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0000320193
20100125
10-K/A
709
The years 2002-2003 have been examined by the Internal Revenue Service (the “IRS”) and disputed issues have been taken to administrative appeals.
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
710
The IRS is currently examining the 2004-2006 years.
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
711
In addition, the Company is also subject to audits by state, local and foreign tax authorities.
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
712
In major states and major foreign jurisdictions, the years subsequent to 1988 and 2000, respectively, generally remain open and could be subject to examination by the taxing authorities.
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
713
Management believes that an adequate provision has been made for any adjustments that may result from tax examinations.
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
714
However, the outcome of tax audits cannot be predicted with certainty.
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
715
If any issues addressed in the Company’s tax audits are 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.
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
716
Although timing of the resolution and/or closure of audits is highly uncertain, the Company believes it is reasonably possible that tax audit resolutions could reduce its unrecognized tax benefits by between $105 million and $145 million in the next 12 months.
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
717
Note 8 - Shareholders’ Equity and Stock-Based Compensation Preferred Stock The Company has five million shares of authorized preferred stock, none of which is issued or outstanding.
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
718
Under the terms of the Company’s Restated Articles of Incorporation, the Board of Directors is authorized to determine or alter the rights, preferences, privileges and restrictions of the Company’s authorized but unissued shares of preferred stock.
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
719
Comprehensive Income Comprehensive income consists of two components, net income and other comprehensive income.
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
720
Other comprehensive income refers to revenue, expenses, gains and losses that under GAAP are recorded as an element of shareholders’ equity but are excluded from net income.
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
721
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...
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
722
The following table summarizes the components of accumulated other comprehensive income, net of taxes, as of the three years ended September 26, 2009 (in millions): The change in fair value of available-for-sale securities included in other comprehensive income was $118 million, $(63) million and $(7) million, net of t...
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
723
The tax effect related to the change in unrealized gains/losses on available-for-sale securities was $(78) million, $42 million and $4 million for 2009, 2008 and 2007, respectively.
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
724
The following table summarizes activity in other comprehensive income related to derivatives, net of taxes, held by the Company during the three years ended September 26, 2009 (in millions): The tax effect related to the changes in fair value of derivatives was $(135) million, $(5) million and $1 million for 2009, 2008...
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
725
The tax effect related to derivative gains/losses reclassified from other comprehensive income to net income was $149 million, $(9) million and $2 million for 2009, 2008 and 2007, respectively.
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
726
Employee Benefit Plans 2003 Employee Stock Plan The 2003 Employee Stock Plan (the “2003 Plan”) is a shareholder approved plan that provides for broad-based equity grants to employees, including executive officers.
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
727
The 2003 Plan permits the granting of incentive stock options, nonstatutory stock options, RSUs, stock appreciation rights, stock purchase rights and performance-based awards.
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
728
Based on the terms of individual option grants, options granted under the 2003 Plan generally expire seven to ten years after the grant date and generally become exercisable over a period of four years, based on continued employment, with either annual, semi-annual or quarterly vesting.
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
729
In general, RSUs granted under the 2003 Plan vest over two to four years, are subject to the employees’ continued employment and do not have an expiration date.
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
730
As of September 26, 2009, approximately 37 million shares were reserved for future issuance under the 2003 Plan.
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
731
1997 Employee Stock Option Plan In August 1997, the Company’s Board of Directors approved the 1997 Employee Stock Option Plan (the “1997 Plan”), a non-shareholder approved plan for grants of stock options to employees who are not officers of the Company.
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
732
Based on the terms of individual option grants, options granted under the 1997 Plan generally expire seven to ten years after the grant date.
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
733
All stock options granted under the 1997 Plan are fully vested.
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
734
In October 2003, the Company terminated the 1997 Plan, and no new options can be granted from this plan.
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
735
Director Stock Option Plan In August 1997, the Company’s Board of Directors adopted a Director Stock Option Plan (the “Director Plan”) for non-employee directors of the Company, which was approved by shareholders in 1998.
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
736
Pursuant to the Director Plan, the Company’s non-employee directors are granted an option to acquire 30,000 shares of common stock upon their initial election to the Board (“Initial Options”).
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
737
The Initial Options vest and become exercisable in three equal annual installments on each of the first through third anniversaries of the grant date.
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
738
On the fourth anniversary of a non-employee director’s initial election to the Board and on each subsequent anniversary thereafter, the director will be entitled to receive an option to acquire 10,000 shares of common stock (“Annual Options”).
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
739
Annual Options are fully vested and immediately exercisable on their date of grant.
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
740
Options granted under the Director Plan expire ten years after the grant date.
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
741
As of September 26, 2009, approximately 240,000 shares were reserved for future issuance under the Director Plan.
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
742
Rule 10b5-1 Trading Plans As of October 16, 2009, executive officers Timothy D. Cook, Ronald B. Johnson, Peter Oppenheimer, Philip W. Schiller and Bertrand Serlet have entered into trading plans pursuant to Rule 10b5-1(c)(1) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
743
A trading plan is a written document that pre-establishes the amounts, prices and dates (or formula for determining the amounts, prices and dates) of future purchases or sales of the Company’s stock including the exercise and sale of employee stock options and shares acquired pursuant to the Company’s employee stock pu...
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
744
Employee Stock Purchase Plan The Company has a shareholder approved employee stock purchase plan (the “Purchase Plan”), under which substantially all employees may purchase common stock through payroll deductions at a price equal to 85% of the lower of the fair market values as of the beginning and end of six-month off...
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
745
Stock purchases under the Purchase Plan are limited to 10% of an employee’s compensation, up to a maximum of $25,000 in any calendar year.
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
746
The number of shares authorized to be purchased in any calendar year is limited to a total of 3 million shares.
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
747
As of September 26, 2009, approximately 4.7 million shares were reserved for future issuance under the Purchase Plan.
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
748
Employee Savings Plan The Company has an employee savings plan (the “Savings Plan”) qualifying as a deferred salary arrangement under Section 401(k) of the Internal Revenue Code.
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
749
Under the Savings Plan, participating U.S. employees may defer a portion of their pre-tax earnings, up to the IRS annual contribution limit ($16,500 for calendar year 2009).
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
750
The Company matches 50% to 100% of each employee’s contributions, depending on length of service, up to a maximum 6% of the employee’s eligible earnings.
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
751
The Company’s matching contributions to the Savings Plan were $59 million, $50 million and $39 million in 2009, 2008 and 2007, respectively.
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
752
Restricted Stock Units Historically, the Company used equity awards in the form of stock options as one of the means for recruiting and retaining highly skilled talent.
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
753
In conjunction with the Company’s 2009 equity compensation program changes, it began issuing primarily RSUs rather than stock options for eligible employees as the primary type of long-term equity-based award.
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
754
A summary of the Company’s RSU activity and related information for the three years ended September 26, 2009, is as follows (in thousands, except per share amounts): The fair value as of the vesting date of RSUs that vested was $221 million, $320 million and $6 million for 2009, 2008 and 2007, respectively.
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
755
Upon vesting, the RSUs are generally net share-settled to cover the required withholding tax and the remaining amount is converted into an equivalent number of shares of common stock.
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
756
The majority of RSUs vested in 2009, 2008 and 2007, were net-share settled such that the Company withheld shares with value equivalent to the employees’ minimum statutory obligation for the applicable income and other employment taxes, and remitted the cash to the appropriate taxing authorities.
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
757
The total shares withheld were approximately 707,000, 857,000 and 20,000 for 2009, 2008 and 2007, respectively, and were based on the value of the RSUs on their vesting date as determined by the Company’s closing stock price.
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
758
Total payments for the employees’ tax obligations to the taxing authorities were $82 million, $124 million and $3 million in 2009, 2008 and 2007, respectively, and are reflected as a financing activity within the Consolidated Statements of Cash Flows.
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
759
These net-share settlements had the effect of share repurchases by the Company as they reduced and retired the number of shares that would have otherwise been issued as a result of the vesting and did not represent an expense to the Company.
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
760
Stock Option Activity A summary of the Company’s stock option and RSU activity and related information for the three years ended September 26, 2009, is as follows (in thousands, except per share amounts and contractual term in years): Aggregate intrinsic value represents the value of the Company’s closing stock price o...
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
761
The aggregate intrinsic value excludes the effect of stock options that have a zero or negative intrinsic value.
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
762
Total intrinsic value of options at time of exercise was $827 million, $2.0 billion and $1.3 billion for 2009, 2008 and 2007, respectively.
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
763
RSUs granted are deducted from the shares available for grant under the Company’s stock option plans utilizing a factor of two times the number of RSUs granted.
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
764
Similarly, RSUs cancelled are added back to the shares available for grant under the Company’s stock option plans utilizing a factor of two times the number of RSUs cancelled.
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
765
Outstanding RSU balances are not included in the outstanding options balances in the stock option activity table.
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
766
Stock-Based Compensation Stock-based compensation cost for RSUs is measured based on the closing fair market value of the Company’s common stock on the date of grant.
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
767
Stock-based compensation cost for stock options is estimated at the grant date based on each option’s fair-value as calculated by the BSM option-pricing model.
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
768
The BSM option-pricing model incorporates various assumptions including expected volatility, expected life and interest rates.
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
769
The expected volatility is based on the historical volatility of the Company’s common stock over the most recent period commensurate with the estimated expected life of the Company’s stock options and other relevant factors including implied volatility in market traded options on the Company’s common stock.
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
770
The Company bases its expected life assumption on its historical experience and on the terms and conditions of the stock awards it grants to employees.
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
771
The Company recognizes stock-based compensation cost as expense ratably on a straight-line basis over the requisite service period.
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
772
The weighted-average assumptions used for the three years ended September 26, 2009, and the resulting estimates of weighted-average fair value per share of options granted and of employee stock purchase plan rights (“stock purchase rights”) during those periods are as follows: (a) In conjunction with the Company’s 2009...
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
773
Accordingly the weighted average expected life of stock options was influenced by non-employee director stock option grants, which had a ten-year expected life.
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
774
The weighted average expected life of stock options also affects the resulting interest rate and expected volatility assumptions.
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
775
The following table provides a summary of the stock-based compensation expense included in the Consolidated Statements of Operations for the three years ended September 26, 2009 (in millions): Stock-based compensation expense capitalized as software development costs was not significant as of September 26, 2009 or Sept...
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
776
The income tax benefit related to stock-based compensation expense was $266 million, $169 million and $81 million for 2009, 2008 and 2007, respectively.
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
777
The total unrecognized compensation cost related to stock options and RSUs expected to vest was $1.4 billion as of September 26, 2009, which is expected to be recognized over a weighted-average period of 2.53 years.
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
778
Note 9 - Commitments and Contingencies Lease Commitments The Company leases various equipment and facilities, including retail space, under noncancelable operating lease arrangements.
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
779
The Company does not currently utilize any other off-balance sheet financing arrangements.
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
780
The major facility leases are generally for terms of one to 20 years and generally provide renewal options for terms of one to five additional years.
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
781
Leases for retail space are for terms of five to 20 years, the majority of which are for ten years, and often contain multi-year renewal options.
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
782
As of September 26, 2009, the Company’s total future minimum lease payments under noncancelable operating leases were $1.9 billion, of which $1.5 billion related to leases for retail space.
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
783
Rent expense under all operating leases, including both cancelable and noncancelable leases, was $231 million, $207 million and $151 million in 2009, 2008 and 2007, respectively.
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
784
Future minimum lease payments under noncancelable operating leases having remaining terms in excess of one year as of September 26, 2009, are as follows (in millions): Accrued Warranty and Indemnifications The Company offers a basic limited parts and labor warranty on its hardware products.
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
785
The basic warranty period for hardware products is typically one year from the date of purchase by the end-user.
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
786
The Company also offers a 90-day basic warranty for its service parts used to repair the Company’s hardware products.
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
787
The Company provides currently for the estimated cost that may be incurred under its basic limited product warranties at the time related revenue is recognized.
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
788
Factors considered in determining appropriate accruals for product warranty obligations include the size of the installed base of products subject to warranty protection, historical and projected warranty claim rates, historical and projected cost-per-claim, and knowledge of specific product failures that are outside o...
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
789
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.
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
790
The Company periodically provides updates to its applications and system software to maintain the software’s compliance with published specifications.
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
791
The estimated cost to develop such updates is accounted for as warranty costs that are recognized at the time related software revenue is recognized.
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
792
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.
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
793
The following table reconciles changes in the Company’s accrued warranties and related costs for the three years ended September 26, 2009 (in millions): The Company generally does not indemnify end-users of its operating system and application software against legal claims that the software infringes third-party intell...
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
794
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.
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
795
However, the Company has not been required to make any significant payments resulting from such an infringement claim asserted against it or an indemnified third-party and, in the opinion of management, does not have a potential liability related to unresolved infringement claims subject to indemnification that would m...
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
796
Therefore, the Company did not record a liability for infringement costs as of either September 26, 2009 or September 27, 2008.
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
797
The Company has entered into indemnification agreements with its directors and executive officers.
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
798
Under these agreements, the Company has agreed to indemnify such individuals to the fullest extent permitted by law against liabilities that arise by reason of their status as directors or officers and to advance expenses incurred by such individuals in connection with related legal proceedings.
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
799
It is not possible to determine the maximum potential amount of payments the Company could be required to make under these agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each claim.
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
800
However, the Company maintains directors and officers liability insurance coverage to reduce its exposure to such obligations, and payments made under these agreements historically have not materially adversely affected the Company’s financial condition or operating results.
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
801
Concentrations in the Available Sources of Supply of Materials and Product Although most components essential to the Company’s business are generally available from multiple sources, certain key components including but not limited to microprocessors, enclosures, certain liquid crystal displays (“LCDs”), certain optica...
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
802
Many of these and other key components that are available from multiple sources including but not limited to NAND flash memory, dynamic random access memory (“DRAM”) and certain LCDs, are subject at times to industry-wide shortages and significant commodity pricing fluctuations.
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
803
In addition, the Company has entered into certain agreements for the supply of key components including but not limited to microprocessors, NAND flash memory, DRAM and LCDs at favorable pricing, but there is no guarantee that the Company will be able to extend or renew these agreements on similar favorable terms, or at...
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
804
Therefore, the Company remains subject to significant risks of supply shortages and/or price increases that can materially adversely affect its financial condition and operating results.
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
805
The Company and other participants in the personal computer, mobile communication and consumer electronics industries also compete for various components with other industries that have experienced increased demand for their products.
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
806
In addition, the Company uses some custom components that are not common to the rest of the personal computer, mobile communication and consumer electronics industries, and new products introduced by the Company often utilize custom components available from only one source until the Company has evaluated whether there...
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
807
When a component or product uses new technologies, initial capacity constraints may exist until the suppliers’ yields have matured or manufacturing capacity has increased.
0001193125-10-012091/full-submission.txt
0000320193
20100125
10-K/A
808
If the Company’s supply of a key single-sourced component for a new or existing product were delayed or constrained, if such components were available only at significantly higher prices, or if a key manufacturing vendor delayed shipments of completed products to the Company, the Company’s financial condition and opera...
0001193125-10-012091/full-submission.txt