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0000320193
20030513
10-Q
691
The Company may consider the desirability of entering into licensing agreements in certain of these cases.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
692
However, no assurance can be given that such licenses can be obtained on acceptable terms or that litigation will not occur.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
693
In the event there is a temporary or permanent injunction entered prohibiting the Company from marketing or selling certain of its products or a successful claim of infringement against the Company requiring it to pay royalties to a third-party, the Company’s future operating results and financial condition could be ad...
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
694
Information regarding certain claims and potential litigation involving the Company related to alleged patent infringement and other matters is set forth in Part I, Item 3 of the 2002 Form 10-K.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
695
In the opinion of management, the Company does not have a potential liability for damages or royalties from any current legal proceedings or claims related to the infringement of patent or other intellectual property rights of others that would have a material adverse affect on its results of operations, or financial c...
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
696
However, the results of such legal proceedings cannot be predicted with certainty.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
697
Should the Company fail to prevail in any of the matters related to infringement of patent or other intellectual property rights of others described in Part I, Item 3 of the 2002 Form 10-K or should several of these matters be resolved against the Company in the same reporting period, the operating results of a particu...
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
698
The Company expects its quarterly revenues and operating results to fluctuate for a variety of reasons.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
699
The Company’s profit margins vary among its products and its distribution channels.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
700
As a result, the overall profitability of the Company in any given period will depend, in part, on the product, geographic, and channel mix reflected in that period’s net sales.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
701
The typical concentration of net sales in the third month of the Company’s fiscal quarters can adversely affect the Company’s business and operating results.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
702
The Company generally sells more products during the third month of each quarter than it does during either of the first two months, a pattern typical in the personal computer industry.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
703
This sales pattern can produce pressure on the Company’s internal infrastructure during the third month of a quarter and may adversely impact the Company’s ability to predict its financial results accurately.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
704
Developments late in a quarter, such as lower-than-anticipated demand for the Company’s products, an internal systems failure, or failure of one of the Company’s key logistics or components suppliers, can have significant adverse impacts on the Company and its results of operations and financial condition.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
705
The Company’s success depends largely on its ability to attract and retain key personnel.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
706
Much of the future success of the Company depends on the continued service and availability of skilled personnel, including those in technical, marketing and staff positions.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
707
Experienced personnel in the information technology industry are in high demand and competition for their talents is intense, especially in the Silicon Valley, where the majority of the Company’s employees are located.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
708
There can be no assurance that the Company will be able to successfully attract and retain the key personnel it needs.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
709
Additionally, volatility or a lack of positive performance in the Company’s stock price may adversely affect its ability to retain key employees.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
710
As of March 29, 2003, a substantial majority of the Company’s outstanding employee stock options were out-of-the-money.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
711
The Company is subject to risks associated with the availability and cost of insurance.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
712
The Company has observed rapidly changing conditions in the insurance markets relating to nearly all areas of traditional corporate insurance.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
713
Such conditions have resulted in higher premium costs, higher policy deductibles, and lower coverage limits.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
714
For some risks, because of cost and/or availability, the Company does not have insurance coverage.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
715
For these reasons, the Company is retaining a greater portion of its insurable risks than it has in the past at relatively greater cost.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
716
The Company is exposed to credit risk on its accounts receivable.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
717
This risk is heightened as economic conditions worsen.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
718
The Company distributes its products through third-party computer resellers and retailers and directly to certain educational institutions and commercial customers.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
719
A substantial majority of the Company’s outstanding trade receivables are not covered by collateral or credit insurance.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
720
The Company also has non-trade receivables from certain of its manufacturing vendors resulting from the sale by the Company of raw material components to these manufacturing vendors who manufacture sub-assemblies or assemble final products for the Company.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
721
While the Company has procedures in place to monitor and limit exposure to credit risk on its trade and non-trade receivables, there can be assurance that such procedures will be effective in limiting its credit risk and avoiding losses.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
722
Additionally, if the global economy and regional economies fail to improve or continue to deteriorate, it becomes more likely that the Company will incur a material loss or losses as a result of the weakening financial condition of one or more of its customers or manufacturing vendors.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
723
The market value of the Company’s non-current debt and equity investments is subject to significant volatility.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
724
The Company holds minority investments in several public companies with a combined fair market value of approximately $28 million as of March 29, 2003.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
725
These investments are in publicly traded companies whose share prices are subject to significant volatility.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
726
The Company has categorized its investments in these companies as available-for-sale requiring the investments be carried at fair value, with unrealized gains and losses, net of taxes, reported as a component of accumulated other comprehensive income.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
727
The Company recognizes an impairment charge to earnings when it is judged an investment has experienced a decline in value that is other-than-temporary.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
728
The Company has recognized material impairment charges related to its non-current debt and equity investments twice in the last two fiscal years.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
729
The Company is subject to risks associated with environmental regulations.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
730
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 that the Company provide consumers with the ability to return product to the Company at the end of its useful life, and place responsibility f...
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
731
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.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
732
The parliament of the European Union has finalized the Waste Electrical and Electronic Equipment Directive (the Directive).
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
733
The Directive makes producers of electrical goods, including personal computers, financially responsible for the collection, recycling, and safe disposal of past and future products.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
734
The Directive must now be approved and implemented by individual European Union governments by August 13, 2004, while the producers’ financial obligations are scheduled to start August 13, 2005.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
735
The Company’s potential liability resulting from the Directive related to past sales of its products and expenses associated with future sales of its product may be substantial.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
736
However, because it is likely that specific laws, regulations, and enforcement policies will vary significantly between individual European member states, it is not currently possible to estimate the Company’s existing liability or future expenses resulting from the Directive.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
737
As the European Union and its individual member states clarify specific requirements and policies with respect to the Directive, the Company will continue to assess its potential financial impact.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
738
Similar legislation may be enacted in other geographies, including federal and state legislation in the United States, the cumulative impact of which could be significant.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
739
Business interruptions could adversely affect the Company’s future operating results.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
740
The Company’s major business operations are subject to interruption by earthquake, fire, power shortages, terrorist attacks and other hostile acts, labor disputes, medical conditions, and other events beyond its control.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
741
The majority of the Company’s research and development activities, its corporate headquarters, and other critical business operations, including certain major components suppliers and manufacturing vendors, are located near major seismic faults.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
742
The Company does not carry earthquake insurance for direct quake-related losses.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
743
The Company’s operating results and financial condition could be materially adversely affected in the event of a major earthquake or other natural or manmade disaster.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
744
Unanticipated changes in the Company’s tax rates could affect its future results.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
745
The Company’s future effective tax rates could be favorably or unfavorably affected by unanticipated changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of the Company’s deferred tax assets and liabilities, or by changes in tax laws or their interpretation.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
746
The Company’s stock price may be volatile.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
747
The Company’s stock has at times experienced substantial price volatility as a result of variations between its actual and anticipated financial results and as a result of announcements by the Company and its competitors.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
748
In addition, the stock market has experienced extreme price and volume fluctuations that have affected the market price of many technology companies in ways that have been unrelated to the operating performance of these companies.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
749
These factors, as well as general economic and political conditions and investors’ concerns regarding the credibility of corporate financial reporting and integrity of financial markets, may materially adversely affect the market price of the Company’s common stock in the future.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
750
For a discussion of these and other factors affecting the Company’s future results and financial condition, see Item 7, “Management’s Discussion and Analysis - Factors That May Affect Future Results and Financial Condition” and Item 1, “Business” in the Company’s 2002 Form 10-K.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
751
Item 3.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
752
Quantitative and Qualitative Disclosures About Market Risk The Company’s market risk profile has not changed significantly from that described in the 2002 Form 10-K. Interest Rate and Foreign Currency Risk Management To ensure the adequacy and effectiveness of the Company’s foreign exchange and interest rate hedge posi...
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
753
However, given the effective horizons of the Company’s risk management activities and the anticipatory nature of the exposures intended to be hedged, there can be no assurance the aforementioned programs will offset more than a portion of the adverse financial impact resulting from unfavorable movements in either forei...
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
754
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...
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
755
The Company adopted Statement of Financial Accounting Standard No.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
756
133, Accounting for Derivative Instruments and Hedging Activities (SFAS No.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
757
133), as of October 1, 2000.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
758
SFAS No.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
759
133 established accounting and reporting standards for derivative instruments, hedging activities, and exposure definition.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
760
Management does not believe that ongoing application of SFAS No.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
761
133 will significantly alter the Company’s hedging strategies.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
762
However, its application may increase the volatility of other income and expense and other comprehensive income.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
763
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.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
764
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.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
765
The Company’s fixed income 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.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
766
The Company benchmarks its performance by utilizing external money managers to manage a small portion of the aggregate investment portfolio.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
767
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.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
768
During 1994, the Company issued $300 million aggregate principal amount of 6.5% unsecured notes in a public offering registered with the SEC.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
769
The notes were sold at 99.925% of par, for an effective yield to maturity of 6.51%.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
770
The notes pay interest semiannually and mature on February 15, 2004.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
771
The Company’s exposure to market risk for changes in interest rates relates primarily to the Company’s investment portfolio and long-term debt obligations and related derivative financial instruments.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
772
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.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
773
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.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
774
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.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
775
As of March 29, 2003, $385 million of the Company’s investment portfolio that was classified as short-term investments had maturities ranging from 1 to 5 years.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
776
As of September 28, 2002, $1.087 billion of the Company’s investment portfolio that was classified as short-term investments had maturities ranging from 1 to 5 years.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
777
The remainder of such short-term investments had underlying maturities of between 3 and 12 months.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
778
Due to liquidity needs, or in anticipation of credit deterioration, or for the purpose of duration management of the Company’s investment portfolio, the Company may sell investments prior to their stated maturities.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
779
As a result of such activity, the Company recognized net gains of $9 million and $18 million during the three and six month periods ended March 29, 2003, respectively.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
780
The Company sometimes enters into interest rate derivative transactions, including interest rate swaps, collars, and floors, with financial institutions in order to better match the Company’s floating-rate interest income on its cash equivalents and short-term investments with its fixed-rate interest expense on its lon...
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
781
The Company may also enter into interest rate contracts that are intended to reduce the cost of the interest rate risk management program.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
782
The Company entered into no interest rate asset swaps during 2002 or for the first six months of 2003 and had no open interest rate asset swaps at March 29, 2003.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
783
During the last two years, the Company has entered into interest rate swaps with financial institutions in order to better match the Company’s floating-rate interest income on its cash equivalents and short-term investments with its fixed-rate interest expense on its long-term debt, and/or to diversify a portion of the...
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
784
The interest rate swaps, which qualified as accounting hedges, generally required the Company to pay a floating interest rate based on the three- or six-month U.S. dollar LIBOR and receive a fixed rate of interest without exchanges of the underlying notional amounts.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
785
These swaps effectively converted the Company’s fixed-rate 10-year debt to floating-rate debt and converted a portion of the floating rate investments to fixed rate.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
786
Due to prevailing market interest rates, during 2002 the Company entered into and then subsequently closed out debt swap positions realizing a gain of $6 million.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
787
During 2001 the Company closed out all of its then existing debt swap positions realizing a gain of $17 million.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
788
Both the gains in 2002 and 2001 were deferred, recognized in long-term debt and are being amortized to other income and expense over the remaining life of the debt.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
789
At certain times in the past, the Company has also entered into interest rate contracts that are intended to reduce the cost of the interest rate risk management program.
0001104659-03-009489/full-submission.txt
0000320193
20030513
10-Q
790
The Company does not hold or transact in such financial instruments for purposes other than risk management.
0001104659-03-009489/full-submission.txt