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0000320193
20021219
10-K
221
Markets and Distribution The Company's customers are primarily in the education, creative, consumer, and business markets.
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0000320193
20021219
10-K
222
Certain customers are attracted to Macintosh computers for a variety of reasons, including the reduced amount of training resulting from the Macintosh computer's intuitive ease of use, advanced graphics capabilities, industrial design features of the Company's hardware products, and ability of Macintosh computers to ne...
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
223
Apple personal computers were first introduced to education customers in the late 1970s.
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0000320193
20021219
10-K
224
Over 21% of the Company's net sales in 2002 were to education customers in the United States, including sales to elementary and secondary schools and college and university customers.
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0000320193
20021219
10-K
225
Further information relating to the U.S. education market and the Company's position in that market may be found in Part II, Item 7 of this Form 10-K under the heading "Factors That May Affect Future Results and Financial Condition."
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0000320193
20021219
10-K
226
The Company distributes its products through wholesalers, resellers, national and regional retailers and cataloguers.
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0000320193
20021219
10-K
227
During 2000 a single distributor, Ingram Micro Inc., accounted for approximately 11.5% of net sales.
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0000320193
20021219
10-K
228
No other customer accounted for more than 10% of net sales during 2000, and no individual customer accounted for more than 10% of net sales in 2002 or 2001.
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0000320193
20021219
10-K
229
The Company also sells many of its products and resells certain third-party products in most of its major markets directly to consumers, education customers, businesses, and certain resellers through its retail stores in the United States, or through one of its online stores around the world.
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0000320193
20021219
10-K
230
Net sales attributable to the Company's online stores totaled approximately $2.4 billion and $2.0 billion for fiscal years 2002 and 2001, respectively.
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0000320193
20021219
10-K
231
Competition The Company is confronted by aggressive competition in all areas of its business.
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0000320193
20021219
10-K
232
The market for the design, manufacture, and sale of personal computers and related software and peripheral products is highly competitive.
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0000320193
20021219
10-K
233
This market continues to be characterized by rapid technological advances in both hardware and software development, which have substantially increased the capabilities and applications of these products, and have resulted in the frequent introduction of new products and significant price, feature, and performance comp...
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
234
Over the past several years price competition in the market for personal computers has been particularly intense.
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0000320193
20021219
10-K
235
The Company's competitors who sell Windows-based personal computers have aggressively cut prices and lowered their product margins to gain or maintain market share in response to weakness in demand for personal computing products.
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0000320193
20021219
10-K
236
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.
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0000320193
20021219
10-K
237
The principal competitive factors in the market for personal computers include relative price/performance, product quality and reliability, design innovation, availability of software, product features, marketing and distribution capability, service and support, availability of hardware peripherals, and corporate reput...
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
238
Further, as the personal computer industry and its customers place more reliance on the Internet, an increasing number of Internet devices that are smaller, simpler, and less expensive than traditional personal computers may compete for market share with the Company's existing products.
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0000320193
20021219
10-K
239
The Company is currently taking and will continue to take steps to respond to the competitive pressures being placed on its personal computer sales as a result of innovations in the Windows platform.
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0000320193
20021219
10-K
240
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 functional and design advantages over competing platforms.
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0000320193
20021219
10-K
241
Further information relating to the competitive conditions of the personal computing industry and the Company's competitive position in that market place may be found in Part II, Item 7 of this Form 10-K under the heading "Factors That May Affect Future Results and Financial Condition."
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0000320193
20021219
10-K
242
Raw Materials Although most components essential to the Company's business are generally available from multiple sources, certain key components (including microprocessors and application-specific integrated circuits ("ASICs")) are currently obtained by the Company from single or limited sources.
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0000320193
20021219
10-K
243
Some other key components, while currently available to the Company from multiple sources, are at times subject to industry wide availability constraints and pricing pressures.
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20021219
10-K
244
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, add...
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
245
If the supply of a key or 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.
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0000320193
20021219
10-K
246
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.
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0000320193
20021219
10-K
247
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.
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0000320193
20021219
10-K
248
The Company attempts to mitigate these potential risks by working closely with these and other key suppliers on product introduction plans, strategic inventories, coordinated product introductions, and internal and external manufacturing schedules and levels.
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0000320193
20021219
10-K
249
Consistent with industry practice, the Company acquires components through a combination of formal purchase orders, supplier contracts, and open orders based on projected demand information.
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0000320193
20021219
10-K
250
These formal and informal commitments typically cover the Company's requirements for periods ranging from 30 to 130 days.
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0000320193
20021219
10-K
251
The Company believes there are several component suppliers and manufacturing vendors whose loss to the Company could have a material adverse effect upon the Company's business and financial position.
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0000320193
20021219
10-K
252
At this time, such vendors include Agere Systems, Inc., Ambit Microsystems Corporation, ATI Technologies, Inc., Elite Computer Systems Co., Inc., Hon Hai Precision Industry Co., Ltd., IBM Corporation, Inventec Appliances Corporation, LG.
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0000320193
20021219
10-K
253
Phillips Co., Ltd., Matsushita, Mitsubishi Electric Corporation, Motorola, Inc., Nvidia Corp., Quanta Computer, Inc., Samsung Electronics, Solectron Corporation, and Toshiba Corporation.
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0000320193
20021219
10-K
254
Further discussion relating to availability and supply of components and product may be found in Part II, Item 7 of this Form 10-K under the heading "Factors That May Affect Future Results and Financial Condition," and in Part II, Item 8 of this Form 10-K in the Notes to Consolidated Financial Statements at Note 10 und...
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0000320193
20021219
10-K
255
Research and Development Because the personal computer industry is characterized by rapid technological advances, the Company's ability to compete successfully is heavily dependent upon its ability to ensure a continuing and timely flow of competitive products and technology to the marketplace.
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0000320193
20021219
10-K
256
The Company continues to develop new products and technologies and to enhance existing products in the areas of hardware and peripherals, system software, applications software, networking and communications software and solutions, and the Internet.
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0000320193
20021219
10-K
257
The Company's research and development expenditures, before any charges for purchased in-process research and development, totaled $446 million, $430 million, and $380 million in 2002, 2001, and 2000, respectively.
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0000320193
20021219
10-K
258
Patents, Trademarks, Copyrights and Licenses The Company currently holds rights to patents and copyrights relating to certain aspects of its computer systems, peripheral systems, and software.
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0000320193
20021219
10-K
259
In addition, the Company has registered, and/or has applied to register, trademarks and service marks in the United States and a number of foreign countries for "Apple," the Apple silhouette logo, the Apple color logo, "Macintosh," and numerous other product trademarks and service marks.
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0000320193
20021219
10-K
260
In 1986, the Company acquired ownership of the trademark "Macintosh" for use in connection with computer products.
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0000320193
20021219
10-K
261
Although the Company believes the ownership of such patents, copyrights, trademarks and service marks is an important factor in its business and that its success does depend in part on the ownership thereof, the Company relies primarily on the innovative skills, technical competence, and marketing abilities of its pers...
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
262
Many of the Company's products are designed to include intellectual property obtained from third parties.
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0000320193
20021219
10-K
263
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.
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0000320193
20021219
10-K
264
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.
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0000320193
20021219
10-K
265
The Company has from time to time been notified that it may be infringing certain patents or other intellectual property rights of others.
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0000320193
20021219
10-K
266
Information regarding claims and litigation involving the Company related to alleged patent infringement and risks related to the Company's reliance on third-party intellectual property is set forth in Part I, Item 3 of this Form 10-K, and in Part II, Item 7 of this Form 10-K under the heading "Factors That May Affect ...
0001047469-02-007674/full-submission.txt
0000320193
20021219
10-K
267
Foreign and Domestic Operations and Geographic Data The United States represents the Company's largest geographic marketplace.
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0000320193
20021219
10-K
268
Approximately 57% of the Company's net sales in fiscal 2002 came from sales to customers inside the United States.
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0000320193
20021219
10-K
269
Final assembly of products sold by the Company is conducted in the Company's manufacturing facilities in Sacramento, California, and Cork, Ireland, and by external vendors in Fullerton, California, Taiwan, Korea, the People's Republic of China, and the Czech Republic.
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0000320193
20021219
10-K
270
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.
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0000320193
20021219
10-K
271
Information regarding financial data by geographic segment is set forth in Part II, Item 8 of this Form 10-K in the Notes to Consolidated Financial Statements at Note 11, "Segment Information and Geographic Data."
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0000320193
20021219
10-K
272
Additional information regarding the risks associated with international operations is set forth in Part II, Item 7 of this Form 10-K under the heading "Factors That May Affect Future Results and Financial Condition."
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0000320193
20021219
10-K
273
Seasonal Business Although the Company does not consider its business to be highly seasonal, it has historically experienced increased net sales in its first and fourth fiscal quarters, compared to other quarters in its fiscal year, due to seasonal demand related to the holiday season and the school year.
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0000320193
20021219
10-K
274
However, over the past two years the Company has not experienced these seasonal fluctuations in net sales due to the negative impact of current economic conditions on the overall demand for the Company's products.
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0000320193
20021219
10-K
275
Past performance should not be considered a reliable indicator of the Company's future net sales or financial performance.
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0000320193
20021219
10-K
276
Warranty The Company offers a limited parts and labor warranty on its hardware products.
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20021219
10-K
277
The warranty period is typically one year from the date of purchase by the end user.
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20021219
10-K
278
The Company also offers a 90-day warranty for Apple software and for Apple service parts used to repair Apple hardware products.
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20021219
10-K
279
In addition, consumers may purchase extended service coverage on most Apple hardware products in all of the Company's major markets.
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0000320193
20021219
10-K
280
Backlog In the Company's experience, the actual amount of product backlog at any particular time is not a meaningful indication of its future business prospects.
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20021219
10-K
281
In particular, backlog often increases in anticipation of or immediately following new product introductions because of over ordering by dealers anticipating shortages.
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20021219
10-K
282
Backlog often is reduced once dealers and customers believe they can obtain sufficient supply.
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20021219
10-K
283
Because of the foregoing, backlog should not be considered a reliable indicator of the Company's ability to achieve any particular level of revenue or financial performance.
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0000320193
20021219
10-K
284
Environmental Laws Compliance with federal, state, local, and foreign laws enacted for the protection of the environment has to date had no material effect upon the Company's capital expenditures, earnings, or competitive position.
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0000320193
20021219
10-K
285
Although the Company does not anticipate any material adverse effects in the future based on the nature of its operations and the subject of these laws, there is no assurance that such existing laws or future laws will not have a material adverse effect on the Company.
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0000320193
20021219
10-K
286
The parliament of the European Union is working to finalize the Waste Electrical and Electronic Equipment Directive (the Directive).
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20021219
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The Directive makes manufacturers of electrical goods, including personal computers, financially responsible for the collection, recycling, and safe disposal of past and future products.
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20021219
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The Directive must now be approved and implemented by individual European Union governments by 2005.
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20021219
10-K
289
The Company's potential liability resulting from the Directive related to past sales of its products and expenses associated with future sales of its product may be substantial.
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0000320193
20021219
10-K
290
However, because it is likely that specific laws, regulations, and enforcement policies will vary significantly between individual European member states, it is not currently possible to estimate the Company's existing liability or future expenses resulting from the Directive.
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20021219
10-K
291
As the European Union and its individual member states clarify specific requirements and policies with respect to the Directive, the Company will continue to assess its potential financial impact.
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20021219
10-K
292
Similar legislation may be enacted in other geographies, including federal and state legislation in the United States, the cumulative impact of which could be significant.
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0000320193
20021219
10-K
293
Employees As of September 28, 2002, Apple and its subsidiaries worldwide had 10,211 employees and an additional 2,030 temporary employees and contractors.
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20021219
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Item 2.
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Properties The Company's headquarters are located in Cupertino, California.
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20021219
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The Company has manufacturing facilities in Sacramento, California, Cork, Ireland, and Singapore.
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20021219
10-K
297
As of September 28, 2002, the Company leased approximately 2.7 million square feet of space, primarily in the United States, and to a lesser extent, in Europe, Japan, and the Asia Pacific region.
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20021219
10-K
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Leased space in the United States includes 395,000 square feet of retail space.
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20021219
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Leases are generally for terms of 5 to 10 years, and usually provide renewal options for terms of 3 to 5 additional years.
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0000320193
20021219
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The Company owns its manufacturing facilities in Cork, Ireland, and Singapore, which total approximately 617,000 square feet.
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0000320193
20021219
10-K
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The Company also owns a 752,000 square-foot facility in Sacramento, California, which is used as a manufacturing, warehousing and distribution center.
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20021219
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The Sacramento and Cork facilities also house customer support call centers.
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20021219
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In addition, the Company owns 930,000 square feet of facilities located in Cupertino, California, used for research and development and corporate functions.
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20021219
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Outside the United States, the Company owns additional facilities totaling approximately 106,000 square feet.
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20021219
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The Company believes its existing facilities and equipment are well maintained and in good operating condition.
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20021219
10-K
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The Company has invested in internal capacity and strategic relationships with outside manufacturing vendors, and therefore believes it has adequate manufacturing capacity for the foreseeable future.
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0000320193
20021219
10-K
307
The Company continues to make investments in capital equipment as needed to meet anticipated demand for its products.
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0000320193
20021219
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Information regarding critical business operations that are located near major earthquake faults is set forth in Part II, Item 7 of this Form 10-K under the heading "Factors That May Affect Future Results and Financial Condition."
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Item 3.
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Legal Proceedings The Company is subject to certain legal proceedings and claims, including those described below, which have arisen in the ordinary course of business and have not been fully adjudicated.
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20021219
10-K
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Information regarding the risks and potential financial impact of these legal matters is set forth in Part II, Item 7 of this Form 10-K under the heading "Factors That May Affect Future Results and Financial Condition," and in Part II, Item 8 of this Form 10-K in the Notes to Consolidated Financial Statements at Note 1...
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20021219
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Articulate Systems, Inc. v. Apple Computer, Inc.
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20021219
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Plaintiff Articulate filed this action in March 1996 in the United States District Court in Massachusetts claiming patent infringement relating to voice recognition technology.
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Plaintiff seeks unspecified damages and other relief.
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The Company has answered the complaint, denying all allegations and asserting numerous affirmative defenses.
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The Company also asserted counterclaims requesting declaratory judgment for non-infringement, unenforceability and invalidity.
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The case was stayed for several months pending resolution of four summary judgment motions filed by the Company, all of which were denied by the Court.
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20021219
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Through a series of corporate transactions the assets belonging to Plaintiff were acquired by a subsidiary, Lernout & Hauspie Speech Products N.V. ("L&H").
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L&H filed for bankruptcy in November 2000 and is being liquidated as part of the bankruptcy.
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The case is currently stayed pending the resolution of the liquidation.
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