Apple (AAPL)

Software Development Costs

Research and development costs are expensed as incurred. Development costs of computer software to be sold, leased, or otherwise marketed are subject to capitalization beginning when a product’s technological feasibility has been established and ending when a product is available for general release to customers. In most instances, the Company’s products are released soon after technological feasibility has been established. Therefore, costs incurred subsequent to achievement of technological feasibility are usually not significant, and generally most software development costs have been expensed.

In 2009 and 2008, the Company capitalized $71 million and $11 million, respectively, of costs associated with the development of Mac OS X Version 10.6 Snow Leopard (“Mac OS X Snow Leopard”), which was released during the fourth quarter of 2009. During 2007, the Company capitalized $75 million of costs associated with the development of Mac OS X Version 10.5 Leopard (“Mac OS X Leopard”) and iPhone software. The capitalized costs are being amortized to cost of sales on a straight-line basis over a three year estimated useful life of the underlying technology.

Total amortization related to capitalized software development costs was $25 million, $27 million and $13 million in 2009, 2008 and 2007, respectively.

Software Development Costs

Research and development costs are expensed as incurred. Development costs of computer software to be sold, leased, or otherwise marketed are subject to capitalization beginning when a product’s technological feasibility has been established and ending when a product is available for general release to customers. In most instances, the Company’s products are released soon after technological feasibility has been established. Therefore, costs incurred subsequent to achievement of technological feasibility are usually not significant, and generally most software development costs have been expensed.

In 2009 and 2008, the Company capitalized $71 million and $11 million, respectively, of costs associated with the development of Mac OS X Version 10.6 Snow Leopard (“Mac OS X Snow Leopard”), which was released during the fourth quarter of 2009. During 2007, the Company capitalized $75 million of costs associated with the development of Mac OS X Version 10.5 Leopard (“Mac OS X Leopard”) and iPhone software. The capitalized costs are being amortized to cost of sales on a straight-line basis over a three year estimated useful life of the underlying technology.

Total amortization related to capitalized software development costs was $25 million, $27 million and $13 million in 2009, 2008 and 2007, respectively.

Software Development Costs

Research and development costs are expensed as incurred. Development costs of computer software to be sold, leased, or otherwise marketed are subject to capitalization beginning when a product’s technological feasibility has been established and ending when a product is available for general release to customers pursuant to SFAS No. 86, Computer Software to be Sold, Leased, or Otherwise Marketed. In most instances, the Company’s products are released soon after technological feasibility has been established. Therefore, costs incurred subsequent to achievement of technological feasibility are usually not significant, and generally most software development costs have been expensed.

During 2008, the Company capitalized $11 million of costs associated with the development of Mac OS X Version 10.6 Snow Leopard. In 2007, the Company determined that both Mac OS X Version 10.5 Leopard (“Mac OS X Leopard”) and iPhone achieved technological feasibility. 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 are recognized on a straight-line basis over a 3 year estimated useful life of the underlying technology.

Total amortization related to capitalized software development costs was $27 million, $13 million, and $18 million in 2008, 2007, and 2006, respectively.

Software Development Costs

Research and development costs are expensed as incurred. Development costs of computer software to be sold, leased, or otherwise marketed are subject to capitalization beginning when a product's technological feasibility has been established and ending when a product is available for general release to customers pursuant to SFAS No. 86, Computer Software to be Sold, Leased, or Otherwise Marketed. In most instances, the Company's products are released soon after technological feasibility has been established. Therefore, costs incurred subsequent to achievement of technological feasibility are usually not significant, and generally most software development costs have been expensed.

In 2007, the Company determined that both Mac OS X Version 10.5 Leopard ("Mac OS X Leopard") and iPhone achieved technological feasibility. 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 are recognized on a straight-line basis over a 3 year estimated useful life of the underlying technology.

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Total amortization related to capitalized software development costs was $13 million, $18 million, and $16 million in 2007, 2006, and 2005, respectively.

Software Development Costs

Research and development costs are expensed as incurred. Development costs of computer software to be sold, leased, or otherwise marketed are subject to capitalization
beginning when a product's technological feasibility has been established and ending when a product is available for general release to customers pursuant to SFAS No. 86, Computer Software to be Sold, Leased, or Otherwise
Marketed. In most instances, the Company's products are released soon after technological feasibility
has been established. Therefore, costs incurred subsequent to achievement of technological feasibility are usually not significant, and generally most software development costs have been expensed.

In
2007, the Company determined that both Mac OS X Version 10.5 Leopard ("Mac OS X Leopard") and iPhone achieved technological feasibility. 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 are recognized on a straight-line basis over a 3 year estimated useful life of the underlying technology.

63

Total
amortization related to capitalized software development costs was $13 million, $18 million, and $16 million in 2007, 2006, and 2005, respectively.

Software Development Costs

Research and development costs are expensed as incurred. Development costs of computer software to be sold, leased, or otherwise marketed are subject to capitalization beginning when a product’s technological feasibility has been established and ending when a product is available for general release to customers pursuant to Statement of Financial Accounting Standards (“SFAS”) No. 86, Computer Software to be Sold, Leased, or Otherwise Marketed. In most instances, the Company’s products are released soon after technological feasibility has been established. Therefore, costs incurred subsequent to achievement of technological feasibility are usually not significant, and generally most software development costs have been expensed.

5

In the second quarter of 2007, the Company determined that both Mac OS X version 10.5 Leopard (“Leopard”) and iPhone achieved technological feasibility. During the second and third quarters of 2007, the Company capitalized approximately $27 million and $26 million, respectively, of costs associated with the development of Leopard and iPhone. In accordance with SFAS No. 86, the capitalized costs related to Leopard and iPhone are amortized to cost of sales commencing when each respective product begins shipping and are recognized on a straight-line basis over a 3 year estimated useful life of the underlying technology.

Software Development Costs

Research and development costs are expensed as incurred. Development costs of computer software to be sold, leased, or otherwise marketed are subject to capitalization beginning when a product’s technological feasibility has been established and ending when a product is available for general release to customers pursuant to Statement of Financial Accounting Standards (“SFAS”) No. 86, Computer Software to be Sold, Leased, or Otherwise Marketed. In most instances, the Company’s products are released soon after technological feasibility has been established. Therefore, costs incurred subsequent to achievement of technological feasibility are usually not significant, and generally all software development costs have been expensed.

5

In the second quarter of 2007, the Company determined that both Mac OS X version 10.5 Leopard (“Leopard”) and the iPhone achieved technological feasibility. During the second quarter of 2007, the Company capitalized approximately $27 million of costs associated with the development of Leopard and the iPhone. In accordance with SFAS No. 86, the capitalized costs related to Leopard and the iPhone will be amortized to cost of sales commencing when each respective product begins shipping and will be recognized on a straight-line basis over a 3 year estimated useful life of the underlying technology.

Software Development Costs

Research and development costs are expensed as incurred. Development costs of computer software to be sold, leased, or otherwise marketed are subject to capitalization beginning when a product’s technological feasibility has been established and ending when a product is available for general release to customers pursuant to SFAS No. 86, Computer Software to be Sold, Leased, or Otherwise Marketed. In most instances, the Company’s products are released soon after technological feasibility has been established. Therefore, costs incurred subsequent to achievement of technological feasibility are usually not significant, and generally all software development costs have been immediately expensed.

In 2004, the Company began incurring substantial development costs associated with Mac OS X version 10.4 Tiger (“Tiger”) subsequent to achievement of technological feasibility as evidenced by public demonstration in August 2004 and the subsequent release of a developer beta version of the product. The Company capitalized approximately $29.7 million and $4.5 million during 2005 and 2004, respectively, of costs associated with the development of Tiger. In accordance with SFAS No. 86, amortization of this asset to cost of sales began in April 2005 when the Company began shipping Tiger and is being recognized on a straight-line basis over a three-year estimated useful life.

81

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 1—Summary of Significant Accounting Policies (Continued)

During 2004, the Company incurred substantial development costs associated with FileMaker Pro 7 subsequent to achievement of technological feasibility as evidenced by public demonstration and release of a developer beta version, and prior to the release of the final version of the product in March 2004. Therefore, during 2004, the Company capitalized approximately $2.3 million of costs associated with the development of FileMaker Pro 7. In accordance with SFAS No. 86, amortization of this asset to cost of sales began in March 2004 when the Company began shipping FileMaker Pro 7 and is being recognized on a straight-line basis over a three-year estimated useful life.

Total amortization related to capitalized software development costs was $17.8 million, $15.7 million, and $10.7 million in 2006, 2005, and 2004, respectively.

Software
Development Costs

Research and development costs are expensed as
incurred. Development costs of computer software to be sold, leased, or
otherwise marketed are subject to capitalization beginning when a product’s
technological feasibility has been established and ending when a product is
available for general release to customers pursuant to SFAS No. 86, Computer Software to be Sold, Leased, or Otherwise Marketed.
In most instances, the Company’s products are released soon after technological
feasibility has been established. Therefore, costs incurred subsequent to
achievement of technological feasibility are usually not significant, and
generally all software development costs have been immediately expensed.

In 2004, the Company began
incurring substantial development costs associated with Mac OS X version 10.4
Tiger (“Tiger”) subsequent to achievement of technological feasibility as
evidenced by public demonstration in August 2004 and the subsequent
release of a developer beta version of the product. The Company capitalized
approximately $29.7 million and $4.5 million during 2005 and 2004,
respectively, of costs associated with the development of Tiger. In accordance
with SFAS No. 86, amortization of this asset to cost of sales began in April 2005
when the Company began shipping Tiger and is being recognized on a
straight-line basis over a three-year estimated useful life.

81

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 1—Summary
of Significant Accounting Policies (Continued)

During 2004, the Company incurred substantial
development costs associated with FileMaker Pro 7 subsequent to achievement of
technological feasibility as evidenced by public demonstration and release of a
developer beta version, and prior to the release of the final version of the
product in March 2004. Therefore, during 2004, the Company capitalized
approximately $2.3 million of costs associated with the development of
FileMaker Pro 7. In accordance with SFAS No. 86, amortization of this
asset to cost of sales began in March 2004 when the Company began shipping
FileMaker Pro 7 and is being recognized on a straight-line basis over a
three-year estimated useful life.

Total amortization related
to capitalized software development costs was $17.8 million, $15.7 million, and
$10.7 million in 2006, 2005, and 2004, respectively.

Software Development Costs

Research and development costs are generally expensed as incurred.  Development costs of computer software to be sold, leased, or otherwise marketed are subject to capitalization beginning when a product’s technological feasibility has been established and ending when a product is available for general release to customers pursuant to Statement of Financial Accounting Standards (“SFAS”) No. 86, Computer Software to be Sold, Leased, or Otherwise Marketed. In most instances, the Company’s products are released soon after technological feasibility has been established. Therefore, costs incurred subsequent to achievement of technological feasibility are usually not significant, and generally all software development costs have been expensed as incurred.

In 2004, the Company began incurring substantial development costs associated with Mac OS X version 10.4 Tiger (“Tiger”) subsequent to achievement of technological feasibility as evidenced by public demonstration in August 2004 and the subsequent release of a developer beta version of the product. During the first nine months of 2005, the Company capitalized $29.7 million of costs associated with the development of Tiger.  In accordance with SFAS No. 86, amortization of this asset to cost of sales began in April 2005 when the Company started shipping Tiger and is being recognized on a straight-line basis over a three-year estimated useful life.

Software Development Costs

Research and development costs are expensed as incurred. Development costs of computer software to be sold, leased, or otherwise marketed are subject to capitalization beginning when a product’s technological feasibility has been established and ending when a product is available for general release to customers pursuant to Statement of Financial Accounting Standards (SFAS) No. 86, Computer Software to be Sold, Leased, or Otherwise Marketed. In most instances, the Company’s products are released soon after technological feasibility has been established. Therefore, costs incurred subsequent to achievement of technological feasibility are usually not significant, and generally all software development costs have been expensed.

In the fourth quarter of 2004, the Company began incurring substantial development costs associated with Mac OS X version 10.4 Tiger subsequent to achievement of technological feasibility as evidenced by public demonstration in August 2004 and the subsequent release of a developer beta version of the product. During the first and second quarters of 2005, the Company capitalized approximately $14.8 million and $14.7 million, respectively, of costs associated with the development of Tiger. In accordance with SFAS No. 86, amortization of this asset to cost of sales began in April 2005 when the Company began shipping Tiger and is being recognized on a straight-line basis over a three-year estimated useful life.

Software Development Costs

Research and development costs are expensed as incurred. Development costs of computer software to be sold, leased, or otherwise marketed are subject to capitalization beginning when a product’s technological feasibility has been established and ending when a product is available for general release to customers pursuant to Statement of Financial Accounting Standards (SFAS) No. 86, Computer Software to be Sold, Leased, or Otherwise Marketed. In most instances, the Company’s products are released soon after technological feasibility has been established. Therefore, costs incurred subsequent to achievement of technological feasibility are usually not significant, and generally all software development costs have been expensed.

In the fourth quarter of 2004, the Company began incurring substantial development costs associated with Mac OS X version 10.4 Tiger subsequent to achievement of technological feasibility as evidenced by public demonstration in August 2004 and the subsequent release of a developer beta version of the product. During the first quarter of 2005, the Company capitalized approximately $14.8 million of costs associated with the development of Tiger.  In accordance with SFAS No. 86, amortization of this asset to cost of sales began in April 2005 when the Company began shipping Tiger and is being recognized on a straight-line basis over a three-year estimated useful life.

Research and development costs are expensed as incurred. Development costs of computer software to be sold, leased, or otherwise marketed are subject to capitalization beginning when a product’s technological feasibility has been established and ending when a product is available for general release to customers

68

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 1—Summary of Significant Accounting Policies (Continued)

pursuant to SFAS No. 86, Computer Software to be Sold, Leased, or Otherwise Marketed. In most instances, the Company’s products are released soon after technological feasibility has been established. Therefore, costs incurred subsequent to achievement of technological feasibility are usually not significant, and generally all software development costs have been expensed.

In the fourth quarter of 2004, the Company began incurring substantial development costs associated with Mac OS X version 10.4 Tiger subsequent to achievement of technological feasibility as evidenced by public demonstration in August 2004 and the subsequent release of a developer beta version of the product. The Company capitalized approximately $29.7 and $4.5 million during 2005 and 2004, respectively, of costs associated with the development of Tiger. In accordance with SFAS No. 86, amortization of this asset to cost of sales began in April 2005 when the Company began shipping Tiger and is being recognized on a straight-line basis over a 3 year estimated useful life.

During the second quarter of 2004, the Company incurred substantial development costs associated with FileMaker Pro 7 subsequent to achievement of technological feasibility as evidenced by public demonstration and release of a developer beta version, and prior to the release of the final version of the product in March 2004. Therefore, during the second quarter of 2004, the Company capitalized approximately $2.3 million of costs associated with the development of FileMaker Pro 7. In accordance with SFAS No. 86, amortization of this asset to cost of sales began in March 2004 when the Company began shipping FileMaker Pro 7 and is being recognized on a straight-line basis over a 3 year estimated useful life.

During the third and fourth quarters of 2003, the Company incurred substantial development costs associated with the development of Mac OS X version 10.3 (code-named “Panther”), subsequent to achievement of technological feasibility as evidenced by public demonstration and release of a developer beta in June 2003, and prior to release of the final version of the product in the first quarter of 2004. Therefore, during 2003 the Company capitalized approximately $14.7 million of development costs associated with the development of Panther. Amortization of this asset began in the first quarter of 2004 when Panther was shipped and is being recognized on a straight-line basis in accordance with SFAS No. 86 over a 3 year estimated useful life.

Total amortization related to capitalized software development costs was $15.7 million, $10.7 million, and $5.8 million in 2005, 2004, and 2003, respectively.

Research and development costs are expensed as
incurred. Development costs of computer software to be sold, leased, or
otherwise marketed are subject to capitalization beginning when a product’s
technological feasibility has been established and ending when a product is available
for general release to customers

68

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 1—Summary
of Significant Accounting Policies (Continued)

pursuant to SFAS No. 86, Computer
Software to be Sold, Leased, or Otherwise Marketed. In most
instances, the Company’s products are released soon after technological
feasibility has been established. Therefore, costs incurred subsequent to
achievement of technological feasibility are usually not significant, and
generally all software development costs have been expensed.

In the fourth quarter of 2004, the Company began
incurring substantial development costs associated with Mac OS X version 10.4
Tiger subsequent to achievement of technological feasibility as evidenced by
public demonstration in August 2004 and the subsequent release of a
developer beta version of the product. The Company capitalized approximately
$29.7 and $4.5 million during 2005 and 2004, respectively, of costs associated
with the development of Tiger. In accordance with SFAS No. 86, amortization
of this asset to cost of sales began in April 2005 when the Company began
shipping Tiger and is being recognized on a straight-line basis over a 3 year
estimated useful life.

During the second quarter of 2004, the Company
incurred substantial development costs associated with FileMaker Pro 7
subsequent to achievement of technological feasibility as evidenced by public
demonstration and release of a developer beta version, and prior to the release
of the final version of the product in March 2004. Therefore, during the
second quarter of 2004, the Company capitalized approximately $2.3 million of
costs associated with the development of FileMaker Pro 7. In accordance with
SFAS No. 86, amortization of this asset to cost of sales began in March 2004
when the Company began shipping FileMaker Pro 7 and is being recognized on a
straight-line basis over a 3 year estimated useful life.

During the third and fourth quarters of 2003, the
Company incurred substantial development costs associated with the development
of Mac OS X version 10.3 (code-named “Panther”), subsequent to achievement of
technological feasibility as evidenced by public demonstration and release of a
developer beta in June 2003, and prior to release of the final version of
the product in the first quarter of 2004. Therefore, during 2003 the Company
capitalized approximately $14.7 million of development costs associated with
the development of Panther. Amortization of this asset began in the first
quarter of 2004 when Panther was shipped and is being recognized on a
straight-line basis in accordance with SFAS No. 86 over a 3 year estimated
useful life.

Total amortization related
to capitalized software development costs was $15.7 million, $10.7 million, and
$5.8 million in 2005, 2004, and 2003, respectively.