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0000320193
20071115
10-K
1,336
97-2 deliverables.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,337
If the Company can separate the deliverables, the Company applies SOP No.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,338
97-2 to the software and software-related deliverables and applies other appropriate guidance (e.g., SAB No.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,339
104) to the deliverables outside the scope of SOP No.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,340
97-2.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,341
Revenue on arrangements that include multiple elements such as hardware, software, and services is allocated to each element based on the relative fair value of each element.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,342
Each element's allocated revenue is recognized when the revenue recognition criteria for that element have been met.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,343
Fair value is generally determined by vendor specific objective evidence ("VSOE"), which is based on the price charged when each element is sold separately.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,344
If the Company cannot objectively determine the fair value of any undelivered element included in a multiple-element arrangement, the Company defers revenue until all elements are delivered and services have been performed, or until fair value can objectively be determined for any remaining undelivered elements.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,345
When the fair value of a delivered element has not been established, the Company uses the residual method to recognize revenue if the fair value of all undelivered elements is determinable.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,346
Under the residual method, the fair value of the undelivered elements is deferred and the remaining portion of the arrangement fee is allocated to the delivered elements and is recognized as revenue.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,347
The Company records reductions to revenue for estimated commitments related to price protection and for customer incentive programs, including reseller and end-user rebates, and other sales programs and volume-based incentives.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,348
The estimated cost of these programs is accrued as a reduction to revenue in the period the Company has sold the product and committed to a plan.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,349
The Company also records reductions to revenue for expected future product returns based on the Company's historical experience.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,350
Revenue is recorded net of taxes collected from customers that are remitted to governmental authorities, with the collected taxes recorded as current liabilities until remitted to the relevant government authority.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,351
Generally, the Company does not offer specified or unspecified upgrade rights to its customers in connection with software sales or the sale of extended warranty and support contracts.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,352
When the Company does offer specified upgrade rights, the Company defers revenue for the fair value of the specified upgrade right until the future obligation is fulfilled or when the right to the specified upgrade expires.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,353
Additionally, a limited number of the Company's software products are available with maintenance agreements that grant customers rights to unspecified future upgrades over the maintenance term on a when and if available basis.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,354
Revenue associated with such maintenance is recognized ratably over the maintenance term.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,355
In March 2007, the Company began shipping Apple TV and in June 2007 began shipping iPhone.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,356
For Apple TV and iPhone, the Company indicated it may provide future unspecified features and additional software products free of charge to customers.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,357
Accordingly, Apple TV and iPhone handsets sales are accounted for under subscription accounting in accordance with SOP No.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,358
97-2.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,359
As such, the Company's policy is to defer the associated revenue and cost of goods sold at the time of sale, and recognize both on a straight-line basis over the currently estimated 24-month economic life of these products, with any loss recognized at the time of sale.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,360
Costs incurred by the Company for engineering, sales, marketing and warranty are expensed as incurred.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,361
Allowance for Doubtful Accounts The Company records its allowance for doubtful accounts based upon its assessment of various factors.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,362
The Company considers historical experience, the age of the accounts receivable balances, credit quality of the Company's customers, current economic conditions, and other factors that may affect customers' ability to pay.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,363
Shipping Costs For all periods presented, amounts billed to customers related to shipping and handling are classified as revenue, and the Company's shipping and handling costs are included in cost of sales.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,364
Warranty Expense The Company generally provides for the estimated cost of hardware and software warranties at the time the related revenue is recognized.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,365
The Company assesses the adequacy of its preexisting warranty liabilities and adjusts the amounts as necessary based on actual experience and changes in future estimates.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,366
For products accounted for under subscription accounting pursuant to SOP No.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,367
97-2, the Company recognizes warranty expense as incurred.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,368
Software Development Costs Research and development costs are expensed as incurred.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,369
Development costs of computer software to be sold, leased, or otherwise marketed are subject to capitalization beginning when a product's technological feasibility has been established and ending when a product is available for general release to customers pursuant to SFAS No.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,370
86, Computer Software to be Sold, Leased, or Otherwise Marketed.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,371
In most instances, the Company's products are released soon after technological feasibility has been established.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,372
Therefore, costs incurred subsequent to achievement of technological feasibility are usually not significant, and generally most software development costs have been expensed.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,373
In 2007, the Company determined that both Mac OS X Version 10.5 Leopard ("Mac OS X Leopard") and iPhone achieved technological feasibility.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,374
During 2007, the Company capitalized $75 million of costs associated with the development of Leopard and iPhone.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,375
In accordance with SFAS No.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,376
86, the capitalized costs related to Mac OS X Leopard and iPhone are amortized to cost of sales commencing when each respective product begins shipping and are recognized on a straight-line basis over a 3 year estimated useful life of the underlying technology.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,377
Total amortization related to capitalized software development costs was $13 million, $18 million, and $16 million in 2007, 2006, and 2005, respectively.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,378
Advertising Costs Advertising costs are expensed as incurred.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,379
Advertising expense was $467 million, $338 million, and $287 million for 2007, 2006, and 2005, respectively.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,380
Stock-Based Compensation On September 25, 2005, the Company adopted SFAS No.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,381
123 (revised 2004) ("SFAS No.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,382
123R"), Share-Based Payment, which addresses the accounting for stock-based payment transactions in which an enterprise receives employee services in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair value of the enterprise's equity instruments or that may be settled by...
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,383
In January 2005, the Securities and Exchange Commission ("SEC") issued SAB No.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,384
107, which provides supplemental implementation guidance for SFAS No.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,385
123R.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,386
SFAS No.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,387
123R eliminates the ability to account for stock-based compensation transactions using the intrinsic value method under Accounting Principles Board ("APB") Opinion No.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,388
25, Accounting for Stock Issued to Employees, and instead generally requires that such transactions be accounted for using a fair-value-based method.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,389
The Company uses the Black-Scholes-Merton ("BSM") option-pricing model to determine the fair-value of stock-based awards under SFAS No.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,390
123R, consistent with that used for pro forma disclosures under SFAS No.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,391
123, Accounting for Stock-Based Compensation.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,392
SFAS No.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,393
123R prohibits recognition of a deferred tax asset for an excess tax benefit that has not been realized.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,394
The Company will recognize a benefit from stock-based compensation in equity if an incremental tax benefit is realized by following the ordering provisions of the tax law.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,395
In addition, the Company accounts for the indirect effects of stock-based compensation on the research tax credit, the foreign tax credit, and the domestic manufacturing deduction through the income statement.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,396
Prior to the adoption of SFAS No.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,397
123R, the Company measured compensation expense for its employee stock-based compensation plans using the intrinsic value method prescribed by APB Opinion No.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,398
25.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,399
The Company applied the disclosure provisions of SFAS No.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,400
123 as amended by SFAS No.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,401
148, Accounting for Stock-Based Compensation-Transition and Disclosure, as if the fair-value-based method had been applied in measuring compensation expense.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,402
Under APB Opinion No.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,403
25, when the exercise price of the Company's employee stock options was equal to the market price of the underlying stock on the date of the grant, no compensation expense was recognized.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,404
The following table illustrates the effect on net income after taxes and net income per common share as if the Company had applied the fair value recognition provisions of SFAS No.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,405
123 to stock-based compensation during 2005 (in millions, except per share amounts): Further information regarding stock-based compensation can be found in Notes 6 and 7.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,406
Earnings Per Common Share Basic earnings per common share is computed by dividing income available to common shareholders by the weighted-average number of shares of common stock outstanding during the period.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,407
Diluted earnings per common share is computed by dividing income available to common shareholders by the weighted-average number of shares of common stock outstanding during the period increased to include the number of additional shares of common stock that would have been outstanding if the dilutive potential shares ...
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,408
The dilutive effect of outstanding options, shares to be purchased under the employee stock purchase plan, unvested restricted stock and restricted stock units ("RSUs") is reflected in diluted earnings per share by application of the treasury stock method.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,409
Under the treasury stock method, an increase in the fair market value of the Company's common stock can result in a greater dilutive effect from outstanding options, restricted stock, and RSUs.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,410
Additionally, the exercise of employee stock options and the vesting of restricted stock and RSUs can result in a greater dilutive effect on earnings per share.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,411
The following table sets forth the computation of basic and diluted earnings per share (in thousands, except net income and per share amounts): Potentially dilutive securities representing 13.7 million, 3.9 million, and 12.7 million shares of common stock for the years ended September 29, 2007, September 30, 2006, and ...
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,412
These potentially dilutive securities include stock options, unvested restricted stock, and RSUs.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,413
Comprehensive Income Comprehensive income consists of two components, net income and other comprehensive income.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,414
Other comprehensive income refers to revenue, expenses, gains, and losses that under U.S. generally accepted accounting principles are recorded as an element of shareholders' equity but are excluded from net income.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,415
The Company's other comprehensive income consists of foreign currency translation adjustments from those subsidiaries not using the U.S. dollar as their functional currency, unrealized gains and losses on marketable securities categorized as available-for-sale, and net deferred gains and losses on certain derivative in...
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,416
Segment Information The Company reports segment information based on the "management" approach.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,417
The management approach designates the internal reporting used by management for making decisions and assessing performance as the source of the Company's reportable segments.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,418
Information about the Company's products, major customers, and geographic areas on a company-wide basis is also disclosed.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,419
Note 2-Financial Instruments Cash, Cash Equivalents and Short-Term Investments The following table summarizes the fair value of the Company's cash and available-for-sale securities held in its short-term investment portfolio, recorded as cash and cash equivalents or short-term investments (in millions): The Company's U...
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,420
Foreign securities consist primarily of foreign commercial paper issued by foreign companies, and certificates of deposit and time deposits with foreign institutions, most of which are denominated in U.S. dollars.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,421
The Company had $11 million in net unrealized losses on its investment portfolio, primarily related to investments with stated maturities ranging from 1 to 5 years, as of September 29, 2007, and net unrealized losses of approximately $687,000 on its investment portfolio, primarily related to investments with stated mat...
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,422
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
1,423
The Company recognized net gains before taxes 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
1,424
As of September 29, 2007 and September 30, 2006, $1.9 billion and $921 million, respectively, 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
1,425
The remaining short-term investments as of September 29, 2007 and September 30, 2006 had maturities less than 12 months.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,426
In accordance with FASB Staff Position ("FSP") FAS 115-1 and FAS 124-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments, the following table shows the gross unrealized losses and fair value for those investments that were in an unrealized loss position as of September 29, 2007 ...
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,427
The Company typically invests in highly-rated securities with strong liquidity and with low probabilities of default.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,428
The Company's investment policy requires investments to be rated single-A or better.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,429
Therefore, the Company considers the declines to be temporary in nature.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,430
During 2007, the Company did not record any material impairment on outstanding securities.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,431
As of September 29, 2007, the Company does not consider the investments to be other-than-temporarily impaired.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,432
Market values were determined for each individual security in the investment portfolio.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,433
When evaluating the investments for other-than-temporary impairment, the Company reviews factors such as the length of time and extent to which fair value has been below cost basis, the financial condition of the issuer, and the Company's ability and intent to hold the investment for a period of time, which may be suff...
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,434
Accounts Receivable Trade Receivables The Company distributes its products through third-party distributors and resellers and directly to certain education, consumer, and commercial customers.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
1,435
The Company generally does not require collateral from its customers; however, the Company requires collateral in certain instances to limit credit risk.
0001047469-07-009340/full-submission.txt