Apple 2008 Annual Report Download - page 25

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Table of Contents
effectiveness of retaining employees through stock-based awards. There can be no assurance that the Company will continue to successfully
attract and retain key personnel.
Unfavorable results of legal proceedings could materially adversely affect the Company.
The Company is subject to various legal proceedings and claims that have arisen out of the ordinary conduct of its business and are not yet
resolved and additional claims may arise in the future. Results of legal proceedings cannot be predicted with certainty. Regardless of its merit,
litigation may be both time-consuming and disruptive to the Company’s operations and cause significant expense and diversion of management
attention. In recognition of these considerations, the Company may enter into material settlements. Should the Company fail to prevail in certain
matters, or should several of these matters be resolved against the Company in the same reporting period, the Company may be faced with
significant monetary damages or injunctive relief against it that would materially adversely affect a portion of its business and might materially
affect the Company’s financial condition and operating results.
The Company’s business is subject to the risks of international operations.
The Company derives a large and growing portion of its revenue and earnings from its international operations. As a result, its financial
condition and operating results could be significantly affected by risks associated with international activities, including economic and labor
conditions, political instability, tax laws (including U.S. taxes on foreign subsidiaries), and changes in the value of the U.S. dollar versus local
currencies. Margins on sales of the Company’s products in foreign countries, and on sales of products that include components obtained from
foreign suppliers, could be materially adversely affected by foreign currency exchange rate fluctuations and by international trade regulations,
including tariffs and antidumping penalties.
The Company’s primary exposure to movements in foreign currency exchange rates relate to non-U.S. dollar denominated sales in Europe,
Japan, Australia, Canada, and certain parts of Asia, as well as non-U.S. dollar denominated operating expenses incurred throughout the world.
Weakening of foreign currencies relative to the U.S. dollar will adversely affect the U.S. dollar value of the Company’s foreign currency-
denominated sales and earnings, and generally will lead the Company to raise international pricing, potentially reducing demand for the
Company’s products. In some circumstances, due to competition or other reasons, the Company may decide not to raise local prices to the full
extent of the dollar’s strengthening, or at all, which would adversely affect the U.S. dollar value of the Company’
s foreign currency denominated
sales and earnings. Conversely, a strengthening of foreign currencies, while generally beneficial to the Company’s foreign currency-
denominated
sales and earnings, could cause the Company to reduce international pricing, thereby limiting the benefit. As strengthening of foreign currencies
may also increase the Company’s cost of product components denominated in those currencies.
The Company has used derivative instruments, such as foreign exchange forward and option positions, to hedge certain exposures to fluctuations
in foreign currency exchange rates. The use of such hedging activities may not offset any or more than a portion of the adverse financial effects
of unfavorable movements in foreign exchange rates over the limited time the hedges are in place.
The Company’s retail business has required and will continue to require a substantial investment and commitment of resources and is subject to
numerous risks and uncertainties.
Through September 27, 2008, the Company had opened 247 retail stores. The Company’
s retail stores have required substantial fixed investment
in equipment and leasehold improvements, information systems, inventory, and personnel. The Company also has entered into substantial
operating lease commitments for retail space with terms ranging from 5 to 20 years, the majority of which are for 10 years. Certain stores have
been designed and built to serve as high-profile venues to promote brand awareness and serve as vehicles for corporate sales and marketing
activities. Because of their unique design elements, locations and size, these stores require substantially more investment than the Company’s
more typical retail stores. Due to the high fixed cost structure associated with the Retail segment, a decline in sales or the closure or poor
performance of individual or multiple stores could result in significant lease termination costs, write-offs of equipment and leasehold
improvements, and severance costs that could have a material adverse effect on the Company’s financial condition and operating results.
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