Apple 2003 Annual Report Download - page 40

that litigation will not occur. 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 adversely affected. Information regarding claims and litigation involving
the Company related to alleged patent infringement and other matters is set forth in
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Part I, Item 3 of this Form 10-K. 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 results of operations, or financial condition. However, the results of such
legal proceedings cannot be predicted with certainty. 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 reporting period could be materially adversely affected.
The Company expects its quarterly revenue and operating results to fluctuate for a variety of reasons.
The Company's profit margins vary among its products and its distribution channels. As a result, the overall profitability of the Company in any
given period will depend, in part, on the product, geographic, and channel mix reflected in that period's net sales.
The typical concentration of net sales in the third month of the Company's fiscal quarters can adversely affect the Company's business and
operating results.
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. 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. 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 financial condition.
The Company's success depends largely on its ability to attract and retain key personnel.
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. 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 employees are located. The Company has relied on its ability to grant stock options as one mechanism for recruiting
and retaining this highly skilled talent. Potential accounting regulations requiring the expensing of stock options may impair the Company's
future ability to provide these incentives without incurring significant compensation costs. There can be no assurance that the Company will
continue to successfully attract and retain key personnel.
The Company is subject to risks associated with the availability and cost of insurance.
The Company has observed rapidly changing conditions in the insurance markets relating to nearly all areas of traditional corporate insurance.
Such conditions have resulted in higher premium costs, higher policy deductibles, and lower coverage limits. For some risks, because of cost
and/or availability, the Company does not have insurance coverage. For these reasons, the Company is retaining a greater portion of its
insurable risks than it has in the past at relatively greater cost.
Business interruptions could adversely affect the Company's future operating results.
The Company's major business operations are subject to interruption by earthquake, fire, power shortages, terrorist attacks and other hostile
acts, labor disputes, medical conditions, and other events beyond its control. The majority of the Company's research and development
activities, its corporate headquarters, information technology systems, and other critical business operations, including certain component
suppliers and manufacturing vendors, are located near major seismic faults. The Company does not carry earthquake insurance for direct
quake-related losses. The Company's operating results and financial
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condition could be materially adversely affected in the event of a major earthquake or other natural or manmade disaster.
Failure of the Company's information technology systems and breaches in the security of data could adversely affect the Company's future