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0000320193
20031219
10-K
952
The Company's retail initiative has required and will continue to require a substantial investment and commitment of resources and is subject to numerous risks and uncertainties.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
953
Through November 2003, the Company has opened 74 retail stores including its first international store in Tokyo, Japan.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
954
The Company's retail initiative has required substantial investment in equipment and leasehold improvements, information systems, inventory, and personnel.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
955
The Company has also entered into substantial operating lease commitments for retail space with lease terms ranging from 5 to 15 years.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
956
The Company could incur substantial costs should it choose to terminate this initiative or close individual stores.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
957
Such costs could adversely affect the Company's results of operations and financial condition.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
958
Additionally, a relatively high proportion of the Retail segment's costs are fixed because of depreciation on store construction costs and lease expense.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
959
As a result, significant losses would result should the Retail segment experience a decline in sales for any reason.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
960
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.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
961
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.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
962
The Company has opened four such stores and has one under construction.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
963
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.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
964
Current leases on such locations have terms ranging from 10 to 15 years with total commitments per location over the lease terms ranging from $25 million to $50 million.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
965
Closure or poor performance of one of these high profile stores could have a particularly significant negative impact on the Company's results of operations and financial condition.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
966
Many of the general risks and uncertainties the Company faces could also have an adverse impact on its Retail segment.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
967
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...
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
968
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; lack of consumer a...
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
969
Unit sales of the Company's professionally oriented desktop systems have declined sharply over the past several years negatively impacting net sales and gross margin.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
970
Unit sales of Power Macintosh systems fell 13% during 2003 as compared to 2002 and fell 18% in 2002 from 2001.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
971
Power Macintosh unit sales have fallen as a percentage of total Macintosh unit sales from 30% in 2001 to 22% in 2003.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
972
The Company believes that weak economic conditions over the past several years are having a pronounced negative impact on its professional and creative customers who are the primary users of such systems.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
973
Also, it is likely that many of the Company's current and potential customers, particularly professional and creative customers who are most likely to utilize the Company's Power Macintosh systems, believe that the relatively slower MHz rating or clock speed of the microprocessors it utilizes in its Macintosh systems c...
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
974
In addition to the negative impact on net sales, declining sales of Power Macintosh systems also have a negative effect on the Company's overall gross margin because Power Macintosh systems generally have higher individual gross margins than the Company's other Macintosh systems.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
975
Continued deterioration in Power Macintosh unit sales could adversely affect the Company's future net sales and gross margin.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
976
If future unit sales of Power Macintosh systems fail to partially or fully recover, it will be difficult for the Company to improve its overall profitability.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
977
While the Company has introduced faster Power Macintosh systems utilizing 64-bit PowerPC G5 processors during 2003, there can be no assurance that introduction of such systems will favorably impact net sales either in the short or long term.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
978
The Company faces increasing competition in the U.S. education market.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
979
Sales in the United States to both elementary and secondary schools, as well as for college and university customers, remain a core market for Apple.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
980
Net sales in these markets fell to 18% of the Company's total net sales in 2003 from 21% and 26% in 2002 and 2001, respectively.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
981
The drop in 2003 reflects declines in both net sales and Macintosh unit sales in these markets of 4% and 6%, respectively, in fiscal 2003 compared to 2002.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
982
Additionally, several competitors of the Company have either targeted or announced their intention to target the education market for personal computers, which could also negatively affect the Company's market share.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
983
In an effort to regain market share and remain competitive, the Company has been and will continue to pursue 1:1 learning solutions in education.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
984
These 1:1 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.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
985
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.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
986
Failure to do so may have an adverse impact on the Company's operating results and financial condition.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
987
The Company's future operating performance is dependent on the performance of distributors and other resellers of the Company's products.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
988
The Company distributes its products through wholesalers, resellers, national and regional retailers and cataloguers, many of whom distribute products from competing manufacturers.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
989
In addition, the Company also sells many of its products and resells certain third-party products in most of its major markets directly to end users, certain education customers, and certain resellers through its online stores around the world.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
990
The Company also sells its own products and certain third-party products through its retail stores.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
991
Many of the Company's significant resellers operate on narrow product margins and have been negatively affected by current economic conditions.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
992
Considerable trade receivables that are not covered by collateral or credit insurance are outstanding with the Company's distribution and retail channel partners.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
993
The Company's business and financial results could be adversely affected if the financial condition of these resellers weaken, if resellers within consumer channels were to cease distribution of the Company's products, or if uncertainty regarding demand for the Company's products caused resellers to reduce their orderi...
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
994
The Company has invested and will continue to invest in various programs to enhance reseller sales, including staffing selected resellers' stores with Company employees.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
995
These programs could require a substantial investment from the Company, while providing no assurance of return or incremental revenue to offset this investment.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
996
Over the past several years, an increasing proportion of the Company's net sales have been made by the Company directly to end-users through its online stores around the world and through its retail stores in the United States.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
997
Some of the Company's resellers have perceived this expansion of the Company's direct sales as conflicting with their own business and economic interests as distributors and resellers of the Company's products.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
998
Perception of such a conflict could discourage the Company's resellers from investing additional resources in the distribution and sale of the Company's products or lead them to limit or cease distribution of the Company's products.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
999
The Company's business and financial results could be adversely affected if expansion of its direct sales to end-users causes some or all of its resellers to cease or limit distribution of the Company's products.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
1,000
Further information regarding risks associated with Marketing and Distribution may be found in Part I, Item 1 of this Form 10-K under the heading "Markets and Distribution," which information is hereby incorporated by reference.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
1,001
The Company's business is subject to the risks of international operations.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
1,002
A large portion of the Company's revenue is derived from its international operations.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
1,003
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...
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
1,004
The Company's primary exposure to movements in foreign currency exchange rates relate to non-dollar denominated sales in Europe, Japan, Australia, Canada, and certain parts of Asia and non-dollar denominated operating expenses incurred throughout the world.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
1,005
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.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
1,006
Conversely, strengthening in these and other foreign currencies can increase the cost to the Company of product components, negatively affecting the Company's results of operations.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
1,007
Margins on sales of Apple 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.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
1,008
Derivative instruments, such as foreign exchange forward and option positions, and interest rate swap and option positions have been utilized by the Company to hedge exposures to fluctuations in interest rates and foreign currency exchange rates.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
1,009
The use of such hedging activities may not offset more than a portion of the adverse financial impact resulting from unfavorable movements in either foreign exchange or interest rates.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
1,010
Further information related to the Company's global market risks may be found in Part II, Item 7A of this Form 10-K under the subheading "Foreign Currency Risk" and may be found in Part II, Item 8 of this Form 10-K at Notes 1 and 2 of Notes to Consolidated Financial Statements, which information is hereby incorporated ...
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
1,011
The Company's future performance is dependent upon support from third-party software developers.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
1,012
If third-party software applications cease to be developed or available for the Company's hardware products, then customers may choose not to buy the Company's products.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
1,013
The Company believes that decisions by customers to purchase the Company's personal computers, as opposed to Windows-based systems, are often based on the availability of third-party software for particular applications such as Microsoft Office.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
1,014
The Company also believes the availability of third-party application software for the Company's hardware products depends in part on third-party developers' perception and analysis of the relative benefits of developing, maintaining, and upgrading such software for the Company's products versus software for the larger...
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
1,015
This analysis is based on factors such as the perceived strength of the Company and its products, the anticipated potential revenue that may be generated, acceptance by customers of Mac OS X, and the costs of developing such software products.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
1,016
To the extent the Company's financial losses in prior years and the minority market share held by the Company in the personal computer market, as well as the Company's decision to end its Mac OS licensing program, have caused software developers to question the Company's prospects in the personal computer market, devel...
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
1,017
Moreover, there can be no assurance software developers will continue to develop software for Mac OS X, the Company's operating system, on a timely basis or at all.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
1,018
In addition, past and future development by the Company of its own software applications and solutions may negatively impact the decision of software developers to develop, maintain, and upgrade similar or competitive software for the Company's products.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
1,019
The Company currently markets and sells a variety of software applications for use by professionals, consumers, and education customers that could influence the decision of third-party software developers to develop or upgrade Macintosh-compatible software products.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
1,020
Software applications currently marketed by the Company include software for professional film and video editing, professional compositing and visual effects for large format film and video productions, professional music production and music post production, professional and consumer DVD encoding and authoring, consum...
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
1,021
The Company also markets an integrated productivity application that incorporates word processing, page layout, image manipulation, spreadsheets, databases, and presentations in a single application.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
1,022
In August 1997, the Company and Microsoft Corporation entered into patent cross license and technology agreements.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
1,023
In addition, for a period of five years through August 2002, and subject to certain limitations related to the number of Macintosh computers sold by the Company, Microsoft was required to make versions of its Microsoft Office and Internet Explorer products for the Mac OS.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
1,024
Although Microsoft has released Microsoft Office and Internet Explorer for Mac OS X, Microsoft is not obligated to produce future versions of its products subsequent to August 2002.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
1,025
While the Company believes its relationship with Microsoft has been and will continue to be beneficial to the Company and to its efforts to increase the installed base for the Mac OS, the Company does compete directly with Microsoft in a number of key areas.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
1,026
Accordingly, Microsoft's interest in producing application software for the Mac OS following expiration of the agreements may be influenced by Microsoft's perception of its interests as the vendor of the Windows operating system.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
1,027
Discontinuance of Microsoft Office and other Microsoft products for the Macintosh platform would have an adverse effect on the Company's net sales and results of operations.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
1,028
In June of 2003, Microsoft stated that it would no longer develop new versions of Internet Explorer for the Mac OS.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
1,029
Microsoft's decision to discontinue development of Internet Explorer for Mac OS X appears to have been influenced in part by the Company's introduction during 2003 of its own web browser, Safari.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
1,030
It is unclear what impact, if any, Microsoft's decision to cease further development of Internet Explorer for Mac OS X will have on the Company.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
1,031
However, if customers chose not to purchase the Company's products because Internet Explorer is not available on the Macintosh platform or should websites fail to provide support for web browsers other than Internet Explorer, the Company's net sales and results of operations could be materially adversely affected.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
1,032
The Company's business relies on access to patents and intellectual property obtained from third parties, and the Company's future results could be adversely affected if it is alleged or found to have infringed on the intellectual property rights of others.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
1,033
Many of the Company's products are designed to include intellectual property obtained from third parties.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
1,034
While it may be necessary in the future to seek or renew licenses relating to various aspects of its products and business methods, the Company believes that based upon past experience and industry practice, such licenses generally could be obtained on commercially reasonable terms.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
1,035
However, there can be no assurance that the necessary licenses would be available or available on acceptable terms.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
1,036
Because of technological changes in the computer industry, current extensive patent coverage, and the rapid rate of issuance of new patents, it is possible certain components of the Company's products and business methods may unknowingly infringe existing patents of others.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
1,037
The Company has from time to time been notified that it may be infringing certain patents or other intellectual property rights of others.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
1,038
Responding to such claims, regardless of their merit, can be time consuming, result in significant expenses, and cause the diversion of management and technical personnel.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
1,039
Several pending claims are in various stages of evaluation.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
1,040
The Company may consider the desirability of entering into licensing agreements in certain of these cases.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
1,041
However, no assurance can be given that such licenses can be obtained on acceptable terms or that litigation will not occur.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
1,042
In the event there is a temporary or permanent injunction entered prohibiting the Company from marketing or selling certain of its products or a successful claim of infringement against the Company requiring it to pay royalties to a third-party, the Company's future operating results and financial condition could be ad...
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
1,043
Information regarding claims and litigation involving the Company related to alleged patent infringement and other matters is set forth in Part I, Item 3 of this Form 10-K.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
1,044
In the opinion of management, the Company does not have a potential liability for damages or royalties from any current legal proceedings or claims related to the infringement of patent or other intellectual property rights of others that would individually or in the aggregate have a material adverse effect on its resu...
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
1,045
However, the results of such legal proceedings cannot be predicted with certainty.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
1,046
Should the Company fail to prevail in any of the matters related to infringement of patent or other intellectual property rights of others described in Part I, Item 3 of this Form 10-K or should several of these matters be resolved against the Company in the same reporting period, the operating results of a particular ...
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
1,047
The Company expects its quarterly revenue and operating results to fluctuate for a variety of reasons.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
1,048
The Company's profit margins vary among its products and its distribution channels.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
1,049
As a result, the overall profitability of the Company in any given period will depend, in part, on the product, geographic, and channel mix reflected in that period's net sales.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
1,050
The typical concentration of net sales in the third month of the Company's fiscal quarters can adversely affect the Company's business and operating results.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
1,051
The Company generally sells more products during the third month of each quarter than it does during either of the first two months, a pattern typical in the personal computer industry.
0001047469-03-041604/full-submission.txt