Apple 2006 Annual Report Download - page 22

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certain prior periods. 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-K.
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, results of operations and cash flows.
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. 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.
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. 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’s
directors and certain of its executive officers pertaining to allegations relating to stock option grants. 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. The Company intends to continue
full cooperation. 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. The resolution of these matters will be time consuming, expensive, and will distract
management from the conduct of the Company’s business. 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.
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 Marketplace Rule 4310(c)(14) and was therefore subject to delisting from the NASDAQ Stock
Market. 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. On December 29, 2006, the
Company filed the Third Quarter Form 10-Q with the SEC. With the filing of this Form 10-K, 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. 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 Market.
Unfavorable results of legal proceedings could adversely affect the Company’s results of operations.
The Company is subject to various legal proceedings and claims that are discussed in Part I, Item 3 of this Form 10-K. 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. Results of legal proceedings cannot be predicted with certainty. In addition, litigation may be disruptive to the Company’s normal
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