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0000320193
20080201
10-Q
469
Such purchase commitments typically cover the Company’s forecasted component and manufacturing requirements for periods ranging from 30 to 150 days.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
470
In addition, the Company has an off-balance sheet warranty obligation for products accounted for under subscription accounting pursuant to SOP No.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
471
97-2 whereby the Company recognizes warranty expense as incurred.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
472
As of December 29, 2007, the Company had outstanding off-balance sheet third-party manufacturing commitments, component purchase commitments, and estimated warranty obligations of $3.2 billion.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
473
During 2006, the Company entered into long-term supply agreements with Hynix Semiconductor, Inc., Intel Corporation, Micron Technology, Inc., Samsung Electronics Co., Ltd., and Toshiba Corporation to secure supply of NAND flash memory through calendar year 2010.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
474
As part of these agreements, the Company prepaid $1.25 billion for flash memory components during 2006, which will be applied to certain inventory purchases made over the life of each respective agreement.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
475
The Company utilized $250 million of the prepayment as of December 29, 2007.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
476
Asset Retirement Obligations The Company’s asset retirement obligations are associated with commitments to return property subject to operating leases to original condition upon lease termination.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
477
As of December 29, 2007, the Company estimated that gross expected future cash flows of approximately $25 million would be required to fulfill these obligations.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
478
Other Obligations Other outstanding obligations were approximately $76 million as of December 29, 2007, primarily related to Internet and telecommunications services.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
479
During the first quarter of 2008, the Company adopted the provisions of FIN 48.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
480
The Company had historically classified interest and penalties and unrecognized tax benefits as current liabilities, but beginning with the adoption of FIN 48 the Company has reclassified gross interest and penalties and unrecognized tax benefits that are not expected to result in payment or receipt of cash within one ...
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
481
As of December 29, 2007, the Company recorded gross unrecognized tax benefits of $447 million and gross interest and penalties of $213 million, both of which are classified as non-current liabilities in the Condensed Consolidated Balance Sheet.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
482
At this time, the Company is unable to make a reasonably reliable estimate of the timing of payments in individual years due to uncertainties in the timing of tax audit outcomes.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
483
Indemnifications The Company generally does not indemnify end-users of its operating system and application software against legal claims that the software infringes third-party intellectual property rights.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
484
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.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
485
However, the Company has not been required to make any significant payments resulting from such an infringement claim asserted against itself or an indemnified third-party and, in the opinion of management, does not have a liability related to unresolved infringement claims subject to indemnification that would have a ...
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
486
Item 3.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
487
Quantitative and Qualitative Disclosures About Market Risk The Company’s market risk profile has not changed significantly during the first three months of 2008.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
488
Interest Rate and Foreign Currency Risk Management The Company regularly reviews its foreign exchange forward and option positions, both on a stand-alone basis and in conjunction with its underlying foreign currency and interest rate related exposures.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
489
However, given the effective horizons of the Company’s risk management activities and the anticipatory nature of the exposures, there can be no assurance the hedges will offset more than a portion of the financial impact resulting from movements in either foreign exchange or interest rates.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
490
In addition, the timing of the accounting for recognition of gains and losses related to mark-to-market instruments for any given period may not coincide with the timing of gains and losses related to the underlying economic exposures and, therefore, may adversely affect the Company’s financial condition and operating ...
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
491
Interest Rate Risk While the Company is exposed to interest rate fluctuations in many of the world’s leading industrialized countries, the Company’s interest income and expense is most sensitive to fluctuations in the general level of U.S. interest rates.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
492
As such, changes in U.S. interest rates affect the interest earned on the Company’s cash, cash equivalents, and short-term investments, the value of those investments, as well as costs associated with foreign currency hedges.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
493
The Company’s short-term investment policy and strategy attempts to preserve capital, meet liquidity requirements, and optimize return in light of the current credit and interest rate environment.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
494
A portion of the Company’s cash is managed by external managers within the guidelines of the Company’s investment policy and to an objective market benchmark.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
495
The Company’s internal portfolio is benchmarked against external manager performance, allowing for differences in liquidity needs.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
496
The Company’s exposure to market risk for changes in interest rates relates primarily to the Company’s investment portfolio.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
497
The Company typically invests in highly-rated securities and its policy generally limits the amount of credit exposure to any one issuer.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
498
The Company’s investment policy requires investments to be rated single-A or better with the objective of minimizing the potential risk of principal loss.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
499
All highly liquid investments with initial maturities of three months or less at the date of purchase are classified as cash equivalents; highly liquid investments with initial maturities greater than three months at the date of purchase are classified as short-term investments.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
500
As of December 29, 2007 and September 29, 2007, approximately $1.9 billion of the Company’s short-term investments had underlying maturities ranging from 1 to 5 years.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
501
The remainder all had underlying maturities of less than 12 months.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
502
The Company may sell its investments prior to their stated maturities for strategic purposes, in anticipation of credit deterioration, or for duration management.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
503
The Company recognized no material net gains or losses during the first quarter of 2008 or 2007 related to such sales.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
504
Foreign Currency Risk In general, the Company is a net receiver of currencies other than the U.S. dollar.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
505
Accordingly, changes in exchange rates, and in particular a strengthening of the U.S. dollar, may negatively affect the Company’s net sales and gross margins as expressed in U.S. dollars.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
506
There is also a risk that the Company will have to adjust local currency product pricing due to competitive pressures when there has been significant volatility in foreign currency exchange rates.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
507
The Company may enter into foreign currency forward and option contracts with financial institutions to protect against foreign exchange risks associated with existing assets and liabilities, certain firmly committed transactions, forecasted future cash flows, and net investments in foreign subsidiaries.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
508
Generally, the Company’s practice is to hedge a majority of its material foreign exchange exposures.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
509
However, the Company may choose to not hedge certain foreign exchange exposures due to immateriality, prohibitive economic cost of hedging particular exposures, and limited availability of appropriate hedging instruments.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
510
Item 4.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
511
Controls and Procedures Evaluation of Disclosure Controls and Procedures Based on an evaluation under the supervision and with the participation of the Company’s management, the Company’s principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures as ...
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
512
Changes in Internal Control Over Financial Reporting There were no changes in the Company’s internal control over financial reporting during the first quarter of 2008, which were identified in connection with management’s evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act, that have ...
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
513
PART II.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
514
OTHER INFORMATION Item 1.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
515
Legal Proceedings As of December 29, 2007, the end of the quarterly period covered by this report, the Company is subject to the various legal proceedings and claims discussed below, as well as certain other legal proceedings and claims that have not been fully resolved and that have arisen in the ordinary course of bu...
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
516
In the opinion of management, the Company does not have a potential liability related to any current legal proceedings and claims that would individually or in the aggregate have a material adverse effect on its financial condition or operating results.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
517
However, the results of legal proceedings cannot be predicted with certainty.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
518
Should the Company fail to prevail in any of these legal matters or should several of these legal matters be resolved against the Company in the same reporting period, the operating results of a particular reporting period could be materially adversely affected.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
519
The Company settled certain matters during the first quarter of 2008 that did not individually or in the aggregate have a material impact on the Company’s results of operations.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
520
Apple Computer, Inc. v. Burst.com, Inc.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
521
The Company filed an action for declaratory judgment against defendant Burst.com, Inc. on January 4, 2006 in the United States District Court for the Northern District of California.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
522
The Company sought declaratory judgment that U.S. Patent Nos.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
523
4,963,995, 5,164,839, 5,057,932 and 5,995,705 (“Burst patents”) are invalid and not infringed by the Company.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
524
Burst filed an answer and counterclaim on April 17, 2006 adding infringement allegations relating to U.S. Patent No.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
525
5,995,705.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
526
The Company counterclaimed for declaratory judgment that each of these patents is invalid, not infringed and unenforceable.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
527
Burst alleged that the following Apple products and services infringe the four patents at issue: iTunes Store, iPod devices, iTunes software, iLife software (GarageBand, iMovie, iWeb) separately and in conjunction with the .Mac service and Apple computers sold with or running iTunes or iLife.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
528
The Burst patents allegedly relate to methods and devices used for faster-than-real-time transmission of compressed audio and/or video files.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
529
The Court issued its claim construction ruling on May 8, 2007.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
530
The Company filed motions for summary judgment of invalidity on January 4, 2007 and July 13, 2007.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
531
The Court held a hearing on those pending motions on September 18, 2007, and issued its ruling on November 8, 2007.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
532
The Company filed motions for summary judgment and partial summary judgment relating to enablement, indefiniteness and laches on October 29, 2007.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
533
Trial was set for February 26, 2008.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
534
The parties have reached a settlement and the matter is concluded.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
535
Settlement of this matter did not have a material effect on the Company’s financial condition or operating results.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
536
Bader v. Anderson, et al.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
537
Plaintiff filed this purported shareholder derivative action against the Company and each of its then current executive officers and members of its Board of Directors on May 19, 2005 in Santa Clara County Superior Court asserting claims for breach of fiduciary duty, material misstatements and omissions and violations o...
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
538
The complaint alleged that the Company’s March 14, 2005, proxy statement was false and misleading for failure to disclose certain information relating to the Apple Computer, Inc.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
539
Performance Bonus Plan, which was approved by shareholders at the annual meeting held on April 21, 2005.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
540
Plaintiff, who ostensibly brought suit on the Company’s behalf, made no demand on the Board of Directors and alleged that such demand was excused.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
541
The complaint sought injunctive and other relief for purported injury to the Company.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
542
On July 27, 2005, plaintiff filed an amended complaint alleging that, in addition to the purported derivative claims, adoption of the bonus plan and distribution of the proxy statement describing that plan also inflicted injury on her directly as an individual shareholder.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
543
On January 10, 2006, the Court sustained defendants’ demurrer to the amended complaint, with leave to amend.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
544
Plaintiff filed a second amended complaint on February 7, 2006, and the Company filed a demurrer.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
545
After a hearing on June 13, 2006, the Court sustained the demurrer without leave to amend as to the non-director officers and with leave to amend as to the directors.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
546
On July 24, 2006, plaintiff filed a third amended complaint, which purported to bring claims derivatively as well as directly on behalf of a class of common stockholders who have been or will be harmed by virtue of the allegedly misleading proxy statement.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
547
In addition to reasserting prior causes of action, the third amended complaint included a claim that the Company violated the terms of the plan, and a claim for waste related to restricted stock unit grants to certain officers in 2003 and 2004 and an option grant to the Company’s CEO in January 2000.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
548
The Company filed a demurrer to the third amended complaint.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
549
On January 30, 2007, the Court sustained the Company’s demurrer with leave to amend.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
550
On May 8, 2007, plaintiff filed a fourth amended complaint.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
551
The Company filed a demurrer to the fourth amended complaint, which the Court sustained, without leave to amend, on October 12, 2007.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
552
On October 25, 2007, the Court entered a final judgment in favor of defendant and ordered the case dismissed with prejudice.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
553
On November 26, 2007, plaintiff filed a notice of appeal.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
554
Birdsong v. Apple Computer, Inc.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
555
This action alleges that the Company’s iPod music players, and the ear bud headphones sold with them, are inherently defective in design and are sold without adequate warnings concerning the risk of noise-induced hearing loss by iPod users.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
556
The Birdsong action was initially filed on January 30, 2006 in the United States District Court for the Western District of Louisiana asserting Louisiana causes of action on behalf of a purported Louisiana class of iPod purchasers.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
557
A similar action (Patterson v. Apple Computer, Inc.) was filed on January 31, 2006 in the United States District Court for the Northern District of California asserting California causes of action on behalf of a purported class of all iPod purchasers within the four-year period before January 31, 2006.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
558
The Birdsong action was transferred to the Northern District of California, and the Patterson action was dismissed.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
559
An amended complaint was subsequently filed in Birdsong, dropping the Louisiana law-based claims and adding California law-based claims equivalent to those in Patterson.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
560
After the Company filed a motion to dismiss on November 3, 2006, plaintiffs agreed not to oppose the motion and filed a second amended complaint on January 16, 2007.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
561
That complaint alleges California law-based claims for breaches of implied and express warranties, violations of California Business & Professions Code §17200 (unfair competition), California Business & Professions Code §17500 (false advertising), the Consumer Legal Remedies Act and negligent misrepresentation on behal...
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
562
On March 1, 2007, the Company filed a motion to dismiss the California law-based claims, which was heard on June 4, 2007.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
563
On December 14, 2007, the Court issued an order granting the Company’s motion, with leave to amend the complaint.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
564
Plaintiffs filed a third amended complaint on January 11, 2008.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
565
The Company’s response to the third amended complaint is not yet due.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
566
A similar complaint, Royer-Brennan v. Apple Computer, Inc. and Apple Canada, Inc., was filed in Montreal, Quebec, Canada, on February 1, 2006, seeking authorization to institute a class action on behalf of iPod purchasers in Quebec.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
567
At the request of plaintiffs’ counsel, the Court has postponed class certification proceedings in this action indefinitely.
0001193125-08-017426/full-submission.txt
0000320193
20080201
10-Q
568
Branning et al.
0001193125-08-017426/full-submission.txt