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0000320193
20041203
10-K
1,011
Although the Company believes its inventory and related provisions are adequate, given the rapid and unpredictable pace of product obsolescence in the computer and consumer electronics industries, no assurance can be given that the Company will not incur additional inventory and related charges.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,012
In addition, such charges have had, and may have, a material effect on the Company's financial position and results of operations.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,013
The Company must order components for its products and build inventory in advance of product shipments.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,014
Because the Company's markets are volatile and subject to rapid technology and price changes, there is a risk the Company will forecast incorrectly and produce or order from third parties excess or insufficient inventories of particular products.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,015
Consistent with industry practice, components are normally acquired through a combination of formal purchase orders, supplier contracts, and open orders based on projected demand information.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,016
Such purchase commitments typically cover the Company's forecasted component and manufacturing requirements for periods ranging from 30 to 130 days.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,017
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.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,018
Future operating results are dependent upon the Company's ability to obtain a sufficient supply of components, including microprocessors, some of which are in short supply or available only from limited sources.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,019
Although most components essential to the Company's business are generally available from multiple sources, certain key components including microprocessors and ASICs are currently obtained by the Company from single or limited sources.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,020
Some key components (including without limitation DRAM, and TFT-LCD flat-panel displays), while currently available to the Company from multiple sources, are at times subject to industry-wide availability and pricing pressures.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,021
In addition, 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, additional suppliers.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,022
In situations where a component or product utilizes new technologies, initial capacity constraints may exist until such time as the suppliers' yields have matured.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,023
The Company and other producers in the personal computer industry also compete for various components with other industries that have experienced increased demand for their products.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,024
The Company uses some components that are not common to the rest of the personal computer industry including certain microprocessors and ASICs.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,025
Continued availability of these components may be affected if producers were to decide to concentrate on the production of components other than those customized to meet the Company's requirements.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,026
If the supply of a key component were to be delayed or constrained on a new or existing product, the Company's results of operations and financial condition could be adversely affected.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,027
The Company's ability to produce and market competitive products is also dependent on the ability and desire of IBM and Freescale Semiconductor, Inc. (formerly the Semiconductor Products Segment of Motorola, Inc.), the sole suppliers of the PowerPC RISC-based microprocessor for the Company's Macintosh computers, to pro...
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,028
Further, despite its efforts to educate the marketplace to the contrary, the Company believes that many of its current and potential customers believe that the relatively slower MHz rating or clock speed of the microprocessors it utilizes in its Macintosh systems compares unfavorably to those utilized by other operatin...
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,029
There have been instances in recent years where the inability of the Company's suppliers to provide advanced PowerPC microprocessors in sufficient quantity has had significant adverse effects on the Company's results of operations.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,030
In addition, IBM is currently the Company's sole supplier of the PowerPC G5 processor, which is used in the Company's current Power Mac, Xserve, and iMac products.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,031
Freescale Semiconductor, Inc. is the sole supplier of the G4 processor, which is used in the Company's eMac and portable products.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,032
IBM has recently experienced manufacturing problems with the PowerPC G5 processor, which resulted in the Company delaying the shipment of various products and constrained certain product shipments during the second half of 2004.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,033
The inability of IBM to remedy these problems in a timely manner, avoid manufacturing problems in the future, and to deliver to the Company microprocessors in sufficient quantities with competitive price/performance features could further constrain shipments of products containing the G5 processor and could adversely a...
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,034
The Company is dependent on manufacturing and logistics services provided by third parties, many of whom are located outside of the U.S.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,035
Most of the Company's products are manufactured in whole or in part by third-party manufacturers.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,036
In addition, the Company has outsourced much of its transportation and logistics management.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,037
While outsourcing arrangements may lower the cost of operations, they also reduce the Company's direct control over production and distribution.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,038
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.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,039
Moreover, although arrangements with such manufacturers may contain provisions for warranty expense reimbursement, the Company may remain at least initially responsible to the ultimate consumer for warranty service in the event of product defects.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,040
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.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,041
Final assembly of products sold by the Company is currently conducted in the Company's manufacturing facility in Cork, Ireland, and by external vendors in Fremont, California, Fullerton, California, Taiwan, Korea, the Netherlands, the People's Republic of China, and the Czech Republic.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,042
Currently, manufacture of many of the components used in the Company's products and final assembly of substantially all of the Company's portable products including PowerBooks, iBooks, and the iPod is performed by third-party vendors in Taiwan and China.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,043
If for any reason manufacturing or logistics in any of these locations is disrupted by events such as regional economic, business, environmental, medical, political, information technology system failures, or military actions, the Company's results of operations and financial condition could be adversely affected.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,044
The Company's future operating performance is dependent on the performance of distributors and other resellers of the Company's products.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,045
The Company distributes its products through wholesalers, resellers, national and regional retailers and cataloguers, many of whom distribute products from competing manufacturers.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,046
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 and its retail stores.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,047
Many of the Company's significant resellers operate on narrow product margins and have been negatively affected by recent economic conditions.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,048
Considerable trade receivables that are not covered by collateral or credit insurance are outstanding with the Company's distribution and retail channel partners.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,049
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...
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,050
The Company has invested and will continue to invest in various programs to enhance reseller sales, including staffing selected resellers' stores with Company employees.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,051
These programs could require a substantial investment from the Company, while providing no assurance of return or incremental revenue to offset this investment.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,052
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 U.S. and Japan.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,053
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.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,054
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.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,055
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.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,056
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."
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,057
The Company relies on third-party music content, which may not be available to the Company on commercially reasonable terms or at all.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,058
The Company contracts with third parties to offer their music content to customers through the Company's iTunes Music Store.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,059
The Company pays substantial fees to obtain the rights to offer to its customers this third-party music.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,060
Many of 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.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,061
Certain parties in the music industry have announced their intent to consolidate their music distribution operations, which could limit the availability and increase the fees required to offer music content to customers through the iTunes Music Store.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,062
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 music content in the future.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,063
If the Company is unable to continue to offer a wide variety of music 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, may ...
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,064
Third-party content providers and artists require that the Company provide certain digital rights management solutions and other security mechanisms.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,065
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.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,066
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.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,067
The Company's future performance is dependent upon support from third-party software developers.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,068
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.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,069
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.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,070
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...
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,071
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, continued acceptance by customers of Mac OS X, and the costs of developing such software products.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,072
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...
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,073
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.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,074
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.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,075
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.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,076
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...
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,077
The Company also markets an integrated productivity application that incorporates word processing, page layout, image manipulation, spreadsheets, databases, and presentations in a single application.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,078
In August 1997, the Company and Microsoft Corporation entered into patent cross license and technology agreements.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,079
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.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,080
Although Microsoft has released Microsoft Office and Internet Explorer for Mac OS X, Microsoft has not been obligated to produce future versions of its products subsequent to August 2002.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,081
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.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,082
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 and competing digital media applications, including music distribution service and technolo...
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,083
In June of 2003, Microsoft stated that it would no longer develop new versions of Internet Explorer for the Mac OS, subsequent to the Company's introduction during 2003 of its own web browser, Safari.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,084
Further discontinuance of products for the Macintosh platform, including Microsoft Office and other Microsoft products could have an adverse effect on the Company's net sales and results of operations.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,085
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.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,086
Many of the Company's products are designed to include intellectual property obtained from third-parties.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,087
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.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,088
However, there can be no assurance that the necessary licenses would be available or available on acceptable terms.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,089
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.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,090
The Company has from time to time been notified that it may be infringing certain patents or other intellectual property rights of others.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,091
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.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,092
Several pending claims are in various stages of evaluation.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,093
The Company may consider the desirability of entering into licensing agreements in certain of these cases.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,094
However, no assurance can be given that such licenses can be obtained on acceptable terms or that litigation will not occur.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,095
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...
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,096
Information regarding certain 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.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,097
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...
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,098
However, the results of such legal proceedings cannot be predicted with certainty.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,099
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 ...
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,100
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.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,101
Through September 2004, the Company has opened 86 retail stores.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,102
The Company's retail initiative has required substantial investment in equipment and leasehold improvements, information systems, inventory, and personnel.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,103
The Company has also entered into substantial operating lease commitments for retail space with lease terms ranging from 5 to 16 years, the majority of which are for 10 years.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,104
The Company could incur substantial costs should it choose to terminate this initiative or close individual stores.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,105
Such costs could adversely affect the Company's results of operations and financial condition.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,106
Additionally, a relatively high proportion of the Retail segment's costs are fixed because of depreciation on store construction costs and lease expense.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,107
As a result, significant losses would result should the Retail segment experience a decline in sales for any reason.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,108
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.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,109
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.
0001047469-04-035975/full-submission.txt
0000320193
20041203
10-K
1,110
The Company has opened seven such stores through November 2004.
0001047469-04-035975/full-submission.txt