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0000320193
20041203
10-K
911
The Board and management appreciate and take seriously the views expressed by the Company's shareholders.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
912
The Company decided not to expense the value of employee stock options until the FASB finalizes its new accounting standard on the matter, which may play a significant role in determining the fair value of and accounting for employee stock options.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
913
The Company monitors progress at the FASB and other developments with respect to the general issue of employee stock compensation.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
914
The Company is currently reviewing the potential impact from the guidance of the proposed statement, which may require the Company to recognize substantially more compensation expense in future periods that could have a material adverse impact on the Company's future results of operations.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
915
The accounting impact had the Company chosen to apply the fair-value recognition provisions of SFAS No.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
916
123, instead of the recognition provisions under APB Opinion No.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
917
25, is described in Part II, Item 8 of this Form 10-K at Note 1 of the Notes to Consolidated Financial Statements.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
918
Liquidity and Capital Resources The following table presents selected financial information and statistics for each of the last three fiscal years (dollars in millions): (a)DSO is based on ending net trade receivables and most recent quarterly net sales for each period.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
919
(b)Days supply of inventory is based on ending inventory and most recent quarterly cost of sales for each period.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
920
(c)DPO is based on ending accounts payable and most recent quarterly cost of sales adjusted for the change in inventory.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
921
As of September 25, 2004, the Company had $5.464 billion in cash, cash equivalents, and short-term investments, an increase of $898 million over the same balances at the end of fiscal 2003.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
922
The principal components of this increase were cash generated by operating activities of $934 million and proceeds of $427 million from the issuance of common stock under stock plans, partially offset by cash used to repay the Company's outstanding debt of $300 million and purchases of property, plant, and equipment of...
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
923
The Company's short-term investment portfolio is primarily invested in high credit quality, liquid investments.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
924
Approximately $3.2 billion of this cash, cash equivalents, and short-term investments are held by the Company's foreign subsidiaries and would be subject to U.S. income taxation on repatriation to the U.S.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
925
The Company is currently assessing the impact of the one-time favorable foreign dividend provisions recently enacted as part of the American Jobs Creation Act of 2004, and may decide to repatriate earnings from some of its foreign subsidiaries.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
926
The Company believes its existing balances of cash, cash equivalents, and short-term investments will be sufficient to satisfy its working capital needs, capital expenditures, stock repurchase activity, outstanding commitments, and other liquidity requirements associated with its existing operations over the next 12 mo...
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
927
Debt In February 2004, the Company retired $300 million of debt outstanding in the form of 6.5% unsecured notes.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
928
The notes were originally issued in 1994 and were sold at 99.9925% of par for an effective yield to maturity of 6.51%.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
929
The Company currently has no long-term debt obligations.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
930
Capital Expenditures The Company's total capital expenditures were $176 million during fiscal 2004, $104 million of which were for retail store facilities and equipment related to the Company's Retail segment and $72 million of which were primarily for corporate infrastructure, including information systems enhancement...
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
931
The Company currently anticipates it will utilize approximately $240 million for capital expenditures during 2005, approximately $125 million of which is expected to be utilized for further expansion of the Company's Retail segment and the remainder utilized to support normal replacement of existing capital assets and ...
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
932
Stock Repurchase Plan In July 1999, the Company's Board of Directors authorized a plan for the Company to repurchase up to $500 million of its common stock.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
933
This repurchase plan does not obligate the Company to acquire any specific number of shares or acquire shares over any specified period of time.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
934
During the fourth quarter of 2001, the Company entered into a forward purchase agreement to acquire 1.5 million shares of its common stock in September of 2003 at an average price of $16.64 per share for a total cost of $25.5 million.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
935
In August 2003, the Company settled this agreement prior to its maturity, at which time the Company's common stock had a fair value of $22.81.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
936
Other than this forward purchase transaction, the Company has not engaged in any transactions to repurchase its common stock since fiscal 2000.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
937
Since inception of the stock repurchase plan, the Company had repurchased a total of 6.55 million shares at a cost of $217 million.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
938
The Company was still authorized to repurchase up to an additional $283 million of its common stock as of September 25, 2004.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
939
Off-Balance Sheet Arrangements and Contractual Obligations The Company has not entered into any transactions with unconsolidated entities whereby the Company has financial guarantees, subordinated retained interests, derivative instruments or other contingent arrangements that expose the Company to material continuing ...
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
940
The following table presents certain payments due by the Company under contractual obligations with minimum firm commitments as of September 25, 2004 and excludes amounts already recorded on the Company's balance sheet as current liabilities (in millions): Lease Commitments As of September 25, 2004, the Company had tot...
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
941
Remaining terms on the Company's existing operating leases range from 2 to 16 years.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
942
Purchase Obligations The Company utilizes several contract manufacturers to manufacture sub-assemblies for the Company's products and to perform final assembly and test of finished products.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
943
These contract manufacturers acquire components and build product based on demand information supplied by the Company, which typically covers periods ranging from 30 to 130 days.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
944
The Company also obtains individual components for its products from a wide variety of individual suppliers.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
945
Consistent with industry practice, the Company acquires components through a combination of purchase orders, supplier contracts, and open orders based on projected demand information.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
946
Such purchase commitments typically cover the Company's forecasted component and manufacturing requirements for periods ranging from 30 to 130 days.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
947
The nature of the Company's outstanding third-party manufacturing commitments and component purchase commitments has not changed significantly since the end of its fiscal 2003.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
948
As of September 25, 2004, the Company had outstanding third-party manufacturing commitments and component purchase commitments of approximately $1.1 billion.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
949
Asset Retirement Obligations The Company's asset retirement obligations are associated with commitments to return property subject to operating leases to original condition upon lease termination.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
950
As of September 25, 2004, the Company estimates that gross expected future cash flows of approximately $12 million would be required to fulfill these obligations.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
951
Other Obligations The Company's other obligations of approximately $24 million are primarily related to telecommunications services.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
952
Indemnifications The Company generally does not indemnify end-users of its operating system and application software against legal claims that the software infringes third-party intellectual property rights.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
953
Other agreements entered into by the Company sometimes include indemnification provisions under which the Company could be subject to costs and/or damages in the event of an infringement claim against the Company or an indemnified third-party.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
954
However, the Company has not been required to make any significant payments resulting from such an infringement claim asserted against itself or an indemnified third-party and, in the opinion of management, does not have a liability related to unresolved infringement claims subject to indemnification that would have a ...
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
955
Factors That May Affect Future Results and Financial Condition Because of the following factors, as well as other factors affecting the Company's operating results and financial condition, past financial performance should not be considered to be a reliable indicator of future performance, and investors should not use ...
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
956
General economic conditions and current economic and political uncertainty could adversely affect the demand for the Company's products and the financial health of its suppliers, distributors, and resellers.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
957
The Company's operating performance depends significantly on general economic conditions in the U.S. and abroad.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
958
Over the past several years, demand for the Company's products has been negatively impacted by difficult global economic conditions.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
959
Additionally, some of the Company's education customers appeared to be delaying technology purchases due to concerns about the overall impact of the weaker economy and state budget deficits on their available funding.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
960
Although recent macroeconomic trends seem to indicate an economic recovery, continued uncertainty about future economic conditions makes it difficult to forecast future demand for the Company's products and related operating results.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
961
Should global and/or regional economic conditions deteriorate, demand for the Company's products could be adversely affected, as could the financial health of its suppliers, distributors, and resellers.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
962
War, terrorism, public health issues or other business interruptions could disrupt supply, delivery or demand of products, which could negatively affect the Company's operations and performance.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
963
War, terrorism, public health issues and other business interruptions whether in the U.S. or abroad, have caused and could continue to cause damage or disruption to international commerce by creating economic and political uncertainties that may have a strong negative impact on the global economy, the Company, and the ...
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
964
The Company's major business operations are subject to interruption by earthquake, fire, power shortages, terrorist attacks and other hostile acts, labor disputes, medical conditions, and other events beyond its control.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
965
The majority of the Company's research and development activities, its corporate headquarters, information technology systems, and other critical business operations, including certain component suppliers and manufacturing vendors, are located near major seismic faults.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
966
Because the Company does not carry earthquake insurance for direct quake-related losses, the Company's operating results and financial condition could be materially adversely affected in the event of a major earthquake or other natural or manmade disaster.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
967
Although it is impossible to predict the occurrences or consequences of any such events, such events could result in a decrease in demand for the Company's products, make it difficult or impossible to deliver products to its customers or to receive components from its suppliers, and could create delays and inefficienci...
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
968
In addition, should major public health issues, including epidemics, arise the Company could be negatively impacted by the need for more stringent employee travel restrictions, additional limitations in the availability of freight services, governmental actions limiting the movement of products between various regions,...
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
969
The Company's operating results and financial condition have been, and in the future may continue to be, adversely affected by these events.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
970
The market for personal computers and related peripherals and services, as well as digital music devices and related services, is highly competitive.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
971
If the Company is unable to effectively compete in these markets, its results of operations could be adversely affected.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
972
The personal computer industry is highly competitive and is characterized by aggressive pricing practices, downward pressure on gross margins, frequent introduction of new products, short product life cycles, evolving industry standards, continual improvement in product price/performance characteristics, rapid adoption...
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
973
Over the past several years, price competition in the market for personal computers and related peripherals has been particularly intense.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
974
The Company's competitors who sell Windows and Linux based personal computers have aggressively cut prices and lowered their product margins in order to gain or maintain market share in response to the weakness in demand that began in the second half of calendar 2000 for personal computing products.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
975
The Company's results of operations and financial condition have been, and in the future may continue to be, adversely affected by these and other industry-wide pricing pressures and downward pressures on gross margins.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
976
The personal computer industry has also been characterized by rapid technological advances in software functionality, hardware performance, and features based on existing or emerging industry standards.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
977
Further, as the personal computer industry and its customers place more reliance on the Internet, an increasing number of Internet devices that are smaller and simpler than traditional personal computers may compete for market share with the Company's existing products.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
978
Several competitors of the Company have either targeted or announced their intention to target certain of the Company's key market segments, including consumer, education, professional and consumer digital video editing, and design and publishing.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
979
Several of the Company's competitors have introduced or announced plans to introduce digital music products and/or online stores offering digital music distribution that mimic many of the unique design, technical features, and solutions of the Company's products.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
980
The Company has a significant number of competitors, many of whom have greater financial, marketing, manufacturing, and technological resources, as well as broader product lines and larger installed customer bases than those of the Company.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
981
Additionally, there has been a trend towards consolidation in the personal computer industry that has resulted in larger and potentially stronger competitors in the Company's markets.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
982
The Company is currently the only maker of hardware using the Mac OS.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
983
The Mac OS has a minority market share in the personal computer market, which is dominated by makers of computers utilizing other competing operating systems, including Windows and Linux.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
984
The Company's future operating results and financial condition are substantially dependent on its ability to continue to develop improvements to the Macintosh platform in order to maintain perceived design and functional advantages over competing platforms.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
985
The Company is currently focused on market opportunities related to digital music distribution and related consumer electronic devices, including iPods.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
986
The Company faces increasing competition from other companies promoting their own digital music products and distribution services and free peer-to-peer music services.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
987
These competitors include both new entrants with novel market approaches, such as subscription services models, and also larger companies that may have greater technical, marketing, distribution and other resources than those of the Company, as well as established hardware, software and music content supplier relations...
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
988
Failure to effectively compete could negatively affect the Company's operating results and financial position.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
989
There can be no assurance that the Company will be able to continue to provide products and services that effectively compete in these markets or successfully distribute and sell digital music outside the U.S.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
990
The Company may also have to respond to price competition by lowering prices and/or increasing features which could adversely affect the Company's music product gross margins as well as overall Company gross margins.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
991
The Company also faces increased competition in the U.S. education market.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
992
Sales in the U.S. to both elementary and secondary schools, as well as for college and university customers, remain a core market for the Company.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
993
Uncertainty in this channel remains as several competitors of the Company have either targeted or announced their intention to target the education market for personal computers, which could negatively affect the Company's market share.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
994
In an effort to regain market share and remain competitive, the Company has been and will continue to pursue one-to-one (1:1) learning solutions in education.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
995
The Company's 1:1 learning solutions are a complete solution consisting of an iBook portable system for every student and teacher along with a wireless network connected to a central server.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
996
These 1:1 learning solutions and other strategic sales are generally priced more aggressively and could result in significantly less profitability or even in financial losses, particularly for larger deals.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
997
Although the Company believes it has taken certain steps to strengthen its position in the education market, there can be no assurance that the Company will be able to increase or maintain its share of the education market or execute profitably on large strategic arrangements.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
998
Failure to do so may have an adverse impact on the Company's operating results and financial condition.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
999
The Company must successfully manage frequent product introductions and transitions in order to remain competitive and effectively stimulate customer demand.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,000
Due to the highly volatile and competitive nature of the personal computer and consumer electronics industries, which are characterized by dynamic customer demand patterns and rapid technological advances, the Company must continually introduce new products and technologies, enhance existing products in order to remain...
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,001
The success of new product introductions is dependent on a number of factors, including market acceptance; the Company's ability to manage the risks associated with product transitions, including production ramp issues; the availability of application software for new products; the effective management of inventory lev...
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,002
Accordingly, the Company cannot determine in advance the ultimate effect that new products will have on its sales or results of operations.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,003
The Company's products, from time to time, experience quality problems that can result in decreased net sales and operating profits.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,004
The Company sells highly complex hardware and software products that can contain defects in design and manufacture.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,005
Sophisticated operating system software and applications, such as those sold by the Company, often contain "bugs" that can unexpectedly interfere with the operation of the software.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,006
Defects may also occur in components and products the Company purchases from third-parties.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,007
There can be no assurance that the Company will be able to detect and fix all defects in the hardware and software it sells.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,008
Failure to do so could result in lost revenue, loss of reputation, and significant warranty and other expense to remedy.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,009
Because orders for components, and in some cases commitments to purchase components, must be placed in advance of customer orders, the Company faces substantial inventory risk.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,010
The Company records a write-down for inventories of components and products that have become obsolete or are in excess of anticipated demand or net realizable value and accrues necessary reserves for cancellation fees of orders for inventories that have been cancelled.
0001047469-04-035975/full-submission.txt