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0000320193
20071115
10-K
236
The Company's purchase commitments typically cover its requirements for periods ranging from 30 to 150 days.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
237
The Company believes there are several component suppliers and manufacturing vendors whose loss to the Company could have a material adverse effect upon the Company's business and financial condition.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
238
At this time, such vendors include Agere Systems, Inc., Ambit Microsystems Corporation, Amperex Technology Limited, ASUSTeK Corporation, ATI Technologies, Inc., Atheros Communications Inc., AU Optronics Corporation, Broadcom Corporation, Chi Mei Optoelectronics Corporation, Cypress Semiconductor Corporation, Hitachi Gl...
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
239
Phillips Co., Ltd., Matsushita, Murata Manufacturing Co., Ltd., National Semiconductor Corporation, NVIDIA Corp., Inc., Quanta Computer, Inc., Renesas Semiconductor Co. Ltd., Samsung Electronics, Sony Corporation, Synaptics, Inc., Texas Instruments, and Toshiba Corporation.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
240
Certain of these vendors are the sole-sourced supplier of components and manufacturing outsourcing for many of the Company's key products, including but not limited to, assembly of most of the Company's portable Mac computers, iPods, and iPhones.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
241
Research and Development Because the personal computer, consumer electronics, and mobile communication industries are characterized by rapid technological advances, the Company's ability to compete successfully is heavily dependent upon its ability to ensure a continual and timely flow of competitive products, services...
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
242
The Company continues to develop new products and technologies and to enhance existing products in the areas of computer hardware and peripherals, consumer electronics products, mobile communication devices, system software, applications software, networking and communications software and solutions, and Internet servi...
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
243
The Company may expand the range of its product offerings and intellectual property through licensing and/or acquisition of third-party business and technology.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
244
The Company's research and development expenditures totaled $782 million, $712 million, and $535 million in 2007, 2006, and 2005, respectively.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
245
Patents, Trademarks, Copyrights and Licenses The Company currently holds rights to patents and copyrights relating to certain aspects of its computer systems, iPods, iPhone, peripherals, software, and services.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
246
In addition, the Company has registered, and/or has applied to register, trademarks and service marks in the U.S. and a number of foreign countries for "Apple," the Apple logo, "Macintosh," "Mac," "iPod," "iTunes," "iTunes Store," "iPhone," and numerous other trademarks and service marks.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
247
Although the Company believes the ownership of such patents, copyrights, trademarks and service marks is an important factor in its business and that its success does depend in part on the ownership thereof, the Company relies primarily on the innovative skills, technical competence, and marketing abilities of its pers...
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
248
Many of the Company's products are designed to include intellectual property obtained from third-parties.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
249
While it may be necessary in the future to seek or renew licenses relating to various aspects of its products and business methods, the Company believes, based upon past experience and industry practice, such licenses generally could be obtained on commercially reasonable terms; however, there is no guarantee that such...
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
250
Because of technological changes in the computer industry, current extensive patent coverage, and the rapid rate of issuance of new patents, it is possible certain components of the Company's products and business methods may unknowingly infringe existing patents or intellectual property rights of others.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
251
From time to time, the Company has been notified that it may be infringing certain patents or other intellectual property rights of third-parties.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
252
Foreign and Domestic Operations and Geographic Data The U.S. represents the Company's largest geographic marketplace.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
253
Approximately 60% of the Company's net sales in 2007 came from sales to customers inside the U.S.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
254
Final assembly of products sold by the Company is currently performed in the Company's manufacturing facility in Cork, Ireland, and by external vendors in Fremont, California; Fullerton, California; Taiwan; the Republic of Korea ("Korea"); the People's Republic of China ("China"); and the Czech Republic.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
255
Currently, the supply and manufacture of many critical components used in the Company's products is performed by sole-sourced third-party vendors in the U.S., China, Japan, Korea, and Singapore.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
256
Final assembly of substantially all of the Company's portable products, including MacBook Pro, MacBook, iPod, and iPhone, is performed by sole-sourced third-party vendors in China.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
257
Margins on sales of the Company's products in foreign countries, and on sales of products that include components obtained from foreign suppliers, can be adversely affected by foreign currency exchange rate fluctuations and by international trade regulations, including tariffs and antidumping penalties.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
258
Information regarding financial data by geographic segment is set forth in Part II, Item 8 of this Form 10-K and in Notes to Consolidated Financial Statements at Note 9, "Segment Information and Geographic Data."
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
259
Seasonal Business The Company has historically experienced increased net sales in its first and fourth fiscal quarters compared to other quarters in its fiscal year due to seasonal demand related to the holiday season and the beginning of the school year.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
260
This historical pattern should not be considered a reliable indicator of the Company's future net sales or financial performance.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
261
Warranty The Company offers a basic limited parts and labor warranty on most of its hardware products, including Mac computers, iPods and iPhones.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
262
The basic warranty period is typically one year from the date of purchase by the end-user.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
263
The Company also offers a 90-day basic warranty for its service parts used to repair the Company's hardware products.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
264
In addition, consumers may purchase extended service coverage on most of the Company's hardware products in all of its major markets.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
265
Backlog In the Company's experience, the actual amount of product backlog at any particular time is not a meaningful indication of its future business prospects.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
266
In particular, backlog often increases in anticipation of or immediately following new product introductions as dealers anticipate shortages.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
267
Backlog is often reduced once dealers and customers believe they can obtain sufficient supply.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
268
Because of the foregoing, backlog should not be considered a reliable indicator of the Company's ability to achieve any particular level of revenue or financial performance.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
269
Environmental Laws Compliance with federal, state, local, and foreign laws enacted for the protection of the environment has to date had no material effect on the Company's capital expenditures, earnings, or competitive position.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
270
In the future, these laws could have a material adverse effect on the Company.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
271
Production and marketing of products in certain states and countries may subject the Company to environmental and other regulations including, in some instances, the requirement to provide customers the ability to return product at the end of its useful life, and place responsibility for environmentally safe disposal o...
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
272
Such laws and regulations have recently been passed in several jurisdictions in which the Company operates including various countries within Europe and Asia, certain Canadian provinces and certain states within the U.S.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
273
Although the Company does not anticipate any material adverse effects in the future based on the nature of its operations and the thrust of such laws, there is no assurance that such existing laws or future laws will not have a material adverse effect on the Company's financial condition or operating results.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
274
Employees As of September 29, 2007, the Company had approximately 21,600 full-time equivalent employees and an additional 2,100 temporary equivalent employees and contractors.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
275
Available Information The Company's Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to reports filed pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, are filed with the U.S. Securities and Exchange Commission ("SEC").
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
276
Such reports and other information filed by the Company with the SEC are available on the Company's website at http://www.apple.com/investor when such reports are available on the SEC website.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
277
The public may read and copy any materials filed by the Company with the SEC at the SEC's Public Reference Room at 100 F Street, NE, Room 1580, Washington, DC 20549.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
278
The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
279
The SEC maintains an Internet site that contains reports, proxy, and information statements and other information regarding issuers that file electronically with the SEC at http://www.sec.gov.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
280
The contents of these websites are not incorporated into this filing.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
281
Further, the Company's references to the URLs for these websites are intended to be inactive textual references only.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
282
Item 1A.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
283
Risk Factors Because of the following factors, as well as other factors affecting the Company's financial condition and operating results, past financial performance should not be considered to be a reliable indicator of future performance, and investors should not use historical trends to anticipate results or trends ...
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
284
The matters relating to the Company's past stock option practices and the restatement of the Company's consolidated financial statements may result in additional litigation and government enforcement actions.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
285
The findings from the Company's investigation into its past stock option granting practices and the resulting restatement of prior financial statements in its 2006 Form 10-K have exposed the Company to greater risks associated with litigation, regulatory proceedings and government enforcement actions.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
286
As described in Part I, Item 3, "Legal Proceedings," several derivative complaints and a class action complaint have been filed in state and federal courts against the Company and certain current and former directors and executive officers pertaining to allegations relating to past stock option grants.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
287
The Company has provided the results of its investigation to the SEC and the United States Attorney's Office for the Northern District of California, and the Company has responded to their requests for documents and additional information.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
288
The Company intends to continue to provide its full cooperation.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
289
On April 24, 2007, the SEC filed an enforcement action against two former officers of the Company.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
290
In announcing the lawsuit, the SEC stated that it would not bring an enforcement action against the Company based in part on the Company's "swift, extensive, and extraordinary cooperation in the Commission's investigation."
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
291
According to the SEC's statement, the Company's "cooperation consisted of, among other things, prompt self-reporting, an independent internal investigation, the sharing of the results of that investigation with the government, and the implementation of new controls designed to prevent the recurrence of fraudulent condu...
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
292
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.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
293
These and related matters have required, and will continue to require, the Company to incur substantial expenses for legal, accounting, tax, and other professional services, and may divert management's attention from the Company's business.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
294
If the Company is subject to adverse findings, it could be required to pay damages and penalties and might face additional remedies that could harm its financial condition and operating results.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
295
Global markets for personal computers, digital music devices, mobile communication devices, and related peripherals and services are highly competitive and subject to rapid technological change.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
296
If the Company is unable to compete effectively in these markets, its financial condition and operating results could be materially adversely affected.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
297
The Company competes in global markets that are highly competitive and characterized by aggressive price cutting, with its resulting downward pressure on gross margins, frequent introduction of new products and products, short product life cycles, evolving industry standards, continual improvement in product price/perf...
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
298
The Company's ability to compete successfully depends heavily on its ability to ensure a continuing and timely introduction of new innovative products and technologies to the marketplace.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
299
The Company believes it is unique in that it designs and develops virtually the entire solution for its personal computers, consumer electronics, and mobile communication devices, including the hardware, operating system, several software applications, and related services.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
300
As a result, the Company must make significant investments in research and development.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
301
By contrast, many of the Company's competitors seek to compete aggressively on price and maintain very low cost structures.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
302
If the Company is unable to continue to develop and sell innovative new products with attractive margins, its financial condition and operating results may be materially adversely affected.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
303
In the market for personal computers and peripherals, the Company faces a significant number of competitors, many of which have broader product lines and larger installed customer bases.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
304
There has also been a trend toward consolidation that has resulted in larger and potentially stronger competitors.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
305
Price competition has been particularly intense as competitors selling Windows-based personal computers have aggressively cut prices and lowered product margins.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
306
The Company also faces increased competition in certain of its key market segments, including consumer, education, professional and consumer digital video editing, and design and publishing.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
307
An increasing number of Internet devices that include software applications and are smaller and simpler than traditional personal computers compete for market share with the Company's existing products.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
308
The Company is currently the only maker of hardware using the Mac OS.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
309
The Mac OS has a minority market share in the personal computer market, which is dominated by makers of computers using competing operating systems, most notably Windows.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
310
The Company's financial condition and operating results substantially depend on its ability to continually develop improvements to the Mac platform to maintain perceived design and functional advantages.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
311
Use of unauthorized copies of the Mac OS on other companies' hardware products may result in decreased demand for the Company's hardware products, and materially adversely affect its financial condition and operating results.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
312
The Company is currently focused on opportunities related to digital content distribution, consumer electronic devices, including iPod and Apple TV, and mobile communication devices, including iPhone.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
313
The Company faces substantial competition from companies that have significant technical, marketing, distribution, and other resources, as well as established hardware, software, and digital content supplier relationships, and also competes with illegitimate ways to obtain digital content.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
314
The Company expects competition to intensify as competitors attempt to imitate the Company's approach to providing these components seamlessly within their individual offerings or work collaboratively to offer integrated solutions.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
315
Some current and potential competitors have substantial resources and experience, and they may be able to provide such products and services at little or no profit or even at a loss.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
316
There can be no assurance the Company will be able to continue to provide products and services that effectively compete.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
317
To remain competitive and stimulate customer demand, the Company must successfully manage frequent product introductions and transitions.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
318
Due to the highly volatile and competitive nature of the personal computer, consumer electronics and mobile communication industries, the Company must continually introduce new products and technologies, enhance existing products, and effectively stimulate customer demand for new and upgraded products.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
319
The success of new product introductions depends on a number of factors, including timely and successful completion of development efforts, 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...
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
320
Accordingly, the Company cannot determine in advance the ultimate effect new product introductions and transitions will have on financial condition and operating results.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
321
The Company faces substantial inventory and other asset risk.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
322
The Company records a write-down for product and component inventories that have become obsolete or are in excess of anticipated demand or net realizable value and accrues necessary reserves for cancellation fees for orders of products and components that have been cancelled.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
323
The Company also reviews its long-lived assets for impairment whenever events or changed circumstances indicate the carrying amount of an asset may not be recoverable.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
324
If the Company determines that impairment exists, it records a write-down equal to the amount by which the carrying value of the assets exceeds its fair market value.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
325
Although the Company believes its inventory, asset, and related provisions are currently adequate, given the rapid and unpredictable pace of product obsolescence in the global personal computer, consumer electronics, and mobile communication industries, no assurance can be given that the Company will not incur addition...
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
326
Such charges have had, and may have, a material adverse effect on the Company's financial condition and operating results.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
327
The Company must order components for its products and build inventory in advance of product announcements and shipments.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
328
Because the Company's markets are volatile, competitive and subject to rapid technology and price changes, there is a risk the Company will forecast incorrectly and order or produce excess or insufficient inventories of components or products.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
329
Consistent with industry practice, components are normally acquired through a combination of purchase orders, supplier contracts, and open orders based on projected demand.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
330
Such purchase commitments typically cover forecasted component and manufacturing requirements for 30 to 150 days.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
331
The Company's financial condition and operating results have been in the past and may in the future be materially adversely affected by the Company's ability to manage its inventory levels and respond to short-term shifts in customer demand patterns.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
332
Future operating results depend upon the Company's ability to obtain key components, including microprocessors and NAND flash memory, at favorable prices and in sufficient quantities.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
333
Because the Company currently obtains certain key components, including microprocessors, enclosures, certain LCDs, certain optical drives, and application-specific integrated circuits ("ASICs"), from single or limited sources, the Company is subject to significant supply and pricing risks.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
334
Many of these and other key components that are available from multiple sources, including NAND flash memory, DRAM memory, and certain LCDs, are subject at times to industry-wide shortages and significant commodity pricing fluctuations.
0001047469-07-009340/full-submission.txt
0000320193
20071115
10-K
335
The Company has entered into certain agreements for the supply of critical components at favorable pricing, but there is no guarantee that the Company will be able to extend or renew these agreements on favorable terms upon expiration or otherwise obtain favorable pricing in the future.
0001047469-07-009340/full-submission.txt