Apple 1998 Annual Report Download - page 62

NOTE 9--COMMITMENTS AND CONTINGENCIES (CONTINUED)
misrepresentation and violations of the California Corporations Code. The parties are currently conducting discovery.
FTC INQUIRY--PRADO VS. APPLE COMPUTER (AND RELATED ACTIONS)
In October 1997, Apple began charging all US non-education customers for live telephone technical support beyond 90 days after purchase of
Apple products. In late 1997, the Federal Trade Commission (FTC) commenced an investigation into customer complaints that Apple's change
in technical support practices was either unfair or contrary to earlier representations to customers. Three class action lawsuits were filed against
Apple related to this change. The District Office of the FTC has recommended to regional and national FTC that a tentative settlement be
approved. Settlement discussions with the plaintiffs in the three class actions are in progress.
OTHER
On August 21, 1997, the FTC issued a consent decree against the Company, regarding the Company's past processor upgrade practices,
specifically certain advertisements which the Commission deemed to have misrepresented the Company's marketing of certain microprocessor
upgrade products. Pursuant to the order, the Company is ordered to cease and desist from any such allegedly misleading advertising, to give
notice to consumers, and to implement certain programs enabling consumers who are within the order's scope to obtain upgrade kits or rebates,
in connection with any purchases within the scope of the order. The Company has now completed the fulfillment program pursuant to the
consent decree and filed its final report with the Commission in April 1998.
The Company is also subject to certain other legal proceedings and claims which have arisen in the ordinary course of business and which have
not been fully adjudicated. The results of legal proceedings cannot be predicted with certainty; however, in the opinion of management, the
Company does not have a potential liability related to any legal proceedings and claims that would have a material adverse effect on its
financial condition or results of operations.
NOTE 10--CONCENTRATIONS OF RISK
CONCENTRATIONS OF CREDIT RISK
The Company distributes its products principally through third-party computer resellers and various education and consumer channels. The
Company generally does not require collateral from its customers. However, when possible the Company does attempt to limit credit risk on
trade receivables through the use of flooring arrangements for selected customers with third-
party financing companies and credit insurance for
certain customers in Latin America and Asia. Although none of the Company's customers accounted for more than 10% of net sales in any of
the last three fiscal years, at times considerable trade receivables which are not covered by collateral are outstanding with the Company's
distribution and retail channel partners.
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
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