Apple 2007 Annual Report Download - page 40

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aggressive pricing. To remain competitive, the Company believes that increased investment in research and development ("R&D") and
marketing and advertising is necessary to maintain or expand its position in the markets where it competes. The Company's R&D spending is
focused on further developing its existing line of personal computers, operating systems, application software, and portable digital music players;
developing new digital lifestyle consumer and professional software applications; and investing in new product areas such as iPhone and
wireless technologies. The Company also believes increased investment in marketing and advertising programs is critical to increasing product
and brand awareness.
The Company utilizes a variety of direct and indirect distribution channels. The Company believes that sales of its innovative and differentiated
products are enhanced by knowledgeable salespersons who can convey the value of the hardware, software, and peripheral integration,
demonstrate the unique digital lifestyle solutions that are available only on Mac computers, and demonstrate the compatibility of the Mac with
the Windows platform and networks. The Company further believes providing a high-quality sales and after-sales support experience is critical
to attracting and retaining customers. To ensure a high-
quality buying experience for its products in which service and education are emphasized,
the Company has expanded and improved its distribution capabilities by opening its own retail stores in the U.S. and internationally. The
Company had 197 stores open as of September 29, 2007.
The Company also staffs selected third-party stores with the Company's own employees to improve the buying experience through reseller
channels. The Company has deployed Apple employees and contractors in reseller locations around the world including the U.S., Canada,
Europe, Japan, Asia, Latin America and Australia. The Company also sells to customers directly through its online stores around the world.
To improve access to the iPod product family, the Company has significantly expanded the number of distribution points where iPods are sold.
iPods can be purchased in certain department stores, member-only warehouse stores, large retail chains, and specialty retail stores, as well as
through the channels for Mac distribution listed above.
The Company began shipping iPhone in the U.S. on June 29, 2007, in the U.K. and Germany on November 9, 2007 and expects to begin
shipping the iPhone in France on November 29, 2007. AT&T Mobility LLC ("AT&T"), O2 Limited ("O2"), T-Mobile International AG & Co.
KG ("T-
Mobile"), and France Telecom ("Orange") are the exclusive cellular network carriers for iPhone in the U.S., U.K., Germany, and France,
respectively. iPhone is distributed through the Company and its exclusive cellular network carriers' distribution channels.
Critical Accounting Policies and Estimates
The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles and the
Company's discussion and analysis of its financial condition and operating results require the Company's management to make judgments,
assumptions, and estimates that affect the amounts reported in its consolidated financial statements and accompanying notes. Note 1 "Summary
of Significant Accounting Policies" of Notes to Consolidated Financial Statements in this Form 10-K describes the significant accounting
policies and methods used in the preparation of the Company's consolidated financial statements. Management bases its estimates on historical
experience and on various other assumptions it believes to be reasonable under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates and such differences may be material.
Management believes the Company's critical accounting policies and estimates are those related to revenue recognition, allowance for doubtful
accounts, inventory valuation and inventory purchase commitments, warranty costs, stock-based compensation, income taxes, and legal and
other contingencies. Management considers these critical policies because they are both important to the portrayal of the Company's financial
condition and operating results, and they require management to make judgments
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