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0000320193 | 20061229 | 10-Q | 750 | 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. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 751 | As of July 1, 2006, the Company estimated that gross expected future cash flows of approximately $19 million would be required to fulfill these obligations. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 752 | Other Obligations
The Company had other contractual obligations of approximately $37 million as of July 1, 2006 primarily related to telecommunications services contracts that were renewed in the first quarter of 2006 for a three-year period. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 753 | 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. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 754 | 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. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 755 | However, the Company has not been required to make any significant payments resulting from such an infringement claim asserted against it 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 mate... | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 756 | Item 3. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 757 | Quantitative and Qualitative Disclosures About Market Risk
The Company’s market risk profile has not changed significantly during the first nine months of 2006. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 758 | 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. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 759 | 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. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 760 | 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 operating results and financial po... | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 761 | 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. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 762 | In this regard, changes in U.S. interest rates affect the interest earned on the Company’s cash, cash equivalents, and short-term investments as well as costs associated with foreign currency hedges. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 763 | The Company’s short-term investment policy and strategy is to ensure the preservation of capital, meet liquidity requirements, and optimize return in light of the current credit and interest rate environment. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 764 | 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. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 765 | The Company’s internal portfolio is benchmarked against external manager performance, allowing for differences in liquidity needs. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 766 | The Company’s exposure to market risk for changes in interest rates relates primarily to the Company’s investment portfolio. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 767 | The Company places its short-term investments in highly liquid securities issued by high credit quality issuers and, by policy, limits the amount of credit exposure to any one issuer. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 768 | The Company’s general policy is to limit the risk of principal loss and ensure the safety of invested funds by limiting market and credit risk. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 769 | All highly liquid investments with maturities of three months or less are classified as cash equivalents; highly liquid investments with maturities greater than three months are classified as short-term investments. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 770 | As of July 1, 2006, approximately $157 million of the Company’s short-term investments had underlying maturities ranging from 1 to 5 years. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 771 | The remainder all had underlying maturities between 3 and 12 months. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 772 | The Company may sell its investments prior to their stated maturities for strategic purposes, in anticipation of credit deterioration, or for duration management. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 773 | The Company recognized no material net gains or losses during the first nine months of 2006 or 2005 related to such sales. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 774 | Foreign Currency Risk
In general, the Company is a net receiver of currencies other than the U.S. dollar. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 775 | 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. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 776 | 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. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 777 | 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. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 778 | Generally, the Company’s practice is to hedge a majority of its existing material foreign exchange transaction exposures in the future. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 779 | However, the Company may not hedge certain foreign exchange transaction exposures due to immateriality, prohibitive economic cost of hedging particular exposures, and limited availability of appropriate hedging instruments. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 780 | Item 4. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 781 | Controls and Procedures
Special Committee Review into Stock Option Grant Practices and Restatement
As discussed in the Explanatory Note preceding Part I and in Note 2 in Notes to Condensed Consolidated Financial Statements of this Form 10-Q, the Company on June 29, 2006, announced that an internal review had discovered... | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 782 | The Company also announced that a Special Committee of outside directors (“Special Committee”) had been formed and had hired independent counsel to conduct a full investigation of the Company’s past stock option granting practices. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 783 | As a result of the internal review and the independent investigation, management has concluded, and the Audit and Finance Committee of the Board of Directors agrees, that incorrect measurement dates were used for financial accounting purposes for certain stock option grants made in prior periods. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 784 | Therefore, the Company has recorded additional non-cash stock-based compensation expense and related tax effects with regard to past stock option grants, and the Company is restating previously filed financial statements in this Form 10-Q. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 785 | The internal review and the Special Committee’s independent investigation identified a number of occasions between October 1996 and January 2003 (the “relevant period”) when the Company used incorrect measurement dates for stock option grants. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 786 | The independent investigation also found that during the relevant period:
·
Procedures for granting, accounting, and reporting of stock option grants did not include sufficient safeguards to prevent manipulation
·
The grant dates for a number of grants were intentionally selected in order to obtain favorable exercise p... | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 787 | These improvements included:
· Documenting and assessing the design and operation of internal controls
· Segregating responsibilities, adding reviews and reconciliations, and redefining roles and responsibilities
· Upgrading systems and system controls that support the processes
· Obtaining training in the stock admini... | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 788 | 123R the practice of using the receipt of the final Board or Compensation Committee approval as the grant and measurement date for stock option grants
· Identifying key controls, developing test plans, and testing controls in the stock granting and administration function
· Certifying stock administration and other con... | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 789 | In coming to the conclusion that the Company’s disclosure controls and procedures and the Company’s internal control over financial reporting were effective as of September 30, 2006, management considered, among other things, the impact of the restatement to the financial statements and the effectiveness of the interna... | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 790 | Management has concluded, therefore, that control deficiencies resulting in the restatement of previously issued financial statements did not constitute a material weakness in disclosure controls and procedures, or internal controls and procedures over financial reporting, as of September 30, 2006. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 791 | In addition to the significant improvements implemented between 2003 and 2005 discussed above, the Company will adopt other measures identified by the Special Committee and management to enhance the oversight of the stock option granting and administration function and the review and preparation of financial statements... | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 792 | Changes in Internal Control Over Financial Reporting
There were no significant changes in the Company’s internal control over financial reporting identified in management’s evaluation during the third quarter of 2006 that have materially affected, or are reasonably likely to materially affect, the Company’s internal co... | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 793 | PART II. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 794 | OTHER INFORMATION
Item 1. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 795 | Legal Proceedings
The Company is subject to various legal proceedings and claims that are discussed below. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 796 | The Company is also subject to certain other legal proceedings and claims that have arisen in the ordinary course of business and which have not been fully adjudicated. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 797 | 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, liquidity or results of operations. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 798 | However, the results of legal proceedings cannot be predicted with certainty. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 799 | 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. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 800 | The Company settled certain matters during the third quarter of 2006 that did not individually or in the aggregate have a material impact on the Company’s results of operations. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 801 | Allen v. Apple Computer, Inc.
On January 28, 2005, a plaintiff filed a purported nationwide class action in Los Angeles Superior Court alleging that a defect in the Company’s 17-inch Studio Display monitors results in dimming of half of the screen and constant blinking of the power light. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 802 | Plaintiff filed an amended complaint on October 24, 2005, adding additional named plaintiffs and expanding the alleged class to include purchasers of the 20-inch Apple Cinema Display and the 23-inch Apple Cinema HD Display. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 803 | The amended complaint alleges that the displays have a purported defect that causes dimming of one-half of the screen, and that the Company misrepresented the quality of the displays and/or concealed the purported defect. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 804 | Plaintiffs assert claims under California Business & Professions Code §17200 (unfair competition); California Business & Professions Code §17500 (false advertising) and the Consumer Legal Remedies Act. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 805 | The amended complaint seeks remedies including damages and equitable relief. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 806 | On November 14, 2005, the Company filed an answer to the amended complaint as to the allegations regarding the 17-inch display and a demurrer/motion to strike as to the allegations regarding the 20-inch and 23-inch displays on the ground that plaintiffs failed to allege that they purchased those displays. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 807 | At a status conference on November 1, 2005, the Court ordered Plaintiffs to amend their complaint. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 808 | Plaintiff filed an amended complaint on December 12, 2005, and the Company answered on January 5, 2006 denying all allegations and asserting numerous affirmative defenses. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 809 | The Company has reached a settlement in this matter, which was given preliminary approval by the Court on September 18, 2006. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 810 | The final approval hearing is scheduled for February 15, 2007. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 811 | Settlement of this matter will not have a material effect on the Company’s financial position or results of operations. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 812 | Apple Computer, Inc. v. Burst.com, Inc. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 813 | 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. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 814 | The Company seeks declaratory judgment that U.S. Patent Nos. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 815 | 4,963,995, 5,164,839, 5,057,932 and 5,995,705 (“Burst patents”) are invalid and not infringed by the Company. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 816 | Burst filed an answer and counterclaim on April 17, 2006. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 817 | Burst alleges that the following Apple products and services infringe U.S. Patent Nos. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 818 | 4,963,995, 5,057,932, 5,164,839, and 5,995,705; iTunes Store, iPod devices, QuickTime products (including QuickTime player and QuickTime Streaming Server), iTunes software, other Apple software products (Final Cut Studio, GarageBand, iMovie, iDVD, iWeb), the use of the ..Mac services and Apple computers and servers run... | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 819 | The Burst patents allegedly relate to methods and devices used for “burst” transmission of audio or video files. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 820 | The case is in discovery. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 821 | A claim construction hearing is set for February 8, 2007. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 822 | Trial is set for February 26, 2008. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 823 | Apple Corps Ltd. v. Apple Computer, Inc.; Apple Computer, Inc. v. Apple Corps Ltd. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 824 | Plaintiff Apple Corps filed this action on July 4, 2003 in the High Court of Justice, Chancery Division, in London alleging that the Company has breached a 1991 agreement that resolved earlier trademark litigation between the parties regarding use of certain Apple marks. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 825 | Plaintiff seeks an injunction, unspecified damages, and other relief. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 826 | The Company filed a motion on October 13, 2003, challenging jurisdiction in the U.K. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 827 | The Court denied this motion on April 7, 2004. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 828 | The Company filed an appeal of the Court’s decision but subsequently withdrew the appeal. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 829 | In November 2004, Plaintiff served the Company with an Amended Bill of Particulars and on December 23, 2004, the Company filed a Defence. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 830 | On November 24, 2005, Plaintiff filed a Re-Amended Bill of Particulars and the Company filed its Defence on December 16, 2005. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 831 | Trial took place from March 29, 2006 through April 5, 2006. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 832 | Judgment was given in favor of the Company on May 8, 2006 and Apple Corps was ordered to pay a portion of the Company’s fees, the amount to be agreed or determined in a subsequent proceeding. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 833 | Apple Corps has filed an appeal, which is scheduled to be heard in late February 2007. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 834 | On October 8, 2003, the Company filed a lawsuit against Apple Corps in the United States District Court for the Northern District of California requesting a declaratory judgment that the Company has not breached the 1991
agreement. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 835 | Apple Corps challenged jurisdiction in the California case but the Court denied that challenge on March 25, 2004. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 836 | Apple Corps subsequently prevailed on a motion to stay the California case during the pendency of the U.K. action. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 837 | The Company has dismissed the California lawsuit without prejudice. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 838 | Bader v. Anderson, et al. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 839 | 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 ... | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 840 | Plaintiff alleges 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. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 841 | Performance Bonus Plan, which was approved by shareholders at the annual meeting held on April 21, 2005. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 842 | Plaintiff, who ostensibly brings suit on the Company’s behalf, has made no demand on the Board of Directors and alleges that such demand is excused. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 843 | Plaintiff seeks injunctive and other relief for purported injury to the Company. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 844 | 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. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 845 | On January 10, 2006, the Court sustained defendants’ demurrer to the amended complaint, with leave to amend. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 846 | Plaintiff filed a second amended complaint on February 7, 2006, and the Company filed a demurrer. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 847 | 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. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 848 | On July 24, 2006, plaintiff filed a third amended complaint, which purports to bring claims derivatively as well as directly on behalf of a class of common stock holders who have been or will be harmed by virtue of the allegedly misleading proxy statement. | 0001104659-06-084286/full-submission.txt |
0000320193 | 20061229 | 10-Q | 849 | In addition to reasserting prior causes of action, the third amended complaint includes 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. | 0001104659-06-084286/full-submission.txt |
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