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0000320193
20181105
10-K
771
The outcome of litigation is inherently uncertain.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
772
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 financial condition and operating results for that reporting period could be materially adversely affected.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
773
Item 7A.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
774
Quantitative and Qualitative Disclosures About Market Risk Interest Rate and Foreign Currency Risk Management The Company regularly reviews its foreign exchange forward and option positions and interest rate swaps, both on a stand-alone basis and in conjunction with its underlying foreign currency and interest rate exp...
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
775
Given the effective horizons of the Company’s risk management activities and the anticipatory nature of the exposures, there can be no assurance these positions will offset more than a portion of the financial impact resulting from movements in either foreign exchange or interest rates.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
776
Further, the recognition of the gains and losses related to these instruments may not coincide with the timing of gains and losses related to the underlying economic exposures and, therefore, may adversely affect the Company’s financial condition and operating results.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
777
Interest Rate Risk The Company’s exposure to changes in interest rates relates primarily to the Company’s investment portfolio and outstanding debt.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
778
While the Company is exposed to global interest rate fluctuations, the Company’s interest income and expense are most sensitive to fluctuations in U.S. interest rates.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
779
Changes in U.S. interest rates affect the interest earned on the Company’s cash, cash equivalents and marketable securities and the fair value of those securities, as well as costs associated with hedging and interest paid on the Company’s debt.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
780
The Company’s investment policy and strategy are focused on preservation of capital and supporting the Company’s liquidity requirements.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
781
The Company uses a combination of internal and external management to execute its investment strategy and achieve its investment objectives.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
782
The Company typically invests in highly rated securities, with the primary objective of minimizing the potential risk of principal loss.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
783
The Company’s investment policy generally requires securities to be investment grade and limits the amount of credit exposure to any one issuer.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
784
To provide a meaningful assessment of the interest rate risk associated with the Company’s investment portfolio, the Company performed a sensitivity analysis to determine the impact a change in interest rates would have on the value of the investment portfolio assuming a 100 basis point parallel shift in the yield curv...
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
785
Based on investment positions as of September 29, 2018 and September 30, 2017, a hypothetical 100 basis point increase in interest rates across all maturities would result in a $4.9 billion and $6.0 billion incremental decline in the fair market value of the portfolio, respectively.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
786
Such losses would only be realized if the Company sold the investments prior to maturity.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
787
Apple Inc. | 2018 Form 10-K | 35 As of September 29, 2018 and September 30, 2017, the Company had outstanding floating- and fixed-rate notes with varying maturities for an aggregate carrying amount of $102.5 billion and $103.7 billion, respectively.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
788
The Company has entered, and in the future may enter, into interest rate swaps to manage interest rate risk on its outstanding term debt.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
789
Interest rate swaps allow the Company to effectively convert fixed-rate payments into floating-rate payments or floating-rate payments into fixed-rate payments.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
790
Gains and losses on term debt are generally offset by the corresponding losses and gains on the related hedging instrument.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
791
A 100 basis point increase in market interest rates would cause interest expense on the Company’s debt as of September 29, 2018 and September 30, 2017 to increase by $399 million and $376 million on an annualized basis, respectively.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
792
Further details regarding the Company’s debt is provided in Part II, Item 8 of this Form 10-K in the Notes to Consolidated Financial Statements in Note 5, “Debt.” Foreign Currency Risk In general, the Company is a net receiver of currencies other than the U.S. dollar.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
793
Accordingly, changes in exchange rates, and in particular a strengthening of the U.S. dollar, will negatively affect the Company’s net sales and gross margins as expressed in U.S. dollars.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
794
There is a risk that the Company will have to adjust local currency product pricing due to competitive pressures when there has been significant volatility in foreign currency exchange rates.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
795
The Company may enter into foreign currency forward and option contracts with financial institutions to protect against foreign exchange risks associated with certain existing assets and liabilities, certain firmly committed transactions, forecasted future cash flows and net investments in foreign subsidiaries.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
796
In addition, the Company has entered, and in the future may enter, into foreign currency contracts to partially offset the foreign currency exchange gains and losses on its foreign currency-denominated debt issuances.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
797
The Company generally hedges portions of its forecasted foreign currency exposure associated with revenue and inventory purchases, typically for up to 12 months.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
798
However, the Company may choose not to hedge certain foreign exchange exposures for a variety of reasons including, but not limited to, accounting considerations or the prohibitive economic cost of hedging particular exposures.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
799
To provide a meaningful assessment of the foreign currency risk associated with certain of the Company’s foreign currency derivative positions, the Company performed a sensitivity analysis using a value-at-risk (“VAR”) model to assess the potential impact of fluctuations in exchange rates.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
800
The VAR model consisted of using a Monte Carlo simulation to generate thousands of random market price paths assuming normal market conditions.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
801
The VAR is the maximum expected loss in fair value, for a given confidence interval, to the Company’s foreign currency derivative positions due to adverse movements in rates.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
802
The VAR model is not intended to represent actual losses but is used as a risk estimation and management tool.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
803
Forecasted transactions, firm commitments and assets and liabilities denominated in foreign currencies were excluded from the model.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
804
Based on the results of the model, the Company estimates with 95% confidence, a maximum one-day loss in fair value of $592 million as of September 29, 2018 compared to a maximum one-day loss in fair value of $485 million as of September 30, 2017.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
805
Because the Company uses foreign currency instruments for hedging purposes, the losses in fair value incurred on those instruments are generally offset by increases in the fair value of the underlying exposures.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
806
Actual future gains and losses associated with the Company’s investment portfolio, debt and derivative positions may differ materially from the sensitivity analyses performed as of September 29, 2018 due to the inherent limitations associated with predicting the timing and amount of changes in interest rates, foreign c...
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
807
Apple Inc. | 2018 Form 10-K | 36 Item 8.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
808
Financial Statements and Supplementary Data All financial statement schedules have been omitted, since the required information is not applicable or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements and no...
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
809
Apple Inc. | 2018 Form 10-K | 37 Apple Inc. CONSOLIDATED STATEMENTS OF OPERATIONS (In millions, except number of shares which are reflected in thousands and per share amounts) See accompanying Notes to Consolidated Financial Statements.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
810
Apple Inc. | 2018 Form 10-K | 38 Apple Inc. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In millions) See accompanying Notes to Consolidated Financial Statements.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
811
Apple Inc. | 2018 Form 10-K | 39 Apple Inc. CONSOLIDATED BALANCE SHEETS (In millions, except number of shares which are reflected in thousands and par value) See accompanying Notes to Consolidated Financial Statements.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
812
Apple Inc. | 2018 Form 10-K | 40 Apple Inc. CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (In millions, except number of shares which are reflected in thousands and per share amounts) See accompanying Notes to Consolidated Financial Statements.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
813
Apple Inc. | 2018 Form 10-K | 41 Apple Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS (In millions) See accompanying Notes to Consolidated Financial Statements.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
814
Apple Inc. | 2018 Form 10-K | 42 Apple Inc. Notes to Consolidated Financial Statements Note 1 - Summary of Significant Accounting Policies Apple Inc. and its wholly-owned subsidiaries (collectively “Apple” or the “Company”) designs, manufactures and markets mobile communication and media devices and personal computers,...
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
815
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.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
816
The Company sells and delivers digital content and applications through the iTunes Store, App Store, Mac App Store, TV App Store, Book Store and Apple Music (collectively “Digital Content and Services”).
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
817
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.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
818
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.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
819
The Company sells to consumers, small and mid-sized businesses and education, enterprise and government customers.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
820
Basis of Presentation and Preparation The accompanying consolidated financial statements include the accounts of the Company.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
821
Intercompany accounts and transactions have been eliminated.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
822
In the opinion of the Company’s management, the consolidated financial statements reflect all adjustments, which are normal and recurring in nature, necessary for fair financial statement presentation.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
823
The preparation of these consolidated financial statements and accompanying notes in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
824
Actual results could differ materially from those estimates.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
825
Certain prior period amounts in the consolidated financial statements and accompanying notes have been reclassified to conform to the current period’s presentation.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
826
The Company’s fiscal year is the 52- or 53-week period that ends on the last Saturday of September.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
827
The Company’s fiscal years 2018 and 2016 spanned 52 weeks each, whereas fiscal year 2017 included 53 weeks.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
828
A 14th week was included in the first fiscal quarter of 2017, as is done every five or six years, to realign the Company’s fiscal quarters with calendar quarters.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
829
Unless otherwise stated, references to particular years, quarters, months and periods refer to the Company’s fiscal years ended in September and the associated quarters, months and periods of those fiscal years.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
830
Revenue Recognition Net sales consist primarily of revenue from the sale of hardware, software, digital content and applications, accessories, and service and support contracts.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
831
The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable and collection is probable.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
832
Product is considered delivered to the customer once it has been shipped and title, risk of loss and rewards of ownership have been transferred.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
833
For most of the Company’s product sales, these criteria are met at the time the product is shipped.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
834
For online sales to individuals, for some sales to education customers in the U.S., and for certain other sales, the Company defers revenue until the customer receives the product because the Company retains a portion of the risk of loss on these sales during transit.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
835
For payment terms in excess of the Company’s standard payment terms, revenue is recognized as payments become due unless the Company has positive evidence that the sales price is fixed or determinable, such as a successful history of collection, without concession, on comparable arrangements.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
836
The Company recognizes revenue from the sale of hardware products, software bundled with hardware that is essential to the functionality of the hardware and third-party digital content sold on the iTunes Store in accordance with general revenue recognition accounting guidance.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
837
The Company recognizes revenue in accordance with industry-specific software accounting guidance for the following types of sales transactions: (i) standalone sales of software products, (ii) sales of software upgrades and (iii) sales of software bundled with hardware not essential to the functionality of the hardware.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
838
For the sale of most third-party products, the Company recognizes revenue based on the gross amount billed to customers because the Company establishes its own pricing for such products, retains related inventory risk for physical products, is the primary obligor to the customer and assumes the credit risk for amounts ...
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
839
For third-party applications sold through the App Store and Mac App Store and certain digital content sold through the iTunes Store, the Company does not determine the selling price of the products and is not the primary obligor to the customer.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
840
Therefore, the Company accounts for such sales on a net basis by recognizing in net sales only the commission it retains from each sale.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
841
The portion of the gross amount billed to customers that is remitted by the Company to third-party app developers and certain digital content owners is not reflected in the Company’s Consolidated Statements of Operations.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
842
Apple Inc. | 2018 Form 10-K | 43 The Company records deferred revenue when it receives payments in advance of the delivery of products or the performance of services.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
843
This includes amounts that have been deferred for unspecified and specified software upgrade rights and non-software services that are attached to hardware and software products.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
844
The Company sells gift cards redeemable at its retail and online stores, and also sells gift cards redeemable on iTunes Store, App Store, Mac App Store, TV App Store and Book Store for the purchase of digital content and software.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
845
The Company records deferred revenue upon the sale of the card, which is relieved upon redemption of the card by the customer.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
846
Revenue from AppleCare service and support contracts is deferred and recognized over the service coverage periods.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
847
AppleCare service and support contracts typically include extended phone support, repair services, web-based support resources and diagnostic tools offered under the Company’s standard limited warranty.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
848
The Company records reductions to revenue for estimated commitments related to price protection and other customer incentive programs.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
849
For transactions involving price protection, the Company recognizes revenue net of the estimated amount to be refunded.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
850
For the Company’s other customer incentive programs, the estimated cost of these programs is recognized at the later of the date at which the Company has sold the product or the date at which the program is offered.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
851
The Company also records reductions to revenue for expected future product returns based on the Company’s historical experience.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
852
Revenue is recorded net of taxes collected from customers that are remitted to governmental authorities, with the collected taxes recorded as current liabilities until remitted to the relevant government authority.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
853
Revenue Recognition for Arrangements with Multiple Deliverables For multi-element arrangements that include hardware products containing software essential to the hardware product’s functionality, undelivered software elements that relate to the hardware product’s essential software, and undelivered non-software servic...
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
854
In such circumstances, the Company uses a hierarchy to determine the selling price to be used for allocating revenue to deliverables: (i) vendor-specific objective evidence of fair value (“VSOE”), (ii) third-party evidence of selling price (“TPE”) and (iii) best estimate of selling price (“ESP”).
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
855
VSOE generally exists only when the Company sells the deliverable separately and is the price actually charged by the Company for that deliverable.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
856
ESPs reflect the Company’s best estimates of what the selling prices of elements would be if they were sold regularly on a stand-alone basis.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
857
For multi-element arrangements accounted for in accordance with industry-specific software accounting guidance, the Company allocates revenue to all deliverables based on the VSOE of each element, and if VSOE does not exist revenue is recognized when elements lacking VSOE are delivered.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
858
For sales of iPhone, iPad, Mac and certain other products, the Company has indicated it may from time to time provide future unspecified software upgrades to the device’s essential software and/or non-software services free of charge.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
859
The Company has identified up to three deliverables regularly included in arrangements involving the sale of these devices.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
860
The first deliverable, which represents the substantial portion of the allocated sales price, is the hardware and software essential to the functionality of the hardware device delivered at the time of sale.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
861
The second deliverable is the embedded right included with qualifying devices to receive, on a when-and-if-available basis, future unspecified software upgrades relating to the product’s essential software.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
862
The third deliverable is the non-software services to be provided to qualifying devices.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
863
The Company allocates revenue between these deliverables using the relative selling price method.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
864
Because the Company has neither VSOE nor TPE for these deliverables, the allocation of revenue is based on the Company’s ESPs.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
865
Revenue allocated to the delivered hardware and the related essential software is recognized at the time of sale, provided the other conditions for revenue recognition have been met.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
866
Revenue allocated to the embedded unspecified software upgrade rights and the non-software services is deferred and recognized on a straight-line basis over the estimated period the software upgrades and non-software services are expected to be provided.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
867
Cost of sales related to delivered hardware and related essential software, including estimated warranty costs, are recognized at the time of sale.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
868
Costs incurred to provide non-software services are recognized as cost of sales as incurred, and engineering and sales and marketing costs are recognized as operating expenses as incurred.
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
869
The Company’s process for determining its ESP for deliverables without VSOE or TPE considers multiple factors that may vary depending upon the unique facts and circumstances related to each deliverable including, where applicable, prices charged by the Company and market trends in the pricing for similar offerings, pro...
0000320193-18-000145/full-submission.txt
0000320193
20181105
10-K
870
Shipping Costs Amounts billed to customers related to shipping and handling are classified as revenue, and the Company’s shipping and handling costs are classified as cost of sales.
0000320193-18-000145/full-submission.txt