Apple 2011 Annual Report Download - page 17

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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.
The Company’
s retail stores have required substantial fixed investment in equipment and leasehold improvements, information systems,
inventory and personnel. The Company also has entered into substantial operating lease commitments for retail space. 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.
Because of their unique design elements, locations and size, these stores require substantially more investment than the Company’
s more typical
retail stores. 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 affect the Company’s financial condition and operating results.
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. 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 manage relationships with its existing retail
channel partners, more challenging environment in managing retail operations outside the U.S., costs associated with unanticipated fluctuations
in the value of retail inventory, and inability to obtain and renew leases in quality retail locations at a reasonable cost.
Investment in new business strategies and initiatives could disrupt the Company
’
s ongoing business and present risks not originally
contemplated.
The Company has invested, and in the future may invest, in new business strategies or acquisitions. 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. These new
ventures are inherently risky and may not be successful. They may materially adversely affect the Company’
s financial condition and operating
results.
The Company’s products and services experience quality problems from time to time that can result in decreased sales and operating margin.
The Company sells complex hardware and software products and services that can contain design and manufacturing defects. 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. The Company’
s online services may from time to time experience outages, service slowdowns, or errors. Defects
may also occur in components and products the Company purchases from third parties. There can be no assurance the Company will be able to
detect and fix all defects in the hardware, software and services it sells. 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.
The Company is subject to laws and regulations worldwide, changes to which could increase the Company’
s costs and individually or in the
aggregate materially adversely affect the Company’s financial condition or operating results.
The Company is subject to laws and regulations affecting its domestic and international operations in a number of areas. These U.S. and foreign
laws and regulations affect the Company’
s activities including, but not limited to, areas of labor, advertising, content, consumer protection, real
estate, billing, e-
commerce, promotions, quality of services, telecommunications, mobile, television, intellectual property ownership and
infringement, tax,
15