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0000320193
20170201
10-Q
392
The Company’s other non-current liabilities in the Condensed Consolidated Balance Sheets consist primarily of deferred tax liabilities, gross unrecognized tax benefits and the related gross interest and penalties.
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
393
As of December 31, 2016, the Company had non-current deferred tax liabilities of $26.9 billion, gross unrecognized tax benefits of $8.5 billion and an additional $1.2 billion for gross interest and penalties.
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
394
Indemnification The Company generally does not indemnify end-users of its operating system and application software against legal claims that the software infringes third-party intellectual property rights.
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
395
Other agreements entered into by the Company sometimes include indemnification provisions under which the Company could be subject to costs and/or damages in the event of an infringement claim against the Company or an indemnified third-party.
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
396
In the opinion of management, there was not at least a reasonable possibility the Company may have incurred a material loss with respect to indemnification of end-users of its operating system or application software for infringement of third-party intellectual property rights.
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
397
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.
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
398
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.
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
399
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.
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
400
The Company has entered into indemnification agreements with its directors and executive officers.
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
401
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 and to advance expenses incurred by such individuals in connection with related legal proceedings.
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
402
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.
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
403
However, the Company maintains directors and officers liability insurance coverage to reduce its exposure to such obligations.
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
404
Critical Accounting Policies and Estimates The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles and the Company’s discussion and analysis of its financial condition and operating results require the Company’s management to make judgments, assum...
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
405
Management bases its estimates on historical experience and on various other assumptions it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities.
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
406
Actual results may differ from these estimates, and such differences may be material.
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
407
Note 1, “Summary of Significant Accounting Policies” in Part I, Item 1 of this Form 10-Q and in the Notes to Consolidated Financial Statements in Part II, Item 8 of the 2016 Form 10-K, and “Critical Accounting Policies and Estimates” in Part I, Item 7 of the 2016 Form 10-K describe the significant accounting policies a...
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
408
There have been no material changes to the Company’s critical accounting policies and estimates since the 2016 Form 10-K.
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
409
Item 3.
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
410
Quantitative and Qualitative Disclosures About Market Risk There have been no material changes to the Company’s market risk during the first quarter of 2017.
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
411
For a discussion of the Company’s exposure to market risk, refer to the Company’s market risk disclosures set forth in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” of the 2016 Form 10-K.
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
412
Item 4.
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
413
Controls and Procedures Evaluation of Disclosure Controls and Procedures Based on an evaluation under the supervision and with the participation of the Company’s management, the Company’s principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures as ...
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
414
Changes in Internal Control Over Financial Reporting There were no changes in the Company’s internal control over financial reporting during the first quarter of 2017, which were identified in connection with management’s evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act, that have ...
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
415
PART II - OTHER INFORMATION Item 1.
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
416
Legal Proceedings The Company is subject to legal proceedings and claims that have not been fully resolved and that have arisen in the ordinary course of business.
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
417
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.
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
418
However, the outcome of legal proceedings and claims brought against the Company is subject to significant uncertainty.
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
419
Therefore, although management considers the likelihood of such an outcome to be remote, if one or more of these 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 ma...
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
420
See the risk factor “The Company could be impacted by unfavorable results of legal proceedings, such as being found to have infringed on intellectual property rights” in Part II, Item 1A of this Form 10-Q under the heading “Risk Factors.” The Company settled certain matters during the first quarter of 2017 that did not...
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
421
Item 1A.
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
422
Risk Factors The following description of risk factors includes any material changes to, and supersedes the description of, risk factors associated with the Company’s business previously disclosed in Part I, Item 1A of the 2016 Form 10-K under the heading “Risk Factors.” The business, financial condition and operating ...
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
423
Any of these factors, in whole or in part, could materially and adversely affect the Company’s business, financial condition, operating results and stock price.
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
424
The following discussion of risk factors contains forward-looking statements.
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
425
These risk factors may be important to understanding other statements in this Form 10-Q.
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
426
The following information should be read in conjunction with the condensed consolidated financial statements and related notes in Part I, Item 1, “Financial Statements” and Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Form 10-Q.
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
427
Because of the following factors, as well as other factors affecting the Company’s financial condition and operating results, past financial performance should not be considered to be a reliable indicator of future performance, and investors should not use historical trends to anticipate results or trends in future per...
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
428
Global and regional economic conditions could materially adversely affect the Company.
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
429
The Company’s operations and performance depend significantly on global and regional economic conditions.
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
430
Uncertainty about global and regional economic conditions poses a risk as consumers and businesses may postpone spending in response to tighter credit, higher unemployment, financial market volatility, government austerity programs, negative financial news, declines in income or asset values and/or other factors.
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
431
These worldwide and regional economic conditions could have a material adverse effect on demand for the Company’s products and services.
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
432
Demand also could differ materially from the Company’s expectations as a result of currency fluctuations because the Company generally raises prices on goods and services sold outside the U.S. to correspond with the effect of a strengthening of the U.S. dollar.
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
433
Other factors that could influence worldwide or regional demand include changes in fuel and other energy costs, conditions in the real estate and mortgage markets, unemployment, labor and healthcare costs, access to credit, consumer confidence and other macroeconomic factors affecting consumer spending behavior.
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
434
These and other economic factors could materially adversely affect demand for the Company’s products and services.
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
435
In the event of financial turmoil affecting the banking system and financial markets, additional consolidation of the financial services industry, or significant financial service institution failures, there could be tightening in the credit markets, low liquidity and extreme volatility in fixed income, credit, currenc...
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
436
This could have a number of effects on the Company’s business, including the insolvency or financial instability of outsourcing partners or suppliers or their inability to obtain credit to finance development and/or manufacture products resulting in product delays; inability of customers, including channel partners, to...
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
437
Other income and expense also could vary materially from expectations depending on gains or losses realized on the sale or exchange of financial instruments; impairment charges resulting from revaluations of debt and equity securities and other investments; changes in interest rates; increases or decreases in cash bala...
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
438
Increased volatility in the financial markets and overall economic uncertainty would increase the risk of the actual amounts realized in the future on the Company’s financial instruments differing significantly from the fair values currently assigned to them.
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
439
Global markets for the Company’s products and services are highly competitive and subject to rapid technological change, and the Company may be unable to compete effectively in these markets.
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
440
The Company’s products and services compete in highly competitive global markets characterized by aggressive price cutting and resulting downward pressure on gross margins, frequent introduction of new products, short product life cycles, evolving industry standards, continual improvement in product price/performance c...
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
441
The Company’s ability to compete successfully depends heavily on its ability to ensure a continuing and timely introduction of innovative new products, services and technologies to the marketplace.
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
442
The Company believes it is unique in that it designs and develops nearly the entire solution for its products, including the hardware, operating system, numerous software applications and related services.
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
443
As a result, the Company must make significant investments in R&D.
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
444
The Company currently holds a significant number of patents and copyrights and has registered and/or has applied to register numerous patents, trademarks and service marks.
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
445
In contrast, many of the Company’s competitors seek to compete primarily through aggressive pricing and very low cost structures, and emulating the Company's products and infringing on its intellectual property.
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
446
If the Company is unable to continue to develop and sell innovative new products with attractive margins or if competitors infringe on the Company’s intellectual property, the Company’s ability to maintain a competitive advantage could be adversely affected.
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
447
The Company markets certain mobile communication and media devices based on the iOS mobile operating system and also markets related services, including third-party digital content and applications.
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
448
The Company faces substantial competition in these markets from companies that have significant technical, marketing, distribution and other resources, as well as established hardware, software and digital content supplier relationships; and the Company has a minority market share in the global smartphone market.
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
449
Additionally, the Company faces significant price competition as competitors reduce their selling prices and attempt to imitate the Company’s product features and applications within their own products or, alternatively, collaborate with each other to offer solutions that are more competitive than those they currently ...
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
450
The Company competes with business models that provide content to users for free.
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
451
The Company also competes with illegitimate means to obtain third-party digital content and applications.
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
452
Some of the Company’s competitors have greater experience, product breadth and distribution channels than the Company.
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
453
Because some current and potential competitors have substantial resources and/or experience and a lower cost structure, they may be able to provide products and services at little or no profit or even at a loss.
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
454
The Company also expects competition to intensify as competitors attempt to imitate the Company’s approach to providing components seamlessly within their individual offerings or work collaboratively to offer integrated solutions.
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
455
The Company’s financial condition and operating results depend substantially on the Company’s ability to continually improve iOS and iOS devices in order to maintain their functional and design advantages.
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
456
The Company is the only authorized maker of hardware using macOS, which has a minority market share in the personal computer market.
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
457
This market has been contracting and is dominated by computer makers using competing operating systems, most notably Windows.
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
458
In the market for personal computers and accessories, the Company faces a significant number of competitors, many of which have broader product lines, lower priced products and a larger installed customer base.
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
459
Historically, consolidation in this market has resulted in larger competitors.
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
460
Price competition has been particularly intense as competitors have aggressively cut prices and lowered product margins.
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
461
An increasing number of internet-enabled devices that include software applications and are smaller and simpler than traditional personal computers compete for market share with the Company’s existing products.
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
462
The Company’s financial condition and operating results also depend on its ability to continually improve the Mac platform to maintain its functional and design advantages.
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
463
There can be no assurance the Company will be able to continue to provide products and services that compete effectively.
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
464
To remain competitive and stimulate customer demand, the Company must successfully manage frequent product introductions and transitions.
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
465
Due to the highly volatile and competitive nature of the industries in which the Company competes, the Company must continually introduce new products, services and technologies, enhance existing products and services, effectively stimulate customer demand for new and upgraded products and successfully manage the trans...
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
466
The success of new product introductions depends on a number of factors including, but not limited to, timely and successful product development, market acceptance, the Company’s ability to manage the risks associated with new product production ramp-up issues, the availability of application software for new products,...
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
467
Accordingly, the Company cannot determine in advance the ultimate effect of new product introductions and transitions.
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
468
The Company depends on the performance of distributors, carriers and other resellers.
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
469
The Company distributes its products through cellular network carriers, wholesalers, national and regional retailers and value-added resellers, many of whom distribute products from competing manufacturers.
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
470
The Company also sells its products and third-party products in most of its major markets directly to education, enterprise and government customers and consumers and small and mid-sized businesses through its retail and online stores.
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
471
Some carriers providing cellular network service for iPhone subsidize users’ purchases of the device.
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
472
There is no assurance that such subsidies will be continued at all or in the same amounts upon renewal of the Company’s agreements with these carriers or in agreements the Company enters into with new carriers.
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
473
The Company has invested and will continue to invest in programs to enhance reseller sales, including staffing selected resellers’ stores with Company employees and contractors, and improving product placement displays.
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
474
These programs could require a substantial investment while providing no assurance of return or incremental revenue.
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
475
The financial condition of these resellers could weaken, these resellers could stop distributing the Company’s products, or uncertainty regarding demand for some or all of the Company’s products could cause resellers to reduce their ordering and marketing of the Company’s products.
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
476
The Company faces substantial inventory and other asset risk in addition to purchase commitment cancellation risk.
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
477
The Company records a write-down for product and component inventories that have become obsolete or exceed anticipated demand or net realizable value and accrues necessary cancellation fee reserves for orders of excess products and components.
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
478
The Company also reviews its long-lived assets, including capital assets held at its suppliers’ facilities and inventory prepayments, for impairment whenever events or circumstances indicate the carrying amount of an asset may not be recoverable.
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
479
If the Company determines that impairment has occurred, it records a write-down equal to the amount by which the carrying value of the assets exceeds its fair value.
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
480
Although the Company believes its provisions related to inventory, capital assets, inventory prepayments and other assets and purchase commitments are currently adequate, no assurance can be given that the Company will not incur additional related charges given the rapid and unpredictable pace of product obsolescence i...
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
481
The Company must order components for its products and build inventory in advance of product announcements and shipments.
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
482
Consistent with industry practice, components are normally acquired through a combination of purchase orders, supplier contracts and open orders, in each case based on projected demand.
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
483
Manufacturing purchase obligations typically cover forecasted component and manufacturing requirements for periods up to 150 days.
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
484
Because the Company’s markets are volatile, competitive and subject to rapid technology and price changes, there is a risk the Company will forecast incorrectly and order or produce excess or insufficient amounts of components or products, or not fully utilize firm purchase commitments.
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
485
Future operating results depend upon the Company’s ability to obtain components in sufficient quantities on commercially reasonable terms.
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
486
Because the Company currently obtains components from single or limited sources, the Company is subject to significant supply and pricing risks.
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
487
Many components, including those that are available from multiple sources, are at times subject to industry-wide shortages and significant commodity pricing fluctuations.
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
488
While the Company has entered into agreements for the supply of many components, there can be no assurance that the Company will be able to extend or renew these agreements on similar terms, or at all.
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
489
A number of suppliers of components may suffer from poor financial conditions, which can lead to business failure for the supplier or consolidation within a particular industry, further limiting the Company’s ability to obtain sufficient quantities of components on commercially reasonable terms.
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
490
The effects of global or regional economic conditions on the Company’s suppliers, described in “Global and regional economic conditions could materially adversely affect the Company” above, also could affect the Company’s ability to obtain components.
0001628280-17-000717/full-submission.txt
0000320193
20170201
10-Q
491
Therefore, the Company remains subject to significant risks of supply shortages and price increases.
0001628280-17-000717/full-submission.txt