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0000320193 | 20060203 | 10-Q | 723 | The Company’s professional products, including Power Macintosh and PowerBook systems, software, accessories, and service and support contracts, generally have higher gross margins than the Company’s consumer products, including iMacs, iBooks, iPods, and content from the iTunes Music Store. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 724 | A shift in sales mix away from higher margin professional products towards lower margin consumer products could adversely affect the Company’s future gross margin and operating margin percentages. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 725 | The Company’s traditional professional customers may choose to buy consumer products, specifically the iMac and iBook, instead of professional products. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 726 | Professional users may choose to buy the iMac due to its relative price performance, use of a more powerful Intel microprocessor, and unique design featuring a flat panel screen. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 727 | Professional users may also choose to purchase iBooks instead of the Company’s professional-oriented portable products due to their price performance and screen size. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 728 | Additionally, significant future growth in iPod sales without corresponding growth in higher margin product sales could also reduce gross margin and operating margin percentages. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 729 | The Company expects its quarterly revenue and operating results to fluctuate for a variety of reasons. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 730 | The Company’s profit margins vary among its products and its distribution channels. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 731 | The Company’s direct sales, primarily through its retail and online stores, generally have higher associated profitability than its indirect sales. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 732 | Additionally, the Company’s direct channels have traditionally had more sales of software and higher priced hardware products, which generally have higher gross margins, than its indirect channels. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 733 | As a result, the Company’s gross margin and operating margin percentages as well as overall profitability may be adversely impacted as a result of a shift in product, geographic, or channel mix, or new product announcements, including the transition to Intel-based Macintosh computers. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 734 | In addition, the Company generally sells more products during the third month of each quarter than it does during either of the first two months, a pattern typical in the personal computer industry. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 735 | This sales pattern can produce pressure on the Company’s internal infrastructure during the third month of a quarter and may adversely impact the Company’s ability to predict its financial results accurately. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 736 | Furthermore, the Company has typically experienced greater net sales in the first and fourth fiscal quarters compared to other quarters in the fiscal year due to seasonal demand related to the holiday season and the beginning of the school year. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 737 | Developments late in a quarter, such as lower-than-anticipated demand for the Company’s products, an
internal systems failure, or failure of one of the Company’s key logistics, components suppliers, or manufacturing partners, can have significant adverse impacts on the Company and its results of operations and financia... | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 738 | The Company has higher research and development and selling, general and administrative costs, as a percentage of revenue, than many of its competitors. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 739 | The Company’s ability to compete successfully and maintain attractive gross margins and revenue growth is heavily dependent upon its ability to ensure a continuing and timely flow of innovative and competitive products and technologies to the marketplace. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 740 | As a result, the Company generally incurs higher research and development costs as a percentage of revenue than its competitors who sell personal computers based on other operating systems. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 741 | Many of these competitors seek to compete aggressively on price and maintain very low cost structures. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 742 | Further, as a result of the expansion of the Company’s Retail segment and costs associated with marketing the Company’s brand including its unique operating system, the Company incurs higher selling costs as a percentage of revenue than many of its competitors. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 743 | If the Company is unable to continue to develop and sell innovative new products with attractive gross margins, its results of operations may be materially adversely affected by its operating cost structure. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 744 | The Company is exposed to credit risk on its accounts receivable and prepayments related to long-term supply agreements. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 745 | This risk is heightened during periods when economic conditions worsen. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 746 | The Company distributes its products through third-party computer resellers and retailers and directly to certain educational institutions and commercial customers. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 747 | A substantial majority of the Company’s outstanding trade receivables are not covered by collateral or credit insurance. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 748 | The Company also has unsecured non-trade receivables from certain of its manufacturing vendors resulting from the sale by the Company of raw material components to these manufacturing vendors who manufacture sub-assemblies or assemble final products for the Company. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 749 | In addition, the Company has entered into long-term supply agreements to secure supply of NAND flash-memory and has prepaid a total of $1.25 billion under these agreements. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 750 | While the Company has procedures in place to monitor and limit exposure to credit risk on its trade and non-trade receivables as well as long-term prepayments, there can be no assurance that such procedures will be effective in limiting its credit risk and avoiding losses. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 751 | Additionally, if the global economy and regional economies fail to improve or continue to deteriorate, it becomes more likely that the Company will incur a material loss or losses as a result of the weakening financial condition of one or more of its customers or manufacturing vendors. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 752 | The Company’s success depends largely on its ability to attract and retain key personnel. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 753 | Much of the future success of the Company depends on the continued service and availability of skilled personnel, including its Chief Executive Officer, members of its executive team, and those in technical, marketing and staff positions. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 754 | Experienced personnel in the information technology industry are in high demand and competition for their talents is intense, especially in the Silicon Valley, where the majority of the Company’s key employees are located. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 755 | The Company has relied on its ability to grant stock options as one mechanism for recruiting and retaining this highly skilled talent. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 756 | Recent accounting regulations requiring the expensing of stock options have resulted in increased stock-based compensation expense, which may cause the Company to reduce the amount of stock-based awards issued to employees. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 757 | There can be no assurance that the Company will continue to successfully attract and retain key personnel. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 758 | The Company is subject to risks associated with the selection, availability, and cost of insurance. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 759 | The Company has observed rapidly changing conditions in the insurance markets relating to nearly all areas of traditional commercial insurance. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 760 | Such conditions have and may continue to result in higher premium costs, higher policy deductibles, lower coverage limits and may also yield possible policy form exclusions. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 761 | For some risks, because of cost and/or availability, the Company does not have insurance coverage. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 762 | Because the Company retains some portion of its insurable risks, and in some cases self insures completely, unforeseen or catastrophic losses in excess of insured limits may have a material adverse effect on the Company’s results of operations and financial position. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 763 | Failure of information technology systems and breaches in the security of data upon which the Company relies could adversely affect the Company’s future operating results. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 764 | Information technology system failures and breaches of data security could disrupt the Company’s ability to function in the normal course of business by potentially causing delays or cancellation of customer orders, impeding the manufacture or shipment of products, or resulting in the unintentional disclosure of custom... | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 765 | Management has taken steps to address these concerns for its own systems by implementing sophisticated network security and internal control measures. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 766 | However, there can be no assurance that a system
failure or data security breach of the Company or a third-party vendor will not have a material adverse effect on the Company’s results of operations. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 767 | The Company’s business is subject to the risks of international operations. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 768 | A large portion of the Company’s revenue is derived from its international operations. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 769 | As a result, the Company’s operating results and financial condition could be significantly affected by risks associated with international activities, including economic and labor conditions, political instability, tax laws (including U.S. taxes on foreign subsidiaries), and changes in the value of the U.S. dollar ver... | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 770 | The Company’s primary exposure to movements in foreign currency exchange rates relate to non-dollar denominated sales in Europe, Japan, Australia, Canada, and certain parts of Asia and non-dollar denominated operating expenses incurred throughout the world. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 771 | Weaknesses in foreign currencies, particularly the Japanese Yen and the Euro, can adversely impact consumer demand for the Company’s products and the U.S. dollar value of the Company’s foreign currency denominated sales. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 772 | Conversely, a strengthening in these and other foreign currencies can cause the Company to modify international pricing and affect the value of the Company’s foreign denominated sales, and in some cases, may also increase the cost to the Company of some product components. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 773 | Margins on sales of the Company’s 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. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 774 | Derivative instruments, such as foreign exchange forward and option positions have been utilized by the Company to hedge exposures to fluctuations in foreign currency exchange rates. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 775 | The use of such hedging activities may not offset more than a portion of the adverse financial impact resulting from unfavorable movements in foreign exchange rates. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 776 | Further information related to the Company’s global market risks may be found in Part II, Item 7A of the 2005 Form 10-K for the year ended September 24, 2005 under the subheading “Foreign Currency Risk” and may be found in Part II, Item 8 of the 2005 Form 10-K for the year ended September 24, 2005 at Notes 1 and 2 of N... | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 777 | The Company is subject to risks associated with environmental regulations. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 778 | Production and marketing of products in certain states and countries may subject the Company to environmental and other regulations including, in some instances, the requirement to provide customers the ability to return product at the end of its useful life, and place responsibility for environmentally safe disposal o... | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 779 | Such laws and regulations have recently been passed in several jurisdictions in which the Company operates, including various European Union member countries, Japan, and certain states within the U.S. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 780 | In the future, these laws could have a material adverse effect on the Company’s results of operations. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 781 | Changes in accounting rules could affect the Company’s future operating results. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 782 | Financial statements are prepared in accordance with U.S. generally accepted accounting principles. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 783 | These principles are subject to interpretation by various governing bodies, including the FASB and the SEC, who create and interpret appropriate accounting standards. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 784 | A change from current accounting standards could have a significant effect on the Company’s results of operations. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 785 | In December 2004, the FASB issued new guidance that addresses the accounting for share-based payments, SFAS No. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 786 | 123R, which the Company adopted in the first quarter of 2006. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 787 | In the first quarter of 2006, stock-based compensation expense reduced diluted earnings per common share by approximately $0.03. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 788 | Although the effect from the adoption of SFAS No. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 789 | 123R is expected to continue to have a material impact on the Company’s results of operations, future changes to various assumptions used to determine the fair-value of awards issued or the amount and type of equity awards granted create uncertainty as to the amount of future stock-based compensation expense. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 790 | Changes in the Company’s tax rates could affect its future results. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 791 | The Company’s future effective tax rates could be favorably or unfavorably affected by changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of the Company’s deferred tax assets and liabilities, or by changes in tax laws or their interpretation. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 792 | In addition, the Company is subject to the continuous examination of its income tax returns by the Internal Revenue Service and other tax authorities. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 793 | The Company regularly assesses the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of
its provision for income taxes. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 794 | There can be no assurance that the outcomes from these continuous examinations will not have an adverse affect on the Company’s results of operations and financial condition. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 795 | The Company’s stock price may be volatile. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 796 | The Company’s stock has at times experienced substantial price volatility as a result of variations between its actual and anticipated financial results and as a result of announcements by the Company and its competitors. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 797 | The stock market has experienced extreme price and volume fluctuations that have affected the market price of many technology companies in ways that may have been unrelated to the operating performance of these companies. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 798 | Furthermore, the Company believes its stock price reflects high future growth and profitability expectations. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 799 | If the Company fails to meet these expectations its stock price may significantly decline. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 800 | These factors, including lack of positive general economic and political conditions and investors’ concerns regarding the credibility of corporate financial reporting and integrity of financial markets, may materially adversely affect the market price of the Company’s stock in the future. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 801 | In addition, increases in the Company’s stock price may result in greater dilution of earnings per share. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 802 | For a discussion of these and other factors affecting the Company’s future results and financial condition, see Item 7, “Management’s Discussion and Analysis - Factors That May Affect Future Results and Financial Condition” and Item 1, “Business” in the Company’s 2005 Form 10-K. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 803 | Item 3. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 804 | Quantitative and Qualitative Disclosures About Market Risk
The Company’s market risk profile has not changed significantly from that described in the 2005 Form 10-K.
Interest Rate and Foreign Currency Risk Management
The Company regularly reviews its foreign exchange forward and option positions and its interest rate s... | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 805 | However, given the effective horizons of the Company’s risk management activities and the anticipatory nature of the exposures, there can be no assurance the hedges will offset more than a portion of the financial impact resulting from movements in either foreign exchange or interest rates. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 806 | In addition, the timing of the accounting for recognition of gains and losses related to mark-to-market instruments for any given period may not coincide with the timing of gains and losses related to the underlying economic exposures and, therefore, may adversely affect the Company’s operating results and financial po... | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 807 | Interest Rate Risk
While the Company is exposed to interest rate fluctuations in many of the world’s leading industrialized countries, the Company’s interest income and expense is most sensitive to fluctuations in the general level of U.S. interest rates. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 808 | In this regard, changes in U.S. interest rates affect the interest earned on the Company’s cash, cash equivalents, and short-term investments as well as costs associated with foreign currency hedges. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 809 | The Company’s short-term investment policy and strategy is to ensure the preservation of capital, meet liquidity requirements, and optimize return in light of the current credit and interest rate environment. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 810 | The Company benchmarks its performance by utilizing external money managers to manage a small portion of the aggregate investment portfolio. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 811 | The external managers adhere to the Company’s investment policies and also provide occasional research and market information that supplements internal research used to make credit decisions in the investment process. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 812 | The Company’s exposure to market risk for changes in interest rates relates primarily to the Company’s investment portfolio. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 813 | The Company places its short-term investments in highly liquid securities issued by high credit quality issuers and, by policy, limits the amount of credit exposure to any one issuer. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 814 | The Company’s general policy is to limit the risk of principal loss and ensure the safety of invested funds by limiting market and credit risk. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 815 | All highly liquid investments with maturities of three months or less are classified as cash equivalents; highly liquid investments with maturities greater than three months are classified as short-term investments. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 816 | As of December 31, 2005, approximately $172 million of the Company’s short-term investments had underlying maturities ranging from one to five years. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 817 | The remainder all had underlying maturities between three and 12 months. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 818 | The Company may sell its investments prior to their stated maturities for strategic purposes, in anticipation of credit deterioration, or for duration management. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 819 | The Company recognized no material net gains or losses during the first quarter of 2006 or 2005 related to such sales. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 820 | Foreign Currency Risk
In general, the Company is a net receiver of currencies other than the U.S. dollar. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 821 | Accordingly, changes in exchange rates, and in particular a strengthening of the U.S. dollar, may negatively affect the Company’s net sales and gross margins as expressed in U.S. dollars. | 0001104659-06-005910/full-submission.txt |
0000320193 | 20060203 | 10-Q | 822 | There is also a risk that the Company will have to adjust local currency product pricing due to competitive pressures when there has been significant volatility in foreign currency exchange rates. | 0001104659-06-005910/full-submission.txt |
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