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0000320193
20170802
10-Q
28
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 value-added resellers.
0000320193-17-000009/full-submission.txt
0000320193
20170802
10-Q
29
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.
0000320193-17-000009/full-submission.txt
0000320193
20170802
10-Q
30
The Company sells to consumers, small and mid-sized businesses and education, enterprise and government customers.
0000320193-17-000009/full-submission.txt
0000320193
20170802
10-Q
31
Basis of Presentation and Preparation The accompanying condensed consolidated financial statements include the accounts of the Company.
0000320193-17-000009/full-submission.txt
0000320193
20170802
10-Q
32
Intercompany accounts and transactions have been eliminated.
0000320193-17-000009/full-submission.txt
0000320193
20170802
10-Q
33
In the opinion of the Company’s management, the condensed consolidated financial statements reflect all adjustments, which are normal and recurring in nature, necessary for fair financial statement presentation.
0000320193-17-000009/full-submission.txt
0000320193
20170802
10-Q
34
The preparation of these condensed consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in these condensed consolidated financial statements and accompanying notes.
0000320193-17-000009/full-submission.txt
0000320193
20170802
10-Q
35
Actual results could differ materially from those estimates.
0000320193-17-000009/full-submission.txt
0000320193
20170802
10-Q
36
Certain prior period amounts in the condensed consolidated financial statements have been reclassified to conform to the current period’s presentation.
0000320193-17-000009/full-submission.txt
0000320193
20170802
10-Q
37
These condensed consolidated financial statements and accompanying notes should be read in conjunction with the Company’s annual consolidated financial statements and the notes thereto included in its Annual Report on Form 10-K for the fiscal year ended September 24, 2016 (the “2016 Form 10-K”).
0000320193-17-000009/full-submission.txt
0000320193
20170802
10-Q
38
The Company’s fiscal year is the 52 or 53-week period that ends on the last Saturday of September.
0000320193-17-000009/full-submission.txt
0000320193
20170802
10-Q
39
The Company’s fiscal year 2017 will include 53 weeks and ends on September 30, 2017 and its fiscal year 2016 included 52 weeks and ended on September 24, 2016.
0000320193-17-000009/full-submission.txt
0000320193
20170802
10-Q
40
A 14th week was included in the first quarter of 2017, as is done every five or six years, to realign fiscal quarters with calendar quarters.
0000320193-17-000009/full-submission.txt
0000320193
20170802
10-Q
41
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.
0000320193-17-000009/full-submission.txt
0000320193
20170802
10-Q
42
Earnings Per Share Basic earnings per share is computed by dividing income available to common shareholders by the weighted-average number of shares of common stock outstanding during the period.
0000320193-17-000009/full-submission.txt
0000320193
20170802
10-Q
43
Diluted earnings per share is computed by dividing income available to common shareholders by the weighted-average number of shares of common stock outstanding during the period increased to include the number of additional shares of common stock that would have been outstanding if the potentially dilutive securities h...
0000320193-17-000009/full-submission.txt
0000320193
20170802
10-Q
44
Potentially dilutive securities include outstanding stock options, shares to be purchased by employees under the Company’s employee stock purchase plan, unvested restricted stock and unvested restricted stock units (“RSUs”).
0000320193-17-000009/full-submission.txt
0000320193
20170802
10-Q
45
The dilutive effect of potentially dilutive securities is reflected in diluted earnings per share by application of the treasury stock method.
0000320193-17-000009/full-submission.txt
0000320193
20170802
10-Q
46
Under the treasury stock method, an increase in the fair market value of the Company’s common stock can result in a greater dilutive effect from potentially dilutive securities.
0000320193-17-000009/full-submission.txt
0000320193
20170802
10-Q
47
Apple Inc. | Q3 2017 Form 10-Q | 5 The following table shows the computation of basic and diluted earnings per share for the three- and nine-month periods ended July 1, 2017 and June 25, 2016 (net income in millions and shares in thousands): Potentially dilutive securities whose effect would have been antidilutive are ...
0000320193-17-000009/full-submission.txt
0000320193
20170802
10-Q
48
Note 2 - Financial Instruments Cash, Cash Equivalents and Marketable Securities The following tables show the Company’s cash and available-for-sale securities by significant investment category as of July 1, 2017 and September 24, 2016 (in millions): Apple Inc. | Q3 2017 Form 10-Q | 6 (1) Level 1 fair value estimates a...
0000320193-17-000009/full-submission.txt
0000320193
20170802
10-Q
49
(2) Level 2 fair value estimates are based on observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for subs...
0000320193-17-000009/full-submission.txt
0000320193
20170802
10-Q
50
The Company may sell certain of its marketable securities prior to their stated maturities for strategic reasons including, but not limited to, anticipation of credit deterioration and duration management.
0000320193-17-000009/full-submission.txt
0000320193
20170802
10-Q
51
The maturities of the Company’s long-term marketable securities generally range from one to five years.
0000320193-17-000009/full-submission.txt
0000320193
20170802
10-Q
52
The Company considers the declines in market value of its marketable securities investment portfolio to be temporary in nature.
0000320193-17-000009/full-submission.txt
0000320193
20170802
10-Q
53
The Company typically invests in highly-rated securities, and its investment policy generally limits the amount of credit exposure to any one issuer.
0000320193-17-000009/full-submission.txt
0000320193
20170802
10-Q
54
The policy generally requires investments to be investment grade, with the primary objective of minimizing the potential risk of principal loss.
0000320193-17-000009/full-submission.txt
0000320193
20170802
10-Q
55
Fair values were determined for each individual security in the investment portfolio.
0000320193-17-000009/full-submission.txt
0000320193
20170802
10-Q
56
When evaluating an investment for other-than-temporary impairment, the Company reviews factors such as the length of time and extent to which fair value has been below its cost basis, the financial condition of the issuer and any changes thereto, changes in market interest rates and the Company’s intent to sell, or whe...
0000320193-17-000009/full-submission.txt
0000320193
20170802
10-Q
57
As of July 1, 2017, the Company does not consider any of its investments to be other-than-temporarily impaired.
0000320193-17-000009/full-submission.txt
0000320193
20170802
10-Q
58
Derivative Financial Instruments The Company may use derivatives to partially offset its business exposure to foreign currency and interest rate risk on expected future cash flows, on net investments in certain foreign subsidiaries and on certain existing assets and liabilities.
0000320193-17-000009/full-submission.txt
0000320193
20170802
10-Q
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However, the Company may choose not to hedge certain exposures for a variety of reasons including, but not limited to, accounting considerations and the prohibitive economic cost of hedging particular exposures.
0000320193-17-000009/full-submission.txt
0000320193
20170802
10-Q
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There can be no assurance the hedges will offset more than a portion of the financial impact resulting from movements in foreign currency exchange or interest rates.
0000320193-17-000009/full-submission.txt
0000320193
20170802
10-Q
61
To help protect gross margins from fluctuations in foreign currency exchange rates, certain of the Company’s subsidiaries whose functional currency is the U.S. dollar may hedge a portion of forecasted foreign currency revenue, and subsidiaries whose functional currency is not the U.S. dollar and who sell in local curre...
0000320193-17-000009/full-submission.txt
0000320193
20170802
10-Q
62
The Company may enter into forward contracts, option contracts or other instruments to manage this risk and may designate these instruments as cash flow hedges.
0000320193-17-000009/full-submission.txt
0000320193
20170802
10-Q
63
The Company typically hedges portions of its forecasted foreign currency exposure associated with revenue and inventory purchases, typically for up to 12 months.
0000320193-17-000009/full-submission.txt
0000320193
20170802
10-Q
64
Apple Inc. | Q3 2017 Form 10-Q | 7 To help protect the net investment in a foreign operation from adverse changes in foreign currency exchange rates, the Company may enter into foreign currency forward and option contracts to offset the changes in the carrying amounts of these investments due to fluctuations in foreign...
0000320193-17-000009/full-submission.txt
0000320193
20170802
10-Q
65
In addition, the Company may use non-derivative financial instruments, such as its foreign currency-denominated debt, as economic hedges of its net investments in certain foreign subsidiaries.
0000320193-17-000009/full-submission.txt
0000320193
20170802
10-Q
66
In both of these cases, the Company designates these instruments as net investment hedges.
0000320193-17-000009/full-submission.txt
0000320193
20170802
10-Q
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The Company may also enter into non-designated foreign currency contracts to partially offset the foreign currency exchange gains and losses generated by the remeasurement of certain assets and liabilities denominated in non-functional currencies.
0000320193-17-000009/full-submission.txt
0000320193
20170802
10-Q
68
The Company may enter into interest rate swaps, options, or other instruments to manage interest rate risk.
0000320193-17-000009/full-submission.txt
0000320193
20170802
10-Q
69
These instruments may offset a portion of changes in income or expense, or changes in fair value of the Company’s term debt or investments.
0000320193-17-000009/full-submission.txt
0000320193
20170802
10-Q
70
The Company designates these instruments as either cash flow or fair value hedges.
0000320193-17-000009/full-submission.txt
0000320193
20170802
10-Q
71
The Company’s hedged interest rate transactions as of July 1, 2017 are expected to be recognized within 10 years.
0000320193-17-000009/full-submission.txt
0000320193
20170802
10-Q
72
Cash Flow Hedges The effective portions of cash flow hedges are recorded in accumulated other comprehensive income (“AOCI”) until the hedged item is recognized in earnings.
0000320193-17-000009/full-submission.txt
0000320193
20170802
10-Q
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Deferred gains and losses associated with cash flow hedges of foreign currency revenue are recognized as a component of net sales in the same period as the related revenue is recognized, and deferred gains and losses related to cash flow hedges of inventory purchases are recognized as a component of cost of sales in th...
0000320193-17-000009/full-submission.txt
0000320193
20170802
10-Q
74
Deferred gains and losses associated with cash flow hedges of interest income or expense are recognized in other income/(expense), net in the same period as the related income or expense is recognized.
0000320193-17-000009/full-submission.txt
0000320193
20170802
10-Q
75
The ineffective portions and amounts excluded from the effectiveness testing of cash flow hedges are recognized in other income/(expense), net.
0000320193-17-000009/full-submission.txt
0000320193
20170802
10-Q
76
Derivative instruments designated as cash flow hedges must be de-designated as hedges when it is probable the forecasted hedged transaction will not occur in the initially identified time period or within a subsequent two-month time period.
0000320193-17-000009/full-submission.txt
0000320193
20170802
10-Q
77
Deferred gains and losses in AOCI associated with such derivative instruments are reclassified immediately into other income/(expense), net.
0000320193-17-000009/full-submission.txt
0000320193
20170802
10-Q
78
Any subsequent changes in fair value of such derivative instruments are reflected in other income/(expense), net unless they are re-designated as hedges of other transactions.
0000320193-17-000009/full-submission.txt
0000320193
20170802
10-Q
79
Net Investment Hedges The effective portions of net investment hedges are recorded in other comprehensive income (“OCI”) as a part of the cumulative translation adjustment.
0000320193-17-000009/full-submission.txt
0000320193
20170802
10-Q
80
The ineffective portions and amounts excluded from the effectiveness testing of net investment hedges are recognized in other income/(expense), net.
0000320193-17-000009/full-submission.txt
0000320193
20170802
10-Q
81
Fair Value Hedges Gains and losses related to changes in fair value hedges are recognized in earnings along with a corresponding loss or gain related to the change in value of the underlying hedged item.
0000320193-17-000009/full-submission.txt
0000320193
20170802
10-Q
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Non-Designated Derivatives Derivatives that are not designated as hedging instruments are adjusted to fair value through earnings in the financial statement line item to which the derivative relates.
0000320193-17-000009/full-submission.txt
0000320193
20170802
10-Q
83
As a result, during the three- and nine-month periods ended July 1, 2017, respectively, the Company recognized a loss of $77 million and a gain of $129 million in net sales, gains of $12 million and $91 million in cost of sales and gains of $49 million and $481 million in other income/(expense), net.
0000320193-17-000009/full-submission.txt
0000320193
20170802
10-Q
84
The Company records all derivatives in the Condensed Consolidated Balance Sheets at fair value.
0000320193-17-000009/full-submission.txt
0000320193
20170802
10-Q
85
The Company’s accounting treatment for these derivative instruments is based on its hedge designation.
0000320193-17-000009/full-submission.txt
0000320193
20170802
10-Q
86
The following tables show the Company’s derivative instruments at gross fair value as of July 1, 2017 and September 24, 2016 (in millions): Apple Inc. | Q3 2017 Form 10-Q | 8 (1) The fair value of derivative assets is measured using Level 2 fair value inputs and is recorded as other current assets in the Condensed Cons...
0000320193-17-000009/full-submission.txt
0000320193
20170802
10-Q
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(2) The fair value of derivative liabilities is measured using Level 2 fair value inputs and is recorded as accrued expenses in the Condensed Consolidated Balance Sheets.
0000320193-17-000009/full-submission.txt
0000320193
20170802
10-Q
88
The following table shows the pre-tax gains and losses of the Company’s derivative and non-derivative instruments designated as cash flow, net investment and fair value hedges in OCI and the Condensed Consolidated Statements of Operations for the three- and nine-month periods ended July 1, 2017 and June 25, 2016 (in mi...
0000320193-17-000009/full-submission.txt
0000320193
20170802
10-Q
89
The credit risk amounts represent the Company’s gross exposure to potential accounting loss on derivative instruments that are outstanding or unsettled if all counterparties failed to perform according to the terms of the contract, based on then-current currency or interest rates at each respective date.
0000320193-17-000009/full-submission.txt
0000320193
20170802
10-Q
90
The Company’s exposure to credit loss and market risk will vary over time as currency and interest rates change.
0000320193-17-000009/full-submission.txt
0000320193
20170802
10-Q
91
Although the table above reflects the notional and credit risk amounts of the Company’s derivative instruments, it does not reflect the gains or losses associated with the exposures and transactions that the instruments are intended to hedge.
0000320193-17-000009/full-submission.txt
0000320193
20170802
10-Q
92
The amounts ultimately realized upon settlement of these financial instruments, together with the gains and losses on the underlying exposures, will depend on actual market conditions during the remaining life of the instruments.
0000320193-17-000009/full-submission.txt
0000320193
20170802
10-Q
93
The Company generally enters into master netting arrangements, which are designed to reduce credit risk by permitting net settlement of transactions with the same counterparty.
0000320193-17-000009/full-submission.txt
0000320193
20170802
10-Q
94
To further limit credit risk, the Company generally enters into collateral security arrangements that provide for collateral to be received or posted when the net fair value of certain financial instruments fluctuates from contractually established thresholds.
0000320193-17-000009/full-submission.txt
0000320193
20170802
10-Q
95
The Company presents its derivative assets and derivative liabilities at their gross fair values in its Condensed Consolidated Balance Sheets.
0000320193-17-000009/full-submission.txt
0000320193
20170802
10-Q
96
As of July 1, 2017, the net cash collateral posted by the Company related to derivative instruments under its collateral security arrangements was $162 million, which was recorded as other current assets in the Condensed Consolidated Balance Sheet.
0000320193-17-000009/full-submission.txt
0000320193
20170802
10-Q
97
As of September 24, 2016, the net cash collateral received by the Company related to derivative instruments under its collateral security arrangements was $163 million, which was recorded as accrued expenses in the Condensed Consolidated Balance Sheet.
0000320193-17-000009/full-submission.txt
0000320193
20170802
10-Q
98
Under master netting arrangements with the respective counterparties to the Company’s derivative contracts, the Company is allowed to net settle transactions with a single net amount payable by one party to the other.
0000320193-17-000009/full-submission.txt
0000320193
20170802
10-Q
99
As of July 1, 2017 and September 24, 2016, the potential effects of these rights of set-off associated with the Company’s derivative contracts, including the effects of collateral, would be a reduction to both derivative assets and derivative liabilities of $1.3 billion and $1.5 billion, respectively, resulting in a ne...
0000320193-17-000009/full-submission.txt
0000320193
20170802
10-Q
100
Accounts Receivable Trade Receivables The Company has considerable trade receivables outstanding with its third-party cellular network carriers, wholesalers, retailers, value-added resellers, small and mid-sized businesses and education, enterprise and government customers.
0000320193-17-000009/full-submission.txt
0000320193
20170802
10-Q
101
The Company generally does not require collateral from its customers; however, the Company will require collateral in certain instances to limit credit risk.
0000320193-17-000009/full-submission.txt
0000320193
20170802
10-Q
102
In addition, when possible, the Company attempts to limit credit risk on trade receivables with credit insurance for certain customers or by requiring third-party financing, loans or leases to support credit exposure.
0000320193-17-000009/full-submission.txt
0000320193
20170802
10-Q
103
These credit-financing arrangements are directly between the third-party financing company and the end customer.
0000320193-17-000009/full-submission.txt
0000320193
20170802
10-Q
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As such, the Company generally does not assume any recourse or credit risk sharing related to any of these arrangements.
0000320193-17-000009/full-submission.txt
0000320193
20170802
10-Q
105
The Company had no customers that individually represented 10% or more of total trade receivables as of July 1, 2017.
0000320193-17-000009/full-submission.txt
0000320193
20170802
10-Q
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As of September 24, 2016, the Company had one customer that represented 10% or more of total trade receivables, which accounted for 10%.
0000320193-17-000009/full-submission.txt
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10-Q
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The Company’s cellular network carriers accounted for 46% and 63% of total trade receivables as of July 1, 2017 and September 24, 2016, respectively.
0000320193-17-000009/full-submission.txt
0000320193
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10-Q
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Vendor Non-Trade Receivables The Company has non-trade receivables from certain of its manufacturing vendors resulting from the sale of components to these vendors who manufacture sub-assemblies or assemble final products for the Company.
0000320193-17-000009/full-submission.txt
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The Company purchases these components directly from suppliers.
0000320193-17-000009/full-submission.txt
0000320193
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As of July 1, 2017, the Company had three vendors that individually represented 10% or more of total vendor non-trade receivables, which accounted for 39%, 19% and 16%.
0000320193-17-000009/full-submission.txt
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As of September 24, 2016, the Company had two vendors that individually represented 10% or more of total vendor non-trade receivables, which accounted for 47% and 21%.
0000320193-17-000009/full-submission.txt
0000320193
20170802
10-Q
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Apple Inc. | Q3 2017 Form 10-Q | 10 Note 3 - Condensed Consolidated Financial Statement Details The following tables show the Company’s condensed consolidated financial statement details as of July 1, 2017 and September 24, 2016 (in millions): Property, Plant and Equipment, Net Other Non-Current Liabilities Other Incom...
0000320193-17-000009/full-submission.txt
0000320193
20170802
10-Q
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The following table summarizes the components of acquired intangible asset balances as of July 1, 2017 and September 24, 2016 (in millions): Apple Inc. | Q3 2017 Form 10-Q | 11 Note 5 - Income Taxes As of July 1, 2017, the Company recorded gross unrecognized tax benefits of $8.6 billion, of which $2.6 billion, if recog...
0000320193-17-000009/full-submission.txt
0000320193
20170802
10-Q
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As of September 24, 2016, the total amount of gross unrecognized tax benefits was $7.7 billion, of which $2.8 billion, if recognized, would have affected the Company’s effective tax rate.
0000320193-17-000009/full-submission.txt
0000320193
20170802
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The Company’s total gross unrecognized tax benefits are classified as other non-current liabilities in the Condensed Consolidated Balance Sheets.
0000320193-17-000009/full-submission.txt
0000320193
20170802
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The Company had $1.3 billion and $1.0 billion of gross interest and penalties accrued as of July 1, 2017 and September 24, 2016, respectively, which are classified as other non-current liabilities in the Condensed Consolidated Balance Sheets.
0000320193-17-000009/full-submission.txt
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The Company believes that an adequate provision has been made for any adjustments that may result from tax examinations.
0000320193-17-000009/full-submission.txt
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However, the outcome of tax audits cannot be predicted with certainty.
0000320193-17-000009/full-submission.txt
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If any issues addressed in the Company’s tax audits are resolved in a manner not consistent with its expectations, the Company could be required to adjust its provision for income taxes in the period such resolution occurs.
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Although timing of the resolution and/or closure of audits is not certain, the Company believes it is reasonably possible that its gross unrecognized tax benefits could decrease (whether by payment, release or a combination of both) in the next 12 months by as much as $700 million.
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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”).
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The State Aid Decision orders Ireland to calculate and recover additional taxes from the Company for the period June 2003 through December 2014.
0000320193-17-000009/full-submission.txt
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Irish legislative changes, effective as of January 2015, eliminated the application of the tax opinions from that date forward.
0000320193-17-000009/full-submission.txt
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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.
0000320193-17-000009/full-submission.txt
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Ireland has also appealed the State Aid Decision.
0000320193-17-000009/full-submission.txt
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While the European Commission announced a recovery amount of up to €13 billion, plus interest, the actual amount of additional taxes subject to recovery is to be calculated by Ireland in accordance with the European Commission’s guidance.
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Once the recovery amount is computed by Ireland, the Company anticipates funding it, including interest, out of foreign cash into escrow, where it will remain pending conclusion of all appeals.
0000320193-17-000009/full-submission.txt