Apple 1996 Annual Report Download - page 40

Concentrations of Risk
Concentrations of Credit Risk
The Company distributes its products principally through third-party computer resellers and various education and consumer channels.
Concentrations of credit risk with respect to trade receivables are limited because of flooring arrangements for selected customers with third-
party financing companies and because the Company's customer base consists of large numbers of geographically diverse customers dispersed
across several industries. As such, the Company generally does not require collateral from its customers.
The counterparties to the agreements relating to the Company's investments and foreign exchange and interest rate instruments consist of a
number of major international financial institutions. To date, no such counterparty has failed to meet its financial obligations to the Company.
The Company does not believe that there is significant risk of nonperformance by these counterparties because the Company continually
monitors its positions and the credit ratings of such counterparties, and limits the financial exposure and the number of agreements and
contracts it enters into with any one party. The Company generally does not require collateral from counterparties, except for margin
agreements associated with the ten-year interest rate swaps on the Company's ten-year unsecured notes. To mitigate the credit risk associated
with these ten-year swap transactions, the Company entered into margining agreements with its third-party bank counterparties. Margining
under these agreements does not start until 1997. Furthermore, these agreements would require the Company or the counterparty to post margin
only if certain credit risk thresholds were exceeded.
Concentrations in the Available Sources of Supply of Materials and Product
Although certain components essential to the Company's business are generally available from multiple sources, other key components
(including microprocessors and application-specific integrated circuits, or "ASICs") are currently obtained by the Company from single
sources. If the supply of a key single-sourced component to the Company were to be delayed or curtailed, the Company's ability to ship the
related product utilizing such component in desired quantities and in a timely manner could be adversely affected, depending on the time
required to obtain sufficient quantities from the original source, or to identify and obtain sufficient quantities from an alternate source. In
addition, the Company uses some components that are not common to the rest of the personal computer industry. Continued availability of
these components may be affected if producers were to decide to concentrate on the production of common components instead of components
customized to meet the Company's requirements. Finally, a significant portion of the Company's CPUs and logic boards are now manufactured
by SCI Systems, Inc. ("SCI"). Although the Company works closely with SCI on manufacturing schedules and levels, the Company's operating
results could be adversely affected if SCI were unable to meet its production obligations.
Significant Customers
No customer accounted for more than 10% of the Company's net sales in 1996, 1995, or 1994.
Advertising Costs
Advertising expense was $183 million, $205 million, and $158 million for 1996, 1995, and 1994, respectively.
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