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0000320193
20071115
10-K
1,136
The increase in 2007 is attributable primarily to increased interest received from higher cash and short-term investment balances and stronger investment yields resulting from higher average market interest rates partially offset by one less week of interest income earned in 2007.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,137
The weighted average interest rate earned by the Company on its cash, cash equivalents, and short-term investments increased to 5.27% in 2007 as compared to the 4.58% and 2.70% rates earned during 2006 and 2005, respectively.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,138
The current year increase in interest income was partially offset by higher other expense, which was primarily associated with higher foreign currency hedging expenses.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,139
During 2007, 2006 and 2005, the Company had no debt outstanding and accordingly did not incur any interest expense.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,140
Provision for Income Taxes The Company's effective tax rate for the year ended September 29, 2007 was 30%.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,141
The Company's effective rate differs from the statutory federal income tax rate of 35% due primarily to certain undistributed foreign earnings for which no U.S. taxes are provided because such earnings are intended to be indefinitely reinvested outside the U.S.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,142
In addition, the Company recorded a tax benefit of $63 million due to the settlement of prior year audits in the U.S. As of September 29, 2007, the Company had deferred tax assets arising from deductible temporary differences, tax losses, and tax credits of $1.1 billion before being offset against certain deferred liab...
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,143
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
1,144
As of September 29, 2007 and September 30, 2006 a valuation allowance of $5 million was recorded against the deferred tax asset for the benefits of state operating losses that may not be realized.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,145
The Company will continue to evaluate the realizability of the deferred tax assets quarterly by assessing the need for and amount of the valuation allowance.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,146
The Internal Revenue Service ("IRS") has completed its field audit of the Company's federal income tax returns for the years 2002 through 2003 and proposed certain adjustments.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,147
The Company intends to contest certain of these adjustments through the IRS Appeals Office.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,148
All IRS audit issues for years prior to 2002 have been resolved.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,149
In addition, the Company is subject to audits by state, local, and foreign tax authorities.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,150
Management believes that adequate provision has been made for any adjustments that may result from tax examinations.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,151
However, the outcome of tax audits cannot be predicted with certainty.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,152
Should any issues addressed in the Company's tax audits be resolved in a manner not consistent with management's expectations, the Company could be required to adjust its provision for income tax in the period such resolution occurs.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,153
Recent Accounting Pronouncements In February 2007, the Financial Accounting Standards Board ("FASB") issued SFAS No.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,154
159, The Fair Value Option for Financial Assets and Financial Liabilities-including an amendment of FASB Statement No.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,155
115 ("SFAS No.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,156
159").
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,157
SFAS No.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,158
159 allows companies to choose to elect measuring eligible financial instruments and certain other items at fair value that are not required to be measured at fair value.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,159
SFAS No.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,160
159 requires that unrealized gains and losses on items for which the fair value option has been elected be reported in earnings at each reporting date.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,161
SFAS No.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,162
159 is effective for fiscal years beginning after November 15, 2007 and is required to be adopted by the Company beginning in the first quarter of fiscal 2009.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,163
Although the Company will continue to evaluate the application of SFAS No.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,164
159, management does not currently believe adoption will have a material impact on the Company's financial condition or operating results.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,165
In September 2006, the FASB issued SFAS No.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,166
157, Fair Value Measurements, which defines fair value, provides a framework for measuring fair value, and expands the disclosures required for fair value measurements.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,167
SFAS No.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,168
157 applies to other accounting pronouncements that require fair value measurements; it does not require any new fair value measurements.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,169
SFAS No.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,170
157 is effective for fiscal years beginning after November 15, 2007 and is required to be adopted by the Company beginning in the first quarter of fiscal 2009.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,171
Although the Company will continue to evaluate the application of SFAS No.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,172
157, management does not currently believe adoption will have a material impact on the Company's financial condition or operating results.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,173
In June 2006, the FASB issued FASB Interpretation No.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,174
("FIN") 48, Accounting for Uncertainty in Income Taxes-an Interpretation of FASB Statement No.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,175
109.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,176
FIN 48 clarifies the accounting for uncertainty in income taxes by creating a framework for how companies should recognize, measure, present, and disclose in their financial statements uncertain tax positions that they have taken or expect to take in a tax return.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,177
FIN 48 is effective for fiscal years beginning after December 15, 2006 and is required to be adopted by the Company beginning in the first quarter of fiscal 2008.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,178
Although the Company will continue to evaluate the application of FIN 48, management does not currently believe adoption will have a material impact on the Company's financial condition or operating results.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,179
Liquidity and Capital Resources The following table presents selected financial information and statistics for each of the last three fiscal years (dollars in millions): As of September 29, 2007, the Company had $15.4 billion in cash, cash equivalents, and short-term investments, an increase of $5.3 billion over the sa...
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,180
The principal components of this net increase were cash generated by operating activities of $5.5 billion, proceeds from the issuance of common stock under stock plans of $365 million and excess tax benefits from stock-based compensation of $377 million.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,181
These increases were partially offset by payments for acquisitions of property, plant, and equipment of $735 million and payments for acquisitions of intangible assets of $251 million.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,182
The Company's short-term investment portfolio is primarily invested in highly rated, liquid investments.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,183
As of September 29, 2007 and September 30, 2006, $6.5 billion and $4.1 billion, respectively, of the Company's cash, cash equivalents, and short-term investments were held by foreign subsidiaries and are generally based in U.S. dollar-denominated holdings.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,184
The Company believes its existing balances of cash, cash equivalents, and short-term investments will be sufficient to satisfy its working capital needs, capital expenditures, outstanding commitments, and other liquidity requirements associated with its existing operations over the next 12 months.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,185
Capital Assets The Company's total capital asset purchases were $822 million during 2007, consisting of $294 million for retail store facilities and $528 million for real estate acquisitions and corporate infrastructure including information systems enhancements.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,186
Of the $822 million in total capital asset purchases during 2007, $87 million were not yet paid for as of September 29, 2007.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,187
The Company currently anticipates it will utilize approximately $1.1 billion for capital asset purchases during 2008, including approximately $400 million for expansion of the Company's Retail segment, and approximately $700 million to support normal replacement of existing capital assets, including manufacturing relat...
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,188
Off-Balance Sheet Arrangements and Contractual Obligations The Company has not entered into any transactions with unconsolidated entities whereby the Company has financial guarantees, subordinated retained interests, derivative instruments, or other contingent arrangements that expose the Company to material continuing...
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,189
The following table presents certain payments due by the Company under contractual obligations with minimum firm commitments as of September 29, 2007 and excludes amounts already recorded on the Company's balance sheet as current liabilities (in millions): Lease Commitments As of September 29, 2007, the Company had tot...
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,190
Lease terms on the Company's existing major facility operating leases generally range from 3 to 15 years.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,191
Purchase Commitments with Contract Manufacturers and Component Suppliers The Company utilizes several contract manufacturers to manufacture sub-assemblies for the Company's products and to perform final assembly and test of finished products.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,192
These contract manufacturers acquire components and build product based on demand information supplied by the Company, which typically covers periods ranging from 30 to 150 days.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,193
The Company also obtains individual components for its products from a wide variety of individual suppliers.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,194
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
1,195
Such purchase commitments typically cover the Company's forecasted component and manufacturing requirements for periods ranging from 30 to 150 days.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,196
In addition, the Company has an off-balance sheet warranty obligation for products accounted for under subscription accounting pursuant to SOP No.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,197
97-2 whereby the Company recognizes warranty expense as incurred.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,198
As of September 29, 2007, the Company had outstanding off-balance sheet third-party manufacturing commitments, component purchase commitments, and warranty commitments of $3.2 billion.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,199
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.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,200
As part of these agreements, the Company prepaid $1.25 billion for flash memory components during 2006, which will be applied to certain inventory purchases made over the life of each respective agreement.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,201
The Company utilized $208 million of the prepayment as of September 29, 2007.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,202
Asset Retirement Obligations The Company's asset retirement obligations are associated with commitments to return property subject to operating leases to original condition upon lease termination.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,203
As of September 29, 2007, the Company estimated that gross expected future cash flows of $24 million would be required to fulfill these obligations.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,204
Other Obligations Other outstanding obligations were $50 million as of September 29, 2007, primarily related to Internet and telecommunications services and the estimated cost related to the $100 store credit the Company offered to customers who purchased an iPhone prior to the Company's September 2007 price reduction.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,205
Indemnifications The Company generally does not indemnify end-users of its operating system and application software against legal claims that the software infringes third-party intellectual property rights.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,206
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.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,207
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 liability related to unresolved infringement claims subject to indemnification that would have a ...
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,208
Item 7A.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,209
Quantitative and Qualitative Disclosures About Market Risk Interest Rate and Foreign Currency Risk Management The Company regularly reviews its foreign exchange forward and option positions, both on a stand-alone basis and in conjunction with its underlying foreign currency and interest rate related exposures.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,210
However, given the effective horizons of the Company's risk management activities and the anticipatory nature of the exposures, there can be no assurance the hedges will offset more than a portion of the financial impact resulting from movements in either foreign exchange or interest rates.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,211
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 financial condition and operating ...
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,212
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.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,213
As such, changes in U.S. interest rates affect the interest earned on the Company's cash, cash equivalents, and short-term investments, the value of those investments, as well as costs associated with foreign currency hedges.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,214
The Company's short-term 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.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,215
A portion of the Company's cash is managed by external managers within the guidelines of the Company's investment policy and to an objective market benchmark.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,216
The Company's internal portfolio is benchmarked against external manager performance, allowing for differences in liquidity needs.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,217
The Company's exposure to market risk for changes in interest rates relates primarily to the Company's investment portfolio.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,218
The Company places its short-term investments in highly liquid securities issued by highly rated issuers and, by policy, limits the amount of credit exposure to any one issuer.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,219
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.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,220
All highly liquid investments with initial maturities of three months or less at the date of purchase are classified as cash equivalents; highly liquid investments with initial maturities greater than three months at the date of purchase are classified as short-term investments.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,221
As of September 29, 2007, $1.9 billion of the Company's short-term investments had underlying maturities ranging from 1 to 5 years.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,222
The remainder all had underlying maturities of less than 12 months.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,223
The Company may sell its investments prior to their stated maturities for strategic purposes, in anticipation of credit deterioration, or for duration management.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,224
The Company recognized net gains before taxes on short-term investments of approximately $474,000 in 2007 and net losses before taxes of approximately $434,000 and $137,000 in 2006 and 2005, respectively.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,225
To provide a meaningful assessment of the interest rate risk associated with the Company's investment portfolio, the Company performed a sensitivity analysis to determine the impact a change in interest rates would have on the value of the investment portfolio assuming a 100 basis point parallel shift in the yield curv...
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,226
Based on investment positions as of September 29, 2007, a hypothetical 100 basis point increase in interest rates across all maturities would result in $16 million incremental decline in the fair market value of the portfolio.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,227
As of September 30, 2006, a similar 100 basis point shift in the yield curve would have resulted in a $15 million incremental decline in the fair market value of the portfolio.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,228
Such losses would only be realized if the Company sold the investments prior to maturity.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,229
Foreign Currency Risk In general, the Company is a net receiver of currencies other than the U.S. dollar.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,230
Accordingly, changes in exchange rates, and in particular a strengthening of the U.S. dollar, may negatively affect the Company's net sales and gross margins as expressed in U.S. dollars.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,231
There is also a risk that the Company will have to adjust local currency product pricing due to competitive pressures when there has been significant volatility in foreign currency exchange rates.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,232
The Company may enter into foreign currency forward and option contracts with financial institutions to protect against foreign exchange risks associated with existing assets and liabilities, certain firmly committed transactions, forecasted future cash flows, and net investments in foreign subsidiaries.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,233
Generally, the Company's practice is to hedge a majority of its material foreign exchange exposures.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,234
However, the Company may choose not to hedge certain foreign exchange exposures due to immateriality, prohibitive economic cost of hedging particular exposures, and/or limited availability of appropriate hedging instruments.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,235
To provide a meaningful assessment of the foreign currency risk associated with certain of the Company's foreign currency derivative positions, the Company performed a sensitivity analysis using a value-at-risk ("VAR") model to assess the potential impact of fluctuations in exchange rates.
0001047469-07-009340/full-submission.txt