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0000320193 | 20070202 | 10-Q | 65 | The following table summarizes components of total comprehensive income, net of taxes, during the three-month periods ended December 30, 2006 and December 31, 2005 (in millions):
The following table summarizes activity in other comprehensive income related to derivatives, net of taxes, held by the Company during the th... | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 66 | Based on the terms of individual option grants, options granted under the 2003 Plan generally expire 7 to 10 years after the grant date and generally become exercisable over a period of four years, based on continued employment, with either annual or quarterly vesting. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 67 | The 2003 Plan permits the granting of incentive stock options, nonstatutory stock options, RSUs, stock appreciation rights, and stock purchase rights. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 68 | 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. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 69 | Based on the terms of individual option grants, options granted under the 1997 Plan generally expire 7 to 10 years after the grant date and generally become exercisable over a period of four years, based on continued employment, with either annual or quarterly vesting. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 70 | In October 2003, the Company terminated the 1997 Plan and no new options can be granted from this plan. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 71 | 1997 Director Stock Option Plan
In August 1997, the Company’s Board of Directors adopted a Director Stock Option Plan (“Director Plan”) for non-employee directors of the Company, which was approved by shareholders in 1998. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 72 | Pursuant to the Director Plan, the Company’s non-employee directors are granted an option to acquire 30,000 shares of common stock upon their initial election to the Board (“Initial Options”). | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 73 | The Initial Options vest and become exercisable in three equal annual installments on each of the first through third anniversaries of the grant date. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 74 | On the fourth anniversary of a non-employee director’s initial election to the Board and on each subsequent anniversary thereafter, the director will be entitled to receive an option to acquire 10,000 shares of common stock (“Annual Options”). | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 75 | Annual Options are fully vested and immediately exercisable on their date of grant. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 76 | Rule 10b5-1 Trading Plans
Certain of the Company’s executive officers, including Mr. Timothy D. Cook, Mr. Peter Oppenheimer, Mr. Philip W. Schiller, and Dr. Bertrand Serlet, have entered into trading plans pursuant to Rule 10b5-1(c)(1) of the Securities Exchange Act of 1934, as amended. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 77 | A trading plan is a written document that pre-establishes the amounts, prices and dates (or formula for determining the amounts, prices and dates) of future purchases or sales of the Company’s stock including the exercise and sale of employee stock options and shares acquired pursuant to the Company’s employee stock pu... | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 78 | 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 off... | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 79 | 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. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 80 | The number of shares authorized for issuance is limited to a total of 1 million shares per offering period. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 81 | As of December 30, 2006, approximately 1.6 million shares were reserved for future issuance under the Purchase Plan. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 82 | Stock Award Activity
A summary of the Company’s stock award activity and related information for the three months ended December 30, 2006 is set forth in the following table (stock award amounts and aggregate intrinsic value are presented in thousands):
Beginning in April 2005, each RSU granted under the 2003 plan has ... | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 83 | Aggregate intrinsic value represents the value of the Company’s closing stock price on the last trading day of the fiscal period in excess of the exercise price multiplied by the number of options outstanding or exercisable. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 84 | Total intrinsic value of options at time of exercise was $291 million and $473 million for the three months ended December 30, 2006 and December 31, 2005, respectively. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 85 | No stock-based compensation costs were capitalized as part of the cost of an asset as of December 30, 2006 or December 31, 2005. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 86 | The income tax benefit related to stock-based compensation expense was $14 million for the quarters ended December 30, 2006 and December 31, 2005. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 87 | As of December 30, 2006, $741 million of total unrecognized compensation cost related to stock options and RSUs is expected to be recognized over a weighted-average period of 3.40 years. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 88 | Statement of Financial Accounting Standards (“SFAS”) No. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 89 | 123 (revised 2004) (“SFAS No. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 90 | 123R”), Share-Based Payment, prohibits recognition of a deferred tax asset for an excess tax benefit that has not been realized. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 91 | The Company will recognize a benefit from stock-based compensation in equity if an incremental tax benefit is realized by following the ordering provisions of the tax law. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 92 | In addition, the Company accounts for the indirect effects of stock-based compensation on the research tax credit, the foreign tax credit, and the domestic manufacturing deduction through the income statement. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 93 | As of December 30, 2006, the Company had 4.68 million RSUs outstanding with a total grant-date fair value of $245 million, which were excluded from the options outstanding balances in the preceding table. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 94 | The weighted-average grant date fair value of RSUs granted during the first three months of 2007 and 2006 was $86.67 and $72.01, respectively. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 95 | Aggregate intrinsic value of RSUs at December 30, 2006 was $397 million. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 96 | No RSUs vested during the three months ended December 30, 2006. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 97 | SFAS No. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 98 | 123R requires the use of a valuation model to calculate the fair value of stock-based awards. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 99 | The Company has elected to use the Black-Scholes-Merton option-pricing model, which incorporates various assumptions including volatility, expected life, and interest rates. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 100 | The expected volatility is based on the historical volatility of the Company’s common stock over the most recent period commensurate with the estimated expected life of the Company’s stock options and other relevant factors including implied volatility in market traded options on the Company’s common stock. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 101 | The Company bases its expected life assumption on its historical experience and on the terms and conditions of the stock awards it grants to employees. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 102 | The assumptions used for the three-month periods ended December 30, 2006 and December 31, 2005 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 5 - Commitments and Contingencies
Lease Commitments
The Company leases ... | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 103 | The Company does not currently utilize any other off-balance sheet financing arrangements. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 104 | 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. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 105 | 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. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 106 | As of September 30, 2006, the Company’s total future minimum lease payments under noncancelable operating leases were $1.2 billion, of which $887 million related to leases for retail space. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 107 | As of December 30, 2006, total future minimum lease payments related to leases for retail space increased to $906 million. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 108 | Accrued Warranty and Indemnifications
The following table reconciles changes in the Company’s accrued warranties and related costs for the three-month periods ended December 30, 2006 and December 31, 2005 (in millions):
The Company generally does not indemnify end-users of its operating system and application software ... | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 109 | 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. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 110 | However, the Company has not been required to make any significant payments resulting from such an infringement claim asserted against itself or an indemnified third party and, in the opinion of management, does not have a potential liability related to unresolved infringement claims subject to indemnification that wou... | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 111 | Therefore, the Company did not record a liability for infringement costs as of either December 30, 2006 or September 30, 2006. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 112 | Concentrations in the Available Sources of Supply of Materials and Product
Although most components essential to the Company’s business are generally available from multiple sources, certain key components including microprocessors and application-specific integrated circuits (“ASICs”) are currently obtained by the Com... | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 113 | Some other key components, while currently
available to the Company from multiple sources, are at times subject to industry-wide availability and pricing pressures. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 114 | In addition, the Company uses some components that are not common to the rest of the personal computer and consumer electronics industries, and new products introduced by the Company often initially utilize custom components obtained from only one source until the Company has evaluated whether there is a need for and s... | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 115 | If the supply of a key single-sourced component to the Company were to be delayed or curtailed, or in the event a key manufacturing vendor delays shipments of completed products to the Company, the Company’s ability to ship related products in desired quantities and in a timely manner could be adversely affected. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 116 | The Company’s business and financial performance could also be adversely affected depending on the time required to obtain sufficient quantities from the original source, or to identify and obtain sufficient quantities from an alternative source. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 117 | Continued availability of these components may be affected if producers were to decide to concentrate on the production of common components instead of components customized to meet the Company’s requirements. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 118 | Finally, significant portions of the Company’s CPUs, logic boards, and assembled products are now manufactured by outsourcing partners, primarily in various parts of Asia. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 119 | Although the Company works closely with its outsourcing partners on manufacturing schedules, the Company’s operating results could be adversely affected if its outsourcing partners were unable to meet their production obligations. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 120 | Long-Term Supply Agreements
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. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 121 | As part of these agreements, the Company prepaid $1.25 billion for flash memory components during 2006. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 122 | None of the prepayment had been utilized by the Company as of December 30, 2006. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 123 | These prepayments will be applied to certain inventory purchases made over the life of each respective agreement. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 124 | Contingencies
The Company is subject to certain legal proceedings and claims that have arisen in the ordinary course of business and have not been fully adjudicated. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 125 | 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. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 126 | However, the results of legal proceedings cannot be predicted with certainty. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 127 | 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. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 128 | Production and marketing of products in certain states and countries may subject the Company to environmental and other regulations including, in some instances, the requirement to provide customers the ability to return product at the end of its useful life, and place responsibility for environmentally safe disposal o... | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 129 | Such laws and regulations have recently been passed in several jurisdictions in which the Company operates including various European Union member countries, Japan, and certain states within the U.S. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 130 | Although the Company does not anticipate any material adverse effects in the future based on the nature of its operations and the thrust of such laws, there is no assurance that such existing laws or future laws will not have a material adverse effect on the Company’s financial condition, liquidity, or results of opera... | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 131 | Note 6 - Segment Information and Geographic Data
In accordance with SFAS No. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 132 | 131, Disclosures about Segments of an Enterprise and Related Information, the Company reports segment information based on the “management” approach. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 133 | The management approach designates the internal reporting used by management for making decisions and assessing performance as the source of the Company’s reportable segments. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 134 | The Company manages its business primarily on a geographic basis. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 135 | The Company’s reportable operating segments are comprised of the Americas, Europe, Japan, and Retail. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 136 | The Americas, Europe, and Japan reportable segments do not include activities related to the Retail segment. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 137 | The Americas segment includes both North and South America. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 138 | The Europe segment includes European countries as well as the Middle East and Africa. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 139 | The Retail segment operates Apple-owned retail stores in the U.S., Canada, Japan, and the U.K. Other operating segments include Asia-Pacific, which includes Australia and Asia except for Japan, and the Company’s subsidiary, FileMaker, Inc. Each reportable geographic operating segment provides similar hardware and softw... | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 140 | The Company evaluates the performance of its operating segments based on net sales. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 141 | The Retail segment’s performance is also evaluated based on operating income. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 142 | Net sales for geographic segments are generally based on the location of the customers. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 143 | Operating income for each segment includes net sales to third parties, related cost of sales, and operating expenses directly attributable to the segment. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 144 | Operating income for each segment excludes other income and expense and certain expenses that are managed outside the operating segments. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 145 | Costs excluded from segment operating income include various corporate expenses such as manufacturing costs and variances not included in standard costs, research and development, corporate marketing expenses, stock-based compensation expense, income taxes, various nonrecurring charges, and other separately managed gen... | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 146 | The Company does not include intercompany transfers between segments for management reporting purposes. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 147 | Segment assets exclude corporate assets. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 148 | Corporate assets include cash, short-term and long-term investments, manufacturing facilities, miscellaneous corporate infrastructure, goodwill and other acquired intangible assets, and retail store construction-in-progress that is not subject to depreciation. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 149 | Except for the Retail segment, capital expenditures for long-lived assets are not reported to management by segment. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 150 | Capital expenditures by the Retail segment were $36 million and $40 million during the first quarters of 2007 and 2006, respectively. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 151 | Operating income for all segments, except Retail, includes cost of sales at manufacturing standard cost, other cost of sales, related sales and marketing costs, and certain general and administrative costs. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 152 | This measure of operating income, which includes manufacturing profit, provides a comparable basis for comparison between the Company’s various geographic segments. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 153 | Certain manufacturing expenses and related adjustments not included in segment cost of sales, including variances between standard and actual manufacturing costs and the mark-up above standard cost for product supplied to the Retail segment, are included in corporate expenses. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 154 | Management assesses the operating performance of the Retail segment differently than it assesses the operating performance of the Company’s geographic segments. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 155 | The Retail segment revenue and operating income are intended to depict a measure comparable to that of the Company’s major channel partners in the U.S. operating retail stores so the Company can evaluate the Retail segment performance as if it were a channel partner. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 156 | Therefore, the Company makes three significant adjustments to the Retail segment for management reporting purposes that are not included in the results of the Company’s other segments. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 157 | First, the Retail segment’s operating income includes cost of sales for Apple products at an amount normally charged to major channel partners in the U.S. operating retail stores, less the cost of sales programs and incentives provided to those channel partners and the Company’s cost to support those partners. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 158 | For the first quarter of 2007 and 2006, this resulted in the recognition of additional cost of sales above standard cost by the Retail segment and an offsetting benefit to corporate expenses of approximately $232 million and $199 million, respectively. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 159 | Second, the Company’s service and support contracts are transferred to the Retail segment at the same cost as that charged to the Company’s major retail channel partners in the U.S., resulting in a measure of revenue and gross margin for those items that is comparable between the Company’s retail stores and those retai... | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 160 | The Retail segment recognizes the full amount of revenue and cost of sales of the Company’s service and support contracts at the time of sale. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 161 | Because the Company has not yet earned the revenue or incurred the costs associated with the sale of these contracts, an offset to these amounts is recognized in other operating segments’ net sales and cost of sales. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 162 | For the first quarter of 2007, this resulted in the recognition of net sales and cost of sales by the Retail segment, with corresponding offsets in other operating segments, of $51 million and $34 million, respectively. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 163 | For the first quarter of 2006, this resulted in the recognition of net sales and cost of sales by the Retail segment of $38 million and $25 million, respectively. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 164 | Third, the Company had opened a total of eight high-profile stores as of December 30, 2006. | 0001104659-07-006648/full-submission.txt |
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