Apple 2014 Annual Report Download - page 21

The Company is exposed to credit risk and fluctuations in the market values of its investment portfolio.
Given the global nature of its business, the Company has both domestic and international investments. Credit ratings and
pricing of the Company’s investments can be negatively affected by liquidity, credit deterioration, financial results, economic
risk, political risk, sovereign risk or other factors. As a result, the value and liquidity of the Company’s cash, cash equivalents
and marketable securities may fluctuate substantially. Therefore, although the Company has not realized any significant losses
on its cash, cash equivalents and marketable securities, future fluctuations in their value could result in a significant realized loss.
The Company is exposed to credit risk on its trade accounts receivable, vendor non-trade receivables and prepayments
related to long-term supply agreements, and 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. The Company also sells its products directly to small and mid-sized businesses and education, enterprise and
government customers. A substantial majority of the Company’s outstanding trade receivables are not covered by collateral,
third-party financing arrangements or credit insurance. The Company’s exposure to credit and collectability risk on its trade
receivables is higher in certain international markets and its ability to mitigate such risks may be limited. The Company also has
unsecured vendor non-trade receivables resulting from purchases of components by outsourcing partners and other vendors
that manufacture sub-assemblies or assemble final products for the Company. In addition, the Company has made
prepayments associated with long-term supply agreements to secure supply of inventory components. As of September 27,
2014, a significant portion of the Company’s trade receivables was concentrated within cellular network carriers, and its vendor
non-trade receivables and prepayments related to long-term supply agreements were concentrated among a few individual
vendors located primarily in Asia. 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.
The Company could be subject to changes in its tax rates, the adoption of new U.S. or international tax legislation or
exposure to additional tax liabilities.
The Company is subject to taxes in the U.S. and numerous foreign jurisdictions, including Ireland, where a number of the
Company’s subsidiaries are organized. Due to economic and political conditions, tax rates in various jurisdictions may be
subject to significant change. The Company’s future effective tax rates could be affected by changes in the mix of earnings in
countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, or changes in tax laws
or their interpretation, including in the U.S. and Ireland. For example, in June 2014, the European Commission opened a formal
investigation to examine whether decisions by the tax authorities in Ireland with regard to the corporate income tax to be paid
by two of the Company’s Irish subsidiaries comply with European Union rules on state aid. If the European Commission were to
take a final decision against Ireland, it could require changes to existing tax rulings that, in turn, could increase the Company’s
taxes in the future. The European Commission could also require Ireland to recover from the Company past taxes reflective of
the disallowed state aid.
The Company is also subject to the examination of its tax returns and other tax matters by the Internal Revenue Service and
other tax authorities and governmental bodies. The Company regularly assesses the likelihood of an adverse outcome resulting
from these examinations to determine the adequacy of its provision for taxes. There can be no assurance as to the outcome of
these examinations. If the Company’s effective tax rates were to increase, particularly in the U.S. or Ireland, or if the ultimate
determination of the Company’s taxes owed is for an amount in excess of amounts previously accrued, the Company’s
operating results, cash flows and financial condition could be adversely affected.
Item 1B. Unresolved Staff Comments
None.
Apple Inc. | 2014 Form 10-K | 19