Apple 2010 Annual Report Download - page 31

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Table of Contents
the Mac; iPhone, iPad and iPod and related software; development of new digital lifestyle consumer and professional software applications; and
investing in new product areas and technologies. The Company also believes increased investment in marketing and advertising programs is
critical to increasing product and brand awareness.
The Company utilizes a variety of direct and indirect distribution channels, including its retail stores, online stores, and direct sales force, and
third-party cellular network carriers, wholesalers, retailers, and value-
added resellers. The Company believes that sales of its innovative and
differentiated products are enhanced by knowledgeable salespersons who can convey the value of the hardware, software, and peripheral
integration, demonstrate the unique digital lifestyle solutions that are available on its products, and demonstrate the compatibility of the Mac
with the Windows platform and networks. The Company further believes providing direct contact with its targeted customers is an effective way
to demonstrate the advantages of its products over those of its competitors and providing a high-quality sales and after-
sales support experience
is critical to attracting new and retaining existing customers. To ensure a high-
quality buying experience for its products in which service and
education are emphasized, the Company continues to expand and improve its distribution capabilities by expanding the number of its own retail
stores worldwide. Additionally, the Company has invested in programs to enhance reseller sales by placing high quality Apple fixtures,
merchandising materials and other resources within selected third-
party reseller locations. Through the Apple Premium Reseller Program, certain
third-party resellers focus on the Apple platform by providing a high level of integration and support services, and product expertise.
Critical Accounting Policies and Estimates
The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles (“GAAP”)
and
the Company’s discussion and analysis of its financial condition and operating results require the Company’
s management to make judgments,
assumptions and estimates that affect the amounts reported in its consolidated financial statements and accompanying notes. Note 1, “
Summary
of Significant Accounting Policies” of Notes to Consolidated Financial Statements in this Form 10-
K describes the significant accounting
policies and methods used in the preparation of the Company’
s consolidated financial statements. Management bases its estimates on historical
experience and on various other assumptions it believes to be reasonable under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates and such differences may be material.
Management believes the Company’
s critical accounting policies and estimates are those related to revenue recognition, valuation and
impairment of marketable securities, inventory valuation and inventory purchase commitments, warranty costs, income taxes, and legal and other
contingencies. Management considers these policies critical because they are both important to the portrayal of the Company’
s financial
condition and operating results, and they require management to make judgments and estimates about inherently uncertain matters. The
Company’
s senior management has reviewed these critical accounting policies and related disclosures with the Audit and Finance Committee of
the Company’s Board of Directors.
Revenue Recognition
Net sales consist primarily of revenue from the sale of hardware, software, digital content and applications, peripherals, and service and support
contracts. The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or
determinable, and collection is probable. Product is considered delivered to the customer once it has been shipped and title and risk of loss have
been transferred. For most of the Company’
s product sales, these criteria are met at the time the product is shipped. For online sales to
individuals, for some sales to education customers in the U.S., and for certain other sales, the Company defers recognition of revenue until the
customer receives the product because the Company retains a portion of the risk of loss on these sales during transit. The Company recognizes
revenue from the sale of hardware products (e.g., Macs, iPhones, iPads, iPods and peripherals), software bundled with hardware that is
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