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0000320193 | 20041203 | 10-K | 711 | During 2004 and 2003, the Americas segment represented approximately 49% and 51%, respectively, of the Company's total net sales and represented approximately 51% and 54%, respectively, of total Macintosh unit sales. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 712 | As noted above, the Company experienced an increase in U.S. education channel net sales of 19% for fiscal 2004 compared to 2003. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 713 | Strong U.S. education net sales for the current year relate primarily to strength in higher education net sales that resulted from a successful back-to-school selling season with strong demand for the Company's portables. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 714 | This strength drove year-over-year growth in net sales of 40% for the higher education channel during fiscal 2004. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 715 | The Company's K-12 net sales grew year-over-year by 3% during fiscal 2004, despite the challenges in the K-12 market from continued budget constraints and increased competition, due to the Company's continued focus and success with delivering 1:1 education solutions. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 716 | Net sales in the Americas segment during 2003 increased $50 million or 2% compared to 2002. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 717 | During 2003 and 2002, the Americas segment represented approximately 51% and 55%, respectively, of the Company's total net sales and represented approximately 54% and 56%, respectively, of total Macintosh unit sales. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 718 | The results of the Americas segment are similar to the overall results of the Company as they reflect substantially lower unit sales and net sales of Power Macintosh systems and iMac systems, partially offset by increases in unit sales and net sales of PowerBooks. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 719 | The net sales of the Americas segment, and the Company in total, also reflect substantially higher sales of iPods, peripherals, software, and services during 2003 compared to 2002. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 720 | The Americas segment had been negatively affected by weakness in its U.S. education channel during 2003. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 721 | Total net sales and unit sales in the U.S. education channel during 2003
were down 4% and 6%, respectively, compared to the same period in 2002. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 722 | The Company believes this decline was caused by increased competition in the education market and by a reduction in spending by U.S. educational institutions due to federal and state funding concerns and tax revenue shortfalls resulting from the weak economy. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 723 | Additionally, some of the decline during 2003 in net sales and unit sales of Macintosh systems in the Americas segment may be the result of the operation of the Company's Retail segment whose net sales, all of which occurred within the U.S., increased significantly during 2003. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 724 | Europe
Net sales in Europe rebounded in fiscal 2004 increasing $490 million or 37% from 2003. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 725 | Total Macintosh unit sales in Europe also experienced growth during the current year by increasing 13% in fiscal 2004 compared to 2003. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 726 | Consistent with the Americas segment, Europe experienced strong net sales across all product lines, except for the iMac systems. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 727 | Demand in Europe during fiscal 2004 was particularly strong for the Company's Power Macintosh systems and portable Macintosh systems, which experienced year-over-year increases of 29% and 42%, respectively. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 728 | Similar to the results of the Company's other segments, net sales of iPods, peripherals and software were strong in fiscal 2004. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 729 | Net sales in Europe increased $58 million or 5% during 2003 as compared to 2002 while Macintosh unit sales declined by 5% during the same period. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 730 | Europe's operating results were consistent with the trend experienced in the Americas and by the Company as a whole. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 731 | Europe experienced weakened demand for Power Macintosh, iMac and iBook systems in 2003, partially offset by strong demand for PowerBooks whose net sales increased by 48% or $100 million from 2002. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 732 | Europe also realized increased sales of iPods, peripherals, software, and services. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 733 | Japan
The Japan segment continues to be a challenge for the Company, with four consecutive years of year-over-year declines in both net sales and Macintosh unit sales. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 734 | Japan's net sales and unit sales were down 3% and 14%, respectively during fiscal 2004 compared to 2003, continuing to lag behind all of the Company's other operating segments. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 735 | These decreases in net sales and unit sales are believed to be attributable in part to a shift in sales from the Japan segment to the Retail segment as a result of the opening of two stores in Japan in fiscal 2004. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 736 | In addition, such decreases may have been related to delayed computer system upgrades by some professional and creative customers who were awaiting the release of Quark XPress 6 for Mac OS X, which did not occur until September 2004. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 737 | The decrease in net sales was partially offset by strong iPod and iBook sales during fiscal 2004 compared to 2003. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 738 | Net sales in Japan decreased $12 million or 2% during 2003 as compared to the same period in 2002, the weakest year-to-date performance of any of the Company's operating segments. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 739 | Japan's Macintosh unit sales were particularly weak in 2003, declining 12%, and were primarily attributable to lower sales of iMac and iBook systems, partially offset by an increase in PowerBook sales as well as higher sales of iPods, and peripherals and other hardware. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 740 | Japan's Macintosh unit sales remained significantly below the segment's historic levels due to economic conditions that remained particularly negative in Japan. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 741 | Retail
The Company opened 21 new retail stores during 2004, including its first two international stores in Tokyo and Osaka, Japan, bringing the total number of open stores to 86 as of September 25, 2004. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 742 | This compares to 65 open stores as of September 27, 2003 and 40 open stores as of September 28, 2002. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 743 | During the first quarter of 2005, the Company anticipates opening approximately 14 additional stores to end the calendar year at approximately 100 stores. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 744 | Approximately half of the stores expected to open during the first quarter of 2005 will be in the new "mini" store design, which is the Company's smallest store format to date; allowing it to be placed in a variety of new locations to introduce the Company's innovative products to even more customers. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 745 | The Company also opened its third international store in London, England during the first quarter of 2005. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 746 | Net sales of the Retail segment grew to $1.185 billion during 2004 from $621 million and $283 million, in 2003 and 2002, respectively. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 747 | The increases in net sales during both 2004 and 2003 reflect the impact of new store openings for each fiscal year, including the opening of 21 new stores in 2004 and 25 new stores in 2003. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 748 | An increase in average revenue per store also contributed to the segment's strong sales in fiscal 2004. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 749 | With an average of 76 stores open during 2004, the Retail segment achieved annualized revenue per store of approximately $15.6 million, as compared to $11.5 million in 2003 with a 54 store average and $10.2 million in 2002 with a 28 store average. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 750 | As measured by the Company's operating segment reporting, the Retail segment reported profit of $39 million during fiscal 2004 as compared to losses of $5 million and $22 million during 2003 and 2002, respectively. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 751 | This improvement is primarily attributable to the segment's year-over-year increase in average quarterly revenue per store, the impact of opening new stores, and the segment's year-over-year increase in net sales, which resulted in higher leverage on occupancy, depreciation and other fixed costs. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 752 | 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. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 753 | Capital expenditures associated with the Retail segment were $104 million in fiscal 2004, bringing the total capital expenditures since inception of the Retail segment to approximately $394 million. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 754 | As of September 25, 2004, the Retail segment had approximately 2,100 employees and had outstanding operating lease commitments associated with retail store space and related facilities of approximately $436 million. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 755 | The Company would incur substantial costs should it choose to terminate its Retail segment or close individual stores. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 756 | Such costs could adversely affect the Company's results of operations and financial condition. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 757 | Gross Margin
Gross margin for the three fiscal years ended September 25, 2004 are as follows (in millions, except gross margin percentages):
Gross margin declined in fiscal 2004 to 27.3% of net sales from 27.5% of net sales in 2003. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 758 | The Company's gross margin during fiscal 2004 declined due to an increase in mix towards lower margin iPod and iBook sales, pricing actions on certain Power Macintosh G5 models that were transitioned during the beginning of 2004, higher warranty costs on certain portable Macintosh products, and higher freight and duty ... | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 759 | These unfavorable factors were partially offset by an increase in direct sales and a 39% year-over-year increase in higher margin software sales. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 760 | The Company anticipates that its gross margin and the gross margin of the overall personal computer and consumer electronics industries will remain under pressure throughout fiscal 2005 in light of price competition, especially for the iPod product line. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 761 | The Company also expects to continue to incur air freight charges, which negatively impact gross margins on the iMac and other products during the first quarter of 2005 and possibly beyond. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 762 | The foregoing statements regarding the Company's expected gross margin during 2005, general demand for personal computers, anticipated air freight charges, and future economic conditions are forward- looking. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 763 | There can be no assurance that current gross margins will be maintained or targeted gross margin levels will be achieved. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 764 | In general, gross margins and margins on individual products, including iPods, 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 ... | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 765 | In response to these downward pressures, the Company expects it will continue to take pricing actions with respect to its products. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 766 | 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. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 767 | 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. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 768 | The Company orders components for its products and builds inventory in advance of product shipments. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 769 | 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. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 770 | 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. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 771 | Gross margin decreased to 27.5% of net sales in 2003 from 27.9% of net sales in 2002. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 772 | 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 ... | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 773 | This decline is also attributable to a rise in certain component costs as the year progressed. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 774 | The aforementioned negative factors affecting gross margins during 2003 were partially offset by the increase in higher margin software and direct sales. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 775 | Operating Expenses
Operating expenses for the three fiscal years ended September 25, 2004 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... | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 776 | The Company has historically relied upon innovation to remain competitive. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 777 | R&D expense amounted to approximately 6% of total net sales during fiscal 2004 down from 8% of total net sales in both 2003 and 2002. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 778 | This decrease is due to the significant increase of 33% in total net sales of the Company for fiscal 2004. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 779 | Although R&D expense decreased as a percentage of total net sales in fiscal 2004, actual expenditures for R&D in fiscal 2004 increased $18 million or 4% from fiscal 2003, which follows a 6% or $25 million increase in 2003 compared to 2002. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 780 | The overall increase in R&D expense relates primarily to increased headcount and support for new product development activities and the impact of employee salary merit increases in 2004. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 781 | R&D spending also included capitalized software development costs of approximately $4.5 million related to the
development of Mac OS X Tiger and $2.3 million related to the development of FileMaker Pro 7 in 2004; $14.7 million related to the development of Mac OS X Panther in 2003; and approximately $13.3 million assoc... | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 782 | 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. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 783 | Selling, General, and Administrative Expense (SG&A)
Expenditures for SG&A increased $209 million or 17% during 2004 compared to 2003. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 784 | These increases are due primarily to the Company's continued expansion of its Retail segment in both domestic and international markets, a current year increase in discretionary spending on marketing and advertising, an increase in amortization costs associated with restricted stock compensation, and higher direct and ... | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 785 | SG&A as a percentage of total net sales in 2004 was 17%, down from 20% in 2003. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 786 | This decrease is due to the increase of 33% in total net sales of the Company for fiscal 2004, reflecting leverage on the Company's fixed costs. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 787 | 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. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 788 | The overall increase was partially offset by a decrease in 2003 discretionary spending on marketing and advertising and by savings resulting from the 2003 and 2002 restructuring activities described below. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 789 | Fiscal 2004 Restructuring Actions
The Company recorded total restructuring charges of approximately $23 million during the year ended September 25, 2004, including approximately $14 million in severance costs, $5.5 million in asset impairments, and a $3.5 million charge for lease cancellations. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 790 | Of the $23 million charge, $14.3 million had been spent by the end of 2004, with the remaining $8.7 million consisting of $5.2 million for employee severance benefits and $3.5 million for lease cancellations. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 791 | During the fourth quarter of 2004, the Company recognized restructuring expense of $5.5 million. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 792 | In conjunction with the European workforce reduction during the second quarter of 2004, the Company vacated a leased sales facility during the fourth quarter of 2004 resulting in a charge of $3.7 million for contract termination and asset impairment costs. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 793 | The Company also recognized employee termination costs of $1.8 million related to the elimination of non-essential positions, principally in Europe. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 794 | In addition, the Company reversed $400,000 of excess restructuring expense from prior periods related primarily to lower than expected disposal costs on Sacramento manufacturing-related fixed assets. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 795 | The net cost of the restructuring plans for the fourth quarter of 2004 was $5.1 million, of which $300,000 had been paid prior to the end of 2004. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 796 | These actions will result in the termination of 54 positions, 4 of which had been terminated prior to the end of 2004. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 797 | During the third quarter of 2004, the Company finalized restructuring plans related to closing Company-owned manufacturing activities in Sacramento. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 798 | In addition, the Company's management approved restructuring plans related to certain headcount reductions primarily for various sales and marketing activities principally in the U.S. Total cost of the restructuring plan for the third quarter of 2004 was $7.9 million, of which $7.2 million had been paid prior to the en... | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 799 | These actions will result in the termination of 83 positions, 77 of which had been terminated prior to the end of 2004. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 800 | The closing of manufacturing operations in Sacramento resulted in the elimination of 67 positions for a severance cost of $1.9 million and write-off of $5.3 million in manufacturing-related fixed assets whose use ceased during the third quarter of 2004. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 801 | Termination of sales and marketing activities, principally in the U.S., resulted in severance of $0.7 million for the elimination of 16 positions. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 802 | During the second quarter of 2004, the Company's management approved restructuring plans related to the termination of Company-owned manufacturing activities in Sacramento and headcount reductions
related primarily to various sales and marketing activities in the U.S. and Europe. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 803 | Total cost of the actions was $9.6 million for the termination of 348 positions. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 804 | As of the end of the fourth quarter of 2004, $6.8 million had been spent and 310 positions had been eliminated related to these actions. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 805 | The Company estimates the closing of the Sacramento manufacturing operations will result in reduced ongoing quarterly operating expenses of approximately $2 million. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 806 | In addition, the Company estimates that the remaining restructuring actions taken in fiscal 2004 will ultimately result in reduced ongoing quarterly operating expenses of approximately $6 million. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 807 | Fiscal 2003 Restructuring Actions
The Company recorded total restructuring charges of approximately $26.8 million during the year ended September 27, 2003, including approximately $7.4 million in severance costs, a $5.0 million charge to write-off deferred compensation, $7.1 million in asset impairments and a $7.3 mill... | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 808 | Of the $26.8 million charge, all had been spent by the end of 2004, except for approximately $3.0 million related to operating lease costs on abandoned facilities. | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 809 | During the third quarter of 2003, approximately $500,000 of the amount originally accrued for lease cancellations was determined to be in excess due to the sublease of a property sooner than originally estimated and an approximately $500,000 shortfall was identified in the severance accrual due to higher than expected ... | 0001047469-04-035975/full-submission.txt |
0000320193 | 20041203 | 10-K | 810 | These adjustments had no net effect on reported operating expense. | 0001047469-04-035975/full-submission.txt |
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