Apple's scary Form 10-K
Apple on Wednesday filed its Form 10-K for fiscal year 2008, as required by the SEC.
And as is customary, the report includes a long section on "Risk Factors," in which it rattles off everything that could possibly go wrong with the company.
These things always make for unsettling reading, but this year's list of risks is longer than last years's and, given the economic climate, seems even scarier. Among the topics:
- The effects of a global financial meltdown
- New lawsuits stemming from the Apple stock option investigation
- Price cutting, piracy and Mac OS clones
- Badly managed product transitions in a particularly volatile environment
- Rapid product obsolescence and unexpected inventory write-downs
- Shortages of NAND flash memory, DRAM and LCDs, and associated price increases
- Disruptions in foreign contracts for manufacturing and logistics
- Deal-breaking demands by digital film and music suppliers
- Getting caught infringing on other people's patents
- Third-party software developers deciding to abandon ship
- The discovery of serious bugs and manufacturing defects in Apple products
- Late-in-the-quarter events that disrupt the usual seasonal fluctuations in sales and revenue
- Failure of overseas mobile phone carriers to properly support the iPhone
- Changing laws and regulations in overseas mobile phone markets
- System failures, network disruptions, breaches in data security
- Extreme fluctuations in the company's stock price
- Political events, war, terrorism, natural disasters and public health emergencies
- Difficulty attracting and retaining key personnel given the new option regulations
- Ongoing lawsuits decided against Apple
- Fluctuating foreign currency rates and changes in international tax laws, labor conditions etc.
- Declining sales in stores that have long leases and are particularly expensive to maintain
- Acquisitions and business strategies that go sour
- Distributors, resellers, wholesalers and catalog companies getting squeezed or going bankrupt
- Material losses in the company's $24.5 billion investment portfolio
- The effect of worsening economic conditions on unsecured non-trade receivables
- New laws and regulations related to health, safety and environmental protection
- Changes in the company's tax rates
- Insurance problems. "For certain risks, the Company does not maintain insurance coverage because of cost and/or availability"
Not listed: The risks associated with the company's dependence on the health and well being of Steve Jobs.
You can read the full text of Apple's (AAPL) 2008 10-K here.
Dan is on the right track.
They forgot to include the effects of manipulation by so-called analysts and bloggers.
Touchy people these AAPL minions are.
Unless you intend to hold the stock for a few years, I would sell it now and pocket the tidy sum. Not even AAPL is imune to a global recession. As the matter of fact, they are a premium brand and may be more adversely affected.
The potential risk portion of 10-k statements are supposed to be as much doom and gloom as the company can think of. Its purpose is to a) give as much notice to investors as possible and b) to avoid or defend against securities litigation. No company ever actually believes everything that can go wrong will go wrong.
You think Apple's outlook is grim?
feast your reader eyes on this…
Keep an eye on Big Blue's red line
Investor Daily: IBM's financial loans to customers have made it the undisputed king of business software. But beware: The credit crisis has turned that strategy into risky business.
SAN FRANCISCO (Fortune) — Debt has always been a four-letter word, but has become an especially dirty one during this credit crunch. These days, folks with plenty of cash and no debt are cast as paragons of fiscal virtue, while those that ran up credit card bills are not.
But consumers aren't the only ones who relied on debt during the good times. Companies did, too. And now that the global economy is in turmoil, companies of all sizes are struggling to manage obligations that didn't seem to be a problem before.
Which brings us to technology bellwether IBM Should we be at all mindful of IBM's $34 billion in debt? (That's right, billion. With a B.)
The answer: Yes – but not for the reasons you might think. Most of the debt on IBM's books is money it lent to its customers to help them buy its products. While Big Blue looks well positioned to ride out a financial crisis, we should watch whether its customers are able to pay back money they borrowed. If they get into real trouble, it could drag on IBM's earnings and provide an early sign of a tech meltdown.
Normally we don't think of tech companies as borrowers. Microsoft (and Apple are typical – they're well known for generating lots of cash and not carrying any debt. IBM, however, has a different strategy for managing its books. It has long borrowed money to help customers buy its products, and it recently borrowed to buy its own stock as well.
How has the debt strategy worked for IBM? The results speak for themselves: Not only is IBM the undisputed king of business software and services, it has used its strength to build a cash generation machine that helps it buy smaller companies and easily pay its bills.
Lately, though, the financial crisis is exposing a couple of potential downsides to IBM's debt. First, a small but growing number of IBM's customers can't pay back their loans, which leaves IBM holding the bill and could cause a drag on the company's earnings. Second, borrowing money to buy back its own shares at last year's higher prices may have been a sensible move, but IBM will still have to repay the debt with today's harder-won profits.
Analysts still express confidence in the company. Louis Miscioscia, an analyst with Cowen and Company, recently called IBM stock "a great place to hide in this turbulent time."
IBM says it's comfortable with its debt strategy. Jesse Greene Jr., IBM's vice president of financial management, pointed out that the company has used its cash to buy back shares for more than ten years, and only borrowed money to do it last year to take advantage of a tax loophole. (Experts have pegged IBM's tax savings at $1.6 billion.) On the financing front, some customers who borrowed money to buy IBM products are unable to pay their bills, but that's to be expected in a recession, he said. "We just have to man and keep our provision for doubtful accounts at high levels," Greene said.
Take a closer look, and there is indeed some cause for concern. The bulk of IBM's debt – about $24.5 billion of it – is from its financing arm. This works a little like the store credit cards from Macy's or Banana Republic, except instead of buying bedroom furniture or sweaters, businesses are buying servers and database software. IBM isn't alone in using financing to fuel its business; Hewlett-Packard's financing arm has $9 billion in loans outstanding, for example, and Oracle finances 15 percent of its sales. But IBM's in-house financing operation is probably the largest in the tech industry, and it's not yet clear how the company's customers will fare in a downturn.
"Maybe these newer customers in emerging markets might not be able to sustain the costs as well as IBM had thought, so that's a risk," says Tom Smith, equity analyst at Standard & Poor's.
There are signs of turbulence. In the quarter that ended September 30, when the financial crisis had barely begun, IBM set aside $128 million to cover debts that it expects its customers won't be able to pay. While that's pocket change for IBM, it's also more than the company has added to its debt reserve in the previous two years combined – and things could very well get tougher during the next few quarters.
IBM doesn't sound concerned; its financing customers are an especially creditworthy bunch, and most of them are in the U.S. and Europe. "The exposure to the emerging markets in the financing business is not as great as you might think," Greene said.
We'll just have to see whether the downturn gets bad enough to really hurt technology sales. If it does, one of the first places we'll see evidence is in IBM's credit statements.
Every 10K has risk statements like this. What is the story here? Get serious – Fortune of all publishers should know better than to push out meaningless drivel like this.
Tremendous coverage Elmer. I'm assuming you've read the risk section of other 10-K's before. Here I was focusing on the financials instead of the Risk Factors. What was I thinking??
THE SKY IS FALLING CHICKEN LITTLE!!!!!!!
SELL ALL YOUR APPL STOCK NOW!!!!!!!
Cause I'll buy it all up.
iJah420 says AAPL knows whats best for AAPL.
Other tech companies wish they had Apple's balance sheet.
They should list the bad press constantly showered on Apple by the business media. Here is a perfect example. Do you publish the 10K statements for many other stocks?
Also omitted:
Complete extinction of consumers, and thus sales, by an asteroid strike as early as 2012, or unraveling of the superstrings forming the universe by the Large Hadron Collider during mid-2009.
ex ped: Wouldn't asteroid strikes and unraveled superstrings fall under "natural disasters"?
Was there anything positive in the 10K or are you only able to accentuate the negative in your blog? Your continuously negative perspective gets tiring after a while?
Funny! You get paid for doing just that? (I can do that for any tech company)! I would like to see something more inteligent.
Aaahhh Protectionism, heart-warming. How many more want to comment how a 10k commentary is not worth publication by a financial periodical? Hey Chairman Cox stop wasting investors money by forcing companies to prepare meaningless reports. Of course a 10k is a worst case scenario, but it also was an Oracle of Delphi.(I feel so smart after coming up with that one!) Fools with blinders on should get side swiped.