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0000320193 | 20070202 | 10-Q | 265 | The Company periodically provides updates to its applications and system software in order to maintain the software’s compliance with specifications. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 266 | The estimated cost to develop such updates is accounted for as warranty costs that are recognized at the time related software revenue is recognized. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 267 | Factors considered in determining appropriate accruals related to such updates include the number of units delivered, the number of updates expected to occur, and the historical cost and estimated future cost of the resources necessary to develop these updates. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 268 | Stock-Based Compensation
The Company accounts for stock-based compensation in accordance with Statement of Financial Accounting Standards (“SFAS”) No. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 269 | 123 (revised 2004) (“SFAS No. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 270 | 123R”), Share-Based Payment. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 271 | Under the provisions of SFAS No. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 272 | 123R, stock-based compensation cost is estimated at the grant date based on the award’s fair-value as calculated by the Black-Scholes-Merton (“BSM”) option-pricing model and is recognized as expense ratably over the requisite service period. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 273 | The BSM model requires various highly judgmental assumptions including volatility, forfeiture rates, and expected option life. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 274 | If any of the assumptions used in the BSM model change significantly, stock-based compensation expense may differ materially in the future from that recorded in the current period. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 275 | Income Taxes
The Company records a tax provision for the anticipated tax consequences of the reported results of operations. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 276 | In accordance with SFAS No. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 277 | 109, Accounting for Income Taxes, the provision for income taxes is computed using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and... | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 278 | Deferred tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in effect for the years in which those tax assets are expected to be realized or settled. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 279 | The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 280 | Management believes it is more likely than not that forecasted income, including income that may be generated as a result of certain tax planning strategies, together with the tax effects of the deferred tax liabilities, will be sufficient to fully recover the remaining deferred tax assets. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 281 | In the event that all or part of the net deferred tax assets are
determined not to be realizable in the future, an adjustment to the valuation allowance would be charged to earnings in the period such determination is made. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 282 | Similarly, if the Company subsequently realizes deferred tax assets that were previously determined to be unrealizable, the respective valuation allowance would be reversed, resulting in a positive adjustment to earnings in the period such determination is made. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 283 | In addition, the calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties in the application of complex tax laws. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 284 | Resolution of these uncertainties in a manner inconsistent with management’s expectations could have a material impact on the Company’s results of operations and financial position. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 285 | Products
The Company offers a range of personal computing products including desktop and portable personal computers, related devices and peripherals, and various third-party hardware products. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 286 | In addition, the Company offers software products including Mac OS X, the Company’s proprietary operating system software for the Macintosh; server software and related solutions; professional application software; and consumer, education and business oriented application software. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 287 | The Company also designs, develops and markets to Macintosh and Windows users its line of iPod digital music players along with related accessories and services including the online distribution of third-party content through the Company’s iTunes Store. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 288 | A detailed discussion of the Company’s products may be found in the 2006 Form 10-K. Certain newly introduced products and/or upgrades to existing products are discussed below:
iPhone™
In January 2007, the Company announced iPhone, a handheld device that combines in a single product a mobile phone, a widescreen iPod wit... | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 289 | The iPhone user interface is based on the Multi-Touch™ display allowing users to control the device with their fingers. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 290 | iPhone lets users make a call by pointing at a name or number in their address book, a favorites list, or a call log as well as select and listen to voicemail messages in whatever order they want. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 291 | iPhone also allows users to play their iTunes content with the touch of a finger. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 292 | iPhone features desktop-class email, web browsing, searching, and maps. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 293 | iPhone is compatible with a Mac or PC and automatically syncs content from a user’s iTunes library, as well as contacts, bookmarks, and email accounts. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 294 | iPhone is a quad-band GSM phone featuring EDGE and Wi-Fi wireless technologies for data networking, Bluetooth 2.0, a built-in 2 megapixel camera, a 3.5-inch touch screen with 480 by 320 resolution at 160 ppi, up to 5 hours of talk/video/browsing battery life, up to 16 hours of audio playback battery life, and up to 8GB... | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 295 | The Company has announced that AT&T Mobility LLC (formerly Cingular Wireless LLC) will be the exclusive U.S. carrier for the iPhone, and that it expects to begin shipping the iPhone in the U.S. in June 2007. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 296 | Apple TV™
In January 2007, the Company announced Apple TV, a device that permits users to wirelessly play iTunes content, including movies, television shows, music, photos, and podcasts, on a widescreen television. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 297 | Compatible with a Mac or PC, Apple TV has a 40GB hard drive to store up to 50 hours of video, 9,000 songs, 25,000 photos, or a combination of each and is capable of displaying content in high definition resolution up to 720p. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 298 | Apple TV connects to a broad range of widescreen televisions and home theater systems and comes standard with HDMI, component video, and both analog and digital optical audio ports. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 299 | Using high-speed AirPort® 802.11 wireless networking, Apple TV can auto-sync content from one computer or stream content from up to five additional computers directly to a television. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 300 | The Company expects to begin shipping Apple TV in February 2007. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 301 | Net Sales
The first quarter of 2007 spanned 13 weeks while the first quarter of 2006 spanned 14 weeks. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 302 | An additional week is added to the first fiscal quarter approximately every six years to realign fiscal quarters with calendar quarters. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 303 | Net sales and Macintosh unit sales by operating segment and net sales and unit sales by product follow (net sales in millions and unit sales in thousands):
Notes:
(a) Other Segments include Asia Pacific and FileMaker. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 304 | (b) Includes iMac, eMac, Mac mini, Mac Pro, Power Mac, and Xserve product lines. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 305 | (c) Includes MacBook, iBook, MacBook Pro, and PowerBook product lines. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 306 | (d) Consists of iTunes Store sales, iPod services, and Apple-branded and third-party iPod accessories. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 307 | (e) Includes sales of Apple-branded and third-party displays, wireless connectivity and networking solutions, and other hardware accessories. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 308 | (f) Includes Apple-branded operating system software, application software, third-party software, AppleCare, and Internet services. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 309 | (g) Derived by dividing total Macintosh net sales by total Macintosh unit sales. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 310 | (h) Derived by dividing total iPod net sales by total iPod unit sales. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 311 | Net sales during the first quarter of 2007 increased 24% or $1.4 billion from the first quarter of 2006 even though the first quarter of 2007 spanned 13 weeks while the first quarter of 2006 spanned 14 weeks. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 312 | Several factors contributed to this increase including the following:
· Macintosh net sales increased $686 million or 40% during the first quarter of 2007 compared to the first quarter of 2006. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 313 | Macintosh unit sales increased by 352,000 units or 28% during the first quarter of 2007 compared to the first quarter of 2006. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 314 | The increases in Macintosh net sales and unit sales were driven by higher sales of portable products in all of the Company’s operating segments. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 315 | During the first quarter of 2007, net sales and unit sales of the Company’s portable products on a year-over-year basis increased 79% and 65%, respectively. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 316 | During the first quarter of 2007 compared to the same period in 2006, the Company experienced a shift in mix of desktop sales from the eMac, which was discontinued in 2006, and the Mac mini to the iMac, particularly the 24-inch iMac model introduced in September 2006, which resulted in a year-over-year increase in desk... | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 317 | The Company believes the decrease in desktop unit sales is largely attributable to a shift in sales to portable computers. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 318 | Overall, net sales per Macintosh unit sold increased 9% year-over-year mainly due to a shift in product mix to higher-priced portable products, a higher average selling price for desktop products, and a higher mix of direct Macintosh sales. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 319 | · Net sales of iPods rose $521 million or 18% during the first quarter of 2007 compared to the first quarter of 2006. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 320 | Unit sales of iPods totaled 21 million in the first quarter of 2007, which represents an increase of 50% over the 14 million iPod units sold in the first quarter of 2006. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 321 | Strong sales of iPods during the first quarter of 2007 were driven by an update to the iPod product family announced in September 2006, channel development programs and expanded and well-supplied channel distribution. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 322 | Net sales per iPod unit sold decreased 21% primarily due to lower average selling prices across the iPod product family and a higher mix of indirect iPod sales. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 323 | · Net sales of other music related products and services increased $143 million or 29% during the first quarter of 2007 compared to the first quarter of 2006 primarily due to increased net sales from the iTunes Store. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 324 | The year-over-year increase in sales from the iTunes Store was the result of significant growth in the U.S. and Europe, growth of the iPod installed base, and expansion of audio and video content available for sale via the iTunes Store. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 325 | · Net sales of software, service, and other sales rose $22 million or 7% during the first quarter of 2007 compared to the first quarter of 2006. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 326 | This growth was primarily attributable to increased net sales in AppleCare Protection Plan (“APP”) extended service and support contracts, Apple-branded and third-party software, and Internet services. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 327 | Partially offsetting the favorable factors discussed above, the Company’s net sales during the first quarter of 2007 were negatively impacted by the following:
· Net sales of peripherals and other hardware decreased by 2% during the first quarter of 2007 compared to the first quarter of 2006 primarily due to a decrease... | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 328 | The decrease in net sales of hardware accessories was due in part to the inclusion of iSight video cameras and AirPort Extreme wireless networking in the standard configurations of certain additional Macintosh computers in the first quarter of 2007. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 329 | Segment Operating Performance
The Company manages its business primarily on a geographic basis. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 330 | 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 | 331 | 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 | 332 | The Americas segment includes both North and South America. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 333 | The Europe segment includes European countries as well as the Middle East and Africa. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 334 | The Retail segment operated Apple-owned retail stores in the U.S., Canada, Japan, and the U.K. during the first quarter of 2007. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 335 | Each reportable geographic operating segment provides similar hardware and software products and similar services. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 336 | Further information regarding the Company’s operating segments may be found in Part I, Item 1 of this Form 10-Q
in the Notes to Condensed Consolidated Financial Statements at Note 6, “Segment Information and Geographic Data.”
Americas
Net sales in the Americas segment during the first quarter of 2007 increased $798 mil... | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 337 | The increase in net sales during the first quarter of 2007 was primarily attributable to the significant year-over-year increase in sales of portable systems, iPods, and sales from the iTunes Store, while net sales of desktop systems remained relatively flat as compared to the first quarter of 2006. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 338 | The increase in net sales of iPods was driven primarily by an update to the iPod product family announced in September 2006, channel development programs and well-supplied channel distribution. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 339 | During the first quarters of 2007 and 2006, the Americas segment represented 49% and 47%, respectively, of the Company’s total net sales. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 340 | Europe
Net sales in Europe increased $469 million or 38% during the first quarter of 2007 as compared to the same quarter in 2006. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 341 | Total Macintosh unit sales in Europe increased 27% on a year-over-year basis. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 342 | Consistent with the Americas segment, these increases were mainly a result of strong growth in net sales of iPods, Macintosh portable systems, and other music related products and services. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 343 | The increase in other music related products and services was primarily due to an increase in sales from the iTunes Store. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 344 | Japan
Japan’s net sales decreased $70 million or 20% during the first quarter of 2007 compared to the same quarter in 2006. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 345 | Total Macintosh unit sales in Japan decreased 14% on a year-over-year basis. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 346 | The generally weak consumer market in Japan, particularly the weak market for PCs, is believed to be responsible for the year-over-year decrease in performance by this segment. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 347 | The Company is continuing to evaluate ways to improve the future results in its Japan segment. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 348 | Retail
During the first quarter of 2007, the Company opened 5 new retail stores. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 349 | The Company had 170 retail stores open at the end of the first quarter of 2007 compared to 135 stores at the end of the first quarter of 2006. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 350 | Retail revenue grew by 6% year-over-year due to strong demand for portable products partially offset by a decrease in net sales of iPods. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 351 | Macintosh unit sales increased by 60% due to strong demand for the MacBook, MacBook Pro, and the higher-priced 24-inch iMac model. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 352 | The decrease in net sales of iPods was due to lower iPod price points and expanded and well-supplied channel distribution. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 353 | Average quarterly revenue per store decreased to $6.7 million in the first quarter of 2007, which spanned 13 weeks, from $8.3 million in the first quarter of 2006, which spanned 14 weeks. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 354 | As measured by the Company’s operating segment reporting, the Retail segment reported a profit of $89 million during the first quarter of 2007 compared to a profit of $90 million during the first quarter of 2006. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 355 | The relatively flat profit was caused by higher expenses from the newly opened stores and continued investment in personnel costs to maintain service levels, which offset the increase in revenue. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 356 | The profit excludes approximately $232 million and $199 million of manufacturing profit earned by the Company on net sales from the Retail segment in the first quarter of 2007 and 2006, respectively. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 357 | Manufacturing profit is the difference between the amount charged to the Retail segment for Apple-branded products and the standard cost recognized by the Company for such products. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 358 | Expansion of the Retail segment has required and will continue to require a substantial investment in fixed assets and related infrastructure, operating lease commitments, personnel, and other operating expenses. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 359 | Capital expenditures associated with the Retail segment since its inception totaled $765 million through the end of the first quarter of 2007. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 360 | As of December 30, 2006, the Retail segment had approximately 6,612 full-time equivalent employees and had outstanding lease commitments associated with retail space of $906 million. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 361 | Gross Margin
Gross margin for the three months ended December 30, 2006 and December 31, 2005 was as follows (in millions, except gross margin percentages):
Gross margin percentage for the first quarter of 2007 was 31.2% compared to 27.2% for the first quarter of 2006. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 362 | The year-over-year increase in gross margin percentage during the first quarter of 2007 was primarily due to favorable costs of certain commodity components including LCD flat-panel displays and NAND flash memory, along with higher overall revenue resulting in more effective leverage on fixed production costs. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 363 | The Company anticipates that its gross margin and the gross margin of the overall personal computer and consumer electronics industries will be under pressure in the future due to competition. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 364 | The Company expects its gross margin percentage to decrease in the second quarter of 2007 from the first quarter of 2007. | 0001104659-07-006648/full-submission.txt |
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