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0000320193
20031219
10-K
652
Expansion of the Retail segment has required and will continue to require a substantial investment in fixed assets and related infrastructure, operating lease commitments, personnel, and other operating expenses.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
653
Capital expenditures associated with the Retail segment since its inception totaled approximately $290 million through the end of fiscal 2003, $92 million of which was incurred during 2003.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
654
As of September 27, 2003, the Retail segment had approximately 1,300 employees and had outstanding operating lease commitments associated with retail store space and related facilities of $354 million.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
655
The Company would incur substantial costs should it choose to terminate its Retail segment or close individual stores.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
656
Such costs could adversely affect the Company's results of operations and financial condition.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
657
Investment in a new business model such as the Retail segment is inherently risky, particularly in light of the significant investment involved, the current economic climate, and the fixed nature of a substantial portion of the Retail segment's operating expenses.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
658
Gross Margin Gross margin for the three fiscal years ended September 27, 2003 are as follows (in millions, except gross margin percentages): Gross margin decreased to 27.5% of net sales in 2003 from 27.9% of net sales in 2002.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
659
This decline in gross margin reflects relatively aggressive pricing actions on several Macintosh models instituted by the Company beginning in late fiscal 2002 as a result of continued pricing pressure throughout the personal computer industry, lower sales of relatively higher margin Power Macintosh systems during the ...
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
660
This decline is also attributable to a rise in certain component costs as the year progressed.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
661
The aforementioned negative factors affecting gross margins during 2003 were partially offset by the increase in higher margin software and direct sales.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
662
The Company anticipates that its gross margin and the gross margin of the overall personal computer industry will remain under pressure throughout fiscal 2004 in light of weak economic conditions, price competition in the personal computer industry, and potential increases in component pricing.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
663
The Company also expects to continue to incur air freight charges on the Power Mac G5 and other products during 2004.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
664
The foregoing statements regarding the Company's expected gross margin during 2004, general demand for personal computers, anticipated industry component pricing, anticipated air freight charges, and future economic conditions are forward-looking.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
665
There can be no assurance that current gross margins will be maintained, targeted gross margin levels will be achieved, or current margins on existing individual products will be maintained.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
666
In general, gross margins and margins on individual products will remain under significant downward pressure due to a variety of factors, including continued industry wide global pricing pressures, increased competition, compressed product life cycles, potential increases in the cost and availability of raw material an...
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
667
In response to these downward pressures, the Company expects it will continue to take pricing actions with respect to its products.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
668
Gross margins could also be affected by the Company's ability to effectively manage product quality and warranty costs and to stimulate demand for certain of its products.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
669
The Company's operating strategy and pricing take into account anticipated changes in foreign currency exchange rates over time; however, the Company's results of operations can be significantly affected in the short-term by fluctuations in exchange rates.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
670
The Company orders components for its products and builds inventory in advance of product shipments.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
671
Because the Company's markets are volatile and subject to rapid technology and price changes, there is a risk the Company will forecast incorrectly and produce or order from third-parties excess or insufficient inventories of particular products or components.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
672
The Company's operating results and financial condition in the past have been and may in the future be materially adversely affected by the Company's ability to manage its inventory levels and outstanding purchase commitments and to respond to short-term shifts in customer demand patterns.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
673
Gross margin increased to 27.9% of net sales in 2002 from 23.0% in 2001.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
674
Gross margin in 2001 was unusually low resulting from negative gross margin of 2% experienced in the first quarter of 2001.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
675
As a percentage of net sales, the Company's quarterly gross margins declined during fiscal 2002 from 31% in the first quarter down to 26% in the fourth quarter.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
676
This decline resulted from several factors including a rise in component costs as the year progressed and aggressive pricing by the Company across its products lines instituted as a result of continued pricing pressures in the personal computer industry.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
677
Operating Expenses Operating expenses for the three fiscal years ended September 27, 2003 are as follows (in millions, except for percentages): Research and Development (R&D) The Company recognizes that focused investments in R&D are critical to its future growth and competitive position in the marketplace and are dire...
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
678
The Company has historically relied upon innovation to remain competitive.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
679
R&D expense amounted to approximately 8% of total net sales during 2003, 2002 and 2001, up substantially from approximately 5% of total net sales in fiscal year 2000 and recent earlier periods.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
680
The Company's management believes that maintaining or increasing the pace of innovation and product development is the best way to respond to current economic and market conditions and will continue to position the Company for future growth as conditions improve.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
681
R&D expense increased 6% or $25 million to $471 million in 2003 as compared to 2002, which follows a $16 million increase in 2002 as compared to 2001.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
682
The overall increase in R&D expense relates primarily to increased headcount and support for new product development activities.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
683
R&D spending also included capitalized software development costs of approximately $14.7 million related to the development of Mac OS X Panther in 2003; approximately $13.3 million associated with the development of Mac OS X Jaguar and approximately $6 million associated with the PowerSchool enterprise student informat...
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
684
Further information related to the Company's capitalization of software development costs may be found in Part II, Item 8 of this Form 10-K at Note 1 of Notes to Consolidated Financial Statements.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
685
Selling, General, and Administrative Expense (SG&A) SG&A increased $103 million or 9% during 2003 as compared to 2002 due primarily to the Company's continued expansion of the Retail segment and increases in headcount.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
686
The overall increase was partially offset by a decrease in current year discretionary spending on marketing and advertising and by savings resulting from the 2003 and 2002 restructuring activities described below.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
687
SG&A decreased $29 million or 3% during 2002 as compared to 2001.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
688
The decrease in SG&A in 2002 was primarily the result of lower discretionary spending on marketing and advertising expenses, decreased spending related to information systems, and benefits directly related to the Company's restructuring actions in 2002 and 2001.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
689
The decreases were partially offset by higher sales expense in 2002 resulting from increased operating expenses associated with expansion of the Company's Retail segment.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
690
Restructuring Actions During the second quarter of 2003, the Company's management approved and initiated restructuring actions that resulted in recognition of a total restructuring charge of $2.8 million.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
691
The primary focus of actions taken in the second quarter were for the most part supplemental to actions initiated in the prior two quarters and focused on further headcount reductions in various sales and marketing functions in the Company's Americas and Europe operating segments and further reductions associated with ...
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
692
The second quarter actions resulted in recognition of severance costs of $2.4 million for termination of 93 employees, 92 of whom were terminated prior to the end of 2003 at a cost of $2.2 million.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
693
During the second quarter of 2003, an additional $400,000 was accrued for asset write-offs and lease payments on an abandoned facility in the Americas operating segment.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
694
The Company estimates these restructuring actions will reduce quarterly operating expenses by $1.5 million.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
695
During the first quarter of 2003, the Company's management approved and initiated restructuring actions with a total cost of $24 million that resulted in the termination of manufacturing operations at the Company-owned facility in Singapore, further reductions in headcount resulting from the shift in PowerSchool produc...
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
696
These restructuring actions will ultimately result in the elimination of 260 positions worldwide, all but one was eliminated by the end of 2003.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
697
The Company estimates these restructuring actions will reduce quarterly operating expenses by $6 million.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
698
During fiscal 2002, the Company recorded total restructuring charges of $30 million related to actions intended to eliminate certain activities and better align the Company's operating expenses with existing general economic conditions and to partially offset the cost of continuing investments in new product developmen...
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
699
The Company estimates these restructuring actions will result in reduced quarterly operating expenses of approximately $10 million.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
700
Of the $30 million restructuring charge for fiscal 2002, $6 million was incurred in the fourth quarter of 2002 related to actions designed to reduce headcount costs in corporate operations and sales and to adjust its PowerSchool product strategy.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
701
Headcount actions, primarily in corporate operations, sales, and PowerSchool related research and development, resulted in the elimination of approximately 180 positions worldwide at a cost of $1.8 million.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
702
The shift in product strategy at PowerSchool included discontinuing development and marketing of a PowerSchool product that resulted in the impairment of previously capitalized development costs associated with the product in the amount of $4.5 million.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
703
The remaining charge in 2002 of $24 million was incurred in the first quarter of 2002 and resulted in the elimination of approximately 425 positions worldwide, at a cost of $8 million.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
704
Positions were eliminated primarily in the Company's operations, information systems, and administrative functions.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
705
In addition, these restructuring actions also included significant changes in the Company's information systems strategy resulting in termination of equipment leases and cancellation of existing projects and activities.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
706
Related lease and contract cancellation charges totaled $12 million, and charges for asset impairments totaled $4 million.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
707
During the first quarter of 2003, the Company reversed the remaining unused accrual of $600,000.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
708
Purchased In-Process Research and Development (IPR&D) During the fourth quarter of 2002, the Company acquired Emagic GmbH, a provider of professional software solutions for computer based music production, for approximately $30 million in cash; $551,000 of which was allocated to IPR&D.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
709
The amount of the purchase price allocated to IPR&D was expensed upon acquisition, because the technological feasibility of products under development had not been established and no alternative future uses existed.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
710
The IPR&D relates primarily to Emagic's Logic series technology and extensions.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
711
At the date of the acquisition, the products under development were between 43%-83% complete, and it was expected that the remaining work would be completed during the Company's fiscal 2003 at a cost of approximately $415,000.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
712
The remaining efforts, which were completed in 2003, included finalizing user interface design and development, and testing.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
713
The fair value of the IPR&D was determined using the income approach, which reflects the projected free cash flows that will be generated by the IPR&D projects and that are attributable to the acquired technology, and discounting the projected net cash flows back to their present value using a discount rate of 25%.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
714
In May 2001, the Company acquired PowerSchool, Inc., a provider of web-based student information systems for K-12 schools and districts that enables schools to record, access, report, and manage their student data and performance in real-time, and gives parents real-time web access to track their children's progress.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
715
Of total purchase consideration of $66.1 million, $10.8 million was allocated to IPR&D and was expensed upon acquisition because the technological feasibility of products under development had not been established and no alternative future uses existed.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
716
The IPR&D relates to technologies representing processes and expertise employed to design, develop, and deploy a functioning, scalable web-based student information system for use by K-12 schools.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
717
At the date of the acquisition, the PowerSchool product under development was approximately 50% complete, and it was expected that the remaining 50% would be completed during the Company's fiscal 2002 at a cost of approximately $9.25 million.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
718
The remaining efforts, which were completed during 2002, included completion of coding, finalizing user interface design and development, and testing.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
719
The fair value of the IPR&D was determined using the income approach, which reflects the projected free cash flows that will be generated by the IPR&D projects and that are attributable to the acquired technology, and discounting the projected net cash flows back to their present value using a discount rate of 25%.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
720
Other Income and Expense Other income and expense for the three fiscal years ended September 27, 2003 are as follows (in millions): Gains and Losses on Non-current Investments The Company has held investments in EarthLink Inc. (EarthLink), Akamai Technologies, Inc. (Akamai), ARM Holdings plc (ARM) and certain investmen...
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
721
These investments have been reflected in the consolidated balance sheets as long term assets within other assets and have been categorized as available-for-sale requiring that they be carried at fair value with unrealized gains and losses, net of taxes, reported in equity as a component of accumulated other comprehensi...
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
722
The Company recognizes an impairment charge to earnings in the event a decline in fair value below the cost basis of one of these investments is determined to be other-than-temporary.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
723
The Company includes recognized gains and losses resulting from the sale or from other-than-temporary declines in fair value associated with these investments in other income and expense.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
724
Further information related to the Company's non-current debt and equity investments may be found in Part II, Item 8 of this Form 10-K at Note 2 of Notes to Consolidated Financial Statements.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
725
During 2003, the Company sold 1,875,000 shares of Akamai stock for net proceeds of approximately $9 million, and a gain before taxes of approximately $8 million.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
726
Additionally, the Company sold its remaining investment in ARM stock, 278,000 shares, for net proceeds of approximately $295,000, and a gain before taxes of $270,000, and sold its remaining investment in EarthLink stock, 6,540,000 shares, for net proceeds of approximately $37 million, and a gain before taxes of $2 mill...
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
727
The fair value of the Company's remaining investment in Akamai as of September 27, 2003, was approximately $5 million.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
728
During 2002, the Company determined that declines in the fair value of certain of these investments were other-than-temporary.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
729
As a result, the Company recognized a $44 million charge to earnings to writedown the basis of its investment in EarthLink, a $6 million charge to earnings to writedown the basis of its investment in Akamai, and a $15 million charge to earnings to writedown the basis of its investment in a private company investment.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
730
These losses in 2002 were partially offset by the sale of 117,000 shares of EarthLink stock for net proceeds of $2 million and a gain before taxes of $223,000, the sale of 250,000 shares of Akamai stock for net proceeds of $2 million and a gain before taxes of $710,000, and the sale of approximately 4.7 million shares ...
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
731
During 2001, the Company sold a total of approximately 1 million shares of Akamai stock for net proceeds of $39 million and recorded a gain before taxes of $36 million, and sold a total of approximately 29.8 million shares of ARM stock for net proceeds of $176 million and recorded a gain before taxes of $174 million.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
732
These gains during 2001 were partially offset by a $114 million charge to earnings that reflected an other-than-temporary decline in the fair value of the Company's investment in EarthLink and an $8 million charge that reflected an other-than-temporary decline in the fair value of certain private company investments.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
733
Unrealized Loss on Convertible Securities On October 1, 2000, the Company adopted Statement of Financial Accounting Standard (SFAS) No.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
734
133, Accounting for Derivative Instruments and Hedging Activities.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
735
SFAS No.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
736
133 established accounting and reporting standards for derivative instruments, hedging activities, and exposure definition.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
737
SFAS No.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
738
133 required the Company to adjust the carrying value of the derivative component of its investment in Samsung to earnings during the first quarter of 2001, the before tax effect of which was an unrealized loss of approximately $13 million.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
739
Interest and Other Income, Net Net interest and other income decreased $29 million or 26% to $83 million during 2003.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
740
The decrease is primarily the result of declining investment yields on the Company's cash and short-term investments resulting from substantially lower market interest rates.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
741
The weighted average interest rate earned by the Company on its cash, cash equivalents and short-term investments fell to 1.89% in 2003 compared to 2.85% in 2002.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
742
The decrease is offset by the increase of $14 million from the gain on the sales of short term investments from the Company's fixed income portfolio, and the increase of $6 million from the gain on the forward purchase agreement during the fourth quarter of 2003.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
743
Net interest and other income was $112 million in fiscal 2002, compared to $217 million in fiscal 2001.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
744
This $105 million or 48% decrease was primarily the result of declining investment yields on the Company's cash and short-term investments resulting from substantially lower market interest rates.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
745
The weighted average interest rate earned by the Company on its cash, cash equivalents and short-term investments fell to 2.85% in 2002 compared to 5.38% in 2001.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
746
Provision for Income Taxes The Company's effective tax rate for 2003 was 26% compared to the higher statutory rate due primarily to research and development credits, a non-taxable gain on stock repurchase and certain undistributed foreign earnings for which no U.S. taxes were provided.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
747
As of September 27, 2003, the Company had deferred tax assets arising from deductible temporary differences, tax losses, and tax credits of $452 million before being offset against certain deferred tax liabilities and a valuation allowance for presentation on the Company's consolidated balance sheet.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
748
As of September 27, 2003, a valuation allowance of $30 million was recorded against the deferred tax asset for the benefits of tax losses that may not be realized.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
749
The valuation allowance relates principally to the operating loss carryforwards acquired from NeXT and other acquisitions, the utilization of which is subject to certain limitations imposed by the Internal Revenue Code.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
750
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, will be sufficient to fully recover the remaining net deferred tax assets.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
751
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.
0001047469-03-041604/full-submission.txt