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0000320193
20041203
10-K
1,711
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.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,712
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...
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,713
The Company assesses the adequacy of its preexisting warranty liabilities and adjusts the amounts as necessary based on actual experience and changes in future expectations.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,714
The following table reconciles changes in the Company's accrued warranties and related costs (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 intellectual property rights.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,715
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
1,716
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 potential liability related to unresolved infringement claims subject to indemnification that wou...
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,717
Therefore, the Company did not record a liability for infringement costs as of either September 25, 2004 or September 27, 2003.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,718
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, other key components (including microprocessors and application-specific integrated circuits, or ("ASICs")) are currently obtained by the...
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,719
Some other key components, while currently available to the Company from multiple sources, are at times subject to industry-wide availability and pricing pressures.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,720
In addition, the Company uses some components that are not common to the rest of the personal computer industry, and new products introduced by the Company often initially utilize custom components obtained from only one source until the Company has evaluated whether there is a need for and subsequently qualifies addit...
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,721
If the supply of a key single-sourced component to the Company were to be delayed or curtailed or in the event a key manufacturing vendor delays shipments of completed products to the Company, the Company's ability to ship related products in desired quantities and in a timely manner could be adversely affected.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,722
The Company's business and financial performance could also be adversely affected depending on the time required to obtain sufficient quantities from the original source, or to identify and obtain sufficient quantities from an alternative source.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,723
Continued availability of these components may be affected if producers were to decide to concentrate on the production of common components instead of components customized to meet the Company's requirements.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,724
Finally, significant portions of the Company's CPUs, logic boards, and assembled products are now manufactured by outsourcing partners, the majority of which occurs in various parts of Asia.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,725
Although the Company works closely with its outsourcing partners on manufacturing schedules, the Company's operating results could be adversely affected if its outsourcing partners were unable to meet their production obligations.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,726
Contingencies Beginning on September 27, 2001, three shareholder class action lawsuits were filed in the U.S. District Court for the Northern District of California against the Company and its Chief Executive Officer.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,727
These lawsuits are substantially identical, and purport to bring suit on behalf of persons who purchased the Company's publicly traded common stock between July 19, 2000, and September 28, 2000.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,728
The complaints allege violations of the 1934 Securities Exchange Act and seek unspecified compensatory damages and other relief.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,729
The Company believes these claims are without merit and intends to defend them vigorously.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,730
The Company filed a motion to dismiss on June 4, 2002, which was heard by the Court on September 13, 2002.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,731
On December 11, 2002, the Court granted the Company's motion to dismiss for failure to state a cause of action, with leave to Plaintiffs to amend their complaint within thirty days.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,732
Plaintiffs filed their amended complaint on January 31, 2003, and on March 17, 2003, the Company filed a motion to dismiss the amended complaint.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,733
The Court heard the Company's motion on July 11, 2003 and dismissed Plaintiffs' claims with prejudice on August 12, 2003.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,734
Plaintiffs have appealed the ruling.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,735
The Company is subject to certain other legal proceedings and claims that have arisen in the ordinary course of business and have not been fully adjudicated.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,736
In the opinion of management, the Company does not have a potential liability related to any current legal proceedings and claims that would individually or in the aggregate have a material adverse effect on its financial condition, liquidity or results of operations.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,737
However, the results of legal proceedings cannot be predicted with certainty.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,738
Should the Company fail to prevail in any of these legal matters or should several of these legal matters be resolved against the Company in the same reporting period, the operating results of a particular reporting period could be materially adversely affected.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,739
Production and marketing of products in certain states and countries may subject the Company to environmental and other regulations including, in some instances, the requirement to provide customers the ability to return product at the end of its useful life, and place responsibility for environmentally safe disposal o...
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,740
Such laws and regulations have recently been passed in several jurisdictions in which the Company operates including various European Union member countries, Japan and certain states within the U.S.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,741
Although the Company does not anticipate any material adverse effects in the future based on the nature of its operations and the thrust of such laws, there is no assurance that such existing laws or future laws will not have a material adverse effect on the Company's results of operations and financial position.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,742
Note 11-Segment Information and Geographic Data In accordance with SFAS No.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,743
131, Disclosures about Segments of an Enterprise and Related Information, the Company reports segment information based on the "management" approach.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,744
The management approach designates the internal reporting used by management for making decisions and assessing performance as the source of the Company's reportable segments.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,745
The Company manages its business primarily on a geographic basis.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,746
The Company's reportable operating segments are comprised of the Americas, Europe, Japan, and Retail.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,747
The Americas segment includes both North and South America, except for the activities of the Company's Retail segment.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,748
The Europe segment includes European countries as well as the Middle East and Africa.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,749
The Japan segment includes only Japan and excludes revenue from the Company's own retail stores in Japan, which is included in the Company's Retail segment.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,750
The Retail segment operated Apple-owned retail stores in the U.S. and Japan during fiscal 2004.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,751
Other operating segments include Asia-Pacific, which includes Australia and Asia except for Japan, and the Company's subsidiary, FileMaker, Inc. Each reportable geographic operating segment provides similar hardware and software products and similar services, and the accounting policies of the various segments are the ...
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,752
The Company evaluates the performance of its operating segments based on net sales.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,753
The Retail segment's performance is also evaluated based on operating income.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,754
Net sales for geographic segments are generally based on the location of the customers.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,755
Operating income for each segment includes net sales to third parties, related cost of sales, and operating expenses directly attributable to the segment.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,756
Operating income for each segment excludes other income and expense and certain expenses that are managed outside the operating segments.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,757
Costs excluded from segment operating income include various corporate expenses, manufacturing costs not included in standard costs, income taxes, and various nonrecurring charges.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,758
Corporate expenses include research and development, corporate marketing expenses, and other separately managed general and administrative expenses including certain corporate expenses associated with support of the Retail segment.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,759
The Company does not include intercompany transfers between segments for management reporting purposes.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,760
Segment assets exclude corporate assets.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,761
Corporate assets include cash, short-term and long-term investments, manufacturing facilities, miscellaneous corporate infrastructure, goodwill and other acquired intangible assets, and retail store construction-in-progress that is not subject to depreciation.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,762
Except for the Retail segment, capital expenditures for long-lived assets are not reported to management by segment.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,763
Capital expenditures by the Retail segment were $104 million, $92 million and $106 million for 2004, 2003 and 2002, respectively.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,764
Operating income for all segments, except Retail, includes cost of sales at manufacturing standard cost, other cost of sales, related sales and marketing costs, and certain general and administrative costs.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,765
This measure of operating income, which includes manufacturing profit, provides a comparable basis for comparison between the Company's various geographic segments.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,766
Certain manufacturing expenses and related adjustments not included in segment cost of sales, including variances between standard and actual manufacturing costs and the mark-up above standard cost for product supplied to the Retail segment, are included in corporate expenses.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,767
Management assesses the operating performance of the Retail segment differently than it assesses the operating performance of the Company's geographic segments.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,768
The Retail segment revenue and operating income is intended to depict a comparable measure to that of the Company's major channel partners in the U.S. operating retail stores so the Company can evaluate the Retail segment performance as if it were a channel partner.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,769
Therefore, the Company makes three significant adjustments to the Retail segment for management reporting purposes that are not included in the results of the Company's other segments.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,770
First, the Retail segment's operating income includes cost of sales for Apple products at an amount normally charged to major channel partners in the U.S. operating retail stores, less the cost of sales programs and incentives provided to those channel partners and the Company's cost to support those partners.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,771
For the years ended September 25, 2004, September 27, 2003, and September 28, 2002, this resulted in the recognition of additional cost of sales above standard cost by the Retail segment and an offsetting benefit to corporate expenses of approximately $213 million, $106 million, and $52 million, respectively.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,772
Second, the Company's extended warranty, support and service contracts are transferred to the Retail segment at the same cost as that charged to the Company's major retail channel partners in the U.S., resulting in a comparable measure of revenue and gross margin between the Company's Retail stores and those retail cha...
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,773
The Retail segment recognizes the full amount of revenue and cost of sales at the time of sale of the Company's extended warranty, support and service contracts.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,774
Because the Company has not yet earned the revenue or incurred the costs associated with the sale of these contracts, an offset to these amounts is recognized in other operating segments' net sales and cost of sales.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,775
For the year ended September 25, 2004, this resulted in the recognition of net sales and cost of sales by the Retail segment, with corresponding offsets in other operating segments, of $54 million and $37 million, respectively.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,776
For the year ended September 27, 2003, the net sales and cost of sales recognized by the Retail segment for sales of extended warranty, support and service contracts were $30 million and $20 million, respectively.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,777
For the year ended September 28, 2002, this resulted in the recognition of net sales and cost of sales by the Retail segment of $8 million and $6 million, respectively.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,778
Third, the Company has opened six high profile stores in New York, Los Angeles, Chicago, San Francisco, Tokyo, Japan and Osaka, Japan as of September 25, 2004 and has an additional store under development in London, England, which is expected to open by the end of calendar year 2004.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,779
These high profile stores are larger than the Company's typical retail stores and were designed to further promote brand awareness and provide a venue for certain corporate sales and marketing activities, including corporate briefings.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,780
As such, the Company allocates certain operating expenses associated with these stores to corporate marketing expense to reflect the estimated benefit realized Company-wide.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,781
The allocation of these operating costs is based on the excess amount incurred for a high profile store to that of a more typical Company retail location.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,782
Expenses allocated to corporate marketing resulting from the operations of these stores were $16 million, $6 million and $1 million for the years ended September 25, 2004, September 27, 2003, and September 28, 2002 respectively.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,783
Summary information by operating segment follows (in millions): (a)The Americas asset figures do not include fixed assets held in the U.S.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,784
Such fixed assets are not allocated specifically to the Americas segment and are included in the corporate assets figures below.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,785
(b)Retail segment depreciation and asset figures reflect the cost and related depreciation of its retail stores and related infrastructure.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,786
Retail store construction-in-progress, which is not subject to depreciation, is reflected in corporate assets.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,787
(c)Other Segments include Asia-Pacific and FileMaker.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,788
A reconciliation of the Company's segment operating income and assets to the consolidated financial statements follows (in millions): A large portion of the Company's net sales is derived from its international operations.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,789
Also, a majority of the raw materials used in the Company's products is obtained from sources outside of the U.S., and a majority of the products sold by the Company is assembled internationally in the Company's facility in Cork, Ireland or by third-party vendors in Taiwan, Korea, the Netherlands, the People's Republic...
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,790
As a result, the Company is subject to risks associated with foreign operations, such as obtaining governmental permits and approvals, currency exchange fluctuations, currency restrictions, political instability, labor problems, trade restrictions, and changes in tariff and freight charges.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,791
No single customer accounted for more than 10% of net sales in 2004, 2003 or 2002.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,792
Net sales and long-lived assets related to operations in the U.S., Japan, and other foreign countries are as follows (in millions): Information regarding net sales by product is as follows (in millions): (a)Includes Xserve product line.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,793
(b)Includes eMac product line.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,794
(c)Other Music Products includes iTunes Music Store sales and iPod related services, and Apple-branded and third-party iPod-related accessories.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,795
(d)Net sales of peripherals and other hardware include sales of Apple-branded and third-party displays, wireless connectivity and networking solutions, and other hardware accessories.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,796
(e)Net sales of software include sales of Apple-branded operating system and application software and sales of third-party software.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,797
Note 12-Related Party Transactions and Certain Other Transactions In March 2002, the Company entered into a Reimbursement Agreement with its CEO, Mr. Steven P. Jobs, for the reimbursement of expenses incurred by Mr. Jobs in the operation of his private plane when used for Apple business.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,798
The Reimbursement Agreement became effective for expenses incurred by Mr. Jobs for Apple business purposes since he took delivery of the plane in May 2001.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,799
The Company recognized a total of $483,000, $404,000, and $1,168,000 in expenses pursuant to the Reimbursement Agreement during 2004, 2003 and 2002, respectively.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,800
All expenses recognized pursuant to the Reimbursement Agreement have been included in selling, general, and administrative expenses in the consolidated statements of operations.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,801
In connection with a relocation assistance package, the Company in May 2000 loaned Mr. Ronald B. Johnson, Senior Vice President, Retail, $1.5 million for the purchase of his principal residence.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,802
The loan was secured by a deed of trust and was due and payable in May 2004.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,803
Under the terms of the loan, Mr. Johnson agreed that should he exercise any of his stock options prior to the due date of the loan, he would pay the Company an amount equal to the lesser of (1) an amount equal to 50% of the total net gain realized from the exercise of the options; or (2) $375,000 multiplied by the numb...
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,804
Mr. Johnson repaid $750,000 of this loan in fiscal 2003 and repaid the remaining balance of $750,000 in fiscal 2004.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,805
Mr. Jerome York, a member of the Board of Directors of the Company, is a member of an investment group that purchased MicroWarehouse, Inc. (MicroWarehouse) in January 2000.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,806
Until September 7, 2003, he also served as Microwarehouse's Chairman, President and Chief Executive Officer.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,807
MicroWarehouse was a reseller of computer hardware, software and peripheral products, including products made by the Company.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,808
On September 8, 2003, CDW Corporation (CDW), acquired selected North American assets of MicroWarehouse.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,809
MicroWarehouse subsequently filed for Chapter 11 bankruptcy protection in the U.S. MicroWarehouse accounted for approximately 0.3%, 2.4% and 3.3% of the Company's net sales for the years ended September 25, 2004, September 27, 2003, and September 28, 2002, respectively.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,810
Trade receivables from MicroWarehouse were $4.3 million and $9.9 million as of September 25, 2004 and September 27, 2003, respectively.
0001047469-04-035975/full-submission.txt