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0000320193
20071115
10-K
936
If there is a deterioration of a major customer's financial condition, if the Company becomes aware of additional information related to the credit worthiness of a major customer, or if future actual default rates on trade receivables in general differ from those currently anticipated, the Company may have to adjust it...
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
937
Inventory Valuation and Inventory Purchase Commitments The Company must order components for its products and build inventory in advance of product shipments.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
938
The Company records a write-down for inventories of components and products, including third-party products held for resale, which have become obsolete or are in excess of anticipated demand or net realizable value.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
939
The Company performs a detailed review of inventory each fiscal quarter that considers multiple factors including demand forecasts, product life cycle status, product development plans, current sales levels, and component cost trends.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
940
The personal computer, consumer electronics and mobile communications industries are subject to a rapid and unpredictable pace of product and component obsolescence and demand changes.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
941
If future demand or market conditions for the Company's products are less favorable than forecasted or if unforeseen technological changes negatively impact the utility of component inventory, the Company may be required to record additional write-downs which would negatively affect gross margins in the period when the...
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
942
The Company accrues reserves for estimated cancellation fees related to component orders that have been cancelled or are expected to be cancelled.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
943
Consistent with industry practice, the Company acquires components through a combination of purchase orders, supplier contracts, and open orders based on projected demand information.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
944
These commitments typically cover the Company's requirements for periods ranging from 30 to 150 days.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
945
If there is an abrupt and substantial decline in demand for one or more of the Company's products or an unanticipated change in technological requirements for any of the Company's products, the Company may be required to record additional reserves for cancellation fees that would negatively affect gross margins in the ...
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
946
Warranty Costs The Company provides for the estimated cost for hardware and software warranties at the time the related revenue is recognized based on historical and projected warranty claim rates, historical and projected cost-per-claim, and knowledge of specific product failures that are outside of the Company's typi...
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
947
Each quarter, the Company reevaluates its estimates to assess the adequacy of its recorded warranty liabilities considering the size of the installed base of products subject to warranty protection and adjusts the amounts as necessary.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
948
For products accounted for under subscription accounting pursuant to SOP No.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
949
97-2, the Company recognizes warranty expense as incurred.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
950
If actual product failure rates or repair costs differ from estimates, revisions to the estimated warranty liability would be required and could negatively affect the Company's results of operations.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
951
The Company periodically provides updates to its applications and system software to maintain the software's compliance with specifications.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
952
The estimated cost to develop such updates is accounted for as warranty cost that is recognized at the time related software revenue is recognized.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
953
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.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
954
Stock-Based Compensation The Company accounts for stock-based compensation in accordance with Statement of Financial Accounting Standards ("SFAS") No.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
955
123 (revised 2004) ("SFAS No.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
956
123R"), Share-Based Payment.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
957
Under the provisions of SFAS No.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
958
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 on a straight-line basis over the requisite service period.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
959
The BSM model requires various judgmental assumptions including expected volatility, forfeiture rates, and expected option life.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
960
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.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
961
Income Taxes The Company records a tax provision for the anticipated tax consequences of the reported results of operations.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
962
In accordance with SFAS No.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
963
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...
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
964
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.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
965
The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
966
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.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
967
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.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
968
In addition, the calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties in the application of complex tax laws.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
969
Resolution of these uncertainties in a manner inconsistent with management's expectations could have a material impact on the Company's financial condition and operating results.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
970
Legal and Other Contingencies As discussed in Part I, Item 3 of this Form 10-K under the heading "Legal Proceedings" and in Note 8 "Commitments and Contingencies" in Notes to Consolidated Financial Statements, the Company is subject to various legal proceedings and claims that arise in the ordinary course of business.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
971
The Company records a contingent liability when it is probable that a loss has been incurred and the amount is reasonably estimable in accordance with SFAS No.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
972
5, Accounting for Contingencies.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
973
There is significant judgment required in both the probability determination and as to whether an exposure can be reasonably estimated.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
974
In management's opinion, 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 or operating results.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
975
However, the outcomes of legal proceedings and claims brought against the Company are subject to significant uncertainty.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
976
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.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
977
Net Sales Fiscal years 2007 and 2005 spanned 52 weeks while fiscal year 2006 spanned 53 weeks.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
978
This additional week is added to the first fiscal quarter approximately every six years to realign fiscal quarters with calendar quarters.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
979
Net sales and Mac 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)During 2007, the Company revised the way it measures the Retail Segment's operating results to a manner that is generally consistent with the Company's other op...
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
980
Prior period results have been reclassified to reflect this change to the Retail Segment's operating results along with the corresponding offsets to the other operating segments.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
981
Further information regarding the Company's operating segments may be found in Notes to Consolidated Financial Statements at Note 9, "Segment Information and Geographic Data."
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
982
(b)Other Segments include Asia Pacific and FileMaker.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
983
(c)Includes iMac, eMac, Mac mini, Mac Pro, Power Mac, and Xserve product lines.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
984
(d)Includes MacBook, iBook, MacBook Pro, and PowerBook product lines.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
985
(e)Consists of iTunes Store sales, iPod services, and Apple-branded and third-party iPod accessories.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
986
(f)Derived from handset sales, carrier agreements, and Apple-branded and third-party iPhone accessories.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
987
(g)Includes sales of Apple-branded and third-party displays, wireless connectivity and networking solutions, and other hardware accessories.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
988
(h)Includes sales of Apple-branded operating system, application software, third-party software, AppleCare, and Internet services.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
989
(i)Derived by dividing total Mac net sales by total Mac unit sales.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
990
(j)Derived by dividing total iPod net sales by total iPod unit sales.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
991
NM = Not Meaningful Fiscal Year 2007 versus 2006 Net sales during 2007 increased 24% or $4.7 billion from 2006 even though the fiscal year of 2007 spanned 52 weeks while the fiscal year of 2006 spanned 53 weeks.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
992
Several factors contributed to these increases including the following: •Mac net sales increased $3 billion or 40% during 2007 compared to 2006, while Mac unit sales increased by 1.75 million units or 33%.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
993
The 33% Mac unit sales growth rate is significantly greater than the estimated growth rate of the overall personal computer industry during that timeframe.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
994
Unit sales of the Company's portable products accounted for 62% of the Company's personal computer shipments in 2007, up from 54% in 2006.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
995
Net sales and unit sales of the Company's portable products increased 55% and 51%, respectively, during 2007 compared to 2006.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
996
This growth was due to strong demand for the MacBook, which increased in each of the Company's operating segments, as well as the MacBook Pro, which increased in each operating segment except Japan.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
997
Mac desktop net sales and unit sales increased by 21% and 12%, respectively, during 2007 due to stronger sales of the iMac in each of the Company's operating segments.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
998
The Mac desktop net sales growth was greater than the unit sales growth primarily due to a shift in desktop product mix away from the lower-price Mac Mini and discontinued eMac and toward the iMac.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
999
•Net sales of iPods increased $629 million or 8% during 2007 compared to 2006.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,000
Unit sales of iPods increased 31% compared to 2006.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,001
The iPod growth was primarily driven by increased sales of the iPod shuffle and iPod nano particularly in international markets.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,002
iPod unit sales growth was significantly greater than iPod net sales due to a shift in overall iPod product mix, as well as due to lower selling prices for the iPod classic, iPod nano and iPod shuffle in 2007 compared to 2006.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,003
•Net sales of iPhone and related products and services were $123 million in 2007. iPhone net sales include the portion of iPhone handset revenue recognized in accordance with subscription accounting over the product's 24-month estimated economic life, as well as sales of iPhone accessory products and revenue from carri...
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,004
iPhone unit sales were 1.39 million in 2007.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,005
•Net sales of other music related products and services increased $611 million or 32% during 2007 compared to 2006 due to increased net sales from the iTunes Store.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,006
The Company believes this growth was the result of heightened consumer interest in downloading digital content and the expansion of third-party audio and video content available for sale via the iTunes Store.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,007
•Net sales of peripherals and other hardware increased $160 million or 15% compared to 2006 due to an increase in wireless networking products and other hardware accessories, including printers and scanners, which was partially offset by a decrease in net sales of displays.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,008
•Net sales of software, service, and other sales rose $229 million or 18% during 2007 compared to 2006.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,009
This growth was primarily attributable to increased net sales of AppleCare Protection Plan ("APP") extended service and support contracts and increased sales of Apple branded and third-party developers' software products.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,010
Fiscal Year 2006 versus 2005 Net sales during 2006 increased 39% or $5.4 billion from 2005.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,011
This increase was due in part to the fact that 2006 spanned 53 weeks while 2005 spanned 52 weeks.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,012
Several other factors contributed to these increases including the following: •Net sales of iPods increased $3.1 billion or 69% during 2006 compared to 2005.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,013
Unit sales of iPods totaled 39.4 million in 2006, which represents an increase of 75% from the 22.5 million iPod units sold in 2005.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,014
Strong iPod sales during 2006 reflected significant sales of both the hard-drive based iPod that supports video, first introduced in October of 2005 and the iPod nano, introduced in September 2005, as well as continued expansion of iPod distribution points.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,015
During 2006, the net sales per iPod unit sold decreased by 3% compared to 2005 primarily due to an overall decrease in average selling prices for all iPods as well as a shift in product mix to the iPod nano.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,016
•Mac net sales increased $1.1 billion or 18% during 2006 compared to 2005.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,017
Mac unit sales increased by 769,000 units or 17% during 2006 compared to 2005.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,018
These increases were mainly due to strong demand for the Intel-based MacBook and MacBook Pro systems and reflect a shift in product mix to portable products in all of the Company's operating segments.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,019
Net sales and unit sales of the Company's portable products increased 43% and 42%, respectively, during 2006 compared to 2005.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,020
Mac desktop net sales and unit sales both decreased by 3% during 2006 compared to 2005.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,021
The decrease in sales of the Company's Mac desktops was due to declines in sales of the Company's professional-oriented desktop products.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,022
The Company believes the decline in the Company's professional-oriented desktop products was due to customers delaying purchases of such products in anticipation of the release of the Intel-based Mac Pro, which did not begin shipping until August 2006, and updated software applications capable of running on Intel-based...
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,023
A slight increase of 1% during 2006 in net sales per Mac unit sold was due to a shift in mix to higher-priced portable products, partially offset by price reductions on certain Mac systems.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,024
•Other music related products and services consists of sales associated with the iTunes Store and iPod services and accessories.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,025
Net sales of other music related products and services increased $986 million or 110% during 2006 compared to 2005.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,026
The increase was primarily due to increased net sales from the iTunes Store and Apple-branded and third-party iPod accessories and services.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,027
The increase in sales from the iTunes Store stemmed from significant growth in U.S. sales and the opening of the iTunes Store in Japan during August 2005 and Australia during October 2005.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,028
The increased sales from the iTunes Store were also attributable to the availability of videos, television shows, and feature-length movie downloads.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,029
•Net sales of software, service, and other sales increased $188 million or 17% during 2006 compared to 2005.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,030
The growth was primarily attributable to increased net sales of AppleCare Protection Plan ("APP") extended service and support contracts and application software, partially offset by a decrease in sales of Mac OS X. Mac OS X sales were particularly high in 2005 due to the release of Mac OS X Tiger in April 2005.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,031
Offsetting the favorable factors discussed above, the Company's net sales during 2006 were negatively impacted by the following: •Net sales of peripherals and other hardware declined $26 million or 2% compared to 2005 primarily due to price decreases and a decrease in net sales of displays relating to a shift in mix fr...
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,032
The decrease in net sales of displays for 2006 is consistent with the overall decrease in unit sales of Mac professional desktop systems.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,033
Segment Operating Performance The Company manages its business primarily on a geographic basis.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,034
The Company's reportable operating segments consist of the Americas, Europe, Japan, and Retail.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,035
The Americas, Europe, and Japan reportable segments do not include activities related to the Retail segment.
0001047469-07-009340/full-submission.txt