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0000320193
20061229
10-Q
1,350
Such costs could adversely affect the Company’s results of operations and financial condition.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,351
Additionally, a relatively high proportion of the Retail segment’s costs are fixed because of personnel costs, depreciation of store construction costs, and lease expense.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,352
As a result, significant losses would result should the Retail segment experience a significant decline in sales for any reason.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,353
Certain of the Company’s stores have been designed and built to serve as high-profile venues that function as vehicles for general corporate marketing, corporate events, and brand awareness.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,354
Because of their unique design elements, locations and size, these stores require substantially more investment in equipment and leasehold improvements than the Company’s more typical retail stores.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,355
The Company has opened eight such stores through July 2006.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,356
Because of their location and size, these high-profile stores also require the Company to enter into substantially larger operating lease commitments compared to those required for its more typical stores.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,357
Current leases on such locations have terms ranging from 10 to 14 years with total remaining commitments per location ranging from $4 million to $35 million.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,358
Closure or poor performance of one of these high-profile stores could have a significant negative impact on the Company’s results of operations and financial condition.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,359
Many of the general risks and uncertainties the Company faces could also have an adverse impact on its Retail segment.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,360
Also, many factors unique to retail operations present risks and uncertainties, some of which are beyond the Company’s control, that could adversely affect the Retail segment’s future results, cause its actual results to differ from those currently expected, and/or have an adverse effect on the Company’s consolidated r...
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,361
Potential risks and uncertainties unique to retail operations that could have an adverse impact on the Retail segment include, among other things, macro-economic factors that have a negative impact on general retail activity; inability to manage costs associated with store construction and operation; inability to sell ...
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,362
Investment in new business strategies and initiatives could disrupt the Company’s ongoing business and may present risks not originally contemplated.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,363
The Company has and may in the future invest in new business strategies or engage in acquisitions that complement the Company’s strategic direction and product roadmap.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,364
Such endeavors may involve significant risks and uncertainties, including distraction of management’s attention away from current business operations; insufficient revenue generation to offset liabilities assumed and expenses associated with the strategy; and unidentified issues not discovered in the Company’s due dili...
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,365
Because these new ventures are inherently risky, no assurance can be given that such strategies and initiatives will be successful and will not materially adversely affect the Company’s business, operating results or financial condition.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,366
Declines in the sales of the Company’s professional products, software, accessories, or service and support contracts, or increases in sales of consumer products, including iPods, may negatively impact the Company’s gross margin and operating margin percentages.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,367
The Company’s professional products, including MacBook Pro and Mac Pro systems, software, accessories, and service and support contracts, generally have higher gross margins than the Company’s consumer products, including the iMac, Mac mini, MacBook, iPod, and content from the iTunes Store.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,368
A shift in sales mix away from higher margin professional products towards lower margin consumer products could adversely affect the Company’s future gross margin and operating margin percentages.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,369
The Company’s traditional professional customers may choose to buy consumer products, specifically the iMac and MacBook, instead of professional products.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,370
Professional users may choose to buy the iMac due to its relative price performance and unique design featuring a flat panel screen.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,371
Professional users may also choose to purchase MacBooks instead of the Company’s professional-oriented portable products due to their price performance and screen size.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,372
Additionally, significant future growth in iPod sales without corresponding growth in higher margin product sales could also reduce gross margin and operating margin percentages.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,373
The Company expects its quarterly revenue and operating results to fluctuate for a variety of reasons.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,374
The Company’s profit margins vary among its products and its distribution channels.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,375
The Company’s direct sales, primarily through its retail and online stores, generally have higher associated profitability than its indirect sales.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,376
As a result, the Company’s gross margin and operating margin percentages, as well as overall profitability may be adversely impacted as a result of a shift in product, geographic or channel mix, or new product announcements, including the transition to Intel-based Macintosh computers.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,377
In addition, the Company generally sells more product during the third month of each quarter than it does during either of the first two months, a pattern typical in the personal computer and consumer electronics industries.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,378
This sales pattern can produce pressure on the Company’s internal infrastructure during the third month of a quarter and may adversely impact the Company’s ability to predict its financial results accurately.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,379
Furthermore, the Company has typically experienced greater net sales in the first and fourth fiscal quarters compared to other quarters in the fiscal year due to seasonal demand related to the holiday season and the beginning of the school year.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,380
Developments late in a quarter, such as lower-than-anticipated demand for the Company’s products, an internal systems failure, or failure of one of the Company’s key logistics, components suppliers, or manufacturing partners, could have significant adverse impacts on the Company and its results of operations and financ...
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,381
The Company has higher research and development and selling, general and administrative costs, as a percentage of revenue, than many of its competitors.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,382
The Company’s ability to compete successfully and maintain attractive gross margins and revenue growth is heavily dependent upon its ability to ensure a continuing and timely flow of innovative and competitive products and technologies to the marketplace.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,383
As a result, the Company generally incurs higher research and development costs as a percentage of revenue than its competitors who sell personal computers based on other operating systems.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,384
Many of these competitors seek to compete aggressively on price and maintain very low cost structures.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,385
Further, as a result of the expansion of the Company’s Retail segment and costs associated with marketing the Company’s brand including its unique operating system, the Company incurs higher selling costs as a percentage of revenue than many of its competitors.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,386
If the Company is unable to continue to develop and sell innovative new products with attractive gross margins, its results of operations may be materially adversely affected by its operating cost structure.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,387
The Company is exposed to credit risk on its accounts receivable and prepayments related to long-term supply agreements.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,388
This risk is heightened during periods when economic conditions worsen.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,389
The Company distributes its products through third-party computer resellers and retailers and directly to certain educational institutions and commercial customers.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,390
A substantial majority of the Company’s outstanding trade receivables are not covered by collateral or credit insurance.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,391
The Company also has unsecured non-trade receivables from certain of its manufacturing vendors resulting from the sale by the Company of raw material components to these manufacturing vendors who manufacture sub-assemblies or assemble final products for the Company.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,392
In addition, the Company has entered into long-term supply agreements to secure supply of NAND flash-memory and has prepaid a total of $1.25 billion under these agreements.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,393
While the Company has procedures in place to monitor and limit exposure to credit risk on its trade and non-trade receivables as well as long-term prepayments, there can be no assurance such procedures will be effective in limiting its credit risk and avoiding losses.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,394
Additionally, if the global economy or regional economies deteriorate, the Company would be more likely to incur a material loss or losses as a result of the weakening financial condition of one or more of its customers or manufacturing vendors.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,395
The Company’s success depends largely on its ability to attract and retain key personnel.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,396
Much of the future success of the Company depends on the continued service and availability of skilled personnel, including its Chief Executive Officer, members of its executive team, and those in technical, marketing and staff positions.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,397
Experienced personnel in the information technology industry are in high demand and competition for their talents is intense, especially in the Silicon Valley, where the majority of the Company’s key employees are located.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,398
The Company has relied on its ability to grant stock options as one mechanism for recruiting and retaining this highly skilled talent.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,399
Recent accounting regulations requiring the expensing of stock options have resulted in increased stock-based compensation expense, which may cause the Company to reduce the amount of stock-based awards issued to employees.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,400
There can be no assurance that the Company will continue to successfully attract and retain key personnel.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,401
The Company is subject to risks associated with the availability and coverage of insurance.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,402
For certain risks, the Company does not maintain insurance coverage because of cost and/or availability.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,403
Because the Company retains some portion of its insurable risks, and in some cases self insures completely, unforeseen or catastrophic losses in excess of insured limits may have a material adverse effect on the Company’s results of operations and financial position.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,404
Failure of information technology systems and breaches in the security of data upon which the Company relies could adversely affect the Company’s future operating results.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,405
Information technology system failures and breaches of data security could disrupt the Company’s ability to function in the normal course of business by potentially causing delays or cancellation of customer orders, impeding the manufacture or shipment of products, or resulting in the unintentional disclosure of custom...
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,406
Management has taken steps to address these concerns for its own systems by implementing sophisticated network security and internal control measures.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,407
However, there can be no assurance that a system failure or data security breach of the Company or a third-party vendor will not have a material adverse effect on the Company’s results of operations.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,408
The Company’s business is subject to the risks of international operations.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,409
A large portion of the Company’s revenue is derived from its international operations.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,410
As a result, the Company’s operating results and financial condition could be significantly affected by risks associated with international activities, including economic and labor conditions, political instability, tax laws (including U.S. taxes on foreign subsidiaries), and changes in the value of the U.S. dollar ver...
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,411
The Company’s primary exposure to movements in foreign currency exchange rates relate to non-U.S. dollar denominated sales in Europe, Japan, Australia, Canada, and certain parts of Asia and non-dollar denominated operating expenses incurred throughout the world.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,412
Weaknesses in foreign currencies, particularly the Japanese Yen and the Euro, can adversely impact consumer demand for the Company’s products and the U.S. dollar value of the Company’s foreign currency denominated sales.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,413
Conversely, a strengthening in these and other foreign currencies can cause the Company to modify international pricing and affect the value of the Company’s foreign denominated sales, and in some cases, may also increase the cost to the Company of some product components.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,414
Margins on sales of the Company’s products in foreign countries, and on sales of products that include components obtained from foreign suppliers, can be adversely affected by foreign currency exchange rate fluctuations and by international trade regulations, including tariffs and antidumping penalties.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,415
Derivative instruments, such as foreign exchange forward and option positions have been utilized by the Company to hedge exposures to fluctuations in foreign currency exchange rates.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,416
The use of such hedging activities may not offset more than a portion of the adverse financial impact resulting from unfavorable movements in foreign exchange rates.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,417
Further information related to the Company’s global market risks may be found in Part II, Item 7A of the 2006 Form 10-K for the year ended September 30, 2006 under the subheading “Foreign Currency Risk” and may be found in Part II, Item 8 of the 2006 Form 10-K for the year ended September 30, 2006 at Notes 1 and 3 of N...
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,418
The Company is subject to risks associated with environmental regulations.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,419
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...
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,420
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.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,421
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 such existing laws or future laws will not have a material adverse effect on the Company’s financial condition, liquidity, or results of operations...
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,422
Changes in accounting rules could affect the Company’s future operating results.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,423
Financial statements are prepared in accordance with U.S. generally accepted accounting principles.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,424
These principles are subject to interpretation by various governing bodies, including the FASB and the SEC, who create and interpret appropriate accounting standards.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,425
A change from current accounting standards could have a significant effect on the Company’s results of operations.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,426
In December 2004, the FASB issued new guidance that addresses the accounting for share-based payments, SFAS No.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,427
123R, which the Company adopted in 2006.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,428
In the third quarter and first nine months of 2006, stock-based compensation expense reduced diluted earnings per common share by approximately $0.03 and $0.10, respectively.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,429
Although the adoption of SFAS No.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,430
123R is expected to continue to have a significant impact on the Company’s results of operations, future changes to various assumptions used to determine the fair-value of awards issued or the amount and type of equity awards granted create uncertainty as to the amount of future stock-based compensation expense.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,431
Changes in the Company’s tax rates could affect its future results.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,432
The Company’s future effective tax rates could be favorably or unfavorably affected by changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of the Company’s deferred tax assets and liabilities, or by changes in tax laws or their interpretation.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,433
In addition, the Company is subject to the continuous examination of its income tax returns by the Internal Revenue Service and other tax authorities.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,434
The Company regularly assesses the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of its provision for income taxes.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,435
There can be no assurance the outcomes from these continuous examinations will not have an adverse effect on the Company’s results of operations and financial condition.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,436
The Company’s stock price may be volatile.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,437
The Company’s stock has at times experienced substantial price volatility as a result of variations between its actual and anticipated financial results and as a result of announcements by the Company and its competitors.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,438
The stock market has experienced extreme price and volume fluctuations that have affected the market price of many technology companies in ways that may have been unrelated to the operating performance of these companies.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,439
Furthermore, the Company believes its stock price reflects high future growth and profitability expectations.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,440
If the Company fails to meet these expectations its stock price may significantly decline.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,441
In addition, increases in the Company’s stock price may result in greater dilution of earnings per share.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,442
For a discussion of these and other factors affecting the Company’s future results and financial condition, see Part I, Item 1A, “Risk Factors” and Item 1, “Business” in the Company’s 2006 Form 10-K.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,443
Item 4.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,444
Submission of Matters to a Vote of Security Holders The annual meeting of shareholders was held on April 27, 2006.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,445
Proposals 1 and 2 were approved.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,446
Proposal 3 was not approved.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,447
The results are as follows: Proposal 1 The following directors were elected at the meeting to serve a one-year term as directors: Proposal 2 Ratification of appointment of KPMG LLP as the Company’s independent auditors for fiscal year 2006.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,448
Proposal 3 A shareholder proposal requesting that the Board of Directors prepare a report, at a reasonable cost, studying ways to improve its computer recycling programs.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,449
The proposals above are described in detail in the Company’s definitive proxy statement dated March 13, 2006, for the Annual Meeting of Shareholders held on April 27, 2006.
0001104659-06-084286/full-submission.txt