What changed in this filing

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Item 1A. Risk Factors

2020-10-30 compared with 2019-10-31 · 74 added, 44 removed, 286 unchanged (29% of the section changed)

5 unchanged sentences

Because of the following factors, as well as other factors affecting the Company’s financial condition and operating results, past financial performance should not be considered to be a reliable indicator of future performance, and investors should not use historical trends to anticipate results or trends in future periods.

The Company’s business, results of operations, financial condition and stock price have been adversely affected and could in the future be materially adversely affected by the COVID-19 pandemic.

COVID-19 has spread rapidly throughout the world, prompting governments and businesses to take unprecedented measures in response.

Such measures have included restrictions on travel and business operations, temporary closures of businesses, and quarantines and shelter-in-place orders.

The COVID-19 pandemic has significantly curtailed global economic activity and caused significant volatility and disruption in global financial markets.

The COVID-19 pandemic and the measures taken by many countries in response have adversely affected and could in the future materially adversely impact the Company’s business, results of operations, financial condition and stock price.

Following the initial outbreak of the virus, the Company experienced disruptions to its manufacturing, supply chain and logistical services provided by outsourcing partners, resulting in temporary iPhone supply shortages that affected sales worldwide.

During the course of the pandemic, the Company’s retail stores, as well as channel partner points of sale, have been temporarily closed at various times.

In many cases, where stores and points of sale have reopened they are subject to operating restrictions to protect public health and the health and safety of employees and customers.

The Company has at times required substantially all of its employees to work remotely.

The Company is continuing to monitor the situation and take appropriate actions in accordance with the recommendations and requirements of relevant authorities.

The full extent of the impact of the COVID-19 pandemic on the Company’s operational and financial performance is currently uncertain and will depend on many factors outside the Company’s control, including, without limitation, the timing, extent, trajectory and duration of the pandemic, the development and availability of effective treatments and vaccines, the imposition of and compliance with protective public safety measures, and the impact of the pandemic on the global economy and demand for consumer products.

Additional future impacts on the Company may include, but are not limited to, material adverse effects on:

demand for the Company’s products and services;

the Company’s supply chain and sales and distribution channels;

the Company’s ability to execute its strategic plans;

and the Company’s profitability and cost structure.

To the extent the COVID-19 pandemic adversely affects the Company’s business, results of operations, financial condition and stock price, it may also have the effect of heightening many of the other risks described in this Part I, Item 1A of this Form 10-K.

Global and regional economic conditions could materially adversely affect the Company’s business, results of operations, financial condition and growth.

3 unchanged sentences

As a result, the Company’s operations and performance depend significantly on global and regional economic conditions.

Adverse macroeconomic conditions, including inflation, slower growth or recession, new or increased tariffs, changes to fiscal and monetary policy, tighter credit, higher interest rates, high unemployment and currency fluctuations could materially adversely affect demand for the Company’s products and services.

Adverse macroeconomic conditions, including inflation, slower growth or recession, new or increased tariffs and other barriers to trade, changes to fiscal and monetary policy, tighter credit, higher interest rates, high unemployment and currency fluctuations could materially adversely affect demand for the Company’s products and services.

In addition, consumer confidence and spending could be adversely affected in response to financial market volatility, negative financial news, conditions in the real estate and mortgage markets, declines in income or asset values, changes to fuel and other energy costs, labor and healthcare costs and other economic factors.

| 2020 Form 10-K | 5

In addition to an adverse impact on demand for the Company’s products, uncertainty about, or a decline in, global or regional economic conditions could have a significant impact on the Company’s suppliers, contract manufacturers, logistics providers, distributors, cellular network carriers and other channel partners.

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Global markets for the Company’s products and services are highly competitive and subject to rapid technological change, and the Company may be unable to compete effectively in these markets.

The Company’s products and services are offered in highly competitive global markets characterized by aggressive price competition and resulting downward pressure on gross margins, frequent introduction of new products and services, short product life cycles, evolving industry standards, continual improvement in product price/performance characteristics, rapid adoption of technological advancements by competitors, and price sensitivity on the part of consumers and businesses.

The Company’s ability to compete successfully depends heavily on its ability to ensure a continuing and timely introduction of innovative new products, services and technologies to the marketplace.

The Company’s products and services are offered in highly competitive global markets characterized by aggressive price competition and resulting downward pressure on gross margins, frequent introduction of new products and services, short product life cycles, evolving industry standards, continual improvement in product price and performance characteristics, rapid adoption of technological advancements by competitors, and price sensitivity on the part of consumers and businesses.

The Company’s ability to compete successfully depends heavily on ensuring the continuing and timely introduction of innovative new products, services and technologies to the marketplace.

The Company believes it is unique in that it designs and develops nearly the entire solution for its products, including the hardware, operating system, numerous software applications and related services.

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The Company currently holds a significant number of patents, trademarks and copyrights and has registered, and applied to register, numerous patents, trademarks and copyrights.

In contrast, many of the Company’s competitors seek to compete primarily through aggressive pricing and very low cost structures, and emulating the Company’s products and infringing on its intellectual property.

In contrast, many of the Company’s competitors seek to compete primarily through aggressive pricing and very low cost structures, and by emulating the Company’s products and infringing on its intellectual property.

Effective intellectual property protection may not be consistently available in every country in which the Company operates.

If the Company is unable to continue to develop and sell innovative new products with attractive margins or if competitors infringe on the Company’s intellectual property, the Company’s ability to maintain a competitive advantage could be adversely affected.

| 2019 Form 10-K | 5

The Company has a minority market share in the global smartphone, personal computer and tablet markets.

3 unchanged sentences

Certain competitors may have the resources, experience or cost structures to provide products at little or no profit or even at a loss.

Some of the markets in which the Company competes have from time to time experienced little to no growth or contracted overall.

Additionally, the Company faces significant competition as competitors imitate the Company’s product features and applications within their products or collaborate to offer solutions that are more competitive than those they currently offer.

The Company also expects competition to intensify as competitors imitate the Company’s approach to providing components seamlessly within their offerings or work collaboratively to offer integrated solutions.

Some of the markets in which the Company competes have from time to time experienced little to no growth or contracted.

In addition, an increasing number of Internet-enabled devices that include software applications and are smaller, simpler and cheaper than traditional personal computers compete with some of the Company’s existing products.

The Company’s services also face substantial competition, including from companies that have significant resources and experience and have established service offerings with large customer bases.

3 unchanged sentences

There can be no assurance the Company will be able to continue to provide products and services that compete effectively.

| 2020 Form 10-K | 6

To remain competitive and stimulate customer demand, the Company must successfully manage frequent introductions and transitions of products and services.

10 unchanged sentences

The financial condition of these resellers could weaken, these resellers could stop distributing the Company’s products, or uncertainty regarding demand for some or all of the Company’s products could cause resellers to reduce their ordering and marketing of the Company’s products.

| 2019 Form 10-K | 6

The Company is exposed to the risk of write-downs on the value of its inventory and other assets, in addition to purchase commitment cancellation risk.

7 unchanged sentences

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 amounts of components or products, or not fully utilize firm purchase commitments.

| 2020 Form 10-K | 7

Future operating results depend upon the Company’s ability to obtain components in sufficient quantities on commercially reasonable terms.

21 unchanged sentences

In addition, manufacturing or logistics in these locations or transit to final destinations can be disrupted for a variety of reasons including, but not limited to, natural and man-made disasters, information technology system failures, commercial disputes, military actions, economic, business, labor, environmental, public health or political issues, or international trade disputes.

| 2019 Form 10-K | 7

The Company has invested in manufacturing process equipment, much of which is held at certain of its outsourcing partners, and has made prepayments to certain of its suppliers associated with long-term supply agreements.

While these arrangements help ensure the supply of components and finished goods, if these outsourcing partners or suppliers experience severe financial problems or other disruptions in their business, such continued supply can be reduced or terminated, and the recoverability of manufacturing process equipment or prepayments can be negatively impacted.

| 2020 Form 10-K | 8

The Company’s products and services may be affected from time to time by design and manufacturing defects that could materially adversely affect the Company’s business and result in harm to the Company’s reputation.

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This analysis may be based on factors such as the market position of the Company and its products, the anticipated revenue that may be generated, expected future growth of product sales, and the costs of developing such applications and services.

| 2019 Form 10-K | 8

The Company’s minority market share in the global smartphone, personal computer and tablet markets could make developers 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 competitors’ products with larger market share.

If developers focus their efforts on these competing platforms, the availability and quality of applications for the Company’s devices may suffer.

| 2020 Form 10-K | 9

The Company relies on the continued availability and development of compelling and innovative software applications for its products.

The Company’s products and operating systems are subject to rapid technological change, and if third-party developers are unable to or choose not to keep up with this pace of change, third-party applications might not take advantage of these changes to deliver improved customer experiences or might not operate correctly and may result in dissatisfied customers.

The Company sells and delivers third-party applications for its products through the App Store, Mac App Store, TV App Store and Watch App Store.

The Company retains a commission from sales through these platforms.

If developers reduce their use of these platforms to distribute their applications and offer in-app purchases to customers, then the volume of sales, and the commission that the Company earns on those sales, would decrease.

The Company sells and delivers third-party applications for its products through the App Store.

For the vast majority of applications, developers keep all of the revenue they generate on the App Store.

The Company only retains a commission from sales of applications through its platforms and in situations where a developer offers purchases for digital features, services, or goods within an application.

If developers reduce their use of the Company’s platforms, including in-app purchases, then the volume of sales, and the commission that the Company earns on those sales, would decrease.

If the rate of the commission that the Company retains on such sales is reduced, or if it is otherwise narrowed in scope or eliminated, the Company’s financial condition and operating results could be materially adversely affected.

The Company relies on access to third-party intellectual property, which may not be available to the Company on commercially reasonable terms or at all.

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Failure to obtain the right to use third-party intellectual property, or to use such intellectual property on commercially reasonable terms, could preclude the Company from selling certain products or services, or otherwise have a material adverse impact on the Company’s financial condition and operating results.

The Company could be impacted by unfavorable results of legal proceedings, such as being found to have infringed on intellectual property rights .

The Company is subject to various legal proceedings and claims that have arisen in the ordinary course of business and have not yet been fully resolved, and new claims may arise in the future.

The Company’s financial condition and operating results could be adversely impacted by unfavorable results of legal proceedings or government investigations.

The Company is subject to various claims, legal proceedings and government investigations that have arisen in the ordinary course of business and have not yet been fully resolved, and new matters may arise in the future.

In addition, agreements entered into by the Company sometimes include indemnification provisions which can subject the Company to costs and damages in the event of a claim against an indemnified third party.

Claims against the Company based on allegations of patent infringement or other violations of intellectual property rights have generally increased over time and may continue to increase.

In particular, the Company has historically faced a significant number of patent claims relating to its cellular-enabled products, and new claims may arise in the future.

The number of claims, legal proceedings and government investigations involving the Company, and the alleged magnitude of such claims, proceedings and government investigations, has generally increased over time and may continue to increase.

The Company has faced and continues to face a significant number of patent claims relating to its cellular-enabled products, and new claims may arise in the future.

For example, technology and other patent-holding companies frequently assert their patents and seek royalties and often enter into litigation based on allegations of patent infringement or other violations of intellectual property rights.

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The plaintiffs in these actions frequently seek injunctions and substantial damages.

Regardless of the merit of particular claims, litigation can be expensive, time-consuming, disruptive to the Company’s operations and distracting to management.

In recognition of these considerations, the Company may enter into licensing agreements or other arrangements to settle litigation and resolve such disputes.

Regardless of the merit of particular claims, defending against litigation or responding to government investigations can be expensive, time-consuming, disruptive to the Company’s operations and distracting to management.

In recognition of these considerations, the Company may enter into agreements or other arrangements to settle litigation and resolve such challenges.

No assurance can be given that such agreements can be obtained on acceptable terms or that litigation will not occur.

1 unchanged sentence

Except as described in Part II, Item 8 of this Form 10-K in the Notes to Consolidated Financial Statements in Note 10, “Commitments and Contingencies” under the heading “Contingencies,” in the opinion of management, there was not at least a reasonable possibility the Company may have incurred a material loss, or a material loss greater than a recorded accrual, concerning loss contingencies for asserted legal and other claims, including matters related to infringement of intellectual property rights.

The outcome of litigation is inherently uncertain.

The outcome of litigation or government investigations is inherently uncertain.

If one or more legal matters were resolved against the Company or an indemnified third party in a reporting period for amounts above management’s expectations, the Company’s financial condition and operating results for that reporting period could be materially adversely affected.

Further, such an outcome could result in significant compensatory, punitive or trebled monetary damages, disgorgement of revenue or profits, remedial corporate measures or injunctive relief against the Company, and could require the Company to change its business practices or limit the Company’s ability to offer certain products and services, all of which could materially adversely affect its financial condition and operating results.

While the Company maintains insurance coverage for certain types of claims, such insurance coverage may be insufficient to cover all losses or all types of claims that may arise.

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Compliance with these laws and regulations may be onerous and expensive, increasing the cost of conducting the Company’s global operations.

Changes to laws and regulations can adversely affect the Company’s business by increasing the Company’s costs, limiting the Company’s ability to offer a product or service to customers, requiring changes to the Company’s business practices or otherwise making the Company’s products and services less attractive to customers.

Changes to laws and regulations can adversely affect the Company’s business by increasing the Company’s costs, limiting the Company’s ability to offer a product or service to customers, requiring changes to the Company’s supply chain and business practices or otherwise making the Company’s products and services less attractive to customers.

The Company has implemented policies and procedures designed to ensure compliance with applicable laws and regulations, but there can be no assurance that the Company’s employees, contractors or agents will not violate such laws and regulations or the Company’s policies and procedures.

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The technology industry, including, in some instances, the Company, is subject to intense media, political and regulatory scrutiny, which exposes the Company to government investigations, legal actions and penalties.

For example, the Company is subject to antitrust investigations in various jurisdictions around the world, which can result in legal proceedings and claims against the Company that could, individually or in the aggregate, have a material impact on the Company’s financial condition and operating results.

There can be no assurance that the Company’s business will not be materially adversely affected, individually or in the aggregate, by the outcomes of such investigations or changes to laws and regulations in the future.

For example, the Company is subject to antitrust investigations in various jurisdictions around the world, which can result in legal proceedings and claims against the Company that could, individually or in the aggregate, have a materially adverse impact on the Company’s financial condition and operating results.

In addition, if enacted, legislative and other proposals to further regulate technology companies could result in changes to the Company’s business, including requiring the Company to modify its product and service offerings, limiting the Company’s ability to invest in strategic acquisitions, or affecting the Company’s business relationships with other technology companies, and could have a materially adverse impact on the Company’s financial condition and operating results.

Further, the Company’s business partners are or may become subject to litigation that, if resolved against them, could affect the Company’s relationships with these business partners and have a materially adverse impact on the Company’s financial condition and operating results.

There can be no assurance that the Company’s business will not be materially adversely affected, individually or in the aggregate, by the outcomes of such investigations, litigation or changes to laws and regulations in the future.

The Company’s retail stores have required and will continue to require a substantial investment and commitment of resources and are subject to numerous risks and uncertainties.

3 unchanged sentences

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 cost structure associated with the Company’s retail stores, a decline in sales or the closure or poor performance of an individual store or multiple stores could result in significant lease termination costs, write-offs of equipment and leasehold improvements and severance costs.

Due to the high cost structure associated with the Company’s retail stores, a decline in sales or the closure or poor performance of an individual store or multiple stores, including as a result of protective public safety measures in response to the COVID-19 pandemic, could result in significant lease termination costs, write-offs of equipment and leasehold improvements and severance costs.

The Company’s retail operations are subject to many factors that pose risks and uncertainties and could adversely impact the Company’s financial condition and operating results, including macro-economic factors that could have an adverse effect on general retail activity.

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and obtain and renew leases in quality retail locations at a reasonable cost.

Investment in new business strategies and acquisitions could disrupt the Company’s ongoing business and present risks not originally contemplated.

Investment in new business strategies and acquisitions could disrupt the Company’s ongoing business, present risks not originally contemplated and adversely affect the Company’s reputation, financial condition and operating results.

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, greater-than-expected liabilities and expenses, economic, political, legal and regulatory challenges associated with operating in new businesses, regions or countries, inadequate return on capital, potential impairment of tangible and intangible assets, and significant write-offs.

These new ventures are inherently risky and may not be successful.

The failure of any significant investment could adversely affect the Company’s reputation, financial condition and operating results.

| 2020 Form 10-K | 11

The Company’s business and reputation may be impacted by information technology system failures or network disruptions.

3 unchanged sentences

These events could materially adversely affect the Company’s reputation, financial condition and operating results.

| 2019 Form 10-K | 10

There may be losses or unauthorized access to or releases of confidential information, including personally identifiable information, that could subject the Company to significant reputational, financial, legal and operational consequences.

17 unchanged sentences

While the Company maintains insurance coverage that is intended to address certain aspects of data security risks, such insurance coverage may be insufficient to cover all losses or all types of claims that may arise.

| 2020 Form 10-K | 12

The Company’s business is subject to a variety of U.S.

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In addition to reputational impacts, penalties could include ongoing audit requirements and significant legal liability.

| 2019 Form 10-K | 11

The Company’s success depends largely on the continued service and availability of key personnel.

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Political events, international trade disputes, war, terrorism, natural disasters, public health issues, industrial accidents and other business interruptions could harm or disrupt international commerce and the global economy, and could have a material adverse effect on the Company and its customers, suppliers, contract manufacturers, logistics providers, distributors, cellular network carriers and other channel partners.

International trade disputes can result in tariffs and other measures that can adversely affect the Company’s business.

For example, trade tensions have led to a series of tariffs imposed by the U.S.

on imports from China.

Tariffs increase the cost of the Company’s products and the components and raw materials that go into making them.

The Company has a large, global business, and the Company believes that it generally benefits from growth in international trade.

International trade disputes can result in tariffs, sanctions, and other measures that restrict international trade and can adversely affect the Company’s business.

For example, tensions between the U.S.

and China have led to a series of tariffs being imposed by the U.S.

on imports from China mainland, as well as other business restrictions.

Tariffs may increase the cost of the Company’s products and the components and raw materials that go into making them.

These increased costs adversely impact the gross margin that the Company earns on its products.

Tariffs can also make the Company’s products more expensive for customers, which could make the Company’s products less competitive and reduce consumer demand.

Countries may also adopt other measures that could limit the Company’s ability to offer its products and services.

Political uncertainty surrounding international trade disputes and measures could also have a negative effect on consumer confidence and spending, which could adversely affect the Company’s business.

Countries may also adopt other measures, such as controls on imports or exports of goods, technology or data, that could adversely impact the Company’s operations and supply chain and limit the Company’s ability to offer its products and services as designed.

These measures can require the Company to take various actions, including change suppliers, restructure business relationships, and stop offering third-party applications on its platforms.

Changing the Company’s operations in accordance with new or changed trade restrictions may be expensive, time-consuming, disruptive to the Company’s operations and distracting to management.

Trade restrictions may be announced with little or no advance notice and the Company may not be able to effectively mitigate all adverse impacts from such measures.

Political uncertainty surrounding international trade disputes could also have a negative effect on consumer confidence and spending, which could adversely affect the Company’s business.

Many of the Company’s operations and facilities, as well as critical business operations of the Company’s suppliers and contract manufacturers, are in locations that are prone to earthquakes and other natural disasters.

In addition, such operations and facilities are subject to the risk of interruption by fire, power shortages, nuclear power plant accidents and other industrial accidents, terrorist attacks and other hostile acts, labor disputes, public health issues and other events beyond the Company’s control.

Global climate change could result in certain types of natural disasters occurring more frequently or with more intense effects.

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Because the Company relies on single or limited sources for the supply and manufacture of many critical components, a business interruption affecting such sources would exacerbate any negative consequences to the Company.

| 2020 Form 10-K | 13

The Company’s operations are also subject to the risks of industrial accidents at its suppliers and contract manufacturers.

While the Company’s suppliers are required to maintain safe working environments and operations, an industrial accident could occur and could result in disruption to the Company’s business and harm to the Company’s reputation.

Should major public health issues, including pandemics, arise, the Company could be adversely affected by more stringent employee travel restrictions, additional limitations in freight services, governmental actions limiting the movement of products between regions, delays in production ramps of new products, and disruptions in the operations of the Company’s suppliers and contract manufacturers.

Major public health issues, including pandemics such as the COVID-19 pandemic, have adversely affected, and could in the future adversely affect, the Company due to their impact on the global economy and demand for consumer products;

the imposition of protective public safety measures, such as stringent employee travel restrictions and limitations on freight services and the movement of products between regions;

and disruptions in the Company’s supply chain and sales and distribution channels, resulting in interruptions of the supply of current products and delays in production ramps of new products.

While the Company maintains insurance coverage for certain types of losses, such insurance coverage may be insufficient to cover all losses that may arise.

1 unchanged sentence

The Company’s profit margins vary across its products, services, geographic segments and distribution channels.

For example, gross margins on the Company’s hardware products vary across product lines and can change over time.

For example, the gross margins on the Company’s products and services vary significantly and can change over time.

The Company’s gross margins are subject to volatility and downward pressure due to a variety of factors, including:

3 unchanged sentences

compressed product life cycles;

potential increases in the cost of components, outside manufacturing services, and acquiring and delivering content for the Company’s services;

potential increases in the cost of components, outside manufacturing services, and developing, acquiring and delivering content for the Company’s services;

the Company’s ability to manage product quality and warranty costs effectively;

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These and other factors could have a materially adverse impact on the Company’s financial condition and operating results.

| 2019 Form 10-K | 12

The Company has historically experienced higher net sales in its first quarter compared to other quarters in its fiscal year due in part to seasonal holiday demand.

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dollar value of the gross margins the Company earns on foreign currency–denominated sales.

| 2020 Form 10-K | 14

Conversely, a strengthening of foreign currencies relative to the U.S.

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Therefore, although the Company has not realized any significant losses on its cash, cash equivalents, and marketable and non-marketable securities, future fluctuations in their value could result in significant losses and could have a material adverse impact on the Company’s financial condition and operating results.

| 2019 Form 10-K | 13

The Company is exposed to credit risk on its trade accounts receivable, vendor non-trade receivables and prepayments related to long-term supply agreements, and this risk is heightened during periods when economic conditions worsen.

1 unchanged sentence

The Company also sells its products directly to small and mid-sized businesses and education, enterprise and government customers.

A substantial majority of the Company’s outstanding trade receivables are not covered by collateral, third-party bank support or financing arrangements, or credit insurance.

A substantial majority of the Company’s outstanding trade receivables are not covered by collateral, third-party bank support or financing arrangements, or credit insurance, and a significant portion of the Company’s trade receivables can be concentrated within cellular network carriers or other resellers.

The Company’s exposure to credit and collectibility risk on its trade receivables is higher in certain international markets and its ability to mitigate such risks may be limited.

1 unchanged sentence

In addition, the Company has made prepayments associated with long-term supply agreements to secure supply of inventory components.

As of September 28, 2019 , a significant portion of the Company’s trade receivables was concentrated within cellular network carriers, and its vendor non-trade receivables and prepayments related to long-term supply agreements were concentrated among a few individual vendors located primarily in Asia.

As of September 26, 2020, the Company’s vendor non-trade receivables and prepayments related to long-term supply agreements were concentrated among a few individual vendors located primarily in Asia.

While the Company has procedures to monitor and limit exposure to credit risk on its trade and vendor non-trade receivables, as well as long-term prepayments, there can be no assurance such procedures will effectively limit its credit risk and avoid losses.

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Due to economic and political conditions, tax rates in various jurisdictions may be subject to significant change.

The Company’s effective tax rates could be affected by changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, or changes in tax laws or their interpretation, including in the U.S.

The Company’s effective tax rates could be affected by changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, the introduction of new taxes, or changes in tax laws or their interpretation, including in the U.S.

The Company is also subject to the examination of its tax returns and other tax matters by the U.S.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors