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0000320193
20180801
10-Q
130
The Company had accrued $1.3 billion of gross interest and penalties as of June 30, 2018.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
131
Both the net unrecognized tax benefits and the interest and penalties are classified as other non-current liabilities in the Condensed Consolidated Balance Sheet.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
132
Apple Inc. | Q3 2018 Form 10-Q | 13 The Company is subject to taxation and files income tax returns in the U.S. federal jurisdiction and in many state and foreign jurisdictions.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
133
The U.S. Internal Revenue Service concluded its review of the years 2013 through 2015 during the third quarter of 2018.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
134
All years prior to 2016 are now closed.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
135
The Company is also subject to audits by state, local and foreign tax authorities.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
136
In major states and major foreign jurisdictions, the years subsequent to 2003 generally remain open and could be subject to examination by the taxing authorities.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
137
The Company believes that an adequate provision has been made for any adjustments that may result from tax examinations.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
138
However, the outcome of tax audits cannot be predicted with certainty.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
139
If any issues addressed in the Company’s tax audits are resolved in a manner inconsistent with its expectations, the Company could be required to adjust its provision for income taxes in the period such resolution occurs.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
140
Although timing of resolution and/or closure of audits is not certain, the Company believes it is reasonably possible that its gross unrecognized tax benefits could decrease (either by payment, release or a combination of both) in the next 12 months by as much as $500 million.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
141
European Commission State Aid Decision On August 30, 2016, the European Commission announced its decision that Ireland granted state aid to the Company by providing tax opinions in 1991 and 2007 concerning the tax allocation of profits of the Irish branches of two subsidiaries of the Company (the “State Aid Decision”).
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
142
The State Aid Decision ordered Ireland to calculate and recover additional taxes from the Company for the period June 2003 through December 2014.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
143
The recovery amount was calculated to be €13 billion, plus interest of €1 billion.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
144
Irish legislative changes, effective as of January 2015, eliminated the application of the tax opinions from that date forward.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
145
The Company believes the State Aid Decision to be without merit and appealed to the General Court of the Court of Justice of the European Union.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
146
Ireland has also appealed the State Aid Decision.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
147
The Company believes that any incremental Irish corporate income taxes potentially due related to the State Aid Decision would be creditable against U.S. taxes, subject to any foreign tax credit limitations in the Act.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
148
During the third quarter of 2018, the Company began funding amounts into escrow, where they will remain pending conclusion of all appeals.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
149
As of June 30, 2018, €4.5 billion of the recovery amount was funded into escrow and was restricted from general use.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
150
Refer to Note 2, “Financial Instruments” for more information.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
151
Subsequent to June 30, 2018, the Company has funded an additional €4.5 billion of the recovery amount into escrow.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
152
Note 5 - Debt Commercial Paper The Company issues unsecured short-term promissory notes (“Commercial Paper”) pursuant to a commercial paper program.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
153
The Company uses net proceeds from the commercial paper program for general corporate purposes, including dividends and share repurchases.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
154
As of both June 30, 2018 and September 30, 2017, the Company had $12.0 billion of Commercial Paper outstanding with maturities generally less than nine months.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
155
The weighted-average interest rate of the Company’s Commercial Paper was 2.03% as of June 30, 2018 and 1.20% as of September 30, 2017.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
156
The following table provides a summary of cash flows associated with the issuance and maturities of Commercial Paper for the nine months ended June 30, 2018 and July 1, 2017 (in millions): Term Debt As of June 30, 2018, the Company had outstanding floating- and fixed-rate notes with varying maturities for an aggregate ...
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
157
The Notes are senior unsecured obligations, and interest is payable in arrears, quarterly for the U.S. dollar-denominated and Australian dollar-denominated floating-rate notes, semi-annually for the U.S. dollar-denominated, Australian dollar-denominated, British pound-denominated, Japanese yen-denominated and Canadian ...
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
158
Apple Inc. | Q3 2018 Form 10-Q | 14 The following table provides a summary of the Company’s term debt as of June 30, 2018 and September 30, 2017: To manage interest rate risk on certain of its U.S. dollar-denominated fixed- or floating-rate notes, the Company has entered into interest rate swaps to effectively convert ...
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
159
Additionally, to manage foreign currency risk on certain of its foreign currency-denominated notes, the Company has entered into foreign currency swaps to effectively convert these notes to U.S. dollar-denominated notes.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
160
A portion of the Company’s Japanese yen-denominated notes is designated as a hedge of the foreign currency exposure of the Company’s net investment in a foreign operation.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
161
As of June 30, 2018 and September 30, 2017, the carrying value of the debt designated as a net investment hedge was $349 million and $1.6 billion, respectively.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
162
For further discussion regarding the Company’s use of derivative instruments, see the Derivative Financial Instruments section of Note 2, “Financial Instruments.” The effective interest rates for the Notes include the interest on the Notes, amortization of the discount or premium and, if applicable, adjustments related...
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
163
The Company recognized $780 million and $2.2 billion of interest expense on its term debt for the three- and nine-month periods ended June 30, 2018, respectively.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
164
The Company recognized $574 million and $1.6 billion of interest expense on its term debt for the three- and nine-month periods ended July 1, 2017, respectively.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
165
As of June 30, 2018 and September 30, 2017, the fair value of the Company’s Notes, based on Level 2 inputs, was $103.1 billion and $106.1 billion, respectively.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
166
Apple Inc. | Q3 2018 Form 10-Q | 15 Note 6 - Shareholders’ Equity Share Repurchase Program During the third quarter of 2018, the Company repurchased 112.8 million shares of its common stock for $20.0 billion in connection with two separate share repurchase programs.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
167
Of the $20.0 billion, $10.4 billion was repurchased under the Company’s previous share repurchase program of up to $210 billion, thereby completing that program.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
168
On May 1, 2018, the Company announced the Board of Directors had authorized a new program to repurchase up to $100 billion of the Company’s common stock.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
169
The remaining $9.6 billion repurchased during the third quarter of 2018 was in connection with the new share repurchase program.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
170
The Company’s new share repurchase program does not obligate it to acquire any specific number of shares.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
171
Under this program, shares may be repurchased in privately negotiated and/or open market transactions, including under plans complying with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
172
Note 7 - Comprehensive Income Comprehensive income consists of two components, net income and OCI.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
173
OCI refers to revenue, expenses, and gains and losses that under GAAP are recorded as an element of shareholders’ equity but are excluded from net income.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
174
The Company’s OCI consists of foreign currency translation adjustments from those subsidiaries not using the U.S. dollar as their functional currency, net deferred gains and losses on certain derivative instruments accounted for as cash flow hedges and unrealized gains and losses on marketable securities classified as ...
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
175
The following table shows the pre-tax amounts reclassified from AOCI into the Condensed Consolidated Statements of Operations, and the associated financial statement line item, for the three- and nine-month periods ended June 30, 2018 and July 1, 2017 (in millions): The following table shows the changes in AOCI by comp...
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
176
Apple Inc. | Q3 2018 Form 10-Q | 16 Note 8 - Benefit Plans Stock Plans The Company had 280.4 million shares reserved for future issuance under its stock plans as of June 30, 2018.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
177
Restricted stock units (“RSUs”) granted generally vest over four years, based on continued employment, and are settled upon vesting in shares of the Company’s common stock on a one-for-one basis.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
178
Each share issued with respect to RSUs granted under the Company’s stock plans reduces the number of shares available for grant under the plans by two shares.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
179
RSUs canceled and shares withheld to satisfy tax withholding obligations increase the number of shares available for grant under the plans utilizing a factor of two times the number of RSUs canceled or shares withheld.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
180
Rule 10b5-1 Trading Plans During the three months ended June 30, 2018, Section 16 officers Angela Ahrendts, Timothy D. Cook, Chris Kondo, Luca Maestri, Daniel Riccio, Philip Schiller and Jeffrey Williams had equity trading plans in place in accordance with Rule 10b5-1(c)(1) under the Exchange Act.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
181
An equity trading plan is a written document that pre-establishes the amounts, prices and dates (or formula for determining the amounts, prices and dates) of future purchases or sales of the Company’s stock, including shares acquired pursuant to the Company’s employee and director equity plans.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
182
Restricted Stock Units A summary of the Company’s RSU activity and related information for the nine months ended June 30, 2018 is as follows: The fair value as of the respective vesting dates of RSUs was $3.3 billion and $6.9 billion for the three- and nine-month periods ended June 30, 2018, respectively, and was $2.8 ...
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
183
Share-Based Compensation The following table shows a summary of the share-based compensation expense included in the Condensed Consolidated Statements of Operations for the three- and nine-month periods ended June 30, 2018 and July 1, 2017 (in millions): The income tax benefit related to share-based compensation expens...
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
184
As of June 30, 2018, the total unrecognized compensation cost related to outstanding RSUs and stock options was $10.4 billion, which the Company expects to recognize over a weighted-average period of 2.6 years.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
185
Apple Inc. | Q3 2018 Form 10-Q | 17 Note 9 - Commitments and Contingencies Accrued Warranty and Indemnification The following table shows changes in the Company’s accrued warranties and related costs for the three- and nine-month periods ended June 30, 2018 and July 1, 2017 (in millions): Agreements entered into by the...
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
186
Except as disclosed under the heading “Contingencies” below, in the opinion of management, there was not at least a reasonable possibility the Company may have incurred a material loss, or a material loss in excess of a recorded accrual, with respect to indemnification of third parties.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
187
The Company offers an iPhone Upgrade Program, which is available to customers who purchase a qualifying iPhone in the U.S., the U.K. and mainland China.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
188
The iPhone Upgrade Program provides customers the right to trade in that iPhone for a specified amount when purchasing a new iPhone, provided certain conditions are met.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
189
The Company accounts for the trade-in right as a guarantee liability and recognizes arrangement revenue net of the fair value of such right, with subsequent changes to the guarantee liability recognized within revenue.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
190
The Company has entered into indemnification agreements with its directors and executive officers.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
191
Under these agreements, the Company has agreed to indemnify such individuals to the fullest extent permitted by law against liabilities that arise by reason of their status as directors or officers of the Company and to advance expenses incurred by such individuals in connection with related legal proceedings.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
192
It is not possible to determine the maximum potential amount of payments the Company could be required to make under these agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each claim.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
193
While the Company maintains directors and officers liability insurance coverage, such insurance coverage may be insufficient to cover all losses or all types of claims that may arise.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
194
Concentrations in the Available Sources of Supply of Materials and Product Although most components essential to the Company’s business are generally available from multiple sources, a few components are currently obtained from single or limited sources.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
195
In addition, the Company competes for various components with other participants in the markets for mobile communication and media devices and personal computers.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
196
Therefore, many components used by the Company, including those that are available from multiple sources, are at times subject to industry-wide shortage and significant commodity pricing fluctuations that could materially adversely affect the Company’s financial condition and operating results.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
197
The Company uses some custom components that are not commonly used by its competitors, and new products introduced by the Company often utilize custom components available from only one source.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
198
When a component or product uses new technologies, initial capacity constraints may exist until the suppliers’ yields have matured or manufacturing capacity has increased.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
199
If the Company’s supply of components for a new or existing product were delayed or constrained, or if an outsourcing partner delayed shipments of completed products to the Company, the Company’s financial condition and operating results could be materially adversely affected.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
200
The Company’s business and financial performance could also be materially adversely affected depending on the time required to obtain sufficient quantities from the original source, or to identify and obtain sufficient quantities from an alternative source.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
201
Continued availability of these components at acceptable prices, or at all, may be affected if those suppliers decide to concentrate on the production of common components instead of components customized to meet the Company’s requirements.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
202
The Company has entered into agreements for the supply of many components; however, there can be no guarantee that the Company will be able to extend or renew these agreements on similar terms, or at all.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
203
Therefore, the Company remains subject to significant risks of supply shortages and price increases that could materially adversely affect its financial condition and operating results.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
204
Apple Inc. | Q3 2018 Form 10-Q | 18 Substantially all of the Company’s hardware products are manufactured by outsourcing partners that are located primarily in Asia, with some Mac computers manufactured in the U.S. and Ireland.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
205
A significant concentration of this manufacturing is currently performed by a small number of outsourcing partners, often in single locations.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
206
Certain of these outsourcing partners are the sole-sourced suppliers of components and manufacturers for many of the Company’s products.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
207
Although the Company works closely with its outsourcing partners on manufacturing schedules, the Company’s operating results could be adversely affected if its outsourcing partners were unable to meet their production commitments.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
208
The Company’s manufacturing purchase obligations typically cover its requirements for periods up to 150 days.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
209
Other Off-Balance Sheet Commitments Operating Leases The Company leases various equipment and facilities, including retail space, under noncancelable operating lease arrangements.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
210
The Company does not currently utilize any other off-balance sheet financing arrangements.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
211
As of June 30, 2018, the Company’s total future minimum lease payments under noncancelable operating leases were $9.6 billion.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
212
The Company’s retail store and other facility leases typically have original terms not exceeding 10 years and generally contain multi-year renewal options.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
213
Unconditional Purchase Obligations The Company has entered into certain off-balance sheet arrangements which require the future purchase of goods or services (“unconditional purchase obligations”).
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
214
The Company’s unconditional purchase obligations primarily consist of payments for supplier arrangements, internet and telecommunication services and intellectual property licenses.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
215
As of June 30, 2018, the Company’s total future payments under noncancelable unconditional purchase obligations having a remaining term in excess of one year were $8.5 billion.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
216
Contingencies The Company is subject to various legal proceedings and claims that have arisen in the ordinary course of business and that have not been fully adjudicated, as further discussed in Part II, Item 1 of this Form 10-Q under the heading “Legal Proceedings” and in Part II, Item 1A of this Form 10-Q under the h...
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
217
If one or more legal matters were resolved against the Company in a reporting period for amounts in excess of management’s expectations, the Company’s consolidated financial statements for that reporting period could be materially adversely affected.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
218
In the opinion of management, there was not at least a reasonable possibility the Company may have incurred a material loss, or a material loss in excess of a recorded accrual, with respect to loss contingencies for asserted legal and other claims, except for the following matters: VirnetX VirnetX, Inc. filed two lawsu...
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
219
On September 30, 2016, a jury returned a verdict in VirnetX I against the Company and awarded damages of $302 million, which later increased to $440 million in post-trial proceedings.
0000320193-18-000100/full-submission.txt
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20180801
10-Q
220
VirnetX I is currently on appeal at the U.S. Court of Appeals for the Federal Circuit (the “Federal Circuit”).
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
221
On April 11, 2018, a jury returned a verdict in VirnetX II against the Company and awarded damages of $503 million.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
222
VirnetX II is currently in post-trial proceedings and is expected to proceed to appeal thereafter.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
223
The Company has challenged the validity of the VirnetX Patents at the U.S. Patent and Trademark Office (the “PTO”).
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
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In response, the PTO has declared the VirnetX Patents invalid.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
225
VirnetX has appealed, and those appeals are currently pending at the Federal Circuit.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
226
The Federal Circuit has consolidated the Company’s appeal of the Eastern Texas District Court VirnetX I verdict and VirnetX’s appeals from the PTO invalidity proceedings.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
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The Company believes it will prevail on the merits.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
228
Qualcomm On January 20, 2017, the Company filed a lawsuit against Qualcomm Incorporated and affiliated parties (“Qualcomm”) in the U.S. District Court for the Southern District of California seeking, among other things, to enjoin Qualcomm from requiring the Company to pay royalties at the rate demanded by Qualcomm.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
229
As the Company does not believe the demanded royalty it has historically paid contract manufacturers for each applicable device is fair, reasonable and non-discriminatory, and believes it to be invalid and/or overstated in other respects as well, no Qualcomm-related royalty payments have been remitted by the Company to...
0000320193-18-000100/full-submission.txt