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0000320193 | 20060505 | 10-Q | 544 | Although the Company will continue to evaluate the application of SFAS No. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 545 | 154, management does not currently believe adoption will have a material impact on the Company’s results of operations or financial position. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 546 | Liquidity and Capital Resources
The following table presents selected financial information and statistics for each of the fiscal quarters ended on the dates indicated (dollars in millions):
(a) DSO is based on ending net trade receivables and most recent quarterly net sales for each period. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 547 | (b) Days supply of inventory is based on ending inventory and most recent quarterly cost of sales for each period. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 548 | (c) DPO is based on ending accounts payable and most recent quarterly cost of sales adjusted for the change in inventory. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 549 | As of April 1, 2006, the Company had $8.2 billion in cash, cash equivalents, and short-term investments, a decrease of $35 million over the same balances at the end of 2005. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 550 | The principal components of this net decrease were repurchases of common stock of $353 million in conjunction with net-share settlements on vested restricted stock and restricted stock units and purchases of property, plant, and equipment of $275 million. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 551 | These decreases were offset by proceeds from the issuance of common stock under stock plans of $212 million, tax benefits from stock option exercises of $283 million, and cash generated from operating activities of $158 million. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 552 | Cash generated from operating activities includes the impact of the $1.25 billion prepayment for NAND flash memory components. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 553 | The Company’s short-term investment portfolio is primarily invested in high credit quality, liquid investments. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 554 | Approximately $5 billion of this cash, cash equivalents, and short-term investments is held by the Company’s foreign subsidiaries and would be subject to U.S. income taxation on repatriation to the U.S. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 555 | The Company is currently assessing the impact of the one-time favorable foreign dividend provisions recently enacted as part of the AJCA, and may decide to repatriate earnings from some of its foreign subsidiaries. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 556 | The Company believes its existing balances of cash, cash equivalents, and short-term investments will be sufficient to satisfy its working capital needs, capital expenditures, stock repurchase activity, outstanding commitments, and other liquidity requirements associated with its existing operations over the next 12 mo... | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 557 | Capital Expenditures
The Company’s total capital expenditures were $275 million during the first six months of 2006, $82 million of which were for retail store facilities and equipment related to the Company’s Retail segment and $193 million of which were for corporate infrastructure, including information systems enha... | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 558 | The Company currently anticipates it will utilize approximately $700 million for capital expenditures during 2006, approximately $210 million of which is expected to be utilized for expansion of the Company’s Retail segment, approximately $265 million of which is expected to be utilized for real estate acquisitions inc... | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 559 | 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. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 560 | This repurchase plan does not obligate the Company to acquire any specific number of shares or acquire shares over any specified period of time. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 561 | During the second quarter of 2006, the Company withheld a total of 4.6 million shares of its common stock at a price of $64.66 per share related to the net-share settlement upon vesting of restricted stock to pay the CEO’s minimum statutory obligation for the applicable income and other employment taxes. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 562 | This share withholding was not part of the Company’s authorized stock repurchase plan. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 563 | Other than this net-share settlement, the Company has not engaged in any transactions to repurchase its common stock since 2001. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 564 | The Company has repurchased a total of 13.1 million shares at a cost of $217 million under this plan and was authorized to repurchase up to an additional $283 million of its common stock as of April 1, 2006. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 565 | Off-Balance Sheet Arrangements and Contractual Obligations
The Company has not entered into any transactions with unconsolidated entities whereby the Company has financial guarantees, subordinated retained interests, derivative instruments or other contingent arrangements that expose the Company to material continuing ... | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 566 | Lease Commitments
As of September 24, 2005, the Company had total outstanding commitments on noncancelable operating leases of approximately $865 million, $606 million of which related to the lease of retail space and related facilities. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 567 | The major facility leases are for terms of 5 to 15 years and generally provide renewal options for terms of 3 to 5 additional years. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 568 | Leases for retail space are for terms of 5 to 20 years, the majority of which are for 10 years, and often contain multi-year renewal options. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 569 | Total outstanding commitments on noncancelable operating leases related to the lease of retail space rose to $782 million as of April 1, 2006. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 570 | Purchase Commitments with Contract Manufacturers and Component Suppliers
The Company utilizes several contract manufacturers to manufacture sub-assemblies for the Company’s products and to perform final assembly and test of finished products. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 571 | These contract manufacturers acquire components and build product based on demand information supplied by the Company, which typically covers periods ranging from 30 to 150 days. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 572 | The Company also obtains individual components for its products from a wide variety of individual suppliers. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 573 | Consistent with industry practice, the Company acquires components through a combination of purchase orders, supplier contracts, and open orders based on projected demand information. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 574 | Such purchase commitments typically cover the Company’s forecasted component and manufacturing requirements for periods ranging from 30 to 150 days. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 575 | As of April 1, 2006, the Company had outstanding third-party manufacturing commitments and component purchase commitments of approximately $1.3 billion. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 576 | During the first quarter of 2006, the Company entered into long-term supply agreements with Hynix Semiconductor, Inc., Intel Corporation, Micron Technology, Inc., Samsung Electronics Co., Ltd., and Toshiba Corporation to secure supply of NAND flash memory through calendar year 2010. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 577 | As part of these agreements, the Company agreed to prepay $1.25 billion for flash memory components of which $750 million was paid during the first quarter of 2006 and the remaining $500 million was paid in the second quarter of 2006. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 578 | These prepayments will be applied to inventory purchases made over the life of each respective agreement. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 579 | Asset Retirement Obligations
The Company’s asset retirement obligations are associated with commitments to return property subject to operating leases to original condition upon lease termination. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 580 | As of April 1, 2006, the Company estimated that gross expected future cash flows of approximately $18 million would be required to fulfill these obligations. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 581 | Other Obligations
The Company had other contractual obligations of approximately $45 million as of April 1, 2006 primarily related to telecommunications services contracts that were renewed in the first quarter of 2006 for a three-year period. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 582 | Indemnifications
The Company generally does not indemnify end-users of its operating system and application software against legal claims that the software infringes third-party intellectual property rights. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 583 | Other agreements entered into by the Company sometimes include indemnification provisions under which the Company could be subject to costs and/or
damages in the event of an infringement claim against the Company or an indemnified third-party. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 584 | However, the Company has not been required to make any significant payments resulting from such an infringement claim asserted against it or an indemnified third-party and, in the opinion of management, does not have a liability related to unresolved infringement claims subject to indemnification that would have a mate... | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 585 | Item 3. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 586 | Quantitative and Qualitative Disclosures About Market Risk
The Company’s market risk profile has not changed significantly from that described in the 2005 Form 10-K.
Interest Rate and Foreign Currency Risk Management
The Company regularly reviews its foreign exchange forward and option positions and its interest rate s... | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 587 | However, given the effective horizons of the Company’s risk management activities and the anticipatory nature of the exposures, there can be no assurance the hedges will offset more than a portion of the financial impact resulting from movements in either foreign exchange or interest rates. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 588 | In addition, the timing of the accounting for recognition of gains and losses related to mark-to-market instruments for any given period may not coincide with the timing of gains and losses related to the underlying economic exposures and, therefore, may adversely affect the Company’s operating results and financial po... | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 589 | Interest Rate Risk
While the Company is exposed to interest rate fluctuations in many of the world’s leading industrialized countries, the Company’s interest income and expense is most sensitive to fluctuations in the general level of U.S. interest rates. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 590 | In this regard, changes in U.S. interest rates affect the interest earned on the Company’s cash, cash equivalents, and short-term investments as well as costs associated with foreign currency hedges. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 591 | The Company’s short-term investment policy and strategy is to ensure the preservation of capital, meet liquidity requirements, and optimize return in light of the current credit and interest rate environment. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 592 | The Company benchmarks its performance by utilizing external money managers to manage a small portion of the aggregate investment portfolio. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 593 | The external managers adhere to the Company’s investment policies and also provide occasional research and market information that supplements internal research used to make credit decisions in the investment process. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 594 | The Company’s exposure to market risk for changes in interest rates relates primarily to the Company’s investment portfolio. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 595 | The Company places its short-term investments in highly liquid securities issued by high credit quality issuers and, by policy, limits the amount of credit exposure to any one issuer. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 596 | The Company’s general policy is to limit the risk of principal loss and ensure the safety of invested funds by limiting market and credit risk. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 597 | All highly liquid investments with maturities of three months or less are classified as cash equivalents; highly liquid investments with maturities greater than three months are classified as short-term investments. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 598 | As of April 1, 2006, approximately $76 million of the Company’s short-term investments had underlying maturities ranging from 1 to 5 years. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 599 | The remainder all had underlying maturities between 3 and 12 months. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 600 | The Company may sell its investments prior to their stated maturities for strategic purposes, in anticipation of credit deterioration, or for duration management. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 601 | The Company recognized no material net gains or losses during the first six months of 2006 or 2005 related to such sales. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 602 | Foreign Currency Risk
In general, the Company is a net receiver of currencies other than the U.S. dollar. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 603 | Accordingly, changes in exchange rates, and in particular a strengthening of the U.S. dollar, may negatively affect the Company’s net sales and gross margins as expressed in U.S. dollars. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 604 | There is also a risk that the Company will have to adjust local currency product pricing due to competitive pressures when there has been significant volatility in foreign currency exchange rates. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 605 | The Company may enter into foreign currency forward and option contracts with financial institutions to protect against foreign exchange risks associated with existing assets and liabilities, certain firmly committed transactions, forecasted future cash flows, and net investments in foreign subsidiaries. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 606 | Generally, the Company’s practice is to hedge a majority of its existing material foreign exchange transaction exposures. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 607 | However, the Company may not hedge certain foreign exchange transaction exposures due to immateriality, prohibitive economic cost of hedging particular exposures, and limited availability of appropriate hedging instruments. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 608 | Item 4. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 609 | Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Based on an evaluation under the supervision and with the participation of the Company’s management, the Company’s principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures as ... | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 610 | Changes in Internal Control Over Financial Reporting
There were no significant changes in the Company’s internal control over financial reporting identified in management’s evaluation during the second quarter of 2006 that have materially affected, or are reasonably likely to materially affect, the Company’s internal c... | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 611 | PART II. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 612 | OTHER INFORMATION
Item 1. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 613 | Legal Proceedings
The Company is subject to various legal proceedings and claims that are discussed below. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 614 | The Company is also subject to certain other legal proceedings and claims that have arisen in the ordinary course of business and which have not been fully adjudicated. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 615 | In the opinion of management, 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, liquidity or results of operations. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 616 | However, the results of legal proceedings cannot be predicted with certainty. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 617 | Should the Company fail to prevail in any of these legal matters or should several of these legal matters be resolved against the Company in the same reporting period, the operating results of a particular reporting period could be materially adversely affected. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 618 | The Company settled certain matters during the second quarter of 2006 that did not individually or in the aggregate have a material impact on the Company’s results of operations. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 619 | Allen v. Apple Computer, Inc.
On January 28, 2005 a plaintiff filed a purported nationwide class action in Los Angeles Superior Court alleging that a defect in the Company’s 17-inch Studio Display monitors results in dimming of half of the screen and constant blinking of the power light. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 620 | Plaintiff filed an amended complaint on October 24, 2005, adding additional named plaintiffs and expanding the alleged class to include purchasers of the 20-inch Apple Cinema Display and the 23-inch Apple Cinema HD Display. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 621 | The amended complaint alleges that the displays have a purported defect that causes dimming of one-half of the screen, and that the Company misrepresented the quality of the displays and/or concealed the purported defect. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 622 | Plaintiffs assert claims under California Business & Professions Code §17200 (unfair competition); California Business & Professions Code §17500 (false advertising) and the Consumer Legal Remedies Act. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 623 | The amended complaint seeks remedies including damages and equitable relief. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 624 | On November 14, 2005, the Company filed an answer to the amended complaint as to the allegations regarding the 17-inch display and a demurrer/motion to strike as to the allegations regarding the 20-inch and 23-inch displays on the ground that plaintiffs failed to allege that they purchased those displays. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 625 | At a status conference on November 1, 2005, the Court ordered Plaintiffs to amend their complaint. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 626 | Plaintiff filed an amended complaint on December 12, 2005, and the Company answered on January 5, 2006 denying all allegations and asserting numerous affirmative defenses. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 627 | The case is in discovery. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 628 | Apple Computer, Inc. v. Burst.com, Inc. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 629 | The Company filed an action for declaratory judgment against Defendant Burst.com, Inc. on January 4, 2006. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 630 | The Company seeks declaratory judgment that U.S. Patent Nos. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 631 | 4,963,995, 5,164,839, and 5,995,705 are invalid and not infringed by the Company. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 632 | Burst filed an answer and counter claim on April 17, 2006. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 633 | Burst alleges that the following Apple products infringe U.S. Patent Nos. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 634 | 4,963,995, 5,057,932, 5,164,839, and 5,995,705: iTunes Music Store, iPod devices, QuickTime products, iTunes software and Apple computers and servers running iTunes software or QuickTime. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 635 | The patents allegedly relate to methods and devices used for “burst” transmission of audio or video files. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 636 | Apple Corps Ltd. v. Apple Computer, Inc.; Apple Computer, Inc. v. Apple Corps Ltd. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 637 | Plaintiff Apple Corps filed this action on July 4, 2003 in the High Court of Justice, Chancery Division, in London alleging that the Company has breached a 1991 agreement that resolved earlier trademark litigation between the parties regarding use of certain Apple marks. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 638 | Plaintiff seeks an injunction, unspecified damages, and other relief. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 639 | The Company filed a motion on October 13, 2003, challenging jurisdiction in the U.K. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 640 | The Court denied this motion on April 7, 2004. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 641 | The Company filed an appeal of the Court’s decision but subsequently withdrew the appeal. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 642 | In November 2004, Plaintiff served the Company with an Amended Bill of Particulars and on December 23, 2004, the Company filed a Defence. | 0001104659-06-031303/full-submission.txt |
0000320193 | 20060505 | 10-Q | 643 | On November 24, 2005, Plaintiff filed a Re-Amended Bill of Particulars and the Company filed its Defence on December 16, 2005. | 0001104659-06-031303/full-submission.txt |
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