Apple 2015 Annual Report Download - page 18

The Company expects its quarterly revenue and operating results to fluctuate.
The Company’s profit margins vary across its products and distribution channels. The Company’s software, accessories, and service and
support contracts generally have higher gross margins than certain of the Company’s other products. Gross margins on the Company’s
hardware products vary across product lines and can change over time as a result of product transitions, pricing and configuration
changes, and component, warranty, and other cost fluctuations. The Company’s direct sales generally have higher associated gross
margins than its indirect sales through its channel partners. In addition, the Company’s gross margin and operating margin percentages,
as well as overall profitability, may be materially adversely impacted as a result of a shift in product, geographic or channel mix, component
cost increases, the strengthening U.S. dollar, price competition, or the introduction of new products, including those that have higher cost
structures with flat or reduced pricing.
The Company has typically experienced higher net sales in its first quarter compared to other quarters due in part to seasonal holiday
demand. Additionally, new product introductions can significantly impact net sales, product costs and operating expenses. Further, the
Company generates a majority of its net sales from a single product and a decline in demand for that product could significantly impact
quarterly net sales. The Company could also be subject to unexpected developments late in a quarter, such as lower-than-anticipated
demand for the Company’s products, issues with new product introductions, an internal systems failure, or failure of one of the
Company’s logistics, components supply, or manufacturing partners.
The Company’s stock price is subject to volatility.
The Company’s stock price has experienced substantial price volatility in the past and may continue to do so in the future. Additionally, the
Company, the technology industry and the stock market as a whole have experienced extreme stock price and volume fluctuations that
have affected stock prices in ways that may have been unrelated to these companies’ operating performance. Price volatility over a given
period may cause the average price at which the Company repurchases its own stock to exceed the stock’s price at a given point in time.
The Company believes its stock price should reflect expectations of future growth and profitability. The Company also believes its stock
price should reflect expectations that its cash dividend will continue at current levels or grow and that its current share repurchase
program will be fully consummated. Future dividends are subject to declaration by the Company’s Board of Directors, and the Company’s
share repurchase program does not obligate it to acquire any specific number of shares. If the Company fails to meet expectations related
to future growth, profitability, dividends, share repurchases or other market expectations, its stock price may decline significantly, which
could have a material adverse impact on investor confidence and employee retention.
The Company’s financial performance is subject to risks associated with changes in the value of the U.S. dollar versus local
currencies.
The Company’s primary exposure to movements in foreign currency exchange rates relates to non-U.S. dollar-denominated sales and
operating expenses worldwide. Weakening of foreign currencies relative to the U.S. dollar adversely affects the U.S. dollar value of the
Company’s foreign currency-denominated sales and earnings, and generally leads the Company to raise international pricing, potentially
reducing demand for the Company’s products. 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. In some circumstances, for competitive or other reasons, the Company may decide not to raise local prices to fully offset 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 relative to the U.S. dollar, while generally beneficial to the Company’s
foreign currency-denominated sales and earnings, could cause the Company to reduce international pricing and incur losses on its foreign
currency derivative instruments, thereby limiting the benefit. Additionally, strengthening of foreign currencies may also increase the
Company’s cost of product components denominated in those currencies, thus adversely affecting gross margins.
The Company uses derivative instruments, such as foreign currency forward and option contracts, 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 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.
Apple Inc. | 2015 Form 10-K | 16