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0000320193
20080723
10-Q
851
The Company filed a motion to dismiss on January 19, 2007, which the Court granted on March 13, 2007.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
852
Plaintiffs filed an amended complaint on March 26, 2007.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
853
The Company filed a motion to dismiss on August 16, 2007, which was heard on October 4, 2007.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
854
The Court has not yet issued a ruling.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
855
Vogel v. Jobs et al.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
856
(2006 Action) Plaintiffs filed this purported class action on August 24, 2006, in the United States District Court for the Northern District of California against the Company and certain of the Company’s current and former officers and directors alleging improper backdating of stock option grants to maximize certain de...
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
857
On January 19, 2007, the Court appointed the New York City Employees’ Retirement System as lead plaintiff.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
858
On March 23, 2007, plaintiffs filed a Consolidated Class Action Complaint.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
859
The Consolidated Complaint purports to be brought on behalf of several classes of holders of the Company’s stock and asserts claims under Section 14(a) and 20(a) of the Securities Exchange Act as well as state law.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
860
The Consolidated Complaint seeks rescission of amendments to various stock option and other incentive compensation plans, an accounting and damages in an unspecified amount.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
861
Defendants filed a motion to dismiss on June 8, 2007, which was heard on September 7, 2007.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
862
On November 14, 2007, the Court issued an order dismissing all securities claims with prejudice, and held that any amended complaint could only be styled as a derivative case.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
863
On December 14, 2007, plaintiff filed a motion for leave to file a first amended consolidated class action complaint.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
864
On January 23, 2008, defendants filed an opposition to plaintiff’s motion.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
865
Plaintiff’s motion was heard on March 21, 2008.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
866
On May 14, 2008, the Court issued an order denying plaintiffs’ motion for leave to amend.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
867
The court entered judgment dismissing the case on June 12, 2008.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
868
On June 17, 2008, plaintiffs filed a notice of appeal.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
869
Vogel v. Apple Inc., et al.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
870
(2008 Action) Plaintiff filed this purported class action on June 27, 2008, in the United States District Court for the Northern District of California against the Company and certain of the Company’s current and former officers and directors.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
871
The allegations, which arise out of the Company’s past stock option practices, are similar to those in the 2006 Vogel v. Jobs et al.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
872
action that was dismissed on June 12, 2008, as described above.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
873
The complaint purports to be brought on behalf of several classes of holders of the Company’s stock and asserts claims under Sections 10(b) and 20(a) of the Securities Exchange Act.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
874
The complaint seeks rescission of amendments to various stock option and other incentive compensation plans, an accounting and damages in an unspecified amount.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
875
Item 1A.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
876
Risk Factors 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 ...
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
877
The matters relating to the Company’s past stock option practices and the restatement of the Company’s consolidated financial statements may result in additional litigation.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
878
The findings from the Company’s investigation into its past stock option granting practices and the resulting restatement of prior financial statements in the Company’s Annual Report on Form 10-K for the fiscal year September 30, 2006 (the “2006 Form 10-K”) have exposed the Company to greater risks associated with liti...
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
879
As described in Part II, Item 1, “Legal Proceedings,” several derivative complaints and a class action complaint have been filed in state and federal courts against the Company and certain current and former directors and executive officers pertaining to allegations relating to past stock option grants.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
880
The Company has provided the results of its investigation to the Securities and Exchange Commission (the “SEC”) and the United States Attorney’s Office for the Northern District of California, and the Company has responded to their requests for documents and additional information.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
881
The Company intends to continue to provide its full cooperation.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
882
On April 24, 2007, the SEC filed an enforcement action against two former officers of the Company.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
883
In announcing the lawsuit, the SEC stated that it would not bring an enforcement action against the Company based in part on the Company’s “swift, extensive, and extraordinary cooperation in the Commission’s investigation.” According to the SEC’s statement, the Company’s “cooperation consisted of, among other things, p...
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
884
These and related matters have required, and will continue to require, the Company to incur substantial expenses for legal, accounting, tax, and other professional services, and may divert management’s attention from the Company’s business.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
885
If the Company is subject to adverse findings, it could be required to pay damages and penalties and might face additional remedies that could harm its financial condition and operating results.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
886
Global markets for personal computers, digital music devices, mobile communication devices, and related peripherals and services are highly competitive and subject to rapid technological change.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
887
If the Company is unable to compete effectively in these markets, its financial condition and operating results could be materially adversely affected.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
888
The Company competes in global markets that are highly competitive and characterized by aggressive price cutting, with its resulting downward pressure on gross margins, frequent introduction of new products, short product life cycles, evolving industry standards, continual improvement in product price/performance chara...
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
889
The Company’s ability to compete successfully depends heavily on its ability to ensure a continuing and timely introduction of new innovative products and technologies to the marketplace.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
890
The Company believes it is unique in that it designs and develops nearly the entire solution for its personal computers, consumer electronics, and mobile communication devices, including the hardware, operating system, several software applications, and related services.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
891
As a result, the Company must make significant investments in research and development and as such, the Company currently holds a significant number of patents and copyrights and has registered and/or has applied to register numerous trademarks and service marks.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
892
By contrast, many of the Company’s competitors seek to compete primarily through aggressive pricing and very low cost structures.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
893
If the Company is unable to continue to develop and sell innovative new products with attractive margins or if other companies infringe on the Company’s intellectual property, the Company’s ability to maintain a competitive advantage could be negatively affected and have a materially adverse affect on its financial con...
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
894
In the market for personal computers and peripherals, the Company faces a significant number of competitors, many of which have broader product lines and larger installed customer bases.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
895
Consolidation in this market has resulted in larger and potentially stronger competitors.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
896
Price competition has been particularly intense as competitors selling Windows-based personal computers have aggressively cut prices and lowered product margins.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
897
The Company also faces increased competition in key market segments, including consumer, education, professional and consumer digital video editing, and design and publishing.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
898
An increasing number of Internet devices that include software applications and are smaller and simpler than traditional personal computers compete for market share with the Company’s existing products.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
899
The Company is currently the only authorized maker of hardware using the Mac OS.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
900
The Mac OS has a minority market share in the personal computer market, which is dominated by makers of computers using competing operating systems, most notably Windows.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
901
The Company’s financial condition and operating results depend substantially on the Company’s ability to continually improve the Mac platform to maintain design and functional advantages.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
902
Use of unauthorized copies of the Mac OS on other companies’ hardware products may result in decreased demand for the Company’s hardware products, and could materially adversely affect the Company’s financial condition and operating results.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
903
The Company is currently focused on opportunities related to digital content distribution, consumer electronic devices, including iPod and Apple TV, and mobile communication devices, including iPhone.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
904
The Company faces substantial competition from companies that have significant technical, marketing, distribution, and other resources, as well as established hardware, software, and digital content supplier relationships.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
905
The Company also competes with illegitimate ways to obtain digital content.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
906
The Company expects competition to intensify as competitors attempt to imitate the Company’s approach to providing these components seamlessly within their individual offerings or work collaboratively to offer integrated solutions.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
907
Some current and potential competitors have substantial resources and experience, and they may be able to provide such products and services at little or no profit or even at a loss.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
908
There can be no assurance the Company will be able to continue to provide products and services that compete effectively.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
909
To remain competitive and stimulate customer demand, the Company must successfully manage frequent product introductions and transitions.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
910
Due to the highly volatile and competitive nature of the personal computer, consumer electronics and mobile communication industries, the Company must continually introduce new products and technologies, enhance existing products, and effectively stimulate customer demand for new and upgraded products.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
911
The success of new product introductions depends on a number of factors, including timely and successful product development, market acceptance, the Company’s ability to manage the risks associated with new products and production ramp issues, the availability of application software for new products, the effective man...
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
912
Accordingly, the Company cannot determine in advance the ultimate effect of new product introductions and transitions on its financial condition and operating results.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
913
The Company faces substantial inventory and other asset risk.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
914
The Company records a write-down for product and component inventories that have become obsolete or exceed anticipated demand or net realizable value and accrues necessary cancellation fee reserves for orders of excess products and components.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
915
The Company also reviews its long-lived assets for impairment whenever events or changed circumstances indicate the carrying amount of an asset may not be recoverable.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
916
If the Company determines that impairment has occurred, it records a write-down equal to the amount by which the carrying value of the assets exceeds its fair market value.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
917
Although the Company believes its inventory, asset, and related provisions are currently adequate, no assurance can be given that, given the rapid and unpredictable pace of product obsolescence in the global personal computer, consumer electronics, and mobile communication industries, the Company will not incur additio...
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
918
Such charges have had, and could have, a material adverse effect on the Company’s financial condition and operating results.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
919
The Company must order components for its products and build inventory in advance of product announcements and shipments.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
920
Consistent with industry practice, components are normally acquired through a combination of purchase orders, supplier contracts, and open orders based on projected demand.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
921
Such purchase commitments typically cover forecasted component and manufacturing requirements for 30 to 150 days.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
922
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.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
923
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.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
924
Future operating results depend upon the Company’s ability to obtain key components, including microprocessors, NAND flash memory, DRAM and LCDs at favorable prices and in sufficient quantities.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
925
Because the Company currently obtains certain key components, including microprocessors, enclosures, certain liquid crystal displays (“LCDs”), certain optical drives, and application-specific integrated circuits (“ASICs”), from single or limited sources, the Company is subject to significant supply and pricing risks.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
926
Many of these and other key components that are available from multiple sources, including NAND flash memory, dynamic random access memory (“DRAM”) and LCDs, are subject at times to industry-wide shortages and significant commodity pricing fluctuations.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
927
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 favorable terms upon expiration or otherw...
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
928
Therefore, the Company remains subject to significant risks of supply shortages and/or price increases that can have a material adverse effect on its financial condition and operating results.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
929
The Company expects to experience decreases in its gross margin percentage in future periods, as compared to levels achieved during 2007 and the first three quarters of 2008, due largely to the anticipated impact of product transitions, flat or reduced pricing on new and innovative products that have higher cost struct...
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
930
For additional information refer to Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” under the subheading “Gross Margin,” which is incorporated herein by reference.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
931
The Company’s new products often use custom components available from only one source until the Company has evaluated whether there is a need for, and subsequently qualifies, additional suppliers.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
932
Where a component or product uses new technologies, initial capacity constraints may exist until the suppliers’ yields have matured.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
933
The Company and other producers in the personal computer, consumer electronics and mobile communication industries also compete for various components with other industries that have experienced increased demand for their products.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
934
The Company uses some custom components that are not common to the rest of the personal computer, consumer electronics or mobile communication industries.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
935
Continued availability of these components at acceptable prices may be affected if producers decide to concentrate on the production of components other than those customized to meet the Company’s requirements.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
936
If the supply of a key component for a new or existing product were delayed or constrained, or if such components were available only at significantly higher prices, the Company’s financial condition and operating results could be materially adversely affected.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
937
The Company depends on component and product manufacturing and logistics services provided by third parties, many of whom are located outside of the U.S.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
938
Most of the Company’s components and products are manufactured in whole or in part by a few third-party manufacturers.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
939
Many of these manufacturers are located outside of the U.S., and are geographically concentrated in single locations.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
940
The Company has also outsourced much of its transportation and logistics management.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
941
While these arrangements may lower operating costs, they also reduce the Company’s direct control over production and distribution.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
942
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.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
943
In addition, the Company relies on third-party manufacturers to adhere to the Company’s supplier code of conduct.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
944
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.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
945
Any unanticipated product defect or warranty liability, whether pursuant to arrangements with contract manufacturers or otherwise, could have a material adverse effect on the Company’s reputation, financial condition and operating results.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
946
Final assembly of the Company’s products is currently performed in the Company’s manufacturing facility in Cork, Ireland, and by external vendors in California, Korea, China and the Czech Republic.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
947
Currently, the supply and manufacture of many critical components is performed by sole-sourced third-party vendors in the U.S., China, Japan, Korea, Malaysia, Philippines, Taiwan, Thailand and Singapore.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
948
Sole-sourced third-party vendors in China perform final assembly of substantially all of the Company’s portable products, including MacBook Pro, MacBook, MacBook Air, iPod and iPhone.
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
949
If manufacturing or logistics in these locations is disrupted for any reason, including 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 could be materially...
0001193125-08-156421/full-submission.txt
0000320193
20080723
10-Q
950
The Company relies on third-party digital content, which may not be available to the Company on commercially reasonable terms or at all.
0001193125-08-156421/full-submission.txt