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0000320193
20180801
10-Q
230
The Company believes it will prevail on the merits of the case and has accrued its best estimate for the ultimate resolution of this matter.
0000320193-18-000100/full-submission.txt
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Apple Inc. | Q3 2018 Form 10-Q | 19 Note 10 - Segment Information and Geographic Data The Company reports segment information based on the “management” approach.
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The management approach designates the internal reporting used by management for making decisions and assessing performance as the source of the Company’s reportable segments.
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The Company manages its business primarily on a geographic basis.
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The Company’s reportable segments consist of the Americas, Europe, Greater China, Japan and Rest of Asia Pacific.
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Americas includes both North and South America.
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Europe includes European countries, as well as India, the Middle East and Africa.
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Greater China includes China, Hong Kong and Taiwan.
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Rest of Asia Pacific includes Australia and those Asian countries not included in the Company’s other reportable segments.
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Although the reportable segments provide similar hardware and software products and similar services, each one is managed separately to better align with the location of the Company’s customers and distribution partners and the unique market dynamics of each geographic region.
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The accounting policies of the various segments are the same as those described in Note 1, “Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements in Part II, Item 8 of the 2017 Form 10-K.
0000320193-18-000100/full-submission.txt
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The Company evaluates the performance of its reportable segments based on net sales and operating income.
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Net sales for geographic segments are generally based on the location of customers and sales through the Company’s retail stores located in those geographic locations.
0000320193-18-000100/full-submission.txt
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Operating income for each segment includes net sales to third parties, related cost of sales and operating expenses directly attributable to the segment.
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Advertising expenses are generally included in the geographic segment in which the expenditures are incurred.
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Operating income for each segment excludes other income and expense and certain expenses managed outside the reportable segments.
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Costs excluded from segment operating income include various corporate expenses such as research and development, corporate marketing expenses, certain share-based compensation expenses, income taxes, various nonrecurring charges and other separately managed general and administrative costs.
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The Company does not include intercompany transfers between segments for management reporting purposes.
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The following table shows information by reportable segment for the three- and nine-month periods ended June 30, 2018 and July 1, 2017 (in millions): Apple Inc. | Q3 2018 Form 10-Q | 20 A reconciliation of the Company’s segment operating income to the Condensed Consolidated Statements of Operations for the three- and n...
0000320193-18-000100/full-submission.txt
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Management’s Discussion and Analysis of Financial Condition and Results of Operations This section and other parts of this Quarterly Report on Form 10-Q (“Form 10-Q”) contain forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that involve risks and uncertainties.
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Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact.
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Forward-looking statements can also be identified by words such as “future,” “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “will,” “would,” “could,” “can,” “may,” and similar terms.
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Forward-looking statements are not guarantees of future performance and the Company’s actual results may differ significantly from the results discussed in the forward-looking statements.
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Factors that might cause such differences include, but are not limited to, those discussed in Part II, Item 1A of this Form 10-Q under the heading “Risk Factors,” which are incorporated herein by reference.
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The following discussion should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended September 30, 2017 (the “2017 Form 10-K”) filed with the U.S. Securities and Exchange Commission (the “SEC”) and the condensed consolidated financial statements and notes thereto included in Part I, I...
0000320193-18-000100/full-submission.txt
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All information presented herein is based on the Company’s fiscal calendar.
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Unless otherwise stated, references to particular years, quarters, months or periods refer to the Company’s fiscal years ended in September and the associated quarters, months and periods of those fiscal years.
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Each of the terms the “Company” and “Apple” as used herein refers collectively to Apple Inc. and its wholly-owned subsidiaries, unless otherwise stated.
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The Company assumes no obligation to revise or update any forward-looking statements for any reason, except as required by law.
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Available Information The Company’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to reports filed pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are filed with the SEC.
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The Company is subject to the informational requirements of the Exchange Act and files or furnishes reports, proxy statements, and other information with the SEC.
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Such reports and other information filed by the Company with the SEC are available free of charge on the Company’s website at investor.apple.com/sec.cfm when such reports are available on the SEC’s website.
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The public may read and copy any materials filed by the Company with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Room 1580, Washington, DC 20549.
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The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
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The SEC maintains an internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC at www.sec.gov.
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The information contained on the websites referenced in this Form 10-Q is not incorporated by reference into this filing.
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Further, the Company’s references to website URLs are intended to be inactive textual references only.
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Overview and Highlights The Company designs, manufactures and markets mobile communication and media devices and personal computers, and sells a variety of related software, services, accessories and third-party digital content and applications.
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The Company’s products and services include iPhone, iPad, Mac, Apple Watch, AirPods, Apple TV, HomePod, a portfolio of consumer and professional software applications, iOS, macOS, watchOS and tvOS operating systems, iCloud, Apple Pay and a variety of other accessory, service and support offerings.
0000320193-18-000100/full-submission.txt
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The Company sells and delivers digital content and applications through the iTunes Store, App Store, Mac App Store, TV App Store, iBooks Store and Apple Music (collectively “Digital Content and Services”).
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The Company sells its products worldwide through its retail stores, online stores and direct sales force, as well as through third-party cellular network carriers, wholesalers, retailers and resellers.
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In addition, the Company sells a variety of third-party Apple-compatible products, including application software and various accessories through its retail and online stores.
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The Company sells to consumers, small and mid-sized businesses and education, enterprise and government customers.
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Business Strategy The Company is committed to bringing the best user experience to its customers through its innovative hardware, software and services.
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The Company’s business strategy leverages its unique ability to design and develop its own operating systems, hardware, application software and services to provide its customers products and solutions with innovative design, superior ease-of-use and seamless integration.
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As part of its strategy, the Company continues to expand its platform for the discovery and delivery of digital content and applications through its Digital Content and Services, which allows customers to discover and download digital content, iOS, Mac, Apple Watch and Apple TV applications, and books through either a ...
0000320193-18-000100/full-submission.txt
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The Company also supports a community for the development of third-party software and hardware products and digital content that complement the Company’s offerings.
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The Company believes a high-quality buying experience with knowledgeable salespersons who can convey the value of the Company’s products and services greatly enhances its ability to attract and retain customers.
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Therefore, the Company’s strategy also includes building and expanding its own retail and online stores and its third-party distribution network to effectively reach more customers and provide them with a high-quality sales and post-sales support experience.
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The Company believes ongoing investment in research and development (“R&D”), marketing and advertising is critical to the development and sale of innovative products, services and technologies.
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Apple Inc. | Q3 2018 Form 10-Q | 22 Business Seasonality and Product Introductions The Company has historically experienced higher net sales in its first quarter compared to other quarters in its fiscal year due in part to seasonal holiday demand.
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Additionally, new product introductions can significantly impact net sales, product costs and operating expenses.
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Product introductions can also impact the Company’s net sales to its indirect distribution channels as these channels are filled with new product inventory following a product introduction, and channel inventory of a particular product often declines as the next related major product launch approaches.
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Net sales can also be affected when consumers and distributors anticipate a product introduction.
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However, neither historical seasonal patterns nor historical patterns of product introductions should be considered reliable indicators of the Company’s future pattern of product introductions, future net sales or financial performance.
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Fiscal Period The Company’s fiscal year is the 52- or 53-week period that ends on the last Saturday of September.
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The first quarter of 2018 spanned 13 weeks, whereas a 14th week was added to the first quarter of 2017, as is done every five or six years, to realign fiscal quarters with calendar quarters.
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Third Quarter Fiscal 2018 Highlights Net sales increased 17% or $7.9 billion during the third quarter of 2018 compared to the same quarter in 2017, primarily driven by higher net sales of iPhone, Services and Other Products.
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Additionally, the strength in foreign currencies relative to the U.S. dollar had a favorable impact on net sales during the third quarter of 2018 compared to the same quarter in 2017.
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Net sales increased year-over-year in each of the geographic reportable segments.
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During the third quarter of 2018, the Company announced iOS 12, macOS Mojave, watchOS 5 and tvOS 12, updates to its operating systems which are expected to be available in the fall of 2018.
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The Company spent $20.0 billion to repurchase shares of its common stock and paid dividends and dividend equivalents of $3.7 billion during the third quarter of 2018.
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Apple Inc. | Q3 2018 Form 10-Q | 23 Sales Data The following table shows net sales by reportable segment and net sales and unit sales by product for the three- and nine-month periods ended June 30, 2018 and July 1, 2017 (dollars in millions and units in thousands): (1) Includes deferrals and amortization of related sof...
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(2) Includes revenue from Digital Content and Services, AppleCare®, Apple Pay, licensing and other services.
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Services net sales in the third quarter of 2018 included a favorable one-time item of $236 million in connection with the final resolution of various lawsuits.
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(3) Includes sales of AirPods, Apple TV, Apple Watch, Beats® products, HomePod, iPod touch and other Apple-branded and third-party accessories.
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Apple Inc. | Q3 2018 Form 10-Q | 24 Product Performance iPhone The following table presents iPhone net sales and unit sales information for the three- and nine-month periods ended June 30, 2018 and July 1, 2017 (dollars in millions and units in thousands): iPhone net sales increased during the third quarter and first n...
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iPad The following table presents iPad net sales and unit sales information for the three- and nine-month periods ended June 30, 2018 and July 1, 2017 (dollars in millions and units in thousands): iPad net sales decreased during the third quarter of 2018 compared to the same period in 2017 due primarily to a different ...
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iPad net sales increased year-over-year during the first nine months of 2018 due primarily to higher iPad unit sales and the strength in foreign currencies relative to the U.S. dollar.
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Mac The following table presents Mac net sales and unit sales information for the three- and nine-month periods ended June 30, 2018 and July 1, 2017 (dollars in millions and units in thousands): Mac net sales decreased during the third quarter and first nine months of 2018 compared to the same periods in 2017 due prima...
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The launch of MacBook Pro® in the first quarter of 2017 and the updated Mac portables in the third quarter of 2017 contributed to higher Mac net sales and unit sales during the first nine months of 2017.
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Apple Inc. | Q3 2018 Form 10-Q | 25 Services The following table presents Services net sales information for the three- and nine-month periods ended June 30, 2018 and July 1, 2017 (dollars in millions): Services net sales increased during the third quarter and first nine months of 2018 compared to the same periods in 2...
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During the third quarter of 2018, the Company recognized a favorable one-time item of $236 million in connection with the final resolution of various lawsuits.
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Segment Operating Performance The Company manages its business primarily on a geographic basis.
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The Company’s reportable segments consist of the Americas, Europe, Greater China, Japan and Rest of Asia Pacific.
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Americas includes both North and South America.
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Europe includes European countries, as well as India, the Middle East and Africa.
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Greater China includes China, Hong Kong and Taiwan.
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Rest of Asia Pacific includes Australia and those Asian countries not included in the Company’s other reportable segments.
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Although the reportable segments provide similar hardware and software products and similar services, each one is managed separately to better align with the location of the Company’s customers and distribution partners and the unique market dynamics of each geographic region.
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Further information regarding the Company’s reportable segments can be found in Part I, Item 1 of this Form 10-Q in the Notes to Condensed Consolidated Financial Statements in Note 10, “Segment Information and Geographic Data.” Americas The following table presents Americas net sales information for the three- and nine...
0000320193-18-000100/full-submission.txt
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Europe The following table presents Europe net sales information for the three- and nine-month periods ended June 30, 2018 and July 1, 2017 (dollars in millions): Europe net sales increased during the third quarter and first nine months of 2018 compared to the same periods in 2017 due primarily to higher net sales of i...
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Additionally, the strength in foreign currencies relative to the U.S. dollar had a favorable impact on Europe net sales.
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Apple Inc. | Q3 2018 Form 10-Q | 26 Greater China The following table presents Greater China net sales information for the three- and nine-month periods ended June 30, 2018 and July 1, 2017 (dollars in millions): Greater China net sales increased during the third quarter of 2018 compared to the same period in 2017 due ...
0000320193-18-000100/full-submission.txt
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Greater China net sales increased year-over-year during the first nine months of 2018 due primarily to higher net sales of iPhone and Services.
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The strength in foreign currencies relative to the U.S. dollar also had a favorable impact on Greater China net sales during the third quarter and first nine months of 2018.
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Japan The following table presents Japan net sales information for the three- and nine-month periods ended June 30, 2018 and July 1, 2017 (dollars in millions): Japan net sales increased during the third quarter of 2018 compared to the same period in 2017 due primarily to higher net sales of Services.
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Japan net sales increased year-over-year during the first nine months of 2018 due primarily to higher net sales of iPhone and Services.
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Additionally, the value of the Japanese Yen relative to the U.S. dollar had a favorable impact on Japan net sales during the third quarter of 2018 and an unfavorable impact during the first nine months of 2018.
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Rest of Asia Pacific The following table presents Rest of Asia Pacific net sales information for the three- and nine-month periods ended June 30, 2018 and July 1, 2017 (dollars in millions): Rest of Asia Pacific net sales increased during the third quarter and first nine months of 2018 compared to the same periods in 2...
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Additionally, the strength in foreign currencies relative to the U.S. dollar had a favorable impact on Rest of Asia Pacific net sales.
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Apple Inc. | Q3 2018 Form 10-Q | 27 Gross Margin Gross margin for the three- and nine-month periods ended June 30, 2018 and July 1, 2017 was as follows (dollars in millions): Gross margin increased during the third quarter and first nine months of 2018 compared to the same periods in 2017 due primarily to higher Servic...
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Additionally, to a lesser extent the strength in foreign currencies relative to the U.S. dollar and higher year-over-year product unit sales had a favorable impact on gross margin.
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Gross margin percentage decreased during the third quarter and first nine months of 2018 compared to the same periods in 2017 due primarily to higher product cost structures, partially offset by a favorable shift in mix of products and Services.
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Additionally, the strength in foreign currencies relative to the U.S. dollar had a favorable impact on gross margin percentage.
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The Company anticipates gross margin percentage during the fourth quarter of 2018 to be between 38.0% and 38.5%.
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The foregoing statement regarding the Company’s expected gross margin percentage in the fourth quarter of 2018 is forward-looking and could differ from actual results.
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The Company’s future gross margins can be impacted by multiple factors including, but not limited to, those set forth in Part II, Item 1A of this Form 10-Q under the heading “Risk Factors” and those described in this paragraph.
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In general, the Company believes gross margins will remain under downward pressure due to a variety of factors, including: continued industry-wide global product pricing pressures and product pricing actions that the Company may take in response to such pressures; increased competition; the Company’s ability to effecti...
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Due to the Company’s significant international operations, its financial condition and operating results, including gross margins, could be significantly affected by fluctuations in exchange rates.
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