Apple 2008 Annual Report Download - page 18

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Table of Contents
related to debt securities as well as equity and other investments; interest rates; cash balances; and changes in fair value of derivative
instruments. The current volatility in the financial markets and overall economic uncertainty increases the risk that the actual amounts realized in
the future on the Company’s financial instruments could differ significantly from the fair values currently assigned to them.
Uncertainty about current global economic conditions could also continue to increase the volatility of the Company’s stock price.
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.
The findings from the Company’s investigation into its past stock option granting practices and the resulting restatement of prior financial
statements in the Company’s Annual Report on Form 10-K for the fiscal year September 30, 2006 (the “2006 Form 10-K”) 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
and certain current and former directors and executive officers pertaining to allegations relating to past stock option grants. The Company has
provided the results of its investigation to the Securities and Exchange Commission (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. The Company
intends to continue to provide its full cooperation.
On April 24, 2007, the SEC filed an enforcement action against two former officers of the Company. 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.” 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 conduct.”
The enforcement actions against each of these former
officers have now been settled.
No assurance can be given regarding the outcomes from litigation relating to the Company
’s past stock option practices. 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. 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.
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. If the Company is unable to compete effectively in these markets, its financial condition
and operating results could be materially adversely affected.
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, short product life cycles, evolving industry standards, continual improvement
in product price/performance characteristics, rapid adoption of technological and product advancements by competitors, and price sensitivity on
the part of consumers.
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. The Company believes it is unique in that it designs and develops nearly the entire solution for its
personal computers, consumer electronics, and mobile communication devices, including the hardware, operating system, several software
applications, and related services. As a result, the Company must make significant investments in research and development and as such, the
Company currently holds a significant number of patents and copyrights and has registered and/or has applied to register numerous patents,
trademarks and service marks. By contrast, many of the Company’s competitors seek to compete primarily through aggressive pricing and very
low cost structures. If the Company is unable to continue to develop and sell innovative new products with attractive margins or if other
companies
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