding or exercisable. Total intrinsic value of options at time of exercise was $1.3 billion, $1.2 billion, and $1.1 billion for 2007, 2006, and...

  • Page 85
    ... fair value method of accounting for stock-based 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 BSM option-pricing model...

  • Page 86
    ... from the date of purchase by the end-user. The Company also offers a 90-day basic warranty for its service parts used to repair the Company's 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 87
    ...warranty and related costs Cost of warranty claims Accruals for product warranties Ending accrued warranty and related costs $ 284 (281) 227 230 $ 188 (267) 363 284 $ 105 (188) 271 188 $ $ $ The Company generally does not indemnify end-users of its operating system and application software...

  • Page 88
    ... Mac computers, iPods, and iPhones. Although the Company works closely with its outsourcing partners on manufacturing schedules, the Company's operating results could be adversely affected if its outsourcing partners were unable to meet their production commitments. Long-Term Supply Agreements...

  • Page 89
    ... charged to Apple's major U.S. channel partners for the same products, less the cost of the Company's sales programs and other costs to support those partners. Second, the cost of sales of the Company's service and support contracts, including the AppleCare Protection Plan ("APP") and .Mac, were...

  • Page 90
    ...of these operating costs to corporate expense is based on the amount incurred for a high-profile store in excess of that incurred by a more typical Company retail location. The Company had opened a total of eight high-profile stores as of September 29, 2007. Expenses allocated to corporate marketing...

  • Page 91
    Summary information by operating segment follows (in millions): 2007 2006 2005 Americas: Net sales Operating income Depreciation, amortization, and accretion Segment assets (a) Europe: Net sales Operating income Depreciation, amortization, and accretion Segment assets Japan: Net sales Operating ...

  • Page 92
    ... of the Company's segment operating income and assets to the consolidated financial statements follows (in millions): 2007 2006 2005 Segment operating income Other corporate expenses, net (a) Stock-based compensation expense Total operating income Segment assets Corporate assets Consolidated assets...

  • Page 93
    ... its CEO, Steve Jobs, for the reimbursement of expenses incurred by Mr. Jobs in the operation of his private plane when used for Apple business. The Company recognized a total of approximately $776,000, $202,000, and $1,100,000 in expenses pursuant to the Reimbursement Agreement during 2007, 2006...

  • Page 94
    Note 11-Selected Quarterly Financial Information (Unaudited) The following tables set forth a summary of the Company's quarterly financial information for each of the four quarters ended September 29, 2007 and September 30, 2006 (in millions, except share and per share amounts): Fourth Quarter Third...

  • Page 95
    ..., 2006, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the years in the threeyear period ended September 29, 2007. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an...

  • Page 96
    ... OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and Shareholders Apple Inc.: We have audited Apple Inc.'s internal control over financial reporting as of September 29, 2007, based on criteria established in Internal Control-Integrated Framework issued by the Committee of...

  • Page 97
    ... it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms and (ii) accumulated and communicated to the Company's management, including its principal executive officer and...

  • Page 98
    ...likely to materially affect, the Company's internal control over financial reporting. Item 9B. Other Information On November 13, 2007, the Board of Directors of the Company amended and restated the Company's Amended Bylaws to permit the issuance of uncertificated shares of stock and to make related...

  • Page 99
    ... Board of Directors of Novell, Inc. ("Novell"), a computer networking company, and, from April 1997 to July 2001, as the Chief Executive Officer of Novell. Jerome B. York has been Chief Executive Officer of Harwinton Capital LLC (formerly Harwinton Capital Corporation), a private investment company...

  • Page 100
    ... Executive Officer, and for administering the Company's equity compensation plans. Members of the Compensation Committee are Messrs. Campbell, Drexler, and Gore. The Compensation Committee met a total of five (5) times during fiscal year 2007. The Nominating Committee assists the Board of Directors...

  • Page 101
    ... year 2007. The Audit, Compensation and Nominating Committees operate under written charters adopted by the Board of Directors. These charters are available on the Company's website at www.apple.com/investor. Audit Committee Financial Expert The Board of Directors has determined that all members of...

  • Page 102
    ... Senior Director of the Company's iPod Engineering Team. Prior to joining Apple, Mr. Fadell was a co-founder, CTO, and director of engineering of the Mobile Computing Group at Philips Electronics where he was responsible for all aspects of business and product development for a variety of products...

  • Page 103
    ... COMPENSATION DISCUSSION AND ANALYSIS A. EXECUTIVE SUMMARY This section explains Apple's executive compensation program as it relates to the following "named executive officers:" Steve Jobs Tim Cook Peter Oppenheimer Ron Johnson Tony Fadell Chief Executive Officer Chief Operating Officer Senior...

  • Page 104
    ... of grant. Equity awards also help to ensure a strong connection between executive compensation and Apple's financial performance because the value of RSUs depends on Apple's future share price. Although the Compensation Committee reviews the compensation practices of its peer companies as described...

  • Page 105
    ...director grants. When the 1997 director grant (which increased to 120,000 shares after two stock splits) was due to expire in August 2007, Mr. Jobs exercised the option and he currently holds these 120,000 shares. D. EXECUTIVE COMPENSATION PROGRAM DESIGN AND IMPLEMENTATION 1. Team-Based Compensation...

  • Page 106
    ..., the entire compensation value of a stock option depends on future stock price appreciation. Accordingly, RSUs can deliver significantly greater share-for-share compensation value at grant than stock options, and Apple can offer comparable grant date compensation value with fewer shares and less...

  • Page 107
    ..., Apple's average annual burn rate from fiscal 2005 through fiscal 2007 was approximately 1.6%. Overhang from Equity Plans at 12.9%. Overhang (granted and outstanding equity awards plus shares reserved for future awards, divided by the sum of total shares outstanding, granted and outstanding equity...

  • Page 108
    ...equity awards in meeting Apple's compensation objectives. The minor role of salaries as part of total compensation is reflected in the following The CEO has received an annual base salary of $1 since rejoining Apple in 1997. The fiscal 2007 average base salary for the other named executive officers...

  • Page 109
    ...amount or form of compensation for any executives. 6. The Role of Peer Groups, Surveys and Benchmarking With the assistance of F.W. Cook, the Committee identified peer companies for fiscal 2007 that compete with Apple in the labor and capital markets and that follow similar pay models. The Committee...

  • Page 110
    ... the value delivered by the named executive officers. 7. Tax and Accounting Considerations Tax Deductibility of Compensation Expense. Section 162(m) of the Internal Revenue Code places a limit of $1,000,000 on the amount of compensation to certain officers that may be deducted by Apple as a business...

  • Page 111
    ... Discussion and Analysis section be included in this Form 10-K and the Company's Proxy Statement for its 2008 Annual Meeting of Shareholders, to be filed with the SEC. Compensation Committee of the Board of Directors William V. Campbell (Chairman) Millard S. Drexler Albert A. Gore, Jr. 107

  • Page 112
    ... 10-K in Notes to Consolidated Financial Statements at Note 7, "Stock-Based Compensation." As described in the "Compensation Discussion and Analysis" above, the Named Executive Officers' annual bonuses are derived based on the performance of the Company and the individual executive relative to pre...

  • Page 113
    ... Executive Officers for fiscal year 2007. Estimated Future Payouts Under Non-Equity Incentive Plan Awards Estimated Future Payouts Under Equity Incentive Plan Awards Grant Date Fair Value of Stock Exercise or and Base Price Option of Option Awards Awards ($/Sh) ($) (k) (l Name (a) Steven P. Jobs...

  • Page 114
    Option Awards Number of Securities Underlying Unexercised Options Exercisable (#) (c) Number of Securities Underlying Unexercised Options Unexercisable (#) (d) Name (a) Option Grant Date (b) Option Exercise Price ($) (e) Option Expiration Date (f) Steven P. Jobs Totals Timothy D. Cook Totals ...

  • Page 115
    ... determined by multiplying (x) the number of shares or units reported in Column (h) by (y) $153.47 (the closing price of the Company's common stock on September 28, 2007, the last trading day of fiscal year 2007). The unvested portion of this restricted stock unit award is scheduled to vest in its...

  • Page 116
    ... the number of shares or units, as applicable, that vested by the per-share closing price of the Company's common stock on the vesting date. These shares were acquired by Mr. Jobs on August 13, 2007 through an exercise of stock options granted to him under the 1997 Director Stock Option Plan that...

  • Page 117
    ... The following table presents information regarding the compensation paid during fiscal year 2007 to members of the Company's Board of Directors who are not also employees (the "Non-Employee Directors"). The compensation paid to Mr. Jobs, the Company's Chief Executive Officer, is presented above in...

  • Page 118
    ... Dr. Schmidt declined the annual retainer fee and the automatic stock option grant to purchase 30,000 shares to which new directors are entitled under the Director Plan. Instead, Dr. Schmidt purchased 10,000 shares of the Company's common stock on the open market. Non-Employee directors also receive...

  • Page 119
    ... information, as of September 29, 2007, concerning shares of common stock authorized for issuance under all of the Company's equity compensation plans. Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights (a) Number of Securities Remaining Available for Future...

  • Page 120
    Security Ownership of 5% Holders, Directors, Nominees and Executive Officers Shares of Common Stock Name of Beneficial Owner Beneficially Owned(1) Percent of Common Stock Outstanding Fidelity Investments Steven P. Jobs William V. Campbell Timothy D. Cook Millard S. Drexler Tony Fadell Albert A. ...

  • Page 121
    ... exercise of stock options. Includes 2,146,546 shares of the Company's common stock that executive officers or directors have the right to acquire by exercise of stock options and excludes 2,950,000 unvested restricted stock units. Represents less than 1% of the issued and outstanding shares of the...

  • Page 122
    ... Agreement with its CEO, Steve Jobs, for the reimbursement of expenses incurred by Mr. Jobs in the operation of his private plane when used for Apple business. The Company recognized a total of $776,000, $202,000, and $1,100,000 in expenses pursuant to the Reimbursement Agreement during 2007...

  • Page 123
    ... of the Company's annual financial statements and internal control over financial reporting, quarterly review of financial statements included in the Company's Forms 10-Q, and audit services provided in connection with other statutory and regulatory filings. Fiscal years 2007 and 2006 includes fees...

  • Page 124
    ... Shareholders' Equity for the three fiscal years ended September 29, 2007 Consolidated Statements of Cash Flows for the three fiscal years ended September 29, 2007 Notes to Consolidated Financial Statements Selected Quarterly Financial Information (Unaudited) Reports of Independent Registered Public...

  • Page 125
    ...the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, this 15th day of November 2007. APPLE INC. By: /s/ PETER OPPENHEIMER Peter Oppenheimer Senior Vice President and Chief Financial Officer Power of...

  • Page 126
    ... Stock Purchase Plan, as amended through May 10, 2007. 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...

  • Page 127
    ...9A. Controls and Procedures Item 9B. Other Information PART III Item 10. Directors, Executive Officers and Corporate Governance Item 11. Executive Compensation COMPENSATION DISCUSSION AND ANALYSIS Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters...

  • Page 128
    QuickLinks -- Click here to rapidly navigate through this document Exhibit 3.5 AMENDED AND RESTATED BYLAWS OF APPLE INC. (as of November 13, 2007)

  • Page 129
    ...Tem Vice President Secretary Chief Financial Officer Officers Appointed by Chief Executive Officer Removal of Directors COMMITTEES Committees of the Board of Directors MEETINGS OF SHAREHOLDERS Place of Meetings Annual Meetings Special Meetings Notice of Meetings Manner of Giving Notice; Affidavit of...

  • Page 130
    ...ARTICLE X 10.1 10.2 10.3 10.4 Shares Held by the Corporation Certificates for Shares Lost Certificates Certification and Inspection of Bylaws ...REPEAL OF BYLAWS By Shareholders By the Board of Directors INDEMNIFICATION Indemnification of Directors and Officers Indemnification of Others Payment ...

  • Page 131
    10.5 10.6 Insurance Indemnification Conflicts iv 18 19

  • Page 132
    ...Apple Inc. (the " Corporation ") at any place within or outside the State of California. If the principal executive office is located outside California and the Corporation has one or more business offices in California, then the Board of Directors shall fix and designate a principal business office...

  • Page 133
    ...unanimous consent of all shares entitled to vote for the election of directors. (d) Any director may resign effective upon giving written notice to the Chairman of the Board of Directors, the President, the Chief Executive Officer, the Secretary or the Board of Directors, unless the notice specifies...

  • Page 134
    ... any, of an officer under any contract of employment. 3.3 Subordinate Officers The Board of Directors may appoint, or may empower the Chairman of the Board of Directors, the Chief Executive Officer or the President to appoint such other officers as the business of the Corporation may require, each...

  • Page 135
    ... act as the general manager and chief executive officer of the Corporation and, subject to the control of the Board of Directors, to have general supervision, direction and control of the business and affairs of the Corporation. (b) To preside at all meetings of the shareholders and, in the absence...

  • Page 136
    ...principal executive office of the Corporation, or at the office of the transfer agent or agents, a record of the shareholders of the Corporation, giving the names and addresses of all shareholders and the number and class of shares held by each shareholder, the number and date of certificates issued...

  • Page 137
    ... the executive powers or authority of corporate officers elected pursuant to this Article III , (ii) shall not be considered (a) an "officer" of the Corporation for the purposes of Rule 3b-2 promulgated under the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated...

  • Page 138
    ...to the shareholders of the Corporation, except at a rate, in a periodic amount or within a price range set forth in the Articles of Incorporation or determined by the Board of Directors; and (g) the appointment or designation of any other committee of the Board of Directors or the members thereof. 7

  • Page 139
    ...a physical location. 5.2 Annual Meetings An annual meeting of shareholders shall be held each year on a date and at a time designated by the Board of Directors. The annual meeting shall be held for the purpose of electing directors and for making reports of the affairs of the Corporation. Any other...

  • Page 140
    ... a shareholder gives no address or no such address appears on the books of the Corporation, notice shall be deemed to have been given if sent by mail or other means of written communication addressed to the place where the principal executive office of the Corporation is located, or if published at...

  • Page 141
    ...the date of such meeting nor more than sixty (60) days before any other action. Shareholders at the close of business on the record date are entitled to notice and to vote, as the case may be, notwithstanding any transfer of any shares on the books or the Corporation after the record date, except as...

  • Page 142
    ...waived, at the close of business on the business day next preceding the day on which the meeting is held; and (ii) the record date for determining shareholders entitled to given consent to corporate action in writing without a meeting (1) when no prior action by the Board of Directors has been taken...

  • Page 143
    ... option or agreement to purchase is terminated or the seller no longer owns any shares of the Corporation or dies, the debt of the Corporation or the shareholder is paid, the period of employment provided for in the contract of employment has terminated or the close corporation shareholder agreement...

  • Page 144
    ...the Board of Directors and (e) if applicable, the consent of each nominee as director of the Corporation if so elected. The chairman of a meeting of shareholders may refuse to acknowledge the nomination of any person or the proposal of any business not made in compliance with the foregoing procedure...

  • Page 145
    ... meetings of the Board of Directors shall be held upon no less than four (4) days' notice by mail or forty-eight (48) hours' notice delivered personally or by telephone, including voice messaging system or by electronic transmission by the Corporation. 6.5 Quorum A majority of the authorized number...

  • Page 146
    ... distribution or allotment or rights, or to exercise the rights, as the case may be, notwithstanding any transfer of any shares on the books of the Corporation after the record date, except as otherwise provided for in the Articles of Incorporation or the Code. 7.2 Instruments in Writing All checks...

  • Page 147
    ...of Directors. Every holder of uncertificated shares of the Corporation shall be entitled to receive a statement of holdings as evidence of share ownership. As provided in Section 416(b) of the Code, any direct registration system so implemented shall not become effective as to issued and outstanding...

  • Page 148
    ... number less than five cannot be adopted if the votes cast against its adoption at a meeting or the shares not consenting in the case of action by written consent are equal to more than sixteen and two-thirds percent (16-2/3%) of the outstanding shares entitled to vote. 9.2 By the Board of Directors...

  • Page 149
    ... incurred in connection with any proceeding (as defined in Section 317(a) of the Code), arising by reason of the fact that such person is or was an agent of the Corporation. For purposes of this Article X , an "employee" or "agent" of the Corporation (other than a director or officer) includes any...

  • Page 150
    ... services in connection with the defense, whether or not the application by the agent, attorney or other person is opposed by the Corporation: (a) that it would be inconsistent with a provision of the Articles of Incorporation, these Bylaws, a resolution of the shareholders or an agreement in effect...

  • Page 151
    ... Counsel and Secretary of Apple Inc., a California corporation (the " Corporation "), and that the foregoing amended and restated bylaws were adopted as the Corporation's bylaws as of November 13, 2007 by the Corporation's Board of Directors. The undersigned has executed this Certificate as of...

  • Page 152
    ... AND RESTATED BYLAWS OF APPLE INC. (as of November 13, 2007) Table of Contents APPLE INC. AMENDED AND RESTATED BYLAWS ARTICLE I CORPORATE OFFICES ARTICLE II DIRECTORS ARTICLE III OFFICERS ARTICLE IV COMMITTEES ARTICLE V MEETINGS OF SHAREHOLDERS ARTICLE VI MEETINGS OF DIRECTORS ARTICLE VII GENERAL...

  • Page 153
    ... STOCK UNIT AWARD AGREEMENT (this " Agreement ") is dated as of Apple Inc., a California corporation (the " Company "), and (the " Participant "). by and between WITNESSETH WHEREAS , pursuant to the 2003 Employee Stock Plan (the " Plan "), the Company has granted to the Participant effective...

  • Page 154
    ... in the number of Stock Units then outstanding and the number and kind of securities that may be issued in respect of the Award. 10. Tax Withholding . Subject to Section 14 of the Plan, upon any distribution of shares of Common Stock in respect of the Stock Units, the Company shall automatically...

  • Page 155
    ... number, salary, nationality, job title, any Shares or directorships held in the Company, details of all options or any other entitlement to Shares awarded, canceled, purchased, vested, unvested or outstanding in the Participant's favor, for the purpose of managing and administering the Plan...

  • Page 156
    ... the Plan confers no rights or interests other than as herein provided. This Agreement creates only a contractual obligation on the part of the Company as to amounts payable and shall not be construed as creating a trust. Neither the Plan nor any underlying program, in and of itself, has any assets...

  • Page 157
    ... WHEREOF , the Company has caused this Agreement to be executed on its behalf by a duly authorized officer and the Participant has hereunto set his or her hand as of the date and year first above written. APPLE INC., a California corporation By: PARTICIPANT Signature Print Name: Its: Print Name 5

  • Page 158
    QuickLinks Exhibit 10.15 APPLE INC. 2003 EMPLOYEE STOCK PLAN RESTRICTED STOCK UNIT AWARD AGREEMENT WITNESSETH

  • Page 159
    ... International) Braeburn Capital, Inc. Ireland Nevada, U.S. * Pursuant to Item 601(b)(21)(ii) of Regulation S-K, the names of other subsidiaries of Apple Inc. are omitted because, considered in the aggregate, they would not constitute a significant subsidiary as of the end of the year covered...

  • Page 160
    QuickLinks Exhibit 21 SUBSIDIARIES OF APPLE INC.

  • Page 161
    ... 2007, and the effectiveness of internal control over financial reporting as of September 29, 2007, which reports appear in the September 29, 2007 annual report on Form 10-K of Apple Inc. As discussed in Note 1 to the Consolidated Financial Statements, the Company adopted the provisions of Statement...

  • Page 162
    QuickLinks Exhibit 23.1 Consent of Independent Registered Public Accounting Firm

  • Page 163
    ...'s board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses 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...

  • Page 164
    QuickLinks Exhibit 31.1 CERTIFICATIONS

  • Page 165
    ...'s board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses 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...

  • Page 166
    QuickLinks Exhibit 31.2 CERTIFICATIONS

  • Page 167
    ... and results of operations of Apple Inc. November 15, 2007 By: /s/ STEVEN P. JOBS Steven P. Jobs Chief Executive Officer I, Peter Oppenheimer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report of Apple Inc. on...

  • Page 168
    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