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0000320193 | 20061229 | 10-Q | 650 | As of July 1, 2006, the Retail segment had 5,384 full-time equivalent employees and had outstanding lease commitments associated with retail store space and related facilities of $810 million. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 651 | Gross Margin
Gross margin for the three and nine months ended July 1, 2006 and June 25, 2005 was as follows (in millions, except gross margin percentages):
(1) See “Explanatory Note” immediately preceding Part 1, Item 1 and Note 2, “Restatement of Condensed Consolidated Financial Statements,” in Notes to Condensed Cons... | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 652 | Gross margin percentage for the third quarter of 2006 was 30.3% compared to 29.7% for the third quarter of 2005. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 653 | Favorable costs of certain commodity components including LCD flat-panel displays and NAND flash memory contributed to the higher gross margin percentage along with higher overall revenue resulting in more effective leverage on fixed production costs. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 654 | During the first nine months of 2006, gross margin percentage decreased to 28.9% compared to 29.3% during the first nine months of 2005. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 655 | This was primarily due to a relative increase in sales of lower margin products in the first quarter of 2006, particularly the iPod product family and music-related services, partially offset by higher overall revenue resulting in more effective leverage on fixed production costs. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 656 | Operating Expenses
Operating expenses for the three and nine months ended July 1, 2006 and June 25, 2005 were as follows (in millions, except for percentages):
(1) See “Explanatory Note” immediately preceding Part 1, Item 1 and Note 2, “Restatement of Condensed Consolidated Financial Statements,” in Notes to Condensed ... | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 657 | Research and Development (R&D)
Expenditures for R&D increased 21% or $30 million to $175 million in the third quarter of 2006 compared to $145 million in the third quarter of 2005, and increased 37% or $145 million to $533 million compared to $388 million in the first nine months of 2005. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 658 | These increases were due primarily to an increase in R&D headcount in the current year to support expanded R&D activities, increases of $10 million and $35 million for the three and nine months ended July 1, 2006, respectively, in stock-based compensation recognized as R&D expense resulting from the adoption of SFAS No... | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 659 | 123R, and higher overall expenses due to the 14th week added to the first fiscal quarter of 2006 to realign the Company’s fiscal quarters with calendar quarters. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 660 | In addition, during the first nine months of 2005, the Company capitalized approximately $29.7 million of costs associated with the development of Mac OS X Tiger. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 661 | No software development costs were capitalized during the third quarter or first nine months of 2006. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 662 | Despite the increase in expenditures, R&D as a percentage of net sales remained relatively flat in both the third quarter and first nine months of 2006 as compared to the same periods in 2005 due to the year-over-year increases in net sales experienced by the Company in the third quarter and first nine months of 2006. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 663 | 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 are central to the Company’s core business strategy. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 664 | As such, the Company expects to make further investments in R&D to remain competitive. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 665 | Selling, General, and Administrative Expense (SG&A)
Expenditures for SG&A increased $111 million or 23% and $415 million or 30%, respectively, for the three and nine months ended July 1, 2006, compared to the same periods in 2005. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 666 | These increases were primarily due to higher direct and channel variable selling expenses resulting from the significant year-over-year increase in total net sales for the third quarter and first nine months of 2006, the Company’s continued expansion of its Retail segment in both domestic and international markets, inc... | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 667 | 123R, a current year increase in discretionary spending on marketing and advertising, and the expenses associated with the 14th week added to the first fiscal quarter of 2006. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 668 | Other Income and Expense
Other income and expense for the three and nine months ended July 1, 2006 and June 25, 2005 were as follows (in millions):
Total other income and expense increased $49 million to $95 million during the third quarter of 2006 compared to $46 million in the third quarter of 2005, and increased $14... | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 669 | These increases are attributable primarily to higher cash and short-term investment balances and increasing investment yields resulting from higher market interest rates and the 14th week added to the first fiscal quarter of 2006. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 670 | The weighted average interest rate earned by the Company on its cash, cash equivalents and short-term investments increased to 4.77% in the third quarter of 2006 compared to the 2.88% rate earned during the same period in 2005. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 671 | Provision for Income Taxes
The Company’s effective tax rate for the three and nine months ended July 1, 2006 was approximately 29% and 31%, respectively. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 672 | The effective rate for the three and nine months ended July 1, 2006 differs from the same periods in fiscal year 2005 due primarily to a net benefit recognized in the third quarter of 2006 of $24 million resulting from the dividend repatriation under the American Jobs Creation Act of 2004 (“AJCA”) and international tax... | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 673 | The Company’s effective rate for both periods differs from the statutory federal income tax rate of 35% due primarily to certain undistributed foreign earnings for which no U.S. taxes are provided because such earnings are intended to be indefinitely reinvested outside the U.S., the AJCA dividend repatriation and imple... | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 674 | On October 22, 2004, the AJCA was signed into law. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 675 | The AJCA includes a provision for the deduction of 85% of certain foreign earnings that are repatriated, as defined in the AJCA, within a specified time frame. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 676 | Among other requirements, dividends qualifying for the 85% deduction must be reinvested in the United States in certain qualified investments pursuant to a domestic reinvestment plan approved by the Chief Executive Officer (“CEO”) and Board of Directors. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 677 | During the third quarter of 2006, the Company initiated a plan to repatriate approximately $1.5 billion of foreign earnings prior to the end of fiscal 2006, of which approximately $1.3 billion was repatriated during the third quarter, and of which $755 million is eligible for the reduced tax rate provided by the AJCA. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 678 | Accordingly, the Company recorded a tax charge of $54 million related to the repatriation of foreign earnings under the provisions of the AJCA. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 679 | In addition, the Company recorded a tax benefit of $78 million resulting from the implementation of tax planning strategies to realize deferred tax assets that were previously not recognizable within certain foreign subsidiaries. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 680 | The Internal Revenue Service (“IRS”) has substantially completed its field audit of the Company’s federal income tax returns for the years 2002 through 2003 and proposed certain adjustments. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 681 | The Company intends to contest certain of these adjustments through the IRS Appeals Office. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 682 | Substantially all IRS audit issues for years prior to
2002 have been resolved. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 683 | In addition, the Company is subject to audits by state, local, and foreign tax authorities. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 684 | Management believes that adequate provision has been made for any adjustments that may result from tax examinations. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 685 | However, the outcome of tax audits cannot be predicted with certainty. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 686 | Should any issues addressed in the Company’s tax audits be resolved in a manner not consistent with management’s expectations, the Company could be required to adjust its provision for income tax in the period such resolution occurs. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 687 | Recent Accounting Pronouncements
In September 2006, the SEC issued SAB No. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 688 | 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 689 | SAB No. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 690 | 108 provides guidance on how prior year misstatements should be considered when quantifying misstatements in current year financial statements for purposes of determining whether the current year’s financial statements are materially misstated. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 691 | SAB No. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 692 | 108 is effective for fiscal years ending after November 15, 2006. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 693 | Although the Company will continue to evaluate the application of SAB No. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 694 | 108, management does not currently believe adoption will have a material impact on the Company’s results of operations or financial position. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 695 | In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 696 | 157, Fair Value Measurements, which defines fair value, provides a framework for measuring fair value, and expands the disclosures required for fair value measurements. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 697 | SFAS No. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 698 | 157 applies to other accounting pronouncements that require fair value measurements; it does not require any new fair value measurements. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 699 | SFAS No. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 700 | 157 is effective for fiscal years beginning after November 15, 2007 and is required to be adopted by the Company beginning in the first quarter of fiscal 2009. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 701 | Although the Company will continue to evaluate the application of SFAS No. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 702 | 157, management does not currently believe adoption will have a material impact on the Company’s results of operations or financial position. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 703 | In June 2006, the FASB issued FASB Interpretation No. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 704 | (“FIN”) 48, Accounting for Uncertainty in Income Taxes-an Interpretation of FASB Statement No. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 705 | 109. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 706 | FIN 48 clarifies the accounting for uncertainty in income taxes by creating a framework for how companies should recognize, measure, present, and disclose in their financial statements uncertain tax positions that they have taken or expect to be taken in a tax return. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 707 | FIN 48 is effective for fiscal years beginning after December 15, 2006 and is required to be adopted by the Company beginning in the first quarter of fiscal 2008. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 708 | Although 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 results of operations or financial position. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 709 | In May 2005, the FASB issued SFAS No. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 710 | 154, Accounting Changes and Error Corrections, which replaces Accounting Principles Board (“APB”) Opinion No. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 711 | 20, Accounting Changes and SFAS No. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 712 | 3, Reporting Accounting Changes in Interim Financial Statements-An Amendment of APB Opinion No. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 713 | 28. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 714 | SFAS No. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 715 | 154 requires retrospective application to prior periods’ financial statements of a voluntary change in accounting principal unless it is not practicable. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 716 | SFAS No. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 717 | 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005 and is required to be adopted by the Company in the first quarter of fiscal 2007. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 718 | Although the Company will continue to evaluate the application of SFAS No. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 719 | 154, management does not currently believe adoption will have a material impact on the Company’s results of operations or financial position. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 720 | 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):
(1) See the “Explanatory Note” immediately preceding Part 1, Item 1 and Note 2, “Restatement of Condensed Consolidated Financial ... | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 721 | (a) DSO is based on ending net trade receivables and most recent quarterly net sales for each period. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 722 | (b) Days supply of inventory is based on ending inventory and most recent quarterly cost of sales for each period. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 723 | (c) DPO is based on ending accounts payable and most recent quarterly cost of sales adjusted for the change in inventory. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 724 | As of July 1, 2006, the Company had $9.2 billion in cash, cash equivalents, and short-term investments, an increase of $915 million over the same balances at the end of 2005. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 725 | The principal components of this net increase were from cash generated from operating activities of $1.2 billion, excess tax benefits from stock-based compensation of $339 million, and proceeds from the issuance of common stock under stock plans of $286 million. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 726 | These increases were partially offset by purchases of property, plant, and equipment of $512 million and repurchases of common stock of $354 million in conjunction with net-share settlements on vested restricted stock and restricted stock units. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 727 | Cash generated from operating activities includes the impact of the $1.25 billion prepayment for NAND flash memory components. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 728 | The Company’s short-term investment portfolio is primarily invested in high-credit quality, liquid investments. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 729 | Approximately $4 billion of this cash, cash equivalents, and short-term investments is held by the Company’s foreign subsidiaries and may be subject to U.S. income taxation on repatriation to the U.S. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 730 | 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... | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 731 | Capital Expenditures
The Company’s total capital expenditures were $512 million during the first nine months of 2006, consisting of $136 million for retail store facilities and equipment related to the Company’s Retail segment, $247 million for real estate acquisitions for the Company’s second corporate campus and for ... | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 732 | The Company currently anticipates it will utilize approximately $700 million for capital expenditures during 2006, including approximately $210 million for expansion of the Company’s Retail segment, approximately $265 million for real estate acquisitions including the Company’s second corporate campus and its new data ... | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 733 | 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. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 734 | This repurchase plan does not obligate the Company to acquire any specific number of shares or acquire shares over any specified period of time. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 735 | 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 July 1, 2006. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 736 | 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 ... | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 737 | 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. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 738 | 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. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 739 | 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. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 740 | Total outstanding commitments on noncancelable operating leases related to the lease of retail space increased to $810 million as of July 1, 2006. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 741 | 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. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 742 | 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. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 743 | The Company also obtains individual components for its products from a wide variety of individual suppliers. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 744 | Consistent with industry practice, the Company acquires components through a combination of purchase orders, supplier contracts, and open orders based on projected demand information. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 745 | Such purchase commitments typically cover the Company’s forecasted component and manufacturing requirements for periods ranging from 30 to 150 days. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 746 | As of July 1, 2006, the Company had outstanding third-party manufacturing commitments and component purchase commitments of approximately $1.8 billion. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 747 | 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. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 748 | As part of these agreements, the Company prepaid $1.25 billion for flash memory components during 2006. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 749 | These prepayments will be applied to inventory purchases made over the life of each respective agreement. | 0001104659-06-084286/full-submission.txt |
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