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0000320193
20181105
10-K
171
Business Seasonality and Product Introductions The Company has historically experienced higher net sales in its first quarter compared to other quarters in its fiscal year due in part to seasonal holiday demand.
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Additionally, new product introductions can significantly impact net sales, product costs and operating expenses.
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Product introductions can also impact the Company’s net sales to its indirect distribution channels as these channels are filled with new product inventory following a product introduction, and channel inventory of a particular product often declines as the next related major product launch approaches.
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Net sales can also be affected when consumers and distributors anticipate a product introduction.
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However, neither historical seasonal patterns nor historical patterns of product introductions should be considered reliable indicators of the Company’s future pattern of product introductions, future net sales or financial performance.
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Warranty The Company offers a limited parts and labor warranty on its hardware products.
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The basic warranty period is typically one year from the date of purchase by the original end user.
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The Company also offers a 90-day limited warranty on the service parts used to repair the Company’s hardware products.
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In certain jurisdictions, local law requires that manufacturers guarantee their products for a period prescribed by statute, typically at least two years.
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In addition, where available, consumers may purchase APP or AC+, which extends service coverage on many of the Company’s hardware products.
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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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In particular, backlog often increases immediately following new product introductions as customers anticipate shortages.
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Backlog is often reduced once customers believe they can obtain sufficient supply.
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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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Employees As of September 29, 2018, the Company had approximately 132,000 full-time equivalent employees.
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Apple Inc. | 2018 Form 10-K | 6 Available Information The Company’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to reports filed pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are filed with the S...
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The Company is subject to the informational requirements of the Exchange Act and files or furnishes reports, proxy statements and other information with the SEC.
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Such reports and other information filed by the Company with the SEC are available free of charge at investor.apple.com/investor-relations/sec-filings/default.aspx when such reports are available on the SEC’s website.
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The SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at www.sec.gov.
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The Company periodically provides other information for investors on its corporate website, www.apple.com, and its investor relations website, investor.apple.com.
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This includes press releases and other information about financial performance, information on corporate governance and details related to the Company’s annual meeting of shareholders.
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The information contained on the websites referenced in this Form 10-K is not incorporated by reference into this filing.
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Further, the Company’s references to website URLs are intended to be inactive textual references only.
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Apple Inc. | 2018 Form 10-K | 7 Item 1A.
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Risk Factors The following discussion of risk factors contains forward-looking statements.
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These risk factors may be important to understanding other statements in this Form 10-K.
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The following information should be read in conjunction with Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes in Part II, Item 8, “Financial Statements and Supplementary Data” of this Form 10-K.
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The business, financial condition and operating results of the Company can be affected by a number of factors, whether currently known or unknown, including but not limited to those described below, any one or more of which could, directly or indirectly, cause the Company’s actual financial condition and operating resu...
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Any of these factors, in whole or in part, could materially and adversely affect the Company’s business, financial condition, operating results and stock price.
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Because of the following factors, as well as other factors affecting the Company’s financial condition and operating results, past financial performance should not be considered to be a reliable indicator of future performance, and investors should not use historical trends to anticipate results or trends in future per...
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Global and regional economic conditions could materially adversely affect the Company’s business, results of operations, financial condition and growth.
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The Company has international operations with sales outside the U.S. representing a majority of the Company’s total net sales.
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In addition, a majority of the Company’s supply chain, and its manufacturing and assembly activities, are located outside the U.S. As a result, the Company’s operations and performance depend significantly on global and regional economic conditions.
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Adverse macroeconomic conditions, including inflation, slower growth or recession, new or increased tariffs, changes to fiscal and monetary policy, tighter credit, higher interest rates, high unemployment and currency fluctuations could materially adversely affect demand for the Company’s products and services.
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In addition, consumer confidence and spending could be adversely affected in response to financial market volatility, negative financial news, conditions in the real estate and mortgage markets, declines in income or asset values, changes to fuel and other energy costs, labor and healthcare costs and other economic fac...
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In addition to an adverse impact on demand for the Company’s products, uncertainty about, or a decline in, global or regional economic conditions could have a significant impact on the Company’s suppliers, contract manufacturers, logistics providers, distributors, cellular network carriers and other channel partners.
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Potential effects include financial instability; inability to obtain credit to finance operations and purchases of the Company’s products; and insolvency.
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A downturn in the economic environment could also lead to increased credit and collectibility risk on the Company’s trade receivables; the failure of derivative counterparties and other financial institutions; limitations on the Company’s ability to issue new debt; reduced liquidity; and declines in the fair value of t...
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These and other economic factors could materially adversely affect the Company’s business, results of operations, financial condition and growth.
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Global markets for the Company’s products and services are highly competitive and subject to rapid technological change, and the Company may be unable to compete effectively in these markets.
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The Company’s products and services are offered in highly competitive global markets characterized by aggressive price competition and resulting downward pressure on gross margins, frequent introduction of new products and services, short product life cycles, evolving industry standards, continual improvement in produc...
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The Company’s ability to compete successfully depends heavily on its ability to ensure a continuing and timely introduction of innovative new products, services and technologies to the marketplace.
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The Company believes it is unique in that it designs and develops nearly the entire solution for its products, including the hardware, operating system, numerous software applications and related services.
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As a result, the Company must make significant investments in R&D.
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There can be no assurance that these investments will achieve expected returns, and the Company may not be able to develop and market new products and services successfully.
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The Company currently holds a significant number of patents and copyrights and has registered, and applied to register, numerous patents, trademarks and service marks.
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In contrast, many of the Company’s competitors seek to compete primarily through aggressive pricing and very low cost structures, and emulating the Company’s products and infringing on its intellectual property.
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If the Company is unable to continue to develop and sell innovative new products with attractive margins or if competitors infringe on the Company’s intellectual property, the Company’s ability to maintain a competitive advantage could be adversely affected.
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Apple Inc. | 2018 Form 10-K | 8 The Company has a minority market share in the global smartphone, tablet and personal computer markets.
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The Company faces substantial competition in these markets from companies that have significant technical, marketing, distribution and other resources, as well as established hardware, software and digital content supplier relationships.
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In addition, some of the Company’s competitors have broader product lines, lower-priced products and a larger installed base of active devices.
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Competition has been particularly intense as competitors have aggressively cut prices and lowered product margins.
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Certain competitors may have the resources, experience or cost structures to provide products at little or no profit or even at a loss.
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Additionally, the Company faces significant competition as competitors attempt to imitate the Company’s product features and applications within their own products or, alternatively, collaborate with each other to offer solutions that are more competitive than those they currently offer.
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The Company also expects competition to intensify as competitors attempt to imitate the Company’s approach to providing components seamlessly within their individual offerings or work collaboratively to offer integrated solutions.
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Some of the markets in which the Company competes, including the market for personal computers, have from time to time experienced little to no growth or contracted.
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In addition, an increasing number of internet-enabled devices that include software applications and are smaller, simpler and cheaper than traditional personal computers compete with some of the Company’s existing products.
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The Company’s services also face substantial competition, including from companies that have significant resources and experience and have established service offerings with large customer bases.
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The Company competes with business models that provide content to users for free.
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The Company also competes with illegitimate means to obtain third-party digital content and applications.
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The Company’s financial condition and operating results depend substantially on the Company’s ability to continually improve its products and services in order to maintain their functional and design advantages.
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There can be no assurance the Company will be able to continue to provide products and services that compete effectively.
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To remain competitive and stimulate customer demand, the Company must successfully manage frequent introductions and transitions of products and services.
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Due to the highly volatile and competitive nature of the industries in which the Company competes, the Company must continually introduce new products, services and technologies, enhance existing products and services, effectively stimulate customer demand for new and upgraded products and services and successfully man...
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The success of new product and service introductions depends on a number of factors including, but not limited to, timely and successful development, market acceptance, the Company’s ability to manage the risks associated with new product production ramp-up issues, the availability of application software for new produ...
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Accordingly, the Company cannot determine in advance the ultimate effect of new product and service introductions and transitions.
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The Company depends on the performance of carriers, wholesalers, retailers and other resellers.
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The Company distributes its products through cellular network carriers, wholesalers, retailers and resellers, many of whom distribute products from competing manufacturers.
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The Company also sells its products and third-party products in most of its major markets directly to education, enterprise and government customers and consumers and small and mid-sized businesses through its retail and online stores.
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Some carriers providing cellular network service for iPhone offer financing, installment payment plans or subsidies for users’ purchases of the device.
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There is no assurance that such offers will be continued at all or in the same amounts upon renewal of the Company’s agreements with these carriers or in agreements the Company enters into with new carriers.
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The Company has invested and will continue to invest in programs to enhance reseller sales, including staffing selected resellers’ stores with Company employees and contractors, and improving product placement displays.
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These programs could require a substantial investment while providing no assurance of return or incremental revenue.
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The financial condition of these resellers could weaken, these resellers could stop distributing the Company’s products, or uncertainty regarding demand for some or all of the Company’s products could cause resellers to reduce their ordering and marketing of the Company’s products.
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Apple Inc. | 2018 Form 10-K | 9 The Company faces substantial inventory and other asset risk in addition to purchase commitment cancellation risk.
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The Company records a write-down for product and component inventories that have become obsolete or exceed anticipated demand, or for which cost exceeds net realizable value.
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The Company also accrues necessary cancellation fee reserves for orders of excess products and components.
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The Company reviews long-lived assets, including capital assets held at its suppliers’ facilities and inventory prepayments, for impairment whenever events or circumstances indicate the assets may not be recoverable.
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If the Company determines that an impairment has occurred, it records a write-down equal to the amount by which the carrying value of the asset exceeds its fair value.
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Although the Company believes its inventory, capital assets, inventory prepayments and other assets and purchase commitments are currently recoverable, no assurance can be given that the Company will not incur write-downs, fees, impairments and other charges given the rapid and unpredictable pace of product obsolescenc...
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The Company orders components for its products and builds inventory in advance of product announcements and shipments.
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Manufacturing purchase obligations cover the Company’s forecasted component and manufacturing requirements, typically for periods up to 150 days.
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Because the Company’s markets are volatile, competitive and subject to rapid technology and price changes, there is a risk the Company will forecast incorrectly and order or produce excess or insufficient amounts of components or products, or not fully utilize firm purchase commitments.
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Future operating results depend upon the Company’s ability to obtain components in sufficient quantities on commercially reasonable terms.
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Because the Company currently obtains certain components from single or limited sources, the Company is subject to significant supply and pricing risks.
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Many components, including those that are available from multiple sources, are at times subject to industry-wide shortages and significant commodity pricing fluctuations that could materially adversely affect the Company’s financial condition and operating results.
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While the Company has entered into agreements for the supply of many components, there can be no assurance that the Company will be able to extend or renew these agreements on similar terms, or at all.
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Component suppliers may suffer from poor financial conditions, which can lead to business failure for the supplier or consolidation within a particular industry, further limiting the Company’s ability to obtain sufficient quantities of components on commercially reasonable terms.
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The effects of global or regional economic conditions on the Company’s suppliers, described in “Global and regional economic conditions could materially adversely affect the Company’s business, results of operations, financial condition and growth” above, also could affect the Company’s ability to obtain components.
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Therefore, the Company remains subject to significant risks of supply shortages and price increases that could materially adversely affect its financial condition and operating results.
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The Company’s new products often utilize custom components available from only one source.
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When a component or product uses new technologies, initial capacity constraints may exist until the suppliers’ yields have matured or manufacturing capacity has increased.
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Continued availability of these components at acceptable prices, or at all, may be affected for any number of reasons, including if suppliers decide to concentrate on the production of common components instead of components customized to meet the Company’s requirements.
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If the Company’s supply of components for a new or existing product were delayed or constrained, or if an outsourcing partner delayed shipments of completed products to the Company, the Company’s financial condition and operating results could be materially adversely affected.
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The Company’s business and financial performance could also be materially 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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The Company depends on component and product manufacturing and logistical services provided by outsourcing partners, many of which are located outside of the U.S.
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Substantially all of the Company’s manufacturing is performed in whole or in part by outsourcing partners located primarily in Asia.
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A significant concentration of this manufacturing is currently performed by a small number of outsourcing partners, often in single locations.
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The Company has also outsourced much of its transportation and logistics management.
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While these arrangements may lower operating costs, they also reduce the Company’s direct control over production and distribution.
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