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0000320193
20101027
10-K
1,274
The Company periodically provides updates to its applications and system software to maintain the software’s compliance with published specifications.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,275
The estimated cost to develop such updates is accounted for as warranty costs that are recognized at the time related software revenue is recognized.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,276
Factors considered in determining appropriate accruals related to such updates include the number of units delivered, the number of updates expected to occur, and the historical cost and estimated future cost of the resources necessary to develop these updates.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,277
The following table reconciles changes in the Company’s accrued warranty and related costs for the three years ended September 25, 2010 (in millions): The Company generally does not indemnify end-users of its operating system and application software against legal claims that the software infringes third-party intellec...
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,278
Other agreements entered into by the Company sometimes include indemnification provisions under which the Company could be subject to costs and/or damages in the event of an infringement claim against the Company or an indemnified third-party.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,279
However, the Company has not been required to make any significant payments resulting from such an infringement claim asserted against it or an indemnified third-party and, in the opinion of management, does not have a potential liability related to unresolved infringement claims subject to indemnification that would m...
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,280
Therefore, the Company did not record a liability for infringement costs as of either September 25, 2010 or September 26, 2009.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,281
The Company has entered into indemnification agreements with its directors and executive officers.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,282
Under these agreements, the Company has agreed to indemnify such individuals to the fullest extent permitted by law against liabilities that arise by reason of their status as directors or officers and to advance expenses incurred by such individuals in connection with related legal proceedings.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,283
It is not possible to determine the maximum potential amount of payments the Company could be required to make under these agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each claim.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,284
However, the Company maintains directors and officers liability insurance coverage to reduce its exposure to such obligations, and payments made under these agreements historically have not materially adversely affected the Company’s financial condition or operating results.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,285
Concentrations in the Available Sources of Supply of Materials and Product Although most components essential to the Company’s business are generally available from multiple sources, certain key components including but not limited to microprocessors, enclosures, certain liquid crystal displays (“LCDs”), certain optica...
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,286
Many of these and other key components that are available from multiple sources including but not limited to NAND flash memory, dynamic random access 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
1,287
In addition, 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...
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,288
Therefore, the Company remains subject to significant risks of supply shortages and/or price increases that can materially adversely affect its financial condition and operating results.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,289
The Company and other participants in the personal computer, and mobile communication and media device industries also 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
1,290
In addition, the Company uses some custom components that are not common to the rest of these industries, and new products introduced by the Company often utilize custom components available from only one source.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,291
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
1,292
If the Company’s 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 opera...
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,293
The Company’s business and financial performance could also be adversely affected depending on the time required to obtain sufficient quantities from the original source, or to identify and obtain sufficient quantities from an alternative source.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,294
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
1,295
Substantially all of the Company’s Macs, iPhones, iPads, iPods, logic boards and other assembled products are now manufactured by outsourcing partners, primarily in various parts of Asia.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,296
A significant concentration of this outsourced manufacturing is currently performed by only a few outsourcing partners of the Company, often in single locations.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,297
Certain of these outsourcing partners are the sole-sourced supplier of components and manufacturing outsourcing for many of the Company’s key products including but not limited to final assembly of substantially all of the Company’s Macs, iPhones, iPads and iPods.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,298
Although the Company works closely with its outsourcing partners on manufacturing schedules, the Company’s operating results could be adversely affected if its outsourcing partners were unable to meet their production commitments.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,299
The Company’s purchase commitments typically cover its requirements for periods ranging from 30 to 150 days.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,300
Long-Term Supply Agreements The Company has entered into prepaid long-term supply agreements to secure the supply of certain inventory components, which generally expire between 2011 and 2015.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,301
As of September 25, 2010, the Company had a total of $956 million of inventory component prepayments outstanding, of which $157 million is classified as other current assets and $799 million is classified as other assets in the Consolidated Balance Sheets.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,302
In August 2010, the Company entered into a long-term supply agreement under which it has committed to prepay $500 million in 2011.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,303
The Company had a total of $1.2 billion of inventory component prepayments outstanding as of September 26, 2009.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,304
These prepayments will be applied to certain inventory component purchases made over the life of each respective agreement.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,305
Contingencies The Company is subject to various legal proceedings and claims that have arisen in the ordinary course of business and have not been fully adjudicated, which are discussed in Part I, Item 3 of this Form 10-K under the heading “Legal Proceedings.” In the opinion of management, the Company does not have a p...
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,306
However, the results of legal proceedings cannot be predicted with certainty.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,307
If the Company failed to prevail in any of these legal matters or if several of these legal matters were resolved against the Company in the same reporting period, the operating results of a particular reporting period could be materially adversely affected.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,308
On March 14, 2008, Mirror Worlds, LLC filed an action against the Company alleging that certain of its products infringed on three patents covering technology used to display files.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,309
On October 1, 2010, a jury returned a verdict against the Company, and awarded damages of $208 million per patent for each of the three patents asserted.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,310
The Company is challenging the verdict, believes it has valid defenses and has not recorded a loss contingency at this time.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,311
Production and marketing of products in certain states and countries may subject the Company to environmental, product safety 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...
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,312
Such laws and regulations have been passed in several jurisdictions in which the Company operates, including various countries within Europe and Asia and certain states and provinces within North America.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,313
Although the Company does not anticipate any material adverse effects in the future based on the nature of its operations and the thrust of such laws, there is no assurance that such existing laws or future laws will not materially adversely affect the Company’s financial condition or operating results.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,314
Note 9 - Segment Information and Geographic Data The Company reports segment information based on the “management” approach.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,315
The management approach designates the internal reporting used by management for making decisions and assessing performance as the source of the Company’s reportable segments.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,316
The Company manages its business primarily on a geographic basis.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,317
Accordingly, the Company determined its operating and reporting segments, which are generally based on the nature and location of its customers, to be the Americas, Europe, Japan, Asia-Pacific and Retail operations.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,318
The Americas, Europe, Japan and Asia-Pacific reportable segment results do not include results of the Retail segment.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,319
The Americas segment includes both North and South America.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,320
The Europe segment includes European countries, as well as the Middle East and Africa.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,321
The Asia-Pacific segment includes Australia and Asia, but does not include Japan.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,322
The Retail segment operates Apple retail stores in 11 countries, including the U.S. Each reportable operating segment provides similar hardware and software products and similar services.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,323
The accounting policies of the various segments are the same as those described in Note 1, “Summary of Significant Accounting Policies.” The Company evaluates the performance of its operating segments based on net sales and operating income.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,324
Net sales for geographic segments are generally based on the location of customers, while Retail segment net sales are based on sales from the Company’s retail stores.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,325
Operating income for each segment includes net sales to third parties, related cost of sales and operating expenses directly attributable to the segment.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,326
Advertising expenses are generally included in the geographic segment in which the expenditures are incurred.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,327
Operating income for each segment excludes other income and expense and certain expenses managed outside the operating segments.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,328
Costs excluded from segment operating income include various corporate expenses, such as manufacturing costs and variances not included in standard costs, research and development, corporate marketing expenses, stock-based compensation expense, income taxes, various nonrecurring charges, and other separately managed ge...
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,329
The Company does not include intercompany transfers between segments for management reporting purposes.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,330
Segment assets exclude corporate assets, such as cash, short-term and long-term investments, manufacturing and corporate facilities, miscellaneous corporate infrastructure, goodwill and other acquired intangible assets.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,331
Except for the Retail segment, capital asset purchases for long-lived assets are not reported to management by segment.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,332
Cash payments for capital asset purchases by the Retail segment were $392 million, $369 million and $389 million for 2010, 2009 and 2008, respectively.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,333
The Company has certain retail stores that 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
0000320193
20101027
10-K
1,334
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
1,335
The Company allocates certain operating expenses associated with its high-profile stores to corporate marketing expense to reflect the estimated Company-wide benefit.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,336
The allocation of these operating costs to corporate expense is based on the amount incurred for a high-profile store in excess of that incurred by a more typical Company retail location.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,337
The Company had opened a total of 15 high-profile stores as of September 25, 2010.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,338
Amounts allocated to corporate expense resulting from the operations of high-profile stores were $75 million, $65 million and $53 million for 2010, 2009 and 2008, respectively.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,339
Summary information by operating segment for the three years ended September 25, 2010 is as follows (in millions): (a) The Americas asset figures do not include fixed assets held in the U.S.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,340
Such fixed assets are not allocated specifically to the Americas segment and are included in the corporate and Retail assets figures below.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,341
(b) Retail segment depreciation and asset figures reflect the cost and related depreciation of its retail stores and related infrastructure.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,342
A reconciliation of the Company’s segment operating income and assets to the consolidated financial statements for the three years ended September 25, 2010 is as follows (in millions): (a) Other corporate expenses include research and development, corporate marketing expenses, manufacturing costs and variances not incl...
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,343
No single country outside of the U.S. accounted for more than 10% of net sales in 2010, 2009 or 2008.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,344
One of the Company’s customers accounted for 11% of net sales in 2009; there was no single customer that accounted for more than 10% of net sales in 2010 or 2008.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,345
Net sales and long-lived assets related to the U.S. and international operations for the three years ended September 25, 2010, are as follows (in millions): Information regarding net sales by product for the three years ended September 25, 2010, is as follows (in millions): (a) Includes iMac, Mac mini, Mac Pro and Xser...
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,346
(b) Includes MacBook, MacBook Air and MacBook Pro product lines.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,347
(c) Includes iTunes Store sales, iPod services, and Apple-branded and third-party iPod accessories.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,348
(d) Includes revenue recognized from iPhone sales, carrier agreements, services, and Apple-branded and third-party iPhone accessories.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,349
(e) Includes revenue recognized from iPad sales, services and Apple-branded and third-party iPad accessories.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,350
(f) Includes sales of displays, wireless connectivity and networking solutions, and other hardware accessories.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,351
(g) Includes sales of Apple-branded operating system and application software, third-party software, Mac and Internet services.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,352
Note 10 - Related Party Transactions and Certain Other Transactions The Company entered into a Reimbursement Agreement with its CEO, Steve Jobs, for the reimbursement of expenses incurred by Mr. Jobs in the operation of his private plane when used for Apple business.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,353
The Company recognized a total of approximately $248,000, $4,000 and $871,000 in expenses pursuant to the Reimbursement Agreement during 2010, 2009 and 2008, respectively.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,354
All expenses recognized pursuant to the Reimbursement Agreement have been included in selling, general and administrative expenses in the Consolidated Statements of Operations.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,355
Note 11 - Selected Quarterly Financial Information (Unaudited) The following tables set forth a summary of the Company’s quarterly financial information for each of the four quarters ended September 25, 2010 and September 26, 2009 (in millions, except per share amounts): Basic and diluted earnings per share are compute...
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,356
Therefore, the sum of quarterly basic and diluted per share information may not equal annual basic and diluted earnings per share.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,357
Report of Ernst & Young LLP, Independent Registered Public Accounting Firm The Board of Directors and Shareholders of Apple Inc. We have audited the accompanying consolidated balance sheets of Apple Inc. as of September 25, 2010 and September 26, 2009, and the related consolidated statements of operations, shareholders...
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,358
These financial statements are the responsibility of the Company’s management.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,359
Our responsibility is to express an opinion on these financial statements based on our audits.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,360
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,361
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,362
An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,363
An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,364
We believe that our audits provide a reasonable basis for our opinion.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,365
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Apple Inc. at September 25, 2010 and September 26, 2009, and the consolidated results of its operations and its cash flows for the years then ended, in conformity with U.S. general...
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,366
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Apple Inc.’s internal control over financial reporting as of September 25, 2010, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organiz...
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,367
/s/ Ernst & Young LLP San Jose, California October 27, 2010 Report of Ernst & Young LLP, Independent Registered Public Accounting Firm The Board of Directors and Shareholders of Apple Inc. We have audited Apple Inc.’s internal control over financial reporting as of September 25, 2010, based on criteria established in I...
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,368
Apple Inc.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,369
Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,370
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,371
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,372
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in...
0001193125-10-238044/full-submission.txt
0000320193
20101027
10-K
1,373
We believe that our audit provides a reasonable basis for our opinion.
0001193125-10-238044/full-submission.txt