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0000320193
20101027
10-K
274
The Company must order components for its products and build inventory in advance of product announcements and shipments.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
275
Consistent with industry practice, components are normally acquired through a combination of purchase orders, supplier contracts, open orders and, where appropriate, prepayments, in each case based on projected demand.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
276
Such purchase commitments typically cover forecasted component and manufacturing requirements for 30 to 150 days.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
277
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 inventories of components or products.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
278
The Company’s financial condition and operating results have been in the past and could be in the future materially adversely affected by the Company’s ability to manage its inventory levels and respond to short-term shifts in customer demand patterns.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
279
Future operating results depend upon the Company’s ability to obtain key components including but not limited to microprocessors, NAND flash memory, DRAM and LCDs at favorable prices and in sufficient quantities.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
280
Because the Company currently obtains certain key components including but not limited to microprocessors, enclosures, certain LCDs, certain optical drives, and ASICs, from single or limited sources, the Company is subject to significant supply and pricing risks.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
281
Many of these and other key components that are available from multiple sources including but not limited to NAND flash memory, DRAM and certain LCDs, are subject at times to industry-wide shortages and significant commodity pricing fluctuations.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
282
The Company has entered into certain agreements for the supply of key components including but not limited to microprocessors, NAND flash memory, DRAM and LCDs at favorable pricing, but there is no guarantee that the Company will be able to extend or renew these agreements on similar favorable terms, or at all, upon ex...
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
283
The follow-on effects from the credit crisis on the Company’s key suppliers, referred to in “Economic conditions could materially adversely affect the Company” above, which is incorporated herein by reference, also could affect the Company’s ability to obtain key components.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
284
Therefore, the Company remains subject to significant risks of supply shortages and/or price increases that could materially adversely affect the Company’s financial condition and operating results.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
285
The Company expects to experience decreases in its gross margin percentage in future periods, as compared to levels achieved during 2010, largely due to a higher mix of new and innovative products that have higher cost structures and deliver greater value to customers, and expected and potential future component cost a...
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
286
For additional information refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” under the subheading “Gross Margin,” which is incorporated herein by reference.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
287
The Company and other participants in the personal computer, and mobile communication and media device industries compete for various components with other industries that have experienced increased demand for their products.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
288
The Company uses some custom components that are not common to the rest of these industries.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
289
The Company’s new products often utilize custom components available from only one source.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
290
When a component or product uses new technologies, initial capacity constraints may exist until the suppliers’ yields have matured or manufacturing capacity has increased.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
291
Continued availability of these components at acceptable prices, or at all, may be affected if those suppliers decided to concentrate on the production of common components instead of components customized to meet the Company’s requirements.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
292
If the supply of a key single-sourced component for a new or existing product were delayed or constrained, if such components were available only at significantly higher prices, or if a key manufacturing vendor delayed shipments of completed products to the Company, the Company’s financial condition and operating resul...
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
293
The Company depends on component and product manufacturing and logistical services provided by third parties, many of whom are located outside of the U.S.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
294
Substantially all of the Company’s components and products are manufactured in whole or in part by a few third-party manufacturers.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
295
Many of these manufacturers are located outside of the U.S., and are concentrated in several general locations.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
296
The Company has also outsourced much of its transportation and logistics management.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
297
While these arrangements may lower operating costs, they also reduce the Company’s direct control over production and distribution.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
298
It is uncertain what effect such diminished control will have on the quality or quantity of products or services, or the Company’s flexibility to respond to changing conditions.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
299
In addition, the Company relies on third-party manufacturers to adhere to the Company’s supplier code of conduct.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
300
Although arrangements with such manufacturers may contain provisions for warranty expense reimbursement, the Company may remain responsible to the consumer for warranty service in the event of product defects.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
301
Any unanticipated product defect or warranty liability, whether pursuant to arrangements with contract manufacturers or otherwise, could materially adversely affect the Company’s reputation, financial condition and operating results.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
302
Final assembly of the Company’s products is currently performed in the Company’s manufacturing facility in Ireland, and by external vendors in California, Texas, China, the Czech Republic and Korea.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
303
Currently, the supply and manufacture of many critical components is performed by sole-sourced third-party vendors in the U.S., China, Germany, Ireland, Israel, Japan, Korea, Malaysia, the Netherlands, the Philippines, Taiwan, Thailand and Singapore.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
304
Sole-sourced third-party vendors in China perform final assembly of substantially all of the Company’s Mac products, iPhones, iPads and iPods.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
305
If manufacturing or logistics in these locations is disrupted for any reason, including but not limited to, natural disasters, information technology system failures, military actions or economic, business, labor, environmental, public health, or political issues, the Company’s financial condition and operating results...
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
306
The Company relies on third-party digital content, which may not be available to the Company on commercially reasonable terms or at all.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
307
The Company contracts with certain third parties to offer their digital content through the Company’s iTunes Store.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
308
The Company’s licensing arrangements with these third parties are short-term and do not guarantee the continuation or renewal of these arrangements on reasonable terms, if at all.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
309
Some third-party content providers currently or in the future may offer competing products and services, and could take action to make it more difficult or impossible for the Company to license their content in the future.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
310
Other content owners, providers or distributors may seek to limit the Company’s access to, or increase the total cost of, such content.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
311
If the Company is unable to continue to offer a wide variety of content at reasonable prices with acceptable usage rules, or continue to expand its geographic reach, the Company’s financial condition and operating results may be materially adversely affected.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
312
Many third-party content providers require that the Company provide certain digital rights management (“DRM”) and other security solutions.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
313
If these requirements change, the Company may have to develop or license new technology to provide these solutions.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
314
There is no assurance the Company will be able to develop or license such solutions at a reasonable cost and in a timely manner.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
315
In addition, certain countries have passed or may propose legislation that would force the Company to license its DRM, which could lessen the protection of content and subject it to piracy and also could affect arrangements with the Company’s content providers.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
316
The Company relies on access to third-party patents and intellectual property, and the Company’s future results could be materially adversely affected if it is alleged or found to have infringed intellectual property rights.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
317
Many of the Company’s products are designed to include third-party intellectual property, and in the future the Company may need to seek or renew licenses relating to various aspects of its products and business methods.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
318
Although the Company believes that, based on past experience and industry practice, such licenses generally could be obtained on reasonable terms, there is no assurance that the necessary licenses would be available on acceptable terms or at all.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
319
Because of technological changes in the industries in which the Company competes, current extensive patent coverage, and the rapid issuance of new patents, it is possible that certain components of the Company’s products and business methods may unknowingly infringe the patents or other intellectual property rights of ...
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
320
From time to time, the Company has been notified that it may be infringing such rights.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
321
Regardless of merit, responding to such claims can consume significant time and expense.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
322
At present, the Company is vigorously defending a number of patent infringement cases, and several pending claims are in various stages of evaluation.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
323
In certain cases, the Company may consider the desirability of entering into licensing agreements, although no assurance can be given that such licenses can be obtained on acceptable terms or that litigation will not occur.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
324
If the Company is found to be infringing such rights, it may be required to pay substantial damages.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
325
If there is a temporary or permanent injunction prohibiting the Company from marketing or selling certain products or a successful claim of infringement against the Company requires it to pay royalties to a third party, the Company’s financial condition and operating results could be materially adversely affected, rega...
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
326
While in management’s opinion the Company does not have a potential liability for damages or royalties from any known current legal proceedings or claims related to the infringement of patent or other intellectual property rights that would individually or in the aggregate materially adversely affect its financial cond...
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
327
Should the Company fail to prevail in any of the matters related to infringement of patent or other intellectual property rights of others or should several of these matters be resolved against the Company in the same reporting period, the Company’s financial condition and operating results could be materially adversel...
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
328
With the introduction of iPhones and 3G enabled iPads, the Company has begun to compete with mobile communication and media devices companies that hold significant patent portfolios.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
329
Regardless of the scope or validity of such patents or the merits of any potential patent claims by competitors, the Company may have to engage in protracted litigation, enter into expensive agreements or settlements and/or modify its products.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
330
Any of these events could have a material adverse impact on the Company’s financial condition and operating results.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
331
The Company’s future performance depends on support from third-party software developers.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
332
If third-party software applications and services cease to be developed and maintained for the Company’s products, customers may choose not to buy the Company’s products.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
333
The Company believes decisions by customers to purchase its hardware products, including its Macs, iPhones, iPads and iPods, are often based to a certain extent on the availability of third-party software applications and services.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
334
There is no assurance that third-party developers will continue to develop and maintain applications and services for the Company’s products on a timely basis or at all, and discontinuance or delay of these applications and services could materially adversely affect the Company’s financial condition and operating resul...
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
335
With respect to its Mac products, the Company believes the availability of third-party software applications and services depends in part on the developers’ perception and analysis of the relative benefits of developing, maintaining, and upgrading such software for the Company’s products compared to Windows-based produ...
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
336
This analysis may be based on factors such as the perceived strength of the Company and its products, the anticipated revenue that may be generated, continued acceptance by customers of Mac OS X, and the costs of developing such applications and services.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
337
If the Company’s minority share of the global personal computer market causes developers to question the Company’s prospects, developers could be less inclined to develop or upgrade software for the Company’s products and more inclined to devote their resources to developing and upgrading software for the larger Window...
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
338
The Company’s development of its own software applications and services may also negatively affect the decisions of third-party developers, such as Microsoft, Adobe and Google, to develop, maintain, and upgrade similar or competitive software and services for the Company’s products.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
339
With respect to iPhone, iPad and iPod touch, the Company relies on the continued availability and development of compelling and innovative software applications.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
340
Unlike third-party software applications for Mac products, the software applications for the iPhone, iPad and iPod touch platforms are distributed through a single distribution channel, the App Store.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
341
The absence of multiple distribution channels, which are available for competing platforms, may limit the availability and acceptance of third-party applications by the Company’s customers, thereby causing developers to curtail significantly, or stop, development for the Company’s platforms.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
342
In addition, iPhone, iPad and iPod touch are subject to rapid technological change, and, if third-party developers are unable to keep up with this pace of change, third-party applications might not successfully operate and may result in dissatisfied customers.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
343
Further, if the Company develops its own software applications and services, such development may negatively affect the decisions of third-party developers to develop, maintain, and upgrade similar or competitive applications for the iPhone, iPad and iPod touch platforms.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
344
As with applications for the Company’s Mac products, the availability and development of these applications also depend on developers’ perceptions and analysis of the relative benefits of developing software for the Company’s products rather than its competitors’ products, including devices that use competing platforms...
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
345
If developers focus their efforts on these competing platforms, the availability and quality of applications for the Company’s devices may suffer.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
346
The Company’s future operating performance depends on the performance of distributors, carriers and other resellers.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
347
The Company distributes its products through wholesalers, resellers, national and regional retailers, value-added resellers, and cataloguers, many of whom distribute products from competing manufacturers.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
348
The Company also sells many of its products and resells third-party products in most of its major markets directly to customers, certain education customers, cellular network carriers’ distribution channels and certain resellers through its online and retail stores.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
349
Many resellers operate on narrow operating margins and have been negatively affected in the past by weak economic conditions.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
350
Some resellers have perceived the expansion of the Company’s direct sales as conflicting with their business interests as distributors and resellers of the Company’s products.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
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Such a perception could discourage resellers from investing resources in the distribution and sale of the Company’s products or lead them to limit or cease distribution of those products.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
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The Company’s financial condition and operating results could be materially adversely affected if the financial condition of these resellers weakens, if resellers stopped distributing the Company’s products, or if uncertainty regarding demand for the Company’s products caused resellers to reduce their ordering and mark...
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
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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.
0001193125-10-238044/full-submission.txt
0000320193
20101027
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These programs could require a substantial investment while providing no assurance of return or incremental revenue.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
355
The Company’s Retail business has required and will continue to require a substantial investment and commitment of resources and is subject to numerous risks and uncertainties.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
356
The Company’s retail stores have required substantial fixed investment in equipment and leasehold improvements, information systems, inventory and personnel.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
357
The Company also has entered into substantial operating lease commitments for retail space, with terms ranging from five to 20 years, the majority of which are for ten years.
0001193125-10-238044/full-submission.txt
0000320193
20101027
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Certain stores have been designed and built to serve as high-profile venues to promote brand awareness and serve as vehicles for corporate sales and marketing activities.
0001193125-10-238044/full-submission.txt
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Because of their unique design elements, locations and size, these stores require substantially more investment than the Company’s more typical retail stores.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
360
Due to the high fixed cost structure associated with the Retail segment, a decline in sales or the closure or poor performance of individual or multiple stores could result in significant lease termination costs, write-offs of equipment and leasehold improvements, and severance costs that could materially adversely aff...
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
361
Many factors unique to retail operations, some of which are beyond the Company’s control, pose risks and uncertainties that could materially adversely affect the Company’s financial condition and operating results.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
362
These risks and uncertainties include, but are not limited to, macro-economic factors that could have a negative effect on general retail activity, as well as the Company’s inability to manage costs associated with store construction and operation, inability to sell third-party products at adequate margins, failure to ...
0001193125-10-238044/full-submission.txt
0000320193
20101027
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363
Investment in new business strategies and initiatives could disrupt the Company’s ongoing business and present risks not originally contemplated.
0001193125-10-238044/full-submission.txt
0000320193
20101027
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364
The Company has invested, and in the future may invest, in new business strategies or acquisitions.
0001193125-10-238044/full-submission.txt
0000320193
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Such endeavors may involve significant risks and uncertainties, including distraction of management from current operations, insufficient revenue to offset liabilities assumed and expenses associated with the strategy, inadequate return of capital, and unidentified issues not discovered in the Company’s due diligence.
0001193125-10-238044/full-submission.txt
0000320193
20101027
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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 financial condition and operating results.
0001193125-10-238044/full-submission.txt
0000320193
20101027
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367
The Company’s products and services experience quality problems from time to time that can result in decreased sales and operating margin.
0001193125-10-238044/full-submission.txt
0000320193
20101027
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368
The Company sells highly complex hardware and software products and services that can contain defects in design and manufacture.
0001193125-10-238044/full-submission.txt
0000320193
20101027
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369
Sophisticated operating system software and applications, such as those sold by the Company, often contain “bugs” that can unexpectedly interfere with the software’s intended operation.
0001193125-10-238044/full-submission.txt
0000320193
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Defects may also occur in components and products the Company purchases from third parties.
0001193125-10-238044/full-submission.txt
0000320193
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There can be no assurance the Company will be able to detect and fix all defects in the hardware, software and services it sells.
0001193125-10-238044/full-submission.txt
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Failure to do so could result in lost revenue, harm to reputation, and significant warranty and other expenses, and could have a material adverse impact on the Company’s financial condition and operating results.
0001193125-10-238044/full-submission.txt
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In the U.S. the Company relies on a single cellular network carrier to provide service for iPhone.
0001193125-10-238044/full-submission.txt