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The Company does not hold or transact in such financial instruments for purposes other than risk management.
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Accounting for Derivative Financial Instruments On October 1, 2000, the Company adopted SFAS No.
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133, Accounting for Derivative Instruments and Hedging Activities.
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SFAS No.
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133 established accounting and reporting standards for derivative instruments, hedging activities, and exposure definition.
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SFAS No.
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133 requires that all derivatives be recognized as either assets or liabilities at fair value.
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Derivatives that are not hedges must be adjusted to fair value through income.
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If the derivative is a hedge, depending on the nature of the hedge, changes in fair value will either be offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings, or recognized in other comprehensive income until the hedged item is recognized in earnings.
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As of March 29, 2003, the Company had a net deferred loss associated with cash flow hedges of approximately $700,000 net of taxes, substantially all of which is expected to be reclassified to earnings by the end of the fourth quarter of fiscal 2003.
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Note 3 - Condensed Consolidated Financial Statement Details (in millions) Inventories Other Current Assets Property, Plant, and Equipment Other Assets Accrued Expenses Interest and Other Income, Net Inventory Prepayment In April 2002, the Company made a $100 million prepayment to an Asian supplier for the purchase of c...
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In return for this deposit, the supplier agreed to supply the Company with a specified level of components during the three consecutive fiscal quarters ending December 28, 2002.
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Approximately $53 million of this deposit remained unused as of September 28, 2002 and was reflected in the condensed consolidated balance sheets in other current assets.
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During the first six months of 2003, the remainder of the deposit balance was fully utilized for the purchase of components.
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The deposit was unsecured and had no stated interest component.
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The Company imputed an amount to cost of sales and interest income during each period the deposit was outstanding at an appropriate market interest rate to reflect the economics of this transaction.
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Goodwill and Other Intangible Assets The Company is currently amortizing its acquired intangible assets with definite lives over periods ranging from 3 to 7 years.
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The Company ceased amortization of goodwill at the beginning of fiscal 2002 when it adopted SFAS No.
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142, Goodwill and Other Intangible Assets.
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The following table summarizes the components of gross and net intangible asset balances (in millions): (a) Accumulated amortization related to goodwill of $55 million arising prior to the adoption of SFAS No.
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142 has been reflected in the gross carrying amount of goodwill as of March 29, 2003, and September 28, 2002.
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Amortization associated with acquired technology for the three and six-month periods ended March 29, 2003 and March 30, 2002 follows (in millions): Accrued Warranty and Related Costs The Company offers a basic limited parts and labor warranty on its hardware products.
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The basic warranty period for hardware products is typically one year from the date of purchase by the end user.
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The Company also offers a 90-day basic warranty for Apple software and for Apple service parts used to repair Apple hardware products.
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The Company provides currently for the estimated cost that may be incurred under its basic limited product warranties at the time related revenue is recognized.
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Factors considered in determining appropriate accruals for product warranty obligations include the size of the installed base of products subject to warranty protection, historical warranty claim rates, historical cost-per-claim, and knowledge of specific product failures that are outside of the Company’s typical expe...
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The Company assesses the adequacy of its preexisting warranty liabilities and adjusts the amounts as necessary based on actual experience and changes in future expectations.
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The following table reconciles changes in the Company’s accrued warranties and related costs for the six-month periods ended March 29, 2003 and March 30, 2002 (in millions): Note 4 - Restructuring Actions Fiscal 2003 Restructuring Actions Q2’03 Restructuring Actions During the second quarter of 2003, the Company’s mana...
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The primary focus of actions taken in the second quarter were for the most part supplemental to actions initiated in the prior two quarters and focused on further headcount reductions in various sales and marketing functions in the Company’s Americas and Europe operating segments and further reductions associated with ...
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The second quarter actions resulted in recognition of severance costs of $2.4 million for termination of 93 employees, 79 of who were terminated prior to the end of the second quarter at a cost of $1.6 million.
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During the second quarter, an additional $400,000 was accrued for asset write-offs and lease payments on an abandoned facility in the Americas operating segment.
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Except for certain costs associated with operating leases on the abandoned facility, the Company currently anticipates that substantially all of the remaining accrual will be spent by the end of the third quarter of fiscal 2003.
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The following table summarizes activity associated with restructuring actions initiated during the second quarter of 2003 (in millions): Q1’03 Restructuring Actions During the first quarter of 2003, the Company’s management approved and initiated restructuring actions with a total cost of $24 million that resulted in t...
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These restructuring actions will ultimately result in the elimination of 260 positions worldwide, 197 of which were eliminated by the end of the first quarter of 2003.
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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 fixed assets, whose use ceased during the first quarter.
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PowerSchool related costs included severance of approximately $550,000 and recognition of $5 million of previously deferred stock compensation that arose when PowerSchool was acquired by the Company in 2001 related to certain PowerSchool employee stockholders who were terminated in the first quarter of 2003.
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Termination of sales and marketing activities and employees, principally in the United States and Europe, resulted in severance costs of $2.8 million and accrual of costs associated with operating leases on closed facilities of $6.7 million.
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The total net restructuring charge of $23 million recognized during the first quarter of 2003 also reflects the reversal of $600,000 of unused restructuring accrual originally made during the first quarter of 2002.
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During the second quarter of 2003, the Company identified and reversed approximately $150,000 of severance costs accrued as part of the first quarter 2003 restructuring actions when it was determined the accrual would not be used.
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As of March 29, 2003, approximately $4 million of the original $5 million accrual for severance had been utilized and a total of 242 positions had been eliminated.
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Except for certain costs associated with operating leases on closed facilities, the Company currently anticipates that substantially all of the remaining accrual for severance will be spent to eliminate 14 additional positions by the end of the third quarter of fiscal 2003.
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The following table summarizes activity associated with restructuring actions initiated during the first quarter of 2003 (in millions): Fiscal 2002 Restructuring Actions During fiscal 2002, the Company recorded total restructuring charges of approximately $30 million related to actions intended to eliminate certain act...
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Q4’02 Restructuring Actions During the fourth quarter of 2002, the Company’s management approved and initiated restructuring actions with a total cost of approximately $6 million designed to reduce headcount costs in corporate operations and sales and to adjust its PowerSchool product strategy.
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These restructuring actions resulted in the elimination of approximately 180 positions worldwide at a cost of $1.8 million, 162 of which were eliminated by December 28, 2002.
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Eliminated positions were primarily in corporate operations, sales, and PowerSchool related research and development in the Americas operating segment.
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The shift in product strategy at PowerSchool included discontinuing development and marketing of PowerSchool’s PSE product.
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This shift resulted in the impairment of previously capitalized development costs associated with the PSE product in the amount of $4.5 million.
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As of March 29, 2003, substantially all of the $2 million severance accrual had been utilized, except for insignificant severance and related costs associated with 12 remaining positions.
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The following table summarizes activity associated with restructuring actions initiated during the fourth quarter of 2002 (in millions): Q1’02 Restructuring Actions During the first quarter of 2002, the Company’s management approved and initiated restructuring actions with a total cost of approximately $24 million.
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These restructuring actions resulted in the elimination of approximately 425 positions worldwide at a cost of $8 million.
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Positions were eliminated primarily in the Company’s operations, information systems, and administrative functions.
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In addition, these restructuring actions also included significant changes in the Company’s information systems strategy resulting in termination of equipment leases and cancellation of existing projects and activities.
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The Company ceased using the assets associated with first quarter 2002 restructuring actions during that same quarter.
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Related lease and contract cancellation charges totaled $12 million, and charges for asset impairments totaled $4 million.
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The first quarter 2002 restructuring actions were primarily related to corporate activity not allocated to operating segments.
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During the first quarter of 2003, the Company reversed the remaining unused accrual of $600,000.
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The following table summarizes activity associated with restructuring actions initiated during the first quarter of 2002 (in millions): Note 5 - Shareholders’ Equity CEO Restricted Stock Award On March 19, 2003, the Company entered into an Option Cancellation and Restricted Stock Award Agreement (the Agreement) with St...
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The Agreement cancelled stock option awards previously granted to Mr. Jobs in 2000 and 2001 for the purchase of 27.5 million common shares of the Company’s common stock.
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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.
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The Agreement replaced the cancelled options with a restricted stock award of 5 million shares of the Company’s common stock.
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The restricted stock award generally vests three years from date of grant.
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Vesting of some or all of the restricted shares will be accelerated in the event Mr. Jobs is terminated without cause, dies, or has his management role reduced following a change in control of the Company.
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The Company has recorded the value of the restricted stock award of $74.75 million as a component of shareholders’ equity and will amortize that amount on a straight-line basis over the 3-year service/vesting period.
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The value of the restricted stock award was based on the closing market price of the Company’s common stock on the date of the award.
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Quarterly amortization will be approximately $6.3 million and will be recognized as an operating expense.
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The 5 million restricted shares will be included in the calculation of diluted earnings per share utilizing the treasury stock method.
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Stock Repurchase Plan In July 1999, the Company’s Board of Directors authorized a plan for the Company to repurchase up to $500 million of its common stock.
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This repurchase plan does not obligate the Company to acquire any specific number of shares or acquire shares over any specified period of time.
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Since inception of the stock repurchase plan through the end of fiscal 2000, the Company had repurchased a total of 5.05 million shares at a cost of $191 million.
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No shares have been repurchased since the end of fiscal 2000.
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During the fourth quarter of 2001, the Company entered into a forward purchase agreement to acquire 1.5 million shares of its common stock in September of 2003 at an average price of $16.64 per share for a total cost of $25.5 million.
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The total cost to acquire the same number of shares at the closing price of the Company's common stock on March 29, 2003, would be approximately $22.3 million.
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Comprehensive Income Comprehensive income consists of two components, net income and other comprehensive income.
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Other comprehensive income refers to revenue, expenses, gains and losses that under generally accepted accounting principles are recorded as an element of shareholders’ equity but are excluded from net income.
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The Company’s other comprehensive income is comprised of foreign currency translation adjustments from those subsidiaries not using the U.S. dollar as their functional currency, from unrealized gains and losses on marketable securities categorized as available-for-sale, and from net deferred gains and losses on certain...
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The following table summarizes components of total comprehensive income, net of taxes, during the three and six-month periods ended March 29, 2003, and March 30, 2002 (in millions): The following table summarizes activity in other comprehensive income related to derivatives, net of taxes, held by the Company during the...
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Options granted before these plans’ termination dates remain outstanding in accordance with their terms.
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Options may be granted under the 1998 Plan to the Chairman of the Board of Directors, executive officers of the Company at the level of Senior Vice President and above, and other key employees.
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These options generally become exercisable over a period of 4 years, based on continued employment, and generally expire 10 years after the grant date.
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The 1998 Plan permits the granting of incentive stock options, nonstatutory stock options, stock appreciation rights, and stock purchase rights.
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1997 Employee Stock Option Plan In August 1997, the Company’s Board of Directors approved the 1997 Employee Stock Option Plan (the 1997 Plan), a non-shareholder approved plan for grants of stock options to employees who are not officers of the Company.
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Options may be granted under the 1997 Plan to employees at not less than the fair market value on the date of grant.
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These options generally become exercisable over a period of 4 years, based on continued employment, and generally expire 10 years after the grant date.
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1997 Director Stock Option Plan In August 1997, the Company’s Board of Directors adopted a shareholder approved Director Stock Option Plan (DSOP) for non-employee directors of the Company.
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Initial grants of 30,000 options under the DSOP vest in three equal installments on each of the first through third anniversaries of the date of grant, and subsequent annual grants of 10,000 options are fully vested at grant.
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Employee Stock Purchase Plan The Company has a shareholder approved employee stock purchase plan (the Purchase Plan), under which substantially all employees may purchase common stock through payroll deductions at a price equal to 85% of the lower of the fair market values as of the beginning and end of six-month offer...
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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.
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As of March 29, 2003, approximately 1 million shares were reserved for issuance under the Purchase Plan.
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Subsequent Event - Employee Stock Plans At the Annual Meeting of Shareholders held on April 24, 2003, the shareholders approved an amendment to the 1998 Executive Officer Stock Plan to change the name of the plan to the 2003 Employee Stock Option Plan, to provide for broad-based grants to all employees in addition to e...
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Since the amendment was approved, the Company will terminate the 1997 Employee Stock Option Plan and cancel all remaining unissued shares, following the completion of the employee stock option exchange program.
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In addition, shareholders also approved an amendment to the Employee Stock Purchase Plan to increase the number of shares authorized for issuance by 4 million shares.
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Stock Option Activity A summary of the Company’s stock option activity and related information for the six month periods ended March 29, 2003, and March 30, 2002 follows (option amounts are presented in thousands): The options outstanding as of March 29, 2003, have been segregated into five ranges for additional disclo...
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On April 17, 2003, in accordance with the Exchange Program, the Company accepted and cancelled options to purchase 16,569,193 shares of its common stock and issued a promise to grant approximately 6,892,309 new options to participating employees.
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Options cancelled pursuant to the Exchange Program are reflected as outstanding as of March 29, 2003, in the preceding tables.
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The new stock options will be granted on October 20, 2003, which is the first business day that is six months and one day after cancellation of the exchanged options.
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No financial or accounting impact to the Company’s financial position, results of operations or cash flow for the three months ended March 29, 2003, was associated with this transaction.
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Note 7 - Stock-Based Compensation The Company has provided pro forma disclosures in Note 1 of these Notes to Condensed Consolidated Financial Statements of the effect on net income and earnings per share as if the fair value method of accounting for stock compensation had been used for its employee stock option grants ...
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These pro forma effects have been estimated at the date of grant and beginning of the period, respectively, using a Black-Scholes option pricing model.
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The assumptions used for the three and six-month periods ended March 29, 2003, and March 30, 2002, and the resulting estimates of weighted-average fair value per share of options granted and for stock purchases during those periods are as follows: Note 8 - Contingencies Lease Commitments The Company leases various equi...
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The Company does not currently utilize any other off-balance-sheet financing arrangements.
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