Apple 2009 Annual Report Download - page 74

Table of Contents
Accounts Receivable
Trade Receivables
The Company distributes its products through third-
party distributors, cellular network carriers, and resellers and directly to certain education,
consumer and enterprise customers. The Company generally does not require collateral from its customers; however, the Company will require
collateral in certain instances to limit credit risk. In addition, when possible, the Company attempts to limit credit risk on trade receivables with
credit insurance for certain customers in Latin America, Europe, Asia, and Australia, or by requiring third-
party financing, loans or leases to
support credit exposure. These credit-financing arrangements are directly between the third-
party financing company and the end customer. As
such, the Company generally does not assume any recourse or credit risk sharing related to any of these arrangements. However, considerable
trade receivables not covered by collateral, third-party financing arrangements, or credit insurance are outstanding with the Company’
s
distribution and retail channel partners. Trade receivables from one of the Company’
s customers accounted for 16% of trade receivables as of
September 26, 2009 and two of the Company’
s customers accounted for 15% and 10%, respectively, of trade receivables as of September 27,
2008.
The following table summarizes the activity in the allowance for doubtful accounts for the three years ended September 26, 2009 (in millions):
Vendor Non-Trade Receivables
The Company has non-
trade receivables from certain of its manufacturing vendors resulting from the sale of raw material components to these
manufacturing vendors who manufacture sub-
assemblies or assemble final products for the Company. The Company purchases these raw
material components directly from suppliers. These non-
trade receivables, which are included in the Consolidated Balance Sheets in other
current assets, totaled $1.7 billion and $2.3 billion as of September 26, 2009 and September 27, 2008, respectively. Vendor non-
trade receivables
from two of the Company’s vendors accounted for 40% and 36%, respectively, of non-
trade receivables as of September 26, 2009 and two of the
Company’s vendors accounted for 47% and 38%, respectively, of non-
trade receivables as of September 27, 2008. The Company does not reflect
the sale of these components in net sales and does not recognize any profits on these sales until the related products are sold by the Company, at
which time any profit is recognized as a reduction of cost of sales.
Note 3 – Fair Value Measurements
The Company defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. When determining the fair value measurements for assets and liabilities, which are
required to be recorded at fair value, the Company considers the principal or most advantageous market in which the Company would transact
and the market-
based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as inherent risk,
transfer restrictions and credit risk.
71
2009
2008
2007
Beginning allowance balance
$ 47
$
47
$ 52
Charged to costs and expenses
25
3
12
Deductions
(20
)
(3
)
(17
)
Ending allowance balance
$ 52
$
47
$ 47