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0000320193
20061229
10-Q
1,150
v. Apple Computer, Inc. (filed October 26, 2005, Los Angeles County Superior Court); Kahan, et al., v. Apple Computer, Inc. (filed October 31, 2005, United States District Court for the Southern District of New York); Jennings, et al., v. Apple Computer, Inc. (filed November 4, 2005, United States District Court for th...
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,151
The federal actions were coordinated in the United States District Court for the Northern District of California and assigned to the Hon.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,152
Ronald Whyte pursuant to an April 17, 2006, order of the Judicial Panel on Multidistrict Litigation.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,153
Plaintiffs filed a First Consolidated and Amended Master Complaint on September 21, 2006, alleging violations of California and other states’ consumer protection and warranty laws and claiming unjust enrichment.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,154
The Master Complaint alleges two putative plaintiff classes: (1) all U.S. residents (excluding California residents) who purchased an iPod nano that was not manufactured or designed using processes necessary to ensure normal resistance to scratching of the screen; and (2) all iPod nano purchasers other than U.S. reside...
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,155
Pursuant to stipulation, the Wimmer, Valencia, and Rappel federal complaints were dismissed without prejudice and the Mayo and Williamson complaints were administratively closed without prejudice.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,156
The Company answered the Master Complaint on November 20, 2006.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,157
The two California state actions were coordinated on May 4, 2006, and assigned to the Hon.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,158
West in Los Angeles Superior Court.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,159
Plaintiffs filed a Consolidated Amended Class Action Complaint on June 8, 2006, alleging violations of California state consumer protection, unfair competition, false advertising, and warranty laws and claiming unjust enrichment.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,160
The Consolidated Complaint alleges a putative plaintiff class of all California residents who own an iPod nano containing a manufacturing defect that results in the nano being susceptible to excessive scratching.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,161
The Company answered the Consolidated Amended Complaint on October 6, 2006.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,162
Two similar complaints, Carpentier v. Apple Canada, Inc., and Royer-Brennan v. Apple Computer, Inc. and Apple Canada, Inc. were filed in Montreal, Quebec, Canada on October 27, 2005 and November 9, 2005, respectively, seeking authorization to institute class actions on behalf of iPod nano purchasers in Quebec.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,163
The Royer-Brennan file was stayed in May 2006 in favor of the Carpentier file, in which Apple’s preliminary motion for leave to file evidence will be heard on December 18, 2006.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,164
No further dates have been set.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,165
A similar complaint, Mund v. Apple Canada Inc. and Apple Computer, Inc., was filed in Ontario, Canada on January 9, 2006 seeking authorization to institute a class action on behalf of iPod nano purchasers in Canada.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,166
In the two Quebec class actions, a motion to stay the Royer-Brennan case is stayed in favor of the previously filed Carpentier case.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,167
In the Ontario Action, Apple Canada Inc. and Apple Computer, Inc., have served Notices of Intent to defend.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,168
On December 18, 2006, plaintiff’s counsel advised that a substitution of attorneys will occur, most likely in January 2007.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,169
The file is now stayed, and the Company’s motion to examine petitioner and for leave to file evidence at certification will be set after the new counsel appears.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,170
Item 1A.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,171
Risk Factors Because of the following factors, as well as other factors affecting the Company’s operating results and financial condition, 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 ...
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,172
The matters relating to the investigation by the Special Committee of the Board of Directors and the restatement of the Company’s consolidated financial statements may result in additional litigation and governmental enforcement actions.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,173
On June 29, 2006, the Company announced that an internal review had discovered irregularities related to the issuance of certain stock option grants made between 1997 and 2001, including a grant to its Chief Executive Officer (“CEO”), Steve Jobs.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,174
The Company also announced 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
1,175
As described in the Explanatory Note immediately preceding Part I, Item 2, and in Note 2, “Restatement of Condensed Consolidated Financial Statements,” in Notes to Condensed Consolidated Financial Statements in this Form 10-Q, as a result of the internal review and independent investigation, management has concluded, a...
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,176
As a result, the Company has recorded additional non-cash stock-based compensation expense, and related tax effects, with regard to certain past stock option grants, and the Company has restated certain previously filed financial statements included in this Form 10-Q and the 2006 Form 10-K.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,177
The internal review, the independent investigation, and related activities have required the Company to incur substantial expenses for legal, accounting, tax and other professional services, have diverted management’s attention from the Company’s business, and could in the future harm its business, financial condition,...
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,178
While the Company believes it has made appropriate judgments in determining the correct measurement dates for its stock option grants, the SEC may disagree with the manner in which the Company has accounted for and reported, or not reported, the financial impact.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,179
Accordingly, there is a risk the Company may have to further restate its prior financial statements, amend prior filings with the SEC, or take other actions not currently contemplated.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,180
The Company’s past stock option granting practices and the restatement of prior financial statements have exposed the Company to greater risks associated with litigation, regulatory proceedings and government enforcement actions.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,181
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’s directors and certain of its executive officers pertaining to allegations relating to stock option grants.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,182
The Company has provided the results of its internal review and independent investigation to the SEC and the United States Attorney’s Office for the Northern District of California, and in that regard the Company has responded to informal requests for documents and additional information.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,183
The Company intends to continue full cooperation.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,184
No assurance can be given regarding the outcomes from litigation, regulatory proceedings or government enforcement actions relating to the Company’s past stock option practices.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,185
The resolution of these matters will be time consuming, expensive, and will distract management from the conduct of the Company’s business.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,186
Furthermore, if the Company is subject to adverse findings in litigation, regulatory proceedings or government enforcement actions, the Company could be required to pay damages or penalties or have other remedies imposed, which could harm its business, financial condition, results of operations and cash flows.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,187
In August 2006, the Company received a NASDAQ Staff Determination letter stating that, as a result of the delayed filing of the Company’s Form 10-Q for the quarter ended July 1, 2006 (the “Third Quarter Form 10-Q”), the Company was not in compliance with the filing requirements for continued listing as set forth in Mar...
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,188
On October 24, 2006, the NASDAQ Listing Qualifications Panel granted the Company’s request for continued listing, subject to the Company filing the Third Quarter Form 10-Q, and any required restatements, with the SEC by December 29, 2006.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,189
On December 29, 2006, the Company filed the Third Quarter Form 10-Q with the SEC.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,190
With the filing of this Form 10-Q, the Company believes that it has remedied its non-compliance with Marketplace Rule 4310(c)(14), subject to NASDAQ’s affirmative completion of its compliance protocols and its notification of the Company accordingly.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,191
However, if the SEC disagrees with the manner in which the Company has accounted for and reported, or not reported, the financial impact of past stock option grants, there could be further delays in filing subsequent SEC reports that might result in delisting of the Company’s common stock from the NASDAQ Global Select ...
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,192
Unfavorable results of legal proceedings could adversely affect the Company’s results of operations.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,193
The Company is subject to various legal proceedings and claims that are discussed in Part II, Item 1 of this Form 10-Q.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,194
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
1,195
Results of legal proceedings cannot be predicted with certainty.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,196
In addition, litigation may be disruptive to the Company’s normal business operations.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,197
Should the Company fail to prevail in certain legal matters, the Company’s financial condition, liquidity, or results of operations could be adversely affected.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,198
Economic conditions and political events could adversely affect the demand for the Company’s products and the financial health of its suppliers, distributors, and resellers.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,199
The Company’s operating performance depends significantly on economic conditions in the U.S. and abroad.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,200
At times in the past, demand for the Company’s products has been negatively impacted by difficult global economic conditions.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,201
Uncertainty about future economic conditions makes it difficult to forecast future demand for the Company’s products and related operating results.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,202
Should global and/or regional economic conditions deteriorate, demand for the Company’s products could be adversely affected, as could the financial health of its suppliers, distributors, and resellers.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,203
War, terrorism, public health issues, and other circumstances could disrupt supply, delivery, or demand of products, which could negatively affect the Company’s operations and performance.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,204
War, terrorism, public health issues, and other business interruptions, whether in the U.S. or abroad, have caused and could cause damage or disruption to international commerce and global economy, and thus may have a strong negative impact on the global economy, the Company, and the Company’s suppliers or customers.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,205
The Company’s major business operations are subject to interruption by earthquake, other natural disasters, fire, power shortages, terrorist attacks and other hostile acts, labor disputes, public health issues, and other events beyond its control.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,206
The majority of the Company’s research and development activities, its corporate headquarters, information technology systems, and other critical business operations, including certain component suppliers and manufacturing vendors, are located near major seismic faults.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,207
Because the Company does not carry earthquake insurance for direct quake-related losses, the Company’s operating results and financial condition could be materially adversely affected in the event of a major earthquake or other natural or man-made disaster.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,208
Although it is impossible to predict the occurrences or consequences of any such events, such events could result in a decrease in demand for the Company’s products, make it difficult or impossible for the Company to deliver products to its customers or to receive components from its suppliers, and create delays and in...
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,209
In addition, should major public health issues, including pandemics, arise, the Company could be negatively affected by more stringent employee travel restrictions, additional limitations in the availability of freight services, governmental actions limiting the movement of products between various regions, delays in p...
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,210
The Company’s operating results and financial condition have been, and in the future may be, adversely affected by such events.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,211
The market for personal computers and related peripherals and services, as well as digital music devices and related services, is highly competitive.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,212
If the Company is unable to effectively compete in these markets, its results of operations could be adversely affected.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,213
The personal computer industry is highly competitive and is characterized by aggressive pricing practices, downward pressure on gross margins, frequent introduction of new products, short product life cycles, evolving industry standards, continual improvement in product price/performance characteristics, rapid adoption...
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,214
Price competition in the market for personal computers and related peripherals has been particularly intense as competitors who sell Windows and Linux based personal computers have aggressively cut prices and lowered their product margins for personal computing products.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,215
The Company’s results of operations and financial condition have been, and in the future may continue to be, adversely affected by these and other industry-wide pricing pressures and downward pressures on gross margins.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,216
The personal computer industry has also been characterized by rapid technological advances in software functionality, hardware performance, and features based on existing or emerging industry standards.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,217
Further, as the personal computer industry and its customers place more reliance on the Internet, an increasing number of Internet devices that are smaller and simpler than traditional personal computers may compete for market share with the Company’s existing products.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,218
Several competitors of the Company have targeted certain of the Company’s key market segments, including consumer, education, professional and consumer digital video editing, and design and publishing.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,219
Several of the Company’s competitors have introduced digital music products and/or online stores offering digital music distribution that mimic many of the unique design, technical features, and solutions of the Company’s products.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,220
The Company has a significant number of competitors, many of whom have broader product lines and larger installed customer bases than those of the Company.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,221
Additionally, there has been a trend towards consolidation in the personal computer industry that has resulted in larger and potentially stronger competitors in the Company’s markets.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,222
The Company is currently the only maker of hardware using the Mac OS.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,223
The Mac OS has a minority market share in the personal computer market, which is dominated by makers of computers utilizing competing operating systems, including Windows and Linux.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,224
The Company’s future operating results and financial condition are substantially dependent on its ability to continue to develop improvements to the Macintosh platform to maintain perceived design and functional advantages over competing platforms.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,225
Additionally, if unauthorized copies of the Mac OS are used on other companies’ hardware products and result in decreased demand for the Company’s hardware products, the Company’s results of operations may be adversely affected.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,226
The Company is currently focused on market opportunities related to digital music distribution and related consumer electronic devices, including iPods.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,227
The Company faces significant competition from other companies promoting their own digital music products including MP3 players, music enabled cell phones, free peer-to-peer music and video services, and free streaming of digital content via the Internet.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,228
These competitors include both new entrants with different market approaches, such as subscription services models, and also larger companies that may have significant technical, marketing, distribution, and other resources, as well as established hardware, software, and digital content supplier relationships.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,229
Failure to effectively compete could negatively affect the Company’s operating results and financial position.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,230
The Company expects competition in this space to intensify as competitors attempt to imitate the Company’s approach to tightly integrating these components within their individual offerings or work more collaboratively with each other to offer solutions that are more integrated than those they offer currently.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,231
Some of these current and potential competitors have substantial resources and may be able to provide such products and services at little or no profit or even at a loss to compete with the Company’s offerings.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,232
There can be no assurance the Company will be able to continue to provide products and services that effectively compete in these markets.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,233
The Company may also have to respond to price competition by lowering prices and/or increasing features which could adversely affect the Company’s music product gross margins as well as overall Company gross margins.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,234
The Company also faces significant competition in the U.S. education market.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,235
U.S. elementary and secondary schools, as well as college and university customers, remain a core market for the Company.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,236
In an effort to gain market share and remain competitive, the Company will continue to pursue one-to-one (1:1) learning solutions in education.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,237
1:1 learning solutions typically consist of a portable computer for every student and teacher along with the installation of a wireless network.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,238
These 1:1 learning solutions and other strategic sales are generally priced more aggressively and could result in significantly less profitability or financial losses, particularly for larger deals.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,239
Although the Company believes it has taken certain steps to strengthen its position in the education market, there can be no assurance that the Company will be able to increase or maintain its share of the education market or execute profitably on large strategic arrangements.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,240
Failure to do so may have an adverse impact on the Company’s operating results and financial condition.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,241
Future operating results are dependent upon the Company’s ability to obtain a sufficient supply of components, including microprocessors, some of which are in short supply or available only from limited sources.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,242
Although most components essential to the Company’s business are generally available from multiple sources, certain key components including microprocessors and ASICs are currently obtained by the Company from single or limited sources.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,243
Some key components (including without limitation DRAM, NAND flash-memory, and TFT-LCD flat-panel displays), while currently available to the Company from multiple sources, are at times subject to industry- wide availability and pricing pressures.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,244
In addition, new products introduced by the Company often initially utilize custom components obtained from only one source until the Company has evaluated whether there is a need for, and subsequently qualifies, additional suppliers.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,245
In situations where a component or product utilizes new technologies, initial capacity constraints may exist until such time as the suppliers’ yields have matured.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,246
The Company and other producers in the personal computer and consumer electronics industries also compete for various components with other industries that have experienced increased demand for their products.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,247
The Company uses some components that are not common to the rest of the personal computer or consumer electronics industries.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,248
Continued availability of these components may be affected if producers decided to concentrate on the production of components other than those customized to meet the Company’s requirements.
0001104659-06-084286/full-submission.txt
0000320193
20061229
10-Q
1,249
If the supply of a key component were delayed or constrained on a new or existing product, the Company’s results of operations and financial condition could be adversely affected.
0001104659-06-084286/full-submission.txt