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0000320193 | 20060203 | 10-Q | 623 | The Company sells highly complex hardware and software products that can contain defects in design and manufacture. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 624 | Sophisticated operating system software and applications, such as those sold by the Company, often contain “bugs” that can unexpectedly interfere with the operation of the software. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 625 | Defects may also occur in components and products the Company purchases from third-parties. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 626 | There can be no assurance that the Company will be able to detect and fix all defects in the hardware and software it sells. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 627 | Failure to do so could result in lost revenue, loss of reputation, and significant warranty and other expense to remedy. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 628 | Because orders for components, and in some cases commitments to purchase components, must be placed in advance of customer orders, the Company faces substantial inventory risk. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 629 | The Company records a write-down for inventories of components and products that have become obsolete or are in excess of anticipated demand or net realizable value and accrues necessary reserves for cancellation fees of orders for inventories that have been cancelled. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 630 | Although the Company believes its inventory and related provisions are currently adequate, given the rapid and unpredictable pace of product obsolescence in the computer and consumer electronics industries and the transition to Intel-based Macintosh computers, no assurance can be given that the Company will not incur a... | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 631 | In addition, such charges have had, and may have, a material effect on the Company’s financial position and results of operations. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 632 | The Company must order components for its products and build inventory in advance of product shipments. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 633 | Because the Company’s markets are volatile and subject to rapid technology and price changes, and because of the transition to Intel-based Macintosh computers, there is a risk the Company will forecast incorrectly and produce or order from third parties excess or insufficient inventories of particular products. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 634 | Consistent with industry practice, components are normally acquired through a combination of purchase orders, supplier contracts, and open orders based on projected demand information. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 635 | Such purchase commitments typically cover the Company’s forecasted component and manufacturing requirements for periods ranging from 30 to 150 days. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 636 | The Company’s operating results and financial condition have been in the past and may in the future be materially adversely affected by the Company’s ability to manage its inventory levels and respond to short-term shifts in customer demand patterns. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 637 | The Company is dependent on manufacturing and logistics services provided by third parties, many of whom are located outside of the U.S. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 638 | Most of the Company’s products are manufactured in whole or in part by third-party manufacturers. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 639 | In addition, the Company has outsourced much of its transportation and logistics management. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 640 | While outsourcing arrangements may lower the cost of operations, they also reduce the Company’s direct control over production and distribution. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 641 | It is uncertain what effect such diminished control will have on the quality or quantity of the products manufactured or services rendered, or the flexibility of the Company to respond to changing market conditions. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 642 | Moreover, although arrangements with such manufacturers may contain provisions for warranty expense reimbursement, the Company may remain at least initially responsible to the consumer for warranty service in the event of product defects. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 643 | Any unanticipated product defect or warranty liability, whether pursuant to arrangements with contract manufacturers or otherwise, could adversely affect the Company’s future operating results and financial condition. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 644 | Final assembly of products sold by the Company is currently performed in the Company’s manufacturing facility in Cork, Ireland, and by external vendors in Fremont, California, Fullerton, California, Taiwan, Korea, the People’s Republic of China, and the Czech Republic. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 645 | Currently, manufacturing of many of the components used in the Company’s products is performed by third-party vendors in Taiwan, China, Japan, Korea, and Singapore. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 646 | Final assembly of substantially all of the Company’s portable products including PowerBooks, iBooks, and iPods is performed by third-party vendors in China. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 647 | If for any reason manufacturing or logistics in any of these locations is disrupted by regional economic, business, labor, environmental, public health, or political issues, or due to information technology system failures or military actions, the Company’s results of operations and financial condition could be adverse... | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 648 | The Company’s future operating performance is dependent on the performance of distributors and other resellers of the Company’s products. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 649 | The Company distributes its products through wholesalers, resellers, national and regional retailers, and cataloguers, many of whom distribute products from competing manufacturers. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 650 | In addition, the Company 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 and its retail stores. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 651 | Many of the Company’s resellers operate on narrow product margins and have been negatively affected by weak economic conditions over the last several years. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 652 | Considerable trade receivables that are not covered by collateral or credit insurance are outstanding with the Company’s distribution and retail channel partners. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 653 | The Company’s business and financial results could be adversely affected if the financial condition of these resellers weakens, 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 order... | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 654 | The Company has invested and will continue to invest in various programs to enhance reseller sales, including staffing selected resellers’ stores with Company employees and contractors. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 655 | These programs could require a substantial investment from the Company, while providing no assurance of return or incremental revenue to offset this investment. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 656 | Over the past several years, an increasing proportion of the Company’s net sales has been made by the Company directly to end-users through its online stores around the world and through its retail stores in the U.S., Canada, Japan, and the U.K. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 657 | Some of the Company’s resellers have perceived this expansion of the Company’s direct sales as conflicting with their own businesses and economic interests as distributors and resellers of the Company’s products. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 658 | 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. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 659 | 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. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 660 | Further information regarding risks associated with Marketing and Distribution may be found in Part I, Item 1 of the 2005 Form 10-K for the year ended September 24, 2005 under the heading “Markets and Distribution.”
The Company relies on third-party digital content, which may not be available to the Company on commerci... | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 661 | The Company contracts with third parties to offer their digital content to customers through the Company’s iTunes Music Store. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 662 | The Company pays substantial fees to obtain the rights to offer to its customers this third-party digital content. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 663 | The Company’s licensing arrangements with these third-party content providers are short-term in nature and do not guarantee the future renewal of these arrangements at commercially reasonable terms, if at all. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 664 | Certain parties in the music industry have consolidated and formed alliances, which could limit the availability and increase the fees required to offer digital content to customers through the iTunes Music Store. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 665 | Further, some third-party content providers currently, or may in the future, offer music products and services that compete with the Company’s music products and services, and could take action to make it more difficult or impossible for the Company to license their digital content in the future. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 666 | If the Company is unable to continue to offer a wide variety of digital content at reasonable prices with acceptable usage rules, or continue to expand its geographic reach outside the U.S., then sales and gross margins of the Company’s iTunes Music Store as well as related hardware and peripherals, including iPods, ma... | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 667 | Third-party content providers and artists require that the Company provide certain digital rights management solutions and other security mechanisms. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 668 | If the requirements from content providers or artists change, then the Company may be required to further develop or license technology to address such new rights and requirements. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 669 | There is no assurance that the Company will be able to develop or license such solutions at a reasonable cost and in a timely manner, if at all, which could have a materially adverse effect on the Company’s operating results and financial position. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 670 | The Company’s future performance is dependent upon support from third-party software developers. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 671 | 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. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 672 | 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. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 673 | 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... | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 674 | This analysis may be based on factors such as the perceived strength of the Company and its products, the anticipated potential revenue that may be generated, continued acceptance by customers of Mac OS X, and the costs of developing such software products. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 675 | To the extent the minority market share held by the Company in the personal computer market has caused software developers to question the Company’s prospects in the personal computer market, developers could be less inclined to develop new application software or upgrade existing software for the Company’s products an... | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 676 | 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. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 677 | In June 2005, the Company announced its plan to begin using Intel microprocessors in its Macintosh computers and in January 2006 announced the new iMac® and MacBook™ Pro, which are the first Macintosh computers to run on Intel microprocessors. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 678 | The Company expects to complete this transition to Intel microprocessors for all of its Macintosh computers by the end of calendar year 2006. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 679 | The Company depends on third-party software developers to timely develop current and future applications that run on Intel and PowerPC microprocessors. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 680 | The Company’s inability to timely deliver new Intel-based products, or a decline in available applications that run on the Company’s PowerPC products or the lack of applications that run on Intel-based Macintosh systems could have a materially adverse effect on the Company’s operating results and financial position. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 681 | In addition, past and future development by the Company of its own software applications and solutions may negatively impact the decision of software developers, such as Microsoft and Adobe, to develop, maintain, and upgrade similar or competitive software for the Company’s products. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 682 | The Company currently markets and sells a variety of software applications for use by professionals, consumers, and education customers that could influence
the decisions of third-party software developers to develop or upgrade Macintosh-compatible software products. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 683 | 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, profes... | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 684 | The Company also markets an integrated productivity application that incorporates word processing, page layout, image manipulation, spreadsheets, databases, and presentations in a single application. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 685 | Discontinuance of third-party products for the Macintosh platform could have an adverse effect on the Company’s net sales and results of operations. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 686 | 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. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 687 | Many of the Company’s products are designed to include intellectual property obtained from third parties. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 688 | 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. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 689 | However, there can be no assurance that the necessary licenses would be available or available on acceptable terms. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 690 | Because of technological changes in the computer and consumer electronics industries, 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. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 691 | The Company has from time to time been notified that it may be infringing certain patents or other intellectual property rights of others. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 692 | 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. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 693 | Several pending claims are in various stages of evaluation. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 694 | The Company may consider the desirability of entering into licensing agreements in certain of these cases. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 695 | However, no assurance can be given that such licenses can be obtained on acceptable terms or that litigation will not occur. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 696 | 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... | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 697 | Information regarding certain claims and litigation involving the Company related to alleged patent infringement and other matters is set forth in Part II, Item 1 of this Form 10-Q and Part I, Item 3 of the 2005 Form 10-K. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 698 | 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... | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 699 | However, the results of such legal proceedings cannot be predicted with certainty. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 700 | 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 II, Item 1 of this Form 10-Q and Part I, Item 3 of the 2005 Form 10-K or should several of these matters be resolved against the Company in the same reporting peri... | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 701 | 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. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 702 | Through January 31, 2006, the Company had opened 136 retail stores. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 703 | The Company’s retail initiative has required substantial investment in equipment and leasehold improvements, information systems, inventory, and personnel. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 704 | The Company has also entered into substantial operating lease commitments for retail space with lease terms ranging from five to 20 years, the majority of which are for 10 years. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 705 | The Company could incur substantial costs should it choose to terminate this initiative or close individual stores. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 706 | Such costs could adversely affect the Company’s results of operations and financial condition. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 707 | Additionally, a relatively high proportion of the Retail segment’s costs are fixed because of depreciation on store construction costs and lease expense. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 708 | As a result, significant losses would result should the Retail segment experience a significant decline in sales for any reason. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 709 | 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. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 710 | 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. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 711 | The Company has opened seven such stores through January 2006. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 712 | 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. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 713 | Current leases on such locations have terms ranging from 10 to 14 years with total remaining commitments per location ranging from $4 million to $47 million. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 714 | 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. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 715 | Many of the general risks and uncertainties the Company faces could also have an adverse impact on its Retail segment. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 716 | 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... | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 717 | 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; failure to attract... | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 718 | Investment in new business strategies and initiatives could disrupt the Company’s ongoing business and may present risks not originally contemplated. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 719 | 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. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 720 | Such endeavors may involve significant risks and uncertainties, including distraction of management’s attention away from normal 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 dilig... | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 721 | 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. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 722 | 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. | 0001104659-06-005910/full-submission.txt |
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