Apple 2010 Annual Report Download - page 23

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Table of Contents
The Company is exposed to credit risk and fluctuations in the market values of its investment portfolio.
Although the Company has not recognized any significant losses to date on its cash, cash equivalents and marketable securities, any significant
future declines in their market values could materially adversely affect the Company’
s financial condition and operating results. Given the global
nature of its business, the Company has investments both domestically and internationally. Credit ratings and pricing of these investments can be
negatively impacted by liquidity, credit deterioration or losses, financial results, or other factors. As a result, the value or liquidity of the
Company’
s cash, cash equivalents and marketable securities could decline and result in a material impairment, which could materially adversely
affect the Company’s financial condition and operating results.
The Company is exposed to credit risk on its trade accounts receivable, vendor non-trade receivables and prepayments related to long-
term
supply agreements. This risk is heightened during periods when economic conditions worsen.
The Company distributes its products through third-party cellular network carriers, wholesalers, retailers and value-
added resellers. A substantial
majority of the Company’s outstanding trade receivables are not covered by collateral or credit insurance. The Company’
s exposure to credit and
collectability risk on its trade receivables are increased in certain international markets and its ability to mitigate such risks may be limited.
Cellular network carriers accounted for a significant potion of the Company’
s trade receivables as of September 25, 2010. The Company also has
unsecured vendor non-
trade receivables resulting from purchases of components by contract manufacturers and other vendors that manufacture
sub-assemblies or assemble final products for the Company. Two vendors accounted for a significant portion of the Company’s non-
trade
receivables as of September 25, 2010. In addition, the Company has made prepayments associated with long-
term supply agreements to secure
supply of certain inventory components. While the Company has procedures to monitor and limit exposure to credit risk on its trade and vendor
non-trade receivables as well as long-
term prepayments, there can be no assurance such procedures will effectively limit its credit risk and avoid
losses, which could materially adversely affect the Company’s financial condition and operating results.
The matters relating to the Company’
s past stock option practices and its restatement of consolidated financial statements may result in
additional litigation.
The Company’
s investigation into its past stock option practices and its restatement of prior financial statements in the Annual Report on Form
10-K for the year ended September 30, 2006 gave rise to litigation and government investigations. As described in Part I, Item 3, “
Legal
Proceedings,”
several derivative and class action complaints regarding stock options were filed against the Company and current and former
officers and directors. These actions have been dismissed following a comprehensive settlement. Two former officers of the Company were also
named as defendants in an SEC enforcement action, which has been settled.
No assurance can be given that additional actions will not be filed against the Company and current and former officers and directors as a result
of past stock option practices. If such actions are filed and result in adverse findings, the remedies could materially adversely affect the
Company’s financial condition and operating results.
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 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.
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