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0000320193 | 20070202 | 10-Q | 765 | 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 ... | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 766 | 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. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 767 | 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. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 768 | 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. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 769 | As a result of the internal review and independent investigation, management concluded, and the Audit and Finance Committee agreed, that incorrect measurement dates were used for financial accounting purposes for stock option grants made in certain prior periods. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 770 | As a result, the Company recorded additional non-cash stock-based compensation expense, and related tax effects, with regard to certain past stock option grants, and the Company restated certain previously filed financial statements included in the 2006 Form 10-K. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 771 | 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,... | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 772 | 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. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 773 | 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. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 774 | Additionally, 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 delays in filing subsequent SEC reports that could subject the Company’s common stock to potential delisting from the NASDAQ Global Se... | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 775 | 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. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 776 | 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. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 777 | 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. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 778 | The Company intends to continue full cooperation. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 779 | 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. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 780 | The resolution of these matters will be time consuming, expensive, and will distract management from the conduct of the Company’s business. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 781 | 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. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 782 | Unfavorable results of legal proceedings could adversely affect the Company’s results of operations. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 783 | The Company is subject to various legal proceedings and claims that are discussed in Part II, Item 1 of this Form 10-Q. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 784 | 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. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 785 | Results of legal proceedings cannot be predicted with certainty. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 786 | In addition, litigation may be disruptive to the Company’s normal business operations. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 787 | Should the Company fail to prevail in certain legal matters, or should several of these legal matters be resolved against the Company in the same reporting period, the Company’s financial condition, liquidity, or results of operations could be adversely affected. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 788 | Economic conditions and political events could adversely affect the demand for the Company’s products and thefinancial health of its suppliers, distributors, and resellers. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 789 | The Company’s operating performance depends significantly on economic conditions in the U.S. and abroad. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 790 | At times in the past, demand for the Company’s products has been negatively impacted by difficult global economic conditions. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 791 | Uncertainty about future economic conditions makes it difficult to forecast future demand for the Company’s products and related operating results. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 792 | 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. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 793 | 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. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 794 | 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. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 795 | 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. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 796 | 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. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 797 | 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. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 798 | 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... | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 799 | 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... | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 800 | The Company’s operating results and financial condition have been, and in the future may be, adversely affected by such events. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 801 | The market for personal computers and related peripherals and services, digital music devices and related services, and mobile phones, is highly competitive. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 802 | If the Company is unable to effectively compete in these markets, its results of operations could be adversely affected. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 803 | 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... | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 804 | 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. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 805 | 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. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 806 | 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. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 807 | 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. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 808 | 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. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 809 | 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. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 810 | 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. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 811 | 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. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 812 | The Company is currently the only maker of hardware using the Mac OS. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 813 | 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. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 814 | 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. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 815 | 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. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 816 | The Company is currently focused on market opportunities related to digital music distribution and related consumer electronic devices, including iPods. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 817 | 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. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 818 | 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. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 819 | Failure to effectively compete could negatively affect the Company’s operating results and financial position. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 820 | 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. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 821 | 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. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 822 | There can be no assurance the Company will be able to continue to provide products and services that effectively compete in these markets. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 823 | 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. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 824 | With the public demonstration of the iPhone in January 2007, the Company has announced its plan to compete with mobile communication device companies. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 825 | This is a highly competitive market, and the Company may not be able to compete successfully. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 826 | This market has aggressive pricing practices, frequent product introductions, evolving technologies, rapid adoption of technological and product advancements by competitors, price sensitivity on the part of consumers, and a large number of competitors with substantial experience and technological and financial resource... | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 827 | The Company’s operating results and financial condition may be adversely affected should it be unable to effectively compete in this market. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 828 | The Company also faces significant competition in the U.S. education market. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 829 | U.S. elementary and secondary schools, as well as college and university customers, remain a core market for the Company. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 830 | 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. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 831 | 1:1 learning solutions typically consist of a portable computer for every student and teacher along with the installation of a wireless network. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 832 | 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. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 833 | 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. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 834 | Failure to do so may have an adverse impact on the Company’s operating results and financial condition. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 835 | 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. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 836 | 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. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 837 | 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. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 838 | 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. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 839 | In situations where a component or product utilizes new technologies, initial capacity constraints may exist until such time as the suppliers’ yields have matured. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 840 | 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. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 841 | The Company uses some components that are not common to the rest of the personal computer or consumer electronics industries. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 842 | 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. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 843 | 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. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 844 | The Company will rely exclusively on a single service provider in the U.S. for the iPhone. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 845 | The Company has announced that AT&T Mobility LLC (“AT&T Mobility”) will be its exclusive U.S. carrier partner for the iPhone. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 846 | If AT&T Mobility cannot successfully compete with other wireless carriers in areas such as quality and coverage of wireless voice and data services, performance and timely build-out of advanced wireless networks, and pricing and terms of end user contracts, or if for any reason AT&T Mobility customers experience servic... | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 847 | The Company must successfully manage frequent product introductions and transitions to remain competitive and effectively stimulate customer demand. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 848 | Due to the highly volatile and competitive nature of the personal computer and consumer electronics industries, which are characterized by dynamic customer demand patterns and rapid technological advances, the Company must continually introduce new products and technologies, enhance existing products to remain competit... | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 849 | The success of new product introductions is dependent on a number of factors, including 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 management of purchase commitments and in... | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 850 | Accordingly, the Company cannot determine in advance the ultimate effect new products will have on its sales or results of operations. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 851 | During calendar year 2006, the Company transitioned its Macintosh line of computers from the PowerPC to Intel microprocessors. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 852 | This transition has been and will continue to be subject to numerous risks and uncertainties including the timely innovation and delivery of related hardware and software products to support Intel microprocessors, market acceptance of Intel-based Macintosh computers, and the development and availability on acceptable t... | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 853 | In addition, the Company is dependent on third-party software developers such as Microsoft and Adobe to timely develop current and future applications that run on Intel-based Macintosh computers. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 854 | Universal versions of Microsoft Office and Adobe’s Creative Suite applications are not currently available. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 855 | Additionally, there can be no assurance that the Company will be able to maintain its historical gross margin percentages on its products, including Intel-based Macintosh computers, which may adversely impact the Company’s results of operations. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 856 | The recently announced iPhone, which is expected to begin shipping in June 2007, will be subject to certification and regulation by governmental and standardization bodies, as well as by wireless carriers for use on their networks. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 857 | These certification processes are extensive and time consuming, and could result in additional testing requirements or changes to the iPhone. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 858 | Any such slowdown in the certification process may cause delays in introducing new iPhones, which may adversely affect the Company’s results of operations. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 859 | The Company’s products from time to time experience quality problems that can result in decreased net sales and operating profits. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 860 | The Company sells highly complex hardware and software products that can contain defects in design and manufacture. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 861 | Sophisticated operating system software and applications, such as those sold by the Company, often contain “bugs” that can unexpectedly interfere with the operation of the software. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 862 | Defects may also occur in components and products the Company purchases from third-parties. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 863 | There can be no assurance that the Company will be able to detect and fix all defects in the hardware and software it sells. | 0001104659-07-006648/full-submission.txt |
0000320193 | 20070202 | 10-Q | 864 | Failure to do so could result in lost revenue, loss of reputation, and significant warranty and other expense to remedy. | 0001104659-07-006648/full-submission.txt |
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